Lakhmi Chand Tejoo Mal, New Delhi V. ACIT CIRCLE-47(1), New Delhi

ITA 4668/DEL/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9069 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 23-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: E V BHASKAR
• Keywords: Deemed dividend
• Section: 2(22)(e); 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI D BEN CH, NEW DELHI (THROUGH VIDEO CONFERENCING] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO. 4668/DEL/2019 [A.Y 2014-15] M/S LAKHMI CHAND TEJOO MAL VS. THE A.C.I.T. 876, KUCHA KABIL ATTAR CIRCLE 47(1) CHANDNI CHOWK, DELHI NEW DELHI PAN : AAAFL 3353 P [APPELLANT] [RESPONDENT] DATE OF HEARING : 04.08.2021 DATE OF PRONOUNCEMENT : 06.08.2021 ASSESSEE BY : SHRI KAPIL GOEL, ADV REVENUE BY : SHRI E.V. BHASKAR, SR. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS] -16, NEW DELHI DATED 19.03.2019 PERTAINING TO ASSESSMENT YEAR 2014-15. 2 2. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE AS SESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 46,66,803/ MADE BY THE ASSESSING OFFICER ON ACCOUNT OF AMOUNT RECEI VED FROM BRAHMAND SYSTEM PRIVATE LIMITED TREATING THE SAME AS DEEMED DIVIDEND BY INVOKING THE PROVISIONS OF SECTION 2(22)(E ) OF THE ACT. 3. THE OTHER GRIEVANCE RELATES TO THE DISALLOWANCE OF RS. 2,42,110/ MADE BY THE ASSESSING OFFICER ON ACCOUNT OF 5% OF C AR EXPENSES. 4. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT DU RING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.78 LAKHS FROM BRAHMAND SYSTEMS PRIVATE LIMITED IN WHICH SHRI NAVEEN MAKRAN I AND SHRI MANOHAR LAL, PARTNERS OF THE FIRM, HAVE BEEN HOLDING DIRECT ORSHIP SINCE 16.03.2011. 5. THE ASSESSING OFFICER FURTHER NOTICED THAT SHARE HOLDING OF SHRI NAVEEN MAKRANI AND SHRI MANOHAR LAL IN THE SAID COM PANY IS 1% EACH. THE ASSESSING OFFICER FURTHER FOUND THAT BALANCE 98 % SHAREHOLDING IN BRAHMAND SYSTEM PVT LTD IS HELD BY TQM ADVERTISING AND MARKETING LTD IN WHICH SHRI NAVEEN MAKRANI AND MANOHAR LAL ARE HA VING 20% EACH IN 3 SHAREHOLDING. BEING CONVINCED THAT THE PROVISIONS O F SECTION 2(22)(E) OF THE ACT SQUARELY APPLY ON THE FACTS OF THE CASE, TH E ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ASKING I T TO EXPLAIN AS TO WHY THE LOAN AMOUNT SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 6. IN ITS REPLY, THE ASSESSEE CONTENDED THAT IT HAS RECEIVED RS.78 LAKHS FROM THE SAID COMPANY AS IT WAS NOT LOAN BUT RECEIVED AS AN ADVANCE FOR PURCHASE OF PROPERTY OWNED BY THE ASSES SEE AND SINCE THE TRANSACTION HAD NOT MATERIALISED, THE AMOUNT WAS RE TURNED BACK TO THE SAID COMPANY. 7. THE ASSESSEE FURNISHED NECESSARY EVIDENCE IN SUP PORT OF ITS CONTENTION. THIS CONTENTION OF THE ASSESSEE WAS DIS MISSED BY THE ASSESSING OFFICER WHO WAS OF THE FIRM BELIEF THAT A NY PAYMENT BY A COMPANY BY WAY OF ADVANCE OR LOAN ATTRACTS THE PROV ISIONS OF SECTION 2(22)(E) OF THE ACT AND THE PURPOSE AND DURATION OF ADVANCE OR LOAN IS IMMATERIAL FOR THE PURPOSES OF THIS SECTION. THE AS SESSING OFFICER, ACCORDINGLY, MADE AN ADDITION OF RS. 46,66,803/ BE ING AMOUNT OF ACCUMULATED PROFIT AS ON 31.3.2013. 4 8. THE ASSESSING OFFICER FURTHER MADE DISALLOWANCE OF 5% OF CAR EXPENSES AMOUNTING TO RS.2,42,110/. 9. AGGRIEVED BY THE ADDITION THE ASSESSEE CARRIED T HE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 10. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE RE ITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES, WHEREAS T HE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE LD. CIT(A). 11. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE RELEVANT DOCUMENTS BROUGHT TO OUR NOTICE. T HE UNDISPUTED FACT IS THAT VIDE AGREEMENT TO SELL DATED 16.5.2003, ENT ERED INTO BETWEEN THE ASSESSEE AND THE COMPANY BRAHMAND SYSTEM PRIVAT E LIMITED, THE ASSESSEE AGREED TO SELL THE PROPERTY SITUATED AT HA RYANA TO THE SAID COMPANY AND THE SALE CONSIDERATION WAS FIXED AT A S UM OF RS.98 LAKHS OUT OF WHICH BRAHMAND SYSTEM PRIVATE LIMITED ADVANC E RS.78 LAKHS AS EARNEST MONEY AND PART PAYMENT. THERE IS NO DISPUTE IN SO FAR AS THIS AGREEMENT IS CONCERNED. 5 12. THE OBSERVATION OF THE ASSESSING OFFICER THAT T HE PURPOSE OF THE ADVANCE OR LOAN IS IMMATERIAL IS CONTRARY TO THE CB DT CIRCULAR NO. 19/2017 DATED 12.06.2017, WHICH IS AS UNDER: F.NO.279IMISC.L140/2015I1TJ GOVERNMENT OF INDIA MINISTRY OF FINANCE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 19/2017 NEW DELHI, DATED 12TH JUNE, 2017 SUB: SETTLED VIEW ON SECTION 2(22)(E) OF THE INCOME TAX ACT, TRADE ADVANCES -REG. SECTION 2(22) CLAUSE (E) OF THE INCOME TAX ACT, 196 1 (THE ACT) PROVIDES THAT 'DIVIDEND' INCLUDES ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIAL LY INTERESTED, OF ANY SUM BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SH ARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS HOLDING NOT LESS THAN TEN PE R CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTI AL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID C ONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE I NDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S. 6 2. THE BOARD HAS OBSERVED THAT SOME COURTS IN THE R ECENT PAST HAVE HELD THAT TRADE ADVANCES IN THE NATURE OF COMM ERCIAL TRANSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22) (E) OF THE ACT. SUCH VIEWS HAVE ATTAI NED FINALITY. 2.1 SOME ILLUSTRATIONS/EXAMPLES OF TRADE ADVANCES/C OMMERCIAL TRANSACTIONS HELD TO BE NOT COVERED UNDER SECTION 2 (22) (E) OF THE ACT ARE AS FOLLOWS: I. ADVANCES WERE MADE BY A COMPANY TO A SISTER CONC ERN AND ADJUSTED AGAINST THE DUES FOR JOB WORK DONE BY THE SISTER CONCERN. IT WAS HELD THAT AMOUNTS ADVANCED FOR BUSI NESS TRANSACTIONS DO NOT TO FALL WITHIN THE DEFINITION O F DEEMED DIVIDEND UNDER SECTION 2(22) (E) OF THE ACT. (CIT V S. CREATIVE DYEING & PRINTING PVT. LTD. L, DELHI HIGH COURT). II. ADVANCE WAS MADE BY A COMPANY TO ITS SHAREHOLDE R TO INSTALL PLANT AND MACHINERY AT THE SHAREHOLDER'S PREMISES T O ENABLE HIM TO DO JOB WORK FOR THE COMPANY SO THAT THE COMP ANY COULD FULFIL AN EXPORT ORDER. IT WAS HELD THAT AS THE ASS ESSEE PROVED BUSINESS EXPEDIENCY, THE ADVANCE WAS NOT COVERED BY SECTION 2(22)(E) OF THE ACT. (CIT VS AMRIK SINGH, P&H HIGH COURT). III. A FLOATING SECURITY DEPOSIT WAS GIVEN BY A CO MPANY TO ITS SISTER CONCERN AGAINST THE USE OF ELECTRICITY GENER ATORS BELONGING TO THE SISTER CONCERN. THE COMPANY UTILIS ED GAS AVAILABLE TO IT FROM GAIL TO GENERATE ELECTRICITY A ND SUPPLIED IT TO THE SISTER CONCERN AT CONCESSIONAL RATES. IT WAS HELD THAT THE SECURITY DEPOSIT MADE BY COMPANY TO ITS SISTER CONCERN WAS A BUSINESS TRANSACTION ARISING IN THE NORMAL COURSE OF BUSINESS 7 BETWEEN TWO CONCERNS AND THE TRANSACTION DID NOT AT TRACT SECTION 2(22) (E) OF THE ACT. (CIT, AGRA VS ATUL EN GINEERING UDYOG, ALLAHABAD HIGH COURT). 3. IN VIEW OF THE ABOVE IT IS, A SETTLED POSITION THAT TRADE ADVANCES, WHICH ARE IN THE NATURE OF COMMERCIAL TRA NSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE WORD 'ADVANCE' IN SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, HENCEFORTH, APPEALS MAY NO T BE FILED ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND THOSE ALREADY FILED IN COURTS TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UP ON. 4. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CO NCERNED. 5. HINDI VERSION FOLLOWS. (NEETIKA BANSAL) DEPUTY SECRETARY TO GOVERNMENT OF INDIA 13. IN LIGHT OF THE AFOREMENTIONED CBDT CIRCULAR, W HICH IS BINDING ON THE ASSESSING OFFICER, WE ARE OF THE CONSIDERED VIE W THAT THE BUSINESS TRANSACTION OF RS. 78 LAKHS CANNOT BE TREATED AS DE EMED DIVIDEND U/S 2(22)(E) OF THE ACT. WE, ACCORDINGLY, DIRECT THE AS SESSING OFFICER TO DELETE THE ADDITION OF RS. 46,66, 803/. 14. THE SECOND GRIEVANCE RELATES TO THE DISALLOWANC E OF 5% OF CAR EXPENSES ETC. THIS ISSUE WAS NOT SERIOUSLY CONTESTE D BY THE LD. AR AND, THEREFORE, THE SAME IS DISMISSED. 8 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE IN ITA NO. 4668/DEL/2019 IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 06.08. 2021. SD/- SD/- [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 06 TH AUGUST, 2021 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 9 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER