Vilas Kedu Birari, Nashik V. Joint Commissioner Income-tax,

ITA 1797/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0534 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 30-09-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: N O N E
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1797/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2010-11 VILAS KEDU BIRARI, SANSKRUTI, MURKUTE COLONY, NEW PANDIT COLONY, GANGAPUR ROAD, NASHIK-422002 PAN : AFBPB1178E ....... / APPELLANT ' / V/S. JOINT COMMISSIONER OF INCOME TAX, RANGE 1, NASHIK / RESPONDENT ASSESSEE BY : N O N E REVENUE BY : SHRI P.L. KUREEL / DATE OF HEARING : 25-10-2016 / DATE OF PRONOUNCEMENT : 28-10-2016 * / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)-I, NASHIK DATED 07-08 -2014 FOR THE ASSESSMENT YEAR 2010-11. THE ONLY GROUND RAISED BY THE ASSESSEE IN APPEAL IS AG AINST THE ADDITION OF ` 20,06,752/- ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2 ITA NO. 1797/PN/2014, A.Y. 2010-11 2. THE APPEAL WAS FIRST LISTED FOR HEARING ON 14-03-2016. DESPITE SERVICES OF NOTICE THROUGH RPAD, NONE APPEARED ON BEHALF OF THE ASSESSEE. THE APPEAL WAS ADJOURNED TO 02-06-2016. FR ESH NOTICE WAS ISSUED TO THE ASSESSEE. ON THE SAID DATE AGAIN NO ONE APPEARED ON BEHALF OF THE ASSESSEE. THE APPEAL WAS ADJOURNED TO 10- 08-2016. ON 10-08-2016 NEITHER THE ASSESSEE NOR ANY AUTHORIZED RE PRESENTATIVE OF THE ASSESSEE APPEARED DESPITE SERVICE OF NOTICE THROUG H RPAD. IN THE INTEREST OF JUSTICE, THE APPEAL WAS AGAIN ADJOURNED TO 2 5-10-2016 AND FRESH NOTICE WAS SENT TO THE ASSESSEE THROUGH RPAD. T ODAY AGAIN NO ONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE O F NOTICE. IT SEEMS THAT THE ASSESSEE IS NOT INTERESTED IN PURSUING H IS APPEAL. ACCORDINGLY, THE APPEAL IS TAKEN UP FOR ADJUDICATION ON TH E SUBMISSIONS MADE BY THE LD. DR AND THE MATERIAL AVAILABLE ON RECORD. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS A BUILDER AND CIVIL ENGINEER. THE ASSESSEE IS CARRYING ON ITS BUSINESS ACTIVITIES UNDER THE NAME OF M/S. HARSH CONS TRUCTION. THE ASSESSEE IS ALSO SHARE HOLDER IN M/S. HARSH INFRASTRU CTURE PVT. LTD., A CLOSELY HELD COMPANY. THE ASSESSEE TOOK ADVANCE S OF ` 21,90,000/- FROM THE SAID COMPANY DURING THE PERIOD RELEVA NT TO THE ASSESSMENT YEAR 2010-11. THE ASSESSING OFFICER MADE ADD ITION OF ` 20,06,752/-UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT I.E. THE AMOUNT EQUIVALENT TO ACCUMULATED RESERVE AND SURPLUS AS PER AUDITED BALANCE SHEET. THE ASSESSEE VIDE LETTER DATED 19-03-20 13 EXPLAINED TO ASSESSING OFFICER THAT THE ASSESSEE HAS ACCEPTED THE AM OUNT FROM THE COMPANY IN THE CAPACITY OF A CONTRACTOR OF PROJECT EXE CUTED BY M/S. HARSH INFRASTRUCTURE PVT. LTD. HOWEVER, NO SUPPORTING E VIDENCE WAS FURNISHED BY THE ASSESSEE. THE ASSESSING OFFICER REJECTED THE CONTENTIONS OF THE ASSESSEE BEING AN AFTERTHOUGHT. THE ASSESSING 3 ITA NO. 1797/PN/2014, A.Y. 2010-11 OFFICER ALSO OBSERVED THAT IN THE EARLIER ASSESSMENT YEAR THE ASSESSEE HAS TAKEN AMOUNTS FROM M/S. HARSH INFRASTRUCTURE PVT. L TD. AND HAS SHOWN THE SAME UNDER THE HEAD UNSECURED LOANS. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 22-03-201 3, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE CONTENTIONS OF THE ASSESSEE BY OBSERVING AS UNDER : FROM THE ABOVE IT IS ESTABLISHED BEYOND DOUBT THAT THE APPELLANT HAS ATTEMPTED TO GIVE A ALTOGETHER DIFFERENT COLOR TO T HE TRANSACTION AS THAT OF MONEY LENDING ACTIVITY BY M/S HARSH INFRASTRUCTURE PVT. LTD. STATING THAT MONEY LENDING ACTIVITY WAS THE BUSINESS OF THE SAID M/S HARSH INFRASTRUCTURE PVT. LTD. AND IT HAS GIVEN THE ADVAN CE IN THE ORDINARY COURSE OF BUSINESS AND THAT LENDING OF MONEY WAS A SUBSTAN TIAL PART OF THE BUSINESS OF THE COMPANY. THE APPELLANT'S CHANGE OF STAND IS TO CIRCUMVENT THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT. HE HAS UNSUCCESSFULLY TRIED TO COVER THE TRANSACTION U/S 2(22)(E)(II) OF THE ACT. A PERUSAL OF THE AVAILABLE DETAILS ON RECORD HAS EXPOSED THE APPELLANT COMPLET ELY. M/S HARSH INFRASTRUCTURE PVT. LTD'S MAIN OBJECT REMAINS TO CA RRY-OUT THE BUSINESS OF PROMOTERS, LAND DEVELOPERS, ESTATE BROKERS, ETC.. T O LEND MONEY IS LISTED AT SF. NO.16 OF THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECT. HENCE, APPELLANT'S EXPLANATION THAT MONEY LENDING WAS THE SUBSTANTIAL PART OF THE BUSINESS OF M/S HARSH INFRA STRUCTURE PVT. LTD. WAS AN AFTERTHOUGHT EXERCISE TO MISUSE THE PROVISION OF SECTION 2(22)(E) OF THE ACT. THUS THE APPELLANT'S ABOVE STAND WITH REGARD T O RECEIPT OF ` 21,90,000/- FROM M/S HARSH INFRASTRUCTURE PVT. LTD. VIDE SUBMISSION DATED 15/04/2014 IS CONCOCTED AND AN AFTERTHOUGHT E XERCISE TO CIRCUMVENT THE PROVISIONS OF SECTION 2(22)(E)(II) OF THE ACT. THERE IS NO DOUBT THAT A SUM OF ` 21,90,000/- WAS ADVANCED BY M/S HARSH INFRASTRUCTUR E PVT. LTD. DURING A.Y. 2010-11. IT IS ALSO NOT DISPU TED THAT THE APPELLANT IS A SUBSTANTIAL SHAREHOLDER IN M/S HARSH INFRASTRUCTURE PVT. LTD. BUT THE APPELLANT'S CONTENTION THAT MONEY LENDING WAS SUBST ANTIAL PART OF BUSINESS OF M/S HARSH INFRASTRUCTURE PVT. LTD. IS COMPLETELY FALSE AND CONCOCTED. THE APPELLANT'S ABOVE GIVEN CONTENTION IS NOT TENABLE A ND HENCE REJECTED. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THIS TRANSACTI ON OF RECEIPT OF LOAN OF ` 21,90,000/- BY THE APPELLANT FROM M/S HARSH INFRAST RUCTURE PVT. LTD., WHERE HE IS A SUBSTANTIAL SHAREHOLDER, DEARLY ATTRA CTS THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. AO WAS JUSTIFIED IN TR EATING ` 21,90,000/- AS 4 ITA NO. 1797/PN/2014, A.Y. 2010-11 DEEMED DIVIDEND U/S 2(22)(E) AND MAKING THE ADDITIO N TO THE EXTENT OF ` 20,06,752/- I.E. THE AMOUNT OF RESERVE AND SURPLUS/ ACCUMULATED PROFITS IN THE BOOKS OF ACCOUNT OF M/S HARSH INFRASTRUCTURE PV T. LTD. AS ON 31/03/2010. THIS GROUND OF THE APPELLANT IS DISMISS ED. 5. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEA LS), NOW THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUN AL. THE ASSESSEE AT THE TIME OF FILING OF APPEAL HAS ALSO FILED STATEMENT OF F ACTS. THE SAME IS REPRODUCED HERE-IN-BELOW : THE APPELLANT IS AN INDIVIDUAL WORKING AS BUILDER & CIVIL ENGINEER AND UNDERTAKING CIVIL CONTRACTS, ESPECIALL Y FROM THE INDUSTRIAL AND OTHER INSTITUTIONS. THE ACTIVITIES ARE CARRIED OUT IN THE NAME OF 'M/S HARSH CONSTRUCTIONS' SINCE LAST 20 ODD YEARS WHERE YOUR APPELLANT IS WORKING AS A PROPRIETOR. ALL THE CONTRACTS RECEIVED ARE THROUGH TENDERING PROCESS AND NO PRIVATE CONTRACTS ARE USUALLY TAKEN UP. THE MAIN BUSINESS ACTIVITY OF YOUR APPELLANT HAS, HOWEVER, R EMAINED TO BE THAT OF UNDERTAKING CIVIL CONTRACTS. AS REQUIRED UNDER THE ACT, REGULAR BOOKS OF ACCOUNTS WERE MAINTAINED BY YOUR APPELLANT. SINCE T HE TURNOVER OF THE BUSINESS EXCEEDED RS.60 LACS, THE BOOKS OF ACCOUNTS WERE ALSO DULY GOT AUDITED AND AUDIT REPORT WAS ALSO PROCURED AS REQUI RED U/S 44AB OF THE ACT WITHIN STIPULATED TIME. DURING THE ASSESSMENT PROCEEDINGS, THE LEARNED JT. COMMISSIONER OF INCOME TAX, RANGE 1, NASHIK MADE AN ADDITION ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E). THE ASSESS EE HAD TAKEN AN ADVANCE FROM A CLOSELY HELD COMPANY NAMED 'HARSH INFRASTRUCTURE PVT. LTD.' (HEREINAFTER REFERRED TO AS 'HIPL') OF R S.21,90,OOO/- (DISALLOWANCE RESTRICTED TO RS.20,06,752/- AMOUNT O F ACCUMULATED RESERVES AND SURPLUS). THE HON'BLE CIT(A)-I, NASHIK UPHELD THE DISALLOWANCE OF RS. 20,06,752/-. THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF HARSH INFRASTRUCTURE PVT. LTD. EMPOWERED THE COMPANY TO C ARRY-ON MONEY LENDING BUSINESS IN ITS NORMAL COURSE OF BUSINESS, SINCE MONEY LENDING WAS SPECIFICALLY INCLUDED IN THE 'OBJECTS I NCIDENTAL AND ANCILLARY TO ATTAINMENT OF MAIN OBJECTS' AT THE TIME OF INCOR PORATION OF THE COMPANY ON ZS' AUGUST 2003. IT IS A MATTER OF UNDISPUTED FA CT THAT INFRASTRUCTURE BUSINESS OF HIPL WAS REDUCED TO ZERO IN PAST FEW YE ARS AND THE COMPANY WAS VERY LOW ON ITS TURNOVER. THE COMPANY W AS KEPT OPERATIVE ONLY DUE TO THE FACT THAT IT HAD SOME RECEIVABLE BA LANCES FROM DEBTORS 5 ITA NO. 1797/PN/2014, A.Y. 2010-11 AND TILL THE TIME THEY WERE FULLY RECEIVED, IT WAS COMMERCIALLY NOT FEASIBLE TO SHUT-DOWN THE COMPANY. IN THIS SCENARIO , WHEN THE COMPANY HAD IDLE FUNDS LYING IN ITS BANK ACCOUNTS, IT DECID ED TO LEND THE SAME TO ONE OF ITS DIRECTORS WHO IS THE APPELLANT BEFORE YO UR HONOUR. A LOAN AGREEMENT ON RS.100/- STAMP TO THIS EFFECT WAS ALSO EXECUTED ON 22/08/2008. ON THIS AMOUNT OF MONEY LENT, THE APPEL LANT PAID DUE INTEREST AT 15% AND ALSO DEDUCTED TDS ON THE SAME, PURSUANT TO TERMS OF LOAN SIGNED WITH THE COMPANY HIPL. THEREFORE, BEFO RE THE CIT(A)-I, NASHIK, IT WAS ARGUED THAT THE ADVANCE RECEIVED FRO M THE COMPANY HIPL WAS IN THE COURSE OF MONEY LENDING BUSINESS OF THE LENDER AND ON WHICH INTEREST WAS PAID AND TDS WAS ALSO DEDUCTED BY THE PAYER, AND THEREFORE THE CURRENT SCENARIO FELL INTO THE EXCEPT ION CLAUSE TO APPLICABILITY OF SEC. 2(22)(E) OF THE INCOME TAX AC T, 1961, AND HENCE WAS NOT APPLICABLE TO YOUR APPELLANT'S CASE. THE RETURN OF INCOME OF YOUR APPELLANT, WHICH WAS FILED ON 30.09.2010 AND THE RE TURN OF INCOME OF HIPL WHICH WAS FILED ON 29.03.2012, DULY REFLECTS T HIS POSITION. IN OTHER WORDS, THE INTEREST INCOME WAS INCLUDED IN THE INCO ME OF LENDER COMPANY, EXPENSE OF THE BORROWER ASSESSEE, AND DUE CREDIT OF TDS WAS ALSO TAKEN. 6. SHRI P.L. KUREEL REPRESENTING THE DEPARTMENT VEHEMENTL Y SUPPORTING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPE ALS) SUBMITTED THAT THE ASSESSEE HAS BEEN TAKING INCONSISTEN T STAND BEFORE DIFFERENT AUTHORITIES. THERE IS NO MERIT IN THE STAND TAKEN BY THE ASSESSEE. THE MAIN OBJECT OF THE COMPANY M/S. HARSH IN FRASTRUCTURE PVT. LTD. IS LAND DEVELOPMENT AND NOT LENDING OF MONEY. TH E LD. DR PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE LD. DR AND HAVE PERUSED THE IMPUGNED ORDER. AS IS EVIDENT FROM THE ASSE SSMENT ORDER THE ASSESSEE IN THE FIRST INSTANCE HAS TAKEN THE STAND THAT THE AMOUNT RECEIVED FROM M/S. HARSH INFRASTRUCTURE PVT. LTD. IS AN AD VANCE IN THE CAPACITY OF CONTRACTOR FOR THE PROJECT EXECUTED BY M/S . HARSH INFRASTRUCTURE PVT. LTD. AFTER FAILING TO ESTABLISH THE SAM E THE ASSESSEE 6 ITA NO. 1797/PN/2014, A.Y. 2010-11 TOOK ANOTHER PLEA BEFORE COMMISSIONER OF INCOME TAX (APPE ALS THAT THE ADVANCE TAKEN BY THE ASSESSEE FROM COMPANY IS LOAN. TH E COMPANY IS ENGAGED IN THE BUSINESS OF ADVANCING LOANS AND THE COMPA NY HAS EXTENDED LOAN TO THE ASSESSEE IN NORMAL COURSE OF BUSINE SS. THE PLEA TAKEN BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) WAS FOUND TO BE INCORRECT. WE FIND THE ORDER OF COMMISS IONER OF INCOME TAX (APPEALS) IS WELL REASONED AND WE CONCUR WITH THE SAME. THE APPEAL OF ASSESSEE IS WITHOUT ANY MERIT. ACCORDINGLY , THE APPEAL OF THE ASSESSEE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 28 TH DAY OF OCTOBER, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 28 TH OCTOBER, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-I, NASHIK 4. ' / THE CIT-I, NASHIK 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE