ACIT., Circle-2(3), Hyderabad, Hyderabad V. M/s Trident Chemphar Limited, Hyderabad

ITA 1696/HYD/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0347 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 03-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Deemed dividend
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1696/HYD/2014 ASSESSMENT YEAR 2010-11 THE ACIT, CIRCLE 2(3), HYDERABAD VS. M/S. TRIDEN T CHEMPHAR LTD., HYDERABAD PAN AAEFT8416H (APPELLANT) (RESPONDENT) FOR REVENUE : MR. D. SUDHAKAR RAO , CIT FOR ASSESSEE : MR. P.V.S.S.PRASAD , CA DATE OF HEARING : 09 - 0 4 - 2015 DATE OF PRONOUNCEMENT : 17 - 0 4 - 2015 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS REVENUE APPEAL AGAINST THE ORDER OF THE L D. CIT(A)-III, HYDERABAD DATED 20 TH AUGUST, 2014 ON THE ISSUE OF ADDITION MADE UNDER SECTION 2(22)(E) BY THE A.O. OF RS.5 CRORES AS DEEMED DIVIDEND BUT DELETED BY THE LD. CIT(A). 2. ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN CHEMICALS, MINERALS AND MINES. IN THE CO URSE OF ASSESSMENT PROCEEDINGS, A.O. NOTICED THAT ASSESSEE HAS RECEIVED AN AMOUNT OF RS. 5 CRORES FROM ONE OF ITS GROUP CONCERN M/S. AXIS CLINICALS P. LTD., IT WAS SUBMITT ED BY THE 2 ITA.NO.1696/HYD/2014 M/S. TRIDENT CHEMPHAR LTD., HYDERABAD. ASSESSEE THAT IT HAS RECEIVED INTER CORPORATE DEPOS ITS (ICD) FROM THE SAID COMPANY TO MEET ITS BUSINESS NEEDS. I T WAS ALSO SUBMITTED THAT ICD RECEIVED WAS WITH SPECIFIC TERMS AS TO ITS REPAYMENT AND INTEREST, CONTENDED THAT THE RECEIPT OF ICD CANNOT BE CONSIDERED AS LOAN OR ADVANCE SO AS TO AT TRACT PROVISIONS OF SECTION 2(22)(E). THE A.O. HOWEVER, D ID NOT AGREE. HE NOTICED THAT ASSESSEE AS WELL AS M/S. AXIS CLINI CALS P. LTD., HAVING COMMON SHAREHOLDING AND MR. V. SARATHCHANDRA REDDY HAS CONTROLLING INTEREST IN BOTH THE COMPANIES. THE REFORE, HE WAS OF THE OPINION THAT CLAUSE (E) OF SECTION 2(22) WAS ATTRACTED. HE ALSO NOTICED THAT THE SAID COMPANY AX IS CLINICALS P. LTD., HAS ACCUMULATED PROFITS OF RS.17.99 CRORES AND THE PAYMENT WAS IN THE NATURE OF LOAN OR ADVANCE AND NO T IN THE COURSE OF ORDINARY BUSINESS ACTIVITY. HE MADE THE A DDITION OF THE AMOUNT AS DEEMED DIVIDEND. 3. BEFORE THE LD. CIT(A), IT WAS CONTENDED THAT TH E AMOUNT RECEIVED FROM M/S. AXIS CLINICALS LTD., IS A N INTER CORPORATE DEPOSIT AND NOT LOAN OR ADVANCE SO AS TO ATTRACT THE PROVISIONS OF SECTION 2(22)(E). ASSESSEE RELIED ON THE DECISION OF CIT VS. BOMBAY OIL INDUSTRIES VS. DCIT (2009) 28 SO T 383, IFB AGRO INDUSTRIES LTD., VS. JCIT (2014) 63 SOT 20 7 AND ALSO DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. DAISY PACKERS P. LTD., (2014) 220 TAXMAN 331. IN TH ESE CASES, THE ISSUE WAS WHETHER THE INTER CORPORATE DEPOSIT W ITH SPECIFIC TERMS AS TO ITS REPAYMENT AND INTEREST COULD BE TRE ATED AS LOAN OR ADVANCE IN ORDER TO APPLY THE PROVISIONS OF SECT ION 2(22)(E). THE HONBLE HIGH COURT OF GUJARAT HELD THAT AFTER D UE CONSIDERATION OF VARIOUS ISSUES, THE INTER CORPORAT E DEPOSITS CANNOT BE CALLED AS LOANS OR ADVANCES FOR THE PURPO SE OF 3 ITA.NO.1696/HYD/2014 M/S. TRIDENT CHEMPHAR LTD., HYDERABAD. APPLICATION OF PROVISIONS OF SECTION 2(22)(E). LD. CIT(A) FOLLOWING THE PRINCIPLES LAID DOWN BY THE ABOVE CASES AND DIS TINGUISHED THE CASE OF CIT VS. NATIONAL TRAVEL SERVICES WHICH WAS RELIED UPON BY THE A.O., HELD THAT INTER CORPORATE DEPOSIT ACCEPTED BY THE ASSESSEE COMPANY CANNOT BE TREATED AS DEEMED DI VIDEND UNDER SECTION 2(22)(E) OF THE I.T. ACT, 1961. REVEN UE IS AGGRIEVED. 4. LD.DR ARGUED THAT IT WAS A CASE OF CAMOUFLAGING THE LOAN AS INTER-CORPORATE DEPOSIT, WHEREAS LD.COU NSEL FOR THE ASSESSEE FILED THE ANNUAL REPORTS AND COPY OF 3CD R EPORT WHERE THIS AMOUNT WAS CLEARLY STATED AS INTER-CORPORATE D EPOSIT. 5. AFTER CONSIDERING THE ORDERS OF THE AUTHORITIES , WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER O F THE LD. CIT(A). AS HELD BY HONBLE GUJARAT HIGH COURT IN TH E CASE OF CIT VS. DAISY PACKERS (P) LTD. (SUPRA), ACCEPTANCE OF INTER CORPORATE DEPOSIT CANNOT BE TREATED AS LOAN OR ADVA NCE SO AS TO ATTRACT THE PROVISIONS OF DEEMED DIVIDEND UNDER SEC TION 2(22)(E). AS SEEN FROM THE ANNUAL REPORT, ASSESSEE HAS RECEIVED MORE THAN RS.24 CRORES OF INTER-CORPORATE DEPOSITS INCLUDING RS.9 CRORES FROM PVR HOLDINGS PVT. LTD., AND RS.14 CRORES FROM TATA CAPITAL LTD. SO, THERE IS NO DISPUTE TO THE FACT THAT THE AMOUNTS ARE RECEIVED AS INTER-CORPORATE DEPOSIT S ONLY. CO- ORDINATE BENCH IN THE CASE OF IFB AGRO INDUSTRIES L TD., 42.TAXMANN.COM 246 (KOL) HAS HELD THAT INTER-CORPOR ATE DEPOSIT RECEIVED COULD NOT BE TREATED AS LOAN FALLI NG WITHIN THE PURVIEW OF SECTION 2(22)(E). EVEN OTHERWISE WHAT W E NOTICED IS THAT THE SAID AXIS CLINICALS LTD., IS NOT A SHAREHO LDER OF ASSESSEE COMPANY NOR ASSESSEE IS A SHAREHOLDER OF T HE OTHER COMPANY. A.O. HAS IN FACT EXTRACTED THE SHARE HOLDI NG PATTERN 4 ITA.NO.1696/HYD/2014 M/S. TRIDENT CHEMPHAR LTD., HYDERABAD. IN PAGE 4 OF THE ORDER WHEREIN ASSESSEE SHARE HOLDI NG COMPRISES OF 99.988% HELD BY MR. P. SARATHCHANDRA R EDDY AND BALANCE 0.012% BY SIX INDIVIDUALS. LIKEWISE, SH AREHOLDING PATTERN OF THE COMPANY M/S. AXIS CLINICALS LTD., AL SO REFLECTS MR. P. SARATHCHANDRA REDDY HOLDS 75.37% AND MS. K. RAJESWARI 14.7% AND 5 MORE INDIVIDUALS HOLDING THE BALANCE OF THE SHARES. THEREFORE, NEITHER OF THE COMPANY IS A SHAREHOLDER IN OTHER COMPANY. IT WAS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE P. LTD., (2010) 324 ITR 263 THAT IN ORDER TO ATTRACT THE FIRST PART OF CLAUSE (E) OF SECTION 2(22), THE PAYMENT BY A COMPANY HAS TO B E BY WAY OF ADVANCE OR LOAN, THE ADVANCE OR LOAN HAS TO BE M ADE, AS THE CASE MAY BE EITHER TO A SHAREHOLDER, BEING THE BENE FICIAL OWNER HOLDING NOT LESS THAN 10% OF THE VOTING POWER OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST. EVEN ASSU MING THAT IT WAS THE DIVIDEND, IT HAS TO BE TAXED IN THE HAND S OF THE SHAREHOLDERS AND NOT IN THE HANDS OF THE ASSESSEE C ONCERN. THE SPECIAL BENCH OF THE ITAT IN THE CASE OF ACIT V S. BHOWMIK COLOUR P. LTD., 313 ITR 146 (MUM.) (AT) (SB) ALSO H ELD THAT WHERE ASSESSEE IS NOT A SHAREHOLDER OF PAYING COMPA NY, THE DIVIDEND IS NOT ASSESSABLE IN ITS HANDS. THE LEGAL FICTION IN SECTION 2(22)(E) MAY EXTEND THE DEFINITION OF THE D IVIDEND BUT DOES NOT EXPAND OR BROADEN THE CONCEPT OF SHAREHOLD ER. THIS ORDER OF THE SPECIAL BENCH WAS APPROVED BY THE HON BLE BOMBAY HIGH COURT AND FURTHER IN THE CASE OF CIT VS . HOTEL HILLTOP 313 ITR 116 (RAJ.) (H.C.) AND IN THE CASE O F CIT VS. ANKITECH P. LTD., 340 ITR 14 THE HONBLE DELHI HIGH COURT ALSO ACCEPTED SAME PRINCIPLE. SINCE WE FIND THAT ASSESSE E COMPANY IS NOT A SHAREHOLDER OF M/S. AXIS CLINICALS P. LTD. , EVEN OTHERWISE THE PROVISIONS OF DEEMED DIVIDEND CANNOT BE APPLIED 5 ITA.NO.1696/HYD/2014 M/S. TRIDENT CHEMPHAR LTD., HYDERABAD. TO THE FACTS OF THE CASE. FOR THIS REASON ALSO, THE ACTION OF THE A.O. CANNOT BE UPHELD. THERE IS NO MERIT IN REVENUE GROUNDS. ACCORDINGLY, THEY ARE REJECTED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 17 TH APRIL, 2015. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 17 TH APRIL, 2015 VBP & TNMM COPY TO : 1. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 2(3), 8 TH FLOOR, B- BLOCK, ROOM NO.824, I.T. TOWERS, A.C. GUARDS, HYDER ABAD 500 004. 2. M/S. TRIDENT CHEMPHAR LTD., SY.NO.66 & 67, MIYAP UR, SERILINGAMPALLY MANDAL, HYDERABAD. 3. CIT(A)-III, HYDERABAD. 4. CIT-II, HYDERABAD. 5. D.R. ITAT B BENCH, HYDERABAD 6. GUARD FILE