Dinesh Kumar Agarwal., Hyderabad. V. Income Tax Officer, Ward-10(1), Hyderabad.

ITA 1235/Hyd/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2611 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 17-07-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR DIVYA K J
• Assessee Lawyers: NALIN SHAH
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1235/HYD/2017 ASSESSMENT YEAR: 2014-15 DINESH KUMAR AGARWAL, SECUNDERABAD. PAN ALCPA 1419N VS. INCOME-TAX OFFICER, WARD 10(2), HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NALIN SHAH REVENUE BY : SMT. DR. DIVYA KJ DATE OF HEARING 09-01-2018 DATE OF PRONOUNCEMENT 12-01-2018 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF CIT(A) 6, HYDERABAD, DATED 05/05/2017 FOR THE AY 2014-15. 2. BRIEFLY THE FACTS OF THE CASE ARE, ASSESSEE AN INDIVIDUAL, FILED HIS RETURN OF INCOME FOR THE AY 2014-15 ON 28/11/20 14 DECLARING TOTAL INCOME OF RS. 5,62,000/-. SUBSEQUENTLY, THE CASE WA S SELECTED FOR SCRUTINY UNDER CASS AND NOTICES U/S 143(2) AND 142 (1) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) WERE ISSU ED AND DULY SERVED ON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE AO NOTICED THAT IN ANNEXURE TO FORM 3CD REPORT STA TEMENT OF LOAN FOR THE YEAR ENDED 31/03/2014, THE ASSESSEE HAD TAKEN A LOAN OF RS. 66,43,000/- FROM M/S LIFE SCIENCE MECHANICS PVT LTD ., AND RS. 78,90,000/- FROM M/S V3 STAFFING SOLUTIONS PVT. LTD . BOTH THE ABOVE SAID COMPANIES ARE CLOSELY HELD COMPANIES AND THE A SSESSEE IS A 2 ITA NO. 1235 /HYD/2017 DINESH KUMAR AGARWAL SHAREHOLDER HOLDING 50% SHARES IN BOTH THE COMPANIE S. FURTHER, AO OBSERVED THAT M/S LIFE SCIENCE MECHANICS PVT. LTD. AND M/S V3 STAFFING SOLUTIONS PVT. LTD. HAD RESERVES AND SURP LUS OF RS. 38,92,074/- AND RS. 1,19,742/- RESPECTIVELY AS ON 3 1/03/2014. SINCE THE ASSESSEE HAD TAKEN LOAN FROM THE ABOVE SAID COM PANIES, WHICH ARE CLOSELY HELD AND ALSO HAVING ACCUMULATED PROFIT , PROVISIONS OF SECTION 2(22)(E) GET ATTRACTED AND ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE AMOUNT OF LOAN SHOUL D NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. IN RESP ONSE, ASSESSEE HAD FILED A REPLY ON 19/12/2016, WHICH IS EXTRACTED AS UNDER: 'THE ASSESSEE IS A PROPRIETOR OF V3 STAFFING SOLUTI ONS PROVIDING MAN POWER SERVICES MAINLY TO GOGGLE INDIA PVT. LTD. THE ASSESSEE ALONG WITH HIS WIFE NISHA AGARWAL HAS STAR TED TWO PRIVATE LIMITED COMPANIES. LIFE SCIENCE MECHANICS I NDIA PVT. LTD. AND V3 STAFFING SOLUTIONS PVT. LTD., IN WHICH BOTH ARE ONLY THE DIRECTORS AND ALSO SHAREHOLDERS. THE V3 STAFFIN G SOLUTIONS PVT. LTD. PROVIDES MANPOWER SERVICES MAINLY TO GOOG LE INDIA PVT. LTD. AND LIFE SCIENCE MECHANICS PVT. LTD. PROV IDES MAN POWER SERVICES TO OTHER COMPANIES. AS THE ASSESSEE PROVIDES MAN POWER SERVICE, THEY HAVE TO PAY SALARIES IN TIM E AND HENCE FAR THAT THEY TRANSFER FUND FROM THESE TWO SISTER C ONCERNS TEMPORARILY FOR THE PAYMENT OF SALARIES. THE TRANSF ER OF FUND FROM THESE COMPANIES, HAS NOT DERIVED ANY MONETARY BENEFIT TO THE ASSESSEE SO AS TO BE TREATED AS DEEMED DIVIDEND . HENCE ASSESSEE REQUESTS YOUR GOOD SELF TO KINDLY, ACCEPT THE ABOVE SUBMISSIONS. 2.1 AFTER CONSIDERING THE REPLY OF THE ASSESSEE, AO OBSERVED THAT AS THE ACCUMULATED PROFIT IS LESS THAN THE LOAN TAK EN FROM THE COMPANIES, TREATED THE LOAN AMOUNT TAKEN BY THE AS SESSEE FROM THE CLOSELY HELD COMPANIES TO THE EXTENT OF RS. 40,01,8 16/- AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), THE ASSESSEE HAD REITERATED T HE SUBMISSIONS AS MADE BEFORE THE AO. AFTER CONSIDERING THE SUBMIS SIONS OF THE 3 ITA NO. 1235 /HYD/2017 DINESH KUMAR AGARWAL ASSESSEE, CIT(A) DISMISSED THE APPEAL OF THE ASSESS EE BY RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F TARULATA SHYAM VS. CIT, 108 ITR 345 AND IN THE CASE OF P. SARADA V S. CIT, 229 ITR 444 (SC). 5. AGGRIEVED WITH THE ABOVE ORDER OF CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS AGAINST THE PRINCIPLE OF NATURAL JUSTI CE AND BAD IN LAW. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT T O DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER U/S 2(2 2)(E). 3. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT T O HAVE CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT T O HAVE CONSIDERED THAT THE LOAN AND ADVANCES ARE IN NORMAL COURSE OF BUSINESS AND NOT DEEMED DIVIDEND. 5. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 6. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. ASSESSEE IS AN INDIVIDUAL RUNNING A PROP RIETARY BUSINESS IN THE NAME OF V3 STAFFING SOLUTIONS PROVIDING MANPOWE R SERVICES MAINLY TO GOOGLE INDIA PVT. LTD. ALONG WITH HIS WIF E NISHA AGARWAL COMMENCED CLOSELY HELD COMPANIES IN THE NAME OF M/S LIFE SCIENCE MECHANICS PVT. LTD. AND M/S V3 STAFFING SOLUTIONS P VT. LTD., WHICH ARE ALSO IN THE BUSINESS OF PROVIDING MANPOWER SERVICES , HOLDING 50% SHARES IN EACH COMPANY. DURING THE AY UNDER CONSIDE RATION, ASSESSEE HAS TAKEN LOANS FROM THE CLOSELY HELD COMP ANIES FOR THE PURPOSE OF DISCHARGING PAYMENT OF SALARIES IN THE P ROPRIETARY BUSINESS. I.E. V3 STAFFING SOLUTIONS. SINCE V3 STA FFING SOLUTIONS IS A PROPRIETARY CONCERN OWNED BY THE ASSESSEE AND ALSO THIS CONCERN DOES NOT EXTEND SERVICES OF MANPOWER TO ANY OF THE CLOSELY HELD COMPANIES, IT CANNOT BE TREATED AS A COMMERCIAL TRA NSACTION. LD. AR RELIED, MAINLY, ON THE CBDT CIRCULAR NO. 19/2017 IN SUPPORT OF THE 4 ITA NO. 1235 /HYD/2017 DINESH KUMAR AGARWAL CONTENTION THAT TAKING LOAN FROM CLOSELY HELD COMPA NY TO DISCHARGE THE PAYMENT OF SALARY IS TO BE TREATED AS A COMMERC IAL TRANSACTION. WE ARE NOT IN AGREEMENT WITH THE SUBMISSIONS OF THE LD. AR AS THE SALARY COMMITMENT IS IN THE PROPRIETARY CONCERN, IN WHICH, ASSESSEE IS THE SOLE OWNER AND ANY LOAN TAKEN FROM THE CLOSELY HELD COMPANY WHEREIN ASSESSEE IS HOLDING SUBSTANTIAL INTEREST WI LL DEFINITELY ATTRACT PROVISIONS OF SECTION 2(22)(E). THEREFORE, WE ARE I N AGREEMENT WITH THE CONCLUSIONS DRAWN BY THE CIT(A) AND THUS, WE UP HOLD THE ORDER OF THE CIT(A). ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 12 TH JANUARY, 2018. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMAN) VICE PRESIDENT AC COUNTANT MEMBER HYDERABAD, DATED: 12 TH JANUARY, 2018 KV COPY TO:- 1) DINESH KUMAR AGARWAL, C/O NALIN SHAH & CO. CAS. , 4-3-41/1, 1 ST FLOOR, HILL STREET, RANIGUNJ, SECUNDERABAD - 03 2) ITO, WARD 10(1), HYD. 3) CIT(A) 6, HYDERABAD. 4) PR. CIT 6 , HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE 5 ITA NO. 1235 /HYD/2017 DINESH KUMAR AGARWAL S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER