Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “ B ” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER :
This appeal by the Assessee is directed against the order of the Commissioner of Income Tax(Appeals)-2, Ahmedabad [Ld.CIT(A) in short] dated 13/12/2016 arising out of assessment order passed by the ITO, Ward- 2(1)(3) dated 31.12.2015 for the Assessment Year (AY) 2013-14.
The Assessee has raised the following ground of appeal:-
“In view of the facts and circumstances of the case, the Ld. CIT(A) ought to have deleted the addition of Rs.10,80,994/- made by the Ld. AO U/s.2(22)(e) of the
ITA No.382/Ahd/2017 Parag Prakash Doshi vs. ITO Asst.Year – 2013-14 - 2 - Income Tax Act and hence your Appellant prays that the action of the Ld. AO be quashed and he be directed to delete the addition made by him.”
The relevant facts as culled out from the materials on record are as under:-
3.1. During the course of assessment proceedings, it is found that the assessee has received payment of Rs. 1,32,91,914/- from M/s. Leela Tub Pvt. Ltd. (LTPL) in which the assessee is one of the director. It can also be evident from the ledger account of the Leela Tube Pvt. Ltd. for the period under consideration furnished by the assessee. Vide order sheet entry dated 30/10/2015, it was show caused that the payment of Rs. 1,32,91,914/- received from the company M/s. Leela Tube Pvt. Ltd. why should not be considered deemed divided in accordance with sec. 2(22)(e) of the Act. A show cause notice was also issued on 30/20/2015 which is reproduced as under:-
"Perusal of the ledger account of Leela Tubes Pvt. Ltd. (Loan account) from your book, it is observed that during the period under consideration you hove received an amount of Rs. 1,32,91,914/-. The closing balance as on 31/03/2013 was at Rs.33,98,914/-. It is found that in the company Leela Tubes Pvt. Ltd. you are the substantial share holder and having the holding above the prescribed limit which falls under the ambit of deemed dividend. It is requested to show cause why the amount received from the Leela Tubes Pvt. Ltd. during the period under consideration should not be treated as deemed dividend u/s. 2(22) (e) of the Act.'"
3.2. In response to the show cause notice the assessee has filed his reply on 02.11.2015, which is placed on the record. In the reply the assessee has
ITA No.382/Ahd/2017 Parag Prakash Doshi vs. ITO Asst.Year – 2013-14 - 3 - submitted that the previsions of sec. 2(22)(e) is not applied and no addition in this regard may be made. Therefore, the case is referred for direction of Addl. CIT, Range-2(1), Ahmedabad. On 02.12.2015 u/s. 144A of the Act. Therefore, the Addl. CIT, Range-2(l), Ahmedabad has issued a notice to the assessee on 08.12.2015 and the opportunity was granted to the assessee to be heard and explain his position on the issue raised. The Addl. CIT, Range-2(l), Ahmedabad has issued the direction u/s. 144A of the Act on the issue of applicability of the Sec.2(22)(e) of the Act in the case for A.Y. 2013-14 on 30.12.2015. The directions of the Addl. CIT, Range-2(1), Ahmedabad are reproduced as under:
“2. Vide your above letter you have sought direction u/s. 144A on the issue of addition u/s. 2(22)(e) of the Act. Perusal of records revealed that the assessee is a direction of 'Leela Tubes Pvt. Ltd.' During the year under consideration, the director has received loan from the company to the tune of Rs.1,32,91,914/- and perusal. Therefore the issue of applicability of section 2(22)(e) of the Act arose. As per your letter it was understood that the assessee has objected to the said addition. Therefore the assessee was given a opportunity to be heard and explain his position on the issue on 21.12,2015.”
3.3. On the said date, the assessee produced certain details and reiterated its stand by submitting as under:
“With reference to the above, we refer to the discussions our Shri Krunal K. Jariwala had with you from time to time and the submissions made and further to that regarding the specific query about the addition u/s. 2(22)(e) for the amounts standing to the credit in the name of the
ITA No.382/Ahd/2017 Parag Prakash Doshi vs. ITO Asst.Year – 2013-14 - 4 - company in which the assessee is director and shareholder having substantial interest, we would like to submit that:
i. It is true that the assessee is one of the major shareholder in the company.
ii. It is also true that the sum of Rs.33,98,914 is standing to the credit of the company in which the assessee is director and also the shareholder having substantial interest. The highest PEAK in this account is Rs.44,32,581.
iii. It is also true that the company has the reserves and surplus as under:
Particulars Amount
Opening balance -as on 0 1 -04-20 12 5,12,828 Profit after tax for the year 20 1 2-1 3 6,58,968 Less Provision for taxes 90,802 Closing balance - as on 3 1 -03-20 13 10,80,994
iv. The key data of the company LEELA TUBES Pvt. Ltd. as on 31-03- 2013 as evidenced from it's audited balance sheet is as under:
Particular Rupees Rupees Sales 16,73,83,367 Stock-Raw Material 1,20,72,309 Stock- Work-I-Progress 1,92,19,700 Stock-Finished Good 1,20,97,441 Total Stock 4,33,89,450 4,33,89,450 Bank Finance form Banker- 24,66,948 IDBI-CC Hypo. Of Stocks Dues to suppliers under L/C. Yes Bank 80,62,806 Ltd. Dues to suppliers under 2,25,12,547
ITA No.382/Ahd/2017 Parag Prakash Doshi vs. ITO Asst.Year – 2013-14 - 5 - personal guarantees
v. The company had a bad time and it could hardly came out of the losses in this time. As a result, neither the bankers of the company 1DB1 Bank Ltd. were giving the adequate credit facilities and the as the company could not pay the creditors, in time, the suppliers were not willing to supply the material to the company. Under the circumstances, it was extremely difficult to run the company and achieve the turnover of Rs. 16,73,83,367 unless the smooth and uninterrupted material supply is assured. For this purpose, the directors gave their personal assurances in the form of their personal guarantees and also arranging for the Letters of credit from the other banks. vi. The assessee asked his uncles and cousins to agree to permit him to offer as security the ancestral residence being flat no.203 at shripalnagar and avail the function. In such fashion some funding was availed from Yes Bank and some was from Manufacturers of raw Material, Under such circumstances, it was mutually agreed that to ensure the timely payment without default, the discipline would be adhered to keep the funds aside for the payments on due dates and for that purpose, the funds were taken to the separate savings account with the bank which was opened in the name of directors and sued to be brought back as and when the payment was to be made. vii. It is this type of transactions which are reflected in the company account. This was not used for any personal uses of the directors. viii. The passbook of such SB account of the director is also submitted to Your Goodself.
Under the circumstances, it is earnestly submitted that the amount which is sought to be added U/s. 2 (22)(e) is never taken in the manner in which section is intended and the assessee therefore most humbly prays that the
ITA No.382/Ahd/2017 Parag Prakash Doshi vs. ITO Asst.Year – 2013-14 - 6 - addition sought to be made to the extent of Reserves and Surplus be dropped and oblige. ”
3.4. But the Revenue has not agreed with the contention of the assessee and held that the assessee has substantial share-holding in the company and has received payment to the tune of Rs.1,32,91,914/- during the period under consideration which fall within the ambit of section 2(22)(e) of the Act. Perusal of the balance-sheet of M/s.Leela Tubes Pvt.Ltd. in which the assessee is holding shares above 10% of total shares and the company is having accumulated profit of Rs.10,80,994/- as on 31.03.2013. Therefore, the amount of Rs.10,80,994/- is treated as deemed dividend in the hands of the assessee u/s.2(22)(e) of the Act for the period under consideration i.e.AY 2013-14. Accordingly, Rs.10,80,994/- was added to the total income of the assessee as deemed dividend u/s.2(22)(e) of the Act.
Against the said order, the assessee preferred first statutory appeal before the Ld. CIT(A), but no avail and Ld.CIT(A) confirmed the action of the Assessing Officer.
Now the assessee has come in appeal before us by way of second appeal.
We have heard both the parties and also gone through the relevant record and impugned order. The assessee is an individual and Director in Leela Tubes Private Limited with shareholding exceeding the specified limit. The company Leela Tubes Private Limited set up a project at Daman in the
ITA No.382/Ahd/2017 Parag Prakash Doshi vs. ITO Asst.Year – 2013-14 - 7 - year 2000-2011 with the help of bank finance and was also enjoying the working capital facilities. Initial couple of years were the period of establishing the product in market but during the year 2004-05, due to inability to retire the Letter of Credits opening by the Bank in favour of the suppliers of raw-material, there was very huge default and the company went into near bankrupt situation. The company was declared NPA. Meanwhile, the bank the United Western Bank Ltd. who were the bankers of the company also came into financial problem and that bank was acquired by IDBI Bank Ltd. As a result, the company was in a fix and it was empiric. IDBI Bank insisted for the very strict restricting of the loans and for that the several conditions were laid down. As a result, neither the bankers of the Company IDBI Bank Ltd. were giving the credit facilities and because of the defaults, the bankers were not allowing the company to pay to the creditors. As a result, it was very it was very difficult to get the raw-material from the market. Under the circumstances, the assessee asked his uncles and cousins to agree to permit him to offer as security the ancestral residence being Flat No.203 at Shripalnagar and avail the funding. In such fashion, some funding was availed from YES Bank and assessee opened a personal account and transferred the surplus funds of the company into his account and as and when the amount was falling due for payment he used to transfer back the amount to the account of company and make the payment and with working like this for a period of more than seven years, it is in the account year 2012-13, that old bank dues were cleared. In support of his contention, assessee filed a paper-book and also filed computation of income of the company at page No.50 for AY 2011-12 in which company is showing business losses. The assessee has also filed
ITA No.382/Ahd/2017 Parag Prakash Doshi vs. ITO Asst.Year – 2013-14 - 8 - balance-sheet of the company for the year under consideration which shows trade payable. In support of its contention, assessee cited a judgment of Hon’ble Calcutta High Court titled as Pradip Kumar Malhotra vs. CIT (2011) 338 ITR 538 (Cal.), wherein it has been held as under:-
“The assessee had substantial shareholding in a private company. The assessee permitted his immovable property to be mortgaged to the bank for enabling the company to take the benefit of loan and in spite of request of the assessee the company was unable to release the property from mortgage. Consequently, the board of directors of the company passed a resolution authorizing the assessee to obtain from the company interest-free deposit up to Rs.50 lakhs as and when required. During the previous year relevant to assessment year 1999-2000, the assessee obtained from the company a sum of Rs.20,75,000 by way of security deposit. Out of the amount, a sum of Rs.20 lakhs was subsequently returned by the assessee to the company. In the assessment made for 1999-2000 the Assessing Officer added the sum of Rs.20,75,000 as deemed dividend.”
After considering the facts and circumstances of the case and going through the aforesaid judgement, we are of the considered opinion that assessee had received an amount of Rs.1,32,91,914/- from M/s.Leela Tube Pvt.Ltd. (LTPL) in order to safe-guard the interest of the company and the same was done in order to protect the interest of the company and assessee even sought help from his relatives and placed as security the ancestral House being Flat No.203 at Shripalnagar, Ahmedabad. Therefore, in our considered opinion, this was for the business expediency and same cannot be treated as deemed dividend u/s.2(22)(e) of the Act. Thus, we direct the Assessing
ITA No.382/Ahd/2017 Parag Prakash Doshi vs. ITO Asst.Year – 2013-14 - 9 -
Officer to delete the addition of Rs.10,80,994/-. As a result, Assessee’s ground of appeal is allowed. 9. In the result, Assessee’s appeal is allowed. This Order pronounced in Open Court on 25/09/2018
Sd/- Sd/- ( PRADIP KUMAR KEDIA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 25/ 09 /2018 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-2, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation .. 11.9.18 (dictation-pad 12- pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …12.9.18 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….25.9.18 7. Date on which the file goes to the Bench Clerk…………………25.9.18 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………