Dy. Commissioner of Income Tax, Circle1(1)(1), Ahmedabad V. M/s. Biotech Oothalmics Pvt.Ltd., Ahmedabad

ITA 3478/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7892 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 29-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE, SHRI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER ITA NO. 3478/AHD/2014 (ASSESSMENT YEAR: 2005-06) DCIT, CIRCLE 1(1)(1), A WING, ROOM NO.309, 3 RD FLOOR, PRATYAKSHA KAR BHAVAN, AMBAWADI, AHMEDABAD - 380015 APPELLA NT VS. M/S. BIOTECH OPTHALMICS PVT. LTD., SARTHIK-II, OPP. RAJPATH CLUB, S.G. HIGHWAY, AHMEDABAD 380 051 RESPONDENT PAN: AAACB0328F /BY REVENUE : SHRI V. K. SINGH, SR. D.R /BY ASSESSEE : NONE /DATE OF HEARING : 20.12.2017 /DATE OF PRONOUNCEMENT : 29.12.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2005-06 A RISES AGAINST THE CIT(A)-III, AHMEDABADS ORDER DATED 16.10.2014 IN C ASE NO. CIT(A)- III/375/DCIT.CIR.1/13-14, REVERSING ASSESSING OFFIC ERS ACTION MAKING SECTION 2(22)(E) DEEMED DIVIDEND ADDITION OF RS.41,25,289/- , IN PROCEEDINGS U/S.143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961; IN SHORT T HE ACT. ITA NO. 3478/AHD/14 [DCIT VS. M/S. BIOTECH OPTHALMI CS PVT. LTD.] A.Y. 2005-06 - 2 - 2. WE ADVERT TO THE RELEVANT FACTS. THE ASSESSEE C OMPANY MANUFACTURES AND TRADES IN OPHTHALMIC SOLUTIONS. THE ASSESSING OFF ICER NOTICED IT TO HAVE AVAILED LOANS OF RS.41,25,289/- INCLUDING INTEREST AMOUNT O F RS.6,77,439/- FROM M/S. BIOTECH VISION CARE PVT. LTD. IN THE RELEVANT PREVI OUS YEAR. HE FURTHER FOUND ONE SHRI MEHUL P. S. ASNANI HOLDING 90% OF ITS STAKE AN D 95% IN THE LATTER ENTITY HAVING ACCUMULATED PROFITS OF RS.7,00,40,586/- AS O N 31.03.2005 INCLUDING CURRENT YEARS PROFITS OF RS.3,18,36,440/-. THE ASSESSING OFFICER THEREFORE INVOKED DEEMING FICTION U/S.2(22)(E) OF THE ACT THE AMOUNT IN QUESTION OF RS.41,25,289/- IN THE IMPUGNED RE-ASSESSMENT FRAMED ON 25.10.2011. 3. THE CIT(A) DELETES THE IMPUGNED ADDITION AS UNDE R: 9. GROUNDS NO. 3 TO 5 RELATE TO ASSESSMENT OF IM PUGNED DEEMED DIVIDEND OF RS.41,25,289/- U/S. 2(22)(E) OF THE I.T. ACT IN THE HANDS OF THE APPELLANT. 9.1 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER, APPELLANT'S SUBMISSION AND THE CIT(A)'S ORDER ON THE SAME ISSUE IN THE CAS E OF APPELLANT IN A.Y. 2006-07 AND IN THE CASE OF MENUL P. ASNANI IN A.Y 2005-06. 9.2 THIS ISSUE OF DEEMED DIVIDEND HAS ALREADY BEEN DECIDED IN THE ABOVE MENTIONED CASES BY THE CIT(A)-VI AHMEDABAD. IN CASE OF MEHUL P. ASNANI IN AY 2005-06 IT WAS HELD AS UNDER- 'FROM THE ABOVE IT IS CLEAR THAT THE LOAN TRANSACTI ON BETWEEN BIOTECH VISION CARE LTD AND BIOTECH OPHTHALMIC LTD WAS HELD TO BE DEEME D DIVIDEND WITHIN THE MEANING OF SECTION 2(22) (E) OF THE IJ ACT. IN VIEW OF THE REASON MENTIONED THEREIN THE LOAN TRANSACTION IS TO BE TREATED AS DE EMED DIVIDEND BUT THE ADDITION HAS TO BE MADE IN THE HANDS OF SHAREHOLDER AS PER T HE PROVISION OF BOMBAY SPECIAL BENCH AND BOMBAY HIGH COURT. ACCORDINGLY TH E ADDITION OF DEEMED DIVIDEND IS TO BE MADE IN THE HANDS OF THE APPELLAN T WHO HELD MORE THAN 90% SHARE OF LENDING COMPANY. ASSESSING OFFICER DISCUSS THE JUDICIAL DECISION RELIED UPON BY THE APPELLANT AND DISTINGUISH THE SAME ON F ACTS, I AGREE WITH THE ASSESSING OFFICER OR THIS CONSIDERING THE FACTS OF THE CASE AND RELEVANT JUDICIAL DECISION INCLUDING BOMBAY ITAT AND HIGH COURTS, THE TRANSACTION OF LOAN ARE TREATED AS DEEMED DIVIDEND.' 9.3 IN THE AY 2006-07, THE CIT(A)-VI DELETED THE AD DITION OF DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT COMPANY AFTER OBSERVING AS U NDER- 'THE UNDISPUTED FACTS ARE THAT APPELLANT TOOK LOAN FROM BIOTECH VISION CARE PRIVATE LTD. SHRI MEHUL P ASNANI WAS HAVING 90 % SHAREHOLDING IN THE LENDING CONCERN AND 40% SHAREHOLDING THE APPELLANT COMPANY THEREFORE THE SHAREHOLDER SHRI MEHUL P ASNANI WAS HAVING SUBSTANT IAL INTEREST IN BOTH THE COMPANIES AND ACCORDINGLY THE LOAN ADVANCED BY BIOT ECH VISION CARE TO THE APPELLANT COMPANY IS TAXABLE AS DEEMED DIVIDEND UND ER SECTION 2(22) (E) OF THE I.T ACT. THE APPELLANT SAID THAT IT WAS BUSINESS AD VANCE FOR COMMERCIAL CONSIDERATION BUT THE SAID ADVANCE CANNOT BE TREATE D AS GIVEN IN NORMAL COURSE ITA NO. 3478/AHD/14 [DCIT VS. M/S. BIOTECH OPTHALMI CS PVT. LTD.] A.Y. 2005-06 - 3 - OF BUSINESS SINCE THE LENDER COMPANY IS NOT IN MONE Y LENDING BUSINESS, IN VIEW THERE OF THE PROVISIONS OF SECTION 2(22) IS CLEARLY APPLICABLE AND LOAN AMOUNT HAS TO BE TREATED AS DEEMED DIVIDEND. CONSIDERING THE F ACTS OF THE CASE, THE TRANSACTION OF LOAN IS TREATED AS DEEMED DIVIDEND. APPELLANT IS NOT A SHAREHOLDER IN THE LENDER COMPAN Y HOWEVER ASSESSING OFFICER TREATED THE SAME AS DEEMED DIVIDEND IN HAND S OF APPELLANT COMPANY. APPELLANT'S MAIN OBJECTION WAS THAT IN VIEW OF THE VARIOUS DECISIONS INCLUDING SPECIAL BENCH OF ITAT MUMBAI AND BOMBAY HIGH COURT REFERRED IN APPELLANT'S SUBMISSION, THE ADDITION OF DEEMED DIVIDEND CAN BE MADE ONLY IN THE HANDS OF SHAREHOLDER. IF THE RECIPIENT OF THE LOAN IS NOT A SHAREHOLDER AND TRANSACTION IS COVERED BY THIS PROVISION, THE ADDITION IS TO BE MA DE IN HANDS OF SHAREHOLDER. CONSIDERING THE DECISION OF ITAT SPECIAL BENCH AND BOMBAY HIGH COURT, I AGREE WITH THE APPELLANT'S CONTENTION THAT ADDITION FOR D EEMED DIVIDEND HAS TO BE MADE IN HANDS OF SHAREHOLDER ONLY. ACCORDINGLY, ASSESSIN G OFFICER IS DIRECTED TO DELETE THE ADDITION IN RESPECT OF DEEMED DIVIDEND IN THE H ANDS OF APPELLANT AND MAKE THE SAID ADDITION IN HANDS OF SHAREHOLDER SHRI MEHU L P ASNAN IN VIEW OF THE DECISIONS OF HONBLE ITAT SPECIAL BENCH AND HONBLE HIGH COURT OF BOMBAY. 9.4 THE FACTS IN THE APPEAL UNDER CONSIDERATION ARE EXACTLY SAME AS DISCUSSED ABOVE THEREFORE RESPECTFULLY FOLLOWING THE DECISION IN TH E CASE OF APPELLANT IN A.Y. 2006-07 AND IN THE CASE OF SHRI MEHUL P ASNANI IN A.Y 2005-06, THE AO IS DIRECTED TO DELETE THE ADDITION IN RESPECT OF DEEMED DIVIDEND IN THE HANDS OF APPELLANT IN A.Y. 2005-06. 4. WE HAVE HEARD RIVAL CONTENTIONS. THE REVENUE VE HEMENTLY CONTENDS THAT THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS DEL ETING THE ABOVE DEEMED DIVIDEND ADDITION IN QUESTION. IT IS EVIDENT THAT THE CIT(A) HAS FOLLOWED HIS ORDER IN ASSESEES CASE ITSELF FOR THE SUCCEEDING AY QUA THE VERY ENTITY. THE REVENUE IS FAIR ENOUGH IN NOT DRAWING ANY FACTUAL OR LEGAL DIS TINCTION SO FAR AS THE RELEVANT ISSUE IN BOTH THESE ASSESSMENT YEARS ARE CONCERNED. WE NOTICE IN THIS BACKDROP THAT THE VERY ISSUE STANDS ADJUDICATED IN ASSESSEE S CASE ITSELF AGAINST THE REVENUE IN ITS APPEAL ITA NO.443/AHD/2011 FOR SUCCEEDING AS SESSMENT YEAR 2006-07 DECIDED ON 31.08.2015 AS FOLLOWS: 6. WE FIND THAT THERE IS NO CONTROVERSY OR DISPUTE ABOUT THE FUNDAMENTAL LEGAL POSITION THAT UNLESS THE ASSESSE IS A SHAREHOLDER I N THE COMPANY FROM WHICH THE AMOUNTS ARE RECEIVED, SUCH AMOUNTS CANNOT BE TAXED IN HIS H ANDS AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. IN THE CASE OF CIT VS DAISY PACKERS PVT LTD (JUDGMENT DATED 18TH JULY 2012 IN TAX APPEAL NO. 212 OF 2010), HON' BLE JURISDICTIONAL HIGH COURT HAS, INTER ALIA, NOTED THAT IT IS NOT NECESSARY TO GO IN TO OTHER LEGAL ISSUES ONCE IT IS AN UNDISPUTED POSITION THAT THE ASSESSE WAS NOT SHAREH OLDER IN AMIGO BRUSHES PVT LTD, AND THAT 'IF THE ASSESSE COMPANY DOES NOT HOLD A SHARE IN OT HER COMPANY FROM WHICH IT HAD RECEIVED DEPOSIT, IT CANNOT BE TREATED TO BE A DEEM ED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT'. THE SAME WAS THE POSITION IN THE CASE OF ACIT VS BHAUMIK COLOURS PVT LTD [(2009) 118 ITD 1 SB (MUM)] WHEREIN A SPECIAL BENCH OF THIS TRIBUNAL CONCLUDED THAT, 'DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PER SON OTHER THAN A SHAREHOLDER' AND ITA NO. 3478/AHD/14 [DCIT VS. M/S. BIOTECH OPTHALMI CS PVT. LTD.] A.Y. 2005-06 - 4 - THAT 'THE EXPRESSION 'SHAREHOLDER' REFERRED TO IN S . 2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER THEN THE PROVISIONS OF S . 2(22)(E) WILL NOT APPLY. SIMILARLY, IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGI STERED SHAREHOLDER THEN ALSO THE PROVISIONS OF S. 2(22)(E) WILL NOT APPLY'. 7. IT IS THUS CLEAR THAT BEING A REGISTERED SHAREH OLDER IS A CONDITION PRECEDENT FOR INVOKING SECTION 2(22)(E) OF THE ACT, AND THAT COND ITION IS ADMITTEDLY NOT SATISFIED. FOR THIS SHORT REASON ALONE, THE IMPUGNED ADDITIONS SHO ULD HAVE BEEN DELETED BY THE CIT(A). WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) IN THIS RESPECT AND DECLINE TO INTERFERE IN THE MATTER SO FAR AS THE RELIEF GIVEN BY THE CIT(A) IS CONCERNED. 8. IN THE RESULT, THE APPEAL IS DISMISSED. WE ACCORDINGLY ADOPT JUDICIAL CONSISTENCY HEREIN A S WELL TO AFFIRM CIT(A)S FINDINGS DELETING THE IMPUGNED DEEMED DIVI DEND ADDITION IN QUESTION. THE REVENUES SOLE SUBSTANTIVE GROUND IS THEREFORE REJECTED. 5. THIS REVENUES APPEAL IS DISMISSED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 29 TH DAY OF DECEMBER, 2017.] SD/- SD/- ( PRAMOD KUMAR ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEM BER AHMEDABAD: DATED 29/12/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 6 +23 45 / GUARD FILE. BY ORDER / . // . /0