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TMI Blog2023 (8) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... cient availability of interest free funds, we find no merit in the finding of the ld. AO making interest disallowance under Rule 8D(2)(ii) of the Rules. Thus, the finding of the ld. CIT(A) is set aside and disallowance made under Rule 8D(2)(ii) for the impugned assessment years are hereby deleted. Remaining disallowance u/r 8D(2)(iii) assessee has not challenged the said disallowance of Rs. 2,22,977/- and, therefore, the same is confirmed. So far as Assessment Year 2014-15, is concerned, we notice that AO has made a disallowance under Rule 8D(2)(iii) at Rs. 5,01,386/- and the same has been calculated taking the average investment figure at Rs. 10.03 Crores, whereas as per the details filed in the paper book, the correct figure is Rs. 5,93,89,491/- which is the investment fetching exempt income and taking this correct figure, the disallowance under Rule 8D(2)(iii) will work out to Rs. 2,96,947/- and the same is hereby confirmed. For Assessment Year 2016-17, we notice that the ld. Assessing Officer has calculated the sum @ 0.5% of the average investment at Rs. 10.23 Crores, whereas the actual average value of investment is Rs. 4,41,09,065/- and, therefore, the correct amount of disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the issue of interest on delay deposit of TDS has been extensively dealt in the case of M/s Premier Irrigation Adritec (P) Ltd. [ 2023 (1) TMI 1124 - ITAT KOLKATA] wherein the Tribunal has held that interest payment on delayed deposit of income tax, whether TDS or otherwise is not an allowable expenditure. Respectfully following the decision of the Tribunal, the disallowance of interest on delayed deposit of TDS stands confirmed. So far as the interest on delayed payment of Service tax is concerned, we notice that the same is allowable in view of the ratio laid down in the case of Lachmandas Mathuradas [ 1997 (12) TMI 16 - SUPREME COURT] Since the bifurcation of the alleged disallowance is not available on record, we direct the Assessing Officer to carry out the necessary exercise for which the assessee shall provide the related documents and then shall confirm the disallowance for the interest on delay in deposit of TDS and allow the interest paid on delay in deposit of service tax. Accordingly, this issue raised for AY 2016-17 and 2017-18, is partly allowed for statistical purposes. - Dr. Manish Borad, Hon ble Accountant Member And Shri Sonjoy Sarma, Hon ble Judicial Memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of section 2(22)(e) of Income Tax Act, 1961. 3. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who made addition of Rs. 27,126/- for so-called delayed deposit of employees contribution to PF u/s 2(24)(x) read with section 36(1)(va) of Income Tax Act, 1961. 4. That the appellant craves leave to add, alter, adduce or amend any ground on or at the time of hearing of the appeal. Assessment Year : 2016-17 1. That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the further disallowance made by AO amounting to Rs. 65,23,307/- u/s 14A read with Rule 8D over such disallowance already offered by the appellant in its computation of income. 2. a) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of AO who rejected the explanation of the appellant against the applicability of the provisions of section 2(22) (e) of Income Tax Act, 1961. b) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in in confirming the action of AO who considered loan of Rs. 5,15,00,000/- received from M/s. Apeejay Tea Ltd. as deemed dividend within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,38,82,870/-. Case selected for scrutiny through CASS followed by issuance of notice under section 143(2) and 142(1) of the Act. The major issues for consideration by the assessing officer were with regard to disallowance under section 14A of the Act as well as deemed dividend under section 2 (22)(e) of the Act. The ld. AO observed that during the year assessee company has received a sum of Rs. 21,92,55,967/- from another group concern Apeejay Tea Limited. The ld. AO further noticed that both the companies, namely, assessee company i.e., Apeejay Pvt. Ltd. and Apeejay Tea Limited, have a common shareholder, namely, Kathua Steel Works Pvt. Ltd., holding shares at 58.64% in Apeejay Tea Limited and 99.96% in the assessee company. Since accumulated profits for distribution in the books of Apeejay Tea Limited, were to the tune of Rs. 239.33 Crores, the ld. Assessing Officer invoked the provisions of section 2(22)(e) of the Act. Though the assessee stated that addition for deemed dividend can be made only in the hands of the shareholder and assessee not being a shareholder, addition for deemed dividend is uncalled for, but the ld. Assessing Officer was not satisfied and he made the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment Years 2013-14, the disallowance made by the Assessing Officer at Rs. 2,42,350/-, the same may be confirmed. As regards Assessment Year 2017-18, it is claimed that the ld. Assessing Officer failed to consider that the assessee has suo moto disallowance of Rs. 4,45,692/- under section 14A of the Act as against Rs. 1,40,266/- computed by the ld. Assessing Officer. But as regards Assessment Year 2014-15 2016-17, placing reliance on the decision of this Tribunal in the case of REI Agro Ltd , Kolkata vs DCIT in ITA No. 1331 / Kol / 2011 dated 19.6.2013 reported in (2013) 35 taxmann.com 404 (Kolkata-Trib.), submitted that the matter may be remitted back to the Assessing Officer for calculating the average value of investment under Rule 8D(2)(iii), which fetches exempt income and only on such investments, calculation of 0.5% can be made and the remaining disallowance may be deleted. 10. The ld. D/R, on the other hand vehemently argued supporting the orders of the lower authorities. 11. We have heard rival contentions and perused the material placed before us. Assessee is aggrieved with the disallowance under section 14A of the Act confirmed by the ld. CIT(A). We notice that the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmed. 13. For Assessment Year 2016-17, we notice that the ld. Assessing Officer has calculated the sum @ 0.5% of the average investment at Rs. 10.23 Crores, whereas the actual average value of investment is Rs. 4,41,09,065/- and, therefore, the correct amount of disallowance shall work out to Rs. 2,20,545/- and the same is hereby confirmed. 13.3. For Assessment Year 2017-18, Assessing Officer made total disallowance of Rs. 1,40,266/- whereas assessee has suo-moto disallowed a sum of Rs. 4,45,692/- and has mentioned in the audit report and ld. Assessing Officer has failed to take note of the said disallowance. It means that the ld. Assessing Officer has not complied with the provisions of Section 14A of the Act of recording satisfaction before applying Rule 8D of the Rules. On this ground itself the disallowance made under section 14A r.w.r. 8D, for Assessment Year 2017-18 is deleted. 14. Now, we take up the issue of addition towards deemed dividend under section 2(22)(e) of the Act, for the sum received by the assessee company from another group company, namely, Apeejay Tea Limited. The basis for making the impugned addition by the revenue authorities is that both the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in hands of common shareholder as per section 2(22)(e). Based on the aforesaid decisions, the A/R pleaded that action of AO as well as CIT(A) is bad in law and the addition must be deleted. 16.1. The Ld. Counsel also stated that these loans were not gracious loan which were enjoyed by the assessee without any interest. From the ledger account Ld. Counsel pointed out that the assessee has paid interest of Rs. 52,60,315/- for the said assessment year and the said loan was used for meeting the regular working capital requirement of the assessee company and therefore, in view of the fact that assessee has paid interest on loan from group company Apeejay Tea Ltd. which is not a gracious loan the amount in question could not be regarded as deemed dividend. 17. On the other hand, the ld. D/R vehemently argued supporting the order of the lower authorities and stated that Kathua Steel Works Pvt. Ltd., is a common substantial shareholder in both the companies i.e., in the company giving the loan and in the assessee company receiving the loan and, therefore, is directly hit by the provisions of section 2(22)(e) of the Act. Further reference was made to the finding of the ld. CIT(A) which rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay the income-tax on the same, subject to certain exemptions. The new scheme essentially makes the dividend tax-free (section 10(34) of the Act) in the hands of the recipient (except cases covered under section 2(22(e)of the Act) and the dividend paying company has been made liable to pay tax on the amount of dividend declared, distributed or paid by it (Section 115-0 of the Act). This tax is over and above the corporate income-tax which a company would normally pay. Recently there has been changes in the provision of section 2(22)(e), now the loans and advances given by the closely held company which is treated as deemed income will be liable to Dividend Distribution Tax and the company will pay tax @ 30% on such amount. 9.4 Section 2 (22) Section 2(22) has 5 clauses (a), (b), (c), (d) and (e) which specify various types of distributions and payments as dividend. Clauses (a), (b), (c) and (d) mainly cover cases of distributions which entail release of assets or create liabilities. While clause (e) covers cases of payments by way of loans or advances and which is the clause mainly dealing with deemed dividend as it is commonly understood and has been dealt with in this article. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year, beneficially entitled to not less than twenty percent of the income of such concern. 9.6 The plain reading of the provisions of section 2(22)(e) and other definitions of beneficial ownership as reproduced above would indicate that there are two limbs in the section 2(2)(e) which attracts the provisions of Deemed dividend, the same can be illustrated as below: i) If a privately held company extends loan to a such a shareholder who do not have less than 10 % of beneficial ownership of share in that company, then such loan will be treated as Deemed dividend in the hands of such share holder to whom loan is given. ii) Also, if a privately held company extend loan to a concern in which such share holder (having not have less than 10 % of beneficial ownership of share in that company) holds substantial interest. 9.7 In order to illustrate the issue at hand in a better way, let us presume that there exist three privately held companies namely A , B and C with the following arrangements: - a) C is having a beneficial ownership of shareholding in A of 58.64 %. b) C is having a beneficial ownership of shareholding in B of 99.96 %. c) B is not having any shareholding in A N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the hands of the assessee towards deemed dividend under section 2(22)(e) of the Act. The uncontroverted facts placed before us are as follows:- 1) assessee is a private limited company and has received the alleged sum as loan from its group concern M/s Apeejay Tea Limited, during the years under appeal. 2) assessee company is not a shareholder of M/s. Apeejay Tea Limited and similarly M/s. Apeejay Tea Limited, is not a shareholder in the equity of the assessee company. 3) Apeejay Tea Limited has sufficient accumulated profits available for distribution as dividend. 3) the concern, namely, Kathua Steel Works Pvt. Ltd., is a common shareholder having 58.64% shareholding in Apeejay Tea Ltd. and 99.96% in Apeejay Pvt. Ltd. 19. Now, the revenue authorities had invoked section 2 (22)(e) of the Act and made the addition of deemed dividend in the hands of the assessee on the ground that since Kathua Steel Works Pvt. Ltd., is a common shareholder in both the companies and the alleged sum has been received by the assessee company on behalf of its substantial shareholder. Now whether this action of the revenue authorities is justified or not needs to be considered. 20. Since section 2(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f making further investments in the fixed assets and/or for the purpose of increasing the business of the concern and/or for the purpose of distributing as dividends to its shareholders. Now, distributing of dividend attracts dividend distribution tax and if the company wants to distribute dividends to its shareholders then the same has to be done at par to all the shareholders and the company cannot distinguish between the shareholders of which some are closely related to it/management or substantial shareholder and, therefore, if the dividend is declared it has to be given to all the shareholders. Now in case the company does not want to distribute dividend but wants to give such funds to its shareholders having substantial interest in it then the same can be done only by way of giving loans or advances or by any other mode of payment which is not taxable in the hands of the recipient. Now, in order to check such type of transactions, section 2(22)(e) of the Act, has been brought into the Act. 23. Further on going through Section 2(22)(e) of the Act, we find that there are three limbs and if the case of the assessee falls under any of the three limbs and the company giving loan/a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d fact that the assessee company who has received the alleged funds is neither a shareholder in Apeejay Tea Ltd. nor Apeejay Tea Ltd., is a shareholder in the assessee company. The beneficial shareholder in this case is Kathua Steel Works Pvt. Ltd., holding shares at 58.64% in Apeejay Tea Limited and 99.96% in the assessee company. Now, examining these facts in the line of our discussion u/s 2(22)(e) of the Act, the beneficial owner of the shares is Kathua Steel Works Pvt. Ltd., and all the three limbs mentioned in Section 2(22)(e) of the Act, if needs to be attracted then the same can only be in the case of Kathua Steel Works Pvt. Ltd.. 26. The first decision that we would like to refer to examine the alleged transactions and to support our view is that of the Hon ble Special Bench of ITAT in the case of Bhaumick Colour Pvt. Ltd. (supra), wherein it has been held as follows:- 34. We are of the view that the provisions of section 2(22)(e) does not spell out as to whether the income has to be taxed in the hands of the shareholder or the concern (non-shareholder). The provisions are ambiguous. It is therefore necessary to examine the intention behind enacting the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be in the nature of income. Therefore the deeming fiction can be applied only in the hands of the shareholder and not the non-shareholder, viz., the concern. 37. The definition of Dividend under section 2(22)(e) of the Act is an inclusive definition. Such inclusive definition enlarges the meaning of the term Dividend according to its ordinary and natural meaning to include even a loan or advance. Any loan or advance cannot be dividend according to its ordinary and natural meaning. The ordinary and natural meaning of the term dividend would be a share in profits to an investor in the share capital of a limited company. To the extent the meaning of the word Dividend is extended to loans and advances to a shareholder or to a concern in which a shareholder is substantially interested deeming them as dividend in the hands of a shareholder the ordinary and natural meaning of the word Dividend is altered. To this extent the definition of the term Dividend can be said to operate. If the definition of Dividend is extended to a loan or advance to a non-shareholder the ordinary and natural meaning of the word dividend is taken away. In the light of the intention behind the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether, thus, deemed dividend was to be taxed in hands of MM who was shareholder in OSL in his individual capacity and not in hands of assessee-firm and, accordingly. impugned addition was to be deleted. Delhi High Court. CIT Vs MCC Marketing Pvt Ltd [ 343 ITR 350 (Del- HC)] Where assessee-company received unsecured loan from its sister- concern and one 'A' was holding more than 20 per cent shares in both sister-concern and assessee-company, provisions of section 2(22)(e) were not attracted in assessee's case. Section 2(22) of the Income-tax Act, 1961 Deemed dividend - Assessment year 2006-07 - Assessee, a private limited company, received a certain amount as unsecured loan from its sister concern by name MIPL - Assessing Officer having noticed that one A was holding more than 20 per cent shares in both MIPL and assessee-company invoked provisions of section 2(22)(e) and made addition of aforesaid amount to income of assessee Whether in view of judgment of Delhi High Court rendered in case of CIT v. Ankitech (P) Ltd. [2011] 199 Taxman 341 / 11 taxmann.com 100, provisions of section 2(22)(e) were not attracted in instant case Held, yes - Whether, therefore, impugned addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is not to be extended further for broadening concept of shareholders - Held, yes - Whether any company is supposed to distribute profits in form of dividend to its shareholders/members and such dividend cannot be given to non- members - Held, yes - Whether second category that is specified in section 2(22)(e) is a concern in which shareholder of payer company has at least 20 per cent of voting power and loan or advance under this category is given admittedly not to a shareholder/member of payer company and, therefore, under no circumstances, it can be treated as shareholder/member receiving dividend Held, yes Whether, however, in a case where conditions stipulated in section 2(22)(e) treating loan and advance as deemed dividend are established, revenue can treat dividend income at hands of shareholders and tax them accordingly - Held, yes Whether where loans and advances are given in normal course of business and transaction in question benefits both payer and payee companies, provisions of section 2(22)(e) cannot be invoked - Held, yes. Circulars and Notifications: CBDT Circular No. 495, dated 22-09-1997. Mumbai High Court. CIT Vs Narmina Trade Investments Pvt Ltd [2017] 81 Tacm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to tax on the maximum rate by Apeejay Tea Ltd., and there are regular transactions of inflow and outflow of funds between the two, which truly characterize it as part of regular business transaction. 29. Before us, the ld. Counsel for the assessee apart from the above decisions, also placed reliance on the decision of the co-ordinate bench of the ITAT in the case of DCIT 1(1)(2), Mumbai Vs Gilbarco Veeder Root India (P) Ltd 96 Taxmann.com 263 stating it to be squarely applicable in favour of the assessee. From perusal of the said decision, we notice that the issued raised in this decision verbatim similar to the one raised in the instant appeal and the loans was received by a concern which was not a shareholder in the lender company but there was a common shareholder having substantial interest in both the lender company as well as the receiver company and, the Co-ordinate Bench after considering the settled judicial precedents held that the addition for deemed dividend u/s 2(22)(e) of the Act can be made only in the hands of the shareholder. The finding of the Tribunal reads as follows:- 10. We have considered this aspect of the matter as also the provisions of Sec. 2(22)(e) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of assessee-company and Portescap is Kollmorgen and not the assessee-company. Therefore, the decision of the Hon'ble Supreme Court in the case of Gopal and Sons (HUF) (supra) is inapplicable to the facts of the present case. In fact, the learned representative for the respondent-assessee has correctly placed reliance on the judgment of the Hon'ble Madras High Court in the case of M/s. Ennore Cargo Container Terminal P. Ltd. (supra), which has been rendered in a somewhat identical situation. In order to elaborate the point, the following discussion in the judgment of the Hon'ble Madras High Court, which is reproduced hereinafter, would show that in the present circumstances before us, the ratio of the decision of the Hon'ble Supreme Court in the case of Gopal and Sons (HUF) (supra) is not attracted :- 4.2 The Revenue seeks to assess as income the capital advance received by the assessee-company from Indev Logistics Pvt. Ltd. on the ground that it is deemed dividend received by the assessee-company for the benefit of the registered shareholder. For this purpose, the provisions of Section 2(22)(e) of the Income-tax Act, 1961 (in short 'the Act') is sought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances, and respectfully following the ratio laid down in the decisions and judgments rendered in cases of Bhaumik Colour Pvt. Ltd. (supra), DCIT 1(1)(2), Mumbai Vs Gilbarco Veeder Root India (P) Ltd 96 Taxmann.com 263 as well as CIT Vs. Vatika Township (P) Ltd. reported in 367 ITR 466, since undisputedly the assessee is not a shareholder in Apeejay Tea Ltd., which has given loan/advance to assessee, therefore, the assessee does not fall under any of the limbs provided under section 2(22)(e) of the Act, and the same cannot be invoked in the hands of the assessee. We, thus setaside the finding of the ld. CIT(A) and delete the addition of Rs. 21,92,55,967/- for AY 2013-14, Rs. 47,07,00,000/- for AY 2014-15, Rs. 5,15,00,000/- for AY 2016-17 and Rs. 1,15,00,000/- for AY 2017-18 made under section 2(22)(e) of the Act and allow these common grounds of appeal raised by the assessee against the addition made u/s 2(22)(e) of the Act. 31. The next common issue for our consideration is disallowance u/s 2(24)(x) of the Act at Rs. 27,126/- and at Rs. 53,507/- for Assessment Years 2014-15 2016-17 respectively; 32. It is an admitted fact that the disallowance u/s 2(24)(x) of the Act was made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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