Assistant Commissioner of Income tax, V. M/s. Bhaawani Shankar Ginning Factory, Dhule

ITA 245/PUN/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6052 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 30-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAHUL K HAKANI
• Keywords: Depreciation; Deemed dividend; Commercial expediency; Condonation of delay
• Section: 143(3); 2(22)(e)

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.245/PUN/2017 / ASSESSMENT YEAR : 2013-14 THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE DHULE, DHULE. . APPELLANT V/S M/S. BHAAWANI SHANKAR GINNING FACTORY, PLOT NO.56, KRISHNA SIDDHI, G.B. NAGAR, MALEGAON ROAD, DHULE. PAN : AAGFB0483J. RESPONDENT !. / CO NO.04/PUN/2019 (ARISING OUT OF ITA NO.245/PUN/2017 / ASSESSMENT YEAR : 2013-14 M/S. BHAAWANI SHANKAR GINNING FACTORY, PLOT NO.56, KRISHNA SIDDHI, G.B. NAGAR, MALEGAON ROAD, DHULE. PAN : AAGFB0483J. . CROSS-OBJECTOR. V/S THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE DHULE, DHULE. . APPELLANT IN THE APPEAL. ASSESSEE BY : SHRI RAHUL K. HAKANI. REVENUE BY : SHRI SUDHENDU DAS. / ORDER PER ANIL CHATURVEDI, AM : 1. THE PRESENT APPEAL FILED BY THE REVENUE AND THE C.O. FILE D BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIO NER OF / DATE OF HEARING : 03.07.2019 / DATE OF PRONOUNCEMENT: 01.08.2019 2 INCOME TAX (APPEALS) 1, NASHIK DATED 21.11.2016 FOR THE ASSESSMENT YEAR 2013-14. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER:- ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGED IN T HE BUSINESS OF COTTON GINNING, PRESSING AND MANUFACTURING. AS SESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2013-14 ON 06.09.2013 DECLARING TOTAL INCOME OF RS.17,16,595/-. THE CAS E WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAM ED U/S 143(3) OF THE ACT VIDE ORDER DT.02.02.16 AND THE TOTAL INC OME WAS DETERMINED AT RS.2,37,76,474/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORD ER DT.21.11.2016 (IN APPEAL NO.NSK/CIT(A)-1/729/2015-16) HAS ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE OR DER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAIS ED THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD.CIT(A)-1, NASHIK WAS JUSTIFIED IN ALLOWING UNEXP LAINED MONEY OF RS.2,20,44,732/- U/S 2(22)(E) OF THE INCOME TAX ACT , 1961. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A)-1, NASHIK WAS JUSTIFIED IN ALLOWING DEEME D DIVIDEND OF RS.2,20,44,732/- U/S 2(22)(E) OF THE INCOME TAX ACT , 1961 WHEN THE CBDT CIRCULAR NO.495 OF 1987 EXPLAINS THE PROVISION S MADE BY THE FINANCE ACT, 1987 THAT THE DEEMED DIVIDEND SALARY T AX IN THE HANDS OF CONCERN. 3. THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 3. ON THE OTHER HAND, ASSESSEE HAS FILED C.O. AND THE GRO UNDS RAISED BY THE ASSESSEE READS AS UNDER : 3 1. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT LD AO ERRED IN MAKING ADDITION OF RS 2,20,44,7321- U/S 2(22)(E) OF THE AC T BEING LOAN RECEIVED FROM MAHESH GINNING PVT LTD WITHOUT COMPUTING ACCUMULATE D PROFITS AND WITHOUT RECORDING ANY FINDING THAT PAYMENT OF LOAN WAS FROM ACCUMULATED PROFITS OR ASSESSEE POSSESSED ACCUMULATED PROFITS AND HENCE TH E ADDITION OUGHT TO BE DELETED. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE LEARNED AO ERRED IN MAKING ADDITION OF RS 2,20,44,7321- U/S 2(22)(E) OF THE ACT BEING LOAN RECEIVED FROM MAHESH GINNING PVT LTD WITHOUT DEDUCT ING SHARE PREMIUM ACCOUNT, INCOME TAX PAYABLE AND DEPRECIATION AS PER INCOME TAX ACT WHILE COMPUTING ACCUMULATED PROFITS U/S 2(22)( E). 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE LEARNED AO ERRED IN MAKING ADDITION OF RS 2,20,44,732/- U/S 2(22)(E) OF THE ACT BEING LOAN RECEIVED FROM MAHESH GINNING PVT LTD WITHOUT APPREC IATING THAT THE LOAN WAS GIVEN ON THE GROUNDS OF COMMERCIAL EXPEDIENCY A ND THE ENTIRE LOAN WAS RETURNED DURING THE YEAR AND THERE WAS NO EVASI ON OF TAX AND HENCE THE ADDITION OUGHT TO BE DELETED. 4. BEFORE US, LD.A.R. AT THE OUTSET, SUBMITTED THAT THER E IS DELAY OF 29 DAYS IN FILING THE C.O. HE ALSO PLACED THE SWORN AFFIDAV IT OF MR. GOPAL HAJARIMAL TAYAL, PARTNER OF THE FIRM STATING THE R EASONS FOR THE DELAY AND IN VIEW OF THE REASONS STATED IN THE AFFID AVIT HE PRAYED THAT THE DELAY IN FILING THE C.O BE CONDONED. LD.D.R. DID NOT SERIOUSLY OBJECT TO THE PRAYER OF CONDONATION. 5. ON THE ISSUE OF CONDONATION OF DELAY OF C.O., WE HAVE GO NE THROUGH THE AFFIDAVIT FILED BY THE PARTNER OF ASSESSEES FIR M AND HEARD THE LD.D.R. AFTER CONSIDERING THE REASONS STATED IN THE AFFIDAVIT, WE ARE OF THE VIEW THAT THE DELAY IN FILING THE C.O ., HAS BEEN SATISFACTORILY EXPLAINED. IN VIEW OF THESE FACTS, WE CON DONE THE DELAY AND ADMIT THE C.O. FOR HEARING. 6. WE FIRST PROCEED WITH REVENUES APPEAL IN ITA NO.245/PUN/2017 FOR A.Y. 2013-14. 4 6.1. ALL THE GROUNDS BEING INTER-CONNECTED ARE CONSIDERED TOGETHER. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICE D THAT ASSESSEE HAD RECEIVED LOAN FROM MAHESH GINNING PVT. LTD., IN WHICH BOTH THE PARTNERS OF THE FIRM I.E., GOVERDHANDASH H. T AYAL AND GOPAL HAZARIMAL TAYAL HELD 18.19% SHARE EACH. HE ALSO NOTICED THAT ASSESSEE FIRM HAD ONLY TWO PARTNERS HOLDING 50% SHARE EACH. AO WAS THEREFORE OF THE VIEW THAT THE TRANSACTIO N OF RECEIPT OF LOAN BY THE ASSESSEE QUALIFIED AS DIVIDEND U/S 2(22)(E) OF THE ACT. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE TRANS ACTION NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. TO T HE SAID AFORESAID QUERY OF AO, ASSESSEE INTER-ALIA SUBMITTED THAT ASSESSEE FIRM IS NOT A SHARE-HOLDER AND THEREFORE THE PROVISIONS O F SEC.2(22)(E) OF THE ACT ARE NOT APPLICABLE. THE SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO. AO NOTE D THAT MAHESH GINNING PVT. LTD., HAD ACCUMULATED RESERVES OF RS.2 .20 CRORES (ROUNDED OFF). HE THEREFORE, BY APPLYING THE PROVISIO NS OF SEC.2(22)(E) OF THE ACT, MADE ADDITION OF RS.2,20,44,732/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE AND AFTER FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PRIVATE LIMITED RE PORTED IN (2010) 324 ITR 263 DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER : 4.4. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE SUBMISSION OF THE APPELLANT AND THE ORDER OF THE AS SESSING OFFICER. THE APPELLANT IS A FIRM . IT IS A SETTLED LAW THAT THE PARTNERSHIP FIRM IS 5 NOT A LEGAL PERSON . HE N CE T H E PARTNERSHIP FIRM HOLDS SHARE IN THE NAME OF ITS PARTNERS . IF A COMPAN Y ADVANCES MONEY TO THE FIRM IN WHICH PARTNERS HOLD SHARES O F T HA T CO M PA NY WOULD TH E PROVISION OF SECTION 2(22)(E) BE T R IGGERED . 4.5. THE PRESENT ISSUE IS, THEREFORE , A QUESTION O F F ACT , WHICH INVOLVES A LEGAL FICTION. THE COURTS HAVE EXPLAINED AND LAID DOWN CER T A I N TESTS WHICH NEEDS TO BE APPLIED KEEPING IN VIEW T HE FACTS OF EACH CASE . THERE IS NO DISPUTE WITH REGARD TO THE TESTS IN THE PRESENT APPEA L . A S STATED ABOVE , SEC . 2(22)(E) IS A DEEMING PROVISION W H ICH C R EAT ES A LEGAL F I CTION. IT IS JUDICIALLY SETTLED THAT A LEGAL FICTIO N CANNOT BE INTERPRETED TO WORK INJUS TI CE AND A STATUTORY FICTION CANNOT BE EXTENDED BEYOND ITS PURPOSE. THERE IS NO DISPUTE THAT THE SUBJECT MATTER OF PAYMENT C ON T EMP L ATED UNDER 2(22)(E) INCLUDES AN ADVANCE, A LOAN, ANY PAYMENT ON BEHALF OF A SHAREHOLDER AND ANY PAYMENT FOR THE BENEFIT O F A SHAREHOLDER . THE BASIC PRINCIPLES THEREFORE, GOVERNING THE SECTI ON HAVE BEEN CAREFULLY EXAMINED. THE CHIEF INGREDIENT IN THAT SE CTION IS THAT ONE SHOULD BE A SHAREHOLDER ON THE DATE THE ADVANCE WAS MADE . IN THE PRESENT CASE, EVEN THOUGH THE ADVANCES WERE MAD E OUT OF PROFITS OF THE LENDING COMPANY, BUT, THE CHIEF INGR EDIENT I . E. , THE REG I STERED S HAREHOLDER AND BENEFICIAL INTEREST IS NOT EXISTING IN THE APPELLAN T' S C ASE . IT IS PRIMARILY ON TWO COUNTS. THE APPELLANT FIRM IS NOT A REGISTERED SHAREHOLDER OF THE LENDING COMPANY . THE ITAT SPL . BENCH IN THE CASE OF A C I T VS . BHAUMIK COLOR (P) LTD. (2009) 27 SOT (MUM) (SB) AND THE CASE OF COMMISSION ER OF INCOME TAX-9 VS . IMPACT CONTAINERS PVT . LTD. , HAS DEALT WITH THE SIMILAR ISSUE AND HAS HELD THAT 'THE DEEMED DIVIDEN D CAN ONLY BE TAXED IN THE HANDS OF A PERSON WHO IS NOT O NLY A BENEFICIAL SHAREHOLDER, BUT ALSO A REGISTERED SHARE HOLDER. THE SAID DECISION OF THE SPECIAL BENCH OF THE ITAT HAS BEEN FOLLOWED BY THE JURISDICTIONA L ITAT PUNE BENCH I N ITA NO. 728/ PN/ 2008 A . Y . 2005 - 06 VIDE AN ORDE R D A T ED 3 1/0312009 IN T HE CASE OF M/S. SHIVANANDA ELECTRONICS VS . JCIT . THE R ATIO OF TH E TW O D EC I SIONS SQUARELY APPLY TO THE IDENTICAL FACTS OF THE CASE O F T HE APPELLA N T . FU R THER , T HE ABOVE PROPOSITION OF LAW IS ALSO SUPPOR T ED BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CI T VS . UNIVERSAL MEDICARE PRIVATE LIMITED (2010) 324 ITR 2 63. THE DECIS I ON OF IMPACT CONTAINERS HAS ALSO BEEN UPHELD BY BOM BAY HIGH COURT . THEREFORE, IN ABSENCE OF ABOVE INGREDIENTS, THE ADVANCE MADE BY MAHESH GINNING PVT . LTD . TO M/S BHAWANI SHANKAR GINNING FACTORY TO C A RRY O UT ITS BU S I NESS CANNOT BE T REATED AS DEEMED DIVIDEND I N THE HA NDS OF THE APPELLANT U/S 2 ( 2 2 ) (E ) . THEREFO R E , IT IS HELD THAT NO PAYMENT AS CONT E M PL AT E D U/S 2 ( 22 )( E ) HAS BEEN MADE BY THE CLOSELY HELD COMPANY T O T HE APPEL L ANT FIRM . THERE IS CONTRARY DECISION OF DELHI HIGH COURT IN NATIONAL TRAVEL SERVICES WHEREIN IT HAS BEEN HELD T HAT F OR PURPOSE O F DEEMED DIVIDEND U/S 2(22)(E) FIRM IS SHAREHOLDER TH OUGH SHARES ARE H ELD IN NAME OF PARTNERS. HOWEVER, FOLLOWING THE BIN DING JUDICIAL PRECEDENTS THE DECISION OF JURISDICTIONAL I . E . BOMBAY HIGH COURT IS FOLLOWED. CONSEQUENTLY, IT IS HELD THAT TH E ASSESSING OFFICER WAS NOT J US TIF IED I N INVOKING SECTION 2(22)(E) AND MAKING THE IMPUGNED ADDI TI O N OF RS.2,20,44,732/- AND, THEREFORE, THE SAME IS DELETED. HOWEVER, THE AO IS DIRECTED TO TAKE APP R OPRIA T E A C TI O N AS PER THE RELEVANT PROVIS I ONS OF THE ACT TO TAX DEEMED D I V I DEN D IN T H E HANDS OF PARTNER GOVARDANDAS H. TAYAL AND GOPAL H AZARIMA L T A Y A L HOLDING SHARES OF 18 . 9 % EACH IN MAHESH GINNING PVT . LTD . 6 AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW BEFORE US. 8. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF AO. LD.A.R. ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT THE ASSESSEE FIRM IS NOT A SHARE-HOLDER AND THEREFORE THE PROVISIONS OF SEC.2(22)(E) OF T HE ACT ARE NOT APPLICABLE AND FOR THE AFORESAID PROPOSITION, HE RELIED ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. SKYLINE GREAT HILLS REPORTED IN (2016) 238 TAXMANN.COM 675. HE ALS O PLACED ON RECORD THE COPY OF THE AFORESAID DECISION. HE THUS SUPPORTED THE ORDER OF LD.CIT(A). HE THEREAFTER SUBMITTE D THAT IF THE GROUNDS OF REVENUE ARE DISMISSED THEN THE C.O. OF THE ASSESSEE WOULD BECOME ACADEMIC AND WOULD THEREFORE REQUIRE NO ADJUDICATION. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS W ITH RESPECT TO ADDITION U/S 2(22)(E) OF THE ACT. IT IS AN UNDISPUTED FA CT THAT ASSESSEE HAD RECEIVED LOAN FROM MAHESH GINNING PVT. LTD., IN WHICH BOTH THE PARTNERS OF THE ASSESSEE ALSO HELD 18.19% SHAR ES EACH. WE FIND THAT LD.CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS GIVEN A FINDING THAT THE CHIEF INGREDIENT OF SEC.2(22)(E) OF THE ACT IS THAT ONE SHOULD BE A SHAREHOLDER ON THE D ATE ON WHICH THE ADVANCE WAS MADE. THOUGH THE ADVANCES WERE MAD E OUT OF THE PROFITS OF THE LENDING COMPANY BUT THE ASSESSEE WAS NOT THE REGISTERED SHAREHOLDER AND BENEFICIAL INTEREST WAS NOT EXIS TING. SHE 7 THEREFORE, FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PRIVATE LIMITED (SUPRA) AND OTHER DECISIONS CITED IN THE ORDER, HAS HELD THAT THE RECEIPT OF LOAN CANNOT BE CONTEMPLATED AS DEEMED DIVIDEND U/S 2(22) (E) OF THE ACT. BEFORE US, REVENUE HAS NOT POINTED OUT ANY CONTR ARY BINDING DECISION IN ITS SUPPORT. WE THEREFORE FIND NO REASON TO IN TERFERE WITH THE ORDER OF LD.CIT(A). THUS, THE GROUNDS OF THE REVENUE ARE DISMISSED. 10. NOW, WE TAKE UP THE CROSS-OBJECTION FILED BY THE ASS ESSEE IN C.O. NO.4/PUN/2019 FOR A.Y. 2013-14. 11. BEFORE US, LD. AR SUBMITTED THAT IF THE APPEAL OF THE R EVENUE IS DISMISSED, THE GROUNDS RAISED BY THE ASSESSEE IN CROSS OBJECTION WILL BECOME ACADEMIC. WHILE DECIDING THE APPEAL OF REVENUE HEREINABOVE, WE FOR THE REASONS STATED HEREINABOVE HAV E DISMISSED THE GROUNDS OF THE REVENUE. THEREFORE, IN VIEW OF THE LD ARS SUBMISSION, THE GROUNDS RAISED BY THE ASSESSEE IN THE PRESENT C.O ARE DISMISSED. 12. IN THE RESULT, BOTH THE APPEAL OF REVENUE AND C.O. OF ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 1 ST DAY OF AUGUST, 2019. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) $ / JUDICIAL MEMBER %$ / ACCOUNTANT MEMBER PUNE; DATED : 1 ST AUGUST, 2019. YAMINI 8 &'()*)' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT 3. 4. 5. 6. CIT(A) -1, NASHIK. PR.CIT-1, NASHIK. '#$!% %&',)! !&' , / DR, ITAT, B PUNE; $+,-/ GUARD FILE. / BY ORDER , // / TRUE COPY / / // TRUE COPY // . /0%1&2 / SR. PRIVATE SECRETARY )! !&' , / ITAT, PUNE.