The ACIT 1 (2), V. Smt Joyti Agrawal,

ITA 183/IND/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2823 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 08-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S S DESH
• Assessee Lawyers: APARNA KARAN
• Keywords: Question of law; Deemed dividend; Notional interest
• Section: 2(22)(e); 250; 147; 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER ITA NOS.183/IND/2009 A.YS. 2005-06 ASSTT. COMMISSIONER OF INCOME TAX 1(2), BHOPAL APPELLANT VS SMT. JYOTI AGRAWAL BHOPAL PAN AAVPA-8171-F RESPONDENT ITA NOS.412/IND/2009 A.YS. 2006-07 ASSTT. COMMISSIONER OF INCOME TAX 1(2), BHOPAL APPELLANT VS NIKITA AGRAWAL BHOPAL PAN AEHPA-6104-L RESPONDENT APPELLANT BY : SMT. APARNA KARAN, SR. DR RESPONDENT BY : SHRI S.S. DESHPANDE O R D E R PER JOGINDER SINGH, JM 2 THESE APPEALS ARE BY REVENUE AGAINST DIFFERENT ASSE SSEES CHALLENGING THE ORDERS OF THE LEARNED CIT(A) DATED 16.1.2009 AND 29.5.2009 FOR DIFFERENT ASSESSMENT YEARS, WHEREIN A COMMON GROUND HAS BEEN RAISED THAT ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN DELETING THE ADDITION OF RS.12,80,000/- AND RS.7,50,000/- MADE O N ACCOUNT OF INTEREST TAX U/S 2(24)(IV) OF THE ACT. DURING HEARING OF THESE APPEALS, THE LD. COUNSEL FO R THE ASSESSEE CLAIMED THAT THE IMPUGNED ISSUE IS COVERED BY THE D ECISION OF THE TRIBUNAL IN THE CASE OF ACIT V. SHRI RAMESH CHANDRA AGRAWAL (ITA NO. 182/IND/2009) VIDE ORDER DATED 24.5.2010. THE LD. CIT DR THOUGH DEFENDED THE ASSESSMENT ORDER BUT DID NOT PRODUCE A NY EVIDENCE EITHER TO CONTROVERT THE FACTUAL FINDING IN THE IMPUGNED O RDER OR CONTROVERTING THE ASSERTION OF THE ASSESSEE AS MENTIONED IN THE O RDER OF THE TRIBUNAL. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. IN VIEW OF THE ABOVE WE ARE REPRODUCING HE REUNDER THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL DATED 24.5.201 0:- THIS APPEAL FILED BY THE REVENUE ARISES OUT OF ORDER OF THE LD. CIT(A)-I, BHOPAL , DATED 19.01.2009, FOR THE ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. 3. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A CHAIRMAN OF BHASKAR GROUP OF INDUSTRIES. THE AO 3 NOTED THAT THE ASSESSEE HAD OBTAINED LOANS FROM VARIOUS GROUP COMPANIES WITHOUT INTEREST. IT WAS FURTHER NOTED THAT THE ASSESSEE WAS EITHER A DIRECT OR OR WAS HOLDING SUBSTANTIAL SHARES IN SUCH COMPANIES. THE AO REQUIRED THE ASSESSEE TO SUBMIT FURTHER DETAILS OF SUCH LOANS, WHICH WAS NOT SUBMITTED INSPITE OF REPEATED OPPORTUNITIES. THE AO FORMED AN OPINION THAT THE PROVISIONS OF SECTION 2(24)(IV) WERE APPLICABLE AND BENEFIT IN THE FORM O F NOTIONAL INTEREST TO BE ADDED TO THE TOTAL INCOME O F THE ASSESSEE. ON AN OPPORTUNITY BY THE ASSESSING OFFICER, THE ASSESSEE REPLIED THAT SUCH PROVISIONS WERE NOT APPLICABLE. THE AO HELD THAT IN THE ABSENCE OF EXACT DETAILS IT WAS NOT POSSIBLE TO THE AO TO APPLY THE CORRECT PROVISIONS OF LAW AND SINCE THE ASSESSMENT WAS GETTING TIME BARRED, THERE WAS NO OTHER OPTION BUT TO COMPUTE THE BENEFIT ON NOTIONAL BASIS I.E. @ 8% OF THE TOTAL AMOUNT RECEIVED BY THE ASSESSEE AND ADD THE SAME TO THE TOTAL INCOME OF THE ASSESSEE U/S 2(24)(IV) OF THE A CT. ACCORDINGLY, THE AO MADE ADDITION OF RS. 66,08,214/-. AGGRIEVED BY THIS, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHEREIN IT WAS CONTENDED THAT THESE LOANS WERE RECEIVED IN THE NORMAL COURSE OF BUSINESS ACTIVITIES AND WERE FOR TEMPORARY PERIOD, HENCE, CALCULATION OF NOTIONAL INTEREST AND TREATING THE SAME AS INCOME WAS NOT AT ALL JUSTIFIED. IT WAS ALSO CONTENDED THAT AS PER TH E DECISION OF THE HON'BLE APEX COURT IN THE CASE OF B.M. SALGAONCAR & BROTHERS PRIVATE LIMITED VS. CIT, AS REPORTED IN 243 ITR 383, AND THE DECISION O F HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. P. R. S. OBEROI AS REPORTED IN 52 TAXMAN 267, AND IN THE CASE OF ISHRAN DEVI OBEROI VS. ITO, AS REPORTED IN 250 ITR 362, THE PROVISIONS OF SECTION 2(24)(IV) COULD NOT BE APPLIED, TO COMPUTE THE NOTIONAL INTEREST ON LOAN. IT WAS ALSO CONTENDED TH AT THE ASSESSEE WAS NOT A SUBSTANTIAL SHAREHOLDERS ALS O IN VIEW OF THE PROVISIONS OF SECTION 2(32) OF THE A CT AS APPLICABLE TO INVOKE THE PROVISIONS OF SECTION 2(24)(IV) OF THE ACT. THE ASSESSEE ALSO GAVE THE DETAILS OF THE LIST OF SHAREHOLDINGS IN ALL THE COMPANIES TO THE LD. CIT(A) AND AS PER THESE DETAIL S, 4 THE ASSESSEE WAS FOUND TO HAVE SUBSTANTIAL SHAREHOLDING ONLY IN TWO COMPANIES, NAMELY, PEACOCK TRADING AND INVESTMENT PVT.LTD. AND BHOPAL FINANCIAL SERVICES PRIVATE LIMITED. THE LD. CIT(A) FOUND THAT IN RESPECT OF THESE TWO COMPANIES , THE AMOUNT HAD BEEN ADVANCED TO THE ASSESSEE ON 31.3.2005 ONLY, HENCE, NO NOTIONAL INTEREST COULD B E COMPUTED FOR THE YEAR AS A WHOLE ON NOTIONAL BASIS. IN RESPECT OF OTHER COMPANIES, THE LD. CIT(A) HELD THAT THE ASSESSEE WAS NOT HAVING SUBSTANTIAL INTERE ST. HENCE, PROVISIONS OF SECTION 2(24)(IV) COULD NOT BE APPLIED. THE LD. CIT(A) ALSO HELD THAT EVEN OTHERWISE, THE PROVISIONS OF SECTION 2(24)(IV) COUL D NOT BE APPLIED IN CASE OF INTEREST FREE LOANS ON CONCESSIONAL RATE IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF B.M.SALGAONCAR AND BROTHERS PRIVATE LIMITED (SUPRA). ACCORDINGLY, HE DELETED THE IMPUGNED ADDITION. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. CIT DR SUBMITTED THAT THE ASSESSEE WAS A DIRECTOR IN ALL THE COMPANIES AND THIS FACT WAS N OT IN DISPUTE, HENCE, THE PROVISIONS OF SECTION 2(32) WERE APPLICABLE AND, THEREFORE, NOTIONAL INTEREST COULD BE COMPUTED U/S 2(24)(IV). IT WAS ALSO CONTENDED THAT THE ASSESSEE BY NOT FURNISHING THE REQUIRED DETAILS BEFORE THE AO PREVENTED HIM TO APPLY THE CORRECT PROVISIONS OF LAW. HENCE, MERELY FOR THIS REASON, THE AO SHOULD BE GIVEN AN OPPORTUNITY OF READJUDICATING THE MATTER. THE LD. CIT DR FURTHER ELABORATED THIS POINT BY SUBMITTING THAT THE ASSESSEE COULD BE SUBSTANTIAL SHAREHOLDERS IN TERMS OF PROVISIONS OF SECTION 2(22)(E) AND, THEREFORE, SUCH LOANS COULD BE TREATED AS DEEMED DIVIDEND THEREUNDER AND THIS ASPECT HAD TO BE EXAMINED. THE LD. CIT DR, IN THIS REGARD, CONTENDED THAT THE TRIBUNAL WAS COMPETENT TO DO SO AS PER THE PROVISIONS OF THE ACT AND EVEN IF SUCH REMANDING RESULTED INTO ENHANCEMENT OF INCOME, THE SAME WOULD ALSO BE JUSTIFIED. FOR THIS PROPOSITION, THE LD. CIT DR RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF BHAVNA CHEMICALS LIMITED VS. CIT, AS REPORTED IN 231 ITR 507. 5 5. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, CONTENDED THAT APPLICABILITY OF PROVISIONS OF SECTION 2(22)(E) WAS NOT A CASE OF REVENUE I.E. OF A.O. AND IF THE AO WAS OF THE VIEW THAT THOSE PROVISIONS WERE APPLICABLE ATLEAST HE COULD HAVE MADE AN ADDITION ON PROTECTIVE BASIS AND THAT WAS ALSO NOT DONE, HENCE, THERE WAS NO MERIT I N THE PRELIMINARY CONTENTIONS RAISED BY THE REVENUE DURING THE COURSE OF HEARING. THE LEARNED COUNSEL FURTHER SUBMITTED THAT IF THE REVENUE WAS OF THE VI EW THAT THE ASSESSMENT ORDER WAS PREJUDICIAL TO THE INTERESTS OF THE REVENUE OR SOME INCOME HAD ESCAPED FROM ASSESSMENT, THEN THE REVENUE COULD HAVE INVOKED THE PROVISIONS OF SECTION 147 OR 263 AS THE CASE MAY BE. AS REGARD TO THE MERITS OF THE CASE, T HE LEARNED COUNSEL SUBMITTED THAT U/S 2(24)(IV), NOTIONAL INTEREST ON INTEREST FREE LOANS COULD NOT BE CHARGED, AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF B.M. SALGAONCAR AND BROTHERS PRIVATE LIMITED (SUPRA). HENCE, WHETHER THE ASSESSEE WAS A DIRECTOR OR NOT, THE SAME WAS NOT A FACTOR TO BE CONSIDERED. AS REGARD TO NON-APPLICABILITY OF PROVISIONS OF SECTION 2(24)(IV), THE LEARNED COUNSE L ALSO RELIED ON THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. S.S.KHOSLA, AS REPORTED IN 220 ITR 65, WHEREIN THE HON'BLE HIGH COURT HAD DISMISSED THE APPEAL OF THE REVENUE BY HOLDING THAT NO QUESTION OF LAW AROSE IN THAT APPEAL AS THE HON'BLE COURT HAD DISMISSED OTHER CONNECTED PETITION ALSO BY HOLDING THAT THE PROVISIONS OF SECTION 2(24)(IV)/SECTION 17(2)(3)(A) WERE NOT APPLICABLE IN RESPECT OF INTEREST FREE LOA NS TO EMPLOYEES. THE LEARNED COUNSEL ALSO RELIED ON THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE P.KRISHNAMOORTHY VS. CIT AND ANOTHER AS REPORTED IN 224 ITR 183, WHREIN THE HON'BLE COURT HAD HELD THAT PROVISIONS OF SECTION 40A(5) AND SECTION. 17(2)(IV) COULD NOT BE APPLIED IN RESPECT OF INTEREST SUBSIDY GIVEN TO EMPLOYEES. 6. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS O F THE AUTHORITIES BELOW. 6 7. IT IS NOTED THAT THE ASSESSEE HAS OBTAINED CERTAIN INTEREST FREE LOAN FROM COMPANIES, WHEREIN HE IS A DIRECTOR AND/OR HOLDING SUBSTANTIAL SHARE HOLDING. THE AO HAS APPLIED THE PROVISIONS OF SECTION 2(24)(IV), WHICH, AT THE VERY OUT-SET, CANN OT BE APPLIED IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF B.M. SALGAONCAR AND BROTHERS PRIVATE LIMITED (SUPRA). AS REGARD TO THE PRELIMINARY OBJECTION RAISED BY THE REVENUE, IN OUR OPINION, THE POWERS OF THE TRIBUNAL ARE CONFINED TO THE DISPUTE BEFORE THE TRIBUNAL OR IN CONSEQUENTIAL/CONNECTED MATTERS WITH SUCH DISPUTE. TO PUT IT DIFFERENTLY, THE TRIBUNAL CANNOT ALLOW A FRESH ISSUE TO BE RE-ADJUDICATED BY THE ASSESSING OFFICER OR THE LD. CIT(A), WHICH WAS NEVER A SUBJEC T MATTER OF PROCEEDINGS BEFORE THEM. HAVING STATED SO, WE FURTHER NOTE THAT IN THE CASE OF BHAVNA CHEMICALS LIMITED (SUPRA), THE AO HAD TAXED THE AGRICULTURAL INCOME WHICH COULD NOT BE BROUGHT TO TAX AND HAS ALSO ALLOWED EXPENSES RELATING TO AGRICULTURAL ACTIVITIES IN COMPUTING THE TOTAL INCO ME. HENCE, IN THAT CASE, IT IS EVIDENT THAT ISSUES WERE INTERMINGLED AND INTERCONNECTED WHEREAS IN THE PRESENT CASE, THE ISSUES ARE ENTIRELY INDEPENDENT I .E. WHETHER SUCH LOANS COULD BE TAXED AS DEEMED DIVIDEND OR INTEREST ON SUCH LOANS COULD BE TAXED O N NOTIONAL BASIS U/S 2(24)(IV) OR NOT. HENCE, IN OUR OPINION, THE RATIO OF THAT DECISION CANNOT BE APPLI ED HERE. WE MOST HUMBLY STATE THAT IF THE REVENUES CONTENTION IS ACCEPTED, THEN, ENTIRE ASSESSMENT COU LD BE SENT BACK TO THE AO FOR ONE OR THE OTHER SUCH PRELIMINARY POINTS AND THAT CANNOT BE A CORRECT POSITION IN LAW. HENCE, WE REJECT THIS CONTENTION O F THE REVENUE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 24 TH MAY, 2010. 7 4. IN THE AFORESAID ORDER THE TRIBUNAL HAS PLACED R ELIANCE ON VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING FROM VARI OUS HONBLE HIGH COURTS AND ALSO FROM HONBLE APEX COURT. SINCE NO C ONTRARY DECISION/FACTS WERE BROUGHT TO OUR NOTICE,THEREFORE , RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, WE FIND NO INFIRM ITY IN THE RESPECTIVE IMPUGNED ORDERS OF THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS). FINALLY, BOTH THESE APPEALS OF THE REVENUE ARE DISM ISSED. ORDER PRONOUNCED IN OPEN COURT IN THE PRESENCE OF L EARNED REPRESENTATIVES OF BOTH THE SIDES AT THE CONCLUSION OF HEARING ON 31 ST MAY, 2010. SD/- SD/- (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MAY 31, 2010 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE *DN/