DCIT, New Delhi V. M/s. Sindhu Holdings Ltd., New Delhi

ITA 2766/DEL/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7052 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 04-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 06-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR SENIOR
• Assessee Lawyers: SANAT KAPOOR S
• Keywords: Bad and doubtful debts; Deemed dividend
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.2766/DEL./2012 (ASSESSMENT YEAR : 2008-09) DCIT, CIRCLE 8 (1), VS. M/S. SINDHU HOLDINGS LTD , NEW DELHI. 17, VASANT ENCLAVE, RAO TULA RAM MARG, NEW DELHI 110 057. (PAN : AAACS2545P) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI SALIL KAPOOR & SANAT KAPOOR, ADVOCATES REVENUE BY : SHRI B.R.R. KUMAR, SENIOR DR ORDER PER A.T. VARKEY, JUDICIAL MEMBER : THIS APPEAL, AT THE INSTANCE OF THE REVENUE, IS FIL ED AGAINST THE ORDER OF THE CIT (APPEALS)-XI, NEW DELHI DATED 14.03.2012 FO R THE ASSESSMENT YEAR 2008-09. 2. THE SOLITARY GROUND TAKEN BY THE REVENUE IS AGAI NST THE DELETION OF ADDITION OF RS.2,70,00,000/- MADE BY THE AO UNDER S ECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER THE ACT). 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MEDIA OPERATION (PUBLICATION OF NEWSPAPERS AND MAINTENANCE AND RETRIEVAL OF TROL LEYS AT AIRPORT ALONG WITH ITA NO.2766/DEL./2012 2 ADVERTISEMENT RIGHTS THEREOF), TRANSPORTATION, FINA NCE OPERATIONS, RENTAL INCOME AND PETROL PUMP. DURING THE YEAR UNDER CONS IDERATION, THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1,27,80,733/- W AS FILED ON 29.09.2008. THEREAFTER, THE ASSESSEE REVISED ITS RETURN ON 29.0 3.2010 DECLARING TOTAL INCOME OF RS.1,27,69,310/-. THE CASE WAS PROCESSED U/S 143 (1) OF THE ACT AND SUBSEQUENTLY, THE SAME WAS SELECTED FOR SCRUTIN Y. DURING THE COURSE OF HEARING, THE AO NOTICED CERTAIN FACTS AND BASED ON THAT, A SHOW CAUSE NOTICE DATED 09.12.2010 WAS ISSUED. THE ASSESSEE FILED TH E REPLY TO THE SAID NOTICE. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO FOUND CERTAIN CLAIMS OF THE ASSESSEE NOT TENABLE. 3.1 OUT OF THE THOSE CERTAIN CLAIMS, ONE OF THE ISS UES WAS AGAINST THE ADDITION OF RS.2,70,00,000/- UNDER SECTION 2(22)(E ) OF THE ACT, WHICH IS THE DISPUTE IN THE PRESENT APPEAL. THE FACTS RELATING TO THIS ISSUE ARE AS FOLLOWS. 3.2 THE AO VIDE SHOW CAUSE NOTICE DATED 09.12.2010 ASKED THE ASSESSEE TO EXPLAIN AS TO WHY LOAN OF RS.1.50 CRORES TAKEN FROM M/S. SINDHU TRADE LINKS LTD. (HEREINAFTER STLL) AND LOAN OF RS.1.20 CRORE S TAKEN FROM M/S. PARNAMI HABITAT DEVELOPERS LTD. (HEREINAFTER PHDL) BE NOT TREATED AS DEEMED DIVIDEND IN VIEW OF THE FACTS THAT DIRECTORS OF THE ASSESSEE COMPANY ARE SUBSTANTIALLY INTERESTED IN THE SAID COMPANIES AND ALSO SOME OF THE SHAREHOLDERS ARE COMMON IN BOTH THE COMPANIES. THE AO OBSERVED THAT OUT OF FIVE DIRECTORS, SINDHU AND HIS FAMILY MEMBERS IT SELF CONTROLS NEARLY 59% ITA NO.2766/DEL./2012 3 SHAREHOLDINGS OF THE STLL AND IN THIS SITUATION, IT COULD NOT BE ACCEPTED THAT THE STLL WAS A PUBLIC COMPANY WHERE PUBLIC WAS SUBS TANTIALLY INTERESTED. HE FURTHER OBSERVED THAT THE PERCENTAGE OF SHARES O F OTHER DIRECTORS AND THEIR FAMILY MEMBERS WOULD AGAIN GO ON TO PROVE THAT IT W AS NOT A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED, RATHER I T WAS A COMPANY WHICH WAS CLOSELY HELD BY THE PROMOTER MR. SINDHU AND HIS FAM ILY MEMBERS AND THEREFORE THE SAVING CLAUSE (II) OF SECTION 2(22) O F THE ACT WOULD NOT BE APPLICABLE AND COME TO THE RESCUE OF THE ASSESSEE C OMPANY INSOFAR AS INVOKING SECTION 2(22) (E) WAS CONCERNED. LIKEWISE , IN THE CASE OF PHDL ALSO, THE AO FOUND THAT AS PER SHAREHOLDINGS PATTER NS OF PHDL AS ON 31.03.2008, MORE THAN 50% SHARES WERE HELD BY MR. S INDHU AND THEIR FAMILY MEMBERS/ASSOCIATES. ACCORDING TO THE AO, THE ONUS WAS ON THE ASSESSEE TO PROVE THAT STLL WAS A WIDELY HELD PUBLIC LIMITED CO MPANY IN WHICH THE PUBLIC WERE SUBSTANTIALLY INTERESTED AND THE ONUS W AS ALSO ON THE ASSESSEE COMPANY THAT THE SHARES OF THE STLL WERE WIDELY TRA DED AND ITS SHARES WERE AVAILABLE IN THE OPEN MARKET FOR PURCHASE AND SALE BY ANY COMMON MAN/PERSON; AND HELD THAT THE ASSESSEE FAILED TO DI SCHARGE ITS ONUS AND THE AO COUNTERED THE SUBMISSION OF THE ASSESSEE THAT THE S TLL WAS AN NBFC AND THEREFORE THE DEEMING PROVISION OF SECTION 2(22)( E ) WOULD NOT BE APPLICABLE, BY GIVING FOLLOWING REASONS:- ITA NO.2766/DEL./2012 4 THE INCOME TAX ACT PROVIDES CERTAIN EXCEPTIONS WIT H THE RESPECT TO THE PROVISION OF DEEMED DIVIDEND. THIS HAS BEEN LAID DO WN IN SAVING CLAUSE (II) SECTION 2(22) OF THE IT ACT, WHICH BE REPRODUC ED HEREWITH - 'BUT 'DIVIDEND' DOES NOT INCLUDE- (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER [OR THE SAID CONCERN] BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, W HERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. BUT SO FAR AS THIS ASSESSEE IS CONCERNED, IT HAS FA ILED TO SUBSTANTIATE THAT THE TRANSACTIONS BY THE STLL IN THE FORM OF ADVANCES OR LOANS WERE IN THE ORDINARY COURSE OF ITS BUSINESS. THE ONUS WAS CAS T ON THE ASSESSEE COMPANY TO SUBSTANTIATE THAT THE LOANS AND ADVANCES RECEIVED BY IT FROM THE GROUP COMPANY OR ASSOCIATES COMPANY (STLL), IN WHICH COMMON DIRECTORS ARE BENEFICIAL SHARE HOLDERS, WERE IN THE ORDINARY COURSE OF BUSINESS I.E. ADVANCING OF LOANS & ADVANCES ON INTE REST OF THE PAYER COMPANY. SAME IS THE CASE OF PHDL. THE ASSESSEE HAS FAILED T O PROVE THAT THE ADVANCES WERE GIVEN IN THE NORMAL COURSE OF BUSINES S. IN VIEW OF DISCUSSIONS AND REASONS GIVEN ABOVE, THE TWO FOLD SUBMISSIONS OF THE AR STANDS NEGATED AND CONTROVERTED AND THE T WO SAVING CLAUSE WILL NOT BE OF ANY HELP TO THE ASSESSEE AS THE SAME IS N OT APPLICABLE IN THIS CASE. FURTHER WHY THE PROVISIONS OF DEEMED DIVIDEND WILL BE APPLICABLE, IN THE PRESENT CASE, IS BEING DISCUSSED FURTHER ON MERIT O F THE CASE AND TRANSACTIONS.' ACCORDINGLY, RELYING ON VARIOUS AUTHORITIES AND FAC TUAL MATRIX, THE AO HELD THAT THE ADVANCES/LOANS RECEIVED BY THE ASSESSEE WE RE LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE AS DEEMED DIVIDEND AS PER SEC TION 2(22)(E) R.W.S. 56 AND SECTION 115O OF THE ACT AND RS.2.70 CRORES WAS ADDE D BACK TO THE TOTAL INCOME OF THE ASSESSEE. 3.4 AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE T HE LD. CIT (A) WHO DELETED THE ADDITION BY OBSERVING AS UNDER :- GROUND NO.4, 5, 6 & 7 : ADDITION OF RS.2.70 CRORES U/S 2(22)(E) OF THE INCOME TAX ACT, 1961 BEING LOANS RECEIVED FROM ASSO CIATED COMPANIES. ITA NO.2766/DEL./2012 5 A. THE AO MADE THE ABOVE ADDITION ON ACCOUNT OF LOA NS RECEIVED FROM TWO COMPANIES, HOLDING THEM TO BE ASSOCIATED C OMPANIES AS WELL AS COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INT ERESTED. THE AO HAS HELD THAT EVEN THOUGH THE COMPANIES WERE LISTED COM PANIES THEY WERE NOT ONES IN WHICH THE PUBLIC WERE SUBSTANTIALLY SINCE T HE SHARES WERE NOT TRADED ON THE STOCK EXCHANGE AND/OR THE NUMBER OF S HAREHOLDERS ARE LIMITED. THE AO SEEKS TO LIFT THE 'CORPORATE VEIL' TO UNCOVER THE MECHANICS OF THIS TRANSACTION. THE MAJOR PART OF THE ASSESSME NT ORDER DEALS WITH THIS ADDITION, HOWEVER AFTER A CAREFUL PERUSAL, REPRODUC ING THE SAME WAS NOT FOUND CALLED FOR SINCE THE MATERIAL ISSUE IS WHETHE R SECTION 2(22)(E) OF THE ACT IS APPLICABLE IN THIS CASE. B. THE APPELLANT HAS SUBMITTED EXTENSIVE ARGUMENTS ON THIS ISSUE. AGAIN, THE CRUCIAL ISSUE IS FOUND TO BE WHETHER THE LENDER COMPANIES ARE ONES IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTEREST ED. SECTION 2(22)(E): NOT APPLICABLE TO WIDELY HELD COM PANIES: SECTION 2(22)(E) USES THE WORDS: ANY PAYMENT BY A C OMPANY ''NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTER ESTED' MEANING THEREBY THAT SECTION IS APPLICABLE ONLY TO COMPANIES WHICH ARE COMMONLY KNOWN AS CLOSELY HELD COMPANIES. SECTION 2(18) OF THE ACT READS AS UNDER: '(18) 'COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALL Y INTERESTED'-A COMPANY IS SAID TO BE A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED- (B) IF IT IS A COMPANY WHICH IS NOT A PRIVATE COMP ANY AS DEFINED IN THE COMPANIES ACT, 1956 (1 OF 1956), AND THE CONDITIONS SPECIFIED EITHER IN ITEM (A) OR IN ITEM (B) ARE FULFILLED, NAMELY:- SHARES IN THE COMPANY (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A FURTHER RIGHT TO PARTICIPATE IN PROFITS) WERE, AS ON THE LAST DAY OF THE RELEVANT P REVIOUS YEAR, LISTED IN A RECOGNIZED STOCK EXCHANGE IN INDIA IN ACCORDAN CE WITH THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956), AND ANY RULES MADE THERE UNDER; IT WAS VEHEMENTLY ARGUED THAT THESE CONDITIONS ARE FULFILLED BY THE LENDER COMPANIES AND HENCE THEY ARE COMPANIES IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, AND HENCE THE DEEMING PRO VISIONS OF SECTION 2(22)(E) OF THE ACT CANNOT APPLY TO THE LOANS IN QU ESTION. C. THE ISSUE HAS BEEN CAREFULLY PERUSED, AND THE A O'S ACTION IN NOT CONSIDERING THE LENDER COMPANIES AS THOSE IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED IS FOUND INCORRECT. IN FAC T WHAT IS RELEVANT TO THIS ISSUE IS QUOTED IN THE ASSESSMENT ORDER ITSELF AS, IT WILL BE WELL TO RECALL ITA NO.2766/DEL./2012 6 THE WORDS OF ROWLATT J IN CAPE BRANDY SYNDICATE V. INLAND REVENUE COMMISSIONERS [1921] 1 KB 64 (KB) AT PAGE 71, THAT: '..IN A TAXING ACT ONE HAS TO LOOK MERELY AT WHAT IS CLEARLY SAID. THE RE IS NO ROOM FOR ANY INTENDMENT. THERE IS NO EQUITY ABOUT A TAX. THERE I S NO PRESUMPTION AS TO A TAX. NOTHING IS TO BE READ IN, NOTHING IS TO BE I MPLIED. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE USED' . EVEN WHILE QUOTING THIS IN THE ASSESSMENT ORDER THE AO SEEKS TO GO BEYOND THE INTENTION OF TH E ACT. ESPECIALLY IN DEEMING PROVISIONS. THE INTERPRETATION CANNOT BE ST RETCHED TO THE DISADVANTAGE OF ASSESSEES. IN THIS CASE THE AO WAS NOT REQUIRED TO GO BEYOND THE DEFINITION IN SECTION 2(18) OF THE ACT. EVEN THE PLETHORA OF CASE LAWS QUOTED BY THE AO ARE FOUND WANTING ON RELEVANC E TO THE PRESENT ISSUE. THE ADDITION OF RS.2.70 CRORES ON ACCOUNT OF DEEMED DIVIDEND IS THEREFORE DELETED. THIS GROUND IS RULED IN FAVOUR O F THE APPELLANT. 4. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFOR E US ON THE AFORESAID ISSUE. 5. LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFI CER AND SUBMITTED THAT LOAN OF RS.1.50 CRORES TAKEN FROM M/S. SINDHU TRADE LINKS LTD. (STLL) AND LOAN OF RS.1.20 CRORES TAKEN FROM M/S. PARNAMI HABI TAT DEVELOPERS LTD. (PHDL) WAS RIGHTLY TREATED AS DEEMED DIVIDEND IN VI EW OF THE FACTS THAT DIRECTORS OF THE ASSESSEE COMPANY ARE SUBSTANTIALLY INTERESTED IN THE SAID COMPANY AND ALSO SOME OF THE SHAREHOLDERS ARE COMMO N IN BOTH THE COMPANIES. HE FURTHER SUBMITTED THAT OUT OF FIVE D IRECTORS, SINDHU AND HIS FAMILY MEMBERS ITSELF CONTROLS NEARLY 59% SHAREHOLD INGS OF THE STLL AND IN THIS SCENARIO, IT COULD NOT BE ACCEPTED THAT THE ST LL WAS A PUBLIC COMPANY WHERE PUBLIC WAS SUBSTANTIALLY INTERESTED. HE FURT HER SUBMITTED THAT THE PERCENTAGE OF SHARES OF OTHER DIRECTORS AND THEIR F AMILY MEMBERS WOULD AGAIN GO ON TO PROVE THAT IT WAS NOT A COMPANY IN WHICH P UBLIC ARE SUBSTANTIALLY INTERESTED, RATHER IT WAS A COMPANY WHICH WAS CLOSE LY HELD BY THE PROMOTER ITA NO.2766/DEL./2012 7 MR. SINDHU AND HIS FAMILY MEMBERS AND THEREFORE THE SAVING CLAUSE (II) OF SECTION 2(22) OF THE ACT WOULD NOT BE APPLICABLE AN D COME TO THE RESCUE OF THE ASSESSEE COMPANY INSOFAR AS INVOKING SECTION 2(22) (E) WAS CONCERNED. THE LD. DR SUBMITTED THAT LIKEWISE, IN THE CASE OF PHDL ALSO, A PERUSAL OF THE SHAREHOLDINGS PATTERNS OF THIS COMPANY AS ON 31.03. 2008 WILL REVEAL THAT MORE THAN 50% SHARES WERE HELD BY MR. SINDHU AND THEIR F AMILY MEMBERS/ASSOCIATES AND ACCORDING TO HIM, THE ASSESS EE FAILED TO PROVE THE ONUS THAT STLL WAS A WIDELY HELD PUBLIC LIMITED COM PANY IN WHICH THE PUBLIC WERE SUBSTANTIALLY INTERESTED, AND THAT THE SHARES OF THE STLL WERE WIDELY TRADED AND ITS SHARES WERE AVAILABLE IN THE OPEN MARKET FOR PURCHASE AND SALE BY ANY COMMON MAN/PERSON. HE ALSO SUBMITT ED THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE STLL WAS AN NBFC, THEREFOR E, THE DEEMING PROVISION OF SECTION 2(22)( E) WOULD BE APPLICABLE. HE, THER EFORE, SUBMITTED THAT THE LOANS ARE NOTHING BUT DEEMED DIVIDEND AND IS LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE AND IN THIS REGARD, HE MADE REFEREN CE TO THE VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE AO, WHICH ARE REP RODUCED BELOW :- (I) KANTILAL MANILAL VS. CIT (1961) 41 ITR 275 (SC); (II) SADHANA TEXTILES MILLS (P.) LTD. VS. CIT (1991) 1 88 ITR 318 (BOM.); (III) SMT. TARULATA SHYAM VS. CIT (1977) 108 ITR 345 (S C); (IV) CIT VS. MUKUNDRAY K. SHAH 160 TAXMAN 276 (SC) (V) MISS P. SARADA VS. CIT 96 TAXMAN 11 (SC) (VI) KANTILAL MANILAL VS. CIT 41 ITR 275 (SC) ITA NO.2766/DEL./2012 8 (VII) CIT VS. P.K. ABUBUCKER 135 TAXMAN 77 (MAD.) (VIII) MR. RAVINDRA D. AMIN VS. CIT 208 ITR 815 (GUJ.) (IX) L. ALAGUSUNDARAM CHETTIAR 109 ITR 508 (MAD.) (X) WALCHAND & CO. LTD. 100 ITR 598 (BOM.) (XI) IN VIEW OF THESE SUBMISSIONS, LD. DR PLEADED THAT T HE ORDERS OF THE CIT(A) BE SET ASIDE ON THIS ISSUE AND THE APPEAL OF THE DEPAR TMENT BE ALLOWED. 6. LD. AR FOR THE ASSESSEE REITERATED THE SUBMISSIO NS MADE BEFORE THE LD. CIT (A) AND FOR THE SAKE OF CLARITY, THE SAME ARE R EPRODUCED HEREUNDER :- 'IT WAS SUBMITTED VIDE LETTER DATED 15.12.2010 (COP Y ENCLOSED) THAT BOTH STLL AND PHDL ARE NBFC CERTIFICATE HOLDING COMPANIE S AND ALSO STOCK EXCHANGE LISTED COMPANIES. PROOF OF BEING NBFC AND LISTED COMPANIES WERE SUBMITTED DURING THE COURSE OF ASSESSMENT PROC EEDINGS. IT WAS ALSO PLEADED WHILE SUBMITTING THE SHAREHOLDI NG CHARTS OF STLL AND PHDL THAT ASSESSEE COMPANY IS NOT HOLDING SHARES EX CEEDING 10% OF THEIR (M/S SINDHU TRADE LINKS AND M/S PARNAMI HABIT AT DEVELOPERS) TOTAL SHAREHOLDING. ALSO NONE OF THE SHAREHOLDER HOLDING MORE THAN 10% IN THOSE COMPANIES IS HOLDING 20% SHARES IN THE ASSESS EE COMPANY. HENCE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX AC T, 1961 ARE NO APPLICABLE. HOWEVER THE LD. AO CHOSE TO TREAT THE ICDS RECEIVED AS DEEMED DIVIDEND IN THE HANDS OF ASSESSEE COMPANY. KINDLY NOTE THAT THE ADDITION MADE SHOULD NOT HAVE BEEN MADE IN VIEW OF THE FOLLOWING: SECTION 2(22)(E) OF THE INCOME TAX ACT. 1961 WAS NO T APPLICABLE: AT THE OUTSET, WE WISH TO DRAW YOUR KIND ATTENTION TO SECTION 2(22)(E) OF THE INCOME TAX 1961 WHICH IS REPRODUCED AS UNDER: 2. (22) 'DIVIDEND' INCLUDES- ... (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) [ MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREH OLDER, BEING A PERSON ITA NO.2766/DEL./2012 9 WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SH ARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING PO WER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFE RRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEH ALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S; .... BUT DIVIDEND' DOES NOT INCLUDE - (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER [OR THE SAID CONCERN] BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY; FROM THE READING OF ABOVE SECTION, FOLLOWING INTERP RETATIONS CAN BE DRAWN. THE INTERPRETATION OF THE SECTION HAS BEEN DEALT POINT WISE VIS A VIS OBSERVATION OF THE LD. AO AND SUBMISSION AGAINS T THOSE OBSERVATIONS: 1. SECTION 2(22)(E): SHAREHOLDING CONDITIONS NOT APPLI CABLE SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 IS ATT RACTED WHEN A SHAREHOLDER HAVING SHARES NOT LESS THAN 10% RECEIVE ANY ADVANCE OR LOAN FROM SUCH COMPANY OR ANY CONCERN RECEIVE ANY ADVANC E OR LOAN FROM SUCH COMPANY IN WHICH A SHAREHOLDER HOLDING MORE THAN 10 %, ALSO HOLDS SUBSTANTIAL INTEREST I.E. 20% SHAREHOLDING IN THE C ONCERN WHO RECEIVED THE LOAN. FROM THE BALANCE SHEET AS ON 31.03.2008 - INVESTMEN T SCHEDULE OF THE ASSESSEE COMPANY (COPY ENCLOSED) AND SHAREHOLDING C HARTS OF STLL AND PHDL, IT IS CLEAR THAT THE ASSESSEE COMPANY IS NOT HOLDING ANY SHARES IN THESE COMPANIES AND HENCE IN NO WAY THE AMOUNTS CAN BE TAXED IN THE HANDS OF ASSESSEE COMPANY. FURTHER NOTE FROM SHAREHOLDING CHARTS OF STLL AND P HDL THAT THERE IS NO SHAREHOLDER HOLDING 10% IN THESE COMPANIES, WHO IS FURTHER HOLDING 20% IN THE ASSESSEE COMPANY. HENCE SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 IS NOT APPLICABLE SINCE SHAREHOLDING CONDITION, MANDATORY FOR APPLICA BILITY OF SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 ARE NOT SATISF IED. 2. SECTION 2(22)(E) APPLICABLE IN THE HANDS OF SHAREHO LDER: SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 IS APP LICABLE IN THE HANDS OF SHAREHOLDER ONLY. NEITHER THE ASSESSEE COMPANY IS S HAREHOLDER IN THESE COMPANIES NOR THERE IS A SHAREHOLDER HOLDING 10% IN THESE COMPANIES, IS HOLDING 20% IN THE ASSESSEE COMPANY. HENCE ADDITION MADE IN THE HANDS OF ASSESSEE COMPANY, SHOULD NOT HAVE BEEN MADE. ITA NO.2766/DEL./2012 10 3. SECTION 2(22)(E): NOT APPLICABLE TO WIDELY HELD COM PANIES: SECTION 2(22)( E) USES THE WORDS : ANY PAYMENT BY A COMPANY 'NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTER ESTED' MEANING THEREBY THAT SECTION IS APPLICABLE ONLY TO COMPANIES WHICH ARE COMMONLY KNOWN AS CLOSELY HELD COMPANIES. SECTION 2(18) OF THE ACT READS AS UNDER: '(18) 'COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALL Y INTERESTED''-A COMPANY IS SAID TO BE A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED- (B) IF IT IS A COMPANY WHICH IS NOT A PRIVATE COMPA NY AS DEFINED IN THE COMPANIES ACT, 1956 (1 OF 1956), AND THE CONDIT IONS SPECIFIED EITHER IN ITEM (A) OR IN ITEM (B) ARE FULFILLED, NAMELY:- (A) SHARES IN THE COMPANY (NOT BEING SHARES ENTITLE D TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A FURTHER RIGHT TO PARTICIPATE IN PROFITS) WERE, AS ON THE LAST DAY OF THE RELEVANT P REVIOUS YEAR, LISTED IN A RECOGNIZED STOCK EXCHANGE IN INDIA IN ACCORDAN CE WITH THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956), AND ANY RULES MADE THEREUNDER; IT WAS SUBMITTED BEFORE THE LD. AO THAT STLL AND PH DL ARE PUBLIC LIMITED COMPANY THROUGH FOLLOWING EVIDENCES WHICH H AVE BEEN DISCUSSED BY LD. AO AT PAGE NO. 11 TO 15 IN THE ASS ESSMENT ORDER: (A) LISTING EVIDENCES OF BEING LISTED ON DELHI STOC K EXCHANGE AND JAIPUR STOCK EXCHANGE. (B) SHAREHOLDING PATTERN AS ON 31.03.008 OF THE ASS ESSEE COMPANY SUBMISSION BEFORE YOUR GOOD SELF AGAINST LD. AO OBS ERVATION: THE OBSERVATIONS MADE BY THE LD. AO ARE DEALT HEREW ITH POINT WISE: A. TRADING OF SHARES AND ACCEPTANCE OF PUBLIC DEPOSIT ARE NO PARAMETERS TO CHECK WHETHER A COMPANY IS A WIDELY H ELD COMPANY OR NOT. IT IS THE SECTION 2(18) DEFINITION WHICH SHOULD PRE VAILS WHILE ASSESSING WHETHER A COMPANY IS A COMPANY, IN WHICH PUBLIC IS SUBSTANTIALLY INTERESTED OR NOT. B. THE ALLEGATION OF THE LD. AO THAT THE ASSESSEE COMP ANY HAS FAILED TO EVIDENCE THAT STLL AND PHDL CONTINUES TO BE LIST ED AT STOCK EXCHANGES AND HAS NOT BEEN SUSPENDED OR DE-LISTED, IS NOT COR RECT. ITA NO.2766/DEL./2012 11 AS AN EVIDENCE OF BEING LISTED ON JAIPUR AND DELHI STOCK EXCHANGES, THE ASSESSEE COMPANY SUBMITTED THE ANNUAL LISTING FEE B ILLS RAISED BY THE RESPECTIVE STOCK EXCHANGES ON THE STLL AND PHDL. PR OOF OF PAYMENT OF LISTING FEE FOR BOTH THE STOCK EXCHANGES WERE SUBMI TTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATE 15.12.20 10. HAD THE STLL OR PHDL WERE BEEN SUSPENDED OR DELISTED, STOCK EXCHANG ES WOULD NOT HAVE RAISED THE ANNUAL LISTING FEE BILLS. FURTHER AS PER INFORMATION AVAILABLE IN PUBLIC DOMA IN ON DELHI STOCK EXCHANGE WEBSITE AT HTTP://WWW.DSEINDIA.ORG.IN/SITE PAGES/LIST COMPANIES.PHP IT CAN BE SEEN THAT STLL AND PHDL ARE LISTED COMPANY ON DELHI STOCK EXCHANGE. SINCE THE LIST INVOLVE 2830 C OMPANIES, WE ARE PRODUCING HEREWITH RELEVANT EXTRACT SHOWING EVIDENC E IN REGARD TO STLL AND PHDL ONLY. ALSO NOTE THAT PHDL IS ALSO LISTED ON AHMADABAD STO CK EXCHANGE WHICH CAN BE VERIFIED FROM AS PER INFORMATION AVAILABLE I N PUBLIC DOMAIN ON AHEMDABAD STOCK EXCHANGE WEBSITE AT HTTP://WWW.ASELINDIA.ORG/COMPANIES/LISTED-COMPANIES .HTMLIT CAN BE SEEN THAT PHDL IS LISTED COMPANY ON AHEMDABAD STOCK EXCH ANGE. SINCE THE LIST INVOLVE 226 COMPANIES, WE ARE PRODUCING HEREWI TH RELEVANT EXTRACT SHOWING EVIDENCE IN REGARD TO PHDL ONLY. ALSO NOTE THAT THERE WAS NO ADVERSE MATERIAL ON REC ORD OR BROUGHT ON RECORD BY THE LD. AO TO SUPPORT HER CONTENTIONS REG ARDING STLL AND PHDL. HENCE THE ALLEGATIONS MADE BY THE LD. AO IS B ASELESS, ARBITRARY AND MADE IN A RECKLESS MANNER. C. CONTROLLING~% SHAREHOLDING IN A COMPANY BY PROMO TER GROUP DOES NOT MEAN THAT THE COMPANY IS A CLOSELY H ELD COMPANY. IF IT IS SO THEN ALMOST 95% OF THE NSE OR SSE LISTE D COMPANIES WOULD BE TREATED AS CLOSELY HELD COMPANIES. FOR YOU R READY REFERENCE, WE ARE ENCLOSING HEREWITH SHAREHOLDING P ATTERN OF NSE/SSE LISTED REPUTED COMPANIES FOR DLF LTD., TATA CONSULTANCY SERVICES LIMITED, RELIANCE LIMITED AS O N 31.03.2008. THE SAME IS AVAILABLE IN PUBLIC DOMAIN ON THE WEBSI TES OF NSE AND BSE. FROM THE SHAREHOLDING PATTERN OF THESE COMPANIES, Y OU WILL SEE THAT PROMOTER SHAREHOLDING FOR THESE COMPANIES IS MUCH M ORE THAT WHAT IS FOR THE ASSESSEE COMPANY. SOMEWHERE IT IS HOVERING ARO UND 88%. STILL THEY ARE REGARDED AS LISTED AND WIDELY HELD COMPANIES. S O THE SAME PARAMETER SHALL BE USED FOR ASSESSEE COMPANY ALSO . FURTHER AS PER SECURITIES CONTRACT (REGULATION) RUL ES, 1957, RULE 19(2)(B) PROVIDES FOLLOWING WITH RESPECT TO PUBLIC SHAREHOLD ING FOR A LISTED COMPANY: ITA NO.2766/DEL./2012 12 'REQUIREMENTS WITH RESPECT TO THE LISTING OF SECURI TIES ON A RECOGNIZED STOCK EXCHANGE. 19. (2) APART FROM COMPLYING WITH SUCH OTHER TERMS AND CONDITIONS AS MAY BE LAID DOWN BY A RECOGNIZED STOCK EXCHANGE, AN APP LICANT COMPANY SHALL SATISFY THE STOCK EXCHANGE THAT: [(B) AT LEAST 10 PER CENT OF EACH CLASS OR KIND OF SECURITIES ISSUED BY A COMPANY WAS OFFERED TO THE PUBLIC FOR S UBSCRIPTION THROUGH ADVERTISEMENT IN NEWSPAPERS FOR A PERIOD NOT LESS T HAN TWO DAYS AND THAT APPLICATIONS RECEIVED IN PURSUANCE OF SUCH OFFER WE RE ALLOTTED SUBJECT TO THE FOLLOWING CONDITIONS: (A) MINIMUM 20 LAKH SECURITIES (EXCLUDING RESERVATI ONS, FIRM ALLOTMENT AND PROMOTERS CONTRIBUTION) WAS OFFERED T O THE PUBLIC; (B) THE SIZE OF THE OFFER TO THE PUBLIC, I.E., THE OFFER PRICE MULTIPLIED BY THE NUMBER OR SECURITIES OFFERED TO THE PUBLIC W AS MINIMUM RS. 100 CRORES; AND (C) THE ISSUE WAS MADE ONLY THROUGH BOOK BUILDING M ETHOD WITH ALLOCATION OF 60 PER CENT OF THE ISSUE SIZE TO THE QUALIFIED INSTITUTIONAL BUYERS AS SPECIFIED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA: PROVIDED THAT IF A COMPANY DOES NOT FULFIL THE COND ITIONS, IT SHALL OFFER AT LEAST 25 PER CENT OF EACH CLASS OR KIND OF SECURITI ES TO THE PUBLIC FOR SUBSCRIPTION THROUGH ADVERTISEMENT IN NEWSPAPERS FO R A PERIOD NOT LESS THAN TWO DAYS AND THAT APPLICATIONS RECEIVED IN PUR SUANCE OF SUCH OFFER WERE ALLOTTED' SINCE THE ASSESSEE COMPANY IS IN COMPLIANCE OF THIS RULE, ALLEGATION THAT CONTROLLING 59% OF THE SHAREHOLDING IN THE ASSESSEE COMPANY WOULD TAKE AWAY THE BENEFIT OF LISTING, IS PURELY BASELESS. 4. SECTION 2(22)(E): NOT APPLICABLE ON INTER CORPORATE DEPOSITS PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX AC T, 1961 ARE NOT APPLICABLE TO INTER CORPORATE DEPOSITS. THEY ARE AP PLICABLE TO PAYMENTS BY WAY OF ADVANCE OR LOANS ONLY. RELIANCE IN THIS R EGARD HAS BEEN PLACED ON BOMBAY OIL INDUSTRIES LTD. VS DCIT (2009) 28 SOT 383 (ITAT MUM) (COPY ENCLOSED) WHEREIN THE HON'BLE ITAT MUMBAI HAS HELD THAT SINCE THERE IS A CLEAR DISTINCTION BETWEEN THE WORDS ADVA NCE OR LOAN AND INTER CORPORATE DEPOSITS AND HENCE DEEMING PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 CANNOT BE APPLIED TO INTER CORPORATE DEPOSITS. 5. SECTION 2(22)(E): NOT APPLICABLE TO LOAN OR ADVANCE BY NON BANKING FINANCE COMPANIES ITA NO.2766/DEL./2012 13 SECTION 2(22) OF THE INCOME TAX ACT, 1961 HAS AN EX CLUSION CLAUSE THAT DIVIDEND DOES NOT INCLUDE WHERE ADVANCE OR LOAN HAS BEEN GIVEN TO SHAREHOLDER BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSIN ESS OF THE COMPANY. AS SUBMITTED EARLIER ALSO THAT THE ASSESSEE COM AN IS NOT A SHAREHOLDER IN THE STLL AND PHDL, FURTHER NOTE THAT THE STLL AND P HDL ARE NON BANKING FINANCE COMPANY AND REGISTERED WITH RESERVE BANK OF INDIA SINCE 1998 IN CATEGORY OF LOAN INVESTMENT COMPANY A ND ENGAGED IN ACTIVITIES OF SHARES SALE, FINANCIAL ACTIVITIES, LO AN SYNDICATION ACTIVITIES AND HYPOTHECATION ACTIVITIES. PROOF OF BEING FC COMPANI ES WAS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LE TTER DATED 15.12.2010. FURTHER THE PROFIT AND LOSS ACCOUNT OF THE STLL AND PHDL AS ON 31.03.2008 (COPIES OF BALANCE SHEET AND PROFIT AND LOSS ARE ENCLOSED HEREWITH) SHOWS THAT STLL HAS EARNED FOLLOWING INCO ME OUT OF NBFC ACTIVITIES: PARTICULARS SINDHU TRADE LINS LTD. PARNAMI HABITAT DEVELOPERS LIMITED INTEREST INCOME 32,532,082.00 62,64,244.00 LOAN SYNDICATION CHARGES 7,129,302.23 - HYPOTHECATION CHARGES 1,562,631.81 - BAD DEBTS RECOVERED 1,613,303.00 - MISC. RECEIPTS IN NATURE OF PROCESSING FEE ETC. 1,647,815.06 - TOTAL 44,485,134.10 62,64,244.00 THE ABOVE DETAILS SHOWS THAT STLL AND PHDL ARE PURS UING NBFC ACTIVITIES AND INTER CORPORATE DEPOSIT HAS ALSO BEE N ADVANCED IN THE ORDINARY COURSE OF ACTIVITIES. IN THE LIGHT OF THE ABOVE SUBMISSION, THE LD AR DO ES NOT WANT US TO INTERFERE IN THE ORDER OF LD CIT(A) 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. THE ONLY DISPUTE IS WHETHER THE LENDER COMPANIES WHICH HAS MADE DEPOSITS (INTER- CORPORATE DEPOSITS (ICD)) WILL FALL UNDER THE DEEMI NG PROVISION UNDER SECTION 2(22)(E) OF THE ACT OR NOT. WE FIND THAT S ECTION 2(22)(E) EXCLUDES PUBLIC COMPANY NOT BEING A COMPANY IN WHICH THE PU BLIC ARE SUBSTANTIALLY INTERESTED. SECTION 2(22)(18) OF THE ACT DEFINES COMPANIES IN WHICH THE ITA NO.2766/DEL./2012 14 PUBLIC ARE SUBSTANTIALLY INTERESTED. AS PER THE SA ID DEFINITION, A COMPANY IS SAID TO BE A COMPANY IN WHICH THE PUBLIC ARE SUBSTA NTIALLY INTERESTED, IF IT IS A COMPANY WHICH IS NOT A PRIVATE COMPANY AS DEFINED I N THE COMPANIES ACT, 1956 (1 OF 1956) AND THE CONDITIONS SPECIFIED EITHE R IN ITEM A OR IN ITEM (B) ARE FULFILLED, NAMELY :- (A) SHARES IN THE COMPANY (NOT BEING SHARES ENTITL ED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A FURTHER RIGHT TO PARTICIPATE IN PROFITS) WERE, AS ON THE LAST DAY OF THE RELEVANT PREVIOUS Y EAR, LISTED IN A RECOGNIZED STOCK EXCHANGE IN INDIA IN ACCORDANCE WI TH THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956), AND ANY RULES MADE THEREUNDER. WE FIND THAT THE ASSESSEE BEFORE THE AO AND THE LD. CIT (A) HAS SUBMITTED THAT BOTH THESE COMPANIES ARE PUBLIC LIMITED COMPAN IES AND THEY HAVE PRODUCED EVIDENCES TO SUBSTANTIATE THAT THE STLL AN D PHDL ARE LISTED COMPANIES AT DELHI STOCK EXCHANGE AND PHDL IS ALSO LISTED ON AHMEDABAD STOCK EXCHANGE AND ALSO THE SHAREHOLDING PATTERN AS ON 31.03.2008. AND THAT SECTION 2(22)(E) IS NOT APPLICABLE TO LOANS OR ADV ANCES BY NON BANKING FINANCE COMPANIES (NBFC). IN ORDER TO SUBSTANTIATE THAT STLL AND PHDL ARE NBFC, IT WAS SUBMITTED THAT THEY ARE REGISTERED WITH RESERVE BANK OF INDIA SINCE 1998 IN CATEGORY OF LOAN INVESTMENT COM PANY AND ENGAGED INTO THE ACTIVITIES OF SHARES SALE, FINANCING ACTIVITIES , LOAN SYNDICATION ACTIVITIES AND HYPOTHECATION ACTIVITIES. IT IS A WELL SETTLED PRINCIPLE OF LAW THAT DEEMING PROVISION HAS TO BE INTERPRETED STRICTLY AND IT CAN NOT BE STRETCHED TO MORE THAN THAT FOR WHICH THE DEEMING PROVISION CAN BE LITERAL LY INTERPRETED. NOTHING CAN ITA NO.2766/DEL./2012 15 BE ADDED OR IMPLIED WHILE INTERPRETING A DEEMING PR OVISION. ONE CAN ONLY LOOK AT THE LANGUAGE USED. THEREFORE, WE CONCUR WI TH THE LD. CIT (A) THAT THE LENDER COMPANY I.E. M/S. STLL AND M/S. PHDL ARE PUB LIC LIMITED COMPANIES AND SO THE LOAN/ADVANCE/ICD GIVEN TO THE ASSESSEE D OES NOT FALL IN THE KEN OF SECTION 2(22)(E) AND MOREOVER, THE LENDER COMPANIES ARE NBFC WHICH ARE ALSO EXCLUDED FROM THE SAID DEEMING PROVISION, THER EFORE, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL AND WE UPHOLD THE LD . CIT (A)S ORDER AND DISMISS THIS GROUND. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 29 TH DAY OF JANUARY, 2016. SD/- SD/- (G.D. AGRAWAL) (A.T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATED THE 29 TH DAY OF JANUARY, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.