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TMI Blog2016 (2) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... ter, the assessee revised its return on 29.03.2010 declaring total income of Rs. 1,27,69,310/-. The case was processed u/s 143 (1) of the Act and subsequently, the same was selected for scrutiny. During the course of hearing, the AO noticed certain facts and based on that, a show cause notice dated 09.12.2010 was issued. The assessee filed the reply to the said notice. After considering the reply of the assessee, the AO found certain claims of the assessee not tenable. 3.1 Out of the those certain claims, one of the issues was against the addition of Rs. 2,70,00,000/- under section 2(22)(e) of the Act, which is the dispute in the present appeal. The facts relating to this issue are as follows. 3.2 The AO vide show cause notice dated 09.12.2010 asked the assessee to explain as to why loan of Rs. 1.50 crores taken from M/s. Sindhu Trade Links Ltd. (hereinafter 'STLL') and loan of Rs. 1.20 crores taken from M/s. Parnami Habitat Developers Ltd. (hereinafter 'PHDL') be not treated as deemed dividend in view of the facts that directors of the assessee company are substantially interested in the said companies and also some of the shareholders are common in both the companies. The AO ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess i.e. advancing of loans & advances on Interest of the payer company. Same is the case of PHDL. The assessee has failed to prove that the advances were given in the normal course of business. In view of discussions and reasons given above, the two fold submissions of the AR stands negated and controverted and the two saving clause will not be of any help to the assessee as the same is not applicable in this case. Further why the provisions of deemed dividend will be applicable, in the present case, is being discussed further on merit of the case and Transactions." Accordingly, relying on various authorities and factual matrix, the AO held that the advances/loans received by the assessee were liable to be taxed in the hands of the assessee as deemed dividend as per section 2(22)(e) r.w.s. 56 and section 115O of the Act and Rs. 2.70 crores was added back to the total income of the assessee. 3.4 Aggrieved, the assessee went in appeal before the ld. CIT (A) who deleted the addition by observing as under :- "Ground No.4, 5, 6 & 7 : Addition of Rs. 2.70 crores u/s 2(22)(e) of the Income Tax Act, 1961 being loans received from associated companies. a. The AO made the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public are substantially interested is found incorrect. In fact what is relevant to this issue is quoted in the assessment order itself as, "it will be well to recall the words of Rowlatt J in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64 (KB) at page 71, that: ".....in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used". Even while quoting this in the assessment order the AO seeks to go beyond the intention of the Act. Especially in deeming provisions. the interpretation cannot be stretched to the disadvantage of assessees. In this case the AO was not required to go beyond the definition in section 2(18) of the Act. Even the plethora of case laws quoted by the AO are found wanting on relevance to the present issue. The addition of Rs. 2.70 crores on account of deemed dividend is therefore deleted. This ground is ruled in favour of the appellant." 4. The revenue, being aggrieved, is in appeal before us on the aforesaid issue. 5. Ld. DR relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT - 96 Taxman 11 (SC) (vi) Kantilal Manilal vs. CIT - 41 ITR 275 (SC) (vii) CIT vs. P.K. Abubucker - 135 Taxman 77 (Mad.) (viii) Mr. Ravindra D. Amin vs. CIT - 208 ITR 815 (Guj.) (ix) L. Alagusundaram Chettiar - 109 ITR 508 (Mad.) (x) Walchand & Co. Ltd. - 100 ITR 598 (Bom.) (xi) In view of these submissions, ld. DR pleaded that the orders of the CIT(A) be set aside on this issue and the appeal of the department be allowed. 6. Ld. AR for the assessee reiterated the submissions made before the ld. CIT (A) and for the sake of clarity, the same are reproduced hereunder :- "It was submitted vide letter dated 15.12.2010 (Copy enclosed) that both STLL and PHDL are NBFC certificate holding companies and also stock exchange listed companies. Proof of being NBFC and Listed companies were submitted during the course of assessment proceedings. It was also pleaded while submitting the shareholding charts of STLL and PHDL that Assessee Company is not holding shares exceeding 10% of their (M/s Sindhu Trade Links and M/s Parnami Habitat Developers) total shareholding. Also none of the shareholder holding more than 10% in those companies is holding 20% shares in the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and PHDL, it is clear that the Assessee Company is not holding any shares In these companies and hence in no way the amounts can be taxed in the hands of Assessee Company. Further note from Shareholding charts of STLL and PHDL that there is no shareholder holding 10% in these companies, who is further holding 20% in the Assessee Company. Hence Section 2(22)(e) of the Income Tax Act, 1961 is not applicable since shareholding condition, mandatory for applicability of Section 2(22)(e) of the Income Tax Act, 1961 are not satisfied. 2. Section 2(22)(e) applicable in the hands of shareholder: Section 2(22)(e) of the Income Tax Act, 1961 is applicable in the hands of shareholder only. Neither the Assessee Company is shareholder in these companies nor there is a shareholder holding 10% in these companies, is holding 20% in the Assessee company. Hence addition made in the hands of Assessee Company, should not have been made. 3. Section 2(22)(e): Not applicable to widely held Companies: Section 2(22)( e) uses the words : any payment by a company "not being a company in which the public are substantially interested" meaning thereby that Section is applicable only to companies whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies.php it can be seen that STLL and PHDL are listed company on Delhi Stock Exchange. Since the list involve 2830 companies, we are producing herewith relevant extract showing evidence in regard to STLL and PHDL only. Also note that PHDL is also listed on Ahmadabad Stock Exchange which can be verified from as per information available In public domain on Ahemdabad Stock Exchange website at http://www.aselindia.org/companies/listed-companies.htmlit can be seen that PHDL is listed company on Ahemdabad Stock Exchange. Since the list involve 226 companies, we are producing herewith relevant extract showing evidence in regard to PHDL only. Also note that there was no adverse material on record or brought on record by the Ld. AO to support her contentions regarding STLL and PHDL. Hence the allegations made by the Ld. AO is baseless, arbitrary and made in a reckless manner. c. Controlling~% shareholding in a company by promoter group does not mean that the company is a closely held company. If it is so then almost 95% of the NSE or SSE listed companies would be treated as closely held companies. For your ready reference, we are enclosing herewith shareholding pattern of NSE/SSE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Corporate Deposits. They are applicable to payments by way of advance or loans only. Reliance in this regard has been placed on Bombay Oil Industries Ltd. vs DCIT (2009) 28 SOT 383 (ITAT Mum) (Copy enclosed) wherein the Hon'ble ITAT Mumbai has held that since there is a clear distinction between the words advance or loan and Inter Corporate Deposits and hence deeming provisions of Section 2(22)(e) of the Income Tax Act, 1961 cannot be applied to Inter Corporate Deposits. 5. Section 2(22)(e): Not applicable to loan or advance by Non Banking Finance Companies Section 2(22) of the Income Tax Act, 1961 has an exclusion clause that dividend does not include where advance or loan has been given to shareholder by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company. As submitted earlier also that the Assessee Com an is not a shareholder in the STLL and PHDL, further note that the STLL and PHDL are Non Banking Finance Company and Registered with Reserve Bank of India since 1998 in Category of Loan Investment Company and engaged in activities of shares sale, financial activities, loan syndication act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange and PHDL is also listed on Ahmedabad Stock Exchange and also the shareholding pattern as on 31.03.2008. And that Section 2(22)(e) is not applicable to loans or advances by Non Banking Finance Companies (NBFC). In order to substantiate that STLL and PHDL are NBFC, it was submitted that they are registered with Reserve Bank of India since 1998 in Category of Loan Investment Company and engaged into the activities of shares sale, financing activities, loan syndication activities and hypothecation activities. It is a well settled principle of law that deeming provision has to be interpreted strictly and it cannot be stretched to more than that for which the deeming provision can be literally interpreted. Nothing can be added or implied while interpreting a deeming provision. One can only look at the language used. Therefore, we concur with the ld. CIT (A) that the lender company i.e. M/s. STLL and M/s. PHDL are public limited companies and so the loan/advance/ICD given to the assessee does not fall in the ken of section 2(22)(e) and moreover, the lender companies are NBFC which are also excluded from the said deeming provision, therefore, we do not find any merit in this ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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