THE JCIT(OSD), CIRCLE-3(1), Visakhapatnam V. Durafast Automotives Pvt. Ltd., Visakhapatnam

CO 16/VIZ/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9776 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 02-07-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 22-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D MANOJ KUMAR
• Assessee Lawyers: C SUBRAMANYAM
• Keywords: Deemed dividend
• Section: 133A; 133(6); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH , VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 439/VIZ/2012 ASSESSMENT YEAR : 2007-08 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 3(1), VISAKHAPATNAM. M/S DURAFAST AUTMOTIVE PVT. LTD., VISAKHAPATNAM PAN AACCD2620C (APPELLANT) (RESPONDENT) C.O. NO. 16/VIZ/13 (IN ITA NO. 439/VIZ/2012 ASSESSMENT YEAR : 2007-08) M/S DURAFAST AUTMOTIVE PVT. LTD., VISAKHAPATNAM PAN AACCD2620C ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 3(1), VISAKHAPATNAM. (APPELLANT) (RESPONDENT) REVENUE BY SHRI D. MANOJKUMAR ASSESSEE BY SHRI C. SUBRAMANYAM DATE OF HEARING 02-07-2014 DATE OF PRONOUNCEMENT 02-07-2014 O R D E R PER J. SUDHAKAR REDDY, A.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), VISAKHAPATNAM, DATED 28/09/2013 FOR THE ASS ESSMENT YEAR 2007- 08. THE ASSESSEE ALSO FILED C.O. AGAINST THE SAID O RDER OF THE CIT(A). 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF GALVANIZE D BOLTS AND NUTS, FILED ITS RETURN OF INCOME ADMITTING A LOSS OF RS. 78,84, 760/-. A SURVEY OPERATION U/S 133A WAS CONDUCTED IN THE CASE OF M/S ASTER PVT . LTD. (APL) DURING 2 ITA NO. 439/VIZ/2012 & C.O. NO. 16/VIZ/13 DURAFAST AUTOMOTIVE PVT. LTD. WHICH, IT CAME TO LIGHT THAT MR. U. KANTHA RAO AND MRS. U. RAJINI HELD MORE THAN 20% OF SHAREHOLDING IN APL. THE SAME COUP LE ARE THE PROMOTERS OF THE ASSESSEE COMPANY IN WHICH ALSO THE Y HELD MORE THAN 20% VOTING POWER. IT IS FURTHER NOTICED THAT APL GA VE A PEAK ADVANCE/LOAN OF RS. 2,83,06,509/- TO M/S DURAFAST AUTOMOTIVE PVT . LTD. (DAPL). IN THE LIGHT OF THESE FACTS, AO OPINED THAT THE SAID LOAN /ADVANCE PARTAKES THE CHARACTER OF DEEMED DIVIDEND IN THE HANDS OF THE AS SESSEE COMPANY. WHEN THIS WAS PUT TO THE ASSESSEE DURING POST SURVE Y OPERATIONS, THE ASSESSEE AGREED THAT THE LOAN/ADVANCE TAKEN BY THE GROUP COMPANY WOULD BE OFFERED TO TAX AS DEEMED DIVIDEND. BASED ON THES E FINDINGS OF THE SURVEY, AO HAD REASONS TO BELIEVE THAT INCOME CHARG EABLE TO TAX IN THE HANDS OF THE ASSESSEE ESCAPED ASSESSMENT AND HENCE THE ASSESSMENT WAS REOPENED BY ISSUING A NOTICE U/S 148 ON 29/03/2 011. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASS ESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAID AMOUNT OF RS. 2,83,06 ,509/- SHOULD NOT BE TREATED AS DEEMED DIVIDEND. IN RESPONSE, IT IS EXPL AINED THAT THE PAYMENTS MADE BY APL ON BEHALF OF DAPL WERE CHARGED TO DAPL ACCOUNT AS PER ITS BUSINESS NEEDS. THEREFORE, IT IS EXPLAINED BY THE A SSESSEE THAT THE SAID TRANSACTIONS CANNOT BE TERMED AS DEEMED DIVIDEND. I T IS EXPLAINED THAT THE PAYMENTS WERE MADE BY APL ON BEHALF OF DAPL FOR THE PURPOSE OF ROC FEES, EXPENSES PAYABLE, RENT PAYABLE AND OTHER SUCH EXPENSES. ASSESSEE STATED THAT BEING SISTER CONCERNS, THE EXPENDITURE OF DAPL WAS MET BY APL. THEREFORE, IT IS EXPLAINED BY THE ASSESSEE THA T THE SAID TRANSACTIONS CANNOT BE TERMED AS DEEMED DIVIDEND. IT IS FURTHER EXPLAINED BY THE ASSESSEE THAT THE TRANSACTIONS BETWEEN APL AND DAPL ARE IN THE NATURE OF INVESTMENT AND ASSISTANCE BY THE PARENT COMPANY TO THE SUBSIDIARY AND HENCE ARE NOT HIT BY THE PROVISIONS OF SECTION 2(22 )(E). IT IS STATED THAT APL WAS TRYING TO SUPPORT THE BUDDING COMPANY DAPL DURING ITS INITIAL STAGES. FURTHER, IT IS ARGUED THAT DAPL WAS NEVER A SHAREHOLDER IN APL. SUBSEQUENT TO THIS EXPLANATION, INFORMATION WAS CAL LED FOR U/S 133(6) FROM APL WHICH REPLIED THAT THE PURPOSE OF ADVANCING SUC H AMOUNTS WAS TO 3 ITA NO. 439/VIZ/2012 & C.O. NO. 16/VIZ/13 DURAFAST AUTOMOTIVE PVT. LTD. INVEST IN DAPL. THE SOURCES OF SUCH ADVANCES ARE SA ID TO BE FROM INTERNAL ACCRUALS OF APL. 4. AFTER DULY CONSIDERING THE CONTENTIONS OF THE AS SESSEE COMPANY, AO HELD THAT THE EXPLANATION OFFERED BY ASSESSEE IS NO T ACCEPTABLE. RELYING ON THE PROVISIONS OF SECTION 2(22)(E), IT WAS HELD BY THE AO THAT DIVIDEND INCLUDES ANY PAYMENTS MADE. REFERRING TO THE SPECIF IC FACTS OF THE CASE, AO STATED THAT BOTH SHRI U. KANTHA RAO AND MRS. U. RAJINI HELD MORE THAN 20% OF STAKE IN APL AS WELL AS DAPL. AO RELYING ON THE DECISIONS OF ITAT MUMBAI IN THE CASE OF OSCAR INVESTMENTS LTD., 98 IT D 339, BOMBAY HIGH COURT DECISION IN THE CASE OF SADHANA TEXTILE MILLS PVT. LTD., 188 ITR 318, CULCUTTA HIGH COURT DECISION IN THE CASE OF MANDLAL KANOREA 122 ITR 405, SUPREME COURT DECISION IN THE CASE OF TARULATA SHYA M 108 ITR 345, RAJASTHAN HIGH COURT IN THE CASE OF HOTEL HILL TOP 313 ITR 116 HELD THAT THE PEAK LOAN AS GIVEN APL TO DAPL TO DEEMED DIVIDE ND IN THE HANDS OF DAPL. HENCE, THE AO ADDED THE SAME AS INCOME OF THE ASSESSEE. 5. ON APPEAL, THE FIRST APPELLATE AUTHORITY RELYING UPON THE DECISIONS OF THE I) ITAT, MUMBAI SPECIAL BENCH IN THE CASE OF BH AUMIC COLOR P. LTD., 313 ITR 146, II) HONBLE DELHI HIGH COURT IN THE CA SES OF MCC MARKETING PVT. LTD., 343 ITR 350 & ANKHITECH PVT. LTD., 340 I TR 14 AND III) THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF HOTEL HILL TOP, 313 ITR 116, HELD THAT THE ASSESSEE IS NOT A REGIST ERED SHAREHOLDER OF M/S ASTER PVT. LTD. (HEREINAFTER REFERRED TO AS APL) AND HENCE SEC. 2(22)(E) IS NOT ATTRACTED IN THIS CASE. HE DELETED THE ADDIT ION AND GRANTED RELIEF. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED CIT(A) HAS ERRED IN BOTH FACTS AND I N LAW. 2. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE INTE NTION OF THE LEGISLATION BEHIND THE ENACTMENT OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 3. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THAT THE PRESENT CASE IS WITHIN THE AMBIT OF SECOND LIMB OF THE PROVISIONS O F SECTION 2(22)(E) OF THE ACT. 4 ITA NO. 439/VIZ/2012 & C.O. NO. 16/VIZ/13 DURAFAST AUTOMOTIVE PVT. LTD. 4. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT BOTH SRI U KANTHA RAO AND MRS. U RAJINI HOLDS MORE THAN 20% OF SHARE HOLDING IN THE COMPANY M/S ASTER PVT. LTD., THE SAID SHARE HOLDERS PROMOTED ANOTHER COMPANY BY NAME M/S DURAFAST AUTOMOTIVE PVT . LTD., IN WHICH SHARE HOLDERS HOLDS MORE THAN 20% OF VOTING P OWER. THUS, THE ABOVE SHAREHOLDERS ARE HAVING SUBSTANTIAL INTEREST IN THE SAID CONCERN I.E. M/S DURAFAST AUTOMOTIVE PVT. LTD. 7. WE HAVE HEARD THE LEARNED DR SHRI D. MANOJKUMAR ON BEHALF OF THE REVENUE AND THE LEARNED COUNSEL FOR THE ASSESSEE SH RI C. SUBRAMANYAM ON BEHALF OF THE ASSESSEE. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE FACTUAL FINDING OF THE LEARNED CIT(A) THAT THE ASSESSEE COMPANY IS NOT A SHAREHOLD ER OF APL HAS NOT BEEN CONTROVERTED BY THE REVENUE. WHEN THE ASSESSEE COMPANY IS NOT A SHAREHOLDER OF APL, NO ADDITION U/S 2(22)(E) CAN BE MADE IN THE HANDS OF THE ASSESSEE, AS HELD BY THE HONBLE DELHI HIGH COU RT IN THE CASES OF MCC MARKETING PVT. LTD., 343 ITR 350 & ANKHITECH PV T. LTD., 340 ITR 14 AND THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF HOTEL HILL TOP, 313 ITR 116. THE LEARNED DR COULD NOT CITE ANY CONTRARY DECISIONS BEFORE US. UNDER THESE CIRCUMSTANCES, WE FIND NO INFIRMITY IN THE ORDER OF THE FIRST APPELLATE AUTHORITY, HENCE, THE SAME IS HEREBY UPHE LD AND THE GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE DISMISSED. 8. AS WE HAVE UPHELD THE ORDER OF THE CIT(A) IN THE REVENUES APPEAL (SUPRA), THE C.O. FILED BY THE ASSESSEE BECOMES INF RUCTUOUS AND, THEREFORE, THE C.O. IS DISMISSED AS INFRUCTUOUS. 9. IN THE RESULT, APPEAL OF THE REVENUE AND THE C.O . BY THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 02/07/2014. SD/- SD/- (SAKTIJIT DEY) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: JULY, 2014 KV 5 ITA NO. 439/VIZ/2012 & C.O. NO. 16/VIZ/13 DURAFAST AUTOMOTIVE PVT. LTD. COPY TO:- 1) ACIT, CIRCLE 3(1), AAYAKAR BHAVAN, DABAGARDENS , VISAKHAPATNAM 530 020 2) M/S DURAFAST AUTOMOTIVE PVT. LTD., PLOT NO. 31, BLOCK E, AUTONAGAR, VISAKHAPATNAM 3) CIT (A), VISAKHAPATNAM 4) CIT-1, VISAKHAPATNAM 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., V IZAG.