ITO, New Delhi V. M/s Natco Mahashakti Mining Pvt. Ltd., New Delhi

ITA 3867/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4079 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 12-05-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 11-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BL GUPTA
• Assessee Lawyers: H K LAL
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `F: NEW DELHI BEFORE SHRI C.L.SETHI, JM & SHRI K.G. BANSAL, AM I.T. A. NO.3867/DEL OF 2009 ASSESSMENT YEAR: 2006-07 INCOME-TAX OFFICER, M/S NATCO MAHASHAKTI MINI NG P. LTD., WARD 13(1), NEW DELHI. VS 1634/33, NAIWAL A, KAROL BAGH, NEW DELHI. APPELLANT RESPO NDENT APPELLANT BY: SHRI H.K. LAL DEPARTMENT BY: SHRI B.L. GUPTA ORDER PER C.L. SETHI, JM: THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 5. 6.2009 PASSED BY THE LEARNED CIT(A) IN THE MATTER OF AN ASSESSMENT M ADE U/S 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) PERTAINING TO ASSTT. YEAR 2006-07. 2. THE ONLY GROUND RAISED BY THE REVENUE IS AS UNDE R: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.28,50,000/- MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT, 1961 WITHOUT PROPER APPROPRIATION OF THE FACTS 2 OF THE CASE AND IGNORING THE CBDT CIRCULAR NO.495 DATED 22.9.1987. 3. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE COMPANY HAD RECEIVED AN AMOUNT OF RS.2 8.50 LACS FROM M/S NATCO EXPORTS P. LTD., OUT OF WHICH RS.1 LAC CLAIME D TO HAVE BEEN RECEIVED IN CASH, AND THE REMAINING AMOUNT WAS PAID TO SOME PARTIES ON BEHALF OF THE ASSESSEE COMPANY, BY WAY OF DEMAND DRAFT. IT WAS A LSO NOTICED BY THE AO THAT ONE MR. AJAY GROVER IS A DIRECTOR OF THE ASSES SEE COMPANY. MR. GROVER HAS ALSO SUBSTANTIAL INTEREST IN M/S NATCO EXPORTS P. LTD. HOLDING 90% OF SHARES. THE AO FURTHER OBSERVED THAT MR. AJAY GROV ER HOLD MORE THAN 50% SHARE IN THE ASSESSEE COMPANY. WITH REGARD TO THE A FORESAID AMOUNT OF RS.28.50 LACS RECEIVED BY THE PRESENT ASSESSEE COMP ANY FROM M/S NATCO EXPORTS P. LTD., THE AO HAD TAKEN A VIEW THAT THIS AMOUNT IS TO BE CONSIDERED AS A DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. AFTER CONSIDERING THE PROVISIONS CONTAINE D IN SECTION 2(22)(E) OF THE ACT, THE AO TREATED THE AMOUNT OF RS.28,50,000/ - AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY AND ADDED THE SAM E TO THE ASSESSEES TOTAL INCOME. WHILE DOING SO, AO STATED THAT ALL THE CON DITIONS LAID DOWN U/S 2(22)(E) ARE SATISFIED, AND ARE UNDISPUTEDLY APPLIE D TO THE PRESENT CASE IN RESPECT OF THE PAYMENT RECEIVED BY THE ASSESSEE COM PANY FROM M/S NATCO EXPORTS P. LTD. THE AO OBSERVED THAT M/S NATCO EXPO RTS P. LTD. IS NOT A 3 COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTE D. THE SAID COMPANY HAS ENOUGH ACCUMULATED PROFIT ELIGIBLE FOR DISTRIBUTION AS DIVIDEND. THE SAID COMPANY IS NOT ENGAGED IN THE BUSINESS OF MONEYLEND ING. THE AO FURTHER OBSERVED THAT COMMON SHAREHOLDER AND DIRECTOR, NAME LY, MR. AJAY GROVER HAS 90% HOLDING IN THE PAYER COMPANY AND 50% HOLDIN G IN THE RECIPIENT COMPANY, WHICH MAKES IT CLEAR THAT THE PAYMENT HAS BEEN RECEIVED BY A COMPANY WHEREIN MORE THAN 10% SHAREHOLDERS ARE SUBS TANTIALLY INTERESTED. IN THE LIGHT OF THESE FACTS, THE AO HAD TAKEN A VIE W THAT ALL THE CONDITIONS LAID DOWN IN SECTION 2(22)(E) ARE SATISFIED IN THE PRESENT CASE. 4. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). 5. AFTER CONSIDERING THE DECISION OF HONBLE RAJAST HAN HIGH COURT IN THE CASE OF CIT VS HILL TOP (2008) 217 CTR 527 (RAJ), W HICH HAS BEEN FOLLOWED BY THE SPECIAL BENCH OF THE ITAT, MUMBAI BENCH IN T HE CASE OF ACIT VS BHAUMIK COLOUR P. LTD. (2009) 27 SOT 270, THE LD. C IT(A) HELD THAT FOR ATTRACTING PROVISIONS OF SECTION 2(22)(E), THERE MU ST BE A LOAN OR ADVANCE, AND SUCH LOAN AND ADVANCE SHOULD BE FOR THE BENEFIT OF THE BENEFICIAL SHAREHOLDER, AND IN THE INSTANT CASE, THERE WAS NO LOAN OR ADVANCE TO THE DIRECTOR OF THE ASSESSEE COMPANY, AND THE ASSESSEE COMPANY WAS NOT SHAREHOLDER IN M/S NATCO EXPORTS PVT. LTD., THE DEEMED DIVIDEND 4 CANNOT BE TAXED IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER, AND SINCE THE ASSESSEE COMPANY WAS NOT A SHAREHOLDER IN THE N ATCO EXPORTS P. LTD., THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT DO NOT AP PLY IN THE HANDS OF THE PRESENT ASSESSEE. THE CIT(A), THEREFORE, DELETED T HE ADDITION. 6. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE THE TR IBUNAL. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS OF BOTH THE PARTIES AND HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW. 8. FROM THE FACTS OF THE PRESENT CASE, AS EMERGING FROM THE ORDERS OF THE AUTHORITIES BELOW, IT IS CLEAR THAT THE ASSESSEE CO MPANY IS ITSELF NOT A SHAREHOLDER OF M/S NATCO EXPORTS P. LTD. THE ONLY BASIS ON WHICH THE AO HAS TREATED THE AMOUNT OF LOAN TAKEN BY THE ASSESSE E COMPANY FROM M/S NATCO EXPORTS P. LTD. TO BE IN THE NATURE OF DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT IS THAT MR. AJAY GROVER IS A COMMON SHAREHOLDER IN BOTH THE COMPANIES HAVING 90% HOLDIN G IN THE PAYER COMPANY AND 50% HOLDING IN THE RECIPIENT COMPANY. HOWEVER, THAT MUCH IS NOT SUFFICIENT TO ATTRACT THE PROVISIONS OF SECTION 2(22)(E) IN THE HANDS OF THE PRESENT COMPANY AS WAS HELD AND DECIDED BY THE HON BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS HILL TOP (SUPRA), WHICH HAS BEEN APPLIED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V S BHAUMIK COLOUR P. LTD. (SUPRA), WHERE IT HAS BEEN HELD THAT ONE OF TH E CONDITIONS REQUIRED TO BE 5 SATISFIED FOR APPLICATION OF THE PAYMENT CONTEMPLAT ED U/S 2(22)(E) IS THAT A PERSON MUST BE A SHAREHOLDER OF THE COMPANY, BEING A REGISTERED HOLDER, AND AS WELL AS BENEFICIAL OWNER OF SHARES HOLDING NOT L ESS THAN 10% OF THE VOTING POWER. FROM THE SAID DECISION, IT IS CLEAR THAT CO NDITION OF BEING REGISTERED SHAREHOLDER OF A PAYER COMPANY IS ONE OF THE CONDIT IONS REQUIRED TO BE SATISFIED FOR APPLYING THE PROVISIONS OF SECTION 2( 22)(E) OF THE ACT. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE, THEREFORE, HOLD THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT A PPLICABLE TO THE PRESENT ASSESSEE COMPANY IN RESPECT OF THE AMOUNT OF LOAN T AKEN FROM M/S NATCO EXPORTS P. LTD. IT IS ALTOGETHER A DIFFERENT MATTE R WHETHER THE PROVISIONS OF SECTION 2(22)(E) CAN BE APPLIED IN THE HANDS OF MR. AJAY GROVER IN RESPECT OF THE LOAN TAKEN BY THE PRESENT ASSESSEE COMPANY F ROM M/S NATCO EXPORTS P. LTD. IN THE LIGHT OF HIS HOLDING TO THE EXTENT O F 50% IN THE PRESENT ASSESSEE COMPANY. HOWEVER, WE ARE NOT CONCERNED WITH THAT I SSUE IN THIS APPEAL FILED BEFORE US. IN THIS VIEW OF THE MATTER, WE, THEREFOR E, UPHOLD THE ORDER OF CIT(A) IN HOLDING THAT PROVISIONS OF SECTION 2(22)( E) DO NOT APPLY TO THE PRESENT ASSESSEE COMPANY SINCE THE PRESENT ASSESSEE COMPANY IS NOT A SHAREHOLDER IN THE NATCO EXPORTS P. LTD. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 6 10. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 12 TH MAY, 2010 IMMEDIATELY AFTER THE HEARING WAS OVER. (K.G. BANSAL) (C.L . SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12 TH MAY , 2010 VIJAY COPY TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A)-XVI, NEW DELHI 5. DR ASSISTANT REGISTRAR