DCIT, CHENNAI V. V.Ramesh, CHENNAI

ITA 639/CHNY/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3966 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 18-03-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: G BASKAR
• Keywords: Deemed dividend

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , . !' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.639/MDS./2016 / ASSESSMENT YEAR :2011-12 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -1(2), CHENNAI 34. VS. MR.V.RAMESH, NEW NO.9, OLD NO.12, TSD NAGAR, 1 ST MAIN ROAD, ARUMBAKKAN, CHENNAI 106. [PAN ADJPR 2424 H] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) / APPELLANT BY : MR.SHIVA SRINIVAS, JCIT D.R /RESPONDENT BY : MR.G.BASKAR,ADVOCATE / DATE OF HEARING : 03 - 1 0 - 201 6 !' / DATE OF PRONOUNCEMENT : 23 - 11 - 2016 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, CHENNAI DATED 15.12.2015 PERTAINING TO ASSESSMENT YEAR 2011-12. ITA NO. 639/MDS./2016 :- 2 -: 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS FOR OUR ADJUDICATION. 2.1 THE LEARNED CIT(A) ERRED IN DELETING THE ADDITI ON MADE U/S.2(22)(E) OF THE I.T. ACT TO THE TUNE OF RS.1,81 ,32,423/-. 2.2 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH E FACT THAT THE ASSESSEE IS A SHARE HOLDER AND BENEFICIAL OWNER IN BOTH THE COMPANIES VIZ. M/S.CHENNAI MICRO PRINTS PRIVATE LTD HOLDING 33.33K OF SHARES AND IN M/S.TALLBOY STATIONERY PRIVATE LTD HOLDING 25% OF SHARES. 2.3. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED T HE FACT THAT THOUGH THE ASSESSEE HAD NOT DIRECTLY RECEIVED ANY ADVANCE OR LOAN FROM THE COMPANY, SINCE THE ASSESSEE IS A SHARE HOLDER AND B ENEFICIAL OWNER IN BOTH THE COMPANIES, PROVISIONS OF SEC.2(22)(E) O F THE I.T ACT IS ATTRACTED IN THE CASE OF THE ASSESSEE. 2.4. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED T HE TRIBUNALS DECISION IN THE CASE OF DCIT, BUSINESS CIRCLE-X VS . EAGLE PRESS, IN ITA NO.527/MDS/2011 IN WHICH THE CHENNAI TRIBUNAL H ELD THAT BENEFICIAL OWNER HAS TO BE TAXED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS AN INDIVIDUAL AND WORKING AS A DIRECTOR IN M/S.CHENNAI MICOR PRINTS PVT. LTD. AND M/S.TALLBOY STATIONERY PVT LTD. AMONG OTHE R COMPANIES. THE ASSESSEE HAD FILED HIS RETURN OF INCOME ON 23.04.2 012 FOR ASSESSMENT YEAR 2011-12 ADMITTING INCOME OF ` 26,76,481/- SUBSEQUENTLY, THE RETURN WAS SELECTED FOR SCRUTINY AND ASSESSMENT U/S .143(3) OF THE ACT ITA NO. 639/MDS./2016 :- 3 -: WAS COMPLETED ON 21.03.2014. WHILE FINALIZING THE A SSESSMENT , THE AO MADE AN ADDITION ON ACCOUNT OF DEEMED DIVIDEND U /S.2(22)(E) OF THE ACT OF ` 1,81,32,423/-, WHICH WAS TREATED AS LOAN ADVANCED B Y M/S.CHENNAI MICOR PRINTS PVT. LTD. AND M/S.TALLBOY STATIONERY PVT LTD. AND THE IMPUGNED AMOUNT WAS ASSESSED AS DEEMED DIVI DEND U/S.2(22)(E) OF THE ACT IN THE HANDS OF THE COMPANY . THEREFORE, THE ADDITIONAL DEMAND ON ACCOUNT OF ADDITION IN THE HAN DS OF THE ASSESSEE U/S.2(22)(E) OF THE ACT IS ASSESSED PROTECTIVELY. THE AO NOTED THAT SINCE THE ASSESSEE HAS SUBSTANTIAL INTEREST IN BOTH THE COMPANIES, HIS WITHDRAWALS WERE HELD TO BE TOWARDS PERSONAL BENEFI T OF THE ASSESSEE. FURTHER, THE AO NOTICED THAT M/S.CHENNAI MICRO PRIN TS P LTD HAVE ACCUMULATED RESERVES TO THE TUNE OF ` 9,53,94,286/-. THE TOTAL SUM OF WITHDRAWALS FROM M/S.CHENNAI MICRO PRINTS P LTD., T OWARDS M/S.TALLBOY STATONERY P LTD WAS QUANTIFIED AT ` 1,81,32,423/-. HENCE, THE AO BROUGHT THE IMPUGNED AMOUNT TO TAX AS DEEMED DIVIDE ND U/S.2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE WHO IS A SH AREHOLDER. 3.1. AGGRIEVED WITH THE ORDER OF LD. ASSESSING OFF ICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ACCORDING TO LD.CIT(A), THE UNCONTROVERTED FACT IS THAT THE ASSESSEE DID NOT RE CEIVE ANY MONEY / ADVANCES FROM EITHER OF THE TWO COMPANIES IN WHICH HE IS A SHAREHOLDER OR A DIRECTOR DURING THE A.Y. 2011-12. IT WAS ONLY IN TH E A.Y. 2011-12 THAT M/S TALIBOY STATIONERY P LTD RECEIVED FUNDS OF RS.1,81, 32,423 FROM ITS SISTER ITA NO. 639/MDS./2016 :- 4 -: CONCERN CHENNAI MICRO PRINT P LTD TOWARDS WORKING C APITAL REQUIREMENT. M/S TALIBOY STATIONERY P LTD DOES NOT HOLD ANY SHARES I N M/S CHENNAI MICRO PRINT P LTD. THE AMOUNT OF RS.1,81,32,423 WHICH WAS BROUG HT TO TAX BY THE AO U/S 2(22)(E) IN THE HANDS OF M/S TALLHOY STATIONERY P LTD WAS DELETED BY THE CIT(A)-1, CHENNAI VIDE ORDER DATED 14.10.2015 IN IT A NO.306/2014-15 HOLDING THE SAME AS INTER COMPANY TRADE ADVANCE AND WITH A FINDING THAT NONE OF ITS SHAREHOLDERS OR DIRECTORS BENEFITED BY SUCH FUND TRANSFER. THE CIT(A) ALSO RELIED UPON THE JURISDICTIONAL COURT DE CISION IN CIT V. PRINT WAVE SERVICES (90 CCH 25(MAD.)). FURTHER, AS STATED BY T HE ASSESSEE IN TALLBOY STATIONERY P LTD CASE FOR THE A.Y. 2010-11 VITH REG ARD TO SIMILAR ISSUE OF BORROWAL BY THE SAID COMPANY FROM ITS GROUP COMPANY M/S CHENNAI MICRO OF RS.15,24,414 THE AC WAS OF THE OPINION THAT PROVISI ONS OF S.2(22)(E) WOULD BE ATTRACTED AND BROUGHT TO TAX ACCORDINGLY. THIS O RDER WAS CONFIRMED BY CIT(A)-LIL CHENNAI AND WAS CARRIED BEFORE THE ITAT BY THE APPELLANT WHICH FOLLOWING THE DECISION IN THE CASE OF CIT V. PRINT WAVE DELETED THE ADDITION THUS MADE IN ITS ORDER IN ITA NO.562/MDS/2015 DT. 2 9.9.2015 IN M/S TALIBOY STATIONER P LTD V. ACIT. THUS, THE CIT(A) OBSERVED THAT THE PROVISIONS OF S.2(22)(E) REQUIRE THE INGREDIENTS OF PAYMENT BY A COMPANY NOT BEING A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTE D, OF ANY SUM, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF THE SHARES. THE SAME WOULD ALSO APPLY TO ANY PAY MENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER, TO THE EXTENT OF ACCUMULATED PROFITS. IN THIS CASE THE UNDISPUTED FACTS ARE THAT THE APPELLANT IS A SHAREHOLDER IN CHENNAI MICRO PRI NT P LTD AND ALSO IN ITA NO. 639/MDS./2016 :- 5 -: TALIBOY STATIONERY P LTD WHO HAVE NOT ADVANCED HIM ANY MONEY FOR HIS PERSONAL BENEFIT OR USE. THE MONIES WERE ONLY TRANS FERRED BETWEEN THE TWO CORPORATES TOWARDS THEIR SHARE CAPITAL REQUIREMENT. IN VIEW OF THE SAME, THE PROVISIONS OF S. 2(22)(E) ARE NOT ATTRACTED IN THE CASE OF THE ASSESSEE. HENCE, LD.CIT(A) DELETED THE ADDITION OF ` 1,81 ,32,423/- MADE BY THE AO IN THE HANDS OF THE ASSESSEE U/S 2(22)(E) OF THE ACT . AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 4. THE DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT A SUM OF ` 1,81 ,32,423/- HAS BEEN TRANSFERRED BY THE COMPANY I.E. M/S.CHENNAI MICRO PRINTS P LTD., TO M/S.TALLBOY STATIONERY PVT LTD. FROM THE LEDGER ACCOUNT, IT IS EVIDENT THAT THE LOAN IS NOT ON ACCO UNT OF BUSINESS TRANSACTION AND BUT IT IS ON ACCOUNT OF THE INDIVID UALS BENEFITS. THUS, THE MODUS OPERANDI IN THIS CASE IS THAT IT IS INDIV IDUAL (SHRI V.RAMESH) WHO IS HOLDING 33.33% OF SHARES IN M/S.CHENNAI MICR O PRINTS P LTD., HAS RECEIVED THE SAID SUM OF ` 1,81,32,423/- AND HAS INVESTED IN OTHER COMPANY I.E. M/S.TALLBOY STATIONERY PVT LTD., IN WHICH HE HOLDS 25% OF SHARES. ACCORDING TO HIM, THE APEX COURT IN THE CA SE OF MS.P. SHARADHA VS. CIT IN (1998) 96 TAXMAN 11 HELD THAT E VEN WITHDRAWAL WOULD BE CONSIDERED AS DEEMED DIVIDEND. 5. ON THE OTHER HAND, LD.A.R SUBMITTED THAT THE MR .V.RAMESH IS NOT A SHAREHOLDER IN M/S.CHENNAI MICRO PRINTS P LTD., AND THE MONEY HAS NOT BEEN RECEIVED BY THE ASSESSEE. IN OTHER WORDS, THE BENEFICIARY WAS ITA NO. 639/MDS./2016 :- 6 -: M/S.TALLBOY STATIONERY PVT LTD. AND IT CANNOT BE BR OUGHT TO TAX IN THE HANDS OF THE ASSESSEE. LD.A.R SUPPORTED THE ORDER O F LD.CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, THE ASSESSEE IS NOT A SHAREHOLD ER IN M/S.CHENNAI MICRO PRINTS P LTD., FROM WHERE MONEY HAS BEEN MOVE D TO M/S.TALLBOY STATIONERY PVT LTD. ACCORDING TO LD.A.R, SIMILAR I SSUE CAME BEFORE THIS TRIBUNAL IN THE CASE OF M/S.TALLBOY STATIONERY PVT LTD. FOR ASSESSMENT YEARS 2011-12 & 2008-09 IN ITA NOS.2291 & 2292/MDS. /2015 VIDE ORDER DATED 29.04.2016 HAS DELETED THE ADDITION BY OBSERVING THAT UNLESS THE BENEFICIARY IS A SHAREHOLDER IN THE COMP ANY, FROM WHERE IT HAS RECEIVED FROM WHERE IT HAS RECEIVED ITS LOAN, I T CANNOT BE ASSESSED IN THE HANDS OF THAT ASSESSEE. THE MAIN CRUX OF THE ARGUMENT OF THE DEPARTMENTAL REPRESENTATIVE IS THAT THE MONEY HAS F INALLY MOVED TO THE ASSESSEE I.E. MR.V.RAMESH AS SUCH HE IS A BENEF ICIARY AND HE SHOULD BE TAXED. HOWEVER, THE EVIDENCE BROUGHT ON R ECORD DOES NOT SUGGEST THAT FINAL AMOUNT HAS BEEN RECEIVED IN THE HANDS OF THE PRESENT ASSESSEE I.E. MR.V.RAMESH. THEREFORE, WE AR E NOT IN A POSITION TO APPRECIATE THE ARGUMENT OF THE LD.D.R. FURTHER, THE LD.CIT(A) DELETED THE ADDITION WITHOUT SEEING WHO IS THE BENE FICIARY OF THE RECEIPT OF THAT AMOUNT OF ` 1,81 ,32,423/-. ACCORDINGLY, IN THE INTEREST OF JUSTICE, WE REMIT THE ISSUE TO THE FILE OF AO TO EX AMINE WHETHER THE AMOUNT FINALLY MOVED TO THE PRESENT ASSESSEE AND IF HE IS THE BENEFICIARY, THEN IT WILL ITA NO. 639/MDS./2016 :- 7 -: BE TAXED IN THE HANDS OF THE PRESENT ASSESSEE I.E. MR.V.RAMESH. IN OTHER WORDS, IF THE BENEFICIARY IS M/S.TALLBOY STATIONERY PVT LTD. WHO IS THE SHAREHOLDER IN M/S.CHENNAI MICRO PRINTS P LTD., THE N IT CANNOT BE BROUGHT TO TAX IN THE HAND OF PRESENT ASSESSEE I.E. MR. V.RAMESH, BECAUSE HE WAS THE SHAREHOLDER IN BOTH THE COMPANIE S. WITH THIS OBSERVATION, WE REMIT THE ENTIRE ISSUE TO THE FILE OF AO FOR FRESH CONSIDERATION. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 23 RD NOVEMBER, 2016, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 23 RD NOVEMBER , 2016. K S SUNDARAM &'(()*( +* / COPY TO: ( 1 . / APPELLANT 3. ( ,(- . / CIT(A) 5. */0 (1 / DR 2. / RESPONDENT 4. ( , / CIT 6. 02(3 / GF