M/s. Mahagun Technologies Pvt. Ltd., New Delhi V. ACIT, New Delhi

CO 356/DEL/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6736 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 30-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RA J TANDON
• Assessee Lawyers: DEEPAK K JETHWANI
• Keywords: Deemed dividend; Validity of assessment
• Section: 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO.4316/DEL/2011 ASSESSMENT YEAR : 2007-08 ACIT, CENTRAL CIRCLE-03, ROOM NO.355, 3 RD FLOOR, JHANDEWALAN EXTENSION, NEW DELHI 110 055. VS. MAHAGUN TECHNOLOGIES PVT. LTD., B-66, VIVEK VIHAR, NEW DELHI. PIN : AACCB3143L C.O.NO.356/DEL/2011 (ITA NO.4316/DEL/2011) ASSESSMENT YEAR : 2007-08 MAHAGUN TECHNOLOGIES PVT. LTD., B-66, VIVEK VIHAR, NEW DELHI. PIN : AACCB3143L VS. ACIT, CENTRAL CIRCLE-03, ROOM NO.355, 3 RD FLOOR, JHANDEWALAN EXTENSION, NEW DELHI 110 055. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK K. JETHWANI, ADVOCATE REVENUE BY : SHRI RAJ TANDON, CIT, DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJE CTIONS BY THE ASSESSEE. THEY ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 16 TH AUGUST, 2011 FOR ASSESSMENT YEAR 2007-08. GROUNDS OF APPEAL READ AS UNDER:- ITA NO.4316/DEL/2011 C.O. NO.356/DEL/2011 2 ITA NO.4316/DEL/2011 1. THAT THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.58,03,316/- MADE O N ACCOUNT OF DEEMED DIVIDEND U/S 2 (22)(E) OF THE INCOME TAX A CT, 1961. 2 (A) THE ORDER OF THE CIT (A) IS ERRONEOUS AND NOT TE NABLE IN LAW AND ON FACTS. (B) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR DEMAND ANY/ALL OF THE GROUND OF APPEAL BEFORE OR DURING THE COURSE OF TH E HEARING OF THE APPEAL. GROUNDS OF CROSS OBJECTIONS 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION OF RS.58,03,316/- ON ACCOUNT OF DEEMED DIVIDEND U/S 2 ( 22)(E) OF THE ACT. 2. THE LD. CIT (A) IS ERRED UNDER THE LAW WHILE HOLD ING THAT A.O. HAS A VALID JURISDICTION U/S 153A OF THE ACT. 3. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, THE A CTION OF LD. A.O. IN MAKING ADDITIONS/DISALLOWANCES IN THE IMPUGNED ORDER AND IN FRAMING THE IMPUGNED ASSESSMENT ORDER IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THAT THE CROSS OBJECTOR CRAVES THE LEAVE TO ADD, AMEND , MODIFY, DELETE ANY OF THE GROUND (S) OF CROSS OBJECTIO N BEFORE OR AT THE TIME OF HEARING. 2. AT THE OUTSET, IT MAY BE MENTIONED THAT THE ASSESSEE COMPANY HAS SOUGHT ADJOURNMENT OF THE PRESENT APPEALS. HOWEVER , IT WAS FOUND THAT THE ISSUE IS COVERED BY THE DECISION OF HONBLE JU RISDICTIONAL HIGH COURT, THEREFORE, THE ADJOURNMENT WAS DENIED AND THE APPEAL AND THE CROSS OBJECTIONS WERE PROCEEDED TO BE HEARD. 3. AS IT CAN BE SEEN FROM THE GROUNDS OF APPEAL FILED BY THE REVENUE, THE GRIEVANCE OF THE REVENUE IS LIMITED TO THE DELETION OF A SUM OF ` 58,03,316/- ADDED TO THE INCOME OF THE ASSESSEE U/S 2(22)(E) OF THE ACT. THE ASSESSEE IN ITS CROSS OBJECTIONS HAS SUPPORT ED THE ITA NO.4316/DEL/2011 C.O. NO.356/DEL/2011 3 ORDER OF THE CIT (A) VIDE WHICH THE ADDITION HAS BEE N DELETED AND THE ASSESSEE IS ALSO CHALLENGING THE VALIDITY OF ASSESSMENT ORDER U/S 153A. IT MAY BE MENTIONED HERE THAT THE ONLY ADDITION MAD E TO THE RETURN OF INCOME IN THE ASSESSMENT PROCEEDINGS IS A SUM OF ` 58,03,3 16/-. IF IT IS FOUND THAT THE SAID ADDITION HAS RIGHTLY BEEN DELETE D BY THE CIT (A), THEN, THE CROSS OBJECTIONS FILED BY THE ASSESSEE WILL BECO ME INFRUCTUOUS OR ACADEMIC. 4. THE ASSESSEE COMPANY HAS RECEIVED A SUM OF ` 58,03,316 /- ON VARIOUS DATES FROM MAHAGUN DEVELOPERS LTD. WHICH IS A N ASSOCIATE CONCERN OF THE ASSESSEE. THE ASSESSING OFFICER AFTER ANALY ZING THE PERSONS HOLDING THE SHARES OF BOTH THESE COMPANIES HAS COM E TO THE CONCLUSION THAT SHRI AMIT JAIN, SHRI DHIRAJ JAIN AND SHRI RAJESH JAIN WERE COMMON SHAREHOLDERS OF BOTH THESE COMPANIES AND IN MAHA GUN DEVELOPERS LTD. THESE PERSONS WERE HOLDING 60% SHARES OF 20% EACH AND IN THE ASSESSEE COMPANY THESE THREE PERSONS ARE SHAREHO LDERS HAVING 35% EACH IN THE NAME OF AMIT JAIN AND DHIRAJ JAIN AND 30% IN THE NAME OF RAJESH JAIN. ON THESE FACTS, LD. ASSESSING OF FICER HAS APPLIED THE PROVISIONS OF SECTION 2 (22)(E) OF THE AC T AND ADDED THE SAID AMOUNT TO THE INCOME OF THE ASSESSEE. IT IS NOT EVE N THE CASE OF ASSESSING OFFICER THAT THE ASSESSEE COMPANY IS SHAREHOLDER OF MAHAGUN DEVELOPERS LTD. AS THE ENTIRE 100% HOLDING OF THE SAID COMPANY IS DESCRIBED IN THE TABLE GIVEN AT PAGE 2 OF THE ASSESSMENT ORDER WHICH READ AS UNDER:- S.NO. NAME NO. OF SHARES PERCENTAGE OF SHAREHOLDING 1. AMIT JAIN 10,000 20% 2. DHIRAJ JAIN 10,000 20% 3. RAJESH JAIN 10,000 20% 4. SWADESH JAIN 6 ,000 12% 5. DIVYA JAIN 4 ,000 8 % 6. RACHNA JAIN 6 ,000 12% 7. SHRUTI JAIN 4 ,000 8 % ITA NO.4316/DEL/2011 C.O. NO.356/DEL/2011 4 5. LEARNED CIT (A) HAS DELETED THE SAID ADDITION. TH E NATURE OF ALL THESE PAYMENTS HAS BEEN DESCRIBED IN PARA 10 OF THE ORD ER OF THE CIT (A) WHICH IS AS UNDER:- DATE AMOUNT NATURE OF PAYMENT 28.06.2006 3,48,000.00 LEASE RENT TO NOIDA ON BEHALF OF APPELLANT 30.03.2007 4,50,000.00 ADVANCE RENT TOWARD SPACE 31.03.2007 19,68,769.00 30.36,547.00 EXPENSES FOR AIR CONDITIONING OF THE SPACE EXPENSES FOR BUILDING RENOVATION OF THE SPACE TOTAL 58,03,316.00 6. AFTER ANALYZING THE FACTS OF THE CASE, LEARNED CIT (A) HAS HELD THAT (I) THERE IS NO PAYMENT TO COMMON SHAREHOLDER I. E., SHRI DHIRAJ JAIN; (II) THERE IS NO PAYMENT TO ANY CONCERN IN WHI CH HE HAS SUBSTANTIAL INTEREST I.E., THE ASSESSEE COMPANY; (III) THERE IS NO PA YMENT ON BEHALF OF SHRI DHIRAJ JAIN FOR HIS INDIVIDUAL BENEFIT; (IV) NO PAYMENT HAS BEEN MADE BY MAHAGUN DEVELOPERS LTD. TO THE ASSESSEE COMPANY AND, IN THESE CIRCUMSTANCES, HE HAS HELD THAT THE SAID AMOUNT CA NNOT BE ADDED TO THE INCOME OF THE ASSESSEE. HE HAS ALSO REFERRE D TO THE RECENT DECISION OF HONBLE DELHI HIGH COURT IN THE C ASE CIT VS. ANKITECH (P) LTD. 242 CTR 129 (DEL) IN WHICH IT HAS BEEN HELD THAT THE ADDITION IF ANY HAS TO BE MADE IN THE HANDS OF THE COMMON BENEFIC IARY SHAREHOLDERS AND NOT IN THE HANDS OF THE CONCERN WHICH HAS BEEN BENEFITED BY THE LOANS AND ADVANCES. 7. AFTER NARRATING THE FACTS, THE LEARNED DR HAS RELI ED ON THE FOLLOWING DECISIONS:- I) CIT VS. NATIONAL TRAVEL SERVICES 202 TAXMANN 327 ( DEL); II) CIT VS. SUNIL CHOPRA 201 TAXMAN 316 III) MRS. KIRAN BANSAL VS. ACIT 131 ITD 575 ITA NO.4316/DEL/2011 C.O. NO.356/DEL/2011 5 8. ON THE OTHER HAND, THE LEARNED AR RELIED UPON TH E ORDER OF THE CIT (A). 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. AS PER THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ANKIT ECH (P) LTD. (SUPRA) IT IS NOW A WELL SETTLED POSITION THAT A CONCERN WHICH IS GIVEN THE LOAN OR ADVANCE, IF IS NOT A SHAREHOLDER/MEMBER OF THE PAY ER COMPANY, THEN, IN NO CIRCUMSTANCES IT WILL BE TREATED AS SHAREHO LDER OR MEMBER RECEIVING THE DIVIDEND. LEARNED CIT (A) HAS GIVEN T HE RELIEF TO THE ASSESSEE ON THE BASIS OF THE AFOREMENTIONED DECISION OF HO NBLE DELHI HIGH COURT. THERE IS NO INFIRMITY IN SUCH FINDINGS RE CORDED BY THE CIT (A) THAT THE AFORESAID AMOUNT COULD NOT BE ASSESSED AS DE EMED DIVIDEND IN THE HANDS OF THE ASSESSEE. 10. SO FAR AS IT RELATES TO THE CASE LAWS RELIED UPON B Y THE LEARNED DR, WE FIND THAT NONE OF THEM IS APPLICABLE TO THE F ACTS OF THE PRESENT CASE. IN THE DECISION IN THE CASE OF CIT VS. NATIONAL TRAVEL SERVICES (SUPRA) THE ASSESSEE WAS A PARTNERSHIP CONCERN AND THE PA RTNER OF THE ASSESSEE CONCERN HAD RECEIVED AMOUNTS WHICH WERE HELD TO BE DIVIDEND IN THE HANDS OF THE PARTNER AND THAT WAS SOLE LY FOR THE REASON THAT IN LAW THE PARTNERSHIP FIRM IS SYNONYM OF THE PAR TNERS. IT WILL BE RELEVANT TO REPRODUCE THE FOLLOWING OBSERVATIONS FROM THE DECISION:- 21. NO DOUBT, WHEN SECTION 2 (22)(E) OF THE ACT ENACTS A DEEMING PROVISION, IT HAS TO BE STRICTLY CONSTRUED. AT TH E SAME TIME, IT IS ALSO TRITE THAT SUCH A DEEMING PROVISION HAS TO BE TAKEN TO ITS LOGICAL CONCLUSION. IF THE PARTNERSHIP FIR M WHICH HAS PURCHASED THE SHARES IS NOT TREATED AS SHAREHOLDER MERE LY BECAUSE THE SHARES WERE PURCHASED IN THE NAME OF THE P ARTNERS, THAT TOO BECAUSE OF THE LEGAL COMPULSION THAT SHARES COUL D NOT BE ALLOTTED TO THE SAID PARTNERSHIP FIRM WHICH IS A NON LEGAL ENTITY, IT WOULD BE IMPOSSIBLE FOR SUCH A CONDITION TO B E FULFILLED. THAT IS NOT THE PURPOSE OF LAW. THE PARTNERSHIP FIRM I S SYNONYM OF THE PARTNERS. AS PER THE CIRCULAR ISSUED BY THE SEB I DATED 13 TH MARCH, 1975 INTERPRETING SECTION 187 (C) OF THE COMPAN IES ITA NO.4316/DEL/2011 C.O. NO.356/DEL/2011 6 ACT, RELIED BY THE LEARNED COUNSEL FOR THE ASSESSEE HI MSELF, A PARTNERSHIP FIRM IS NOT A PERSON CAPABLE OF BEING A MEMBER WITHIN THE MEANING OF SECTION 47 OF THE COMPANIES ACT. IT IS FURTHER EXPLAINED THAT SINCE A PARTNERSHIP FIRM IS NOT A LEGAL ENTITY BY ITSELF BUT ONLY A COMPENDIOUS WAY OF DESCRIBI NG THE PARTNERS CONSTITUTING THE FIRM, IT IS NECESSARY THAT THE NAM ES OF ALL THE MEMBERS OF THE PARTNERSHIP FIRM SHOULD BE ENTER ED IN THE REGISTER OF MEMBERS. OBVIOUSLY THEN, WITH THE PURCHASE OF SHARES BY THE FIRM IN THE NAME OF ITS PARTNERS, IT IS TH E FIRM WHICH IS TO BE TREATED AS SHAREHOLDER FOR THE PURPOSES OF SECTION 2 (22)(3) OF THE ACT. 11. IN THE CASE OF CIT VS. SUNIL CHOPRA (SUPRA) THE ASSE SSEE HIMSELF WAS A SHAREHOLDER. IT WAS FOUND BY THE HONBLE HIGH C OURT THAT THE ASSESSING OFFICER HAD RECORDED THAT THE ASSESSEE WAS REQUIRE D TO PRODUCE CERTIFICATE FROM THE REGISTRAR OF COMPANIES I N SUPPORT OF HIS CONTENTION THAT SHARES HAD INDEED BEEN ALLOTTED TO TH E INVESTING COMPANIES, BUT, THE ASSESSEE HAD PRODUCED NO EVIDENCE RE GARDING THE ALLOTMENT OF SHARES. WHAT WAS STATED BY THE ASSESSEE WAS AC CEPTED BY THE TRIBUNAL, HENCE, ON FACTS, IT WAS FOUND THAT T HERE WAS PERVERSITY AND INFIRMITY IN THE FINDINGS RECORDED BY THE TRIBUN AL. IT COULD NOT BE ESTABLISHED BY THE ASSESSEE THAT HE WAS NOT A SHAREHOLDER O F THE COMPANIES WHO HAD GIVEN THE MONEY AND, THUS, THE ORDE R OF THE ASSESSING OFFICER WAS UPHELD ON THE GROUND THAT THE ASSESSEE IN THAT CASE WAS SHAREHOLDER OF THAT COMPANY, THEREFORE, THE P ROVISIONS OF SECTION 2 (22)(E) WERE HELD APPLICABLE. 12. HOWEVER, IN THE PRESENT CASE IT HAS BEEN DEMONSTRAT ED THAT THE ASSESSEE COMPANY IS NOT A SHAREHOLDER OF THE PAYER COMPAN Y AND ON THE FACTS OF THE CASE THE DECISION OF HONBLE DELHI HI GH COURT IN THE CASE OF CIT VS. ANKITECH (P) LTD. IS APPLICABLE. 13. THE DECISION IN THE CASE OF MRS. KIRAN BANSAL VS. AC IT (SUPRA) IS ALSO NOT APPLICABLE AS IN THAT CASE THE PAYER COMPANY PAID A SUM OF ` 3.17 LAC TO THE ASSESSEE WHO WAS HOLDING MORE THAN 20% V OTING POWER IN THE COMPANY. IT WAS THE CASE OF THE ASSESSEE THAT THE SAID AMOUNT ITA NO.4316/DEL/2011 C.O. NO.356/DEL/2011 7 COULD NOT BE ASSESSED IN HER HAND AS THE SAID AMOUNT WAS R ECEIVED BY HER ON ACCOUNT OF SECURITY DEPOSIT AND OTHER ADVANCES. THUS, THE SAID CASE HAS NO BEARING ON THE FACTS OF THE PRESENT CASE. 14. IN VIEW OF THE ABOVE DISCUSSION, WE FIND NO INFIRM ITY IN THE ORDER OF THE CIT (A) VIDE WHICH THE IMPUGNED ADDITION HAS BEEN DELETED. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ALSO DISMISSED WHICH HAVE BECOME INFRUCTUOUS OR ACADEMIC. THE ORDER PRONOUNCED IN THE OPEN COURT ON 09.12.20 11. SD/- SD/- [K.D. RANJAN] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 09.12.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES