DCIT, Virudhunagar V. Natchiar Textiles Exporters, Chatrapatti

ITA 1625/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96106 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 14-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR
• Keywords: Deemed dividend; Condonation of delay
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO .1625/MDS/2015 ( / ASSESSMENT YEAR: 2009-10) THE DEPUTY COMMISSIONER OF INCOME TAX, VIRUDHUNAGAR CIRCLE, VIRUDHUNAGAR. VS M/S. NATCHIAR TEXTILE EXPORTERS, 547/15, RAJAPALAYAM ROAD, CHATRAPATTI PAN:AAAFN7765P ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. A.V.SREEKANTH, JCIT /RESPONDENT BY : MR. S.SRIDHAR, ADVOCATE /DATE OF HEARING : 21 ST SEPTEMBER, 2015 /DATE OF PRONOUNCEMENT : 30 TH SEPTEMBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, MADURAI DATED 30.04.2015 FOR THE ASSESSMENT YEAR 2009-10. 2. THE APPEAL OF THE REVENUE IS BARRED BY LIMITATIO N OF ONE DAY. THE REVENUE FILED A PETITION EXPLAINING TH E REASON THAT THERE WAS A POSTAL DELAY IN RECEIVING APPEAL P APERS AND DELAY IN FILING OF APPEAL IS NEITHER WANTON NOR WIL LFUL AND THEREFORE PRAYS FOR CONDONATION OF DELAY. WE HAVE PERUSED THE REASONS AND ARE SATISFIED THAT THERE IS A REASO NABLE 2 ITA NO.1625/MDS/2015 CAUSE FOR THE DELAY IN FILING OF THE APPEAL. IN THE INTEREST OF JUSTICE, WE CONDONE THE DELAY IN FILING OF THE APPE AL. THE PETITION FOR CONDONATION OF DELAY IS ALLOWED AND TH E APPEAL IS ADMITTED. 3. THE ONLY GRIEVANCE OF THE REVENUE IN ITS APPEAL IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG THAT PAYMENTS MADE BY THE COMPANY TO THE ASSESSEE FIRM REPRESENT TRADE ADVANCE AND PROVISIONS OF DEEMED DI VIDEND UNDER SECTION 2(22)(E) OF THE ACT ARE NOT ATTRACTED . 4. BRIEF FACTS ARE THAT ASSESSEE IS A FIRM FILED IT S RETURN OF INCOME ON 23.09.2009 ADMITTING TOTAL INCOME OF ` 5,87,789/-. ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT ON 21.12.2011 DETERMINING THE INCOME OF THE FIRM AT ` 3,60,20,870/-. WHILE COMPLETING THE ASSESSMENT ASSE SSING OFFICER MADE ADDITION OF ` 3,51,55,000/- AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT AND BROUGHT TO TA X UNDER THE HEAD INCOME FROM OTHER SOURCES. IN THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE SUBMITTED THAT AMO UNTS RECEIVED BY THE ASSESSEE FROM M/S. NATCHIAR SPINNIN G MILLS P.LTD. ARE IN THE COURSE OF BUSINESS AND NOT LOAN OR DEPOSIT. 3 ITA NO.1625/MDS/2015 IT WAS THE SUBMISSION OF THE ASSESSEE THAT THE NATU RE OF TRANSACTIONS BETWEEN THE ASSESSEE FIRM AND M/S. NAT CHIAR SPINNING MILLS PVT.LTD. ARE THAT THE COMPANY WAS S ELLING YARN TO ASSESSEE FIRM ON CREDIT BY RAISING INVOICES, AGA INST THESE INVOICES PAYMENTS WERE MADE BY THE ASSESSEE FIRM, THEREFORE TRANSACTIONS BETWEEN THE ASSESSEE AND THE COMPANY ARE ONLY TRADING TRANSACTIONS IN THE COURSE OF BUSINESS AND THUS ADVANCE RECEIVED BY THE ASSESSEE FIRM ARE NOT LOAN OR DEPOSIT WITHIN THE MEANING OF PROVI SIONS OF SECTION 2(22)(E) OF THE ACT. HOWEVER, ASSESSING OF FICER REJECTED THE CONTENTIONS OF THE ASSESSEE AND BROUGH T TO TAX ADVANCES RECEIVED BY THE ASSESSEE FIRM TO THE EXTEN T OF ` 3,51,55,000/- AS DEEMED DIVIDEND UNDER SECTION 2(22 )(E) OF THE ACT. 5. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDER ING THE SUBMISSIONS OF THE ASSESSEE AND THE REMAND REPORT SUBMITTED BY THE ASSESSING OFFICER CONCLUDED THAT TRANSACTIONS BETWEEN THE ASSESSEE FIRM AND THE COMP ANY M/S.NATCHIAR SPINNING MILLS PVT LTD. ARE FOR PURC HASE OF 4 ITA NO.1625/MDS/2015 COTTON YARN IN THE COURSE OF CARRYING ON ASSESSEES BUSINESS. THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER HE LD THAT DETAILS FURNISHED BY THE ASSESSEE AND THE REMAND RE PORT ESTABLISH THAT THE AMOUNTS RECEIVED ARE COMMERCIAL TRANSACTIONS AND ADJUSTED THEN AND THERE AND ALSO A GAINST SUBSEQUENT PAYMENTS/RECEIPTS FOR YARN PURCHASE BILL S AND COTTON AND WASTE COTTON SALES FROM THE COMPANY. THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER HELD T HAT ASSESSEE FIRM IS NOT A SHAREHOLDER OF THE LENDER C OMPANY. 6. THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO H ELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HA NDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER IN VIEW OF VARIOUS DECISIONS OF HIGH COURTS INCLUDING MUMBAI SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR P.LTD. (118 ITD 1). THEREFORE, HE CONCLUDED THAT RECEIPTS REPRE SENT TRADE ADVANCE AND NOT A LOAN OR DEPOSIT WITHIN THE MEANI NG OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. AGAINST THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US. 5 ITA NO.1625/MDS/2015 7. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF THE ASSESSING OFFICER IN TREATING THE RECE IPTS FROM THE COMPANY BY THE ASSESSEE AS DEEMED DIVIDEND UNDER SE CTION 2(22)(E) OF THE ACT. 8. COUNSEL FOR THE ASSESSEE SUPPORTS THE ORDER OF T HE COMMISSIONER OF INCOME TAX (APPEALS) IN CONCLUDING THAT TRANSACTIONS BETWEEN THE COMPANY AND ASSESSEE FIRM ARE TRADE TRANSACTIONS AND ADVANCES RECEIVED BY THE AS SESSEE FIRM ARE ONLY IN THE COURSE OF BUSINESS OF THE ASSE SSEE AND THUS THE RECEIPTS REPRESENT ONLY TRADE ADVANCES NO T LOAN OR DEPOSIT WITHIN THE MEANING OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. COUNSEL FOR THE ASSESSEE FURT HER SUBMITS THAT THE ASSESSEE IS NOT A SHAREHOLDER OF THE LENDE R COMPANY AND IN WHICH CASE PROVISIONS OF SECTION 2(22)(E) HA VE NO APPLICATION FOR THE ADVANCES RECEIVED BY THE ASSES SEE IN VIEW OF THE MUMBAI SPECIAL BENCH DECISION IN THE CA SE OF ACIT VS. BHAUMIK COLOUR P.LTD.. (SUPRA). THEREFORE, HE PLEADS FOR SUSTAINING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 6 ITA NO.1625/MDS/2015 9. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSME NT MADE ADDITION OF ` 3,51,55,000/- REPRESENTING AMOUNTS RECEIVED BY THE ASSESSEE AS DEEMED DIVIDEND UNDER S ECTION 2(22)(E) OF THE ACT AND ASSESSED AS INCOME FROM O THER SOURCES, REJECTING THE CONTENTIONS OF THE ASSESSE E THAT RECEIPTS ARE ONLY TRADE ADVANCES RECEIVED IN THE CO URSE OF CARRYING ON THE BUSINESS WITH THE COMPANY. THE COMMISSIONER OF INCOME TAX (APPEALS) IN THE COURSE OF PROCEEDINGS AFTER CONSIDERING ELABORATE SUBMISSIONS OF THE ASSESSEE AND CALLED FOR REMAND REPORT FROM THE ASSE SSING OFFICER AND AFTER EXAMINING THE REMAND REPORT AND D ETAILS FURNISHED CONCLUDED THAT RECEIPTS REPRESENT ONLY TR ADE ADVANCES NOT LOANS OR DEPOSITS WITHIN THE MEANING O F DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT O BSERVING AS UNDER:- 6.9. GOING THROUGH THE REMAND REPORT AND THE REPLY OF THE APPELLANT FILED BEFORE AND AFTER THE REMAND-REPORT, FACTUALLY IT IS CLEAR THAT THERE ARE BUSINESS TRANSACTIONS BETWE EN THE TWO ENTITIES I.E ASSESSEE FIRM AND THE COMPANY M/S. NA TCHIAR SPINNING MILLS P LTD FOR PURCHASED COTTON YARN, GOT YARN CONVERTED ON CHARGES, PAID BOUGHT MACHINERY CHARGE S AND AT THE SAME TIME SOLD COTTON WASTE. THE DETAILS ESTABL ISH THAT THE AMOUNT RECEIVED IS A COMMERCIAL TRANSACTION AND ADJ USTED THEN AND THERE AND ALSO AGAINST SUBSEQUENT PAYMENT/ RECEIPTS FOR YARN PURCHASE BILLS AND COTTON & WASTE COTTON SALES FROM THE COMPANY. THE REASONING GIVEN BY THE AO (REPRODU CED 7 ITA NO.1625/MDS/2015 EARLIER) FOR MAKING THE ADDITION IS CRYPTIC AND IS ONLY ON THE GROUND THAT THERE WAS NO NEED TO RECEIVE AMOUNT FRO M WHEN THERE IS, ALREADY A CREDIT BALANCE. IN MY VIEW TH IS ALONE CANNOT BE THE REASON FOR INVOKING PROVISIONS OF SEC TION 2(22)(E). 6.10. ON GOING THROUGH THE LARGE NUMBER OF DECISIO NS RELIED BY THE APPELLANT I FIND THAT THE ARGUMENT RAISED BY THE APPELLANT HAS MERIT ALL THESE DECISIONS RELIED BY T HE APPELLANT, MANY OF WHICH ARE RECENT ONES INCLUDING A JURISDICT IONAL HIGH COURT DECISION, HAVE HELD THAT WHERE THERE IS BUSIN ESS CONNECTION THE ADVANCE CANNOT BE TAXED AS DEEMED DI VIDEND. AN ANALYSIS OF THE SAME SHOWS THAT THESE DECISIONS ARE APPLICABLE TO THE FACTS IN THE INSTANT CASE. THE CA SE LAWS RELIED BY THE AO IN THE REMAND REPORT ARE VERY OLD AND ALSO NOT ON THE IDENTICAL FACTS. APPELLANT IN ITS REPLY DATED 24TH APRIL 2015 ( DISCUSSED EARLIER) ARGUED THAT THESE ARE NOT APPLICABLE TO THE FACTS ON HAND. THEREFORE IT IS HELD THAT THE RECEIPTS REPRESENT TRADE ADVANCE AND NOT A LOAN/ADVANCE WITH IN THE MEANING OF DEEMED DIVIDEND U/S 2(22)(E). THEREFORE PROVISIONS OF DEEMED DIVIDEND U/S 2(22) (E) ARE NOT APPLICABLE. THE ADDITION MADE UNDER THIS HEAD IS DE LETED. 10. THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHE R HELD THAT ASSESSEE FIRM IS NOT A SHAREHOLDER IN TH E LENDER COMPANY AND DEEMED DIVIDEND CAN BE ASSESSED ONLY I N THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDE R COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THA N THE SHAREHOLDER IN VIEW OF THE MUMBAI SPECIAL BENCH DEC ISION IN THE CASE OF ACIT VS. BHAUMIK COLOUR P.LTD.,(SUPRA). WE ALSO CONSIDERED THE DECISION OF DELHI HIGH COURT I N THE CASE OF CIT VS.ANKITECH PVT. LTD. (2011) 11 TAXMAN.COM 100. ON CONSIDERING THE VARIOUS DECISIONS OF THE HIGH COURT S AND THE DECISION OF MUMBAI SPECIAL BENCH IN THE CASE OF AC IT VS. 8 ITA NO.1625/MDS/2015 BHAUMIK COLOUR P. LTD. (SUPRA) THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT PROVISIONS OF SECTION 2(22) (E) HAVE NO APPLICATION WHEN THE ASSESSEE IS NOT A REGISTE RED SHAREHOLDER OF THE LENDER COMPANY. WHILE HOLDING SO , THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED AS UN DER: - 7.1. ON GOING THROUGH THE LARGE NUMBER OF DECISIONS RELIED BY THE APPELLANT, I FIND THAT THE ARGUMENT R AISED BY THE APPELLANT HAS MERIT. ALL THESE DECISIONS RELIED BY THE APPELLANT, INCLUDING A SPECIAL BENCH DECISION OF IT AT MUMBAI, HAVE HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN HANDS OF A PERSON WHO IS A SHAREHO LDER OF A LENDER COMPANY AND NOT IN HANDS OF A PERSON OT HER THAN A SHAREHOLDER AND THAT MEANING OF SECTION 2(22 )(E) CANNOT BE EXTENDED TO INCLUDE OTHERS ON THE GROUND OF COMMON SHAREHOLDING. THE FACTS IN THE INSTANT CASE ARE IDENTICAL AS ASSESSEE FIRM M/S. NATCHIAR TEXTILE EX PORTERS, IS NOT SHAREHOLDER OF LENDING COMPANY M/S. NATCHIAR SPINNING MILLS P LTD. SRI. A.BALASUBRAMANIAN (63%) & SMT. B.JEYARANI (32%) HAVE SUBSTANTIAL INTEREST IN BOTH CONCERNS. 7.2. SINCE ASSESSEE FIRM IS NOT A SHAREHOLDER IN TH E LENDING COMPANY, DULY FOLLOWING THE ABOVE DECISIONS , IT IS HELD THAT THE DEEMED DIVIDEND UNDER PROVISIONS OF SECTION 2(22)(E) CANNOT BE MADE IN THE HANDS OF THE ASSESSEE. THE ADDITION MADE BY THE AO IS DELETED O N THIS ALTERNATE GROUND ALSO. 11. ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) I N HOLDING THAT TRANSACTIONS BETWEEN THE LENDER COMPAN Y AND ASSESSEE FIRM ARE IN THE COURSE OF BUSINESS AND THE AMOUNTS RECEIVED BY THE ASSESSEE ARE ONLY TRADE ADVANCES AN D THUS 9 ITA NO.1625/MDS/2015 PROVISIONS OF SECTION 2(22)(E) HAVE NO APPLICATION. FURTHER WHEN THE ASSESSEE IS NOT A SHAREHOLDER OF THE LENDE R FIRM, PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE I N VIEW OF THE MUMBAI SPECIAL BENCH DECISION IN THE CASE OF ACIT V S. BHAUMIK COLOUR PVT.LTD (SUPRA). IN THE CIRCUMSTANCE S, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND REJECT THE GROUNDS RAISED BY THE REVE NUE. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2015. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 30 TH SEPTEMBER, 2015 SOMU 12 32 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .