Assistant Commissioner of Income-tax, V. M/s. West Coast Lubricants and Asphalts Pvt. Ltd., Raigad

ITA 1122/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0743 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 23-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAZHAR AKRAM
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , !, # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.1122/PN/2014 ASSESSMENT YEAR : 2007-08 THE ASSTT. COMMISSIONER OF INCOME TAX, PANVEL CIRCLE, PANVEL. . APPELLANT VS. M/S WEST COAST LUBRICANTS AND ASPHALTS PVT. LTD., 138/141, JAWAHAR CO-OP. INDUSTRIAL ESTATE, KAMOTHE, KALAMBOLI, PANVEL, DIST. RAIGAD 410 209. PAN : AAACW3334Q . RESPONDENT / APPELLANT BY : SHRI MAZHAR AKRAM / RESPONDENT BY : SHRI KISHOR PHADKE / DATE OF HEARING : 30.12.2015 / DATE OF PRONOUNCEMENT: 31.12.2015 % / ORDER PER PRADIP KUMAR KEDIA, AM : THE CAPTIONED APPEAL FILED BY THE REVENUE IS AGAINS T THE ORDER OF CIT(A)-I, THANE DATED 04.02.2014 RELATING TO ASSESS MENT YEAR 2007-08 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (I N SHORT THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE ID. CIT(A)- I, THANE HAS ERRED IN DELETING THE ADDITION OF RS.3 9,26,476/- MADE U/S 2(22)(E), WITHOUT APPRECIATING THE FACT THAT ONE OF THE DIREC TORS OF THE ASSESSEE COMPANY- SHRI. NARAYAN N. SAWANT WITH 60% SHARE HOLDINGS IN THE ASSESSEE COMPANY, ALSO HOLDS MORE THAN 10% OF SHARE HOLDING IN THE SI STER CONCERNS FROM WHOM THE ASSESSEE COMPANY HAS ACCEPTED LOANS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW, THE ID. CIT(A)- I, THANE HAS FAILED IN APPRECIATING THE FACT THAT A LL THE CONDITIONS AS MENTIONED IN SECTION 2(22)(E) ARE FULFILLED IN THE CASE, AS TWO SISTER CONCERNS FROM WHOM THE ASSESSEE COMPANY HAS ACCEPTED LOANS, ARE HAVING MOR E ACCUMULATED PROFIT THAN THE AMOUNT OF LOAN ACCEPTED BY THE ASSESSEE. 2 ITA NO.1122/PN/2014 3. THE APPELLANT PRAYS THE ORDER OF THE LD. CIT(A)- I, THANE, MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY GROUND/GROUNDS, WHICH MAY BE NECESSARY. 3. BRIEFLY STATED, THE RELEVANT FACTS CONCERNING TH E ISSUES INVOLVED ARE THAT THE ASSESSEE COMPANY CARRIES ON THE BUSINESS OF MAN UFACTURING AND DEALING IN LUBRICATING OILS. DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE COMPANY RECEIVED LOANS FROM ITS SISTER CONCERNS AS UNDER :- 1. M/S ULTA LUBRICANTS PVT. LTD., MUMBAI RS. 9,0 0,000/- 2. M/S SPERRY ENGINEERING PVT. LTD., KAMOTHE RS. 8,00,524/- 3. M/S ULTA PLUS LUBES PVT. LTD., MUMBAI RS.22,25 ,952/- 3.1 SHRI NARAYAN N. SAVANT & MRS. LATA N. SAVANT HO LD 60% AND 40% SHARE HOLDING IN THE ASSESSEE COMPANY. SHRI NARAYAN N. S AVANT ALSO HOLDS MORE THAN 10% OF THE SHARE HOLDING IN THE ABOVE MENTIONE D THREE SISTER CONCERNS. THE ASSESSING OFFICER OBSERVED THAT TWO OF THE SIST ER CONCERNS HAD FOLLOWING RESERVES AS ON MARCH, 2007 :- S. NO. NAME RESERVE AS ON MARCH, 2006 RESERVE AS ON MARCH, 2007 1 M/S ULTRA PLUS LUBES PVT. LTD. 64,77,281 1,27,78, 502 2 M/S SPERRY ENGG. PVT. LTD. 26,52,315 38,18,995 3.2 THE ASSESSING OFFICER HELD THAT SINCE BOTH THE LENDER COMPANIES HAVE ACCUMULATED PROFITS IN EXCESS OF THE LOANS TAKEN AN D OTHER PARAMETERS PRESCRIBED UNDER SECTION 2(22)(E) OF THE ACT ARE SA TISFIED, LOANS RECEIVED FROM M/S ULTRA PLUS LUBES PVT. LTD. AND M/S SPERRY ENGG. PVT. LTD. DURING THE YEAR ARE CONSIDERED AS ASSESSEES INCOME IS DEEMED DIVID END FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) RELIED UPO N THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UN IVERSAL MEDICARE PVT. LTD., 324 ITR 263 (BOM) AND HELD THAT SINCE THE ASS ESSEE COMPANY ITSELF WAS NOT A SHARE HOLDER IN ANY OF THE THREE LENDING COMP ANIES, THE IMPUGNED 3 ITA NO.1122/PN/2014 ADDITION MADE BY THE ASSESSING OFFICER BY INVOKING PROVISIONS OF SECTION 2(22)(E) OF THE ACT WAS NOT SUSTAINABLE. THE RELEV ANT FINDING OF THE CIT(A) IN THIS REGARD IS REPRODUCED BELOW :- 11. I HAVE CONSIDERED THE APPELLANT'S SUBMISSIONS. AS FAR AS LOAN FROM M/S. ULTRA LUBRICANTS PVT. LTD. IS CONCERNED, IT IS SEEN THAT AMOUNT OF RS. 9,00,000/- HAS BEEN BROUGHT FORWARD FROM THE EARLIER YEARS AND NO LOAN WAS RAISED BY THE APPELLANT FROM THIS CONCERN DURING THE YEAR UNDER CONSIDERATION AS CAN BE SEEN FROM A COPY OF ACCOUNT OF THIS PARTY IN THE APPELLANT'S BOOKS OF A CCOUNT. THE APPELLANT'S CONTENTION THAT THE A.O. HAD NOT EXAMINED THE AVAILABILITY OF ACCUMULATED PROFITS IN THE CASE OF THIS CONCERN, HAS ALSO BEEN FOUND TO BE CORRECT AS THE AO IN THE ASSESSMENT ORDER HAS MENTIONED THE ACCUMULATED PROFITS OF ONLY TWO S ISTER CONCERNS AS REPRODUCED ABOVE. SIMILARLY, IN THE CASE OF M/S. SPERRY ENGINE ERING PVT. LTD. & M/S. ULTRA PLUS LUBES PVT. LTD., IT IS SEEN THAT THE LOANS RAISED B Y THE APPELLANT FROM THESE CONCERNS DURING THE YEAR UNDER CONSIDERATION WERE ONLY RS. 3 ,50,000/- & RS.3,54,344/- RESPECTIVELY. THEREFORE, THE A.O. WAS NOT JUSTIFIED IN ADDING WHOLE OF THE AMOUNTS STANDING TO THE BALANCE OF THESE SISTER CONCERNS TO THE APPELLANT'S INCOME. 12. WITH REGARD TO THE APPELLANT'S CONTENTION THAT DEEMED DIVIDEND COULD NOT HAVE BEEN TAXED IN ITS HANDS AS DEEMED DIVIDEND CAN BE TAXED ONLY IN THE HANDS OF A SHARE HOLDER, IT IS SEEN FROM THE DETAILS OF SHARE HOLDING PATTERN OF THE THREE SISTER CONCERNS, THAT THE APPELLANT IS NOT A SHARE HOLDER IN ANY OF THE ABOVE THREE SISTER CONCERNS. IN THIS REGARD, THE SPECIAL BENCH OF ITA T, MUMBAI IN THE CASE OF ACIT VS BHAUMIK COLOUR (P) LTD., 27 SOT 270, MUMBAI (SB) HE LD AS UNDER 41. IN THE LIGHT OF THE ABOVE DISCUSSION, THE QUEST IONS REFERRED TO THE SPECIAL BENCH ARE ANSWERED AS FOLLOWS - ON THE FIRST QUESTION : DEEMED DIVIDEND CAN BE ASSE SSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. ON THE SECOND QUESTION: THE EXPRESSION 'SHAREHOLDER ' REFERRED TO IN S. 2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AN D BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER THEN THE PROVISIONS OF S. 2(22)(E) WILL NOT APPLY. SIMILARLY, IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHO LDER THEN ALSO THE PROVISIONS OF S. 2(22)(E) WILL NOT APPLY. 13. THE SAME VIEW WAS TAKEN BY THE HON. MUMBAI HC I N THE CASE OF CIT VS UNIVERSAL MEDICARE PVT. LTD. 324 ITR 263 AND THE HO N. DELHI HC IN THE CASE OF CIT VS ANKITECH PVT. LTD. 340 ITR 14. CIT VS UNIVERSAL MEDICARE PVT. LTD. 324 ITR 263, MU MBAI HC THE DEFINITION DOES NOT ALTER THE LEGAL POSITION TH AT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER. CONSEQUENTLY, IN T HE PRESENT CASE THE PAYMENT, EVEN ASSUMING THAT IT WAS A DIVIDEND, WOUL D HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSESSEE BUT IN THE HANDS OF THE S HAREHOLDER. THE TRIBUNAL WAS, IN THE CIRCUMSTANCES, JUSTIFIED IN COMING TO T HE CONCLUSION THAT, IN ANY EVENT, THE PAYMENT COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE. CIT VS ANKITECH PVT. LTD., 340 ITR 14, DELHI HC IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED BY THE DEEMING PROVISION OF S.2(22)(E) AND NOT THAT OF SHAREHOLDER AND, THERE FORE, A CONCERN WHICH IS GIVEN LOAN OR ADVANCE BY A COMPANY CANNOT BE TREATE D AS SHAREHOLDER/MEMBER OF THE LATTER SIMPLY BECAUSE A S HAREHOLDER OF THE LENDER COMPANY HOLDING VOTING POWER OF 10 PER CENT OR MORE THEREIN HAS SUBSTANTIAL 4 ITA NO.1122/PN/2014 INTEREST IN SUCH CONCERN, AND SUCH LOAN OR ADVANCE CANNOT BE TREATED AS DEEMED DIVIDEND UNDER S. 2(22)(E) AT THE HANDS OF S UCH A CONCERN. 14. RELYING ON VARIOUS JUDGEMENTS AS ABOVE, IT IS H ELD THAT THE ADDITION U/S 2(22)(E) COULD NOT HAVE BEEN MADE IN THE HANDS OF T HE APPELLANT AS THE APPELLANT WAS NOT A SHARE HOLDER IN ANY OF THE THREE SISTER C ONCERNS FROM WHOM THE LOANS HAVE BEEN RAISED. THEREFORE, THE ADDITION OF RS.39,26,4 76/- MADE U/S 2(22)(E) OF THE I.T. ACT, IS DIRECTED TO BE DELETED. 5. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF UNIVER SAL MEDICARE PVT. LTD. (SUPRA) AS WELL AS IN THE CASE OF CIT VS. IMPACT CO NTAINERS (P.) LTD., (2014) 367 ITR 346 (BOM). THE ASSESSEE ALSO RELIED UPON T HE DECISION OF THE SPECIAL BENCH OF THE ITAT, MUMBAI IN THE CASE OF ACIT VS. B HAUMIK COLOUR (P) LTD., 313 ITR 146, (MUM) (SB). 6. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFICE R. 7. WE FIND THAT ASSESSEE COMPANY PER SE IS NOT THE SHAREHOLDER IN ANY OF THESE LENDING COMPANIES. IN SUCH CIRCUMSTANCES, AD DITION MADE UNDER SECTION 2(22)(E) OF THE ACT IS NOT SUSTAINABLE IN VIEW OF T HE LEGAL POSITION STATED IN THE JUDGEMENTS RENDERED BY THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF UNIVERSAL MEDICARE PVT. LTD. (SUPRA) AND IMPACT CON TAINERS (P.) LTD. (SUPRA). ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE FI NDINGS OF THE CIT(A). HENCE, THE GROUNDS RAISED BY THE REVENUE ARE DISMIS SED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS 31 ST DAY OF DECEMBER, 2015. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE ; DATED : 31 ST DECEMBER, 2015. 5 ITA NO.1122/PN/2014 % & '() *)' / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, THANE; 4) THE CIT-I, THANE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %+ / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE