KAUSHAL SILK MILLS P. LTD, MUMBAI v. DCIT RG 4(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SMT ASHA VIJAYARAGHA VAN (JM) ITA NO. 2558/MUM/2009 (ASSESSMENT YEAR-2003-04) M/S. KAUSHAL SILK MILLS PVT. LTD. JAI HIND ESTATE NO. 2A 2 ND FLOOR DR. A.M. ROAD BHULESHWAR MUMBAI-400 002 PAN-AAACK 1811G VS. THE DCIT 4 (2) MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI A.K. GOSH RESPONDENT BY: MRS. ASHIMA GUPTA O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A)- IV MUMBAI DATED 7.1.2009 FOR THE A.Y.2 003-04. 2. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U /S. 143(3) AND HELD THAT THE ASSESSEES CONTENTION THAT PROVISIONS OF S EC. 2(22)(E) IS NOT APPLICABLE IN ITS CASE IS UNACCEPTABLE. 3. THE ASSESSING OFFICER HELD AS FOLLOWS: AS PER SEC.2 (22) (E) ANY ADVANCE BY A COMPANY TO ITS SHAREHOLDER OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER HAS SUB STANTIAL INTEREST IS COVERED UNDER THE DEFINITION OF DEEMED DIVIDEND. FROM THE FACTS OF THE CASE IT IS CLEAR THAT THE ASSESSE E HAD RECEIVED AN ADVANCE FROM ITS SISTER CONCERNS. AS ADVANCES HAVE BEEN RECEIVED FROM THE SISTER CONCERNS AND THE REQUISITE CONDITI ONS OF SE.2 (22) (E) ARE SATISFIED IN THE CASE PROVISIONS OF SEC.2(22)( E) ARE APPLICABLE IN THE CASE. (I) THE ARGUMENT THAT CERTAIN AMOUNTS WERE RECOVERABLE FROM PSMP DOES NOT TAKE THE ASSESSEE OUT OF THE PURVIEW OF SE C.2(22)(E) AS THE AMOUNTS RECOVERABLE ARE MUCH LESS THAN THE LOAN REC EIVED FROM THE PARTY. ITA NO. 2558/M/09 2 (II) THE FACT THAT THE ASSESSEE HAS PAID INTEREST ON THE ADVANCES DOES NOT TAKE THE ASSESSEE OUT OF THE PURVIEW OF SEC.2(2 2)(E) AS NO SUCH EXCEPTION IS PROVIDED IN THE I.T.ACT. (III) THE CONTENTION THAT ADVANCING OF MONEY FORMED A SUB STANTIAL PART OF THE ACTIVITIES OF PSMP IS NOT ACCEPTABLE. PERUSAL O F THE P&L A/C. OF PSMP REVEALS THAT THE MAJOR ACTIVITY OF THE ASSESSE E IS SALE OF PROCESS CLOTH. DURING THE YEAR THE ASSESSEE HAS SHO WN SALES OF RS.7.47 CRS. ON ACCOUNT OF SALE OF CLOTH. ITS CLOSI NG STOCK OF CLOTH IS AT RS.3.82 CRS. EXPENSES OF RS.8.07 CRS. AND 1.56 CRS. HAVE BEEN DEBITED ON ACCOUNT OF PURCHASE AND PROCESS OTHER C HARGES RESPECTIVELY. AS AGAINST THIS IT HAS SHOWN INTEREST INCOME OF RS.0.02 CRS. ONLY DURING THE YEAR. CONSIDERATION OF THE ABO VE CLEARLY SHOWS THAT SALE OF PROCESSED CLOTH WAS THE SUBSTANTIAL PA RT OF THE ACTIVITIES OF PSMP. AS SUCH IT IS NOT COVERED BY THE EXCEPTION PROVIDED IN SEC.2(22)(E)(II). 4. AGGRIEVED BY THE ORDER OF THE AO ASSESSEE PREFE RRED AN APPEAL BEFORE THE LD. CIT(A) AND RELIED UPON THE DECISION OF THE SPECIAL BENCH IN THE CASE OF ACIT VS BHAUMIK COLOUR (P) LTD. (MUM)(SB). 5. THE LD. CIT(A) HELD AS FOLLOWS: SO FAR AS RELIANCE ON ACIT VS. BHAUMIK COLOUR PVT. LTD. ITAR MUMBAI JUDGEMENT THAT THE PROVISION OF SECTION 2(22 )(E) IS APPLICABLE ONLY IN CASE OF SHAREHOLDERS IS FOUND TO BE NOT TEN ABLE. THE SECOND LIMB OF SECTION 2(22)(E) IS APPLICABLE T O ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER. MR.SHIKARCHAND MOHANLAL PAHARIA AND PANCHULAL MOHANLAL PAHARIA ARE BENEFICI AL SUBSTANTIAL AND REGISTERED SHAREHOLDERS IN CASE OF PAHARIA SILK MILLS PVT. LTD. AND PAHARIA TEXTILE MILLS PVT. LTD. AND THE APPELLANT C OMPANY M/S.KAUSHAL SILK MILLS PVT. LTD. THE LOAN HAS BEEN GIVEN BY PAH ARIA TEXTILE MILLS PVT. LTD. AND PAHARIA SILK MILLS PVT. LTD. TO THE APPELL ANT M/S. KAUSHAL SILK MILLS PVT. LTD. THUS SECOND LIMB OF THE PROVISIONS OF SECTION 2(22)(E) ARE ATTRACTED. 6. AGGRIEVED BY THE ORDER OF THE LTD. CIT(A) ASSESS EE IS IN APPEAL BEFORE US. 7. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON TH E ORDER OF THE LOWER AUTHORITIES. ITA NO. 2558/M/09 3 8. WE HEARD BOTH THE PARTIES. WE FIND THAT M/S. KA USHAL SILK MILLS IS NOT A BENEFICIAL SHAREHOLDER IN ANY OF THE TWO COM PANIES AND THEREFORE THE ADDITION CONFIRMED BY THE LD. CIT(A) OF RS. 48 86 2 86/- IS TO BE DELETED. 9. THIS ISSUE IS SQUARELY COVERED BY THE SPECIAL BE NCH DECISION IN THE CASE OF ACIT VS BHAUMIK COLOUR (P) LTD. (MUM)(SB) WHEREIN IT HAS BEEN HELD AS FOLLOWS: THE EXPRESSION SHAREHOLDER REFERRED TO IN S. 2(2 2(E) REFERS TO BOTH A REGISTERED SHAREFHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHARE HOLDER THEN THE PROVISIONS OF S. 2(22)9E) WILL NOT APPLY. SIMILARL Y IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHO LDER THEN ALSO THE PROVISIONS OF S. 2(22)(E) WILL NOT APPLY. RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH WE ALLOW ASSESSEES APPEAL. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 9 TH DAY OF FEBRUARY 2011 SD/- SD/- (R.S. SYAL) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI DATED 9 TH FEBRUARY 2011. RJ COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CENTRAL - I CONCERNED 5. THE DR A BENCH TRUE COPY BY ORDER ASST. REGISTRAR I.T.A.T MUMBAI ITA NO. 2558/M/09 4 DATE INITIALS 1 DRAFT DICTATED ON: 3.02.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 3.02.2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: ______ 9 DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER: ______