PCI Ltd., New Delhi V. ACIT, Circle-19(2), New Delhi

CO 174/DEL/2018

AI Insights

The case involves an appeal by the Revenue against the decision of the CIT(A), which had deleted an addition of Rs. 5 crores made by the Assessing Officer under section 2(22)(e) of the Income-tax Act, 1961. The addition was initially made treating the advance from Riello Power India Pvt Ltd to M/s PCI Limited as a deemed dividend. The CIT(A) found that the advance was part of a business arrangement, supported by board resolutions and a corporate guarantee for a bank loan. The Tribunal upheld the CIT(A)'s decision, referencing judicial decisions that supported the exclusion of such business transactions from deemed dividend provisions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 300943 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-01-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 29-01-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 05-09-2018
• Other Referred Cases: Pradeep Kumar Malhotra 338 ITR 0538, Creative Dyeing and Printing [P] Ltd 229 CTR 250
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Deemed dividend
• Section: 2(22)(e); 133(6); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘F’ BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No. 5154/DEL/2018 [A.Y. 2014-15] The A.C.I.T. Vs. M/s PCI Limited Circle – 19(2) 19, Rajendra Park New Delhi New Delhi PAN: AAACP 1565 E CO No. 174/DEL/2018 (A/o ITA No. 5154/DEL/2018 [A.Y. 2014-15]) M/s PCI Limited Vs. The A.C.I.T. 19, Rajendra Park Circle – 19(2) New Delhi New Delhi PAN: AAACP 1565 E (Applicant) (Respondent) Assessee By : Shri Satish Agarwal, CA Shri Dharender Kumar, CA Shri Rachit Agarwal, CA Department By : Shri Vivek Vardhan, Sr. DR Date of Hearing : 30.01.2023 Date of Pronouncement : 01.02.2023 2 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- This appeal by the Revenue and Cross Objections by the assessee are preferred against the order of the ld. CIT(A) – 7, New Delhi dated 16.05.2018 pertaining to Assessment Year 2014-15. The appeal and the cross objections were heard together and are disposed of by this common order for the sake of convenience and brevity. 2. The solitary grievance of the Revenue is that the ld. CIT(A) erred in deleting the addition of Rs. 5 crores made u/s 2(22)(e) of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] treating the same as valid business agreement. 3. The ld. counsel for the assessee did not press the cross objections. The same are dismissed as not pressed. 4. Briefly stated, the facts of the case are that during the course of scrutiny assessment proceedings, the Assessing Officer noticed that Riello Power India Pvt Ltd, a closely held company, was show caused 3 why the advance given to the assessee should not be treated as deemed dividend. 5. In its reply, the assessee stated that it has provided a corporate guarantee to PNB in arrangement in 2010 and Riello agreed to provide PCI [the assessee] an interest bearing loan of Rs. 5 crores as and when required. It was explained that loan arrangement was business arrangement and outside the purview of deemed dividend. 6. In support of its submissions, the assessee furnished copy of resolutions of board meeting of Riello as well as the assessee held on 09.12.2010 in which it was stated that Riello agrees to provide the assessee interest bearing loan of Rs. 5 crores as and when required. 7. The Assessing Officer found technical discrepancies in the extract of the board resolution filed and, accordingly, issued notice u/s 133(6) of the Act and examined the key officers of the company. The Assessing Officer found that the Chairman of Riello and the assessee were common with the Chairman and family members holding 91.26% stake in the assessee company. The Assessing Officer was convinced that the assessee has not offered the advance of Rs. 5 crores as 4 deemed dividend income u/s 2(22)(e) of the Act and accordingly, made the impugned addition of Rs. 5 crores. 8. The assessee carried the matter before the ld. CIT(A) and reiterated what has been stated in the assessment proceedings. 9. The ld. CIT(A), after considering the facts and submissions, found that the assessee had furnished a confirmation from M/s RPS SPA, Italy, the parent of present M/s Riello and a copy of board resolution passed by the assessee wherein the board had resolved to furnish corporate guarantee and mortgage of two properties as indicated in the bank loan sanction letter of Riello. 10. The ld. CIT(A) was convinced that the assessee had availed advance pursuant to business transaction, and, therefore, was outside the ambit of provisions of section 2(22)(e) of the Act. The ld. CIT(A), on proper appreciation of the facts, was convinced that the assessee company has furnished its corporate guarantee and allowed collateral security provided by it for securing its limits to be used for securing the bank loan to M/s Riello, PCI India Limited to enable M/s Riello 5 Power India [P] Ltd to avail banking limits which fact is undisputed and is on record. 11. The sanction letter of PNB dated 27.11.2010 clearly mentions the following facts: “Sanction of fresh Fund Based Facilities of Rs 5.00 crores and Non-fun- based facilities of Rs. 5.00 crores. Respective limits of M/s PCI Ltd. be reduced by equivalent amount. Company to arrange NOC from Canara Bank for creating our 1 st /1 sl pari- passu charge all the existing collaterals available in the A/c of M/s PCI Ltd and there should be on of collateral security available to the bank.” The credit facilities to be guaranteed by Shri Surinder Mehta, Shri Rohan Mehta and cororate guarantee of M/s PCI Ltd. The facilities are to be collaterally secured by extension of charges and EM of IPs on the following securities in the name of M/s PCI Ltd IP No. 287-288, Udyog Vihar, Phase-ll, Gurgaon, Extention of EM of ... acre of Industrial land and building situated at Village Rampur Tehsil Nuh, District Gurgaon, Haryana 12. The first appellate authority, while deleting the addition, has drawn support from the decision of the Calcutta High Court in the case of Pradeep Kumar Malhotra 338 ITR 0538 and also in the case of Creative Dyeing and Printing [P] Ltd 229 CTR 250 of the Hon'ble Delhi 6 High Court. Since the first appellate authority has deleted the addition in true appreciation of the facts supported by judicial decisions, we do not find any reason to interfere with the findings of the ld. CIT(A). 13. In the result the Cross objections of the assessee in CO No. 174/DEL/2018 as well as the appeal of the Revenue in ITA No. 5154/DEL/2018 are dismissed. The order is pronounced in the open court on 01.02.2023. Sd/- Sd/- [ASTHA CHANDRA] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 01 st February, 2023. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, 7 ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order