SHYAM K. BORELE, Nagpur V. ITO, WARD- 1(1), Nagpur

ITA 93/NAG/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5406 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 20-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Deemed dividend
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA , ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI , JUDICIAL MEMBER ITA NO. 93 /NAG. / 2015 ( ASSESSMENT YEAR : 2007 - 08 ) SHYAM K. BORELE C/O. R. S. BHATTAD & CO. 33, CENTRAL BAZAR ROAD, RAMDASEPTH, NAGPUR PAN ACJPB 6330 P APPELLANT V/S COMMISSIONER OF INCOME TAX(APPEALS) - I, NAGPUR .... RESPONDENT A S SESSEE BY : SHRI MUKESH AGRAWAL REVENUE BY : SHRI GITESH KUMAR DATE OF HEARING 11.05.2018 DATE OF ORDER 02.07. 2018 O R D E R PER SHAMIM YAHYA , A .M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) I, NAGPUR DATED 26.12.2014 AND PERTAIN TO THE ASSESSMENT YEAR 2007 - 08. 2. THE GROUND S OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER : 1) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDER U/S. 144 R.W.S. 147 OF THE I. T, ACT, IS BAD IN LAW. 2 ) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THERE WAS NO SERVICE OF NOTICE/S 148 OF I T ACT WITHIN THE STIPULATED TIME , HENCE THE ASSESSEMENT ORDER IS BAD IN LAW . 2 ITA NO. 93/NAG./2015 SHYAM K. BORELE 3) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED A.O. IS ERRED IN PA SSING EX - PARTE ORDER WITHOUT CONSIDERING THE SUBMISSIONS AND OBJECTIONS OF THE ASSESSEE AND THE LEARNED CIT(A) - I HAS FURTHER ERRED IN CONFIRMING THE SAME. 4) THAT ON THE FACTS THE LEARNED A.O. HAS ERRED IN MAKING ADDITION OF RS. 77,26,899/ - U/S. 2(22)(E) OF THE I. T. ACT. WHICH IS TOTALLY UNJUSTIFIED AND DESERVES TO BE DELETED AND FURTHER THE LEARNED CIT(A) - I HAS ALSO ERRED IN CONFIRMING THE SAME. 3. IN THIS CASE, THE ASSESSEE IS A DIRECTOR AND SHAREHOLDERS IN THE COMPANY M/S . BHAIJI MOTORS PVT. LTD., CH ANDRAPUR (HEREINAFTER REFERRED AS BMPL FOR SHORT). THE ASSESSING OFFICER NOTED THA T THE ASSESSEE HAD GIVEN A LOAN OF RS.1,66,02,757/ - TO BMPL. HE FURTHER NOTED THAT THERE WAS A CREDIT BALANCE OF RS.77 ,26,899/ - ON 09.11.2006 AS PER THE LEDGER ACCOUNT OF L OAN TO BMPL. THE ASSESSING OFFICE R WAS OF THE OPINION THAT THIS MEANS THAT THE ASSESSEE WAS A RECEIPT OF UNSECURED LOAN OF RS.77,26,899/ - AS ON 09.11.2006 FROM B MPL. IN THESE CIRCUMSTANCES, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE SAME WAS TO BE A DDED TO THE INCOME OF THE ASSESSEE U/S. 2(22)(E) OF THE ACT. IN THE ABSENCE OF NECESSARY EXPLANATION FROM THE ASSESSEE IN THIS REGARD, THE ASSESSING OFFICER MADE THE IMPUGNED ADDITION. 4. UPON THE ASSESSEES APPEAL, THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) AFFIRMED THE ADDITION. 5. AGAINST THIS ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. AS REGARDS THE MERITS OF THE ADDITION, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A DIRECTOR AND SHAREHOLDER IN THE COMPANY BMPL. HE SUBMITTED THAT THE ASSESSEE IS HAVING A CURRENT /RUNNING ACCOUNT IN THE COMPANY IN WHICH THERE ARE BOTH DEBIT AND CREDIT ENTRIES. HE SUBMITTED THAT PRE - DOMINANTLY THERE ARE AMOUNTS GIVEN TO THE COMPANY BY 3 ITA NO. 93/NAG./2015 SHYAM K. BORELE THE ASSESSEE. H OWEVER, HE SUBMITTED THAT THE ASSESSING OFFICER HAS NOTED ONE OCCASION OF CREDIT BAL ANCE ON 09.11.2006 AND TREATED THE SAME AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN SEVERAL CASE LAWS, IT HAS BEEN EXPOUNDED THAT THE RUNNING ACCOUNT OF A DIRECTOR/SHAREHOLDER OF THE COMPANY WITH THE C OMPANY CANNOT BE TREATED AS LOAN OR ADVANCE ACCOUNT. IN THIS REGARD, HE REFERRED TO THE FOLLOWING CASE LAWS: 1. ITAT KOLKATA BENCH DECISION IN THE CASE OF ITO VS. SMT. GAYATRI CHAKRABORTY VIDE ORDER DATED 30.10.2015 (IN ITA NO. 151/KOL/2013); 2. ITAT MUMB AI BENCH DECISION IN THE CASE OF RAVINDRA R. FOTEDAR VS. ASST. CIT VIDE ORDER DATED 11.09.2017 (167 ITD 100)(MUM); AND 3. CIT VS. M/S. IDHAYAM PUBLICATIONS IN TAX CASE (APPEAL) NO.1315 OF 2005 VIDE ORDER DATED 23.01.2006 (MAD.) 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE MAY GAINFULLY REFER TO THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WHICH READS AS UNDER: SEC. 2(22) DIVIDEND INCLUDES - (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) 5 MADE AFTER THE 31ST DAY OF MAY, 1987 , BY WAY OF ADVANCE OR LOAN LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED 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, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS.' BUT 'DIVIDEND' DOES NOT INCLUDE 4 ITA NO. 93/NAG./2015 SHYAM K. BORELE (I) A DISTRIBUTION MADE IN ACCORDANCE W ITH SUB - CLAUSE (C) OR SUB - CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSIDERATION, WHERE THE HOLDER OF THE, SHARE IS NOT ENTITLED IN THE EVENT OF LIQUIDATION TO PARTICIPATE IN THE SURPLUS ASSETS : (IA) A DISTRIBUTION MADE IN ACCORDANCE WITH S UB - CLAUSE (C) OR SUB - CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIBUTABLE TO THE CAPITALISED PROFITS OF THE COMPANY REPRESENTING BONUS SHARES ALLOTTED TO ITS EQUITY SHAREHOLDERS AFTER THE 3JST DAY OF MARCH, 1964, AND BEFORE THE 1ST DAY OF APRIL, 1965; (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR THE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY ; ( II I) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET OF F BY THE. COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY I! AND TREATED AS A DIVIDEND WITHIN THE MEANING OF SUB - CLAUSE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF; ( IV) ANY PAVMENT MADE BV A COMPANV ON PURCHASE OF ITS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956(1 OF 1956); (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERGER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERGED COMPANY (WHETHER OR NOT THERE IS A REDU CTION OF CAPITAL IN THE DEMERGED COMPANY). EXPLANATION 1 . THE EXPRESSION 'ACCUMULATED PRO/ITS', WHEREVER IT OCCURS IN THIS CLAUSE, SHALL NOT INCLUDE CAPITAL GAINS ARISING BEFORE THE 1ST DA \ OF APRIL, 1946, OR AFTER (HE 31 SI DAY OF MARCH, 1948, AND BEFORE THE 1ST DAY OF APRIL. 1956. EXPLANATION 2. THE EXPRESSION 'ACCUMULATED PROFITS' IN SUB - CLAUSES (A), (B), (D) AND D'), SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTION OR PAYMENT REFERRED TO IN THOSE SUB - CLAUSES, AND IN SUB - CLAUSE (C) SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF LIQUIDATION, BUT SHALL NOT, WHERE THE LIQUIDATION IS CONSEQUENT ON THE COMPULSORY ACQUISITION OF ITS UNDERTAKING BY THE GOVERNMENT OR A CORPORATION OWNED OR CONTROLLED BY THE GOVERNMENT UNDER ANY LAW FOR THE TIME BEING IN FORCE, INCLUDE ANY PROFITS OF THE COMPANY PRIOR TO THREE SUCCESSIVE PREVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WHICH SUCH ACQUISITION LOOK PLACE. EXPLANATION 3. FOR THE PURPOSES OF THIS CLAUSE, - (A] 'CONCERN' MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY ; (B) A PERSON SHALL BE DEE MED TO HAVE A SUBSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS. AT ANY TIME DURING THE PREVIOUS YEAR, B ENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER CENT OF THE INCOME OF SUCH CONCERN : SECTION 2(32) DEFINES THE EXPRESSION 'PERSON WHO HAS A SUBSTANTIAL INTEREST IN THE COMPANY', IN RELATION TO A COMPANY, MEANS A PERSON WHO IS THE BENEFICIAL OWNER OF SHARE S, NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS, CARRYING NOT LESS THAN T WENTY PERCENT OF THE VOTING POWER. 5 ITA NO. 93/NAG./2015 SHYAM K. BORELE 9. THE PROVISIONS OF SEC.2(22)(E) TREATS 'LOAN OR ADVANCE' GIVEN BY A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTEREST AS DISTRIBUTION OF DIVIDEND BY THE COMPANY TO ITS SHAREHOL DERS AND CHARGEABLE TO LAX. IT I S BEING DONE TO BRING WITHIN THE TAX NET MONIES PAID BY THE CLOSELY HELD COMPANIES TO THEIR SHAREHOLDERS WHO HAVE SUBSTAN TIAL INTEREST IN THE COMPANY, PAYMENT BY WAY OF LOAN OR ADVANCE PRESUMING THAT THE ACCUMULATED PROFITS WHICH THE COMPANY HAS ARE BEING GIVEN AS LOAN OR ADVANCE INSTEAD OF DIVIDEND TO AVOID LAX IF SUCH SUMS ARE GIVEN AS DIVIDEND. THE PURPOSE BEING THA T PERS ONS WHO MANAGE SUCH CLOSELY HELD COMPANIES SHOULD NOT ARRANGE THEIR AFFAIRS IN A MANNER THAT THEY ASSIST THE SHAREHOLDER IN AVOIDING THE PAYMENT OF TAXES BY HAVING THESE COMPANIES PAY OR DISTRIBUTE, WHAT WOULD LEGITIMATELY BE DIVIDEND IN THE HANDS OF THE S HAREHOLDER, MONEY IN THE FORM OF AN ADVANCE OR LOAN.. NOMENCLATURE OF THIS SECTION WHICH IS 'DEEMED DIVIDEND', CONNOTES THAT THIS SECTION HAS BEEN BROUGHT ON STATUE AS 'DEEMING FICTION'. IT MEANS THAT THE INCOME TERMED AS DIVIDEND IS ACTUALLY NOT DIVIDEND DISTRIBUTED BY A CLOSELY HELD COMPANY BUT THE AMOUNT PAID IS STILL TREATED AS DIVIDEND AND HENCE THE TERM 'DEEMED DIVIDEND'. 10. WE FIND THAT THE ASSESSEE IN THIS CASE IS A DIRECTOR/SHAREHOLDER OF THE COMPANY BMPL. THE ASSESSEE IS HAVING A RUNNING / CURRENT ACCOUNT WITH THE COMPANY. IN THIS ACCOUNT, THERE ARE DEBIT AS WELL AS CREDIT ENTRIES. AT THE YEAR END, THERE IS A BALANCE OF AMOUNT GIVEN BY THE ASSESSEE TO THE COMPANY AMOUNTING TO RS.1 ,66,02,577/ - . AS ALREADY NO TED IN THE SAID CURRENT ACCOUNT, THERE ARE SEVERAL PAYMENT AND RECEIPT ENTRIES. THE ASSESSING OFFICER HAS TAKEN UP ONE CREDIT BALANCE ON 09.11.2006 AND TREATED THE SAME AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. IN THIS REGARD, WE NOTE THAT IN SEVERAL CASE LAWS, IT HAS BEEN HELD THAT THE RUNNING /CURRENT ACCOUNT OF 6 ITA NO. 93/NAG./2015 SHYAM K. BORELE DIRECTOR/SHAREHOLDERS OF THE COMPANY WITH THE COMPAN Y CANNOT BE TREATED AS LOAN OR ADVANCE. 11. IN THE CASE OF M/S. IDHAYAM PUBLICATIONS (SUPRA), THE HONBLE MADRAS HIGH COURT HAD HELD THAT THE DEPOSIT AND WITHDRAWAL OF THE MONEY FR OM THE CURRENT ACCOUNT FROM SUCH A DIRECTOR / SHAREHOLDER WOULD NOT BE CONSIDERED AS LOAN OR ADVANCE. 12. SIMILAR VIEW WAS TAKEN BY THE ITAT KOLKATA BENCH IN THE CASE OF SMT. GAYATRI CHAKRABORTY (SUPRA) . IN THE SAID DECISION, THE ITAT HAS REFERRED TO THE FOLLOWING CASE LAWS FROM THE HONBLE CALCUTTA HIGH COURT ON THE SUBJECT: 1. PRADIP KUMAR MALHOTRA (338 ITR 538); 2. DAGA & CO. (P) LTD. VS. CIT (227 ITR 480). THE TRIBUNAL AFTER REFERRING TO THE SAID CASE LAWS HAS CONCLUDED AS UNDER: FROM THE ABOVE DISCUSSIONS IT CAN BE SAID THAT SEC. 2(22)(E) OF THE ACT COVERS ONLY THOSE TRANSACTIONS WHICH BENEFIT THE SHAREHOLDER ALONE AND RESULTS IN NO BENEFIT TO THE COMPANY . ON THE OTHER HAND, IF THE TRANSACTION IS MUTUAL BY WHICH BOTH SIDES ARE BENEFITED, IT IS UNDOUBTEDLY OUTSIDE THE PURVIEW OF PROVISIONS OF SEC. 2(22)(E) OF THE ACT. FROM THE ABOVE, IT IS CLEAR THAT THE LOAN ACCOUNT DIFFERS FROM CURRENT ACCOUNT AND THE PRO VISIONS OF SECTION 2(22)(E) OF THE ACT, BEING A DEEMING SECTION, CANNOT BE APPLIED TO CURRENT ACCOUNT. IN SUCH CIRCUMSTANCES, WE DELETE THE ADDITION AND THIS COMMON ISSUE OF ASSESSEES APPEALS IS ALLOWED. 13. FURTHERMORE, SIMILAR PROPOSITION WAS AFFIRMED BY THE ITAT MUMBAI BENCH IN THE CASE OF RAVINDRA R. FOTEDAR (SUPRA) . IN THE SAID CASE, THE TRIBUNAL HAD REFERRED TO THE DECISION OF THE HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS. SURAJ DEV DADA (367 ITR 78) FOR THE FOLLOWING EXPOSITION OF THE HONBLE HIGH COURT : 10. FROM THE ABOVE, IT EMERGES THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND THE TRIBUNAL HAD CONCURRENTLY RECORDED THAT THE ASSESSEE HAD RUNNING ACCOUNT WITH THE COMPANY M/S. DADA MOTORS PVT. LTD. AND H AD BEEN ADVANCING MONEY TO IT. IT WAS FURTHER OBSERVED THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE NOT ATTRACTED IN THE PRESENT CASE; THIS PROVISION WAS INSERTED TO STOP THE MISUSE BY THE ASSESSEE BY TAKING THE FUNDS OUT OF THE 7 ITA NO. 93/NAG./2015 SHYAM K. BORELE COMPANY BY WAY O F LOAN ADVANCES INSTEAD OF DIVIDEND AND THEREBY AVOID TAX. IN THE PRESENT CASE, THE ASSESSEE HAD IN FACT ADVANCED MONEY TO THE COMPANY AND THERE WAS CREDIT FOR ONLY 55 DAYS FOR WHICH THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT COULD NOT BE INVOKED. THESE FINDINGS WERE NOT SHOWN TO BE ERRONEOUS OR PERVERSE IN ANY MANNER. 14. FROM THE ABOVE CASE LAWS, IT IS CLEAR THAT THE RUNNING ACCOUNT OR CURRENT ACCOUNT OF THE DIRECTOR & SHAREHOLDER OF THE COMPANY CANNOT BE TREATED AS LOAN OR ADVANCE ACCOUNT. IN THIS CAS E, THE PERUSAL OF THE LEDGER ACCOUNT CLEARLY SHOWS THAT THE ASSESSEES ACCOUNT WITH BMPL WAS A RUNNING/CURRENT ACCOUNT, CONTAINING BOTH DEBIT AS WELL AS CREDIT ENTRIES. ACCORDINGLY, IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, IN OUR CONSID ERED OPINION, THE CREDIT BALANCE ARISING IN THE SAID ACCOUNT ON 09.11.2006 , C ANNOT BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. 15. HENCE, WE SET ASIDE THE ORDER S OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF DEEMED DIVIDEND. WE FURT HER NOTE THAT THE ASSESSEE HAS ALSO RAISED GROUND IN GROUND NOS. 1, 2 & 3 CHALLENGING THE LEGALITY OF ASSUMPTION OF JURISDICTION IN THIS CASE. WE FIND THAT SINCE THE ISSUE ON MERITS HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE, THE ADJUDICATION O N TH ESE ASPECTS IS ONLY OF ACADEMIC IN NATURE. HENCE, WE ARE NOT ENGAGING INTO THE SAME. 16. IN THE RESULT, THE ASSESSEES APPEAL STANDS PARTLY ALLOWED. O RDER PRONOUNCED BY LISTING THE RESULT ON THE NOTICE BOARD OF THE BENCH UNDER RULE 34(4) OF THE APPELLATE TRIBUNAL RULES, 1963. SD/ - RAM LAL NEGI JUDICIAL MEMBER SD/ - SHAMIM YAHYA ACCOUNTANT MEMBER DATED : 0 2 . 0 7 . 2 0 1 8 8 ITA NO. 93/NAG./2015 SHYAM K. BORELE COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, NAGPUR CITY CONCERNED; (5) THE DR, ITAT, NAGPUR ; (6) GUARD FILE . // TRUE COPY // BY ORDER ROSHANI , SR. PS ( SR. P.S. / P.S. ) ITAT