Varusai Mohamed, CHENNAI V. DCIT, CHENNAI

ITA 662/CHNY/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5031 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 17-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN IRS
• Assessee Lawyers: JHARNA B HARILAL

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, B (SMC) BENCH : CHENNAI . , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO.662/MDS/2017 / ASSESSMENT YEAR : 2009-2010. SHRI. VARUSAI MOHAMED, NO.6, ZHACKRIA COLONY, CHOOLAIMEDU HIGH ROAD, CHENNAI 600 094. [PAN AADPV 3263F] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(1) CHENNAI 600 034. ( !' / APPELLANT) ( #$!' /RESPONDENT) / APPELLANT BY : MS. JHARNA B. HARILAL, FCA /RESPONDENT BY : SHRI. B. SAGADEVAN, IRS, JCIT. /DATE OF HEARING : 02-01-2018 !' /DATE OF PRONOUNCEMENT : 08-01-2018 % / O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE, DIRECTED AGAINST AN ORDER DATED 30.11.2016 OF LD. COMMISSIONER OF INCOM E TAX (APPEALS)- 3, CHENNAI, WHEREIN HE SUSTAINED AN ADDITION OF B14 ,50,116/- OUT OF A TOTAL ADDITION OF B31,00,116/- MADE BY THE LD. ASS ESSING OFFICER. 2. ASSESSEE HAS FILED THIS APPEAL WITH A DEL AY OF THIRTEEN DAYS. CONDONATION PETITION HAS BEEN FILED. REASON SHOWN FOR THE DELAY SEEM ITA NO.662 /MDS/2017. :- 2 -: TO BE JUSTIFIED. LD. DEPARTMENTAL REPRESENTATIVE D ID NOT RAISE ANY SERIOUS OBJECTION. DELAY IS CONDONED. APPEAL IS A DMITTED. 3. FACTS APROPOS ARE THAT ASSESSEE HAD FILED HIS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DISCLOSING INCOME OF B3,67,400/-. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, IT WAS NOTED BY THE LD. ASSESSING OFFICER THAT ASSESSEE HA D TAKEN LOANS AGGREGATING 31,00,116/- FROM ONE M/S. RASIM EXPORTS PRIVATE LIMITED (HEREINAFTER AS THE COMPANY) WHERE HE WAS A DIRECTO R HOLDING SHARES IN EXCESS OF 10%. THE SAID COMPANY WAS HAVING ACCU MULATED PROFITS OF B2,90,57,875/- AS ON 31.03.2009. EXPLANATION OF THE ASSESSEE WAS SOUGHT AS TO WHY SEC.2(22) (E) OF THE INCOME TAX AC T, 1961 (IN SHORT THE ACT) SHOULD NOT BE APPLIED. HIS REPLY WAS T HAT HE HAD GIVEN IMMOVABLE PROPERTY VALUED AT B54.55 LAKHS AS COLLA TERAL SECURITY FOR LOANS RAISED BY THE SAID COMPANY AND ALSO PROVIDED PERSONAL GUARANTEE FOR SUCH LOANS. AS PER THE ASSESSEE, THE COMPANY HAD TAKEN LOANS FROM BANKS FOR MEETING ITS WORKING CAP ITAL REQUIREMENT, AND BUT FOR SUCH PERSONAL GUARANTEE AND COLLATERAL SECURITY OFFERED BY HIS, THE CONCERNED BANKS WOULD NOT HAVE PROVIDED SU CH CREDIT FACILITY. FURTHER, AS PER THE ASSESSEE, THERE WERE CONTINUO US TRANSACTIONS BETWEEN HIM AND THE COMPANY. THUS, THE CLAIM OF TH E ASSESSEE WAS THAT SEC.2(22) (E) OF THE ACT COULD NOT BE APPLIED ON THE AMOUNTS RECEIVED BY HIM AS ADVANCE FROM THE COMPANY. ASSES SEE ALSO RELIED ITA NO.662 /MDS/2017. :- 3 -: ON A DECISION OF CO-ORDINATE BENCH IN THE CASE OF CIT VS. G. SREEVIDYA, 138 ITD 427 AND THAT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF PRADIP KUMAR MALHOTRA VS. CIT, 338 ITR 538 . 4. HOWEVER, LD. ASSESSING OFFICER DID NOT ACCEPT THE ABOVE REPLY. ACCORDING TO HIM, THE COMPANY HAD A TURNOVER OF B8,57,12,270/- DURING THE RELEVANT PREVIOUS YEAR. A S PER THE LD. ASSESSING OFFICER THE COMPANY THOUGH IT WAS GRANT ED CREDIT FACILITIES BY STATE BANK OF HYDERABAD, FOR WHICH COLLATERAL S ECURITY AND PERSONAL GUARANTEE WERE GIVEN BY THE ASSESSEE, IT HAD NOT AV AILED ANY SUCH CREDIT FACILITIES. ON THE OTHER HAND, AS PER LD. AS SESSING OFFICER BILL DISCOUNTING CREDIT OF THE COMPANY WITH STATE BANK OF HYDERABAD STOOD REDUCED FROM B44,42,006/- TO B29,44,485/-. L D. ASSESSING OFFICER NOTED THAT FOR OTHER BANK LOANS, NO DOCUMEN TS WERE FURNISHED BY THE ASSESSEE FOR ANY GUARANTEE GIVEN BY HIM. AS PER THE LD. ASSESSING OFFICER, IN THE CASE OF G. SREEVIDYA (SUPRA ) DECIDED BY THE CO-ORDINATE BENCH, THE CONCERNED ASSESSEE HAD GIVE N COLLATERAL FOR A BANK GUARANTEE, ON A PRE-CONDITION THAT THE CONCERN ED COMPANY GAVE LOANS TO HIM. AS FOR THE JUDGMENT OF HONBLE CALC UTTA HIGH COURT IN THE CASE OF PRADIP KUMAR MALHOTRA (SUPRA ) VIEW TAKEN BY THE LD. ASSESSING OFFICER WAS THAT THE BOARD OF DIRECTORS OF THE CONCERNED COMPANY FROM WHERE SHRI PRADIP KUMAR MALHOTRA HAD T AKEN LOANS, HAD PASSED A RESOLUTION ENABLING THEM TO GIVE LOANS TO PRADIP KUMAR ITA NO.662 /MDS/2017. :- 4 -: MALHOTRA. THUS ACCORDING TO HIM, BOTH THE CASES RE LIED ON BY THE ASSESSEE WERE ON DIFFERENT SET OF FACTS. HE HELD T HAT THE SUM OF B31,00,116/- TAKEN BY THE ASSESSEE AS LOAN/ADVANCE FROM M/S. RASIM EXPORTS PRIVATE LIMITED WAS DEEMING DIVIDEND U/S.2( 22)(E) OF THE ACT. AN ADDITION WAS MADE AND ASSESSMENT COMPLETED ACCO RDINGLY. 5. AGGRIEVED, ASSESSEE MOVED IN APPEAL BE FORE LD. COMMISSIONER OF INCOME. AS PER THE ASSESSEE PERSO NAL GUARANTEE WAS GIVEN BY HIM FOR THE TERM LOAN RAISED BY THE CO MPANY FROM SIDBI AND THIS WAS CLEAR FROM THE LETTER ISSUED BY SIDBI. AGAIN AS PER THE ASSESSEE, HE HAD FILED AN AFFIDAVIT WITH REGARD TO THE IMMOVABLE PROPERTY OFFERED BY HIM AS COLLATERAL SECURITY FOR LOANS AVAILED BY THE COMPANY FROM STATE BANK OF HYDERABAD. CONTENTION OF THE ASSESSEE WAS THAT THERE WAS A MUTUAL AGREEMENT BETWEEN HIM A ND THE COMPANY, BY WHICH THE LATTER HAD AGREED TO PROVIDE FINANCIAL ASSISTANCE TO THE ASSESSEE AS AND WHEN REQUIRED BY HIM. 6. HOWEVER, LD. COMMISSIONER OF INCOME TA X (APPEALS) WAS NOT IMPRESSED BY THE ABOVE ARGUMENTS. NEVERTHELESS HE FOUND THAT ASSESSEE HAD GIVEN A LOAN OF B16,50,000/- TO COMPAN Y AND HENCE ONLY THE NET AMOUNT OF B14,50,116/- COULD BE CONSIDERED FOR ADDITION U/S.2(22) (E) OF THE ACT. THUS HE CONFIRMED THE AD DITION TO THE EXTENT OF B14,50,116/-. ITA NO.662 /MDS/2017. :- 5 -: 7. NOW BEFORE ME, LD. AUTHORISED REPRESENTATIVE STRONGLY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBMI TTED THAT INTENTION OF THE LEGISLATURE FOR INSERTING SEC.2(22) (E) OF THE ACT WAS CLEAR FROM THE DECISION OF THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. GAYATRI CHAKRABORTY (2016) 45 ITR(TRIB) 197 . ACCORDING TO HER, UNLESS ASSESSEE HAD GIVEN A PERSONAL GUARANTEE AND COLLATERAL SECURITY FOR THE LOANS RAISED BY THE COMPANY, IT COULD NOT HAVE FULFILLED ITS EXPORT COMMITMENTS. AS PER THE LD. AUTHORISED REPRE SENTATIVE, THERE WAS A BOARD RESOLUTION OF THE COMPANY AUTHORIZING T HE ASSESSEE TO WITHDRAW FUNDS FROM THE COMPANY FOR HIS PERSONAL US E. CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT TRANSAC TIONS WERE QUID- PRO-QUO AND COMMERCIAL IN NATURE. AS PER THE LD. AU THORISED REPRESENTATIVE THIS ARRANGEMENT WAS PURELY BASED O N BUSINESS EXPEDIENCY. LD. AUTHORISED REPRESENTATIVE FURTHER, SUBMITTED THAT THERE WAS AN ORALLY AGREED PRE-CONDITION IN THIS R EGARD BETWEEN THE ASSESSEE AND THE COMPANY WHEN HE PROVIDED THE PERSO NAL GUARANTEE AND COLLATERAL SECURITY. AS PER THE LD. AUTHORISED REPRESENTATIVE THIS WAS CLEAR FROM THE BOARD RESOLUTION DATED 30 TH JUNE, 2008. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH CO URT IN THE CASE OF CIT VS. CREATIVE DYEING AND PRINTING P. LTD 318 ITR 476 AND THAT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NAGINDAS M. KAPADIA, 177 ITR 393. SHE THUS ARGUED THAT THE ADVANCE RECEIVED BY ITA NO.662 /MDS/2017. :- 6 -: THE ASSESSEE FROM THE COMPANY STOOD OUTSIDE THE PRE VIEW OF SEC.2(22) (E) OF THE ACT. 8. PER CONTRA, LD. DEPARTMENTAL REPRESENT ATIVE STRONGLY SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW SUBM ITTED THAT DECISION OF CO-ORDINATE BENCH IN THE CASE OF G. SREEVIDYA (SUPRA) HAD NO APPLICABILITY SINCE THERE WAS NO PRE-CONDITION ATTA CHED TO THE PERSONAL GUARANTEE AND COLLATERAL SECURITY OFFERED BY THE AS SESSEE. FURTHER ACCORDING TO HIM, THE BOARD RESOLUTION WAS ALSO NOT ON RECORD. 9. AD LIBITUM REPLY OF THE LD. AUTHORISED REPRESE NTATIVE WAS THAT THE BOARD RESOLUTION WAS VERY MUCH THERE. IN ANY CASE, ACCORDING TO HER, THIS WAS NOT A VITAL INGREDIENT T O SHOW THAT THERE WAS A RECIPROCAL ARRANGEMENT. ACCORDING TO HER, ADDITI ON U/S.2(22)(E) OF THE ACT WAS NOT JUSTIFIED IN LAW. 10. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. LD. ASSESSING OFFI CER IN THE ASSESSMENT ORDER HAS CLEARLY NOTED THAT THE COMPANY M/S. RASIM EXPORTS PRIVATE LIMITED HAD NOT AVAILED ANY CASH CREDIT FACILITY FROM STATE BANK OF HYDERABAD. HE HAS ALSO NOTED THAT MA JOR INTEREST EXPENDITURE INCURRED BY THE COMPANY WAS ON TERM LO ANS FROM SIDBI. LD. ASSESSING OFFICER ALSO STATES THAT ASSESSEE WAS UNABLE TO FURNISH DOCUMENTS REGARDING COLLATERAL SECURITY GIVEN BY HI M FOR BANK LOANS ITA NO.662 /MDS/2017. :- 7 -: OTHER THAN TO STATE BANK OF HYDERABAD. TERMS AND C ONDITIONS ATTACHED TO THE FINANCIAL ASSISTANCE PROVIDED BY S IDBI TO M/S. RASIM EXPORTS PRIVATE LIMITED PLACED AT PAPER BOOK PAPE RS 15 TO 17 STATE AS UNDER:- COLLATERAL SECURITY FIRST CHARGE BY WAY OF MORTGAGE IN FAVOUR OF SIDBI ON ALL THE IMMOVABLE PROPERTIES (BOTH PRESENT AND FUTURE) ALONGWITH BUILDING AND OTHER STRUCTURES COMPRISED I N SF NO.S. NO.127/2 & 98/5 AND SITUATE AT POONAMALEE HI GH ROAD, GOPARASANALLUR AND SENNERKUPPAM VILLAGE, POONAMALLE TALUK, THIRUVALLUR DIST, ADMEASURING 173 97 SQ.FT. DISBURSEMENT IF ANY, PENDING CREATING OF SECURITY A S ABOVE SHALL CARRY ADDITIONAL INTEREST OF 1% P.A. FROM THE DATE OF DISBURSEMENT. 3. GUARANTEE PERSONAL GUARANTEE THE BORROWER SHALL PROCURE AND FURNISH UNCONDITIONA L AND IRREVOCABLE GUARANTEES OF SHRI. R. VARUSAI MOHAMED, SMT. V. FASULUNNISA AND SMT. P. NOORJAHAN. THE GUARANTEE S HALL BE JOINT AND SEVERAL AND NO GUARANTEE COMMISSION SHALL BE PAYABLE BY THE BORROWER TO THE GUARANTORS. WHAT IS STATED IN THE BOARD RESOLUTION DATED 30.06. 2008 PLACED AT PAPER BOOK PAGE 33 READ AS UNDER:- CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OFM/S. RASIM EXPORTS PRIVATE LIMITED HELD ON 30.06.2008 AT ANNEXURE BUILDING, DTA UNIT, 2/230, ETHIRAJ 2 ND STREET, AVADI ROAD, KARAIYANCHAVADI, CHENNAI 600 056. RESOLVED THAT THE COMPANY HAS DECIDED TO AUTHORIZE ITS DIRECTORS, MR. R. VARUSAI MOHAMED AND MRS. V. FASULUNNISA TO WITHDRAW FUNDS FROM THE COMPANY AS PER REQUIREMENT FOR PERSONAL PURPOSES AGAINST THE PERSONAL GUARANTEE AND THE COLLATERAL SECURITY GIVEN BY THEM FOR FACILITATING THE ENHANCEMENT OF CREDIT FACILITY TAKEN BY THE COMPANY ITA NO.662 /MDS/2017. :- 8 -: SPECIMEN SIGNATURES OF DIRECTORS:- 1. NAME AND SIGNATURE - MR. R. VARUSAI MOHAMED 2. NAME AND SIGNATURE MRS. V. FASULUNNISA.. AS FOR THE COLLATERAL OFFERED BY THE ASSESSEE FOR LOANS RAISED BY THE COMPANY FROM STATE BANK OF HYDERABAD, THERE IS AN AFFIDAVIT OF THE ASSESSEE WHICH IS PLACED AT PAPER BOOK PAGES 21 TO 25. WHAT IS STATED AT PARA 3 TO 9 OF THIS AFFIDAVIT IS APPOSI TE AND THIS IS REPRODUCED HEREUNDER:- 3. THAT I AM/ WE ARE OWNER(S) OF THE PROPERTY WITH POSSESSION AND L/WE HAVE ABSOLUTE RIGHTS AND POWERS FOR MORTGAGING THE PROPERTY. 4. THAT THE PROPERTY BELONGS TO OUR JOINT FAMILY AND I /WE HAVE OFFERED THE PROPERTY AS SECURITY TO THE BANK T HE CONSENT OF ALL CO-PARCENERS IN MY/OUR FAMILY. {I/WE HAVE BE EN AUTHORISED BY THE OTHER CO-PARCENERS/JOINT OWNERS/J OINT FAMILY MEMBERS TO CREATE THE MORTGAGE IN FAVOUR OF THE BAN K.] ** 5. THAT THE BANK HAS SANCTIONED VARIOUS CREDIT FACI LITIES TO SHRI/M/S. RASIM EXPORTS PVT LTD.,2/230 ETHLRAJ NAIDU COMPLEX, AVADI ROAD, KARAIYANCHAYADI CHENNAI - 56 ON MY/OUR CONFIRMATION TO GIVE SAID PROPERTY AS SECURITY. 6. THAT THE PROPERTY IS FREE FROM ALL ENCUMBRANCES, CHARGES ETC., AND THERE ARE NO DUES PAYABLE TO ANY STATUTOR Y AUTHORITIES OR OTHERS IN RESPECT OF THIS PROPERTY. NO TAXES, OR LEVIES OR FEES ARE PAYABLE' TO ANY MUNICIPAL OR OTH ER. 7. THAT THE PROPERTY IS NOT THE SUBJECT MATTER OF A NY AGREEMENT OF SALE OR OTHER AGREE1NENT OR ATTACHMENT , INJUNCTION FROM ANY COURT OR STATUTORY AUTHORITIES. 8. THAT THERE IS NO LITIGATION PENDING ILL RESPECT OF THIS PROPERTY. ITA NO.662 /MDS/2017. :- 9 -: 9. THAT NO INTEREST IN FAVOUR OF ANY THIRD PARTY IS CREATED IN RESPECT OF THE PROPERTY. . A QUESTION FROM THE BENCH WHETHER THE SAME PROPERTY WAS OFFERED AS COLLATERAL TO BOTH SIDBI AS WELL AS STATE BANK OF H YDERABAD, DID NOT ELICIT A CLEAR ANSWER FROM THE LD. AUTHORISED REPR ESENTATIVE. RESOLUTION OF THE COMPANY WHICH HAS BEEN REPRODU CED DOES NOT SPECIFY THE AMOUNT WHICH ASSESSEE COULD WITHDRAW F ROM THE COMPANY. IT IS HIGHLY IMPROBABLE FOR A PRUDENT COM PANY TO AUTHORIZE A SHARE HOLDER TO WITHDRAW FUNDS FROM IT, WITHOUT S ETTING OUT ANY LIMIT, BASED ONLY ON THE PERSONAL REQUIREMENT OF THE CONCE RNED SHAREHOLDER. HOWEVER, IF THE ASSESSEE IS ABLE TO DEMONSTRATE THA T HE HAD SUFFERED A DETRIMENT BY OFFERING OF PERSONAL GUARANTEE AND COLLATERAL TO THE LOANS RAISED BY THE COMPANY, THERE INDEED CAN BE A N ELEMENT OF QUID- PRO-QUO. AS MENTIONED BY THE LD. DEPARTMENTAL REPR ESENTATIVE IN THE CASE OF PRADIP KUMAR MALHOTRA (SUPRA) DECIDED BY HONBLE CALCUTTA HIGH COURT, THERE WAS ON RECORD, A CLEAR BOARD RESO LUTION SPECIFYING THE PARAMETERS WITHIN WHICH A LOAN WAS TO BE GIVEN. IN THE CASE OF SRIVIDYA (SUPRA ) DECIDED BY CO-ORDINATE BENCH OF THE TRIBUNAL, THE COLLATERAL SECURITY GIVEN BY THE CONCERNED ASSESSEE WAS ATTACHED WITH A PRE-CONDITION THAT HE WILL BE GIVEN LOANS BY THE CONCERNED COMPANY. I ALSO FIND THAT LD. ASSESSING OFFICER HAD NOT EXAM INED THE QUESTION WHETHER ASSESSEE HAD GIVEN THE SAME COLLATERAL SEC URITY FOR LOANS ITA NO.662 /MDS/2017. :- 10 -: RAISED BY THE ASSESSEE FROM SIDBI AND STATE BANK OF HYDERABAD AND HOW FAR THE CLAIM WAS CORRECT. MUCH MORE FACTS HA VE TO BE BROUGHT ON RECORD BEFORE THE QUESTION WHETHER THE LOANS TA KEN BY THE ASSESSEE COULD BE DEEMED AS DIVIDEND CAN BE PROPERL Y ADDRESSED. CONSIDERING THESE CIRCUMSTANCES, I AM OF THE OPINIO N THAT ISSUE REQUIRES A FRESH LOOK BY THE LD. ASSESSING OFFICER. I SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE ISSUE REGARDING ADDITION U/S.2(22) (E) OF THE ACT BACK TO THE FILE OF THE LD . ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED ON MONDAY, THE 8TH DAY OF JANUA RY, 2018, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 8 TH JANUARY, 2018 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,- / CIT(A) 5. )./ 0 / DR 2. / RESPONDENT 4. + / CIT 6. /12 / GF