M/s. Mahamantra Textiles Mills Pvt. Ltd., Ahmedabad V. The Income Tax Officer, TDS-2, Ahmedabad

ITA 349/AHD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0562 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 10-08-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 11-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed dividend
• Section: 201(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.349/AHD/2016 / ASSTT. YEAR: 2011-2012 M/S.MAHAMANTRA TEXTILE MILLS PVT.LTD. C/O.VINIT MOONDRA, CA 201, SARAP OPP: NAVJIVAN PRESS ASHRAM ROAD AHMEDABAD 380 014. PAN : AABCM 0728 P VS ITO, TDS - 2 AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI VINIT MOONDRA REVENUE BY : SHRI SATISH SOLANKI, SR.DR / DATE OF HEARING : 10/08/2016 / DATE OF PRONOUNCEMENT: 08/09/2016 $%/ O R D E R ASSESSEE IS IN APPEAL AGAINST ORDER OF THE LD.CIT(A )-8, AHMEDABAD DATED 14.12.2015 PASSED FOR THE ASTT.YEAR 2011-12. 2. SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE L D.CIT(A) HAS ERRED IN CONFIRMING ORDER PASSED UNDER SECTION 201(1)/201(1A ) OF THE ACT, VIDE WHICH THE LD.AO HAS RAISED A DEMAND OF TDS ON DEEMED DIVI DEND OF RS.7,39,210/- AND INTEREST OF RS.5,32,231/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY HAS FILED ITS RETURN OF INCOME FOR THE ASSTT.YEAR 2011-12 DECLARING TOTA L INCOME AT RS.31,83,570/- . ACCORDING TO THE AO, SHRI ASHOK JAIN, SHRI AMIT JAIN AND LOONIDEVI JAIN ITA NO.349/AHD/2016 2 ARE HAVING 20.40%, 13.74 AND 18.80% SHAREHOLDING OF THE ASSESSEE-COMPANY. THESE PROMOTERS HAD DEBIT BALANCE IN THE COMPANY AS ON 31.3.2011 AT RS.53,47,290/-, RS.7,38,945/- AND RS.10,90,572/- AG AINST THE NAMES OF SHRI AMIT JANI, SHRI ASHOK M. JANI AND LOONIDEVI M. JANI RESPECTIVELY. THE LD.AO (TDS) WAS OF THE VIEW THAT AS PER SECTION 2(2 2)(E), IF THE COMPANY, WHERE PUBLIC IS NOT SUBSTANTIALLY INTERESTED, MADE PAYMENT BY WAY OF ADVANCE OR LOAN TO SHAREHOLDERS, WHO IS BENEFICIAL OWNER OF SHARES, HOLDING NOT LESS THAN 10% OF THE SHAREHOLDING, THEN IT IS TREATED AS DIVIDEND INCOME OF THE SHAREHOLDERS FOR THAT YEAR. THUS, HE CONCLUDED THA T THE ASSESSEE HAS MADE PAYMENT OF DIVIDEND WITHOUT DEDUCTING TAX THEREFORE , THE ASSESSEE IS TO BE TREATED IN DEFAULT IN TERMS OF SECTION 201(1) OF TH E INCOME TAX ACT. THE FINDING RECORDED BY THE AO READ AS UNDER: 'THE ASSESSEE'S REPLY IS NOT ACCEPTABLE AS THE ASSE SSEE HAS NOT DEDUCTED THE TDS FROM THE EXCESS AMOUNT AFTER ADJUSTMENT, TH OUGH ADJUSTED AGAINST THE SALARY/REMUNERATION. ON VERIFICATION OF THE LEDGER ACCOUNT OF EACH THREE SHARE HOLDER, IT IS OBSERVED THAT, SA LARY HAS BEEN CREDITED IN F.Y.2010-11. EVEN IF IT IS CONSIDERED AS REMUNER ATION, THE COMPANY HAS ADMITTEDLY MADE EXCESS PAYMENT (I.E. LOANS & AD VANCES IN ASSESSEE'S WORD) WHICH WILL BE TERMED AS DEEMED DIV IDEND FOR THE FINANCIAL YEAR 2010-11 AS ON 31/03/2011. THE ASSESS EE IS IN DEFAULT BY NOT DEDUCTING THE TAX AT SOURCE AT THE END OF THE F . Y. ON EXCESS AMOUNT PAID TO THE THREE SHARE HOLDER HOLDING MORE THAN 10 % SHARE HOLDING WHICH CAN ONLY BE TERMED AS DEEMED DIVIDEND U/S.2(2 2)(E)IT ACT. THE ASSESSEE WAS DUTY BOUND TO DEDUCT THE TDS @10%FROM THE AMOUNT OF(I) RS.53,47,290/- IN THE CASE OF AMITJAIN (II) R S.738,945/- IN THE CASE OF ASHOK M. JAIN (III) RS.10,90,572/- IN THE CASE O F LOONIDEVI M JAIN U/S.194 OF IT ACT. THE ASSESSEE FAILED TO DO SO AND IS IN DEFAULT FOR NOT DEDUCTING THE TDS @10%FROM THE TOTAL AMOUNT OF RS.7 1,76,807/- (RS.53,47,290/- + 738,945/- + RS.10,90,572/-.). THE REFORE, THE ASSESSEE IS REQUIRED TO PAY THE TAX U/S.201 OF THE IT ACT.' 4. APPEAL TO THE LD.CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. ITA NO.349/AHD/2016 3 5. BEFORE ME, THE LD.COUNSEL FOR THE ASSESSEE HAS R AISED TWO FOLD SUBMISSIONS. HE APPRAISED ME MEANING OF EXPRESSION DIVIDEND, AND THEREAFTER TOOK THROUGH SECTION 194 OF THE INCOME T AX ACT. ACCORDING TO THE LD.COUNSEL FOR THE ASSESSEE, THE LIABILITY TO DEDUC T TDS WOULD FALL UPON THE ASSESSEE, WHEN IT IS ESTABLISHED THAT DIVIDEND WAS PAID BY THE ASSESSEE. IN THE PRESENT CASE, THE AO HAS DEEMED PAYMENT OF DIVIDEND UNDER DEEMING PROVISIONS PROVIDED UNDER SECTION 2(22)(E) OF THE A CT. THE CASE OF THE ASSESSEE WAS THAT HE HAS MADE PAYMENT OF ABOVE THRE E DIRECTORS IN ORDINARY COURSE OF BUSINESS, AND THESE WERE TRADE ADVANCES. IN THE NEXT YEAR, THESE WERE ADJUSTED AGAINST THEIR SALARIES AND OTHER REMU NERATIONS. IT WAS FOR THE AO TO POINT OUT DURING THE COURSE OF REGULAR ASSESS MENT PROCEEDINGS THAT SUCH PAYMENT IS TO BE CONSTRUED AS DIVIDEND UNDER SECTIO N 2(22)(E) OF THE ACT. ITO(TDS) CAN ONLY PASS AN ORDER UNDER SECTION 201(1 ), IF THERE IS NO DISPUTE WITH REGARD TO THE FACTUM OF NATURE OF PAYMENT. ON THE OTHER HAND, THE LD.D R RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 6. I HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GON E THROUGH THE RECORD CAREFULLY. SECTION 194 OF THE INCOME TAX ACT HAS D IRECT BEARING ON THE CONTROVERSY. THEREFORE, IT IS IMPERATIVE UPON ME T O TAKE NOTE OF RELEVANT PART OF THIS SECTION. IT READS AS UNDER: 'THE PRINCIPAL OFFICER OF AN INDIAN COMPANY OR A CO MPANY WHICH HAS MADE THE PRESCRIBED ARRANGEMENTS FOR THE DECLARATION AND PAYMENT OF DIVIDENDS WITHIN INDIA, SHALL, BEFORE MAKING ANY PAYMENT IN CASH OR BEFORE ISSUING ANY CHEQUE OR WARRANT IN RESPECT OF ANY DIVIDEND OR BEF ORE MAKING ANY DISTRIBUTION OR PAYMENT TO A SHAREHOLDER, WHO I S RESIDENT IN INDIA, OF ANY DIVIDEND WITHIN THE MEANING OF SUB-CL AUSE (A) OR SUB-CLAUSE (B) OR SUB-CLAUSE (C) OR SUB-CLAUSE (D) OR SUB-CLAUSE (E) OF CLAUSE (22) OF SECTION 2, DEDUCT FROM THE AM OUNT OF SUCH DIVIDEND, INCOME-TAX AT THE RATES IN FORCE' ITA NO.349/AHD/2016 4 7. THE ASSESSEE HAS POINTED OUT THAT THREE PROMOTER S HAVE GRANTED THEIR PERSONAL GUARANTEE AND PERSONAL ASSETS AS COLLATERA L SECURITIES TO THE BANK FOR WORKING CAPITAL LIMIT TO BANK OF BARODA. COPY OF T HE SANCTION LETTER HAS BEEN PLACED ON PAGE NO.36 OF THE PAPER BOOK. COMPANY H AS TAKEN LOAN ON THE BASIS OF GUARANTEE AND SECURITY OF PROMOTERS. THE ASSESSEE COMPANY HAS ALLOWED THEM TO WITHDRAW MONEY FOR PERSONAL PURPOSE SUBJECT TO REPAYMENT. COPY OF BOARD RESOLUTION HAS BEEN PLACED ON PAGE NO .48. THE COMPANY HAS GIVEN MONEY TO THE PROMOTERS PURELY TO MEET SHORT-T ERM PERSONAL REQUIREMENTS AS WELL AS TO REQUIREMENTS OF BUSINESS WITH COMPANY THAT THEY WILL PAY BACK THE MONEY. THUS, CONTENTION OF THE A SSESSEE WAS THAT AMOUNTS ADVANCED TO THREE PROMOTERS WERE IN THE ORDINARY CO URSE OF BUSINESS. A BARE PERUSAL OF SECTION 194 EXTRACTED (SUPRA) WOULD INDI CATE THAT THIS SECTION PROVIDES FOR DEDUCTION OF TAX ON THE PAYMENT OF DIV IDEND BY AN INDIAN COMPANY. IN THE PRESENT CASE, THE AO HAS HIMSELF A SSUMED THAT DIVIDEND WAS PAID BY THE ASSESSEE, THE MOMENT IT HAS GIVEN ALLEG ED LOAN/ADVANCE TO THE SHAREHOLDERS. THIS FACT OUGHT TO BE DECIDED BY THE AO IN REGULAR ASSESSMENT PROCEEDINGS AND BEYOND SCOPE OF ITO(TDS). WHEN THI S PLEA WAS SPECIFICALLY RAISED BEFORE THE LD.CIT(A), THE LD.CIT(A) FAILED T O RECORD ANY FINDING ON THIS ASPECT. THE LD.CIT(A) HAS ASSIGNED MAINLY TWO REAS ONS VIZ. SECTION 2(22)(E) OF THE ACT WOULD NOT ATTRACT IF THE COMPANY IS IN T HE BUSINESS OF MONEY LENDING, AND IF THE PAYMENT IS MADE IN THE ORDINARY COURSE OF BUSINESS. ON THE FIRST ISSUE, THE LD.CIT(A) RECORDED A FINDING T HAT THE ASSESSEE-COMPANY WAS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING. BUT ON THE SECOND ASPECT, THE LD.CIT(A) DID NOT RECORD ANY FINDING. SHE DEVO TED ENERGY TO POINT OUT AS TO HOW LEGALITY OF SECTION 2(22)(E) OF THE ACT BEIN G UPHELD BY THE HONBLE SUPREME COURT. THEREFORE, IN OUR OPINION, UNLESS I T IS ESTABLISHED THAT A DIVIDEND WAS PAID BY THE ASSESSEE, ITO (TDS) CANNOT CONSIDER THE ASSESSEE- IN-DEFAULT. HE CANNOT ASSUME THAT DIVIDEND WAS PAI D, AND THEREFORE, THE ITA NO.349/AHD/2016 5 ASSESSEE OUGHT TO HAVE DEDUCTED THE TDS. THE PAYME NT OF DIVIDEND SHOULD BE A FACT AND NOT DISPUTED FACT AT THE END OF THE A SSESSEE. IN THE PRESENT, IT IS A DISPUTED FACT. THEREFORE, I ALLOW THE APPEAL OF TH E ASSESSEE, AND DELETE DISALLOWANCE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 8 TH SEPTEMBER, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 08/09/2016