Gardenia India Ltd., Delhi vs Department Of Income Tax

Asstt. Commissioner of Income Tax, vs Gardenia India Ltd., Circle-50(1), Room No.503, Gardenia Gateway, th 5 Floor, Aayakar Bhawan, Plot No. 9, Sector-75, Laxmi Nagar, Delhi. Noida. (PAN: AACCG7503M) (Appellant) (Respondent) Appellant by: Shri T. Vasanthan, Sr. DR Respondent by : S/Shri V.K. Jain, CA Nem Singh, Adv. Date of Hearing: 12.3.2015 Date of pronouncement: 23.03.2015

ORDER

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

The above appeal has been preferred by the revenue against the order of

the CIT(A)-XXX, New Delhi dated 08.08.2012 in Appeal No. 1102/12-13 for

AY 2010-11.

2. The revenue has raised following grounds in this appeal:-

" On the facts and in the circumstances of the case as well as in law, the Ld.CIT(Appeals) has erred in holding that payment made to M/s Aims Max Gardenia Developers and M/s G.S. Developers could not be treated as deemed dividend on the ground that they are not shareholders of the assessee 1 ITA No. 5766/Del/2012 AY 2010-11

company by ignoring the fact that payment to above entities is covered by the definition of dividend given in provisions of section 2(22)( e) of the IT Act, 1961.

2. On the facts and in the circumstances of the case as well as in law, the Ld.CIT(A) has erred in not considering the fact that reasonable opportunity was given to asssessee during the assessment proceeding before charging interest u/s 201 (1A) for late payment."

3. Briefly stated the facts giving rise to this appeal are that the assessee

company is engaged in the business of real estate development and construction.

The case was taken up for verification on the basis of information received from

DO letter of DG(Inv.) dated 1.7.2011 in the case of search and seizure of M/s

Gardenia Group. In order to verify the compliance of TDS provisions under

Chapter XVII of the Income Tax Act, 1961, a notice dated 22.02.2012 for

verification u/s 201(1)/201(1A) of the Act was issued to the assessee calling for

information related to the provisions of TDS compliance. The main contention

of the AO was that the assessee company which is providing loans and advances

having shareholding of 20%, 50% and 27% in All India Consortium Pvt. Ltd.,

G.S. Developers, Aims Max Gardenia Developers respectively, then the

assessee's case is squarely covered under the provisions of deemed dividend as

per section 2(22)(e) of the Act and the assessee company should have deducted

TDS u/s 194 of the Act which also covers deemed dividend. With these

observations, the AO computed the liability of the assessee company under

2 ITA No. 5766/Del/2012 AY 2010-11

provisions of TDS compliance u/s 201(1)/201(1A) of the Act totalling to

Rs.78,30,223.

4. Being aggrieved by the above order of the AO, the assessee preferred an

appeal before the CIT(A) which was partly allowed on this issue. Now, the

revenue is before this Tribunal in this second appeal with the grounds as

reproduced hereinabove.

5. We have heard arguments of both the sides and carefully perused the

relevant material placed on record before us inter alia order of the AO dated

23.2.2012, impugned order of the CIT(A) and paper book filed by the assessee

spread over 131 pages.

6. At the very outset, we note that after detailed deliberations about

contentions of the AO and explanation and submissions of the assessee and ratio

of the legal proposition and citations relied by both parties on ground no. 2 and 3

of the assessee before the CIT(A), the first appellate authority has decided the

issue in favour of the assessee with following observations and conclusions:-

"4.1 The AR has given his explanations above on the merits of the case with details of share holders in the table in page 3,4 & 5 of this order. The main partners in Gardenia India Ltd. are Sh.Manoj Kumar Ray and Sh.Sanjeev Sharma having percentage of share holding of 49.70% each in this appellant company. The appellant Company Gardenia India Ltd. is also a partner of Aims Max Gardenia Developers of 27% and partner of G.S.Develpers of 50% and share holder of All India Developers Consoritum Pvt. Ltd. of 33.33% respectively. The appellant company is giving loan/advances 3 ITA No. 5766/Del/2012 AY 2010-11

to the above 3 company/firms as per Table-I. The AR's argument was that when there is loan and advances between company and company/firm(s), the supporting case laws/decisions of Rajasthan High Court in the case of CIT v. Hotel Hill Top 313 ITR 116, High Court of Delhi in the case of CIT v. Gopal Clothing Company P.Ltd. in ITA No.333/2006 dated 22-03-2012 and CIT vs. Ankitech Private Limited (2011)242 CTR 129(Delhi) stands in favour of the appellant that is there is no deemed dividend in the hands of individual shareholders like Sh.Manoj Kumar Ray and Sh.Sanjeev Sharma, as the money is not passed on to them directly. The AO(TDS) may go through the case of Mumbai ITAT (SB) in the case of Bhowmik Colors (P)Ltd. Vs ACIT, 313 ITR 146 (DOJ=19-11-2008), where detailed analysis on who will be charged with deemed dividend is clearly analysed by the ITAT, Special Bench, Mumbai. Though these two persons are shareholder of M/s Gardenia India Ltd. There is no payment made to these two share holders directly or indirectly is deriving the benefit as share holders/partner in the other Company M/s Gardenia India(P) Ltd company/ firms (AOP) to whom loans and advances are made, the deemed dividend cannot be applied in the hands of Sh.Manoj Kumar Ray and Sh.Sanjeev Sharma, as they are not getting any direct/indirect benefit. The AO(TDS) is of the view that M/s Gardenia India (P) Ltd is playing loans /advance to itself as it is a partner/share holder in other 3 firms/ company, to whom payments are made as per Table-1(supra). The section 2(22)(

e) says that the payment of dividend should be made to a shareholder(10%) or to a concern in which such shareholder has substantial internet (20%) and in the present case, the above facts are not proved from Tables Supra. Therefore, such loans and advances cannot be considered as dividends. If there is no deemed dividend u/s 2(22)(e) of the I.T.Act then the question of section 194 for deduction of TDS on dividend/deemed dividend does not attract at all. Therefore, the action of the AO in charging TDS u/s 201(1)/201(1A) is not proper and these grounds are allowed in favour of the appellant."

7. Admittedly and undisputedly, the assessee company had made following

payments as loans/advances to the following parties:-

4 ITA No. 5766/Del/2012

AY 2010-11

Name of the Party Opening Payment made Received back Closing Balance during the year during the Balance as on Year 31.03.2010 Aims Max Gardenia - 6,20,00,000 2,00,00,000 4,20,00,000 Developers G. S. developers 4,20,88,363 67,86,375 1,13,55,365 3,75,19,373 All India Developers 25,88,000 - - 25,88,000 Consortium Pvt Ltd

8. Ld. DR pointed out para (d) at page 4 of the assessment order and

submitted that the assessee company advanced loans and advances to the

companies wherein the assessee company itself having shareholding of 80%,

50% and 20% viz. in All India Developers, G.S. Developers and Aims Max

Gardenia Developers respectively, therefore, interest which was not charged

therein was deemed dividend as per provisions of section 2(22)(e) of the Act and

the assessee company should have deducted TDS u/s 194 of the Act which

impliedly covers deemed dividend also.

9. Replying to the above, ld. Counsel of the assessee reiterated its reply and

submissions before the CIT(A) and submitted that the AO has failed to

appreciate that the provisions of deemed dividend u/s 2(22)(e) of the Act are

attracted if loan is given to a shareholder and all the three alleged parties are not

holding any shares in Gardenia India Ltd. i.e. assessee company and therefore

under aforesaid peculiar facts and circumstances, the provisions of section

2(22)(e) and section 194 of the Act are not attracted at all and the whole order

5 ITA No. 5766/Del/2012 AY 2010-11

has been passed by the AO on incorrect appreciation of provisions of the Act

and, thus, the same deserves to be quashed.

10. On careful consideration of above rival submissions, we note that the ld.

DR has fairly accepted that the three alleged companies as pointed out by the

AO do not hold any share in the assessee company. At the same time, as per

detail of shareholders/members of the assessee company available at page 4 of

the impugned order, we note that there are eight shareholders in the assessee

company out of which Mr. Manoj Kumar Ray and Sanjeev Sharma hold 49.79%

of shareholding in the assessee company. We are unable to see the names of the

three alleged companies and the list of shareholders of the assessee company to

whom the impugned loan/advance was given by the assessee company.

11. As per scheme of statutory provisions of the Act, the payment or advances

to non shareholders does not require TDS u/s 194 of the Act and the appellant

company cannot be held to be a defaulter u/s 201 of the Act so as to attract

interest u/s 201(1A) of the Act. It is also pertinent to note that under provisions

of Companies Act, every company is expected to maintain a Register of

shareholders u/s 150 of the Companies Act 1956 and the company is not obliged

to maintain any other register wherein details of such concern may be

maintained to which provisions of section 2(22)(e) of the Act apply. Under the

factual matrix of the present case, we observe that when the loans/advances have

been given to a non shareholder, then it is impossible for a payer company to

6 ITA No. 5766/Del/2012 AY 2010-11

ascertain whether it will attract the provisions of section 2(22)(e) of the Act or

not.

12. Hence, in the facts and circumstances of the present case and as per

provisions of the Act, law does not expect the payer assessee to deduct TDS u/s

194 of the Act when loan/advance has been given to a non-shareholder entity.

This is our humble understanding that the liability expressly provides for TDS

requirement only when the payment is made or loan/advance is given to the

shareholder which is enlisted in the list of shareholders register maintained by

the company u/s 150 of the Act. We may also point out when the

loans/advances have not been given to a shareholder, then the provisions of

section 2(22)(e) and 194 of the Act do not require the payer assessee company to

deduct TDS u/s 194 of the Act. Therefore, section 194 of the Act is

synchronised with the requirement of section 150 and 206 of the Companies'

Act and the AO is not allowed to go beyond these provisions for invoking

provisions of section 201(1)/201(1A) of the Act.

13. Accordingly, impugned amount, as calculated by the AO, cannot be held

as sustainable. Thus, we are in agreement with the conclusion of the CIT(A)

that the assessee company has given loans/advances to above named three

7 ITA No. 5766/Del/2012 AY 2010-11

companies/entities mentioned in the table as reproduced hereinabove and the

provisions of deemed dividend cannot be applied in the hands of Shri Manoj

Kumar Ray and Shri Sanjeev Sharma as they are not getting any direct or

indirect benefit from these loans and advances. At the cost of repetition, we

further point out that section 2(22)(e) of the Act stipulates that the payment of

dividend should be made to an individual shareholder having minimum 10%

shareholding or to a concern or company etc. in which such shareholding is

minimum 20% and in the present case, the requirement of this provision does

not comply with the facts as narrated hereinabove. Therefore, impugned loans

and advances given to aforesaid three companies cannot be considered as

dividend or deemed dividend and if there is no deemed dividend u/s 2(22)(e) of

the Act, then the question of compliance of section 194 of the Act on

dividend/deemed dividend does not arise. Therefore, we are inclined to hold

that the order of the AO in charging TDS u/s 201(1)/201(1A) of the Act is not

justified and sustainable and the CIT(A) was right in allowing the appeal of the

assessee on this issue. We are unable to see any perversity, infirmity or any

other valid reason to interfere with the order of the CIT(A) and we uphold the

same, dismissing both the grounds of the revenue.

14. In the result, the appeal of the revenue is dismissed.

8 ITA No. 5766/Del/2012 AY 2010-11

Order pronounced in the open court on 23.03.2015.

Sd/- Sd/- (S. V. MEHROTRA) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 23rd MARCH 2015 'GS'

Copy forwarded to:-

1. Appellant 2. Respondent 3. C.I.T.(A) 4. C.I.T. 5. DR By Order

Asstt. Registrar

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