Asstt.Commissioner of Income-tax Circle-7, Nagpur V. M/s. MPM Private Limited, Nagpur

ITA 176/NAG/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9641 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 30-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR MILIND BHUSARI
• Keywords: Question of law; Deemed dividend
• Section: 143(3)

Judgement Text

ITA NO. 172/NAG/2010 MPM PRIVATE LIMITED, NAGPUR IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH , NAGPUR BEFORE: SHRI P.K. BANSAL , ACCOUNTANT MEMBER AND SHRI D.T. GARASIA , JUDICIAL MEMBER ITA NO. 172 / NAG / 20 10 ASSESSMENT YEAR : 2006 - 07 MPM PRIVATE LIMITED NAGPUR VS. ACIT, CI RCLE - 7 NAGPUR (APPELLANT) (RESPONDENT) PAN NO.AACCM 1261A ITA NO.176/NAG/2010 ASSESSMENT YEAR : 2006 - 07 ACIT CIRCLE - 7 NAGPUR VS. MPM PRIVATE LIMITED NAGPUR (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI K.P. DEWANI, ADVOCATE RESPONDENT BY: DR. MILIND BHUSARI, CIT(DR) DATE OF HEARING: 17.10.12 DATE OF PRONOUNCEMENT: 19.10.12 ORDER PER P.K. BANSAL, ACCOUNTANT MEMBER: - THESE CROSS APPEALS HAVE BEEN FILED AGAINST THE ORDER OF THE CIT(A) DATED 17.9.2010. THE BRIEF FACTS OF THE CASE ARE THAT TH E RETURN WAS FILED BY THE ASSESSEE AT RS.1,78,07,407/ - AGAINST WHICH THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME - TAX ACT AT RS.2,07,60,380/ - BY MAKING AN ADDITION OF RS.29,52,973/ - AS DEEMED DIVIDEND U/S (2)(22)(E) OF THE ACT. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IT HAS SISTER CONCERN, M/S. AMBA FERRO CARBONS (P) LTD. IN WHICH SHRI DEEPAK CHOUDHARY IS HAVING 79% SHARES . I N THE ASSESSEE COMPANY , DEEPAK CHOUDHARY WAS HOLDING 44% SHARES AS BENEFICIAL OWNER. THE ASSESSING OFFICER NOT ED THAT THE ASSESSEE HAS ENTERED INTO ITA NO.172/NAG/2010 MPM PRIVATE LIMITED, NAGPUR 2 VARIOUS TRANSACTIONS INCLUDING SHARE PURCHASE AND JOB SERVICES WITH M/S. AMBA FERRO CARBONS (P) LTD. ON THE BASIS OF THE COPY OF THE ACCOUNT OF M/S. AMBA FERRO CARBONS (P) LTD., THE ASSESSING OFFICER TOOK THE VIEW THA T THE TRANSACTION AMOUNTING TO RS.29,52,973/ - RELATE TO THE TRANSFER OF FUNDS AND TOOK THEM AS THE DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 3. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. BEFO RE US, THE LD. A.R. CONTENDED THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS THE ASSESSEE IS NOT A SHAREHOLDER OF M/S. AMBA FERRO CARBONS (P) LTD. IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD. 324 ITR 263 (BOM.) AND CIT VS. BHAUMIK COLOUR (P) LTD. 118 ITD 1 (MUM.) (SB), THE DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS THE BENEFICIAL OWNER HAVING MORE THAN 20% OF THE VO TING POWER IN THE CONCERN. EVEN ON MERIT, IT WAS SUBMITTED THAT THE ASSESSEE AS WELL AS THE M/S. AMBA FERRO CARBONS (P) LTD. ARE ENGAGED IN THE SIMILAR LINE OF THE BUSINESS . A CTUAL SALE, PURCHASE AND JOB SERVICES TRANSACTIONS TOOK PLACE BETWEEN THE T WO COMPANIES. THEY WERE HAVING MUTUAL CURRENT ACCOUNT DURING THE YEAR. THERE ARE BUSINESS TRANSACTIONS AND THE TRANSACTION WITH THE SISTER CONCERN CANNOT BE REGARDED TO BE THE LOAN OR ADVANCE AS ENVISAGED U/S 2(22)(E) OF THE ACT. IN THIS REGARD, RELIANC E WAS PLACED ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. AMBASSADOR TRAVELS (P) LTD. 318 ITR 376 AND THAT OF MUMBAI BENCH DECISION IN THE CASE OF NH SECURITIES LTD. VS. CIT 11 SOT 302. 5. THE LD. D.R. ON THE OTHER HAND RELIED ON THE O RDER OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE NOTED THAT THE ASSESSEE WAS NOT HOLDING ANY SHARES IN M/S. AMBA FERRO CARBONS (P) LTD. THERE WAS ONLY ONE COMMON SHARE OWNER I.E. SHRI DEEPAK CHO UDHARY WHO WAS ITA NO.172/NAG/2010 MPM PRIVATE LIMITED, NAGPUR 3 BENEFICIALLY HOLDING 7 9 % SHARES IN THE ASSESSEE COMPANY AND 4 4 % SHARES IN M/S. AMBA FERRO CARBONS (P) LTD. HON BLE JURISDICTION, WE NOTED IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD. 324 ITR 263 (BOM.), HAS HELD AS UNDER: IN ORDER T HAT THE FIRST PART OF CL. (E) OF S. 2(22) IS ATTRACTED, THE PAYMENT BY A COMPANY HAS TO BE BY WAY OF AN ADVANCE OR LOAN. THE ADVANCE OR LOAN HAS TO BE MADE, AS THE CASE MAY BE, EITHER TO A SHAREHOLDER, BEING A BENEFICIAL OWNER HOLDING NOT LESS THAN TEN PE R CENT OF THE VOTING POWER OR TO ANY CONCERN TO WHICH SUCH A SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. THE TRIBUNAL IN THE PRESENT CASE HAS FOUND THAT AS A MATTER OF FACT NO LOAN OR ADVANCE WAS GRANTED TO THE ASSESSE E, SINCE THE AMOUNT IN QUESTION HAD ACTUALLY BEEN DEFALCATED AND WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE FACT THAT THERE WAS A DEFALCATION AND WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE FACT THAT THERE WAS A DEF ALCATION SEEMS TO HAVE BEEN ACCEPTED SINCE THIS AMOUNT WAS ALLOWED AS A BUSINESS LOSS DURING THE COURSE OF ASST. YR. 2006 - 07. CONSEQUENTLY, ACCORDING TO THE TRIBUNAL THE FIRST REQUIREMENT OF THERE BEING AN ADVANCE OR LOAN WAS NOT FULFILLED. THE FINDING T HAT THERE WAS NO ADVANCE OR LOAN IS A PURE FINDING OF FACT WHICH DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. EVEN ON THE SECOND ASPECT WHICH HAS WEIGHED WITH THE TRIBUNAL, THE CONSTRUCTION WHICH HAS BEEN PLACED ON THE PROVISIONS OF S. 2(22)(E) IS CORRECT. SEC. 2(22)(E) DEFINES THE AMBIT OF THE EXPRESSION `DIVIDEND . ALL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECIPIENT OF THE DIVIDEND NAMELY THE SHAREHOLDER. THE EFFECT OF S. 2(22) IS TO PROVIDE AN INCLUSIVE DEFINITION OF THE EXPRESSION DIVIDEND. CLAUSE (E) EXPANDS THE NATURE OF PAYMENTS WHICH CAN BE CLASSIFIED AS A DIVIDEND. CLAUSE (E) OF S. 2(22) INCLUDES A PAYMENT MADE BY THE COMPANY IN WHICH THE PUBLIC IS NOT SUBSTANTIALLY INTERESTED BY WAY OF AN ADVANCE OR LOAN T O A SHAREHOLDER OR TO ANY CONCERN TO WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER, SUBJECT TO THE FULFILLMENT OF THE REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVISION. SIMILARLY, A PAYMENT MADE BY A COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF AN Y SUCH SHAREHOLDER IS TREATED BY CL. (E) TO BE INCLUDED IN THE EXPRESSION `DIVIDEND . CONSEQUENTLY, THE PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DEFIN ITION DOES NOT ALTER THE LEGAL POSITION THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER. CONSEQUENTLY, IN THE PRESENT CASE THE PAYMENT, EVEN ASSUMING THAT IT WAS A DIVIDEND, WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSESSEE BUT IN THE HANDS OF THE SHAREHOLDER. THE TRIBUNAL WAS, IN THE CIRCUMSTANCES, JUSTIFIED IN COMING TO THE CONCLUSION THAT, IN ANY EVENT, THE PAYMENT COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE. 7. IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT, IN OUR OPINION, NO DEEMED DIVIDEND INCOME CAN BE ADDED IN THE HANDS OF THE ASSESSEE. ON THIS BASIS ITSELF, THE ADDITION IS BOUND TO BE DELETED. WE, ACCORDINGLY, SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE ADDITION MADE BY THE ASSESSING OFFICER , RESPECTFULL Y ITA NO.172/NAG/2010 MPM PRIVATE LIMITED, NAGPUR 4 FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD. 324 ITR 263. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED WHILE THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. PRONOUNCED IN T HE OPEN COURT ON 19.10 .20 1 2 . SD/ - SD/ - ( D.T. GARASIA ) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER VG/SPS NAGPUR DATED 19 TH OCTOBER , 20 1 2 COPY TO 1 MPM PRIVATE LIMITED, C/O DEWANI BROS. ADVOCATES, 1 - AJ ANTA CHHINDWARA ROAD, NAGPUR - 13 2 ACIT, CIRCLE - 7, NAGPUR 3 THE CIT - IV , NAGPUR 4 THE CIT (A) , NAGPUR 5 THE DR, ITAT, NAGPUR 6 GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL NAGPUR