M/s. Rene Impex Private Ltd, Kolkata V. ITO, Ward - 6(4), Kolkata, Kolkata

ITA 351/KOL/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70389 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2013
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 02-03-2011
• Court: TRIBUNAL
• Department Lawyers: DILI P KR RAKSHIT
• Assessee Lawyers: S JHAJHARIA; SUJAY SEN
• Keywords: Deemed dividend; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND ! ' ! ! ' ! ! ' ! ! ' ! , ) [BEFORE SHRI PRAMOD KUMAR, AM & SHRI MAHAVIR SINGH, JM] # # # # /I.T.A NO. 351/KOL/2011 '$% &' '$% &' '$% &' '$% &'/ // / ASSESSMENT YEAR: 2007-08 M/S. RENE IMPEX PRIVATE LTD. VS. INCOME-TAX OFFI CER, WD-6(4), KOLKATA (PAN: AACCR8894A) ()* /APPELLANT ) (+)*/ RESPONDENT ) DATE OF HEARING: 22.08.2013 DATE OF PRONOUNCEMENT: 22.08.2013 FOR THE APPELLANT: S/SHRI S. JHAJHARIA & SUJAY SEN FOR THE RESPONDENT: SHRI DILIP KR. RAKSHIT, JCIT (DR) , / ORDER PER MAHAVIR SINGH, JM/ ! ' ! ! ' ! ! ' ! ! ' ! , : THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-VI, KOLKATA IN APPEAL NO.858/CIT(A)/VI/2009-10/WARD-6(4)/KOL DATED 24.12. 2010. ASSESSMENT WAS FRAMED BY ITO, WARD-6(4), KOLKATA U/S. 143(3) OF THE INCOME TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2007-08 VIDE HIS ORDER DA TED 29.12.2009. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) CONFIRMING THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN THE HANDS OF NON-SHAREHOLDER. FOR THIS, ASS ESSEE HAS RAISED FOLLOWING GROUND NO.1: THAT ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAD GROSSLY ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE AO BY TREATI NG THE LOAN AND ADVANCES, RECEIVED BY THE APPELLANT FROM M/S. REFLIXONS NARAYANI IMPEX PV T. LTD., AMOUNTING TO RS.1,40,00,514/- AS DEEMED DIVIDEND BY WRONGLY AND ILLEGALLY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. SUCH ACTION OF THE CI T(A) IS BE BAD IN LAW, ILLEGAL AND ABINITIO VOID AND THE ADDITION AS CONFIRMED BY THE CIT(A) IS SUBJECTED TO BE CANCELLED/QUASHED/SET ASIDE. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE IS A NON- SHAREHOLDER AND THE ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL I N THE CASE OF ACIT VS. BHAUMIK COLOUR P. LTD. (2009) 313 ITR (AT)146 (MUM SB) AND ALSO THE D ECISION OF HONBLE DELHI HIGH COURT IN 2 ITA NO. 351/K/2011 M/S. RENE IMPEX PVT. LTD. A. Y 2007-08 THE CASE OF CIT VS. ANKITECH PVT. LTD. (2012) 340 ITR 14. ON THE OTHER HAND, THE LD. SR. DR HAS NOT OBJECTED NOR MADE ANY SUBMISSIONS THAT THE ASSESSEE IS A SHAREHOLDER OR NOT OR THE ISSUE IS NOT COVERED. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 10.10.2003 WITH AN AUTHORIZED CAPITAL OF RS.10,00,000/-. IT HAS ONLY TWO SHAREHOLDERS VIZ. SATYABRATA MUKHOPADHYAY AND SUJATA MUKHOPADHYAY HOLDING 100% S HARES OF THE COMPANY IN EQUAL CONTRIBUTION. REFLEXIONS NARAYANI IMPEX PVT. LTD. IS A PRIVATE LIMITED COMPANY HAVING SAME SHAREHOLDERS AND INCORPORATED IN THE YEAR 1994 AND WHOLLY ENGAGED IN EXPORT MARKET. FROM THIS, IT IS CLEAR THAT THE ASSESSEE IS A NON-SHAREH OLDER IN THE ABOVE COMPANY. IN THE CASE OF BHAUMIK COLOUR P. LTD. (SUPRA), THE SPECIAL BENCH R ELIED ON THE SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. C. P. SARATHY MUDALIAR (83 ITR 170) (SC) WHEREIN THE COMPANY ADVANCED LOANS TO AN HUF WHO WAS THE BENEFICIAL OWNER OF SHA RES IN THAT COMPANY BUT THE SHARES WERE REGISTERED IN THE NAME OF THE KARTA WHO HELD SHARES FOR AND ON BEHALF OF THE HUF. IT WAS HELD THAT SINCE THE HUF WAS ONLY A BENEFICIAL OWNER OF T HE SHARES AND NOT THE REGISTERED SHAREHOLDER OF THE COMPANY (AS RECOGNIZED BY COMPANY LAW), NO A DDITION IN THE HANDS OF THE HUF COULD BE MADE IN RESPECT OF DEEMED DIVIDEND. THE SPECIAL BE NCH HAS LAID DOWN THE FOLLOWING CONDITIONS TO BE FULFILLED IN DETERMINING WHETHER A PARTICULAR ADVANCE CAN BE CONSIDERED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE INCOME TAX ACT , 1961: I) THERE MUST BE A PAYMENT TO A PERSON BY A COMPA NY, II) THAT PERSON MUST BE A REGISTERED SHAREHOLDER O F THE PAYEE COMPANY AND ALSO A BENEFICIAL OWNER OF SHARES HOLDING MORE THAN 10% OF THE VOTING POWER IN THE COMPANY; OR III) THE PAYMENT MUST BE MADE TO A CONCERN IN WHICH THE PERSON REFERRED TO IN (II) ABOVE IS A MEMBER OR A PARTNER AND HE HOLDS A SUBST ANTIAL INTEREST IN THE CONCERN. SUBSTANTIAL INTEREST MEANS HOLDING MORE THAN 20% OF THE TOTAL VOTING POWER OF SUCH CONCERN IN CASE OF A COMPANY OR HE MUST BE EN TITLED TO 20% OF TOTAL INCOME OF SUCH CONCERN. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE IS A NON-SHAREHOLDER AND HENCE, PROVISION OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT IS NOT APP LICABLE. 5. WE ALSO FIND THAT IN THE CASE OF ANKITECH PVT. L TD., SUPRA THE HONBLE DELHI HIGH COURT HAS HELD AS UNDER: 3 ITA NO. 351/K/2011 M/S. RENE IMPEX PVT. LTD. A. Y 2007-08 FURTHER, IT IS AN ADMITTED CASE THAT UNDER THE NO RMAL CIRCUMSTANCES, SUCH, A LOAN OR ADVANCE GIVEN TO THE SHAREHOLDERS OR TO A CONCERN, WOULD NOT QUALIFY AS DIVIDEND. IT HAS BEEN MADE SO BY A LEGAL FICTION CREATED UNDER SECTI ON 2(22)(E) OF THE ACT. WE HAVE TO KEEP IN MIND THAT THIS LEGAL PROVISION RELATES TO DIVID END. THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED. L EGAL FICTION DOES NOT EXTEND TO SHAREHOLDER. WHEN WE KEEP IN MIND THIS ASPECT, T HE CONCLUSION WOULD BE OBVIOUS, VIZ., LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIE D UNDER SECTION 2(22)(E) OF THE ACT WOULD ALSO BE TREATED AS DIVIDEND. THE FICTION HAS TO STOP HERE AND IS NOT TO BE EXTENDED FURTHER FOR BROADENING THE CONCEPT OF SHAREHOLDERS BY WAY OF LEGAL FICTION. IT IS A COMMON CASE THAT ANY COMPANY IS SUPPOSED TO DISTRIB UTE THE PROFITS IN THE FORM OF DIVIDEND TO ITS SHAREHOLDERS/MEMBERS AND SUCH DIVID END CANNOT BE GIVEN TO NON- MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER SECTI ON 2(22)(E) OF THE ACT, VIZ., A CONCERN (LIKE THE ASSESSEE HEREIN), WHICH IS GIVEN THE LOAN OR ADVANCE IS ADMITTEDLY NOT A SHAREHOLDER/MEMBER OF THE PAYER COMPANY. THEREFORE , UNDER NO CIRCUMSTANCES, IT COULD BE TREATED AS SHAREHOLDER/MEMBER RECEIVING DIVIDEND . IF THE INTENTION OF THE LEGISLATURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HANDS OF DEEMING SHAREHOLDER, THEN THE LEGISLATURE WOULD HAVE INSER TED A DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL, THAT HAS NOT HAPPENED. MOST O F THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE REVENUE WOULD STAND ANSWERED, ONCE WE LOOK INTO THE MATTER FROM THIS PERSPECTIVE. RESPECTFULLY FOLLOWING THE HONBLE DELHI HIGH COURT DECISION CITED SUPRA, WE DELETE THE ADDITION AND ALLOW THIS GROUND OF APPEAL OF ASSESSE E. 6. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE EXPENDITURE UNDER THE HEAD GENERAL CHARGES, REPAIR AND MAINTENANCE AMOUNTING TO RS.1,06,434/- AND RS.1,60,028/- AS CAPITAL EXPENDIT URE. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT ON THE FACTS AND ON THE CIRCUMSTANCES OF TH E CASE THE CIT(A) HAD GROSSLY ERRED IN UPHOLDING/CONFIRMING THE ACTION OF THE AO IN TREATI NG THE SUM OF RS.1,06,434/- AND RS.1,60,028/- DEBITED BY THE APPELLANT UNDER THE HE AD GENERAL CHARGES AND REPAIRS AND MAINTENANCE RESPECTIVELY, AS CAPITAL EXPENDITURE. SUCH ACTION OF THE CIT(A) IN UPHOLDING/CONFIRMING THE AOS ACTION IS BAD IN LAW, ILLEGAL AND ABINITIO VOID AND IS SUBJECTED TO BE CANCELLED/QUASHED/SET ASIDE. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE GENERAL CHARGES AMOUNTING TO RS.1, 06,434/- CLAIMED BY THE ASSESSEE WERE ON ACCOUNT OF (I) MANNEQUINS RS.27000/-, (II) WOODEN S HIRT HANGER RS.64,434/- AND (III) NESTLE DOUBLE OPTION VENDING MACHINE RS.15,000/-. CIT(A) TREATED THAT THESE EXPENSES WERE INCURRED IN RELATION TO ASSETS WHICH WERE OF ENDURI NG BENEFITS AND DISALLOWED THE EXPENDING BEING CAPITAL. WE FIND THAT THE EXPENDITURE RELATI NG TO MANNEQUINS AMOUNTING TO RS.27,000/- AND WOODEN SHIRT HANGER AMOUNTING TO RS.64,434/- RE LATE TO THE ITEMS WHICH ARE BELOW RS.5000/-, IF WE CONSIDER THE ITEMS AS SINGLE ITEM. HENCE, THIS, IN ANY EVENTUALITIES, IS TO BE CONSIDERED AS REVENUE EXPENDITURE THE AMOUNT BEING BELOW RS.5000/-. IN RESPECT TO ONLY THE EXPENDITURE OF RS.15,000/- ON NESTLE DOUBLE OPTION VENDING MACHINE, THIS BEING A COFFEE 4 ITA NO. 351/K/2011 M/S. RENE IMPEX PVT. LTD. A. Y 2007-08 MACHINE, THE CIT(A) HAS RIGHTLY DIRECTED TO ALLOW D EPRECIATION @ 15% AND TREAT THIS AS CAPITAL EXPENDITURE. AS REGARDS TO EXPENSES OF RS.1,60,028 /- INCURRED ON ELECTRICAL REPAIRS CARRIED OUT IN SHOW ROOM AND CLAIMED AS REVENUE EXPENDITURE, WE FIND THAT NONE OF THE AUTHORITIES BELOW HAVE GIVEN ANY REASONING THAT HOW ELECTRICAL REPAIR S WILL AMOUNT TO CONSTRUCTION OF BUILDING AND IT WILL BE CAPITAL IN NATURE. HENCE, WE TREAT THE ELECTRICAL EXPENSES FOR REPAIRS AS REVENUE IN NATURE AND DIRECT THE AO ACCORDINGLY. THIS ISSUE O F ASSESSEES APPEAL IS PARTLY ALLOWED AS DIRECTED ABOVE. 8. THE NEXT ISSUE IS AS REGARDS TO DISALLOWANCE OF DONATION EXPENSES. AT THE OUT SET, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS I SSUE AND THE SAME IS DISMISSED AS NOT PRESSED. 9. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. 10. ORDER IS PRONOUNCED IN THE OPEN COURT. SD/- SD/- , ! ' ! ! ' ! ! ' ! ! ' ! , (PRAMOD KUMAR) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( - - - -) )) ) DATED : 22ND AUGUST, 2013 ./ '$01 '2 JD.(SR.P.S.) , 3 ''4 54&6- COPY OF THE ORDER FORWARDED TO: 1 . )* / APPELLANT M/S. RENE IMPEX PRIVATE LTD., C/O SALAR PURIA JAJODIA & CO. 7, C. R. AVENUE, KOLKATA-700 072. 2 +)* / RESPONDENT ITO, WARD-6(4), KOLKATA 3 . ',$ ( )/ THE CIT(A) , KOLKATA 4. ',$ CIT, KOLKATA 5 . ='> '$ / DR, KOLKATA BENCHES, KOLKATA +4 '/ TRUE COPY, ,$/ BY ORDER, ! 1 /ASSTT. REGISTRAR .