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TMI Blog2016 (1) TMI 1078X X X X Extracts X X X X X X X X Extracts X X X X ..... e to will-fully evade tax by paying higher rate of interest and therefore, we delete the addition made by Assessing Officer - Decided in favour of assessee Deemed dividend u/s. 2(22)(e) - Held that:- As the assessee company is not a share holder in Mahavir Rolling Mills Pvt. Ltd., therefore, no addition could be made u/s 2(22)(e) of the Act, as deemed dividend and accordingly, we find no reason to interfere with the order of ld. CIT(A). We uphold the same - Decided in favour of assessee - ITA No.1942/Ahd/2011, ITA No.2191/Ahd/2011 - - - Dated:- 4-1-2016 - Shri Rajpal Yadav, JM, Manish Borad, AM. For The Assessee : Shri Asheembhai L. Thakkar, AR For The Respondent : Shri Dipak Sutaria, Sr.DR ORDER PER Manish Borad, Accountant Member. These two cross appeals one by assessee and the other by Revenue are directed against order of CIT(A)-VIII, Ahmedabad, dated 8.6.2011 in appeal No.CIT(A)-VIII/ACR.4/732/09-10. Assessment was framed u/s 143(3) of the Income-tax Act, 1961 (in short the Act) vide order dated 17/12/2009 for Asst. Year 2007-08. 2. First we take up assessee s appeal in ITA No.1942/Ahd/2011 for Assessment Year 2007-08. Following grounds h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling Mills Pvt. Ltd. Assessing Officer should have appreciated the facts that in the case of K. K. Bansal there was credit balance of ₹ 3,34,72,237/- and during the year there have been regular transactions of funds outflow and inflow and at the end of the year the remaining credit balance in a/c of K. K. Bansal was ₹ 48,31,275/-; which means that the unsecured loan taken has substantially reduced. Similarly, in case of transaction between the assessee and Mahavir Rolling Mills there was no opening balance and regular transactions of fund outflow and inflow in between the two companies have taken place and over all during the year total of credit entries is ₹ 6,69,37,343/- and total of debit entries excluding interest paid is ₹ 65,05,700/- and the account has been squared up at the end of the year. These regular transactions between the assessee company and with its director and sister concern shows that there is no basic intention to claim excess interest and the transactions have been entered in a regular course of business as required to be made between the sister concern. 7. Ld. AR also submitted that both Mr. K. K. Bansal and Mahavir Rolling Mills P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been squared up and this shows that there were regular flow of funds for business expediency with its sister concern. In the case of any assessee having sister concern and common director such type of funds movement are quite natural and are made for the smooth running of the business unless and until some specific intention comes across for any tax evasion which is not the case of the assessee because from the perusal of income-tax returns acknowledgement of K. K. Bansal and Mahavir Rolling Mills for Asst. Year 2007-08 we find that both of them are assessed to maximum marginal rate and there seems to be no intention of the assessee to evade taxes. Further, the decision of Hon ble Gujarat High Court in the case of Principal CIT vs. Gujarat Gas financial Services Ltd. (supra) supports the view discussed above wherein it has been held that in a situation when the Assessing Officer found that assessee was using some space of the parent company and, therefore, initiated proceedings u/s 40A(2)(b) and deducted and remitted rent of space from services charges it was observed that as assessee company and parent company both were taxed at marginal rate and therefore it cannot be said tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of ₹ 3,28,34,197/- and Assessing Officer went ahead to make addition of deemed dividend u/s 2(22)(e) at ₹ 85,21,606/- in the hands of assessee company by calculating the increase in accumulated profits of Mahavir Rolling Mills Pvt. Ltd. in comparison to last year. The assessee went in appeal before the CIT(A) who deleted the addition by relying on the decision of the Tribunal in the assessee s own case for Asst. Year 2005-06 in ITA No.2349/Ahd/2008 vide order dated 10/12/2010. 16. Aggrieved the Revenue is now in appeal before the Tribunal. 17. Ld. DR relied on the order of Assessing Officer whereas the ld. AR supported the order of CIT(A). 18. We have heard the rival contentions and perused the material on record. From going through the facts of the case, we find that Mr. K. K. Bansal is a common substantial share holder in assessee company as well as Mahavir Rolling Mills Pvt. Ltd. However, the assessee company is not a share holder of Mahavir Rolling Mills Pvt. Ltd. In the assessment order Assessing Officer has referred to the advance received from Mahavir Rolling Mills Pvt. Ltd. at ₹ 6,69,37,343/- and has framed the assessment order by making additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 118 ITD 1 (Mum)(SB), wherein the Hon ble Special Bench has held as under:- 33. We may also touch upon certain other aspects of the issue n the light of the submissions made before us. The Tribunal in the case of Nikko Technologies (supra), while holding that the payment made by a company even to a non-shareholder can be brought to tax in the hands of the non-shareholder has made the following observations. Section 2(22)(e) only specifies the circumstances under which a payment by way of loan/advance is to be treated as deemed dividend. Once it is determined that any payment by way of loan/advance falls within the ambit of section 2(22)(e), then, it has to be treated as dividend even though such payment in the ordinary circumstances may not be considered as dividend. At this point of time, the role of section 2(22)(e) ends. It nowhere provides as to who is to be taxed in inspect of such income. It is to be borne in mind that the tax can only be assessed in the hands of right person as held by the apex court in the case of ITO v. Ch. Atchalah (1996) 218 ITR 239, at pages 243-244. In order to find out the right person, one has to examine the charging provisions of the Act. Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat of a firm can have the payment made to a concern from the company and the person who can control the affairs of the concern can draw the same from the concern instead of the company directly making payment to the shareholder as dividend. The source of power to control the affairs of the company and the concern is the basis on which these provisions have been made. It is therefore proper to construe those provisions as contemplating a charge to tax in the hands of the shareholder and not in the hands of a nonshareholder viz., concern. A loan or advance received by a concern is not in the nature of income. In other words there is a deemed accrual of income even under section 5(1)(b) in the hands of the shareholder only and not in the hands of the payee, viz., non shareholder (concern). Section 5(1)(a) contemplates that the receipt or deemed receipt should be in the nature of income. Therefore, the deeming fiction can be applied only in the hands of the shareholder and not the non shareholder, viz., the concern. 37. The definition of dividend under section 2(22)(e) of the Act is an inclusive definition. Such inclusive definition enlarges the meaning of the term dividend ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The contention of the Departmental representative that the provisions of section 8(a) of the Act creates a fiction by which even payments to non shareholders can be construed as dividend cannot be accepted. Those provisions merely fix the year in which dividend has to be taxed. It is therefore clear that the shareholder alone can, if at all, be subjected to tax for having earned dividend. 39. In the decision of the Tribunal in the case of Nikko Technologies Ltd. (supra) reliance has been placed on Circular No.495, dated September 22,1987 ([1987] 1568 ITR (St.) 87), which states as follows (page 91): Further, deemed dividend would be taxed in the hands of a concern where all the following conditions are satisfied . We are of the view that circular of the Central Board of Direct Taxes to the extent that they do not tone down the rigor of the provisions of the Act in the sense to the extent they are not benevolent are not binding. 40. Apart from the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company; (b) the company should be a closely held company in which the public are not substantially interested; (c) there must be payment by way of advance or loan to a shareholder or any payment by the company on behalf of or for the individual benefit of the shareholder and (d) there must be sufficient accumulated profits in the hands of the company up to the date of such payment. 16. We find from the above case law of Mumbai Special Bench of this ITAT, wherein it is categorically held that the deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder. Accordingly, this issue is squarely covered in favour of the assessee and against the Revenue, hence, we confirm the order of CIT(A) deleting the addition of deemed dividend u/s.2(22)(e) of the Act made by Assessing Officer. This issue of the Revenue s appeal is dismissed. We find that issue is squarely covered in favour of assessee and against the Revenue in the present case also. Respectfully, following the decision of this Tribunal in assessee s sister concern in the case of Mahavir Rolling Mills Ltd. (supra) we up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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