ACIT, Gurgaon V. M/s. DLF Info City Developers (Bangalore) Ltd., Gurgaon

ITA 1478/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86471 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 29-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARWIDNER KAUR
• Keywords: Reopening of assessment; Additional evidence; Wholly owned subsidiary; Deemed dividend; Reassessment proceedings
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, A.M. AND SHRI GEORGE GEORGE K, JM ITA NO. 147 8 /DEL/201 2 ASSESSMENT YEAR : 200 6 - 07 ACIT, CIRCLE (1) VS. M/S DLF INFO CITY DEVELOPERS ( BANGALORE ) LTD. GURGAON 3 RD FLOOR, SHOPPING MALL COMPLEX ARJUN MARG, DLF CITY 1, GURGAON PAN: AA C CD 1486 A (APPELLANT) (RESPONDENT) A SSESSEE BY: - SH. R.S.SINGHVI, ADV. AND SH SATYAJEET GOEL, C.A. DEPARTMENT BY: - SMT.PARWIDNER KAUR, SR.D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AND IS DIRECTED AGAINST THE ORDER OF LD.CIT(A), FARIDABAD DATED 1 3 .01.2013 PERTAINING TO THE AY 2006 - 07 ON T HE FOLLOWING GROUNDS. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS RIGHT IN LAW IN DELETING THE ADDITION OF RS. 6,69, 000/ - MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND, INSPITE OF THE FACT THAT BEING SUBSIDIARY OF THE SUBSIDIARY TRANSACTION OF LOAN BY M/S DLF COMMERCIAL DEVELOPERS LTD. TO M/S DLF INFOCITY DEVELOPERS (KOLKATA) LTD. FALL IN THE CATEGORY OF DEEMED DIVIDEND AS PER THE PROVISIONS OF S.2(22)(E) OF THE ACT? IN THE LIGHT OF RATIO LAID DOWN BY THE HON BLE APEX COURT IN THE CASE OF KISHAN CHAND THE PROVISIONS OF S.2(22)(E) OF THE ACT IS CLEARLY APPLICABLE IN THE PRESENT CASE. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS RIGHT IN LAW IN DELETING THE ADDITION OF RS.6 ,69,000 / - ON T HE BASIS OF ADDITIONAL EVIDENCE ACCEPTED DURING APPELLATE PROCEEDINGS. 3 . THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. ITA NO. 147 8 /DEL/2012 AY 2006 - 07 M/S DLF INFO CITY DEVELOPERS ( BANGALORE ) LTD., GURGAON 2 2. WE HAVE HEARD SHRI RS SINGHVI, ADVOCATE TH E LD.COUNSEL FOR THE ASSESSEE AND SMT.PARWINDER KAUR, LD.SR.D.R. ON BEHALF OF THE REVENUE. 3. THE MAIN ISSUE THAT ARISES FOR OUR CONSIDERATION IS WHETHER THE DELETION OF ADDITION MADE BY THE AO U/S 2(22)(E) OF THE ACT BY THE LD.CIT(A) IS CORRECT OR NOT. THE FACTS AND DISCUSSION ON THE ADDITION ARE BROUGHT OUT AT PAGE 7 OF THE LD.CIT(A) S ORDER, AT PARAS 8 AND 9, WHICH ARE AS FOLLOWS. 