Sharad Gupta, Faridabad V. ACIT, Faridabad

ITA 867/DEL/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4252 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 05-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 12-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B B MATHUR
• Keywords: Deemed to accrue or arise in india; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: SMC-1 NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER I.T.A .NO.-867/DEL/2015 (ASSESSMENT YEAR-2007-08) SHARAD GUPTA, H.NO.686, SECTOR-7-B, FARIDABAD. PAN-ADTPG3099B ( APPELLANT) VS ACIT, CIRCLE-1, FARIDABAD. (RESPONDENT) ASSESSEE BY SH. B.B.MATHUR, CA REVENUE BY SH.ANIL KUMAR SHARMA, SR.DR ORDER THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A SSAILING THE CORRECTNESS OF THE ORDER DATED 08.12.2014 OF CIT(A), FARIDABAD PER TAINING TO 2007 08 ASSESSMENT YEAR ON THE FOLLOWING GROUND:- 1. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CAS E THE LD.C.I.T APPEALS, FARIDABAD WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.11,55,937/- ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE INCOME TAX ACT, 1961. 2. THAT THE APPELLANT PRAYS TO ADD, AMEND AND DELETE A NY GROUND OF APPEAL. 2. THE LD. AR AT THE TIME OF HEARING, INVITING ATTE NTION TO ORDER DATED 27.01.2016 IN ITA NO.2444/DEL/2015 IN THE CASE OF S H.NALIN GUPTA VS ACIT PERTAINING TO 2007-08 ASSESSMENT YEAR SUBMITTED THA T THE POINT AT ISSUE IS FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID ORDER OF THE ITAT. 2.1. RELYING UPON THE SAID ORDER, IT WAS SUBMITTED THAT THE CIT(A), FARIDABAD IN THE FACTS OF THAT CASE VIDE ORDER DATED 04.03.2015 HAD CONFIRMED THE ADDITION MADE BY WAY OF A DISALLOWANCE ON IDENTICAL FACTS AND CIR CUMSTANCES. IN THE FACTS OF THAT DATE OF HEARING 05.09.2016 DATE OF PRONOUNCEMENT 04.11.2016 I.T.A .NO.-867/DEL/2015 PAGE 2 OF 5 CASE ALSO, IT WAS SUBMITTED ANOTHER DIRECTOR OF M/S PRESCOMEC AUTO COMPANY PRIVATE LIMITED HAD A RUNNING ACCOUNT WITH THE SAID COMPANY AND HE WITHDREW AN AMOUNT OF RS.50 LACS FROM THE SAID COMPANY. AS A R ESULT OF WHICH HE HAD A DEBIT BALANCE OF RS.8,84,029/- WHICH AMOUNT WAS TREATED A S DEEMED INCOME UNDER SECTION 2(22)(E). THE CONTENTION OF THE ASSESSEE T HEREIN WAS ALSO IDENTICAL NAMELY THAT HE ALONGWITH HIS OTHER FAMILY MEMBERS HAD FURN ISHED PERSONAL GUARANTEES TO THE BANK FOR ENABLING THE ASSESSEE COMPANY TO OBTAI N A BANK GUARANTEE AND THE COMPANY PASSED A RESOLUTION ON 16.06.2005 AUTHORIZI NG THE DIRECTORS TO AVAIL TEMPORARY ADVANCES FOR THE PERSONAL REQUIREMENT TO THE EXTENT OF RS.50 LACS EACH, IN LIEU OF THEIR PROVIDING PERSONAL GUARANTEE FOR T HE LOAN AND CREDIT FACILITIES AVAILABLE TO THEIR ASSESSEE COMPANY. HENCE SECTION 2(22)(E) OF THE ACT IT HAS BEEN HELD WAS NOT ATTRACTED. INVITING ATTENTION TO THE O RDER OF THE ITAT, IT WAS SUBMITTED THAT THE FACTS WERE IDENTICAL IN AS MUCH THAT IN PA RA 3 OF THE SAID ORDER IT HAD BEEN NOTED THAT THE ASSESSEE HAD AVAILED OF WORKING CAPI TAL LIMITS FROM THE CITI BANKS RS.2.5 CRORES. THE CITI BANK HAD INSISTED ON PERSO NAL GUARANTEES OF THE DIRECTORS OF THE COMPANY. THE DIRECTORS GAVE PERSONAL GUARAN TEES. IN LIEU OF SUCH AN ACT OF GIVING PERSONAL GUARANTEES THE COMPANY PRESCOMEC AU TO CO.PVT.LTD. PERMITTED THE DIRECTORS TO MAKE TEMPORARY DRAWINGS OF ADVANCES TO THE MAXIMUM EXTENT OF RS.50 LAKHS. 2.2. ACCORDINGLY, IT WAS SUBMITTED THAT RELYING UPO N THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF PRADEEP KUMAR MALHOTRA VS CIT-V, (WB) (2011) 15 TAXMAN.COM 66 (CALCUTTA) AND ACIT VS SMT.G.SREEVIDY A (2012) 24 TAXMANN.COM 75 (CHENNAI) THE ISSUE IS FULLY COVERED IN FAVOUR O F THE ASSESSEE. I.T.A .NO.-867/DEL/2015 PAGE 3 OF 5 3. THE LD. SR.DR CONSIDERING THE FACTS ON RECORD TH OUGH RELIED UPON THE IMPUGNED ORDER, HOWEVER, COULD NOT CITE ANY REASON WHY THE DECISION OF THE ITAT SHOULD NOT BE FOLLOWED. 4. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL AVAILABLE ON RECORD, I FIND THAT THE ASSESSEE IS ALSO A DIRECTOR IN THE SAID COMPANY M/S PRESCOMEC AUTOCOMP PVT.LTD. AND IS ALSO A PRINCIPAL SHAREHOLDER. THE ASSESSEE HAS A RUNNING ACCOUNT WITH THE COMPANY IN WHICH THE AMO UNT CONTRIBUTED BY THE ASSESSEE IS ADDED AND THE AMOUNT DRAWN BY THE ASSES SEE IS REDUCED. DURING THE YEAR ON 27.04.2006, 22.05.2006 AND 10.06.2006 THE A SSESSEE WITHDREW AMOUNTS OF RS.5,00,000/-, RS.10,00,000/- AND RS.10,00,000/- RE SPECTIVELY WHICH LED TO A CREATION OF A DEBIT BALANCE IN THE COMPANY AMOUNTIN G TO RS.11,55,936.84. THE ASSESSEE HAS GIVEN PERSONAL GUARANTEE FOR AVAILING OF THE WORKING CAPITAL LOAN BY M/S PRESCOMEC AUTO CO.PVT. LTD. WHERE THE ASSESSEE IS A DIRECTOR AND IN TERMS OF THE AFORESAID RESOLUTION THE DIRECTORS IN LIEU THER EOF THE ASSESSEE TOO HAS BEEN PERMITTED TO MAKE TEMPORARY DRAWINGS OF ADVANCES TO THE MAXIMUM LIMIT OF RS.50 LAKHS. IT IS SEEN THAT THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES OF THE CASE. NO DISTINGUISHING FACT OR CIRCUMSTANCE HAS BEEN CANVAS SED BY THE REVENUE TO TAKE A CONTRARY VIEW. IN THE ABSENCE OF ANY DISTINCTION ON FACTS OR LAW RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT, THE APPEAL OF THE ASSESSEE IS ALLOWED. THE SPECIFIC REASONING OF THE CO-ORDINATE BENCH FOLLOWED IS REPR ODUCED HEREUNDER:- 3. AFTER HEARING RIVAL CONTENTIONS I FIND THAT THE UN DISPUTED FACT IS THAT THE ASSESSEE AVAILED RS.2.5 CRORES WORKING CAPITAL LIMITS FROM THE CITI BANK. THE CITI BANK HAD INSISTED ON PERSONAL GUARA NTEES OF THE DIRECTORS OF THE COMPANY. THE DIRECTORS GAVE PERSONAL GUARANT EES. IN LIEU OF SUCH AN ACT OF GIVING PERSONAL GUARANTEES THE COMPANY PR ESCOMEC AUTO CO.PVT.LTD. PERMITTED THE DIRECTORS TO MAKE TEMPORA RY DRAWINGS OF ADVANCES TO THE MAXIMUM EXTENT OF RS.50 LAKHS. UND ER THESE I.T.A .NO.-867/DEL/2015 PAGE 4 OF 5 CIRCUMSTANCES THE ISSUE BEFORE ME IS WHETHER A TEMP ORARY ADVANCE OF RS.8,84,029/- CAN BE HELD AS DEEMED DIVIDENDS U/S 2 (22)(E) OF THE ACT. 3.1. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF PRA DEEP KUMAR MALHOTRA VS. CIT-V, (WB) (2011) 15 TAXMAN.COM 66( CALCUTTA) AT PARA 11 HELD AS FOLLOWS. 10. AFTER HEARING THE LD.COUNSEL FOR THE PARTIES A ND AFTER GOING THROUGH THE AFORESAID PROVISIONS OF THE ACT, WE ARE OF THE OPINION THAT THE PHRASE BY WAY OF ADVANCE OR LOAN APPEARI NG IN SUB CLAUSE (E) MUST BE CONSTRUED TO MEAN THOSE ADVANCES OR LOA NS WHICH A SHARE HOLDER ENJOYS FOR SIMPLY ON ACCOUNT OF BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES EN TITLED 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, BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHARE HOLDER AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO THE COMPANY RECEIVED FROM SUCH A SHARE HOLDER, IN SUCH CASE, SU CH ADVANCE OR LOAN CANNOT BE SAID TO BE A DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT. THUS, FOR GRATUITOUS LOAN OR ADVANCE GIVE N BY A COMPANY TO THOSE CLASSES OF SHARE HOLDERS WOULD COME WITHIN TH E PURVIEW OF SECTION 2(22) BUT NOT TO THE CASES WHERE THE LOAN O R ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPAN Y BY SUCH SHARE HOLDER. 11. IN THE CASE BEFORE US, THE ASSESSEE PERMITTED H IS PROPERTY TO BE MORTGAGED TO THE BANK FOR ENABLING THE COMPANY T O TAKE THE BENEFIT OF LOAN AND IN SPITE OF REQUEST OF THE ASSE SSEE, THE COMPANY IS UNABLE TO RELEASE THE PROPERTY FROM THE MORTGAGE . IN SUCH A SITUATION, FOR RETAINING THE BENEFIT OF LOAN AVAILE D FROM VIJAYA BANK IF DECISION IS TAKEN TO GIVE ADVANCE TO THE ASSESSEE S UCH DECISION IS NOT TO GIVE GRATUITOUS ADVANCE TO ITS SHARE HOLDER BUT TO PROTECT THE BUSINESS INTEREST OF THE COMPANY. 12. THE VIEW WE PROPOSE TO TAKE FINDS SUPPORT FROM THE TWO DECISION,S ONE OF THE BOMBAY HIGH COURT AND THE OTH ER OF THE DELHI HIGH COURT RELIED UPON BY MR.KHAITAN AS INDICATED E ARLIER. 13. WE THEREFORE, FIND THAT THE AUTHORITIES BELOW E RRED IN LAW IN TREATING THE ADVANCE GIVEN BY THE COMPANY TO THE AS SESSEE BY WAY OF COMPENSATION TO THE ASSESSEE FOR KEEPING HIS PRO PERTY AS MORTGAGE ON BEHALF OF THE COMPANY TO REAP THE BENEF IT OF LOAN AS DEEMED DIVIDEND WITHIN THE MEANING OF S.2(22)(E) OF THE ACT. 3.2. THE CHENNAI A BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. SMT. G.SREEVIDYA (2012) 24 TAXMANN.COM 75 (CHENNAI) HEL D AS FOLLOWS HELD: IN ORDER TO ATTRACT THE PROVISIONS OF S.2( 22)(E), THE IMPORTANT CONSIDERATION IS THAT THERE SHOULD BE LOAN/ADVANCE BY A COMPANY TO ITS SHAREHOLDER. EVERY AMOUNT PAID MUST MAKE THE C OMPANY A CREDITOR OF THE SHAREHOLDER OF THAT AMOUNT. AT THE SAME TIME, IT IS TO BE BORNE IN MIND THAT EVERY PAYMENT BY A COMPANY TO ITS SHAREHOLDERS MAY NOT BE LOAN/ADVANCE. IN THE PRESE NT CASE, THE AMOUNT WAS WITHDRAWN BY THE ASSESSEE FROM THE COMPA NY ONLY TO MEET HER SHORT TERM CASH REQUIREMENTS. BY VIRTUE O F OFFERING I.T.A .NO.-867/DEL/2015 PAGE 5 OF 5 PERSONAL GUARANTEE AND COLLATERAL SECURITY FOR THE BENEFIT OF THE COMPANY, THE LIQUIDITY POSITION OF THE ASSESSEE HA D GONE DOWN. IN THE STRICT SENSE IF IT IS TO BE CONSTRUED THE AMOUN T FORWARDED BY THE COMPANY TO THE ASSESSEE WAS NOT IN THE SHAPE OF ADV ANCES OR LOANS. THE ARRANGEMENT BETWEEN THE ASSESSE AND THE COMPANY WAS MERELY FOR THE SAKE OF CONVENIENCE ARISING OUT OF BUSINESS EXPEDIENCY. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS NOT APPROPRIATE TO HOLD THAT THE AMOUNT WITHDRAWN BY THE ASSESSEE PARTAKES THE CHARACTER OF DEEMED DIVIDEND UNDER THE PROVISIONS OF S.2(22)( E). THE CIT(A) HAD RIGHTLY DELETED THE ADDITION MADE ON ACCOUNT OF DEE MED DIVIDEND BY THE AO. 3.3. THE LD.CIT(A), IN MY VIEW, HAS WRONGLY INTERPRETED THESE CASE LAWS, AS BEING APPLICABLE, ONLY WHEN CERTAIN PROPERTY IS PLEDGED AS COLLATERAL SECURITY BY THE GUARANTOR. HE WRONGLY CONCLUDED TH AT, AS THE ASSESSEE HAS NOT PLEDGED ANY OF HIS ASSETS THE PROPOSITIONS LAID DOWN IN THESE CASE LAWS DO NOT APPLY TO THE FACTS OF THIS CASE. 4. IN MY VIEW SUCH INTERPRETATION IS BAD IN LAW. THIS IS NOT THE CASE WHERE A TEMPORARY ADVANCE IS GIVEN TO THE ASSESSEE WITHOUT A RECIPROCAL BUSINESS ARRANGEMENTS. IT WAS NOT A GRATUITOUS ACT . PROVIDING PERSONAL GUARANTEE, BY ITSELF IS AN ACT WHICH BENEFITTED THE COMPANY BY WAY OF GRANT OF LOAN AND CAST A LEGAL OBLIGATION ON THE ASSESSE E. PROVIDING ASSETS AS COLLATERAL SECURITY IS ONLY AN ACT IN FURTHERANCE TO PERSONAL GUARANTEE. THUS I AGREE WITH THE CONTENTIONS OF THE ASSESSEE A ND DELETE THE ADDITION IN QUESTION. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT O N 04 TH OF NOVEMBER, 2016. SD/- (DIVA SIN GH) JUDICIAL MEMBER *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT AS SISTANT REGISTRAR ITAT NEW DELHI