Peda Subba Jakkireddy by L/r. J. Srinivasa Reddy, Hyderabad, Hyderabad V. ITO, Ward-3(2), Hyd, Hyderabad

ITA 1414/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2726 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 21-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 21-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO SMT SUMAN MALIK
• Keywords: Opportunity of being heard; Principle of natural justice; Peak credit; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1414/HYD/2016 ASSESSMENT YEAR: 2011-12 PEDA SUBBA JAKKIREDDY BY LR J. SRINIVASA REDDY, HYDERABAD. PAN AEKPJ 9875J VS. INCOME-TAX OFFICER, WARD 3(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SMT. SUMAN MALIK DATE OF HEARING : 31-07-2017 DATE OF PRONOUNCEMENT : 11-08-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 3, H YDERABAD, DATED 09-05-2016 FOR AY 2011-12. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FILED HIS RETURN OF INCOME OF RS. 9,12,521/- FOR AY 2011-12 O N 10/04/2012. IN SCRUTINY ASSESSMENT, AN ADDITION OF RS. 20,00,000/- WAS ADDED AS DEEMED DIVIDEND U/S 2(22) OF THE ACT BY THE AO FOLL OWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. P.K. BADIANI, [1970] 76 ITR 369 (BOM.). THE OBSERVATIONS OF THE AO ARE AS UNDER: '02. AS SEEN FROM THE ACCOUNT STATEMENT OF THE ASSE SSEE FOR THE FINANCIAL YEAR 2010-11 IN THE BOOKS OF ACCOUNT OF M/S. SUVARNA OURGA BOTTLE PVT LTD IN WHICH THE ASSESSEE IS HOLDING MORE THAN TEN PER CENT OF THE EQUITY, IT WAS OBSERV ED THAT THE 2 ITA NO. 1414/H/16 PEDA SUBBA REDDY JAKKIREDDY. ASSESSEE HAD RECEIVED LOAN/ ADVANCE OF RS. 9,00,000 /- ON 09- 09-2010 AND RS. 4,00,000/- WAS THE DEBIT BALANCE AS ON THAT DAY. FURTHER, RS. 5,00,000/- WAS RECEIVED ON 21-032 011 AND THE DEBIT BALANCE WAS RS. 16,00,000/-. M/S. SUVARNA OUR GA BOTTLES PVT LTD., WAS HAVING RESERVES OF RS. 46,18,361/- AS ON 31-03- 2010 AND RS. 70,92,039/- AS ON 31-03-2013. AS SUCH, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE APPLI CABLE AND THE SAID AMOUNTS OF RS. 4,00,000 AND RS. 16,00,000/- AR E ASSESSABLE AS DEEMED DIVIDEND WAS PROPOSED TO THE A SSESSEE. THE ASSESSEE HAS OBJECTED TO THE PROPOSED ADDITION STATING THAT HE HAS TO RECEIVE THE MONEY FROM THE COMPANY AT THE BEGINNING AS WELL AS AT THE END OF THE RELEVANT FINANCIAL YEA R. THE OBJECTION OF THE ASSESSEE IS NOT ACCEPTABLE 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A). 4. THOUGH SUFFICIENT OPPORTUNITIES WERE GIVEN BY TH E CIT(A), THERE WAS NO COMPLIANCE FROM THE ASSESSEE TO ATTEND BEFOR E HIM, THEREFORE, THE CIT(A) DECIDED THE ISSUE EX-PARTE, AS UNDER: 5. THE APPELLANT HAD MORE THAN 10% SHARE IN M/S.SU VARNA DURGA BOTTLES (P) LTD. THE COMPANY HAD RESERVES OF RS. 46,18,361/- AS ON 31.3.2010 AND RS. 70,92,039/- AS ON 31.3.2011. THE ASSESSING OFFICER CLEARLY RECORDED T HAT THERE WAS DEBIT BALANCE OF RS. 4,00,000/- ON 9.9.2010 AND RS. 16,00,000/- ON 21.3.2011. SINCE PRIMARY CONDITIONS MENTIONED IN SECTION 2(22)(E) WERE SATISFIED, THE AMOUNT OF LOANS/ADVANCES GIVEN BY COMPANY TO THE SHARE HOLDER S HAVING SUBSTANTIAL INTEREST WAS CONSIDERED AS DEEMED DIVID END. WITH REFERENCE TO QUANTIFYING THE AMOUNT OF DEEMED DIVID END, THERE COULD BE THREE SITUATIONS AS UNDER: (A) THE COMPANY PAID LOAN, FOR EXAMPLE ~10 LAKHS AN D PRESUMING THAT THIS WAS SINGLE TRANSACTION, IF THE CONDITIONS PRESCRIBED IN SECTION 2(22)(E) ARE SATISFIED, THE E NTIRE AMOUNT OF ~10 LAKHS SHOULD BE BROUGHT TO TAX U/S 2(22)(E). (B) IN THE SECOND SITUATION, FOR EXAMPLE, IF THE SU BSTANTIAL SHARE HOLDER IS WITHDRAWING RS. 10 LAKHS EVERY MONTH AND REPAYING THE SAME EVERY MONTH, THE CUMULATIVE LOANS TAKEN / LOAN REPAID WORKS OUT TO 120 LAKHS. HOWEVER, THE DEBIT BALANCE AT ANY POINT OF TIME/ THE LOAN GIVEN BY COMPANY TO SHAREHOLDER A T ANY POINT OF TIME WAS ONLY RS. 10IAKHS. THEREFORE, ONLY THIS AMOUNT CAN BE BROUGHT TO TAX. 3 ITA NO. 1414/H/16 PEDA SUBBA REDDY JAKKIREDDY. (C) IN THE THIRD SITUATION, WHERE THERE ARE SERIES OF ADVANCES / LOANS TAKEN BY SUBSTANTIAL SHARE HOLDER, THE CORREC T QUANTITY FOR THE PURPOSE OF DEEMED DIVIDEND CAN BE WORKED OUT BY ARRIVING AT PEAK CREDIT I.E. BY ARRIVING AT PEAK LOAN THE CO MPANY TO SHARE HOLDER. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1) THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE APPELLANT. 2) THE LEARNED CIT (A) ERRED IN DECIDING THE APPEAL WITHOUT PROVIDING PROPER OPPORTUNITY TO THE APPELLANT. 3) THE LEARNED CIT (A) ERRED IN HOLDING THAT THE PR OVISIONS UL S 2 (22)(E) ARE APPLICABLE TO THE FACTS OF THE CASE. 4) THE LEARNED CIT (A) ERRED IN DIRECTING THE ASSES SING OFFICER TO QUANTIFY THE DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT BY FOLLOWING THE PEAK CREDIT METHOD. 6. IN THE PRELIMINARY GROUND, THE ASSESSEE CONTENDE D THAT THE CIT(A) PASSED EX-PARTE ORDER IN BREACH OF PRINCIPLE S OF NATURAL JUSTICE AND HENCE THE SAME MAY BE QUASHED AND SET ASIDE. 7. IN THE COURSE OF HEARING, IT WAS POINTED OUT BY THE LEARNED COUNSEL OF THE ASSESSEE THAT THE LEARNED CIT(A) HAD DECIDED THE MATTERS EX-PARTE. THE REASON FOR THE LD. AR (WHO HA S APPEARED BEFORE THE CIT(A), ALSO AS AR) FAILED TO REPRESENT BEFORE CIT(A) WAS THAT THERE WAS NO COMMUNICATION FROM THE ASSESSEE. ACCORDINGLY, CIT(A) HAD DISMISSED THE APPEAL. LATER, HE CAME TO KNOW THAT THE ASSESSEE HAS PASSED AWAY, THE INFORMATION OF WHICH HE CAME TO KNOW ONLY WHEN HIS SON, LEGAL REPRESENTATIVE, APPROACHED HIM FOR FURTHER APPEAL BEFORE ITAT. SINCE THE MATTER WAS NOT REPRES ENTED PROPERLY BEFORE CIT(A), FOR THE SAKE OF JUSTICE AND FAIRNESS , WE DEEM IT FIT AND PROPER TO REMIT THIS CASE BACK TO THE FILE OF CIT(A ) TO ADJUDICATE THE MATTER AFRESH ON MERITS AND IN ACCORDANCE WITH LAW AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD TO THE LR OF THE ASSESSE E. 4 ITA NO. 1414/H/16 PEDA SUBBA REDDY JAKKIREDDY. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 11 TH AUGUST, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER ACC OUNTANT MEMBER HYDERABAD, DATED: 11 TH AUGUST, 2017. KV COPY TO:- 1) LATE PEDA SUBBA REDDY JAKKIREDDY, C/O SRI S. RAM A RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-6 43, STREET NO. 9, HIMAYAT NAGAR, HYDERABAD 500 029. 2)ITO, WARD 3(2), SIGNATURE TOWERS, KONDAPUR, H YDERABAD. 3) CIT(A) - 3, HYDERABAD 4 PR. CIT 3, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE