Ajay Modi, Hyd, Hyderabad V. DCIT, Cir-2(2), Hyderabad

ITA 294/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61903 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 28-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Additional depreciation; Deemed dividend
• Section: 32; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 294/HYD/2011 ASSESSMENT YEAR : 2006-07 AJAY MODI, HYDERABAD V/S DY. COMMISSIONER O F INCOME - TAX, CIRCLE 2(2) , HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. RAMA RAO RESPONDENT BY : SHRI B.V. PRASAD REDDY DATE OF HEARING 18 /04/2012 DATE OF PRONOUNCEMENT 08/06/2012 O R D E R PER ASHA VIJAYARAGHAVAN, J.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A), VIJAYAWADA DATED 31/01/2011 FO R THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A SHAREHOLDER IN A CLOSELY HELD COMPANY M/S HYDERABAD FOODS PRODUCTS(P) LTD. AND HOLDS 10% VOTING RIGHTS. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS OF THE COMPANY, IT WAS OBSERVED THAT THE ASSESSEE HAD RECEIVED SUBSTANTIAL ADVANCES/LOANS WHICH ATTRACTED THE PROVISIONS OF SE CTION 2(22)(E) OF THE ACT. CONSEQUENTLY, THE PROCEEDINGS U/S 147 OF THE ACT WERE INITIATED. DURING THE RE-ASSESSMENT PR OCEEDINGS, IT WAS OBSERVED FROM THE LEDGER ACCOUNT FILED THAT THE ASSESSEE 2 ITA NO. 294/HYD/11 AJAY MODI HAD TAKEN AN ADVANCE/LOAN OF RS. 22,00,000/- AND RS . 18,00,000/- ON 27/05/2005 AMOUNTING TO RS. 40,00,00 0/-. AS THE AO PROPOSED TO INVOKE THE PROVISIONS OF SECTION 2(22)(E), THE ASSESSEE FILED A PETITION U/S 144A OF THE ACT B EFORE THE ADDL. CIT, RANGE-2, HYDERABAD, WHO FOR THE DETAILED REASONING GIVEN IN HIS ORDER HELD THAT THE SUM OF RS. 40,00,0 00/- WAS TO BE TAXED AS DEEMED DIVIDEND IN THE HANDS OF THE ASS ESSEE. WHILE COMPUTING THE ACCUMULATED PROFITS, THE ASSESS EES REQUEST FOR DEDUCTING THE DIFFERENCE IN DEPRECIATIO N AS PER COMPANYS ACT AND AS ALLOWED U/S 32 OF THE IT ACT W AS ACCEPTED IN THE LIGHT OF THE JUDICIAL DECISIONS REL IED UPON BY THE ASSESSEE. AS AGAINST THE ACCUMULATED PROFIT AS ON 3 1/03/2006 AMOUNTING TO RS. 79,26,642/-, AFTER DEDUCTING THE D IFFERENCE IN DEPRECIATION OF RS. 34,63,523/-, THE ACCUMULATED PR OFIT U/S 2(22)(E) OF THE ACT WAS QUANTIFIED AT RS. 44,63,119 /-. AFTER REDUCING THE DEEMED DIVIDEND ALREADY CONSIDERED IN THE HANDS OF MR. RAVINDRA MODI AND MR. RAJIV MODI, THE AO DET ERMINED RS. 26,84,125/- AS THE ACCUMULATED PROFIT UP TO WHI CH THE DEEMED DIVIDEND WAS RESTRICTED TO RS. 26,84,125/- I N THE ASSESSMENT ORDER. 3. ON APPEAL, BEFORE THE CIT(A) THE ASSESSEE SUBMI TTED THAT THE AMOUNTS WERE WITHDRAWN FROM THE CC ACCOUNT OF THE COMPANY. THE AMOUNT WAS NOT FOR THE INDIVIDUAL BENE FIT OF THE SHAREHOLDER. THERE ARE LOANS RECEIVED FROM SHAREHOL DER AND HENCE THE AMOUNT SHOULD BE CONSIDERED AS HAVING BEE N PAID FROM THE LOAN RECEIVED FROM THE SHAREHOLDER. THE CI T(A) AFTER CONSIDERING THE ARGUMENTS OF THE ASSESSEE DISMISSED THE APPEAL OBSERVING AS UNDER: 3 ITA NO. 294/HYD/11 AJAY MODI 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. THE ARGUMENTS PUT FORTH BE FORE ME ARE IDENTICAL TO THOSE MADE BY THE APPELLANT DUR ING THE ASSESSMENT PROCEEDINGS AND ALSO IN THE PROCEEDI NGS U/S 144A BEFORE THE ADDL. CIT, RANGE-2, HYDERABAD. THE ARGUMENTS HAVE BEEN DULY CONSIDERED AND REJECTED FO R THE DETAILED REASONING GIVEN IN THE ORDER PASSED U/ S 144A OF THE ACT. I AM IN AGREEMENT WITH THE AO THAT THE SOURCE FROM WHICH THE AMOUNT OF RS. 40,00,000/- HAS BEEN P AID TO THE APPELLANT IS IMMATERIAL AND THAT THE ONLY CO NDITION PRESCRIBED IN SECTION 2(22)(E) IS THAT THE COMPANY SHOULD POSSESS ACCUMULATED PROFITS TO THE EXTENT OF THE DE EMED DIVIDEND. THE EXPLANATION, THEREFORE, THAT THE AMOU NT WAS TRANSFERRED FROM THE CASH CREDIT ACCOUNT OF THE COMPANY ON 27/05/2005 IS OF NO RELEVANCE. FURTHER, THERE IS NO DISPUTE OVER THE FACT THAT THE AMOUNT WAS INI TIALLY CREDITED INTO THE SAVINGS BANK ACCOUNT OF THE APPEL LANT. IN SUCH CIRCUMSTANCES, THERE IS NO MERIT IN THE ARG UMENT THAT NO BENEFIT WAS AVAILED BY THE APPELLANT. AS ST ATED, THE AMOUNTS WERE FIRST CREDITED INTO THE APPELLANT S ACCOUNT FROM WHERE THE APPELLANT TRANSFERRED THE AM OUNT TO THE ACCOUNT OF HIS NIECE FOR THE PURPOSE OF SHOW ING ADEQUATE BANK BALANCE IN HER ACCOUNT TO OBTAIN US V ISA FOR STUDY ABROAD. THE VERY FACT THAT THE AMOUNT HAS BEEN RECEIVED BY THE APPELLANT IN HIS ACCOUNT WOULD SHOW THAT THERE WAS AN IMMEDIATE BENEFIT TO HIM WHICH HE SUBSEQUENTLY PASSED IN FAVOUR OF HIS NIECE. THE FAC T THAT THE AMOUNT WAS REPAID IN A PERIOD OF THREE DAYS IS OF NO CONSEQUENCE AS NO TIME LIMIT IS PRESCRIBED U/S 2(22 )(E) AS RIGHTLY OBSERVED BY THE AO. AS REGARDS THE CLAIM THAT NO ACCUMULATED PROFITS WERE AVAILABLE, IN RESPONSE TO A SPECIFIC QUERY, THE LEARNED AR FAIRLY OBSERVED FROM THE ACCOMPANYING DOCUMENTS FILED ALONG WITH THE WRITTEN SUBMISSIONS THAT THE SURPLUS IN P&L A/C AS ON 31/03 /2006 WAS RS. 79,26,642/-. WHAT IS CONTEMPLATED IN THE SE CTION IS THE ACCUMULATED PROFITS AND NOT THE PROFIT EARNE D DURING THE YEAR. FURTHER, FOR THE CLAIM OF THE DIFF ERENCE IN DEPRECIATION AS PER THE COMPANY LAW AND INCOME TAX LAW, IT IS SEEN THAT THE AO HAD ALLOWED THE CLAIM A ND REDUCED THE ACCUMULATED PROFIT BY AN AMOUNT OF RS. 34,63,523/- AS CLAIMED. THE CONTENTION NOW RAISED T HAT THE AO HAD NOT CONSIDERED AN AMOUNT OF RS. 5,17,147 /- OF ADDITIONAL DEPRECIATION ALLOWABLE OF RS. 5,17,14 7/- WAS NOT CLAIMED FOR THE RELEVANT AY 2004-05. IN SUCH 4 ITA NO. 294/HYD/11 AJAY MODI CIRCUMSTANCES, THE CONTENTION THAT THE ADDITIONAL DEPRECIATION OF RS. 5,17,147/- WAS GRANTED UNDER TH E INCOME TAX ACT IS A MISREPRESENTATION OF FACTS. ACCORDINGLY, NO FURTHER REDUCTION OF THE ACCUMULATE D PROFIT IS WARRANTED ON ACCOUNT OF ADDITION DEPRECIA TION. THE DECISION OF THE HONBLE DELHI ITAT IN THE CASE OF RK SONI VS. ITO 6 SOT 292 RELIED UPON BY THE APPELLANT IS INAPPLICABLE TO THE FACTS OF THE PRESENT CASE. IN T HAT CASE, CERTAIN AMOUNTS WERE DUE TO THE COMPANY THROUGH THE ARBITRATION AWARD. THE HONBLE TRIBUNAL HELD THAT I T COULD NOT BE SAID THAT THE AMOUNT RELEASED WAS IN THE NAT URE OF INCOME AS THE VERY BASIS WAS DISPUTED AND THEREFORE THE AMOUNT COULD NOT BE CONSIDERED AS ACCUMULATED PROFI TS IN THE HANDS OF THE COMPANY. HOWEVER, IN THE PRESENT C ASE, THERE IS NO DISPUTE OVER THE FACT THAT ADEQUATE ACCUMULATED PROFITS ARE ALREADY AVAILABLE FOR THE P URPOSE OF DETERMINING THE EXTENT TO WHICH DEEMED DIVIDEND IS TAXABLE. THEREFORE, THE ABOVE DECISION IS HELD TO B E OF NO RELEVANCE TO THE FACTS OF THE CASE. IN VIEW OF THE FOREGOING, I AM OF THE VIEW THAT THE ACTION OF THE AO WAS NOT ONLY VALID BUT JUSTIFIED IN SUBJECTING TO TAX T HE AMOUNT OF RS. 40,00,000/- RECEIVED BY THE APPELLANT DURING THE YEAR FROM M/S HYDERABAD FOOD PRODUCTS PV T. LTD. AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. AS I DO NOT FIND ANY CASE FOR INTERFERING WITH THE FINDING OF THE AO, THE APPEAL IS DISMISSED. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US RAISI NG THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH ON FAC TS AND IN LAW. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING AN ADDITI ON OF RS. 26,84,215/- MADE BY THE AO TREATING THE SAID AM OUNT AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE IT ACT. 3. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE SAID AMOUNT WAS NOT PAID FOR THE BENEFIT O F THE SHAREHOLDER AND WAS NOT PAID FROM OUT OF THE ACCUMULATED PROFITS AVAILABLE WITH THE COMPANY. 4. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE SAID AMOUNT WAS PAID FROM OUT OF THE CASH CREDIT ACCOUNT AND THE SAID COMPANY DID NOT POSSESS ACCUMULATED PROFITS. 5 ITA NO. 294/HYD/11 AJAY MODI 5. THE LEARNED CIT(A) SHOULD HAVE CONSIDERED THAT ADDITIONAL DEPRECIATION OF RS. 5,17,147/- GRANTED T O THE COMPANY IS TO BE DEDUCTED FROM THE PROFITS FOR THE PURPOSE OF ARRIVING AT THE DEEMED DIVIDEND. 6. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE PROVISIONS OF SECTION 2(22)(E) HAVE NO APPLICATION TO THE FACTS OF THE CASE AND OUGHT TO H AVE DELETED THE ADDITION MADE BY THE AO. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI S. RA MA RAO, REITERATED THE ARGUMENTS AS RAISED BEFORE THE CIT( A) AND THE LEARNED DR SHRI B.V. PRASAD REDDY SUPPORTED THE OR DER OF THE CIT(A). 5. WE HAVE CONSIDERED THE FACTS AND THE SUBMISSION S OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW. IT IS AN UNDISPUTED FACT THAT A SUM OF RS. 40,00,000/- WAS ADVANCED BY M/S HYDERABAD FOOD PRODUCTS (P) LTD AT THE INSTANCE OF THE ASSESSEE WH O HOLDS 10% OF VOTING RIGHTS IN THAT COMPANY. IT IS ALSO NO T IN DISPUTE THAT THE COMPANY HAD SUFFICIENT ACCUMULATED PROFITS AS ON THE DATE OF GRANTING OF THE LOAN, WHICH WAS MORE THAN T HE AMOUNT LENT. SEC 2(22)(E) READS AS UNDER: 2(22)(E): (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTER ESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS O F THE COMPANY OR OTHERWISE) 94 [MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE 95 OR LOAN TO A SHAREHOLDER 95 , BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SH ARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN P ER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTI AL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID C ONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE I NDIVIDUAL 6 ITA NO. 294/HYD/11 AJAY MODI BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S . 6. ALL THE REQUIREMENTS OF SEC 2(22)(E) HAVE BEEN SATISFIED IN THE PRESENT CASE. THE ASSESSEE HOLDS MORE THAN 1 0% OF EQUITY SHARES IN BY M/S HYDERABAD FOOD PRODUCTS (P ) LTD. THE COMPANY HAD LENT RS. 40,00.000/- AT THE INSTANCE OF THE ASSESSEE AND IN THE BOOKS OF ACCOUNTS OF THE COMPAN Y THE ASSESSEE IS SHOWN AS THE DEBTOR. EVEN THOUGH THE LO AN WAS REPAID WITHIN A SHORT PERIOD THE FACTUM OF THE LOAN BEING GRANTED CANNOT BE DENIED. IN THE CIRCUMSTANCES WE C ONCUR WITH THE LOWER AUTHORITIES IN HOLDING THAT THE AMOUNT OF LOAN GIVEN TO THE ASSESSEE IS TAXABLE AS DEEMED DIVIDENDS IN T HE HANDS OF THE ASSESSEE. 7. AS REGARDS THE SECOND ISSUE OF GRANTING OF ADDIT IONAL DEPRECIATION IN THE HANDS OF THE COMPANY THE CIT(A) HAS HELD THAT THE ISSUE DOES NOT ARISE FOR CONSIDERATION AS THE COMPANY HAD NOT CLAIMED ADDITIONAL DEPRECIATION. WE CONCUR WITH THE DECISION OF THE CIT(A). 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 08/06/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER. JUDICIAL MEMBER. HYDERABAD, DT.: 8 TH JUNE , 2012 KV 7 ITA NO. 294/HYD/11 AJAY MODI COPY FORWARDED TO: 1. AJAY MODI, C/O S. RAMA RAO, ADVOICATE, FLAT NO. 102 , SHRIYAS ELEGANCE, 3-6-643, ST.NO. 9, HIMAYATNAGAR, HYDERABAD 500 029. 2. DY.CIT , CIRCLE 2(2), HYDERABAD 3. C OMMISSIONER OF INCOME - TAX(APPEALS) , VIJAYAWADA 4. COMMISSIONER OF INCOME - TAX - II , VIJAYWADA 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD