HITEN TECHNO PRODUCTS CORPORATION, MUMBAI V. ACIT 12(3), MUMBAI

ITA 2678/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8422 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2006-2007
• Appeal Filed On: 07-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Assessee Lawyers: B M PATHAK
• Keywords: Deemed dividend

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI RAJENDRA SINGH(AM) AND SHRI V.D.RAO, (JM) ITA NO.2678/M/2010 ASSESSMENT YEAR 2006-07 M/S.HITEN TECHNO PRODUCTS CORPORATION THE ACIT 12 (3), MUMBAI 1102, ATLANTA BUILDING 209 NARIMAN POINT MUMBAI 400 021. PAN : AAAFH 3759 F APPELLANT RESPONDENT ASSESSEE BY : SHRI B.M.PATHAK REVENUE BY : SHRI SHRAVAN KUMAR O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 4.1.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. THE ONLY DISPUTE RAISED IS REGARDING ADDITION ON ACCOUNT OF DEEMED DIVIDEND UN DER SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRAD ING OF LABORATORY GOODS AND UV LAMPS. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS RECEIVED LOAN OF RS.4,80,000/- FROM GA URAV ENGINEERING PVT. LTD (GEPL) IN WHICH THE TWO PARTNERS OF THE ASSESSEE FI RM HELD 37 SHARES EACH OUT OF TOTAL OF 120 SHARES OF THE COMPANY. AO THEREFORE ASKED THE ASSESSEE AS TO WHY THE LOAN SHOULD NOT BE TREATED AS DEEMED DIVIDE ND UNDER SECTION 2(22)(E). 2 THE ASSESSEE EXPLAINED THAT THE ASSESSEE HAD BUSINE SS CONNECTION WITH GEPL WHO WAS AGENT OF VARIOUS FOREIGN COMPANIES IN INDIA BOOKING ORDERS FOR THEIR CUSTOMERS FOR DIRECT IMPORT. THE ASSESSEE ALSO IMPO RTED SOME OF THESE ITEMS AND IN CASE SHIPMENT OF GEPLS CLIENT WAS DELAYED THE ASSESSEE USED TO SUPPLY THESE ITEMS FOR THEIR LOCAL STOCK. SINCE THERE WERE BUSINESS RELATIONS BETWEEN THE TWO CONCERNS THE LOAN SHOULD NOT BE TREATED AS DEEMED DIVIDEND. AO HOWEVER DID NOT ACCEPT THE ARGUMENT AND OBSERVED TH AT THE AMOUNT RECEIVED BY THE ASSESSEE WAS LOAN AND WAS NOT A BUSINESS TRA NSACTION AND THEREFORE PROVISIONS OF SECTION 2(22)(E) WERE NOT APPLICABLE. HE THEREFORE ADDED A SUM OF RS.4,80,000/- AS DEEMED DIVIDEND IN THE NAME OF THE ASSESSEE. IN APPEAL CIT(A) CONFIRMED THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSEE FIRM WAS NOT A SHAREHOLDER IN GEPL. IT WAS THE PART NERS OF THE FIRM WHO WERE THE REGISTERED SHAREHOLDERS. THEREFORE PROVISIONS O F SECTION 2(22)(E) WERE NOT APPLICABLE IN VIEW OF THE DECISION OF THE SPECIAL B ENCH OF THE TRIBUNAL IN CASE OF ACIT CC-33 VS BHOUMIK COLORS PVT. LTD. (313 ITR(AT) 46) IN WHICH IT WAS HELD THAT FOR APPLICABILITY OF PROVISIONS OF SECTION 2(2 2)(E) THE ASSESSEE SHOULD NOT ONLY BE THE BENEFICIAL SHAREHOLDER BUT ALSO THE REG ISTERED SHAREHOLDER OF THE COMPANY FROM WHICH THE LOANS WERE RECEIVED. IT WAS ACCORDINGLY URGED THAT THE ADDITION MADE SHOULD BE DELETED. THE LEARNED DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS REGARDING ADDITION ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTION 2(22)(E). UNDER THE SAID PROVISIONS LOANS RECEIVED BY A SHAREHOLDER FROM A 3 COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTER ESTED OR LOAN TO A CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER AND H AS SUBSTANTIAL INTEREST IS DEEMED TO BE AS DIVIDEND IN CASE OF THE ASSESSEE. H OWEVER THE LOAN TAKEN BY THE COMPANY CAN BE ASSESSED AS DEEMED DIVIDEND ONLY IN CASE OF REGISTERED SHAREHOLDER WHO IS ALSO A BENEFICIAL SHAREHOLDER OF THE COMPANY AS HELD BY THE SPECIAL BENCH IN CASE OF ACIT VS M/S.BHOUMIK COLORS PVT. LTD. IN THIS CASE ADMITTEDLY THE ASSESSEE FIRM IS NOT THE REGISTERED SHAREHOLDERS OF THE COMPANY. IT IS THE PARTNER WHO ARE THE REGISTERED S HAREHOLDER. THE LOAN HAS BEEN TAKEN BY THE FIRM IN WHICH THE PARTNERS HAVE S UBSTANTIAL INTEREST. THEREFORE THE ADDITION OF DEEMED DIVIDEND COULD PRO BABLY BE MADE IN CASE OF THE PARTNERS WHO ARE THE REGISTERED SHAREHOLDERS OF THE COMPANY WHO HAS GIVEN LOAN TO THE FIRM IN WHICH SUCH PARTNERS HAVE SUBSTANTIAL INTEREST BUT NO ADDITION CAN BE MADE IN CASE OF THE ASSESSEE FIRM W HO IS NOT A REGISTERED SHAREHOLDER. WE ARE THEREFORE UNABLE TO SUSTAIN THE ORDER OF CIT(A). THE SAME IS SET ASIDE AND THE ADDITION MADE IS DELETED. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. 6. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 23.02.2011. SD/- SD/- ( V.D. RAO ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 23.02.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 4 5. THE DR H BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK