RAMPRA STEEL INDUSTRIES P. LTD, MUMBAI V. ACIT 7(2), MUMBAI

ITA 4959/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55177 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 15-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: RAJA B SINGH
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, D, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND B. RAMAKOTAIAH ( A.M ) ITA NO.4959/MUM/2010 (ASSESSMENT YEAR:2007-08) M/S RAMPRA STEEL INDUSTRIES PRIVATE LIMITED, A-11, SRIRAM INDUSTRIAL ESTATE, WADALA, MUMBAI-400031 PAN:AAACR5043H ASSISTANT COMMISSIONER OF INCOME TAX, 7(2), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 APPELLANT V/S RESPONDENT DATE OF HEARING : 23.8.2011 DATE OF PRONOUNCEMENT : APPELLANT BY : SHRI RAJA B.SINGH RESPONDENT BY : SHRI C.G.K.NAIR O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 12.3.2010 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2007-08. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AN D TRADING IN BRIGHT STEEL BARS. IT FILED RETURN DECLA RING TOTAL INCOME OF RS.1,23,07,003/-. DURING THE COURSE OF HEARING, THE AO INTERALIA OBSERVED THAT THE ASSESSEE DUR ING THE YEAR HAS TAKEN LOAN FROM M/S BIPSI BLADES & TURNER S PVT.LTD. AMOUNTING TO RS.60,00,000/- THE COMPANY IS AN ITA NO.4959/MUM/2010 (ASSESSMENT YEAR:2007-08) 2 ASSOCIATE CONCERN OF THE ASSESSEE COMPANY. THE DIRE CTORS OF THE ASSESSEE COMPANY NAMELY SHRI PROMOD GUPTA AND SHRI PRAVEEN GUPTA HOLD 37.58% AND 32.69% SHARES, RESPECTIVELY, IN M/S BIPSI BLADES & TURNERS PVT.LT D. I.E. MORE THAN 10% SHAREHOLDING. AS PER THE ANNUAL REP ORT OF FINANCIAL YEAR 2006-07 OF M/S BIPSI BLADES & TUR NERS PVT.LTD. AS ON 31.3.2007 HAS RS.2,91,91,249/- IN TH E BALANCE SHEET AS RESERVES AND SURPLUS. AS THE CONDITIONS F OR INVOKING THE PROVISIONS OF SECTIONS 2(22)(E) OF THE INCOME TAX ACT, 1961(IN SHORT THE ACT) ARE FULFILLED IN THIS CASE THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY AMOUNT RECEIVED FROM M/S BIPSI BLADES & TURNERS PVT.LTD. SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE ASSESSEE, IN RESPONSE, TO THE SHOW CAUSE VIDE LETTER DATED 29.12.2009 HAS SUBMITTED THAT AS M/S RAMPRA STEEL INDUSTRIES LTD. IS NOT A SHAREHOLDER IN M/S BIPSI BLADES & TURNERS PVT.LTD., THE PROVISIONS OF 2(22)(E) ARE NOT APPLICABLE. THIS POSITION OF LAW HAS ALREADY BEEN SETTLED AND LAID DOWN CLEARLY BY THE DECISION OF THE SPECIAL BE NCH OF THE TRIBUNAL, MUMBAI BENCH IN THE CASE OF BHAUMIK COL OUR PVT LTD., REPORTED IN (2009)118 ITD 1(MUM) (SB). HOWEV ER, THE AO DID NOT ACCEPT THE ASSESSEES SUBMISSIONS. HE OBSERVED THAT (I) M/S BIPSI BLADES & TURNERS PVT .LTD. IS A PRIVATE LIMITED COMPANY IN WHICH PUBLIC ARE NOT SUB STANTIALLY INTERESTED, (II) THE DIRECTORS OF THE M/S BIPSI BLADES & ITA NO.4959/MUM/2010 (ASSESSMENT YEAR:2007-08) 3 TURNERS PVT.LTD. ARE SHRI PRAMOD GUPTA AND SHRI P RAVEEN GUPTA. THEY INDIVIDUALLY HOLD 6% AND 5% OF THE SHA RES RESPECTIVELY. FURTHER, AS THEY ARE THE LEGAL HEIRS OF LATE KISHANCHAND GUPTA AND LATE SAVITRI DEVI GUPTA, THEY HOLD 15% SHARES EACH IN THAT CAPACITY. FURTHER, BOTH TH E DIRECTORS ARE ALSO THE KARTAS OF THE PRAMOD KR.GUPTA & SONS HUF AND PRAVEEN KR. GUPTA & SONS HUF RESPECTIVELY AND HOLD 28% SHARES IN THE COMPANY IN THAT CAPACITY. THUS, BOTH THE DIRECTORS HOLD MORE THAN 10% OF THE SHARES OF M/S BIPSI BLADES & TURNERS PVT.LTD. FURTHER, THE DIRECTORS AR E ALSO HOLDING 10.83% AND 21.46% RESPECTIVELY, OF THE SHA RES OF THE ASSESSEE COMPANY, WHICH HAS RECEIVED THE LOAN; (III) M/S BIPSI BLADES & TURNERS PVT.LTD. HAS ADVANCED LOANS TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION OF THE AMOUNT OF RS.60,00,000/- AND (IV) M/S BIPSI BLADE S & TURNERS PVT.LTD. IN ITS BALANCE SHEET HAS SHOWN T HE RESERVES AND SURPLUS OF RS.2,91,91,249/- AND ACCOR DINGLY TREATED THE AMOUNT OF RS.60,00,000/- GIVEN BY M/S BIPSI BLADES & TURNERS PVT.LTD. AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT IN THE HAN DS OF THE ASSESSEE FIRM AND ADDED TO THE INCOME OF THE ASSESS EE. THE AO AFTER MAKING THE SOME OTHER DISALLOWANCES/ADDITI ON COMPLETED THE ASSESSMENT AT AN INCOME OF RS.2,40,20 ,012/- VIDE ORDER DATED 29.12.2009 PASSED U/S 143(3) OF TH E ACT. ITA NO.4959/MUM/2010 (ASSESSMENT YEAR:2007-08) 4 3. ON APPEAL, THE LD. CIT(A) WHILE AGREEING WITH T HE REASONING GIVEN BY THE AO, CONFIRMED THE ADDITION OF RS.60,00,000/- MADE BY THE AO. 4. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT(A), T HE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING IN ALL THE GROUNDS THE SUSTENANCE OF ADDITION OF RS.60,00,00 0/- MADE BY THE AO U/S 2(22)(E) OF THE ACT. 5. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE COMPANY HOLDS, NO SHARES IN THE COMPANY, M/S BIPSI BLADES & TURNERS PVT.LTD. AND THUS IS NOT A SHAREHOLDER IN THE SAID COMPANY . THE DIRECTOR AND THE SHAREHOLDERS OF THE ASSESSEE COMPA NY NAMELY, SHRI PRAMOD GUPTA AND SHRI PRAVEEN KUMAR GUPTA HOLD SHARES IN THE SAID COMPANY, M/S BIPSI BLADES & TURNERS PVT.LTD. BUT THEIR BENEFICIAL SHAREHOLDING IN THE S AID COMPANY IS LESS THAN 10% PER DETAILS GIVEN IN ANNEXURE B ATTACHED HEREWITH, FORMING PART OF THE STATEMENT OF FACTS WH ICH IS EXTRACTED AS UNDER : REGISTERED AND BENEFICIAL SHAREHOLDING BY PRAMOD GUPTA PRAVEEN GUPTA REGISTERED SHAREHOLDERS NO. OF SHARES SHARES %AGE SHARES %AGE PRAMOD KUMAR GUPTA PRAVEEN KUMAR GUPTA 1,360 1,157 1,360 5.58 1,157 4.75 ITA NO.4959/MUM/2010 (ASSESSMENT YEAR:2007-08) 5 IN HIS ASSESSMENT ORDER THE AO INVOKED THE PROVISI ONS OF SECTION 2(22)(E) OF THE ACT AND ADDED THE LOAN OF RS.60,00,000/- TO THE TOTAL INCOME OF THE ASSESSEE, ON THE REASONING THAT TWO OF THE SHAREHOLDERS OF THE COM PANY, SHRI PRAMOD KUMAR GUPTA AND SHRI PRAVEEN KUMAR GUP TA HOLD MORE THAN 10% OF THE SHARES OF M/S BIPSI BL ADES & TURNERS PVT.LTD. SINCE NEITHER THE ASSESSEE COMPANY IS A REGISTERED SHAREHOLDER OR BENEFICIARY SHAREHOLDER IN M/S BIPSI BLADES & TURNERS PVT.LTD., THEREFORE, FOLLOW ING THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN BHAUMI K COLOUR PVT LTD., (SUPRA) THE DEEMING PROVISIONS OF SECTION 22(2)(E) ARE NOT APPLICABLE IN THE HANDS OF THE ASSESSEE AN D THEREFORE, THE ADDITION OF RS.60,00,000/- MADE B Y THE AO U/S 2(22)(E) AND SUSTAINED BY THE LD. CIT(A) BE DEL ETED. THE RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS : I) CIT V/S UNIVERSAL MEDICARE P.LTD. (2010) 324 ITR 263 (BOM.) II) CIT V/S PARLE PLASTICS LTD. (2011) 196 TAXMAN 62 (BOM.) III) CIT V/S ANKITECH (P) LTD. & ORS. (2011) 242 CTR (DEL) 129 IV) SHRUTI PROPERTIES P.LTD. V/S ITO (2010) 4 ITR (TRIB) 186 (MUMBAI) V) MTAR TECHNOLOGIES (P.) LTD. V/S ACIT -(2010) 39 SOT 465(HYD.) 6. ON THE OTHER HAND, THE LD.DR SUPPORTS THE ORDER OF THE AO AND THE LD.CIT(A). ITA NO.4959/MUM/2010 (ASSESSMENT YEAR:2007-08) 6 7. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE FIND THAT THERE IS NO DISPUTE THAT THE DIRECTORS AND SH AREHOLDERS OF THE ASSESSEE-COMPANY VIZ. SHRI PRAMOD KUMAR GUPT A AND SHRI PRAVEEN KUMAR GUPTA HOLD SHARE IN THE LENDER COMPANY M/S BIPSI BLADES & TURNERS PVT.LTD. BUT TH EIR BENEFICIAL SHAREHOLDINGS IN THE SAID COMPANY IS LES S THAN 10% AS PER ABOVE CHART SUBMITTED BY THE ASSESSEE. W E FURTHER FIND THAT THE ASSESSEE COMPANY IS NEITHER T HE REGISTERED SHARE HOLDER NOR BENEFICIAL SHARE HOLD ER IN THE LENDER COMPANY. 8. IN BHAUMIK COLOUR (P.) LTD. (2009)118 ITD 1(MUM) (SB), IT HAS BEEN HELD BY THE SPECIAL BENCH VIDE PA RA -41, APPEARING AT PAGE 27, OF THE REPORT AS UNDER: ON THE FIRST QUESTION : DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. ON THE SECOND QUESTION: THE EXPRESSION SHAREHOLDE R REFERRED TO IN SECTION 2(22)(E) REFERS TO BOTH A RE GISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSO N IS REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER THEN THE PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGH T ON RECORD BY THE LEARNED DR, WE RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL (SUPR A) AND ITA NO.4959/MUM/2010 (ASSESSMENT YEAR:2007-08) 7 OTHER DECISIONS CITED BY THE LEARNED COUNSEL FOR TH E ASSESSEE HOLD THAT THE PROVISION OF SECTION 2(22)(E) ARE NO T APPLICABLE IN THE CASE OF THE ASSESSEE COMPANY AND ACCORDINGL Y GROUNDS TAKEN BY THE REVENUE ARE REJECTED. 9. IN THE RESULT, THE REVENUES APPEAL STANDS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7TH SEPTEMBER , 2011. SD SD (B. RAMAKOTAIAH) (D.K .AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 7TH SEPTEMBER, 2011 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI