Deemed dividend provision cannot be invoked merely because the shareholders were common.
Income Tax Appellate Tribunal – Delhi
M/S. Alang Auto & General … vs Jcit, Ghaziabad on 3 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ‘A’ NEW DELHI
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
ITA No. 3574/Del /2014
Assessment Year: 2010-11
Alang Auto & General Engineering Joint Commissioner of
Company Pvt. Ltd., Income Tax,
C/o Pradeep & Co., Tax Advocates, Range-2,
7, Navyug Market, Ghaziabad.
Appellant by: Shri Prateek Gupta, Advocate
Respondent by: Shri Sanjay Kumar Yadav, Sr. DR
Date of Hearing: 05.01.2018
Date of Pronouncement: 03.04.2018
PER SUDHANSHU SRIVASTAVA, J.M.
This appeal has been preferred by the assessee against the order passed by the Ld. CIT (Appeals), Ghaziabad for assessment year 2010-11. Although the assessee has raised as many as three grounds in the appeal before us, at the time of hearing, the Ld. AR for the assessee submitted that ground no. 1 challenging the confirmation of addition of Rs. 7,500/- out of ROC fees and ground no. 2 challenging confirmation of addition of Rs. 31,710/- ITA No. 3574/Del/2014 Assessment year 2010-11 on account of prior period insurance expenses were not being pressed. Accordingly, ground no. 1 and 2 are dismissed as not pressed.
1.1 Ground no. 3 challenges the confirmation of addition of Rs. 73,57,649/- as deemed dividend in the hands of the assessee company and this ground is the only effective ground before us.
- Brief facts of the case are that the assessee had filed its return of income declaring an income of Rs.1,22,23,430/-. The Assessing Officer made an addition of Rs. 73,57,649/- by applying the provisions of section 2(22)(e)of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) in respect of deemed dividend. The Assessing Officer took the amount of advance received by the assessee company from another incorporated company M/s Dayal Steels Pvt. Ltd. and assessed the amount of advance as deemed dividend in the hands of the assessee company on the ground that both the companies had a common shareholding pattern and Mrs. Rani Chawdhari had substantial interest in both the companies. On appeal by the assessee, the Ld. CIT (A) upheld the addition made by the Assessing Officer. Now, the assessee is before the ITAT and has challenged this confirmation of addition u/s 2(22)(e) of the Act. ITA No. 3574/Del/2014 Assessment year 2010-11
- The Ld. AR submitted that the assessee is not a beneficial shareholder of the company which had given advance to M/s Dayal Steels Pvt. Ltd. He drew our attention to pages 12 and 13 of the Paper Book which contained list of shareholders of M/s Dayal Steels Pvt. Ltd for the year under consideration and submitted that the assessee was not a registered shareholder of M/s Dayal Steels Pvt. Ltd. The Ld. AR also submitted that there were trade transactions between the assessee Company and M/s Dayal Steels Pvt. Ltd. Our attention was drawn to pages 14 to 17 of the Paper Book which were copies of the accounts of the trade transactions held between the two companies. It was submitted that since the assessee company was not a shareholder of M/s Dayal Steels Pvt. Ltd., the impugned addition could not have been made. Reliance was placed on the judgment of the Hon’ble High Court of Delhi in the case of CIT vs. Ankitech (P) Ltd. reported in 340 ITR 14 (Del) wherein the Hon’ble Delhi High Court had held that if a company was not the shareholder in the company, no addition could have been made on account of deemed dividend.
ITA No. 3574/Del/2014 Assessment year 2010-11
- The Ld. Sr. DR placed extensive reliance on the order of the Ld. CIT (A) and vehemently argued that the addition had been rightly made.
- We have heard the rival submissions and perused the material available on record. We are in complete agreement with the averments of the Ld. AR that the provisions of section 2(22)(e)of the Act would not be attracted in this case as the assessee company is not a shareholder in the company M/s Dayal Steels Pvt. Ltd who had given advance to the assessee company and we note that the assessee company’s name does not figure in the list of the shareholders. The Ld. CIT (A) as well as the Assessing Officer have not disputed that the assessee company was not a shareholder in M/s Dayal Steels Pvt. Ltd. We find that this issue is squarely covered in favour of the assessee by the judgment of Hon’ble Delhi High Court in the case of CIT vs. Ankitech (P) Ltd. (supra). We also note that this judgment of the Hon’ble Delhi High Court was later followed by the Hon’ble Delhi High Court in the case of CIT vs. A.R. Magnetics Pvt. Ltd. reported in 220 Taxman 209 (Del) wherein the Hon’ble Delhi High Court held that the provisions relating to deemed dividend could not be invoked merely because the shareholders were common. In this case, it is ITA No. 3574/Del/2014 Assessment year 2010-11 seen that the sole ground for making the addition was that Mrs Rani Chawdhari was a common shareholder in both the companies. Therefore, we are unable to concur with the findings of the Ld. CIT (A) on this issue and respectfully following the ratio of the Hon’ble Delhi High Court in the case of CIT vs. Ankitech (P) Ltd. (supra), we set aside the order of the Ld. CIT (A) on this issue and direct the Assessing Officer to delete this addition.
- In the result, the appeal of the assessee stands partly allowed.
The order is pronounced in the open court on 3rd April, 2018.
(PRASHANT MAHARISHI) (SUDHANSHU SRIVASTAVA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 3rd April, 2018
Copy forwarded to:
- DR, ITAT