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M/s. Hooghly Mills Projects Ltd Versus D.C.I.T, CC-VII, Kolkata

2016 (6) TMI 327 - ITAT KOLKATA

Deemed dividend u/s. 2(22)(e) - Held that:- In the present case, the assessee is holding 10,99,300 shares in M/s. Mega Resources Ltd as per register produced by the assessee before the lower authorities. This fact was examined by the Tribunal in the above case. When the assessee is holding the shares as indicated above, which comes to less than 10% of total equity shares of M/s. Mega Resources Ltd., the reasoning of the AO as it is noticed from the assessment order that both the assessee and M/s .....

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ded in favour of assessee

TDS u/s 194A - Addition made u/s. 40(a)(ia) - interest paid to a party without deducting TDS - Held that:- Considering the case of the assessee that the interest paid to M/s Methoni Tea Ltd on unsecured loan and debited to the P/L account and did not deduct the tax U/Sec 194A of the Act, we hold that the assessee cannot be a defaulter in view of the first proviso to section 201(1) r/w second proviso to section 40(a)(ia) of the Act. The second proviso to Secti .....

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Waseem Ahmed, Accountant Member And Shri S.S.Viswanethra Ravi, Judicial Member For the Appellant : Shri S. Jhajharia, FCA, ld.AR For the Respondent : Shri Dinabandhu Naskar, JCIT, ld.DR ORDER Shri S. S. Viswanethra Ravi, JM This appeal of the asessee arises out of the order of the CIT(A)-Central-1, Kolkata in Appeal No. 91/CC-VII/CIT(A) C-I/11-12 dated 8th December, 2013 for the assessment year 2006-07 passed u/s. 263/251/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). .....

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2011 ( ITA No.549/Kol/2011) against the revisionary order U/S 263 of the Act dt. 08.03.2011. 2. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary addition of ₹ 4,1 0,00,000/- made in assessment as deemed dividend u/s 2(22)(e) of the Act without considering and appreciating the facts and the explanations furnished both at the assessment and appellate stage. 3. For that in view of the facts and circumstance .....

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return of income declaring total income at ₹ 2,36,75,243/- u/s. 115JB of the Act on 20-11-2006. The assessment was completed u/s. 143(3) of the Act determining the total income of at ₹ 1,42,45,720/- on 31-12-2008. The assessment was thereafter subjected to revision. The CIT, Central-1, Kolkata has set aside the said assessment by an order dt: 08-03-2011 u/s. 263 of the Act, against which the assessee has preferred an appeal before the Tribunal, inspite of having knowledge of appeal b .....

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on of assessments and reassessments. 153. (1) …: Provided …: Provided further.. (i) ; or (ii) , [Provided also .] (1A). (1B). (2): Provided : Provided further : Provided also (i) (ii), [Provided also.] (2A) Notwithstanding anything contained in sub-sections (1), (1A), (1B) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment in pursuance of an order under section 250 or section 254 or .....

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issioner: Provided : [Provided further that where the order under section 254 is received by the 98[Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the [Principal Commissioner or] Commissioner on or after the 1st day of April, 2005 but before the 1st day of April, 2011, the provisions of this sub-section shall have effect as if for the words "one year", the wo .....

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y the AO in pursuance of the order passed by the CIT u/s. 263 of the Act is valid, accordingly, ground no.1 raised by the assessee is dismissed. 7. Brief facts relating to the 2nd ground as recorded by the AO are that the assessee accepted loan of ₹ 4,10,00,000/-, which is more than 10% of paid up equity shares from M/s. Mega Resources Ltd during the assessment year under consideration. The assessee was holding 13,90,100 shares out of 1,20,00,000/- equity shares of M/s. Mega Resources Ltd. .....

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ee s own case for the a.y 2005-06 confirmed the addition made by the AO on account of deemed dividend u/s. 2(22)(e) of the Act. 9. Before us the ld. Counsel for the assessee submitted that the said issue is covered by the earlier order of the Tribunal in assessee s own case in ITA No. 1729/Kol/2011 for the A.Y 2005-06. 10. On the contrary, the ld.DR has relied on the orders of the lower authorities. 11. Heard the rival submissions and perused the relevant material available on record. We find th .....

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through facts and circumstances of the case. Before us also assessee produced the shareholders register for the relevant year and filed copy of the relevant shareholders register of Hooghly Mills Project Ltd. i.e. the assessee and also produced copy of shareholders register of Mega Resources Ltd., wherein the registered shareholders are to the extent of 10,99,300 shares only as registered shareholders and not the shareholders to the extent of l3,99,100 as alleged by the lower authorities. For th .....

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second question: The expression shareholder referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder than the provisions of section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the provisions of section 2(22)(e) will not apply. From the above facts and circumstances the issue is very clear that the assessee .....

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covered by the Special Bench of this Tribunal, Mumbai Bench in the case of Bhaumik Colour P. Ltd. supra, Respectfully following the same, we delete the addition and reverse the orders of the lower authorities. 12. A perusal of the order of the Tribunal in the aforementioned case, it clearly establishes that the assessee is holding registered shares of 10,99,300 in M/s. Mega resources Ltd, but not 13,99,100 as contended by the revenue and it was evident from the register of shareholders as produc .....

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neficial shareholder but not a registered shareholder then also the provisions of section 2(22)(e) of the Act will not apply. In the present case, the assessee is holding 10,99,300 shares in M/s. Mega Resources Ltd as per register produced by the assessee before the lower authorities. This fact was examined by the Tribunal in the above case. When the assessee is holding the shares as indicated above, which comes to less than 10% of total equity shares of M/s. Mega Resources Ltd., the reasoning o .....

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P.Ltd (supra), we are of the view that the CIT was not justified in confirming the order of the AO in making additions. We delete the addition made by the AO and confirmed by the CIT on this issue. Accordingly, ground-2 raised by the assessee is allowed. 13. The 3rd ground raised by the assessee is relating to the addition of ₹ 6,30,000/- made u/s. 40(a)(ia) of the Act on account of interest paid to a party without deducting TDS. This was confirmed by the CIT(A) in the impugned order. 14. .....

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40(a)(ia) of the Act was not applicable for the assessment year under consideration in view of the second proviso as inserted by the Finance Act 2012, which was retrospective in nature. 16. Having aggrieved by order of CIT(A), ld. Counsel for the assessee before us prayed to restore the issue on hand to the file of AO and the issue under consideration is covered by the 2nd proviso of section 40(a)(ia) of the Act was inserted by the Finance Act 2012. On the contrary, the ld. DR has relied on the .....

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e legislature. The relevant portion from paras 11 to 14 are reproduced here in below: 11. The first proviso to Section 210 (1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No dou .....

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hereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. 12. Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as .....

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he said order which reads as under: "On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowanc .....

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tatute, and to examine whether or not, on a "fair, just and equitable" interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an "intended consequence" to disallow the expenditure, due to non deduction of tax at source, even in .a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is a .....

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, and, section 40(a)(ia) does not add to the same. The provisions of Section 40 a)(ia1 as they' existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amen .....

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equence" to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was insert .....

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