ITO, New Delhi V. M/s. Nandlala Securities Pvt. Ltd, New Delhi

ITA 4124/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5686 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 03-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 15-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL
• Assessee Lawyers: SB GUPTA
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F: NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO. 4124/DEL/2009 ASSESSMENT YEAR: 2005-06 ITO, WARD 13(2), NEW DELHI. VS. NANDLALA SECURITIES PVT. LTD., 107, IJS PALACE, 320 DELHI GATE BAZAR, ASAF ALI ROAD, NEW DELHI. AABCN5986A (APPELLANT) (RESPONDENT) APPELLANT BY : DR. DEEPAK SEHGAL, SR. D R RESPONDENT BY: SH. S.B. GUPTA, CA O R D E R PER I.P. BANSAL, J.M. THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DI RECTED AGAINST THE ORDER OF CIT(A) DATED 3 RD AUGUST, 2009 FOR A.Y. 2005-06. GROUNDS OF APPEAL READ AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 48,40,200/- MADE BY THE AO U/S 2(22)(E) OF THE I.T. ACT WITHOUT PROPER APPRECIATION OF THE PROVISIONS OF SEC. 2(22)(E) REA D WITH SECTION 4 & 5 OF THE ACT AND IGNORING THE SPIRIT OF CBDT CIRC ULAR NO. 495 DATED 22.09.1987. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 48,40,200/- MADE BY THE AO U/S 2(22)(E) OF THE I.T. ACT BY ACCE PTING THE FRESH ARGUMENT OF ASSESSEE (NOT SUBMITTING BEFORE AO) REG ARDING NATURE OF TRANSACTIONS, WITHOUT ALLOWING THE AO AN OPPORTUNITY TO EXAMINE THE SAME. ENQUIRY/EXAMINATION IN THE REGARD HAS NOT 2 ITA NO. 4124/DEL/2009 BEEN MADE EVEN BY CIT(A) HIMSELF AS THE APPELLATE O RDER DOES NOT INDICATE ANY SUCH ENQUIRY/EXAMINATION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 48,40,200/- MADE BY THE AO U/S 2(22)(E) OF THE I.T. ACT BY ACCE PTING THE FRESH SUBMISSION OF ASSESSEE (NOT MADE BEFORE AO) THAT DI RECTOR ARE HOLDING SHARES IN THE CAPACITY OF KARTA OF HUF, WIT HOUT ALLOWING THE AO OPPORTUNITY TO EXAMINE THE SAME. INQUIRY/ E XAMINATION IN THIS REGARD HAS NOT BEEN MADE EVEN BY CIT(A) HIMSEL F AS THE APPELLATE ORDER DOES NOT INDICATE ANY SUCH ENQUIRY/ EXAMINATION. 4. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FR ESH GROUNDS OF APPEAL AND/ OR DELETE OR AMEND ANY OF THE GROUNDS O F APPEAL. 2. AS IT CAN BE SEEN FROM THE GROUNDS OF APPEAL FIL ED BY THE REVENUE THE MAIN GRIEVANCE OF THE REVENUE IS WITH REGARD TO DELETION OF ADDITION OF A SUM OF RS. 48,40,200/- TREATED BY AO AS DEEMED DI VIDEND U/S 2(22)(E) OF I.T. ACT, 1961 (ACT). 3. DURING THE COURSE OF ASSESSMENT PROCEEDING THE A O FOUND THAT ASSESSEE WAS A GROUP COMPANY OF O.J. GROUP AND THE GROUP COMPANIES WERE DEALING IN THE BUSINESS OF TRADING IN SECURITI ES, DERIVATIVES AND COMMODITIES AND UNDER THIS BACKGROUND THE AO EXAMIN ED THE COPY OF ACCOUNT OF THE ASSESSEE IN THE BOOKS OF ITS CREDITO R NAMELY M/S O.J. FINANCIAL SERVICES PVT. LTD. AND IT WAS FOUND THAT ASSESSEE WAS HAVING OPENING DEBIT BALANCE OF RS. 56,36,322/- AS ON 01.0 4.04 AND IT WAS ALSO NOTICED THAT DURING THE ENTIRE FINANCIAL YEAR UNDER CONSIDERATION THE ASSESSEE CONTINUE TO HAVE DEBIT BALANCE RAISING BET WEEN 30 LAKH TO 1.1 CRORE. THE AO ALSO NOTICED THAT THERE WAS NO INDIC ATION OF HAVING RECEIVED ANY MARGINAL MONEY FROM THE ASSESSEE UNLIK E IN THE CASE OF 3 ITA NO. 4124/DEL/2009 INDEPENDENT CLIENTS. THUS, THE AO INFERRED THAT TH E MONEY BEING UTILIZED IN THE NAME OF ASSESSEE WAS IN THE NATURE OF LOAN T O THE ASSESSEE AND HENCE IT FALLS WITHIN THE AMBIT OF DEEMED DIVIDEND. THE AO IDENTIFIED THE FOLLOWING PAYMENTS WHICH HAVE BEEN TREATED BY HIM A S DEEMED DIVIDEND: - DATE AMOUNT BY CHEQUE/ET TRF PAID TO THE ASSESSEE (RS .) 15.07.04 10,00,000 26.07.04 5,00,000 27.07.04 5,00,000 27.07.04 5,00,000 09.08.04 20,000 07.09.04 20,000 24.09.04 3,00,000 31.03.05 15,00,000 TOTAL 48,40,000 4. THE AO ALSO REJECTED THE CLAIM OF THE ASSESSEE T HAT THESE TRANSACTIONS WERE RELATED TO REFUND OF MARGIN MONEY EARLIER PAID BY THE ASSESSEE TO THE SAID COMPANY AND, THEREFORE, THESE BEING TRADE TRANSACTIONS SHOULD NOT PAR TAKE CHARACTER OF THE DEEMED DIVIDEND. THE AO ALSO REJECTED THE CONTENTION OF THE ASSESSEE THAT FOR TREATING THE DEEMED DIVIDEND ASSESSEE COMPANY SHOULD BE THE REGI STERED SHAREHOLDER OF THE PAYER COMPANY AND AS ASSESSEE DO ES NOT HOLD ANY SHARE OF THE PAYER COMPANY, THEREFORE, PROVISIONS O F SEC. 2(22)(E) WERE NOT APPLICABLE. (LD. CIT(A) OBSERVED THAT THERE WA S NO COMMON SHAREHOLDER IN THESE TWO COMPANIES AS ALLEGED BY AO ). THE AO FOUND THAT ONE SH. NAVEEN GUPTA WAS HOLDING SHARE OF THE ASSESSEE COMPANY AS WELL AS SHARE OF PAYER COMPANY AND IT WAS BROUGH T ON RECORD BY THE 4 ITA NO. 4124/DEL/2009 ASSESSEE BEFORE AO AS WELL AS CIT(A) THAT SAID SH. NAVEEN GUPTA DID NOT HOLD THE SHARES OF BOTH THE COMPANIES IN THE SA ME CAPACITY AS IN THE CASE OF THE ASSESSEE COMPANY HE WAS HOLDING SHARES IN THE CAPACITY OF BEING KARTA OF HIS HUF AS AGAINST THAT HE WAS HOLDI NG SHARES IN M/S O.J. FINANCIAL SERVICES P. LTD. IN THE CAPACITY OF INDIV IDUAL. LD. CIT(A) HAS ACCEPTED THESE CLAIMS OF THE ASSESSEE AFTER PERUSIN G THE DETAILS FILED BY THE ASSESSEE BEFORE AO AND BEFORE HIM. LD. CIT(A) HAS DELETED THE ADDITION ON THE GROUND THAT THE REFUND OF MARGIN MO NEY TO THE ASSESSEE BY THE PAYER COMPANY WAS A TRADE TRANSACTION. HENCE , NOT LIABLE TO BE TREATED TO BE DEEMED DIVIDEND AND SECONDLY THAT THE ASSESSEE COMPANY WAS NOT SHAREHOLDER OF THE PAYER COMPANY AND THESE FINDINGS OF LD. CIT(A) ARE RECORDED AT PAGE 30 AS FOLLOWS: - IN VIEW OF THE ABOVE, IT IS SETTLED LAW THAT FOR ATTRACTING PROVISION OF SEC. 2(22)(E), THERE MUST B E A LOAN OR ADVANCE AND SUCH LOAN AND ADVANCE SHOULD BE FOR THE BENEFIT OF THE BENEFICIAL SHAREHOLDER. IN THE INST ANT CASE, THERE IS NO LOAN OR ADVANCE TO THE SHAREHOLDER OF T HE APPELLANT COMPANY AND THE APPELLANT COMPANY IS NOT THE SHAREHOLDER IN M/S O.J. FINANCIAL SERVICES LTD. TH EREFORE, DEEMED DIVIDEND CANNOT BE TAXED IN THE HANDS OF THE PERSON OTHER THAN A SHAREHOLDER IN THE PRESENT CASE. SINC E, APPELLANT COMPANY IS NOT A SHAREHOLDER IN M/S O.J. FINANCIAL SERVICES LTD., THE PROVISIONS OF SEC. 2(22)(E) DO N OT APPLY IN THE HANDS OF THE APPELLANT COMPANY. WITHOUT PREJUDICE TO THIS, EVEN THE ALLEGATION OF THE AO THAT TRADING TRANSACTION LIKE REFUND OF MARGIN M ONEY AND BUYING AND SELLING OF SHARES AS IN THE INSTANT CASE ARE COVERED IN THE MISCHIEF OF SEC. 2(2)(E) OF THE ACT IS NOT TENABLE IN THE EYES OF LAW. FIRST OF ALL, THE QUES TION WHETHER TRADING ADVANCE OR TRADING TRANSACTION CONSTITUTE L OAN OR 5 ITA NO. 4124/DEL/2009 ADVANCE, AN ESSENTIAL INGREDIENT TO COVER A TRANSAC TION WITHIN SEC. 2(22)(E) OF THE I.T. ACT, WAS CONSIDERE D BY THE HONBLE HIGH COURT, DELHI IN THE CASE OF CIT VS. RA J KUMAR P. LTD. (ITA NO. 1130/2007) JUDGMENT DELIVERED ON 1 4.5.09 AND CIT VS. AMBASSADOR TRAVELS LTD. (ITA NO. 337/20 08) DATED 23.04.08. IN BOTH THESE CASES THE COURT WHIL E AFFIRMING OF THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF NAGINDAS M. KAPADIA HAS HELD THAT TRADI NG ADVANCES ARE NOT COVERED WITHIN THE MISCHIEF OF SEC . 2(22)(E) OF THE I.T. ACT. IN VIEW OF THE ABOVE DISCUSSION, IT IS CLEAR THAT TRADING TRANSACTION/OR REFUND OF MARGIN MONEY BY M/S O.J. F INANCIAL SERVICES LTD. TO THE APPELLANT COMPANY ARE NOT COVE RED UNDER THE MISCHIEF OF SEC. 2(22)(E) OF THE I.T. ACT . FURTHER, IT IS ALSO CLEAR THAT THERE IS NO COMMON SHAREHOLDER O F THE TWO COMPANY AS SH. NAVIN GUPTA HOLDS SHARE IN APPELLANT COMPANY IN THE CAPACITY OF KARTA OF HIS HUF WHERE H E HOLDS SHARES IN M/S O.J. FINANCIAL SERVICES LTD. IN HIS I NDIVIDUAL CAPACITY. FURTHERMORE, THE APPELLANT IS NOT THE SH AREHOLDER OF M/S O.J. FINANCIAL SERVICES LTD. WHICH IS AN ESS ENTIAL INGREDIENT FOR BRINGING A PARTICULAR TRANSACTION IN THE NET OF SEC. 2(22)(E) OF THE I.T. ACT. ACCORDINGLY, IT IS HELD THAT AO WAS NOT JUSTIFIED IN INVOKING THE PROVISION OF SEC. 2(22)(E) OF THE I.T. ACT ON ROUTINE TRADING TRANSACTION BETWEEN TWO COMPANIES W HICH ARE NOT HAVING CROSS SHAREHOLDING. HENCE, THE ADDIT ION MADE ON ACCOUNT OF DEEMED DIVIDEND IS DELETED. 5. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY L D. DR THAT VARIOUS DOCUMENTS WERE FILED BY THE ASSESSEE FOR THE FIRST TIME BEFORE LD. CIT(A) AS RECORDED IN PARA 3 OF THE ORDER OF CIT(A) ON THE BASIS OF WHICH LD. CIT(A) HAS COME TO A CONCLUSION THAT SAID SH. NAVEE N GUPTA WAS 6 ITA NO. 4124/DEL/2009 HAVING SHARES IN BOTH THE COMPANIES IN DIFFERENT CA PACITY AND THUS, IT WAS PLEADED THAT THE CONCLUSION ARRIVED AT BY CIT(A ) ON THE BASIS OF THOSE DOCUMENTS IS IN CONTRAVENTION OF RULE 46A AND GROUND NO. 2 FILED BY THE REVENUE REPRESENT SUCH GRIEVANCE. 6. AS AGAINST SUCH CLAIM OF THE LD. DR IT WAS SUBMI TTED BY LD. AR THAT ASSESSEE EVEN BEFORE AO HAS CONTENDED THAT SH. NAVE EN GUPTA WAS NOT A COMMON SHAREHOLDER OF BOTH THE COMPANIES AS H E WAS HOLDING THE SHARES OF BOTH THE COMPANIES IN DIFFERENT CAPACITY. HOWEVER, IT WAS SUBMITTED BY LD. AR THAT THE CONCLUSION OF LD. CIT( A) IS NOT MERELY BASED ON SUCH FACT ALONE AS LD. CIT(A) HAS DECIDED THE IS SUE ON THE BASIS THAT THESE WERE TRADE TRANSACTIONS HENCE NOT FALLING WIT HIN THE PURVIEW OF SEC. 2(22)(E) AND FOR SUCH PURPOSE LD. CIT(A) HAS PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. RAJ KUMAR WHICH IS NOW REPORTED AT 318 ITR 462 (DEL.). HE PL EADED THAT THE LD. CIT(A) HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE COMPANY WAS NOT REGISTERED SHAREHOLDER OF PAYER COMPANY. HE PLEADED THAT SUCH CONCLUSION OF LD. CIT(A) IS SUPPORTED BY THE SPL. BENCH DECISION OF MUMBAI BENC HES IN THE CASE OF ACIT VS. BHAUMIK COLOURS PVT. LTD. 120 TRJ 865 (MUM .) (SB) AND THUS, HE PLEADED THAT LD. CIT(A) WAS RIGHT IN HOLDING THA T PROVISIONS OF SEC. 2(22)(E) COULD NOT BE APPLIED. 7. IN REPLY LD. DR AGAIN REFERRING TO ASSESSMENT OR DER PLEADED THAT PROVISIONS OF SEC. 2(22)(E) WERE RIGHTLY APPLIED BY THE AO AND LD. CIT(A) HAS WRONGLY DELETED THE ADDITION. 7 ITA NO. 4124/DEL/2009 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF MATERIAL PLACED BEFORE US. THE PAYMENTS WHICH ARE HELD TO BE LIABLE TO BE TAXED U/S 2(22)(E) HAVE BEEN NOTED BY THE AO FRO M THE COPY OF ACCOUNT SUBMITTED BY THE ASSESSEE FROM O.J. FINANCI AL SERVICES P. LTD. WHICH IS PLACED AT PAGE 80 OF THE PAPER BOOK. THE TOTAL PAYMENTS MADE DURING THE YEAR ARE A SUM OF RS. 49,63,000/- OUT OF WHICH AO HAS IGNORED CERTAIN PAYMENTS AND TREATED AN AMOUNT OF R S. 48,40,000/- AS DEEMED DIVIDEND. IN THAT ACCOUNT THE NAME OF THE A SSESSEE IS DESCRIBED AGAINST CLIENTS NAME AND OPENING BALANCE HAS BEEN DESCRIBED AS A SUM OF RS. 22,58,000/- WHICH WAS STANDING TO T HE CREDIT OF THE ASSESSEE AND OUT OF THOSE CREDITS WHICH ARE TOTALED AT A SUM OF RS. 56,33,000/- (INCLUDING OPENING BALANCE) AN AMOUNT O F RS. 49,63,000/- HAS BEEN PAID TO THE ASESSEE. THE AO ALSO NOTED IN THE ASSESSMENT ORDER AT PAGE 8 THAT THE PAYMENTS WHICH ARE TREATED TO BE DEEMED DIVIDEND WERE MADE TO THE ASSESSEE EVEN WHEN TRADIN G LIABILITIES WERE TO BE PAID BY THE ASSESSEE TO THE SAID PARTY TO THE TU NE OF MILLIONS OF RUPEES AND THUS, HE TREATED THE ABOVE MENTIONED AMO UNT BEING LOAN AND ADVANCE MADE TO THE ASSESSEE. THE FIRST AND FOREMO ST ISSUE ON WHICH THE ASSESSEE CONTESTED THE ADDITION BEING MADE U/S 2(22)(E) IS THAT IT WAS A TRADING TRANSACTION, THEREFORE, NOT COMING WI THIN THE PURVIEW OF SEC. 2(22)(E). SUCH CONTENTION HAS TO BE ACCEPTED IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. RAJ KUMAR (SUPRA) RELYING ON WHICH LD. CIT(A) HAS HELD THAT S EC. 2(22)(E) IS NOT APPLICABLE ON TRADE TRANSACTIONS. HERE IN THE PRES ENT CASE ASSESSEE WAS DEALING IN THE SECURITIES WITH THE PAYER COMPAN Y FOR WHICH IT PAID 8 ITA NO. 4124/DEL/2009 MARGIN MONEY WHICH HAS BEEN REFUNDED BACK TO THE AS SESSEE AND THIS FACT IS NOT EVEN DENIED BY THE AO AS HE HAS RECORDE D THESE FINDINGS THAT THERE WERE OUTSTANDING TRADE LIABILITIES RUNNING IN TO MILLION OF RUPEES AND THE MARGIN MONEY WAS PAID FOR MAKING SUCH TRANSACTI ONS. THE SECOND CONTENTION OF THE ASSESSEE IN THE PRESENT CASE IS T HAT ASSESSEE NOT BEING REGISTERED SHAREHOLDER NO SUCH ADDITION COULD BE MADE IN VIEW OF SPL. BENCH DECISION OF TRIBUNAL IN THE CASE OF ACIT VS. BHAUMIK COLOURS P. LTD. (SUPRA), WHEREIN IT HAS BEEN HELD THAT FOR THE PURPOSE OF INVOKING SEC. 2(22)(E), SUCH SHAREHOLDER IN THE CONCERN TO WHICH LOAN IS ADVANCED MUST BE BOTH A REGISTERED SHAREHOLDER AS A LSO BENEFICIAL SHAREHOLDER; LOAN OBTAINED BY THE ASSESSEE COMPANY COULD NOT BE TREATED AS DEEMED DIVIDEND SINCE THE RECEIVING COMP ANY WAS ONLY A REGISTERED SHAREHOLDER AND NOT A BENEFICIAL SHAREHO LDER. IT HAS ALSO BEEN HELD BY SPL. BENCH THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE L ENDER COMPANY AND NOT IN THE HANDS OF THE BORROWING CONCERN IN WHICH SUCH SHAREHOLDER IS MEMBER OR PARTNER HAVING SUBSTANTIAL INTEREST. IN THE LIGHT OF AFOREMENTIONED DECISION OF SPL. BENCH, THE CASE OF AO THAT SH. NAVEEN GUPTA WAS COMMON SHAREHOLDER IN BOTH THE COMPANY CA NNOT BE RELIED UPON TO MAKE ADDITION U/S 2(22)(E) AS FOR THE PURPO SE OF ASSESSING DEEMED DIVIDEND, IT IS NECESSARY THAT BORROWING COM PANY SHOULD BE SHAREHOLDER OF THE LENDER COMPANY. 9. IN THIS VIEW OF ABOVE MENTIONED DISCUSSION, WE F IND NO INFIRMITY IN THE ORDER OF CIT(A) BY WHICH IT HAS BEEN HELD THAT SUCH AMOUNT COULD NOT 9 ITA NO. 4124/DEL/2009 BE ADDED TO THE INCOME OF THE ASSESSEE U/S 2(22)(E) OF THE ACT AND WE DECLINE TO INTERFERE IN SUCH FINDINGS OF LD. CIT(A) . 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.3.2010 (R.C. SHARMA) ACCOUNTANT MEMBER (I.P. BANSAL) JUDICIAL MEMBER DATED: 12.3.2010 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR