M/s. Friends Combine, Indore V. The ACIT, Indore

ITA 5/IND/2010

• Counselvise Citation: 522714 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 04-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: KAMLESH JAIN
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AAAFF6164A I.T.A.NO. 05/IND/2010 A.Y. : 2006-07 M/S. FRIENDS COMBINE, ACIT, 16/2.NAVNIT DARSHAN, VS 3(1), OLD PALASIA, INDORE INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI KAMLESH JAIN, ADV. RESPONDENT BY : SHRI ARUN DEWAN, SR. DR DATE OF HEARING : 27.09.2011 DATE OF PRONOUNCEMENT : 28.09.2011 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 9.10.2009 FOR THE ASSESSMENT YEAR 2 006-07, IN THE MATTER OF ORDER FRAMED U/S 143(3) OF THE INCOME -TAX ACT, 1961. -: 2: - 2 2. THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO THE ADDITION OF RS. 7.52 LAKHS ON ACCOUNT OF LOAN RECEI VED FROM ASSOCIATE CONCERN BY INVOKING PROVISIONS OF SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961. 3. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND FILED ITS RETURN OF INCOME DEC LARING AN INCOME OF RS. 5,59,920/- FOR THE ASSESSMENT YEAR 20 06-07 ON 16.01.2006. THE FIRM HAS BEEN ENGAGED IN ELECTRIC A ND ELECTRONIC GOODS AGENCY BUSINESS. DURING THE ASSESS MENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE RECEIVE D RS. 7,52,000/- FROM M/S. C. P. R. DISTRIBUTORS PVT.LTD. , INDORE. THE SAME WAS REPAID DURING THE YEAR ITSELF. THE AUD ITORS IN THE TAX AUDIT REPORT SPECIFIED THAT C. P. R. DISTRI BUTORS PVT.LTD., INDORE, WAS A SPECIFIED PERSON WITHIN THE MEANING OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE INCOME-T AX ACT, 1961, (IN SHORT THE ACT). THE ASSESSEE ALSO PAID INTEREST OF RS. 8,800/- ON THE AFORESAID LOAN. SHRI ASHISH RAJE WAS ONE OF THE PARTNERS OF THE ASSESSEE FIRM AND HIS SHARE IN THE FIRM WAS 20 % AND HE ALSO HELD 33 % OF SHARES OF M/S. C.P.R. DI STRIBUTORS -: 3: - 3 PVT.LTD., IN THE PREVIOUS YEAR 2005-06 RELEVANT TO THE ASSESSMENT YEAR 2006-07. THUS, HE HAD SUBSTANTIAL I NTEREST BEING HELD SHAREHOLDING OF MORE THAN 20 % IN M/S. C .P.R. DISTRIBUTORS PVT.LTD. THE ACCUMULATED PROFITS OF M/ S. C.P. R. DISTRIBUTORS PVT. LTD., AS ON 31.34.2005 WAS RS. 64 ,67,299/- AND AS SUCH IT IS TO BE TAKEN THAT M/S. C.P.R. DIST RIBUTORS PVT.LTD., ADVANCED THE LOAN TO THE ASSESSEE OUT OF ITS ACCUMULATED PROFITS OF THE EARLIER YEAR. THE AO REF ERRED TO THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN PARA 4 .1.3 OF HIS ORDER. AS PER PROVISIONS OF SECTION 2(22)(E), ANY P AYMENT IN THE FORM OF A LOAN OR ADVANCE BY A PRIVATE LIMITED COM PANY OUT OF ITS ACCUMULATED PROFITS TO THE SHAREHOLDER WHO IS A BENEFICIAL OWNER OF SHARES HOLDING NOT LESS THAN 10 % OF VOTIN G POWER OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBE R OR A PARTNER HAVING SUBSTANTIAL INTEREST, IS TO BE TAKEN AS INCOME OF THE SHAREHOLDER/THE CONCERN RECEIVING THE SAID LOAN /ADVANCE. AS PER CLAUSE (A) OF EXPLANATION 3 TO SECTION 2(22) (E) OF THE ACT, THE CONCERN MENTIONED IN THIS SECTION MEANS A HINDU UNDIVIDED FAMILY OR A FIRM OR AN ASSOCIATION OF PER SONS OR A BODY OF INDIVIDUALS OR A COMPANY. IN OTHER WORDS, T HE -: 4: - 4 PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN RESPEC T OF THE PAYMENT OF LOAN OR ADVANCE TO A SHAREHOLDER OR TO A CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST, BY A PRIVATE L IMITED COMPANY WOULD APPLY IF THE SHAREHOLDER HAVING MORE THAN 10 % SHAREHOLDING IN THE LENDER COMPANY IS ALSO HAVING 20% OR MORE SHARE IN THE FIRM TO WHOM THE LOAN OR ADVANCE IS GIVEN IF THE LENDER COMPANY HAD ACCUMULATED PROFITS ON THE D ATE OF PAYMENT OF LOAN OR ADVANCE. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO AGAINST WHICH ASSESSEE IS IN FURTH ER APPEAL BEFORE US. 5. AT THE OUT-SET, THE LD. AUTHORIZED REPRESENTATIVE PLACED ON RECORD THE ORDER OF THE I.T.A.T., SPECIAL BENCH IN THE CASE OF BHOUMIK COLOUR LAB. IN I.T.A.NO. 5030/MUM/2 004 ORDER DATED 19.11.2008 AND SUBMITTED THAT THE ASSES SEE FIRM WAS NOT A SHAREHOLDER OF M/S. C.P.R. DISTRIBUTORS P RIVATE LIMITED, THE PROVISIONS OF SECTION 2(22)(E) WAS NOT APPLICABLE TO IT. -: 5: - 5 6. ON THE OTHER HAND, LD. SENIOR D.R. RELIED ON THE OR DERS OF THE LOWER AUTHORITIES. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT THE ASSESSEE FIRM TOOK LOAN OF RS. 7,52 ,000/- FROM M/S. C.P. R. DISTRIBUTORS PVT.LTD. ONE OF THE PARTN ERS OF THE ASSESSEE FIRM, SHRI ASHISH RAJE WAS THE BENEFICIAL OWNER OF SHAREHOLDING OF 33 % SHARES IN THAT COMPANY AND 20 % SHARES IN THE ASSESSEE FIRM. THE SAID COMPANY HAD ACCUMULA TED PROFITS AS ON 31.3.2006 AT RS. 64,67,299/-. IN VIEW OF THESE FACTS, THE PROVISIONS OF SECTION 2(22)(E) WERE MADE APPLICABLE TO THE LOAN OF RS. 7,52,000/- ACCEPTED BY THE ASSES SEE FIRM FROM M/S. C. P. R. DISTRIBUTORS PVT. LIMITED. 8. FROM THE FINDING RECORDED BY LOWER AUTHORITIES, IT IS CLEAR THAT SHRI ASHISH RAJE, PARTNER OF ASSESSEE FI RM WAS THE REGISTERED AND BENEFICIAL OWNER OF SHARES OF C.P. R . DISTRIBUTORS PVT.LTD., AND NOT THE ASSESSEE FIRM IT SELF. IN VIEW OF THE PROPOSITION LAID DOWN BY I.T.A.T., SPECIAL B ENCH IN THE CASE OF BHOUMIK COLOR LAB, 118 ITD 1, PROVISIONS OF SECTION 2(22)(E) OF THE ACT CAN BE APPLIED ONLY WHERE THE A SSESSEE IS A REGISTERED AS WELL AS BENEFICIAL SHAREHOLDER OF THE COMPANY -: 6: - 6 FROM WHOM LOAN IS RECEIVED. MERELY BECAUSE ONE OF T HE PARTNERS OF THE ASSESSEE FIRM IS HOLDING SHARE IN T HE COMPANY FROM WHOM LOAN IS RECEIVED, THE DEEMING PROVISIONS OF SECTION 2(22)(E) OF THE ACT CANNOT BE INVOKED UNLESS ASSESS EE HIMSELF IS A SHAREHOLDER. IN THE INSTANT CASE, THE ASSESSEE FIRM WAS NOT HAVING ANY SHARE HOLDING IN M/S. C. P. R. DISTRIBUT ORS PRIVATE LIMITED, THEREFORE, THERE IS NO REASON TO INVOKE PR OVISIONS OF SECTION 2(22)(E) OF THE ACT, IN THE HANDS OF ASSESS EE FIRM. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH SEPTEMBER, 2011. CPU* 2829