Income Tax Appellate Tribunal - Mumbai
Lexicon Chemicals P.Ltd, Mumbai vs Department Of Income Tax on 31 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "A", MUMBAI
BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND
SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No. 3407 & 3408/Mum/2013
Assessment Year: 2006-07 & 07-08
DCIT-8(2) M/s. Lexicon Chemicals
Room No. 209, 2nd Floor, Pvt. Ltd.
Aayakar Bhavan, M.K. Road 82, Mahakali Caves Road
Vs
Mumbai- 400 020 3rd Floor, Ahura Centre
Mumbai- 93
PAN: AAACL 0906 H
(Appellant) (Respondent)
Assessee by : Shri Satish R. Modi
Revenue by : Shri Pitambar Das
Date of hearing : 11.08.2014
Date of Pronouncement : 31.10.2014
ORDER
PER VIVEK VARMA, JM:
Instant appeals are filed by the department against the order of the CIT(A) 17, Mumbai dated 05.02.2013. Since the grounds raised in both the appeal are common, based on common issue, we are disposing of both the appeals though this common and consolidated order for the sake of convenience and brevity.
2. The solitary issue pertains to deletion of addition made u/s 2(22)(e) on deemed dividend. The fact is, that in assessment year 2006-07 and 2007-08 are that, the assessee received a loan amount of Rs. 2,07,95,676/- and Rs. 1,13,72,184, respectively, in the two years, from M/s Beluga Chemicals Pvt. Ltd. for the purposes of its business. On this fact, the AO called for an explanation, as to why the addition be no made, considering the amount, to be deemed dividend u/s 2(22)(e).
3. The assessee explained to the AO that provision of section 2(22)(e) were inapplicable, as the sum in question was a loan and that the assessee was not the shareholder with Beluga Chemical Pvt. Ltd. The AO considered the fact and observed ITA No. 3407 & 3408/Mum/2013 2 M/s. Lexicon Chemicals Pvt. Ltd.
Assessment Year: 2006-07 & 07-08 that on examination of the share holding pattern, Mr. Dhiren Khot was 99% shareholder in both the companies. The AO, on this fact, invoked the provisions of section 2(22)(e) and added back Rs. 2,07,95,676/- and Rs, 1,13,72,184/-, in the two impugned years, to the income of the assessee because Mr. Dhiren Khot was a major shareholder.
5. Against the order of the AO, the assessee approached the CIT(A), before whom, it reiterated the submissions made before the AO and further submitted.
"1. It is not disputed and is an undisputed fact, that the appellant is not a shareholders of Beluga.
2. The relationship of the appellant and Beluga under the impugned loan transaction is thus merely that of a borrower-lender and not that of a shareholder (registered and beneficial).
3. It has been held by various Hon. Authorities, that deemed dividend can be assessed only in the hands of the shareholder of a company and not in the hands of a person, other than a shareholder. In other words, to attract the deeming provisions of sec. 2(22)(e), the borrower/ recipient of the loan, must necessarily be a shareholder of the lender company, which is not so in this case.
4. A fruitful reference is made to the following judgments, wherein it has been held that deemed dividend can be assessed as income, only in the hands of a person, who is the shareholder of a lender company and not in the hands of a person, other than a shareholder. For the applicable of section 2(22)(e) the person (the borrower), has to be a registered shareholder, as well as a beneficial shareholder. Since the appellant is not a shareholder/does not have any shareholding in Beluga, the loan received by it, cannot fall within the deeming purview of section 2(22)(e) of the Act. The impugned addition of Rs.2,07,95,676/- made to the appellant's total income on account of deemed dividend, must therefore be deleted".
6. It was further pointed out by the assessee that similar addition was made in assessment year 2009-10, wherein, the CIT(A) had deleted the addition as made. It was further pointed out that since the facts are identical in the impugned years, as that in assessment year 2009-10, therefore, the addition so made should be deleted, primarily based on undisputed fact that the assessee was not a shareholder in the payer company. The CIT(A), after examining the fact and the decision of his predecessor, deleted the additions made in the impugned years.
7. Aggrieved, the department is in appeal before the ITAT.
8. Before us, the DR placed reliance on the order of the AO whereas, the AR relied on the order of the CIT(A).
9. We have heard the arguments and have perused the order of the revenue authorities. It is undisputed that the recipient, i.e. the assessee company is not the ITA No. 3407 & 3408/Mum/2013 3 M/s. Lexicon Chemicals Pvt. Ltd.
Assessment Year: 2006-07 & 07-08 shareholder in the payer company, i.e. M/s Beluga Chemical Pvt. Ltd. On this fact, the provisions of deemed dividend cannot be invoked. We find that the grounds of appeal and the basis of addition made by the AO in that Mr. Dhiren Khot is a 99% shareholder in both the companies and because of this reason, the addition was made.
10. The issue before us who is the recipient of the sum. The uncontroverted answer to this question is, the assessee company. But the assessee is not the shareholder in Beluga. Therefore, relying on the decision of Special Bench of ITAT Mumbai at the case of ACIT Vs Bhaumik Colour, (ITA No. 5030/Mum/2004) which now has the approval of Hon'ble Bombay High Court as well, we sustain the order of the CIT(A), consequentially rejecting the grounds taken by the department in both the appeal.
8. In the result, the appeals filed by the department are dismissed.
Order pronounced in the open court on this 31st day of October, 2014.
Sd/- Sd/-
(B.R. BASKARAN) (VIVEK VERMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 31.10.2014
*Srivastava
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR "A" Bench
//True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.