The ACIT, Central Circle-1, Vapi V. Shri Kamalbhai Jayntilal Shah, Vapi

ITSSA 262/AHD/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 0007 (ITAT-SURAT)
• Duration Of Justice: 4 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 17-12-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 07-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S T BIDARI
• Keywords: Gift; Deemed dividend; Set aside
• Section: 153A; 2(22)(e); 13; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER IT(SS)A NOS. 261 & 262/AHD/2016 (ASSESSMENT YEAR: 2012-13 & 2013-14) ( VIRTUAL COURT HEARING) ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, VAPI. VS KAMALBHAI JAYANTILAL SHAH, PLOT NO.35, YASH KAMAL, CHIKOOWADI, OPP. GIDC GUEST HOUSE, HARIA HOSPITAL ROAD, VAPI- 396195. PAN : AFHPS5482G REVENUE ASSESSEE REVENUE BY SHRI S. T. BIDARI, CIT(DR) ASSESSEE BY SHRI HARDIK VORA, A DVOCATE DATE OF HEARING 08 / 1 2 / 2020 DATE OF PRONOUNCEMENT 17 / 1 2 / 2020 ORDER UNDER SECTION 254(1) OF INCOME-TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER : 1. THESE TWO APPEALS BY REVENUE ARE DIRECTED AGAINST THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-4, SURAT, [IN SHORT LEARNED COMMISSIONER (APPEALS)] DATED 03.06.2016 PERTAINING TO ASSESSMENT YEARS (AYS) 2012-13 AND 2013-14. IN BOTH THE APPEAL THE REVENUE HAS RAISED CERTAIN COMMON GROUNDS OF APPEALS EXCEPT VARIATION OF DELETING THE ADDITION UNDER SECTION 2(22)(E) OF INCOME TAX ACT (ACT), THUS, BOTH THE APPEALS WERE CLUBBED HEARD TOGETHER AND ARE DECIDED BY COMMON ORDER. WITH THE CONSENT OF BOTH PARTIES THE APPEAL FOR AY 2012-13 IS TREATED AS LEAD CASE. 2 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH 2. THE REVENUE IN APPEAL FOR AY 2012-13 HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.13,97,50,223/- MADE U/S 2(22|(E) OF THE I.T.' ACT IGNORING THE FACT THAT THE MINOR LEGALLY CANNOT ENTER INTO CONTRACT WITH THE COMPANIES FOR PURCHASE OF SHARES AND HENCE SHARES HELD BY MINOR, WHO IS NOT HAVING VOTING RIGHTS CANNOT BE TREATED AS BENEFICIAL OWNER OF SHARES. 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.13,97,50,223/- MADE U/S 2(22)(E) OF THE IT ACT IN THE CASE OF THE ASSESSEE IGNORING THE FACT THAT THE MINOR'S INCOME IS BEING ASSESSED IN THE HANDS OF GUARDIAN FATHER AND MINOR SON HAS NO INDEPENDENT SOURCE OF INCOME, AND THE ALLEGED SHARES ACQUIRED BY MINOR ON BEHALF OF GUARDIAN IS A COLOURABLE DEVICE USED BY THE FATHER OF MINOR. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.13,97,50,223/- MADE U/S 2(22)(E) OF THE IT ACT IN THE CASE OF THE ASSESSEE IGNORING THE FACT THAT THE VOTING RIGHT IN RESPECT OF SHARES HELD IN THE NAME OF MINOR CHILDREN IS EXERCISABLE BY HIS GUARDIAN FATHER AND SO CONSIDERING THE COMBINED READING OF PROVISIONS OF SECTION 2(32) READ WITH SECTION 2(22)(E) OF THE IT ACT, THE SHAREHOLDING OF SHRI KAMAL SHAH WAS MORE THAN THE PRESCRIBED LIMIT OF 20% IN M/S VAPI CARE PHARMA LTD. (LOAN GIVER)'. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.13,97,50,223/- MADE U/S 2(22)(E) OF THE IT ACT IN THE CASE OF THE ASSESSEE IGNORING THE FACT THAT THE EVEN OTHERWISE ALSO THE ADDITION IN THE HANDS OF MINOR MASTER YASH KAMAL SHAH, CANNOT BE MADE AS HE IS NOT INDEPENDENTLY ASSESSED TO TAX, HOLDS MORE THAN 10% OF SHARES IN BOTH M/S VAPI CARE PHARMA P LTD., AND M/S VERITAS BIOVENTIONS P LTD., THUS CONDITIONS FOR 3 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH INVOKING THE PROVISIONS OF SECTION 2(22)(E) FOR THE DEEMED DIVIDEND FOR THE TRANSACTIONS OF LOANS/ADVANCES BETWEEN M/S VAPI CARE PHARMA P LTD., AND M/S VERITAS BIOVENTIONS P LTD., ARE SATISFIED ESPECIALLY IN VIEW OF THE FACT THAT THE COME OF MINOR SON IS CLUBBED WITH THAT OF SHRI KAMAL J. SHAH IN THE YEARS UNDER CONSIDERATION. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN-DELETING THE ADDITION OF RS.13,97, 50,223/- MADE U/S 2(22)(E) OF THE IT ACT IN THE CASE OF THE ASSESSEE IGNORING THE FACT THAT THE MANAGING DIRECTOR OF BOTH THESE COMPANIES IS ASSESSEE SHRI KAMA! JAYANTILAL SHAH AND HIS WIFE MRS. RASHMI SHAH IS ALSO A SHAREHOLDER IN BOTH THE COMPANIES. THUS, THE EXTENT OF CONTROL AND BENEFIT OF KAMAL SHAH & FAMILY DERIVE FROM TRANSFERRING THE RESERVES AND SURPLUS AVAILABLE WITH M/S VAPI CARE PHARMA P LTD. TO OTHER COMPANIES, WHERE THEY HAVE SUBSTANTIAL INTEREST, AND, THEREFORE, ON SUCH TRANSACTIONS OF LOANS/ADVANCES, THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT IS SQUARELY ATTRACTED. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 7. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND THAT OF ASSESSING OFFICER MAY BE RESTORED TO THE EXTENT. 8. THE APPELLANT CRAVES TO ADD, MODIFY OR ALTER ANY GROUNDS DURING THE COURSE OF APPEAL PROCEEDINGS. 3. BRIEF FACTS OF THE CASE WITH REGARDS TO THE GROUNDS OF APPEAL, AS EXTRACTED FROM THE ORDERS OF THE LOWER AUTHORITIES, ARE THAT ASSESSEE IS DIRECTOR IN VAPI CARE PHARMA LTD, VERITAS BIOVENTION PRIVATE LIMITED AND VERITAS PHARMA PRIVATE LIMITED. A SEARCH ACTION UNDER SECTION 132 WAS CARRIED OUT AT THE PREMISES OF ASSESSEE ON 18 TH JUNE 2013. CONSEQUENT UPON A NOTICE UNDER SECTION 153A WAS SERVED UPON THE ASSESSEE VIDE NOTICE DATED 16 TH DECEMBER 2013. IN 4 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH RESPONSE TO NOTICE UNDER SECTION 153A, THE ASSESSEE FILED HIS RETURN OF INCOME FOR IMPUGNED ASSESSMENT YEAR ON 3 RD SEPTEMBER 2014 DECLARING RETURN INCOME OF 86,28,400/-. DURING THE ASSESSMENT, THE ASSESSING OFFICER ON PERUSAL OF BOOKS OF ACCOUNTS AND DOCUMENTS FOUND IN SEARCH TOOK HIS VIEW THAT ASSESSEES GROUP COMPANY VAPI CARE PHARMA PRIVATE LIMITED, HAD GIVEN LOANS TO SISTER CONCERN VERITAS BIOVENTION PRIVATE LIMITED AND VERITAS PHARMA PRIVATE LIMITED. THE ASSESSEE WAS HAVING OF STAKE OF MORE THAN THE PRESCRIBED LIMIT IN ALL THREE ENTITIES. ON THE BASIS OF AFORESAID OBSERVATION, THE ASSESSING OFFICER TOOK FURTHER HIS VIEW THAT THE PROVISIONS OF SECTION 2(22)E IS ATTRACTED ON THE TRANSACTION OF LOAN. THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY SUCH LOAN BE NOT TREATED AS DEEMED DIVIDEND. IN REPLY TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT LOAN GIVEN AS A INTEROPERATE DEPOSIT AND CANNOT BE ADDED AS A DEEMED DIVIDEND. THE ASSESSEE FURTHER PROVIDED THE SHAREHOLDING DETAILS AS WELL AS SHAREHOLDING DETAILS OF HIS MINOR SON IN VAPI CARE PHARMA, VERITAS BIOVENTION AND VERITAS PHARMA AND EXPLAINED THAT DURING YEAR CUMULATIVE CONDITION OF SECTION 2(22)(E) READ WITH SECTION 2(32) ARE NOT ATTRACTED AS INDIVIDUALLY, HE IS NOT HOLDING MORE THAN 10% OF VOTING POWER IN VAPI CARE AND MORE THAN 20% SHARES IN VERITAS PHARMA AND/OR IN VERITAS BIOVENTION. AND THUS THE PROVISION OF SECTION 2(22)(E) IS NOT APPLICABLE. THE ASSESSING OFFICER AFTER 5 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH CONSIDERING THE REPLY OF ASSESSEE NOTED THAT ON VERIFICATION OF SHAREHOLDING PATTERN OF VAPI CARE PHARMA PRIVATE LIMITED NOTED THAT ASSESSEE IS HOLDING 2.47% SHARE IN HIS INDIVIDUAL CAPACITY AND 12.77% SHARE IN HIS CAPACITY AS A GUARDIAN OF MINOR SON MASTER YES KAMAL SHAH. MASTER YES KAMAL SHAH HAS OBTAINED THE SHARE OF MORE THAN 10% FROM 9 TH DECEMBER 2011 ONWARDS BY TRANSFER OF SHARES FROM MRS VANITA JITESH HARIA. THUS, THE EFFECTIVE SHAREHOLDING OF THE ASSESSEE WAS MORE THAN 10% IN VAPI CARE PHARMA LTD. VAPI CARE PHARMA LTD HAD ADVANCED TO LOAN OF 8.55 CRORE DURING THE RELEVANT FINANCIAL AND 4.78 CRORE DURING THE NEXT FINANCIAL YEAR VERITAS BIOVENTION PRIVATE LIMITED. THUS, FROM THE SHAREHOLDING PATTERN OF VERITAS BIOVENTION PRIVATE LIMITED, IT IS NOTED THAT ASSESSEE IS HOLDING 10% ON HIS INDIVIDUAL CAPACITY AND 18.50 PERCENT AS GUARDIAN OF MINOR SON, WHICH IS EFFECTIVELY MORE THAN 20% SHAREHOLDING. AS PER THE BALANCE SHEET OF VAPI CARE PHARMA PRIVATE LIMITED, THE SAID COMPANY HAVING ACCUMULATED PROFIT IN THE FORM OF RESERVE FOR THE SAID YEAR IN FINANCIAL YEAR 2011- 12 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. VAPI CARE PHARMA PRIVATE LIMITED EXTENDED LOAN OF 10.77 CRORE WHICH WAS OUTSTANDING AS ON 31 ST MARCH 2012. ON THE BASIS OF AFORESAID OBSERVATION THE ASSESSING OFFICER MADE ADDITION UNDER SECTION 2(22)(E) OF 10.77 CRORE FOR IMPUGNED ASSESSMENT YEAR. AND SIMILAR ADDITION OF 4.83 CRORE FOR ASSESSMENT YEAR 2013-14. AGGRIEVED BY 6 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH THE ADDITIONS MADE BY ASSESSING OFFICER, THE ASSESSEE FILED APPEAL BEFORE LEARNED COMMISSIONER (APPEALS). 4. BEFORE COMMISSIONER (APPEALS), THE ASSESSEE INTER ALIA SUBMITTED THAT ADDITIONS WERE NOT MADE ON THE BASIS OF INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH PROCEEDING. THE ASSESSEE IN HIS WRITTEN SUBMISSION FURTHER EXPLAINED THE FACT THAT INTER-CORPORATE DEPOSITS GIVEN BY VAPI CARE PHARMA PRIVATE LIMITED WERE OUT OF ITS SURPLUS FUNDS AVAILABLE WITH IT. AND THAT THE PROVISION OF SECTION 2(22)(E) READ WITH SECTION 2(32) OF THE ACT IN CASE OF VAPI CARE TWO CONDITIONS SHOULD BE SATISFIED SIMULTANEOUSLY. THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE FACTS OF THE CASE AND CONSIDERING THE SUBMISSIONS OF ASSESSEE DELETED THE ADDITIONS UNDER SECTION 2(22)(E) BY HOLDING THAT THE SHAREHOLDING OF ASSESSEE, AS FATHER AND HIS MINOR CANNOT BE ADDED FOR THE PURPOSE OF SECTION 2(22(E) READ WITH SECTION 2(32) OF THE ACT. NONE OF THE SHAREHOLDERS HOLDING MORE THAN 10% OF VOTING POWER IN VAPI CARE HAD MORE THAN 20% SHARES IN VARIETIES PHARMA AND /OR IN VERITAS BIOVENTION. THE SOURCE OF SHAREHOLDING OF MASTER YES SHAH IS INDEPENDENT AND HE IS ENTITLED TO THE BENEFIT OF OWNERSHIP. THE ASSESSEE DOES NOT HAVE ANY BENEFICIAL INTEREST IN THE SHARES HELD BY MINOR SON MASTER YES SHAH. THE LEARNED COMMISSIONER (APPEALS) ALSO HELD THAT THE ISSUE FOR CONSIDERATION WAS WHETHER THE SHARE HELD ON BEHALF OF MINOR 7 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH CHILD, WHO COULD NOT EXERCISE VOTING POWER, SHOULD BE EXCLUDED FROM THE TOTAL SHARE HOLDING FOR ASCERTAINING WHETHER ASSESSEE IS A SUBSTANTIAL SHAREHOLDER. IF SHARES WERE EXCLUDED FROM THE TOTAL SHARES ISSUED BY THE COMPANY, THE ASSESSEES INTEREST WOULD EXCEED 20%, BUT IF SUCH SHARES ARE INCLUDED, HIS INTEREST WOULD FALL BELOW 20%. THE ASSESSING OFFICER EXCLUDED THE SHARE HELD IN THE NAME OF MINOR SON AS MINOR SON HAS NO VOTING RIGHTS IN CONSIDERING, THE QUESTION WHETHER THE ASSESSEE HAS SUBSTANTIAL INTEREST IN THE COMPANY, FROM THE TOTAL NUMBER OF SHARES ISSUED BY THE COMPANY. THUS, AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER (APPEALS) THE REVENUE HAS FILED PRESENT APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE SUBMISSION OF LEARNED DEPARTMENTAL REPRESENTATIVE (CIT-DR) FOR THE REVENUE AND THE LEARNED AUTHORISED REPRESENTATIVE (AR) FOR THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE ORDERS OF LOWER AUTHORITIES VERY CAREFULLY. THE LEARNED DR FOR THE REVENUE SUBMITS, THOUGH THE REVENUE HAS RAISED A NUMBER OF GROUNDS, HOWEVER THE EFFECTIVE GROUND OF APPEAL IS THE GROUND NO. 2, WHICH RELATES TO DELETING THE ADDITION OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THE LEARNED DR FOR THE REVENUE FURTHER SUBMITS THAT ASSESSING OFFICER MADE ADDITION UNDER SECTION 2(22)(E) BY CLUBBING THE SHARE CLAIMED BY THE MINOR SON OF ASSESSEE IN VAPI CARE PHARMA PRIVATE LIMITED AND IN VERITAS BIOVENTION PRIVATE 8 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH LIMITED WITH THE SHARES OWNED BY ASSESSEE AND HELD THAT ASSESSEE IS BENEFICIAL OF MORE THAN 10% SHARE IN FIRST COMPANY WITHIN THE MEANING OF SECTION 2(22)(E) AND MORE THAN 20% IN THE SECOND COMPANY WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. THE LEARNED COMMISSIONER (APPEALS), DELETED THE ADDITION HOLDING THAT ASSESSEE HAD GIVEN DETAILS OF THE SOURCE OF OWNERSHIP OF SHARES HELD IN THE NAME OF MINOR CHILD, WHICH IS NEITHER DISPUTED BY THE ASSESSING OFFICER NOR HAS BEEN LINKED TO THE INCOME OF ASSESSEE. THE SHARES IN THE QUESTION ARE SOURCED INDEPENDENTLY BY THE MINERS SON AND ARE ONLY ENTITLED TO THE BENEFIT OF OWNERSHIP. IN THE FACTS OF THE CASE THE ASSESSEE IS NEITHER BENEFICIAL OWNER OF MORE THAN 10% SHARE OF THE COMPANY VAPI CARE PHARMA PRIVATE LIMITED, WITHIN THE MEANING OF SECTION 2(22(E) NOR HOLDING MORE THAN 20% IN THE COMPANY VERITAS BIOVENTION PRIVATE LIMITED WITHIN THE MEANING OF SECTION 2(32) OF THE ACT AND ACCORDINGLY HELD THAT BASIC REQUIREMENT OF SECTION 2(22)(E) IS NOT MEET OUT. 6. THE LEARNED DR FOR THE REVENUE SUBMITS THAT ON PLAIN READING OF SECTION 2(22)(E), MAKES IT CLEAR THAT ANY PAYMENT BY COMPANY BY WAY OF LOANS AND ADVANCES TO A SHAREHOLDER, HOLDING NOT LESS THAN 10% OF VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER /PARTNER AND HAVING SUBSTANTIAL INTEREST OR ANY PAYMENT BY ANY SUCH COMPANY, TO THE EXTENT OF THAT COMPANY 9 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH POSSESSES ACCOMMODATED PROFIT, THE PROVISION OF SECTION 2(22)(E) IS ATTRACTED. IN THIS CASE, ALL THOSE CONDITION ARE FULFILLED AND THE ACTION OF ASSESSING OFFICER IN MAKING THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND IN CASE OF ASSESSEE WAS JUSTIFIED AND THE DECISION OF LEARNED COMMISSIONER (APPEALS) TO DELETE THE ADDITION ON RELYING OF JUDICIAL DECISION, THE RATIO OF WHICH IS NOT APPLICABLE, IS NOT ACCEPTABLE, ESPECIALLY IN VIEW OF THE FACT THAT MINOR SON LEGALLY CANNOT ENTER INTO CONTRACT WITH THE COMPANY FOR PURCHASE OF SHARE AND THE FATHER OF MINOR HAS ENTERED TO CONTRACT WITH THE COMPANY AS GUARDIAN AND THE ASSESSEE IS THE BENEFICIAL OWNER OF THE ALLEGED SHARE BEING THE LEGAL AND BENEFICIAL OWNER OF THE SAID SHARE. IT WAS FURTHER SUBMITTED THAT INCOME OF MINOR IS CLUBBED WITH THE PARENT WHILE ASSESSING INCOME OF THE FATHER AND SINCE SON IS MINOR AND DOES NOT HAVE ANY MORE VOTING RIGHT, AS PER SECTION 2(22)(E) READ WITH SECTION 2(32), THE SHARE HELD BY MINOR SHOULD BE CONSIDERED IN THE HAND OF GUARDIAN OR PARENT OF SUCH MINOR AND THE FICTION CREATED BY THE PROVISION OF SECTION 2(22) (E) READ WITH SECTION 2(32) CAN BE EXTENDED TO THE TERM SHAREHOLDER AND THEREFORE THE MINOR ARE CANNOT BE REGARDED AS THE BENEFICIAL OWNER OF THE SHARES. THE LEARNED DR FOR THE REVENUE SPRAYED FOR REVERSING THE ORDER OF LEARNED COMMISSIONER (APPEALS) TO RESTORE THE ADDITIONS MADE BY ASSESSING OFFICER. IN SUPPORT OF HIS SUBMISSIONS THE LD DR FOR THE REVENUE ALSO RELIED ON THE DECISION OF MADRAS HIGH COURT IN CIT VS 10 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH TPSH SAKKALAL (1996) 236 ITR 981(MAD), WHICH WAS REFERRED AND RELIED BY ASSESSING OFFICER. 7. ON THE OTHER HAND THE LEARNED AR OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED COMMISSIONER (APPEALS). THE LEARNED AR FOR THE ASSESSEE SUBMITS THAT ASSESSING OFFICER HAS WRONGLY ADDED SHAREHOLDING OF ASSESSEE WITH HIS MINOR SON FOR DETERMINING REGISTERED SHAREHOLDER AND BENEFICIAL OWNER OF THE SHARE FOR THE PURPOSE OF SECTION 2(22)(E) AND SECTION 2(32) OF THE ACT. THE LEARNED AR OF THE ASSESSEE ALSO FURNISH THE PATTERN OF SHAREHOLDING OF ASSESSEE AND HIS SON IN ALL THREE ENTITIES IN THE FOLLOWING MANNER ; NAME OF SHAREHOLDER VAPI CARE VERITUAS BIOVENTIONS VERITUS PHARMA KAMAL SHAH(ASSESSEE) 2.47% 10% 50% YES KAMAL SHAH (MINOR SON) 12.77% 18.5% NILL 8. THE LEARNED AR FOR THE ASSESSEE ALSO FURNISH THE SOURCE OF ACQUISITION OF SHARES OF VAPI CARE PHARMA LTD AND VERITUAS BIOVENTION BY MINOR SON OF ASSESSEE IN THE FOLLOWING MANNER ; FY SOURCE OF ACQUISITION NO. OF SHARES % OF HOLDING IN VAPI CARE EVIDENCE FURNISHED BY ASSESSEE 2009-10 BY WILL OF JYANTILAL P. SHAH (GRAND FATHER OF MINOR) 50,000 2.78% COPY OF WILL DATED 24/02/2007 OF JP SHAH AND HIS DEATH CERTIFICATE. 11 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH COPY OF BALANCE SHEET OF MINOR AS ON 31.03.2010 2011-12 BY WAY OF GIFT FROM MS VINITA HARIA, SISTER OF ASSESSEE 1,80,000 10% COPY OF GIFT DEED DATED 09.05.2011 BY MS VINITA HARIA, SISTER OF ASSESSEE. COPY OF BALANCE SHEET OF ASSESSEE AS ON 31.03.2012. TOTAL 2,30,000 12.78% 9. AFTER EXPLAINING THE SOURCE OF SHARES BY MINOR, THE LEARNED AR FOR THE ASSESSEE FURTHER EXPLAINED THAT SHARES OF VERITAS BIOVENTION, THE APPLICATION FOR 185000 SHARES OF VERITAS BIOVENTION WAS MADE BY MRS RASHMI SHAH, MOTHER AND NATURAL GUARDIAN OF MASTER YES SHAH ON 12 TH OCTOBER 2010, PAYMENT OF WHICH WAS MADE BY CHEQUES DRAWN ON AXIS BANK ACCOUNT OF MINOR YASH SHAH AND THEREAFTER ON 17 TH OCTOBER 2010 I.E. IN YEAR 2010-11 AND MINOR YASH KAMAL SHAH WAS ALLOTTED EQUITY SHARE OF VERITAS BIOVENTION. ON THE BASIS OF AFORESAID SUBMISSION, THE LEARNED AR OF THE ASSESSEE SUBMITS THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS NOT HAVING MORE THAN 10% OR 20% SHAREHOLDING IN VAPI CARE PHARMA AND THEREFORE, THE PROVISION OF SECTION 2(22(E) READ WITH SECTION 2(32) IS NOT APPLICABLE. THE PROVISION OF SECTION 2(22(E) ARE DEEMING PROVISION WHICH MUST BE CONSTRUED STRICTLY. 12 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH 10. AN ALTERNATIVE AND WITHOUT PREJUDICE SUBMISSION THE LEARNED AR FOR THE ASSESSEE SUBMITS THAT THE DEPOSIT OF VAPI CARE PHARMA WITH VERITAS PHARMA AND VERITAS BIOVENTION, THE INTERCORPORATE DEPOSITS, CANNOT BE TREATED AS DEEMED DIVIDEND AS HELD BY BOMBAY TRIBUNAL IN BOMBAY OIL INDUSTRIES VERSUS DCIT IN ITA NO. 2895 /MUM/2005, IFB AGRO INDUSTRIES LTD VERSUS ACIT IN ITA NO.1721 /KOL/2012 DATED 12 TH MARCH 2013. 11. IN THIRD ALTERNATIVE ARGUMENT THE LEARNED AR FOR THE ASSESSEE SUBMITS THAT ADDITIONS MADE IN THE UNABATED SEARCH ASSESSMENT BY ASSESSING OFFICER IS NOT BASED ON ANY INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH AND HAS NOT TENABLE AND IS REQUIRED TO BE DELETED. IN SUPPORT OF HIS SUBMISSION, HE RELIED ON THE DECISION IN PCIT VS DESAI CONSTRUCTION PRIVATE LIMITED IN TAX APPEAL NO. 216 OF 2016 (GUJARAT HIGH COURT) AND PRAYED FOR DISMISSAL OF THE APPEAL. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE LEARNED REPRESENTATIVE OF THE PARTIES. WE HAVE ALSO CELEBRATED ON VARIOUS CASE LAWS RELIED BY LOWER AUTHORITIES AS WELL AS BY LEARNED REPRESENTATIVE OF THE PARTIES DURING SUBMISSION BEFORE BENCH. THE ASSESSING OFFICER MADE ADDITION UNDER SECTION 2(22)(E) OF RS.10.77 CRORE BY TAKING VIEW THAT AS PER THE SHAREHOLDING PATTERN OF VERITAS BIOVENTION PRIVATE LIMITED, THE ASSESSEE IS HOLDING 10% ON HIS INDIVIDUAL CAPACITY AND 18.50 PERCENT AS GUARDIAN OF MINOR SON, 13 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH WHICH IS EFFECTIVELY MORE THAN 20% SHAREHOLDING. FURTHER, AS PER THE BALANCE SHEET OF VAPI CARE PHARMA PRIVATE LIMITED, IT HAD ACCUMULATED PROFIT IN THE FORM OF RESERVE FOR THE SAID YEAR IN FINANCIAL YEAR 2011-12. VAPI CARE PHARMA PRIVATE LIMITED EXTENDED LOAN OF 10.77 CRORE WHICH WAS OUTSTANDING AS ON 31 ST MARCH 2012. 13. THE LEARNED COMMISSIONER (APPEALS) DELETED THE ADDITIONS BY HOLDING THAT THE SHAREHOLDING OF ASSESSEE, AS FATHER AND HIS MINOR CANNOT BE ADDED FOR THE PURPOSE OF SECTION 2(22(E) READ WITH SECTION 2(32) OF THE ACT. AS NONE OF THE SHAREHOLDERS WAS HOLDING MORE THAN 10% OF VOTING POWER IN VAPI CARE PHARMA AND HAD MORE THAN 20% SHARES IN VARIETIES PHARMA AND /OR IN VERITAS BIOVENTION. FURTHER, THE SOURCE OF SHAREHOLDING OF MASTER YES SHAH IS INDEPENDENT AND HE IS ENTITLED TO THE BENEFIT OF OWNERSHIP. THE ASSESSEE DOES NOT HAVE ANY BENEFICIAL INTEREST IN THE SHARES HELD BY MINOR SON MASTER YES SHAH. THE LEARNED COMMISSIONER (APPEALS) ALSO HELD THAT THE ISSUE FOR CONSIDERATION WAS WHETHER THE SHARE HELD ON BEHALF OF MINOR CHILD, WHO COULD NOT EXERCISE VOTING POWER, SHOULD BE EXCLUDED FROM THE TOTAL SHARE HOLDING FOR ASCERTAINING WHETHER ASSESSEE IS A SUBSTANTIAL SHAREHOLDER. IF SHARES WERE EXCLUDED FROM THE TOTAL SHARES ISSUED BY THE COMPANY, THE ASSESSEES INTEREST WOULD EXCEED 20%, BUT IF SUCH SHARES ARE INCLUDED, HIS INTEREST 14 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH WOULD FALL BELOW 20%. THE ASSESSING OFFICER EXCLUDED THE SHARE HELD IN THE NAME OF MINOR SON AS MINOR SON HAS NO VOTING RIGHTS IN CONSIDERING, THE QUESTION WHETHER THE ASSESSEE HAS SUBSTANTIAL INTEREST IN THE COMPANY, FROM THE TOTAL NUMBER OF SHARES ISSUED BY THE COMPANY. THE LD COMMISSIONER (APPEALS) ALSO RELIED ON THE FOLLOWING DECISIONS; CIT VS C.P. SARATHY MUDALIAR (1986) 83 ITR 170 SC, MINNIE R. CAMA VS ITO (1986) 17 ITD 139 (AHDTRIB), ITO VS S.S. BARODAWALA (1983) 4 ITD 186 (BOM), ACIT VS SANJAY MEHRA (2005) 149 TAXMAN 40 (AMRITSAR) 14. THE HONBLE APEX COURT IN CIT VS C.P. SARATHY MUDALIAR (SUPRA) WHILE CONSIDERING THE (CORRESPONDING SECTION 2(6A)(E) OF INDIAN INCOME TAX ACT 1922) HELD THAT THE SECTION SPEAKS OF 'SHAREHOLDER', IT REFERS TO THE REGISTERED SHAREHOLDER AND NOT TO THE BENEFICIAL OWNER. 15. THE COORDINATE BENCH OF AHMEDABAD TRIBUNAL IN MINNIE CAMA VS ITO (SUPRA) HELD THAT IT IS WELL SETTLED THAT A DEEMING PROVISION LIKE SECTION 2(22)(E) MUST BE STRICTLY CONSTRUED. FOR DETERMINATION OF QUESTION AS TO WHETHER THE ASSESSEE HAD SUBSTANTIAL INTEREST IN COMPANY, SHARES HELD BY TRUST IN WHICH ASSESSEE WAS TRUSTEE, OR HELD IN JOINT NAMES OR HELD IN NAME OF MINOR CHILDREN OF THE ASSESSEE COULD NOT BE CONSIDERED AS SHARES HELD BY THE ASSESSEE. IF 15 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH SO CONSIDERED, IT COULD BE SEEN FROM THE LIST OF SHAREHOLDERS, THAT THE ASSESSEE WAS NOT HOLDING SHARES CARRYING NOT LESS THAN TWENTY PER CENT OF THE VOTING POWER AND, THEREFORE, SHE COULD NOT BE TREATED TO BE A PERSON WHO HAS SUBSTANTIAL INTEREST IN THE COMPANY WITHIN THE MEANING OF THE PROVISIONS OF SECTION 2(22 ). 16. HONBLE BOMBAY HIGH COURT IN ITO VS S.S. BARODAWALA (SUPRA) HELD THAT WHEN A FATHER AS A GUARDIAN MAY MANAGE THE AFFAIRS WITH REGARD TO THE SHARES STANDING IN THE NAME OF HIS MINOR SONS, BUT THIS WILL NOT MAKE HIM THE BENEFICIAL OWNER OF THE SHARES. TO MAKE HIM A BENEFICIAL OWNER THE BENEFIT OR ADVANTAGE ARISING OUT OF THE SHARES MUST ACCRUE TO HIM. IN THE PRESENT CASE, NO SUCH BENEFIT ACCRUED, AND HENCE THE ASSESSEE COULD NOT BE SAID TO BE THE BENEFICIAL OWNER OF THE SHARES STANDING IN THE NAME OF HIS MINOR SONS. THE COMMISSIONER (APPEALS) WAS, THUS, RIGHT IN HOLDING THAT THE AMOUNTS WITHDRAWN FROM THE COMPANY COULD NOT BE DEEMED TO BE DIVIDEND UNDER SECTION 2(22)(E). THUS IN VIEW OF THE ABOVE SAID FACTUAL AND LEGAL DISCUSSION, WE AFFIRM THE ORDER OF LEARNED COMMISSIONER (APPEALS). 17. THE RATIO OF DECISION IN CIT VS TPSH SAKKALAL (SUPRA) IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. THE LD. COMMISSIONER (APPEALS) HAS CORRECTLY DISTINGUISHED THE FACT OF THAT CASE WITH THE PRESENT CASE. IN THE SAID CASE, THE ISSUE FOR CONSIDERATION WAS 16 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH WHETHER THE SHARES HELD ON BEHALF OF MINOR CHILDREN WHO COULD EXERCISE VOTING POWER, SHOULD BE EXCLUDED FROM TOTAL HOLDING FOR ASCERTAINING WHETHER THE ASSESSEE IS A SUBSTANTIAL SHAREHOLDER. THE EXPRESSION VOTING POWER FOUND IN SECTION 2(32) IS SIGNIFICANT AND IT SIGNIFIES THE RIGHT TO VOTE WHICH IS INHERENT IN THE SHARES. IT WAS HELD IN THAT CASE THAT THE SHARES HELD BY ASSESSEE ON BEHALF OF HER MINOR SONS HAD VOTING RIGHTS. IT WAS NOT SUSPENDED DURING THE PERIOD OF MINORITY OF THE MINORS. IT WAS ALSO HELD THAT THE EXPRESSION, VOTING POWER IN SECTION 2(32) WOULD DENOTE THE TOTAL VOTING STRENGTH EXERCISABLE BY ALL THE EQUITY SHAREHOLDERS IN A COMPANY AND SINCE ASSESSEE HAD THE VOTING RIGHT FOR EACH AND EVERY EQUITY SHARE HELD BY HER IN HER OWN NAME AND ON BEHALF OF THREE MINORS THE TOTAL SHARES HELD BY HER SHOULD BE TAKEN INTO ACCOUNT. THE FACTS OF THE CASE IN OUR HAND ARE THUS AT VARIANCE. 18. CONSIDERING THE FACTS THAT WE HAVE AFFIRMED THE ORDER OF LEARNED COMMISSIONER (APPEALS) ON FIRST AND PRIMARY SUBMISSION OF THE LEARNED AR FOR THE ASSESSEE, THEREFORE, CONSIDERATION ON THE OTHER SUBMISSIONS OF ASSESSEE HAVE BECOME ACADEMIC. 19. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. 20. AS NOTED ABOVE THE REVENUE HAS RAISED IDENTICAL GROUNDS OF APPEAL EXCEPT VARIATION OF FIGURE OF ADDITION UNDER SECTION 2(22)(E) AS RAISED IN APPEAL FOR ASSESSMENT YEAR 2012-13, WHICH WE HAVE DISMISSED BY 17 ITSS)A.261&262/AHD/2016 AYS.2012-13 & 2013-14 KAMALBHAI JAYANTILAL SHAH AFFIRMING THE ORDER OF LEARNED COMMISSIONER (APPEALS), THEREFORE, THE APPEAL FOR ASSESSMENT YEAR 2013-14 IS ALSO DISMISSED WITH SIMILAR OBSERVATION. 21. IN THE RESULT BOTH THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON 17 TH DECEMBER 2020 BY PLACING THE RESULT ON THE NOTICE BOARD. SD/- SD/- (DR. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER SURAT, DATED:17/12/2020 SELF/ AUTHOR COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER // TRUE COPY // ASSTT. REGISTRAR/SR. PS/PS ITAT, SURAT