SHRI DEEPAK J. CHOWDHARY, Nagpur V. ITO,WARD-5(3), Nagpur

ITA 94/NAG/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93413 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 13-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed dividend
• Section: 143(3); 234B

Judgement Text

1 ITA NO. 94/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO.9 4 /NAG/2013 ASSESSMENT YEAR : 200 6 - 07 SHRI DEEPAK J. CHOWDHARY, THE INCOME - TAX OFICER, PLOT NO. 2, SURYANASG, V/S. WARD - 5(3), NAGPUR. GANDHI NAGAR, NAGPUR. PAN AADPC 5934E APPELLANT. RESPONDENT. A PPELLANT BY : SHRI K.P.DEWANI. RE SPONDENT BY : SHRI P.R. MANE. DATE OF HEARING - 22 - 04 - 2015 DATE OF PRONOUNCEMENT 26 TH JUNE, 2015. O R D E R PER SHRI MUKUL K. SHRAW AT, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FROM THE ORDER OF LEARNED CIT(APPEALS) - 19 (CAMP OFFICE, NAGPUR) DATED 14 - 02 - 2013. THE GROUNDS RAISED BY THE ASSESSEE ARE REPRODUCED BELOW : 1. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ADDITION OF ` .16,41,120/ - U/S 2(22)(E) OF INCOME - TAX ACT, 1961. 2. THE ADDITION SUSTAINED BY CIT(A) AT ` .16,41,120/ - U/S 2(22)(E) OF INCOME - TAX ACT, 1961 IS UNJUSTIFIED, UNWARRANTED AND BAD IN LAW. 3. THE LEARNED A.O. ERRED IN HOLDING THAT ASSESSEE IS LIABLE TO BE ASSESSED FOR DEEMED DIVIDEND U/S 2(22)(E) OF INCOME - TAX ACT, 1961. 2 ITA NO. 94/NAG/2013 4. THE ADDITION MADE U/S 2(22)(E) OF INCOME TAX ACT, 1961 IS UNJUSTIFIED, UNWARRANTED AND EXCESSIVE. 5. THE ASSESSE E DENIES LIABILITY TO BE ASSESSED TO INTEREST U/S 234B AND 234D OF INCOME TAX ACT, 196. WITHOUT PREJUDICE THE LEVY OF INTEREST U/S 234B AND 234D IS UNJUSTIFIED, UNWARRANTED AND EXCESSIVE. 2. THE SHORT ISSUE AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED UNDER SECTION 143(3) DATED 29 - 12 - 2008 WAS THAT WHETHER THE ASSESSING OFFICER WAS LEGALLY CORRECT IN INVOKING THE PROVISIONS OF SECTION 2(22)(E) ON THE FACTS OF THIS CASE. THE OBSERVATION OF THE ASSESSING OFFICER WAS THAT AS PER THE BALANCE SHE ET TOWARDS LIABILITY SIDE THERE WERE LOANS AND ADVANCES FROM VARIOUS PARTIES INCLUDING M/S AAMBA AGENCIES P. LTD. OF ` . 7,00,687.40 AND FROM M/S AMBA FERRO CARBONS P. LTD. ` .16,40,660.85. THE ASSESSING OFFICER HAS NARRATED THE FACTS AND ALSO CONSIDERED T HE PATTERN OF SHARE HOLDING IN THE FOLLOWING MANNER. DURING THE COURSE OF ASSESSMENT IT WAS NOTICED THAT AS PER THE BALANCE SHEET FILED ALONG WITH THE RETURN THE ASSESSEE HAS SHOWN IN THE LIABILITIES SIDE UNDER THE HEAD LOANS AND ADVANCES UNSECURED LOANS FROM VARIOUS PARTIES INCLUDING M/S AMBA AGENCIES P. LTD. ` .700687.40 AND M/S AMBA FERRO CARBONS P. LTD. ` .16,40,600.85. EVEN THOUGH THERE WAS NO CREDIT BALANCE AVAILABLE IN THE ACCOUNT OF ASSESSEE IN M/S AMBA FERRO CARBONS PVT. LTD., THE COMPANY WANTED TO GIVE LOAN TO THE ASSESSEE AND ASKED M/S MPM PVT. LTD., ANOTHER COMPANY OF THE SAME GROUP TO GIVE LOAN TO THE ASSESSEE ON THEIR BEHALF. THEREFORE M/S MPM PVT. LTD. CREDITED THE ASSESSEES ACCOUNT WITH ` .21,00,000/ - ON 10.7.2005. THEREAFTER THE SAID COMPANY HAD ADVANCED ` . 20 LAKHS ON 15.7.2005 TO THE ASSESSEE VIDE CHEQUE NO. 757709 DRAWN ON BANK OF BARODA CC A/C NO. 20151 WITH A 3 ITA NO. 94/NAG/2013 NARRATION PAID AGAINST CREDIT BALANCE. THE ABOVE TWO COMPANIES ARE CLOSELY HELD C OMPANIES A ND SHRI DEEPAK CHOUDHARY HOLDS MORE THAN 10% SHARES IN THESE COMPANIES. FROM THE SHAREHOLDING PATTERN SUBMITTED BY THE ASSESSEE, IT IS NOTICED THAT MR. DEEPAK CHOUDHARY HOLDS SHARES IN THESE COMPANIES AS UNDER: 1. M/S MPM PRIVATE LTD. 39659 8/50000 SHARE 79% 2.M/S AMBA FERRO CARBONS PVT. LTD. 43845/10000 44% 2.1 THE OBSERVATION OF THE ASSESSING OFFICER WAS THAT AS PER THE LEDGER ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S AMBA FERRO ALLOYS P. LTD. AN AMOUNT WAS CREDITED IN THE ACCOUN T OF THE ASSESSEE ON BEHALF OF M/S MPM PVT. LTD. THE ASSESSING OFFICER HAS COMMENTED THAT THOSE COMPANIES WERE CLOSELY HELD COMPANIES AND THE ASSESSEE WAS HAVING MAJORITY CONTROL OVER BOTH THE COMPANIES. AT THE END OF THE ACCOUNTING PERIOD THERE WAS A DEB IT BALANCE IN THE NAME OF THE ASSESSEE AMOUNTING TO ` .16,40,660.85 IN THE ACCOUNTS OF M/S AMBA FERRO CARBONS P. LTD. ACCORDING TO THE ASSESSING OFFICER THERE WAS NO CREDIT BALANCE IN THE ACCOUNT OF M/S AMBA FERRO CARBONS P. LTD. BUT THE SAID COMPANY WANTED TO GIVE LOAN TO THE ASSESSEE. THE SAID COMPANY I.E. AFCPL ASKED M/S MPM P. LTD., ANOTHER COMPANY OF THE GROUP, TO GIVE LOAN TO DEEPAK CHOUDHARY, THE ASSESSEE. THEREFORE, M/S MPM P. LTD. CREDITED THE ASSESSEES ACCOUNT WITH A SUM OF ` .21 LAKHS ON 10 - 07 - 2005. THE SAID COMPANY HAD ADVANCED ` .20 LAKHS ON 15 - 07 - 2005 TO THE ASSESSEE BY A CHEQUE OF BANK OF BARODA. ACCORDING TO THE ASSESSING OFFICER, IT WAS INTERESTING TO O B SERVE THAT M/S AFCPL HAS DEBITED ASSESSEES ACCOUNT ON 31 - 07 - 2005 BY A SUM OF ` .21 LAKHS THROUGH A GENERAL ENTRY. 4 ITA NO. 94/NAG/2013 HENCE THE ASSESSING OFFICER HAS CONCLUDED THAT THE SAID SUM OF ` .21 LAKHS WAS PAID BY THE COMPANY AS ADVANCE WHICH WAS COVERED UNDER SECTION 2(22)(E) OF I.T. ACT. AN ADDITION WAS MADE AS UNDER : FROM THE ABOV E DETAILED ANALYSIS IT IS ABSOLUTELY CLEAR THAT THE LOANS OBTAINED BY THE ASSESSEE FROM M/S AMBA FERRO CARBONS P. LTD., IS NOTHING BUT DEEMED DIVIDEND AS CONTEMPLATED U/S 2(22)(E) OF THE INCOME - TAX ACT. SUCH AN AMOUNT OF DEEMED DIVIDEND COMES TO ` .20,0 2,251/ - BEING THE OVERDRAWN ON THE FOLLOWING DATES WHICH IS CALCULATED AS UNDER: 31.7.2005 19,65,115/ - 9.11.2005 39,136 ------------------ TOTAL ` . 20, 02251/ - -------------------- 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, LEARNED CIT(APPEALS) HAS HELD THAT THE LOAN WAS GRANTED BY M/S MPM P. LTD. WHERE THE ASSESSEE HAS SUBSTANTIAL S HAREHOLDING ON BEHALF OF AFCPL. THE LEARNED CIT(APPEALS) HAS ALSO NOT ACCEPTED THE ASSESSEES EXPLANATION ABOUT THE BANK GUARANTEE GIVEN. HOWEVER, THE LEARNED CIT(APPEALS) HAS ACCEPTED THE ALTERNATIVE PLEA OF THE ASSESSEE THAT THE ACCUMULATED PROFIT OF A FCPL WAS TO THE TUNE OF ` .16,41,120/ - , THEREFORE, THE ADDITION UNDER SECTION 2(22)(E) WAS RESTRICTED TO THAT EXTENT ONLY. 4. FROM THE SIDE OF THE ASSESSEE, LEARNED A.R. MR. K.P. DEWANI APPEARED AND VEHEMENTLY PLEADED THAT FROM THE COPY OF ACCOUNT OF M/S AF CPL IT IS VERY MUCH 5 ITA NO. 94/NAG/2013 EVIDENT THAT BY WAY OF GENERAL ENTRY THERE WAS DEBIT BALANCE IN THE ACCOUNT OF THE ASSESSEE. THERE WAS NO ACTUAL TRANSFER OF MONEY. A TRANSACTION BY WAY OF GENERAL ENTRY DO NOT INVITE THE INVOCATION OF SECTION 2(22)(E) OF THE I.T. A CT. THE CASE LAWS RELIED UPON ARE AS UNDER : I) 90 ITR 0013 (MAD) G.R. GOVINDRAJULU NAIDU & ANR, V/S. CIT. II) 236 ITR 1003 (MAD) CIT V/S. SMT. SAVITHRI SAM. 4.1 LEARNED A.R. HAS ALSO PLEADED THAT THE TRANSACTION WAS IN THE NATURE OF BUSINESS TRANSACTION BECAUSE THE ASSESSEE HAS PROVIDED GUARANTEE FOR LOAN OBTAINED BY M/S AFCPL. SINCE THE ASSESSEE WAS GUARANTOR OF LOAN, THEREFORE, THERE WAS A TEMPORARY ARRANGEMENT OF FUNDS, THAT TOO FOR BUSINESS CONSIDERATION, HENCE OUT OF THE AMBITS OF SECTION 2(22)(E) O F THE I.T. ACT . THE CASE LAWS CITED ARE AS UNDER : I) 138 ITD 0427 ACIT V/S. SMT. G.SREEVIDYA. II) ITA NO. 768/MDS/2012 IN CASE OF SHRI RAVIKANT CHOUDHARY VIDE ORDER DT. 17/12/2012. III) ITA NO. 406/ASR/2009 IN CASE OF SH. SHITAL KUMAR VIJ VIDE ORDER DT. 20/09/2012. IV) 338 ITR 0538 (KOL) PRADIP KUMAR MALHOTRA V/S. CIT 5. FROM THE SIDE OF THE REVENUE, LEARNED D.R. MR. P.R. MANE HAS SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND P LEADED THAT THE ASSESSEE HAS ADOPTED A COLORABLE DEVICE TO TRANSFER MONEY FROM THE ACCOUNT OF ONE COMPANY TO THE ACCOUNT OF ANOTHER COMPANY. HE HAS ALSO MENTIONED THAT THE ASSESSEE HAS STOOD AS A GUAR ANTOR WAY BACK IN THE YEAR 2004, H ENCE NOT APPLICABLE F OR THE YEAR UNDER CONSIDERATION. 6 ITA NO. 94/NAG/2013 6. HEARD BOTH THE SIDES AT SOME LENGTH. CONSIDERING THE TRANSACTIONS AS RECORDED IN THE RESPECTIVE ACCOUNT AND THE DETAILS FURNISHED IN THE COMPILATION, IT IS EVIDENT THAT BY JV ENTRY THE IMPUGNED TRANSACTION WAS MADE. IN THE CASE OF G.R. GOVINDRAJALU NAIDU 90 ITR 13 IT WAS EXPRESSED THAT THE WORDS PAYMENT BY WAY OF LOAN OR ADVANCE ARE TO BE VIEWED WITH AN UNDERSTANDING THAT AN OUTGOING OR FLOW OF MONEY FROM THE COMPANY TO THE SHAREHOLDERS SHOULD BE ACTUAL PAYMENT AND NO T A NOTIONAL PAYMENT. ACCORDING TO THE HONBLE COURT, IT IS NOT POSSIBLE TO SAY THAT PAYMENT INCLUDE NOTIONAL PAYMENT BY WAY OF BOOK ENTRIES. EVEN IN THE CASE OF CIT V/S. SMT. SAVITHRI SAM 236 ITR 1003 (MAD) IT WAS HELD AS UNDER : THEREFORE, IT IS DIF FICULT FOR US TO INTRODUCE ANOTHER FICTION IN RESPECT OF THE WORDS PAYMENT BY THE COMPANY BY CONSTRUING EVEN A TRANSFER ENTRY AS AMOUNTING TO PAYMENT. IN OTHER WORDS, WHEN S. 2(22)(E) ITSELF INTRODUCES A FICTION, IT IS IMPROPER FOR US TO INTRODUCE A NOTHER FICTION AND CONSTRUE A PAYMENT AS EQUIVALENT TO A CONSTRUCTIVE PAYMENT. IN THIS VIEW OF THE MATTER, WE ARE NOT INCLINED TO ACCEPT THE ARGUMENTS ADVANCED ON BEHALF OF THE REVENUE AND FOLLOWING THE DECISION IN G.R. GOVINDARAJULY NAIDU V/S. CIT (SUPRA), WE ANSWER THE REFERENCE IN THE AFFIRMATIVE AND AGAINST THE REVENUE. 6.1 SO I T WAS HELD THAT THE PROVISIONS OF THIS SECTION PRESCRIBES THAT BY FICTION THE AMOUNT OF LOAN IS TO BE TREATED AS DIVIDEND AND, THEREFORE, THIS SECTION SAYS THAT THE DIVI DEND INCLUDES ANY PAYMENT BY A COMPANY TO A SHAREHOLDER SHALL BE TREATED AS A DEEMED DIVIDEND. THEREFORE, IT IS DIFFICULT TO INTRODUCE ANOTHER FICTION IN RESPECT OF A TRANSFER ENTRY TO BE CONSTRUED AS ACTUAL TRANSFER OF PAYMENT. IT IS DIFFICULT TO CONSTRU E BY WAY OF FICTION THAT A NOTIONAL PAYMENT IS EQUIVA LENT TO A CONSTRUCTIVE PAYMENT. 7 ITA NO. 94/NAG/2013 6. 2 APART FROM THE ABOVE DISCUSSION, WE HAVE ALSO NOTED THAT THERE WAS A BUSINESS RELATIONSHIP BECAUSE THE ASSESSEE STOOD AS A GUARANTOR, HENCE FOLLOWING THE DECISION OF S MT. G. SREEVIDYA 138 ITD 427 (CH ENNAI) WHEREIN IT WAS MENTIONED THAT BY VIRTUE OF OFFERING PERSONAL GUARANTEE AND COLLATERAL SECURITY, THERE WAS AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE COMPANY WHICH WAS ARISING OUT OF BUSINESS NECESSITY, HENCE OUT OF THE AMBITS OF THE PROVISIONS OF SECTION 2(22)(E) OF THE I.T. ACT. IN THE LIGHT OF THE ABOVE DISCUSSION AND FOLLOWING THE PRECEDENT CITED, WE ARE OF THE CONSIDERED OPINION THAT THE TRANSACTION IN QUESTION WAS NOT FIT TO INVOKE THE PROVISIONS OF SECTION 2 (22)(E) OF THE I.T. ACT. HENCE WE HEREBY DIRECT TO DELETE THE ADDITION. GROUND OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JUNE, 2015. SD/ - SD/ - ( SHAMIM YAHYA) (MUKU L K. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER. NAGPUR, DATED: 26 TH JUNE, 2015. COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. 8 ITA NO. 94/NAG/2013 TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE