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Income Tax Appellate Tribunal, ‘A’BENCH,
Before: Shri M.Balaganesh & Shri S.S.Viswanethra Ravi
Since the issues involved in all these appeals and cross objections are common and identical, therefore, we heard together and proceed to dispose off the same by a consolidated order for the sake of convenience.
First we shall take up the appeal No.ITA No. 907/Kol/10 for the A.Y 2004-05 ( by the revenue).
The only issue in this appeal of revenue is to be decided by us as to whether the addition of Rs.3,00,87,417/- made on account of deemed dividend u/s. 2(22)(e) of the Act or advance of Rs.29,51,66,607/- given by M/s. Bengal EMTA Coal Mines Ltd [In short M/s. BEMCL] to assessee could be brought to tax in the facts and circumstances of the case.
The ld.DR submits that the AO found that the assessee has shown an amount of Rs.29,51,66,607/- being outstanding to Bengal Emta Coal Mines Ltd [ in short M/s. BECML ] under the head ‘Unsecured loans’. From the verification of audited balance sheet as prepared on 31-03-2004, he also argued that M/s. Bengal Emta Coal Mines Ltd is a company in which the public are not substantially interested. The said company has accumulated profit of Rs.3,00,87,417/- as on 31-03-2004. He
2 IT(SS)A Nos. 108-110/Kol/11, -908/Kol/10 & CO Nos. 66-67/Kol/10 also submits that the assessee is a registered shareholder as well as beneficial shareholder of having 25,06,000 shares which is 50.12% of the total subscribed of 50,00,000 equity shares of said M/s. BECML. The AO after examining the details as filed before him satisfied that the three ingredients of section 2(22)(e) of the Act is attracted and accordingly he sought explanation from the assessee why the said amount should not be treated as deemed dividend in the hands of the assessee. The assessee submitted vide written submission that the advance from M/s. BECML was received by the assessee for the purpose of development of coal blocks allotted to WBPDCL. M/s. BECML agreed to make such advances of Rs.40 ( forty) crores for the development of said coal blocks and for commencement of production within a schedule time and is a trade advance and not a loan or advance simplicitor as envisaged in section 2(22)(e) of the Act. The assessee also submitted that the provisions of section 2(22)(e) of the Act is applicable only to loans and advances and not to trade advances as made by the company in the course of business for specific purposes.
The ld.DR further argued that the words used in section 2(22)(e) of the Act is that ‘any payment by a company by way of advance or loan to a shareholder’ does not segregate between trade advances or advances made by the company in the course of business or specific purposes or other advances. The ld.DR also submits that the assessee has shown an amount of Rs. 29,51,66,606/- under the head Unsecured loans and 3 IT(SS)A Nos. 108-110/Kol/11, -908/Kol/10 & CO Nos. 66-67/Kol/10 claimed the same as advance for the purpose of development of coal blocks. The assessee received the amount as advance from M/s. BECML as its shareholder having 50.12% equity shares. Thus, the section 2(22)(e) of the Act is clearly applicable to the present facts of the case. He further argued that the AO by relying on various case laws treated the amount of Rs.3,00.87,417/- as deemed dividend from the said company in the hands of the assessee u/s. 2(22)(e) of the Act and added the same to the total income of the assessee.
The ld.DR also submits that during the year under consideration the AO found that the assessee has received a total payment of 295,29,54,290/- from M/s. BECML and claimed credit for the entire amount of TDS of Rs.75,66,916/- made against said payment. However, the total payment of Rs.295,29,54,290/- includes advance/loan received during the year amounting to Rs.29,51,66,607/-
The CIT-A deleted the said addition on the basis that the payment received as revenue account and the entire monies received by the assessee is only on revenue account and thereby trade advance.
The ld.AR submits that the advances received by the assessee were in the nature of trade advances and the assessee is only working as contractor for development and exploitation of mines belonging to M/s. BECML . The AO also did not give credit of TDS deducted from advances/loans received by the 4 IT(SS)A Nos. 108-110/Kol/11, -908/Kol/10 & CO Nos. 66-67/Kol/10 assessee during the year and observation that the credit for proportionate amount of TDS deducted from advances is to be allowed in subsequent year when the amount becomes assessable.
Heard rival submissions and perused the material available on record. We find that the above stated facts are not disputed. The CIT-A has deleted the said addition as under:- 5.1 I have gone through the assessment order and submissions of appellant. Appellant has relied on the decision of H’ble HIGH COURT OF DELHI, in the case of CIT v. Creative Dyeing & Printing Pvt. Ltd (2009) 184 Taxman 483, where H’ble Delhi High Court has held that what is to be ascertained is what the purpose of such advance is. If the amount is given as advance simplicitor or as such per se without any further obligation behind receiving such advances, may be treated as ‘deemed dividend’, but if it is otherwise, the amount given cannot be branded as ‘advances’, within the meaning of deemed dividend under section 2(22)(e). The finding of fact in that case before H’ble Delhi High Court was that the transaction in question was a business transaction which would have benefited both the assessee and the company in whic h assessee was a shareholder and the amount was an advance amount paid to the assessee which would be adjusted against the entitlement of moneys of the assessee payable by the company in which assessee was a shareholder in the subsequent years. On these finding of facts H’ble Delhi High Court held that such payment would not fall within the definition of deemed dividend under Section 2(22)(e). On the other hand Assessing officer has relied in the decision in case of CIT Vs. Jamunadas Khimji Kothari (1973) 92 ITR 105(BOM) where the finding of fact was that the assessee’s accounts with the company in which assessee was a shareholder was like a running overdraft loan account where the credit entries were never sufficient to shift the continuous debit balance of assessee in the books of the company in which assessee was a shareholder from the debit side to the credit side and therefore, the amount of balance was considered as a loan from such company to the assessee. The sum and substance of all these decisions is that the finding of facts in each case would determine whether the amount paid to assessee by the company in which assessee was a shareholder is loan or advance u/s. 2(22)(e) or not. 5.2 The facts of the case of appellant show that BECML paid Rs.295,29,54,290/- to appellant as contractor during the year, on which TDS was deducted. However, this payment exceed the combined amount of balance due to appellant of Rs.38.30 corre in the beginning of the year and the work done and material employed by appellant on behalf of BECML during the year by Rs.29,51,66,607/-. I find that the nature of the payment of Rs.29,51,66,607/- by BECML to appellant is overpayment for contract work in anticipation of such contract work to be carried out in immediate future. The payment of Rs.29,51,66,607/- by BECML to appellant is not a simple advance of money but payment for the contract work to be carried out by the appellant for BECML in immediate future. This amount is taxable as the income of appellant in the immediately succeeding Assessment Years. This money was not received on capital account by the appellant with a liability to only return such amount as in case of an advance simplicitor. In fact the 5
IT(SS)A Nos. 108-110/Kol/11, -908/Kol/10
& CO Nos. 66-67/Kol/10 payment of Rs 29,51,66,607/- by BECML to appellant is on revenue account with no intention to hide its taxability as revenue receipt whic h is evidenced by the TDS made by BECML on such payment. The provisions of section 2(22)(e) were introduced to bring within the tax net monies paid by closely held companies to their principal shareholders in the guise of loans and advances to avoid payment of tax. In the present case the payment has not been disguised as payment on Capital account by BECML to the appellant to avoid any tax. The TDS made on such payment makes it loud and clear that the payment is on revenue account though taxable in the immediately succeeding Assessment Year, if not in the Assessment Year under appeal. The payment received on revenue account by appellant·, though as per mercantile method of accounting is accounted for by appellant as income in succeeding Assessment Years, can in no way be called the loan and advances which are payments envisaged under the provisions of section 2(22)(e) as loan and advances received on capital account to avoid taxation. The provisions of section 2(22)(e) are require to be read in the context of tax avoidance. Therefore the payment by BECML to appellant, which has been declared as payment on revenue account by deducting TDS on such payment and only on account of accountancy reasons appear as advance in the books of appellant for the Financial Year relevant to the Assessment Year under appeal, cannot in any manner be considered as avoidance of tax. In other words, the provisions of section 2(22)(e) do not apply on such advances which are appearing as advance in the books of appellant due to the method of accountancy but are actually revenue receipts and are not at all disguised as advance on capital account. I therefore hold that the receipt of Rs. 29,51,66,607/- by appellant from BECML is not an advance received on capital account u/s 2(22)(e) of the I.T. Act but is a revenue receipt to be accounted for as income in succeeding Assessment Years and. the provisions of section 2(22)(e) will not apply on such receipt.”
We find that the tax was deducted on the said advance and the AO observed in his order at page no.4 that the credit for tax on the loans and advances is an income being assessable in the year when the said income becomes assessable. Therefore, it clearly says that the amount was not received as capital account by the assessee and it is only received as revenue account during the regular trade transactions and as such the provisions of section 2(22)(e) of the Act does not apply on such advances, which are revenue receipts. Thus, we do not find any reason to interfere with the finding of the CIT-A. We uphold the same. The grounds raised by the revenue are dismissed.
IT(SS)A Nos. 108-110/Kol/11, ITA Nos. 907 -908/Kol/10 & CO Nos. 66-67/Kol/10
This appeal of revenue in A.Y 2004-05 is dismissed.
Now we shall take up for the A.Y 2005-06 ( by the revenue).
It is noticed that the revenue in this appeal has raised the similar and identical issues as raised in AY 2004-05, which we have already discussed as above and disposed off the issue therein in favour of assessee by upholding the impugned order of the CIT-A. Therefore, we adopt the same view in this appeal in A.Y 2005-06. Therefore, the ground raised in ITA No. 908/Kol/2010 for the A.Y 2005-06 is dismissed.
This appeal of revenue in for the A.Y 2005-06 is dismissed.
We shall take up COs Nos. 66 & 67/Kol/2010 [ arising out of & 908/Kol/2010 for the A.Ys 2004-05 and 2005- 06 ] filed by the assessee.
At the time of hearing before us the ld.AR submits that he is not advancing any arguments for prosecuting these cross objections filed by the assessee and treated the same as not pressed. Hence, the same are dismissed as not pressed.
7 IT(SS)A Nos. 108-110/Kol/11, -908/Kol/10 & CO Nos. 66-67/Kol/10
These cross objections of the assessee in CO’s Nos. 66 & 67/Kol/2010 [ arising out of & 908/Kol/2010 for the A.Ys 2004-05 and 2005-06 ] are dismissed as not pressed.
IT(SS) No.108/Kol/2011 for the A.Y 2004-05 ( by the revenue)
In this appeal though the revenue has raised as many as three grounds of appeal, amongst which the only effective issue is to be decided as to whether the CIT-A justified in deleting the addition without there being any incriminating material found at the time of search proceeding.
The ld.DR submits that a search and seizure operation was conducted in respect of ‘EMTA Group’ of cases on 15-01-2009 and on subsequent dates. The Group is engaged in extraction and mining of coal, excavation, transportation of coal and other allied activities. A panchanama was prepared in the name of assessee during the course of search. Accordingly, notice u/s. 153A of the Act was issued on 25-08-2009 to file the return of income for the assessment year under consideration. In response to which, the assessee vide a letter dt. 06-11-2009 requested the AO to treat the original return as already filed for the a.y under consideration. The assessee filed the original return U/Sec 139 of the Act showing total income of Rs.11,00,92,085/-. The AO passed an order u/s. 153A/143 of the Act on 31-12-2010 by making the following additions at total income of Rs.14,08,96,330/-:
8 IT(SS)A Nos. 108-110/Kol/11, -908/Kol/10 & CO Nos. 66-67/Kol/10
Total income as per original return Rs.11,00,92,084 Add: (1) Addition made u/s. 143(3) Rs.3,00,87,417 (2) disallowance u/s. 14A Rs. 62,652 (3) credit card Rs. 1,05,400 (4) Tour & Travelling Rs. 5,48,774 Rs. 3,08,04,243 Total Income Rs.14,08,96,327 Rounded off u/s. 288A Rs.14,08,96,330
The ld.DR further submits that the CIT-A deleted the said addition on the ground that no incriminating material was found at the time of search and seizure operation. He relied on the order of the AO in making the impugned addition.
On the other hand, the ld. AR submits that the assessment for the year under consideration was completed on the date of search and as such the assessment was unabated. He also argued that the AO cannot exercise his jurisdiction u/s.153A if the assessment was completed as on the date of search unless there is any incriminating material to disturb the assessment, that is concluded. He relied on the order of the CIT-A in deleting the addition.
Heard rival submissions and perused the material available on record. We find that the assessment for the year under consideration was completed u/s. 143(3), wherein the AO made the addition of Rs.3,00,87,417/- on deemed dividend u/s. 2(22)(e) of the Act. We find that the AO added the impugned addition only on the ground that the appellant revenue has preferred an appeal before the Tribunal against the order of the CIT-A and it is still pending with the Tribunal for adjudication.
IT(SS)A Nos. 108-110/Kol/11, -908/Kol/10 & CO Nos. 66-67/Kol/10 According to AO as it is noticed from the assessment order passed U/Sec. 153A that to keep the issue alive the said amount of Rs.3,00,87,417/- was again added under 153A proceeding. The finding of the CIT-A in deleting the said addition is reproduced herein below:- “3. During the course of appeal it was submitted by the L.d A.r that in the assessee’s case, as on the date of search the assessment for A.Ys 2004- 05 had already been completed u/s. 143(3) of the Act. At the time of original assessment u/s. 143(3), the addition of Rs.3,00,87,414/- was made by the A.O under section 2(22)(e), which was subsequently deleted by the CIT(A) vide order dated 14.01.2010. However, the disallowance under section 14A of the Act was not made at the time of original assessment. It was further submitted that in course of the search action in the group case, nothing incriminating in respect of above addition/disallowance were found. Since the above issue had been considered/accepted by the Department in course of regular assessments and there being no change in the fact and circumstances compared to the past, the AO was not justified in reviewing the completed assessments of the said year and adopting a different view in the matter merely because a search action had been carried out in the assessee’s case. It was further submitted that since the assessment for A.Y 2004-05 had already been completed and the search action in the assessee’s case or the search action in the group case did not lead to the discovery of any evidence whatsoever, with respect to allow ability or otherwise of the said claims. As such, items of regular assessment could not be added back in the assessment framed u/s. 153A when no incriminating documents were found with respect of the disallowed items in the search proceedings.
4. I have carefully considered the submission of the appellant. In the assessee’s case, as on the date of Search, assessment for the year under consideration had already been completed u/s. 143(3) of the Act. At the time of original assessment u/s. 143(3) the addition made under section 2(22)(e) of Rs.3,00,87,414/- has been duly considered and deleted by the CIT(A) vide order dated 14.01.2010. Further no disallowance was made on account of expenses relating to the exempt income under section 14A by the AO. In course of the search action in the group case, nothing incriminating in respect of such claims were found. Since the above claims had been considered/accepted in course of regular assessments and since there is change in the facts and circumstances compared to the past, the AO was not justified in reviewing the completed assessment of the said year merely because a search action has been carried out in the business premises of the company. S. 153A does not authorize the making of a de novo assessment. While under the 1 s t Proviso, the AO is empowered to frame assessment for six years, under the 2 n d Proviso, only the assessments which are pending on the date of initiation of search abate. The effect is that completed assessments do not abate. Since, the disallowance/addition in question doesn’t emanate from incriminating material found during the course of search, hence the same cannot be the subject matter of consideration under the proceeding under section 153A. Hence I must follow the decision of LMJ International vs. DCIT (2008) 119 TTJ (KOL) 214 to maintain the judicial discipline, where it has been held that where nothing incriminating is found in the course of search proceeding relating to any assessment years, the completed assessment for such years cannot be disturbed. Accordingly the addition of Rs.3,00,87,414/- under section 2(22)(e) and Rs.62,652/- under section 14A is deleted. Accordingly, the ground no. 2 to 5 taken by the appellant is allowed. “
IT(SS)A Nos. 108-110/Kol/11, ITA Nos. 907 -908/Kol/10 & CO Nos. 66-67/Kol/10
In view of above discussion, we do not find any reason to interfere with the order of the CIT-A in holding the same and it is justified. The grounds raised by the revenue are dismissed.
IT(SS) Nos. 109 & 110/Kol/2011 for the AYs. 2005- 06 & 2006-07 ( by the revenue).
It is noticed that the revenue in these two appeals has raised the similar and identical issues as raised in IT(SS) A No.108/Kol/2011 for the AY 2004-05, which we have already discussed as stated above and disposed off the issues therein in favour of assessee by upholding the impugned order of the CIT- A. Therefore, we adopt the same view in these two appeals also (IT(SS) A Nos. 109 & 110/Kol/2011 A.Ys 2005-06 and 2006- 07). Therefore, the grounds raised in IT(SS)A Nos. 109 & 110/Kol/2011 for the A.Ys 2005-06 and 2006-07 by the revenue are dismissed.
These appeals of revenue in IT(SS)A Nos.109 & 110/Kol/2011 for the A.Ys 2005-06 and 2006-07 are dismissed.
In the result, all the appeals of the revenue and corresponding cross objections of the assessee are dismissed as under:- 1) The appeal of revenue in A.Y 2004-05 is dismissed. 2) The appeal of revenue in for the A.Y 2005-06 is dismissed.
11 IT(SS)A Nos. 108-110/Kol/11, -908/Kol/10 & CO Nos. 66-67/Kol/10 3) The C.O Nos. 66 & 67/Kol/2010 by the assessee [ arising out of & 908/Kol/2010 for the A.Ys 2004-05 & 2005- 06 ] are dismissed. 4) The appeals of revenue in IT(SS) Nos. 108 to 110/Kol/2011 for the A.Ys 2004-05 to 2006-07 are dismissed.
ORDER PRONOUNCED IN OPEN COURT ON 17 /03/2017