SRI AJAY KUMAR KHATORE,RANCHI vs. DCIT CIRCLE-1, RANCHI

1 ITA No.46/Ran/2017

IN THE INCOME TAX APPELLATE TRIBUNAL, RANCHI BENCH, RANCHI

BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.46/Ran/2017 A.Y. : 2012-2013 Sri Ajay Kumar Khatore, vs DCIT, Circle-1, Ranchi North Market Road, Upper Bazaar, Ranchi-834001 PAN No. : AAACB 7488 C Respondent (Appellant) .

Assessee by : Shri S.K.Poddar & Devesh Poddar, Adv Revenue by : Shri P.K.Mondal, JCIT

Date of Hearing : 28.05.2018 Date of Pronouncement : 30.05.2018

O R D E R Per Pavan Kumar Gadale, JM: This is an appeal filed by the assessee against the order of CIT(A),

Ranchi, dated 01.11.2016, for the assessment year 2012-2013, wherein

the assessee has raised the following grounds of appeal :-

2 ITA No.46/Ran/2017 deemed dividend. Ld. CIT(A) was not justified in confirming the addition made u/s.2(22)(e). 3. For that the total advance received from M/s Khatore Earthmovers Pvt. Ltd. was more than the reserve of the company. Advance was received in usual course of business. It is relevant to mention that another closely company of the appellant M/s Trinity Vimcom Pvt. Ltd. had advance a loan of Rs.1.39 Crores during financial year 2011- 12. As such, the transaction between the closely held companies and the appellant were in usual course of business. 4. For that interest charged u/s.234A and 234B on the assessed income was not justified. Interest should be charged on the returned income following the decision of Hon’ble Jharkhand High Court. 2. Brief facts of the case are that the assessee is engaged in the

business of wholesale trading of Kerosene, Tyre, Tube and also provide

excavator for the purpose of hiring and filed the return of income

electronically for the assessment year 2012-2013 on 27.09.2012 with total

income of Rs.10,11,580/-. Accordingly the return of income was duly

processed u/s.143(1) of the Act and the case was selected for scrutiny

under CASS. Subsequently, notice u/s.143(2) & 142(1) of the Act were

issued to the assessee. In compliance, the AR of the assessee appeared

and case was discussed. The AO on examination of books of accounts and

other documents produced before the AO, held that the loan of

Rs.28,68,000/- from Khatore Earthmovers Pvt. Ltd., where the assessee

was a director having 50% share holding, to be deemed dividend within the

meaning of section 2(22)(e) of the Act. The AO disallowed 1% of the

expenditure on repairs & maintenance under the head operating expenses

3 ITA No.46/Ran/2017 thereby making an addition of Rs.10,464/- and assessed total income at

Rs.38,90,040/- and passed order u/s.143(3) of the Act, dated 12.03.2015.

appeal with the CIT(A). In the appellate proceedings the assessee argued

the grounds and reiterated the submissions made before the AO. The

CIT(A) after considering the submissions of assessee and the findings of

AO, partly allowed the appeal of the assessee.

before the Tribunal.

u/s.2(22)(e) of the Act, whereas the assessee has obtained the loan from

sister concern Khatore Earthmovers Pvt. Ltd. of Rs.83,71,112/- and the

contention of the assessee that the loan has been provided in the normal

course of business transactions and also supported with CBDT Circular No.19/2017, dated 12th June, 2017.

Prima facie, the sole matrix of the disputed issue is with respect to

confirming the addition deemed dividend u/s.2(22)(e) of the Act. The

contention of the AR of the assessee is that M/s Khatore Earthmovers Pvt.

Ltd. had opening balance of Rs.83,71,112/- as on 01.04.2011 with the

assessee and the total reserve of the company was less than the amount

of advance given. The fresh loan of Rs.25,000/- and Rs.3,68,000/- by

4 ITA No.46/Ran/2017 account payee cheque was for the purposes of business. M/s Khatore

Earthmovers Pvt. Ltd. had earned profit of Rs.15,376/- for financial year

2011-12, as such, advance of Rs.28,68,000/- cannot be considered as

deemed dividend. We have also perused the CBDT Circular No.19/2017, dated 12th June, 2017, placed by the ld. AR of the assessee before us,

which reads as under :-

“Sub: Settled View on section 2(22We) of the Income Tax Act trade advances -reg. Section 2(22) clause (e) of the Income Tax Act, 1961 (the Act) provides that “dividend'* includes any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits. 2, The Board has observed that some Courts m the recent past have held that trade advances in the nature of commercial transactions would not fall within the ambit of the provisions of section 2(22) (e) of the Act. Such views have attained finality. 2.1 Some illustrations/examples of trade advances/commercial transactions held to be not covered under section 2(22) (e) of the Act are as follows: i. Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that amounts advanced for business transactions do not to fall within the definition of deemed dividend under section 2(22) (e) of the Act. (C1T vs. Creative Dyeing & Printing Pvt. Ltd.1, Delhi High Court). ii. Advance was made by a company to its shareholder to install plant and machinery at the shareholder’s premises to enable him to do job work for the company so that the company

5 ITA No.46/Ran/2017 could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (C1T vs Amrik Singh, P&H High Court). iii. A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilised gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction arising in the normal course of business between two concerns and the transaction did not attract section 2(22) (e) of the Act. ( CIT, Agra vs Atul Engineering Udyog, Allahabad High Court) 3. In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word ‘advance’ in section 2{22)(e) of the Act. Accordingly, henceforth, appeals may not be filed on this ground by Officers of the Department and those already filed, in Courts/Tribunals may be withdrawn/not pressed upon. 4. The above may be brought to the notice of all concerned.” 8. On perusal of the above CBDT Circular and considering the facts

and circumstances of the case, we find that the matter needs further

verification at the end of AO and accordingly, we remit the entire issue to

the file of AO, who shall verify and examine the issue afresh after

considering the above CBDT Circular placed by the ld. AR of the assessee

before us and pass order after providing adequate opportunity of hearing

to the assessee. This ground of appeal of the assessee is allowed for

statistical purposes.

is consequential, the AO is directed to calculate the interest as per the

judgment of the Hon’ble jurisdictional High Court in the case of Ajay

6 ITA No.46/Ran/2017

Prakash Verma in ITA No.38 of 2010 reported in 2013(1) TMI 140. We

order accordingly.

purposes.

Order pronounced in the open court on 30/05 /2018

Sd/- Sd/- (N.S.SAINI) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Ranchi, Dated 30/05/2018 Prakash Kumar Mishra , Sr. Ps Copy of the Order forwarded to : 1. The Appellant – Sri Ajay Kumar Khatore, North Market Road, Upper Bazaar, Ranchi- 834001 2. The Respondent – DCIT, Circle-1, Ranchi 3. The CIT(A) concerned 4. CIT , concerned 5. DR, ITAT, Ranchi 6. Guard file. BY ORDER,

//True Copy// SR.PS, ITAT, RANCHI