ITO 19(3)(2), MUMBAI V. KALPAK DEVELOPMENT CORPORAION, MUMBAI

ITA 3121/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7258 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2003-2004
• Appeal Filed On: 13-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARUN SATHE MRS AARTI SATHE
• Keywords: Deemed dividend; Set aside
• Section: 2(22)(e); 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI. BEFORE SHRI J. SUDHAKAR REDDY, A.M. AND SHRI R.S. PADVEKAR, J.M. I.T.A. NO. 3 121/MUM/2009 ASSESSMENT Y EAR : 2003-04. THE INCOME TAX OFFICER, M/S KALPAK D EVELOPMENT CORPORATION, 19(3)(2), MUMBAI. VS. 320, YESHWANT SMRUTI, GR. FLOOR, CORNER OF 1 ST & 12 TH ROAD, KHAR (W), MUMBAI 400 052. PAN : AAAFK4725A APPELLANT RESPONDENT. C.O. NO. 224/MUM/2009 (IN ITA NO. 3121/MUM/2009) ASSESSMEN T YEAR : 2003-04. M/S KALPAK DEVELOPMENT VS. THE INCOME TAX OFFICER CORPORATION, MUMBAI. 19(3)(2), MUMBAI. CROSS OBJECTOR. RESPONDENT. DEPARTMENT BY : SHRI MOHD. USMAN. ASSESSE E BY : SHRI ARUN SATHE. MRS. AARTI SATHE. O R D E R PER J. SUDHAKAR REDDY, A.M. THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF THE CIT(APPEALS)-XIX, MUMBAI DATED 12-03-2 009 FOR THE ASSESSMENT YEAR 2003-04 ON THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.47,97,835/- MADE U/S 2(22)(E) OF THE ACT TOWARDS UNSECURED LOAN RECEIVED FROM THE GROUP CONCERN M/S SEA SHELL ESTATE DEVELOPMENT PVT. LTD. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE UNSECU RED LOANS RECEIVED FROM THE GROUP CONCERN M/S SEA SHELL ESTAT E DEVELOPMENT PVT. LTD. COULD NOT BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE FIRM M/S KALPAK DEVELOPMENT CORPORATIO N WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT IGNORING THA T IN VIEW OF THE AMENDMENT MADE TO THE SECTION 2(22)(E) BY THE FINAN CE ACT, 1987, THE SCOPE OF THIS SECTION HAS BEEN WIDENED TO COVER EVEN THE PAYMENT RECEIVED BY FIRM (IN WHICH THE DIRECTORS OF THE PVT. LTD. HAVE BEEN SUBSTANTIAL INTEREST) WITHIN THE AMBIT OF THIS SECTION. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTOR ED. 2. THE ASSESSEE IS A PARTNERSHIP FIRM AND IS IN TH E BUSINESS OF PROPERTY DEVELOPMENT. THE ISSUE IS WHETHER THE AO R IGHTLY INVOKED SECTION 2(22)(E) OF THE ACT FOR A LOAN TAKEN BY THE ASSESSEE FROM M/S SEA SHELL ESTATE DEVELOPMENT PVT. LTD., WHEN THE ASSESS EE FIRM IS NOT A REGISTERED SHAREHOLDER OF THE COMPANY M/S SEA SHELL ESTATE DEVELOPMENT PVT. LTD. 3. THE FACTS IN BRIEF ARE BROUGHT OUT AT PARA 2.2 AND 2.3 OF THE CIT(APPEALS) ORDER WHICH ARE EXTRACTED BELOW FOR R EADY REFERENCE : 2.2 THE FACTS OF THE CASE ARE THAT THE APPELLANT F IRM HAD RECEIVED UNSECURED LOANS TO THE TUNE OF RS.75,27,213/- FROM GROUP COMPANY, M/S SEA SHELL ESTATE DEVELOPMENT PVT. LTD. THE REGI STERED SHAREHOLDERS OF M/S SEA SHELL ESTATE DEVELOPMENT PV T. LTD. DURING THE FINANCIAL YEAR 2002-03: (A) MR. PRAKASH S. WAGH - VOTING POWER 25% (B) MRS. PRATIMA P. WAGH - VOTING POWER 25% (C) MR. RAJESH P. WAGH - VOTING POWER 25% (D) MR. KEDAR P. WAGH - VOTING POWER 25% 2.3 THE PARTNERS OF THE APPELLANT FIRM ALSO DURING THIS FINANCIAL YEAR WERE MR. PRAKASH S. WAGH 50%, MR. RAJESH WAG H 25% AND MR. KEDAR P. WAGH 25% W.E.F. 01.10.2002. AS S UCH, THE AO ASKED THE APPELLANT TO JUSTIFY S TO WHY THE LOAN OF RS.75,27,213/- RECEIVED FROM THE GROUP COMPANY SHOULD NOT BE CONSI DERED AS 3 DEEMED DIVIDEND IN VIEW OF THE PROVISIONS OF SECTIO N 2(22)(E) OF THE ACT. THE APPELLANT SUBMITTED ITS DETAILED REPLY DATED 06.10.2008 WHERE IT OBJECTED TO THE REOPENING OF TH E ASSESSMENT AS WELL AS QUESTIONED THE AOS PROPOSAL TO TREAT THE UN SECURED LOANS AS DEEMED DIVIDEND WHEN EVEN THE BASIC CONDITIONS GIVE N IN THAT SECTION WAS NOT SATISFIED. THE APPELLANT FIRM WAS N OT A REGISTERED SHAREHOLDER OF THE COMPANY AND NEITHER WAS IT HAVIN G ANY BENEFICIAL OWNERSHIP OF THE SHARES. 4. AFTER HEARING THE LEARNED DR, MR. MOHD USMAN AN D THE LEARNED COUNSEL FOR THE ASSESSEE, MR. ARUN SATHE, W E FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. BHAUM IK COLOUR LABS (P) LTD. (2009) 18 DTR (MUM.) (SB)(TRIB) 451 AS WELL A S THE DECISION OF THE HONBLE RAJASTAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILL TOP 217 CTR (RAJ.) 527. THE LEARNED CIT(APPEALS) HAS FOLLOW ED THESE TWO DECISIONS AND GRANTED RELIEF TO THE ASSESSEE. WE FI ND NO INFIRMITY IN THE SAME. 5. IN THE RESULT, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS APPEAL OF THE REVENUE. 6. THE CROSS OBJECTION IS ON THE ISSUE OF REOPENIN G. THOUGH MR. ARUN SATHE HAS CONTENDED THAT THE REOPENING IS BAD IN LAW, IN VIEW OF OUR DECISION IN THE REVENUES APPEAL, WE DO NOT ADJ UDICATE THIS ISSUE AS IT WOULD BE ACADEMIC IN NATURE. 7. IN THE RESULT, THE CROSS OBJECTION IS DISPOSED OF. ORDER PRONOUNCED ON THIS 24 TH DAY OF MARCH, 2010. SD/- SD/- (R.S.PADVEKAR) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER. MUMBAI, DATED : 24 TH MARCH, 2010. WAKODE 4 COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, G-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES, MUMBAI.