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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI S. S. GODARA, JM &DR. A.L.SAINI, AM
आदेश / O R D E R
Per Dr. A. L. Saini: The captioned appeal filed by theRevenue, and cross objection filed by the assessee,pertaining to Assessment Year 2006-07,are directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-20, Kolkata in appeal No.707/CIT(A)-20/CC-1(2)/14-15 dated 23.09.2015, which in turn arises out of an
Shri Sanjay Budhia ITA No.1451/Kol/2015 Assessment Year: 2007-08
assessment order passed by the Assessing Officer u/s 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 31.03.2014.
The cross objection filed by the assessee in CO.No.41/Kol/2016, for Assessment Year 2006-07, is barred by limitation by 157 days. The assessee has moved a petition requesting the Bench to condone the delay.We heard the party on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the cross objections for hearing.
The grievances raised by the Revenue are as follows:
“1. That on the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.2,00,00,000/- made by the Assessing Officer in the order passed u/s 143(3)/147 of the Income Tax Act, 1961 on 31.03.2004 on account of deemed dividend as per section 2(22)(e) of the Income Tax Act, 1961. 2.That, the appellant reserves the right to amend, alter or add to any grounds of appeal before or at the time of hearing of the appeal.” 3. The brief facts qua the issue are that during the assessment proceedings the assessing officer examined the balance sheet of the assessee for the year ended 31st March,2006, and observed that the assessee had taken an advance, amounting to Rs. 2,00,00,000/- from 'M/s Patton International ltd, during the FY 2005-06 relevant to the AY 2006-07.From the assessment record of Patton International Ltd,it was noted by the AO that the assessee was owner of 20.34% of paid up equity shares of that company by holding 18,36,440 shares out of 90,28,216 paid up equity shares. Besides, M/s Patton International Ltd, had been a closely held company,whose nature of Business was manufacturing and export in the FY 2005- 06. Besides, it wasnoted by AO from the balance sheet of Patton International Ltd, as on 31-03-2006, that as on that date it had Rs.38,37,82,331/- of accumulated profits and as on 31-03-2005 accumulated profit was Rs.16,56,62,369/-.Therefore, ld AO concluded that the advance of Rs.2,00,00,000/- given to Sri Sanjay Budhia, satisfied all the necessary conditions for attracting the provisions of section 2(22)(e) of the Income Tax Act,1961 and should have been assessed as deemed dividend in the assessment completed u/s 143(3) of the Act. Therefore, the AO had
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reason to believe that taxable income had escaped assessment in the case of the assessee to the extent of Rs. 2,00,00,000/- and notice u/s 148 was issued to the assessee.
In response to the notice u/s 148 of the Act, the assessee replied to the AO that the return of income filedu/s 139 on 19-06-2006 may be treated as return filed u/s 148 of the IT Act,1961. Subsequently, the notices u/s 143(2)and 142(1) with specific requisition were issued and served on 12.09.2013, upon the assessee and thereafter on request from the assessee the reason for issue of the notice u/s 148 also was provided to the assessee.
In response to the above notices, the assessee appeared on different dates and submitted explanations, details and explained that provisions of section 2(22)(e) will not be attracted to the abovementioned transaction and submitted the written submission which is given below:
“That Patton International Ltd was enjoying credit facility limit of Rs. 14.5 crore with State Bank of Mysore, Shakespeare Sarani Branch,Kolkata and on 10-06- 2005 applied for enhancement of credit limit to Rs. 25 crores and the bank asked for personal guarantee of directors for such enhancement vide letter dated 17-08- 2005. Since giving personal guarantee would block the liquidity of assets owned by the directors.,therefore, the company Patton International Ltd, passed a resolution on 10-06-2005 agreeing to grant loan of up to Rs. 2 crores to directors standing guarantee in case of their future requirement. On 28-09-2005, such personal guarantee was given by both directors, Sanjay Budhia& H P Budhia and the condition of personal guarantee was that guarantors could not dispose of their assets without prior approval of bank.”
Therefore, the assessee submitted before the AO that aforesaid advance of Rs. 2,00,00,000/- was not given free, and there is a valid consideration in the form of personal guarantee. However, assessing officer rejected the contention of the assessee and held that the aforesaid advance of Rs. 2,00,00,000/- extended by M/s Patton International Ltd. to Shri Sanjay Budhia, was not made in ordinary course of business. Therefore, this advance of Rs. 2, 00,00,000/- falls under the scope of
Shri Sanjay Budhia ITA No.1451/Kol/2015 Assessment Year: 2007-08
‘loans and advances’ as defined u/s 2(22)(e) of the I.T. Act,1961 and is therefore taxed as deemed dividend in the hand of the assessee, Shri Sanjay Budhia.
Aggrieved by the stand taken by the Assessing Officer the assessee filed an appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in appeal before us.
Before us, ld counsel for the assessee submitted that ld CIT(A) had passed the reasoned order after considering all facts of the assessee therefore, his order should be sustained. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have given a careful consideration to the rival submissions and perused the material available on record, we note that the assessee is having 20.34% shares in the company, M/s Patton International Ltd. During the year under consideration this company wanted to increase its credit facility limit from 14.5 crore to 25 crores. The company approached the State Bank of Mysore for the same. The bank agreed to increase the credit facility on the condition that its directors would have to give personal guarantee for the same. The assessee being a director of the company gave his personal guarantee on the ground that in case directors needed any money in future then they could take advance upto Rs. 2 crore from the company as and when required. A board resolution for the same was passed on 10.06.20005. During the year, the assessee took an advance of Rs. 2 crore and later on paid it back with interest to the company as per his entitlement (according to the board’s resolution of the company). The AO treated this advance as deemed income and made an addition of the same.We note that assessee submitted a copy of the agreement between the company and the bank showing personal guarantee of the assessee for the increase of the credit facility of the company. In personal guarantee, a list of all movable and immovable assets of the assessee was given to the bank which could not be disposed off by the assessee as and when required, therefore the board of directors of the company passed a resolution of giving Page | 4
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advance to the assessee, (vide Board resolution in paper book page No.33). We note that Ld DR did not controvert this factual position, explained by the counsel for the assessee.
We note that the assessee submitted a copy of agreement in form no. 22 dated 17.08.2005 of ‘agreement for hypothecation and guarantee’ (hypothecation of goods, machinery, books debts and other assets) between the state of bank of mysore and assessee, a director of the company, (pb.34-67). According to this agreement between the assessee and the bank,(because of the personal guarantee given by the assessee), as per clause 8 of the agreement that ‘all the said goods and all sale realization and insurance proceeds thereof and all documents under this scrutiny shall always be kept distinguishable and held as the bank’s exclusive property specially appropriated to this security to be dealt with only under the directions of the bank and the borrower shall not create any mortgage charge lien or encumbrance upon or over the same or any part thereof except to the bank nor suffer any such mortgage charge lien or encumbrance to affect the same or any part thereof nor do or allow anything that may prejudice this security. Therefore, it is abundantly clear from the above that the assessee had to mortgage all his assets to the bank in order to increase the credit facility of the company and therefore, advance taken by the assessee should not be treated as deemed dividend. For that we rely on the judgment of the jurisdictional Kolkata High Court in the case of Pradip Kumar Malhotra vs. Commissioner of Income Tax [2011] 338 ITR 538 (Cal) on similar identical facts. In this case the Hon`ble Kolkata High Court has held that “for retaining the benefit of loan availed of from the bank, if decision is taken to give advance to the assessee, such decision was not to give gratuitous advance to its shareholder but to protect the business interest of the company. That is, if such loan or advance is given to such share holder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to a deemed dividend within the meaning of the Act.
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Therefore, considering the entirety of facts and circumstances of the case and respectfully following the ratio decided by the Hon’ble Kolkata High Court in the case of Pradip Kumar Malhotra (supra) on identical facts, we do not find any infirmity in the order of ld CIT(A).That being so, we decline to interfere with the order of Id. C.I T.(A) deleting the aforesaid addition. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
Now we deal with assessee`s cross objection No.41/Kol/2016, for A.Y. 2006- 07. The assessee in his cross objections, has challenged the validity of reopening of assessment under sections 147/148 of the Act.
The ld Counsel for the assessee begins by pointing out that in assessee`s case under consideration the reassessment U/s 147/148 was initiated by the AO without any tangible material. The Ld Counsel further pointed out that reassessment in the assessee`s case is amounted to review of original order of the AO and it is based on change on opinion. Besides, in reassessment proceedings, the AO did not pass any order on objection filed by the assessee, therefore, the reassessment proceedings are itself bad in law and should be quashed.
10.On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer.
11.We have given a careful consideration to the rival submissions and perused the material available on record, we note that the reassessment proceedings were initiated by AO after four years without bringing and tangible material on record. The issue on which the reassessment proceedings were initiated by AO was already existed during the original assessment (vide pb 22 to 25). Loan interest was paid by assessee and the said interest was claimed and during the original assessment the same was disallowed by AO while passing the original assessment under section 143(3) of the Act.We note that in the assessee`s case under consideration the reassessment proceedings was based on review of the same set of facts/details which were already on record before AO at the time of completion Page | 6
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of original assessment under section 143(3) of the Act.The AO has merely reviewed the same set of documents and concluded that that there was escapement of tax which is not tenable. It is well settled that the AO cannot reopen a concluded assessment merely on reviewing the documents which are already filed before the AO during the original assessment. For that we rely on the landmark judgment delivered by the Hon'ble Supreme Court in the case of CIT -vs.- Kelvinator of India (2010) 320 ITR 561 (SC), wherein by affirming the decision of the Full Bench of the Delhi High Court, it was held as follows: "6. .... Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid section 147 would give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in, mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief........” Hence, based on the above findings, the reassessment proceedings shall not be sustainable in the eyes of law, and therefore we allow the cross objection filed by the assessee. We further quote section 147 1st proviso to conclude that the Revenue has not made out a case of the assessee having not “fully” and “truly” disclosed all particulars at the first instance as per Hindusthan Lever Ltd. vs. R.B. Wadker [2004] 268 ITR 331 (Bom)
12.In the result, the appeal filed by the Revenue is dismissed and cross objections filed by the assessee are allowed.
Order is pronounced in the open court on 16.01.2019. Sd/- Sd/- (S. S. GODARA) (A.L.SAINI) �या�यकसद�य / JUDICIAL MEMBER लेखासद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक/ Date: 16 /01/2019 (RS, Sr.PS) Page | 7
Shri Sanjay Budhia ITA No.1451/Kol/2015 Assessment Year: 2007-08
आदेशक���त�ल�पअ�े�षत/Copy of the Order forwarded to :
अपीलाथ�/The Appellant- DCIT, Circle-8(2), Kolkata 2. ��यथ�/ The Respondent- Shri Sanjay Budhia 3. आयकरआयु�त(अपील) / The CIT(A), 4. आयकरआयु�त/ CIT 5. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, कोलकाता/ DR, ITAT, Kolkata 6. गाड�फाईल / Guard file. स�या�पत��त