ITO, Ludhiana V. Sh. Avtar Singh, Ludhiana

ITA 1229/CHANDI/2012

• Counselvise Citation: 122921514 RSA 2012
• Duration Of Justice: 3 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS MEENAKSHI VOHRA
• Assessee Lawyers: ASHOK GOYAL; SUDHIR SEHGAL
• Keywords: Depreciation; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.1229/CHD/2012 (ASSESSMENT YEAR : 2009-10) THE INCOME TAX OFFICER, VS. SHRI AVTAR SINGH, WARD-III(2), KARTAR COMPLEX, LUDHIANA. G.T. ROAD (WEST), LUDHIANA. PAN: ACHPS 3301 F (APPELLANT) (RESPONDENT) APPELLANT BY : MRS.MEENAKSHI VOHRA, DR RESPONDENT BY : S/SHRI SUDHIR SEHGAL & ASHOK GOYAL DATE OF HEARING : 19.10.2015 DATE OF PRONOUNCEMENT : 11.12.2015 O R D E R PER RANO JAIN, A.M . : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, LUDHIANA DATED 5.9.2012 RELATING T O FOR ASSESSMENT YEAR 2009-10. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND IS A DIRECTOR IN M/S PREET BUILDERS PVT. LTD. ACCORDING TO THE ASSESSING OFFI CER, THE ASSESSEE HAPPENS TO BE A MAJOR SHAREHOLDER OF M/S P REET BUILDERS PVT. LTD. AND HAD RECEIVED VARIOUS ADVANCE S FROM 2 THE SAID COMPANY. M/S PREET BUILDERS PVT. LTD. HAD ACCUMULATED PROFITS OF RS.2,78,02,110/-. ON BEING CONFRONTED BY THE ASSESSING OFFICER WHY THE ADVANCE S RECEIVED BY THE ASSESSEE BE NOT TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE SUBMITTED THAT THE AMOUNT WAS GIVEN BY THE COMPANY IN PURSUANCE OF SPE CIFIC BUSINESS EXIGENCIES AND HAD BEEN SANCTIONED BY THE RESOLUTION PASSED BY THE COMPANY. THE EVIDENCES T O THIS EFFECT WERE ALSO SUBMITTED BEFORE THE ASSESSING OFF ICER. THE ASSESSING OFFICER, HOWEVER, CONCLUDED THAT THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTABLE AS TH E NATURE OF THE TRANSACTIONS REVEALED THAT THE ASSESS EE HAD NOT ENTERED INTO ANY TRANSACTION OF SALE AND PURCHA SE OF IMMOVABLE PROPERTY ON BEHALF OF M/S PREET BUILDERS PVT. LTD.. IN THIS WAY, THE ASSESSING OFFICER TREATED T HE PEACK BALANCE OF RS.1,97,04,975/- AS DEEMED DIVIDEND. 3. BEFORE THE LEARNED CIT (APPEALS), IT WAS SUBMITTED BY THE ASSESSEE THAT DURING THE YEAR, HE RECEIVED ON DIFFERENT DATES AMOUNTS FROM THE COMPAN Y M/S PREET BUILDERS PVT. LTD. IN IMPREST ACCOUNT TO DEAL ON BEHALF OF THE COMPANY. THE MONEY WAS REPAID AND AS PER THE BUSINESS REQUIREMENTS. THE ASSESSEE DID NOT US E THE FUNDS OF THE COMPANY FOR HIS PERSONAL USE OR BENEFI T. A COPY OF LEDGER ACCOUNT OF THE ASSESSEE IN THE COMPA NY WAS PRODUCED AND IT WAS SUBMITTED THAT THE AMOUNT RECEI VED BY THE ASSESSEE FROM THE COMPANY HAS BEEN RETURNED TO 3 THE COMPANY AFTER THE DEAL OF THE PROPERTY, WHICH W AS TO BE CARRIED ON BEHALF OF THE COMPANY. THE ASSESSEE NEITHER WITHDREW THE CASH FROM THE ACCOUNT FOR PERSONAL USE , NOR CREATED ANY PERSONAL ASSETS OUT OF THESE FUNDS. I T WAS FURTHER CLARIFIED THAT THE ASSESSEE BEING THE DIREC TOR IN THE COMPANY IS WELL AUTHORIZED BY THE RESOLUTION DU LY PASSED IN THE SHAREHOLDERS MEETING OF THE COMPANY AUTHORIZING THE ADVANCES TO THE DIRECTOR FOR NEGOTI ATING THE LAND DEALS. RELYING ON A NUMBER OF JUDGMENTS, IT WAS PLEADED THAT SINCE THE ADVANCES WERE MADE IN ORDINA RY COURSE OF BUSINESS, THE SAME SHOULD NOT BE SUBJECT MATTER OF ADDITION UNDER SECTION 2(22)(E) OF THE ACT. THE OTHER ASPECT OF THE CASE WAS THAT THE PLEA OF THE ASSESSE E WAS THAT THE COMPANY M/S PREET BUILDERS PVT. LTD. HAD ACCUMULATED PROFITS OF RS.31.68 LACS, WHEREAS THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.197.05 LACS IGNORING THE FACT THAT ACCUMULATED PROFITS ARE CLAS SIFIED UNDER THE HEAD PROFIT & LOSS ACCOUNT ONLY TO THE EXTENT OF RS.31.68 LACS. THEREFORE, THE EXCESS ADDITION I S THE RESULT OF MISCALCULATION AND NEGLECTING THE FACTS O F THE CASE. THE ASSESSEE HAD ALSO FILED BEFORE THE LEARN ED CIT (APPEALS) A DETAILED CHART SHOWING THE SPECIFIC BUS INESS USAGE OF VARIOUS ADVANCES RECEIVED BY HIM FROM THE COMPANY ON VARIOUS DATES. ALL OF THESE ADVANCES WE RE ON ACCOUNT OF ADVANCE MONEY OR BIANA PAID TO EACH PERS ON FROM WHOM THE LAND WAS PURCHASED BY THE ASSESSEE. 4 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LEARNED CIT (APPEALS) FIRSTLY DECIDED THAT THE PLEA OF THE ASSESSEE THAT THE COMPANY M/S PREET BUILDERS PVT. LTD. HAD ACCUMULATED PROFITS TO THE E XTENT OF RS.31,68,110/- ONLY IS CORRECT. SINCE IN SCHEDULE -B OF THE BALANCE SHEET OF THE COMPANY, IT IS SEEN THAT U NDER THE HEAD RESERVES AND SURPLUS THE ACCUMULATED PRO FITS ARE SHOWN AT RS.31,68,110/-, WHILE OTHER COMPONENTS UNDER THIS SCHEDULE DO NOT REPRESENT THE ACCUMULATE D PROFITS. THEREFORE, IT WAS HELD THAT EVEN IF THE P ROVISIONS OF SECTION 2(22) OF THE ACT ARE INVOKED, THE ADDITI ON CAN BE MADE ONLY TO THE EXTENT OF RS.31,68,110/-. 5. ON THE SECOND ISSUE THAT ADVANCES WERE RECEIVED BY THE ASSESSEE ON ACCOUNT OF BUSINESS EXIGENCIES, THE LEARNED CIT (APPEALS) AFTER PERUSING VARIOUS EVIDEN CES FILED BY THE ASSESSEE ALONGWITH THE EXPLANATION, CO NCLUDED THAT THE ASSESSEE HAD PRODUCED SUFFICIENT EVIDENCE TO SUBSTANTIATE HIS CLAIM OF THE ADVANCES BEING ENTIRE LY FOR THE BUSINESS OF M/S PREET BUILDERS PVT. LTD. RELY ING ON THE JUDGMENT OF I.T.A.T., CHANDIGARH BENCH IN THE C ASE OF DCIT VS. LAKRA BROTHERS (2007) 106 TTJ 250 (CHD) AN D THAT OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. SUNIL CHOPRA 2 ITR (TRIB) 469 (DEL), THE ADDITI ON MADE BY THE ASSESSING OFFICER UNDER SECTION 2(22) OF THE ACT WAS DELETED. 5 6. AGGRIEVED BY THIS ORDER OF THE LEARNED CIT (APPEALS), THE DEPARTMENT HAS COME UP IN APPEAL BEF ORE US RAISING FOLLOWING GROUNDS OF APPEAL : 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION OF RS. 1,97,04,975/- MADE BY TH E A.O. U/S 2(22)(E) OF THE INCOME TAX ACT, 1961 IN RE SPECT OF VARIOUS ADVANCES RECEIVED BY HIM FROM THE COMPANY M/S PREET BUILDERS PVT, LTD., AS THE ASSESSEE WHO IS ALSO DIRECTOR OF THE COMPANY, UNDISPUTEDLY POSSESSES48%OF ITS SHARES WHICH IS FAR MORE THAN 10 % OF THE SHARE-HOLDING OF THE COMPANY AND FURTHER WHEN THE COMPANY HAS ACCUMULATED PROFITS TO THE TUNE OF RS. 2,78,02,110/-. 2. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF A.O. BE RESTORED. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND A NY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 7. THE LEARNED D.R. WHILE ARGUING THE CASE SUBMITTED THAT THE ACTION OF THE ASSESSING OFFICER IN TREATING THE AMOUNT OF RS.1,97,04,975/- AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT WAS CORR ECT AS THESE WERE THE ADVANCES RECEIVED BY THE ASSESSEE FR OM THE COMPANY M/S PREET BUILDERS PVT. LTD., WHO IS THE DI RECTOR OF THE COMPANY AND IS ALSO A MAJOR SHAREHOLDER. ON THE SECOND ASPECT OF THE CASE, THE LEARNED D.R. SUBMITT ED THAT THE COMPANY M/S PREET BUILDERS PVT. LTD. HAS ACCUMULATED PROFITS TO THE TUNE OF RS.2,78,02,110/- . THEREFORE, THE ADDITION UNDER SECTION 2(22)(E) OF T HE ACT HAS TO BE MADE TO THE EXTENT OF RS.1,49,74,975/-. 6 8. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE ARGUING BEFORE US TOOK US TO THE ORDER OF THE LEARN ED CIT (APPEALS) AT PAGE 7 ONWARDS, WHEREBY A DETAILED CHA RT OF VARIOUS AMOUNTS RECEIVED BY THE ASSESSEE FROM THE COMPANY M/S PREET BUILDERS PVT. LTD. WAS FILED. IT WAS SUBMITTED THAT ALL THE AMOUNTS HAVE BEEN RECEIVED T O BE PAID AS BIANA TO VARIOUS PERSONS FROM WHOM THE COMP ANY INTENDED TO PURCHASE LAND. THEREFORE, ALL THESE AM OUNTS WERE RECEIVED ON ACCOUNT OF BUSINESS EXIGENCIES OF THE COMPANY ONLY. FOR THIS PURPOSE, OUR ATTENTION WAS ALSO INVITED TO SCHEDULE-H OF THE BALANCE SHEET, WHEREBY THE LAND AT FIROZEPUR ROAD, WHICH WAS AT FIGURE OF RS.2,02,34,000/- AS ON 31.3.2008 INCREASED TO RS.2,49,45,153/- AS ON 31..3.2009. IT WAS SHOWN TO US TO EMPHASIZE THE FACT THAT THE COMPANY BEING ENGAGED I N THE BUSINESS OF REAL ESTATE, IT WAS IN THE PROCESS OF A CQUIRING LAND AT FIROZEPUR ROAD, WHICH WAS BEING DONE THROUG H IMPREST ACCOUNT OF THE DIRECTOR I.E. THE ASSESSEE I N QUESTION. FURTHER, ON SECOND ASPECT OF ACCUMULATE D PROFITS, OUR ATTENTION WAS INVITED TO SCHEDULE-B AT TACHED TO THE BALANCE SHEET, WHEREBY UNDER THE HEAD RESER VES AND SURPLUS THE AMOUNT OF PROFITS AND LOSS IS APPE ARING AT RS.31,68,110/-, WHILE THREE OTHER COMPONENTS OF RESERVES AND SURPLUS I.E. DEPRECIATION RESERVE, CAP ITAL RESERVE AND SHARE PREMIUM, WHICH CANNOT BE CONSIDER ED AS A PART OF ACCUMULATED PROFITS. IN THIS WAY, IT WAS PRAYED WITHOUT PREJUDICE IF THE ADDITION UNDER SECT ION 7 2(22)(E) OF THE ACT HAS TO BE MADE, IT CANNOT EXCEE D THE AMOUNT OF RS.31,68,110/-. 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THIS IS AN UNDISPUTED FACT THAT THE ASSESSEE IS AN INDIVIDUAL, WHO IS A DIRECTOR IN M/S PREET BUILDERS PVT. LTD.. FURTHER, UNDISPUTEDLY, THE ASSESSEE HOLDS 48 % OF SHARES OF M/S PREET BUILDERS PVT. LTD., WHICH IS FA R MORE THAN 10% OF THE SHAREHOLDING OF THE COMPANY. THERE FORE, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE A PPLICABLE IN HIS CASE. ON PERUSAL OF THE BALANCE SHEET OF TH E COMPANY, M/S PREET BUILDERS PVT. LTD., AS SHOWN TO US BY THE LEARNED COUNSEL FOR THE ASSESSEE, THIS CAN ALSO NOT BE DISPUTED THAT THE COMPANY DURING THE YEAR WAS IN TH E PROCESS OF PURCHASING THE LAND FOR ITS CONSTRUCTION BUSINESS. FURTHER, FROM THE CHART FILED BY THE AS SESSEE BEFORE THE LEARNED CIT (APPEALS), WE SEE THAT HE HA S BEEN ABLE TO EXPLAIN EACH AND EVERY AMOUNT RECEIVED BY H IM FROM THE COMPANY, WHICH WAS FOR THE PURPOSE OF PAYI NG BIANA TO VARIOUS PERSONS FROM WHOM THE COMPANY INTENDED TO PURCHASE THE LAND. THE ASSESSEE BEING DIRECTOR OF THE COMPANY WAS DULY AUTHORIZED BY THE RESOLUTION PASSED IN THE SHAREHOLDERS MEETING OF TH E COMPANY. THIS FACT HAS NEVER BEEN CONTROVERTED BY THE ASSESSING OFFICER. EVEN THE LEARNED D.R. BEFORE US COULD NOT CONTROVERT THIS FACT. IN VIEW OF THESE, IT IS CONCLUDED 8 THAT THE AMOUNT HAVE BEEN RECEIVED BY THE ASSESSEE ON ACCOUNT OF BUSINESS EXIGENCIES OF THE COMPANY AND A NY AMOUNT RECEIVED BY ANY PERSON BECAUSE OF BUSINESS RELATIONSHIP WITHIN THE COMPANY CANNOT BE HELD TO B E EXIGIBLE TO TAX AS DEEMED DIVIDEND UNDER SECTION 2( 22)(E) OF THE ACT. THERE ARE A NUMBER OF JUDGMENTS OF VAR IOUS HIGH COURTS, WHEREBY IT HAS BEEN HELD THAT THE PAYM ENTS MADE DURING THE NORMAL COURSE OF THE BUSINESS CANNO T BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) O F THE ACT. WE ARE GUIDED BY THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. CREATIVE DYEING & PRINTING PVT. LTD. (2010) 30 DTR 143 (DEL) FOR THI S PROPOSITION. IN THIS CASE RELIANCE WAS PLACED ON ANOTHER EARLIER JUDGMENT OF THE DELHI HIGH COURT IN THE CAS E OF CIT VS. RAJ KUMAR (2009) 318 ITR 462, WHEREBY IN VE RY CLEAR TERMS IT WAS HELD THAT TRADE ADVANCES WHICH I S IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTION DOES NOT FALL WITHIN THE AMB IT OF SECTION 2(22)(E) OF THE ACT. RELIANCE PLACED BY TH E LEARNED COUNSEL FOR THE ASSESSEE ON THE ORDER OF THE I.T.A. T., CHANDIGARH BENCH IN THE CASE OF LAKRA BROTHERS (SU PRA) IN THIS REGARD IS ALSO NOT OUT OF PLACE. EVEN THE LEARNED CIT (APPEALS) HAS GRANTED RELIEF TO THE ASSESSEE ON THIS BASIS. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS) AND UPHOLD THE SAME ON THIS ISSUE. 9 10. THOUGH THE ISSUE OF COMPUTATION OF ACCUMULATED PROFITS BECOMES ACADEMIC IN VIEW OF OUR FINDING GIV EN ABOVE, HOWEVER, IT IS SEEN FROM SCHEDULE-B REGARDIN G RESERVE AND SURPLUS OF M/S PREET BUILDERS PVT. LTD. THAT THE ASSESSING OFFICER HAS GONE AHEAD OF THE PROFIT & LOSS ACCOUNT SHOWN AT RS.31,68,110/- IN THIS SCHEDULE, A LSO INCLUDING THE AMOUNT OF DEPRECIATION RESERVE, CAPIT AL RESERVE AND SHARE PREMIUM. HOWEVER, WE FIND OURSEL VES IN AGREEMENT WITH THE CONTENTION OF THE ASSESSEE AS WELL AS THAT OF THE LEARNED CIT (APPEALS) THAT THE ACCUM ULATED PROFITS FOR THE PURPOSE OF SECTION 2(22) OF THE ACT MEANS ONLY THE COMMERCIAL PROFITS AND RESERVE OF THE NATU RE OF DEPRECIATION RESERVE, CAPITAL RESERVED OR SHARE PRE MIUM CANNOT BE CONSIDERED PART OF THE ACCUMULATED PROFIT S. THEREFORE, EVEN THIS CONTENTION OF THE DEPARTMENT I S NOT TENABLE UNDER THE LAW. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF DECEMBER, 2015. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 11 TH DECEMBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 10