ACIT, Bangalore V. M/s Puissance De Dpk, Bangalore

ITA 1159/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5196 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 08-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Assessee Lawyers: V SRINIVASAN
• Keywords: Deemed dividend; Set aside
• Section: 143(3); 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1159(BNG)/09 (ASSESSMENT YEARS : 2004-05) ASST. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), BANGALORE. VS. M/S. PUISSANCE DE DPK, NO.109, J.C. ROAD, RAVINDRA KALAKSHETRA, BANGALORE. APPELLANT. RESPONDENT. APPELLANT BY : SMT. JACINTA ZIMIK VASHAI. RESPONDENT BY : SHRI V. SRINIVASAN. O R D E R PER SMT. P. MADHAVI DEVI, J.M. : THIS APPEAL FILED BY THE REVENUE FOR THE ASSESSMEN T YEAR 2005-06. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE LEARNED CIT(A), IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IS OPPOSED TO LAW AND CIRCUMST ANCES OF THE CASE. 2. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELET ING THE ADDITIONOFRS.31,77,000 MADE BY THE ASSESSING OFFICE R UNDER SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF DEEMED DIVIDEND. 3. THE LEARNED CIT(A) HAS ERRED IN HOLDING THA T THE DEEMED DIVIDEND UNDER SECTION 2(22)(E) IS ASSESSABLE IN THE HANDS O F THE PARTNERS AND NOT IN THE CASE OF THE FIRM. 4. THE LEARNED CIT(A) HAS ERRED IN LAW IN NOT A PPRECIATING THAT SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 COVERS FIRMS, IN WHICH SUCH SHARE HOLDER IS A PARTNER, HAVING SUBSTANTIAL INTEREST IN THE FIRM. 5. THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OFRS.1,43,419 MADE BY THE ASSESSING OFFICER UNDER SECTION 145A OF THE INCOME TAX ACT, 1961 BY INCLUDING EXCISE DUTY IN THE VALUE OF THE C LOSING STOCK. 6. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR TO DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEA RING OF THE APPEAL. ITA NO.1159(BNG)/09 - 2 - 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURE AND SERVICING OF D.G . SETS. THE ASSESSEE-COMPANY FILED ITS RETURN OF INCOME ON 31.10.2005 DECLARING A TOTA L INCOME OF RS.23,93,007. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, DETAILED VERIFICATION OF THE ASSESSEE-COMPANY WAS M ADE AND IN THE PROCESS THE ASSESSEE WAS ASKED TO PRODUCE LEDGER EXTRACTS, IN T HE BOOKS OF ACCOUNTS, OF M/S. DPK ENGINEERS (P) LTD WHERE IN THE PARTNERS (SUBSTANTIA LLY INTERESTED IN THE ASSESSEES FIRM) ARE ALSO DIRECTORS HOLDING MORE THAN 10% OF T HE SHARE HOLDING. ON EXAMINATION OF THE LEDGER EXTRACTS PRODUCED BY THE ASSESSEE, TH E ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS HAVING TWO SEPARATE LEDGERS WHEREIN ONE IS SHOWING ACTUALLY DEBIT BALANCES AND THE OTHER SHOWING DEBIT PARTY AND FINA LLY CREDIT BALANCES (IN THE BOOKS OF ACCOUNTS OF DPK LTD.) THE EXPLANATION OF THE ASSES SEE WAS CALLED FOR AND THE ASSESSEE EXPLAINED THAT DURING THE YEAR, SOME MONIES ARE REC EIVED FOR UTILIZATION BY THE ASSESSEE-FIRM AND THEY ALSO HAVE BUSINESS TRANSACT IONS OF PURCHASES AND SALES WITH M/S. DPK ENGINEERS PVT. LTD. THE ASSESSEE WAS THEN ASKED THAT WHEN THE MONEY WAS RECEIVED FROM THE ASSOCIATE COMPANY WHY IT SHOULD N OT BE TREATED AS DEEMED DIVIDEND TO THE EXTENT OF RESERVES OF THE ASSOCIATE CONCERN IN THE HANDS OF THE RECIPIENT I.E. THE ASSESSEE-FIRM. IN RESPONSE TO THE SAME, THE AS SESSEE RAISED TWO OBJECTIONS, THAT (I) THE PERSON IN RESPECT OF WHOM THE PROVISION OF SECTION 2(22)E HAS TO BE APPLIED IS THE COMPANY AND ITS SHARE HOLDERS AND TH ERE IS NOTHING IN THE SECTION SO AS TO APPLY THE PROVISION TO THE CONCERN IN WHICH THE SHA RE HOLDER IS INTERESTED AND ITA NO.1159(BNG)/09 - 3 - (II) THE CONCERN AND THE COMPANY A RE HAVING COMMERCIAL TRANSACTIONS AND NOT SUNDRY LOAN OR ADVANCE TO ATTRACT SECTION 2(22)E OF THE INCOME TAX ACT, 1961 AND THE LEDGER OF RECEIPTS SHOULD BE LOOKED INTO CONTAINING THE OVERALL TRANSACTION (I.E. MERGER OF TWO SEPARATELY MAINTAINED LEDGERS). THE ASSESSING OFFICER WAS HOWEVER NOT CONVINCED WIT H THE ASSESSEES SUBMISSION AND HELD THAT FROM THE LITERAL READING OF SECTION 2(22) E OF THE ACT, IT IS VERY MUCH CLEAR THAT THE CONCERN IN WHICH THE SHARE HOLDER (OF 10% VOTING POWER IN THE COMPANY) HAS A SUBSTANTIAL INTEREST IS ALSO WITHIN THE GAMBIT OF S ECTION 2(22)E OF THE INCOME TAX ACT, 1961 AND THE EXPLANATION 3 TO SECTION 2(22)E CLEARL Y REFERS TO CONCERNS OF SUBSTANTIAL INTEREST AND IS EFFECTIVE FROM 1.4.1988 AND BRINGS INTO THE GAMBIT OF THE SECTION, THE CONCERN ALSO. ON THE SECOND OBJECTION RAISED BY TH E ASSESSEE, THE ASSESSING OFFICER AGREED THAT BOTH THE LEDGERS HAVE TO BE MERGED AND SEEN FOR THE TOTALITY OF THE PICTURE AND THUS HE ASKED THE ASSESSEE TO GIVE A ME RGED TRANSACTIONS IN RELATION TO THE COMPANY. AFTER PERUSAL OF THE MERGED LEDGER, HE OB SERVED THAT THE ASSESSEE CONCERN HAS RECEIVED MONEY CONTINUOUSLY FROM 2.4.2004 TO 15 .4.2004 TO THE EXTENT OF RS.27,19,451 AND AFTER THAT HAS REPAID THE MONEY U PTO 24.4.2004, THUS REDUCING THE BALANCE TO RS.11,29,451 AND THEREAFTER THE ASSESSEE CONCERN RECEIVED MONEY TO THE TUNE OF RS.1,55,566 AND REPAID TO THE EXTENT OF RS. 12 LAKHS UPTO 4.5.2004 REDUCING THE DEBIT BALANCE TO RS.5,85,017. HE OBSERVED THAT THE REAFTER THE PURCHASES AND SALES HAVE COME UP AND THE ASSESSEE IS SHOWING A CREDIT B ALANCE IN THE COMPANY ACCOUNT AND ALL THE SUBSEQUENT TRANSACTIONS RESULTING IN CREDIT BALANCES AS PER THE COMPANY ACCOUNT. ITA NO.1159(BNG)/09 - 4 - AFTER PERUSAL OF THE SAME, HE HELD THAT THE ASSESSE E HAS RECEIVED 31,77,000 UPTO 4.5.2004 AS ADVANCE OR LOAN AND REPAID THE SAME DUR ING THE SAME PERIOD. HE, THEREFORE HELD THAT IT IS PURELY IN THE NATURE OF A DVANCE/LOAN, HENCE IT IS TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)E OF THE INCOME TAX ACT, 1961. REGARDING THE ASSESSEES CONTENTION THAT THE ASSESSEE IS HAVING B USINESS TRANSACTION WITH THE ASSOCIATE COMPANY AND THEREFORE THE LOAN AMOUNT CAN NOT BE TREATED AS DEEMED DIVIDEND, THE ASSESSING OFFICER RELIED UPON THE HON 'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS. JAMNADAS CHIMANJI KOTHARI (1973 ) (92 ITR 105) AND HELD THAT THE PROVISION OF SECTION 2(22)E IS APPLICABLE. HE THU S MADE THE ADDITION. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE PREFER RED AN APPEAL BEFORE THE CIT(A) WHO HELD THAT THE DEEMED DIVIDEND IS NOT ASSESSABLE IN THE HANDS OF THE FIRM BUT IS INCLUDIBLE IN THE HANDS OF THE PARTNERS/SHARE HOLDE RS ON WHOSE BEHALF OR INDIVIDUAL BENEFIT THE AMOUNT WAS PAID BY THE COMPANY TO THE F IRM. HE THUS DELETED THE ADDITION. FOR COMING TO THE CONCLUSION, THE CIT(A) RELIED UPO N THE DECISION OF HON'BLE HIGH COURT OF RAJASTHAN IN THE CASE OF CIT VS. HOTEL HI LLTOP (2008) 217 CTR 527. AGGRIEVED BY THE RELIEF GIVEN BY THE CIT(A), THE RE VENUE IS IN APPEAL BEFORE US. 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED O N THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE CLAUSE (E) OF SECTIO N 2(22) CLEARLY PROVIDES THAT ANY LOAN OR ADVANCE GIVEN TO ANY SHARE HOLDER OR ANY CO NCERN IN WHICH THE SHARE HOLDER OR A DIRECTOR HAS SUBSTANTIAL INTEREST IS TO BE TREATED AS DEEMED DIVIDEND. SHE SUBMITTED ITA NO.1159(BNG)/09 - 5 - THAT SINCE THE ASSESSEE HAS RECEIVED THE LOAN, IT I S CORRECTLY ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, SUPPORTED THE ORDER OF THE LEARNED CIT(A) AND PLACED RELIANCE ON THE DE CISION OF THE SPECIAL BENCH OF THE TRIBUNAL AT MUMBAI IN THE CASE OF ACIT VS. BHAUMIK COLOUR P. LTD. REPORTED IN 313 ITR 146 (AT). THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSEE IS HAVING REGULAR BUSINESS TRANSACTIONS WITH THE SAID COMPANY AND IT IS ALSO EVIDENT FROM THE ORDER OF THE ASSESSING OFFICER THAT THERE ARE P URCHASES AND SALES BETWEEN THE ASSESSEE AND THE COMPANY. THUS, ACCORDING TO HIM, THE PAYMENTS ARE TOWARDS THE REGULAR BUSINESS TRANSACTIONS BETWEEN THE ASSESSEE AND THE COMPANY AND THEY CANNOT COME WITHIN THE PURVIEW OF THE DEEMED DIVIDEND UNDE R SECTION 2(22)E OF THE INCOME TAX ACT, 1961. FOR THIS PURPOSE, HE PLACED RELIANC E ON THE DELHI HIGH COURT DECISION IN THE CASE OF CIT VS. AMBASSADOR TRAVELS REPORTED IN 173 TAXMAN 407. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD. 37 DTR 409 FOR THE PROP OSITION THAT EVEN IF IT IS DIVIDEND, IT WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE A SSESSEE BUT IN THE HANDS OF THE SHARE HOLDER. HE SUBMITTED THAT HON'BLE BOMBAY HIGH COURT HAS CONSIDERED THE DECISION OF THE SPECIAL BENCH OF THE BOMBAY TRIBUNA L IN THE CASE OF BHAUMIK COLOUR P. LTD. (SUPRA) AND HAS THUS CONFIRMED THE DECISION OF THE TRIBUNAL. 5. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE ASSESSEE HAD RECEIVED CERTAIN PAYMENT IN THE INITIAL PERIOD OF THE RELEVANT PREVI OUS YEAR AND THEREAFTER WERE THE ITA NO.1159(BNG)/09 - 6 - TRANSACTIONS FOR PURCHASE AND SALE BETWEEN THE ASSE SSEE AND THE COMPANY. IT IS FOR THE ASSESSEE TO ESTABLISH THAT THE INITIAL PAYMENTS ARE ALSO CONCERNING THE BUSINESS TRANSACTIONS BETWEEN THE ASSESSEE AND THE COMPANY. THE ASSESSING OFFICER HAD CONSIDERED THE MERGED LEDGER AND HAS COME TO THE CO NCLUSION THAT THESE AMOUNTS ARE NOTHING BUT LOANS AND ADVANCES AS THE ASSESSEE HAS ALSO REPAID PART OF THE RECEIPTS. JUST BECAUSE THE ASSESSEE IS ALSO HAVING TRANSACTIO NS OF PURCHASE AND SALE, EVERY TRANSACTION CANNOT BE SAID TO BE A BUSINESS TRANSAC TION. AS WE HAVE ALREADY HELD THAT IT IS FOR THE ASSESSEE TO PROVE THAT THESE ADVANCES ARE FOR PURCHASE AND SALE OF GOODS OR COMMODITIES BETWEEN BOTH THE PARTIES WE HAVE TO CONFIRM THE ORDER OF THE ASSESSING OFFICER THAT THE ADVANCES RECEIVED PRIOR TO THE TRANSACTIONS OF PURCHASE AND SALE ARE DEEMED DIVIDEND WITHIN THE PURVIEW OF SECTION 2(22)E. 6. THE NEXT QUESTION THAT ARISES FOR OUR CONSIDERAT ION IS IN WHOSE HANDS IS THE DIVIDEND TAXABLE. IT HAS BEEN HELD IN VARIOUS DECI SIONS INCLUDING THE DECISION OF THE SPECIAL BENCH OF THE BOMBAY TRIBUNAL IN THE CASE OF BHAUMIK COLOUR P. LTD. (SUPRA) AS WELL AS THE DECISION OF THE HON'BLE HIGH COURT OF B OMBAY IN THE CASE OF UNIVERSAL MEDICARE (P) LTD. (SUPRA) THAT THE DIVIDEND IS TAXA BLE IN THE HANDS OF THE SHARE HOLDER ONLY AND NOT IN THE HANDS OF THE CONCERN WHICH HAS RECEIVED THE ADVANCE. IT HAS BEEN HELD THAT IT IS THE BENEFICIARY SHARE HOLDER IN WHO SE HANDS THE DIVIDEND IS TAXABLE. NO DECISION OF THE JURISDICTIONAL HIGH COURT OR ANY OT HER DECISION CONTRARY TO THIS FINDING IS BROUGHT TO OUR NOTICE. IN VIEW OF THE SAME, WE U PHOLD THE FINDING OF THE CIT(A) THAT ITA NO.1159(BNG)/09 - 7 - THE DEEMED DIVIDEND IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE BUT IS TAXABLE IN THE HANDS OF THE SHAREHOLDERS WHO HAVE ALSO PARTNERS OF THE FIRM. IN THE RESULT THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 30 TH DAY OF JUNE, 2010. SD/- SD/- (A. MOHAN ALANKAMONY) (P. MADHAVI DEVI ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DT.30/06/2010. COPY TO : 1. THE ASSESSEE. 2. THE ASSESSING OFFICER. 3. CIT(APPEALS) 4. CIT 5. DEPARTMENTAL REPRESENTATIVE, ITAT, BANGALORE. 6. GUARD FILE, ITAT, BANGALORE. * GPR BY OR DER ASSISTANT R EGISTRAR