DCIT RG 5(3), MUMBAI V. TOWER CAPITAL & FINANCIAL SERVICES P. LTD, MUMBAI

ITA 1424/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7854 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2004-2005
• Appeal Filed On: 03-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Assessee Lawyers: VIKAS MEHTA
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI RAJENDRA SINGH ,(AM) ITA NO.1424/MUM/2009 ASSESSMENT YEAR : 2004-05 DY. COMMISSIONER OF INCOME TAX RANGE-5(3) ROOM NO.573, 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ..( APPELLANT ) VS. TOWER CAPITAL & FINANCIAL SERVICES P. LTD. 4A, RIZVI PARK, ALTAMOUNT ROAD MUMBAI-26. ..( RESPONDENT ) P.A. NO. (AAACD 3122 H) APPELLANT BY : SHRI KISH AN VYAS RESPONDENT BY : SHR I VIKAS MEHTA O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DT.13.1.09 PASSED BY THE LD. CIT(A) FOR THE ASSESSM ENT YEAR 2004-05 TAKING FOLLOWING EFFECTIVE GROUND OF APPEAL. 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECT ING TO DELETE THE ADDITION U/S.2(22)(E) OF THE INCOME TAX ACT AMOUNTING TO RS.24,20,000/- BEING AMOUNT RECEIVED F ROM PRATIBHUTI HOLDINGS P. LTD. (PHPL) AS DEEMED DIVIDEN D WITHOUT APPRECIATING THE FACT BROUGHT ON RECORD BY THE ASSESSING OFFICER . ITA NO.1424/M/09 A.Y: 04-05 2 2. AT THE TIME OF HEARING THE LD. DR SUBMITS THAT TH IS ISSUE IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN ACIT V S. BHAUMIK COLOUR (P) LTD.(2009) 118 ITD 1(MUM.)(SB). 4. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTAT IVE OF THE ASSESSEE SEEKS ADJOURNMENT. 4. WE HAVE CAREFULLY HEARD THE LD. DR AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE COMPANY I S ENGAGED IN THE BUSINESS OF INVESTMENT, FINANCING AND TRADING IN SHA RES AND SECURITIES. IT FILED RETURN DECLARING TOTAL INCOME OF R S.7,980/- . DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS NOTED BY THE AO THAT THE ASSESSEE COMPANY RECEIVED LOAN FROM ONE OF ITS SISTER CONCERN S M/S. PRATIBHUTI HOLDINGS PVT. LTD.(PHPL) AS UNDER : OPENING BALANCE RECEIVED DURING THE YEAR BY THE ASSESSEE PAID DURING THE YEAR BY THE ASSESSEE CLOSING BALANCE RS.61,94,813/- RS.24,20,000/- RS.37,25,000/- RS.48,89,813/- THE ASSESSING OFFICER FURTHER NOTED THAT SMT. SMITA N. A MBANI IS HOLDING 10.56% SHARES IN THE ASSESSEE COMPANY. IN ADDITIO N TO THIS SMT. SMITA N. AMBANI IS ALSO LEGAL HEIR OF 1/3 RD SHARES OF SHRI NATWARLAL H. AMBANI. THUS TOTAL HOLDING OF SMT. SMI TA N. AMBANI IN ITA NO.1424/M/09 A.Y: 04-05 3 THE ASSESSEE COMPANY IS 6,41,666 WHICH WORKS OUT TO 23.77% OF TOTAL SHARES OF THE ASSESSEE COMPANY. SMT. SMITA N. AMBANI IS AL SO HOLDING MORE THAN 10% SHARES IN PHPL. SINCE SMITA N. A MBANI WAS HOLDING MORE THAN 20% SHARE CAPITAL IN PHPL AND HOLDIN G MORE THAN 10% SHARE CAPITAL IN THE ASSESSEE COMPANY. THE ASSESSING OFFI CER FURTHER NOTED THAT THE MAXIMUM LOAN AMOUNT OUTSTANDI NG OF M/S. PHPL WAS RS.24,20,000/-. THE ASSESSING OFFICER FURTHER NOT ED THAT M/S. PHPL IS MAKING PROFIT AND ITS ACCUMULATIVE RESERVE AS ON 31.03.2003 IS RS.45.60,188/- AND RS.61,38,834/- AS ON 3 1.03.2004. ACCORDING TO THE ASSESSING OFFICER AS THE PROFIT RESERVE IS E XCEEDING THE AMOUNT OF LOAN OF RS.24,20,000/- THE ENTIRE AMOU NT OF LOAN IS LIABLE TO BE TREATED AS DEEMED DIVIDEND U/S.2(22)(E) OF THE INCOME TAX ACT, 1961(THE ACT). ACCORDINGLY THE ASSESSEE WAS ASKED TO E XPLAIN WHY THE PROVISIONS OF SEC.2(22)(E) SHOULD NOT BE APPLIE D IN ITS CASE. THE ASSESSING OFFICER AFTER CONSIDERING ASSESSEES EXPLANATION WHEREIN IT WAS INTERALIA STATED THAT THE PROVISIONS OF SECTION 2 (22)(E) ARE NOT ATTRACTED AS BOTH THE CONDITIONS ARE NOT SATISFIED, WAS O F THE VIEW THAT THE CLAIM THAT SMT. SMITA N. AMBANI WAS HOLDING SHARES OF SHRI NATWARLAL H. AMBANI AS A BENEFICIAL OWNER IS AN EYE-W ASH AND IS NOT ACCEPTABLE, M/S. PHPL IS NOT A NON BANKING FINANCE COMPA NY WHICH IS REGISTERED WITH RBI AND M/S. PHPL IS NOT ENGAGED IN M ONEY LENDING BUSINESS. THE ASSESSING OFFICER WHILE RELYING ON THE ORDE R OF THE LD. ITA NO.1424/M/09 A.Y: 04-05 4 CIT(A) FOR ASSESSMENT YEAR 2003-04 WHEREIN THIS ISSUE WAS D ECIDED AGAINST THE ASSESSEE BROUGHT TO TAX AN AMOUNT OF RS.24,2 0,000/- OF THE INCOME OF THE ASSESSEE U/S.2(22)(E) OF THE ACT. ON AP PEAL, THE LD. CIT(A) FOLLOWING THE ORDER OF THE SPECIAL BENCH O F THE TRIBUNAL IN BHAUMIK COLOUR (P.) LTD. (SUPRA), HELD THAT PROVISION S OF SECTION 2(22)(E) ARE NOT APPLICABLE AND, HENCE, HE DELETED TH E ADDITION MADE BY THE ASSESSING OFFICER . 5. IN BHAUMIK COLOUR (P.) LTD. (SUPRA), IT HAS BEEN HELD BY THE SPECIAL BENCH VIDE PARA-41, APPEARING AT PAGE-27 OF THE REPORT AS UNDER : ON THE FIRST QUESTION : DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF A PERSON OTHER THAN A SHAREHOLDER. ON THE SECOND QUESTION : THE EXPRESSION SHAREHOLDER REFERRED TO IN SECTION 2(22)(E) REFER S TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER . IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENE FICIAL SHAREHOLDER THEN THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL S HAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN ALSO THE PROV ISIONS OF SECTION 2(22)(E) WILL NOT APPLY. IN THE CASE BEFORE US THERE IS NO DISPUTE THAT THE ASSESSEE COMPANY IS NOT A SHAREHOLDER OF M/S. PHPL. THIS BEING SO WE, RESPECTF ULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRI BUNAL (SUPRA), HOLD THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE AC T ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. ACCORDINGLY WE ARE I NCLINED TO ITA NO.1424/M/09 A.Y: 04-05 5 UPHOLD THE FINDING OF THE LD. CIT(A) IN DELETING TH E ADDITION MADE BY THE AO. THE GROUNDS TAKEN BY THE REVENUE ARE THEREF ORE REJECTED. 6. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.02.2010. SD/- SD/- (RAJENDRA SINGH) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED:01-02-2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR E BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. ITA NO.1424/M/09 A.Y: 04-05 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 12.1.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 12.1.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 01-02-10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 03-02-10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER