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TMI Blog2020 (6) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... h late fee as applicable, as was done by assessee and since the same was accepted by the ROC, hence, for all intents and purposes, the effective date of transaction will be the date as mentioned in the return. Since, the revenue could not rebut the above stated facts beyond reasonable doubt, hence, CIT(A) has rightly declined to apply the deeming provisions of section 2(22) (e) - It has also been observed by the Ld. CIT(A) that in the subsequent assessment years AY 2014-15 and even AY 2015-16, in the scrutiny assessments carried out u/s 143 (3) of the Act, the AO has accepted the very transaction of shares effected in May 2012. - Decided against revenue. - ITA No. 170/CHD/2018 - - - Dated:- 26-6-2020 - Shri Sanjay Garg, Judicial Member And Ms. Annapurna Gupta, Accountant Member For the Assessee : Shri Ashwani Kumar, CA For the Revenue : Smt. C. Chandrakanta, CIT DR ORDER PER SANJAY GARG, JUDICIAL MEMBER: The present appeal has been preferred by the Revenue against the order dated 02. 11. 2017 of the Commissioner of Income Tax (Appeals)-3, Ludhiana [hereinafter referred to as CIT (A) ]. 2. The Revenue in this appeal has taken following grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the Assessing Officer (in short AO ) into the income of the assessee of deemed dividend u/s 2(22) (e) of the Income Tax Act, 1961 (in short the Act ). The brief facts of the case are that the assessee filed his return of income for the assessment year 2013-14 on 31.03. 2014, declaring a total taxable income of ₹ 4, 04, 74, 160/-. However, the assessment was completed u/s 143(3) of the income Tax Act, 1961 (in short the Act ) vide order dated 31.03. 2016 at an income of ₹ 16, 29, 46,814/- by the Assessing Officer (AO) making the addition of ₹ 12, 24, 72, 654/- on account of the deemed dividend in the hand of the assessee under the provisions of section 2(22)(e) of the Act. During the course of assessment proceedings it was noticed by the Ld. AO that the assessee was having shareholding in the following companies:- 1. Creative Cable Network Pvt. Ltd. - 99. 60 % 2. Jujhar Constructions and Travels Pvt. Ltd. - 99% The AO further noted that both of these companies were closely held companies in which the assessee was having more than 10% shareholding. It was pointed out by the AO that M/s Creative Cable Network Pvt. Ltd. had advanced, unsecured loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not there. Rather, the interest has been transferred to A/c of JCTPL which is paid to India Infoline Ltd. It is pertinent to mention here that the nature of ICD is such that it is given out of surplus and not by taking loan. Nevertheless, the loan from M/s India Infoline was raised and extended to M/s Jujhar Construction Pvt. Ltd. That the assesse failed to prove the nature of business for which the trade advances were made. The Assessing Officer accordingly did not accept the transaction of transfer of shares during the year under consideration by holding the same as afterthought transaction. The Assessing Officer further stated that the amount of ₹ 17, 67, 23, 500/- was loan advanced by M/s Creative Cable Network Pvt Ltd. to M/s Jujhar Construction and Travels Pvt Ltd. and since the assessee was a substantial shareholder in both the Closely held Companies and, thereby, she concluded that the provisions of section 2(22)(e) were applicable in the case of the Assessee. So, she made the addition of ₹ 12, 24, 72, 654 /- (to the extent of accumulated profits of M/s Creative Cable Network Pvt Ltd.) in the hands of the Assessee as deemed dividend in hand of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance consideration was paid in Financial Year 2013- 2014. The contention of the assessee has been that the transfer of shares is substantiated by the documentary evidence as per record of the Registrar of Companies , who is the only authority to whom the intimation regarding the transfer of shares is required to be given and as per record of the ROC, the effective date of transfer of share is May 8, 2012 and, thus, it has been argued vehemently by the counsel of the assessee that during the relevant year i.e. F.Y. 2012-2013, Sh. Gurdeep Singh was not having beneficial shareholding holding in CCNPL to the extent of minimum 10% of shares. It has been further argued in regard to the late intimation to Registrar of Companies , by the assessee that one can file belated return with the ROC and, if the annual return is late as in the case of assessee, then the same can be filed along with late fee as applicable as was done by assessee and, as such, for all intents and purposes, it is valid original annual return and has to be relied upon and is legally enforceable document in the Court of Law. The assessee has relied upon the judgment of ITAT Chandigarh Bench in the case of Rajde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cedural mistake and will not effect the legal validity of the transfer deed. It is on this strength of the valid transfer deed, coupled with the fact that the amount of consideration have already been remitted by the transferee to the transferor and, thus, it is legally enforceable document and cannot be brushed aside. 4.4 Further, I find that besides the above, the Assessing Officer has noted certain other inconsistency in the above said arguments of the sale of shares by Sh. Gurdeep Singh in May 2012 viz-a-viz that the above said arrangement of transfer of shares has not been reflected properly in the balance sheet of the corresponding companies i.e. CCNPL and JCTPL and also nothing has been mentioned in the notes on accounts either. This is only a doubt or suspicion, but at the same time, the documentary evidences which have been placed before me and the Assessing Officer in the shape of annual return filed on portal of Ministry of Corporate Affairs , share transfer deed, passing on of consideration of shares in the Financial Year 2012-2013 and 2013-2014, through proper banking channel, much before the start of the assessment proceedings, cannot be lost sight off. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingh through normal banking channels and it cannot be said to be afterthought, because the scrutiny assessment for Assessment Year 2013-2014 was started in financial year 2014-15 and concluded in March 2015 and, therefore, after considering the totality of the facts and circumstances, it is held that since Sh. Gurdeep Singh was not having beneficial share holding of minimum 10%, since the shares stood transferred in May 2012, as accepted by the Assessing Officer while framing the assessment for Assessment Year 2014-2015 and also for Assessment Year 2015-16, no addition of the deemed dividend u/s 2 (22)(e) is called for on account of above said factual facts and circumstances. 4.7 Further, the assessee on the strength of share transfer, which is evident by the valid transfer deed and passing on of the consideration, has relied upon the judgment of Chennai Bench of the ITAT in the case of Farida Holdings Pvt. Ltd.( as cited supra), which judgment has, later on, been confirmed by the Madras High Court in ITA No. 892 of 2015, in which, it has been held that any loan and advance by the subsidiary to holding company does not come in the ambit of deemed income u/s 2(22)(e). The facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was treated by the Assessing Officer as deemed dividend under section 2(22)(e), but the Ld. CIT (Appeal) did not approve the action of the Assessing Officer after having noticed that interest at the rate of 9% per annum was paid by the assessee on such loan, which according to him, was a consideration received from her shareholders, which was beneficial to the Company and order of the Ld. CIT (Appeal) giving relief to the assessee was upheld by the Tribunal vide its order dated 29/06/2015 passed in ITA No. 1124/KOU2012 by relying on the decision of the Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra (supra). Keeping in view the said decision of the Hon ble Calcutta High Court which has been followed by the Coordinate Bench of this Tribunal in the case of M/s Zenon (India) Pvt. Ltd (supra), we hold that the addition made by the Assessing Officer and sustained by the Ld. CIT (Appeals) under section 2(22)(e) on account of loan received by the assessee from M/s Surya Business Pvt. Ltd on which consideration in the form of interest was paid by the assessee to the benefit of the Company is not sustainable. We therefore delete the same and allow Grounds No. 1 2 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth CCNPL and JCTPL invested funds in GSMPL as share application money. Apart from this, CCNPL has also advanced money to JCTPL for further investment in GSMPL. All I the funds, whether given by CCNPL JCTPL directly or indirectly to GSMDPL have been utilized for construction of commercial building owned by the group company GSMPJ. All the three companies are, thus, group companies and since May 2012, both CCNPL as well GSMPL are subsidiary to JCTPL. The chart showing the source of investment as well as total investment made by GSMDPL has already been reproduced above as per written submission of the assessee and which is not disputed, since these are the figures as drawn from the balance sheet of the respective companies and, incidentally, the case of CCTPL and JCTPL was under scrutiny by the same Assessing Officer for the same Assessment year and which has been decided and no adverse view has been taken in this regard. It has further been argued that, now, it is established fact that these are group companies and no personal benefit have been involved viz-a-viz assessee, because ultimately all the funds have been utilized for the construction of commercial building by one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y vehicles (SUV) to deal in each of these activities independently. The promoter along with these SUV jointly works to complete the over-all project. In such situation, funds being the bloodline for all these entities flow from one entity to the other. Such transfer of funds arising out of commercial expediency may not be in the nature of advances or loan in all circumstances. 4.13 The appellant's detailed submissions by way of comparative chart of the various issue raised by the Assessing Officer and the assessee's submission have been reproduced in the body of the order and have been taken into consideration, which proves the case of the assessee. Further, the reliance by the assessee on the judgment of AR Magnatic Pvt. Ltd. of Hon'ble Delhi Court as reported in 220 Taxman 209 and CIT vs Ankitech P. Ltd. Ors as reported in 340 ITR 0014 has been relied upon by the assessee for the preposition that even if for the sake of argument, the transfer of shares by Sh. Gurdeep Singh to JCTPL is not taken into consideration even then, no addition on account of deemed dividend can be made. In the above said judgment, it has been held as under :- It is the definition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest to the other company to whom the funds were transferred. Even the amount is not given as interest free to M/s Jujhar Construction and Travels Pvt Ltd. In the case of the Assessee, it is a matter of fact that the amount has not been given as free of cost by M/s Creative Cable Network Pvt Ltd. to M/s Jujhar Construction and Travels Pvt Ltd. The Company has received an amount of ₹ 1,00,11,847/- during the year under consideration as interest income. So in no way the transaction in question can be termed as deemed dividend in the case of the Assessee. Reliance in this regard is being placed upon the following latest Judgment wherein it has been held that when there is passing of some consideration in the form of interest then it cannot be said that any benefit has been received: Smt. Sangita Jain vs ITO in ITA No. 1817/Kol/2009 vide order dated 11.03.2016. The amount has ultimately been invested in the share application money of the Company namely M/s G. S Majestic Developers P Ltd. The assessee has vehemently argued and which has also substance in considering that the amount has ultimately been received by M/s G.S Majestic Developers Private Limited from M/s Jujh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.25 cr and out of the same ₹ 90.70cr has been funded from the group Companies. From the perusal of the said chart it is also clear that the funds amounting to ₹ 90.70cr have been funded by the following group Companies: Amount funded by M/s Jujhar Construction and Transport Pvt Ltd.- 46.64cr Amount funded by Creative Cable Network - 24.10 cr Amount funded by Other Group Companies - 19.96 cr It has also been made clear that out of the total funds as contributed by M/s Jujhar Construction and Transport Pvt Ltd., an amount of ₹ 18.08cr has been received by M/s JCTPL from M/s Creative Cable Network. The chart as submitted earlier clarifies each and everything. It can also be seen from the said chart that M/s G.S Majestic has been able to get funds from the Banks only to the tune of ₹ 19.93cr. It has also been stated earlier that M/s G.S Majestic was not able to procure any loan from the initial years of its project i.e in the year ending 31.03.2011 and 31.03.2012 and even in the year 2013 the Company has able to procure only a meager ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e). It has been further strengthened by the decision of jurisdictional Hon Punjab Haryana High Court in case of CIT vs Amrik Singh that in case of tangible business expediency has been established , Section 2(22)(e) can't be invoked. 4.15 During the course of appellate proceedings the appellant vehemently reiterated that, in the subsequent years the assessing officer Assessing Officer after examining all such facts, passed an order u/s 143(3) of the Income tax Act for the A.Y. 2014-15 has chosen not to make addition of deemed dividend on the basis of evidence furnished. On the same facts and circumstances, the Assessing has chosen not to make addition of deemed dividend on the basis of evidence furnished. This fact substantiate the claim of the appellart given at the time of appellate proceedings that the transactions as carried out during the assessment year is nothing but transaction is in the nature of commercial expediency and no personal benefit is involved in the entire transaction 4.16 So, in nutshell, I am of the view that the appellant is not the beneficial shareholder of minimum 10%, since the shares stood transferred in May 2012, as accepted by Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had submitted before him that one could file belated return with the ROC and, if the annual return was late as in the case of assessee, then the same could be filed along with late fee as applicable, as was done by assessee and, as such, for all intents and purposes, it was a valid original annual return and legally enforceable document. The Ld. CIT(A), admitting the above submissions of the assessee, has observed that though, the return intimating the sale of shares had been filed late with the ROC, however, since the same was accepted by the ROC along with late fee as per rules, hence the same was legally valid and enforceable document which could not be brushed aside. The Ld. CIT(A) has further observed that the share transfer deed was furnished by the assessee in original to the Assessing Officer and which had been impounded by the Assessing Officer and that no adverse comments on the same were recorded by the Assessing Officer, except that the signature of the witness had not been appended on that. However, there were valid signatures of transferor as well as transferee. The Ld. CIT(A), therefore, held that since no doubt had been made by the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reported in 224 ITR 180. The Ld. CIT(A), therefore, concluded that the assessee was not having substantial share holding in the CCNPL and further that 99.9% shares of CCNPL were held by JCTPL , by which the CCNPL had become the subsidiary of JCTPL and funds transferred by subsidiary to holding did not come under the purview of deemed dividend u/s 2 (22)(e). 8. However, the ld. DR, before us, has reiterated that since the annual return of share holder was belatedly filed with the Registrar of Companies, though, regularized by the ROC as per rules on deposit of late fee, however, from the above facts it appears that the said action was an after thought action by the assessee to circumvent the provisions of section 2 (22)(e) of the Act. We have considered the above contention of the ld. DR. Before further deliberating on this issue, we deem it appropriate to reproduce here the relevant provisions of section 2(22) (e) of the Income Tax Act:- any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise made after the 31st day of May, 1987, by way of advance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re holder has also substantial share holding, then as per the provisions of section 2(22 ) (e ) of the Act, there will be a presumption that such loan has been given for the benefit of the share holder and hence, is taxable in the hands of such a share holder. It has been made so by legal fiction created under section 2(22)(e)of the Act read with section 56 of the Act. 9. The words deem or fiction or irrebuttable presumption have not been defined in the Income Tax Act. For better understanding of the statutory presumptions and legal/deeming fictions, we deem it appropriate to refer to the relevant provisions of The Indian Evidence Act, 1872. Though the provisions of the Evidence Act are not strictly applicable to the procedures of this Tribunal as envisaged under the Income Tax Act, 1961, but the principles underlying the provisions of Evidence Act do constitute valuable guides. Section 4 of the Evidence Act, read as under:- 4. May presume .-Whenever it is provided by this Act that the Court may presume a fact, it may either regard such fact as proved, unless and until it is disproved, or may call for proof of it. Shall presume .-Whenever it is directed by this Act th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to JCTPL. On the other hand, the Ld. CIT(A) has specifically observed that as per the annual return filed with the Registrar of Companies, which is a legal and valid document as per law, the assessee was holder of only one share in CCPNL and the other shares stood transferred to the JCTPL. The Ld. CIT(A) has noted that it is the mere suspicion of the AO that the assessee was having substantial share holding in the CCNPL on the date of transaction. As discussed above, to apply a deeming fiction, the first set of facts is to be proved beyond doubt and the deeming fiction cannot be applied on the basis of assumption, presumption or suspicion about the first set of facts. The Ld. CIT(A) also rightly noted that ss per record of Registrar of Companies , the effective date of transfer of shares was May 8, 2012. That one can file belated return with the ROC along with late fee as applicable, as was done by assessee and since the same was accepted by the ROC, hence, for all intents and purposes, the effective date of transaction will be the date as mentioned in the return. Since, the revenue could not rebut the above stated facts beyond reasonable doubt, hence, the Ld. CIT(A), in our ..... X X X X Extracts X X X X X X X X Extracts X X X X
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