ITO,Ward-1(1), Kolkata, Kolkata V. Dhiman Mitra, Kolkata

ITA 564/KOL/2012

• Counselvise Citation: 56423514 RSA 2012
• Duration Of Justice: 3 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 11-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Deemed dividend

Judgement Text

I.T.A. NO S . 564 & 565 / KOL ./20 1 2 ASSESSMENT YEAR S 200 6 - 200 7 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.K. BANSAL , ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH , JUDICIAL MEMBER I.T.A. NO. 564 / KOL / 20 1 2 ASSESSMENT YEAR : 200 6 - 200 7 INCOME TAX OFFICER,.............................. , .... ... ............. ... .. .APP ELL ANT WARD - 1(1), KOLKATA, ROOM NO. 5, AAYAKAR BHAWAN, P - 7, CHOWRINGHEE SQUARE, KOLKATA - 700 069 - VS. - DHIMAN MITRA,.................................... ................... . RESPONDENT 46A, PURNA MITRA PLACE, KOLKATA - 700 0 33 [PAN : A FBPM 4047 H ] & I.T.A. NO. 565 / KOL / 20 12 ASSESSMENT YEAR : 2006 - 2007 INCOME TAX OFFICER,..............................,.................... ..... .APP ELL ANT WARD - 1(1), KOLKATA, ROOM NO. 5, AAYAKAR BHAWAN, P - 7, CHOWRINGHEE SQUARE, K OLKATA - 700 069 - VS. - RAJIV KR. BAGCHI,.................................................... . RESPONDENT FLAT NO. IC. 18B, PRINCE ANWAR SHAH ROAD, KOLKATA - 700 033 [PAN : AEGPB 3030 H] APPEARANCES BY: SHRI KANHIYA LAL KANAK, JCIT, SR. D.R., FOR TH E DEPARTMENT SHRI INDRANIL BANERJEE , FCA , FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : MAY 19 , 2 01 5 DATE OF PRONOUNCING THE ORDER : MAY 21 , 201 5 O R D E R PER P.K. BANSAL : BOTH THE S E APPEAL S ALTHOUGH FILED AGAINST THE RESPECTIVE ORDER OF LD. C OMMISSIONER OF I NCOME T AX (APPEALS) - I, KOLKATA DATED 05.01.2012, BUT I.T.A. NO S . 564 & 565 / KOL ./20 1 2 ASSESSMENT YEAR S 200 6 - 200 7 PAGE 2 OF 4 SINCE THE GROUND TAKEN IN BOTH THE APPEALS IS COMMON, WE, THEREFORE, DECIDED TO DISPOSE OF BOTH THESE APPEALS BY THIS COMMON ORDER. 2. BOTH THE PARTIES AGREED THAT BOTH THESE APPEA LS BE DECIDED ON THE BASIS OF THE FACTS INVOLVED IN THE CASE OF SHRI RAJIV KUMAR BAGCHI IN ITA NO. 565/KOL/2012. WE ACCORDINGLY DISPOSE OF BOTH THESE APPEALS ON THE BASIS OF THE FACTS INVOLVED IN THE CASE OF SHRI RAJIV KUMAR BAGCHI. 3. THE COMMON GROUND TAKEN IN BOTH THE APPEALS READS AS UNDER: - THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN RESTRICTING THE DEEMED DIVIDEND U/S.2(22)(E) UP TO RS.3.13 LACS IN SPITE OF THE FACTS THAT LOAN RECEIVED DURING THE YEAR WAS RS.27,18,639/ - AND ACCUMULATED PROFIT AS ON 31.03.2006 WAS RS.27.59 LACS . 4. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS TAKEN A LOAN OF RS.27,18,639/ - FROM M/S. DEVCON SYSTEMS PROJECTS PVT. LTD. DURING THE IMPUGNED ASSESSMENT YEAR. THE ASSESSING OFFICER, THEREFORE , TREATED THE SAID SUM AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT AS THE ASSESSEE WAS A DIRECTOR HAVING 40% SHARE HOLDING IN THE SAID COMPANY. THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(APPEALS). LD. CIT(APPEALS) REDUCED THE ADDITION TO RS.3 .13 LAKHS. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE NOTED THAT THE ASSESSEE IS HAVING A NET ACCUMULATED PROFIT AT RS.23.83 LAKHS AS ON 31.03.2005, WHILE AS ON 31.03.2006 AT RS.26.96 LAKHS. THE ASSESSEE REDUCED THE ADVANCE MADE TO HIM BY THE COMPANY TILL 31.03.2005 AMOUNTING TO RS.21.23 LAKHS AND, THEREFORE, ARGUED THAT IT IS ONLY A SUM OF RS.2.60 LAKHS, WHICH COULD HAVE BEEN ADDED THAT REPRESENTS THE NET ACCUMULATED PROFI T. IN VIEW OF THE PROVISIONS OF SECTION 2(22)(E), IT IS APPARENT THAT ANY PAYMENT BY A COMPANY HAS TO BE TREATED AS DEEMED DIVIDEND ONLY TO THE EXTENT TO WHICH THE COMPANY IN CASE POSSESSES ACCUMULATED PROFITS. NOW THE QUESTION IN THIS CASE IT IS NOT DENIE D THAT I.T.A. NO S . 564 & 565 / KOL ./20 1 2 ASSESSMENT YEAR S 200 6 - 200 7 PAGE 3 OF 4 THE ASSESSEE WAS HAVING ACCUMULATED PROFIT AS ON 31.03.2005 AND SUCH PROFIT WAS RS.23.83 LAKHS, BUT THE ONLY ISSUE ARISES WHETHER THE ADVANCE WHICH HAS ALREADY BEEN MADE TO THE ASSESSEE BY THE COMPANY CAN BE DEDUCTED OUT OF THE ACCUMULATED PROFIT AN D ONLY THE NET ACCUMULATED PROFIT AFTER DEDUCTING THE ADVANCE WHICH HAS ALREADY BEEN DEEMED AS DIVIDEND CAN BE TREATED TO BE THE DEEMED DIVIDEND , IN CASE THE LOAN AND ADVANCES GIVEN BY THE ASSESSEE TO THE REGISTERED SHAREHOLDERS EXCEED THE ACCUMULATED PROF IT. THE ISSUE INVOLVED IS DULY COVERED BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. - G. NARASIMHAN REPORTED IN 236 ITR 327 (SC), IN WHICH THE HON BLE SUPREME COURT HELD AS UNDER: - THEREFORE, WHEN A LOAN BY A COMPANY TO A SHAREHOLDER IN THE MANNER SET OUT IN SECTION 2(22)(E) IS TREATED AS A DEEMED DIVIDEND, IT IS TO BE TREATED AS PAYMENT OUT OF THE ACCUMULATED PROFIT PROFITS OF THE COMPANY. ANY LEGAL FICTION WILL, THEREFORE, HAVE TO BE CARRIED TO ITS LOGICAL CONCLUSION. IF THE PAYMENT UNDER SECTION 2(22)(E) IS TREATED AS A DEEMED DIVIDEND AND IS REQUIRED TO BE SO TREATED TO THE EXTENT THAT THE COMPANY POSSESSES ACCUMULATED PROFITS, THE LOG I C AL CONCLUSION IS THAT THIS PAYMENT MUST BE CONSIDERED AS ADJUSTED AGAINST THE COMPANY S ACCUMULA TED PROFITS TO THE EXTENT THAT IT IS TREATED AS DEEMED DIVIDEND WHILE CALCULATING ACCUMULATED PROFITS OF THE COMPANY ARE REQUIRED TO BE DETERMINED SUCH AN ADJUSTMENT WILL HAVE TO BE MADE. THE HIGH COURT, WAS, THEREFORE, RIGHT IN COMING TO THE CONCLUSION T HAT WHEN SECTION 2(22)(E) IS READ WITH THE LANGUAGE OF SECTION 194, WHICH PROVIDES FOR DEDUCTION OF TAX OF SUCH DIVIDEND , AS ALSO THE STATUTORY RESTRICTION UNDER THE COMPANIES ACT ON PAYMENT OF DIVIDEND OUT OF ANY CAPITAL ASSETS, IT WOULD BE REASONABLE T O COME TO THE CONCLUSION THAT THE SUM OF RS.64,517/ - MUST BE TAKEN TO HAVE COME OUT OF THE ACCUMULATED PROFITS. IT MUST, THEREFORE, BE TREATED AS DIVIDEND FOR ALL PURPOSES, AND WOULD GO TO REDUCE THE ACCUMULATED PROFITS OF THE COMPANY WHETHER CAPITALISED O R NOT WHENEVER SUCH ACCUMULATED PROFITS ARE REQUIRED TO BE DETERMINED. QUESTION NO. 1 IS, THEREFORE, ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE . 6. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT, IN OUR OPINION, THE ISSUE RAISED IN THIS APPEAL IS NO MORE RES - INTEGRA AND, THEREFORE, W HILE COMPUTING THE ACCUMULA TED PROFIT , T HE ASSESSING OFFICER IS BOUND TO REDUCE THE LOAN WHICH CAN BE TREATED AS DIVIDEND WHILE CALCULATING THE ACCUMULATED PROFIT. IN THE INSTANT CASE, SINCE AS ON I.T.A. NO S . 564 & 565 / KOL ./20 1 2 ASSESSMENT YEAR S 200 6 - 200 7 PAGE 4 OF 4 31.03.2005 THE ACCUMULATED PROFIT WAS RS.23.83 LAKHS, BUT THE COMPANY HAS ALREADY ADVANCED A SUM OF RS.21.23 LAKHS WHICH WOULD HAVE BEEN TREATED AS DEEMED DIVIDEND AS ON 31.03.2005, THEREFORE, THE SUM OF RS.21.23 LAKHS HAS TO BE REDUCED WHILE COMPUTING THE DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME TAX ACT. THE DEEMED DIVIDEND, THEREFORE, WOULD HAVE COME TO RS.2.60 LAKHS. SINCE THE ASSESSEE HAS NOT COME IN APPEAL NEITHER IN C.O. BEFORE US, WE SUSTAIN THE ORDER OF THE LD. CIT(APPEALS) REDUCING THE DEEMED DIVIDEND TO RS.3.13 LAKHS. WE, THEREFORE, CONFIRM THE ORDER OF LD. CIT(APPEALS). 7 . I N THE RESULT, BOTH THE APPEAL S FILED BY THE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MAY , 201 5 . SD/ - SD/ - MAHAVIR SINGH P.K. BANSAL ( JUDICIAL MEMBER) ( ACCOUNTANT MEMBER) KOLKATA, THE 21 ST D AY OF MAY , 201 5 COPIES TO : (1) INCOME TAX OFFICER, WARD - 1(1), KOLKATA, ROOM NO. 5, AAYAKAR BHAWAN, P - 7, CHOWRINGHEE SQUARE, KOLKATA - 700 069 (2) DHIMAN MITRA, 46A, PURNA MITRA PLACE, KOLKATA - 700 033 (3) RAJIV KR. BAGCHI, FLAT NO. IC. 18B, PRINCE ANWAR SHAH ROAD, KOLKATA - 700 033 ( 4 ) COMMISSIONER OF INCOME - TAX (APPEALS) ( 5 ) COMMISSIONER OF INCOME TAX ( 6 ) THE DEPARTMENTAL REPRESENTATIV E ( 7 ) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA B ENCHES, KOLKATA LAHA/SR. P.S .