ITO, New Delhi V. M/s Virgo Marketing Pvt. Ltd., New Delhi

ITA 3704/DEL/2011

• Counselvise Citation: 370420114 RSA 2011
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 11-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 02-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS MEETA SINH A
• Assessee Lawyers: V MOHAN C AS
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI B.C. MEENA ITA NO. 3704/DEL/2011 ASSESSMENT YEAR: 2007-08 INCOME-TAX OFFICER, VS. VIRGO MARKETING PVT. LTD. , WARD 17(4), A-9, GULMOHAR PARK, NEW DELHI. NEW DELHI. (PAN: AAACV3850A) (APPELLANT) (RESPONDENT) CROSS OBJ. NO. 348/DEL/2011 ITA NO. 3704/DEL/2011 ASSESSMENT YEAR: 2007-08 VIRGO MARKETING PVT. LTD., VS. INCOME-TAX OFFICER, A-9, GULMOHAR PARK, WARD 17(4), NEW DELHI. NEW DELHI (PAN: AAACV3850A) (APPELLANT) (RESPONDENT) REVENUE BY: MRS. MEETA SINH A, SR.DR ASSESSEE BY: S/SHRI VED JAIN & V. MOHAN, CAS ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 18.05.2011 PASSED FOR ASSESSMENT YEAR 2007-08. ON RECEIPT OF NOTICE IN THE REVENUES APPEAL, ASSESSEE HAS FILED CROSS-OBJECTION BEARING NO.348/DEL/2011. THE GROUNDS OF APPEAL TAKE N BY THE REVENUE ARE NOT IN CONSONANCE WITH RULES 8 OF THE ITAT'S RULES, THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF, THE GRIEVANCE OF THE REVENUE IS THAT LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDI TION OF RS.11,20,871 2 WHICH WAS ADDED BY THE ASSESSING OFFICER BY ALLEGIN G THAT ASSESSEE HAS RECEIVED LOAN FROM TELE-COM FINANCE (I) LTD. (HEREI NAFTER REFERRED AS TFIL) WHICH IS DEEMED TO BE A DIVIDEND INCOME TO THE ASSE SSEE. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE C OMPANY IS ENGAGED IN MARKETING CONSULTANCY BUSINESS. IT HAS FILED ITS RE TURN OF INCOME ON 31.10.2007 DECLARING A LOSS OF RS.1,56,128. THE CAS E OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE UNDER SEC. 143(2) OF THE INCOME-TAX ACT, 1961 WAS ISSUED AND SERVED UPON THE ASSESSEE. ON AN ANALYSIS OF THE BOOKS OF ACCOUNT, LEARNED ASSESSING OFFICER FORMED AN OPINION THAT IN THE LEDGER ACCOUNT, ASSESSEE HAS SH OWN CLOSING BALANCE OF RS.252,06,992 IN UNSECURED LOANS. THERE WAS AN OPEN ING BALANCE OF RS.240,86,121. THUS, ACCORDING TO THE ASSESSING OFF ICER, AN AMOUNT OF RS.11,20,871 HAS BEEN CREDITED IN THIS ACCOUNT DURI NG THIS YEAR. THIS ACCOUNT PERTAINS TO TFIL. ASSESSING OFFICER OBSERVED THAT A SSESSEE IS HOLIDNG 32.11% OF TFIL SHARES. THUS, IN HIS OPINION, IT IS A DEEMED DIVIDEND AS PER SECTION 2(22)(E) OF THE ACT AND IT IS TAXABLE IN TH E HANDS OF THE ASSESSEE. LEARNED ASSESSING OFFICER SOUGHT THE EXPLANATION O F THE ASSESSEE AS TO WHY THE AMOUNT OF RS.11,20,871 BE NOT TREATED AS DEEMED DIVIDEND. IN RESPONSE TO THE QUERY OF THE ASSESSING OFFICER, IT WAS CONTE NDED BY THE ASSESSEE THAT 3 M/S. TFIL IS ENGAGED IN THE BUSINESS OF FINANCE. IN ITS ORDINARY COURSE OF BUSINESS, IT HAS ADVANCED A LOAN OF MORE THAN RS. 2 CRORES TO THE ASSESSEE. THE OPENING BALANCE IN THIS LOAN ACCOUNT AS ON 1.4. 2004 WAS RS.219,48,000. THE INTEREST PAYABLE BY THE ASSESSEE WAS CREDITED I N THIS ACCOUNT ANNUALLY. IN THE PRESENT YEAR, AN INTEREST OF RS.11,20,871 WAS C REDITED IN THIS ACCOUNT. M/S. TFIL HAS NOT PAID ANY FRESH ADVANCE TO THE ASS ESSEE IN THE PRESENT YEAR. IT IS THE AMOUNT REPRESENTING INTEREST COMPONENT UP ON THE LOANS TAKEN BY THE ASSESSEE IN THE PAST IN ORDINARY COURSE OF BUSINESS , THEREFORE, SECTION 2(22)(E) OF THE ACT IS NOT APPLICABLE. LEARNED ASS ESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. HE MADE REFERENCE TO THE ACCOUNTS OF THE ASSESSEE AS WELL AS ITS SUBMISSIONS BY OBSERVING THAT ASSESSEE ITSELF ADMITTED IT AS A LOAN OR ADVANCE. H E ALSO OBSERVED THAT ASSESSEE HAS GIVEN THIS EXPLANATION AFTER DUE DELIB ERATION AND IT IS AN AFTER THOUGHT VERSION WHICH IS TAILORED TO SUIT THE SITUA TION. LEARNED ASSESSING OFFICER IN THIS WAY MADE THE ADDITION. 3. ON APPEAL, LEARNED CIT(APPEALS) HAS DELETED THE ADDITION. 4. LEARNED DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT SECTION 4 2(22)(E)(II) OF THE INCOME-TAX ACT, 1961 PROVIDES T HAT ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS WOULD NOT BE DEEMED AS DIVIDEND. THE INTEREST COMPO NENT ON THE LOANS RECEIVED BY THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS HAS BEEN CREDITED TO THE ACCOUNTS OF LOANER IN THIS YEAR AND THAT AMO UNT CANNOT BE DEEMED TO BE A DIVIDEND RECEIVED BY THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE RECORD CAREFULLY. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED ON RECORD LEDGER ACCOUNT OF UNSECURED LOAN FROM 1.4.2004 UP TO 31.3. 2007. A PERUSAL OF THESE DETAILS SHOW THAT A SUM OF RS.219,48,000 IS THE OPE NING BALANCE ON 1.4.2004. THIS AMOUNT WAS NEVER TREATED AS A DEEMED DIVIDEND. IF THE LOGIC OF THE ASSESSING OFFICER APPLIED IN THIS ASSESSMENT YE AR ON THE INTEREST ON THIS AMOUNT, THEN THE PRINCIPLE WOULD HAVE ALSO BEEN TRE ATED AS DEEMED DIVIDEND. THE ASSESSEE HAS DEMONSTRATED THAT M/S. TFIL IS IN THE BUSINESS OF FINANCING. IT HAS ADVANCED THE MONEY TO THE ASSESS EE IN THE ORDINARY COURSE OF BUSINESS IN EARLIER YEARS. ON SUCH ADVANCE, IN THIS YEAR, ASSESSEES ACCOUNT HAS BEEN CREDITED WITH INTEREST LIABILITY A ND SUCH INTEREST LIABILITY HAS BEEN TREATED BY THE ASSESSING OFFICER HAS DEEMED DI VIDEND. IN OUR OPINION, LEARNED FIRST APPELLATE AUTHORITY HAS RIGHTLY HELD THAT IT IS NOT A DEEMED 5 DIVIDEND AND SECTION 2(22)(E) OF THE ACT IS NOT APP LICABLE ON THIS AMOUNT. WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVEN UE. IT IS DISMISSED. 6. IN THE CROSS-OBJECTION, ASSESSEE HAS CHALLENGED CONFIRMATION OF AN ADDITION OF RS.2 LACS. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS RECEIVED A LOAN OF RS. 2 LACS FROM M/S. MONGA HOLDI NG (P) LTD. ONE SHRI KAMAL MONGA IS HAVING 33.60% SHAREHOLDING IN M/S. M ONGA HOLDING PVT. LTD. HE FURTHER OWNS 88.52% SHARES OF THE ASSESSEE S COMPANY. LEARNED ASSESSING OFFICER FORMED AN OPINION THAT SHRI KAMAL MONGA IS HAVING SUBSTANTIAL INTEREST IN BOTH THE COMPANY, THEREFORE , THE LOAN GIVEN TO THE ASSESSEE COMPANY IS TO BE TREATED AS DEEMED DIVIDEN D UNDER SEC. 2(22)(E) OF THE ACT. HE MADE AN ADDITION OF RS.2 LACS. 7. APPEAL TO THE LEARNED CIT(APPEALS) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 8. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE STRE NGTH OF JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF CIT VS. ANKITE CH PVT. LTD. REPORTED IN 340 ITR 14 CONTENDED THAT FOR TREATING A LOAN TAKEN BY AN ASSESSEE AS DEEMED DIVIDEND, IT IS NECESSARY THAT ASSESSEE IS T HE SHAREHOLDER OF THE COMPANY WHO ADVANCED THE LOAN. IN THE PRESENT CASE, SHRI KAMAL MONGA IS A PERSON WHO IS HOLDING SHARES OF PAYER COMPANY AS WE LL AS RECIPIENT 6 COMPANY BUT RECIPIENT COMPANY ITSELF IS NOT THE SHA REHOLDER OF THE PAYER COMPANY, THEREFORE, SECTION 2(22)(E) OF THE ACT IS NOT APPLICABLE. LEARNED DR WAS UNABLE TO CONTROVERT THE CONTENTION OF THE L EARNED COUNSEL FOR THE ASSESSEE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE RECORD CAREFULLY. THE ASSESSEE IS NOT THE SHAREHOLDER OF M /S. MONGA HOLDING PVT. LTD. HON'BLE DELHI HIGH COURT IN THE CASE OF ANKITE CH PVT. LTD. HAS HELD THAT IF THE RECIPIENT ASSESSEE IS NOT A SHAREHOLDER IN T HE PAYER COMPANY THEN THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT ARE NOT APPL ICABLE. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HI GH COURT, WE DELETE THE ADDITION OF RS. 2 LACS BY HOLDING THAT ASSESSEE BEI NG NOT SHAREHOLDER OF THE PAYER COMPANY M/S. MONGA HOLIDING PVT. LTD., THE LO AN TAKEN WOULD NOT BE DEEMED AS DIVIDEND UNDER SEC. 2 (22)(E) OF THE ACT. IN VIEW OF THE ABOVE DISCUSSION, CROSS-OBJECTION FILED BY THE ASSESSEE I S ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND CROSS- OBJECTION FILED BY THE ASSESSEE IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 14.09.201 2 SD/- SD/- ( B.C. MEENA ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14/09/2012 MOHAN LAL 7 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR