ITO, New Delhi V. M/s NEC Industrial Projects Ltd, New Delhi

ITA 3675/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65778 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 07-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 29-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SEHGAL
• Keywords: Deemed dividend

Judgement Text

ITA NO. 3675/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3675/DEL/2011 A.Y. : 2008-09 INCOME TAX OFFICER, WARD 13(2), CR BUILDING, NEW DELHI VS. M/S NEC INDUSTRIAL PROJECTS LTD., 4 TH FLOOR, 75-76, MANISHA, NEHRU PLACE, NEW DELHI (PAN/GIR NO. : AAACN0304P) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. RAMESH GOYAL, CA DEPARTMENT BY : SH. DEEPAK SEHGAL, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XVI, NEW DEL HI DATED 15.3.2011 PERTAINING TO ASSESSMENT YEAR 2008-09. T HE ISSUE RAISED PERTAINS TO DELETION OF ADDITION U/S. 2(22)(E) OF T HE I.T. ACT. 2. THE GROUNDS RAISED READ AS UNDER:- I) THAT THE LD. COMMISSIONER OF INCOME TAX (A) HAS WRONGLY TREATED THE LOAN TRANSACTION AS TRADE TRANSACTION INSPITE OF THE FACT THAT THE ASSESSEE HIMSELF CONFIRMED THAT NO SALE/PURCHASE WAS MADE DURING THE YEAR. ITA NO. 3675/DEL/2011 2 II) THAT THE LD. COMMISSIONER OF INCOME TAX (A) HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE COMPANY HAS TAKEN LOAN FROM SHARE HOLDER, M/S BSL SCAFFOLDING LTD. FURTHER THE DOCUMENTARY EVIDENCE PRODUCED IN THE SHAPE OF LEDGER EXTRACTS CLEARLY SH OWS THAT THE COMPANY HAS TAKEN LOAN FROM M/S BSL SCAFFLODING LTD. TO THE TUNE OF ` 33.00 LACS DURING THE YEAR UNDER CONSIDERATION AND ALSO REPAID AN AMOUNT O F ` 23.00 LACS IN THE SAME YEAR. THE BALANCE OUTSTANDING AT THE END OF YEAR IS ` 10.00 LACS WHI CH CLEARLY ATTRACTS THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. III) THAT THE LD. COMMISSIONER OF INCOME TAX (A) HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE COMPANY HAS TAKEN LOAN FROM M/S BRITISH SCAFFOLDING INTERNATIONAL LTD. HAD CONFIRMED A DEBIT BALANCE OF ` 1,05,00,000/- AS ON 31.3.2008, ON ACCOUNT OF LOAN. IV) THE LD. COMMISSIONER OF INCOME TAX (A) FAILED T O APPRECIATE THAT THE TRANSACTIONS WERE NOWHERE RELAT ED TO ANY SALE / PURCHASE OF TRADE ACTIVITY. IT IS ON LY AN AFTERTHOUGHT BUILD UP BY THE ASSESSEE AFTER RAISING SPECIFIC SHOW CAUSE IN THIS REGARD. THE LD. COMMISSIONER OF INCOME TAX (A) HAS RELIED UPON THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF C.I.T. VS . CREATIVE DYEING (P) LTD. 318 ITR 476 (2009) WHICH STATES THAT THE AMOUNT OF ADVANCE FOR BUSINESS TRANSACTIONS BETWEEN PARTIES SHALL NOT FALL WITHIN THE ITA NO. 3675/DEL/2011 3 DEFINITION OF DEEMED DIVIDEND COVERED U/S. 2(22)(E) OF THE ACT. THE RELIANCE IS MISPLACED IN THE PRESENT A S LD. COMMISSIONER OF INCOME TAX (A) FAILED TO APPRECIATE THE FACT THAT THESE TRANSACTIONS WERE CLEARLY DIFFERENT FROM TRADE TRANSACTIONS AND THE S AME HAVE BEEN ESTABLISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. V) THE APPELLANT CRAVES TO BE ALLOWED TO ADD, DELET E OR AMEND ANY OTHER GROUNDS OF APPEAL. 3. IN THIS CASE THE ASSESSEE COMPANY WAS INCORPORATE D ON 16.8.98 AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING CUP LOK SCAFFOLDINGS. THE SHAREHOLDING PARTNERS OF THE COMPANY IS AS UNDER :- NAME OF SHAREHOLDER NAME OF SHAREHOLDER NAME OF SHAREHOLDER NAME OF SHAREHOLDER NO. OF SHARES NO. OF SHARES NO. OF SHARES NO. OF SHARES % OF HOLDING % OF HOLDING % OF HOLDING % OF HOLDING I) MR. NEERAV HANS 635300 80.42 II) M/S BSL SCAFFOLDING LTD. 149400 18.91 THE ASSESSEE DURING THE YEAR HAS RECEIVED UNSECURE D LOANS FROM THE FOLLOWING PARTIES:- I) M/S BRITISH SCAFFOLDING INTERNATIONAL LTD. ` 1, 05,00,000/- II) M/S BSL SCAFFOLDING LTD. ` 10,00,000/- THE SHAREHOLDING PATTERN IN THE ABOVE TWO COMPANI ES WAS AS UNDER:- M/S BSL SCAFFOLDING LTD. NAME OF SHARE HOLDER NAME OF SHARE HOLDER NAME OF SHARE HOLDER NAME OF SHARE HOLDER SHARE % HOLDING SHARE % HOLDING SHARE % HOLDING SHARE % HOLDING ITA NO. 3675/DEL/2011 4 1. MR. NEERAV HANS 41.76% 2. MS. SHILPA HANS 39.29.% 3. MRS. HUTOKSHI HANS 4.56% 4. MRS. RENU HANS 3.58% 5. MRS. RAMIKA HANS 9.52% 6. BUILDEX LTD. 1.28% M/S BRITISH SCAFFOLDING INTERNATIONAL LTD. NAME OF SHARE HOLDER NAME OF SHARE HOLDER NAME OF SHARE HOLDER NAME OF SHARE HOLDER SHARE % HOLDING SHARE % HOLDING SHARE % HOLDING SHARE % HOLDING 1. MS. SHILPA HANS 9.582% 2. MRS. HUTOKSHI HANS 3.582% 3. MR. NEERAV HANS 11.768% 4. MRS. RENU HANS 1.768% 5. M/S BSL SCAFFOLDING 73.200% 6. MRS. RAMIKA HANS .0400% 7. MR. R.C. KHANNA .001% FROM THE ABOVE ASSESSING OFFICER INFERRED THAT THE UNSECURED LOANS AS RECEIVED BY THE ASSESSEE COMPANY ARE FALLIN G UNDER THE PURVIEW OF SECTION 2(22)(E) OF THE I.T. ACT AS THE COMPANIES WHO ARE GIVING LOANS HAVE SHOWN RESERVES AND SURPLUSES IN THEIR BALANCE SHEETS AND THERE ARE COMMON SHARE HOLDER SIN ALL THE THREE COMPANIES. ASSESSING OFFICER NOTED THAT IN RESPECT OF LOAN T AKEN FROM BSL SCAFFLOLDING LTD. THE COMPANY HAS SHOWN RESERVES AND SURPLUS TO THE TUNE OF ` 204687009/- OUT OF WHICH ` 190766567/- AR E ACCUMULATED ITA NO. 3675/DEL/2011 5 PROFITS. MR. NEERAV HANS WHO IS HOLDING 80.42% SHA RES IN THE ASSESSEE COMPANY AND ALSO ONE OF THE DIRECTORS OF TH E ASSESSEE COMPANY ALSO HOLDS 41.76% SHARES IN BSL SCAFFOLDING LTD. IN RESPECT OF LOAN TAKEN FROM BRITISH SCAFFOLDING INTERNATIONAL LTD., THE COMPANY HAS SHOWN RESERVES AND SURPLUS TO THE TUNE O F ` 80615155/- OUT OF WHICH ` 66349485/- ARE ACCUMULATED PROFITS. MR. NEERAV HANS WHO IS HOLDING 80.42% SHARES IN THE ASSESSEE COMPANY AND ALSO ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY ALSO HOLDS 11 .768% SHARES IN BRITISH SCAFFOLDING INTERNATIONAL LTD. CONSIDERING THE ABOVE, ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AND ASKED AS TO WHY THESE LO AN AMOUNTS SHOULD NOT BE ADDED TO THE ASSESSEES INCOME BY INVOKING TH E PROVISIONS OF SECTION 2(22)(E). ASSESSING OFFICER WAS NOT SATIS FIED WITH THE SUBMISSIONS OF THE ASSESSEE. ASSESSING OFFICER HE LD THAT THE MONEY WAS GIVEN TO THE ASSESSEE COMPANY FOR ITS USAGE IN T HE SHAPE OF LOANS BY M/S BRITISH SCAFFOLDING INTERNATIONAL LTD. AND M /S BSL SCAFFOLDING LTD. OUT OF THEIR ACCUMULATED PROFITS AND HENCE IS TAXABLE IN THE HANDS OF THE RECIPIENT COMPANY I.E. THE ASSESSEE COMP ANY UNDER THE PROVISION OF SECTION 2(22)(E) OF THE I.T. ACT. ACC ORDINGLY, ASSESSING OFFICER PROCEEDED TO MAKE THE ADDITION OF ` 1.38 C RORES TO THE ASSESSEES INCOME. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) CONSIDERED THE SUBMISSION INCLUDING THE RELIANCE ON THE DECISION OF THE SPECIAL BENCH, ITAT IN THE CASE OF JCIT VS. BH OUMIK COLORS PVT. LTD. 120 TTJ 865 (MUM). LD. COMMISSIONER OF INCOME TAX (A) CONCLUDED THAT ASSESSEE COMPANY RECEIVED THE ADVANCE FOR SET TING UP OF ITS NEW FACTORY WHICH IN TURN MANUFACTURED THE GOODS WHICH W ERE SUPPLIED TO ITA NO. 3675/DEL/2011 6 THOSE COMPANIES WHO HAD GIVEN ADVANCES. LD. COMMIS SIONER OF INCOME TAX (A) OBSERVED THAT THIS IS CLEARLY ESTAB LISH THE BUSINESS NEXUS. LD. COMMISSIONER OF INCOME TAX (A) CONCLUD ED AS UNDER:- AFTER THOROUGHLY CONSIDERING THE OBSERVATIONS MADE BY THE ASSESSING OFFICER AS WELL THE SUBMISSIONS MADE BY T HE LD. AUTHORISED REPRESENTATIVE OF THE APPELLANT AND THE JURISDICTIONAL DELHI HIGH COURT JUDGEMENTS TOGETHE R WITH THE SPECIAL BENCH JUDGEMENT REFERRED TO ABOVE, I DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE U/ S. 2(22)(E) OF THE I.T. ACT. THIS GROUND OF APPEAL IS ALLOWED. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS IN LIG HT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSE L OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE BY THE SPECIAL BENCH DECISION IN THE CASE OF JCIT VS. BHOUMIK COLORS PVT. LTD. 120 TTJ 865 (MUM). HENCE, HE PLEADED THAT ASSESSEE COMPANY WAS NOT REGISTERED SHARE HOLDER OF THE SH ARES IN THE COMPANY GIVING THE LOANS AND AS SUCH THE TRANSACTIO N IS NOT HIT BY THE PROVISIONS OF SECTION 2(22)(E) OF THE I.T. ACT. 6.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D COULD NOT CONTROVERT THE SUBMISSIONS. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BAUMIK COLOR PVT. LTD. HAS HELD AS UNDER:- ITA NO. 3675/DEL/2011 7 DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AN D NOT IN THE HANDS OF A PERSON THAN A SHAREHOLDER; AND THE EXPRESSION SHAREHOLDER REFERRED TO IN SECTIO N 2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFIC IAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLD ER BUT NOT THE BENEFICIAL SHAREHOLDER THEN THE PROVISIONS OF S ECTION 2(22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THE AL SO THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. 8. IN THIS CASE IT IS UNDISPUTED THAT THE COMPAN Y GIVING LOANS TO THE ASSESSEE WERE NOT SHARES HOLDER OF THE ASSESSEE COMP ANY. WE NOTE THAT IN ORDER TO ATTRACT THE SECTION 2(22)(E) OF THE I.T. ACT THE PAYMENT MUST BE MADE TO THE PERSON WHO IS A REGISTER ED SHARE HOLDER OF THE SHARES OF THE COMPANY. 9. WE FURTHER NOTE THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE C.I.T. VS. GOPAL CLOTHING CO. PVT. LTD. REPORTED IN 207 TAXMAN PAGE 134 HAS HELD AS UNDER:- WE NEED NOT EXAMINE THE SECOND ASPECT ON MERITS. TH E FIRST ASPECT, I.E., WHETHER OR NOT THE RESPONDENT ASSESSEE HAD THE REQUISITE VOTING RIGHTS AND SHAREHOLDING OF COMMON SHAREHOLDERS CAN BE TAKEN INTO CONSIDERATION FOR AP PLYING ITA NO. 3675/DEL/2011 8 SECTION 2(22)(E) OF THE ACT STANDS DECIDED BY THIS COURT IN C.I.T. VS. ANKITECH PRIVATE LTD. (2011) 242 CTR 129 (DELHI). IN THE SAID DECISION, IT HAS BEEN HELD THAT TO ATTR ACT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, PAYMENT MUST BE MADE TO THE PERSON, WHO IS A REGISTERED HOLDER OF TH E SHARES AND THE SHAREHOLDER ALONE. EVEN AFTER THE AMENDME NT WITH EFFECT FROM 1988 AND INTRODUCTION OF THE WORDS A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES CANNOT BE CONSTRUCTED TO IN A WAY ALTER THE POSITION THAT TH E SHAREHOLDER HAS TO BE THE REGISTERED SHAREHOLDER. THE AMENDMENT IMPOSES AN ADDITIONAL CONDITION THAT THE REGISTERED SHAREHOLDER MUST ALSO BE THE BENEFICIAL SHARE HOLDER OF THE COMPANY THAT HAS FURNISHED LOAN/ADVANC E. THE FACT THAT THE SHAREHOLDERS OF THE ASSESSEE COMPA NY WERE ALSO SHAREHOLDERS OF THE COMPANY WHICH HAD GIVE N LOAN / ADVANCE IS NOT SUFFICE AND DOES NOT MEET T HE REQUIREMENT OF SEC. 2(22)(E) OF THE ACT. THE VOTI NG RIGHTS OF THE SHAREHOLDER, I.E., THE ASSESSEE CAN AND S HOULD ALSO BE TAKEN INTO CONSIDERATION. 10. FROM THE ABOVE, IT IS CLEAR THAT IN ORDER TO ATT RACT THE PROVISIONS OF SECTION 2(22)(E) OF THE I.T. ACT THE PAYMENT MUS T BE MADE TO THE ITA NO. 3675/DEL/2011 9 PERSON, WHO IS A REGISTERED HOLDER OF THE SHARES IN THE COMPANY GIVING THE LOANS. THE ASSESSEE COMPANY IS NOT THE REGIST ERED SHARE HOLDER IN THE TWO COMPANIES WHO HAVE GIVEN THE LOAN. HENCE , THE TRANSACTION DOES NOT COME WITHIN THE KEN OF SECTION 2(22)(E). 11. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENTS, WE HOLD THAT THE AMOUNT OF ` 1.38 CRORES WAS NOT LIA BLE TO BE ADDED TO THE INCOME OF THE ASSESSEE U/S. 2(22)(E) OF THE I.T . ACT. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/11/2012. SD/- SD/- [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [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 09/11/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR 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 ITA NO. 3675/DEL/2011 10