The Assistant Commissioenr of Income-tax, Jalandhar V. M/s. K.K. Tanners, Jalandhar

ITA 642/ASR/2013

• Counselvise Citation: 64220914 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 30-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.642(ASR)/2013 ASSESSMENT YEAR:2007-08 PAN :AAEFK1040Q ASSTT. COMMR. OF INCOME TAX, VS. M/S. K.K. TANNERS . RANGE-1, JALANDHAR. MODEL HOUSE ROAD, JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.V.K.SINGH, DR RESPONDENT BY:NONE DATE OF HEARING:19/02/2015 DATE OF PRONOUNCEMENT:26/02/2015 ORDER PER A.D.JAIN, JM: THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEA R 2007-08 AGAINST THE ORDER DATED 20.08.2013 PASSED BY THE CIT(A), JA LANDHAR, TAKING THE FOLLOWING SOLE EFFECTIVE GROUND OF APPEAL: THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION MA DE BY A.O. AMOUNTING TO RS.10,30,257/- ON ACCOUNT OF DEEMED DI VIDEND. THE AO HAS RIGHTLY MADE THE ADDITION OF RS.10,30,257/- TRE ATING THE ADVANCE FORWARDED BY M/S. KIRANDEEP LEATHER (P) LTD. ( A CO MPANY IN WHICH THE PARTNERS OF THE ASSESSEE FIRM ARE THE SHAREHOLD ERS) IN THE HAND OF THE ASSESSEE FIRM AS DEEMED DIVIDEND WITHIN THE MEA NING OF SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961. ITA NO.642(ASR)/2013 2 2. ON THE LAST DATE OF HEARING, I.E., 30.12.2014, THE APPEAL WAS ADJOURNED TO 19.02.2015 ON THE WRITTEN REQUEST OF THE ASSESSE E. THE DATE WAS NOTED ON BEHALF OF THE ASSESSEE, AS IS EVIDENT FROM THE ORDE R SHEET NOTING. HOWEVER, ON 19.02.2015, NOBODY APPEARED ON BEHALF OF THE ASS ESSEE BEFORE US. AS SUCH, WE ARE PROCEEDING TO DECIDE THIS APPEAL ON HA VING HEARD THE LD. DR. 3. THE FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM DERIVING INCOME FROM RUNNING A LEATHER TANNERY. IT FILED A RETURN O F INCOME DECLARING INCOME OF RS.7,25,118/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT, THE ACT), AT AN ASSESSE D INCOME OF RS.29,05,322/-. THE AO, INTER-ALIA, MADE AN ADDITION OF RS.10,30,25 7/- ON ACCOUNT OF DEEMED DIVIDEND. IT IS THIS ADDITION, WHICH FORMS T HE SUBJECT MATTER OF THE PRESENT APPEAL. 4. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THIS ADDITION. WHILE DOING SO, IT WAS HELD AS FOLLOWS: 6.3. I HAVE CONSIDERED THE OBSERVATIONS OF THE AO AS MADE IN THE ASSESSMENT ORDER AS WELL AS THE WRITTEN SUBMISSIONS OF THE ASSESSEE FIRM ON THE ISSUE UNDER REFERENCE. IN MY OPINION, T HE AMOUNT TREATED AS ADVANCE BY THE AO IS CERTAINLY GOING TO BENEFIT THE PARTNERS DIRECTLY OR INDIRECTLY. IN MY CONSIDERED OPINION, T HE DEEMING PROVISIONS OF SECTION 2(22E) OF THE INCOME TAX ACT, 1961 ARE ATTRACTED IN THE CASE OF A SHAREHOLDER WHEREAS IN THE CASE UN DER REFERENCE, THE ASSESSEE FIRM IS NOT A SHAREHOLDER OF M/S. KIRANDEE P LEATHERS PVT. LTD. BUT THE PARTNERS OF THE ASSESSEE FIRM ARE ITS BENEFICIAL SHAREHOLDERS. IN OTHER WORDS, THE ASSESSEE FIRM IS NOT THE BENEFICIAL SHAREHOLDER OF THE COMPANY M/S. KIRANDEEP LEATHERS PVT. LTD. IN ITA NO.642(ASR)/2013 3 THESE FACTS AND CIRCUMSTANCES OF THE CASE AND IN MY CONSIDERED OPINION THE PROVISIONS OF SECTION 2(22E) OF THE ACT ARE NOT ATTRACTED IN THE CASE OF THE ASSESSEE FIRM . THIS VIEW IS ALSO SUPPORTED BY VARIOUS JUDICIA PRONOUNCEMENTS IN THE CASE OF CIT-II LUDHIANA VS. M /S. SHARMA WOOLLENS LIMITED (2012) 204 TAXMAN 82 (P&H. THE OTHER CASE L AWS RELIED UPON BY THE ASSESSEE FIRM ALSO SUPPORT THE CASE OF THE ASSESSEE FIRM. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE AND IN MY CONSIDERED OPIN ION, THE ADDITION MADE BY THE AO AMOUNTING TO RS.10,30,257/- BY INVOKING THE PROV ISIONS OF SECTION 2(22E) OF THE ACT AS DEEMED DIVIDEND IN THE HANDS OF THE ASSE SSEE FIRM IS NOT JUSTIFIED AND IS DIRECTED TO BE DELETED. IN THE RESULT, GROUNDS OF A PPEAL NO. 5 AND 6 BY THE ASSESSEE ARE, THEREFORE, ALLOWED. 6.4. BEFORE PARTING WITH THIS GROUND OF APPEAL, I W OULD ALSO LIKE TO MAKE IT CLEAR THAT THE AO IS FREE TO TAKE ACTION IN THE HAN DS OF PARTNERS OF THE ASSESSEE FIRM WITH REGARD TO THE APPLICABILITY OF THE PROVIS IONS OF SECTION 2(22E) OF THE INCOME TAX ACT, 1961. 5. AGGRIEVED, THE DEPARTMENT IS IN APPEAL. 6. CHALLENGING THE IMPUGNED ORDER, THE LD. DR HAS C ONTENDED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .10,30,257/- CORRECTLY MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND; THAT WHILE DOING SO, THE LD. CIT(A) ERRED IN NOT TAKING INTO CONSIDERATION THE FACT THAT THE AO HAD RIGHTLY MADE THE ADDITION WHILE TREATING ADVANCED F ORWARDED BY M/S. KIRANDEEP LEATHERS (P) LTD., A COMPANY IN WHICH THE PARTNERS OF THE ASSESSEE FIRM ARE THE SHAREHOLDERS, IN THE HANDS OF THE ASSESSEE-FIRM AS DEEMED DIVIDEND; THAT THE LD. CIT(A) HAS FAILED TO CONSIDER THAT THE ACTION OF THE AO IN MAKING SUCH ADDITION WAS WELL WITHIN THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT., AND THAT, THEREFORE, THE DELE TION REQUIRES TO BE CANCELLED. ITA NO.642(ASR)/2013 4 7. WE HAVE HEARD THE LD. DR AND HAVE EXAMINED THE M ATERIAL PLACED ON RECORD. THE MATTER, IT IS SEEN, IS COVERED DIRECTLY IN FAVOUR OF THE ASSESSEE BY NUMBER OF CASE LAW, INCLUDING THE FOLLOWING: I) ACIT, CIRCLE-33,MUMBAI VS. BHAUMIK COLOUR (P) L TD., (2009) 117 ITD 1 (MUM) (SB). II) CIT VS. HOTEL HILLTOP (2009) 313 ITR 116 (RAJ A) III) CIT VS. UNIVERSAL MEDICARE PRIVATE LIMITED ( 2010) 324 ITR 263 (MUM.) IV) CIT VS. ANKITECH 340 ITR 14 (DEL) V) CIT VS. C.P. SARATHY MUDALIAR 83 ITR 170 (SC) VI) RAMESHWAR SANWARMAL VS. CIT 122 ITR 1 (SC) 8. THE LATEST DECISION ON THIS ISSUE IS THAT RENDER ED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JAGNESH P SHAH, 114 DTR (BOM) 249, HOLDING THAT UNLESS THE ASSESSEE IS A SH AREHOLDER OF THE COMPANY LENDING HIM MONEY, NO OCCASION TO APPLY SECTION 2(2 2)(E) OF THE ACT CAN ARISE. 9. THE LD. CIT(A), WHILE CORRECTLY DELETING THE ADD ITION, HAS DULY TAKEN NOTE OF THE FACT THAT THE ASSESSEE FIRM IS NOT A SH AREHOLDER OF M/S. KIRANDEEP LEATHER (P) LTD., THOUGH, THE PARTNERS OF THE ASSES SEE-FIRM ARE ITS BENEFICIAL SHAREHOLDERS AND THAT TOO, THE ASSESSEE FIRM IS NO T THE BENEFICIAL SHAREHOLDER OF THE COMPANY, M/S. KIRANDEEP LEATHER PVT. LTD. IT WAS ON THE BASIS OF THESE FACTS THAT THE LD. CIT(A) HELD THE PROVISIO NS OF SECTION 2(22)(E) OF THE ITA NO.642(ASR)/2013 5 ACT, NOT ATTRACTED TO THE ASSESSEE-FIRM. THE AO, ON THE OTHER HAND, HAD BASED THE ADDITION AS DEEMED DIVIDEND ON THE FOLLO WING FACTS:- IT IS SEEN FROM THE RECORDS THAT THE ACCOUNT OF TH E ASSSEE IN THE BOOKS OF M/S. KIRANDEEP LEATHER PVT. LTD. SHOWS A P EAK DEBIT BALANCE OF RS.90,22,826/- AS ON 29.03.2007. MOREOVER, THE D EBIT BALANCE STARTS FROM 19.01.2007 AND THIS STATE OF AFFAIR CON TINUES TILL 30.03.2007, WITHOUT FAIL AND AT THE END OF THE YEAR I.E. ON 31.03.2007 WHEN TRANSFER ENTRIES ARE MADE, THERE IS CREDIT BAL ANCE OF RS.49,13,274/-, [ COPY OF ACCOUNT OF M/S. KIRANDEEP LEATHER PVT. LTD. IS ATTACHED AS ANNEXURE-1 TO THIS ORDER.] THE PARTNER OF THE ASSESSEE FIRM SH. GIRDHARI LAL WITH 33.33% SHARE IN THE FIRM IS N OT ONLY CHAIRMAN-CUM- MANAGING DIRECTOR OF M/S. KIRANDEEP LEATHER PVT. LT D. BUT A SHAREHOLDER AT 39% WHO IS COVERED TO BE A PERSON HOLDING NOT LESS THAN TEN PERCENT OF VOTING POWER AS PER PROVISIONS OF SECTION 2(22)(E) OF THE INCOME-TA X ACT, 1961.THE OTHER PARTNER OF THE ASSESSEE FIRM SMT. NARINDER KAUR WITH 33.33% SHARE IN THE FIRM IS NOT ONLY DIRECTOR OF M/S. KIRANDEEP LEATHER PVT. LTD. BUT A SHAREHOLDER AT 25% WHO IS ALSO COVERED TO BE A PERSON HOLDING NOT LESS THAN T EN PERCENT OF VOTING POWER AS PER PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE COMPANY M/S. KIRANDEEP LEATHER PVT. LTD. HAS ACCUMULATED PROFIT OF RS.10,3 0,257/-. 10. FROM THE ABOVE, WE ARE IN AGREEMENT WITH THE OR DER OF THE LD. CIT(A). FINDING NO ERROR THEREIN, IT IS CONFIRMED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26TH FEBRUARY, 2015. SD/- SD/- (B.P. JAIN) (A.D.JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 26TH FEBRUARY, 2015 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. K.K. TANNERS, JALANDHAR. 2. THE ACIT, R-I, JALANDHAR. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR.