The D.C.I.T, Jalandhar V. M/s. Kapsons Elector Stampings, Jalandhar

ITA 426/ASR/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5777 (ITAT-AMRITSAR)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 02-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K VATTA
• Keywords: Deemed dividend
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.L. KARWA, VICE PRESIDENT AND SH. MEHAR SINGH, ACCOUNTANT MEMBER I.T.A. NO. 426(ASR)/2010 ASSESSMENT YEAR:2007-08 PAN :AACFK7956K THE DY. COMMR. OF INCOME-TAX, VS. M/S. KAPSONS ELE CTRO STAMPINGS, RANGE-1, JALANDHAR. SURANUSSI, JALANDHAR. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SH. TARSEM LAL, DR ASSESSEE BY: SH. S.K. VATTA, CA ORDER PER MEHAR SINGH, AM, THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTE D AGAINST THE ORDER OF THE CIT(A), JALANHDAR, DATED 12.8.2010, PASSED UNDE R SECTION 250(6) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO IN SH ORT THE ACT), FOR THE ASSESSMENT YEAR 2007-08. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.21,05,140/- MADE ON ACCOUNT OF DEEMED DIVIDEND U /S 2(22)E) OF THE INCOME-TAX ACT, 1961. 1.1 WHILE ALLOWING THE ABOVE RELIEF, THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT AS PER CBDTS CIRCULAR NO.495 DATED 22.4.1987 2 DEEMED DIVIDEND HAD TO BE TAXED IN THE HANDS OF THE CONCERN I.E. PAYEE AS THE MEMBERS OR PARTNERS I.E. SH. S.K. SEHG AL AND SH. N.K. SEHGAL HAD SUBSTANTIAL INTEREST SHAREHOLDING O F 50% AND 47.48% RESPECTIVELY IN THE CLOSELY HELD COMPANY. 3. THE BRIEF FACTS RELATING TO THESE GROUNDS ARE TH AT DURING THE ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO SUBMIT AS TO WHY THE TRANSACTIONS ENTERED INTO WITH ITS SISTER CONCERN M/S. KAPSONS I NDS. LTD. SHOULD NOT BE SAID TO BE COVERED U/S 2(22)(E) OF THE ACT. THE ASS ESSEE SUBMITTED THAT THE FIRM CONSISTED OF TWO PARTNERS, SH. S.K. SEHGAL AND SH. N.K. SEHGAL. IT WAS SUBMITTED THAT TRANSACTIONS ENTERED INTO WITH M/S. KAPSONS INDS. LTD. WAS IN RESPECT OF THE CONSIDERATION OF LEASE RENT OF THE P REMISES, WHICH THE SAID COMPANY WAS PAYING TO THE ASSESSEE FIRM AS IN THE P AST. IT WAS FURTHER SUBMITTED THAT A SUM OF RS.21,98,536/- WAS RECOVERA BLE FROM THE SAID COMPANY ON ACCOUNT OF LEASE RENT DUE AS ON 31.3.200 7 AND, HENCE, THE PROVISIONS OF SECTION 2(22)(E) WERE NOT APPLICABLE TO THE TRANSACTIONS. THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE AS SESSEE. HE NOTED THAT THE ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S. KAPSON S INDS. LTD. SHOWED A PEAK DEBIT BALANCE OF RS.21,05,146/- ON 25.4.2006. THE DEBIT BALANCE HAD ARISEN ON ACCOUNT OF VARIOUS TRANSACTIONS LIKE PAYM ENT OF INCOME-TAX ETC. ON BEHALF OF THE ASSESSEE-FIRM. SH. S.K. SEHGAL, 50% P ARTNER IN THE FIRM, WAS A SHAREHOLDER HAVING 47.48% SHAREHOLDING IN M/S. KAPS ONS INDS. LTD. THE OTHER PARTNER SH. N.. SEHGAL IN THE FIRM WAS MANAGI NG DIRECTOR OF M/S. KAPSONS INDS LTD. HAVING 48.06% SHAREHOLDING IN THE COMPANY. BOTH THE PARTNERS, THUS, HAD NOT LESS THAN 10% OF VOTING POW ER AS PER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE AO ALSO NOTED T HAT M/S. KAPSONS IND. HAD ACCUMULATED PROFIT MORE THAN THE AFORESAID DEBI T BALANCE AS ON 31.3.2007. THE AO FURTHER NOTED THAT THE DEBIT BALA NCE HAS NOT ARISEN ON 3 ACCOUNT OF BUSINESS TRANSACTION ON LEASE BUT ON ACC OUNT OF VARIOUS PAYMENTS ON BEHALF OF THE ASSESSEE. HE WAS OF THE OPINION TH AT PROVISIONS OF SECTION 2(22)(E) HAD TO BE STRICTLY CONSTRUED AND THAT THE PAYMENTS TOWARDS PERSONAL LIABILITY OF SHARE HOLDER WAS COVERED UNDER THE PRO VISIONS OF SECTION 2(22)(E) OF THE ACT. HE WAS ALSO OF THE OPINION THAT MERELY BECAUSE AT THE END OF ACCOUNTING YEAR THE ACCOUNT OF THE ASSESSEE HAD A C REDIT BALANCE WOULD NOT DETRACT FROM THE APPLICATION OF THE PROVISION OF SE CTION 2(22)(E) OF THE ACT. THE AO, THEREFORE, ADDED THE SUM OF RS.21,05,146/- TO THE ASSESSEES TOTAL INCOME U/S 2(22)(E) OF THE ACT. 4. BEING AGGRIEVED WITH THE ORDER OF THE A.O., THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHO IN TURN DELETED T HE ENTIRE ADDITION. NOW, AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE I S IN APPEAL BEFORE US. 5. THE LD. DR, RELIED ON THE ORDER OF THE ASSESSI NG OFFICER. 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, RELIED ON THE ORDER OF THE CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE HIM. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMO UNT OF RS.21,05,146/- AS ON 25.04.2006 WAS NOT A LOAN OR ADVANCE AS CONTEMP LATED U/S 2(22)(E) OF THE ACT AND THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS NOT ATTRACTED AND APPLICABLE ON THE TRANSACTIONS AND PAYMENTS FOR BUS INESS CONSIDERATION, AS HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT, IN THE CASE OF CIT VS. CREATIVE DYEING AND PRINTING PVT. LTD. REPORTED IN (2010) 30 DTR (DEL) 143. HE, FURTHER, PLACED RELIANCE ON THE DECISION OF HO NBLE BOMBAY HIGH COURT, IN THE CASE OF NAGINDAS M KAPADIA (1989) 177 ITR 39 3, WHICH ALSO SUPPORTS THE CASE OF THE ASSESSEE., WHEREIN IT HAS BEEN HELD AS UNDER: 4 DIVIDEND DEEMED DIVIDEND COMPANY IN WHICH PUBL IC ARE NOT SUBSTANTIALLY INTERESTED ASSESSEE, SHAREHOLDER HA VING SUBSTANTIAL INTEREST IN COMPANY PAYMENTS AND ADVANCES TO ASSE SSEE BY COMPANY TRIBUNAL TREATING ADVANCES TO THE EXTENT OF ACCUM ULATED PROFITS AS DEEMED DIVIDEND JUSTIFIED INCOME TAX ACT, 1961. S. 2(22)(E). HELD, THAT ONLY THE PAYMENTS AND ADVANCES TO THE E XTENT OF ACCUMULATED PROFITS COULD BE TREATED AS LOANS OR AD VANCES WITHIN THE MEANING OF SECTION 2(22) (E) AND THIS WAS WHAT THE TRIBUNAL HAD DONE AND, THEREFORE, THE TRIBUNAL WAS RIGHT IN HOLDING T HAT ONLY RS.28,500/- AND RS.10,000/- COULD BE TREATED AS DEEMED DIVIDEND IN THE ASSESSMENT YEARS 1968-69 AND 1969-70 6.1. THE LD. COUNSEL FOR THE ASSESSEE, FUTHER, PLAC ED RELIANCE ON THE RECENT DECISION OF THE HONBLE DELHI HIGH COURT, DATED 11 TH MAY, 2011, IN THE CASE OF CIT VS. ANKITECH PVT. LTD. AND OTHERS, PASSED IN ITA NO.462 OF 2009 AND OTHERS, AND SUBMITTED THAT THIS DECISION IS ALSO AP PLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. IN VIEW OF THE ABOVE SUBMISSIONS, HE REQUESTED THAT THE APPEAL FILED BY THE DEPARTMENT M AY BE DISMISSED. 7. WE HAVE HEARD BOTH THE PARTIES AND GIVEN OUR THO UGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, EXAMINED THE FACTS OF THE CASE, EVIDENCE AND MATERIAL PLACED ON RECORD AND ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO PERUSED AND CONSIDERED THE JUDG MENTS OF THE HONBLE DELHI HIGH COURT, IN THE CASE OF CIT VS. ANKITECH P VT. LTD. AND OTHERS, PASSED IN ITA NO.462 OF 2009 AND OTHERS AND HONBLE BOMBAY HIGH COURT, IN THE CASE OF NAGINDAS M KAPADIA (1989) 177 ITR 3 93, RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE AND FOUND THAT THE SAM E ARE APPLICABLE TO THE FACTS OF THE PRESENT CASE. FURTHER, A CAREFUL PERU SAL OF THE IMPUGNED APPELLATE ORDER DATED 3112.8.2010, CLEARLY REVEALS THAT THE LD. CIT(A), HAS CONSIDERED AND ADJUDICATED THE ISSUE, IN QUESTION, IN GREATER DETAIL, AFTER 5 APPRECIATION OF THE EVIDENCES AND MATERIAL ON RECOR D, AS ALSO THE LEGAL AND FACTUAL POSITION OF THE CASE. NEEDLESS TO SAY THAT THE IMPUGNED APPELLATE ORDER IS WELL REASONED AND BASED ON THE COGENT AND CREDIBLE MATERIAL AND FACTS OF THE CASE. HOWEVER, IT WOULD PERTINENT TO R EPRODUCE THE RELEVANT PART OF THE FINDINGS OF THE CIT(A), FOR THE PURPOSE OF PROPER APPRECIATION OF THE SAME: 1.3. I HAVE CONSIDERED THE RIVAL CONTENTIONS CAREF ULLY. IN THE DECISION IN THE CASE OF THE DCIT CIR. 1, JAL. VS. THE MERCHA NTS, JALANDHAR, ITA NO.331(ASR)/2009 DATED 26.8.2009, THE HONBLE JURIS DICTIONAL TRIBUNAL HAVE UPHELD THE ORDER OF CIT(A), HOLDING THAT THE PROVISIONS OF SECTION 2(22)(E) WERE NOT ATTRACTED IN THE CASE OF PAYMENT MADE BY A COMPANY TO A FIRM IN WHICH THE SHAREHOLDERS OF TH E COMPANY WERE PARTNERS. THE HONBLE JURISDICTIONAL TRIBUNAL HAVE FOLLOWED THE ORDER PASSED BY THE SPECIAL BENCH OF ITAT, MUMBAI, IN THE CASE OF BHAUMIK COLOUR (P) LTD. IN ITA NO.5030(MUM)2004 FOR THE ASSESSMENT YEAR 1997-98 FOR HOLDING THAT THE DEEMED DIVIDEND COULD BE TAXED IN THE HANDS OF THE SHAREHOLDERS ONLY. TH US, IT HAS BEEN HELD BY HONBLE JURISDICTIONAL TRIBUNAL THAT DEEMED DIV IDEND U/S 2(22)(E) OF THE I.T. ACT COULD NOT BE TAXED IN THE HANDS OF A FIRM WHOSE PARTNERS WERE SHAREHOLDERS IN THE COMPANY WHICH MAD E PAYMENT TO THE ASSESSEE FIRM. IN LIGHT OF THIS DECISION BY THE HONBLE JURISDICTIONAL TRIBUNAL (SUPRA), I UPHOLD THE APPEL LANTS CONTENTION THAT THE PROVISIONS OF SECTION 2(22) (E) OF THE ACT WERE NOT APPLICABLE IN THE CASE OF THE ASSESSEE FIRM. HENCE, WITHOUT GO ING INTO THE MERITS OF THE OTHER ARGUMENTS RAISED BY THE APPELLANT, THE ADDITION OF RS.21,05,146/- MADE BY THE A.O. U/S 2(22)(E) OF THE I.T. ACT, IS DELETED. GROUND NOS. 1 AND 2 OF APPEAL ARE ALLOWED . 6.1. IN VIEW OF THE ABOVE DISCUSSIONS, WE DO NOT FI ND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A), AS THE SAME ARE BASED ON P ROPER APPRECIATION OF THE LEGAL AND FACTUAL POSITION OF THE CASE. ACCORDINGLY , THE APPEAL OF THE REVENUE IS DISMISSED. 6 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 17TH JUNE, 2011. SD/- SD/- (H.L. KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 17TH JUNE, 2011 /SKR/ COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE: M/S. KAPSONS ELECTRO STAMPINGS, SURAN USI, JALANDHAR. 2. THE DCIT, R-1, JALANDHAR. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ASR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH : AMRITSAR.