THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1,, VISAKHAPATNAM vs. GRANDHI MANOJ KUMAR(HUF), VISAKHAPATNAM

This appeal is filed by the revenue against the order of Commissioner of Income Tax (Appeals)-3, [CIT(A)], Visakhapatnam in Appeal No.97/2018-19/CIT(A)-3/VSP/2018-19 dated 13.03.2019 for the Assessment Year (A.Y.) 2015-16.

All the grounds of appeal are related to the deletion of addition made by the Assessing Officer (AO) u/s 2(22)(e) of the Income Tax Act, 1961 (in short ‘Act’). During the assessment proceedings, the AO found that the assessee is the beneficial owner having 75% shareholding in the company M/s Manoj Vaibhav Gems N Jewellers Pvt. Ltd.,(MVGNJPL) formerly known as M/s Vaibhav Empire Pvt. Ltd. (VEPL), which has advanced the sum of Rs.17,49,58,335/-. The said company is having accumulated profits of Rs.59,15,92,870/-, hence assessed the sum of Rs.17,49,58,335/- as deemed dividend u/s 2(22)(e) of the Act. The AO in the assessment proceedings found that the assessee has made the adjustment entry for Rs,17,50,00,000/- on the last day of the financial year 31.03.2014 to the VEPL a/c and reversed the same on 01.04.2014 by debiting the said amount. Therefore, the AO suspected the transaction and called for the details. On verification, the AO found that the company has maintained the ledger account in the name of Shri Grandhi Manoj Kumar(HUF). The total debit transactions were Rs.65,42,67,229/- and credit transaction of Rs.66,94,07,089/- in the books of the assesse maintained in the name of the company M/s Vaibhav Empire Pvt. Ltd. The AO further observed that the assesse is not supplying any goods to M/s VEPL, thus there is no advance for goods except accepting the loans from M/s Grandhi Manoj Kumar (HUF), Visakhapatnam the company which required to be brought to tax u/s 2(22)(e) of the Act. Similar addition was also made by the AO for the A.Y.2014-15 in the hands of the assessee. The AO called for the explanation of the assessee and the assesse explained that the entire transactions were trade transactions and duly accounted in the books of assessee as well as M/s VEPL. The assessee further submitted that the transactions were related to purchase of gold plan schemes. The assessee is collecting monthly subscriptions from the subscribers under gold purchase scheme and after completion of the instalment period, HUF gives closure form to its subscribers and refers the customers to redeem their deposit with M/s VEPL, as per terms and conditions of the scheme. The subscribers buy jewellery from VEPL and HUF transfer the funds to the company on behalf of its customers, thus, the assessee explained that the entire transactions were trade transactions and no personal benefit was derived by the assessee directly or indirectly. It was also submitted that on identical facts for the A.Y.2014-15, the AO made the addition u/s 2(22)( e) of the Act and on appeal Hon’ble ITAT dismissed the appeal of the revenue holding that there was no direct or indirect benefit derived by the assesse to tax the same as deemed dividend u/s 2(22)(e) of the Act. The AO examined the explanation of the assessee and not being impressed with the explanation of the assessee, held that the M/s Grandhi Manoj Kumar (HUF), Visakhapatnam outstanding as on 31.03.2014 was a loan and the assessee got direct benefit from the company, hence taxed the same as deemed dividend u/s 2(22)(e) of the Act. 3.0. The assessee went on appeal before the CIT(A) and the Ld.CIT(A) deleted the addition following the decision of this Tribunal in the assessee’s own case for the A.Y.2014-15. For the sake of clarity and convenience, we extract para No.5.3 to 6 of the CIT(A) order which reads as under : “5.3. The CIT(A)-3, Visakhapatnam vide order dated 31.10.2017 has held for the A.Y.2014-15 as under : “4.3(c) I have also perused the ledger account copy of the appellant in the book of VEPL and found that the entries made in the books are journal entries without money being passed on from the company to the appellant. In reality, neither loans nor advances have been given by the company to the appellant. What were transferred are the trade payables as well as receivables. By this transaction there is no benefit direct or indirect derived by the appellant and the Assessing Officer is not correct in stating that the appellant HUF is deriving the befit out of the entries to the extent of Rs.1,51,39,860/-. Accordingly, the Assessing Officer is directed to delete the addition"