ACIT 2(1), MUMBAI V. BAKHTAWAR CONSTRUCTION CO. P. LTD, MUMBAI

ITA 7698/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3640 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-04-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 14-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Sale consideration of property below Jantri Value; Gift; Deemed dividend; Reassessment proceedings
• Section: 50C; 11

Judgement Text

ITA NO. 7698 /MUM/2011 BAKHTAWAR CONST. CO. PVT. LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, AM AND DR. S.T.M. PAVAL AN, JM ./ I.T.A. NO. 7698 /MUM/2011 ( / / / / ASSESSMENT YEAR :2008-09 ACIT - 2(1), AAYAKAR BHAVAN, R. NO. 561, 5 TH FLOOR, M.K. ROAD, MUMBAI-400 020. / VS. M/S BAKHTAWAR CONST. CO. PVT. LTD. 1 ST FLOOR, MEHER HOUSE, 15, CASWASJI PATEL STREET, FORT, MUMBAI- 400 001 ! '# ./ PAN : AAACB4942P ( !$ / / / / APPELLANT ) .. ( %&!$ / RESPONDENT ) !$ ' ( ' / APPELLANT BY : SHRI MOHIT JAIN. %&!$ ' ( ' / RESPONDENT BY : SHRI PRAKASH K. JOTWA N I ' )# / // / DATE OF HEARING : 10.04.2013 *+ ' )# / DATE OF PRONOUNCEMENT : 19.04.2013 ,'- / O R D E R PER B. RAMAKOTAIAH, A.M . : THIS APPEAL BY REVENUE IS AGAINST THE ORDER OF THE CIT(A)-4 MUMBAI DATE 16.08.2011. REVENUE HAS RAISED FOLLOWING TWO GROUND S. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING AOS STAND THAT THERE WAS AN AR RANGEMENT AMONGST THE SHAREHOLDERS IN DISTRIBUTING THE COMPANYS ASSETS I N COLOURABLE FASHION IN THE GRAB OF FAMILY SETTLEMENT TO AVOID TAXATION 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ADJUDICATING THE CASE BY CONCENTRATING ON THE AP PLICABILITY OF SEC. ITA NO. 7698 /MUM/2011 BAKHTAWAR CONST. CO. PVT. LTD. 2 2(22)(A) WHICH TAXES THE RECIPIENT, WHEREAS IN THE INSTANT CASE THE AO HAS ESTABLISHED DISTRIBUTION OF DIVIDEND, CONSEQ UENT TO THE COLOURABLE DEVICE OF FAMILY SETTLEMENT AND HAD LEVI ED DIVIDEND DISTRIBUTION TAX. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT LA TE MRS. MEHRO N IRANI HAD TWO DAUGHTERS MRS. ZINIA LAWYER AND MRS. BAKHTAWAR CHEN OY. THERE ARE TWO FAMILIES, FAMILY OF MRS. ZINIA LAWYER AND MRS. BAKHTAWAR CHEN OY, BOTH SISTERS AND DAUGHTERS OF LATE MRS. MEHRO N. IRANI. THE ASSESSEE COMPANY ALON G WITH OTHER BUSINESS ENTITIES AND PROPERTIES WERE JOINTLY MANAGED BY LAWYER AND CHENO Y FAMILY. BUT SUBSEQUENTLY AS OBSERVED BY THE A.O. DUE TO FAMILY ARRANGEMENTS A F LAT BEARING NO. 141 IN EL-CID BUILDING, RIDGE ROAD, MALABAR HILL, MUMBAI, HAS BEE N GIFTED BY THE ASSESSEE COMPANY TO THE HUSBAND OF MRS. BAKHTAWAR CHENOY, NAMELY, MR. B EZAN DINKOO CHENOY. THE ASSESSEE CLAIMED IT AS A GIFT FROM THE ASSESSEE COM PANY TO MR. CHENOY. A.O. HAD HELD IT AS DEEMED DIVIDEND AS PER THE PROVISIONS OF SECTION 2(22)(E) OF I.T. ACT, WHICH HAS BEEN DISPUTED BY THE ASSESSEE CLAIMING THAT MR. CHENOY I S NOT A SHAREHOLDER AND FURTHER CLAIMING THAT IT IS NOT A DISTRIBUTION OF ACCUMULAT ED PROFITS AND FURTHER DISPUTING THAT IF IT IS NOT A DISTRIBUTION THEN IT CANNOT BE MORE THAN R S.83,438/- THE WDV OF THE SAID FLAT. THE DETAILED SUBMISSIONS OF THE ASSESSEE BEFORE THE CIT (A) HAVE BEEN EXTRACTED IN PARA 16 IN PAGE NOS. 10 TO 17 IN THE ORDER OF THE CIT(A). AFT ER CONSIDERING THE SUBMISSIONS, THE LD. CIT(A) DELETED THE ADDITION MADE UNDER SECTION 2(2 2)(E) OF I.T. ACT AND ALSO CONSEQUENT LEVY OF DIVIDEND DISTRIBUTION TAX UNDER SECTION 11 5-O. THE ORDER OF THE CIT(A) VIDE PARA 18 & 19 IS AS UNDER:- 18. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUB MISSIONS OF THE ASSESSEE. THE ASSESSEE HAS CLAIMED TO HAVE GIFTED F LAT NO. 141 IN EL-CID BUILDING, RIDGE ROAD, MALABAR HILL, MUMBAI, TO MR. BEZAN DINK OO CHENOY. THE WRITTEN DOWN VALUE (W.D.V) OF THE FLAT WAS RS.83,438/- WHER EAS THE A.O. MADE THE ADDITION OF THIS TRANSFER OF FLAT UNDER SECTION 2(2 2)(A) AT RS.4,29,67,167/-. THE ASSESSEE HAS CLAIMED THAT MR. BEZAN DINKOO CHENOY W AS NOT THE SHAREHOLDER OF THE ASSESSEE COMPANY AT ANY TIME AND EVEN HIS WIFE MRS. BAKHTAWAR CHENOY WAS NOT THE SHAREHOLDER ON THE DATE ON WHICH THE FLAT W AS GIFTED. ASSESSEE HAS MAINLY DISPUTE THE ACTION OF THE A.O. ON THREE COUNTS. (I) THAT THE TRANSFER IS NOT TO A SHAREHOLDER AND, THEREFORE, PROVISIONS OF SECTION 2(22)(A) DO NOT APPLY, ITA NO. 7698 /MUM/2011 BAKHTAWAR CONST. CO. PVT. LTD. 3 (II) THAT IT IS NOT A DISTRIBUTION OF ASSETS AND (III) THAT IT IS NOT A DISTRIBUTION OF ACCUMULATED PROFITS. ANY FURTHER CLAIMED THAT IF AT ALL IT IS A DISTRIB UTION IT CANNOT BE MORE THAN THE WDV OF THE FLAT RS.83,438/-. CONSIDERING THE CLAIM OF THE ASSESSEE, ONE BY ONE, THE CLAIM OF THE ASSESSEE THAT IT IS NOT DISTRIBUTION OF ASSETS DOES NOT FIND FAVOUR WITH THE LANGUAGE USED IN CLAUSE (A) OF SUB-SECTION 22 OF SE CTION 2 WHICH IS AS FOLLOWS:- (22) DIVIDEND INCLUDES- (E) ANY DISTRIBUTION BY A COMPANY OF ACCUMULATED P ROFITS, WHETHER CAPITALIZED OR NOT, IF SUCH DISTRIBUTION ENTAILS TH E RELEASE BY THE COMPANY TO ITS SHAREHOLDERS OF ALL OR ANY PART OF THE ASSETS OF TH E COMPANY. THE LANGUAGE USED BY THE PROVISION CLEARLY SAYS TH AT IF SUCH DISTRIBUTION ENTAILS THE RELEASE OF ALL OR ANY OF THE ASSETS OF THE COMPANY AND, THEREFORE, RELEASE OF A FLAT DEFINITELY INVOLVES RELEASE OF TH E ASSETS OF THE COMPANY. SECONDLY, THE ASSESSEE HAS CLAIMED THAT IT IS NOT OUT OF THE ACCUMULATED PROFITS, WHEREAS ASSESSEE HAS MERELY CLAIMED THAT T HE DISTRIBUTION SHOULD BE OUT OF PROFITS BUT THE ASSESSEE HAS NEVER DENIED THAT T HERE ARE NOT SUFFICIENT ACCUMULATED PROFITS AND THEREFORE TO BE COVERED BY THE PROVISIONS OF SECTION 2(22)(A) DISTRIBUTION OF ACCUMULATED PROFITS WILL M EAN RELEASE OF ANY ASSET OR PART OF AN ASSET WHEN THE ACCUMULATED PROFITS EXIST AND, THEREFORE, ASSESSEE DOES NOT SUCCEED ON THIS COUNT ALSO. LASTLY, COMING TO THE CLAIM THAT DISTRIBUTION SHOU LD BE TO ITS SHAREHOLDERS TO WHICH ASSESSEE HAS CLAIMED THAT IT SHOULD BE MOR E THAN ONE SHAREHOLDER BUT EVEN ONE SHAREHOLDER WILL BE COVERED BY THIS, BUT C OMING TO THE REAL OBJECTION THAT THE RECIPIENT OF THE GIFT IS NOT EVEN A SHAREH OLDER. IN THIS REGARD, ASSESSEE HAS RELIED ON FOUR CASE LAWS WHICH ARE AS FOLLOWS:- (I) ACIT VS. BHAUMICK COLOUR PVT., 112 ITD 1(SB) M UMBAI. (II) CIT VS. HILLTOP 217 CTR 527 (RAJ). (III) CIT VS. ANKITECH PVT. LTD. DELHI, REPORTED IN ITAT ONLINE ITA NO. 462 OF 2009, COPY OF WHICH HAS BEEN FILED BY THE AS SESSEE. (IV) CIT VS. P.V. JOHN 181 ITR 1 (KER). ALL THE FOUR CASES RELIED BY THE ASSESSEE RELATE T O CLAUSE (E) OF SUB-SECTION (222) OF SECTION (2). BUT THE WORD USED IS SHAREHO LDER IN CLAUSE (E) ALSO. IN ALL THESE DECISIONS IT HAS BEEN HELD THAT THE PAYEE SHO ULD BE A SHAREHOLDER AND ALSO A REGISTERED SHAREHOLDER. THEREFORE, EVEN IN CLAUSE (A) THE DISTRIBUTION OF SUCH ITA NO. 7698 /MUM/2011 BAKHTAWAR CONST. CO. PVT. LTD. 4 ASSETS SHOULD NATURALLY BE TO SHAREHOLDER/SHAREHOLD ERS BECAUSE THE WORD USED IN CLAUSE (A) IS ALSO SHAREHOLDERS. A SHAREHOLDER CA N ONLY BE A SHAREHOLDER WHEN HE IS REGISTERED AS SHAREHOLDER WITH THE COMPANY. T HEREFORE, SUCH SHAREHOLDER MUST BE A REGISTERED SHAREHOLDER. THE LANGUAGE OF C LAUSE (A) OF SUB-SECTION (22) OF SECTION 2 AS REPRODUCED ABOVE DOES NOT HAVE ANY POSSIBILITY OF COVERING ANY OTHER PERSON OTHER THAN A SHAREHOLDER AND, THEREFOR E, THE RELEASE OF ASSETS BY THE COMPANY SHOULD BE TO A SHAREHOLDER AND THAT TOO A R EGISTERED SHAREHOLDER TO COME UNDER THE MISCHIEF OF SECTION 2(22)(A). WHEREA S IN THE CASE UNDER CONSIDERATION THE RECIPIENT OF THE GIFT IS ADMITTED LY NOT A SHAREHOLDER. SIMILAR TYPE OF GIFT WERE NOT FOUND TAXABLE EVEN UNDER SECT ION 2(22)(E) BY HONBLE KERALA HIGH COURT IN THE CASE OF P.V. JOHN (SUPRA). THEREFORE, THE CLAIM OF THE ASSESSEE ON THIS ISSUE IS ALLOWABLE. HENCE, THE ADD ITION MADE BY THE AO, UNDER SECTION 2(22)(A) IS DELETED. 19. THE ASSESSEE HAS ALSO RAISED THE OBJECTION THAT A.O. HAS WRONGLY LEVIED DIVIDEND DISTRIBUTION TAX UNDER SECTION 115O . BUT WHEN THE ADDITION UNDER SECTION 2(22)(A) IS DELETED, THEN DIVIDEND DISTRIBU TION TAX UNDER SECTION 115O IS ALSO NOT LEVIABLE. HENCE THE GROUND OF APPEALS IS A LLOWED. 3. LD. DR RELIED ON THE ORDERS OF THE AO IN EXPLAI NING THE FACTS WHEREAS THE LEARNED COUNSEL RELIED ON THE ORDER OF THE CIT(A) A ND SUBMISSIONS MADE IN THIS REGARD. IT WAS ALSO STATED THAT THE ASSESSING OFFICER HAS R EOPENED THE ASSESSMENT BY RECORDING REASONS ON 30 TH MARCH 2013 HOLDING THAT PROVISIONS OF SECTION 50C ARE APPLICABLE ON THE GIFT. HE PLACED ON RECORD THE SATISFACTION RECORDED BY THE ASSESSING OFFICER IN INITIATING THE REASSESSMENT PROCEEDINGS AND SUBMITTED THAT ASS ESSMENT IS AGAIN REOPENED AND FOR THAT REASON ALSO REVENUE APPEAL CANNOT SURVIVE. HE ALSO REFERRED TO THE FACTS AS PLACED BEFORE THE AUTHORITIES IN THE PAPER BOOK FROM PAGE NOS. 1 TO 106. 4. WE HAVE CONSIDERED THE ISSUE AND RI VAL CONTENTIONS. AS RIGHTLY CONSIDERED BY THE LD. CIT(A) THE DONEE IS NOT A SHAREHOLDER AND I T IS NOT DISTRIBUTION OF ASSETS, THEREFORE THE PROVISIONS OF SECTION 2(22)(E) DOES N OT ARISE. SINCE THE ORDER OF THE CIT(A) IS CORRECT BOTH ON FACTS AND LAW AND AS HE CONSIDER ED THE ISSUE AFTER EXAMINING THE SUBMISSIONS THOROUGHLY, WE SEE NO REASON TO DIFFE R FROM THE FINDING OF THE LD.CIT(A). SINCE ISSUE OF REOPENING IS NOT AN ISSUE BEFORE US , WE ARE NOT COMMENTING ABOUT THE ACTION OF THE A.O. IN REOPENING THE ASSESSMENT. INC IDENTALLY, WE ARE ALSO UNABLE TO UNDERSTAND HOW PROVISIONS OF SECTION 2(22)(E) CAN B E INVOKED IN THE HANDS OF THE ASSESSEE WHEN THE SAME SHOULD HAVE BEEN CONSIDERED IN THE HA NDS OF THE PERSON WHO RECEIVED IT. IT ITA NO. 7698 /MUM/2011 BAKHTAWAR CONST. CO. PVT. LTD. 5 IS NOT EXPLAINED HOW THE PROPERTY IN THE BOOKS OF A CCOUNT GIFTED CAN BE INCOME TO THE ASSESSEE AS A DEEMED DIVIDEND. WE ARE ALSO SURPRISE D THAT LD. CIT APPROVES SECOND APPEAL MECHANICALLY WITHOUT APPLICATION OF MIND, ON THE ORDER OF LD.CIT(A) WHO DELETED THE ADDITION ON OTHER VALID REASONS. BE THAT AS IT MAY, WE CANNOT CONSIDER THE GROUNDS RAISED BY REVENUE AS THEY HAVE NO MERIT. ACCORDINGL Y THEY ARE DISMISSED. WE INTEND TO LEVY COST ON AO AND CIT FOR PREFERRING THIS SECOND APPEAL, BUT ARE RESTRAINED IN DOING SO AS THERE IS NO REQUEST FROM RESPONDENT. THERE IS NO ORDER AS TO THE COSTS. 5. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.04.2013 . ,'- ' *+ # ' .,/ 19.04.2013 + ' 6 SD/- SD/- ( DR. S.T.M. PAVALAN) ( B.RAMAKOTAIAH) , / JUDICIAL MEMBER '# , / ACCOUNTANT MEMBER MUMBAI ; ., DATED 19.04.2013 ... / ASHISH PS ,'- ' %)HI J'I) ,'- ' %)HI J'I) ,'- ' %)HI J'I) ,'- ' %)HI J'I)/ COPY OF THE ORDER FORWARDED TO : 1. !$ / THE APPELLANT 2. %&!$ / THE RESPONDENT. 3. K ( ) / THE CIT(A)-4, MUMBAI 4. K / CIT 2, MUMBAI 5. IM6 %) , , / DR, ITAT, MUMBAI B 6. 6O P / GUARD FILE. ,'- ,'- ,'- ,'- / BY ORDER, &I) %) //TRUE COPY// Q QQ Q/ // /R S R S R S R S ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI