Shamik Dilip Shah, Vadodara V. The Dy.CIT, Circle-2(1)(1), Vadodara

ITA 572/AHD/2022

AI Insights

The case involves Shamik Dilip Shah, a director and shareholder in Monachem Additives Pvt. Ltd., who was assessed for deemed dividend income of Rs. 16,00,000 received from Monachem Additives Pvt. Ltd. to Addpol Chemspecialities Pvt. Ltd., where he also held shares. The Assessing Officer treated this amount as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961, leading to a reassessment under Section 147. The CIT(A) partly upheld this addition, which led Shah to appeal to the Income Tax Appellate Tribunal. The Tribunal, after considering the nature of the transactions and the arguments presented, ruled in favor of Shah, stating that the transactions did not meet the criteria of deemed dividend as they were not loans or deposits but temporary fund transfers for business needs.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299986 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 26-02-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 25-12-2022
• Other Referred Cases: M/s. Chandra Cement vs. DCIT, Patiram Jain, Muthoot M. George Bankers vs. ACIT, CIT vs. Ambassador Travels Pvt. Ltd., N. H. Securities Ltd. vs. DCIT, CIT vs. Ankitech Pvt. Ltd., PCIT vs. Sunjewels International Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed dividend; TDS
• Section: 147; 6; 2(22)(e); 194A; 72; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER I .T .A . No .5 72 /A h d / 20 22 ( A s se ss m e nt Y e a r : 20 12- 13 ) Sh a mik Di li p Sh a h C / 70 2 , Th e Oa kw oo d , V a s a n t Vi h ar , V a s n a B h a yl i R oa d, Va do dar a , G uj ar a t V s . D C I T C ir cl e - 2 ( 1) ( 1 ) , V a do da r a [P AN N o.A E C P S5 6 81 M] (Appellant) .. (Respondent) Appellant by : Shri Sunil Talati, A.R. Respondent by: Shri Sanjay Jain, Sr. D.R. D a t e of H ea r i ng 27.02.2023 D a t e of P r o no u n ce me nt 15.03.2023 O R D E R The appeal filed by the assessee is against the order passed by the Ld. CIT(Appeals), National Faceless Appeal Centre (in short “NFAC”), Delhi on 24.11.2022 for A.Y. 2012-13. 2. The grounds of appeal raised by the assessee are as under: “1. The Ld. CIT(A) has erred in confirming the addition on ground that appellant was in deemed receipt of an amount which was received by Addpol Chemspecialities Pvt. Ltd. from Monachem Additives Pvt. Ltd., treating as Deemed Dividend u/s. 2(22)9e) of the Income Tax Act, 1961 in hands of Shareholder i.e. Appellant . On the facts and circumstances of the case, the addition so confirmed of Rs.16,00,000/- is incorrect and illegal both on facts and law, and same be deleted. 2. Without prejudice to the above, the Ld. CIT(A) has erred in confirming the amount of addition for Rs.16,00,000/- instead of Rs.1,96,800/- i.e. up to his shareholding percentage in Monachem Additives Pvt Ltd (12.3% of Rs.16,00,000/-). It is submitted that such addition so confirmed by Ld. CIT(A), prayed to be deleted. 3. The order passed by the Ld. CIT(A) is bad in law and contrary to the provisions of law and facts. It is submitted that the same be held so now. 4. Your appellant craves leave to add, alter and/or to amend all or any of the grounds before the final hearing of appeal.” 3. The Information was received to the Assessing Officer. The Assessing Officer observed that during the course of assessment proceedings in case of M/s. Monachem Additives Pvt. Ltd. for A.Y. 2012-13 by the Assessing Officer ITA No. 572/Ahd/2022 Shamik Dilip Shah vs. DCIT Asst.Year–2012-13 - 2 - the above said company has given loan of Rs. 16,00,000/- to M/s. Addpol Chemspecialities Pvt. Ltd. Shri Shamik Dilip Shah holds 12.5% of share holding as on 31.03.2012 in M/s. Monachem Additives Pvt. Ltd. Therefore, the Assessing Officer observed that provisions of Section 2(22)(e) of the Act are applicable in the case of the assessee. The case was reopened under Section 147 and statutory notices were given along with show-cause notice. The assessee through Authorized Representative filed the details and submitted thereby stating that the assessee derived income from salary from M/s. Monachem Additives Pvt. Ltd. as a Director in this company. The Assessing Officer made addition of Rs. 16,00,000/- on account of deemed dividend under Section 2(22)(e) of the Act. 4. Being aggrieved by the assessment order the assessee field appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. The Ld. A.R. submitted that the assessee is a Director in M/s. Monachem Additives Pvt. Ltd. having shareholding of 12.3% and M/s Addpol Chemspecialities Pvt. Ltd. having shareholding of 50% during the F.Y. 20111- 12. The assessee was in receipt of reason for reopening vide Notice dated 23.05.2019 with regard to payment received M/s. Addpol Chemspecialities Pvt. Ltd. of Rs. 16,00,000/- from Monachem Additives Pvt. Ltd. having the assessee as a common shareholder having a share in M/s. Monachem Additives Pvt. Ltd. at 12.3% and 50% in M/s. Addpol Chemspecialities Pvt. Ltd. to treat it as deemed dividend in the hands of shareholder i.e. assessee. The assessee explained that this transfer of fund are from and to the sister concern on need basis for a few days and also the amount was not kept for a fix period or repayable on demand. The assessee has given the extracts of the account thereby pointing out these aspects. Further the Ld. A.R. submitted that the ITA No. 572/Ahd/2022 Shamik Dilip Shah vs. DCIT Asst.Year–2012-13 - 3 - transaction on various dates that of M/s. Addpol Chemspecialities Pvt. ltd. paid interest at 15% of Rs. 64,060/- after deduction of TDS under Section 194A of Rs. 64,06/- to M/s. Monachem Additives Pvt. Ltd. The Ld. A.R. further submitted that receipt and payment of the amount is only for a short while and it only represents the diversion of funds from one concern to another depending upon the exigencies of the business. The Ld. A.R. relied upon the various decisions which are as follows: (a) M/s. Chandra Cement vs. DCIT 68 TTJ (Jaipur) (b) Hon’ble Madhya Pradesh High Court in case of Patiram Jain (c) Muthoot M. George Bankers vs. ACIT (1994) 47 TTJ (Cochin) (d) CIT vs. Ambassador Travels Pvt. Ltd. (2009) 318 ITR 376 (Del. HC) (e) N. H. Securities Ltd. vs. DCIT 11 SOT 302 The Ld. A.R. submitted that the assessee has submitted ITR-V and computation of Shamik Shah for A.Y. 2012-13 submission dated 23.07.2019 reflecting the shareholding in Monachem Additive Pvt. Ltd. and Addpol Chemspecialities Pvt. Ltd. as well as submissions along with relevant attachment of the same transaction value of Rs. 16,00,000/-. The Ld. A.R. further submitted the assessee applied for VSVS to avoid long litigation and has been issued Form 3 confirming the same. But the tax dispute remained and therefore, was not finalized. As regards, Ground No. 2 without prejudice the above addition the Ld. A.R. submitted that the addition to be restricted to the share of the appellant i.e. lender company i.e. 12.3% of Rs. 16,00,000/- i.e. Rs. 1,96,800/-. The Ld. A.R. submitted that the assessee has received two show- cause notices for addition of Rs. 1,96,800/-. However, after the change in incumbent the assessee received third show-cause notice wherein addition of Rs. 16,00,000/- was proposed and asked the assessee to reply the same. The ITA No. 572/Ahd/2022 Shamik Dilip Shah vs. DCIT Asst.Year–2012-13 - 4 - Ld. A.R. relied upon the Hon’ble Madras High Court 120 taxmann.com 125 (Madras) and decision of Hon’ble Bombay High Court in case of PCIT vs. Sunjewels International Ltd. (2020) 116 taxmann.com 160 (Bombay HC). Therefore, the Ld. A.R. submitted that the said addition may be deleted. 6. The Ld. D.R. submitted that the subscription and beneficial in respect of deemed dividend of the assessee and therefore, the Assessing Officer as well as CIT(A) has rightly confirmed the addition under Section 2(22)(e) of the Act. The Ld. D.R. relied upon the decision of Hon’ble Delhi High Court in case of CIT vs. Ankitech Pvt. Ltd. 199 taxman 341. 7. Heard both the parties and perused all the relevant material available on record. The assessee is a common shareholder having share in nature at 12.3% in M/s. Manachem Additives Pvt. Ltd. and 50% in M/s. Addpol Chemspecialities to treat it as deemed dividend in the hands of shareholder. The contention of the assessee that the transfer of fund was from and to the sister concerns on need basis for a few days and therefore, receipt and payment of the amount is only for short while depending upon the exigency of the business. The transaction interest between the sister concerns and the assessee cannot partake of the nature of either “deposit” or “loan” though interest might have been paid on the same. It only represents giving funds from one concern to another depending upon the exigencies of the business. The decision of Hon’ble Delhi High Court in case of Ankitech (supra) relied upon by the Revenue that the assessee entered into normal business transaction as a part of day to day business activity and is a loan / dividend income. The same will not be applicable in present assessee’s case. Therefore, the addition made by the Assessing Officer and the confirmation made by the CIT(A) under Section ITA No. 572/Ahd/2022 Shamik Dilip Shah vs. DCIT Asst.Year–2012-13 - 5 - 2(22)(e) cannot be termed as deemed dividend income and hence is deleted. Ground No. 2 is without prejudice ground hence the same is not adjudicated. 8. In result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 15/03/2023 Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER Ahmedabad; Dated 15/03/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 10.03.2023 2. Date on which the type draft is placed before the Dictating Member 10.03.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S 13.03.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .03.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 15.03.2023 7. Date on which the file goes to the Bench Clerk 15.03.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................