DCIT, CHENNAI V. Displaytronics Reader Devices Ltd., CHENNAI

ITA 1758/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7750 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 28-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 10-06-2016
• Court: TRIBUNAL
• Department Lawyers: H KABILA
• Assessee Lawyers: R VISWANATHAN C A
• Keywords: Deemed dividend; Tax effect
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , ' # BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 1758/MDS/2016 / ASSESSMENT YEAR : 2011-12 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE - 1(1), CHENNAI - 600 034. VS. M/S. DISPLAY TRONICS READER DEVICES LTD., NO. 72, GREAMS ROAD, THOUSAND LIGHTS, CHENNAI - 600 006. [PAN: AADCD 0117D] ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI H. KABILA, JCIT )*% & / RESPONDENT BY : SHRI R. VISWANATHAN, CA & /DATE OF HEARING : 28.11.2016 & /DATE OF PRONOUNCEMENT : 21.02.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) -1, CHENNAI IN ITA NO. 169/14- 15, NEW NO. ITA228/CIT(A)-1/2014-15 DATED 26.02.2016 PASSED U/S . 143 AND 250 OF THE ACT. :-2-: I.T.A. NO. 1758/MDS/2016 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 2.1 THE LD. CIT(A) ERRED IN DELETING THE ADDITION M ADE ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) AMOUNTING TO RS. 2,4 3,28,711/-. 2.2 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE ASSESSEE COMPANY IS A 'CONCERN' IN WHICH THE SHARE HOLDERS OF M/S. NINE STAR INFORMATION TECHNOLOGY P. LTD HAVE SUBSTANTIAL INT EREST AND THEREFORE THE PROVISIONS OF SECTION. 2(22)(E) ARE APPLICABLE IN RESPECT OF LOANS RECEIVED BY THE ASSESSEE COMPANY FROM M/S. NINE ST ARS INFORMATION TECHNOLOGIES P. LTD., 2.3 THE LD. CIT(A) DECISION IS CONTRARY TO THE PROV ISIONS OF SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 WHICH CLEARLY STATES THAT ANY PAYMENT BY A CLOSELY HELD COMPANY BY WAY OF LOAN O R ADVANCE TO A SHAREHOLDER HOLDING NOT LESS THAN 10% OF VOTING PO WER OR TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST. 2.4 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE RELIED ON DECISION IN THE CASE OF PRINTWAVE SERVICES PRIVATE LIMITED 373 ITR 665 SLP HAS NOT BEEN FILED BY THE DEPARTMENT ONLY IN V IEW OF LOW TAX EFFECT. 2.5 THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE DE CISION IN THE CASES OF CIT VS. NATIONAL TRAVEL SERVICES (2011) 14 TAXMANN .COM 14 (DELHI) AND STAR CHEMICALS PRIVATE LTD. VS. CIT (1994) 72 TAXMAN 279 (BOMBAY) WHICH ARE FAVOURABLE TO REVENUE. :-3-: I.T.A. NO. 1758/MDS/2016 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE CO MPANY IS IN THE BUSINESS OF DESIGN DEVELOPMENT, MANUFACTURE AND MAR KETING OF PORTABLE READING DEVICES AND OTHER ELECTRONIC GADGETS AND FILED THE RETURN OF INCOME ELECTRONICALLY ON 30.09.2011 FOR THE ASSESSMENT YEAR 2011-12 ADMIT TING LOSS OF RS. 2,08,09,460/-AND SUBSEQUENTLY THE CASE WAS SELECTE D FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED. IN COMPLIANCE T O THE NOTICE, LD. AR APPEARED FROM TIME TO TIME AND THE ASSESSEE COMPANY FILED TH E DETAILS. THE ASSESSING OFFICER ON PERUSAL OF BALANCE SHEET FOUND RS. 4,17 ,79,535/- AS UNSECURED LOAN AND RS.4,68,36,535/-IS TOWARDS THE INTER CORPORATE LOANS PERTAINING TO SISTER CONCERN M/S. NINE START INFORMATION TECHNOLOGIES F OR THE PURPOSE OF DEVELOPING PRODUCT E-READER. THE TRANSACTIONS ARE RECORDED IN THE CURRENT FINANCIAL YEAR IN RESPECT OF SCIENTIFIC RESEARCH CONDUCTED BY THE NIN E STAR INFORMATION TECHNOLOGIES. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS DISCLOSED AMOUNT DUE TO NINE STAR INFORMATION TECHN OLOGIES RS. 4,68,36,534/- AS ON 31.03.2011 AS TRADE ADVANCE. THE LD. AO IS OF T HE OPINION THAT THE SAID AMOUNT CANNOT BE A TRADE ADVANCE AS THERE IS NO PRO DUCT DEVELOPMENT AND COMES WITH IN PURVIEW OF PROVISIONS OF SECTION 2(2 2)(E) OF THE ACT. THE LD. ASSESSING OFFICER DEALT ON THE SHARE HOLDINGS IN TH E SISTER CONCERN M/S NINE STAR INFORMATION TECHNOLOGY WERE DIRECTOR SHRI V. GOPALA KRISHNAN HOLDS 50% AND SHRI V. GOKULAKRISHNAN HOLDS 48.7%, WHEREAS, IN THE ASSE SSEE COMPANY SHRI V. GOPALAKRISHNAN HOLDS 40% AND SHRI V. GOKULAKRISHNAN HOLDS 40% SHARE. SINCE, BOTH THE CONCERNS ARE HOLDING SUBSTANTIVE INTEREST IN THE BUSINESS THE LD AO APPLIED THE PROVISIONS OF SECTION 2(22)(E) OF THE A CT. FURTHER THE ASSESSING :-4-: I.T.A. NO. 1758/MDS/2016 OFFICER IS OF THE OPINION THAT THE CASE FALLS WITHI N THE DEFINITION OF CONCERN AND THE SHAREHOLDERS OF THE COMPANY ARE HOLDING MORE TH AN 10% IN ASSESSEE'S COMPANY AND MADE DISALLOWANCE U/S. 2(22)(E) OF THE ACT RS. 2,43,28,711/- AND PASSED ORDER U/S. 143(3) DATED 31.03.2014. 4. AGGRIEVED, BY THE ORDER OF THE AO, THE ASSESSEE HAS FILED AN APPEAL WITH THE CIT(A). IN THE APPELLATE PROCEEDINGS, THE LD. AR OF THE ASSESSEE ARGUED THE GROUNDS AND REITERATED THE SUBMISSIONS OF THE ASSESSMENT PROCEEDINGS. THE LD. CIT(A) CONSIDERED THE FINDINGS AND PROVISIONS O F SECTION2(22)(E) OF THE ACT AND THE SHAREHOLDERS PATTERN OF BOTH THE ASSESSEE COMPANY AND NINE STAR TECHNOLOGIES. THE LD. AR EXPLAINED THAT THE ASSESS EE COMPANY IS NOT A SHAREHOLDER IN THE SISTER CONCERN M/S. NINE STAR TE CHNOLOGIES. BUT THE SHAREHOLDERS OF ASSESSEE COMPANY ARE ALSO SHAREHOLD ERS OF NINE STAR TECHNOLOGIES. THE LD. AR RELIED ON THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CBDT CIRCULAR AND JUDICIAL DECISIONS. THE LD. CIT(A ) CONSIDERED THE DECISION OF THE JURISDICTIONAL HIGH COURT M/S PRINTWAVE SERVICE S PRIVATE LIMITED 373 ITR 665(MDS) AND OBSERVED THAT THE DIVIDEND INCOME CAN BE TAXABLE ONLY IN THE HANDS OF SUBSTANTIVE SHAREHOLDERS. THE LD. CIT(A) VIEWED THAT THE DIRECTOR MR. V. GOPALAKRISHNAN HOLD 40% OF THE SHARES IN THE ASS ESSEE COMPANY, THOUGH HOLDS 40% SHARES IN THE NINE STAR TECHNOLOGIES. THE ASSESSEE COMPANY IS NOT BENEFICIAL SHAREHOLDER OF NINE STAR TECHNOLOGIES LI MITED AND THEREFORE NO DIVIDEND CAN BE TAXED IN THE HANDS OF THE ASSESSEE COMPANY AND THE DECISION OF PRINTWAVE TECHNOLOGIES LTD (SUPRA), SQUARELY APPLY TO THE ASSESSEE CASE. AND THE :-5-: I.T.A. NO. 1758/MDS/2016 ASSESSING OFFICER CAN TAX DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) IN THE HANDS OF BENEFICIAL SHAREHOLDERS ON LY BUT NOT ON THE ASSESSEE COMPANY AND ALLOWED THE GROUND AND PARTLY ALLOWED THE APPEAL. 5. AGGRIEVED BY THE CIT(A) ORDER, REVENUE FILED AN APPEAL BEFORE THE TRIBUNAL. THE LD. DR ARGUED THAT THE DEEMED DIVIDE ND PROVISIONS ARE APPLICABLE TO THE ASSESSEE COMPANY AND TREATED AS CONCERN IN WHICH THE SHAREHOLDERS OF NINE STAR TECHNOLOGIES P. LTD., HAVING SUBSTANTIVE INTEREST AND THE FINANCIAL TRANSACTIONS ARE NOT IN THE INTEREST OF BUSINESS EX IGENCIES. FURTHER, THE JURISDICTIONAL HIGH COURT DECISION OF PRINT WAVE SE RVICES P. LTD., (SUPRA) IS NOT ACCEPTED BY THE REVENUE AND RELIED ON THE JUDICIAL DECISIONS ON THE OTHER HAND, THE LD. AR RELIED ON THE ORDERS OF THE CIT(A). 6. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS. WE FOUND ON PERUSAL OF THE ASS ESSMENT ORDER, THE COMPANY HAS DISCLOSED RS. 4,68,53,535/- AS UNSECURED LOANS IN BALANCE SHEET. WHEREAS, M/S. NINE STAR INFORMATION TECHNOLOGIES HAS DISCLOS ED THE SAID AMOUNT AS LOANS AND ADVANCES IN THEIR BOOKS OF ACCOUNTS. SINCE, TH E ASSESSEE COMPANY HAS DISCLOSED THE AMOUNT BEING IN THE NATURE OF COMMERC IAL TRANSACTION AS UNSECURED LOANS AND THE ASSESSEE COMPANY IS NOT THE BENEFICIA L OWNER OR REGISTERED OWNER. THE LD CIT(A) RELIED ON THE JURISDICTIONAL HIGH COU RT DECISION IN THE CASE OF PRINT WAVE SERVICES P. LTD., (SUPRA) HELD AT PARA 8 WHIC H READ AS UNDER: '8. FROM A READING OF THE ABOVE PROVISION, IT IS CL EAR THAT SECTION 2(22)(E) DEFINES DIVIDEND, WHICH IS A PAYMENT BY WA Y OF ADVANCE OR LOAN :-6-: I.T.A. NO. 1758/MDS/2016 TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFIC IAL OWNER OF SHARES HOLDING NOT LESS THAN 10% OF THE VOTING POWER, OR T O ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WH ICH HE HAS A SUBSTANTIAL INTEREST. IN THE PRESENT CASE, THE ASS ESSEE IS NOT THE BENEFICIAL OR REGISTERED OWNER OF THE SHAREHOLDINGS IN THE COM PANY.' AND ALLOWED THE APPEAL. WE FIND THE COMMISSIONER O F INCOME TAX (APPEALS) HAS EXAMINED THE FACTS ON RECORD VIS-A-VIS THE EXPLANAT IONS MADE BY THE ASSESSEE. AND RELIED ON THE BINDING JURISDICTIONAL HIGH COURT DECISION OF CIT VS PRINT WAVES SERVICES P LTD (SUPRA) AND ALLOWED THE CLAIM. WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF COMMISSIONER OF INCOME TA X (APPEALS) AND UPHELD THE SAME AND DISMISS THE GROUNDS OF REVENUE. 7. IN THE RESULT, REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED ON TUESDAY, THE 21ST DAY OF FEBRUA RY, 2017 AT CHENNAI. SD/ - ( ) (SANJAY ARORA) / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) $ /JUDICIAL MEMBER /CHENNAI, / /DATED: 21ST FEBRUARY, 2017 JPV & )'12 32 /COPY TO: 1. % / APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2 )'' /DR 6. 8 /GF