Ravi Agarwal, Bareilly V. ACIT, Bareilly

ITA 633/LKW/2006

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0573 (ITAT-LUCKNOW)
• Duration Of Justice: 9 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-04-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 02-06-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SWATI RATNA

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.633/LKW/2006 ASSESSMENT YEAR:2003 - 04 A.C.I.T., CIRCLE - II, BAREILLY. VS SHRI RAVI AGARWAL, PROP. SARNATH PETROLEUM, 35 - B - 1, RAMPUR GARDEN, BAREILLY. PAN:AAUPA4275H (RESPONDENT) (APPELLANT) SHRI ABHINAV MEHROTRA, ADVOCATE APPELLANT BY SMT. SWATI RATNA, D. R. RESPONDENT BY 13/04/2015 DATE OF HEARING 12 /06/2015 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A), BAREILLY DATED 28/03/2006 FOR THE ASSESSMENT YEAR 2003 - 2004. 2. THIS APPEAL WAS EARLIER DECIDED BY THE TRIBUNAL AS PER ITS ORDER DATED 2 ND MAY 2014. THEREAFTER, THE ASSESSEE FILED AN APPEAL BEFORE HON'BLE ALLAHABAD HIGH COURT AND AS PER JUDGMENT DATED 03/11/2014 IN INCOME TAX APPEAL NO. 190 OF 2014, HON'BLE HIGH COURT HAS RESTORED THE MATTER BACK TO THE FILE OF THE TRIBUN AL FOR FRESH DECISION WITH REGARD TO THE APPLICABILITY OF PROVISIONS OF SECTION 2(22)( E ) OF THE ACT AND THEREFORE, NOW IN THE PRESENT PROCEEDINGS, WE WILL DECIDE ONLY THAT ONE ASPECT, WHICH HAS BEEN RESTORED TO THE TRIBUNAL BY HON'BLE HIGH COURT. 2 3. IT W AS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT ACCOUNTING STANDARD AS - 19 IS APPLICABLE IN THE PRESENT CASE AND COPY OF THIS IS AVAILABLE ON PAGES 3 TO 14 OF THE PAPER BOOK. HE ALSO DRAWN OUR ATTENTION TO PAGE NO. 28, WHICH CONTAINS THE OBJECTS CLAUSE O F THE ASSESSEE S , MEMORANDUM OF ASSOCIATION AND IT WAS POINTED OUT THAT ONE OF THE MAIN OBJECTS OF THE ASSESSEE COMPANY IS TO DO BUSINESS OF LENDING MONEY AND THEREFORE, IT HAS TO BE ACCEPTED THAT LENDING MONEY IS ASSESSEES ONE OF THE MAIN BUSINESS ES . HE ALSO DRAWN OUR ATTENTION TO PAGE NO. 86 OF THE PAPER BOOK, WHICH CONTAINS CERTIFICATE OF REGISTRATION AS NBFC GRANTED BY RBI ON 21/10/1999. HE ALSO DRAWN OUR ATTENTION TO PARA 3.5 ON PAGE NO. 6 OF THE ASSESSMENT ORDER AND POINTED OUT THAT IT IS NOTED BY THE ASSESSING OFFICER IN THIS PARA OF THE ASSESSMENT ORDER THAT APART FROM LOAN OF RS.56,64,659/ - AS ON 31/03/2003, THE ASSESSEE HAS ALSO GIVEN STOCK ON HIRE OF RS.4,26,32,267/ - AS ON THIS DATE. 4. AS AGAINST THIS, LEARNED D. R. OF THE REVENUE SUPPORTED T HE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE REPRODUCE THE PROVISIONS OF CLAUSE (E) OF SUB SECTION 22 OF SECTION 2, WHICH IS AS UNDER: (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) 24MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHA RES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT. OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, 3 TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCU MULATED PROFITS ; BUT 'DIVIDEND' DOES NOT INCLUDE - (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB - CLAUSE (C) OR SUB - CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSIDERATION, WHERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN THE EVENT OF LIQUIDATION TO PARTICIPATE IN THE SURPLUS ASSETS ; (IA) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB - CLAUSE (C) OR SUB - CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIBUTABLE TO THE CAPITALISED PROFITS OF THE COMPANY REPRESENTING BONUS SHARES ALLOTTED TO ITS EQUITY SHAREHOLDERS AFTER THE 31ST DAY OF MARCH, 1964, AND BEFORE THE 1ST DAY OF APRIL, 1965; (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR THE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBS TANTIAL PART OF THE BUSINESS OF THE COMPANY ; (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET OFF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEANING OF SUB - CLAUSE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF ; (IV) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956) ; (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERG ER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERGED COMPANY (WHETHER OR NOT THERE IS A REDUCTION OF CAPITAL IN THE DEMERGED COMPANY). EXPLANATION 1. THE EXPRESSION 'ACCUMULATED PROFITS', WHEREVER IT OCCURS IN THIS CLAUSE, SHALL NOT INCLUDE CAPI TAL GAINS ARISING BEFORE THE 1ST DAY OF APRIL, 1946, OR AFTER THE 31ST DAY OF MARCH, 1948, AND BEFORE THE 1ST DAY OF APRIL, 1956 ; EXPLANATION 2. THE EXPRESSION 'ACCUMULATED PROFITS', IN SUB - CLAUSES (A), (B), (D) AND (E), SHALL INCLUDE ALL PROFITS OF THE C OMPANY UP TO THE DATE OF DISTRIBUTION OR PAYMENT REFERRED TO IN THOSE SUB - CLAUSES, AND IN SUB - CLAUSE (C) SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF LIQUIDATION, BUT SHALL NOT, WHERE THE LIQUIDATION IS CONSEQUENT ON THE COMPULSORY ACQUISITIO N OF ITS UNDERTAKING BY THE GOVERNMENT 4 OR A CORPORATION OWNED OR CONTROLLED BY THE GOVERNMENT UNDER ANY LAW FOR THE TIME BEING IN FORCE, INCLUDE ANY PROFITS OF THE COMPANY PRIOR TO THREE SUCCESSIVE PREVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WHICH SUCH ACQUISITION TOOK PLACE ; EXPLANATION 3. FOR THE PURPOSES OF THIS CLAUSE, - (A) 'CONCERN' MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY ; (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTA NTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIME DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER CENT. OF THE INCOME OF SUCH CONCERN; 5.1 FROM THE ABOVE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, WE FIND THAT THERE ARE FIVE EXCLUSION CLAUSES BUT IN THE PRESENT CASE, EXCLUSION CLAUSE NO. (II) ONLY IS RELEVANT AS HAS BEEN NOTED BY HON'BLE HIGH COURT ON PAGE NO. 4 OF THE JUDGMENT. IN OUR CONSIDERED OPINION, TO HOLD THAT THIS EXCLUSIONARY CLAUSE IS APPLICABL E IN A GIVEN CASE, THERE SHOULD BE A FINDING THAT LENDING OF MONEY IS SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY AND ALSO THAT ADVANCE OR LOAN MADE TO A SHAREHOLDER IS IN THE ORDINARY COURSE OF BUSINESS OF THE LENDING COMPANY. 6. NOW WE FIND THAT THE BALANCE SHEET OF THE COMPANY SARNATH FINANCE LTD. AS ON 31/03/2003 IS AVAILABLE ON PAGES 15 TO 24 OF THE PAPER BOOK. ON PAGE NO. 23 IS SCHEDULE TO THE BALANCE SHEET AS REQUIRED IN TERMS OF PARAGRAPH 9BB OF NBFC NORMS (RBI) DIRECTIONS 1998 AS AMENDED UP TO 29/03/2003 AND AS PER THE SAME, LOANS AND ADVANCES OF THE COMPANY IN QUESTION HAS BEEN GROUPED UNDER DIFFERENT HEADING I.E. BREAK - UP OF LOANS AND ADVANCES INCLUDING BILL RECEIVABLE AND STOCK ON HIRE INCLUDING HIRE PURCHASE UNDER SUNDR Y DEBTORS HAVE BEEN INCLUDED IN DIFFERENT HEADING . HENCE, IT IS SEEN THAT THE LOAN IN QUESTION HAS NOT BEEN GIVEN IN ORDINARY COURSE OF BUSINESS OF THE SAID COMPANY O F GIVING STOCK ON HIRE BECAUSE THE LENDER COMPANY HAS ITSELF GROUPED THE STOCK ON HIRE UN DER DIFFERENT CATEGORY AND UNSECURED LOAN OF RS.56.23 LAC, WHICH IS SUBJECT MATTER OF THE 5 PRESENT DISPUTE BEFORE US UNDER A DIFFERENT HEADING AS PER NBFC NORMS (RBI) DIRECTIONS 1998. MOREOVER, IN THE BALANCE SHEET ALSO , STOCK ON HIRE OF RS.4 26 . 3 2 LAC S IS APPEARING SEPARATELY WITH THE HEADING STOCK ON HIRE PURCHASE AS PER SCHEDULE - 8 AND THE LOAN OF RS.47,09,264/ - IS INCLUDED IN SCHEDULE - 10 BEING LOANS AND ADVANCE OF RS.47,09,264/ - OUT OF TOTAL LOANS AND ADVANCES OF RS.56,46, 65 9/ - . 7. NOW WE ALSO CONSID ER THE CONTENTS OF ACCOUNTING STANDARD AS - 19, WHICH IS AVAILABLE ON PAGES 3 TO 14 OF THE PAPER BOOK. AS PER CLAUSE 26 OF AS - 19 , IT IS SEEN THAT THE LESSER SHOULD RECOGNIZE THE ASSET S GIVEN UNDER A FINANCE LEASE IN ITS BALANCE SHEET AS A RECEIVABLE AT AN A MOUNT EQUAL TO THE NET INVESTMENT IN THE LEASE . AS PER CLAUSE NO. 27 OF AS - 19 , LEASE RENT RECEIVABLE BY LESSER IS TO BE TREATED BY HIM AS REPAYMENT OF PRINCIPAL I.E. NET INVESTMENT IN THE LEASE AND FINANCE INCOME AS REWARD TO THE LESSER FOR ITS INVESTMENT AND SERVICES. AS PER CLAUSE - 28, THE RECOGNITION OF FINANCE INCOME SHOULD BE BASED ON A PATTERN REFLECTING A CONSTANT PERIODIC RATE OF RETURN ON THE NET INVESTMENT OF THE LESSOR OUTSTANDING IN RESPECT OF THE FINANCE LEASE. AS PER THE BALANCE SHEET OF THE ASSESSEE COMPANY, IN SCHEDULE - 8, STOCK ON HIRE PURCHASE IS DISCLOSED AT AGREEMENT VALUE LESS INSTALLMENT RECEIVED. HENCE, IT IS SEEN THAT THE RECOGNITION OF LEASED ASSETS OR ASSET ON HIRE PURCHASE IS NOT IN LINE WITH THE PRESCRIPTION AS PER AS - 19 BECAUSE AS PER AS - 19 , IN THE CASE OF FINANCE LEAS E , THE LESSOR IS REQUIRED TO RECOGNIZE ASSET GIVEN UNDER FINANCE LEASE IN ITS BALANCE SHEET AS A RECEIVABLE AT AN AMOUNT EQUAL TO THE NET INVESTMENT IN THE LEASE. TO COMPUTE THE NET INVESTMENT IN LEASE, WHAT IS RE QUIRED IS THAT OUT OF REPAYMENT RECEIVED BY THE LESSER FROM THE LESSEE, THE INCOME PORTION SHOULD BE ACCOUNTED FOR AS INCOME AND THE BALANCE SHOULD BE TREATED AS REPAYMENT OF PRINCIPAL AND SUCH PRINCIPAL REPAYMENT SHOULD BE REDUCED FROM THE VALUE OF THE LE ASED ASSET. IN THE PRESENT CASE, THE ASSESSEE IS 6 SHOWING THAT THE VALUE APPEARING IN SCHEDULE - 8 IS AT AGREEMENT VALUE LESS INSTALLMENT RECEIVED, WHICH MEANS THAT THE AGREEMENT VALUE INCLUDES THE INCOME PORTION OF UNEXPIRED LEASED PERIOD OR HYPOTHECA TION P ERIOD AND THEREFORE, THE AMOUNT SHOWN BY THE ASSESSEE IN ITS BALANCE SHEET IS THE NET VALUE OF INVESTMENT + UN ACCRUED INCOME FOR THE BALANCE LEAS E PERIOD OR HYPOTHE CATION PERIOD. THEREFORE, THIS BALANCE SHEET OF THE ASSESSEE COMPANY DOES NOT SUGGEST THAT THE ASSESSEE IS FOLLOWING AS - 19 TO DISCLOSE ITS ASSETS AND THEREFORE, IT CANNOT BE ACCEPTED THAT THIS IS A CASE OF FINANCE LEASE. HENCE, WE ARE OF THE CONSIDERED OPINION THAT AFTER CONSIDERING THE FACTS OF THE PRESENT CASE, IT CANNOT BE SAID THAT THE IMPU GNED FINANCES WERE GIVEN BY THE COMPANY SARNATH FINANCE LIMITED TO THE ASSESSEE ARE IN ITS ORDINARY COURSE OF BUSINESS AND THEREFORE, THE SAME IS NOT COVERED BY THE EXCLUSIONARY CLAUSE (II) OF SECTION 2(22)(E) OF THE ACT. WE, THEREFORE, DECLINE TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GAROD IA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12 /06/2015 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR