Pawan Satyanarayan Jalan, Ahmedabad V. The Jt.CIT.,Ranng-11, Ahmedabad

ITA 575/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62981 (ITAT-AHMEDABAD)
• Duration Of Justice: 42 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2012
• Appeal Filed By: Assessee
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Department Lawyers: T SANKAR
• Assessee Lawyers: S N DIVATIA
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 575/AHD/2010 ASSESSMENT YEARS :2006-07 PAWAN SATYANARAYAN JALAN C/O. M/S. BASANT TEXTILES 275, NEW CLOTH MARKET O/S. RAJPUR GATE, ABAD V/S . JCIT, RANGE-11, ABAD PAN NO. AAVPJ9612Q (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI S.N. DIVATIA, A.R. /BY RESPONDENT SHRI T. SANKAR, SR..D.R. /DATE OF HEARING 03.10.2012 /DATE OF PRONOUNCEMENT 05.10.2012 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WHI CH HAS EMANATED FROM THE ORDER OF CIT(A)-XVI, AHMEDABAD, ORDER DATE D 20.11.2009 FOR A.Y. 2006-07. THE EFFECTIVE GROUND OF APPEAL IS ONE AGA INST THE CONFIRMING ADDITION OF RS.3,40,474/- AS DEEMED DIVIDEND U/S.2( 22)(E) OF THE IT ACT BY THE CIT(A). ITA NO. 575/AHD/10 A.Y. 06-07 PAGE 2 2. THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSES SEE HAD RECEIVED LOAN AND ADVANCE OF RS. 13,25,000/- DURING THE YEAR FROM M/S. BASANT STORES & STOCK BROKING P. LTD., IN WHICH THE ASSESSEE HAS SU BSTANTIAL INTEREST AS DEFINED IN SECTION 2(22)(E) OF THE IT ACT. AFTER D ETAIL DISCUSSION, THE LD. A.O. HAS HELD THAT THE LOAN AND ADVANCE RECEIVED DURING THE YEAR IS COVERED U/S.2(22)(E) OF THE IT ACT BUT ACCUMULATED PROFIT W AS RS.3,40,474/- AS ON 31.03.2006. THEREFORE, HE MADE THE ADDITION OF RS. 3,40,474/- AS A DEEMED DIVIDEND IN THE HANDS OF ASSESSEE. HE ALSO RELIED UPON FOLLOWING DECISIONS: I. MISS. P. SARADA VS. CIT 229 ITR 444 (SUPREME COURT) , II. SADHNA TEXTILES MILLS (P) LTD. VS. CIT, HONBLE HIGH COURT OF BOMBA Y 188 ITR 318 (BOM) & III. SMT. TARULATA SHYAM VS. CIT (1977) 108 ITR 345 (SUP REME COURT). 3. THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A ), WHO HAS CONFIRMED THE ORDER OF THE A.O. BY OBSERVING AS UNDER: HERE APPELLANT WOULD LIKE TO DRAW YOUR ATTENTION T HAT HE HAS A TAKEN ADVANCES IN ORDINARY COURSE OF BUSINESS. BSS BL HAS SURPLUS FUND AND IT HAS LENT TO OTHERS SUCH FUNDS INCLUDING APPELLANT. APPELLANT HAS PAID THE INTEREST TO THE COMPANY CONSIDERING TH E TRANSACTIONS AS NORMAL BUSINESS TRANSACTION. APPELLANT HAS PAID RS .2,54,071/- AS INTEREST ON BORROWED AMOUNT. THEREFORE, IF THE AMO UNT ADDED OF RS.340704/- IS TO BE CONSIDERED AS DEEMED DIVIDEND U/S. 2(22)(E), CONSIDERING THE AMOUNT IS IN LIEU OF DIVIDEND AND T O THAT EXTENT, BENEFIT IS BUSINESS, IT DOES NOT FALL WITHIN THE AMBIT OF D IVIDEND U/S 2(22)(E). ALTERNATIVELY, IT WAS STATED THAT SINCE THE APPELLA NT HAS PAID INTEREST OF RS.2,54,071/- TO THE COMPANY, THE NET AMOUNT OF 663 3 = (RS.3,40,704 2,54,071) SHOULD HAVE BEEN CONSIDERED AS THE DEEMED DIVIDEND. THIS ARGUMENT OF THE APPELLANT IS NOT TENABLE BECAUSE LE NDING OF MONEY IS NOT A SUBSTANTIAL PART OF THE BUSINESS ACTIVITY OF BASANT STORES & STOCK ITA NO. 575/AHD/10 A.Y. 06-07 PAGE 3 BROKING P. LTD. FURTHER THE ARGUMENT OF NETTING WA S NOT APPROVED BY THE HONORABLE SUPREME COURT IN THE CASE OF M/S SONA LI 229 ITR 444 (SC) AND 108 ITR 345 (SC) IN THE CASE OF SHRIMATI T ARULATTA SHYAM. IN OTHER WORDS, THE AO WAS JUSTIFIED IN TAXING THE AMO UNT OF RS.3,40,704/- BEING THE ACCUMULATED BALANCE IN THE HANDS OF THE C OMPANY AS DIVIDEND OF THE APPELLANT U/S 2(22)(E). 4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE ASSESSEE, SHRI S.N. DIVATIA CONTENDED THAT THESE ARE THE BUSINESS TRANSACTIONS WITH THE COMPANY. THE COMPANY HAS CHARGED INTEREST ON IT. HE ALSO FILED THE PAPER BOOK AND CLAIMED THAT THERE WAS AN OPENING BALANCE OF RS.78 LACS DURING THE YEAR. ONLY RS.13,25,000/- WAS TAKEN AS LOAN AND AD VANCE FROM THE COMPANY. HE RELIED IN CASE OF CIT VS. ANKITECH (P.) LTD. [340 ITR 14 (2011)] (DEL HI), ITO VS. GORDHANDAS KHIMJI IN ITA NO. 252/COCH/1982 & C. O. NO. 33/COCH/1982, A.Y. 1961-62 & CIT VS. CREATIVE DYEING & PRINTING (P) LTD. [318 I TR 476 (2009)] (DELHI). HE HAS ALSO DRAWN OUR ATTENTION ON P&L ACCOUNT WHIC H SHOWS THAT THERE WAS A SALE OF RS.7,66,282/- WHEREAS OTHE R INCOME WAS RS.6,48,148/- FOR A.Y. 06-07 OF THE COMPANY WHICH I NCLUDES THE SUBSTANTIAL PART AS INTEREST INCOME DURING THE YEAR. THE RESER VE AND SURPLUS OF THE COMPANY HAS BEEN GONE DOWN BY RS.7,268/-. THE DEPA RTMENT CAN TAX MAXIMUM INCOME EARNED DURING THE YEAR BY THE COMPAN Y I.E. RS.7,579/- ONLY. HOWEVER, FROM THE SIDE OF THE REVENUE, LD. D.R. REL IED UPON THE CASE OF WALCHAND & CO. LTD. VS. CIT., (1975) [100 ITR 598] (BOM) & MISS P. SARADA VS. CIT., (1994) [229 ITR 444] (SC) AND CLAIMED THAT EVEN LOAN AND ADVANCE FOR SHORT PERIOD IS ALSO COVERED U/S.2(22)(E) OF TH E IT ACT AS DEEMED DIVIDEND. ITA NO. 575/AHD/10 A.Y. 06-07 PAGE 4 5. WE HAVE CONSIDERED THE ORDER OF THE AUTHORITIES BELOW AND GONE THROUGH THE CASE LAWS CITED BY BOTH THE PARTIES AND HEARD THE ARGUMENTS. IT IS AN UNDISPUTED FACT THAT THE COMPANY HAS ADVANCE RS. 13,25,000/- DURING THE YEAR BUT ACCUMULATED PROFIT SHOWN IN THE BALANCE SH EET WAS RS.3,40,474/-. THE APPELLANT HAD DEMONSTRATED THAT THE ASSESSEE PA ID INTEREST ON BORROWING. AS RELIED BY THE APPELLANT IN CASE OF ITO VS. GORDHANDAS KHIMJI (SUPRA) THAT EARLIER YEAR ADVANCE OR LOAN HAD TO BE TREATED AS D IVIDENDS IN EARLIER YEAR ONLY AND ALSO THE ACCUMULATED PROFIT HAD TO BE REDUCED B Y THE EARLIER LOANS AND ADVANCES. THE ASSESSEE HAD OPENING BALANCE OF LOAN AND ADVANCE AT RS.78 LACS FROM THE COMPANY WHEREAS THE ACCUMULATED PROFI T TO THE EXTENT OF RS.3,47,742/- WAS PERTAINED TO A.Y. 2005-06. THERE FORE, WE HOLD THE DEEMED DIVIDEND TO THE EXTENT OF RS.7,579/- WHICH IS CURRE NT YEAR PROFIT. ACCORDINGLY, THE ASSESSEES APPEAL IS PARTLY ALLOWED. 6. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 05.10.2012 SD/- SD/- ( MUKUL KR. SHRAWAT ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT M EMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. ITA NO. 575/AHD/10 A.Y. 06-07 PAGE 5 BY ORDER/ , 8/ 1 ': ) , 12( ; STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 04.10.2012 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 04.10.2012 4) DATE OF CORRECTION ,, ,, 5) DATE OF FURTHER CORRECTION XXX 6) DATE OF INITIAL SIGN BY MEMBERS 05.10.2012 7) ORDER UPLOADED ON ,, ,, 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 05.10.2012