VIVEK G BHARTU,MUMBAI vs. ITO 7(3)(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JUDICIAL MEMBER (A.Y:2011-12) Vivek G. Bhartu Vs. The Income Tax Officer, 764 E Umrigar Building, Tilak Road, Ward-7 (3) (1), Aayakar Opp. Bus Depot, Dadar, Bhavan, M. K. Road, Mumbai 400 14 Churchgate, Mumbai 400 021 PAN:AACBP Appellant .. Respondent .. Appellant by Shri Devdatta Mainkar, AR Respondent by .. Shri K. L. Kanak, Sr. DR .. Date of hearing 11-08-2016 Date of pronouncement 11-08-2016 O R D E R PER MAHAVIR SINGH, JM:

This appeal by the assessee is arising out of order of CIT (A)-14, Mumbai in Appeal No. CIT (A)-13/IT-323/13-14 dated 18-12-2014. Assessment was framed by ITO-7(3) (1), Mumbai for the assessment year 2010-11 u/s 143(3) of the Income Tax Act, 1961 (hereinafter „the Act‟) vide his order dated 14th January, 2014.

The learned CIT (A) vide her order dated 8.12.2014 erred in sustaining addition of Rs.25,09,684/- by way of “Deemed Dividend” u/s. 2(22) (e) of the I. T. Act, 1961”.

3. Briefly stated the facts of the case are that the AO during the course of assessment proceedings made addition of deemed dividend by invoking the provisions of Section 2(22) (e) of the Act in respect to loan taken by the assessee from the following concerns:- SN Name of Company Opening Transaction Closing Reserves Balance amount Balance and surplus during the year 1 M/s. Vivek Bhartu 389793.49 2509684 1381215 0 Consultancy Pvt. Ltd. 2 M/s. Aqua Elixir 475401.28 50000 525401.28 0 Technologies P. Ltd. 3 M/s. Bhartu Estates Pvt. 52071 612000 664071 0 Ltd. 4 M/s. Om Estate & 2186318.04 2499684 1318215 4626723.82 Finance P. Ltd. The AO made addition for an amount of Rs.36,67,543/-. Aggrieved, the assessee preferred appeal before the CIT (A).

4. The CIT (A) retained the addition only to the extent of Rs.25,09,684/- which is under challenge before me, on account of loan taken by the assessee from Om Estate & Finance Pvt. Ltd. Aggrieved, the assessee preferred second appeal before the Tribunal.

5. I have heard the rival contentions and gone through the facts and circumstances of the case. At the outset, the learned Counsel for the assessee stated that the advance of Rs.10,000/- was given to proprietary concern of the assessee and that is return of the loan during the year and not as an advance. The learned Counsel for the assessee filed details which prove that this is a debit transaction and not a credit transaction. On query from the Bench, the learned Sr. DR conceded to the position. In terms of the above I delete the addition made by the AO and confirmed by the CIT (A) on account of Rs.10,000/- being advance.

6. In respect to Rs.24,99,684/-, the learned Counsel for the assessee drew my attention to the assessee‟s paper book wherein complete accounts of the assessee are enclosed including advance to directors. The learned Counsel for the assessee explained that the car was purchased in the name of the director and subsequently the same was transferred in the Company‟s account but the loan taken for the car was debited to the director‟s account amounting to Rs.19,63,823/-, including depreciation on the car at Rs.4,32,724/- & interest on the car loan at Rs.28,395/-. In view of these evidences, the learned Counsel for the assessee stated that this is not a payment in terms of the provisions of Section 2(22) (e) of the Act. He read out the provisions of Section 2(22) of the Act which state that dividend includes any payment made by Company by way of advance or loan to a shareholders being a person who is neither a beneficiary nor a shareholder nor any payment by Company on behalf was for individual benefit of such shareholders to the extent to which the Company in either case posses accumulated profits. The learned Counsel for the assessee stated that this transfer of car and transfer of loan is neither payment in cash and this cannot be treated as loan or deposit by the Company to the shareholders. The learned Counsel drew my attention to the decision of the Hon‟ble Bombay High Court in the case of CIT Vs M/s. Parle Plastics Ltd. (2011) 232 ITR 0063 (Bom.) wherein the Hon‟ble High Court has interpreted the words “any payment” as accruing in Clause (e) of Section 2(22) of the Act by observing as under:- “9. The amounts of loan have been noted in para No. 25 of the order of the Tribunal and the correctness thereof is not disputed before us. The position of the assessee's accounts in the books of AMPL was as under :"Opening debit balance b/f Rs. 1,76,39,425 Add : Adjustment entries on credit side Rs. 1,59,974 Closing balance c/f Rs. 2,18,60,953" This shows that during the relevant previous year (financial year 1996-97), AMPL had actually lent to the assessee only a sum of Rs. 11,68,135 in two instalments, namely Rs. 6,00,000 on 10th Sept., 1996 and Rs. 5,68,135 on 31st March, 1997. The opening balance of Rs. 1,76,39,425 was not advanced by AMPL to the assessee during the relevant previous year and could, therefore, be not treated as the amount of loan or advance received by the assessee during the relevant previous year. The said amount, therefore, could not be included as the dividend (hereinafter, referred to as "the deemed dividend") under cl. (e) of s. 2(22) of the Act. The amount of Rs. 32,13,367 represented the provision for the interest which was to be paid by the assessee to AMPL on the old outstanding loan of Rs. 1,76,39,425 and further loan of Rs. 11,68,135 advanced during the relevant financial year. This was merely an entry regarding the provision. No interest was actually received by AMPL. This amount which was not paid by the AMPL to the assessee cannot be treated as a loan/advance paid by the AMPL to the assessee during the relevant previous year. The opening words "any payment" occurring in cl. (e) of s. 2(22) of the Act contemplates actual payment made by the company to the assessee for being treated as a dividend in computing income of the assessee. Moreover, making of a provision for an interest which the assessee would ultimately be required to pay to the lender on the money lent cannot be regarded as a payment made by the company to the assessee. As such, the amount of Rs. 32,13,367 which represents only the provision made for interest which the assessee was liable to pay to AMPL by way of an interest on the AMPL within the meaning of cl. (e) of s. 2(22) of the Act. Only the amount of Rs. 11,68,135 which was actually received by the assessee as and by way of loan or advance from AMPL would fall within inclusive cl. (e) of the definition of “dividend" appearing in s. 2(22)(e) of the Act”. In terms of the above, that in the present case before me, the assessee has not advanced any amount or made any payment; rather this is a transfer entry of loan of car which was eventually taken into the balance sheet of the company and the loan was transferred to the director‟s account. In terms of the above decision of the Hon‟ble Bombay High Court, I am of the view that this issue is covered by the decision in the case of CIT Vs M/s. Parle Plastics Ltd. (2011) 232 ITR 0063 (Bom.). Respectfully following the same, I allow the appeal of the assessee.