ITO, Ward-3(1), Hyderabad V. M/s Sideswari Power Generation Private Limited, Hyderabad

ITA 635/HYD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69944 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 02-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Deemed dividend
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES 'A' : HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.M. AND SMT. ASHA VIJAYARAGHAVAN, J.M. ITA.NO.635, 636 & 637/HYD/2013 ASSESSMENT YEAR 2006-07, 2007-08 & 2008-09 INCOME TAX OFFICER, WARD 3 (1), HYDERABAD VS. M/S. SIDESWARI POWER GENERATION PVT. LTD. HYDERABAD 82. PAN AAHCS6117N (APPELLANT) (RESPONDENT) FOR APPELLANT : SMT. K. HARITHA FOR RESPONDENT : SHRI S. RAMA RAO DATE OF HEARING : 04.12.2013 DATE OF PRONOUNCEMENT : 06.12.2013 ORDER PER SMT. ASHA VIJAYARAGHAVAN, J.M. THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-IV, HYDERABAD DATED 27.02.2013 FOR THE ASSESSMENT YEARS 2006-2007, 2007 -2008 AND 2008-2009. SINCE COMMON ISSUES ARE INVOLVED IN ALL THE THREE APPEALS, WE PROCEED TO PASS A COMMON ORDER 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A CLOSELY HELD COMPANY, WITH SRI UPPALA KANTHA RAO AN D SMT. UPPALA RAJANI AS THE TWO SHAREHOLDERS WITH 50% SHAR ES EACH. A SURVEY OPERATION UNDER SECTION 133A WAS CON DUCTED IN THE CASE OF APL ON 25.1.2011 DURING WHICH IT CAM E TO LIGHT THAT MR. U. KANTHA RAO AND MRS. U. RAJANI HEL D MORE THAN 20 0 /0 OF SHARE HOLDING IN APL AND THAT APL HAD GIVEN ADVANCES TO THE ASSESSEE. THE PEAK ADVANCES WERE AS FOLLOWS 2 ITA.NO.635,636 & 637/HYD/2013 M/S. SIDESWARI POWER GENERATION PVT. LTD. HYDERABAD. FOR THE THREE YEARS IN APPEAL: A.Y. DEEMED DIVIDEND (RS. ) 2006-07 63,70,034 2007-08 36,22,056 2008-09 1,07,85,352 3. THE ASSESSING OFFICER ALSO NOTED THAT APL HAD THE FOLLOWING ACCUMULATED PROFITS FOR THE THREE YEA RS WHICH WAS SUBSTANTIALLY HIGHER THAN THE AMOUNTS ADVANCED TO THE ASSESSEE AS ON ACCUMULATED PROFITS (RS. 31.3.2008 1,26,84,25,927 31.03.2007 1,23,62,92,208 31.3.2006 72,99,20,269 3.1. THE ASSESSEE DID NOT OFFER ANY EXPLANATION DURING THE ASSESSMENT PROCEEDINGS AS TO WHY THE AMO UNTS OF ADVANCES SHOULD NOT BE ASSESSED TO TAX U/S 2(22) (E) AND THE ASSESSING OFFICER BROUGHT THE ENTIRE AMOUNTS TO TAX IN THE RESPECTIVE YEARS. 4. IN THE COURSE OF THE APPELLATE PROCEEDINGS, THE AR SUBMITTED THAT THE PAYMENTS MADE BY APL WERE NOT IN THE NATURE OF ADVANCE AND SUBMITTED THE FOLLOWING EXPLANATION FOR EACH OF THE ADVANCES : 'THE LOANS DUE TO SRI N. VENKATESWARA RAO (BEING TH E B/F BALANCES) WERE REPAID ON 7.5.2005 (RS. 20,00,000 + 3 ITA.NO.635,636 & 637/HYD/2013 M/S. SIDESWARI POWER GENERATION PVT. LTD. HYDERABAD. 10,00,000 + 20,00,000). THIS IS NOT A LOAN OR ADVANCE BY ATPL TO SPG AND HENCE IS OUTSIDE THE PURVIEW OF DEEMED D IVIDEND. THE AMOUNTS OF RS. 40,00,000 AND RS. 10,00,000 CR EDITED TO SPG ON 31.5.2005 IS ON ACCOUNT OF PAYMENTS OF SHARE APP LICATION MONIES BY SRI U. KANTHA RAO AND SMT. U. RAJANI RES PECTIVELY. THIS IS NOT A LOAN OR ADVANCE BY ATPL TO SPG AND HENCE. IS OUTSIDE THE PURVIEW OF DEEMED DIVIDEND. LIKE-WISE TRANSACTIONS OF RS. 20,00,000 ON 3.8.2005 AND RS. 51,75,816/- PAYMENT OF SHARE APPLICATION MONEY BY SRI U. KANTHA RAO - IS ALSO OF THE SAME NATURE. THE TRANSACTION AS ON 8.8.2005 OF RS. 23,20,788 - RELATES TO THE PAYMENT MADE BY ATPL TO DFO ORISSA ON BEHALF OF SPG . THIS IS ONLY AN ACCOMMODATION IN BUSINESS EXPEDIENCY. THIS IS NEITHER A LOAN NOR AN ADVANCE BUT MAKING AVAILABLE FUNDS TEMP ORARILY. FURTHER, THE AMOUNT HAS BEEN UTILISED FOR THE BUSIN ESS NEEDS AND NOT FOR THE INDIVIDUAL BENEFIT OF ANY PERSON. SPG I S NOT A SHARE HOLDER IN ATPL AND THIS TRANSACTION IS OUTSIDE THE PURVIEW OF DEEMED DIVIDEND. ALL THE OTHER PAYMENTS ARE OF THE SAME NATURE AS AB OVE VIZ., FOR MEETING THE FINANCIAL NEEDS OF SPG AND / OR EXPENDITURE INCURRED ON BEHALF OF SPG LIKE PAYMENTS TO DFO, ROC FILING F EES, HYDEL PROJECT EXPENSES, SALARIES OF THE PERSONNEL OF SPG, INSURANCE PREMIA, TELEPHONE BILLS, TRAVELLING EXPENSES ETC. T HIS IS ONLY AN ACCOMMODATION IN BUSINESS EXPEDIENCY. THIS IS NEITH ER A LOAN NOR AN ADVANCE BUT MAKING AVAILABLE FUNDS TEMPORARILY. ' 5. THE LEARNED A.R. OF THE ASSESSEE SUBMITTED THAT THE ENTIRE FUNDS TRANSFERRED BY APL TO THE ASSE SSEE WERE UTILIZED FOR THE PURPOSE OF BUSINESS OF THE ASS ESSEE AND THEREFORE, THE PROVISIONS OF SEC.2(22)(E) DID N OT APPLY 4 ITA.NO.635,636 & 637/HYD/2013 M/S. SIDESWARI POWER GENERATION PVT. LTD. HYDERABAD. TO IT. THE AR RELIED ON THE FOLLOWING DECISIONS IN T HIS REGARD: (I) SA BUILDERS LTD. VS. CIT {A} [ 2007] 288 ITR 1 (SC) (II) INTERNATIONAL LAND DEVELOPMENT (P) LD. VS. ITO (ITAT DELHI) - ITA NO. 3390/DEL/2010 & 3391/DEL/2010 DATED 6.5.2011. (III) SUNIL SETHI VS. DCIT CO. CIRCLE 1{ 1), NEW DE LHI [2008] 26 SOT 95 (DELHI) (PAGE 19 TO 23 OF PAPER BOOK) (IV) CIT VS. CREATIVE DYEING AND PRINTING P LTD.(31 8 ITR 476) (DEL) (V) CIT VS. AMBASSADOR TRAVELS P LTD. 318 ITR 376 ( DEL) (VI) CIT VS. RAJ KUMAR 318 ITR 462 DELHI (VII) PRADIP KUMAR MALHOTRA VS. CIT [2011] 338 ITR 538 (CAL) DATED : 2.8.2011. (VIII) ACIT VS. HARSHAD V. DOSHI [2011] 49 DTR 181 / 136 TTJ 351(CHENNAI) {TRIB). 6. THE A.R. OF THE ASSESSEE FURTHER ARGUED THAT U/S 2(22)(E), DEEMED DIVIDEND CAN BE TAXED ONLY IN THE HANDS OF THE SHARE HOLDER AND THAT THE SECTION DID NOT APPLY TO THE ASSESSEE SINCE IT WAS NOT A SHARE HOLD ER OF APL. FOR THE PROPOSITION THAT DEEMED DIVIDEND CANNO T BE BROUGHT TO TAX IN THE CASE OF A NON- SHAREHOLDER , THE AR RELIED ON THE FOLLOWING DECISIONS: I. NAVYUG PROMOTERS P LTD. 16 TAXMANN.COM 292 (DEL .) II. ANKITECH PVT LTD. [2012] 340 ITR 14 (DEL) III. UNIVERSAL MEDICARE P LTD. 324 ITR 263 (BOM.) IV. BHAUMIK COLOUR P LTD. 313 ITR{AT)146 (MUM.) (SB ) V. HOTEL HILLTOP 313 ITR 116 (RAJ) VI. INVERVENTIONAL TECHNOLOGIES P. LTD. (ITA.NO.618 2/MUM/08 DATED 07.2.2009) VII. SHRUTI PROPERTIES P LTD. 004 ITR (TRIB) 186 (MUM) 5 ITA.NO.635,636 & 637/HYD/2013 M/S. SIDESWARI POWER GENERATION PVT. LTD. HYDERABAD. 7. IN SHORT, THE AR SUBMITTED THAT (A) THE ASSESSEE WAS NOT A REGISTERED SHARE HOLDER OF APL AND HENCE THE PAYMENTS CANNOT BE DEEMED TO BE DIVID END IN ITS HANDS U/S 2(22)(E). (B) THE PAYMENTS WERE IN THE NATURE OF BUSINESS TRANSAC TIONS CARRIED OUT FOR BUSINESS EXPEDIENCY AND THUS, THEY CANNOT BE HELD TO BE IN THE NATURE OF 'ADVANCE OR LOAN' AS ENV ISAGED UNDER SECTION 2(22)(E). 8. THE SUBMISSIONS OF THE AR WERE FORWARDED TO THE ASSESSING OFFICER FOR HIS COMMENTS. THE ASSESSING O FFICER HAS SUBMITTED THAT THE AMOUNTS ADVANCED TO THE APPE LLANT WERE FINALLY APPROPRIATED AS SHARE APPLICATION MONE Y TO THE CREDIT OF SRI U.KANTHA RAO AND SMT. U. RAJANI, THE BENEFICIAL SHAREHOLDERS OF THE ASSESSEE. THE ASSESSING OFFICER ALSO SUBMITTED THAT THE PAYMENTS ON BEHALF OF THE ASSESS EE TO DFO, ROC FILING FEES ETC. SQUARELY FELL WITHIN THE PURVIEW OF SEC. 2(22)(E) AND WERE NOT EVEN REMOTELY CONNECTED TO THE BUSINESS EXIGENCIES OF APL. THE ASSESSING OFFICER S UBMITTED THAT THE SURPLUS FUNDS OF APL WERE UTILISED FOR THE BENEFIT OF THE ASSESSEE AND HENCE WERE IN THE NATURE OF ADVANC ES WITHIN THE PURVIEW OF SEC. 2(22)(E). WHILE ADMITTIN G THAT THE ASSESSEE WAS NOT A SHAREHOLDER OF APL, THE ASSESSIN G OFFICER SUBMITTED THAT THE ADVANCES WERE ULTIMATELY USED FO R THE INDIVIDUAL BENEFIT OF THE BENEFICIAL SHAREHOLDERS, SRI U. KANTHA RAO AND SMT. U. RAJANI AND THEREFORE, ATTRAC TED THE PROVISIONS OF SECTION 2(22)(E).THE ASSESSING OFFICE R ALSO REFERRED TO THE FACT THAT APL HAD IN ITS LETTER TO THE DCIT, CIRCLE 1( 1), HYDERABAD IN THE POST-SURVEY PROCEEDI NGS ACCEPTED THAT THE ADVANCES BE TREATED AS DEEMED DI VIDEND IN THE HANDS OF THE ASSESSEE. 9. THE LEARNED CIT(A) CONSIDERED THE FACTS ON 6 ITA.NO.635,636 & 637/HYD/2013 M/S. SIDESWARI POWER GENERATION PVT. LTD. HYDERABAD. RECORD AND THE SUBMISSIONS OF THE ASSESSING OFFICER A ND THE AR. THE CIT(A) HELD THAT THE FACT THAT THE ASSE SSEE HAD NOT MADE ANY SUBMISSIONS DURING THE ASSESSMENT PROCEEDINGS DOES NOT BY ITSELF ESTABLISH THE LIABILIT Y TO TAX ON THE ASSESSEE AND EVEN IF THE ASSESSMENT IS MADE U /S 144, THE ASSESSING OFFICER CONTINUES TO BE OBLIGED T O ASSESS THE INCOME STRICTLY IN ACCORDANCE WITH THE ACT . FOR THIS REASON, THE SUBMISSIONS OF THE ASSESSEE, EVE N THOSE MADE DURING THE APPELLATE PROCEEDINGS FOR THE FIRST TIME, ARE REQUIRED TO BE TAKEN COGNIZANCE OF. 9.1. THE CIT(A) FURTHER OBSERVED THAT THE ASSESSING OFFICER HAS ALSO REFERRED TO THE LETTER OF APL ACCEPTING THE LIABILITY OF THE ASSESSEE TO BEING ASS ESSED FOR DEEMED DIVIDEND. 9.2. THE CIT(A) HELD THAT THE ASSESSEE AND APL ARE TWO SEPARATE AND INDEPENDENT LEGAL ENTITIES AND T HE MERE FACT THAT THEY HAVE COMMON SHAREHOLDERS DOES N OT BLUR THIS DISTINCTION. THE CIT(A) STATED THAT HE WAS UNABLE TO UNDERSTAND HOW THE LETTER OF APL CAN BE SAI D TO BIND THE ASSESSEE TO A LIABILITY UNDER THE ACT AND STATED THAT EVEN OTHERWISE, IT IS TRITE LAW THAT THERE CAN BE NO ESTOPPEL AGAINST LAW. THE CIT(A) FURTHER OBSERV ED THAT AN AGREEMENT BY AN ASSESSEE TO BE ASSESSED CAN B E SAID TO APPLY TO THE EXTENT THAT SUCH AGREEMENT RELATES TO THE FACTS AND SUCH AN AGREEMENT CANNOT EXTEND TO AN INTERPRETATION OF LAW. THE CIT(A) POINTED OUT THAT WHETHER OR NOT THE ASSESSEE IS LIABLE TO BE TAXED U/S 2(22)(E) NEEDS TO BE EXAMINED WITH REGARD TO THE 7 ITA.NO.635,636 & 637/HYD/2013 M/S. SIDESWARI POWER GENERATION PVT. LTD. HYDERABAD. INTERPRETATION OF LAW. THE CIT(A) POINTED OUT THAT WHETHER OR NOT THE ASSESSEE IS LIABLE TO BE TAXED U/ S. 2(22)(E) NEEDS TO BE EXAMINED WITH REGARD TO THE UNDISPUTED FACTS RECORD, IRRESPECTIVE OF THE FAILUR E OF THE ASSESSEE TO SUBMIT AN EXPLANATION DURING THE ASSESSMENT PROCEEDINGS AND IRRESPECTIVE OF AN ADMISS ION OF ITS LIABILITY BY A THIRD PARTY. 9.3. THE CIT(A) FURTHER RELIED ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BH AUMIK COLOR P. LTD., 313 ITR (AT) 146 (MUM.) (S.B.) AND T HE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF M TAT TECHNOLOGIES PVT LTD. VS. ACIT (ITA NO. 555/HYD/200 8, DTD. 31.8.2009 AND ALLOWED THE ASSESSEES APPEAL. 10. AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1.THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH IN LAW AND ON FACTS OF THE CASE. 2. THE LEARNED CIT(A) OUGHT TO HAVE NOTICED TH AT ADVANCE GIVEN TO A CONCERN IN WHICH A SHAREHOLDER IS A MEMBER/BENEFICIARY, THE PROVISIONS OF SECTION 2(22) (E) ARE APPLICABLE AND IN THE PRESENT CASE, THERE ARE COMMON DIRECTORS IN THE ASSESSEE COMPANY AS WELL AS IN ASTER (P) LIMITED, THE COMPANY WHICH HAS MADE ADVANCE. 3. THE LEARNED CIT(A) SHOULD HAVE SUSTAINED THE DEEMED DIVIDEND U/S.2(22)(E), AS THE AMOUNTS ADVANCED WERE UTILIZED FOR THE BENEFIT OF THE SHAREHOLDERS OF THE ASSESSEE COMPANY, WHERE THE DIRECTORS WERE COMMON. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TI ME OF HEARING. 8 ITA.NO.635,636 & 637/HYD/2013 M/S. SIDESWARI POWER GENERATION PVT. LTD. HYDERABAD. 11. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE CONTENTIONS RAISED BEFORE THE A.O. AN D THE CIT(A) AND SUBMITTED THAT THE ISSUE IS COVERED BY TH E DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF BHAUMIK COLOUR P. LTD. 313 ITR (AT) 146 (MUM.) ( SB) 12. THE LEARNED D.R. FAIRLY CONCEDED THAT THE ISSUE WAS COVERED AS STATED BY THE LEARNED COUNSEL FOR THE ASSESSEE. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CA SE BEFORE US, THE ASSESSEE IS ADMITTEDLY NOT A SHAREHOL DER OF APL AND THE SHAREHOLDERS ARE SHRI U. KANTHA RAO AND SMT. U. RAJANI. THEREFORE, THE CIT(A) WAS CORRECT IN HOLDING THAT THE ADVANCES CANNOT BE TAKEN AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE WHO IS NOT A SHAREHOLDER OF APL. THE RELEVANT PORTION OF THE DECIS ION OF THE SPECIAL BENCH IS REPRODUCED HEREUNDER 'THE PROVISIONS OF SECTION 2(22)( E) OF THE INCOME-TAX ACT, 1961 CREATE A FICTION BRINGING IN AMOUNTS PAID OTHERWISE THAN AS DIVIDEND INTO THE NET OF DIVIDENDS. THEREFORE THIS CLAUSE MUST BE GIVEN A STRICT INTERPRETATION. TO ATTRACT THE FIRST LIMB OF THE PROVISIONS OF SECTION 2(22) (E), THE PAYMENT MUST BE TO A PERSON WHO IS A REGISTERED HOLDER OF SHARES. IN THE 1961 ACT, THE WORD 'SHAREHOLDER' IN SECTION 2(22)(E) IS FOLLOWED BY THE FOLLOWING WORDS 'BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES'. THIS EXPRESSION ONLY QUALIFIES THE WORD 'SHAREHOLDER' AND DOES 9 ITA.NO.635,636 & 637/HYD/2013 M/S. SIDESWARI POWER GENERATION PVT. LTD. HYDERABAD. NOT IN ANY WAY ALTER THE POSITION THAT THE SHAREHOLDER HAS TO BE A REGISTERED SHAREHOLDER NOR SUBSTITUTE THE REQUIREMENT TO A REQUIREMENT OF MERELY HOLDING A BENEFICIAL INTEREST IN THE SHARES WITHOUT BEING A REGISTERED HOLDER OF SHARES. THE VERY SAME PERSON MUST ALSO BE A MEMBER OR A PARTNER IN THE CONCERN HOLDING SUBSTANTIAL INTEREST IN THE CONCERN. DEEMED DIVIDEND UNDER SECTION 2(22) (E) OF THE ACT CAN BE ASSESSED ONLY IN THE HANDS OF A SHARE-HOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF ANY OTHER PERSON. ' 14. THE DECISION OF THE SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR LTD. (SUPRA) FORTIFIES OUR VIEW THA T THE ASSESSING OFFICER IS NOT CORRECT IN ASSESSING THE AD VANCES AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE WHIC H IS NOT A SHAREHOLDER OF APL. 15. IN THE RESULT, THE APPEALS OF THE DEPARTMENT IN ALL THE THREE YEARS 2006-2007, 2007-2008 AND 200 8- 2009 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06.12.2013. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATE 06 TH DECEMBER, 2013 VBP/- 10 ITA.NO.635,636 & 637/HYD/2013 M/S. SIDESWARI POWER GENERATION PVT. LTD. HYDERABAD. COPY TO : 1. INCOME TAX OFFICER, WARD 3(1), HYDERABAD. 2. M/S. SIDESWARI POWER GENERATION PVT. LTD. FLAT N O.110, AMRUTHA VILLE, RAJBHAVAN ROAD, SOMAJIGUDA, HYDERABA D-82. 3. CIT(A)-IV, HYDERABAD. 4. CIT-III, HYDERABAD 5. D.R. ITAT A BENCH, HYDERABAD.