The ACIT, Indore V. M/s. Pragya Engineering Pvt. Ltd., Indore

ITA 273/IND/2010

• Counselvise Citation: 27322714 RSA 2010
• Duration Of Justice: 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 07-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P K MITRA
• Assessee Lawyers: MANISH VAIDYA CAS
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NOS. 272/IND/2010 A.Y 2007-08 ASSTT. COMMISSIONER OF INCOME TAX 5(1), INDORE APPELLANT VS PRAGYA EQUIPMENTS PRIVATE LIMITED INDORE PAN AABCP-0490P RESPONDENT ITA NO. 273/IND/2010 A.Y 2007-08 ASSTT. COMMISSIONER OF INCOME TAX 5(1), INDORE APPELLANT VS PRAGYA ENGINEERING PRIVATE LIMITED, INDORE PAN AADCA-3421F RESPONDENT APPELLANTS BY : SHRI P.K. MITRA, SR. DR RESPONDENT BY : SHRI AJAY TULSIYAN & MANISH VAIDYA , CAS O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER 2 THE REVENUE BY WAY OF THESE APPEALS HAS CHALLENGED THE ORDERS DATED 4.2.2010 OF THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) ON THE COMMON GROUND THAT HE HAS ERRE D IN DELETING THE ADDITION OF RS. 14,43,234/- (IN THE CA SE OF PRAGYA EQUIPMENTS PRIVATE LIMITED) AND RS.90,50,304/- (IN THE CASE OF PRAGYA ENGINEERING PRIVATE LIMITED), MADE BY THE AS SESSING OFFICER ON ACCOUNT OF DEEMED DIVIDEND. 2. DURING HEARING OF THESE APPEALS, SHRI PRADEEP KU MAR MITRA, LD. SR. DR CONTENDED THAT IN VIEW OF THE DEC ISION OF THE MUMBAI BENCH IN THE CASE OF DCIT VS. OSCAR INVESTME NT LTD. (2006) 98 ITD 339 (MUM) AND THE DECISION FROM HONB LE DELHI HIGH COURT IN CIT VS. CREATIVE DYEING AND PRINTING P. LTD. (2009) 318 ITR 476 (DEL), THE AMOUNT WAS NOT RECEIV ED BY THE ASSESSEE IN NORMAL COURSE OF BUSINESS, THEREFORE, L D. CIT(A) WAS NOT JUSTIFIED IN EXCLUDING THE LOAN AMOUNT FROM THE PURVIEW OF SEC. 2(22)(E) OF THE ACT. OUR ATTENTION WAS FURT HER INVITED TO THE LANGUAGE OF SEC. 2 (22) (E) OF THE ACT ALONG WI TH EXPLANATION 3. FURTHER, OUR ATTENTION WAS INVITED TO PAGE 7, PA RA 4 OF THE ORDER OF THE LD. CIT(A) AND PAGE 2 OF THE ASSESSMEN T ORDER. ON 3 THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE CO NTENDED THAT BOTH THE ASSESSEE COMPANIES ARE NOT SHAREHOLDERS OF EACH OTHER RATHER THE SHARES ARE OWNED BY ONE SHRI TOLAN I WHO HAS NOT RECEIVED EVEN A SINGLE PENNY FROM THE LONEE COM PANY. HE FURTHER SUBMITTED THAT THE SHAREHOLDERS ARE NOT BEN EFITED IN ANY MANNER OUT OF THE ALLEGED AMOUNT OF LOAN RECEIVED B Y THE ASSESSEE COMPANY. IT WAS FURTHER CLAIMED THAT THE A SSESSEE COMPANY HAD NOT PAID ANY INTEREST TO THE LENDER COM PANY. IT WAS CLAIMED THAT NO BENEFIT HAS BEEN DERIVED BY ANY OF THE COMPANIES THROUGH THIS TRANSACTION. A STRONG PLEA W AS RAISED THAT THESE ARE MERELY NORMAL BUSINESS TRANSACTIONS, THEREFORE, CANNOT BE TREATED AS LOAN OR ADVANCE AS ENVISAGED U /S 2(22)(E) OF THE ACT. IT WAS ALSO PLEADED THAT THE SHAREHOLDE RS SHRI R.C. TOLANI WAS NOT PAID ANY AMOUNT BY THE ASSESSEE COMP ANIES AND THESE ARE PURELY THE TRANSACTIONS BETWEEN THE T WO COMPANIES. OUR ATTENTION WAS INVITED TO PAGES 48 TO 55 OF THE PAPER BOOK. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATER IAL 4 AVAILABLE ON RECORD. BRIEF FACTS ARE THAT M/S. PRAG YA EQUIPMENT P. LTD., INDORE IS MAINLY ENGAGED IN THE BUSINESS O F MANUFACTURING AND EXECUTING JOB WORK ON HYDROLIC AN D ENGINEERING EQUIPMENT. A TOTAL INCOME OF RS.11,59,3 70/- WAS DECLARED AS TOTAL INCOME IN ITS RETURN ON 31.10.200 7. THE ASSESSMENT WAS COMPLETED AT THE TOTAL INCOME OF RS.26,02,600/- U/S 143(3) VIDE ORDER DATED 31.11.20 09 BY MAKING ADDITION OF RS.14.43,234/- U/S 2(22)(E) OF T HE ACT. LIKEWISE, ADDITION OF RS.9,50,304/- WAS MADE AGAINS T THE RETURNED INCOME OF RS.4,95,830/- IN THE CASE OF M/S . PRAGYA ENGINEERING P. LTD., INDORE VIDE ORDER DATED 30.11. 2009 ASSESSING THE TOTAL INCOME AT RS.14,46,134/-. 4. ON APPEALS, THE LD. CIT(A) DELETED THE IMPUGNED ADDITIONS. THE RELEVANT PORTION OF THE SAME IS REPR ODUCED HEREUNDER: 4. FACTS ON RECORD, FINDINGS GIVEN BY THE ASSESSING OFFICER AND THE CONTENTIONS PUT FORWARD BY THE APPELLANT ARE BEING VERY CAREFULLY TAKEN INTO CONSIDERATION. 4.1 IT WAS EMPHASIZED BY THE AR PRESENT IN COURSE OF APPEAL HEARING THAT THE 5 ASSESSING OFFICER HAS RESTRICTED SUCH ADDITION IN THE CASE OF ONE OF THE COMPANIES AND HAS GONE ON TO MAKE SUCH ADDITION IN THE HANDS OF BOTH THE COMPANIES IN RESPECT OF COMMON TRANSACTIONS. THUS, THE ASSESSING OFFICER HAS CONTRADICTED AND CONFUSED HIMSELF ON THE ISSUE AS TO WHICH COMPANY HAS DRAWN BENEFIT FROM ANOTHER COMPANY. BECAUSE IN RESPECT OF COMMERCIAL TRANSACTION, WHERE TWO PARTIES ARE INVOLVED, IT CANNOT BE SAID THAT BOTH THE PARTIES HAVE DRAWN MONETARY BENEFIT FROM EACH OTHER WITHIN THE MEANING OF PROVISIONS OF SECTION 2(22)(E). FURTHER STILL, IT WAS EMPHASIZED THAT IN VIEW OF THE VERY NATURE OF THE TRANSACTION(S), WITHOUT GOING INTO THE OTHER RELATED LEGAL ASPECTS OF SUSTAINABILITY OF SUCH ADDITION U/S 2(22)(E) IN THE HANDS OF BOTH COMPANIES, SUCH ADDITION WAS TOTALLY UNWARRANTED AS THESE WERE NORMAL BUSINESS TRANSACTIONS IN ASSOCIATED COMPANIES IN THE REGULAR COURSE OF BUSINESS AND HENCE WERE CLEARLY OUTSIDE THE PURVIEW OF PROVISION OF SECTION 2(22)(E). 5. KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUM STANCES OF THE CASE, WE FIND FROM RECORD THAT THE ASSESSEE COM PANY WAS IN RECEIPT OF LOAN FROM A COMPANY IN WHICH DIRECTOR S OF THE ASSESSEE COMPANY WERE COMMON HAVING SUBSTANTIAL INT EREST. IN THESE CIRCUMSTANCES, THE AMOUNT OF LOAN SO RECEI VED WAS 6 TREATED BY THE ASSESSING OFFICER AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. BEFORE THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS), THE CONTENTION OF THE ASSESSEE WAS T WO FOLD, FIRSTLY IN VIEW OF THE DECISION OF THE SPECIAL BENC H IN THE CASE OF BHOMIK COLOUR LAB P. LTD. (SUPRA), SINCE THE ASSESS EE WAS NEITHER A REGISTERED SHARE HOLDER NOR BENEFICIAL OW NER OF SHARES, THE PROVISIONS OF SECTION 2(22)(E) OF THE A CT ARE NOT APPLICABLE TO IT. THE ALTERNATIVE CLAIM OF THE ASS ESSEE WAS THAT THE AMOUNT SO RECEIVED WAS IN THE NORMAL COURSE OF THE ASSESSEES BUSINESS, THEREFORE, IT IS TO BE EXCLUDE D FROM THE PURVIEW OF SECTION 2(22)(E) OF THE ACT . HOWEVER, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GAVE RELIEF TO THE ASSESSEE BY RECORDING A FINDING THAT THE AMOUNT WAS GIVEN IN THE NORMAL COURSE OF BUSINESS, THEREFORE, THE SAME CANNOT BE TREATED AS DEEMED DIVIDEND WITHIN THE MEANING OF SE CTION 2(22)(E) OF THE ACT. AGAINST THIS ORDER OF THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE I S IN APPEAL BEFORE US. 7 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. WE HAVE VERIFIED THE STATEMENT OF ACCOUNT PLACED ON RECORD WITH RESPECT TO VARIOUS AMOUNTS RE CEIVED BY THE ASSESSEE COMPANY DURING THE YEAR WHICH HAVE BEE N BROUGHT TO TAX NET BY THE ASSESSING OFFICER U/S 2(2 2)(E) OF THE ACT. WE FIND THAT THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) HAS GIVEN RELIEF TO THE ASSESSEE BY OBSER VING THAT THE LOAN AMOUNT WAS GIVEN IN THE NORMAL COURSE OF BUSIN ESS WHEREAS THE ASSESSEE COMPANY WAS NOT ENGAGED IN THE BUSINESS OF ADVANCING ANY LOAN OR ADVANCES, THEREFO RE, THE AMOUNT RECEIVED BY THE ASSESSEE COMPANY CANNOT BE T REATED AS RECEIVED IN THE NORMAL COURSE OF BUSINESS SO AS TO EXCLUDE THE SAME FROM THE PURVIEW OF SECTION 2(22)(E) OF TH E ACT. THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE TO T HE EFFECT THAT THE AMOUNT WAS RECEIVED IN RESPECT OF SALES EFFECTE D BY THE ASSESSEE COMPANY IS ALSO NOT TENABLE IN VIEW OF THE FACT THAT THE SALES WERE EFFECTED AT THE END OF THE YEAR WHER EAS THE AMOUNTS SO RECEIVED BY THE ASSESSEE COMPANY AND ALS O REPAID 8 BY THE ASSESSEE COMPANY ON SO MANY OCCASIONS WERE M UCH PRIOR TO THE DATE OF SALES. HAD THE SALE BEEN EFFE CTED AND ITS PAYMENT HAD BEEN MADE THEN IT CAN BE SAID THAT THE PAYMENT WAS RECEIVED BY THE ASSESSEE COMPANY IN RESPECT OF THE SALES SO MADE WHICH WE FIND TO BE FACTUALLY INCORRECT. F URTHERMORE, LOOKING TO THE AMOUNT OF LOAN RECEIVED VIS--VIS TH E AMOUNT OF SALES, IT IS CLEAR THAT THE AMOUNT WAS NOT RECEIVED IN RESPECT OF THE SALES EFFECTED BUT WAS IN RESPECT OF LOANS GIVE N TO THE COMPANY IN WHICH THE DIRECTOR OF THE ASSESSEE COMPA NY WAS HAVING SUBSTANTIAL INTEREST. THUS, WE DO NOT FIND ANY MERIT IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION BY HAVING A WRON G OBSERVATION THAT THE ADVANCE RECEIVED BY THE ASSESS EE COMPANY WAS IN THE NORMAL COURSE OF ITS BUSINESS. HOWEVER, AT THE VERY SAME TIME WE FIND THAT BEFORE THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) THE ASSESSEE H AS ALSO CONTENDED THAT SINCE THE ASSESSEE COMPANY IS NEITHE R A REGISTERED SHARE HOLDER NOR A BENEFICIAL SHARE HOLD ER, THEREFORE, THE AMOUNT SO RECEIVED CANNOT BE BROUGHT TO TAX NET U/S 9 2(22)(E) OF THE ACT IN VIEW OF THE DECISION OF THE SPECIAL BENCH IN THE CASE OF BHOMIK COLOUR LAB P. LTD. (SUPRA). THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, THESE APPEAL S ARE RESTORED TO THE FILE OF THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) FOR DECIDING THE ISSUE AFRESH IN VIEW OF THE DECISION IN THE CASE OF BHOMIK COLOUR LAB P. LTD. (SUPRA). WE DIRECT ACCORDINGLY. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT IN THE PR ESENCE OF LEARNED REPRESENTATIVES FROM BOTH THE SIDES AT THE CONCLUSION OF THE HEARING ON 3 RD MAY, 2011. (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 3.5.2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE !VYAS!