ACIT, Tiruppur V. Shri S.L.Subramaniam, Tiruppur

ITA 1482/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64426 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 20-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURU BASHYAM JT
• Assessee Lawyers: V RAMNATH
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER] I.T.A.NO.1481/MDS/2012 ASSESSMENT YEAR : 2007-08 THE ACIT COMPANY CIRCLE TIRUPUR VS SHRI N. LOGANATHAN PROP. BHUVANESWARI TEX 225/3 PALLADAM ROAD ARULPURAM TIRUPUR 641 605 [PAN ABAPL 6115E] (APPELLANT) (RESPONDENT) I.T.A.NO.1482/MDS/2012 ASSESSMENT YEAR : 2007-08 THE ACIT COMPANY CIRCLE TIRUPUR VS SHRI S.L.SUBRAMANIAM PROP. L.P.S. EXPORTS SF NO.634/1 BHUVANESWARI GARDEN SEVANTHAMPALAYAM TIRUPUR 641 608 [PAN ALKPS 6836R] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GURUBASHYAM, JT. CIT RESPONDENT BY : SHRI V. RAMNATH, CA DATE OF HEARING : 11-10-2012 DATE OF PRONOUNCEMENT : 12-10-2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDERS OF THE CIT(A)-II, COIMBATORE, BOTH DATED 28. 3.2012. I.T.A.NO.1481 & 1482/12 :- 2 -: 2. AT THE OUTSET, IT WAS NOTICED THAT THERE IS A DELAY OF THREE DAYS IN FILING THE APPEAL IN BOTH THE CASES. THE R EVENUE HAS FILED CONDONATION PETITIONS. THE A.R HAD NO OBJECTION IN CONDONING THE DELAY IN FILING THE APPEALS. THEREFORE, THE DELAY OF THREE DAYS IN FILING THE APPEAL IN BOTH THE CASES IS CONDONED AND THE AP PEALS ARE ADMITTED FOR HEARING. 2.1 THE D.R SUBMITTED THAT IN BOTH THESE APPEALS, THE GROUN DS OF APPEAL TAKEN BY THE REVENUE AS WELL AS THE FACTS AN D ISSUES INVOLVED ARE SIMILAR AND THEREFORE, HE IS ARGUING THE SAME T OGETHER. HE SUBMITTED THAT THE SOLE ISSUE INVOLVED IN BOTH THE APPEALS IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION MADE U/S 2(22 )(E) OF THE ACT HOLDING THAT EXTENDING OF CREDIT FACILITY AND AVAIL ING GOODS THEREUNDER CANNOT BE EQUATED WITH PAYMENTS OF A SUM OF MONEY. 3. THE BRIEF FACTS OF THE CASE ARE THAT IN THE PREVIOU S YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 THE ASSES SEE HAD PURCHASED YARN ON CREDIT FROM M/S BHUVANESWARI COTSPIN INDIA (P) LTD IN WHICH HE HOLDS MORE THAN 10% VOTING POWER. THE COMPANY H AD AN ACCUMULATED PROFIT OF ` 7,12,11,061/-. THE ASSESSEE, SHRI S.L.SUBRAMANIAM, HAD ADVANCED UNSECURED LOAN OF ` 53,60,000/-. WHEN THE CREDIT PURCHASES WERE ADJUSTED AGAINST THE UNSECURED LOAN, THE ASSESSEE HAD PURCHASED YARN TO THE TUNE OF ` 1,76,23,533/- AS ON 31.3.2007. THE ASSESSING OFFICER CONCLUDED THAT TH IS CREDIT PURCHASE OF ` 1,76,23,533/- WAS WITHIN THE AMBIT OF SECTION 2(2 2)(E) OF THE ACT AND ACCORDINGLY, ADDED THE SAME TO THE RETURNED INC OME OF THE ASSESSEE. I.T.A.NO.1481 & 1482/12 :- 3 -: 4. SIMILARLY, IN THE CASE OF THE ASSESSEE, SHRI N.LOGA NATHAN, THE ASSESSEE HAD ADVANCED UNSECURED LOAN OF ` 1,68,40,000/-. WHEN THE CREDIT PURCHASES WERE ADJUSTED AGAINST THE UNSECURE D LOAN, THE ASSESSEE HAD PURCHASED YARN TO THE TUNE OF ` 66,86,944/- AS ON 31.3.2007. THE ASSESSING OFFICER CONCLUDED THAT TH IS CREDIT PURCHASE OF ` 66,86,944/- WAS WITHIN THE AMBIT OF SECTION 2(22)( E) OF THE ACT AND ACCORDINGLY, ADDED THE SAME TO THE RETURNED INC OME OF THE ASSESSEE. 5. THE ASSESSEES FILED APPEAL BEFORE THE CIT(A). THE ASSESSEES ARGUED THAT THE TRANSACTION BY THE ASSES SEE WITH M/S BHUVANESWARI COTSPIN INDIA (P) LTD WAS FOR COMMERCI AL VALUE AND THEREFORE, THE DECISION OF HON'BLE CALCUTTA HIGH CO URT RELIED ON BY THE ASSESSING IN THE CASE OF M.D.JINDAL, 164 ITR 28, WAS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. IT WAS FURTH ER ARGUED THAT IN THIS CASE, IT WAS THE ASSESSEES WHO HAD ADVANCED THE MO NEY TO THE COMPANY AND NOT OTHERWISE. THE CIT(A), AFTER CONSID ERING THE ARGUMENTS OF THE ASSESSEES, DELETED THE ADDITION I N BOTH THE CASES, BY OBSERVING AS UNDER EXCEPT FOR THE CHANGE IN FIGURES : 5 . I HAVE GONE THROUGH THE FACTS OF THE CASE, SUBMISSI ONS OF THE APPELLANT AND THE ASSESSMENT ORDER PASSED BY T HE ASSESSING OFFICER . THE ASSESSING OFFICER MAINLY RELIED ON THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF SHRI M.D . JINDAL 164 ITR 28 . IN THAT CASE , IT WAS HELD THAT THE VALUE OF I.T.A.NO.1481 & 1482/12 :- 4 -: IRON RODS RECEIVED BY THE MANAGING DIRECTOR AND HIS WIFE FOR THE CONSTRUCTION OF A HOUSE WHICH WAS TO BE SOLD TO THE COMPANY CAN BE TREATED AS DEEMED DIVIDEND U/S . 2(22) (E) OF THE IT ACT . ENLARGING THIS PRINCIPLE , ACCORDING TO THE ASSESSING OFFICER , THE VALUE OF GOODS SOLD ON CREDIT IS TO BE TAKEN AS PAYMENTS OF A SUM AS REPRESENTING PART OF THE ASSET S OF THE COMPANY BY WAY OF LOAN. IN OTHER WORDS, THE ASSESSI NG OFFICER HAS EQUATED T HE CREDIT FACILITY EXTENDED BY M/S . BHUVANESWARI COTSPIN INDIA (P) LTD AS A LOAN . AGAINST THIS , THE ASSESSEE ' S ARGUMENT IS THIS THAT THE TRANSACTION BY THE APPELL ATE WITH BHUVANESWARI COTSPIN INDIA (P) LTD WAS FOR COMMERCI AL VALUE UNLIKE IN THE CASE LAW RELIED ON BY THE ASSESSING O FFICER . IT WAS ALSO ARGUED THAT IN THIS CASE IT WAS THE APPELLANT WHO HAD ADVANCED MONEY TO THE COMPANY AND NOT OTHERWISE. 5.1 ON A PERUSAL OF THE CASE LAW RELIED ON BY THE A SSESSING OFFICER IT IS NOTICED THAT THE QUESTION THAT WAS D ECIDED IN THAT CASE RELATED TO THE ISSUE WHETHER A PAYMENT HAS BE EN MADE BY THE COMPANY IN THE NORMAL COURSE OF BUSINESS. TH E HIGH COURT RELIED ON THE FINDINGS OF THE TRIBUNAL IN THA T CASE THAT AS THE IRON RODS WERE SCARCE MATERIAL, THE COMPANY, WH ICH WAS CARRYING ON BUSINESS IN IRON MATERIALS, CAME FORWAR D AND GAVE IRON RODS TO THE ASSESSEE AND HIS WIFE BY AN AGREEM ENT IN ORDER TO CIRCUMVENT THE LAW. IN THIS CASE, THE TRIB UNAL HELD AS UNDER: 'IF THE ASSESSEE HAD GOT THESE IRON RODS BEFORE ENT ERING INTO AN AGREEMENT FOR SALE OF FLATS TO THE COMPANY, THERE WOULD NOT HAVE BEEN ANY DISPUTE THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE 1961 ACT WOULD HAVE BEEN CL EARLY APPLICABLE. BUT, INSTEAD OF DOING THAT, THE ASSESS EE AND HIS WIFE, CONTROLLING THE COMPANY, THOUGHT OF A DEV ICE TO CIRCUMVENT THE PROVISIONS OF SECTION 2(22)(E) OF TH E ACT AND MADE AN AGREEMENT WITH THE COMPANY BY WHICH TH E COMPANY WAS MADE A DEBTOR TO THE ASSESSEE AND HIS WIFE TO THE EXTENT OF RS. 3,95,000'. 5.2 THE FACTS OF THE ABOVE CASE ARE DISTINCT FROM T HE APPELLANT CASE IN THAT THE GENUINENESS OF THE TRANSACTION HAS NOT BEEN QUESTIONED BY THE ASSESSING OFFICER. FURTHER THE TR ANSACTION WAS AN ISOLATED ONE AND NOT DONE IN THE NORMAL COUR SE OF BUSINESS. THE ISSUE HERE IS WHETHER EXTENDING CREDI T FACILITY WOULD TANTAMOUNT TO PAYMENTS. IN OTHER WORDS WHETHE R CREDIT SALES WOULD ATTRACT THE PROVISIONS OF DEEMED DIVIDE ND. THE PROVISIONS CLEARLY STATES THAT LOAN OR ADVANCE CAN BE BROUGHT UNDER THE DEEMING PROVISIONS. SALE BY CREDIT CAN NE VER BE I.T.A.NO.1481 & 1482/12 :- 5 -: EQUATED WITH LOAN OR ADVANCE. MOREOVER, IN THIS CAS E, THE TRANSACTIONS HAVE BEEN DONE IN THE NORMAL COURSE OF BUSINESS. THEREFORE, EVEN IF ANY BENEFIT IN THE NATURE OF LOA N OR ADVANCE ACCRUED TO THE APPELLANT BECAUSE OF THE CREDIT FACI LITY GIVEN BY M/S.BHUVANESWARI COTSPIN LTD., SUCH BENEFIT HAS ACC RUED ONLY IN THE NORMAL COURSE OF BUSINESS AND HENCE, THE EXE MPTIONS CONTEMPLATED IN SUB-CLAUSE (II) OF SECTION 2(22)(E) WILL APPLY. HENCE, IT HAS TO BE HELD THAT EXTENDING OF CREDIT FACILITY AND AVAILING GOODS THEREUNDER CANNOT BE EQ UATED WITH PAYMENTS TO THE APPELLANT. IN VIEW OF THE ABOVE, TH E VALUE OF GOODS SOLD ON CREDIT CANNOT BE TAKEN AS PAYMENT OF A SUM AS REPRESENTING PART OF THE ASSETS OF THE COMPANY BY W AY OF LOAN(CREDIT) SALE MADE FOR THE BENEFIT OF A SHAREHO LDER HAVING MORE THAN 10% OF THE VOTING POWER. CONSEQUENTLY, TH E SUM OF ` 1,76,23,533/- REPRESENTING THE VALUE GOODS SOLD ON CREDIT CANNOT BE CONSIDERED AS DEEMED DIVIDEND MADE OUT OF ACCUMULATED PROFITS OF THE COMPANY AND THE SAME CAN NOT BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. ACCOR DINGLY, THIS GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED. 6. BEFORE US, THE A.R OF THE ASSESSEE RELIED UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS ARVIND KUMAR JAIN, IN I.T.A.NO. 589 OF 2011, ORDER DATED 30.9.20 11, AND SUBMITTED THAT THE HON'BLE DELHI HIGH COURT HAS HELD THAT THE TERM ADVANCE ACCOMPANYING THE TERM LOAN THOUGH HAS WIDER MEAN ING, IT CANNOT ENCOMPASS ALL AND SUNDRY TRANSACTIONS. IT HAS TO B E GIVEN MEANING BASED ON THE COMPANY OF THE WORDS, IT KEEPS. APPLY ING THE RULE OF CONSTRUCTION OF NOSCITUR A SOCIIS IT WAS HELD THAT TRADING TRANSACTIONS CANNOT BE INCLUDED WITHIN THE MEANING OF THE TERM ADVANCE AND THEREFORE, WOULD NOT FALL WITHIN THE MISCHIEF OF SE CTION 2(22)(E). HE ALSO SUPPORTED THE ORDER OF THE CIT(A) WHO HAD HELD THAT THE FACTS IN THE CASE OF M.D.JINDAL VS CIT(SUPRA) WERE DIFFEREN T FROM THE FACTS OF I.T.A.NO.1481 & 1482/12 :- 6 -: THE ASSESSEES CASE. IN THE CASE OF M.D.JINDAL (S UPRA), THE HON'BLE CALCUTTA HIGH COURT WAS DECIDING THE ISSUE WHETHER THE PAYMENT HAS BEEN MADE BY THE COMPANY IN THE NORMAL COURSE OF BU SINESS. THE HIGH COURT RELYING ON THE FINDING OF THE TRIBUNAL I N THAT CASE THAT AS THE IRON RODS WERE SCARCE MATERIAL, THE COMPANY, W HICH WAS CARRYING ON BUSINESS IN IRON MATERIALS, CAME FORWARD AND GA VE IRON RODS TO THE ASSESSEE AND HIS WIFE BY AN AGREEMENT IN ORDER T O CIRCUMVENT THE LAW. IN THOSE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE HIGH COURT UPHELD THE FINDING OF THE TRIBUNAL THAT IF TH E ASSESSEE HAD GOT THESE IRON RODS BEFORE ENTERING INTO AN AGREEMENT F OR SALE OF FLATS TO THE COMPANY, THERE WOULD NOT HAVE BEEN ANY DISPUTE THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT WOULD HAVE BEEN CLEA RLY APPLICABLE. IN ORDER TO CIRCUMVENT THE PROVISIONS OF SECTION 2(22) (E) OF THE ACT THE ASSESSEE MADE AN AGREEMENT WITH THE COMPANY BY WHIC H THE COMPANY WAS MADE A DEBTOR TO THE ASSESSEE AND HIS WIFE TO THE EXTENT OF ` 3,95,000/-. 7. ON THE OTHER HAND, THE DR SUPPORTED THE ORDER OF TH E ASSESSING OFFICER. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. BOTH THE ASSESSEES ARE ENGAGED IN THE BUSINESS OF MANUFACTUR E AND SALE OF I.T.A.NO.1481 & 1482/12 :- 7 -: HOSIERY GARMENTS. THE ASSESSEES, SHRI S.L.SUBRAMA NIAM AND SHRI N.LOGANATHAN ARE ALSO SHAREHOLDERS OF M/S BHUVANESW ARI COTSPIN INDIA (P) LTD HOLDING 14.97% AND 55.09% SHARES RESPECTI VELY. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE, SHRI S.L.SU BRAMANIAM PURCHASED YARN ON CREDIT FROM THE SAID COMPANY AND AFTER ADJUSTMENT OF LOAN GIVEN BY THE ASSESSEE, ` 1,76,23,533/- REMAINED PAYABLE BY THE ASSESSEE, SHRI S.L.SUBRAMANIAM ON ACCOUNT OF P URCHASE OF YARN AS AT THE YEAR END. SIMILARLY, THE ASSESSEE, SHRI N.LOGANATHAN, PURCHASED YARN ON CREDIT FROM THE SAID COMPANY AND AFTER ADJUSTMENT OF LOAN GIVEN BY THE ASSESSEE ` 66,86,944/- REMAINED PAYABLE BY THE ASSESSEE SHRI N.LOGANATHAN ON ACCOUNT OF PURCHASE O F YARN AS AT THE YEAR END. ACCORDING TO THE ASSESSING OFFICER, THE AFORESAID SUMS OF ` 1,76,23,533/- AND ` 66,86,944/- ARE TO BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEES U/S 2(22)(E) OF THE ACT AND FOR THIS, HE RELIED UPON THE DECISION OF THE HON'BLE CALCUTTA HI GH COURT IN THE CASE OF M.D.JINDAL VS CIT (SUPRA). 9. ON APPEAL, THE CIT(A) FOUND THAT THE TRANSACTIONS B ETWEEN HE ASSESSEES AND THE SAID COMPANY WERE NORMAL BUSI NESS TRANSACTIONS AND THE DECISION OF THE HON'BLE CALCUT TA HIGH COURT RELIED UPON BY THE ASSESSING OFFICER WAS FOUND DISTINGUISH ABLE ON FACTS. HE OBSERVED THAT IN THE CASE BEFORE THE HON'BLE CALCUT TA HIGH COURT THERE I.T.A.NO.1481 & 1482/12 :- 8 -: WAS A SPECIAL ARRANGEMENT BETWEEN THE SUBSTANTIAL S HAREHOLDER AND THE COMPANY BY VIRTUE OF WHICH FOR THE BENEFIT OF S UBSTANTIAL SHAREHOLDER, ADVANCE OF GOODS WAS GIVEN BY THE COMP ANY TO THE SAID SUBSTANTIAL SHAREHOLDER. HOWEVER, IN THE INSTANT CA SE, THERE WAS NO SUCH ARRANGEMENT AND THE YARN WERE SOLD TO THE ASS ESSEES BY THE COMPANY IN ITS NORMAL COURSE OF BUSINESS. THE CIT( A), THEREFORE, DELETED THE ADDITION MADE U/S 2(22)(E) OF THE ACT. 10. BEFORE US, THE DR RELIED UPON THE ORDER OF THE ASS ESSING OFFICER AND THE ASSESSEES SUPPORTED THE ORDER OF T HE CIT(A). THE ASSESSEE SUBMITTED THAT THE DECISION OF THE CIT(A) IS SUPPORTED BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE C ASE OF CIT VS ARVIND KUMAR JAIN (SUPRA). WE FIND THAT NO MATERIAL WAS B ROUGHT BEFORE US BY THE REVENUE TO SHOW THAT THE SALE OF YARN BY THE SAID COMPANY TO THE ASSESSEES ON CREDIT WAS NOT IN THE NORMAL COUR SE OF BUSINESS OF THE SAID COMPANY. NO MATERIAL WAS ALSO BROUGHT BEF ORE US TO SHOW THAT THE SAID TRANSACTIONS WERE NOT FOR THE MUTUAL BENEFIT OF BOTH I.E THE SAID COMPANY AND THE ASSESSEES, AND WERE ONLY FOR THE BENEFIT OF THE ASSESSEES. WE FIND THAT THE HON'BLE DELHI HIG H COURT IN THE CASE OF CIT VS RAJ KUMAR, 318 ITR 462(DEL) HELD THAT TRA DE ADVANCES WHICH ARE IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFEC T TO THE COMMERCIAL TRANSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION I.T.A.NO.1481 & 1482/12 :- 9 -: 2(22)(E) OF THE ACT. FURTHER, THE HON'BLE DELHI HI GH COURT AGAIN IN THE CASE OF CIT VS AMBASSADOR TRAVELS P. LTD 318 ITR 37 6(DEL) HELD THAT NORMAL BUSINESS TRANSACTIONS AS PART OF DAY-TO-DAY BUSINESS ACTIVITY CANNOT BE TREATED AS LOANS OR ADVANCES WITHIN THE M EANING OF SECTION 2(22)(E) OF THE ACT. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS CREATIVE DYEING & PRINTING P. LTD, 318 ITR 476(DEL) HELD THAT WHEN BY GRANTING ADVANCE THE BUSINESS PURPOSE OF THE COMPAN Y IS SERVED AND WHICH IS NOT THE SUM, WHICH IS OTHERWISE WOULD HAVE DISTRIBUTED AS DIVIDEND CANNOT BE BROUGHT WITHIN THE DEEMING PROVI SION OF TREATING SUCH ADVANCE AS DEEMED DIVIDEND. THE HON'BLE BOMBA Y HIGH COURT ALSO IN THE CASE OF CIT VS NAGINDAS M KAPADIA, 117 ITR 393(BOM) HELD THAT BUSINESS TRANSACTIONS ARE OUTSIDE THE PUR VIEW OF SECTION 2(22)(E) OF THE ACT. 11. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY GOOD REASO N TO INTERFERE WITH THE ORDER OF THE CIT(A). IT IS CONF IRMED IN BOTH THE CASES. THE GROUNDS OF APPEAL OF THE REVENUE IN BOT H THE CASES ARE DISMISSED. I.T.A.NO.1481 & 1482/12 :- 10 -: 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 12 TH OF OCTOBER, 2012, AT CHENNAI. SD/- SD/- (V. DURGA RAO) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 12 TH OCTOBER, 2012 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR