DCIT 8(2), MUMBAI v. NIRMAN HEIGHTS PVT. LTD, MUMBAI

ITA 5053/MUM/2014 | 2010-2011
Pronouncement Date: 31-07-2015 | Result: Dismissed

Appeal Details

RSA Number 505319914 RSA 2014
Assessee PAN AACCN7848L
Bench Mumbai
Appeal Number ITA 5053/MUM/2014
Duration Of Justice 11 month(s) 27 day(s)
Appellant DCIT 8(2), MUMBAI
Respondent NIRMAN HEIGHTS PVT. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted SMC
Tribunal Order Date 31-07-2015
Assessment Year 2010-2011
Appeal Filed On 04-08-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH MUMBAI BEFORE SHRI G.S. PANNU ACCOUNTANT MEMBER ITA NO . 5053 / MUM./ 2014 ( ASSESSMENT YEAR : 20 10 11 ) DY. COMMISSIONER OF INCOME TAX 8(2) AAYAKAR BHAVAN 101 M.K. ROAD MUMBAI 400 020 .. APPELLANT V /S M/S. NIRMAN HEIGHTS PVT. LTD. 501/502 PENINSULA HEIGHTS C.D. BARFIWALA ROAD JUHU LANE ANDHERI (W) MUMBAI 400 058 PAN AACCN7848L .... RESPONDENT REVENUE BY : SHRI G.N. MAKAWANA ASSESSEE BY : SHRI K.K. LAL KAKA DATE OF HEARING 1 4 .0 7 .2015 DATE OF ORDER 31.07.2015 O R D E R PER G.S. PANNU ACCOUNTANT MEMBER TH E PRESENT APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 15 TH MAY 2014 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) 17 MUMBAI F OR THE ASSESSMENT YEAR 20 10 11 . THE G ROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS FOLLOWS : ' 1. W HET H ER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.16 49 216 / - U / S 2(22)(E) OF THE ACT IGNORING THE FACT THAT THE PROVISIONS OF SECTION 2(22)(E) ARE SQUARELY APPL ICABLE TO THE ASSESSEE'S CASE? M/S. NIRMAN HEIGHTS PVT. LTD. 2 2. W HET H ER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.16 49 216 / - U / S 2(22)(E ) OF THE ACT HOLDING THAT THE DEEMED DIVIDEND IS TAXABLE ONLY IN THE HANDS OF SHAREHOLDERS BY PLACING RELIANCE UPON THE DECISION OF SPECIAL BENCH IN THE CASE OF ACIT VS BHAUMIK COLOURS (2009) SOT (MUM SB) IGNORING THAT THE SAID DECISION HAS NOT BEEN ACCEP TED ON THE MERITS? 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HAS RECEIVED LOANS FROM TWO OF ITS SISTER / ASSOCIATE CONCERNS NIRMAL REALTORS AND DEVELOPERS LTD. (NRDL) AND RESIDENTIAL NIRMAN PVT. LTD. (NRPL) OF ` 8 81 216 AND ` 7 68 000 RESPECTI VELY AGGREGATING TO ` 16 48 216 . SHARE HOLDING PATTERN OF THE ASSESSEE COMPANY NRDL AND NRPL AS ON 3 1 ST MARCH 2009 AND 31 ST MARCH 2010 WAS AS UNDER: NAME OF THE SHARE HOLDER NIRMAN HEIGHTS (ASSESSEE COMPANY) NIRMAL REALTORS AND DEVELOPERS LTD. (NRDL) RE SIDENTIAL NIRMAN PVT. LTD. (RNPL) AJIT S. MARATE 45% 48.66% 45% RAJENDRA M. SAWANT 45% 48.66% 45% 3. IT WAS FURTHER OBSERVED FROM THE BALANCE SHEET AS AT 31 ST MARCH 2009 OF NRDL AND RNPL BOTH THESE COMPANY HAD ACCUMULATED PROFITS OF ` 40 79 656 AND ` 87 19 870 RESPECTIVELY. THE ASSESSEE WAS SHOW CAUSED AS TO WHY THESE RECEIPTS AGGREGATING TO ` 16 49 216 BE NOT TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THE ASSESSEE IN ITS REPLY SUBMITTED THAT THESE AMOUNTS WERE REVCEIVED FOR INVESTMENT IN THE PROJECT AT KHANDALA. THE ASSESSEE ALSO SUBMITTED THAT THE AMOUNTS WERE RECEIVED FROM THESE COMPANIES AND ALSO THERE M/S. NIRMAN HEIGHTS PVT. LTD. 3 WERE RE PAYMENTS DURING THE YEAR TO THESE COMPANIES AND HENCE THERE WAS A RUNNING ACCOUNT. THE ASSESSEE ALSO SUBMITTED THAT IT IS N OT THE SHAREHOLDER IN THESE COMPANIES AND THESE RECEIPTS HAVE NOT RESULTED IN ANY BENEFIT TO THE SHAREHOLDERS OF THE ASSESSEE COMPANY OR THE LENDING COMPANY. THE ASSESSEE RELIED UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CIT V/S N ATIONAL TRAVEL S ERVICES ITA NO. 223 219 1204 AND 309 OF 2010 DATED 11 TH JULY 2011. IT ALSO STATE THAT RNPL HAS A LOSS DURING THE YEAR. H ENCE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WILL NOT BE APPLICABLE. THE ASSESSING OFFICER HELD THAT SECTION 2(22)(E) IS A DEE MING FICTION CREATED BY THE LEGISLATURE AS DEVICE TO BRING TO TAX THE SIPHONING OF THE DIVIDEND IN THE CLOSELY HELD COMPANIES GIVING THE COLOUR AS ADVANCE AND LOANS AND HENCE THE PROVISIONS OF SECTION 2(22)(E) ARE APPLICABLE. HE ALSO REFERRED TO THE CBDT CIRCULAR NO.49 5 DATED 22 ND SEPTEMBER 1987 WHEREIN THE CBDT HAS EXPLAINED THE PROVISIONS OF SECTION 2(22)(E) AS UNDER: . THE NEW PROVISION WOULD THEREFORE BE APPLICABLE IN A CASE WHERE A SHAREHOLDER HAS 10 PERCENT OR MORE OF THE EQUITY CAPITAL. FUR THER DEEMED DIVIDEND WOULD BE TAXED IN THE HANDS OF A CONCERN WHERE ALL THE FOLLOWING CONDITIONS ARE SATISFIED. (I) WHERE THE COMPANY MAKES THE PAYMENT BY WAY OF LOANS OR ADVANCES TO A CONCERN. (II) WHERE A MEMBER OR A PARTNER OF THE CONCERN HOLDS 1 0 PERCENT OF THE VOTING POWER IN THE COMPANY; AND (III) WHERE THE MEMBER OF A PARTNER OF THE CONCERN IS ALSO BENEFICIALLY ENTITLED TO 20 PERCENT OF THE INCOME T O SUCH CONCERN. M/S. NIRMAN HEIGHTS PVT. LTD. 4 WITH A VIEW TO AVOID THE HARDSHIP IN CASES WHERE ADVANCES OR LOANS HAVE ALR EADY BEEN GIVEN THE NEW PROVISIONS HAVE BEEN MADE APPLICABLE ONLY IN CASES WHERE LOANS OR ADVANCES ARE GIVEN AFTER 31 ST MAY 1987. THESE AMENDMENTS WILL APPLY IN RELATION TO A. Y. 1988 - 89 AND SUBSEQUENT YEARS HENCE HE MADE THE ADDITION OF ` 16 4 9 216 UNDER SECTION 2(22)(E) AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE IN RESPECT OF THE ADVANCES RECEIVED FROM NRDL AND RNPL OF ` 8 81 216 AND ` 7 68 000 RESPECTIVELY. 4. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY AND R EITERATED ITS STAND. THE CIT(A) HELD THAT IN THE DECISION OF THE TRIBUNAL SPECIAL BENCH MUMBAI IN CIT V/S BHAUMIK COLORS PVT. LTD. [2009] 120 TTJ (MUM.) 865 (SB) THE TRIBUNAL HELD THAT TWO CONDITIONS NEEDS TO BE SATISFIED FOR INVOKING THE PROVISIONS O F SECTION 2(22)(E) OF THE ACT. FIRST THE SHAREHOLDER SHOULD BE A REGISTERED SHAREHOLDER AND SECONDLY THE SHAREHOLDER SHOULD ALSO BE A BENEFICIAL OWNERS OF THE SHARE AND IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT A BENEFICIAL SHAREHOLDER THEN THE PR OVISIONS OF SECTION 2(22)(E) IS NOT APPLICABLE. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN ALSO THE FIRST LIMB OF PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. FURTHER THE DEEMED DIVIDEND CAN BE ASSESSED IN THE HANDS OF THE PERSON WHO I S A SHAREHOLDER OF LENDER COMPANY AND NOT IN THE HANDS OF OTHER THAN THE SHAREHOLDER AND HENCE THE M/S. NIRMAN HEIGHTS PVT. LTD. 5 CIT(A) DELETED THE ADDITION FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S UNIVERSAL MEDICARE PVT. LTD. [2011] 237 CTR 147 (BOM.) AND THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CIT V/S ANKITECH PVT. LTD. [2012] 340 ITR 14 (DEL.). 5. THE REVENUE BEING AGGRIEVED BY THE ORDER PASSED BY THE CIT(A) IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LEARNED DEPA RTMENTAL REPRESENTATIVE BEFORE ME CONTENDED THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CREATES A DEEMING FICTION TO BRING TO TAX THE DISTRIBUTION OF DIVIDEND BY CLOSELY HELD COMPANIES BY GIVING IT THE COLOUR OF ADVANCE S AND LOANS. HE ALSO REITERA TED THAT AS PER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT THE ADVANCE MADE BETWEEN THE GROUP COMPANIES INTER SE ARE LIABLE TO BE TAXED I N THE HANDS OF THE ASSESSEE. MY ATTENTION WAS DRAWN TO THE PROVISIONS OF SECTION 2(22)(E) WHICH IS REPRODUCED HEREU NDER: (E) ANY PAYMENT BY A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTE R THE 31ST DAY OF MAY 1987 BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LES S THAN TEN PER CENT OF THE VOTING POWER OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHA LF OR FOR - THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER TO THE EXTENT TO WHICH THE COMPANY IN M/S. NIRMAN HEIGHTS PVT. LTD. 6 EITHER CASE POSSESSES ACCUMULATED PROFITS; BUT' DIVIDEND' DOES NOT INCLUDE: (I) . (A) 'CONCERN' MEANS A HINDU UNDIVIDED FAMILY OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY; (B) A PERSON SHALL BE DEEMED TO HAVE A SUB STANTIAL INTEREST IN A CONCERN OTHER THAN A COMPANY IF HE IS AT ANY TIME DURING THE PREVIOUS YEAR BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER CENT OF THE INCOME OF SUCH CONCERN;] 7. HE REITERATED THAT THE SHAREHOLDING PATTERN OF THESE COMPANIES C LEARLY REVEALS THAT SHRI AJIT S. MARATE AND SHRI RAJENDRA M. SAWANT ARE HOLDING 90% OR MORE OF THE EQUITY OF ALL THESE THREE COMPANIES AND ARE COVERED BY DEEMING FICTION OF SECTION 2(22)(E) OF THE ACT AND HENCE THE ASSESSING OFFICER RIGHTLY MADE THE ADD ITION. HE RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CASE IS COVERED BY THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN UNIVERSAL MEDICARE PVT. LTD. (SUPRA) AND ALSO BY THE DECISION OF THE TRIBUNAL SPECIAL BENCH MUMBAI IN BHAUMIK COLORS PVT. LTD. (SUPRA). HE ALSO RELIED UPON THE DECISION OF HON'BLE MADRAS HIGH COURT IN CIT V/S PRINTWARE SERVICES PVT. LTD. 373 ITR 669 (MAD.) AND THE DECISION OF HON'BLE DELHI HIGH COURT IN ANKITECH PVT. LT D. (SUPRA). HE SUBMITTED THAT THE ASSESSEE COMPANY IS NOT A REGISTERED OR BENEFICIAL SHARE HOLDER IN NRDL / RNPL AND HENCE THE AGGREGATE ADVANCE OF ` M/S. NIRMAN HEIGHTS PVT. LTD. 7 16 49 216 RECEIVED FROM THESE TWO COMPANIES BY THE ASSESSEE COMPANY IS NOT HIT BY THE DEEMING PROVISION S OF SECTION 2(22)(E) OF THE ACT AND THE CIT(A) HAS RIGHTLY DELETED THE ADDITION. 9. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS UNDENIABLE THAT THE ASSESSEE COMPANY IS NOT A SHAREHOLDER IN NRLD AND RNPL AND THERE FORE AS HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN UNIVERSAL MEDICARE PVT. LTD. (SUPRA) AND ALSO BY THE DECISION OF THE TRIBUNAL SPECIAL BENCH MUMBAI IN BHAUMIK COLORS PVT. LTD. (SUPRA) THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE WHE REIN IT HAS BEEN HELD THAT THE AMOUNT OF DEEMED DIVIDEND COVERED UNDER SECTION 2(22)(E) OF THE ACT CAN ONLY BE TAXED IN THE HANDS OF A SHAREHOLDER OF THE LENDER COMPANY. CONSEQUENTLY IN MY CONSIDERED OPINION THE CIT(A) HAS RIGHTLY DELETED THE ADDITION MA DE BY THE ASSESSING OFFICER ON THE ABOVE BASIS . THE ORDER OF THE CIT(A) IS HEREBY UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 10. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT O N 31.07.2015 SD/ - G.S. PANN U ACCOUNTANT MEMBER MUMBAI DATED : 31.07.2 0 15 M/S. NIRMAN HEIGHTS PVT. LTD. 8 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. PRIV ATE SECRETARY (DY./ASSTT. REGISTRAR) ITAT MUMBAI