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Income Tax Appellate Tribunal, DELHI BENCH : SMC : NEW DELHI
Before: SHRI R.K. PANDA
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER Assessment Year: 2013-14 Ashok Kumar Bansal, Vs. ACIT, Flat No.713, ITL Northex Towers, Circle-47(1), Netaji Subhash Place, New Delhi. Pitampura, New Delhi. PAN: AAFPB4123N (Appellant) (Respondent) Assessee by : Shri Sanjay Kumar, CA Revenue by : Shri S.L. Anuragi, Sr. DR Date of Hearing : 01.07.2019 Date of Pronouncement : 08.07.2019 ORDER
This appeal filed by the assessee is directed against the order dated 23rd July, 2018 of the CIT(A)-16, New Delhi, relating to Assessment Year 2013-14.
The first issue raised by the assessee in his grounds of appeal relates to the order of the CIT(A) in confirming the addition of Rs.13,78,656/- made by the Assessing Officer on account of deemed dividend u/s 2(22)(e) of the IT Act.
Facts of the case, in brief, are that the assessee is an individual and is the proprietor of M/s Ashok Bansal & Co. and derives income from salary, brokerage, commission, interest and rent. He filed his return of income on 30th September, 2013 declaring nil income. During the course of assessment proceedings, the Assessing Officer observed that the assessee has received advances from a company, namely, M/s Saurabh (India) Pvt. Ltd. in which the assessee is a major shareholder. He, therefore, asked the assessee to explain as to why the provisions of section 2(22)(e) of the IT Act shall not be invoked since the company has accumulated profits and the assessee has received advances from the said company to the tune of Rs.13,78,656/-.
Rejecting the various explanations given by the assessee, the Assessing Officer invoked the provisions of section 2(22)(e) of the IT Act and made addition of Rs.13,78,656/- to the total income of the assessee.
Before the CIT(A), the assessee submitted that the assessee, apart from share capital, had also provided funds to the company to meet its business exigencies and also to enable it to avail bank facilities. It was submitted that the assessee is maintaining three accounts with the said company and the assessee is a net depositor with that company. The following details were furnished before the CIT(A):-
“Saurabh India Pvt. Ltd. 31.03.2012 31.03.2013 Unsecured Loan Rs.1,61,97,250.00 Rs.1,61,97,250.00 Dr. Advance A/c Rs. 10,45,330.00 Rs. 40,35,218.00 Dr. Current A/c Rs. 61,16,053.00 Rs. 74,94,709.00 Cr. Net Loan/Advances Rs.1,11,26,527.00 Rs.1,27,37,759.00 Dr.
Relying on various decisions, it was argued that no disallowance u/s 2(22)(e) of the Act is called for. However, the ld.CIT(A) was not satisfied with the arguments advanced by the assessee and sustained the addition made by the Assessing Officer by observing as under:-
“I have carefully gone through the finding of the AO and submission Ld. AR. There is no dispute that the primary condition of share holding is fulfilled in this case. The appellant is having 42 per cent of share holding in M/s Saurabh (India) Pvt. Ltd., from whom there is credit balance of Rs.7494709/- as on 31.03.2013. In appeal the Ld. AR submitted that the appellant advanced to the company is to meet business exigencies and also to avail bank facilities. However, no material has been brought on record by the Ld. AR regarding business exigencies of the transactions. The Ld AR further submitted that there are three heads under which advances made between the appellant and the company. The details submitted by the Ld. AR is as follows:- “Saurabh India Pvt. Ltd. 31.03.2012 31.03.2013 Unsecured Loan Rs.1,61,97,250.00 Rs.1,61,97,250.00 Dr. Advance A/c Rs. 10,45,330.00 Rs. 40,35,218.00 Dr. Current A/c Rs. 61,16,053.00 Rs. 74,94,709.00 Cr. Net Loan/Advances Rs.1,11,26,527.00 Rs.1,27,37,759.00 Dr.
The Ld. AR further submitted that there is a debit balance in the head of unsecured loan account and advance account. There is a credit balance only in the case of current account. The AO has taxed under section 2(22)(e) the difference of credit balance in current account i.e. advance taken from the company. When asked while the appellant is having three types of accounts with the company, no satisfactory reply is either submitted or given in the course of hearing. All these transactions are interest free and no interest has either been charged by the company or by the appellant. After considering all the material on record and the argument of the Ld AR, in my view, all the conditions for applying section 2(22)(e), is fulfilled in the case of the appellant. The appellant is share holder and received advances from the company and the company is having accumulated profit. No material has been brought on record which controvert the finding of the AO. Therefore, I do not see any reason to interfere in the finding of the AO. 'The addition made by the AO u/s 2(22)(e) is confirmed. The ground No.2 is dismissed.”
Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
I have considered the rival arguments made by both the sides and perused the orders of the authorities below. From the various details furnished by the assessee, I find the Assessing Officer made addition of Rs.13,78,656/- u/s 2(22)(e) of the IT Act on the ground that the assessee has taken advance from M/s Saurabh (India) Pvt. Ltd. to the tune of Rs.13,78,656/- in which he is a substantial shareholder and the company is having accumulated profits. The ld.CIT(A) confirmed the addition made by the Assessing Officer, the contents of which have already been reproduced in the preceding paragraphs. It is the submission of the ld. counsel for the assessee that the assessee is maintaining three accounts with M/s Saurabh (India) Pvt. Ltd. and cumulatively the assessee had given advance of Rs.1,27,37,759/- to this company and has not received any advances as such. The above submission of the ld. counsel for the assessee is not disputed by the Revenue since the detailed debits and credits in the three companies have already been reproduced by the CIT(A) in the order. I, therefore, find merit in the submission of the ld. counsel that provisions of section 2(22)(e) of the IT Act will be attracted only if the net balance is an advance to the assessee when he is maintaining three separate accounts with the same company.
Since in the instant case it is an undisputed fact that the assessee is maintaining three accounts with the said company and the cumulative balance is advance given by the assessee to the company and not advance received by the assessee from the said company, therefore, I am of the considered opinion that the provisions of section 2(22)(e) of the IT Act are not applicable. I, therefore, set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. The grounds raised by the assessee on this issue are accordingly allowed.
The second issue raised by the assessee in the grounds of appeal relates to the order of the CIT(A) in sustaining the disallowance of depreciation on vehicle amounting to Rs.2,58,369/-.
After hearing both the sides, I find, during the course of assessment proceedings, the Assessing Officer observed that the assessee has claimed depreciation of Rs.2,30,646/- on vehicle account and Rs.27,723/- on account of telephone instruments. From the Profit & Loss Account, the Assessing Officer noticed that the assessee has not incurred any expenditure either on vehicle account or on telephone.
He, therefore, was of the opinion that the assessee has not used the vehicle or the telephone for the purpose of his business. He, therefore, rejected the claim of depreciation of Rs.2,58,369/-.
In appeal, the ld.CIT(A) sustained the addition made by the Assessing Officer.
Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
The ld. counsel for the assessee submitted that both the assets formed part of the block of assets since long and since the assessee has used the assets in the block, therefore, condition of use of individual asset is not applicable. Therefore, such depreciation disallowed by the Assessing Officer and upheld by the CIT(A) is not proper.
The ld. DR, on the other hand, strongly relied on the order of the Assessing Officer and CIT(A).
After hearing both the sides, I find the Assessing Officer disallowed the depreciation on vehicle and telephone instruments amounting to Rs.2,58,369/- on the ground that the assessee has not used these assets during the year. The ld.CIT(A), thus, sustained the addition. It is the submission of the ld. counsel for the assessee that when the assets have already been entered into the block of assets, therefore, use of individual asset is not necessary and, therefore, the Assessing Officer or the CIT(A) are not justified in disallowing the depreciation. I find merit in the above argument of the ld. counsel for the assessee. It has been held by the Hon'ble Delhi High Court in CIT vs. Bharat Aluminium Co. Ltd. [2010] 187 taxman 111 (Delhi) as relied on by the ld. counsel for the assessee that though as per section 32(1), in order to be entitled to claim depreciation, asset is to be owned by assessee and it is also to be used for purpose of business or profession, but expression ‘used for the purpose of business’, when applied to block of assets, would mean use of block of assets and not any specific building, machinery, plant or furniture in said block of assets as individual assets lose their identity after becoming inseparable part of block of assets. The various other decisions relied on by the ld. counsel for the assessee and placed in the paper book also support his case. Since there is no dispute to the fact of the instance case that the vehicle and telephone instruments are already into the block of assets, therefore, the expression ‘used for the purpose of business’ would mean use of block of assets and not any specific asset of the block during the year as individual assets lose their identity after becoming inseparable part of block of assets. I, therefore, set aside the order of the CIT(A) and direct the Assessing Officer to delete the disallowance of depreciation made. The second issue raised by the assessee in the grounds of appeal is allowed.