SHRINIVASA A. PAWAR, MUMBAI V. ACIT ., RANGE-7(2), MUMBAI

ITA 6148/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3072 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 01-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 06-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G M MAKWANA
• Keywords: Deemed dividend

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E BE NCH, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER / I .T.A. NO.6148/MUM/2011 ( / ASSESSMENT YEAR:2007-08 A N D / I .T.A. NO.3746/MUM/2012 ( / ASSESSMENT YEAR:2008-09 MR. SHRINIVAS A. PAWAR, 53, DUTTA BHAVAN, VIJAY MANJREKAR LANE, GOKHALE ROAD (NORTH), DADAR (W), MUMBAI-400 028 / VS. THE ACIT, RANGE 7(2), AAYAKAR BHAVAN, MUMBAI-400 020 ./ ./ PAN/GIR NO. :AFWPP 3313A ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI PANKAJ R. TOPRANI / RESPONDENT BY: SHRI G.M. MAKWANA / DATE OF HEARING : 07.10.2015 ! / DATE OF PRONOUNCEMENT : 16.10.2015 '# / O R D E R PER N.K. BILLAIYA, AM: THESE TWO APPEALS BY THE ASSESSEE ARE PREFERRED AG AINST TWO SEPARATE ORDERS OF THE LD. CIT(A)-13, MUMBAI DATED 28.03.2011 AND 16.1.2012 PERTAINING TO ASSESSMENT YEARS 2007-08 AN D 2008-09. AS COMMON GRIEVANCES ARE INVOLVED IN BOTH THESE APPEAL S, THEY WERE ITA. NOS.6148/M/2011 & 3746/M/12 2 HEARD TOGETHER AND DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. WE WILL FIRST TAKE ITA NO. 6148/M/2011. THE ASS ESSEE HAS RAISED THREE SUBSTANTIVE GROUNDS OF APPEAL. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT HE IS NOT PRESSING GROUND NO.1, GROUND NO. 1 IS ACCORDINGLY DISMISSED AS NOT PRESSED. 3. GROUND NO. 2 RELATES TO THE ADDITION OF RS. 15,7 9,441/- BEING INTEREST EXPENSES ON DEBIT BALANCE OF M/S. DEOGIR I TRANSPORT. 3.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE IS HAVI NG A DEBIT BALANCE OF RS. 1,01,08,263/-. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS. 27,38,709/-. THE AO FOUND THAT THE ASSESSEE IS EXTENSIVELY ENGAGED IN INVESTMENT IN SH ARES AND PROPERTIES. THE AO WAS OF THE FIRM BELIEF THAT THE CLAIM OF ENTIRE EXPENSES ARE NOT ATTRIBUTABLE TO THE BUSINESS OF T HE ASSESSEE. THE AO THEREFORE COMPUTED THE DISALLOWANCE ON PROPORTIONAT E BASIS AT RS. 15,79,441/-. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A) BUT FAILED TO CONVINCE THE CLAIM OF INTE REST. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STRA IGHTAWAY DREW OUR ATTENTION TO THE ORDER OF THE LD. CIT(A) FOR AS SESSMENT YEAR 2008-09 (WHICH IS ALSO UNDER APPEAL). THE LD. COUN SEL DREW OUR ATTENTION TO THE TABULATED CHART AT PARA-2.2 ON PA GE-2 OF CIT(A)S ORDER. IT IS THE SAY OF THE LD. COUNSEL THAT FOR T HE YEAR UNDER ITA. NOS.6148/M/2011 & 3746/M/12 3 CONSIDERATION, THE DISALLOWANCE SHOULD BE MADE AS P ER THE COMPUTATION MADE BY THE LD. CIT(A) FOR A.Y. 2008-09 . 6. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONCE DED TO THIS. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. WE HAVE ALSO GONE THROUGH THE ORDER OF THE FIRST AP PELLATE AUTHORITY FOR A.Y. 2008-09. WE FIND THAT IN THAT YEAR ALSO, THERE IS A SIMILAR DISALLOWANCE WHICH HAS BEEN REDUCED BY THE LD. CIT( A) AS PER THE COMPUTATION GIVEN AT PARA-2.5 OF HIS ORDER. WE, TH EREFORE, RESTORE THIS ISSUE TO THE FILE OF THE LD. CIT(A). THE LD. CIT(A) IS DIRECTED TO COMPUTE THE DISALLOWANCE AS COMPUTED IN A.Y. 2008-0 9. GROUND NO. 2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 8. GROUND NO. 3 RELATES TO THE ADDITION OF RS. 1,02 ,03,366/- MADE U/S. 2(22)(E) OF THE ACT. 8.1. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A O FOUND THAT THE ASSESSEE IS SHOWING A DEBIT BALANCE OF RS. 3,07,72, 977/- IN RESPECT OF M/S. SAP HOLDINGS & LEASINGS PVT. LTD. THE AO FURT HER NOTICED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS ALSO RECEIVED LOANS AMOUNTING TO RS. 10,35,97,585/- FROM THE SAME COMPANY. ON FURTHER PROBE, THE AO LEARNT THAT ASSESSEE IS HOLDI NG 85% SHARES IN THE SAME COMPANY. THE AO WAS CONVINCED THAT PROVIS IONS OF SEC. 2(22)(E) SQUARELY APPLY ON THE LOAN RECEIVED FROM S AP HOLDINGS & LEASING PVT. LTD. THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY ADDITION SHOULD NOT BE MADE U/S. 2(22)(E) OF THE AC T. IN HIS REPLY DATED 19.11.2009, THE ASSESSEE CLAIMED THAT THE COM PANY WAS BASICALLY FORMED WITH ITS MAIN OBJECTIVE OF LEASING AND ADVANCING OF FINANCE. IT WAS EXPLAINED THAT THE COMPANY LENDED MONEY AS ITA. NOS.6148/M/2011 & 3746/M/12 4 LOANS/ADVANCES TO EARN INTEREST, THEREFORE, PROVISI ONS OF SEC. 2(22)(E) ARE NOT APPLICABLE. THIS SUBMISSION OF TH E ASSESSEE WAS DISMISSED BY THE AO. THE AO FOUND THAT SAP HOLDING S & LEASING PVT. LTD. IS INTO THE BUSINESS OF CAR AGENCY AND IS PROV IDING AUTOMOBILE SERVICES TO ITS CLIENTS AND LENDING OF MONEY IS NOT THE BUSINESS OF THE COMPANY. THE AO FURTHER FOUND THAT THE RESERV ES AND SURPLUS OF THE COMPANY WERE AT RS. 1,02,03,366/-. THE AO ACCO RDINGLY MADE THE ADDITION OF RS. 1,02,03,366/- U/S. 2(22)(E) OF THE ACT. 9. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 10. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL STRONGLY SUBMITTED THAT THE ASSESSEE HAS PROVIDED PERSONAL G UARANTEE TO SAP HOLDING & LEASING PVT. LTD., FOR THE LOANS TAKEN BY THE SAID COMPANY FROM ICICI BANK. THE LD. COUNSEL FURTHER STATED TH AT BECAUSE OF THE PERSONAL GUARANTEE UNDERTAKEN BY THE ASSESSEE, ASSE SSEES FUNDS GOT DEPLETED AND THEREFORE THE ASSESSEE HAD TO BORROW M ONEY FROM THE SAID COMPANY. IN SUPPORT OF THIS CONTENTION, THE L D. COUNSEL RELIED UPON THE DECISION OF THE TRIBUNAL, CHENNAI BENCH IN THE CASE OF ACIT VS SMT. G. SREEVIDYA 138 ITD 427. 11. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE O RDERS OF THE REVENUE AUTHORITIES. 12. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS IN ISSUE AND THE DECISION RELIED UPON BY THE LD. COUNSEL. T HERE IS NO DISPUTE THAT THE SAP HOLDING & LEASING PVT. LTD., HAS LENDE D MONEY TO THE ITA. NOS.6148/M/2011 & 3746/M/12 5 ASSESSEE. THERE IS ALSO NO DISPUTE THAT THE SAID C OMPANY IS HAVING RESERVES AND SURPLUS TO THE TUNE OF RS. 1,02,03,366 /-. THUS THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT SQUARELY APP LY. WE DO NOT FIND ANY JUSTIFICATION FOR RELIANCE ON THE DECISION OF T HE CO-ORDINATE BENCH IN THE CASE OF SMT. G. SREEVIDYA (SUPRA) BECAUSE EV EN IF THE ASSESSEE HAS UNDERTAKEN PERSONAL GUARANTEE BUT THE ASSESSEE HAS FAILED TO DEMONSTRATE BY TAKING PERSONAL GUARANTEE, THE FUNDS OF THE ASSESSEE GOT DEPLETED. THEREFORE, THE DECISION OF THE CHENN AI BENCH (SUPRA)WOULD NOT DO ANY GOOD TO THE ASSESSEE. TO T HIS EXTENT, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). 13. HOWEVER, WE FIND FORCE IN THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT IF AT ALL THE ADDITIONS HAS TO BE MADE, IT SH OULD BE MADE IN RESPECT OF THE OPENING BALANCE OF RESERVES AND SURP LUS. MEANING THEREBY, THE CURRENT YEARS PROFIT SHOULD NOT BE AD DED TO DETERMINE THE ADDITION U/S. 2(22)(E) OF THE ACT. WE FIND SUP PORT FROM THE DECISION OF THE TRIBUNAL, AHMEDABAD BENCH IN THE CA SE OF M.B. STOCK HOLDING (P) LTD VS ACIT 84 ITD 542 WHEREIN IT HAS BEEN HELD THAT DIVIDENDDEEMED DIVIDEND UNDER S. 2(22)(E) ACCUMULATED PROFITSFOR THE PURPOSE OF S. 2(22)(E), THE ACCUMULATED PROFITS ARE TO BE WORKED OUT UPTO THE D ATE OF EACH PAYMENT/ADVANCEMENT OF THE LOANTHERE IS A DIS TINCTION BETWEEN THE 'ACCUMULATED PROFITS' OF BUSINESS AND T HE CURRENT YEAR'S PROFITS OF BUSINESSEXPLANATION 2 TO S. 2 (2 2)(E) DOES NOT HAVE THE EFFECT OF INCLUSION OF CURRENT YEAR'S BUSINESS PROFITSSINCE THE BUSINESS PROFITS OF THE COMPANY A CCRUE ONLY AT THE END OF THE YEAR, THE CURRENT YEAR'S BUSINESS PROFITS ARE NOT TO BE INCLUDEDLOAN OR ADVANCE TREATED AS DEEME D INCOME UPTO THE DATE OF FRESH LOAN IS TO BE REDUCED FROM ACCUMULATED PROFFTS AND THE REPAYMENT OF LOAN DURIN G THE SAME YEAR IS NOT TO BE DEDUCTED FROM THE ACCUMULATED PRO FITSSEC. 2(22)(E) IS APPLICABE EVEN IN CASES WHERE THE COMPA NY HAS DECLARED DIVIDENDTHERE IS NO EVIDENCE ON RECORD TO ESTABLISH THAT THE AMOUNT OF LOAN ADVANCED TO THE A SSESSEE BY THE LENDING COMPANY WAS IN THE COURSE OF CARRYIN G ON OF ITS ITA. NOS.6148/M/2011 & 3746/M/12 6 BUSINESS OF THE MONEY-LENDINGMATTER REMANDED TO TH E AO FOR THE PURPOSE OF WORKING OUT ACCUMULATED PROFITS. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDI NATE BENCH, WE RESTORE THIS ISSUE TO THE FILE OF THE AO. THE A O IS DIRECTED TO RE- WORK THE ACCUMULATED PROFIT AS DIRECTED IN THE DECI SION OF THE CO- ORDINATE BENCH MENTIONED HEREINABOVE. GROUND NO. 3 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 3746/MUM/2012 A.Y 2008-09 15. GROUND NO. 1 IS NOT PRESSED AND THE SAME IS DIS MISSED AS NOT PRESSED. 16. GROUND NO. 2 RELATES TO THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. 16.1. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE A SSESSEE DREW OUR ATTENTION TO THE DECISION OF THE TRIBUNAL PUNE BENC H IN THE CASE OF KEWALKUMAR JAIN VS ACIT 144 ITD 672. IT IS THE SA Y OF THE LD. COUNSEL THAT LOANS/ADVANCES GIVEN IN EARLIER YEARS WHICH HAVE BEEN ASSESSED AS DEEMED DIVIDEND SHOULD BE REDUCED FROM THE SURPLUS WHILE DETERMINING THE ACCUMULATED PROFIT. 17. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF THE TRIBUNAL PUNE BENCH (SUPRA). WE FIND THAT THE TRIBUNAL AT P ARA-17 OF ITS ORDER HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT L OANS/ADVANCES GIVEN IN EARLIER YEARS AND WHICH HAVE BEEN ASSESSE D AS DEEMED ITA. NOS.6148/M/2011 & 3746/M/12 7 DIVIDEND SHOULD BE REDUCED FROM THE COMPUTATION OF ACCUMULATED PROFIT. WHILE ACCEPTING THIS CLAIME OF THE ASSESSE E, WE FIND THAT THE CO-ORDINATE BENCH HAS FOLLOWED THE DECISION OF THE TRIBUNAL, COCHIN BENCH IN THE CASE OF ITO VS GORDHANDAS KHIMJI (19 85) 11 IRS 158 AND ALSO S THE DECISION OF VISKHAPATNAME BENCH IN THE CASE OF P. SATYA PRASAD VS ITO ITA NO. 293/VIZAG/2012 DATED 1 6.11.2012 AND DELHI BENCH IN THE CASE OF A.R. CHADHA & CO. INDIA (P) LTD VS DCIT 133 TTJ 490 (DEL). RESPECTFULLY FOLLOWING THE DECI SION OF THE CO- ORDINATE BENCHES, WE RESTORE THIS ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO RECOMPUTE THE ACCUMULATED PROFIT AF TER REDUCING THE AMOUNT OF LOAN ALREADY TREATED AS DEEMED DIVIDEND I N EARLIER ASSESSMENT YEARS AND DECIDE THE ISSUE AFRESH. THIS GROUND OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURP OSE. 18. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH OCTOBER 2015 SD/- SD/- (SANJAY GARG ) (N.K. BILLAIYA) $% ' /JUDICIAL MEMBER ' / ACCOUNTANT MEMBER & ' MUMBAI; (' DATED : 16 TH OCTOBER, 2015 . % . ./ RJ , SR. PS ITA. NOS.6148/M/2011 & 3746/M/12 8 !' #' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+, %%-. , -.! , & ' / DR, ITAT, MUMBAI 6. ,/0 1 / GUARD FILE. $ / BY ORDER, * % //TRUE COPY// % / $& ' (DY./ASSTT. REGISTRAR) , & ' / ITAT, MUMBAI