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TMI Blog2017 (5) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of ‘deemed dividend’ as defined u/s 2(22)(e) of the Act. the findings given by the CIT(A) on the alternative plea of the assessee that for the purpose of computation of deemed dividend, the accumulated profit of the company up to the date of advancement of each loan has to be considered, but not current year profit becomes academic in nature. Therefore, the ground raised by the revenue in its appeal is dismissed as infructuous. - I.T.A. Nos. 689/Vizag/2013, I.T.A. Nos. 704/Vizag/2013 - - - Dated:- 28-4-2017 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri Shri G.V.N. Hari, AR For The Respondent : Shri Murthy Naik, DR ORDER PER Shri G. Manjunatha, Accountant Member: These cross appeals filed by the assessee, as well as the revenue are directed against order of the CIT(A), Visakhapatnam dated 25.9.2013 and it pertains to the assessment year 2010-11. Since, the facts are identical and issues are common, they are clubbed, heard together and disposed-off by way of this common order for the sake of convenience. 2. The brief facts of the case are that the assessee is an individual deriving income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered as gratuitous payments, which attracts deeming provisions of section 2(22)(e) of the Act, then the accumulated profit of the company as at the end of the previous financial year i.e. as on 31.3.2009 only should be considered, but not the current year profit earned by the company. 4. The A.O. after considering the explanations of the assessee, observed that the amount received from the company is in the nature of loans and advances which falls within the meaning of deemed dividend u/s 2(22)(e) of the Act. The A.O. further observed that though the assessee explains that the amount is paid to clear the existing loan availed on the properties mortgaged for the purpose of obtaining over draft loan for the business of the company, the section does not provide for relief in the circumstances narrated by the assessee. The assessee could not provide any information to prove that the company was doing money lending business. Therefore, opined that the amount advanced by the company to the assessee is deemed dividend within the meaning of section 2(22)(e) of the Act and accordingly, made additions of ₹ 51,44,597/-. 5. Aggrieved by the assessment order, the assessee preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company advanced amounts to the assessee to clear his home loan liabilities with SBI and Money Line Credit Limited, so as to offer these properties as security to Axis Bank. However, on perusal of the details filed by the assessee, it is noticed that the assessee has availed over draft facility of ₹ 175 lakhs with Axis bank as against the existing cash credit limit of ₹ 115 lakhs with SBI, for which the assessee has extended a loan of ₹ 88.5 lakhs to the assessee, which on the face of it would not stand the test of any sort of business expediency. The CIT(A) further observed that the assessee has availed loan from the company to settle his housing loan liabilities without any cost. The advances paid by the company was not for the benefit of business purpose of the company as contended by the assessee. Therefore, the decision of Hon ble High Court of Kolkata, in the case of Pradeep Kumar Malhotra Vs. CIT 338 ITR 538 was rendered with totally different set of facts is not applicable to the facts of the assessee s case. With these observations, rejected the plea of the assessee that the amount received from the company is not a gratuitous payment, but only an arrange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant ledger accounts are produced before the A.O. to justify the payment of advance to the assessee. The A.O. without appreciating the fact, simply made addition on the reason that as per the plain provisions of section 2(22)(e) of the Act, any loan or advance is covered under the provisions of section 2(22)(e) of the Act. In support of his arguments, relied upon the decision of Hon ble High Court of Kolkata, in the case of Pradeep Kumar Malhotra Vs. CIT (supra) and also the ITAT, Visakhapatnam bench decision in the case of DCIT Vs. Hari Prasad Bhararia in ITA Nos.435 to 441/Vizag/2014 dated 9.9.2016. 9. On the other hand, the Ld. D.R. submitted that the assessee has failed to prove the nexus between business advantage derived by the company out of advance given to the assessee. Therefore, the A.O. has rightly invoked the provisions of section 2(22)(e) of the Act, to treat the advance as deemed dividend to the extent of accumulated profit of the company. The D.R. further submitted that in so far as alternative plea of the assessee, the CIT(A) was erred in directing the A.O. to restrict the addition to the extent of accumulated profit of the company as at the beginning of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, provides for addition towards any loan or advances borrowed by any shareholder having substantial interest in the company. In order to attract the provisions of section 2(22)(e) of the Act, the important consideration is that there should be loan/advance by the company to its shareholders, which is the gratuitous payment. Therefore, any payments made to the shareholders of the company, which is not in the nature of gratuitous payments are kept outside the purview of the deeming provisions provided u/s 2(22)(e) of the Act. In this case, the assessee claims that the company has advanced loan in order to gain a long term advantage for the company in the form of an unrestricted over draft facility from Axis bank as against the existing cash credit facility availed from SBI. The assessee further claims that the company has mortgaged his personal properties for the purpose of availing over draft facility. The assessee also claims that he had housing loan as well as mortgage loan on the properties mortgaged to the over draft loan availed by the company and unless the said housing loan as well as mortgage loan is cleared, the company cannot shift its existing cash credit loan from SB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end within the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of s. 2 (22) but not the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. In the present case the assessee permitted his property to be mortgaged to the bank for enabling the company to take the benefit of loan and in spite of request of the assessee, the company is unable to release the property from the mortgage. In such a situation, for retaining the benefit of loan availed from the bank if decision is taken to give advance to the assessee such decision is not to give gratuitous advance to its shareholder but to protect the business interest of the company. Authorities below erred in law in treating the advance given by the company to the assessee by way of compensation to the assessee for keeping his property as mortgage on behalf of the company to reap the benefit of loan as deemed dividend within the meaning of s.2(22)(e)-CIT Vs. Creative Dyeing Printing (P) Ltd. (2010) 229 CTR (Del) 250:(2009) 30 DTR (Del) 143 : (2009) 318 ITR 476 (Del) and CIT Vs. Nagindas M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 State Bank of Hyderabad, Siripuram junction, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd. 30 lakhs Agricultural land 10.2.2006 State Bank of Hyderabad, Siripuram junction, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd. 100 lakhs 4 storyed building on 555 sq.yds situated at Rajendranagar, Vizag in the name of (a) Hari Prasad Bhararia (b) Shivlal Bhararia (brothers) Renewal State Bank of Hyderabad, Siripuram junction, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd. 100 lakhs 4 storyed building on 555 sq.yds situated at Rajendranagar, Vizag in the name of (a) Hari Prasad Bhararia (b) Shivlal Bhararia (brothers) 7.11.2007 The Dhanalakshmi Bank, VIP Road, VizaG M/s. Sampath Vinayak Steels Pvt. Ltd. 150 lakhs (1) 4 storyed building on 555 sq.yds. situated at Rajendranagar, Vizag in the name of (a) Hari Prasad Bhararia (b) Shivlal Bhararia (brothers) (2) VUDA Apartment admeasuring 1485 sq.ft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. The assessee had substantial shareholding in a private company. The assessee permitted his immovable property to be mortgaged to the bank for enabling the company to take the benefit of loan and in spite of request of the assessee, the company was unable to release the property from mortgage. Consequently, the board of directors of the company passed a resolution authorizing the assessee to obtain from the company interest free deposit up to ₹ 50 lakhs as and when required. During the previous year relevant to the assessment year 1999-2000, the assessee obtained from the company a sum of ₹ 20,75,000 by way of security deposit. Out of the amount, a sum of ₹ 20 lakhs was subsequently returned by the assessee to the company. In the assessment ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as the assessee to get business advantage are not falls within the definition of deemed dividend as defined u/s 2(22)(e) of the Act. Therefore, we are of the view that the advance received by the assessee from the company is not a gratuitous payment which attracts deeming provision of section 2(22)(e) of the Act. Hence, we delete additions made by the A.O. towards deemed dividend u/s 2(22)(e) of the Act. 16. In so far as appeal filed by the revenue is concerned, since we hold that the advance received by the assessee from his company are not coming within the meaning of deemed dividend as defined u/s 2(22)(e) of the Act. the findings given by the CIT(A) on the alternative plea of the assessee that for the purpose of computation of deemed dividend, the accumulated profit of the company up to the date of advancement of each loan has to be considered, but not current year profit becomes academic in nature. Therefore, the ground raised by the revenue in its appeal is dismissed as infructuous. 17. In the result, the appeal filed by the assessee in ITA No.689/Vizag/2013 is allowed and appeal filed by the revenue in ITA No.704/Vizag/2013 is dismissed. The above order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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