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12-04-2019, Mohan Bhagwatprasad Agrawal, Section 2(22)(e), Tribunal Ahmedabad

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2 months 5 days ago #9149 by amit
Section - 2(22)(e), 2(32), 194A
Order Date - 12-04-2019
Favouring - Assessee
Court - Tribunal Ahmedabad
Appellant - Mohan Bhagwatprasad Agrawal
Respondent - DCIT
Justice - O. P. MEENA AM & MADUMITA ROY JM
Citation - 419Taxpundit184
Appeal No. - I.T.A. No. 29/AHD/2019
Asstt. Year - 2015-16

Order

PER : O. P. MEENA, AM

This appeal by the assesseeis directed against the order of learned Commissioner of Income tax (Appeals)-4, Ahmedabad (in short “the CIT (A)”) dated 30.11.2018 per aining to Assessment Year 2015-16, which in turn has arisen from the assessment order passed under section 143 (3) dated 26.12.2017 of Income Tax Act,1961 (in short ‘the Act’) by the Deputy Commissioner of IncomeTax, Circle – 4(2) Ahmedabad (in short “the AO”).

2. The grounds of appeal raised by the assessee are as under:

“1. On the facts and circumstances of the case as well as law on the subject, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming addition by applying provisions of section 2(22)(e) for the additional amount of credit transactions from following two companies.

i. Shreem Design & Infrastructure Pvt. Ltd. amounting to Rs. 2,50,80,923/- and

ii. Aatrey Infrastructure Pvt. Ltd. amounting to Rs. 76, 53,711/-.

1.1 On the facts and circumstances of the case as well as law on the subject, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming addition by applying provisions of section 2(22)(e) of the Act ignoring exemption in sub clause (ii) of S. 2(22)(e).

1.2 On the facts and circumstances of the case as well as law on the subject, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming addition by applying provisions of section 2(22)(e) ignoring the fact that lending of money is substantial part of business of both the companies, and advances are in ordinary course of their business.

1.3 On the facts and circumstances of the case as well as law on the subject, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming addition by applying provisions of section 2(22)(e) ignoring transactions in the nature of current accounts.

1.4 On the facts and circumstances of the case as well as law on the subject, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming addition by applying provisions of section 2(22)(e) ignoring that the appellant has paid interest on excess credit amount and not had any individual benefit.”

3. The above grounds of appeal pertains to confirmation of deemed dividend u/s. 2(22)(e) of Rs. 2,50,80,923 fr m M/s. Shreem Design & Infrastructure Pvt. Ltd.(SDIPL) and Rs. 76,53,711 from Aatrey Infrastructure Pvt. Ltd. (AIPL),hence, being dealt with together

4. Briefly stated facts of the case are that it was found that the assessee was having 11.61% of shares holding in the Shreem Design & Infrastructure Pvt. Ltd. (SDIPL) and 22.81% shareholding in the Aatrey Infrastructure Pvt. Ltd. (AIPL), the companies in which public are not substantially interested. Therefore, the AO hold that provisions of section 2(22) (e) of the Act are applicable as the assessee has received loans and advances from the aforesaid companies. The assessee has taken loan from SDIPL amounting to Rs. 6,76,65,000/- during the year under consideration, the accumulated profit of the said company was at Rs. 2,50,80,923/- (the accumulated profit of the company). Therefore, the assessee was asked to show-cause as to why the amount should not be treated as deemed dividend within the meaning of sec. 2(22)(e) of the Act. Similar show-cause notice has also issued in respect of AIPL from whom the assessee has taken loan and advances of Rs. 4,13,32,960/- of the accumulated profit was at Rs.76,53,711/-. The assessee has repliedSDIPL and AIPL are covered by a specific exemption given in sub-clause (ii) of sec. 2(22)(e) of the Act, in which it has been pro ided that any advance or loan made to a share holder (or the said concerns) given by a copy to a shareholder in the ordinary course of its business, where the lending of money is a substantial part of the business of the company would be excluded. It was stated that money lending business is authorized in Memorandum of Association in page 2 para 6 and page 4 para 20. However, the examination of Memorandum of Association revealed that the main object of the company was to carry on business of builder, masons and general construction, industrial construction, etc and to carry out the construction business of property, lands, flats, houses, shops, offices, industrial estates etc. However, the other object the incidental or ancillary to the attainment of the main object. Regarding money lending business it was not stated that the object of incidental or ancillary to the main object that the money lending business is also object incidental to the main business but simply stated that investment in any surplus money of the company not immediately required for purpose of main business of construction. Nor the assessee has obtained license, which is necessary to carry out money lending business. Therefore, the AO was of the view that companies are not engaged in the business of money lending for the year under consideration and hence assessee`s case is not covered by the exemption provided under sub-clause (ii) of sec. 2(22)(e) of the Act. Since the assessee has received the loan from lending company SDIPL of Rs. 6,76,65,000/- during the year under consideration and the accumulated profit of lending company was at Rs. 2,50,80,923/-,therefore, the amount of Rs 2,50,80,923/- to the extent of accumulated profit was treated a deemed dividend u/s. 2(22)(e) of the Act and the same was added to the total income of the assessee.Similarly, The assessee has received loans and advances of Rs. 4,13,32,960 loans received during the year from AIPL who had reserve and surplus of Rs. 76,53,711/-. Hence, it was treated as deemed dividend u/s 2(22)(e) of the Act.

5. Being aggrieved, the assessee has carried the matter before the CIT(A) wherein it was contended that the AO was totally incorrect considering the facts of the case. The appellant has given various working to prove that money lending business wasa substantial part of the business of the lending companies. On the basis of Audit Report for F.Y. 2014-15 in respect of SDIPL, it was explained that the ratio of loan and advances given to unsecured loan taken comes to 105.25%,

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