The DCIT, Central Circle-2(2), Ahmedabad V. M/s. Neesa Infrastructure Pvt. Ltd., Ahmedabad

ITA 1825/AHD/2019

AI Insights

The case involves an appeal by the Revenue against the appellate order of the Commissioner of Income-tax (Appeals)-7, Ahmedabad, which had deleted several additions made by the Assessing Officer under sections 2(22)(e) and 43B of the Income Tax Act, 1961, for the assessment year 2011-12. The additions pertained to deemed dividends received from M/s Neesa Leisure Ltd. and M/s Neesa Agritech Pvt. Ltd., and a service tax amount respectively. The main legal contention revolved around whether the receipts constituted deemed dividends under section 2(22)(e) and the appropriate accounting treatment under section 43B. The Tribunal, after considering the judicial precedents and the submissions, decided to set aside the matter regarding the deemed dividends back to the CIT(A) pending the decision of the Supreme Court's Larger Bench, while upholding the CIT(A)'s decision on the service tax issue.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134558 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-05-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 08-12-2019
• Other Referred Cases: CIT V/s Ankitech Pvt. Limited, CIT V/s Madhur Housing & Development Company, CIT VS Daisy Packers (P.) Ltd, ACIT V/s Britto Amusement (P) Ltd., National Travel Services V/s CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed dividend; Set aside
• Section: 43B; 143(3); 2(22)(e); 145(3)

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ ‘B’ अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.1825/Ahd/2019 Assessment Year : 2011-12 DCIT, Cent.Cir.2(2) Ahmedabad. Vs M/s.Neesa Infrastructure P.Ltd. Plot No.278/279, Panchratna Real Estate, Opp: Aroma Cold Storage, Changodar Ahmedabad PAN : AABCN 7916 N (Applicant) (Responent) Assessee by : None Revenue by : Shri Sudhendu Das, CIT-DR स ु नवाई कȧ तारȣख/Date of Hearing : 11/05/2023 घोषणा कȧ तारȣख /Date of Pronouncement: 26 /05/2023 आदेश/O R D E R PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER This appeal is filed by the Revenue against the appellate order dated 09.3.2017 passed by the Commissioner of Income-tax (Appeals)-7, Ahmedabad arising out of the assessment order passed under section 143(3) read with section 145(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) relating to the Asst.Year 2011-12. 2. The grounds raised by the Revenue are as follows: “1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.38,29,086/- made u/s 2(22)(e) of the Act by the Assessing Officer towards the receipt from M/s Neesa Leisure Limited. ITA No.1825/Ahd/2019 2 2. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.2,91,27,917/- made u/s 2(22)(e) of the Act by the Assessing Officer towards the receipt from M/s Neesa Agritech Private Limited. 3. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.9,23,804/- made u/s 43B of the Act by the Assessing Officer. 4. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in ignoring the fact that the assessee is following mercantile method of accounting and hence any liability/income is to be ascertained and debited/credited in the relevant previous year.” 3. In spite of service of notice to the respondent-assessee, none appeared on behalf of the assessee. No authorization is filed on behalf of the assessee. So with the assistance of the ld.DR, the above appeal is being disposed of. 4. Regarding ground no.1 & 2, viz. deemed dividend made under section 2(22)(e) of the Act of Rs.38,29,086/- from M/s.Neesa Leisure Ltd., and Rs.2,91,27,917/- received from M/s.Neesa Agritech Pvt. Ltd. the finding of the ld.CIT(A) are as follows: “14. The Eighth Ground of appeal relates to (addition made in the case of Appellant under Section 2(22)(e) for loan of Rs.38,29,086 received from Neesa Leisure Limited. The above amount has been added on the ground^ that Appellant has received loan from above company and Mr. Sanjay Gupta is holding substantial shareholding in both the companies. Though loan received by appellant is Rs.11.21 crores, AO has restricted addition to the extent of accumulated profit which is not considered for deemed dividend in other group cases. The Appellant has claimed that advances are in nature of trade advances but no documentary evidences regarding such claims were submitted and the theory of trade advance cannot be accepted. So far as contention of Appellant that Appellant is not a beneficial shareholder in above companies from whom loans have been received, which is not even disputed by AO, it is observed that Hon'ble Delhi High Court in the case of CIT V/s Ankitech Pvt. Limited 340 ITR 14 has held that expression "being a person who is a beneficial owner of shares" would be, in addition to shareholder, first being a registered shareholder of the Company, and only on those cases provisions of Section 2(22)(e) would be applicable. This decision was further upheld by Hon'ble Supreme Court in Civil Appeal No. 3961 of 2013 dated 5th October, 2017 in the case of CIT V/s Madhur Housing & Development Company. The Hon'ble Gujarat High court in the case of CIT VS Daisy Packers (P.) Ltd has held that "Deposit ITA No.1825/Ahd/2019 3 received by assessee from a company cannot be considered as deemed dividend when assessee is not a shareholder of said company". The Hon'ble Bombay High court in the case of ACIT V/s Britto Amusement (P) Ltd. [2014] 49 taxmann.com 256 has held that Loans or advances received by assessee-company from other company could not be treated as deemed dividend when assessee was not a shareholder of that company. It is observed that though Hon'ble Supreme Court in the case of National Travel Services V/s CIT 89 taxmann.com 332 has observed that shareholder has only to be a person is beneficial owner of shares and he need not necessarily be registered shareholder and matter is referred to Chief Justice for formation of bench consisting of three Judges in order to have a relook at the question but said decision has not yet come hence relying upon the decision referred supra the above referred addition made by AO is deleted. However, as Sanjay Gupta is holding substantial shareholding in both the concerns, relyin1 upon the decision referred supra, addition of deemed dividend is required to be made in his case. The AO is directed to make appropriate addition in his hands as per provisions of the Act. 15. The Ninth and Tenth Grounds of Appeal relate to addition of Rs.2,91,27,917 being deemed dividend. The AO found that appellant has received funds from Neesa Agritech Pvt. Limited having maximum credit balance at Rs.3.63 crores. Though Neesa Agritech was having aggregate of Rs.4.67 crores, addition was made for Rs.2.91 crores considering the fact that AO has also made addition of deemed dividend in other group cases of Neesa Group and accumulated profit to that extent was considered in other group cases. The appellant has contended that funds are received as reimbursement of expenses but there is nothing on record to prove such contention. Even these facts along with evidences were not submitted before AO. Considering the detailed discussion made in preceding para, addition made in appellant's case is deleted, as addition is required to be made in the case of Sanjay Gupta who is holding substantial shares in both the concerns. The finding given in preceding para would equally apply to these facts and based upon the same, income of the Assessee as well as Sanjay Gupta would be determined. On this basis, both the grounds of appeal are partly allowed.” 5. The above addition has been made by the ld.AO on the ground that Shri Sanjay Gupta was holding substantial shareholding in the assessee company as well as in Neesa Leisure Ltd. The ld.CIT(A) after considering judicial precedents in the case of CIT Vs. Ankitech P.Ltd., 340 ITR 14 which was upheld by the Hon’ble Supreme Court in Civil Appeal No.3961 of 2013 dated 5.10.2017 in the case of CIT Vs. Madhur Housing & Development Co. [93 taxmann.com 502], wherein it has been held that the loans and advances received by the assessee-company from other companies could not be treated as ITA No.1825/Ahd/2019 4 deemed dividend when the assessee was not a shareholder of that company. The Ld.CIT(A) also considered the Supreme Court judgment in the case of National Travel Services Vs. CIT, 89 taxmann.com 332 wherein it has been held that shareholder has only to be a person who is beneficial owner of shares and he need not necessarily be registered shareholder and matter is referred to Larger Bench which is pending consideration by the Hon’ble Apex Court. Thus, the Ld.CIT(A) has deleted the additions made in the hands of the assessee, observing that Shri Sanjay Gupta was holding substantial shareholding in both the companies, therefore, the addition under section 2(22)(e) of the Act is required to be made. 6. The Ld. D.R. appearing for the Revenue submitted that the Ld. CIT(A) erred in deleting the addition made u/s. 2(22)(e) observing that Shri Sanjay Gupta is the shareholder, holding substantial shares in both companies and the addition is to be made in his hands. The Ld. D.R. further submitted that later Judgment of Hon’ble Supreme Court in the case of National Travel Services which referred the matter to the Larger Bench of the Hon’ble Supreme Court on the ground that the Delhi High Court judgment in the case of Ankitech Pvt. Ltd. which was confirmed by the Hon’ble Supreme Court in the case of Madhur Housing And Development Company which requires reconsideration. Therefore the Ld. CIT(A) is not correct in deleting the addition made u/s. 2(22)(e) of the Act. 7. We have perused the materials available on record and found that the Ld. CIT(A) is not correct in deleting the addition in the hands of the assessee, observing that the addition is to be made in the hands of the Director of the Company who is common shareholder of both companies. Especially when the Hon’ble Supreme Court has ITA No.1825/Ahd/2019 5 doubted the decision of the Delhi High Court in the case of Ankitech Pvt. Ltd. and referred it to the Larger Bench of the Hon’ble Supreme Court to re-look into the entire issue. We are of the considered opinion, the issue is not fully settled by Hon’ble Supreme Court that too when later judgment of the Hon’ble Supreme Court has referred the issue to the Larger Bench. Thus the Ld. CIT(A) is not correct in taking a decision with that of the previous judgment of the Hon’ble Supreme Court in the case of Madhur Housing And Development Company. Therefore we hereby set aside the matter back to the file of the Ld. CIT(A) who is to decide the issue, subject to the outcome of the Larger Bench judgment of the Hon’ble Supreme Court. Thus the ground nos. 1 & 2 raised by the Revenue are hereby allowed for statistical purposes. 8. Ground Nos.3 & 4 viz. the deletion of the addition of Rs.9,23,804/- made under section 43B of the Act. 8.1 The Ld.CIT(A) observed that service tax collected by the assessee was deposited before the due date of filing of the return. However, this amount was already offered for taxation in the subsequent assessment year i.e. 2012-13. Thus, the Ld.CIT(A) directed the AO to verify the same and if it is found that the assessee has already offered this amount as income in the subsequent year, the income of that year be reduced by disallowance of Rs.9,23,804/-. 9. We do not find any infirmity in the above direction of the ld.CIT(A). Thus, the grounds raised by the Revenue are devoid of merits, and the same stand rejected. ITA No.1825/Ahd/2019 6 10. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the Court on 26 th May, 2023 at Ahmedabad. Sd/- Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER True Copy (T.R. SENTHIL KUMAR) JUDICIAL MEMBER Ahmedabad, dated /05/2023 vk* आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंͬधत आयकर आय ु Èत / Concerned CIT 4. आयकर आय ु Èत(अपील) / The CIT(A) 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण / DR, ITAT, 6. गाड[ फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलȣय अͬधकरण, अहमदाबाद / ITAT, Ahmedabad