TMI Blog2022 (12) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company which has received the loan. Since, the Assessee is not a shareholder of QNEI, the amount received from QNEI will not be taxable in the hands of the Assessee as deemed dividend u/s.2(22)(e) of the Act and common shareholding in two companies would not attract the provisions of Section 2(22)(e) of the Act. In the light of the above, we are of the opinion that the reassessment made by the Assessing Officer stands null and void and the addition made u/s.2(22)(e) of the Act be deleted. Thus, the ground raised by the Assessee is allowed. - I.T.A No.:700/CHNY/2020 - - - Dated:- 22-7-2022 - SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER Appellant by : Mr. S. Sundraraman Respondent by : Mr. P. Sajit Kumar ORDER PER MAHAVIR SINGH, VP: This appeal by the Assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-3, Chennai in ITA No.103/CIT(A)-3/2018-19, order dated 27.02.2020. The reassessment was framed by the Income Tax Officer, Corporate Ward 5(1), Chennai for the Assessment Year 2011 2012 u/s.143(3) r.w.s.147 of the Income Tax Act, 1961 (hereinafter the Act ) dated 30.12.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has raised Ground Nos.1 and 7 to 10 as regards to the addition made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals) on deemed dividend . Firstly, we will decide the issue on merits, i.e., the deemed dividend u/s.2(22)(e) of the Act assessed by the Assessing Officer and confirmed by the CIT(A). The Ground Nos.1 and 7 to 10 raised by the Assessee are as under: 1) The CIT(A) erred both in law and on the facts of the case in treating an inter-Corporate Deposit received by the Appellant amounting to Rs.1,40,67,365/- from its Holding Company, viz. M/s. Questnet Enterprises Private Limited [QNEI] as deemed dividend u/s.2(22)(e) of the Act. 7) The CIT(A) erred in not appreciating that from a factual perspective, the Appellant was never a shareholder of QNEI and hence the provisions of Section 2(22)(e) of the Act would not apply to loans obtained by it from QNEI. 8) The CIT(A) erred in not appreciating the legal position that the provision of Section 2(22)(e) of the Act can be applied only in the hands of a person who is a recipient of a loan and the shareholder of the Payer Company. Since, the Appellant was never a shareholder of QNE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the amount is advanced by one company to another, who is not a shareholder of the company and the shareholding of the common Directors cannot be taken into consideration for the purpose of attracting provisions of Section 2(22)(e) of the Act relating to the deemed dividend. The Assessee further submits that even if the monies advanced were to be treated as an inter-corporate deposits, the provisions of deemed dividend would not apply in the light of the fact that interest on inter-corporate deposit is not an interest on the loan or advance under the Interest Tax Act, 1974. Therefore, the inter-corporate deposits cannot be treated as a loan falling within the purview of Section 2(22)(e) of the Act. He further pointed out that this proposition has been upheld by the Kolkata Tribunal in the case of IFB Agro Industries Limited Vs. Joint Commissioner of Income Tax in I.T.A. No.1721/Kol/2012 [TS-5376-ITAT-2013(Kolkata)-0]. 5.2 The Assessing Officer noted that the Jurisdictional High Court s decision in the case of Commissioner of Income Tax Vs. Ennore Cargo Terminal Private Limited reported in [2018] 406 ITR 477 (Mad) (HC) is pending before the Hon ble Supreme Court in SLP filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares in the Assessee Company. The fact remains that under the Companies Act, 1956, as a subsidiary company of QNEI, it is illegal to have shares in its holding company. From the Balance Sheet filed by the Assessee, it is noticed that the Assessee does not have any investments and therefore it is clear that the Assessee does not hold share in QNEI. However, it is noticed from the submissions of the learned Counsel for the Assessee that the holding company had regularly paid for the expenses of the Assessee and the Assessing Officer had considered these payments as loans and had brought to tax as deemed dividend. 7.1 From the above, it is clear that the transactions between the Assessee along with its holding company were in the nature of current account and not in the nature of loans and hence does not fall under the scope of the deemed dividend u/s.2(22)(e) of the Act. It is pertinent to point out that ITAT, Chennai Tribunal has taken the same view in the case of Fairmacs Shipstores Private Limited Vs. The Deputy Commissioner of Income Tax in ITA No.761/Mds/2014.We noted that identically in this case also the payment should have been made by way of advance of loan to a shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Since there is a clear distinction between the inter-corporate deposits, viz. loans / advances, according to us the authorities below were not right in treating the same as deemed dividend u/s.2(22)(e) of the Act. 7.3 Since, the Assessee is not a shareholder of QNEI, the amount received from QNEI will not be taxable in the hands of the Assessee as deemed dividend u/s.2(22)(e) of the Act and common shareholding in two companies would not attract the provisions of Section 2(22)(e) of the Act. In the light of the above, we are of the opinion that the reassessment made by the Assessing Officer stands null and void and the addition of Rs.1,40,67,364/- made u/s.2(22)(e) of the Act be deleted. Thus, the ground raised by the Assessee is allowed. 8. The second issue raised by the Assessee is as regards to challenge to the reopening of the assessment u/s.147 r.w.s.148 of the Act. As we have decided the issue of deemed dividend u/s.2(22)(e) of the Act in favour of the Assessee, we refrain ourselves from adjudicating the issue of reopening and hence the same has become academic. 9. In the result, the appeal of the Assessee in I.T.A No.:700/CHNY/2020 is allowed partly. Order pron ..... X X X X Extracts X X X X X X X X Extracts X X X X
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