M/s. Lily Moulders Pvt. Ltd., Baroda V. The ACIT., Circle-1(2), Baroda

ITA 1655/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8877 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-02-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 04-07-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Deemed dividend
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD - AHMEDABAD A BENCH (BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT AND SHRI T.K. SHARMA, JUDICIAL MEMBER) ITA NO.1655/AHD/2006 [ASSTT.YEAR : 2000-2001] GORADIA INNOVATIVE TECHNOLOGIES PVT. LTD. SUBHAAG, B/15, RAMIN PARK NR.EAST AFRICA SHOWROOM OLD PADRA ROAD VADODARA 390 020. VS. ACIT, CIR.1(2) BARODA. ASSESSEE BY : SHRI BANDISH SOPARKAR REVENUE BY : SHRI ANIL KUMAR DATE OF ORDER RESERVED : 25-02-2010 O R D E R PER SHRI G.D. AGARWAL, VICE-PRESIDENT : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT( A)-I, BARODA DATED 30- 3-2006 A.Y.2000-2001. 2. IN THIS APPEAL OF THE ASSESSEE VARIOUS GROUNDS A RE RAISED, HOWEVER, THEY ARE ALL AGAINST THE ADDITION OF RS.50,000/- MA DE BY THE ASSESSING OFFICER (THE AO FOR SHORT) AS DEEMED DIVIDEND UND ER SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961. AT THE TIME OF HEARIN G BEFORE US, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE AO MADE T HE ADDITION OF RS.50,000/- ON THE GROUND THAT THE ASSESSEE-COMPANY HAS TAKEN LOAN OF RS.50,000/- FROM JEWEL BRUSHES PVT. LTD. (JBPL F OR SHORT); THAT SUBIR AND SHRUD GORADIA ARE HOLDING 20% SHARE IN JBPL A ND THAT THE ASSESSEE COMPANY IS NOT SHAREHOLDER OF JBPL. HE THEREFORE SUBMITTED THAT ONCE THE ASSESSEE IS NOT A SHAREHOLDER OF JBPL, THE DE EMED DIVIDEND, IF ANY, PAGE - 2 ITA NO.1655/AHD/2006 -2- CANNOT BE ASSESSED IN THE HANDS OF THE ASSESSEE. I N SUPPORT OF THE CONTENTIONS, HE RELIED UPON THE DECISION OF THE SPE CIAL BENCH OF THE ITAT IN THE CASE OF BHAUMIK COLOURS P.LTD., 313 ITR 146 AT (MUM)(SB). HE FURTHER POINTED THAT THE ACCUMULATED PROFIT SHOWN I N THE BOOKS OF JBPL AT RS.8,16,971/- IS WORKED OUT WITHOUT PROPER WRITE OFF OF THE DEPRECIATION. IF THE DEPRECIATION IS PROVIDED AS P ER THE INCOME TAX ACT, THERE WOULD BE AN ACCUMULATED LOSS OF RS.1,13,16,50 1/-. IN SUPPORT OF HIS CONTENTION THAT THE ACCUMULATED PROFIT IS TO BE WOR KED OUT AS PER THE RATES OF DEPRECIATION PROVIDED UNDER THE IT ACT, HE RELIE D UPON THE DECISION OF THE ITAT, CHENNAI BENCH IN THE CASE OF YASIN HOTELS (P) LTD., 121 TTJ 713 (CHENNAI). 3. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF THE AUTHORITIES BELOW. HE HAS STATED THAT THE PROVISIO NS OF SECTION 2(22)(E) OF THE ACT IS VERY CLEAR AND THE DEEMED DIVIDEND IS TO BE TAXED IN THE HANDS OF THE PERSON WHO RECEIVED THE LOAN. HE ALSO SUBMI TTED THAT THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF BHA UMIK COLOURS P.LTD. IS CONTRARY TO THE PROVISIONS OF SECTION 2(22)(E) A ND THEREFORE SHOULD NOT BE APPLIED. HE ALSO SUBMITTED THAT THE ACCUMULATED PROFIT IS TO BE CONSIDERED AS THE BOOK PROFIT AND IF THERE IS AN AC CUMULATED PROFIT IN THE BOOKS OF ACCOUNT, THERE IS NO QUESTION OF RECALCULA TION OF THE PROFIT AS PER THE RATES OF THE DEPRECIATION PROVIDED UNDER THE IT ACT. IN SUPPORT OF HIS CONTENTIONS HE RELIED UPON THE FOLLOWING DECISIONS: I) CIT VS. BADIANI, 76 ITR 369 (BOM) II) CIT VS. BHAGWAT TEWARI , 105 ITR 62 (CAL) PAGE - 3 ITA NO.1655/AHD/2006 -3- 4. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED MATERIAL PLACED BEFORE US. THE SPECIAL BEN CH OF THE ITAT IN THE CASE OF BHAUMIK COLOURS P. LTD., (SUPRA) HELD AS UN DER: THAT DEEMED DIVIDEND COULD BE ASSESSED ONLY IN THE HANDS OF THE PERSON, WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER, I.E. TH E CONCERN] FROM THE ABOVE, IT IS EVIDENT THAT THE SPECIAL BENC H HELD THAT THE DEEMED DIVIDEND COULD BE ASSESSED ONLY IN THE HANDS OF THE PERSON WHO IS SHAREHOLDER OF THE LENDING COMPANY. IN THE CASE BE FORE US, ADMITTEDLY, THE ASSESSEE-COMPANY IS NOT THE SHAREHOLDER OF THE LENDER-COMPANY. THEREFORE, AS PER THE ABOVE DECISION OF THE SPECIAL BENCH OF THE ITAT, THERE WOULD NOT BE ANY ADDITION IN THE HANDS OF THE ASSESSEE-COMPANY WHICH IS NOT THE SHAREHOLDER OF THE LENDER COMPANY. THE LEARNED DR VEHEMENTLY CONTENDED THAT THE ABOVE DECISION OF THE SPECIAL BENCH OF THE ITAT SHOULD NOT BE FOLLOWED BECAUSE IT IS CONTRARY TO THE PROVISIONS OF SECTION 2(22)(E). WE ARE UNABLE TO AGREE WITH THIS SUBMISSION OF THE LEARNED DR. THE SPECIAL BENCH HAS INTERPRETED THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND THEREAFTER ARRIVED AT THE C ONCLUSION THAT THE DEEMED DIVIDEND UNDER SECTION 2(22)(E) COULD BE ASS ESSED IN THE HANDS OF THE PERSON WHO IS SHAREHOLDER OF THE LENDER-COMPANY AND IT CANNOT BE ASSESSED IN THE HANDS OF A PERSON OTHER THAN THE SH AREHOLDER. THE DECISION OF THE SPECIAL BENCH OF THE ITAT IS BINDIN G ON THE DIVISION BENCH. THE DECISIONS OF THE HONBLE BOMBAY HIGH CO URT AND THE CALCUTTA HIGH COURT RELIED UPON BY THE LEARNED DR W ERE ON DIFFERENT FACTS. IN THE CASE OF CIT VS. BADIANI (SUPRA), THE HONBLE BOMBAY HIGH COURT CONSIDERED THE ISSUE WHETHER THE ACCUMULATED PROFIT WOULD INCLUDE PAGE - 4 ITA NO.1655/AHD/2006 -4- DEVELOPMENT REBATE AND WHETHER IT WOULD INCLUDE THE PROFIT OF PREVIOUS YEAR. IN THE CASE OF CIT VS. BHAGWAT TEWARI (SUPRA ), THE HONBLE CALCUTTA HIGH COURT ALSO CONSIDERED THE ISSUE RELAT ING TO THE AVAILABILITY OF ACCUMULATED PROFIT AND HELD AS UNDER: . IF A SHAREHOLDER BORROWS MONEY FROM THE COMPAN Y AND IS PAID ADVANCES OR LOANS IN EXCESS OF THE ACCUMULATED PROFIT, THEN THE AMOUNT WHICH WOULD BE TREATED AS DIVIDEND IN HI S HANDS WOULD BE LIMITED TO THE EXTENT OF THE ACCUMULATED PROFIT. IF, ON THE OTHER HAND, A SHAREHOLDER TAKES ADVANCES OR LOANS OR THE COMPANY ADVANCES LOANS TO THE SHAREHOLDER LESS THAN THE ACC UMULATED PROFIT, THEN THE ENTIRETY OF THE LOAN TO THE EXTENT OF THE COMPANY HAS ACCUMULATED PROFIT WOULD BE TREATED AS DIVIDEND IN THE HANDS OF THE SHAREHOLDER. THUS, NONE OF THE ABOVE DECISIONS WOULD SUPPORT THE CONTENTION OF THE REVENUE THAT THE DEEMED DIVIDEND UNDER SECTION 2(22 )(E) CAN BE ASSESSED IN THE HANDS OF A PERSON OTHER THAN THE SHAREHOLDER . IN VIEW OF THE ABOVE, WE, RESPECTFULLY FOLLOWING THE DECISION OF THE SPEC IAL BENCH OF ITAT IN THE CASE OF BHAUMIK COLOURS PVT. LTD. (SUPRA), HOLD THAT THE ASSESSEE- COMPANY NOT BEING THE SHAREHOLDER OF THE LENDING CO MPANY, THE AMOUNT BORROWED BY IT CANNOT BE ASSESSED AS THE DEEMED DIV IDEND UNDER SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE-CO MPANY. ACCORDINGLY, WE DELETE THE ADDITION OF RS.50,000/- SUSTAINED BY THE CIT(A). 5. IN RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 5 TH MARCH, 2010. SD/- SD/- (T.K. SHARMA) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PAGE - 5 ITA NO.1655/AHD/2006 -5- PLACE : AHMEDABAD DATE : 05-03-2010 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD