The ITO, Guntur V. Yarlagadda Surendrababu, Guntur

ITA 71/VIZ/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8727 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 16-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G SATYANANDAM
• Keywords: Salary income; Deemed dividend
• Section: 11

Judgement Text

ITA NO.71/VIZAG/2017 YARLAGADDA SURENDRA BABU, GUNTUR 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . .. . . . . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.71/VIZAG/2017 ( / ASSESSMENT YEAR: 2012-13) ITO, WARD - 2(2), GUNTUR YARLAGADDA SURENDRA BABU GUNTUR [PAN NO. AA GPY3634A ] ( ' / APPELLANT) ( ()' / RESPONDENT) C.O. NO.42/VIZAG/2017 (ARISING OUT OF I.T.A.NO.71/VIZAG/2017) ( / ASSESSMENT YEAR: 2012-13) YARLAGADDA SURENDRA BABU GUNTUR ITO, WARD - 2( 2), GUNTUR ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI G. SATYANANDAM, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 06.03.2018 / DATE OF PRONOUNCEMENT : 0 9.03.2018 ITA NO.71/VIZAG/2017 YARLAGADDA SURENDRA BABU, GUNTUR 2 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1 {CIT(A)}, GU NTUR VIDE ITA NO.24/2015-16/CIT(A)-1/GNT DATED 26.10.2016 FOR THE ASSESSMENT YEAR 2012-13. THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER PASSED BY THE LD. CIT(A). 2. ALL THE GROUND OF APPEAL ARE RELATED TO THE DEEM ED DIVIDEND ASSESSED U/S 2(22)(E) OF THE INCOME TAX ACT, 1961 ( HEREINAFTER CALLED AS 'THE ACT'). THE ASSESSEE IS AN INDIVIDUAL DERIVING SALARY INCOME AS A DIRECTOR OF THE COMPANY. THE ASSESSEE IS ONE OF TH E DIRECTOR IN M/S. YARLAGADDA EXPORTS (P) LTD., GUNTUR. DURING THE PR EVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR, THERE WAS AN OUTSTANDING BA LANCE OF ` 45,16,977/- OUT OF WHICH A SUM OF ` 17,60,219/- WAS BORROWED DURING THE YEAR FROM M/S. YARLAGADDA EXPORTS PVT. LTD. IN WHICH THE ASSESSEE IS ONE OF THE DIRECTORS AND HAVING MORE THAN 10% SHARE HOLDING IN THAT COMPANY. OUT OF THE OUTSTANDING AMOUNT OF ` 45,16,977/- A SUM OF ` 17,60,219/- WAS BORROWED DURING THE YEAR. SINCE TH E ASSESSEE IS HAVING SUBSTANTIAL INTEREST IN THE LENDING COMPANY, THE A. O. HAS CALLED FOR EXPLANATION FROM THE ASSESSEE AS TO WHY THE AMOUNT OF ` 45,16,977/- SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)( E) OF THE ACT. THE ITA NO.71/VIZAG/2017 YARLAGADDA SURENDRA BABU, GUNTUR 3 ASSESSEE EXPLAINED IN RESPONSE TO THE A.OS QUESTIO NNAIRE, THAT THE AMOUNT WAS BORROWED FROM THE COMPANY AS A LOAN AND MAKING THE REPAYMENT OF LOAN ALONG WITH INTEREST AT THE BANK R ATE AND HE DID NOT GET ANY EXTRAORDINARY BENEFIT OUT OF SUCH BORROWING S. THEREFORE, SUBMITTED THAT THAT IT IS A PURE LOAN TRANSACTION AND SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. HOWEVER, THE A.O. WAS NOT CONVINCED WITH THE EXPLANATION OFFERED BY T HE ASSESSEE, SINCE THE ASSESSEE IS HOLDING MORE THAN 10% OF SHARE HOLD ING AND THERE ARE SUBSTANTIAL PROFITS IN THE COMPANY. THE A.O. TREATE D THE ENTIRE LOAN AMOUNT AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT A ND BROUGHT TO TAX. 3. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A). LD.CIT(A) ANALYSED THE TRANSACT ION COMPLETELY AND EXAMINED THE BORROWINGS AND THE REPAYMENT ALONG WIT H INTEREST AND RELIED ON THE DECISION OF HONBLE DELHI HIGH COUIRT IN THE CASE OF CIT VS. CREATIVE DYEING AND PRINTING PRIVATE LIMITED AND AL LOWED THE APPEAL OF THE ASSESSEE. FOR READY REFERENCE, WE EXTRACT THE RELEVANT PARA OF THE ORDER OF THE LD. CIT(A), WHICH READS AS UNDER: IN VIEW OF THE CREDIT LIMITS SANCTIONED TO THE COM PANY, THE COMPANY WAS ABLE TO CARRY ON ITS EXPORT BUSINESS PEACEFULLY AND SATISFACTORILY. IT WAS ALSO ABLE TO HONOUR ITS COMMITMENTS TOWARDS THE OVERSEAS BUYERS BY EXPORTING THE TOBACCO IN TIME. THUS, THE COMPANY HA D THE OPPORTUNITY TO MAKE A GOOD BUSINESS AS WELL AS A SIZEABLE PROFIT, BY VIRTUE OF THE AVAILABILITY OF ADEQUATE LIQUID FUNDS. IT MAY BE EMPHATICALLY PROVIDED THE SIZE OF THAT BU SINESS MADE BY THE COMPANY WAS NOT POSSIBLE, WITHOUT THE SANCTIONE D LIMITS BY STATE BANK ITA NO.71/VIZAG/2017 YARLAGADDA SURENDRA BABU, GUNTUR 4 OF INDIA. FOR AVAILING THE CREDIT LIMITS I HAVE PRO VIDED ALL MY PROPERTIES ALONG WITH MY PERSONAL GUARANTEE. ONE AMONG SUCH PR OPERTIES WAS THE OLD HOUSE, LOCATED AT VIKASNAGAR, WHEREAS I CONTEMPLATE D TO CONSTRUCT A NEW HOUSE. FOR THE CONSTRUCTION OF THE HOUSE AT THE SIT E, I REQUIRED FUNDS. SINCE MY FINANCIALS WERE INADEQUATE (WITH THE FACT THAT ALL MY PROPERTIES ARE UNDER MORTGAGE AND MY PERSONAL GUARANTEE PROVID ED FOR THE CREDIT FACILITY SANCTIONED TO YEPL), THE STATE BANK OF IND IA HAD NOT PROVIDED ANY ADDITIONAL CREDIT FACILITY TO ME. HENCE, THE CO MPANY HAS PROVIDED THE ADEQUATE FUNDS FOR THE CONSTRUCTION OF MY HOUSE, WI TH A CONDITION FOR THE REPAYMENT OF INTEREST AT THE BANK RATE AS WELL AS T HE PRINCIPAL. ACCORDINGLY, I HAVE BORROWED THE FUNDS IN PHASES AN D IN PROPORTION TO THE CONSTRUCTION. ALL THESE FACTS WERE DECLARED IN MY P ERSONAL RETURN INCOME AND AT THE TIME OF HEARING. IN THE CASE OF CIT. VS CREATIVE DYEING AND PRINTIN G PRIVATE LIMITED, THE DELHI HIGH COURT, DISCUSSED THE SIMILAR ISSUE A S THAT A PLAIN READING OF THE RECOMMENDATIONS OF THE TAXATION ENQUIRY COMM ISSION AND THE SPEECH OF THE THEN FINANCE MINISTER WOULD SHOW THAT THE PURPOSE OF INTENTION OF SUB-CLAUSE (E) TO SECTION 2(6A), IN TH E 1922 ACT WAS TO BRING WITHIN THE TAX NET MONIES PAID BY CLOSELY HELD COMP ANIES TO THEIR PRINCIPAL SHAREHOLDERS IN THE GUISE OF LOANS AND A DVANCES TO AVOID PAYMENT OF TAX. THEREFORE WITH THE SAID BACKGROUND KEPT IN MIND, I T IS CLEAR THAT SECTION 2(22)(E) OF THE ACT, WHICH IS IN PAIR MATER IAL WITH SUB-CLAUSE(E) OF SECTION 2(6A) OF THE 1922 ACT, PLAINLY SEEKS TO BRI NG WITHIN THE TAX NET ACCUMULATED PROFITS, WHICH DISTRIBUTED BY CLOSELY H ELD COMPANIES IN THE FORM OF LOANS. THE PURPOSE BEING THAT THE PERSONS W HO MANAGE SUCH CLOSELY HELD COMPANIES SHOULD NOT ARRANGE THEIR AFF AIRS IN A MANNER THAT THEY ASSIST THE SHARE HOLDERS' MONEY IN THE FORM OF IN ADVANCE OR LOAN, IN AVOIDING THE PAYMENT OF TAXES, BY HAVING THESE COMP ANIES PAY OR DISTRIBUTE, WHAT WOULD LEGITIMATELY BE DIVIDEND IN THE HANDS OF THE SHAREHOLDERS. AT THE SAME TIME, BY GRANTING ADVANCE, IF THE BUSIN ESS PURPOSE OF THE COMPANY IS SERVED, WHICH IS NOT THE SUM, WHICH OTHERWISE WOULD HAVE DISTRIBUTED AS DIVIDEND CANNOT BE BROUGHT WITHIN TH E DEEMING PROVISIONS OF TREATING SUCH ADVANCE AS DEEMED DIVIDEND. IT IS TO BE ASCERTAINED THAT WHAT IS PURPOSE OF SUCH ADVANCE AND ANY SUCH ADVANC E IS ARISING OUT DURING THE COURSE OF BUSINESS OR OUT OF BUSINESS EX PEDIENCY. 1. I HUMBLY REQUEST YOU TO PAY KIND ATTENTION TO TH E FOLLOWING DECIDED CASE LAWS WITH THE SAME FACTS, WHEREIN IT WAS DECID ED BY THE HON'BLE LEGAL FORUMS THAT SUCH ADVANCING BY THE COMPANY (IN THE S IMILAR CONTEXT AND FACTS OF MY CASE), MADE DURING THE COURSE OF BUSINE SS OR FOR THE EXPEDIENCE OF THE BUSINESS, IS NOT A GRATUITOUS PAY MENT. I AM ENCLOSING HERE COPIES OF THE FOLLOWING. ITA NO.71/VIZAG/2017 YARLAGADDA SURENDRA BABU, GUNTUR 5 A. ACIT VS SMT. G. SRIVIDYA, ITAT MADRAS BENCH, REF. ITA NO.1270/MAD /2011 DT.28.06.20 12. B. PRADEEP KUMAR MALHOTRA VS CIT, W.BENGAL- V, CALCUTT A HIGH COURT, ITA NO.219 OF 2003. C. CIT VS CREATIVE DYEING AND PRINTING PVT LTD / DELHI H IGH COURT REF, 318 ITR 476 (DEL) D. DR. CH. SRI PADMAVATHI VS. DCIT, CENTRAL CIRCLE- 31 VISAKHAPATNAM BENCH OF ITAT REF. ITA NO. 324/ VIZAG/2013, DT. 04.07.20 14. 2. IN ALL THE ABOVE CASES, IT WAS STATED AND DECIDED THAT BY VIRTUE OF OFFERING PERSONAL GUARANTEE AND COLLATERAL SECURITY FOR THE BENEFIT OF THE COMPANY, ANY SUCH ADVANCE BY THE COMPANY TO THE APPELLANT IS , AS A CONSEQUENCE OF FURTHER CONSIDERATION ( QUID PRO QUO ), WHICH IS AL SO BENEFICIAL TO THE COMPANY. HENCE, IT IS TO BE CONSTRUED THAT THE AMOU NT FORWARDED BY THE COMPANY TO THE APPELLANT SHALL NOT BE IN THE SHAPE OF ADVANCES OR LOANS AND NOT AS A GRATUITOUS PAYMENT. THUS THE ADVANCE I S NOT SIMPLICITER, BUT AN ADVANCE MADE FOR THE BUSINESS EXPEDIENCY. THE AR RANGEMENT BETWEEN THE ASSESSEE AND THE COMPANY WAS MERELY FOR THE SAK E OF CONVENIENCE ARISING OUT OF BUSINESS EXIGENCY. IN THE FACTS AND THE CIRCUMSTANCES, IT IS NOT APPROPRIATE TO HOLD THAT THE AMOUNT WITHDRAWN B Y THE APPELLANT PARTAKES CHARACTER OF DEEMED DIVIDEND UNDER THE PRO VISIONS OF SECTION 2(22)(E) OF THE I.T. ACT. 4. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE RE VENUE IS IN APPEAL BEFORE THIS TRIBUNAL. 5. APPEARING FOR THE REVENUE, THE LD. D.R. ARGUED T HAT THE ASSESSEE HAS TAKEN A LOAN OF ` 44,16,977/- FROM THE ASSESSEE COMPANY AND IS DIRECTOR OF THE ASSESSEE COMPANY HAVING CON TROLLING IN SHARES I.E. MORE THAN 10% OF THE SHARES SINCE THE ASSESSEE SATI SFIED BOTH THE CONDITIONS OF HAVING MORE THAN 10% SHAREHOLDING AND SUFFICIENT RESERVES IN THE LENDING COMPANY, THE LOAN TAKEN BY THE ASSESSEE ITA NO.71/VIZAG/2017 YARLAGADDA SURENDRA BABU, GUNTUR 6 REQUIRED TO BE TAXED AS DEEMED DIVIDEND U/S 2(22)(E ) OF THE ACT AND ARGUED THAT THE A.O. HAS RIGHTLY INVOKED THE PROVIS ION OF SECTION 2(22)(E) AND BROUGHT TO TAX THE AMOUNT BORROWED BY THE ASSESSEE. HENCE, ARGUED THAT NO INTERFERENCE IS CALLED FOR AN D THE ORDER OF THE CIT(A) REQUIRED TO BE SET ASIDE. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE ASSESSEE IS AN INDIVIDUAL DERIVI NG SALARY INCOME AND FOR THE PURPOSE OF FINANCIAL REQUIREMENTS OF THE C OMPANY THE ASSESSEE HAD MORTGAGED HIS ASSETS IN THE BANK AND GIVEN PERS ONAL GUARANTEE AND HENCE THE ASSETS OF THE ASSESSEE ARE BLOCKED AS SE CURITY TO THE AMOUNTS ADVANCED TO THE COMPANY AND THERE WERE NO A SSETS AVAILABLE TO THE ASSESSEE TO MAKE PERSONAL BORROWINGS. THE A SSESSEE WAS CONSTRUCTING A HOUSE FOR WHICH THE FUNDS WERE REQUI RED, HENCE, THE ASSESSEE HAS TAKEN A LOAN FROM THE COMPANY PERIODIC ALLY FOR CONSTRUCTION OF HIS HOUSE. THE ENTIRE LOAN AMOUNT IS REPAID ALONG WITH INTEREST, THEREFORE, THE LD. A.R. ARGUED THAT THIS IS A PURE LOAN TRANSACTION WHICH SHOULD NOT BE HELD AS A DEEMED DI VIDEND U/S 2(22)(E) OF THE ACT. SINCE THE ENTIRE AMOUNT WAS PAID ALONG WITH INTEREST AND REQUESTED UPHOLD THE ORDER OF THE LD.CIT(A). ITA NO.71/VIZAG/2017 YARLAGADDA SURENDRA BABU, GUNTUR 7 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THIS CASE, THE ASSESSEE HAS TAKEN A LOAN FROM THE COMPANY FOR CONSTRUCTION OF HOUSE. THE ASSESSEE HAD MORTGAGED HIS PROPERTIES FOR AVAILING CREDIT LIMITS BY THE COMPANY AND DRIED UP HIS RESOURCES FOR GETTING FINANCIAL ASSISTANCE FROM THE BANKS. THERE FORE, HE HAD NO OPTION EXCEPT TO TAKE THE LOAN FROM THE ASSESSEE COMPANY O R TO GET RELEASED THE PROPERTIES MORTGAGED TO THE BANK. SINCE THE PR OPERTIES CANNOT BE RELEASED UNLESS THE CREDIT LIMITS ARE COMPLETELY RE PAID, HE HAS TAKEN THE ADVANCE FROM ASSESSEE COMPANY FOR CONSTRUCTION OF H IS HOUSE AND THE ENTIRE AMOUNT OF ADVANCE WAS REPAID ALONG WITH INTE REST AS EVIDENCED FROM THE ORDER OF THE LD. CIT(A). ON THE SIMILAR F ACTS AND CIRCUMSTANCES, THIS TRIBUNAL IN THE CASE OF DCIT CE NTRAL CIRCLE-1 VISAKHAPATNAM VS. SRI HARIPRASAD BHARARIA IN ITA NO S.435 TO 441/VIZAG/2014 DATED 9.9.2016 HELD THAT THE TRANSAC TION BETWEEN THE ASSESSEE AND THE COMPANY ARE NOT WITHIN THE MEANING OF LOANS AND ADVANCES AS DEFINED U/S 2(22)(E) OF THE ACT AND ACC ORDINGLY, DELETED THE ADDITION MADE TOWARDS DEEMED DIVIDEND UNDER THE PRO VISIONS OF SECTION 2(22)(E) OF THE ACT. FOR READY REFERENCE WE EXTRAC T THE RELEVANT PART OF THE ORDER OF THIS TRIBUNAL IN PARA NOS.17 & 18 WHIC H READS AS UNDER: ITA NO.71/VIZAG/2017 YARLAGADDA SURENDRA BABU, GUNTUR 8 17. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT THE A.O. HAS MADE ADDITIONS TOWARDS LOANS AND ADVANCES UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT , ON THE GROUND THAT TRANSACTION BETWEEN THE ASSESSEE AND HIS COMPANY IS COMING WITH IN THE DEFINITION OF LOANS AND ADVANCES. THE ASSESSEE CLAIMS THAT TRANSACTION BETW EEN HIMSELF AND HIS COMPANY IS NOT A GRACIOUS PAYMENT WHICH IS COMING WITHIN THE M EANING OF LOANS AND ADVANCES AS DEFINED U/S 2(22)(E) OF THE ACT. THE CIT(A) AFTE R CONSIDERING THE EXPLANATION FURNISHED BY THE ASSESSEE AND ALSO FOLLOWING THE DE CISION OF KOLKATA HIGH COURT, IN THE CASE OF PRADIP KUMAR MALHOTRA VS. CIT, HELD THA T THE TRANSACTION BETWEEN THE ASSESSEE AND HIS COMPANY ARE NOT GRACIOUS PAYMENT W HICH IS COMING WITHIN THE MEANING OF LOANS AND ADVANCES AS DEFINED U/S 2(22)( E) OF THE ACT. THE RELEVANT PORTION OF THE CIT(A) ORDER IS REPRODUCED HEREUNDER : 7.2 HOWEVER, EVEN ON MERITS ALSO, ALTERNATE CONTENTION OF THE APPELLANT IS CONSIDERED. IT IS NOTED THAT THE APPELLANT HAS MOR TGAGED HIS PERSONAL PROPERTY TO VARIOUS BANKS AND OBTAINED LOANS FOR THE BUSINESS O F THE COMPANY. THE DOCUMENTS FILED BY THE APPELLANT OF THE SANCTION LETTERS FROM VARIOUS BANKS SUPPORTS THIS CONTENTION AND THE DETAILS OF THE MORTGAGE LOANS TA KEN FROM VARIOUS BANKS ALONG WITH SANCTION LETTERS AND THE PROPERTIES PROVIDED B Y THE APPELLANT AS COLLATERAL SECURITY TO OBTAIN LOANS FROM THE SAID BANKS IS TAB ULATED BELOW. DATE OF SANCTION NAME OF THE BANK NAME OF THE BORROWER CREDIT FACILITY (RS.) PROPERTY MORTGAGED 23.3.2004 STATE BANK OF HYDERABAD, SIRIPURAM JUNCTION, VIZAG M/S. SAMPATH VINAYAK STEELS PVT. LTD. 30 LAKHS AGRICULTURAL LAND 10.2.2006 STATE BANK OF HYDERABAD, SIRIPURAM JUNCTION, VIZAG M/S. SAMPATH VINAYAK STEELS PVT. LTD. 100 LAKHS 4 STORYED BUILDING ON 555 SQ.YDS SITUATED AT RAJENDRANAGAR, VIZAG IN THE NAME OF (A) HARI PRASAD BHARARIA (B) SHIVLAL BHARARIA (BROTHERS) RENEWAL STATE BANK OF HYDERABAD, SIRIPURAM JUNCTION, VIZAG M/S. SAMPATH VINAYAK STEELS PVT. LTD. 100 LAKHS 4 STORYED BUILDING ON 555 SQ.YDS SITUATED AT RAJENDRANAGAR, VIZAG IN THE NAME OF (A) HARI PRASAD BHARARIA (B) SHIVLAL BHARARIA (BROTHERS) 7.11.2007 THE DHANALAKSHMI BANK, VIP ROAD, VIZAG M/S. SAMPATH VINAYAK STEELS PVT. LTD. 150 LAKHS (1) 4 STORYED BUILDING ON 555 SQ.YDS. SITUATED AT RAJENDRANAGAR, VIZAG IN THE NAME OF (A) HARI PRASAD BHARARIA (B) SHIVLAL BHARARIA (BROTHERS) (2) VUDA APARTMENT ADMEASURING 1485 SQ.FT. SITUATED AT MMTC COLONY, SEETHAMMADHARA, VIZAG IN THE NAME OF HARI PRASAD BHARARIA. ITA NO.71/VIZAG/2017 YARLAGADDA SURENDRA BABU, GUNTUR 9 RENEWAL THE DHANALAKSHMI BANK, VIP ROAD, VIZAG M/S. SAMPATH VINAYAK STEELS PVT. LTD. 150 LAKHS (1) 4 STOREYED BUILDING ON 555 SQ.YDS. SITUATED AT RAJENDRANAGAR, VIZAG IN THE NAME OF (A) HARI PRASAD BHARARIA (B) SHIVLAL BHARARIA (BROTHERS) (2) VUDA APARTMENT ADMEASURING 1485 SQ.FT. SITUATED AT MMTC COLONY, SEETHAMMADHARA, VIZAG IN THE NAME OF HARI PRASAD BHARARIA. 13.11.2009 AXIS BANK LTD., RAMNAGAR, VIZAG M/S. SAMPATH VINAYAK STEELS PVT. LTD. 300 LAKHS (1) 4 STORYED BUILDING ON 555 SQ.YDS SITUATED AT RAJENDRANAGAR, VIZAG IN THE NAME OF (A) HARI PRASAD BHARARIA (B) SHIVLAL BHARARIA (BROTHERS) (2) VUDA APARTMENT ADMEASURING 1485 SQ.FT. SITUATED AT MMTC COLONY, SEETHAMMADHARA, VIZAG IN THE NAME OF HARI PRASAD BHARARIA. 12.11.2010 AXIS BANK LTD. RAMNAGAR, VIZAG M/S. SAMPATH VINAYAK STEELS PVT. LTD. 400 LAKHS (1) 4 STORYED BUILDING ON 555 SQ.YDS. SITUATED AT RAJENDRANAGAR, VIZAG IN THE NAME OF (A) HARI PRASAD BHARARIA (B) SHIVLAL BHARARIA (BROTHERS) (2) VUDA APARTMENT ADMEASURING 1485 SQ.FT. SITUATED AT MMTC COLONY, SEETHAMMADHARA, VIZAG IN THE NAME OF HARI PRASAD BHARARIA. EVEN TILL DATE, THE AXIS BANK HAS GRANTED CASH CRE DIT FACILITY TO THE SAID COMPANY ON THE BASIS OF THE COLLATERAL SECURITY PRO VIDED BY THE PROPERTIES AND ALSO THE PERSONAL GUARANTEE OF THE APPELLANT AND HIS FAM ILY MEMBERS (LATEST SANCTION LETTER BEING 6.3.2013). 7.3 IT IS NOTED THAT THE FACTS IN THE CASE OF PRADIP KUMAR MALHOTRA VS CIT (SUPRA) ARE AKIN TO THE FACTS UNDER REFERENCE WHICH IS GIVEN BELOW. 'THE PHRASE 'BY WAY OF ADVANCE OR LOAN' APPEARING S UB-CLAUSE(E) OF SECTION 2(22) OF THE INCOME TAX ACT, 1961 MUST BE CONSTRUED TO MEAN T HOSE ADVANCES OR LOANS WHICH A SHAREHOLDER ENJOYS SIMPLY ON ACCOUNT OF BEING A P ERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HO/DI NG NOT LESS THAN TEN PER CENT OF THE VOTING POWER; BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS B ENEFICIAL TO THE COMPANY RECEIVED FROM SUCH A SHAREHOLDER, IN SUCH CASE, SUC H ADVANCE OR LOAN CANNOT BE SAID TO BE DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT . THUS, GRATUITOUS LOAN OR ADVANCE GIVEN BY A COMPANY TO THOSE CLASSES OF SHAR EHOLDERS WOULD COME WITHIN THE PURVIEW OF SECTION 2(22) BUT NOT CASES WHERE THE LO AN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY BY SUCH SHAREHOLDER. ITA NO.71/VIZAG/2017 YARLAGADDA SURENDRA BABU, GUNTUR 10 THE ASSESSEE HAD SUBSTANTIAL SHAREHOLDING IN A PRIV ATE COMPANY. THE ASSESSEE PERMITTED HIS IMMOVABLE PROPERTY TO BE MORTGAGED TO THE BANK FOR ENABLING THE COMPANY TO TAKE THE BENEFIT OF LOAN AND IN SPITE OF REQUEST OF THE ASSESSEE, THE COMPANY WAS UNABLE TO RELEASE THE PROPERTY FROM MOR TGAGE. CONSEQUENTLY, THE BOARD OF DIRECTORS OF THE COMPANY PASSED A RESOLUTI ON AUTHORIZING THE ASSESSEE TO OBTAIN FROM THE COMPANY INTEREST FREE DEPOSIT UP TO RS.50 LAKHS AS AND WHEN REQUIRED. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1999-2000, THE ASSESSEE OBTAINED FROM THE COMPANY A SUM OF RS.20,7 5,000 BY WAY OF SECURITY DEPOSIT. OUT OF THE AMOUNT, A SUM OF RS.20 LAKHS WA S SUBSEQUENTLY RETURNED BY THE ASSESSEE TO THE COMPANY. IN THE ASSESSMENT MADE FOR 19992000 THE ASSESSING OFFICER ADDED THE SUM OF RS. 20,75, 000 AS DEEMED D IVIDEND. THIS WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE H IGH COURT HELD, ALLOWING THE APPEAL, THAT FOR RETAINING THE B ENEFIT OF LOAN AVAILED OF FROM THE BANK, IF DECISION WAS TAKEN TO GIVE ADVANCE TO THE ASSESSEE SUCH DECISION WAS NOT TO GIVE GRATUITOUS ADVANCE TO ITS SHAREHOLDER BUT TO P ROTECT THE BUSINESS INTEREST OF THE COMPANY. THE SUM OF RS.20,75,000 COULD NOT BE TREAT ED AS DEEMED DIVIDEND,' 07.4 SINCE IN THE PRESENT CASE ALSO, THE APPELLANT HAS MORTGAGED HIS PROPERTY TO VARIOUS BANKS AND OBTAINED LOANS FOR THE BUSINESS O F THE COMPANY. EVEN THOUGH THERE IS A PERSONAL ELEMENT OF INDIVIDUAL BENEFIT T O THE APPELLANT, THE COMPANY FROM WHICH THE ADVANCES WERE TAKEN ALSO BENEFITED BY USI NG THE PROPERTY AS COLLATERAL SECURITY TO THE BANK. THUS, AS OBSERVED BY THE HON' BLE CALCUTTA HIGH COURT THAT THE LOAN OR ADVANCE GIVEN IN RETURN TO AN ADVANTAGE CON FERRED UPON THE COMPANY BY A SHAREHOLDER IS NOT A GRATUITOUS LOAN OR ADVANCE GIV EN BY THE COMPANY AND DOES NOT COME UNDER THE PURVIEW OF SECTION 2(22)(E). IN VIEW OF THE ABOVE, THE ADDITION MADE ON ACCOUNT OF DEEMED DIVIDEND BY THE ASSESSING OFFICER IS ORDERED TO BE DELETED FOR AYS 2005-06 TO 2011-12. SINCE TH E ISSUE IS DECIDED IN FAVOUR OF THE APPELLANT, THE MATTER RELATING TO THE APPELLANTS REMUNERATION DOES NOT ARISE. 18. THE CIT(A) HAS CONSIDERED THE ISSUE IN DETAIL A ND HELD THAT THE TRANSACTION BETWEEN THE ASSESSEE AND HIS COMPANY ARE NOT COMING WITHIN THE MEANING OF LOANS AND ADVANCES AS DEFINED U/S 2(22)(E) OF THE ACT. T HE FACTS REMAIN UNCHANGED. THE REVENUE HAS FAILED TO BROUGHT ON RECORD ANY EVIDENC ES TO PROVE THAT THE FINDINGS OF THE FACT RECORDED BY THE CIT(A) IS INCORRECT. THER EFORE, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED ADDITIONS MADE TOWARDS D EEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. WE DO N OT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). HENCE, WE INCLINED TO UPH OLD THE CIT(A) ORDER AND DISMISS THE APPEAL FILED BY THE REVENUE. 8. SINCE THE FACTS OF THE ASSESSEES CARE ARE IDENT ICAL, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE COORDI NATE BENCH, WE HOLD THAT THE TRANSACTION IS NOT DEEMED DIVIDEND WITHIN THE MEANING OF ITA NO.71/VIZAG/2017 YARLAGADDA SURENDRA BABU, GUNTUR 11 SECTION 2(22)(E) OF THE ACT AND ACCORDINGLY, DELETE THE ADDITION MADE BY THE A.O. AND DISMISS THE APPEAL OF THE REVENUE. 9. THE CROSS OBJECTION FILED BY THE ASSESSEE IS SUP PORTIVE. SINCE THE REVENUES APPEAL IS DISMISSED, THE CROSS OBJECTION FILED BY THE ASSESSEE BECOME INFRUCTUOUS AND DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 9 TH MAR18. SD/- SD/- ( . ) ( . .. . . . . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 09.03.2018 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO, WARD-2(2), GUNTUR 2. / THE RESPONDENT YARLAGADDA SURENDRABABU, D.NO.4 -19-89, 8 TH LANE, VIKAS NAGAR, GUNTUR 3. + / THE CIT, GUNTUR 4. + ( ) / THE CIT (A)-1, GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM