T.Abdul Wahid & Co. , CHENNAI V. ACIT Non Corporate Circle 4(1), CHENNAI

ITA 1796/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6001 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 21-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: G BASKAR
• Keywords: Deemed dividend

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.1796 & 1797/MDS/2017 ' (' / ASSESSMENT YEARS : 2012-13 & 2014-15 M/S T. ABDUL WAHID & CO., NO.55, VEPERY HIGH ROAD, CHENNAI - 600 003. PAN : AAAFT 0482 B V. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE 4(1), CHENNAI - 600 006. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI G. BASKAR, ADVOCATE ,-*+ . / / RESPONDENT BY : MS. S. VIJAYAPRABHA, JCIT 0 . 1$ / DATE OF HEARING : 21.09.2017 2!( . 1$ / DATE OF PRONOUNCEMENT : 17.10.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AG AINST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) -5, CHENNAI, DATED 27.06.2017 AND PERTAIN TO ASSESSMENT YEARS 2012- 13 AND 2014-15. SINCE COMMON ISSUES ARISE FOR CONS IDERATION IN BOTH THE APPEALS, WE HEARD BOTH THE APPEALS TOGETHE R AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2 I.T.A. NOS.1796 & 1797/MDS/17 2. SHRI G. BASKAR, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE IS A PARTNERSHIP FIRM. ONE OF TH E PARTNERS, NAMELY, SHRI RAFEEQ AHMED IS HOLDING 35% OF SHARES IN M/S ABDUL WAHID TANNERIES PVT. LTD. ACCORDING TO THE LD. COU NSEL, THERE WAS A BUSINESS TRANSACTION BETWEEN SHRI RAFEEQ AHMED AN D M/S ABDUL WAHID TANNERIES PVT. LTD. IN FACT, THE ASSESSEE-PA RTNERSHIP FIRM WAS PURCHASING FINISHED LEATHER FROM M/S ABDUL WAHI D TANNERIES PVT. LTD. FOR MANUFACTURING SHOE AND SHOE UPPERS RE GULARLY. DURING THE FINANCIAL YEAR ENDING 31.03.2012, ACCORDING TO THE LD. COUNSEL, M/S T. ABDUL WAHID & CO. OWED TO M/S ABDUL WAHID TA NNERIES LIMITED A SUM OF ` 6,31,49,548/- TOWARDS SUPPLY OF LEATHER. IN ORDER TO MAINTAIN THE WORKING CAPITAL RATIO, A SUM OF ` 2 CRORES WAS TRANSFERRED FROM SUNDRY CREDITORS TO TRADE RUNNING ACCOUNT OF M/S ABDUL WAHID TANNERIES PVT. LTD. AS A DEFERRED LIABI LITY WHICH WAS SHOWN IN THE BALANCE SHEET UNDER THE HEAD UNSECURE D LOAN. ACCORDING TO THE LD. COUNSEL, THERE WAS NO CASH TRA NSACTION BETWEEN THE ASSESSEE-PARTNERSHIP FIRM AND M/S ABDUL WAHID TANNERIES PVT. LTD. THE AMOUNT OUTSTANDING FOR SUP PLY OF LEATHER WAS SHOWN AS UNSECURED LOAN. THEREFORE, ACCORDING TO THE LD. COUNSEL, IT CANNOT BE CONSTRUED EITHER AS ADVANCE O R OTHERWISE. IT IS 3 I.T.A. NOS.1796 & 1797/MDS/17 A COMMERCIAL TRANSACTION BETWEEN THE ASSESSEE-FIRM AND THE COMPANY, THEREFORE, ACCORDING TO THE LD. COUNSEL, T HE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961 (IN SH ORT 'THE ACT') IS NOT APPLICABLE AT ALL. 3. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT THE ASSESSEE-FIRM IS NEITHER A BENEFICIAL SHAREHOLDER N OR A REGISTERED SHAREHOLDER. REFERRING TO SECTION 2(22)(E) OF THE ACT, THE LD.COUNSEL SUBMITTED THAT IF AT ALL THERE WAS ANY A DVANCE OR LOAN FROM THE COMPANY FOR THE BENEFIT OF SHAREHOLDER, TH E SAME HAS TO BE ASSESSED ONLY IN THE HANDS OF REGISTERED SHAREHOLDE R OR BENEFICIAL SHAREHOLDER. ACCORDING TO THE LD. COUNSEL, THE ASS ESSEE-FIRM IS NEITHER A REGISTERED SHAREHOLDER NOR A BENEFICIAL S HAREHOLDER, THEREFORE, IT CANNOT BE ASSESSED IN THE HANDS OF TH E ASSESSEE. 4. ON THE CONTRARY, MS. S. VIJAYAPRABHA, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT ONE OF THE PARTNERS, NAMELY, SHRI RAFEEQ AHMED WAS HOLDING 35% OF SHARES IN THE PVT. LTD. COMPANY. A SUM OF ` 2 CRORES FOR ASSESSMENT YEAR 2012-13 WAS TRANSFERR ED FROM SUNDRY CREDITOR TO UNSECURED LOAN. ACCORDING TO THE LD. D.R., THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER A ND THE CIT(APPEALS) THAT MERELY BECAUSE A CREDIT WAS FOUND IN THE JOURNAL 4 I.T.A. NOS.1796 & 1797/MDS/17 ENTRY, IT CANNOT BE CONSTRUED AS LOAN OR ADVANCE. THE CIT(APPEALS) BY PLACING RELIANCE ON THE DECISION OF THIS TRIBUNA L IN ACIT V. GURBINDER SINGH (2012) 19 TAXMANN.COM 89, FOUND THA T EVEN THOUGH THE CREDIT WAS PROVIDED BY MAKING JOURNAL EN TRIES, IT HAS TO BE ASSESSED AS DEEMED DIVIDEND. HENCE, ACCORDING T O THE LD. D.R., THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE OR DER OF THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT SHRI RAFEEQ AHMED WAS HOLDING 35% OF S HARES IN M/S ABDUL WAHID TANNERIES PVT. LTD. THE SAID SHRI RAFE EQ AHMED WAS ALSO ONE OF THE PARTNERS IN THE ASSESSEE-FIRM. THE ASSESSEE-FIRM WAS PURCHASING FINISHED LEATHER GOODS FROM M/S ABDU L WAHID TANNERIES PVT. LTD. ON REGULAR BASIS FOR MANUFACTUR ING SHOES AND SHOE UPPERS. DURING THE FINANCIAL YEAR 2012-13, AN AMOUNT OF ` 6,31,49,548/- WAS OUTSTANDING TO BE PAID BY PARTNER SHIP FIRM TO M/S ABDUL WAHID TANNERIES PVT. LTD. SUBSEQUENTLY, BY W AY OF ENTRY IN THE BOOKS OF ACCOUNT, AN AMOUNT OF ` 2 CRORES FOR ASSESSMENT YEAR 2012-13 WAS SHOWN AS UNSECURED LOAN. SIMILARLY, FO R ASSESSMENT YEAR 2014-15, AN AMOUNT OF ` 90,04,799/- WAS SHOWN AS UNSECURED 5 I.T.A. NOS.1796 & 1797/MDS/17 LOAN. THE QUESTION ARISES FOR CONSIDERATION IS WHE THER THESE AMOUNTS SHOWN AS UNSECURED CREDIT CAN BE ASSESSED A S DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE-PARTNERSHIP F IRM? 6. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION OF SECTION 2(22)(E) OF THE ACT WHICH READS AS FOLLOWS: - 2(22) DIVIDEND INCLUDES (A) . . . . . . . . . . . . . (B) . . . . . . . . . . . . . (C) . . . . .. . . . . . . . . (D) . . . . . . . . . . . .. (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, 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 RIGHT TO PARTICIPATE IN PROFITS) HOLDI NG NOT LESS THAN TEN PER CENT. OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS ; 7. FROM THE ABOVE PROVISIONS, IT IS OBVIOUS THAT DE EMED DIVIDEND HAS TO BE ASSESSED EITHER IN THE HANDS OF BENEFICIAL 6 I.T.A. NOS.1796 & 1797/MDS/17 SHAREHOLDER OR THE REGISTERED SHAREHOLDER. IN THE CASE BEFORE US, THE ASSESSEE IS NOT A REGISTERED SHAREHOLDER. IT I S ALSO NOT THE CASE OF THE REVENUE THAT THE ASSESSEE IS A BENEFICIAL SH AREHOLDER. ADMITTEDLY, ONE OF THE PARTNERS OF THE ASSESSEE-FIR M, NAMELY, SHRI RAFEEQ AHMED WAS THE REGISTERED SHAREHOLDER HOLDING 35% OF SHARES IN M/S ABDUL WAHID TANNERIES PVT. LTD. IT I S NOT THE CASE OF THE REVENUE THAT THE ASSESSEE-FIRM INVESTED ITS OWN FUNDS THROUGH SHRI RAFEEQ AHMED IN THE SHARES OF M/S ABDUL WAHID TANNERIES PVT. LTD. MOREOVER, NO MATERIAL IS ALSO AVAILABLE ON RECORD TO SUGGEST THAT ASSESSEE-PARTNERSHIP FIRM INVESTED ITS OWN FUNDS IN THE NAME OF SHRI RAFEEQ AHMED IN THE SHARES OF M/S ABDU L WAHID TANNERIES PVT. LTD. IN THOSE CIRCUMSTANCES, THIS T RIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE-PARTNERSHIP FI RM CANNOT BE CONSTRUED EITHER AS REGISTERED SHAREHOLDER OR AS BE NEFICIAL SHAREHOLDER. THEREFORE, THE ASSESSEE CANNOT BE ASS ESSED UNDER SECTION 2(22)(E) OF THE ACT. AT THE BEST, IT MAY B E CONSIDERED IN THE HANDS OF THE INDIVIDUAL PARTNER WHO IS THE SHAREHOL DER IN THE COMPANY. 8. IN VIEW OF THE ABOVE, WE ARE UNABLE TO UPHOLD TH E ORDERS OF THE AUTHORITIES BELOW. ACCORDINGLY, THE ORDERS OF BOTH THE AUTHORITIES 7 I.T.A. NOS.1796 & 1797/MDS/17 BELOW ARE SET ASIDE AND THE ADDITION MADE BY THE AS SESSING OFFICER UNDER SECTION 2(22)(E) OF THE ACT IS DELETED. 9. THE ASSESSEE HAS TAKEN ONE MORE GROUND REGARDING DISALLOWANCE OF INTEREST ON THE DELAYED PAYMENT OF SALES TAX. 10. SHRI G. BASKAR, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INTEREST ON DELAYED PAYMENT OF SALES TAX I S ONLY COMPENSATORY IN NATURE, THEREFORE, IT CANNOT BE DIS ALLOWED WHILE COMPUTING TOTAL INCOME. 11. WE HAVE HEARD MS. S. VIJAYAPRABHA, THE LD. DEPA RTMENTAL REPRESENTATIVE ALSO. DELAYED PAYMENT OF INTEREST I S COMPENSATORY IN NATURE, THEREFORE, THIS TRIBUNAL IS OF THE CONSI DERED OPINION THAT FOR DELAYED PAYMENT OF SALES TAX, THE INTEREST PAID BY THE ASSESSEE CANNOT BE DISALLOWED WHILE COMPUTING THE TOTAL INCO ME. 12. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF ` 68,538/-. 13. SHRI G. BASKAR, THE LD.COUNSEL FOR THE ASSESSEE , SUBMITTED THAT WHILE COMPUTING THE TOTAL INCOME, THE ASSESSEE ITSELF DISALLOWED THE INTEREST ON THE TDS AMOUNT. THE ASSESSING OFFI CER WITHOUT 8 I.T.A. NOS.1796 & 1797/MDS/17 VERIFYING THE COMPUTATION, DISALLOWED THE SAME ONCE AGAIN. THEREFORE, IT NEEDS TO BE VERIFIED. 14. WE HAVE HEARD MS. S. VIJAYAPRABHA, THE LD. DEPA RTMENTAL REPRESENTATIVE ALSO. SINCE THE ASSESSEE CLAIMS THA T THE INTEREST ON TDS WAS ALREADY DISALLOWED, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER NEEDS TO VERIFY THE SAME. ACCORDINGLY, THE ORDERS OF BOTH THE AUTHORITIES BEL OW ARE SET ASIDE AND THE ISSUE OF DISALLOWANCE OF ` 68,538/- TOWARDS INTEREST ON TDS AMOUNT IS REMITTED BACK TO THE FILE OF THE ASSESSIN G OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE MATTER AND D ECIDE THE ISSUE IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE O PPORTUNITY TO THE ASSESSEE. 15. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF ` 92,116/- BEING THE INTEREST PAID ON CREDIT CARD. 16. SHRI G. BASKAR, THE LD.COUNSEL FOR THE ASSESSEE , SUBMITTED THAT THIS AMOUNT WAS PAID ONLY FOR THE PURPOSE OF B USINESS, THEREFORE, THERE CANNOT BE ANY DISALLOWANCE. 17. ON THE CONTRARY, MS. S. VIJAYAPRABHA, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT IT CANNOT BE SAID TH AT THE CREDIT CARD 9 I.T.A. NOS.1796 & 1797/MDS/17 WAS USED ONLY FOR THE PURPOSE OF BUSINESS. SINCE P ERSONAL ELEMENT CANNOT BE RULED OUT, THE ASSESSING OFFICER HAS RIGH TLY DISALLOWED THE PAYMENT OF ` 92,116/-. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMS THAT INTEREST PAID ON CREDIT CARD IS ONLY FO R THE PURPOSE OF BUSINESS AND THE DEPARTMENT CONTENDS THAT THE PERSO NAL ELEMENT CANNOT BE RULED OUT. IN THOSE CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE THROUGH CREDIT CARD NEEDS TO BE EXAMINED. IF THE P AYMENT WAS MADE ONLY FOR BUSINESS PURPOSE, THEN THERE CANNOT B E ANY DISALLOWANCE OF INTEREST. IN CASE, THE CREDIT CARD WAS USED FOR MEETING PERSONAL EXPENDITURE, THEN SUCH EXPENDITURE CANNOT BE ALLOWED. THEREFORE, THESE ASPECTS NEED TO BE VERIF IED. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE MATTER AFRESH AND DECI DE THE ISSUE IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPO RTUNITY TO THE ASSESSEE. 10 I.T.A. NOS.1796 & 1797/MDS/17 19. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF CUSTOMS DUTY TO THE EXTENT OF ` 5,36,187/-. 20. SHRI G. BASKAR, THE LD.COUNSEL FOR THE ASSESSEE , SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED ` 5,36,187/- ON THE GROUND THAT THERE WAS NO EVIDENCE FOR PAYMENT OF CUSTOMS DUTY. ACCORDING TO THE LD. COUNSEL, THE CUSTOMS DUTY WAS ACTUALLY PAID AND THE ASSESSEE IS WILLING TO PROVIDE EVIDENCE BEFORE THE ASSESSING OFFICER. 21. WE HAVE HEARD MS. S. VIJAYAPRABHA, THE LD. DEPA RTMENTAL REPRESENTATIVE ALSO. SINCE THE ASSESSEE IS READY T O PROVIDE THE EVIDENCE, THIS ASPECT CAN BE VERIFIED BY THE ASSESS ING OFFICER ON THE BASIS OF THE EVIDENCE THAT MAY BE FILED BY THE ASSESSEE FOR PAYMENT OF CUSTOMS DUTY. ACCORDINGLY, THE ORDERS O F BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ISSUE OF DI SALLOWANCE OF ` 5,36,187/- TOWARDS THE PAYMENT OF CUSTOMS DUTY IS R EMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSIN G OFFICER SHALL RE- EXAMINE THE ISSUE ON THE BASIS OF THE MATERIAL THAT MAY BE FILED BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH IN ACCORDA NCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESS EE. 11 I.T.A. NOS.1796 & 1797/MDS/17 22. IN THE RESULT, THE APPEAL FOR ASSESSMENT YEAR 2 012-13 IN I.T.A. NO.1796/MDS/2017 IS ALLOWED AND THE APPEAL F OR ASSESSMENT YEAR 2014-15 IN I.T.A. NO.1797/MDS/2017 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 17 TH OCTOBER, 2017 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 17 TH OCTOBER, 2017. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-5, CHENNAI 4. PRINCIPAL CIT-9, CHENNAI. 5. 69 ,1 /DR 6. :' ; /GF.