Prakash Gold Palace (P) Ltd., CHENNAI V. DCIT, CHENNAI

CO 3/CHNY/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8314 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-02-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 04-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: V SRINIVASAN ITP
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENN AI BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER .. ITA NO.2112/MDS./2012 ASSESSMENT YEAR:2009-10 DY. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2) CHENNAI-34. VS. M/S.PRAKASH GOLD PALACE P. LTD., NO.144, PURASAWALKAM HIGH ROAD, KELYS, CEHNNAI 600 010. PAN AACCA 4384 Q (APPELLANT) (RESPONDENT) C.O. NO.03/MDS./2013 ASSESSMENT YEAR:2009-10 M/S.PRAKASH GOLD PALACE P. LTD., NO.144, PURASAWALKAM HIGH ROAD, KELYS, CEHNNAI 600 010. VS. DY. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2) CHENNAI-34. PAN AACCA 4384 Q (CROSS OBJECTOR ) (APPELLANT IN APPEAL) ASSESSEE BY : SHRI V.SRINIVASAN, ITP REVENUE BY : SHRI SHAJI P JACOB ADDL. CIT D.R. DATE OF HEARING : 11.02.13 DATE OF PRONOUNCEMENT : 14 . 02.13 ITA. 2112 /MDS/12 CO NO.03/MDS./13 2 O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE AND CROSS OBJEC TION FILED BY THE ASSESSEE ARE AGAINST THE ORDER OF THE CIT(A) V, CHENNAI DATED 11.09.2012. THE SOLE ISSUE INVOLVED IN THIS APPEAL OF THE REVENUE IS THAT CIT(A) ERRED IN DELETING THE ADDIT ION OF ` 3 CRORE MADE BY THE ASSESSING OFFICER AS DEEMED DIVIDEND U NDER SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 BY HOL DING THAT IT IS OF THE NATURE OF ADVANCE AND NOT A COMMERCIAL TRANS ACTION AND THEREFORE, CANNOT BE ASSESSED AS DEEMED DIVIDEND UN DER SECTION 2(22)(E) OF THE ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE, M/S PRAKASH GOLD PALACE PVT. LTD. RECEIVED LEASE ADVANC E OF ` 3 CRORE FROM HIS SISTER COMPANY M/S.ABHILASHA JEWELL ERS PVT LTD. AND THE ENTIRE AMOUNT REMAINED WITH THE ASSESSEE-C OMPANY AS ON 31.03.2009. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESSEE TO PROVIDE THE SHAREHOLDING PATTERN OF BOTH THE COMPANIES. FROM T HE SHARE HOLDING PATTERN, THE ASSESSING OFFICER CONCLUDED TH AT MOST OF THE SHARE HOLDERS ARE COMMON IN BOTH THE COMPANIES. M/ S.ABHILASHA ITA. 2112 /MDS/12 CO NO.03/MDS./13 3 JEWELLERS PVT LTD. WAS HAVING ACCUMULATED PROFITS A VAILABLE FOR DISTRIBUTION AS DIVIDEND AMOUNTING TO ` 17.66 CRORES AS ON 31.03.09 AND ` 10.50 CRORES FOR THE CORRESPONDING PERIOD FOR PREVIOUS YEAR VIZ. AS ON 31.03.2008. THE ASSESSIN G OFFICER WAS OF THE VIEW THAT THE FACT THAT ADVANCE PAID TO THE ASSESSEE WAS TO BE SET OFF AGAINST THE FUTURE RENTS WOULD NOT THERE FORE, ALTER THE FACT THAT THE ASSESSEE IN THE EYE OF LAW RECEIVED D IVIDEND FROM THE COMPANY DURING THE RELEVANT ACCOUNTING PERIOD. HE THEREFORE, HELD THAT ` 3 CRORE WAS TO BE ADDED TO THE RETURNED INCOME OF T HE ASSESSEE AND ACCORDINGLY, A.O. COMPLETED THE ASSESS MENT. 3. ON APPEAL, THE CIT(A) DELETED THE ADDITION AND WHILE DOING SO, HELD AS UNDER:- 5.3 I HAVE CONCEALED THE SUBMISSIONS OF THE APPEL LANT VIS- A-VIS FACTS OF THE CASE AND THE REASONS GIVEN BY TH E AO IN TREATING THE SECURITY ADVANCE RECEIVED FROM THE SIS TER CONCERN AS DEEMED DIVIDEND. AS REGARDS THE CONTENTI ON OF THE APPELLANT THAT THE TRANSACTION BETWEEN THE APPE LLANT COMPANY AND ITS SISTER CONCERN NAMELY M/ S ABHILASH A JEWELLERS PRIVATE LIMITED IS A COMMERCIAL TRANSACTI ON, IT IS SEEN THAT THE TRANSACTION IS BETWEEN THE TWO VERY C LOSELY HELD COMPANIES AND THEREFORE CANNOT BE SAID TO BE A N ARM'S-LENGTH PARTICULARLY IN VIEW OF THE FACT THAT THE SO-CALLED SECURITY DEPOSIT IS PATENTLY DISPROPORTIONATE TO TH E RENT CHARGEABLE UNDER THE AGREEMENT BY THE APPELLANT COM PANY FROM THE SAID SISTER CONCERN. THE MONTHLY RENT, SET TLED AS PER THE AGREEMENT BETWEEN THESE TWO SISTER CONCERNS , IS ONLY RS. 9000/- ITA. 2112 /MDS/12 CO NO.03/MDS./13 4 WHEREAS THE RENTAL ADVANCE UNDER THIS AGREEMENT IS RS. 3,00,00,000/- WHICH IS MORE THAN 3333 ITEMS OF THE MONTHLY RENTAL. IN THE AREAS IN AND AROUND CHENNAI NORMAL PREVALENT RENTAL ADVANCE IS TAKEN FOR 10 MONTHS RENT. THEREFORE THE EXPLANATION OF THE APPELLANT THAT THIS IS A COMMERC IAL TRANSACTION BETWEEN THE TWO SISTER CONCERNS HAS NO LEGS TO STAN D AS APPARENTLY THE TRANSACTION IS NOT AT ARM'S LENGTH A ND CONVEYS MUCH MORE THAN IT IS MADE TO APPEAR. HENCE THE APPELLANT FAILS ON THIS COUNT AND THE CONTENTIONS ON THIS COUNT ARE REJECTED. 5.3.1 THE ISSUE THAT REQUIRES CONSIDERATION IS WH ETHER WHEN APPELLANT COMPANY IS NOT A SHAREHOLDER IN M/ S ABHILASHA JEWELLERS PRIVATE LIMITED, THE PAYMENT SAID PAYMENT OF RS. 3 CRORES CLAIMED TO BE SECURITY DEPOSIT CAN BE TREATE D AS DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT COMPA NY. THE SECOND QUESTION FOR CONSIDERATION IS WHETHER THE CO MBINED SHAREHOLDING IN THE RESPECTIVE COMPANIES CAN BE TAK EN AS SUBSTANTIAL SHAREHOLDINGS IN DECIDING THE ISSUE OF DEEMED DIVIDEND. 5.3.2 AFTER PERUSING THE ASSESSMENT ORDER AND TH E WRITTEN SUBMISSIONS FURNISHED ON BEHALF OF THE APPE LLANT, IT IS SEEN THAT THE AO HAS ALSO NOWHERE OBSERVED THAT THE APPELLANT COMPANY IS A SHAREHOLDER IN MIS ABHILASHA JEWELLERS PRIVATE LIMITED. THE FOLLOWING DECISIONS ARE CONSIDERED RELEVANT IN DECIDING THE ISSUES UNDER CONSIDERATION IN THE PRESENT APPEAL : THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH MUMBAI IN MIST PROPERTIES (P) LTD (2005) (95 TTJ 201) HAS HELD THA T, 'IT IS THE OBJECTIVE OF SECTION 2(22)(E) TO TAX SHAREHOLDERS INTENDING TO AVOID DIVIDEND TAX. NON SHAREHOLDERS CANNOT BE TAXED TAKI NG RECOURSE TO THIS SECTION. B. THE HONORABLE ALLAHABAD HC IN CIT V H K MITTAL ( 1996) 219 ITR 420 (ALL) HAS HELD THAT T:LE CHIEF INGREDIENTS OF DIVIDEND ITA. 2112 /MDS/12 CO NO.03/MDS./13 5 DEFINED IN SECTION 2(22)(E) IS THAT THE RECIPIENT S HOULD BE A SHAREHOLDER ON THE DATE THE LOAN WAS ADVANCED AND I F SUCH FACT DOES NOT GET ESTABLISHED, THE ADVANCE CANNOT BE TAK EN AS DEEMED DIVIDEND. UNLESS THE PERSON IS A SHAREHOLDER OF A COMPANY THE PROVISIONS OF DEEMED DIVIDEND CANNOT BE APPLICABLE. THE AO HAS ALSO NOT TAKEN INTO ACCOUNT THAT TO WORK OUT SUBSTANTIAL INTEREST IN A COMPANY A PERSON MUST BE A REGISTERED SHAREHOLDER AS WELL AS A BENEFICIAL SHAREHOLDER; IF ANYONE OF THEM IS ABSENT THE PROVISION OF SUBSTANTIAL INTERES T IS INAPPLICABLE. THE SHARE HOLDERS WHO ARE COMMON IN B OTH THE COMPANIES ARE GIVEN BELOW S. NO. NAME OF THE SHAREHOLDER PERCENTAGE OF HOLDING IN PRAKASH GOLD PALACE PVT LTD. PERCENTAGE OF HOLDING IN ABHILASHA JEWELLERS PVT LTD. 1 D.B.PRAKASH CHAND JAIN 3.27% 24.00% 2 P.MUKESH KUMAR JAIN 7.56% 17.33% 3 P.SURAJ KUMARI JAIN 8.36% 17.33% 4 P.ABHILASH MUTHA 8.99% 17.33% 5 PRAMILA JAIN 4.49% 12.00% 6 D.B.PRAKASH CHAND JAIN(BENEFICIARY MS.HARDIKA) 3.27% 24.00% 7 P.SURAJ KUMARI JAIN(BENEFICIARY MASTER LAKSHAY) 8.98% -- 8 P.MUKESH KUMAR JAIN (BENEFICIARY MASTER LAKSHAY) 26.94% -- 9 MAMTHA JAIN -- 12.00% FROM THE ABOVE IT IS CLEARLY SEEN THAT NONE OF THE SHAREHOLDERS HAVE SUBSTANTIAL INTEREST IN THEIR INDIVIDUAL CAPAC ITY IN THE APPELLANT COMPANY MIS PRAKASH GOLD PALACE PVT LTD. THE THREE SHARE HOLDERS: SRI D B PRAKASH CHAND JAIN, MS SURAJ KUMARI AND SRI P MUKESH KUMAR JAIN HOLD RESPECTIVELY 31.41%, 8.98% AND 26.94% SHARES IN THE APPELLANT COMPANY ONLY IN THEI R FIDUCIARY ITA. 2112 /MDS/12 CO NO.03/MDS./13 6 CAPACITIES AND HENCE CANNOT BE CONSIDERED FOR DETER MINING THE SUBSTANTIAL INTEREST OF THESE INDIVIDUALS. 5.3.3 IN THE CASE OF CIT V ANKITECH (P) LTD [2011] 242 CTR 340/ ITR 14 (DELHI HIGH COURT) 129, THE HONBLE HIGH COU RT HAS ANSWERED THE FOLLOWING QUESTION: 1. WHETHER LEGAL FICTION CREATED UNDER SECTION 2 (22)(E) ENLARGES DEFINITION OF DIVIDEND ONLY; LEGAL FICTION IS NOT TO BE EXTENDED FURTHER FOR BROADENING CONCEPT OF SHAREHOL DERS - IN THE AFFIRMATIVE I.E., THE LEGAL FICTION CANN OT BE EXTENDED FURTHER TO BROADEN THE CONCEPT OF SHAREHOLDER. 2. WHETHER ANY COMPANY IS SUPPOSED TO DISTRIBUTE PROFITS IN FORM OF DIVIDEND TO ITS SHAREHOLDERS/MEMBERS AND SU CH DIVIDEND CANNOT BE GIVEN TO NON-MEMBERS- IN THE AFFIRMATIVE. 3. WHETHER SECOND CATEGORY THAT IS SPECIFIED IN SE CTION 2(22)(E) IS A CONCERN IN WHICH SHAREHOLDER OF PAYER COMPANY HAS AT LEAST 20 PER CENT OF VOTING POWER AND LOAN OR ADVANCE UND ER THIS CATEGORY IS GIVEN ADMITTEDLY LOT TO A SHAREHOLDER / MEMBER OF PAYER COMPANY AND, THEREFORE, UNDER NO CIRCUMSTANCE S, IT CAN BE TREATED AS SHAREHOLDER / MEMBER RECEIVING DIVIDE ND - IN THE AFFIRMATIVE. 4. WHETHER, HOWEVER, IN A CASE WHERE CONDITIONS STI PULATED IN SECTION 2(22)(E) TREATING LOAN AND ADVANCE AS DEEME D DIVIDEND ARE ESTABLISHED, REVENUE CAN TREAT DIVIDEND INCOME AT HANDS OF SHAREHOLDERS AND TAX THEM ACCORDINGLY - IN THE AFFIRMATIVE. 5. WHERE LOANS AND ADVANCES ARE GIVEN IN NORMAL COU RSE OF BUSINESS AND TRANSACTION IN QUESTION BENEFITS BOTH PAYER AND PAYEE COMPANIES, PROVISIONS OF SECTION 2(22)(E) CAN NOT BE INVOKED - IN THE AFFIRMATIVE. SIMILARLY IN THE CASE OF CIT V MCC MARKETING (P.) L TD. 343 ITR (DELHI HIGH COURT) 350, THE HON'BLE HIGH COURT HAS, ON THE FACTS- THAT THE ASSESSEE, A PRIVATE LIMITED COMPANY, RECEIVED A CERTAIN AMOUNT AS UNSECURED LOAN FROM ITS SISTER CO NCERN BY NAME ITA. 2112 /MDS/12 CO NO.03/MDS./13 7 MIPL TILE ASSESSING OFFICER HAVING NOTICED THAT ONE A WAS HOLDING MORE THAN 20 PER CENT SHARES IN BOTH MIPL AND ASSES SEE- COMPANY INVOKED PROVISIONS OF SECTION 2(22)(E) AND MADE ADDITION OF AFORESAID AMOUNT TO INCOME OF ASSESSEE HELD THAT IN VIEW OF JUDGMENT OF DELHI HIGH COU RT RENDERED IN CASE OF CIT V. ANKITECH (P.) LTD. [2011] 199 TAXMAN 341 /L1 TAXMANN.COM 100 , PROVISIONS OF SECTION 2(22)(E) WERE NOT ATTRACTED IN INSTANT CASE AND THEREFORE, IMPUGNED ADDITION MA DE BY ASSESSING OFFICER UNDER SECTION 2(22)(E) WAS NOT JU STIFIED. 5. 3.4. IN VIEW OF THE ABOVE DISCUSSED LEGAL POSITIO N I HOLD THAT SINCE THE APPELLANT COMPANY IS NOT A SHAREHOLDER IN M/S.ABHILSHA JEWELLERS PVT LTD., THE PROVISIONS OF SECTION 2(22) (E) HAS NO APPLICATION. ANALYZING THE SHAREHOLDING OF THE APPE LLANT COMPANY AND MIS ABHILASHA JEWELLERS PLIVATE LIMITED, APPELL ANT CANNOT FIT INTO THE DEFINITION 'CONCERN' IN SECTION 2(22)(E). THEREFORE, THE APPELLANT SUCCEEDS ON THIS COUNT AND THE AO IS DIRE CTED TO DELETE THIS IS ADDITION. 4. BEING AGGRIEVED WITH THE ORDER OF THE CIT(A), T HE REVENUE IS IN APPEAL BEFORE US. 5. THE DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT HE WAS RELYING ON THE GROUNDS OF THE APPEAL RAISED BY THE REVENUE. ITA. 2112 /MDS/12 CO NO.03/MDS./13 8 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILAB LE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSES SEE RECEIVED ` 3 CRORE FROM ITS SISTER CONCERN M/S.ABHILASHA JEW ELLERS PVT LTD. THE ASSESSING OFFICER ALSO OBSERVED FROM THE SHAREH OLDING PATTERN OF BOTH THE COMPANIES THAT MOST OF THE SHAR EHOLDERS ARE COMMON IN BOTH THE COMPANIES. THEREFORE, THE ASSES SING OFFICER BROUGHT TO TAX THE ENTIRE AMOUNT OF ` 3 CRORE BY INVOKING THE PROVISIONS OF SEC.2(22)(E) OF THE ACT AS DEEMED DIV IDEND. THE CIT(A) DELETED THE ADDITIONS BY FOLLOWING THE DECIS IONS OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. ANKITECH (P. ) LTD. (SUPRA) AND IN THE CASE OF CIT V. MCC MARKETING (P.) LTD.,( SUPRA) ON THE GROUND THAT THE ASSESSEE-COMPANY WAS NOT A SHAREHOL DER IN M/S.ABHILASHA JEWELLERS PVT LTD. AND HENCE, THE P ROVISIONS OF SEC.2(22)(E) ARE NOT APPLICABLE. THE D.R. COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE CIT(A). N O MATERIAL WAS BROUGHT BY THE REVENUE TO SHOW THAT WHY THE ABOVE D ECISIONS RELIED ON BY THE CIT(A) WERE NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. IN THE ABOVE CIRCUMSTANCES, WE DO NO T FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE COMM ISSIONER OF INCOME TAX(A), WHICH IS CONFIRMED, AND THE GROUNDS OF APPEAL OF REVENUE ARE DISMISSED. ITA. 2112 /MDS/12 CO NO.03/MDS./13 9 7. THE CROSS OBJECTION FILED BY THE ASSESSEE IS MERELY IN SUPPORT OF THE ORDER OF CIT(A), THEREFORE, THE SAM E IS DISMISSED AS INFRUCTUOUS. 8. IN THE RESULT, THE APPEAL OF REVENUE AS WELL AS CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 14 TH FEBRUARY, 2013 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED 14 TH FEBRUARY, 2013. K S SUNDARAM COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE ITA. 2112 /MDS/12 CO NO.03/MDS./13 10 ITA. 2112 /MDS/12 CO NO.03/MDS./13 11