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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI J.S. REDDY & SHRI A.T. VARKEY
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘A’ : NEW DELHI) BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER and SHRI A.T. VARKEY, JUDICIAL MEMBER ITA No.5619/Del./2013 (ASSESSMENT YEAR : 2008-09) ACIT, Central Circle 2, vs. Shri Atul Kumar Mittal, New Delhi. A – 287, Rajouri Garden, New Delhi. (PAN : AAAHA5422N) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ved Jain, Advocate REVENUE BY : Shri Anil Jain, CIT DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :
This is an appeal filed by the revenue against the order of the CIT (Appeals)-XXXI, New Delhi dated 12.07.2013 for the assessment year 2008- 09. 2. The sole ground of appeal is regarding deletion of addition of Rs.21,20,75,000/- made by the AO on account of deemed dividend under section 2(22)(e) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
3. In this case, assessment was completed by the AO u/s 143 (3) of the Act. The AO noted that the assessee had a shareholding of 95.39% in M/s. A.K. Services Private Limited. It was noted by the AO that from the bank account no.13488 of the assessee, huge funds have been transferred from the bank account of his son Abhinav Kumar Mittal who, according to the AO, had no shareholding and has no business connection with the assessee. After examining the transactions between M/s. A.K. Services Private Limited, the assessee and Shri Abhinav Kumar Mittal, the AO concluded that Shri Abhinav Kumar Mittal was used as a conduit. So, he held that the money advanced by his son to the assessee attracted section 2(22)(e) of the Act and made addition of Rs.21,20,75,000/- as deemed dividend.
4. Aggrieved, the assessee preferred an appeal before the CIT (A) who was pleased to delete the same which was challenged by the revenue before the Tribunal. The Tribunal in the first round set aside the order of the CIT (A) and remanded the matter back to the CIT (A) to decide the issue after hearing the AO. Thereafter, in the second round, the CIT (A), after hearing the AO, takes note that the AO was not able to shed any light or furnish any new evidences or facts which could have persuaded him to take a different view than which was taken by his predecessor CIT (A) on the issue, so he concurred with the views of the predecessor CIT (A) and ordered deletion of addition of Rs.21,20,75,000/-.
Aggrieved by the said order, the revenue is in appeal before us.
Ld. DR for the revenue took our attention to page 3 of the AO’s order to show that how money has been received from M/s. A.K. Services Private Limited to Abhinav Kumar Mittal and then money is transacted from Abhinav Kumar Mittal’s account to the assessee’s account. According to him, though Abhinav Kumar Mittal was repaying the loans back to M/s. A.K. Services Private Limited still it is obvious that Abhinav Kumar Mittal was advancing the amounts to the assessee who had more than 95% shareholding in M/s.
A.K. Services Private Limited which obviously attracts section 2(22)(e) of the Act. He stressed that Abhinav Kumar Mittal was nothing but a conduit to avoid section 2(22)(e) of the Act, therefore, the AO rightly made the addition and the ld. CIT (A) erred in deleting the same. Therefore, according to him, the ld. CIT (A) erred in deleting the addition. Therefore, he wants us to reverse the order of the CIT (A) and uphold the order of the AO.
On the other hand, the ld. AR submitted that AO’s order has been adjudicated by two superior officers (CIT (A) in two rounds) and on the facts of the case, have concurred that the transaction between Abhinav Kumar Mittal and assessee cannot attract the fiction created by section 2(22)(e) of the Act. He further submitted that Abhinav Kumar Mittal is a Director of M/s. A.K. Services Private Limited and wondered as to how the AO came to the conclusion that he has no business connection with M/s. A.K. Services Private Limited. He emphasized that M/s. A.K. Services Private Limited is a merchant banker and that has been acknowledged by the AO in page 4 of his order. The ld. AR pointed out that Abhinav Kumar Mittal has received advance for his own purpose from M/s. A.K. Services Private Limited from that company in which he is a Director; apart from this, he has also received substantial amount of money in the same bank account from other sources and took our attention to the chart enclosed with the written submissions before the CIT (A). The ld. AR pointed out that a perusal of the chart will clearly show that the net funds advanced by Abhinav Kumar Mittlal from M/s. A.K. Services Private Limited are to the tune of Rs.15.72 crores against which he has made his own investment and other payments on his own accounts and other than payments on his own account other than the payments to the assessee to the tune of nearly to Rs.21.62 crores which proves that funds received by him from M/s. A.K. Services Private Limited have been used by him for his own purposes and it cannot be said that these funds have been given by him or passed by him to the assessee. The ld. AR also pointed out that Abhinav Kumar Mittal has received further funds from other sources to the tune of Rs.14.20 crores apart from receiving funds from the assessee also. And he took our attention to pages 40 & 41 of the paper book where the chart clearly shows the transfer of funds from assessee to Abhinav Kumar Mittal was to the tune of more than Rs.59 crores. Thus, according to the ld. AR, all these funds in his bank account are mixed and blended and the money advanced to the assessee is out of this blended funds. Thus, the ld. AR submits that the AO erred in assuming that the money paid by Abhinav Kumar Mittal to the assessee was received from M/s. A.K. Services Private Limited. The ld. AR further submitted that it is a settled law that presumption in case of a person having mixed fund i.e. interest bearing funds and non- interest bearing own funds and if he is lending money to sister concern, if he has enough non-interest bearing own funds then the presumption is that money lended is from own fund and not from borrowed interest bearing fund.
He placed reliance on the judgment of Hon’ble Calcutta High Court in the case of CIT vs. Britannia Industries Ltd. reported in 198 CTR 426 wherein Hon’ble High Court while dealing with the question as to whether the interest free advance given out of bank account wherein both the own money as well as the money borrowed on interest are deposited, could be said to have been made only out of the borrowed funds. Hon’ble High Court in this case has held that where sufficient funds are available in such mixed account for making free advance then in that event it cannot be said that the amount borrowed as capital from the bank was given as interest free advance. The Hon’ble High Court held as under :-
“If it is established that payment was made from the mixed account and the assessee had sufficient funds then it is to be presumed that the payment was made out of the assessee’s own fund and that the borrowed capital was not siphoned out.”
The ld. AR therefore submitted that the aforesaid principle has been reiterated by the Hon’ble jurisdictional High Court in the case of Tin Box Company reported in 260 ITR 637 as well as Hon’ble Madras High Court in the case of Hotel Savera reported in 239 ITR 795 and Hon’ble Bombay High Court in the case of Reliance Utilities & Power Ltd. – 318 ITR 333 (Bom.). Ld. AR reiterated that it is not a case where the assessee has borrowed money from Mr. Abhinav Kumar Mittal who in turn has borrowed money from MIs AK. Services Pvt. Ltd. It is a case where the assessee has received back the amount. It was further submitted that Mr. Abhinav Kumar Mittal has substantial funds with him. Relying on both the orders of the CIT (A), according to the ld. AR, the ld. CIT (A) rightly deleted the addition made by the AO. Therefore, he does not want us to interfere with the reasoned order passed by the ld. CIT (A).
We have heard both the parties and perused the material. This is the second round before us. During the first round before us, the Tribunal had set aside the order of the CIT (A) dated 31.03.2010 and remanded back to the file of the CIT (A) to give proper hearing to the AO before passing the fresh order on the appeal. We find that the CIT (A) had complied with the direction of the Tribunal and had given sufficient opportunity to the AO to adduce any facts / evidence which could have persuaded him to take a different view from the views of his predecessor CIT (A). We find that during the second round before the CIT (A), the AO could not point out any factual material which could have persuaded the CIT (A) to come to a different conclusion from that of the predecessor CIT (A). We find that the CIT (A) has also gone through all the records and after reappraisal of the evidence has concurred with the view that has been taken in the first round by his predecessor CIT (A). When two superior authorities of the AO have exercised their appellate authority and adjudicated the issue after hearing both the sides and reappraised the evidence by going through the material on record they came to the same conclusion based on evidence adduced by the assessee. The genuineness of these evidences / material on which both the CIT (A) have reached the conclusion have not been challenged by the department before us, so both CIT (A) order are based on facts / evidence to support their decisions.
Whereas we note that the AO while making the addition had asked for explanation from the assessee on 31.12.2009 vide order sheet entry on that date and brushed aside the explanation of the assessee and passed the order on that date itself i.e. on 31.12.2009. So the impugned addition was made in hurry by AO because that was the last date for passing the order. Now that two CIT (A)’s have gone through the records and material furnished by the assessee and after hearing the AO, they have passed the order deleting the addition made in haste by the AO on the basis of materials placed before them, the genuinity of the same or the figures reflected in the accounts of Abhinav Kumar Mittal or the assessee or the chart have not been assailed before us.
In this back drop when we look into the case we take note that the entire controversy is revolving around deemed dividend u/s 2(22)(e) of the Act. The aforesaid provision gets attracted to any payment by way of advance or loan made by a company in which public is not substantially interested to – (a) shareholder beneficiary holding not less than 10% voting power in the company; or (b) any concern in which such shareholder is a member or a partner and in which he has substantial interest; or (c) any person on behalf of or for the benefit of such shareholder; and the restriction of the deemed dividend would be restricted to the accumulated profit was company for the relevant assessment year. Here, in this case, the question is whether the payment made by the company to Abhinav Kumar Mittal, a Director is made on behalf of substantial shareholder assessee or the payment is made on behalf or for the individual benefit of the substantial shareholder assessee in this case. The lending of loan/advances to Abhinav Kumar Mittal by M/s. A.K. Services Private Limited is not disputed and the fact that the Abhinav Kumar Mittal is making the repayment is admitted by the AO by observing at page 2 of his order, “the transaction between M/s. A.K. Services Private Limited, Shri A.K. Mittal and Abhinav were examined. Of course, there are repayments of advances by Abhinav to M/s. A.K. Services Private Limited…….”. However, the only allegation of the AO is that the loan/ advances given to Abhinav Kumar Mittal is passed on to the assessee and he is merely used as a conduit. So, the lending of advances/loan by M/s. A.K. Services Private Limited to Abhinav Kumar Mittal and repayment of the loan by Abhinav Kumar Mittal to M/s. A.K. Services Private Limited is not disputed. Now, the only question that has to be considered is whether the lending of loan to the Director, Shri Abhinav Kumar Mittal by M/s. A.K.
Services Private Limited can be treated as on behalf of or for the benefit of the assessee substantial shareholder of M/s. A.K. Services Private Limited.
We take note that the AO in page 4 of his order has made a finding that M/s. A.K. Services Private Limited is a merchant banker and has proceeded on the basis that Shri Abhina Kumar Mittal has no business connection with M/s. A.K. Services, which is factually incorrect. The fact is that Shri Abhinav Kumar Mittal is a Director of M/s. A.K. Services and has drawn director’s remuneration to the tune of Rs.46,33,838/-. Shri Abhinav Kumar Mittal does not have any share in M/s. A.K. Services is not disputed by the Revenue. The assessee’s contention is that he has advanced loan in the relevant assessment year to Shri Abhinav Kumar Mittal to the tune of Rs.59,03,67,824/- and Shri Abhinav Kumar Mittal was only returning the amount from his own fund and other sources and is not from the amount advanced by M/s. A.K. Services Pvt. Ltd. for his own purpose. In such a scenario, we have to peruse the source of funds in the hands of Mr. Abhinav Kumar Mittal. On going through the same, we note that he has received Rs.13,10,67,659/- from sale of shares, Rs.46,33,838/- on account of director’s remuneration, Rs.45,05,134/- as rental income and other income totaling Rs.15.72 crores. Thus, there are sufficient receipts in the hands of Mr. Abhinav Kumar Mittal. Further, the account with the assessee is a running account where payments are being given by the assessee to Mr. Abhinav Kumar Mittal and at the same time it is paid back. The AO has merely made a list of payment made by Mr. Abhinav Kumar Mittal to the assessee, ignoring the other important fact that is payment made by assessee to Mr. Abhinav Kumar Mittal. In order to examine this claim of assessee, we have gone through the paper book pages 41 & 42 where we see that the assessee has made payment of the following amounts to Mr. Abhinav Kumar Mittal:-
Date Payment by assessee to Mr. Abhinav Kumar Mittal 05.04.2007 4,00,000 09.07.2007 95,00,000 10.07.2007 10,00,000 10.07.2007 55,00,000 01.08.2007 5,50,000 03.08.2007 33,00,000 23.08.2007 50,00,000 27.08.2007 1,07,84,195 29.08.2007 75,60,000 07.09.2007 69,00,000 07.09.2007 1,00,00,000 10.09.2007 84,50,000 11.09.2007 8,00,000 17.09.2007 4,00,000 18.09.2007 1,00,00,000
19.09.2007 17,00,000 19.09.2007 15,00,000 20.09.2007 12,00,000 21.09.2007 70,00,000 24.09.2007 16,00,000 27.09.2007 52,50,000 28.09.2007 75,00,000 01.10.2007 50,00,000 03.10.2007 15,50,000 04.10.2007 76,11,179 05.10.2007 38,00,000 08.10.2007 34,50,000 10.10.2007 58,00,000 16.10.2007 91,00,000 18.10.2007 25,00,000 22.10.2007 13,00,000 01.11.2007 40,64,000 01.11.2007 15,00,000 19.11.2007 25,00,000 20.11.2007 57,00,000 22.11.2007 45,00,000 22.11.2007 25,00,000 29.11.2007 10,00,000 01.12.2007 20,00,000 04.12.2007 45,00,000 06.12.2007 27,50,000 07.12.2007 11,00,000 13.12.2007 1,60,00,000 02.01.2008 1,64,00,000 04.01.2008 53,00,000 05.01.2008 5,38,00,000 08.01.2008 5,00,000 14.01.2008 1,17,00,000 15.01.2008 50,00,000 21.01.2008 1,89,00,000 29.01.2008 2,25,00,000 30.01.2008 3,04,00,000 30.01.2008 1,75,00,000 31.01.2008 1,60,00,000 01.02.2008 80,00,000 04.02.1008 79,00,000
04.02.2008 48,450 05.02.2008 30,00,000 05.02.2008 50,00,000 06.02.2008 7,00,000 18.02.2008 60,00,000 21.02.2008 1,00,00,000 25.02.2008 1,63,00,000 27.02.2008 35,00,000 29.02.2008 2,03,00,000 03.03.2008 5,00,000 05.03.2008 1,35,00,000 06.03.2008 6,00,00,000 10.03.2008 10,00,000 11.03.2008 2,90,00,000 12.03.2008 8,00,000 13.03.2008 50,00,000 13.03.2008 5,00,000 19.03.2008 72,00,000 Total 59,03,67,824 As against this the payments which have been made by Mr. Abhinav Kumar Mittal to the assessee as stated in the assessment order are as under :-
Date Payment by Mr. Abhinav Kumar Mittal to assessee 08.06.2007 100,000 13.06.2007 625,000 03.07.2007 700,000 04.07.2007 2,400,000 09.07.2007 1,800,000 11.07.2007 550,000 13.07.2007 12,500,000 16.07.2007 2,500,000 17.07.2007 3,800,000 17.07.2007 2,900,000 18.07.2007 100,000 18.07.2007 11,000,000
20.07.2007 2,500,000 24.07.2007 500,000 06.08.2007 6,000,000 09.08.2007 750,000 10.08.2007 6,950,000 26.09.2007 100,000 28.09.2007 900,000 09.10.2007 900,000 11.10.2007 3,500,000 16.10.2007 2,500,000 17.10.2007 1,100,000 18.10.2007 850,000 3.11.2007 500,000 12.11.2007 2,000,000 19.11.2007 2,500,000 20.11.2007 300,000 26.12.2007 3,100,000 08.01.2008 60,900,000 09.01.2008 14,200,000 28.01.2008 45,600,000 27.02.2008 1,000,000 12.02.2008 6,900,000 12.02.2008 2,000,000 14.12.2008 6,100,000 19.02.2008 750,000 27.03.2008 700,000 Total 212,075,000 On going through the above details, it is seen that the first transaction between the assessee and Abhinav Kumar Mittal is on 5.04.07 when the assessee has advanced an amount of Rs.4.00 lacs to Abhinav Kumar Mittal. And the first day when Abhinav Kumar Mittal received the loan from M/s. A.K. Services was on 08.06.2007 to the tune of Rs.2 lakhs and thereafter Abhinav Kumar Mittal has made the part repayment of loan to the assessee by debiting Rs.1 lakh from his mixed fund to assessee’s account Rs.1 lakh on the same day itself cannot be a ground to presume that Abhinav Kumar Mittal has repaid loan from the borrowed fund when admittedly he had opening balance of Rs.2,70,133.70. It is apparent from a perusal of the charts above that substantial payments have been made by the assessee to Mr. Abhinav Kumar Mittal. The total amount of the payments made by the assessee to Mr. Abhinav Kumar Mittal comes to Rs.59,03,67,824. Thus in our opinion the AO was not justified in simply drawing adverse inference on account of the payments made by Mr. Abhinav Kumar Mittal to the assessee ignoring the other aspect of payments made by the assessee to Mr. Abhinav Kumar Mittal.
We have also perused the utilization of the funds of Mr. Abhinav Kumar Mittal.
After perusal of the chart kept in pages 40 & 41 of the paper book which is the date-wise source of funds of Abhinav Kumar Mittal, the CIT (A) in the first round has given factual findings which has been concurred by the impugned order of the CIT (A) which is reproduced :-
“6.4 I have also considered the submissions of the A.R. that the amount of Rs.21,20,75,000/- has not been advanced by Abhinav Mittal to the assessee out of funds received by him from A.K. Services Private Ltd. but rather the same has been paid by Abhinav Mittal to the assessee either out of the money received by him from the assessee or out of his other income other than the funds received from A.K. Services Private Ltd. The charts which have been drawn by the assessee from the bank account of Abhinav Mittal have been perused and it is seen that there is only one bank account of Abhinav Kumar Mittal wherein all the funds are mixed including the funds received by him from A.K. Services Private Ltd. as also the funds received by him representing his other income as well as the funds received by him from the assessee. From the perusal of the chart showing utilization of funds in the case of Abhinav Kumar Mittal it is seen that the net funds borrowed by him A.K. Services Private Ltd. have been utilized by him for making his own investments or for making other payments which pertain to him and cannot be said to be pertaining to the assessee. It is further seen that apart from the funds received from A.K. Services Private Ltd. Shri Abhinav Mittal has also received funds amounting to nearly Rs.14.21 crores representing his other income and receipts as also the amounts to the tune of nearly Rs.59.00 crores received by him from the assessee and all these funds are mixed in the bank account of Abhinav Mittal. It is out of this mixed funds that Abhinav Mittal has paid the amount of Rs.21,20,75,000/- as extracted by the A.O. in the impugned order and in my considered opinion the presumption drawn by the learned A.O. that such amount is only out of funds received by Abhinav Mittal from A.K. Services Private Ltd. cannot be sustained as held by the Hon'ble Kolkata High Court in the case of Britannia Industries Ltd. reported in 198 CTR 426 wherein it has been held that where sufficient funds were available in such mixed account for making the interest free advance then it is to be presumed that the payment was made out of assessee's own funds and that the borrowed capital was not siphoned off. It is however, seen that the presumption raised by the learned A.O. in this case is that the assessee has received the funds from Abhinav Mittal out of borrowed funds and not out of owned funds. In my considered opinion such presumption is wholly wrong and addition cannot be sustained on the basis of such a presumption. I have also considered the chart filed by the assessee on my directions to show the date wise source of funds in the case of Abhinav Mittal out of which the payments of Rs.21,20,75,000/- have been made to the assessee. It is seen that the first transaction between the assessee and Abhinav Mittal is on 5.04.07 when the assessee has advanced an amount of Rs.4.00 lacs to Abhinav Kumar Mittal. Thereafter the assessee has made further payments to Abhinav Mittal and the total payment made by the assessee to Abhinav Mittal during the instant year is to the tune of Rs.59.03 crores. It is further seen that when date wise payments made by Abhinav Mittal to the assessee of Rs.21,20,75,000/- as extracted by the A.O. in the impugned order are compared to the payments made by the assessee to Abhinav Mittal then it is evident that out of Rs.21,20,75,000/- an amount of Rs.17,66,50,000/- is in fact the amount repaid / refunded by Abhinav Kumar Mittal to the assessee out of funds advanced first by the assessee to Abhinav Kumar Mittal. Therefore these payments cannot be said to be deemed dividend in the hands of the assessee as the same cannot be said to have been received from A.K. Services Private Ltd. by Abhinav Kumar Mittal. On the contrary these amounts of Rs.17,66,50,000/- have been paid by Abhinav Kumar Mittal out of funds received by him from the assessee and therefore the finding of the A.O. that this amount has been received by Abhinav Kumar Mittal from A.K. Services Private ltd. is found to be factually wrong. The balance amount of Rs.3,54,25,000/- has also been paid by Abhinav
Kumar Mittal to the assessee out of his other income amounting to Rs.14.21 crores which is also credited in the same bank account and therefore this amount also cannot be said to have been received by the assessee from A.K. Services Private Ltd. through Abhinav Kumar Mittal. In my considered opinion if the provisions of Section 2(22)(e) are strictly construed as they are required to be so construed then it cannot be said that the amount of Rs.21,20,75,000/- is deemed dividend in the hands of the assessee.”
This factual finding of the ld. CIT (A) in the first round was with the AO when he was attending the proceeding during the second round before the CIT (A) after the Tribunal’s remand. We find that AO has not made any adverse comments in his written submission which has been incorporated in the impugned CIT (A) order. And before us also, the ld. DR could not controvert the factual finding recorded as above by the CIT (A). The grievance of the AO, that how the CIT (A) in first round could say that Abhinav Kumar Mittal’s account has mixed fund. The CIT (A) has categorically made a finding that Abhinav Kumar Mittal has only one bank account and all the funds are coming into that account only. This factual finding of the CIT (A) in the first round was before the AO who could have brought in evidence to show that Abhinav Kumar Mittal has more bank accounts but we find that AO has not made any such revelation nor made any adverse comment in respect to the said fact of one account maintained by Abhinav Kumar Mittal. When the chart showing the date-wise source funding of Abhinav Kumar Mittal and the assessee was before the AO when he was given opportunity to be heard, then rather finding fault with the first CIT (A) order in asking the assessee to prepare the chart, he should have challenged it, if there is any factual inaccuracies, if any. Neither we could find any such allegation of the AO nor ld. DR raised any such allegation before us.
It is an admitted fact that Mr. Abhinav Kumar Mittal is not a shareholder of M/s. A.K. Services Ltd. and there is no dispute about this fact. The only allegation is that the payment by M/s. A.K. Services Ltd. has been made by the company on behalf or for the individual benefit of the assessee. In the facts of the case, it cannot be assumed that, these payments have been made on behalf of the assessee. These payments have been advanced by M/s. A.K. Services to Mr. Abhinav Kumar Mittal who is a Director of the company for his own business purpose. Funds given to Abhinav by the company has been utilized by him for his own purpose from a perusal of page 46 of PB. Further, these payments cannot be said to be for the individual benefit of the assessee without bringing any evidence to support such a contention. Unless some evidence is brought on record merely on surmises and conjectures it cannot be said that the assessee has got benefited by these payments in the light of facts of this case when the assessee’s contention that Abhinav Kumar Mittal was repaying the loans given to him by the assessee and Abhinav Kumar Mittal had mixed fund which consists of own fund of Rs.15.12 crores. The AO has gone wrong in drawing adverse inference without appreciating the facts in the right perspective. On going through the details of the account, we are of the view that CIT (A) was right in deleting the addition. Moreover when current account is maintained by the assessee and Shri Abhinav Kumar Mittal, assessee is giving money and receiving it back from Mr. Abhinav Kumar Mittal, then it cannot attract provisions of deemed dividend. In the light of the above, we find there is no infirmity in the order of the ld. CIT (A) and the conclusion is based on material on record which could not be controverted by the revenue before us. Therefore, we concur with the finding of the ld. CIT (A) that in the facts and circumstances of the case, the loan given to Shri Abhinav Kumar Mittal does not attract section 2(22)(e) of the Act, so the CIT (A) has rightly deleted the addition and we uphold the same.
In the result, the appeal of the revenue is dismissed. Order pronounced in open court on this 4th day of March, 2016.