Cache Peripherals Private Limited, Hyderabad V. Dy. Commissioner of Income Tax , Circle-1(2), Hyderabad

ITA 570/Hyd/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9426 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 17-01-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 28-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MOHAN REDDY
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Deemed dividend
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A ', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 570 / HYD/201 8 ASSESSMENT YEAR: 20 1 4 - 15 CACHE PERIPHERALS PVT. LTD., HYDERABAD. PAN AACCC6793R VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(2), HYDERABAD. APPELLANT RESPONDENT ASSESSEE BY: S HRI P. MURALI MOHANA RAO REVENUE BY: SHRI K. MOHAN REDDY DATE OF HEARING: 17 / 0 1 / 201 9 DATE OF PRONOUNCEMENT: 05 / 0 4 /201 9 O R D E R PER S. RIFAUR RAHMAN , AM: T H IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) 1 , HYDERABAD, DATED, 2 6 /0 2 /201 8 FOR AY 20 1 4 - 15 . 2. THE ASSESSEE COMPANY IS ENGAGED IN THE TRADING OF HP HARDWARE PRODUCTS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE A.Y 2014 - 1 5 ON 29.09.2014 DECLARING A TOTAL INCOME OF RS.1,04,32,160 / - UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 AND RS.1,10,65,285 / - UNDER THE PROVISIONS OF SECTION 115JB. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICES WERE ISSUED U / S.143(2) & U / S.142(1). THE ASSESSMENT WAS COMPLETED U / S.143(3) ON 23.1 2.2016 DETERMINING TOTAL INCOME AT RS.2,71,11,501 / - . 2 .1 DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT M/S CACHE PROPERTIES PVT. LTD. HA S I.T.A. NO. 570 /HYD/1 8 CACHE PERIPHERALS PVT. LTD., HYD. 2 ADVANCED A LOAN OF RS.1,66,79,341/ - TO THE ASSESSEE COMPANY. IT WA S FURTHER SEEN THAT SHRI G.SRINIVAS, SHRI G. RAVINDER, SHRI G SAILESH & SHRI G.KARTHIK ARE COMMON SHAREHOLDERS IN BOTH THE ASSESSEE COMPANY & M/S CACHE PROPERTIES PVT. LTD. HAVING SHAREHOLDING OF 25% AND 12.5% EACH, RESPECTIVELY IN BOTH THE COMPANIES. THE ASSESSING OFFICER CONCLUDED THAT THE PROVISIO NS OF SECTION 2(22)(E) OF THE IT ACT, 1961 ARE ATTRACTED. THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAS SATISFIED THE CONDITIONS FOR TAXING THE LOAN AMOUNT AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY REASON BEING :_ A) M / S. CACHE PROPE RTIES PVT LIMITED IS A CLOSELY HELD COMPANY, IN WHICH THE PUBLIC IS NOT SUBSTANTIALLY INTERESTED. B) THE ASSESSEE COMPANY IS A CONCERN IN WHICH THE MAJOR SHAREHOLDER OF M/S. CACHE PROPERTIES PVT LTD ARE ALSO SHAREHOLDERS, HAVING SUBSTANTIAL INTEREST. C) M / S. CACHE PROPERTIES PVT LTD HAS ADVANCED A LOAN TO THE ASSESSEE COMPANY. FURTHERMORE, AS EVIDENT FROM THE BALANCE SHEET OF M/S. CACHE PROPERTIES PVT LTD, IT HAS RESERVES AND SURPLUS I.E. THE A CCUMULATED RESERVES OF RS.32,99,97,086/ - . D) M/S.CACHE PROPERTIES PVT LIMITED IS IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. THUS, SUCH MONEY UNDER CONSIDERATION, HAS NOT BEEN LENT BY IT IN THE ORDINARY COURSE OF BUSINESS AS M / S. CACHE PROPERTIES PVT LTD IS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING. E) THERE HAS BEEN ACTUAL TRANSFER OF MONEY FROM M/S. CACHE PROPERTIES PVT LTD TO THE ASSESSEE COMPANY AND SUCH LOAN IS NOT ON ACCOUNT OF MERE BOOK ENTRIES. THE ASSESSING OFFICER ASKED THE ASSESSEE AS T O WHY THE AMOUNT RECEIVED FROM M/S. CACHE PROPERTIES PVT LTD SHOULD NOT BE TAXED AS DEEMED DIVIDEND U/S.2(22)(E). IN RESPONSE, THE ASSESSEE SUBMITTED THAT SINCE M/S. CACHE PROPERTIES PVT I.T.A. NO. 570 /HYD/1 8 CACHE PERIPHERALS PVT. LTD., HYD. 3 LTD IS NOT A SHAREHOLDER OF THE ASSESSEE COMPANY, THE PROVISIONS OF SECTION 2(22) (E) ARE NOT APPLICABLE. 2 .2 AFTER CONSIDERING THE ASSESSEE'S SUBMISSIONS, THE ASSESSING OFFICER CONCLUDED THAT: I. SEC.2(22)(E) C L EAR L Y EMPHASIZES THAT SUCH L OAN/ ADVANCE MAY BE GIVEN TO A CONCERN IN WHICH SHAREHOLDERS OF THE LENDER COMPANY HAVE SUBSTANTIAL INTEREST. SUCH CONCERN MAY BE ANY COMPANY OR FIRM. IN THE INSTANT CASE, THE ASSESSEE COMPANY IS THE CONCERN REFERRED TO IN SECTION 2(22)(E). II. SECTION 2(22)(E) TALK S ABOUT 'LOANS & ADVANCES'. ACCORDING TO THE LITERAL MEANING OF THESE TERMS IN A FINANCIAL PERSPECTIVE, AN ADVANCE MAY BE GRATUITOUS, MAYOR MAY NOT CARRY AN INTEREST OR ANY OTHER LIABILITY. HOWEVER, A LOAN IS ALWAYS UNDERSTOOD TO BEAR A LIABILITY OF PAYMEN T OF INTEREST. THUS, EVEN INTEREST BEARING LOANS FALL WITHIN THE AMBIT OF SECTION 2(22)(E). III. FURTHERMORE, NO INTEREST IS BEING CHARGED FROM THE ASSESSEE, ON THESE LOAN GIVEN BY M/S. CACHE PROPERTIES PVT LTD, AS AGAINST THE PREVAILING BANK RATES OF 12 - 15% DURING THE A.Y.2014 - 15. THIS ITSELF AMOUNT TO ADVANTAGEOUS TERMS BEEN MADE AVAILABLE TO THE ASSESSEE BY M/S. CACHE PROPERTIES PVT. LTD. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER TREATED RS.1,66,79,341/ - AS DEEMED DIVIDEND U/S.2(22)(E) IN THE HANDS OF THE ASSESSEE AND ADDED TO THE TOTAL INCOME. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), THE ASSESSEE MADE ELABORATE SUBMISSIONS, WHICH WERE EXTRACTED BY THE CIT(A) AT PAGES 6 TO 10 OF H IS ORDER. I.T.A. NO. 570 /HYD/1 8 CACHE PERIPHERALS PVT. LTD., HYD. 4 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) UPHELD THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 6. 5 THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER HAVE BEEN CAREFULLY CONSIDERED. THE APPELLANT HAS TAKEN INTEREST FREE LOAN FROM ITS RELATED COMPANY M/S. CACHE PROPERTIES PVT LTD, WHERE IT IS SUBSTANTIALLY RELATED IN SHAREHOLDING. THE ASSESSING OF FICER HAS RAISED THE ISSUE OF DEEMED DIVIDEND IN THIS CASE. THE ASSESSING OFFICER CONCLUDED THAT APPELLANT RECEIVED RS.1,66,79,341/ - FROM M / S. CACHE PROPERTIES PVT LTD WHICH SHOULD HAVE BEEN TERMED AS DIVIDEND BY INVOKING THE PROVISIONS OF SECTION 2(2 2 )(E). THE ISSUE BEFORE ME IS REGARDING WHETHER DEEMED DIVIDEND IS APPLICABLE IN THE PRESENT CASE OR NOT. IT IS PERTINENT POINT OUT, THE JUDICIAL JUDGMENT IN THE CASE OF M/S. BHAUMIK COLOUR PVT LTD AND M / S. ANKITECH PRIVATE LIMITED. THE ISSUE WHETHER DEEMED DI VIDEND IS TAXABLE IN THE HANDS OF THE CONCERN IN WHICH THE SHAREHOLDERS OF THE LENDER COMPANY HAS SUBSTANTIAL INTEREST OR IN THE HANDS OF SUCH COMMON SHAREHOLDER HAS BEEN A MATTER OF DEBATE BEFORE THE COURTS. THE SPECIAL BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF M / S. BHAUMIK COLOUR (P) LTD HELD THAT IN THE ABSENCE OF INDICATION IN SECTION 2(22)(E) OF THE ACT TO EXTEND THE LEGAL FICTION TO A CASE OF LOAN OR ADVANCE TO A NON - FICTION TO A CASE OF LOAN OR ADVANCE TO A NON - SHAREHOLDER, LOAN OR ADVANCE CANNOT B E TAXED AS DEEMED DIVIDEND IN THE HANDS OF SUCH NON SHAREHOLDER. THE DECISION OF THE SPECIAL BENCH HAS BEEN AFFIRMED BY THE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE (P) LTD AND THE DELHI HIGH COURT IN THE CASE OF MIS. ANKITECH PRIVATE LIMITED. H OWEVER, THE SUPREME COURT PUT AT REST THIS CONTROVERSY IN THE CASE OF M / S. ANKITECH PRIVATE LIMITED AND HELD THAT DEEMED DIVIDEND IS NOT TAXABLE IN THE HANDS OF A LOAN RECIPIENT CONCERN, IF SUCH CONCERN IS NOT A SHAREHOLDER OF THE LENDER COMPANY. IT IS TAX ABLE IN THE HANDS OF COMMON SHAREHOLDERS HAVING SUBSTANTIAL INTEREST IN BOTH THE ENTI TI ES. THE SUPREME COURT DECISION HAS PROVIDED CLARITY ON THE ISSUE. IN THIS PRESENT CASE, THE M / S. CACHE PROPERTIES PVT LTD AND M/S. CACHE PERIPHERALS PVT LTD ARE HAVING COMMON SHAREHOLDERS, BOTH ARE SISTER CONCERNS AND ARE SUBSTANTIALLY RELATED. THE APPELLANT COMPANY HAS RECEIVED LOAN FROM M / S. CACHE PROPERTIES PVT LTD, WHO I.T.A. NO. 570 /HYD/1 8 CACHE PERIPHERALS PVT. LTD., HYD. 5 ARE NOT IN THE BUSINESS OF MONEY LENDING. HENCE, IT CANNOT BE SAID THAT THE APPELLANT COMPANY HAS RECEIVED MONEY TO DO BUSINESS. IT IS IMPORTANT TO NOTE THE NATURE OF BUSINESS BETWEEN BOTH THE COMPANIES, ARE DIFFERENT. HENCE THE QUESTION OF BUSINESS DEALINGS DOES NOT ARISE. THE APEX COURT IS VERY CLEAR AND APTLY APPLICABLE TO THE PRESENT CASE. IN THI S SCENARIO, I FEEL THE ASSESSING OFFICER IS CORRECT IN INVOKING SECTION 2(22)(E). THE ADDITION MADE BY THE ASSESSING OFFICER IS UPHELD - GROUND DISMISSED . 6. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROU NDS OF APPEAL: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LD. CIT (A) ERRED IN DISMISSING THE APPEAL. 3. THE LD. CIT (A) ERRED IN MAKING THE ADDITION OF RS . 16679341/ - TOWARDS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 4. THE LD. CIT (A) ERRED BY NOT APPRECIATING THE FACT THAT ASSESSEE COMPANY IS NOT REGISTERED SHAREHOLDER OF THE OTHER COMPANY AND HENCE THE PAYMENTS CANNOT BE DEEMED TO BE DIVIDEND IN ASSESSEE HANDS U/S 2(22)(E). 5. THE LD. C IT (A) ERRED IN MAKING THE ADDITION OF RS. 16679341/ - ON THE ALLEGED REASON THAT BOTH COMPANIES HAVE COMMON SHAREHOLDERS HAVING SUBSTANTIAL INTERESTED. 6. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE AMOUNT WAS GIVEN BY M/ S CACHE PROPERT IES PRIVATE LTD TO THE APPELLANT FOR THE PURPOSE OF BUSINESS ACTIVITY. 7. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT AMOUNT RECEIVED FOR BUSINESS EXPEDIENCY DOES NOT COME IN THE NATURE OF LOANS AND ADVANCES AS ENVISAGED UNDER THE SECTION 2(22)(E) OF THE ACT, TO BE BROUGHT UNDER THE MISCHIEF OF THE DEEMED DIVIDEND CLAUSE. 8. THE LD. CIT (A) OUGHT TO HAVE APPRECIATE D THE FACT THAT MERELY BECAUSE THE ASSESSEE HAS RECEIVED THE AMOUNT OF RS.16679341/ - FROM A SISTER CONCERN HOLDING I.T.A. NO. 570 /HYD/1 8 CACHE PERIPHERALS PVT. LTD., HYD. 6 COMMON SHAREHOLDERS HAVING SUBSTANTIAL INTEREST IN BOTH OF THE COMPANIES, IT CANNOT BE SAID THAT THE PROVISIONS OF SEC 2(22)(E) OF THE ACT C AN BE INVOKED. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE OBSERVE THAT THE ASSESSEE AS WELL AS M/S. CAC HE PROPERTIES LTD., HAS COMMON SHARE HOLDERS HAVING BENEFICIAL INTEREST IN BOTH COMPANIES. BOTH COMPANIES HAVING ACCUMULATED PROFITS AND ASSESSEE HAS RECEIVED FUNDING FROM THE SISTER CONCERN TO DEVELOP PROPERTY. THE TRANSACTIONS WERE PR OPERLY RECORDED IN THE BOOKS OF ACCOUNT. THE QUESTION BEFORE US IS WHETHER THE FINANCIAL TRANSACTIONS BETWEEN TWO SISTER CONCERN HAVING COMMON BENEFICIAL SHAREHOLDERS WILL FALL UNDER DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. THE CONCEPT OF DEEMED DIVIDEND CAN BE INVOKED IN THE FOLLOWING CASES: (A) ANY PAYMENT OR ANY OF ADVANCE OR LOAN DIRECTLY TO THE SHAREHOLDERS HAVING SUBSTANTIAL SHARE HOLDING (NOT LESS THAN 10%) (B) ANY PAYMENT TO ANY CONCERN IN WHICH THE SHAREHOLDER (HAVING 10% OR MORE) IS A MEMBER OR A PARTNER IN WHICH H E HAS SUBSTANTIAL INTEREST (NOT LESS THAN 20%) (C) ANY PAYMENT BY ABOVE SAID CONCERN ON BEHALF OF OR FOR THE BENEFIT OF SUCH SHAREHOLDERS. ULTIMATELY, THE PAYMENT MADE TO THE EXTENT OF ACCUMULATED PROFIT ON BEHALF OF OR FOR THE BENEFIT OF SUCH SHAREHOLDERS HAVIN G BENEFICIAL INTEREST. COMING TO THE PRESENT CASE, ASSESSEE IS NOT HOLDING ANY SHARES IN THE COMPANY, M/S. CACHE PROPERTIES. THE DEEMED DIVIDEND I S CHARGEABLE TO THE SHAREHOLDER HAVING CONTROLLING INTEREST. THE ASSESSEE HAS RECEIVED FUNDS FOR THE PURPO SE OF DEVELOPMENT OF PROPERTY FOR WHICH LD.AR SUBMITTED ON RECORD, COPY OF THE AGREEMENT BETWEEN TWO SISTER CONCERNS TO THIS EFFECT. IT CLEARLY SHOWS I.T.A. NO. 570 /HYD/1 8 CACHE PERIPHERALS PVT. LTD., HYD. 7 THE BUSINESS CONNECTION AND IT IS FOR THE BUSINESS PURPOSE. EVEN ONE EXCEPTIONAL CLAUSE (II) STATES THAT ANY PAYMENT TO SHAREHOLDER BY THE COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS IS NOT DEE MED DIVIDEND U/S 2(22) (E) OF THE ACT . IN THIS CASE, ASSESSEE IS NOT A SHAREHOLDER IN THE FIRST PLACE. 7.1 THERE IS NO BAR THAT TWO CORPORATES CAN NOT ENTER INTO TRANSACTIONS EVEN THOUGH THERE EXISTS COMMON SHARE HOLDING. AT THE SAME TIME, ASSESSING OFFICER SHOULD B RIN G ON RECORD IF THESE IS ANY BENEFIT PASSED ON TO THE INDIVIDUAL SHAREHOLDERS HAVING SUBSTANTIAL INTEREST DIRECTLY OR INDIRECTLY. ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY SUCH FINDINGS. 7.2 FURTHER, WE NOTICE THAT LD. CIT(A) HAS OBSERVED IN HIS FINDINGS BY RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF M/S. ANKITECH P. LTD., (SUPRA) THAT DEEMED DIVIDEND IS NOT TAXABLE IN TH E HANDS OF LOAN RECIPIENT CONCERN, IF SUCH CONCERN I S NOT A SHAREHOLDER OF THE L ENDER COMPANY. IT IS TAXABLE IN THE HANDS OF THE COMMON SHAREHOLDERS HAVING SUBSTANTIAL INTEREST IN BOTH THE ENTITIES. HE FURTHER OBSERVES THAT THE HON'BLE SUPREME COURT PROVIDED CLARITY ON THE ISSUE AND STILL HE CONFIRMS THE ADDITION IN THE HANDS OF THE ASSESSEE EVEN THOUGH ASSESSEE IS NOT THE SHAREHOLDER IN M/S. CACHE PROPERTIES LTD., 7.3 IN THE GIVEN CASE, ASSESSING OFFICER/CIT(A) HAS NOT BROUGHT ON RECORD ANY BENEFIT RECEIVED BY THE COMMON SHAREHOLDER DIRECTLY OR INDIRECTL Y EITHER FROM THE ASSESSEE OR FROM M/S. CACHE PROPERTIES P. LTD. THEREFORE, THE PAYMENT RECEIVED BY THE ASSESSEE HAS NOT BROUGHT ANY BENEFIT TO THE SHAREHOLDERS. EVEN IF THERE IS ANY BENEFIT TO THE SHAREHOLDERS, THE DIVIDEND CAN BE CHA R GED IN THE HANDS O F THE COMMON SHAREHOLDERS NOT IN THE HANDS OF THE ASSESSEE AS THE I.T.A. NO. 570 /HYD/1 8 CACHE PERIPHERALS PVT. LTD., HYD. 8 ASSESSEE DOES NOT HOLD ANY SHARES IN M/S. CACHE PROPERTIES LTD. 7.4 THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) IS NOT ATTRACTED IN THE CASE BEFORE US. HENCE THE GROUND S RAISED BY ASSESS EE ON THIS ISSUE ARE ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 5 TH APRIL , 201 9. SD/ - ( P. MADHAVI DEVI ) JUDICIAL MEMBER SD/ - ( S. RIFAUR RAHMAN ) ACCOUNTANT MEMBER HYDERABAD, DATED 5 TH APRIL , 201 9. KV COPY FORWARDED TO: 1. CACHE PERIPHERALS PVT. LTD., C/O P. MURALI & CO., CAS, 6 - 3 - 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82 2 . DCIT , CIRCLE 1(2), HYDERABAD. 3 . CIT (A) - 1 , HYDERABAD 4. PR. CIT 1 , HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE