Appeal details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 7898 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 3 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-02-2016
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
D
Assessment Year
2006-2007
Appeal Filed On
19-11-2014
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . . . , . , & BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2824/MDS/2014 ( / ASSESSMENT YEAR: 2006-07) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(4), 4 TH FLOOR, MAIN BUILDING, CHENNAI-34. VS MR. P.DWARKANATH REDDY, 35, POTTIPATI PLAZA, 3 RD FLOOR, 77, NUNGAMBAKKAM HIGH ROAD, CHENNAI-600 034. PAN:AFDPD9806R ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.2853/MDS/2014 ( / ASSESSMENT YEAR: 2006-07) MR. P.DWARKANATH REDDY, 35, POTTIPATI PLAZA, 3 RD FLOOR, 77, NUNGAMBAKKAM HIGH ROAD, CHENNAI-600 034. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(4), 4 TH FLOOR, MAIN BUILDING, CHENNAI-34. PAN:AFDPD9806R ( /APPELLANT) ( /RESPONDENT) REVENUE BY : DR.B.NISCHAL, JCIT ASSESSEE BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /DATE OF HEARING : 28 TH DECEMBER, 2015 /DATE OF PRONOUNCEMENT : 29 TH FEBRUARY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM: THESE TWO ARE APPEALS FILED BY THE REVENUE AND ASSESSEE RESPECTIVELY AGGRIEVED BY THE ORDER OF T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-IV, CHENNAI DATED 19.08.2014 IN ITA NO.1094/13-14 PASSED UNDER SECTIO N 143(3) R.W.S.147 OF THE ACT FOR THE ASSESSMENT YEA R 2006-07. 2 ITA NOS.2824 & 2853/MDS/2014 ITA NO.2824 /MDS/2014 (REVENUES APPEAL): 2. THE REVENUE IN ITS APPEAL HAS RAISED ELABORATE GROUNDS. HOWEVER, THE CRUX OF THE ISSUE IS AS FOLLO WS:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BY DELETING THE ADDITION OF `10,00,00,000/- MADE BY THE LEARNED ASSESSING OFFICER UNDER SECTI ON 2(22)(E) OF THE ACT FOR THE ASSESSMENT YEAR 2006-0 7 BASED ON THE FRESH EVIDENCE WITHOUT GIVING REASONA BLE OPPORTUNITY TO THE LEARNED ASSESSING OFFICER UNDER RULE 46A OF THE ACT. ITA NO. 2853/MDS/2014:- (ASSESSEES APPEAL):- 3. THE ASSESSEE IN ITS APPEAL HAS ALSO RAISED SEVER AL ELABORATE GROUNDS. HOWEVER, THE CRUXES OF THE ISSUE S ARE AS FOLLOWS:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE REOPENING OF ASSESSMENT UNDER SECTION 147 AS THE REASSESSMENT WAS MADE ON MERE CHANGE OF OPINION AND THERE WAS NO CONCEALMENT OF PARTICULARS OF INCOME. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT AS PER CBDT CIRCULAR NO.495 DATED 22.09.1987 THE AMOUNT OF RS.10.19 CRORES RECEIVED FROM M/S.KEPL HAS TO BE TAXED ONLY IN THE HANDS OF M/S. SIDCPL WHO HAS RECEIVED THE LOAN. III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN RESTRICTING THE DISALLOWANCE TO ` 19,00,000/- TOWARDS DEEMED DIVIDEND IN THE 3 ITA NOS.2824 & 2853/MDS/2014 HANDS OF THE ASSESSEE UNDER SECTION 2(22)(E) OF THE ACT. IV) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE UNSECURED LOANS OF ` 2,39,160/- AND ` 68,10,010/- RECEIVED FROM M/S.KEPL & M/S.SIDCPL RESPECTIVELY AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT THOUGH THEY WERE IN THE NATURE OF TRADE ADVANCES AND NOT IN THE NATURE OF LOAN. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A DIRECTOR IN M/S. NIPPON BATTERIES LTD., M/S. SINDHY A INFRASTRUCTURE DEVELOPMENT CORPORATION PVT. LTD., M/S.KALPATHARU ENTERPRISES PVT. LTD., AND CERTAIN O THER COMPANIES, FILED HIS RETURN OF INCOME ON 30.03.2007 FOR THE ASSESSMENT YEAR 2006-07. ON SCRUTINY, THE LEARNED ASSESSING OFFICER NOTICED THAT THE ASSESSEE IS A SU BSTANTIAL SHAREHOLDER IN M/S. SINDHYA INFRASTRUCTURE DEVELOPM ENT CORPORATION PVT. LTD. AND M/S. KALPATHARU ENTERPRIS ES PVT.LTD., WERE THERE WERE TRANSACTIONS IN THE NATUR E OF INTER- CORPORATE LOANS AND ADVANCES. THEREFORE, THE LEARN ED ASSESSING OFFICER REOPENED THE ASSESSMENT AND THERE AFTER INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE A CT AND MADE ADDITIONS. REVENUES APPEAL:- 4 ITA NOS.2824 & 2853/MDS/2014 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSE E HELD SHARES IN PRIVATE LIMITED COMPANIES WHEREIN PUBLIC ARE NOT SUBSTANTIALLY INTERESTED FOR THE RELEVANT ASSESSMEN T YEAR AS FOLLOWS:- S.NO. NAME OF THE COMPANY PERCENTAGE OF SHAREHOLDING 1. M/S. SINDHYA INFRASTRUCTURE DEVELOPMENT CORPORATION PVT. LTD., (SIDCPL) 50% 2. M/S.KALPATHARU ENTERPRISES PVT. LTD (KEPL) 48% IT WAS FURTHER OBSERVED BY THE LEARNED ASSESSING OF FICER THAT M/S. SIDCPL HAD RECEIVED A SUM OF RS.10.00 CRORES A ND ANOTHER SUM OF RS.19.00 LAKHS ON 11.05.2005 & 20.02 .2006 RESPECTIVELY FROM ITS SISTER CONCERN M/S. KEPL. M/S . KEPL ALSO HAD ACCUMULATED PROFIT TO THE EXTENT OF RS 12,72,00,000/- . FROM THE ABOVE FACTS THE LEARNED A SSESSING OFFICER WAS OF THE VIEW THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT WILL BE ATTRACTED BECAUSE THE ASSESSEE IS A SUBSTANTIAL SHAREHOLDER IN BOTH THE AFORESAID COMPA NIES. THE ASSESSEE VIDE HIS LETTER DATED 27.11.2013 HAD S UBMITTED BEFORE THE LEARNED ASSESSING OFFICER THAT THE LOAN RECEIVED FROM M/S. KEPL AGGREGATING RS.10.19 CRORES WAS UTIL IZED FOR 5 ITA NOS.2824 & 2853/MDS/2014 THE BUSINESS PURPOSE AND THEREFORE THE PROVISION OF SECTION 2(22)(E) OF THE ACT WILL NOT APPLY. HOWEVER, THE L EARNED ASSESSING OFFICER OPINED THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT DOES NOT DIFFERENTIATE BETWEEN TRADE ADVANC E OR ANY OTHER ADVANCE MADE BY THE COMPANY IN THE COURSE OF THE BUSINESS AND PURE LOAN TRANSACTIONS. THEREAFTER, T HE LEARNED ASSESSING OFFICER MADE SUBSTANTIVE ADDITION INVOKIN G THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT FOR RS. 1 0.19 CRORES IN THE HANDS OF THE ASSESSEE SHRI DWARKANATH REDDY. HE DID SO BY FOLLOWING THE ASSESSMENT MADE IN THE CASE OF M/S. SIDCPL FOR THE RELEVANT ASSESSMENT YEAR WHEREIN ADD ITION FOR THE SAME AMOUNT OF RS.10.19 CRORES WAS MADE BY INVOKING SECTION 2(22)(E) OF THE ACT WHICH WAS MODI FIED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BY HOLDING THAT THE ADDITION HAS TO BE MADE IN THE HA NDS OF THE ASSESSEE SHRI DWARKANATH REDDY AS HE WAS THE SUBSTA NTIAL SHAREHOLDER AND NOT M/S. SIDCPL WHICH WAS SUBSEQUE NTLY CONFIRMED BY THE TRIBUNAL IN ITA NO.484/MDS/2000 VI DE ORDER DATED 1.6.2011. 6. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) SUSTAINED THE ADDITION ONLY FOR RS.19,00, 000/- AND 6 ITA NOS.2824 & 2853/MDS/2014 GAVE RELIEF OF RS.10.00 CRORES TO THE ASSESSEE BAS ED ON HIS ELABORATE FINDING. THE RELEVANT PORTION OF THE ORDE R IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 15.4. IT IS SEEN THAT THE PAYMENT BY M/S. KEPL BY WAY OF ADVANCES OF LOAN HAS ADMITTEDLY NOT BEEN MADE TO SHRI DWARAKANATH REDDY, THE INSTANT ASSESSEE, WHO IS THE SUBSTANTIAL SHAREHOLDER OF BOT H M/S, KEPL AND M/S. SIDCPL. IT IS ALSO CLEAR FROM TH E FACTS AND RECORDS OF THE CASE THAT IT HAS NOT BEEN MADE ON BEHALF OF OR FOR THE BENEFIT OF SHRI DWARAKANATH REDDY EITHER. AS A MATTER OF FACT, IT I S CLEAR FROM THE SERIES OF CORRESPONDENCE BETWEEN M/S. KEPL AND M/S. SIOCPL AS ALSO THE JOINT VENTURE AGREEMENT BETWEEN THEM, WHICH HAS BEEN REPRODUCED IN THE FOREGOING PARAGRAPHS AND WHICH HAVE NOT BEEN DISPUTED OR REBUTTED BY THE AO THAT T HE PAYMENT WAS IN THE FORM OF INTER-CORPORATE DEPOSITS , WHICH AS PER THE RATIO OF THE CASE OF IFB AGRO INDUSTRIES LTD. VS. JCIT, CITED SUPRA, AND RELIED U PON BY THE AR, IS VERY DISTINCT FROM EITHER A LOAN OR ADVANCE AND FURTHER COULD NOT BE TREATED AS LOAN OR ADVANCE IN THE SENSE IMPLIED U/S.2(22)(E). THE FINANCIAL TRANSACTION BETWEEN THE TWO CONCERNS APPEARS TO BE NORMAL BUSINESS TRANSACTION AND THEREFORE COULD NOT BE TREATED AS A LOAN OR ADVANCE. 15.5. FROM THE JOINT VENTURE AGREEMENT BETWEEN THE TWO CONCERNS, IT APPEARS THAT THE AMOUNT TRANSFERRE D BY M/S. KEPL AND M/S. SIOCPL WAS TREATED AS INTER- CORPORATE DEPOSIT (ICO) TILL SUCH TIME IT WAS USED IN REAL ESTATE PROJECTS FOR THE BENEFIT OF BOTH THE COMPANIES AND THE AMOUNTS ADVANCED BY M/S. KEPL TO M/S. SIOCPL WAS FOR INVESTMENT IN PROPERTIES FOR KEPL'S OWN BENEFIT. THE AR ALSO SUBMITTED THAT THE JVA WAS CLOSED AS THE PROPERTY IDENTIFIED TO BE PAR T OF THE JVA HAD NOT BEEN SOLD OR DEVELOPED DUE TO VARIOUS REASONS AND FURTHER THAT M/S. KEPL REQUIRED FUNDS FOR INVESTING IN OVERSEAS VENTURE. 15.6. THEREFORE IT IS CLEAR THAT THE REQUISITE COND ITIONS IN TREATING THE PAYMENT BY M/S. KEPL TO M/S. SIDCPL , AS DEEMED DIVIDEND IN THE HANDS OF THEIR SUBSTANTIV E SHAREHOLDER SHRI DWARAKANATH REDDY DOES NOT STRICTL Y EXIST AS PER THE PROVISIONS OF SECTION 2(22)( E) WH ICH 7 ITA NOS.2824 & 2853/MDS/2014 BEING A DEEMING FICTION, IS SETTLED SHOULD BE CONST RUED STRICTLY AND JUDGED FROM THAT POINT OF VIEW AND IN THE LIGHT OF THE ABOVE DISCUSSIONS INCLUDING THE JUDICI AL PRONOUNCEMENTS RELIED ON BY THE AR AND ALSO CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES, THE ACTION OF THE AO IN TAXING DEEMED DIVIDEND AMOUNTING TO RS.L0,00,00,000/- IN THE HANDS OF THE INSTANT ASSESSEE IS HELD TO BE LEGALLY INVALID AND THEREFORE DIRECTED TO BE DELETED. 15.7. HOWEVER, AS THE AR WAS NOT ABLE TO SUBSTANTIATE EVEN DURING THE PRESENT APPELLATE PROCEEDINGS WITH ANY DOCUMENTARY EVIDENCE THAT RS.19,00,000/- SEPARATELY RECEIVED ON 20.2.2006 BY M/S. SIDCPL FROM M/S. KEPL WAS BY WAY OF A TRADING LOAN BETWEEN THE TWO CONCERNS, IT BEING OUT OF THE ACCUMULATED PROFITS OF M/S. KEPL, IS HELD, IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION EITHER, AS TO ITS NATURE, TO BE ADVANCES FOR THE INDIVIDUAL BENE FIT OF THE SUBSTANTIAL SHAREHOLDER I.E. THE INSTANT ASSESS EE AND THEREFORE DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) AND THEREFORE THE ADDITION MADE BY THE AO TO THE EXTENT OF ` 19,00,000/- OUT OF ` 10,19,00,000/- ADVANCE TREATING IT AS DEEMED DIVIDEND IS CONFIRMED. IN THE RESULT, THIS GROUND I S PARTLY ALLOWED. 7. BEFORE US THE LEARNED AUTHORIZED REPRESENTAT IVE SUBMITTED THAT THE ASSESSEE AND ALL HIS SISTER CONC ERNS WERE ENGAGED IN BUSINESS AND THERE WAS CLOSE BUSINESS NE XUS BETWEEN ALL THESE ENTITIES. THEREFORE, IN THE INTE REST OF THE BUSINESS OF ALL THE THREE ASSESSEES THERE WERE ROUT INE COMMERCIAL TRANSACTIONS DUE TO WHICH FUNDS WERE TRA NSFERRED FROM ONE ENTITY TO THE OTHER. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND, ARGUED IN SUPPORT OF THE ORDER OF THE LEARNED ASSESSING 8 ITA NOS.2824 & 2853/MDS/2014 OFFICER AND PLEADED THAT THE SAME MAY BE CONFIRMED. HE FURTHER SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS DECIDED THE ISSUE BASED ON THE FR ESH EVIDENCE SUBMITTED BY THE ASSESSEE BEFORE HIM FOR T HE FIRST TIME WITHOUT GIVING REASONABLE OPPORTUNITY TO THE A SSESSING OFFICER IN ACCORDANCE WITH RULE 46A AND THEREFORE T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS ERRONEOUS. 9. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PER USED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE IT IS EVIDENT THAT THE LEARNED ASSESSING OFFICER HA S COME TO A CONCLUSION REGARDING THE APPLICABILITY OF SECTION 2 (22)(E) OF THE ACT IN THE CASE OF THE ASSESSEE BECAUSE OF THE FOLLOWING REASONS:- I) THE ASSESSEE HAS SUBSTANTIAL INTEREST IN M/S. KE PL AND M/S. SIDCPL BEING COMPANIES WHERE PUBLIC ARE NOT HAVING SUBSTANTIAL HOLDINGS. II) LOAN FOR RS.10,19,00,000/- WAS EXTENDED BY M/S. KEPL TO M/S. SIDCPL. 9 ITA NOS.2824 & 2853/MDS/2014 EVEN BEFORE THE LEARNED ASSESSING OFFICER, THE ASSE SSEE HAD EXPLAINED ABOUT THE BUSINESS NEXUS BETWEEN THE ASSE SSEE AND HIS TWO SISTER CONCERNS DUE TO WHICH THE FUNDS WERE TRANSFERRED FROM ONE COMPANY TO THE OTHER. THIS IS APPARENT FROM THE ORDER OF THE LEARNED ASSESSING OFFICER IN PARA NO.4.2 AT PAGE 6, WHEREIN THE LEARNED ASSESSING OFFICER HA S RECORDED THE DETAILS OF THE LETTER DATED 27.11.2013 SUBMITTED BY THE ASSESSEE. THE LEARNED ASSESSING OFFICER DISR EGARDING THE DYNAMICS OF THE BUSINESS OF THE ASSESSEE AND IT S THREE SISTER CONCERNS HAS SIMPLY INVOKED THE PROVISIONS O F SECTION 2(22)(E) OF THE ACT. ON APPEAL, THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) CONSIDERED THE MATTER ELABORAT ELY REACHED AT A CONCLUSION THAT THERE WAS CLOSE BUSINE SS NEXUS WITHIN ALL THE THREE ENTITIES DUE TO WHICH RS.10,0 0,00,000/- WAS TRANSFERRED FROM M/S. KEPL TO M/S. SIDCPL. THER EAFTER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) PL ACED RELIANCE IN THE FOLLOWING DECISIONS CITED BY THE LE ARNED AUTHORIZED REPRESENTATIVE:- I) CIT VS. NAGIN DAS M.KAPADIA (177 ITR 393) (BOM) - IT WAS HELD THAT BUSINESS TRANSACTION ARE OUTSIDE THE PURV IEW OF SECTION 2(22)(E) OF THE ACT. IN THE SAID CASE, THE COMPANY IN WHICH KAPADIA WAS HAVING SUBSTANTIAL INTEREST HAD P AID VARIOUS AMOUNTS TO KAPADIA. THE TRIBUNAL FOUND KA PADIA 10 ITA NOS.2824 & 2853/MDS/2014 HAD BUSINESS TRANSACTIONS WITH THE COMPANY AND ON VERIFICATION OF THE ACCOUNTS, THE TRIBUNAL DELETED THE AMOUNTS WHICH WERE RELATING TO BUSINESS TRANSACTIONS AND WH ICH FINDING WAS UPHELD BY THE HIGH COURT. II) CIT VS.CREATIVE DYEING & PRINTING P.LTD., (318 ITR 476)(DEL) - IT WAS HELD THAT THE AMOUNTS ADVANCED F OR BUSINESS TRANSACTIONS BETWEEN THE PARTIES NAMELY AS SESSEE AND M/S. PEE EMPRO EXPORTS LTD. WAS NOT SUCH TO FAL L WITHIN THE DEFINITION OF DEEMED DIVIDEND UNDER SECTION 2( 22)(E). IT IS NOTED THAT IN THIS CASE SIMILAR TO THE INSTANT CASE , THE TWO COMPANIES HAD COMMON SUBSTANTIAL SHAREHOLDERS WHICH FORMED THE BASIS OF THE DEMAND U/S.2(22)(E) BY THE DEPARTMENT WHICH WAS AS STATED ABOVE QUASHED BY THE HONBLE HIGH COURT. III) CIT VS.AMBASSADOR TRAVELS P.LTD. (318 ITR 376) (DEL) IT WAS HELD THAT FINANCIAL TRANSACTION IN THE NORMAL C OURSE OF BUSINESS CANNOT BE TREATED AS LOAN OR ADVANCES AND ARE NOT TAXABLE AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. IV) CIT VS.RAJ KUMAR (318 ITR 462) (DEL) THE COUR T HELD THAT IF THE PAYMENTS ARE MADE BY SUCH A COMPANY TO EVEN ITS SHAREHOLDER HAVING SUBSTANTIAL INTEREST BUT ARE THE RESULT OF BUSINESS TRANSACTIONS BETWEEN THE PARTIES, THEN SUC H PAYMENTS CANNOT BE TREATED AS LOAN OR ADVANCE AND T HE MONEY SO RECEIVED CANNOT BE TREATED AS DEEMED DIVID END WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. V) CIT VS.ARVIND KUMAR JAM IN ITA NO.589 OF 2011 D ATED 30.09.2011(DEL) IT WAS HELD THAT PAYMENTS BETWEEN PARTIES WERE THE RESULT OF TRADING TRANSACTIONS BETWEEN THE M AND WOULD NOT FALL UNDER THE AMBIT OF SECTION 2(22)(E) OF THE ACT. VI) SMT. RADHA DAGA VS. ACIT IN ITA NOS.201 & 202/MDS/2014 DATED 02.06.2014 (ITAT., CHENNAI) IT WAS HELD BY THE TRIBUNAL THAT AMOUNTS ADVANCED FOR BUSI NESS TRANSACTION BETWEEN THE ASSESSEE COMPANY AND THE OT HER COMPANY WILL NOT FALL WITHIN THE DEFINITION OF DEEM ED DIVIDEND U/S.2(22)(E). 11 ITA NOS.2824 & 2853/MDS/2014 DRAWING STRENGTH FROM THE ABOVE DECISIONS, THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT, SI NCE IN THE ASSESSEES CASE, TRANSFER OF FUNDS FROM ONE CO MPANY TO ANOTHER COMPANY WHEREIN THE ASSESSEE HAD SUBSTANTIA L INTEREST WAS DUE TO COMMERCIAL EXIGENCIES AND NOT B EING PURE LOANS OR ADVANCES, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WOULD NOT BE APPLICABLE AND ACCORDINGLY HE DELETED THE ADDITION OF RS.10.00 CRORES, HOWEVER HE SUSTAIN ED THE ADDITIONS FOR RS.19,00,000/- BECAUSE THE NATURE OF ADVANCE DUE TO COMMERCIAL EXIGENCIES WAS NOT ESTABLISHED. 10. BEFORE US, THE ABOVE FACTS WITH RESPECT T O THE REASONS FOR INTER- CORPORATE TRANSFER OF FUNDS OF RS.10.00 CRORES COULD NOT BE CONTROVERTED BY THE REVENUE. RIGHT FROM THE BEGINNING THE ASSESSEE HAS BEEN CLAIMING THAT THE A SSESSEE AND HIS TWO SISTER CONCERNS WERE ALL ENGAGED IN BUS INESS AND THEY HAD CLOSE BUSINESS NEXUS. THESE FACTS WERE EVE N BEFORE THE LEARNED ASSESSING OFFICER. THEREFORE, WE ARE OF THE OPINION THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT VIOLATED THE PROVISIONS OF SECTIO N 46A OF THE RULES WHILE ARRIVING AT HIS DECISION. FURTHER, ON THE 12 ITA NOS.2824 & 2853/MDS/2014 EARLIER OCCASION CHENNAI BENCH OF THE TRIBUNAL HAD EXPRESSED SIMILAR VIEW IN THE CASE OF DCIT VS. M/S AGILE ELECTRIC SUB ASSEMBLY PVT. LTD., IN ITA NO.1272/MDS/2015 VIDE ORDER DATED 27.11.2015. THE GIST OF THE CASE IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 7.1 WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS O F THE CASE IT IS APPARENT THAT THE ASSESSEE-COMPANY HAD ACQUIRED THE COMPANYS VIZ., M/S AGILE ELECTRICAL S UB ASSEMBLY PVT. LTD., AND M/S AGILE ELECTRICAL TECHNO LOGIES WHICH ARE IN THE RELATED FIELDS OF BUSINESS TO THAT OF THE ASSESSEE COMPANYS BUSINESS. THE ENTIRE PROCESS OF CONSOLIDATION OF BUSINESS OF ALL THE THREE COMPANIE S WAS MADE WITH AN INTENTION FOR DERIVING STRATEGICAL BEN EFITS. THESE FACTS ARE NOT DISPUTED. IN SIMILAR CIRCUMSTA NCE, HONBLE KARNATAKA HIGH COURT IN M/S BAGMANE CONSTRUCTIONS PVT. LTD. V. CIT DATED 16 TH SEPTEMBER, 2014 HAS HELD AS UNDER:- DEEMED DIVIDEND - TRADE ADVANCES - RECEIPT OF ADVA NCES FROM SISTER CONCERN - WHETHER ANY PAYMENT BY A COMP ANY BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY C ONCERN MADE UNDER SECTION 2(22) (E) OF THE INCOME TAX ACT, 1961, TO THE EXTENT TO WHICH THE COMPANY POSSESSED THE ACCUM ULATED PROFITS INCLUDES A TRADE ADVANCE AND CONSTITUTES DE EMED DIVIDEND - HELD THAT: PURPOSE OF THE INSERTION OF S UB-CLAUSE (E) OF SECTION 2(22) OF THE ACT WAS TO BRING WITHIN THE TAX NET ACCUMULATED PROFITS WHICH ARE DISTRIBUTED BY CLOSEL Y HELD COMPANIES TO HIS SHAREHOLDERS IN THE FORM OF LOANS TO AVOID PAYMENT OF DIVIDEND DISTRIBUTION TAX UNDER SECTION 115-0 OF THE ACT. THE PURPOSE BEING THAT PERSONS WHO MANAGE SUCH CLOSELY HELD COMPANIES SHOULD NOT ARRANGE THEIR AFFAIRS IN A MANNER THAT THEY ASSIST THE SHAREHOLDERS IN AVOIDING PAYME NT OF TAX BY HAVING THESE COMPANIES PAY OR DISTRIBUTE MONEY IN T HE FORM OF ADVANCE OR LOAN. LOAN OR ADVANCE GIVEN TO THE SHARE HOLDERS OR TO A CONCERN, UNDER NORMAL CIRCUMSTANCES WOULD NOT QUALIFY AS DIVIDEND, IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO THE COMPANY RECEIVED FROM SUCH A SHAR EHOLDER, IN SUCH CASE, SUCH ADVANCE OR LOAN CANNOT BE SAID TO A DEEMED 13 ITA NOS.2824 & 2853/MDS/2014 DIVIDEND WITHIN THE MEANING OF THE ACT. INSTEAD OF DISTRIBUTING ACCUMULATED PROFITS AS DIVIDEND, COMPANIES DISTRIBU TE THEM AS LOAN OR ADVANCES TO SHAREHOLDERS OR TO CONCERN IN W HICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHA REHOLDER, IN SUCH AN EVENT, BY THE DEEMING PROVISIONS, SUCH PAYM ENT BY THE COMPANY IS TREATED AS DIVIDEND. IT IS SO MADE BY LE GAL FICTION CREATED UNDER SECTION 2(22)(E) OF THE ACT. EVEN IF THE ACCUMULATED PROFIT WHICH OUGHT TO HAVE BEEN PAID TO THE SHAREHOLDERS AS THE DIVIDEND PAID TO A SISTER CONCERN FOR THE PURPOSE OF ACQUISITION OF CAPITAL A SSETS OR AS A CONSIDERATION FOR THE GOODS RECEIVED WHICH IS REQUI RED FOR CARRYING ON THE BUSINESS, IT WOULD HOT FALL WITHIN THE DEFINITION OF SECTION 2(22)(E) OF THE ACT AS THE OBJECT WAS NOT T O PAY THE SAID AMOUNT TO THE SHAREHOLDERS AFTER AVOIDING PAYMENT O F DIVIDEND DISTRIBUTION TAX UNDER SECTION 115-0 OF THE ACT. IN THAT VIEW OF THE MATTER, IT IS NOT POSSIBLE TO ACCEPT THE INTERP RETATION SOUGHT TO BE PLACED BY THE REVENUE. HAVING REGARD TO THE PLAIN WORDS USED IN CLAUSE (E) TO ANY CONCERN, WHEN THE AMOUNT IS PAID OR WHEN ANY PAYME NT IS MADE TO A CONCERN, THE TAX IS LEVIED ON THE CONCERN AND NOT ON THE SHAREHOLDERS. AS FAR AS THIS QUESTION IS CONCER NED, THIS COURT FOLLOWING THE JUDGMENT OF THE BOMBAY HIGH COU RT IN THE CASE OF COMMISSIONER OF INCOME TAX VS UNIVERSAL MED ICARE (P) LIMITED REPORTED IN [2010 (3) TMI 323 - BOMBAY HIGH COURT] HAS CATEGORICALLY HELD THAT WHEN ANY PAYMENT IS MADE BY A COMPANY TO ANY CONCERN, WHICH FALLS UNDER CLAU SE (E), THE TAX IS LEVIABLE ON THE SHAREHOLDER ONLY AND NOT ON THE CONCERN - THEREFORE, THE FINDING RECORDED BY THE TRIBUNAL THA T, THESE ADVANCES MADE BY THE BDPL TO THE SISTER CONCERN AS WELL AS TO ITS SHAREHOLDER DO NOT CONSTITUTE DEEMED DIVIDEND U NDER SECTION 2(22)(E) OF THE ACT, IS LEGAL AND VALID AND DO NOT CALL FOR ANY INTERFERENCE. - DECIDED IN FAVOUR OF ASSESSEE. THE JURISDICTIONAL HIGH COURT IN THE CASE CIT V. MA DURAI CHETTIYAR KARTHIKEYAN REPORTED IN 223 TAXMAN 350, I T HAS BEEN CATEGORICALLY HELD THAT TRADE ADVANCE IN RELAT ION TO BUSINESS TRANSACTION CANNOT BE TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. IN THE PRESENT CASE BEFORE US, THE ENTIRE TRANSACTION HAS BEEN MADE WIT H A VIEW TO CONSOLIDATE THE BUSINESS OF THE ASSESSEE AN D THEREBY DERIVE BENEFIT BY STALLING COMPETITION. FU RTHER, IN THE CASE FARIDA HOLDINGS PVT. LTD. V. DCIT DECIDED BY THE CHENNAI BENCH OF THE TRIBUNAL REPORTED IN 51 SOT 45 2, IT HAS BEEN HELD THAT REGULAR BUSINESS TRANSACTION CAR RIED ON BY THE ASSESSEE IN ITS ORDINARY COURSE OF BUSINESS CANNOT BE TREATED DEEMED DIVIDEND FOR THE PURPOSE OF SECTI ON 2(22)(E) OF THE ACT. FOLLOWING THE ABOVE CITED DEC ISIONS, WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEE THE 14 ITA NOS.2824 & 2853/MDS/2014 PROVISIONS OF SECTION 2(22)(E) OF THE ACT WILL NOT BE APPLICABLE BECAUSE THERE IS A CLOSE NEXUS BETWEEN T HE BUSINESS ACTIVITY OF THE ASSESSEE-COMPANY AND ITS S ISTER CONCERN AND THE LOAN RECEIVED FROM THE ASSESSEES S ISTER CONCERN IS UTILIZED FOR THE VERY PURPOSE OF ACQUIRI NG THE SHARES OF THE SISTER CONCERN ITSELF IN ORDER TO HAV E A STRATEGICAL EDGE OVER THE COMPETING BUSINESS ENVIRONMENT. THE BENEFIT OF THE ENTIRE TRANSACTION HAS FLOWED TO THE ASSESSEES SISTER COMPANY ALSO BECAUS E THE ASSESSEE HAD OBTAINED THE LOAN FROM ITS SISTER COMP ANY IN ORDER TO PURCHASE THE SHARES OF THE VERY SAME SISTE R COMPANY AND THUS AVOID THE PERILS OF THOSE SHARES B EING HELD BY TWO ENTITIES THUS ENDANGERING ITS EXISTENCE . ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 11. FOR THE ABOVE DECISIONS, WE FIND THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THI S ISSUE IS IN ACCORDANCE WITH LAW AND ON MERITS, THEREFORE WE DO NOT FIND IT NECESSARY TO INTERFERE WITH HIS ORDER. ACC ORDINGLY, REVENUES APPEAL DOES NOT HAVE ANY MERIT. ASSESSEES APPEAL:- REOPENING OF ASSESSMENT U/S.147:- 12. SUBSEQUENT TO PROCESSING OF RETURN UNDER SECTI ON 143(1) OF THE ACT ON 23.7.2007 AFTER A PERIOD OF FO UR YEARS, HOWEVER WITHIN A PERIOD OF SIX YEARS FROM THE END O F THE RELEVANT ASSESSMENT YEAR, IT WAS REVEALED THAT ONE OF THE SISTER COMPANIES OF THE ASSESSEE WHICH HAD RESERVES MORE 15 ITA NOS.2824 & 2853/MDS/2014 THAN RS.10.00 CRORES HAD EXTENDED LOAN OF RS.10.19 CRORES TO ANOTHER SISTER COMPANY OF THE ASSESSEE AND THE A SSESSEE HAD SUBSTANTIAL INTEREST IN BOTH THOSE COMPANIES. T HESE FACTS CAME INTO LIGHT WHEN ASSESSMENT WAS COMPLETED IN TH E CASE OF THE ASSESSEES SISTER CONCERN WHEREIN SUBSEQUENT LY THERE WAS A DIRECTION FROM THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) VIDE ORDER DATED 27.02.2009 WHICH WA S UPHELD BY THE TRIBUNAL VIDE ORDER DATED 01.06.2011 FOR INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE RATHER THAN IN THE CASE OF M/ S. SIDCPL. THEREAFTER THE LEARNED ASSESSING OFFICER H AD ISSUED NOTICE U/S.148 OF THE ACT ON 30.03.2013 WHIC H WAS SERVED ON THE ASSESSEE. CONSIDERING THESE FACTS, WE ARE OF THE VIEW THAT THE REOPENING THE ASSESSMENT IN THE C ASE OF THE ASSESSEE UNDER SECTION 147 OF THE ACT IS VALID BECA USE FRESH MATERIALS WERE AVAILABLE WITH THE LEARNED ASSESSING OFFICER FOR REOPENING THE CASE OF THE ASSESSEE AND THEREFORE WE UPHOLD THE ORDERS OF THE REVENUE ON THIS ISSUE. THUS, THI S GROUND RAISED BY THE ASSESSEE IS DECIDED AGAINST HIM. GROUND NO.2: - INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN THE CASE OF M/S. SIDCPL:- 16 ITA NOS.2824 & 2853/MDS/2014 13. THE ASSESSEE HAS RAISED A PLEA BEFORE US STATIN G THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OU GHT TO HAVE HELD THAT THE AMOUNT OF RS.10.19 CRORES RECEIV ED FROM M/S. KEPL HAS TO BE TAXED ONLY IN THE HANDS OF M/S. SIDCPL INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND IN ACCORDANCE WITH THE CIRCULAR NO.495 OF CBDT DATED 22.9.1987. ON THIS ISSUE, WE ARE REMINDED OF THE D ECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BH AUMIK COLOUR P.LTD., REPORTED IN 118 ITD 1 WHEREIN IT WA S HELD THAT, BY VIRTUE OF THE PROVISIONS OF SECTION 2(22) (E) OF THE ACT, ADDITIONS CAN BE MADE WITH RESPECT TO DEEMED DIVIDE ND ONLY IN THE HANDS OF THE BENEFICIAL SHAREHOLDER. THEREFO RE, WE DO NOT FIND ANY MERIT IN THE CLAIM OF THE ASSESSEE ON THIS ISSUE BECAUSE IN THE CASE OF THE ASSESSEE, THE ASSESSEE I S THE BENEFICIAL SHARE HOLDER IN BOTH THE COMPANIES WHERE INTER- CORPORATE TRANSFER OF FUNDS HAD OCCURRED AND WHERE THE ASSESSEE IS SUBSTANTIAL SHARE HOLDER. ACCORDINGLY, THIS GROUND IS DECIDED AGAINST THE ASSESSEE. GROUND NO.3 - SUSTAINING THE ADDITION OF RS.19,00,000/- UNDER SECTION 2(22)(E) OF THE ACT:- 17 ITA NOS.2824 & 2853/MDS/2014 14. M/S. KEPL HAD EXTENDED LOAN OF RS.10,19,00,000/ - TO M/S. SIDCPL WHERE THE ASSESSEE HAD SUBSTANTIAL SHAREHOLDING. THEREFORE, THE LEARNED ASSESSING OFFI CER HAD INVOKED PROVISIONS OF SECTION 2(22)(E) OF THE ACT A ND MADE ADDITION IN THE HANDS OF THE ASSESSEE FOR RS.10,19, 00,000/- AS DEEMED DIVIDEND. HOWEVER, AFTER EXAMINING THE I SSUE IN DETAIL, THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) DELETED THE ADDITION OF RS.10.00 CRORES BECAUSE IT WAS SATISFACTORILY PROVED BEFORE HIM THAT THE AMOUNT OF RS.10.00 CRORES WAS TRANSFERRED BY M/S. KEPL TO M/S. SIDCPL DUE TO THE OVERALL BUSINESS NEXUS BETWEEN THE ASSESSEE AN D HIS TWO SISTER CONCERNS. WHILE DOING SO, HE SUSTAINED T HE ADDITION OF RS.19,00,000/- BECAUSE THE ASSESSEE HAD NOT BROUGHT OUT ANY DOCUMENTARY EVIDENCE TO ESTABLISH T HAT THIS AMOUNT OF RS.19.00 LAKHS WAS ALSO EXTENDED DUE TO B USINESS EXIGENCIES. BEFORE US ALSO THE ASSESSEE DID NOT PR ODUCE ANY MATERIALS TO JUSTIFY HIS STAND. THEREFORE, WE DO NO T FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LEARNE D COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 18 ITA NOS.2824 & 2853/MDS/2014 ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALSO DECIDED AGAINST HIM. \ GROUND NO.4 - SUSTAINING THE ADDITION MADE BY INVOKING SECTION 2(22)(E) OF THE ACT AS DEEMED DIVIDEND DUE TO THE UNSECURED LOANS RECEIVED BY THE ASSESSEE FOR ` 2,39,160/- AND ` 68,10,010/- FROM M/S.KEPL & M/S.SIDCPL RESPECTIVELY: 15. THE LEARNED ASSESSING OFFICER HAD MADE THE ADDI TIONS IN THE HANDS OF THE ASSESSEE BY INVOKING THE PROVIS IONS OF SECTION 2(22)(E) OF THE ACT BECAUSE THE ASSESSEE HA D RECEIVED LOAN FOR RS. ` 2,39,160/- AND ` 68,10,010/- FROM M/S.KEPL & M/S.SIDCPL RESPECTIVELY AND BOTH THE SIS TER COMPANIES HAD RESERVES BEYOND THE AMOUNT OF LOAN EXTENDED AND FURTHER THE ASSESSEE HAD SUBSTANTIAL INTEREST IN THOSE COMPANIES. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), THE ORDER OF THE LEARNED ASSESSING OFFICER WAS CONFIRMED BECAUSE IT APPEARED TO BE PURE LOAN TRANSACTION AND THERE WAS NO BUSINESS NEXUS ATTACHED TO THE TRANSACTION. BEFORE US ALSO THE ASSESSEE HAS NOT BROUGHT OUT ANY MATERIALS TO E STABLISH THAT THESE TRANSACTIONS WERE DUE TO THE BUSINESS DY NAMICS BETWEEN THE ASSESSEE AND HIS TWO SISTER CONCERNS. 19 ITA NOS.2824 & 2853/MDS/2014 THEREFORE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDERS OF THE REVENUE ON THIS ISSUE. 16. IN THE RESULT, APPEALS OF THE REVENUE AND THE A SSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 29 TH FEBRUARY, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) ! # / JUDICIAL MEMBER # / ACCOUNTANT MEMBER ! /CHENNAI, ' /DATED 29 TH FEBRUARY, 2016 SOMU )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 0 /DR 6. /GF .
