R.Lakshminarayanamoorthy, CHENNAI V. DCIT, Coimbatore

ITA 3409/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4989 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 20-12-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS JCITD R
• Assessee Lawyers: T N SEETHARAMAN
• Keywords: Deemed dividend; Scheme of amalgamation; Commercial expediency
• Section: 143(3); 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NOS.3408 & 3409/MDS./2016 / ASSESSMENT YEAR : 2010-11 MR.R.LAKSHMINARAYANAMOORTHY 9/66, GANESH NAGAR, G.M.MILLS POST, THUDIYALUR, COIMBATORE-641 029. V S THE DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(2), COIMBATORE. PAN: AATPL4105E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. T.N.SEETHARAMAN, ADVOCATE /RESPONDENT BY : MR.SHIVA SRINIVAS, JCIT,D.R / DATE OF HEARING : 02.03.2017 / DATE OF PRONOUNCEMENT : 12 - 0 4 - 2017 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEA LS)-I, COIMBATORE DATED 30.09.2016 ARISING OUT OF THE ORDE R PASSED ITA NOS.3408 & 3409/16 :- 2 -: UNDER SECTION 143(3) OF THE ACT PERTAINING TO APPEA L IN ITA NO.3408/MDS./2016 AND PENALTY ORDER PASSED UNDER SE CTION 271(1)(C) OF THE ACT PERTAINING TO APPEAL IN ITA NO .3409/MDS./16 FOR ASSESSMENT YEAR 2010-11. 2. THE MAIN CONTENTION OF THE ASSESSEE IN ITA NO.3408/MDS./2016 IS WITH REGARD TO CONFIRMING THE ADDITION OF ` 52,64,846/- AS DEEMED DIVIDEND UNDER SECTION 2(22 )(E) OF THE ACT. 2.1 THE OTHER APPEAL IN ITA NO.3409/MDS./2016 IS WITH REGARD TO CONFIRMING THE LEVY OF PENALTY ON ACCOUNT OF DISALL OWANCE OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. FIRST WE TAKE UP ITA NO.3408/MDS./16 3. THE FACTS OF THE ISSUE ARE THAT DURING THE ASSE SSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE, THE MANAGING DIR ECTOR OF THE COMPANY, M/S.CHROMA PRINT INDIA PVT LTD., HAS RECEI VED AN AMOUNT OF ` 76,47,999/- ON VARIOUS DATES. IT IS ALSO NOTED BY T HE AO THAT OUT OF THIS, A SUM OF ` 11,51,373/- ON ACCOUNT OF RENT AND ` 9,33,600/- ON ACCOUNT OF SALARY FROM M/S.CHROMA PR INT INDIA PVT LTD., ` 2,98,180/- ON ACCOUNT OF COMMISSION PAYMENTS. THUS, THE ITA NOS.3408 & 3409/16 :- 3 -: LD. ASSESSING OFFICER CONSIDERED THE BALANCE AMOUNT OF ` 52,64,846/- FOR DISALLOWANCE U/S.2(22)(E) OF THE A CT AS DEEMED DIVIDEND. AGGRIEVED, THE ASSESSEE CARRIED THE APP EAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) VIDE ORDER DATE D 03.11.2014 CONFIRMED THE ORDER OF LD. ASSESSING OFFICER. AGAIN ST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE LD.CIT(A). 3.1 BEFORE TRIBUNAL, THE ASSESSEE RAISED THE ADDIT IONAL GROUND STATING THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE SINC E THE ASSESSEE MANAGING DIRECTOR OF THE COMPANY MORTGAGED ALL HIS PROPERTIES FOR OBTAINING LOAN BY THE COMPANY AND THE ASSESSEE OBTAINED LOAN FROM THE COMPANY CANNOT BE TREATED AS TRANSACT ION FALLING WITHIN THE MEANING OF DEEMED DIVIDEND UNDER SECTIO N 2(22)(E) OF THE ACT. SINCE THE ASSESSEE RAISED AN ADDITIONAL G ROUND, THE TRIBUNAL REMITTED THE ISSUE TO THE FILE OF AO FOR R ECONSIDERATION VIDE ORDER DATED 31.12.2015. 4. WHILE PASSING THE CONSEQUENTIAL ORDER, THE AO R EPEATED THE SAME ADDITION. ONCE AGAIN, THE ASSESSEE CARRIED THE APPEAL TO ITA NOS.3408 & 3409/16 :- 4 -: THE LD.CIT(A), WHO CONFIRMED THE ADDITION. HENCE, T HE ASSESSEE IS IN APPEAL BEFORE US. 5. LD.A.R SUBMITTED THAT THE ASSESSEE, WHO IS THE MANAGING DIRECTOR OF THE COMPANY, HAS MORTGAGED ALL HIS PRO PERTIES FOR OBTAINING LOAN BY THE COMPANY. BEING SO, THE PROVI SIONS OF THE SECTION 2(22)(E) OF THE ACT CANNOT BE APPLIED. FOR THIS PURPOSE, HE RELIED ON THE VARIOUS JUDGEMENTS. HE ALSO SUBMITTED THAT M/S.MIND WARE PVT LTD., WHICH WAS MERGED WITH M/S.C HROMA PRINT INDIA PVT LTD., WHEREIN THE APPOINTED DATE WAS 01.04.2009. HE SUBMITTED THAT THE BALANCE ON THE SA ID DATE IN THE ASSESSEES ACCOUNT IN THE BOOKS OF THE AMALGAMATING COMPANY (MINDWARE) AS ON 01.04.2009 SHOULD BE CONSIDERED AS BALANCE IN THE BOOKS OF ACCOUNT OF THE AMALGAMATED COMPANY. FO R THIS PURPOSE, HE RELIED ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF MARSHALL SONS REPORTED IN 223 ITR 809(SC). HE ALSO SUBMITTED THAT FOR THE PURPOSE OF QUANTIFICATION OF DEEMED DIVIDEND, DEBIT AND CREDIT ENTRY NOT TO BE CONSIDE RED INDIVIDUALLY AND IT SHALL BE ON CUMULATIVE MANNER. FOR THIS PURP OSE HE RELIED ON THE ORDER OF TRIBUNAL IN ACIT VS. SMT. G.SREEVID YA IN (2012) 138 ITD 427, IN ACIT VS. SHRI RAVIKANT CHOUDHARY IN ITA ITA NOS.3408 & 3409/16 :- 5 -: NO.768/MDS./2012 & CO NO.93/MDS./2012 FOR ASSESSMEN T YEAR 2008-09 VIDE ORDER DATED 17.12.2012. HE ALSO RELIE D ON THE JUDGEMENT OF KOLKATTA HIGH COURT IN PRADIP KUMAR MA LHOTRA VS. CIT IN (2011) 338 ITR 538(CAL.) FOR THE PROPOSITION THAT THE ARRANGEMENT BETWEEN THE ASSESSEE AND THE COMPANY IN QUESTION IS COMMERCIAL EXPEDIENCY WHEREIN THE ASSESSEE BEING A MANAGING DIRECTOR FURNISHED A BANK GUARANTEE; CONTI NUED IT, LATER ON RECEIVED THE AMOUNT FROM THE COMPANY. AS SUCH TH E PROVISIONS OF THE SECTION 2(22)(E) OF THE ACT CANNO T BE APPLIED. 6. ON THE OTHER HAND, LD.D.R RELIED ON THE ORDER OF LD.CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, ADMITTED FACT THAT THE AO ONL Y CONSIDERED THE DEBT BALANCE IN THE NAME OF ASSESSEE IN THE BOOKS O F ACCOUNT OF THE COMPANY TO CONSIDER THE DEEMED DIVIDEND UNDER S ECTION 2(22)(E) OF THE ACT AT ` 52,64,846/- AND HE CANNOT DOUBT THE CREDIT TOWARDS THE AMOUNT RECEIVED BY THE ASSESSEE IN RESP ECT OF ` 11,51,373/- ON ACCOUNT OF RENT AND ` 9,33,600/- ON ACCOUNT OF SALARY FROM M/S.CHROMA PRINT INDIA PVT LTD., ` 2,98,180/- ON ACCOUNT OF COMMISSION PAYMENTS; OUT OF GROSS AMOUNT RECEIVED ITA NOS.3408 & 3409/16 :- 6 -: AT ` 76,47,999/-. NOW THE CONTENTION OF ASSESSEE IS THAT THE ASSESSEE RECEIVED MONEY ON ACCOUNT OF COMMERCIAL EX PEDIENCY FOR MORTGAGING THE ASSESSEES PROPERTY TO BANK FOR ENABLING THE COMPANY, M/S.CHROMA PRINT INDIA PVT LTD., TO AVAIL LOAN FROM STATE BANK OF INDIA(SBI). HOWEVER, THE LOWER AUTHO RITIES CLEARLY BROUGHT ON RECORD THAT THERE WAS NO AUTHORITY BY WA Y OF BOARD RESOLUTION FROM M/S.CHROMA PRINT INDIA PVT LTD. TO GIVE THE SAID AMOUNT OF ` 52,64,846/- . WHEN THERE IS NO RESOLUTION OR AUTHO RITY FROM THE BOARD OF DIRECTORS OF THE SAID COMPANY, TO GIVE THE SAID AMOUNT TO THE ASSESSEE, IT CANNOT BE SAID THAT THER E EXIST IN COMMERCIAL EXPEDIENCE TO GRANT SUCH A HUGE AMOUNT TO THE ASSESSEE. IN SUCH CIRCUMSTANCES, IN OUR OPINION, TH E PROVISIONS SECTION 2(22)(E) OF THE ACT IS APPLICABLE TO THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE SAID COMPANY AND IN THIS R EGARD, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(APPE ALS) . THE VARIOUS CASE LAWS RELYING BY THE LD.A.R HAVE NO APPLICATION TO THE FACTS OF THE CASE. AS IN THIS CASE, THERE IS NO BOARD RESOL UTION PASSED BY THE COMPANY TO GIVE MONEY TO THE ASSESSEE. FURTH ER, LD.A.R MADE A PLEA THAT UNDER THE SCHEME OF AMALGAMATION M /S.MIND WARE PVT LTD., WAS AMALGAMATED WITH M/S.CHROMA PRI NT INDIA PVT LTD. APPOINTMENT DATE WAS 01.04.2009. THE BALA NCEIN THE ITA NOS.3408 & 3409/16 :- 7 -: NAME OF ASSESSEE ON THE SAID DATE IN THE BOOKS OF A CCOUNT OF M/S.MIND WARE PVT LTD., WAS TO BE CONSIDERED AS BAL ANCE IN THE BOOKS OF ACCOUNT OF THE AMALGAMATED COMPANY ON THE APPOINTED DATE. HOWEVER, IT IS OBSERVED THAT BOARD OF DIRECTO RS OF THE AMALGAMATED COMPANY HAD A BOARD MEETING ON 30.06.20 10 APPROVING THE SCHEME OF AMALGAMATION. THE PETITION OF AMALGAMATION WAS DATED 23.07.2010. HENCE, THE STA TEMENT OF THE ASSESSEE IS THAT THE BALANCE IN THE BOOKS OF AC COUNT OF M/S.MIND WARE PVT LTD., WAS TO BE CONSIDERED HAVE NO MERIT. MORE SO, THE BALANCE APPEARED IN THE BOOKS OF ACCOU NT OF M/S.CHROMA PRINT INDIA PVT LTD. WAS BEFORE FILING T HE AMALGAMATION PETITION DT.23.07.2010. BEING SO, THIS ARGUMENT CANNOT HOLD ANY MERIT. THIS ARGUMENT IS ALSO REJECT ED. 8. FURTHER, LD.A.R ARGUED THAT DAY TO DAY CUMULAT IVE BALANCE TO BE CONSIDERED TO DETERMINE THE DEEMED DIVIDEND. WE HAVE NO DISPUTE REGARDING THIS ARGUMENT. HOWEVER, THE AO O NLY CONSIDERED THE DAY TO DAY DEBIT BALANCE IN THE BOOK S OF ACCOUNT OF THE COMPANY, M/S.CHROMA PRINT INDIA PVT LTD. IN THE NAME OF ASSESSEE AND HE HAS ALREADY EXCLUDED THE OTHER AMO UNT PAYABLE TO THE ASSESSEE. BEING SO, WE DO NOT FIND ANY MERIT IN THIS ITA NOS.3408 & 3409/16 :- 8 -: ARGUMENT. HENCE, THIS GROUND RAISED BY THE ASSESSE E STANDS DISMISSED. 9. COMING TO THE PENALTY LEVIED FOR ADDITION SUSTA INED ON ACCOUNT OF DEEMED DIVIDEND, IN OUR OPINION THE ADDI TION ON ACCOUNT OF DEEMED PROVISIONS CANNOT BE CONSTRUED AS FURNISHING INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME. ACCORDINGLY BY PLACING RELIANCE ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. IN [2010] 322 ITR 158 (SC) WHEREIN HELD THAT: 12. - - -- WE DO NOT AGREE, AS THE ASSESSEE HAD FU RNISHED ALL THE DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELVES, WERE NOT FOUND TO BE INACCU RATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN O R NOT. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, W HICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVEN UE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENAL TY UNDER SECTION 271(1)(C). IF WE ACCEPT THE CONTENTION OF THE REVEN UE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT AC CEPTED BY THE ASSESSING OFFICER FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)(C). THAT IS CLEARLY NOT THE IN TENDMENT OF THE LEGISLATURE. ITA NOS.3408 & 3409/16 :- 9 -: ACCORDINGLY, THE LEVY OF PENALTY U/S.271(1)(C) OF T HE ACT IS UNWARRANTED AND THE PENALTY IS DELETED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I N ITA NO.3408/MDS./2016 IS DISMISSED AND IN ITA NO.3409/M DS./2016 IS ALLOWED. ORDER PRONOUNCED ON 12 TH APRIL, 2017, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 12 TH APRIL, 2017. K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF