Income Tax Appellate Tribunal - Ahmedabad
Jcit (Osd), Circle-1(1)(2),, ... vs Cygnet Enterprises Pvt. Ltd., ... on 16 August, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "C" BENCH
(Conducted Through Virtual Court)
Before: Shri Amarjit Singh, Accountant Member
And Ms. Madhumita Roy, Judicial Member
ITA No. 304/Ahd/2018
Assessment Year 2014-15
The JCIT(OSD), Cygnet Enterprises Pvt.
Circle-1(1)(2), Ltd. 3/B, Manikyam
Ahmedabad Vs Opp. Samudra Annex Off
(Appellant) C.G. Road, Navrangpura,
Ahmedabad
PAN :AADCC1450E
(Respondent)
Revenue by: Shri L.P. Jain, Sr. D.R.
Assessee by: Shri Sanjay R. Shah, A.R.
Date of hearing : 28-07-2021
Date of pronouncement : 16-08-2021
आदे श/ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This revenue's appeal for A.Y. 2014-15, arises from order of the CIT(A)-1, Ahmedabad dated 30-11-2017, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
2. The solitary ground of appeal of the revenue is directed against the order of ld. CIT(A)-1 Ahmedabad in deleting the disallowance of Rs. 2,70,50,000/- made by the Assessing Officer u/s. 2(22)(e) of the Act.
I.T.A No. 304/Ahd/2018 A.Y. 2014-15 Page No 2JCIT(OSD) vs. Cygnet Enterprises Pvt. Ltd.
3. The fact in brief is that return of income declaring income of Rs. 43,73,669/- was filed on 16th October, 2014. The case was subject to scrutiny assessment and notice u/s. 143(2) of the act was issued on 1st Sep, 2015.
3.1 During the course of assessment on verification of the detail filed by the assessee, the Assessing Officer noticed that assessee has received unsecured loan amounting to Rs. 2,70,50,000/- form M/s. Cygnet Infotech Pvt. Ltd. during the year under consideration. The Assessing Officer further noticed that in the assessee company from whom it has obtained unsecured loan there were two common directors namely Niraj Hutheesing and Smt. Chatura Hutheesing The detail of share holding of these two persons in both the companies are as under:-
Name of Director/ Shareholding & Voting rights in Assessee Shareholding & Voting Shareholder Co. i.e. M/s Cygnet Enterprise Pvt. Ltd. rights in M/s Cygnet Infotech Pvt. Ltd.
Shri Niraj Hutheesing 45% 72% Smt. Chatura Hutheesing 45% 1%
The Assessing Officer observed that Shri Niraj Hutheesing was having share holding more than 10% of the voting power in the lender company and also having substantial interest in the assessee company, therefore, assessee was asked to explain why the amount of loan of Rs. 2,66,42,000/- should not be treated as deemed dividend u/s. 2(22)(e) of the act. The assessee has given the detailed submission which was reproduced by the Assessing I.T.A No. 304/Ahd/2018 A.Y. 2014-15 Page No 3 JCIT(OSD) vs. Cygnet Enterprises Pvt. Ltd.
Officer at page no. 3 to 10 of the assessment order. The assessee has briefly explained that Cygnet Infotech Pvt. Ltd. was a group company engaged in the business of information technology services and also into lending of funds to group companies. That company was having service liquidity funds which were advanced to group concerns at a specified rate of interest higher than lending rates prevailing in the market. During F.Y. 2013-14 the assessee had received Rs. 2,70,50,000/- from time to time and it has repaid Rs. 3,64,48,707/- and the account was squared up by making the full repayment to CIPL by the assessee by 27th March, 2015.
3.2 The assessee has also brought to the notice of the Assessing Officer that in order to adjudicate the provision of section 2(22)(e) the person should be a shareholder and he should beneficially own at least 10% of the equity capital. A shareholder means a person in whose name the shares stand in the share register of the company. If a person is mere beneficiary owner of shares without being the registered shareholder, this clause would not apply to him.
3.3 The assessee has also submitted that the provision of the section would also not apply provided the loan is made by the company in the ordinary course of its business and money lending is a substantial part of the company's business. The assessee has also referred various judicial pronouncements mentioned at page no. 10 of the assessment order including case of CIT vs. Ankitech (P.) Techn Pvt. Ltd. (2011), 199 taxmann.com 341 wherein the Hon'ble High Court held that the amount of loan cannot be taxed in the hands of the person who is not the share holder. The assessee I.T.A No. 304/Ahd/2018 A.Y. 2014-15 Page No 4 JCIT(OSD) vs. Cygnet Enterprises Pvt. Ltd.
has also submitted before the Assessing Officer that Hon'ble Gujarat High Court in the case of Daisy packers Pvt. Ltd. after relying upon the ruling of Hon'ble Delhi High Court in the above referred case held that where assessee had received a deposit but it did not own any share of the said company, the said deposit was an inter corporate deposit and could not be treated as deemed dividend. However, the Assessing Officer has not accepted the explanation of the assessee. He was of the view that any payment in the nature of an advance or loan by a closely held company in which a shareholder hold more than 10% of voting power to any concern in which such shareholder has a substantial interest is deemed as dividend. The Assessing Officer has stated that Shri Neeraj Hutheesing individually had share holding not less than 10% of the voting power in the lender and also had substantial interest in the receiving concern by virtue of having shares holding more than 20% of voting power since he held 45% and 72% in the borrowing company and the lending concern respectively. He was of the view that payment made by Cygnet Infotech Pvt. Ltd. to the assessee company in the form of unsecured loan is clearly in the nature of deemed dividend in the hands of the assessee. Therefore, the Assessing Officer has assessed the amount of unsecured loan of Rs. 2,70,50,000/- as deemed dividend u/s. 2(22)(e) in the hands of the assessee and added to its total income.
4. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. The relevant part of the decision of ld. CIT(A) is reproduced as under:-
"2.7. I have carefully perused the assessment order and the written submission made by the learned A.Rs. It is observed that it is fact that Shri Niraj Hutheesing and Smt. Chatura Hutheesing I.T.A No. 304/Ahd/2018 A.Y. 2014-15 Page No 5 JCIT(OSD) vs. Cygnet Enterprises Pvt. Ltd.
were having substantial shares holding in both the companies i.e. Giver Company as well as the Recipient company. The express provisions of section 2(22)(e) show that there are three limbs of the said section i.e.
(i) the payment by a company by way of advance or loan should have been made to a shareholder who is a beneficial owner of the shares and substantial interest.
(ii) or the payment should be made to any concern in which such share holder is a member or partner and in that concern, he should have a substantial interest; &
(iii) or the company makes payment, or on its behalf payment is made for individual benefit of any such shareholder to the extent to which the company in either case possesses accumulated profits.
However in this regard, it is important to note that the Hon'ble Supreme Court of India has admitted special leave petitions against the decision of various courts and other appellate authorities in favour of the revenue, setting aside such decisions and acknowledging the validity of the interpretation adopted by Revenue. The A.O. has observed that SLP in the cases of CIT vs. N.S.N. Jewellers (P) Ltd. [2015] 64 taxmann.com 327(SC) and CIT vs. Namdhari Seeds [20'i5{ 56 taxmann.com 19 (SC).The appellant has submitted that Departmental Appeal in case of N.S.N. Jewellers (P.) Ltd is dismissed by Hon'ble Apex Court as tax effect VMS less than Rs.25 Lacs. Thus, Hon'ble Apex court has not decided the underlying issue arised u/s. 2(22)(e) of the act. In the case of CIT vs. Namdhari Seeds [2015] 56 taxmann.com 19 (SC) the SLP is pending. Therefore, the ratio of jurisdictional Gujarat l-ligh Court in the case of CIT v/s Daisy Packers (P) Ltd decided the issue in favour of the assessee, relying on the decision of the Division Bench of the High Court in CIT v. Ankitech (P.) Ltd. (2012) 340 ITR 14 (Del) holds the ground. Hon. Supreme Court vide its order Dated 5thOctober, 2017 (In Civil Appeal No. 3961 of 2013) has upheld the judgment of Hon. Delhi High Court in the matter of Commissioner of Income Tax v. Ankitech Pvt. Ltd. in IT Appeal No. 462 of 2009.
2.8. The view taken by the I.T.A.T. Mumbai Special Bench in the case of AC IT Mumbai vs. Bhaumik Colour (P) Ltd has been approved by the Hon'ble Bombay High Court in the case of CIT vs. Universal Medicare Private Limited (2010) 324 ITR 263 (Bom.) The Gujarat High Court in the case of CIT v/s Daisy Packers (P) Ltd decided the issue in favour of the assessee, relying on the decision of the Division Bench of the High Court in CIT v. Ankitech (P.) Ltd. (2012) 340 ITR 14 (Del) wherein it was 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 From the reading of the provisions of section 2(22)(e), it is seen that the provision is intended to tax the dividend in the hands of a shareholder and the deeming provision as it applies to the case of loan or advance by a company to a concern in which is shareholder and has substantial interest, is based on the presumption that the loan or advance would ultimately be made available to the shareholder of the company giving loan or advance. Various court decisions e.g. Asstt. CIT v/s. Bhaumik Colour (P.) Ltd. [2009] 118 ITD 1 (Mum.) (SB) & jurisdictional High Court decision in the case of CIT v/s Daisy Packers (P.) Ltd [2G13] 40 taxmann.com 480 (Gujarat), and Hon'ble Supreme Court has in the case of CIT v/s. Madhur Housing and Development Co. Support this view that the deemed dividend u/s 2(22)(e) can only be assessed in the hands of the person who is a shareholder of the lender company and not in the hands of a person other than the shareholder. Hon. Supreme Court vide its order Dated 5thOctober, 2017 (In Civil Appeal No.3961 of 2013) has upheld the judgment of Hon. Delhi High Court in the matter of Commissioner of Income Tax v. Ankitech Pvt. Ltd. in IT Appeal No. 462 of 2009. The moot facts in the Ankitech case and the facts of assessee are the same because in the said case, M/s. Ankitech had received money from its group company JGPL (shareholders holding more than 10% in JGPL also had substantial interest in Ankitech Pvt. Ltd.). In the said case, Ankitech (receiver of money) was not the shareholder of JGPL (payer of money). In the case of the appellant the receiver company CEPL (Cygnet Enterprises pvt. Ltd.) is not shareholder in the giver company CIPL(Cygnet Infotech Pvt. Ltd.) which is a pre requisite to treat any loan payment between associate companies as deemed dividend u/s. 2(22)(e) in the hands of the receiving company. In view of the above facts and on the basis of the above referred decisions (supra), the addition made by the Assessing Officer u/s.2(22)(e) is held to be not justified and the same is deleted. The additions made by the A.O as deemed dividend u/s 2(22)(e) of IT Act for Rs.
I.T.A No. 304/Ahd/2018 A.Y. 2014-15 Page No 6JCIT(OSD) vs. Cygnet Enterprises Pvt. Ltd.
2,70,50,000/~ in the hands of the appellant company is directed to be deleted. The ground of the appellant is allowed."
5. During the course of appellate proceedings before us, ld.
Departmental Representative has supported the order of Assessing Officer. On the other hand, the ld. Authorized Representative submitted paper book comprising detail of information and copy of document furnished before the lower authorities. The ld. counsel has also referred various decisions of Co- ordinate Bench of the ITAT Ahmedabad i.e. CIT vs. M/s. Cama Hostel Ltd. in Appeal No. 430/Ahd/2016, ACIT vs. M/s. Krishna Coil Cutters Pvt. Ld. Appeal No. 1492/Ahd/2014, M/s. Precimetal Cast Pvt. Ltd. vs. ITO Appeal No. 3499/Ahd/2015, Saamag Developers Pvt. Ltd. vs. ACIT 90 Taxmann.com 20, DCIT vs. Shri Jateen Madanlal Gupta ITA No. 1932/Ahd/2017 and the decision of Hon'ble Bombay High Court CIT vs. M/s Sunjewels International Ltd ITA No. 576 of 2016 and DCIT vs M/s. Perfect Engineering Associates Pvt. Ltd. ITA No. 5019/Bom/2017 and the decision of Hon'ble Gujarat High Court CIT (TDS vs. Schutz Dishman Bio Tech Pvt. Ltd Tax Appeal Nos. 958 and 959 of 2015 and contended that similar issue has been decided in favour of the assessee as per the above referred decisions of Tribunal and High Courts. The ld. Departmental Representative could not disprove contrary to the submission of the assessee that issue is covered in favour of the assessee as per the various decisions as referred above.
6. Heard both the sides and perused the material on record. During the course of assessment on verification, the Assessing Officer noticed that assessee has obtained unsecured loan from M/s. Cygnet Infotech Pvt. Ltd.
I.T.A No. 304/Ahd/2018 A.Y. 2014-15 Page No 7JCIT(OSD) vs. Cygnet Enterprises Pvt. Ltd.
and in both the companies there was common directors having share holding not less than 10% of the voting power. Without reiterating the facts as cited above in this order, the Assessing Officer was of the view that any payment in the nature of an advance or loan by a closely held company in which a share holder holds more than 10% of voting to any concern in which such share holder has a substantial interest is deemed as dividend, therefore, amount of unsecured loan given by Cygnet Infotech Pvt. Ltd. to the assessee company was treated as deeded dividend u/s. 2(22)(e) of the act on account of a common share holder holding more than 10% of voting power in these concerns. With the assistance of ld. representatives , we have gone through the judicial pronouncements of the Co-ordinate Benches of ITAT on the similar issue. In the case of Precimetal Cast Pvt. Ltd. vs. ITO, the relevant part of the decision of the Co-ordinate Bench of the ITAT is as under:-
"7. Heard both the sides and perused the material on record. The Assessing Officer noticed that assessee company has obtained unsecured loan from Gaurav Securities Pvt. Ltd. wherein one of the main shareholders of the assessee company Shri Umesh Bhatiya was holding substantial shares in Gaurav Securities Pvt. Ltd. Looking to the above facts, the Assessing Officer has made an addition to the extent of Rs. 13,21,198/- being accumulated profit of Gaurav Security Pvt. Ltd. for the reason that section 2(22)(e) prohibits advancing money among entities having common shareholders with substantial interest in the case of closely held company having accumulated profit. After perusal of the judicial pronouncements it is noticed that identical issue on common facts have been adjudicated by the Co-ordinate Bench of the ITAT Ahmedabad in the case of ACIT vs. Leela Ship Recyling Pvt. Ltd. vide ITA No. 1658/Ahd/2012 dated 12th March, 2020 and by the Jurisdictional High Court in the case of Pr. CIT vs. Mahavir Inducto Pvt. Ltd. dated 12-01-2017. With the assistance of ld. representatives, we have gone through the aforesaid two judicial pronouncements, it is noticed that in the case of ACIT vs. Leela Ship Recycling Pvt. Ltd. supra the Co- ordinate Bench of the ITAT has adjudicated the identical issue on same facts as under:-
"4. We have heard the rival contentions, perused the material on record and duly considered facts of the case and the applicable legal position.
5. Learned representatives fairly agree that the issue in appeal is now covered by Hon'ble jurisdictional High Court's judgment in the case of CIT Vs Mahavir Inductomelt Pvt Ltd (TA No. 890 of 2011; judgment dated 13th January 2017) wherein Their Lordships have extensively reproduced from Hon'ble Delhi High Court's judgment in the case of Anitech Pvt Ltd (supra), and concurred with the same. Thus, in a case in which an amount is received from a person other than the shareholder, as is the admitted position in this case, the provisions of Section 2(22)(e) cannot indeed be invoked. The CIT(A) was thus justified in granting the impugned relief in respect of the addition under section 2(22)(e). We, therefore, approve the conclusion arrived at by the learned CIT(A) in this regard, and decline to interfere in the matter on that count."
We have also through the decision of Hon'ble Gujarat High Court in the case of Pr. CIT vs. Mahavir Inducto Pvt. Ltd. supra wherein the identical issue on same facts was decided in favour of the assessee after following the decision of Bombay High Court in the case of CIT vs. Impact Containers Pvt. Ltd. and others vide IT I.T.A No. 304/Ahd/2018 A.Y. 2014-15 Page No 8 JCIT(OSD) vs. Cygnet Enterprises Pvt. Ltd.
Appeal No. 114 of 2012 and the decision of Delhi High Court in the case of CIT vs. Ankitech Pvt. Ltd. Ltd. reported in 340 ITR 14 Delhi. The relevant part of the decision is reproduced as under:-
"50. Identical question came to be considered by the Division Bench of this Court in Tax Appeal No. 253 of 2015. After considering the decision of the B ombay High Court in the case of CIT vs. Impact Containers Private Limited & ors rendered in ITA No. 114 of 2012 and the decision of the Delhi High Court in thecase of CIT vs. Ankitech Pvt Ltd re ported in 340 ITR 14 (Del) and on interpreting Section 2(22)(e), in para 4 has observed and held as under:
"4.Shri Bhatt, learned Counsel appearing on behalf of the revenue has as such tried to justify the decision of the Delhi Court in the case of Ankitech Pvt. Ltd. (Supra) and has vehemently submitted that the Delhi High Court has not considered the third category i.e. shareholder in the assessee Company holding not less than 10% of the voting power in the Company from whom the loan or advance is taken. However, on considering Section 2(22)(e) of the Act, we are not at all impressed with the aforesaid. If the contention on behalf of the revenue is accepted, in that case, it will be creating the third category / class, which is not permissible. What is provided under Section 2(22)
(e) of the Act seems to be that the assessee HC-NIC Page 4 of 5 Created On Sat Aug 12 04:34:00 IST 2017 O/TAXAP/891/2016 JUDGMENT Company must be a shareholder in the Company from whom the loan or advance has been taken and should be holding not less than 10% of the voting power. It does not provide that any shareholder in the assessee-
Company who had taken any loan or advance from another Company in which such shareholder is also a shareholder having substantial interest, Section 2(22)(e) of the act may be applicable.
5.1. Considering the aforesaid decision of the Division Bench of this Court and the facts narrated herein above, more particularly,considering the fact that the assessee was not share holder of Mahavir Rolling Mills P vt Ltd to whom loan was given, it cannot be said that the learned Tribunal has committed any error in deleting the addition made by the Assessing Officer on deemed dividend."
In view of the findings as supra Hon'ble Jurisdictional High Court wherein it is held that for the applicability of section 2(22)(e), it is required that the assessee company must be a shareholder in the company from whom the loan or advance has been taken and it does not provide that any shareholder in the assessee company who had taken any loan or advance from another company in which such shareholder is also a shareholder having substantial interest. Since the facts of the case of the assessee are squarely covered by the aforesaid decisions of Hon'ble High Court and Co-ordinate Bench of the ITAT, the impugned addition is deleted. Accordingly, this ground of the assesse is allowed."
Since the assessee company was not registered share holder in the company from whom the loan was obtained therefore after taking consideration the decision of Hon'ble High Court of Gujarat and Bombay High Court and respectfully following the decision of the Co-ordinate Bench of the ITAT Ahmedabad no addition can be made as deemed dividend in the hands of the assessee company merely because there was a common shareholder in the payee company and the assessee company. Therefore, we I.T.A No. 304/Ahd/2018 A.Y. 2014-15 Page No 9 JCIT(OSD) vs. Cygnet Enterprises Pvt. Ltd.
do not find any error in the decision of the ld. CIT(A). Accordingly, the appeal of the revenue is dismissed.
7. In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 16-08-2021
Sd/- Sd/-
(MADHUMITA ROY) (AMARJIT SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad : Dated 16/08/2021
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण,
अहमदाबाद