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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER
ITA No. 5528/Del/2013 Assessment Year: 2010-11
Income Tax Officer, Ward 1(1) vs. M/s AVA Merchandising 398-B, CR Bldg., Solutions P Ltd., I.P. Estate, New Delhi C/o M/s RRA Tax India, D-28, South Extension, New Delhi – 110 049 (PAN: AAHCA6569N) (APPELLANT) (RESPONDENT)
AND
CROSS OBJECTION NO. 318/Del/2014 (IN ITA NO. 5528/DEL/2013) Assessment Year: 2010-11
M/s AVA Merchandising Solutions vs. ITO, Ward 1(1) P Ltd., New Delhi C/o Ravi Gupta, Advocate, E-6A, Kailash Colony, New Delhi – 48 (APPELLANT) (RESPONDENT)
Appellant by : Sh. K.K. Jaiswal, DR Respondent by : Sh. P.C. Yadav, Adv. & Sh. Rajesh Jain, FCA
Date of Hearing : 19-01-2016 Date of Order : 10-02-2016
ORDER PER H.S. SIDHU, J.M.
The Department has filed the Appeal and Assessee has filed the Cross Objection which is emanate from the Order dated 05.7.2013 of Ld. CIT(A)-IV, New Delhi pertaining to assessment year 2010-11. The grounds raised in the revenue’s appeal reads as under:-
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“1. Whether on the facts and circumstances of the case, the Ld. CIT(A) was correct in deleting the addition of Rs. 2,31,58,498/-, which was made u/s. 2(22)(e) of the I.T. Act, 1961. 2. Whether on the facts and circumstances of the case, deemed dividend u/s 2(22)(e) cannot be assessed in the receipt is not the registered share holder of company advancing loan or advance, although recipient person has beneficial interest by way of share holding in both the companies. 3. The appellant craves leave for reserving the light to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
The brief facts of the case are that the assessee entered into some transactions with its sister concerns M/s AVA Merchandising Pvt. Ltd. (hereinafter referred as AMPL). The transactions included exchange of cash, journal entries with reference to payments on behalf of each other and / or transfer of assets and inventories. There were frequent debit balance by the appellant to the AMPL. The AO analyzed the shareholding pattern and observed that Sh. Amit Chopra was having 9500 out of 25000 shares of AMPL which comes to 38% of total shares. The AO also observed that AMPL was having accumulated profit of RS. 2,37,95,261/- as opening balance and RS.1,34,53,618/- as closing balance. The AO further noticed that Sh. Amit Chopra was having 522800 out of 535250 shares of the appellant company which comes to 97.67%. Thus, Sh. Amit Chopra has substantial interest in both the companies. The AO asked the assessee to explain as to why Section 2(22)(e) should not be invoked. The assessee contended before the AO that the assessee company is not a shareholder in AMPL and hence addition on this account cannot be made in the hands of the assessee company. It was further submitted that the transactions are on account of sale-purchase which do not come under the definition of loans and advance. It was submitted that both the entities i.e. the assessee company and AMPL are sundry debtors and sundry creditors in each other books of accounts and therefore, Section 2(22)(e) is not applicable. The AO came to the conclusion that since Sh. Amit Chopra is having substantial shares of both the companies and there was a constant debit balance of assessee company in the books of the AMPL,
ITA NO. 5528/Del/2013 & CO No. 318/Del/2014 3
the peak of the same amounting to Rs.2,31 ,58,498/- was taxable as deemed dividend u/s 2(22)(e). Accordingly, he made the addition of above amount and assessed the income at Rs. 2,40,14,830/- vide his order dated 09.1.2013 passed u/s. 143(3) of the I.T. Act, 1961. 3. Against the aforesaid assessment order, the assessee appealed before the Ld. CIT(A), who vide impugned order dated 05.7.2013 allowed the appeal of the assessee and deleted the addition in dispute. 4. Aggrieved with the impugned order, the Revenue is in appeal before the Tribunal. 5. Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal. It was submitted by the learned DR that the AO has rightly assessed the income at Rs. 2,40,14,833/-. It was further submitted that AO has given cogent reasons for disallowing the addition of Rs. 2,31,91,194/- made u/s. 2(22)(e) of the I.T. Act, 1961. 6. On the contrary, Ld. Authorised Representative of the assessee has relied upon the order of the Ld. CIT(A) and stated that the order of the Ld. CIT(A) is a well reasoned order and therefore, the same may be upheld and Revenue’s appeal may be dismissed accordingly. 7. We have heard both the parties and perused the relevant records, especially the orders of the authorities below and the case law cited by the Ld. Authorised Representative of the Assessee. We find that Ld. First Appellate Authority has elaborately discussed the issue in dispute by considering the submissions of the Ld. Counsel of the assessee and adjudicated the issue in dispute vide para 5.5 to 5.5.1 at pages 6 to 7 of his impugned order. For the sake of convenience the relevant paras of the findings of the Ld. CIT(A) are reproduced hereunder.
“5.5 I have carefully considered the submissions of the Ld. AR and perused the order passed by the AO. I have also considered the remand report of the AO and rejoinder of
ITA NO. 5528/Del/2013 & CO No. 318/Del/2014 4
the appellant on the remand report. The facts of the case are that the during the year under reference the appellant company had regular transactions with the AMPL and there was peak debit balance of Rs.2,31 ,58,498/-. The AO made the addition uls 2(22)(e) on the ground that Sh. Amit Chopra has 38% shareholding in AMPL and 97% shares in the appellant company. On careful examination of the provisions of Section 2(22)(e) of the Act, I have find that Section 2(22)(e) reads as under: "dividend" includes- (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 after 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 less 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 behalf or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but does not include- (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; Explanation 3. -For the purpose of this clause -
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(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 substantial 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;" It is seen that the peak of debit of the appellant company in the books of the AMPL was Rs.2,31 ,58,498/-.
5.5.1 The Courts have held that the deemed dividend u/s 2(22)(e) can be brought to tax only in the hands of the registered shareholders of the lender company and not in the hands of a beneficial shareholder. Reference may be made to the judgment of Hon'ble ITAT Mumai Bench 'E' (Special Bench) in ACIT v. M/s Bhaumik Color (P) Ltd. Ltd. (2009) 118 ITO 1 as well as the order of Hotel Hilltop 313 ITR 116 Raj. The Jurisdictional High Court in the case of CIT V Ankitech Pvt. Ltd. and Ors. 314 ITR 14 has held that a concern which is given loan or advance by a company cannot be treated as shareholder / member of the latter simply because a shareholder of the lender company holding voting power of toper cent or more therein has substantial interest in such concern. The Hon'ble High Court has further held that if the intention of the legislature was to tax such loan or advance as deemed dividend at the hands of the deeming shareholder, it would have inserted deeming provision in respect of shareholder as well. It was held that deemed dividend u/s 2(22)(e) cannot be taxed in the hands of a non- shareholder. Respectfully following the judgment of the Jurisdictional High Court, I hold that the appellant company (M/s AVA Merchandising (P) Ltd.) not being a shareholder of the creditor company (M/s AMPL), the amount of debit balance cannot be added in the hands of the appellant company as
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deemed dividend u/s 2(22)(e) of the Act. The same is, therefore, deleted. Grounds of appeal are allowed.” 7.1 On going through the aforesaid finding of the Ld. CIT(A) on the issue in dispute and the case laws cited in the impugned order, we are of the view that the assessee during the year had regular transactions with the AMPL and there was peak debit balance of Rs.2,31,58,498/-. The AO made the addition uls 2(22)(e) on the ground that Sh. Amit Chopra has 38% shareholding in AMPL and 97% shares in the appellant company. We further force in the finding of the Ld. CIT(A) that deemed dividend u/s 2(22)(e) can be brought to tax only in the hands of the registered shareholders of the lender company and not in the hands of a beneficial shareholder. The following reliance placed by the Ld. CIT(A) in his impugned order fully supports the case of the assessee:
- Judgment of Hon'ble ITAT Mumai Bench 'E' (Special Bench) in ACIT v. M/s Bhaumik Color (P) Ltd. Ltd. (2009) 118 ITO 1 - Hotel Hilltop 313 ITR 116 Raj. 7.2 We further find that the Jurisdictional High Court in the case of
CIT V Ankitech Pvt. Ltd. and Ors. 314 ITR 14 has held that a concern
which is given loan or advance by a company cannot be treated as
shareholder / member of the latter simply because a shareholder of
the lender company holding voting power of toper cent or more therein
has substantial interest in such concern. We further note that the
Hon'ble High Court has further held that if the intention of the
legislature was to tax such loan or advance as deemed dividend at the
hands of the deeming shareholder, it would have inserted deeming
provision in respect of shareholder as well. It was held that deemed
dividend u/s 2(22)(e) cannot be taxed in the hands of a non-
ITA NO. 5528/Del/2013 & CO No. 318/Del/2014 7
shareholder. Respectfully following the judgment of the Jurisdictional
High Court, as aforesaid, we are of the considered opinion that the
assessee company (M/s AVA Merchandising (P) Ltd.) not being a
shareholder of the creditor company (M/s AMPL), the amount of debit
balance cannot be added in the hands of the assessee company as
deemed dividend u/s 2(22)(e) of the Act. Therefore, the Ld. CIT(A)
was right in deleting the addition of Rs. 2,31,58,498. Hence, we do
not find any infirmity in the order of the Ld. CIT(A), therefore, we
uphold the same and the issue raised by the Revenue stands
dismissed. As a result, the Revenue’s Appeal is dismissed.
ASSESSEE’S CROSS OBJECTION 8. The Assessee has filed the Cross Objection. We find that the Cross
Objection filed by the Assessee is time barred by 202 days. However, the
Assessee has filed the Application for Condonation of Delay for 185 days.
The Cross Objection was filed by taking a plea that the same could not be
filed within 30 days of the date of service of notice of hearing as the
assessee was advised to file Cross Objections upon change of counsel only,
the earlier counsel has advised the assessee otherwise. But at the time of
hearing, Ld. Counsel of the Assessee Sh. PC Yadav, Advocate has withdrawn
the Cross Objection and also endorsed the same on the Grounds of Cross
Objection.
8.1 Ld. DR has not raised any serious objection to the withdrawal of the
Cross Objection.
ITA NO. 5528/Del/2013 & CO No. 318/Del/2014 8
8.2 Since the Cross Objection filed by the assessee has been withdrawn,
the same is dismissed as such.
In the result, the Revenue’s Appeal as well as Assessee’s Cross
Objection stand dismissed.
Order pronounced in the Open Court on 10/02/2016.
Sd/- Sd/-
(L.P. SAHU) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 10/2/2016 *SR BHATNAGAR* Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY By Order,
ASSISTANT REGISTRAR