Mr. Manish Mimani, Kolkata V. CIT, Central - I, Kolkata, Kolkata

ITA 301/KOL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4883 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 02-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 23-02-2012
• Court: TRIBUNAL
• Department Lawyers: ANGAM SHAIZA
• Keywords: Search and seizure; Deemed dividend
• Section: 153A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A, KO LKATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANES H, AM] ITA NO.301/KOL/2012 ASSESSMENT YEAR : 2007-08 MR.MANISH MIMANI -VERSUS- C.I.T., CENTRAL-I, KOLKATA KOLKATA (PAN:AETPM1173K) ( APPELLANT ) (RESPONDENT) FOR THE APPELLANT : SHRI RAVI TULSIYAN, FCA FOR THE RESPONDENT : SHRI ANGAM SHAIZA, CIT(DR) DATE OF HEARING : 02.05.2016. DATE OF PRONOUNCEMENT : 04.05.2016. ORDER PER SHRI M.BALAGANESH, AM 1. THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE OR DER OF THE LEARNED CIT, CENTRAL- I, KOLKATA IN PROCEEDINGS M.NO.CIT-(C-1)/263/MANISH KR MIMANI/TECH/11- 12/KOL8287-89 DATED 22.11.2011 PASSED U/S 263 OF T HE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER, THE LEARNED CIT IS JUSTIFIED IN INVOKING THE REVISIONARY PROCEEDINGS U /S 263 OF THE ACT FOR THE PURPOSE OF ENHANCEMENT OF INCOME IN THE FORM OF DEEMED DIVIDEN D U/S 2(22)(E) OF THE ACT IN THE SUM OF RS.27,68,646/- IN RESPECT OF DEBIT BALANCE W ITH M/S. GANESH WHEAT PRODUCTS PVT. LTD. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSES SEE IS AN INDIVIDUAL EARNING INCOME BY WAY OF SALARY, INCOME FROM HOUSE PROPERTY AND ALSO INCOME FROM OTHER SOURCES. A SEARCH AND SEIZURE OPERATION WAS CARRIED OUT IN THE CASE OF MIMANI GROUP ON 4.10.2007. DURING THE COURSE OF SEARCH OPERATION NO INCRIMINATING MATERIALS WERE FOUND RELEVANT TO ASSESSMENT YEAR UNDER APPEAL. THE LEARNED HOWEVER INITIATED PROCEEDINGS U/.S 153A OF THE ASSESSEE AND THE ASSES SEE IN RESPONSE TO THE SAID NOTICE ITA NO.301/KOL/2012 MR.MANISH MIMANI A.Y.2007-08 2 REQUESTED THE LEARNED AO TO TREAT THE ORIGINAL RETU RNED FILED EARLIER AS RETURN IN RESPONSE TO NOTICE U/S 153A OF THE ACT. IN THE SAID ASSESSMENT , THE LEARNED AO ADDED BACK AN AMOUNT OF RS.15,36,337/- REPRESENTING ADVAN CES RECEIVED BY THE ASSESSEE FROM M/S. GANESH WHEAT PRODUCT PVT. LTD AS DEEMED D IVIDEND U/S 2(22)(E) OF THE ACT. THIS ISSUE WAS SUBJECTED TO APPEAL AND WHEN THE MAT TER WAS PENDING IN THE TRIBUNAL THE LEARNED CIT INITIATED PROCEEDINGS U/S 263 OF TH E ACT FOR ENHANCEMENT OF THE ADDITIONAL AMOUNT TOWARDS DEEMED DIVIDEND BY RS.27, 68,646/- AND PASSED AN ORDER U/S 263 OF THE ACT TREATING THE ORIGINAL ORDER PASS ED U/S 153A OF THE ACT BY THE LEARNED AO AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. AGAINST THIS 263 ORDER THE ASSESSEE HAS PREFERRED APPEAL BEFORE US ON THE FOLLOWING GROUNDS : 1. THE ORDER PASSED BY THE CIT U/S 263 OF THE INCO ME TAX ACT, 1961, ON 22.11.2011, IS ARBITRARY, ERRONEOUS, INVALID AND BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT ERRED IN HOLDING THAT THE APPELLANT WAS FURTHER LIABLE TO BE ASSESSE D ON 'DEEMED DIVIDEND' U/S 2(22)(E) OF THE INCOME-TAX ACT, 1961, BY AN AMOUNT OF RS.27, 68,646/- BEING THE DEBIT BALANCE OF THE APPELLANT WITH M/S GANESH WHEAT PRODUCTS PVT. L TD. DURING THE PERIOD FROM 01.11.2006 TO 05.03.2007, WHICH WAS REQUIRED TO BE ADDED IN THE HANDS OF THE. APPELLANT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT ERRED IN HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 14 3(3) OF THE ACT, HAD BEEN ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND ALSO FURTHER ERRED IN SETTING ASIDE THE AFORESAID ORDER, U/S 263 OF THE ACT WITH A DIRECTIO N TO THE A.O. TO COMPLETE IT AS PER LAW. 4. THE APPELLANT CRAVES LEAVE TO AMEND, ALTER, MODI FY, ADD TO, ABRIDGE AND OR RESCIND ANY OR ALL OF THE ABOVE GROUNDS. 4. THE LEARNED AR ARGUED THAT THIS TRIBUNAL HAD ALREADY DISPOSED OFF THE ORIGINAL APPEAL EMANATING OUT OF ORIGINAL SECTION 153A PROCE EDINGS IN IT(SS)A.57& 58/KOL/2011 FOR A.YRS. 2006-07 & 2007-08 RESPECTIVE LY DATED 17.10.2014 WHEREIN THE ADDITION MADE TOWARDS DEEMED DIVIDEND WAS DELET ED BY THIS TRIBUNAL. HE ARGUED THAT ACCORDINGLY THIS ISSUE STANDS DECIDED BY THE T RIBUNAL IN FAVOUR OF THE ASSESSEE AND HENCE PRAYED FOR FOLLOWING THE SAME ORDER IN RESPEC T OF ENHANCEMENT PROPOSED IN SECTION 263 ORDER OF THE LD.CIT. IN RESPONSE TO TH IS THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE LD.CIT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS H OLDING MORE THAN 10% OF THE VOTING ITA NO.301/KOL/2012 MR.MANISH MIMANI A.Y.2007-08 3 POWER IN M/S. GANESH WHEAT PRODUCT (P)LTD. IT IS NO T IN DISPUTE THAT THE SAID COMPANY IS HAVING ACCUMULATED PROFITS OF RS.81,57,815/-. WE FIND THAT THE ASSESSEE HAD FREQUENTLY DRAWN MONEYS FROM THE SAID COMPANY AND H AS ALSO REPAID MONEYS TO THE SAID COMPANY ON SEVERAL DATES. BOTH THE TRANSACTION S ARE INTEREST FREE AND WE ALSO FIND THAT ON SEVERAL OCCASIONS THAT THE BALANCE OUTSTAND ING IS IN FAVOUR OF THE ASSESSEE AND ALSO IN FAVOUR OF THE SAID COMPANY. HENCE IT IS IN THE NATURE OF RUNNING ACCOUNT OR CURRENT ACCOUNT. WE FIND THAT THIS TRIBUNAL IN THE CASE OF THE ASSESSEE IN IT(SS)A.NO.57&58/KOL/2011 DATED 17.10.2014 HAD HELD AS UNDER :- 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE FACTS NARRATED ABOVE AS WELL AS ARGUED BY BOTH THE SIDES, THAT THE FACTS ARE EXACTLY IDENTICAL TO THE CASE OF MR. PURU SHOTTAM DAS MIMANI IN IT(SS)A NO. 60 TO 62/KO112011, WHICH WE HAVE NOW ADJUDICATED (W HICH IS A GROUP CASE). THE ISSUE BEING EXACTLY IDENTICAL AND WE HAVE CONSIDERED THE ISSUE IN PARA 4 AND 5 OF OUR ORDER OF EVEN DATE IN THE CASE OF MR. PURUSHOTTAM DAS MIMANI , WHICH READS AS UNDER: '4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE GONE THROUGH THE FACTS OF THE CASE AN D FOUND FROM THE PERUSAL OF LEDGER ACCOUNT OF ASSESSEE IN THE BOOKS OF ACCOUNT OF GANE SH WHEAT PRODUCTS (P) LTD., THE LENDER COMPANY, IT IS SEEN THAT AS ON THE FIRST DAY OF THE RELEVANT ACCOUNTING YEAR 2005- 06 (A.Y. 2006-07) OPENING BALANCE IS AT RS.28 ,07, 5841-. THEREAFTER, ON SEVERAL DATES DURING THE ENTIRE FINANCIAL YEAR THERE WERE S EVERAL TRANSACTIONS THROUGH CHEQUES AND SOME IN CASH BY EITHER PARTIES, I.E. TH E ASSESSEE AND THE LOAN GIVING COMPANY, RESULTING IN SHIFTING BALANCES. ON MANY OC CASIONS THE BALANCE WAS IN FAVOUR OF THE ASSESSEE AND ON SOME OTHER OCCASIONS THE BALANCE WAS ILL FAVOUR OF GANESH WHEAT PRODUCTS (P) LTD. THE LEDGER OF THE AS SESSEE FURTHER REVEALS THAT NO PAYMENT BY LOAN CREDITOR IS FOLLOWED BY A REPAYMENT BY THE LOAN DEBTOR AND, IN FACT, THE PAYMENTS BY THE ASSESSEE AND GANESH WHEAT PRODU CTS (P) LTD. ARE INDEPENDENT OF ONE ANOTHER. NO INTEREST WAS CHARGED BY EITHER SIDE FOR ADVANCING MONEY ON MUTUALITY INASMUCH AS THE LOAN ACCOUNT WAS A CURREN T ACCOUNT IN NATURE. IT IS THUS EVIDENT THAT THERE WERE RECIPROCAL DEMANDS BETWEEN THE PARTIES AND THUS MUTUAL IN CHARACTERISTIC. AT THE CLOSE OF ACCOUNTING YEAR AS ON 31-03-2006, DEBIT BALANCE STOOD AT A SUM OF RS.18,87,522/- WHICH WAS DULY REFLECTED IN THE BALANCE SHEET UNDER THE HEAD LOANS & ADVANCES. SIMILARLY, IN RESPECT OF MIM A FLOUR MILLS OPENING BALANCE WAS NIL AND THERE WERE SEVERAL SHIFTING OF BALANCE AND THE RESULTANT DEBIT BALANCE WAS RS.5,00,833/-. FOR A.Y. 2007-08, IN RESPECT OF MIMA FLOUR MILLS, OPENING BALANCE WAS RS.5,00,833/- AND AFTER SHIFTING BALANCE, THE D EBIT BALANCE CAME TO NIL. IN RESPECT OF GANESH WHEAT PRODUCTS, OPENING BALANCE WAS RS.18 ,87,522/- AND AFTER SHIFTING BALANCE THE CREDIT BALANCE CAME TO.RS.9 LAKHS. ON P ERUSAL OF THE LEDGER ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S. MIMA FLOUR MILLS (P) LTD. IT IS SEEN THAT ON SEVERAL DATES THERE WERE SHIFTING BALANCES. ON MANY OCCASIONS THE BALANCE WAS IN FAVOUR OF THE ASSESSEE AND ON SOME OTHER OCCASIONS THE BALANCE WA S IN FAVOUR OF GANESH WHEAT PRODUCTS (P) LTD. IT IS THUS EVIDENT THAT THERE WER E RECIPROCAL DEMANDS BETWEEN THE PARTIES AND THUS MUTUAL IN CHARACTERISTIC. THE ACCO UNT SO MAINTAINED IN RESPECT OF SUCH MUTUAL TRANSFER OF AMOUNT BY WAY OF GIVING AND TAKING FINANCIAL ASSISTANCE IS, ITA NO.301/KOL/2012 MR.MANISH MIMANI A.Y.2007-08 4 THEREFORE, A CURRENT ACCOUNT AND THIS CURRENT ACCOU NT IS DIFFERENT FROM A LOAN ACCOUNT FOR THE SOLE REASON THAT FEATURE OF MUTUALITY IS NO T PRESENT IN A LOAN TRANSACTION. 5. HERE IN THE PRESENT CASE, FROM THE FACTS NARRATE D ABOVE, IT IS CLEAR THAT BOTH THE PARTIES ARE BENEFICIARY OF THE TRANSACTION BEING CU RRENT ACCOUNT OF THE ABOVE TRANSACTIONS I.E. SHIFTING BALANCES. THIS ISSUE HAS BEEN ANSWERED BY HON 'BLE CALCUTTA HIGH COURT IN THE CASE OF PRADIP KUMAR MALHATRA V, CIT 338 ITR 538 (CAL) WHEREIN HON'BLE HIGH COURT HELD AS UNDER: 'THE PHRASE 'BY WAY OF ADVANCE OR LOAN' APPEARING I N SUB-CLAUSE (E) OF SECTION 2(22) OF THE INCOME-TAX ACT, 1961, MUST BE CONSTRUED TO M EAN THOSE ADVANCES OR LOANS WHICH A SHAREHOLDER ENJOYS SIMPLY ON ACCOUNT OF BEI NG A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED 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 SHAREHOLDER AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS B ENEFICIAL TO THE COMPANY RECEIVED FROM SUCH A SHARE-HOLDER, IN SUCH CASE, SUCH ADVANC E OR LOAN CANNOT BE SAID TO BE DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT. THUS , GRATUITOUS LOAN OR ADVANCE GIVEN BY A COMPANY TO THOSE CLASSES OF SHAREHOLDERS WOULD COME WITHIN THE PURVIEW OF SECTION 2(22) BUT NOT CASES WHERE THE LOAN OR AD VANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY BY SUCH SHAREH OLDER. ' FROM THE ABOVE FACTS AND LEGAL PROPOSITION DECIDED BY HON 'BLE JURISDICTIONAL HIGH COURT, IT IS CLEAR THAT SECTION 2(22)(E) OF THE ACT WAS INSERTED TO BRING WITHIN THE PURVIEW OF TAXATION THOSE AMOUNTS WHICH ARE ACTUALL Y A DISTRIBUTION OF PROFITS BUT ARE DISBURSED AS A LOAN SO THAT TAX THEREON CAN BE AVOI DED. IT IS PERTINENT TO NOTE HERE THAT WHEN DIVIDENDS ARE DECLARED BY A COMPANY, IT IS SOL ELY THE SHAREHOLDERS WHO BENEFIT FROM THE TRANSACTION. NO BENEFITS ACCRUE TO THE COM PANY BY WAY OF DIVIDEND DISTRIBUTION. THUS. SECTION 2(22)(E) OF THE ACT COV ERS ONLY SUCH SITUATIONS, WHERE THE SHAREHOLDER ALONE BENEFITS FROM THE LOAN TRANSACTIO N, BECAUSE IF THE COMPANY ALSO BENEFITS FROM THE SAID TRANSACTION, IT WILL TAKE TH E CHARACTER OF A COMMERCIAL TRANSACTION AND HENCE WILL NOT QUALIFY TO BE DIVIDE ND. IN THE CASE OF THE ASSESSEE, BY GIVING AND TAKING FINANCIAL ASSISTANCE FROM EACH OT HER, BOTH THE ASSESSEE AND THE COMPANY WERE BENEFITED AND SUCH TRANSACTIONS BETWEE N THEM WERE NOTHING BUT COMMERCIAL TRANSACTIONS AND DIVIDEND ATTRIBUTABLE T O THE SHAREHOLDER IS NOTHING TO DO WITH SUCH BUSINESS TRANSACTION, FROM THE ABOVE DISC USSIONS IT CAN BE SAID THAT SEC. 2(22)( E) OF THE ACT COVERS ONLY THOSE TRANSACTIONS WHICH BENEFIT THE SHAREHOLDER ALONE AND RESULTS IN NO BENEFIT TO THE COMPANY. ON THE OTHER HAND, IF THE TRANSACTION IS MUTUAL BY WHICH BOTH SIDES ARE BENEFITED, IT IS UND OUBTEDLY OUTSIDE THE PURVIEW OF PROVISIONS OF SEC. 2(22)( E) OF THE ACT. FROM THE A BOVE, IT IS CLEAR THAT THE LOAN ACCOUNT DIFFERS FROM CURRENT ACCOUNT AND THE PROVIS IONS OF SECTION 2(22)( E) OF THE ACT, BEING A DEEMING SECTION, CANNOT BE APPLIED TO CURRE NT ACCOUNT. IN SUCH CIRCUMSTANCES, WE DELETE THE ADDITION AND THIS COMM ON ISSUE OF ASSESSEE'S APPEALS IS ALLOWED. ' 6. RESPECTFULLY FOLLOWING THE SAID DECISION OF T HE TRIBUNAL AND ALSO THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRADIP KU MAR MALHOTRA VS CIT REPORTED IN 338 ITR 538(CAL) WE FIND THAT THE TRANSACTIONS IN T HE FORM OF CURRENT ACCOUNT SHOULD ITA NO.301/KOL/2012 MR.MANISH MIMANI A.Y.2007-08 5 NOT BE CONSTRUED AS LOAN OR ADVANCES WITHIN THE MEA NING OF SECTION 2(22)(E) OF THE ACT. ACCORDINGLY GROUNDS RAISED BY THE ASESSEE ARE ALLOWED AND ORDER OF THE LD.CIT U/S 263 OF THE ACT IS QUASHED. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 04.05.2016. SD/- SD/- [MAHAVIR SINGH] [M.BALAGANESH] JUDICIAL MEMBER ACCOUNTANT MEMBE R DATE: 04.05.2016. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . MR.MANISH MIMANI, FLAT NO.11, 4 TH FLOOR, 32, ROWLAND ROW, KOLKATA- 700020. 2 THE C.I.T.(CENTRAL)-I, KOLKATA. 3 . .DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES ITA NO.301/KOL/2012 MR.MANISH MIMANI A.Y.2007-08 6