IT: Where Assessing Officer made additions to assessee-company’s income under section 2(22)(e) in respect of loan given by one company to another company by taking a view that assessee was a common shareholder in both companies, in view of fact that there was no material to point out that payment in question was for individual benefit of assessee-shareholder and, further, assessee was not even a shareholder of any of those companies on date on which such advance was given, impugned addition was unjustified

[2019] 101 taxmann.com 19 (Mumbai – Trib.) ,IN THE ITAT MUMBAI BENCH ‘L’,

KIIC Investment Company v. Deputy Commissioner of Income Tax, (IT)-3(1)(2), Mumbai*

A perusal of section 2(22)(e) would reveal that three types of payments are covered within its fold which are deemed to be understood as ‘dividend’. The three categories are namely (i) any payment by way of advance or loan to a shareholder; (ii) any payment on behalf of a shareholder; and, (iii) any payment for the individual benefit of a shareholder. In the present case, qua the payment made by ‘P’ to ‘GVR’, the Assessing Officer invoked section 2(22)(e) considering that assessee was a common shareholder owning substantial shareholding in ‘P’ as well as ‘GVR’. The implication is that the Assessing Officer invoked the second limb of section 2(22)(e), namely that the payment by ‘P’ to ‘GVR’ was on behalf of the common shareholder, i.e. the assessee. Quite clearly, the stand is not tenable because, factually speaking, on the dates when the monies have been given by ‘P’ to ‘GVR’, assessee was not holding any shares in GVR. The relevant date to examine the shareholding pattern is the date on which the amount has been advanced. Insofar as the Commissioner (Appeals) is concerned, he affirmed the approach adopted by the Assessing Officer by noticing that even prior to assessee becoming the shareholder of GVR, assessee was holding 100 per cent shares of ‘V’, who in turn was holding 100 per cent shares of GVR and, therefore, at the relevant point of time when the impugned sums were given by ‘P’ to GVR, assessee was a beneficial shareholder in GVR. The conditions prescribed in section 2(22)(e) in order to treat an amount as ‘deemed dividend’ are to be strictly interpreted and in that light the approach of the Commissioner (Appeals) is quite untenable. Apart from making a bland assertion, the Commissioner (Appeals) does not justify as to how assessee became a beneficial shareholder of GVR inspite of it not having any direct shareholding on the relevant dates, but by simply holding shares of its subsidiary, ‘V’. Further, the Commissioner (Appeals) invoked the third limb of section 2(22)(e) whereby a payment made for the benefit of a shareholder is also regarded as ‘dividend’ within the meaning of section 2(22)(e). In this context, neither in the assessment order nor in the order of the Commissioner (Appeals) there is no material to point out that the payment in question made by ‘P’ to ‘GVR’ was for the individual benefit of any shareholder of ‘P’; and, in any case it cannot be straightaway inferred that the payments made to GVR were for the individual benefit of the assessee considering that assessee was not even a shareholder of ‘P’ on the aforesaid dates. Thus, there is no justification for the Commissioner (Appeals) to invoke the third limb of section 2(22)(e) in the present situation. Thus, on this aspect, so far as the inclusion of amount paid by ‘P’ to GVR within the scope of section 2(22)(e) is concerned, the same is quite untenable. [Para 35]

Further, in this year, though the basic plea of the assessee is that the amounts given to GVR and given to DHR by ‘P’ is an ICD and, therefore, is not in the nature of a ‘loan’ or ‘deposit’ to be covered under section 2(22)(e), however, the said plea is supported merely by a Board Resolution of ‘P’ and there are no deposit agreements as was the situation dealt with in assessment year 2009-10 in the earlier paras. In the absence of any deposit agreement or any other bilateral agreement, which would bring out the terms and conditions and the features of the transaction as understood by the parties, it would not be appropriate to say that it is in the nature of an ICD and not a loan. Therefore, the aforesaid plea of the assessee, though accepted in assessment year 2009-10 in the earlier paras, has to fail in this assessment year on account of the failure of the appellant to lead appropriate evidence.