Income Tax Appellate Tribunal - Kolkata
Dcit, Circle-12(1), Kolkata vs M/S. Heilgers Development & ... on 18 August, 2021
IN THE INCOME TAX APPELLATE TRIBUNALKOLKATA BENCH '(B)', KOLKATA
[BEFORE SHRI P.M. JAGTAP, HON'BLE VICE PRESIDENT (KZ) &
SHRI A. T. VARKEY, HON'BLE JUDICIAL MEMBER]
[Through Virtual Court]
I.T.A. Nos. 1922 & 1923/Kol/2019
Assessment Year: 2015-16 & 2016-17
DCIT, Circle - 12(1) Kolkata..............................................................................................Appellant
Vs
M/s. Heilgers Development & Construction Company Pvt. Ltd.......................Respondent
4th Floor, "Forum", 10/3, Lala Lajpat Rai Sarani,
Kolkata - 700 020.
[PAN: AAACH 6217 M]
Appearances by:
Shri Devi Sharon Singh, CIT appearing on behalf of the Revenue.
Shri Soumitra Choudhury, Advocate appearing on behalf of the Revenue.
Date of concluding the hearing : July 14, 2021
Date of pronouncing the order : August 18, 2021
ORDER
PER P.M. JAGTAP, VICE-PRESIDENT (KZ) These two appeals are preferred by the Revenue against two separate orders passed by the Ld. CIT(A) - 4, Kolkata dated 15.02.20219 and 15.03.2019 for A.Y. 2015-16 & 2016-17 respectively and since a common issue is involved therein, the same have been heard together and are being disposed of by a single consolidated order.
2. The solitary common issue involved in these appeals of the Revenue relates to the deletion by the Ld. CIT(A) of the additions made by the AO on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961.
2I.T.A. Nos. 1922 & 1923/Kol/2019 M/s. Heilgers Development & Construction Co. Pvt. Ltd.
3. The assessee in the present case is a company which is engaged in the business of property development. The returns of income for both the years under consideration were filed by it on 28.09.2015 & 30.09.2019 declaring losses of Rs. 2,00,75,757/- & Rs. 1,57,35,156/- for A.Y. 2015-16 & 2016-17 respectively. During the course of assessment proceedings, it was noticed by the AO that the assessee company has taken the following loans during the years under consideration:
A.Y.2015-16 A.Y. 2016-17
"i.Multiplex Equipments & Rs. 2,03,25,000/- Rs. 23,88,341/-
Services Pvt. Ltd.
ii.Vidyut Electricals & Rs. 2,00,44,000/- Rs. 1,75,42,854/-
Electronics Pvt. Ltd.
iii. Hind Ceramics Pvt. Ltd. Rs. 1,39,00,000/- Rs. 6,70,00,000/-
Total Rs. 5,42,69,000/- Rs. 8,69,31,195/-
"
4. The AO also found on further examination that the provisions of section 2(22)(e) were clearly attracted in case of the above loan transactions and the amount of the said loans thus was liable to be treated as deemed dividend in the hands of the assessee company. The findings recorded by the Assessing Officer in respect of each of these three loan transactions in the assessment orders are summarised below:
" Multiplex Equipments & Services Pvt. Ltd.
i. Vidyut Saraf was beneficiary shareholders of both the borrower company i.e. assessee company and the lender company i.e. M/s. Multiplex Equipments & Services Private Ltd. having substantial shareholdings in the both companies.
ii. The percentage shareholding of Vidyut Saraft was shown at 45.17% and 50.00% in the assessee company and M/s. Multiplex Equipments & Services Private Ltd. respectively in their books of account.3
I.T.A. Nos. 1922 & 1923/Kol/2019 M/s. Heilgers Development & Construction Co. Pvt. Ltd.
iii. Public have no substantial interest in the lender company M/s. Multiplex Equipments & Services Private Ltd. and it is closed held company of the assessee company having common key persons.
iv. M/s. Multiplex Equipments & Services Private Ltd. is mainly in the business of amenity & services. The same is very much evident from the analysis of the Profit & Loss A/c of M/s. Multiplex Equipments & Services Private Ltd., for the F.Y. 2014-15 and F.Y. 2015-16.
v. On perusal of the Balance Sheet of the lender company, the picture remains the same as only out of a total asset of Rs. 4005.51 lacs only Rs. 182.01 lacs has been shown as loan to relative party.
vi. On perusal of the Balance Sheet of M/s. Multiplex Equipments & Services Pvt. Ltd. as on 31.03.2015 and 31.03.2016, it is seen that the company is having accumulated profit to the tune of Rs. 251.08 lacs & Rs. 45.70 lacs which is more than the amount of loan given to the assessee company in F.Y. 2014-15 & 2015-16.
Vidyut Electricals & Electronics Pvt. Ltd.
i.Vidyut Saraf was beneficiary shareholders of both the borrower company i.e. assessee company and the lender company i.e. M/s Vidyut Electricals & Electronics Pvt. Ltd. having substantial shareholdings in the both companies.
ii. The percentage shareholding of Vidyut Saraft was shown at 45.17% and 50.00% in the assessee company and M/s. M/s. Vidyut Electricals & Electronics Private Ltd. respectively in their books of account. iii. Public have no substantial interest in the lender company M/s. Vidyut Electricals & Electronics Private Ltd. and it is closed held company of the assessee company having common key persons.
iv. M/s. Vidyut Electricals & Electronics Private Ltd. is mainly in the business of amenity & services. The same is very much evident from the analysis of the Profit & Loss A/c of Mis. Vidyut Electricals & Electronics Private Ltd., for the F.Y. 2014-15 and F.Y. 2015-16.
v. All these facts as observed above clearly shows that lending is not the main purpose or aim of M/s. Vidyut Electricals & Electronics Private Ltd.4
I.T.A. Nos. 1922 & 1923/Kol/2019 M/s. Heilgers Development & Construction Co. Pvt. Ltd.
vi. On perusal of the Balance Sheet of M/s. Vidyut Electricals & Electronics Private Ltd. as on 31.03.2015 and 31.03.2016, it is seen that the company is having accumulated profit to the tune of Rs. 299.49 lacs and 99.30 lacs which is more than the amount of loan given to the assessee company in F.Y. 2014-15 & 2015-16.
Hind Ceramics Pvt. Ltd.
i. S M Shroff was beneficiary shareholders of both the borrower company i.e. assessee company and the lender company i.e M/s Hind Ceramics Pvt. Ltd. having substantial shareholdings in the both companies.
ii. The percentage shareholding of S M Shroff was shown at 25.36% and 25.00% in the assessee company and M/s Hind Ceramics Pvt. Ltd. respectively in their books of accounts.
iii. Public have no substantial interest in the lender company M/s Hind Ceramics Pvt. Ltd. and it is closed held company of the assessee company having common key persons.
iv.M/s.Hind Ceramics Private Ltd. is mainly in the business of maintenance & services. The same is very much evident from the analysis of the Profit & Loss A/c of M/s. Hind Ceramics Private Ltd., for the F.Y. 2014-15 and F.Y. 2015-16.
v. All these facts as observed above clearly shows that lending is not the main purpose or aim of M/s. Hind Ceramics Private Ltd.
vii. On perusal of the Balance Sheet of M/s. Hind Ceramics Private Ltd. as on 31,03.2015 and 31.03.2016, it is seen that the company is having accumulated profit to the tune of Rs. 948.78 lacs & 903.37 lacs which is more than the amount of loan given to the assessee company in F.Y. 2014- 15 & 2015-16."
5. On the basis of the above findings recorded by him, the AO treated the loan amount aggregating to Rs. 5,42,69,000/- & Rs. 8,69,31,195/- received by the assessee-company from the three concerns as deemed dividend u/s 2(22)(e) and an addition of Rs. 5,42,69,000/- & Rs. 8,69,31,195/- was made by him to the total 5 I.T.A. Nos.
No 1922 & 1923/Kol/2019 M/s. Heilgers Development & Construction Co. Pvt. Ltd.
income of the assessee in the assessment completed u/s 143(3) of the Act vide orders dated 27.11.2017 & 20.12.2018.
6. Against the order orders passed by the AO u/s 143(3) for the years under consideration, appeals were preferred by the assessee before the Ld. CIT(A) and after considering the submissions made on behalf of the assessee-company, company, the Ld. CIT(A) deleted the addition made by the AO on account of deemed dividend u/s 2(22)(e) for the following reasons given in his impugned orders for A.Y A.Y. 2015-16 16 & 2016-17:
2016For A.Y. 2015-16 "I have gone through the assessment order, submissions made by the assessee alongwith case laws on this issue. During the course of assessment as well as appellate proceedings the assessee had produced ledger account of three entities from whom loan transactions took place. The entities are Multiplex Equipments & Services Pvt. Ltd. - Rs.203,25,000/-
Rs.203,25,000/ Vidyut Electricals & Electronics Pvt. Ltd. - Rs.200,44,0007- Rs.200,44,0007 Hind Ceramics Pvt. Ltd. - Rs. 139,00,000/-
139,00,000/ The audited balance sheets of these entities were also produced. From the perusal of these documents it is clear that interest has been charged on these loans and these loans have been substantially returned. The average minimum holding of loan amount in case of these entities is as under -
In the books of accounts of all these entities the transactions has been classified as loan transactions.
From the umpteen no. of case laws cited by the assessee and the decision of jurisdictional High Court in the case of Pradip Kumar Malhotra (338 1TR 538) in which the Hon'b Hon'ble le High Court has held that on loans on which 6 I.T.A. Nos. 1922 & 1923/Kol/2019 M/s. Heilgers Development & Construction Co. Pvt. Ltd.
consideration in the form of interest was paid by the assessee to the benefit of the company then such addition u/s 2(22)(e) is not sustainable. Following the same, the ground nos. 2, 3 & 4 are allowed.
For A.Y. 2016-17 "I have perused the Assessment Order, submissions of the assessee. The assessee company had taken loan of Rs. 8,69,31,195/- from the following concerns during the year in the following manner:
Loan Whethe Loan OP Repayme Interes TDS
taken r nt t
assesse
e is a
share
holder
of this
compan
y
Multiplex 2388341 No 2388341 327731 5721585 62140 6214
Equipme 8
nt &
Services
Pvt. Ltd.
Vidyut 9930162 No 1754283 296990 18176648 37422 37423
Electrical 4 7
s &
Electroni
cs Pvt.
Ltd.
Hind 7931850 No 6700000 969154 78518707 20301 20301
Ceramics 3 0 9 7 8
Pvt. Ltd.
From the above, it can be seen that the above transactions are business transactions where both the companies are benefitting. The assessee company has paid the interest and deducted TDS also. Moreover, the 7 I.T.A. Nos. 1922 & 1923/Kol/2019 M/s. Heilgers Development & Construction Co. Pvt. Ltd.
Heilgers Development & Construction Company Pvt. Ltd. i.e. assessee is not a share holder or registered member of Multiplex Equipment & Services Pvt. Ltd., Vidyut Electricals & Electronics Pvt. Ltd. & Hind Ceramics Pvt. Ltd. Therefore, on factual as well as on legal grounds the deemed dividend u/s 2(22)(e) amounting Rs. 7,93,18,503/- was not tenable in this case, for A.Y. 2015-16. It has already been held that these transactions do not attract deemed dividend u/s 2(22)(e) of the I.T. Act, 1961. Following the same and catena of judgement submitted on this issue by the AO, the addition on account of deemed dividend u/s 2(22)(e) of the I.T. Act, 1961is hereby deleted."
Aggrieved by the order of the Ld. CIT(A) deleting the addition made by the AO on account of deemed dividend u/s 2(22)(e), the assessee has preferred these appeals before the Tribunal.
7. We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted on behalf of the assessee-company before the Ld. CIT(A) and further reiterated during the course of hearing before the Tribunal, the loan amounts in question treated as deemed dividend u/s 2(22)(e) by the AO were taken by the assessee-company from the three concerns on interest and since the said lending companies were compensated by interest paid by the assessee-company on the loans, the assessee-
company in real sense did not derive any benefit from the said loans so as to attract the provisions of section 2(22)(e). It is noted that this contention raised on behalf of the assessee-company is duly supported by the decision of Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra vs CIT reported in 338 ITR 538 (Cal) wherein it was held that the phrase "by way of advance or loan"
appearing to sub-clause (e) of section 2(22) must be construed to mean those advances or loans which a shareholder enjoys for simply on account of being a beneficial owner of shares, but if such loan or 8 I.T.A. Nos. 1922 & 1923/Kol/2019 M/s. Heilgers Development & Construction Co. Pvt. Ltd.
advance is given to such shareholder as a consequence of any further consideration, which is beneficial to the company, received from such shareholder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of section 2(22)(e). It was held that gratuitous loan or advance given by a company to those classes of shareholder thus would come within the purview of section 2(22)(e) and not the cases where loans or advances given in return to an advantage conferred upon the company by such shareholder. In the present case, the entire amount in question was taken by the assessee-company on interest and since the interest on the said loan was duly paid by the assessee-company after deducting tax at source, we find no infirmity in the impugned orders of the Ld. CIT(A) in deleting the addition made by the AO treating the said amount as deemed dividend under section 2(22)(e) by relying on the decision of Hon'ble Jurisdictional High Court in the case of Pradip Kumar Malhotra (supra). The same are therefore upheld and both the appeals of the Revenue are dismissed.
8. In the result, both the appeals of the Revenue are dismissed.
Order Pronounced in the Open Court on 18th August, 2021.
Sd/- Sd/-
(A.T. VARKEY) (P.M. JAGTAP)
JUDICIAL MEMBER VICE PRESIDENT
Dated: 18/08/2021
Biswajit, Sr. PS
9
I.T.A. Nos. 1922 & 1923/Kol/2019
M/s. Heilgers Development & Construction Co. Pvt. Ltd.
Copy of order forwarded to:
1. DCIT, Circle - 12(1), Kolkata.
2. M/s. Heilgers Development & Construction Company Pvt. Ltd. 4th Floor, "Forum", 10/3, Lala Lajpat Rai Sarani, Kolkata - 700 020.
3. The CIT(A)
4. The CIT
5. DR True Copy, By order, Sr. Private Secretary / DDO ITAT, Kolkata Benches Kolkata