Income Tax Appellate Tribunal - Mumbai
Devina Mehra, Mumbai vs Assessee on 22 April, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri Rajendra, Accountant Member
ITA No. 1415/Mum/2011
(Assessment Year: 2006-07)
Ms. Devina Mehra Income Tax Officer 4(1)(1)
#2, Crescent Chambers Room No. 645, 6th Floor
Vs.
4th Floor , Tamarind Lane Àayakar Bhavan, M.K. Road
Fort, Mumbai 400001 Mumbai 400020
PAN - AAHPM4465E
Appellant Respondent
Appellant by: Shri Satish R. Mody
Respondent by: Shri Love Kumar
Date of Hearing: 13.04.2015
Date of Pronouncement: 22.04.2015
ORDER
Per D. Manmohan, V.P. This appeal by the assessee is directed against the order passed by CIT(A)-8, Mumbai and it pertains to A.Y. 2006-07.
2. The only ground urged by the assessee reads as under: -
"The Ld. Commissioner of Income Tax (Appeals) has erred in confirming the addition made by the learned Assessing Officer of an amount of Rs.5,52,426/- as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The above addition is against the law and Facts of the case and the same may please be deleted.
3. Assessee is engaged in the business of share and stock broking. He is also a Director in M/s. First Global Stock Broking Co. Ltd. During the course of assessment proceedings the AO noticed that the assessee received loan of `6,17,135/- from M/s. First Global Stock Broking Co. Ltd. in which the assessee is a share holder and Director, holding 17.18% of the voting right. The AO also noticed that the loan was received from a company in which public are substantially interested and the said company has advanced loans to shareholders having more than 10% of the voting power 2 ITA No. 1415/Mum/2011 Ms. Devina Mehra in which event provisions of section 2(22)(e) of the I.T. Act, 1961 are applicable. When called upon to explain, assessee submitted that one of the purposes of the company was to undertake business of financing and alongwith stock broking business it is also engaged in the business of 'client funding'. The company was shut for at least four years and could not have thought of distributing dividend to the shareholders at a time when its own business was shut.
4. The AO analysed the facts in great detail to hold that provisions of section 2(22)(e) were introduced to check distribution of profits by the companies in the guise of loans and advances whereby the withdrawals made by the shareholders of the company amounted to grant of loan or advance by the company to the shareholders; the legal fiction comes into play since the money is paid by the company to the shareholders. He also noticed from the accounts that the assessee received `5,52,426/- during the year; the opening balance is `84,709/- and the closing balance is `6,17,135/-. Therefore the amount of `5,52,426/-, withdrawn during the year, was treated as deemed dividend in the hands of the assessee.
5. The learned CIT(A) affirmed the action of the AO by observing in para 1.4 as under: -
"1.4. As regards appellant's reliance on the Memorandum and Articles of Association of the company in which financing was shown to be one of the main objects of the company, it is obvious that the object mentioned in the Memorandum and Articles of Association of a company reflects only the intention of the company and not the activity of the company. Whether lending of money is principal business of the company is determinant upon the source from which the company earned its income. As has been mentioned in the assessment order, no income from lending activity of the assessee has been shown. It is, therefore, conclusively established that lending of money was not principal activity of the company and, therefore, the impugned loan/advance cannot be treated as loan/advance given in the normal course of the business of the company, as the appellant, despite making such contention, has failed to bring on record any material to establish that the impugned loan had been given in ordinary course of business of the lender. The assessee, therefore, cannot be allowed exemption from operation of the provisions of section 2(22)(e) with respect to the loan received from company, M/s. First Global Stock Broking Pvt. Ltd. in which the assessee was a share holder and director holding 17.18% of 3 ITA No. 1415/Mum/2011 Ms. Devina Mehra voting rights with 1434900 shares. The addition made by the A.O. is, therefore, upheld. The appeal on this ground is not allowed.
6. Aggrieved, assessee preferred an appeal before the Tribunal. Though the learned counsel for the assessee submitted that the company had almost closed its business and hence the amount given as loan to the assessee should not be treated as deemed dividend, in the light of the decision of the ITAT in the case of Shri Shankar Sharma vs. ITO (ITA No. 1412/Mum/2011 dated 22.09.2014m "H" Bench, Mumbai) the learned counsel for the assessee fairly admitted that the issue stands covered against the assessee since the facts are same in that case also.
7. We have heard the rival submissions and carefully perused the record. Since the view taken by the learned CIT(A) is in consonance with the view taken by the ITAT "H" Bench, Mumbai in the case of Shankar Sharma (supra), we do not find any infirmity in the order passed by the learned CIT(A). Therefore, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 22nd April, 2015.
Sd/- Sd/-
(Rajendra) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 22nd April, 2015
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) - 8, Mumbai
4. The CIT- III, Mumbai City
5. The DR, "D" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.