ITO 10(1)-4, MUMBAI V. NITTANY CREATIVE SOLUTIONS P. LTD, MUMBAI

ITA 5783/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55916 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 16-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Assessee Lawyers: KI SHORE P JOSHI
• Keywords: Deemed dividend
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B : MUMBAI BEFORE SHRI D. MANMOHAN, (VICE PRESIDENT [MZ]) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.5783/MUM/2010 ASSESSMENT YEAR : 2007-08 INCOME TAX OFFICER WARD-10(1)-4 ROOM NO.475, 4 TH FLOOR, AAYAKAR BHAVAN, MK ROAD MUMBAI-400 020. ..( APPELLANT ) VS. M/S. NITTANY CREATIVE SOLUTIONS P. LTD. 32, YOJAK APARTMENTS MADHUSOODAN KALEKAR MARG BANDRA (E) MUMBAI-51. ..( RESPONDENT ) P.A. NO. (AACCN 0931 G) APPELLANT BY : SHRI P.K.B. MENON RESPONDENT BY : SHRI KI SHORE P. JOSHI DATE OF HEARING : 9.11.2011 DATE OF PRONOUNCEMENT : 16 TH NOVEMBER, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 10.5.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08. THE ONLY DISPUTE RAISED BY THE REVENUE IN THIS APPEAL IS REGARDI NG ADDITION ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTION 2(22)(A). 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMPANY HAD RECEIVED INTEREST FREE LOAN OF RS.54.00 LACS DURING THE RELEVANT YEAR ITA NO.5783/M/10 A.Y:07-08 2 FROM SYNTHESIS EQUITY RESEARCH FOUNDATION P. LTD. THE AO NOTED THAT SHRI PRAVIN NAPATE ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY WHO WAS HOLDING 40% OF THE SHARES IN THE ASSESSEE COMPANY WAS AL SO SHARE HOLDER OF SYNTHESIS EQUITY RESEARCH FOUNDATION P. LTD. HOLDING 20% SHARES AND SYNTHESIS EQUITY RESEARCH FOUNDATION P. L TD. ALSO HELD 45% SHARES IN THE ASSESSEE COMPANY. HE, THEREFORE, HELD THAT THE PROVISIONS OF SECTION 2(22)(E) WERE APPLICABLE, WHI CH DEEMS THE LOANS AND ALLOWANCES TAKEN BY THE SHAREHOLDER AS DIVID END INCOME UNDER CERTAIN CIRCUMSTANCES. IN APPEAL, THE CIT(A) HELD THAT THE PROVISIONS OF SECTION 2(22)(E) WERE APPLICABLE ONLY IN CA SE OF A SHARE HOLDER. CIT(A) NOTED THAT IN THE PRESENT CASE THE ASSESSE E WAS NOT A SHARE HOLDER OF SYNTHESIS EQUITY RESEARCH FOUNDATION P. LTD. FROM WHICH THE LOANS HAD BEEN RECEIVED. HE, THEREFORE, HELD THAT THE PROVISIONS OF SECTION 2(22)(E) WERE NOT APPLICABLE AND A CCORDINGLY DIRECTED THE AO TO DELETE THE ADDITION AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATERIAL CAREFULLY. THE DISPUTE IS REGARD ING ADDITION ON ACCOUNT OF DEEMED DIVIDEND IN RESPECT OF LOAN OF RS.54.0 0 LACS RECEIVED BY THE ASSESSEE FROM SYNTHESIS EQUITY RESEARCH FO UNDATION P. LTD. UNDER THE PROVISIONS OF SECTION 2(22)(E). AS PER THE PROVISIONS OF SECTION 2(22)(E), ANY PAYMENT BY A COMPANY BY WAY O F ADVANCE OR LOAN TO A SHARE HOLDER HOLDING NOT LESS THAN 10% VOTI NG POWER IN THE COMPANY OR TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A M EMBER OR PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST WILL B E DEEMED TO BE DIVIDEND RECEIVED BY HIM TO THE EXTENT TO WHICH THE C O POSSESSES ACCUMULATED PROFIT. THE SAID PROVISIONS HAVE BEEN EXAMI NED IN DETAIL BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHO WMIK COLORS P. ITA NO.5783/M/10 A.Y:07-08 3 LTD. (313 (AT) 146) IN WHICH IT HAS BEEN HELD THAT T HE PROVISIONS OF SECTION 2(22)(E) ARE APPLICABLE ONLY IN CASE OF LOANS/A DVANCES RECEIVED BY A SHARE HOLDER WHO IS NOT ONLY A REGISTERED SHARE HO LDER BUT ALSO BENEFICIARY SHARE HOLDER IN THE COMPANY. IN THE PRESEN T CASE, THERE IS NO DISPUTE THAT THE ASSESSEE IS NOT A SHARE HOLDER IN SYN THESIS EQUITY RESEARCH FOUNDATION P. LTD. FROM WHICH THE LOAN HAS BEE N RECEIVED. IT IS ALSO NOT A CASE OF LOAN/ADVANCES TAKEN/GIVEN TO A CONCER N IN WHICH THE ASSESSEE IS A MEMBER OR PARTNER HAVING SUBSTANTIAL INT EREST. THEREFORE, WE SEE NO INFIRMITY IN THE ORDER OF CIT( A) HOLDING THAT PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE. THE ORDER OF CIT(A) IS ACCORDINGLY UPHELD. 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.11.2011. SD/- SD/- (D. MANMOHAN) (RAJENDRA SINGH ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 16.11.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.