ITO, CHENNAI V. Evershine Timber International P Ltd., CHENNAI

ITA 2138/CHNY/2014

• Counselvise Citation: 213821714 RSA 2014
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 14-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Additional evidence; Deemed dividend
• Section: 143(3); 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , ! . . ' , # $ BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ ITA NOS.2138 & 2139/MDS/2014 # % !&% / ASSESSMENT YEARS : 2006-07 & 2008-09 THE INCOME TAX OFFICER, COMPANY WARD II(1), CHENNAI - 600 034. V. M/S EVERSHINE TIMBER INTERNATIONAL LTD., NO.54, RAMASAMY STREET, WEST TAMBARAM, CHENNAI - 600 045. PAN : AABCE 4201 H (()/ APPELLANT) (+,()/ RESPONDENT) () - . / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT +,() - . / RESPONDENT BY : NONE / ! - 0 / DATE OF HEARING : 26.02.2015 1& - 0 / DATE OF PRONOUNCEMENT : 05.03.2015 / O R D E R PER BENCH: THESE REVENUES APPEALS FOR ASSESSMENT YEARS 2006 -07 AND 2008-09 ARISE FROM COMMON ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS)-II, CHENNAI, DATED 18.03.2014 PASSED IN I.T.A. NOS.2138 & 2139/MDS/2014 2 ITA NOS.913 & 1217/2013-14 DELETING DEEMED DIVIDEND ADDITIONS OF ` 12,30,510/- AND ` 48,04,000/- RESPECTIVELY, IN PROCEEDINGS UNDER SECTION 143(3) READ WITH SECTION 147 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 2. A PERUSAL OF THE CASE FILE REVEALS THAT THE ISSU E INVOLVED IS IDENTICAL IN THESE APPEALS, I.E. DEEMED DIVIDEND AD DITION OF ` 12,30,510/- AND ` 48,04,000/- RESPECTIVELY. THEREFORE, WE TAKE UP I.T.A. NO.2138/MDS/2014 AS THE LEAD CASE. 3. THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INC OME ON 31.01.2007 ADMITTING INCOME OF ` 7,50,000/-. THE ASSESSING OFFICER TOOK UP SCRUTINY. HE FOUND THE ASSESSEE TO HAVE TAKEN UNSECURED LOANS OF ` 2,95,35,000/- FROM ITS SISTER CONCERN M/S EVERSHINE WOOD PACKAGING PVT. LTD. IT IS AN UNDISP UTED FACT THAT BOTH THESE ENTITIES HAVE SOME COMMON SHAREHOLDERS, I.E. SHRI SHANTHILAL K. PATEL, SHRI DHARAM C.K. PATEL AND SHR I KARAM C.K. PATEL. THE FORMER TWO STAKEHOLDERS HAVE 5000 SHARE S EACH IN THE TWO COMPANIES. THE THIRD ONE HOLDS 2500 SHARES IN THE ASSESSEE COMPANY AND 5000 IN THE OTHER ENTITY. THE A.O. VIEWED THAT THESE SHAREHOLDERS HAD BEEN HAVING SUBS TANTIAL I.T.A. NOS.2138 & 2139/MDS/2014 3 INTEREST IN THE TWO COMPANIES WHICH WOULD ATTRACT D EEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. HE NOT ICED FROM PROFIT & LOSS ACCOUNT, BALANCE SHEET, ETC. OF M/S E VERSHINE WOOD PACKAGING LIMITED THAT THE SAID LOANS AS ON 31 .03.2006 READ ` 12,30,510/- ONLY. THIS AMOUNT STOOD ADDED AS DEEME D DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. 4. THE ASSESSEE FILED APPEAL. IT WOULD, INTER ALIA , SEEK TO PROVE IN LOWER APPELLATE PROCEEDINGS THAT THIS AMOU NT ` 12,30,510/- WAS ONLY IN THE SHAPE OF BUSINESS ADVAN CES. THE CIT(APPEALS) ACCEPTED ITS CONTENTIONS AS FOLLOWS:- 4.2.3 FUR T HER , FROM THE ABOVE DETAILS FILED BY THE ASSESSEE IT IS SEEN THAT THERE ARE COMMON SHARE HOLDERS BETWEEN THE ASSESSEE COMPANY AND M/S. EVERSHINE WOOD PACKAGING LTD . SHRI SHANTHILAL K. PATEL, SHRI DHARAM C . K . PATEL AND SHRI KARAM C . K . PAT E L THREE COMMON SHARES HOLDERS BETWEEN THESE TWO COMPANIES . THE SHARE HOLDIN G PATTERN OF T HESE PERSONS IN THE ASSESSEE COMPANY ARE 5000 SHARES (25 % ), 5000 SH A RES (25 % ) AND 2500 SHARES (12.5 % ), RESPECTIVELY. SIMILARLY , THE SHARE HOLDING PATTERN O F THESE PERSONS IN MIS . EVERSHINE WOOD PACKAGING LTD ARE 5000 SHARES (33 . 33 % ) , 5000 SHARES (33 . 33 % ) AND 5000 SHARES ' (33.33 % ), R E SPECTIVELY. THEREFORE, THE ASSESSE E COMPANY IS TO BE CONSIDERED AS A ' CONCERN IN WHICH THE SHARE HOLDERS OF M/S. EVERSHINE WOOD PACKAGING LTD ARE SUBSTANTI A LLY INTERESTED ' , FOR THE PURPOSE O F INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT . I.T.A. NOS.2138 & 2139/MDS/2014 4 4.2 . 4 AS P E R THE PROVISIONS OF SECTION 2(22)(E) OF T HE A C T , ANY AMOUNT R E CE I VED B Y W A Y OF LOANS / ADVANCES DUR I NG THE YEAR, IS TO BE C ONSIDERED AS DEEMED DI V ID E NDS. IN T H E IN S TANT CASE , THE AMOUNTS RECE IV ED FROM M/S. . E VE RSHINE WOOD PACKAGING LTD ARE NOT PU R E LOANS OR ADVANCES . THEY ARE RECEI V ED DU RI NG THE COURSE OF REGULAR BUSIN E SS SANCTIONS OF SUPPLYING TIMBER BY T HE ASSESSE E TO M/S. EVERSHINE WOOD PACKAGIN G LTD. THE ASSESSEE HAS BEEN REGULARLY BUYING TIMBER FROM VARIOUS PARTIES AND SUPPLYING TO M/ S. EVERSHINE WOOD PACKAGING LTD. THESE SUPPLIES ARE OF TWO TYPES, I.E. SOME OF THE SUPPLIES ARE THE DIRECT SALES TO M/S.. EVERSHINE WOOD PACKAGING LTD. IN SOME CASES, THE ASSESSEE RECEIVES MONEY IN ADVANCE FROM M/S EVERSHINE WOOD PACKAGING LTD AND THE SAME IS, IN TURN, ADVANCED TO VARIOUS PERSONS FOR SUPPLY OF TIMBER . THESE PERSONS DIRECTLY MAKE THE SUPPLIES TO M/S. EVERSHINE WOOD PACKAGING LTD. SINCE THE ASSESSEE COMPANY AND M/S. EVERSHINE WOOD PACKAGING LTD ARE UNDER THE SAME MANAGEMENT AND TO HAVE BETTER CONTROL OVER THE TRANSACTIONS, THE ASSESSEE COMPANY IS ASSIGNED THE WORK OF COORDINATING THE SUPPLIES AND , CONTROLLING THE PAYMENTS. THESE FACTS CAN BE CLEARLY VISUALIZED FROM THE DETAILS OF MONIE S RECEIVED FROM M/S.. EVERSHINE WOOD PACKAGING LTD, THE SUPPLIES OF TIMBER MADE TO M/S.. EVERSHINE WOOD PACKAGING LTD, ETC. IN VARIOUS YEARS, THE DETAILS OF WHICH ARE AS UNDER: PARTICULARS ACCOUNT - 1 ACCOUNT - 2 NET OPENING BAL.AS ON 01.04.2005 0 0 0 CLOSING BAL. AS ON 31.03.2006 1,74,324 (DR) 2,61,00,000(CR) 2,59,25,676 (CR) CLOSING BAL. AS ON 31.03.2007 96,22,872 (DR) - 96,22,872 (DR) CLOSING BAL. AS ON 31.03.2008 - 1,94,21,439 (CR) 1,94,21,439(CR) I.T.A. NOS.2138 & 2139/MDS/2014 5 SALES MADE BY THE ASSESSEE COMPANY TO M/S. EVERSHINE WOOD PACKAGING LTD ARE AS UNDER: FINANCIAL YEAR SALES ( ` ) 2005 - 06 51,83,301.84 2006-07 4,65,17,191.80 2007-08 NIL 4.2.5 THE TOTAL MONIES RECEIVED FROM M/S. EVERSHINE WOOD PACKAGING LTD DURING THE FINANCIAL YEAR 2005- 06 IS RS.3,11,08,978/-, AS AGAINST WHICH THE ASSESSEE MADE SALES (SUPPLIES) OF TIMBER FOR RS.51,83,302/- DURING THE YEAR, LEAVING A CLOSING CREDIT BALANCE (NET) OF RS.2,59,25,676 (CR] AS ON 31 . 03.2006 . DURING THE FINANCIAL YEAR 2006-07, THE ASSESSEE FURTHER RECEIVED AN AMOUNT OF RS.1,09,68,643/-. AS AGAINST THESE RECEIPTS, THE ASSESSEE MADE TIMBER SALES OF RS . 4,65,17,191/- TO M/S. EVERSHINE WOOD PACKAGING LTD DURING THE FINANCIAL YEAR 2006-07 . THIS HAS RESULTED IN THE NET DEBIT BALANCE OF RS.96,22 , 872/- AS ON 31 . 03.2007. AS AGAINST THE SAID DEBIT BALANCE OF RS.96,22,872/- AT THE BEGINNING OF THE YEAR, THE ASSESSEE DURING THE FINANCIAL YEAR 2007-08, RECEIVED AN AMOUNT OF RS.2,90,44,311/-. AS THERE WERE NO SALES MADE BY THE ASSESSEE DURING THE YEAR, AN AMOUNT OF RS.19,421,439/- WAS OUTSTANDING AS CREDIT BALANCE AS ON 31 . 03.2008. THE ASSESSEE SUPPLIED TIMBER TO M/S. EVERSHINE WOOD PACKAGING LTD IN THE FOLLOWING PERIODS. IN FACT THE AMOUNTS RECEIVED IN F.Y.2007- 08 ARE IN TURN ADVANCES TO VARIOUS SUPPLIERS FOR SUPPLY OF TIMBER . THE DETAILS OF THE ADVANCES RECEIVED, SUPPLIES (SALES) OF TIMBER AND THE CLOSIN G BALANCES DURING THE FINANCIAL YEARS 2005-06, 2006- 07 AND 2007-08 ARE AS UNDER: FIN. YEAR OPENING BAL RECEIPTS DURING THE YEAR SALES MADE DURING THE YEAR CLOSING BALANCE AS ON 31 ST MARCH 2005-06 0 3,11,08,978 51,83,302 2,59,25,676 2006-07 2,59,25,676 1,09,68,643 4,65,17,191 (-)96,2 2,872 2007-08 (-) 96,22,872 2,90,44,311 0 1,94,21,439 (-) ARE THE DEBIT BALANCES. I.T.A. NOS.2138 & 2139/MDS/2014 6 4.2.6 THUS, FROM THE ABOVE DETAILS IT IS CLEAR THAT THE ASSESSEE'S RECEIPT OF MONEY FROM M/S. EVERSHINE WOOD PACKAGING LTD IS A CLEAR BUSINESS ADVANCE FOR THE PURPOSE OF SUPPLY OF TIMBER . THEREFORE, THE AMOUNTS ARE TOTALLY OUTSIDE THE PURVIEW OF SEC.2(22)(E) OF THE ACT AND HENCE, CANNOT BE CONSIDERED AS 'DEEMED DIVIDEND'. 4.2 . 7 IN VIEW OF THE ABOVE, THE ASSESSING OFFICER'S ACTIO N OF TREATING THE ABOVE LOANS / ADVANCES RECEIVED OF RS.12,30,510/ - AND RS . 48,04,000/-, RESPECTIVELY IN A.YS.2006-07 AND 2008-09, AS 'DEEMED DIVIDENDS' U/S.2(22)(E) , IS NOT JUSTIFIED. CONSEQUENTLY THE ADDITIONS OF RS.12,30,510/- AND RS . 48,04,000/-, RESPECTIVELY IN A.YS.2006-07 AND 2008-09 , MADE BY THE ASSESSING OFFICER U/S.2(22)(E) OF THE ACT ARE DELETED. THIS LEAVES THE REVENUE AGGRIEVED. 5. WE HAVE HEARD THE REVENUE AND PERUSED THE CASE F ILE. NOBODY HAS APPEARED AT THE ASSESSEES BEHEST. AN R PAD DATED 26.11.2014 STANDS ISSUED. THEREFORE, IT IS P ROCEEDED EX PARTE . WE FIND FROM THE CASE FILE THAT THE ASSESSMENT O RDER IS COMPLETELY SILENT ON THE NATURE OF THE IMPUGNED LOA NS IN THE SHAPE OF BUSINESS ADVANCES. THE CIT(APPEALS) HAD E XAMINED ALL MATERIAL ON RECORD FOR CONCLUDING THAT LOANS IN QUESTION IN THE SHAPE OF BUSINESS TRANSACTIONS / ADVANCES COULD NOT BE TREATED AS DEEMED DIVIDENDS. THE REVENUE NEITHER CHALLENGE S THE CIT(APPEALS)S ORDER ON THE GROUND OF ADMITTING ANY ADDITIONAL EVIDENCE NOR DOES IT REFER TO ANY MATERIAL REBUTTIN G THE SAID FACTUAL CONCLUSION. THEREFORE, THE LOWER APPELLATE FINDINGS I.T.A. NOS.2138 & 2139/MDS/2014 7 CATEGORIZING THE IMPUGNED LOANS AS BUSINESS ADVANCE S HAVE TO BE SUSTAINED. IT HAS BEEN HELD IN CASE LAW CIT V. CREATIVE DYEING AND PRINTING PRIVATE LTD. (2009) 318 ITR 476 (DEL), THAT BUSINESS ADVANCES CANNOT BE TREATED AS DEEMED DIVID ENDS U/S 2(22)(E) OF THE ACT. THE REVENUE DOES NOT QUOTE AN Y CASE LAWS TO THE CONTRARY. THIS MAKES US TO AFFIRM THE FINDI NGS UNDER CHALLENGE. THE REVENUES GROUND IS REJECTED. I.T. A. NO.2138/MDS/2014 IS DISMISSED. 7. SAME ORDER TO FOLLOW IN I.T.A. NO. 2139/MDS/2014 APPEAL. 8. THE REVENUES APPEALS I.T.A. NO. 2138/MDS/2014 A ND I.T.A. NO. 2139/MDS/2014 ARE DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 5 TH OF MARCH, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) (S.S. GODARA) ( . ) ( . . ') / ACCOUNTANT MEMBER # /JUDICIAL MEMBER /CHENNAI, 3 /DATED, THE 5 TH MARCH, 2015. KRI. I.T.A. NOS.2138 & 2139/MDS/2014 8 4 - +#056 76&0 /COPY TO: 1. () /APPELLANT 2. +,() /RESPONDENT 3. / 80 () /CIT(A)-II, CHENNAI 4. / 80 /CIT-II, CHENNAI 5. 6!9' +#0# /DR 6. ':% ; /GF.