Zoom Brushes (P) Ltd., Noida V. ITO, New Delhi

ITA 3636/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81527 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 23-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Keywords: Question of law; Deemed dividend

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H : NEW DELHI BEFORE SHRI R. S. S YAL , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 3636 /DEL/ 2012 (ASSESSMENT YEAR: 2009 - 10 ) ZOOM BRUSHES (P) LTD. C/O. SINHA & SONGS (FINANCIAL TAX LAW CON SULTANTS) FF - 100, ANSAL FORTUNE ARCADE, K - BLOCK, SECTOR - 18 , NOIDA PAN: AAACZ2318K VS. ITO WARD - 18 ( 4 ) , AAYAKAR BHAWAN, C.R. BUILDING NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : PRATAP GUPTA & PRAKASH GUPTA, CA RESPONDENT BY : SAMEER SHARMA, SR. DR O R D E R PER A. T. VARKEY , JUDICIAL MEMBER THE APPEAL IS AGAINST THE ORDER DATED 27.04.2012 OF THE LD CIT(A) - XXI FOR THE ASSESSMENT YEAR 2009 - 10 . 2. ALL THE GROUNDS OF THE APPEAL RELATES TO ADDITION MADE RS .33,60,444/ - U/S 44 OF THE INCOME TAX ACT , 1961 (HEREIN AFTER THE ACT). 3. IN THIS CASE, THE AO IN PARAGRAPH NO.4 OF ASSESSMENT ORDER, HAS HELD THAT ASSESSEE COMPANYS CASE FALLS UNDER THE SECOND LIMB OF SECTION 2(22)(E). BY DISCUSSI NG THAT PORTION OF THE SECTION 2(22)(E) AO HAS ARRIVED AT THE CONCLUSION THAT INSTANT IN THIS CASE SHRI T.N. MALHOTRA IS A SHAREHOLDER WITH HOLDING OF MORE THAN 10% IN M/S. S.R. BRISTLE PRODUCTS P. LTD. AND HE IS ALSO MEMBER SHAREHOLDER WITH SUBSTANTIAL IN TEREST I.E. MORE 20% HOLDING IN THE RECIPIENT ASSESSEE COMPANY. THUS THE LOAN RECEIVED BY ASSESSEE COMPANY IS CAUGHT IN THE MISCHIEF OF SECOND LIMB OF SEC. 2(22)( E) AND ADDITION OF RS.33,60,444/ - WAS MADE U/S 44 OF THE ACT. 4. THE LD CIT(A) HAS SUSTAINE D THE ADDITION BY HOLDING AS UNDER: - 3.4 I HAVE GONE THROUGH THE FINDING OF THE AO AND DECISION ON PAGE NO. 2 APPLICATION OF SECOND LIMB OF SECTION 2(22)(E) TO THE APPELLANT CASE AND I FOUND THAT AO HAS VERY RIGHTLY APPLIED THE PROVISIONS. IN THIS REGARD I PUT MY R ELIANCE ON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. SUNIL CHOPRA, (2011) 58 DTR (DEL) 305 WHEREIN, IN THE RELEVANT PARAGRAPHS NO.9 AND 10, HON'BLE DELHI HIGH COURT HAS HELD AS UNDER: '9. WITH REGARD TO THE PAYMENTS MADE BY THE COMPA NIES IN WHICH THE ASSESSEE HELD SHARES, IN THE OTHER COMPANIES IN WHICH HE HAD SUBSTANTIAL INTEREST AND WHICH THE ASSESSEE WAS TAKING TO BE TOWARDS ALLOTMENT OF SHARES, THE A 0 RECORDED THAT THE ASSESSEE WAS REQUIRED TO PRODUCE THE CERTIFICATE FROM THE ROC IN SUPPORT OF HIS CONTENTION THAT SHARES HAD INDEED BEEN ALLOTTED TO THE INVESTING COMPANIES. HOWEVER, NO EVIDENCE COULD BE PRODUCED REGARDING THE ALLOTMENT OF SHARES. CONSEQUENTLY, AO TREATED THESE AMOUNTS OF ADVANCES/ LOANS ALSO AS DEEMED DIVIDEND UNDER S. 2(22)(E) IN THE HANDS OF ASSESSEE. IN THIS REGARD ALSO, THE OBSERVATIONS OF THE TRIBUNAL ARE NOT ONLY UNWARRANTED BUT DEVOID OF ANY BASIS. IT SEEMS TO HAVE TAKEN AS CORRECT WHAT WAS STATED BY THE ASSESSEE BEFORE IT. WE HAVE SEEN THE ORDER OF THE AO WHI CH IS WELL REASONED AND A SPEAKING ONE. LIKEWISE, THE OBSERVATION OF TRIBUNAL THAT THE ASSESSEE HAS DEMONSTRATED BEFORE THE FIRST APPELLATE AUTHORITY AS TO HOW AO CONSTRUED ALL RECEIPTS AS DEEMED DIVIDEND WITHOUT ANALYTICALLY EXAMINING THEM, AND THAT THE C I T (A) EXCLUDED SUBSTANTIAL PORTION FROM, SUCH DEEMED DIVIDEND AND THE REVENUE HAS NOT CHALLENGED THE SAME, ARE ALL IRRELEVANT AND UNCALLED FOR. SIMILARLY, THE OBSERVATIONS THAT THE ASSESSEE RIGHT FROM THE BEGINNING HAS CONTENDED THAT HE IS IN THE BUSINESS OF BROKERAGE OF REA L ESTATE AND WHENEVER THE COMPANY HAD ANY SURPLUS THEY USED TO ADVANCE THE MONEY TO THE ASSESSEE FOR MAKING INVESTMENT IN REAL ESTATE AND (HAT NEITHER THE ASSESSEE NOR THE COMPANIES ARE DISPUTING THIS CONDUCT IS NOTHING BUT GETTING SWAY ED AWAY WITH THE STATEMENTS OF THE ASSESSEE. THOUGH THESE WERE QUESTIONS OF FACTS WHICH WERE RECORDED BY THE AUTHORITIES BELOW, BUT SINCE GREAT PERVERSITY AND INFIRMITY WAS POINTED OUT BY THE LEARNED COUNSEL FOR THE REVENUE IN THE FINDINGS AND OBSERVATIONS RECORDED BY THE TRIBUNAL, WE CHOSE TO EXAMINE THE FACTUAL MATRIX AS NOTED ABOVE. 10. FOR ALL THESE REASONS, THE IMP UGNED ORDER IS NOT SUSTAINABLE. C ONSEQUENTLY, WE ANSWER BOTH THE QUESTIONS IN NEGATIVE I.E. IN FAVOUR OF THE REVENUE AND AGAINST THE ASSES SEE. WE ALLOW THE APPEAL OF THE REVENUE AND SET ASIDE THE IMPUGNED ORDER. ' 3. 5 THE ASSESSEES CASE IS COVERED BY THE DECISION OF THE HONBLE DELHI HIGH COURT AS DISCUSSED ABOVE, RELIANCE OF THE APPELLANT ON THE JUDGMENT OF HONBLE ITAT, KOLKATA BENCH C AND VARIOUS OTHER DECISIONS OF OTHER HIGH COURTS, ARE DISTINGUISHABLE. THOUGH, APPELLANTS GROUND NO.3 IS THAT AO HAS NOT GIVEN ANY COMMENT ON THE ABOVE DECISION OF HONBLE KOLKATA ITAT AND OTHER HIGH COURT DECISIONS, I FIND THAT AO HAS RELIED ON THE OTHE R JUDGMENTS IN THIS REGARD. SO, ALLEGATION OF THE APPELLANT READ VIDE GROUND NO.3 IS FOUND TO BE PARTLY CORRECT. IN VIEW OF THE ABOVE DISCUSSION, GROUND NO.1,2 AND 5 ARE DISMISSED AND GROUND NO.3 IS PARTLY ALLOWED. PAGE NO. 3 5. AGGRIEVED BY THE AFORESAID ORDER OF T HE LD CIT(A), THE ASSESSEE IS BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES, WE FIND THAT THE ISSUE IS NO LONGER RES - INTEGRA. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. M.C.C. MARKETING PVT. LTD. REPORTED IN 204 TAXMANN DELHI, MAGAZINE 56 FOLLOWI NG THE JUDGMENT IN THE CASE OF CIT VS. ANKITECH (P) LTD HAS HELD AS UNDER: - 5. WE FIND THAT THE MATTER IS NOW CONCLUDED BY THE JUDGMENT OF A DIVISION OF THIS COURT DELIVERED ON 11 TH MAY 2011 IN THE CASE CIT VS. ANKITECH (P) LTD. (2011) 199 TAXMAN 341/11 T AXMANN.COM 100 AND THE CONNECTED APPEALS. A COPY OF THE JUDGMENT HAS BEEN FILED BEFORE US. WE HAVE CAREFULLY GONE THROUGH THE SAME. AFTER AN ELABORATE DISCUSSION OF THE ISSUE, AND THE CASE - LAW ON THE SUBJECT, THE DIVISION BENCH HAS HELD THAT AN ASSESSEE WH O WAS NOT A SHAREHOLDER OF THE COMPANY FROM WHICH HE RECEIVED A LOAN AN ADVANCE CANNOT BE TREATED AS COVERED BY THE DEFINITION OF THE WORD ' DIVIDEND' AS CONTAINED IN SEC.2 2 ( E) OF THE ACT. IT HAS BEEN HELD : - 24. THE INTENTION BEHIND ENACTING PROVISIONS O F SECTION 2(22)( E) IS THAT CLOSELY HELD COMPANIES (I.E. COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED), WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS ACCUMULATED PROFITS WOUL D NOT DISTRIBUTE SUCH PROFIT AS DIVIDEND B ECAUSE IF SO DISTRIBUTED THE DIVIDEND INCOME WOULD BECOME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULATED PROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS LOAN OR ADVANCES TO SHAREHOLDERS OR TO CONCERN IN WHICH SUCH SHAREHOLD ERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS, SUCH PAYMENT BY THE COMPANY IS TREATED AS DIVIDEND. THE INTENTION BEHIND THE PROVISIONS OF SECTIO N 2(22 )( E) OF THE ACT IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOLDERS. THE DEEMING PROVISIONS AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON THE PRESUMPTION THAT THE L OANS OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. 25. FURTHER, IT IS AN ADMITTED CASE THAT UNDER NORMAL 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 LEGAL FICTION CREATED UNDER SECTION 2(22)(E) OF THE ACT. WE HAVE TO KEEP IN MIND THAT THIS LEGAL PROVISION RELATES TO 'DIVIDEND'. THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLAR GED. LEGAL FICTION DOES NOT EXTEND TO 'SHAREHOLDER'. WHEN WE KEEP IN MIND THIS ASPECT, THE CONCLUSION WOULD BE OBVIOUS, VIZ .. LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT WOULD ALSO BE TREATED AS DIVIDEND. THE FIC TION 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 PAGE NO. 4 THAT ANY COMPANY IS SUPPOSED TO DISTRIBUTE THE PROFITS IN THE FORM OF DIVIDEND TO ITS S HAREHOLDERS/ MEMBERS AND SUCH DIVIDEND CANNOT BE GIVEN TO NON - MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT, VIZ., A CONCERN (LIKE THE ASSESSEE HEREIN), WHICH IS GIVEN THE LOAN OR A DVANCE IS ADMITTEDLY NOT A SHAREHOLDER/MEMBER OF THE PAY ER COMPANY. THERE FORE, UNDER NO CIRCUMSTANCE, 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 INSERTE D DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL, THAT HAS NOT HAPPENED. MOST OF THE ARGUMENTS OF THE LEARNED COUNSELS FOR THE REVENUE WOULD STAND ANSWERED, ONCE WE LOOK INTO THE MATTER FROM THIS PERSPECTIVE.' 6. IN THE PRESENT CASE, IT IS AN ADMI TTED FACT THAT THE ASSESSEE - COMPANY IS NOT A SHAREHOLDER IN MIPL. THEREFORE, THE JUDGMENT OF THIS COURT IN A NKITECH (P.) L T D (SUPRA) FULLY APPLIES TO THE PRESENT CASE. WE ACCORDINGLY HOLD, FOLLOWING THE SAID JUDGMENT, THAT NO SUBSTANTIAL QUESTION OF LAW AR ISES FROM THE ORDER OF THE TRIBUNAL. 7. THE APPEAL IS ACCORDINGLY DISMISSED WITH NO ORDER AS TO COSTS. 7 . IT IS THUS SETTLED POSITION THAT DEEMED DIVIDEND U/S 2(22)(E) IS ATTRACTED IN THE HANDS OF THE SHARE - HOLDER. IT IS AN ADMITTED POSITION THAT THE AS SESSEE COMPANY IS NOT A SHARE - HOLDER OF M/S. S.R. BRISTLE PRODUCTS PVT. LTD. AS SUCH THE JUDGMENT O F THE JURISDICTIONAL HIGH COURT IN THE CASE OF ANKITECH IS SQUARELY APPLICABLE TO THE INSTANT CASE AND THEREFORE ADDITION IS DELETED. 8 . IN THE RESULT THE A PPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 4 . 08 .2014. - SD/ - - SD/ - ( R. S. S YAL ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14 / 08 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI