Trident Chemphar Limited, Hyderabad vs Department Of Income Tax

The ACIT, Circle 2(3), M/s. Trident Chemphar Ltd., Hyderabad vs. Hyderabad PAN AAEFT8416H (Appellant) (Respondent)

For Revenue : Mr. D. Sudhakar Rao, CIT For Assessee : Mr. P.V.S.S.Prasad, CA

Date of Hearing : 09-04-2015 Date of Pronouncement : 17-04-2015

ORDER

PER B. RAMAKOTAIAH, A.M.

This is Revenue appeal against the order of the Ld. CIT(A)-III, Hyderabad dated 20th August, 2014 on the issue of addition made under section 2(22)(e) by the A.O. of Rs.5 crores as deemed dividend but deleted by the Ld. CIT(A).

2. Assessee-company is engaged in the business of trading in chemicals, minerals and mines. In the course of assessment proceedings, A.O. noticed that assessee has received an amount of Rs. 5 crores from one of its group concern M/s. Axis Clinicals P. Ltd., It was submitted by the 2 ITA.No.1696/Hyd/2014 M/s. Trident Chemphar Ltd., Hyderabad.

assessee that it has received Inter Corporate Deposits (ICD) from the said company to meet its business needs. It was also submitted that ICD received was with specific terms as to its repayment and interest, contended that the receipt of ICD cannot be considered as loan or advance so as to attract provisions of section 2(22)(e). The A.O. however, did not agree. He noticed that assessee as well as M/s. Axis Clinicals P. Ltd., having common shareholding and Mr. V. Sarathchandra Reddy has controlling interest in both the companies. Therefore, he was of the opinion that clause (e) of section 2(22) was attracted. He also noticed that the said company Axis Clinicals P. Ltd., has accumulated profits of Rs.17.99 crores and the payment was in the nature of loan or advance and not in the course of ordinary business activity. He made the addition of the amount as deemed dividend.

3. Before the Ld. CIT(A), it was contended that the amount received from M/s. Axis Clinicals Ltd., is an inter corporate deposit and not loan or advance so as to attract the provisions of section 2(22)(e). Assessee relied on the decision of CIT vs. Bombay Oil Industries vs. DCIT (2009) 28 SOT 383, IFB Agro Industries Ltd., vs. JCIT (2014) 63 SOT 207 and also decision of Hon'ble Gujarat High Court in the case of CIT vs. DAISY Packers P. Ltd., (2014) 220 Taxman 331. In these cases, the issue was whether the inter corporate deposit with specific terms as to its repayment and interest could be treated as loan or advance in order to apply the provisions of section 2(22)(e). The Hon'ble High Court of Gujarat held that after due consideration of various issues, the inter corporate deposits cannot be called as loans or advances for the purpose of 3 ITA.No.1696/Hyd/2014 M/s. Trident Chemphar Ltd., Hyderabad.

application of provisions of section 2(22)(e). Ld. CIT(A) following the principles laid down by the above cases and distinguished the case of CIT vs. National Travel Services which was relied upon by the A.O., held that inter corporate deposit accepted by the assessee company cannot be treated as deemed dividend under section 2(22)(e) of the I.T. Act, 1961. Revenue is aggrieved.

4. Ld.DR argued that it was a case of camouflaging the loan as inter-corporate deposit, whereas Ld.Counsel for the assessee filed the annual reports and copy of 3CD report where this amount was clearly stated as inter-corporate deposit.

5. After considering the orders of the authorities, we do not see any reason to interfere with the order of the Ld. CIT(A). As held by Hon'ble Gujarat High Court in the case of CIT vs. Daisy Packers (P) Ltd. (supra), acceptance of inter corporate deposit cannot be treated as loan or advance so as to attract the provisions of deemed dividend under section 2(22)(e). As seen from the annual report, assessee has received more than Rs.24 Crores of inter-corporate deposits including Rs.9 Crores from PVR Holdings Pvt. Ltd., and Rs.14 Crores from Tata Capital Ltd. So, there is no dispute to the fact that the amounts are received as inter-corporate deposits only. Co- ordinate Bench in the case of IFB Agro Industries Ltd.,

42.Taxmann.com 246 (Kol) has held that inter-corporate deposit received could not be treated as loan falling within the purview of Section 2(22)(e). Even otherwise what we noticed is that the said Axis Clinicals Ltd., is not a shareholder of assessee company nor assessee is a shareholder of the other company. A.O. has in fact extracted the share holding pattern 4 ITA.No.1696/Hyd/2014 M/s. Trident Chemphar Ltd., Hyderabad.

in page 4 of the order wherein assessee share holding comprises of 99.988% held by Mr. P. Sarathchandra Reddy and balance 0.012% by six individuals. Likewise, shareholding pattern of the company M/s. Axis Clinicals Ltd., also reflects Mr. P. Sarathchandra Reddy holds 75.37% and Ms. K. Rajeswari 14.7% and 5 more individuals holding the balance of the shares. Therefore, neither of the company is a shareholder in other company. it was held by the Hon'ble Bombay High Court in the case of CIT vs. Universal Medicare P. Ltd., (2010) 324 ITR 263 that in order to attract the first part of clause (e) of section 2(22), the payment by a company has to be by way of advance or loan, the advance or loan has to be made, as the case may be either to a shareholder, being the beneficial owner holding not less than 10% of the voting power or to any concern in which such shareholder is a Member or a partner and in which he has substantial interest. Even assuming that it was the dividend, it has to be taxed in the hands of the shareholders and not in the hands of the assessee concern. The Special Bench of the ITAT in the case of ACIT vs. Bhowmik Colour P. Ltd., 313 ITR 146 (Mum.) (AT) (SB) also held that where assessee is not a shareholder of paying company, the dividend is not assessable in its hands. The legal fiction in section 2(22)(e) may extend the definition of the dividend but does not expand or broaden the concept of shareholder. This order of the Special Bench was approved by the Hon'ble Bombay High Court and further in the case of CIT vs. Hotel Hilltop 313 ITR 116 (Raj.) (H.C.) and in the case of CIT vs. Ankitech P. Ltd., 340 ITR 14 the Hon'ble Delhi High Court also accepted same principle. Since we find that assessee company is not a shareholder of M/s. Axis Clinicals P. Ltd., even otherwise the provisions of deemed dividend cannot be applied 5 ITA.No.1696/Hyd/2014 M/s. Trident Chemphar Ltd., Hyderabad.

to the facts of the case. For this reason also, the action of the A.O. cannot be upheld. There is no merit in Revenue grounds. Accordingly, they are rejected.

6. In the result, appeal of the Revenue is dismissed.

Order pronounced in open Court on 17th April, 2015.

Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 17th April, 2015

VBP & TNMM

Copy to :

1. Asst. Commissioner of Income Tax, Circle 2(3), 8th Floor, B-

Block, Room No.824, I.T. Towers, A.C. Guards, Hyderabad - 500 004.

2. M/s. Trident Chemphar Ltd., Sy.No.66 & 67, Miyapur, Serilingampally Mandal, Hyderabad.

3. CIT(A)-III, Hyderabad.

4. CIT-II, Hyderabad.

5. D.R. ITAT 'B' Bench, Hyderabad

6. Guard File