LIBRA TECHCON LTD, MUMBAI V. DCIT 1(2)(1), MUMBAI

ITA 6528/MUM/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7050 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 08-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Deemed dividend; Reassessment proceedings
• Section: 143(3); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO. 6528/MUM/2017 : A.Y : 2009 - 10 M/S. LIBRA TECHCON LTD., 805 - 806, HALLMARK BUSINESS PLAZA, GURU NANAK HOSPITAL ROAD, MUMBAI 400 051. PAN : AABCL0877G (APPELLANT) VS. DCIT - 1(2)(1), MUMBAI (RESPONDENT) APPELLANT BY : SHRI K. GOPAL & MS. NEHA PARANJPE RESPONDENT BY : SHRI RAJESH KUMAR YADAV DATE OF HEARING : 15/03/2018 DATE OF PRONOUNCEMENT : 08 /06/2018 O R D E R PER G.S. PANNU , AM : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 6 , MUMBAI DATED 04.09.2017 PERTAINING TO ASSESSMENT YEAR S 2009 - 10 , WHICH IN TURN HA VE ARISEN FROM THE ORDER PASSED BY THE ASSESS ING OFFICER, MUMBAI, DATED 18.03.2015 U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NO. 6528/MUM/2017 M/S. LIBRA TECHCON LTD. 2. IN THIS APPEAL, ALTHOUGH THE ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT THE ENTIRE DISPUTE HINGES AROUND AN ADDITION OF RS.6,67,17,345/ - MADE BY THE ASSESSING OFFICER TREATING SUCH SUM AS DEEMED DIVIDEND WITHIN THE MEANING OF SEC. 2(22)(E) OF TH E ACT. ON THIS ASPECT, THE GRIEVANCE OF THE ASSESSEE IS TWO - FOLD, NAMELY, THAT THE ASSESSING OFFICER ERRED IN INVOKING SECTION 147/148 OF THE ACT TO MAKE THE IMPUGNED ASSESSMENT BECAUSE DUE TO INAPPLICABILITY OF SEC. 2(22)(E) OF THE ACT, THERE WAS NO ESCA PEMENT OF INCOME ; AND, SECONDLY, THAT ON MERIT TOO, THE SAID SUM IS NOT ASSESSABLE IN THE HANDS OF THE ASSESSEE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 3. IN ORDER TO APPRECIATE THE CONTROVERSY, THE RELEVANT FACTS CAN BE SUMMARISED AS FOLLOWS. THE APPELLANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER - ALIA , ENGAGED IN THE BUSINESS OF EXPORT OF ENGINEERING GOODS, TECHNICAL KNOWHOW, SERVICES, ETC. FOR ASSESSMENT YEAR 2009 - 10 , IT FILED A RETURN OF INCOME ON 2 5.09.2009 DECLARING AN INCOME OF RS. 27,30,90,533 / - , WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT DATED 21.12.2011 WHEREBY THE TOTAL INCOME WAS DETERMINED AT RS.27,30,90,533/ - . SUBSEQUENTLY, THE ASSESSING OFFICER ISSUED NOTICE UNDER SEC . 147/148 OF THE ACT ON THE GROUND THAT CERTAIN INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT INASMUCH AS AN AMOUNT OF RS. 6,67, 1 7, 3 45 / - REPRESENTING LOANS/ADVANCES MADE TO LIBRA AGENCIES (U.K) LTD. (HEREINAFTER REFERRED TO AS LIBRA UK) WAS LIABLE TO BE ASSESSED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT . IN THE ENSUING ASSESSMENT, THE SAID AMOUNT HAS BEEN ASSESSED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT WHICH HAS ALSO BEEN AFFIRMED BY THE CIT(A) AND THE SAME IS THE SUBJECT MATTER OF DISPUTE IN THE PRESENT APPEAL. 3 ITA NO. 6528/MUM/2017 M/S. LIBRA TECHCON LTD. 4. IN THE CONTEXT OF INVOKING OF SEC. 2(22)(E) OF THE ACT, THE RELEVANT FACTS ARE AS FOLLOWS. THE APPELLANT ADVANCED LOAN IN THE FORM OF INTER - CORPORATE DEPOSIT (ICD) OF RS. 6,62, 1 7,345 / - TO LIBRA U.K, A COMPANY IN WHICH THE ASSESSEE WAS HOLDING 50% OF THE SHARES AND BALANCE 50% WAS HELD BY LIBRA (AGENCIES) PVT. LTD. (HEREINAFTER REFERRED TO AS LIBRA AGENCIES). THE ASSESSING OFFICER ALSO NOTED THE SHAREHOLDING OF THE ASSESSEE - COMPANY, WHICH WAS IN ENTIRETY HELD BY LIBRA AGENCIES. W HILE JUSTIFYING THE INVOKING OF SEC. 2(22)(E) OF THE ACT QUA THE ICD OF RS.6,62, 17 ,345/ - ADVANCED BY ASSESSEE TO LIBRA U.K, THE ASSESSING OFFICER FURTHER NOTED THAT ASSESSEE HAD CUMULATIVE PROFIT OF RS.20,70,28,107/ - BEING RESERVES & SURPLUS. ON BEING SHO W - CAUSED ON THE APPLICATION OF SEC. 2(22)(E) OF THE ACT IN THE BACKGROUND OF THE ABOVE FACTS, ASSESSEE MADE VARIED SUBMISSIONS WHICH DID NOT FIND FAVOUR WITH THE ASSESSING OFFICER AS, ACCORDING TO HIM, ASSESSEE ADVANCED THE IMPUGNED SUM TO LIBRA U.K FOR TH E INDIVIDUAL BENEFIT OF THE REGISTERED SHAREHOLDER HOLDING MORE THAN 50% VOTING POWER AND THE COMPANY HAS ACCUMULATED PROFIT WHEN SUCH ADVANCE IS MADE AND BROUGHT TO TAX THE SAME AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE CIT(A) HAS ALSO SUSTAINE D THE ADDITION. 5 . ONE OF THE PERTINENT POINTS WHICH HAS BEEN RAISED BY THE ASSESSEE CONSISTENTLY BEFORE THE ASSESSING OFFICER AND THE CIT(A) I S THAT THE ADDITION IS VERY MUCH MISPLACED IN THE HANDS OF THE ASSESSEE - COMPANY WHO IS THE LENDER OF THE MONEY WHEREAS THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT SEEKING TO TAX THE AMOUNT AS DEEMED DIVIDEND IS TO APPLY IN THE HANDS OF A SHAREHOLDER AND NOT THE LENDER ENTITY ITSELF. THE CIT(A) HAS DEALT WITH THIS ARGUMENT BY NOTICING THAT THE ASSESSEE - COMPANY WAS NOT ONLY A LENDER TO 4 ITA NO. 6528/MUM/2017 M/S. LIBRA TECHCON LTD. LIBRA U.K, BUT WAS ALSO 50% SHAREHOLDER IN LIBRA U.K AND THE BALANCE BEING HELD BY LIBRA AGENCIES, WHICH WAS THE HOLDING COMPANY OF THE ASSESSEE. AS PER THE CIT(A), ASSESSEE - COMPANY IS NOT ONLY THE LENDE R BUT ALSO THE BENEFICIARY COMPANY, BEING 50% SHAREHOLDER IN THE BORROWER COMPANY . AS PER THE CIT(A), THE IMPUGNED ASSESSMENT IS BEING MADE IN THE HANDS OF THE ASSESSEE - COMPANY AS THE SHAREHOLDER OF THE BORROWER COMPANY AND NOT AS A LENDER COMPANY . IN THIS BACKGROUND, THE APPELLANT IS IN APPEAL BEFORE US. 6. BEFORE US, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE HAS RAISED VARIOUS ISSUES ASSAILING THE VALIDITY OF THE PROCEEDINGS INITIATED UNDER SECTION 147/148 OF THE ACT AS WELL AS ON MERITS OF THE ADDITION. ON THE POINT OF INAPPLICABILITY OF SEC. 2(22)(E) OF THE ACT, THE FIRST PERTINENT POINT THAT WAS ASSERTED IS TO THE EFFECT THAT SEC. 2(22)(E) OF THE ACT IS WHOLLY INAPPLICABLE IN THE PRESENT CASE, AS THE ASSESSEE IS AN ENTITY WHICH HAS ADVANCED THE MONEY AND DOES NOT FALL IN ANY OF THE CATEGOR Y OF ENTITIES IN WHOSE CASE THE DEEMING PROVISION OF SEC. 2(22)(E) OF THE ACT COULD BE INVOKED . SINCE THIS ASPECT GOES TO THE ROOT OF THE MATTER, THE SAME I S BEING CONSIDERED BY US AT THE THRESHOLD ITSELF. 7 . SEC. 2(22)(E) OF THE ACT, WHICH IS RELEVANT FOR OUR PURPOSE , READS AS UNDER : - 2(22) DIVIDEND' INCLUDES ....................... (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERW ISE) MADE AFTER THE 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A 5 ITA NO. 6528/MUM/2017 M/S. LIBRA TECHCON LTD. FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HO LDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMP ANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CAS E POSSESSES ACCUMULATED PROFITS. I T IS QUITE WELL UNDERSTOOD THAT THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT ARE ON THE STATUTE IN ORDE R TO CURB THE TENDENCY OF CLOSELY HELD COMPANIES NOT DISTRIBUT ING THEIR PROFIT S TO THE SHAREHOLDER S BY WAY OF DIVIDEND BUT BY WAY OF LOANS OR ADVANCES SO THAT THE SAME ARE NOT TAXED IN THE HANDS OF THE SHAREHOLDER S . SHORN OF OTHER DETAILS, SO FAR AS IT IS RELEVANT FOR OUR PURPOSE, IT IS NOTICEABLE THAT THREE CATEGORIES OF PAYMENTS ATTRACT THE DEEMING PROVISIONS OF SEC. 2(22)(E) OF THE ACT , WHICH ARE (I) PAYMENT BY WAY OF LOAN OR ADVANCE TO A SHAREHOLDER OF COMPANY ; (II) PAYMENT TO A CONCERN IN WHICH SUCH SHAREHOLDER HAS SUBSTANTIAL INTEREST ; AND (III) ANY PAYMENT FOR THE INDIVIDUAL BENEFIT OF OR ON BEHALF OF SUCH SHAREHOLDER. QUITE CLEARLY, SO FAR AS THE FIRST CATEGORY IS CONCERNED, IT RELATES TO PAYMENT DIRECTLY TO A SHAREHOLDER OF THE PAYER COMPANY . TH E OTHER TWO PAYMENTS ARE TO PERSONS OTHER THAN THE SHAREHOLDER, BUT FOR THE BENEFIT OF OR ON BEHALF OF SUCH SHAREHOLDER OR TO A CONCERN IN WHICH THE SHAREHOLDER HAS SUBSTANTIAL INTEREST . THUS, A SEMINAL FEATURE IN ALL THE THREE CATEGORIES IS THE SHAREHOL DER ; OBVIOUSLY, IT IS THE SHAREHOLDER OF THE LENDER COMPANY WHICH IS BEING REFERRED TO. THE AFORESAID INFERENCE CLEARLY EMERGES FROM THE PHRASEOLOGY OF SEC. 2(22)(E) OF THE ACT ITSELF, WHICH WE HAVE REPRODUCED ABOVE. IN THIS BACKGROUND, WE MAY NOW EXAMI NE THE FACTS OF THE INSTANT CASE. 6 ITA NO. 6528/MUM/2017 M/S. LIBRA TECHCON LTD. 8 . IN THE PRESENT CASE, ASSESSEE HAS ADVANCED ICD TO LIBRA U.K IN WHICH ASSESSEE IS HOLDING 50% SHARES. SO FAR AS THE FIRST CATEGORY OF PAYMENT ENVISAGED UNDER SEC. 2(22)(E) OF THE ACT IS CONCERNED, THE IMPUGNED PAYMENT IS NOT COVERED INASMUCH AS LIBRA U.K IS NOT A SHAREHOLDER IN THE ASSESSEE - COMPANY. THUS, THE ONLY OTHER CATEGORY OF PAYMENT WHICH IS LEFT OUT IS PAYMENT TO PERSONS OTHER THAN THE SHAREHOLDER BEING PAYMENT MADE ON BEHALF OF THE SHAREHOLDER OR FOR THE BENEF IT OF THE SHAREHOLDER OR TO A CONCERN IN WHICH SHAREHOLDER HAS SUBSTANTIAL INTEREST . IN THIS CONTEXT, THE CASE MADE OUT BY THE REVENUE IS THAT THE ASSESSEE - COMPANY IS A SHAREHOLDER IN THE BORROWER, I.E. LIBRA U.K AND, THEREFORE, THE PAYMENT TO LIBRA U.K IS MADE FOR THE BENEFIT OF THE SHAREHOLDER OF LIBRA U.K , WHICH IS THE ASSESSEE. IN OUR CONSIDERED OPINION, THE CASE SOUGHT TO BE MADE OUT BY THE REVENUE IS COMPLETELY MISPLACED . NO DOUBT, THE PAYMENT TO AN ENTITY OTHER THAN THE SHAREHOLDER CAN BE COVERED U/S 2(22)(E) OF THE ACT IN GIVEN SITUATIONS, BUT THE SECTION DOES NOT SEEK TO INCLUDE A PAYMENT MADE FOR THE BENEFIT OF THE SHAREHOLDER OF THE RECIPIENT CONCERN. INVOKING OF SEC. 2(22)(E) OF THE ACT BASED ON THE SHAREHOLDING OF A BORROWING CONCERN IS A C ONCEPT ALIEN TO THE DEEMING PROVISIONS OF SEC. 2(22)(E) OF THE ACT AND THIS IS PRECISELY WHAT HAS BEEN DONE BY THE INCOME - TAX AUTHORITIES IN THE PRESENT CASE TO JUSTIFY INVOKING OF SEC. 2(22)(E) OF THE ACT. THE SAID FACET BEING INCONSISTENT WITH THE PROVI SIONS OF SEC. 2(22)(E) OF THE ACT, WE ARE UNABLE TO UPHOLD THE SAME. 9 . NOTABLY, IT IS NOT THE CASE OF THE REVENUE THAT THE PAYMENT HAS BEEN MADE FOR THE BENEFIT OF ANY SHAREHOLDER OF THE ASSESSEE - COMPANY , A SITUATION WHICH WOULD HAVE CERTAINLY JUSTIFIED INVOKING OF SEC. 2(22)(E) OF THE ACT QUA THE IMPUGNED PAYMENT , SUBJECT OF COURSE TO ASSESSING THE INCOME IN THE HANDS OF THE CORRECT ASSESSEE. EVEN IF ONE WAS TO CONSIDER THAT THERE IS A 7 ITA NO. 6528/MUM/2017 M/S. LIBRA TECHCON LTD. COMMONALITY IN THE SHAREHOLDING OF THE ASSESSEE - COMPANY AND LIBRA U. K, YET ASSESSABILITY OF THE IMPUGNED SUM IS NOT JUSTIFIED IN THE HANDS OF ASSESSEE PAYER. THIS IS FOR THE REASON THAT EVEN IN CASES WHERE THERE IS A COMMON SHAREHOLDER IN THE PAYER ENTITY AND THE RECIPIENT ENTITY, ASSESSABILITY OF DEEMED DIVIDEND IS IN THE HANDS OF SUCH SHAREHOLDER AND CERTAINLY NOT THE PAYER ENTITY. THEREFORE, ON THIS COUNT ALSO, WE FIND NO JUSTIFICATION FOR THE REVENUE FOR INVOKING SEC. 2(22)(E) OF THE ACT IN THE HANDS OF THE PRESENT ASSESSEE QUA THE IMPUGNED PAYMENT. THE ACTION OF A SSESSING OFFICER IS NOT LIABLE TO BE UPHELD. 10 . SINCE THE PRE - REQUISITE OF INVOKING OF SEC. 2(22)(E) OF THE ACT QUA THE IMPUGNED ADVANCING OF ICD BY THE ASSESSEE - COMPANY TO LIBRA U.K IS NOT OSTENSIBLY FULFILLED, THE ACTION OF ASSESSING OFFICER OF INITIATING REASSESSMENT PROCEEDINGS IN ORDER TO MAKE THE IMPUGNED ADDITION IS NOT AT ALL JUSTIFIED AND THE SAME IS HEREBY SE T - ASIDE. 1 1 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 8 T H JUNE, 2018. SD/ - SD/ - ( RAVISH SOOD ) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER MUMBAI, DATE : 8 T H JUNE , 201 8 *SSL* 8 ITA NO. 6528/MUM/2017 M/S. LIBRA TECHCON LTD. COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, A BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI