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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya (AM)
This appeal by the assessee is directed against order of learned commission of income tax appeals dated 4.5.2018 and pertains to assessment year 2012-13.
2. The grounds of appeal read as under :-
The Learned CIT(A) has erred in law and on facts of the case of the appellant assessee in making addition of Rs. 21,42,064/- as deemed dividend u/s. 2(22)(e) of the I.T. Act, 1961 instead of Rs. 5,17,466/-.
Brief facts of the case are as under :-
During the year under consideration, Assessing Officer noted that it is seen that assessee has received salary income from M/s. Consultant in Retail Management Pvt. Ltd. amounting to Rs.15,00,000/-. It is also observed by the A.O. that assessee has taken unsecured loan of Rs.47,99,128/- from M/s. Consultant in Retail Managament Pvt. Ltd. (henceforth, "CRMPL), a company in which assessee is a director holding 99% shares. As the assessee was having substantial interest in CRMPL, the provision of deemed dividend was applicable in his case within the meaning of provisions of section 2(22)(e) of the I.T. Act 1961. When confronted, assessee stated that he had received loan amount from M/s. Consultant in Retail Management Pvt. Ltd for the purpose of repayment of housing loan. It is further stated that net amount received is only Rs.5,17,466/- after considering the remuneration. That however, it is seen by the A.O. that during the year assessee has received Rs.36,42,064/- from CRMPL and closing balance of unsecured loans is shown at Rs.47,99,128/-. That the Ledger of the assessee's account in the books of accounts of CRMPL reflect two journal entries as Remuneration from CRMPL of Rs.15,00,000/- and Kailash Kapur of Rs.16,24,598/-. A.O. concluded that because of these two journal entries passed, the closing balance of loans reflects the figure of Rs.47,99,127 as against the actual figure of Rs.79,23,726/-. When asked explanation about the journal entries, it was submitted that remuneration receivable from CRMPL was adjusted against the outstanding loan and as regards the entry pertaining to Kailash Kapur, it was explained that CRMPL had incurred certain liability towards expenses payable to Mrs. Kailash Kapur, which was taken over by the assessee in individual capacity. However, the A.O. was not conveinced, he held that fresh loan availed by the assessee from CRMPL was Rs. 36,42,064/- and after considering the repayment of Rs. 15,00,000/- towards salary payable to appellant, the effective loan availed during F.Y. 2011-12 would be Rs. 21,42,064/-. The A.O. treated Rs. 21,42,064/- received from M/s. Consultant in Retail management Pvt. Ltd. as deemed dividend u/s 2(22)(e) of the Act and added to the total income of the Assessee.
4. Upon assessee's appeal learned commission of income tax appeals noted the following submissions of the assessee :-
“The Return of Income for assessment year 2012-13 was filed on 30.03.2013 declaring total income of Rs.12,35,000/-. The appellant is employed in the business of retail consultancy and is a director of CONSULTANTS IN RETAIL MANAGEMENT PRIVATE LIMITED and also holding 99% shares in CONSULTANTS IN RETAIL MANAGEMENT PRIVATE LIMITED.
During the course of the assessment the assessing officer added a sum of Rs. 21,42,064/-as Deemed Dividend which was due to the Loan advanced by CONSULTANTS IN RETAIL MANAGEMENT PRIVATE LIMITED to the appellant The facts are narrated as under.
The appellant is enclosing the following for your kind perusal which was also submitted to the assessing officer during the course of the assessment.
Copy of confirmation of Shashi Kapur(Appellant) in the books of CONSUL TANTSIN RETAIL MANAGEMENT PRIVATE LIMITED.
Copy of confirmation of Kailash Kapur in the books of CONSUL TANTS IN RETAIL MANAGEMENT PRIVA TE LIMITED.
3. Copy of ledger of Kailash Kapur from accounting year 2007-08 to 31.03.2012 in the books of CONSULTANTS IN RETAIL MANAGEMENT PRIVATE LIMITED.
Profit & Loss account and Balance sheet with groupings of CONSULTANTS IN RETAIL MANAGEMENT PRIVATE LIMITED for year ended 31.03.2012 As can be observed from the copy of Account of the appellant a sum ofRs. 36f42,064/-was advanced by the Company to appellant against which the appellant claimed the credit of Rs. 31,24,598/- leaving the balance of Rs.5,17,466/- as net debit during the year which is a deemed dividend u/s 2(22)(e).
The credit entries of Rs. 15,00,000/- and Rs. 16,24,598/- respectively is on account of the following.
(i) Rs. l5,00,000/- is the Remuneration payable by the Company to its Director Shri Shashi Kapur viz the appellant himself. The same is reflected as Income in the Return of the appellant and hence the learned Assessing Officer allowed the same as deductible from sum advanced.
(ii) Rs. l6,24,598/- is on account of CUMULATIVE liability of the company arisen out the expenses payable to Mrs. Kailash Kapur over the years. Copy of ledger Account of Kailash Kapur in the books of CONSULTANTS IN RETAIL MANAGEMENT PRIVATE LIMITED is attached herewith. As can be observed the sum ofRs. 16,24,598/- is the figure of the accumulated liability which is being taken over by Shashi Kapur. The appellant in the present case in an Individual capacity.
The sum of Rs.16,24,558/- includes a sum of Rs. 4,80,000/- payable to Mrs. Kailash Kapur as Rent for the Assessment year 2012/13 which is shown in the Return of Mrs. Kailash Kapur's Income.
The appellant fails to understand why the learned Assessing Officer has refused to allow the same as deduction from the sum advanced merely because the company has passed Journal Entry then on the same analogy why the other deduction is not allowed. The appellant fails to understand the logic behind the same.”
However the learned commission of income tax appeals summarily dismissed the detailed submissions of the assessee by a laconic order as under:- “It is seen that A.O. has made proper analysis of the facts of the case and made a strong and speaking assessment order. The assessing officer's conclusion that the assessee has availed the fresh loan from CRMPL was Rs. 36,42,064/- and as against this loan, the assessee repaid Rs. 15,00,000/- towards salary payable to him by CRMPL and effective loan availed by the assessee during F.Y. 2011-12 would be Rs. 21,42,064/- is a logical conclusion after study of ledger account of the appellant, P & L A/c of CRMPL, Balance Sheet and notes of Balance Sheet.”
Against the above order assessee is in appeal before the ITAT
I have heard both the counsel and perused the records. Learned counsel of the assessee submitted that authorities below have totally erred in not considering the liability of the assessee's mother amounting to Rs 16,24,598/- which was very much in existence in the said companies books which was taken over by the assessee. In this view of the matter learned counsel of the assessee submitted that without any cogent reason necessary credit has not been given for the liability of the mother owed by the company which has been taken over by the assessee. Ld counsel pleaded that if this amount is adjusted the deemed dividend would be only Rs. 5,17,466.
Upon careful consideration I find considerable cogency in the submission of the learned counsel of the assessee. No reason has been brought on record by the learned commission of income tax appeals as to why the said liability taken over by the assessee should not be given credit for.
As a matter of fact the order of learned commission of income tax appeals is extremely laconic and does not address the detailed submission made by the assessee. It is settled law that even admitted to orders have to be consistent with the rules of natural justice. A fundamental pillar of the same is a speaking order which is absent in the present case. Hence the order of the learned commission of income tax appeals is liable to be quashed on this account itself.
Be as it may, I have already noted that the submissions of the assessee are cogent and hence the assessee deserves to succeed. Accordingly I direct that the disallowance in this regard be restricted to Rs 5,17,466 after reducing the liability of Mrs. Kailash Kapoor of Rs 16,24,598/- owed by the lending company, taken over by the assessee.
In the result this appeal by the assessee stands partly allowed Order has been pronounced in the Court on 1.10.2019.