The order of the Bench was delivered by
Bhavnesh Saini (Judicial Member)- Both cross-appeals are directed against the order of the learned Commissioner of Income-tax (Appeals) (Central), Gurgaon dated September 27, 2013 for the assessment year 2005-06.
2. We have heard the learned representatives of both the parties and perused the material on record. The appeals are decided as under :
I. T.A. No. 1066/Chd/2013-Assessee's appeal
3. On ground Nos. 1 to 4, the assessee has challenged the addition of Rs. 7,54,31,103 under section 40A(2) of the Income-tax Act, 1961. Briefly the facts of the case are that this addition pertains to excessive purchase price paid to the group company on purchase of "damaged wheat". The assessee has furnished additional evidence on this issue before the learned Commissioner of Income-tax (Appeals) i.e. copies of invoices for sale made by M/s. Lakshmi Energy and Foods Ltd. to the parties other than the assessee. The Assessing Officer commented on the same that this is just two instances of sale done in September 2004 and March 2005 and cannot conclusively establish the purchase price to be the genuine prevailing market rate. The assessee had purchased damaged wheat from M/s. Lakshmi Overseas Industries Ltd. at 5.25 per kg. The seller namely M/s. Lakshmi Overseas Industries Ltd. had purchased the said damaged wheat from Government at Rs. 3.60 per kg. as noted by the Assessing Officer. The Assessing Officer had doubted the price of Rs. 5.25 per kg. sold to the assessee which according to the Assessing Officer is excessive purchase price given to the sister concern. The Assessing Officer noted that no details of payments made to the group concern for purchases made from them as per the provisions of section 40A(2)(b) of the Act were reported in the tax audit report. The Assessing Officer also noted that despite given opportunity, the assessee failed to furnish the trail of the source of such damaged wheat. The Assessing Officer, therefore, was of the view that excessive price have been paid for purchase from the sister concern and made addition of Rs. 7,54,31,103.
4. The assessee submitted before the learned Commissioner of Income-tax (Appeals) that it has given five copies of the invoices for sale made by M/s. Lakshmi Energy and Foods Ltd. at the prevailing market which were Rs. 5.50 per kg. and Rs. 6.10 per kg. The assessee submitted some of the evidences before the Assessing Officer that proved that purchases has been made on competitive price in the market. The assessee purchased damaged wheat from M/s. Lakshmi Overseas Industries Ltd. at 5.25 per kg. The assessee furnished bills to show that the seller has made sales of the same items to others at a higher price. The assessee furnished copies of the bills of the sales made by the sister concern to the others. Even the seller of the damaged wheat namely M/s. Lakshmi Overseas Industries Ltd. has also executed into an agreement for sale of damaged wheat to PEC Ltd., a Government of India undertaking at Rs. 5.50 per kg. for the purpose of export and the said supply had been effected and which is on record in the case of M/s. Lakshmi Overseas Industries Pvt. Ltd. for the assessment year 2006-07. Copy of the agreement is also placed on record. Thus, the assessee made purchases at the bona fide rate prevailing in the market. The learned Commissioner of Income-tax (Appeals), however, noted that the assessee has not provided the complete details before the Assessing Officer. The assessee purchased the goods from the sister concern which were much higher rates as against the nominal rate provided by the Government, therefore, addition was confirmed.
5. The learned counsel for the assessee reiterated the submissions made before the authorities below and referred to paper book page 89 which is the sale invoice by M/s. Lakshmi Overseas Industries limited to M/s. Adani Exports Limited, Ahmedabad of the same items at Rs. 5.50 per kg. Paper book pages 11, 15 and 23 are replies filed before the Assessing Officer which have not been disputed by the Assessing Officer. The assessee had furnished before the learned Commissioner of Income-tax (Appeals) the four other bills in respect of sales made to M/s. R. K. Enterprises, Calcutta. As per bills filed at the paper book pages 90 to 93 of the paper book the sale rates are higher than the rates charged by the sister concern. The agreement with M/s. PEC Ltd. had never been doubted by the authorities below. M/s. Lakshmi Overseas Industries Ltd. has sold damaged wheat at Rs. 5.25 per kg. against the purchase price of Rs. 3.60 per kg. and the profit on such sales have been declared in the return of income showing a substantial income of Rs. 19.61 crores for the assessment year 2005-06 and paid the tax of Rs. 8.11 crores. Paper book page 131 is return of income filed of M/s. Lakshmi Overseas Industries Ltd. which is the on higher slab. Thus, both the companies have paid maximum rate of tax and there is no loss to the Revenue or gain to any of the group companies. Reliance has been placed on the judgment of the hon'ble Supreme Court in the case of CIT v. Glaxo Smithkline Asia (P) Ltd. reported in [2010] 236 CTR (SC) 113 in which it has been held that if the entire exercise is revenue neutral, no interference is called for. The findings of the learned Commissioner of Income-tax (Appeals) that trail of such damaged wheat is not there is misconceived, since the source of purchase is evidently clear that the same has been purchased from M/s. Lakshmi Overseas Industries Ltd. who in turn had purchased from the Government agency. For error of the auditor, the Assessing Officer cannot make such addition. All the accounts have been reconciled. He has also filed details of sales made to various parties of the same items at Rs. 7.55 per kg. as against the purchase price of Rs. 5.25 per kg. The learned counsel for the assessee, therefore, submitted that the assessee has not paid any excessive price of the wheat so purchased from the sister concern. Therefore, the addition is unjustified.
6. On the other hand, the learned Departmental representative relied on the orders of the authorities below and submitted that trail of source of such damaged wheat was not explained. The onus was upon the assessee to prove that the reasonable price has been paid. The assessee did not file complete details before the authorities below, therefore, no interference is called for.
7. We have considered the rival submissions. The learned Commissioner of Income-tax (Appeals) has considered the issue in detail, in the impugned order and has also considered the issue of admission of additional evidence under rule 46A of the Income-tax Rules. The learned Commissioner of Income-tax (Appeals) admitted the additional evidences, for the purpose of disposal of the appeal which have not been challenged by the Department in their appeal. The assessee furnished copies of the invoices of sales made by M/s. Lakshmi Overseas Industries Ltd. to the parties other than the assessee-company at the higher price. The assessee thus produced sufficient evidences before the learned Commissioner of Income-tax (Appeals) to prove that the seller has made sales to other parties as well of the same commodity at a higher rate than the rates paid by the assessee. The assessee has also filed the details of the purchases made by the assessee from the sister concern at Rs. 5.25 per kg. which have been sold to other parties at a higher price at 7.55 per kg. The authorities below have compared the purchased price paid by the assessee to the sister concern with the price paid by the seller to the Government. The authorities below have not considered the details provided before them supported by the invoice and vouchers. The assessee also produced a copy of the agreement between the seller and the PEC Ltd. in which the seller has entered into an agreement for sale of damaged wheat to PEC Ltd., a Government of undertaking at Rs. 5.50 per kg. The seller has made sales of the identical items to other independent parties at a higher rate between Rs. 5.50 per kg. to Rs. 6.10 per kg. i.e. Adani Exports Ltd. and R. K. Enterprises Calcutta, therefore, sufficient cogent evidences have been produced before the authorities below to prove that the assessee paid reasonable market price of purchase of damaged wheat to the sister concern as compared with rates of other independent parties. The assessee-company and the seller are assessed by the same Assessing Officer and they have shown the higher income in their returns of income in the same slab and both of them paid maximum rate of tax, therefore, the revenue is not at loss and it is merely revenue neutral exercise. The hon'ble Supreme Court in the case of Upper India Publishing House P. Ltd. v. CIT [1979] 117 ITR 569 (SC) held that before section 40A(2) of the Act is applied, the Assessing Officer should have proved expenditure is excessive or unreasonable. The assessee has explained before the authorities below all the facts and circumstances that reasonable payments have been made to the sister concern and there is nothing unreasonable in this regard. In any case, even for applying the provisions of section 40A(2), it is for the Assessing Officer to make out a case that the expenditure incurred is excessive or unreasonable having regard to the fair market value of such services. However, nothing has been done by the Assessing Officer in this case, therefore, considering the totality of the facts and circumstances as explained above, there is no justification for the Assessing Officer to invoke the provisions of section 40A(2) of the Income-tax Act to make the addition. We, therefore, do not find any justification for making the above addition.
8. Considering the above discussion, we set aside the orders of the authorities below and delete the addition of Rs. 7,54,31,103.
9. Ground Nos. 1 to 4 of the appeal of the assessee are allowed.
10. On ground No. 5, the assessee challenged the addition of Rs. 33,65,285 under section 40(a)(ia) of the Income-tax Act. The Revenue on ground No. 4 challenged the deletion of the similar addition of Rs. 60,38,132 under section 40(a)(ia) of the Income-tax Act. The Assessing Officer made the addition of Rs. 94,03,417 under section 40(a)(ia) of the Act. The Assessing Officer observed that the assessee claimed various expenses in the nature of commission, freight, customs house agent loading and unloading charges etc. during the year. Page 220 of impounded annexure A-7 is the statement of freight paid by the assessee-company as summarised by the customs clearing agent M/s. P. D. Prasad and Sons Pvt. Ltd., Calcutta for the period July 21, 2004 to August 9, 2007. The date of payment, truck number, total amount of freight advance paid by the assessee, TDS to be deposited by the assessee and the net amount paid by the said party has duly reflected in the statement. The Assessing Officer found that no TDS was either deducted or deposited by the assessee-company on such freight payments. The assessee was required to furnish the details in respect of these expenses vide questionnaire dated October 16, 2007 which reads us under :
| Brokerage |
Rs. 5,90,551 |
Freight, customs house agent, loading and unloading charges |
Rs. 38,71,549 |
Forwarding and handling charges |
Rs. 49,71,317 |
The assessee filed incomplete details, therefore, the Assessing Officer noted that there was no justification for such expenses incurred and reasons for non-deduction of TDS on such payments to various parties could be adduced by the assessee. The Assessing Officer accordingly disallowed Rs. 94,03,417 under section 40(a)(ia) of the Act.
11. The assessee challenged the addition before the learned Commissioner of Income-tax (Appeals) and the written submissions of the assessee is quoted in the impugned order in which the assessee explained that the assessee provided details of brokerage etc. The assessee had deducted TDS on brokerage paid and deposited in the Government account which is evident from the copy of the TDS return in requisite Form 27A in which compete details have been noted. The assessee also deducted TDS on forwarding and handling charges and deposited the same into the Government account. As regards others, it was submitted that there was no requirement to deduct TDS. The learned Commissioner of Income-tax (Appeals) noted that it has been stated that evidence of TDS deductions on most of the items have been furnished. In the case of P. D. Prasad and Sons P. Ltd. it was put forth that entity is its authorised representative for booking goods through railways and as the payment was to a Government authority, no TDS was deductible. As the TDS stands deposited before the filing of the return of income in reference to Vass Exports and Prathyusha Associates and Liladhar Forwarders P. Ltd, the question of disallowance would not arise. The transportation through railways indent does not require any TDS to be done. However, the job executed through authorised agencies i.e. M/s. P. D. Prasad and Sons Ltd. and Sukhvinder Singh through Leaf are liable for deduction of tax at source and accordingly Rs. 15,61,196 and Rs. 16,65,114 in reference to P. D. Prasad and Sons and Rs. 1,38,975 in reference to Sukhvinder Singh through Leaf come under the ambit of section 40(a)(ia) of the Act. The learned Commissioner of Income- tax (Appeals) accordingly, allowed the appeal of the assessee partly.
12. The learned counsel for the assessee reiterated the submissions made before the authorities below and referred to the details of TDS deducted at source which have been paid on brokerage and forwarding and handling charges. As regards the payment of railways freight paid through M/s. P. D. Prasad and Sons Pvt. Ltd. and Sukhvinder Singh, it was submitted that these amounts have been paid to the railways on behalf of the assessee- company ; therefore, no disallowance is liable to be made because the payment is made to the Government undertaking. He has filed a copy of account of P. D. Prasad and Sons Pvt. Ltd. and a copy of the seized papers to show that the payments to these persons were paid on account of reimbursement charges paid by them on behalf of the assessee. The learned counsel for the assessee submitted that the reimbursement of the expenses is not taxable in the hands of the payee, there is no need for assessee to deduct TDS. The assessee cannot held to be assessee in default, consequently, no disallowance under section 40(a)(ia) of the Act is called for. He has relied on the order of the Income-tax Appellate Tribunal Mumbai Bench in the case of Nathpa Jhakri Joint Venture v. Asst. CIT [2010] 5 ITR (Trib) 75 (Mumbai) and Linklaters LLP v. ITO (International Taxation) [2011] 9 ITR (Trib) 217 (Mumbai).
13. On the other hand, the learned Departmental representative relied on the order of the authorities below and submitted that the assessee has not furnished the details to prove whether these are reimbursement or payment. How the bills are raised is also not clear. No debit note is available ; therefore, onus upon the assessee has not been discharged.
14. We have considered the rival submissions. The assessee has specifically pleaded before the authorities below that on brokerage and forwarding and handling charges, TDS has been deducted and paid in the Government account. As regards freight, customs house agent loading and unloading charges, it was pleaded that since it was for railways indent, therefore, no TDS was required to be deducted. The learned Commissioner of Income- tax (Appeals) found the contention of the assessee to be correct that TDS has been deducted on most of the items and deposited in the Government account, therefore, there is no question of disallowance of the same. As regards the transportation through railways indent, no TDS is required because it is a payment made to the Government undertaking. The findings of the fact recorded by the learned Commissioner of Income-tax (Appeals) has been supported by TDS return, tax challans filed in the paper book, therefore, finding of the fact arrived at by the learned Commissioner of Income-tax (Appeals) have not been disputed through any evidence or material on record, therefore, part addition deleted by the learned Commissioner of Income-tax (Appeals) is wholly justified and no interference is called for. The Departmental appeal on ground No. 4, therefore, stands dismissed.
15. However, as regard to the job executed through authorised agencies i.e. P. D. Prasad and Sons Pvt. Ltd. and Sukhvinder Singh through Leaf, the assessee pleaded that since they conducted the job for the assessee for booking goods through railways and payment was made to the Government agency, therefore, no TDS was liable to be deducted. The assessee also pleaded that since the amount is reimbursed by the assessee to these agents, therefore, no TDS is liable to be deducted. The learned counsel for the assessee referred to the seized material in this regard and also filed copy of the ledger account but the concerned bills and vouchers have not been provided to explain the nature of the transactions conducted by these agency for the assessee. However, in the seized papers details of payments made to these agencies have been mentioned, therefore, we are of the view one more chance should be given to the assessee to explain this issue before the Assessing Officer, whether the amounts paid to these persons are reimbursement of expenses incurred on behalf of the assessee. In this view of the matter, we set aside the orders of the authorities below to that extent in which the addition is confirmed by the learned Commissioner of Income-tax (Appeals) and restore part of the issue to the file of the Assessing Officer with a direction to redecide this issue by providing reasonable opportunity of being heard to the assessee. The assessee is directed to produce sufficient material before the Assessing Officer to explain whether it was reimbursement of expenses and why no TDS was required to be deducted on these payments made to J. D. Prasad and Sons Pvt. Ltd. and Sukhvinder Singh through Leaf. Ground No. 5 of the appeal of the assessee is allowed for statistical purposes.
16. In the result, the appeal of the assessee is partly allowed.
I. T. A. No. 1090/Chd/2013-Departmental appeal
17. On ground No. 1, the Revenue challenged the deletion of addition of Rs. 4.60 crores as unexplained cash credits under section 68 of the Income- tax Act. The learned Commissioner of Income-tax (Appeals) noted in the impugned order that with regard to the addition of Rs. 4.60 crores, the assessee furnished the following additional evidences which he has admitted :
(i) Confirmation of Nav Bharat Enterprises
(ii) Certified statement along with PAN No. in the books of Nav Bharat Enterprises.
The Assessing Officer while making the addition observed that an amount of Rs. 7.60 crores was received by the assessee-company from M/s. Nav Bharat Exports during the year under consideration under the garb of loan. The assessee, however, changed its stand and submitted that the amount of Rs. 7.60 crores was received from two parties namely M/s. Nav Bharat Exports-Rs. 3 crores and M/s. Nav Bharat Enterprises-Rs. 4.60 crores. Summons under section 131 of the Act were issued to both the parties and the statement of the director was recorded under oath and are placed on record. M/s. Nav Bharat Exports have confirmed given a loan of Rs. 3 crores only in the year under consideration. Confirmed copy of the account and statement of the director was placed on record. However, M/s. Nav Bharat Enterprises has categorically denied having advanced any money to the assessee. The statement of the director recorded under section 131 is placed on record. During the remand proceedings, the Assessing Officer contended that addition was made on money received under the garb of loan from M/s. Nav Bharat Enterprises. However, the confirmation given in the paper book says that loan of Rs. 4.60 crores was advanced on behalf of M/s. Adani Exports Ltd., Ahmedabad, therefore, it is contradictory. The assessee in the rejoinder explained that the assessee prayed to the Assessing Officer vide letter dated December 20, 2007 to issue summons to M/s. Nav Bharat Enterprises (formerly known as PBR Impex Pvt. Ltd.) for the purpose of verification of the loan. The information under section 131 of the Act was called from the abovesaid party and finally the statement was recorded. However, as the statement was not given to the assessee-company for cross-examination, no opportunity was provided to the assessee to cross-examine the statement of the director of Nav Bharat Enterprises, therefore, it cannot be read as evidence against the assessee. The assessee has now been able to get a copy of the statement after completion of the assessment. There is nothing against the assessee. The Assessing Officer accepted part of the credit. It was explained that M/s. Nav Bharat Enterprises had given the amount on behalf of Adani Exports. The copy of the ledger of M/s. Adani Exports Ltd. for the year under consideration in the books of M/s. Nav Bharat Enterprises proved that amount has been given through banking channels. The DD's were deposited and cleared in the current account of the assessee-company with Punjab National Bank, Mohali, copy of the bank statement is produced. It was further explained that M/s. Lakshmi Overseas Industries Ltd. had made sales of damaged wheat to Adani Exports Ltd, Ahmedabad vide invoice No. 6295 dated March 3, 2005 for a sum of Rs. 7,16,00,532 as per the evidence available on record. The amount was remitted by M/s. Adani Exports Ltd. to M/s. Lakshmi Overseas Industries Ltd. but the part of the amount was remitted through Nav Bharat Enterprises through whom the said transaction had taken place and as such the cheque of Rs. 5 crores was received by Nav Bharat Enterprises from Adani Exports Ltd. and out of that Rs. 4.60 crores was given to assessee-company, as per the evidence enclosed. The payment of Rs. 4.60 crores was transferred by Nav Bharat Enterprises to the assessee-company instead of transferring the funds to Lakshmi Overseas Industries Ltd. and immediately thereafter the sum of Rs. 4.60 crores was debited to the account of M/s. Lakshmi Overseas Industries Ltd. which is proved from the copy of account in the books of account of the assessee. Copy of the bank account of the assessee was also filed. It was therefore, submitted that wrongly the amount was credited to the account of the assessee. Copy of account of all the parties are filed in this regard.
18. The learned Commissioner of Income-tax (Appeals) considering the explanation of the assessee noted that the Assessing Officer has already accepted the sum of Rs. 3 crores by recording the statement of the concerned persons. The learned Commissioner of Income-tax (Appeals) considering the explanation of the assessee and the material on record noted that all the transactions have been conducted through banking channel and fully clarified. The confirmation of account filed by M/s. Nav Bharat Enterprises as additional evidence, clearly stated that a sum of Rs. 5 crores was received from Adani Exports Ltd. had been debited. The adjustments had been made immediately as is evident from the ledger account and bank statement. The learned Commissioner of Income-tax (Appeals) accepted the explanation of the assessee and deleted the addition of Rs. 4.60 crores.
19. We have considered the rival submissions. We do not find any merit in this ground of appeal of the Revenue. The assessee has explained the circumstances in which the amount of Rs. 4.60 crores was received in the bank account of the assessee which was paid by M/s. Adani Exports Limited through M/s. Nav Bharat Enterprises. The confirmations of accounts and bank statements support the explanation of the assessee and ultimately the amount of Rs. 4.60 crores has been transferred to M/s. Lakshmi Overseas Industries Ltd. immediately. Since the amount in question belongs to M/s. Lakshmi Overseas Industries Ltd. therefore, there was no justification to make any addition in the hands of the assessee. The assessee has filed copies of the bank statement and copies of the accounts of Nav Bharat Enterprises and Adani Exports Ltd. in the paper book in support of the above explanation. The learned Commissioner of Income- tax (Appeals), therefore, rightly found that the explanation of the assessee is correct, therefore, no addition can be made against the assessee. There is no infirmity in the order of the learned Commissioner of Income-tax (Appeals) in deleting the addition of Rs. 4.60 crores. Ground No. 1 of the appea1 of the Revenue is therefore, dismissed.
20. On ground No. 2, the Revenue has challenged the deletion of addition of Rs. 11,50,000 as unexplained cash credit.
21. The Assessing Officer made the addition on account of unexplained cash credit received from Smt. Vijay Lakshmi for a sum of Rs. 11,50,000. The learned Commissioner of Income-tax (Appeals) admitted the additional evidence i.e. bank account statement of Smt. Vijay Lakshmi. The Assessing Officer noted that the assessee had received a sum of Rs. 11,50,000 from Smt. Vijay Lakshmi as unsecured loan during the year under consideration. The assessee failed to produce the bank statement and other documents to establish the creditworthiness of the lender. The copy of the intimation issued by the Income-tax Department of the said lender showed merely declaring of income Rs. 40,530. The Assessing Officer, therefore, made addition of Rs. 11,50,000. The Assessing Officer in the remand report submitted before the learned Commissioner of Income-tax (Appeals) that copy of the bank account is filed from which money was transferred. There are transfer of amount of share capital money which itself is doubtful. The assessee further explained that Smt. Vijay Lakshmi is a founder director of Lakshmi Overseas Industries Ltd. and is regularly assessed to tax. The unsecured loan of Rs. 11,50,000 was received through cheque drawn on IDBI Bank Ltd., therefore, the creditworthiness is proved. The assessee filed confirmation from Smt. Vijay Lakshmi who is holding equity share of public limited company namely Lakshmi Energy and Foods Ltd. and she is a promoter director. She had advanced the amount to the assessee out of dividend amounting to Rs. 11,82,660. The assessee filed copy of the confirmation by Smt. Vijay Lakshmi, copy of certificate of payment of dividend, copy of the bank account and copy of the shareholding pattern. The learned Commissioner of Income-tax (Appeals) noted that Smt. Vijay Lakshmi is one of the founder directors of M/s. Lakshmi Energy Foods Limited holding number of shares and her shareholding is at 3.8 per cent. The company has paid dividend of Rs. 11,82,660 to the creditor which is supported by all the certificates. The learned Commissioner of Income-tax (Appeals) accordingly deleted the addition.
22. After considering the rival submissions, we do not find any merit in this ground of appeal of the Revenue. The assessee filed complete details and evidences before the authorities below to prove the identity of the creditor, her creditworthiness and genuineness of the transaction in the matter. The confirmation of Smt. Vijay Lakshmi, her ledger account, shareholding and receipt of dividend are filed in the paper book, which proves her creditworthiness to advance genuine loan to the assessee. The learned Commissioner of Income-tax (Appeals) had properly appreciated all the evidence and material on record and correctly deleted the addition. No interference is called for in the matter. Ground No. 2 of the appeal of the Revenue is dismissed.
23. On ground No. 3, the Revenue challenged the deletion of addition of Rs. 2,12,98,733 on account of deemed dividend under section 2(22)(e) of the Income-tax Act. The Assessing Officer noted that the assessee- company had received unsecured loans from various group concern during the year. Similarly loans/advances were given to group concerns/shareholders also. The Assessing Officer noted that no details of shareholding pattern of M/s. Lakshmi Overseas Industries Ltd. were provided by the assessee. Copies of audited financial results of M/s. Loil Impex Ltd. were also not provided by the assessee. Incomplete copies of the ledger account of M/s. Lakshmi Overseas Industries Ltd. was provided. The shareholding pattern of the abovestated companies was summarised and list is reproduced in the assessment order. On a perusal of the shareholding pattern, it was seen that share of various entities were held by the Uppal group in the name of various entry operators. The beneficial shareholding of all such entities was held primarily by various family members of Uppals. The unsecured loans were received by the assessee-company from companies the shareholders of which beneficially entitled to exercise 10 per cent. or more of the voting powers. The said shareholders holding such beneficial interest also held substantial interest in the assessee-company. The Assessing Officer accordingly noted that the provisions of section 2(22)(e) of the Act are attracted in this case and made the above addition.
24. The assessee submitted before the learned Commissioner of Income-tax (Appeals) that it had received unsecured loans amounting to Rs. 1,98,48, 733 from M/s. Janak Finvest Ltd., M/s. Ganeshay Overseas Industries Ltd. and M/s. Loil Impex Ltd. It was submitted that the Assessing Officer misinterpreted the provisions of section 2(22)(e) of the Act. As per the chart reproduced in the assessment order, it is clearly evident that none of the shareholders of the other companies from whom unsecured loans taken, hold any substantial interest in the assessee-company. The assessee relied upon several decisions in support of his contention that the provisions of section 2(22)(e) of the Act was not attracted in the case of the assessee.
25. The learned Commissioner of Income-tax (Appeals) noted that it is a case of the Assessing Officer that the beneficial shareholding of the alleged bogus companies are held primarily by various family members of Uppals. The learned Commissioner of Income-tax (Appeals) on a perusal of the shareholding pattern tabulated in the impugned order noted that it is apparent that the assessee/its shareholders while they may be registered shareholders are not beneficiary holders of the shares. Payment must be to a registered shareholder who is also beneficiary shareholder. They must also hold substantial interest in the companies who have given the loans. The companies should also have accumulated profits. The learned Commissioner of Income-tax (Appeals) found that none of these conditions are satisfied in the case of the assessee. The addition was deleted.
26. After considering the rival submissions, we do not find any merit in this ground of appeal of the Revenue. The chart given by the assessee to the Commissioner of Income-tax (Appeals) shows that shareholding pattern did not exceed 10 per cent. of the total shareholding, therefore, the condition of section 2(22)(e) of the Act have not been fulfilled. Therefore, no addition can be made on account of deemed dividend. The learned counsel for the assessee relied upon the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. Octave Apparels (I. T. A. No. 132 of 2012 dated September 11, 2012) in which the Tribunal noticed that the assessee was holding 1.07 per cent. shares of the sister concern whereas the partners of the assessee-firm Shri Balbir Kumar and Shri Hursh Kumar were holding 6.64 per cent. and 6 per cent. shareholding respectively. It was thus concluded that the assessee-firm was holding less than 10 per cent. shareholding of the voting power and any amount advanced by closely held company to the assessee-firm was not to be treated as deemed dividend under the provisions of section 2(22)(e) of the Income-tax Act. The hon'ble High Court in such circumstances confirmed the view of the Tribunal that the provisions of section 2(22)(e) of the Act be could not be resorted to. The Departmental appeal was accordingly dismissed.
27. It appears that the Assessing Officer has clubbed all the shareholdings of the Uppal group for applying the provisions of section 2(22)(e) of the Act. The intention of section 2(22)(e) is to tax dividend in the hands of the shareholders. The learned Commissioner of Income-tax (Appeals) therefore, on a perusal of the shareholding pattern upheld in the impugned order correctly found that the assessee and its shareholders, while they may be registered shareholders are not beneficiary holders of shares. Therefore, the learned Commissioner of Income-tax (Appeals) has correctly deleted the addition. We do not find any merit in this ground of appeal of the Revenue. This ground of appeal of the Revenue is accordingly dismissed.
28. In the result, the Departmental appeal is dismissed.
29. In the result, the appeal of the assessee is partly allowed and the Departmental appeal is dismissed.