M/S G B INTERNATIONAL PVT LTD, Chennai V. ACIT (OSD) CORP CIR 2, Chennai

ITA 410/CHNY/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5292 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 05-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D BENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.410/CHNY/2018 ( / ASSESSMENT YEAR: 2012-13) M/S. G.B. INTERNATIONAL PVT. LTD., GB, ABIRAMI PRIMERA, NO.19, 3 RD AVENUE, INDIRA NAGAR, ADYAR, CHENNAI 600 020. VS THE ACIT (OSD), CORPORATE CIRCLE 2, CHENNAI. PAN: AABCP3453G ( /APPELLANT) ( /RESPONDENT) /APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : SMT. VIJAYAPRABHA, JCIT /DATE OF HEARING : 09.08.2018 /DATE OF PRONOUNCEMENT : 09.10.2018 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-13, CHENNAI DATED 11.12.2017 IN ITA NO.58/CIT(A)-13/AY 2012-13 FOR THE ASSESSMENT YEAR 2012-13 PASSED U/S.250(6) R.W.S. 143(3) OF THE ACT. 2. THE ASSESSEE HAS RAISED THREE GROUNDS IN ITS APPEAL HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE 2 ITA NO. 410/CHNY/2018 ADDITION MADE BY THE LD.AO AMOUNTING TO RS.85 LAKHS TOWARDS DEEMED DIVIDEND INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN PRIVATE LIMITED COMPANY ENGAGED IN BUSINESS IN SERVICE SECTOR, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 ON 27.09.2012 ADMITTING TOTAL INCOME OF RS.5,48,730/-. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. FINALLY ASSESSMENT ORDER WAS PASSED U/S.143(3) OF THE ACT ON 19.03.2015 WHEREIN THE LD.AO MADE ADDITION OF RS.85,00,000/- TOWARDS DEEMED DIVIDEND INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 4. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE COMPANY HAD BEEN REGULARLY RECEIVING AND EXTENDING LOAN TO M/S.MAY FLOWER PROPERTIES PVT. LTD., ON VARIOUS DATES. IT WAS FURTHER OBSERVED THAT SHRI RAGHAVAN BALASUBRAMANIYAN AND SHRI NATARAJAN BALASUBRAMANIYAN EACH HELD 50% STAKE IN M/S. MAY FLOWER PROPERTIES PVT. LTD., WHO WERE ALSO THE SUBSTANTIAL SHAREHOLDERS IN THE ASSESSEE COMPANY. ON QUERY IT WAS EXPLAINED THAT THE PAYMENTS WERE RECEIVED AND MADE BY THE ASSESSEE COMPANY DUE TO COMMERCIAL EXIGENCIES, HOWEVER THE LD.AO OBSERVED THAT THERE WERE NO COMMERCIAL NEXUS BETWEEN THE ASSESSEE COMPANY 3 ITA NO. 410/CHNY/2018 AND M/S. MAY FLOWER PROPERTIES PVT. LTD. THEREAFTER THE LD.AO COMPUTED THE DIFFERENCE BETWEEN THE PEAK VALUE OF CREDIT & DEBIT BALANCES DURING THE RELEVANT ASSESSMENT YEAR AND WORKED OUT THE ADDITION U/S.2(22)(E) OF THE ACT AS RS.85 LAKHS IN THE HANDS OF THE ASSESSEE COMPANY. 5. ON APPEAL THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD.AO BY OBSERVING AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE APPELLANT'S ABOVE SUBMISSIONS ALONG WITH VARIOUS CASE LAWS RELIED UPON, THE ASSESSEE COMPANY HAS SUBSTANTIAL BORROWINGS FROM A COMPANY IN WHICH SHARE HOLDERS OF THE ASSESSEE COMPANY HAS SUBSTANTIAL INTEREST, MOREOVER, THE REPAYMENT BY THE ASSESSEE COMPANY IS NOT RECIPROCATED BY WAY OF ANY SALE OF PRODUCTS OR SERVICES BUT, BY RETURNING MONEY TO THEM, BOARD CIRCULAR NO.495 DATED 22.09,1987 WHICH CONTAINS ALL EXPLANATORY NOTE ON THE PROVISIONS RELATING TO DIRECT TAXES WITH REFERENCE TO FINANCE ACT, 1987, CIRCULAR CLEARLY CLARIFIES THAT THE PROVISION OF SECTION 2(22) (E) COULD BE APPLICABLE IN A CASE WHERE SHAREHOLDER HAS 10% OR MORE OF THE EQUAL CAPITAL. AND WHERE THE COMPANY MAKES THE PAYMENT BY WAY OF LOANS OR ADVANCES TO A CONCERN AND MEMBER OR A PARTNER OF THE CONCERN HOLDS 10% OR MORE OF THE VOTING POWER IN A COMPANY AND WHERE THE MEMBER OR A PARTNER OF THE CONCERN IS ALSO BENEFICIAL)' ENTITLED TO 20'0 OF THE INCOME OF SUCH CONCERN, IN THE ASSESSEE CASE, THE LOAN IS GROUPED UNDER LONG TERM BORROWINGS FROM RELATED PARTNERS IN THE LIABILITY SIDE OF THE BALANCE SHEET AND DOESN'T FORM PART OF TRADE PAYABLES. AS REGARDS THE SHARE HOLDINGS PATTERNS CONDITIONS ARE SATISFIED, THEREFORE, THE PROVISION OF SEC.2(22)(E ) ARE ATTRACTED IN RESPECT OF LOAN AMOUNT RECEIVED BY THE SAID COMPANY, SHRI RAGHAVAN BALASUBRAMANIAN AND SHRI NATARAJAN BALASUBRAMANIAN TOGETHER HOLD ABSOLUTE CONTROL OVER THE AFFAIRS OF THE COMPANY CALLED MAYFLOWCR PROPERTIES (P) LIMITED AND BY THIS EXERCISE THEY HAVE UTILIZED THE COMPANYS FUND TO THE BENEFIT OF EITHER COMPANY IN WHICH THEY ARE SUBSTANTIALLY INTERESTED WITHOUT PAYMENT OF DIVIDEND DISTRIBUTION TAX. IN THE STATUTE THIS PROVISION WAS INTRODUCED ONLY TO THWART SUCH CIRCUMVENTING UNAUTHORIZED CHANNELIZING OF PROFITS. THE ASSESSEE HAS ITSELF CLAIMED THAT SUCH TRANSACTIONS ARE NOTHING BUT UNSECURED LOANS. THEREFORE, THE NONE OF THE CASE LAWS REFERRED BY THE ASSESSEE COMES ITS RESCUE, HAVING THE AO ESTABLISHED THAT THE MAYFLOWER PROPERTIES (P) LIMITED IN WHICH THE SHAREHOLDER OF 4 ITA NO. 410/CHNY/2018 THE ASSESSEE COMPANY ARE SUBSTANTIALLY INTERESTED AND THE SAID COMPANY IS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING AND JUST BECAUSE AN AMOUNT HAS BEEN PAID AS INTEREST ON SUCH LOAN, IT ACTUALLY DOES NOT QUALIFY AS THE TRANSACTION FROM GETTING ASSURED FROM THE PROVISIONS OF SEC.2(22)(E) OF THE ACT . THE AO HAS GIVEN COMPLETE DETAILS OF LEDGER FOLIO OF MAYFLOWER PROPERTIES (P) LIMITED IN THE ASSESSMENT ORDER. FROM THE DEBIT AND CREDIT ENTRIES THE AO ARRIVED TO PEAK VALUE OF CREDIT BALANCE DURING THE YEAR AT RS.85,00,000 /- AND THE SAME IS THEREFORE HELD AS DEEMED DIVIDEND IN THE HANDS OF ASSESSEE COMPANY UNDER SECTION 2(22)(E ) OF THE ACT. IN VIEW OF THIS I HELD THAT THE ADDITION MADE BY THE ASSESSING OFFICER FOR RS.85,00,000/- U/S 2(22)(E) OF THE ACT ARE HEREBY CONFIRMED. THE GROUND OF APPEAL ON THE ISSUE IS ACCORDINGLY DISMISSED. 6. BEFORE US THE LD.AR SUBMITTED THAT THE ASSESSEE COMPANY DID NOT HOLD 10% OR MORE EQUITY SHARES IN M/S. MAY FLOWER PROPERTIES PVT. LTD., AND HENCE THE PROVISION OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE WITH RESPECT TO THE AMOUNT RECEIVED FROM M/S. MAY FLOWER PROPERTIES PVT. LTD. THE LD.AR FURTHER RELIED IN THE DECISION RENDERED BY THE HONBLE APEX COURT IN THE CASE CIT VS. MADHUR HOUSING & DEVELOPMENT COMPANY REPORTED IN 100 CCH 0046 BY CLAIMING THE FACTS TO BE IDENTICAL. IT WAS THEREFORE PLEADED THAT THE ADDITION MADE BY THE LD.AO INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT MAY BE DELETED. ON THE OTHER HAND THE LD.DR RELIED ON THE ORDERS OF THE LD.REVENUE AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. SINCE THE FACT WITH RESPECT TO THE QUANTUM OF SHARES HELD BY THE RELEVANT PARTIES WHICH RESULTED IN INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS DISPUTED BY THE LD.AR AND 5 ITA NO. 410/CHNY/2018 THE RELIANCE MADE BY THE LD.AR IN THE DECISION OF THE HONBLE APEX COURT IN THE CASE CIT VS. MADHUR HOUSING & DEVELOPMENT COMPANY CITED SUPRA WHICH WAS NOT CONSIDERED BY THE LD.REVENUE AUTHORITIES, WE HEREBY REMIT THE MATTER BACK TO THE FILE OF LD.AO FOR DE-NOVA CONSIDERATION. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 9 TH OCTOBER, 2018 AT CHENNAI. SD/- SD/- /CHENNAI, /DATED 9 TH OCTOBER, 2018 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( ) /CIT(A) 4. /CIT 5. /DR 6. /GF ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER