Abhishek Investment (P) Ltd.,, ... vs Department Of Income Tax

1. आयकर अपील सं./I.T.A. No.1128/Ahd/2011 - A.Y. 2006-07 2. आयकर अपील सं./I.T.A. No.1317/Ahd/2011 - A.Y. 2006-07 1. ITO, 1. Abhishek Investment Ward-1(1) (P) Ltd. Ahmedabad 'Abhishek House' बनाम/ 5, Shrimali Society Vs. Nr.Navrangpura- Jain Derasar,Ahmedabad 2. Abhishek Investment 2. ITO (P) Ltd. Ward-1(1) Ahmedabad Ahmedabad थायी ले खा सं . /जीआइआर सं . / PAN/GIR No.AAFCA 2441 P (अपीलाथ% /Appellants) .. (&'यथ% / Respondents)

Revenue by : Shri Roop Chand, Sr.D.R. Assessee by : Shri R.C. Shah, A.R.

ु वाई क) तार ख / सन Date of Hearing 05/02/2015 घोषणा क) तार ख /Date of Pronounce ment 12/02/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

These cross-appeals by the Revenue and the Assessee are directed against the order of the Ld.Commissioner of Income Tax(Appeals)-VI, Ahmedabad ('CIT(A)' in short) dated 22/02/2011 pertaining to ITA No.1128 /Ahd/2011 (By Revenue) and ITA No.1317/Ahd/2011 (By Assessee) ITO vs. Abhishek Investment (P) Ltd.

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Assessment Year (AY) 2006-07. These appeals were heard together and are being disposed of by way of this consolidated order for the sake of convenience.

2. First, we take up the Revenue's appeal in ITA No.1128/Ahd/2011 for AY 2006-07. The Revenue has raised the following grounds of appeal:-

1. The Ld.CIT(A) erred in law and on facts in deleting the addition of Rs.19,83,425/- which was treated as deemed dividend u/s.2(22)(e) of the I.T.Act.

On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above, since the assessee has failed to disclose his true income.

The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.

2. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 18/09/2008, thereby the Assessing Officer (AO in short) made addition of Rs.19,83,425/- treating the loan amount received from M/s.Abhishek Engineers Pvt.Ltd. as deemed dividend. Apart from this, ITA No.1128 /Ahd/2011 (By Revenue) and ITA No.1317/Ahd/2011 (By Assessee) ITO vs. Abhishek Investment (P) Ltd.

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the AO disallowed the claim of income-tax amounting to Rs.1,289/- and claim of prior period expenses of Rs.495/-. Against this, assessee filed an appeal before us, who after considering the submissions directed the AO to delete the addition in respect of deemed dividend in the hands of the assessee and make the said addition in the hands of shareholder; namely, Shri Punit J.Shah or any other major shareholder in Abhishek Engineers Pvt.Ltd. Now, both the Assessee and Revenue feeling aggrieved by the direction of the ld.CIT(A) have preferred the present cross-appeals.

3. The Sr.DR supported the order of the AO and submitted that the ld.CIT(A) was not justified in deleting the addition made by the AO treating the loan received by the assessee-company from M/s.Abhishek Engineers Pvt.Ltd. as deemed dividend. He submitted that the ld.CIT(A) failed to appreciate the fact that Shri Punitbhai Jadavji Shah was also beneficiary being owner of the equity shareholder of M/s.Abhishek Engineers Ltd. holding 30% of the voting power during the year under consideration and, therefore, the AO was justified in treating the loan amount as deemed dividend received from M/s.Abhishek Engineers Pvt.Ltd, wherein one of the shareholders of the assessee-company was also a beneficiary and was holding equity shares of M/s.Abhishek Engineers Pvt.Ltd. He submitted that the loan amount was not given in the normal course of business and no commercial expediency is ITA No.1128 /Ahd/2011 (By Revenue) and ITA No.1317/Ahd/2011 (By Assessee) ITO vs. Abhishek Investment (P) Ltd.

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demonstrated for giving such loan to the assessee-company. He submitted that under these facts, the AO was justified in treating the loan amount as deemed dividend in the hands of the assessee.

3.1. On the contrary, the ld.counsel for the assessee submitted that the AO was not justified in invoking the provisions of section 2 (22)(e) of the Act as these provisions of section are not applicable on the facts of the present case. He submitted that it was demonstrated before the AO that one of the Objects of the company is also giving loans and advances. He submitted that the ld.CIT(A) was not justified in confirming the action of the AO for treating the loan amount as deemed dividend.

3.2. In the rejoinder, the ld.Sr.DR submitted that the assessee is not a non-banking finance company and is not entitled to claim the transaction as a business transaction. He submitted that the assessee has not placed any evidence suggesting that its activity of finance was permitted under the Banking Regulation Act, 1949 and or any other law. Hence, the AO was justified in making addition in the hands of the assessee-company.

4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) in para-2.3 of his order has decided this issue by observing as under:-

ITA No.1128 /Ahd/2011 (By Revenue) and ITA No.1317/Ahd/2011 (By Assessee) ITO vs. Abhishek Investment (P) Ltd.

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"2.3. I have considered the facts of the case, assessment order and appellant's submission. The undisputed facts are that appellant took loan from Abhisek Engineering private Ltd. Shri Punit J Shah was having substantial interest in both the companies and accordingly the loan advanced by Abhisek Engineering private Ltd. to the appellant company is taxable as deemed dividend under section 2(22)(e) of IT Act. Appellant said that it was business advance for commercial consideration but the said advance cannot be treated as given in normal course of business since the lender company is not in money lending business. Even the volume of total lending as compared to the business of Abhisek Engineering private Ltd is not even 10% therefore it cannot be said that it was the loan given in ordinary course of business. In view thereof, the provisions of section 2 (22)(e) is clearly applicable and loan amount has to be treated as deemed dividend.

Considering the fact of the case, the transaction of loan is treated as deemed dividend.

Appellant is not a shareholder in the lender company however assessing officer treated the same as deemed dividend in hands of appellant company. Appellant's main objection was that in view of the various decisions including special bench of ITAT Mumbai and Rajasthan High Court referred in appellant's submission, the addition of deemed dividend can be made only in the hands of shareholder. If the recipient of the loan is not a shareholder and transaction is covered by this provision, the addition is to be made in hands of shareholder. Considering the decision of ITAT special bench and Rajasthan High Court, I agree with the appellant that addition for deemed dividend has to be made in hands of shareholder only. Accordingly, assessing officer is directed to remove the addition in respect of deemed dividend in the hands of appellant and make the said addition in hands of shareholder Shri Punit J Shah or any other major shareholder in Abhisek Engineering private Ltd in view of the decisions of ITAT special bench and Rajasthan High Court."

ITA No.1128 /Ahd/2011 (By Revenue) and ITA No.1317/Ahd/2011 (By Assessee) ITO vs. Abhishek Investment (P) Ltd.

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4.1. From the above finding of the ld.CIT(A), it is evident that the ld.CIT(A) has followed the judgement of Hon'ble Rajasthan High Court rendered in the case of CIT vs. Hotel Hilltop (2008) 217 CTR 527 (Raj.) and the order of the ITAT Mumbai 'E" Special Benchrendered in the case of ACIT vs. Bhaumik Colour (P) Ltd. reported at (2009)120 TTJ 865(Mumb)[SB]. The Revenue has not placed anything on record suggesting that the assessee-company is a shareholder of M/s.Abhishek Engineers Pvt.Ltd. Under these facts, we do not find any infirmity in the order of the ld.CIT(A) for deleting the addition made by the AO. As a result, the appeal of the Revenue is dismissed.

5. Now, we take up the Assessee's appeal in ITA No.1317/Ahd/2011 for AY 2000-07. The Assessee has raised the following grounds of appeal:-

1. That the CIT(A) erred in holding that the loan of Rs.1983425 received by the appellant during the year from Abhishek Engineers Pvt.Ltd. in the ordinary course of business is taxable as 'Deemed Dividend' u/s.2(22)(e) of the I.T.Act on the ground that the Lender Company is not in the Money lending business which is absolutely incorrect.

2. That the CIT(A) erred in not dealing with the decision of the Honourable Tribunal Ahmedabad in the case of ITO vs. Krishnonics Ltd. reported in 119 ITD 49 (Ahd) which was cited and which is directly applicable to the facts of the case and thereby erred in not excluding the said loan from the purview of the 'Deemed Dividend'.

It is submitted that in view of the facts mentioned in the Statement of ITA No.1128 /Ahd/2011 (By Revenue) and ITA No.1317/Ahd/2011 (By Assessee) ITO vs. Abhishek Investment (P) Ltd.

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Facts filed before the CIT(A), the provisions of sec.2(22)(e) are not applicable and, hence, the loan of Rs.1983425 received cannot be taxed as 'Deemed Dividend'.

5.1. The grievance in this assessee's appeal is that the ld.CIT(A) was not justified in directing the AO to make the addition in the hands of shareholder Shri Punit J Shah or any other major shareholder in Abhishek Engineers Pvt.Ltd. The ld.counsel for the assessee submitted that the ld.CIT(A) was not justified in giving such direction to the AO. He submitted that the assessee-company has demonstrated that section 2(22)(e) cannot be applied on the facts of the present case as the loan amount has been received in the regular course of business. He submitted that it was also demonstrated from the Memorandum of Association of the company, namely Abhishek Engineers Pvt.Ltd., wherein it has been categorically mentioned that one of the Objects of the company is to advance, deposit or lend money, securities and properties to or with any company, body corporate, firm, person or association whether falling under the same management or otherwise. He submitted that in view of this Object, the authorities below were not justified in holding that the transaction was not in the regular course of business of M/s.Abhishek Engineers Pvt.Ltd.

5.2. On the contrary, ld.Sr.DR adopted the reasoning of the AO.

ITA No.1128 /Ahd/2011 (By Revenue) and ITA No.1317/Ahd/2011 (By Assessee) ITO vs. Abhishek Investment (P) Ltd.

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6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has deleted the addition made by the AO by accepting one of the contentions of the assessee that the assessee-company is not a shareholder of M/s.Abhishek Engineers Pvt.Ltd., therefore the addition cannot be made in the hands of the assessee-company. The ld.counsel for the assessee could not demonstrate as to how the assessee-company is aggrieved by the direction of the ld.CIT(A). The only contention of the ld.counsel for the assessee was that in the Memorandum of Association of the M/s.Abhishek Engineers Pvt.Ltd. that company had Object to advance, deposit or lend money, securities and properties to or with any company, body corporate firm, person or association. Therefore, the amount so received in the course of the business of that company. The ld.counsel for the assessee admitted the fact that the said company is not a non-banking finance company and it was also not demonstrated as to how the loan transaction as effected by the said company are permissible under the Banking Regulation Act, the regulations framed by the Reserve Bank of India and also the Companies Act, 1956. The business of banking and finance is regulated by the Reserve Bank of India and in case a corporate entity, permission from RBI and other Regulatory Authorities is required for carrying out such business. In the absence of such permission, we are of the considered view that the loan transaction is not made during the course of business. Therefore, we do not see any ITA No.1128 /Ahd/2011 (By Revenue) and ITA No.1317/Ahd/2011 (By Assessee) ITO vs. Abhishek Investment (P) Ltd.

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merit in the contention of the ld.counsel for the assessee, same is hereby rejected. Moreover, the addition made by the AO has been deleted by the ld.CIT(A). The shareholder against whom the direction has been issued for addition is not before us in appeal. If the shareholder feels that the impugned direction is illegal or unjustified, the legal recourse is available to him under the Act. We would be exceeding our jurisdiction if we grant a relief to the person who is not before us. Therefore, the grounds raised in assessee's appeal are rejected.

7. In the combined result, the appeal of the Revenue and the appeal of the Assessee both are dismissed.

Order pronounced in the Court on Thursday, the 12th day of February, 2015 at Ahmedabad.

Sd/- Sd/- (अ नल चतव ु द ) (कुल भारत) लेखा सद य या यक सद य ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Ahmedabad; Dated 12/ 02 /2015 ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS ITA No.1128 /Ahd/2011 (By Revenue) and ITA No.1317/Ahd/2011 (By Assessee) ITO vs. Abhishek Investment (P) Ltd. Asst.Year - 2006-07 - 10 -

आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to : 1. अपीलाथ% / The Appellant 2. &'यथ% / The Respondent. 3. संबं3धत आयकर आयु5त / Concerned CIT

4. आयकर आयु5त(अपील) / The CIT(A)-VI, Ahmedabad

5. 6वभागीय & त न3ध, आयकर अपील य अ3धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड: फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स'या6पत & त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation .. 10.2.15 (dictation-pad 20 - pages attached at the end of this File)

2. Date on which the typed draft is placed before the Dictating Member ... 10/11.2.15

3. Other Member...

4. Date on which the approved draft comes to the Sr.P.S./P.S.................

5. Date on which the fair order is placed before the Dictating Member for pronouncement......

6. Date on which the fair order comes back to the Sr.P.S./P.S.......12.2.15

7. Date on which the file goes to the Bench Clerk.....................12.2.15

8. Date on which the file goes to the Head Clerk..........................................

9. The date on which the file goes to the Assistant Registrar for signature on the order..........................

10. Date of Despatch of the Order..................