Dy. CIT, Hyderabad V. M/s. Talwar Auto Garages (P) Ltd., Hyderabad

ITA 1233/HYD/2013

• Counselvise Citation: 123322514 RSA 2013
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 29-08-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M V JOSHI
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. ASSESSMENT YEAR APPELLANT RESPONDENT 1232/HYD/ 2013 2010 - 11 DY. COMMISSIONER OF INCOME - TAX CIRCLE 2(3), HYDERABAD M/S. TALWAR MOBILES (P)LTD., SECUNDERABAD. (PAN AABCT 0818 P) 1233/HYD/2013 2010 - 11 DY. COMMISSIONER OF INCOME - TAX CIRCLE 2(3), HYDERABAD M/S. TALWAR AUTO GARAGES (P)LTD., SECUNDERAB AD. (PAN AABCT 8327 N) APPELLANT S BY : S MT. K.HARITHA DR RESPONDENT BY : SHRI M.V.JOSHI DATE OF HEARING 01 . 04 .2014 DATE OF PRONOUNCEMENT 01.04.2014 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: TH ESE TWO APPEAL S BY THE ASSESSEE S - SISTER CONCERNS - ARE DIRECTED AGAINST SIMILAR BUT SEPARATE ORDER S OF THE COMMISSIONER OF INCOME - TAX(APPEALS) - I II, HYDERABAD, BOTH DATED 7 TH JUNE, 2013 , FOR THE ASSESSMENT YEAR 20 1 0 - 11 . SINCE A COMMON ISSUE IS INVOLVED, THESE APPEALS AR E BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ONLY ISSUE INVOLVED IN THESE TWO APPEALS RELATES TO THE ADDITIONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEEMED DIVIDEND UNDER S.2(22)(E) OF THE ACT, WHICH HAVE BEEN DEL ETED BY THE CIT(A) IN THE IMPUGNED ORDER. ITA NO. 1232 & 1233 / HYD/20 13 M /S. TALWAR MOBILES (P)LTD. & ANR., HYDERABAD 2 3. FACTS OF THE CASE RELATING TO THE ISSUE IN DISPUTE, IN BRIEF, COMMON IN BOTH THESE APPEALS, AS TAKEN FROM THE APPEAL FOLDER ITA NO.1232/HYD/2013 CONCERNING TALWAR MOBILES (P) LTD., ARE THAT THE ASSESSING OFFIC ER NOTICE D DURIN G TH E COU R SE OF ASSESSMENT PROCEE D INGS THAT THE ASSESSEE, TALWAR MOBILES (P)LTD. , AND ITS SISTER CONCERN, M/S. TALWAR AUTO GARAGES, WERE FREQUENTLY AD V ANCING AND RETURNING LOANS TO AND FROM EACH OTHER TO MEET THEIR RESPECTIVE BUSINESS NEEDS . SINCE THE TWO COMPANIES IN QUESTION HAVE SUBSTANTIAL COM M ON SHARE HOL D ERS, THE ASSESSING OFFICER CONSIDERED THE EXCESS OF LOANS REC E IVED DURIN G TH E Y E AR AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE, AND MADE AN ADDITION OF R S .1,90,15,349 IN THE CASE OF TALAWAR MOBILES P. LTD., WHILE COMPLETING THE ASSESSMENT ON A TOTAL INCOME OF RS.2,22,29,570 UNDER S.143(3) OF THE ACT, VIDE ORDER DATED 11.3.2013. ON SIMILAR LINES, AN ADDITION OF RS 10 WAS MADE BY THE ASSESSING OFFICER IN THE CA S E OF TALWAR AUTO GA RAGES (P)LTD. , VIDE ORDER OF ASSESSMENT DATED 11.3.2013 PASSED UNDER S.143(3) OF THE ACT. 4. ON APPEAL, THE CIT(A), IN BOTH THE CASES, VIDE SIMILAR BUT SEPARATE IMPUGNED ORDERS, DELETED THE IMPUGNED ADDITIONS MADE UNDER S.2(22)(E), OBSERVING THAT NORMAL AND GENUINE BUSINESS TRANSACTIONS CARRIED OUT THROUGH RUNNING ACCOUNTS, DO NOT COME WITHIN THE CLUTCHES OF THE PROVISIONS OF S.2(22)(E) OF THE ACT, AS THE INTENT OF THE SAID PROVISIONS IS NOT TO TAX THE NORMAL BUSINESS TRANSACTIONS AS DEEMED DIVIDEND, AS O THERWISE IT WOULD BECOME IMPOSSIBLE FOR ANY TWO RELATED COMPANIES TO CONDUCT EVEN NORMAL BUSINESS WITH EACH OTHER. 5. AGGRIEVED, REVENUE PREFERRED THE PRESENT APPEALS BEFORE US. 6. WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. THE REASONS ASSIGNED BY THE ASSESSING OFFICER FOR INVOKING THE PROVISION S OF S.2(22) ( E) OF THE ACT ARE T H A T THE ASSESSEES WERE FREQUENTLY ADVANCING AND RETURNING LOANS ITA NO. 1232 & 1233 / HYD/20 13 M /S. TALWAR MOBILES (P)LTD. & ANR., HYDERABAD 3 TO EACH OTHER TO MEET THEIR RESPECT IVE BU S IN E SS NEEDS, AND BOTH THE COMPANIES HAVE COMMON SHARE HOL D ERS WHO HAVE SUBSTANTIAL INTEREST IN BOTH THE COMPANIES. IT WAS ALSO NOTED THAT THERE ARE ACCUMULATED PROFITS IN BOTH THE COMPANIES, AND AS SUCH , EACH OF THE CONCERNS ARE LIABLE TO DEEMED DI VIDEND AS PER S.2(22)(E) OF THE A CT, TO THE EXTENT OF LOANS RECEIVED OR AMOUNTS RECEIVED IN EXCESS OF PREVIOUS LOANS EXTENDED. MERELY BECAUSE THE ASSESSEES ARE SISTER CONCERNS, HAVING COMMON SHAREHOLDERS HAVING SUBSTANTIAL INTEREST IN BOTH THE COMPANIES, IT CANNOT BE SAID THAT THE PROVISIONS OF S.2(22)(E) OF THE ACT CAN INVOKED. THIS ISSUE IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOUR P. LTD. (313 ITR (AT) 43), WHEREIN IT HAS BEEN HELD THAT SO AS TO INVOKE THE PROVISIONS OF S.2(22)(E) OF THE ACT, ASSESSEE - COMPANY ITSELF MUST BE A SHAREHOLDER IN THE OTHER COMPANY, AND MERE EXISTENCE OF COMMON SHAREHOLDERS WOULD NOT JUSTIFY THE INVOKING OF THE PROVISIONS OF S.2(22)(E). IT HAS BEEN HELD BY THE SPECIAL BENCH O F THE TRIBUNAL IN THAT CASE , WHICH HAS BEEN CONSISTENTLY FOLLOWED BY THE TRIBUNAL IN SIMILAR MATTERS, INCLUDING IN THE CASE OF M/S. SIDESWARI POW E R GENERATION PVT. LTD., HYDERABAD (ITA NO.635./637/HYD/2013) DATED 6 TH DECEMBER, 2013, A COPY OF WHICH IS FURN ISHED BEFORE US, AS FOLLOWS - 'THE PROVISIONS OF SECTION 2(22)( E) OF THE INCOME - TAX ACT, 1961 CREATE A FICTION BRINGING IN AMOUNTS PAID OTHERWISE THAN AS DIVIDEND INTO THE NET OF DIVIDENDS. THEREFORE THIS CLAUSE MUST BE GIVEN A STRICT INTERPRETATION. TO AT TRACT THE FIRST LIMB OF THE PROVISIONS OF SECTION 2(22) (E), THE PAYMENT MUST BE TO A PERSON WHO IS A REGISTERED HOLDER OF SHARES. IN THE 1961 ACT, THE WORD 'SHAREHOLDER' IN SECTION 2(22)(E) IS FOLLOWED BY THE FOLLOWING WORDS 'BEING A PERSON WHO IS THE BEN EFICIAL OWNER OF SHARES'. THIS EXPRESSION ONLY QUALIFIES THE WORD 'SHAREHOLDER' AND DOES NOT IN ANY WAY ALTER THE POSITION THAT THE SHAREHOLDER HAS TO BE A REGISTERED SHAREHOLDER NOR SUBSTITUTE THE REQUIREMENT TO A REQUIREMENT OF MERELY HOLDING A BENEFICIA L INTEREST IN THE SHARES WITHOUT BEING A REGISTERED HOLDER OF SHARES. THE VERY SAME PERSON MUST ALSO BE A MEMBER OR A PARTNER IN THE CONCERN HOLDING SUBSTANTIAL INTEREST IN THE CONCERN. ITA NO. 1232 & 1233 / HYD/20 13 M /S. TALWAR MOBILES (P)LTD. & ANR., HYDERABAD 4 DEEMED DIVIDEND UNDER SECTION 2(22) (E) OF THE ACT CAN BE ASSESSED ONL Y IN THE HANDS OF A SHARE - HOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF ANY OTHER PERSON.' FOLLOWING THE ABO V E DECISION OF THE SP E CIAL BENCH O F THE TRIBUNAL AND T H E CON S ISTENT VIEW TAKEN BY THE TRIBUNAL IN SIMILAR MATTERS, THOUGH FOR A DIFFERENT REA SONS THAN THE ONES DISCUSSED BY THE CIT(A) IN THE IMPUGNED ORDERS, WE FIND THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICER IN TH E SE MATTERS, INVOKING THE P R OVISION S OF S.2(22)(E) OF THE ACT. WE ACCORDINGLY UPHOLD THE ORDERS OF THE CIT(A) AND REJECT THE G R OUNDS OF THE REVENUE IN THESE APPEALS. 7 . IN THE RESULT, BOTH THE APPEAL S OF THE REVENUE ARE DISMISSED . ORDER PRONOUNCED IN THE COURT ON 1.4.2014 SD/ - SD/ - (B.RAMAKOTAIAH) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JU DICIAL MEMBER DT/ - 1ST APRIL, 2014 COPY FORWARDED TO: 1 . 2. M/S. TALWAR MOBILES (P)LTD., 2, PATNY PLAZA, SARDAR PATEL ROAD, SECUNDERABAD. M/S. TALWAR AUTO GARAGES (P)LTD., 6 - 3 - 658, CONCORDE APARTMENTS, OPP.ERRA MANZIL, SOMAJIGUDA, HYDER ABAD 500 082. 3 . DY COMMISSIONER OF INCOME - TAX, CIRCLE 2(3) , HYDERABAD 4 . 5 . COMMISSIONER OF INCOME - TAX(APPEALS) III , HYDERABAD COMMISSIONER OF INCOME - TAX I I HYDERABAD 6 . DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S