Shri Prakashkumar Bhagchandbhai Khatri, Deesa V. The ACIT.,B.K.Circle, Palanpur

ITA 1494/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94689 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 06-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Principle of natural justice; Initiation of penalty proceedings; Deemed dividend
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI ANIL CHATURVEDI, ACCOUNTNAT MEMBER) ITA NO: 1494/AHD/2012 (ASSESSMENT YEAR: 2008-09) PRAKASHKUMAR BHAGCHANDBHAI KHATRI VAIBHAV TENAMENTS, GULBANI NAGAR-1, DEESA V/S ASSTT. CIT, B.K. CIRCLE, PALANPUR (APPELLANT) (RESPONDENT) PAN: AHWPK 4055G APPELLANT BY : MS. URVASHI SHODHAN, AR RESPONDENT BY : SHRI DINESH SINGH, SR. D.R. ( )/ ORDER DATE OF HEARING : 04-11-201 5 DATE OF PRONOUNCEMENT : 17-11-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-XX, AHMEDABAD DATED 04.04.2012 FOR A.Y. 2008-09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. ITA NO 1494/ AHD/2012 . A.Y. 2008-09 2 3. ASSESSEE IS AN INDIVIDUAL STATED TO BE ENGAGED IN T HE BUSINESS OF CONSTRUCTION AND TRADING OF POTATOES ASSESSEE FILED HIS RETURN O F INCOME FOR A.Y. 2008-09 ON 28.01.2010 DECLARING TOTAL INCOME OF RS. 1,41,57 ,150/- AND AGRICULTURE INCOME OF RS. 3,03,262/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 27.12.2010 AND THE TOTAL INCOME WAS DETERMINED AT RS. 1,49,67, 650/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE L D. CIT(A) WHO VIDE ORDER DATED 04.04.2012 GRANTED PARTIAL RELIEF TO THE ASSE SSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASSESSEE IS NOW IN A PPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND:- 1. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS. 1, 96, 945/- MADE BY AO UNDER SECTION 40(A)(IA) OF THE ACT ON AC COUNT OF NON DEDUCTION OF TDS FROM STORAGE CHARGES PAID FOR AGRICULTURAL PRODUCT. BY CONFIRMING THIS ADDITION THE ID. CIT (A) HAS FAILED TO APPRECIATE THE FACT THAT STORAGE CHARGES FOR AGRICULTURAL PRODUCT NOT IN THE NATURE OF RENTING OF COLD STORAG E FACILITY WOULD NOT ENTAIL DEDUCTION OF TAX AND HENCE THIS ACTION OF ID. CIT (A) WITHOUT ANY MERITS OR JUSTIFICATION DESERVES TO BE QUASHED. LD. CIT (A) OUGHT TO HAVE DELETED TH E DISALLOWANCE MADE BY AO. 2. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION MADE BY AO OF RS. 1, 30,205/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT . LD. CIT (A) ERRED IN CONFIRMING AMOUNT RECEIVED BY THE DIRECTOR TOWARDS CONTRACTUAL LIABILITY OF THE COMPANY AS DEEMED DIVIDEND TO THE EXTENT OF ACCUMULATED RESERV ES WHEN THE SAME WAS NEITHER LOAN NOR ADVANCE. LD. CIT (A) OUGHT TO HAVE DELETED ADDITION MADE U/S 2(22)(E) OF THE ACT. 3. BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN NOT CONSIDERING VARIOUS EXPLANATIONS, SUBMISSIONS AND EVIDENCES PLACED ON R ECORD BY THE APPELLANT IN ITS PROPER PERSPECTIVE AND FURTHER ERRED IN NOT APPRECI ATING CONTRACTUAL LIABILITY OF THE COMPANY TOWARDS THE APPELLANT. THIS ACTION OF BOTH THE LOWER AUTHORITIES IS IN CLEAR BREACH OF PRINCIPLES OF NATURAL JUSTICE AND THEREFO RE DESERVES TO BE QUASHED. 4. LEVY OF PENALTY U/S. 234A, 234B & 234C OF THE ACT I S NOT JUSTIFIED. ITA NO 1494/ AHD/2012 . A.Y. 2008-09 3 5. INITIATION OF PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. 1 ST GROUND IS WITH RESPECT TO ADDITION MADE U/S. 40(A) (IA) OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE PROFIT AND LOSS ACCOUNT, A.O NOTICED THAT ASSESSEE HAS CLAIMED EXPENSES OF RS. 1,96,945/- AS PRESERVATION CHARGES PAID FOR POTATO STORAGE TO A COLD STORAGE AND THAT ASSESSEE HAS NOT DEDUCTED TDS ON THE SAME. HE WAS OF THE VIEW THAT NON DEDUCTION OF TDS WOULD RESULT IN ATTRACTIO N OF PROVISIONS OF SECTION 40(A)(IA) AND HE ACCORDINGLY DISALLOWED THE AMOUNT OF RS. 1,96,945/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE LD. CIT(A) WHO UPHELD THE ORDER OF A.O BY HOLDING AS UN DER:- 3.2. IN THE ASSESSMENT ORDER, AO OBSERVED THAT THE IMPUGNED AMOUNT WAS PAID BY WAY OF RENT FOR COLD STORAGE OF POTATOES; APPELLANT WAS LI ABLE TO DEDUCT TAX AS PER SECTION 1941; APPELLANT FAILED TO DEDUCT THE TAX AND THEREFORE IM PUGNED AMOUNT WAS BEING DISALLOWED U/S.40(A)(IA). THE WRITTEN SUBMISSIONS FILED ARE NO THING BUT REPRODUCTION OF EXPLANATION GIVEN BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE SUBMISSIONS ARE GENERAL, VAGUE AND DO NOT CONTROVERT THE FINDINGS O F AO. THEREFORE, IMPUGNED DISALLOWANCE IS UPHELD. THIS GROUND OF APPEAL IS DI SMISSED. 5. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND FURTHER SUBMITTED THAT PRESERVATION CHAR GES PAID ON AGRICULTURAL PRODUCE IS NOT LIABLE FOR DEDUCTION OF TDS BECAUSE IT BEING A AGRICULTURAL COMMODITY. AS AN ALTERNATE ARGUMENT SHE SUBMITTED THAT EACH OF THE PAYMENTS OF PRESERVATION CHARGES WAS BELOW RS.20,00 0/- AND THEREFORE ALSO ASSESSEE WAS NOT LIABLE TO DEDUCT TDS AND IN SUPPOR T OF EACH ITA NO 1494/ AHD/2012 . A.Y. 2008-09 4 PAYMENT/CREDIT BEING LESS THAN RS.20,000/-. SHE POI NTED TO PAGE 1 TO 4 OF THE PAPER BOOK (BEING THE LEDGER ACCOUNT OF THE PRESERV ATION CHARGES). SHE FURTHER SUBMITTED THAT THERE WAS NO CONTRACT ENTERE D INTO BETWEEN THE ASSESSEE AND THE COLD STORAGE AND THEREFORE ALSO TH E ASSESSEE WAS NOT LIABLE TO DEDUCT TDS. LD. D.R. ON THE OTHER HAND POINTED T O THE PRESERVATION CHARGES ACCOUNT PLACED BY THE ASSESSEE IN THE PAPE R BOOK AND SUBMITTED THAT THOUGH THE INDIVIDUAL PAYMENTS WERE LESS THAN RS.20,000/- BUT THE AGGREGATE PAYMENT DURING THE YEAR WAS RS.1,96,945/- WHICH WAS IN EXCESS OF RS.50,000/- BEING THE LIMIT PRESCRIBED U/S. 194C(5) AND THEREFORE THE ASSESSEE WAS LIABLE TO DEDUCT TDS AND THEREFORE A.O . HAS RIGHTLY DISALLOWED THE EXPENSE AND THEREFORE NO INTERFERENCE TO THE OR DER OF A.O. WAS CALLED FOR. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO ADDITI ON MADE U/S. 40(A)(IA) ON ACCOUNT OF NON DEDUCTION OF TDS. IT IS AN UNDISPUTE D FACT THAT ASSESSEE HAS PAID PRESERVATION CHARGES TO THE COLD STORAGE, THE AGGREGATE OF THE PAYMENTS/CREDIT TO THE ACCOUNT IS OF RS. 1,96,945/- . DURING THE RELEVANT TIME, SUBSECTION (5) AND PROVISO OF SECTION194C PRO VIDED THAT NO DEDUCTION OF TDS WAS REQUIRED FROM THE AMOUNTS PAID OR CREDIT ED IF THE SUM DID NOT EXCEED RS.20,000/- OR THE AGGREGATE OF THE AMOUNTS OF SUMS CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCI AL YEAR DID NOT EXCEED RS.50,000/-. IN THE PRESENT CASE, WE ARE OF THE VI EW THAT SINCE THE AMOUNT CREDITED/PAID DURING THE YEAR WAS RS.1,96,945/-, WH ICH WAS IN EXCESS OF THE MONETARY LIMIT PRESCRIBED UNDER SUBSECTION (5) AND IN PROVISO, THE EXEMPTION FROM NON-DEDUCTION OF TDS WOULD NOT BE AP PLICABLE. IN VIEW OF THESE FACTS, WE FIND NO INFIRMITY IN THE ORDER OF L D.CIT(A) AND THUS THE GROUND OF ASSESSEE IS DISMISSED. ITA NO 1494/ AHD/2012 . A.Y. 2008-09 5 2 ND GROUND IS WITH RESPECT TO ADDITION MADE U/S. 2(22) (E) OF THE ACT. 8. ON PERUSING THE BALANCE SHEET, A.O NOTICED THAT ASS ESSEE HAS RECEIVED LOAN TO THE TUNE OF RS. 2,31,01,000/- FROM VAIBHAV CORPO RATION LTD. (VPCL) WHERE ASSESSEE WAS A DIRECTOR AND WAS HOLDING 93% O F SHARES OF IT. HE ALSO NOTICED THAT THE ACCUMULATED RESERVES OF VAIBHAV CO RPORATION LTD. WAS RS. 1,30,502/-. THE ASSESSEE WAS THEREFORE ASKED TO EXP LAIN AS TO WHY THE ADVANCE NOT BE TREATED AS DEEMED DIVIDEND U/S. 2(22 )(E) OF THE ACT TO WHICH ASSESSEE INTERALIA SUBMITTED THAT THERE WAS NO LOA N OR ADVANCE GIVEN BY THE COMPANY TO THE ASSESSEE AND THE MONEY WAS RECEI VED UNDER DEVELOPMENT AGREEMENT CONTRACT ENTERED BY THE ASSES SEE WITH THE COMPANY. IT WAS FURTHER SUBMITTED THAT IT WAS IN THE NATURE OF BUSINESS ADVANCE AND IT WOULD NOT FALL WITHIN THE AMBIT OF PROVISIONS OF SE CTION 2(22)(E) OF THE ACT. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEP TABLE TO THE A.O. AS HE WAS OF THE VIEW THAT THE AGREEMENT THAT WAS ENTERED BETWEEN THE ASSESSEE AND THE COMPANY WAS TO USE THE FUNDS OF THE COMPANY AS AND WHEN REQUIRED BY THE ASSESSEE. THEREFORE, PROVISIONS OF SECTION 2(22)(E) WERE ATTRACTED AND HE THEREFORE CONSIDERED RS.1,30,502/- (TO THE E XTENT OF ACCUMULATED PROFIT OF THE COMPANY) AS DEEMED DIVIDEND U/S. 2(22 (E) OF THE ACT AND ADDED TO THE INCOME. AGGRIEVED BY THE ORDER OF A.O., ASSE SSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO UPHELD THE ORDER OF A.O BY HO LDING AS UNDER:- 5. GROUND NO.3 IS AS UNDER. '3.1. RS.2,31,01,000/- RECEIVED FROM M/S. VAIBHAV C ORPORATION PVT. LTD. AGAINST CONTRACTUAL AGREEMENT BETWEEN COMPANY AND PRAKASH K HATRI. PAYMENT MADE TO PRAKASH KHATRI FOR THE EXISTING DEB T ALREADY INCURRED BY M/S. VAIBHAV CORPORATION PVT. LTD. 3.2. CONSIDERING THE ABOVE FACTS OF THE CASES, W E REQUEST YOUR HONOUR TO KINDLY DELETE THE ADDITION OFRS.1,30,205/-.' ITA NO 1494/ AHD/2012 . A.Y. 2008-09 6 5.1. THIS ISSUE WAS DISCUSSED BY THE AO AT PARA-10 OF THE ASSESSMENT ORDER. WRITTEN SUBMISSIONS FILED IN THIS REGARD ARE AS FOLLOW: 'REGARDING ADDITION U/S. 2(22) (E) OF THE ACT OF RS . 1,30,205/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD . AO HAS FOUND THAT THE ASSESSEE HAS BORROWED MONEY FROM VCPL IN WHICH HE I S A DIRECTOR AS WELL AS SUBSTANTIAL SHARE HOLDER. IT WAS SUBMITTED TO THE L D. AO THAT THE ASSESSEE IS HAVING HIS OWN LAND WHICH HAS BEEN GIVEN TO THE VCP L FOR DEVELOPMENT. SINCE THE LAND IS SURRENDERED BY THE APPELLANT, THE APPELLANT IS ENTITLED TO HAVE ADVANCE MONEY AGAINST THE SAID LAND. THIS MONEY HAS BEEN RE CEIVED BY THE APPELLANT AND THEREFORE, THE SAME COULD NOT BE CONSIDERED AS PURE LAND AS GIVEN IN THE I.T. ACT. A COPY OF CONTRACT, LEDGER ACCOUNT FROM VCPL IS ENC LOSED HEREWITH. . IN VIEW OF THE ABOVE FACTS, YOUR HONOUR IS REQUESTE D TO KINDLY DIRECT THE LD. AO TO DELETE THE ADDITION OF RS. 1,30,205/- MADE ON ACCOU NT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT (PAGE NO. 184-228), ' 5.2. IN THE ASSESSMENT ORDER, AO OBSERVED THAT THE APPELLANT IS A DIRECTOR IN M/S. VAIBHAV CORPORATION LTD. HOLDING 93% SHARE IN THE S AID COMPANY; HE RECEIVED LOAN OF RS.2,31,01,000/- FROM THE SAID COMPANY; THE ACCU MULATED RESERVES OF THE COMPANY WERE TO THE EXTENT OF RS. 1,30,502/- AND ACCORDINGL Y HE ADDED RS. 1,30,502/- AS DEEMED DIVIDEND U/S.2(22)(E). THE WRITTEN SUBMISSIO N REPRODUCED ABOVE ARE GENERAL, VAGUE AND DO NOT CONTROVERT THE FINDINGS OF THE AO. THIS GROUND OF APPEAL IS DEVOID OF MERIT AND IS THEREFORE DISMISSED. 6. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), AS SESSEE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE IS OWNER OF LAND WHICH IT WANTED TO DEVELOP AND FOR THE PURPOSE OF DEVELOPMEN T OF LAND AND CONSTRUCTION IT HAD ENGAGED VAIBHAV CORPORATION PVT . LTD. AND FOR WHICH ASSESSEE HAD ENTERED INTO AGREEMENT WITH IT AND THE ADVANCE THAT WAS RECEIVED BY THE ASSESSEE WAS AS PART OF THE AFORESA ID AGREEMENT. SHE ALSO ITA NO 1494/ AHD/2012 . A.Y. 2008-09 7 PLACED ON RECORD THE TRANSLATED COPY OF THE AGREEME NT ENTERED BY THE ASSESSEE AND POINTED TO CLAUSE 9 AT PAGE 49 OF THE PAPER BOOK WHEREIN IT WAS STATED THAT THE SALE PRICE OF THE LAND WAS DECI DED @ RS.158.40 PER SQ. FOOT WHICH VAIBHAV CORPORATION WOULD COLLECT FROM T HE MEMBERS ON THE SALE AND THE ASSESSEE WOULD GIVE REGISTERED SALE DE ED IN THE NAME OF SUCH MEMBERS. SHE THEREFORE SUBMITTED THAT THE TRANSACTI ON WAS A COMMERCIAL TRANSACTION AND WAS NOT HIT BY THE PROVISIONS OF SE CTION 2(22(E) OF THE ACT AND FOR WHICH SHE ALSO PLACED RELIANCE ON THE D ECISION IN THE CASE OF CIT VS. CREATIVE DYEING & PRINTING PVT. LTD. REPORT ED IN (2009) 318 ITR 476 (DEL) AND THE DECISION IN THE CASE OF CIT VS. A MBASSADOR TRAVELS PVT. LTD. REPORTED IN 318 ITR 376 (DEL.) AND OTHER DECISIONS. SHE THEREFORE SUBMITTED THAT THE ADDITION BE DELETED. T HE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O AND LD. CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO AD DITION MADE ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22(E) OF THE ACT. IT IS A N UNDISPUTED FACT THAT ASSESSEE HAS RECEIVED THE AMOUNT AT RS. 1,30,502/- FROM VAIBHAV CORPORATION PVT. LTD., A COMPANY IN WHICH THE ASSES SEE IS A DIRECTOR AND HOLDS 93% OF ITS SHARE HOLDING. IT IS ALSO A FACT THAT ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH VAIBHAV CORPORATION FOR DEVE LOPMENT AND CONSTRUCTION ON THE LAND, THE LAND BEING OWNED BY T HE ASSESSEE. THE PERUSAL OF THE AGREEMENT REVEALS THAT VARIOUS CONDI TIONS HAVE BEEN INCORPORATED WHICH ALSO INCLUDES ONE OF THE CONDITI ON BEING THAT THE SALE PRICE OF THE LAND HAS BEEN DECIDED BETWEEN BOTH THE PARTIES, NAMELY, ASSESSEE AND VAIBHAV CORPORATION AND WHICH THE ASSE SSEE WOULD RECEIVE ON IT BEING COLLECTED BY VAIBHAV CORPORATION FROM T HE MEMBERS ON THE ITA NO 1494/ AHD/2012 . A.Y. 2008-09 8 SALE AND THE ASSESSEE SHALL GIVE REGISTERED SALE DE ED IN THE NAME OF SUCH MEMBER. THE PERUSAL OF THE AFORESAID AND OTHER CLA USES OF THE AGREEMENT WHICH HAS BEEN ENTERED BY THE ASSESSEE WITH VAIBHAV CORPORATION SUPPORTS THE ARGUMENT OF THE LD. A.R. THAT THE TRAN SACTION TO BE A BUSINESS TRANSACTION. WE FIND THAT HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. RAJKUMAR (2009) 318 ITR 462 (DEL) HAS HELD THAT TRADE ADVANCES WHICH ARE IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTION WOULD NOT FALL WITH THE AMBI T OF THE PROVISION OF SECTION 2(22)(E) OF THE ACT. HONBLE DELHI HIGH CO URT IN THE CASE OF CIT VS. CREATIVE DYEING & PRINTING PVT. LTD. (SUPRA) HA S ALSO HELD THAT AMOUNT ADVANCED FOR BUSINESS TRANSACTION DO NOT FAL L WITHIN THE DEFINITION OF SECTION 2(22)(E) OF THE ACT. BEFORE US, NO MATE RIAL HAS BEEN PLACED ON RECORD BY THE REVENUE TO DEMONSTRATE THAT THE AGREE MENT ENTERED BY THE ASSESSEE WITH VAIBHAV CORPORATION WAS NOT A GENUINE AGREEMENT. IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT IN THE PRESENT CASE NO ADDITION U/S.2(22)(E) COULD BE MADE. WE THEREFORE SET ASIDE THE ADDITION MADE BY A.O. AND THUS THIS GROUND OF ASSESSEE IS ALLOWED. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON 17 - 11- 201 5. SD/- SD/- (RAJPAL YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: 17/11/2015 TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. ITA NO 1494/ AHD/2012 . A.Y. 2008-09 9 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMED ABAD