8. THE AO HAS WRONGLY MADE AN ADDITION OF RS. 6,69,000 / - BY HOLDING THAT M/S DLF DEVELOPERS LTD. COMMERCIAL IS A COMPA NY IN WHICH M/S DLF LTD. HOLDS 100% SHARES AND M/S DLF LTD. ALSO HOLDS MORE THAN 50% SHARES OF APPELLANT COMPANY. AS PER AO, IF DLF LTD., AT ANY TIME DURING THE FY 2005 - 06, HAD HELD MORE THAN 20% OF THE SHARES OF THE APPELLANT COMPANY, THEN LOAN RECEIVED FROM DLF COMMERCIAL DEVELOPERS LTD. WOULD QUALIFY AS DEEMED DIVIDEND. THIS IS ONLY AN OBSERVATION MADE BY THE AO WHICH IS NOT BASED ON ANY MATERIAL AVAILABLE ON RECORD AND THE AO HAS DISREGARDED THE FACTS AVAILABLE ON RECORD TO THE EFFECT THAT M/S DLF LTD . HAD NEVER HELD ANY SHARES IN THE APPELLANT COMPANY. 9. IT WAS EXPLAINED DURING THE COURSE OF REASSESSMENT PROCEEDINGS THAT THE NOTICE ISSUED U/S 148 OF THE ACT IS WITHOUT JURISDICTION AND IS BAD IN LAW. THE REASONS RECORDED BY THE LD.AO FOR REOPENING T HE ASSESSMENT OR ON ERRONEOUS ASSIMILATION OF FACTS WHICH IS IMPERMISSIBLE FOR REOPENING THE ASSESSMENT. IT WAS EXPLAINED THAT THE AO SHOULD HAVE REASONS TO BELIEVE OF ITS OWN AND NOT BORROWED FROM OTHERS. THE AO OUGHT TO HAVE SATISFIED ITSELF THAT THE I NCOME HAS ESCAPED ASSESSMENT. IN THE INSTANT CASE THE FACTS STATED IN THE REASONS SUPPLIED TO THE ASSESSEE ARE ERRONEOUS AND IT DOES NOT GIVE THE JURISDICTION TO THE AO TO REOPEN THE ASSESSMENT ON WRONG INTERPRETATION OF FACTS. 4. A PERUSAL OF THE SAME DEMONSTRATES THAT THE LOAN HAS BEEN RECEIVED FROM M/S DLF COMMERCIAL DEVELOPERS LTD. WHICH IS A SHAREHOLDER OF DLF INFO CITY LTD. THIS IS NOT A CASE WHERE MONEY IS RECEIVED BY THE SHARE HOLDER FROM THE COMPANY. IT IS A CASE WHERE THE SHARE HOLDER HAS G IVEN OR ADVANCED MONEY TO THE ASSESSEE COMPANY. IN SUCH SITUATION S.2(22)(E) DOES NOT APPLY. 4.1 . THE FIRST APPELLATE AUTHORITY AT PARA 6.3 HELD AS FOLLOWS. ITA NO. 147 8 /DEL/2012 AY 2006 - 07 M/S DLF INFO CITY DEVELOPERS ( BANGALORE ) LTD., GURGAON 3 6.3. ON EXAMINATION OF DOCUMENTS FILED IN THE PAPER BOOK AND ON CONSIDERATION OF WRITTEN SUBMISSIONS, THERE REMAINS NO DISPUTE TO THE FACT THAT DLF COMMERCIAL DEVELOPERS LTD. IS A WHOLLY OWNED SUBSIDIARY OF DLF LTD. (NOW DLF UNIVERSAL LTD.) AS DLF LTD. HELD 100% EQUITY OF DLF COMMERCIAL DEVELOPERS LTD. THE APPELLANT COMPANY HAS ISSUED AND PAID UP CAPITAL OF RS.5,00,000/ - COMPRISING OF 50000 EQUITY SHARES OF RS.10/ - EACH. THE DLF COMMERCIAL DEVELOPERS LTD. HAS HELD ENTIRE SHARE CAPITAL OF THE APPELLANT C OMPANY ALONG WITH SIX NOMINEES WHO HELD ONLY ONE SHARE EACH. THE SHARE HOLDING PATTERN OF THE APPELLANT COMPANY HAS NOT CHANGED DURING THE YEAR UNDER APPEAL AS IS ESTABLISHED FROM THE MEMORANDUM AND ARTICLES OF ASSOCIATION, COPY OF ANNUAL RETURN AND FORM 2 0B FILED WITH REGISTRAR OF COMPANIES. AS PER THE AUDITED BALANCE SHEET FILED IN THE PAPER BOOK, THE APPELLANT HAS SHOWN NO INVESTMENT IN SHARES OF ANY COMPANY WHEREAS ITS ENTIRE SHARE CAPITAL HAS BEEN HELD BY DLF COMMERCIAL DEVELOPERS LTD. THE APPELLANT H AS FILED A COPY OF THE RELEVANT TEXT OF THE ANNUAL AUDITED ACCOUNTS OF DLF LTD. FOR THE YEAR ENDING 3L.03.2006 ALONG WITH ITS INVESTMENT SCHEDULE (PAGE 63 TO 65 OF PAPER BOOK), WHICH REVEALS THAT DLF LTD. HAS NOT HELD ANY SHARES IN THE APPELLANT COMPANY. T HE APPELLANT HAS FILED NECESSARY RELEVANT DETAILS IN THIS REGARD BEFORE THE AO DURING THE COURSE OF REASSESSMENT PROCEEDINGS AND I FIND NO REASON AS TO WHY THE AO SHOULD NOT LOOK INTO SUCH DETAILS SO AS TO COME TO A CONCLUSION AS TO THE SATISFACTION OR OTH ERWISE OF REQUISITE CONDITIONS AS PROVIDED U/S 2(22)(E) OF THE ACT. I REALLY FIND NO BASIS AT ALL TO SUPPORT THE OBSERVATION OF THE AO THAT 'THERE WERE VALID REASONS TO BELIEVE THAT M/S DLF LIMITED ALSO HELD MORE THAN 50% SHARES OF M/ S. DLF INFO CITY DE VELOPERS (KOLKATA) LTD. THE APPELLANT, VIDE LETTER DATED 2L.10.2009, HAS BROUGHT THIS FACT TO THE KNOWLEDGE OF THE AO THAT THE OBSERVATION REGARDING HOLDING OF 50% SHARE CAPITAL OF THE APPELLANT COMPANY BY DLF LIMITED WAS FACTUALLY INCORRECT. THE AO, INST EAD OF VERIFYING THIS FACTUAL ASPECT, HAS SIMPLY MOVED AWAY IN TUNE WITH THE REASONS RECORDED FOR REOPENING OF ASSESSMENT. THEREFORE, THE WHOLE OBSERVATIONS MADE BY THE AO THAT DLF LTD. HELD 50% SHARES IN THE APPELLANT COMPANY ARE ERRONEOUS, INCORRECT AND CONTRARY TO THE FACTS ON RECORD. THE ADMITTED FACT REMAINS THAT THE APPELLANT DOES NOT HOLD ANY SHARES IN DLF COMMERCIAL DEVELOPERS LTD. FROM WHOM THE LOAN HAS BEEN RECEIVED. IN FACT, DLF COMMERCIAL DEVELOPERS LTD. IS A 100% HOLDING COMPANY OF THE APPELLAN T AND IT IS THE CASE WHERE THE LOAN HAS BEEN GIVEN BY THE HOLDING COMPANY TO ITS SUBSIDIARY COMPANY AND NOT TO A SHARE HOLDER. I FIND FROM THE REASONS RECORDED BY THE AO, AS REPORTED BY THE ACIT CIRCLE - 10(1) NEW DELHI, THAT THE PROVISIONS OF SECTION 2(22) (E) WERE REQUIRED TO BE INVOKED IN THE CASE OF APPELLANT FOR TAXING THE DEEMED DIVIDEND ON SUBSTANTIVE BASIS ON THE OBSERVATIONS AS UNDER: 'THUS, THE TRANSACTION, FALL IN THE CATEGORY WHERE PAYMENT IS MADE TO A CONCERN IN WHICH SUCH PERSON SHOULD HAVE 10% HOLDING IN THE PAYING ITA NO. 147 8 /DEL/2012 AY 2006 - 07 M/S DLF INFO CITY DEVELOPERS ( BANGALORE ) LTD., GURGAON 4 COMPANY AND 20% IN THE RECIPIENT COMPANY. BOTH THESE CONDITIONS ARE FULFILLED IN THIS TRANSACTION.' EVIDENTLY, THIS OBSERVATION WAS APPLICABLE IN THE CASE DLF LIMITED, WHEREIN THE AO OF DLF LIMITED HAS POINTED OUT THAT THE LOAN WAS PAID TO THE APPELLANT (A CONCERN) BEING A RECIPIENT COMPANY IN WHICH DLF LIMITED HAD 20% SHAREHOLDING AND THE DLF LIMITED ALSO HAD 10% SHAREHOLDING IN THE DLF COMMERCIAL DEVELOPERS LIMITED, A PAYER COMPANY. ON THE BASIS OF THIS OBSERVATION, THE DEEMED DIVI DEND WAS TAXED IN THE HANDS OF DLF LIMITED ON PROTECTIVE BASIS, WHICH HAS ULTIMATELY BEEN DELETED BY THE LD. CIT (APPEALS) - XVII, NEW DELHI VIDE ORDER DATED 25.03.2011 IN APPEAL NO. 35/10 - 11 BY HOLDING IN PARA 29.47 OF THE ORDER THAT ALL THE COMPANIES TO WH OM LOANS WERE ADVANCED BY DLF COMMERCIAL DEVELOPERS LIMITED DID NOT HAVE ANY SHARE HOLDING IN DLF COMMERCIAL DEVELOPERS LIMITED. A COPY OF THIS ORDER HAS BEEN FILED BY THE APPELLANT AT PAGE 139 TO 159 OF THE PAPER BOOK). IN THE INSTANT CASE, IT IS AN ADMI TTED FACT THAT THE APPELLANT COMPANY IS NOT AT ALL A SHAREHOLDER IN DLF COMMERCIAL DEVELOPERS LIMITED. SINCE THE LOAN HAS BEEN GIVEN BY THE SHARE HOLDER I.E. DLF COMMERCIAL DEVELOPERS LTD. (HOLDING COMPANY) TO THE APPELLANT COMPANY, IT IS A TRANSACTION OF A LOAN FROM SHAREHOLDER AND NOT A LOAN TO A SHAREHOLDER. THEREFORE, THE AO HAS WRONGLY INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND MADE ADDITION OF RS.6 ,69,000 / - . THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANKITECH PVT. LTD. (199 TAXMAN 341) HAS HELD THAT THE DEEMED DIVIDEND CAN BE TAXED ONLY IN THE HANDS OF SHARE HOLDERS SUBJECT TO FULFILLMENT OF THE REQUISITE CONDITIONS OF SECTION 2(22)(E) OF THE ACT; AND NOT IN THE HANDS OF CONCERN TO WHOM LOAN IS ADVANCED IN WHICH SUCH SHARE HO LDER EVEN HAS A BENEFICIAL INTEREST. SINCE, THE APPELLANT IS NOT A SHARE HOLDER IN DLF COMMERCIAL DEVELOPERS LTD. THE ADDITION OF RS.6 ,69, 000/ - MADE BY THE AO IS NOT SUSTAINABLE. ALL THE GROUNDS OF APPEAL TAKEN UP ON THIS ISSUE STAND ALLOWED. (EMPHASI S OURS) 5. THE LD.D.R. COULD NOT CONTROVERT THESE FACTUAL FINDINGS OF THE FIRST APPELLATE AUTHORITY. HENCE WE UPHOLD THE FINDING OF THE LD.CIT(A). ITA NO. 147 8 /DEL/2012 AY 2006 - 07 M/S DLF INFO CITY DEVELOPERS ( BANGALORE ) LTD., GURGAON 5 SEC.2(22)(E) CANNOT BE INVOKED WHEN A SHARE HOLDER ADVANCES MONEY TO THE COMPANY. 6. IN THE RESULT THIS APP EAL BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH JANUARY, 2015 . SD/ - SD/ - ( GEORGE GEORGE K ) ( J. SU DHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 05 TH JANUARY, 2015 *MANGA COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR