DCIT CIR. 4(2), MUMBAI V. M/s. TOWER CAPITAL SECURITIES P. LTD., MUMBAI

ITA 6822/MUM/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2573 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 17-12-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 23-11-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Assessee Lawyers: RAJAN DANAANI
• Keywords: Deemed dividend
• Section: 2(22)(e); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VP & SHRI R.K. PANDA, AM I.T.A. NO. 6822/MUM/2005 (ASSESSMENT YEAR 2002-03) DCIT, CIR-4(2) R. NO. 642, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. TOWER CAPITAL SECURITIES P. LTD. ABAN HOUSE, 2 ND FLOOR, 25/31, ROPEWALK LANE, OFF RAMPART ROAD, MUMBAI-23 PAN: AAACT2154M APPELLANT RESPONDENT APPELLANT BY: SHRI NAVEEN GUPTA RESPONDENT BY: SHRI RAJAN DANAANI O R D E R DATE OF HEARING: 17.12.2009 DATE OF ORDER: 23.12.2009 PER R.K. PANDA, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 28 TH SEPTEMBER, 2005 OF THE CIT(A)-IV, MUMBAI RELATING TO ASSESSMENT YEAR 2002-03. 2. GROUNDS OF APPEAL NO. 1 BY THE REVENUE READS AS UND ER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A): (A) ERRED IN HOLDING THAT THE PROVISIONS OF SEC. 2(22)(E) OF THE I.T. ACT, 1961 ARE NOT APPLICABLE I N THE ASSESSEES CASE AS IT IS NOT A SHAREHOLDER OF ITS S ISTER CONCERN M/S. PRATIBHUTI HOLDINGS P. LTD. AND THERE BY DELETING THE ADDITION. (B) FURTHER ERRED IN IGNORING THE FINDING OF THE ASSESSING OFFICER THAT SHRI NATWARLAL H. AMBANI, A SHAREHOLDER, WAS HOLDING MORE THAN 20% OF EQUITY SHARE CAPITAL IN BOTH THE COMPANIES AND AS SUCH SEC . 2(22)(E) OF THE I.T. ACT, 1961 WAS APPLICABLE IN TH E CASE. I.T.A. NO. 6822/MUM/2005 M/S. TOWER CAPITAL SECURITIES P. LTD. ======================== 2 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT SHRI NATWARLAL H. AMBANI WAS HOLDING 20,100 SHARES IN M/S. PRATIBHUTI HOLDINGS P VT. LTD. (PHPL) WHICH REPRESENTED 48.78% OF THE TOTAL EQUITY AND HE ALSO HELD 35.47% OF THE EQUITY IN THE ASSESSEE COMPANY I.E., M/S. TOWER CAP ITAL & FINANCIAL SECURITIES PVT. LTD. (TCFS). THE ASSESSING OFFICER THEREFORE, HELD THAT THE LOAN RECEIVED BY THE ASSESSEE FROM M/S. PHPL AMOUNT ING TO RS.2,50,000 WAS HIT BY THE PROVISIONS OF SECTION 2(22)(E) OF TH E INCOME-TAX ACT, 1961 (THE ACT). THEREFORE, THIS AMOUNT HAS TO BE TAXED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY. NOT BEING SATIS FIED WITH THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND RELYING ON T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. DURGA PRASAD MORE REPORTED IN 82 ITR 540 AND SUMATI DAYAL VS. CIT REPORT IN 21 4 ITR 801, THE ASSESSING OFFICER TAXED THE AMOUNT IN THE HANDS OF THE ASSESSEE AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. 4. IN APPEAL, THE LEARNED CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER HOLDING THAT THE PROVISIONS OF SE CTION 2(22)(E) ARE NOT APPLICABLE TO THE ASSESSEE AS IT WAS NOT A SHAREHOL DER OF THE SISTER CONCERN M/S. PHPL. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 5. AFTER HEARING BOTH THE SIDES, WE FIND THE ISSUE STA NDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE VIDE I.T.A. NO. 2766/MUM/07 ORDER DATED 29 TH JULY, 2009 FOR THE A.Y. 2003-04 AND I.T.A. NO. 3844/MUM/08 ORDER DATED 18 TH SEPTEMBER, 2009 FOR THE A.Y. 2004- 05. WE FIND THE TRIBUNAL IN BOTH THE ABOVE APPEALS HAS FOLLOWED THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. BHAUMIC COLOURS PVT. LTD. REPORTED IN [2008-TIOL-641] WHERE IT HAS BEEN HELD THAT DEEMED DIVIDEND CAN ONLY BE TAXED U/S. 56 IN THE HANDS OF THE SHAREHOLDER. SINCE THE ASSESSEE IS NOT A SHAREHOLDER IN PHPL, THEREFORE, T HE DEEMED DIVIDEND DELETED BY THE CIT(A) WAS UPHELD. I.T.A. NO. 6822/MUM/2005 M/S. TOWER CAPITAL SECURITIES P. LTD. ======================== 3 6. IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE AND C ONSIDERING THE FACT THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHAUMIC COLOUR S PVT LTD. (SUPRA) THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7. GROUNDS OF APPEAL NO. 2 BY THE REVENUE READS AS UND ER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION O F RS.32,18,670/- MADE U/S. 40A(2), IN RESPECT OF PAYM ENT MADE TO SISTER CONCERN WITHOUT APPRECIATING THE FACTS AN D CIRCUMSTANCES OF THE CASE WHICH CLEARLY SHOW THAT T HE ARRANGEMENT WAS TO FACILITATE ADJUSTMENT OF INCOME AND THAT SUCH EXPENDITURE WAS EXCESSIVE AND UNREASONABLE HAV ING REGARD TO THE VALUE OF SERVICES OR FACILITIES PROVI DED AND THE LEGITIMATE NEEDS OF THE BUSINESS AS REQUIRED IN TER MS OF PROVISIONS OF SEC. 40A(2) OF THE I.T. ACT, 1961. 8. AFTER HEARING BOTH THE SIDES, WE FIND THIS ISSUE ST ANDS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY T HE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE VIDE I.T.A. NO. 384 4/MUM/08 ORDER DATED 18 TH SEPTEMBER, 2009 FOR THE A.Y. 2004-05. WE FIND THE TRIBUNAL FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES O WN CASE FOR THE A.Y. 2001-02 HAD UPHELD THE ORDER OF THE CIT(A) DELETING THE ADDITION ON THIS ISSUE AND THE GROUND RAISED BY THE REVENUE HAS BEEN DISMISSED. THE RELEVANT PARA OF THE ORDER OF THE TRIBUNAL FOR A.Y. 2004-05 READS AS UNDER: 7. BEFORE US, IT IS NOT IN DISPUTE THAT IN A.Y. 20 01-02 IN ITA NO. 5290/MUM/04 IN ASSESSEES OWN CASE, THE TRIBUNAL ON AN IDENTICAL ISSUE UPHELD SIMILAR ORDER OF LEARNED CIT(A) DELETING THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER. IN A.Y. 2001-02, LEARNED CIT(A) HAD GIVEN THE FOLLOWING FINDINGS :- WE HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND ALSO THE ORDER OF THE ASSESSING OFFICER. APPARENTLY, THE ASSESSING OFFICERS CONCLUSION IS BASED UPON MISUNDERSTANDING OF COMMERCIAL AGREEMENT BETWEEN THE PARTIES. IN FACT, IN A BUSINESS SERVICE CENTRE ARRANGEMENT, IT IS NOT POSSIBLE TO PREDICT THE VARIABLE EXPENSES LIKE TELEPHONE AND ELECTRICITY EXPENSES IN ADVANCE AND FACTOR SUCH AMOUNT IN THE BUSINESS SERVICE I.T.A. NO. 6822/MUM/2005 M/S. TOWER CAPITAL SECURITIES P. LTD. ======================== 4 CENTRE CHARGES TO BE RECOVERED THE BUSINESS SERVICE CENTRE CHARGES WHICH ASSESSEE HAS BEEN PAYING IS FOR PROVIDING SPACE OR FOR MAKING USE OF THE SPACE IN THE FORM OF BUSINESS SERVICE CENTRES AND AGREEMENT ALSO PROVIDES FOR THE ACTUAL REIMBURSEMENT OF THE EXPENDITURE BY ASSESSEE TO M/S. PRATIBHUTI HOLDINGS PVT. LTD. FOR VARIOUS OTHER SERVICES. AS RIGHTLY POINTED OUT BY ASSESSEE, WHEN THE EXPENSES INCURRED BY M/S. PRATIBHUTI HOLDINGS PVT. LTD. ON BEHALF OF THE ASSESSEE CAME TO NEARLY RS. 25 LAKHS, IT CAN NOT BE SAID THAT SAI D AMOUNT IS INCLUDED IN THE BUSINESS SERVICE CENTRE CHARGES OF RS. 16,56,000/-. FURTHER ASSESSING OFFICER HAS NEVER DOUBTED THE ACTUAL EXPENDITURE AND HE NEVER IN THE ORDER HAS STATED THAT THIS EXPENDITURE HAS NOT BEEN INCURRED ON BEHALF OF THE ASSESSEE WHEN M/S. PRATIBHUTI HOLDINGS PVT. LTD. HAS INCURRED VARIOUS EXPENSES AND RECOVERED SAME FROM THE ASSESSEE, IN SUBSTANCE REIMBURSEMENT TO M/S. PRATIBHUTI HOLDINGS PVT. LTD. FOR TELEPHONE EXPENSES AND ELECTRICITY EXPENSES, IS IN EFFECT PAYMENT TO TELEPHONE COMPANY, ELECTRICITY COMPANY ROUTED THROUGH M/S. PRATIBHUTI HOLDINGS PVT. LTD. AS BILLS HAVE BEEN RAISED IN THE NAME OF M/S. PRATIBHUTI HOLDINGS PVT. LTD. HENCE IN STRICTER SENSE, REIMBURSEMENT OF EXPENDITURE TO M/S. PRATIBHUTI HOLDINGS PVT. LTD. CANNOT BE CONSIDERED PAYMENT OF EXPENSES TO M/S. PRATIBHUTI HOLDINGS PVT. LTD.. IN ADDITION TO THE ABOVE, ASSESSEE HAS ALSO PRODUCED THE EVIDENCE IN RESPECT OF ACTUAL REIMBURSEMENT AND ACTUAL CLAIMS MADE BY M/S. PRATIBHUTI HOLDINGS PVT. LTD., ELECTRICITY EXPENSES , TELEPHONE CHARGES ETC. ON BEHALF OF THE ASSESSEE. THE EXPENDITURE CANNOT BE HELD TO BE EXCESSIVE OR UNREASONABLE, AS ASSESSEE HAS REIMBURSED ONLY, ACTUAL EXPENDITURE. HENCE, THE ADDITION OF RS. 25,51,716/- STANDS DELETED. THE TRIBUNAL UPHELD THE ABOVE FINDINGS. THE FACTS A ND CIRCUMSTANCES AND THE AGREEMENT IN QUESTION ARE ONE AND THE SAME IN A.Y. 2001-02 AND ASSESSMENT IN THE PRES ENT APPEAL. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL, WE UPHOLD THE ORDER OF LEARNED CIT(A) AND DISMISS GROUND NO. 2 OF THE REVENUE. 9. FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE A.YS. 2001-02 AND 2004-05 AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ORDER OF THE TRIB UNAL, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. I.T.A. NO. 6822/MUM/2005 M/S. TOWER CAPITAL SECURITIES P. LTD. ======================== 5 10. GROUNDS OF APPEAL NO. 3 BY THE REVENUE READS AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.11, 37,239/- MADE BY THE ASSESSING OFFICER IN RESPECT OF FEES PA ID FOR MANAGEMENT SERVICES TO M/S. TOWER CAPITAL & FINANCI AL SERVICES P. LTD. (TCFS), A COMPANY COVERED UNDER SE C. 40A(2) WITHOUT APPRECIATING THAT FACT THAT OUTSOURCING OF EMPLOYEES OF TCFS WAS NOTHING BUT AN ARRANGEMENT TO FACILITAT E ADJUSTMENT OF THE INCOME EARNED. 11. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS.11,37,239 UNDER THE HEAD MANAGEME NT FEE PAID TO ITS HOLDING COMPANY Y I.E., M/S. TCFS. ON BEING QUESTI ONED BY THE ASSESSING OFFICER IT WAS EXPLAINED THAT THEY OUTSOURCED EMPLO YEES FROM TCFS FOR WHICH THEY CHARGED RS.11,37,239. IT WAS SUBMITTED THAT TCFS WAS THE HOLDING COMPANY OF THE ASSESSEE COMPANY ENGAGED IN PROVIDING DIFFERENT TYPES OF FINANCIAL SERVICES AND MANAGEMENT CONSULTA NCY SERVICES. TCFS ALSO PROVIDES THE SERVICES TO THE ASSESSEE COMPANY. THE ASSESSEE OBTAINED SERVICES BY OUTSOURCING EMPLOYEES FROM TCF S. FOR PROVIDING SUCH SERVICES TCFS CHARGED MANAGEMENT FEE WHICH IS BASED ON THE SALARIES PAYABLE BY TCFS TO THE OUTSOURCED EMPLOYEE S WORKING FOR THE ASSESSEE. HOWEVER, NOT BEING SATISFIED WITH THE VA RIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE ASSESSING OFFICER DISALLO WED THE AMOUNT OF RS.11,37,239 HOLDING THAT THE SAME IS NOTHING BUT T RANSFER OF INCOME IN THE GUISE OF FEES. 12. IN APPEAL, THE LEARNED CIT(A) DELETED SUCH ADDITION . AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN A PPEAL BEFORE US. 13. AFTER HEARING BOTH THE SIDES, WE FIND SIMILAR ADDIT ION MADE BY THE ASSESSING OFFICER WAS DELETED BY THE CIT(A) AND IN FURTHER APPEAL BY THE REVENUE THE TRIBUNAL UPHELD THE ORDER OF THE CIT(A) IN ASSESSEES OWN CASE FOR A.Y. 2004-05. WE FIND THE FIRST ORDER ON THIS ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE I.T.A. NO. 5290/MUM/04 ORDER DATED 12 TH APRIL, 2007 FOR THE A.Y. 2001-02 WHICH HAS BEEN FO LLOWED IN ASSESSEES OWN CASE FOR A.YS. 2003-04 AND 2004-05. HOWEVER, ON PERUSAL I.T.A. NO. 6822/MUM/2005 M/S. TOWER CAPITAL SECURITIES P. LTD. ======================== 6 OF THE ORDER OF THE TRIBUNAL FOR A.Y. 2001-02, WE F IND THE TRIBUNAL UPHELD THE ORDER OF THE CIT(A) ON THE GROUND THAT THE ASSE SSEE HAD GIVEN AN EXPLANATION AND IN SUPPORT OF THIS EXPLANATION CONF IRMATIONS OF THE EMPLOYEES ETC., WERE FILED BEFORE THE CIT(A). THE CIT(A) BEING A SENIOR AUTHORITY EXAMINED AND ACCEPTED THE CONFIRMATIONS A ND THEREAFTER HE ALLOWED THE CLAIM OF THE ASSESSEE. ACCORDINGLY IT WAS HELD BY THE TRIBUNAL THAT IT WILL BE A FUTILE EXERCISE IF THE MATTER IS SENT BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE CONFIRMATIONS FILE D ON BEHALF OF THE EMPLOYEES AS THE LEARNED CIT(A) HAS EXAMINED THE SA ME BEING A SENIOR OFFICER AND APPELLATE AUTHORITY. HOWEVER, WE FIND SUCH CONFIRMATIONS WERE NOT FILED BEFORE THE ASSESSING OFFICER WHEN TH E ASSESSMENT IN THE IMPUGNED ASSESSMENT YEAR WAS COMPLETED ON 23 RD FEBRUARY, 2005. WE FIND THE CIT(A) FOLLOWING THE ORDER OF HIS PREDECES SOR HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. HOWEVER, H E HAD ALSO NEITHER CALLED FOR NOR EXAMINED THOSE CONFIRMATIONS. THERE FORE, WE IN THE INTEREST OF JUSTICE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO GIVE AN OPPOR TUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CASE. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER GIVING ADEQUATE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THI S GROUND BY THE REVENUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURP OSES. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 23 RD DECEMBER, 2009. SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 23 RD DECEMBER, 2009 I.T.A. NO. 6822/MUM/2005 M/S. TOWER CAPITAL SECURITIES P. LTD. ======================== 7 COPY TO: (1) THE APPELLANT, (2) THE RESPONDENT, (3) THE CIT(A)-IV, MUMBAI, (4) THE CIT-4, MUMBAI, (5) THE DR, E BENCH, ITAT, MUMBAI. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI TPRAO