Dy. Commissioner of Income Tax, Hyderabad V. M/s. Aster Naturals Pvt. Ltd., Secunderabad

ITA 1371/HYD/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5514 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 18-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHRI SOLGY JOSE T KOTTARAM
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1371/HYD/2013 : ASSTT. YEAR 2006 - 07 DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(1), HYDERABAD V/S. M/S. ASTER NATURALS PVT. LTD., SECUNDERABAD. ( PAN - AAECA 3794 Q ) (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI SHRI SOLGY JOSE T.KOTTARAM DR RESPONDENT BY : NONE DATE OF HEARING 18 . 2 .201 4 DATE OF PRONOUNCEMENT 18.2.2014 O R D E R PER ASHA VIJAYARAGHAAN, JUDICIAL MEMBER: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) II, HYDERABAD DATED 30.7.2013 FOR THE ASSESSMENT YEAR 2006 - 07. 2. EFFECTIVE GROUNDS OF THE REVENUE IN THIS APPEAL ARE AS FOLLOWS - 6. .. 7. THE LEARNED CIT(A) ERRED IN HOL D ING THAT ADVANCES EXTENDED BY M/S. ASTER PV T. LTD. FOR THE PURPOSE OF APPLICATION OF P RO V I SIONS OF SECTION 2(22)(E) OF THE I.T. ACT. 8. THE LEARNED CIT(A) ERRED IN HOLDIN G THAT THE P R OVISION S U/S. 2(22)(E) CAN BE INVOKED ONLY IN THE HANDS OF THE SHARE HOL D ER AND SINCE THE ASSESSEE COMPANY IS NO T A SHAREHOLDER IN ASTER PVT. LTD. THE PROVIS ION S CANNOT B E INVOKED. 9. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD TH E ACTION OF THE ASSESSING OFFICER AS SRI UPPALA KANTA RAO AND MS.RAJINI HAS ITA NO. 1371 / HYD/201 3 M/S. ASTER NATURALS PVT. LTD., HYDERABAD 2 SUBSTANTIAL INTEREST IN BOTH THE COMPANIES AND AS SUCH TH E AMOUN T S RECEIVE B Y THE ASSESSEE PARTAKES THE CHARACTER OF DEEMED DIVIDEND. 10. . 3. F ACTS OF TH E CA S E IN BRIEF ARE THAT THE ASSESSEE , M/S. ASTER NATURALS PVT. LTD. IS A SISTER CONCERN OF THE M/S. ASTER LTD. , WHICH HAD PAID CERTAIN AMOUNTS TO THE ASSESSEE COMPANY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFIC ER FOUND THAT AT SEV E RAL POINTS OF TIME, THERE WERE CR E DIT BALANCES IN THE ACCOUNT AND THE ASSESSING OFFICER TOOK THE SUM TOTAL OF ALL SUCH CREDIT BALANCES, A N D BROUGHT THE SAME TO TAX AS DEEMED DIVIDEND UNDER S.2(22)(E) OF TH E ACT . THE ASSESSING OFFICER THUS COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.10,45,840, DISALLO W IN G THE LOSS OF RS.12,62,953 DISCLOSED BY THE ASSESSEE IN THE RETURN, VIDE ORDER OF ASSESSMENT DATED 16.12.2011 PASSED UNDER S.143(3) READ WITH S.147 OF THE ACT. 4. ON APPEAL, T HE CIT(A), AFTER DETAILED CONSIDERATION OF THE ISSUE IN THE LIGHT OF THE ELABORATE CON T ENTIONS URGED BEFORE HIM AND THE RATIO OF VARIOUS DECISION S ON THE POINT AT ISSUE, HELD THAT THE ASSESSEE COMPANY, BEING NO T A SHARE HOL D ER, THE DEEMED DIVIDEND CANNOT B E BROUGHT TO TAX IN THE HANDS O F TH E ASSESSEE . HOWE V ER, HE OBSERVED THAT THE ASSESSING OFFICER CAN EXAMINE THE TAXABILITY O F DEEMED DIVIDENDS IN THE HANDS OF SHAREHOLDERS, NAMELY, SRI UPPALA KANTHA RAO AND SMT.UPPALA RAJINI. HE FURTHER DIRECTED THAT AFTE R QUANTIFICATION OF DEEMED DIVIDEND, THE ASSESSING OFFICER SHOULD TAX SUCH AMOUNTS IN TH E HANDS OF TH O SE TWO SHAREHOLDERS IN P R OPO R TION TO TH E IR PERCENTAGE O F SHARE INVESTMENT IN LENDER COMPANY. 5. AGGRIEV E D BY THE O R DER OF THE CIT(A), REVENUE IS IN APPE AL BEFORE US. ITA NO. 1371 / HYD/201 3 M/S. ASTER NATURALS PVT. LTD., HYDERABAD 3 6. NOTICE OF HEARING SENT TO THE ASSESSEE, ON THE ADDRESS AVAILABLE ON RECORD, HAS BEEN RETURNED UNSERVED BY THE POSTAL AUTHORITIES. IN THE ABSENCE OF ANY ALTERNATE ADDRESS AVAILABLE ON RECORD, AND IN THE ABSENCE OF ANY CHANGE OF ADDRESS COMMUNICATED BY THE ASSESSEE, WE PROCEED TO DISPOSE OF THIS APPEAL EX - PARTE QUA THE ASSESSEE. 6. WE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE MATERIAL AVAILABLE ON RECORD . WE FIND THAT AN IDENTICAL ISSUE HAS COME UP FOR CON S IDERATI ON IN THE CASE D OF ASSESSEES SISTER CONCERN, M/S. ASCEND TELECOM INFRASTRUCTU R E (EARLIER KNOWN AS M/S. ASTER INFRASTRUCTURE PVT. LTD.) , IN ITA NOS.200 TO 203 / HYD/2013 OF THE ASSESSEE AND ITA NOS.320 TO 323/HYD/2013 OF THE R E VENU E FOR THE ASSESSMENT YEARS 2004 - 05 TO 2007 - 08. THE TRIBUNAL, WHILE DEALING WITH CORRESPONDING GROUNDS OF THE REVENUE IN THOSE APPEALS, ON THIS VERY ISSUE, AND CONSIDERING IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE, HELD, VIDE PARA 10 OF ITS ORDER DATED 23.1.2014, TO WHICH ONE O F US, VIZ. JUDICIAL MEMBER IS A PARTY, AS FOLLOWS - 10. NOW TURNING TO THE APPEALS OF THE REVENUE WHICH RELATE TO THE MERITS OF THE ADDITIONS IN TERMS OF S.2(22)(E) MADE BY THE ASSESSING OFFICER AND DELETED BY THE CIT(A) BY THE IMPUGNED ORDERS FOR ALL THESE YEARS, WE FIND THAT THE ISSUE, ADMITTEDLY IS COVERED BY THE SPECIAL BENCH DECISION OF THE TRIBUNAL (BOMBAY) IN THE CASE OF BHAUMIK COLOUR PVT. LTD. (313 ITR 146), AND THE VIEW TAKEN BY THE SPECIAL BENCH IN THAT CASE HAS BEEN APPROVED BY THE HONBLE DELHI HIGH COURT AS WELL IN ANITECH PVT. LTD. (340 ITR 14). DURING THE COURSE OF HEARING BEFORE THE TRIBUNAL, THE BENCH CALLED FOR THE REGISTER OF SHARE - HOLDERS. THE LEARNED COUNSEL, IN THIS CONTEXT, INVITED OUR ATTENTION TO PARA 4.1 OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2004 - 05, WHEREIN IT WAS OBSERV ED AS FOLLOWS - 4.1 THE OTHER CONTENTION THAT SINCE THE ASSESSEE COMPANY WAS NOT A SHARE HOLDER IN ATPL, THE AMOUNT COULD NOT BE TREATED AS DEEMED DIVIDEND IS NOT TENABLE. SUCH ARGUMENT MAY BE VALID BEFORE AMENDMENT TO THEY PROVISIONS OF SECTION 2(22)(E ) OF THE ACT. AFTER AMENDMENT BY THE FINANCE ACT 1987 W.E.F. 1.4.88 AND INSERTION OF EXPLANATION 3(A) U/S. 2(22), THE SCOPE OF SHARE HOLDER WAS ENLARGED TO INCLUDE A COMPANY HAVING COMMON SHAREHOLDER. HOWEVER, THIS DEEMING PROVISION IS APPLICABLE ONLY IF T HE COMMON SHARE HOLDER HOLDS MORE THAN 20% OF VOTING RIGHTS IN THE RECIPIENT COMPANY AND MORE THAN 10% IN PAYEE COMPANY. IN THIS CASE, MRS.U.RAJINI HOLDS 99% & 45% OF SHARES IN AIPL AND ATPL RESPECTIVELY. THIS FACT IS NOT IN DISPUTE. HENCE THE AMENDED PRO VISIONS CLEARLY ATTRACTED TO THIS CASE. ITA NO. 1371 / HYD/201 3 M/S. ASTER NATURALS PVT. LTD., HYDERABAD 4 FROM THE ABOVE, IT IS CONTENDED THE ASSESSING OFFICER HAS NO DISPUTE ABOUT THE SHAREHOLDING PATTERN, AND HIS CONCLUSION WITH REGARD TO DEEMED DIVIDEND IS BASED ON THE FACT THE SHARE - HOLDING PATTERN WOULD NOT HAVE A NY BEARING ON THE ISSUE, AFTER THE AMENDMENT TO THE PROVISIONS OF THAT S.2(22)(E) OF THE ACT. NOTWITHSTANDING THE ABOVE POSITION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED A CERTIFIED COPY OF THE REGISTER OF SHARE - HOLDERS AS PER THE DIRECTIONS OF THE BENCH. IN THESE CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE SHARE - HOLDING PATTERN, I.E. WHETHER ASSESSEE - COMPANY IS A SHAREHOLDER OF ASTER TELE SERVICES PRIVATE LIMITED, AND REDECIDE THE ISSUE ACCORDINGLY. IF IT IS FOUND, UPON SUCH VERIF ICATION, THAT THE ASSESSEE - COMPANY IS NOT A SHAREHOLDER OF M/S. ASTER TELE SERVICES PVT. LTD., EVEN THOUGH MRS.RAJINI MAY BE A COMMON SHARE HOLDER, THE ASSESSING OFFICER, FOLLOWING THE ABOVE DECISIONS OF THE SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR PVT . LTD. (SUPRA) AND THE HONBLE DELHI HIGH COURT IN THE CASE OF ANITECH PVT. LTD. (SUPRA), BESIDES THE DECISIONS OF OTHER HIGH COURTS, TO A REFERENCE HAS BEEN MADE BY THE CIT(A) IN THE IMPUGNED ORDERS, SHALL NOT INVOKE THE PROVISIONS OF S.2(22)(E) AND MAKE ANY ADDITIONS IN THAT BEHALF. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER SHALL ACCORDINGLY REDECIDE THE ISSUE ON DUE VERIFICATION IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. CONSISTENT WITH THE VIEW TAKEN BY U S IN THE ABOVE CASE IN WHICH IDENTICAL FACTS AND CIRCUMSTANCES ARE INVOLVED , WE SET ASIDE THE IMPUGNED ORDER OF THE CIT(A), AND RESTORE THE MATTER TO THE FILE O F THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE SHARE - HOL D IN G P A TTERN, I.E. WHETHER THE ASSESSEE - COMPA N Y IS NOT A SHA R EHOL D ER OF THE LENDER COMPANY, M/S. ASTER P. LTD., EVEN THOUGH SHRI KANTH A RAO AND SMT.RAJINI MAY BE COMMON SHAREHOLDERS . IF IT IS FOUND UPON SUCH VERIFICATION THAT ASSESSEE COMPANY IS NOT A SHAREHOLDER OF M/S. ASTER PVT. LTD . , FOLLOWING THE ABOVE DECISIONS OF THE SPECIAL BENCH IN THE CAS E OF BHAUMIK COLOUR PVT. LTD. (313 ITR 146 ) AND THE HONBLE DELHI HIGH COURT IN THE CASE OF ANITECH PVT. LTD. ( 340 ITR 14 ), BESIDES THE DECISIONS OF OTHER HIGH COURTS, TO WHICH A REFERENCE HA S BEEN MADE BY THE CIT(A) IN THE IMPUGNED ORDER, THE ASSESSING OFFICER SHALL NOT INVOKE THE PROVISIONS OF S.2(22)(E) AND MAKE ANY ADDITION IN THAT BEHALF. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER SHALL ACCORDINGLY REDECIDE THE ISSUE ON DUE VERIFICATION IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO. 1371 / HYD/201 3 M/S. ASTER NATURALS PVT. LTD., HYDERABAD 5 7. IN THE RESULT, REVENUES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 1 8 TH FEBRUARY, 2014 SD/ - SD/ - (B.RAMAKOTAIAH ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 1 8 TH FEBRUARY, 2014 COPY FORWARDED TO: 1. M/S. ASTER NATURALS PVT. LTD., PLOT NO.9, DEFENCE COLONY, SAINIK PURI, SECUNDERABAD. 2. DY. . COMMISSIONER OF INCOME - TAX INCOME TAX OFFICER CIRCLE 1 (1), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) I I , HYDERABAD 4. COMMISSIONER OF INCOME - TAX I HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S