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Income Tax Appellate Tribunal, KOLKATA BENCH‘B’, KOLKATA
Before: Shri SonjoySarma & Shri Girish Agrawal]
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH‘B’, KOLKATA [Before Shri SonjoySarma, Judicial Member & Shri Girish Agrawal, Accountant Member] I.T.A. No. 1027/Kol/2023 Assessment Year : 2011-12 Partha Priya Banerjee vs ACIT, Circle-2, Durgapur PAN: AEIPB 4483 L Appellant Respondent Date of Hearing 01.02.2024 Date of Pronouncement 10.04.2024 For the Assessee Shri Manish Tiwari, AR For the Revenue Shri P.P. Barman, Addl. CIT, Sr. DR ORDER Per Sonjoy Sarma, JM: This appeal of the assessee for the assessment year 2011-12 is directed against the order dated 09.08.2023 passed by the ld. Commissioner of Income-tax, Appeals, NFAC, Delhi [hereinafter referred to as ‘the ‘ld. CIT(A)’].
Brief facts of the case are that in the case of assessee assessment order u/s 143(3) was passed on 28.03.2014. Thereafter, ld. PCIT, Durgapur passed an order u/s 263 of the Act dated 22.03.2016 setting aside the order of AO with the direction to pass fresh order. In consequent to that notice u/s 143(2) and 142(1) of the Act was issued to the assessee. In response to the notices, ld. AR of the assessee appeared time to time before the AO. During the assessment proceeding, ld. AO disallowed a sum of Rs. 30,58,488/- representing the opening balance of reserve and surplus of M/s. Gati Motors Pvt. Ltd. by treating as deemed dividend in the hands of assessee. The ld. AO also notice from the assessee’s balance sheet that assessee had given a loan of Rs. 2,52,44,551/- to its group concern without
2 ITA No. 1027/Kol/2023 AY: 2011-12 Partha Priya Banerjee charging any interest whereas the assessee has borrowed interest bearing loan from bank amounting to Rs. 5,90,83,750/- and paid interest amounting to Rs. 65,82,946/-. Therefore, the ld. AO added amounting to Rs. 28,12,677/- to the total income of the assessee considering the account loan of Rs. 2,52,44,551/- as interest bearing loan.
Dissatisfied with the above order, assessee went into appeal before the ld. CIT(A) where the appeal of the assessee was dismissed.
Aggrieved by the above order, assessee is in appeal before the Tribunal raising four grounds of appeal.
At the outset, we note that ground no. 1 of the assessee’s appeal is against the action of ld. CIT(A) in upholding the addition of Rs. 30,58,488/- made by the AO as deemed dividend u/s 2(22)(e) of the Act. The ld. AO noted in the assessment order that assessee has 80% shares of M/s. Gati Motors Pvt. Ltd. and also received money amounting to Rs. 1,87,27,000/- out of which Rs. 1,45,60,000/- was repaid during the year leaving outstanding balance of Rs. 40,67,000/-. The ld. AO also observed that M/s. Gati Motors Pvt. Ltd. was not in the business of granting loans from money lending business and opening balance of reserves & surplus of M/s. Gati Motors Pvt. Ltd. was of Rs. 30,58,488/- during the relevant assessment year. Therefore, ld. AO added sum of Rs. 30,58,488/- as deemed dividend in the hands of assessee. The ld. AR stated that alleged financial transaction between M/s. Gati Motors Pvt. Ltd. and the assessee is beyond
3 ITA No. 1027/Kol/2023 AY: 2011-12 Partha Priya Banerjee the purview of section 2(22)(e) of the Act as because the transaction between these two entities are current account transaction and not gracious loans as viewed by the authorities below. The ld. AR further stated that assessee has given money initially and subsequently refund the amount in the same year. Therefore, it cannot be termed as gracious loans enjoyed by the assessee. Moreover, the transaction between these two entities were for mutual benefits of each other and on perusal of ledger account of the company it reflected that payments were made by the assessee and received by the assessee it can be seen that until 30.09.2010 i.e. for the first 6 months of the of the FY the assessee had a debit balance with the related party and until after that money was refunded to assessee leaving a credit balance of Rs. 40,67,000/-.Thus, the fact that the assessee has a current account arrangement with Gati Motors Pvt. Ltd. is found to be correct and therefore, the provision of section 2(22)(e) cannot have any applicability in this case. The ld. AR in order to substantiate his contention reliance was placed upon the decision of Kolkata High Court in the case of CIT vs Gayatri Chakraborty (2018) 94 taxmann.com 244 wherein it was held that “where transaction between shareholder and company were in the nature of current account, provisions of section 2(22)(e) would not be applicable”. An alternate argument of AR of the assessee is that Gati Motors Pvt. Ltd. is enjoying credit facilities from Punjab National Bank for which the assessee has given personal gurantees and he stated that a copy of letter dated 21.10.2010 regarding credit facilities by Punjab National Bank is placed on page 50 to 60 of paper book. Therefore, he prayed that
4 ITA No. 1027/Kol/2023 AY: 2011-12 Partha Priya Banerjee the alleged transactions between Gati Motors Pvt. Ltd. and the assessee were for the mutual benefit and cannot be treated as deemed dividend in the hands of assessee.
On the other hand, ld. DR supported the decision rendered by the authorities below. However, the ld. DR could not controvert the claim of the assessee that the account in question is a current account. Therefore, after hearing the rival submission of parties and after examining the facts of the case, we have no hesitation in reversing the findings of CIT(A) and allow ground no. 1 of the assessee by deleting addition of Rs. 30,58,488/- made by the AO. Accordingly, ground no. 1 is allowed.
In ground no. 2 is in relation to the action of the CIT(A) in upholding the addition of Rs. 28,12,677/- made by the AO as proportionate disallowance of interest paid to bank. The contention of AR of the assessee is that while framing the assessment, the ld. AO viewed that assessee has given loans to its 6 group concerns without charging any interest whereas the assessee has borrowed funds from banks on which he has paid interest. Therefore, the ld. AO has disallowed proportionate interest with respect to loans given to 6 group concerns without any interest. The ld. AR stated that the assessee has many business with common interest and the money advanced to 6 group concerns amounting to Rs. 2,52,44,551/- in the nature of advances which were subsequently refunded. He has also stated that the money was given for business purposes and the assessee
5 ITA No. 1027/Kol/2023 AY: 2011-12 Partha Priya Banerjee had regular business activities with the said concerns. The AO has not proved any nexus between interest bearing borrowed funds and the impugned interest free advance made to sister concerns. The assessee has its own capital of Rs. 2,77,96,001/- which was more than interest free advance given to 6 group concerns. Therefore, the alleged presumption drawn by the AO is not correct and the funds deployed by the assessee to its 6 group concerns from its own funds. The ld. AR in order to substantiate its claim reliance was placed to the decision of Hon’ble Supreme Court in the case of Reliance Utilities & Powers Ltd. reported in 410 ITR 466. Since the money was given from own funds as commercial expediency no disallowance of interest can be made. He further stated that interest expenditure claimed by the assessee cannot have been disallowed unless the AO is able to demonstrate that there was no nexus between the expenditure and the purpose of business. The ld. AR also pointed out that the AO has disallowed interest on notional basis without relying on the books of account of the assessee which is also not permissible in law.
On the other hand, ld. DR supported the decision rendered by the authorities below. He controvert the arguments rendered by the AR of the assessee.
We after hearing the rival submissions of the parties and on perusal of the material available on record find that the instant issue is covered in favour of the assessee following the decision of Hon’ble Supreme Court as in the case of Reliance Utilities &
6 ITA No. 1027/Kol/2023 AY: 2011-12 Partha Priya Banerjee Powers Ltd. (supra). Accordingly, the ground taken by the assessee is hereby allowed.
Ground no. 3 of the assessee is pertains to mismatch in the aggregate of income as per assessment order of Rs. 1,02,89,465/- and that as per computation of income of Rs. 1,03,89,465/-.
We after examination of the record found that there is mismatch in the aggregate income as per assessment order and as per computation of income. Therefore, the ld. AO is directed to verify the assessee’s contention as per assessment record and the returns filed by the assessee calculating the aggregate income of the assessee as per law. In terms of the above ground no. 3 is allowed for statistical purposes.
Ground no. 4 is general and consequential in nature need not required to be adjudicated.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on10.04.2024. Sd/- Sd/-
(Girish Agrawal) (SonjoySarma) Accountant Member JudicialMember Dated:10.04.2024 Biswajit, Sr. PS
7 ITA No. 1027/Kol/2023 AY: 2011-12 Partha Priya Banerjee Copy of the order forwarded to: 1. Appellant- Partha Priya Banerjee, Ajit Banerjee Building, Nachan Road, Bhiringi, Durgapur, Burdwan-713213. 2. Respondent – ACIT, Circle-2, Durgapur. 3. Ld. CIT 4. Ld. CIT(A) 5. Ld. DR