AMISHA B KORADIA, MUMBAI V. ITO WD 9(2)(2), MUMBAI

ITA 3/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3637 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 03-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V SAMPATHKUMAR
• Keywords: Business income; Deemed dividend
• Section: 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI , ! !'. . $%&, ' BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & SHRI N K BILLAIYA, AM & SHRI N K BILLAIYA, AM & SHRI N K BILLAIYA, AM & SHRI N K BILLAIYA, AM ./ ././ ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 03/ 03/ 03/ 03/MUM/201 MUM/201 MUM/201 MUM/2011 11 1 ( (( ( ' ) *) ' ) *) ' ) *) ' ) *) / / / / ASSESSMENT YEAR :200 ASSESSMENT YEAR :200 ASSESSMENT YEAR :200 ASSESSMENT YEAR :2007 77 7- -- -08 0808 08) )) ) MRS AMISHA B KORADIA C-402 GOKUL DIVINE IRLA SV ROAD VILE PARLE (W) MUMBAI 56 ' ' ' ' / VS. THE INCOME TAX OFFICER WARD 9(2)(2) + ' ./ PAN : AABPL6364L ( +, / // / APPELLANT ) .. ( -.+, / RESPONDENT ) +, / 0 / APPELLANT BY : SHRI VIMAL PUNMIYA -.+, / 0 / RESPONDENT BY : SHRI K V SAMPATH KUMAR ' / 1' / // / DATE OF HEARING : 9 TH APRIL 2013 23* / 1' / DATE OF PRONOUNCEMENT : 19 TH APRIL 2013 4 4 4 4 / / / / O R D E R PER : SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29.10.2010 OF THE CIT(A) FOR THE AY 2007-08. 2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APP EAL: 1. THE CIT(A) HAS ERRED IN FACT AND IN LAW IN CONFIR MING THE PARTIAL ADDITION OF ` 65,99,604/- AS DEEMED DIVIDEND U/S 2(22 )(E) OF THE I T ACT 1961. 2. THE CIT(A) HAS ERRED IN FACT AND IN LAW IN CONFI RMING DISALLOWANCE OF ` 65,429/- U/S 57(II) OF THE I T ACT BEING THE IN TEREST PAID ON OVERDRAWN CAPITAL WITH PARTNERSHIP FIRM VS M/S SAGAR C ONSTRUCTION. ITA NO. 3/MUM/2011 2 3 GROUND NO. 1 IS REGARDING DEEMED DIVIDEND U/S 2(22) (E). 3.1 THE ASSESSEE IS A BENEFICIAL SHAREHOLDER IN M/S KORAD IA CONSTRUCTION PVT LTD,, AND HAVING 50% OF SHARES HOLDIN G. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS TAKEN LOAN OF RS. 78 ,10,000/- VARIOUS DATES FROM THIS COMPANY WHICH HAS ACCUMULATED PROFIT OF RS. 8,00,97,861/-. IN THE ABSENCE OF EXPLANATION, THE ASS ESSING OFFICER TREATED THE LOAN AS DEEMED DIVIDEND U/S 2(22)(E) OF T HE ACT AND ADDED RS. 78,00,000/- TO THE INCOME OF THE ASSESSEE. 3.2 AGGRIEVED FROM THE ACTION OF THE ASSESSING OFFICER, THE ASSESSEE CONTENDED BEFORE THE CIT(A) THAT THE IMPUGNED SUM IN CLUDES REMUNERATION OF RS. 2 LACS WHICH HAS ALREADY BEEN OF FERED AS INCOME FROM SALARIES. FURTHER, THE ASSESSING OFFICER HAD IGNOR ED THE OPENING DEBIT BALANCE OF RS. 5,32,396/- AND ANOTHER DEBIT BA LANCE OF RS. 4,75,000/- WHILE MAKING THE IMPUGNED ADDITION. THUS, THE ASSESSEE CONTENDED BEFORE THE CIT(A) THAT A TOTAL SUM OF RS. 12,10,396/-, WHICH WAS IGNORED BY THE ASSESSING OFFICER SHOULD BE EXCLUDED FROM THE AMOUNT AND FURTHER OUT OF THE BALANCE OUTSTANDING, A SUM OF RS. 58 LACS REPRESENTS ADVANCE RECEIVED FROM THE COMPANY TOWARDS PURCHASE OF FLAT WHICH ULTIMATELY COULD NOT GO THROUGH AND THE AMOU NT WAS LATER ON REFUNDED. THE ASSESSEE SUBMITTED THAT THIS IS NOT A LOAN O R DIVIDEND ITA NO. 3/MUM/2011 3 COVERED U/S 2(22)(E) AND THE SAME ALSO SHOULD BE HELD TO BE EXCLUDED FROM THE ADDITION MADE BY THE ASSESSING OFFICER. 3.3 THE CIT(A) ACCEPTED THE EXPLANATION OF THE ASSESSEE TO THE EXTENT OF RS. 12,10,396/- COMPRISING OF RS. 2 LACS AS SALARY IN COME AND RS. 10,10,396/- AS OPENING DEBIT BALANCE. 3.4 AS REGARDS THE CONTENTION OF THE ASSESSEE THAT RS. 58 LACS WAS RECEIVED FOR PURCHASE OF PROPERTY, WHICH WAS LATER ON REFUNDED, THE CIT(A) DID NOT ACCEPT THE SAME. ACCORDINGLY, THE CIT (A) HAS CONFIRMED THE ADDITION TO THE EXTENT OF RS. 65,99,604/- AFTER GIVI NG A RELIEF TO THE EXTENT OF RS. 12 LACS. 4 BEFORE US THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT T HE CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE ADVANCE O F RS. 58 LACS WAS GIVEN TO THE ASSESSEE BY THE COMPANY FOR THE PURCHASE OF FLAT. IN SUPPORT OF HIS CONTENTION, HE HAS REFERRED THE STATEMENT OF ACCOUNT WITH M/S KORODIA CONSTRUCTION P LTD AS WELL AS SCHEDULE TO THE BALANC E SHEET AND THE P&L ACCOUNT OF M/S KORADIA CONSTRUCTION P LTD. THE LD AR HAS POINTED OUT THAT SCHEDULE E TO THE BALANCE SHEET FOR CURRENT ASSET, LO ANS AND ADVANCES INDICATES THE ADVANCES GIVEN BY THE COMPANY TO THE ASSE SSEE AS ADVANCE FOR THE PURCHASE OF FLAT. THE ACCOUNTS OF M/S KORODIA CONSTRUCTION P LTD ARE ALREADY AVAILABLE ON THE WEBSITE OF REGISTRAR OF COMPANIES. HE HAS ITA NO. 3/MUM/2011 4 FURTHER SUBMITTED THAT RETURN OF INCOME FOR THE COMP ANY WAS FILED ELECTRONICALLY ON 31.10.2007 AND THE COPY OF WHICH WAS FILED WITH THE ITO, WARD 9(2)(2). THUS, THE LD AR HAS SUBMITTED THAT THIS MATERIAL CLEARLY INDICATES THAT THE ADVANCE WAS GIVEN TO THE ASSESSEE F OR THE PURCHASE OF FLAT AND IN THE ORDINARY COURSE OF THE BUSINESS OF M/S KORODIA CONSTRUCTION P LTD. THE LD AR HAS REFERRED THE STATEME NT OF THE ACCOUNTS WITH M/S KORODIA CONSTRUCTION P LTD AND SUBMITTED TH AT RS. 8 LACS WAS RECEIVED BY THE ASSESSEE ON 28.12.2006 WHEREAS RS 50 LACS WAS RECEIVED ON 15.2.2007. THIS AMOUNT WAS REFUNDED BY THE ASSESSEE SUBSEQUENTLY WHEN THE PURCHASE OF FLAT COULD NOT MATERIALIZE DUE TO THE OBJECTIONS OF THE SOCIETY. THE LD AR HAS FILED A COPY OF THE AGREE MENT FOR THE PURCHASE AND SALE OF FLAT AND SUBMITTED THAT THE SAID AMOUNT WA S ADVANCED TO THE ASSESSEE IN PURSUANT TO THE SAID AGREEMENT/MOU FOR PURCHA SE OF FLAT. THEREFORE, THE AMOUNT OF RS. 58 LACS WAS GIVEN TO THE ASSESSEE BY THE COMPANY IN THE ORDINARY COURSE OF BUSINESS OF PURCHASE O F THE PROPERTY AND THE SAME DOES NOT FALL UNDER THE DEFINITION OF DE EMED DIVIDEND IN TERMS OF SEC. 2(22)(E) OF THE ACT. 4.1 HE HAS FURTHER CONTENDED THAT A TRANSACTION OF AD VANCE WAS BUSINESS TRANSACTION AND CANNOT BE TREATED AS LOAN OR AD VANCE AS PER SEC 2(22)(E) OF THE ACT. HE HAS SUBMITTED THAT SECTION 2 (22)(E) CREATES LEGAL FRICTION AND ARTIFICIAL LIABILITY WHICH SHOULD BE GI VEN A STRICT INTERPRETATION. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF THE ITA NO. 3/MUM/2011 5 HONBLE KERALA HIGH COURT IN THE CASE OF P V JOHN RE PORTED IN 181 ITR 1. THE LD AR HAS THEN RELIED UPON THE DECISION OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS RAJ KUMAR REPORTED IN 318 ITR 462 AND SUBMITTED THAT THE HONBLE HIGH COURT HAS HELD THAT IF PAYMENTS ARE MADE BY SUCH A COMPANY TO EVEN ITS SHAREHOLDERS HAVIN G SUBSTANTIAL INTEREST BUT ARE THE RESULT OF BUSINESS TRANSACTIONS BETWE EN THE PARTIES, THEN SUCH PAYMENTS CANNOT BE TREATED AS LOAN OR ADVAN CE AND THE MONEY SO RECEIVED CANNOT BE TREATED AS DEEMED DIVIDEND WITH IN THE MEANING OF SEC. 2(22)(E) OF THE ACT. HE HAS ALSO RELIED UPON TH E DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS ARVIND KUMAR JAIN REPORTED IN 205 TAXMAN 44 AND SUBMITTED THAT IF THE ADVANCE WHICH HAVE BEEN GRANTED TO GIVE THE EFFECT TO A COMMERCIAL TRANSACTI ON, THE SAME WOULD NOT FALL UNDER THE AMBIT OF SEC. 2(22)(E) OF THE ACT . HE HAS RELIED UPON THE FOLLOWING DECISIONS: I) CIT VS NAGINDAS KAPADIA ( 177 ITR 393 II) CIT VS CREATIVE DYEING & PRINTING P LTD (229 CT R 250) 4.2 THE LD AR HAS ALSO REFERRED THE MEMORANDUM OF UNDERSTANDING DATED 30 TH NOV 2006 BETWEEN THE ASSESSEE AND HER HUSBAND AND M/ S KORADIA CONSTRUCTION P LTD REGARDING THE PURCHASE AN D SALE OF FLAT NO. C- 402 AND C-403, 4 TH FLOOR, GOKUL DIVINE, IRLA, VILE PARLE (W) MUMBAI . HE HAS POINTED OUT THAT THE TOTAL CONSIDERATION AS PER TH E SAID AGREEMENT WAS TO BE PAID TO THE ASSESSEE AT RS. 60 LACS; THEREFORE, THE PAYMENT OF RS. 58 LACS TOWARDS PURCHASE OF THE SAID FLAT. ITA NO. 3/MUM/2011 6 4.3 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT T HE MEMORANDUM OF UNDERSTANDING CANNOT BE CONSIDERED AT THIS STAGE WH EN THE ASSESSEE HAS NOT FILED THE SAME BEFORE THE AUTHORITIES BELOW. T HE ASSESSEE HAS NOT PRODUCED THE EVIDENCE TO SHOW AS HOW THE TRANSACTION OF PURCHASE AND SALE OF FLAT COULD NOT MATERIALIZE DUE TO REFUSAL OF PERMISSION BY THE SOCIETY. THE MOU IS BETWEEN THE CLOSELY RELATED PART IES; THEREFORE, IT IS A SELF SERVING DOCUMENT AND CANNOT BE RELIED UPON. HE H AS RELIED UPON THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE CIT(A) HAS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS 76 ITR 361 AS WELL AS THE DECISION OF THE SUPR EME COURT 290 ITR 433. THEREFORE, ONCE THE PAYMENT OF ADVANCE TO THE ASSESSEE AND ACCUMULATED THE PROFITS ARE NOT DISPUTED, THEN THE CI T(A) IS JUSTIFIED IN CONFIRMING THE ADDITION TO THE EXTENT OF RS. 65,99,6 04/-. 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE DISPUTE BEFORE US IS REGARDING THE ADVANCE OF RS. 58 LACS STATED TO HAVE BEEN GIVEN TO THE ASSESSEE BY THE COMPANY FOR PURCHASE OF FLAT. THE ASSESSEE HAS FILED A COPY OF THE RE SOLUTION OF M/S KORADIA CONSTRUCTION P LTD DT 9.9.2006 WHEREIN THE COMPANY HAD DECIDED TO PURCHASE THE FLAT NOS C-402 AND C-403 SITUATED AT GOKUL DIVINE, IRLA, S V ROAD, VILE PARTE (W)MUMBAI 400 056 FROM THE ASSESSE E AND HER HUSBAND. FROM THE BOOKS OF ACCOUNTS AND AUDIT REPORT OF M/S KORADIA ITA NO. 3/MUM/2011 7 CONSTRUCTION P LTD, IT IS EVIDENT THAT THE COMPANY HA S SHOWN THIS AMOUNT OF RS. 58 LACS AS ADVANCE FOR THE PURCHASE OF PROPERTY. AS PER THE SCHEDULE E TO THE BALANCE SHEET OF M/S KORADIA CONSTR UCTION P LTD, THE AMOUNT OF RS. 58 LACS HAS BEEN CLEARLY SHOWN AS TOWARD S PURCHASE OF PREMISES. THEREFORE, IN VIEW OF THE FACT THAT THE CO MPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEALING IN PROPERTIE S AND THE PURPOSE OF ADVANCING MONEY TO THE ASSESSEE, AS PER THE RECORD OF TH E COMPANY IS FOR PURCHASE OF PROPERTY; THEREFORE, FALLS UNDER THE BUSINESS/COMMERCIAL TRANSACTION BETWEEN THE COMPANY AND THE ASSESSEE. 5.1 IT IS TO BE NOTED THAT THE RETURN OF THE COMPANY HAS BEEN FILED WITH THE SAME ASSESSING OFFICER WHO HAS JURISDICTION OVER THE ASSESSEE. THEREFORE, WHEN THE AMOUNT OF ADVANCE OF RS. 58 LA CS GIVEN TO THE ASSESSEE BY THE COMPANY FOR THE PURCHASE OF PROPERTY AS RECORDED IN THE BOOKS OF ACCOUNT OF THE COMPANY, THEN IT CANNOT BE P RESUMED THAT THE SAID AMOUNT FALLS UNDER THE AMBIT OF LOAN AND ADVANC ES IN THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT. 5.2 MOREOVER, IT IS PERTINENT TO NOTE THAT RS.50 LA CS WAS GIVEN TO THE ASSESSEE ON 15.2.2007 AND THEREFORE, THIS AMOUNT REMAINS ONLY FOR 1 MONTHS DURING THE YEAR UNDER CONSIDERATION. FURTHER, THE AMOUNT OF RS. 8 LACS WAS GIVEN TO THE ASSESSEE ON 28 TH DEC 2006 AND THE SAID AMOUNT REMAINS WITH THE ASSESSEE ONLY FOR 3 MONTHS IN VIEW OF T HE SHORT SPAN OF ITA NO. 3/MUM/2011 8 PERIOD OF 1 MONTHS IN RESPECT OF RS. 50 LACS AND 3 M ONTHS IN RESPECT OF 8 LACS . IT IS OTHERWISE NOT PERMISSIBLE TO MAKE FULL A DDITION OF THE SAID AMOUNT FOR THE YEAR UNDER CONSIDERATION. ONCE THE A SSESSEE HAS ESTABLISHED THAT THE SAID AMOUNT WAS GIVEN TO THE ASSESSEE FOR THE PURCHASE OF FLAT WHICH IS IN THE NATURE OF COMMERCIAL TRANSACTION BETWEEN THE PARTIES, THEN IN THE ABSENCE OF PROVING CONTRARY BY THE DEPARTMENT, THE ADDITION TO THE EXTENT OF RS. 58 LACS IS NOT JUSTIF IED. THIS VIEW IS FORTIFIED BY SERIES OF DECISIONS AS RELIED UPON BY THE A SSESSEE. HENCE, IN VIEW OF THE ABOVE DISCUSSION AND IN THE FACTS AND CIRCU MSTANCES OF THE CASE, THE ADDITION TO THE EXTENT OF RS. 58 LACS U/S 2( 22)(E) IS DELETED AND CONSEQUENTLY, THE ADDITION OF BALANCE AMOUNT OF RS. 7,99,604/- IS CONFIRMED. 6 GROUND NO. 2 IS REGARDING DISALLOWANCE OF RS. 65,42 9/- ON ACCOUNT OF INTEREST . 6.1 THE ASSESSEE IS A PARTNER IN TWO PARTNERSHIP FIRMS I.E M/S ADITYA DEVELOPERS AND M/S SAGAR CONSTRUCTIONS. SHE EARNED INTE REST INCOME OF RS. 1,08,333/- ON CAPITAL WITH ADITYA DEVELOPERS . T HE INTEREST INCOME WAS ADJUSTED AGAINST INTEREST PAYMENT OF RS. 65,429/- T O M/S SAGAR CONSTRUCTION. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE PAYMENT OF INTEREST IS IN THE CASE HAS NO NEXUS WITH INTEREST EARNED AND THUS THE SAME IS NOT ADMISSIBLE DEDUCTION U/S ITA NO. 3/MUM/2011 9 57(III) OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER ASSESSED THE INTEREST INCOME OF RS. 1,08,333/- AS INCOME FROM OTHER SOURCES. 6.2 ON APPEAL, THE CIT(A) HAS CONFINED THE ADDITION MADE BY THE ASSESSING OFFICER . 7 WE HAVE HEARD THE LD AR AS WELL AS THE LD DR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS INTRODUCE D RS. 50 LACS AS CAPITAL IN ADITYA DEVELOPERS AND WITHDRAWAL OF RS.. 5 6 LACS WITH SAGAR CONSTRUCTION. THUS, THE ASSESSEE HAS EARNED INTEREST INC OME FROM PARTNERSHIP FIRMS M/S ADITYA DEVELOPERS, AT THE SAME TI ME; THE ASSESSEE HAD INTEREST EXPENDITURE OF RS. 65,429/- ON DEBIT BAL ANCE WITH THE OTHER PARTNERSHIP FIRM. 8 AT THE OUTSET, WE NOTE THAT THE ASSESSING OFFICER HAS A SSESSED INTEREST INCOME RECEIVED FROM THE FIRM AS INCOME FR OM OTHER SOURCES WHICH ITSELF CONTRARY TO THE PROVISIONS OF SEC. 28(V). CHARGING OF PAYMENT OF INTEREST IS PROVIDED UNDER THE PARTNERSHIP DEED AND THEREFORE, THE AMOUNT OF INTEREST RECEIVED FROM THE PARTNERSHIP FIRM HAS TO BE ASSESSED AS BUSIES INCOME IN TERMS OF SEC. 28(V) WHICH PROVIDES AS UNDER: ITA NO. 3/MUM/2011 10 SEC SEC SEC SEC. 28 . 28 . 28 . 28 . . . . .. .. .. .. [(V) ANY INTEREST, SALARY, BONUS, COMMISSION OR REMU NERATION, BY WHATEVER NAME CALLED, DUE TO, OR RECEIVED BY, A PARTNER OF A F IRM FROM SUCH FIRM : PROVIDED PROVIDED PROVIDED PROVIDED THAT WHERE ANY INTEREST, SALARY, BONUS, COMMIS SION OR REMUNERATION, BY WHATEVER NAME CALLED, OR ANY PART TH EREOF HAS NOT BEEN ALLOWED TO BE DEDUCTED UNDER CLAUSE (B) OF SECTION 40 , THE INCOME UNDER THIS CLAUSE SHALL BE ADJUSTED TO THE EXTENT OF THE AMOUNT N OT SO ALLOWED TO BE DEDUCTED ;] 8.1 THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSE E HAS OVERDRAWN FROM THE PARTNERSHIP FIRM M/S SAGAR CONSTRUCTION; THER EFORE, THE INTEREST PAID TO THE SAGAR CONSTRUCTION FOR DEBIT BALANCE IN THE CAPITAL ACCOUNT IS AN ALLOWABLE EXPENDITURE AGAINST THE BUSINESS INCOME O F THE ASSESSEE AND PARTICULARLY AGAINST THE INTEREST/REMUNERATION R ECEIVED FROM THE PARTNERSHIP FIRM. 9 IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THE CLAIM OF THE ASSESSEE AND THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT IS DELETED. ITA NO. 3/MUM/2011 11 10 IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 5 16 ' )51 / 7 84 1 9 / 1 :% ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 9 TH , APRIL 2013 . 4 / 3* ' 7 ;'6 19 TH APRIL 2013 3 / < SD/- SD/- ( !'. . $%&, ) ' ( N K BILLAIYA ) ACCOUNTANT MEMBER ( ) (VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 19 TH , APRIL 2013 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI