ACIT, Trichur V. M/s.PJD Properties & Investments P.Ltd, Trichur

ITA 452/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77458 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 16-06-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 20-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: JOPHY PAUL ACCOUNTS MANAGER
• Keywords: Deemed dividend; Commercial expediency
• Section: 234B

Judgement Text

1 ITA NO.451 & 452/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO. 451/COCH/2013 (ASSESSMENT YEAR 2008-09) M/S PJD PROPERTIES & INVESTMENTS VS ACIT, CIR.1(1) PVT LTD, 214, PULLOKKARAN BLDG THRISSUR NADA, IRINJALAKKUDA THRISSUR PAN : AACCP9152D (APPELLANT) (RESPONDENT) I.T.A NO. 452/COCH/2013 (ASSESSMENT YEAR 2008-09) ACIT, CIR.1(1) VS M/S PJD PROPERTIES & INVEST- THRISSUR MENTS PVT LTD, IRINJALAKKUDA (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI JOPHY PAUL ACCOUNTS MANAGER REVENUE BY : SMT. LATHA V KUMAR DATE OF HEARING : 16-06-2014 DATE OF PRONOUNCEMENT : 27-06-2014 O R D E R PER N.R.S. GANESAN (JM) BOTH THE ASSESSEE AND THE REVENUE FILED THESE APPE ALS AGAINST THE ORDER OF CIT(A)-V, KOCHI DATED 18-03-2013 FOR THE A SSESSMENT YEAR 2008- 09. 2 ITA NO.451 & 452/COCH/2013 2. LET US FIRST TAKE THE ASSESSEES APPEAL IN ITA N O.251/COCH/2013. THE FIRST GROUND OF APPEAL IS WITH REGARD TO ADVANC E MADE BY THE ASSESSEE TO SHRI P.J. DAVIS, THE MANAGING DIRECTOR OF THE AS SESSEE COMPANY. SHRI JOPHY PAUL, THE ACCOUNTS MANAGER OF THE ASSESSEE CO MPANY APPEARED AND FILED WRITTEN SUBMISSIONS. FOR THE PURPOSE OF CONVENIENCE, WE ARE REPRODUCING BELOW THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE: 1. THE ONLY DISPUTE IN THE PRESENT APPEAL IS REGAR DING SUM OF RS.5,19,407 ADDED BACK BEING INTEREST RELATING T O FUNDS ADVANCED TO SRI P.J. DAVIS. 2. THE ONLY DISCUSSION IN THE ASSESSMENT ORDER ON T HIS ISSUE IS CONTAINED IN PARA.3 WHICH READS AS UNDER: THE ASSESSEE HAS TAKEN LOANS AND INVESTED IN INCOME BEARING INVESTMENTS AND IN BUILDING CONSTRUCTION ON WHICH NO INCOME IS ADMITTED. FURTHER THE ASSESSEE COMPANY HAS ADVANCED LOANS TO DIRECTOR ON WHICH NO INTEREST IS CHARGED. THIS FINDING ITSELF IS INCORRECT AS THE BALANCE SHE ET OF THE ASSESSEE AS ON 31-03-2008 [ANN.A] REVEALS THAT NO S ECURED / UNSECURED LOANS WERE TAKEN BY THE ASSESSEE COMPANY. FURTHER THERE IS NO FINDING IN THE ASSESSMENT ORDER THAT INTEREST BEARING FUNDS WERE USED FOR SUCH ADVANCE. 3. AS PER THE BOOKS OF ACCOUNTS OF THE ASSESSEE COM PANY [SCH.G TO BALANCE SHEET], LOAN ADVANCED TO SRI P.J. DAVIS 3 ITA NO.451 & 452/COCH/2013 DURING THE YEAR IS ONLY RS.34,70,000 [ANN.B]. NO D ISALLOWANCE WAS MADE IN RESPECT OF FUNDS ADVANCED TO SRI P.J. D AVIS TILL THE PRECEDING A.Y. AS THE A.O. WAS SATISFIED THAT S UCH ADVANCES WERE FOR COMMERCIAL EXPEDIENCY. IN THIS R EGARD, I RELY ON CIT VS SRIDEV ENTERPRISES (KAR) 192 ITR 165 . 4. FURTHER ASSESSEE HAS SUFFICIENT OWN FUNDS, A PAR T OF WHICH WAS ADVANCED TO SRI P.J. DAVIS. THE BALANCE S HEET AS ON 31-03-2008 [ANN.A] SHOWS THAT ASSESSEE COMPANY H AD INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL, R ESERVES AND SURPLUS TO THE EXTENT OF RS.7.35 CRORES AS AGAINST WHICH THE IMPUGNED ADVANCE DURING THE YEAR IS ONLY SUM OF RS.34,70,000. IN THIS REGARD I RELY ON THE DECISIO N IN HOTEL SAVERA (MAD) 239 ITR 795. 5. LEARNED A.O. ERRED IN NOT RECOGNIZING THE FACT T HAT SRI P.J. DAVIS HAS DEPLOYED SUCH FUNDS FOR HIS BUSINESS PURPOSES ONLY (JOLLY BAR, IRINJALAKKUDA) AND THUS GENERATING TAXABLE INCOME ON WHICH TAXES ARE PAID TO THE GOVERNMENT OF INDIA. SINCE THE ADVANCE WAS MADE TO SRI DAVIS FOR COMMERC IAL PURPOSES, THE DISALLOWANCE MADE BY AO MAY BE DELETE D IN VIEW OF DECISION OF HONBLE SUPREME COURT IN S.A. B UILDERS VS CIT REPORTED IN 288 ITR 1. SINCE CIT(A) DOES NOT H AVE THE POWER TO SET-ASIDE THE ASSESSMENT SUBSEQUENT TO 01- 06-2001 AND HENCE THE DIRECTION GIVEN BY CIT(A) IN PARA OF HIS ORDER NEEDS TO BE QUASHED AS AGAINST THE LAW. HE OUGHT T O HAVE ALLOWED THE APPEAL OF ASSESSEE. 4 ITA NO.451 & 452/COCH/2013 6. FURTHER, THE LOAN GIVEN TO SRI P.J. DAVIS WAS TR EATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT. WHEN A SUM IS TREATED AS DEEMED DIVIDEND I.E. PAYMENT OF SHARE IN PROFIT, NO FURTHER DISALLOWANCE OF INTEREST IS POSSIBLE AS A S INGLE TRANSACTION CANNOT BE TREATED AS DIVIDEND AND ADVAN CE AT THE SAME TIME. HAVING TREATED THE TRANSACTION AS DEEME D DIVIDEND, A.O. OUGHT NOT TO HAVE MADE ANY DISALLOWA NCE OF INTEREST TREATING IT AS INTEREST FREE ADVANCES MADE TO DIRECTOR OF APPELLANT COMPANY. A TRANSACTION TREATED AS DEE MED DIVIDEND SHALL BE TREATED AS DIVIDEND FOR ALL THE P URPOSES AS HELD BY HONBLE SUPREME COURT IN CIT VS G. NARASIMH AN REPORTED IN 236 ITR 327. 7. CONSIDERING THE ABOVE, THE IMPUGNED ORDER PASSED BY THE ASSESSING OFFICER IGNORING THE LEGAL POSITION A S WELL AS DECISIONS OF VARIOUS COURTS, IS CONTRARY TO LAW AND FACTS AND IT IS PRAYED THAT THE IMPUGNED ADDITION MAY BE DELETED. HENCE THIS APPEAL WHICH MAY KINDLY BE ALLOWED FOR THE DVNCEMENT OF SUBSTANTIAL CAUSE OF JUSTICE. 3. ON THE CONTRARY, SMT. LATHA V KUMAR, THE LD.DR S UBMITTED THAT THE ASSESSEE COMPANY ADVANCED MONEY TO SHRI P.J. DAVIS AND THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE SUBJECT TO VERIFI CATION. SINCE THE CIT(A) HAS ALREADY ALLOWED THE CLAIM OF THE ASSESSEE, THE ASSESSEE MAY NOT HAVE ANY GRIEVANCE AT ALL. 5 ITA NO.451 & 452/COCH/2013 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSE SSEE COMPANY IN PURSUANCE OF ITS RESOLUTION DATED 26-03-2006 ADVANC ED A SUM OF RS.34,70,000 FOR PURCHASE OF LANDS. THE CIT(A) ACC EPTING THE CASE OF THE ASSESSEE FOUND THAT THE AMOUNT ADVANCED FOR PURCHAS E OF LAND IS FOR THE PURPOSE OF BUSINESS, THEREFORE, HE ALLOWED THE CLAI M OF THE ASSESSEE SUBJECT TO VERIFICATION OF THE PURCHASE OF LAND AS CLAIMED BY THE ASSESSEE. WHEN THE INDIVIDUAL APPEAL OF SHRI P.J. DAVIS, THE MANAGING DIRECTOR OF THE COMPANY CAME UP BEFORE THIS TRIBUNAL IN ITA NO.795/ COCH/2013, THIS TRIBUNAL BY AN ORDER DATED 28-03-2014 FOUND THAT TH E MONEY WAS ADVANCED FOR PURCHASE OF LAND AND WAS FOR BUSINESS PURPOSE. A SIMILAR ADVANCE WAS MADE IN EARLIER ASSESSMENT YEAR AND NO DISALLOWANCE WAS MADE. THIS TRIBUNAL FOUND THAT THE TRANSACTION BET WEEN THE ASSESSEE COMPANY AND ITS MANAGING DIRECTOR IS A CURRENT ACCO UNT TRANSACTION. THOUGH THE ASSESSEE RECEIVED THE MONEY FOR PURCHASE OF LAND FOR THE BUSINESS OF THE COMPANY,SINCE THE PROPERTY COULD NO T BE PURCHASED, THE MONEY WAS REFUNDED TO THE COMPANY. IN THOSE CIRCUM STANCES, THE VERIFICATION OF PURCHASE OF LAND MAY NOT BE NECESSA RY. THE FACT REMAINS IS THAT THE ADVANCE WAS MADE AS PER THE RESOLUTION OF THE COMPANY FOR PURCHASE OF LAND AND THE MANAGING DIRECTOR RETURNED THE MONEY TO THE COMPANY SINCE THE LAND COULD NOT BE PURCHASED. THE REFORE, THE TRANSACTION IS A BUSINESS TRANSACTION BETWEEN THE A SSESSEE AND ITS 6 ITA NO.451 & 452/COCH/2013 MANAGING DIRECTOR; HENCE, THERE IS NO QUESTION OF A NY DEEMED DIVIDEND. IN FACT, THIS TRIBUNAL HAS OBSERVED AS FOLLOWS AT P ARAGRAPHS 7 & 8 OF ITS ORDER DATED 28-03-2014 IN THE CASE OF SHRI P.J. DAV IS: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON REC ORD AND THE WRITTEN SUBMISSIONS FILED BY THE ACCOUNTANT OF THE ASSESSEE. IT IS NOT IN DISPUTE THAT THE ASSESSEE RECEIVED RS.34, 70,000 FROM PJD PROPERTIES & INVESTMENTS PVT LTD. THE PRESENT ASSESSEE IS THE MANAGING DIRECTOR OF PJD PROPERTIES & INVEST MENTS PVT LTD. FROM THE MATERIAL AVAILABLE ON RECORD IT APP EARS THAT THE MONEY WAS ADVANCED TO THE ASSESSEE IN PURSUANCE OF THE BUSINESS PROPOSAL FOR PURCHASING LAND AS PER THE RE SOLUTION OF THE COMPANY DATED 26-03-2006. THE BUSINESS OF THE COMPANY, VIZ. PJD PROPERTIES & INVESTMENTS PVT LTD IS DEVELOPMENT AND CONSTRUCTION OF RESIDENTIAL AND COM MERCIAL BUILDINGS. THE RESOLUTION OF THE COMPANY WAS NOT B ROUGHT TO THE NOTICE OF THE TRIBUNAL WHEN THE COMPANYS APPEA L IN ITA NO.451/COCH/2013 WAS DECIDED. IN FACT, THE COMPANY APPEAL WAS DECIDED EX PARTE IN THE ABSENCE OF THE COMPANY BEFORE THIS TRIBUNAL. THE DEPARTMENT COULD NOT BRING TO T HE NOTICE OF TRIBUNAL THAT A RESOLUTION WAS NOT PASSED BY THE CO MPANY ON 26-03-2006 FOR ADVANCING FUNDS TO THE ASSESSEE. IT IS ALSO NOT IN DISPUTE THAT EVEN FOR EARLIER ASSESSMENT YEARS A SIMILAR ADVANCE WAS MADE TO THE ASSESSEE BY THE COMPANY FOR PURCHASING LAND. FOR ALL EARLIER ASSESSMENT YEARS, THE ASSESSING OFFICER TREATED THE SAME AS BUSINESS TRAN SACTION. 7 ITA NO.451 & 452/COCH/2013 THEREFORE, AS RIGHTLY OBSERVED BY THE CIT(A), IT IS A CURRENT ACCOUNT TRANSACTION. WHEN THERE IS A CURRENT ACCOU NT TRANSACTION BETWEEN THE ASSESSEE AND THE COMPANY, I T CANNOT BE TREATED AS LOAN OR ADVANCE AS HELD BY THE MADRAS HIGH COURT IN THE CASE OF IDHAYAM PUBLICATIONS LTD (SUPR A) WHEN THE AMOUNT WAS ADVANCED IN THE ORDINARY COURSE OF B USINESS TO THE SHAREHOLDER, THE DEEMING PROVISIONS OF SECTI ON 2(22)(E) IS NOT APPLICABLE. 7. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF T HE APEX COURT IN THE CASE OF MISS SARDA P (SUPRA). IN THE CASE BEFORE THE APEX COURT IN THE CASE OF MISS SARDA P ( SUPRA), THE ASSESSEE WAS A MAJOR SHAREHOLDER OF M/S UNIVERSAL R ADIATORS PVT LTD. DURING THE ASSESSMENT YEAR 1973-74, THE I TO FOUND THAT THE ASSESSEE WITHDREW A TOTAL SUM OF RS. 93,02 7 FROM THE COMPANY. AT THE MATERIAL POINT OF TIME, THE ASSESS EE DID NOT HAVE A CREDIT BALANCE IN HER ACCOUNT WITH THE COMPA NY. THE EXCESS WITHDRAWAL WAS TREATED BY THE ITO AS DEEMED DIVIDEND. THIS WAS CONFIRMED BY THE APEX COURT BY HOLDING THAT THE ASSESSEES ACCOUNT WAS OVERDRAWN. THOUGH SOME ADJUSTMENT WAS MADE ON THE LAST DAY OF THE ACCOUNTI NG YEAR, THE SUPREME COURT FOUND THAT THAT WILL NOT ALTER TH E POSITION THAT THE ASSESSEE HAS WITHDRAWN A TOTAL SUM OF RS.9 3,077 FROM THE COMPANY. ACCORDINGLY, THE AMOUNT WITHDRAW N BY THE ASSESSEE WAS TREATED AS DEEMED DIVIDEND. IN THE CA SE BEFORE THE APEX COURT, IT IS NOT THE CASE OF THE AS SESSEE THAT THE FUNDS WERE ADVANCED AS PER THE RESOLUTION OF TH E COMPANY FOR BUSINESS PURPOSE. IT WAS A CASE OF WITHDRAWAL FOR PERSONAL PURPOSE. IN THE CASE BEFORE US, THE MONEY WAS ADMI TTEDLY 8 ITA NO.451 & 452/COCH/2013 ADVANCED BY A RESOLUTION OF THE COMPANY FOR PURCHAS ING LAND AS PER THE BUSINESS OBJECT OF THE COMPANY. THEREFOR E, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDG MENT OF THE APEX COURT IN THE CASE OF MISS SARADA P MAY NOT BE APPLICABLE TO THE FACTS OF THIS CASE. 8. ON IDENTICAL CIRCUMSTANCES, THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF JHAMU U SUGHAND VS DCIT (2 006) 99 ITD 1 (MUM) HAD AN OCCASION TO CONSIDER AN IDENT ICAL SITUATION. THE MUMBAI BENCH OF THIS TRIBUNAL FOUND THAT WHEN THE MONEY WAS ADVANCED TO SHAREHOLDER IN THE ORDINA RY COURSE OF BUSINESS IT CANNOT BE ASSESSED AS DEEMED DIVIDEND. THE ADVANCE WAS MADE FOR BUSINESS PURPOS E. THE ADVANCE WAS NOT MADE IN THIS YEAR ALONE. EVEN IN E ARLIER ASSESSMENT YEAR A SIMILAR ADVANCE WAS MADE FOR PURC HASE OF LANDED PROPERTY FOR BUSINESS OF THE COMPANY. THERE FORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE MONEY WAS ADVANCED AS PER THE RESOLUTION OF THE COMPANY FOR P URCHASING PROPERTY IN PURSUANCE OF ITS OBJECT, THE AMOUNT ADV ANCED FOR BUSINESS PURPOSE IN THE ORDINARY COURSE CANNOT BE T REATED AS DEEMED DIVIDEND. THEREFORE, WE DO NOT FIND ANY INF IRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED. 4. IN VIEW OF THE ABOVE FINDING, THIS TRIBUNAL IS O F THE OPINION THAT THERE IS NO NECESSITY TO VERIFY THE PURCHASE OF LAND SINC E ADMITTEDLY THE MONEY WAS RETURNED TO THE ASSESSEE COMPANY BY THE MANAGIN G DIRECTOR. 9 ITA NO.451 & 452/COCH/2013 THEREFORE, WHILE CONFIRMING THE ORDER OF CIT(A) WIT H REGARD TO THE TRANSACTION BETWEEN THE ASSESSEE AS BUSINESS TRANSA CTION, THERE IS NO NEED FOR VERIFICATION OF PURCHASE OF LAND SINCE AD MITTEDLY THE MONEY WAS RETURNED TO THE COMPANY. ACCORDINGLY, THE ORDER OF THE LOWER AUTHORITY IS MODIFIED. 5. THE NEXT GROUND OF APPEAL IS WITH REGARD TO LEVY OF INTEREST U/S 234A, 234B AND 234C OF THE ACT. LEVY OF INTEREST U/S 234 A, 234B AND 234C OF THE ACT IS CONSEQUENTIAL TO THE ASSESSMENT MADE. W HILE GIVING EFFECT TO THE ORDER OF THIS TRIBUNAL, THE ASSESSING OFFICER S HALL RECOMPUTE THE INTEREST CHARGEABLE. 6. NOW COMING TO THE REVENUES APPEAL IN ITA NO.452 /COCH/20134, THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISALLOWANCE OF INTEREST ON THE EXEMPTED INCOME AS PER RULE 8D OF THE IT RULES. 7. WE HAVE HEARD THE LD.DR AND ALSO CAREFULLY GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE. 8. THE MAIN CONTENTION OF THE ASSESSEE IS THAT NO E XPENDITURE WAS INCURRED FOR EARNING THE EXEMPTED INCOME. ACCORDIN G TO THE ASSESSEE, THE ASSESSEE HAS RECEIVED DIVIDEND TO THE EXTENT OF RS. 3,71,250 WHEREAS THE 10 ITA NO.451 & 452/COCH/2013 ASSESSING OFFICER DISALLOWED RS.17,58,897 WHICH IS FIVE TIMES OF THE DIVIDEND INCOME RECEIVED. THE ASSESSEE CLAIMED THA T NO INTEREST BEARING FUNDS WERE DIVERTED FOR MAKING INVESTMENT IN THE SH ARES. REFERRING TO THE OBSERVATIONS MADE BY THE ASSESSING OFFICER, THE ASS ESSEE CLAIMED THAT THE INVESTMENT IN THE CONSTRUCTION OF BUILDING IS FOR B USINESS PURPOSE AND TAXABLE INCOME WAS EARNED. THEREFORE, THERE WAS NO QUESTION OF ANY DISALLOWANCE. THE CIT(A) RESTRICTED THE DISALLOWAN CE TO 7.7% OF THE TOTAL EXPENDITURE WHICH COMES TO RS.1,11,095. THIS TRIBU NAL IS OF THE CONSIDERED OPINION THAT AFTER CONSIDERING THE INVES TMENT AND THE NATURE OF EXPENDITURE, THE CIT(A) HAS RIGHTLY RESTRICTED THE EXPENDITURE TO 7.7%. THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED. 9. THE NEXT GROUND OF APPEAL IS WITH REGARD TO INTE REST ON THE AMOUNT ADVANCED TO SHRI P.J. DAVIS. THIS TRIBUNAL FOUND T HAT THE ADVANCE MADE TO SHRI P.J. DAVIS, THE MANAGING DIRECTOR OF THE AS SESSEE COMPANY IS FOR BUSINESS PURPOSE, IN OTHER WORDS, FOR PURCHASE OF L AND. THEREFORE, THERE IS NO QUESTION OF ANY DISALLOWANCE ON THE BUSINESS TRA NSACTION. HENCE, THE CIT(A) HAS RIGHTY DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WITH REGARD TO INTEREST ON THE ADVANCE MADE TO SHRI P.J. DAVIS. THIS TRIBUNAL DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE REVENUE; THE SAME IS REJECTED. 11 ITA NO.451 & 452/COCH/2013 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AND THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH JUNE, 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 27 TH JUNE, 2014 PK/- COPY TO: 1. PJD PROPERTIES & INVESTMENTS PVT LTD, 214, PULLO KKARAN BUILDING, NADA, IRINJALAKKUDA, THRISSUR 2. THE ACIT, CIR.1(1), THRISSUR 3. THE COMMISSIONER OF INCOME-TAX, KOCHI 4. THE COMMISSIONER OF INCOME-TAX(A)-V, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH