PR. CIT-1 V. AVA MERCHANDISING SOLUTIONS PVT. LTD.

ITA/389/2016

AI Insights

The case revolves around the appeal by the Revenue against the order of the ITAT, which upheld the CIT(A)'s decision that deleted the additions made by the Assessing Officer (AO) regarding the 'deemed dividend' under Section 2(22)(e) of the Income Tax Act, 1961. The dispute originated from transactions between Ava Merchandising Solutions Pvt. Ltd. (AMSPL) and Ava Merchandising Pvt. Ltd. (AMPL), where it was alleged that a debit balance in AMSPL's account with AMPL constituted a deemed dividend. The AO's addition was contested, leading to the CIT(A) and ITAT's decisions, which were based on the interpretation that such deemed dividends could only be taxed in the hands of the registered shareholders of the lender company, not in the hands of a beneficial shareholder like AMSPL, which did not hold shares in AMPL.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 720241 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 28-07-2016
• Assessment Year: misc
• Other Referred Cases: CIT v. Ankitech (P) Ltd 314 ITR 14 (Delhi), Commissioner of Income Tax v. National Travel Services, CIT v. Bharti Overseas Trading Co.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: P C YADAV
• Assessee Lawyers: P CHAUDHARY
• Keywords: Assessing Officer; Commissioner of Income Tax (Appeals); Deemed dividend; Income tax appellate tribunal; Shareholding; Beneficial shareholder
• Section: 2(22)(e)

Judgement Text

"ITA 389/2016 Page 1 of 3 $~ * IN THE HIGH COURT OF DELHI AT NEW DELHI 4. + ITA 389/2016 PR. CIT-1 ..... Appellant Through:Mr. P. Roy Chaudhary, Senior Standing counsel. versus AVA MERCHANDISING SOLUTIONS PVT. LTD...... Respondent Through: Mr. P.C. Yadav, Advocate. CORAM: JUSTICE S.MURALIDHAR JUSTICE NAJMI WAZIRI O R D E R % 28.07.2016 CM No. 25179 of 2016(exemption) 1. Allowed, subject to all just exceptions. ITA 389 of 2016 2. This appeal by the Revenue is against the order dated 10th February 2016 passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA No.5528/Del/2013 for the Assessment Year (‘AY’) 2010-11. 3. The short question sought to be urged by the Revenue is whether the ITAT was correct in upholding the order of the Commissioner of Income Tax (Appeals) [‘CIT(A)’] who deleted the additions made by the Assessing Officer (‘AO’) in the hands of the Assessee company i.e. Ava Merchandising Solutions Pvt. Ltd. (‘AMSPL’) as 'deemed dividend' under Section 2(22)(e) of the Income Tax Act, 1961 (‘Act’). ITA 389/2016 Page 2 of 3 4. The facts in brief are that AMSPL entered into some transactions with Ava Merchandising Pvt. Ltd. (‘AMPL’) including exchange of cash and/or transfer of assets and inventories One Mr. Amit Chopra held 38% of the total shares of AMPL and 97.67% shares of AMSPL. The Assessing Officer (AO) concluded that since Amit Chopra had a substantial shares of both companies and there was a constant debit balance of AMSPL in the books of AMPL, the peak debit entry of Rs. 2,31,58,498 was taxable in the hands of AMSPL as deemed divided under Section 2 (22) (e) of the act. 5. The CIT (A) referred inter alia to the decision of this Court in CIT v. Ankitech (P) Ltd 314 ITR 14 (Delhi) in which it was held that and noted observed that deemed dividend under Section 2 (22) (e) of the Act can be brought to tax only in the hands of the registered shareholders of the lender company and not in the hands of a beneficial shareholder. Since AMSPL was not the shareholder of AMPL, the amount of debit balance in the books of AMPL could nt be added in the hands of AMSPL as deemed dividend. This view of the CIT (A) was concurred with by the ITAT. 6. Learned counsel for the Revenue has sought to place reliance on the decision of this Court dated 11th July 2011 in ITA No. 223 of 2010 (Commissioner of Income Tax v. National Travel Services) and decision dated 29th February 2012 in ITA No.401 of 2011 (CIT v. Bharti Overseas Trading Co.). Both these cases dealt with a situation where the shareholding in the lender company was held by the partners of a partnership firm. The question of the Assessee in those cases having a ITA 389/2016 Page 3 of 3 beneficial interest in the lender was not in doubt. Here factually it has been found that the Assessee itself does not have any substantial or beneficial shareholding in AMPL. Therefore, the aforementioned decisions would not assist the case of the Revenue. 7. The Court is unable to find any legal infirmity in the order passed by the CIT(A) and affirmed by the ITAT. 8. No substantial question of law arises for determination. The appeal is dismissed. S.MURALIDHAR, J NAJMI WAZIRI, J JULY 28, 2016 mg "