The ACIT, 3(1), Bhopal V. M/s. RPM Enterprises Pvt. Ltd., Bhopal

ITA 193/IND/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5886 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: YESHWANT SHARMA
• Keywords: Deemed dividend
• Section: 68; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C.MEENA, ACCOUNTANT MEMBER I.T.A.NO. 193/IND/2014 A.Y. : 2009-10. ACIT, 3(1), BHOPAL M/S.RPM ENTERPRISES P.LTD., VS. BHOPAL. APPELLANT RESPONDENT PAN NO. AADCR6732J APPELLANTS BY : SHRI R.A.VERMA, DR RESPONDENT BY : SHRI YESHWANT SHARMA, CA O R D E R PER D.T.GARASIA, J.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A)-II, BHOPAL, DATED 13.12.2013 FOR THE ASSE SSMENT YEAR 2009-10. DATE OF HEARING : 17. 1 1 .2015. DATE OF PRONOUNCEMENT : 05 . 01 .201 6 ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 2 2 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN 1. DELETING THE ADDITION OF RS. 11,50,000/- MADE ON ACCOUNT OF SHARE APPLICATION MONEY. 2. DELETING THE ADDITION OF RS. 14,34,790/- ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE INCOME-TAX ACT, 1961. GROUND NO.1 : 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEA R UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS RECEI VED SHARE APPLICATION OF MONEY RS. 11,50,000/-. THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF SHARE APPLICATION MONEY RE CEIVED DURING THE YEAR. THE AO HELD THAT THE IDENTITY AND CREDITWORTHINESS OF THE INVESTOR AND GENUINENESS OF THE TRANSACTIONS REGARDING SHARE APPLICATION MONEY OF RS.11,50,000/- RECEIVED BY THE ASSESSEE COMPANY IN THE YEAR WAS NOT PROVED. THE AO MADE THE ADDITION OF RS. 11, 50,000/- ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 3 3 TO THE TOTAL INCOME OF THE ASSESSEE ON THE GROUND T HAT THE ASSESSEE HAS NOT DISCHARGED ITS LIABILITY TO PROVE THE CREDIT ENTRY FOUND RECORDED IN THE BOOKS OF ACCOUNT. 4. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) DELETED THE ADDITION BY OBSERVING AS UNDER :- 2.5 IN MY CONSIDERED V IEW, THE APPELLANT HAS DISCHARGED THE PRIMARY ONUS REQUIRED OF IT IN RESPECT OF SHARE APPLICATION MONEY RECEIVED. IT HAS BEEN HELD BY HON'BLE SUPREME COURT IN CASE OF CIT VS. LOVELY EXPORTS (I) LTD (2008) 216 CTR 195 (SC) THAT IF SHARE APPLICATI ON MONEY IN RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE A. O . THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEI R INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW, BUT THIS AMOUNT OF SHARE MONEY CANNOT BE REGARDED AS UNDISCLOSED INCOME U/S 68 IN CASE OF THE APPELLANT COMPANY. T HIS DECISION HAS BEEN RENDERED BY HON'BLE APEX COURT WHILE DISMISSING SLP FILED BY THE DEPARTMENT AGAINST DECISION OF HON'BLE HIGH COURT HOLDING THAT FURNISHING OF ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 4 4 DETAILS PROVING IDENTITY AND CREDITWORTHINESS OF SHA REHOLDERS AND GENUINENESS OF TRANSACTION EARNED THROUGH BANKI NG CHANNELS WOULD CONSTITUTE ACCEPTABLE PROOF OR ACCEPTABLE EXPLANATION BY THE ASSESSEE. T HE ONUS OF THE APPELLANT STANDS DISCHARGED THEREBY. THEREAFTER TO TREAT THE SAID AMOUNTS AS UNEXPLAINED. A.O. IS DUTY BOUND TO INVESTIGATE THE CREDITWORTHINESS OF THE CREDITORS/ SUBSCRIBER AND THE GENUINENESS OF THE TRANSACTIONS AND THE VERACITY OF THE REPUDIATION OF THE CREDITOR/ SUBSCRIBER. ON SIMILAR LINES, JURISDICTIONAL HON'BLE M.P. HIGH COURT HAS HELD IN CASE OF CIT VS. METACHEM INDUSTRIES, (2 001) 116 TAXMAN 572(M.P) THAT ONCE IT IS SHOWN THAT AN AMOUNT HAS BEEN INVESTED BY A PARTICULAR PERSON, BE HE A PARTNER OR AN INDIVIDUAL, THEN THE RESPONSIBILITY OF THE AS SESSEE-FIRM IS OVER. THE ASSESSEE FIRM IS ONLY TO EXPLAIN THAT THE INV ESTMENT HAS BEEN MADE BY THE PARTICULAR INDIV IDUAL AND IT IS THE RESPONSIBILITY OF THAT INDIVIDUAL TO ACCOU NT FOR THE INV ESTMENT MADE BY HIM. IF THAT PERSON OWNS THAT ENTRY, THEN THE BURDEN OF THE ASSESSEE FIRM IS DISCHARGED. IT IS OPEN ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 5 5 FOR THE AO TO UNDERTAKE FURTHER INVESTIGATION WITH REGARD TO THAT INDIVIDUAL W HO HAS DEPOSITED THIS AMOUNT. SO FAR AS THE RESPONSIBILITY OF THE ASSESSEE IS CONCERNED, IT IS SATISFACTORILY DISCHARGE. WHETHER THAT PERSON IS AN INCOME-TAX PAYER OR NOT OR FROM WHERE HE HAD BROUGHT THIS MONEY, IS NOT THE RESPONSIBILITY OF THE FIRM. IT IS OPEN FOR THE A.O. TO TAKE APPROPRIATE ACTION U/S 69 AGAINST THE PERSON WHO HAS NOT BEEN ABLE TO EXPLAIN THE INVESTMENT. 2.6 KEEPING IN VIEW ABOV E, ADDITION OF RS. 11,50,000/- MADE U/S 68 MADE IN CASE OF THE APPELLANT COMPANY F OR SHARE APPLICATION MONEY RECEIVED, IN RESPECT OF WHICH PRIMARY ONUS HAS BEEN DISCHARGED, AND IN ABSENCE OF ANY ADVERSE MATERIAL ON RECORD, IS NOT FOUND SUSTAINABL E AND HEREBY, DELETED. HOWEVER, AO WILL BE AT LIBERTY TO TAKE ACTION AS PER LAW IN CASE OF THESE SHAREHOLDERS, AS DEEMED FIT AND AS FOUND NECESSARY ON THE BASIS OF MATERIAL ON RECORD. WITH THESE DIRECTIONS, THIS GROUND OF APPEAL IS ALLOWED. 5. THE LD. DR RELIED ON THE ORDER OF THE AO. ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 6 6 6. THE LD. AUTHORIZED REPRESENTATIVE CONTENDED THAT AL L THE DETAILS WERE FILED BEFORE THE AO REGARDING SHAR E APPLICATION MONEY SHOWING THE NAMES OF THE PERSONS, ADDRESS, PA N NOS., CHEQUE NOS., BANK ACCOUNT NO. AND LEDGER ACCOUNT OF SHARE APPLICATIONS MONEY. THE LD. AUTHORIZED REPRESENTATI VE RELIED UPON THE DECISION IN THE CASE OF CIT VS. LOVELY EXP ORTS (P) LIMITED, (2009) 319 ITR (ST) 5 (S.C.) AND CONTENDED THAT IN CASE OF SHARE APPLICATION MONEY, ONLY IDENTITY OF T HE INVESTOR HAS TO BE PROVED AND ADDITION, IF ANY, CAN BE MADE ONLY IN THE HANDS OF THE INVESTOR. THE LD. AUTHORIZED REPRESENT ATIVE FURTHER CONTENDED THAT SINCE THE ASSESSEE HAS DISCH ARGED THE ONUS, THE ADDITION MADE BY THE ASSESSING OFFICER MA Y BE DELETED. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE HAS DISCHARGED ITS ONUS B Y SUBMITTING THE NECESSARY DETAILS BEFORE THE AO AND THE LD. CIT(A) ON PAGE 4 OF HIS ORDER HAS ALSO MENTIONED TH E DETAILS OF THE SAME AND HAS HELD THAT THE ASSESSEE HAS DISCHAR GED THE ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 7 7 PRIMARY ONUS IN RESPECT OF SHARE APPLICATION MONEY. THE LD. DR DID NOT BRING ANYTHING CONTRARY TO THE FINDING O F THE LD. CIT(A). WE UPHOLD THE ACTION OF THE LD. CIT(A). OU R INTERFERENCE IS NOT REQUIRED. GROUND NO. 1 OF THE R EVENUE IS DISMISSED. GROUND NO. 2 : 8. THE BRIEF FACTS RELATING TO THIS GROUND ARE THAT DU RING THE YEAR, THE ASSESSEE HAS RECEIVED LOAN OF RS. 24, 00,000/- FROM SPEED INFRASTRUCTURE INDIA PVT.LTD. ON GOING T HROUGH THE RETURN OF INCOME FILED FOR ASSESSMENT YEAR 2008-09 IN PART A SCHEDULE BS THE ASSESSEE HAS SHOWN UNSECURED LOAN O F R. NIL. IN THE RETURN OF INCOME FILED FOR ASSESSMENT YEAR 2 009-10, THE ASSESSEE HAS SHOWN UNSECURED LOAN OF RS. 24,00,000/ -. THE ASSESSEE SUBMITTED THAT THERE WAS OPENING BALANCE O F RS. 18 LACS AND DURING THE YEAR ONLY RS. 6 LACS WAS RECEIV ED. THE FACTS DID NOT TALLY WITH THE RETURN OF INCOME AND B ALANCE SHEET. FROM THE RETURN OF INCOME OF SPEED INFRASTRU CTURE INDIA PRIVATE LIMITED FILED FOR ASSESSMENT YEAR 2009-10, IT WAS SEEN THAT SANDEEPA NIGAM HELD 50% SHARES OF SPEED INFRAS TRUCTURE ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 8 8 INDIA PVT. LIMITED. IN BOTH THE COMPANIES I.E. SPEE D INFRASTRUCTURE INDIA PRIVATE LIMITED AND THE ASSESS EE COMPANY, SANDEEPA NIGAM HAS SUBSTANTIAL HOLDING. TH US, LOAN GIVEN BY THE SPEED INFRASTRUCTURE INDIA PVT.LT D. TO THE ASSESSEE COMPANY ATTRACTS THE PROVISIONS OF SECTION 2(22)E) OF THE INCOME-TAX ACT, 1961. SINCE THE ASSESSEE COMPAN Y RECEIVED LOANS OF RS. 24,00,000/- FROM SPEED INFRAS TRUCTURE INDIA PVT.LTD. HENCE AMOUNT OF RS. 14,34,790/- ACCU MULATED RESERVES AND SURPLUS OF SPEED INFRASTRUCTURE INDIA PRIVATE LIMITED WAS CONSIDERED AS DEEMED DIVIDEND IN THE HA NDS OF THE ASSESSEE COMPANY AND WAS ADDED BACK TO THE TOTA L INCOME OF THE ASSESSEE. 9. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) DELETED THIS ADDITION BY OBSERVING AS UNDER :- 3.2 APPELLANT'S SUBMISSIONS ALONGWITH ASSESSMENT ORDER AND RECORDS HAVE BEEN CONSIDERED CAREFULLY AN D ARE FOUND ACCEPTABLE. THE FACT IS THAT THE APPELLANT HAS RECEIVED LOAN OF RS. 24,00,000/- FROM SPEED INFRASTRUCTURE INDIA PVT.LTD., IN WHICH ONE OF ITS ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 9 9 SHAREHOLDER NAMELY SMT. SANDEEPA NIGAM - HAVING 31% SHAREHOLDING IS ALSO HOLDING 50% SHARES THEREIN. T HOUGH IT CANNOT BE DENIED THAT SMT. SANDEEPA NIGAM HAS SUBSTANTIAL HOLDING IN BOTH THE COMPANIES BUT THE F ACT REMAINS THAT THE APPELLANT CO. IS NOT EVEN A SHAREH OLDER IN THE LENDING COMPANY, LEAVE ASIDE THE FACT OF REG D. AND BENEFICIAL SHAREHOLDER THEREIN TO INVOKE DEEMING PROVISIONS OF SEC 2(22)(E) OF THE INCOME-TAX ACT, 1 961, PROVISIONS OF SECTION 2(22)(E) OF THE INCOME-TAX AC T, 1961, CREATE A FICTION BRINGING IN AMOUNTS PAID OTHERWISE THAN AS DIVIDEND INTO THE NET OF DIVIDENDS. THEREFORE, T HIS CLAUSE MUST BE GIVEN A STRICT INTERPRETATION. TO AT TRACT THE FIRST LIMB OF PROVISIONS OR SECTION 2(22)(E), THE PAYMENT MUST BE TO A PERSON WHO IS A REGD. HOLDER O F SHARES. THE NEW CATEGORY OF PAYMENT WHICH WAS CONSIDERED AS DIVIDEND INTRODUCED BY THE FINANCE AC T, 1987, W.E.F. 01.04.1988, BY THE SECOND LIMB OF SECT ION 2(22)(E), IS PAYMENT TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH H E ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 10 10 HAS A SUBSTANTIAL INTEREST. THE EXPRESSION 'SUCH SHAREHOLDER' IN THE PROVISION REFERS TO THE SHAREHO LDER REFERRED TO IN THE EARLIER PART OF SECTION 2(22)(E) NAMELY, A REGD. AND A BENEFICIAL HOLDER OF SHARES HOLDING 1 0 % VOTING POWER. THE PROVISIONS CONTEMPLATE A CHARGE TO TAX IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF A NON-SHAREHOLDER I.E. THE APPELLANT IN THE INST ANT CASE. IT HAS BEEN HELD SO IN CASE OF CIT VS. MCC MARKETING (P) LTD.,(2011) 16 TAXMANN.COM 411 (DEL) AND BY HON'BLE INDORE BENCH IN THE CASE OF CIT VS. PRAK ASH SOYA LIMITED, (2007) 9 ITJ 24 (INDORE) THAT WHERE T HE ASSESSEE - A PRIVATE LIMITED COMPANY, RECEIVED A CERTAIN AMOUNT AS UNSECURED LOAN FROM ITS SISTER COMPANY AND WHERE BOTH ASSESSEE COMPANY AND LENDER COMPANY, HAVING CO MMON SHAREHOLDER(S) HAVING SUBSTANTIAL INTEREST IN BOTH THE COMPANIES, THEN ADDITION MADE IN CASE OF ASSESSEE COMPANY BY INVOKING OR PROVISIONS OF SECTION 2(22)(E) HAS NOT BEEN HELD JUSTIFIABLE AND ACCORDINGLY DELETED. RESPECTFULLY FOLLOWING THE SAME AS THESE DECISIONS ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 11 11 ARE FOUND APPLICABLE IN THE APPELLANTS CASE AND AFTER PERUSAL OF MATERIAL ON RECORD, ADDITION OF RS. 14,34,790/- MADE IN THE CASE OF THE APPELLANT, WHO IS NOT FOUND A SHAREHOLDER OF THE LENDING COMPANY AND THUS CANNOT BE TREATED AS BEING COVERED BY DEFINITI ON OF WORD DIVIDEND AS PROVIDED IN SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961, IS NOT FOUND SUSTAINABLE AND ACCORDINGLY DELETED. 10. THE LD. DR RELIED UPON THE ORDER OF THE AO. 11. THE LD. AUTHORIZED REPRESENTATIVE CONTENDED THAT TH E ACTION OF THE AO IS UNWARRANTED AND UNLAWFUL, BECAU SE, INTER- ALIA, THE FUNDAMENTAL CONDITION OF THE DEEMED DIVID END U/S 2(2)(E) IS THAT IT HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER OF THE COMPANY FORM WHOM LOAN AND ADVAN CE HAS BEEN RECEIVED, IS NOT FULFILLED IN THIS CASE. IN TH IS CASE, THE ASSESSEE IS NOT SHAREHOLDER OF THE PAYER COMPANY I. E. SPEED INFRASTRUCTURE INDIA PVT. LTD. FROM WHOM THE ADVANC E WAS RECEIVED. HENCE, NO ADDITION WAS CALLED FOR. THE LD . AUTHORIZED REPRESENTATIVE PRAYED THAT THE ADDITION MAY BE DELE TED. ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 12 12 12. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT THE PROVISIONS CONTEMPLATE A CHARGE TO TAX IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF A NON-SHAREHOLDER I.E. THE ASSESSEE. WE ALSO FIND THE CASES RELIED UPON BY THE LD. CIT(A) APPLY TO THE CASE OF THE ASS ESSEE IN THE CASES OF CIT VS. MCC MARKETING (P) LTD., (2011) 16 TAXMANN.COM 411 (DEL) AND BY I.T.A.T. INDORE BENCH IN THE CASE OF CIT VS. PRAKASH SOYA LIMITED, (2007) 9 ITJ 24 (INDORE) IN WHICH IT WAS HELD THAT WHERE THE ASSESSEE - A PR IVATE LIMITED COMPANY, RECEIVED A CERTAIN AMOUNT AS UNSECURED LOAN FROM ITS SISTER COMPANY AND WHERE BOTH ASSESSEE COMPANY AND LENDER COMPANY, HAVING COMMON SHAREHOLDER(S) HAVING SUBSTANTIAL INTEREST IN BOTH THE COMPANIES, THEN ADDITION MADE IN CASE OF ASSESSEE COMPANY BY INVOKING OF PROVISIONS OF SECTION 2(22)(E) HAS NOT BEEN HELD JUSTIFIABLE AND ACCORDINGLY DELET ED. WE CONCUR WITH THE VIEW OF THE LD. CIT(A). WE UPHOLD H IS ACTION. THE LD. DR. DID NOT POINT OUT ANYTHING CONTRARY TO THE FINDING OF THE LD. CIT(A). OUR INTERFERENCE IS NOT CALLED F OR. GROUND NO.2 OF THE REVENUE FAILS. ACIT, BHOPAL VS. RPM ENTERPRISES PVT.LTD., BHOPAL I.T.A.NO. 193/IND/2014 A.Y. 2009-10 13 13 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER HAS BEEN PRONOUNCED IN THE OP EN COURT ON 5 TH JANUARY, 2016. SD/- (B.C.MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 5 TH JANUARY, 2016. CPU* 19.16