M/S VINEER GLASS INDUSTRIES, Nagpur V. ACIT, CIRCLE-7, Nagpur

ITA 140/NAG/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1712 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 15-04-2013
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Assessee Lawyers: A G PIMPARKHEDE
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 140/NAG./2013 ( ASSESSMENT YEAR : 200607 ) M/S. VINEER GLASS INDUSTRIES 115/1, KAMPTEE ROAD, KHAIRY NAGPUR 441 002 PAN AAAFV9138Q APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE7, NAGPUR RESPONDENT REVENUE BY : SHRI NARENDRA KANE ASSESSEE BY : SHRI A.G. PIMPARKHEDE DATE OF HEARING 19.08.2015 DATE OF ORDER 28.08 .2015 O R D E R PER MUKUL K. SHRAWAT, J.M. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING FROM THE IMPUGNED ORDER DATED 13 TH FEBRUARY 2013, PASSED BY THE LEARNED COMMISSIONER (APPEALS), NAGPUR, FOR THE ASSESSMENT YEAR 200607, ON THE FOLLOWING GROUND OF APPEAL: M/S. VINEER GLASS INDUSTRIES 2 1. THE LEARNED CIT(A) IS NOT CORRECT AND JUSTIFIED IN CONFIRMING THE ADDITION OF ` 2,50,000 UNDER SECTION 2(22)(E) OF THE ACT. THE ORDER OF THE LEARNED CIT(A) IS NOT ACCORDING TO THE PROVISIONS OF LAW AND VARIOUS JUDGMENTS OF THE HONBLE HIGH COURT S AND INCOME TAX APPELLATE TRIBUNAL. 2. ACCORDING TO SHARE HOLDING PATTERN, AS DISCUSSED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER DATED 17 TH DECEMBER 2008, PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 19 61 (FOR SHORT 'THE ACT' ) WERE THAT THE ASSESSEE FIRM HAS ONE SHRI V.D. GUPTA , HAVING 60% SHARE IN THE PROFIT OF THE FIRM. SHRI V.D. GUPTA, WAS ALSO HOLDING 26% OF EQUITY SHARE IN A COMPANY NAMELY SHRI VENKATE SHWARA GLASS PVT. LTD. (IN SHORT SVGPL ). THE ASSESSING OFFICER HAS ALSO FOUND THAT THE ASSESSEE FIRM WAS HOLDING 5% SHARE IN THE SAID S VGPL. ON THE BASIS OF THE ABOVE POSITION OF THE SHARE HOLDING ALLO CATION; THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WA S HAVING SUBSTANTIAL SHAREHOLDING IN THE SAID COMPANY, THEREF ORE, PROVISIONS OF DEEMED DIVIDEND COULD BE INVOKED IN RESPECT OF AN AMOUNT OF ` 2,50,000, RECEIVED FROM SVGPL. RESULTANTLY, THE SAID SUM OF ` 2,50,000, WAS ADDED IN TAXABLE INCOME OF THE ASSESSE E BY INVOKING PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 3. THE ADDITION WAS CHALLENGED BEFORE THE FIRST APPELLAT E AUTHORITY. THE LEARNED COMMISSIONER (APPEALS) HAS DISCUSSED TH E DECISION OF CIT M/S. VINEER GLASS INDUSTRIES 3 V/S BHARATI OVERSEAS TRADING CO., [2012] 249 CTR 554 (DEL.) AND CAME TO THE CONCLUSION THAT THE JUDGMENT OF HON'BLE JUR ISDICTIONAL HIGH COURT PRONOUNCED IN THE CASE OF CIT V/S UNIVERSA L MEDICARE PVT. LTD. [2010] 324 ITR 263 (BOM.), IS DISTINGUISHABLE ON FACTS. ACCORDING TO THE LEARNED COMMISSIONER (APPEALS), A DIRECTOR OF TH E COMPANY IS A SEPARATE ENTITY THAN THE COMPANY. HOWEVER, THIS IS THE C ASE OF A FIRM AND A PARTNER IS NOT A SEPARATE ENTITY. ACCORDING TO THE LEARNED COMMISSIONER (APPEALS), THE DECISION OF THE HON'BLE J URISDICTIONAL HIGH COURT IS NOT APPLICABLE IN THE INSTANT CASE. THE SECOND ARGUMENT OF THE ASSESSEE THAT THE SAID AMOUNT WAS PAID OUT OF THE BORR OWED LOAN FROM THE CANARA BANK AND NOT OUT OF ACCUMULATED PROFIT WAS A LSO REJECTED. BEING AGGRIEVED, NOW THE ASSESSEE IS IN FURTHER APPEA L BEFORE US. 4. FROM THE SIDE OF THE ASSESSEE, THE LEARNED COUNSEL FO R THE ASSESSEE, A.G. PIMPARKHEDE , APPEARED AND MAINLY PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) SKYLINE GREAT HILLS V/S ITO, ITA NO.6618/MUM./2012, FOR A.Y. 200910, ORDER DATED 8 TH MAY 2013 (MUM.); II) CIT V/S UNIVERSAL MEDICARE PVT. LTD. [2010] 324 ITR 263 (BOM.); AND III) CIT V/S IMPACT CONTAINERS (P) LTD. & ORS, 107 DTR 145 (BOM.). M/S. VINEER GLASS INDUSTRIES 4 HE HAS PLEADED THAT THE ASSESSEE FIRM WAS HOLDING ON LY 5% SHARE IN THE COMPANY NAMELY SVGPL. THE LEARNED COUNS EL FOR THE ASSESSEE FURTHER ELABORATED THAT OUT OF THE TOTAL SHARE HOLDING OF 30,000 IN NUMBER, THE ASSESSEE WAS HOLDING ONLY 1,50 0 SHARES IN NUMBER. AS FAR AS THE CORRECTNESS OF THE HOLDING WAS CONCERNED, THERE WERE FEW EVIDENCES ALSO RELIED UPON AS ANNUAL RETUR N UNDER COMPANIES ACT, 1956, ETC. THE LEARNED COUNSEL HAS THEN DRAWN OU R ATTENTION ON THE LANGUAGE OF THE PROVISIONS OF SECTION 2(22)(E) O F THE ACT THAT THE SAID DEEMING PROVISION CAN BE APPLIED IF HOLDING IS NOT LESS THAN 10%. SINCE THE ASSESSEE HAD ONLY 5% HOLDING, THEREFORE, T HE DEEMING PROVISIONS WERE WRONGLY INITIATED. THE LEARNED COUNS EL HAS ALSO MENTIONED THAT THE FACTS ABOUT THE IMPUGNED LOAN WAS THAT SVGPL HAD GIVEN TEMPORARY ADVANCE OF ` 2,50,000, ON 1 ST FEBRUARY 2006 TO THE ASSESSEE FIRM WHICH WAS REFUNDED ON 4 TH FEBRUARY 2006. IT WAS AN URGENT BUSINESS NECESSITY OF THE ASSESSEE FIRM, HOWE VER, THE SAME WAS RETURNED WITH 34 DAYS. IT WAS NOT A PERMANENT AD VANCE WHICH CAN BE DEEMED AS A DISTRIBUTION OF ACCUMULATED PROFI T BY THE SAID COMPANY TO THE ASSESSEE FIRM. 5. AFTER HEARING THE SUBMISSIONS OF BOTH THE SIDES AT SOME LENGTH, PRIMAFACIE, WE ARE OF THE CONSCIENTIOUS VIEW THAT THE DEEMING PROVISIONS SHOULD BE APPLIED IN A RESTRICTIVE MANNER . THERE SHOULD NOT M/S. VINEER GLASS INDUSTRIES 5 BE A PRESUMPTION TO ATTRACT THE DEEMING PROVISION. IN TH IS CASE, A PRESUMPTION HAS BEEN DRAWN THAT THE ASSESSEE FIRM HAD S UBSTANTIAL SHARE HOLDING OF THE SAID COMPANY THROUGH ITS PARTNER . SUCH A DEEMING PRESUMPTION IS NOT THE INTENTION OF THE LEGIS LATURE IN QUESTION. ADMITTEDLY, THE ASSESSEE FIRM HAD ONLY 5% SHARE HOLD ING WHICH WAS LESS THAN 10% OF THE SHARE HOLDING AS PRESCRIBED UND ER SECTION 2(22)(E) OF THE ACT. THESE PROVISIONS ARE REQUIRED TO BE APPLIED WHERE THE SHARE HOLDING IS NOT LESS THAN 10% OF THE VOTING POW ER. BECAUSE OF THIS REASON, WE HEREBY HOLD THAT THE REVENUE AUTHORIT IES HAVE INCORRECTLY EXTENDED THE SCOPE OF THE PROVISIONS OF S ECTION 2(22)(E) OF THE ACT. THE OBJECTIVE AND THE SCOPE TO INTRODUCE THIS S ECTION WAS TO TAKE SUCH SHAREHOLDERS WHO ARE INTENDING TO AVOID DIV IDEND TAX BY GETTING BENEFIT FROM THE COMPANY WAY OF LOAN, ETC. NO NSHAREHOLDERS OR HAVING LOWER SHARE HOLDING, THEN THE 10% AS PRESCR IBED IN THE STATUTE SHOULD NOT BE TAXED TAKING THE RECOURSE OF THIS SECTION. THE ALTERNATE PLEA OF THE LEARNED COUNSEL IS ALSO CONVIN CING THAT THE TEMPORARY LOAN COULD NOT BE SUBJECT TO ATTRACT DEEMIN G PROVISIONS. WE, THEREFORE, HOLD THAT THE DECISION AS CITED SUPRA O F THE HON'BLE JURISDICTIONAL HIGH COURT, HAS A BEARING ON THE ISSU E AS RAISED BEFORE US, THEREFORE, RESPECTFULLY FOLLOWING THE LEGAL RATIO LAID DOWN IN THOSE JUDGMENTS, WE HEREBY REVERSE THE FINDINGS OF THE AUT HORITIES BELOW M/S. VINEER GLASS INDUSTRIES 6 AND DIRECT NOT TO TAX THE AMOUNT IN QUESTION UNDER THE P ROVISIONS OF SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.08.2015 SD/ - SHAMIM YAHYA ACCOUNTANT MEMBER SD/ - MUKUL K. SHRAWAT JUDICIAL MEMBER NAGPUR, DATED: 28.08.2015 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, NAGPUR CITY CONCERNED; (5) THE DR, ITAT, NAGPUR; (6) GUARD FILE. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY A SSISTANT REGISTRAR ITAT, NAGPUR