Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy & Sri S.S. Viswanethra Ravi
Appearances by: Shri S.K. Tulsiyan, Advocate, appeared on behalf of the assessee. Shri C.J. Singh, JCIT Sr. D/R, appearing on behalf of the Revenue. Date of concluding the hearing : February 7th, 2019 Date of pronouncing the order : March 29th , 2019 ORDER Per J. Sudhakar Reddy, AM :-
This appeal filed by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals) - 11, Kolkata, (hereinafter the “ld.CIT(A)”), passed u/s. 250 of the Income Tax Act, 1961 (the ‘Act’), dt. 31/03/2017, for the Assessment Year 2012-13.
The assessee is a private company and is in the business of poultry business. It filed its return of income for the Assessment Year 2012-13 on 27/09/2012 disclosing total income at Rs.31,97,130/-. The assessment was completed u/s 143(3) of the Act, determining the total income at Rs.57,37,590/- interalia making an addition of Rs.19,00,000/- u/s 2(22)(e) of the Act and the disallowance of Rs.6,40,460/- u/s 14A of the Act. Aggrieved the assessee carried the matter in appeal. The ld. First Appellate Authority deleted the disallowance made u/s 14A of the Act. The addition made u/s 2(22)(e) of the Act has been confirmed.
Assessment Year: 2012-13 M/s. Kumarpur Agro Poultries Ltd 3. Aggrieved the assessee is in appeal before us on the sole issue of addition u/s 2(22)(e) of the Act.
The facts leading to this addition are brought out at para 3.1. of the ld. CIT(A), which is extracted for ready reference:- “3.1 The assessee is a private limited company which has during the year under consideration taken a loan of Rs.19 lakhs from another private limited company M/s. Maity Poultries Pvt. Ltd. The A.O. found that the accumulated profit of M/s Maity Poultries Pvt. Ltd. is Rs. 2,53, 13,847/ -. He further found that one Mr. Madan Mohan Maity holds substantial shares i.e. 52% in Maity Poultries Pvt. Ltd. and the same share holder holds 20.49% in the assessee company. Accordingly, the A.O. has added the entire amount of loan taken from Maity's Poultries Pvt. Ltd. in the case of the assessee company u/s 2(22)(e).”
The ld. Counsel for the assessee submitted that :- a) The sum of Rs. 19,00,000/- was actually a trade advance received by the assessee and not a loan from M/s. Maity Poultries Pvt. Ltd. The assessee company submitted that it had sold its products from time to time to M/s. Maity Poultries Pvt. Ltd. and these sale proceeds were adjusted against the advance of Rs.19,00,000/- and ultimately at the end of the year the outstanding balance ws Rs.16,63,270/-. He relied on certain case-law for the proposition that trade advances does not fall within the ken of Section 2(22)(e) of the Act. b) The second argument of the ld. Counsel for the assessee is that the, assessee company is not registered shareholder of M/s. Maity Poultries Pvt. Ltd. and hence Section 2(22)(e) of the Act does not apply. For this proposition he relied on the judgment of the Hon’ble Delhi Court in the case of CIT v. Ankitech pvt Ltd (2012) 340 ITR 14 (Del) and the judgment of the Hon’ble Apex Court in the case of CIT v. Madhur Housing & Development Company reported in 401 ITR 152 (SC).
The ld. D/R, on the other hand, opposed the contentions of the assessee and relied on the judgment of the Hon’ble Supreme Court in the case of National Travel Service vs. CIT (2018) 401 ITR 154, and submitted that, to attract Section 2(22)(e) of the Act, a shareholder has only to be a person who is the beneficial owner of the shares and Assessment Year: 2012-13 M/s. Kumarpur Agro Poultries Ltd need not necessarily be a registered shareholder. Hence the issue should be referred to the Hon’ble Chief Justice of India for constituting a larger Bench. 6.1. On the issue that whether the amount in question is a trade advance, he relied on the order of the ld. CIT(A) and submitted that the assessee had made supplies of Rs.2,36,730/- only to M/s. Maity Poultries Pvt. Ltd., during the year which is very small amount compared to Rs.19,00,000/- advance and hence the amount in question is a loan and not a trade advance. He submitted that the order of the ld. CIT(A) be upheld.
We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 8. We find that there are business transactions between the assessee and M/s Maity Poultries Pvt. Ltd. The assessee company has sold its products to M/s Maity Poultries Pvt. Ltd. The sale proceeds were adjusted against the advance received by the assessee. Simply because the quantum of sales during the year was Rs.2.36 Lakhs/- as compared to the advance of Rs.19,00,000/-, the character of the transaction does not change. The inference drawn by the revenue authorities that the amount in question is a loan and not a trade advance is not supported by any evidence. On the contrary, the assessee has produced evidence in the form of copy of bills evidencing supplies, ledger accounts etc. in support of the contentions that this is a trade advance. The Central Board of Direct Taxes in Circular No. 19/2017, dt.12/06/2017, F.No. 279/Misc./140/2015/TTJ has at para 3 stated as follows:- “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.”
Applying the circular of the CBDT, we hold that the addition made u/s 2(22)(e) of the Act, in this case is bad in law. We also find that a number of judgments support this view accepted by the CBDT in this circular.
Assessment Year: 2012-13 M/s. Kumarpur Agro Poultries Ltd 8.1. On the issue whether Section 2(22)(e) of the Act, applies in the facts and circumstances of this case, we find that the Hon’ble Supreme Court in the case of CIT v. Madhur Housing & Development Company (supra) approved the decision of the Hon’ble Delhi High Court in the case of CIT v. Ankitech pvt Ltd (2012) 340 ITR 14 (Del) and held that where a person has substantial interest in the assessee company as well as the lender company and the assessee is not a shareholder to the lender company, the loan to the assessee company cannot be assessed as deemed dividend u/s 2(22)(e) of the Act. 8.2. The decision relied upon by the ld. D/R i.e., National Travel Service (supra) does not till date reverse the order of the Hon’ble Supreme Court in the case of CIT v. Madhur Housing & Development Company (supra). The reference has been made to the Hon’ble Chief Justice of India to constitute a larger Bench. Till the larger Bench reverses the order of the Hon’ble Supreme Court, the propositions of law laid down in the case of CIT v. Madhur Housing & Development Company (supra) would be the law of the land. Hence we accept the arguments and uphold the contentions of the ld. Counsel for the assessee. Accordingly, the disallowance is deleted. Thus, on both these grounds the issues are adjudicated in favour of the assessee.
In the result, appeal of the assessee is allowed. Kolkata, the 29th day of March, 2019.
Sd/- Sd/- [S.S. Viswanethra Ravi] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated : 29.03.2019 {SC SPS} Assessment Year: 2012-13 M/s. Kumarpur Agro Poultries Ltd Copy of the order forwarded to: 1. M/s. Kumarpur Agro Poultries Ltd Vill:- Kumarpur P.O.-Panchkuri Paschim Medinipur 2. Assistant Commissioner of Income Tax, Circle-38, Midnapore 3. CIT(A)- 4. CIT- , 5. CIT(DR), Kolkata Benches, Kolkata.