O.N.Guganbabu, Salem V. DCIT, Salem

ITA 3361/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9214 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 15-12-2016
• Court: TRIBUNAL
• Department Lawyers: M MURUGABOOPATHY
• Assessee Lawyers: T S LAKSHMIVENKATARAMAN
• Keywords: Deemed dividend; Reassessment proceedings
• Section: 143(3); 133(6); 147; 27; 148

Judgement Text

, / , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B/SMC, CHENNAI , ! ' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER ./ITA NO.3361/MDS/2016 # $ %&$ / ASSESSMENT YEAR : 2008-09 O.N.GUGANBABU, D.NO.101, CO-OPERATIVE COLONY, GANDHI NAGAR, NAMAKKAL TOWN 637 001. [PAN: ACGPG 1601F] VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, SALEM. ( /APPELLANT ) ( / RESPONDENT ) '( ) * / APPELLANT BY : SHRI T.S.LAKSHMI VENKATARAMAN, FCA +,'( ) * / RESPONDENT BY : SHRI M.MURUGABOOPATHY, ADDL. CIT - % ) . / DATE OF HEARING : 08.03.2017 /& ) . / DATE OF PRONOUNCEMENT : 07.06.2017 /O R D E R PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-18, CHENNAI ( CIT(A) FOR SHORT) DATED 27.09.2016, DISMISSING THE ASSESSEES APPEAL CONTES TING ITS ASSESSMENT U/S. 143(3) R/W S. 147 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DATED 25.11.2014 FOR ASSESSMENT YEAR (AY) 2008-09. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE, AN INDIVIDUAL, DERIVING INCOME FROM CONTRACT BUSINESS, IS IN RECEIPT OF . 46,34,535/- DURING THE CURRENT 2 ITA NO.3361 /MDS/2016 (AY 2008-09) O.N.GUGANBABU V. DY CIT YEAR FROM A COMPANY, R.B. PROJECTS PVT. LTD., TRICH Y, OF WHICH HE IS A DIRECTOR HOLDING 1/3 RD SHARES. IN THE VIEW OF THE REVENUE, THIS AMOUNT I S LIABLE TO BE ASSESSED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE AC T, I.E., TO THE EXTENT OF THE ACCUMULATED PROFIT AS AT THE BEGINNING OF RELEVANT PREVIOUS YEAR ( . 29,83,487). THIS IS THE CONTROVERSY ATTENDING THE PRESENT APPEA L. THE ASSESSMENT BEING BY WAY OF REASSESSMENT U/S. 143 R/W S. 147, THE ASSESS EE CONTESTS THE SAME ALSO BY ASSAILING THE VALIDITY OF THE SAID PROCEEDINGS, I.E ., APART FROM THE APPLICABILITY OF S. 2(22)(E) IN THE FACTS AND CIRCUMSTANCES OF HIS C ASE. 3. I HAVE HEARD THE PARTIES, AND PERUSED THE MATERI AL ON RECORD. THE CHALLENGE TO THE INITIATION OF THE REASSESSMENT PROCEEDINGS (VIDE NOTICE U/S. 148 DATED 10.04.2014), WHICH IS BEYOND A PERIO D OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, IS ON THE GROUND O F TRUE AND FULL DISCLOSURE OF ALL MATERIAL FACTS NECESSARY FOR THE COMPUTATION OF THE INCOME, ORIGINALLY ASSESSED U/S. 143(3) (VIDE ORDER DATED 23.12.2010). THIS IS CLAIMED ON THE BASIS OF THE ASSESSEES BALANCE-SHEET AS ON 31.03.2008 (COPY ON RECORD) WHICH REFLECTS BOTH, THE ASSESSEES INVESTMENT IN RB PROJECTS PVT. LTD. (AT . 5 LACS) AS WELL AS THE LOAN TO THE ASSESSEE, OUTSTANDING AT . 22,15,000 AS ON THAT DATE. THE DISCLOSURE, AS EXPLAINED BY THE BENCH DURING HEARING ITSELF, IS NEITHER TRUE NOR FULL. THE CREDIT OF . 22.15 LACS IS REFLECTED THEREIN UNDER THE HEAD T RADE CREDITORS, IMPLYING A TRADE CREDIT, WHICH IS DECIDEDLY OUTSIDE THE AMBIT OF S. 2(22)(E), I.E., INSTEAD OF AS AN UNSECURED LOAN, WHICH IT IN FACT I S. ALSO, THE NAME OF THE CREDITOR IS STATED AS R.B. PROJECTS, WHILE THE CO RRECT NAME IS R.B. PROJECTS PVT. LTD., WHICH ASSUMES RELEVANCE AS THE PROVISION IS APPLICABLE ONLY IN THE CASE OF SUMS RECEIVED FROM A COMPANY. THEN, AGAIN, THE DISC LOSURE OF THE INVESTMENT THERE-IN DOES NOT REVEAL THE EXTENT OF THE SHARE-HO LDING, WHILE THE PROVISION (S. 2(22)(E)) IS TRIGGERED ONLY ON THE SHAREHOLDING EXC EEDING A THRESHOLD LIMIT, AND NOT OTHERWISE. THE PLEA OF TRUE AND FULL DISCLOSURE OF ALL MATERIAL FACTS, RATHER 3 ITA NO.3361 /MDS/2016 (AY 2008-09) O.N.GUGANBABU V. DY CIT THAN BEING PROVED, IS, THUS, DISPROVED. THE ASSESSE E ACCORDINGLY FAILS QUA THE SAID PLEA. COMING TO THE APPLICATION OF S. 2(22)(E), THE S AME IS STATED TO BE INAPPLICABLE AS THE LOAN FROM THE COMPANY IS ON THE BASIS OF A T ACIT UNDERSTANDING THEREWITH THAT IT WILL EXTEND LOAN TO HIM, I.E., AS AND WHEN REQUIRED, IN-AS-MUCH AS THE ASSESSEE HAD GIVEN HIS PERSONAL PROPERTY (VALUED AT . 147.63 LACS) AS COLLATERAL SECURITY TO ENABLE THE COMPANY TO BORROW FUNDS FOR ITS BUSINESS FROM THE BANK (CITY UNION BANK). TOWARD THIS, A CERTIFICATE DATED 28.09.2016 FROM THE BANK IS PRODUCED, AND WHICH IS FURTHER STATED TO HAVE BEEN FILED BEFORE THE LD. CIT(A) VIDE LETTER DATED 30.09.2016. THE ASSESSMENT ORDER RECORDS THE ASSESSING OFFICER (AO) TO HAVE, ON THIS PLEA RAISED BEFORE HI M, SOUGHT INFORMATION DIRECTLY FROM THE BANK U/S. 133(6), AND WHICH CLARIFIED THAT THE COMPANY, R.B. PROJECTS PVT. LTD. (RBPL), TO BE DURING THE RELEVANT YEAR I. E., F.Y. 2007-08, AVAILING A CREDIT FACILITY OF ONLY . 50 LACS AGAIN STOCK AND BOOK DEBTS. THE PROPERTY UNDER REFERENCE, AS WELL AS THAT OF THE ASSESSEES MOTHER (WHICH IS VALUED AT . 189.22 LACS), HAD BEEN GIVEN AS SECURITY TO THE BANK ONLY LATER, I.E., ON 06.04.2011 (I.E., DURING F.Y. 2011-12), ON THE LIMITS BEING INCREASED (REFER PARA 29 OF THE ASSESSMENT ORDER). THIS, THE LD. AUTHORIZED REPRES ENTATIVE (AR), THE ASSESSEES COUNSEL, WOULD SUBMIT, IS INCORRECT; THE LIMIT HAVI NG INCREASED TO . 187 LACS DURING THE RELEVANT YEAR, WITH THE BANK CREDIT TO T HE COMPANY AS ON 31.03.2008, THE YEAR-END, BEING . 1,82,40,928/-, EVEN AS SPECIFIED IN THE WRITTEN SUBMISSIONS DATED 30.09.2016 TO THE LD. CIT(A). ON BEING QUESTIONED WITH REGARD TO THE SUBMISSION OF THE BANK CERTIFICATE DA TED 28.09.2016 ON 30.09.2016, IN-AS-MUCH AS THE IMPUGNED ORDER IS ITSELF DATED 27 .09.2016, SO THAT THE SAME WOULD BE OF LITTLE CONSEQUENCE, HE AVERRED THAT HE HAD PERSONALLY APPEARED BEFORE THE LD. CIT(A) ON THAT DATE (30.09.2016) AND FURNISHED THE SAID CERTIFICATE, AND WAS PREPARED TO FILE AN AFFIDAVIT IN THIS RESPECT. AND THAT HE WAS EQUALLY SURPRISED TO FIND THE APPELLATE ORDER BEING DATED 27.09.2016. WHY, IN 4 ITA NO.3361 /MDS/2016 (AY 2008-09) O.N.GUGANBABU V. DY CIT THAT CASE, I WONDER, THE LD. AR DID NOT STATE THIS UPFRONT, BUT ONLY ON THE DATE OF THE IMPUGNED ORDER, I.E., 27.09.2016, BEING POINTED OUT TO HIM DURING HEARING? ALSO, WHY WAS THE DOCUMENT REVISING THE CREDIT LIMI T (TO . 187 LACS), AS WELL AS THE FACT OF THE BANK OUTSTANDING AS ON 31.03.2008 BEING AT . 182.41 LACS, NOT CONVEYED TO THE LD. CIT(A), AND WHICH WAS ADMITTEDL Y NOT. THE LD. AR, ON BEING QUESTIONED, THOUGH CONCEDED TO NOT FURNISHING THE SAID DOCUMENTS, PROFFERED TO BE TESTED WITH REGARD TO FURNISHING TH E BANK CERTIFICATE DATED 28.09.2016 BY ASKING THE LD. DR TO PRODUCE THE APPE LLATE RECORD. IN MY VIEW, THE MATTER BEING FACTUAL, OUGHT TO BE DECIDED ON THE BASIS OF ACTUAL, PROVEN FACTS, RATHER THAN OF THE ASSESSEE H AVING FURNISHED (OR FAILED TO) SOME DOCUMENTS. THERE IS IN FACT AN ADMITTED FAILUR E TO FURNISH THE DOCUMENTS QUA THE INCREASE IN THE CREDIT LIMITS OF RBPL, EVEN AS THE SAME WOULD BE BORNE OUT BY THE BALANCE-SHEET AS ON 31.03.2008. ALSO, TH IS BEING THE BONE OF CONTENTION BETWEEN THE PARTIES, THE BANK CERTIFICAT E (DATED 28.09.2016) COULD HAVE BEEN FURNISHED EARLIER; THE HEARING IN THE APP ELLATE PROCEEDINGS MAY HAVE BEEN CLOSED BY 27.09.2016 AND, IN ANY CASE, BEFORE 30.09.2016. THE QUESTION IS NOT WHEN THE CREDIT FACILITIES WERE ENHANCED, WHICH WOULD IN ANY CASE STAND BORNE OUT BY THE COMPANYS BALANCE SHEET AS ON 31.0 3.2008. WHAT IS MATERIAL IS THE DATE WHEREAT THE ASSESSEE (AND HIS MOTHER)S PR OPERTY/S WAS OFFERED BY THE SAID COMPANY TO THE BANK AS A COLLATERAL SECURITY, OR INCLUDED AS A PART OF THE TERMS AND CONDITIONS OF THE SANCTION. THOUGH THE B ANK CERTIFICATE DATED 28.09.2016 (COPY ON RECORD AT PB PG. 4) STATES THE COMPANY (RBPL) TO HAVE OFFERED ASSESSEES (AND HIS MOTHERS) PROPERTIES AS SECURITIES, IT IS VERY UNLIKELY THAT THE COMPANY WOULD FURNISH COLLATERAL SECURITY WORTH . 665 LACS, WHICH IS OVER AND ABOVE THE PRIMARY SECURITY (WHICH, INCLUDI NG MARGIN, WOULD BE TO THE TUNE OF . 75 LACS), AGAINST A HYPOTHECATION LIMIT OF ONLY . 50 LACS. THIS IS PARTICULARLY CONSIDERING AND IN VIEW OF THE BANKS STATEMENT U/S. 133(6), WHICH THE REVENUE IS OBLIGED TO REGARD AS TRUE. THERE IS THUS AN APPARENT INCONSISTENCY 5 ITA NO.3361 /MDS/2016 (AY 2008-09) O.N.GUGANBABU V. DY CIT BETWEEN THE BANKS STATEMENT U/S. 133(6) AND ITS C ERTIFICATE DATED 28.09.2016, WHICH SHALL HAVE TO BE ADDRESSED. THE BURDEN TO EST ABLISH THE FACTS, OR THE TRUTH OF THE DOCUMENTS FURNISHED, IS, IN ANY CASE, ON THE ASSESSEE, AND WHICH IT MAY DO ON THE BASIS OF SOME CONTEMPORANEOUS AND/OR INDEPEN DENT EVIDENCE/S. THE SANCTION (NO. ADV/AF 32/ / 05-06 DATED 16.09.200 5), REFERRED TO IN THE BANK CERTIFICATE DATED 28.09.2016, WOULD BE RELEVANT IN THIS REGARD. THE BANK ITSELF MAY HAVE SOME EXPLANATION TO DO IN THE MATTER. AT T HE SAME TIME, FORM-8, FILED IN PURSUANCE TO SS. 125, 127, ETC. OF THE COMPANIES ACT, 1956) WITH THE REGISTRAR OF COMPANIES TO REGISTER A CHARGE OR MODI FICATION THEREOF, AS FILED ON 06.04.2006 (PB PGS. 17-20) SPEAKS OF A TOTAL CHARGE OF . 245 LACS CREATED ON 4.2.2006. THAT THE SAME IS ONLY IN RESPECT OF THE C OMPANYS PROPERTIES SUBJECT TO CHARGE, SO THAT THE IMMOVABLE PROPERTIES AS AMONG T HE PROPERTIES SUBJECT TO CHARGE, THE OTHER BEING RECEIVABLES/STOCK, MAY NOT BE OF MUCH HELP, YET SHOWS THE BANKS EXPOSURE TO THE COMPANY TO HAVE INCREASE D PRIOR TO THE RELEVANT PREVIOUS YEAR, VALIDATING THE ASSESSEES CLAIM, THO UGH IT IS INTRIGUING THAT THE COMPANY SHOULD OFFER, BESIDES ITS PROPERTIES, ALSO THAT OF ITS DIRECTORS AND THEIR FAMILY MEMBERS. THE AOS RELIANCE ON THE COMPANYS BALANCE-SHEET, WHICH IS STATED TO BEAR REFERENCE ONLY TO THE BOOK DEBTS AND MOVABLE ASSETS AS THE SECURITIES IS NOT CONCLUSIVE WHERE, AS CONTENDED, P ROPERTY IS KEPT AS COLLATERAL SECURITY. THE SAME, TO BE CONSIDERED AS A SECURITY, OUGHT TO FORM PART OF THE AGREEMENT AND, FURTHER, REFERRED TO IN THE SANCTION LETTER BEARING THE TERMS AND CONDITIONS OF THE LOAN. THE LOAN DOCUMENTS, I.E., FOR . 50 LACS, AND FOR THE INCREASED LIMIT OF . 187 LACS, WHICH WOULD ALSO BEAR THE TERMS AND CONDI TIONS OF THE ADVANCE/S; AGREEMENT/S ENTERED INTO IN PURSUANCE THERETO, ETC. , HAVE ADMITTEDLY NOT BEEN FURNISHED AT ANY STAGE. THE MATTER IS, ACCORDINGLY, SET ASIDE TO THE FILE OF THE LD. CIT(A) TO DECIDE THE SAME AFRESH ON MERITS, ISSUING DEFINITE FINDINGS OF THE FACT, ALLOWING THE ASSESSEE AN OPPORTUNITY TO PRESENT HIS CASE BEFORE HIM. HE MAY 6 ITA NO.3361 /MDS/2016 (AY 2008-09) O.N.GUGANBABU V. DY CIT ADMIT THE EVIDENCE THAT MAY BE FILED BY THE ASSESSE E, CAUSING, AT HIS OPTION, ITS VERIFICATION THROUGH THE AO, OR UNDERTAKE THE SAME HIMSELF AND, BESIDES, CONSIDER THE AOS OBJECTIONS, IF ANY, AS ALSO THE M ATERIAL HE SEEKS TO RELY UPON IN REBUTTAL OF THE ASSESSEES CLAIM/S. BEFORE PARTING WITH THIS ORDER, I MAY ADD THAT, ON MERITS, THE ARGUMENT OF THE ASSESSEE HAVING BEEN ADVANCED A LOAN IN LIEU OF THE COLLATERAL SECURITY OF HIS PROPERTY, THEREBY ESTABLISHING A BUSINESS LINK OR NEXUS BETWEEN THE TWO TRANSACTIONS, PRECLUDING APPLICATION OF S. 2(22)(E) , IS NOT IMPRESSIVE ENOUGH. TRUE, THE ASSESSEE IS IN SUCH A CASE PREVENTED FROM SEEKING A BANK LOAN FOR HIS OWN PURPOSES, AND WHICH MAY HAVE LED TO THIS ARRANG EMENT, STATED TO BE BY WAY OF AN UNDERSTANDING. HOWEVER, THE INFERENCE IS BASE D ON A PRESUMPTION, WHICH MAY NOT HOLD OR BE TRUE, AS THE ASSESSEE MAY NOT HA VE ANY PROPOSAL TO AVAIL A LOAN AT THE RELEVANT TIME, OR MAY EVEN HAVE SOME OT HER PROPERTY, INCLUDING OF A CLOSE RELATIVE, AS OF THE MOTHER ALSO STATED AS K EPT AS SECURITY BY RBPL, FOR THE PURPOSE, OR EVEN MAY BE ABLE TO GET A LOAN WITHOUT ANY PROPERTY. FURTHER, WHY, IN THAT CASE, THE COMPANY HAS NOT CHARGED INTEREST TO THE ASSESSEE, THE PREMISE BEING ONLY TO COMPENSATE THE ASSESSEE FOR THE LACK OF FUNDS THAT HE MAY HAVE AVAILED ON THE BASIS OF HIS PROPERTY? THE LOAN BY T HE BANK TO THE COMPANY IS, AFTER ALL, ONLY AT A COST, I.E., INTEREST. RATHER, THE ONLY MANNER OF COMPENSATING HIM WOULD BE BY THE BANK ADVANCING LOAN/S AS REQUIR ED BY THE ASSESSEE AT THE RELEVANT TIME, REDUCING THE EXPOSURE TO THE COMPANY FOR THE SAID AMOUNT OR, IN ANY CASE, BY THE COMPANY CHARGING HIM INTEREST AT T HE RATE AT WHICH IT IS ITSELF BEING CHARGED BY THE BANK. THE NON-CHARGE OF INTERE ST BY THE COMPANY (RBPL) TO THE ASSESSEE IS CLEARLY INTRIGUING, THOUGH THE S AME WOULD DIRECTLY IMPINGE ON THE ALLOWANCE OF INTEREST ON BANK LOAN TO THE COMPA NY U/S. 36(1)(III) OF THE ACT. BE THAT AS IT MAY, THE ASSESSEE HAS BEFORE ME RELIE D UPON CERTAIN DECISIONS, VIZ. PRADIP KUMAR MALHOTRA V. CIT [2011] 338 ITR 538 (CAL) AND ASST. CIT V. G.SREEVIDYA [2012] 24 TAXMANN 75 (CHNY), HOLDING NON APPLICATI ON OF S. 7 ITA NO.3361 /MDS/2016 (AY 2008-09) O.N.GUGANBABU V. DY CIT 2(22)(E) UNDER THE CIRCUMSTANCE WHERE THE BANK ADVA NCE WAS SUBJECT TO THE PRECONDITION OF FURNISHING SECURITIES, AND WHICH TH EREFORE HAD TO BE PROVIDED. GIVING DUE DEFERENCE TO THESE DECISIONS, THE MATTER IS RESTORED FOR FACTUAL DETERMINATION AND CONFIRMATION TO THE FILE OF THE F IRST APPELLATE AUTHORITY. THAT THE REVENUE COULD HAVE, IN THE ALTERNATIVE, OR WITH OUT PREJUDICE, DISALLOWED INTEREST IN THE HANDS OF THE COMPANY IS ANOTHER MAT TER. I DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON JUNE 07, 2017 AT CHENNAI . SD/- ( ) (SANJAY ARORA) ! /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED, JUNE 07, 2017. EDN 1 ) +#.23 43&. /COPY TO: 1. '( /APPELLANT 2. +,'( /RESPONDENT 3. - 5. ( )/CIT(A) 4. - 5. /CIT 5. 3%67 +#.# /DR 6. 78$ 9 /GF 8 ITA NO.3361 /MDS/2016 (AY 2008-09) O.N.GUGANBABU V. DY CIT CHECK LIST: 1. CAUSE TITLE - OK 2. REPRODUCTION NA 3. CITATIONS NA 4. GAP (PGS) PARA.2 5. CORRECTIONS (SD/- COPY) -