ACIT Central Circle 1(2), CHENNAI V. TVH Energy Resources Private Limited, CHENNAI

MA 94/CHNY/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2822 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 30-08-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 22-04-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: G GANESH BABU
• Keywords: Deemed dividend
• Section: 143(3); 2(22)(e)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . , BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER M.P. NO. 94/CHNY/2019 [IN I.T.A. NO. 3183/CHNY/2017] ASSESSMENT YEAR: 2012-13 THE INCOME TAX OFFICER CENTRAL CIRCLE 1(2), CHENNAI. VS. M/S. TVH ENERGY RESOURCES PVT. LTD., NO. 16/17, 3 RD CROSS STREET, TVH NOVELLA, R.A. PURAM, CHENNAI-28. [PAN:AACCT8802G] (PETITIONER) (R ESPONDENT ) PETITIONER BY : SHRI AR.V. SREENIVASAN, JCIT RESPONDENT BY : SHRI G. GANESH BABU, C.A. / DATE OF HEARING : 28.06.2019 /DATE OF PRONOUNCEMENT : 30.08.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: BY MEANS OF PRESENT MISCELLANEOUS PETITION, THE REVENUE SEEKS TO RECALL THE ORDER PASSED BY THE TRIBUNAL IN I.T.A. NO.3117/CHNY/2017 DATED 08.11.2018 FOR THE ASSESSMENT YEAR 2012-13 ON THE GROUND THAT THE FIGURES ADOPTED BY THE TRIBUNAL IN RESPECT OF SHARE CAPITAL WAS FOUND TO BE INCORRECT AND THEREBY THE WORKING OF NON-INTEREST BEARING FUNDS ARE ALSO FACTUALLY NOT CORRECT AS STATED IN PARA 5 TO 5.3 AT PAGE 3 TO 7. THUS, THE LD. DR PLEADED FOR RECALLING THE ORDER OF THE TRIBUNAL FOR FRESH ADJUDICATION. M.P. NO. 94/CHNY/19 2 2. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THERE IS A TYPOGRAPHICAL ERROR OCCURRED IN THE FIGURES OF SHARE CAPITAL, WHEREIN, 10 HAS BEEN REPEATED WRONGLY TWICE I.E., INSTEAD OF 52,10,00,000/-, 52,10,10,00,000/- WAS TAKEN AS SHARE CAPITAL AND SUCH MISTAKE CAN BE RECTIFIED. 3. WE HAVE HEARD BOTH THE SIDES, PERUSED THE ORDERS OF AUTHORITIES BELOW AS WELL AS ORDER PASSED BY THE TRIBUNAL. ON PERUSAL OF THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT, THE FIRST SENTENCE OF RELEVANT PARA NO. 10 IN THE ASSESSMENT ORDER READS AS UNDER: 10. TRUE VALUE HOMES (INDIA) PRIVATE LIMITED IS HOLDING SHARES WORTH .15,71,85,000 OUT OF .52,10,00,000/- I.E. 30% IN THE ASSESSEE COMPANY. . WHEREAS, IN THE APPELLATE ORDER AT PAGE 9 RELEVANT PARA RUNS AS UNDER: E) GROUND RELATING TO DEEMED DIVIDEND OF .5,45,62,397/-: THE AO WHILE MAKING ADDITION ON THIS GROUND OBSERVED AS UNDER: TRUE VALUE HOMES (INDIA) PRIVATE LIMITED IS HOLDING SHARES WORTH .15,71,85,000 OUT OF .52,10,10,00,000/- I.E. 30% IN THE ASSESSEE COMPANY. . 4. FROM THE ABOVE, IT IS CLEAR THAT THE MISTAKE IS ORIGINATED FROM THE CIT(A)S ORDER AND BASED ON WHICH IN THE APPEAL ORDER THE TRIBUNAL HAS HELD THAT THE ASSESSEE COMPANY POSSESS NON-INTEREST BEARING FUND OF .5228,18,50,648/- [.5210,10,00,000 + .18,08,50,648] IN TOTAL WITH EQUITY SHARE CAPITAL AND RESERVES AND SURPLUS. SINCE THERE IS A MISTAKE APPARENT ON M.P. NO. 94/CHNY/19 3 THE FACE OF RECORD EVEN THOUGH EMANATING FROM APPELLATE ORDER, IN ORDER TO RECTIFY THE MISTAKE, THE SAID ORDER OF TRIBUNAL WAS RECALLED FOR LIMITED PURPOSE AND TAKEN UP FOR ADJUDICATION. 5. BY TAKING WRONG FIGURE FROM THE APPELLATE ORDER, THE TRIBUNAL HAS ADJUDICATED THE ISSUE AS UNDER: 5. GROUND NO.2 (I): ADDITION OF RS.15,66,57,691/- TOWARDS DEEMED INTEREST:- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE COMPANY HAD EXTENDED LOAN TO ITS SISTER CONCERN M/S. TRUE VALUE HOMES (I) PVT. LTD., FOR RS.74,59,89,006/-. IT WAS FURTHER NOTICED THAT M/S. TRUE VALUE HOMES (I) PVT. LTD., WAS HOLDING SHARES WORTH RS.15,71,85,000/- OUT OF THE TOTAL EQUITY SHARES ISSUED BY THE ASSESSEE COMPANY AMOUNTING TO RS.5210,10,00,000/-. THUS 30% OF THE SHARES OF THE ASSESSEE COMPANY WERE HELD BY M/S. TRUE VALUE HOMES (I) PVT. LTD. IT WAS FURTHER NOTICED THAT THE ASSESSEE COMPANY WAS HAVING ACCUMULATED RESERVES AND SURPLUS OF RS.18,08,50,648/-. SINCE THE ASSESSEE COMPANY HAD EXTENDED LOAN TO THE COMPANY WHO WAS HOLDING SUBSTANTIAL SHARES OF THE ASSESSEE COMPANY THE LD.AO WAS OF THE VIEW THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT WILL BE ATTRACTED. ACCORDINGLY THE LD.AO TREATED 30% OF THE ACCUMULATED PROFIT AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE WHICH WORKS OUT TO RS.5,45,62,397/- REJECTING THE PLEA OF THE LD.AR THAT DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT CAN ONLY BE TAXED IN THE HANDS OF THE RECIPIENT OF THE ADVANCES AND NOT IN THE HANDS OF THE COMPANY WHO HAS ADVANCED THEM. 5.1 ON APPEAL, THE LD.CIT(A) AGREED WITH THE VIEW OF THE LD.AR THAT DEEMED DIVIDEND SHALL BE TAXABLE ONLY IN THE HANDS OF THE RECIPIENT OF THE ADVANCES AND NOT IN THE HANDS OF THE COMPANY WHO HAD ADVANCED THE AMOUNT AND ACCORDINGLY HE DELETED THE ADDITION MADE BY THE LD.AO INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. HOWEVER THE LD.CIT(A) WAS OF THE VIEW THAT SINCE THE ASSESSEE COMPANY HAD EXTENDED INTEREST FREE LOAN TO ITS SISTER M.P. NO. 94/CHNY/19 4 COMPANY, INTEREST @ 21% ON THE LOAN EXTENDED WHICH WORKS OUT TO RS.15,66,57,691/- SHOULD BE TAXABLE AS DEEMED INTEREST IN THE HANDS OF THE ASSESSEE COMPANY, REJECTING THE PLEA OF THE ASSESSEE THAT THE LOAN WAS EXTENDED DUE TO COMMERCIAL EXIGENCIES. ACCORDINGLY THE LD.CIT(A) ENHANCED THE ADDITION TO RS.15,66,57,691/- AS DEEMED INTEREST. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSESSEE IN APPEAL BEFORE US. 5.2 AT THE OUTSET, WE DO NOT FIND ANY MERIT IN THE ORDER OF THE LD.CIT(A) WITH RESPECT TO THE ADDITION MADE FOR RS.15,66,57,691/- THOUGH WE AGREE WITH THE VIEW OF THE LD.CIT(A) FOR DELETING THE ADDITION OF RS.5,45,62,397/- MADE BY THE LD.AO INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. IT IS OBVIOUS THAT THE ADDITION WITH RESPECT TO SECTION 2(22)(E) OF THE ACT CAN BE ONLY INVOKED IN THE HANDS OF THE REGISTERED / BENEFICIAL SHAREHOLDER HAVING 10% OR MORE SHARES IN THE COMPANY WHICH HAS ADVANCED THE LOAN AS PER THE RECENT JUDGMENT DATED 04.01.2017 OF THE HONBLE APEX COURT IN THE CASE GOPAL & SONS HUF VS. CIT IN CIVIL APPEAL NO.12274 OF 2016. IN THE CASE OF THE ASSESSEE, THE SHAREHOLDER HAVING SUCH SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY IS M/S. TRUE VALUE HOMES (I) PVT. LTD. THEREFORE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CANNOT BE INVOKED IN THE HANDS OF THE ASSESSEE COMPANY WHICH HAS EXTENDED LOAN TO ITS SISTER COMPANY. 5.3 FURTHER FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE ASSESSEE COMPANYS EQUITY SHARE CAPITAL IS RS.5210,10,00,000/- COUPLED WITH RESERVES & SURPLUS AMOUNTING TO RS.18,08,50,648/-. THUS THE ASSESSEE POSSESS NON-INTEREST BEARING FUND OF RS.5228,18,50,648/- (RS.5210,10,00,000 + RS.18,08,50,648). THE ASSESSEE HAS EXTENDED LOAN ONLY TO THE EXTENT OF RS.74,59,89,006/- FROM ITS NON-INTEREST BEARING FUND OF RS.5228,18,50,648/-. THERE IS NO RESTRICTION ON THE ASSESSEE TO DEPLOY ITS NON-INTEREST BEARING OWN FUND IN WHATEVER MANNER IT DESIRES. ONLY IF INTEREST BEARING FUNDS ARE DEPLOYED OUTSIDE THE BUSINESS OF THE ASSESSEE WITHOUT RECOVERING INTEREST, ADDITIONS CAN BE MADE, BECAUSE IN SUCH CASE IT WOULD BE A DUBIOUS METHOD TO SHIFT THE PROFIT OF THE ASSESSEE TO ANOTHER ASSESSEE WHICH CANNOT BE ACCEPTED AS PER THE PROVISIONS OF THE ACT, AND THAT IS NOT THE CASE OF THE ASSESSEE COMPANY. THEREFORE THE ADDITION MADE BY THE LD.CIT(A) TREATING THE AMOUNT M.P. NO. 94/CHNY/19 5 OF 21% OF DEEMED INTEREST ON RS.74,59,89,006/- WHICH WORKS OUT TO RS.15,66,57,691/- IS NOT JUSTIFIED. HENCE WE HEREBY DELETE THE ENHANCEMENT MADE BY THE LD.CIT(A) AMOUNTING TO RS.15,66,57,690/- TOWARDS DEEMED INTEREST AND FURTHER UPHOLD THE ORDER OF THE LD.CIT(A) FOR DELETING THE ADDITION OF RS.5,45,62,397/- MADE BY THE LD.AO TOWARDS DEEMED DIVIDEND INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THUS THE GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR. 6. ADMITTEDLY, THE ASSESSEE HAS ADVANCED ONLY .74,59,89,006/-. THE ASSESSEE HAD NON-INTEREST BEARING FUNDS OF .70.18 CRORES, WHICH INCLUDES SHARE CAPITAL AT .52.10 CRORES AND RESERVES & SURPLUS OF .18.08 CRORES. BY FILING DETAILED WRITTEN SUBMISSIONS BY THE LD. COUNSEL FOR THE ASSESSEE, BOTH PARTIES HAVE DULY AGREED THAT THE INTEREST BEARING FUND ADVANCED TO SISTER CONCERN WAS ONLY .4.41 CRORES [74.59 CRORES - 70.18 CRORES]. ACCORDINGLY, INTEREST DISALLOWANCE HAS TO BE MADE ON THE AMOUNT OF .4.41 CRORES. THUS, WE REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO DETERMINE THE INTEREST ONLY. ACCORDINGLY, THE ORDER OF THE TRIBUNAL STANDS RECTIFIED. 7. IN THE RESULT, THE M.P. FILED BY THE REVENUE IS ALLOWED AND THE APPEAL IN I.T.A. NO.3183/CHNY/2017 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 30 TH AUGUST, 2019 AT CHENNAI. SD/- SD/- (INTURI RAMA RAO) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 30.08.2019 VM/- M.P. NO. 94/CHNY/19 6 /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.