DCIT, Khammam v. M/s Venkata Ramana Automobiles (P) Ltd., Khammam

ITA 1345/HYD/2010 | 2007-2008
Pronouncement Date: 25-03-2011 | Result: Dismissed

Appeal Details

RSA Number 134522514 RSA 2010
Assessee PAN AABFV3451D
Bench Hyderabad
Appeal Number ITA 1345/HYD/2010
Duration Of Justice 5 month(s)
Appellant DCIT, Khammam
Respondent M/s Venkata Ramana Automobiles (P) Ltd., Khammam
Appeal Type Income Tax Appeal
Pronouncement Date 25-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 25-03-2011
Date Of Final Hearing 22-03-2011
Next Hearing Date 22-03-2011
Assessment Year 2007-2008
Appeal Filed On 25-10-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A' HYDERABAD BEFORE SHRI G.C. GUPTA VP & SHRI CHANDRA POOJARI AM I.T.A. NO. 1345/HYD/2010 (ASSESSMENT YEAR 2007-08) DY. CIT CIRCLE-I KHAMMAM VS. M/S. VENKATA RAMANA AUTOMOBILES KHAMMAM PAN: AABFV3451D APPELLANT RESPONDENT APPELLANT BY: SHRI K.V.N. CHARYA RESPONDENT BY: SHRI V. SIVA KUMAR O R D E R PER CHANDRA POOJARI AM: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) VIJAYAWADA DATED 23.08.2010 FO R THE ASSESSMENT YEAR 2007-08. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER: 1. THE ORDER OF THE LEARNED CIT(A) VIJAYAWADA IN DELETING THE ADDITION OF RS. 29 77 687/- MADE U/S. 2(22)(E) OF THE I.T. ACT IS ERRONEOUS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THE LEARNED CIT(A) VIJAYAWADA ERRED IN DELETING THE ADDITION PLACING RELIANCE ON THE DECISION IN THE CASE OF CIT VS. RAJKUMAR SINGH AND CO. 295 ITR (ALL) 2007 AND THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF CIT VS. BHAUMIK COLOUR PVT. LTD. IN I.T.A. NO. 5030/MUM/04 DTD. 19.11.2008. 3. THE LEARNED CIT(A) VIJAYAWADA ERRED IN PLACING RELIANCE ON THE ABOVE DECISIONS I.T.A. NO. 1345/HYD/2010 M/S. VENKATA RAMANA AUTOMOBILES =========================== 2 SINCE THE FACTS IN THE ABOVE CASES ARE DIFFERENT FROM THOSE OF THE APPELLANT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM CONSISTING OF SIX PARTNERS. THE A SSESSEE ADMITTED INCOME OF RS. 16 42 442 AND THE ASSESSING OFFICER ASSESSED THE INCOME AT RS. 49 92 210. AN A DDITION OF RS. 29 77 687 WAS MADE U/S. 2(22)(E) OF THE INCO ME-TAX ACT 1961 TOWARDS DEEMED DIVIDEND RECEIVED. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE FIRM H AD RECEIVED RS. 30 90 075 AS ADVANCES ON VARIOUS DATED DURING THE RELEVANT PERIOD FROM M/S. VENKATARAMANA AUTOMOBILES PVT. LTD. WHICH IS A SISTER CONCERN OF THE ASSESSEE FIRM. IN RESPONSE TO THE SHOW CAUSE NOTIC E ISSUED CALLING FOR AN EXPLANATION AS TO WHY THE AMOUNT REC EIVED SHOULD NOT BE TREATED AS DEEMED DIVIDEND AS ALL THE PARTNERS OF THE FIRM HAD SUBSTANTIAL INTEREST I.E. MORE THAN 10% OF THE EQUITY IN M/S. VENKATARAMANA AUTOMOBILES PVT. LTD. THE ASSESSEE FIRM SUBMITTED THAT THE PROVISIO NS OF SECTION 2(22)(E) WERE NOT APPLICABLE AS NO MONEY WA S PAID BY THE COMPANY TO ANY SHAREHOLDER WHO HAD MORE THAN 10% INTEREST IN THE COMPANY. REJECTING THE EXPLANA TION OF THE ASSESSEE THE ASSESSING OFFICER CONCLUDED THAT THE PROVISIONS OF SECTION 2(22)(E) WERE SQUARELY APPLIC ABLE TO THE ASSESSEE FIRM AND CONSEQUENTLY THE ABOVE ADDITI ON I.T.A. NO. 1345/HYD/2010 M/S. VENKATA RAMANA AUTOMOBILES =========================== 3 TOWARDS DEEMED DIVIDEND WAS MADE FOR THE DETAILED REASONING IN THE ASSESSMENT ORDER. 4. ON APPEAL THE CIT(A) DELETED THE ADDITION BY PLACI NG RELIANCE ON THE JUDGEMENT OF THE ALLAHABAD HIGH COU RT IN THE CASE OF CIT VS. RAJ KUMAR SINGH & CO. REPORTED IN 295 ITR 9 AND THE DECISION OF MUMBAI TRIBUNAL IN CIT VS . BHAUMIK COLOUR PVT. LTD. IN I.T.A. NO. 5030/MUM/04 DATED 19/11/2008. AGGRIEVED THE REVENUE IS IN APPE AL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR OPINION THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER OF MUMBAI SPECIAL BENCH OF THIS TRIBUNAL IN CIT VS. BH AUMIK COLOUR PVT. LTD. 27 SOT 270. THE SPECIAL BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF ASST. CIT VS. BHAUMI K COLOUR (P) LTD. [2009] 27 SOT 270 HAD APPRECIATED AND CONSIDERED THE SCOPE AND MEANING OF SECTION 2(22)(E ). FROM THIS DECISION OF THE SPECIAL BENCH IT IS CLEA R THAT THE DEEMED DIVIDEND UNDER SECTION 2(22)(E) CAN BE ASSES SED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTH ER THAN A SHAREHOLDER. IT WAS FURTHER HELD THAT THE E XPRESSION SHAREHOLDER REFERRED TO IN SECTION 2(22)(E) REFER S TO BOTH I.T.A. NO. 1345/HYD/2010 M/S. VENKATA RAMANA AUTOMOBILES =========================== 4 THE REGISTERED SHAREHOLDER AND THE BENEFICIAL SHARE HOLDER AND THUS IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT A BENEFICIAL SHAREHOLDER THEN THE PROVISIONS OF SECT ION 2(22)(E) WOULD NOT APPLY AND SIMILARLY IF A PERSO N IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHO LDER THAN ALSO PROVISIONS OF SECTION 2(22)(E) WOULD NOT APPLY. IT FURTHER HELD THAT THE DEEMING PROVISION OF SECTION 2(22)(E) AS THEY APPLY TO CASES OF LOANS OR ADVANCES BY A CO MPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTI AL INTEREST ARE BASED ON PRESUMPTION THAT THE LOANS O R ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO SHAREHOLDERS OF THAT COMPANY GIVING LOAN OR ADVANCE AND THEREFORE INTENTION OF THE LEGISLATURE IS TO TAX D IVIDEND ONLY IN THE HANDS OF SHAREHOLDER AND NOT IN THE HAN DS OF A CONCERN. 6. FURTHER THE ISSUE IS COVERED IN FAVOUR OF THE ASSES SEE BY THE JUDGEMENT OF THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP (2009) 313 ITR 116 WHEREIN IT WAS HELD ON THE ISSUE OF DEEMED DIVIDEND U/S. 2(22)(E) WITH REGARD LOAN TO FIRM VIS-A-VIS PARTNERS THAT AMOUNT ADVANCED BY COMPANY TO PARTNERS OF A FIRM WHICH FI RM IS NOT A SHAREHOLDER IN THE COMPANY CANNOT BE ASSESSE D AS DEEMED DIVIDEND IN THE HANDS OF THE FIRM EVEN THOU GH ALL THE PARTNERS OF FIRM ARE SHAREHOLDERS IN THE COMPAN Y. I.T.A. NO. 1345/HYD/2010 M/S. VENKATA RAMANA AUTOMOBILES =========================== 5 RATHER IT WOULD OBVIOUSLY BE DEEMED DIVIDEND IN TH E HANDS OF THE INDIVIDUALS ON WHOSE BEHALF OR ON WH OSE INDIVIDUAL BENEFIT BEING SUCH SHAREHOLDER THE AMO UNT IS PAID BY THE COMPANY TO THE FIRM. 7. IN VIEW OF THE ABOVE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND UPHOLD THE SAME. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MARCH 2011. SD/- (G.C. GUPTA) VICE PRESIDENT SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD DATED 25 TH MARCH 2011 TPRAO COPY FORWARDED TO: 1. DY. CIT AAYAKAR BHAVAN BEHIND KINNERASANI THEATRE RAJIV GUNJ KHAMMAM 2. M/S. VENKATA RAMANA AUTOMOBILES 8-2-201 WYRA ROAD KHAMMAM. 3. THE CIT(A) VIJAYAWADA 4 THE CIT VIJAYAWADA 5. THE DR A BENCH ITAT HYDERABAD