The ACIT, Bhopal V. Shri Girish Agrawal, Bhopal

ITA 390/IND/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2728 (ITAT-INDORE)
• Duration Of Justice: 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 27-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K MITRA
• Assessee Lawyers: S S DESH
• Keywords: Question of law; Deemed dividend; Notional interest
• Section: 147; 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER ITA NO.390/IND/2009 A.YS. 2006-07 ASSTT. COMMISSIONER OF INCOME TAX 1(2) BHOPAL APPELLANT VS SHRI GIRISH AGRAWAL BHOPAL PAN ABTPA-2188D RESPONDENT APPELLANT BY : SHRI P.K. MITRA, SR. DR RESPONDENT BY : SHRI S.S. DESHPANDE, CA O R D E R PER JOGINDER SINGH, JM THIS APPEAL IS BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A) DATED 12 TH MAY, 2009 ON THE GROUND THAT ON THE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE, THE LD. FIRST APPELLATE AUTHORITY ERRED IN DELETING THE ADDITION OF RS. 7,32,000/- (WRONGLY ME NTIONED AS RS.94,74,715/- IN THE GROUNDS OF APPEAL) MADE ON AC COUNT OF DISALLOWANCE OF INTEREST EXPENDITURE. 2 2. DURING HEARING OF THIS APPEAL WE HAVE HEARD SHRI P.K. MITRA, LEARNED SENIOR DR AND SHRI S.S. DESHPANDE, LD. COUN SEL FOR THE ASSESSEE. AT THE OUTSET, MR. DESHPANDE CONTENDED T HAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL DA TED 24 TH MAY, 2010 IN THE CASE OF ACIT V. SHRI RAMESHCHANDRA AGRAWAL IN I TA NO. 182/IND/2009, IN THE CASE OF GROUP CONCERN OF THE P RESENT ASSESSEE. THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE REV ENUE. HOWEVER, MR. MITRA DEFENDED THE ASSESSMENT ORDER. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. BRIEF FACTS ARE THAT THE ASSESSEE RECEIVED INTEREST FREE LOAN OF RS.60 LACS FROM M/S BHASKAR MULTINET LIMITED AND RS .1 LAC FROM M/S BHASKAR EXXOILS LIMITED. THE LEARNED AO MADE THE AD DITION ON ACCOUNT OF NOTIONAL INTEREST ON INTEREST FREE LOANS RECEIVE D BY THE ASSESSEE AS A RELATIVE OF THE DIRECTOR. THE LEARNED AO CALCULATE D THE INTEREST AT 12% PER ANNUM WHICH RESULTED INTO ADDITION OF RS.7,32,0 00/- WHICH IS UNDER CHALLENGE BEFORE US. HOWEVER, WE FIND THAT THE REVE NUE HAS MADE A TYPOGRAPHICAL ERROR BY MENTIONING THE AMOUNT AT RS. 94,74,715/- AS DISALLOWANCE OF INTEREST EXPENDITURE, RATHER THE CO RRECT AMOUNT IS RS.7,32,000/- ON ACCOUNT OF NOTIONAL INTEREST IN TH E HANDS OF THE ASSESSEE ON CREDIT BALANCES OF THE COMPANY/COMPANIE S. THIS ISSUE HAS BEEN DELIBERATED UPON BY THE TRIBUNAL IN THE CASE O F THE SAME GROUP I.E. 3 ACIT VS. SHRI RAMESH CHAND AGRAWAL (SUPRA). THE R ELEVANT PORTION OF THE SAME IS REPRODUCED HEREUNDER :- THIS APPEAL FILED BY THE REVENUE ARISES OUT OF ORDER OF THE LD. CIT(A)-I, BHOPAL , DATED 19.01.200 9, FOR THE ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. 3. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A CHAIRMAN OF BHASKAR GROUP OF INDUSTRIES. THE AO NOT ED THAT THE ASSESSEE HAD OBTAINED LOANS FROM VARIOUS G ROUP COMPANIES WITHOUT INTEREST. IT WAS FURTHER NOTED TH AT THE ASSESSEE WAS EITHER A DIRECTOR OR WAS HOLDING SUBST ANTIAL SHARES IN SUCH COMPANIES. THE AO REQUIRED THE ASSES SEE TO SUBMIT FURTHER DETAILS OF SUCH LOANS, WHICH WAS NOT SUBMITTED INSPITE OF REPEATED OPPORTUNITIES. THE AO FORMED AN OPINION THAT THE PROVISIONS OF SECTION 2( 24)(IV) WERE APPLICABLE AND BENEFIT IN THE FORM OF NOTIONAL INTEREST TO BE ADDED TO THE TOTAL INCOME OF THE ASS ESSEE. ON AN OPPORTUNITY BY THE ASSESSING OFFICER, THE ASS ESSEE REPLIED THAT SUCH PROVISIONS WERE NOT APPLICABLE. T HE AO HELD THAT IN THE ABSENCE OF EXACT DETAILS IT WAS NO T POSSIBLE TO THE AO TO APPLY THE CORRECT PROVISIONS OF LAW AND SINCE THE ASSESSMENT WAS GETTING TIME BARRED, THERE WAS NO OTHER OPTION BUT TO COMPUTE THE BENEFIT ON NOTIONAL BASIS I.E. @ 8% OF THE TOTAL AMOUNT RECEIV ED BY THE ASSESSEE AND ADD THE SAME TO THE TOTAL INCOME O F THE ASSESSEE U/S 2(24)(IV) OF THE ACT. ACCORDINGLY, TH E AO MADE ADDITION OF RS. 66,08,214/-. AGGRIEVED BY THIS , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHEREIN IT WAS CONTENDED THAT THESE LOANS WERE RECE IVED IN THE NORMAL COURSE OF BUSINESS ACTIVITIES AND WER E FOR TEMPORARY PERIOD, HENCE, CALCULATION OF NOTIONAL IN TEREST AND TREATING THE SAME AS INCOME WAS NOT AT ALL JUST IFIED. IT WAS ALSO CONTENDED THAT AS PER THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF B.M. SALGAONCAR & BROTHERS PRIVATE LIMITED VS. CIT, AS REPORTED IN 24 3 ITR 383, AND THE DECISION OF HON'BLE CALCUTTA HIGH COUR T IN THE CASE OF CIT VS. P. R. S. OBEROI AS REPORTED IN 52 TAXMAN 267, AND IN THE CASE OF ISHRAN DEVI OBEROI V S. ITO, AS REPORTED IN 250 ITR 362, THE PROVISIONS OF SECTION 2(24)(IV) COULD NOT BE APPLIED, TO COMPUTE THE NOTI ONAL INTEREST ON LOAN. IT WAS ALSO CONTENDED THAT THE AS SESSEE WAS NOT A SUBSTANTIAL SHAREHOLDERS ALSO IN VIEW OF THE PROVISIONS OF SECTION 2(32) OF THE ACT AS APPLICABL E TO INVOKE THE PROVISIONS OF SECTION 2(24)(IV) OF THE A CT. THE 4 ASSESSEE ALSO GAVE THE DETAILS OF THE LIST OF SHAR EHOLDINGS IN ALL THE COMPANIES TO THE LD. CIT(A) AND AS PER T HESE DETAILS, THE ASSESSEE WAS FOUND TO HAVE SUBSTANTIAL SHAREHOLDING ONLY IN TWO COMPANIES, NAMELY, PEACOCK TRADING AND INVESTMENT PVT.LTD. AND BHOPAL FINANCIA L SERVICES PRIVATE LIMITED. THE LD. CIT(A) FOUND THAT IN RESPECT OF THESE TWO COMPANIES, THE AMOUNT HAD BEEN ADVANCED TO THE ASSESSEE ON 31.3.2005 ONLY, HENCE, NO NOTIONAL INTEREST COULD BE COMPUTED FOR THE YEAR AS A WHOLE ON NOTIONAL BASIS. IN RESPECT OF OTHER COMPAN IES, THE LD. CIT(A) HELD THAT THE ASSESSEE WAS NOT HAVIN G SUBSTANTIAL INTEREST. HENCE, PROVISIONS OF SECTION 2(24)(IV) COULD NOT BE APPLIED. THE LD. CIT(A) ALSO HELD THAT EVEN OTHERWISE, THE PROVISIONS OF SECTION 2(24 )(IV) COULD NOT BE APPLIED IN CASE OF INTEREST FREE LOANS ON CONCESSIONAL RATE IN VIEW OF THE DECISION OF THE SU PREME COURT IN THE CASE OF B.M.SALGAONCAR AND BROTHERS PRIVATE LIMITED (SUPRA). ACCORDINGLY, HE DELETED TH E IMPUGNED ADDITION. AGGRIEVED BY THIS, THE REVENUE I S IN APPEAL BEFORE US. 4. THE LD. CIT DR SUBMITTED THAT THE ASSESSEE WAS A DIRECTOR IN ALL THE COMPANIES AND THIS FACT WAS NOT IN DISPUTE, HENCE, THE PROVISIONS OF SECTION 2(32) WER E APPLICABLE AND, THEREFORE, NOTIONAL INTEREST COULD BE COMPUTED U/S 2(24)(IV). IT WAS ALSO CONTENDED THAT THE ASSESSEE BY NOT FURNISHING THE REQUIRED DETAILS BEF ORE THE AO PREVENTED HIM TO APPLY THE CORRECT PROVISIONS OF LAW. HENCE, MERELY FOR THIS REASON, THE AO SHOULD BE GIV EN AN OPPORTUNITY OF READJUDICATING THE MATTER. THE LD. C IT DR FURTHER ELABORATED THIS POINT BY SUBMITTING THAT TH E ASSESSEE COULD BE SUBSTANTIAL SHAREHOLDERS IN TERMS OF PROVISIONS OF SECTION 2(22)(E) AND, THEREFORE, SUCH LOANS COULD BE TREATED AS DEEMED DIVIDEND THEREUNDER AND THIS ASPECT HAD TO BE EXAMINED. THE LD. CIT DR, IN THIS REGARD, CONTENDED THAT THE TRIBUNAL WAS COMPETENT T O DO SO AS PER THE PROVISIONS OF THE ACT AND EVEN IF SUC H REMANDING RESULTED INTO ENHANCEMENT OF INCOME, THE SAME WOULD ALSO BE JUSTIFIED. FOR THIS PROPOSITION, THE LD. CIT DR RELIED ON THE DECISION OF THE HON'BLE SUPREM E COURT IN THE CASE OF BHAVNA CHEMICALS LIMITED VS. C IT, AS REPORTED IN 231 ITR 507. 5. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, CONTENDED THAT APPLICABILITY OF PROVISIONS OF SECTION 2(22)(E) WAS NOT A CASE OF REVENUE I.E. OF A.O. AND IF THE AO WAS OF THE VIEW THAT THOSE PROVISIONS WERE APPLICABLE ATLEAST HE COULD HAVE MADE AN ADDITION O N PROTECTIVE BASIS AND THAT WAS ALSO NOT DONE, HENCE, THERE WAS NO MERIT IN THE PRELIMINARY CONTENTIONS RAISED BY THE 5 REVENUE DURING THE COURSE OF HEARING. THE LEARNED COUNSEL FURTHER SUBMITTED THAT IF THE REVENUE WAS OF THE VIEW THAT THE ASSESSMENT ORDER WAS PREJUDICIAL TO T HE INTERESTS OF THE REVENUE OR SOME INCOME HAD ESCAPED FROM ASSESSMENT, THEN THE REVENUE COULD HAVE INVOKED THE PROVISIONS OF SECTION 147 OR 263 AS THE CASE MAY BE . AS REGARD TO THE MERITS OF THE CASE, THE LEARNED COUNS EL SUBMITTED THAT U/S 2(24)(IV), NOTIONAL INTEREST ON INTEREST FREE LOANS COULD NOT BE CHARGED, AS HELD BY THE HON 'BLE SUPREME COURT IN THE CASE OF B.M. SALGAONCAR AND BROTHERS PRIVATE LIMITED (SUPRA). HENCE, WHETHER TH E ASSESSEE WAS A DIRECTOR OR NOT, THE SAME WAS NOT A FACTOR TO BE CONSIDERED. AS REGARD TO NON-APPLICABILITY OF PROVISIONS OF SECTION 2(24)(IV), THE LEARNED COUNSE L ALSO RELIED ON THE DECISION OF THE HON'BLE PUNJAB & HARY ANA HIGH COURT IN THE CASE OF CIT VS. S.S.KHOSLA, AS RE PORTED IN 220 ITR 65, WHEREIN THE HON'BLE HIGH COURT HAD DISMISSED THE APPEAL OF THE REVENUE BY HOLDING THAT NO QUESTION OF LAW AROSE IN THAT APPEAL AS THE HON'BLE COURT HAD DISMISSED OTHER CONNECTED PETITION ALSO BY HOLD ING THAT THE PROVISIONS OF SECTION 2(24)(IV)/SECTION 17 (2)(3)(A) WERE NOT APPLICABLE IN RESPECT OF INTEREST FREE LOA NS TO EMPLOYEES. THE LEARNED COUNSEL ALSO RELIED ON THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE P.KRISHNAMOORTHY VS. CIT AND ANOTHER AS REPORTED IN 224 ITR 183, WHREIN THE HON'BLE COURT HAD HELD THA T PROVISIONS OF SECTION 40A(5) AND SECTION. 17(2)(IV) COULD NOT BE APPLIED IN RESPECT OF INTEREST SUBSIDY GIVEN TO EMPLOYEES. 6. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW. 7. IT IS NOTED THAT THE ASSESSEE HAS OBTAINED CERTAIN INTEREST FREE LOAN FROM COMPANIES, WHEREIN HE IS A DIRECTOR AND/OR HOLDING SUBSTANTIAL SHARE HOLDING. THE AO HAS APPLIED THE PROVISIONS OF SECTION 2(24)(IV), WHICH, AT THE VERY OUT-SET, CANNOT BE APPLIED IN VIEW OF T HE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F B.M. SALGAONCAR AND BROTHERS PRIVATE LIMITED (SUPRA ). AS REGARD TO THE PRELIMINARY OBJECTION RAISED BY TH E REVENUE, IN OUR OPINION, THE POWERS OF THE TRIBUNAL ARE CONFINED TO THE DISPUTE BEFORE THE TRIBUNAL OR IN CONSEQUENTIAL/CONNECTED MATTERS WITH SUCH DISPUTE. TO PUT IT DIFFERENTLY, THE TRIBUNAL CANNOT ALLOW A FRE SH ISSUE TO BE RE-ADJUDICATED BY THE ASSESSING OFFICER OR TH E LD. CIT(A), WHICH WAS NEVER A SUBJECT MATTER OF PROCEED INGS BEFORE THEM. HAVING STATED SO, WE FURTHER NOTE THAT IN THE CASE OF BHAVNA CHEMICALS LIMITED (SUPRA), THE AO HA D 6 TAXED THE AGRICULTURAL INCOME WHICH COULD NOT BE BR OUGHT TO TAX AND HAS ALSO ALLOWED EXPENSES RELATING TO AGRICULTURAL ACTIVITIES IN COMPUTING THE TOTAL INCO ME. HENCE, IN THAT CASE, IT IS EVIDENT THAT ISSUES WERE INTERMINGLED AND INTERCONNECTED WHEREAS IN THE PRES ENT CASE, THE ISSUES ARE ENTIRELY INDEPENDENT I.E. WHET HER SUCH LOANS COULD BE TAXED AS DEEMED DIVIDEND OR INTEREST ON SUCH LOANS COULD BE TAXED ON NOTIONAL BASIS U/S 2(2 4)(IV) OR NOT. HENCE, IN OUR OPINION, THE RATIO OF THAT DE CISION CANNOT BE APPLIED HERE. WE MOST HUMBLY STATE THAT I F THE REVENUES CONTENTION IS ACCEPTED, THEN, ENTIRE ASSE SSMENT COULD BE SENT BACK TO THE AO FOR ONE OR THE OTHER S UCH PRELIMINARY POINTS AND THAT CANNOT BE A CORRECT POS ITION IN LAW. HENCE, WE REJECT THIS CONTENTION OF THE REV ENUE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 24 TH MAY, 2010. IN THE AFORESAID CASE THE TRIBUNAL HAS ALREADY DISC USSED THE ISSUE IN DETAIL ON IDENTICAL FACTS THAT TOO IN THE GROUP CAS E OF THE ASSESSEE. DURING HEARING OF THIS APPEAL, THE LEARNED REPRESEN TATIVES FROM BOTH THE SIDES FAIRLY AGREED THAT THE FACTS ARE IDENTICAL. THE TRIBUNAL HAS ALREADY DISCUSSED VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING FROM THE HONBLE APEX COURT VIS-A-VIS SECTION 2(24)(IV) OF THE ACT AND ALSO THE DECISIONS FROM VARIOUS HONBLE HIGH COURTS. IT IS EVIDENT TH AT THE FACTS WERE INTER- MINGLED BY THE LEARNED AO THOUGH THE SAME WERE INTE R-CONNECTED, BUT ARE INDEPENDENT, THEREFORE, THERE IS NO INFIRMITY I N THE STAND OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). FOLLO WING THE AFORESAID ORDER OF THE TRIBUNAL, WE CONFIRM THE ORDER OF LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISS THE GROUND RAISED BY THE REVENUE. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. 7 ORDER PRONOUNCED IN OPEN COURT ON 29TH JUN E, 2010. (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER JUNE 29 ,2010 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE *DN/