ASSISTANT COMMISSIONER OF INCOME TAX, CENRTALCIRCLE-1, VISAKHAPATNAM V. VIJAYNAGAR FOOD AND NUTRACEUTICALS PVT LTD, VISAKHAPATNAM

ITA 246/VIZ/2022

AI Insights

The case involves the Assistant Commissioner of Income Tax, Central Circle-1, Visakhapatnam as the appellant and Vijaynagar Food and Nutraceuticals Pvt Ltd as the respondent. The dispute arose from an order passed under section 153A read with section 144 of the Income Tax Act, 1961, where the Assessing Officer (AO) added an amount of Rs. 6,12,05,651 as deemed dividend to the income of the assessee for the assessment year 2018-19. This addition was contested by the assessee before the CIT(A), who ruled in favor of the assessee. The Revenue, aggrieved by this decision, appealed to the Tribunal. The main legal issue was whether the amount received by the assessee from Vijaynagar Biotech Private Limited constituted deemed dividend under section 2(22)(e) of the Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 128491 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 08-03-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 21-12-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed dividend
• Section: 2; 153A; 2(22)(e)

Judgement Text

आयकर अपीलȣयअͬधकरण, ͪवशाखापटणम पीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įी दुåवूǽ आर एल रेɬडी, ÛयाǓयक सदèय एवं Įी एस बालाकृçणन, लेखा सदèय के सम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./ I.T.A. No. 246/Viz/2022 (Ǔनधा[रण वष[ / Assessment Year : 2018-19) Assistant Commissioner of Income Tax, Central Circle-1, Visakhapatnam. Vs. Vijaynagar Food and Nutraceuticals Pvt Ltd, Visakhapatnam. PAN: AADCV 9495 L (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) C.O. No. 2/Viz/2023 (In आयकर अपील सं./ I.T.A. No. 246/Viz/2022) (Ǔनधा[रण वष[ / Assessment Year : 2018-19) Vijaynagar Food and Nutraceuticals Pvt Ltd, Visakhapatnam. PAN: AADCV 9495 L Vs. Assistant Commissioner of Income Tax, Central Circle-1, Visakhapatnam. (अपीलाथȸ/ Cross Objector) (Ĥ×यथȸ/ Respondent) अपीलाथȸ कȧ ओर से/ Assessee by : Sri GVN Hari, Advocate Ĥ×याथȸ कȧ ओर से / Revenue by : Sri MN Murthy Naik, CIT-DR सुनवाई कȧ तारȣख / Date of Hearing : 09/03/2023 घोषणा कȧ तारȣख/Date of Pronouncement : 29/03/2023 O R D E R 2 PER S. BALAKRISHNAN, Accountant Member : The captioned appeal is filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-3, Visakhapatnam [Ld. CIT(A)] in DIN & Order No. ITBA/APL/S/250/2022-23/1046192142(1), dated 06/10/2022 arising out of the order passed U/s. 153A r.w.s 144 of the Income Tax Act, 1961 [the Act] dated 29/9/2021 for the AY 2018-19. 2. Briefly stated the facts of the case are that the assessee is engaged in the business of manufacturing coconut value added products filed its e-return of income for the AY 2018-19 admitting a total loss of Rs. 24,89,19,490/-. A search action U/s. 132 of the Act was conducted on the assessee on 10/01/2020 along with its group concerns. Consequent to search action U/s. 132 of the Act, the case was centralized with Central Circle-1, Visakhapatnam vide order of the Pr. CIT-1, Visakhapatnam U/s. 127 of the Act in F.No. Pr. CIT- 1/VSP/127/2020-21 dated 4/11/2020. The Ld. AO issued a notice U/s. 153A of the Act calling for the return of income. Since there was no response, the Ld. AO issued notice U/s. 142(1) of the Act calling for the information along with the detailed questionnaire. The assessee’s Representative partly filed 3 the information on 11/09/2021. On examination of the submissions made by the Ld. AR, the Ld. AO found from the incriminating material which was seized vide Annexure- A/VBPL/OFFICE/04 noticed that the assessee company has received Rs. 6,12,05,651/- as loans and advances from M/s. Vijaynagar Biotech Private Limited (VBL). The Ld. AO therefore considered the amount received by the assessee company as deemed dividend U/s. 2(22)(e) of the Act and has accordingly added the deemed dividend to the total income of the assessee under the head ‘income from other sources’. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A) considering the submissions made by the assessee’s Representative, allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal. 3. The Revenue has raised the following grounds of appeal: “(i) The order of the Ld. CIT(A) is erroneous on grounds of f acts and law. (ii) The Ld. CIT(A) erred in holding that the additions do not f all in the category of undisclosed income or income unearthed during the search, as the assess ment completed in this case was U/s. 153A of the Act to assess total income of the assessee which statutorily is not limited to only assess undisclosed income consequent to search action. 4 (iii) The Ld. CIT(A) f ailed to appreciate that the explanation 3(b) to section 2(22)(e) is an independent provision and the provisions of section 2(32) do not match ‘mutatis mutandis’ apply to the present case. (iv) Any other ground that may be urged at the time of hearing.” 4. Ground No.3 is with respect to addition of Rs. 6,12,05,651/- as deemed dividend u/s. 2(22)(e) of the Act. The Ld. DR submitted that the Director of the assessee company Shri Datla Ranga Raju owns 19.05% of the shares in M/s. Vijaynagar Biotech Private Limited (VBL). The Ld. DR further submitted that the same director holds more than 10% in the assessee company. The Ld. DR further submitted that since there is a common shareholding and the Director Sri Datla Ranga Raju is a common Director in both the companies, the Ld. AO has rightly treated the advances received by the assessee company as deemed divided and pleaded that the order of the Ld. AO be upheld. Per contra, the Ld. AR relied on the order of the Ld. CIT(A). 5. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. We find that the Ld. CIT(A) in para 4.3 of his order held as follows: “4.3. I have considered ground No.5, gone through the submissions made on behalf of the appellant and seen 5 the re mand report and order of the Ld. AO carefully. I find that the submissions of the appellant with respec t to the legal provisions on dee med dividend as explained above and the facts of the case are in order and hence the provisions of sec tion 2(22)(e) of the Ac t are no t attrac ted in view of specific explanation in section 2(32) of the Ac t as to when a shareholder of a co mpany is said to be having substantial interest in the co mpany. In the case of the appellant Sri D. Ranga Raju is holding only 19.05% shares of the appellant there fore he canno t be said to be having substantial interest in the appellant company. Moreover, as pointed out that the appellant company is not a shareholder of VBL. Considering the above this ground of appeal is allowed.” 6. We find that the Ld. CIT(A) has rightly applied the provisions of section 2(32) of the Act and has deleted the deemed dividend u/s. 2(22)(e) of the Act as Sri D. Ranga Raju is holding below 20% of the shares of the assessee company as prescribed U/s. 2(32) of the Act. We extract section 2(22)(e) below: (e) any p ayment b y a compan y, not be ing a compan y in wh ich the public are substan tially in terested, of any sum (whe ther as representing a p ar t of the asse ts of the compan y or other wise) made af ter the 31st d ay of May, 1987, by way of advance or loan to a sh areholder, being a person who is the be neficial o wner of shares (not being sh ares en titled to a fixed rate of dividend whe ther with or withou t a righ t to p ar tic ip ate in profits) holding not less th an ten per cent of the voting power, or to any concern in wh ich such sh areholder is a member or a par tner and in wh ich he has a substantial interest (hereafter in th is clau se referred to as the said concern) or any p ayment b y an y such company on behalf, or for the indiv idu al benefit, of any such share holder, to the extent to wh ich the compan y in either case possesses accumulated profits; Further we also extract the definition of “substantial interest” as per section 2 (32) of the Act below: 6 "person who h as a sub stan tial in terest in the company", in relation to a compan y, means a person who is the beneficial o wner of shares, not being share s entitled to a fixed rate of dividend whe ther with or withou t a right to partic ip ate in profits, carrying not less than twenty per cent of the v oting power ; In view of the above definition, in the instant case Shri Datla Ranga Raju owns 19.05% of the shares in M/s. Vijaynagar Biotech Private Limited (VBL) which is below the prescribed limit of 20% in order to have substantial interest in a company. The ground raised by Revenue on Explanation 3(b) to section 2(22)(e) refers to a concern other than a company and hence not relevant for the instant case. We therefore find that there is no requirement to interfere in the order of the Ld. CIT(A) on this ground. Accordingly the appeal of the Revenue on this ground is dismissed. 7. Ground No.2 with respect to legal issue raised by the Revenue, since the appeal is adjudicated on merits against the Revenue, this legal issue need not be adjudicated. 8. Ground Nos. 1 & 4 are general in nature and needs no adjudication. 9. In the result, appeal of the Revenue is dismissed. 7 10. Cross Objection raised by the assessee is supportive in nature and therefore the adjudication of the CO becomes infructuous. Pronounced in the open Court on the 29 th March, 2023. Sd/- Sd/- (दुåवूǽ आर.एल रेɬडी) (एस बालाकृçणन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) ÛयाǓयकसदèय/JUDICIAL MEMBER लेखा सदèय/ACCOUNTANT MEMBER Dated : 29.03.2023 OKK - SPS आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee – M/s. Vijaynagar Food and Nutraceuticals Private Limited, 9-29-15/7, 3 rd Floor, Padmavathi Towers, Balaji Nagar, Upstairs Canara Bank Regional Office, VIP Road, Siripuram, Visakhapatnam, Andhra Pradesh – 530003. 2. राजèव/The Revenue – Assistant Commissioner of Income Tax, Central Circle-1, 5 th Floor, Direct Taxes Building, Sector-8, MVP Double Road, Visakhapatnam, Andhra Pradesh-530017. 3. The Principal Commissioner of Income Tax, 4. आयकर आयुÈत (अपील)/ The Commissioner of Income Tax (Appeals)-3, Visakhapatnam. 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, ͪवशाखापटणम/ DR, ITAT, Visakhapatnam 6. गाड[ फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam