PRABHABEN K. SAVLA, MUMBAI V. ITO WD 17(3)(3), MUMBAI

ITA 1702/MUM/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2659 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 28-10-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 16-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H V JAIN
• Keywords: Deemed to accrue or arise in india; Deemed dividend; Liquidation
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VP & SHRI R.K. PANDA, AM I.T.A. NO. 1702/MUM/2009 (ASSESSMENT YEAR 2004-05) SMT. PRABHABEN K. SAVLA 11,VIRAM MANSION, 499, MAHILA ASHRAM ROAD, KINGS CIRCLE, MUMBAI-400 019 PAN: AAPPS1908L VS. I.T.O. WARD 17(3)(3) PIRAMAL CHAMBERS, PAREL, MUMBAI-400 012 APPELLANT RESPONDENT APPELLANT BY: SHRI PARAS SAVLA RESPONDENT BY: SHRI H.V.JAIN O R D E R DATE OF HEARING: 28.10.2009 DATE OF ORDER: 16.12.2009 PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 18 TH FEBRUARY, 2009 OF THE CIT(A)-XXVII, MUMBAI RELATIN G TO ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE IN HER GROUNDS OF APPEAL HAS CHALLENGE D THE ORDER OF THE CIT(A) IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN ADDING AN AMOUNT OF RS.1,06,629 AS DEEMED DIVIDEND U/S.2(22)( E) OF THE INCOME-TAX ACT, 1961 (THE ACT). 3. FACTS OF THE CASE, IN BRIEF, ARE THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS TAKEN UNSECURED LOAN FROM M/S. KANVEL FINANCE P. LTD. (KF PL) AMOUNTING TO RS.3,61,779/- AND M/S. KANVEL SHARE BROKERS P. LTD. AMOUNTING TO RS.4,00,000 AT THE END OF THE YEAR. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO PRODUCE PROFI T AND LOSS A/C., BALANCE SHEET OF THE SAID COMPANY AND DETAILS OF AL L THE DIRECTORS AND THEIR VOTING RIGHTS ALONG WITH DETAILS OF DIVIDEND DECLARED. IN RESPONSE TO I.T.A. NO. 1702/MUM/2009 SMT. PRABHABEN K. SAVLA ================== 2 THE SAME, THE ASSESSEE SUBMITTED THE COPY OF RETURN OF INCOME, STATEMENT OF INCOME, BALANCE SHEET AND TRADING AND PROFIT AND LOSS A/C. AND ALL SUPPORTING DOCUMENTS OF THE AFORESAID COMPANY. HOW EVER, ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAS NOT FURNISHE D FULL RELEVANT DETAILS IN THIS RESPECT. UNDER THESE CIRCUMSTANCES, THE ASSES SING OFFICER PRESUMED THAT THE ASSESSEE HAS BEEN DELIBERATELY WITHHOLDING THE DETAILS SO AS TO DEPRIVE HIM FROM GETTING THE INFORMATION OF THE SAI D COMPANY AND CONCLUDE IN THE MATTER OF COMPUTATION OF THE DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. HE FURTHER NOTED THAT THE ASS ESSEE IS HAVING SUBSTANTIAL/ENOUGH VOTING POWER BY POSSESSING 48845 0 NUMBER OF SHARES COUPLED WITH THE FACT THAT BEING THE SOLE PE RSON AT THE HELM OF AFFAIRS, THE ASSESSEE HAS ALL THE RESOURCES IN HER CAPACITY TO MISREPRESENT AND MANIPULATE THE DETAILS WHICH HAVE BEEN SUBMITTE D. IN VIEW OF THESE FACTS THE ASSESSING OFFICER FOUND IT EXPEDIENT TO Q UANTIFY THE AMOUNT OF DIVIDEND. IN THIS REGARD THE ASSESSING OFFICER NOT ED THAT THE ABOVE SAID COMPANY M/S. KANVEL FINANCE P. LTD. HAD A PROFIT OF RS.3,67,835 AFTER ADJUSTING BROUGHT FORWARD LOSSES OF RS.2,61,206 OF THE EARLIER A.Y. 2003- 04 AND THE PROFIT ARRIVED AT WAS RS.1,06,629. ACCO RDINGLY THE ASSESSING OFFICER TREATED RS.1,06,629 AS NOTHING BUT THE DEEM ED DIVIDEND BY VIRTUE OF SEC. 2(22)(E) OF THE ACT AS PER DEFINITION OF TH E DIVIDEND. 4. BEFORE CIT(A) IT WAS SUBMITTED THAT IN THE CASE OF THE ASSESSEE A CREDIT BALANCE OF RS.10,98,566 WAS AVAILABLE ON 1.4 .2002. HOWEVER, THE ASSESSEE WAS ADVANCED A SUM OF RS.54,74,749 INCLUDI NG THE DEBIT AMOUNT OF INTEREST OF RS.1,193 DURING THE PERIOD FROM 1.4. 2002 TO 31 ST MARCH, 2003. FURTHER THE ASSESSEE DURING THE YEAR ALSO BR OUGHT IN AN AMOUNT OF RS.28,55,000 AND SHE WAS ALLOWED INTEREST OF RS.11, 362. THE ASSESSEE HAD DEBIT BALANCE OF RS.15,09,831 AT THE END OF THE A.Y . 2003-04. IT WAS SUBMITTED THAT WHEN THE AMOUNTS WERE ADVANCED/GIVEN TO THE ASSESSEE THE COMPANY DID NOT HAVE ACCUMULATED PROFIT. IT HA D A BROUGHT FORWARD LOSS OF RS.1,50,211 AND IT INCURRED FURTHER LOSS OF RS.1,10,995 DURING THE YEAR ENDING 31 ST MARCH, 2003 AGGREGATING TO A TOTAL LOSS OF RS.2,61 ,206. SINCE THE COMPANY HAD NO ACCUMULATED PROFIT DURING THE PERIOD 1.4.2002 I.T.A. NO. 1702/MUM/2009 SMT. PRABHABEN K. SAVLA ================== 3 TO 31.3.2003, THEREFORE, PROVISIONS OF SECTION 2(22 )(E) OF THE ACT ARE NOT APPLICABLE. IT WAS SUBMITTED THAT ALMOST ALL THE L OANS TAKEN FROM THE COMPANY DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2 003-04 WERE REPAID DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2004-05. AT THE END OF THE FINANCIAL YEAR ENDED 31 ST MARCH, 2004 THERE WAS A SMALL DEBIT BALANCE OF RS.3,61,779. IT WAS SUBMITTED THAT SINCE ALMOST AL L THE BORROWINGS ARE LOANS TAKEN DURING THE PERIOD 1.4.2002 TO 31.3.2003 WHICH FALL UNDER A.Y. 2003-04, THE ADDITION OF RS.1,06,691/- AS DEEMED DI VIDEND U/S. 2(22)(E) CANNOT BE MADE IN THE A.Y. 2004-05. RELYING ON THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF MINN I R. CAMA VS. ITO REPORTED IN 17 ITD 136 IT WAS SUBMITTED THAT ANY PA YMENT BY WAY OF LOAN OR ADVANCE IS TO BE CONSIDERED AS DEEMED DIVIDEND O NLY IN THE YEAR IN WHICH SUCH PAYMENT IS MADE BY THE COMPANY. 5. HOWEVER, THE CIT(A) WAS NOT SATISFIED WITH THE ARGU MENTS ADVANCED BY THE ASSESSEE. HE OBSERVED THAT M/S. KF PL IS SHOWING A PROFIT OF RS.3,67,835 AND AFTER ADJUSTMENT OF BROUGHT FORW ARD LOSS OF EARLIER YEAR AGGREGATING TO RS.2,61,206 HAS SHOWN INCOME OF RS.1,06,691 DURING A.Y. 2004-05. THIS FACT IS NOT DISPUTED BY THE ASS ESSEE. DISTINGUISHING THE DECISION CITED BY THE ASSESSEE IN THE CASE OF MINNI R. CAMA (SUPRA) HE HELD THAT AS PER PROVISIONS OF SECTION 2(22)(E) ALL PROF ITS EARNED BY THE COMPANY RIGHT DOWN TO THE DATE OF LIQUIDATION HAVE TO BE CONSIDERED. SINCE THE COMPANY M/S. KFPL WHEREIN THE ASSESSEE IS A SUBSTANTIAL SHAREHOLDER, HAS SHOWN PROFIT AND AT THE SAME TIME THERE WAS A DEBIT BALANCE IN THE NAME OF THE ASSESSEE AMOUNTING TO RS .3,61,779, THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) ARE ATTRACTED AN D ACCORDINGLY THE ASSESSING OFFICER WAS JUSTIFIED IN TAXING THE ASSES SEE U/S. 2(22)(E) TO THE EXTENT OF RS.1,06,629. HE ACCORDINGLY UPHELD THE A CTION OF THE ASSESSING OFFICER. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE TO THE ASSES SEE SINCE SHE HAS TAKEN THE LOANS IN THE EARLIER YEAR WHEN THERE WAS NO ACC UMULATED PROFIT. I.T.A. NO. 1702/MUM/2009 SMT. PRABHABEN K. SAVLA ================== 4 REFERRING TO THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. MAYA B. RAMCHAND REPORTED IN 162 ITR 460 WHERE THE DECISION OF CIT VS. V. DAMODARAN REPORTED IN 122 ITR 572 HAS BEEN C ONSIDERED AND AS RELIED ON BY THE CIT(A), HE SUBMITTED THAT THE HON BLE COURT IN THE SAID DECISION HAS HELD THAT FOR THE PURPOSE OF SECTION 2 (6A)(E) OF INCOME-TAX ACT, 1922 THE COMPANYS ACCUMULATED PROFITS MUST BE DETERMINED ON THE DATE ON WHICH THE LOAN OR ADVANCE TO THE SHAREHOLDE RS COULD BE MADE. IN THAT CASE IT WAS HELD THAT SINCE THE ASSESSING OFFI CER FAILED TO COMPUTE AMOUNTS OF DEEMED DIVIDEND ON THE BASIS OF THE COMP ANYS ACCUMULATED PROFITS ON EACH DAY THE LOAN OR ADVANCE TO THE ASSE SSEE WAS MADE, HIS ORDERS ON THIS ASPECT MUST FAIL. IN HIS ALTERNATE CONTENTION HE SUBMITTED THAT GIVING LOANS AND ADVANCES AND EARNING INTEREST WAS ONE OF THE OBJECTS OF M/S. KFPL. THEREFORE, THE PAYMENT OF SUCH ADVAN CE BY THE COMPANY TO THE ASSESSEE FALLS UNDER THE EXCEPTIONS TO PROVISIO NS OF SECTION 2(22)(E) OF THE ACT. REFERRING TO THE DECISION OF AHMEDABAD BE NCH OF THE TRIBUNAL IN THE CASE OF ITO VS. KRISHNONI LTD., REPORTED IN 119 ITD 499 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THA T WHEN SUBSTANTIAL PART OF THE BUSINESS CARRIED ON BY THE ASSESSEE WAS THAT OF MONEY LENDING AND CONSEQUENTLY LOAN GIVEN TO THE ASSESSEE (ON INTERES T) WAS LOAN HAVING BEEN GIVEN DURING THE COURSE OF MONEY LENDING BUSIN ESS. ACCORDINGLY, IT WAS HELD THAT THE PROVISIONS OF SECTION 2(22)(E) AR E NOT ATTRACTED. 7. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE OR DER OF THE CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAD A CREDIT BALANCE OF RS.10,98,556 WITH THE COMPA NY ON 1.4.2002. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSES SEE WAS ADVANCED A SUM OF RS.54,74,739 INCLUDING INTEREST OF RS.1193 DURIN G THE PERIOD FROM 1.4.2002 TO 31.3.2003. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE I.T.A. NO. 1702/MUM/2009 SMT. PRABHABEN K. SAVLA ================== 5 ASSESSEE HAS BROUGHT IN AN AMOUNT OF RS.28,55,000 A ND WAS ALLOWED INTEREST OF RS.11,362 AND HAS A DEBIT BALANCE OF RS .15,09,831 AT THE END OF A.Y. 2003-04. FURTHER WE FIND FROM THE ORDER OF TH E ASSESSING OFFICER THAT THE COMPANY M/S. KFPL HAS SHOWN A PROFIT OF RS.3,67 ,835 AND AFTER ADJUSTMENT OF BROUGHT FORWARD LOSS OF EARLIER YEARS AGGREGATING TO RS.2,61,306 HAS SHOWN INCOME OF RS.1,06,691 IN THE A.Y. 2004-05. WE FIND THE ASSESSING OFFICER ADDED AN AMOUNT OF RS.1, 06,691 AS THE DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT ON THE GROUND THA T ON 31.3.2004 THE COMPANY HAD AN ACCUMULATED PROFIT OF RS.1,06,691 AF TER ADJUSTMENT OF B/F LOSS OF EARLIER YEARS. 9. WE FIND THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF M.B. STOCK HOLDING PVT. LTD. VS. ACIT REPORTED IN 84 ITD 542 AND AS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE AT PARA 30 OF THE ORDER HAS HELD AS UNDER: 30. ON ANALYSIS OF THE AFOREMENTIONED DISCUSSION, IN OUR VIEW, THE FOLLOWING PRINCIPLES EMERGE:- (I) THAT FOR PURPOSES OF SECTION 2(22)(E), THE ACC UMULATED PROFITS ARE TO BE WORKED OUT UP TO THE DATE OF EACH PAYMENT/ ADVANCEMENT OF THE LOAN. (II) THAT THERE IS A DISTINCTION BETWEEN THE ACCU MULATED PROFITS OF BUSINESS AND THE CURRENT YEARS PROFITS OF BUSINESS. (III) THAT THE PROFITS OF BUSINESS ACCRUE AT THE E ND OF THE PREVIOUS YEAR. (IV) THAT LOAN OR ADVANCE TREATED AS DEEMED INCOME UP TO THE DATE OF FRESH LOAN IS TO BE REDUCED FROM ACCUMULATED PROFITS. (V) THAT THE REPAYMENT OF LOAN DURING THE SAME YEA R IS NOT TO BE DEDUCTED FROM THE ACCUMULATED PROFITS. 10. SINCE IN THE INSTANT CASE THERE WAS NO ACCUMULATED PROFITS AVAILABLE TO THE ASSESSEE WHEN THE LOANS WERE ADVAN CED AND IN FACT THERE WAS A LOSS, THEREFORE, THE PROVISIONS OF SECTION 2( 22)(E), IN OUR OPINION, ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE . IN THIS VIEW OF THE I.T.A. NO. 1702/MUM/2009 SMT. PRABHABEN K. SAVLA ================== 6 MATTER, WE HOLD THAT THE CIT(A) WAS NOT JUSTIFIED I N UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN ADDING THE AMOUNT OF RS .1,06,629 AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. THE GROUNDS RAI SED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 16 TH DECEMBER, 2009. SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 16 TH DECEMBER , 2009 COPY TO: (1) THE APPELLANT, (2) THE RESPONDENT, (3) THE CIT(A)-XXVII, MUMBAI, (4) THE CIT, CITY-17, MUMBAI, (5) THE DR, A BENCH, ITAT, MUMBAI. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI TPRAO