Bithal Das Daga, Kolkata V. DCIT, CIR-8, KOLKATA, Kolkata

ITA 540/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1769 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 07-06-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 29-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V N DATTA
• Keywords: Deemed to accrue or arise in india; Deemed dividend; Assessment record
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENCH KOLKATA BEFORE SHRI S. S. VIWANETHRA RAVI, JM &DR. A.L.SAINI, AM ./ ITA NO.540 & 541/KOL/2016 ( / ASSESSMENT YEAR: 2006-07 BITHAL DAS DAGA 1/3, ANANDA NEOGI LANE, KOLKATA 700003. VS. D.C.I.T., CIRCLE 8, KOLKATA ./ ./PAN/GIR NO. : ADPPD 8586N ( /APPELLANT ) .. ( / RESPONDENT ) /APPELLANT BY : SHRI V. N. DATTA, ADVOCATE. /RESPONDENT BY : BISWANATH DAS, ADDL. JCIT / DATE OF HEARING : 06/07/2017 /DATE OF PRONOUNCEMENT : 11/08/2017 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED TWO APPEALS FILED BY THE ASSESSEE PERTAINING TO ASSESSMENT YEARS 2006-07 & 2007-08, ARE DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS), KOLKATA, WHICH IN TURN ARISE OUT OF ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 147/143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE SAID ACT), DATED 31.12.2010. 2. SINCE, THESE TWO APPEALS RELATE TO SAME ASSESSEE, DIFFERENT ASSESSMENT YEARS, COMMON ISSUES INVOLVED, THEREFORE THESE HAVE BITHAL DAS DAGA I.T.A NO.540 & 541/KOL/2016 A.Y. 2006-07 & 2007-08 PAGE | 2 BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF BREVITY AND CONVENIENCE. THE ASSESSEES APPEAL IN I.T.A. NO.540/KOL/2016, A.Y.2006-07, IS TAKEN AS A LEAD CASE. 3. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEALS: 1. IN THAT THE IMPUGNED ASSESSMENT ORDER AND APPEAL ORDER ARE AGAINST LAW, EQUITY, EVIDENCE AND JUSTICE AS ALSO AGAINST THE FACT AND CIRCUMSTANCES OF THE CASE. 2. IN THAT THE LD. ASSESSING OFFICER WAS UNJUSTIFIED IN MAKING ADDITION OF RS.208869/- TO INCOME OF YOUR APPELLANT AND THE LD. CLT(APPEALS) WAS UNJUSTIFIED IN CONFIRMING THE AFORESAID ADDITION. 3. IN THAT THE BOTH LD. ASSESSING OFFICER AND THE LD. CLT(APPEALS) WERE UNJUSTIFIED IN TREATING RUNNING CURRENT ACCOUNT AS LOAN WITH M/S. ESSKYDEE TRADERS PVT. LTD DESPITE ADMITTING THE FACT OF RUNNING ACCOUNT FOR THE ASSESSMENT YEAR: 2006-07. 4. IN THAT THE BOTH LD. ASSESSING OFFICER AND THE LD. CLT(APPEALS) WERE UNJUSTIFIED IN TREATING RUNNING CURRENT ACCOUNT OF YOUR HONOURS APPELLATE WITH M/S. ESSKYDEE TRADERS PVT LTD. AS LOAN IN CAPACITY OF SHAREHOLDER, NOT IN CAPACITY OF EMPLOYEE. 5. IN THAT THE LD. ASSESSING OFFICER WAS WRONG INVOKING SECTION 2(22)(E) TREATING CREDIT IN ACCOUNT OF THE APPELLATE AS DEEMED INCOME AND THE CLT(APPEALS) WAS WRONG IN CONFIRMING INVOKING SEC 2(22)(E) OF INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR: 2006-07. 6. IN THAT WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT CRAVES LEAVE ADD/ALTER/AMEND ANY OTHER GROUND/GROUNDS ON OR BEFORE THE HEARING OF APPEAL AND TO ADD FURTHER ELUCIDATION TO ANY OR ALL THE GROUNDS WHICH MAY BE SUBMITTED ON OR BEFORE THE HEARING OF THE APPEAL. 4. ALTHOUGH, IN THIS APPEAL, THE ASSESSEE HAS RAISED A MULTIPLE GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING THE MAIN BITHAL DAS DAGA I.T.A NO.540 & 541/KOL/2016 A.Y. 2006-07 & 2007-08 PAGE | 3 GRIEVANCE OF THE ASSESSEE HAS BEEN CONFINED TO THE ISSUE THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS. 2,08,869/-, ON ACCOUNT OF DEEMED DIVIDEND BY INVOKING PROVISIONS OF SECTION 2(22) (E) OF THE ACT. 4.1 THE B RIEF FACTS OF THE CASE, QUA THE ISSUE, ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME ON 13 TH NOVEMBER 2006, SHOWING TOTAL INCOME OF RS.97,256/- FOR A.Y 2006-07. THE RETURN OF INCOME WAS DULY PROCESSED U/S 143(1) OF THE INCOME TAX ACT 1961. SUBSEQUENTLY, NOTICE U/S 148 OF THE ACT, WAS ISSUED ON THE ASSESSEE ON 6 TH NOVEMBER 2009. IN RESPONSE TO THE NOTICE U/S 148, THE ASSESSEE REQUESTED THE AO TO TREAT ITS ORIGINAL RETURN OF INCOME FILED U/S139 ON 13 TH NOVEMBER 2006, AS HIS RETURN OF INCOME IN PURSUANCE OF THE NOTICE U/S 148 OF THE ACT. ON EXAMINATION OF THE ASSESSMENT RECORDS, IT WAS FOUND THAT MR. BITHAL DAS DAGA WAS HAVING 32.14% SHARE HOLDING WITH A COMPANY NAMED M/S. ESSKYDEE TRADERS PVT. LTD. IT WAS OBSERVED BY THE AO THAT M/S. ESSKYDEE TRADERS PVT. LTD. IS IN BUSINESS OF RUNNING OF A HOTEL AND EARNING OF RENTAL INCOME. THE ACCUMULATED PROFIT OF THE SAID ESSKYDEE TRADERS PVT. LTD. AS ON 31 ST MARCH 2007 WAS RS.13,16,431/-. THE A.O OBSERVED THAT FROM THE LEDGER OF BITHAL DAS DAGA FOR F.Y 2005-06 IN THE BOOKS OF ESSKYDEE BITHAL DAS DAGA I.T.A NO.540 & 541/KOL/2016 A.Y. 2006-07 & 2007-08 PAGE | 4 TRADERS PVT. LTD., IT WAS SEEN THAT ESSKYDEE TRADERS PVT. LTD. HAD GIVEN LOAN TO M/S. BITHAL DAS DAGA. THE SAID LOAN RECEIVED BY BITHAL DAS DAGGA HAS BEEN TREATED AS DEEMED DIVIDEND BY THE A.O IN THE HANDS OF THE ASSESSEE, AS PER PROVISION OF SECTION 2(22)(E) OF INCOME TAX ACT, 1961. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE REPLIED TO THE A.O THAT THE SAID AMOUNT WAS ADVANCED FOR PURCHASE OF LAND, THEREFORE, IT SHOULD NOT BE TREATED AS DEEMED DIVIDEND. THE A.O FROM THE LEDGER ACCOUNT FOUND THAT RS.2,08,869/- WAS DEEMED DIVIDEND INCOME AS PER SECTION 2(22)(E) OF INCOME TAX ACT, 1961. THE A.O DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND ADDED A SUM OF RS.2,08,869/- AS DEEMED DIVIDEND INCOME IN THE HANDS OF THE ASSESSEE U/S 2(22)(E) OF THE ACT. 4.2. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ADDITION OF RS.2,08,869/- MADE BY THE A.O. THE LD. CIT(A) OBSERVED THAT ASSESSEE IS A 32.14% SHARE-HOLDER OF A COMPANY, M/S. ESSKYDEE TRADERS PVT. LTD.. THE A.O FOUND DURING THE ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD RECEIVED LOAN OF RS.2,08,869/- IN A.Y 2006-07 AND RS.1,35,000/- IN A.Y 2007-08 FROM THE SAID COMPANY, WHICH A.O ADDED AS DEEMED DIVIDEND U/S. 2(2)(E) OF THE BITHAL DAS DAGA I.T.A NO.540 & 541/KOL/2016 A.Y. 2006-07 & 2007-08 PAGE | 5 ACT. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT THE ASSESSEE WAS MAINTAINING A CURRENT ACCOUNT WITH THE COMPANY AND IT JUST SO HAPPENED THAT THE ASSESSEE HAD CREDIT BALANCE IN THIS ACCOUNT ON A PARTICULAR DATE. THE ASSESSEE ALSO SUBMITTED BEFORE THE LD. CIT(A) THAT THE MONEY WAS GIVEN TO THE DIRECTOR OF THE COMPANY FOR BUSINESS PURPOSES. THEREFORE, THE SAME IS NOT COVERED BY SECTION 2(22)(E) OF THE ACT. THE LD. CIT(A) OBSERVED THAT IT WAS CLEAR FROM THE PERUSAL OF LEDGER ACCOUNT THAT IT IS IN THE NATURE OF RUNNING ACCOUNT, THAT IS THE ASSESSEE USED TO MAINTAIN A RUNNING ACCOUNT WITH THE COMPANY. BUT THE LD. CIT(A) OBSERVED THAT VARIOUS DEBITS AND CREDITS ENTRIES IN THIS CURRENT ACCOUNT COULD NOT BE LINKED WITH ANY BUSINESS ACTIVITIES. BESIDES, THE ASSESSEE ALSO FAILED TO PROVE HIS CONTENTION BECAUSE THE ASSESSEE DID NOT PRODUCE ANY DOCUMENTARY EVIDENCE. HOWEVER, THE ASSESSEE ALSO SUBMITTED, BEFORE THE CIT(A), VARIOUS CASE LAWS EXPLAINING THAT IF THERE IS A CURRENT ACCOUNT AND THE NATURE OF TRANSACTION IS LINKED WITH THE BUSINESS ACTIVITY OF THE ASSESSEE, THEN SECTION 2(22)(E) WILL NOT BE ATTRACTED. BUT THE LD. CIT(A) HELD THAT SINCE ASSESSEE DID NOT PRODUCE ANY EVIDENCE TO PROVE THAT THE ENTRIES ARE LINKED WITH THE BUSINESS OF THE COMPANY THEREFORE, HE CONFIRMED THE ADDITION OF BITHAL DAS DAGA I.T.A NO.540 & 541/KOL/2016 A.Y. 2006-07 & 2007-08 PAGE | 6 RS.2,08,869/- IN A.Y 2006-07 AND RS.1,35,000/- RELATING TO A.Y 2007-08. 4.3. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE TRANSACTIONS WERE IN THE NATURE OF CURRENT ACCOUNT AND LINKED WITH THE BUSINESS ACTIVITIES. THE LD. COUNSEL HAS SUBMITTED BEFORE US, THE LEDGER ACCOUNT WHEREIN WE OBSERVE THAT THERE ARE DEBIT AND CREDIT ENTRIES (VIDE PAPER BOOK PAGE 12) FOR THE PERIOD 1 ST APRIL 2005 TO 31 ST MARCH 2006 AND AT THE END OF THE YEAR AS ON 31 ST MARCH 2006 THERE WAS A CLOSING BALANCE OF RS.2,06,869/- WHICH HAS BEEN SQUARED UP IN THE NEXT YEAR. HE HAS ALSO EXPLAINED THE TRANSACTIONS RELATING TO A.Y 2007-08 AND PRODUCED THE LEDGER ACCOUNT BEFORE US (VIDE PAPER BOOK PAGE 10) WHEREIN WE FIND THAT THERE WERE DEBIT AND CREDIT ENTRIES DURING THE YEAR AND AT THE END OF THE YEAR AS ON 31 ST MARCH 2007 THERE IS ZERO BALANCE. THEREFORE, THE LD. COUNSEL HAS SUBMITTED THAT THE ASSESSEE USED TO WITHDRAW MONEY FOR THE PURPOSE OF BUSINESS ACTIVITY AND USED TO RE-DEPOSIT WHENEVER IT WAS NOT REQUIRED. THE LD CIT(A) FAILED TO APPRECIATE THAT COMPANY IS ALWAYS INCORPORATED FOR THE PURPOSE OF BUSINESS AND ITS TRANSACTION ARE FOR BUSINESS PURPOSE AND THE TRANSACTIONS BETWEEN COMPANY AND YOUR HONOUR'S APPELLANT INTENDED TO SMOOTHEN THE COMPANY BUSINESS. THE CURRENT ACCOUNT DOES NOT REPRESENT LOAN ACCOUNT, BUT BITHAL DAS DAGA I.T.A NO.540 & 541/KOL/2016 A.Y. 2006-07 & 2007-08 PAGE | 7 IS A CURRENT AND MUTUAL ACCOUNT. SUCH MUTUAL AND CURRENT DOES NOT WARRANT THE INVOCATION OF SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961. THE LD COUNSEL ALSO RELIED ON THE JUDGMENT OF HON`BLE INCOME TAX APPELLATE TRIBUNAL, BENCH 'A', KOLKATA IN CASE OF ITO WARD-2(2) VS SMT GAYATRI CHAKRABORTY ITA NO.151/KOL/2013. [ 45 ITR (TRIB) 197 ( ITAT-KOL], WHEREIN IT WAS HELD THAT: 'FROM THE ABOVE FACTS AND LEGAL PROPOSITION DECIDED BY HON'BLE JURISDICTIONAL HIGH COURT, IT IS CLEAR THAT SECTION 2(22)(E) OF THE ACT WAS INSERTED TO BRING WITHIN THE PURVIEW OF TAXATION THOSE AMOUNTS WHICH ARE ACTUALLY A DISTRIBUTION OF PROFITS BUT ARE DISBURSED AS A LOAN SO THAT TAX THEREON CAN BE AVOIDED. LT IS PERTINENT TO NOTE HERE THAT WHEN DIVIDENDS ARE DECLARED BY A COMPANY, IT IS SOLELY THE SHAREHOLDERS WHO BENEFIT FROM THE TRANSACTION. NO BENEFITS ACCRUE TO THE COMPANY BY WAY OF DIVIDEND DISTRIBUTION. THUS, SECTION 2(22)(E) OF THE ACT COVERS ONLY SUCH SITUATIONS, WHERE THE SHAREHOLDER ALONE BENEFITS FROM THE LOAN TRANSACTION, BECAUSE IF THE COMPANY ALSO BENEFITS FROM THE SAID TRANSACTION, IT WILL TAKE THE CHARACTER OF A COMMERCIAL TRANSACTION AND HENCE WILL NOT QUALIFY TO BE DIVIDEND. LN THE CASE OF THE ASSESSEE, BY GIVING AND TAKING FINANCIAL ASSISTANCE FROM EACH OTHER, BOTH THE ASSESSEE AND THE COMPANY WERE BENEFITED AND SUCH TRANSACTIONS BETWEEN THEM WERE NOTHING BUT COMMERCIAL TRANSACTIONS BETWEEN THEM, AND DIVIDEND ATTRIBUTABLE TO THE SHAREHOLDER IS NOTHING TO DO WITH SUCH BUSINESS TRANSACTION. FROM THE ABOVE DISCUSSIONS IT CAN BE SAID THAT SEC. 2(22)(E) OF THE ACT COVERS ONLY THOSE TRANSACTIONS WHICH BENEFIT THE SHAREHOLDER ALONE AND RESULTS IN NO BENEFIT TO THE COMPANY. ON THE OTHER HAND, IF THE TRANSACTION IS MUTUAL BY WHICH BOTH SIDES ARE BENEFITED, IT IS UNDOUBTEDLY OUTSIDE THE PURVIEW OF PROVISIONS OF SEC. 2(22)(E) OF THE ACT. FROM THE ABOVE, IT IS CLEAR THAT THE LOAN ACCOUNT DIFFERS FROM CURRENT ACCOUNT AND THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, BEING A DEEMING SECTION, CANNOT BE APPLIED TO CURRENT ACCOUNT. IN SUCH CIRCUMSTANCES, WE DELETE THE ADDITION AND THIS COMMON ISSUE OF ASSESSEE'S APPEALS IS ALLOWED.' THEREFORE, BASED ON THE PRECEDENT CITED ABOVE, THE LD COUNSEL SUBMITTED THAT ADDITION MADE BY THE LD ASSESSING OFFICER AND CONFIRMED BY LD. CIT(A) AMOUNTING TO RS.208869/- IN ASSESSMENT YEAR: 2006-07 AND RS.135000/- IN ASSESSMENT YEAR 2007-08, ARE BASED ON CONJECTURE SURMISE AND GUESS WORK, THEREFORE DESERVES TO BE DELETED. BITHAL DAS DAGA I.T.A NO.540 & 541/KOL/2016 A.Y. 2006-07 & 2007-08 PAGE | 8 4.4. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE AO, WHICH WE HAVE ALREADY NOTED AND IN OUR EARLIER PARA AND IS NOT REPEATED FOR THE SAKE OF BREVITY. 4.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE ARE OF THE VIEW THAT IN BOTH THE YEARS I.E. A.Y.2006-07, & 2007-08, THE ASSESSEE WAS IN THE CAPACITY OF MANAGING DIRECTOR OF THE SAID COMPANY AND HAD RUNNING CURRENT ACCOUNT / MUTUAL ACCOUNT. WE HAVE OBSERVED THAT THERE ARE DEPOSITS AND WITHDRAWALS IN THE SAID CURRENT ACCOUNT AND NEITHER THE AO NOR THE CIT(A) BROUGHT OUT ANY RELEVANT MATERIAL TO PROVE THAT THESE ENTRIES ARE NOT RELATED TO BUSINESS ACTIVITIES AND THE SAID CURRENT ACCOUNT DID NOT REPRESENT LOAN ACCOUNT. AS PER LEDGER ACCOUNT PRODUCED BEFORE US, IT IS A CURRENT AND MUTUAL ACCOUNT. THEREFORE, WE ARE OF THE VIEW, THAT SUCH MUTUAL AND CURRENT ACCOUNT DOES NOT WARRANT INVOCATION OF SECTION 2(22)(E) OF THE INCOME TAX ACT 1961. THEREFORE, WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) NEEDS TO BE DELETED. ACCORDINGLY, WE DELETE THE ADDITION FOR BOTH ASSESSMENT YEARS, THAT IS A.Y. 2006-07 & 2007-08. BITHAL DAS DAGA I.T.A NO.540 & 541/KOL/2016 A.Y. 2006-07 & 2007-08 PAGE | 9 4.6. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE (ITA NOS. 540 & 541/KOL/2016), ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11/08/2017. SD/- ( S. S. VIWANETHRA RAVI ) SD/- (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; DATED 11/08/2017 [RS , SR.PS] / COPY OF THE ORDER FORWARDED TO : TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/D.D.O, I.T.A.T, KOLKATA BENCHES, KOLKATA . 1. / THE APPELLANT- BITHAL DAS DAGA 2. / THE RESPONDENT.- DCIT, CIRCLE 8, KOLKATA. 3. ( ) / THE CIT(A), :KOLKATA. 4. / CIT 5. , , / DR, ITAT, KOLKATA 6. / GUARD FILE.