ACIT, Trichur V. Sri.P.J. Davis, Trichur

ITA 795/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73924 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-03-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 19-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: POPHY PAUL ACCOUNTANT
• Assessee Lawyers: K K JOHN
• Keywords: Deemed dividend

Judgement Text

1 ITA NO. 795/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 795/COCH/2013 (ASSESSMENT YEAR 2008-09) ACIT, CIR.1(1) VS SHRI P.J. DAVIS TRICHUR PULLOCKARAN HOUSE IRINJALAKKUDA, TRICHUR PAN : ACQPD4480K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI POPHY PAUL, ACCOUNTANT RESPONDENT BY : SHRI K.K. JOHN, SR.DR DATE OF HEARING : 25-03-2014 DATE OF PRONOUNCEMENT : 28-03-2014 O R D E R PER N.R.S. GANESAN (JM) THE REVENUE FILED THE PRESENT APPEAL AGAINST THE O RDER OF CIT(A)-V, KOCHI DATED 25-09-2013 FOR THE ASSESSMENT YEAR 2008 -09. 2. THE FIRST GROUND OF APPEAL IS WITH REGARD TO ADD ITION OF RS. 34,70,000. 3. WE HEARD SHRI POPHY PAUL, ACCOUNTANT OF THE ASSE SSEE AND SHRI K.K. JOHN, THE LD.DR. 2 ITA NO. 795/COCH/2013 4. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E RECEIVED RS.34,70,000 FOR PURCHASE OF LAND FOR THE COMPANY I N PURSUANCE OF THE COMPANYS RESOLUTION DATED 26-03-2006. THE CLAIM O F THE ASSESSEE IS THAT THOUGH THE MONEY WAS RECEIVED IN PURSUANCE TO THE R ESOLUTION OF THE COMPANY DATED 26-03-2006, HE COULD NOT PURCHASE THE PROPERTY, THEREFORE, THE MONEY WAS RETURNED TO THE COMPANY. IN EARLIER ASSESSMENT YEAR ALSO SIMILAR ADVANCES WERE MADE TO THE ASSESSEE FOR PURC HASE OF LAND BY THE COMPANY IN PURSUANCE OF THE RESOLUTION FOR PURCHASI NG THE LAND AND NO ADDITION WAS MADE BY THE ASSESSING OFFICER. FOR TH E YEAR UNDER CONSIDERATION THE ASSESSING OFFICER TREATED THE ADV ANCES GIVEN BY THE COMPANY IN PURSUANCE OF THE COMPANYS RESOLUTION FO R PURCHASING LAND FOR THE COMPANY AS DEEMED DIVIDEND. AT THE VERY SAME T IME, THE ASSESSING OFFICER HAS ALSO LEVIED INTEREST ON THE COMPANY TRE ATING THE ADVANCE AS INTEREST FREE LOAN TO THE ASSESSEE. THE CASE OF TH E ASSESSEE BEFORE THE LOWER AUTHORITY WAS THAT AN AMOUNT WHICH WAS TREATE D AS DEEMED DIVIDEND CANNOT BE TREATED AS INTEREST FREE LOAN. THEREFORE , CHARGING OF INTEREST IS ALSO NOT CORRECT. ACCORDING TO THE LD.REPRESENTATI VE, ADMITTEDLY, THE BUSINESS OF THE COMPANY IS DEVELOPMENT AND CONSTRUC TION OF RESIDENTIAL AND COMMERCIAL BUILDINGS. IN PURSUANCE OF THE BUSIN ESS OBJECT, THE MONEY WAS ADVANCED TO THE ASSESSEE FOR ACQUIRING LAND FOR THE BUSINESS OF THE COMPANY. THEREFORE, THE AMOUNT WAS ADVANCED FOR CO MMERCIAL EXPEDIENCY TO ACQUIRE THE LAND AND NOT FOR THE INDI VIDUAL BENEFIT OF THE 3 ITA NO. 795/COCH/2013 ASSESSEE. THE CIT(A) FOUND THAT THE TRANSACTION BE TWEEN THE COMPANY AND THE ASSESSEE IS A CURRENT TRANSACTION, THEREFOR E, IT CANNOT BE TREATED AS A LOAN OR ADVANCE. THE CIT(A) PLACED HIS RELIAN CE ON THE JUDGMENT OF THE MADRAS HIGH COURT IN CIT VS IDHAYAM PUBLICATION S LTD 285 ITR 221. THE CIT(A) HAS ALSO PLACED RELIANCE ON THE JUDGMENT OF THE APEX COURT IN CIT VS C.P. SARATHY MUDALIAR 83 ITR 170 (SC). 5. THE CONTENTION OF THE LD.DR IS THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SUBSTANTIATE THE PURCHASE OF THE PR OPERTY. THEREFORE, IN VIEW OF THE JUDGMENT OF THE APEX COURT IN MISS SARA DA P VS CIT (1998) 144 CTR 209 (SC), THE ASSESSING OFFICER HAS RIGHTLY TREATED THE AMOUNT ADVANCED AS DEEMED DIVIDEND. REFERRING TO THE GROS S PROFIT RATE ADOPTED BY THE ASSESSING OFFICER, ACCORDING TO THE LD.DR, T HE GROSS PROFIT RATE AT 23% WAS ADOPTED AFTER COMPARING THE GROSS PROFIT RA TES OF SIMILARLY PLACED BUSINESS ENTITIES. THEREFORE, THE CIT(A) IS NOT JU STIFIED IN DELETING THE ADDITION. THE LD.DR ALSO SUBMITTED THAT IN THE CAS E OF COMPANY, THIS TRIBUNAL IN ITA NO.451/COCH/2013 ORDER DATED 13-11- 2013 FOUND THAT THE COMPANY COULD NOT SUBSTANTIATE THE CLAIM THAT THE M ONEY WAS GIVEN FOR BUSINESS PURPOSE. ACCORDINGLY, THIS TRIBUNAL FOUND THAT IN THE ABSENCE OF ANY EVIDENCE TO SUPPORT THE CONTENTION OF THE ASSES SEE NO PURPOSE WOULD BE SERVED IN SETTING ASIDE THE MATTER FOR VERIFICAT ION TO THE FILE OF THE ASSESSING OFFICER. THE LD.DR HAS ALSO SUBMITTED TH AT THIS ORDER OF THIS 4 ITA NO. 795/COCH/2013 TRIBUNAL IN THE CASE OF THE COMPANY WAS PASSED EX P ARTE IN THE ABSENCE OF THE ASSESSEE COMPANY. HOWEVER, NOW THE ASSESSEE COM PANY HAS FILED MISCELLANEOUS APPLICATION UNDER PROVISO TO RULE 24 OF INCOME-TAX (APPELLATE TRIBUNAL) RULES, 1963 TO RECALL THE ORDE R OF THIS TRIBUNAL DATED 13-11-2013. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE WR ITTEN SUBMISSIONS FILED BY THE ACCOUNTANT OF THE ASSESSEE. IT IS NOT IN DI SPUTE THAT THE ASSESSEE RECEIVED RS.34,70,000 FROM PJD PROPERTIES & INVESTM ENTS PVT LTD. THE PRESENT ASSESSEE IS THE MANAGING DIRECTOR OF PJD PR OPERTIES & INVESTMENTS PVT LTD. FROM THE MATERIAL AVAILABLE ON RECORD IT APPEARS THAT THE MONEY WAS ADVANCED TO THE ASSESSEE IN PURSUANCE OF THE BUSINESS PROPOSAL FOR PURCHASING LAND AS PER THE RESOLUTION OF THE COMPANY DATED 26-03-2006. THE BUSINESS OF THE COMPANY, VIZ. PJD PROPERTIES & INVESTMENTS PVT LTD IS DEVELOPMENT AND CONSTRUCTION OF RESIDENTIAL AND COMMERCIAL BUILDINGS. THE RESOLUTION OF THE COMPAN Y WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL WHEN THE COMPANYS APPEA L IN ITA NO.451/COCH/2013 WAS DECIDED. IN FACT, THE COMPANY APPEAL WAS DECIDED EX PARTE IN THE ABSENCE OF THE COMPANY BEFORE THIS TRIBUNAL. THE DEPARTMENT COULD NOT BRING TO THE NOTICE OF TRIBUNA L THAT A RESOLUTION WAS NOT PASSED BY THE COMPANY ON 26-03-2006 FOR ADVANCI NG FUNDS TO THE 5 ITA NO. 795/COCH/2013 ASSESSEE. IT IS ALSO NOT IN DISPUTE THAT EVEN FOR EARLIER ASSESSMENT YEARS A SIMILAR ADVANCE WAS MADE TO THE ASSESSEE BY THE COM PANY FOR PURCHASING LAND. FOR ALL EARLIER ASSESSMENT YEARS, THE ASSESS ING OFFICER TREATED THE SAME AS BUSINESS TRANSACTION. THEREFORE, AS RIGHTL Y OBSERVED BY THE CIT(A), IT IS A CURRENT ACCOUNT TRANSACTION. WHEN THERE IS A CURRENT ACCOUNT TRANSACTION BETWEEN THE ASSESSEE AND THE COMPANY, I T CANNOT BE TREATED AS LOAN OR ADVANCE AS HELD BY THE MADRAS HIGH COURT IN THE CASE OF IDHAYAM PUBLICATIONS LTD (SUPRA) WHEN THE AMOUNT WA S ADVANCED IN THE ORDINARY COURSE OF BUSINESS TO THE SHAREHOLDER, THE DEEMING PROVISIONS OF SECTION 2(22)(E) IS NOT APPLICABLE. 7. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF T HE APEX COURT IN THE CASE OF MISS SARDA P (SUPRA). IN THE CASE BEFO RE THE APEX COURT IN THE CASE OF MISS SARDA P (SUPRA), THE ASSESSEE WAS A MA JOR SHAREHOLDER OF M/S UNIVERSAL RADIATORS PVT LTD. DURING THE ASSESS MENT YEAR 1973-74, THE ITO FOUND THAT THE ASSESSEE WITHDREW A TOTAL SUM OF RS. 93,027 FROM THE COMPANY. AT THE MATERIAL POINT OF TIME, THE ASSESS EE DID NOT HAVE A CREDIT BALANCE IN HER ACCOUNT WITH THE COMPANY. THE EXCES S WITHDRAWAL WAS TREATED BY THE ITO AS DEEMED DIVIDEND. THIS WAS CO NFIRMED BY THE APEX COURT BY HOLDING THAT THE ASSESSEES ACCOUNT WAS OV ERDRAWN. THOUGH SOME ADJUSTMENT WAS MADE ON THE LAST DAY OF THE ACC OUNTING YEAR, THE SUPREME COURT FOUND THAT THAT WILL NOT ALTER THE PO SITION THAT THE ASSESSEE 6 ITA NO. 795/COCH/2013 HAS WITHDRAWN A TOTAL SUM OF RS.93,077 FROM THE COM PANY. ACCORDINGLY, THE AMOUNT WITHDRAWN BY THE ASSESSEE WAS TREATED AS DEEMED DIVIDEND. IN THE CASE BEFORE THE APEX COURT, IT IS NOT THE CA SE OF THE ASSESSEE THAT THE FUNDS WERE ADVANCED AS PER THE RESOLUTION OF TH E COMPANY FOR BUSINESS PURPOSE. IT WAS A CASE OF WITHDRAWAL FOR PERSONAL PURPOSE. IN THE CASE BEFORE US, THE MONEY WAS ADMITTEDLY ADVANC ED BY A RESOLUTION OF THE COMPANY FOR PURCHASING LAND AS PER THE BUSINESS OBJECT OF THE COMPANY. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDE RED OPINION THAT THE JUDGMENT OF THE APEX COURT IN THE CASE OF MISS SARA DA P MAY NOT BE APPLICABLE TO THE FACTS OF THIS CASE. 8. ON IDENTICAL CIRCUMSTANCES, THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF JHAMU U SUGHAND VS DCIT (2006) 99 ITD 1 (M UM) HAD AN OCCASION TO CONSIDER AN IDENTICAL SITUATION. THE M UMBAI BENCH OF THIS TRIBUNAL FOUND THAT WHEN THE MONEY WAS ADVANCED TO SHAREHOLDER IN THE ORDINARY COURSE OF BUSINESS IT CANNOT BE ASSESSED A S DEEMED DIVIDEND. THE ADVANCE WAS MADE FOR BUSINESS PURPOSE. THE ADV ANCE WAS NOT MADE IN THIS YEAR ALONE. EVEN IN EARLIER ASSESSMEN T YEAR A SIMILAR ADVANCE WAS MADE FOR PURCHASE OF LANDED PROPERTY FO R BUSINESS OF THE COMPANY. THEREFORE, THIS TRIBUNAL IS OF THE CONSID ERED OPINION THAT WHEN THE MONEY WAS ADVANCED AS PER THE RESOLUTION OF THE COMPANY FOR PURCHASING PROPERTY IN PURSUANCE OF ITS OBJECT, THE AMOUNT ADVANCED FOR 7 ITA NO. 795/COCH/2013 BUSINESS PURPOSE IN THE ORDINARY COURSE CANNOT BE T REATED AS DEEMED DIVIDEND. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED. 9. NOW COMING TO THE PROFIT RATIO, THE ASSESSING OF FICER REFERRING TO THE CASES OF TWO OTHER BAR HOTELS ESTIMATED THE GROSS P ROFIT AT 23%. HOWEVER, THE CIT(A) FOUND THAT THE ASSESSING OFFICER WITHOUT REJECTING THE BOOKS OF ACCOUNT ESTIMATED THE PROFIT AT 23%. FOR THE PURPO SE OF ESTIMATION OF PROFIT, THE ASSESSING OFFICER HAS TO EXAMINE THE BO OKS OF ACCOUNT MAINTAINED BY THE ASSESSEE IN THE REGULAR COURSE OF BUSINESS. IF THE BOOKS OF ACCOUNT ARE NOT RELIABLE OR THE PROFIT COMPUTED FROM THE BOOKS OF ACCOUNT REGULARLY MAINTAINED BY THE ASSESSEE IS NOT CORRECT, THEN THE ASSESSING OFFICER CAN REJECT THE BOOKS OF ACCOUNT A ND CAN RESORT TO ESTIMATION OF PROFIT. IN THIS CASE, THE BOOKS OF A CCOUNT WERE NOT REJECTED. WHEN THE BOOKS OF ACCOUNT ARE NOT REJECTED, THIS TR IBUNAL IS OF THE CONSIDERED OPINION THAT THE QUESTION OF ESTIMATION OF PROFIT DOES NOT ARISE FOR CONSIDERATION. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 10. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY. A CCORDINGLY, THE SAME IS CONFIRMED. 8 ITA NO. 795/COCH/2013 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH MARCH, 2014. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 28 TH MARCH, 2014 PK/- COPY TO: 1. ACIT, CIR.1(1), TRICHUR 2. SHRI P.J. DAVIS, PULLOCKARAN HOUSE, IRINJALAKUDA , THRISSUR 3. THE COMMISSIONER OF INCOME-TAX, TRICHUR 4. THE COMMISSIONER OF INCOME-TAX(A)-V, KOCHI 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH