Kankuben Karshanbhai Tejani, Surat V. Deputy Commissioner of Income Tax, Circle -3(3), Surat

ITA 54/SRT/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2028 (ITAT-SURAT)
• Duration Of Justice: 4 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-03-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 17-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Keywords: Deemed dividend; Capital receipt; Liquidation
• Section: 143(3); 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 54/SRT/2017 (AY: 2013-14) (Hearing in Virtual Court) Smt. Kankuben Karshanbhai Tejani 9/10, Ishwarnagar Society, Hira Baug, Varachha Road, Surat PAN : ACAPT8649Q Vs. The Deputy Commissioner of Income- tax, Circle-3(3), Surat APPELLANT RESPONDEDNT Appellant by Shri Hiren Vepari, CA Respondent by Ms. Anupama Singla , (Sr.DR) Date of hearing 04/03/2022 Date of pronouncement 27/05/2022 O R D E R PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals-3), [in short ‘ld. CIT(A)], Surat, dated 12.06.2017, for the Assessment Year (AY) 2013-14. The assessee has raised following grounds of appeal: “1. On the facts and circumstances of the case and as per law, the learned Commissioner of Income-tax (Appeals) erred in sustaining addition of Rs. 13,52,095/- u/s 2(22)(e) out of Rs. 1,12,52,528/-. 2. The appellant submits that there was no justification for distinguishing judgment of the Gujarat High Court in case of Chunilal Haribhai Gajera as also of Income-tax Appellate Tribunal in case of Vasantlal Haribhai Gajera and therefore, the entire amount was required to be deleted. 3. Without prejudice to the above, the appellant submits that the learned Commissioner of Income-tax (Appeals) ought to have excluded share premium account from the accumulated profits as it 2 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani has different character and is not available for distribution of dividend. 4. Without prejudice to the above, the appellant submits that even otherwise instead of making addition of balance in Profit & Loss Account of Rs. 13,52,095/- such addition should have been restricted to Rs. 3,00,435/- being 22.22% of Rs. 13,52,095/- as the appellant’s shareholding was only 22.22%. (II) Miscellaneous The appellant craves to add, alter or vary any of the grounds of appeal.” 3. Brief facts of the case are that the assessee is an individual, filed his return of income for assessment year (A.Y) 2013-14 on 24.02.2013 declaring total income of Rs. 25,67,380/-. The case was selected for scrutiny and the assessment was completed under section 143(3) on 11.03.2016. The Assessing Officer while passing the assessment order made addition of Rs. 1,12,52,528/- under section 2(22)(e) of the Income Tax Act. The Assessing Officer on perusal of audit report he noticed that assessee has taken loan of Rs. 1,58,20,000/- from the company Shubham Buildmart Pvt. Ltd. Further, the assessee has given loan of Rs. 5,36,20,634/- to company Shubham Buildmart Pvt. Ltd. The assessee is having 22.22% shareholding in the said company. The assessing officer further noted that the assessee has not furnished ledger account of the company from her books nor confirmation of the said company. Therefore, the assessee was asked to show cause as to why the advance taken from Ms Shubham Buildmart Pvt. Ltd of Rs. 1,13,69,998/- should not be 3 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani treated as deemed dividend under section 2(22)(e) of the Act. The Assessing Officer further recorded that during the assessment, the assessee has sought direction under section 144A from the Joint CIT, Range-3(3), Surat, for not making the proposed addition. The Joint CIT, Range-3(3), Surat against vide order dated 01.03.2016 issued directions, the relevant part of direction of extract of Joint CIT, Range-3(3), Surat is extracted in para 4.2 of the assessment order. 5. In the direction of the Joint CIT, Range-3(3), Surat had mentioned that main ground of assessee is that there is no debit balance at all after consolidating the loan and trading account of the assessee. The assessee has relied on judgment of Ahmedabad Tribunal in case of Sh. Chunilal Hirabhai Gajera in ITA No.1497/Ahd/2012. The reliance placed by assessee on the judgment is not applicable on the fact of the case. The contention of the assessee that consolidated account should be taken into consideration is not acceptable. The trade account maintained by the assessee with the company is not a loan account and the Assessing Officer is directed to take into account only account for the purpose of section 2(22)(e). The second ground of assessee is with regard to the restricting the addition to the extent of accumulated profit. The accumulated profits in sub-clauses 4 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani (a)(b)(d) and (e) of section 2(22) shall include all profits of the company up to the date of dividend distribution or payment referred to in those sub-clauses and in sub-clause (c) it shall include all profits of the company up to the date of liquidation. Therefore, as per law, accumulated profit on the date of loan is to be considered. The Assessing Officer was directed to conclude the assessment according to the law keeping in view the interest of revenue. 6. The Assessing Officer on receipt of direction under section 144A from Range head, issued show cause notice dated 03.02.2016 as to why accumulated profit and surplus profit of Rs. 1.12 Crore should not be treated as deemed dividend under section 2(22)(e). The contents of show cause notice is recorded in para 4.3 of assessment order. The Assessing Officer in the said show cause notice mentioned that as per provision of section 2(22)(e) of the Act, the payment made by a company can be treated to be deemed dividend only to the extent of accumulated profits/reserved and surpluses possessed by the company. The accumulated profits up to the date of loan i.e. on 28.03.2013 worked out to Rs. 40,52,528/- on pro-rata basis and balance of securities premium of Rs. 72,00,000/-. Therefore, the assessee was asked as to show cause as to why the accumulated/reserved and surpluses profit of 5 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani Rs. 1,12,52,528/- (Rs. 40,52,528/ + Rs. 72,00,000/-) on the date of loan should not be treated as deemed dividend under section 2(22)(e) of the Act. 7. The assessee filed her reply dated 10.03.2016. In the reply the assessee stated that the proposal to add security premium, the issue is already stated that it is not part of accumulated profits. In fact, share premium gets boosted by capital receipts and that is nothing to do with profits at all. Therefore, it has to be excluded. As per decision of Tribunal in case of MAIPO India Ltd (9-DTR-55), amount representing share premium cannot form part of accumulated profits and therefore, loans and advances out of that would not be treated as deemed dividend u/s 2(22)(e) of the Act. On the accumulated profit, the assessee submitted that this issue is also decided by Vishakhapatnam Tribunal in case of P. Satya Prasad (141-ITD-403). 8. The submission of assessee was not accepted by Assessing Officer. The Assessing Officer held that the exception under section 2(22)(e) sub clause (ii) is not applicable any way to the case of the assessee. There is contradiction in the submission of the assessee. The monies advanced to the assessee are not in the natural course of the business and in no way, the assessee is not in the business of money lending as substantial part of his the 6 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani business. The case laws quoted are in no way connected to the case of assessee; the assessee is trying to divert the attention from the main issue. The fine distinction between the loan advanced or deposit is of no consequence here, as the character of the transaction has already been established. The Assessing Officer accordingly made addition of Rs. 1,12,52,528/- under section 2(22)(e) of the Act. 9. Aggrieved by the additions, the assessee filed before CIT(A) and its detail submissions. The submission of assessee are duly recorded by Ld. CIT(A) in para 7.1 of its order. “7.1 The only issue of contention here is addition of Rs. 1,12,52,528/- u/s 2(22)(e) of the IT Act as ‘deemed dividend’ The appellant holds share at 22.22% in the company called M/s Subham Buildmart P Ltd. Admittedly, the appellant was having two accounts with the said company; one is a loan account a/c wherein appellant has received loan to the extent of Rs. 1,58,20,000/- whereas another account is a Trade a/c of appellant’s proprietary concern, in which the appellant has credit balance of Rs. 5,36,20,634/-. The ld Assessing Officer proposed to add the loan amount received by the appellant u/s 2(22)(e). The appellant approached the Jt. Commissioner of Income Tax u/s 144A of the Act. The Jt. CIT after detailed discussion held that, the decision of the jurisdictional ITAT in the case of Shri Chunilal Haribhai Gajera relied upon by the appellant is distinguishable on facts. The Jt. Commissioner concluded that the trade account in the present case cannot be clubbed with loan account. He rejected the request of the appellant that a consolidated view of both accounts should be taken. The Jt. Commissioner further directed the ld. Assessing Officer to limit the addition to the accumulated profit of the company. The ld. Assessing Officer in compliance to this directions, made the said 7 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani addition, however, while calculating accumulated profits, the ld. Assessing Officer calculated accumulated profit of the company by including share premium account, as well.” 10. The assessee in sum and substance submitted that the assessee holds shares at 22.22% in the share holding in case of Shubham Buildmart P. Ltd. The assessee is having a current account of its proprietary business Subham Associate with the company and there are several debits and credits in that account. The Assessing Officer works out the maximum debit of Rs. 1,13,69,998/- and held it to be advanced under section 2(22)(e) of the Act. During the year, there has been credit balance for various periods. Besides peak balance in this accounts is only Rs. 39,95,000/- How figure of Rs. 11,52,528/- is worked out is not clear. The assessee has also another account with the company which is in the nature of trading account and there is consistent credit balance. Copy of that account was furnished. The assessee stated that the consolidated account of both is also enclosed which shows that at no point of time, there was debit balance of the assessee. In fact, it is that company’s account in books of assessee which had remained in debit account throughout. 11. The assessee specifically stated that exclusion of share premium account can never be recorded as accumulated profit. The assessee also referred the decision of Supreme Court in case of 8 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani E.D. Sassoon & Commission. Ltd. (26-ITR-27) has clearly held that profits do not accrue from day to day. In fact, they get fructified at the end of the year only. Therefore, without prejudice to the earlier contentions, whatever amount is required to be referred to should be opening balance as on 01.04.2012 i.e. Rs. 13,52,095/-. Against as held by Pune Tribunal in case of Keval Kumar Jain (144-ITD- 672) held that addition has to be made, it has to be restricted to such percentage of accumulated profits as corresponds to assessee’s shareholding in company. Since assessee’s shareholding is 22.22% the amount that can be added would be 22.22% which comes to Rs. 3,00,435/-. The contention of assessee viz. account being current account and not an advance account as contemplated u/s 2(22)(e) of the Act; exclusion of share premium account; taking opening balance in profit and loss account and taking proportion of that amount as per shareholding of the assessee have neither been considered by the Additional Commissioner of Income-tax nor by the Assessing Officer. The ld. CIT(A) after considering that Assessing Officer, submission of the assessee partly upheld the addition u/s 2(22)(e) of the Act by taking view that assessee made similar contention before the assessee has two account with company one is trading account and another loan account. Thus, he agrees with the interpretation the Jt. CIT under section 144A of the Act. The loan account cannot 9 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani be clubbed with trade account clearly provides for addition to the extent of accumulated profit. The meaning of the word accumulated profit is the profit which otherwise would be available for distribution as dividend. The share premium reserve cannot be used for distribution of dividend as per Companies Act and so the same cannot be included in calculating accumulated profits for the purposes of Section 2(22)(e). The accumulated profit as on the starting of the year i.e. 01.04.2012 needs to be considered for the purpose of section 2(22)(e). The ld. CIT(A) find it accumulated profit of the assessee as on 01.04.2012 is at Rs. 13,52,095/-. The Assessing Officer is directed to restrict the addition to the extent of Rs. 13,52,095/- thereby granted partly relief. Further aggrieved, the assessee has filed present appeal before this tribunal. 12. We have heard both the submissions of Learned Authorized Representative (ld. AR) for the assessee and Learned Senior Departmental Representative (ld. Sr DR) for the Revenue and have gone through the order of lower authorities. At the outset of hearing, the ld. AR of the assessee submits that he is not pressing ground No. 3 has dismissed as not pressed. Considering the submissions of ld AR for the assessee, ground No.3 of the appeal is dismissed as not pressed. 10 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani 13. Ground No. 1 to 2 relate to addition of Rs.13,52,095/- under section 2(22)(e) of the Act. The ld AR for the assessee submits that the assessing officer made addition of Rs. 1.22 Crore under section 2(22)(e) of the Act. The addition made by assessing officer was unwarranted in absence of any net debit balance in view of the decision of Gujarat High Court in Chunilal H Gajera (Tax Appeal No. 84 of 2014) and Vasant Lal Gajera. The ld CIT(A) restricted the addition to the extent of Rs. 13,52,095/-, thus, the relief claimed in the appeal is only to that extent. The ld. AR for the assessee submits that the assessee has multiple ledger account, even if such accounts are of different nature, the balance of the assessee in the books of the assessee company remains in credit. Thus, no addition can be made under section 2(22)(e).To buttress his submissions the ld AR for the assessee relied on the following decisions;  Chunilal Harbhai Gajera (ITA No. 1497/Ahd/2012)  Vasantbhai Haribhai Gajera (ITA No. 1730 /Ahd/2011),  Anil Kumar Aggarwal ( 132 ITD 314 Mum Tribunal) and  Smt C Rajini of Chennai Tribunal (58 DTR 554). 14. In alternative submissions the ld AR for the assessee submits that the account of the basis of which the assessing officer proposed addition was in the nature of current account, which is evident from the frequency of the transaction. There was no one off loan 11 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani that was given to the assessee nor have any funds of the company been divested; what exists is a current account which keeps fluctuating as per requirement of the funds. The fluctuating balances correlates to requirement that arise in the ordinary course of business and hence cannot be treated as deemed dividend under section 2(22)(e). to support his submissions the ld AR for the assessee relied on the following decisions;  Suraj Dev Dada (367 ITR 78 P& H)’  India Funds Ltd (53 taxmann.com 307 (AP)’  Ishwar Chand Jindal (17 TTJ 436 (Delhi Trib). 15. In other alternative and without prejudice submissions the ld AR for the assessee submits that even if additions is to be made , it has to be restricted to such to the accumulated profit as corresponding to the assessee’s shareholding. The assessee has shareholding of 22.22%, the amount which can be added would be Rs. 3,00435/-. 16. On the other hand the ld Sr Dr for the revenue supported the order of ld CIT(A). The ld DR for the revenue submits that the assessee received loan from Private Limited Company, Subham Buildmart Pvt Ltd, in which the assessee ha 22.22% shareholding. However, the assessee has put forth certain trading account with the same company and has claimed computation of consolidated 12 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani balances shows a credit balance with the company and therefore claimed that there is no addition of deemed dividend can be made. And claimed that there is debit balance. The ld DR for the revenue submits that from the record of assessment it appears that such trading account with the company was never produced before assessing officer for examination of its genuineness and determination of consolidated balances. 17. The ld DR for the revenue further submits that consolidation of multiple accounts are vague and unsupported assertion. The case laws relied by the assessee are not applicable on the facts of the present case as trading account with the company has not been established in regards to genuineness of the transactions. The sources of item and the purchase require verification. It was further argued that the deemed dividend is a payment of capital account and revenue account cannot be clubbed with capital account. The ld CIT(A) reduced the accumulated profit of Rs. 40,52,528/- on the date of loan as on 28.03.3013 to Rs. 13,52,095/- on whims and fences and without basis. 18. In the rejoinder submissions the ld AR of the assessee submits that during the assessment proceedings, consolidated working of accounts were submitted to the Assessing officer vide letter dated 19/01/2016. The ledgers were also submitted to the Additional 13 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani Commissioner/Joint Commissioner/Range Head vide letter dated 03/02/2016. The Joint Commissioner/Range Head examined the document submitted before him and also seen legal aspect explained by the assessee and he took a conscious view to disallow the consolidation vide his order dated 01/03/2016 as appreciated by the ld. CIT(A) in his appellate order. The ld. AR further explained that as per paper book index, all accounts and consolidated working had also been filed before the ld. CIT(A) alongwith submission. In other alternative submission, the ld. AR submits that the ledger belongs to company were audited by the auditors. Consolidation has been done as per binding decision of Hon'ble Gujarat High Court. 19. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. We have also deliberated on the various case laws relied by the ld AR for the assessee and by the lower authorities. The Assessing Officer made the addition of Rs. 1.12 crore under Section 2(22)(e) of the Act by taking as view that the accumulative profit up to the date of loan on 28/03/2013 was Rs. 4052528/- and on pro rata basis the balance of security premium was of Rs. 72.00 lacs. The Ld. CIT(A). CIT(A) restricted the addition to the extent of Rs. 13,52,095/- by holding that accumulated profit as on starting of the year i.e. on 14 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani 01/4/2012 needs to be considered for the purpose of Section 2(22)(e). Before us, the Ld. CIT(A) A.R. for the assessee vehemently submitted that the assessee has multiple ledger account, even if such accounts are of different nature, the balance of the assessee in the books of the assessee company remains in credit and no addition can be made under section 2(22)(e). It was also urged that the account of the basis of which the assessing officer proposed addition was in the nature of current account, which is evident from the frequency of the transaction. There was no one off loan that was given to the assessee nor have any funds of the company been divested; what exists is a current account which keeps fluctuating as per requirement of the funds. The fluctuating balances correlates to requirement that arise in the ordinary course of business and hence cannot be treated as deemed dividend under section 2(22)(e). We find that the case of the assessee throughout the proceedings is that the appellant was having two accounts with the said company; one is a loan account wherein appellant has received loan to the extent of Rs. 1,58,20,000/- whereas another account is a Trade account of appellant’s proprietary concern, in which the appellant has credit balance of Rs. 5,36,20,634/-. The details of both the accounts were furnished to the Range head during the proceedings under 15 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani section 144A and to the Ld. CIT(A) at the time of first appellate stage. 20. We find that Hon'ble Punjab & High Court in the case of CIT Vs Suraj Devi Dada 367 ITR 78 (P&H) held that where assessee had running current account with a company and it had been advancing money to it for business purposes, and had not gained any benefit from funds of company, and there was credit period only for 55 days, said credit in account could not be treated as deemed dividend under Section 2(22)(e) in the hands of assessee. 21. We further find that Hon'ble Andhra Pradesh High Court in India Fruits (supra) held where subsidiary company was advancing money to assessee company for purchase of raw material and to make payments to a company to meet their business liabilities, said amount could not be considered as deemed dividend income of assessee company within purview of Section 2(22)(e). 22. The Coordinate Bench of Delhi Tribunal in Iswar Chand Jindal (supra) held that nomenclature cannot be a basis to conclude that business transactions between two entities constitute deemed dividend under Section 2(22)(e), therefore, current account transactions between two group companies which were business/commercial transactions could not be regarded as deemed dividend under Section 2(22)(e). 16 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani 23. Thus in view of the aforesaid factual and legal discussion, we find that merits in the submissions of the Ld. AR of the assessee no funds of the company is divested; there exists a current account which keeps fluctuating as per requirement of the funds that arise in the ordinary course of business and hence cannot be treated as deemed dividend under section 2(22)(e) 24. So far as the objection of the Ld. DR for the revenue is concern that from the record of assessment it appears that such trading account with the company was never produced before assessing officer for examination of its genuineness and determination of consolidated balances, is factually wrong. The assessee filed all the details of both the accounts which were examined by the JCIT as well as by Ld. CIT(A), which is clearly evident in para 7.2 form the order of Ld. CIT(A). The other contention of the Ld. DR for the revenue that the Ld. CIT(A) reduced the accumulated profit of Rs. 40,52,528/- on the date of loan as on 28.03.3013 to Rs. 13,52,095/- on whims and fences and without basis is absolutely baseless as this appeal is filed by the assessee, if the Ld. DR for the revenue has any grievances against the finding, he should have file cross objection or cross appeal against the finding in the impugned order. Thus, the assessee succeeded on primary submissions of Ld. AR of the assessee. hence, ground No. 1& 2 of 17 ITA No. 54/SRT/2017/AY.2013-14 Kankuben Karshanbhai Tejani the appeal is allowed. Considering the facts that we have allowed the grounds No. 1&2 on the primary submissions, therefore, adjudication on other alternative submissions have become academic. 25. In the result, the appeal of the assessee is allowed. Order pronounced on 27/05/2022, in open court and the result was also placed on notice board. Sd/- Sd/- (Dr. A. L. SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 2705/2022 Self/ Ranjan Sr PS Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order Asstt. Registrar/Sr. PS/PS ITAT, Surat