ACIT, Cochin V. M/s.Doha Brokerage & Financial Services P.Ltd, Cochin

ITA 382/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68988 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 05-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: K P PAULSON
• Keywords: Deemed dividend; Assessment record

Judgement Text

1 ITA NO.382/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 382/COCH/2013 (ASSESSMENT YEAR 2007-08) A.C.I.T., CIR.1(1) VS M/S DOHA BROKERAGE & KOCHI FINANCIAL SERVICES PVT LTD 111/947, SMAIT CENTRE MKK NAIR ROAD, VAZHAKALA KOCHI 682 021 PAN : AADCS4443H (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. S VIJAYAPRABHA RESPONDENT BY : SHRI K.P. PAULSON DATE OF HEARING : 20-08-2013 DATE OF PRONOUNCEMENT : 27-09-2013 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-II, KOCHI DATED 08-03-2013 AND PERTAINS TO A SSESSMENT YEAR 2007- 08. 2. THE FIRST GROUND OF APPEAL IS WITH REGARD TO ADD ITION OF RS.98,81,374 U/S 2(22)(E) OF THE ACT AS DEEMED DIVIDEND. 2 ITA NO.382/COCH/2013 3. SMT. S VIJAYAPRABHA, THE LD.DR SUBMITTED THAT TH E LD.DR SUBMITTED THAT THE ASSESSEE RECEIVED RS. 36,76,648 BY WAY OF LOAN FROM ITS SISTER CONCERN, SELECT DERIVATIVES & COMMODITIES (I) LTD IN WHICH THE ASSESSEE COMPANY IS A BENEFICIAL SHAREHOLDER HOLDING NOT LES S THAN 10% OF THE VOTING POWER. SINCE THE LOAN WAS RECEIVED FROM A C OMPANY WHERE THE ASSESSEE WAS HOLDING SHARES NOT LESS THAN 10%, THE ASSESSING OFFICER TREATED THE LOAN AS DEEMED DIVIDEND. SIMILARLY, TH E ASSESSEE HAS ALSO RECEIVED RS.66,78,071 FROM SELECT STOCK BROKERS LTD IN WHICH COMPANY ALSO THE COMPANY HOLDS MORE THAN 10% OF THE SHARES. THEREFORE, THE ASSESSING OFFICER HAS ALSO TREATED THIS AMOUNT AS D EEMED DIVIDEND. HOWEVER, THE CIT(A) DELETED THE ADDITION ON THE GRO UND THAT IT IS A BUSINESS TRANSACTION. ACCORDING TO THE LD.DR, THE ASSESSEE RECEIVED LOAN FROM THE COMPANY WHICH WAS SHOWN AS UNSECURED LOAN IN THE BALANCE- SHEET. THEREFORE, THE CIT(A) IS NOT JUSTIFIED IN D ELETING THE ADDITION MADE BY THE ASSESSING OFFICER. 4. ON THE CONTRARY, SHRI K.P. PAULSON, THE LD.REPRE SENTATIVE FOR THE ASSESSEE SUBMITTED THAT IN THE BALANCE-SHEET THE SA ME ARE SHOWN AS UNSECURED LOANS. IN FACT, THERE ARE INTER-COMPANY TRANSACTION BETWEEN THE ASSESSEE AND THE SISTER CONCERN. ACCORDING TO THE LD.REPRESENTATIVE, WHEN THE CUSTOMER OF ONE COMPANY TRANSACTS IN MULTIPLE S EGMENTS, TRANSFER OF FUNDS FROM ONE SEGMENT TO ANOTHER IS NECESSARY, WHI CH IN TERMS 3 ITA NO.382/COCH/2013 NECESSITATES THE TRANSFER OF FUNDS FROM ONE COMPANY TO ANOTHER. ACCORDING TO THE LD.REPRESENTATIVE, WHENEVER, THE F UNDS ARE REQUIRED, IT WILL BE TRANSFERRED FROM THE OTHER COMPANY ON ACCOUNT OF TRANSFER OF CLIENTS FUND AND NOT FOR THE BENEFIT OF SHAREHOLDERS. THE ASSESSEE COMPANY ALSO CLAIMS ADMINISTRATION CHARGES FROM GROUP COMPANIES SINCE THE ASSESSEE COMPANY IS ALSO USING THE SAME PREMISES WITH OTHER COMPANIES. ACCORDING TO THE LD.REPRESENTATIVE, THE BOARD OF DI RECTORS TOOK A DECISION TO SHARE THE EXPENSES. THE LD.REPRESENTATIVE FURTH ER SUBMITTED THAT THE ASSESSEE COMPANY MANAGES THE PORTFOLIO OF THE CUSTO MERS AND UNDERTAKE TRANSACTIONS ON BEHALF OF THE CUSTOMERS. FOR TRADI NG TRANSACTIONS, THE ASSESSEE COMPANY IS REQUIRED TO TRANSFER MARGIN MON EY PERIODICALLY. SOME OF THE TRANSACTIONS IN THE INTER-COMPANY ACCOU NT ARE ONLY FOR THE PURPOSE OF MARGIN MONEY REQUIRED BY THE ASSESSEE WH ICH ARE GENUINE BUSINESS TRANSACTIONS IN THE ORDINARY COURSE OF BUS INESS. REFERRING TO THE COPY OF THE REMAND REPORT WHICH IS AVAILABLE AT PAG ES 5 AND 6 OF THE PAPER BOOK, THE LD.REPRESENTATIVE SUBMITTED THAT THE CIT( A) CALLED FOR A REMAND REPORT AND THE ASSESSING OFFICER ON VERIFICATION FO UND THAT TRANSACTIONS BETWEEN THE ASSESSEE AND THE TWO SISTER CONCERNS AR E BUSINESS TRANSACTIONS. PLACING RELIANCE ON THE JUDGMENT OF THE DELHI HIGH COURT IN CIT VS RAJ KUMAR (2009) 318 ITR 462 (DEL), THE LD.R EPRESENTATIVE SUBMITTED THAT WHEN THE FUNDS ARE RECEIVED AGAINST BUSINESS TRANSACTIONS, THE PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICAB LE. 4 ITA NO.382/COCH/2013 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT THAT THE ASSESSEE RECEIVED FUNDS FROM THE SISTER CONCERN IN WHICH THE ASSESSEE WAS HOLDING MORE THAN 10% SHARES IS NOT IN DISPUTE. THE ASSESS EE CLAIMS THAT THE AMOUNT WAS RECEIVED IN THE COURSE OF REGULAR BUSINE SS TRANSACTION. THE CLAIM OF THE ASSESSEE BEFORE THIS TRIBUNAL IS THAT THE ASSESSEE IS MANAGING PORTFOLIO OF THE CUSTOMERS AND UNDERTAKING TRANSACTIONS ON BEHALF OF THE CUSTOMERS. IN THE COURSE OF BUSINESS TRANSACTION WHENEVER THE ASSESSEE REQUIRES FUND IT WAS TRANSFERRED FROM THE SISTER CONCERN. THEREFORE, IT IS AN INTER-COMPANY ACCOUNT BETWEEN T HE ASSESSEE AND THE TWO SISTER CONCERNS. FROM THE EXPLANATION OF THE A SSESSEE IT IS NOT KNOWN WHAT KIND OF BUSINESS TRANSACTION BETWEEN THE ASSES SEE AND THE TWO SISTER CONCERNS. THE CLAIM OF THE ASSESSEE APPEARS THAT W HENEVER THE FUNDS ARE REQUIRED FOR BUSINESS, THEY USE TO TRANSFER THE FUN DS FROM ONE COMPANY TO ANOTHER COMPANY. LIKEWISE, WHEN THE ASSESSEE REQUI RES THE FUNDS FOR MANAGING THE PORTFOLIOS OF THEIR CUSTOMERS, RECEIVE S FUNDS FROM THE SISTER CONCERN. APART FROM THIS, THERE IS NO NON-BUSINESS CONNECTION BETWEEN THE ASSESSEE AND THE TWO SISTER CONCERNS IN RESPECT OF THE FUNDS RECEIVED BY THE ASSESSEE. THE ASSESSEE ALSO CLAIMS THAT IN THE BALANCE-SHEET, IT WAS WRONGLY CLASSIFIED AS UNSECURED LOAN INSTEAD OF INC OME TRANSACTION. THE CIT(A) APPARENTLY CALLED FOR A REMAND REPORT FROM T HE ASSESSING OFFICER. THE ASSESSING OFFICER, AFTER CONSIDERING THE CLAIM OF THE ASSESSEE FOUND 5 ITA NO.382/COCH/2013 THAT THE TRANSACTION BETWEEN THE ASSESSEE COMPANY A ND THE OTHER TWO COMPANIES ARE BUSINESS TRANSACTIONS. FOR THE PURPO SE OF CONVENIENCE, THE RELEVANT PORTION OF THE REMAND REPORT IS REPROD UCED HEREUNDER: I HAVE VERIFIED THE NATURE OF TRANSACTIONS BETWEE N THE ASSESSEE COMPANY AND SELECT STOCK BROKERS LIMITED A ND ELECT DERIVATIVES AND COMMODITIES LTD. THE LEDGER A/C. AND OTHER DETAILS AS SUBMITTED IN THE PAPER BOOK HAVE B EEN VERIFIED. I HAVE ALSO CONDUCTED HEARING WHICH WAS ATTENDED BY MR. PAULSON, K.P., A.R., ALONGWITH MR. BINNI C. THOMAS, DIRECTOR, MR. AJITH, EXECUTIVE (FINANCE) ON 26-06-2 012. THE ISSUE WAS DISCUSSED. I HAVE ALSO GONE THROUGH THE ASSESSMENT RECORDS. THE LEDGER COPY OF TRANSACTIONS AMONG THE COMPANIES ARE AVAILABLE IN THE FILE. BUT THE ASSESSING OFFICER H AD NOT MADE ANY COMMENT IN THE ASSESSMENT ORDER IN THIS REGARD. THE ASSESSEE HAD SHOWN IT AS INTERCORPORATE LOAN U NDER THE HEAD UNSECURED LOAN IN THE BALANCE SHEET AS O N 31-3- 2007 WHEN IT WAS ASKED TO THE A.R. WHY IT HAD BEEN SHOWN UNDER UNSECURED LOAN. THE A.R REPLIED THAT IT WAS A MISTAKE ON THEIR PART TO SHOW IT UNDER UNSECURED LOAN HEA D. HE REQUESTED THAT SUBSTANCE OF THE TRANSACTION SHOULD BE LOOKED INTO. FROM THE OVERALL VERIFICATION IT SEEMS THAT THE TRANSACTIONS BETWEEN THE ASSESSEE COMPANY AND OTHER TWO COMPANIES ARE BUSINESS TRANSACTIONS IN NATURE. 6 ITA NO.382/COCH/2013 FROM THE ABOVE, IT IS OBVIOUS THAT THE ASSESSING OF FICER CAME TO KNOW THAT THE INTER-CORPORATE LOAN WAS SHOWN UNDER THE HEAD UNSECURED LOAN FROM THE REMAND REPORT, IT IS NOT CLEAR AS TO WHAT KIND OF BUSINESS TRANSACTION THE FUNDS WERE TRANSFERRED FROM THE SIS TER CONCERNS TO THE ASSESSEE COMPANY. 6. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF T HE DELHI HIGH COURT IN THE CASE OF RAJ KUMAR (SUPRA). IN THE CAS E BEFORE THE DELHI HIGH COURT, THE ASSESSEE WAS THE MANAGING DIRECTOR OF CO NTINENTAL INDIA EQUIPMENTS PVT LTD HOLDING 65% OF THE PAID UP SHARE CAPITAL. THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING CUSTO MIZED KITCHEN EQUIPMENTS. SUBSTANTIAL PORTION OF THE ASSESSEE WA S OBTAINED THROUGH CONTINENTAL EQUIPMENTS INDIA PVT LTD. CONTINENTAL EQUIPMENTS PVT LTD WOULD PASS ON THE ADVANCE RECEIPTS FROM ITS CUSTOME RS TO THE ASSESSEE TO EXECUTE THE JOB WORKS ENTRUSTED TO THE ASSESSEE. D URING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE A SSESSEE OWNED A SUM OF RS.14,59,770 TO CONTINENTAL EQUIPMENTS INDIA PVT LTD. THE ASSESSING OFFICER TREATED THE ADVANCE RECEIVED BY THE ASSESSE E AS DEEMED DIVIDEND U/ 2(22)(E) OF THE ACT. THE DELHI HIGH COURT, AFTE R CONSIDERING THE FACTS OF THE CASE, FOUND THAT TRADE ADVANCE WHICH IS IN THE NATURE OF MONEY TRANSACTION TO GIVE EFFECT TO THE COMMERCIAL TRANSA CTION WOULD NOT FALL WITHIN THE AMBIT OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT. IN THIS CASE ALSO 7 ITA NO.382/COCH/2013 EVEN THOUGH THE ASSESSING OFFICER IN THE REMAND PRO CEEDINGS DOES NOT ELABORATE THE NATURE OF BUSINESS TRANSACTION BUT FO UND THAT THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE COMPANY ARE BUSINESS T RANSACTIONS. THE ASSESSING OFFICER FOUND THAT IT WAS WRONGLY STATED IN THE ACCOUNTS AS UNSECURED LOAN. THE CIT(A) AFTER CONSIDERING THE R EMAND REPORT AND PLACING RELIANCE ON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF RAJ KUMAR (SUPRA) FOUND THAT THE TRANSACTIONS BETWEEN T HE ASSESSEE AND THE SISTER CONCERN ARE IN THE NATURE OF BUSINESS TRANSA CTIONS, THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT A PPLICABLE. SINCE THE ASSESSING OFFICER AFTER VERIFICATION FOUND THAT THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE TWO SISTER CONCERNS ARE PBUSINESS TRANSACTIONS, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE PROV ISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE IN VIEW OF THE JUDGME NT OF THE DELHI HIGH COURT IN THE CASE OF RAJ KUMAR (SUPRA). ACCORDINGL Y, THE ORDER OF THE LOWER AUTHORITIES IS CONFIRMED AND THE APPEAL OF THE REVE NUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH SEPTEMBER, 2013. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 27 TH SEPTEMBER, 2013 PK/- 8 ITA NO.382/COCH/2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH