Assistant Commissioner of Income-tax, V. Shri Rahul Gopalji Nigam, Nashik

ITA 612/PUN/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2241 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 28-03-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR SUBHASH
• Keywords: Peak credit; Additional evidence; Deemed dividend
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , !', $ % BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.612/PN/2014 ASSESSMENT YEAR : 2005-06 THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-2, NASHIK. . APPELLANT VS. SHRI RAHUL GOPALJI NIGAM, MICRON INDUSTRIES, J-38, M.I.D.C., AMBAD, NASHIK 422 010. PAN : AAAPN9227A . RESPONDENT / APPELLANT BY : SHRI (DR.) SUBHASH / RESPONDENT BY : NONE / DATE OF HEARING : 05.10.2015 / DATE OF PRONOUNCEMENT: 08.10.2015 & / ORDER PER PRADIP KUMAR KEDIA, AM : THE CAPTIONED APPEAL FILED BY THE REVENUE IS AGAINS T THE ORDER OF CIT(A)-2, NASHIK DATED 08.01.2014 RELATING TO ASSES SMENT YEAR 2005-06 PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE INCOM E-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.14,12,200/- MADE U/S 2( 22)(E) OF THE INCOME TAX ACT, 1961. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN HOLDING THAT THE AMOUNT OF RS.14,12,200/- IS A COMMERCIAL ADVANC E AND NOT IN THE NATURE OF LOAN OR ADVANCE REFERRED TO IN SECTION 2(22)(E). 3. ON THE SAME FACTS, THE HON. ITAT HAS UPHELD THE ADDITION MADE BY THE AO U/S 2(22)(E) FOR THE A.Y. 2006-07. HOWEVER, THE CI T(A) HAS DELETED THE ADDITION FOR THE A.Y. 2005-06. FROM THE ORDER OF THE LD. CIT(A) , IT IS CLEAR THAT THE CIT(A) HAS 2 ITA NO.612/PN/2014 NOT CONSIDERED THE DECISION OF THE HON. ITAT IN THE ASSESSEES CASE FOR THE A.Y. 2006-07 ON THE SAME ISSUE. 4. THE ORDER OF THE CIT(A) BE VACATED AND THAT OF T HE A.O. BE RESTORED. 5. THE APPELLANT REQUESTS FOR ADMISSION OF AN ADDIT IONAL GROUND OF APPEAL OR ADDITIONAL EVIDENCE IF REQUIRED TO SUPPORT HIS CASE . 6. THE APPELLANT CRAVES LEAVES TO ADD, ALTER, AMEND , OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE RELEVANT FACTS, IN BRIEF, ARE THAT THE ASSES SEE IS AN INDIVIDUAL OPERATING IN THE BUSINESS OF HARD CHROME ELECTRO PL ATING AND CONSULTANCY AS PROPRIETARY CONCERN, NAMELY, MICRON INDUSTRIES WH ICH IS HOLDING MORE THAN 10% VOTING POWER IN A PRIVATE COMPANY, NAMELY, M/S MACK SURFACE TREATMENT (P) LTD. (MSTPL). FOR THE RELEVANT ASSESSMENT YEAR , ASSESSEE FILED RETURN OF INCOME ON 19.10.2005 DECLARING TOTAL INCOME OF RS.1 2,02,190/- TOGETHER WITH TAX AUDIT REPORT, ETC.. THE RETURN WAS PROCESSED U NDER SECTION 143(1)(A) OF THE ACT. ON VERIFICATION OF THE CASE RECORDS, THE ASSE SSING OFFICER NOTICED THAT THE ASSESSEE (MICRON INDUSTRIES) HAD RECEIVED CERTAIN A DVANCES FROM M/S MACK SURFACE TREATMENT (P) LTD. (MSTPL) IN WHICH THE ASS ESSEE IS A DIRECTOR AND HOLDING MORE THAN 10% OF VOTING POWER OF LENDING CO MPANY. HE SIMULTANEOUSLY FOUND THAT THERE ALSO EXISTED ACCUMU LATED PROFITS IN THE BALANCE SHEET OF MSTPL. THE ASSESSING OFFICER, ACCORDINGLY , REOPENED THE ASSESSMENT UNDER SECTION 147 OF THE ACT VIDE NOTICE UNDER SECTION 148 OF THE ACT DATED 30.03.2012. AS PER THE ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 147 OF THE ACT DATED 14.03.2013, THE ASSESSING OFFI CER FOUND THAT ASSESSEE HOLDS 69.32% VOTING POWERS IN MSTPL. IT WAS FURTHE R FOUND THAT MSTPL HAD ACCUMULATED PROFIT OF RS.43,58,732/- AND GENERAL R ESERVE OF RS.90,00,000/- CREATED OUT OF PROFIT AS ON 31.03.2004 AS PER BALAN CE SHEET OF MSTPL. THUS, THE ACCUMULATED PROFIT OF MSTPL AS ON 31.03.2004 TO THE EXTENT OF RS.1,33,58,732/-. THE PEAK AMOUNT OF ADVANCE GIVEN BY MSTPL TO THE ASSESSEE WAS FOUND TO BE RS.14,12,200/-. THE ASSES SING OFFICER OBSERVED THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS SQ UARELY APPLICABLE IN THE FACTS OF THE CASE AND THEREFORE THE PEAK CREDIT RECEIVED FROM THE COMPANY IN WHICH THE ASSESSEE IS HOLDING SUBSTANTIAL INTEREST REQUIR ES TO BE TREATED AS TAXABLE DEEMED DIVIDEND. BOTH THE CONDITIONS FOR APPLICABI LITY OF SECTION 2(22)(E) OF THE ACT I.E. (I) THE SHAREHOLDER HOLDS MORE 10% VOT ING POWER; AND, (II) THE 3 ITA NO.612/PN/2014 LENDING COMPANY HAD ACCUMULATED PROFIT TO THE EXTEN T OF LOAN ADVANCED; WAS FOUND TO BE SATISFIED. HE, ACCORDINGLY, TREATED TH E TRANSACTION OF ACCEPTING LOAN BY THE ASSESSEE TO THE EXTENT OF RS.14,12,200/- (I. E. PEAK AMOUNT) AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE AS PER PROVIS IONS OF SECTION 2(22)(E) OF THE ACT. 4. IN APPEAL BEFORE THE CIT(A), THE ASSESSEE VEHEME NTLY OBJECTED TO THE IMPUGNED ORDER OF THE ASSESSING OFFICER PASSED UNDE R SECTION 143(3) R.W.S. 147 OF THE ACT. THE ASSESSEE REITERATED BEFORE THE CIT(A) THAT THE LOANS/ADVANCES WERE GIVEN BY THE COMPANY ARE IN THE ORDINARY COURSE OF BUSINESS FOR PERFORMING WORK ALLOTTED BY THE CUSTOM ER, NAMELY, GABRIEL INDIA LTD. . THE SAID CUSTOMER HAS ADVANCED MONEY FOR THE WORK TO BE DONE TO THE FLAGSHIP COMPANY OF THE GROUP I.E. MSTPL AND MSTPL, IN TURN, USED TO DISTRIBUTE THE SAME AMONGST THE GROUP CONCERN AS PE R REQUIREMENT OF THE FUNDS SO THAT WORK ALLOTTED BY GABRIEL INDIA LTD. CAN BE SMOOTHLY COMPLETED. M/S GABRIEL INDIA LTD. HAS CHARGED 12% OF INTEREST ON A DVANCE GIVEN TO MSTPL AND HENCE THE MSTPL HAS ALSO CHARGED THE SAME INTER EST ON BUSINESS ADVANCE GIVEN TO ALL GROUP CONCERNS INCLUDING THE ASSESSEE. THESE FACTS ARE SUPPORTED BY LETTER FROM GABRIEL INDIA LTD. STATING THAT ADVA NCE WAS GIVEN TO THE FLAGSHIP COMPANY (MSTPL) FOR ALL THE GROUP CONCERNS SUBJECT TO INTEREST @ 12% PER ANNUM. 5. THE CIT(A) APPRECIATED THE FACTS OF THE CASE ON MERITS AND CONCURRED WITH THE CONTENTIONS OF THE ASSESSEE. THE CIT(A) H ELD THAT THE ADVANCES MADE BY MSTPL TO THE ASSESSEE ARE TOWARDS DOING JOB WORK OF M/S GABRIEL INDIA LTD. AND IS COMMERCIAL ADVANCE NOT COVERED BY SECTI ON 2(22)(E) OF THE ACT. THE CIT(A) ALSO OBSERVED THAT DUE TO REIMBURSEMENT OF INTEREST, THERE IS NO INDIVIDUAL BENEFIT TO THE SHAREHOLDER I.E. ASSESSEE FROM MSTPL ON RECEIPT OF LOAN PER SE . THE CIT(A) ACCORDINGLY VACATED THE ORDER OF THE ASSESSING OFFICER ON MERITS HOLDING THE RECEIPT OF LOAN IS NO T COVERED UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IN THE FA CTS OF THE CASE. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 4 ITA NO.612/PN/2014 7. NONE APPEARED ON BEHALF OF THE ASSESSEE INSPITE OF SPECIFIC INFORMATION OF HEARING. IT IS SEEN FROM THE RECORD THAT MATTER WAS EARLIER LISTED ON 06.08.2015, WHEN THE MATTER WAS ADJOURNED TO 05.10. 2015 AT THE REQUEST ON BEHALF OF THE ASSESSEE VIDE APPLICATION DATED 01.08 .2015. PARTIES WERE DULY INFORMED ABOUT THE APPOINTED DATE OF HEARING IN THE OPEN COURT. SINCE THE ASSESSEE HAS CHOSEN TO REMAIN ABSENT INSPITE OF EAR LIER ADJOURNMENT ON BEHEST OF THE ASSESSEE, THE MATTER WAS PROCEEDED EX-PARTE IN THE ABSENCE OF THE ASSESSEE AND ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 8. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND SUBMITT ED THAT THERE IS NO SCOPE FOR EXCLUSION OF LOANS OR ADVANCES WHICH ARE PURPORTEDL Y COMMERCIAL IN NATURE FROM THE AMBIT OF SECTION 2(22)(E) OF THE ACT WHEN ALL THESE STATUTORY CONDITIONS STAND SATISFIED IN THE PRESENT CASE. HE RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . P.K. BADIANI, 76 ITR 369 (BOM.) FOR THE PROPOSITION THAT ONCE THE CONDIT IONS FOR APPLICABILITY OF SECTION 2(22)(E) OF THE ACT ARE SATISFIED, THE RECE IPT OF LOANS/ADVANCES ETC. ARE TAXABLE AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) O F THE ACT. HE NEXT CONTENDED THAT SIMILAR ADDITIONS WERE CARRIED OUT I N THE SUBSEQUENT ASSESSMENT YEAR 2006-07 BY THE ASSESSING OFFICER ON THE SIMILA R FACT-SITUATION IN THE ASSESSEES OWN CASE WHICH WERE CONFIRMED BY THE CIT (A) AS WELL AS CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI RAHUL GOPAL NIGAM VS. ADDL. CIT IN ITA NO.765/PN/2009, ORDER DATED 23.01. 2012. THEREFORE, THE ISSUE IS COVERED AGAINST THE ASSESSEE IN HIS OWN CA SE AND THE ORDER OF THE CIT(A) ON FACTS ARE NOT IN CONFORMITY WITH THE ORDE R OF THE TRIBUNAL AND THEREFORE REQUIRES TO BE SET-ASIDE. 9. WE HAVE HEARD THE RIVAL SUBMISSION MADE BY THE L D. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, THE ORDERS OF THE A UTHORITIES BELOW AND PERUSED THE CASE LAWS CITED. WE FIND THAT THE IDEN TICAL ISSUE WAS ADJUDICATED AGAINST THE ASSESSEE ON THE SIMILAR FACTS IN ASSESS EES OWN CASE BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.765/PN/200 9, ORDER DATED 5 ITA NO.612/PN/2014 23.01.2012. THE RELEVANT PARA OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HEREINBELOW FOR READY REFERENCE :- 5. CONSIDERING THE ABOVE SUBMISSIONS, WE DO NOT FI ND SUBSTANCE IN THE CASE OF THE ASSESSEE AS THE ASSESSEE HAS THROUGHOUT FAILED TO ESTABLISH THAT THE TRANSACTION IN QUESTION FALLS WITHIN THE EXCEPTIONS PROVIDED U/S 2 (22)(E)(II) OF THE ACT TO AVOID TAX OF DIVIDEND IN ADVANCE. THE LD. CIT(A) HAS DEALT W ITH THE ISSUE IN DETAIL AND HAS COME TO THE FOLLOWING CONCLUSION IN PARA NOS.3.3 TO 3.5 OF THE FIRST APPELLATE ORDER. FOR A READY REFERENCE, THE SAME IS REPRODUCED HEREU NDER : 3.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT O RDER OF THE A.O. AND THE WRITTEN SUBMISSION FILED BY THE AP PELLANT. THE CONTENTION OF THE APPELLANT THAT IN THE BOOKS O F THE APPELLANT AND ALSO IN THE BOOKS OF M/S MEGA COAT, C REDIT BALANCE OF MSTP LTD. RESULTED BECAUSE OF LOAN FROM GABRIEL INDIA LTD. AND BANK LOAN WERE TRANSFERRED IN THE EA RLIER YEAR TO THEM BY JOURNAL ENTRIES AND HENCE PAYMENTS MADE BY MSTP LTD. TO THEM IS NOT COVERED BY THE PROVISIONS OF SECTION 2(22(E) IS APPARENTLY INCORRECT. THE APPEL LANT AND M/S MEGA COAT HAS RECEIVED PAYMENTS FROM MSTP LTD. WHEN THERE WAS CREDIT BALANCE OF MSTP LTD. IN THEIR BOOK S OF ACCOUNTS OF HENCE PROVISIONS OF SECTION 2(22)(E) AR E CLEARLY APPLICABLE TO SUCH PAYMENTS RECEIVED. 3.4 ANOTHER CONTENTION RAISED BY THE APPELLANT IS THAT MSTP LTD. HAS ACCEPTED LOAN FROM GABRIEL INDIA LTD. ON INTEREST AT THE RATE OF 12% PER ANNUM AND ADVANCED THE LOAN TO M/S MICRON, PROP. MR. R.G. NIGAM I.E. APPELLANT AND TO M/S MEGA COAT AT THE RATE OF 12% PER ANNUM AND HENC E IT CANNOT BE SAID THAT INDIVIDUAL BENEFITS HAS ACCRUED TO THE SHARE HOLDER I.E. APPELLANT. THIS CONTENTION OF TH E APPELLANT CANNOT BE ACCEPTED, AS THE A.O. HAS RIGHT LY POINTED OUT THAT THE APPELLANT HAS NOT PROVED THAT THE LOAN RECEIVED BY GABRIEL INDIA LTD. WAS ADVANCED BY MSTP LTD. TO THE APPELLANT AND M/S MEGA COAT. THE CONTENTION OF THE APPELLANT THAT THE LOAN ACCEPTED FROM MSTP LTD. WAS INTEREST BEARING AND HENCE NO BENEFIT TO THE SHARE HOLDER WAS ACCRUED CANNOT BE ACCEPTED IN VIEW OF DECISION OF HONBLE BOMBAY HIGH COURT, IN THE CASE OF WALCHAND & CO. LTD. VS. CIT, 100 ITR 598. 3.5 THE NEXT CONTENTION RAISED BY THE APPELLANT I S THAT THE AMOUNTS PAID BY MSTP LTD. TO M/S MEGA COAT ON 11/04/2005 RS.1,50,000/- AND ON 18/07/2005 RS.1,38, 000/- ARE TOWARDS LEASE RENT OF RS.50,000/- PER MONTH AND THE AMOUNTS PAID ON 30/11/2005 RS.3,70,000/- AND 02/01/ 2006 RS.3,21,000/- ARE TOWARDS CONSIDERATION FOR MACHINE RY PURCHASED. THE CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED, AS IN THE NARRATION OF THE ENTRIES OF THE RELEVANT ACCOUNTS, NO SUCH FACT ABOUT PAYMENT TOWAR DS LEASE RENT AND MACHINERY PURCHASED WAS MENTIONED. SECOND LY THE DATES OF THE ENTRIES OF LEASE RENT ARE NOT CORRESPO NDING TO THE PERIOD FOR WHICH LEASE RENT WAS TO BE PAID. FU RTHER IN THE SAID ACCOUNT THERE SHOULD HAVE BEEN CREDIT FOR LEASE RENT PAYABLE AND THEN IN THE SAME ACCOUNT PAYMENT O F LEASE RENT IS TO BE RECORDED. THEREFORE THE CLAIM OF THE APPELLANT IN RESPECT OF PAYMENT OF LEASE RENT ON TH E BASIS OF THE ENTRIES OF PAYMENT STATED ABOVE IS APPARENTL Y INCORRECT. AS REGARDS THE CLAIM OF THE APPELLANT T HAT THE TWO ENTRIES OF AMOUNTS RECEIVED BY M/S MEGA COAT AR E TOWARDS MACHINERY SOLD TO MSTP LTD., IT IS NOTICED THAT THE CONSIDERATION FOR MACHINERY PURCHASED IS ALREADY DE BITED TO THE ACCOUNT OF MSTP LTD. AND HENCE THE CREDIT BALAN CE IS MERGED WITH THE CREDIT BALANCE IN RESPECT OF OTHER 6 ITA NO.612/PN/2014 CREDIT/DEBIT ENTRIES. THEREFORE IT CANNOT BE CLAIM ED THAT THE PAYMENT WAS TOWARDS MACHINERY PURCHASED. HENCE , THE CONTENTION OF THE APPELLANT IS REJECTED IN THIS REG ARD. 6. THE FIRST APPELLATE ORDER ON THE ISSUE IS COMPRE HENSIVE AND REASONED ONE. HENCE, WE ARE NOT INCLINED TO INTERFERE THEREWITH. THE SAME IS UPHELD. THIS ISSUE IS THUS DECIDED AGAINST THE ASSESSEE. GROUND INVOLVIN G THE ISSUE ARE THUS REJECTED. 10. IN VIEW OF THE DECISION OF THE CO-ORDINATE BENC H ON THE IDENTICAL ISSUE INVOLVED IN THE SIMILAR FACTS, WE, RESPECTFULLY, FO LLOW THE SAME AND HOLD AGAINST THE ASSESSEE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. ORDER PRONOUNCED ON THIS 08 TH DAY OF OCTOBER, 2015. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER PUNE ; DATED : 08 TH OCTOBER, 2015. & ' ()* +*( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-2, NASHIK; 4) THE CIT-2, NASHIK; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. &, / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE