The Deputy Commissioner of Income Tax, Circle-1(1),, Guntur V. Lalith kumar Bagrecha, Guntur

ITA 232/VIZ/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6798 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 29-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B RAMA KRISHNA
• Keywords: Related party transaction; Deemed dividend; Set aside
• Section: 2(22)(e); 201

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER& SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ I.T. A.NO. 232 /VIZ/201 9 ( / A SSESSMENT Y EAR : 201 2 - 1 3 ) DY.COMM ISSIONER OF INCOME TAX CIRCLE - 1(1) GUNTUR ( / APPELLANT) VS. SRI LALITH KUMAR BAGRECHA 24 - 9 - 80, R.AGRAHARAM GUNTUR [PAN :ACVPM9444K] ( / RESPONDENT) CROSS OBJECTION NO.69/VIZ/2019 ARISING OUT OF I.T. A.NO. 232/VIZ/2019 ( / A SSESSMENT Y EAR : 2012 - 13) SRI LALITH KUMAR BAGRECHA 24 - 9 - 80, R.AGRAHARAM GUNTUR [PAN :ACVPM9444K] ( / APPELLANT) DY.COMM ISSIONER OF INCOME TAX CIRCLE - 1(1) GUNTUR ( / RESPONDENT) / APPELLANT BY : SHRI B.RAMA KRISHNA , D R / RESPONDENT BY : S HRI G.V.N.HARI, AR / DATE OF HEARING : 0 5 .0 2 .2020 / DATE OF PRONOUNCEMENT : 07 .0 2 . 20 20 2 I.T.A. NO. 232 /VIZ/201 9 AND CO NO.69/VIZ/2019 , A.Y.201 2 - 1 3 SRI LALITH KUMAR BAGRECHA , GUNTUR / O R D E R P ER SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER : TH IS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX ( APPEAL ) [CIT(A)] - 1 , GUNTUR IN APPEAL NO. 101 3 7 / 201 8 - 1 9 DATED 20 . 0 2 .201 9 FOR THE ASSESSMENT YEAR ( A.Y. ) 201 2 - 1 3 AND THE CROSS OBJECTIONS ARE FILED BY THE ASSESSEE IN SUPPORT OF THE ORDER OF THE LD.CIT(A). 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER (AO) U/S 2(22)(E) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE RECEIVED ADVANCES F ROM M/S LALITH MOHAN SPICES PVT. LTD TO THE EXTENT OF RS.2,50,22,099/ - AND IT WAS ALSO OBSERVED THAT THE ASSESSEE IS A DIRECTOR HAVING MORE THAN 20% OF SHARE IN THE COMPANY. THE AO FURTHER FOUND THAT THE ASSESSEE WAS RUNNING HIS OWN BUSINESS OF TRADING IN CHILLES AND USING THE FUNDS OF THE COMPANY FOR HIS OWN PURPOSE. THEREFORE, THE AO HAS ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE ADVANCES RECEIVED BY THE ASSESSEE SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. IN RESPONSE, THE ASSESS EE EXPLAINED THAT HE IS ENGAGED IN THE TRADE OF PURCHASE OF CHILLIES THROU GH M/S RELIGARE COMMODITIES LTD, DEPENDING 3 I.T.A. NO. 232 /VIZ/201 9 AND CO NO.69/VIZ/2019 , A.Y.201 2 - 1 3 SRI LALITH KUMAR BAGRECHA , GUNTUR ON THE REQUIREMENT OF M/S LALITH MOHAN SPICES PVT. LTD. THE FUNDS TAK EN FROM M/S LALITH MOHAN SPICES PVT. LTD. WERE UTILIZED FOR PURCHASE OF CHILLIES OF THE SAME COMPANY . T HE CHILLIES WERE PURCHASED THROUGH M/S RELIGARE COMMODITIES LTD. . FROM NCMSL AND SUPPLIED TO THE LALITH MOHAN SPICES, T HUS SUBMITTED THAT THE ADVANCES TAKEN FROM THE COMPANY TAKES THE CHARACTER OF TRADE ADVANCES, HENCE, THE PROVISIONS OF DEEMED DIVIDEND U/S 2(22)(E) HAS NO APP LICATION IN THE ASSESSEES CASE. THE AO DID NOT FIND FAVOUR WITH THE EXPLANATION OFFERED BY THE ASSESSEE, HENCE MADE THE ADDITION OF RS.2,50,22,099/ - AS DEEMED DI VIDEND U/S 2(22)(E) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) FOUND THAT THE ADVANCES RECEIVED BY THE ASSESSEE WERE IN THE NATURE OF TRADE ADVANCES, THEREFORE, HELD THAT THERE IS NO CA SE FOR TAXING THE ADVANCES RECEIVED U/S 2(22)(E) OF THE ACT, ACCORDINGLY, DELETED THE ADDITION MADE BY THE AO. THE LD.CIT(A) HAS REFERRED HOST OF DECISIONS IN FAVOUR OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REVENUE HAS FILED APPEA L BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, THE LD.DR ARGUED THAT THE ASSESSEE HAS RECEIVED THE ADVANCES FROM THE COMPANY WHERE THE ASSESSEE IS HOLDING MORE THAN 20% OF THE SHARE HOLDING. THE FUNDS WERE USED FOR HIS 4 I.T.A. NO. 232 /VIZ/201 9 AND CO NO.69/VIZ/2019 , A.Y.201 2 - 1 3 SRI LALITH KUMAR BAGRECHA , GUNTUR OWN BUSINESS PURPOSES AND MADE THE PROFIT. THE LD.DR REFERRED SECTION 188 OF THE COMPANIES ACT WHICH PLACES RESTRICTIONS ON THE RELATED PARTY TRANSACTIONS . THE LD.DR FURTHER ARGUED THAT AS PER SECTION 188 OF THE ACT, THE DIRECTOR IS NOT PERMITTED TO TAKE ANY ADVANCES FROM THE COMPANY O R ENTER INTO CONTRACT / ARRANGEMENT WITH RELATED PARTY. THEREFORE, ARGUED THAT THE ASSESSEE HAVING FULLY KNOWN THE PROVISIONS OF THE COMPANIES ACT, ENTERED INTO THE TRANSACTION AGAINST THE COMPANY LAW. THE LD.DR FURTHER SUBMITTED THAT HONBLE SUPREME CO URT IN THE CASE OF P.SARADA VS. COMMISSIONER OF INCOME TAX (CENTRAL), MADRAS, 229 ITR 444 HELD THAT THE ADVANCES MADE BY THE COMPANY TO THE ASSESSEE ARE TO BE TREATED AS DEEMED DIVIDEND AND SUBSEQUENT ADJUSTMENT OF THE ACCOUNT WILL NOT ALTERNATE THE POSITI ON. THEREFORE, ARGUED THAT THE LD.CIT(A) OUGHT NOT TO HAVE TREATED THE ADVANCE AS TRADE ADVANCE AND DELETED THE ADDITION. 5. ON THE OTHER HAND, THE LD.AR SUBMITTED THAT THERE IS NO SPECIFIC BAR ON THE ASSESSEE TO MAKE THE TRANSACTIONS WITH THE COMPANY. THE TRANSACTIONS WITH THE COMPANY ARE TREATED AS RELATED PART Y TRANSACTION S WHICH REQUIRED TO BE UNDERTAKEN WITH THE APPROVAL OF THE BOARD OF DIRECTORS AND THE TRANSACTIONS SHOULD BE AT ARMS LENGTH AND IT IS NOT THE ISSUE OR GROUND IN THIS APPEAL . THE LD. AR FURTHER SUBMITTED THAT THE CBDT 5 I.T.A. NO. 232 /VIZ/201 9 AND CO NO.69/VIZ/2019 , A.Y.201 2 - 1 3 SRI LALITH KUMAR BAGRECHA , GUNTUR HAS ISSUED A CIRCULAR NO.19/2017 DATED 12.06.2017 CLARIFYING THAT THE ADVANCES IN THE NATURE OF COMMERCIAL TRANSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF SEC.2(22)(E) OF THE ACT. THEREFORE, ARGUED THAT THE TRANSACTIONS ENTERED BY THE ASSESSEE ARE PURELY COMMERCIAL TRANSACTIONS AND HENCE , THERE IS NO CASE FOR TAXING THE ADVANCES AS DEEMED DIVIDEND. ACCORDINGLY ARGUED THAT THE CIT(A) RIGHTLY DELETED THE ADDITION AND NO INTERFERENCE IS CALLED FOR. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IN THE INSTANT CASE, THE AO MADE THE ADDITION IN RESPECT OF ADVANCE RECEIVED BY THE ASSESSEE FROM THE COMPANY OUT OF DEPOSITS MADE IN THE ASSESSEES BANK ACCOUNT NO.01891070073169. THE AO OBSERVED THAT OUT OF THE TOTAL DEPOSITS OF RS.4,82,79,691/ - , A SUM OF RS.2,50,22,099/ - WAS RECEIVED FROM M/S LALITH MOHAN SPICES PVT. LTD., THEREFORE, VIEWED THAT THE SAME REQUIRED TO BE TAXED U/S 2(22)(E) OF THE ACT. W E OBSERVE FROM THE ORDER OF THE AO THAT THE ASS ESSEE DID NOT FAIL TO FURNISH ANY INFORMATION WHICH WAS CALLED FOR BY THE AO. THE LD.AR SUBMITTED THE PAPER BOOK AND AS PER PAGE NO.21 OF THE PAPER BOOK, THE ASSESSEE FURNISHED THE ACCOUNT COPY OF LALITH MOHAN SPICES (P) LTD. , I N TH E BOOKS OF LALIT H KUMAR BAGRECHA AS PER WHICH THE ASSESSEE HA S RECEIV ED THE ADVANCES AND OUT OF THE SAME 6 I.T.A. NO. 232 /VIZ/201 9 AND CO NO.69/VIZ/2019 , A.Y.201 2 - 1 3 SRI LALITH KUMAR BAGRECHA , GUNTUR PURCHASED CHILLIES FROM M/S RELIGARE COMMODITIES LTD. THROUGH NCMSL AND SUPPLI ED THE SAME TO THE COMPANY. WE, OBSERVE FROM THE ACCOUNT COPY OF M/S LALITH MOHAN SPICES PVT. LTD., PLACED IN THE PAPER BOOK THAT THE ADVANCES WERE RECEIVED FOR PURCHASE OF CHILLIES TO MAKE THE SUPPLIES TO THE COMPANY. THE ASSESSEE HAD SUPPLIED THE CHILLIES OT M/S LALITH MOHAN SPICES PVT LTD. AS UNDER : 27.06.2011 RS.17 .99 LAKHS 27.07.2011 RS.95.42 LAKHS 24.09.2011 RS.135.11 LAKHS TOTAL RS.248.52 LAKHS SUPPLY IS MORE OR LESS EQUAL TO THE ADVANCES RECEIVED BY THE ASSESSEE FROM THE COMPANY . IT IS OBSERVED THAT WITHIN THE SHORT SPAN OF TIME OF RECEIVIN G THE ADVANC ES, THE ASSESSEE HAD SUPPLIED THE CHILLIES AFTER PROCUREMENT FROM M/S RELIGARE COMMODITIES LTD. THEREFORE IT IS ESTABLISHED FROM T HE PAPER BOOK THAT THE ADVANCES RECEIVED BY THE ASSESSEE WERE COMMERCIAL TRANSACTIONS AND SQUARELY COV ERED BY CIRCULAR NO. 19/ 2017 DATED 12. 06.2017. THOUGH THE CIRCULAR WAS DATED 12.06.2017, THE BOARD HA S CLARIFIED THAT THE ISSUE HAS ATTAINED FINALITY AND THE COMMERCIAL TRANSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF SEC.2(22)(E) OF 7 I.T.A. NO. 232 /VIZ/201 9 AND CO NO.69/VIZ/2019 , A.Y.201 2 - 1 3 SRI LALITH KUMAR BAGRECHA , GUNTUR THE ACT. THIS VIEW IS ALSO SUPPORTED BY THE D ECISIONS OF HONBLE HIGH COURTS AS UNDER. ( A ) CIT VS. CREATIVE DYEING & PRINTING PVT. LTD. (51 TAXMANN.COM 569) (DEL) ( B ) CIT VS. AMRIK SINGH (P&H) (231 TAXMAN 731) T HE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE BOARD CIRCULAR DATED 12.06.2017, HENCE, WE HOLD THAT TH E LD.CIT(A) RIGHTLY DELETED THE ADDITION . HOWEVER FROM THE ASSESSMENT ORDER, WE FIND THAT THE ASSESSMENT WAS COMPLETED ON THE INFORMATION UPLOADED BY THE ASSESSEE . D URING THE APPEAL HEARING ALSO THE LD.DR SUBMITTED THAT THE SAID INFORMATION OF ACCOUNT COP Y WAS NOT AVAILABLE TO THE AO. THEREFORE IN THE INTEREST OF JUSTICE, WE, REMIT THE MATTER BACK TO THE FILE OF THE AO FOR LIMITED PURPOSE OF VERIFICATION OF GENUINE NE SS OF TRANSACTION S SUBMITTED IN THE PAPER BOOK WITH REGARD TO SALES MADE TO THE COMPANY. IF THE SALES ARE SUPPO R TED BY THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS WELL AS THE COMPANY THE TRANSACTIONS WOULD NOT TREATED AS DEEMED DIVIDEND AND COVERED BY THE CIRCULAR CITED. OTHER WISE, THE AO IS FREE TO DECIDE THE ISSUE ON MERITS AFTER GIVING OPPORTUNITY TO THE ASSESSEE. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS SET ASIDE AND THE ISSUE IS REMITTED TO THE FILE OF THE AO . T HE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOS ES. 8 I.T.A. NO. 232 /VIZ/201 9 AND CO NO.69/VIZ/2019 , A.Y.201 2 - 1 3 SRI LALITH KUMAR BAGRECHA , GUNTUR 7. THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE IN SUPPORT OF THE ORDER OF THE LD.CIT(A). SINCE THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES , THE CROSS OBJECTIONS OF THE ASSESSEE ALSO STANDS ALLOWED FOR STATISTICAL PURPOSES. 8 . IN THE RESULT, APPEAL OF THE REVENUE AS WELL AS THE CROSS OBJECTIONS OF THE ASSESSEE ALLOWED FOR STATISTICAL PURPOSES. . ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH FEBRUARY , 2020. S D/ - S D/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 07 . 0 2 .20 20 L.RAMA, SPS / COPY OF THE ORDER FORWARDED TO: - 1 . / THE REVENUE DY.COMM ISSIONER OF INCOME TAX, CIRCLE - 1(1), GUNTUR 2 . / THE ASSESSEE - SRI LALITH KUMAR BAGRECHA, 24 - 9 - 80, R.AGRAHARAM GUNTUR 3. THE PR.COMMISSIONER OF INCOME TAX, GUNTUR 4. THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 , GUNTUR 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM