TULIP REAL ESTATE P.LTD, MUMBAI V. ITO 7(3)(3), MUMBAI

ITA 1905/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101061 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 20-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Deemed dividend

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI N.K . BILLAIYA, ACCOUNTANT MEMBER AND RAM L AL NEGI, JUDICIAL MEMBER / I .T.A. NO. 1905/MUM/2014 ( / ASSESSMENT YEAR : 2010 - 11 M/S. TULIP REAL ESTATE PVT. LTD., 100/1, MANGALA VRPB, SULE MARG, WADALA, MUMBAI - 400 031 / VS. THE ITO - 7(3)(3), AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN/GIR NO. : AACCT 3833B ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI VIJAY MEHTA / RESPONDENT BY: SHRI AJAY MODI / DATE OF HEARING : 16 .0 9 .2015 / DATE OF PRONOUNCEMENT : 16.9.2015 O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A) 13 6, MUMBAI D ATED 1 7 .1.201 4 PERTAINING TO ASSESSMENT YEAR 20 1 0 - 11 . 2. THE SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION MADE BY THE AO U/S. 2(22)(E) OF THE ACT AMOUNTING TO RS. 77,73,250/ - . ITA. NO. 1905/M/20 - 14 2 3. RIVAL CONTENTIONS WERE HEARD. BEFORE PROCEEDING FURTHER, LET US UNDERSTAND THE PECULIAR F ACT S OF THE CASE. THE ASSESSEE IS IN THE BUSINESS OF SHARES AND COMMODITIES. ON SCRUTINIZING THE RETURN OF INCOME ALONGWITH THE STATEMENT OF ACCOUNTS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RECEIVED ADVANCE OF RS. 77,73,250/ - FROM M/S. PREMI UM PAPER AND BOARD IND. LTD. (PPBIL). THE TRANSACTION WAS DULY CONFIRMED BY THE ASSESSEE AND PPBIL. ON FURTHER SCRUTINY OF THE FACTS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE IS HOLDING 18.2% VOTING POWER IN PPBIL. THE AO WAS CONVINCED THAT THE PROVISIONS OF SEC. 2(22)(E) SQUARELY APPLY ON THE FACTS OF THE CASE. 3.1. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE AMOUNT OF RS. 77,73,250/ - SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. THE ASSESSEE FILED A DETAILED REPLY WHICH READ AS UNDER: DURING THE YEAR, THE COMPANY HAS RECEIVED ADVANCE FROM PREMIUM PAPER BOARD IND. LTD. THIS WAS ON ACCOUNT OF THE ORDER OF THE CONSTRUCTION OF THE FACTORY OFFICE AND TOWARDS COLONY FOR RESIDENTIAL PURPOSES OF THE COMPANY. M/S. PREMIUM P APER BOARD IND. LTD. HAS GOT THE LOAN SANCTIONED FROM THE SHAMRAO VITHALDAS CO - OPERATIVE BANK LTD AND THE AMOUNT HAS BEEN DIRECTLY DISBURSED BY THE BANK TO TULIP REAL ESTATE PVT. LTD. THE RESPECTIVE CORRESPONDENCE WITH THE SAID BANK FOR TWO QUOTATIONS GI VEN BY M/S. PREMIUM PAPER BOARD IND. LTD. THE RESPECTIVE CORRESPONDENCE WITH THE SAID BANK FOR TWO QUOTATIONS GIVEN BY M/S. TULIP REAL ESTATE PVT. LTD TO M/S. PREMIUM PAPER BOARD IND. LTD. AND THE WORK ORDER HAS BEEN ENCLOSED FOR YOUR VERIFICATION & REC ORD. HOWEVER, TULIP REAL ESTATE PVT. LTD. DID NOT START THE WORK AND THEREFORE, THIS AMOUNT HAS TO BE REFUNDED BACK TO PREMIUM PAPER BOARD IND. LTD. IN FACT THE PART PAYMENT IS ALSO REFUNDED. HENCE THE SAID AMOUNT CANNOT BE CONSIDERED AS DEEMED DIVIDEND . ITA. NO. 1905/M/20 - 14 3 4. THE SUBMISSIONS MADE BY THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE AO WHO PROCEEDED TO TREAT THE SUM OF RS. 77,73,250/ - AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCE SS. 6. THE PECULIAR FACTS OF THE CASE ARE THAT PPBIL WAS IN NEED OF MONEY FOR ITS EXPANSION OF BUSINESS. PPBIL STRUCK A DEAL WITH THE SHAMRAO VITHALDAS C O - OPERATIVE BANK, MUMBAI FOR TERM LOAN. THE TERM LOAN WAS SANCTIONED WITH A CONDITION THAT ANY DIS BURSEMENT IN RESPECT OF ANY CIVIL WORK, PURCHASE OF PLANT AND MACHINERY SHALL BE DIRECTLY MADE TO THE SUPPLIERS. THE LETTER OF PPBIL TO THE BANK IS PLACED AT PAGE - 13 OF THE PAPER BOOK. THE COST OF PROJECT IS EXHIBITED AT PAGE - 50 AND THE SANCTIONED LETTER OF THE BANK IS AT PAGE - 18 OF THE PAPER BOOK. SINCE THE DISBURSEMENT IS TO BE MADE DIRECTLY TO THE SUPPLIERS, THE ASSESSEE WAS USED AS A CONDUIT BY PPBIL BY WHICH THE ASSESSEE RAISED A BILL OF CIVIL WORKS AND THE BANK DISBURSED THE FIRST INSTALMENT OF RS. 36,96,500/ - AS PER EXHIBITS AT PAGE - 22 AND 23 OF THE PAPER BOOK WHICH WAS CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE WITH INDUSIND BANK ON 13.3.2 010. THE ASSESSEE TRANSFERRED RS. 35 LAKHS TO THE ACCOUNT OF PPBIL ON 15.3.2010. 6.1. THE SECOND INSTALMENT WAS DISBURSED BY THE BANK AND CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE ON 20.3.2010 FOR RS. 40,76,750/ - . THE SAME WAS REMITTED TO GANDHITEX FINVEST LTD. ON 22.3.2010 FROM WHERE THE MONEY WAS GIVEN TO PPBIL. NO BENEFIT WAS DERIVED BY THE ASSESSEE FROM THESE TRANSACTIONS AND FACTS CLEARLY ESTABLISH THAT THE ASSESSEE WAS ONLY WORKING AS A CONDUIT BETWEEN THE BANK AND PPBIL. ITA. NO. 1905/M/20 - 14 4 IT WOULD NOT BE OUT OF PLACE TO REFER TO THE LEGISLATIVE INTENT FOR INCORPORATING SEC. 2(22)(E) IN THE STATUTE BOOK. THE SAME CAN BE GATHERED FROM THE CIRCULAR NO. 495 DATED 22 ND SEPTEMBER, 1987 WHEREIN AT CLAUSE 10.2, IT IS MENTIONED WITH THE DELETION OF SECTIONS 104 TO 1 09, THERE WAS A LIKELIHOOD OF CLOSELY - HELD COMPANIES NOT DISTRIBUTING THEIR PROFITS TO SHAREHOLDERS BY WAY OF DIVIDENDS BUT BY WAY OF LOANS OR ADVANCES SO THAT THESE ARE NOT TAXED IN THE HANDS OF THE SHAREHOLDERS. TO FORESTALL THIS MANIPULATION, SUB - CLAUS E (E) OF CLAUSE (22) OF SEC. 2 HAS BEEN SUITABLY AMENDED. IN THE LIGHT OF THE AFORESTATED LEGISLATIVE INTENT THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS CREATIVE DYEING AND PRINTING PVT. LTD. 318 ITR 476 NEEDS A WORTH MENTION: THEREFORE, IF THE SAID BACKGROUND IS KEPT IN MIND, IT IS CLEAR THAT SUB - CLAUSE (E) OF SECTION 2(22) OF THE ACT, WHICH IS IN PARIMATERIA WITH SUB - CLAUSE (E) OF SECTION 2(6A) OF THE 1922 ACT, PLAINLY SEEKS TO BRING WITHIN THE TAX NET ACCUMULATED PROFITS WHIC H ARE DISTRIBUTED BY CLOSELY HELD COMPANIES TO ITS SHAREHOLDERS IN THE FORM OF LOANS. THE PURPOSE BEING THAT PERSONS WHO MANAGE SUCH CLOSELY HELD COMPANIES SHOULD NOT ARRANGE THEIR AFFAIRS IN A MANNER THAT THEY ASSIST THE SHAREHOLDERS IN AVOIDING THE PAYME NT OF TAXES BY HAVING THESE COMPANIES PAY OR DISTRIBUTE, WHAT WOULD LEGITIMATELY BE DIVIDEND IN THE HANDS OF THE SHAREHOLDERS, MONEY IN THE FORM OF AN ADVANCE OR LOAN. IF THIS PURPOSE IS KEPT IN MIND THEN, IN OUR VIEW, THE WORD ' ADVANCE' HAS TO BE READ IN CONJUNCTION WITH THE WORD ' LOAN' . USUALLY ATTRIBUTES OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING COUPLED WITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN : IT GENERALLY CARRIES AN INTEREST AND THERE IS AN OBLIGATION OF REPAYMENT. ON THE OTHER HAND, IN ITS WIDEST MEANING THE TERM ' ADVANCE' MAY OR MAY NOT INCLUDE LENDING. THE WORD ' ADVANCE' IF NOT FOUND IN THE COMPANY OF OR IN CONJUNCTION WITH A WORD ' LOAN' MAY OR MAY NOT INCLUDE THE OBLI GATION OF REPAYMENT. IF IT DOES, THEN IT WOULD B E A LOAN. THUS, ARISES THE CONUNDRUM AS TO WHAT MEANING ONE WOULD ATTRIBUTE TO THE TERM ' ADVANCE' . THE RULE OF CONSTRUCTION TO ITA. NO. 1905/M/20 - 14 5 OUR MINDS WHICH ANSWERS THIS CONUNDRUM IS NOSCITUR A SOCIIS. THE SAID RULE HAS BEEN EXPLAINED BOTH BY THE PRIVY COUNCIL IN THE CASE OF ANGUS ROBERTSON V. GEORGE DAY [1879] 5 AC 63 BY OBSERVING ' IT IS A LEGITIMATE RULE OF CONSTRUCTION TO CONSTRUE WORDS IN AN ACT OF PARLIAMENT WITH REFERENCE TO WORDS FOUND IN IMMEDIATE CONNECTION WITH THEM' AND OUR SUPREME COURT IN THE CASE OF ROHI T PULP AND PAPER MILLS LTD. V. COLLECTOR OF CENTRAL EXCISE, AIR 1991 SC 754 AND STATE OF BOMBAY V. HOSPITAL MAZDOOR SABHA, AIR 1960 SC 610.' 6.2. THE OBSERVATIONS OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS SURAJ DEV DADA 367 ITR 78 I S ALSO RELEVANT TO THE FACTS OF THE PRESENT CASE WHICH IS AS UNDER: THIS SECTION HAD BEEN INSERTED TO STOP THE MISUSE OF THE TAXING PROVISIONS BY THE ASSESSEES BY TAKING THE FUNDS OUT OF THE COMPANY BY WAY OF LOANS OR ADVANCES INSTEAD OF DIVIDENDS AND THUS AVOID TAX. BUT IN THIS CASE WHERE THERE IS NO SUCH INTENTION OF THE APPELLANT AND HE HAD IN FACT ADVANCED MONEY TO THE COMPANY, CREDIT IN THAT ACCOUNT FOR SOME DAYS CANNOT BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E). IT IS EVIDENT FACT THAT T HE APPELLANT IN REAL SENSE NOT DERIVED ANY BENEFIT FROM THE FUNDS OF THE COMPANY AND, THEREFORE, BY NO STRETCH OF IMAGINATION IT CAN BE SAID THAT THE COMPANY HAS DISBURSED OR GIVEN DIVIDEND TO ITS SHAREHOLDER/DIRECTOR IN THE GUISE OF LOAN. IT WILL BE TRAVE STY OF LAW TO APPLY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT TO THE FACTS OF THE PRESENT CASE WHETHER IN FACT THE PERSON CONCERNED HAS NOT GAINED ANY BENEFIT FROM THE FUNDS OF THE COMPANY AND ONE HAS TO CONSIDER THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE BEFORE APPLYING THE PROVISIONS OF THIS SECTION. 6.3. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE AFORESTATED JUDICIAL DECISIONS, WE FIND THAT THE IMPUGNED TRANSACTION DO NOT FALL WITHIN THE MISCHIEF OF SEC. 2(22)(E) OF THE ACT . HOWEVER, AT THE SAME TIME, WE FIND THAT OUT OF THE FIRST DISBURSEMENT OF RS. 36,96,500/ - , THE ASSESSEE HAS REMITTED BACK TO PPBIL RS. 35 LAKHS THEREBY RETAINING RS. 1,96,500/ - AND OUT OF THE SECOND DISBURSEMENT OF RS. 40,76,750/ - , ITA. NO. 1905/M/20 - 14 6 THE ASSESSEE HAS TRAN SMITTED ONLY RS. 40 LAKHS THEREBY RETAINING RS. 76,750/ - . THEREFORE, TO THIS EXTENT I.E. TO THE EXTENT OF RS. 2,73,250/ - WE AGREE THAT THIS AMOUNT CAN BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. 6.4. THE PECULIARITY OF THE FACTS AS STAT ED HEREINABOVE CLEARLY SHOWS THAT THE TRANSACTION WAS PURELY COMMERCIAL IN NATURE. THE ASSESSEE WAS USED AS A CONDUIT BETWEEN THE BANK AND THE PPBIL TO HELP PPBIL. THE LOAN AMOUNT WAS ROUTED THROUGH THE ACCOUNT OF THE ASSESSEE AND IN THE LIGHT OF THE JUD ICIAL DECISIONS (SUPRA) VIS - - VIS THE LEGISLATIVE INTENT, THE SAME CANNOT BE TREATED AS LOANS OR ADVANCES IN THE LIGHT OF BEING TAXED AS DEEMED DIVIDEND . WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO RESTRICT THE ADDITION T O RS. 2,73,250/ - AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER , 2015 SD/ - SD/ - ( RAM L AL NEGI ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 16 TH SEPTEMBER , 2015 . . ./ RJ , SR. PS ITA. NO. 1905/M/20 - 14 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI