Kingston Threads Pvt.Ltd.,, Baroda v. The ACIT.,Circle-1(2),, Baroda

ITA 137/AHD/2008 | 2004-2005
Pronouncement Date: 27-08-2010 | Result: Allowed

Appeal Details

RSA Number 13720514 RSA 2008
Bench Ahmedabad
Appeal Number ITA 137/AHD/2008
Duration Of Justice 2 year(s) 7 month(s) 19 day(s)
Appellant Kingston Threads Pvt.Ltd.,, Baroda
Respondent The ACIT.,Circle-1(2),, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 27-08-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 26-12-2008
Date Of Final Hearing 23-08-2010
Next Hearing Date 23-08-2010
Assessment Year 2004-2005
Appeal Filed On 08-01-2008
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI MUKUL KR. SHRAWAT JM AND A. N. PAHUJ A AM M/S KINGSTON THREADS (P) LTD. 801 A-WING ALKAPURI ARCADE ALKAPURI VADODARA. VS. ASSTT. CIT CIR.192) VADODARA. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI M. J. SHAH AR REVENUEBY:- SHRI VIMALENDRA VERMA SR.DR O R D E R PER MUKUL KR. SHRAWAT JUDICIAL MEMBER . THIS APPEAL OF THE ASSESSEE HAS BEEN FILED AGAINST THE ORDER OF LD. CIT(A)-I BARODA DATED 27.9.2007. THERE ARE TWO GRO UNDS REVOLVING AROUND A SINGLE ISSUE OF INVOCATION OF THE PROVISI ONS OF SECTION 2(22)(E) OF I.T. ACT WHICH ARE REPRODUCED BELOW :- (1) THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.15 55 496/- MADE U/S 2(22)(E) OF THE ACT BY THE AO. THE APPELLANT COMPANY HAS RECEIVED RS.39 LAKHS FROM M/S JET TECH (P) LTD. (JTPL) SHRI SHRIVANSU MISHRA WAS A COMMON DIRECTOR IN THE TWO COMPANIES HOLDING SUBSTANTIAL SHARES IN EXCESS OF 10% OF THE VOTING POWER. JTPL HAD ACCUMULATED PROFI T TO THE TUNE OF RS.15 55 496/- (2) THERE ARE TWO CREDIT BALANCES IN THE BOOKS OF THE A PPELLANT COMPANY IN THE NAME OF JTPL ONE CREDIT TO THE EXTE NT OF RS.11 73 571/- IS ON ACCOUNT OF BUSINESS TRANSACTIO N AND ANOTHER CREDIT OF RS.14 00 000/- IS ON ACCOUNT OF A SEPARAT E ITA NO.137/AHD/2008 ASST. YEAR :2004-05 2 UNDERSTANDING THROUGH WHICH JTPL HAS GIVEN THE SAID AMOUNT TO ACQUIRE A PART OF THE PROPERTY OF ALKAPURI ARCADE VADODARA. 2. THE FACTS IN BRIEF AS EMERGED FROM THE CORRESPON DING ASSESSMENT ORDER PASSED U/S 143(3) DATED 20/10/2006 ARE THAT T HE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING AND TRADING OF TEXTILES. IN THE CONTEXT OF THE ABOVE GROUND THE OBSERVATION OF THE AO WAS T HAT THE ASSESSEE HAS RECEIVED A SUM OF RS.39 LAKHS FROM A CONCERN NAMELY M/S JTPL. IT HAS ALSO BEEN OBSERVED BY THE AO THAT ONE MR. SHRIVANSU MISHRA HAPPENED TO BE A COMMON DIRECTOR IN BOTH THE COMPANIES I.E. THE ASSESSEE COMPANY AND THE SAID COMPANY. THE SAID DIRECTOR IS STATED T O BE HAVING 10% VOTING POWER. THE ALLEGED LOAN OF RS.39 LAKHS WAS TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE IT ACT. THE MAIN CONT ENTION OF THE ASSESSEE WAS THAT THE CREDIT STANDING IN THE NAME OF M/S JTP L WAS NEITHER A LOAN NOR AN ADVANCE BUT IT WAS ON ACCOUNT OF ACCUMULATED CREDIT. THE AO WAS NOT CONVINCED AND HELD THAT DUE TO THE PRESENCE OF A COMMON DIRECTOR IN BOTH THE COMPANIES THE ASSESSEE COMPANY HAS HELD SU BSTANTIAL SHARES AND THE COMPANY ADVANCING THE LOAN POSSESSES ACCUMULATE D PROFITS TO THE TUNE OF RS.15 55 496/- TO BE HELD AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE OF INVOKING THE PROVISIONS OF SECTION 2(22 )(E). ACCORDINGLY THE ADDITION WAS MADE WHICH WAS CHALLENGED. 3. THE LD. CIT(A) HAS AFFIRMED THE ACTION OF THE AO AS PER FOLLOWING FINDINGS:- 11. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS SEEN THAT THERE ARE TWO AMOUNTS INVOLVED RS.11 73 751/- & RS.14 00 000 /-. RS.11 73 571/- IS STATED TO BE ON ACCOUNT OF BUSINESS TRANSACTIONS . HOWEVER FROM THE DETAILS FURNISHED IN SUPPORT OF THIS BY WAY OF THE COPY OF LEDGER ACCOUNT IT CANNOT BE SAID WITH ANY CERTAINTY THAT THESE INV OLVE BUSINESS TRANSACTIONS SINCE 98% OF THE TRANSACTIONS ARE EITH ER PAYMENTS RECEIVED OR PAYMENTS MADE TO THE ICICI BANK OR CANARA BANK O N DIFFERENT DATES. THERE ARE A VERY FEW TRANSACTIONS IN RESPECT OF ENT ITIES LIKE BHILWARA 3 SPINNERS LTD. SHASHI MISHRA YOMIKA FABRICS P. LTD . SHRI AJAYKUMAR SURAT TEXTILE TRADERS AND FOREIGN TOUR EXPENSES. UN DER THE CIRCUMSTANCES IT IS NOT ESTABLISHED THAT THESE ARE NOT ADVANCES BUT TRANSACTIONS IN THE NATURE OF BUSINESS. AS REGARDS THE OTHER AMOUNT OF RS.14 00 000/- THE SAME IS STATED TO BE GIVEN AS AD VANCE MONEY AS A PART OF CONSIDERATION FOR THE OFFICE PREMISES OWNED BY T HE APPELLANT. IT IS ADMITTED BY THE APPELLANT THAT THE SAID DEAL HAS NO T BEEN FINALIZED. IN THESE CIRCUMSTANCES THE APPELLANTS CLAIM LACKS AP PEAL AND THEREFORE THE ADDITION MADE BY THE AO OF THESE AMOUNTS AS DEE MED DIVIDEND IN TERMS OF THE PROVISIONS OF SEC.2922)(E) IS CONFIRME D. 4. ON HEARING THE RIVAL SUBMISSIONS WE HAVE NOTICED THAT THE PROVISIONS OF SECTION 2(22)(E) CAN ONLY BE APPLIED IN A CASE WHERE A PERSON HAS A SUBSTANTIAL INTEREST IN THE COMPANY AN D WHO IS THE BENEFICIARY OWNER OF THE SHARES OF THE SAID COMPANY . AS AGAINST THAT IN THE PRESENT APPEAL THE FACTS HAVE REVEALED THAT TH ERE WAS NO DIRECT HOLDING OF SHARES BUT THE SAID TWO COMPANIES ARE CO NNECTED ONLY THROUGH A COMMON DIRECTOR. IN A SITUATION LIKE THIS IT WAS HELD IN NUMBER OF DECISIONS THAT THE PROVISIONS OF SECTION 2(22)(E) C OULD NOT BE APPLIED CITATION IS ACIT VS. BHAUMIK COLOUR P. LTD. (2009) 118 ITD 1 (MUM)(SB) AND THE DECISION OF THE RESPECTED CO-ORDI NATE BENCH IN THE CASE OF HONEYVICK ENTERPRISES (P) LTD. VS. ACIT IN ITA NO.3424/AHD/2008 FOR ASST. YEAR 2003-04 DT.16.3.200 9. 5. BEFORE US AN ANOTHER DECISION OF THE ITAT AHMED ABAD BENCH D IN THE CASE OF M/S GARRISON POLYSACKS (P) LTD. VS. DCIT IN ITA NO.1767/AHD/2007 FOR ASST. YEAR 2004-05 DATED 2.7.2 010 HAS ALSO BEEN CITED WHEREIN IT WAS HELD AS UNDER :- 6. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. THE LD. AR SUBMITTED THAT THE ISSUE IS NOW COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF HONEYVICK E NTERPRISES (P) LTD. VS. ACIT IN ITA NO.3424/AHD/2008 FOR ASST. YEAR 2003-04 PRONOUNCED ON 16.3.2009 WHEREIN THE TRIBUNAL CONSIDERING ALL THE ASPECTS OF THE ISSUE 4 HELD THAT UNLESS THE ASSESSEE COMPANY IS DIRECTLY A SHAREHOLDER IN THE LENDER COMPANY THE LOAN AMOUNT COULD NOT BE TREATE D AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E). FO R ARRIVING AT THIS DECISION THE TRIBUNAL RELIED ON THE DECISION OF SPE CIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. BHAUMIK COLOUR P. LTD. (2009) 118 ITD 1 (MUM) (SB). THE HEAD NOTES FROM THE DECISION IN A CIT VS. BHAUMIK COLOUR P. LTD. ARE AS UNDER :- SECTION 2(22) OF THE INCOME-TAX ACT 1961 - DEEMED DIVIDEN D - ASSESSMENT YEAR 1997-98 - WHETHER DEEMED DIVIDEND CAN BE ASSESSED ONLY IN HANDS OF A PERSON W HO IS A SHAREHOLDER OF LENDER COMPANY AND NOT IN HANDS OF A PERSON OTHER THAN A SHAREHOLDE R - HELD YES - WHETHER EXPRESSION SHAREHOLDER REFERRED TO IN SECTION 2(22) (E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER AND THUS IF A PERSON I S A REGISTERED SHAREHOLDER BUT NOT BENEFICIAL SHAREHOLDER THEN PROVISIONS OF SECTION 2(22)( E) WOULD NOT APPLY AND SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGIS TERED SHAREHOLDER THEN ALSO PROVISIONS OF SECTION 2(22)(E) WOULD NOT APPLY - HELD YE S - WHETHER DEEMING PROVISION OF SECTION 2(22)(E) AS IT APPLIES TO CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST IS BASED ON PRESUMPTION THAT LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO SHAREHOLDERS OF COMPANY GIVING LOAN OR ADVANCE AND THEREFORE INTENTION OF LEGISLATURE IS TO T AX DIVIDEND ONLY IN HANDS OF SHAREHOLDER AND NOT IN HANDS OF CONCERN - HELD YES WORDS AND PHRASES - THE EXPRESSION BEING A PERSON WHO IS BENE FICIAL OWNER OF SHARES OCCURRING IN SECTION 2(22)(E) OF INCOME-TAX ACT 1961 CIRCULARS AND NOTIFICATIONS - CIRCULAR NO. 495 DATED 23-9-198 7 FOLLOWING THE ABOVE DECISION THE TRIBUNAL IN HONEY VICK ENTERPRISES (P) LTD. VS. ACIT (SUPRA) HELD AS UNDER :- 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE THE ASSESSEE COMPANY RECEIVED LOAN OF RS.43.00 LACS FROM M/S AMIL ENTERPRISES PVT. LTD. THE MAIN DIRECTOR OF THE ASSE SS COMPANY SRI ASHOK MALHOTRA WAS HOLDING MORE THAN 10% SHARES AS WELL A S MORE THAN 10% OF VOTING POWER IN THE ASSESSEE COMPANY WAS ALSO HO LDING 66% OF THE SHARE CAPITAL OF THE LENDING COMPANY M/S AMIL ENTER PRISES. IN VIEW OF THE ABOVE FACTS HE ADDED RS.43 LACS TO THE INCOME OF T HE ASSESSEE AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. ON APPE AL THE CIT(A) CONFIRMED THE ACTION OF THE AO FOR THE VERY SAME RE ASON. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE COMPANY IS NOT A S HAREHOLDER OF THE LENDING COMPANY HOLDING 10% OR MORE OF THE SHARES O F THE LENDING COMPANY. WE FIND THAT THE HON'BLE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. BHAUMIK COLOUR PVT. LTD. (2009) 11 8 ITD 1 (MUM) (SB) HAS HELD THAT DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS 5 OF THE BORROWING CONCERN IN WHICH SUCH SHAREHOLDER IS MEMBER OR PARTNER HAVING SUBSTANTIAL INTEREST. THEREFORE AS THE LOAN WAS ADVANCED TO THE ASSESSEE COMPANY AND NOT TO ITS DIRECTOR SHR I ASHOK MALHOTRA WHO HELD 66% OF THE SHARE CAPITAL OF M/S.AMIL ENTERPRIS ES PVT. LTD. WHICH ADVANCED THE SUM TO THE ASSESSEE COMPANY FOLLOWING THE DECISION OF THE HON'BLE SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR S PVT. LTD. (SUPRA) SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND HO LD THAT THE SAID LOAN OF RS.43 LACS RECEIVED BY THE ASSESSEE COMPANY FROM M/ S. AMIL ENTERPRISES PVT. LTD. CANNOT BE TREATED AS DEEMED DIVIDEND OF T HE ASSESSEE COMPANY AND TAXED IN ITS HANDS AS SUCH. THEREFORE THIS GRO UND OF APPEAL OF THE ASSESSEE IS ALLOWED. THUS IN THE PRESENT CASE EVEN THOUGH SHRI ARVIND NO PANY HAD MORE THAN 10% OF SHARES IN M/S DAN CEMENT TRADING (P) LTD. AN D MORE THAN 20% SHARES IN ASSESSEE COMPANY STILL THE LOAN GIVEN BY M/S DAN CEMENT TRADING (P) LTD. TO THE ASSESSEE COMPANY WILL NOT B E TREATED AS DEEMED DIVIDEND AS ASSESSEE COMPANY IS NOT A SHAREHOLDER I N THE LENDER COMPANY. IN VIEW OF THIS WE DECIDE THE ISSUE IN FA VOUR OF THE ASSESSEE. ACCORDINGLY THIS GROUND OF THE ASSESSEE IS ALLOWED. IN VIEW OF THE ABOVE ONCE A VIEW HAS ALREADY BEEN T AKEN BY THE RESPECTED CO-ORDINATE BENCH ON IDENTICAL FACTS THAT THE ASSES SEE COMPANY IS NOT A SHARE HOLDER OF THE SAID LENDING COMPANY THEREFORE THE ALLEGED LOAN COULD NOT BE TREATED AS DEEMED DIVIDEND IN THE HAND S OF THE ASSESSEE. THE VIEW TAKEN BY THE AUTHORITIES BELOW IS HEREBY REVER SED AND THE GROUNDS RAISED ARE HEREBY ALLOWED. 6. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 27/8/2010 . SD/- SD/- (A. N. PAHUJA) (MUKUL KR.SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD DATED : MAHATA/- 6 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD