Deputy Commissioner of Income tax, Jalgaon V. Manish Ishwarlal Jain, Jalgaon

ITA 18/PUN/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6490 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-11-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 04-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV GHEI
• Keywords: Deemed dividend
• Section: 143(3); 2(22)(e); 192

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.18/PUN/2017 / ASSESSMENT YEAR : 2011-12 THE DY.COMMISSIONER OF INCOME TAX, CIRCLE 1, JALGAON. . / APPELLANT V/S SHRI MANISH ISHWARLAL JAIN, 169, BALAJI PETH, JOHARI BAZAR, JALGAON 425 001. PAN : AADPL1004A. . / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK. REVENUE BY : SHRI SANJEEV GHEI, / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) 2, NASHIK DT.31.10.2016 FOR THE ASSESSMENT YEAR 2011-12. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS AN INDIVIDUAL STATED TO BE ENGAGED IN THE BUSINESS OF SHARES AND GOLD. ASSESSEE FILED HIS RETURN OF INCOME FOR A.Y. 2011-12 ON 25.01.2012 SHOWING TOTAL LOSS OF RS.1,05,79,34 6/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSES SMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER DT.06.03.2014 AND THE TOTAL / DATE OF HEARING : 22.11.2018 / DATE OF PRONOUNCEMENT 18.02.2019 2 ITA NO.18/PUN/2017 LOSS WAS DETERMINED AT RS.22,67,190/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT. 31.10.2016 (IN APPEAL NO.NSK/CIT(A)-2/1738/13-14) GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDE R OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISE D THE FOLLOWING GROUNDS : 1. ON FACTS AND IN CIRCUMSTANCES OF LAW, THE LD.C IT(A) ERRED IN DELETING THE AMOUNT OF RS.1,07,00,342/- ADDED AS DE EMED DIVIDEND U/S 2(22)(E) WITHOUT APPRECIATING THE FACT THE ASSESSEE WAS HOLDING 30% SHARES IN THE FIRM, WHICH RECEIVED THE LOANS. 2. ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE L D.CIT(A) ERRED IN OBSERVING THAT THE ACCUMULATED PROFITS DOES NO T INCLUDE THE CURRENT YEARS PROFIT. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY , DELETE, AMEND ANY OF THE GROUNDS WITH THE PRIOR PERMISSION OF THE LD.PR.CIT, AS PER THE CIRCUMSTANCES OF THE CASE. 4. THE APPELLANT PRAYS TO FILE ANY OF THE ADDITIONA L EVIDENCE, WITH THE PERMISSION OF LD.PR.CIT, APPROPRIATE TO THE GRO UNDS TAKEN IN APPEAL. 3. ALL THE GROUNDS BEING INTER-CONNECTED ARE CONSIDERED TOGETHER. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERU SING THE DETAILS, AO NOTICED THAT M/S MANRAJ MOTORS PVT. LTD. HAD GIVEN LOAN OF RS.1,50,00,000/- TO M/S. RAJMAL LAKHICHAND, JALGAON, IN WHICH THE ASSESSEE IS A PARTNER. AO FURTHER NOTICED THA T ASSESSEE WAS HOLDING 25.08% EQUITY SHARES IN M/S. MANRAJ MOTORS PV T. LTD. AND HAD BENEFICIAL SHARE HOLDING TO THE EXTENT OF 30% IN M/S. RAJMAL LAKHICHAND. HE ALSO NOTICED THAT THE ACCUMULATED PROFITS FOR F.Y. 2010-11 OF M/S. MANRAJ MOTORS PVT. LTD., WAS RS.1,28,40,411/-. AO WAS OF THE VIEW THAT PROVISIONS OF SEC.2(22)(E) FOR DEEMED DIVIDEND ARE APPLICABLE. IN THE ABSEN CE OF MONTHLY ACCUMULATED PROFITS, AO WORKED OUT THE DEEMED D IVIDEND 3 ITA NO.18/PUN/2017 IN THE CASE OF ASSESSEE ON PRO RATA BASIS FOR THE AMOU NT OF PROFITS EARNED DURING THE YEAR AND FOR 10 MONTHS WORKED OUT T HE QUALIFYING AMOUNT AT RS.1,07,00,342/- AND HELD IT TO BE AN A MOUNT OF DEEMED DIVIDEND U/S 2(22)(E) IN THE HANDS OF ASSESSEE AND MADE ITS ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CAR RIED THE MATTER BEFORE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING AS UNDER : 7.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND RIVAL CONTENTIONS. ON PERUSAL OF THE SAME IT HAS BEEN NOT ICED THAT DURING THE YEAR UNDER APPEAL THE PARTNERSHIP FIRM M/S.RAJM AL LAKHICHAND IN WHICH THE APPELLANT IS PARTNER HOLDING 30% SHARE , HAD RECEIVED LOAN OF RS.1,50,00,000/- FROM MANRAJ MOTORS PVT. LT D., IN WHICH THE APPELLANT WAS HOLDING 25.08% EQUITY SHARE. THE ACCU MULATED PROFITS OF MANRAJ MOTORS PVT. LTD. AS ON 01/04/2010 WAS RS .1,59,27,891/- AND THE APPELLANT CLAIMED THAT THE IMPUGNED PROFIT WAS ALREADY TAXED AS DEEMED DIVIDEND IN A.Y.2010-11 IN THE HAND S OF SHRI AMRISH I. JAIN. THE AO HAD NOTED CURRENT YEAR'S PRO FIT AT RS.1,28,40,411/- AND WORKED OUT PROFIT ON PRO-RATA BASIS UPTO 31/01/2011 I.E. THE DATE ON WHICH THE COMPANY MMPL HAD ADVANCED LOAN TO M/S. RAJMAL LAKHICHAND, AT RS.107, 00,342/- AND TAXED THE SAME IN THE HANDS OF THE APPELLANT AS DEE MED DIVIDEND. ON THE OTHER HAND THE APPELLANT HAS RAISED VARIOUS CONTENTIONS OF THE MAIN CONTENTION OF THE APPELLANT IS THAT AS THE PROFIT ACCRUES ONLY AT THE YEAR END WHEN ACCOUNT ARE DRAWN THERE WAS NO ACCUMULATED PROFIT WITH MMPL ON THE DATE WHEN THE LOAN WAS RECE IVED FROM MMPL BY M/S.RAJMAL LAKHICHAND. IN SUPPORT OF THE ABO VE CONTENTION, THE APPELLANT HAD RELIED ON THE DECISIO N IN THE CASE OF M.B. STOCK HOLDING P. LTD. VS. ACIT 75 TTJ 898 (AHD .). THE APPELLANT HAS ALSO POINTED OUT THAT IN THE CASE OF CIT VS. AS HOKBHAI CHIMANBHAI 56 ITR 42, THE HONBLE SUPREME COURT HAD HELD THAT PROFIT ACCRUES ONLY AT THE YEAR END WHEN ACCOUNTS A RE DRAWN. THE APPELLANT FURTHER CLAIMED THAT WHEN THERE ARE TWO P LAUSIBLE INTERPRETATIONS OF ANY PROVISION OF THE ACT, THEN T HE INTERPRETATION FAVOURABLE TO THE ASSESSEE IS REQUIRED TO BE FOLLOW ED. IN SUPPORT OF THE ABOVE CONTENTION, THE APPELLANT HAS RELIED ON T HE DECISIONS IN THE CASES OF CIT VS. VEGETABLE PRODUCTS 88 ITR 192 (SC) , CIT VS. KULLU VALLY TRANSPORT 77 ITR 518 (SC), CIT VS.NAGA HILLS TEA 89 ITR 236 (SC) AND CP BANK VS. CIT 13 ITR 479. THEREAFTER, LD.CIT(A) AFTER REFERRING TO THE FOLLOWING DECISIONS NAMELY M.B. STOCK HOLDING PVT. LTD. VS. ACIT REPORTED IN 75 TTJ 898 (AHD), P. SATYA PRASAD VS. ITO (2013) 155 TTJ 221 (VISHA K), SHRINIVAS PAWAR VS. ACIT AND OTHER DECISIONS CITED IN HIS O RDER NOTED THAT PROFITS DOES NOT ACCRUE FROM DAY-TO-DAY AND ACCRUES O NLY 4 ITA NO.18/PUN/2017 AFTER THE END OF THE YEAR WHEN ACCOUNTS ARE SETTLED. H E THEREAFTER HELD THAT AO WAS NOT JUSTIFIED IN TAXING CURRENT YEARS PROFIT OF MMPL AS DEEMED DIVIDEND IN THE HANDS OF ASSESSEE AND ACCORDINGLY DIRECTED THE DELETION OF ADDITION AT RS.1,07,00,342/- U/S 2(2 2)(E) OF THE ACT. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APP EAL BEFORE US. 5. BEFORE US, LD.D.R. SUPPORTED THE ORDER OF AO AND FURT HER SUBMITTED THAT THE CASE LAWS RELIED UPON BY LD.CIT(A) ARE DISTINGUISHABLE AND THEREFORE SUBMITTED THAT THE ORDER OF AO NEEDS TO BE UPHELD. LD.A.R. ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBM ITTED THAT THE PUNE TRIBUNAL IN THE CASE OF RAJMAL LAKHICHAND V S. JCIT REPORTED IN [2018] 92 TAXMANN.COM 94 HAS HELD THAT CURR ENT YEAR BUSINESS PROFIT SHOULD NOT BE CONSIDERED AS PART OF ACCU MULATED PROFITS FOR THE PURPOSE OF SECTION 2(22) OF THE ACT. HE ALS O PLACED ON RECORD THE COPY OF THE AFORESAID DECISION. HE THUS SU PPORTED THE ORDER OF LD.CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WIT H RESPECT TO THE TAXABILITY OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. TH E DISPUTE IN THE PRESENT GROUNDS RAISED BY THE REVENUE W AS WITH RESPECT TO THE INCLUSION OF THE PROFITS FOR THE CURRENT Y EAR AS ACCUMULATED PROFITS FOR THE PURPOSE OF DEEMED DIVIDEND. WE FIND THAT AHMEDABAD TRIBUNAL IN THE CASE OF M.B. STOCK HOLDING PVT. LTD VS. ACIT REPORTED IN 75 TTJ 898 AFTER CONSIDERING T HE DECISION 5 ITA NO.18/PUN/2017 OF HONBLE APEX COURT IN THE CASE OF CIT VS. ASOKBHAI CHIM ANBHAI AND OTHER DECISIONS HAS HELD THAT BUSINESS PROFITS ACCRU E ONLY AT THE END OF THE YEAR. FURTHER, THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF P. SATYA PRASAD VS. ITO REPORTED IN (201 3) 155 TTJ 0221 (VISAKHAPATNAM) HAS ALSO HELD THAT ACCUMULATED PROFIT S FOR THE PURPOSE OF SECTION 2(22)(E) DO NOT INCLUDE CURRENT YEAR S BUSINESS PROFIT SINCE IT ACCRUES ONLY AT THE END OF THE Y EAR. WE FURTHER FIND THAT PUNE ITAT IN THE CASE OF RAJMAL LAKHICH AND (SUPRA) HAS ALSO HELD THAT CURRENT YEARS BUSINESS PROFITS SHOULD N OT BE CONSIDERED AS PART OF ACCUMULATED PROFITS FOR THE PURP OSE OF SEC.2(22)(E) OF THE ACT. IT IS THUS SEEN THAT VARIOUS TRIBUN ALS HAVE HELD THAT CURRENT YEARS BUSINESS PROFITS ARE NOT TO BE CONSIDERED AS PART OF ACCUMULATED PROFITS. BEFORE US, REVENUE HAS NOT POINTED ANY CONTRARY BINDING DECISION IN ITS SUPPORT. CONSIDERING THE TOTALITY OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFER E WITH THE ORDER OF LD.CIT(A) AND THUS, THE GROUNDS OF THE REVENUE A RE DISMISSED. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON 18 TH DAY OF FEBRUARY, 2019. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 18 TH FEBRUARY, 2019. YAMINI 6 ITA NO.18/PUN/2017 #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-2, NASHIK. PR. CIT-2, NASHIK. '#$ %%&',) &', / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.