ASST CIT CIR 3, KALYAN v. HERBERT BORWN PHARMACEUTICALS & RESEARCH LABORATORIES, MUMBAI

ITA 2774/MUM/2019 | 2015-2016
Pronouncement Date: 10-03-2021 | Result: Dismissed

Appeal Details

RSA Number 277419914 RSA 2019
Assessee PAN AAAFH7347B
Bench Mumbai
Appeal Number ITA 2774/MUM/2019
Duration Of Justice 1 year(s) 10 month(s) 7 day(s)
Appellant ASST CIT CIR 3, KALYAN
Respondent HERBERT BORWN PHARMACEUTICALS & RESEARCH LABORATORIES, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 10-03-2021
Appeal Filed By Department
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 10-03-2021
Last Hearing Date 29-10-2020
First Hearing Date 23-02-2021
Assessment Year 2015-2016
Appeal Filed On 03-05-2019
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN ACCOUNTANT MEMBER ITA NO. 2774 /MUM./2019 ( ASSESSMENT YEAR : 20 15 16 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 3 KALYAN DIST. THANE . APPELLANT V/S HERBERT BROWN PHARMACEUTICALS & RESEARCH LABORATORIES W - 256/257/258 A MIDC PHASE II SHIVAJI UDYOG NAGAR DOMBIVALI (E) MUMBAI 400 001 PAN AAAFH7347B . RESPONDENT REVENUE BY : SHRI GURBINDER SINGH ASSESSEE BY : NONE DATE OF HEARING 23 .02.2021 DATE OF ORDER 10.03.2021 O R D E R PER S. RIFAUR RAHMAN A.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE CHALLENGING THE ORDER DATED 20 TH FEBRUARY 2019 PASSED BY THE LEARNED COMMISSIONER (APPEALS) 1 MUMBAI PERTAININ G TO THE ASSESSMENT YEAR 2010 11 . 2. THE ISSUE ARISING OUT OF THE GROUNDS OF APPEAL RAISED BY THE REVENUE IS WHETHER OR NOT THE LEARNED COMMISSIONER (APPEALS) WAS 2 HERBERT BROWN PHARMACEUTICALS & RESEARCH LABORATORIES JUSTIFIED IN DELETING THE ADDITION OF ` 2 89 21 986 MADE BY THE ASSESSING OFFICER IN THE HANDS OF THE ASSESSEE FIRM UNDER SECTION 2(22)(E) OF THE INCOME TAX ACT 1961 (FOR SHORT 'THE ACT' ) . 3. BRIEF FACTS ARE THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF CHEMICALS AND DRUGS AND INTERMEDIATES. FOR TH E YEAR UNDER CONSIDERATION THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH SEPTEMBER 2015 DECLARING TOTAL INCOME OF ` 26 55 170. THE ASSESSING OFFICER FROM THE MATERIAL AVAILABLE BEFORE HIM OBSERVED THAT THE ASSESSEE HAS BORROWED LOANS FROM PRIVATE LIMITE D COMPANIES WHEREIN COMMON SHAREHOLDERS HELD OVER 10% OF THE VOTING RIGHTS. THE AMOUNT OF LOANS TAKEN BY THE ASSESSEE DETAILS OF COMMON SHAREHOLDERS AND THEIR SHARE HOLDING RATIOS DETAILS OF THE RESERVES AND SURPLUS AVAILABLE WITH THOSE COMPANIES ARE GIV EN BELOW: NAME & PARTICULARS M/S. SHIRDI CHEMICALS PVT. LTD. SHARES % USHA S. ACHARYA 235000 30% PERCENTAGE OF SHARE HOLDING OF USHA S. ACHARYA IN ASSESSEE FIRM AS A PARTNER 45% RESERVES & SURPLUS AS ON 31.03.2015 ` 16 11 00 736 AMOUNT OF LOAN / ADVANCE GIVEN TO ASSESSEE FIRM ` 2 89 21 986 AMOUNTS ATTRACTING PROVISIONS OF SECTION 2(22)(E) ` 2 89 21 986 3 HERBERT BROWN PHARMACEUTICALS & RESEARCH LABORATORIES 4. FROM THE ABOVE THE ASSESSING OFFICER WAS OF THE VIEW THAT THE AMOUNT OF LOANS TO THE EXTENT OF THE RESERVES AND SURPLUS AVAILABLE WITH M/S. SHIRDI CHEMICALS PVT. LTD. FALLS WITHIN THE AMBIT OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND HENCE LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES . THE ASSESSING OFFICER SOUGHT EXPLANATION BY ISSUING A SPECIFIC SHOW CAUSE NOTICE DATED 30 TH NOVEMBER 2017. THE ASSESSEE IN RESPONSE TO SUCH NOTICE SUBMITTED THAT THE ASSES SEE FIRM IS NOT A SHAREHOLDER AND HENCE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS NOT APPLICABLE FOR THE REASON THAT TO RECEIVE DIVIDEND ONE MUST BE A SHAREHOLDER. IN SUPPORT OF THIS CONTENTION THE ASSESSEE RELIED UPON THE DECISION OF THE HON'BLE SUPR EME COURT IN CIT V/S C.P. MUDALIAR [2972] 83 ITR 170 (SC). THE ASSESSEE IN SUPPORT OF ITS CLAIM ALSO RELIED UPON VARIOUS OTHER JUDICIAL PRONOUNCEMENTS AND MADE SIMILAR ARGUMENTS. TH E ASSESSING OFFICER AFTER CONSIDERING DETAILED SUBMISSIONS OF THE ASSESSEE MADE DISALLOWANCE FOR THE REASON THAT THE ASSESSEE FIRM HAVING RECEIVED AN ADVANCE IN WHATEVER FORM THE SAME FALLS WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. HE OBSERVED THAT T HE ASSESSEES CONTENTION THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICATION TO TRADE ADVANCES THE SAME WA S NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER FOR THE REASON THAT THE LANGUAGE USED IN THIS SECTION REFERS TO ANY PAYMENT BY A 4 HERBERT BROWN PHARMACEUTICALS & RESEARCH LABORATORIES COMPANY BY WAY OF ADVANCE OR LOAN AND THE ASSESSEE FIRM HAVING RECEIVED AN ADVANCE IN WHATEVER FORM THE SAME FALLS WITHIN THE AMBIT OF SECTION 2(22)(E) OF THE ACT. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE EXCEPTION IS AVAILABLE IN CASE THE LENDING COMPANY IS ENGAGED IN THE MONEY LENDING BUSINESS AND IN THE PRESENT CASE NONE OF THE LENDERS SPECIFIED IN THE ABOVE TABLE ARE ENGAGED IN THE BUSINESS OF MONEY LENDING AND THE ADVANCES ARE NOT MADE DURING THE NORMAL COURSE OF BUSINESS ACTIVITY. ACCORDINGLY THE ASSESSING OFFICER HELD THAT THE AMOUNTS ARE CLEARLY FALLING WITHIN THE AMBIT OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND ARE LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES . THE ASSESSEE BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5. DURING THE FIRST APPELLATE PROCEEDINGS THE ASSESSEE CONTESTED THE ADDITION UNDER SECTION 2(22)(E) OF THE ACT AND THE ASSESSEES ARGUMENTS ON TH IS ISSUE WERE AS FOLLO WS: THE AO HAS ERRED IN UNDERSTANDING THE FACTS OF THE CASE. THE ADDITIONS MADE ARE IN MECHANICAL NATURE WITHOUT APPLICATION OF MIND. THE AO FAILED TO APPRECIATE THAT THE ADVANCES GIVEN WERE TRADE ADVANCES AND NOT GRACIOUS LOANS. THERE WERE IN NATURE OF A BUSINESS TRANSACTION AND NOT FOR THE BENEFIT FOR THE SHAREHOLDER. THE AO FAILED TO APPRECIATE THE FACT THAT THE FIRM IS NOT A SHAREHOLDER OF THE COMPANY & THE SECTIONS RE/ALES TO DEEMED DIVIDEND. DIVIDEND IS RECEIVED BY A SHAREHOLDER AND IN THIS CAS E THE FIRM / ASSESSEE IS NOT A SHAREHOLDER OF THE COMPANY. 5 HERBERT BROWN PHARMACEUTICALS & RESEARCH LABORATORIES LASTLY THE ASSESSEE HAS BEEN SCRUTINIZED EVERY YEAR AND NEVER PRIOR TO A Y 2010 - 11 THE ISSUE WAS RAISED BY THE AO EVER. THE FACTS AND CIRCUMSTANCES WERE SAME AND THEY WERE ACCEPTED BY THE DEPARTM ENT. WHAT CHANGED AFTER AY 2010 - 11/S THAT THE AO COULD MAKE BIG ADDITIONS AS THEY WERE MADE THE EARLIER YEAR. NO AO APPLIED HIS MIND FOR UNDERSTANDING THE FACTS OF THE CASE NOR HOW THE LAW INTERPRETED THE SEC. 2(22)(E). 6. THE LEARNED COMMISSIONER (APPEALS ) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 2(22)(E) OF THE ACT BY FOLLOWING THE DECISION OF HIS PREDECESSOR IN OFFICE WHO PREVIOUSLY ALLOWED THE ASSESSEES CLAIM IN ASSESSEES OWN CASE AS WELL FOLLOWING THE ORDER OF THE TRIBUNAL PASS DIN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2019 10 2010 11 2011 12 2012 13 AND 2013 14 WHEREIN THE TRIBUNAL HAS ALLOWED IDENTICAL ISSUE RAISED BY THE ASSESSEE. THE REVENUE BEING AGGRIEVED BY THIS ORDE R OF THE LEARNED COMMISSIONER (APPEALS) PREFERRED APPEAL BEFORE THE TRIBUNAL. 7. BEFORE US WHEN THE CASE WAS CALLED FOR HEARING NEITHER THE RESPONDENT ASSESSEE NOR ANY OF HER AUTHORISED REPRESENTATIVES APPEARED BEFORE US TO REPRESENT THE CASE. THERE IS NO APPLICATION FOR ADJOURNMENT EITHER. CONSEQUENTLY WE PROCEED TO DISPOSE OFF THE APPEAL AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE AND ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 6 HERBERT BROWN PHARMACEUTICALS & RESEARCH LABORATORIES 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER O F THE ASSESSING OFFICER AND SUBMITTED THAT THOUGH THE RECIPIENT OF LOAN OR ADVANCE BY THE COMPANY IS NOT A SHAREHOLDER BUT IS A CONCERN IN WHICH SHAREHOLDERS ARE HAVING SUBSTANTIAL INTEREST. HE SUBMITTED THAT THE LEARNED COMMISSIONER (APPEALS) HAS INCORREC TLY INTERPRETED THE PROVISIONS OF SECTION 2(22)(E) EVEN THOUGH AT LEAST ONE SHAREHOLDER HOLDING 30% SHARE IN THE COMPANY AND 45% SHARE IN THE ASSESSEES FIRM. WHILE CONCLUDING THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT THE LEARNED COMM ISSIONER (APPEALS) FAILED TO APPRECIATE THE JUDGMENT OF THE HON'BLE SUPREME COURT IN GOPAL & SONS (HUF) V/S CIT [2017] 391 ITR 001 (SC) WHEREIN THE HONBLE COURT BY DISMISSING THE ASSESSEES APPEAL HELD THAT EVEN IF HUF IS NOT A REGISTERED SHAREHOLDER IN LENDING COMPANY ONCE PAYMENT IS RECEIVED BY HUF AND KARTA WHO IS SHAREHOLDER IN LENDING COMPANY HAS SUBSTANTIAL INTEREST IN HUF PAYMENT MADE TO HUF SHALL CONSTITUTE DEEMED DIVIDEND IN HUF'S HAND AS PER EXPLANATION 3 TO SECTION 2(22)(E) OF THE ACT. 9. CO NSIDERING THE SUBMISSIONS THE LEARNED DEPARTMENTAL REPRESENTATIVE AND ON A PERUSAL OF THE MATERIAL ON RECORD IN THE LIGHT OF THE DECISIONS RELIED UPON WE FIND THAT THE ISSUE ON APPLICABILITY OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS SQUARELY COVERED IN FAVOUR 7 HERBERT BROWN PHARMACEUTICALS & RESEARCH LABORATORIES OF THE ASSESSEE BY THE DECISION OF THE CO ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN PRECEDING ASSESSMENT YEAR 2019 10 2010 11 2011 12 2012 13 AND 2013 14 WHEREIN THE BENCH IN REVENUES APPEAL DECLINED TO INTERFERE WITH THE ORDE R OF THE FIRST APPELLATE AUTHORITY AND UPHELD THE SAME. CONSEQUENTLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) BY ALLOWING THE CLAIM OF THE ASSESSEE. WE ALSO NOTE THAT THE FACTS OF THE DECISION OF THE HON'BLE S UPREME COURT IN GOPAL & SONS (HUF) (SUPRA) ARE DISTINGUISHABLE IN NATURE INSOFAR AS THE FACTS OF THE PRESENT ISSUE ARE CONCERNED. THEREFORE THE CASE LAW RELIED UPON BY THE REVENUE IS NOT APPLICABLE TO THE FACTS OF THE PRESENT APPEAL. ACCORDINGLY THE ORD ER OF THE LEARNED COMMISSIONER (APPEALS) IS HEREBY UPHELD BY DISMISSING THE GROUNDS RAISED BY THE REVENUE. 10. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.03.2021 SD/ - SAKTIJIT DEY JUDICIAL MEMBER SD/ - S. RIFAUR RAHMAN ACCOUNTANT MEMBER MUMBAI DATED: 10.03.2021 8 HERBERT BROWN PHARMACEUTICALS & RESEARCH LABORATORIES COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT MUMBAI CITY CONCERNED; (5) THE DR ITAT MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT MUMBAI