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Income Tax Appellate Tribunal, “A” BENCH,
Before: SHRI PARTHA SARATHI CHAUDHURY, JM & DR. DIPAK P. RIPOTE, AM
आयकरअपीलीयअिधकरण“ए”�यायपीठपुणेम�। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI PARTHA SARATHI CHAUDHURY, JM AND DR. DIPAK P. RIPOTE, AM आयकरअपीलसं. / ITA No.2755/PUN/2016 िनधा�रणवष� / Assessment Year : 2012-13 Shri Sanjay Digambar Malve, The DCIT, Circle-1, Nashik. Plot No.2, Suvarnamudra Vs Bungalow, Mate Nursery Road, Sawarkar Nagar, Opp. Vishwas Bank, Nashik. PAN: AFTPM 5169 A Appellant/ Revenue Respondent/ Assessee Assessee by Shri Sanket Milind Joshi – AR Revenue by Shri S P Walimbe - DR Date of hearing 09/03/2022 Date of pronouncement 05/05/2022 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by the Assessee directed against the order of ld.Commissioner of Income Tax(Appeals)-1, Nashik dated 09.09.2016for the Assessment Year 2012-13. The Assessee raised the following grounds of appeal: “1. The learned CIT(A) erred in holding that advances of Rs.13,61,710/- received by the assessee from the company, M/s. Kamal Infrabuild Pvt. Ltd. should be treated as deemed dividend u/s 2(22)(e) in the hands of the assessee. 2. The learned CIT(A) failed to appreciate that the assessee was holding a running account with the above company and for a major part of the year, the assessee had advanced amounts to the company and hence, the advances received by the assessee for a short period during the year were in consideration of the advances given by the assessee to company during the rest of the year and hence, the provisions of section 2(22)(e) were not applicable to the instant case. 3. Without prejudice to the above ground, the assessee submits that if at all any addition is to be made u/s 2(22)(e), then the accumulated profits of the company as on 01.04.2011 should be considered for
ITA No.2755/PUN/2016 for A.Y. 2012-13 Sanjay Digambar Malve (A)
the purposes of computing the amount of deemed dividend and the current year profits of the company should not be considered for the above purposes. 4. The learned CIT(A) erred in confirming the disallowance of Rs.5,28,733/- made u/s 40(a)(ia) in respect of the interest paid to M/s. Nirmiti Credit Co-operative Society. 5. The learned CIT(A) failed to appreciate that the assessee was not liable to deduct TDS u/s 194A in respect of the payments made to the above credit co-operative society which was engaged in the business of banking and hence, the disallowance u/s 40(a)(ia) was not justified. 6. Without prejudice to the above ground, the assessee submits that the amendment to section 40(a)(ia) by introducing the second proviso was retrospective in nature and hence, the disallowance u/s 40(a)(ia) was not justified since the payee had already paid taxes on the impugned income. 7. The appellant craves leave to ad, alter, amend or delete any of the above grounds of appeal.” 2. Brief facts of the case are that Assessee filed return of income on 15/10/2012. In the return of income assessee has shown Income from Salary, business, other sources. The assessee has shown receipt of Director’s salary from Kamal Infrabuild Pvt. Ltd. During the assessment, the Assessing Officer(AO) observed that the assessee has received Loan from Kamal Infrabuild Pvt. Ltd., and the closing balance as on 31.03.2012 was Rs.76,35,096/-. The assessee holds 50% of shares of Kamal Infrabuild Pvt. Ltd. The AO also observed that Reserve and Surplus as on 31.03.2012 was at Rs.13,61,710/- of Kamal Infrabuild Pvt. Ltd. Therefore, the AO made an addition of Rs.13,61,710/- under section 2(22)(e) of the Act, after giving opportunity to the assessee. There is disallowance under section 40(a)(ia) of the Act, in respect of interest paid to Nirmiti Credit Co-
ITA No.2755/PUN/2016 for A.Y. 2012-13 Sanjay Digambar Malve (A)
operative Society. There are other additions which are not part of the grounds of appeal, hence not discussed.
2.1 Aggrieved with the additions made by the AO, the assessee filed an appeal before the ld.CIT(A). The ld.CIT(A) upheld the addition under section 2(22)(e) of the Act and disallowance made u/s 40(a)(ia).
Aggrieved by the order of ld.CIT(A), the assessee filed an appeal before this Tribunal.
3.1 The ld.Authorised Representative(ld.AR) of the assessee submitted that he do not wish to press the Ground No. 1 and 2. With reference to Ground No.3, the ld.AR explained that the Hon’ble ITAT Pune in assessee’s own case for A.Y. 2013-14 has decided the said issue in favour of the assessee. He took us through para 11 of theITAT Order in ITA No.1496/PUN/2017 dated 10.01.2020.
On the other hand, the ld.DR relied on the orders of the ld.CIT(A) and AO.
We have heard both the parties, perused the material available on record and have gone through the orders of the Lower Authorities. The Ground No.1 and 2 are dismissed as not pressed.
5.1 The ld.AR of the assessee has brought to our notice that there was no opening balance of accumulated profits. This fact has not been
ITA No.2755/PUN/2016 for A.Y. 2012-13 Sanjay Digambar Malve (A)
disputed by Ld.DR. The Hon’ble ITAT Pune in assessee’s own case in ITA No.1496/PUN/2017 dated 10.01.2020 in para 11 held as under: “11. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to taxability u/s 2(22)(e) of the Act. It is an undisputed fact that assessee is liable for the taxation of deemed dividend and assessee has suo-moto offered Rs.25,96,585/- as deemed dividend u/s 2(22)((e) of the Act in the return of income filed by the assessee. The deemed dividend was worked out by the assessee on the basis of Reserves and Surplus of the lender company as on 31.03.2013. Before us, it is assessee’s submission that the computation of deemed dividend u/s 2(22)(e) of the Act is to be worked out on the basis of opening balance of reserves as on 01.04.2012 and not as per the closing balance of reserves as on 31.03.2013. We find force in the submission of Ld.A.R. in view of the fact that Hon’ble Gujarat High Court in the case of CIT Vs. M.B. Stock Holding Pvt. Ltd., (supra) has held that while determining the amount of deemed dividend under Explanation 2 to Sec.2(22)(e) of the Act, the current profit is not to be included as part of accumulated profit. The aforesaid decision of Hon’ble Gujarat High Court has also been followed by the Pune Tribunal in the case of Smt. Chhaya Valmik Nikhade Vs. ACIT (supra). Before us, Revenue has not placed any contrary binding decision in its support. In such a situation, we are of the view that working of the deemed dividend u/s 2(22)(e) of the Act is to be worked out on the basis of the opening balance of the accumulated reserves of the lender company. Further, it is assessee’s contention that the higher amount of deemed dividend has been offered by the assessee due to mis- interpretation of the legal position. The aforesaid contention of the assessee has not been controverted by the Revenue. It is a settled proposition of law that no tax can be levied or recovered without authority of law for which reference can be made to the decision of Hon’ble Apex Court in the case of CIT Vs. Shelly Products and another as noted by the Hon’ble Delhi High Court in the case of Vijay Gupta Vs. CIT and another reported in (2017) 291 CTR 517 wherein it was observed that if an assessee by mistake or inadvertence or on account of ignorance included in his income any amount which is exempted from payment of income tax or is not income within the contemplation of law, the assessee may bring the same to the notice of the assessing authority which if satisfied may grant the assessee necessary relief and refund the tax paid in excess, if any. Considering the totality of the facts and in view of the aforesaid decisions, we are of the view that the deemed dividend u/s 2(22)(e) of the Act be worked out on the basis of the opening balance of KIPL as on 01.04.2012. We thus direct accordingly. Thus, the grounds of the assessee are allowed.” 5.2 Thus, it is fact that the assessee is liable for taxation u/s 2(22)(e) of the act for deemed dividend. All the conditions mentioned in the section 2(22)(e) are fulfilled in this case.The only issue is whether accumulated profit of 31.3.2011 or 31.3.2012 is to be considered for
ITA No.2755/PUN/2016 for A.Y. 2012-13 Sanjay Digambar Malve (A)
calculating the amount of deemed dividend. This issue has already been decided by Hon’ble ITAT in assessee’s own case reproduced above. Respectfully following the said decision, it is held that the accumulated profit as on 31.03.2011 shall be considered for calculating deemed dividend u/s 2(22)(e). Accordingly, the Assessing Officer shall recalculate it. Thus, the Ground No.6 raised by the assessee is allowed.
5.1 In the result, Ground No.6 of the assessee is allowed.
The Ground No.4 & 5 relates to disallowance made under section 40(a)(ia) of the Act. The Ground No.4 & 5 are dismissed as not pressed.
6.2 With reference to Ground No.6, the ld.AR submitted that the Finance Act, 2012 has amended provisions of section 40(a)(ia) w.e.f. 01.04.2013 providing that despite of failure to deduct the tax by the payer, disallowance of expenditure shall not be made, if the resident payee has :- (i) furnished his return of income u/s.139 (ii) taken into account such sum while computing his income in such return. (iii) paid the tax due on the income declared by him in such return of income. (iv) furnished a certificate to the above effect from a Chartered Accountant in the prescribed form (i.e. Form No.26, Rule- 34ACB). In support of the above propositions, the ld.AR relied on following judgments:
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PCIT vs. Perfect Circle India Pvt. Ltd., [ITA No.707/2016 (Bom)(HC) dated 07.01.2019. 2. Sai Pushpa Sharada Alliance vs. ITO [ITA No.595/PUN/2017] dated 02.05.2019. 3. CIT vs. Calcutta Export Company [404 ITR 654 (SC)] 6.2 The ld.AR has submitted that the Co-operative Credit Society had filed the CA Certificate in Form No.27A.
On the other hand, the ld.DR for the Revenue relied on the orders of ld.CIT(A) and AO.
We have heard both the parties, perused the material available on record and have gone through the orders of Lower Authorities. The Hon’ble Bombay High Court in the case of PCIT vs. Perfect Circle India Pvt. Ltd., [ITA No.707/2016 (Bom)(HC) dated 07.01.2019 in para 2 has held as under: “2. It is not necessary to record background facts since the question of law raised by the Revenue is whether the second proviso to Section 40(a)(ia) of the Income Tax Act, 1961 ("the Act" for short) would have retrospective effect. We may notice that the said proviso was inserted w.e.f 1.4.2013 and in essence, it provides that where an assessee fails to deduct whole or any part of the tax at source but is not deemed to be an assessee in default under the first proviso to Section 201(1), then for the purpose of clause 40(a)(ia), it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee. The Revenue would content that the benefit of this proviso would be available to the assessee only prospectively w.e.f. 1.4.2013. Various Courts, however, have seen this proviso as beneficial to the assessee and curative in nature. The leading judgment on this point was of the Division Bench of Delhi Court in the case of CIT Vs. Ansal Land Mark Township P Ltd1. The Court held that Section 40(a)(ia) is not a penalty and insertion of second proviso is declaratory and curative in nature and would have retrospective effect form 1.4.2005 i.e the date from the main proviso 40(a)(ia) itself was inserted. Several High Courts have adopted the same lines. We may also note that the Supreme Court in the case of Hindustan Coca Cola Beverages P Ltd Vs. CIT2 even in absence of second proviso to Section 40(a)(ia) had noticed that the payee had already paid the tax. Under such circumstances, the Court held that the payer / deductor can at best be asked to pay the interest on delay in depositing tax.”
ITA No.2755/PUN/2016 for A.Y. 2012-13 Sanjay Digambar Malve (A)
8.1 If the payee had already paid the taxes, then the payer i.e. the assessee in this case shall not be held liable for non-deduction of TDS.It has been submitted by the ld.AR that Certificate in Form No.27A has been filed, however, this was not filed before the Assessing Officer. Therefore, in the interest of justice, this Ground No.6 is set-aside to the file of the AO for verification. We direct the Assessing Officer to provide an opportunity of being heard to the assessee and verify the necessary documents in the light of the above directions. Accordingly, this Ground No.6 is allowed for statistical purpose.
In the result, appeal of the assessee is Partly Allowed. Order pronounced in the open Court on 05 May, 2022.
Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 05 May, 2022/ SGR* आदेशक��ितिलिपअ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A), Pune concerned. 4. The Pr. CIT, Pune concerned. िवभागीय�ितिनिध,आयकरअपीलीयअिधकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड�फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकरअपीलीयअिधकरण, पुणे/ITAT, Pune.