ITO, Nashik V. M/s Zetex Engineers Pvt Ltd, Nashik

ITA 1570/PUN/2012

• Counselvise Citation: 157024514 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 23-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Depreciation; Deemed to accrue or arise in india; Deemed dividend; Unabsorbed depreciation
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NOS.1570 & 1571/PN/2012 A.Y. 2008-09 & 2009-10 ITO, WARD 1(4), NASHIK APPELLANT VS. M/S. ZETEX ENGINEERS PVT. LTD., ASA 6, ASHWIN NAGAR, PATHARDI PHATA, CIDCO, NASHIK 422009 PAN: AAACZ2640L RESPONDENT APPELLANT BY : SHRI S.P. W ALIMBE RESPONDENT BY : SHRI KIS HORE PHADKE DATE OF HEARING: 20.11.2013 DATE OF ORDER : 21.11.2013 ORDER PER SHAILENDRA KUMAR YADAV, J.M: BOTH THESE APPEALS HAVE BEEN FILED BY REVENUE PERT AINS TO SAME ASSESSEE FOR A.Y. 2008-09 AND 2009-10: 2. IN ITA NO.1570 & 1571/PN/2012, THE REVENUE HAS R AISED THE FOLLOWING COMMON GROUNDS: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS P ER LAW, WHETHER THE CIT(A) WAS JUSTIFIED IN DELETING THE AD DITION OF 63,05,624/- ON ACCOUNT OF DEEMED INCOME U/S.2(22)( E) TAXED AS INCOME IN THE ASSESSMENT ORDER? 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS P ER LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING T O INDICATE SPECIFICALLY THE FIGURES OF CURRENT YEARS DEPRECIATION OF 37,91,077/- AND UNABSORBED 2 DEPRECIATION OF 23,35,717/- WHILE GIVING EFFECT TO HIS ORDER WITHOUT TAKING COGNIZANCE OF THE FACTUAL AND LEGAL POSITION STATED IN THE ORDER U/S. 154 DATED 29/02/2 012, WHERE THE CLAIM OF THE ASSESSEE REGARDING CARRIED F ORWARD AND SET OFF OF DEPRECIATION & LOSSES WAS ALREADY RE JECTED? 3. THE APPELLANT CRAVE TO ADD, ALTER ANY GROUNDS OF AP PEAL AT ANY STAGE OF APPELLATE PROCEEDINGS. 3. THE ASSESSEE IS A COMPANY ENGAGED IN MANUFACTURE R OF EHV CLASS INSTRUMENT TRANSFORMERS. THE ASSESSING OFFIC ER MADE ADDITION OF RS.63,05,624/- ON ACCOUNT OF DEEMED INC OME U/S. 2(22)(E) OF I.T ACT. 3.1 IN APPEAL, THE CIT(A) GRANTED THE RELIEF TO THE ASSESSEE, INTERALIA STATING THAT DELETION OF ADDITION OF RS.6 3,05,624/- ON ACCOUNT OF DEEMED INCOME U/S.2(22)(E) WAS NOT JUSTI FIED. ACCORDINGLY, ORDER OF CIT(A) ON ISSUE BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. ON OTHER HAND, AUTH ORIZED REPRESENTATIVE RELIED ON DECISION OF APPEAL ON THE ISSUE. 3.2 AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE FIND THAT FOR INVOKING SECTION 2(22)(E), TWO CONDITIONS ARE REQUIRED TO BE SATISFIED WHERE ADVANCE IS GIVEN BY COMPANY IN WHICH COMPANY IS NOT SUBSTANTIALLY INTERESTED TO A CONCERN. FIRSTLY, SHAREHOLDING SHOULD BE A PERSON WHO IS A B ENEFICIAL OWNER OF SHAREHOLDING NOT LESS THAN 10% OF VOTING POWER A ND SECONDLY, SUCH SHAREHOLDER SHOULD HAVE SUBSTANTIAL INTEREST I N THE SAID CONCERN. THESE TWO CONDITIONS SHOULD BE FULFILLED CUMULATIVELY AND NOT ALTERNATIVELY. U/S.2(22)(E) IT IS NOT REAL INCOME BUT IS FICTIONALLY REGARDED BY LAW AS INCOME. THERE SHOUL D BE SUFFICIENT MATERIAL ON RECORD TO ARRIVE AT A CONCLUSION THAT T HERE WAS A BENEFIT ACCRUED TO CLOSELY HELD COMPANY TO WARRANT APPLICATION OF SECTION 2(22)(E) OF I.T ACT. UNDER THE PROVISIONS OF SECTION (22), DIVIDEND INCLUDES- (E) ANY PAYMENT BY A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTER ESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS O F THE COMPANY 3 OR OTHERWISE MADE AFTER THE 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITL ED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PART ICIPATE IN PROFITS) HOLDING LESS THAN TEN PERCENT OF THE VOTIN G POWER OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OF A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREINAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS. EXPLANATION 3 : FOR THE PURPOSES OF THIS CLAUSE- (A) CONCERN MEANS A HINDU UNDIVIDED FAMILY OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY; (B) A PERSONAL SHALL BE DEEMED TO HAVE SUBSTANTIAL INTE REST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIM E DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LES S THAN TWENTY PERCENT OF THE INCOME OF SUCH CONCERN. THE SCOPE OF SECTION 2(22)(E) OF THE ACT HAS BEEN E XPLAINED BY THE HONBLE SUPREME COURT IN THE DECISION IN THE CASE O F CIT VS. MYSODET (P) LTD. (1999) (103 TAXMAN 336/237 ITR 35 (SC) INTER ALIA HELD AS FOLLOWS:- A PERUSAL OF SECTION 2(22)(E) SHOWS THAT FOR THE PURPOSE OF THE ACT, ANY PAYMENT MADE BY A COMPANY OF ANY SUM OF MO NEY BY WAY OF ADVANCE OR LOAN TO ITS SHAREHOLDERS IS DEEME D TO BE A DIVIDEND. SINCE THE ACT HAS NOT PROVIDED FOR ANY O THER DEFINITION OF THE WORD DIVIDEND EXCEPT THE ONES ENUMERATED I N SECTION 2(22), IT SHOULD BE CONSTRUED THAT THIS DEFINITION WOULD BE APPLICABLE TO ALL PROVISIONS WHICH CONTAIN THE TERM DIVIDEND IN THE ACT. 3.3. IN THIS BACKGROUND, CIT(A) OBSERVED THAT SECTI ON 2(22)(E) IS A PROVISION WHICH CREATES LEGAL FICTION. THE LEGAL F ICTION CANNOT BE INTERPRETED TO WORK INJUSTICE AND CANNOT BE EXTENDE D BEYOND ITS 4 PURPOSE. CIT(A) FOUND THAT SUBJECT MATTER OF PAYME NT COMPLETED UNDER SECTION 2(22)(E) INCLUDES ANY ADVANCE, LOAN, ANY PAYMENT ON BEHALF OF SHAREHOLDERS AND ANY PAYMENT FOR BENEF IT OF THE SHAREHOLDERS. THE CHIEF INGREDIENT IN THAT SECTION IS THAT ONE SHOULD BE SHAREHOLDER ON DATE OF ADVANCE WAS MADE. IN PRESENT CASE EVEN THOUGH ADVANCE WAS MADE OUT OF THE PROFIT S OF LENDING COMPANY, BUT THE CHIEF INGREDIENT I.E. REGISTERED S HAREHOLDER AND BENEFICIAL INTEREST WAS NOT EXISTING IN ASSESSEES CASE. FIRSTLY, ASSESSEE COMPANY WAS NOT REGISTERED SHAREHOLDER OF LENDING COMPANY AND SECONDLY LENDING COMPANY HAS BEEN DISTR IBUTING DIVIDENDS EVERY YEAR, HENCE A QUESTION OF TRANSFER OF FUNDS OR DISTRIBUTING THE PROFITS DOES NOT ARISE. THE ITAT SPL. BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOR (P) LTD. (2009) 27 S OT (MUM) (SB), HAS HELD THAT DEEMED DIVIDEND CAN ONLY BE TAX ED IN THE HANDS OF A PERSON WHO IS NOT ONLY A BENEFICIAL SHAR EHOLDER, BUT ALSO A REGISTERED SHAREHOLDER. THE SAID OF BHAUMIK COLOR (P) LTD (SUPRA) HAS BEEN FOLLOWED BY ITAT, PUNE BENCH IN IT A NO.728/PN/2008 A.Y. 2005-06 VIDE AN ORDER DATED 31/ 03/2009 IN CASE OF M/S. SHIVANANDA ELECTRONICS VS. JCIT. T HE RATIO IN ABOVE TWO CASES APPLY TO THE FACTS OF THE ASSESSEE. THEREFORE, IN ABSENCE OF ABOVE INGREDIENTS, ADVANCE MADE BY SUBSI DIARY COMPANY TO ANOTHER GROUP COMPANY TO CARRY OUT ITS B USINESS WOULD NOT BE TREATED AS DEEMED DIVIDEND. ACCORDING LY, CIT(A) WAS JUSTIFIED IN HOLDING THAT NO PAYMENT AS CONTEMP LATED U/S. 2(22)(E) HAS BEEN MADE BY CLOSELY HELD ASSESSEE COM PANY. THE LOAN TAKEN BY ASSESSEE COMPANY IS A INTEREST BEARIN G AND NOT HIT BY SECTION 2(22)(E). ACCORDINGLY, CIT(A) WAS JUSTI FIED IN DELETING THE ADDITION OF RS.63,05,624/- MADE BY ASSESSING OF FICER. THE SAME IS UPHELD. 4. SECOND ISSUE IS WITH REGARD TO ALLOWABILITY OF B ENEFIT OF LOSSES IN RESPECT OF DEPRECIATION OF RS.37,91,077/- OF CUR RENT YEAR AND UNABSORBED DEPRECATION OF RS.23,35,717/- FOR A.Y. 2 007-08. IT WAS POINTED OUT ON BEHALF OF AUTHORIZED REPRESENTAT IVE THAT 5 ASSESSING OFFICER HAS NOT MENTIONED ABOUT THE DEPRE CIATION OF CURRENT AND UNABSORBED DEPRECIATION OF A.Y. 2007-08 . CIT(A) FOUND THIS CONTENTION CORRECT THAT ASSESSING OFFICE R WAS NOT MENTIONED ABOVE THESE LOSSES WHICH HE WAS REQUIRED TO DO SO. SO, HE DIRECTED ASSESSING OFFICER TO INDICATE SPECI FICALLY THE DEPRECIATION AND UNABSORBED DEPRECIATION FOR A.Y.20 07-08 WHILE GIVING EFFECT TO THIS ORDER. THIS FACTUAL REASONED FINDING OF CIT(A) NEED NO INFERENCE. WE HELD THE SAME. AS A RESULT APPEAL OF REVENUE FOR THIS YEAR IS DISMISSED. SIMILAR ISSUE AROSE IN A.Y. 2009-10. FOLLOWING THE SAME REASONING, THE APPEALS OF REVENUE ON BOTH ACCOUNTS IS DISMISSED. 5. IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE D ISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 21 ST OF NOVEMBER, 2013. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 21 ST NOVEMBER 2013 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-I, NASHIK 4) THE CIT-I, NASHIK 5) THE DR, B BENCH, I.T.A.T., PUNE. 6) GUARD FILE //TRUE COPY// BY ORDER SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE