ACIT Corporate, Cochin V. M/s. Aromatic Ingredients P. Ltd, Cochin

ITA 121/COCH/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90779 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 18-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Keywords: Deemed dividend

Judgement Text

1 ITA NO .121/COCH/2015 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI V DURGA RAO, JM AND SHRI B.R. BASKARAN, AM I.T.A. NO. 121/COCH/2015 (ASSESSMENT YEAR : 2007-08) ACIT, CORPORATE CIRCLE 1(1) VS M/S AROMATIC INGRE DIENTS KOCHI PVT LTD, KOLENCHERRY KOCHI PAN : AABTT4757G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.K. JOHN RESPONDENT BY : SHRI THOMSON THOMAS DATE OF HEARING : 12-05-2015 DATE OF PRONOUNCEMENT : 14-05-2015 O R D E R PER SHRI V DURGA RAO, JM THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE CIT(A)-II, KOCHI FOR THE ASSESSMENT YEAR 2007-0 8. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS ADDITI ON OF RS. 1,13,66,089 U/S 2(22)(E) OF THE ACT. 3. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASS ESSING OFFICER OBSERVED THAT ON VERIFICATION IT IS FOUND THAT THE SHAREHOLD ERS OF THE ASSESSEE COMPANY ARE ALSO SHAREHOLDERS OF M/S PLANT LIPIDS (P) LTD; HENC E THE ASSESSEE IS AN ASSOCIATED COMPANY OF M/S PLANT LIPIDS PVT LTD. HE FURTHER OBSERVED THAT AS PER THE COPY OF ACCOUNTS OF M/S PLANT LIPIDS PVT LTD HA S ADVANCED AN AMOUNT OF 2 ITA NO .121/COCH/2015 RS.1,13,66,089 TO ASSESSEE COMPANY DURING THE FINAN CIAL YEAR 2006-07. THE ASSESSING OFFICER FURTHER OBSERVED THAT M/S JOHN GE ORGE NECHUPADOM IS HOLDING 25,000 SHARES OF M/S AROMATIC INGREDIENTS PVT LTD A S ON 31-03-2007 WHICH CONSTITUTED 25% OF THE SHARE CAPITAL OF M/S AROMATI C INGREDIENTS PVT LTD. FURTHER, HE IS ALSO HOLDING MORE THAN 10% OF THE SH ARE CAPITAL OF M/S PLANT LIPIDS P LTD. HENCE, THE AMOUNT ADVANCED BY M/S PLANT LIP IDS PVT LTD TO THE ASSESSEE ATTRACTED PROVISIONS OF SECTION 2(22)(E) OF THE ACT . 4. ON APPEAL, THE LD.CIT(A) DELETED THE ADDITION MA DE BY THE ASSESSING OFFICER. THE REVENUE IS IN APPEAL BEFORE THE TRIBU NAL. 5. AT THE TIME OF HEARING, THE LD.COUNSEL FOR THE A SSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IS COVERED BY THE DECISION OF TH E CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS M/S KERALA TRANSPOR T CO IN ITA NO.373/COCH/2014 ORDER DATED 21-11-2014. ON THE OT HER HAND, THE LD.,DR FAIRLY ACCEPTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. 6. WE HEARD BOTH THE SIDES, PERUSED THE RECORDS AND ORDERS OF AUTHORITIES BELOW. IN THIS CASE, M/S PLANT LIPIDS P LTD ADVANC ED AN AMOUNT OF RS. 1,13,66,89 TO ASSESSEE COMPANY, I.E. M/S AROMATIC I NGREDIENTS PVT LTD WHEREIN THE PARTNER OF THE ASSESSEE FIRM, SHRI JOHN GEORGE NECHUPADOM IS ALSO A PARTNER. THEREFORE, THE ASSESSING OFFICER CAME TO A CONCLUSION THAT THE AMOUNT ADVANCE BY M/S PLANT LIPIDS P LTD TO THE ASSESSEE I S DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY. THE LD.CIT(A), AFTE R CONSIDERING VARIOUS CASE 3 ITA NO .121/COCH/2015 LAWS AND ARGUMENTS OF THE COUNSEL FOR THE ASSESSEE HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE RELEVANT PORTIO N OF THE ORDER OF THE CIT(A) IS EXTRACTED BELOW: 7.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AS AL SO THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD. AS PER SEC.2(22)(E) DIVIDEND INCLUDES ANY PAYMENT BY A COMPANY, NOT BEING COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER A S REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) HOLDING NOT LESS THAN 10% OF VOTING POWE R OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPAN Y IN EITHER CASE POSSESSES ACCUMULATED PROFIT. THE CONTENTION OF THE APPELLANT IS THAT ON THE DAT E OF ADVANCING MONEY BY M/S PLANT LIPIDS (P) LTD, MR. JO HN GEORGE NECHUPADOM SHOULD HAVE HAD SUBSTANTIAL INTEREST IN THE APPELLANT COMPANY. ON 03.04.2006, MR. JOHN GEORGE NECHUPADOM TRANSFERRED THE ENTIRE 330 SHARES TO MRS. BEENA GEO RGE. THE SAID TRANSFER WAS REGISTERED BY THE COMPANY ON 15.121.20 06. HENCE THE ISSUE INVOLVED IS WHETHER MR. JOHN GEORGE NECHU PADOM WAS THE BENEFICIAL OWNERS OF THE SAID 330 SHARES WHICH MADE HIM TO HAVE SUBSTANTIAL INTEREST IN THE APPELLANT COMPANY DURING THE PERIOD FROM 03.04.206 TO 15.11.2006. IN SHORT, THE ISSUE INVOLVED IS WHETHER THE TRANSFER OF THE SAID 330 SHARES BY MR. JOHN GEORGE NECHUPADOM TAKES INTO EFFECT FROM 03.04.2006 OR FRO M 15.11.2006. THE AO TOOK THE STAND THAT THE TRANSFER IS EFFECTIV E ONLY FROM 15.11.2006. THE AO TOOK THE STAND THAT THE TRANSFE R IS EFFECTIVE ONLY FROM 15.11.2006. THE CONTENTION OF THE APPELL ANT IS THAT IT TAKES EFFECT FROM 03.04.2006. IN THIS REGARD APPEL LANT RELIED ON THE DECISION OF THE HON.HIGH COURT OF KERALA IN COMMISS IONER OF INCOME TAX VS SMT. PARVATHAVARTHINI AMMAL (1996) 21 6 ITR 661 (KER) WHEREIN IT WAS HELD THAT THE TRANSFER OF SHAR ES TAKES PLACE ON THE DATE OF EXECUTION OF TRANSFER FORMS. I FIND ME RIT IN THE CONTENTION OF THE APPELLANT CONSIDERING THE DECISION OF THE JU RISDICTIONAL HIGH COURT IN THE CASE REFERRED TO ABOVE. THE TRANSFER OF SHARES WERE 4 ITA NO .121/COCH/2015 EXECUTED BY MR. JOHN GEORGE NECHUPADOM ON 03.04.200 6 AND THE SAID TRANSFER WAS REGISTERED ONLY ON 15.11.2006. T HE TRANSFER IS TO BE TREATED AS EFFECTIVE FROM 03.04.2006. HENCE DUR ING THE PERIOD FROM 03.04.2006 TO 30.09.2006 (WHEN ADDITIONAL 2500 0 SHARES WERE ISSUED TO MR. JOHN GEORGE NECHUPADAM), MR. JOH N GEORGE NECHUPADOM WAS NOT HAVING SUBSTANTIAL INTEREST IN T HE APPELLANT COMPANY AND HENCE AMOUNTS ADVANCED BY M/S PLANT LIP IDS (P) LTD TO THE APPELLANT COMPANY DURING THE PERIOD FROM 03. 04.2006 TO 30.09.2006 CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE INCOME TAX . 7.3.1 IT IS ALSO SEEN AND AS IS SUBMITTED BY THE AP PELLANT THAT THESE TRANSACTIONS ARE REGULAR BUSINESS TRANSACTION S WITH M/S PLANT LIPIDS (P) LTD. AND HENCE CANNOT BE TREATED AS DEEM ED DIVIDEND. 7.3.2 DURING THE COURSE OF APPELLATE PROCEEDINGS, A PPELLANT HAS ALSO RELIED ON THE FOLLOWING DECISIONS TO SUPPORT T HIS GROUND:- I) CIT VS ANKITECH (P) LTD & ORS (2012)( 340 ITR 1 4 (DEL) II) CIT VS. IMPACT CONTAINERS (P) LTD & ORS (2014) 270 CTR 14 (DEL) III) ASST.CIT VS. BHAUNIK COLOUR (P) LTD. (2009) 12 0 TTJ (MUM)(SB) 865. IV) KADHUSUDAN INVESTMENT & TRADING CO.(P) LTD (201 1) 48 SOT 360 (KOL) IN ALL THE ABOVE DECISIONS IT WAS HELD THAT DEEMED DIVIDEND U/S 2(22)(E) CAN BE ASSESSED ONLY IN THE HANDS OF THE REGISTERED SHAREHOLDERS. IN THE APPELLANTS CASE, IT IS NOT A SHAREHOLDER OF M/S PL ANT LIPIDS (P) LTD AND HENCE THE AO HAS ERRED IN ASSESSING THE AMOUNT OF A DVANCES RECEIVED BY ITS FORM M/S PLANT LIPIDS (P) LTD. AS DEEMED DIVIDE ND U/S 2(22)(E) IN ITS HANDS. HOWEVER, THE AO IS FREE TO PROCEED AGAINST MR. JOHN GEORGE NECHUPADOM AS HE WAS A REGISTERED SHAREHOLDER OF TH E COMPANY AND ASSESS THE ADVANCES MADE DURING THE PERIOD DURING W HICH HE HAD SUBSTANTIAL INTEREST IN THE APPELLANT COMPANY AS DE EMED DIVIDEND U/S 2(22)(E). ACCORDINGLY, ADDITION OF RS.1,13,66,089/- MADE ON A CCOUNT OF DEEMED DIVIDENDS U/S 2(22)(E) IS HEREBY DELETED. 7. AFTER CAREFUL CONSIDERATION OF THE ORDERS OF THE AUTHORITIES BELOW AND ALSO THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBU NAL WHEREIN THE TRIBUNAL HAS 5 ITA NO .121/COCH/2015 HELD THAT THE ASSESSEE FIRM IS NOT A SHAREHOLDER I N THE LENDING COMPANY AND ONLY PARTNERS THE SHAREHOLDERS. THE FUNDS WERE ADVANCED ONLY TO PARTNERSHIP FIRM TO THE BENEFIT OF THE PARTNERS. THEREFORE, IF AT ALL THERE IS ANY DEEMED DIVIDEND IT HAS TO BE CONSIDERED ONLY IN THE HANDS OF THE RESPE CTIVE PARTNERS AND CERTAINLY NOT IN THE HANDS OF THE FIRM. KEEPING IN VIEW THE ABOVE ORDER OF THE CO-ORDINATE BENCH AND RESPECTFULLY FOLLOWING THE SAME, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE CIT(A). ACCORDINGLY, WE UPHOLD THE S AME AND THE APPEAL DISMISSED. ORDER PRONOUNCED ON 14 TH DAY OF MAY, 2015. SD/- SD/- ( B.R. BASKARAN) ( V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 14 TH MAY, 2015 PKJ/- COPY TO: 1. ACIT, CORPORATE CIRCLE-1(1), KOCHI 2. M/S AROMATIC INGREDIENTS PVT LTD, KADAYIRPPU PO, KOLENCHERRY, KOCHI 682 311 3. THE CIT, KOCHI 4. THE CIT(A)-II, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, COCHIN BENCH