DCIT, CHENNAI V. Concernia Virginia Chennai Pvt. Ltd., CHENNAI

ITA 816/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95938 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 31-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 13-04-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Deemed dividend
• Section: 142(1)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO. 8 16 /MDS/2015 / ASSESSMENT YEAR :200 8 - 09 THE DEPUTY COMMISSIONER OF INCOME TAX, C O RPORATE CIRCLE I ( 2 ), CHENNAI 600 034. VS. M/S. CONCERNIA VIRGIN I A CHENNAI PVT. LTD., NO. 50, RAJA MUTHIA H ROAD, PERIAMET, CHENNAI 600 003. [PAN : A A C C C3 386L ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT / RESPONDENT BY : NONE / DATE OF HEAR ING : 3 1 . 0 8 .201 5 / DATE OF P RONOUNCEMENT : 02 .09 .201 5 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : TH E APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 1 , CHENNAI , D ATED 29 . 1 2 .201 4 RELEVANT TO THE ASSESSMENT YEAR 200 8 - 09 . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LEATHER PROCESSING AND MANUFACTURING AND FILED ITS RETURN OF INCOME ADMITTING A LOSS OF .1,04,00,161/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] . ON VERIFICATION OF DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER I.T.A. NO. 8 16 /M/ 1 5 2 FURTHER ISSUED NOTICE UNDER SECTION 142(1) OF THE ACT AND ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE LOAN OF .1 CRORE DUE TO M/S. FORWARD SHOES (INDIA) PVT. LTD. SHOULD NOT BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)( E ) OF THE ACT. THE AR OF THE ASSESSEE, BY FILING THE WRITTEN SUBMISSIONS BEFORE THE ASSESSING OFFICER, HAS SUBMITTED THAT THE ASSESSEE HAS NO T RECEIVED ANY AMOUNT AS UNSECURED LOAN FROM M/S. FORWARD SHOES INDIA PVT. LTD. AND THE AMOUNT OF .100 LAKHS ACCORDING TO THE ASSESSEE WAS THE AMOUNT TRANSFERRED FROM THE BALANCE OF COMMERCIAL TRANSACTIONS IN ORDER TO COMPLY WITH THE WORKING CAPITAL NORMS ON BEING PRESSURIZED BY THE BANKERS. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE AND TREATED THE SAME AS DEEMED DIVIDEND FOR THE YEAR AND THE LOSS OF THE COMPANY WAS REDUCED ACCORDINGLY AND COMPLETED THE ASSESSMEN T . 3. ON APPEAL, THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HAS OBSERVED AS UNDER: 4.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. AS PER THE PROVISIONS OF S.2(22)(E) DEEMED DIVIDEND ARISES WHEN A COMPANY IN WH ICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED ADVANCES ANY AMOUNT TO ANOTHER COMPANY WHO HOLDS SHARES AND HAS THE VOTING POWER OF NOT LESS THAN 10% IN THE COMPANY WHICH MADE SUCH ADVANCES. THE PROVISIONS OF S.2(22)(E) WILL ALSO ATTRACT IF THERE IS A COMM ON SHAREHOLDER IN BOTH THESE COMPANIES HAVING VOTING RIGHT OF NOT LESS THAN 10% SINCE THE HOLDING COMPANY CAN PERSUADE THE SUBSIDIARY COMPANY TO ADVANCE LOAN IN LIEU OF DIVIDENDS. IN THE INSTANT CASE THE APPELLANT COMPANY HAS RECEIVED LOAN OF RS.1,00,00,00 0 FROM FORWARD SHOES (INDIA) PVT LTD ON 6.3.08. HOWEVER, THE APPELLANT IS NOT A SHAREHOLDER IN THAT COMPANY. THEREFORE, THE LOAN OF RS.1 CRORE GIVEN TO APPELLANT CANNOT FALL UNDER DEEMED DIVIDEND. HOWEVER, TWO INDIVIDUALS, MOHAMED YAVAR DHALA AND ASGAR ALI DHALA ARE COMMON SHAREHOLDERS IN THE APPELLANT COMPANY AND FORWARD SHOES (INDIA) P. LTD. THEREFORE, THERE IS EVERY POSSIBILITY THAT THESE TWO INDIVIDUALS CAN INFLUENCE THE BEHAVIOUR OF LENDING COMPANY TO ADVANCE LOAN TO THE APPELLANT COMPANY IN LIEU OF DI VIDENDS OWING TO THEM. HOWEVER, IN THE INSTANT CASE THE FACTS ARE DIFFERENT. AS SEEN FROM THE DETAILS SUBMITTED THERE IS A TRADE RELATION BETWEEN THE APPELLANT COMPANY AND FORWARD SHOES (INDIA) P LTD FOR THE WHORE YEAR AND THERE ARE CONTINUOUS I.T.A. NO. 8 16 /M/ 1 5 3 TRANSACTIONS WITH REGARD TO JOB WORK RENDERED BY APPELLANT COMPANY TO FORWARD SHOES (I) P LTD AND FORWARD SHOES (I) P LTD RECEIVED THE PAYMENTS TOWARDS SUCH JOB WORK RENDERED BY THE APPELLANT COMPANY. EVEN THOUGH ON 6.3.08 THE APPELLANT HAS RECEIVED A LOAN OF RS.1 CRO RE FROM FORWARD SHOES (I) P LTD AS PER THE NARRATION IN THE LEDGER A/C OF THE APPELLANT WHICH THE AO HAS TREATED AS DEEMED DIVIDEND, THIS AMOUNT COULD BE TAKEN AS REGULAR TRADE TRANSACTION AND THE LOAN RECEIVED BY THE APPELLANT COULD BE TAKEN AS AN ADVANCE ADJUSTABLE AGAINST FUTURE JOB WORK BILLS TO BE RAISED BY THE APPELLANT COMPANY. SINCE IT IS DURING THE COURSE OF BUSINESS TRANSACTION, IN MY CONSIDERED VIEW, IT CANNOT BE CONSTRICTED TO A NARROW DEFINITION AND APPLY THE PROVISIONS OF S.2(22)(E) ESPECIALLY WHEN THE APPELLANT COMPANY IS NOT A SHAREHOLDER AT ALL. IN MY CONSIDERED VIEW, IT WILL NOT ATTRACT DEEMED DIVIDEND WITHIN THE MEANING OF S.2(22)(E) OF THE ACT. THE DECISIONS RELIED ON BY THE APPELLANT ALSO SUPPORT ITS ARGUMENT. I, THEREFORE, DIRECT THE AO TO WITHDRAW THE ADDITION. THE GROUND IS ALLOWED. 4. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND SUBMITTED THAT THE ADVANCE THOUGH CLASSIFIED AS BUSINESS ADVANCE WAS CONVERTED AND RECLASSIFIED AS LOAN DEBT, THUS IT IS A RECEIPT OF LOAN/ADVANCE BY A CONCERN IN WHICH THERE ARE COMMON SUBSTANTIAL SHARE HOLDERS THEREBY SATISFYING THE CONDITIONS UNDER SECTION 2(22)(E) OF THE ACT. HE STRONGLY SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. 5. NONE APPEARED ON BEHALF OF THE ASS ESSEE DESPITE SERVICE OF NOTICE. HENCE, WE PROCEED TO DECIDE THE ISSUE AFTER HEARING THE LD. DR. 6 . WE HAVE HEARD THE LD. DR, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF LE ATHER PROCESSING AND MANUFACTURING. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS RECEIVED .1 CRORE AND ASKED THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. T HE ASSESSEE HAS EXPLAINED THAT THE ASSESSEE COMPANY WAS HAVING REGULAR COMMERCIAL TRANSACTIONS WITH M/S. I.T.A. NO. 8 16 /M/ 1 5 4 FORWARD SHORES (INDIA) PVT. LTD. AND WAS RECEIVING THE FUNDS REGULARLY FOR SUPPLY OF GOODS. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANA TION GIVEN BY THE ASSESSEE AND TREATED THE SAME AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE IS NOT A SHAREHOLDER IN M/S. FORWARD SHOES (IN DIA) PVT. LTD. MOREOVER, HE HAS ALSO OBSERVED THAT TWO OTHER INDIVIDUALS, MOHAMED YAVAR DHALA AND ASGAR ALI DHALA ARE COMMON SHAREHOLDERS IN THE ASSESSEE COMPANY AS WELL AS M/S. FORWARD SHOES (INDIA) PVT. LTD. AND THERE IS EVERY POSSIBILITY THAT THESE TWO INDIVIDUALS CAN INFLUENCE THE BEHAVIOUR OF LENDING COMPANY TO ADVANCE LOAN TO THE ASSESSEE COMPANY IN LIEU OF DIVIDENDS OWING TO THEM. HOWEVER, IN THE PRESENT CASE, THE LD. CIT(A) HAS OBSERVED THAT THERE IS ONLY TRADE RELATION BETWEEN THE ASSESSEE COMPANY AND M/S. FORWARD SHOES (INDIA) PVT. LTD. FOR THE WHOLE YEAR AND THERE ARE CONTINUOUS TRANSACTIONS WITH REGARD TO JOB WORK RENDERED BY THE ASSESSEE TO M/S. FORWARD SHOES (INDIA) PVT. LTD. AND RECEIVED PAYMENTS TOWARDS SUCH JOB WORK. THOUGH THE ASSESSEE HAS RECEIVED THE LOAN FROM M/S. FORWARD SHOES (INDIA) PVT. LTD., AS PER THE NARRATION IN THE LEDGER ACCOUNT OF THE ASSESSEE, WHICH THE ASSESSING OFFICER HAS TREATED AS DEEMED DIVIDEND, THE LD. CIT(A) HAS OBSERVED THAT THE SAID AMOUNT COULD BE TAKEN AS REGULAR TRADE TRANSACTION AND THE LOAN RECEIVED BY THE ASSESSEE COULD BE TAKEN AS AN ADVANCE ADJUSTABLE AGAINST FUTURE JOB WORK BILLS TO BE RAISED BY THE ASSESSEE. FURTHER, A S PER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, DEEMED DIVIDEND ARISES WHEN A COMPAN Y IN WHICH THE PUBLIC ARE NOT I.T.A. NO. 8 16 /M/ 1 5 5 SUBSTANTIALLY INTERESTED AND ADVANCE D ANY AMOUNT TO ANOTHER COMPANY WHO HOLDS SHARES AND HAS THE VOTING POWER OF NOT LESS THAN 10% IN THE COMPANY WHICH MADE SUCH ADVANCES. THE PROVISIONS OF S ECTION 2(22)(E) WILL ALSO ATTRACT I F THERE IS A COMMON SHAREHOLDER IN BOTH THESE COMPANIES HAVING VOTING RIGHT OF NOT LESS THAN 10% SINCE THE HOLDING COMPANY CAN PERSUADE THE SUBSIDIARY COMPANY TO ADVANCE LOAN IN LIEU OF DIVIDENDS. IN THE INSTANT CASE THE APPELLANT COMPANY HAS RECEIVED LOAN OF RS.1,00,00,000 FROM M/S. FORWARD SHOES (INDIA) PVT . LTD ON 6.3.08. HOWEVER, THE APPELLANT IS NOT A SHAREHOLDER IN THAT COMPANY. THEREFORE, THE LD. CIT(A) HAS RIGHTLY HELD THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CANNOT BE APPLIED ESPECIALLY W HEN THE ASSESSEE IS NOT A SHAREHOLDER IN M/S. FORWARD SHOES (INDIA) PVT. LTD. HENCE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE STANDS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 2 ND O F SEPTEMBER, 201 5 AT CHENNAI. SD/ - SD/ - ( A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( V. DURGA RAO ) JUDICIAL MEMBER CHENNAI, DATED, THE 02 . 0 9 .201 5 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.