DCIT CIR 1, KALYAN V. SAINATH RANGRAO PAWAR, BHIWANDI

ITA 3885/MUM/2013

• Counselvise Citation: 388519914 RSA 2013
• Duration Of Justice: 2 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 09-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 16-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Deemed dividend; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.3885/M/2013 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME- TAX, CIRCLE -1, DEEPKANT PRASAD, ADDL. CIT, RANGE -1, KALYAN VS. SHRI SAINATH RANGRAO PAWAR, 24, BHARAT COLONY, KAMATGHAR, BHIWANDI - 421302 PAN: AAXPP 8600Q (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI K. GOPAL, A.R. REVENUE BY : SHRI NEIL PHILIP, D.R. DATE OF HEARING : 09.07.2015 DATE OF PRONOUNCEMENT : 09.07.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 22.01.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2009-10. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ID. CIT(A)-I, THANE WAS NOT JUSTIFIED IN DELETING THE A DDITION OF RS.39,75,556/ - BEING DEEMED DIVIDEND, OVERLOOKING THE FACT THAT PROVISIONS OF SEC. 2(22)(E) OF 1.T. ACT ARE APPLICA BLE IN THIS CASE AS THE BUSINESS OF THE COMPANY IS NOT TO ADVANCE LOANS AND HENCE THE LOAN ADVANCED TO THE ASSESSED (DIRECTOR HAVING 76% SHARE S) CANNOT BE TREATED AS NORMAL BUSINESS TRANSACTIONS. 2. THE APPELLANT PRAYS THE ORDER OF THE LD. CIT(A)- 1, THANE, MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA NO.3885/M/2013 SHRI SAINATH RANGRAO PAWAR 2 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTE R ANY GROUND/GROUNDS, WHICH MAY BE NECESSARY. 3. THE SOLE ISSUE RAISED BY THE REVENUE IN THIS APP EAL IS RELATING TO THE TAXING OF AMOUNT OF RS.39,75,556/- UNDER SECTION 2( 22)(E) ON ACCOUNT OF DEEMED DIVIDEND. DURING THE ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) NOTICED THAT TH E ASSESSEE WAS A DIRECTOR IN M/S. SAINATH ROADWAYS PVT. LTD. A CLOSELY HELD COMP ANY AND HELD 76% OF THE SHARE OF THE SAID COMPANY. THE SAID COMPANY HAD AD VANCED LOAN OF RS.39,75,556/- TO THE ASSESSEE WHO WAS HOLDING MORE THAN 10% OF THE VOTING POWER IN THE ABOVE SAID COMPANY. THE AO TREATED TH E SAID LOAN AS DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) O F THE ACT. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) . 4. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT THE COMPANY M/S. SAINATH ROADWAYS PVT. LTD. FOR ITS BUSINESS PURPOSE S HAD TAKEN LOANS FROM BANK AND HAD ALSO BORROWED MONEY FROM MARKET FOR ME ETING ITS WORKING CAPITAL REQUIREMENTS. TO FACILITATE THE BORROWING OF THE COMPANY, THE ASSESSEE AND HIS FATHER MORTGAGED THEIR PERSONAL PROPERTY AN D FURNISHED THEIR PERSONAL GUARANTIES ALSO. BY MORTGAGING THE PROPERTY AND FU RNISHING OF PERSONAL GUARANTY, THE LIQUIDITY POSITION OF THE ASSESSEE AN D HIS FAMILY MEMBERS WAS JEOPARDIZED AS THEY WERE NO LONGER ABLE TO RAISE FU NDS/LOANS BY WAY OF MORTGAGING OR SELLING OF THEIR OWN PROPERTY. HENCE , TO COMPENSATE THE ASSESSEES FAMILY AND TAKING INTO CONSIDERATION THA T THEY WERE NOT ABLE TO BORROW THE MONEY BY WAY OF MORTGAGING THEIR PROPERT Y, THE ASSESSEE WAS ALLOWED TO WITHDRAW THE AMOUNTS FROM THE COMPANY AS AND WHEN REQUIRED. HOWEVER, ON SUCH WITHDRAWALS, THE ASSESSEE WAS REQU IRED TO PAY INTEREST. THE ASSESSEE FURNISHED THE RELEVANT DETAILS OF MORTGAGE OF PROPERTY, BORROWING OF THE LOAN BY THE COMPANY FROM THE VARIOUS BANKS ETC. THE LD. CIT(A), AFTER ITA NO.3885/M/2013 SHRI SAINATH RANGRAO PAWAR 3 CONSIDERING THE DETAILS FURNISHED BY THE ASSESSEE, OBSERVED THAT IT WAS CLEARLY PROVED THAT THE LOANS WERE SANCTIONED TO THE COMPAN Y M/S. SAINATH ROADWAYS PVT. LTD. IN LIEU OF PERSONAL GUARANTY AND MORTGAGE OF THE PROPERTIES OF THE ASSESSEE TO VARIOUS BANKS. THE ASSESSEE, THUS, WAS NOT ABLE TO RAISE FUNDS BY WAY OF MORTGAGING OR SELLING ITS PROPERTY. IN SUCH A SITUATION, THERE WAS NO WAY LEFT FOR THE ASSESSEE BUT TO RAISE PRIVATE LOAN S FROM THE ABOVE STATED COMPANY AND THE COMPANY ALSO KEEPING IN VIEW OF ITS COMMERCIAL INTEREST, LENT MONEY TO THE ASSESSEE ON COMMERCIAL TERMS ONLY. HE HELD THAT IT WAS BASICALLY A COMMERCIAL TRANSACTION AND NOT A GRACIOUS ACT OF ADVANCING THE LOAN. THE ASSESSEE HAD PAID INTEREST TO THE COMPANY FOR THE L OANS AND ADVANCES TAKEN DURING THE PERIOD. SUCH AN ARRANGEMENT WAS BENEFIC IAL TO BOTH THE PARTIES AND WAS OUT OF COMMERCIAL EXPEDIENCY. HE THEREFORE REL YING UPON THE VARIOUS DECISIONS OF THE HIGHER JUDICIAL AUTHORITIES HELD T HAT IT WAS NOT A GRACIOUS ACT OF ADVANCING OF LOAN BY THE COMPANY TO THE ASSESSEE BU T WAS A COMMERCIAL TRANSACTION OUT OF BUSINESS EXPEDIENCY. THE PROVIS IONS OF SECTION 2(22)(E) THUS WERE NOT ATTRACTED IN THE SAID CASE. HE, THEREFORE , DELETED THE ADDITIONS MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND. BEING AGG RIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE HAS COME IN APPEAL BEFO RE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORDS. THE LD. CIT(A), AFTER APPRECIATING THE EVI DENCE ON THE FILE, HAS GIVEN A VERY DETAILED REASONING TO HOLD THAT THE PROVISIO NS OF SECTION 2(22)(E) ARE NOT ATTRACTED IN THIS CASE. MOREOVER, THE ISSUE IS SQU ARELY COVERED BY THE DECISION OF THE HONBLE KOLKATA HIGH COURT IN THE CASE OF P RADEEP KUMAR MALHOTRA VS. CIT (2011) 15 TAXMAN.COM 66 (KOLKATA) WHEREIN IN ALMOST IDENTICAL FACTS AND CIRCUMSTANCES, THE HONBLE KOLKATA HIGH COURT H AS HELD THAT THE ADVANCE GIVEN BY COMPANY TO THE ASSESSEES SHAREHOLDER BY W AY OF COMPENSATION FOR KEEPING HIS PROPERTY AS MORTGAGED ON BEHALF OF THE COMPANY TO REAP BENEFIT OF ITA NO.3885/M/2013 SHRI SAINATH RANGRAO PAWAR 4 LOAN COULD NOT BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE ABOVE DECISION OF THE HONBLE KOLKATA HIGH COURT (SUPRA). MOREOVER, THE ASSESSEE IN THIS CASE HAS ALSO PAID THE INTEREST ON THE AMOUNT TAKEN ON LOAN FROM THE COMPANY OUT OF COMMERCIAL EXPEDIENCY. WE, THEREFORE, DO NOT FIND ANY MERIT IN THIS APPEAL AND THE SAME IS ACCORDINGLY DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 09.07.201 5. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 30.10.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.