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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 ..... e and in law, the Commissioner of Income Tax (Appeals) was justified in deleting the addition of Rs. 12,24,72,654/- made by the Assessing Officer under section 2(22)(e) of the Income Tax Act by holding that the assessee was not having beneficial interest in the advance recipient Company after 08.05.2012 particularly when the transferee Company has neither shown such shares as asset and unpaid sale consideration to the assessee as liability in its balance sheet for FY ending on 31.03.2013 nor any specific mention in this regard in the notes of account of the relevant year of the transferee Company ? 3. Whether on the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) was justified in deleting the addition of Rs. 12,24,72,654/- made by the Assessing Officer under section 2(22)(e) of the Income Tax Act in view of the Supreme Court ruling referring the decision of its division bench to larger bench for reconsideration of its decision in the case of Ankitech ? 4. Whether on the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) was justified in deleting the addition of Rs. 12,24,72,654/- made by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shareholdings in Creative Cables Pvt Ltd except one share to M/s Jujhar Constructions and Travels Pvt. Ltd. Hence, only one share was owned by the assessee in M/s Creative Cables Ltd out of the total Share of 25000 which was less than 10 % of the total shares and rest of 24999 shares of the company were transferred to M/s Jujhar Construction Pvt. Ltd.(in short 'JCPTL"). Thus, the company M/s Creative Cable Network Pvt. Ltd. was subsidiary of M/s Jujhar Constructions and Travels Pvt. Ltd. and thus any financial transactions between the holding company and subsidiary company was out of the purview of Section 2(22)(e) of the Income Tax Act. Further, the assessee submitted that the group companies had provided the Inter Corporate Deposits for funding its Short term/ long term business requirements. It was also submitted that the Creative Cable and Jujhar Advertisers had provided ICD of Rs. 18. 67 crores to the JCTPL. The JCTPL had already given an amount of Rs.. 38.56 crores as on 1. 04. 2012 to GS Majestic Development Pvt. Ltd. (GMDPL) and JCTPL had further advanced a sum of Rs. 8. 07 to crores to GMDPL and used balance funds for business purposes and no individual benefit had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate proceedings as well. I have also carefully referred to the remand report submitted by the assessing officer as the assessing officer has only relied upon the original assessment order and has not added any other factor, to contradict the detailed arguments of the appellant filed at the time of appellate proceedings. The Assessing Officer had applied the provisions of section 2(22)(e), since according to the Assessing Officer, Sh. Gurdeep Singh was beneficial owner of the shares holding more than 10% shares in both the companies i.e. CCNPL and JCTPL as well. During the course of assessment proceedings, when the assessee was confronted with the issue of deemed dividend, he stated that he ceased to have substantial shareholding of CCNPL and JCTPL w.e.f 8tfh May 2012 and also filed the copy of annual return on the portal of "Ministry of Corporate Affairs" with the Registrar of Companies, Chandigarh. As per the annual return for the year 2012-2013, relevant to Assessment Year 2013- 2014, the share holding of CCNPL is being held by JCTPL to the extent of 24999 shares, out of total 25000 shares of the Company and the assessee Gurdeep Singh is holding only one share. Thus, accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the ROC, but that is a documentary evidence, which, cannot be brushed aside, because the department of ROC comes under the "Ministry of Corporate Affairs", which regulates the working of all the companies in India and this is a legally enforceable document which establishes the share holding pattern of the Company. 4.2 Besides, as held by the Hon'ble Chandigarh Bench of the ITAT, in the case of "Rajdeep Builders" that direct documentary shall prevail over the oral evidence and also in the another judgment of Hon'ble Supreme Court in the case of M/s Motor & General Store as cited "supra" where it has been held that statutorily the parties have to reduce a certain transaction into writing it is not open to Court or any authority to permit oral evidence to be adduced by the parties or to entitle them to go behind the statements made in the document. Income tax Authorities are under the ordinary law." 4.3 Further, there is force in the arguments of the Ld. AR of the assessee that the share transfer deed, which is a legal instrument of shares was asked to be produced and which was submitted in original to the Assessing Officer and which had been impounded by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings before me, which lasted few months, the case was discussed on number of hearings and it has been argued that the case of the Assessee for Assessment Year 2014-2015 was also under scrutiny by the Assessing Officer, Circle-VI, Ludhiana in which, he had raised same issue of deemed dividend relating to the substantial interest as in the case for Assessment Year 2013-2014 under appeal and the Assessee had filed detailed reply (Copy of which has been filed before me placed in the file) and there again copy of the annual return for Financial Year 2012-2013 and 2013-2014 as filed to the ROC, had been filed and by considering the above said evidences on record, no addition on account of "deemed dividend" have been made and for that copy of the assessment order for Assessment Year 2014-2015 u/s 143(3) has been filed before me. Thus, on the same facts and circumstances, the Assessing Officer now has accepted the transfer of shares as reflected in the annual return as filed before the ROC and based on such submissions, no adverse view have been taken. 4.6 In view of the above said factual facts and circumstances, which are borne out from the record, it is true that suspicion, howsoe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as given the following specific additional submissions on this issue: "Now in a latest land mark judgment by Income Tax Appellate Tribunal Kolkata"C" bench, Kolkata vide its order dated 11.03.2016 reported at ITA No. 1817/Kol/2009 Assessment Year 2006-07 has pronounced that" When the Company was compensated by way of interest on loan taken the assessee shareholder in real sense did not derive any benefit from the funds of the Company so as to attract the provisions of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. Thus Tribunal has observed that " Loans & Advances given on interest not deemed dividend u/s 2(22)(e) as the shareholder do not derive any benefit from the funds of the Company. The same fact has also been established in case of Pradip Kumar Malhotra reported in 338 ITR 538 cited by the Ld Counsel for the assessee. It was held by the Hon Kolkata High Court that the phrase by way of advance or loan appearing in section 2(22)(e) must be construed to mean those advance or loans which a shareholder enjoys for simply on account of being a partner, who is the beneficial owner of shares, but if such loan or advance is given to such shareholder as consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, received from such shareholder, in such case, such advance or loan cannot be said to deemed dividend within the meaning of the Act. 4.10 The another issue which has been argued vehemently before me is that, besides the above said contention that the assessee did not have beneficial substantial share holding in the company, which is required to qualify for the purposes of taking the recourse of section 2(22)(e), it has been argued by way of written submission and orally also that the provisions of section 2 (22)(e) are not applicable in view of the following facts:- a) The transaction is in the nature of commercial expediency and do not fall under the category of Deemed dividend u/sec 2(22)(e) of the Act. b) No personal benefit of the Assessee is involved in the entire transaction. c) Provisions of section 2(22)(e) are not applicable only for the sole reason that the shareholding is common. d) Even the amount is not given as interest free to M/s Jujhar Construction and Travels Pvt Ltd. e) The amount is given purely in the nature of inter corporate deposits and thus it cannot come under the category of deemed dividend. f) The relationship between the two Companies i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be held to be an expense on account of commercial expediency. A financial benefit of any nature derived by the subsidiary on account of the amounts advanced to it by the holding company would not merely indirectly but directly benefit its holding company. In the case before us, the subsidiary had to be funded to a large extent for otherwise it would not have survived. If it had not survived and had gone into liquidation, the appellant would have suffered directly on account of an erosion of its entire investment in the subsidiary. In this case, the financial assistance was not only prudent but of utmost necessity for without it the subsidiary would have suffered grave financial prejudice." 4.12 Similarly, the reliance by the assessee on the judgment of Hero Cycles Pvt. Ltd. , S.A. Builders, Lakra Brothers and others is quoted above are quite apt. The assessee has also relied upon the judgment of M/s Bagmane Construction Pvt. Ltd. and which case is also of 2 (22)(e) and in that case, there are similar facts and in which, it has been held as under:- "As a result of globalization during the recant past, various giant infrastructure projects have sprung up and many are in the pip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relied upon by the appellant in support of its contention one thing which has emerged and cannot be denied that the whole exercise has been done in order to support the one of the major group company that the amount has ultimately been received by M/s G.S Majestic Developers Private Limted which was in need of funds to complete its big project of construction of a mall. The amount is given purely in the nature of inter corporate deposits and thus it cannot come under the category of deemed dividend. Irrespective of the status of the Company whether it is subsidiary or not subsidiary, the very transfer of amount from the group companies for the business purpose which has not resulted into any violation of section 2(22)(e) of the Income Tax Act, 1961.In the present case one of the group company has transferred the funds to a Company which has further transferred the same to the other group Company which used the same for the construction of a building used by the group companies. The major factor which has emerged is that no personal/individual benefit to the assessee accrued with the above transaction. M/s G.S Majestic Developers Private Limited was not having any regular income t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll under the category of Deemed dividend u/sec 2(22)(e) of the Act. It is also to be kept in mind the argument of the appellant that ultimately that No individual benefit of the Assessee is involved in the entire transaction. Therefore Provisions of section 2(22.)(e) are not applicable only for the sole reason that the shareholding is common. It is also important fact to consideration that even the amount is not given as interest free to M/s Jujhar Construction and Travels Pvt. Ltd Accordingly it is held that the amount is given purely in the nature of inter corporate deposits and thus it cannot come under the category of deemed dividend. The relationship between the two Companies is that of Holding and Subsidiary and thus provisions of section 2(22)(e) are not applicable. M/s Creative Cable Network Pvt Ltd. is also into the business of money lending as substantial funds of the Company are given to group Companies as interest funds. In all the arguments as reiterated from time to time at the time of appellate proceedings but major factor which is come prominently is that the amount has been invested by the one group Company in the other group Company only on account of commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orking condition. e. The Company has incurred around 150cr of amount as on date in the said project. Now, the Company has started earning the rental income but even the said rental income is not sufficient to meet the interest on the total amount of Rs. 150cr. So, even if the entire project was financed by the Banking Institutions, the same was not viable and the financial help from the group Companies was required in any case. Thus, I find that it was a commercially expedient transaction, necessitated by business requirements wherein funds were given by CCNPL to JCTPL and on which, the interest has also been paid by JCTPL to CCNPL and this fact has been acknowledged by the Assessing Officer in the assessment order itself at page-38. Therefore, in view of the totality of the facts and circumstances, the transaction being in the nature of commercial expediency and further these are inter group deposits among group companies and interest have been charged and no personal benefit of the assessee is involved in the entire transaction, because ultimately the funds have been invested in the implementation of commercial project in the name of G.S. Majestic Developers Pvt. Ltd. and but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. Authorized Representatives of both the parties and gone through the record. In this case, when the assessee was confronted by the AO with the issue of deemed dividend, he stated that he ceased to have substantial shareholding of CCNPL w. e. f. 8th May 2012. He also filed the copy of annual return filed with the Registrar of Companies, Chandigarh. As per the annual return for the year 2012-2013, relevant to Assessment Year 2013-2014, the share holding of CCNPL had been held by JCTPL to the extent of 24999 shares, out of total 25000 shares of the Company and the assessee Gurdeep Singh was holding only one share. It was therefore pleaded that since the assessee was not having substantial share holding in CCNPL, hence, the provisions of deemed dividend were not applicable. However, the assessing Officer rejected the above contention of the assessee observing that the return with the "Registrar of Companies" was filed after the show cause notice issued by her and also that consideration for the transfer of shares was partly remitted during financial year 2012-2013 and that the balance consideration was paid in Financial Year 2013-2014. However, Ld. CIT(A) has decided the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shape of " annual return" filed on portal of " Ministry of Corporate Affairs", share transfer deed, passing on of consideration of shares in the Financial Years 2012-2013 and 2013-2014, through proper banking channel, much before the start of the assessment proceedings, could not be lightly rejected. That it was also not the case of the AO that these documents were false or fabricated. He therefore, held that once the authenticity of such legal documents was not under doubt then the transaction and facts represented by those documents had to be accepted and could not brushed aside by the AO on the basis of mere suspicion only. The Ld. CIT(A) further noted that even in the case of the Assessee for Assessment Year 2014-2015, wherein, the AO had raised same issue of deemed dividend and there again copy of the annual return for Financial Year 2012-2013 and 2013-2014 as filed to the ROC, had been filed and by considering the above said evidences on record, the AO accepted the plea of the assessee and hence, no addition on account of " deemed dividend" had been made by the AO in subsequent years 2014-15 and 2015-16. The Ld. CIT(A), therefore, has observed that in the light of the above d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated profits would not distribute such profit as dividend because if so distributed the dividend income would became taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions such payment by the company is treated as dividend. As per the provisions of section 2(22)(e) of the Act, such a deemed dividend is taxed in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. Section 2(22)(e)of the Act, therefore, does not talk about the dividend actually declared or received. The dividend taken note of by this provision is a deemed dividend and not a real dividend. For certain purposes, the Legislature has deemed such a loan as 'd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial state of facts which may be contrary to the real state of facts. When a fiction is created by law, it is not open to anybody to plead or argue that the artificial state of facts created by law is not true. The basic purpose of a deeming provision is an assumption that something is true even though it may be untrue. It creates a presumption that accepts something as fact without the benefit of evidence and further the legal consequences of such facts have to follow accordingly. Under such circumstances, when on the proof of one fact, which, in the case in hand is fact of advancement of loan to the share holder or to the concern in which such a share holder is having substantial share holding, the other fact that such a loan is a diversion of the accumulated profits of the company for the benefit of such a shareholder, hence income of the share holder, is to be assumed automatically. For raising such an irrebuttable presumption, the first set of facts which are deemed to be conclusive proof of the other, i.e. regarding the advancement of loan to shareholder or to the concern in which such a share holder has substantial interest has to be proved strictly and beyond reasonable do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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