ITO (TDS), Faridabad V. M/s. Hemla Embroidery Mills (P) Ltd., Faridabad

ITA 2249/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0451 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-01-2011
• Assessment Year: misc
• Appeal Filed On: 12-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Deemed dividend; TDS
• Section: 133A; 2(22)(e); 201(1); 192

Judgement Text

I.T.A. NO.2249 /DEL/2010 1/5 IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI, BENCH C NEW DELHI, BENCH C NEW DELHI, BENCH C NEW DELHI, BENCH C BEFORE SHRI R. P. TOLANI, JUDICIAL MEMBER AND SHRI K. D. RANJAN, ACCOUTANT MEMBER ITA NO. 2249/DEL/2010 (ASSESSMENT YEAR 2010-11) I.T.O., (TDS), VS. M/S. HEMLA EMBROIDERY MILLS (P) LTD., FARIDABAD 14/6, MATHURA ROAD, FARIDABAD (APPELLANTS) (RESPONDENTS) PAN / GIR NO. RTKHO1570C APPELLANT BY: SMT MONA MOHANTY, SR. DR RESPONDENT BY: SHRI M P RASTOGI, ADV. SHRI P N SHASTRY, CA ORDER ORDER ORDER ORDER PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: 1. THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YE AR 2010-11 ARISES OUT OF ORDER OF LD. CIT(A) FARIDABAD. THE G ROUNDS OF APPEAL RAISED BY THE REVENUE ARE REPRODUCED AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED IN DELETING THE ORDER OF CREATING THE DEMAND U/S 201(1) AND CHARGING OF INTEREST U/S 201(1A) OF THE I. T. ACT, 1961 DUE TO THE FOLLOWING REASONS; 1) THAT PAYMENT OF ` 3,01,00,000/- MADE BY THE COMP ANY ON 18.08.2009 TO M/S. PEE EMPRO EXPORTS (P) LTD., 5 04/83, SKYLINE HOUSE, NEHRU PLACE, NEW DELHI IN THE PRETEX T OF REPAYMENT OF ALLEGED INTEREST FREE LOAN CLAIMED T O HAVE BEEN RAISED FORM SAID M/S. PEE EMPRO EXPORTS (P) LTD., I S CLEARLY A PAYMENT WHICH QUALIFIES THE TESTS OF DEEMED DIVIDEN D AS ENVISAGED U/S 2(22)(E) OF THE I. T. ACT. 2) THAT THE AFORESAID TRANSACTION IS NOTHING BUT TR ANSFER OF FUNDS BETWEEN GROUP COMPANIES NAMELY M/S. PEE EMPRO PVT. LTD., G-6, NEHRU PLACE, NEW DELHI AND THE TAX DEDU CTOR. SUCH TRANSACTIONS FALL WITHIN THE PURVIEW OF SECTION 2(2 2) OF THE I. T. ACT AND ANY SUCH PAYMENT CONSTITUTES DEEMED DIVIDEN D. TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE U/S 194 AS TH IS DIVIDEND IS NOT COVERED UNDER THE PROVISIONS OF DIV IDEND DISTRIBUTION TAX. I.T.A. NO.2249 /DEL/2010 2/5 3) WHEN TRANSFER OF FUNDS BETWEEN GROUP COMPANIES I S TAKING PLACE AND THESE PAYMENTS FALL WITHIN THE PUR VIEW OF SECTION 2(22)(E) (DEEMED DIVIDEND), TAX WAS REQUIRE D TO BE DEDUCTED AT SOURCE U/S 194, AS THE DIVIDEND IS NOT COVERED UNDER THE PROVISIONS OF DIVIDEND DISTRIBUTION TAX. RELIANCE IS ALSO PLACED ON THE FOLLOWING CASE LAWS OF THE HONB LE APEX COURT:- A) NAVNIT LAL C. JAVERI V K K SEN, AAC (1965) 56 IT R 198 (S.C.), B) MISS P SARADA V CIT (1998) 96 TAXMAN 11 (S.C.) C) SMT. TAARULATA SHAYAM V CIT (1977) 108 ITR 345 (S.C .) 2. THE BRIEF FACTS OF THE CASE ARE THAT IN THIS CAS E A SURVEY U/S 133A OF THE I. T. ACT, 1961 WAS CONDUCTED ON 25.11. 2009 WHEREIN IT WAS NOTED THAT THE ASSESSEE COMPANY WAS A TAX DEDUC TOR HAVING TAX DEDUCTION ACCOUNT NO. RPKHO1570C AND WAS FILING THE PERIODICAL RETURNS THROUGH E-TDS IN FORM 24Q AND 26 Q IN RESPECT OF TAX DEDUCTION AT SOURCE U/S 192 OF THE I. T. ACT, 1 961. FROM THE AUDITED ACCOUNTS, THE A.O. NOTED THAT THE ASSESSEE HAD MADE PAYMENTS/CREDIT OF ` 3.01 CRORES TO M/S. PEE EMPRO EXPORTS (P) LTD., A SISTER CONCERN OF THE ASSESSEE. THE A.O. HELD TH AT THE SAID PAYMENT WAS IN THE NATURE OF DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT BUT NO DEDUCTION OF TAX WAS MADE AS ENVISAGED U/S 194 OF THE ACT. THE A.O. PROCEEDED T O ENQUIRE INTO THE NATURE BY CONSIDERING THE AMOUNT OF ` 3.01 CROR ES AS THE PAYMENT OF ALLEGED INTEREST FREE LOAN PAYMENT TO HA VE BEEN RAISED FROM THE SAID M/S. PEE EMPRO EXPORTS (P) LTD. ON QU ERY, IT WAS EXPLAINED BY THE ASSESSEE THAT M/S. PEE EMPRO EXPOR TS P. LTD. GOT ITS FABRIC EMBROIDERED FROM HEMLA EMBROIDERY MILLS PVT. LTD. FOR THE PURPOSE OF MANUFACTURING OF GARMENTS FOR THEIR EXPO RTS. THEREFORE, PEE EMPRO EXPORTS P. LTD. WAS A CUSTOMER OF THE AS SESSEE COMPANY AS WELL AS IT WAS THEIR ANCILLARY UNIT FOR GETTING THE FABRIC EMBROIDERED AS PER THEIR REQUIREMENT. THE ASSESSEE HAD TWO ACCOUNTS OF PEE EMPRO EXPORTS PVT. LTD. IN THEIR BO OKS OF ACCOUNTS. ONE WAS FOR LOAN/ADVANCE GIVEN BY THE HOLDING COMPA NY AND OTHER AS THE CUSTOMER. THE LOAN ACCOUNT OF PEE EMPRO EXP ORTS PVT. LTD. IN I.T.A. NO.2249 /DEL/2010 3/5 THE BOOKS OF THE ASSESSEE SHOWED A CREDIT BALANCE O F ` 6.01 CRORES OUT OF WHICH ` 3.01 CRORES WAS PAID ON 18.08.2009 L EAVING CREDIT BALANCE OF ` 3 CRORES AS ON 01.04.2009. AS REGARDS PEE EMPRO EXPORTS P. LTD. AS CUSTOMER, THE OPENING CREDIT BAL ANCE AS ON 1.4.2009 WAS ` 42,94,046/- AND PAYMENTS WERE RECEIV ED FORM 1.4.2009 TO 25.11.2009 AT ` 2,23,51,721/- AND AMOUN T OF ` 3.01 CRORES WAS TRANSFERRED FROM LOAN ACCOUNT TO CUSTOME R ACCOUNT BY JOURNAL ENTRY ON 18.08.2009 MAKING TOTAL CREDIT OF ` 5,57,07,767/- OUT OF TOTAL CREDIT WAS ALLOWED TO THE EXTENT OF ` 5,17,42,273/- ON ACCOUNT OF VALUE OF WORK DONE DURING THE PERIOD 1.4 .2009 TO 25.11.2009. IN VIEW OF THESE FACTS, IT WAS SUBMITT ED THAT THERE WAS NO PAYMENT OF ` 3.01 CRORES ON 18.8.2009 BY THE ASS ESSEE TO ITS HOLDING COMPANY BUT ONLY ADJUSTMENT OF MONEY ALREAD Y RECEIVED AGAINST THE AMOUNT DUE TO THE COMPANY IN AN ORDINAR Y COURSE OF BUSINESS WHICH WAS SUBSEQUENTLY ADJUSTED. SINCE THE RE WAS NO ACTUAL PAYMENT OF AMOUNT OF ` 3.01 CRORES ON 18.08. 2009 TO HOLDING COMPANY (PEE EMPRO EXPORTS PVT. LTD.), THE ISSUE OF DEEMED DIVIDEND WOULD NOT ARISE. HOWEVER, THIS CONTENTION OF THE ASSESSEE WAS REJECTED BY THE A.O. HE PROCEEDED TO TREAT THE AMOUNT OF ` 3.01 CRORES AS DIVIDEND. SINCE THE ASSESSEE HAD DE DUCTED THE TAX AT SOURCE, THE A.O. RAISED DEMAND U/S 201(1) ON ACC OUNT OF NON DEDUCTION OF TAX ON AT ` 3.01 CRORES AND HAS CHARGE D INTEREST U/S 201(1A) FOR NOT DEPOSITING TDS DEMAND AMOUNTING TO ` 1,20,400/-. 3. ON APPEAL, LD. CIT(A) HELD THAT ASSESSEE WAS HAV ING TWO ACCOUNTS WITH THE HOLDING COMPANY M/S. PEE EMPRO E XPORTS PVT. LTD. IN ITS BOOKS OF ACCOUNTS, NAMELY; (I) UNDER TH E HEAD LOAN ACCOUNT AND THE OTHER (II) UNDER DEBTORS ACCOUNT. THE ASSESSEE COMPANY HAD BEEN TAKING LOAN FORM IT FOR THE SUBSID IARY COMPANY I.E. THE ASSESSEE SINCE LAST 7-8 YEARS AND THE LOAN AMOUNT AS ON 25.11.2009 WAS AT ` 3.01 CRORES. THIS LOAN ACCOUNT WAS REPAID TO THE HOLDING COMPANY I.E. M/S. PEE EMPRO EXPORTS PVT . LTD. THEREFORE, IT WAS ONLY THE EXISTING ACCOUNT WITH TH E HOLDING I.T.A. NO.2249 /DEL/2010 4/5 COMPANY UNDER THE DEBTOR ACCOUNT HAVING THE CREDIT BALANCE WHICH WAS ADJUSTED AGAINST THE LOAN ACCOUNT. THEREFORE, THE REPAYMENT OF LOAN AMOUNT OUT OF EXISTING CREDIT BALANCE WITH THE HOLDING COMPANY WAS ACTUALLY THE BOOK ENTRY AND NO REAL CASH OUTFLO W. FURTHER, IT WAS ALSO ESTABLISHED FROM THE FACTS OF THE CASE THA T THERE WAS NO PAYMENT, WHICH ATTRACTED THE TDS PROVISIONS OF SECT ION 194 OF THE ACT. THEREFORE, THE ASSESSEES CASE COULD NOT BE C OVERED UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE I. T. ACT, 19 61. HE PLACED RELIANCE ON SEVERAL DECISIONS WHEREIN IT HAS BEEN H ELD THAT ADVANCE TOWARDS PURCHASES TO BE MADE BY THE COMPANY FROM A SHAREHOLDER CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) O F THE I. T. ACT. HE ALSO NOTED THAT THE JUDGMENTS RELIED UPON BY THE A.O. IN SUPPORT OF HIS CONTENTION WERE EITHER FOUND TO BE IRRELEVAN T OR MISCONCEIVED OR WERE GENERAL IN NATURE IN RESPECT OF DIVIDEND UN DER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THEREFORE, LD. CIT (A) WAS OF THE OPINION THAT THERE WAS NO LEGAL SANCTION TO TREAT T HE AMOUNT OF ` 3.01 CRORES LIABLE TO TDS U/S 194 OF THE ACT. HE A CCORDINGLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. DURING THE COURSE OF HEARING, LD. A.R. SUBMITTED THAT THE PROVISIONS OF SECTION 2(22)(E) OF HT ACT WERE NOT A PPLICABLE. HE PLACED RELIANCE ON THE DECISION OF HON'BLE HIGH COU RT OF DELHI IN THE CASE OF CIT VS CREATIVE DYING AND PRINTING PVT. LTD . 318 ITR 476 WHEREIN IT HAS BEEN HELD THAT AMOUNT ADVANCED FOR B USINESS TRANSACTION BETWEEN THE ASSESSEE COMPANY AND THE SH AREHOLDERS DID NOT FALL WITHIN THE DEFINITION OF DEEMED DIVIDE ND U/S 2(22)(E) OF THE ACT. DURING THE COURSE OF HEARING, LD. SR. DR COULD NOT BRING ANY EVIDENCE ON RECORD TO PROVE THAT THE AMOUNT OF ` 3. 01 CRORES WAS NOT ON ACCOUNT OF BUSINESS TRANSACTION. IN THE ABS ENCE OF ANY MATERIAL ON RECORD, IN OUR CONSIDERED OPINION, LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT PROVISIONS OF SECTION 2(2 2)(E) OF THE ACT WOULD NOT BE APPLICABLE TO BUSINESS TRANSACTION BET WEEN A SHARE HOLDER AND THE COMPANY. ACCORDINGLY, WE DO NOT FIN D ANY INFIRMITY I.T.A. NO.2249 /DEL/2010 5/5 IN THE ORDER PASSED BY THE CIT(A) DELETING THE ADDI TIONS MADE BY THE A.O. ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 5. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 6. PRONOUNCED IN THE OPEN COURT ON 18 TH FEB., 2011. SD//- SD./- (R. P. TOLANI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:18 TH FEB., 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI