Mohammed Ahmed, Kolkata V. ACIT, Circle - 29, Kolkata, Kolkata

ITA 1659/KOL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99916 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 23-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NILOY BARAN SOM JCIT SRDR
• Assessee Lawyers: S M SURANA
• Keywords: Deemed dividend
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1659 / KOL / 2010 ASSESSMENT YEAR :2007-08 MOHAMMED AHMED 10/1/1A, TOPSIA ROAD (SOUTH), KOLKATA 700 046 [ PAN NO.ACXPA 6297 N ] V/S . ACIT, CIRCLE-29, 3, GOVT. PLACE (WEST), KOLKATA 700 001 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI S.M. SURANA, ADVOCATE /BY RESPONDENT SHRI NILOY BARAN SOM, JCIT-SR-DR /DATE OF HEARING 29-09-2015 /DATE OF PRONOUNCEMENT 15-10-2015 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF ORD ER OF COMMISSIONER OF INCOME TAX (APPEALS)-XVI, KOLKATA IN APPEAL NO.50/C IT(A)-XVI/CIR.29/09-10 DATED 15.06.2010. ASSESSMENT WAS FRAMED BY ACIT, CI RCLE-29, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDER DATED 29.12.2009 FOR ASSESSMENT YEAR 2007 -08. 2. ONLY ISSUE RAISED BY ASSESSEE IN HIS APPEAL IS T HAT LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.32,38,5215/- ON AC COUNT OF DEEMED DIVIDEND INCOME IN TERMS OF SEC. 2(22)(E) OF THE ACT. 3. BRIEFLY STATED ACTS ARE THAT ASSESSEE IS AN INDI VIDUAL HAVING INCOME UNDER THE HEAD SALARY, BUSINESS & OTHER SOURCES. AT THE TIME OF ASSESSMENT ITA NO.1659/KOL/2010 A.Y. 2007-08 MD. AHMED V. ACIT, CIR-29, KOL. PAGE 2 PROCEEDINGS, ASSESSING OFFICER NOTICED THAT ASSESSE E HAS TAKEN A LOAN FROM A COMPANY AN AMOUNT OF RS.36,21,600/- FROM M/S AHMED TANNERY PVT. LTD. WHERE ASSESSEE WAS A DIRECTOR AND SHAREHOLDER HOLDI NG BENEFICIAL OWNER OF SHARE MORE THAN 10% OF THE VOTING POWER. THE ASSESS ING OFFICER TREATED THIS LOAN TRANSACTIONS AD DEEMED DIVIDEND BY VIRTUE OF P ROVISION OF U/S 2(2)(E) OF THE ACT AND SEVERAL NOTICES WERE ISSUED UPON THE AS SESSEE TO EXPLAIN AS TO WHY THIS TRANSACTIONS SHOULD NOT BE TREATED AS DEEM ED DIVIDEND INCOME. HOWEVER, NO SUITABLE REPLY WAS MADE BY THE ASSESSEE . THEREFORE, SAME HAS BEEN TREATED THE INCOME OF ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A). BEFORE LD. CIT(A) IT WAS DEMONSTRATED BY LD. AR OF ASSESSEE THAT ASSESSE E HAS NOT TAKEN ANY LOAN FROM THE ABOVE STATED COMPANY. IT WAS AN ADVAN CE AGAINST BUSINESS WORK TO BE CARRIED OUT BY ASSESSEE. SINCE THERE HAS BEEN A BUSINESS RELATION BETWEEN THE ASSESSEE AND THE SAID COMPANY FOR THE L AST MANY YEARS,THEREFORE, HOLDING THIS BUSINESS TRANSACTIONS AS ADVANCE AND CONSEQUENTLY DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT IS NOT APPROPRIATE. ASSESSEE HAS ALSO CITED CASE LAW IN SU PPORT OF ITS CLAIM AS UNDER:- A) CIT V. JOHN 181 ITR 1 (KAR) B) CIT V. RAJKUMAR 318 ITR 462 (DEL) C) TARULATA VS. CIT 108 ITR 345 (SC) IT WAS ALSO SUBMITTED THAT JOB WORK DONE BY ASSESSE E FOR THE AFORESAID COMPANY WAS SUBJECT TO TDS U/S 194C OF THE ACT AND SAME WAS DULY DEDUCTED AND DEPOSITED IN GOVT. ACCOUNT. HOWEVER, L D. CIT(A) DISREGARDED THE CLAIM OF ASSESSEE. LD. CIT(A) HAS CITED SEVERAL CASE LAW FOR NOT ALLOWING THE CLAIM OF ASSESSEE AND PRODUCED THE EXTRACT OF T HE CASE OF SMT. TARULATA (SUPRA) WHERE THE HON'BLE SUPREME COURT HAS HELD:- ONCE IT IS SHOWN THAT THE CASE OF THE ASSESSEE COM ES WITHIN THE LETTER OF THE LAW, HE MUST BE TAXED, HOWEVER GREAT THE HAR DSHIP MAY APPEAR TO THE JUDICIAL MIND TO BE. ITA NO.1659/KOL/2010 A.Y. 2007-08 MD. AHMED V. ACIT, CIR-29, KOL. PAGE 3 IT IS OBSERVED BY LD. CIT(A) IN THE CASE OF CIT V. MUKUNDRAY K. SHAH IN 290 ITR 433 (SC); IN THE CASE OF SMT. TARULATA SHYAM AND ORS. VS. CIT , WHEREIN THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT I N 82 ITR 485 WAS AFFIRMED AND JURISDICTIONAL HIGH COURT IN THE CASE OF M.D. JINDAL V. CIT 164 ITR 28 (CAL); WHEREIN THE HEAD NOTE OF THE SAID DECISION I S AS UNDER:- DIVIDEND DEEMED DIVIDEND ADVANCE TO SHAREHOLDE R SCOPE OF SEC. 2(22)(E) ASSESSEE AND HIS WIFE ONLY DIRECTOR S OF COMPANY DEALING IN IRON MATERIALS FLATS UNDER CONSTRUCTIO N BY ASSESSEE AND HIS WIFE AGREEMENT WITH COMPANY FOR SALE OF FLATS IN 1965 COMPLETION OF CONSTRUCTION AND SALE IN 1968 IRON RODS SUPPLIED BY COMPANY TO ASSESSEE AND HIS WIFE FINDING BY TRIBUNAL THAT IR ON RODS SUPPLIED BY THE COMPANY BENEFITED ASSESSEE AND THAT AGREEMENT W AS MADE TO CIRCUMVENT PROVISIONS OF SECTION 2(22) VALE OF IR ON RODS RECEIVED BY ASSESSEE CAN BE TREATED AS DIVIDENDS INCOME-TAX A CT, 1961, S(22)(E). NOW, AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSEE CAME IN SECOND APPEAL BEFORE US. SHRI S.M. SURANA, LD. AUTHORIZED REPRESENTATIVE APP EARING ON BEHALF OF ASSESSEE AND SHRI NILOY BARAN SOM, LD. DEPARTMENTAL REPRESENTATIVE APPEARING ON BEHALF OF DEPARTMENT. 4. WE HAVE HEARD RIVAL PARTIES AND PERUSED THE MATE RIALS AVAILABLE ON RECORD. BEFORE US LD. AR OF ASSESSEE SUBMITTED PAPE R BOOK CONTAINING PAGES 1 TO 120. THE ASSESSEE HAS SUBMITTED THAT HE HAD CO MMERCIAL TRANSACTIONS WITH THE COMPANY FOR THE LAST MANY YEARS AND NEVER IN THE PART OR IN THE SUBSEQUENT YEAR WHERE THE ADVANCE RECEIVED WERE TRE ATED AS DEEMED DIVIDEND INCOME. LD. AR DREW OUR ATTENTION ON PAGES 85 TO 103 OF THE PAPER BOOK, WHERE THE DETAILED JOB WORK IN THE CURRENT AC COUNT WERE FURNISHED AND IN THIS REGARD HE REFERRED SEVERAL ORDERS OR JUDGMENTS WHERE IT WAS HELD THAT BUSINESS TRANSACTIONS CANNOT BE TREATED AS DEEMED D IVIDEND. AFTER CAREFUL ANALYSIS OF ASSESSMENT ORDER AND THE ORDER OF LD. C IT(A) AND SUBMISSION MADE BY ASSESSEE WHICH REVEALS THAT AO FOUND THAT A SSESSEE IS A SHAREHOLDER IN THE COMPANY AND ASSESSEE IS HOLDING MORE THAN 10% ITA NO.1659/KOL/2010 A.Y. 2007-08 MD. AHMED V. ACIT, CIR-29, KOL. PAGE 4 SHAREHOLDER OF THE SAID COMPANY AND THE AFORESAID P URPORTED LOAN RECEIVED BY ASSESSEE WAS TREATED AS DEEMED DIVIDEND U/S 2(22)(E ) OF THE ACT. WE MAY NOTE THAT EXPLANATION FURNISHED BY ASSESSEE WAS THA T AFORESAID AMOUNT WAS NOT A LOAN AND IN FACT THERE WAS A BUSINESS TRANSAC TION BETWEEN ASSESSEE AND THE ABOVE STATED M/S AHMED TANNERY PVT. LTD. AND TH ERE WAS A RUNNING ACCOUNT MAINTAINED BY ASSESSEE AND SHOWING THOSE TR ANSACTIONS, SO IT IS CLEAR THAT SUB-SECTION 2(22)(E) OF THE ACT IS NOT APPLICA BLE IN THE ERSTWHILE CASE. 5. WE HAVE GONE THROUGH THE FACTS OF THE CASE AND O N PERUSAL OF LEDGER ACCOUNT OF ASSESSEES BOOKS OF ACCOUNT IT IS FOUND THAT THE ASSESSEE IS MAINTAIN A RUNNING ACCOUNTS WITH THAT OF AFORESAID COMPANY. THROUGH THE LEDGER ACCOUNT OF ASSESSEES PREVIOUS YEARS I.E 200 5-06, 2006-07 AND 2007- 08. IT WAS OBSERVED THAT ASSESSEE IS RAISING THE BI LL ON CONTINUOUS BASIS TO THE AFORESAID COMPANY AND THAT COMPANY WAS MAKING THE P AYMENT TO THE ASSESSEE AFTER DEDUCTING THE TDS AND THE LEDGER ACC OUNT OF ASSESSEE FURTHER REVEALED THAT NO INTEREST WAS CHARGED BY AFORESAID COMPANY FOR ADVANCING MONEY TO THE ACCOUNT WHICH WAS CURRENT ACCOUNT IN N ATURE. THE TRANSACTION WAS PURE A COMMERCIAL TRANSACTION AND IT WAS NOT CA SE OF LOAN TO ATTRACT THE PROVISION OF SEC.2(2)(E) OF THE ACT. THIS ISSUE HAS BEEN ANSWERED BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PRADIP KUMAR MALHOTRA VS. CIT 338 ITR 538 (CAL), WHEREIN IT WAS HELD:- THE PHRASE BY WAY OF ADVANCE OR LOAN APPEARING IN SUB-CLAUSE (E) OF SECTION 2(22) OF THE INCOME-TAX ACT, 1961, MUST BE CONSTRUED TO MEAN THOSE ADVANCES OR LOANS WHICH A SHAREHOLDER ENJOYS SIMPLY ON ACCOUNT OF BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES ( NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RI GHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING PO WER; BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH COMPANY RECEIVED FROM SUCH A SHARE-HOLDER, IN SUCH CASE, SUCH ADVANCE OR LOAN CANNOT BE SAID TO BE DEE MED DIVIDEND WITHIN THE MEANING OF THE ACT. THUS, GRATUITOUS LOAN OR ADVANC E GIVEN BY A COMPANY TO THOSE CLASSES OF SHAREHOLDERS WOULD COME WITHIN THE PURVIEW OF SECTION 2(22) BUT NOT CASES WHERE THE LOAN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY BY SUCH SHAREHOLDER. FR OM THE ABOVE FACTS AND LEGAL PROPORTION DECIDED BY HON'BLE JURISDICTIONAL HIGH COURT, IT IS CLEAR THAT SECTION 2(22)(E) OF THE ACT WAS INSERTED TO BRING W ITHIN THE PURVIEW OF TAXATION THOSE AMOUNTS WHICH ARE ACTUALLY A DISTRIBUTION OF PROFITS BUT ARE DISBURSED AS A LOAN SO THAT TAX THEREON CAN BE AVOIDED. IT IS PE RTINENT TO NOTE HERE THAT ITA NO.1659/KOL/2010 A.Y. 2007-08 MD. AHMED V. ACIT, CIR-29, KOL. PAGE 5 WHEN DIVIDENDS ARE DECLARED BY A COMPANY, IT IS SOL ELY THE SHAREHOLDERS WHO BENEFIT FROM THE TRANSACTION. NO BENEFITS ACCRUE TO THE COMPANY BY WAY OF DIVIDEND DISTRIBUTION THUS. SECTION 2(22)(E) OF THE ACT COVERS ONLY SUCH SITUATIONS, WHERE THE SHAREHOLDER ALONE BENEFITS FR OM THE LOAN TRANSACTION, BECAUSE IF THE COMPANY ALSO BENEFITS FROM THE SAID TRANSACTION, IT WILL TAKE THE CHARACTER OF A COMMERCIAL TRANSACTION AND HENCE WIL L NOT QUALIFY TO BE DIVIDEND. IN THE CASE OF THE ASSESSEE, BY GIVING AN D TAKING FINANCIAL ASSISTANCE FROM EACH OTHER, BOTH THE ASSESSEE AND T HE COMPANY WERE BENEFITED AND SUCH TRANSACTIONS BETWEEN THEM WERE N OTHING BUT COMMERCIAL TRANSACTIONS AND DIVIDEND ATTRIBUTABLE TO THE SHARE HOLDER IS NOTHING TO DO WITH SUCH BUSINESS TRANSACTION. FROM THE ABOVE DISCUSSIO NS IT CAN BE SAID THAT SEC. 2(22)(E) OF THE ACT COVERED ONLY THOSE TRANSAC TIONS WHICH BENEFIT THE SHAREHOLDER ALONE AND RESULTS IN NO BENEFIT TO THE COMPANY. ON THE OTHER HAND, IF THE TRANSACTION IS MUTUAL BY WHICH BOTH SI DES ARE BENEFITED, IT IS UNDOUBTEDLY OUTSIDE THE PURVIEW OF PROVISIONS OF SE C. 2(22)(E) OF THE ACT. FROM THE ABOVE, IT IS CLEAR THAT THE LOAN ACCOUNT D IFFERS FROM CURRENT ACCOUNT AND THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, BEING A DEEMING SECTION, CANNOT BE APPLIED TO CURRENT ACCOUNT. IN SUCH CIRCU MSTANCES, WE DELETE THE ADDITION AND THIS COMMON ISSUE OF ASSESSEES APPEAL S IS ALLOWED. FROM THE FACTS OF ASSESSEE, IT IS CLEAR THAT THE TR ANSACTION IS OUT OF THE PURVIEW OF THE DEEMING FICTION OF INCOME AS PROVIDED IN THE SECTION OF 2(22)(E) OF THE ACT, HENCE WE ALLOWED THIS ISSUE IN FAVOUR OF THE A SSESSEE. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 15/1 0/2015 SD/- SD/- (MAHAVIR SINGH) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) *DKP !- 15 /10/2015 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT-MD. AHMED 10/1/1A, TOPSIA ROAD (S), KOL-46 2. / RESPONDENT-ACIT, CIRCLE-29, 3, GOVT. PLACE(W), KOLK ATA-01 3. * +, - - . / CONCERNED CIT KOLKATA 4.- - .- / CIT (A) KOLKATA 5. 012 33+,,- +, , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ - , /TRUE COPY/ / - +, ,