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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R
Per Shri D.S.Sunder Singh, Accountant Member :
This appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeal) [CIT(A)]-1, Guntur in Appeal No.10137/2018-19 dated 20.02.2019 for the assessment year (A.Y.)2012- 13 and the cross objections are filed by the assessee in support of the order of the Ld.CIT(A).
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 course of assessment proceedings, the AO found that the assessee received advances from M/s Lalith Mohan Spices Pvt. Ltd to the extent of Rs.2,50,22,099/- and it was also observed that the assessee is a director having more than 20% of share in the company. The AO further found that the assessee was running his own business of trading in chilles and using the funds of the company for his own purpose. Therefore, the AO has asked the assessee to explain as to why the advances received by the assessee should not be treated as deemed dividend u/s 2(22)(e) of the Act. In response, the assessee explained that he is engaged in the trade of purchase of chillies through M/s Religare Commodities Ltd, depending
CO No.69/Viz/2019 , A.Y.2012-13 Sri Lalith Kumar Bagrecha, Guntur on the requirement of M/s Lalith Mohan Spices Pvt. Ltd. The funds taken from M/s Lalith Mohan Spices Pvt. Ltd. were utilized for purchase of chillies of the same company. The chillies were purchased through M/s Religare Commodities Ltd.. from NCMSL and supplied to the Lalith Mohan Spices, thus submitted that the advances taken from the company takes the character of trade advances, hence, the provisions of deemed dividend u/s 2(22)(e) has no application in the assessee’s case. The AO did not find favour with the explanation offered by the assessee, hence made the addition of Rs.2,50,22,099/- as deemed dividend u/s 2(22)(e) of the Act.
Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) found that the advances received by the assessee were in the nature of trade advances, therefore, held that there is no case for taxing the advances received u/s 2(22)(e) of the Act, accordingly, deleted the addition made by the AO. The Ld.CIT(A) has referred host of decisions in favour of the assessee.
Aggrieved by the order of the Ld.CIT(A), the revenue has filed appeal before this Tribunal. During the appeal hearing, the Ld.DR argued that the assessee has received the advances from the company where the assessee is holding more than 20% of the share holding. The funds were used for his
CO No.69/Viz/2019 , A.Y.2012-13 Sri Lalith Kumar Bagrecha, Guntur own business purposes and made the profit. The Ld.DR referred section 188 of the Companies Act which places restrictions on the related party transactions. The Ld.DR further argued that as per section 188 of the Act, the Director is not permitted to take any advances from the company or enter into contract / arrangement with related party. Therefore, argued that the assessee having fully known the provisions of the Companies Act, entered into the transaction against the Company Law. The Ld.DR further submitted that Hon’ble Supreme Court in the case of P.Sarada Vs. Commissioner of Income Tax (Central), Madras, 229 ITR 444 held that the advances made by the company to the assessee are to be treated as deemed dividend and subsequent adjustment of the account will not alternate the position. Therefore, argued that the Ld.CIT(A) ought not to have treated the advance as trade advance and deleted the addition.
On the other hand, the Ld.AR submitted that there is no specific bar on the assessee to make the transactions with the company. The transactions with the company are treated as related party transactions which required to be undertaken with the approval of the Board of Directors and the transactions should be at arms length and it is not the issue or ground in this appeal. The Ld.AR further submitted that the CBDT
CO No.69/Viz/2019 , A.Y.2012-13 Sri Lalith Kumar Bagrecha, Guntur has issued a circular No.19/2017 dated 12.06.2017 clarifying that the advances in the nature of commercial transactions would not fall within the ambit of sec.2(22)(e) of the Act. Therefore, argued that the transactions entered by the assessee are purely commercial transactions and hence ,there is no case for taxing the advances as deemed dividend. Accordingly argued that the CIT(A) rightly deleted the addition and no interference is called for.
We have heard both the parties and perused the material placed on record. In the instant case, the AO made the addition in respect of advance received by the assessee from the company out of deposits made in the assessee’s bank account No.01891070073169. The AO observed that out of the total deposits of Rs.4,82,79,691/-, a sum of Rs.2,50,22,099/- was received from M/s Lalith Mohan Spices Pvt. Ltd., therefore, viewed that the same required to be taxed u/s 2(22)(e) of the Act. We observe from the order of the AO that the assessee did not fail to furnish any information which was called for by the AO. The Ld.AR submitted the paper book and as per page No.21 of the paper book, the assessee furnished the account copy of Lalith Mohan Spices (P) Ltd., in the books of Lalith Kumar Bagrecha as per which the assessee has received the advances and out of the same
CO No.69/Viz/2019 , A.Y.2012-13 Sri Lalith Kumar Bagrecha, Guntur purchased chillies from M/s Religare Commodities Ltd. through NCMSL and supplied the same to the company. We, observe from the account copy of M/s Lalith Mohan Spices Pvt. Ltd., placed in the paper book that the advances were received for purchase of chillies to make the supplies to the company. The assessee had supplied the chillies ot M/s Lalith Mohan Spices PvT Ltd. as under : 27.06.2011 Rs.17.99 lakhs 27.07.2011 Rs.95.42 lakhs 24.09.2011 Rs.135.11 lakhs Total Rs.248.52 lakhs Supply is more or less equal to the advances received by the assessee from the company. It is observed that within the short span of time of receiving the advances, the assessee had supplied the chillies after procurement from M/s Religare Commodities Ltd. Therefore it is established from the paper book that the advances received by the assessee were commercial transactions and squarely covered by Circular No.19/2017 dated 12.06.2017. Though the Circular was dated 12.06.2017, the Board has clarified that the issue has attained finality and the commercial transactions would not fall within the ambit of sec.2(22)(e) of CO No.69/Viz/2019 , A.Y.2012-13 Sri Lalith Kumar Bagrecha, Guntur the Act. This view is also supported by the decisions of Hon’ble High Courts as under. (a) CIT Vs. Creative Dyeing & Printing Pvt. Ltd. (51 taxmann.com 569) (Del) (b) CIT Vs. Amrik Singh (P&H) (231 Taxman 731) The case of the assessee is squarely covered by the Board Circular dated 12.06.2017, hence, we hold that the Ld.CIT(A) rightly deleted the addition. However from the assessment order, we find that the assessment was completed on the information uploaded by the assessee. During the appeal hearing also the Ld.DR submitted that the said information of account copy was not available to the AO. Therefore in the interest of justice, we, remit the matter back to the file of the AO for limited purpose of verification of genuineness of transactions submitted in the paper book with regard to sales made to the company. If the sales are supported by the books of accounts of the assessee as well as the company the transactions would not treated as deemed dividend and covered by the circular cited. Otherwise, the AO is free to decide the issue on merits after giving opportunity to the assessee. Accordingly, the order of the Ld.CIT(A) is set aside and the issue is remitted to the file of the AO . The appeal of the Revenue is allowed for statistical purposes.
CO No.69/Viz/2019 , A.Y.2012-13 Sri Lalith Kumar Bagrecha, Guntur
The cross objections filed by the assessee are in support of the order of the Ld.CIT(A). Since the appeal of the revenue is allowed for statistical purposes, the cross objections of the assessee also stands allowed for statistical purposes.
In the result, appeal of the revenue as well as the cross objections of the assessee allowed for statistical purposes. .
Order pronounced in the open court on 7th February, 2020.