Varun Motors Pvt. Ltd., Visakhapatnam V. THE DCIT, CENTRAL CIRCLE-1, Visakhapatnam

ITA 200/VIZ/2013

• Counselvise Citation: 20025314 RSA 2013
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Search and seizure; Deemed dividend; Assessment record
• Section: 143(3); 153A; 263; 132; 2

Judgement Text

ITA NOS.199&200/VIZAG/2013 VARUN MOTORS PVT. LTD., VSKP IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.199&200/VIZAG/2013 ASSESSMENT YEARS : 2006-07 & 2007-08 VARUN MOTORS PVT. LTD. VISAKHAPATNAM VS. DCIT CENTRAL CIRCLE-1 VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AABCV 2471Q ASSESSEE BY: SHRI G.V.N. HARI, ADVOCATE REVENUE BY: SHRI K.V.N. CHARYA, CIT(DR) DATE OF HEARING : 28.02.2014 DATE OF PRONOUNCEMENT : 06.03.2014 ORDER PER SAKTIJIT DEY, JUDICIAL MEMBER:- THE AFORESAID APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDERS PASSED U/S 263 OF THE INCOME-TAX ACT BY CIT(CENTRAL), HYDERABAD FOR THE ASSESSMENT YEARS 2006-07 AND 2007 -08. 2. THE SOLE ISSUE ARISING FOR CONSIDERATION IS WHET HER THE CIT WAS CORRECT IN EXERCISING HIS JURISDICTION U/S 263 OF THE ACT A ND REVISE THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 153A OF THE INCOME T AX ACT BY DIRECTING THE ASSESSING OFFICER TO TREAT THE ADVANCES RECEIVED FR OM M/S. CORPORATE CARS PVT. LTD. AND VARSHA BUILDERS PVT. LTD. AS DEEMED DIVIDE ND U/S 2(22)(E) OF THE ACT. 3. BRIEFLY STATED, THE ASSESSEE A PRIVATE LIMITED C OMPANY IS AUTHORIZED DEALER OF MARUTHI SUZUKI CARS AND ACCESSORIES, ETC. THE ASSESSEE FILED ITS RETURNS FOR THE ASSESSMENT YEAR 2006-07 ON 28.11.20 06 AND FOR THE ASSESSMENT YEAR 2007-08 ON 30.10.2007 DECLARING INC OME OF RS.2,67,13,172/- AND RS.3,49,93,939/- RESPECTIVELY. A SEARCH AND SEIZURE ITA NOS.199&200/VIZAG/2013 VARUN MOTORS PVT. LTD., VSKP 2 OPERATION U/S 132 OF THE ACT WAS CONDUCTED IN CASE OF THE ASSESSEE ON 11.3.2008. AS OBSERVED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER DURING THE SEARCH AND SEIZURE OPERATION, CERTAIN IN CRIMINATING DOCUMENTS RELATING TO THE ASSESSEE WERE FOUND AND SEIZED. AS A RESULT OF SEARCH, A NOTICE WAS ISSUED TO THE ASSESSEE U/S 153A OF THE A CT ON 15.12.2008 CALLING FOR RETURNS OF INCOME. IN RESPONSE TO THE NOTICES ISSUED, THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING THE SAME INCOME WHIC H WAS DECLARED IN THE RETURNS FILED EARLIER. THE ASSESSING OFFICER ULTIM ATELY COMPLETED THE ASSESSMENT FOR BOTH THE ASSESSMENT YEARS U/S 143(3) R.W.S. 153A OF THE ACT VIDE ORDER DATED 31.12.2010. THE CIT WHILE EXAMINI NG THE ASSESSMENT RECORD FOR THE IMPUGNED ASSESSMENT YEAR IN EXERCISE OF POWERS U/S 263 OF THE ACT NOTICED THAT THE ASSESSEE HAD TAKEN LOANS F ROM M/S. VARSHA BUILDERS PVT. LTD. AND THE MAXIMUM OUTSTANDING BALANCE UP TO THE END OF THE FINANCIAL YEAR 2005-06 RELEVANT TO THE ASSESSMENT YEAR 2006-0 7 WAS RS.1,98,37,574/- SIMILARLY IN RESPECT OF ASSESSMENT YEAR 2007-08, TH E ASSESSEE HAD TAKEN LOANS FROM M/S. CORPORATE CARS PVT. LTD. AND M/S. V ARSHA BUILDERS PVT. LTD. AND THE MAXIMUM OUTSTANDING BALANCE UP TO THE END O F THE FINANCIAL YEAR 2006-07 RELEVANT TO THE ASSESSMENT YEAR 2007-08 IS RS.42,53,477/- AND RS.9,07,724/- RESPECTIVELY. HE NOTED THAT THERE AR E COMMON SHARE HOLDERS IN THE ASSESSEE COMPANY AS WELL AS THE COMPANY FROM WH ICH IT HAS OBTAINED ADVANCES/LOANS AND SUCH SHARE HOLDERS ARE HOLDING S UBSTANTIAL INTEREST IN BOTH THE COMPANIES. THE CIT NOTED THAT THE DIRECTO RS IN ALL THE 3 COMPANIES ARE COMMON. THEREFORE, THE COMPANIES BEING CLOSELY HELD UNITS PROVISIONS OF SECTION 2(22)(E) OF THE ACT WOULD APPLY TO THE LOAN AMOUNT AND AS SUCH THE LOAN ADVANCED HAS TO BE TREATED AS DEEMED DIVIDEND AND TO BE TAXED IN THE HANDS OF THE ASSESSEE COMPANY. SINCE THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT R.W.S. 153A HA S NOT INVOKED THE APPLICABILITY OF SECTION 2(22)(E) OF THE ACT, THE C IT FELT THAT THE ASSESSMENT ORDERS PASSED ARE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, HE ISSUED NOTICES TO ASSESSEE TO SHOW CAUSE AS TO WHY ASSESSMENT ORDERS SHALL NOT BE REVISED ON THE ISSUE RAISED IN THE SHOW CAUSE NOTICE. IN RESPONSE TO THE SHOW CAUSE NOTICES, THE ASSESSEE SUBMITTED THAT IN CASE OF CORPORATE CARS PVT. LTD. THE SAID COMPAN Y DID NOT HAVE ANY ITA NOS.199&200/VIZAG/2013 VARUN MOTORS PVT. LTD., VSKP 3 ACCUMULATED PROFITS EITHER AT THE END OF 31.3.2006 OR 31.3.2007. THE RESERVES AND SURPLUSES AS AT THE END OF 31.3.2006 W AS A NEGATIVE BALANCE OF RS.68,68,237/- AND AT THE END OF 31.3.2007, THE NEG ATIVE BALANCE WAS RS.59,86,713/-. IT WAS SUBMITTED THAT THE PROVISION S OF SECTION 2(22)(E) OF THE ACT ARE ONLY APPLICABLE WHEN THE COMPANY ADVANC ING THE AMOUNTS POSSESSES ACCUMULATED PROFITS. SO FAR AS AMOUNT RE CEIVED FROM M/S. VARSHA BUILDERS PVT. LTD. IS CONCERNED, THE ASSESSEE CONTE NDED THAT IT IS NOT HAVING ANY SHARES IN THE SAID COMPANY. IT WAS CONTENDED T HAT TO ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT THE ASSES SEE MUST BE A SHAREHOLDER OF THE COMPANY ADVANCING THE AMOUNT AND SECONDLY TH E ASSESSEE HAS TO RECEIVE LOAN OR ADVANCES FROM SUCH COMPANY. THEREF ORE, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT ATTRACTED. IT WAS THEREFORE CONTENDED BY THE ASSESSEE THAT IN THIS VIEW OF THE MATTER, THE A SSESSMENT ORDER PASSED U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEAR UNDER DIS PUTE CANNOT BE CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO THE I NTEREST OF REVENUE. THE CIT NOT BEING CONVINCED WITH THE CONTENTIONS OF THE ASSESSEE, HELD THE ASSESSMENT ORDER PASSED TO BE ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF REVENUE AND DIRECTED THE ASSESSING OFFICER TO INVOK E THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND EXAMINE THE ISSUE AS PER TH E PROVISIONS OF THE ACT. BEING AGGRIEVED OF THE SAID ORDER OF THE CIT, THE A SSESSEE IS BEFORE US. 4. THE LD. A.R. REITERATING THE STAND TAKEN BEFORE THE CIT SUBMITTED THAT THE ASSESSEE IS NOT A SHARE HOLDER IN EITHER OF THE COMPANIES WHICH HAVE MADE ADVANCES TO THE ASSESSEE. THEREFORE, UNDER NO CIRCUMSTANCES, THE PROVISIONS U/S 2(22)(E) OF THE ACT COULD BE MADE AP PLICABLE TO THE ASSESSEE. SO FAR AS CORPORATE CARD PVT. LTD. IS CONCERNED, IT IS THE CONTENTION OF THE LD. A.R. THAT EVEN THAT COMPANY HAS NO ACCUMULATED PROF ITS SO AS TO SATISFY THE CONDITIONS MENTIONED IN SECTION 2(22)(E) OF THE ACT . IN SUPPORT OF HIS CONTENTIONS, THE LD. A.R. RELIED UPON THE FOLLOWING DECISIONS: 1. ACIT VS. BROTTO AMUSEMENT PVT. LTD. (2014 360 I TR 544 (BOM) 2. CIT VS. KRUPESHBHAI N. PATEL (2013) 359 ITR 504 (GUJ) 3. CIT VS. ANKITECH PRIVATE LTD. & ANR., (2012) 34 0 ITR 14(DEL) 4. DCIT CIRCLE-2(1), GUNTUR VS. ANDHRA TRADE DEVELO PMENT CORPORATION ORDER DATED 4.6.2010 OF HONBLE ITAT, V ISAKHAPATNAM. 5. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORD ER OF THE CIT. ITA NOS.199&200/VIZAG/2013 VARUN MOTORS PVT. LTD., VSKP 4 6. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. WE HAVE ALSO CAREFULLY EXAMIN ED THE DECISIONS RELIED UPON BY THE LD. A.R. IT IS EVIDENT FROM THE ORDER O F THE CIT THAT HE HAS CONSIDERED THE ASSESSMENT ORDERS TO BE ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF REVENUE AND SET IT ASIDE ON THE REASON THAT THE ASSESSING OFFICER HAS NOT INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN RESPECT OF LOANS AND ADVANCES GIVEN TO THE ASSESSEE BY THE TWO COMPANIES NAMELY VARSHA BUILDERS PVT. LTD. AND CORPORATE CARS PVT. L TD. THE SOLE REASON FOR THE CIT IN INVOKING THE PROVISIONS OF SECTION 2(22) (E) OF THE ACT IS ALL THE COMPANIES ARE HAVING COMMON DIRECTOR. HOWEVER, CON SIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE PROVISION CONTAINED U/ S 2(22)(E) OF THE ACT, WE ARE OF THE VIEW THAT THE CIT HAS COMPLETELY MISDIRECTED HIMSELF IN COMING TO CONCLUSION THAT PROVISIONS OF SECTION 2(22)(E) OF T HE ACT IS APPLICABLE TO THE ASSESSEE. ADMITTEDLY, ASSESSEE IS NOT A SHARE HOLD ER OF THE LENDER COMPANIES. THEREFORE, THE PROVISIONS OF SECTION 2( 22)(E) OF THE ACT IS NOT ATTRACTED TO THE ASSESSEE. THE HONBLE DELHI HIGH COURT IN CASE OF ANKITECH PRIVATE LTD. & ANR., 340 ITR 14 IN VERY CLEAR TERMS HAS HELD THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WILL BE A PPLICABLE ONLY TO A SHARE HOLDER AND NOT TO ANY OTHER PERSON. CONSIDERING ID ENTICAL FACTS WHERE THE COMPANY IS NOT A SHAREHOLDER BUT THE DIRECTORS ARE, THE HONBLE DELHI HIGH COURT HELD THAT IF AT ALL THE ASSESSING OFFICER HAS TO APPLY SECTION 2(22)(E) OF THE ACT THEN IT IS AGAINST THE INDIVIDUAL DIRECTORS BUT NOT THE COMPANY. SAME IS THE CASE WITH THE ASSESSEE. IT IS VERY MUCH CLE AR THAT THE ASSESSEE IS NOT A SHAREHOLDER OF THE AFORESAID COMPANY. THEREFORE, U NDER THE GIVEN FACTS AND CIRCUMSTANCES, THE PROVISIONS OF SECTION 2(22)(E) O F THE ACT IS NOT APPLICABLE TO THE ASSESSEE. THE OTHER DECISIONS RELIED UPON B Y THE LD. A.R. ALSO EXPRESS SIMILAR VIEW. FURTHER SO FAR AS CORPORATE CARS PVT . LTD. IS CONCERNED, THE FACT THAT IT DOES NOT HAVE ACCUMULATED PROFIT HAS NOT BE EN CONTROVERTED BY THE DEPARTMENT. THEREFORE, THE CONDITION PRECEDENT FOR APPLYING THE SECTION 2(22)(E) OF THE ACT IS NOT SATISFIED. CONSIDERING THE AFORESAID FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT WAS NOT JUSTIFIED IN REVISING THE ASSESSMENT ORDER U/S 263 OF THE ACT. ACCORDING LY, WE QUASH THE ORDER OF ITA NOS.199&200/VIZAG/2013 VARUN MOTORS PVT. LTD., VSKP 5 THE CIT DATED AND RESTORE THE RESPECTIVE ORDERS OF ASSESSMENT FOR THE ASSESSMENT YEARS UNDER DISPUTE. 7. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE CO NSIDERED TO BE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 6 TH MAR14 SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 6 TH MARCH, 2014 COPY TO 1 VARUN MOTORS PVT. LTD., D.NO.7-8-1/1, SIRIPURAM, VISAKHAPATNAM 2 DCIT CENTRAL CIRCLE-1, VISAKHAPATNAM 3 THE CI T, VISAKHAPATNAM 4 THE CIT(A), VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM