The ACIT, Circle-2, Bhavnagar V. Shiv Synthetics, Bhavnagar

ITA 1182/AHD/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9731 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C MISHRA
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI RAJPAL YADAV, J.M. & SHRI ANIL CHATURV EDI, A.M.) I.T. A. NO.1182 /AHD/2012 (ASSESSM ENT YEAR: 2008-09) ACIT, CIRCLE-2, BHAVNAGAR V/S M/S. SHIV SYNTHETICS SURVEY NO. 324, PLOT NO. 3, BHAVNAGAR-RAJKOT ROAD, KARDEJ (NAVGAM) DIST. BHAVNAGAR-364060 (APPELLANT) (RESPONDENT) PAN: AAXFS7617Q APPELLANT BY : SHRI D.C. MISHRA, SR. D.R. RESPONDENT BY : NONE ( )/ ORDER DATE OF HEARING : 13-07-2015 DATE OF PRONOUNCEMENT : 14 -07-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A)-XX, AHMEDABAD DATED 28.03.2012 FOR A.Y. 2008-09. 2. IN THIS CASE, NONE APPEARED ON BEHALF OF ASSESSEE T HOUGH AS PER THE OFFICE RECORDS, THE NOTICE INTIMATING THE DATE OF HEARING WAS SERVED UPON THE ASSESSEE. WE THEREFORE PROCEED TO DECIDE THE APPEAL , EX PARTE QUA THE ASSESSEE ON THE BASIS OF MATERIAL ON RECORD. ITA NO1182/A HD/2012 . A.Y. 2008-0 9 2 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF P.P. MULTIFILAMENT YARN AND TWINE. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2008-09 ON 24.09.2008 DEC LARING TOTAL LOSS OF RS. 5,19,756/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 1 0.12.2010 AND THE TOTAL INCOME WAS DETERMINED AT RS. 10,05,244/-. AGGRIEVE D BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO V IDE ORDER DATED 28.03.2012 GRANTED SUBSTANTIAL RELIEF TO THE ASSESS EE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REVENUE IS NOW IN AP PEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND:- 1. THE LD.CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF LOAN TAKEN FROM A CONC ERN AMOUNTING TO RS. 15,25,000/- U/S 2(22)(E) OF THE I.T .ACT. 2. 1.2 FURTHER, THE LD.CIT(A) HAS IGNORED THE PROVISIO NS OF LAW SECTION 2(22)(E) APPLIES TO A 'CONCERN' ALSO BEING A FIRM. 4. THOUGH 2 GROUNDS ARE RAISED, BUT THE ONLY EFFECTIVE GROUND IS WITH RESPECT TO DELETION OF ADDITION U/S. 2(22)(E). 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAS TAKEN A LOAN OF RS. 15,25,000/- FROM SURAJ FILAMENT S PVT. LTD. HE ALSO NOTICED THAT ONE OF THE PARTNER, MR. TRAMBAKBHAI MA KWANA WHO HELD 50% SHARE IN THE ASSESSEE FIRM ALSO HELD 48.28% OF SHAR ES IN SURAJ FILAMENTS PVT. LTD. AND THE RESERVES AND SURPLUS OF SURAJ FILAMENT S PVT. LTD. WAS RS. 1,18,04,018/- ON 31.03.2007 WHICH WAS MUCH GREATER THAN THE LOAN OF RS. 15,25, 000/- WHICH WAS EXTENDED BY SURAJ FILAMENTS PVT. LTD. TO THE ASSESSEE. HE WAS THEREFORE OF THE VIEW THAT THE AMO UNT OF LOAN OF RS. ITA NO1182/A HD/2012 . A.Y. 2008-0 9 3 15,25,000/- WHICH HAS BEEN GRANTED TO THE ASSESSEE HAS TO BE CONSIDERED AS THE INCOME OF THE ASSESSEE U/S. 2(22)(E) OF THE ACT AS ALL THE NECESSARY CONDITIONS PRESCRIBED IN 2(22)(E) WERE FULFILLED. H E ACCORDINGLY MADE ADDITION OF RS. 15,25,000/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO AFTER CONS IDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER:- 3.3. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A. R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESS MENT ORDER. APPELLANT FIRM RECEIVED LOAN OF RS. 15.25 LAKHS FROM SURAJ FILMENTS PVT. LT D.. SHRI TRAMBAKBHAI MAKWANA (PARTNER OF THE APPELLANT FIRM AND A SHARE-HOLDER O F THE LENDER COMPANY) WAS HAVING SUBSTANTIAL INTEREST IN BOTH IN ORDER TO ATTRACT TH E PROVISIONS OF SECTION 2(22)(E). A.O. OBSERVED THAT THE ACCUMULATED PROFITS AS ON 31.03.2 008 WERE RS.22,43,878/- AND HENCE ADDED THE SAID LOAN RECEIVED OF RS. 15.25 LAKHS U/S .2(22)(E). THE BASIC CONTENTION OF THE ID.AR IS THAT ONE OF THE PRE-REQUISITES FOR INVOKIN G THE PROVISIONS OF SECTION 2(22)(E) IS THAT THE RECIPIENT OF THE LOAN SHALL BE BOTH THE RE GISTERED AND BENEFICIAL SHARE HOLDER AND SINCE THE APPELLANT FIRM IS NOT A REGISTERED SHARE HOLDER, INVOKING THE PROVISIONS OF SECTION 2(22)(E) IS NOT IN ACCORDANCE WITH LAW. IN SUPPORT OF THE ARGUMENT, THE ID.A.R. RELIED ON THE DECISION OF THE MUMBAI SPECIAL BENCH IN THE CASE OF BHAUMIK COLOURS (P) LTD. [2009] (27 SOT 270), THE DELHI TRIBUNAL DECISI ON IN THE CASE OF CIT VS. NATIONAL TRAVEL SERVICES (31 SOT 76) AND DELHI HIGH COURT DE CISION IN THE CASE OF CIT VS. ANKITECH (P) LTD. [2011] (199 TAXMAN 341). IN THE S AID CASE CITED AT 199 TAXMAN 341, THE DELHI HIGH COURT UPHELD THE RATIO OF THE MUMBAI SPECIAL BENCH DECISION BY HOLDING AS UNDER: - '25. FURTHER, IT IS AN ADMITTED CASE THAT UNDER NOR MAL CIRCUMSTANCES, SUCH A LOAN FOR ADVANCE GIVEN TO THE SHAREHOLDERS OR TO A CONCE RN, WOULD NOT QUALIFY AS DIVIDEND. IT HAS BEEN MADE SO BY LEGAL FICTION CREA TED UNDER SECTION 2(22)(E) OF THE ACT. WE HAVE TO KEEP IN MIND THAT THIS LEGAL PR OVISION RELATES TO 'DIVIDEND'. THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED. LEGAL FICTION DOES NOT EXTEND TO 'SHAREHOLDER'. WHE N WE KEEP IN MIND THIS ASPECT, THE CONCLUSION WOULD BE OBVIOUS, VIZ., LOAN OR ADVA NCE GIVEN UNDER THE CONDITIONS ITA NO1182/A HD/2012 . A.Y. 2008-0 9 4 SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT WOULD A LSO BE TREATED AS DIVIDEND. THE FICTION HAS TO STOP HERE AND IS NOT TO BE EXTENDED FURTHER FOR BROADENING THE CONCEPT OF SHAREHOLDERS BY WAY OF LEGAL FICTION. IT IS A COMMON CASE THAT ANY COMPANY IS SUPPOSED TO DISTRIBUTE THE PROFITS IN TH E FORM OF DIVIDEND TO ITS SHAREHOLDERS/MEMBERS AND SUCH DIVIDEND CANNOT BE GI VEN TO NON-MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT, VIZ., A CONCERN (LIKE THE ASSESSEE HEREIN), WHICH IS GIVEN THE LOAN OR AD VANCE IS ADMITTEDLY NOT A SHAREHOLDER/MEMBER OF THE PAYER COMPANY. THEREFORE, UNDER NO CIRCUMSTANCE, IT COULD BE TREATED AS SHAREHOLDER/MEMBER RECEIVING DI VIDEND. IF THE INTENTION OF THE LEGISLATURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEM ED DIVIDEND AT THE HANDS OF 'DEEMING SHAREHOLDER', THEN THE LEGISLATURE WOULD H AVE INSERTED DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL, THAT H AS NOT HAPPENED. MOST OF THE ARGUMENTS OF THE LEARNED COUNSELS FOR THE REVENUE W OULD STAND ANSWERED, ONCE WE LOOK INTO THE MATTER FROM THIS PERSPECTIVE.' IT IS FURTHER SEEN THAT THE DELHI HIGH COURT REITER ATED THE SAID VIEW IN THE CASES OF CIT VS. MCC MARKETING (P) LTD. 16 TAXMAN 411 (DELHI) & CIT VS. NAVYUG PROMOTERS (P) LTD. 16 TAXMAN 292 (DELHI). IN THE LIGHT OF THE ABO VE MENTIONED DECISIONS AND KEEPING IN VIEW THE FACT THAT THE APPELLANT FIRM IS NOT A REGI STERED SHARE HOLDER OF THE LENDER COMPANY, INVOKING THE PROVISIONS OF SECTION 2(22)(E ) IS NOT IN ACCORDANCE WITH LAW. I HAVE ALSO TAKEN NOTE OF DELHI HIGH COURT JUDGMENT D TD. 11.07.2011 IN THE CASE OF CIT VS. NATIONAL TRAVEL SERVICES. IN THE SAID CASE, THE FIR M INVESTED MONEY IN THE SHARES OF THE LENDER COMPANY IN THE NAMES OF ITS PARTNERS. IT WAS HELD THAT SINCE A FIRM CAN NEVER BE A REGISTERED SHARE HOLDER OF A COMPANY, THOUGH THE SH ARES WERE HELD IN THE NAMES OF ITS PARTNERS, PROVISIONS OF SECTION 2(22)(E) WERE APPLI CABLE IN THE HANDS OF THE FIRM. HOWEVER, THE SAID DECISION HAS NO APPLICATION TO TH E FACTS OF THE INSTANT CASE, SINCE IT IS SEEN THAT THE APPELLANT DID NOT INVEST IN THE SHARE S OF THE LENDER COMPANY AND INSTEAD THE INVESTMENT WAS MADE BY A PARTNER. IMPUGNED ADDITION IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. A.O. IS AT LIBERTY TO TAKE APPROPRIATE ACTION IN THE CASE OF SHRI TRAMBAKBHAI MAKWANA (IN WHOSE HANDS DEEMED DIVIDEND IS ASSESSAB LE) IN ACCORDANCE WITH LAW. ITA NO1182/A HD/2012 . A.Y. 2008-0 9 5 6. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. 8. WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION AND AFTER RE FERRING TO THE VARIOUS DECISIONS CITED IN THE ORDER, HAS NOTED THAT SINCE THE ASSESSEE IS NOT A REGISTERED SHAREHOLDER OF THE LENDER COMPANY, THE P ROVISIONS OF SECTION 2(22)(E) ARE NOT ATTRACTED. BEFORE US, REVENUE HAS NOT BROUGHT ANY CONTRARY BINDING DECISION IN ITS SUPPORT NOR COULD POINT OUT ANY FALLACY IN THE ORDER OF LD. CIT(A). WE THEREFORE FIND NO REASON TO INTERFER E WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF REVENUE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 14 - 07 - 2015. SD/- SD/- (RAJPAL YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD