Ankush Vijaykumar Mehta, Pune V. Deputy Commissioner of Income-tax,

ITA 2232/PUN/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6138 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-07-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 27-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS SHABANA PARVEEN
• Keywords: Deemed dividend; Set aside
• Section: 263; 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.2232/PUN/2016 / ASSESSMENT YEAR : 2011-12 ANKUSH VIJAYKUMAR MEHTA, 326, ASHOK VIJAY COMPLEX, M.G. ROAD, CAMP, PUNE-411001. PAN : ABEPM2982F ....... / APPELLANT / V/S. DCIT, CIRCLE-4, PUNE. / RESPONDENT ASSESSEE BY : SHRI SUHAS BORA SHRI SANKET BORA REVENUE BY : MRS. SHABANA PARVEEN / DATE OF HEARING : 29.07.2019 / DATE OF PRONOUNCEMENT : 19.09.2019 / ORDER PER D. KARUNAKARA RAO, AM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-5, PUNE DATED 14.07.2016 FOR THE ASSESSMENT YEAR 2011-12. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER :- 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.21,82,454/- MADE BY THE AO BY CONSIDERING LOAN AND ADVANCE GIVEN BY M/S SRPL AS DEEMED DIVIDEND U/S 2(22) (E) IN THE HANDS OF THE APPELLANT TO THE TUNE OF RESERVE AND SURPLUS OF M/S SRPL I.E. RS.21,82,454/- ON THE GROUND THAT THIS IS PURELY A LOAN AMOUNT FOR THE BENEFIT OF THE APPELLANT WITHOUT APPRECIATING THE SUBMISSIONS AND EVIDENCES FILED BY THE APPELLANT. 2. THE LEARNED CIT(A) WHILE CONFIRMING THE ADDITION MADE BY THE AO HAD ERRED IN NOT APPRECIATING THE FOLLOWING IMPORTANT POINTS: 2 ITA NO.2232/PUN/2016 A) THE TRANSACTION BETWEEN THE APPELLANT AND THE COMPANY IS A COMMERCIAL TRANSACTION. B) THE AMOUNT RECEIVED BY THE APPELLANT IS NOT A LOAN BUT ADVANCE FOR SALE OF THE PROPERTY AT HADAPSAR. C) WHEN THE TRANSACTION DID NOT MATERIALIZE THE PROPERTY WAS DEVELOPED BY THE APPELLANT AND THE COMPANY AS A JOINT VENTURE. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. BRIEFLY STATED THE RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS AS A BUILDER, DEVELOPER, PROMOTER AND DEALER OF LAND UNDER PROPRIETARY CONCERN M/S. SHIV CONSTRUCTION. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1,21,37,361/-. THE ASSESSEE IS ALSO A JOINT VENTURE MEMBER ALONG WITH M/S SYNERGY REALITY PVT. LTD. (SRPL). THE COMPANY PAID AMOUNT OF RS.33,45,000/- TO THE ASSESSEE - LAND OWNER. THE COMPANY HAS RESERVES AND SURPLUSES TO THE TUNE OF RS.21,82,454/-. THERE IS A JOINT VENTURE AGREEMENT DATED 14.01.2008, COPY OF WHICH IS PLACED AT PAGE 22 OF THE PAPER BOOK. CLAUSE 9 OF THE SAID JOINT VENTURE AGREEMENT MANDATES THE COMPANY TO BEAR ALL THE NECESSARY FINANCES FOR THE DEVELOPMENT OF THE PROJECTS. THE ASSESSEE IS A 40% SHAREHOLDER OF THE JOINT VENTURE AND THE SAID COMPANY OWNS 60% OF THE SHAREHOLDING. 4. WITH THE ABOVE FACTS AND THE TRANSACTION OF PAYMENT OF RS.33,45,000/- BY THE COMPANY TO THE ASSESSEE, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. RESTRICTING TO THE ELIGIBLE RESERVES WITH THE COMPANY, THE ASSESSING OFFICER HELD THAT THE SUM OF RS.21,82,454/- CONSTITUTES DEEMED DIVIDEND IN THE HANDS OF THE 3 ITA NO.2232/PUN/2016 ASSESSEE WITH THE MEANING OF SECTION 2(22)(E) OF THE ACT. THE CIT(A) CONFIRMED THE SAME. 5. AGGRIEVED WITH THE SAID DECISION OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US WITH THE ABOVE EXTRACTED GROUNDS. 6. DEVIATING FROM THE ABOVE EXTRACTED GROUNDS, LD. COUNSEL FOR THE ASSESSEE FILED AN ADDITIONAL GROUND WHICH READS ASUNDER :- WITHOUT PREJUDICE TO MAIN CONTENTION THAT NO ADDITION BE MADE U/SEC. 2(22)(E), THEN THE ADDITION BE RESTRICTED TO THE EXTENT OF 40% SHARE HOLDING OF THE APPELLANT, WHICH IS EQUIVALENT TO RS.872982.00 I.E. 40% OF ACCUMULATED PROFITS OF RS.21,82,454.00 7. BEFORE US, AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS THE CASE OF THE ASSESSEE THAT THE PAYMENTS MADE BY THE COMPANY TO THE LANDLORD (THE ASSESSEE) FOR EXECUTION OF THE PROJECTS ON THE SAID LAND, CONSTITUTES AN ADVANCE PAID TO THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS ACTIVITIES. BRINGING OUR ATTENTION TO THE VARIOUS DOCUMENTS OF THE PAPER BOOK AND WITHOUT PREJUDICE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE CONCEDES ON THE ABOVE ARGUMENT I.E. PAYMENT MADE IN NORMAL COURSE OF BUSINESS, IF THE ADDITION IS RESTRICTED TO 40% OF THE RESERVE AND SURPLUS. 40% IS THE SHAREHOLDING OF THE ASSESSEE AND RS.8,72,982/- IS THE 40% OF RS.21,82,454/-. FOR THIS PROPOSITION, LD. AR RELIED ON THE CO-ORDINATE BENCH ORDER OF THE TRIBUNAL IN THE CASE OF KEWELKUMAR JAIN VS. ACIT, 144 ITD 672 (PUNE). 4 ITA NO.2232/PUN/2016 8. ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF THE REVENUE AUTHORITIES. 9. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE OF ADDITION U/S 2(22)(E) OF THE ACT IN GENERAL AND THE APPLICABILITY OF THE SAID DECISION IN THE CASE OF KEWELKUMAR JAIN (SUPRA). RESULTANTLY, WE FIND THAT THE SAID DECISION IS RELEVANT FOR THE LEGAL PROPOSITION THAT THE CIT CANNOT INVOKE THE PROVISIONS U/S 263 OF THE ACT WHEN THE ASSESSING OFFICER IN THAT CASE RESTRICTED THE ADDITION U/S 2(22)(E) OF THE ACT TO THE EXTENT OF 14% OF THE SHAREHOLDING HELD BY THE PAYEE IN THAT CASE. IN THIS REGARD, WE PROCEED TO EXTRACT THE FOLLOWING PARAS FROM THE ORDER OF THE TRIBUNAL IN THE CASE OF KEWELKUMAR JAIN (SUPRA) :- 15. AS PER THE COMMISSIONER, THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING THE ADDITION TO RS. 42,49,008/- I.E. 14% OF THE ACCUMULATED PROFITS CORRESPONDING TO ASSESSEES SHAREHOLDING OF 14% IN THE COMPANY, WAS INCORRECT, BECAUSE THERE WAS NOTHING IN SECTION 2(22)(E) OF THE ACT PERMITTING OR PRESCRIBING SUCH A RESTRICTION. .. . 18. THE SECOND ASPECT BROUGHT OUT BY THE COMMISSIONER IS WITH REGARD TO THE AMOUNT ASSESSABLE UNDER SECTION 2(22)(E) OF THE ACT. AS PER THE FACTUAL DETAILS NOTED EARLIER BY US, THE AMOUNT OF LOANS AND ADVANCES MADE TO THE SHAREHOLDERS HOLDING IN EXCESS OF 10% VOTING POWER WAS RS.3,81,69,640/- WHEREAS THE TOTAL ACCUMULATED PROFITS AMOUNTED TO RS.2,61,19,957/-, THEREFORE, THE ASSESSING OFFICER RESTRICTED THE AMOUNT ASSESSABLE UNDER SECTION 2(22)(E) OF THE ACT IN THE HANDS OF SUCH SHAREHOLDERS TO THE EXTENT OF THE AVAILABLE ACCUMULATED PROFITS I.E. RS.2,61,19,957/-. THE ASSESSING OFFICER BROUGHT TO TAX 14% OF THE ACCUMULATED PROFITS I.E. RS.36,56,738/- IN THE HANDS OF THE ASSESSEE WHICH CORRESPONDED TO THE SHAREHOLDING HELD BY THE ASSESSEE IN THE COMPANY I.E. 14%. AS PER THE COMMISSIONER, THE RESTRICTION RESORTED TO BY THE ASSESSING OFFICER WAS WRONG BECAUSE THERE IS NOTHING IN SECTION 2(22)(E) PERMITTING OR PRESCRIBING SUCH RESTRICTION. IN OUR CONSIDERED OPINION, THE AFORESAID OBSERVATION OF THE COMMISSIONER IS CONTRARY TO THE EXPLICIT PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND IS THEREFORE UNTENABLE. AT THIS POINT WE MAY ALSO REFER TO THE JUDGMENTS OF THE HONBLE GUJARAT HIGH COURT AND HONBLE CALCUTTA HIGH COURT IN THE CASES OF CIT VS. MAYUR MADHUKANT MEHTA (1972) 85 ITR 230 (GUJ.) AND CIT VS. ARATI DEBI & ORS. (1976) 111 ITR 277 (CAL.) RELIED UPON BY THE COMMISSIONER. . FOR INSTANCE, IN THE CASE OF THE ASSESSEE 14% OF ACCUMULATED PROFITS I.E. 5 ITA NO.2232/PUN/2016 RS.36,56,738/- HAS BEEN ASSESSED UNDER SECTION 2(22)(E) OF THE ACT INSTEAD OF THE ENTIRE AMOUNT OF LOAN GIVEN DURING THE YEAR AMOUNTING TO RS.76,33,928/-. 19. THEREFORE, HAVING REGARD TO THE AFORESAID DISCUSSION, IN OUR VIEW, THE ERROR IN THE ASSESSMENT ORDER DATED 12.06.2007 (SUPRA) SOUGHT TO BE MADE OUT BY THE COMMISSIONER IS MISPLACED AND THERE IS NO JUSTIFIABLE GROUNDS FOR INVOKING THE JURISDICTION UNDER SECTION 263 OF THE ACT. 20. THUS, WE SET ASIDE THE ORDER THE COMMISSIONER AND THE APPEAL OF THE ASSESSEE IS STAND ALLOWED. 10. FROM THE ABOVE EXTRACTS, IT IS EVIDENT THAT THE RECIPIENT HAS 14% SHAREHOLDING IN THE PAYEE-COMPANY. THE ASSESSING OFFICER RESTRICTED THE DISALLOWANCE TO THE 14% OF THE RESERVES ACCUMULATED PROFITS. THE TRIBUNAL HELD THAT THE SAID DECISION OF THE ASSESSING OFFICER IS IN ACCORDANCE WITH THE JUDGEMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BHAGWAT TEWARI, 105 ITR 62 (CAL). ACCORDINGLY, THE TRIBUNAL DID NOT ALLOW THE CIT TO ASSUME THE JURISDICTION U/S 263 OF THE ACT IN THIS CASE AGAINST SUCH RESTRICTION AND IN FAVOUR OF TAXING THE ENTIRE ELIGIBLE RESERVE AND SURPLUS. CONSIDERING THE ABOVE SETTLED NATURE OF THE ISSUE BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL (PUNE) IN THE CASE OF KEWELKUMAR JAIN (SUPRA), WE ARE OF THE OPINION THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE SHOULD BE ADMITTED AND ALLOWED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE ADDITIONAL GROUND IS ALLOWED. 11. COMING TO THE ISSUES RAISED IN THE REGULAR GROUNDS, WHERE THE ASSESSEE ARGUES THAT THE PAYMENT RECEIVED BY THE ASSESSEE DOES NOT CONSTITUTES A DEEMED DIVIDEND IN VIEW OF ITS COMMERCIAL BACKGROUND, WE ARE OF THE OPINION THAT THE ADJUDICATION OF THE SAID ISSUE, BECOMES AN ACADEMIC EXERCISE ONLY IN VIEW OF THE RELIEF GRANTED TO THE ASSESSEE ON THE 6 ITA NO.2232/PUN/2016 ADDITIONAL GROUND. ACCORDINGLY, THE REGULAR GROUNDS RAISED BY THE ASSESSEE ARE DISMISSED AS ACADEMIC. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 19 TH DAY OF SEPTEMBER, 2019. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 19 TH SEPTEMBER, 2019. SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-5, PUNE. 4. THE CCIT, PUNE. 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.