Deputy Commissioner of Income-tax, V. Manraj Motors Pvt. Ltd., Jalgaon

ITA 835/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9314 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 03-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JADHAV
• Keywords: Share purchase agreement; Audit objection; Deemed dividend; Reassessment proceedings
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE , , , BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 835 /PUN/201 5 / ASSESSMENT YEAR : 20 07 - 08 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, JALGAON ....... / APPELLANT / V S. MANRAJ MOTORS PVT. LTD., AJANTHA ROAD, MIDC AREA, JALGAON, PIN 425001 PAN : AADCM5079R / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : S HRI S.K. JADHAV / DATE OF HEARING : 30 - 0 5 - 2017 / DATE OF PRONOUNCEMENT : 21 - 0 6 - 2017 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 2, NASHIK DATED 31 - 03 - 2015 FOR THE ASSESSMENT YEAR 2007 - 08. 2. THE REVENUE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION OF RS.3,04,75,702/ - MADE 2 ITA NO . 835/PUN/2015, A.Y. 2007 - 08 BY ASSESSING OFF ICER U/S. 2(22)(E) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). 3. SHRI S.K. JADHAV REPRESENTING THE DEPARTMENT SUBMITTED THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE COMPANY RECEIVED UNSECURED LOANS OF RS.5,77,94,022/ - FROM M/S. MANRAJ JEWEL LERS PVT. LTD. WHICH WAS SUBSEQUENTLY REPAID DURING THE YEAR. THE ASSESSEE COMPANY AS WELL AS THE LENDER COMPANY ARE THE COMPANIES IN WHICH PUBLIC IS NOT SUBSTANTIAL INTERESTED. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS IT TRANSPIRED THAT SHRI AMRISH ISHWARLAL LALWANI (JAIN) HAD 25.08% SHAREHOLDING IN THE ASSESSEE COMPANY AND 23.33% SHAREHOLDING IN THE LENDER COMPANY I.E. M/S. MANRAJ JEWELLERS PVT. LTD. THROUGH THE GROUP FIRM M/S. RAJMAL LAKHICHAND. SHRI AMRISH ISHWARLAL LALWANI IS HAVING 30% SHAREHOLDING IN THE SAID FIRM AND THE FIRM HAS 77.78% SHAREHOLDING IN M/S. MANRAJ JEWELLERS PVT. LTD. AS PER THE PROVISIONS OF SECTION 2(22)(E) LOANS RECEIVED BY THE ASSESSEE FROM M/S. MANRAJ JEWELLERS PVT. LTD. TO THE EXTENT OF RESERVES AND SURPLUS OF TH E COMPANY WERE TREATED AS DEEMED DIVIDEND. THE R EVENUE A UDIT PARTY HA D RAISED AN AUDIT OBJECTION DATED 17 - 08 - 2011. REASSESSMENT PROCEEDINGS WERE INITIATED BY THE ASSESSING OFFICER AND VIDE ASSESSMENT ORDER DATED 22 - 03 - 2014 PASSED U/S. 143(3) R.W.S. 147 O F THE ACT ASSESSING OFFICER MADE ADDITION OF RS.3,04,75,702/ - U/S. 2(22)(E) OF THE ACT. IN FIRST APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND DELETED THE ADDITION. THE LD. DR SUBMITTED THAT EVEN THOUGH THE ASSESSEE IS NOT A SHAREHOLDER IN THE LENDING COMPANY BUT BOTH THE COMPANIES ARE SUBSTANTIALLY CONTROLLED BY SINGLE SHAREHOLDER. THEREFORE, THE AMOUNT ADVANCED BY M/S. MANRAJ JEWELLERS PVT. LTD. TO 3 ITA NO . 835/PUN/2015, A.Y. 2007 - 08 THE ASSESSEE FALLS WITHIN THE MEANING OF DEEMED DIVIDEND. TO SUPPORT HIS SUBMISSIONS , THE LD. DR DRAW STRENGTHEN FROM THE JUDGMENT OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF GOPAL AND SONS (HUF) VS. COMMISSIONER OF INCOME TAX REPORTED AS 391 ITR 1. 4. ON THE OTHER HAND SHRI NIKHIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT AS FAR AS FACTS ARE CONCERNED , THERE IS NO DISPUTE . THE ASSESSING OFFICER WHILE MAKING ADDITION UNDER THE PROVISIONS OF SECTION 2(22)(E) HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE IS NOT HOLDING ANY SHARE IN M/S. MANRAJ JEWELLERS PVT. LTD. AND AS SUCH THE BASIC CONDITION FOR INVOKING THE PROVISIONS OF SECTION 2(22)(E) ARE NOT SATISFIED. NEITHER, THE ASSESSEE COMPANY IS HOLDING ANY SHARE IN M/S. MANRAJ JEWELLERS PVT. LTD. NOR THE ASSESSEE COMPANY IS A PARTNER IN M/S. RAJMAL LAKHICHAND. IT IS ONE OF THE SHAREHOLDER I.E. SHRI AMRISH ISHWARLAL LALWANI WHO IS HAVING 25.08% SHAREHOLDING IN THE ASSESSEE COM PANY AND 23.33% SHAREHOLDING IN THE LENDER COMPANY I.E. M/S. MANRAJ JEWELLERS PVT. LTD. THROUGH THE GROUP CONCERN M/S. RAJMAL LAKHICHAND. UNDER THESE FACTUAL MATRIX THE ASSESSEE COMPANY BY NO STRETCH OF IMAGINATION COULD BE CONSIDERED AS SHAREHOLDER OF M/ S. MANRAJ JEWELLERS PVT. LTD. I.E. LENDER COMPANY. 4.1 THE LD. AR SUBMITTED THAT THE FACTS IN THE CASE OF GOPAL AND SONS (HUF) VS. COMMISSIONER OF INCOME TAX (SUPRA) ON WHICH THE REVENUE HAS PLACED RELIANCE ARE DISTINGUISHABLE . THE HONBLE MADRAS HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. M/S. ENNORE CARGO CONTAINER TERMINAL P. LTD. IN T.C (A) NOS. 105 AND 106 OF 2017 DECIDED ON 27 - 03 - 2017 HAS CONSIDERED THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF GOPAL AND SONS (HUF) VS. COMMISSIONER OF INCOME TAX (SUPRA) AND HAS DISTINGUISHED THE SAME. 4 ITA NO . 835/PUN/2015, A.Y. 2007 - 08 THE CASE OF ASSESSEE IS SQUARELY COVERED BY THE DECISION RENDERED IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. M/S. ENNORE CARGO CONTAINER TERMINAL P. LTD. (SUPRA). T HE LD. AR TO FURTHER STRENGTHEN HIS SUBMISSIONS PLACED RELIANCE ON THE FOLLOWING DECISIONS : I . CIT VS. IMPACT CONTAINERS PVT. LTD., 367 ITR 346 (BOM); II . CIT VS. JIGNESH P. SHAH, 372 ITR 392 (BOM). 5. W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES O F RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE RESPECTIVE OF RIVAL SIDES HAVE PLACED RELIANCE. THE ONLY ISSUE RAISED BY THE REVENUE IN PRESENT APPEAL IS AGAINST DELETING OF ADDITION MADE BY ASSESSING OFFICER U/S. 2(22)(E) OF THE ACT. BEFORE PROCEEDINGS FURTHER IT WOULD BE RELEVANT TO FIRST HAVE GLANCE AT THE RELEVANT PROVISIONS OF S ECTION 2(22)(E) : (22). D IVIDEND 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 OTHERWISE) [MADE AFTER THE 31ST DAY OF MAY, 1987 , BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OW NER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN, IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AN D IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POS SESSES ACCUMULATED PROFITS. 6. IT IS AN ADMITTED FACT THAT THE ASSESSEE IS NOT A SHAREHOLDER OF M/S. MANRAJ JEWELLERS PVT. LTD. A LENDER COMPANY. IN BOTH THE COMPANIES PUBLIC IS NOT SUBSTANTIALLY INTERESTED. A BARE PERUSAL OF THE PROVISIONS OF SECTION 2(22)(E) SHOWS THAT THE PROVISIONS OF SECTION ARE ATTRACTED ONLY IF THE COMPANY GIVES ADVANCE OR LOANS TO ITS SHAREHOLDER. THEREFORE, THE FIRST CONDITION TO INVOKE THE DEEMING PROVISIO NS OF 5 ITA NO . 835/PUN/2015, A.Y. 2007 - 08 SECTION 2(22)(E) IS , THE RECIPIENT OF ADVANCE OR LOANS SHOULD BE THE SHAREHOLDER OF LENDER COMPANY. IN THE PRESENT CASE, THE BASIC CONDITION ITSELF IS NOT SATISFIED. THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WOULD NOT APPLY. 7. AS R EGARDS THE APPLICABILITY OF LAW LAID DOWN BY THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF GOPAL AND SONS (HUF) VS. COMMISSIONER OF INCOME TAX (SUPRA) IS CONCERNED, WE FIND THAT THE FACTS IN THE SAID CASE ARE AT VARIANCE FROM THE FACTS IN THE CASE IN H AND. IN THE CASE OF GOPAL AND SONS (HUF) VS. COMMISSIONER OF INCOME TAX (SUPRA), HUF HAD RECEIVED CERTAIN ADVANCES FROM A COMPANY. THE SHARES OF THE COMPANY WERE HELD BY THE KARTA OF HUF. THE KARTA HAD SUBSTANTIAL INTEREST IN THE HUF. THE HONBLE APEX COURT OBSERVED THAT THOUGH THE SHARE CERTIFICATES WERE ISSUED IN THE NAME OF THE KARTA, BUT IN THE ANNUAL RETURNS, IT IS THE HUF WHICH WAS SHOWN AS REGISTERED AND BENEFICIAL SHAREHOLDER. THE HONBLE APEX COURT IN THE BACKDROP OF THESE FACTS HELD THAT IT C ANNOT BE DOUBTED THAT IT IS THE HUF WHO IS BENEFICIAL SHAREHOLDER. EVEN IF WE PRESUME THAT IT IS NOT A REGISTERED SHAREHOLDER, AS PER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, ONCE THE PAYMENT IS RECEIVED BY THE HUF AND SHAREHOLDER I.E. THE K ARTA , T HE PAYMENT MADE TO THE HUF SHALL CONSTITUTE DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22) (E) OF THE ACT. IN THE PRESENT CASE , THE ASSESSEE COMPANY IS NEITHER REGISTERED NOR BENEFICIAL SHAREHOLDER OF THE LENDER COMPANY. UNDER SUCH CIRCUMSTANCES THE PR OVISIONS OF SECTION 2(22)(E) WOULD NOT APPLY. 8. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. JIGNESH P. SHAH (SUPRA) AFTER CONSIDERING VARIOUS DECISIONS INCLUDING THE DECISION RENDERED IN THE 6 ITA NO . 835/PUN/2015, A.Y. 2007 - 08 CASE OF CIT VS. IMPACT CONTAINERS PVT. LTD. (SUPRA) CONCLUDED : T HUS ON STRICT INTERPRETATION OF SECTION 2(22)(E) OF THE ACT, UNLESS THE RESPONDENT - ASSESSEE IS THE SHAREHOLDER OF THE COMPANY LENDING HIM MONEY, NO OCCASION TO APPLY IT CAN ARISE. 9. THUS, IN VIEW OF T HE FACTS OF THE CASE AND THE DECISIONS DISCUSSED ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION. ACCORDINGLY, THE IMPUGNED IS UPHELD AND THE APPEAL OF THE DEPARTMENT IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 21 ST DAY OF JUNE, 201 7 . SD/ - SD/ - ( / ANIL CHATURVEDI ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 21 ST JUNE, 2017 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 2, NASHIK 4. THE PR. CIT - 2, NASHIK 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / ASSISTANT REGISTRAR , , / ITAT, PUNE