Murugan Muttaiah Madasamy, Hyderabad V. Dy.Commissioner of Income Tax, Circle-1, Surat

ITA 3385/AHD/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1829 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 07-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Reasonable cause; Deemed dividend; Commercial expediency; Condonation of delay
• Section: 143(3); 2(22)(e); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER ITA NO.3385/AHD/2015/SRT ASSESSMENT YEAR: 2011-12 / VS. ( APPELLANT ) SHRI MARUGAN MUTTAIAH MADASAMY, C-201, GREEN ARCADE, L.P.SWANIROAD, PAL, SURAT 395 009. ( REVENUE ) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRLCE-1, SURAT. P.A.N: AEDPA 3491 G APPELLANT BY SH R I SAMUEL NAGADESI CA RESPONDENT BY SHRI PRASOON KABRA SR. DR DATE OF HEARING: 2 5 . 0 2 .201 9 DATE OF PRONOUNCEMENT : 27 . 0 2 .201 9 / O R D E R PER KUL BHARAT, J.M : 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD.COMMISSIONER OF INCOME TAX (APPEALS)-1, SURAT [IN SHORT THE CIT(A)] DATED 30.06.2015 PERTAINING TO ASSESSMENT YEAR 2011-12. 2. THE GROUNDS RAISED BY ASSESSEE READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) TO THE EXTENT CONFIRMING THE ORDER OF THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 IS ERRONEOUS IN LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER (APPEALS) IS ERRED IN LAW AND FACTS OF THE CASE IN CONFIRMING THE PART ADDITION OF RS.25,00,000/- AND RS. 12,22,082/- AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE OF THE DEPRECIATION ON THE CAR PURCHASED AND PUT TO USE DURING THE PREVIOUS. THE LEARNED COMMISSIONER ERRED IN LAW IN HOLDING THAT THE VEHICLE CAN BE PUT TO USE IMMEDIATELY AFTER ON ROAD DELIVERY WITH TEMPORARY REGISTRATION AND INSURANCE DONE AT THE SHOW ROOM. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER (APPEALS) ERRED IN LAW AND FACTS OF THE CASE IN SUSTAINING THE DISALLOWANCE OF RS.1,454/- UNDER SECTION 14A OF THE INCOME-TAX ACT, 1964. 3. THIS PRESENT APPEAL IS BARRED BY 66 DAYS. AN APPLICATION SEEKING CONDONATION OF DELAY HAS BEEN FILED. IT IS CONTENDED THAT THE DELAY IN FILING THE APPEAL IS DUE TO REASONABLE CAUSE. IT IS CONTENDED THAT DUE TO SHIFTING OF OFFICE AND BUSINESS ESTABLISHMENT FROM SURAT TO VISAKHAPATNAM THE ASSESSEE COULD NOT FILED APPEAL IN TIME AND AN AFFIDAVIT IN SUPPORT OF THESE AVERMENTS HAS BEEN DULY FILED BY THE ASSESSEE. 4. THE ID.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DELAY IN FILING IS NOT TO TAKE UNDUE ADVANTAGE RATHER ASSESSEE WOULD SUFFER IRREPARABLE LOSS IF THE DELAY IS NOT CONDONED. HE SUBMITTED THAT IN THE INTEREST OF JUSTICE DELAY MAY BE CONDONED. 5. PER CONTRA, THE LD.DR OPPOSED THE SUBMISSIONS AND SUBMITTED THAT THE REASONABLE CAUSE IS SUBMITTED THAT THE ASSESSEE SHOULD NOT BE ALLOWED TO TAKE ANTI ADVANTAGE OF HIS NEGLIGENCE. HE CONTENDED THAT LAW DOES NOT PERMIT ANYONE TO APPROACH THE TRIBUNAL AT ANY TIME THE ASSESSEE HAS BEEN THROUGHOUT NEGLIGENT AND CONDONING DELAY WOULD TANTAMOUNT TO GIVING REWARD TO HIS SLUMBER. 6. IN REJOINDER, THE ID.COUNSEL FOR THE ASSESSEE SUBMITTED THAT IS NOT A CASE OF SLUMBER OR NEGLIGENCE. THE ASSESSEE HAS BEEN IN GENUINE DIFFICULTY. HE CONTENDED THAT ASSESSEE HAS A VERY STRONG PRIMA FACIE CASE IN HIS FAVOUR AND THERE IS EVERY LIKELIHOOD OF SUCCESS. 7. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS SHIFTED BUSINESS FROM SURAT TO VISAKHAPATNAM. LOOKING TO THE FACTS AND AVERMENTS MADE THERE WAS REASONABLE CAUSE THAT PREVENTED THE ASSESSEE TO APPROACH THIS TRIBUNAL WITHIN THE TIME AS PRESCRIBED UNDER THE ACT. WE, THEREFORE, IN THE INTEREST OF SUBSTANTIAL JUSTICE, CONDONE DELAY AND ADMIT THE APPEAL FOR ADJUDICATION. 8. AT THE TIME OF HEARING, ID.COUNSEL SUBMITTED THAT THE HE DOES NOT WHICH TO PRESS GROUND NO.4 AND HENCE GROUND NO.4 OF APPEAL OF THE ASSESSEE IS DISMISSED AS NOT PRESSED. 9. NOW, THE EFFECTIVE GROUND REMAINS TO BE ADJUDICATED IS THAT CONFIRMING PART ADDITION OF RS.25 LAKHS AND RS.12,22,082/- TREATING AS DEEM DIVIDEND U/S.2(22)(E) OF THE INCOME TAX ACT. 10. THE ID .COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FACTS IN RIGHT PERSPECTIVE. HE SUBMITTED THAT THE PROVISIONS OF SECTION 2(22)(E) CANNOT BE APPLIED ON THE FACTS OF THE PRESENT CASE. HE SUBMITTED THAT THE ASSESSING OFFICER (AO) DURING THE COURSE OF HEARING NOTICED THAT ASSESSEE IS HOLDING 18% SHAREHOLDING OF THE COMPANIES NAMELY M/S.NEM CAPITAL ENGINEERING PROJECTS PVT. LTD. AND 34.71 % OF SHAREHOLDING IN COMPANY M/S.MECHI ENGINEERING PROJECT PVT. LTD. IT WAS NOTICED THAT IN THE CASE OF M/S.MECHI ENGINEERING PROJECT PVT. LTD., HAS RECEIVED LOAN OF RS.51 LAC FROM M/S.NEM ENGINEERING PVT. LTD., OF M/S.MECHI ENGINEERING PVT. LTD. HAS ALSO GIVEN TO MECHI ENGINEERING, A PARTNERSHIP FIRM IN WHICH MURUGAN M.MADASAMY IS HOLDING 50% SHARES. THEREFORE, THE AO TREATED THIS LOAN AS DIVIDEND INCOME AND MADE ADDITION THEREOF. 11. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A) WHO APPLIED PEAK AMOUNT, THEREBY HE SUSTAINED ADDITION OF RS.25 LAKHS AND RS.12,22,082/- AGAINST THE TOTAL ADDITION OF RS.63,23,082/- HE SUBMITTED THAT BOTH THE AUTHORITIES HAVE GROSSLY ERRED IN TREATING THE LOAN AS DEEMED DIVIDEND WHICH IS CONTRARY TO THE PROVISION OF LAW AS WELL AS THE CASE LAWS. HE PLACED RELIANCE IN THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF PCIT VS. PRAKASHKUMAR BHAGCHANDBHAI KHATRI IN TAX APPEAL NO.75/2018 AND RELIANCE IS ALSO PLACED DECISION OF THE CO-ORDINATE BENCH OF TRIBUNAL AND IN THE CASE OF SHRI KISHORILAL KASHIA RAMRAKA VS. DCIT IN ITA NO.643/PN/2012. THE ID.COUNSEL HAS ALSO PLACED RELIANCE ON THE CBDT CIRCULAR NO. 19 OF 2017 DATED 12.06.2017 TO BUTTRESS THE ARGUMENTS THAT THE AMOUNT WAS GIVEN FOR COMMERCIAL EXPEDIENCY AND THERE IS NO BENEFIT, THE ASSESSEE IS NOT BENEFICIARY FOR SUCH TRANSACTIONS. HE SUBMITTED THAT ADMITTEDLY THE LOAN WAS GIVEN TO MAKE REPAYMENT OF THE OUTSTANDING LIABILITY. 12. THE LD.DEPARTMENTA REPRESENTATIVE OPPOSED THE SUBMISSIONS AND SUBMITTED THAT THE ASSESSEE COULD NOT DEMONSTRATE THAT THERE WAS ANY BUSINESS CONNECTION BETWEEN THE TWO ENTITIES AS TO PROVE COMMERCIAL EXPEDIENCY. HE, THEREFORE SUBMITTED THE CASE LAWS RELIED BY THE LD.COUNSEL. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE WHICH REQUIRES EXAMINATION IS WHETHER UNDER THE FACTS OF THE PRESENT CASE THE AO WAS JUSTIFIED TO TREAT LOAN AMOUNT AS THE DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. THE FACTS AS RECORDED BY THE AO FOR TREATING THE LOAN AS DIVIDEND INCOME ARE THAT MECHI ENGINEERS, A PARTNERSHIP FIRM IN WHICH THE ASSESSEE IS HOLDING 50% SHARES RECEIVED LOAN FROM M/S.MECHI ENGINEERING PROJECT PVT. LTD. SIMILARLY, THE PARTNERSHIP FIRM HAS SHOWN THE CREDIT BALANCE OF RS.12,22,082/-. THE AO TREATED THESE TWO AMOUNTS AS DIVIDEND INCOME AND MADE ADDITION THEREOF. THE BASIS OF TREATING THE LOAN AS DIVIDEND INCOME AS PER THE AO THAT IS THAT THE AMOUNT RECEIVED IN THE GUISE OF LOAN FROM M/S.MECHI ENGINEERING PROJECT PVT. LTD., ON LOAN ADVANCED TO M/S. MECHI ENGINEERS BY M/S.MECHI ENGINEERING PROJECTS PVT. LTD., IN BOTH OF WHICH MR.MURUGAN M.MADASAMY IS HOLDING MORE THAN 20% OF SHAREHOLDING HAVING SUBSTANTIAL INTEREST AUTOMATICALLY ATTRACTS THE PROVISION OF SECTION 2(22)(E). FOR THE SAKE OF CLARITY PROVISION OF SECTION 2(22)(E) IS REPRODUCED AS UNDER : '(E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) [MADE AFTER THE 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) 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 (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESS ACCUMULATED PROFITS;' 14. THE HON'BLE HIGH COURT IN THE CASE OF PCIT VS. PRAKASHKUMAR BHAGCHANDBHAI KHATRI (SUPRA) HELD AS UNDER : '3. THE SECOND QUESTION INVOLVING GREATER TAX IMPLICATION IS OF TREATING A SUM OF RS. 1.15 CRORES IN THE HANDS OF THE ASSESSEE AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THE TRIBUNAL, WHILE CONFIRMING THE VIEW OF THE CIT(APPEALS), WAS OF THE OPINION THAT THE AMOUNT IN QUESTION WAS IN THE NATURE OF TRADE ADVANCES TO THE ASSESSEE MADE BY THE COMPANY AND NOT A LOAN. TO COME TO SUCH A CONCLUSION THE TRIBUNAL RELIED ON THE JUDGEMENT OF THE EARLIER ASSESSMENT YEAR IN WHICH, IT WAS NOTED THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH THE COMPANY FOR DEVELOPMENT AND CONSIDERATION OF THE LAND WHICH WAS OWNED BY THE ASSESSEE. VARIOUS TRANSACTIONS OF SUCH AGREEMENT PERTAIN TO THE NEGOTIATION OF SALE PRICE TO BE RECEIVED BY THE ASSESSEE FROM THE PAYMENTS COLLECTED BY THE COMPANY. THE TRIBUNAL, THEREFORE REFERRED TO THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. RAJKUMAR REPORTED IN 318 ITR 462 AND HELD THAT TRADE ADVANCES MADE FOR THE COMMERCIAL TRANSACTIONS WOULD NOT BE HIT BY SECTION 2(22)(E) OF THE ACT.' 15. THE CO-ORDINATE BENCH IN THE CASE OF SHRI KISHORILAL KASHILA RAMRAIKA VS DCIT(SUPRA) HELD AS UNDER: '19. IN THE FACTS OF THE PRESENT CASE, THE AMOUNT HAS BEEN ADVANCED AS BUSINESS ADVANCE, WHEREIN THE AMOUNT WAS ADVANCED TO A JOINT VENTURE COMPANY FOR THE PURPOSE OF PURCHASING MACHINERY TO CARRY ON THE BUSINESS. THE RECIPIENT COMPANY HAD PURCHASED THE MACHINERY AGAINST THE MONEY SO ADVANCED AND THE ASSESSEE HAS ALSO PLACED ON RECORD THE TRAIL OF PAYMENTS IN THIS REGARD AND IN SUCH FACTS AND CIRCUMSTANCES, WHERE A BUSINESS DECISION WAS TAKEN BETWEEN TWO CONCERNS AND THE AMOUNT WAS ADVANCED, SUCH AN ADVANCE CANNOT TAKE THE COLOUR OF LOAN SIMPLILCITOR. SUCH A BUSINESS TRANSACTION BETWEEN TWO CONCERNS, UNDER WHICH AMOUNT IS TRANSFERRED FROM ONE TO ANOTHER CANNOT BE TREATED AS DIVIDEND IN THE HANDS OF SHAREHOLDER BY APPLYING THE DEEMING PROVISIONS OF SECTION 2(22)(E) OF THE ACT. WE FIND NO MERIT IN THE ORDER OF CIT(A) IN THIS REGARD AND REVERSING THE SAME, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.51,00,000/-. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED.' 16. FURTHER RELIANCE IS PLACED UPON THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF SHRI ISHWAR CHAND JINDAL VS. ACIT WHEREIN IT HAS BEEN HELD THAT BUSINESS TRANSACTIONS COULD NOT CONSTITUTE DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE FACTS AND SUBMISSIONS MADE BY THE PARTY. UNDISPUTEDLY, LOAN IS GIVEN TO THE PARTNERSHIP FIRM WHERE ASSESSEE IS PARTNER. NO MATERIAL IS PLACED BY THE REVENUE THAT THIS SUM WAS ADVANCED FOR INDIVIDUAL BENEFIT OF THE ASSESSEE. UNDISPUTEDLY LOAN AMOUNT WAS UTILIZED BY THE FIRM FOR REPAYMENT OF OUTSTANDING LOAN OF BANK. THEREFORE, IN THE ABSENCE OF MATERIAL SUGGESTING THAT ANY INDIVIDUAL BENEFIT IS REACHED TO THE ASSESSEE INVOKING PROVISIONS OF SECTION 2(22)(E) IS NOT JUSTIFIED. WE, THEREFORE, ALLOW THE GROUNDS OF APPEAL OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE ADDITION. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 27.02.2019. SD/- (O.P.MEENA) SD/- (KUL BHARAT) ACCOUNTANT MEMBER JUDICIALMEMBER SURAT; DATED : 27/02/2019 / S.GANGADHARA RAO/SR.PS COPY TO: ASSESSEE/AO/PR. CIT/ CIT (A)/ITAT (DR)/GUARD FILE. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT