DCIT, CHENNAI V. A.V.Anoop, CHENNAI

ITA 1644/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96248 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 08-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 17-07-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Proportionate interest

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL ME MBER ./ I.T.A.NO. 16 44 /MDS/201 5 / ASSESSMENT YEAR :20 0 8 - 09 THE DEPUTY COMMISSIONER OF INCOME TAX, C ORPORATE CIRCLE I(2) , CHENNAI 600 034. VS. SHRI A.V. ANOOP, NO. 1291, KAMBAR COLONY, 18 TH MAIN ROAD, ANNA NAGAR WEST, CHENNAI 60 0 040. [PAN: AA APA6738P ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT / RESPONDENT BY : NONE / DATE OF HEARING : 08 . 1 0 .201 5 / DATE OF P RONOUNCEMENT : 16 .10 .201 5 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : TH I S APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 1 , C HENNAI , DATED 24 . 0 4 .201 5 RELEVANT TO THE ASSESSMENT YEAR 20 0 8 - 09 . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND ENGAGED IN FILM PRODUCTION UNDER THE BANNER AVA PRODUCTION, MANUFACTURE AND SALE OF AYURVEDIC SOAPS UNDER THE PROPRETRIX CHOLAYIL PRODUCTS AND SERVICES, A YURVEDIC THERAPY NAMED CPS SANJEEVANAM, REAL ESTATE NAMED I.T.A. NO . 16 44 /M/ 1 5 2 CPS PROPERTY DIVISION AND A BOOK PUBLISHING HOUSE CALLED AVA PUBLICATIONS. HE HAS FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ADMITTING TOTAL INCOME OF . 7,35,18,590/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT AN AMOUNT OF .2,98,7 0,352/ - WAS REFLECTED IN ASSESSEE S BOOKS AS AN AMOUNT DUE TO M/S. CHOLAYIL PVT. LTD. SINCE THE ASSESSEE HAS SUBSTANTIAL STAKE IN THE COMPANY M/S. CHOLAYIL PVT. LTD., THE AMOUNT SHOULD GENERALLY ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. HOWEVE R, ON VERIFICATION, THE ASSESSING OFFICER FURTHER OBSERVED THAT THE AMOUNT IS NOT A LOAN LENT BUT THE AMOUNT DUE ON ACCOUNT OF SALE OF SANJEEVANAM DIVISION TO THE ASSESSEE AS A SLUMP SALE. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE PAYMENT IS N OT COVERED UNDER 2(22)(E) OF THE ACT AND NO BENEFIT IS ACCRUED TO THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE SINCE THE AMOUNT HAS NOT BEEN PAID TO THE COMPANY IN WHICH T HE ASSESSEE IS A DIRECTOR, THE INTEREST SUFFERED BY THE COMPANY ON ACCOUNT OF THIS PENDING DUE FROM THE ASSESSEE ATTRACTS THE PROVISIONS OF SECTION 2(24)(IV) OF THE ACT SINCE IT IS A BENEFIT WHICH THE ASSESSEE ENJOYS AS A DIRECTOR OF THE COMPANY BY NOT SETTLING THE DUES IN TIME. BASED ON THE INTEREST OVERFLOW OF M/S. CHOLAYIL PVT. LTD., AND THE DATE OF TRANSFER OF THIS UNDERTAKING BEING ON 01.08.2007, THE INTEREST CORRESPONDING TO THIS I.T.A. NO . 16 44 /M/ 1 5 3 CONSIDERATION OF .2,98,70,352/ - , WHICH REMAINS UNPAID FOR THE PERIOD OF 8 MONTHS IN THE FINANCIAL YEA R 2007 - 08 IS TO BE ADDED AS A PERQUISITE GOT FROM THE COMPANY IN THE ASSESSEE S POSITION AS A D IRECTOR AND THE VALUE OF SUCH BENEFIT OF .15,53,258/ - WAS ADDED TO THE TAXABLE INCOME OF THE ASSESSEE. 3. ON APPEAL, THE LD. CIT(A), BY CONSIDERING THE DETAI LED SUBMISSIONS FILED BY THE ASSESSEE, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: 4.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. AS SEEN FROM THE FACTS OF THE CASE M/S CHOLAYIL P LTD IS THE MAIN COMPANY WHI CH WAS MAINLY DEALING WITH PRODUCTION OF MEDIMIX SOAPS AND AYURVEDIC PRODUCTS. THE AYURVEDIC PRODUCTION WAS BEING RUN IN THE NAME OF SANJEEVANAM. FROM 1.8.07 THE ACTIVITY OF DEALING WITH AYURVEDIC PRODUCTS IN THE NAME OF SANJEEVANAM WAS TAKEN OVER BY AV. A NOOP, ONE OF THE DIRECTORS OF CHOLAYIL P LTD. THE ACTIVITY OF SANJEEVANAM IS NOW BEING RUN BY CHOLAYIL PRODUCTS & SERVICES (SANJEEVANAM) WHICH IS THE PROPRIETARY CONCERN OF AV. ANOOP. THE SANJEEVANAM WHICH WAS UNDERGOING LOSSES WAS AGREED TO BE HANDED OVER TO MR.ANOOP FOR A CONSIDERATION OF RS.2,98,70,352 AS A SLUMP SALE. THE AMOUNT WAS SHOWN AS PAYABLE TO CHOLAYIL P LTD IN THE BOOKS OF CHOLAYIL PRODUCTS & SERVICES, PROP.AV. ANOOP AS ON 31.3.08. SIMILAR CORRESPONDING ENTRIES WERE ALSO MADE IN THE BOOKS OF C HOLAYIL P LTD AS ON 31.3.08. IT WAS ALSO SUBMITTED THAT THE TRANSFER OF SANJEEVANAM WAS PART OF THEIR FAMILY SETTLEMENT. HOWEVER, SRI ANOOP HAS NOT MADE ANY PAYMENT FROM THE ABOVE LIABILITY TO CHOLAYIL P LTD FROM 1.8.07 TO 31.3.08. AS SRI ANOOP, THE APPELL ANT, HAS NOT MADE ANY PAYMENT WHICH HE IS SUPPOSED TO MAKE TO CHOLAYIL P LTD FOR THE ACTIVITY OF SANJEEVANAM WHICH ACTIVITY HE HAS TAKEN OVER FROM CHOLAYIL P LTD., EVEN THOUGH CHOLAYIL P LTD HAS BORROWED MONEY IN THE FORM OF SECURED AND UNSECURED LOANS AND PAID INTEREST OF RS.5,93,31,587, THE AO HAS MADE DISALLOWANCE OF RS.15,53,258 AS PROPORTIONATE INTEREST WHICH CHOLAYIL P LTD IS LIABLE TO PAY TO THE BANKS ON THE AMOUNTS BORROWED BY IT. I.T.A. NO . 16 44 /M/ 1 5 4 4.2.1 THE AO, IN HIS ORDER, HAS RULED OUT THE POSSIBILITY OF ATTRA CTING SEC.2(22)(E) EVEN THOUGH THE APPELLANT HAS SUBSTANTIAL INTEREST IN THE COMPANY CHOLAYIL P LTD FOR THE REASON THAT THE AMOUNT OF RS.2,98,70,352 IS PASSED ON TO THE DIRECTOR, THE APPELLANT, 'NOT AS A LOAN BUT THE AMOUNT DUE ON ACCOUNT OF SALE OF SANJEE VANAM DIVISION TO THE APPELLANT AS A SLUMP SALE'. THE AO HAS, HOWEVER, INVOKED THE PROVISIONS OF S.2(24)(IV) 'SINCE IT IS A BENEFIT WHICH THE APPELLANT ENJOYS AS A DIRECTOR OF THE COMPANY BY NOT SETTLING THE DUES IN TIME'. BASED ON THE INTEREST OUTFLOW OF CHOLAYIL PVT. LTD. , AND THE DATE OF TRANSFER OF THIS UNDERTAKING BEING 01.08.2007, THE INTEREST CORRESPONDING TO THIS CONSIDERATION OF RS.2,98,70,352 WHICH REMAINS UNPAID FOR THE PERIOD OF 8 MONTHS IN F.Y. 07 - 08 WAS ADDED BY THE AA AS A PERQUISITE GOT FRO M THE COMPANY IN THE APPELLANT'S POSITION AS A DIRECTOR. HOWEVER, THE REASONING OF THE A O DOES NOT FIT INTO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ON HAND. AS PER THE PROVISIONS OF S.2(24)(IV) THERE SHOULD BE A DIRECT OR INDIRECT BENEFIT OR PERQUI SITE SHOULD BE MADE AVAILABLE TO THE APPELLANT FORMING PART OF 'INCOME'. THE PROVISIONS OF S.2(24)(IV) READ AS UNDER - S.2 (24) 'INCOME' INCLUDES - (IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, OBTAINED FROM A COMPA NY EITHER BY A DIRECTOR OR BY A PERSON WHO HAS A SUBSTANTIAL INTEREST IN THE COMPANY, OR BY A RELATIVE OF THE DIRECTOR OR SUCH PERSON, AND ANY SUM PAID BY ANY SUCH COMPANY IN RESPECT OF ANY OBLIGATION WHICH, BUT FOR SUCH PAYMENT, WOULD HAVE BEEN PAYABLE BY THE DIRECTOR OR OTHER PERSON AFORESAID; AS SEEN FROM THE ABOVE PROVISION (1) THERE SHOULD BE BENEFIT OR PERQUISITE FORMING PART OF INCOME OF THE RECIPIENT, (2) SUM SHOULD HAVE BEEN PAID BY THE COMPANY IN RESPECT OF ANY OBLIGATION FROM THE COMPANY SIDE. IN THE INSTANT CASE, THE TAKE OVER OF THE SANJEEVANAM DIVISION WHICH IS OWNING UP OF A PART OF LOSS GOING BUSINESS BY THE APPELLANT WILL NOT FIT INTO ABOVE PROVISION. FURTHER, THE SANJEEVANAM DIVISION WAS UNDERGOING LOSSES PRIOR TO TAKE OVER BY THE APPELLA NT AND SIMILAR LOSSES WERE CONTINUING FOR SEVERAL YEARS EVEN AFTER THE TAKE OVER BY THE APPELLANT. THEREFORE, I FIND NO BENEFIT / PERQUISITE AS SUCH MADE AVAILABLE TO THE APPELLANT IN SUCH ARRANGEMENT AND THE DISALLOWANCE OF RS.15,53,258 AS BENEFIT / PERQU ISITE IS UNWARRANTED. IF AT ALL, THE AO SHOULD HAVE CONTEMPLATED DEEMED INTEREST DISALLOWANCE IN THE HANDS OF THE COMPANY. IN MY CONSIDERED I.T.A. NO . 16 44 /M/ 1 5 5 OPINION, EVEN SUCH DISALLOWANCE IN THE HANDS OF THE COMPANY WILL NOT ATTRACT SINCE THERE WAS NO DIVERSION OF BORROWE D INTEREST - BEARING FUNDS FOR NON - BUSINESS PURPOSES. HOWEVER, THE AO SHOULD ENSURE THE POSSIBILITY OF CAPITAL GAINS IN THE HANDS OF THE COMPANY ON ITS 'SLUMP SALE'. 4.22 IN VIEW OF THE ABOVE DISCUSSION, THE DISALLOWANCE MADE BY THE AO BY INVOKING PROVISIO NS OF S.2(24)(IV) IS TREATED AS UNTENABLE AND THE AO IS DIRECTED TO WITHDRAW THE SAME. THE GROUND IS ALLOWED. 4. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. DESPITE SERVICE OF NOTICE, NONE APPEARED ON BEHALF OF THE ASSESSEE. HENCE, WE PROCEED TO DECIDE THE APPEAL ON MERITS AFTER HEARING THE LD. DR. 6. T HE LD. DR HAS RELIED ON THE ORDER PASSED BY THE ASSESSING OFFICER. 7. WE HAVE HEARD THE LD. DR , PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSING OFFICER, BY INVOKING THE PROVISIONS OF SECTION 2(2 4 )(IV), ADDITION WAS MADE BY OBSERVING THAT SINCE IT IS A BENEFIT, WHICH THE ASSESSEE ENJOYED AS A DIRECTOR OF THE COMPANY BY NOT SETTLING THE DUES IN TIME. BASED ON THE INTEREST OUTFLO W OF M/S. CHOLAYIL PVT. LTD. AND THE DATE OF TRANSFER OF THIS UNDERTAKING BEING 01.08.2007, THE INTEREST CORRESPONDING TO THIS CONSIDERATION OF .2,98,70,352 WHICH REMAINS UNPAID FOR THE PERIOD 8 MONTHS IN THE FINANCIAL YEAR 2007 - 08, ADDITION WAS MADE BY THE ASSESSING OFFICER AS PERQUISITE GOT FROM THE COMPANY IN THE ASSESSEE S POSITION AS A DIRECTOR. HOWEVER, THE LD. CIT(A) DELETED THE ADDITION B Y OBSERVING THAT AS PER THE PROVISIONS OF SECTION 2(24)(IV) OF THE ACT, THERE SHOULD BE A DIRECT OR INDIRECT BENEFIT OR PERQUISITE I.T.A. NO . 16 44 /M/ 1 5 6 SHOULD BE MADE AVAILABLE TO THE ASSESSEE FORMING PART OF INCOME. IN THE INSTANT CASE, THE TAKE OVER OF THE SANJEEVANAM DIVISI ON WHICH IS OWNING UP OF A PART OF LOSS GOING BUSINESS BY THE ASSESSEE WILL NOT FIT INTO THE PROVISIONS OF SECTION 2(24)(IV) OF THE ACT. FURTHER, THE LD. CIT(A) HAS OBSERVED THAT THE SANJEEVANAM DIVISION WAS UNDERGOING LOSSES PRIOR TO TAKE OVER BY THE ASSE SSEE AND SIMILAR LOSSES WERE CONTINUING FOR SEVERAL YEARS EVEN AFTER THE TAKE OVER BY THE ASSESSEE. THEREFORE, THERE IS NO BENEFIT/PERQUISITE AS SUCH MADE AVAILABLE TO THE ASSESSEE IN SUCH ARRANGEMENT AND THE DISALLOWANCE OF .15,53,258/ - AS A BENEFIT/PER QUISITE IS UNWARRANTED. WE FIND THAT THE LD. CIT(A), BY CONSIDERING THE PROVISIONS OF SECTION 2(24)(IV) AND ALSO BY CONSIDERING THE DETAILED SUBMISSIONS FILED BY THE ASSESSEE AND THE FACTS INVOLVED, RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICE R. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). THUS, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. 8 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 16 TH O F OCTOBER , 2015 AT C HENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( V. DURGA RAO ) JUDICIAL MEMBER CHENNAI, DATED, THE 16 . 1 0 .201 5 VM/ - I.T.A. NO . 16 44 /M/ 1 5 7 / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.