ACIT, CHENNAI V. M/s. Subhavarsha Infotech, CHENNAI

ITA 2805/CHNY/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9956 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 28-09-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R CLEMENT RAMESH KUMAR
• Assessee Lawyers: M KARUNAKARAN
• Keywords: Deemed dividend

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH : CHENNAI . , ! ' # ' $ . %& , ( * + [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NO.2365/CHNY/2016. / ASSESSMENT YEAR : 2012-2013. M/S. SUBHAVARSHA INFOTECH, 72/2, SREE BAGYA HOMES, GAJPATHY STREET, SHENOY NAGAR, CHENNAI 600 030. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 10(1) CHENNAI. ./I.T.A. NO.2805/CHNY/2016. / ASSESSMENT YEAR : 2012-13. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 10(1) CHENNAI. VS. M/S. SUBHAVARSHA INFOTECH, 72/2, SREE BAGYA HOMES, GAJPATHY STREET, SHENOY NAGAR, CHENNAI 600 030. [PAN ABAFS 0821Q] ( ,- / APPELLANT) ( ./,- /RESPONDENT) ASSESSEE BY : SHRI. M. KARUNAKARAN, ADVOCATE DEPARTMENT BY : SHRI. R. CLEMENT RAMESH KUMAR, ADDL.CIT. /DATE OF HEARING : 03-12-2018 /DATE OF PRONOUNCEMENT : 05-12-2018 ITA NO.2365& 2805 /2016 :- 2 -: 0 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AN D REVENUE RESPECTIVELY, DIRECTED AGAINST AN ORDER DATED 28.07 .2016 OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-12, CHENNAI. 2. ASSESSEE IN ITS APPEAL HAS RAISED ELEVEN GROUNDS, O F WHICH GROUND NO.11 IS GENERAL NEEDING NO SPECIFIC ADJUDIC ATION. 3. GROUNDS TWO TO FIVE CONCERNS DISALLOWANCE OF INTER EST MADE BY THE LD. ASSESSING OFFICER TO THE EXTENT SUCH DIS ALLOWANCE WAS SUSTAINED BY THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). GROUNDS SIX TO TEN OF THE ASSESSEE ASSAILS SUSTENANCE OF DE EMED DIVIDEND OF RS.4,54,00,000/-, OUT OF A TOTAL ADDITION OF A7,54, 00,000/- MADE UNDER SECTION 2(22) (E) OF THE INCOME TAX ACT, 1961 (IN S HORT THE ACT). 4. AS AGAINST THE ABOVE, APPEAL OF THE REVENUE ASSAIL S THE RELIEF GIVEN BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) ON THE ADDITION MADE BY THE LD. ASSESSING OFFICER U/S.2(22) (E) OF THE ACT, 1961. 5. SINCE THE ISSUE REGARDING DEEMED DIVIDEND APPEAR IN BOTH THE APPEALS, THIS IS CONSIDERED FIRST. ITA NO.2365& 2805 /2016 :- 3 -: 6. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSI NESS OF PROVIDING SOFTWARE SERVICES FOR TELECOMMUNICATION SECTOR, HAD FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR D ISCLOSING INCOME OF A2,37,51,370/-. ASSESSEE FIRM CONSISTED OF THREE PARTNERS NAMELY ONE SHRI. T. PADMAKUMAR, ONE SHRI. V. SUNDARAMOORTH Y AND ONE SHRI. J. SELVAKUMAR WITH 33% SHARE IN THE PROFITS. ASSE SSEE HAD RECEIVED ADVANCE AGGREGATING TO A7,54,00,000/- FROM A COMPAN Y CALLED M/S. SYMBIOTIC INFOTECH P. LTD. SHARE HOLDERS OF THIS C OMPANY WERE THE SAME AS THE PARTNERS OF THE ASSESSEE FIRM. EACH OF THEM HELD 33.33% OF THE SHARES. LD. ASSESSING OFFICER WAS OF THE OPINION THAT ADVANCES RECEIVED BY THE ASSESSEE, FROM M/S. SYMBIO TIC INFOTECH P. LTD, FELL WITHIN THE MEANING OF DEEMED DIVIDEND U/S .2(22)(E) OF THE ACT. AS PER THE LD. ASSESSING OFFICER EACH OF THE P ARTNERS IN THE ASSESSEE FIRM, HAD SUBSTANTIAL INTEREST WITH MORE THAN 20% SHARE OF PROFITS AND THEY WERE BENEFICIAL OWNERS OF THE M/S. SYMBIOTIC INFOTECH P. LTD WITH MORE THAN 10% SHARE HOLDING. ASSESSEE W AS PUT ON NOTICE AS TO WHY ADDITION UNDER SECTION 2(22) (E) OF THE ACT SHOULD NOT BE MADE. REPLY OF THE ASSESSEE WAS THAT ADVANCES RECEI VED FROM M/S. SYMBIOTIC INFOTECH P. LTD WERE TRADING ADVANCES A ND SECTION 2(22) (E) OF THE ACT DID NOT APPLY. AS PER THE ASSESSEE, A PART OF THE SUCH ADVANCES, WAS GIVEN AS LOAN TO ONE SMT. PRIYA RACHE L WHO WAS THE WIFE OF A FRIEND OF ONE OF THE PARTNERS. ASSESSEE R ELIED ON A JUDGMENT ITA NO.2365& 2805 /2016 :- 4 -: OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. PRINTWAVE SERVICES P. LTD, (2015) 373 ITR 665. ANOTHER SUBMISSION MADE BY THE ASSESSEE WAS THAT THE ADVANCES COULD ALSO BE CONSI DERED AS INTER CORPORATE DEPOSIT. 7. HOWEVER, LD. ASSESSING OFFICER WAS NOT IMPRESSED B Y THE ABOVE REPLY. ACCORDING TO HIM, ASSESSEE HAD MAINT AINED SEPARATE TRADING LEDGER IN THE NAME OF M/S. SYMBIOTIC INFOTE CH P. LTD AND HAD SHOWN TRADING ADVANCES SEPARATELY. AS PER THE LD. ASSESSING OFFICER, THE IMPUGNED ADVANCE WAS DIFFERENT FROM WHAT WAS SH OWN IN SUCH TRADING ADVANCES. FURTHER, AS PER THE LD. ASSESSIN G OFFICER, THE ADVANCES WERE NEVER ADJUSTED AGAINST ANY SERVICES R ENDERED BY THE ASSESSEE. FURTHER, AS PER THE LD. ASSESSING OFFICE R, JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PRINTWAVE SERVICES P. LTD, (SUPRA) RELIED ON BY THE ASSESSEE WAS ON A DIFFERENT SET O F FACTS . IN THE SAID CASE WHAT WAS CONSIDERED WAS ADVANCES RECEIVED BY A LIMITED COMPANY AND NOT BY A PARTNERSHIP FIRM. FU RTHER, AS PER THE LD. ASSESSING OFFICER THE SUMS RECEIVED, WERE NOT UTILI ZED FOR ANY BUSINESS PURPOSE OF THE ASSESSEE. RELYING ON THE JU DGMENT OF HONBLE APEX COURT IN THE CASE OF NATIONAL TRAVEL SERVICES VS. CIT (2018) 401 ITR 154, LD. ASSESSING OFFICER HELD THAT THE SUM OF A7,54,0 0,000/- RECEIVED BY THE ASSESSEE AS ADVANCE FROM M/S. SYMBI OTIC INFOTECH P. ITA NO.2365& 2805 /2016 :- 5 -: LTD WAS NOTHING BUT DEEMED DIVIDEND U/S.2(22) (E) O F THE ACT. AN ADDITION WAS MADE ACCORDINGLY. 8. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. COMM ISSIONER OF INCOME TAX (APPEALS). SUBMISSIONS MADE BY THE AS SESSEE BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) WERE AS UNDER: - (I) THE INTENTION BEHIND THE PROVISIONS OF SECTION 2(22 (E) IS TO TAX DIVIDEND IN THE HANDS OF SHAREHOLDER. THE DEEMING PROVISIONS AS IT APPLIES TO THE CASE OF LOA NS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH IT'S SHAREHOLDER HAS SUBSTANTIAL INTEREST, IS BASED ON T HE PRESUMPTION THAT THE LOAN OR ADVANCES WOULD ULTIMAT ELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY G IVING THE LOAN OR . ADVANCE. THE INTENTION OF THE LEGISLA TURE IS, THEREFORE, TO TAX THE DIVIDEND ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF THE CONCERN. TH E APPELLANT SUBMIT THAT THE COMPANY MLS SYMBIOTIC LNF OTECH PVT. LTD. HAD IN FACT DISTRIBUTED DIVIDEND OF RS.1,80,00,000/- DURING THE YEAR AFTER PAYMENT OF D IVIDEND DISTRIBUTION TAX' THE SAID COMPANY HAD DISTRIBUTED SIMILAR DIVIDEND IN THE EARLIER FINANCIAL YEARS ALSO AS PER THE DETAILS BELOW: FINANCIAL VEAR DIVIDEND DIST RIBUTED 2010-2011 RS.2,70, 00,000 2009-2010 RS.1,44,00,000 THUS, THE COMPANY HAD NO INTENTION TO AVOID TAX ON DISTRIBUTION OF DIVIDEND AND THE LOAN WAS NOT GIVEN IN LIEU OF DISTRIBUTION OF DIVIDEND AS ENVISAGED IN THE ABO VE INTENTION OF THE LEGISLATURE WHITE ENACTING THE PRO VISIONS OF SECTION 2(22) (E). (II). LT WAS FURTHER SUBMITTED THAT OUT OF THE AMOU NTS OF RS3,30,00,000/- RECEIVED BY THE FIRM ON 22.11.2011 FROM THE COMPANY A SUM OF 3,00,00,000/- WAS ADVANCED ON 23.11.2011 AND RS,15,00,000/- WAS ADVANCED ON 13.03.2012 AS INTEREST-FREE LOAN TO SMT. PRIYA RACH EL (WIFE OF ONE OF THE PARTNER'S/SHAREHOLDER'S CLOSE FRIEND) . MOREOVER, THE APPELLANT FIRM HAD RETURNED THE SAID LOAN TO THE COMPANY IMMEDIATELY ON RECEIPT OF THE SAME FROM MRS. ITA NO.2365& 2805 /2016 :- 6 -: PRIYA RACHEL IN MARCH, 2A12. LN SUPPORT OF THE ABOV E CLAIM, THE LEARNED AR SUBMITTED COPIES OF THE BANK ACCOUNT OF THE APPELLANT WITH HDFC BANK, SHENO Y NAGAR BRANCH, THE LOAN ACCOUNT OF SMT. PRIYA RACHEL AND THE STATEMENT OF ACCOUNT OF M/S SYMBIOTIC LNFOTECH P LTD. THE DIRECT NEXUS BETWEEN THE LOANED FUNDS FROM THE COMPANY AND ADVANCE MADE TO MRS. PRIYA RACHEL WAS PROVED BEYOND DOUBT BY BANK ENTRIES. THE APPELLANT, THEREFORE ,PLEADED THAT SO FAR AS THE SUM OF RS.3,00,00,000/- IS CONCERNED, IT IS A LOAN TO A TH IRD PARTY AND NOT TO THE PARTNERS AND THE SAME WAS ALSO RETUR NED BACK TO THE COMPANY WITHIN A SHORT SPAN OF 4 MONTHS AND, THEREFORE, THIS SUM OF RS.3,00,00,000/-- SHOULD NOT AT ALL BE CONSIDERED AS 'DEEMED DIVIDEND' AS THE PARTNERS HAD NOT UTILIZED THE SAID LOAN FOR THEIR PERSONAL PURPOSE, NOR THE FIRM HAD USED THE FUNDS FOR ITS BUSINESS PURPOSES. THE COMPANY INSTEAD OF GIVING THE LOAN BY ITSELF HAS RO UTED THE LOAN THROUGH THE FIRM AS THE PARTNERS ARE THE SHAR EHOLDERS OF THE COMPANY. ACCORDING TO THE AR, IN ANY VIEW OF THE MATTER, THE SUM OF RS.3,00,00,000/-MAY BE EXCLUDED FROM THE QUANTUM OF 'DEEMED DIVIDEND' ASSESSED IN THE H ANDS OF THE APPELLANT. (III) THE LEARNED AR FURTHER SUBMITTED THAT THE FIR M IS NOT THE SHAREHOLDER OF THE COMPANY AND 'DEEMED DIVIDEND ' CAN ARISE ONLY IN THE HANDS OF THE SHAREHOLDERS OF THE COMPANY, BUT NOT IN THE HANDS OF THE FIRM IN WHICH THE SHAREHOLDERS ARE PARTNERS. THIS WAS SO HELD BY THE JURISDICTIONAL MADRAS HIGH COURT IN THE DECISION IN THE CASE OF CIT VS. PRINTWAVE SERVICES P LTD. (53 TAXMANN.CO M 3$2). MY ATTENTION WAS DRAWN TO THE FOLLOWING OBSER VATION OF THE HON'BLE MADRAS HIGH COURT; ' 8. FROM A READING AF THE ABOVE PROVISION, IT IS CLEAR THAT SECTION 2(22)(E)DEFINES DIVIDEND WHICH IS A PAYMENT BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST. LN THE PRESENT CASE, THE ASSESSE IS NOT THE BENEFICIAL OR REGISTERED OWNER AT THE SHAREHOLDINGS IN THE COMPANY. 9. LN THE TIGHT OF THE ABOVE SAID PROVISION, THE FINDINGS OF THE COMMISSIONER OF LNCOME-TAX (APPEALS) AS WELL AS THE TRIBUNAL THAT THE ITA NO.2365& 2805 /2016 :- 7 -: ASSESSEE, NOT BEING A REGISTERED OR BENEFICIAL SHAREHOLDER, IS NOT LIABLE TO PAY TAX, ARE CORRECT. WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE TRIBUNAL.' LD. COMMISSIONER OF INCOME TAX (APPEALS) AFTER GOIN G THROUGH THE SUBMISSIONS OF THE ASSESSEE, HELD THAT THE BUSINESS DEALINGS BETWEEN THE ASSESSEE AND THE COMPANY WERE FAR AND FEW. HO WEVER, ACCORDING TO HIM, OUT OF A7,54,00,000/- RECEIVED BY THE ASSE SSEE, FROM M/S. SYMBIOTIC INFOTECH P. LTD, A SUM OF A3,00,00,000/- WAS GIVEN BY THE ASSESSEE AS LOAN TO A THIRD PARTY, WHICH WAS RETURN ED IN MARCH, 2012. AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) , ASSESSEE IMMEDIATELY ON RECEIVING THE AMOUNT HAD REPAID IT T O M/S. SYMBIOTIC INFOTECH P. LTD. THUS, ACCORDING TO THE LD. COMMISS IONER OF INCOME TAX (APPEALS) THE SUM OF A3,00,00,000/- OUT OF A7, 54,00,000/- COULD NOT BE CONSIDERED AS DEEMED DIVIDEND. AS PER THE L D. COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE FIRM NOR ITS PARTNERS HAD BENEFITED OUT OF FORMER SUM. THUS, WHILE UPHOLDING THE ORDER OF ASSESSING OFFICER IN APPLYING SECTION 2(22) (E) OF THE ACT, HE CURTAILED THE ADDITION TO A4,54,00,000/-. THUS PARTIAL RELIE F WAS GIVEN TO THE ASSESSEE. 9. NOW BEFORE US, ASSESSEE IS AGGRIEVED THAT LD. COMMI SSIONER OF INCOME TAX (APPEALS) DID NOT DELETE THE ADDITION MA DE U/S.2(22) (E) ITA NO.2365& 2805 /2016 :- 8 -: OF THE ACT IN TOTO. AS AGAINST THIS, DEPARTMENT IN ITS APPEAL IS AGGRIEVED ON THE RELIEF OF A3,00,00,000/- GIVEN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 10. LD. AUTHORISED REPRESENTATIVE ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN SO FAR AS H E SUSTAINED THE ADDITION TO THE EXTENT OF A4,54,00,000/- U/S. 2(22) (E) OF THE ACT, SUBMITTED THAT THE JUDGMENT OF HONBLE APEX COURT I N THE CASE OF NATIONAL TRAVEL SERVICES (SUPRA), THOUGH IT WAS IN FAVOUR OF THE REVENUE, THE ISSUE WAS STILL TO BE SETTLED. ACCORD ING TO HIM, PREFERENCE OUGHT HAVE BEEN GIVEN TO THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS. MADHUR HOUSING AND DEVELOPMENT CO. (2018) 401 ITR 152 . IN ANY CASE, ACCORDING TO DECISION OF LD. COMMISSIONER OF INCOME TAX (APPEALS) TO EXCLUDE A SUM OF A3,00,00,000/-, WHILE MAKING THE ADDITION COULD NOT BE FAULTED. ACCORDING TO HIM, THIS AMOUNT WAS ADVANCED BY THE ASSESSEE TO SMT. PRIYA RACHEL AND THERE WAS NO BENEFIT TO THE PARTN ERS. THUS, ACCORDING TO HIM, THE RELIEF GIVEN BY THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) WAS APPROPRIATE. 11. PER CONTRA, AND IN SUPPORT OF ITS OWN APPEAL, LD. D EPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE SUM OF A3,00,00 ,000/- GIVEN BY THE ASSESSEE TO SMT. PRIYA RACHEL WAS NOTHING BUT A BENEFIT IN THE HANDS OF THE ASSESSEE FIRM AND SECTION 2(22) (E) O F THE ACT CLEARLY ITA NO.2365& 2805 /2016 :- 9 -: APPLIED. ACCORDING TO HIM, THERE WAS A DIRECT LINK BETWEEN LOANS GIVEN TO SMT. PRIYA RACHEL TO THE ASSESSEE ON ACCOU NT OF HER RELATIONSHIP WITH A PARTNER OF THE ASSESSEE FIRM. ACCORDING TO HIM, LD. COMMISSIONER OF INCOME TAX (APPEALS) FELL IN ERROR WHEN HE DELETED THE ADDITION TO THE EXTENT OF A3,00,00,000/-. 12. AD LIBITUM REPLY OF THE LD. AUTHORISED REPRESENTATI VE WAS THAT DEFINITION OF DEEMED DIVIDEND U/S.2(22) ( E) OF THE ACT CLEARLY SPECIFIED THAT SUCH LOANS AND ADVANCES SHOULD RESULT IN SOME INDIVIDUAL BENEFIT TO THE SHAREHOLDERS OF THE COMPANY FROM WHICH THE LOANS OR ADVANCES WERE RECEIVED. ACCORDING TO HIM, NO SUCH BENEFIT WAS RECEIVED BY THE PARTNERS OF THE ASSESSEE FIRM. THUS, AS PER THE LD . AUTHORISED REPRESENTATIVE, LD. COMMISSIONER OF INCOME TAX (APP EALS) WAS FAIR IN GIVING RELIEF TO THE ASSESSEE. 13. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISP UTE THAT A SUM OF A7,54,00,000/- WAS RECEIVED BY THE ASSESSEE AS ADV ANCE FROM M/S. SYMBIOTIC INFOTECH P. LTD. THERE IS ALSO NO DISPUTE THAT THE SAID COMPANY HAD TWO DIFFERENT ACCOUNTS IN THE BOOKS OF THE ASSESSEE, ONE FOR TRADING ADVANCES AND OTHER FOR NON-TRADING LOA NS/ ADVANCES, AND THE SUM OF A7,54,00,000/- WAS NOT A TRADING ADVANCE . IT IS ALSO NOT DISPUTED THAT M/S. SYMBIOTIC INFOTECH P. LTD. HAD A CCUMULATED PROFITS ITA NO.2365& 2805 /2016 :- 10 -: OF A28,09,06,827/- AS ON 31.03.2012. ASSESSEE HAD RELIED ON A JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF PRINTWAVE SERVICES P. LTD (SUPRA). LOWER AUTHORITIES HAD TAK EN A VIEW THAT THE SAID JUDGMENT APPLIED ONLY TO COMPANIES AND NOT TO PARTNERSHIP FIRMS, WHO WERE THE RECIPIENTS OF LOANS/ADVANCES. WE ARE OF THE OPINION THAT THIS VIEW TAKEN BY THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) CANNOT BE FAULTED. HONBLE SUPREME COUR T IN THE CASE OF NATIONAL TRAVEL SERVICES (SUPRA) WHILE REFERRING A SIMILAR ISSUE TO A LARGER BENCH HAD EXPRESSED SERIOUS DOUBT ON THE VIE W TAKEN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANKITECH PVT. LTD (2012) 340 ITR 14 AND THE JUDGMENT OF THEIR LORDSHIP IN MADHUR HOUSING AND DEVELOPMENT CO. (SUPRA). HERE BEFORE US, ADMITTEDLY, THE SHAREHOLDERS WERE THE SAME AS THE PARTNERS OF THE A SSESSEE FIRM AND THE FACTS ARE VERY SIMILAR TO THE ONE BEFORE HONBL E APEX COURT IN NATIONAL TRAVEL SERVICES (SUPRA). 14. COMING TO THE QUESTION OF RELIEF GIVEN TO THE ASSES SEE FOR THE SUM OF A3,00,00,000/- GIVEN BY THE ASSESSEE FIRM TO SMT. PRIYA RACHEL, IT IS AN ADMITTED POSITION THAT SMT. PRIYA RACHEL W AS THE WIFE OF ONE OF FRIENDS OF A PARTNERS. OR IN OTHER WORDS, ASSESSEE COULD NOT HAVE ADVANCED THE LOAN OF A3,00,00,000/-, IF SHE WAS NOT CLOSELY RELATED TO ONE OF THE PARTNERS. NO DOUBT, LD. AUTHORISED REPR ESENTATIVE ARGUED THAT SUCH LOAN GIVEN TO SM. PRIYA RACHERL DID NOT I NDIVIDUALLY BENEFIT ITA NO.2365& 2805 /2016 :- 11 -: ANY PARTNERS OR FIRM AND HENCE SECTION 2(22) (E) O F THE ACT WOULD NOT APPLY. HOWEVER, WE ARE OF THE OPINION THAT SUCH A NARROW DEFINITION TO THE WORD INDIVIDUAL BENEFIT CANNOT BE GIVEN. THE BENEFIT WILL INCLUDE DIRECT OR INDIRECT THINGS. PARTNER WHOSE FR IENDS WIFE RECEIVED THE ADVANCE HAD INDIRECTLY BENEFITED FROM THE ADVA NCE RECEIVED BY THE ASSESSEE FROM M/S. SYMBIOTIC INFOTECH P. LTD. WE AR E THEREFORE OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEAL S) FELL IN ERROR IN GIVING RELIEF OF A3,00,00,000/- TO THE ASSESSEE. I N THESE CIRCUMSTANCES, WE DISMISS THE GROUNDS 6 TO 10 OF THE ASSESSEE AND ALLOW THE APPEAL OF THE REVENUE. 15. THIS LEAVES US WITH GROUNDS 2 TO 5 RAISED BY THE A SSESSEE, WHICH ASSAILS SUSTENANCE OF A DISALLOWANCE OF A9,3 9,438/- OUT OF THE TOTAL DISALLOWANCE OF A22,42,003/- MADE BY THE LD. ASSESSING OFFICER. 16. FACTS APROPOS ARE THAT ASSESSEE HAD INCURRED INTERE ST EXPENDITURE OF A30,92,489/- AGAINST LOAN OF A4,03,0 7,862/- FROM M/S. INDIAN BANK. LD. ASSESSING OFFICER NOTED THAT CAPI TAL ACCOUNT OF THE PARTNERS REFLECTED A DEBIT BALANCE OF A6,07,29,805 /-. THUS, ACCORDING TO HIM, BUSINESS FUNDS WERE USED FOR PERSONAL USE . HE CALCULATED INTEREST ON A6,07,29,805/- AT A72,87,577/-. HOWEVE R, HE RESTRICTED THE DISALLOWANCE TO THE SUM OF A30,92,489/-, WHICH WAS CLAIMED AS INTEREST. ITA NO.2365& 2805 /2016 :- 12 -: 17. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. COMM ISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT THERE WERE TWO LOANS RAISED BY IT FROM M/S. INDIAN BANK, ONE OF WHICH WAS A CASH CREDIT AND THE OTHER A TERM LOAN. IN SO FOR AS CASH CREDIT ACCOUNT WAS CONCERNED, ASSESSEE AGREED BEFORE THE L D. COMMISSIONER OF INCOME TAX (APPEALS) FOR DISALLOWANCE OF INTERES T OF A8,48,081/- THEREON. HOWEVER, WITH REGARD TO BALANCE INTEREST OF A22,44,408/-, CONTENTION OF THE ASSESSEE WAS THAT THIS WAS INCURR ED ON A TERM LOAN WHICH WAS UTILIZED FOR ACQUIRING LAND AT PLOT NO.W- 485, SECOND AVENUE, SECTOR C, ANNA NAGAR WEST EXTENSION, CHENNA I FOR A COST OF A5,05,00,000/-. AS PER THE ASSESSEE, THE TERM LOAN HAVING BEEN FULLY UTILIZED FOR ACQUIRING IMMOVABLE PROPERTY IN THE N AME OF ASSESSEE FIRM FOR ITS BUSINESS PURPOSES, INTEREST RELATABLE TO SU CH LOAN HAD TO BE ALLOWED U/S.36(1) (III) OF THE ACT. HOWEVER, LD. CO MMISSIONER OF INCOME TAX (APPEALS) WAS NOT IMPRESSED BY THE ABOVE ARGUMENTS. ACCORDING TO HIM, PARTNERS OF THE ASSESSEE FIRM H AD TWO SEPARATE ACCOUNTS IN EACH OF THEIR NAME IN THE BOOKS OF THE FIRM. ONE WAS CAPITAL ACCOUNT AND THE OTHER WAS CURRENT AC COUNT. IF THE AGGREGATE OF THE BALANCES IN THE CURRENT AND CAPI TAL ACCOUNT AS ON 12.11.2011 WERE CONSIDERED, AS PER THE LD. COMMISSI ONER OF INCOME TAX (APPEALS), IT WAS NEGATIVE. SUMMARY OF THESE A CCOUNTS GIVEN BY ITA NO.2365& 2805 /2016 :- 13 -: THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AT PAR A 4.9 OF HIS ORDER IS REPRODUCED HEREUNDER:- SL. NO NAME OF THE PARTNER BALANCE IN THE CAPITAL ACCOUNT (CR) AS ON 12.11.2011 BALANCE IN THE CURRENT ACCOUNT (DR) AS ON 12.11.2011 NET AMOUNT OVERDRAWN (DEBIT BALANCE) AS ON 12.11.2011 1 SRI. T. PADMAKUMAR (+)1,43,88,691 ( - )1,92,84,246 ( - )48,95,555 2 SRI. V. SUNDRAMOORTHY (+)1,45,48,495 ( - )1,78,11,996 ( - )32,63,502 3 SRI. J. SELVAKUMAR (+)77,51,845 ( - )1,66,61,996 ( - )89,10,151 TOTAL (+)3,66,89,031 ( - )5,37,58,238 ( - )1,70,69,208 THUS, ACCORDING TO THE LD. COMMISSIONER OF INCOME T AX (APPEALS) ASSESSEE NEED NOT HAVE BORROWED AT LEAST A SUM OF A1,70,69,208/- FROM THE BANK, IF THERE WAS NO NET DEBIT BALANCE I N THE PARTNERS ACCOUNTS. OR IN OTHER WORDS, AS PER THE LD. COMMIS SIONER OF INCOME TAX (APPEALS) ASSESSEE COULD HAVE MADE GOOD WITH T HE LOAN OF A2,37,10,792/-. ACCORDING TO HIM, INTEREST ON THE LATTER AMOUNT CAME TO A13,04,970/. BALANCE OF THE ADDITION OF A17 ,87,519/- OUT OF A30,92,489/- WAS SUSTAINED. 18. NOW BEFORE US, LD. AUTHORISED REPRESENTATIVE STRONG LY ASSAILING THE DISALLOWANCE, SUBMITTED THAT ENTIRE LOAN AMOUNT OF A4,07,80,000/- WAS APPLIED FOR BUYING THE PROPERTY. ACCORDING TO HIM, DIRECT NEXUS COULD BE ESTABLISHED FROM THE BANK STA TEMENT OF THE ITA NO.2365& 2805 /2016 :- 14 -: ASSESSEE FIRM WITH M/S. INDIAN BANK. A COPY OF THE BANK STATEMENT OF ACCOUNT NO.794399598 WITH M/S. INDIAN BANK FOR THE PERIOD 03.11.2011 TO 30.11.2011 WAS PLACED ON RECORD. ACCO RDING TO HIM, THERE WAS NO LOGIC IN SUSTAINING A DISALLOWANCE OF A17,87,519/-. 19. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 20. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUT ED THAT THERE WAS A NET OVERDRAWING OF A1,70,69,208/- IN PARTNERS ACCOU NTS, IF CONSIDERED TOGETHER, AS ON DATE OF OBTAINING THE LOAN VIZ 12.1 1.2011. IT MAY BE TRUE THAT THE LOAN WAS IMMEDIATELY PUT TO USE FOR THE PURPOSE OF ACQUIRING PROPERTY. HOWEVER, IF THE PARTNERS HAD NO T OVERDRAWN BY A1,70,69,208/-, ASSESSEE COULD HAVE SAVED ATLEAST T HE INTEREST ON SUCH AMOUNT. IN OTHER WORDS, WE CANNOT SAY THAT TH ERE WAS FULL UTILIZATION OF LOANS TAKEN BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. AS ALREADY MENTIONED BY US, ASSESSEE ITS ELF HAD ADMITTED BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) TH AT CASH CREDIT ACCOUNT WAS NOT USED FOR THE PURPOSE OF BUSINESS. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT LD. COMMI SSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN SUSTAINING AA17,87,5 19/-. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ITA NO.2365& 2805 /2016 :- 15 -: 21. IN THE RESULT, THE APPEAL OF ASSESSEE STANDS DISMI SSED WHEREAS THAT OF REVENUE IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 5TH DAY OF DECE MBER, 2018, AT CHENNAI. SD/- SD/- ( ' # ' $ . %& ) ( DUVVURU RL REDDY ) ( / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER / CHENNAI / DATED:5TH DECEMBER, 2018. KV ! ' #$ %$ / COPY TO: 1 . &' / APPELLANT 3. ( () / CIT(A) 5. $+, ' - / DR 2. '.&' / RESPONDENT 4. ( / CIT 6. ,/ 0 / GF