M/s. Cap Finstock (P) Ltd., New Delhi V. DCIT, New Delhi

CO 288/DEL/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6178 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 29-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 27-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURJANI MOHANTY
• Keywords: Deemed dividend
• Section: 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `B: NEW DELHI BEFORE SHRI C.L.SETHI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T. A. NO.3237/DEL/2010 ASSESSMENT YEAR : 2006-07 DY. COMMISSIONER OF INCOME-TAX, M/S. CAP FINSTOCK P VT. LTD., CIRCLE-3(1), NEW DELHI. VS. 801, INTERNATIONAL TR ADE TOWER, NEHRU PLACE, NEW DELHI. PAN: AAACC4192J C.O. NO.288/DEL/2010 (IN I.T. A. NO.3237/DEL/2010) ASSESSMENT YEAR : 2006-07 M/S. CAP FINSTOCK SERVICES DY. COMMISSIONER OF INC OME-TAX, PVT. LTD., 801, INTERNATIONAL VS. CIRCLE-3(1), N EW DELHI. TRADE TOWER, NEHRU PLACE, NEW DELHI. (APPELLANTS) (RESPONDENTS) DEPARTMENT BY: MS. SURJANI MOHANTY, SR. DR. ASSESSEE BY: SHRI SURENDER KUMAR, CA. O R D E R PER C.L. SETHI, JUDICIAL MEMBER: THE ONLY GROUND RAISED BY THE REVENUE IN THIS APPEA L AGAINST THE ORDER DATED 27.04.2010 OF THE LEARNED COMMISSIONER OF INC OME-TAX (APPEALS) PERTAINING TO THE ASSESSMENT YEAR 2006-07 IS AS UND ER:- THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING ADDITION OF RS.1289909/- ON ACCOUNT OF DEEMED DIVID END U/S 2 2(22)(E) OF THE IT ACT IGNORING THE FACT THAT THE A SSESSEE COMPANY IS BENEFICIAL SHAREHOLDER IN M/S. PEE DEE K APUR STOCK & SECURITIES LIMITED THROUGH COMMON DIRECTOR SMT. S USHMA KAPOOR. 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION TAKI NG THE FOLLOWING TWO GROUNDS AS UNDER:- 1. THE LD. CIT(A) DID NOT ADJUDICATE THE GROUND OF APPEAL TAKEN BEFORE HER THAT THE TRANSACTIONS OF THE RESPO NDENT/CROSS OBJECTOR COMPANY WITH THE STOCK BROKER NAMELY M/S. PEE DEE KAPUR STOCK & SECURITIES LIMITED (PDKSSL) WERE EXCLUSIVELY IN THE NATURE OF TRADING AND BUSINESS T RANSACTIONS AND NOT ON ACCOUNT OF ANY LOANS OR ADVANCES AND SIN CE THE RESPONDENT/CROSS OBJECTOR COMPANY DID NOT RECEIVE A NY LOAN OR ADVANCE FROM THE SAID PDKSSL, THE PROVISIONS OF S ECTION 2(22)(E) ARE INAPPLICABLE ON THIS GROUND ALSO. 2. THE LD. CIT(A) DID NOT ADJUDICATE OTHER GROUNDS ALSO TO THE EFFECT THAT THE LD AO DID NOT CONFRONT THE SAID ISS UE AT ALL TO THE RESPONDENT/CROSS OBJECTOR COMPANY AND THEREBY THE I MPUGNED ACTION OF THE LD. AO IS UNTENABLE IN LAW AND ALSO T O THE EFFECT THAT THE PURPORTED COMPUTATION OF DEEMED DIVIDEND U /S 2(22)(E) AS MADE BY THE LD. AO SUFFERS FROM VARIOUS INFIRMIT IES AND THEREBY THE SAME, AT ANY RATE WITHOUT PREJUDICE, IS AGAINST THE PROVISIONS OF LAW. 3. THE ISSUE INVOLVED IN THE GROUNDS RAISED BY THE REVENUE IN APPEAL AS WELL AS BY THE ASSESSEE IN THE CROSS OBJECTION IS R EGARDING ADDITION OF RS.12,89,909/- MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND UNDER SEC. 2(22)(E) OF THE ACT. 4. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING AND DEALING IN SHARES AND DERIVATIVES. DURING THE COUR SE OF ASSESSMENT 3 PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSE SSEE HAD UNDERTAKEN TRANSACTIONS WITH ITS SISTER CONCERN NAMELY M/S. PE E DEE KAPUR STOCK & SECURITIES LTD., WHO IS A STOCK BROKER OF THE NSE. THE COPY OF ACCOUNT OF M/S. PEE DEE KAPUR STOCK & SECURITIES LTD. WAS FURN ISHED BY THE ASSESSEE WHICH IS AS UNDER:- DATE PARTICULARS DEBIT DATE PARTICULARS CREDIT 28.04.05 AMNT. PAID VIDE CHQ. NO. 807918 100000/- 20.04.05 PURCHASE OF SHARES 2334173/- 18.05.05 AMNT. PAID VIDE CHQ. NO.807944 100000/- 19.05.05 PURCHASE OF PETRONET SHARES 1717423/- 18.05.05 AMNT. PAID VIDE CHQ. NO.807665 100000/- 26.05.05 PURCHASE OF GHC SHARES. 468872/- 30.05.05 SALE OF RUCHI SHARES 1267049/- - - - 08.06.05 SALES OF GHC SHARES 1120998/- - - - 5. FROM THE SAID ACCOUNT, IT WAS CLEAR THAT M/S. PE E DEE KAPUR STOCK & SECURITIES LTD., A SHARE BROKER HAD UNDERTAKEN TRAN SACTIONS OF PURCHASE AND SALE OF SHARES AND SECURITIES WITH THE ASSESSEE COM PANY. THE TRANSACTION OF THE CREDIT AND DEBIT IN THE ACCOUNT OF M/S. PEE DEE KAPUR STOCK & SECURITIES LTD. HAS BEEN TREATED TO BE IN THE FORM OF SHORT TE RM LOAN OR ADVANCE TO THE ASSESSEE COMPANY BY THE AO BY OBSERVING AS UNDER:- 4 FROM THE ABOVE ACCOUNT IT IS CLEAR THAT M/S. PEE D EE KAPUR IS A SHARE BROKER AND ASSESSEE IS UNDERTAKING PURCHASE AND SALE TRANSACTIONS IN SHARE AND SECURITIES THROUGH THIS C O. HOWEVER, IT CAN ALSO BE NOTED THAT M/S. PEE DEE KAPUR HAS MA DE PURCHASES ON BEHALF OF THE ASSESSEE CO. ON 28.05.0 5 ON PURCHASE OF 25000 SHARES OF GHCL AND 5000 SHARES OF RUCHI SUYA, M/S. PEE DEE KAPUR HAS PAID A SUM OF RS.23,34 ,173/-. THERE IS NO PAYMENT BY THE ASSESSEE CO. TILL 28.05. 05 WHEN A SUM OF RS.1,00,000/- WAS PAID TO M/S. PEE DEE KAPUR . FURTHER, THERE WAS ANOTHER PURCHASE OF 40000 SHARES OF PETRO NET ON 19.05.05 AMOUNTING TO RS.17,17,423/- BY M/S. PEE DE E KAPUR ON BEHALF OF THE ASSESSEE CO. TILL 19.05.05, THE A SSESSEE HAD TOTAL CREDIT AMOUNT IN THE BOOKS OF M/S. PEE DEE OF RS.8,12,619/- AND ON THE OTHER HAND THIS CO. HAS PU RCHASED SHARES WORTH RS.40,51,596/- ON BEHALF OF THE ASSESS EE CO. THUS, IT IS CLEAR THAT THIS PAYMENT, FOR PURCHASE OF SHAR ES ON BEHALF OF THE ASSESSEE CO., BY M/S. PEE DEE KAPUR IS IN THE F ORM OF SHORT TERM LOAN/ADVANCE TO THE ASSESSEE CO. LOOKING INTO THESE FACTS, THE ISSUE WAS EXAMINED FROM THE VIEW POINT OF DEEME D DIVIDEND U/S 2(22)(E) AND IT IS FOUND THAT IT IS COVERED UND ER THE SAME.. 6. THE AO THEN NOTED THAT MR. D.K. KAPUR AND MRS. S USHMA KAPUR WERE HOLDING SHARES TO THE EXTENT OF 19.57% AND 52.12% R ESPECTIVELY IN THE ASSESSEE COMPANY. AT THE SAME TIME, MRS. SUSHMA KA PUR AND MISS SAPNA KAPUR WERE HOLDING SHARES TO THE EXTENT OF 35% EACH IN M/S. PEE DEE KAPUR STOCK & SECURITIES LTD. FROM THESE FACTS, IT WAS N OTED BY THE AO THAT MRS. SUSHMA KAPUR HAD MORE THAN 10% SHARE HOLDING IN M/S . PEE DEE KAPUR STOCK & SECURITIES LTD. AND AT THE SAME TIME, HAD M ORE THAN 20% SHARE HOLDING IN THE ASSESSEE COMPANY. THE AO HAS, THERE FORE, TAKEN A VIEW THAT TEMPORARY LOAN/ADVANCE FOR THE PURCHASE OF SHARES F ROM M/S. PEE DEE KAPUR 5 STOCK & SECURITIES LTD. IS COVERED BY THE SECOND LI MB OF THE MAIN SEC. 2(22)(E) AND, IS THUS, TAXABLE IN THE ASSESSEES HA ND. THE AO FOUND THAT TOTAL RESERVE AND SURPLUS OF M/S. PEE DEE KAPUR STOCK & S ECURITIES LTD. STOOD AT RS.12,89,909/- AS ON 31.03.2006. HE, THEREFORE, BR OUGHT THE SUM OF RS.12,89,909/- TO TAX AS DEEMED DIVIDEND U/S 2(22)( E) IN THE HANDS OF THE ASSESSEE COMPANY. 7. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). 8. AFTER CONSIDERING THE AOS ORDER AND ASSESSEES SUBMISSIONS, THE LEARNED CIT(A) DELETED THE ADDITION BY HOLDING THAT THE AMOUNT IN QUESTION IS NOT TAXABLE AS DEEMED DIVIDEND IN THE HANDS OF T HE ASSESSEE COMPANY INASMUCH AS THE ASSESSEE COMPANY IS NOT A REGISTERE D SHARE HOLDER OF M/S. PEE DEE KAPUR STOCK & SECURITIES LTD. THE LEARNED CIT(A) RELIED UPON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CA SE OF BHAUMICK COLOR P. LTD. REPORTED IN 118 ITD 1 (SB)(MUM.) AND ALSO THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL H ILLTOP (2009) 313 ITR 116. THE LEARNED CIT(A)S ORDER RUNS AS UNDER:- 4. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E BY THE LD. AR AND HAVE GONE THROUGH THE ASSESSMENT ORDER. THE ISSUE OF DEEMED DIVIDEND U/S 2(22)(E) CAME UP BEFORE HON BLE SPECIAL BENCH OF ITAT IN THE CASE OF ACIT VS. BHAUM IK COLOUR (P) LTD., SUPRA, WHEREIN IT HAS BEEN HELD THAT DEEM ED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO I S A 6 SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF A PERSON OTHER THAN A SHAREHOLDER. WHILE DECIDING TH E ISSUE, HONBLE SPECIAL BENCH ALSO MADE REFERENCE TO THE DE CISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP AND HELD AS UNDER:- THE AFORESAID DECISION OF THE HONBLE RAJASTHAN HIGH COURT WHICH IS THE ONLY DECISION OF HIGH COURT, SHOULD BE SUFFICIENT TO ANSWER QUESTION NO.2 WHICH HAS BEEN REFERRED TO THE SPECIAL BENCH BY HOLDING THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS INV OKED THE PROVISIONS OF SECTION 2(22)(E) ON THE GROUND THAT M S. SUSHMA KAPUR IS A SHAREHOLDER IN BOTH THE COMPANIES, HAVIN G MORE THAN 10% SHAREHOLDING IN M/S. PEE DEE KAPUR STOCK & SECURITIES LTD. AND ALSO HAVING MORE THAN 20% SHARE HOLDING IN THE ASSESSEE COMPANY. HOWEVER, IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY IS A SH AREHOLDER OF M/S. PEE DEE KAPUR STOCK & SECURITIES LTD. IN THE ABSENCE OF THE SAME, THE AMOUNT IS NOT TAXABLE AS DEEMED DIVID END, AS LAID DOWN IN THE CASE OF BHAUMIK COLOUR (P) LTD., SUPRA. IN SUCH CIRCUMSTANCES, THE ADDITION MADE BY THE ASSESSING O FFICER IS NOT JUSTIFIED AND THE SAME IS DIRECTED TO BE DELETE D. 9. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 10. FROM THE ORDER OF THE AO, IT IS CLEAR THAT THE ASSESSEE IS NOT A REGISTERED SHAREHOLDER OF M/S. PEE DEE KAPUR STOCK & SECURITIES LTD. AND THEREFORE, THE AMOUNT TAKEN BY THE ASSESSEE FROM M/ S. PEE DEE KAPUR STOCK & SECURITIES LTD. CANNOT BE ASSESSED AS DEEMED DIVI DEND WITHIN THE MEANING 7 OF SEC. 2(22)(E) OF THE ACT AS SO HELD BY THE SPECI AL BENCH OF ITAT IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. (SUPRA) AN D HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP (SU PRA). IN THESE CIRCUMSTANCES, IT HAS BEEN HELD THAT DEEMED DIVIDEN D CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE L ENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. TH EREFORE, ON THIS SHORT POINT, THE ORDER OF THE LEARNED CIT(A) IS UPHELD. 11. SINCE THE VERY ADDITION OF RS.12,89,909/- AS DE EMED DIVIDEND HAS BEEN DELETED BY HOLDING THAT THE PAYMENT IS NOT COV ERED BY SEC. 2(22)(E) OF THE ACT INASMUCH AS THE ASSESSEE COMPANY IS NOT A S HAREHOLDER OF THE LENDER COMPANY, THE VARIOUS OTHER POINTS RAISED BY THE ASS ESSEE IN THE CROSS OBJECTION NEED NO ADJUDICATION AT THIS STAGE. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND CROSS OBJECTION FILED BY THE ASSESSEE IS TREATED TO BE IN FRUCTUOUS. 13. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT IMMEDIATELY AFTER THE HEARING WAS OVER ON 29 TH JULY, 2011. SD/- SD/- (SHAMIM YAHYA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 TH JULY, 2011. 8 ITA NO.3237/DEL/2010 & C.O.NO.288/DE/2010 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.