DCIT, New Delhi V. M/s. Enkay Hospitalities Pvt. Ltd/, New Delhi

ITA 358/DEL/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5802 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-03-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 25-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS PRATIMA KAUSHIK
• Assessee Lawyers: R S SINGHAVI
• Keywords: Deemed dividend
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE-PRESI DENT AND SHRI C.L. SETHI, JUDICIAL MEMBER ITA NO. 358/DEL/2010 ASSESSMENT YEAR : 2006-07 DCIT, CIRCLE 11(1), NEW DELHI VS. M/S. ENKAY HOSPITALITIES PVT. LTD., 3 & 4, ENKAY HOUSE, MAICHA MARG, CHANKYAPURI, NEW DELHI PAN: AABCE 1120 F (APPELLANT) (RESPONDENT) APPELLANT BY : MRS. PRATIMA KA USHIK, DR RESPONDENT BY : SHRI R.S. SINGHAVI, CA O R D E R PER: C.L. SETHI, J.M. IN THIS APPEAL FILED BY THE REVENUE AGAINST THE O RDER DATED 17.11.2009 PASSED BY THE LD. CIT(A) PERTAINING TO THE A.Y. 200 6-07, A SOLITARY ISSUE RAISED BY THE REVENUE IS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS . 16,73,415/- MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND U/S. 2 (22)(E) OF THE IT ACT. 2. BRIEFLY STATED THE FACTS RELATING TO THE ABOVE I SSUE ARE AS UNDER:- ITA NO. 358/DEL/2010 PAGE 2 OF 6 (I) DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS SHOWN LOANS AND ADVANCES OF R S. 14,64,667/- IN THE ACCOUNT OF M/S. RED ROSE ESTATES PVT. LTD. THE SHAREHOLDE RS OF THE ASSESSEE COMPANY AND M/S. RED ROSE ESTATES PVT. LTD., AS NOTED BY TH E AO ARE AS UNDER:- THE SHARE HOLDING PATTERN OF M/S. ENKAY HOSPITALITI ES PVT. LTD. ON 31.03.2006 IS AS BELOW: S. NO. NAME OF THE SHAREHOLDER NO. OF SHARES HOLDING 1. SH. PARVINDER S. KOHLI 43500 9.06% 2. SH. AMIT DEEP KOHLI 108250 22.55% 3. SH. PAVIT DEEP KOHLI 108250 22.55% 4. SMT. NAVJEET KAUR KOHLI 220000 45.83% THE SHARE HOLDING PATTERN OF M/S. RED ROSE ESTATES PVT. LTD. ON 31.03.2006 IS AS BELOW: S. NO. NAME OF THE SHAREHOLDER NO. OF SHARES HOLDING 1. SH. PARVINDER S. KOHLI 400 8.89% 2. SMT. NAVJEET KAUR KOHLI 1180 26.22% 3. M/S. P.S. KOHLI HUF 850 18.89% 4. SH. AMIT DEEP KOHLI 1035 23% 5. SH. PAVIT DEEP KOHLI 1035 23% 3. THE AO, THEREFORE, HAS TAKEN A VIEW THAT THE AMO UNT TAKEN FROM M/S. RED ROSE ESTATES PVT. LTD. IS TO BE TREATED AS DEEMED D IVIDEND U/S. 2(22)(E) OF THE ACT. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY I T SHOULD NOT BE BROUGHT TO TAX. ITA NO. 358/DEL/2010 PAGE 3 OF 6 IN REPLY THERE TO, THE ASSESSEE SUBMITTED THAT M/S. RED ROSE ESTATE PVT. LTD HAS HOUSE-KEEPING CONTRACT AND THE TRANSACTIONS WITH TH E SAID CONCERN ARE IN THE NATURE OF BUSINESS TRANSACTIONS, AND DOES NOT REPRE SENT ANY LOAN OR ADVANCE SO AS TO TREAT THE SAME BEING COVERED BY THE PROVISIONS O F SECTION 2(22)(E) OF THE ACT. 4. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO BY OBSERVING THAT THERE WAS NO CONTRACT WITH M/S. RED ROSE ESTAT ES PVT. LTD. REGARDING ANY HOUSE KEEPING AND, SECONDLY, THE AMOUNT WAS SHOWN U NDER THE HEAD LOANS AND ADVANCES. THE AO, THEREFORE, MADE THE ADDITION OF RS. 16,73,415/- U/S. 2(22)(E) OF THE ACT. 5. ON AN APPEAL, THE CIT(A) HAS DELETED THE ADDITIO N BY OBSERVING AS UNDER:- 4. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE. THE ASSESSING OFFICER APPLIED THE PROVISION OF SEC. 2(2 2)(E) ON THE GROUND THAT THE DIRECTORS ARE HOLDING SHARES IN BOT H THE COMPANIES. HOWEVER, THERE IS NO FINDING THAT THERE WAS A COMMON HOLDING BETWEEN BOTH THE COMPANIES. I HAVE GONE TH ROUGH THE DECISIONS OF SPL. BENCH IN THE CASE OF ACIT VS. BHA UMIK COLOURS PVT. 314 ITR 80 (AT) AS PER WHICH IT HAS BEEN LAID DOWN THAT FOR APPLYING PROVISIONS OF SEC. 2(22)(E), BOTH THE REQU ISITE CONDITIONS ABOUT SHARE HOLDING AND BENEFICIARIES OF LOANS AND ADVANCES SHOULD BE SATISFIED. IT IS SELF EVIDENT FROM THE ASSESSMENT ORDER THAT THE LOANS AND ADVANCES, IF ANY, HAS NOT BEEN TO ANY SHARE HOL DER BUT TO THE COMPANIES IN WHICH THE SHARE HOLDERS HAVE SOME COMM ON SHARE HOLDING. THE APPELLANT COMPANY HAVING RUNNING ACCO UNT WITH TUBE ROSE ESTATES PVT. LTD. HAS NOT SHARE HOLDING I N LENDER COMPANY AND AS SUCH PROVISIONS OF SEC. 2(22)(E) ARE NOT APPLICABLE IN THE CASE OF THE APPELLANT COMPANY. I AM IN AGRE EMENT WITH THE ITA NO. 358/DEL/2010 PAGE 4 OF 6 PRINCIPLES LAID DOWN BY THE HONBLE SPL. BENCH AND IN THE LIGHT OF THE FACTS OF THE CASE BROUGHT ON RECORD, PROVISIONS OF SEC. 2(22)(E) CANNOT BE APPLIED. 6. HENCE, THE DEPARTMENT IS IN APPEAL. 7. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 8. THE LD. DR HAD MERELY RELIED UPON THE AOS ORDER AND SUPPORTED HIS OBSERVATIONS AND REASONS IN MAKING THE ADDITION. 9. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, REITERATED THE CONTENTIONS AND SUBMISSIONS THAT WERE MADE BEFORE T HE CIT(A). 10. THE ASSESSEE BEFORE US IS M/S. ENKAY HOSPITALIT IES PVT. LTD. THERE IS A DEPOSIT OF RS. 14,64,667/- IN THE ACCOUNT OF M/S. R ED ROSE ESTATES PVT. LTD. IN THE BOOKS OF THE ASSESSEE. FROM PERUSAL OF THE SHA RE HOLDING PATTERN OF M/S. RED ROSE ESTATES PVT. LTD. AS NOTED BY THE AO, IT IS CL EAR THAT SHAREHOLDERS OF M/S. RED ROSE ESTATES PVT. LTD. ARE THE FOLLOWING PERSON S:- THE SHARE HOLDING PATTERN OF M/S. RED ROSE ESTATES PVT. LTD. ON 31.03.2006 IS AS BELOW: S. NO. NAME OF THE SHAREHOLDER NO. OF SHARES HOLDING 1. SH. PARVINDER S. KOHLI 400 8.89% 2. SMT. NAVJEET KAUR KOHLI 1180 26.22% 3. M/S. P.S. KOHLI HUF 850 18.89% 4. SH. AMIT DEEP KOHLI 1035 23% ITA NO. 358/DEL/2010 PAGE 5 OF 6 5. SH. PAVIT DEEP KOHLI 1035 23% 11. FROM THE SAID HOLDING OF M/S. RED ROSE ESTATES PVT. LTD., IT IS CLEAR THAT THE PRESENT ASSESSEE I.E. M/S. ENKAY HOSPITALITIES LTD. IS NOT A REGISTERED SHAREHOLDER OF M/S. RED ROSE ESTATE PVT. LTD. THE SHAREHOLDERS OF M/S. RED ROSE ESTATES PVT. LTD. ARE ALSO HAVING SHARE HOLDIN G IN THE PRESENT ASSESSEE COMPANY, BUT THAT IS NOT SUFFICIENT TO HOLD THAT TH E PRESENT ASSESSEE COMPANY IS A SHAREHOLDER OF M/S. RED ROSE ESTATE PVT. LTD. FOR T HE PURPOSE OF INVOKING THE PROVISIONS OF SECTION 2(22)(E). IT HAS BEEN HELD B Y THE SPECIAL BENCH OF ITAT IN THE CASE OF ACIT VS. BHAUMIK COLOURS PVT. LTD. 314 ITR 80 (AT) THAT BOTH THE CONDITIONS ABOUT THE SHAREHOLDING AND AS WELL BENEF ICIARY OF LOANS AND ADVANCES SHOULD BE SATISFIED. THEREFORE, IN THE PRESENT CAS E, THE ONE OF THE REQUISITE CONDITION THAT THE BENEFICIARY OF LOANS AND ADVANCE S SHOULD ALSO BE, AT THE SAME TIME, A REGISTERED HOLDER OF THAT COMPANY, WHO HAS GIVEN THE LOANS AND ADVANCES TO THE CONCERNED COMPANY I.E. BENEFICIARY, IS NOT S ATISFIED. THE CIT(A) HAS RIGHTLY HELD THAT THE ASSESSEE COMPANY HAVING NO SH AREHOLDING IN LENDER COMPANY, IS NOT HIT BY THE PROVISIONS OF SECTION 2( 22)(E) OF THE ACT. 12. MOREOVER, ON FACTS THE CIT(A) HAS ALSO GIVEN A FINDING THAT THE TRANSACTION BETWEEN THE TWO COMPANIES WAS IN THE NATURE OF RUNN ING ACCOUNT RELATING TO THE ITA NO. 358/DEL/2010 PAGE 6 OF 6 AGREEMENT FOR HOUSE KEEPING AND THUS, CANNOT BE CON SIDERED TO BE IN THE NATURE OF LOANS AND ADVANCES, AND THIS FINDING HAS NOT BEEN C ONTROVERTED BY THE DEPARTMENT BY POINTING OUT ANY MATERIAL TO THE CONTRARY. 13. IN THIS VIEW OF THE MATTER, WE ARE INCLINED TO UPHOLD THE ORDER OF THE CIT(A), WHICH IS ACCORDINGLY UPHELD. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 15. THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH, 2010. SD/- (G.E. VEERABHADRAPPA) VICE-PRESIDENT SD/- (C.L. SETHI) JUDICIAL MEMBER DATED: 31 ST MARCH, 2010. *NITASHA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. BY ORDER DEPUTY REGISTRAR