Dinesh Pandey, Noida V. DCIT, New Delhi

ITA 3562/DEL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3335 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 05-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K JIWANI
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI SMC BENCH, NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO. 3562 /DEL/201 7 [A.Y. 20 1 2 - 1 3 ] SHRI DINESH PANDEY VS. THE DY. C I . T 46, SUCHITA COMPLEX CENTRAL CIRCLE - 19 AMABEDKAR ROAD NEW DELHI PAN : ACVPK 7252 R [ ASSESSEE ] [RESPONDENT] DATE OF HEARING : 2 2 . 0 2 .201 8 DATE OF PRONOUNCEMENT : 09 .0 3 .201 8 ASS ESSEE BY : SHRI M.P. RASTOGI , ADV REVENUE BY : SHRI V.K. JIWANI , SR. DR ORDER THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF LD. CIT(A) - 27, NEW DELHI VIDE ORDER DATED 30.03.2017 FOR THE A.Y. 2012 - 13. 2. THE ASSESSEE HAD RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LOWER AUTHORITIES HAVE ERRED IN LAW AS WELL AS ON FACTS IN ADDING RS.10,37,000/ - AS ALLEGED DEEMED DIVIDEND U/S 2(22)(E) 2 ITA NO. 5722 /DEL/201 5 OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACT AND CI RCUMSTANCES OF THE CASE AND WITHOUT CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT DURING THE COURSE OF PROCEEDINGS. 2. THAT CIT(A) HAS ERRED IN HOLDING THAT SEC. 2(22)(E) OF THE ACT DOES NOT DIFFERENTIATE BETWEEN LOANS AND ADVANCES RECEIVED FOR BUSINE SS PURPOSES OR FOR ANY OTHER PURPOSES. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS RECEIVED ADVANCE OF RS.10,37,000/ - FROM M/S. SAAMAG EXIM PVT. LTD. M/S. SAAMAG EXIM PVT. LTD. HAS BALANCE ACCUMULATED RESERVES OF RS.17,77,791/ - . ASSESSEE HAS S UBSTANTIAL SHAREHOLDING OF MORE THAN 10% OR MORE IN M/S. SAAMAG EXIM PVT. LTD. (50%). CONSIDERING THE ABOVE DISCUSSION, THE AMOUNT OF ADVANCE OF RS.10,37,000/ - RECEIVED FROM SAAMAG EXIM PVT. LTD. DURING THE YEAR WAS TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, AN ADDITION OF RS.10,37,000/ - IS MADE TO THE ASSESSEES INCOME. 4. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO. 3 ITA NO. 5722 /DEL/201 5 5. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. ON PERUSAL OF THE RECORD AND ARGUM ENTS OF THE PARTIES, I AM OF THE VIEW IN THE PRESENT CASE THAT M/S. SAAMAG EXIM PVT. LTD. IS ENGAGED IN THE BUSINESS OF ACTING AS COMMISSION AGENT FOR SALE AND PURCHASE OF SHIPS. THE ASSESSEE IS A DIRECTOR IN M/S. SAAMAG EXIM PVT. LTD. THE ASSESSEE IS A CTIVELY INVOLVED IN THE NEGOTIATIONS FOR THE SALE AND PURCHASE OF SHIPS WITH THE INTERESTED PARTIES. IN THE COURSE OF SUCH NEGOTIATIONS THE ASSESSEE REQUIRES FUNDS TO BLOCK THE DEAL OR WHERE ADVANCES HAD TO BE PAID TO INTERMEDIARY BROKERS. 6. FOR SUCH PU RPOSES M/S. SAAMAG EXIM PVT. LTD. HAD PROVIDED THAT ADVANCE WOULD BE PROVIDED TO THE DIRECTORS TO THE EXTENT OF RS.15 LACS P.A. 7. SECTION 2(22)(E) OF THE ACT, FOR THE SALE OF CONVENIENCE IS REPRODUCED HEREINBELOW: - 2(22)(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 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO 4 ITA NO. 5722 /DEL/201 5 A SHAREHOLDER, BEING A PERSON WHO I S 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 PERCENT OF VOTING POWER, OR TO A CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A P ARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREINAFTER 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 EITH ER CASE POSSESSES ACCUMULATED PROFITS. BUT DOES NOT INCLUDE IT WAS SUBMITTED THAT THE RECEIPT OF ADVANCES BY THE ASSESSEE ARE NOT TRANSACTIONS OF PURE LENDING AND BORROWING OF MONIES. THERE IS A PURPOSE, ALBEIT, BUSINESS PURPOSE/INTEREST OF M/S. SAAMAG E XIM PVT. LTD. IN THIS FACTUAL SITUATION, I.E., LENDING AND BORROWING OF MONIES IN THE COURSE OF BUSINESS. THE RATIO OF DELHI HC JUDGMENT IN CREATIVE DYEING AND PRINTING PVT. LTD. 318 ITR 476 (DEL.) WILL APPLY IN THE PRESENT CASE AND 5 ITA NO. 5722 /DEL/201 5 THE HONBLE DELHI HIGH COURT HELD AS UNDER: A BARE READING OF THE RECOMMENDATIONS OF THE COMMISSION AND THE SPEECH OF THE THEN FINANCE MINISTER WOULD SHOW THAT THE PURPOSE OF THE INSERTION OF SUB - CLAUSE (E) TO SECTION 2(6A) IN THE 1922 ACT WAS TO BRING WITHIN THE TAX NET MONIES PAID BY CLOSELY HELD COMPANIES TO THEIR PRINCIPAL SHAREHOLDERS IN THE GUISE OF LOANS AND ADVANCES TO AVOID PAYMENT OF TAX. 8. THEREFORE, IF THE SAID BACKGROUND IS KEPT IN MIND, IT IS CLEAR THAT SUB - CLAUSE (E) OF SECTION 2(22) OF THE ACT, WHICH IS I N PARIMATERIA WITH SUB - CLAUSE (E) OF SECTION 2(6A) OF THE 1922 ACT PLAINLY SEEKS TO BRING WITHIN THE TAX NET ACCUMULATED PROFITS WHICH ARE DISTRIBUTED BY CLOSELY HELD COMPANIES TO ITS SHAREHOLDERS IN THE FORM OF LOANS. THE PURPOSE BEING THAT PERSONS WHO M ANAGE SUCH CLOSELY HELD COMPANIES SHOULD NOT ARRANGE THEIR AFFAIRS IN A MANNER THAT THEY ASSIST THE SHAREHOLDERS IN AVOIDING THE PAYMENT OF TAXES BY HAVING THESE COMPANIES PAY OR DISTRIBUTE, WHAT WOULD LEGITIMATELY BE DIVIDEND IN THE HANDS OF THE SHAREHOLD ERS, MONEY IN THE FORM OF AN ADVANCE OR LOAN. 6 ITA NO. 5722 /DEL/201 5 9. IF THIS PURPOSE IS KEPT IN MIND THEN, IN OUR VIEW, THE WORD `ADVANCE HAS TO BE READ IN CONJUNCTION WITH THE WORD `LOAN. USUALLY ATTRIBUTES OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING COUPLED W ITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN: IT GENERALLY CARRIES AN INTEREST AND THERE IS AN OBLIGATION OF REPAYMENT. ON THE OTHER HAND, IN ITS WIDEST MEANING THE TERM `ADVANCE MAY OR MAY NOT INCLUDE LENDING. THE WORD `ADVANCE IF NOT FOUND I N THE COMPANY OF OR IN CONJUNCTION WITH A WORD `LOAN MAY OR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES, THEN IT WOULD BE A LOAN. THUS, ARISES THE CONUNDRUM AS TO WHAT MEANING ONE WOULD ATTRIBUTE TO THE TERM `ADVANCE. THE RULE OF CONSTRUC TION TO OUR MINDS WHICH ANSWERS THIS CONUNDRUM IS NOSCITUR A SOCIIS. THE SAID RULE HAD BEEN EXPLAINED BOTH BY THE PRIVY COUNCIL IN THE CASE OF ANGUS ROBERTSON VS GEORGE DAY [1879] 5 AC 63 BY OBSERVING `IT IS A LEGITIMATE RULE OF CONSTRUCTION TO CONSTRUE WORDS IN AN ACT OF PARLIAMENT WITH REFERENCE TO WORDS FOUND IN IMMEDIATE CONNECTION WITH THEM AND OUR SUPREME COURT IN THE CASE OF ROHIT PULP AND PAPER MILLS LTD. VS COLLECTOR OF CENTRAL EXCISE, AIR 1991 SC 754 AND STATE OF BOMBAY VS HOSPITAL MAZDOOR SABH A AIR 1960 SC 610. THEREFORE, WE HOLD THAT THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE AMOUNTS ADVANCED FOR BUSINESS TRANSACTION BETWEEN THE PARTIES, NAMELY, THE ASSESSEE COMPANY AND M/S. PEE EMPRO 7 ITA NO. 5722 /DEL/201 5 EXPORTS PVT. LTD. WAS NOT SUCH TO FALL WITHIN THE DEFINI TION OF DEEMED DIVIDEND UNDER SECTION 2(22)(E). 10. IN THE CASE OF CIT VS AMBASSADOR TRAVELS PVT. LTD. [2009] 318 ITR 376 (DELHI), THE HONBLE HIGH COURT GAVE A FINDING THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CAN BE APPLIED TO SIMPLICITOR LOAN S AND ADVANCES AND NOT TO THOSE TRANSACTIONS CARRIED OUT IN THE COURSE OF BUSINESS. 11. THE HON'BLE DELHI HIGH COURT HELD AS UNDER: THE TRIBUNAL WAS OF THE VIEW THAT THERE IS NOTHING ON RECORD TO SHOW THAT THE AMOUNTS THAT CONSIDERED BY THE ASSESSING OF FICER WERE IN ANY MANNER ADVANCES OR LOANS IN THE ACCOUNT OF THE ASSESSEE. BEING A TRAVEL AGENCY, IT HAD REGULAR BUSINESS DEALINGS WITH THE ABOVE TWO CONCERNS DEALING WITH HOLIDAY RESORTS AND THE TOURISM INDUSTRY. THEREFORE, SINCE THE TRANSACTIONS WERE N ORMAL BUSINESS TRANSACTIONS, WHICH WERE CARRIED OUT DURING THE COURSE OF THE RELEVANT PREVIOUS YEAR, THEY CANNOT BE DESCRIBED AS ADVANCES OR LOANS, WHICH FORM A DISTINCT CATEGORY OF FINANCIAL TRANSACTIONS. UNDER THE CIRCUMSTANCES, THE TRIBUNAL CAME TO THE CONCLUSION THAT SINCE THESE TRANSACTIONS DID NOT REPRESENT LOANS OR ADVANCES, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE NOT AT ALL APPLICABLE. 8 ITA NO. 5722 /DEL/201 5 12. WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE TRIBUNAL DOES NOT SUFFER FROM ANY ERROR OF LAW. IT IS QUITE CLEAR THAT THE ASSESSEE WAS A TRAVEL AGENCY AND THE ABOVE TWO CONCERNS THAT IT HAD DEALINGS WITH, THAT IS, M/S. HOLIDAY RESORT (P) LTD. AND M/S. AMBASSADOR TOURS (I) (P) LTD. WERE ALSO IN THE TOURISM BUSINESS. THE ASSESSEE WAS INVOLVED IN THE BOOKING OF RESORTS FOR THE CUSTOMERS OF THESE COMPANIES AND ENTERED INTO NORMAL BUSINESS TRANSACTIONS AS A PART OF ITS DAY TO DAY BUSINESS ACTIVITIES. THE FINANCIAL TRANSACTIONS CANNOT IN ANY CIRCUMSTANCES BE TREATED AS LOANS OR ADVANCES RECEIVED BY THE A SSESSEE FROM THESE TWO CONCERNS. 13. THE DELHI HIGH COURT IN CIT VS RAJ KUMAR, 318 ITR 462 (DEL.) INTERPRETED THE TERM `ADVANCE TO MEAN SUCH ADVANCE WHICH CARRIES AN OBLIGATION OF REPAYMENT. 14. IT IS IN THIS BACKGROUND THAT THE DELHI HIGH COURT I CIT V S RAJ KUMAR, 317 ITR 462 (DEL.) HELD THAT A TRADE ADVANCE WHICH IS IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTION WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 9 ITA NO. 5722 /DEL/201 5 15. THE BOMBAY HIGH COURT IN C IT VS NAGIN DAS M. KAPADIA, 177 ITR 393 (BOM.); 42 TAXMAN 128, HELD THAT BUSINESS TRANSACTIONS ARE OUTSIDE THE PURVIEW OF SECTION 2(22)(E) OF THE ACT. IN KAPADIAS CASE, THE COMPANY IN WHICH KAPADIA WAS HAVING SUBSTANTIAL INTEREST HAD PAID VARIOUS AMOUNTS TO KAPADIA. THE TRIBUNAL HAD FOUND THAT KAPADIA HAD BUSINESS TRANSACTIONS WITH THE COMPANY AND ON VERIFICATION OF THE ACCOUNTS, THE TRIBUNAL DELETED THE AMOUNTS WHICH WERE RELATING TO THE BUSINESS TRANSACTIONS. THIS FINDING WAS UPHELD BY THE BOMBAY HIGH COURT. 16. THE WORDS LOANS OR ADVANCES CAN BE APPLIED TO LOANS OR ADVANCES SIMPLICITOR AND NOT TO THOSE TRANSACTIONS CARRIED OUT IN THE COURSE OF BUSINESS. IT IS QUITE POSSIBLE THAT IN THE COURSE OF BUSINESS BETWEEN THE COMPANY AND A SHAREHOLDER, THE COMPANY MAY BE REQUIRED TO GIVE ADVANCE IN MUTUAL INTEREST. THERE IS NO LEGAL BAR IN HAVING SUCH TRANSACTION. BY GRANTING ADVANCE, IF THE BUSINESS PURPOSE OF THE COMPANY IS SERVED AND WHICH IS NOT THE SUM, WHICH IT OTHERWISE WOULD HAVE DISTRIBUTED AS DIVI DEND, CANNOT BE BROUGHT WITHIN THE DEEMING PROVISION OF TREATING SUCH ADVANCE AS DEEMED DIVIDEND. 10 ITA NO. 5722 /DEL/201 5 17. IN THE CIRCUMSTANCES AND FACTS OF THE CASE SUCH ADVANCES CANNOT BE A SUBJECT MATTER OF SECTION 2(22)(E) OF THE INCOME - TAX ACT, 1961. ACCORDINGLY ADDITIO N ON THIS ACCOUNT SO CONFIRMED BY THE LD. CIT(A) IS DIRECTED TO BE DELETED. THUS GROUNDS OF THE ASSESSEE ARE ALLOWED. 18. IN THE RESULT THE APPEAL OF THE ASSESSEE IN ITA NO.3562/DEL/2017 IS ALLOWED. THE ORDER IS PRO NOUNCED IN THE OPEN COURT ON 09 . 0 3 . 201 8 . SD/ - [B.P. JAIN] ACCOUNTANT MEMBER DATED: 09 TH MARCH, 2018 VL/ COPY FORWARDED TO: 1 . ASSESSEE 2 . RESPONDENT 3 . CIT ASSISTANT REGISTRAR 4 . CIT(A) IT AT, NEW DELHI 5 . DR