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TMI Blog2015 (6) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... be accrued direct or indirect. 2. Whether in the facts and circumstances of the case, the Ld. CIT(A) deleted the above disallowance without providing the Assessing Officer any opportunity to rebut, as per the provision of Rule 46A, on the submission of the assessee that details were filed during the course of assessment. 3. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law. 4. That the grounds of appeal are without prejudice to each other. 5. That the appellant craves leave to add, alter, amend or forgo any ground(s) of the appeal raised above at the time of the hearing." 2. The brief facts of the case are that the assessee company was engaged in the business of manufacturing exporting and dealing in all kinds of ayurvedic and herbal preparations. The return of income for the AY 2009-10 was filed on 30.3.2010 declaring an income of Rs. 3,76,95,433/-. The same was processed u/s. 143(1) of the Act. Subsequently, the case was selected for scrutiny through CASS and statutory notice u/s. 143(2) dated 20.8.2010 was issued and served. The assessment was completed u/s. 143(3) vide order dated 29.12.2011 by the AO at the income of Rs. 5,33,76,472/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition under section 2(22)(e) for the sums aggregating Rs. 1,56,81,039/- paid as loan/advance by the appellant company to as many as 4 person (3 companies and 1 charitable society). S. No. Company's name Opening balance Paid during the year Received during the year Closing balance Nature of payment made 1. Global Diamonds (P) Ltd. 55633463 6946039 12675000 49904502 Loan 2. Maharishi Vedic Construction Corpn. (P) Ltd. 868847 2350000 - 3218847 Advance 3. Golden Glades Ltd. 40626000 385000 - 41011000 Advance 4. SRM Foundation of India (Charitable) - 6000000 - 6000000 Loan Total (Rs.) 97128310 15681039 1267500 0 100134349 4. The AO has made the said addition as more than 90% beneficial and registered share holding in the companies to whom loan has been given by the assessee company is with the family members of Shri Anand Prakash Srivastava, therefore, the AO held that the loan or advance so made, are liable to be treated as a benefit accruing to Sh. Anand Prakash Srivastava who is substantial share holder of the appellant company and thus provisions of section 2(22)(e) are attracted in the present case. 5. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) 6. It is seen that Shri Anand Prakash Srivastava is the beneficial owner and registered share holder, holding 99.9% of voting power of the assessee company; he is the substantial shareholder of the assessee company. 6.1 It now has to be seen whether * loans and advances have been given to him as per clause (a), * or to any concern in which Shri. Anand Prakash Srivastava is a member or a partner and in which he has a substantial interest as per clause (b), * any person on behalf of or for the individual benefit of Shri. Anand Prakash Srivastava (c) 6.2 Loans or advance have not been made by the appellant company to Shri Anand Prakash Shrivastava therefore, condition No. (a) is not attracted in the present case. 6.3 The shareholding pattern of three companies to whom loans and advances have been given, on account of which addition under section 2(22)(e) has been made is as under: A. Global Diamonds Pvt. Ltd. SI. No. Name of the Shareholder No. of equity share of Rs. 10 each Paid-up. share capital % age of holding (i) Anand Prakash Shrivastava 3,93,300 39,33,000 19.66% (ii) J.P. Shrivastava 3,21,250 32,12,500 16.06% (iii) Ram Shrivastava 2,89,130 28,91, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied to the facts of the present case, it is evident that Shri. Anand Prakash Srivastava (who holds 99.9% shares in the appellant company) holds following shareholding/voting power in the three companies and one society in relation to which section 2(22)(e) has been invoked: Sl. No. Name of the company/concern % of Voting Rights/Income (i) Global Diamonds (P) Ltd 19.66% (ii) Maharishi Vedic Construction Corpn. (P) Ltd. only 0.003% (iii) Golden Glades Ltd. 4.562% (iv) SRM Foundation of India Nil, being charitable society 6.6 It is here that the controversy has arisen. The Assessing Officer is of the opinion that so as to hold whether a person has a substantial interest in a company or not, the holding of all the family members including of Shri Anand Prakash Srivastava is to be seen and clubbed together; and as such shareholding exceeds 20% in all the companies or concerns, therefore, provisions of section 2(22)(e) gets attracted. The percentage of shareholding 1 voting power/share in the income after clubbing of the share of the family members in the four companies/concern is as under: SI. No. Name of the company/concern % of share holding/Voting Right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(22)(e) are not applicable to the facts of the present case. It is submitted that the loans loans/advances given by the appellant company cannot be termed as having been made for and on behalf of or for the individual benefit of Shri. Anand Prakash Srivastava as envisaged by the provisions of section 2(22)(e) On a perusal of assessment order the AO has nowhere demonstrated or established any nexus between the loans granted by the appellant company vis-à-vis flow of funds to Sh. Anand Prakash Srivastava (shareholder of the appellant company). Therefore, the finding of the Ld. AO in this regard is merely based on assumption and presumption only and deserves to be quashed being based on no evidence ......... Whereas in the present case, there is no finding that loan/advances given by the appellant company to the three companies and one charitable society have reached the hands of APS (a shareholder controlling the appellant company) ....... 8. The Special Bench of the Hon'ble ITAT in the case of Assistant Commissioner of Income Tax v. Bhaumik Colour P. Ltd [2009] 313 ITR (A.T.) 0146 (Mum) (SB) has taken a very strict interpretation of Section 2(22)(e) and has stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholder 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) is to tax dividend in the hands of shareholder. 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 loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. ....... The Apex Court while considering what can come within the artificial definition of dividend under section 2(22) in the case of CIT v. Nalin Behari Lall Singha [1969] 74 ITR 849 (SC) described the scope of the definition of dividend thus "The definition is, it is true, an inclusive definition and a receipt by a shareholder which does not fall within the definition may possibly be regarded as dividend within the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the assessee are different assessee, independent and distinct persons and entitles under the Act and unless the law prescribes the transactions to be looked into together while computing the income of the assessee, no cognizance of the shareholdings or other transactions thereof could be taken into consideration while computing the income of the assessee. No provision has been brought to my notice which authorises the revenue authorities to consider the share holding or ownership of the husband or son as the holding or ownership of the assessee or to include the same for determining the assessee's interest in the company." 10. Following this case, the aforementioned case has correctly brought out that the other relatives of Sh. Anand Prakash Shrivastava are different, distinct and independent assessee under the Act and unless the law prescribes that the transactions/holdings of these persons can be clubbed with that of the majority shareholder, it cannot be done. Accordingly, it is held that in the case at hand that the aforesaid condition No. (b) given in para 5.2 above is not attracted. 11. The AO has not brought out any facts to show that the third limb (c) given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tava is not mandated by the provisions of the Act and thus tantamount to reading a condition which is not there. 7.2 We find that Ld. CIT(A) has also held that the loan/advance given by the assessee company cannot be termed as having been made for and on behalf or for the individual benefit of APS, as envisaged by the provisions of section 2(22)(e) of the I.T. Act. 7.3 We find that the Ld. CIT(A) has rightly referred the Special Bench of the ITAT in the case of Asstt. CIT v. Bhaumik Colour (P.) Ltd [2009] 313 ITR (A.T.) 0146 (Mum) (SB) has taken a very strict interpretation of Section 2(22)(e) and has stated as under :- "Section 2(22) of the Act artificially extends the scope of dividend from being more than only a distribution of profits to cover certain other types disbursements such as loans paid, etc. ...... The new category of payment which was considered as dividend introduced by the Finance Act, 1987, with effect from April 1, 1988, by the second limb of section 2(22)(e) is payment" to any concern in which such shareholder is a member or a partner and in which he has a substantial interest". It is this category of payment with which we are concerned in this reference. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ern in which its shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. 7.5 We note that the Hon'ble Apex Court while considering what can come within the artificial definition of dividend under section 2(22) in the case of CIT v. Nalin Behari Lall Singha [1969] 74 ITR 849 (SC) described the scope of the definition of dividend thus "The definition is, it is true, an inclusive definition and a receipt by a shareholder which does not fall within the definition may possibly be regarded as dividend within the meaning of the Act unless the context negatives that view." 7.6 We also find that the Ld. CIT(A) has relied upon the ITAT case in Smt. Gunvanti R. Mehta v. ITO [1993] 45 ITD 382 (Bom.) wherein the Tribunal commented on the issue the shares held by the family can be taken into consideration in determining the "substantial interest in the company" held as under:- 'I find that there is nothing in section 2(22)(e) of the Act or section 2(32) of the Act to suggest that the holding or ownership of voting rights of the shares held by the fami ..... X X X X Extracts X X X X X X X X Extracts X X X X
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