CHUNILAL G. BHANVADIA,,RAJKOT-GUJARAT vs. THE ASSTT. COMMR. INCOME TAX, CIRCLE-3,, RAJKOT-GUJARAT

As the facts in both the appeals are almost similar, so, we take ITA No. 463/Ahd/2016 as the lead and decide both the appeals for the sake of convenience accordingly.

The assessee has raised following grounds of appeal:- ITA NO. 463/Ahd/2016 “The grounds stated here in below are without prejudice to one another. 1. The order u/s. 143(3) is bad in law 2. The honorable ACIT has erred in law as well as on facts in levying tax and interest of Rs. 880398/-U/S. 156.”

During the course of appellate proceedings before us, the assessee has filed revised grounds of appeal as under:- “1.0 The grounds of appeal mentioned hereunder are without prejudice to one another: 2.0 The learned Commissioner of Income-tax (Appeals)-2 [hereinafter referred to as the Id. "CIT(A)"] erred on facts as also in law in confirming addition made of Rs. 14,37,857/-on the alleged ground that advances off 14,37,857/- from M/s. Metro Ceramic Pvt. Ltd. is covered within the ambit of deemed dividend income taxable under the provision of section 2(22)(e) of the Act. The additions made by the AO and as confirmed by the Id. CIT(A) is totally unjustified on facts as also in law and may kindly be deleted.”

In this case, original return of income declaring total income of Rs. 1,24,370/- was filed on 31st March, 2008. Subsequently, the case was reopened by issuing of notice u/s. 148 on 3rd March, 2014 on the reasoning that deemed dividend was arisen to the assessee. During the course of assessment proceedings the assessing officer noticed that assessee was a share-holder cum director in Metro Ceramic Pvt. Ltd holding of 50% of the share capital along with 50% of the voting rights. He noticed that Metro Ceramic Pvt. Ltd. was a closely held company in which the public

Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has sustained the addition made by the assessing officer by observing as under:- “5.3 Decision in respect of Ground No.2 :- Having considered the facts and circumstances of the case and rival contentions, I find that the facts that the assessee is a substantial shareholder and that she has received advance from the said company are controverted. The plea of the assessee is that the amount was paid by the company towards her income tax liability and her other obligations is not tenable so as to take her out of the ambit of section 2(22)(e). The appellant has pleaded that she had provided her house as a security towards the loans of the company and the impugned payment of income tax by company on her behalf and other advances to meet her personal obligations was a consideration for such security and therefore in view of judgements of Calcutta High Court, Karnataka High Court and ITAT Chennai (Supra), such payments do no attract the provisions of section 2(22)(e). 1 am not convinced by this plea of the assessee as no such contention was taken before the A.O. and this is additional evidence which is not admissible as no case has been made out under Rule 46A. Besides, merely because the assessee's house was pledged as security for loans of the company (a fact not contended / proved before the A.O.), the advance by the company to the assessee could not be termed as consideration of such security unless a quid pro quo is established. Therefore, the contentions of the assessee are rejected and action of the A.O. in invoking the provisions of section 2(22)(e) on the impugned payments is upheld. The ground of appeal is rejected.” 7. At the time of hearing, the assessee has filed additional evidences vide letter dated 05/12/2017 as under:-

During the course of appellate proceedings before us, the ld. counsel has submitted paper book containing written submission filed before the ld. CIT(A) and details of judicial pronouncements etc. He contended that Ld. CIT(A) has erred in confirming the invoking of provision of section 2(22)(e) of the act. On the other hand, ld. departmental representative has supported the order of the ld. CIT(A).

We have heard both the sides and perused the material on record carefully. The assessee has filed additional evidences as supra in support of her claim that assessee company has compensated the assessee by providing the aforesaid loan amount because assessee has provided her house as a security to the bank for sanctioning loan to the company in which she was a director. The assessee has placed reliance on the following judicial pronouncements:- (i) Decision of Hon’ble High Court of Karnatka in the case of Bagmane Construction (P) Ltd. vs. CIT (2015) 57 taxman.com (ii) Decision of Hon’ble High Court of Calcutta in the case of Pradip Kumar Malhota Vs. CIT (2011) 15 taxman.com 66 (iii) Decision of Hon’ble High Court of Chennai in the case of ACIT vs. G. Sreevidya in ITAT NO. 1270/Ind/2011

In the combined result, both the appeals filed by different assessee are allowed for statistical purposes.

Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order, Assistant Registrar, Income Tax Appellate Tribunal, Rajkot