ACIT, New Delhi V. M/s. Oxford Softeck Pvt. Ltd, New Delhi

ITA 1138/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4250 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 28-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MONGA
• Keywords: Deemed dividend

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES E: NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO.1138/DEL/2011 ASSESSMENT YEAR: 2005-06 ACIT, VS. OXFORD SOFTECK PVT. LTD., CIRCLE 13(1), 48, BASANT LOK, C.R. BLDG., I.P. ESTATE, VASANT VIHAR, NEW DELHI. NEW DELHI. AAACO4916E (APPELLANT) (RESPONDENT) APPELLANT BY : SH. A.K. MONGA, SR. DR RESPONDENT BY : NONE ORDER PER I.P. BANSAL, J.M. THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DI RECTED AGAINST ORDER PASSED BY LD. CIT(A) DATED 16.11.2010 FOR A.Y. 2005 -06. GROUNDS OF APPEAL READ AS UNDER: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS. 45,48,330/- MADE BY THE AO U/S 2(22)(E) OF THE I.T. ACT. 2. THAT THE APPELLANT CRAVES TO BE ALLOWED TO ADD A NY FRESH GROUNDS OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE COMPANY AS ON 31.3.2005 HAD AD VANCED A LOAN OF RS. 26,66,722/- TO SHRI NARESH KUMAR WHO WAS DIRECT OR AND WAS HOLDING ITA NO. 1138/DEL/2011 2 90% OF THE SHARE OF THE ASSESSEE COMPANY. THE AO I SSUED SHOW CAUSE NOTICE TO THE ASSESSEE COMPANY AS TO WHY THE SAID A MOUNT SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE INCO ME TAX ACT, 1961 (ACT) AND FROM THE DETAIL SUBMITTED, IT WAS NOTICED THAT THE MAXIMUM AMOUNT OF LOAN OUTSTANDING ON A PARTICULAR DAY WAS AN AMOUNT OF RS. 45,48,330/- IN THE MONTH OF JUNE, 2004 AND THE SAID AMOUNT HAS BEE N TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY BY AP PLYING THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT. LD. CIT(A) HAS DELETE D SUCH ADDITION ON THE GROUND THAT THE ADDITION, IF ANY, COULD NOT BE MADE IN THE HANDS OF THE ASSESSEE COMPANY BEING PAYER OF THE AMOUNT AND IF T HE SAME COULD BE ADDED ONLY IN THE HANDS OF THE DIRECTOR SHRI NARESH KUMAR. HE HAS ALSO DIRECTED THE AO TO ADD THE SAID AMOUNT OF RS. 45,48 ,330/- AS DEEMED DIVIDEND U/S 2(22)(E) IN THE HANDS OF SHRI NARESH K UMAR. IT IS AGAINST THOSE OBSERVATIONS OF LD. CIT(A) THE REVENUE HAS FILED TH E AFOREMENTIONED APPEAL. WHILE HOLDING THAT THE SAID AMOUNT COULD NOT BE ADD ED TO THE INCOME OF THE ASSESSEE COMPANY LD. CIT(A) HAS RELIED UPON FOLLOWI NG DECISIONS: - 1. CIT VS. RAJ KUMAR 181 TAXMAN 155 (DEL.), WHERE IN TRACING THE HISTORY OF SEC. 2(22)(E) WHICH CONTAINED IN SEC. 2(6A) OF I NDIAN INCOME TAX ACT, 1922, IT WAS OBSERVED THAT THE PURPOSE OF BRINGING SUCH PROVISION WAS PLAINLY TO BRING WITHIN THE TAX NET ACCUMULATED PRO FITS WHICH ARE DISTRIBUTED BY CLOSELY HELD COMPANIES TO ITS SHAREHOLDERS IN TH E FORM OF LOANS. THE PURPOSE BEING THAT PERSONS, WHO MANAGED SUCH CLOSEL Y HELD COMPANIES, SHOULD NOT ARRANGE THEIR AFFAIRS IN A MANNER THAT T HEY ASSIST THE SHAREHOLDERS IN AVOIDING THE PAYMENT OF TAXES BY HA VING THESE COMPANIES ITA NO. 1138/DEL/2011 3 PAY OR DISTRIBUTE, WHAT WOULD LEGITIMATELY BE DIVID END IN THE HANDS OF THE SHAREHOLDERS, MONEY IN THE FORM OF AN ADVANCE OR LO AN. 2. ACIT VS. BHAUMIK COLOURS PVT. LTD. 27 SOT 270 ( SB) (MUM.), WHEREIN ANSWER TO THE QUESTION WHETHER DEEMED DIVIDEND ASS ESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDE R COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER WAS ANSWERED IN AFFIRMATION. 3. CIT VS. HOTEL HILTOP 213 ITR 116, WHEREIN IT WA S HELD THAT DEEMED DIVIDEND CANNOT BE BROUGHT TO TAX IN THE HANDS OF A NON-SHAREHOLDER. 4. C.P. SARTHI MUDALIA 83 ITR 170 (SC) WHILE CONSI DERING THE PROVISIONS OF SEC. 2(6A)(E) OF INCOME TAX ACT, 1922, IT WAS HELD THAT SHAREHOLDER IN THE CONTEXT OF DEEMED DIVIDEND REFERRED TO ONLY REGISTE RED SHAREHOLDER. 3. NOTICE OF HEARING WAS SENT TO ASSESSEE. HOWEVER , ON THE FIXED DATE OF HEARING NONE APPEARED ON BEHALF OF ASSESSEE. HE NCE, WE PROCEED TO DECIDE THE PRESENT APPEAL, EX-PARTE QUA THE ASSESSE E AFTER HEARING LD. DR. 4. AFTER NARRATING THE FACTS, LD. DR RELYING UPON T HE ASSESSMENT ORDER PLEADED THAT AO WAS RIGHT IN MAKING ADDITION IN THE HANDS OF THE ASSESSEE COMPANY AND IT HAS WRONGLY BEEN DELETED BY LD. CIT( A). HE PLEADED THAT ORDER OF CIT(A) SHOULD BE SET ASIDE AND THAT OF AO BE RESTORED. 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION OF L D. DR. WE HAVE ALSO CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AS WELL AS ORDER PASSED ITA NO. 1138/DEL/2011 4 BY LD. CIT(A). WE HAVE ALSO CAREFULLY GONE THROUGH THE CASE LAW RELIED UPON BY LD. CIT(A) THE SUBSTANCE OF WHICH HAS ALREA DY BEEN MENTIONED IN THE EARLIER PART OF THIS ORDER. SEC. 2(22) DEFINES DIVIDEND AND CLAUSE (E) READ AS UNDER: - 2(22) DIVIDEND INCLUDES (A) TO (E).. (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 31.5.1987, BY WAY OF ADVAN CE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BE NEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICI PATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTI AL INTEREST (HEREINAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHA LF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER , TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSE S ACCUMULATED PROFITS. 6. THE BARE PERUSAL OF AFOREMENTIONED PROVISION WOU LD SHOW THAT THE PAYMENT WOULD ACQUIRE THE ATTRIBUTE OF A DIVIDEND I F THE FOLLOWING CONDITIONS ARE FULFILLED: - (I) THE COMPANY MAKING THE PAYMENT IS ONE IN WHI CH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED. (II) MONEY SHOULD BE PAID BY THE COMPANY TO A SHARE HOLDER HOLDING NOT LESS THAN TEN PER CENT (10%) OF THE VOT ING POWER ITA NO. 1138/DEL/2011 5 OF THE SAID COMPANY. IT WOULD MAKE NO DIFFERENCE I F THE PAYMENT WAS OUT OF THE ASSETS OF THE COMPANY OR OTH ERWISE. (III) THE MONEY SHOULD BE PAID EITHER BY WAY OF AN ADVANCE OR LOAN OR IT MAY BE ANY PAYMENT WHICH THE COMPAN Y MAY MAKE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF ANY SHAREHOLDER OR ALSO TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH H E IS SUBSTANTIALLY INTERESTED. (IV) AND LASTLY, THE LIMITING FACTOR BEING THAT THE SE PAYMENTS MUST BE, TO THE EXTENT OF ACCUMULATED PROFITS, POSS ESSED BY SUCH A COMPANY. 7. IF IT IS SUPPOSED THAT ALL THE CONDITIONS ARE FU LFILLED BUT THEN ALSO THE SAME CANNOT BE ADDED AS INCOME IN THE HANDS OF THE PAYER COMPANY AS SUCH AMOUNT CAN BE ADDED ONLY TO THE INCOME OF A PE RSON AS DIVIDEND WHO IS A SHAREHOLDER TO WHOM SUCH LOAN AND ADVANCES MAD E. KEEPING IN VIEW THESE FACTS AND THE AFOREMENTIONED CASE LAW RELIED UPON BY LD. CIT(A) AND ALSO THE PROVISIONS OF THE ACT, WE ARE OF THE OPINI ON THAT ADDITION IN THE HANDS OF THE ASSESSEE COMPANY HAS RIGHTLY BEEN DELE TED BY LD. CIT(A) AND TO THAT EXTENT WE UPHOLD HIS ORDER AND IT IS HELD T HAT ADDITION HAS RIGHTLY BEEN DELETED IN THE HANDS OF THE ASSESSEE COMPANY. HOWEVER, TO ASSESS ANY AMOUNT AS DIVIDEND IN THE HANDS OF THE RECIPIEN T, ONE HAS TO SEE THAT WHETHER OR NOT ALL THE AFOREMENTIONED FOUR CONDITIO NS AS CONTAINED IN PROVISION OF SEC. 2(22)(E) ARE FULFILLED OR NOT AND UNLESS THE CONDITIONS SPECIFIED IN SEC. 2(22)(E) ARE FULFILLED, IT CANNOT BE SAID THAT THE SAID AMOUNT STRAIGHTWAY IS LIABLE TO BE ASSESSED IN THE HANDS O F THE RECIPIENT. THEREFORE, THE DIRECTIONS OF LD. CIT(A) THAT THE SAID AMOUNT S HOULD BE ADDED IN THE ITA NO. 1138/DEL/2011 6 HANDS OF SHRI NARESH KUMAR ARE MODIFIED TO THE EXTE NT THAT THE SAME CAN BE ADDED IN THE HANDS OF SHRI NARESH KUMAR IF THE L OAN AND ADVANCE IS ASSESSABLE AS DEEMED DIVIDEND AS PER PROVISIONS OF LAW AND SAID SHRI NARESH KUMAR SHOULD BE GRANTED WITH A REASONABLE OP PORTUNITY OF HEARING BEFORE ADDING THE SAID AMOUNT TO HIS INCOME AS THIS WILL BE THE BARE REQUIREMENT OF LAW TO AFFORD THE REASONABLE OPPORTU NITY TO OTHER PERSON, IF ANY, ACTION IS TAKEN AGAINST HIM. WE, THEREFORE, F OUND NO JUSTIFICATION IN THE DIRECTION GIVEN BY LD. CIT(A) TO THE AO TO STRAIGHT WAY ADD THE SAID AMOUNT IN THE HANDS OF SHRI NARESH KUMAR AS IT WILL BE THE RE QUIREMENT OF LAW TO GIVE HIM A REASONABLE OPPORTUNITY OF HEARING AND THEREAF TER TO DECIDE THE ISSUE AS PER PROVISIONS OF LAW THAT WHETHER OR NOT THE SA ID AMOUNT CAN BE ADDED TO THE INCOME OF SHRI NARESH KUMAR. WITH THESE OBS ERVATIONS, WE DISMISS THE APPEAL FILED BY THE REVENUE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28.04.201 1 SD/- SD/ - (K.G. BANSAL) (I.P. BANSAL) ACCOUNTANT MEMBE R JUDICIAL MEMBER * KAVITA DATED: ITA NO. 1138/DEL/2011 7 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT