ACIT, Delhi V. M/s. Gardenia India Ltd., Noida

ITA 5766/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87126 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-03-2015
• Assessment Year: misc
• Appeal Filed On: 12-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Assessee Lawyers: V K JAIN CA NEM SINGH
• Keywords: Search and seizure; Deemed dividend
• Section: 201(1)

Judgement Text

ITA NO. 5766/DEL/2012 AY 2010-11 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `C NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.5766/DEL/2012 ASSESSMENT YEAR : 2010-11 ASSTT. COMMISSIONER OF INCOME TAX, VS GARDENIA INDIA LTD., CIRCLE-50(1), ROOM NO.503, GARDENIA GATEWA Y, 5 TH FLOOR, AAYAKAR BHAWAN, PLOT NO. 9, SECTOR -75, LAXMI NAGAR, DELHI. NOIDA. (PAN: AACCG7503M) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI T. VASANTHAN, SR. DR RESPONDENT BY : S/SHRI V.K. JAIN, CA NEM SINGH, ADV. DATE OF HEARING: 12.3.2015 DATE OF PRONOUNCEMENT: 23.03.2015 O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THE ABOVE APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-XXX, NEW DELHI DATED 08.08.2012 IN APPE AL NO. 1102/12-13 FOR AY 2010-11. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD.CIT(APPEALS) HAS ERRED IN HO LDING THAT PAYMENT MADE TO M/S AIMS MAX GARDENIA DEVELOPERS AN D M/S G.S. DEVELOPERS COULD NOT BE TREATED AS DEEMED DIVI DEND ON THE GROUND THAT THEY ARE NOT SHAREHOLDERS OF THE AS SESSEE ITA NO. 5766/DEL/2012 AY 2010-11 2 COMPANY BY IGNORING THE FACT THAT PAYMENT TO ABOVE ENTITIES IS COVERED BY THE DEFINITION OF DIVIDEND GIVEN IN PROV ISIONS OF SECTION 2(22)( E) OF THE IT ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW, THE LD.CIT(A) HAS ERRED IN NOT CONSIDERI NG THE FACT THAT REASONABLE OPPORTUNITY WAS GIVEN TO ASSSESSEE DURING THE ASSESSMENT PROCEEDING BEFORE CHARGING INTEREST U/S 201 (1A) FOR LATE PAYMENT. 3. BRIEFLY STATED THE FACTS GIVING RISE TO THIS APP EAL ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE D EVELOPMENT AND CONSTRUCTION. THE CASE WAS TAKEN UP FOR VERIFICATION ON THE BASIS OF INFORMATION RECEIVED FROM DO LETTER OF DG(INV.) DATED 1.7.2011 IN THE CASE OF SEARCH AND SEIZURE OF M/S GARDENIA GROUP. IN ORDER TO VERIFY THE COMPLIANCE OF TDS PROVISIONS UNDER CHAPTER XVII OF THE INCOME TAX ACT, 1961, A NOTICE DATED 22.02.2012 FOR VERIFICATION U/S 201(1)/201(1A) OF THE ACT WAS ISSU ED TO THE ASSESSEE CALLING FOR INFORMATION RELATED TO THE PROVISIONS OF TDS COMPLI ANCE. THE MAIN CONTENTION OF THE AO WAS THAT THE ASSESSEE COMPANY WHICH IS PR OVIDING LOANS AND ADVANCES HAVING SHAREHOLDING OF 20%, 50% AND 27% IN ALL INDI A CONSORTIUM PVT. LTD., G.S. DEVELOPERS, AIMS MAX GARDENIA DEVELOPERS RESPE CTIVELY, THEN THE ASSESSEES CASE IS SQUARELY COVERED UNDER THE PROVI SIONS OF DEEMED DIVIDEND AS PER SECTION 2(22)(E) OF THE ACT AND THE ASSESSEE CO MPANY SHOULD HAVE DEDUCTED TDS U/S 194 OF THE ACT WHICH ALSO COVERS DEEMED DIV IDEND. WITH THESE OBSERVATIONS, THE AO COMPUTED THE LIABILITY OF THE ASSESSEE COMPANY UNDER ITA NO. 5766/DEL/2012 AY 2010-11 3 PROVISIONS OF TDS COMPLIANCE U/S 201(1)/201(1A) OF THE ACT TOTALLING TO RS.78,30,223. 4. BEING AGGRIEVED BY THE ABOVE ORDER OF THE AO, TH E ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHICH WAS PARTLY ALLOWED O N THIS ISSUE. NOW, THE REVENUE IS BEFORE THIS TRIBUNAL IN THIS SECOND APPE AL WITH THE GROUNDS AS REPRODUCED HEREINABOVE. 5. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD BEFORE US INTER ALIA ORDER OF THE AO DATED 23.2.2012, IMPUGNED ORDER OF THE CIT(A) AND PAPER B OOK FILED BY THE ASSESSEE SPREAD OVER 131 PAGES. 6. AT THE VERY OUTSET, WE NOTE THAT AFTER DETAILED DELIBERATIONS ABOUT CONTENTIONS OF THE AO AND EXPLANATION AND SUBMISSIO NS OF THE ASSESSEE AND RATIO OF THE LEGAL PROPOSITION AND CITATIONS RELIED BY BO TH PARTIES ON GROUND NO. 2 AND 3 OF THE ASSESSEE BEFORE THE CIT(A), THE FIRST APPELL ATE AUTHORITY HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WITH FOLLOWING OBSE RVATIONS AND CONCLUSIONS:- 4.1 THE AR HAS GIVEN HIS EXPLANATIONS ABOVE ON THE MERITS OF THE CASE WITH DETAILS OF SHARE HOLDER S IN THE TABLE IN PAGE 3,4 & 5 OF THIS ORDER. THE MAIN PARTNERS IN GARDENIA INDIA LTD. ARE SH.MANOJ KUMAR RAY AND SH.SANJEEV SHARMA HAVING PERCENTAGE OF SHARE HOLDING OF 49.70 % EACH IN THIS APPELLANT COMPANY. THE APPELLANT COMPANY GA RDENIA INDIA LTD. IS ALSO A PARTNER OF AIMS MAX GARDENIA DEVELOPERS OF 27% AND PARTNER OF G.S.DEVELPERS OF 50% AND SHAR E HOLDER OF ALL INDIA DEVELOPERS CONSORITUM PVT. LTD. OF 33. 33% RESPECTIVELY. THE APPELLANT COMPANY IS GIVING LOAN/ ADVANCES ITA NO. 5766/DEL/2012 AY 2010-11 4 TO THE ABOVE 3 COMPANY/FIRMS AS PER TABLE-I. THE AR 'S ARGUMENT WAS THAT WHEN THERE IS LOAN AND ADVANCES B ETWEEN COMPANY AND COMPANY/FIRM(S), THE SUPPORTING CASE LAWS/DECISIONS OF RAJASTHAN HIGH COURT IN THE CASE OF CIT V. HOTEL HILL TOP 313 ITR 116, HIGH COURT OF DELHI IN THE CASE OF CIT V. GOPAL CLOTHING COMPANY P.LTD. IN ITA NO.333/ 2006 DATED 22-03-2012 AND CIT VS. ANKITECH PRIVATE LIMIT ED (2011)242 CTR 129(DELHI) STANDS IN FAVOUR OF THE AP PELLANT THAT IS THERE IS NO DEEMED DIVIDEND IN THE HANDS OF INDIVIDUAL SHAREHOLDERS LIKE SH.MANOJ KUMAR RAY AND SH.SANJEEV SHARMA, AS THE MONEY IS NOT PASSED ON TO THEM DIREC TLY. THE AO(TDS) MAY GO THROUGH THE CASE OF MUMBAI ITAT (SB) IN THE CASE OF BHOWMIK COLORS (P)LTD. VS ACIT, 313 ITR 146 (DOJ=19-11-2008), WHERE DETAILED ANALYSIS ON WHO WI LL BE CHARGED WITH DEEMED DIVIDEND IS CLEARLY ANALYSED BY THE ITAT, SPECIAL BENCH, MUMBAI. THOUGH THESE TWO PERSONS ARE SHAREHOLDER OF M/S GARDENIA INDIA LTD. THERE IS NO PAYMENT MADE TO THESE TWO SHARE HOLDERS DIRECTLY OR INDIREC TLY IS DERIVING THE BENEFIT AS SHARE HOLDERS/PARTNER IN TH E OTHER COMPANY M/S GARDENIA INDIA(P) LTD COMPANY/ FIRMS (A OP) TO WHOM LOANS AND ADVANCES ARE MADE, THE DEEMED DIVIDE ND CANNOT BE APPLIED IN THE HANDS OF SH.MANOJ KUMAR RA Y AND SH.SANJEEV SHARMA, AS THEY ARE NOT GETTING ANY DIRE CT/INDIRECT BENEFIT. THE AO(TDS) IS OF THE VIEW THAT M/S GARDEN IA INDIA (P) LTD IS PLAYING LOANS /ADVANCE TO ITSELF AS IT I S A PARTNER/SHARE HOLDER IN OTHER 3 FIRMS/ COMPANY, TO WHOM PAYMENTS ARE MADE AS PER TABLE-1(SUPRA). THE SECTIO N 2(22)( E) SAYS THAT THE PAYMENT OF DIVIDEND SHOULD BE MADE TO A SHAREHOLDER(10%) OR TO A CONCERN IN WHICH SUCH SHAR EHOLDER HAS SUBSTANTIAL INTERNET (20%) AND IN THE PRESENT C ASE, THE ABOVE FACTS ARE NOT PROVED FROM TABLES SUPRA. THERE FORE, SUCH LOANS AND ADVANCES CANNOT BE CONSIDERED AS DIVIDEND S. IF THERE IS NO DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T .ACT THEN THE QUESTION OF SECTION 194 FOR DEDUCTION OF TDS ON DIVIDEND/DEEMED DIVIDEND DOES NOT ATTRACT AT ALL. T HEREFORE, THE ACTION OF THE AO IN CHARGING TDS U/S 201(1)/201 (1A) IS NOT PROPER AND THESE GROUNDS ARE ALLOWED IN FAVOUR OF T HE APPELLANT. 7. ADMITTEDLY AND UNDISPUTEDLY, THE ASSESSEE COMPAN Y HAD MADE FOLLOWING PAYMENTS AS LOANS/ADVANCES TO THE FOLLOWING PARTIES :- ITA NO. 5766/DEL/2012 AY 2010-11 5 NAME OF THE PARTY OPENING PAYMENT MADE RECEIVED BACK CLOSING BALANCE DURING THE YEAR DURING THE BALANCE AS O N YEAR 31 . 03.2010 A IM S MAX G A R D E NIA - 6 , 20 , 00 , 000 2 , 00 , 00 , 000 4 , 20 , 00 , 000 D EVE LOPERS G. S . D EVE LOP E RS 4 , 20 , 88 , 36 3 67 , 86 , 375 1 , 13 , 55 , 365 3 , 75 , 19 , 373 A LL IND IA D EVE LOPER S 25 , 88 , 000 - - 25 , 88 , 000 C ON S OR T IUM P V T LTD 8. LD. DR POINTED OUT PARA (D) AT PAGE 4 OF THE ASS ESSMENT ORDER AND SUBMITTED THAT THE ASSESSEE COMPANY ADVANCED LOANS AND ADVANCES TO THE COMPANIES WHEREIN THE ASSESSEE COMPANY ITSELF HAVIN G SHAREHOLDING OF 80%, 50% AND 20% VIZ. IN ALL INDIA DEVELOPERS, G.S. DEVE LOPERS AND AIMS MAX GARDENIA DEVELOPERS RESPECTIVELY, THEREFORE, INTERE ST WHICH WAS NOT CHARGED THEREIN WAS DEEMED DIVIDEND AS PER PROVISIONS OF SE CTION 2(22)(E) OF THE ACT AND THE ASSESSEE COMPANY SHOULD HAVE DEDUCTED TDS U/S 1 94 OF THE ACT WHICH IMPLIEDLY COVERS DEEMED DIVIDEND ALSO. 9. REPLYING TO THE ABOVE, LD. COUNSEL OF THE ASSESS EE REITERATED ITS REPLY AND SUBMISSIONS BEFORE THE CIT(A) AND SUBMITTED THAT TH E AO HAS FAILED TO APPRECIATE THAT THE PROVISIONS OF DEEMED DIVIDEND U /S 2(22)(E) OF THE ACT ARE ATTRACTED IF LOAN IS GIVEN TO A SHAREHOLDER AND ALL THE THREE ALLEGED PARTIES ARE NOT HOLDING ANY SHARES IN GARDENIA INDIA LTD. I.E. ASSE SSEE COMPANY AND THEREFORE UNDER AFORESAID PECULIAR FACTS AND CIRCUMSTANCES, T HE PROVISIONS OF SECTION 2(22)(E) AND SECTION 194 OF THE ACT ARE NOT ATTRACT ED AT ALL AND THE WHOLE ORDER ITA NO. 5766/DEL/2012 AY 2010-11 6 HAS BEEN PASSED BY THE AO ON INCORRECT APPRECIATION OF PROVISIONS OF THE ACT AND, THUS, THE SAME DESERVES TO BE QUASHED. 10. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISS IONS, WE NOTE THAT THE LD. DR HAS FAIRLY ACCEPTED THAT THE THREE ALLEGED COMPA NIES AS POINTED OUT BY THE AO DO NOT HOLD ANY SHARE IN THE ASSESSEE COMPANY. AT THE SAME TIME, AS PER DETAIL OF SHAREHOLDERS/MEMBERS OF THE ASSESSEE COMP ANY AVAILABLE AT PAGE 4 OF THE IMPUGNED ORDER, WE NOTE THAT THERE ARE EIGHT SH AREHOLDERS IN THE ASSESSEE COMPANY OUT OF WHICH MR. MANOJ KUMAR RAY AND SANJEE V SHARMA HOLD 49.79% OF SHAREHOLDING IN THE ASSESSEE COMPANY. WE ARE UN ABLE TO SEE THE NAMES OF THE THREE ALLEGED COMPANIES AND THE LIST OF SHAREHOLDER S OF THE ASSESSEE COMPANY TO WHOM THE IMPUGNED LOAN/ADVANCE WAS GIVEN BY THE ASS ESSEE COMPANY. 11. AS PER SCHEME OF STATUTORY PROVISIONS OF THE AC T, THE PAYMENT OR ADVANCES TO NON SHAREHOLDERS DOES NOT REQUIRE TDS U/S 194 OF THE ACT AND THE APPELLANT COMPANY CANNOT BE HELD TO BE A DEFAULTER U/S 201 OF THE ACT SO AS TO ATTRACT INTEREST U/S 201(1A) OF THE ACT. IT IS ALSO PERTIN ENT TO NOTE THAT UNDER PROVISIONS OF COMPANIES ACT, EVERY COMPANY IS EXPECTED TO MAIN TAIN A REGISTER OF SHAREHOLDERS U/S 150 OF THE COMPANIES ACT 1956 AND THE COMPANY IS NOT OBLIGED TO MAINTAIN ANY OTHER REGISTER WHEREIN DETAILS OF S UCH CONCERN MAY BE MAINTAINED TO WHICH PROVISIONS OF SECTION 2(22)(E) OF THE ACT APPLY. UNDER THE FACTUAL MATRIX OF THE PRESENT CASE, WE OBSERVE THAT WHEN THE LOANS/ADVANCES HAVE BEEN GIVEN TO A NON SHAREHOLDER, THEN IT IS IMPOSSI BLE FOR A PAYER COMPANY TO ITA NO. 5766/DEL/2012 AY 2010-11 7 ASCERTAIN WHETHER IT WILL ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT OR NOT. 12. HENCE, IN THE FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE AND AS PER PROVISIONS OF THE ACT, LAW DOES NOT EXPECT THE PAYE R ASSESSEE TO DEDUCT TDS U/S 194 OF THE ACT WHEN LOAN/ADVANCE HAS BEEN GIVEN TO A NON-SHAREHOLDER ENTITY. THIS IS OUR HUMBLE UNDERSTANDING THAT THE LIABILITY EXPRESSLY PROVIDES FOR TDS REQUIREMENT ONLY WHEN THE PAYMENT IS MADE OR LOAN/A DVANCE IS GIVEN TO THE SHAREHOLDER WHICH IS ENLISTED IN THE LIST OF SHAREH OLDERS REGISTER MAINTAINED BY THE COMPANY U/S 150 OF THE ACT. WE MAY ALSO POINT OUT WHEN THE LOANS/ADVANCES HAVE NOT BEEN GIVEN TO A SHAREHOLDER , THEN THE PROVISIONS OF SECTION 2(22)(E) AND 194 OF THE ACT DO NOT REQUIRE THE PAYER ASSESSEE COMPANY TO DEDUCT TDS U/S 194 OF THE ACT. THEREFORE, SECTION 194 OF THE ACT IS SYNCHRONISED WITH THE REQUIREMENT OF SECTION 150 AN D 206 OF THE COMPANIES ACT AND THE AO IS NOT ALLOWED TO GO BEYOND THESE P ROVISIONS FOR INVOKING PROVISIONS OF SECTION 201(1)/201(1A) OF THE ACT. 13. ACCORDINGLY, IMPUGNED AMOUNT, AS CALCULATED BY THE AO, CANNOT BE HELD AS SUSTAINABLE. THUS, WE ARE IN AGREEMENT WITH THE CONCLUSION OF THE CIT(A) THAT THE ASSESSEE COMPANY HAS GIVEN LOANS/ADVANCES TO ABOVE NAMED THREE ITA NO. 5766/DEL/2012 AY 2010-11 8 COMPANIES/ENTITIES MENTIONED IN THE TABLE AS REPROD UCED HEREINABOVE AND THE PROVISIONS OF DEEMED DIVIDEND CANNOT BE APPLIED IN THE HANDS OF SHRI MANOJ KUMAR RAY AND SHRI SANJEEV SHARMA AS THEY ARE NOT G ETTING ANY DIRECT OR INDIRECT BENEFIT FROM THESE LOANS AND ADVANCES. AT THE COST OF REPETITION, WE FURTHER POINT OUT THAT SECTION 2(22)(E) OF THE ACT STIPULATES THAT THE PAYMENT OF DIVIDEND SHOULD BE MADE TO AN INDIVIDUAL SHAREHOLDE R HAVING MINIMUM 10% SHAREHOLDING OR TO A CONCERN OR COMPANY ETC. IN WHI CH SUCH SHAREHOLDING IS MINIMUM 20% AND IN THE PRESENT CASE, THE REQUIREMEN T OF THIS PROVISION DOES NOT COMPLY WITH THE FACTS AS NARRATED HEREINABOVE. THEREFORE, IMPUGNED LOANS AND ADVANCES GIVEN TO AFORESAID THREE COMPANIES CAN NOT BE CONSIDERED AS DIVIDEND OR DEEMED DIVIDEND AND IF THERE IS NO DEEM ED DIVIDEND U/S 2(22)(E) OF THE ACT, THEN THE QUESTION OF COMPLIANCE OF SECTION 194 OF THE ACT ON DIVIDEND/DEEMED DIVIDEND DOES NOT ARISE. THEREFORE , WE ARE INCLINED TO HOLD THAT THE ORDER OF THE AO IN CHARGING TDS U/S 201(1) /201(1A) OF THE ACT IS NOT JUSTIFIED AND SUSTAINABLE AND THE CIT(A) WAS RIGHT IN ALLOWING THE APPEAL OF THE ASSESSEE ON THIS ISSUE. WE ARE UNABLE TO SEE ANY P ERVERSITY, INFIRMITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE ORDER OF T HE CIT(A) AND WE UPHOLD THE SAME, DISMISSING BOTH THE GROUNDS OF THE REVENUE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ITA NO. 5766/DEL/2012 AY 2010-11 9 ORDER PRONOUNCED IN THE OPEN COURT ON 23.03.2015. SD/- SD/- (S. V. MEHROTRA) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 23RD MARCH 2015 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT. REGISTRAR