DCIT 8(2), MUMBAI V. LEXICON CHEMICALS P.LTD, MUMBAI

ITA 3408/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8241 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 02-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: SATISH R MODI
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 3407 & 3408/MUM/2013 ASSESSMENT YEAR: 2006-07 & 07-08 DCIT-8(2) ROOM NO. 209, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI- 400 020 VS M/S. LEXICON CHEMICALS PVT. LTD. 82, MAHAKALI CAVES ROAD 3 RD FLOOR, AHURA CENTRE MUMBAI- 93 PAN: AAACL 0906 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SATISH R. MODI REVENUE BY : SHRI PITAMBAR DAS DATE OF HEARING : 11.08.2014 DATE OF PRONOUNCEMENT : 31 . 10 .2014 O R D E R PER VIVEK VARMA, JM: INSTANT APPEALS ARE FILED BY THE DEPARTMENT AGAINST THE ORDER OF THE CIT(A) 17, MUMBAI DATED 05.02.2013. SINCE THE GROUNDS RAIS ED IN BOTH THE APPEAL ARE COMMON, BASED ON COMMON ISSUE, WE ARE DISPOSING OF BOTH THE APPEALS THOUGH THIS COMMON AND CONSOLIDATED ORDER FOR THE SAKE OF CONVE NIENCE AND BREVITY. 2. THE SOLITARY ISSUE PERTAINS TO DELETION OF ADDIT ION MADE U/S 2(22)(E) ON DEEMED DIVIDEND. THE FACT IS, THAT IN ASSESSMENT YE AR 2006-07 AND 2007-08 ARE THAT, THE ASSESSEE RECEIVED A LOAN AMOUNT OF RS. 2, 07,95,676/- AND RS. 1,13,72,184, RESPECTIVELY, IN THE TWO YEARS, FROM M/S BELUGA CHE MICALS PVT. LTD. FOR THE PURPOSES OF ITS BUSINESS. ON THIS FACT, THE AO CALLED FOR AN EXPLANATION, AS TO WHY THE ADDITION BE NO MADE, CONSIDERING THE AMOUNT, TO BE DEEMED DI VIDEND U/S 2(22)(E). 3. THE ASSESSEE EXPLAINED TO THE AO THAT PROVISION OF SECTION 2(22)(E) WERE INAPPLICABLE, AS THE SUM IN QUESTION WAS A LOAN AND THAT THE ASSESSEE WAS NOT THE SHAREHOLDER WITH BELUGA CHEMICAL PVT. LTD. THE AO C ONSIDERED THE FACT AND OBSERVED ITA NO. 3407 & 3408/MUM/2013 M/S. LEXICON CHEMICALS PVT. LTD. ASSESSMENT YEAR: 2006-07 & 07-08 2 THAT ON EXAMINATION OF THE SHARE HOLDING PATTERN, M R. DHIREN KHOT WAS 99% SHAREHOLDER IN BOTH THE COMPANIES. THE AO, ON THIS FACT, INVOKED THE PROVISIONS OF SECTION 2(22)(E) AND ADDED BACK RS. 2,07,95,676/- A ND RS, 1,13,72,184/-, IN THE TWO IMPUGNED YEARS, TO THE INCOME OF THE ASSESSEE BECAU SE MR. DHIREN KHOT WAS A MAJOR SHAREHOLDER. 5. AGAINST THE ORDER OF THE AO, THE ASSESSEE APPROA CHED THE CIT(A), BEFORE WHOM, IT REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND FURTHER SUBMITTED. 1. IT IS NOT DISPUTED AND IS AN UNDISPUTED FACT, T HAT THE APPELLANT IS NOT A SHAREHOLDERS OF BELUGA. 2. THE RELATIONSHIP OF THE APPELLANT AND BELUGA UND ER THE IMPUGNED LOAN TRANSACTION IS THUS MERELY THAT OF A BORROWER-LENDER AND NOT TH AT OF A SHAREHOLDER (REGISTERED AND BENEFICIAL). 3. IT HAS BEEN HELD BY VARIOUS HON. AUTHORITIES, TH AT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF THE SHAREHOLDER OF A COMPANY AND NOT IN THE HANDS OF A PERSON, OTHER THAN A SHAREHOLDER. IN OTHER WORDS, TO ATTRACT THE DEEMING PROVISIONS OF SEC. 2(22)(E), THE BORROWER/ RECIPIENT OF THE LO AN, MUST NECESSARILY BE A SHAREHOLDER OF THE LENDER COMPANY, WHICH IS NOT SO IN THIS CASE. 4. A FRUITFUL REFERENCE IS MADE TO THE FOLLOWING JU DGMENTS, WHEREIN IT HAS BEEN HELD THAT DEEMED DIVIDEND CAN BE ASSESSED AS INCOME, ONL Y IN THE HANDS OF A PERSON, WHO IS THE SHAREHOLDER OF A LENDER COMPANY AND NOT IN T HE HANDS OF A PERSON, OTHER THAN A SHAREHOLDER. FOR THE APPLICABLE OF SECTION 2(22)( E) THE PERSON (THE BORROWER), HAS TO BE A REGISTERED SHAREHOLDER, AS WELL AS A BENEFI CIAL SHAREHOLDER. SINCE THE APPELLANT IS NOT A SHAREHOLDER/DOES NOT HAVE ANY SH AREHOLDING IN BELUGA, THE LOAN RECEIVED BY IT, CANNOT FALL WITHIN THE DEEMING PURV IEW OF SECTION 2(22)(E) OF THE ACT. THE IMPUGNED ADDITION OF RS.2,07,95,676/- MADE TO T HE APPELLANTS TOTAL INCOME ON ACCOUNT OF DEEMED DIVIDEND, MUST THEREFORE BE DELET ED. 6. IT WAS FURTHER POINTED OUT BY THE ASSESSEE THAT SIMILAR ADDITION WAS MADE IN ASSESSMENT YEAR 2009-10, WHEREIN, THE CIT(A) HAD DE LETED THE ADDITION AS MADE. IT WAS FURTHER POINTED OUT THAT SINCE THE FACTS ARE ID ENTICAL IN THE IMPUGNED YEARS, AS THAT IN ASSESSMENT YEAR 2009-10, THEREFORE, THE ADD ITION SO MADE SHOULD BE DELETED, PRIMARILY BASED ON UNDISPUTED FACT THAT THE ASSESSE E WAS NOT A SHAREHOLDER IN THE PAYER COMPANY. THE CIT(A), AFTER EXAMINING THE FACT AND THE DECISION OF HIS PREDECESSOR, DELETED THE ADDITIONS MADE IN THE IMPU GNED YEARS. 7. AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE TH E ITAT. 8. BEFORE US, THE DR PLACED RELIANCE ON THE ORDER O F THE AO WHEREAS, THE AR RELIED ON THE ORDER OF THE CIT(A). 9. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED THE ORDER OF THE REVENUE AUTHORITIES. IT IS UNDISPUTED THAT THE RECIPIENT, I .E. THE ASSESSEE COMPANY IS NOT THE ITA NO. 3407 & 3408/MUM/2013 M/S. LEXICON CHEMICALS PVT. LTD. ASSESSMENT YEAR: 2006-07 & 07-08 3 SHAREHOLDER IN THE PAYER COMPANY, I.E. M/S BELUGA C HEMICAL PVT. LTD. ON THIS FACT, THE PROVISIONS OF DEEMED DIVIDEND CANNOT BE INVOKED . WE FIND THAT THE GROUNDS OF APPEAL AND THE BASIS OF ADDITION MADE BY THE AO IN THAT MR. DHIREN KHOT IS A 99% SHAREHOLDER IN BOTH THE COMPANIES AND BECAUSE OF TH IS REASON, THE ADDITION WAS MADE. 10. THE ISSUE BEFORE US WHO IS THE RECIPIENT OF THE SUM. THE UNCONTROVERTED ANSWER TO THIS QUESTION IS, THE ASSESSEE COMPANY. B UT THE ASSESSEE IS NOT THE SHAREHOLDER IN BELUGA. THEREFORE, RELYING ON THE DE CISION OF SPECIAL BENCH OF ITAT MUMBAI AT THE CASE OF ACIT VS BHAUMIK COLOUR, (ITA NO. 5030/MUM/2004) WHICH NOW HAS THE APPROVAL OF HONBLE BOMBAY HIGH COURT A S WELL, WE SUSTAIN THE ORDER OF THE CIT(A), CONSEQUENTIALLY REJECTING THE GROUNDS T AKEN BY THE DEPARTMENT IN BOTH THE APPEAL. 8. IN THE RESULT, THE APPEALS FILED BY THE DEPARTME NT ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF OCTOBER, 2014. SD/- SD/- (B.R. BASKARAN) (VIVEK VERMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 31.10.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR A BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.