KEDAR ENTERTAINMENT AND SOFTWARE COMPANY, MUMBAI V. ITO WS 20(1)4, MUMBAI

ITA 8820/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2485 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-03-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 29-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KESHAV BHUJLE
• Assessee Lawyers: INDER SOLANKI
• Keywords: Question of law; Deemed dividend
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI G.S.PANNU (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 8820/MUM/2011 ASSESSMENT YEAR: 2001-02 KEDAR ENTERTAINMENT AND SOFTWARE COMPANY., 502-AKRUTI ARCADE, 5 TH FLOOR, NEAR ANDHERI SPORTS COMPLEX, J.P.ROAD, ANDHERI(WEST), MUMBAI- 400 058. PAN: AABCK7930M VS. THE ITO - 20(1) - 4, PIRAMAL CHAMBERS, PAREL, MUMBAI- 400 012. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. KESHAV BHUJLE RESPONDENT BY : SHRI. INDER SOLANKI DATE OF HEARING: 2 2/04/2016 DATE OF PRONOUNCEMENT: 20/07/20 16 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST ORDER DATED 08/11/2011 PASSED BY THE LD. CIT(APPEALS)-31, MUMBA I, FOR THE ASST. YEAR 2001-02, WHEREBY THE LD. CIT(A) CONFIRMED THE PENAL TY OF RS. 1,52,880/- LEVIED BY THE A.O. U/S. 271(1)(C) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT/ ASSESSEE, A PARTNERSHIP FIRM, FILED ITS RETURN OF INCOME FOR THE A.Y. 2001-02 DE CLARING TOTAL LOSS OF RS. 21,430/-. HOWEVER, THE A.O. ASSESSED THE INCOME OF THE APPELLANT AT RS. 3,68,570/- U/S 143(3) READ WITH SECTION 147 OF THE ACT, AFTER MAKING ADDITION OF RS. 3,90,000/,- RECEIVED BY THE ASSESSEE, AS LOA N, FROM M/S. KEDAR METAL 2 ITA NO. 8820/MUM/2011 ASSESSM ENT YEAR: 2001-02 PVT. LTD., HAVING SUBSTANTIAL INTEREST, TREATING TH E SAME AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. IN THE QUANTUM ASSESSMENT PROCEEDINGS, THE APPELLANT HAD ACCEPTED THE DECISION OF THE LD. CIT(A), WHO HA D UPHELD THE ADDITION. ACCORDINGLY THE PENALTY PROCEEDINGS U/S 271 (1)(C) WAS INITIATED AND PENALTY ORDER DATED. 10/03/2010 WAS PASSED IMPOSING PENALTY OF RS. 1,52,880/- U/S 271(1)(C) OF THE ACT. THE PENALTY ORDER WAS CHALLEN GED BY THE ASSESSEE BEFORE THE CIT(A), THE FIRST APPELLATE AUTHORITY. THE LD. CIT(A) AFTER HEARING THE ASSESSEE DISMISSED THE APPEAL OF THE ASSESSEE AND C ONFIRMED THE PENALTY LEVIED BY THE ASSESSING OFFICER. 3. THE APPELLANT/ASSESSEE HAS FILED THE PRESENT AP PEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) ON THE FOLLOWING EFF ECTIVE GROUND:- 1. THE LEARNED COMMISSIONER OF INCOME TAX APPEAL-31 ERRED IN CONFIRMING THE PENALTY LEVIED U/S 271(1)(C) OF RS. 1,52,880/-. 4. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. IMPACT CONTAINERS P. LTD. [1914] 367 ITR 346 (BOM), THE IMPUGNED ORDER CONFIRMING PENALTY IS ERRONEOUS AND LIABLE TO BE SET ASIDE. TH E HONBLE COURT IN THIS CASE HAS HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN CASE OF A PERSON WHO IS A SHAREHOLDER OF LENDING COMPANY AND NOT IN THE HAN DS OF THE PERSON OTHER THAN SHAREHOLDER. IN THE PRESENT CASE THE ASSESSEE IS NOT THE SHAREHOLDER OF THE LENDING COMPANY BUT ONE OF THE PARTNERS OF THE ASSESSEE FIRM IS SHAREHOLDER, THEREFORE, THE DIVIDEND IS TO BE ASSES SED IN THE HANDS OF THE PARTNER AND NOT IN THE HANDS OF THE ASSESSEE. IN VI EW OF THE ABOVE VERDICT, THE IMPUGNED ADDITION IS NOT SUSTAINABLE IN THE LAW AS THE PENALTY U/S 271(1)(C) WAS NOT LEVIABLE. THE LD. COUNSEL FURTHER SUBMITTED THAT THIS PLEA WAS NOT TAKEN BEFORE THE AUTHORITIES BELOW AS THE JUDGMENT IN THE ABOVE REFERRED CASE WAS DELIVERED IN JULY 2014, AFTER THE ORDER OF CIT( A) IN QUANTUM PROCEEDING, WHICH WAS ACCEPTED BY THE ASSESSEE. 3 ITA NO. 8820/MUM/2011 ASSESSM ENT YEAR: 2001-02 5. ON THE OTHER HAND THE LD. DR SUBMITTED THE SINC E THE ISSUE INVOLVED IN THIS CASE WAS SUB JUDICE IN THE HONBLE HIGH COURT AT THE TIME OF PASSING ASSESSMENT ORDER AND EVEN DURING APPELLATE PROCEEDI NGS BEFORE THE LD. CIT(A), THE CONCURRENT FINDINGS OF THE AUTHORITIES BELOW DO NOT SUFFER FROM ANY LEGAL INFIRMITY. 6. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE DOCUMENTS AND ALSO GONE THROUGH THE JUDGMENT RELIED UPON BY THE APPELL ANT /ASSESSEE. THE LD. CIT(A) HAS CONFIRMED THE PENALTY LEVIED BY THE A.O HOLDING THAT THE AO HAS PASSED THE ORDER IN ACCORDANCE WITH THE PROVISIONS OF LAW AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. ADMITTEDLY, IN THE PRE SENT CASE M/S KEDAR METALS PVT. LTD. HAS ADVANCED LOAN OF RS. 3,90,000/- TO TH E ASSESSEE FIRM DURING THE RELEVANT PERIOD BUT, THE ASSESSEE FIRM IS NOT THE S HAREHOLDER OF M/S KEDAR METAL PVT. LTD., RATHER ONE OF THE PARTNERS OF THE FIRM IS THE SHAREHOLDER OF THE COMPANY HAVING SUBSTANTIAL INTEREST THEREIN WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. THE ASSESSEE COULD NOT RAISE T HIS PLEA DURING THE ASSESSMENT PROCEEDINGS AS WELL AS DURING THE APPELL ATE PROCEEDING AS THE VERDICT OF THE HONBLE COURT CAME IN THE YEAR 2014. 7. IN CIT VS. IMPACT CONTAINERS P. LTD. (SUPRA), THE REVENUE HAD CHALLENGED THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL HOLDING THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CANNOT BE INVOKED BECAU SE THE ASSESSEE COMPANY WAS NOT A SHAREHOLDER IN THE LENDING COMPANY. THE C ONTENTION OF THE REVENUE WAS THAT SINCE THE ASSESSEE IS A COMMON SHAREHOLDER WITH CONTROLLING STAKE IN THE COMPANY, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WAS APPLICABLE. THE HONBLE HIGH COURT DISMISSED THE APPEAL OF THE REVE NUE HOLDING AS UNDER:- WE ARE OF THE VIEW THAT SO LONG AS THE TRIBUNAL I N THE MATTERS AND THE APPEALS WHICH ARE BROUGHT BEFORE US HOLDS THAT THE ASSESSEE COMPANY BEFORE IT WAS NOT A SHAREHOLDER IN ANY OF T HE ENTITIES WHICH 4 ITA NO. 8820/MUM/2011 ASSESSM ENT YEAR: 2001-02 HAVE ADVANCED AND LENT SUMS, THEN THE ADDITION IS R EQUIRED TO BE DELETED AND FOLLOWING THE JUDGMENT IN UNIVERSAL MED ICARE (SUPRA) OF THIS COURT. SUCH A VIEW TAKEN IN THE PRESENT CASE B Y THE TRIBUNAL, THEREFORE, CANNOT BE TERMED AS PERVERSE OR VITIATED BY ANY ERROR OF LAW APPARENT ON THE FACE OF RECORD. THE APPEAL, THE REFORE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. 8. IN VIEW OF THE LAW LAID DOWN BY THE HONBLE JU RISDICTIONAL HIGH COURT WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE. SINCE , THE DEEMED DIVIDEND IN QUESTION WAS TAXABLE IN THE HANDS OF THE PARTNER OF THE ASSESSEE FIRM BEING A SHAREHOLDER HAVING SUBSTANTIAL INTEREST IN THE LEND ING COMPANY, THE ADDITION IN QUESTION IS NOT SUSTAINABLE IN THE HANDS OF THE ASS ESSEE FIRM. NO DOUBT, AT PRESENT WE ARE CONCERNED WITH THE QUANTUM PROCEEDIN GS, BUT EVEN IN THE PENDING PROCEEDINGS IT IS OPEN TO THE ASSESSEE TO D EMONSTRATE THAT THE ADDITION ITSELF WAS NOT SUSTAINABLE, IN ORDER TO CHALLENGE T HE LEVY OF PENALTY 271(1)(C) OF THE ACT. UNDER THESE CIRCUMSTANCES WE FIND FORCE IN THE PLEA OF THE ASSESSEE AND, ACCORDINGLY WE ARE OF THE CONSIDERED VIEW THAT THE IMPUGNED ORDER IS LIABLE TO BE SET ASIDE. WE, THEREFORE, SET ASIDE TH E IMPUGNED ORDER PASSED BY THE LD. CIT(A) AND DELETE THE PENALTY OF RS. 1,52,8 80/- LEVIED U/S 271(1)(C) OF THE ACT. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR T HE ASST. YEAR 2001-02 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COUR T 20 TH JULY, 2016. SD/- SD/- ( G.S.PANNU ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 20/07/2016 5 ITA NO. 8820/MUM/2011 ASSESSM ENT YEAR: 2001-02 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA