TMI Blog2023 (6) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... l statement of the assessee i.e. balance sheet of the assessee, which was also audited by the same auditor, who had conducted tax audit. Therefore, non-reporting of the transaction in the tax audit report could be an error and had no implication on the fact of receipt of unsecured loans by the assessee from the aforesaid party, he held. DR was unable to controvert the factual finding of the CIT(A) before us, nor was he able to demonstrate as to when all the relevant documents, as noted by the assessee being confirmation, copy of bank statement of the assessee, PAN of the party giving unsecured loans, were all filed by the assessee and no infirmity was found in the same by the AO, why the transaction still be held to be not genuine . We see no reason to interfere in the order of the ld.CIT(A) deleting the addition u/s 68 of the Act being unsecured loans taken by the assessee from one M/s.Pushparaj Corporation. Addition as deemed dividend u/s 2(22)(e) - whether the amount would be taxable in the hands of the assessee-concern which surely is not a shareholder in two entities which had granted loans advances? - HELD THAT:- The assessee who had received advances from the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Ahd/2015 With Cross Objection No.: 174/Ahd/2015 - - - Dated:- 5-6-2023 - Smt. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member For the Assessee : Shri Aseem L. Thakkar, AR For the Revenue : Shri Sudhendu Das, CIT-DR ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The present appeal has been filed by the Revenue against order passed by the Ld.Commissioner of Income-Tax(Appeals)-1, Ahmedabad (hereinafter referred to as ld.CIT(A) ) dated 10.04.2015under section 250(6) of the Income Tax Act, 1961 ( the Act for short) pertaining to Assessment Year 2010-11. Thereafter the assessee has also filed cross objection bearing CO No.174/Ahd/2015. Both of them are being disposed of by this common order. 2. The Revenue in its appeal has raised the following grounds: i) The ld.CIT(A) has erred in law and on facts in deleting the addition made u/s. 68 of the Act at Rs. 1,31,50,000/- ii) The ld.CIT(A) has erred in law and on facts in deleting the addition made u/s. 2(22)(e) under section 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 46 of the Income Tax Rules, were admitted for adjudication. Further after obtaining comments from the AO on the additional evidences furnished by the assessee, the ld.CIT(A) adjudicated all the issues before him, deleting all the additions made by the AO, except for labour and transport charges, which he restricted to the extent of Rs. 10,00,000/-. While adjudicating the issue of deemed dividend, the ld.CIT(A) held that as per the provision of law, the loans and advances given to the assessee by related parties could be treated as deemed dividend only to the extent of reserves and surplus available with them, and accordingly taking note of reserves and surplus with the said party, he held that the addition in any case could not have been exceed Rs. 37,78,000/-. However, thereafter, taking note of the legal position of the law, with respect to the issue of taxability of deemed dividend in the hands of the shareholder alone and applying the decision of jurisdictional High Court, the ld.CIT(A) deleted the entire addition made on account of deemed dividend as per section 2(22)(e) of the Act, noting the fact that the assessee was not a shareholder of the concerns making the loans/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntra account confirmation with PAN in appealproceedings. This being additional evidences, the A.O. was sent this with specific requirement of remand report (as discussed above at para 4G). The A.O. given a sketchy remand report without any verification. It is contended that appellant though submitted contra account with confirmation for A.Y. 10-11 A.Y. 11-12 but appellant failed to submit Bank statement of M/s Pushparaj Corporation and appellant therefore failed to prove the credit worthiness. Again a doubt was raised about why M/s Pushparaj Corporation was missed by tax auditor. The rebuttal to remand report is already discussed at para 4(I) above. I am inclined with appellant. The appellant's audited financial accounts are by same tax auditor who had done tax audit u/s. 44AB of the Act. Under the schedule D of the balance sheet with the heading unsecured loans from share holders others he included name of M/s Pushparaj Corporation reflecting Rs. 98,41,000/-. It is therefore without any inquiry from tax ^auditor, appellant cannot be held guilty or under suspicion for such by tax auditor. The appellant submitted contra account and confirmation of M/s Pashparaj Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editworthiness of transaction, it would be against principles laid down u/s 68 -Held yes. The ratio of this judgment of jurisdictional high court is very clear and if applied to the facts of the appellant, Then the conclusion arrived at by A.O. will be unsustainable and addition so made will become unwarranted . It is got verified that M/s Pushparaj Corporation, PAN: AAJFP5519Q filed its return of income for A.Y. 09-10 to A.Y. 11-12 on 29.09.09, 28.09.10 and 27.09.11 respectively declaring therein total income of Rs. 788080, Rs 1655710, and Rs. 2399020 respectively. It is therefore ratio of Hon'ble Gujarat High Court is clearly applicable. Both as far as identity and credit worthiness is established in view of PAN, return of income filed. Hon'ble ITAT Ahmedabad in the case of Shri Ankit Maheshwari Vs. AClT Cir-2 surat in ITA No. 3556/Ahd/2008 ITA No. 3655/Ahd/2008 examined in details various aspects related to section 68 of the Act and after considering various propositions in respect of lenders with that of appellant submission held in favor of appellant that once contra account with confirmation are filed with PAN and other details like status of latest return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, which was also audited by the same auditor, who had conducted tax audit. Therefore, nonreporting of the transaction in the tax audit report could be an error and had no implication on the fact of receipt of unsecured loans by the assessee from the aforesaid party, he held. The ld.DR was unable to controvert the factual finding of the ld.CIT(A) before us, nor was he able to demonstrate as to when all the relevant documents, as noted by the assessee being confirmation, copy of bank statement of the assessee, PAN of the party giving unsecured loans, were all filed by the assessee and no infirmity was found in the same by the AO, why the transaction still be held to be not genuine . 11. In view of the above, we see no reason to interfere in the order of the ld.CIT(A) deleting the addition of Rs. 1,31,50,000/- under section 68 of the Act being unsecured loans taken by the assessee from one M/s.Pushparaj Corporation. Ground No.(i) is dismissed. 12. Ground No.(ii) relates to the issue of addition made to the income of the assessee as deemed dividend as per the provisions of section 2(22)(e) of the Act, which was deleted in appeal by the ld.CIT(A). 13. The finding of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate deposit reflect that appellant had given Rs. 54876971/- as on 31.03.09 relevant to A.Y. 09-10 but during impugned previous year, this amount is NIL. At Sch. 'G' under the head 'Loan Advances' no such amount of loan of Rs. 128836345/- is mentioned claimed to be given to appellant. At Sch. J under the head of creditor for Purchase an amount of Rs. 12605009/- is mentioned against the name of appellant. The tax audit report by M/s A.K. Shah Associates dt. 18.08.10 in the form 3CD as against the cl. 24(a) in Ann. 4 given details of unsecured loan accepted. At Ann. 4 it is mentioned that M/s Anmol Trade line Pvt. Ltd. accepted loan of Rs. 180059653/- from appellant during previous year and repaid Rs. 112777673/- with maximum outstanding balance of Rs. 110335015/-. in reference to cl.18 in respect of payment made to person specified u/s 40A(2)(b) of the Act, as per Ann.2, there are no transaction mentioned in the name of appellant. The total reserve surplus in the audited balance sheet was of Rs. 2350000/- as per schedule B both as on 31/03/09 as well as on 31/03/2010. As per annual return filed the companies Act (1 of 1956) schedule V - Part II out of to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of M/s Aryavrat Commodities P. Ltd. is Rs. 5,00,000/- while in the case of M/s Anmol Tradelind Pvt. Ltd. it is Rs. 47031991/-. The account of M/s Aaryavrat Commodities P. Ltd. is squared up during impugned previous year respectively. As per audited financial accounts, under Sch.D No unsecured loans were reflected as received from these two parties. Under the Sch.G for Debtors, schedule H for Advances give to Supplies there is no name of these two parties. Under other schedule i.e. schedule J for deposit, schedule M for sundry creditors, schedule N for other current liabilities provisions, and schedule O for Advances received from customers, no entry of these two parties is there. From the above verification following conclusions can be drawn. (i) Loan accepted of Rs. 1428000 from M/s. Aryavart commodities Pvt. during previous year by appellant was repaid during previous year itself hence not appearing in the audited financial accounts of M/s. ACPL as well as of appellant. The Reserve surplus in the books of M/s. ACPL is of Rs. 37001463/- as on 31/03/2009 while Rs. 39236173 as on 31/03/2010 It is therefore, if A.O's contentions are accepted, addition u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rplus. In the case of appellant, such reserve surplus is therefore of Rs. 3778000(1428000+2350000) and therefore the addition of Rs. 128836345 in the case of M/s. ATPL is not justified as per the provision of law. This gives a part relief to appellant of Rs. 126486345(128836345-23500000). Now coming to the legal preposition. I am inclined with AO that Hon'ble Delhi high court in the case of C.I.T. vs National Travel Services (2012) 347 ITR 305 after considering ratio of its own order in the case of CIT Vs. AnkitechP.Ltd. (2011) as well as Hon'ble ITAT Mumbai order in the case of BhaumikColours (P) Ltd. considered such Board circular no. 495 of 24/09/1987 being Explanatory notes to Finance Act 1987 where at para 10.3 of this circular it is clearly mentioned. 10.3 The new provisions would, therefore, be applicable in a case where a share holder has 10% or more of the equity capital. Further, deemed dividend would be taxed in the hands of a concern where all the following conditions are satisfied; (i) Where the company make the payment by way of loans or advances to a concern. With due regards to various case laws relied on by appellant, this proposition as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the deemed dividend and it was the case of the deposits. The Tribunal further recorded finding that it was not a loan given by Amigo Brushes Pvt Ltd, to the assessee company and it was inter-corporate deposits. However, we need not go into various questions raised by learned counsel for the parties as admittedly the assessee was not shareholder in the Amigo Brushes Pvt. Ltd. The Division Bench of this Court in Commissioner of Income Tax vs Ankitach(P) Ltd. (2012) 340 ITR 14) The Delhi High Court has held that if the assessee company does not hold a share in other company from which it had received deposit then it cannot be treated to be a deemed dividend under Section 2(22)(e)of the 'Act. In view of this admitted position that assessee is not a shareholder in Amigo Brushes Pvt. Ltd. and therefore, the deposit received by the assessee of Rs. 25 lacs from Amigo Brushes Pvt Ltd. was an intercorporate deposit and not a deemed dividend and, therefore, though this aspect has not been considered by the Tribunal but since the order of the Tribunal can be supported by another legal reason on the admitted facts, we need not send the matter back. 3.0 For the aforesaid reasons, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O treated the following loans advances, totalling in all Rs. 13,02,64,245/- received by the assessee-company as deemed dividend in terms of section 2(22)(e) of the Act: Name of entity advancing the loan advance Amount Aryavart Commodities P.Ltd. Rs.14,28,000/- Anmol Tradeline P.Ltd. Rs.12,88,36,245/- The AO held, the aforesaid loans advances received by the assessee to qualify as deemed dividend noting that it fulfilled the criteria laid down in the said section viz. 2(22)(e) of the Act, qualifying as received by a concern in which, shareholder of more than 10% holding of the company granting loans advances, had substantial holding, i.e the assessee and the concerns giving loans had common substantial shareholders. As per the AO, the second limb of section 2(22)(e) of the Act was qualified in the present case, which is as under: .. 2(22) dividend includes (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed dividend in entirety and had to be restricted to the accumulated reserves surplus i.e. Rs. 23,50,000/-. He therefore held that out of the total amount of Rs. 13,02,64,245/- held by the AO to qualify as deemed dividend, only an amount of Rs. 37,78,000 (Rs.14,28,000/- plus Rs. 23,50,000) would so qualify, being limited to the extent of accumulated reserves surplus in the said companies. The ld.CIT(A) thereafter dealt with the contention of the assessee that in any case since the assessee-company was not shareholder in either of the two concerns granting loans advances, it could not be taxed in the hands of the assessee-company. The ld.CIT(A) noted various decisions of the Hon ble High Courts including that of jurisdictional High Court in the case of CIT Vs. Daisy Packers P.Ltd. in Tax AppealNo.212 of 2010 order dated 18.3.2012 and the decision of Hon ble Bombay High Court in the case of CIT Vs. Jignesh P. Shah, ITA No.197 of 2013 order dated 20.01.2015 holding that deemed dividend was taxable in the hands of the shareholders alone. He also noted the decision of the Hon ble Delhi High Court in the case of CIT Vs. National Travel Services, (2012) 347 ITR 305, and noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deemed dividend treated as such in terms provisions of section 2(22)(e) of the Act is taxable in the hands of persons who are not shareholders of the company which has given loans advances treated as deemed dividend. As noted by the ld.CIT(A) also, this identical issue came up before the Hon ble Delhi High Court in the group cases, with lead case being CIT Vs. Ankitech P.Ltd. (2012) 340 ITR 14 wherein the Hon ble High Court, after analyzing the provision of law in this regard, considering the legislative history of the provision right from the 1922 Act when identical provision was contained in section 2(6A)(e) of the said Act, and the judicial interpretation of the said provision contained in both the Acts, held that the intention of the Legislature in introducing the concept of deemed dividend under section 2(22)(e) of the Act was always to tax the same in the hands of the shareholder and even after the amendment made to the said section by treating the loans advances received by concerns in which such shareholders had substantial shareholding, the purport and the intent had remained the same. Relevant findings of the Hon ble court at para 24 of the order is as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of 'deeming shareholder', then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsels for the revenue would stand answered, once we look into the matter from this perspective. 22. This issue again came up before the Hon ble Delhi High Court in the case of CIT vs Madhur Housing Development Company in ITA No.721/2011 dated 12-05-2011, wherein the Hon ble High Court reiterated the proposition laid down in CIT Vs. AnkitechP.Ltd. (supra) that the deemed dividend is taxable only in the hands of shareholder. Thereafter, in the case of CIT Vs. National Travel S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Apex Court concurred with the view taken by the Hon ble Delhi High Court, but at the same time, it noted observations made by the Hon ble Delhi High Court in the case of CIT Vs. AnkitechP.Ltd. (supra), which judgment was affirmed by the Hon ble apex court, to the effect that the term shareholder used in the section referred to both a registered and beneficial shareholder,were incorrect. And finding them contrary to its view in CIT Vs. National Travel Services (supra), therefore it referred the matter to Larger Bench. Para 12-20 of the order is as under: 12. A reading of the amended definition would indicate that, after 31.05.1987, a shareholder is now a person who is the beneficial owner of shares holding not less than 10% of the voting power of the Company. Also, a new category has been added to the definition by introducing concerns in which such shareholder is a member or partner and in which he has a substantial interest. Explanation (3) of the amended provision states that concern means Hindu Undivided Family, firm, association of persons, body of individuals, or a Company and further goes on to state that a person shall be deemed to have a substantial interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the person who has received the advance or loan is a shareholder and also beneficial owner. To put it otherwise, whether both the conditions are required to be satisfied will depend upon the interpretation to be given to the words being a person who is a beneficial owner of shares which was inserted by amendment in the aforesaid provision carried out by the Finance Act, 1987 w.e.f. 1st April, 1988. (2) Whether the assessee who is a partnership firm can be treated as 'shareholder' because of the reason that it has purchased the shares in the name of the two partners. 16. It answered the first question by stating that the expression being a person who is a beneficial owner of shares would be in addition to the shareholder first being a registered shareholder of the Company. The Division Bench then states that, therefore, in order to attract Section 2(22)(e) both conditions have to be satisfied. So far as the second question is concerned, the Division Bench went on to state that a partnership firm can be treated as a shareholder but that it is not necessary that it has to be a registered shareholder. 17. We are of the view that it is very difficult to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amended definition clause, we place these appeals before the Hon'ble Chief Justice of India in order to constitute an appropriate Bench of three learned Judges in order to have a relook at the entire question. 25. When the matter came up before the Larger Bench of the Supreme Court, it was dismissed as the assessee had settled the dispute under the Vivad se vishwas scheme. The said order is reported in National Travel Services vs Commissioner of Income Tax (2021) 111 CCH 0227 ISSC. Therefore, the judicial interpretation on the issue of taxability of deemed dividend in the hands of non-shareholders, we find is that majority High Courts including the jurisdictional High Court decision noted by the Ld.CIT(A) in Daisy Packers(supra) have held that deemed dividend cannot be taxed in the hands of nonshareholders. 