Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY & SHRI DUVVURU RL REDDY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
These appeals by the Revenue are directed against the orders passed by the Learned Commissioner of Income Tax (Appeals)-3, Chennai all dated 26.02.2016 in ITA No.99/2013-14/CIT(A)-3 & ITA No.94/2013-14/CIT(A)-3 in the case of Shri Harbinder Singh, Shri Harinder Singh & Shri Gurbinder Singh for the assessment year 2008-09 passed U/s. 250(6) r.w.s. 254, 147 & 143(3) of the Act. Since the issue with respect to all the above assessees is identical, they have been taken up for hearing together.
2. The Revenue has raised several identical grounds in its appeals however the crux of the issue is that the Ld.CIT(A) has erred by holding the advances received by the assessees to be in the nature of business transaction and hence provisions of Section 2(22)(e) of the Act is not applicable.
The brief facts of the case are that the assessees are individuals, viz., Shri Harbinder Singh, Shri Harinder Singh & Shri Gurbinder Singh filed their return of income for the assessment year 2008-09 on 25.09.2008, 25.09.2008 & 24.09.2008 admitting income of Rs.1,08,20,480/-, Rs.1,37,70,720/- & Rs.1,37,32,380/- respectively.
Initially the return was processed U/s.143(1) of the Act. A survey U/s.133A was conducted on 31.08.2009 which reveal that the companies viz., M/s. Rattha Overseas Company Pvt. Ltd., (ROCPL) and M/s. Roverco Apparel Company Pvt. Ltd., (RACPL) in which the assessees held substantial interest had made payments to the assessees on various dates which were not revealed in their respective returns of income. Since the provisions of Section 2(22)(e) of the Act was attracted on such receipts by the assessee, the assessment was reopened by the Ld.AO. Thereafter the following facts were observed by the Ld.AO in his order in the case of all the assessee’s:- “The assessee is a director cum shareholder in Roverco Apparel Company Private Limitted and Rattha Overseas Company Private Limited. The assessee was holding 33.33 percent of shares in both the companies. The Accumulated Profits and the total of Advances of the respective companies as noted in the original order is given below. The ledger extracts of the same were annexed in Annexure A & B in the original assessment order. AY 2005-06 Rattha Overseas Roverco Apparels Particulars Total Company Pvt. Ltd. Company Pvt. Ltd. ACCUMULATED 12,46,07,031 10,16,08,567 22,62,15,598 PROFIT ADVANCES Harbinder Singh 14,77,850 1,61,89,330 1,76,67,153 Gurbinder Singh 60,00,000 1,01,55,684 1,61,55,484 Harinder Singh 62,50,000 1,38,24,757 2,00,74,757 Total 1,37,27,850 4,01,69,744 5,38,97,594
Balance c/f 11,08,79,181 6,14,38,823 17,23,18,004
AY 2006-07 Particulars Rattha Overseas Roverco Apparels Total Company Pvt. Ltd. Company Pvt. Ltd. ACCUMULATED PROFIT 11,08,79,181 6,14,38,823 17,23,18,004 C/D CURRENT YEAR PROFIT 18,61,91,100 3,69,96,659 22,31,87,759 TOTAL ACCUMULATED 29,70,70,281 9,84,35,482 39,55,05,763 PROFIT ADVANCES Harbinder Singh 36,35,161 1,04,39,613 1,40,74,774 Gurbinder Singh 35,90,911 1,07,29,605 1,43,20,516 Harinder Singh 38,90,936 1,51,63,908 1,90,54,844 Total 1,11,17,008 3,63,33,126 4,74,50,134 Balance c/f 28,59,53,273 6,21,02,356 34,80,55,629
AY 2007-08 Particulars Rattha Overseas Roverco Apparels Total Company Pvt. Ltd. Company Pvt. Ltd. ACCUMULATED PROFIT 28,59,53,273 6,21,02,356 34,80,55,629 C/D CURRENT YEAR PROFIT 0 6,62,44,428 6,62,44,428 TOTAL ACCUMULATED 28,59,53,273 12,83,46,784 41,43,00,057 PROFIT ADVANCES Harbinder Singh 4,38,58,991 2,29,50,117 6,68,09,108 Gurbinder Singh 4,18,86,311 2,21,27,404 6,40,13,715 Harinder Singh 4,64,97,557 3,00,54,884 7,65,52,441 Total 13,22,42,859 7,51,32,405 20,73,75,264 Balance c/f 15,37,10,414 5,32,14,379 20,69,24,793
AY 2008-09 Particulars Rattha Overseas Roverco Apparels Total Company Pvt. Ltd. Company Pvt. Ltd. ACCUMULATED Nil 20,69,24,793 PROFIT C/D CURRENT YEAR Nil 3,69,96,659 20,69,24,793 PROFIT TOTAL Nil 24,39,21,452 24,39,21,452 Restricted to ACCUMULATED PROFIT Harbinder Singh 29,78,80,818 29,78,80,818 8,13,07,150 Gurbinder Singh 28,18,60,075 28,18,60,075 8,13,07,150 Harinder Singh 28,79,17,768 28,79,17,768 8,13,07,150 Total 86,35,69,122 86,35,69,122 24,39,21,452 Balance c/f Nil Nil Nil 4.1 On query the assessee had made the following submissions before the Ld.AO:- (i) All the three Directors of the Companies viz., the assessees, had given personal guarantee and collateral security for the benefit of the company. Reliance was placed in the decision of the Tribunal in the case ACIT vs. Smt. G. Sreevidya in ITA No.1270/Mds/2011.
(ii) The Directors have received the money from the companies partly to meet the short term cash requirements of the company. Reliance was placed in the case Smt. G. Sreevidya cited supra. (iii) The advances given by M/s. RACPL to the assessees were towards the purchase of two properties viz., property at Velachery and property at Old Mahabalipuram Road. The resolution of the company for the purchase of the property was also submitted.
4.2 However the Ld.AO rejected the explanations made by the assessees by stating that the resolution passed by the company are internal documents and therefore cannot be relied upon. Further the Ld.AO opined that there was no evidence to establish that the purchase of property for the companies. Thereafter the Ld.AO observed that the following three conditions required for invoking the provisions of Section 2(22)(e) of the Act were satisfied such as:-
The assessee must be a shareholder in a closely held company, holding 10% of the voting power of the company.
The Assessee must have received payment from such compnay by way of advance or loan. 3. The Company must possess accumulated profits and the income assessable in the assessee’s hands as deemed dividend u/s. 2(22)(e) must be restricted to the amount of accumulated profits.
Further the Ld.AO opined that the decision rendered in the case Smt. G. Sreevidya cited supra relied by the assessee is not applicable to the case of the assessee because the assessees had not produced any evidence for furnishing personal guarantees to the Companies. Similarly the decision rendered by the Hon”ble Jurisdictional Madras High Court in the case CIT Vs. Narasimhan reported in 118 ITR 60, wherein it was held that computation of deemed dividend is to be made on the basis of the companies accumulated profits on each day a loan or advance to the assessee is made (in excess of the loan given by the Director) after setting of the payments towards the loans given by the Directors, cited by the assessee, was held to be not applicable to the case of the assessee considering the position of accumulated profits for arriving at deemed dividend.
For the above stated reasons the Ld.AO made addition of Rs.3,82,69,547/- in the case of Shri Harbinder Singh, Rs.3,80,66,868/- in the case of Shri Harinder Singh and Rs.3,81,52,874/- in the case of Shri Gurbinder Singh invoking the provisions of Section 2(22)(e) of the Act.
On appeal the Ld.CIT(A) deleted the addition made by the Ld.AO by invoking the provisions of Section 2(22)(e) of the Act because of the following reasons in the case of all the three assessees:- (i) The amount received by the assessees from the companies
are in the nature of commercial transaction and hence the provisions of Section 2(22)(e) of the Act will not be applicable.
(ii) From the materials on record it is evident that the amount received by the assessees in the form of advances from M/s. Roverco Apparels Pvt. Ltd. has been used for purchase of properties to fulfill the commitment given by the company. purchased by the assessees were not suitable for construction of factory for the company, it was decided by the Board of Directors of company to dispose off the property and the assessees were instructed to repay the sale proceeds to the company as and when the property was sold. (iv) The facts of the case were similar to that of the case decided by the Hon’ble Jurisdictional Madras High Court in CIT vs. Madurai Chettiar Karthikeyan reported in 223 taxman 350, wherein it was held that when advances are received due to commercial exigencies provisions of Section 2(22)(e) of the Act will not apply.
Before us the Ld.AR submitted a paper book containing 1 to 137 pages containing the board resolution of the company, purchase and sale deed of the Velachery property as well as the Okkiyam Thoraipakkam village properties in order to establish the purchase and sale of the property by the assessees on behalf of the company. The Ld.AR thereafter argued by stating that the assessees had received the amount only to meet out the objects of the Companies and therefore it is in the nature of commercial transactions hence the provisions of Section 2(22)(e) will not be attracted. The Ld.AR relied in the order of the Ld.AO.
We have heard the rival submissions and carefully perused the materials available on record. From the facts of the case, it is evident that the amount received by the assessees from the company was for a specific purpose to benefit the company viz., in order to acquire land for the company for construction of factory. Since the land purchased by the assessees could not be utilized by the companies it was decided by the board of directors of the company to dispose off the land and recover the amount from the assessees. Thus it is purely a commercial transaction. Further it appears that the assessees who are directors in the companies have furnished bank guarantee for the purpose of obtaining loan for the company. Thus there is a close commercial proximity between the directors of the company and the company. Considering these facts and relying in the decision of the Hon’ble Jurisdictional Madras High Court, the Ld.CIT(A) has held that in the case of the assessees provisions of Section 2(22)(e) of the Act cannot be invoked. On a somewhat similar situation in the case M/s. Bagmane Constructions Pvt., Ltd., Vs ACIT, the Bangalore Bench of the Tribunal in for the assessment year 2006-07 had held that 10 to 1319/CHNY/2017 when the amount is received during the course of the business due to business exigency then provisions of Section 2(22)(e) of the Act cannot be invoked. The findings of the Ld.CIT(A) discussed in his Order are supplemented by the facts presented in the paper book submitted by the assessee and the same could not be controverted by the Ld.DR. Therefore considering the facts and circumstances of the case, we do not find any infirmity in the order of the Ld.CIT(A) which is based on various decision of the higher judiciary cited in his order and the documentary evidence on record. Hence we hereby uphold the order of the Ld.CIT(A) who has held that the provisions of Section 2(22)(e) will not be attracted in the case of all the above mentioned assessees.
In the result all the appeals of the Revenue are dismissed.
Order pronounced on the 26th April, 2018 at Chennai.