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TMI Blog2018 (8) TMI 1251X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of Section 2(22)(e) of the Act. - Additions confirmed - Decided in favor of revenue. - ITA Nos. 5549 And 5971/Mum/2014 - - - Dated:- 21-8-2018 - Shri Mahavir Singh, Judicial Member And Shri G. Manjunatha, Accountant Member For The Appellant : Shri R. Manjunatha Swamy For The Respondent : Shri Pramod Kumar Parida ORDER Per G. Manjunatha, AM These two appeals filed by the Revenue are directed against separate but identical orders of the CIT(A)-13, Mumbai dated 20.06.2017 and 07.07.2017 for assessment years 2010-11 and 2011-12. Since the facts are identical, these appeals are heard together and are disposed off by this common order for the sake of convenience. 2. The Revenue has raised more or less common grounds of appeal for both the assessment years. For the sake of brevity grounds of appeal taken for A.Y. 2010-11 are extracted below: - ( i) The Learned CIT(A) has erred on facts and in law in deleting the disallowance made by the Assessing Officer on account of exemption under section 10AA of the Income Tax Act, 1961 without properly appreciating the factual and legal matrix of the case as clearly brought out by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction of already existing unit. The AO also made addition towards deemed dividend under Section 2(22)(e) of the Act, in respect of loans received from M/s. KSN Trading Pvt. Ltd. and M/s. NSN Jewellers Ltd. on the ground that the assessee has received loans and advances from a company where the beneficial ownership of shares in the assessee company and the lender company were held by common shareholders. Aggrieved by the assessment order the assessee preferred appeal before the CIT(A). 4. Before the CIT(A), the assessee filed elaborate written submissions on both the issues which has been reproduced by the learned CIT(A) in his order at pages 3 to 9. The sum and substance of the arguments of the assessee before the learned CIT(A) was that the AO was erred in denying deduction under Section 10AA of the Act, in respect of profit derived from unit located in SEZ without appreciating the fact that the assessee has obtained necessary approval from the competent authority. Therefore it is incorrect on the part of the AO to deny the benefit by holding that the assessee has set up its business by splitting/reconstruction of already existing business. Similarly, in respect of addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l contentions and considered the material available on record. The issue of deduction claimed under Section 10AA of the Act, is no longer res integra. The Coordinate Bench of ITAT in assessee s own case has considered similar issue in the light of section 10AA of the Act, and after considering the facts held that the assessee has established an independent unit in the SEZ at Andheri to carry out manufacture and export of plain and studded golden and silver jewellery and started commercial production from A.Y. 2006-07 onwards. The relevant portion of the order of the ITAT is extracted below: - 5.We have heard the rival submissions and perused the material before us. We find that the assessee had established as an independent unit in the Special Economic Zone (SEZ) SEEPZ at Andheri (E) to carry out manufacture and export of plain and studded gold and silver jewellery, that it started its commercial production w.e.f. June 2005 i.e. AY.2006-07, that by virtue of being established as an unit in SEZ it became eligible for the grant of deduction u/s. 10AA of the Act, that there was loss in the first year and loss was accepted u/s. 143(3), that the AO considered the issue as to whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d dispute are that during the year under consideration the assessee has received unsecured loans from M/s. KSN Trading P. Ltd. and M/s. NSN Jewellers Ltd. The AO observed that the loans received by the assessee from the above two companies hit by the provisions of Section 2(22)(e) of the Act, as M/s. Sunjewels India Pvt. Ltd. is a common shareholder in assessee company as well as NSN Jewellers Pvt. Ltd. and KSN Trading Pvt. Ltd. The lenders of loan is having beneficial ownership of more than 10% of shares, therefore the loans and advances received from KSN Trading Pvt. Ltd. and NSN Jewellers Pvt. Ltd. comes within the purview of provisions of Section 2(22)(e) of the Act. 10. The learned A.R. for the assessee submitted that the learned AO was erred in making addition toward loans and advances received from KSN Trading Pvt. Ltd. and NSN Jewellers Pvt. Ltd. under Section 2(22)(e) of the Act without appreciating the fact that these loans are intercorporate loans taken during the normal course of business of the assessee and hence are not hit by the provisions of Section 2(22)(e) of the Act. The learned A.R. further submitted that once the loans are taken in the normal course of mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of loans and advances given to the assessee company. The AO has treated loans and advances received from the two lender companies as deemed dividend under Section 2(22)(e) of the Act to the extent of accumulated profit of lender companies or loans and advances received by the assessee whichever is less and accordingly made addition of ₹ 6,95,52,345/-. It is the claim of the assessee that the loans and advances received from the above two companies are normal business transactions in the nature of intercorporte loans and hence the AO was erred in applying the provisions of Section 2(22)(e) of the Act. The assessee has also taken a plea that only the registered shareholder who is having beneficial holding of shares in a company from which loans and advances received will come under the provisions of Section 2(22)(e) of the Act, but not the beneficial owner of the equity shares in the said companies. 13. Having heard both the sides, we find that the controversy has been resolved by the Hon'ble Supreme Court in the case of Gopal Sons (HUF) (sura). Even a beneficial shareholder holding substantial interest in the lender company will also come within the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee/HUF. Though, the share certificates were issued in the name of the Karta, Gopal Kumar Sanei, but in the annual returns, it is the HUF which was shown as registered and beneficial shareholder. In any case, it cannot be doubted that it is the beneficial shareholder. Even if it is presumed that it is not a registered shareholder, as per the provisions of section 2(22)(e), once the payment is received by the HUF and shareholder (Karta, in this case) is a member of the said HUF and he has substantial interest in the HUF, the payment made to the HUF shall constitute deemed dividend within the meaning of clause (e) of section 2(22). This is the effect of Explanation 3 to the said section. Therefore, it is no gainsaying that since HUF itself is not the registered shareholder, the provisions of deemed dividend are not attracted. [Para 17] 14. In this case the undisputed fact is that common shareholders having substantial share holding in assessee company as well as lender companies. Therefore we are of the view that the loans and advances received by the assessee from the two companies comes within the ambit of provisions of Section 2(22)(e) of the Act. The CIT(A), without apprec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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