M/s Shanders Properties Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-6(1)(1), Bangalore

ITA 2335/BANG/2018

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 0771 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 07-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S. V. SHIVARAMA IYER
• Keywords: Opportunity of being heard; Deemed dividend; Competent authority; Set aside
• Section: 2(22)(e); 13; 2(22); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC - B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER ITA NO. 233 5 /BANG/201 8 ASSESSMENT YEAR: 20 1 5 - 1 6 M/S. SHANDERS REAL ASSETS PVT. LTD., NO. 1097 (OLD) 58 (NEW) 18 TH B MAIN ROAD, RAJAJINAGAR, BENGALURU 560 010. PAN : AAMCS 0568 E VS. DEPUTY COMMISSIONER OF INCOME TAX , CIRCLE 6(1)(1), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI. S. V. SHIVARAMA IYER, CA REVENUE BY : SHRI. M. K. BIJU, ADDL. CIT DATE OF HEARING : 03 . 0 9 .201 8 DATE OF PRONOUNCEMENT : 05 . 10 .201 8 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A), INTER ALIA, ON FOLLOWING GROUNDS: GROUND 1: GENERAL 1.1 THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS AND BAD IN LAW AS IT CONFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICER. FURTHER THE ORDER IS ERRONEOUS AS IT ROUTINELY AND INCORRECTLY UPHELD THE ASSESSING OFFICER'S GROUND TO CONSIDER THE IMPUGNED SUM OF RS 779,086/- AS DEEMED DIVIDEND. GROUND 2: DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT 2.1 THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN LAW IN CONFIRMING THE ADDITION OF AMOUNT OF RS.779,086/- AS DEEMED DIVIDEND. 2.2 THE LEARNED CIT(A) HAS ERRED IN SUSTAINING THE ACTION OF THE ASSESSING OFFICER IN BRINGING TO TAX THE AMOUNTS TRANSACTED WITH SUBSIDIARY COMPANIES AS DEEMED DIVIDEND ITA NO. 2335/BANG/2018 PAGE 2 OF 5 ON THE APPLICATION OF SECTION 2(22)(E) OF THE ACT WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION AND THE BUSINESS/COMMERCIAL/TRADING TRANSACTIONS WERE ERRONEOUSLY LABELLED AS DEEMED DIVIDEND WITHOUT STABLING THE COMPLIANCE OF THE CONDITIONS PRESCRIBED CUMULATIVELY ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2.3 THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN LAW TO APPRECIATE THAT NOT ALL THE PAYMENTS RECEIVED FROM SISTER/GROUP COMPANY WAS TO BE TREATED AS DEEMED DIVIDEND BUT ONLY THE PAYMENTS WHICH BEAR THE CHARACTERISTICS OF LOANS AND ADVANCES ARE TO BE CONSIDERED AS DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX ACT. 2.4 THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN LAW TO APPRECIATE THAT THE APPELLANT BEING HOLDING COMPANY ALL IS SUBSIDIARY/GROUP COMPANIES MAINTAINED CURRENT ACCOUNT WITH THE APPELLANT AND TRANSFERRED/RECEIVED MONEY ON NEED BASIS CANNOT BE CONSIDERED AS LOANS AND ADVANCES AS CONTEMPLATED UNDER SECTION 2(22)(E) OF THE INCOME TAX ACT. 2.5 THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN LAW TO APPRECIATE THAT THE APPELLANT AS A HOLDING COMPANY IS EXERCISING CONTROL OVER THE FULLY OWNED SUBSIDIARY COMPANIES IN WHICH CAPACITY IT HAS TAKEN FUNDS FROM CERTAIN SUBSIDIARY COMPANIES TO PUMP INTO WORKING OF OTHER SUBSIDIARY COMPANIES AND THE APPELLANT HAS NOT ENJOYED ANY BENEFIT FROM THESE TRANSACTIONS. 2.6 THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE TRANSACTION OF PROVIDING MONIES AND AVAILING MONIES FROM/WITH OTHER MEMBER COMPANIES HAVING BEING UNDERTAKEN DURING THE COURSE OF SUPPLY OF GOODS, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE AT ALL. 2.7 THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN LAW TO APPRECIATE THAT WHERE REGULAR BUSINESS TRANSACTIONS ARE CARRIED ON IN ITS ORDINARY COURSE OF BUSINESS IN THE ABOVE MANNER, THEY CANNOT BE TREATED AS DEEMED DIVIDEND FOR THE PURPOSE OF SECTION 2(22)(E) OF THE INCOME TAX ACT. 2.8 THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN LAW TO APPRECIATE THAT THE EXPLANATION FURNISHED BY THE APPELLANT WAS THAT THE AFORESAID AMOUNT WAS NOT LOAN AND IN FACT THERE WAS BUSINESS TRANSACTION BETWEEN THE APPELLANT AND ITS SUBSIDIARY COMPANIES AND THE AMOUNT REFLECTED BUSINESS RELATIONSHIP AND THERE WAS A RUNNING ACCOUNT SHOWING THOSE TRANSACTIONS. 2.9 THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERING THE JUDICIAL PRECEDENTS RELIED ON BY THE APPELLANT INCLUDING THAT OF THE JURISDICTIONAL HIGH COURT. 2.10 WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS TO INCLUDE THE CURRENT YEAR PROFIT TO BE PART OF ACCUMULATED PROFITS WHILE DETERMINING THE AMOUNT OF DEEMED DIVIDEND U/S.2(22)(E) OF THE INCOME TAX ACT. ITA NO. 2335/BANG/2018 PAGE 3 OF 5 2. THOUGH VARIOUS GROUNDS ARE RAISED, BUT THEY ALL RELATE TO THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTION 2(22) (E) OF THE ACT. 3. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT DURING THE COURSE OF SCRUTINY PROCEEDINGS, IT WAS OBSERVED BY THE AO THAT ASSESSEE HAS RECEIVED THE ADVANCES FROM THE SUBSIDIARY COMPANIES IN WHICH THE ASSESSEE IS HAVING A SUBSTANTIAL INTEREST. THE AO ACCORDINGLY INVOKED THE PROVISIONS OF SECTION 2(22) (E) OF THE ACT AND MADE THE ADDITION OF RS.7,79,086/- AS DEEMED DIVIDEND. 4. ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT ASSESSEE HAS 13 SUBSIDIARIES AND 2 ASSOCIATE COMPANIES IN WHICH IT HAS DEEP ROUTED BUSINESS INTEREST. THE ASSESSEE IS THE HOLDING COMPANY OF M/S. SHANDERS INFRASTRUCTURE PVT. LTD., AND M/S. SHANDERS IMPEX PVT. LTD., HOLDING 99.9% OF THE SHARE CAPITAL IN BOTH THE ASSOCIATE COMPANIES. THE APPELLANT COMPANY IS EXERCISING ADMINISTRATIVE CONTROL OVER THE SUBSIDIARIES IN ITS STATUS AS HOLDING COMPANY. IN THAT STATUS, THE APPELLANT IS ALSO MANAGING THE FINANCIAL AFFAIRS OF THE COMPANY AND MONITORS THE INFLOWS AND OUTFLOWS OF SUBSIDIARY COMPANIES IN ITS ATTEMPT TO UTILIZE THE AVAILABLE FUNDS TO THE MAXIMUM ADVANTAGE OF THE GROUP COMPANIES. THE SAID AMOUNTS WERE ADVANCED FOR THE PURPOSE OF BUSINESS BASED ON FUND REQUIREMENTS IN THE RESPECTIVE COMPANIES. THE SUBSIDIARY COMPANIES ARE ALSO ENGAGED IN THE SAME/SIMILAR LINE OF BUSINESS. IN ORDER TO SAFE GUARD THE INTEREST OF SUBSIDIARY COMPANIES, AS A PARENT COMPANY IT IS THE PRIMARY CONCERN OF THE APPELLANT TO LOOK AFTER THE NEEDS OR BUSINESS EXIGENCIES OF THE SUBSIDIARY COMPANIES. WHEN THE SUBSIDIARY COMPANIES ARE ENTERING INTO ANY PROPERTY DEAL, IF ANY FUNDS ARE REQUIRED THEY WILL APPROACH THE HOLDING COMPANY. IN SUCH A SCENARIO, IT IS THE PRIMARY CONCERN OF THE APPELLANT TO MEET IMMEDIATE FINANCIAL REQUIREMENT OF ITS SUBSIDIARY COMPANIES IN THE INTEREST OF BUSINESS. THEREFORE, WHATEVER AMOUNT WAS RECEIVED BY THE ASSESSEE, IT WAS RETURNED AS AND WHEN SUBSIDIARY COMPANY REQUIRED. MOREOVER, IT WAS ON ACCOUNT OF BUSINESS NEEDS OR A TRADING TRANSACTION. THEREFORE, IT CANNOT BE CONSIDERED ITA NO. 2335/BANG/2018 PAGE 4 OF 5 TO DEEMED DIVIDEND. IN SUPPORT OF HIS CONTENTION, HE HAS PLACED RELIANCE UPON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF BAGMANE CONSTRUCTIONS PVT. LTD., VS. CIT (ITA NO0. 473/2013 TO 476/2013), ORDER OF THE TRIBUNAL IN THE CASE OF FARIDA HOLDING P. LTD. VS. DCIT, 51 SOT 452 AND ALSO THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. ARVIND KUMAR JAIN ITA NO. 589.2011. THE CIT(A) WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND CONFIRMED THE ADDITION. NOW THE ASSESSEE IS BEFORE US AND REITERATED ITS CONTENTIONS. IT WAS FURTHER SUBMITTED THAT THE CIT(A) HAS NOT EXAMINED THE INFLOW AND OUTFLOW OF THE FUNDS IN THE LIGHT OF THE AFORESAID JUDGMENTS AND THE EXPLANATIONS FURNISHED BY IT. THEREFORE, THE ORDER OF THE CIT(A) DESERVES TO BE SET ASIDE. 5. THE LEARNED DR ON THE OTHER HAND HAS PLACED RELIANCE UPON THE ORDER OF THE CIT(A). 6. HAVING CAREFULLY HEARD THE RIVAL SUBMISSIONS AND ON CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, I FIND THAT ASSESSEE HAS FURNISHED THE EXPLANATIONS THAT BEING A HOLDING COMPANY IT WAS REQUIRED TO MANAGE THE FINANCIAL AFFAIRS OF ITS SUBSIDIARY COMPANIES. IT WAS ALSO EXPLAINED BY HIM THAT WHENEVER FUNDS WERE REQUIRED BY A SUBSIDIARY COMPANY, IT WAS A CONCERN OF THE ASSESSEE COMPANY, BEING A HOLDING COMPANY, TO ARRANGE THE FUNDS FOR IT. HE HAS TRIED TO EXPLAIN THAT WHENEVER FUND IS REQUIRED BY ONE OF THE SUBSIDIARY COMPANIES, THE HOLDING COMPANY HAS TAKEN THE FUNDS FROM OTHER SUBSIDIARY COMPANIES FOR ITS ADVANCEMENT TO THE OTHER SUBSIDIARIES WHICH REQUIRE THE FUNDS. ALL THESE ARGUMENTS RAISED BY THE ASSESSEE WERE NEITHER EXAMINED BY THE AO NOR THE CIT(A). THOUGH THIS CONTENTION OF THE ASSESSEE APPEARS TO BE PLAUSIBLE, BUT IS REQUIRES A VERIFICATION BY THE COMPETENT AUTHORITY. I AM, THEREFORE OF THE VIEW, THAT LET THE MATTER BE SENT BACK TO THE CIT(A) TO READJUDICATE THE ISSUE IN THE LIGHT OF SUCH EXPLANATIONS FURNISHED BY THE ASSESSEE. THOUGH THESE EXPLANATIONS WERE BEFORE THE CIT(A), BUT HE DID NOT EXAMINE THE SAME. I ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO HIS FILE WITH THE DIRECTION ITA NO. 2335/BANG/2018 PAGE 5 OF 5 TO READJUDICATE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THE LIGHT OF THE AFORESAID SUBMISSIONS. ACCORDINGLY, APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF OCTOBER, 2018. SD/- SD/- BANGALORE. DATED: 5 TH OCTOBER, 2018. /NS/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE. ( JASON P BOAZ ) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER