Srikanth Marru, Hyderabad, Hyderabad V. Income Tax Officer, Ward-3(1), Hyderabad

MA 68/Hyd/2018

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 7065 (ITAT-HYDERABAD)
• Duration Of Justice: 29 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 10-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 12-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J PAVITRAM KUMAR
• Keywords: Deemed dividend

Judgement Text

MA NO 68 OF 2018 SRIKANTH MARRU HYDERABAD. PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER M.A. NO.68/HYD/2018 (ARISING OUT OF ITA NO.240/HYD/2017) (ASSESSMENT YEAR: 2009-10) SRI SRIKANTH MARRU HYDERABAD PAN: ACQPM1248N VS INCOME TAX OFFICER WARD 3 (1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.C. DEVDAS FOR REVENUE : SHRI J. PAVITRAM KUMAR, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS MISCELLANEOUS APPLICATION IS FILED BY THE ASSE SSEE SEEKING RECTIFICATION OF ALLEGED MISTAKES APPARENT FROM THE ORDER OF THE TRIBUNAL DATED 31.05.2018. THE ASSESSEE HAS STATED AS UNDER: SUB:- MISCELLANEOUS PETITION U/S 254(2) OF THE INC OME TAX ACT, 1961 ARISING OUT OF ITA NO.240/HYD/2017 'B ' BENCH, AY:2009-10 - ORDER PRONOUNCED ON 31/05/2018- RECTIFICATION REGARDING. 1. THE APPELLANT SRIKANT MARRU FILED AN APPEAL FOR THE ASSESSMENT YEAR 2009-2010 AND THE APPEAL WAS NUMBERED AS ITA NO. 240/HYD/2017 BEFORE THE INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH, HYDERABAD. 2. THE HON'BLE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH VIDE ITS ORDER DATED 31/05/2018 ALLOWED T HE DATE OF HEARING: 27. 07. 201 8 DATE OF PRONOUNCEMENT: 10.08.2018 MA NO 68 OF 2018 SRIKANTH MARRU HYDERABAD. PAGE 2 OF 5 APPEAL IN PART. THIS MISCELLANEOUS PETITION IS FLED TO RECTIFY THE ORDER PASSED ON 31/05/2018 AND IN RELAT ION TO CONFIRMATION OF SUM OF RS. 5,29,750/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE INCOME TAX ACT, 1961. 3. THE APPELLANT IS A SUBSTANTIAL SHAREHOLDER IN M/S. SANTOSHI CHIT FUND PVT LTD. THE COMPANY HAD TAKEN A KEYMAN INSURANCE POLICY A FEW YEARS AGO IN THE NAME OF THE APPELLANT. SUBSEQUENTLY, THE COMPANY TO OK A LOAN AGAINST THE KEYMAN INSURANCE POLICY TO THE EXT ENT OF RS. 65,29,750/- AND THIS SUM WAS ADVANCED TO THE APPELLANT. 4. THE APPELLANT SUBMITTED, SUM OF RS. 5,29,750/- COULD NOT BE TAXED AS DEEMED DIVIDEND AS NO PART OF THE ACCUMULATED PROFITS OF THE COMPANY WERE UTILISED TO ADVANCE THE SUM OF RS. 5,29,750/-. ON T HE CONTRARY, THE ENTIRE FUNDS FLEW FROM A LOAN TAKEN B Y THE COMPANY AND THEREFORE THE PROVISIONS OF SECTION 2(2 2)(E) WAS NOT APPLICABLE. 5. HOWEVER, THE HON'BLE INCOME TAX APPELLATE TRIBUNAL VIDE PARA 6 OF THE ORDER HELD AS UNDER:- 6. AS REGARDS THE SUM OF RS.5,29, 750, IT IS SEEN THAT THE COMPANY HAS RECEIVED A LOAN FROM LIE AND HAS TRANSFERRED TH E ITA NO 240 OF 2017 SRIKANTH MARRU HYDERABAD. PAGE 4 OF 4 SAME TO THE ASSESSEE ON 14.8.2008. THIS LOAN WAS TAKEN ON THE PREMIUM PA ID FOR THE KEYMAN INSURANCE POLICY TAKEN ON 31.3.2008. SINCE T HE NEXUS BETWEEN THE LOAN AND ADVANCE TO THE ASSESSEE IS CLE ARLY ESTABLISHED AND THERE IS ACCUMULATED PROFIT OF THE COMPANY AVAI LABLE TO SUCH AN EXTENT, THE SAME IS TAXABLE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. IN VIEW OF THE SAME, THE ADDITION U/S 2(22J(E) IS PARTLY DELETED.' 6. THE APPELLANT SUBMITS THAT THERE IS A MISTAKE APPARENT FROM RECORD AS THE PROVISIONS OF S ECTION 2(22)(E) WERE INTRODUCED MAINLY WHERE THE ACCUMULAT ED PROFITS OF THE ARE LENT TO THE DIRECTORS HOLDING SU BSTANTIAL INTEREST AND THUS AVOIDING DECLARATION OF DIVIDENDS AND DIVIDEND DISTRIBUTION TAX. ON THE CONTRARY, IF NO P ART OF THE ACCUMULATED PROFITS ARE UTILISED TO ADVANCE LOA NS TO THE DIRECTORS, THE PROVISIONS OF SECTION 2(22)(E) O F THE IT ACT, 1961 WERE INAPPLICABLE. ON THE FACTS OF THE APPELLANT'S CASE, THERE IS A CLEAR FINDING THAT THE RE IS A SUBSTANTIAL NEXUS BETWEEN THE LOAN TAKEN BY THE COMPANY FROM LIE AND THE AMOUNT ADVANCED TO THE APPELLANT, IN WHICH CASE, THE TRANSACTION WOULD NOT FALL WITHIN THE MEANING OF SECTION 2(22)(E) OF THE INCOM E TAX ACT, 1961. MA NO 68 OF 2018 SRIKANTH MARRU HYDERABAD. PAGE 3 OF 5 7. THE APPELLANT FURTHER SUBMITS THAT BUT FOR THE LOAN TAKEN BY THE COMPANY FROM LIC, NO AMOUNT O F ACCUMULATED PROFITS WOULD HAVE BEEN LENT BY THE COMPANY TO THE APPELLANT. THIS IS JUST TO DEMONSTRA TE THAT NO PART OF THE ACCUMULATED PROFITS WERE UTILIS ED TO ADVANCE THE SUM OF RS.S,29,750/- WITHOUT PREJUDICE TO ANY OF THE AFORESAID SUBMISSIONS, THE APPELLANT SUBMITS THAT COMMISSIONE R OF INCOME TAX (APPEALS)- 3, HYDERABAD AT LAST PARAGRAP H OF HER ORDER HELD THAT THE ACCUMULATED PROFITS OF THE COMPANY AS ON 31.03.2008 STOOD AT RS.4,15,830J- AND THEREFORE, THE DEEMED DIVIDEND, IF ANY, IS TO BE RE STRICTED TO THIS AMOUNT AND NOT RS.5,29,750J- AS HELD BY THE ASSESSING OFFICER. THUS, THE QUANTUM WITHOUT PREJUDICE TO THE SUBMISSION THAT THE PROVISIONS OF SECTION 2(22)(E) ARE INAPPLICABLE NEEDS REDUCTION. 8. THEREFORE IT IS PRAYED THAT THE HON'BLE TRIBUNAL MAY BE PLEASED TO RECTIFY THE ORDER ON THE FACTS ADMITTED ABOVE AND PASS ORDER AS DEEM FIT. 2. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT FOR APPLYING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, THE BASIC CONDITION TO BE FULFILLED IS THAT THE COMPANY MUST HAVE ADVANCED LOANS/ ADVANCES FROM ITS ACCUMULATED PROFITS OF THE RELEVANT FINANCIAL YEAR. HE SUBMITTED THAT THE TRIBUNAL HAS CLEARLY HELD THAT THE ASSESSEE WAS RECEIVED A LOAN FROM LIC WHIC H HAS BEEN TRANSFERRED TOWARDS PAYMENT OF PREMIUM FOR THE KEYM AN INSURANCE POLICY AND THEREFORE, A NEXUS BETWEEN THE LOAN AND THE ALLEGED ADVANCE TO THE ASSESSEE IS CLEARLY ESTABLIS HED. HE SUBMITTED THAT EVEN FROM THE FINDINGS OF THE CIT (A ), THE ACCUMULATED PROFIT OF THE COMPANY IS ONLY TO AN EXT ENT OF RS.4,15,830 AND AS IT WAS NOT THE SUM ADVANCED TO T HE ASSESSEE FOR KEYMAN INSURANCE POLICY, THE SAME CANNOT BE BRO UGHT TO TAX U/S 2(22)E OF THE ACT. WITHOUT PREJUDICE TO THE ABO VE ARGUMENT, HE ALSO SUBMITTED THAT IF THE ADDITION IS TO BE SUS TAINED, IT CAN MA NO 68 OF 2018 SRIKANTH MARRU HYDERABAD. PAGE 4 OF 5 ONLY BE SUSTAINED TO THE EXTENT OF THE ACCUMULATED PROFIT AVAILABLE TO THE ASSESSEE AND NOT THE WHOLE SUM OF RS.5,29,75 0. 3. THE LEARNED DR, HOWEVER, SUBMITTED THAT THERE IS NO MISTAKE IN THE ORDER OF THE TRIBUNAL WHICH NEEDS RE CTIFICATION. 4. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE TRIBUNAL HAS HELD THAT THERE IS A NEXUS BETWEEN THE LOAN TAKEN FROM THE LIC AND THE PREMIUM PAID FOR THE KEYMAN INSURANCE POLICY. SINCE THE KEYMAN INSUR ANCE POLICY IS FOR THE BENEFIT TO THE ASSESSEE, IT WAS HELD THA T THE SAME IS TAXABLE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. HOWEVER, AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WOULD BE APPLICABLE ONLY TO THE EXTENT OF ACCUMULATED PROFITS OF THE COMPANY AV AILABLE AT THE BEGINNING OF THE RELEVANT FINANCIAL YEAR. THUS, WE AGREE WITH THE CONTENTION OF THE ASSESSEE, THAT THERE IS A MISTAKE APPARENT FROM THE ORDER OF THE TRIBUNAL AND THEREFORE WE RECTIFY THE MISTAKE BY SUBSTITUTING PARAS 6 AND 7 AS UNDER: 6. SINCE THERE IS AN ACCUMULATED PROFIT OF THE COMPANY AVAILABLE TO AN EXTENT OF RS.4,79,063, THE THE ADVANCE TO THE EXTENT OF SUCH PROFITS ALONE CAN BE BROUGHT TO TAX AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. IN VIEW OF THE SAME, THE ADDITION U/S 2(22)(E) OF THE ACT IS RESTRICTED TO RS.4,79,063/-. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED . 5. IN THE RESULT, MISCELLANEOUS APPLICATION FILED B Y THE ASSESSEE IS ALLOWED. MA NO 68 OF 2018 SRIKANTH MARRU HYDERABAD. PAGE 5 OF 5 ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST, 2018. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 10 TH AUGUST, 2018. VINODAN/SPS COPY TO: 1 B.NARSINGH RAO & CO. CAS, PLOT NO.554, ROAD NO.92 , JUBILEE HILLS, HYDERABAD 500096 2 ITO WARD 3(1) HYDERABAD 3 CIT (A) - 3 HYDERABAD 4 PR. CIT 3 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER