Honeyvick Enterprises Pvt.Ltd., Baroda V. The ACIT.,Circle-1(2), Baroda

ITA 3424/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8753 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 15-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 16-10-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Deemed dividend
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 15.03.10 DRAFTED ON: 15.03.10 ITA NO.3424/AHD/2008 ASSESSMENT YEAR : 2003-2004 HONEYVICK ENTERPRISES PVT. LTD., LANDMARK, 8 TH FLOOR RACE COURSE CIRCLE, BARODA. VS. THE ACIT, CIRCLE-1(2), BARODA. PAN/GIR NO. : AAACH 5318 R (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI MILIN MEHTA A.R. RESPONDENT BY: SHRI C.K.MISHRA SR. D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, BAR ODA DATED 16.08.2008 FOR THE ASSESSMENT YEAR 2003-2004. 2. THE GROUND NO.1 OF THE APPEAL READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -I, BARODA [THE CIT(A)] ERRED IN FACT AND IN LAW IN C ONFIRMING ACTION OF THE ACIT, CIRCLE-1(2), BARODA [THE AO'] IN RE- OPENING THE ASSESSMENT BY INVOKING THE PROVISIONS O F SECTION 147 OF THE INCOME TAX ACT, 1961 [THE ACT] AND COM PLETING THE ASSESSMENT COMMENCED UNDER INVALID EXERCISE OF POWERS U/S.147 OF THE ACT. 3. AT THE TIME OF HEARING, THE AUTHORISED REPRESENT ATIVE HAS NOT PRESSED THIS GROUND OF APPEAL, HENCE, THIS GROUND O F APPEAL DISMISSED AS NOT PRESSED. ITA NO. 3424/AHD/2008 - 2 - 4. GROUND NO.2 OF THE APPEAL OF THE ASSESSEE READS AS UNDER:- 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION O F THE AO IN CONFIRMING THE ACTION OF THE AO IN MAKING ADDITION OF RS.43,00,000/- INVOKING PROVISION OF THE SECTION 2( 22) OF THE ACT. 5. THIS GROUND OF APPEAL IS REGARDING ADDITION OF R S.43,00,000/-, BEING TREATED AS DEEMED DIVIDEND U/S.2(22)(E) OF TH E ACT. THE FACTS OF THE CASE ARE THAT THE MAIN DIRECTOR OF THE APPEL LANT-COMPANY, NAMELY SHRI ASHOK MALHOTRA HOLDING MORE THAN 10% OF SHARES AND MORE THAN 10% OF VOTING POWER WAS ALSO SUBSTANTIAL SHAREHOLDER IN AN ASSOCIATE COMPANY, M/S.AMII ENTERPRISES PVT, LTD ., HOLDING 66% OF ITS SHARE CAPITAL. FROM THE BOOKS OF THE APPELLA NT-COMPANY, AS WELL AS THE PROFIT & LOSS A/C. AND BALANCE SHEET OF M/S.AMII ENTERPRISES PVT. LTD. FOR F.YR.2002-2003, THE ASSES SING OFFICER FOUND THAT M/S.AMIL ENTERPRISES PVT. LTD. HAD ADVAN CED RS.43,00,000/-TO THE APPELLANT COMPANY AS LOANS AND ADVANCES DURING F.YR.2002-2003. IN RESPONSE TO A.O.'S SHOW C AUSE NOTICE TO TREAT THE SAID SUM AS APPELLANT-COMPANY'S INCOME BY WAY OF DEEMED DIVIDEND U/S.2(22)(E), APPELLANT'S SUBMISSIO N WAS THAT M/S.AMIL ENTERPRISES PVT. LTD. WAS AN INVESTMENT CO MPANY FOR THE YEAR ENDING 31/03/2003 AND SUBSTANTIAL PART OF ITS BUSINESS CONSISTED OF LENDING. FURTHER, FOR A.YR.2002-2003 A ND F.YR.2001- 2002, ITS INCOME COMPRISED INTEREST ONLY. THE APPEL LANT, THEREFORE, CONTENDED THAT THE CASE VAS COVERED BY CLAUSE (II) OF SEC.2 (22)(E), WHICH EXCLUDES ADVANCES OR LOANS MADE TO A SHAREHOL DER BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHE RE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF T HE COMPANY. THE ASSESSING OFFICER REFERRED TO THE BALANCE SHEET OF M/S.AMIL ENTERPRISES PVT. LTD., WHICH SHOWED SHARE CAPITAL O F RS.4,93,61,370/- AND RESERVES AND SURPLUS OF RS.1,6 3,95,599/-, OUT ITA NO. 3424/AHD/2008 - 3 - OF WHICH INVESTMENT OF RS.6,11,12,250/- IN EQUITY S HARES AND LOANS/ ADVANCES OF RS.49,21,959/- WERE MADE. THE AS SESSING OFFICER, THEREFORE, INFERRED THAT BULK OF SHARE CAP ITA! AND RESERVES HAD BEEN INVESTED IN EQUITY SHARES, WHICH WORKED OU T TO 90% OF SUCH SOURCES AND APPELLANT'S CONTENTION THAT LENDIN G OF MONEY CONSTITUTED SUBSTANTIAL PART OF ITS BUSINESS WAS NO T CORRECT. THE ASSESSING OFFICER, THEREFORE, TAXED RS.43,00,000/- AS DEEMED DIVIDEND U/S.2(22)(E) IN THE HANDS OF THE APPELLANT -COMPANY. 6. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS), ASSESSEE SUBMITTED THAT THAT M/S.AMIL ENTERPRISES P VT. LTD. WAS IN THE BUSINESS OF SUBSTANTIAL LENDING AND THE LOAN GI VEN BY THE SAID COMPANY WAS PART OF LENDING BUSINESS IN ORDINARY CO URSE OF BUSINESS AND AT A CONSIDERATION OF INTEREST EXPENSE TO THE APPELLANT. ASSESSEES SUBMISSION IS THAT THE ASSESS ING OFFICER ONLY RELIED UPON THE BALANCE SHEET OF M/S.AMIL ENTERPRIS ES PVT. LTD. AND DID NOT CONSIDER ITS PROFIT & LOSS A/C. THE ASSESSE E FURTHER SUBMITTED THAT OBTAINING LOAN FROM M/S.AMIL ENTERPR ISES PVT. LTD. WAS ADVANTAGEOUS TO ITS BUSINESS AS FINANCE WAS EAS ILY AVAILABLE, NO SECURITY WAS TO BE GIVEN AND NO OTHER FORMALITIE S WERE REQUIRED TO BE UNDERTAKEN, AS IS THE CASE WITH BANK LOANS US UALLY. THE APPELLANT FURTHER SUBMITTED THAT SINCE SEC.2(22)(E) IS ENACTED BY A LEGAL FICTION, IT WILL BE PROPER AND NECESSARY TO A SSUME ALL THOSE FACTS, ON WHICH ALONE, THE FICTION CAN OPERATE. THE APPELLANT REFERRED TO THE FOLLOWING DECISIONS TO CONTEND THAT A DEEMING FICTION SHOULD BE CARRIED TO ITS LOGICAL END IN ACCORD WITH THE PURPOSE OF ITS ENACTMENT AND NO FURTHER:- * CIT VS. P.K. BADIANI (1970) 76 ITR 369 (BOM) * CIT VS. HINDUSTAN PETROLEUM CORPORATION LTD (1990 ) 87 CTR 98 (BOM) : (1991) 187 ITR 1. ITA NO. 3424/AHD/2008 - 4 - * CIT VS. AMARCHAND B. DOSHI (1991) 96 CTR 136 (BOM ): (1992) 194 ITR 56 (BOM). * CALTEX OIL REFINING (I) LTD. VS. CIT (1993) 113 C TR 358 (BOM) : (1993) 202 ITR 375 (BOM) * CIT VS. SHRISHAKTI TRADING CO. (1994) 118 CTR 196 (BOM): (1994) 207 ITR 442 (BOM). 7. THE APPELLANT RELIED UPON THE DECISION OF CALCUT TA HIGH COURT IN THE CASE OF NANDLAL KANORIA (122 ITR 405) THAT I N ORDER TO SUCCESSFULLY INVOKE, PROVISIONS OF SEC.2(22)(E), A CO-RELATION MUST BE FOUND TO EXIST BETWEEN THE PAYMENT BY THE COMPAN Y TO THE THIRD PERSON (CONCERN IN WHICH SHAREHOLDER IS SUBSTANTIAL LY INTERESTED) ON THE ONE HAND AND AN ADVANTAGE OR BENEFIT F THE APPE LLANT REFERRED TO THE DECISION OF ITAT MUMBAI IN THE CASE OF SEAMI ST PROPERTIES (P) LTD. HOLDING THAT NON SHAREHOLDERS CANNOT BE TA XED TAKING RECOURSE TO SEC.2(22)(E). THE APPELLANT, FURTHER, A ND WITHOUT PREJUDICE TO THE FOREGOING, SUBMITTED THAT FOR THE PURPOSE OF SEC.2(22)(E) / WORD ''SHAREHOLDER' MEANS REGISTERED SHAREHOLDER O NLY AS CONFIRMED BY THE SUPREME COURT IN THE CASE OF SA RATHY MUDALIAR (83 ITR 170) (SC). THE APPELLANT FURTHER CONTENDED THAT BY GETTING LOAN FROM M/S.AMIL ENTERPRISES PVT. LTD., NO DIRECT OR INDIRECT BENEFIT WAS DERIVED BY THE COMMON SHAREHOLDER AND T HE LEGISLATIVE INTENTION TO BRING SEC.2(22)(E) INTO THE STATUE BOO K WAS TO PLUG THE MISCHIEF PLAYED BY CLOSELY HELD COMPANIES BY WAY OF SIPHONING THE ACCUMULATED PROFITS FOR THE DIRECT OR INDIRECT BENE FIT OF CERTAIN SHAREHOLDERS. THE APPELLANT FURTHER REFERRED TO THE DECISION OF MADRAS HIGH COURT IN THE CASE OF SIVESUBRAMANIAM (2 31 ITR 656), WHERE THE SUM ADVANCED WAS TREATED AS LOAN AND NOT DEEMED DIVIDEND, AS THE COMPANY WAS DOING MONEY LENDING BU SINESS. THE APPELLANT FURTHER RELIED UPON THE DECISION OF MUMBA I ITAT IN THE CASE OF JHAMU U SUGHAND (2006) 100 TTJ (MUMBAI) 103 4, HOLDING ITA NO. 3424/AHD/2008 - 5 - THAT LOAN BY A COMPANY IN ORDINARY COURSE OF BUSINE SS OF MONEY LENDING CANNOT BE TREATED AS DIVIDEND. 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED AS UNDER:- 3.3 I HAVE CONSIDERED THE SUBMISSIONS. THE APPELLAN T IS RIOT IN DISPUTE WITH THE ASSESSING OFFICE- THAT CON DITIONS SPECIFIED IN SEC.2(22)(E) REGARDING ADVANCEMENT OF LOAN, COMMON SHAREHOLDER HAVING REQUISITE VOTING POWER/ SHAREHOLDING IN BOTH THE COMPANIES AND POSSESSION O F ACCUMULATED PROFITS BY THE LENDER COMPANY ARE MET I N ITS CASE. APPELLANT'S MA N OBJECTION IS THAT ITS CASE F ALLS UNDER CLAUSE (II) OF SEC.2(22)(E), I.E. THAT THE LOAN WAS MADE IN THE ORDINARY COURSE OF BUSINESS ARID MONEY LENDING WAS A SUBSTANTIAL PART OF THE BUSINESS OF M/S.AMIL ENTERP RISES PVT. LTD. BEFORE GOING INTO THIS MAIN OBJECTION, AP PELLANT'S OTHER OBJECTIONS ARE DEALT WITH FIRST. THE CONTENTI ON IS THAT SEC.2(22)(E), A DEEMING PROVISION, IS TO BE APPLIED STRICTLY AS PER ITS ENACTMENT AND NOT: BEYOND. APPELLANT HA S NOT SPECIFIED, AS TO IN WHAT MANNER SEC.2(22)(E) WAS APPLIED BY THE ASSESSING OFFICER BEYOND ITS ENACTMENT, THE ASSESSING OFFICER HAS CLEARLY LISTED OUT HOW ALL CONDITIONS U/S.2(22)(E) WERE MET IN APPELLANT'S CASE. THIS OBJ ECTION IS, THEREFORE, NOT MAINTAINABLE. NEXT OBJECTION IS THAT SEC.2(22)(E) IS APPLICABLE ONLY TO REGISTERED SHARE HOLDERS, AS HELD BY ITAT MUMBAI IN THE CASE OF SEAMIST PROPE RTIES (P) LTD. HOLDING THAT NORI SHAREHOLDERS CANNOT BE T AXED TAKING RECOURSE TO SEC.2(22)(E). ITAT/ HYDERABAD I N THE CASE OF HYDERABAD CHEMICAL PRODUCTS [2000] 72 ITD 3 23 (HYD.) HAS HELD THE LOAN ETC. TO BE DIVIDEND 'UNDER SECTION 2(22)(E) FOR SIMILAR TRANSACTION BETWEEN TWO CONC ERNS, I.E. WHERE THE RECIPIENT WAS NOT A REGISTERED SHARE HOLDER AND THERE WERE COMMON SHAREHOLDERS WITH REQUISITE SHAREHOLDING/VOTING POWER. MOREOVER, IN THIS CONT EXT, THE PROVISIONS OF THE ACT ARE VERY CLEAR, THAT PAYM ENTS BY WAY OF LOANS AND ADVANCES TO A SHAREHOLDER, NOT HO LDING LESS THAN 10% OF THE VOTING POWER OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER WITH SUBSTANTIAL INTEREST ARE TO BE DEEMED AS DIVIDEND. DUE TO THE PROVISIONS OF THE ACT BEING SO CLEAR, WITH DUE RESPECT TO THE DECISIONS CITED BY TH E APPELLANT, I AM OF THE VIEW THAT THERE IS NO SCOPE FOR A DIFFERENT INTERPRETATION, VIZ. ONLY PAYMENTS TO REG ISTERED ITA NO. 3424/AHD/2008 - 6 - SHAREHOLDER CAN BE DEEMED TO BE DIVIDEND U/S 2(22)( E). THE LEGISLATURE HAS EXPLICITLY DEEMED PAYMENTS BY A COMPANY TO ANOTHER ENTITY HAVING ITS SHAREHOLDER AS A MEMBER WITH SUBSTANTIAL INTEREST TO BE DIVIDEND U/S 2(22)(E). ASSESSEE HAS NOT DISPUTED THAT THERE WER E SHAREHOLDERS HAVING MORE THAN 10% OF VOTING POWER I N M/S AMIL ENTERPRISES PVT. LTD., WHO ALSO HAD SUBSTA NTIAL INTEREST IN THE APPELLANT-COMPANY. THIS CONTENTIO N OF APPELLANT IS, THEREFORE, NOT ACCEPTED. APPELLANT' S NEXT CONTENTION IS THAT THE LOAN WAS NOT FOR INDIVIDUAL BENEFIT OF COMMON SHAREHOLDER. TO ANALYZE THIS ASPECT, PRO VISIONS OF SEC.2(22)(E) ARE (E) ANY PAYMENT BY A COMPANY; N OT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIAL LY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A P ART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL O WNER OF SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CO NCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN T HIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYM ENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL B ENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S; BUT 'DIVIDEND'-DOES NOT INCLUDE - (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR T HE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTI AL PART OF THE BUSINESS OF THE COMPANY; (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET-O FF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SU M PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WIT HIN THE MEANING OF SUB-CLAUSE (E), TO THE EXTENT TO WHICH I T IS SO SET-OFF.' AS PER SEC. 2(22)(E), ANY PAYMENT BY WAY OF ADVANCE OR LOAN TO ANY CONCERN IN WHICH A SHAREHOLDER, WHO ; S A BENEFICIAL OWNER OF SHARES IS A MEMBER WITH SUBSTAN TIAL INTEREST OF ANY PAYMENT BY A COMPANY ON BEHALF OR F OR THE INDIVIDUAL BENEFIT OF ANY SHARE HOLDER TO THE EXTEN T OF ACCUMULATED PROFITS OF THE COMPANY MAKING THE PAYME NT IS DEEMED TO BE DIVIDEND. THE CLAUSE ANY PAYMENT B Y ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL B ENEFIT, OF ANY SUCH SHARE HOLDER' IS ONE OF THE ALTERNATIVE SITUATIONS U/S. 2(22)(E) FOR DEEMING ANY PAYMENT AS ITA NO. 3424/AHD/2008 - 7 - DIVIDEND. AS PER TIE SECTION, CONDITION OF THE PAYM ENT BEING FOR INDIVIDUAL BENEFIT IS NOT APPLICABLE, WHE RE THE PAYMENT IS BY WAY OF ADVANCE OR LOAN. SINCE, IN APPELLANT'S CASE, THE PAYMENT OF RS 43 LAKH WAS BY WAY OF LOAN, THE CONDITION OF PAYMENT BEING FOR INDIVIDUAL BENEFIT OF SHAREHOLDER IS RIOT RELEVANT. NOW THE MAIN OBJEC TION OF THE APPELLANT THAT ITS CASE IS COVERED AND EXCLUDED BY CLAUSE (II) OF SEC.2(22)(E) IS TAKEN UP. UNDER CLAU SE (II) OF SEC.2(22)(E), ADVANCE OR LOAN MADE IN THE ORDINARY COURSE OF BUSINESS OF THE LENDING COMPANY IS EXCLUDED FROM THE PURVIEW OF SEC.2(22)(E), WHERE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY, T HUS, WHAT IS TO BE SEEN FOR THE APPLICATION OF THIS CLAU SE IS WHETHER MONEY LENDING WAS A SUBSTANTIAL PART O F BUSINESS OF M/S.AMIL ENTERPRISES PVT. LTD. AND WHETHER THE LOAN TO THE APPELLANT WAS MADE IN THE ORDINARY COURSE OF BUSINESS. AS PER THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF M/S.AMIL ENTERPRISES PVT. LTD. CALLED FOR FROM THE APPELLANT, MONEY LENDIN G DOES NOT FIGURE AS A MAIN OBJECT OF M/S.AMIL ENTERPRISES PVT. LTD. UNDER PART (A), 'MAIN OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION', THREE OBJECTS ARE LISTED, IN WHICH LENDING AND ADVANCEMENT OF MONEY DOES NOT FIGURE. 'TO LEND AND ADVANCE MONEY OR GIVE CREDIT T O SUCH PERSONS OR COMPANIES, AND ON SUCH TERMS AS MAY SEEM EXPEDIENT' IS INCLUDED UNDER 'OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN, OBJECTS' A T SR. NO.5 UNDER PART (B) ONLY. THERE ARE 70 OTHER OBJEC TS LISTED UNDER THE INCIDENTAL / ANCILLARY OBJECTS, I. E. MONEY LENDING WAS ONLY AN ANCILLARY OBJECT AMONGST 70 OTH ER ANCILLARY OBJECTS. FURTHER, FROM THE BALANCE SHEET OF M/S.AMIL ENTERPRISES PVT. LTD. AS ON 31/03/2001, 31/03/2002 AND 31/03/2003, IT IS SEEN THAT M/S.AM IL ENTERPRISES PVT. LTD. HAD ADVANCED MONEY ONLY TO ON E PARTY NAMELY HONEYVICK ENTERPRISES PVT. LTD, EV ERY YEAR. IN THE BALANCE SHEET, THE SAME IS CATEGORIZED AS LONG TERM INVESTMENT. M/S.AMIL ENTERPRISES PVT. LTD. CANNOT BE SAID TO BE IN THE BUSINESS OF MONEY LENDI NG, WHEN IT HAD ADVANCED MONEY TO NONE OTHER THAN APPELLANT COMPANY IN THREE CONTINUOUS YEARS. FOR SOMEBODY TO BE IN MONEY LENDING BUSINESS SUBSTANTIA LLY, ONE OF THE CRITERIA TO BE TESTED WOULD BE THE NUMBE R OF SUCH TRANSACTIONS AND THE NUMBER OF PARTIES BORROWI NG THE MONEY. IT IS ALSO A FACT: THAT 92 /O OF FUNDS OF M/ S AMIL ENTERPRISES WERE INVESTED IN SHARES. M/S.AMIL ENTER PRISES PVT. LTD., THUS ITA NO. 3424/AHD/2008 - 8 - (I) ADVANCED MONEY ONLY TO ONE PARTY, NAMELY THE APPELLANT-COMPANY; (II) MOST(92%) OF ITS FUNDS WERE INVESTED IN SHARES ; AND (III) MONEY LENDING IS ONLY AN ANCILLARY OBJECTIVE OF M/S.AMIL ENTERPRISES PVT. LTD. AS PER ITS MEMORANDU M END ARTICLES OF ASSOCIATION. THUS, NEITHER THE LOAN TO THE APPELLANT COMPANY CAN BE SAID TO BE IN ORDINARY COURSE OF BUSINESS NOR MONEY LENDING CAN BE SAID TO BE SUBSTANTIAL PART OF M/S A MI ENTERPRISES PVT. LTDS BUSINESS. THE TRANSACTION, T HUS, DOES NOT GET EXCLUDED UNDER CLAUSE (II) OF SECTION 2(22)(E). IN VIEW OF ABOVE, IT IS HELD THAT THE SUM OF RS.43,00,0007-HAS BEEN RIGHTLY TAXED BY THE A.O. AS DEEMED DIVIDEND U/S.2(22)(E) AND THE ADDITION IS CONFIRMED. 9. THE LD. AR SUBMITTED THAT THE ISSUE AT HAND IS C OVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF ASSISTANT COMMISSIONER OF INCOME-TAX VS. BHAUMIK COLOUR P. LT D. [2009]218 ITD1( MUMBAI) (SB). 10 THE LD. DR ALSO AGREED TO THE SUBMISSIONS OF THE LD. AR OF THE ASSESSEE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABL E ON RECORD. IN THE INSTANT CASE THE ASSESSEE COMPANY RECEIVED LOAN OF RS.43.00 LACS FROM M/S AMIL ENTERPRISES PVT. LTD. THE MAIN D IRECTOR OF THE ASSESS COMPANY SRI ASHOK MALHOTRA WAS HOLDING MORE THAN 10% SHARES AS WELL AS MORE THAN 10% OF VOTING POWER IN THE ASSESSEE COMPANY WAS ALSO HOLDING 66% OF THE SHARE CAPITAL O F THE LENDING COMPANY M/S AMIL ENTERPRISES. IN VIEW OF THE ABOVE FACTS, HE ADDED RS.43 LACS TO THE INCOME OF THE ASSESSEE AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE AO FOR THE VERY SAME REASON. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE COMPANY IS NOT A SHAREHOL DER OF THE ITA NO. 3424/AHD/2008 - 9 - LENDING COMPANY HOLDING 10% OR MORE OF THE SHARES O F THE LENDING COMPANY. WE FIND THAT THE HON'BLE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. BHAUMIK COLOUR PVT. LTD. (2009 ) 118 ITD 1 (MUM) (SB) HAS HELD THAT DEEMED DIVIDEND CAN BE ASS ESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE L ENDER COMPANY AND NOT IN THE HANDS OF THE BORROWING CONCERN IN WH ICH SUCH SHAREHOLDER IS MEMBER OR PARTNER HAVING SUBSTANTIAL INTEREST. THEREFORE, AS THE LOAN WAS ADVANCED TO THE ASSESSEE COMPANY AND NOT TO ITS DIRECTOR SHRI ASHOK MALHOTRA WHO HELD 66 % OF THE SHARE CAPITAL OF M/S.AMIL ENTERPRISES PVT. LTD. WHICH ADV ANCED THE SUM TO THE ASSESSEE COMPANY, FOLLOWING THE DECISION OF THE HON'BLE SPECIAL BENCH IN THE CASE OF BHAUMIK COLOURS PVT. LTD. (SUP RA) SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND HOLD THAT TH E SAID LOAN OF RS.43 LACS RECEIVED BY THE ASSESSEE COMPANY FROM M/ S. AMIL ENTERPRISES PVT. LTD. CANNOT BE TREATED AS DEEMED D IVIDEND OF THE ASSESSEE COMPANY AND TAXED IN ITS HANDS AS SUCH. TH EREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 12. THE GROUND NO.3 OF THE APPEAL READS AS UNDER:- 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION O F THE AO IN CHARGING INTEREST U/S.234B AND 234D OF THE AC T. 13. AT THE TIME OF THE HEARING, THE LD.AR OF THE AS SESSEE DID NOT MAKE ANY SUBMISSION ON THE ABOVE GROUND OF THE APPE AL. WE HOLD THAT CHARGING OF INTEREST IS CONSEQUENTIAL AND ACCO RDINGLY DISPOSE OFF THIS GROUND OF APPEAL OF THE ASSESSEE. 14. THE GROUND NO.4 OF THE APPEAL READS AS UNDER:- 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN LEVYING PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. ITA NO. 3424/AHD/2008 - 10 - 15. THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS PREMATURE AND HENCE DISMISSED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE H EARING IN THE PRESENCE OF THE PARTIES ON 16/03/2009. SD/- SD/- ( T.K. SHARMA ) ( N.S. SAINI ) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD; DATED 16/03/2009 PARAS # COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS) 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD