M/s. Spry Hospitality Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4865/DEL/2014

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3119 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 05-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C S AGGARWAL
• Keywords: Deemed dividend
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 4864/DEL/2014 : ASSTT. YEAR : 2006-07 ITA NO. 4865/DEL/2014 : ASSTT. YEAR : 2006-07 SPRY HOSPITALITY PVT. LTD., 11/C, W-3 LANE, WESTERN AVENUE, SAINIK FARMS, NEW DELHI - 110062 VS D CIT, CIRCLE-9(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAICS3968A ASSESSEE BY : SH. C. S. AGGARWAL, SR. ADV. REVENUE BY : SH. RAMESH KUMAR, SR. DR DATE OF HEARING: 05.11.2020 DATE OF PRONOUNCEMENT: 10.11.2020 ORDER PER AMIT SHUKLA , JUDICIAL MEMBER: THE PRESENT APPEALS HAVE BEEN FILED BY THE ASSESSE E AGAINST THE ORDERS OF THE LD. CIT(A)-XII, NEW DELHI , DATED 24.06.2014. 2. SINCE, THE ISSUES INVOLVED IN BOTH THE APPEALS A RE COMMON, THEY WERE HEARD TOGETHER. 3. IN ITA NO. 4864/DEL/2014, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: THAT THE ASSESSMENT ORDER IS AGAINST LAW AND FACTS AND IS BASED ON WRONG INTERPRETATION OF THE FACTS O F THE CASE AND IS LIABLE TO BE STRUCK DOWN. ITA NOS. 4864 & 4865/DEL/2014 SPRY HOSPITALITY PVT. LTD. 2 2. THE DISALLOWANCE OF RS.39,20,650/- IS BASED UPON AN INCORRECT INTERPRETATION OF LAW ON THE POINT AND IN IGNORANCE OF THE FACTS OF THE CASE. MOREOVER, SEC. 2(22)(E) HAD NO APPLICABILITY IN THE CASE OF THE ASSESSEE COMPANY. 3. THE DISALLOWANCE IS AGAINST SEVERAL JUDICIAL PRONOUNCEMENTS INCLUDING THOSE SIGHTED BY THE ITAT AND THAT OF THE JURISDICTIONAL HIGH COURT. 4. THE ASSESSEE COMPANY HAS RECEIVED UNSECURED LOAN S FROM TWO CONCERNS NAMELY, M/S KMB EXPORTS PVT. LTD. AND M/S SPRY SPACE SOLUTIONS PVT. LTD. TO THE TUNE OF RS.2.47 CR. IN TOTAL. THE ASSESSING OFFICER HAS MADE ADDITION OF RS.14,20,646/- U/S 2(22)(E) AND RS .25,00,000/- BEING DIFFERENCE IN THE ACCOUNTS OF THE ASSESSEE AND THE LOANER M/S KMB EXPORTS PVT. LTD. AS PER THEIR BALANCE SHEET ALSO U/S 2(22 )(E). 5. THE LD. CIT (A) CONFIRMED THE ADDITION HOLDING T HAT THE LOAN IS EXTENDED TO THE SHARE HOLDER HAVING SUBSTANTIAL INT EREST IN THE CONCERN. 6. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERU SED THE MATERIAL AVAILABLE ON RECORD. 7. WE FIND THAT THE ASSESSING OFFICER HAS MADE ADDI TION PRIMARILY ON THE GROUND THAT ONE SHAREHOLDER OF THE ASSESSEE COM PANY NAMELY, SH. SUNIL BHALLA ALSO HELD SHARES IN M/S KMB EXPORTS PV T. LTD. AND M/S SPRY SPACE SOLUTIONS PVT. LTD. WE ALSO FIND THAT THE ASS ESSEE ITSELF IS NOT A SHAREHOLDER IN ANY OF THESE TWO CONCERNS. FURTHER, WE ALSO FIND THAT THERE IS NO TRANSACTION OF LOAN WITH M/S KMB EXPORTS PVT. LTD. DURING THE YEAR AND THE BALANCE SHEET OF THE ASSESSEE COMPANY SHOWS AN OPENING BALANCE OF RS.80,00,000/- AS ON 01.04.2005 AND THE SAME AS CLOSING BALANCE AS ON 31.03.2006. THUS, THE CONTENTION OF THE REVENUE FALLS FLAT ON THE FACE OF THE UNCONTROVERTED FACTS BEFORE US VIZ. THE LOAN HA S NOT BEEN RECEIVED DURING THE YEAR AND THE ASSESSEE IS NOT A SHAREHOLD ER IN THE LOANER ITA NOS. 4864 & 4865/DEL/2014 SPRY HOSPITALITY PVT. LTD. 3 COMPANY HENCE DOES NOT ATTRACTS PROVISIONS OF SECTI ON 2(22)(E). KEEPING IN VIEW THESE FACTS, NO ADDITION IS CALLED FOR U/S 2(22)(E) OF RS.3,15,728/- AND RS.25,00,000/- BEING THE DIFFERENCE IN THE BALA NCE SHEET OF THE LOANEE COMPANY. 8. REGARDING THE LOAN RECEIVED FROM M/S SPRY SPACE SOLUTIONS PVT. LTD., WE FIND THAT THE ASSESSEE IS NOT A SHAREHOLDE R IN THE SAID COMPANY. THE PROVISIONS OF SECTION 2(22)(E) READS AS UNDER: SECTION 2(22). (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY I N 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 AD VANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BE NEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICI PATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A ME MBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN)] OR AN Y PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUA L BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS; BUT ' DIVIDEND' DOES NOT INCLUDE 9. THE ACT ENVISAGES THAT DIVIDEND U/S 2(22)(E) CAN ONLY BE TAXED IN THE HANDS OF A REGISTERED AND BENEFICIAL SHAREHOLDE R. THIS VIEW HAS BEEN UPHELD BY THE ITAT MUMBAI IN THE CASE OF BHAUMIK CO LOR PVT. LTD. 27 SOT 270, THE RELEVANT PORTION OF WHICH READS AS UNDER: U/S 2(22)(E) DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LEN DER COMPANY. THE EXPRESSION SHAREHOLDER IN SECTION 2( 22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFIC IAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDE R BUT NOT THE BENEFICIAL SHAREHOLDER THAN THE PROVISIONS OF S ECTION 2(22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL ITA NOS. 4864 & 4865/DEL/2014 SPRY HOSPITALITY PVT. LTD. 4 SHAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN A LSO THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. 10. THE HONBLE DELHI HIGH COURT CONFIRMED THE VIEW OF THE MUMBAI ITAT AS ABOVE AND IN THE CASE OF CIT VS MCC MARKETING PV T. LTD. (2012) 343 ITR 0350, IT HELD AS UNDER: WHERE THE ASSESSEE IS NOT A SHAREHOLDER OF THE COM PANY FROM WHICH HE RECEIVED A LOAN OR AN ADVANCE, THE LO AN OR ADVANCE CANNOT BE TREATED AS COVERED BY THE DEFINIT ION OF THE WORD DIVIDEND AS CONTAINED IN SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961. 11. THE SAME VIEW AS ABOVE HAS BEEN ENDORSED BY THE ITAT IN ITS ORDER WHEREIN IT IS CLEARLY STATED THAT ONLY IF THE ASSES SEE IS FOUND TO BE A REGISTERED AND BENEFICIAL SHAREHOLDER IN THESE TWO CONCERNS, CAN THERE BE ANY DEEMED DIVIDEND U/S 2(22)(E). 12. SINCE, THE ASSESSEE WAS NEVER A SHAREHOLDER IN ANY OF THESE TWO CONCERNS, AS IS EVIDENT FROM THE COPIES OF ANNUAL R ETURNS FILED WITH ROC AND THE LIST OF SHAREHOLDERS, NO DEEMED DIVIDEND U/ S 2(22)(E) CAN BE ASSESSED IN THE HANDS OF THE ASSESSEE. 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/11/2020. SD/- SD/- (DR. B. R. R. KUMAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10/11/2020 *SUBODH/BINITA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR