DY COMMISSIONER OF INCOME TAX ,CENTRAL CIRCLE-2(1), Nagpur V. ARTEFACT PROJECT LTD, Nagpur

ITA 371/NAG/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1570 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 01-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANITA RUPAVANTARAM
• Keywords: Depreciation; Deemed dividend
• Section: 11

Judgement Text

1 ITA NO. 389/NAG/2014. IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 389/NAG/201 4 ASSESSMENT YEAR : 2010 - 11. DY. COMMISSIONER OF INCOME - TAX, SHRI ASHOKKUMAR GOKULCHAND SANANDA, AKOLA CIRCLE, AKOLA. VS. KHAMGAON. APPELLANT. RESPONDENT. APPELLANT BY : SMT. ANITA RUPAVANTARAM RESPONDENT BY : SHRI K.P. DEWANI. DATE OF HEARING : 02 - 12 - 2015. DATE OF PRONOUNCEMENT : 4 TH DEC., 2015. O R D E R PER SHRI SHAMIN YAHYA, A.M . THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I, NAGPUR DATED 26 - 05 - 2915 AND PERTAINS TO ASSESSMENT YEAR 2010 - 11. GROUNDS OF APPEAL READ AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.3,00,000/ - MADE BY THE AO U/S 40A(2)(B) OF THE I.T. ACT, 1961. 2. ON THE FACTS AND CIRCUMSTANCES NOF THE CASE THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.18,13,601/ - ( U/S 40A(2)(B) OF RS.3,55,831/ - AND U/S 37(1)(III)/37(1) OF RS.14,57,770/ - . 2. AT THE OUTSET IN THIS CASE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT BOTH THE ISSUES RAISED IN THIS CASE ARE COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR PRECEDING ASSESSMENT YEAR 2009 - 10 IN ITA NO. 2 ITA NO. 389/NAG/2014. 2 3 5/NAG/201 3 VIDE PARA 6 TO 8 QUA THE FIRST ISSUE AND VIDE PARA 9 TO 11 .2 QUA THE SECOND ISSUE. 3. PER CONTRA LEARNED D.R. SUBMITTED THAT AS REGARDS THE SECOND ISSUE OF DEEMED DIVIDEND, THE FACTS ARE SLIGHTLY DIFFERENT. 4. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. AS REGARDS THE FIRST ISSUE OF ADDITI ON OF RS.3 LAKHS U/S 40A(2)(B) WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL AS ABOVE IN ASSESSEES OWN CASE. WE MAY GAINFULLY REPRODUCE THE EARLIER DECISION OF THE TRIBUNAL AS UNDER : 8. HEARD BOTH THE SIDES. CONSIDERED THE ORDERS OF THE REVENUE AUTHORITIES IN THE LIGHT OF THE COMPILATION FILED BEFORE US. ACCORDING TO THE LEARNED D.R., THE ASSESSEE HAS PAID HIGHER RATE OF INTEREST TO HIS RELATIVES WHICH WAS RANGING FROM 15% TO 18%, ALTHOUGH THE PREVAILING RATE WAS 12%, THEREF ORE, THE EXCESSIVE INTEREST WAS RIGHTLY DISALLOWED. WE ARE NOT IN AGREEMENT WITH THE ARGUMENTS OF LEARNED D.R. SPECIALLY WHEN THERE IS NO DIRECT CLINCHING EVIDENCE TO ESTABLISH THE PREVAILING RATE OF INTEREST FOR THE YEAR UNDER CONSIDERATION. RATHER THERE ARE NUMBER OF DECISIONS, AS DISCUSSED BY LEARNED CIT(APPEALS) IN APPELLATE ORDER THAT THE RATE OF INTEREST RANGING FROM 18% TO 21% WAS ALSO CONSIDERED TO BE NOT EXCESSIVE AND ALLOWED THE SAME. KEEPING BREVITY IN MIND WITHOUT DISCUSSING ALL THE CASE LAWS ON THE SUBJECT, WE HEREBY CONFINE OUR DECISION ON THE FACTS OF THIS CASE AND HEREBY HOLD THAT THE ASSESSING OFFICER HAS NOT DISCHARGED PRIMARY ONUS AS PRESCRIBED U/S 40A(2)(B) TO ESTABLISH THAT THE RATE OF INTEREST PAID TO THE RELATIVES WAS IN EXCESS TO T HE PREVAILING MARKET CONDITIONS. THEREFORE, IT IS HEREBY DIRECTED TO DELETE THE ADDITION FOLLOWING THE DIRECTIONS OF LEARNED CIT(APPEALS). THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 5. AS REGARDS THE SECOND ISSUE OF DEEMED DIVIDEND IS CONCERNED, WE FI ND THAT THE SAME ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN GR EAT DETAIL AND THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AS UNDER : 3 ITA NO. 389/NAG/2014. 11. WITH THIS BRIEF BACKGROUND, WE HAVE HEARD BOTH THE SIDES. FACTS OF THE CASE HAVE BEEN APPRECIATED. IN RESPECT OF THE INVOCATION OF THE PROVISIONS OF SEC. 2(22)(E) THERE WERE THREE PLANK OF ARGUMENTS. THE FIRST PLANK OF ARGUMENT WAS ABOUT THE NATURE OF BUSINESS ACTIVITY OF THE SAID COMPANY VIZ. M/S SUGOSA COTTONS PVT LTD. IN A SITUATION WHEN THE ADMITTED FACTUAL POSITION WAS THAT THE SAID COMPANY, NAMELY, M/S SUGOSA COTTONS PVT. LTD. WAS HAVING MONEY LENDING AS ONE OF THE SUBSTANTIAL PART OF THE BUSINESS AND THAT IN THE COURSE OF THE SAID BUSINESS THERE WAS REGULAR TRANSACTIONS WITH THE ASSESSEE THEN IT W AS NOT CORRECT TO INVOKE THE PROVISIONS OF SECTION 2(22)(E) OF I.T. ACT. WHILE CONSIDERING THE RELEVANT PROVISIONS, WE HAVE NOTED THAT AN EXCEPTION IS CARVED - OUT ACCORDING TO WHICH THE DIVIDEND DOES NOT INCLUDE ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. { REFER SECTION 2(22)(E)(II)}. IN THIS CONNECTION RELIANCE HAS BEEN PLACED ON THE DECISION OF CIT V/S. PARLE PLASTICS LTD. 322 ITR 63 (BOM. AT GOA) WHEREIN THE EXPRESSION SUB STANTIAL PART WAS DEFINED AND THEREUPON IT WAS HELD THAT BY NO MEANS THE DEPLOYMENT OF ABOUT 40% OF THE TOTAL ASSETS IN THE BUSINESS OF LENDING COULD BE REGARDED AS AN INSIGNIFICANT PART OF THE BUSINESS OF AQUA MINERALS PVT. LTD. (AMPL). IT WAS HELD THAT THE LENDING OF MONEY WAS A SUBSTANTIAL PART OF THE BUSINESS OF AMPL. THE HONBLE COURT HAS THUS HELD THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT GRANTING OF LOAN WAS A SUBSTANTIAL PART OF THE BUSINESS OF AMPL. THEREFORE, AS SUCH THE LOAN COULD NOT BE TREATED AS DIVIDEND UNDER SECTION 2(22)(E). KEEPING BREVITY IN MIND, REST OF THE DECISIONS AS CITED BEFORE US ARE NOT REQUIRED TO BE MENTIONED, HOWEVER THE RELEVANT PORTION OF THE SAID PRECEDENT OF M/S PARLE PLASTICS IS REPRODUCED HEREINBELOW;_.... 4 ITA NO. ITA NO. 389/NAG/2014. 5 ITA NO. 389/NAG/2014. 6 ITA NO. 389/NAG/2014. 11.1 IN SUPPORT OF THIS VERY ARGUMENT AN ANOTHER PLEA HAS ALSO BEEN RAISED THAT THE APPELLANT HAD MORTGAGED HIS PROPERTY WITH IDBI BANK AND ON THAT SECURITY THE SAID COMPANY HAD AVAILED THE LOAN FACILITY. THEREFORE IT IS PLEADED, AND RIGHTLY SO , THAT THE EXCEPTION AS PROVIDED IN THIS SECTION WAS TO BE APPLIED, WHICH SAYS THAT THE DIVIDEND DOES NOT INCLUDE ANY LOAN MADE TO SHAREHOLDER BY A COMPANY IF IT IS IN THE ORDINARY COURSE OF ITS BUSINESS. IT WAS VEHEMENTLY PLEADED THAT THE ACCOUNT WAS LIKE A CURRENT ACCOUNT, HAVING SOME TIME DEBIT AND SOME TIME A CREDIT BALANCE ON WHICH THE INTEREST WAS CALCULATED ON THE OUTSTANDING BALANCE POSITION BECAUSE THE ASSESSEE HAD PROVIDED HIS PERSONAL SECURITY TO THE BANK. IN OUR CONSIDERED OPINION THIS FACTUAL POSITION AS WELL SUPPORT THE CLAIM OF THE ASSESSEE THAT THE PROVISIONS OF SEC. 2(22)(E) HAVE BEEN WRONGLY INVOKED IN THIS CASE. 11.2 THERE IS ONE MORE ARGUMENT THAT THE SAID COMPANY DID NOT HAVE THE ACCUMULATED PROFIT WHICH COULD BE ALLEGED TO HAVE BEEN DISTRIBUTED IN GUISE OF LOAN. A CALCULATION HAS BEEN SUBMITTED, ALREADY REPRODUCED ABOVE, TO DEMONSTRATE THAT AFTER DEPRECIATION THERE WAS NO POSITIVE FIGURE WHICH COULD BE TREATED AS ACCUMULATED PROFIT OF THE SAID COMPANY. FROM THE SIDE OF THE RE VENUE THIS FACT WAS NOT DENIED. IN ANY CASE, IT HAS ALSO NOT BEEN DEMONSTRATED THAT ON THE DATE OF GRANT OF LOAN THERE WAS ACCUMULATED PROFIT . THERE IS NO EVIDENCE ON RECORD PLACED FROM THE SIDE OF THE REVENUE THAT THE SAID COMPANY HAD IN FACT SIPHONED AC CUMULATED PROFIT TO THE ASSESSEE. IN THE ABSENCE OF SUCH FINDING IT IS NOT JUSTIFIED TO PRESUME THAT THE LOAN IN QUESTION WAS IN THE NATURE OF DEEMED DIVIDEND . RESULTANTLY WE HEREBY AFFIRM THE FACTUAL AS WELL AS LEGAL FINDING OF LEARNED CIT(APPEALS) AN D DISMISS THIS GROUND OF THE REVENUE. 6. FROM THE ABOVE WE FIND THAT ON IDENTICAL ISSUE THE TRIBUNAL HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THERE IS NO DIFFERENCE AS REGARDS THE FACTS OF THE CASE. THE RECIPIENT OF THE AMOUNT AND THE CIRCUMSTANC ES THEREIN ARE SAME AS IN THE ABOVE TRIBUNAL ORDER. IT IS ALSO NOT THE CASE OF THE REVENUE THAT HONBLE JURISDICTIONAL HIGH COURT HAS REVERSED THE ABOVE DECISION OF THE TRIBUNAL. ACCORDINGLY RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE LEARN ED CIT(APPEALS) AND DECIDE BOTH THE ISSUES IN FAVOUR OF THE ASSESSEE. 7 ITA NO. 389/NAG/2014. 7. IN THE RESULT, THIS APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF DEC., 2015. SD/ - SD/ - (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 4 TH DEC., 2015. COPY FORWARDED TO : 1. SHRI RAJESH RAMLAL NABIRA, RATHI CHOWK, KATOL, DIST. NAGPUR. 2. I.T.O., WARD - 8(1), NAGPUR. 3. PRINCIPAL COMMISSIONER OF INCOME - TAX - 2, NAGPUR. 4. D.R., ITAT, NAGPUR. 5. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE.