ADDL CIT 9(2), MUMBAI V. PATEL ALUMINIUM P. LTD, MUMBAI

ITA 1598/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8820 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 06-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 02-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: S K SOMANI
• Keywords: Capital asset; Depreciation; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1598/MUM/2010 (ASSESSMENT YEAR: 2006-07) DCIT 9 (2) M/S. PATEL ALUMINIUM PVT. LTD. ROOM NO. 218, 2ND FLOOR PATEL VANIKA, WESTERN EXPRE SS AAYAKAR BHAVAN, M.K. ROAD VS. HIGHWAY, GOREGAON (E) MUMBAI 400020 MUMBAI 400063 PAN - AAACP 2738 F APPELLANT RESPONDENT APPELLANT BY: SHRI S.K. SINGH RESPONDENT BY: SHRI S.K. SOMANI O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A)-XX, MUMBAI DATED 17.12.2009. 2. REVENUE HAS RAISED THE FOLLOWING TWO GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS .2,85,846/- OUT OF REPAIRS IGNORING THE FACT THAT SAID EXPENDIT URE WAS IN THE NATURE OF GIVING ENDURING BENEFIT AND NOT FORMING P ART OF CURRENT REPAIRS AND THEREFORE, CAPITAL IN NATURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.45, 09,935/- U/S. 2(22)(E) OF THE ACT IGNORING THE DECISION OF MUMBAI ITAT IN THE CASE OF M/S. UNISOL INFRA SERVICES PVT LTD. IN ITA NO. 2187/MUM/2008 DATED 11.08.2009 WHEREIN IT IS HELD T HAT THE PROVISIONS OF SECTION 2(22)(E) ARE APPLICABLE IN TH E HANDS OF RECIPIENT IF ALL THE CONDITIONS ARE SATISFIED. 3. GROUND NO. 1 PERTAINS TO THE DISALLOWANCE OF ` 2,85,846/-/- OUT OF REPAIRS EXPENSES. THE ASSESSEE INCURRED THE SAID SU M ON PURCHASE OF ALUMINIUM DOORS, MIRROR, FIBRE LIGHTS, ETC. AS DESC RIBED IN THE ASSESSMENT ORDER. THE A.O. OBSERVED THAT THESE ITEMS REPRESENT ED NEW CAPITAL ASSETS AND NOT REPAIR OR REPLACEMENT OF CERTAIN PARTS OF ASSET S. HE ALLOWED DEPRECIATION AND ADDED BACK THE REMAINDER SUM OF ` 2,85,846/-. THE CIT(A) ALLOWED THE ITA NO. 1598/MUM/2010 M/S. PATEL ALUMINIUM PVT. LTD. 2 CLAIM STATING AS I FIND THAT THE A.O. HAS NOT SHOW N AS TO HOW THE ITEMS PURCHASED WERE INDEPENDENT CAPITAL ASSETS AND NOT P ART OF CURRENT REPAIRS. 4. AFTER HEARING THE LEARNED D.R. AND THE LEARNED COUN SEL FOR THE ASSESSEE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). THE EXPENDITURE WAS IN THE NATURE OF REPAIRS AND RI GHTLY ALLOWED AS SUCH. ACCORDINGLY THIS GROUND IS REJECTED. 5. GROUND NO. 2 PERTAINS THE ADDITION OF ` 45,09,935/- AS DEEMED DIVIDEND UNDER SECTION 2(22)(3) OF THE ACT. THE A.O . OBSERVED THAT THE ACCOUNT OF M/S. EXTRUSION PROCESSES LTD. IN THE BOO KS OF THE ASSESSEE COMPANY SHOWED CREDIT BALANCE OF ` 45,09,935/-. HE NOTICED THAT SHRI M.I. PATEL, DIRECTOR OF THE ASSESSEE COMPANY, WHO WAS HO LDING MORE THAN 20% OF ITS SHARE WAS ALSO OWNER OF MORE THAN 10% SHARES IN THE SAID COMPANY. HE OBSERVED FROM THE BALANCE SHEET OF THE SAID COMPANY THAT ITS RESERVES AND SURPLUS EXCEEDED THE AMOUNT OF THE SAID CREDIT BALA NCE. THE A.O. WAS OF THE VIEW THAT THE AFORESAID FACTS FULFIL THE CONDITIONS PRESCRIBED UNDER SECTION 2(22)(E) AND, THEREFORE, THE CREDIT BALANCES TO THE EXTENT OF RESERVES AND SURPLUS OF THE CONCERN WERE DEEDED DIVIDEND IN THE HANDS OF THE ASSESSEE AND MADE THE ADDITION. BEFORE THE CIT(A) IT WAS SUB MITTED THAT THE IMPUGNED CREDIT BALANCE IS NOT THE SUM RECEIVED FRO M THE RELATED CONCERN, HAVING COMMON SHAREHOLDERS, AS LOAN OR ADVANCE, SO THAT IT WILL ATTRACT PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE CRED IT BALANCE REPRESENTS THE COST OF GOODS OR SERVICES RECEIVED BY THE ASSESSEE. COST OF GOODS OR SERVICES CANNOT BE TREATED AS ADVANCE OR LOAN. HENCE CLOSING BALANCE IN THE HANDS OF THE ASSESSEE CANNOT BE TREATED AS DEEMED DIVIDEND. EVEN IF IT IS ASSUMED THAT THE TRANSACTIONS ARE SUCH THAT PROVISIONS OF S ECTION 2(22)(E) ARE ATTRACTED, DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. AS THE ASSESSEE IS NOT A SHAREHOLDER IN THESE COMPANIES NO DEEMED DIVIDEND IS ASSESSABLE IN ITS HAND. 6. THE LEARNED CIT(A), AFTER CONSIDERING PROVISIONS OF SECTION 2(22)(E), DECIDED THE ISSUE AS UNDER: - 5.4 A PLAIN READING OF SECTION 2(22)(E) SHOWS THAT IN THE CIRCUMSTANCES STATED THEREIN ANY PAYMENT BY A COMPA NY TO A ITA NO. 1598/MUM/2010 M/S. PATEL ALUMINIUM PVT. LTD. 3 SHAREHOLDER EITHER DIRECTLY OR ON HIS BEHALF TO A C ONCERN IN WHICH HE HAS SUBSTANTIAL INTEREST WOULD TO THE EXTENT OF ITS ACCUMULATED PROFIT WOULD AMOUNT TO DIVIDEND IN THE HANDS OF SUCH SHARE HOLDER. BESIDES, ANY PAYMENT BY SUCH COMPANY TO ANY ONE FOR THE INDI VIDUAL BENEFIT OF SUCH SHAREHOLDER WOULD ALSO AMOUNT TO DIVIDEND T O THE EXTENT OF ITS ACCUMULATED PROFIT IN THE HANDS OF SUCH SHAREHOLDER . HOWEVER, IN THE LATTER CASE NOT ONLY THE PAYMENT HAS TO BE SHOWN BU T ALSO THE BENEFIT TO THE SHAREHOLDER ALSO TO BE ESTABLISHED. IT IS TH US CLEAR THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PER SON WHO IS A SHAREHOLDER OF THE LENDER COMPANY. AS OBSERVED ABOV E, ADMITTEDLY, THE APPELLANT IS NOT A SHAREHOLDER OF THE LENDER CO NCERN. IN ACIT VS BHAUMIK COLOUR (P) LIMITED 313 ITR (AT) 146 (SB) (M UM), 118 ITD 1 (SB) (MUM), HON'BLE TRIBUNAL HELD THAT DEEMED DIVID END CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHA REHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTH ER THAN A SHAREHOLDER. IT FURTHER HELD THAT THE EXPRESSION S HAREHOLDER REFERRED TO IN S. 2(22)(E) REFERS TO BOTH REGISTERED SHAREHO LDER AND BENEFICIAL SHAREHOLDER AND, THEREFORE, IF A PERSON IS A REGIST ERED SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER THEN THE PROVISIONS OF S. 2(22)9E) WILL NOT APPLY, SIMILARLY, IF A PERSON IS A BENEFICIAL S HAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN ALSO THE PROVISIONS OF S. 2(22)(E) WILL NOT APPLY. IN THE CIRCUMSTANCE THE PROVISIONS OF SECTIO N 2(22)(E) DO NOT APPLY TO THE APPELLANT. I, THEREFORE, DELETE THE AD DITION MADE OF RS.45,09,935. THE GROUND IS ALLOWED. 7. THE LEARNED D.R. TRIED TO DISTINGUISH THE JUDGEMENT OF THE SPECIAL BENCH BY RELYING ON THE DECISION IN THE CASE OF M/S . UNISOL INFRA SERVICES PVT LTD. IN ITA NO. 2187/MUM/2008, WHICH IS MENTION ED IN THE GROUNDS OF APPEAL. THE ORDER RELIED UPON BY THE REVENUE WAS RE CALLED SUBSEQUENTLY AS THAT ORDER DID NOT CONSIDER THE SPECIAL BENCH DECIS ION IN ITS CORRECT PERSPECTIVE AND ACCORDINGLY RELIANCE ON THE ABOVE I S NOT CORRECT. MOREOVER THE PRINCIPLES ON SHARE HOLDING DECIDED IN BHAUMIK COLOUR P. LTD. 313 ITR (AT) 146 (SB) (MUM) WAS UPHELD BY THE HON'BLE BOMBA Y HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE PVT. LTD. 324 ITR 263. C ONSEQUENTLY THE ORDER OF THE CIT(A) IS UPHELD. REVENUES GROUND IS REJECTED. 8. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 19 TH JANUARY 2011 ITA NO. 1598/MUM/2010 M/S. PATEL ALUMINIUM PVT. LTD. 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XX, MUMBAI 4. THE CIT IX, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.