ASHOK GOYAL, MUMBAI V. ACIT CIR 6(1), MUMBAI

ITA 7412/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8336 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2002-2003
• Appeal Filed On: 29-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed to accrue or arise in india; Deemed dividend
• Section: 143(3)

Judgement Text

I .T.A NO.7412/ MUM/2010 ASHOK GOYAL 1 IN THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH, MUMBAI. BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER I.T.A NO.7412/ MUM/2010 ASSESSMENT YEAR: 2002-03 ASHOK GOYAL. .. APPELLANT B-303/304, SHAGUN MAHAL GILM CITY ROAD, GOREGAON (E), MUMBAI PA NO.AAFPG 8896 D VS ACIT, CIRCLE 6(1) .. RESPONDEN T MUMBAI. APPEARANCES: S.C.TIWARI, FOR THE APPELLANT R.K. GUPTA, FOR THE RESPONDENT O R D E R 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED INTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 28.6.2010, IN THE MATTER OF ASSE SSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 FOR THE ASSESSME NT YEAR 2002-03. 2. THE SHORT GRIEVANCE THAT I AM REQUIRED TO ADJUDIC ATE IN THIS APPEAL IS WHETHER OR NOT THE CIT (A) WAS JUSTIFIED IN UPHOLDING THE ADD ITION OF ` .2,52,192 MADE IN THE HANDS OF THE ASSESSEE AS DEEMED DIVIDEND UNDER SECTION 2(2 2)(E) OF THE INCOME TAX ACT, 1961. 3. THE MATERIAL FACTS GIVING RISE IN THIS APPEAL ARE L IKE THIS. WHILE THE ASSESSEE FILED HIS RETURN OF INCOME DISCLOSING TOTAL INCOME AT ` .1,43,335 ON 30.6.2001, THE ASSESSING OFFICER, BASED ON THE FINDINGS IN SURVEY PROCEED INGS IN THE CASE OF BLR I .T.A NO.7412/ MUM/2010 ASHOK GOYAL 2 INDIA PVT. LTD, IN WHICH THE ASSESSEE WAS DIRECTOR, REQU IRED THE ASSESSEE TO SHOW CAUSE AS TO WHY AMOUNTS RECEIVED BY THE ASSESSEE FROM BL R INDIA PVT. LTD AND PAYMENT OF HOME LOAN INSTALMENT MADE ON BEHALF OF TH E ASSESSEE BY THE SAID COMPANY, NOT BE TREATED AS DEEMED INCOME IN THE HAND S OF THE ASSESSEE. IN RESPONSE TO THE SAID REQUISITION, IT WAS EXPLAINED BY THE ASSESSEE THAT BLR INDIA PVT. LTD IS USING SIX WAREHOUSES OWNED BY MRS NILU GOYAL, AND AS AGAI NST INTEREST FREE DEPOSITS GENERALLY REQUIRED TO BE PAID AT THE TIME OF HIRIN G THE WAREHOUSES, THE COMPANY HAS ALLOWED THE CREDIT LINE TO THE OWNER OF THE WAREHOU SES, AND AS ALSO HER IMMEDIATE FAMILY MEMBERS THE CREDIT LINE TO THE TUNE OF ` .2.00 CRORES. IT WAS EXPLAINED THAT IN TERMS OF THE ARRANGEMENT WHICH WERE ENTERED INTO BY BLR INDIA PVT. LTD WITH MRS NILU GOYAL, MRS NILU GOYAL OR HER FAMILY MEMBERS COUL D AVAIL CREDIT LINE UPTO ` .2 CRORES AS AND WHEN REQUIRED BASIS. THIS COMMERCIAL ARR ANGEMENT WAS SAID TO BE JUSTIFIED ON THE GROUND THAT THE FUNDS OF THE COMPANY WILL NOT BE UNNECESSARILY BLOCKED IN INTEREST FREE DEPOSITS AND AT THE SAME TIME IT WILL GIVE FLEXIBILITY TO THE OWNERS OF THE WAREHOUSES FOR USING FUNDS WHICH CLEARLY W OULD HAVE BEEN ACCEPTED AS INTEREST FREE DEPOSITS. IT WAS ALSO EXPLAINED THAT THE WAREHOUSES WHICH WERE SO USED BY BLR INDIA PVT. LTD WERE FINALLY PURCHASED BY THE COMPANY IN F.Y. 2007-08 BY MAKING A PAYMENT OF ` .5.70 CRORES TO MRS NILU GOYAL. IN ESSENCE THUS, THE ASS ESSEE SOUGHT TO JUSTIFY THE COMMERCIAL ARRANGEMENTS IN RESPEC T OF CREDIT LINE OF ` .2 CRORES TO MRS GOYAL AND AS ALSO HER FAMILY MEMBERS IN LIEU OF INTEREST FREE DEPOSITS WHICH NORMALLY THE COMPANY WAS REQUIRED TO PLACE WHILE TAK ING WAREHOUSES ON HIRE. WHILE THE AO DID NOT DISPUTE OR CALL INTO QUESTION THE GEN UINENESS OF THE COMMERCIAL ARRANGEMENTS, HE REJECTED THE SUBMISSIONS OF THE ASSESSEE ON THE SHORT GROUND THAT WAREHOUSES WERE OWNED BY MRS NILU GOYAL AND, THEREFORE , THE ADVANCES SO REPORTED TO HAVE BEEN MADE BY THE ASSESSEE WERE REQUIRED TO BE MADE TO THE PROPRIETOR OF M/S. NILU WAREHOUSING CORPORATION I.E. MRS NILU GOYAL. THE ASSESSING OFFICER THUS PROCEEDED TO TREAT ` .2,52,192 AS DEEMED DIVIDEND IN THE HANDS OF THE ASSES SEE. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE CIT (A) BUT WITHOUT ANY SUCCESS. WHILE CONFIRMING THE STAND TAKEN BY THE A SSESSING OFFICER, THE CIT (A), INTER ALIA , OBSERVED AS FOLLOWS:- 6. I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF THE APPELLANT, FACTS OF THE CASE AND ALSO PERUSED THE ASSESSMENT ORDER. THE ISSUE I NVOLVED IN THIS APPEAL IS THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT I .T.A NO.7412/ MUM/2010 ASHOK GOYAL 3 YEAR UNDER CONSIDERATION, M/S. BLR INDIA PVT LTD ADVA NCED LOAN TO THE APPELLANT AND ALSO MADE PAYMENT OF HOME LOAN INSTALME NT ON BEHALF OF THE APPELLANT. THESE PAYMENTS ARE REQUIRED TO BE BRO UGHT TO TAX AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. APPELLANT STATES THAT AMOUNTS WERE ADVANCED TO THE APPELLANT TO FURTHERANC E OF THE BUSINESS OF THE COMPANY AND HENCE, WOULD NOT ATTRACT THE PRO VISIONS OF SECTION 2(22)(E) OF THE I.T.ACT. THE APPELLANT FURTHER SUBM ITTED THAT THE APPELLANT IS NOT DOING HIS BUSINESS ALONE; BUT APPELLANT S WHOLE FAMILY IS INVOLVED IN THE BUSINESS, IS EVIDENT FROM APPELLANTS TRANSACTIONS AS ADVANCES AND PAYING INTEREST FOR THE MONEY USED AS WEL L AS RETURNING THE ADVANCES WHEN APPELLANTS COMPANY NEED FUNDS. I A GREE WITH THE OBSERVATION OF THE AO THAT ASSESSEE HAS NO MERIT AT ALL SINCE THE PROPERTY WAS IN THE NAME OF M/S. NILU WAREHOUSING CORP ORATION AND FOR ALL PRACTICAL PURPOSES THE ADVANCES SO REPORTED T O HAVE BEEN MADE TO THE ASSESSEE WERE REQUIRED TO BE MADE TO THE PROPRIE TOR OF M/S. NILU WAREHOUSING CORPORATION I.E. SMT. NILU GOYAL, IF ANY , AS PER SUBMISSION OF THE ASSESSEE. 6.1 FURTHER, DURING THE COURSE OF APPELLANT PROCEEDI NGS, THE REPRESENTATIVE OF THE APPELLANT WAS ASKED TO PROVE THE APPELLANTS TRANSACTIONS AS BUSINESS DEALINGS WITH THE COMPANY AND PAY ING INTEREST FOR THE MONEY USED AS WELL AS RETURNING THE AD VANCES WHEN APPELLANTS MONEY NEEDS FUNDS, APPELLANT COULD NOT PRO VE THE SAME. IN VIEW OF THE ABOVE FACTS, THE ACTION OF THE AO TREATI NG THE LOAN AND ADVANCES AS DEEMED DIVIDEND IS CONSIDERED AS JUSTIFIED, H ENCE, THE ADDITION MADE BY THE AO IS CONFIRMED. 4. THE ASSEESEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 5. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE M ATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE L EGAL POSITION. 6. I HAVE NOTICED THAT THE COMMERCIAL ARRANGEMENTS O F GRANTING CREDIT LINE TO THE LANDLORD BY BLR INDIA PVT LTD, IN LIEU OF INTEREST F REE DEPOSITS, WHICH BLR INDIA PVT LTD WAS REQUIRED TO PLACE IN THE NORMAL COURSE OF BUS INESS, HAS NOT BEEN QUESTIONED BY ANY OF THE AUTHORITIES BELOW. I HAVE ALSO NOTICED THAT THE ASSESSEE HAS DULY FURNISHED THE BOARD RESOLUTION AUTHORIZING THE ABOVE COMMERCIAL ARRANGEMENTS AND IT IS NOT EVEN THE REVENUES CASE THAT THE SAID ARRANG EMENT OF GRANTING CREDIT LINE TO MRS NILU GOYAL AND HER FAMILY MEMBERS WAS A SHAM OR ART IFICIAL ARRANGEMENT. THE SHORT REASON FOR WHICH THE AMOUNT HAVING BEEN RECEIVE D IN THE ORDINARY COURSE OF BUSINESS IS THAT WHILE WAREHOUSES WERE OWNED BY MRS NILU GOYAL, THERE WAS NO JUSTIFICATION IN GIVING MONIES DIRECTLY TO HER HUSBAN D I.E. ASSESSEE BEFORE ME. I .T.A NO.7412/ MUM/2010 ASHOK GOYAL 4 HOWEVER, SO FAR AS THIS ASPECT OF THE MATTER IS CONCERN ED, IT IS PURELY A COMMERCIAL DECISION AS TO WHETHER OR NOT THE CREDIT LINE IS TO B E ALLOWED TO THE LANDLORD AND TO HER OTHER FAMILY AS WELL AND AS LONG AS THE BENEFITS OF THE COMMERCIAL ARRANGEMENT ARE NOT IN CHALLENGE, IT CANNOT BE OPEN TO THE ASSESSIN G OFFICER TO TREAT THE MONIES, HAVING BEEN RECEIVED UNDER THESE COMMERCIAL ARRANGEM ENTS, AS LOANS FROM THE BLR INDIA PVT LTD. IN THIS VIEW OF THE MATTER, I DECLIN E TO UPHOLD THE OBJECTION TAKEN BY THE AUTHORITIES BELOW AND DIRECT THE AO TO DELETE THE IM PUGNED DISALLOWANCE. IT IS NOT IN DISPUTE THAT IN THE EVENT OF THE AMOUNT HAVING BEEN RECEIVED BY THE ASSESSEE AS PART OF THE COMMERCIAL TRANSACTION WITH THE BLR INDIA PV T LTD, THE SAID AMOUNT CANNOT BE TAXED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF TH E ACT. I ACCORDINGLY UPHOLD THE GRIEVANCE OF THE ASSESSEE AND ALLOW THE APPEAL FILED BY THE ASSESSEE. 7. IN THE RESULT, APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 3 RD MARCH, 2011 SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 3 RD MARCH, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),14, MUMBAI 4. COMMISSIONER OF INCOME TAX, 6, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH SMC, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI I .T.A NO.7412/ MUM/2010 ASHOK GOYAL 5 I .T.A NO.7412/ MUM/2010 ASHOK GOYAL 6