ITO, CHENNAI V. Peacock Chennai Finvest products pvt. Ltd., CHENNAI

ITA 2000/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8056 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 02-01-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 01-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B SAHADEVAN
• Assessee Lawyers: N QUADIR HOSEYN; S M KHAJA MAYEEN
• Keywords: Deemed dividend; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO. 2000/MDS/2016 / ASSESSMENT YEAR : 2007-08 INCOME TAX OFFICER, COMPANY WARD 5(1), 121, UTHAMAR GANDHI SALAI, CHENNAI 600 034. V. M/S. PEACOCK CHENNAI FINVEST PRODUCTS PVT. LTD. NO.45, PANDIAN STREET, SANKARAN AVENUE, VELACHERRY, CHENNAI 600 042. PAN : AABCP7250M ( /APPELLANT) ( /RESPONDENT) /APPELLANT BY : SHRI B. SAHADEVAN, JCIT /RESPONDENT BY : SHRI N. QUADIR HOSEYN, ADVOCAT E & SHRI S.M. KHAJA MAYEENUDDEEN, FCA /DATE OF HEARING : 02.01.2017 /DATE OF PRONOUNCEMENT : 25.01.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, CHENNAI DATED 31.03.2016 AND PERTAINS TO THE ASSESSMENT YEAR 2007 -08. 2 I.T.A. NO. 2000/MDS/2016 2. SHRI B. SAHADEEVAN, THE LD. DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERAT ION IS DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE E XTENT OF 38,59,002/- UNDER SECTION 2(22)(E) OF THE INCOME TA X ACT, 1961 (IN SHORT THE ACT). ACCORDING TO THE LD. D.R., THE A SSESSEE HAS RECEIVED A LOAN OF 18.15 LAKHS FROM M/S. G.M.P PROPERTIES PVT. LTD. ACCORDING TO THE LD. D.R., THE ASSESSEE COMPANY IS HAVING MORE THAN 20% OF THE SHARE HOLDING IN M/S. G.M.P PROPERT IES PVT. LTD. THEREFORE, THE ASSESSING OFFICER FOUND THAT THE LOA N RECEIVED FROM M/.S G.M.P PROPERTIES PVT. LTD. IS A DEEMED DIVIDEN D UNDER SECTION 2(22)(E) OF THE ACT. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THE ADVANCE WAS MADE FOR THE PURPOSE O F MAKING INVESTMENT IN SOME LANDED PROPERTIES. HOWEVER, THE ASSESSEE COULD NOT SUBSTANTIATE THE SO CALLED INVESTMENT. A CCORDING, TO THE LD. D.R., M/S. G.M.P PROPERTIES PVT. LTD. IS NOT IN THE BUSINESS OF REAL ESTATE AND NOT IN THE BUSINESS OF MONEY LENDIN G. THEREFORE LENDING OF MONEY BY M/.S G.M.P PROPERTIES PVT. LTD. CANNOT BE IN THE ORDINARY COURSE OF ITS ACTIVITIES. REFERRING TO THE ORDER OF THE CIT (APPEALS) AND BY PLACING RELIANCE ON THE JUDGME NT OF THE MADRAS HIGH COURT IN CIT V MADURAI CHETTIYAR KARTHI KEYAN, 223 TAXMANN 350 MADRAS, THE LD. D.R., SUBMITTED THAT TH E ASSESSEE 3 I.T.A. NO. 2000/MDS/2016 BEFORE THE MADRAS HIGH COURT WAS IN THE BUSINESS OF REAL ESTATE. ADVANCE WAS MADE TO THE MANAGING DIRECTOR OF ONE OF THE COMPANY WHICH HOLDS 63% OF THE SHARES. THE RECIPIENT COMPA NY IN FACT EXECUTED CONTRACT IN THE NATURE OF CONSTRUCTION OF BUILDING. THEREFORE, MADRAS HIGH COURT FOUND THAT IT WAS A BU SINESS TRANSACTION. ACCORDING TO THE LD. D.R., IN THE CAS E BEFORE US, THE ASSESSEE COMPANY HAS NOT RENDERED ANY SERVICE TO M/ .S G.M.P PROPERTIES PVT. LTD. THE MONEY RECEIVED BY THE ASS ESSEE COMPANY WAS SAID TO BE INVESTED IN ANOTHER COMPANY. THERE FORE, THE CIT (APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 3. ON THE CONTRARY, SHRI QUADIR HOSEYN, THE LD. COU NSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS AN AGREEMENT BETW EEN M/.S G.M.P PROPERTIES PVT. LTD. AND THE ASSESSEE CO MPANY ON 11.08.2016. AS PER THE AGREEMENT, THE ASSESSEE HAS IDENTIFIED CERTAIN NEW PROJECTS FOR JOINT DEVELOPMENT. THE M/ S. G.M.P PROPERTIES PVT. LTD. AGREED TO INVEST IN THE PROJEC T OF THE ASSESSEE COMPANY. THE LD. COUNSEL FURTHER CLARIFIED THAT TH E ASSESSEE COMPANY INVESTED THE FUNDS IN ANOTHER COMPANY WHICH DEALS IN REAL ESTATE BUSINESS. REFERRING TO THE OBJECT OF M/.S G .M.P PROPERTIES PVT. LTD., THE LD. COUNSEL SUBMITTED THAT THE MAIN BUSINESS OF THE 4 I.T.A. NO. 2000/MDS/2016 ASSESSEE IS REAL ESTATE. THE LD. COUNSEL FURTHER S UBMITTED THAT OUT OF COMMERCIAL EXPEDIENCY, M/.S G.M.P PROPERTIES PVT . LTD. ADVANCED A SUM OF 18.15 LAKHS TO THE ASSESSEE COMPANY WHICH WAS IN TURN INVESTED IN ANOTHER REAL ESTATE COMPANY CALLED M/S. GALAXY PROPERTIES PVT. LTD. THEREFORE, THE CI T (APPEALS) HAS RIGHTLY PLACED HIS RELIANCE ON THE JUDGMENT OF THE MADRAS HIGH COURT IN MADURAI CHETTIYAR KARTHIKEYAN SUPRA AND ALLOWED THE CLAIM OF THE ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS RECEIVED 18.15 LAKHS FROM M/S. G.M.P PROPERTIES PVT. LTD. IT IS ALSO NOT IN DISPUTE THAT M/S. G.M. P PROPERTIES PVT. LTD. IS IN THE BUSINESS OF REAL ESTATE. MONEY LENDING I S NOT ONE OF THE OBJECTS OF M/.S G.M.P PROPERTIES PVT. LTD. THE ASS ESSEE NOW CLAIMS THAT IN PURSUANCE OF AGREEMENT DATED 11.08.2 006, THE ASSESSEE RECEIVED ADVANCE OF 18.15 LAKHS FOR THE PURPOSE OF MAKING INVESTMENT IN THE REAL ESTATE BUSINESS. THE LD. COUNSEL CLAIMS THAT THE AMOUNT RECEIVED BY THE ASSESSEE TO THE EXTENT OF 18.15 LAKHS WAS INVESTED IN ANOTHER COMPANY M/S. GA LAXY PROPERTIES PVT. LTD FOR THE PURPOSE OF MAKING INVES TMENT IN THE 5 I.T.A. NO. 2000/MDS/2016 LANDED PROPERTIES. THE QUESTION ARISES FOR CONSIDE RATION IS WHETHER THE ADVANCE / LOAN RECEIVED BY THE ASSESSEE TO THE EXTENT OF 18.15 LAKHS COULD BE CONSIDERED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. WE HAVE CAREFULLY GONE THROUG H THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 5. WE HAVE ALSO CAREFULLY GONE THROUGH THE AGREEMEN T BETWEEN M/S. G.M.P PROPERTIES PVT. LTD. AND THE ASSESSEE DA TED 11.08.2016. AS PER THIS AGREEMENT, THE ASSESSEE APPEARS TO HAVE BEEN IDENTIFIED FEW INVESTMENT PROJECTS IN THE AREA OF C OMMERCIAL REAL ESTATE AND ALSO FOR JOINT DEVELOPMENT OF PROPERTIES EITHER BY THE ASSESSEE OR THROUGH ITS ASSOCIATE COMPANIES. THE F ACT REMAINS IS THAT THE ASSESSEE COMPANY HAS NOT USED THE FUNDS RE CEIVED FROM M/S. G.M.P PROPERTIES PVT. LTD. FOR MAKING ANY INVE STMENT IN THE LANDED PROPERTIES. IN FACT, THE MONEY WAS FURTHER DIVERTED TO M/S. GALAXY PROPERTIES PVT. LTD. IF THE INTENTION OF THE M/S. G.M.P PROPERTIES PVT. LTD. WAS TO INVEST THE FUNDS IN THE REAL ESTATE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WOULD HA VE INVESTED THE FUNDS DIRECTLY SINCE, THAT COMPANY WAS IN THE BUSIN ESS OF REAL ESTATE. MOREOVER, THE ASSESSEE COMPANY ALSO HAS NO T INVESTED THE FUNDS IN ANY REAL ESTATE BUSINESS. THE FUNDS WERE MERELY DIVERTED 6 I.T.A. NO. 2000/MDS/2016 TO M/S. GALAXY PROPERTIES PVT. LTD. THEREFORE, IT IS OBVIOUS THAT THE ASSESSEE COMPANY RECEIVED 18.15 LAKHS AND DIVERTED THE SAME TO M/S. GALAXY PROPERTIES PVT. LTD. HENCE, THE MONEY PAID TO THE ASSESSEE COMPANY IS NOTHING, BUT DIVERSION OF THE P ROFIT OF M/S. G.M.P PROPERTIES PVT. LTD. THE ASSESSEE IS HOLDING MORE THAN 20% OF THE SHARES, THEREFORE, 18.15 LAKHS RECEIVED BY THE ASSESSEE HAS TO BE DEFINITELY TREATED AS DEEMED DIVIDEND UNDER S ECTION 2(22)(E) OF THE ACT. 6. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF MADURAI CHETTIYAR KARTHIKEYAN SUPRA. IN THE CASE BEFORE THE MADRAS HIGH COURT ONE SHRI VEKKALIAMMAN BUILDERS AND PROMOTERS WAS A PROPRIETO RSHIP CONCERN. THE PROPRIETOR OF SHRI VEKKALIAMMAN BUIL DERS AND PROMOTERS ALSO HAPPENS TO BE THE MANAGING DIRECTOR OF SOUTHERN ACADEMY OF MARITIME STUDIES PVT. LTD. IN FACT, HE WAS HOLDING 63% OF THE SHARES IN SOUTHERN ACADEMY OF MARITIME STUDI ES PVT. LTD. THE MANAGING DIRECTOR BEING THE PROPRIETOR OF SHRI VEKKALIAMMAN BUILDERS AND PROMOTERS, RECEIVED ADVANCE FROM THE C OMPANY FOR CONSTRUCTION OF BUILDING. IT IS NOT IN DISPUTE THA T THE BUILDING WAS CONSTRUCTED FOR THE COMPANY ALSO. THEREFORE, THE M ADRAS HIGH 7 I.T.A. NO. 2000/MDS/2016 COURT FOUND THAT THE ASSESSEE HAD EXECUTED THE WORK FOR THE COMPANY IN THE NATURE OF CONSTRUCTION OF BUILDING. THEREFORE A TRANSACTION BETWEEN THE COMPANY AND THE MANAGING DI RECTOR, WHO HAPPENS TO BE THE PROPRIETOR OF SHRI VEKKALIAMMAN B UILDERS AND PROMOTERS IS A SIMPLE BUSINESS TRANSACTION. THEREF ORE THE PROVISIONS OF SECTION 2 (22) (E) OF THE ACT IS NOT APPLICABLE AT ALL. 7. IN THE CASE BEFORE US, EVEN THOUGH THE MONEY WA S SAID TO BE ADVANCE FOR BUSINESS PURPOSE AND FOR COMMERCIAL EXPEDIENCY, IN FACT, THE ASSESSEE COMPANY HAS NOT INVESTED THE FUN DS IN ANY OF THE LANDED PROPERTIES AS PER THE AGREEMENT. THE MONEY WAS DIVERTED TO ANOTHER COMPANY NAMELY GALAXY PROPERTIES PVT. LT D. WHEN THE FUNDS ARE DIVERTED TO M/S. GALAXY PROPERTIES PVT. L TD. BY THE ASSESSEE COMPANY, THIS TRIBUNAL IS OF THE CONSIDERE D OPINION, IT CANNOT BE SAID THAT THERE WAS ANY BUSINESS EXPEDIEN CY AS CLAIMED. THE MATTER WOULD STAND ENTIRELY ON DIFFERENT FOOTIN G INCASE, THE ASSESSEE COMPANY INVESTED THE FUNDS IN ANY OF THE C OMMERCIAL REAL ESTATE BUSINESS OR JOINT DEVELOPMENT OF THE PROPERT IES OF M/S. G.M.P PROPERTIES PVT. LTD. IN FACT, SUCH AN ACTIVITY WAS NOT DONE EITHER BY THE ASSESSEE COMPANY OR M/S. G.M.P PROPERTIES PVT. LTD. IN THESE 8 I.T.A. NO. 2000/MDS/2016 CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSIDERED O PINION THAT THERE WAS NO COMMERCIAL EXPEDIENCY AS CLAIMED BY THE ASSE SSEE. 8. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDERS O F THE LOWER AUTHORITIES. THE ASSESSING OFFICER AFTER EXAMINING THE BALANCE SHEET FOUND THAT AS ON 31.03.2006, THE ACCUMULATED PROFIT OF M/S. G.M.P PROPERTIES PVT. LTD. WAS 38,59,002/-. THEREFORE, EVEN THOUGH A SUM OF 18.15 LAKHS WAS ADVANCED BY THE ASSESSEE, THE ASSESSING OFFICER HAS RIGHTLY RESTRICTED THE ADDITI ON TO THE EXTENT OF ACCUMULATED PROFIT AS ON 31.03.2006. THEREFORE, TH IS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT (APPEALS) IS NO T JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. ACCORDINGLY TH E ORDER OF THE CIT(APPEALS) IS SET ASIDE AND THAT OF THE ASSESSING OFFICER IS RESTORED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED. ORDER PRONOUNCED ON 25 TH JANUARY, 2017 AT CHENNAI. SD/- SD/- ( . ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, /DATED, THE 25 TH JANUARY, 2017. 9 I.T.A. NO. 2000/MDS/2016 JR. ! ' ! /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. #$% ( )/CIT(A)-3, CHENNAI 4. #$% /CIT, 5. ! /DR 6. &' /GF.