LAUREN SOFTWARE P.LTD, MUMBAI V. ITO WD 9(2)(2), MUMBAI

ITA 1/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7881 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2001-2002
• Appeal Filed On: 02-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORE; MANIS H KUMAR SINGH DR S
• Assessee Lawyers: MATHURIA
• Keywords: Deemed dividend; Set aside
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 01/MUM/2017 2001-02 LAUREN SOFTWARE P. LTD., JAIN ARCADE, 3 RD FLOOR, 14 TH ROAD, KHAR (WEST), MUMBAI [PAN : AAACL5292L] THE INCOME TAX OFFICER, WARD-9(2)(2), MUMBAI 02/MUM/2017 2001-02 LAUREN INFORMATION TECHNOLOGIES P. LTD., JAIN ARCADE, 3 RD FLOOR, 14 TH ROAD, KHAR (WEST), MUMBAI [PAN : AAACL1424A] THE INCOME TAX OFFICER, WARD-9(2)(2), MUMBAI APPELLANT BY : SHRI M.S.MATHURIA, AR RESPONDENT BY : SHRI SATISHCHANDRA RAJORE, & SHRI MANISH KUMAR SINGH, DRS DATE OF HEARING : 03-05-2019 DATE OF PRONOUNCEMEN T : 01-08-2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THESE TWO APPEALS ARE FILED BY THE TWO ASSESSEES AG AINST THE TWO SEPARATE ORDERS OF THE COMMISSIONER OF INCO ME TAX (APPEALS)-20, MUMBAI. SINCE THE ISSUE IS COMMON IN BOTH OF THESE APPEALS, WE HAVE HEARD TOGETHER AND DECIDED B Y THIS COMMON ORDER. FOR THE SAKE OF CONVENIENCE, ITA NO.01/MUM/2017 IS DISCUSSED HEREUNDER IN DETAIL. 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IN THIS AP PEAL IS AGAINST THE PART CONFIRMATION OF ADDITION BY THE LD .CIT(A) TO THE ITA NOS. 01 & 02/MUM/2017 : 2 : TUNE OF RS.50,78,658/-, AS MADE BY THE AO U/S.2(22) (E) OF THE INCOME TAX ACT (ACT). 3. THE FACTS IN BRIEF ARE THAT, THIS IS THIRD ROUN D OF LITIGATION BEFORE THE TRIBUNAL AS THE ITAT VIDE ITS ORDER DT.02-06-2006 IN ITA NOS.7852/MUM/04/AY.2001-02 AND 7683/MUM/2004/AY.2001-02 HAS RESTORED THE MATTER BA CK TO THE FILE OF LD.CIT(A) FOR FRESH ADJUDICATION AND THUS, THE LD.CIT(A) VIDE ORDER DT.05-02-2008, CONFIRMED THE ADDITION U/ S.2(22)(E) OF THE ACT OF AN AMOUNT OF RS.50,78,658/- IN THE HANDS OF THE ASSESSEE-COMPANY. THEREAFTER, THE APPEAL WAS FILED BEFORE THE ITAT AND THE ITAT ONCE AGAIN VIDE ORDER DT.10-11-20 10, RESTORED THE ISSUE TO THE FILE OF AO WITH CERTAIN DIRECTIONS TO DECIDE THE ISSUE BY GIVING REASONABLE OPPORTUNITY TO THE ASSES SEE. NOW THE AO HAS, AFTER ALLOWING OPPORTUNITY TO THE ASSESSE E, FRAMED THE ASSESSMENT U/S.143(3) R.W.S.254 OF THE ACT VIDE ORD ER DT.22-10- 2012, AGAIN MAKING THE ADDITION OF RS.74,32,885/-. ACCORDING TO THE LD.AO, THE SAID ADDITION REPRESENTED THE DEE MED DIVIDEND, WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT, AS THE BUSINESS OF THE LAUREN INFORMATION TECHNOLOGY PVT. LTD., WAS NOT OF MONEY-LENDING AND ACCORDINGLY, ALL THE CONDITION S AS ENVISAGED BY SECTION 2(22)(E) OF THE ACT WERE SATISFIED AND T HUS, JUSTIFIED THE ADDITION. LD.CIT(A) PARTLY ALLOWED THE APPEAL O F ASSESSEE BY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIV VS. V.DAMODARAN (1980)[121 ITR 572] (SC) AND THUS, DIRECTED THE AO TO CONSIDER ACCUMULATED PROFIT AS ON 01-04- 2000 FOR THE PURPOSE OF DEEMED DIVIDEND AND ACCORDI NGLY DIRECTED THE AO TO EXCLUDE RS.17,29,108/- PROFITS D URING THE YEAR FROM THE ACCUMULATED PROFIT AND THUS, DIRECTED THE AO TO SUSTAIN ITA NOS. 01 & 02/MUM/2017 : 3 : THE ADDITION EQUIVALENT TO RS.50,78,658/- BY HOLDIN G THAT THE AMOUNT TO THIS EXTENT WAS ADVANCED BY THE ASSESSEE. 4. LD.CIT(A) APPENDED A CHART IN PARA 5.6 AND 5.8 A ND ACCORDINGLY HELD THAT RS.50,78,658/- HAS TO BE CONS IDERED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. 5. AFTER HEARING BOTH THE PARTIES AND PERUSING MATE RIAL ON RECORD, INCLUDING THE DOCUMENTS FILED BY THE ASSESS EE IN THE PAPER BOOK IN SUPPORT OF ITS CONTENTIONS, WE OBSERV E THAT UN- DISPUTEDLY, THE ASSESSEE AND ITS SISTER CONCERN, LA UREN INFORMATION TECHNOLOGIES P. LTD., BOTH ARE SISTER C ONCERNS AND DOING BUSINESS TRANSACTIONS WITH EACH OTHER. WE ALS O NOTE THAT THE ENTITIES HAVE ADVANCED MONEY TO EACH OTHER, WIT HOUT CHARGING INTEREST AND ACCORDINGLY, THE AUTHORITIES BELOW HAVE HELD THAT ADVANCES MADE BY THESE ENTITIES CONSTITU TE DEEMED DIVIDEND. HOWEVER, THE PERUSAL OF THE ORDER OF LD. CIT(A) AND DOCUMENTS ON RECORD REVEAL THAT BOTH THE ENTITIES H AVE BEEN ENGAGED IN TRADING OPERATIONS WITH EACH OTHER. WE ALSO NOTE THAT THE SUBSTANTIAL PAYMENT IS COMING OVER FROM THE EAR LIER YEAR AS OPENING AND NO DISALLOWANCE WAS MADE BY THE REVENUE QUA THE OPENING BALANCE AS DEEMED DIVIDEND IN THE EARLIER Y EAR. IT WAS ALSO STATED BEFORE US THAT IN THE EARLIER YEAR, TH E AMOUNT COMING OVER FROM THE EARLIER YEARS WAS ON ACCOUNT OF TRADI NG OPERATION ONLY. SIMILARLY, IN THE CURRENT YEAR, WE OBSERVE TH AT MAJOR PAYMENTS WERE MADE TOWARDS OPENING BALANCES BALANCE AND THEREAFTER AGAINST THE VARIOUS EXPENSES AND JV AMOU NTS PAYABLE. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT TO HOLD THE TRANSACTIONS OF TRADING IN NATURE ENTERED INTO IN T HE ORDINARY COURSE OF BUSINESS AS DEEMED DIVIDEND WOULD BE AGAI NST THE SPIRIT OF LAW AS ALL THESE TRANSACTIONS SEEMS TO BE NECESSITATED BY ITA NOS. 01 & 02/MUM/2017 : 4 : THE BUSINESS RELATIONSHIP BETWEEN THE TWO ENTITIES THOUGH THE SHAREHOLDER IS COMMON ON BOTH THE ENTITIES. WE HAV E EXHAUSTIVELY EXAMINED AND ANALYSED THE DOCUMENTS AN D THE ORDERS OF LOWER AUTHORITIES AND OBSERVE THAT THE TR ANSACTIONS WERE PURELY OUT OF TRADING TRANSACTIONS BETWEEN THE TWO CONCERNS THE ASSESSEE AND THE SISTER CONCERN ARE ENTERED INT O IN THE ORDINARY BUSINESS OPERATIONS AND THEREFORE DOES NOT FALL WITHIN THE AMBIT OF SECTION 2(22)(E) OF THE ACT. UNDER THE SE CIRCUMSTANCES, WE ARE INCLINED TO SET ASIDE THE ORD ER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE DISALLOWANCE . 6. IN THE RESULT, THIS APPEAL OF ASSESSEE IS ALLOWE D. ITA NO.02/MUM/2017: 7. AS FAR AS THIS APPEAL IS CONCERNED, THE ONLY ISS UE RAISED BY THE ASSESSEE IN THIS APPEAL IS ALSO AGAINST THE PAR T CONFIRMATION OF ADDITION BY THE LD.CIT(A) TO THE TUNE OF RS.17,2 9,108/-, AS MADE BY THE AO U/S.2(22)(E) OF THE ACT. SINCE THE F ACTS OF THE PRESENT CASE ARE IDENTICAL TO ONE AS DECIDED BY US IN ITA NO.01/MUM/2017 (SUPRA) AND THEREFORE OUR FINDINGS I N THE SAID APPEAL, MUTATIS MUTANDIS, WOULD APPLY TO THIS APPEA L AS WELL. HENCE, THIS APPEAL OF ASSESSEE IS ALLOWED. 8. TO SUM-UP, BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.08.2019 SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 01.08.2019 * KISHORE, SR. P.S. ITA NOS. 01 & 02/MUM/2017 : 5 : COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// BY ORDE R DY/ASSTT. REGISTRAR, ITAT, MUMBAI.