M/s R R Logic Systems Private Limited , Bangalore V. Income Tax Officer Ward-5(1)(1), Bangalore

ITA 1096/BANG/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0643 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 04-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RENUGA DEVI J
• Assessee Lawyers: RISHABH SINGHVI
• Keywords: Principle of natural justice; Deemed dividend; Set aside
• Section: 2(22)(e); 40(a)(ia); 40a(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI B.R BASKARAN , ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.1096/BANG/2018 ASSESSMENT YEAR : 2013-14 M/S R.R LOGIC SYSTEMS PVT. LTD., NO.89, 1 ST FLOOR, V.M COSMA KARTHIK NAGAR, MARATHAHALLI OUTER RING ROAD BENGALURU-560 037. PAN AAFCR 2317 D VS. THE INCOME-TAX OFFICER, WARD-5(1)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI RISHABH SINGHVI, C.A RESPONDENT BY : SMT. P RENUGA DEVI, J.C.I.T (DR) DATE OF HEARING : 27.11.2019 DATE OF PRONOUNCEMENT : 19.12.2019 O R D E R PER B.R BASKARAN, ACCOUNTANT MEMBER : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 1/11/2017 PASSED BY LD CIT(A)-5, BENGALURU AND IT R ELATES TO THE ASST. YEAR 2013-14. 2. THE GROUNDS OF APPEAL URGED BY THE ASSESSEE RELA TES TO THE FOLLOWING 2 ISSUES :- A) ADDITION OF DEEMED DIVIDEND MADE U/S 2(22)(E) OF THE ACT. B) ADDITION MADE U/S 40A(IA) OF THE ACT FOR NON DEDUCTION OF TAX DEDUCTED AT SOURCE. ITA NO.1096 /BANG/2018 PAGE 2 OF 6 3. THE ASSESSEE IS ENGAGED IN PROVIDING SOFTWARE CONSULTANCY SERVICES FOR SEMI CONDUCTOR INDUSTRY. 4. THE FIRST ISSUE RELATES TO ADDITION MADE U/ S 2(22)(E) OF THE ACT AS DEEMED DIVIDEND. THE AO NOTICED THAT TH E ASSESSEE HAS ADVANCED LOAN OF RS.12.67 LAKHS TO ONE OF THE DIRECTORS OF THE COMPANY WHO HELD MORE THAN 10% OF SHARES IN THE ASSESSEE COMPANY. SINCE THE ASSESSEE COMPAN Y IS CLOSELY HELD COMPANY, THE AO INVOKED THE PROVISION OF SEC. 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE CO MPANY, WHICH HAS ACTUALLY LENT THE MONEY TO ITS SHAREHOLDE R. THE AO ALSO NOTICED THAT THE ASSESSEE COMPANY HAD ACCUM ULATED PROFITS TO THE TUNE OF LOAN GIVEN BY THE ASSESSEE C OMPANY TO THE DIRECTOR. ACCORDINGLY HE ASSESSED LOAN AMOUNT OF RS.12.67 LAKHS AS DEEMED DIVIDEND IN THE HANDS OF A SSESSEE COMPANY U/S 2(22)(E) OF THE ACT. THE LD CIT(A) ALS O CONFIRMED THE SAME. 5. THE LD AR SUBMITTED THAT THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT RELATING TO DEEMED DIVIDEND HAS TO BE AP PLIED IN THE HANDS OF THE SHAREHOLDER ONLY AND NOT IN THE H ANDS OF THE ASSESSEE COMPANY, BEING THE PAYER OF THE LOAN O R ADVANCE. HE SUBMITTED THAT THE ASSESSEE HEREIN HAS ADVANCED MONEY TO ONE OF THE DIRECTORS AND HENCE TH E CAUSE OF ACTION U/S 2(22)(E) OF THE ACT SHALL ARISE IN TH E HANDS OF THE SHAREHOLDER ONLY. ACCORDINGLY HE SUBMITTED THA T THE LD ITA NO.1096 /BANG/2018 PAGE 3 OF 6 CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE AO IN THE HANDS OF THE ASSESSEE COMPANY. 6. THE LD DR SUPPORTED THE ORDER PASSED BY THE LD C IT(A). 7. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. SECTION 2(22) OF THE ACT DEFINES THE WORD DIVIDEND AND, AS PER CLAUSE (E) THEREOF, THE LOAN OR ADVAN CE GIVEN TO A SHAREHOLDER WHO IS BENEFICIAL OWNER OF SHARES (N OT BEING SHARES ENTITLED TO FIXED RATE OF DIVIDEND WHETHER W ITH OR WITHOUT RIGHT IN PARTICIPATING PROFITS) HOLDING NOT LESS THAN 10% OF THE VOTING POWER OR LOAN GIVEN TO ANY CONCER N IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST OR ANY PAYMENT F OR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER IS TREAT ED AS DIVIDEND, WHICH IS CALLED AS DEEMED DIVIDEND. HO WEVER THE QUANTUM OF DEEMED DIVIDEND SHALL BE RESTRICTED TO T HE EXTENT OF ACCUMULATED PROFITS POSSESSED BY THE COMPANY. H ENCE PROVISIONS OF SEC.2(22)(E) OF THE ACT HAS TO BE APP LIED IN THE HANDS OF THE SHAREHOLDER ONLY AND NOT IN THE HANDS OF THE COMPANY WHICH HAS GIVEN THE LOAN OR ADVANCES. HENC E WE ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIE D IN CONFIRMING THE ASSESSMENT OF DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE LD CIT(A) ON THIS ISSUE AND DIRECT TH E AO TO DELETE THE ADDITION. ITA NO.1096 /BANG/2018 PAGE 4 OF 6 8. THE NEXT ISSUE RELATES TO ADDITION MADE U/S 40(A )(IA) OF THE ACT. THE AR SUBMITTED THAT THE ASSESSEE HAD PA ID RENT OF RS.4,43,250/- AND AUDIT FEE OF RS.65,000/- WITHO UT DEDUCTING TAX AT SOURCE. ACCORDINGLY THE AO DISALL OWED THE BOTH THE ABOVE SAID AMOUNTS AGGREGATING TO RS.4,97, 250/- U/S 40(A)(IA) OF THE ACT. THE LD CIT(A) ALSO CONFI RMED THE SAME. THE LD AR SUBMITTED THAT THE RECIPIENTS OF A BAOVE SAID AMOUNTS HAVE DECLARED THE SAME IN THEIR HANDS AS INCOME AND HENCE THE ASSESSEE SHOULD BE GRANTED BEN EFIT OF SECOND PROVISO TO SEC. 40(A)(IA) OF THE ACT. 8. WE HEARD THE LD DR ON THIS ISSUE AND PERUSED THE RECORD. IN THE INTEREST OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT THE ASSESSEE MAY BE PROVIDED WITH ONE MORE OPPORTUNITY IN THIS REGARD. ACCORDINGLY WE SET ASI DE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING IT AFRESH IN AC CORDANCE WITH LAW. 9. IN THE RESULT, THE APPEAL OF THE ASSESS EE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DECEMBER, 2019. SD/ - (BEENA PILLAI) JUDICIAL MEMBER SD/ - (B.R BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED, 19 TH DECEMBER, 2019. / VMS / ITA NO.1096 /BANG/2018 PAGE 5 OF 6 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.