M/s. Hooghly Mills Projects Ltd., Kolkata V. DCIT, Central Circle - VII, Kolkata, Kolkata

ITA 1729/KOL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83018 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2014
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 19-12-2011
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: S SEN; S JHAJARIA
• Keywords: Opportunity of being heard; Deemed dividend
• Section: 263

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , . . . . ! ! ! ! /AND ' #!' ' #!' ' #!' ' #!' , ) [BEFORE SHRI P. K. BANSAL, AM & SHRI MAHAVIR SINGH, JM] !$ / I.T.A NO.1729/KOL/2011 #% &'/ ASSESSMENT YEAR: 2005-06 M/S. HOOGHLY MILLS PROJECTS LTD. VS. DEPUTY COMM ISSIONER OF INCOME-TAX (PAN: AAACH7668G) CENTRAL CIRCLE-VIII, KOLKATA. ()* /APPELLANT ) (+,)*/ RESPONDENT ) DATE OF HEARING: 25.07.2014 DATE OF PRONOUNCEMENT: 01.08.2014 FOR THE APPELLANT: SHRI S. JHAJARIA, FCA & SHRI S. SEN, ADVOCATE FOR THE RESPONDENT: SHRI RAVI JAIN, CIT, DR / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A), CENTRAL-I, KOLKATA IN APPEAL NO. 258/CIT(A),C-1/CC-VII/10-11 DATED 24.11.2011. ASSESSMENT WAS FRAMED BY DCIT, CC- VII, KOLKATA U/S. 263/251/143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEARS 2005-06 VIDE HIS ORDER D ATED 31.12.2010. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO IN TREATING THE LOAN ACCEPTED BY ASSES SEE FROM MEGA RESOURCES LTD. AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. FOR THIS, ASSESS EE HAS RAISED FOLLOWING THREE GROUNDS: 1. FOR THAT IN VIEW OF THE FACTS AND IN THE CIRCUM STANCES AND THE ORDER OF THE AO DATED 31.12.2010 U/S.263/251/143(3) BEING WHOLLY BAD, ILL EGAL AND VOID ABINITIO AS THE AO COMPLETELY FAILED TO CARRY OUT THE DIRECTIONS OF TH E HONBLE ITAT, KOLKATA BENCH C CORRECTLY & PROPERLY AND CIT(A) BY HIS ORDER DATED 24.1 1.2011 HAVING WRONGLY CONFIRMED THE SAID ACTION OF THE AO, THE ORDER OF T HE AO AS WELL AS THE CIT(A) C-I ARE WHOLLY BAD, ILLEGAL AND VOID AB INITIO AND IN VIEW OF THE FACTS AND IN THE CIRCUMSTANCES SUCH ORDERS ARE LIABLE TO BE QUASHED / CANCELLED /S ET ASIDE AND IN VIEW OF THE FACTS AND CIRCUMSTANCES IT MAY KINDLY BE HELD ACCORDINGLY. 2. FOR THAT IN VIEW OF THE FACTS AND IN THE CIRCUMS TANCES AND HONBLE ITAT C-BENCH, KOLKATA BY THEIR ORDER DATED 24.09.2010 IN APPEAL N O. ITA NO. 913/KOL/2010 RELATING TO ASSESSMENT YEAR 2005-06 HAVING SPECIFICALLY DIRE CTED IN PARA-13 THAT WE MAY STATE THAT AO WILL SPECIFCALLY CONSIDER ON THE BASIS OF REGISTER OF SHARE HOLDING OF MRL OF THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDE R CONSIDERATION AND SUCH DOCUMENTS AS MAY BE FILED BEFORE HIM AS TO WHETHER ASSESSEE I S THE REGISTERED SHAREHOLDER AS WELL 2 ITA NO.1729/K/2011 M/S. HOOGHLY MILLS PROJECTS LTD. AY 05-06 AS HAVING BENEFICIAL INTEREST THEREIN OR NOT AND IN CASE ASSESSEE IS REGISTERED S SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER PROV ISIONS OF SECTION 2(22)(E) WILL NOT APPLY AS HELD BY SPECIAL BENCH, ITAT, MUMBAI IN BHA UMIK COLOUR PVT. LTD. (SUPRA) AND IN THIS CASE THE APPELLANT COMPANY HAVING FILED ALL EVIDENCES THAT THE APPELLANT COMPANY WAS REGISTERED SHARE HOLDERS OF ONLY 10,99, 300 SHARES OF M/S. MEGA RESOURCES LTD. (MRL) OUT OF TOTAL PAID UP SHARES OF MRL BEING 1,20,00,000 SHARES AND YOUR PETITIONER BEING REGISTERED SHARE HOLDERS OF L ESS THAN 10% IN MRL, PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY AND ALL EVIDENCES I N THIS REGARD HAVING BEEN PRODUCED BEFORE THE AO AND THE CIT(A), THE AO AS WELL AS CIT (A) WERE WHOLLY UNJUSTIFIED IN IGNORING SUCH SPECIFIC DIRECTION OF THE HONBLE, IT AT C-BENCH, KOLKATA, THE ENTIRE ORDER IS BAD ILLEGAL UNJUSTIFIED AND UNCALLED FOR A ND IS LIABLE TO BE CANCELLED/ SET ASIDE. 3. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE SUCH SPECIFIC DIRE CTION OF THE HONBLE ITAT BENCH-C AND YOUR PETITIONER COMPANY BEING REGISTERED SHAREH OLDERS OF LESS THAN 10% PAID UP EQUITY SHARES OF MRL, PROVISIONS OF SECTION 2(22)(E ) WERE NOT AT ALL APPLICABLE AND IN VIEW OF THE FACTS AND CIRCUMSTANCES IT MAY KINDLY B E HELD ACCORDINGLY AND THE ADDITION MAY KINDLY BE DELETED. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR2005-06 ON 17.03.2006. ASSESSMENT W AS COMPLETED U/S. 43(3) OF THE ACT ON 31.12.2007. SUBSEQUENTLY, CIT, CENTRAL-1, KOLKATA V IDE ORDER DATED 25.03.2010 IN THE REVISION PROCEEDING U/S. 263 OF THE ACT, SET ASIDE THE ASSES SMENT QUA THE ABOVE ISSUE AND DIRECTING THE AO TO DECIDE THE ISSUE AFTER PROPER VERIFICATION AN D AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BY GIVING THE FOLLOWING DIRECTIONS: COMING NOW TO THE LAST ISSUE I.E. QUESTION OF DEEME D DIVIDENDS IN RESPECT OF LOAN OF RS.11,87,00,000/- FROM MEGA RESOURCES LTD. BY THE A SSESSEE, THIS IS TAXABLE ONLY IF THE HOLDING OF THE ASSESSEE IN MEGA RESOURCES LTD. IS M ORE THAN 10%. THE ASSESSEES STAND IS THAT ITS HOLDING IN MEGA RESOURCES LTD. IS ONLY 9,36% BEING 10,99,300 SHARES OUT OF 1,20,00,000 EQUITY SHARES ISSUED. IN SUPPORT OF TH E STAND THE ASSESSEE HAS FILED A CERTIFICATE FROM MEGA RESOURCES LTD. TO THE EFFECT THAT THE ASSESSEE HOLDS ONLY 10,99,300 SHARES. THE UNDATED CERTIFICATE DOES NOT SAY AS TO WHAT DATE SUCH HOLDING RELATES TO AND ALSO WHAT IS THE TOTAL PAID UP SHARE IN RELATION TO WHICH THE ASSESSEE HOLDS 0,99,300 EQUITY SHARE. WE HAVE ALREADY SEEN THAT THE ASSESS EE HOLDS 13,99,100 SHARES OUT OF PAID UP SHARES NUMBERING 1,20,00,000. HENCE, THE HOLDIN G BEING MORE THAN 10%, THE ASSESSING OFFICER SHOULD HAVE ASSESSED THE LOAN OF 11,87,00,000 AS DEEMED DIVIDEND. IN THE RESULT THE ORDER PASSED BY THE ASSESSING OFF ICER, AS DISCUSSED ABOVE, WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. IN THE LIGHT OF THE ABOVE, THE ORDER DATED 31.12.2007 IS SET ASIDE U/S. 263 TO BE REDONE BY THE ASSESSING OFFICER AS PER LAW, AFTER PROPER VERIFICATION, AND AFTER AFFORDING A RE ASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE REVISION ORDER WAS CONFIRMED BY TRIBUNAL BUT TR IBUNAL DIRECTED THE AO VIDE ORDER DATED 24.09.2010 IN ITA NO. 913/KOL/2010 AND THE RELEVANT DIRECTIONS AS NOTED IN PARA 3 READS AS UNDER: 3 ITA NO.1729/K/2011 M/S. HOOGHLY MILLS PROJECTS LTD. AY 05-06 WE MAY STATE THAT AO WILL SPECIFCALLY CONSIDER ON THE BASIS OF REGISTER OF SHARE HOLDING OF MRL OF THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION AND SUCH DOCUMENTS AS MAY BE FILED BEFORE HIM AS TO WHETHER ASSESSEE IS THE REGISTERED SHAREHOLDER AS WELL AS HAVING BENEFICIAL INTEREST T HEREIN OR NOT AND IN CASE ASSESSEE IS REGISTERED S SHAREHOLDER BUT NOT THE BENEFICIAL SHA REHOLDER PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY AS HELD BY SPECIAL BENCH, ITAT, MUMB AI IN BHAUMIK COLOUR PVT. LTD. (SUPRA) IN TERMS OF THE ABOVE, THE AO PASSED ORDER U/S. 263 /251/143(3) OF THE ACT DATED 31.12.2010 WHEREIN HE CONFIRMED THE ADDITION, DESPITE THE FACT THAT THE ASSESSEE PRODUCED THE SHAREHOLDERS REGISTER OF MEGA RESOURCES LTD., FOR THE RELEVANT F INANCIAL YEAR BY OBSERVING AS UNDER: THE CASE WAS REFIXED AND IN RESPONSE TO LETTER DT. 15.12.2010, SHRI S. K. SHAH, FCA APPEARED AND THE CASE WAS HEARD. HE PRODUCED THE R ELEVANT DOCUMENTS INCLUDING THE SHAREHOLDERS REGISTER OF M/S. MEGA RESOURCES LTD. (MRL) FOR THE RELEVANT FINANCIAL YEAR AND CLAIMED THAT AS PER SUCH SHAREHOLDERS REG ISTER, THE ASSESSEE COMPANY WAS HOLDING ON 1099300 NO. OF SHARES AS REGISTERED SHAR EHOLDER. THE TOTAL SHARE CAPITAL OF MRL WAS 1,20,00,000 NO. OF EQUITY SHARES. THUS, TH E ASSESSEE COMPANY WAS HOLDING ONLY 9.16% OF THE TOTAL SHARE CAPITAL OF MRL. SINC E THE TOTAL REGISTERED AND BENEFICIAL SHAREHOLDING OF THE COMPANY WAS LESS THAN 10% THE P ROVISION OF SECTION 2(22)(E) WAS NOT APPLICABLE TO THE ASSESSEE COMPANY. THOUGH THE SHARE HOLDING AS PER SHARE HOLDERS REGIS TER IS FOUND TO BE 1099300 BUT WE HAVE ALREADY SEEN FROM THE BALANCE SHEET OF THE ASS ESSEE COMPANY FOR THE YEAR ENDED 31.3.05 THAT THE ASSESSEE HOLDS 13,99,100 NO. OF SH ARES OUT OF PAID UP SHARES NUMBERING 1,20,00,000. HENCE THE HOLDING IS MORE THAN 10%. HENCE, LOAN ACCEPTED BY THE ASSESSEE OF RS.11,87,00 ,000/- FROM M/S. MEGA RESOURCES LTD. (PAN AADCM5397E) DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2005-06 IS TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) AND RS.11, 87,00,000/- IS ADDED BACK AS DEEMED DIVIDEND. THE AO TREATED THE DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). BEFORE CIT(A), ASSESSEE SPEC IFICALLY CONTENDED THAT IN VIEW OF THE DECISION OF SPECIAL BENCH OF ITAT MUMBAI IN THE CAS E OF BHAUMIK COLOUR P. LTD. (2009) 313 ITR 146 (AT) ONLY THE REGISTERED SHAREHOLDING IS TO BE CONSIDERED FOR THE PURPOSES OF CONSIDERING LOAN TO BE TREATED AS DEEMED DIVIDEND U /S. 2(22)(E) OF THE ACT BUT CIT(A) CONFIRMED THE ACTION OF AO BY OBSERVING AS UNDER: 4.4 THE GROUND TAKEN BY THE APPELLANT THAT THE TOT AL SHARE HOLDING IN M/S MEGA RECOURSES LTD. OF THE ASSESSEE COMPANY WAS ONLY 109 9300 AND NOT THE FIGURE DISCLOSED OF 13,99,100/ IS NOT SUPPORTED BY DOCUMENTARY EVIDE NCE. NEITHER DURING THE COURSE OF THE ASSESSMENT PROCEEDING NOR IN THE APPELLATE PROC EEDING ANY EXPLANATION OR DOCUMENTARY EVIDENCE EXCEPT CERTIFICATE FROM M/S ME GA RESOURCES LTD. WAS PRODUCED TO PROVE THAT THE FIGURE OF SHARE HOLDING OF SHARES OF M/S MEGA RECOURSES LTD. APPEARING IN THE BALANCE SHEET IS NOT CORRECT. HERE IT MAY BE MENTIONED THAT IT IS NOT A CASE THAT SHARE HOLDING OF THE ASSESSEE COMPANY IN M/S MEGA R ECOURSES LTD. HAS INCREASED IN THE FINANCIAL YEAR IN QUESTON. THE SHARE HOLDING OF M/ S MEGA RECOURSES LTD. AS ON 31.03.2004 WAS ALSO 13,99,100/ AND NO SHARE TRANSAC TION OF THE SHARES OF M/S MEGA 4 ITA NO.1729/K/2011 M/S. HOOGHLY MILLS PROJECTS LTD. AY 05-06 RECOURSES LTD HAS BEEN CARRIED OUT DURING THE YEAR. MOREOVER EVEN DURING THE COURSE OF ASSESSMENT PROCEEDING UNIT WISE BALANCE SHEET WAS F ILED AND IN THE SAME THE SHARE HOLDING OF 13,99,100/ SHARES IN M/S MEGA RECOURSES LTD HAS BEEN DULY DECLARED. HERE IT MAY BE MENTIONED THAT THE NUMBER OF SHARE HOLDING A LSO REPRESENT THE AMOUNT INVESTED BY THE ASSESSEE COMPANY IN SHARES OF PARTICULAR COM PANY AND IF THE SHARE HOLDING WAS ONLY 1099300 THE CORRESPONDING FIGURE OF THE AMOUNT INVESTED SHOULD ALSO BE MUCH LOWER FIGURE. FURTHER IF THERE WAS MISTAKE IN BOTH THE FIGURES, THE BALANCE SHEET OF THE ASSESSES COMPANY WILL NOT TALLY. MOREOVER NEITHER A NY REOCCUPATION OF THE ABOVE FIGURE HAS BEEN FURNISHED NOR ANY PROOF OF REVISING THE BA LANCE SHEET FILED BEFORE THE REGISTRAR OF THE COMPANY HAS BEEN FILED. TAKING ALL THE FACTS INTO CONSIDERATION THE A.O HAS RIGHTLY REJECTED THE CERTIFICATE ISSUED BY THE CLOS ELY HELD COMPANY, M/S MEGA RECOURSES LTD THAT AS PER THERE RECORDS THE TOTAL SHARE HOLDI NG OF THE ASSESSEE COMPANY IS ONLY 1099300/. CONSIDERING ABOVE IT IS SAID THAT THE ASS ESSEE HAS FAILED TO ESTABLISH THAT THE SHARE HOLDING N M/S MEGA RECOURSES LTD. WAS LESS THAN 10% . ACCORDINGLY ADDITION OF RS. 11,87,00,000/ MADE BY THE AO UNDER SECTION 2(22 )(E) OF THE ACT IS CONFIRMED. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US ALSO ASSESSEE PRODUCED THE SHAREHOLDERS R EGISTER FOR THE RELEVANT YEAR AND FILED COPY OF THE RELEVANT SHAREHOLDERS REGISTER OF HOOGHLY MI LLS PROJECT LTD. I.E. THE ASSESSEE AND ALSO PRODUCED COPY OF SHAREHOLDERS REGISTER OF MEGA RESO URCES LTD., WHEREIN THE REGISTERED SHAREHOLDERS ARE TO THE EXTENT OF 10,99,300 SHARES ONLY AS REGISTERED SHAREHOLDERS AND NOT THE SHAREHOLDERS TO THE EXTENT OF 13,99,100 AS ALLEGED BY THE LOWER AUTHORITIES. FOR THIS PROPOSITION, WE HAVE TO SEE ONLY THE REGISTERED SHAREHOLDERS AS HELD BY THE SPECIAL BENCH OF THIS ITAT, MUMBAI BENCH IN THE CASE OF BHAUMIK COLOUR P. LTD., SUPRA WHEREIN IT IS HELD AS UNDER: 41. IN THE LIGHT OF THE ABOVE DISCUSSION, THE QUEST IONS REFERRED TO THE SPECIAL BENCH ARE ANSWERED AS FOLLOWS: ON THE FIRST QUESTION: DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF A PERSON OTHER THAN A SHAREHOLDER. ON THE SECOND QUESTION: THE EXPRESSION SHAREHOLDER REFERRED TO IN SECTION 2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER THAN THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN ALSO THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. FROM THE ABOVE FACTS AND CIRCUMSTANCES THE ISSUE I S VERY CLEAR THAT THE ASSESSEE IS HOLDING REGISTERED SHARES TO THE TUNE OF 10,99,300 IN MEGA RESOURCES LTD. AND NOT 13,99,100 AS ALLEGED 5 ITA NO.1729/K/2011 M/S. HOOGHLY MILLS PROJECTS LTD. AY 05-06 BY THE REVENUE. NO DOUBT THE TOTAL SHAREHOLDING OF THE ASSESSEE IN MEGA RESOURCES LTD. IS TO THE TUNE OF 13,99,100 BUT REGISTERED SHAREHOLDERS A RE TO THE EXTENT OF 10,99,300. WE HAVE TO SEE ONLY THE REGISTERED SHAREHOLDING AND NOT THE BENEFI CIAL SHAREHOLDER. FOR THIS, THE ASSESSEE HAS FILED EVIDENCE BEFORE THE LOWER AUTHORITIES AND EVE N BEFORE US NOW. IN SUCH CIRCUMSTANCES, THIS ISSUE BEING COVERED BY THE SPECIAL BENCH OF THIS TR IBUNAL, MUMBAI BENCH IN THE CASE OF BHAUMIK COLOUR P. LTD., SUPRA. RESPECTFULLY FOLLOWI NG THE SAME, WE DELETE THE ADDITION AND REVERSE THE ORDERS OF THE LOWER AUTHORITIES. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. 6. ORDER PRONOUNCED IN OPEN COURT ON 01.08.2014. SD/- SD/- , . . . . , ' #!' ' #!' ' #!' ' #!' , (P. K. BANSAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 ST AUGUST, 2014 -. #/0 #1 JD.(SR.P.S.) 2 +##3 43&5- COPY OF THE ORDER FORWARDED TO: 1 . )* / APPELLANT M/S. HOOGHLY MILLS PROJECTS LTD., C/O S ALARPURIA JAJODIA & CO. 7, C. R. AVENUE, KOLKATA-700 072 2 +,)* / RESPONDENT DCIT, CC-VII, KOLKATA. 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 3:#; +# / DR, KOLKATA BENCHES, KOLKATA ,3 +#/ TRUE COPY,