M/s. Jagat Minerals Pvt.Ltd., Baroda V. The Dy.CIT.,Circle-1(2), Baroda

ITA 2750/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89228 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Period of limitation; Deemed dividend; Time period of passing order
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. ITA. NO. 2750/AHD/2011 (ASSESSMENT YEAR:2008-09) JAGAT MINERAL PVT. LTD. 75, SURYA KIRAN COMPLEX, OLD PADRA ROAD, VADODARA-390001 A PPELLANT VS. DCIT, CIRCLE-1(2), VADODARA RESPONDENT & ITA. NO. 2110/AHD/2011 (ASSESSMENT YEAR: 2007-08) JAGAT MINERAL PVT. LTD. 75, SURYA KIRAN COMPLEX, OLD PADRA ROAD, VADODARA-390001 A PPELLANT VS. I.T.A. NOS. 2750, 2110 & 2403/A/11 FOR A.YS. 08-09 & 07-08) (JAGTAT MINERAL PVT. LTD. VS. DCIT/ITO) PAGE 2 ITO, WARD-1(3), VADODARA RESPONDENT & ITA. NO. 2403/AHD/2011 (ASSESSMENT YEAR:2007-08) THE DCIT, CIRCLE-1(2), BARODA APPELLANT VS. JAGAT MINERAL PVT. LTD. 75, SURYA KIRAN COMPLEX, OLD PADRA ROAD, BARODA-391440 RESPONDENT PAN: AAACJ4589J / BY REVENUE :SHRI ROOPCHAND, SR. D.R. / BY ASSESSEE : SHRI S. N. SOPARKAR, A.R. /DATE OF HEARING :27.03.2015 !' /DATE OF PRONOUNCEMENT :22.04.2015 I.T.A. NOS. 2750, 2110 & 2403/A/11 FOR A.YS. 08-09 & 07-08) (JAGTAT MINERAL PVT. LTD. VS. DCIT/ITO) PAGE 3 ORDER PER SHAILENDRA KUMAR YADAV, J.M: ALL THREE APPEALS ARE PERTAINED TO SAME ASSESSEE, A RISING OUT FROM THE ORDER OF CIT(A)-I, BARODA, DATED 02.09 .2011 FOR A.Y. 2008-09 AND DATED 15.07.2011 FOR A.Y. 2007-08. SO, THEY ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. 2. IN ITA NO. 2403/AHD/2011 FOR A.Y. 2007-08, REVEN UE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE A DDITION OF RS.26,54,225/- MADE U/S.2(22)(E) OF THE ACT ON ACCO UNT OF ADVANCE RECEIVED FROM M/S.GIRIRAJ DEVELOPERS PVT. L TD. AS UNSECURED LOAN WITHOUT APPRECIATING THE DEEMING PRO VISIONS U/S.2(22)(E) OF THE ACT. 1(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT(APPEALS) ERRED IN APPRECIATING T HE FACT THAT IN THE CASE OF THE ASSESSEE PROVISIONS OF SECT ION 2(22)(E) IS APPLICABLE IN VIEW OF THE FACT THAT THE COMMON D IRECTORS OF BOTH THE ASSESSEE (THE BORROWER) AND GIRIRAJ DEVELO PERS PVT.LTD. (THE LENDER) NAMELY SHRI CHHAGANBHAI HARIB HAI PATEL AND SHRI JAYDEVBHAI C.PATEL HOLDS SUBSTANTIAL SHARES IN BOTH THE COMPANIES AND THAT THE COMPANY ADVANCIN G THE LOAN POSSES ACCUMULATED PROFITS TO THE TUNE OF RS.1,71,60,878/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(APPEALS) ERRED IN DELETING THE A DDITION OF RS.7,59,469/- MADE U/S.41(L) OF THE ACT THE AMOUNT IN RESPECT OF CREDITORS REMAINED UNPAID FOR MORE THAN 3 YEARS AS THE ASSESSEE HAD FAILED TO ESTABLISH THE GENUINE NESS OF I.T.A. NOS. 2750, 2110 & 2403/A/11 FOR A.YS. 08-09 & 07-08) (JAGTAT MINERAL PVT. LTD. VS. DCIT/ITO) PAGE 4 THE CREDITORS BY FURNISHING EVIDENCE LIKE ADDRESS A ND PROOF OF PAYMENT. 2.1 IN ITA NO. 2110/AHD/2011 FOR A.Y. 2007-08, ASSE SSEE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1. LD. CIT (A) GROSSLY ERRED IN LAW AND ON FACTS I N HOLDING THE COMMON SHAREHOLDERS OF THE APPELLANT COMPANY AS WELL LENDER COMPANY EXIGIBLE TO THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WITHOUT APPRECIATING TH E FACT THAT THE SUM OF RS. 26, 54,225/- RECEIVED BY THE APPELLANT COMPANY WAS IN THE ORDINARY COURSE OF BUSINESS. 2. LD. CIT (A) FURTHER ERRED IN MISINTERPRETING DEC ISION OF MUMBAI SPECIAL BENCH IN BHAUMIK COLOURS PVT. LTD. THAT CLEARLY LAYS DOWN THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF THE BORROWING CONCERN IN WHICH SUCH SHAREHOLDER IS MEMBER OR PARTNER HAVING SUBSTANTIAL INTEREST. THE ORDER OF LD. CIT (A) BEING CONTRARY T O THE PROVISIONS OF THE SECTION AND ERRONEOUS DESERVES TO BE QUASHED. 3. INITIATION OF LEVY OF INTEREST U/S 234A/ 234B/ 2 34C & 234D OF THE ACT IS NOT JUSTIFIED. 4. INITIATION OF PENALTY U/S 271 (1) (C) OF THE ACT IS NOT JUSTIFIED. 3. FIRST ISSUE IN REVENUES APPEAL IS WITH REGARDS TO DISALLOWANCE OF RS.26,54,225/- MADE U/S.2(22)(E) OF THE ACT ON ACCOUNT OF ADVANCE RECEIVED FROM M/S. GIRIRAJ DEVEL OPERS PVT. LTD. ASSESSEE COMPANY HAS RECEIVED UNSECURED LOAN OF RS.26,54,225/- FROM M/S. GIRIRAJ DEVELOPERS PVT. LT D., A I.T.A. NOS. 2750, 2110 & 2403/A/11 FOR A.YS. 08-09 & 07-08) (JAGTAT MINERAL PVT. LTD. VS. DCIT/ITO) PAGE 5 COMPANY HAVING COMMON DIRECTORS/SHAREHOLDERS WITH A SSESSEE COMPANY, NAMELY, SHRI CHHAGANBHAI H. PATEL AND SHRI JAYDEVBHAI C PATEL BOTH HOLDING SHARES IN EXCESS OF 10% OF VOTING POWER. M/S GIRIRAJ DEVELOPERS PVT. LTD AS P ER ITS BALANCE SHEET AS ON 31.3.2007 HAD ACCUMULATED PROFI TS OF RS.1,71,60,878/-. PAYMENT OF LOAN OF RS.26,54,225/ - WAS THEREFORE TAXED IN THE HANDS OF ASSESSEE BY ASSESSI NG OFFICER BY INVOKING PROVISIONS OF SECTION 2(22)(E). ASSESS ING OFFICER DID NOT ACCEPT ASSESSEE'S SUBMISSION THAT SINCE ASSESSE E COMPANY WAS NOT A SHAREHOLDER OF M/S GIRIRAJ DEVELOPERS PVT . LTD, PROVISIONS OF SECTION 2(22)(E) COULD NOT BE INVOKED . 3.1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY WHEREIN ASSESSEE REFERRED TO THE BALANCE SHEET OF M /S GIRIRAJ DEVELOPERS PVT. LTD. AND SHAREHOLDER LIST OF COMPAN Y TO ESTABLISH THAT ASSESSEE WAS NOT A SHAREHOLDER OF TH E SAID COMPANY. CONTENTION OF ASSESSEE HAS BEEN THAT DEEM ED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PER SON WHO IS SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF A PERSON OTHER THAN SHAREHOLDER. CIT(A) HAVING CONSI DERED THE SUBMISSION ON BEHALF OF ASSESSEE OBSERVED THAT AS P ER CBDT'S CIRCULAR NO.495 DATED 22.09.1987 I.E. EXPLANATORY N OTES ON PROVISIONS OF FINANCE ACT, 1987, PAYMENT OF ANY KIN D RECEIVED BY ASSESSEE IS TO BE TAXED AS DEEMED DIVIDEND U/S. 2(22)(E) IN THE HANDS OF CONCERN RECEIVED IN THE PAYMENT AND NO T THE SHAREHOLDER. ITAT SPECIAL BENCH IN CASE OF BHAUMIK COLOUR P. LTD. (2009) 120 TTJ (MUMBAI) (SPECIAL BENCH) 865 HE LD THAT I.T.A. NOS. 2750, 2110 & 2403/A/11 FOR A.YS. 08-09 & 07-08) (JAGTAT MINERAL PVT. LTD. VS. DCIT/ITO) PAGE 6 SUCH DEEMED DIVIDEND IS TO BE ASSESSED ONLY IN THE HANDS OF SHAREHOLDER AND NOT THE BORROWING CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER HAVING SUBSTANTI AL INTEREST. IN VIEW OF ABOVE ADDITION U/S. 2(22)(E) OF RS.26,54,225/- WAS DIRECTED TO BE DELETED IN THE HA NDS OF ASSESSEE. THIS REASONED FINDING OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 3.2 CIT(A) HAVING SAID SO, FURTHER HELD THAT DEEMIN G FICTION U/S. 2(22)(E) IS TO BE APPLIED IN THE HANDS OF SHAR EHOLDERS AND PAYMENT IN QUESTION I.E. 'DEEMED DIVIDEND' WAS TAXA BLE IN THE HANDS OF COMMON SHAREHOLDERS HAVING MORE THAN SPECI FIED SHAREHOLDING IN BOTH THE COMPANIES AND CONCERN. CI T(A) FURTHER HELD THAT DEEMED DIVIDEND OF RS.26,54,225/- WAS THEREFORE TO BE TAXED IN THE HANDS OF THE SHAREHOLD ERS, I.E. SHRI CHHAGANBHAI H. PATEL AND SHRI JAYDEVBHAI C PATEL IN THE RATIO OF THEIR SHAREHOLDING, I.E. 18010 SHARES : 15510 SH ARES IN GIRIRAJ DEVELOPERS PVT. LTD. AS ON 31.3.2007 I.E. 1 .16:1 AND IT WAS FURTHER HELD THAT REASONABLE OPPORTUNITY OF HEA RING WOULD BE GIVEN BY ASSESSING OFFICER TO SHRI CHHAGANBHAI H . PATEL AND SHRI JAYDEVBHAI C PATEL BEFORE TAXING THE AFORESAID DEEMED DIVIDEND IN THEIR HANDS. IN THIS REGARD, STAND OF ASSESSEE HAS BEEN THAT CIT(A) IS NOT SUPPOSED TO DECIDE SOMETHIN G WITH REGARD TO THIRD PERSON AS SHRI CHHAGANBHAI H. PATEL AND SHRI JAYDEVBHAI C PATEL IN THIS CASE. ACCORDING TO THE CONTENTION OF ASSESSEE AND WITHOUT ANY PREJUDICE TO MERIT OF CLAI M, WE IMPUGN THE REMARK OF CIT(A) I.E. DEEMED DIVIDEND OF I.T.A. NOS. 2750, 2110 & 2403/A/11 FOR A.YS. 08-09 & 07-08) (JAGTAT MINERAL PVT. LTD. VS. DCIT/ITO) PAGE 7 RS.26,54,225/- WAS THEREFORE TO BE TAXED IN THE HAN DS OF SHARE HOLDERS I.E. SHRI CHHAGANBHAI H. PATEL AND SHRI JAY DEVBHAI C PATEL IN THE RATIO OF THEIR SHARE HOLDING I.E. 1801 0 SHARES : 15510 SHARES IN GIRIRAJ DEVELOPERS PVT. LTD. AS ON 31.3.2007 I.E. 1.16:1. AT THE SAME TIME, WE DIRECT THE ASSES SING OFFICER TO DECIDE THE ISSUE AT HAND AS PER FACT AND LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO ASSESSEE. THI S TAKES CARE OF ISSUE RAISED BY ASSESSEE IN ITS APPEAL. 4. NEXT ISSUE IN REVENUES APPEAL IS WITH REGARDS T O ADDITION OF RS.7,59,469/- U/S 41(1) ON ACCOUNT OF CESSATION OF LIABILITIES. ASSESSING OFFICER MADE ADDITION OF LIABILITIES OF RS.7,59,469/- OUTSTANDING FOR MORE THAN 3 YEARS U/S 41(1) BY REFE RRING TO THE LIMITATION PERIOD OF THREE YEARS FOR ENFORCING RIGH T OF RECOVERY OF SUCH DEBTS. 4.1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY WHEREIN CERTAIN CONTENTIONS WERE RAISED ON BEHALF O F ASSESSEE. HAVING CONSIDERED THE SAME, CIT(A) HELD THAT MERELY BECAUSE OF LAPSE OF PERIOD OF THREE YEARS, IT CANNOT BE SAI D THAT LIABILITIES HAD CEASED OR WERE REMITTED. ASSESSEE IS LIABLE TO PAY CERTAIN AMOUNTS AND LIABILITY. ONCE ASSESSEE R ECOGNIZE THIS AS ITS LIABILITY, IT DOES NOT CEASE TO BE ITS LIABILITY. PROVISIONS OF LIMITATIONS ARE NOT APPLICABLE TO THE PERSON LIABLE FOR MAKING PAYMENT. UNDER THE FACTS AND CIRCUMSTANC ES, CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS .7,59,469/- I.T.A. NOS. 2750, 2110 & 2403/A/11 FOR A.YS. 08-09 & 07-08) (JAGTAT MINERAL PVT. LTD. VS. DCIT/ITO) PAGE 8 MADE U/S. 41(1) OF THE ACT. IN RESPECT OF CREDITOR S REMAINED UNPAID. SAME IS UPHELD. 5. ISSUE OF INTEREST U/S. 234A/234B/234C/234D IS CONSEQUENTIAL WHILE ISSUE INS PENDING U/S. 271(1)(C ) IS PREMATURE. 6. AS A RESULT, REVENUES APPEAL IS DISMISSED AND T HAT OF ASSESSEE IS PARTLY ALLOWED FOR A.Y. 2007-08. 7. IN ITA NO. 2750/AHD/2011 FOR A.Y. 2008-09, ASSES SEE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1. LD. CIT (A) GROSSLY ERRED IN LAW AND ON FACTS I N HOLDING THE COMMON SHAREHOLDERS OF THE APPELLANT COMPANY AS WELL LENDER COMPANY EXIGIBLE TO THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WITHOUT APPRECIATING TH E FACT THAT THE SUM OF RS. 4,50,000/- RECEIVED BY THE APPELLANT COMPANY WAS IN THE ORDINARY COURSE OF BUSINESS. 2. LD. CIT (A) FURTHER ERRED IN SIMPLY FOLLOWING AP PELLATE ORDER OF EARLIER YEAR WITHOUT APPLICATION OF MIND A ND ISSUING DIRECTION TO TAX THE AMOUNT IN THE HANDS OF SHAREHOLDERS IN RATION OF 1.16:1. THE ORDER OF LD. CIT(A) BEING ERRONEOUS AND CONTRARY TO PROVISIONS O F THE SECTION DESERVES TO BE QUASHED. 3. INITIATION OF LEVY OF INTEREST U/S 234B OF THE ACT IS NOT JUSTIFIED. 4. INITIATION OF PENALTY U/S 271 (1) (C) OF THE ACT IS NOT JUSTIFIED. I.T.A. NOS. 2750, 2110 & 2403/A/11 FOR A.YS. 08-09 & 07-08) (JAGTAT MINERAL PVT. LTD. VS. DCIT/ITO) PAGE 9 8. SIMILAR ISSUE AROSE IN ASESSEES APPEAL FOR A.Y. 2007-08, WHICH HAS BEEN DECIDED AND DISPOSED OF IN PARA 3.2 OF THIS ORDER. FACTS BEING SIMILAR, SO FOLLOWING SAME REAS ONING, ALL THE ISSUES IN A.Y. 2008-09 ARE ALSO DECIDED ON SAME LIN E. AS A RESULT, THIS APPEAL OF ASSESSEE IS ALSO PARTLY ALLO WED. 9. AS A RESULT, REVENUES APPEAL FOR A.Y. 2007-08 I S DISMISSED AND ASSESSEES APPEALS FOR BOTH YEARS ARE PARTLY ALLOWED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 22 ND DAY OF APRIL, 2015. SD/- SD/- (ANIL CHATURVEDI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMB ER AHMEDABAD: DATED 22/04/2015 TRUE COPY S.K.SINHA # # # # %& %& %& %& '&' '&' '&' '&' / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. / ASSESSEE 3. ,, - / CONCERNED CIT 4. -- / CIT (A) 5. &12 %, , / DR, ITAT, AHMEDABAD 6. 256 78 / GUARD FILE. BY ORDER / # , 9/ , , ;