Shri Parag Prakash Doshi, Mumbai V. The Income tax Officer, Ward-2(1)(3), Ahmedabad

ITA 382/AHD/2017

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 9691 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 14-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KAMLESH N BHATT
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.382/AHD/2017 ( / ASSESSMENT YEAR : 2013-14) PARAG PRAKASH DHOSHI 203-A, SHRIPAL NAGAR CO- OP.HOUSING SOCIETY NEPEAN SEA ROAD MUMBAI 400 006 / VS. THE INCOME TAX OFFICER WARD-2(1)(3) AHMEDBAD ./ ./ PAN/GIR NO. : AHNPD 2646 P ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI KAMLESH N.BHATT, AR / RESPONDENT BY : SHRI ALOK KUMAR, SR.DR / DATE OF HEARING 03/07/2018 !'# / DATE OF PRONOUNCEMENT 25/09/2018 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-2, AHMEDABAD [L D.CIT(A) IN SHORT] DATED 13/12/2016 ARISING OUT OF ASSESSMENT ORDER PASSED BY THE ITO, WARD- 2(1)(3) DATED 31.12.2015 FOR THE ASSESSMENT YEAR (A Y) 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL:- IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) OUGHT TO HAVE DELETED THE ADDITION OF RS.10,80,994/- MADE BY THE LD. AO U/S.2(22)(E) OF THE ITA NO.382/AHD/ 2017 PARAG PRAKASH DOSHI VS. ITO ASST.YEAR 2013-14 - 2 - INCOME TAX ACT AND HENCE YOUR APPELLANT PRAYS THAT THE ACTION OF THE LD. AO BE QUASHED AND HE BE DIRECTED TO DELETE THE ADDITION M ADE BY HIM. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATER IALS ON RECORD ARE AS UNDER:- 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT IS FOUND THAT THE ASSESSEE HAS RECEIVED PAYMENT OF RS. 1,32,91,914/- FROM M/S. LEELA TUB PVT. LTD. (LTPL) IN WHICH THE ASSESSEE IS ONE OF THE DIRECTOR . IT CAN ALSO BE EVIDENT FROM THE LEDGER ACCOUNT OF THE LEELA TUBE PVT. LTD. FOR THE PERIOD UNDER CONSIDERATION FURNISHED BY THE ASSESSEE. VIDE ORDER SHEET ENTRY DATED 30/10/2015, IT WAS SHOW CAUSED THAT THE PAYMENT OF RS. 1,32,91,914/- RECEIVED FROM THE COMPANY M/S. LEELA TUBE PVT. LTD. WHY SHOU LD NOT BE CONSIDERED DEEMED DIVIDED IN ACCORDANCE WITH SEC. 2(22)(E) OF THE ACT. A SHOW CAUSE NOTICE WAS ALSO ISSUED ON 30/20/2015 WHICH IS REPRO DUCED AS UNDER:- 'PERUSAL OF THE LEDGER ACCOUNT OF LEELA TUBES PVT. LTD. (LOAN ACCOUNT) FROM YOUR BOOK, IT IS OBSERVED THAT DURING THE PERIOD UN DER CONSIDERATION YOU HOVE RECEIVED AN AMOUNT OF RS. 1,32,91,914/-. THE CLOSIN G BALANCE AS ON 31/03/2013 WAS AT RS.33,98,914/-. IT IS FOUND THAT IN THE COMPANY LEELA TUBES PVT. LTD. YOU ARE THE SUBSTANTIAL SHARE HOLDER AND HAVING THE HOLDING ABOVE THE PRESCRIBED LIMIT WHICH FALLS UNDER THE AMBIT OF DEEMED DIVIDEND. IT IS REQUESTED TO SHOW CAUSE WHY THE AMOUNT RECEIVED FRO M THE LEELA TUBES PVT. LTD. DURING THE PERIOD UNDER CONSIDERATION SHOULD N OT BE TREATED AS DEEMED DIVIDEND U/S. 2(22) (E) OF THE ACT.'' 3.2. IN RESPONSE TO THE SHOW CAUSE NOTICE THE AS SESSEE HAS FILED HIS REPLY ON 02.11.2015, WHICH IS PLACED ON THE RECORD. IN THE R EPLY THE ASSESSEE HAS ITA NO.382/AHD/ 2017 PARAG PRAKASH DOSHI VS. ITO ASST.YEAR 2013-14 - 3 - SUBMITTED THAT THE PREVISIONS OF SEC. 2(22)(E) IS N OT APPLIED AND NO ADDITION IN THIS REGARD MAY BE MADE. THEREFORE, THE CASE IS REF ERRED FOR DIRECTION OF ADDL. CIT, RANGE-2(1), AHMEDABAD. ON 02.12.2015 U/S. 144A OF THE ACT. THEREFORE, THE ADDL. CIT, RANGE-2(L), AHMEDABAD HAS ISSUED A N OTICE TO THE ASSESSEE ON 08.12.2015 AND THE OPPORTUNITY WAS GRANTED TO THE A SSESSEE TO BE HEARD AND EXPLAIN HIS POSITION ON THE ISSUE RAISED. THE ADDL. CIT, RANGE-2(L), AHMEDABAD HAS ISSUED THE DIRECTION U/S. 144A OF THE ACT ON THE ISSUE OF APPLICABILITY OF THE SEC.2(22)(E) OF THE ACT IN THE CASE FOR A.Y. 2013-14 ON 30.12.2015. THE DIRECTIONS OF THE ADDL. CIT, RANGE- 2(1), AHMEDABAD ARE REPRODUCED AS UNDER: 2. VIDE YOUR ABOVE LETTER YOU HAVE SOUGHT DIRECTIO N U/S. 144A ON THE ISSUE OF ADDITION U/S. 2(22)(E) OF THE ACT. PERUSAL OF RECORDS REVEALED THAT THE ASSESSEE IS A DIRECTION OF 'LEELA TUBES PV T. LTD.' DURING THE YEAR UNDER CONSIDERATION, THE DIRECTOR HAS RECEIVED LOAN FROM THE COMPANY TO THE TUNE OF RS.1,32,91,914/- AND PERUSAL . THEREFORE THE ISSUE OF APPLICABILITY OF SECTION 2(22)(E) OF THE A CT AROSE. AS PER YOUR LETTER IT WAS UNDERSTOOD THAT THE ASSESSEE HAS OBJE CTED TO THE SAID ADDITION. THEREFORE THE ASSESSEE WAS GIVEN A OPPORT UNITY TO BE HEARD AND EXPLAIN HIS POSITION ON THE ISSUE ON 21.12,2015 . 3.3. ON THE SAID DATE, THE ASSESSEE PRODUCED CERTA IN DETAILS AND REITERATED ITS STAND BY SUBMITTING AS UNDER: WITH REFERENCE TO THE ABOVE, WE REFER TO THE DISCU SSIONS OUR SHRI KRUNAL K. JARIWALA HAD WITH YOU FROM TIME TO TIME A ND THE SUBMISSIONS MADE AND FURTHER TO THAT REGARDING THE SPECIFIC QUE RY ABOUT THE ADDITION U/S. 2(22)(E) FOR THE AMOUNTS STANDING TO THE CREDI T IN THE NAME OF THE ITA NO.382/AHD/ 2017 PARAG PRAKASH DOSHI VS. ITO ASST.YEAR 2013-14 - 4 - COMPANY IN WHICH THE ASSESSEE IS DIRECTOR AND SHARE HOLDER HAVING SUBSTANTIAL INTEREST, WE WOULD LIKE TO SUBMIT THAT: I. IT IS TRUE THAT THE ASSESSEE IS ONE OF THE MAJOR SH AREHOLDER IN THE COMPANY. II. IT IS ALSO TRUE THAT THE SUM OF RS.33,98,914 IS STA NDING TO THE CREDIT OF THE COMPANY IN WHICH THE ASSESSEE IS DIRECTOR AN D ALSO THE SHAREHOLDER HAVING SUBSTANTIAL INTEREST. THE HIGHES T PEAK IN THIS ACCOUNT IS RS.44,32,581. III. IT IS ALSO TRUE THAT THE COMPANY HAS THE RESERVES A ND SURPLUS AS UNDER: PARTICULARS AMOUNT OPENING BALANCE - AS ON 0 1 - 04 - 20 12 5,12,828 PROFIT AFTER TAX FOR THE YEAR 20 1 2 - 1 3 6,58,968 LESS PROVISION FOR TAXES 90,802 CLOSING BALANCE - AS ON 3 1 -03-20 13 10,80,994 IV. THE KEY DATA OF THE COMPANY LEELA TUBES PVT. LTD. A S ON 31-03- 2013 AS EVIDENCED FROM IT'S AUDITED BALANCE SHEET I S AS UNDER: PARTICULAR RUPEES RUPEES SALES 16,73,83,367 STOCK-RAW MATERIAL 1,20,72,309 STOCK- WORK-I-PROGRESS 1,92,19,700 STOCK-FINISHED GOOD 1,20,97,441 TOTAL STOCK 4,33,89,450 4,33,89,450 BANK FINANCE FORM BANKER- IDBI-CC HYPO. OF STOCKS 24,66,948 DUES TO SUPPLIERS UNDER L / C . YES BANK LTD. 80,62,806 DUES TO SUPPLIERS UNDER 2,25,12,547 ITA NO.382/AHD/ 2017 PARAG PRAKASH DOSHI VS. ITO ASST.YEAR 2013-14 - 5 - PERSONAL GUARANTEES V. THE COMPANY HAD A BAD TIME AND IT COULD HARDLY CAME OUT OF THE LOSSES IN THIS TIME. AS A RESULT, NEITHER THE BANKE RS OF THE COMPANY 1DB1 BANK LTD. WERE GIVING THE ADEQUATE CREDIT FACI LITIES AND THE AS THE COMPANY COULD NOT PAY THE CREDITORS, IN TIME, T HE SUPPLIERS WERE NOT WILLING TO SUPPLY THE MATERIAL TO THE COMPANY. UNDER THE CIRCUMSTANCES, IT WAS EXTREMELY DIFFICULT TO RUN TH E COMPANY AND ACHIEVE THE TURNOVER OF RS. 16,73,83,367 UNLESS THE SMOOTH AND UNINTERRUPTED MATERIAL SUPPLY IS ASSURED. FOR THIS PURPOSE, THE DIRECTORS GAVE THEIR PERSONAL ASSURANCES IN THE FOR M OF THEIR PERSONAL GUARANTEES AND ALSO ARRANGING FOR THE LETT ERS OF CREDIT FROM THE OTHER BANKS. VI. THE ASSESSEE ASKED HIS UNCLES AND COUSINS TO AGREE TO PERMIT HIM TO OFFER AS SECURITY THE ANCESTRAL RESIDENCE BEING FLA T NO.203 AT SHRIPALNAGAR AND AVAIL THE FUNCTION. IN SUCH FASHIO N SOME FUNDING WAS AVAILED FROM YES BANK AND SOME WAS FROM MANUFAC TURERS OF RAW MATERIAL, UNDER SUCH CIRCUMSTANCES, IT WAS MUTU ALLY AGREED THAT TO ENSURE THE TIMELY PAYMENT WITHOUT DEFAULT, THE DISCIPLINE WOULD BE ADHERED TO KEEP THE FUNDS ASIDE FOR THE PA YMENTS ON DUE DATES AND FOR THAT PURPOSE, THE FUNDS WERE TAKEN TO THE SEPARATE SAVINGS ACCOUNT WITH THE BANK WHICH WAS OPENED IN T HE NAME OF DIRECTORS AND SUED TO BE BROUGHT BACK AS AND WHEN T HE PAYMENT WAS TO BE MADE. VII. IT IS THIS TYPE OF TRANSACTIONS WHICH ARE REFLECTED IN THE COMPANY ACCOUNT. THIS WAS NOT USED FOR ANY PERSONAL USES OF THE DIRECTORS. VIII. THE PASSBOOK OF SUCH SB ACCOUNT OF THE DIRECTOR IS ALSO SUBMITTED TO YOUR GOODSELF. UNDER THE CIRCUMSTANCES, IT IS EARNESTLY SUBMITTED THAT THE AMOUNT WHICH IS SOUGHT TO BE ADDED U/S. 2 (22)(E) IS NEVER TAKEN IN THE MANNER IN WHICH SECTION IS INTENDED AND THE ASSESSEE THEREFORE MOST HUMBLY PRAYS THAT THE ITA NO.382/AHD/ 2017 PARAG PRAKASH DOSHI VS. ITO ASST.YEAR 2013-14 - 6 - ADDITION SOUGHT TO BE MADE TO THE EXTENT OF RESERVE S AND SURPLUS BE DROPPED AND OBLIGE. 3.4. BUT THE REVENUE HAS NOT AGREED WITH THE CONT ENTION OF THE ASSESSEE AND HELD THAT THE ASSESSEE HAS SUBSTANTIAL SHARE-HOLDIN G IN THE COMPANY AND HAS RECEIVED PAYMENT TO THE TUNE OF RS.1,32,91,914/- DU RING THE PERIOD UNDER CONSIDERATION WHICH FALL WITHIN THE AMBIT OF SECTIO N 2(22)(E) OF THE ACT. PERUSAL OF THE BALANCE-SHEET OF M/S.LEELA TUBES PVT .LTD. IN WHICH THE ASSESSEE IS HOLDING SHARES ABOVE 10% OF TOTAL SHARES AND THE COMPANY IS HAVING ACCUMULATED PROFIT OF RS.10,80,994/- AS ON 31.03.20 13. THEREFORE, THE AMOUNT OF RS.10,80,994/- IS TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE U/S.2(22)(E) OF THE ACT FOR THE PERIOD UNDER CONSID ERATION I.E.AY 2013-14. ACCORDINGLY, RS.10,80,994/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. 4. AGAINST THE SAID ORDER, THE ASSESSEE PREFERRED F IRST STATUTORY APPEAL BEFORE THE LD. CIT(A), BUT NO AVAIL AND LD.CIT(A) C ONFIRMED THE ACTION OF THE ASSESSING OFFICER. 5. NOW THE ASSESSEE HAS COME IN APPEAL BEFORE US BY WAY OF SECOND APPEAL. 6. WE HAVE HEARD BOTH THE PARTIES AND ALSO GONE THR OUGH THE RELEVANT RECORD AND IMPUGNED ORDER. THE ASSESSEE IS AN IND IVIDUAL AND DIRECTOR IN LEELA TUBES PRIVATE LIMITED WITH SHAREHOLDING EXCEE DING THE SPECIFIED LIMIT. THE COMPANY LEELA TUBES PRIVATE LIMITED SET UP A PR OJECT AT DAMAN IN THE ITA NO.382/AHD/ 2017 PARAG PRAKASH DOSHI VS. ITO ASST.YEAR 2013-14 - 7 - YEAR 2000-2011 WITH THE HELP OF BANK FINANCE AND WA S ALSO ENJOYING THE WORKING CAPITAL FACILITIES. INITIAL COUPLE OF YEAR S WERE THE PERIOD OF ESTABLISHING THE PRODUCT IN MARKET BUT DURING THE Y EAR 2004-05, DUE TO INABILITY TO RETIRE THE LETTER OF CREDITS OPENING BY THE BANK IN FAVOUR OF THE SUPPLIERS OF RAW-MATERIAL, THERE WAS VERY HUGE DEFAULT AND THE C OMPANY WENT INTO NEAR BANKRUPT SITUATION. THE COMPANY WAS DECLARED NPA. MEANWHILE, THE BANK THE UNITED WESTERN BANK LTD. WHO WERE THE BANKERS OF TH E COMPANY ALSO CAME INTO FINANCIAL PROBLEM AND THAT BANK WAS ACQUIRED B Y IDBI BANK LTD. AS A RESULT, THE COMPANY WAS IN A FIX AND IT WAS EMPIRIC . IDBI BANK INSISTED FOR THE VERY STRICT RESTRICTING OF THE LOANS AND FOR TH AT THE SEVERAL CONDITIONS WERE LAID DOWN. AS A RESULT, NEITHER THE BANKERS OF THE COMPANY IDBI BANK LTD. WERE GIVING THE CREDIT FACILITIES AND BECAUSE OF TH E DEFAULTS, THE BANKERS WERE NOT ALLOWING THE COMPANY TO PAY TO THE CREDITORS. AS A RESULT, IT WAS VERY IT WAS VERY DIFFICULT TO GET THE RAW-MATERIAL FROM THE MARKET. UNDER THE CIRCUMSTANCES, THE ASSESSEE ASKED HIS UNCLES AND CO USINS TO AGREE TO PERMIT HIM TO OFFER AS SECURITY THE ANCESTRAL RESIDENCE BEING FLAT NO.203 AT SHRIPALNAGAR AND AVAIL THE FUNDING. IN SUCH FASHION, SOME FUNDI NG WAS AVAILED FROM YES BANK AND ASSESSEE OPENED A PERSONAL ACCOUNT AND TRA NSFERRED THE SURPLUS FUNDS OF THE COMPANY INTO HIS ACCOUNT AND AS AND WHEN THE AMOUNT WAS FALLING DUE FOR PAYMENT HE USED TO TRANSFER BACK THE AMOUNT TO THE ACCOUNT OF COMPANY AND MAKE THE PAYMENT AND WITH WORKING LIKE THIS FOR A PERIOD OF MORE THAN SEVEN YEARS, IT IS IN THE ACCOUNT YEAR 2012-13, THA T OLD BANK DUES WERE CLEARED. IN SUPPORT OF HIS CONTENTION, ASSESSEE FILED A PAPE R-BOOK AND ALSO FILED COMPUTATION OF INCOME OF THE COMPANY AT PAGE NO.50 FOR AY 2011-12 IN WHICH COMPANY IS SHOWING BUSINESS LOSSES. THE ASSE SSEE HAS ALSO FILED ITA NO.382/AHD/ 2017 PARAG PRAKASH DOSHI VS. ITO ASST.YEAR 2013-14 - 8 - BALANCE-SHEET OF THE COMPANY FOR THE YEAR UNDER CON SIDERATION WHICH SHOWS TRADE PAYABLE. IN SUPPORT OF ITS CONTENTION, ASSESS EE CITED A JUDGMENT OF HONBLE CALCUTTA HIGH COURT TITLED AS PRADIP KUMAR MALHOTRA VS. CIT (2011) 338 ITR 538 (CAL.), WHEREIN IT HAS BEEN HELD AS UND ER:- THE ASSESSEE HAD SUBSTANTIAL SHAREHOLDING IN A PRI VATE COMPANY. THE ASSESSEE PERMITTED HIS IMMOVABLE PROPERTY TO BE MOR TGAGED TO THE BANK FOR ENABLING THE COMPANY TO TAKE THE BENEFIT OF LOA N AND IN SPITE OF REQUEST OF THE ASSESSEE THE COMPANY WAS UNABLE TO R ELEASE THE PROPERTY FROM MORTGAGE. CONSEQUENTLY, THE BOARD OF DIRECTOR S OF THE COMPANY PASSED A RESOLUTION AUTHORIZING THE ASSESSEE TO OBT AIN FROM THE COMPANY INTEREST-FREE DEPOSIT UP TO RS.50 LAKHS AS AND WHEN REQUIRED. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R 1999-2000, THE ASSESSEE OBTAINED FROM THE COMPANY A SUM OF RS.20,7 5,000 BY WAY OF SECURITY DEPOSIT. OUT OF THE AMOUNT, A SUM OF RS.2 0 LAKHS WAS SUBSEQUENTLY RETURNED BY THE ASSESSEE TO THE COMPAN Y. IN THE ASSESSMENT MADE FOR 1999-2000 THE ASSESSING OFFICER ADDED THE SUM OF RS.20,75,000 AS DEEMED DIVIDEND. 7. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND GOING THROUGH THE AFORESAID JUDGEMENT, WE ARE OF THE CONS IDERED OPINION THAT ASSESSEE HAD RECEIVED AN AMOUNT OF RS.1,32,91,914/- FROM M/S.LEELA TUBE PVT.LTD. (LTPL) IN ORDER TO SAFE-GUARD THE INTEREST OF THE COMPANY AND THE SAME WAS DONE IN ORDER TO PROTECT THE INTEREST OF T HE COMPANY AND ASSESSEE EVEN SOUGHT HELP FROM HIS RELATIVES AND PLACED AS S ECURITY THE ANCESTRAL HOUSE BEING FLAT NO.203 AT SHRIPALNAGAR, AHMEDABAD. THER EFORE, IN OUR CONSIDERED OPINION, THIS WAS FOR THE BUSINESS EXPEDIENCY AND S AME CANNOT BE TREATED AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. THUS, WE DIRECT THE ASSESSING ITA NO.382/AHD/ 2017 PARAG PRAKASH DOSHI VS. ITO ASST.YEAR 2013-14 - 9 - OFFICER TO DELETE THE ADDITION OF RS.10,80,994/-. AS A RESULT, ASSESSEES GROUND OF APPEAL IS ALLOWED. 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 25/09/2018 SD/- SD/- ( PRADIP KUMAR KEDIA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 25/ 09 /2018 &.., .(../ T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-2, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 11.9.18 (DICTATION-PAD 12- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 12.9.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.25.9.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 25.9.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER