M/s AVA Merchandising Solutions Pvt. Ltd., New Delhi V. ITO, New Delhi

CO 318/DEL/2014

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2145 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 19-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K K JAISWAL
• Keywords: Deemed dividend; Condonation of delay
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 5528/DEL/2013 ASSESSMENT YEAR: 2010-11 INCOME TAX OFFICER, WARD 1(1) VS. M/S AVA MERCHANDI SING 398-B, CR BLDG., SOLUTIONS P LTD., I.P. ESTATE, NEW DELHI C/O M/S RRA TAX INDIA, D-28, SOUTH EXTENSION, NEW DELHI 110 049 (PAN: AAHCA6569N) (APPELLANT) (RESPONDENT) AND CROSS OBJECTION NO. 318/DEL/2014 (IN ITA NO. 5528/DEL/2013) ASSESSMENT YEAR: 2010-11 M/S AVA MERCHANDISING SOLUTIONS VS. ITO, WARD 1(1) P LTD., NEW DELHI C/O RAVI GUPTA, ADVOCATE, E-6A, KAILASH COLONY, NEW DELHI 48 (APPELLANT) (RESPONDENT) APPELLANT BY : SH. K.K. JAISWAL, DR RESPONDENT BY : SH. P.C. YADAV, ADV. & SH. RAJESH JAIN, FCA DATE OF HEARING : 19-01-2016 DATE OF ORDER : 10-02-2016 ORDER PER H.S. SIDHU, J.M. THE DEPARTMENT HAS FILED THE APPEAL AND ASSESSEE H AS FILED THE CROSS OBJECTION WHICH IS EMANATE FROM THE ORDER DAT ED 05.7.2013 OF LD. CIT(A)-IV, NEW DELHI PERTAINING TO ASSESSMENT Y EAR 2010-11. THE GROUNDS RAISED IN THE REVENUES APPEAL READS AS UND ER:- ITA NO. 5528/DEL/2013 & CO NO. 318/DEL/2014 2 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION OF RS. 2,31,58,498/-, WHICH WAS MADE U/S. 2(22)(E) OF THE I.T. ACT, 1961. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, DEEMED DIVIDEND U/S 2(22)(E) CANNOT BE ASSESSED IN THE REC EIPT IS NOT THE REGISTERED SHARE HOLDER OF COMPANY ADVANCING LOAN O R ADVANCE, ALTHOUGH RECIPIENT PERSON HAS BENEFICIAL INTEREST B Y WAY OF SHARE HOLDING IN BOTH THE COMPANIES. 3. THE APPELLANT CRAVES LEAVE FOR RESERVING THE LIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEA L AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE ENTERED INTO SOME TRANSACTIONS WITH ITS SISTER CONCERNS M/S AVA MERCHANDISING PVT. LTD. (HEREINAFTER REFERRED AS AMPL). THE TRANSACTIO NS INCLUDED EXCHANGE OF CASH, JOURNAL ENTRIES WITH REFERENCE TO PAYMENTS ON BEHALF OF EACH OTHER AND / OR TRANSFER OF ASSETS AND INVEN TORIES. THERE WERE FREQUENT DEBIT BALANCE BY THE APPELLANT TO THE AMPL . THE AO ANALYZED THE SHAREHOLDING PATTERN AND OBSERVED THAT SH. AMIT CHOPRA WAS HAVING 9500 OUT OF 25000 SHARES OF AMPL WHICH COMES TO 38% OF TOTAL SHARES. THE AO ALSO OBSERVED THAT AMPL WAS HAVING A CCUMULATED PROFIT OF RS. 2,37,95,261/- AS OPENING BALANCE AND RS.1,34,53,618/- AS CLOSING BALANCE. THE AO FURTHER NOTICED THAT SH. AMIT CHOPRA WAS HAVING 522800 OUT OF 535250 SHARES OF THE APPELLANT COMPANY WHICH COMES TO 97.67%. THUS, SH. AMIT CHOPRA HAS SUBSTANT IAL INTEREST IN BOTH THE COMPANIES. THE AO ASKED THE ASSESSEE TO EX PLAIN AS TO WHY SECTION 2(22)(E) SHOULD NOT BE INVOKED. THE ASSESSE E CONTENDED BEFORE THE AO THAT THE ASSESSEE COMPANY IS NOT A SH AREHOLDER IN AMPL AND HENCE ADDITION ON THIS ACCOUNT CANNOT BE MADE I N THE HANDS OF THE ASSESSEE COMPANY. IT WAS FURTHER SUBMITTED THAT THE TRANSACTIONS ARE ON ACCOUNT OF SALE-PURCHASE WHICH DO NOT COME UNDER THE DEFINITION OF LOANS AND ADVANCE. IT WAS SUBMITTED THAT BOTH THE E NTITIES I.E. THE ASSESSEE COMPANY AND AMPL ARE SUNDRY DEBTORS AND SU NDRY CREDITORS IN EACH OTHER BOOKS OF ACCOUNTS AND THEREFORE, SECT ION 2(22)(E) IS NOT APPLICABLE. THE AO CAME TO THE CONCLUSION THAT SINC E SH. AMIT CHOPRA IS HAVING SUBSTANTIAL SHARES OF BOTH THE COMPANIES AND THERE WAS A CONSTANT DEBIT BALANCE OF ASSESSEE COMPANY IN THE B OOKS OF THE AMPL, ITA NO. 5528/DEL/2013 & CO NO. 318/DEL/2014 3 THE PEAK OF THE SAME AMOUNTING TO RS.2,31 ,58,498/- WAS TAXABLE AS DEEMED DIVIDEND U/S 2(22)(E). ACCORDINGLY, HE MADE THE ADDITION OF ABOVE AMOUNT AND ASSESSED THE INCOME AT RS. 2,40,14 ,830/- VIDE HIS ORDER DATED 09.1.2013 PASSED U/S. 143(3) OF THE I.T . ACT, 1961. 3. AGAINST THE AFORESAID ASSESSMENT ORDER, THE ASSE SSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DAT ED 05.7.2013 ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITION IN DISPUTE. 4. AGGRIEVED WITH THE IMPUGNED ORDER, THE REVENUE I S IN APPEAL BEFORE THE TRIBUNAL. 5. LD. DR RELIED UPON THE ORDER OF THE AO AND REITE RATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL. IT WAS SUBMITTED BY THE LEARNED DR THAT THE AO HAS RIGHTLY ASSESSED THE INC OME AT RS. 2,40,14,833/-. IT WAS FURTHER SUBMITTED THAT AO HAS GIVEN COGENT REASONS FOR DISALLOWING THE ADDITION OF RS. 2,31,91 ,194/- MADE U/S. 2(22)(E) OF THE I.T. ACT, 1961. 6. ON THE CONTRARY, LD. AUTHORISED REPRESENTATIVE O F THE ASSESSEE HAS RELIED UPON THE ORDER OF THE LD. CIT(A) AND STA TED THAT THE ORDER OF THE LD. CIT(A) IS A WELL REASONED ORDER AND THEREFO RE, THE SAME MAY BE UPHELD AND REVENUES APPEAL MAY BE DISMISSED ACC ORDINGLY. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E RELEVANT RECORDS, ESPECIALLY THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAW CITED BY THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE. WE FIND THAT LD. FIRST APPELLATE AUTHORITY HAS ELABOR ATELY DISCUSSED THE ISSUE IN DISPUTE BY CONSIDERING THE SUBMISSIONS O F THE LD. COUNSEL OF THE ASSESSEE AND ADJUDICATED THE ISSUE IN DISPUTE VIDE PARA 5.5 TO 5.5.1 AT PAGES 6 TO 7 OF HIS IMPUGNED ORDER. FOR TH E SAKE OF CONVENIENCE THE RELEVANT PARAS OF THE FINDINGS OF T HE LD. CIT(A) ARE REPRODUCED HEREUNDER. 5.5 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LD. AR AND PERUSED THE ORDER PASSED BY THE AO. I HAVE ALSO CONSIDERED THE REMAND REPORT OF THE AO AND REJOINDE R OF ITA NO. 5528/DEL/2013 & CO NO. 318/DEL/2014 4 THE APPELLANT ON THE REMAND REPORT. THE FACTS OF TH E CASE ARE THAT THE DURING THE YEAR UNDER REFERENCE THE AP PELLANT COMPANY HAD REGULAR TRANSACTIONS WITH THE AMPL AND THERE WAS PEAK DEBIT BALANCE OF RS.2,31 ,58,498/-. THE AO MADE THE ADDITION ULS 2(22)(E) ON THE GROUND THAT SH. AM IT CHOPRA HAS 38% SHAREHOLDING IN AMPL AND 97% SHARES IN THE APPELLANT COMPANY. ON CAREFUL EXAMINATION OF TH E PROVISIONS OF SECTION 2(22)(E) OF THE ACT, I HAVE F IND THAT SECTION 2(22)(E) READS AS UNDER: 'DIVIDEND' INCLUDES- (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY I N WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF A NY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF TH E COMPANY OR OTHERWISE) MADE AFTER 31ST DAY OF MAY, 1 987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT B EING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CO NCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN T HIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFI T, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE CO MPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS; BUT DOES NOT INCLUDE- (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR T HE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTI AL PART OF THE BUSINESS OF THE COMPANY; EXPLANATION 3. -FOR THE PURPOSE OF THIS CLAUSE - ITA NO. 5528/DEL/2013 & CO NO. 318/DEL/2014 5 (A) 'CONCERN' MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY, (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT AN Y TIME DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER CENT OF THE INCOME OF SUCH CONCERN; ' IT IS SEEN THAT THE PEAK OF DEBIT OF THE APPELLANT COMPANY IN THE BOOKS OF THE AMPL WAS RS.2,31 ,58,498/-. 5.5.1 THE COURTS HAVE HELD THAT THE DEEMED DIVIDEND U/S 2(22)(E) CAN BE BROUGHT TO TAX ONLY IN THE HANDS OF THE REGISTERED SHAREHOLDERS OF THE LENDER COMPANY AND N OT IN THE HANDS OF A BENEFICIAL SHAREHOLDER. REFERENCE MAY BE MADE TO THE JUDGMENT OF HON'BLE ITAT MUMAI BENCH 'E' (SPECIAL B ENCH) IN ACIT V. M/S BHAUMIK COLOR (P) LTD. LTD. (2009) 118 ITO 1 AS WELL AS THE ORDER OF HOTEL HILLTOP 313 ITR 116 RAJ. THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V ANKI TECH PVT. LTD. AND ORS. 314 ITR 14 HAS HELD THAT A CONCERN WHICH I S GIVEN LOAN OR ADVANCE BY A COMPANY CANNOT BE TREATED AS SHAREH OLDER / MEMBER OF THE LATTER SIMPLY BECAUSE A SHAREHOLDER O F THE LENDER COMPANY HOLDING VOTING POWER OF TOPER CENT OR MORE THEREIN HAS SUBSTANTIAL INTEREST IN SUCH CONCERN. THE HON'BLE H IGH COURT HAS FURTHER HELD THAT IF THE INTENTION OF THE LEGISLATU RE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HAND S OF THE DEEMING SHAREHOLDER, IT WOULD HAVE INSERTED DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL. IT WAS HELD THAT DEEMED DIVIDEND U/S 2(22)(E) CANNOT BE TAXED IN THE HANDS OF A NON- SHAREHOLDER. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT, I HOLD THAT THE APPELLAN T COMPANY (M/S AVA MERCHANDISING (P) LTD.) NOT BEING A SHAREHOLDER OF THE CREDITOR COMPANY (M/S AMPL), THE AMOUNT OF DEBIT BA LANCE CANNOT BE ADDED IN THE HANDS OF THE APPELLANT COMPA NY AS ITA NO. 5528/DEL/2013 & CO NO. 318/DEL/2014 6 DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE SAME I S, THEREFORE, DELETED. GROUNDS OF APPEAL ARE ALLOWED. 7.1 ON GOING THROUGH THE AFORESAID FINDING OF THE L D. CIT(A) ON THE ISSUE IN DISPUTE AND THE CASE LAWS CITED IN THE I MPUGNED ORDER, WE ARE OF THE VIEW THAT THE ASSESSEE DURING THE YEAR H AD REGULAR TRANSACTIONS WITH THE AMPL AND THERE WAS PEAK DEBIT BALANCE OF RS.2,31,58,498/-. THE AO MADE THE ADDITION ULS 2(22 )(E) ON THE GROUND THAT SH. AMIT CHOPRA HAS 38% SHAREHOLDING IN AMPL AND 97% SHARES IN THE APPELLANT COMPANY. WE FURTHER FORCE I N THE FINDING OF THE LD. CIT(A) THAT DEEMED DIVIDEND U/S 2(22)(E) CAN B E BROUGHT TO TAX ONLY IN THE HANDS OF THE REGISTERED SHAREHOLDERS OF THE LENDER COMPANY AND NOT IN THE HANDS OF A BENEFICIAL SHAREHOLDER. T HE FOLLOWING RELIANCE PLACED BY THE LD. CIT(A) IN HIS IMPUGNED ORDER F ULLY SUPPORTS THE CASE OF THE ASSESSEE: - JUDGMENT OF HON'BLE ITAT MUMAI BENCH 'E' (SPECIAL BENCH) IN ACIT V. M/S BHAUMIK COLOR (P) LTD. LTD. (2009) 1 18 ITO 1 - HOTEL HILLTOP 313 ITR 116 RAJ . 7.2 WE FURTHER FIND THAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V ANKITECH PVT. LTD. AND ORS. 314 ITR 14 HAS HE LD THAT A CONCERN WHICH IS GIVEN LOAN OR ADVANCE BY A COMPANY CANNOT BE TREATED AS SHAREHOLDER / MEMBER OF THE LATTER SIMPLY BECAUSE A SHAREHOLDER OF THE LENDER COMPANY HOLDING VOTING POWER OF TOPER CE NT OR MORE THEREIN HAS SUBSTANTIAL INTEREST IN SUCH CONCERN. WE FURTHE R NOTE THAT THE HON'BLE HIGH COURT HAS FURTHER HELD THAT IF THE INT ENTION OF THE LEGISLATURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEM ED DIVIDEND AT THE HANDS OF THE DEEMING SHAREHOLDER, IT WOULD HAVE INS ERTED DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL. IT WAS HELD THAT DEEMED DIVIDEND U/S 2(22)(E) CANNOT BE TAXED IN THE HANDS OF A NON- ITA NO. 5528/DEL/2013 & CO NO. 318/DEL/2014 7 SHAREHOLDER. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT, AS AFORESAID, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE COMPANY (M/S AVA MERCHANDISING (P) LTD.) N OT BEING A SHAREHOLDER OF THE CREDITOR COMPANY (M/S AMPL), THE AMOUNT OF DEBIT BALANCE CANNOT BE ADDED IN THE HANDS OF THE ASSESSE E COMPANY AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THEREFORE , THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS. 2,31,58,4 98. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT( A), THEREFORE, WE UPHOLD THE SAME AND THE ISSUE RAISED BY THE REVENU E STANDS DISMISSED. AS A RESULT, THE REVENUES APPEAL IS DISMISSED. ASSESSEES CROSS OBJECTION 8. THE ASSESSEE HAS FILED THE CROSS OBJECTION. WE F IND THAT THE CROSS OBJECTION FILED BY THE ASSESSEE IS TIME BARRED BY 2 02 DAYS. HOWEVER, THE ASSESSEE HAS FILED THE APPLICATION FOR CONDONATION OF DELAY FOR 185 DAYS. THE CROSS OBJECTION WAS FILED BY TAKING A PLEA THAT THE SAME COULD NOT BE FILED WITHIN 30 DAYS OF THE DATE OF SERVICE OF NOTI CE OF HEARING AS THE ASSESSEE WAS ADVISED TO FILE CROSS OBJECTIONS UPON CHANGE OF COUNSEL ONLY, THE EARLIER COUNSEL HAS ADVISED THE ASSESSEE OTHERW ISE. BUT AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSESSEE SH. PC YADAV, ADVOCATE HAS WITHDRAWN THE CROSS OBJECTION AND ALSO ENDORSED THE SAME ON T HE GROUNDS OF CROSS OBJECTION. 8.1 LD. DR HAS NOT RAISED ANY SERIOUS OBJECTION TO THE WITHDRAWAL OF THE CROSS OBJECTION. ITA NO. 5528/DEL/2013 & CO NO. 318/DEL/2014 8 8.2 SINCE THE CROSS OBJECTION FILED BY THE ASSESSEE HAS BEEN WITHDRAWN, THE SAME IS DISMISSED AS SUCH. 9. IN THE RESULT, THE REVENUES APPEAL AS WELL AS A SSESSEES CROSS OBJECTION STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/02/2016. SD/- SD/- (L.P. SAHU) (H.S. SIDHU) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED: 10/2/2016 *SR BHATNAGAR* COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR