M/s. Garrison Polysacks Pvt.Ltd., Dist.Bharuch V. The DY.CIT., Bharuch Circle, Bharuch

ITA 1767/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5687 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 16-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 27-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GAURAV BATHAM
• Assessee Lawyers: M J SHAH
• Keywords: Deemed dividend; Set aside
• Section: 2(22)(e)

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH, JM AND D.C.AGRAWAL, AM M/S GARRISON POLYSACKS (P) LTD., AMOD, DIST. BHARUCH. VS. DY. COMMISSIONER OF INCOME-TAX, BHARUCH CIRCLE, BHARUCH. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI M. J. SHAH, AR REVENUE BY:- SHRI GAURAV BATHAM, DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS :- (I) GENERAL (1) THE FOLLOWING GROUNDS OF APPEAL ARE WITHOUT PRE JUDICE TO ONE ANOTHER. THE ORDER OF THE LD. COMMISSIONER OF I NCOME TAX (APPEALS)-VI, BARODA (HEREINAFTER REFERRED TO A S CIT) IS AGAINST LAW AND FACTS. (2) IN THESE GROUNDS OF APPEAL THE DEPUTY COMMISSI ONER OF INCOME-TAX, BHARUCH CIRCLE, BHARUCH IS REFERRED TO AS THE ASSESSING OFFICER OR THE AO AND THE COMMISSIONER OF INCOME-TAX (APPEALS) VI, BARODA IS REFERRED TO AS CIT(APPEALS) OR CIT(A). (II) ADDITION OF RS.12,54,601/- ON ACCOUNT OF DEEMED DIV IDEND ITA NO.1767/AHD/2007 ASST. YEAR :2004-05 2 (2.1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE ADDITION OF RS.12,54,601/- MADE BY THE AO U/S 2(22)(E) OF TH E ACT. (III) DISALLOWANCE OF EXPENSES OF RS.21,392/- (3.1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE DISALLOWANCE OF RS.21,392/- MADE BY THE AO BEING GA RDENING EXPENSES CLAIMED BY YOUR APPELLANT. 2. THE FIRST GROUND IS GENERAL IN NATURE. IT DOES N OT REQUIRE ANY SPECIFIC ADJUDICATION. IT SEEMS THAT IT HAS BEEN RA ISED IN SUPPORT OF GROUND NO.2 & 3. 3. THE FACTS OF THE CASE ARE THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF HDPE WOVEN SACKS AND TRADING IN CEMENT & HDPE BAGS. DURING THE YEAR UNDER CONSIDERATION TH E AO NOTICED THAT ASSESSEE HAS RAISED RS.12,54,601 IN LOAN ACCOUNT AN D CURRENT ACCOUNT WITH M/S DAN CEMENT TRADING (P) LTD. THESE LOAN PAYMENTS RECEIVED BY THE ASSESSEE FROM THAT COMPANY WERE CONSIDERED AS COVER ED UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AS DEEMED DIVIDEND FOR THE FOLLOWING REASONS :- (I) M/S DAN CEMENT TRADING (P) LTD. IS NOT A COMPAN Y IN WHICH PUBLIC IS SUBSTANTIALLY INTERESTED. (II) SHRI ARVIND NOPANY IS A COMMON SHAREHOLDER IN ASSESSEE COMPANY AS WELL AS M/S DAN CEMENT TRADING (P) LTD. HE IS HO LDING 99.01% SHARES IN M/S DAN CEMENT TRADING (P) LTD. AND 35.84% SHARE S IN ASSESSEE COMPANY. THUS HE IS HOLDING NOT LESS THAN 10% SHARE S OF M/S DAN 3 CEMENT TRADING (P) LTD. AND NOT LESS THAN 20% SHARE S OF THE ASSESSEE COMPANY. (III) DIVIDEND UNDER SECTION 2(22)(E) IS NOT INCLUD ED U/S 115-0 AND HENCE NOT EXEMPTED U/S 10(33) OF THE I.T. ACT. (IV) THIS MONEY IS NOT TAKEN BY THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS. 4. ACCORDINGLY THE AO TREATED THE SUM OF RS.12,54,6 01/- AS DEEMED DIVIDEND. THIS AMOUNT WAS STANDING IN THE BALANCE S HEET AGAINST THE ASSESSEE COMPANY IN THE BOOKS OF M/S DAN CEMENT TRA DING (P) LTD. FOR TREATING THIS SUM AS DEEMED DIVIDEND, THE AO RELIED ON THE FOLLOWING JUDGEMENTS:- CIT VS. KWALITY ICECREAM (P) LTD. 245 ITR 252 (CAL) MR. M.D. JINDAL VS. CIT 164 ITR 28 CIT VS. P. K. BADIANI 76 ITR 369, 376 (BOM) P. K. BADIANI VS. CIT 105 ITR 642 (SC) JAGGILAL KAMLAPAT VS. CIT (1969) 73 ITR 702 (SC) 5. THE LD. CIT(A) HELD THAT AFTER 1.4.1988 PROVISIO NS OF SECTION 2(22)(E) IS AMENDED. ACCORDING TO AMENDMENT IF A C OMMON SHAREHOLDER WHO HOLDS SUBSTANTIAL INTEREST IN LENDER AND RECEIV ING COMPANY THEN SUCH LOAN AMOUNT WOULD BE TREATED AS DEEMED DIVIDEND. TH E LD. CIT(A) REFERRED TO THE COMMENTARY IN CHATURVEDI & PITHISA RIAS INCOME-TAX LAW FIFTH EDITION VOLUME 1 AT PAGE NO.191 FOR THE P ROPOSITION THAT IF THERE IS A COMMON SHARE HOLDER IN THE LENDER AND RE CEIVING COMPANIES THEN LOAN AMOUNT STANDING AGAINST THE ASSESSEE WOUL D BE TREATED AS DEEMED DIVIDEND. IN THIS REGARD WE REFER TO FOLLOWI NG PROPOSITION FROM 4 CHATURVEDI & PITHISARIAS INCOME-TAX LAW FIFTH EDIT ION VOLUME 1 AT PAGE NO.191 AS UNDER:- SECTION 2(22)(E) AS ORIGINALLY ENACTED, OF THE 196 1 ACT ADOPTS SUBSTANTIALLY THE LANGUAGE OF SECTION 2(6A)(E) OF T HE 1962 ACT. THE ADDITIONAL WORDS IN SECTION 2922)(E) ARE BEING A P ERSON WHO HAS A SUBSTANTIAL INTEREST IN THE COMPANY WHICH HAVE BEE N PUT AFTER THE WORDS ADVANCE OR LOAN TO A SHAREHOLDER AND ANY SUCH B EFORE THE WORD SHAREHOLDER OCCURRING FOR THE LAST TIME. AS A RES ULT OF THE AMENDMENT MADE IN SECTION 2(22)(E) BY FINANCE ACT, 1987, THE SCOPE OF THE PROVISIONS OF SECTION 2922)(E) HAS BEEN WIDENED WI TH EFFECT FROM 1 ST APRIL, 1988, I.E. FOR AND FROM ASSESSMENT YEAR 1988 -89. UPTO ASSESSMENT YEAR 1987-88, SECTION 2(22)(E) HAS APPLICATION, ON FULFILLMENT OF ALL OTHER CONDITIONS, IN RELATION TO ANY PAYMENT, BY A CLOSEL Y HELD COMPANY, OF ANY SUM BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, WHO HAS A SUBSTANTIAL INTEREST [AS DEFINED IN SECTION 2(32)] IN THE COMPA NY. FOR AND FROM ASSESSMENT YEAR 1988-89 THAT SECTION 2(22)(E) SHALL HAVE APPLICATION, ON FULFILLMENT OF ALL OTHER CONDITIONS, IN RELATION TO ANY PAYMENT MADE AFTER 31.5.1987, BY A CLOSELY HELD COMPANY, OF ANY SUM BY WAY OF ADVANCE OR LOAN TO - -A SHAREHOLDER, WHO IS THE BENEFICIAL OWNER OF SHAR ES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH O R WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN 10 PE R CENT OF THE VOTING POWER, OR -ANY CONCERN (AS DEFINED IN EXPLANATION 3(A) TO SEC TION 2(22) IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WH ICH HE HAS A SUBSTANTIAL INTEREST [AS DEFINED IN EXPLANATION 3(B ) TO SECTION 2(22)]. (EMPHASIS SUPPLIED) 6. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. THE LD. AR SUBMITTED THAT THE ISSUE IS NOW COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF HO NEYVICK ENTERPRISES (P) LTD. VS. ACIT IN ITA NO.3424/AHD/2008 FOR ASST. YEAR 2003-04 PRONOUNCED ON 16.3.2009 WHEREIN THE TRIBUNAL CONSID ERING ALL THE ASPECTS OF THE ISSUE HELD THAT UNLESS THE ASSESSEE COMPANY IS DIRECTLY A 5 SHAREHOLDER IN THE LENDER COMPANY, THE LOAN AMOUNT COULD NOT BE TREATED AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2( 22)(E). FOR ARRIVING AT THIS DECISION THE TRIBUNAL RELIED ON THE DECISIO N OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. BHAUMIK COLOUR P. LTD. (2009) 118 ITD 1 (MUM) (SB). THE HEAD NOTES FROM THE DECISION IN A CIT VS. BHAUMIK COLOUR P. LTD. ARE AS UNDER :- SECTION 2(22) OF THE INCOME-TAX ACT, 1961 - DEEMED DIVIDEN D - ASSESSMENT YEAR 1997-98 - WHETHER DEEMED DIVIDEND CAN BE ASSESSED ONLY IN HANDS OF A PERSON W HO IS A SHAREHOLDER OF LENDER COMPANY AND NOT IN HANDS OF A PERSON OTHER THAN A SHAREHOLDE R - HELD, YES - WHETHER EXPRESSION SHAREHOLDER REFERRED TO IN SECTION 2(22) (E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER AND, THUS, IF A PERSON I S A REGISTERED SHAREHOLDER BUT NOT BENEFICIAL SHAREHOLDER THEN PROVISIONS OF SECTION 2(22)( E) WOULD NOT APPLY AND SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGIS TERED SHAREHOLDER THEN ALSO PROVISIONS OF SECTION 2(22)(E) WOULD NOT APPLY - HELD, YE S - WHETHER DEEMING PROVISION OF SECTION 2(22)(E) AS IT APPLIES TO CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON PRESUMPTION THAT LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO SHAREHOLDERS OF COMPANY GIVING LOAN OR ADVANCE, AND, THEREFORE, INTENTION OF LEGISLATURE IS TO T AX DIVIDEND ONLY IN HANDS OF SHAREHOLDER AND NOT IN HANDS OF CONCERN - HELD, YES WORDS AND PHRASES - THE EXPRESSION BEING A PERSON WHO IS BENE FICIAL OWNER OF SHARES OCCURRING IN SECTION 2(22)(E) OF INCOME-TAX ACT, 1961 CIRCULARS AND NOTIFICATIONS - CIRCULAR NO. 495, DATED 23-9-198 7 FOLLOWING THE ABOVE DECISION, THE TRIBUNAL IN HONEY VICK ENTERPRISES (P) LTD. VS. ACIT (SUPRA) HELD AS UNDER :- 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABL E ON RECORD. IN THE INSTANT CASE THE ASSESSEE COMPANY RECEIVED LOAN OF RS.43.00 LACS FROM M/S AMIL ENTERPRISES PVT. LTD. THE MAIN DIRECT OR OF THE ASSESS COMPANY SRI ASHOK MALHOTRA WAS HOLDING MORE THAN 10 % SHARES AS WELL AS MORE THAN 10% OF VOTING POWER IN THE ASSESS EE COMPANY WAS ALSO HOLDING 66% OF THE SHARE CAPITAL OF THE LE NDING COMPANY M/S AMIL ENTERPRISES. IN VIEW OF THE ABOVE FACTS, H E ADDED RS.43 LACS TO THE INCOME OF THE ASSESSEE AS DEEMED DIVIDE ND UNDER SECTION 2(22)(E) OF THE ACT. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE AO FOR THE VERY SAME REASON. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE COMPANY IS NOT A SHAREHOL DER OF THE LENDING COMPANY HOLDING 10% OR MORE OF THE SHARES O F THE LENDING COMPANY. WE FIND THAT THE HON'BLE SPECIAL BENCH OF THE TRIBUNAL IN 6 THE CASE OF ACIT VS. BHAUMIK COLOUR PVT. LTD. (2009 ) 118 ITD 1 (MUM) (SB) HAS HELD THAT DEEMED DIVIDEND CAN BE ASS ESSED ONLY IN THE HANDS OF A PERSON, WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF THE BORROWING CONCERN IN WH ICH SUCH SHAREHOLDER IS MEMBER OR PARTNER HAVING SUBSTANTIAL INTEREST. THEREFORE, AS THE LOAN WAS ADVANCED TO THE ASSESSEE COMPANY AND NOT TO ITS DIRECTOR SHRI ASHOK MALHOTRA WHO HELD 66 % OF THE SHARE CAPITAL OF M/S.AMIL ENTERPRISES PVT. LTD. WHICH ADV ANCED THE SUM TO THE ASSESSEE COMPANY, FOLLOWING THE DECISION OF THE HON'BLE SPECIAL BENCH IN THE CASE OF BHAUMIK COLOURS PVT. LTD. (SUP RA) SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND HOLD THAT TH E SAID LOAN OF RS.43 LACS RECEIVED BY THE ASSESSEE COMPANY FROM M/ S. AMIL ENTERPRISES PVT. LTD. CANNOT BE TREATED AS DEEMED D IVIDEND OF THE ASSESSEE COMPANY AND TAXED IN ITS HANDS AS SUCH. TH EREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. THUS IN THE PRESENT CASE EVEN THOUGH SHRI ARVIND NO PANY HAD MORE THAN 10% OF SHARES IN M/S DAN CEMENT TRADING (P) LTD. AN D MORE THAN 20% SHARES IN ASSESSEE COMPANY STILL THE LOAN GIVEN BY M/S DAN CEMENT TRADING (P) LTD. TO THE ASSESSEE COMPANY WILL NOT B E TREATED AS DEEMED DIVIDEND AS ASSESSEE COMPANY IS NOT A SHAREHOLDER I N THE LENDER COMPANY. IN VIEW OF THIS, WE DECIDE THE ISSUE IN FAVOUR OF T HE ASSESSEE. ACCORDINGLY THIS GROUND OF THE ASSESSEE IS ALLOWED. 7. THE LAST ISSUE IS ABOUT DISALLOWANCE OF EXPENSES OF RS.21,392/-. THE ABOVE EXPENDITURE WAS INCURRED ON MAINTENANCE O F GARDEN, AS SALARY TO GARDENER. THE EXPENDITURE WAS DISALLOWED TREATIN G IT AS NOT INCURRED FOR BUSINESS PURPOSES AND FURTHER THAT SUCH EXPENDITURE IS VOLUNTARY AND WAS INCURRED MORE FOR ALTRUISTIC PURPOSES. 8. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. WE ARE OF THE VIEW THAT THIS ISSUE IS COVER ED BY THE DECISION OF HON. RAJASTHAN HIGH COURT IN CIT VS. JAIPUR UDYOG L TD. (2005) 272 ITR 349 (RAJ) WHEREIN IT IS HELD THAT EXPENSES INCURRED ON MAINTENANCE OF 7 GARDN ARE NOT DEDUCTIBLE. IN VIEW OF THIS, WE CONFI RM THE ORDER OF LD. CIT(A) AND DISMISS THIS GROUND OF ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 02/07/2010 SD/- SD/- (MAHAVIR SINGH) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 02/07/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD