M/s Machino Techno Sales Ltd., Kolkata V. D.C.I.T. Cir - 11,Kolkata., Kolkata

CO 24/KOL/2013

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1526 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-11-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 22-02-2013
• Court: TRIBUNAL
• Department Lawyers: P K CHAKRABORTY
• Keywords: Gross profit estimation; Deemed dividend
• Section: 45(2); 143(3); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI WASEEM AHMED , AM] I.T.A NO.172/KOL/2013 ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX VS. M/S. MACHINO TECHNO (SALES) PVT. LTD. CIRCLE-11, KOLKATA. (PAN:AACCM2561R) ( APPELLANT ) ( RESPONDENT ) & C.O. NO.24/KOL/2013 IN I.T.A NO.172/KOL/2013 ASSESSMENT YEAR: 2008-09 M/S. MACHINO TECHNO (SALES) PVT. LTD. VS. DEPUTY C OMMISSIONER OF INCOME-TAX CIRCLE-11, KOLKATA. (CROSS OBJECTOR) (RESPONDENT) DATE OF HEARING: 28.10.2015 DATE OF PRONOUNCEMENT: 05.11.2015 FOR THE REVENUE : SHRI P. K. CHAKRABORTY, JCIT, SR. DR FOR THE ASSESSEE/CROSS OBJECTOR : SHRI SUNIL SURA NA, FCA ORDER PER SHRI MAHAVIR SINGH, JM: THE APPEAL BY REVENUE AND CROSS OBJECTION BY ASSESS EE ARE ARISING OUT OF ORDER OF CIT(A)-XII, KOLKATA IN APPEAL NO.336/CIT(A)-XII/R-1 1/10-11 DATED 11.10.2012. ASSESSMENT WAS FRAMED BY ADDL. CIT, RANGE-11, KOLKA TA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FO R ASSESSMENT YEAR 2008-09 VIDE HIS ORDER DATED 30.12.2010. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO ON ACCOUNT OF LOW GROSS PROFIT RATE. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.26,62,416/- ON THE GROU ND THAT THE AO REJECTED THE GROSS PROFIT RATIO SHOWN BY THE ASSESSEE WITHOUT REJECTIN G THE BOOKS OF ACCOUNTS. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A DEALER IN MARUTI VEHICLES, TRADING OF SPARE PARTS, DEALING IN SHARES AND SECURITIES AND P ROPERTY BUSINESS. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON EXAMINATION OF TRADING ACCOUNT OF SPARE PARTS AND 2 ITA NO.172/K/2013 & CO NO. 24/K/2013 M/S. MACHINO TECHNO SALES LTD. AY 2008-09 ACCESSORIES FOUND THAT IT HAS SUFFERED SUBSTANTIAL LOSS I.E. AT RS.6,56,332/- AND IN TERM OF PERCENTAGE 61.63% AS AGAINST PROFIT IN THE IMMEDIAT E PRECEDING YEAR AT RS.49,30,238/- AND AS AGAINST PROFIT RATE OF 6.5%. ACCORDING TO A O, THE ASSESSEE IS NOT MAINTAINING ANY STOCK REGISTER OF SPARE PARTS AND HENCE, QUANTITATI VE ANALYSIS OF THE STOCK OF SPARE PARTS IS NOT POSSIBLE. HE ALSO NOTED THE BRANCH WISE TRADIN G ACCOUNT AND NOTICED THAT THE ASSESSEE EARNED PROFIT IN ITS HEADQUARTERS AND DARGA ROAD BR ANCH @ 9% AND 7% RESPECTIVELY BUT SUFFERED LOSS IN TARATOLA BRANCH @ 48%. BY ANALYZI NG ALL THE ASPECTS, THE AO APPLIED GP RATE AS DECLARED IN THE IMMEDIATE PRECEDING YEAR AT 6.46% AND DETERMINED GP AT RS.26,62,416/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO DELETED THE ADD ITION BY STATING THAT THE AO HAS EXAMINED THE BOOKS OF ACCOUNT BUT NO DEFECT WAS POI NTED OUT EITHER IN THE BOOKS OF ACCOUNT OR IN THE STOCK REGISTER. HE OBSERVED THAT EVEN THE ASSESSEE HAS PRODUCED COMPLETE DETAILS AND EXPLANATION BEFORE HIM BUT HE COULD NOT POINT OUT ANY DEFECT IN THE SAME. ACCORDING TO CIT(A), THE ASSESSEE IS MAINTAI NING COMPLETE BOOKS OF ACCOUNT INCLUDING STOCK REGISTER AND ACCORDINGLY, HE DIRECT ED THE AO TO DELETE THE ADDITION OF GP. AGGRIEVED AGAINST THE ORDER OF CIT(A), REVENUE IS I N SECOND APPEAL BEFORE TRIBUNAL. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO HAS NOT REJECTED THE BOOK RESULTS DESPITE THE FACT THAT COMPLETE BOOKS OF ACCOUNT WERE PRODUCED BEFORE HIM. LD. COU NSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE ASSESSMENT ORDER PAGE 1 WHEREIN TH E FOLLOWING FINDING IS RECORDED BY THE AO: IN RESPONSE TO THE STATUTORY NOTICES, SHRI P. K. BA NERJEE, AUTHORIZED REPRESENTATIVE (A/R) FOR THE ASSESSEE, APPEARED FROM TIME TO TIME AND FI LED DETAILS. SUBMISSIONS AND DOCUMENTS RECEIVED WERE PLACED ON RECORD. BOOKS OF ACCOUNTS AS WELL AS RELEVANT SUPPORTING DOCUMENTS WERE PRODUCED AND TEST EXAMINE D. THE CASE WAS HEARD AND DISCUSSED. LD. COUNSEL FOR THE ASSESSEE ALSO PRODUCED AUDIT RE PORT IN FORM NO. 3CA AND 3CD WHEREBY HE DREW OUR ATTENTION TO ANNEXURE A WHERE IN THE BOOKS OF ACCOUNT MAINTAINED AND EXAMINED ARE DESCRIBED INCLUDING SAL ES REGISTER, PURCHASE REGISTER, CUSTOMER LEDGER, STOCK REGISTER, STORES REGISTER AP ART FROM CASH BOOK AND LEDGER. LD. COUNSEL FOR THE ASSESSEE STATED THAT COMPLETE BOOKS OF ACCOUNT WERE PRODUCED BEFORE THE AO AND NO DEFECTS WHATSOEVER WAS POINTED OUT BEFORE HIM IN THE BOOKS OF ACCOUNT AND SIMPLY ON THE BASIS OF SURMISES AND CONJECTURES HE ESTIMATED THE GP RATE JUST ON THE BASIS 3 ITA NO.172/K/2013 & CO NO. 24/K/2013 M/S. MACHINO TECHNO SALES LTD. AY 2008-09 OF EARLIER YEARS RESULT IN ONE OF THE BRANCH. LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO QUESTIONNAIRE ISSUED BY AO WHEREIN DET AIL IN RESPECT TO PARTY WISE PURCHASE AND SALE OF SPARE PARTS AND ACCESSORIES AND OIL AND LUBRICANT WAS CALLED FOR AND THE SAME WAS DULY SUPPLIED TO THE AO. LD. COUNSEL FOR THE A SSESSEE IN SUPPORT OF ITS CLAIM RELIED ON THE DECISION OF COORDINATE BENCH OF THIS TRIBUNA L IN ITA NO. 86/KOL/2013 IN THE CASE OF SHREE HARI AGRO INDUSTRIES LTD. VS. DCIT FOR AY 2009-10 DATED 16.10.2015, WHEREIN IT HAS BEEN HELD AS UNDER: 24. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE PROVISIONS OF SEC.145 OF THE ACT, READS AS FOLLOWS: 145. METHOD OF ACCOUNTING.(1) INCOME CHARGEABLE U NDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'I NCOME FROM OTHER SOURCES' SHALL, SUBJECT TO THE PROVISIONS OF SUB-SE CTION (2), BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME [INCOME COMPUTATION AND DISCLOSURE STANDARDS] TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF IN COME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED A BOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) [HAS NOT BEE N REGULARLY FOLLOWED BY THE ASSESSEE, OR INCOME HAS NOT BEEN COMPUTED IN AC CORDANCE WITH THE STANDARDS NOTIFIED UNDER SUB-SECTION (2),] THE ASSE SSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144 . THE AO DID NOT REJECT THE BOOK RESULTS BEFORE RESOR TING TO AN ESTIMATION OF INCOME. FOR REJECTING THE BOOK RESULTS, THE PROVISIONS OF SEC.1 45(3) OF THE ACT REQUIRES THAT THE ASSESSING OFFICER SHOULD BE NOT BE SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF AC COUNTING PROVIDED U/S.145(1) OF THE ACT OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SECTION 1 45(2) OF THE ACT HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. THE AO HAS TO C OMPUTE INCOME FROM BUSINESS ACCOUNTING TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE . IT IS ONLY WHEN THE BOOK RESULTS ARE REJECTED THE QUESTION OF ESTIMATION OF INCOME ARISE S FOR CONSIDERATION. THE AO HAS TO SPECIFICALLY POINT OUT THE DEFECTS IN THE BOOKS OR INCOMPLETE AND INCORRECTNESS IN THE BOOKS OF ACCOUNTS AND CALL UPON THE ASSESSEE AS TO WHY TH E BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED. 5. FROM THE ABOVE FACTS AND CIRCUMSTANCES, WE FIND THAT THE AO HAS ESTIMATED THE GROSS PROFIT @ 6.46% ON SALES OF SPARE BEING THE SA ME RATES OF PROFIT SHOWN BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YE AR. THE AO HAS EXAMINED THE BOOKS OF ACCOUNT INCLUDING THE STOCK REGISTER BUT C OULD NOT POINT OUT ANY DEFECT AS IS EVIDENT FROM THE ABOVE THAT THE ASSESSEE HAS MAINTA INED COMPLETE BOOKS OF ACCOUNT INCLUDING THE STOCK REGISTER AND COMPLETE DETAILS O F PURCHASE OF SPARE PARTS WERE FILED BEFORE THE AO AND NONE OF THE PURCHASE AND SALES OR OPENING OR CLOSING STOCK HAVE BEEN 4 ITA NO.172/K/2013 & CO NO. 24/K/2013 M/S. MACHINO TECHNO SALES LTD. AY 2008-09 DOUBTED OR DISPUTED. ANOTHER NOTABLE FEATURE IS TH AT THE AO HAS MISSED OUT TO NOTE THAT THE THREE FREE SERVICES HAVE TO BE PROVIDED TO THE CUSTOMERS AFTER PURCHASE OF CAR WITH FREE SPARE PARTS. THIS FACT HAS NOT BEEN RECOGNIZE D BY THE AO ABOVE ALL. THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNT AND WITHOUT REJECTION OF BOOKS OF ACCOUNT NO DISTURBANCE IN THE PROFIT RATE CAN BE MADE BY AO AND HENCE, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY THE COORDINA TE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF SHREE HARI AGRO INDUSTRIES LTD., SUPRA. IN VIEW OF THE ABOVE, WE CONFIRM THE ORDER OF CIT(A) IN DELETING THE ADDITION. THEREFOR E, THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 6. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION OF DEEMED DIVIDEND ON THE GROUND THAT THE TRANSACTION IS COMMERCIAL IN NATURE AND EVEN OTHERWISE THE LENDER COMPANY IS NOT A SHAR EHOLDER IN THE ASSESSEE COMPANY. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.1,16,50,000/- ON ACCOUN T OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE I. T. ACT, 1961 ON THE GROUND THAT THE LENDER C OMPANY HAS GIVEN LOAN FOR THE CONSIDERATION OF INTEREST @ 12% P.A. 7. BRIEFLY STATED FACTS ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS RECEIVED A LOAN OF RS.1 .77 CR. FROM MACHINO TRANSPORT PVT. LTD. (MTPL) ON THE FOLLOWING DATES: ON 11.04.07 RS. 71,00,000/- ON 03.08.07 RS. 23,00,000/- ON 06.08.07 RS. 37,00,000/- ON 14.09.07 RS. 46,00,000/- RS.1,77,00,000/- ACCORDING TO AO, SHRI M. D. JINDAL IS HOLDING 38,50 0 SHARES OUT OF TOTAL ISSUED SHARES OF 60,000 I.E. 65.16% OF MTPL AS ON 31.03.2007 AND HE IS ALSO HOLDING SHARES OF ASSESSEE COMPANY AS ON 31.03.2008 FOR 50.25%. ACCORDING TO AO, MTPL HAS RESERVE AND SURPLUS OF RS.2,61,42,503/- WHICH CONSISTS OF GENER AL RESERVE CREATED OUT OF ACCUMULATED PROFITS OF RS.1,16,50,000/- AND PROFIT OF THIS YEAR AT RS.2,37,503/-. APART FROM THESE SHARES A REVALUATION RESERVE OF RS.1,42, 55,000/-. ACCORDINGLY, THE AO ADDED THE LOAN RECEIVED FROM MTPL AT RS.1.77 CR. AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFO RE CIT(A), WHO FIRST OF ALL, EXAMINED 5 ITA NO.172/K/2013 & CO NO. 24/K/2013 M/S. MACHINO TECHNO SALES LTD. AY 2008-09 THAT THE ASSESSEE COMPANY IS NOT BENEFICIAL OWNER O F SHARES IN THAT COMPANY NOT HOLDING 10% OR MORE SHARES OR VOTING POWERS. IT WAS ALSO E XPLAINED THAT NO SUCH BENEFIT HAS BEEN DERIVED BY ASSESSEE COMPANY OR ANY SUCH SHAREH OLDER ON ACCOUNT OF LOAN ADVANCED BY MTPL TO THE ASSESSEE COMPANY. HE EXPLAINED THAT LOAN WAS TAKEN FOR BUSINESS PURPOSE ON WHICH INTEREST WAS DULY PAID AT RS.9,55, 288/-. THE ASSESSEE EXPLAINED THAT THE NATURE OF BUSINESS OF MTPL IS ALSO OF MONEY LEN DING, WHICH IS SUBSTANTIAL BUSINESS OF THAT COMPANY, WHICH IS EVIDENT FROM THE P&L ACCO UNT OF THE SAID COMPANY. COPY OF WHICH WAS FILED BEFORE THE AO AS WELL AS BEFORE CIT (A). THE CIT(A) RELYING ON THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF PRADIP KR. MALHOTRA VS. CIT (2011 338 ITR 538 (KOL) ALLOWED THE CLAIM OF THE AS SESSEE VIDE PARA 8 AS UNDER: 8. APPEAL ON GROUND NO. 6 IS AGAINST THE ADDITION OF RS. 1,16,50,000/- AS DEEMED DIVIDEND BY APPLYING SECTION 2(22) (E) OF THE I.T. ACT, 1961. THE FACT OF THE CASE IS THAT SRI M. D. JINDAL, IS A SUBSTANTIAL SHARE HOLDER IN THE ASSESSEE COMPANY AS WELL AS IN M/S. MACHINO TRANSPORT PVT. LTD. THE SAID MACHINO TRANSP ORT PVT. LTD. LENT A SUM OF RS.1,77,00,000/- TO THE ASSESSEE COMPANY. THE A.O. HAS OBSERVED THAT SINCE MR. M.D. JINDAL IS HOLDING 38,500 SHARES OUT OF TOTAL NO. OF SHARES OF 60,000 IN MACHINO TRANSPORT PVT. LTD. AND SIMULTANEOUSLY HE HOLDS 50.25% SHARES OF THE ASSESSEE COMPANY. THEREFORE, THE PROVISIONS OF SEC. 2(22) (E) OF THE I. T. ACT, 1961 WOULD BE APPLICABLE HERE. THE AO. HAS ALSO DISCUSSED THE CASE OF OSCAR INDUSTRIES PVT . LTD. VS. DCIT 98 ITD 339 (MUMBAI TRIBUNAL). DURING THE APPELLATE PROCEEDING THE A.R. SUBMITTED THE ASSESSEE COMPANY IS NOT HOLDING ANY SHARE IN THE LENDER COMPANY. IT IS MR. M. D. JINDAL WHO IS REGISTERED SHARE HOLDER OF BOTH THE, ASSESSEE COMPANY AS WELL AS THE LENDER COMPANY WHEREIN HE IS HAVING SUBSTANTIAL SHARE HOLDING WITHIN THE MEANING OF SEC. 2(22)(E) OF THE I.T. ACT, 1961.' THE AR. FURTHER SUBMITTED 'IT IS TRUE THAT M /S. MACHLNO TRANSPORT PVT. LTD. LENT CM ADVANCE TO M/S. MACHINO TECHNO PVT. LTD. (ASSESSEE) . BUT THE LENDER COMPANY CHARGED INTEREST @ 12% P.A. HENCE, WHEN THE LOAN GRANTED WA S COUPLED WITH SOME CONSIDERATION THERE WAS NO QUESTION OF ANY DEEMED DIVIDEND.' THE A.R. FILED A COPY OF THE JUDGEMENT OF JURISDICTIONAL CALCUTTA HIGH. COURT IN THE CASE OF PRADIP KR. MALOHATRA REPORTED IN 338 ITR 538 (KOL.). IN THIS CASE THE HON'BLE KOLKATA HI GH COURT HAS OBSERVED AFTER HEARING THE LD. COUNCIL FOR THE PARTIES AND AFTER GOING THR OUGH THE AFORESAID PROVISIONS OF THE ACT. WE ARE OF THE OPINION THAT THE FRESH BY OF AD VANCE OF LOAN APPEARING IN SUB-SEC. (E) .MUST BE CONSTRUED TO MEAN THOSE ADVANCES OR LOANS WHICH A SHARE HOLDER ENJOYS FOR SIMPLY ON ACCOUNT OF BEING A PERSON WHO IS THE BENE FICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATES IN PROFITS) HOLDING NOT LESS THAN 10% OF THE VOTING POWER; BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHARE HOLDERS AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO THE COMPANY RECEIVED FROM SUCH A SHAR EHOLDER, IN SUCH CASE SUCH ADVANCE OR LOAN CANNOT BE SAID TO A DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT.' I HAVE CONSIDERED THE FIND OF THE A.O. ON THIS ISSUE AND I HAVE ALSO CONSIDERED THE SUBMISSION FILED BY THE AR. IT IS CLEAR THAT THE LENDER COMPAN Y HAS GIVEN LOAN FOR THE CONSIDERATION OF INTEREST @ 12% P.A. THEREFORE, IT CANNOT BE SAID TH AT THE LENDER COMPANY HAS NOT EARNED ANY INCOME/CONSIDERATION FOR THE LOAN/ADVANCE GIVEN TO THE ASSESSEE COMPANY. THE SAME VIEW HAS BEEN TAKEN BY HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. RAJKUMAR 318 ITR 462 (DELHI). THUS, KEEPING IN VIEW THE OBSERVAT ION OF THE HONBLE JURISDICTIONAL KOLKATA HIGH COURT IN THE CASE OF PRADIP KR. MALHOT RA (SUPRA). ASSESSEES APPEAL ON GROUND NO. 6 IS ALLOWED. 6 ITA NO.172/K/2013 & CO NO. 24/K/2013 M/S. MACHINO TECHNO SALES LTD. AY 2008-09 AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS TAKEN LOAN ON INTEREST FROM MTPL AND PAID INTEREST TO THE TUNE OF RS.9,55,288/- AND THE LENDER COMPANY S BUSINESS IS THAT OF MONEY LENDING. MTPL IS NOT SHAREHOLDER IN ASSESSEE COMPANY ALTHOUG H IT IS A SISTER CONCERN. ONLY COMMON FEATURE IS THAT ONE OF THE DIRECTORS SHRI M. D. JINDAL IS HOLDING COMMON SHAREHOLDING OF THE ASSESSEE COMPANY AT 50.25% AND IN MTPL AT 64.16%. BUT ADMITTEDLY, ASSESSEE IS NOT A SHAREHOLDER IN MTPL N OR MTPL IS A SHAREHOLDER IN ASSESSEE COMPANY NOT HOLDING 10% OR MORE SHARES OR VOTING PO WERS. WE FIND THAT THE ASSESSEE HAS PAID INTEREST ON THE ABOVE LOANS AND THIS IS PU RELY A COMMERCIAL TRANSACTION. ONCE THIS IS THE POSITION, THE ISSUE IS COVERED BY THE J UDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF PRADIP KR. MALHOTRA, SUPRA, WHEREIN IT IS HELD AS UNDER: 10. AFTER HEARING THE LEARNED COUNSEL FOR THE PAR TIES AND AFTER GOING THROUGH THE AFORESAID PROVISIONS OF THE ACT, WE ARE OF THE OPIN ION THAT THE PHRASE 'BY WAY OF ADVANCE OR LOAN' APPEARING IN SUB-CLAUSE (E) MUST B E CONSTRUED TO MEAN THOSE ADVANCES OR LOANS WHICH A SHAREHOLDER ENJOYS FOR SI MPLY ON ACCOUNT OF BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SH ARES ENTITLED TO A FIXED 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 ; BUT IF SUCH LOA N OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER AS A CONSEQUENCE OF ANY FURTHER CONSIDE RATION WHICH IS BENEFICIAL TO THE COMPANY RECEIVED FROM SUCH A SHAREHOLDER, IN SUCH C ASE, SUCH ADVANCE OR LOAN CANNOT BE SAID TO A DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT. THUS, FOR 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 TO THE CASES WHERE THE LOAN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY B Y SUCH SHAREHOLDER. 11. IN THE CASE BEFORE US, THE ASSESSEE PERMITTED H IS PROPERTY TO BE MORTGAGED TO THE BANK FOR ENABLING THE COMPANY TO TAKE THE BENEFIT O F LOAN AND IN SPITE OF REQUEST OF THE ASSESSEE, THE COMPANY IS UNABLE TO RELEASE THE PROP ERTY FROM THE MORTGAGE. IN SUCH A SITUATION, FOR RETAINING THE BENEFIT OF LOAN AVAILE D OF FROM VIJAYA BANK IF DECISION IS TAKEN TO GIVE ADVANCE TO THE ASSESSEE SUCH DECISION IS NOT TO GIVE GRATUITOUS ADVANCE TO ITS SHAREHOLDER BUT TO PROTECT THE BUSINESS INTERES T OF THE COMPANY. 12. THE VIEW WE PROPOSE TO TAKE FINDS SUPPORT FROM THE TWO DECISIONS, ONE OF THE BOMBAY HIGH COURT AND THE OTHER OF THE DELHI HIGH C OURT RELIED UPON BY MR. KHAITAN AS INDICATED EARLIER. 13. WE, THEREFORE, FIND THAT THE AUTHORITIES BELOW ERRED IN LAW IN TREATING THE ADVANCE GIVEN BY THE COMPANY TO THE ASSESSEE BY WAY OF COMP ENSATION TO THE ASSESSEE FOR KEEPING HIS PROPERTY AS MORTGAGE ON BEHALF OF THE C OMPANY TO REAP THE BENEFIT OF LOAN AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2( 22)(E) OF THE ACT. 14. WE, CONSEQUENTLY, SET ASIDE THE ORDER OF THE TR IBUNAL BELOW BY DIRECTING THE ASSESSING OFFICER NOT TO TREAT THE ADVANCE OF RS. 2 0,75,000 AS A DEEMED DIVIDEND. 7 ITA NO.172/K/2013 & CO NO. 24/K/2013 M/S. MACHINO TECHNO SALES LTD. AY 2008-09 IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE O RDER OF CIT(A) AND HENCE, THE SAME IS CONFIRMED. THIS GROUND OF APPEAL OF REVENUE IS DIS MISSED. 9. AS REGARDS TO ALTERNATIVE PLEA OF THE ASSESSEE T HAT NONE OF THE COMPANY I.E. NEITHER LENDER NOR THE ASSESSEE COMPANY IS REGISTERED SHARE HOLDER IN EACH OTHER TO THE EXTENT OF 10% AS MANDATED IN THE PROVISION OF SECTION 2(22)(E ) OF THE ACT FOR CHARGING DEEMED DIVIDEND. THIS ISSUE IS ALSO COVERED BY THE ORDER OF HONBLE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. BHAUMICK COLOUR PV T. LTD. (2009) 313 ITR(AT) 146 (ITAT, MUM), WHEREIN IT HAS BEEN HELD AS UNDER: THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME-TA X ACT, 1961 CREATE A FICTION BRINGING IN AMOUNTS PAID OTHERWISE THAN AS DIVIDEND INTO THE NET OF DIVIDENDS. THEREFORE THIS CLAUSE MUST BE GIVEN A STRICT INTERPRETATION. TO ATTRACT THE FIRST LIMB OF THE PROVISIONS OF SECT ION 2(22)(E) , THE PAYMENT MUST BE TO A PERSON WHO IS A REGISTERED HOLDER OF SHARES. THE WO RD SHARE-HOLDER ALONE EXISTED IN THE DEFINITION OF DIVIDEND IN THE 1922 ACT AND HAS BEEN INTERPRETED UNDER THE 1922 ACT TO MEAN A REGISTERED SHAREHOLDER. THIS EXPRESSION SHA REHOLDER FOUND IN THE 1961 ACT HAS TO BE THEREFORE CONSTRUED AS APPLYING ONLY TO REGIS TERED SHAREHOLDERS. IT IS A PRINCIPLE OF INTERPRETATION OF STATUTES THAT ONCE CERTAIN WORDS IN AN ACT HAVE RECEIVED A JUDICIAL CONSTRUCTION IN ONE OF THE SUPERIOR COURTS, AND THE LEGISLATURE HAS REPEATED THEM IN A SUBSEQUENT STATUTE, THE LEGISLATURE MUST BE TAKEN T O HAVE USED THEM ACCORDING TO THE MEANING WHICH A COURT OF COMPETENT JURISDICTION HAS GIVEN THEM. IN THE 1961 ACT, THE WORD SHAREHOLDER IN SECTION 2(22)(E) IS FOLLOWED BY THE FOLLOWING WORDS BEING A PERSON WHO IS THE BENEFICIAL OWNER O F SHARES. THIS EXPRESSION ONLY QUALIFIES THE WORD SHAREHOLDER AND DOES NOT IN AN Y WAY ALTER THE POSITION THAT THE SHAREHOLDER HAS TO BE A REGISTERED SHAREHOLDER NOR SUBSTITUTE THE REQUIREMENT TO A REQUIREMENT OF MERELY HOLDING A BENEFICIAL INTEREST IN THE SHARES WITHOUT BEING A REGISTERED HOLDER OF SHARES. IF A PERSON IS A REGIS TERED SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER THEN THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHARE HOLDER THEN ALSO THE FIRST LIMB OF THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. THE NEW CATEGORY OF PAYMENT WHICH WAS CONSIDERED AS DIVIDEND INTRODUCED BY THE FINANCE ACT, 1987, WITH EFFECT FROM APRIL 1, 1988, BY THE SECOND LIMB OF SECTION 2(22)(E) IS PAYMENT TO ANY CONCERN IN WHICH SUCH SHAREHOLDE R IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. THE EXPRESSIO N SUCH SHAREHOLDER IN THE PROVISION REFERS TO THE SHAREHOLDER REFERRED TO IN THE EARLIE R PART OF SECTION 2(22)(E) NAMELY, A REGISTERED AND A BENEFICIAL HOLDER OF SHARES HOLDIN G 10 PER CENT. VOTING POWER. THE VERY SAME PERSON MUST ALSO BE A MEMBER OR A PARTNER IN T HE CONCERN HOLDING SUBSTANTIAL INTEREST IN THE CONCERN. THE PROVISIONS OF SECTION 2(22)(E) AS AMENDED BY TH E FINANCE ACT, 1987, WITH EFFECT FROM APRIL 1, 1988, DO NOT SAY IN WHOSE HANDS THE DIVIDE ND HAS TO BE BROUGHT TO TAX, WHETHER IN THE HANDS OF THE CONCERN OR THE SHAREHOLDER. TH E INTENTION BEHIND ENACTING THE PROVISIONS OF SECTION 2(22)(E) AROSE FROM THAT FACT THAT CLOSELY HELD COMPANIES WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, WOULD NOT DISTRIB UTE SUCH PROFIT AS DIVIDEND BECAUSE THE DIVIDEND INCOME WOULD BECOME TAXABLE IN THE HAN DS OF THE SHAREHOLDERS. INSTEAD, COMPANIES DISTRIBUTE THEM AS LOANS OR ADVANCES TO T HE SHAREHOLDERS OR TO A CONCERN IN 8 ITA NO.172/K/2013 & CO NO. 24/K/2013 M/S. MACHINO TECHNO SALES LTD. AY 2008-09 WHICH SUCH SHAREHOLDER HAS A SUBSTANTIAL INTEREST O R MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS SUCH PAYMENT BY THE COMPANY IS TREATED A S DIVIDEND. THE PROVISIONS CONTEMPLATE A CHARGE TO TAX IN THE HANDS OF THE SHA REHOLDER AND NOT IN THE HANDS OF A NON-SHAREHOLDER, VIZ., THE CONCERN. THE DEFINITION OF DIVIDEND UNDER SECTION 2(22)(E) O F THE ACT IS AN INCLUSIVE DEFINITION WHICH ENLARGES THE MEANING OF THE TERM DIVIDEND A CCORDING TO ITS ORDINARY AND NATURAL MEANING TO INCLUDE EVEN A LOAN OR ADVANCE. THE ORDI NARY AND NATURAL MEANING OF THE TERM DIVIDEND WOULD BE A SHARE IN PROFITS TO AN INV ESTOR IN THE SHARE CAPITAL OF A LIMITED COMPANY. IF THE DEFINITION OF DIVIDEND IS EXTENDE D TO A LOAN OR ADVANCE TO A NON- SHAREHOLDER THE ORDINARY AND NATURAL MEANING OF THE WORD DIVIDEND IS TAKEN AWAY. DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT C AN BE ASSESSED ONLY IN THE HANDS OF A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF ANY OTHER PERSON. CIRCULAR NO. 495, DATED SEPTEMBER 22, 1987 ([1987] 168 ITR (ST.) 87), OF THE CENTRAL BOARD OF DIRECT TAXES TO THE EXTENT IT SAYS THAT DE EMED DIVIDEND WOULD BE TAXED IN THE HANDS OF A CONCERN (NON-SHAREHOLDER) ALSO IF THE CO NDITIONS MENTIONED IN THE SECTION ARE SATISFIED IS NOT BINDING. THE ASSESSEE-COMPANY TOOK AN INTEREST BEARING LOAN OF RS. 9 LAKHS FROM A COMPANY (UPPL). THE COMPANY HAD A COMMON SHAREHOLDER, A TRU ST, WHICH HELD 20 PER CENT. OF THE SHARES IN THE ASSESSEE-COMPANY AND TEN PER CENT. OF THE SHARES IN UPPL. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE TRANSACTION WAS CO VERED BY THE SECOND LIMB OF THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME-TAX AC T, 1961, UNDER WHICH ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC AR E SUBSTANTIALLY INTERESTED, OF ANY SUM BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEI NG A PERSON WHO IS THE BENEFICIAL OWNER OF THE SHARES HOLDING NOT LESS THAN TEN PER C ENT. OF VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST, IS TAXABLE AS DEEMED DIVIDEND. THE ASSESS EE CONTENDED THAT SINCE THE TRUSTEES OF THE TRUST HELD THE SHARES ON BEHALF OF THE TRUST ON LY AS LEGAL OWNERS AND WERE NOT THE BENEFICIAL OWNERS OF THE SHARES, THE PROVISIONS OF SECTION 2(22)(E) COULD NOT BE INVOKED. THE ASSESSING OFFICER DID NOT AGREE AND TAXED THE S UM OF RS. 9 LAKHS IN THE HANDS OF THE ASSESSEE-COMPANY AS DEEMED DIVIDEND. ON APPEAL BY T HE ASSESSEE THE COMMISSIONER (APPEALS) DELETED THE ADDITION. THE INTERVENER WAS A FIRM, CONSISTING OF FOUR PARTNERS, WHICH HAD VARIOUS TRANSACTIONS OF RECEIPTS AND PAYM ENTS OF MONEY WITH A COMPANY IN WHICH THESE FOUR PARTNERS HELD SHARES IN THE SAME P ERCENTAGE AS THEIR PROFIT SHARING RATIO IN THE FIRM. THE ASSESSING OFFICER APPLIED THE PROV ISIONS OF SECTION 2(22)(E) IN RESPECT OF THE NET OUTSTANDING FROM THE ASSESSEE-FIRM TO THE C OMPANY AND BROUGHT IT TO TAX IN THE HANDS OF THE FIRM. THE ORDER OF THE ASSESSING OFFIC ER WAS REVERSED BY THE COMMISSIONER (APPEALS). ON APPEAL BEFORE THE TRIBUNAL IN VIEW OF A CONFLICT OF OPINION AMONG BENCHES OF THE TRIBUNAL, THE MATTER WAS REFERRED TO A SPECI AL BENCH : HELD, DISMISSING THE APPEAL (I) THAT THE THREE TRUS TEES OF THE TRUST HELD SHARES IN UPPL AND THE ASSESSEE-COMPANY WAS ONLY AS A LEGAL AND RE GISTERED OWNER FOR AND ON BEHALF OF FIVE BENEFICIARIES OF THE TRUST WHO WERE DIFFERENT INDIVIDUALS. THE THREE TRUSTEES WERE, THEREFORE, NOT BENEFICIAL OWNERS OF THE SHARES. THE REFORE, THE PROVISIONS OF SECTION 2(22)(E) WOULD NOT BE APPLICABLE AT ALL TO THE CASE OF THE ASSESSEE-COMPANY. (II) THAT DEEMED DIVIDEND COULD BE ASSESSED ONLY IN THE HANDS OF THE PERSON, WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF A PERSON OTHER THAN A SHAREHOLDER, I.E., THE CONCERN. (HEADNOTES) RESPECTFULLY FOLLOWING THE SPECIAL BENCH DECISION, CITED SUPRA WE ALSO ALLOW THE ALTERNATIVE PLEA OF THE ASSESSEE. 9 ITA NO.172/K/2013 & CO NO. 24/K/2013 M/S. MACHINO TECHNO SALES LTD. AY 2008-09 10. THE CROSS OBJECTION FILED BY ASSESSEE IS SUPPOR TIVE OF THE ORDER OF CIT(A) AND HENCE, THE SAME IS DISMISSED AS INFRUCTUOUS. 11. IN THE RESULT, BOTH THE APPEAL OF REVENUE AS WE LL AS THE CROSS OBJECTION OF ASSESSEE IS DISMISSED. 12. ORDER IS PRONOUNCED IN THE OPEN COURT ON 05.11. 2015 SD/- SD/- (WASEEM AHMED) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 5 TH NOVEMBER, 2015 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-11, KOLKATA. 2 RESPONDENT M/S. MACHINO TECHNO SALES LTD., 8A, JIN DAL HOUSE, ALIPORE, KOLKATA-700027. 3 . THE CIT(A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .