ETCO AUTOMOTIVES P. LTD, MUMBAI v. ITO 8(1)(3), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO JUDICIAL MEMBER I.T.A.NO.171/MUM/2010 A.Y 2004-05 M/S ETCO AUTOMOTIVES PVT. LTD. 142 ANDHERI INDUSTRIAL ESTATE OPP. VEER DESAI ROAD ANDHERI (W) MUMBAI 400 053 PAN: AAACE 8120 E VS. THE INCOME TAX OFFICER -8 (1) (3) MUMBAI. (RESPONDENT) APPELLANT BY : SHRI DHARMESH SHAH. RESPONDENT BY : SHRI HEMANT LAL. O R D E R PER T.R.SOOD AM: IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED B UT THE ONLY DISPUTE IS REGARDING CONFIRMATION OF ADDITION ON AC COUNT OF DEEMED DIVIDEND U/S.2(22)(E). 2. THE APPEAL IS LATE BY 393 DAYS. THE LD. COUNSEL OF THE ASSESSEE REFERRED TO THE CONDONATION PETITION IN WHICH IT HA S BEEN STATED THAT WHEN THE ORDER OF CIT[A] WAS RECEIVED SAME WAS SENT TO THE TAX CONSULTANTS M/S BUTA SHAH & CO. CHARTERED ACCOUNTA NTS AND IN THEIR OFFICE IT WAS RECEIVED BY SHRI VIRAL DESAI C.A. W ORKING IN THEIR OFFICE. HE SIMPLY FILED THE SAME WITHOUT TAKING ACTION AND LATER ON LEFT THEIR OFFICE IN OCTOBER 2009. IN THIS REGARD AFFIDAVITS OF SHRI S.M. SANCHETI PARTNER OF M/S BUTA SHAH & CO. C.AS AS WELL AS OF SHRI VIRAL DESAI C.A. HAVE ALSO BEEN FILED. IT HAS BEEN FURTHER STAT ED BY SHRI RAMESH D. SHAH DIRECTOR OF THE COMPANY THAT THE WHOLE ISSUE CAME TO THE LIGHT 2 WHEN A SEARCH WAS CONDUCTED IN CASE OF GROUP COMPAN Y AND FRESH RETURNS WERE BEING FILED U/S.153A. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IT IS A CLEAR CASE OF MISTAKE BY THE EMPLOYEE CHARTERED ACCOUNTANT SHRI VIRAL DESAI AND IT HAS BEEN CONFIRM ED BY HIM AS WELL AS THE PARTNER OF THE CHARTERED ACCOUNTANTS FIRM AN D THEREFORE ASSESSEE SHOULD NOT BE PUNISHED FOR THE SAME. IN TH E LIGHT OF THESE FACTS HE MADE A PRAYER FOR CONDONATION OF DELAY. 3. ON THE OTHER HAND LD. DR SUBMITTED THAT THE CIT [A]S ORDER WAS RECEIVED BY THE ASSESSEE ON 23 RD SEPTEMBER 2008 AND IT HAS BEEN STATED IN THE AFFIDAVIT OF SHRI RAMESH D. SHAH THAT SHRI VIRAL DESAI CHARTERED ACCOUNTANT HAD LEFT THE FIRM M/S BUTA SHAH & CO. IN OCTOBER 2009 AND THEREFORE IT IS NOT CLE AR WHAT HAPPENED DURING THIS PERIOD AND ACCORDINGLY HE OPPOSED THE PETITION FOR CONDONATION OF DELAY. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULL Y WE ARE OF THE VIEW THAT THE ASSESSEE HAD SUFFICIENT REASONS FOR F ILING THE APPEAL LATE. IT HAS BEEN CLEARLY STATED IN THE AFFIDAVIT OF SHRI VIRAL DESAI CHARTERED ACCOUNTANT THAT HE HAD RECEIVED THE COPY OF THE CI T[A]S ORDER AND SINCE SHRI S. M. SANCHETI WAS NOT AVAILABLE IN THE OFFICE THE SAME WAS FILED IN THE RESPECTIVE FILE. IT HAS BEEN FURTHER S TATED THAT HE DID NOT ATTEND THE OFFICE ON 10 TH & 11 TH OCTOBER 2008 BEING SATURDAY AND SUNDAY AND ON THE NEXT WORKING DAY HE WAS DEPUTED T O ANOTHER CLIENT AND THAT IS WHY HE FORGOT TO BRING THIS MATTER TO T HE NOTICE OF SHRI S.M.SANCHETI AND LATER ON HE LEFT THE FIRM OF M/S B UTA SHAH & CO. IT IS 3 SIMPLY A CASE OF THAT SINCE THE CONCERNED CHARTERED ACCOUNTANT WHO WAS WORKING WITH M/S BUTA SHAH & CO. HAS FORGOTTEN TO BRING THE SAME TO THE NOTICE OF SENIOR COUNSEL LAND LATER ON THIS EMPLOYEE CHARTERED ACCOUNTANT LEFT THE FIRM. THEREFORE WE C ONDONE THE DELAY. 5. AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT SHRI RAME SH D. SHAH WAS HAVING 99.91% SHAREHOLDING IN THE ASSESSEE COMPANY AND 78.94% SHAREHOLDING IN M/S ECTO TELECOM LTD. AND SINCE LOA N WAS TAKEN FROM M/S ECTO TELECOM LTD. SAME TO THE EXTENT OF ACCUM ULATIVE PROFIT WAS TREATED AS DEEMED DIVIDEND U/S.2(22)(E). 6. THE ACTION OF THE AO HAS BEEN CONFIRMED BY THE L D. CIT[A]. 7. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ASST. CIT VS. BHAUMIK COLOUR P. LIMITED 313 ITR (AT) 146. HE FURTHER SUBMITTED THAT EVEN THE HON'BLE BOMBAY HIGH COURT HAS APPROVED THIS VIEW IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PVT. LTD. 324 ITR 263. 8. ON THE OTHER HAND LD. DR RELIED ON THE ORDER OF THE CIT[A]. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AC IT VS. BHAUMIK COLOUR P. LTD. [SUPRA] HAS HELD THAT FOR INVOKING T HE PROVISIONS OF SECTION 2(22)(E) THE SHAREHOLDER MUST BE BOTH REGIS TERED AND BENEFICIAL SHAREHOLDER AND THE DEEMED DIVIDEND COUL D NOT BE TAXED IN THE HANDS OF A PERSON OTHER THAN THE SHAREHOLDER. W E FURTHER FIND THAT 4 EVEN THE HON'BLE BOMBAY HIGH COURT IN CIT VS. UNIVE RSAL MEDICAL PVT. LTD. [SUPRA] HAS HELD HAS UNDER: HELD THAT THE TRIBUNAL HAD FOUND THAT AS A MATTER OF FACT NO LOAN OR ADVANCE WAS GRANTED TO THE ASSESSEE SINCE THE AMOU NT IN QUESTION HAD ACTUALLY BEEN DEFALCATED AND WAS NOT REFLECTED IN T HE BOOKS OF ACCOUNT OF THE ASSESSEE. THE FACT THAT THERE WAS DEFALCATIO N HAD BEEN ACCEPTED SINCE THIS AMOUNT WAS ALLOWED AS A BUSINESS LOSS DU RING THE COURSE OF ASSESSMENT YEAR 2006-07. EVEN ASSUMING THAT IT WAS A DIVIDEND IT WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSE SSEE BUT IN THE HANDS OF THE SHAREHOLDER. FOLLOWING THE ABOVE DECISION WE DECIDE THE ISSUE I N FAVOUR OF THE ASSESSEE. 10. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18TH DAY OF FEBRUARY 2011. SD/- SD/- (VIJAY PAL RAO) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 18 TH FEBRUARY 2011. P/-*