THE DCIT 9(2), MUMBAI V. M/S PATEL ALUMINIUM PRIVATE LIMITED, MUMBAI

ITA 363/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4034 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 17-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 13-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K SOMANI
• Keywords: Depreciation; Deemed dividend; Revenue expenditure; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . , , BEFORE SHRI B.R. MITTAL, JM AND SHRI RAJENDRA, AM ./I.T.A. NO.363/MUM/2011 ( / ASSESSMENT YEAR: 2007-08) ASSTT. COMMISSIONER OF INCOME TAX RANGE 9 (2), ROOM NO.218, 2 ND FLOOR, AYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S PATEL ALUMINIUM PRIVATE LIMITED, PATEL VATIKA, WESTERN EXPRESS HIGHWAY, GOREGAON (EAST), MUMBAI-400063. ./ ./PAN/GIR NO. : AAACP2738F ( ' /APPELLANT ) .. ( # ' / RESPONDENT ) ' / APPELLANT BY : SHRI MOHIT JAIN # ' % /RESPONDENT BY : SHR I S.K.SOMANI % ) / DATE OF HEARING : 18.07.2013 % ) /DATE OF PRONOUNCEMENT : 26.07.2013 / O R D E R PER B.R.MITTAL JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSM ENT YEAR 2007-08 AGAINST THE ORDER OF LD. CIT(A) DATED 4.11.2010 ON FOLLOWING GR OUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.30,32,5 22/- TAXED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE IT ACT, 1961 OVERLOOKING THE FA CT THAT THE ASSESSEE HAS DERIVED A BENEFIT AS VISUALIZED BY SECTION 2(22)(E) AND THAT THE INCOME WAS RIGHTLY TAXABLE IN THE HANDS OF THE RECIPIENT IN VI EW OF THE ITAT DECISION IN THE CASE OF M/S UNISOL INFRA SERVICES PVT LTD. IN ITA NO.2187/MUM/2008 DATED 11.8.2009; 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS,.6,89,6 74/- IGNORING THE FINDING IN THE ASSESSMENT ORDER THAT THE AMOUNT OF RS.7,66,304/- DEBITED TO P AND L ACCOUNT ACTUALLY REPRESENTED CAPITAL EXPENDITURE AND THAT T HE AO HAD RIGHTLY DISALLOWED IT AFTER GRANTING DEPRECIATION DUE TO THE ASSESSEE I.T.A. NO.363/MUM/2011 2 2. IN RESPECT OF GROUND NO.1 OF THE APPEAL, WE HAVE HEARD LD. REPRESENTATIVES OF THE PARTIES AND HAVE CONSIDERED THE ORDERS OF AUTHO RITIES BELOW. AT THE TIME OF HEARING, LD. DR SUPPORTED THE ORDER OF AO AND WHEREAS LD.AR RELIED ON THE ORDER OF LD. CIT(A). HE FURTHER SUBMITTED THAT THE LENDER COMPANY VIZ M/S EXTRUSION PROCESSER PVT.LTD HAD NO ACCUMULATED PROFITS ON THE OPENING AS WELL AS AN D END OF FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. WE ALSO OB SERVE THAT AO HAS CONSIDERED CREDIT BALANCE OF RS.30,32,522/- AS DEEMED DIVIDEN D INCOME U/S 2(22)(E) OF THE ACT ON THE GROUND THAT SHRI M.I.PATEL, WHO WAS A DIRECTOR OF THE ASSESSEE-COMPANY WAS BENEFICIAL OWNER OF MORE THAN 10% SHAREHOLDING IN BOTH THE LENDING COMPANY AS WELL AS THE ASSESSEE-COMPANY. WE OBSERVE THAT LD. CIT(A ) HAS CONSIDERED THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V/S BHAUMIK COLOUR (P) LIMITED REPORTED IN 313 ITR (AT) 146 (SB) (MUM) WHEREIN THE TRIBUNAL HAS HELD THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CREATE A FICTION BRINGING IN AMOUNTS PAID OTHERWISE THAN AS DIVIDEND INTO THE NET OF DIVIDEND S. THEREFORE, THIS MUST BE GIVEN A STRICT INTERPRETATION. IT WAS HELD THAT IF PERSO N IS A REGISTERED SHAREHOLDER BUT NOT BENEFICIARY SHAREHOLDER THEN THE PROVISIONS OF SECT ION 2(22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGI STERED SHAREHOLDER THEN ALSO THE FIRST LIMB OF PROVISIONS OF SECTION 2(22 )(E) WILL NOT AP PLY. WE MAY ALSO OBSERVE THAT LD. CIT(A) HAS ALSO CONSIDERED THE DECISION OF THE HON BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT, UDAIPUR V/S HOTEL HILLTOP (2009) 313 ITR 116 (RAJ), WHEREIN IT HAS BEEN HELD THAT IN ORDER TO ATTRACT THE PROVISIONS OF SEC TION 2(22)(E) OF THE ACT, THE FOLLOWING FOUR CONDITIONS ARE SINE-QUA-NON : (I) THE ASSESSEE SHOULD BE A SHAREHOLDER OF THE CO MPANY; (II) THE COMPANY SHOULD BE CLOSELY HELD COMPANY IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED; III) THERE MUST BE PAYMENT BY WAY OF ADVANCES OR LO AN TO A SHAREHOLDER OR ANY PAYMENT BY THE COMPANY ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF THE SHAREHOLDER; AND (IV) THERE MUST BE SUFFICIENT ACCUMULATED PROFITS I N THE HANDS OF THE COMPANY UPTO THE DATE OF SUCH PAYMENT. 3. THE SIMILAR VIEW WAS ALSO TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT. VS. UNIVERSAL MEDICARE PRIVATE LIMITED 2010) 324 ITR 263 (BOM) . 4. WE OBSERVE THAT THE ASSESSEE IS NEITHER REGISTER ED SHAREHOLDER OF LENDING COMPANY NOR THE BENEFICIAL OWNER OF MORE THAN 10% OF THE SHARE HOLDER OF THE LENDING COMPANY. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT(A) HAS RIGHTLY HELD I.T.A. NO.363/MUM/2011 3 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E PROVISIONS OF SECTION 2(22(E) DOES NOT APPLY TO THE ASSESSEE BY FOLLOWING THE ABOVE DE CISIONS OF THE INCOME TAX APPELLATE TRIBUNAL/ THE HONBLE HIGH COURTS. HENCE, GROUND NO .1 TAKEN BY THE DEPARTMENT IS REJECTED. 5. IN RESPECT OF GROUND NO.2 OF THE APPEAL, LD.DR R ELIED ON THE ORDER OF THE AO AND WHEREAS LD. AR RELIED ON THE ORDER OF LD.CIT(A). 6. WE OBSERVE THAT THE ASSESSEE IS ENGAGED IN THE B USINESS OF MANUFACTURING OF ENGINEERING GOODS. THE SAID FACTORY BUILDING WAS C ONSTRUCTED IN THE YEAR 1972 COMPRISING OF GROUND + FOUR UPPER FLOORS. WE OBSER VE THAT AO HAS HIMSELF STATED THAT ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE IN RESPECT OF AMOUNT OF RS.7,66,304/- DEBITED UNDER THE HEAD REPAIRS AND MAINTENANCE OF BUILDING HAS BEEN MADE ON VARIOUS DATES FOR THE PURPOSE OF RENOVATION. THERE FORE, AO HAS CONSIDERED THE SAID EXPENDITURES AS CAPITAL IN NATURE ON THE GROUND THA T IT GIVES ENDURING BENEFIT TO THE ASSESSEE. WHEREAS IT IS NOT THE CASE OF THE AO TH AT THE SAID REPAIRS OF THE FACTORY BUILDING HAS RESULTED INTO ANY NEW ASSETS OR INCRE ASE IN AREA OF EXISTING BUILDING. WE OBSERVE THAT THE ASSESSEE HAS SPENT THE SAID AMOUNT FOR THE REPLACEMENT OF OLD WORN OUT FLOORING WITH NEW TILES, REPAIRS OF EXISTING DO ORS AND WALLS, TOILETS ETC. WHICH WOULD CONSIDER IN THE NATURE OF CURRENT REPAIRS AND THE EXPENDITURE THEREON IS OF REVENUE EXPENDITURE AND NOT CAPITAL IN NATURE. HENCE, WE HO LD THAT THE SAID EXPENDITURES BE ALLOWED AS REVENUE EXPENDITURE. THEREFORE, GROUND NO.2 OF THE APPEAL TAKEN BY THE DEPARTMENT IS REJECTED BY UPHOLDING THE ORDER OF T HE LD. CIT(A). 7. BEFORE WE PART WITH THIS GROUND, WE MAY STATE TH AT AO HAS ALLOWED DEPRECIATION. THE AO WHILE GIVING EFFECT TO THIS ORDER WILL ALLOW THE CLAIM OF THE ASSESSEE BUT WILL WITHDRAW THE DEPRECIATION ALLOWED EARLIER TO THE AS SESSEE ON THE ABOVE AMOUNT. 8. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED AFTER HEARING LD. REPRESENTATIVE OF THE PARTIES IN THE OPEN COURT ON 26TH JULY, 2013 % / 0 26 TH JULY, 2013 % SD SD (RAJENDRA) (B.R. MITTAL) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 0 DATED 26/07/2013 I.T.A. NO.363/MUM/2011 4 . . ./ SRL , SR. PS ! '! / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. # ' / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- 4. 4 / CIT 5. 5 #7 , ) 7 , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI