D.L.V.Sridhar, Vijayawada V. DCIT, Circle-2(1), Vijayawada

ITA 358/VIZ/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6552 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 15-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed dividend

Judgement Text

ITA NO.358/VIZAG/2017 D.L.V. SRIDHAR, VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.358/VIZAG/2017 ( / ASSESSMENT YEAR: 2012-13) D.L.V. SRIDHAR VIJAYAWADA DCIT, CIRCLE - 2(1), VIJAYAWADA [PAN NO. ABUPD8709J ] ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI C. SUBRAHMANYAM, AR / RESPONDENT BY : SHRI M.N. MURTHY NAIK, DR / DATE OF HEARING : 25.10.2017 / DATE OF PRONOUNCEMENT : 08.11.2017 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) {CIT(A)}, VIJA YAWADA VIDE ITA NO.208/CIT(A)/VJA/2015-16 DATED 28.2.2017 FOR THE A SSESSMENT YEAR 2012-13. ITA NO.358/VIZAG/2017 D.L.V. SRIDHAR, VIJAYAWADA 2 2. DURING THE ASSESSMENT PROCEEDINGS OF M/S. STC TR ANSPORTS PRIVATE LIMITED, THE A.O. FOUND THAT AN AMOUNT OF ` 1,28,25,277/- WAS OUTSTANDING AS LOANS AND ADVANCES TO THE DIRECTORS. THE ASSESSEE COMPANY IS HAVING ACCUMULATED PROFITS AND THE DIREC TORS ARE HAVING MORE THAN 10% SHARE IN THE SHAREHOLDING OF THE COMP ANY. THEREFORE, THE A.O. ISSUED SHOW CAUSE NOTICE AS TO WHY THE LOA NS AND ADVANCES GIVEN TO THE DIRECTORS SHOULD NOT BE TREATED AS A D EEMED DIVIDEND U/S 2(22)(E) OF THE INCOME TAX ACT, 1961 (HEREINAFTER C ALLED AS 'THE ACT'). THE ASSESSEE REPLIED THAT THE ASSESSEE COMPANY HAS ENTERED INTO AN AGREEMENT FOR PURCHASE OF VACANT SITE BELONGING TO MR. D.L.V. SRIDHAR, M.D. OF THE COMPANY, ADMEASURING 1504.81 SQ.YDS. WI TH ACC SHED BY AN AGREEMENT DATED 8.8.2008 FOR A CONSIDERATION OF ` 1.50 CRORES. SINCE THE AMOUNTS ARE DUE TO THE DIRECTOR, THE SAID LAND COULD NOT GET REGISTERED AND THE AMOUNT WAS SHOWN OUTSTANDING AS ON THE DATE. THE ASSESSEE EXPLAINED TO THE ASSESSING OFFICER(AO) THA T THE COMPANY HAS ENTERED IN TO A BUSINESS TRANSACTION FOR PURCHASE O F LAND IN THE INTEREST OF BUSINESS, HENCE THERE IS NO CASE FOR TAXING THE GENUINE ADVANCES AS A DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE A.O. NOT BEING CONVINCED WITH THE EXPLANATION OF THE ASSESSEE HELD THAT THE AMOUNTS ADVANCED TO THE DIRECTORS ARE TO BE TREATED AS DEEMED DIVIDEND AND ACCORDINGLY BROUGHT TO TAX. THE AO FURTHER, NOTICED THAT A SUM OF ` 1.49 CRORES WAS ITA NO.358/VIZAG/2017 D.L.V. SRIDHAR, VIJAYAWADA 3 GIVEN AS ADVANCE TO MR. D.L.V. SRIDHAR, THE M.D. OF THE COMPANY AND THE SHARE OF THE PROFITS OF THE ASSESSEE WORKS OUT TO ` 85,40,000/-. THUS, THE DEEMED DIVIDEND TAXABLE U/S 2(22)(E) OF T HE ACT WORKS OUT TO ` 85,40,000/-, ACCORDINGLY, THE A.O. ASSESSED A SUM OF ` 85.40 LAKHS IN THE HANDS OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE A.O. THE LD. CIT(A) RELIED ON THE DECISION OF MS. P. SARADA VS. CIT (1998) 229 ITR 444 AND THE KERALA HIGH COURT DECISI ON IN THE CASE OF CIT VS. P.V. JOHN (1990) 181 ITR 1 AND ALSO THE DEC ISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUNIL CHOPR A (2011) 201 TAXMAN 316 AND THE MADRAS HIGH COURT IN THE CASE OF CIT VS . P.K. ABUBUCKER (2004) 135 TAXMAN 77 (MAD) AND THE DECISION OF THIS TRIBUNAL IN THE CASE OF NISHIDEVI VS. DCIT AND HELD THAT THE ADVANC E GIVEN TO THE ASSESSEE IS NOTHING BUT INDIRECT DISTRIBUTION OF PR OFITS AND ACCORDINGLY, CONFIRMED THE ORDER OF THE A.O. 4. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US. DURING THE APPEAL HEARING, THE LD. A.R. SUBMITTED THAT THE ASSESSEE MR. D.L.V. SRIDHAR IS THE MANAGING DIRECTO R OF THE COMPANY AND HAVING CONTROLLING SHARES IN M/S. STC TRADING. THE COMPANY INTENDED TO PURCHASE THE VACANT LAND BELONGING TO T HE MANAGING ITA NO.358/VIZAG/2017 D.L.V. SRIDHAR, VIJAYAWADA 4 DIRECTOR MR. D.L.V. SRIDHAR. ACCORDINGLY, THE COMP ANY HAS ENTERED INTO A PURCHASE AGREEMENT DATED 14.7.2008 FOR PURCHASE O F LAND ADMEASURING 1504.81 SQ.YDS. LOCATED AT ENIKEPADU VI LLAGE, VIJAYAWADA FOR A CONSIDERATION OF ` 1.50 CRORES. AS A PART CONSIDERATION, THE ASSESSEE COMPANY MADE THE ADVANCES TO THE ASSESSEE, WHICH IS OUTSTANDING AS AT THE END OF THE YEAR. FINALLY, TH E SITE WAS REGISTERED ON 15.11.2016 BY SALE DEED DATED 15.11.2016 AND GOT IT REGISTERED IN THE OFFICE OF THE REGISTERING OFFICER, GUNADALA, VIJAYA WADA BY DOCUMENT NO.6011. THE LD. A.R. SUBMITTED THAT THE ADVANCE F OR LAND IS EVIDENCED BY THE PURCHASE AGREEMENT AND FINALLY SUBSTANTIATED BY THE SALE DEED, WHICH WAS GOT REGISTERED. THEREFORE, THERE IS NO C ASE FOR SUSPICION REGARDING THE GENUINENESS OF ADVANCES GIVEN TO THE ASSESSEE AS A BUSINESS CONSIDERATION AND PURELY RELATED TO THE BU SINESS DECISION. THE SALE CONSIDERATION RECEIVED BY THE VENDOR WAS OFFER ED TO CAPITAL GAINS TAX AND PAID THE RESULTANT TAX, THUS THERE IS NO CA SE FOR SUSPICION. THE LD. A.R ARGUED THAT THE CASE LAWS RELIED UPON BY TH E LD. CIT(A) IS DISTINGUISHABLE ON FACTS. HONBLE SUPREME COURTS DECISION IN THE CASE OF P. SARADA VS. CIT (SUPRA), IT WAS A LOAN GIVEN B Y THE COMPANY AND WHICH WAS ULTIMATELY REPAID. IN THE CASE OF P.V. J OHN (SUPRA) HONBLE KERALA HIGH COURT HELD THAT SECTION 2(22)(E) OF THE ACT MUST BE GIVEN STRICT INTERPRETATION. HONBLE DELHI HIGH COURT IN THE CASE OF SUNIL ITA NO.358/VIZAG/2017 D.L.V. SRIDHAR, VIJAYAWADA 5 CHOPRA (SUPRA) THOUGH THE COMPANY HAS GIVEN ADVANCE FOR PURCHASE OF THE LAND, THE ADVANCE WAS OUTSTANDING AND THE SALE WAS NOT TAKEN PLACE. IN THE CASE OF HONBLE MADRAS HIGH COURTS DECISION IN THE CASE OF CIT VS. P.K. ABUBUCKER (SUPRA), THE ADVANCE WAS GIVEN TO THE M.D., WHICH WAS ADJUSTED AGAINST THE LOANS, RENTS PAYABLE BY THE ASSESSEE COMPANY, WHEREAS IN THE CASE OF THE ASSESSEE THE AS SESSEE COMPANY HAS GOT REGISTERED THE LAND ON PAYMENT OF FULL CONS IDERATION. FURTHER, THE SAID LAND WAS GIVEN AS SECURITY BY THE M.D. FOR THE AMOUNTS ADVANCED BY THE AXIS BANK TO THE COMPANY. THEREFOR E, THOUGH THE SALE AGREEMENT WAS ENTERED AND NOT REGISTERED THE PROPER TY WAS CONTINUED TO BE COLLATERAL SECURITY FOR THE AMOUNTS ADVANCED TO THE COMPANY. IN THE CASE OF NISHIDEVI VS. DCIT IN ITA NO.186/VIZAG/ 2011 OF THIS TRIBUNAL, THE PROPERTY WAS NOT REGISTERED. THEREFO RE, THE LD. A.R. ARGUED THAT THE FACTS OF THE CASE LAWS RELIED UPON BY THE LD. CIT(A) ARE COMPLETELY DIFFERENT AND DISTINGUISHABLE AND NOT AP PLICABLE IN THE ASSESSEES CASE. SINCE THE SALE TRANSACTION IS GEN UINE, THE LD. A.R. ARGUED THAT THERE IS NO CASE FOR TAXING THE IMPUGNE D TRANSACTION AS DEEMED DIVIDEND AND REQUESTED TO ALLOW THE APPEAL O F THE ASSESSEE. 5. ON THE OTHER HAND, THE LD. D.R. ARGUED THAT IT I S A CLEAR DIVERSION OF FUNDS AND INDIRECT DISTRIBUTION OF THE ACCUMULAT ED PROFITS IN A ITA NO.358/VIZAG/2017 D.L.V. SRIDHAR, VIJAYAWADA 6 COLOURABLE DEVICE OF ADVANCE FOR PURCHASE OF THE PR OPERTY AND ARGUED THAT THE ORDER OF THE CIT(A) CALLED FOR NO INTERFER ENCE. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN THIS CASE, THE ASSESSEE IS THE MANAGING DIRECTOR OF THE COMPANY M/S. STC TRANSPORTS PRIVATE LIMITED AND HAVING CONTROLLING S HARES IN THE COMPANY. THE ASSESSEE HAS ENTERED INTO AN AGREEMEN T WITH THE ASSESSEE COMPANY FOR SALE OF HIS LAND ADMEASURING 1 504.81 SQ.YDS. SITE AT ENIKEPADU VILLAGE IN R.S. NO.168/1 & 168/2 FOR A CONSIDERATION OF ` 1.50 CRORES AND RECEIVED THE SUMS OF ` 1.49 CRORES TILL THE END OF THE FINANCIAL YEAR AND THE REGISTRATION WAS PENDING AS AT THE END OF THE YEAR. HOWEVER, SUBSEQUENTLY THE LAND WAS GOT REGIS TERED IN FAVOUR OF THE COMPANY AND THE COMPANY WAS GIVEN POSSESSION OF THE LAND. IN THE INTERVENING PERIOD, THE ASSESSEE HAS OFFERED ITS LA ND TO THE COMPANYS LOANS AS A SECURITY FOR THE AMOUNTS ADVANCED BY THE AXIS BANK. THOUGH LD. CIT(A) RELIED ON VARIOUS DECISIONS CITED (SUPRA ), THE FACTS OF THE SAID DECISIONS ARE DISTINGUISHABLE AS SUBMITTED BY THE L D. A.R. AND NOT APPLICABLE IN THE ASSESSEES CASE. THOUGH LD. CIT( A) STATED THAT AS PER THE SALE AGREEMENT, THERE WAS A DISCREPANCY WITH RE GARD TO THE ADVANCE PAYMENT OF ` 4.95 LAKHS. THE SAME WAS CLARIFIED BY THE LD. A.R . STATING THAT A SUM OF ` 2.20 LAKHS WAS PAID IN CASH AND THE BALANCE AMOUNT WAS ITA NO.358/VIZAG/2017 D.L.V. SRIDHAR, VIJAYAWADA 7 PAID BY CHEQUES. ULTIMATELY, THE LAND WAS REGISTER ED IN THE NAME OF THE COMPANY AND TRANSFERRED TO THE ASSESSEE. SINCE THE LAND WAS TRANSFERRED, WE DO NOT FIND ANY REASON TO SUSPECT T HE GENUINENESS OF THE TRANSACTION AND TO SUPPORT THE ARGUMENT OF THE LD. D.R. AS COLOURABLE DEVICE. THE LD. D.R. DID NOT PLACE ANY EVIDENCE TO SHOW THAT THE TRANSACTION IS NOT GENUINE OR BOGUS. SINCE THE EVIDENCES ESTABLISH THAT THE ADVANCE WAS GIVEN FOR PURCHASE OF THE LAND , WE DO NOT FIND ANY REASON TO SUSTAIN THE ORDER OF THE LD. CIT(A), ACCO RDINGLY WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE A PPEAL OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 8 TH NOV17. SD/- SD/- ( . ) ( . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 8.11.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SHRI D.L.V. SRIDHAR, D.NO.52-1/3 -2B, VETERINARY COLONY, VIJAYAWADA 2. / THE RESPONDENT THE DCIT, CIRCLE-2(1), VIJAYAWA DA 3. + / THE CIT, VIJAYAWADA 4. + ( ) / THE CIT (A), VIJAYAWADA 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM