INCOME TAX OFFICER-15(3)(1), MUMBAI V. R.K.BAKEWELL MARS PRIVATE LIMITED, MUMBAI

ITA 4581/MUM/2017

• Counselvise Citation: [2018] 129 COUNSELVISE.COM (IT) 9953 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 23-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA SR AR
• Assessee Lawyers: R AJESH SEWLANI
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.4581/MUM/2017 ASSESSMENT YEAR: 2012-13 THE INCOME TAX OFFICER - 15 ( 3 )( 1 ), MUMBAI VS. M/S. R.K. BAKEWELL MARS PRIVATE LIMITED, K-40, AMBERNATH INDUSTRIAL AREA, AMBERNATH, NAVI MUMBAI [ PAN : A ADCR8208 F ] ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI CHAITANYA ANJARIA, SR. AR - CIT RESPONDENT BY : SHRI R AJESH SEWLANI , DATE OF HEARING : 14 - 11 - 201 8 DATE OF PRONOUNCEMENT : - 1 6 - 11 - 201 8 O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-24 , MUMBAI, IN APPEAL NO. CIT(A)-24/ITO-15(3)(1)/IT-88/2015-16, DATED 17- 04-2017. THE ASSESSMENT WAS FRAMED BY THE ITO, WARD - 15(3)(1), MUMBAI U/S. 143(3) OF THE INCOME TAX ACT, 1961 [HER EINAFTER REFERRED TO AS ACT] FOR THE AY. 2012-13 VIDE HIS ORDER DATED 19-03-2015. ITA NO.4581/MUM/2017 2 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A), DELETING THE ADDITION MADE BY THE AO OF DEEMED DIVIDEND AS ENVISAGED U/S. 2(22)(E) OF THE ACT. FO R THIS, REVENUE HAS RAISED THE FOLLOWING THREE EFFECTIVE GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN ALLOWING RELIEF TO THE ASSESSEE COMPANY WITHOUT APPRECIATING THE FACT THAT THE LOAN ADVANCED TO THE ASSESSEE COMPANY FALLS WITHIN THE AMBIT OF DEEMED DIVIDEND AS ENVISAGED U/S. 2(22)(E) OF THE INCOME TAX ACT, A S IN THE F.Y. 2011-12 THE ASSESSEE COMPANY M/S. R.K. BAKEWELL MARS PVT. LTD. AND M/S. R.K. SWEET MARS PVT. LTD. WERE HAVING COMMON SHARE HOLDERS HOLDING MORE THAN 10% OF THE SHARES AND, M/S. R.K. SWEET MARS PVT. LTD. WAS HAVING ACCUMULATED PROFIT OF 1,14,49,710/- FOR THE YEAR ENDING 31.03.2012. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THA T THE ASSESSEE COMPANY DOES NOT FALL WITHIN THE AMBIT OF SECTION 2(22)(E), BY RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. IMPACT CONTAINERS PVT. LTD., IGNORING THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. IMPACT CONTAINERS PVT. LTD. AND THE DECISION IN THE CASE OF M/S. SHREEPATI COMMODITIES PVT. LTD. ON SIMILAR ISSUE AND HAS RECOMMENDED FILING OF SLP TO THE HONBLE SUPREME COURT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING TH E ADDITION MADE U/S. 2(22)(E) OF THE INCOME TAX ACT WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE COMPANY AND M/S. R.K. SWEET MARS PVT. LTD., WERE CLOSELY HELD COMPANIES, THEREFORE ANY SUM RECEIVED AS ADVANCE OR LOAN BY THE CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER AND IN WHICH HE HAS ITA NO.4581/MUM/2017 3 SUBSTANTIAL INTEREST IS TO BE TREATED AS DEEMED DIVIDEND AS DEFINED IN SECTION 2(22)(E) OF THE ACT . 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT S OF BISCUITS, LOLLIPOP, CANDIES AND TOFFEES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED FROM THE LIST OF UNSECURED LOANS RECEIVED BY THE ASSESSEE-COMPANY THAT IT HAD RECEIVED A LOAN OF 1,32,44,933/- FROM R.K. SWEET MARS PVT. LTD. THE A O REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF COM MON SHAREHOLDERS OF THE TWO COMPANIES I.E., - ASSESSEE AND R.K. SWEET MARS PVT. LTD. THE AO NOTED THAT R.K. SWEET MARS PVT. LTD., IS HAVING AN ACCUMULATED PROFIT OF 1,14,49,710/-. THE AO ALSO NOTICED THAT THE ASSESSEE-COMPANY AND R.K. SWE ET MARS PVT. LTD., ARE COMMON SHAREHOLDERS AND ARE HOLDING MORE THAN 10% OF SHARES AS UNDER: NAME OF THE SHAREHOLDER R.K. BAKEWELL MARS PVT. LTD., R.K. SWEET MARS PVT. LTD., NO. OF SHARES % NO. OF SHARES % RAM JAGWANI 4900 49% 9000 90% SANJANA JAGWANI 5100 51% 1000 10% TOTAL 10,000 100% 10,000 100% ITA NO.4581/MUM/2017 4 3.1. ACCORDINGLY, AO ISSUED SHOW CAUSE NOTICE AS TO WHY LOAN RECEIVED FROM R.K. SWEET MARS PVT. LTD., SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. FINALLY, THE AO TREATED THE SUM OF 1,14,49,710/- AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BE FORE THE CIT(A). 4. THE LD.CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FACTUAL POSITIONS NOTED THAT THE ASSES SEE DOES NOT FALL WITHIN THE MEANING OF U/S. 2(22)(E) OF THE ACT FOR THE REASONS THAT IT DOES NOT FULFILL THE FIRST REQUIREMENT OF S ECTION 2(22)(E) OF THE ACT AS THE ASSESSEE-COMPANY IS NOT A SHAREHOLDE R IN ANY OF THE COMPANIES, FROM WHERE THE MONEY HAS BEEN RECEIV ED. 4.1. SECONDLY THE CIT(A) NOTED THAT THE ISSUE IS CO VERED BY THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. IMPACT CONTAINERS PVT. LTD.,[367 ITR 346] [48 TAXMA NN.COM 294 BOMBAY], WHEREIN ON SIMILAR SET OF FACTS, IT IS DEC IDED THAT WHEN CERTAIN COMPANIES ADVANCED MONEY TO THE ASSESSEE-CO MPANY IN WHICH ONE OF THE DIRECTORS OF THE ASSESSEE-COMPANY WAS HOLDING MORE THAN 10% OF EQUITY SHARES BUT SINCE ASSESSEE-C OMPANY ITA NO.4581/MUM/2017 5 ITSELF WAS NOT A SHAREHOLDER OF THE LENDING COMPANY , THE ADDITION WAS DIRECTED TO BE DELETED. 4.2. THIRDLY THE CIT(A) NOTED THAT THE LOAN TRANSAC TION DONE WITH R.K. SWEET MARS PVT. LTD., BY THE ASSESSEE-COM PANY IS IN THE NORMAL COURSE OF BUSINESS AND BOTH THE COMPANIE S DURING THE YEAR HAD RUNNING ACCOUNT WHICH ESTABLISHES THE FACT THAT IT IS PURELY A BUSINESS TRANSACTION AND NOT A LOAN OR DEPOSIT. ON THESE THREE ASPECTS, THE CIT(A) DELETED THE ADDITIO N. AGGRIEVED, REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, LD. SR-DR RELIED ON THE ASSESSMENT OR DER AND STATED THAT THE ASSESSEES LOAN IS A NORMAL LOAN AN D IT FALLS UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. HE SUPPORTED THE ORDER OF THE AO BY STATING THAT SIMILAR ADDITION OF DEEMED DIVIDEND MADE IN THE CASE OF SHREEPATI COMMODITIES PVT. LTD., AND CIT VS. IMPACT CONTAINERS PVT. LTD., (SUPRA) IN WHICH THE HONBLE BOMBAY HIGH COURT THOUGH PASSED ORDER IN FA VOUR OF THE ASSESSEE, THE SAME HAS NOT BEEN ACCEPTED BY THE DEP ARTMENT AND FURTHER SLP IN THE HONBLE SUPREME COURT HAS BE EN FILED. ACCORDINGLY, HE URGED THE BENCH TO RESTORE THE ORDE R OF THE ASSESSING OFFICER. ITA NO.4581/MUM/2017 6 6. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ASSESSMENT ORDER AND ALSO STATED THAT THE HONB LE SUPREME COURT IN CIVIL APPEAL NO. 2076 OF 2012 AND OTHERS I N THE CASE OF CIT VS. MADHUR HOUSING AND DEVELOPMENT COMPANY ORDE R DATED 05-10-2017, WHEREIN THE HONBLE SUPREME COURT WHILE DEALING WITH MULTIPLE APPEALS FROM VARIOUS HONBLE HIGH COU RTS CONCLUSIVELY HELD THAT THE PROVISIONS OF DEEMED DIV IDEND U/S. 2(22)(E) OF THE ACT WOULD NOT BE ATTRACTED IF THE B ORROWER IS NOT THE SHAREHOLDER OF THAT COMPANY. EVEN SIMILAR IS T HE SITUATION IN THE CASE OF JUDGMENT OF HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS. IMPACT CONTAINERS PVT. LTD.,(SUPRA). 7. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THE GIVEN FACTS A ND CIRCUMSTANCES OF THE CASE, WE FIND THAT ASSESSEE-CO MPANY IS NOT THE SHAREHOLDER IN THE COMPANY, WHEREIN IT HAD RECE IVED LOAN FROM R.K. SWEET MARS PVT. LTD., AND EVEN THAT COMPA NY ALSO IS NOT THE SHAREHOLDER EXCEPT THE FACT THAT THE COMMON DIRECTORS ARE SHAREHOLDERS IN EACH OF THE COMPANY. BUT THIS WILL NOT CHANGE THE SITUATION AS CONSIDERED BY HONBLE SUPRE ME COURT AND HONBLE BOMBAY HIGH COURT. RESPECTFULLY FOLLOWI NG THE ITA NO.4581/MUM/2017 7 DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MADHUR HOUSING AND DEVELOPMENT COMPANY AND HONBLE BOMBAY HIGH COURT IN THE CASE OF IMPACT CONTAINERS PVT. LTD., ( SUPRA), WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION AND WE CONFIRM THE SAME. 8. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DAY OF NOVEMBER, 2018 SD/- SD/- (RAJESH KUMAR) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 16 TH NOVEMBER, 2018 TNMM ITA NO.4581/MUM/2017 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A),MUMBAI 4. THE CIT 5. DR, D BENCH, ITAT, MUMBAI BY ORDER, #TRUE COPY # ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI