JCIT (OSD), CC - 1(1), CHENNAI V. M/S. ABAN INVESTMENT PVT. LTD., CHENNAI

ITA 380/CHNY/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9308 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 16-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Deemed dividend; Rule 8D
• Section: 143(3); 2(22)(e); 14A; 143(2)

Judgement Text

आयकर अपीलीय अिधकरण, ’बी’ Ɋायपीठ, चेɄई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI ŵी वी दुगाŊ राव Ɋाियक सद˟ एवं ŵी जी. मंजुनाथा, लेखा सद˟ के समƗ Before Shri V. Durga Rao, Judicial Member & Shri G. Manjunatha, Accountant Member आयकर अपील सं./I.T.A. No.380/Chny/2020 िनधाŊरण वषŊ/Assessment Years: 2013-14 The Joint Commissioner of Income Tax (OSD), Corporate Circle 1(1), Chennai 600 034. Vs. M/s. Aban Investments P. Ltd., 113, Janpriya Crest, Pantheon Road, Chennai 600 008. [PAN: AAACA2926J] (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) अपीलाथŎ की ओर से / Appellant by : Shri G. Johnson, Addl. CIT ŮȑथŎ की ओर से/Respondent by : Shri Saroj Kumar Parida, Advocate सुनवाई की तारीख/ Date of hearing : 05.04.2022 घोषणा की तारीख /Date of Pronouncement : 08.06.2022 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: The appeal filed by the Revenue are directed against common order of the ld. Commissioner of Income Tax (Appeals) 1, Chennai dated 16.12.2019 relevant to the assessment year 2013-14. The first ground raised in the appeal of the Revenue relates to restriction of disallowance made under section 14A r.w. Rule 8D. 2. Brief facts of the case are that the assessee is engaged in the business of investment and finance and filed its return of income for the assessment year 2013-14 on 28.09.2013 admitting a total income I.T.A. No.380/Chny/20 2 of Nil after computing a business loss of ₹.3,45,01,882/-. The case was selected for scrutiny. A notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] dated 03.09.2014 was served on the assessee. After following due procedure and considering the submissions of the assessee, the Assessing Officer has completed the assessment under section 143(3) of the Act dated 16.03.2016 assessing total income of the assessee at ₹.1,37,04,933/- after making disallowances under section 14A of the Act amounting to ₹.3,40,39,003/- and a sum of ₹.1,19,00,031/- was held as deemed dividend within the meaning of section 2(22)(e) of the Act and added to the total income of the assessee under the head ‘income from other sources’. 2.1 On appeal, the ld. CIT(A) restricted the disallowance under section 14A of the Act to the extent of dividend income earned and partly allowed the ground of the appeal against which the Revenue preferred further appeal before the Tribunal. 2.2 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In this I.T.A. No.380/Chny/20 3 case, the Assessing Officer made disallowance under section 14A r.w. Rule 8D of ₹.3,40,39,003/-. The assessee has claimed a sum of ₹.2,03,51,052/- as exempt income under section 10(34) of the Act and the assessee had apportioned expenditure amounting to ₹.12,74,861/-. By following the decision in earlier assessment years 2010-11 & 2012- 13, the ld. CIT(A) restricted the disallowance to the extent of dividend income earned at ₹.2,03,51,052/- by reducing the expenditure apportioned by the assessee of ₹.12,74,861/- and the balance amount of addition of ₹.1,90,76,191/- was confirmed. Similar issue was subject matter in appeal for the assessment years 2010-11 to 2012-13 in I.T.A. nos. 933, 934 & 935/Chny/2017 dated 31.03.2022 and the Tribunal has observed and held as under: 2.4 In the assessment year 2012-13 also against the disallowance under section 14A r.w. Rule 8D of ₹.3,21,97,329/-, the ld. CIT(A) has observed that the disallowance in this case has to be restricted to the amount of dividend earned at ₹.2,04,12,283/- in view of the decision of the Hon’ble Delhi High Court in the case of Joint Investments P. Ltd. v. CIT (supra). Further it was observed that having regard to the fact that the assessee had offered voluntary disallowance of ₹.19,22,139/- and the same has to be reduced for the purpose of working the net disallowance which in this case is worked out at ₹.1,84,90,144/- [₹.2,04,12,283 – ₹.19,22,139]. Accordingly, the ld. CIT(A) has rightly directed the Assessing Officer to modify the disallowance under section 14A of the Act. We find no infirmity in the order of the ld. CIT(A) and thus, the ground raised by the Revenue is dismissed for the assessment year 2012-13. I.T.A. No.380/Chny/20 4 2.3 In view of the above decision of the Coordinate Benches of the Tribunal, the ld. CIT(A) has rightly confirmed the disallowance under section 14A of the Act after reducing the expenditure apportioned by the assessee from the exempt income earned. Thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed. 3. The next ground raised in the appeal of the Revenue relates to deletion of addition under section 2(22)(e) of the Act. The Assessing Officer examined the details of the shareholding patterns of the company and while verifying the loan of ₹.1,19,00,031/- obtained during the year by the company from M/s. Aban Infrastructure Pvt. Ltd., the Assessing Officer has noticed that one of the share holders of the assessee company i.e., Mrs. Deepa Reji Abrahim, whose shareholding stood at 29.2% in the assessee company was also a shareholder, holding substantial interest of 99.35% of the shares of M/s. Aban Infrastructure Pvt. Ltd. The assessee was asked to explain as to why the second limb of provision of section 2(22)(e) of the Act would not be applicable in the assessee company's case. Before the Assessing Officer, the assessee has explained that the said loan of ₹.1.19 crores I.T.A. No.380/Chny/20 5 was received by the assessee from M/s. Aban Infrastructure Pvt. Ltd as ICD and the company had paid interest for the same. The interest was stated to have been fully offered to Income tax by the lender. It was also stated that this transaction was done in the normal course of business and cannot be attributed to deemed dividend under section 2(22)(e) of the Act. Since the interest income was fully offered to tax in the case of M/s. Aban Infrastructure Pvt. Ltd,, the assessee has submitted that the same should not be again disallowed under section 2(22)(e) of the Act. After considering the submissions of the assessee, the Assessing Officer has held that the loans and advances received by the assessee from M/s. Aban Infrastructure Pvt. Ltd. amounting to ₹.1,19,00,031/- were held as deemed dividend within the meaning of section 2(22)(e) of the Act and added to the total income of the assessee under the head ‘Income from other sources’. On appeal, by following the appellate order for the assessment years 2011-12 and 2012-13, the ld. CIT(A) allowed the ground raised by the assessee against which, the Revenue is in appeal before the Tribunal. 3.1 We have heard the rival contentions. Similar issue was subject matter in appeal before the Tribunal for the assessment years 2011-12 I.T.A. No.380/Chny/20 6 and 2012-13 and after considering the submissions of the assessee as well as the decision of the ld. CIT(A), the Coordinate Benches of the Tribunal has observed and held as under: “4.4 We have heard the rival contentions. In this case, the Assessing Officer has noted that a sum of ₹.8,84,00,060/- was received as loans by the assessee from two of its group concerns viz., M/s. Aban Infrastructure Pvt. Ltd. and M/s. Aban Hotel & Resorts P Ltd of ₹.8,41,00,060/- and ₹.43,00,000/- respectively. Since the assessee company and the two entities from whom loans were received have common shareholders holding more than 10% of shareholding, the Assessing Officer treated it as deemed dividend and brought to tax under section 2(22)(e) of the Act. Before the ld. CIT(A), it was the submissions of the assessee that it was not a shareholder of Aban Infrastructure Pvt. Ltd. or Aban Hotels & Resorts Pvt. Ltd. from whom it had received the loans and hence, the provisions of section 2(22)(e) could not be made applicable to the assessee. Further, the assessee also contended before the ld. CIT(A) that the loan received were in the nature of inter corporate deposits advanced in the course of business and interest has been charged by both the companies. Such deposits therefore would not constitute loans & advances contemplated u/s 2(22)(e) of the Act. After considering the submissions of the assessee as well as shareholding pattern given in the assessment order, the ld. CIT(A) has observed that since the individuals being shareholders viz., Saley Abraham, Deepa Reji Abraham, Shema Renny Abraham holding more than 10% shares in one of the three concerns or some of the concerns as has been tabulated in the assessment order, the deemed dividend would therefore arise in the hands of these shareholders, if any. As regards the assessee is concerned, it is not a registered shareholder and therefore, the ratio of the Hon’ble jurisdictional High Court in CIT v. Printwave Services P Ltd 373 ITR 665 (Mad) would apply squarely to its case. By elaborately discussing the above case law and in the present case, since the assessee is not the beneficial shareholder in M/s. Aban Infrastructure P. Ltd. or Aban Hotels & Resorts P. Ltd, the ld. CIT(A) has held that no deemed dividend can be brought to tax in the hands of the assessee under section 2(22)(e) of the Act. 4.5 By relying upon the decision in the case of ACIT v. Jakhau Salt Co. P. Ltd. for the assessment years 2004-05 & 2007-08 in ITA Nos.2284 & 2285(Mds)/2012 dated 19.6.2013, wherein, the Coordinate Benches of the Tribunal took a similar view by relying on the ratio in the case of ACIT vs. Bhaumik Color P. Ltd 118 ITO 1 Mumbai Special Bench, in which, it was held that the expression 'shareholder' referred to in section 2(22)(e) of the Act refers to both a registered shareholder and the beneficial shareholder. And further that if a person is a registered shareholder but not a beneficial I.T.A. No.380/Chny/20 7 shareholder, then the provisions of section 2(22)(e) of the Act would not apply and likewise if a person is a beneficial shareholder but a registered shareholder then also the provisions of section 2(22)(e) of the Act would not apply. While in the case at hand the ITAT noted that the assessee was not a shareholder at all and hence the provisions of section 2(22)(e) of the Act would not apply. The ld. DR could not controvert the above decisions of the Tribunal, which were relied upon by the ld. CIT(A). Under the above facts and circumstances, we are of the considered opinion that the ld. CIT(A) has rightly rejected the view taken by the Assessing Officer in bringing the loans and advances received by the assessee as deemed dividend within the meaning of section 2(22)(e) of the Act. Thus, the ground raised by the Revenue is dismissed for the assessment year 2012-13. 3.2 Respectfully following the decision of the Coordinate Benches of the Tribunal in assessee’s own case for earlier assessment years, we sustain the order of the ld. CIT(A) and the ground raised by the Revenue is dismissed. 3.3 The Department has relied on the judgement of the Hon’ble Supreme Court in ground No. 4 of the grounds of appeal and the same is reproduced hereunder: “4. Whether on facts & circumstances of the case and in law learned CIT(A) erred in deleting the disallowance u/s 2(22)(e) in light of the Judgement of the Hon’ble Supreme Court in the case of CIT vs. National Travel Services in CA No. 2068 to 2071 of 2012 & 837 of 2018 dated Jan 18, 2018, where it has been held that – to attract section 2(22)(e), a ‘shareholder’ has only to be a person who is beneficial owner of shares; he need not necessarily be a registered shareholder.” 3.4 The above case law relied on by the Revenue has not been finally disposed off by the Apex Court but has been referred to the Hon’ble Chief Justice of India for constitution of an appropriate Bench I.T.A. No.380/Chny/20 8 of 3 judges in order to have a relook at the entire question of taxability of deemed dividend. It has also referred the case of Ankitech for reconsideration since applying the ratio of Ankitech, the case of National Travel Services gets relief from the rigours of section 2(22)(e) of the Act. The Apex Court is of the opinion that after the amendment by Finance Act, 1987, the condition of shareholder being a registered shareholder has been removed and the amendment was carried out with the intention of getting over the earlier judgements of the Apex Court namely, CIT v. C.P. Sarathy Mudaliar and M/s. Rameshwari Lal Sanwarmal v. CIT. Since the civil appeal preferred before the Hon’ble Supreme Court has not been attained its finality, the case law relied on by the Revenue has no application to the facts of the present case. 4. The next ground raised in the appeal of the Revenue relates to deletion of disallowance of interest income of ₹.64,501/-. The assessee company has advanced a sum of around ₹.105.5 crores to M/s. Aban Offshore Ltd. and earned interest income of ₹.8,47,64,125/- thereon. The assessee has advanced the above amount by utilizing the loans obtained. The assessee has incurred a total interest expenditure of ₹.11,74,63,766/- on the above loans. As per the provisions of section I.T.A. No.380/Chny/20 9 14A of the Act, the direct interest expenses towards earning the exempt income is ₹.3,27,64,142/-. As a result, the net expenditure incurred by the assessee towards earning the interest income was ₹.8,46,99,624/-. Accordingly, the Assessing Officer determined the interest income of ₹.64,501/- [₹.8,47,64,125 – 8,46,99,624] and brought to tax. On appeal, after considering the submissions of the assessee, the ld. CIT(A) allowed the ground raised by the assessee against which, the Revenue is in appeal before the Tribunal. 4.1 We have heard the rival contentions. Similar issue was subject matter in appeal before the Tribunal for the earlier assessment years vide order dated 31.03.2022 and after considering the submissions of the assessee as well as the decision of the ld. CIT(A), the Coordinate Benches of the Tribunal has observed and held as under: “3.2 We have considered the rival contentions and perused the orders of authorities below. In this case, the admitted facts are that the assessee is engaged in the business of investment and finance and has obtained loan from Industrial Finance Corporation of India (IFCI) and was utilized fully to fund M/s. Aban Offshore Ltd. by way of loan and the interest income earned was fully offered to tax. Moreover, the Assessing Officer has not disputed the total interest expenditure incurred by the assessee. However, the Assessing Officer has no justification by reducing the same from earning of except income by reckoning the direct interest expenditure for the purposes of section 14A of the Act. Therefore, the ld. CIT(A) has held that the disallowance does not have any merit and accordingly directed the Assessing Officer to delete the addition. Under the above facts and circumstances, we find no reason to interfere with the order passed by the ld. CIT(A) on this I.T.A. No.380/Chny/20 10 issue and accordingly, the ground raised by the Revenue is dismissed for all the assessment year under appeal.” 4.2 Respectfully following the decision of the Coordinate Benches of the Tribunal in assessee’s own case for earlier assessment years, we sustain the order of the ld. CIT(A) and the ground raised by the Revenue is dismissed. 5. In the result, the appeal filed by the Revenue is dismissed. Order pronounced on 08 th June, 2022 at Chennai. Sd/- Sd/- (G. MANJUNATHA) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER Chennai, Dated, 08.06.2022 Vm/- आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant, 2.ŮȑथŎ/ Respondent, 3. आयकर आयुƅ (अपील)/CIT(A), 4. आयकर आयुƅ/CIT, 5. िवभागीय Ůितिनिध/DR & 6. गाडŊ फाईल/GF.