A.R. Magnetics (P) Ltd., New Delhi V. ITO, New Delhi

ITA 351/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53486 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 25-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRUJANI MOHANTY
• Keywords: Deemed dividend

Judgement Text

ITA NO. 351/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 351/DEL/2010 A.Y. : 2006-07 M/S A.R. MAGNETICS (P) LTD., 10, MILESTONE ISHWAR NAGAR, MATHURA ROAD, NEW DELHI 110 065 (PAN : AAACA6672R) VS. INCOME TAX OFFICER, WARD 1(1), NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. RAJAN BHATIA, ADV. DEPARTMENT BY : MS. SRUJANI MOHANTY, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM PER SHAMIM PER SHAMIM PER SHAMIM YAHYA: AM YAHYA: AM YAHYA: AM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 04.11. 2009 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE GROUNDS RAISED READ AS UNDER:- 1. THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS BAD BOTH IN LAW AND ON FACTS OF THE CASE. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING ADDITION OF ` 75,22,683/- A S MADE BY THE ASSESSING OFFICER. 3. THAT THE PROVISIONS OF SECTION 2(22)(E) ARE NOT ATTRACTED ON THE FACTS OF THE CASE. ITA NO. 351/DEL/2010 2 4. THAT IN ANY CASE ADDITION U/S. 2(22)(E) CANNOT B E MADE IN THE HANDS OF THE APPELLANT COMPANY AS THE APPELLANT COMPANY IS NOT THE REGISTERED SHARE HOLDER OF THE PAYER/ LENDER COMPANY. 5. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS PASSED A MECHANICAL AND NON REASONED ORDER WITHOUT DEALING WITH THE CONTENTIONS RAISED AND IGNORING THE MATERIAL ON RECORD AND FOR ALL THOSE REASONS INDIVIDUALLY HIS ORDER IS VITIATED LAW. 6. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLDING THAT VAGUE SUBMISSIONS WERE MADE / DETAILS WERE NOT PROVIDED / STRONG ARGUMENTS WERE NOT MADE. EVEN CONTENTIONS RAISED BY THE ASSESSEE AND SPELT OUT BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER WERE NOT EFFECTIV ELY DEALT WITH BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WHILE DISPOSING OFF THE APPEAL. 7. THAT SECTION 2(22)(E) CANNOT APPLY WHERE THE REC IPIENT CONCERN IS A COMPANY. 8. THAT SECTION 2(22)(E) CANNOT APPLY TO INTER CORP ORATE DEPOSITS OR WHERE MONEY IS LENT IN THE ORDINARY COUR SE OF BUSINESS OR WHERE MONEY IS GIVEN TO ANOTHER PERSON FOR COMMERCIAL CONSIDERATIONS AND FOR THESE REASONS THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION. ITA NO. 351/DEL/2010 3 9. THAT LEAVE MAY BE GRANTED TO ADD/AMEND/DELETE A NY GROUND MADE HEREINABOVE. 3. IN THIS CASE ASSESSING OFFICER OPINED THAT PRO VISION OF SECTION 2(22)(E) OF THE IT ACT ARE ATTRACTED IN THE CASE OF THE ASSESSEE. THE ASSESSEE COMPANY HAS RECEIVED LOAN FROM M/S ARCON ( INDIA) PRIVATE LIMITED IN WHICH SHRI SANJAY BHASKAR WAS HOLDING 50.4 9% OF THE SHARES. THE ASSESSING OFFICER OBSERVED THAT SHRI SANJAY BHASKAR WAS ALSO HOLDING 99.98% OF THE SHARE IN THE ASSESSEE CO MPANY AND KEEPING IN VIEW THE PROVISION OF SECTION 2(22)(E) O F THE IT ACT THE AMOUNT WAS TAXABLE IN THE HANDS OF THE ASSESSEE. T HUS THE ASSESSING OFFICER CONCLUDED AS UNDER:- 1. MR. SANJAY BHASKER IS HOLDING MORE THAN 10% OF SHARES IN M/S ARCON (INDIA) PRIVATE LIMITED. 2. HE IS HOLDING MORE THAN 20% SHARES IN OUR ASSES SEE COMPANY AS ON 31.3.2005 AND 31.3.2006. IN OTHER WORDS HE IS HAVING SUBSTANTIAL INTEREST IN OUR COMPANY TO WHICH LOAN HAS BEEN ADVANCED BY M/S ARCON (INDIA) PVT. LTD. 3. M/S ARCON (INDIA) PVT. LTD. POSSESSES ACCUMULATED PROFITS TO THE EXTENT OF ` 75,22,683/- AS ON 31.3.2 005. 4. THE LOAN PROVIDER COMPANY IS NOT A COMPANY IN WHI CH PUBLIC ARE SUBSTANTIALLY INTERESTED. FROM THE ABOVE IT IS QUITE CLEAR THAT THE LOAN ADVANC ED BY M/S. ARCON (INDIA) PVT. LTD., TO THE EXTENT OF ` 75,22,683/- IS FALLING WITHIN THE PURVIEW OF THE PR OVISIONS OF SECTION 2(22)(E) OF THE IT ACT, 1961 ACCORDINGLY TH E SAME IS ITA NO. 351/DEL/2010 4 TAXED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE IT ACT, 1961. TO THIS EXTENT THE ASSESSEE HAS FILED INACCURATE PA RTICULARS AND HENCE PENALTY U/S 271(1)(C) OF THE IT ACT, 196 1 IS INITIATED. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT ASSESSEE HAS NOT BEEN PROV IDING COMPLETE DETAILS. HE OBSERVED THAT LD. AUTHORISED REPRESE NTATIVE OF THE ASSESSEE HAS BEEN MAKING VAGUE AND GENERAL SUBMISSION S WITH REGARD TO THE FRAMING OF THE PARTICULAR SECTION 2(22)(E) OF THE IT ACT. HE FOUND THAT ASSESSEE HAS NOWHERE CLARIFIED THE FACTS OF TH E CASE AND HAS ALSO NOT PUT FORWARD ANY JUDICIAL PRONOUNCEMENTS OR LEGA L ARGUMENTS TO CONTROVERT THE FINDINGS MADE BY THE ASSESSING OFFICE R. LD. COMMISSIONER OF INCOME TAX (APPEALS) PROCEEDED TO CON FIRM THE ASSESSING OFFICERS ACTION IN THIS REGARD. 5. AGAINST THE ABOVE ORDER OF THE LD. COMMISSIONER O F INCOME TAX (APPEALS) THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSEL O F THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF C.I.T. VS. ANKITECH (P) LTD. 199 TAXMAN 341. FURTHER, HE PLEAD ED THAT THE MATTER MAY BE REMITTED TO THE FILE OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AS ASSESSEE HAS RAISED VARIOUS GROUND WHI CH HAVE NOT BEEN ADJUDICATED BY THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). 6.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D COULD NOT CONTROVERT THE FACT THAT THE ISSUE INVOLVED IS COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT. ITA NO. 351/DEL/2010 5 HOWEVER, RELYING UPON THE ASSESSMENT ORDER AND THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS,) SHE PLEADED TH AT ADDITION HAS RIGHTLY BEEN SUSTAINED BY THE LD. COMMISSIONER OF INC OME TAX (APPEALS) AND HIS ORDER SHOULD BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF AN KITECH PVT. LTD. CITED ABOVE HAS CONCLUDED AS UNDER:- MOREOVER, SINCE THE PURPOSE OF SEC. 2(22)(E), AS STATED IN CIRCULAR NO. 495 DATED 22.9.1987, IS TO T AX THE DISTRIBUTION OF PROFITS TO SHAREHOLDERS, WHERE THE SAME IS DISTRIBUTED NOT BY WAY OF DIVIDEND BUT BY W AY OF LOAN OR ADVANCES, THEREFORE, THE VIEW THAT WORD SHAREHOLDER HAS BEEN USED AS REGISTERED SHAREHOLDER CANNOT BE FOUND FAULT WITH. ANY OTHER VIEW WOULD BE AGAINST THE VERY SPIRIT OF SEC. 2(22 )(E) OF IT ACT. THE CONDITION OF 10% OF THE VOTING POW ER IS TO BE SEEN QUA THE SHAREHOLDER; OTHERWISE, THE CONDITION WOULD BE OF NO RELEVANCE. 8. NOW WE CONSIDER THE PRESENT ISSUE IN LIGHT OF TH E AFORESAID PRECEDENT. WE FIND THAT IT IS AN ADMITTED POSITION T HAT ASSESSEE COMPANY IS NOT HOLDING ANY SHARE IN M/S ARCON INDI A PVT. LTD. THE SHARES ARE HELD BY SHRI SANJAY BHASKAR AND NOT BY TH E ASSESSEE COMPANY AND THE ASSESSEE COMPANY IS NOT A REGISTERED SHARE HOLDER. IN THAT VIEW OF THE MATTER THE PROVISIONS OF SECT ION 2(22)(E) ARE NOT ATTRACTED. 9. SINCE WE HAVE ALREADY FOUND THAT THE ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDI CTIONAL HIGH COURT ITA NO. 351/DEL/2010 6 CITED ABOVE, HENCE, WE ARE NOT INCLINED TO REMIT THE MATTER BACK TO THE FILE OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AS IT WILL ONLY BE FOR THE PURPOSE OF DECIDING OTHER ISSUES ACADEMICAL LY. WHEN THE MATTER ITSELF ON ONE ISSUE IS COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, THEN IT WILL BE JUDICIALLY INAPPROPRIATE TO RESTORE BACK THE MATTER TO THE FILE OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND ASK HIM TO D ECIDE THE ACADEMIC ISSUES WHICH MAY SUPPORT THE CASE OF THE ASS ESSEE ON OTHER GROUNDS. IN THE BACKGROUND OF THE AFORESAID DISCUS SION AND PRECEDENTS, WE SET ASIDE THE ORDERS OF THE AUTHORIT IES BELOW ON THIS ISSUE AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSE E. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/12/2012. SD/- SD/- [ [[ [I.P. BANSAL I.P. BANSAL I.P. BANSAL I.P. BANSAL] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 16/12/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES