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TMI Blog2018 (12) TMI 1835X X X X Extracts X X X X X X X X Extracts X X X X ..... rs being the shareholders and not in the hands of the assessee company, who is not a shareholder - HELD THAT:- Both the entities i.e. lender and the assessee company has certain individuals shareholders who hold threshold shareholding in the two entities within the meaning of Section 2(22)(e).- assessee itself does not hold any shareholding in the lender company either as registered shareholder or as a beneficial shareholder. This being the case, the ratio of decision of Special Bench of Mumbai Tribunal rendered in ACIT Vs Bhaumik Color (P) Ltd.. [ 2008 (11) TMI 273 - ITAT BOMBAY-E] as relied upon by first appellate authority becomes squarely applicable. Section 2(22)(e) does not extend the meaning of the term shareholders and that the loan so granted could not be taxed as dividend income in the hands of the recipient company who was not the shareholder of the lender company.- Decided in favour of assessee. - I.T.A. No. 4075/Mum/2013 - - - Dated:- 5-12-2018 - HON BLE SHRI MAHAVIR SINGH, JM AND HON BLE SHRI MANOJ KUMAR AGGARWAL, AM For the Appellant : Rushabh Mehta Jigar Mehta, Ld. ARs For the Respondent : Chaudhary Arun Kumar Singh, Ld. DR ORDER Per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter certain additions as against returned income of ₹ 28.69 Lacs filed by the assessee on 30/09/2009. The following additions made by Ld. AO but deleted by first appellate authority are the subject matter of present appeal before us:- No. Nature of Addition Amount (Rs.) 1. Enhancement of Net Profit 55.58 Lacs 2. Deemed Dividend u/s 2(22)(e) 17.25 Lacs 2.2 Facts qua the same are that during assessment proceedings, it was noted that the assessee company had carried out sub-contract for an entity namely M/s Srishti Raj Enterprises for construction of residential building at Plot No. 92, Tilak Nagar, Chembur, Mumbai. The perusal of financial statements revealed that the assessee reflected capital work in progress at ₹ 402.34 Lacs which comprised-off of cost of ₹ 365.76 Lacs and 10% profit margin of ₹ 36.57 Lacs. As against this, the turnover reflected by the directors in their report was ₹ 422 Lacs. The assessee submitted contract details and copies of running account bills agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee filed further suit in civil court for the same and therefore, the income did not accrue to the assessee and therefore, not recognized during impugned AY. In the alternative, a plea was raised to allow the non-recovered amount as business loss. The aforesaid explanation / pleas found favor with first appellate authority who deleted the additions by making following observations:- 3.8 I have considered the submissions made by the Ld. Counsel of the appellant well as the facts of the case. The appellant has argued that the contractee disputed the workmanship of the appellant and thus rejected the bills raised upon it. This fact is neither controverted nor disputed by the Assessing Officer. Accordingly, the bills have not been recognised due to uncertainty relating to the realisation of the bills. A suit for recovery was also filed for recovery of these bills and eventually, Hon'ble Bombay High Court, on the basis of the consent terms reached between the appellant and contratees, passed an order on 21.02.2009 holding that the appellant is eligible to an amount of ₹ 4,57 95,049/- (i.e. ₹ 3,41,00,000 + ₹ 1,16,95,049/-) from the contractees. 3.9 Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of interest-bearing loans were pending, interest does not accrue to assessee during relevant assessment years. In addition to this, the Hon ble Bangalore Tribunal in the case of Canara Bank Vs. Joint CIT (supra) has held that So long as the income cannot be said to have accrued within the meaning of section 5 which is the charging section, sections 28 to 44D computing the income under the head profits and gains of business cannot be brought into operation. 3.13 Since the income being in dispute, cannot be said to have accrued to the appellant u/s 5 of the Act, due to prevalent situation as discussed above, same cannot be assessed in the year under consideration. The addition of ₹ 55,58,394/- is hence deleted. 3.14 The appellant has made an alternative plea to allow the unrecoverable amount as business loss. In view of my decision above, there is no need to adjudicate the same. The second addition of ₹ 17.25 Lacs u/s 2(22)(e) was deleted by making following observations:- 4.5 It may be seen from the above that for a payment of an advance or loan to be deemed as dividend in the hands of the appellant, the appellant must be a shareholder and that too a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges are that both the entities i.e. lender and the assessee company has certain individuals shareholders who hold threshold shareholding in the two entities within the meaning of Section 2(22)(e). However, the assessee itself does not hold any shareholding in the lender company either as registered shareholder or as a beneficial shareholder. This being the case, the ratio of decision of Special Bench of Mumbai Tribunal rendered in ACIT Vs Bhaumik Color (P) Ltd. [118 ITD 1] as relied upon by first appellate authority becomes squarely applicable. Further, we find that aforesaid ratio has already attained finality in the wake of decision of Hon ble Apex Court rendered in CIT Vs. Madhur Housing Development Co. [2017-TIOL-398-SC-IT] which has upheld the view of Hon ble Delhi High Court rendered in CIT Vs. Ankitech P. Ltd. [11 Taxmann.com 100] which has affirmed the aforesaid view of the special bench of the Tribunal that Section 2(22)(e) does not extend the meaning of the term shareholders and that the loan so granted could not be taxed as dividend income in the hands of the recipient company who was not the shareholder of the lender company. 6. The decision of Hon ble Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the HUF and the payment in question was made to the HUF. The shares were held by the Karta of the HUF. It is in this context that the Supreme Court came to the conclusion that HUF was the beneficial shareholder. 5.2 In the instant case, however, both the registered and beneficial shareholders are two individuals and not the assessee-company. Therefore, in our view, the judgment of the Supreme Court does not rule on the issue which has come up for consideration in the instant matter. Upon due consideration of factual matrix, we find that the judgment of the Hon'ble Supreme Court in the case of Gopal and Sons (HUF) (supra) is not applicable to the facts of the present case since the assessee, in that case, was a HUF entity and the issue was as to whether the loans and advances received by the Hindu Undivided family [HUF] could be treated as 'deemed dividend' within the meaning of Sec. 2(22)(e) of the Act. Notably, in the case before the Hon'ble Supreme Court, the payment was made by the company to the HUF and the shares in the company were held by the karta of the HUF. It is in this context that the Hon'ble Supreme Court upheld the addition in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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