Jitendra Kapildeo Gupta, Pune V. Deputy Commissioner of Income-tax, Circle -6, Pune

ITA 2522/PUN/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9769 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 31-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HARI KRISHAN
• Keywords: Business income; Proportionate interest; Deemed dividend; Commercial expediency; TDS
• Section: 148; 142(1); 2(22)(e); 143(1); 143(2); 73

Judgement Text

आयकर अपीऱीय अधिकरण “बी” न्यायपीठ प ु णे म ें । IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपीऱ सं. / ITA No.2522/PUN/2017 नििाारण वषा / Assessment Year : 2013-14 Shri Jitendra Kapildeo Gupta, S. No. 206, 1 st Floor, Gera Emporia, Behind Phoenix Marketcity, Viman Nagar, Pune – 411014 PAN : AAYPG3058J .......अऩीऱाथी / Appellant बिाम / V/s. Deputy Commissioner of Income Tax, Circle – 6, Pune ......प्रत्यथी / Respondent आयकर अपीऱ सं. / ITA No.135/PUN/2018 नििाारण वषा / Assessment Year : 2013-14 The Asst. Commissioner of Income Tax, Circle – 6, Pune .......अऩीऱाथी / Appellant बिाम / V/s. Jitendra K Gupta, A-1, Surbhi Complex, Vishrantwadi, Airport Road, Yerwada, Pune -15 PAN : AAAYPG3058J ......प्रत्यथी / Respondent 2 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 आयकर अपीऱ सं. / ITA No.2526/PUN/2017 नििाारण वषा / Assessment Year : 2013-14 M/s. Subu Chem Pvt. Ltd., S. No. 206, 1 st Floor, Gera Emporia, Behind Phoenix Marketcity, Viman Nagar, Pune – 411014 PAN : AAECS1314C .......अऩीऱाथी / Appellant बिाम / V/s. Deputy Commissioner of Income Tax, Circle – 6, Pune ......प्रत्यथी / Respondent आयकर अपीऱ सं. / ITA No.152/PUN/2018 नििाारण वषा / Assessment Year : 2013-14 The Asst. Commissioner of Income Tax, Circle – 6, Pune .......अऩीऱाथी / Appellant बिाम / V/s. M/s. Subu Chem Pvt. Ltd., A-1, Surbhi Complex, Vishrantwadi, Airport Road, Yerwada, Pune -15 PAN : AAECS1314C ......प्रत्यथी / Respondent Assessee by : Shri Hari Krishan Revenue by : Shri S.P. Walimbe स ु नवाई की तारीख / Date of Hearing : 29-10-2021 घोषणा की तारीख / Date of Pronouncement : 25-01-2022 3 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 आदेश / ORDER PER S.S. VISWANETHRA RAVI, JM : These are batch of four cross appeals by the different assessee and Revenue. In ITA No. 2522/PUN/2017 by the assessee and cross appeal by the Revenue in ITA No. 135/PUN/2018 against the common order dated 21-06-2016 passed by the Commissioner of Income Tax (Appeals)-4, Pune [„CIT(A)‟] for assessment year 2013-14 and ITA No. 2526/PUN/2017 by the assessee and cross appeal by the Revenue in ITA No. 152/PUN/2018 against the common order dated 08-06-2017 passed by the Commissioner of Income Tax (Appeals)-4, Pune [„CIT(A)‟] for assessment year 2013-14. 2. Since, the issues raised in all the four appeals are similar basing on the same identical facts. Therefore, with the consent of both the parties, we proceed to hear all the four appeals together and to pass a consolidated order for the sake of convenience. 3. First, we shall take up appeal in ITA No. 135/PUN/2018 for A.Y. 2013-14 filed by the Revenue as it is constitutes the root of the matter. 4. The Revenue raised five grounds of appeal amongst which the only issue emanates for our consideration is challenging the action of CIT(A) in deleting the addition of Rs.7,86,03,706/- ignoring payment of full amount of interest paid by the “company” in the facts and circumstances of the case. 4 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 5. We note from the record that the assessee is an individual and filed its return of income declaring a total income of Rs.47,09,400/- which was processed u/s. 143(1) of the Act. The AO observed that the assessee is a Director in M/s. Subu Chem Pvt. Ltd. in which protective addition was made on account of deemed dividend for the same assessment year i.e. A.Y. 2013-14 and substantive addition is required to be made in the hands of the assessee who is an individual. Accordingly, a notice u/s. 148 of the Act issued and notices u/s. 143(2) and 142(1) of the Act wherein a single question issued to the assessee why Rs.7,86,03,076/- received from M/s. Subu Chem Pvt. Ltd. as loan should not be treated as deemed dividend u/s. 2(22)(e) of the Act. The assessee filed detailed reply vide its letter dated 06-06-2016 which is reproduced in the assessment order and also placed on record at Page No. 178 of the paper book. Considering the reply, the AO holding the same as not acceptable and treated as loan alleged to have taken to the extent of accumulated profit till 31-03-2012 relating to A.Y. 2013-14 of Rs.7,86,03,706/- as deemed dividend u/s. 2(22)(e) of the Act. The CIT(A) restricted the said addition to an extent of Rs.2,66,65,600/- which was the amount directly went to the assessee from M/s. Subu Chem Pvt. Ltd. account. 6. The ld. DR submits, that the CIT(A) ought to have considered the fact of loan/advance reflected in the name of assessee in the books of account of “company”, coupled with the fact that proportionate ownership of property acquired out of borrowed fund by the “company” to the extent of loan/advance lies with the assessee and payment of full interest. The “company” also paid full amount of interest on entire loan and claimed as expenditure in the return of income. The CIT(A) erred in deleting the 5 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 addition without appreciating the fact that the “company” had taken loan from M/s. Bajaj Finance Ltd. and advanced impugned amount to the assessee which was utilized to purchase property for which the “company” paid interest. The ld. DR submits that the entries in books of account are secondary, the AO examined the case in detail and correctly treated the accumulated profit to the extent of addition made by him. The AO also examined the commercial expediency to purchase the said property by the M/s. Subu Chem Pvt. Ltd. and the assessee along with other co-borrowers and absolutely there was no commercial expediency. 7. The ld. AR, Shri Hari Krishan submits that the assessee is a Director in M/s. Subu Chem Pvt. Ltd. having 90% share and remaining 10% by his wife Smt. Prem Sheela Gupta and his father Shri Kapil Deo Prasad Gupta having 5% each. To have a corporate office, decided to purchase a commercial premises located at Viman Nagar, and M/s. Bajaj Finance Ltd. offered to provide required finance, M/s. Bajaj Finance Ltd. advanced loan of Rs.20,30,,00,000/- and out of which it was decided of Rs.6,00,00,000/- will be used by M/s. Subu Chem Pvt. Ltd. and the balance loan amount Rs.14,30,00,000/- allocated to the assessee and drew our attention to the Page Nos. 73 to 164 of the paper book. He submits that since the amount of Rs.14,30,00,000/- is allocated to the assessee and he will reimburse to M/s. Subu Chem Pvt. Ltd. proportionate amount of interest payable to M/s. Bajaj Finance Ltd. He submits that M/s. Bajaj Finance Ltd. advanced loan of Rs.20,30,00,000/- vide four separate loan agreements and drew our attention to Page No. 180 of the paper book. He submits that the addition made by the AO and as confirmed by the CIT(A) to the extent therein is not maintainable as the lower authorities below both 6 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 failed to see the true nature of payment entry which is essential before applying the provisions contained in Section 2(22)(e) of the Act. The nomenclature used to describe any entry in the books of accounts does not determine the true nature of the transaction. He argued that it is a settled principle before invoking the provisions u/s. 2(22)(e) of the Act, the lower authorities ought to have seen the substance of the transaction in real sense. He submits that a transfer entry in the books of accounts cannot be brought within the ambit of provisions u/s. 2(22)(e) of the Act and there must be out flow from company to shareholder. He argued that there was no out flow of cash from the books of account of M/s. Subu Chem Pvt. Ltd. to the assessee and there is only mere transfer entry which was made in terms of conditions put forth by M/s. Bajaj Finance Ltd. Further, he argued that there was no actual flow of funds, it is only an allocation and that mere allocation would not amount to payment and placed reliance in the case laws contained in legal paper book from Page Nos. 1 to 120. 8. Heard both the parties and perused the material available on record. We note that the facts emanating from the records are that the assessee Mr. Jitendra K. Gupta is the director in M/s. Subu Chem Pvt. Ltd. Pune (here in after also referred to as “the company”), which was incorporated in the year 2000. It is an ancillary industry of M/s. Exide Industries Ltd., mainly doing the job work of charging the new batteries manufactured by M/s. Exide Industries Ltd. It is also manufacturing the plastic battery cases mainly for M/s. Exide Industries Ltd. It has its factories at Pune, Hussur (Karnataka) and Rewari (Haryana). The “company” is having the following directors: 7 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 1 Shr. Jitendra K. Gupta Assessee 90 % share holder 2 Smt. PremSheela Gupta Wife of the assessee 05 % share holder 3 Shri. KapilDeo Prasad Gupta Father of the assessee 05 % share holder 9. As the business of the “company” was growing, to have a corporate office of its own in some good location at Pune and found four storied commercial premises known as Gera Emporia at Viman Nagar, Pune for the cost of Rs.24,00,00,000/-. The “company” decided to buy the said commercial premises. The M/s. Bajaj Finance Limited, a leading financial institution was ready to provide the required finance but on a condition that M/s. Krish Auto (I) Pvt. Ltd. another group company and the Directors of M/s. Subu Chem Pvt. Ltd. should also become the co-borrowers along with the “company”. The “company” accepted above mentioned condition of M/s. Bajaj Finance Ltd. Accordingly, M/s. Bajaj Finance Ltd. sanctioned a loan of Rs.20,30,00,000/- as per loan agreements as under : Particulars of Loan Agreement Nos. Amount (Rs.) Bajaj Finance 204051 2,76,729.00 Bajaj Finance 257271 15,63,193.00 Bajaj Finance 271532 3,96,31,721.00 Bajaj Finance 279135 10,25,25,911.00 Bajaj Finance 308517 99,63,771.00 Bajaj Finance 308592 4,98,18,854.00 10. Shri Jitendra K Gupta, the assessee, the main Director of the “company” holding 90% of shares and also holds 90 % shares in the other group company M/s Krish Auto (I) Pvt. Ltd., thereby, M/s. Krish Auto (I) Pvt. Ltd, Smt. Prem Sheela Gupta (wife of Mr. Jitendra K. Gupta) and Shri Kapil Deo Prasad Gupta (father of Mr. Jitendra K Gupta) become co- borrowers along with the “company”. It was decided that the assessee will 8 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 buy the upper floors of the property and the “company” will buy the basement and the ground floor. Further, that out of the borrowings from M/s. Bajaj Finance Limited, the company will use the amount of Rs.6,00,00,000/- for the purchase of the basement and the ground floor and the assessee will use the amount of Rs.14,30,00,000/-for the purchase of the upper floors. Further, decided that apart from the loan to be granted by M/s. Bajaj Finance Ltd. for the purchase of upper floors of the property, the “company” will provide to the assessee, the funds for the balance cost of purchase of the upper floors of the property including stamp duty and registration charges etc. 11. We note that the cheques were issued by M/s. Bajaj Finance Ltd. directly in the names/bank accounts of the vendors of the property. Since, the “company” was the main borrower, for the accounting purposes the entire loan of Rs.20,30,00,000/- was shown in the books of accounts of the “company” as loan from M/s. Bajaj Finance Ltd. and an amount of Rs.14,30,00,000/- allocated to Shri Jitendra K. Gupta which is reflecting in the schedule of “loans and advances” in the Balance Sheet at Page No. 19 of the paper book of the Company. 12. The ld. AR in this regard challenged that the AO was not justified in making the addition of Rs.7,86,03,706/- to the income of the assessee and was wrongly invoked the provisions of Section 2(22)(e) of the Act for the reasons that the loan of Rs.14,30,00,000/- was actually borrowed from M/s. Bajaj Finance Ltd. by the assessee and not from the company M/s. Subu Chem Pvt. Ltd. 9 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 13. The ld. AR, challenging the action of CIT(A) in confirming the addition to an extent of Rs.2,66,65,600/-, submits that was the amount provided by the company to the assessee towards cost of property in addition to Rs.14,30,00,000/- for purchase of first, second and third floors wherein the first floor was occupied by the “company” and paying no rent to the assessee and has direct financial benefit to the company as the company occupied first floor and the ground floor which was purchased by the “company” let out to others earning lease amount. We note that there is no dispute by the ld. DR that the first floor was occupied by the company and paying no rent to the assessee and the ground floor which was purchased by the “company” was let out and income earned thereon was offered as business income in the hands of the “company”. Therefore, we find force in the arguments that there is a consideration passed to the assessee by giving Rs.2,66,65,600/- towards the purchase of upper floors and also stamp and registration cost. 14. We note from the certificate dated 05-11-2016 issued by M/s. Bajaj Finance Ltd. that, the assessee was the co-borrower along with the “company” M/s. Krish Auto (I) Pvt. Ltd, Smt. Prem Sheela Gupta (wife of the assessee) and Shri Kapil Deo Prasad Gupta (father of the assessee) and the loan facility was collectively, but, independently availed by the co- borrowers. Therefore, it is clear, the co-borrowers along with assessee have collectively availed the financial facilities and the loans were disbursed to the vendors which is evident from the loan agreements at Page Nos. 73 to 164 in the paper book. 10 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 15. We find, the issue in the present appeal relates to the application of provision of section 2(22)(e) of the Act. Admittedly, the assessee herein i.e. Mr. Jitendra K. Gupta is a shareholder in the company M/s. Subu Chem Pvt. Ltd. holding 90% shares of the said company. The assessee along with the company M/s. Subu Chem Pvt. Ltd. had purchased a property situated at Viman Nagar. The property was purchased out of loan availed from M/s. Bajaj Finance Ltd., who had agreed to lend the money for the purpose of purchase of property only on the condition that the assessee along with another company namely M/s. Krish Auto (I) Pvt. Ltd. also join as a co- borrowers of the loan. It is a matter of record that M/s. Bajaj Finance Ltd. had directly credited to the loan proceeds to the account of seller of the property i.e. M/s. Swati Construction Ltd. which is at Page No. 66 of the paper book and the property was purchased in the name of assessee Mr. Jitendra K. Gupta and being allowed to be used by the company M/s. Subu Chem Pvt. Ltd. for his business purposes without any payment of rent. Out of total loan amount of Rs.20,30,00,000/- sanctioned by M/s. Bajaj Finance Ltd. and amount of Rs.14,30,00,000/- was allocated to the assessee herein and the company namely M/s. Subu Chem Pvt. Ltd. also made a further advance of Rs.2,66,65,600/- towards the stamp duty and registration charges. In the given facts of the case the question that comes up for determination is whether the provision of section 2(22)(e) of the Act have an application. It is an admitted position that M/s. Bajaj Finance Ltd. sanctioned the loan only on the condition that the assessee should be a co-borrowers. Therefore, when the assessee signed the loan documents as a borrower the primary responsibility to repay the loan rests upon the assessee, to safeguard against any future liability on him. The assessee insisted the property be registered in his name which was being used by 11 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 the business purpose of the company i.e. M/s. Subu Chem Pvt. Ltd. It is admitted position that the assessee is not enjoying own rent from the company. Therefore, this shows that substance of transaction is purchase of property for the purpose of business of the company i.e. M/s. Subu Chem Pvt. Ltd. and it cannot be called as a gratuitous loan or advance given by the company to the assessee. It is a pure business transaction carried out by the company i.e. M/s. Subu Chem Pvt. Ltd. and ratio laid down by the Hon‟ble High Court of Calcutta in the case of Pradeep Kumar Malhotra reported in 338 ITR 538 is squrely applicable to the present case which is reads as under : “After hearing the learned Counsel for the parties and after going through the aforesaid provisions of the Act, we are of the opinion that the phrase "by way of advance or loan" appearing in sub-clause (e) must be construed to mean those advances or loans 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 dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power; but if such loan or advance is given to such share holder as a consequence of any further consideration which is beneficial to the company received 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 advance 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 share holder.” 16. The ratio of the above decision of Hon‟ble High Court of Calcutta is squarely applicable to the present case and therefore, the CIT(A) is justified in holding that the AO is not right in bring to tax sum of Rs.7,86,03,760/- as a deemed dividend in the hands of the assessee. Since, We held that the provision of section 2(22)(e) of the Act have no application to the facts of the case, there is no necessity to deal with the other contentions raised on behalf of the assessee. Thus, grounds by the Revenue fails and are dismissed. 12 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 17. In the result, the appeal of Revenue in ITA No. 135/PUN/2018 is dismissed. 18. Now, we shall take up appeal in ITA No. 2522/PUN/2017 for A.Y. 2013-14 filed by the assessee. 19. Ground Nos. 1 to 3 raised by the assessee challenging the action of CIT(A) in confirming and holding the amount given by M/s. Subu Chem Pvt. Ltd. qualifies as deemed dividends u/s. 2(22)(e) of the Act. 20. The ld. AR reiterated the submissions made in the appeal in ITA No. 2522/PUN/2017 by the assessee and requested us to adopt the same. Since, in the Revenue‟s appeal in ITA No. 135/PUN/2018, we held that the very transaction is undertaken out of business consideration, the question of any addition u/s. 2(22)(e) of the Act does not arise. Thus, grounds raised by the assessee are allowed. 21. In the result, the appeal of assessee in ITA No. 2522/PUN/2017 is allowed. 22. Now, we shall take up appeal in ITA No. 2526/PUN/2017 for A.Y. 2013-14 filed by the M/s. Subu Chem Pvt. Ltd. 23. In this appeal, the assessee raised effective ground in ground No. 2 challenging the action of CIT(A) in holding an amount of Rs.2,66,65,600/- in the hands of Shri Jitendra K. Gupta. 13 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 24. The CIT(A) discussed the issue relating to ground No. 2 at Para No. 7.3.4 of the impugned order wherein he deleted the addition made by the AO in the hands of the assessee being made on protective basis taking reference the order of AO in making the same addition in the hands of the Director of the assessee i.e. Shri Jitendra K. Gupta, a shareholder. Therefore, we find no merit in ground No. 2 as it is misconceived. Thus, the ground No. 2 raised by the assessee is dismissed. 25. In the result, the appeal of assessee in ITA No. 2526/PUN/2017 is dismissed. 26. Now, we shall take up appeal in ITA No. 152/PUN/2018 for A.Y. 2013-14 filed by the Revenue. 27. Ground No. 1 raised by the Revenue is against the deleting of addition made on account of protective basis in the case of assessee. We note that the CIT(A) held in Para No. 7.3.4 that no addition is maintainable in the hands of the assessee as the same was retained in the hands of its Director on substantive basis. We dismissed in the aforementioned paragraph the similar ground raised by the assessee in ITA No. 2526/PUN/2017, therefore, ground No. 1 raised by the Revenue is misconceived and it is dismissed. 28. Ground Nos. 2 and 3 raised by the Revenue challenging the action of CIT(A) in allowing proportionate interest paid to NBFC for non-deduction of TDS. We note that the CIT(A) discussed this issue from Page Nos. 3 to 10 of the impugned order, wherein we note that the AO disallowed interest of 14 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 Rs.1,23,13,245/- for non-deduction of TDS. The CIT(A) observed that the interest paid to M/s. Standard Chartered Bank and HDFC Bank where TDS is not required to deduct as per sub-clause (ia) of clause (iii) of sub- section (3) of section 194(A) of the Act and the ld. DR did not dispute the same, we do not find any infirmity in the order of CIT(A). 29. Further, in Para No. 6.3.4 of impugned order he observed since the assessee claimed the proportionate interest on loan granted to Director, Shri Jitendra K. Gupta in its books of account. On such submission the CIT(A) confirmed the addition in the hands of the assessee. Therefore, we find no infirmity in the order of CIT(A). 30. Further, an amount of Rs.30,12,910/- was allowed by the CIT(A) where no direction was given to the AO regarding non-deduction of TDS. The ld. DR has rightly pointed that the CIT(A) without making any detailed discussion on such amount simply allowed the said amount and vehemently argued to restore the issue to the file of AO for verification regarding the non-deduction of TDS. We find that the AO sought details but the assessee as it appears from Para No. 4.2 of AO‟s order that the assessee did not give any submissions but the CIT(A) discussed the issue in details in the impugned order in respect of interest paid to HDFC Bank Ltd. and Standard Chartered Bank, but, however, we find no reasons as to how the allowability of Rs.30,12,910/- given by the CIT(A), therefore, we deem it proper to remand the issue to file of AO for its verification in view of the grounds raised by the Revenue that the proportionate amount of interest paid to M/s. Bajaj Finance Ltd., a NBFC as claimed by the ld. DR 15 ITA Nos. 2522 & 2526/PUN/2017 and 135 & 152/PUN/2018 in ground Nos. 2 and 3. Thus, ground Nos. 2 and 3 raised by the Revenue is allowed for statistical purpose. 31. In the result, the appeal of Revenue in ITA No. 152/PUN/2018 is allowed for statistical purpose. 32. To sum up, the appeal of assessee in ITA No. 2522/PUN/2017 is allowed, the appeal of assessee in ITA No. 2526/PUN/2017 is dismissed, the appeal by Revenue in ITA No. 135/PUN/2018 is dismissed and the appeal by Revenue in ITA No. 152/PUN/2018 is allowed for statistical purpose. Order pronounced in the open court on 25 th January, 2022. Sd/- Sd/- (Inturi Rama Rao) (S.S. Viswanethra Ravi) ACCOUNTANT MEMBER JUDICIAL MEMBER ऩ ु णे / Pune; ददनाांक / Dated : 25 th January, 2022. रवव आदेश की प्रनिलऱपप अग्रेपषि / Copy of the Order forwarded to : 1. अऩीऱाथी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The CIT(A)-4, Pune 4. The Pr. CIT-3, Pune 5. ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, “बी” बेंच, ऩ ु णे / DR, ITAT, “B” Bench, Pune. 6. गार्ड फ़ाइऱ / Guard File. //त्यावऩत प्रतत// True Copy// आदेशान ु सार / BY ORDER, वररष्ठ तनजी सधचव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩ ु णे / ITAT, Pune