Jaidev Prasad Agarwal, Kolkata V. ITO, Ward-35(2), Kolkata, Kolkata

ITA 2034/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1859 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 28-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 07-11-2014
• Court: TRIBUNAL
• Keywords: Deemed dividend
• Section: 14A

Judgement Text

ITA NO.1645/KOL/2016-M/S. CMG AGRO (P)LTD. A.Y.2009 -10 1 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHE S : SMC : KOLKATA BEFORE SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO.2034/KOL/2014 ASSESSMENT YEAR: 2010 - 11 JAIDEV PRASAD AGARWAL C/O RAWALWASIA TRADING COMPANY 26/1, ARMENIAN STREET, 2 ND FLOOR, KOLKATA-700001. PAN : ACQPA 9991 G VS. I.T.O., WARD-35(2), AAYAKAR BHAWAN, (POORVA), 7 TH FLOOR, 110, SHANTI PALLI, E.M.BYPASS, KOLKATA- 7000107. (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI V.N.PUROHIT, FCA FOR THE RESPONDENT : MD. GHAYAS UDDIN, JCIT DATE OF HEARING : 03.04 .2017. DATE OF PRONOUNCEMENT : 12.04.2017. ORDER THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XX, KOLAKATA DT.24.07.2014 RELATING TO A.Y.2010-11 ON THE FOLLOWING GROUNDS :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. C.IT.(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE U/S. 14A OF THE 1. T. A CT, 1961 READ WITH RULE 8D AMOUNTING TO RS. 8,17,003/- ON ACCOUNT OF INTEREST PAID ON BORROWED FUND INVESTED IN EXEMPT ASSETS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.I.T.(A) HAS ERRED IN CONFIRMING THE DEEMED DIVIDEND INCOME U/S. 2(22)(E) OF THE 1. T. ACT, 1961 AMOUNTING TO RS.21,13,676/-. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.I.T.(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 6,42,436/- ON AC COUNT OF INTEREST ON LOANS NOT FOR THE PURPOSE OF BUSINESS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. C.I.T.(A) HAS ERRED IN CONFIRMING THE ESTIMATED INCOME OF HOUSE PROPERTY A T RS.63,000/- BY THE LD. A.O. 5. OTHER GROUNDS OF APPEAL MAY BE ARGUED BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. ITA NO.1645/KOL/2016-M/S. CMG AGRO (P)LTD. A.Y.2009 -10 2 2. AFTER HEARING THE RIVAL CONTENTIONS I FIND THAT GROUND N O.1 SHOULD BE RESTORED TO THE FILE OF AO, AS HE HAS NOT EXAMINED THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 (ACT) WITH RESPECT TO SHARE OF PROFIT RECEIVED BY THE ASSESSEE FROM PARTNERSHIP FIRMS WHICH ARE ALSO NOT INCLUDIBLE IN THE TOTAL INCOME L IABLE TO TAX OF THE ASSESSEE. THE LD. DR HAS RIGHTLY RELIED ON THE JUDGEMENT OF ITAT AHMEDAB AD BENCH IN THE CASE OF VISHNU ANANT MAHAJAN VS ACIT (2012) 22 TAXMANN.COM 88 (AH D.)(SB). IN THE RESULT GROUND NO.1 IS ALLOWED FOR STATISTICA L PURPOSES. 3. GROUND NO.2 IS AGAINST THE ADDITION U/S 2(22 )(E) OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE JURISDICTION AL HIGH COURT IN THE CASE OF PRADIP KUMAR MALHOTRA VS CIT (2011) 203 TAXMAN 110/15 TAXM ANN.COM 66 (CALCUTTA) AND SUBMITTED THAT THE ASSESSEE PLEDGED HIS PROPERTIES TO THE BANK BY WAY OF EQUITABLE MORTGAGE AND ALSO STOOD AS A GUARANTOR FOR THE CRED IT FACILITIES TAKEN BY THE COMPANY AND THAT THE COMPANY HAD RECIPROCALLY PASSED A RESOLUTI ON TO PROVIDE INTEREST FREE FUNDS TO THE ASSESSEE UPTO A MAXIMUM LIMIT OF RS.1 CRORE IN LIEU OF HIS PLEDGING HIS PROPERTIES AND STANDING AS GUARANTOR FOR THE LOAN. THE LD.DR OPPOS ED THIS CONTENTION BY SUBMITTING THAT THE ASSESSEE IS NOT THE SOLE GUARANTOR AND THAT THE RE ARE OTHER GUARANTORS AND THAT IN THE CASE OF PRADIP KUMAR MALHOTRA, THE HONBLE CALCUTT A HIGH COURT HAS CONSIDERED A CASE WHERE MR. PRADIP KUMAR MALHOTRA WANTED TO SELL HIS PROPERTY AND THAT THIS WAS NOT POSSIBLE WITHOUT THE COMPANY RELEASING EQUITABLE MO RTGAGE AND UNDER SUCH CIRCUMSTANCES THE ASSESSEE WAS IN THAT CASE ALLOWED TO TAKE LOAN FROM THE COMPANY. IN THE CASE IN HAND THE LD. DR SUBMITTED THAT SUCH SITUATION HAS NOT A RISEN. 4. AFTER HEARING THE RIVAL SUBMISSIONS I FIND T HAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRADIP KUMAR MALHOTRA HELD AS FOLLOWS :- THE PHRASE BY WAY OF ADVANCE OR LOAN APPEARING T O SUB-CLAUSE (C) OF SECTION 2(22) MUST BE CONSTRUED TO MEAN THOSE ADVANCES OR L OANS WHICH A SHAREHOLDER ENJOYS FOR SIMPLY ON ACCOUNT OF BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVID END WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN 10 PER CENT OF THE VOTING POWER; BUT IF ITA NO.1645/KOL/2016-M/S. CMG AGRO (P)LTD. A.Y.2009 -10 3 SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER A S A CONSEQUENCE OF ANY FURTHER CONSIDERATE WHICH IS BENEFICIAL TO THE COMPANY REC EIVED FROM SUCH A SHAREHOLDER, IN SUCH CASE, SUCH ADVANCE OR LOAN CANNOT BE SAID TO A DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT. THUS, FOR GRATUITOUS LOAN OR AD VANCE GIVEN BY A COMPANY TO THOSE CLASSES OF SHAREHOLDERS WOULD COME WITHIN THE PURVIEW OF SECTION 2(22) BUT NOT TO THE CASES WHERE THE LOAN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY BY SUCH SHAREHOLDER. IN THE INSTANT CASE THE ASSESSEE PERMITTED HIS PROP ERTY TO BE MORTGAGED TO THE BANK FOR ENABLING THE COMPANY TO TAKE THE BENEFIT OF LOA N AND IN SPITE OF REQUEST OF THE ASSESSEE, THE COMPANY WAS UNABLE TO RELEASE THE PRO PERTY FROM THE MORTGAGE. IN SUCH A SITUATION, FOR RETAINING THE BENEFIT OF LOAN AVAILED FROM THE BANK IF DECISION WAS TAKEN TO GIVE ADVANCE TO THE ASSESSEE SUCH DECI SION WAS NOT TO GIVE GRATUITOUS ADVANCE TO ITS SHAREHOLDER BUT TO PROTECT THE BUSIN ESS INTEREST OF THE COMPANY. THEREFORE, THE AUTHORITIES BELOW ERRED IN LAW IN TR EATING THE ADVANCE GIVEN BY THE COMPANY TO THE ASSESSEE BY WAY OF COMPENSATION FOR KEEPING ITS PROPERTY AS MORTGAGE ON BEHALF OF THE COMPANY TO REAP THE BENEF IT OF LOAN AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E). CONSEQUENTLY, THE ORDER OF THE TRIBUNAL BELOW WAS T O BE SET ASIDE DIRECTING THE ASSESSING OFFICER NOT TO TREAT THE ADVANCE IN QUEST ION AS A DEEMED DIVIDEND. 5. THE PROPOSITION LAID DOWN BY THE JURISDICTION AL HIGH COURT IS THAT TRANSACTIONS, WHETHER THE ASSESSEE HAS PERMITTED HIS PROPERTY TO BE MORTGAGED TO THE BANK, FOR THE COMPANY TO TAKE CERTAIN BENEFIT BY WAY OF LOAN AND WHEN CERTAIN FACILITIES GRANTED BY SUCH COMPANY IN LIEU OF SUCH MORTGAGE AND IN LIEU O F THE SAME, THE COMPANY GRANTS SOME INTEREST FREE ADVANCE TO THE ASSESSEE, SUCH TRANSAC TION IS NOT A GRATUITOUS TRANSACTION. THIS PRINCIPLE IS FULFILLED IN THE CASE ON HAND. THUS RE SPECTFULLY FOLLOWING THE SAME WE ALLOW THIS GROUND OF THE ASSESSEE AS THE AMOUNT ADVANCED BY THE COMPANY TO THE ASSESSEE IS NOT A GRATUITOUS TRANSACTION. 6. GROUND NO.3 IS AGAINST THE DISALLOWANCE OF IN TEREST PAID. THE CLAIM OF THE ASSESSEE HAS TO BE EXAMINED WITH THE HELP OF A CASH FLOW STA TEMENT. THE ASSESSEE SHOULD DEMONSTRATE WHETHER INTEREST BEARING FUNDS HAVE GON E INTO TAXABLE INCOME EARNING ACTIVITIES. IT IS FOR THE ASSESSEE TO DEMONSTRATE T HAT INTEREST FEE FUNDS HAVE BEEN UTILISED FOR PERSONAL PURPOSES. THE ISSUE HAS TO BE EXAMINED HOLISTICALLY. THIS HAS NOT BEEN DONE. ITA NO.1645/KOL/2016-M/S. CMG AGRO (P)LTD. A.Y.2009 -10 4 HENCE I SET ASIDE THESE GROUNDS TO THE FILE OF AO F OR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. HENCE THIS GROUND IS ALLOWED FOR STATISTI CAL PURPOSE. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 12.04.2017. S D / - [J.SUDHAKAR REDDY] ACCOUNTANT MEMBER DATED : 12.04.2017. RG.PS COPY OF THE ORDER FORWARDED TO: APPELLANT/ASSESSEE- JAIDEV PRASAD AGARWAL RESPONDENT-I.T.O, WARD-35(2), KOLKATA. CIT-XII, KOLKATA CIT (A)-XX, KOLKATA CIT (DR), KOLKATA BENCHES, KOLKATA TRUE COPY BY ORDER ASS TT. REGISTRAR, ITAT, KOLKATA . ITA NO.1645/KOL/2016-M/S. CMG AGRO (P)LTD. A.Y.2009 -10 5