DCIT, CHENNAI V. Harinder Singh, CHENNAI

ITA 1318/CHNY/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5281 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 11-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . #$ , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.1317/CHNY/2016 ( / ASSESSMENT YEAR: 2008-09) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(1), CHENNAI 34. VS SHRI HARBINDER SINGH, NO.37, TTK ROAD, ALWARPET, CHENNAI 600 018. PAN: AAAPH9969F ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.1318/CHNY/2016 ( / ASSESSMENT YEAR: 2008-09) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(1), CHENNAI 34. VS SHRI HARINDER SINGH, NO.37, TTK ROAD, ALWARPET, CHENNAI 600 018. PAN: AARPH6987Q ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.1319/CHNY/2016 ( / ASSESSMENT YEAR: 2008-09) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(1), CHENNAI 34. VS SHRI GURBINDER SINGH, NO.37, TTK ROAD, ALWARPET, CHENNAI 600 018. PAN: AAGPG9885M ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI N. MADHAVAN, ADDL. CIT / RESPONDENTS BY : SHRI B. RAMAKRISHNAN, CA /DATE OF HEARING : 01.02.2018 /DATE OF PRONOUNCEMENT : 26.04.2018 2 ITA NO.1317 TO 1319/CHNY/2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST T HE ORDERS PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)-3, CHENNAI ALL DATED 26.02.2016 IN ITA NO.103/2013-14/ CIT(A)-3, ITA NO.99/2013-14/CIT(A)-3 & ITA NO.94/2013-14/CIT(A)-3 IN THE CASE OF SHRI HARBINDER SINGH, SHRI HARINDER SINGH & SHRI GURBINDER SINGH FOR THE ASSESSMENT YEAR 2008-09 PASSED U/S. 250(6) R.W.S. 254, 147 & 143(3) OF THE ACT. SINCE THE ISSUE WITH RESPECT TO ALL THE ABOVE ASSESSEES IS IDENTICAL, THEY HAVE BEEN TAKEN UP FOR HEARING TOGETHER. 2. THE REVENUE HAS RAISED SEVERAL IDENTICAL GROUNDS IN ITS APPEALS HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED BY HOLDING THE ADVANCES RECEIVED BY THE ASSESSEES TO B E IN THE NATURE OF BUSINESS TRANSACTION AND HENCE PROVISIONS OF SE CTION 2(22)(E) OF THE ACT IS NOT APPLICABLE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE ES ARE INDIVIDUALS, VIZ., SHRI HARBINDER SINGH, SHRI HARINDER SINGH & S HRI GURBINDER SINGH FILED THEIR RETURN OF INCOME FOR THE ASSESSME NT YEAR 2008-09 3 ITA NO.1317 TO 1319/CHNY/2017 ON 25.09.2008, 25.09.2008 & 24.09.2008 ADMITTING IN COME OF RS.1,08,20,480/-, RS.1,37,70,720/- & RS.1,37,32,380 /- RESPECTIVELY. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF TH E ACT. A SURVEY U/S.133A WAS CONDUCTED ON 31.08.2009 WHICH REVEAL T HAT THE COMPANIES VIZ., M/S. RATTHA OVERSEAS COMPANY PVT. L TD., (ROCPL) AND M/S. ROVERCO APPAREL COMPANY PVT. LTD., (RACPL) IN WHICH THE ASSESSEES HELD SUBSTANTIAL INTEREST HAD MADE PAYMEN TS TO THE ASSESSEES ON VARIOUS DATES WHICH WERE NOT REVEALED IN THEIR RESPECTIVE RETURNS OF INCOME. SINCE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WAS ATTRACTED ON SUCH RECEIPTS BY THE ASSESSEE, THE ASSESSMENT WAS REOPENED BY THE LD.AO. THEREAFTE R THE FOLLOWING FACTS WERE OBSERVED BY THE LD.AO IN HIS O RDER IN THE CASE OF ALL THE ASSESSEES:- THE ASSESSEE IS A DIRECTOR CUM SHAREHOLDER IN ROVE RCO APPAREL COMPANY PRIVATE LIMITTED AND RATTHA OVERSEAS COMPANY PRIVATE LIMITED. THE ASSESS EE WAS HOLDING 33.33 PERCENT OF SHARES IN BOTH THE COMPANIES. THE ACCUMULATED PROFITS AND THE TOTAL OF ADVANCES OF THE RESPECTIVE COMPANIES AS NOTED IN THE ORIGINAL ORDER IS GIVEN B ELOW. THE LEDGER EXTRACTS OF THE SAME WERE ANNEXED IN ANNEXURE A & B IN THE ORIGINAL ASSESSMEN T ORDER. AY 2005-06 PARTICULARS RATTHA OVERSEAS COMPANY PVT. LTD. ROVERCO APPARELS COMPANY PVT. LTD. TOTAL ACCUMULATED PROFIT 12,46,07,031 10,16,08,567 22,62,15,598 ADVANCES HARBINDER SINGH 14,77,850 1,61,89,330 1,76,67,153 GURBINDER SINGH 60,00,000 1,01,55,684 1,61,55,484 HARINDER SINGH 62,50,000 1,38,24,757 2,00,74,757 TOTAL 1,37,27,850 4,01,69,744 5,38,97,594 4 ITA NO.1317 TO 1319/CHNY/2017 BALANCE C/F 11,08,79,181 6,14,38,823 17,23,18,004 AY 2006-07 PARTICULARS RATTHA OVERSEAS COMPANY PVT. LTD. ROVERCO APPARELS COMPANY PVT. LTD. TOTAL ACCUMULATED PROFIT C/D 11,08,79,181 6,14,38,823 17,23,18,004 CURRENT YEAR PROFIT 18,61,91,100 3,69,96,659 22,31,87,759 TOTAL ACCUMULATED PROFIT 29,70,70,281 9,84,35,482 39,55,05,763 ADVANCES HARBINDER SINGH 36,35,161 1,04,39,613 1,40,74,774 GURBINDER SINGH 35,90,911 1,07,29,605 1,43,20,516 HARINDER SINGH 38,90,936 1,51,63,908 1,90,54,844 TOTAL 1,11,17,008 3,63,33,126 4,74,50,134 BALANCE C/F 28,59,53,273 6,21,02,356 34,80,55,629 AY 2007-08 PARTICULARS RATTHA OVERSEAS COMPANY PVT. LTD. ROVERCO APPARELS COMPANY PVT. LTD. TOTAL ACCUMULATED PROFIT C/D 28,59,53,273 6,21,02,356 34,80,55,629 CURRENT YEAR PROFIT 0 6,62,44,428 6,62,44,428 TOTAL ACCUMULATED PROFIT 28,59,53,273 12,83,46,784 41,43,00,057 ADVANCES HARBINDER SINGH 4,38,58,991 2,29,50,117 6,68,09,108 GURBINDER SINGH 4,18,86,311 2,21,27,404 6,40,13,715 HARINDER SINGH 4,64,97,557 3,00,54,884 7,65,52,441 TOTAL 13,22,42,859 7,51,32,405 20,73,75,264 BALANCE C/F 15,37,10,414 5,32,14,379 20,69,24,793 AY 2008-09 PARTICULARS RATTHA OVERSEAS COMPANY PVT. LTD. ROVERCO APPARELS COMPANY PVT. LTD. TOTAL ACCUMULATED PROFIT C/D NIL 20,69,24,793 CURRENT YEAR PROFIT NIL 3,69,96,659 20,69,24,793 TOTAL ACCUMULATED PROFIT NIL 24,39,21,452 24,39,21,452 RESTRICTED TO HARBINDER SINGH 29,78,80,818 29,78,80,818 8,13,07,150 GURBINDER SINGH 28,18,60,075 28,18,60,075 8,13,07,150 HARINDER SINGH 28,79,17,768 28,79,17,768 8,13,07,150 TOTAL 86,35,69,122 86,35,69,122 24,39,21,452 BALANCE C/F NIL NIL NIL 5 ITA NO.1317 TO 1319/CHNY/2017 4.1 ON QUERY THE ASSESSEE HAD MADE THE FOLLOWING S UBMISSIONS BEFORE THE LD.AO:- (I) ALL THE THREE DIRECTORS OF THE COMPANIES VIZ., THE ASSESSEES, HAD GIVEN PERSONAL GUARANTEE AND COLLATERAL SECURIT Y FOR THE BENEFIT OF THE COMPANY. RELIANCE WAS PLACED IN THE DECISION OF THE TRIBUNAL IN THE CASE ACIT VS. SMT. G. SREEVI DYA IN ITA NO.1270/MDS/2011. (II) THE DIRECTORS HAVE RECEIVED THE MONEY FROM THE COMPANIES PARTLY TO MEET THE SHORT TERM CASH REQUIREMENTS OF THE COMPANY. RELIANCE WAS PLACED IN THE CASE SMT. G. SR EEVIDYA CITED SUPRA. (III) THE ADVANCES GIVEN BY M/S. RACPL TO THE ASSES SEES WERE TOWARDS THE PURCHASE OF TWO PROPERTIES VIZ., PROPER TY AT VELACHERY AND PROPERTY AT OLD MAHABALIPURAM ROAD. T HE RESOLUTION OF THE COMPANY FOR THE PURCHASE OF THE P ROPERTY WAS ALSO SUBMITTED. 4.2 HOWEVER THE LD.AO REJECTED THE EXPLANATIONS MA DE BY THE ASSESSEES BY STATING THAT THE RESOLUTION PASSED BY THE COMPANY ARE INTERNAL DOCUMENTS AND THEREFORE CANNOT BE RELIED U PON. FURTHER THE LD.AO OPINED THAT THERE WAS NO EVIDENCE TO ESTABLIS H THAT THE 6 ITA NO.1317 TO 1319/CHNY/2017 ADVANCES RECEIVED BY THE ASSESSEES WERE FOR THE PUR POSE OF PURCHASE OF PROPERTY FOR THE COMPANIES. THEREAFTER THE LD.AO OBSERVED THAT THE FOLLOWING THREE CONDITIONS REQUIR ED FOR INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE SATI SFIED SUCH AS:- 1. THE ASSESSEE MUST BE A SHAREHOLDER IN A CLOSELY HEL D COMPANY, HOLDING 10% OF THE VOTING POWER OF THE COMPANY. 2. THE ASSESSEE MUST HAVE RECEIVED PAYMENT FROM SUCH C OMPNAY BY WAY OF ADVANCE OR LOAN. 3. THE COMPANY MUST POSSESS ACCUMULATED PROFITS AND TH E INCOME ASSESSABLE IN THE ASSESSEES HANDS AS DEEMED DIVIDE ND U/S. 2(22)(E) MUST BE RESTRICTED TO THE AMOUNT OF ACCUMU LATED PROFITS. FURTHER THE LD.AO OPINED THAT THE DECISION RENDERED IN THE CASE SMT. G. SREEVIDYA CITED SUPRA RELIED BY THE ASSESSE E IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE BECAUSE THE ASSESSEES HAD NOT PRODUCED ANY EVIDENCE FOR FURNISHING PERSONAL G UARANTEES TO THE COMPANIES. SIMILARLY THE DECISION RENDERED BY THE H ONBLE JURISDICTIONAL MADRAS HIGH COURT IN THE CASE CIT VS . NARASIMHAN REPORTED IN 118 ITR 60, WHEREIN IT WAS HELD THAT CO MPUTATION OF DEEMED DIVIDEND IS TO BE MADE ON THE BASIS OF THE C OMPANIES ACCUMULATED PROFITS ON EACH DAY A LOAN OR ADVANCE T O THE ASSESSEE IS MADE (IN EXCESS OF THE LOAN GIVEN BY THE DIRECTO R) AFTER SETTING OF THE PAYMENTS TOWARDS THE LOANS GIVEN BY THE DIRECTO RS, CITED BY THE ASSESSEE, WAS HELD TO BE NOT APPLICABLE TO THE CASE OF THE ASSESSEE 7 ITA NO.1317 TO 1319/CHNY/2017 BY THE LD.AO BY STATING THAT A HOLISTIC VIEW HAS TO BE TAKEN WHILE CONSIDERING THE POSITION OF ACCUMULATED PROFITS FOR ARRIVING AT DEEMED DIVIDEND. 5. FOR THE ABOVE STATED REASONS THE LD.AO MADE ADDI TION OF RS.3,82,69,547/- IN THE CASE OF SHRI HARBINDER SING H, RS.3,80,66,868/- IN THE CASE OF SHRI HARINDER SINGH AND RS.3,81,52,874/- IN THE CASE OF SHRI GURBINDER SING H INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 6. ON APPEAL THE LD.CIT(A) DELETED THE ADDITION MAD E BY THE LD.AO BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF T HE ACT BECAUSE OF THE FOLLOWING REASONS IN THE CASE OF ALL THE THREE ASSESSEES:- (I) THE AMOUNT RECEIVED BY THE ASSESSEES FROM THE C OMPANIES ARE IN THE NATURE OF COMMERCIAL TRANSACTION AND HEN CE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WILL NOT BE APPLICABLE. (II) FROM THE MATERIALS ON RECORD IT IS EVIDENT THA T THE AMOUNT RECEIVED BY THE ASSESSEES IN THE FORM OF ADVANCES F ROM M/S. ROVERCO APPARELS PVT. LTD. HAS BEEN USED FOR PURCHA SE OF PROPERTIES TO FULFILL THE COMMITMENT GIVEN BY THE C OMPANY. 8 ITA NO.1317 TO 1319/CHNY/2017 (III) SUBSEQUENTLY WHEN THE COMPANY REALIZED THAT T HE PROPERTY PURCHASED BY THE ASSESSEES WERE NOT SUITABLE FOR CONSTRUCTION OF FACTORY FOR THE COMPANY, IT WAS DEC IDED BY THE BOARD OF DIRECTORS OF COMPANY TO DISPOSE OFF THE PR OPERTY AND THE ASSESSEES WERE INSTRUCTED TO REPAY THE SALE PRO CEEDS TO THE COMPANY AS AND WHEN THE PROPERTY WAS SOLD. (IV) THE FACTS OF THE CASE WERE SIMILAR TO THAT OF THE CASE DECIDED BY THE HONBLE JURISDICTIONAL MADRAS HIGH COURT IN CIT VS. MADURAI CHETTIAR KARTHIKEYAN REPORTED IN 223 TAXMAN 350, WHEREIN IT WAS HELD THAT WHEN ADVANCES ARE RECEIVED DUE TO COMMERCIAL EXIGENCIES PROVISIONS OF SECTION 2(22)(E ) OF THE ACT WILL NOT APPLY. 7. BEFORE US THE LD.AR SUBMITTED A PAPER BOOK CONTA INING 1 TO 137 PAGES CONTAINING THE BOARD RESOLUTION OF THE COMPAN Y, PURCHASE AND SALE DEED OF THE VELACHERY PROPERTY AS WELL AS THE OKKIYAM THORAIPAKKAM VILLAGE PROPERTIES IN ORDER TO ESTABLI SH THE PURCHASE AND SALE OF THE PROPERTY BY THE ASSESSEES ON BEHALF OF THE COMPANY. THE LD.AR THEREAFTER ARGUED BY STATING THAT THE ASS ESSEES HAD RECEIVED THE AMOUNT ONLY TO MEET OUT THE OBJECTS OF THE COMPANIES AND THEREFORE IT IS IN THE NATURE OF COMMERCIAL TRA NSACTIONS HENCE THE PROVISIONS OF SECTION 2(22)(E) WILL NOT BE ATTR ACTED. THE LD.AR 9 ITA NO.1317 TO 1319/CHNY/2017 FURTHER RELIED IN THE ORDERS OF THE LD.CIT(A) WHERE AS THE LD.DR RELIED IN THE ORDER OF THE LD.AO. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF TH E CASE, IT IS EVIDENT THAT THE AMOUNT RECEIVED BY THE ASSESSEES F ROM THE COMPANY WAS FOR A SPECIFIC PURPOSE TO BENEFIT THE C OMPANY VIZ., IN ORDER TO ACQUIRE LAND FOR THE COMPANY FOR CONSTRUCT ION OF FACTORY. SINCE THE LAND PURCHASED BY THE ASSESSEES COULD NOT BE UTILIZED BY THE COMPANIES IT WAS DECIDED BY THE BOARD OF DIRECT ORS OF THE COMPANY TO DISPOSE OFF THE LAND AND RECOVER THE AMO UNT FROM THE ASSESSEES. THUS IT IS PURELY A COMMERCIAL TRANSACTI ON. FURTHER IT APPEARS THAT THE ASSESSEES WHO ARE DIRECTORS IN THE COMPANIES HAVE FURNISHED BANK GUARANTEE FOR THE PURPOSE OF OB TAINING LOAN FOR THE COMPANY. THUS THERE IS A CLOSE COMMERCIAL PROXI MITY BETWEEN THE DIRECTORS OF THE COMPANY AND THE COMPANY. CONSI DERING THESE FACTS AND RELYING IN THE DECISION OF THE HONBLE JU RISDICTIONAL MADRAS HIGH COURT, THE LD.CIT(A) HAS HELD THAT IN THE CASE OF THE ASSESSEES PROVISIONS OF SECTION 2(22)(E) OF THE ACT CANNOT BE INVOKED. ON A SOMEWHAT SIMILAR SITUATION IN THE CASE M/S. BAGMANE CONSTRUCTIONS PVT., LTD., VS ACIT, THE BANGALORE BENCH OF THE TRI BUNAL IN ITA NO.446/BANG/2010 FOR THE ASSESSMENT YEAR 2006-07 HA D HELD THAT 10 ITA NO.1317 TO 1319/CHNY/2017 WHEN THE AMOUNT IS RECEIVED DURING THE COURSE OF TH E BUSINESS DUE TO BUSINESS EXIGENCY THEN PROVISIONS OF SECTION 2(2 2)(E) OF THE ACT CANNOT BE INVOKED. THE FINDINGS OF THE LD.CIT(A) DI SCUSSED IN HIS ORDER ARE SUPPLEMENTED BY THE FACTS PRESENTED IN TH E PAPER BOOK SUBMITTED BY THE ASSESSEE AND THE SAME COULD NOT BE CONTROVERTED BY THE LD.DR. THEREFORE CONSIDERING THE FACTS AND C IRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) WHICH IS BASED ON VARIOUS DECISION OF THE HIGHER JU DICIARY CITED IN HIS ORDER AND THE DOCUMENTARY EVIDENCE ON RECORD. HENC E WE HEREBY UPHOLD THE ORDER OF THE LD.CIT(A) WHO HAS HELD THAT THE PROVISIONS OF SECTION 2(22)(E) WILL NOT BE ATTRACTED IN THE CASE OF ALL THE ABOVE MENTIONED ASSESSEES. 9. IN THE RESULT ALL THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 26 TH APRIL, 2018 AT CHENNAI. SD/- SD/- ( ! ' . #$ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) # $% /JUDICIAL MEMBER $% / ACCOUNTANT MEMBER &# /CHENNAI, '$ /DATED 26 TH APRIL, 2018 RSR $ )* +* /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. . ( )/CIT(A) 4. . /CIT 5. */0 1 /DR 6. 02 /GF