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TMI Blog2023 (6) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 68 of the Act. iii) The ld.CIT(A) has erred in law and on facts in deleting the addition made at Rs. 1,52,10,011/- being 25% of labour and transportation charges. iv) The ld.CIT(A) has erred in law and on facts in partly deleting the addition made at Rs. 10,00,000/- on account of short term capital gains. While the assessee in the CO has raised the following grounds: i) The learned Commissioner of Income Tax (Appeals) has erred in holding that the addition made u/s. 2(22)(e) of the I. T. Act, 1961 should have been of Rs. 37,78,000/- while deleting the addition made by the Assessing Officer of Rs. 130264245/- and allowing the appeal for statistical purpose. ii) The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of 10,00,000/- out of disallowance made by the Assessing Officer of Rs. 1,52,10,011/- for labour charges and transportation charges. 3. As transpires from the orders of the authority below, during the assessment proceedings, the AO made addition to the income of the assessee on account of the following: i) Short term capital gain Rs. 10,00,000/- ii) Unexplained unsecured loan Rs. 1,31,50,000/- iii) Deemed dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while the assessee has filed CO in the Department's appeal as noted above. 6. Taking up first the Revenue's appeal in ITA No.2105/Ahd/2015, ground(i) raised relates to the deletion of addition made under section 68 of the Act of Rs. 1,31,50,000/-. 8 The facts relating to the issue and finding of the ld.CIT(A) are at para-(B) of the order, as under: "(B) Ground No. 2 is against the addition of Rs. 1,31,50,000/- u/s. 6.8 of the Act for unsecured loan from M/s Pushparaj Corporation. The A.O in the impugned order called for the details with contra account and confirmation in respect of unsecured loan accepted by appellant. The appellant furnished such details for most of the parties as recorded by A.O. in the impugned order. In reference to M/s Pusparaj Corporation and Chandraben S. Gandhi, A.O. observed that as per tax audit report, at Ann.4 of the report where detail about name, address, PAN, amount etc. are mentioned of the parties from whom loans were accepted by appellant during previous year, these two names are not there. Further it was observed by A.O. that PAN of M/s Pusparaj corporation was not there. It is therefore despite a confirmation was given by appellant, the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,01,50,000/- was accepted by appellant during previous year on different dates from M/s Pushparaj Corporation. This contra account and confirmation was having the addreass of the party as 501/Agarwal Complex, Nr. Choice Restaurant, Swastik Char Rasta, Navrangpura, Ahmedabad. This confirmation also has the details of date, cheque no., amount through which appellant received money. These cheques (excluding the cheque no. 448546 of Rs. 30,00,000/- dt. 29.03.10 which got cancelled) were found credited in the bank statement of appellant. It is therefore, the only deficiency was that of non availability of PAN. As against this when appellant submitted such details in appeal proceedings, the A.O. has not done any inquiry about whether M/s Pushparaj corporation file the return of income or not and neither M/s Pushparaj Corporation summoned or inquiry made. It is in this) regard, I am inclined with appellant that once contra account with confirmation of any party including address & PAN is filed from whom any money is accepted through cheque then it discharged its onus as casted u/s 68 of the Act. The appellant in rejoinder to remand report relied on various case laws, the ratio are di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d legal proposition the borrower need not to prove source of the source or credit worthiness of sub creditor. The appellant sufficiently explained about the difference of final balance in the form of plot maintenance charge of Rs. 3,09,000/-. It is therefore A.O. is justified in making addition of Rs. 1,31,50,000/- which is factually notice. the same should have been of Rs. 10,15,000/- and also not sustainable as per legal proposition of law. The AO is directed to delete the addition so made of Rs. 1,31,50,000/-. The appellant gets relief accordingly. This ground is allowed." 9. As is evident from the above, addition of Rs. 1,31,50,000/- made by the AO under section 68 of the Act pertained to unsecured loans taken from one M/s.Pushparaj Corporation, the addition being made for the reason that the assessee was unable to discharge the onus of proving the genuineness of the transactions interms of section 68 of the Act. 10. On going through order of the ld.CIT(A), we find that he had deleted the addition, noting the fact that, the assessee had duly discharged onus of proving the genuineness of the unsecured loans taken from Pushparaj Corporation by filing confirmation of the said pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Rs. 130264245/- u/s 2(22)(e)of the Act on account of loan taken from Aryavart Commodities of Rs. 1428000/- and from M/s Anmol Tradeline P. Ltd. of Rs. 128836245/- . The A.O. in the impugned order noted that as per tax audit report in form 3CD at Ann. 4 (detailed, in impugned order), the appellant received loan of Rs. 1428000/- from M/s Aryavart Commodities P. Ltd. arid of Rs. 12,88,36,245/- from M/s Anmol Tradeline Pvt. Ltd.. It was also observed that share holders of appellant company has substantial interest in these two company. The A.O. invoked provision' of section 2(22)(e) of the Act, rejecting appellant's contention that appellant company is not share holder in any of these two company. The details of share holding of Shri Shailesh J. Bhatt and Shri Suresh U. Gadhecha if considered in appellant company as well as in these two companies, then both of them independently has substantial interest in appellant company i.e. more than 20% share holding, while Siri Shailesh J. Bhatt has more than 20% interest in M/s Aryavart Commodities P. Ltd. while Shri Suresh U. Gadecha has more than 50% interest in M/s Anmol Tradeline P. Ltd. The A.O. after detailing provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a contra account which reflect an opening debit balance of Rs. 54876971/'-. This is a mixed account which has transaction of purchase as well as of loans and advances. The closing balance of Rs. 12605009. The Tax Auditor in Form No.3CD segregated he transaction f taken and repaid by this party to appellant. (ii) M/s.Aryavart commodities P. Ltd. (PAN : AAECA7330G) for A.Y.2010- 11 filed its return of income on 24.09.2010 with ITO, wd 1(1) Ahmedabad As per audited financial accounts, at schedule 'C' under the head unsecured loans, there is no amount or loan from appellant. At sch. H under the head loan of advanes& deposits given there is no name featuring of appellant i.e. No advanes or loans given to appellant. As per tax audit report by M/s. A.K. Shah & Associates in form 3CD dt.06/09/2010 at cl. 18 for the details of payment to parties covered u/s. 40A(2)(b) of the Act, appellant's name is not appearing. At cl. 24(a) for the details of loan accepted during previous *Ann. 2, there is no name of appellant. In the details of debtors Sundry Creditors (Sch.J) there is no name of appellant. The audited financial accounts reflects under Sch.B that Reserve & Surpluses got incrased f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at same loan is repaid. (ii) Loan accepted of Rs. 128836245 and repaid of Rs. 81701245 during previous year from M/s. Anmol Tradeline Pvt.Ltd. (ATPL) with tax auditor mentioning that account is not required up. This fact is not supported by the audited financial result of corresponding year, where no such loan & advance if any is reflected by M/s. ATPL. Further loan & advances of Rs. 12605009/- as reflected by appellant being given to M/s. ATPL is reflected by M/s. ATPL as creditor for purchases and not as loan & advances. The financial account of M/s. ATPL reflect that as against the opening balance as on 01/04/2009 of Rs. 54876971/- under the head ICD accepted from appellant, as on 31/03/2010 no such deposit exist. Further, if A.O. contention of acceptance of loan of Rs. 128836245 is taken correct, then the addition u/s. 2(22)(e) of the Act are limited by the reserve & surplus available (accumulated profit available) which is Rs. 2350000 only. I am partly inclined with A.O. In reference to any such issue about credit of entry in such related account for consideration of deemed dividend us. 2(22)(e) of the Act, Hon'ble Supreme Court in the case of Miss P. Sarada Vs. CIT 1998 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Travel Services was related to share holding in the name of partners of firm to whom company advanced loan. But when explanatory notes are very clear and unambiguous and At para 20 & 21 of us case, Hon'ble Delhi High Court considered the interpretation of such deeming provision, there is no scope of any relief to appellant. The appellant during the course of appeal proceeding relied on Hon'ble Gujarat high court order in the case of C.I.T.-1 vs Daisy Packeres P. Ltd. in tax appeal 212 of 2010 order dt. 18/03/2012 where in Hon'ble high court considered following facts & held. "This tax appeal has been filed by Revenue challenging the order of the Tribunal and this Court had admitted the appeal on the following question of law. " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in reversing the order of CIT(A) and thereby deleting the addition made on account of deemed dividend u/s. 2(22)(e) of the Act on inter-corporate deposits?" 2.0 The brief facts are that the assessee filed return of income for the Assessment Year 2000-01 declaring a loss of Rs. 4,22,792/-. The return was processed under Section 143(i)(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the department. The appellant also relied on Hon'ble Bombay high court in the case of C.I.T. central IV vs. Jignesh P. Shah (IT Appeal No. 197 of 2013 order dtd. 20/01/2015) where in Hon'ble high court following the ratio of CIT vs. Impact containers P. Ltd. 367 ITR 346 wherein it was held that section 2(22)(e) of the Act cannot be applied/invoked where the assessee is not a share holder of the lending company, held in favour of assessee. Hon'ble Bombay High Court following Supreme Court judgment in the case of CIT vs. Vatika Township 2015 (1)SCC 1 held that "Thus on strict interpretation of section 2(22)(e) of the Act, unless the Respondent - Assessee is the share holder of the company lending him money, no occasion to apply it can arise." The appellant also relied on Hon'ble Karnataka high court in the case of Sarva Equity P. Ltd. (2014) 214 taxmann.com 28(Karnataka) wherein on this issue, ratio of Hon'ble Delhi high court in the case of National Travels Services (supra) was considered but held in favor of assessee. It is therefore, the question of legal binding of ratio of Hon'ble Jurisdictional high court comes into picture. Other Hon'ble high ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; 15. The fact as per the AO, which lead to this finding, being that two shareholders of the assessee-company having substantial shareholding in the assessee-company i.e. Shailesh J. Bhatt and Shri Sureshbhai U. Gadhecha, held more than 10% shares in the company which had advanced the aforestated loans and advances being 20.77% and 30.20% respectively in Anmol Tradeline P.Ltd. and Aryavrat Commodities P.Ltd resp. 16. Based on the above facts, the AO held that the loans & advances totaling in all of Rs. 13,02,64,245/- received by the assessee-company from the aforesaid two entities viz. Aryavrat Commodities P.Ltd. and Anmol Tradeline P.Ltd. qualified as deemed dividend in the hands of the assessee-company in terms of section 2(22) (e) of the Act, and accordingly, he subjected the same to tax in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies, giving loans & advances, which qualified as deemed dividend as per section 2(22)(e) of the Act,; the said amount could not be held to be taxable in the hands of the assessee. 18. Before us, the fact of the amount of loans & advances received by the assessee company from two entities i.e. Aryavrat Commodities P.Ltd. and Anmol Tradeline P.Ltd., amounting in all of Rs. 13,02,64,245/-, qualifying as "deemed dividend" in terms of section 2(22)(e) on account of fulfilling the criterion laid down in the second limb of section 2(22)(e) of the Act is not disputed. There is no dispute vis-à-vis the fact that the shareholder of the assessee-company having substantial interest in it, also had sub-stantial interest in the two companies, which in turn advanced the impugned loans & advances to it. Therefore, in terms of section 2(22)(e) of the Act, treating the loans & advances received by concerns, in which shareholders of the company giving loans & advances had substantial interest, qualified as "deemed dividend". 19. The only dispute therefore before us is, whether the amount would be taxable in the hands of the assessee-concern which surely is not a shareholder in two entitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d because if so distributed the dividend income would become taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions, such payment by the company is treated as dividend. The intention behind the provisions of section 2(22)(e) of the Act is to tax dividend in the hands of shareholders. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance." It further held that the deeming fiction envisaged in section 2(22)(e) of the Act is only with respect to dividend and its scope therefore cannot be enlarged to extend to shareholders also. And for this reason also it held that the deemed dividend could not be taxed in the hands of non share-holders. Relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of the section referring to "payments made by way of loans and advance to shareholders being person who is beneficial owner of shares". The fact situation leading to the issue cropping up was that in the said case the partners had invested in a company in their individual names on behalf of the partnership firm and partnership firm in turn had received loans from the said company. The assessee had contended that it has been categorically held in the case of CIT Vs. Ankitech P.Ltd. (supra) that the assessee had to fulfill the criteria of being both registered and beneficial shareholder for being hit by the provisions of section 2(22)(e) of the Act. The Hon'ble High Court rejected this contention and held that for the purpose of section 2(22)(e) of the Act it is not necessary that it has to be a registered shareholder and being a beneficial shareholder would suffice. 23. The Hon'ble Delhi High Court decision both in Madhur Housing (supra) and National Travel Services (supra) was challenged before the Hon'ble Apex Court. In the case of Madhur Housing(supra), the Revenues appeal was dismissed by the Hon'ble Apex Court holding that Hon'ble Delhi High Court had arrived at a cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench in another case CIT v. Ankitech (P.) Ltd.[2011] 199 Taxman 341/11 taxmann.com 100/[2012] 340 ITR 14 (Delhi). The same Division Bench had arrived at a conclusion, following other judgments of other Courts and Tribunals, that the expression "shareholder" would continue to mean a registered shareholder even after the amendment, and that, this being the case, it is clear that the impugned judgment has taken an about turn and has sought to distinguish the earlier judgment when it was squarely applicable. He has also placed before us an order dated 05.10.2017 passed in Civil Appeal No. 3961 of 2013 [CIT v. Madhur Housing & Development Co.] in which this Court has expressly affirmed the reasoning of the aforesaid earlier judgment. In his view, therefore, this judgment ought to have been followed, and if it had been followed, it is clear that the firm, not being a registered shareholder, could not possibly be a person to whom Section 2(22)(e) would apply. 14. As opposed to this, Shri Guru Krishnakumar, learned senior advocate, appearing on behalf of the Revenue, has sought to support the impugned judgment by pointing out that the impugned judgment itself has made a distinction betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch shareholder" in the second limb would show that it refers to a person who is a "shareholder" in the first limb. 18. This being the case, we are of the view that the whole object of the amended provision would be stultified if the Division Bench judgment were to be followed. Ankitech's case (supra), in stating that no change was made by introducing the deeming fiction insofar as the expression "shareholder" is concerned is, according to us, wrongly decided. The whole object of the provision is clear from the Explanatory memorandum and the literal language of the newly inserted definition clause which is to get over the two judgments of this Court referred to hereinabove. This is why "shareholder" now, post amendment, has only to be a person who is the beneficial owner of shares. One cannot be a registered owner and beneficial owner in the sense of a beneficiary of a trust or otherwise at the same time. It is clear therefore that the moment there is a shareholder, who need not necessarily be a member of the Company on its register, who is the beneficial owner of shares, the Section gets attracted without more. To state, therefore, that two conditions have to be satisfied, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the concerns which are not shareholders of the company making the loans & advances, which qualify as "deemed dividend". Decision in the case of CIT Vs. National Travel Services (supra) referred by the ld.CIT(A) has no applicability to the issue in hand. 27. In view of the above, applying this proposition of law to the facts of the present case, which are not disputed before us, that the assessee who had received advances from the said two concerns, was not a shareholder of these concerns, therefore, even though the advances qualified as deemed dividend in terms of section 2(22)(e) of the Act, they cannot be taxed in the hands of the assessee. Thus, order of the ld.CIT(A) deleting the addition made on account of deemed dividend is accordingly upheld. Ground No.(ii) raised by the Revenue is rejected. 28. Ground no.(iii) raised by the Revenue, relates to the issue of addition made by the AO of expenses relating to labour and transportation charges amounting to Rs. 1,52,10,011/-, which was deleted by the Ld.CIT(A). 29. The relevant facts and the finding of the ld.CIT(A) relating to the issue is contained in para (D) of his order and is as under: "(D) Ground No. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance at rate of 25%. The A.O. has not rejected books of account on one hand, while disallowed such huge expenditure on the other hand. Appellant's books of accounts are audited and such result is accepted by A.O. No adverse remark is there in tax audit report for maintenance of proper bill & vouchers or for deduction of TDS As against this, I am also inclined that for executing civil contract at remote places with local labour, such vouchers are bound to be there and required to be accepted. I have perused such details, bills & vouchers and I am inclined that most of payments are through cheques after deduction of TDS. Some of the observations from such verification are as follows: To the expenses of Rs. 17306343/- related to labour charges at chhatishgarh, payment is made to M/s MITI Hires through cheques after deduction of IDS, The address & PAN of M/s MITI Hires is also available. (ii) For the expenses of Rs. 5332729 related to labour charges atKharaghocie payment is through cheque after deduction of TDS to M/s. Shree Lolvai Construction whose address & PAN is available. (iii) for the expenses of Rs. 4740723/- to M/s PukrajShivram Chaudhary, the payment is thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in disallowance of Rs. 1,52,10,011/-. 31. Before the ld.CIT(A) the assessee contended that the ledger accounts of these expenses were produced before the AO and the assessee had undertaken to produce its books also. The same were produced again before the ld.CIT(A) and it was also pointed out to him that the auditors had not pointed out any discrepancy with respect to these expenses claimed by the assessee. Copies of all relevant bills and vouchers were also produced. The evidences so filed by the assessee were sent to the AO for remand report who mentioned that on random checking of the same they were found to be neither signed by the payee nor bore any serial number, and they were only self-serving evidences. The assessee countered by stating that the complete details of names &addresses and PAN etc. were filed and since the assessee was executing the work in remote premises with local labours in the unrecognized sector, name of site and name of contractors were mentioned in the bills and after preparation of the bills, they were verified and approved by the site engineers. It was also pointed out that in most of the cases payments were made by cheque after deducting TDS. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd raised apprehension about why appellant incurred loss in such deals in one month and in the absence of return of income concerned parties, held that such deed is non-genuine. The A.O. has not made any inquiry in this regard. The appellant in rejoinder contended that such addition is on estimate made or assumptions in the nature of conjectures without any basis. Both purchase and sale were claimed to be made on more than Jantri value and it is not that appellant sold the land below stamp duty value. The details of sellers as well as purchasers are available in purchase as well as sale deed which were not got verified by A.O. I am inclined with appellant that in view of Regd. Purchase & sale deed of land which has details of parties i.e. seller as well as purchaser with PAN and nature of payment, in the absence of the fact that such transacted value is not less than stamp duty value or prevailing Jantri value, such estimated adhoc disallowances is neither justified nor sustainable. The A.O. is directed to delete such addition and allow short term capital loss of Rs. 71380/-. The appellant gets relief accordingly. This ground is allowed." 35. A perusal of the above reveals that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by order of theld.CIT(A) in restricting the addition made on deemed dividend in terms of provisions of section 2(22)(e) of the Act of Rs. 37,78,000/- allowing appeal for statistical purpose. 41. We have discussed and dealt with in detail the ground raised by the Revenue on the issue of deemed dividend taxed in the hands of the assessee to the tune of Rs. 13.02 crores in the appeal of the Revenue in ITA No.2105/Ahd/2015. Undisputedly, the ld.CIT(A) had deleted the entire addition noting judicial proposition that the amount could not be taxed in the hands of the non-share holders and we have upheld the order of the ld.CIT(A) on this aspect. Therefore, the entire addition stands deleted in the hands of the assessee, and there remains no grievance of the assessee. At the same time noting that the assessee is aggrieved by the finding of the ld.CIT(A) that the addition in any case if tenable, is tobe restricted to the extent of Rs. 37,80,000/-, this is without prejudice to the finding of the ld.CIT(A) that the entire addition needs to be deleted. The finding of the ld.CIT(A) restricting the addition to the aforesaid extent was based on his finding of fact that the available accumulate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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