26. The decision of Hon ble Delhi High Court in the case of CIT Vs. National Travel Services was based on a totally different aspect of section 2(22)(e) of the Act, whether shareholders receiving loans advances needed to be both registered and beneficial shareholders. The issue before the Hon ble Delhi High Court in the said case was not with respect to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts are audited and tax auditors not qualified such report. The AO has not pointed out any specific discrepancy before disallowances. As discussed at para 4(D), 4(E), 4(F) and 4(a) that these bills vouchers were treated as additional evidences and send for the remand report from A.O. The A.O. in his remand report (discussed at para 4H above) mentioned that on random checking most of the bills//vouchers are neither signed by payee nor bears any serial number hence self serving evidence. The appellant in rejoinder contended that complete details of addresses, signature, PAN etc. are available and bill are available for most of the expenditure In some of the vouchers, since appellant is executing works at remote places in Madhya Pradesh, Gujarat etc., local labour is engaged and same is unorganized sector, abstracts are mentioned in such vouchers detailing name of site, name of contractor if there, nature of work performed, running bill etc,. It was further contended that after preparation of such bills, the same were got verified and approved by site engineer and contractor and since accountant and the director are not available on such site, their signature are not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned, appellant failed to submit complete bills/vouchers. In respect of labour charges of Rs. 59265684, thebills vouchers of different parties for different sites with aggregating to Rs. 1,00,00,000(about) and in respect of transportation out of total amount of Rs. 1574362, bills/vouchers of about Rs. 2175000 were not submitted. In respect of legal preposition for admitting such voucher as admissible evidence, Hon'ble Gujarat High Court in the case of ITO Wd 1(2) Vs; Hylam Securities Finance Pvt. Ltd.(2009) 178 taxmann 317 allowed such handmade vouchers as admissible evidences in view of peculiar circumstances of executing work at remote area with unorganized labour. But thetne question remained for verification of expenses claimed for which there are no bills vouchers. In view of appellant's audited books of accounts onone hand, and such deficiency of not submitting bills vouchers of Rs. 1.05 crore (10000000+475000) on other hand, disallowances of 10% i.e. about Rs. 1000000/- will meet the justice to both hand for leakages through such payments in cash in small denomination, it is therefore, the A.O is directed to- allow the balance expenses and delete the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through bills and vouchers of expenses and verified that most of the payments were made through cheques and TDS also deducted therein. He also noted that the AO had not pointed out any specific infirmity in the documents submitted by the assessee but had only made general observations. The ld.DR was unable to controvert the factual finding of the ld.CIT(A) as above. 33. In view of the same, we are not inclined to interfere in the order of the ld.CIT(A) deleting the disallowance of labour and transportation expenses to the tune of Rs. 1,42,10,011/-. Ground no.(iii) is dismissed. 34. Ground no.(iv)relates to the deletion of addition of Rs. 10 lacs made on account of short term capital gain. The facts and finding of the ld.CIT(A) in this regard are at para-(E) page no.40- of his order as under: (E) Ground No.5 is against the addition of Rs. 10 lacs for the alleged short term capital gain over above the short term capital loss shown by appellant of Rs. 71,380/-. As noted by AO in the impugned order that since appellant has not submitted sale agreement in respect of transaction of purchase of land at Goraj Village for Rs. 3071380/- on7/10/2009 and sale of such land o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y evidences furnished by the assessee for the sale of land during the impugned year, the AO added an amount of Rs. 10 lakhs over and above the loss returned by the AO on an adhoc basis. 36. The order of the ld.CIT(A) reveals that during appellate proceedings, the assessee submitted copy of the sale deed and the AO s comments were sought on the same, to which, we find, the Ld.CIT(A) has noted that the AO made no adverse comment with respect to the sale deed in his remand report, but only raised apprehension as to why the assessee incurred loss in such a deal in one month. The ld.CIT(A), we find, has also noted that both the purchases and sales were made on values more than the jantri value and the details of seller and purchaser were available in the purchase and sale deed, but the AO did not verify the transaction. Taking note of the same, the ld.CIT(A) held that the disallowance made by the AO was not sustainable since all documentary evidences substantiating the transaction were furnished by the assessee, which were not doubted by the AO and the disallowance made by the AO was a mere adhoc disallowance. The ld.DR was unable to controvert the factual finding of the ld.CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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