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TMI Blog2018 (3) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 2(22)(e) of the Act. We hold that the transaction is not deemed dividend within the meaning of section 2(22)(e) of the Act and accordingly, delete the addition made by the A.O. - Decided in favour of assessee - I.T.A. No. 71/Vizag/2017, C. O. No. 42/Vizag/2017 - - - Dated:- 9-3-2018 - Shri V. Durga Rao, Judicial Member And Shri D. S. Sunder Singh, Accountant Member Appellant by : Shri G. Satyanandam, DR Respondent by : Shri G.V.N. Hari, AR ORDER Per D. S. Sunder Singh, Accountant Member This appeal filed by the revenue is directed against order of the Commissioner of Income Tax (Appeals)-1 {CIT(A)}, Guntur vide ITA No.24/2015-16/CIT(A)-1/GNT dated 26.10.2016 for the assessment year 2012-13. The cross objection filed by the assessee is in support of the order passed by the Ld. CIT(A). 2. All the ground of appeal are related to the deemed dividend assessed u/s 2(22)(e) of the Income Tax Act, 1961 (hereinafter called as 'the Act'). The assessee is an individual deriving salary income as a Director of the company. The assessee is one of the Director in M/s. Yarlagadda Exports (P) Ltd., Guntur. During the previous year relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll my properties along with my personal guarantee. One among such properties was the old house, located at Vikasnagar, whereas I contemplated to construct a new house. For the construction of the house at the site, I required funds. Since my financials were inadequate (with the fact that all my properties are under mortgage and my personal guarantee provided for the credit facility sanctioned to YEPL), the State Bank of India had not provided any additional credit facility to me. Hence, the Company has provided the adequate funds for the construction of my house, with a condition for the repayment of interest at the Bank Rate as well as the principal. Accordingly, I have borrowed the funds in phases and in proportion to the construction. All these facts were declared in my personal Return Income and at the time of Hearing. In the case of CIT. Vs Creative Dyeing and Printing Private Limited, the Delhi High Court, discussed the similar issue as that a plain reading of the recommendations of the taxation enquiry commission and the speech of the then Finance Minister would show that the purpose of intention of sub-clause (e) to section 2(6A), in the 1922 Act was to bring within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany to the Appellant shall not be in the shape of advances or loans and not as a gratuitous payment. Thus the advance is not simpliciter, but an advance made for the business expediency. The arrangement between the assessee and the company was merely for the sake of convenience arising out of business exigency. In the facts and the circumstances, it is not appropriate to hold that the amount withdrawn by the Appellant partakes character of deemed dividend under the provisions of Section 2(22)(e) of the I.T. Act. 4. Aggrieved by the order of the Ld. CIT(A), the revenue is in appeal before this Tribunal. 5. Appearing for the revenue, the Ld. D.R. argued that the assessee has taken a loan of ₹ 44,16,977/- from the assessee company and is director of the assessee company having controlling in shares i.e. more than 10% of the shares since the assessee satisfied both the conditions of having more than 10% shareholding and sufficient reserves in the lending company, the loan taken by the assessee required to be taxed as deemed dividend u/s 2(22)(e) of the Act and argued that the A.O. has rightly invoked the provision of section 2(22)(e) and brought to tax the amount borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. Having heard both the parties and having considered the materials available on record, we find that the A.O. has made additions towards loans and advances under the provisions of section 2(22)(e) of the Act, on the ground that transaction between the assessee and his company is coming within the definition of loans and advances. The assessee claims that transaction between himself and his company is not a gracious payment which is coming within the meaning of loans and advances as defined u/s 2(22)(e) of the Act. The CIT(A) after considering the explanation furnished by the assessee and also following the decision of Kolkata High Court, in the case of Pradip Kumar Malhotra Vs. CIT, held that the transaction between the assessee and his company are not gracious payment which is coming within the meaning of loans and advances as defined u/s 2(22)(e) of the Act. The relevant portion of the CIT(A) order is reproduced hereunder: 7.2 However, even on merits also, alternate contention of the appellant is considered. It is noted that the appellant has mortgaged his personal property to various banks and obtained loans for the business of the company. The documents filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs (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. situated at MMTC colony, Seethammadhara, Vizag in the name of Hari Prasad Bhararia. 12.11.2010 Axis Bank Ltd. Ramnagar, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd. 400 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. situated at MMTC colony, Seethammadhara, Vizag in the name of Hari Prasad Bhararia. Even till date, the Axis Bank has granted cash credit facility to the said company on the basis of the collateral security provided by the properties and also the personal guarantee of the appellant and his family members (latest sanction letter being 6.3.2013). 7.3 It is noted that the facts in the case of Pradip Kumar Malhotra vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to various banks and obtained loans for the business of the company. Even though there is a personal element of individual benefit to the appellant, the Company from which the advances were taken also benefited by using the property as collateral security to the bank. Thus, as observed by the Hon'ble Calcutta High Court that the loan or advance given in return to an advantage conferred upon the Company by a shareholder is not a gratuitous loan or advance given by the Company and does not come under the purview of section 2(22)(e). In view of the above, the addition made on account of deemed dividend by the Assessing Officer is ordered to be deleted for AYs 2005-06 to 2011-12. Since the issue is decided in favour of the appellant, the matter relating to the appellant s remuneration does not arise. 18. The CIT(A) has considered the issue in detail and held that the transaction between the assessee and his company are not coming within the meaning of loans and advances as defined u/s 2(22)(e) of the Act. The facts remain unchanged. The revenue has failed to brought on record any evidences to prove that the findings of the fact recorded by the CIT(A) is incorrect. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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