ACIT, Bhubaneswar V. M/s Kalinga Alloys Pvt. Ltd, Bhubaneswar

ITA 241/CTK/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0799 (ITAT-CUTTACK)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2010
• Court: TRIBUNAL
• Department Lawyers: P S PANDAKAMAL AGARWALLA ARS
• Assessee Lawyers: A K MAHAPATRA
• Keywords: Deemed dividend

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO , JUDICIAL MEMBER / I.T.A.NO. 241/CTK/2010 / ASSESSMENT YEAR 2006 - 07 ASST.COMMISSINER OF INCOME - TAX, CIRCLE 1(1), BHUBANESWR. - - - VERSUS - M/S.KALINGA ALLOYS PVT. LTD., 63, FOREST PARK,BHUBANESWAR 751 009 PAN: AABCK 1742 P ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI P.S.PANDA/KAMAL AGARWALLA, ARS / FOR THE RESPONDENT: / SHRI A.K.MAHAPATRA, DR / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THE REVENUE IS IN APPEAL AGITATING THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) AS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.12,51,327 ASSESSED BY THE ASSESSING OFFICER U/S.2(22)(E) OF THE INCOME - TAX ACT,1961. 2. THE REVENUE AGITATES THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) WAS NOT JUSTIFIED IN IGNORING THE FACT OF BENEFICIAL SHARE HOLDING IN BOTH THE COMPANIES BY ONE MR. RAKESH MAHIPAL INVOKED THE PROVISIONS O F SECTION 2(22)(E) OF THEI.T.ACT,1961. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING ALLOYS. THE ASSESSING OFFICER FOUND THAT THE APPELLANT COMPANY HAS RECEIVED AN AMOUNT OF RS.27,21,580/ - FROM SHREE BALAJI ALLOYS PVT. LTD. WHICH IS ULTIMATELY SQUARED OFF IN THE ACCOUNTS. SINCE SHREE BALAJI ALLOYS IS A SISTER CONCERN COMING WITHIN THE AMBIT OF SECTION 2(22)(E) BECAUSE OF COMMON SHAREHOLDING BY MR. RAKESH MAHIPAL IN BOTH THE COMPANIES, THE AO EXAMINED THE RECEIPTS IN TERMS OF DEEMED DIVIDEND. BEFORE THE AO, THE I.T.A.NO. 241/CTK/2010 2 ASSESSEE CLARIFIED THAT BOTH THE COMPA NIES DEALING WITH SAME MATERIAL TRANSACTED IN THE COURSE OF BUSINESS AND THERE ARE FREQUENT SALE AND PURCHASE BETWEEN THEMSELVES AND ALSO TO THE THIRD PARTY ON BEHALF OF EA CH OTHER AS PER REQUIREMENTS. TRANSACTIONS PERTAINING TO SALE AND PURCHASE OF MATERIALS ARE NOT IN THE NATURE OF REVENUE AND AT THE END OF THE YEAR THE OUTSTANDING BALANCE HAS ALSO BEEN NIL. THE AO DID NOT ACCEPT THE ABOVE CONTENTION RELYING ON THE DECISIO N OF THE BOMBAY HIGH COURT IN THE CASE OF SADHANA TEXTILE MILLS (P) LTD., 188 ITR 318 WHERE IT HAS BEEN HELD THAT REGULAR SALE AND PURCHASE BETWEEN THE TWO SISTER CONCERNS ALSO ATTRACTS THE PROVISIONS OF SECTION 2(22)(E). THEASSESSEE DISTINGUISHED ITS CASE FROM SADHANA TEXTILE MILLS (P) LTD. BEFORE THE AO STATING THE FOLLOWING: A) IN THE CITED CASE THE BORROWER/PURCHASER WAS THE SUBSIDIARY COMPANY OF THE LENDING COMPANY; B) THE HONBLE HIGH COURT HAD CONSIDERED THE OUTSTANDING BALANCE AT THE END OF THE YEAR AS DEEMED DIVIDEND AS PER PROV. OF SEC. 2(22)(E) C) AT THE END OF THE YEAR, THERE WAS CERTAIN OUTSTANDING BALANCE, WHEREAS IN THE CASE OF THE ASSESSEE THE BALANCE AS ON 31.03.2006 WAS NIL. THE AO REJECTED THE ABOVE CONTENTION RELYING ON THE DECISION IN THE CASE OF MISS P. SARADA V. CIT1 (1988) 229 ITR 444 (SC) AND SMT. TARULATA SHYAM V. CIT, (1977) 108 ITR 345 (SC). IN BOTH THE DECISIONS IT HAS BEEN HELD THAT THE LEGAL FICTION IN SEC. 2(22)(E) COMES INTO PLAY, THE MOMENT MONEYS ARE PAID EVEN IF THEY ARE REPAID SUBSEQUENTLY OR CEASED TO BE OUTSTANDING AT THE END OF THE PREVIOUS YEAR. THE AO ALSO RELIED UPON THE JUDGMENT IN THE CASE OF JINDAL (MD) V. CIT1 164 ITR 28 WHERE VALUE OF IRON RODS SUPPLIED WAS HELD TO BE IN THE NATURE OF DIVIDEND. IN THIS CASE, IR ON RODS WERE SUPPLIED BY THE COMPANY TO THE ASSESSEE AND HIS WIFE WHO WERE CONTEMPLATING A CONSTRUCTION OF A HOUSE AS THE IRON RODS ARE SCRAP MATERIALS THE COMPANY, WHO WAS CARRYING ON BUSINESS O F IRON MATERIALS PROVIDED THE IRON RODS. THE ASSESSEE AND HIS WIFE TRIED TO CIRCUMVENT THE PROVISIONS OF SECTION 2(22)(E) BY MAKING I.T.A.NO. 241/CTK/2010 3 THE COMPANY A DEBTOR IN TERMS OF TREATING THE SAME AS ADVANCE AGAINST PURCHASE OF FLAT. IN THE LIGHT OF ABOVE JUDICIAL PRONOUNCEMENT, THE ASSESSING OFFICER TREATED THE AMOUNT RECEIVED BY THE APPELLANT COMPANY FROM SHREE BALAJI ALLOYS PVT. LTD. AMOUNTING TO RS.12,51,327/ - AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. 4. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED WHETHER THE ASSESSEE COMPANY AND M /S. SHREE BALAJI ALLOYS (P) LTD. COME UNDER THE PURVIEW OF SECTION 2(22)(E) AS MR. RAKESH MAHIPAL HAS 20.5% EQUITY IN APPELLANT COMPANY AND ALSO SUBSTANTIAL INTEREST IN THE LATTER COMPANY. BOTH THE CONCERNS HAVE ENGAGED IN PURCHASE AND SALE TRANSACTIONS BE TWEEN THEMSELVES AND ALSO TO THIRD PARTY ON BEHALF OF EACH OTHER TOTALLING TO RS.27,21,580 (LEDGER A/C. IS ANNEXED TO THE ASSESSMENT ORDER). THE AO HAS NOT DISPUTED THAT THE TRANSACTIONS ARE PURCHASE AND SALE OF MATERIALS. THER EFORE, THE ISSUE TO BE DECIDE D WAS WHETHER PURCHASE AND SALE OF MATERIALS IN THE COURSE OF REGULAR BUSINESS WOULD GIVE RISE TO DEEMED DIVIDEND U/S.2(22)(E). THE ASSESSEE HAS ALSO RAISED ANOTHER ISSUE STATING THAT THE ASSESSEE COMPANY HOLDS NO SHARE IN THE OTHER COMPANY AND THE BENEFIT U/S.2(22)(E) HAS TO FLOW TO A SHAREHOLDER. 5. THE LEARNED CIT(A) ALSO ANALYSED THE PROPOSITIONS AS WAS CONSIDERED BY THE ASSESSING OFFICER DISTINGUISHING THE RATIO OF THE DECISION IN SADHANA TEXTILES MILLS (SUPRA) AND IN ORDER TO BRING TO THE FORE THE FAC T THAT THE FINDING OF THE TRIBUNAL REGARDING PURCHASE, SALES TRANSACTIONS RESULTING IN SQUARING OFF OF THE TRANSACTION AS ON THE CLOSE OF THE ACCOUNTING YEAR WHETHER COULD ON TH ESE FACTS BE CONSIDERED EQUALLY APPLICABLE TO THE PROVISIONS OF SECTION 2(22)( E) BY THE SAME ASSESSING OFFICER WHO HAD COMPLETED THE ASSESSMENT IN I.T.A.NO. 241/CTK/2010 4 THE CASE OF SISTER CONCERN I.E., M/S.BALAJI ALLOYS PVT. LTD. F OR THE ASSESSMENT YEAR 2006 - 07 U/S.143(3). THE LEARNED CIT(A) THEREFORE, AFTER GIVING CREDENCE TO THE FACTS AS BROUGHT ON REC ORD BY THE ASSESSING OFFICER HELD THAT THE PROVISIONS OF SECTION 2(22)(E) ARE NOT ATTRACTED INSOFAR AS THE ISSUE HAVING BEEN EXAMINED BY THE ITAT, (MUMBAI) SPECIAL BENCH IN THE CASE OF CIT V.BHAUMIK COLOUR (P) LTD (120 TTJ 865) WHETHER COULD BE CONSIDERED IN BOTH THE CONCERNS WHO HAVE LENT AND BORROWED HIGHLIGHTING THE SHARE HOLDER AS REFERRED TO SECTION 2(22)(E) CAN BE APPLIED TO THE FACTS OF THE CASE. HE DELETED THE ADDITION, AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PA RTIES AT LENGTH AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE CONTENTION OF THE LEARNED DR HAS BEEN SPECIFICALLY TO THE SCORE THAT THE ASSESSING OFFICER CONSIDERED THE ACCUMULATED PROFIT OF SHREE BALAJI ALLOYS PVT.LTD., ON THE BASIS OF INCOME PORTION I N THE PURPORTED TRANSACTION IN THE PURCHASE AND SALES UNDER THE PROVISIONS OF SECTION 2(22)(E) WHICH HAS BEEN LOST SIGHT OF BY THE LEARNED CIT(A) IN TRYING TO ESTABLISH AND DEFINE THE WORD SAID SHARE HOLDER AS CONSIDERED BY THE ITAT, SPECIAL BENCH. HE AR GUED THAT IT WAS NOT THE CASE OF THE ASSESSING OFFICER TO ESTABLISH TH E BENEFIT BETWEEN THE SISTER CONCERNS ON THE TRANSACTIONS BUT WAS PURELY ON THE BASIS THAT THE SAID TRANSACTIONS WERE BETWEEN THE SAID COMPANIES WHEN SUB - CLAUSE (II) OF SECTION 2(22)(E) THAT EXCLUDE THE COMPANIES WHICH ARE NOT LENDING AND BORROWING BUSINESS IN THE ORDINARY COURSE. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND HAS RELIED O N THE ORDER OF THE LEARNED CIT(A) AND HAS ALSO RELIED ON THE DECISION OF HONBLE SUPREME COUR T IN DISMISSING THE SPECIAL LEAVE PETITION BY THE REVENUE BEFORE IT IN THE CASE OF CIT V. M/S.CREATIVE DYEING & PRINTING P. LTD ON THE DELHI HIGH COURT DECISION THAT HAD UPHELD THE CONTENTION OF THE TRIBUNAL THAT AN ADVANCE BY THE ASSESSEE TO A SISTER CONC ERN HOLDING 50% OF THE SHARE IN THE ASSESSEE I.T.A.NO. 241/CTK/2010 5 COMPANY BEING ADVANCE FOR COMMERCIAL PURPOSES CANNOT BE A DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E). THE LEARNED COUNSEL HAS ALSO SUBMITTED VARIOUS JUDICIAL PRONOUNCEMENTS BY DISTINGUISHING THE FA CTS AS WERE CONSIDERED IN THE CASE OF SADHANA TEXTILE MILLS (P) LTD (188 ITR 318) WHICH THE LEARNED ASSESSING OFFICER RELIED ON. 6. ON OUR CAREFUL PERUSAL OF THE FACTS AS HAVE BEEN BROUGHT OUT BY THE AUTHORITIES BELOW, WE ARE INCLINED TO HOLD THAT IT IS NO T THE CASE OF THE ASSESSING OFFICER TO DETERMINE PURPORTED DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE BEFORE US WHEN IT CATEGORICALLY NOTED THAT VARIOUS TRANSACTIONS WERE INCORPORATED BETWEEN M/S.BALAJI ALLOYS PVT. LTD AND THE ASSESSEE. VARIOUS AMOUNTS O N DIFFERENT DATES WERE RECEIVED BY THE ASSESSEE TOTALING RS.27,21,580 WHICH WAS ULTIMATELY SQUARED OFF IN THE BOOKS OF ACCOUNT. ON BEING CONFRONTED TO THE PROPOSITION BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SADHANA TEXTILE MILLS (P) LTD (SUPRA), THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE TRANSACTIONS BETWEEN THE STATUTORY COMPANIES WAS DIFFERENT THEN FOR CONSIDERATION FOR THE PURPOSES OF SECTION 2(22)(E) AND IN THE CASE OF SADHANA TEXTILE MILLS (P) LTD (SUPRA), HON BLE HIGH COURT HAD CONSIDERED THE OUTSTANDING BALANCE AT THE END OF THE YEAR AS DEEMED DIVIDEND U/S.2(22)(E). AT THE END OF THE YEAR, THERE WAS CERTAIN OUTSTANDING BALANCE, WHEREAS IN THE CASE OF THE ASSESSEE THE BALANCE AS ON 31.3.2006 WAS NIL. THE ASSES SING OFFICER HAS CONSIDERED THE ACCUMULATED PROFIT OF M/S.BALAJI ALLOYS PVT. LTD TO BE TAXED AS DEEMED DIVIDEND IN THE CASE OF THE ASSESSEE, NAMELY, M/S.KALINGA ALLOYS PVT. LTD. WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF THE LEARNED COUNSEL OF THE ASSESSE E THAT THESE TWO TRANSACTIONS ARE DIFFERENT AND CANNOT BE COMBINED TO GIVE EFFECT FOR COMPUTING A DEEMED DIVIDEND. IT IS NOT THE CASE OF THE ASSESSING OFFICER ALSO TO HOLD THAT RS.27 LAKHS APPROXIMATELY WITHOUT TRADING I.T.A.NO. 241/CTK/2010 6 TRANSACTIONS WERE THE PROFIT THAT WAS INCLUDED IN RS.12,51,327. THE LEARNED CIT(A) THEREFORE, RIGHTLY CONSIDERED THE CASE OF THE ASSESSEE ON THE FACT THAT THE ASSESSEE COMPANY AND NOT THE SHARE HOLDER THEREIN WAS TO BE IDENTIFIED FOR THE PURPOSE OF INVOKING THE PROVISIONS OF SECTION 2(22)(E). THE ASSESSING OFFICER IN HIS ENTHUSIASM TO DETERMINE DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE PROCEEDED TO COMPUTE THE DEEMED DIVIDEND IN THE FORM OF MARGIN EARNED BY THE RESPECTIVE PARTIES BEING PURELY COMMERCIAL TRANSACTIONS OF SALE AND PURCHASES BET WEEN TWO WHICH UNDER NO CIRCUMSTANCES CAN BE IDENTIFIED TO BE A BENEFICIARY SHARE HOLDER. THE VERY FACT THAT THE INCOME PURPORTED TO HAVE BEEN EARNED WAS BY COMPANIES AND NOT PARTICULAR SHARE HOLDER ALONE COULD BE CONSIDERED WHICH THE ASSESSING OFFICER FA ILED TO DERIVE. IT IS NOT THE CASE OF THE ASSESSING OFFICER TO HOLD THAT ACCUMULATED PROFIT OF M/S.BALAJI ALLOYS PVT. LTD WAS EMBEDDED IN THE TRANSACTIONS BETWEEN THE TWO COMPANIES. THEREFORE, FINDING NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A ) IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION, WE ARE INCLINED TO DISMISS THE APPEAL FILED BY THE REVENUE ON THE FACTS AND CIRCUMSTANCES OF CASE CORRESPONDING TO THE LEARNED COUNSELS RELIANCE ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT V. M/S. CREATIVE DYEING & PRINTING P. LTD.(SUPRA) AS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 18 TH FEBRUARY, 2011 S D/ - S D/ - ( . . . ) , ( K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DA TE: 18 TH FEBRUARY, 2011 ( ), ( H.K.PADHEE ), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 241/CTK/2010 7 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : ASST.COMMISSINER OF INCOME - TAX, CIRCLE 1(1), BH UBANESWR. 2 / THE RESPONDENT: M/S.KALINGA ALLOYS PVT. LTD., 63, FOREST PARK,BHUBANESWAR 751 009 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY