Enmas Engineering Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 1753/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64525 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 21-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 1753/MDS/2012 (ASSESSMENT YEAR : 2008-09) M/S ENMAS ENGINEERING PVT. LTD., 9, CATHEDRAL ROAD, CHENNAI - 600 086. PAN : AAACE9162E (APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), CHENNAI - 600 034 . (RESPONDENT) APPELLANT BY :SHRI R. VIJAYARAGHAVAN, ADVOCATE RESPONDENT BY :SHRI ANIRUDH RAI, CIT-DR DATE OF HEARING : 07.11.2012 DATE OF PRONOUNCEMENT : 07.11.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, IT HAS RAIS ED FOUR EFFECTIVE GROUNDS. WHEN THE APPEAL WAS TAKEN UP FOR HEARING, LEARNED A.R. SUBMITTED THAT HE WAS PRESSING ONLY ONE GROUND RELA TING TO DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). NECESSARY ENDORSEMENT WAS MADE BY THE LEARN ED A.R. ON THE GROUNDS OF APPEAL FILED. I.T.A. NO. 1753/MDS/12 2 2. FACTS APROPOS ARE THAT ASSESSEE, A LIMITED COMPA NY ENGAGED IN ENGINEERING CONSULTANCY, HAD FILED A RETURN FOR THE IMPUGNED ASSESSMENT YEAR DECLARING A LOSS OF ` 66,50,600/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSE SSING OFFICER THAT ASSESSEE HAD SHOWN A CLOSING BALANCE OF ` 3,38,55,104/- UNDER THE HEAD LOANS. ON EXAMINATION OF BOOKS OF ACCOU NTS, IT WAS FOUND THAT ASSESSEE HAD, DURING THE RELEVANT PREVIOUS YEA R, RECEIVED LOANS OF ` 5,55,95,735/- FROM A GROUP CONCERN, NAMELY, M/S GB ENGINEERING ENTERPRISES PRIVATE LTD. AS PER THE A.O., THERE WE RE COMMON SHAREHOLDERS WITH SHAREHOLDING OF MORE THAN 20% IN BOTH THE COMPANIES. AGAIN, AS PER THE A.O., M/S GB ENGINEER ING ENTERPRISES PRIVATE LTD. WAS HAVING AN ACCUMULATED PROFIT OF ` 6,04,64,934/- AS ON 31.3.2008. THEREFORE, ACCORDING TO HIM, RIGOURS OF SECTION 2(22)(E) WAS ATTRACTED. HE, THEREFORE, CONSIDERED THE SUM OF ` 5,55,95,735/- AS DEEMED DIVIDEND IN THE HANDS OF TH E ASSESSEE. 3. ASSESSEES APPEAL BEFORE CIT(APPEALS) DID NOT ME ET WITH ANY SUCCESS. THOUGH ASSESSEE ARGUED THAT IT WAS NOT A SHAREHOLDER IN M/S GB ENGINEERING ENTERPRISES PRIVATE LTD., AND IT COULD NEVER EARN ANY DIVIDEND BEING NOT A SHAREHOLDER, ITS ARGUMENT WAS NOT ACCEPTED BY THE CIT(APPEALS). ACCORDING TO HIM, RATIO OF TH E DECISION OF I.T.A. NO. 1753/MDS/12 3 HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. NATI ONAL TRAVEL SERVICES (249 ITR 540) WENT IN FAVOUR OF REVENUE. HE HELD THAT LOAN RECEIVED BY THE ASSESSEE WAS FROM A COMPANY IN WHIC H THERE WERE COMMON SHAREHOLDERS AND, THEREFORE, SECTION 2(22)(E ) STOOD ATTRACTED. 4. NOW BEFORE US, LEARNED A.R., STRONGLY ASSAILING THE ORDERS OF AUTHORITIES BELOW, SUBMITTED THAT THE DECISION RELI ED ON BY THE CIT(APPEALS) DID NOT PERTAIN TO A LIMITED COMPANY, BUT, WAS IN RELATION A PARTNERSHIP FIRM. THERE THE PARTNERSHIP FIRM HAD PURCHASED SHARES OF THE COMPANY THROUGH ITS PARTNERS. IT WAS FOR TH IS REASON, THEIR LORDSHIP HELD THE PARTNERSHIP FIRM TO BE BENEFICIAL SHAREHOLDER AND LOANS TAKEN BY THE PARTNERSHIP FIRM TO BE DEEMED DI VIDEND UNDER SECTION 2(22)(E) OF THE ACT. ACCORDING TO HIM, BY VIRTUE OF DECISIONS OF VERY SAME HIGH COURT IN THE CASE OF CIT V. MCC M ARKETING (P) LTD. (343 ITR 350), CIT V. ANKITECH (P) LTD. (340 ITR 14 ) AND THAT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. PAR LE PLASTICS LTD. (332 ITR 63), UNLESS AND UNTIL LOAN WAS TAKEN BY A SHAREHOLDER, RIGOURS OF SECTION 2(22)(E) WOULD NOT BE ATTRACTED. 5. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. I.T.A. NO. 1753/MDS/12 4 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT ASSESSEE IS A LIMITED COMP ANY. THERE IS ALSO NO DISPUTE THAT ASSESSEE IS NOT A SHAREHOLDER OF M/ S GB ENGINEERING ENTERPRISES PRIVATE LTD. FROM WHICH IT HAD RECEIVED LOANS. IT MIGHT BE TRUE THAT THERE WERE COMMON SHAREHOLDERS IN BETWEEN THESE TWO COMPANIES. IT MIGHT ALSO BE TRUE THAT SUCH COMMON SHAREHOLDERS WERE HOLDING 20% OF RESPECTIVE EQUITY SHARE CAPITAL . NEVERTHELESS, HONBLE DELHI HIGH COURT IN THE CASE OF ANKITECH (P ) LTD. (SUPRA) AND ALSO IN THE CASE OF MCC MARKETING (P) LTD. (SUPRA), HAS CLEARLY HELD THAT DEEMED DIVIDEND COULD BE TAXED ONLY IN THE CAS E OF SHAREHOLDER. IT WAS HELD THAT THE CONCERN WHICH WAS GIVING LOANS OR ADVANCES TO A COMPANY COULD NOT BE TREATED AS SHAREHOLDER OF THE LATTER SIMPLY BECAUSE A SHAREHOLDER OF THE COMPANY HAD VOTING POW ER OF 10% OR MORE IN THE SAID CONCERN. IN OTHER WORDS, HONBLE DELHI HIGH COURT UPHELD THE DECISION OF SPECIAL BENCH IN THE CASE OF ACIT V. BHAUMIK COLOURS PVT. LTD. (118 ITD 1) WHERE IT WAS HELD TH AT FOR ATTRACTING RIGOURS OF SECTION 2(22)(E) OF THE ACT, A SHAREHOLD ER HAS NOT ONLY TO BE A BENEFICIAL SHAREHOLDER BUT ALSO A REGISTERED S HAREHOLDER. HERE, THE ASSESSEE WAS NOT A SHAREHOLDER AT ALL IN M/S GB ENGINEERING ENTERPRISES PRIVATE LTD. AS FOR THE DECISION IN TH E CASE OF NATIONAL TRAVEL SERVICES (SUPRA) OF DELHI HIGH COURT, RELIED ON BY THE I.T.A. NO. 1753/MDS/12 5 CIT(APPEALS), THERE THE ASSESSEE WAS A PARTNERSHIP FIRM AND THE SHARES OF THE COMPANY, WHICH HAD GIVEN THE LOAN, WE RE HELD BY ITS PARTNERS FOR AND ON BEHALF OF SUCH FIRM. ON THE OT HER HAND, HERE THE ASSESSEE IS NOT AT ALL A PARTNERSHIP FIRM AND THERE FORE, IN OUR OPINION, THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF NATIONAL TRAVEL SERVICES (SUPRA) HAS NO APPLICATION. WE ARE , THEREFORE, OF THE OPINION THAT THE ADDITION MADE IN THE HANDS OF THE ASSESSEE UNDER SECTION 2(22)(E) CANNOT STAND. SUCH ADDITION IS DE LETED. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON WEDNESDAY, THE 7 TH OF NOVEMBER, 2012, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 7 TH NOVEMBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-III, CHENNAI (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE