ITO 8(2)(2), MUMBAI V. SUBHASH KANTILAL KADAKIA, MUMBAI

ITA 3427/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7966 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Business income; Peak credit; Deemed dividend

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E B ENCH, MUMBAI , ! '# $ $ $ $ , % && , , '# ' BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUICIAL MEMBER ./ I.T.A. NO.3427/MUM/2013 ( ( ( ( ( / ASSESSMENT YEAR :2009-10 THE ITO 8(2)-2. MUMBAI / VS. SHRI SUBHASH KANTILAL KADAKIA, 47-A, NANDJYOT INDUSTRIAL ESTATE, ANDHERI KURLA ROAD, ANDHERI(E), MUMBAI-400 072 #) ! ./ %* ./ PAN/GIR NO. :AHXPK 3624N ( )+ / APPELLANT ) .. ( ,-)+ / RESPONDENT ) )+ . / APPELLANT BY: SHRI PANKAJ KUMAR ,-)+ / . / RESPONDENT BY: SHRI VIJAY KOTHARI / 01! / DATE OF HEARING :07.08.2014 23( / 01! / DATE OF PRONOUNCEMENT :13.08.2014 '4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-17, MUMBAI DT. 6.2.2013 PERTAINING TO A.Y. 2 009-10. 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD . CIT(A) ERRED IN DELETING THE ADDITION OF RS. 34,84,313/- U/S. 2(22) (E) OF THE ACT. ITA NO. 3427/M/2013 2 3. THE ASSESSEE IS AN INDIVIDUAL RECEIVING SALARY F ROM M/S. KADAKIA PLASTICS AND CHEMICALS PVT. LTD. AND ALSO RECEIVING RENTAL INCOME, BUSINESS INCOME AND BANK INTEREST. THE RETURN WAS FILED ON 9.10.2009 DECLARING TOTAL INCOME AT RS. 10,04,620/-. THE RET URN WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES WERE ISSU ED AND SERVED UPON THE ASSESSEE. 3.1. WHILE SCRUTINIZING THE RETURN, THE ASSESSING O FFICER NOTICED THAT THE ASSESSEE HAS RECEIVED LOANS/ADVANCES OF RS. 57,01,0 40/-(UNDER PEAK CREDIT RS. 39,65,589/-) AND RS. 38,33,432/- (UNDER PEAK CR EDIT RS. 29,48,910/-) IN THE PERSONAL AS WELL AS PROPRIETARY CAPACITY FR OM M/S. KADAKIA PLASTICS AND CHEMICALS PVT. LTD. THE AO FURTHER FO UND THAT THE ASSESSEE IS HOLDING 40% SHARES IN M/S. KADAKIA PLASTICS AND CHEMICALS PVT. LTD. THE AO WAS OF THE FIRM BELIEF THAT PROVISIONS OF SE C. 2(22)(E) OF THE ACT SQUARELY APPLY ON THE FACTS OF THE CASE. THE ASSES SEE WAS ASKED TO EXPLAIN WHY THE AMOUNT RECEIVED FROM THE COMPANY BE NOT TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. 3.2. VIDE LETTER DT. 7.12.2011, THE ASSESSEE EXPLAI NED AS UNDER: IN RESPECT TO THE PEAK CREDIT/DEBIT BALANCE REFERR ED BY THE NOTICE IN THE BOOKS OF THE COMPANY OF SAID ACCOUNT, WE STATE THAT ITS NOT SO. WE HAVE ENCLOSED LEDGER ACCOUNT SHOWING ALL ENTRIES DATE VICE AS WELL AS BALANCES ON EACH SUCH DATE. THE DEPOSIT ENTRY OF 35 LAC IS REQUIRED TO PASS ON 1 ST APRIL, 2008 AS AGREEMENT DATE IS 1 ST APRI7, 2008. BASED ON THAT, YOU WILL OBSERVED THAT RUNNING BALANCE IN THE LEDGER ACCOUNT OF SUBHASH KADAKIA IN THE BOOKS OF THE COMPANY, IS ALWAYS CRED IT AND BALANCE IN OTHER ACCOUNT OF SAME PERSON, NET BALANCE IS ALW AYS CREDIT BALANCE ON NET EFFECT. THE SAME, MERGER WAS DONE AT THE YEAR END. ITA NO. 3427/M/2013 3 THERE IS NO CASE OF ANY LOAN TO THE SHAREHOLDER WHI CH ATTRACT THE PROVISION OF SECTION 2(22)(E) OF THE ACT AS THE RE IS NO DEBIT BALANCE AT ANY GIVEN TIME. 3.3. THIS EXPLANATION OF THE ASSESSEE DID NOT FIND FAVOUR FROM THE AO. THE AO DISMISSED THE CONTENTION OF THE ASSESSEE THA T AT THE YEAR END THE BALANCE IS NIL AFTER MERGING THE TWO LEDGER ACCOUNT S I.E. ONE IN THE INDIVIDUAL NAME AND THE OTHER IN THE NAME OF THE PR OPRIETARY CONCERN. RELYING UPON CERTAIN JUDICIAL DECISIONS, THE AO COM PLETED THE ASSESSMENT BY MAKING ADDITION U/S. 2(22)(E) AMOUNTING TO RS. 3 4,84,313/-. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A). ONCE AGAIN IT WAS EXPLAINED THAT THE ASSES SEE IS HAVING TWO ACCOUNTS IN THE SAID COMPANY ONE IN THE NAME OF IND IVIDUAL AND THE OTHER IN THE NAME OF PROPRIETARY CONCERN AND AT THE END O F THE YEAR, THERE WAS A DEBIT BALANCE OF RS. 29,48,910/- IN THE ACCOUNT OF PROPRIETARY CONCERN M/S. KADAKIA PLASTICS AND CHEMICALS PVT. LTD., AND THERE WAS AN EQUIVALENT CREDIT BALANCE OF RS. 29,48,910/- IN THE ACCOUNT OF SUBHASH KADAKIA. IT WAS STRONGLY CONTENDED THAT AFTER MERG ING THE TWO ACCOUNT BALANCES, THE RESULTANT FIGURE IS NIL. IN SO FAR A S PEAK CREDIT IS CONCERNED, IT WAS EXPLAINED THAT IT IS NOTHING BUT TRADE ADVAN CE EMERGING OUT OF THE AGREEMENT DT. 1.4.2008 IN RESPECT OF PROPERTIES WHI CH WAS GIVEN ON A MONTHLY RENT OF RS. 50,000/- AND DEPOSIT OF RS. 35 LAKHS WAS TAKEN. 4.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S, THE LD. CIT(A) HELD AS UNDER: I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND THE ORDER OF THE A.O.THE APPELLANT IS MAINTAINING TWO A CCOUNTS AS UNDER: ITA NO. 3427/M/2013 4 (I) SUBHASH KADAKIA (R.N) (II) KADAKIA PLASTICS & CHEMICALS PROPRIETORSHIP THE FIRST ACCOUNT IS THE PERSONAL ACCOUNT AND THE S ECOND ACCOUNT IS THE PROPRIETARY ACCOUNT OF THE APPELLANT . AT THE END OF THE YEAR THERE WAS DEBIT BALANCE IN KADAKIA PLASTIC S & CHEMICALS OF RS. 2948910/- AND THERE WAS CREDIT BALANCE IN SU BHASH KADAKIA (R N.) ACCOUNT OF THE SAME AMOUNT. WHEN THE BALANCE SHEET OF THE APPELLANT IS DRAWN, BOTH THE ACCOUNTS GET MERGED AN D THERE IS NO BALANCE IN THE NAME OF THE COMPANY. 5.3 AS REGARDS THE PEAK CREDIT AND CREDIT BALANCE, THE APPELLANT WAS OWNING A OFFICE AT ANDHERI EAST WHICH ALONG WITH THE HOUSE AT UMARGAON WAS GIVEN TO KADAKIA PLASTICS & CHEMICALS ON A MONTHLY RENT OF RS. 50 000/- AND DEP OSIT OF RS. 25 LACS FOR OFFICE AND RS. 10 LACS FOR UMARGAON HOUSE. THIS AGREEMENT WAS ENTERED ON 1. 4.2008. THIS AMOUNT IS RECEIVED FROM THE COMPANY, WHICH IS FOR A REGULAR BUSINESS TRANSA CTION AND IS NEITHER A LOAN NOR ADVANCE, IT IS IN THE NATURE OF BUSINESS DEPOSITS AND FOR THE RENT, TDS HAS ALSO BEEN DEDUCTED. SINCE THIS IS A TRADE ADVANCE, SECTION 2(22)(E) DOES NOT APPLY AS HAS BEE N HELD IN CIT VS. RAJKUMAR, 318 ITR 462 (DEL.) AND CIT VS. AMBASS ADOR TRAVEL P. LTD, 318 ITR 376 (DEL.) THEREFORE, IN THE CASE O F THE APPELLANT, SECTION 2(22)(E) ARE NOT APPLICABLE AND THE ADDITIO N MADE BY THE AO IS DELETED. THE GROUND OF APPEAL OF THE APPELLAN T IS ALLOWED. 5. AGGRIEVED BY THIS, REVENUE IS BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUP PORTED THE FINDINGS OF THE AO. 7. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. ADMITTEDLY, THERE WAS A DEBIT AND CREDIT BALANCE OF EQUAL AMOUNT ONE IN THE NAME OF THE PROPRIETARY CONCERN AND THE OTHER I N THE NAME OF THE INDIVIDUAL. WHEN THESE ACCOUNTS ARE MERGED, THE RES ULTANT FIGURE IS NIL. ITA NO. 3427/M/2013 5 OBVIOUSLY, THERE CANNOT BE ANY BALANCE LOAN ADVANCE WHICH COULD BE TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT . FURTHER IN RESPECT OF PEAK CREDIT BALANCE, ADMITTEDLY, THERE WAS A RENT A GREEMENT AND IN PURSUANCE OF THAT AGREEMENT, THE ASSESSEE RECEIVED DEPOSIT OF RS. 35 LAKHS. THIS BEING IN THE NATURE OF ADVANCE HAVING COMMERCIAL ELEMENT IN IT, THE SAME CANNOT BE TREATED AS DEEMED DIVIDEND U /S. 2(22)(E) OF THE ACT. RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT BY THE LD. CIT(A) I.E. 318 ITR 462 AND 318 ITR 376 ARE WELL FO UNDED. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE FINDING S OF THE LD. CIT(A). 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH AUGUST, 2014 SD/- SD/- (SANJAY GARG ) (N.K. BILLAIYA) '# / JUDICIAL MEMBER ! '# / ACCOUNTANT MEMBER MUMBAI; 5' DATED : 13 TH AUGUST, 2014 . . ./ RJ , SR. PS '4 '4 '4 '4 / // / ,0 ,0 ,0 ,0 6(0 6(0 6(0 6(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 8& ,0 , , / DR, ITAT, MUMBAI 6. &9 : / GUARD FILE. '4 '4 '4 '4 / BY ORDER, -0 ,0 //TRUE COPY// ; ;; ; / < < < < % % % % (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI