Shri Ramesh Chandra Agrawal, Bhopal V. The ACIT, Bhopal

CO 61/IND/2009

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5111 (ITAT-INDORE)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 04-08-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-08-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 11-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K SINGH
• Assessee Lawyers: S S DESH
• Keywords: Question of law; Deemed dividend; Notional interest
• Section: 147; 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI B.R. KAUSHIK, ACCOUNTANT MEMBER ITA NO.423/IND/2009 A.YS. 2006-07 ASSTT. COMMISSIONER OF INCOME TAX 1(2), BHOPAL APPELLANT VS RAMESH CHANDRA AGRAWAL BHOPAL PAN ACYPA-5011F RESPONDENT C.O. NO. 61/IND/09 ARISING OUT OF ITA NO.423/IND/2009 A.YS. 2006-07 RAMESH CHANDRA AGRAWAL BHOPAL OBJECTOR VS ASSTT. COMMISSIONER OF INCOME TAX 1(2), BHOPAL RESPONDENT REVENUE BY : SHRI K.K. SINGH, CIT DR ASSESSEE BY : SHRI S.S. DESHPANDE, CA O R D E R PER JOGINDER SINGH, JM THIS APPEAL IS BY THE REVENUE AND CROSS OBJECTION B Y THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A) DATED 5.6.2 009. FIRSTLY, WE SHALL TAKE UP THE APPEAL OF THE REVENUE WHEREIN THE FIRST GROUND RAISED IS THAT 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DELET ING THE ADDITION OF RS.7,20,000/- MADE UNDER THE PROVISIONS OF SECTION 2(24)(V) OF THE ACT BY THE LEARNED ASSESSING OFFICER. THE CRUX OF ARGUM ENTS ON BEHALF OF THE REVENUE IS IN SUPPORT OF THE ASSESSMENT ORDER WHERE AS THE LD. COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDER BY CON TENDING THAT IT IS COVERED BY THE DECISION DATED 24 TH MAY, 2010 OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF (ITA NO. 182/IND/2009). THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE REVENUE. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. IN VIEW OF THE ASSERTION/ADMISSION OF THE L EARNED RESPECTIVE COUNSELS, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION OF THE AFORESAID ORDER DATED 24.5.2010 :- THIS APPEAL FILED BY THE REVENUE ARISES OUT OF OR DER OF THE LD. CIT(A)-I, BHOPAL , DATED 19.01.2009, FOR THE ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL AVAILABLE ON RECORD. 3. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A CHA IRMAN OF BHASKAR GROUP OF INDUSTRIES. THE AO NOTED THAT T HE ASSESSEE HAD OBTAINED LOANS FROM VARIOUS GROUP COMPANIES WITHOUT INTEREST. IT WAS FURTHER NOTED TH AT THE ASSESSEE WAS EITHER A DIRECTOR OR WAS HOLDING SUBST ANTIAL SHARES IN SUCH COMPANIES. THE AO REQUIRED THE ASSES SEE TO SUBMIT FURTHER DETAILS OF SUCH LOANS, WHICH WAS NOT SUBMITTED INSPITE OF REPEATED OPPORTUNITIES. THE AO 3 FORMED AN OPINION THAT THE PROVISIONS OF SECTION 2( 24)(IV) WERE APPLICABLE AND BENEFIT IN THE FORM OF NOTIONAL INTEREST TO BE ADDED TO THE TOTAL INCOME OF THE ASS ESSEE. ON AN OPPORTUNITY BY THE ASSESSING OFFICER, THE ASS ESSEE REPLIED THAT SUCH PROVISIONS WERE NOT APPLICABLE. T HE AO HELD THAT IN THE ABSENCE OF EXACT DETAILS IT WAS NO T POSSIBLE TO THE AO TO APPLY THE CORRECT PROVISIONS OF LAW AND SINCE THE ASSESSMENT WAS GETTING TIME BARRED, THERE WAS NO OTHER OPTION BUT TO COMPUTE THE BENEFIT ON NOTIONAL BASIS I.E. @ 8% OF THE TOTAL AMOUNT RECEIV ED BY THE ASSESSEE AND ADD THE SAME TO THE TOTAL INCOME O F THE ASSESSEE U/S 2(24)(IV) OF THE ACT. ACCORDINGLY, TH E AO MADE ADDITION OF RS. 66,08,214/-. AGGRIEVED BY THIS , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHEREIN IT WAS CONTENDED THAT THESE LOANS WERE RECE IVED IN THE NORMAL COURSE OF BUSINESS ACTIVITIES AND WER E FOR TEMPORARY PERIOD, HENCE, CALCULATION OF NOTIONAL IN TEREST AND TREATING THE SAME AS INCOME WAS NOT AT ALL JUST IFIED. IT WAS ALSO CONTENDED THAT AS PER THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF B.M. SALGAONCAR & BROTHER S PRIVATE LIMITED VS. CIT, AS REPORTED IN 243 ITR 383 , AND THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. P. R. S. OBEROI AS REPORTED IN 52 TAXMAN 267, AND IN THE CASE OF ISHRAN DEVI OBEROI VS. ITO, AS REPORTED IN 250 ITR 362, THE PROVISIONS OF SECTION 2(24)(IV) COULD NOT BE APPLIED, TO COMPUTE THE NOTI ONAL INTEREST ON LOAN. IT WAS ALSO CONTENDED THAT THE AS SESSEE WAS NOT A SUBSTANTIAL SHAREHOLDERS ALSO IN VIEW OF THE PROVISIONS OF SECTION 2(32) OF THE ACT AS APPLICABL E TO INVOKE THE PROVISIONS OF SECTION 2(24)(IV) OF THE A CT. THE ASSESSEE ALSO GAVE THE DETAILS OF THE LIST OF SHAR EHOLDINGS IN ALL THE COMPANIES TO THE LD. CIT(A) AND AS PER T HESE DETAILS, THE ASSESSEE WAS FOUND TO HAVE SUBSTANTIAL SHAREHOLDING ONLY IN TWO COMPANIES, NAMELY, PEACOCK TRADING AND INVESTMENT PVT.LTD. AND BHOPAL FINANCIA L SERVICES PRIVATE LIMITED. THE LD. CIT(A) FOUND THAT IN RESPECT OF THESE TWO COMPANIES, THE AMOUNT HAD BEEN ADVANCED TO THE ASSESSEE ON 31.3.2005 ONLY, HENCE, NO NOTIONAL INTEREST COULD BE COMPUTED FOR THE YEAR AS A WHOLE ON NOTIONAL BASIS. IN RESPECT OF OTHER COMPAN IES, THE LD. CIT(A) HELD THAT THE ASSESSEE WAS NOT HAVIN G SUBSTANTIAL INTEREST. HENCE, PROVISIONS OF SECTION 2(24)(IV) COULD NOT BE APPLIED. THE LD. CIT(A) ALSO HELD 4 THAT EVEN OTHERWISE, THE PROVISIONS OF SECTION 2(24 )(IV) COULD NOT BE APPLIED IN CASE OF INTEREST FREE LOANS ON CONCESSIONAL RATE IN VIEW OF THE DECISION OF THE SU PREME COURT IN THE CASE OF B.M.SALGAONCAR AND BROTHERS PR IVATE LIMITED (SUPRA). ACCORDINGLY, HE DELETED THE IMPUGN ED ADDITION. AGGRIEVED BY THIS, THE REVENUE IS IN APPE AL BEFORE US. 4. THE LD. CIT DR SUBMITTED THAT THE ASSESSEE WAS A DIRECTOR IN ALL THE COMPANIES AND THIS FACT WAS NOT IN DISPUTE, HENCE, THE PROVISIONS OF SECTION 2(32) WER E APPLICABLE AND, THEREFORE, NOTIONAL INTEREST COULD BE COMPUTED U/S 2(24)(IV). IT WAS ALSO CONTENDED THAT THE ASSESSEE BY NOT FURNISHING THE REQUIRED DETAILS BEF ORE THE AO PREVENTED HIM TO APPLY THE CORRECT PROVISIONS OF LAW. HENCE, MERELY FOR THIS REASON, THE AO SHOULD BE GIV EN AN OPPORTUNITY OF READJUDICATING THE MATTER. THE LD. C IT DR FURTHER ELABORATED THIS POINT BY SUBMITTING THAT TH E ASSESSEE COULD BE SUBSTANTIAL SHAREHOLDERS IN TERMS OF PROVISIONS OF SECTION 2(22)(E) AND, THEREFORE, SUCH LOANS COULD BE TREATED AS DEEMED DIVIDEND THEREUNDER AND THIS ASPECT HAD TO BE EXAMINED. THE LD. CIT DR, IN THIS REGARD, CONTENDED THAT THE TRIBUNAL WAS COMPETENT T O DO SO AS PER THE PROVISIONS OF THE ACT AND EVEN IF SUC H REMANDING RESULTED INTO ENHANCEMENT OF INCOME, THE SAME WOULD ALSO BE JUSTIFIED. FOR THIS PROPOSITION, THE LD. CIT DR RELIED ON THE DECISION OF THE HON'BLE SUPREM E COURT IN THE CASE OF BHAVNA CHEMICALS LIMITED VS. C IT, AS REPORTED IN 231 ITR 507. 5. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, CONTENDED THAT APPLICABILITY OF PROVISIONS OF SECTION 2(22)(E) WAS NOT A CASE OF REVENUE I.E. OF A.O. AND IF THE AO WAS OF THE VIEW THAT THOSE PROVISIONS WERE APPLICABLE ATLEAST HE COULD HAVE MADE AN ADDITION O N PROTECTIVE BASIS AND THAT WAS ALSO NOT DONE, HENCE, THERE WAS NO MERIT IN THE PRELIMINARY CONTENTIONS RAISED BY THE REVENUE DURING THE COURSE OF HEARING. THE LEARNED COUNSEL FURTHER SUBMITTED THAT IF THE REVENUE WAS OF THE VIEW THAT THE ASSESSMENT ORDER WAS PREJUDICIAL TO T HE INTERESTS OF THE REVENUE OR SOME INCOME HAD ESCAPED FROM ASSESSMENT, THEN THE REVENUE COULD HAVE INVOKE D THE PROVISIONS OF SECTION 147 OR 263 AS THE CASE MA Y BE. 5 AS REGARD TO THE MERITS OF THE CASE, THE LEARNED CO UNSEL SUBMITTED THAT U/S 2(24)(IV), NOTIONAL INTEREST ON INTEREST FREE LOANS COULD NOT BE CHARGED, AS HELD BY THE HON 'BLE SUPREME COURT IN THE CASE OF B.M. SALGAONCAR AND BROTHERS PRIVATE LIMITED (SUPRA). HENCE, WHETHER TH E ASSESSEE WAS A DIRECTOR OR NOT, THE SAME WAS NOT A FACTOR TO BE CONSIDERED. AS REGARD TO NON-APPLICABILITY OF PROVISIONS OF SECTION 2(24)(IV), THE LEARNED COUNSE L ALSO RELIED ON THE DECISION OF THE HON'BLE PUNJAB & HARY ANA HIGH COURT IN THE CASE OF CIT VS. S.S.KHOSLA, AS RE PORTED IN 220 ITR 65, WHEREIN THE HON'BLE HIGH COURT HAD DISMISSED THE APPEAL OF THE REVENUE BY HOLDING THAT NO QUESTION OF LAW AROSE IN THAT APPEAL AS THE HON'BLE COURT HAD DISMISSED OTHER CONNECTED PETITION ALSO BY HOLD ING THAT THE PROVISIONS OF SECTION 2(24)(IV)/SECTION 17(2)(3)(A) WERE NOT APPLICABLE IN RESPECT OF INTER EST FREE LOANS TO EMPLOYEES. THE LEARNED COUNSEL ALSO RELIE D ON THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE P.KRISHNAMOORTHY VS. CIT AND ANOTHER AS REPORTED IN 224 ITR 183, WHREIN THE HON'BLE COURT HAD HELD THAT PROVISIONS OF SECTION 40A(5) AND SECTION. 17(2)(IV) COULD NOT BE APPLIED IN RESPECT OF INTEREST SUBSIDY GIVEN TO EMPLOYEES. 6. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW. 7. IT IS NOTED THAT THE ASSESSEE HAS OBTAINED CERTAIN INTEREST FREE LOAN FROM COMPANIES, WHEREIN HE IS A DIRECTOR AND/OR HOLDING SUBSTANTIAL SHARE HOLDING. THE AO HAS APPLIED THE PROVISIONS OF SECTION 2(24)(IV), WHICH, AT THE VERY OUT-SET, CANNOT BE APPLIED IN VI EW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF B.M. SALGAONCAR AND BROTHERS PRIVATE LIMITED (SUPRA ). AS REGARD TO THE PRELIMINARY OBJECTION RAISED BY TH E REVENUE, IN OUR OPINION, THE POWERS OF THE TRIBUNAL ARE CONFINED TO THE DISPUTE BEFORE THE TRIBUNAL OR IN CONSEQUENTIAL/CONNECTED MATTERS WITH SUCH DISPUTE. TO PUT IT DIFFERENTLY, THE TRIBUNAL CANNOT ALLOW A FRE SH ISSUE TO BE RE-ADJUDICATED BY THE ASSESSING OFFICER OR TH E LD. CIT(A), WHICH WAS NEVER A SUBJECT MATTER OF PROCEED INGS BEFORE THEM. HAVING STATED SO, WE FURTHER NOTE THAT IN THE 6 CASE OF BHAVNA CHEMICALS LIMITED (SUPRA), THE AO HA D TAXED THE AGRICULTURAL INCOME WHICH COULD NOT BE BR OUGHT TO TAX AND HAS ALSO ALLOWED EXPENSES RELATING TO AGRICULTURAL ACTIVITIES IN COMPUTING THE TOTAL INCO ME. HENCE, IN THAT CASE, IT IS EVIDENT THAT ISSUES WERE INTERMINGLED AND INTERCONNECTED WHEREAS IN THE PRES ENT CASE, THE ISSUES ARE ENTIRELY INDEPENDENT I.E. WHET HER SUCH LOANS COULD BE TAXED AS DEEMED DIVIDEND OR INTEREST ON SUCH LOANS COULD BE TAXED ON NOTIONAL BASIS U/S 2(2 4)(IV) OR NOT. HENCE, IN OUR OPINION, THE RATIO OF THAT DE CISION CANNOT BE APPLIED HERE. WE MOST HUMBLY STATE THAT I F THE REVENUES CONTENTION IS ACCEPTED, THEN, ENTIRE ASSE SSMENT COULD BE SENT BACK TO THE AO FOR ONE OR THE OTHER S UCH PRELIMINARY POINTS AND THAT CANNOT BE A CORRECT POS ITION IN LAW. HENCE, WE REJECT THIS CONTENTION OF THE REVENU E. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STAN DS DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 24 TH MAY, 2010. IN THE PRESENT APPEAL ALSO THE LEARNED ASSESSING OF FICER ADDED RS.7,20,000/- ON ACCOUNT OF INTEREST FREE ADVANCES OF RS.60 LACS TAKEN BY THE ASSESSEE FROM BHASKAR MULTINET LIMITED AT TH E RATE OF 12% PER ANNUM AND ADDED TO THE INCOME OF THE ASSESSEE AS BE NEFIT TO THE DIRECTOR U/S 2(24)(V) OF THE ACT. THE INDORE BENCH WHILE DISPOSING OF THE APPEAL OF THE REVENUE (ITA NO. 182/IND/2009) (SUPRA ) HAS CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS FROM VARIOUS HONBL E HIGH COURTS AND ALSO FROM THE HONBLE APEX COURT AND DISMISSED THE APPEAL OF THE REVENUE. THE ASSESSEE IS THE CHAIRMAN OF BHASKAR GR OUP AND ALSO DIRECTOR IN VARIOUS GROUP COMPANIES INCLUDING THE M ANAGING DIRECTOR OF BHASKAR INDUSTRIES LIMITED. THE LEARNED ASSESSING O FFICER CALCULATED 7 THE BENEFIT OF ALL THE CREDIT BALANCES FOR FULL YEA R AT THE RATE OF 12% ON ALL THE OUTSTANDING BALANCE AND TREATED THE IMPUGNED AM OUNT AS BENEFIT BY WAY OF NOTIONAL INTEREST INCOME U/S 2(24)(IV) OF TH E ACT, WHICH, IN OUR VIEW, IS NOT AS PER THE PROVISIONS OF THE ACT OR IN TENTION OF THE LEGISLATURE. THEREFORE, KEEPING IN VIEW THE TOTALITY OF FACTS AN D THE AFORESAID ORDER OF THE TRIBUNAL, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER AND CONFIRM THE SAME. ACCORDINGLY, THE APPEAL OF THE REVENUE IS DIS MISSED. 3. NOW WE SHALL TAKE UP THE CROSS OBJECTION RAISED BY THE ASSESSEE. THE FIRST GROUND OF CROSS OBJECTION IS T HAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOL DING THE ADDITION OF RS.3,95,000/- U/S 2(22)(E) OF THE ACT TREATING T HE SAME TO BE DEEMED DIVIDEND. THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE WAS THAT BEFORE THE AUTHORITIES BELOW IT WAS EXPLAINED THAT THE AMOUNT OF RS.2,45,000/- WAS NOT AN ADVANCE OR LOAN BUT WAS DE BITED BY A TRANSFER ENTRY. THEREFORE, THE PROVISIONS OF SECTION 2(22)(E ) WERE NOT APPLICABLE. HOWEVER, THE LEARNED REPRESENTATIVE FOR THE REVENUE DEFENDED THE ADDITION. THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE DECISION IN GOPAL PUROHIT V. JCIT (2009) 122 TTJ (M UM) 87. FOR CROSS OBJECTION NO. 2 IN RESPECT OF ADDITION OF RS.66,08 ,214/- MADE U/S 2(24)(IV) TREATING THE NOTIONAL INCOME IT WAS CONTE NDED THAT THIS GROUND WAS NOT DISPOSED OF BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). IT WAS, THEREFORE, PRAYED THAT THIS GRO UND MAY BE REMANDED 8 BACK FOR FRESH ADJUDICATION. KEEPING IN VIEW THE TO TALITY OF FACTS AND CIRCUMSTANCES, THE GROUNDS RAISED IN THE CROSS OBJE CTIONS ARE REMANDED BACK TO THE FILE OF THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) WITH THE DIRECTION TO DECIDE THE SAME AFRESH IN ACC ORDANCE WITH LAW FOR WHICH DUE OPPORTUNITY BE PROVIDED TO THE ASSESSEE. THE ASSESSEE IS ALSO AT LIBERTY TO FURNISH EVIDENCE, IF ANY, TO SUB STANTIATE ITS CLAIM. THEREFORE, THE CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES ONLY. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED WH EREAS THE CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED FOR STATISTI CAL PURPOSES ONLY. ORDER PRONOUNCED IN OPEN COURT ON 4 TH AUGUST, 2010. (B.R. KAUSHIK) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER 4 TH AUGUST,2010 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE *DN/