M/s Sagar International, RAJKOT-GUJARAT V. The Assistant Commr. Income Tax,Cir-2 (1), RAJKOT-GUJARAT

ITA 72/RJT/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6678 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 29-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAVEE VERMA
• Assessee Lawyers: DM RINDANI
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT [CONDUCTED THROUGH E-COURT AT AHMEDABAD] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA NO. 72/RJT/2016 ASSESSMENT YEAR : 2012-13 M/S. SAGAR INTERNATIONAL, D-402, IMPERIAL HEIGHTS, 150 FT. RING ROAD, RAJKOT-360005 PAN : AAHFS 3131 M VS THE ACIT, CIRCLE 2(1), RAJKOT / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI D.M. RINDANI, AR REVENUE BY : SHRI PRAVEE VERMA, SR DR / DATE OF HEARING : 22/02/2017 / DATE OF PRONOUNCEMENT: 14/03/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-2, RAJK OT DATED 21.12.2015 PASSED FOR ASSESSMENT YEAR 2012-13. 2. BRIEFLY STATED, THE ASSESSEE IS A PARTNERSHIP FI RM AND IS ENGAGED IN THE TRADING OF AGRICULTURAL PRODUCTS ETC. IT FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.17,67,800/- FOR THE AS SESSMENT YEAR 2012-13. THE RETURN WAS SUBJECTED TO SCRUTINY ASSESSMENT. TH E ASSESSING OFFICER, IN THE COURSE OF ASSESSMENT, INTER ALIA, OBSERVED THAT THE ASSESSEE HAD ACCEPTED UNSECURED LOAN OF RS.7,27,57,286/- DURING THE YEAR FROM M/S. GUJARAT PEANUT PRODUCT PVT. LTD., WHICH WAS REPAID IN THE SAME YEAR. THE RESERVE & SURPLUS OF THE LENDER M/S. GUJARAT PE ANUT PRODUCT PVT. ITA NO.72/RJT/2016 M/S. SAGAR INTERNATIONAL VS. ACIT AY: 2012-13 2 LTD. STANDS AT RS.6,53,365/-. THE ASSESSING OFFIC ER FOUND THAT THE AFORESAID LOAN IS COVERED BY THE PROVISIONS OF SECT ION 2(22)(E) OF THE INCOME-TAX ACT, 1961. HE ACCORDINGLY BROUGHT THE U NSECURED LOAN RECEIVED BY THE ASSESSEE FROM LENDER TO TAX AS DEEM ED DIVIDEND TO THE EXTENT OF ACCUMULATED PROFITS, I.E. RS.6,53,365/-. 3. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT THE ASSESSE E-FIRM IS NOT A SHAREHOLDER OF THE LENDER COMPANY AS THE SHARES ARE HELD AND REGISTERED IN THE NAME OF THE PARTNERS. ACCORDINGLY, PROVISION S OF SECTION 2(22)(E) OF THE ACT ARE NOT ATTRACTED IN THE CASE OF THE ASSESS EE. THE CIT(A), HOWEVER, DID NOT FIND FORCE IN THE CONTENTION OF TH E ASSESSEE TOWARDS NON-APPLICATION OF SECTION 2(22)(E) IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NATIONAL TR AVEL SERVICES (2012) 347 ITR 305 (DELHI). 4. THE RELEVANT OPERATIVE PARAGRAPH OF THE ORDER OF THE CIT(A) READS AS UNDER:- 5. I HAVE CAREFULLY CONSIDERED THE ISSUE OF DEEMED DIV IDEND, SUBMISSIONS OF THE APPELLANT AND THE DISCUSSIONS MA DE IN THE ASSESSMENT ORDER. IT IS DISCUSSED IN THE ASSESSMENT ORDER IN PARA 5 O N PAGE 2 THAT APPELLANT HAS ACCEPTED THE UNSECURED LOAN FROM GUJA RAT PEANUT PRODUCTS PVT LTD. AS PER AUDIT REPORTS ANNEXURE-3, PARA24( A) AND (B) AND REPAID IN THE SAME YEAR. THE AO FURTHER DISCUSSED THAT AU DIT REPORTS SCHEDULE-2 RESERVE AND SURPLUS OF GUJARAT PEANUT PRODUCTS PVT LTD SHOWED A SURPLUS OF RS.6,53,365/- AS PER ORDER SHEET ENTRY DATED 08. 12.2014 AND THE AR AGREE TO PAY TAX LIABILITY FOR THAT. THE AO HAS RE PRODUCED RELEVANT PART OF THE PROVISION OF SECTION 2(22)(E) AND DISCUSSED THE FACTS WITH REFERENCE TO EXPLANATION 3 APPENDED TO SECTION 2(22)(E) ON DEEME D DIVIDEND CONSIDERED ITA NO.72/RJT/2016 M/S. SAGAR INTERNATIONAL VS. ACIT AY: 2012-13 3 IN THE LIGHT OF DECISION IN THE CASE OF CIT VS. NAT IONAL TRAVEL SERVICES (2012), DELHI (HC). THE APPELLANT SUBMISSION HAS N O SUBSTANCE AND MERIT ON THE ISSUED INVOLVED. EVEN THE CITATION RE LIED UPON WOULD NOT COME IN SUPPORT TO THE APPELLANT AS THE FACTS ARE D IFFERENT. THE DECISION OF THE AO REGARDING ADDITION OF DEEMED DIVIDEND INCOME IS JUSTIFIED AND HEREBY CONFIRMED. THE GROUND OF APPEAL IS DISMISSED . 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE PREFERRED APPEAL BEFORE THE TRIBUNAL. 6. THE SHORT QUESTION THAT ARISES FOR CONSIDERATION IN THE INSTANT CASE IS WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN A PPLYING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WHEN THE ASSESSEE-FI RM CLAIMS THAT IT IS NOT A REGISTERED SHAREHOLDER OF THE LENDER COMPANY, BUT O NLY A BENEFICIAL OWNER OF THE SHARES OF THE LENDER COMPANY. IN THE INSTANT CASE, THE LOANS AND ADVANCES IN QUESTION IS LENT TO THE ASSESSEE-FI RM WHICH IS A PARTNERSHIP-FIRM. THE SHARES OF THE LENDER COMPANY ARE REGISTERED IN THE NAME OF PARTNER(S) OF THE ASSESSEE-FIRM. THE PARTNE R(S) ARE THE SHAREHOLDERS OF THE LENDER COMPANY AND HOLDS SUBSTA NTIAL INTEREST IN THE ASSESSEE-FIRM AND THUS HOLDS SUBSTANTIAL INTEREST I N THE ASSESSEE-FIRM. IT IS ALSO NOT IN DISPUTE THAT THE PARTNERS ARE ENTITLED TO NOT LESS THAN 20% OF THE INCOME OF THE PARTNERSHIP-FIRM. IN VIEW OF THE AFORESAID UNCONTROVERTED POSITION, PROVISIONS OF SECTION 2(22 )(E) GETS ATTRACTED NOTWITHSTANDING THE FACT THAT PARTNERSHIP FIRM PER SE IS NOT A REGISTERED SHAREHOLDER OF THE LENDER COMPANY BUT HOLDS SHARE T HROUGH ITS PARTNERS. THEREFORE, THE TAXABILITY OF THE MONEY RECEIVED FRO M THE LENDER COMPANY LIES IN THE HANDS OF THE ASSESSEE-FIRM. ON SIMILAR FACTS, HONBLE DELHI HIGH COURT IN THE CASE OF NATIONAL TRAVEL SERVICES (SUPRA) HAS TAKEN A VIEW AGAINST THE ASSESSEE. IT WAS HELD THEREIN THA T FOR THE PURPOSES OF SECTION 2(22)(E), PARTNERSHIP FIRM IS TO BE TREATED AS SHAREHOLDER AND IT IS ITA NO.72/RJT/2016 M/S. SAGAR INTERNATIONAL VS. ACIT AY: 2012-13 4 NOT NECESSARY THAT FIRM HAS TO BE A REGISTERED SHAR EHOLDER. IN THAT CASE ALSO, THE LOAN WAS GIVEN TO THE PARTNERSHIP FIRM AN D THE PARTNERSHIP FIRM WAS NOT A REGISTERED SHAREHOLDER OF THE LENDER COMP ANY, BUT THE PARTNERS OF THE FIRM WERE REGISTERED SHAREHOLDERS. THUS, IN VIEW OF THE PARITY OF REASONING, WE CONCUR WITH THE VIEW TAKEN BY THE CIT (A) IN DENYING THE RELIEF. IT WILL BE PERTINENT TO ALSO REFER THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF GOPAL AND SONS (HUF) AND CIT I N CIVIL APPEAL NO.12274 OF 2016, ORDER DATED 04.01.2017, WHEREIN T HE HONBLE SUPREME COURT DECIDED THE CASE ADVERSE TO THE ASSESSEE ON S IMILAR FACTS. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE ASSESSEE. 7. IN THE COURSE OF HEARING, IT WAS ALSO SOUGHT TO BE ARGUED BY THE LD. AR FOR THE ASSESSEE THAT THE ACCUMULATED PROFITS (R ESERVE AND SURPLUS) OF RS.6,53,365/-, WHICH IS TAKEN FOR THE PURPOSE OF DE TERMINATION OF DEEMED DIVIDEND, REPRESENTS SURPLUS AT THE END OF THE YEAR . HE CONTENDED THAT THE RESERVE AND SURPLUS AS APPEARING AT THE BEGINNI NG OF THE YEAR SHOULD BE TAKEN FOR THE PURPOSE OF QUANTIFICATION OF ACCUM ULATED PROFITS. HE ACCORDINGLY PLEADED THAT FOR THIS LIMITED PURPOSE O F QUANTIFICATION OF ACCUMULATED PROFITS, THE ISSUE MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. IN THIS CONTEXT, WE OBSERVE THA T THE ACCUMULATED PROFITS FOR THE PURPOSES OF SECTION 2(22)(E) OF THE ACT INCLUDES PROFITS OF THE COMPANY TILL THE DATE OF DISTRIBUTION OR PAYMEN T. THEREFORE, THE ACCUMULATED PROFITS AS ON THE DATE OF PAYMENT OR DI STRIBUTION MAY BE APPLIED IN SUBSTITUTION OF FIGURES ADOPTED BY THE A SSESSING OFFICER. TO THIS EXTENT, THE ASSESSEE GETS RELIEF TOWARDS QUANT IFICATION OF ADDITION UNDER SECTION 2(22)(E) OF THE ACT. THE ASSESSEE SH ALL BE AT LIBERTY TO ADDRESS THE ASSESSING OFFICER ON THE QUANTIFICATION IN TERMS OF DIRECTIONS ITA NO.72/RJT/2016 M/S. SAGAR INTERNATIONAL VS. ACIT AY: 2012-13 5 NOTED ABOVE, IF HE SO CONSIDERS EXPEDIENT. THE ASS ESSING OFFICER MAY SATISFY ITSELF ON THE QUANTIFICATION IN ACCORDANCE WITH LAW. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 14 TH MARCH, 2017 AT AHMEDABAD SD/- SD/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED 14/03/2017 *BT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! / CONCERNED CIT 4. ! ( ) / THE CIT(A) 5. , / DR, ITAT, RAJKOT 6. & / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) ' #, / ITAT, RAJKOT