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2016 (10) TMI 542 - ITAT KOLKATA

2016 (10) TMI 542 - ITAT KOLKATA - TMI - Revision u/s 263 - deemed dividend addition u/s 2(22)(e)- assessee is challenging this finding by contending that the deemed dividend, if any, is taxable in the hands of the person, who is the shareholder of the lender Company and not in the hands of the persons or entities other than the shareholder - Held that:- Here in this case, M/s. Birendra Chandra Saha admittedly is not a shareholder in M/s. Mascot Woodcraft Pvt. Ltd. and the loan was advanced to t .....

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as deemed dividend. - Decided in favour of assessee. - I.T.A. No. 541 /KOL/ 2014 - Dated:- 26-8-2016 - Shri Waseem Ahmed, Accountant Member And Shri K. Narasimha Chary, Judicial Member Shri Soumitra Choudhury, Advocate, for the assessee Shri Niraj Kumar, CIT, D.R. , for the Department ORDER Per Shri K. Narasimha Chary, J. M. This appeal by the assessee is challenging the order dated 25.03.2013 passed by the ld. Commissioner of Income Tax, Kolkata-XIII, Kolkata (hereinafter called as the CIT in s .....

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e procedure and hearing the assessee, the Assessing Officer assessed the income. Subsequently the ld. CIT by way of an order dated 25.03.2013 enhanced the income and assessed the same at ₹ 1,05,87,423/-. In the process, the ld. CIT added deemed dividend to a tune of ₹ 95,70,953/-, which was the unsecured loan given by M/s. Mascot Woodcraft Pvt. Ltd. Challenging the same, the assessee carried the matter in appeal before the Tribunal on the following grounds:- (1) For that on the facts .....

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case, the ld. CIT-XIII, Kolkata was wrong in adding ₹ 95,70,953/- u/s 2(22)(e) as deemed dividned which was duly considered by the AO at the time of assessment, therefore, the direction given by the ld. CIT-XIII, Kolkata is completely arbitrary, unjustified and illegal. (4) For that on the facts of the case, the ld. CIT-XIII, Kolkata was wrong in not considering the fact that the accommodation of ₹ 95,70,953/- as received from the Group Companies purely on banking compulsions and bu .....

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order under section 263 of the Act was passed, the assessee approached one Shri P.K. Sarkar, FCA on the legal aspects, but since the said Chartered Accountant was not very conversant with the Income Tax Appellate Tribunal, he could not advise the assessee properly. Further, the contention of the assessee is that Smt. Kamala Saha, partner of the assessee-firm, was suffering from Tumor in Uterus and Arthritis and was admitted in Hospital for operation, as such she was unable to work for a conside .....

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d) -vs.- ITO in ITA No. 1301 & 983/KOL/2008 delivered on 24.12.2008. The ld. counsel for the assessee submitted that these two decisions were rendered condoning the delay on identically situated facts. On the other hand, the ld. D.R. submitted that the assessee is a partnership firm and the partners other than the one, who sworn the affidavit could have pursued the matter diligently as such the medical exigency of one partner will not give any benefit to other partner. On this premise, the l .....

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admitted in Hospital and as such, the delay occurred, is concerned absolutely there is no dispute as to the correctness of this statement. In above cited decision, incompetency of the Chartered Accountant in giving proper advice was considered as sufficient cause. Hon ble Supreme Court in the case of Collector Land Acquisition - vs.- Mst. Katiji & Others reported in 1987 AIR 1353 laid down the following guidelines for evaluating the applications for condonation of such delay:- Guidelines la .....

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serves the ends of justice -that being the l ife- purpose for the existence of the institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But the message does not appear to have percolated down to all the other Courts in the hierarchy. And such a liberal approach is adopted on principle as it is realized that:- " Any appeal or any application, other than an application under any of the provisions of O .....

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ondoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. " Every day' s delay must be explained" does not mean that a pedantic approach should be made. Why not every hour' s delay, every second' s delay? The doctrine must be applied in a rational common sense pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for th .....

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and is expected to do so. 6. Hon ble Calcutta High Court in the case of Indian Oil Corporation Limited -vs.- CEGAT & Others 2002 (104) ECR 609 laid down the following guidelines:- 11 . Rules of l imitation are not meant to destroy the rights of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. The law of l imitation fixes a life span f .....

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t reipublicae up sit finislitium' ( it is for the general welfare that a period be put to litigation). Rules of l imitation are not meant to destroy the rights of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time. 12. A court knows that refusal to condone delay would result in foreclosing a suitor from putting forth his cause. There i .....

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rn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy, the Court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time, then the court should lean against acceptance of the explanation. While condoning the delay, the court should not forget the opposite party altogether. It must be borne in min .....

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dered opinion, the highest that would happen by condoning the delay is that a cause would be decided on merits after hearing the parties. With this view of the matter, we hold that non- condonation of delay would amount to preferring technical consideration, as envisaged the possibility of rendering justice on the merits of the case. Therefore, delay is to be condoned and we condone the same. 8. Now coming to the merits of the case, challenge is only in respect of the addition made by the ld. CI .....

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vt. Ltd. was at 6.18% and in M/s. Mascot Woodcrafts Pvt. Ltd. at 11.67%, whereas Mr. Asim Kumar Saha Mondal was holding 6.57% of shares in Mascot Woodcrafts Pvt. Limited and as such any loan or advance given by M/s. Mascot Woodcraft Pvt. Limited in the hands of the person with shares of 10% or more shall be deemed to be the dividend. On this premises, the ld. CIT proceeded to add ₹ 95,70,953/-. 9. The assessee is challenging this finding by contending that the deemed dividend, if any, is t .....

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is contention, ld. counsel for the assessee placed reliance on the decision of ITAT, Mumbai Bench in the case of ACIT -vs.- Bhaumik Colour (P) Limited reported in (2009) 118 ITD 1 (MUM.)(SB) and the decision of the ITAT, Kolkata Bench in the case of Shiv Transport & Travels -vs.- ITO reported in (2016) 67 taxmann.com 108 (Kolkata-Trib.). In Bhaumik Colour (P) Limited s case, a Coordinate Bench of this Tribunal held that section 2(32) defines the expression person who has a substantial intere .....

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ehalf or for the individual benefit of a shareholder was considered as dividend. In 1961 Act, the very same two categories of payment were considered as dividend but an additional condition, that payment should be to a shareholder being a person who is the beneficial owner of shares and who has a substantial interest in the company, viz. shareholding which carries not less than 20% of the voting power, was introduced. Therefore, that the expression shareholder being a person who is the beneficia .....

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t Bench of this Tribunal followed the same and observed in paragraphs no. 15 & 16 as under:- 15. The Special Bench further held as follows:- 34. We are of the view that the provisions of Sec.2(22)(e) does not spell out as to whether the income has to be taxed in the hands of the shareholder or the concern(non-shareholder). The provisions are ambiguous. It is therefore necessary to examine the intention behind enacting the provisions of Sec.2(22)(e) of the Act. 35. The intention behind enacti .....

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ern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions such payment by the company is treated as dividend. The intention behind the provisions of section 2(22)(e) is to tax dividend in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which it s shareholder has substantial interest, is based on .....

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to a concern from the company and the person who can control the affairs of the concern can drawn the same from the concern instead of the company directly making payment to the shareholder as dividend. The source of power to control the affairs of the company and the concern is the basis on which these provisions have been made. It is therefore proper to construe those provisions as contemplating a charge to tax in the hands of the shareholder and not in the hands of a non-shareholder viz., con .....

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dend U/s.2(22)(e) of the Act is an inclusive definition. Such inclusive definition enlarges the meaning of the term Dividend according to its ordinary and natural meaning to include even a loan or advance. Any loan or advance cannot be dividend according to its ordinary and natural meaning. The ordinary and natural meaning of the term dividend would be a share in profits to an investor in the share capital of a limited company. To the extent the meaning of the word Dividend is extended to loans .....

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