LIBRA (AGENCIES ) P.LTD, MUMBAI V. DCIT 1(2), MUMBAI

ITA 81/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7815 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 03-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAILASH P GAIKWAD
• Keywords: Capital asset; Depreciation; Wholly owned subsidiary; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , , BEFORE S/SHRI RAJENDRA, A.M. AND SANJAY GARG,J.M. ./ ././ ./ ITA NO. 81/MUM/2014 / ASSESSMENT YEAR: 2007-08 M/S. LIBRA (AGENCIES) PVT. LTD. 805/806, HALLMARK BUSINESS PLAZA GURU NANAK HOSPITAL ROAD, BANDRA (E) MUMBAI-400 051. PAN: AAACL 0676 N VS. DY. CIT-1(2) MUMBAI. ( / // / APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI KAILASH P. GAIKWAD ASSESSEE BY: MS. MRUGAKSHI JOSHI / // / DATE OF HEARING: 02.02.2017 !'#$ / DATE OF PRONOUNCEMENT: 15.03.2017 , ,, , 1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) !'# !'# !'# !'# , ,, , $%' $%' $%' $%' -PER RAJENDRA,AM: CHALLENGING THE ORDER,DATED 09/10/2013, OF THE CIT (A)-7,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAGED IN THE BUSI NESS OF EXPORT OF EQUIPMENTS AND TECHNICAL SERVICES,FILED ITS RETURN OF INCOME ON 26 /10/207,DISCLOSING INCOME OF RS. (-) 56.08 LAKHS.THE ASSESSING OFFICER (AO) COMPLETED THE ASSE SSMENT ON 20/08/2009, U/S.143(3)OF THE ACT,DETERMINING ITS INCOME AT RS.(-)46.05 LAKHS. 2 .EFFECTIVE GROUND OF APPEAL IS ABOUT CONFIRMING THE ADDITION MADE BY THE AO FOR TREATING THE ADVANCE RECEIVED FROM THE SUBSIDIARY COMPANY AS DEE MED DIVIDEND UNDER SEC.2(22)(E) OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT M/S. LIBERAL TECHCON LTD.(LTL) WAS A100% SUBSIDIARY OF THE ASSESSEE, THAT IT HAD R ECEIVED RS. 7 LAKHS, RS.33 LAKHS AND RS.10 LAKHS ON 25/08/206, 16/10/2006 AND 03/11/206 RESPEC TIVELY, THAT RESERVES AND SURPLUS OF LTL WERE TO THE TUNE OF RS. 10.03 LAKHS.HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE AMOUNT TO THE EXTENT OF RESERVE AND SURPLUS SHOULD NOT BE TREATED AS DIVIDEND UNDER SEC.2(22)(E). AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE, THE AO HELD THAT IN THE BOOKS OF ACCOUNTS OF LTL THE HEADING OF THE TRANSACTION WAS CAPITAL ADV ANCE,THAT IN THE NARRATION THE TRANSACTION WAS TREATED AS TEMPORARY LOAN, THAT THE ADVANCES RE CEIVED BY THE ASSESSEE FROM ITS SUBSIDIARY FOR SALE OF FIXED ASSETS WAS COVERED BY THE PROVISI ONS OF SEC.2(22)(E),THAT THERE WAS NO DIFFERENCE BETWEEN THE ADVANCE RECEIVED ON REVENUE ACCOUNT OR CAPITAL ACCOUNT.HE MADE AN ADDITION OF RS. 10.03 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE. 81/M/14(07-08) LIBRA AGENCIES 2 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM CERTAIN ADDITIO NAL EVIDENCES WERE PRODUCED, SO, HE CALLED FOR A REMAND REPORT FROM THE AO.AFTER CONSID ERING THE AVAILABLE MATERIAL,HE HELD THAT LTL WAS 100% SUBSIDIARY OF THE ASSESSEE,THAT IN THE ACCOUNTS OF LTL THE TRANSACTION OF RS. 50 LAKHS WAS MENTIONED AS CAPITAL ADVANCE, THAT IN THE NARRATION THE AMOUNT WAS SHOWN AS TEMPORARY LOAN, THAT THE NATURE OF THE TRANSACTION WAS OF LOAN, THAT THE ADVANCES RECEIVED BY THE ASSESSEE FROM ITS SUBSIDIARY FOR SALE OF FIXED ASSETS WAS COVERED BY THE PROVISIONS OF SEC.2(22)(E).HE REFERRED TO THE CASE OF P K ABUBEKA R(259 ITR 507) AND CONFIRMED THE ORDER OF THE AO. 4. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) CONTENDED THAT THE SUBSIDIARY COMPANY AGREED TO PURCHASE ASSETS LI KE LAND, BUILDING, FURNITURE AND FIXTURES, PLANT AND MACHINERY TOGETHER WITH GOODWILL FOR A CO NSIDERATION OF RS. 5.14 CRORE, THAT OUT OF THE SAID AMOUNT IN ADVANCE OF RS. 50 LAKHS WAS RECE IVED BY IT DURING THE YEAR UNDER APPEAL, THAT THE ADVANCE WAS RECEIVED TOWARDS THE SALE OF S PECIFIED CAPITAL ASSETS, THAT THE AMOUNT IN QUESTION WAS SHOWN ON LIABILITY SIDE OF THE BALANCE SHEET IN THE SCHEDULE 8 UNDER THE HEAD ADVANCES FROM SUBSIDIARY FOR TRANSFER OF FIXED ASSE TS, THAT IN THE BALANCE SHEET OF THE SUBSIDIARY COMPANY IT WAS SHOWN IN THE SCHEDULE 9 U NDER THE HEAD ADVANCES TO HOLDING COMPANY FOR CAPITAL EXPENSES, THAT THE NARRATION AP PEARING IN THE BOOKS OF ACCOUNTS WAS INCORRECT AND IT WAS A BONA FIDES MISTAKE, THAT THE ADVANCES RECEIVED BY THE ASSESSEE ON ACCOUNT OF COMMERCIAL TRANSACTION WERE NEITHER LOAN NOR ADVANCES FOR THE PURPOSE OF SEC. 2(22)(E).HE REFERRED TO THE CASES OF CREATIVE DYEIN G AND PRINTING(318ITR476),M/S. BAGMANE DEVELOPERS PVT.LTD.(ITA NO.293 OF 2014) AND REFERRE D TO THE PAGES 14,19 AND 105 OF THE PAPER BOOK.THE DEPARTMENTAL REPRESENTATIVE (DR) SUP PORTED THE ORDER OF THE FAA AND STATED THAT IT WAS CASE OF RECEIVING ADVANCE FROM THE SUBS IDIARY AND THAT PROVISIONS OF SEC.2(22)(E) WERE APPLICABLE TO THE FACTS OF THE CASE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY G ONE THROUGH THE MATERIAL PRODUCED BEFORE US.UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAD ENTERED IN TO AN AGREEMENT WITH LTL TO SELL CERTAIN ASSETS VIDE AGREEMENT DTD. 08/01/2008,THAT LTL MADE PAYMENT OF RS.50 LAKHS FOR PURCHASE OF THOSE ASSETS, THAT THE AO AND THE FAA TREATED THE SAME AS DIVIDEND INVOKING THE PROVISIONS OF SECTION 2(22) ( E).BOTH OF THEM HELD THAT OTHER PRE- CONDITIONS FOR TREATING THE TRANSACTION IN QUESTION AS DEEMED DIVIDEND ARE EXISTING E.G. SHARE - HOLDING PATTERN,RECEIPT OF AN AMOUNT BY THE ASSESSE E WERE EXITSING. 81/M/14(07-08) LIBRA AGENCIES 3 IN OUR OPINION,THE MOST CRUCIAL FACTOR TO TREAT AN AMOUNT AS DIVIDEND IS TO FIND OUT AS TO WHETHER THE AMOUNT RECEIVED BY AN ASSESSEE WAS A LO AN OR ADVANCE.IF IT FALLS WITHIN THESE TWO CATEGORIES IT HAS TO BE TAXED AS DEEMED DIVIDEND.BU T,NOT OTHERWISE.FOR TAXATION PURPOSES TERM LOAN AS WELL ADVANCE HAS SPECIAL MEANING.IN LO AN /ADVANCE TRANSACTIONS THE BORROWER/ RECEIVER AGREES TO REPAY THE AMOUNT RECEIVED TO THE LENDER WITH OR WITHOUT INTEREST.IF SUCH A TRANSACTION FULFILLS THE CONDITIONS STIPULATED BY T HE PROVISIONS OF SECTION 2(22)(E)OF THE ACT, SAME CAN BE TAXED ACCORDINGLY.HISTORICALLY,THE SECT ION WAS INTRODUCED TO PREVENT THE MALPRACTICES ADOPTED BY CERTAIN CORPORATE ENTITIES. IT IS A DEEMING PROVISION,SO,A STRICT COMPLIANCE ALL THE PRE-CONDITIONS IS A MUST. IN THE CASE BEFORE US,THE ASSESSEE HAS AGREED TO SELL ITS ASSETS TO THE SUBSIDIARY.BOTH THE ENTITIES HAVE SHOWN THE TRANSACTION AS ADVANCE AGAINST PURCHASE OF CAPITAL ASSETS.THE ESSENCE OF T HE TRANSACTION HAS TO BE CONSIDERED IN TAX PROCEEDINGS.NOMENCLATURE GIVEN BY THE PARTIES OR TH E ENTRIES IN THE BOOKS OF ACCOUNTS ARE IMPORTANT-THEY ARE ONLY INDICATIVE.THEY CANNOT ALTE R THE REAL NATURE OF TRANSACTION.IN THE PRESENT CASE THERE IS CHANGE IN THE ASSET SIDE OF T HE BALANCE SHEET AS WELL AS IN THE CHART SHOWING DEPRECIATION.THERE IS NO DOUBT THAT MONEY R ECEIVED BY THE ASSESSEE FROM ITS SUBSIDIARY WAS FOR PURCHASING CAPITAL ASSETS.IN OTH ER WORDS IT WAS A TRADE ADVANCE IN THE NORMAL COURSE OF BUSINESS.IN SHORT,THE TRANSACTION WAS NOT A LOAN/ ADVANCE AS ENVISAGED BY THE SECTION 2(22)(E)OF THE ACT.IN THE CASE OF BAGMA NE DEVELOPERS PVT. LTD.(SUPRA)THE HONBLE KARNATAKA HIGH COURT HAS IN SIMILAR CIRCUMSTANCES H ELD THAT SUCH A CASE WOULD NOT BE COVERED BY THE PROVISIONS OF SECTION 2(22)(E).AS FA R AS CASE OF PK ABUBEKAR(SUPRA),IS CONCERNED,WE FIND THAT IN THAT MATTER MONEY WAS REC EIVED BY THE ASSESSEE AS ADVANCE UNDER THE HEAD RENT.THE HONBLE COURT HELD THAT ADVANCE P AID TO THE ASSESSEE WAS TO BE SET OFF AGAINST FUTURE RENT WOULD NOT ALTER THE FACT THAT T HE ASSESSEE IN THE EYE OF LAW HAD RECEIVED DIVIDEND FROM THE COMPANY DURING THE RELEVANT ACCOU NTING PERIOD AND THAT THE ADVANCE WAS ASSESSABLE AS DEEMED DIVIDEND.CLEARLY FACTS OF BOTH THE CASES ARE DISTINGUISHABLE. THEREFORE, REVERSING THE ORDER OF THE FAA,WE DECIDE THE EFFECT IVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS AL LOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MARCH, 2017. 15 2017 SD/- SD/- ( /SANJAY GARG) ( / RAJENDRA) / JUDICIAL MEMBER '# '# '# '# / ACCOUNTANT MEMBER MUMBAI; /DATED : 15.03.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 81/M/14(07-08) LIBRA AGENCIES 4 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.