Dy.Comm.of Income Tax,Circle-4, Nagpur V. M/s.Apex Multitrade Private Limited, Nagpur

ITA 39/NAG/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9593 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 10-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B RAJARAM
• Assessee Lawyers: KAPIL A HIRANI
• Keywords: Deemed dividend

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR , BENCH , ( E - COURT), MUMBAI , BEFORE SHRI R.K.GUPTA , J M & SHRI RAJENDRA , A M ITA NO. 39 / N AG / 20 1 1 ( ASSESSMENT YEAR : 200 5 - 0 6 ) DCIT, CIR - 4 , NAGPUR (MAHARASHTRA) . VS. M/S APEX MULTITRADE PVT. LTD., CHAWLA B UILDING , JAGANNATH ROAD, NEAR WHOLE SALE CLOTH MKT., GANDHIBAGH, NAGPUR (MAHARASHTRA) PAN/GIR NO. : A A ECA 5629 E ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO. 40 / NAG /20 11 ( ASSESSMENT YEAR : 200 6 - 0 7 ) DCIT, CIR - 4, NAGPUR (MAHARASHTRA). VS. M/S APEX MULTITRADE PVT. LTD., CHAWL A BUILDING, JAGANNATH ROAD, NEAR WHOLE SALE CLOTH MKT., GANDHIBAGH, NAGPUR (MAHARASHTRA) PAN/GIR NO. : A AECA 5629 E ( APPELLANT ) .. ( RESPONDENT ) AND NO . 03 / NAG /20 11 ( ASSESSMENT YEAR :200 5 - 0 6 ) M/S APEX MULTITRADE PVT. LTD., CHAWLA BUILDING, JAGANNATH ROAD, NEAR WHOLE SALE CLOTH MKT., GANDHIBAGH, NAGPUR (MAHARASHTRA) VS. DCIT, CIR - 4, NAGPUR (MAHARASHTRA). PAN/GIR NO. : A AECA 5629 E ( APPELLANT ) .. ( RESPONDENT ) ITA NO . 39 & 40 /20 1 1 AND CONOS.3&4/2011 2 AND NO. 04 / NAG /20 11 ( ASSESSMENT YEAR :200 6 - 0 7 ) M/S APEX MULTITRADE PVT. LTD., CHAWLA BUILDING, JAGANNATH ROAD, NEAR WHOLE SALE CLOTH MKT., GANDHIBAGH, NAGPUR (MAHARASHTRA ) VS. DCIT, CIR - 4, NAGPUR (MAHARASHTRA). PAN/GIR NO. : A AECA 5629 E ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : SHRI B.RAJARAM /ASSESSEE BY : SHRI K APIL A. HIRANI DATE OF HEARING : 1 7 TH DEC ., 2012 DATE OF PRONOUNCEMENT : 19 TH DEC. ,2012 O R D E R P ER SHRI R.K.G UPTA, JM : THE DEPARTMENT HAS PREFERRED TWO APPEALS (I.E. ITA NO. 39/NAG/2011 & ITA NO. 40/ NAG/2011) AGAINST THE ORDER DATED 27 - 12 - 2010 OF LEANED CIT(A) - II , NAGPUR (MAHARASHTRA) , RELATING TO ASSESSMENT YEARS 200 5 - 0 6 & 2006 - 07 RESPECTIVELY, WHEREAS THE ASSESSEE HAS PREFERRED TWO CROSS OBJECTIONS (I.E.CO.NO. 3/ 20 11 & 4/2011 ) RELATING TO THE SAME AS SESSMENT YEARS SUPPORTING TO THE ORDER PASSED BY THE LEARNED CIT(A) . SINCE THE COMMON ISSUE IS INVOLVED IN ALL THE CASES , THEREFORE, FOR THE SAKE OF CONVENIENCE, ALL THE CASES HAVE BEEN HEARD THROUGH E - COURT, MUMBAI AND DISPOSED OF BY THIS CONSOLIDATED ORD ER . ITA NO . 39 & 40 /20 1 1 AND CONOS.3&4/2011 3 2 . THE DEPARTMENT IN ITS APPEALS RAISES THE GROUND IN REGARD TO DELETING THE ADDITION OF RS. 38 ,23, 225/ - AND RS. 9,38,491/ - AS DEEMED DIVIDEND RESPECTIVELY FOR BOTH OF THE YEARS. THE DEPARTMENT IS ALSO OBJECTING THE DELETING THE ADDITION OF RS. 1,96,029/ - MADE BY THE AO N ACCOUNT OF DISALLOWING OF INTEREST TREATING THE AMOUNT AS DEEMED DIVIDEND. 3 . THE ASSESSEE IS A PRIVATE LIMITED COMPANY, INVOLVED IN LENDING OF MONEY ON INTEREST. DURING THE YEAR, THE COMPANY HAS ACCEPTED CERTAIN AMOUNTS FROM CHAWLA SA REES PVT. LTD., WHICH WAS SHOWN AS ADVANCES AND DEPOS ITS. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY IS NOT A SHAREHOLDER IN M/S CSPL PVT. LTD. THE AO FURTHER NOTED THAT ONE OF THE SHAREHOLDER IS COMMON IN ASSESSEE COMPANY AS IN THE M/S CSPL P VT. LTD. HAVING SHAREHOLDING MORE THAN 10% IN SHAREHOLDING COMPANY AND MORE THAN 20% IN THE DEBTOR COMPANY. SINCE ONE OF THE SHAREHOLDER WAS COMMON IN BOTH THE COMPANY, THEREFORE, THE AO WAS OF THE VIEW THAT IN VIEW OF THE NEWLY INSE RTED EXPLANATION 2(A) T O SECTION 2(22) WOULD MEAN THAT A SHARE HOLDER HAVING A SUBSTANTIAL INTEREST IN A CONCERN IS DEEMED TO BE ONE WHO IS BENEFICIALLY ENTITLED TO NOT LESS THAN 20% ON INCOME OF SUCH CONCERN. ACCORDING TO THE AO , THE DEEMED DIVIDEND TO THE EXTENT OF ACCUMULATED PROFITS OF THE COMPANY ARE TO BE CONSIDERED. THE AO WAS OF THE VIEW THAT THE ASSESSEE COMPANY, WHO HAS TAKEN ADVANCES FROM M/S CHAWLA SAREES PVT. LTD. HAS VIOLATED THE PROVISION OF SECTION 2(22) (E) , THEREFORE, DEEMED DIVIDEND INCOME HAS TO BE ASSESSED IN ITA NO . 39 & 40 /20 1 1 AND CONOS.3&4/2011 4 VIEW OF THE PROVISION OF SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, HE MADE A DISALLOWANCE OF RS. 38,23,225/ - FOR THE ASSESSMENT YEAR 2005 - 06 AND RS. 9,38,491/ - FOR THE ASSESSMENT YEAR 2006 - 07. 4 . IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESS EE IS NOT A SHAREHOLDER IN M/S CHAWLA SAREES PVT. LTD. . THE ASSESSEE AND M/S CHAWLA SAREES PVT. LTD. ARE MAINTAINING AND RUNNING MUTUAL AND OPEN ACCOUNT. THE AMOUN T S GIVEN BY THE M/S CSPL ARE IN THE NORMAL COURSE OF TRADE AND ARE NOT LOANS OR ADVANCES. THE ASSESSEE HAS ADVANCED AMOUNTS TO M/S CSPL AND AGAINST ITS DEBTS CERTAIN EXCESS AMOUNTS WERE PAID. THEREFORE, NO AMOUNT IS TAXABLE IN ITS HANDS AS DEEMED DIVIDEND. IT WAS FURTHER SUBMITTED THAT SINCE THE ASSESSEE IS NOT A SHAREHOLDER, THEREFORE, IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. BHAUMIK COLOUR PVT. LTD., (2009) 120 TTJ 865 , WHICH HAS BEEN CONFIRMED BY THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD.(2010) 324 ITR 263 (BOM) . RELIANCE WAS ALSO PLACED IN THE CASE OF N.H. SECURITIES LTD. VS. DCIT 11 SOT 302 (BOM) . ACCORDINGLY, IT WAS SUBMITTED THAT PROVISION S OF SECTION 2(22)E ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. FURTHER DETAIL SUBMISSION WERE FILED BEFORE THE CIT (A) . AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, LEARNED CIT(A) NOTED THAT THE ADVANCE WAS GIVEN IN THE NORMAL COURSE OF BUSINESS, THEREFORE, AS THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MONEY LENDING ON INTEREST AND, ITA NO . 39 & 40 /20 1 1 AND CONOS.3&4/2011 5 T HEREFORE, ADVANCED CERTAIN AMOUNT TO M/S CSPL IN PAST. ACCORDINGLY, IT WAS SUBMITTED THAT THE PROVISION S OF SECTION 2(22)E ARE NOT APPLICABLE AS THE ADVANCES WERE GIVEN IN NORMAL COURSE OF BUSINESS. IN THIS RESPECT, A RELIANCE WAS PLACED BY LEARNED CIT(A) IN THE CASE OF N.H. SECURITIES LTD. VS. DCIT 11 SOT 302 (BOM) AND ALSO THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. CREATIVE DYEING & PRINTING (P) LTD. (2009) 30 DTR (DEL) 143 . THEREAFTER IT WAS OBSERV ED THAT M/S CSPL PVT. LTD. MADE ADVANCES TO THE ASSESSEE COMPANY FOR BUSINESS PURPOSES AND T HESE ADVANCES WERE AVAILABLE TO THE ASSESSEE COMPANY FOR UTILIZATION AND COMMERCIAL LENDING IN CONSONANCE WITH THE OBJECTIVES OF THE COMPANY . ACCORDINGLY, HE DELETED THE ADDITION MADE UNDER SECTION 2(22)E OF THE ACT OF BOTH OF THE YEARS. BEING AGGRIEVED WITH THE SAME, THE DEPARTMENT IS IN APPEALS HERE BEFORE THE TRIBUNAL . 5 . LEARNED DR PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 6 . ON THE OTHER HAND, LEARNED COUNSEL OF THE ASSESSEE PLACED RELIANC E ON THE ORDER OF THE LEARNED CIT(A) FOR BOTH OF THE YEARS . 7 . AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE FINDINGS OF THE LEARNED CIT(A) . L EARNED CIT(A) HAS ASCERTAINED THE FACTUAL ASPECT THAT THE AD VANCES WERE TAKEN BY THE ASSESSEE IN BUSINESS CONNECTION AS THE ASSESSEE COMPANY INVOLVED IN MONEY LENDING BUSINESS ON INTEREST AND EARNED ITA NO . 39 & 40 /20 1 1 AND CONOS.3&4/2011 6 INTEREST. THE ASSESSEE COMPANY HAS PAID INTEREST TO M/S CSPL (CHAWLA) . EVEN AND OTHERWISE, WE NOTED THAT THE ASSESSEE COMPANY IS NOT A SHAREHOLDER DIRECTLY, THEREFORE, IN VIEW OF THE DECISION OF THE SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR PVT. LTD (SUPRA), WHICH HAS BEEN AFFIRMED BY THE HON BLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE (P) LTD (SUPRA) . THE REFORE, FOR THIS REASON ALSO, NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE COMPANY, WHICH IS NOT A SHAREHOLDER OF THE COMPANY FROM WHOM THE ADVANCES HAVE BEEN TAKEN. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE CONFIRM THE ORDER OF THE LEARNED CIT(A) FOR BOTH OF THE ASSESSMENT YEARS. 8 . THE NEXT GROUND IN APPEAL OF THE DEPARTMENT IS AGAINST DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST IS CONSEQUENTIAL IN NATURE AS WE HAVE HELD THAT ADVANCES TAKEN BY THE ASSESSEE COMPANY WAS FOR BUSINESS EXPEDIENCY. HENCE, INTEREST PAID ON THE AMOUNT IS ALLOWABLE AS DEDUCTION. THEREFORE, THE ORDER OF THE LEARNED CIT(A) DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST IS ALSO CONFIRMED. CONSEQUENTLY, THE APPEALS OF THE DEPARTMENT ARE D ISMISSED. 9 . CROSS OBJECTIONS FILED BY THE ASSESSEE FOR BOTH OF THE YEARS ARE IN SUPPORT OF THE ORDER OF THE LEARNED CIT(A) AND ALSO IN RESPECT TO THE ISSUE THAT THE ASSESSEE COMPANY IS NOT A SHAREHOLDER, THEREFORE, THE PROVISION S OF SECTION 2(22)(E) ARE NOT ATTRACTED ON THE FACTS OF THE PRESENT CASE. SINCE WE HAVE DISMISSED THE APPEAL OF THE DEPARTMENT ITA NO . 39 & 40 /20 1 1 AND CONOS.3&4/2011 7 FOR BOTH OF THE ASSESSMENT YEARS, THEREFORE, THESE CROSS OBJECTIONS DO NOT REQUIRE ANY SEPARATE ADJUDICATION UPON AND THEY ARE DISPOSED OF ACCORDINGLY. 10 . RESULTANTLY , THE APPEAL S OF THE DEPARTMENT ARE DISMISSED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE TO BE TREATED AS ALLOWED . ORDER PRONOUNCED IN THE E - COURT ON THIS 19 TH DAY OF DEC. 2012. - 2012 SD/ - SD/ - ( ) ( RAJENDRA ) ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / J UDICIAL MEMBER MUMBAI ; DATED : 19 /12 / 2012 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , M UMBAI / NAGPUR . 4. / CIT 5. / DR, ITAT, MUMBAI / NAGPUR . 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( DY./ASSTT. REGISTRAR) / ITAT, MUMBAI