M/s Vipul Automobiles Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 3360/DEL/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7367 (ITAT-DELHI)
• Duration Of Justice: 40 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2010
• Appeal Filed By: Assessee
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Department Lawyers: AMRAHDRA KUMAR
• Assessee Lawyers: RAJESH ARORA
• Keywords: Deemed dividend; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H : NEW DELHI BEFORE SHRI A.D.JAIN, JM AND SHRI R.C.SHARMA, AM ITA NO.3360/DEL/2009 ASSESSMENT YEAR : 2006-07 M/S VIPUL AUTOMOBILES PVT.LTD., B-412-414, ANSAL CHAMBERS-I, 3, BHIKAJI CAMA PLACE, NEW DELHI 110 066. PAN NO.AACCV1583E. VS. INCOME TAX OFFICER, WARD-17(3), NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.2294/DEL/2010 ASSESSMENT YEAR : 2006-07 INCOME TAX OFFICER, WARD-17(3), NEW DELHI. VS. M/S VIPUL AUTOMOBILES PVT.LTD., B-412-414, ANSAL CHAMBERS-I, 3, BHIKAJI CAMA PLACE, NEW DELHI 110 066. PAN NO.AACCV1583E. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJESH ARORA, CA. REVENUE BY : SHRI AMRAHDRA KUMAR, DR. ORDER PER BENCH : THESE ARE APPEALS FILED BY THE ASSESSEE AND THE RE VENUE AGAINST THE ORDER OF CIT(A) FOR THE AY 2006-07, IN THE MATTER OF ORDER P ASSED U/S 143(3) AND PENALTY IMPOSED U/S 271(1)(C) OF THE IT ACT. ITA-3360/D/2009 & 2294/D/2010 2 2. IN THE APPEAL FILED BY THE ASSESSEE, GRIEVANCE R ELATES TO MAKING ADDITION ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY WAS INCORPORATED DURING T HE FY 2005-06 RELEVANT FOR AY 2006-07. THE ASSESSEE COMPANY IS RELATED TO M/S VIPUL MOTORS (P) LTD. THE ASSESSEE COMPANY WAS OFFERED DEALERSHIP AND DISTRIB UTORSHIP OF TWO WHEELERS OF SUZUKI MOTOR CYCLES PVT.LTD. THE SUBSIDIARY OF THE MARUTI UDYOG LIMITED. THE ASSESSEE COMPANY RECEIVED RS.34,67,865/- FROM M/S V IPUL MOTORS PVT.LTD. WHICH IS A RELATED CONCERN DURING THE FY 2005-06 RELEVANT FOR AY 2006-07. IN THE COURSE OF SCRUTINY ASSESSMENT, THE AO OBSERVED THAT SHRI VINIT BERIWALA IS A SUBSTANTIAL SHAREHOLDER OF THE ASSESSEE COMPANY AS WELL AS M/S VIPUL MOTORS WHICH HAS LEND THE MONEY, THE MONEY RECEIVED BY THE ASSESSEE COMPANY IS LIABLE TO BE TAXED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE ADDITION SO MADE WAS CONFIRMED BY THE CIT(A) AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. SHRI RAJESH ARORA, CA APPEARED ON BEHALF OF THE ASSESSEE AND CONTENDED THAT ADVANCE WAS TAKEN AS A COMMERCIAL EXPEDIENCY, THEREFORE PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE. HE ALSO PLACE D ON RECORD THE ITAT SPECIAL BENCH DECISION IN THE CASE OF BHAUMIK COLOUR PVT.LT D., ORDER DATED 19.11.2008 IN ITA NO.5030/MUM/2004, WHEREIN ISSUE WITH REGARD TO TAXING THE DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE WHO IS NOT A SHAREHOLDER WAS CONSIDERED. LEARNED AR CONTENDED THAT AS PER THE VERDICT OF SPE CIAL BENCH, SINCE THE ASSESSEE COMPANY IS NOT A SHAREHOLDER OF THE COMPANY FROM WH OM LOAN WAS RECEIVED, THE PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE. HE ALSO PLACED ON RECORD THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F UNIVERSAL MEDICARE PVT.LTD., ORDER DATED 22.3.2010, WHEREIN PROPOSITIO N LAID DOWN BY THE SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR PVT.LTD. WAS AP PROVED AND UPHELD. ITA-3360/D/2009 & 2294/D/2010 3 5. ON THE OTHER HAND, LEARNED DR SHRI AMRAHDRA KUMA R RELIED ON THE FINDINGS RECORDED BY THE LOWER AUTHORITIES AND CONTENDED THA T THE INTENTION BEHIND THE PROVISIONS OF SECTION 2(22)(E) IS TO TAX DIVIDEND I N THE HANDS OF RECIPIENT OF LOAN. THE DEEMING PROVISIONS AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS S UBSTANTIAL INTEREST, IS BASED ON THE PRESUMPTION THAT THE LOANS OR ADVANCES WOULD UL TIMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. HOWEVER, LEARNED DR FAIRLY CONCEDED THAT ITAT SPECIAL BENCH HAS DULY CONSIDERED THE ISSUE OF TAXABILITY OF DEEMED DIVIDEND IN THE HANDS OF THE A SSESSEE WHO IS SHAREHOLDER/ HAVING SUBSTANTIAL INTEREST IN THE COMPANY FROM WHO M LOAN IS BEING RECEIVED. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFU LLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO THE ORDER OF ITAT SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR PVT.LTD. WHEREIN IT WAS CATEGORICALL Y HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO I S A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF THE PERSON OTHER TH AN A SHAREHOLDER. IT WAS FURTHER HELD THAT THE EXPRESSION SHAREHOLDER REFE RRED TO IN SECTION 2(22)(E) REFERS TO BOTH THE REGISTERED SHAREHOLDER AND A BENEFICIAL SHAREHOLDER. MEANING THEREBY FOR BRINGING SUCH LOAN INTO THE DEEMING PROVISIONS OF SECTION 2(22)(E), THE ASSESSEE MUST BE BOTH REGISTERED AS WELL AS BENEFIC IAL SHAREHOLDER OF THE LENDER COMPANY. IF THE ASSESSEE IS A REGISTERED SHAREHOLD ER BUT NOT BENEFICIAL SHAREHOLDER, OR MERELY BENEFICIAL OWNER BUT NOT REG ISTERED SHAREHOLDER OF THE LENDER COMPANY, THE PROVISIONS OF SECTION 2(22)(E) WILL NOT BE ATTRACTED. 7. THE FACTS OF THE INSTANT CASE ARE NOT IN DISPUTE . THE ASSESSEE COMPANY WAS IN RECEIPT OF LOAN FROM M/S VIPUL MOTORS BUT WAS NO T HOLDING ANY OF THE SHARES OF M/S VIPUL MOTORS. IT IS ONLY SHRI VINIT BERIWALA W HO WAS A SHAREHOLDER OF BOTH ASSESSEE AND LENDER COMPANY. SINCE ASSESSEE COMPAN Y IS NOT A SHAREHOLDER OF THE LENDER COMPANY, IN VIEW OF THE DECISION OF SPECIAL BENCH IN THE CASE OF BHAUMIK ITA-3360/D/2009 & 2294/D/2010 4 COLOUR PVT.LTD. (SUPRA) AS DISCUSSED HEREINABOVE, T HE AMOUNT OF LOAN RECEIVED CANNOT BE BROUGHT TO TAX UNDER SECTION 2(22)(E). 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO.2294/DEL/2010 9. THE AO HAS ALSO LEVIED PENALTY UNDER SECTION 271 (1)(C) WITH RESPECT TO ADDITION MADE U/S 2(22)(E). THE CIT(A) AFTER RECOR DING DETAILED FINDING DELETED THE PENALTY BY OBSERVING AS UNDER:- 12.3 THERE CANNOT BE ANY CHARGE OF FURNISHING INAC CURATE PARTICULARS AS WELL. THIS IS BECAUSE, THE ASSESSEE HAD FURNISHED ALL THE DETAILS AND THE DETAILS ADMITTEDLY WERE CORRECT . BY APPLYING DEEMING PROVISIONS OF LAW THE ADDITION HAS BEEN MAD E BY THE ASSESSING OFFICER. BUT FOR THESE DEEMING PROVISION S THE ASSESSING OFFICER COULD NOT HAVE MADE ANY ADDITION, AS ADMITT EDLY THE GENUINENESS OF THE TRANSACTIONS HAVE NOT BEEN DOUBT ED OR DISPUTED BY THE ASSESSING OFFICER. 12.4 IN THE PRESENT CASE THE ADDITION UNDER SECTION 2(22)(E) CANNOT BE CONSIDERED AS CONCEALMENT OF INCOME OR FURNISHIN G OF INACCURATE PARTICULARS. CONSEQUENTLY I AM OF THE OPINION THAT THE FACTS OF THE CASE DO NOT WARRANT PENALTY UNDER SECTION 271(1)(C) . 13. AFTER GOING THROUGH THE FACTS OF THE CASE AND T HE CASE LAWS CITED BY THE AR AND THE PROPOSITIONS LAID DOWN BY T HE HONBLE ITAT IN THE CASE OF KANBAY SOFTWARE INDIA (P) LTD. VS. D CIT (SUPRA) THERE IS NO CASE FOR LEVY OF PENALTY IN RESPECT OF THE AD DITION TAKEN INTO CONSIDERATION FOR LEVY OF PENALTY. 14. IN VIEW OF THE FACTS BROUGHT ON RECORD AND THE LEGAL POSITION CITED, THERE IS NO CASE FOR LEVY OF PENALTY. THE P ENALTY LEVIED IS HEREBY CANCELLED. 10. AS DISCUSSED HEREINABOVE, SINCE WE HAVE ALREADY DELETED THE ADDITION MADE U/S 2(22)(E), THE ORDER OF THE AO IMPOSING PENALTY U/S 271(1)(C) HAS NO LEGS TO ITA-3360/D/2009 & 2294/D/2010 5 STAND. ACCORDINGLY, WE CONFIRM THE ACTION OF THE C IT(A) FOR DELETING THE PENALTY AS DISCUSSED HEREINABOVE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 20 TH AUGUST, 2010. SD/- SD/- (A.D.JAIN) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20.08.2010. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT DEPUTY REGISTRAR ITA-3360/D/2009 & 2294/D/2010 6