The Assistant Commissioner of Income Tax, Circle-1(1), Panaji V. M/s Kamat Real Estate Developers, Panaji

ITA 219/PAN/2019

AI Insights

The case involves the Revenue's appeal against the order of the Commissioner of Income Tax (Appeals) which had deleted the addition of deemed dividend under section 2(22)(e) of the Income-tax Act, 1961, made by the Assessing Officer. The assessee, M/s Kamat Real Estate Developers, argued that the amounts received from Kamat Construction Company Pvt. Ltd. were capital contributions for business purposes and not loans or advances. The Tribunal examined the facts and legal provisions, referencing a similar case and a CBDT circular, and found no reason to deviate from the established precedent that such contributions are not deemed dividends.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136169 (ITAT-PANAJI)
• Duration Of Justice: 4 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: WT(D)
• Next Hearing Date: 12-07-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 09-06-2019
• Other Referred Cases: ITA No. 46/PAN/2017
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 2(22)(e); 13

Judgement Text

॥ आयकर अपीलीय न्यायाधिकरण, पणजी न्यायपीठ, पणजी में ॥ ITAT-Pune Page 1 of 5 IN THE INCOME TAX APPELLATE TRIBUNAL, PANAJI BENCH, PANAJI BEFORE HON’BLE SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER आयकर अपऩल स ं . / ITA No. 219/PAN/2019 निर्धारण वषा / Assessment Year : 2014-15 Asstt. Commissioner of Income Tax, Panaji. . . . . . . . अपऩलधर्थी / Appellant बिधम / V/s. M/s Kamat Real Estate Developers, F-1, Indira Apartments, Caetano, Albuqeque Road, Panaji, Goa - 403001 PAN : AABFK8817C . . . . . . .प्रत्यर्थी / Respondent द्वधरध / Appearances Assessee by : Smt Aarati Sathe Revenue by : Shri Prabhakar Anand DJ, स ु नवाई की तारीख / Date of conclusive Hearing : 13/07/2023 घोषणा की तारीख / Date of Pronouncement : 07/08/2023 आदेश / ORDER PER G. D. PADMAHSHALI, AM; The Revenue instituted the present appeal against the order of Commissioner of Income Tax (Appeals)-1, Panaji [‘CIT(A)’ hereinafter] dt. 28/03/2019 passed u/s 250 of the Income-tax Act, 1961 [‘the Act’ hereinafter] which in turn ascended out of the assessment order dt. 30/12/2016 passed u/s 143(3) of the Act by the Asstt. Commissioner of Income Tax, Circle-1(1), Panaji-Goa [‘AO’ hereinafter]. 2. The institution of present appeal is time barred by 01 day. After recording the satisfaction about the reasons explained by the Ld. DR, the delay of 01 day in filing this appeal is condoned and proceeded to hear the matter on merits. M/s Kamat Real Estate Developers ITA No.149/PAN/2019 AY: 2014-15 ITAT-Pune Page 2 of 5 3. Pithily stated facts borne out of case records are; 3.1 The assessee firm is engaged in the business of builders & developers and consisted of four partners viz Mr. Uday Kamat, Mr. Dattaprasad Kamat, Mr. Ramesh Kamat [collectively ‘Individual Partners’ hereinafter] and M/s Kamat Construction Company Pvt. Ltd [‘KCPL’ hereinafter] with equal profit sharing ration i.e. 25% each. 3.2 M/s KCPL is a private company and a company in which public are not substantially interested, wherein aforementioned individual partners are directors and each of them were holding 33.33% of paid up equity share capital of KCPL for the assessment year 2014-15 [‘AY’ hereinafter] 3.3 For the AY the assessee e-filed its return of income [‘ITR’ hereinafter] declaring total income of ₹26,37,700/- which was first subjected to complete scrutiny. The Ld. AO completed the assessment u/s 143(3) of the Act by bringing to tax a sum of ₹5,69,28,521/- received from KCPL as deemed dividend u/s 2(22)(e) of the Act in the evince of accumulated profits of the KCPL. 3.4 Aggrieved with the aforestated addition, the assessee carried the matter before first appellate authority in an appeal. The Ld. CIT(A) following his predecessors decisions in assessee’s own case for immediate earlier AY 2013-14 and placing reliance on the decision of Co-ordinate bench in ITA No. 46/PAN/2017 dt. 16/06/2017 has deleted the addition vide para 8-9 of the impugned order which reads as follows; M/s Kamat Real Estate Developers ITA No.149/PAN/2019 AY: 2014-15 ITAT-Pune Page 3 of 5 “8. The CIT (A) has allowed the appeal of the assessee with the following remarks: 7. On the basis of the facts discussed above, in my opinion the provisions of S.2(22)(e) are not applicable in the case of the Appellant for the following reasons: i) The sums in question having been received by the Appellant as capital contribution by KCPL. I have examined the memorandum of association of KCPL which provides for entering into partnership firm for promoting its business interest and hence, the contribution made by KCPL towards the capital of the appellant firm is in the ordinary course of business and hence they are not in the nature of advances or loans as envisaged in section 2(22)(e). ii) It is an admitted position that the sums so received have been utilized for the business of the Appellant. It is also found that the negative capital account balances of three individual partners of the appellant have been carried forward from the previous assessment year and the withdrawals from the capital account have not been made by the individual partners during the previous year relevant to the assessment year in appeal and therefore, taxing of deemed dividend does not arise in the assessment year in appeal. 10. Thus, appreciating overall facts of the case and legal provisions and placing reliance on judicial pronouncements discussed above, in my opinion, there was no need to make additions an account of deemed dividend u/ s.2(22)(e) in case of the Appellant firm. The addition of Rs.4,56,11,385/- made by the AO is hereby deleted. Thus, ground no.1 to 13 raised by the appellant are allowed accordingly. 9. The Hon. ITAT has also upheld the order of CIT (A) with the following remarks: 10. The next argument of the Ld Authorized Representative of the assessee was that these sums have been advanced by the private limited company is introduced in the appellant M/s Kamat Real Estate Developers ITA No.149/PAN/2019 AY: 2014-15 ITAT-Pune Page 4 of 5 firm as partners’ capital. It is the claim of the Assessee that the Assessee has entered into partnership with three others to share risk and reward of the business carried out by the appellant firm. It is further submitted that amount deposited does not partake the character of loans and advances but it is partner's capital in the business. Therefore, the claim of the Assessee is that sum paid for the business transaction cannot be loans and advances and hence, 'deemed dividend". The recent Circular issued by CBDT No.19/2017 dated 12.06.2017 has held that advances in the nature of capital transaction would not fall in the ambit of the word 'advance' u/ s 2(22)(e) of the Act. From the circular it is clear that if the advance are commercial in nature then they are out of ambit of deemed dividend. On reading of the circular it is apparent that if the amount deposited by the private limited company has commercial tenets attached to it then it falls outside the purview of loans and advances chargeable to tax as' deemed dividend' u/s 2(22 (e) of the act. The partnership itself is a relationship between the persons who have agreed to share the profits of a business carried out by all or any of them acting for all. Therefore, the sum of money deposited as partners’ capital in the partnership firm has attached risk and reward of the business carried out by the firm. Therefore, it cannot be said to be in the nature of loan or advances. 11. Despite it could not be disputed that such advance is not capital of the firm and is not for the purpose of business and further the appellant firm is not a shareholder of the company. In view of this we do not find any infirmity in the order of the IT CIT(A) in deleting the addition of Rs. 45611385/- u/ s 2(22)(e) of the Act. 12. In the result the appeal of the revenue is dismissed.” 3.5 Aggrieved by the aforestated order of Ld. CIT(A) in turning off the addition made by the Ld. AO, the Revenue has set-up the present case on as much as on the same grounds as assailed in ITA 46/PAN/2017 for the AY 2013-14 which are M/s Kamat Real Estate Developers ITA No.149/PAN/2019 AY: 2014-15 ITAT-Pune Page 5 of 5 substantively directed against sole issue of deletion of addition made u/s 2(22)(e) of the Act. 4. After hearing to rival contentions; subject to the provisions of rule 18 of Income Tax Appellate Tribunal Rules, 1963 [‘ITAT-Rules’ hereinafter] perused the material placed on record, and duly considered the facts of the case in the light of settled legal position which are forewarned to parties present. 5. Undisputedly, with respect to addition made u/s 2(22)(e), except change in figure of addition for the year under adjudication, there is neither any change in the facts & circumstances of case as there were in the preceding AY 2013-14, nor the appellant Revenue did distinguish the present case with that of AY 2013-14. Faced with the situation we see no cogent reason to deviate from foregoing decision of the Co-ordinate bench in respondents own case (supra) in the absence of any deprecative material brought on record coupled with Revenue’s failure to prove the inapplicability of judicial precedents relied upon by the respondent. 6. In result, the appeal of the Revenue is DISMISSED. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Monday 07 th day of August, 2023. -S/d- -S/d- S. S. GODARA G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER प ु णे / PUNE ; ददना ां क / Dated : 07 th day of August, 2023. आदेश की प्रनिनलनप अग्रेनषि / Copy of the Order forwarded to : 1.अपीलाथी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The CIT-(A), Concerned, Panaji 4. The Pr. CIT, (concerned), Panaji 5. DR, ITAT, Panaji Bench, Panaji 6. गार्डफ़ाइल / Guard File. Ashwini आदेशान ु सार / By Order, वररष्ठ दनजी सदिव / Sr. Private Secretary आयकरअपीलीय न्यायादधकरण, प ु णे / ITAT, Pune.