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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: S/SHRI B.R.BASKARAN & AMARJIT SINGH
Assessee by: Shri Kirit Kamdar Department by: Shri Somanath S. Ukkali सुनवाई क" तार"ख / Date of Hearing: 13.01.2016 घोषणा क" तार"ख /Date of Pronouncement: 11.05.2016 आदेश / O R D E R PER AMARJIT SINGH, JM:
This is an appeal filed by the revenue against the order dated 22.08.2012 passed by the Commissioner of Income Tax (Appeals)-41, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2006-07. Assessment Year: 2006-07
The revenue has taken the following grounds of appeal:-
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in restricted the addition u/s.2(22)(e) to the extent of incremental accumulated profit of Rs.29,99,807/- and deleted the balance addition of Rs76,05,745/- when explanation to sec.2(22)(e), the “accumulated profit” includes all profits of the company up to the date of grant of such loans was Rs.1,06,05,543/-.
2. Whether on the facts and in the circumstances of the case and in law, the CIT(A) is right in restricting the addition to the extent of incremental accumulated profit of Rs.29,99,807/-, when provisions of sec. 2(22)(e) were squarely attracted to this case. 3. Whether on the facts and in the circumstances of the case and in law, the Hon’ble Income Tax Appellate Tribunal is right in law in holding that advance license benefits, DEPB benefits, DFRC benefits and reversal of advance license application are not taxable on accrual basis and taxable only in the year in which these are actually utilized by the assessee>”
The facts of the case are that the assessee company received loan from group concern M/s. Utkarsh Chemicals Pvt. Ltd. (lender company) during the year under consideration and also noticed that Shri Ashwin C. Shroff who is having shareholding of 27.88% in the assessee company, is also holding 84.67% shares in the lender company. The lender company has accumulated profit of Rs.1,05,41,153/- as on 31.03.2004. Hence, the provisions of Section 2(22)(e) of the Income Tax Act, 1961 ( in short “the Act”) was squarely attracted. Therefore, the assessment was reopened by issue of notice u/s.148 of the Act dated 29.03.2011. The assessee filed his return of income in pursuance of notice u/s. 148 of the Act. Thereafter, notice u/s.143(2) and 142(1) were 2 Assessment Year: 2006-07 issued to the assessee. The Assessing Officer was of the view that the provision u/s.2(22)(e) of the Act was attracted in the case of assessee therefore held that an amount of Rs.1,06,05,543/- is the income of the assessee and added as taxable income. Assessing Officer also held that an amount of Rs.29,99,807/- received as advanced tax benefits is taxable. Thereafter the assessee filed an appeal before learned CIT(A) and learned CIT(A) allowed the appeal of the assessee on the above said point therefore, the revenue has filed the appeal before us.
ISSUE NO. 1 & 2:-
Issue no. 1 and 2 are interconnected therefore are being taken up together for adjudication. The learned departmental representative has argued that the case of the assessee is duly covered u/s.2(22)(e) of the Act, therefore the order passed by the learned CIT(A) is wrong against law and facts and accumulated profit is liable to be taxed in accordance with law. On the other hand learned representative of the assessee had refuted the said contentions. Before discussing further it is necessary to advert the finding of the learned CIT(A) on record in connection with this issue:-
1.3 I have considered the submission of the appellant, order of the AO and facts of the case carefully, it is noticed that the assessee has received loan from M/s. Utkarsh Chemicals Pvt. Ltd. amounting to Rs.9,11,00,000/-. The lender company has accumulated profit of Rs.1,06,05,543/-. Shri Ashwin Shroff hold more than 10% equity shares, therefore the conditions of section 2(22)(e) are fulfilled and the case 3 Assessment Year: 2006-07 of the appellant was reopened u/s.148. During the assessment provisions, the AO has asked the assessee to explain why the provisions of section 2(22)(e) may not be attracted. In response to this show cause notice, the A.R. of the appellant has submitted its reply. After considering the same, the AO has made addition of Rs.1,06,05,543/- u/s. 2(22)(e) of the I.T. Act. On the other hand, the A.R. of the appellant has submitted that during the year under consideration the assessee has received a loan of Rs.1,35,80,000/- from M/s. Utkarsh Chemicals Pvt. Ltd. and the accumulated profit as on 31.03.2006 was at Rs.1,06,05,543/-. In the return of income filed the amount of loan received (to the extent of incremental accumulated profits) i.e. Rs.29,99,807/- was not offered to tax as deemed dividend u/s. 2(22)(e). The appellant has also agreed to pay tax on accumulated profit of Rs.29,99,807/-. Further the appellant has submitted that the accumulated profit for the financial year 2003-04 was Rs.66,24,724/-. The entire accumulated profit of Rs.66,24,724 was taxed in the assessment year 2004-05 in the order passed u/s.143(3) r.w.s.147. Further the accumulated profit for the financial year 2004-05 was Rs.76,05,745/- was also offered to tax in the assessment year 2005-06. Further the accumulated profit for the A.Y.2006-07 is Rs.1,06,05,543/-. Accordingly, only the incremental accumulated profit of Rs.29,99,807/- (Rs.1,06,05,543/- - Rs.76,05,745/-) is to be 4 Assessment Year: 2006-07 taxed in the year under consideration. The A.R. of the appellant has also relied on the Hon’ble Supreme Court and the decision of the Hon’ble Tribunal (Supra).
1.4 From the perusal of the submissions of the appellant and order of the AO, it is noticed that the A.R. of the appellant has agreed to offer accumulated profit as income u/s. 2(22)(e) of the I.T. Act but the dispute is regarding the quantum of accumulated profit. In the A.Y.2005-06, the amount of Rs.76,05,745/- was added back u/s. 2(22)(e) of the I. T. Act. Now in the year under consideration, the accumulated profit is only Rs.29,99,807/- (Rs.1,06,05,543/- - Rs.76,05,745/-). It was argued that otherwise it will be double taxation of the same amount which was taxed in the A.Y.2005-06. To resolve this dispute the Hon’ble Supreme Court in the case of CIT Vs. G. Narasimhan has decided this issue as under:
Any legal fiction will have to be carried to its logical conclusion. It the payment under s. 2(22)(e) is treated as a deemed dividend and is required to be so treated to the extent that the company possesses accumulated profits, the logical conclusion is that this payment must be considered as adjusted against the company’s accumulated profits to the extent that it is treated as deemed dividend while calculating accumulated profits of the company. Whenever 5 Assessment Year: 2006-07 accumulated profits of the company are required to be determined, such an adjustment will have to be made.
Similarly, the Hon’ble Tribunal in the case of ITS Vs. Gordhandas Khimji decided as under:-
“From a consideration of various decisions of the Supreme Court and the High Courts, it follows that loans and advances will not become deemed dividends only when the department chooses to treat the same as such and brings the same to tax as dividend. Section 2(6A)(e) is not worded as an enabling section by which the department can treat the loans and advances as deemed dividends. The section does not say that the amount will become deemed dividend only if it has been assessed as such. On the other hand, the provision is a clause in the inclusive definition, by which advances and loans are constituted as dividends. The moment an advance or loan satisfying the conditions of the section is made, it would become a dividend and it is immaterial whether the department has assessed the same as dividend or not. It is neither practicable nor proper to postpone the whole process of ascertaining the accumulated profits till the department chooses to treat a particular advance as deemed dividend. If the 6 Assessment Year: 2006-07 contention of the department is accepted, then if the ITO ignores the advances in earlier years and then goes down on the assessee in an assessment year in which he has drawn substantial advances, it will amount to allowing the department to take advantage of its omissions to assess the earlier loans and advances as deemed dividends and to allow such omissions to bloat the accumulated profits, so that the whole of the large advances taken in the last assessment year are converted into deemed dividends. Accordingly, the advances or loans in the earlier assessment years had to be treated as dividend which the department omitted to assess and as such the accumulated profits should be reduced by the earlier loans or advances in spite of the fact that they were not assessed to tax as deemed dividends by the department.
1.5. Keeping in view of the facts and circumstances of the present case, it is held that the issue has been decided by the Tribunal and the Hon’ble Supreme Court by holding that the incremental accumulated profit is to be taxed u/s. 2(22)(e) of the I. T. Act. Therefore following the decisions of the Hon’ble Courts, the addition is restricted to Rs.29,99,807/- and the balance addition of Rs.76,05,745/- is deleted. Ground of appeal is partly allowed.
7 Assessment Year: 2006-07 4.1 At the time of the argument the learned departmental representative nowhere adduced any material on record contrary to the finding of the learned CIT(A). Moreover the finding of the learned CIT(A) is based upon the finding of the case of the Hon’ble Supreme Court in case of Commissioner of Income Tax Vs. G. Narasimhan (1999) 236 ITR 0327. Moreover the Hon’ble Income Tax Appellate Tribunal has also decided the case of assessee on this relevant point in connection with the A.Y.2007-08. So far as these issues are concerned we nowhere found anything contrary to the above mentioned law. Therefore we are of the view that the learned CIT(A) has passed the order judiciously and correctly which does not require to be interfere with at this appellate stage. Accordingly, these issues are decided in favour of the assessee and against the revenue.
ISSUE NO. 3:-
According to issue no.3 it is liable to be seen that the learned ACIT erred in including in the total income, advance licence benefit receivable amounting to Rs.20,91,788/-. This issue has also squarely covered by the order passed by the Income Tax Appellate Tribunal dated 23.11.2010 in the assessee’s own case for the A.Y.2006-07. Learned CIT(A) has allowed this issue in favour of assessee on the basis of decision passed by the Income Tax Appellate Tribunal in the assessee’s own case decided on 23.11.2010 of A.Y.2006-07. The finding of the said judgement is hereby mentioned below:-
“2. It may be noticed that the assessee claimed deduction of Rs.20,91,788/-, being the net benefit under the head 8 Assessment Year: 2006-07 “advance license benefit receivable” and deducted such benefit in its books of accounts by way of reduction from raw material consumed. However, in the computation of total income the deduction was claimed on the basis of the judgement of the Hon’ble ITAT, Mumbai in the case of Jamshri Ranjitsinghji Spinning Mills Ltd. Vs. IAC 41 ITD 142. The Assessing Officer was however of the opinion that advance license benefit receivable should be treated as income despite the fact that in the immediately preceding years i.e. assessment years 1993-94, 1996-97 to 1999-2000 and 2001-02 to 2004-05, CIT(A) accepted the plea of the assessee; the Assessing Officer rejected the contention of the assessee on the ground that the Revenue has not accepted the order of the first appellate authority in assessee’s own case for the earlier years. However, on an appeal filed by the assessee, the learned CIT(A) noticed that the issue stands covered by the decision of the ITAT, Mumbai bench in assessee’s own case for the assessment years 1993-94 and 1996-97 to 1999-2000 and therefore, accepted the contention of the assessee.
3. Aggrieved, Revenue is in appeal before us. Learned counsel appearing on behalf of the assessee, placed before us copies of the order of the ITAT in assessee’s own case for the earlier years in support of his contention that the issue stands squarely covered in favour of the assessee and 9 Assessment Year: 2006-07 against the revenue. Learned DR could not place any decision of the co-ordinate bench or of a higher forum wherein a contrary view is taken on this issue. Under these circumstances, we are not persuaded to take a different view on the issue. Since the learned CIT(A) has followed the decision of the ITAT in assessee’s own case for the earlier years, we do not find any infirmity in the order of the learned CIT(A) and therefore, dismiss the appeal filed by the revenue. “ 5.1 Moreover this issue has duly been decided by the Hon’ble Supreme Court in case of Commissioner of Income Tax Vs. Excel Industries Limited (358 ITR 295) nothing contrary to this law has been produced by the department. Therefore, in the said circumstances we are of the view that the learned CIT(A) has decided this issue judiciously and correctly which does not require to be interfere with at this appellate stage. Accordingly this issue is decided in favour of the assessee and against the revenue.
In result the appeal of the Revenue is hereby dismissed accordingly.
Order pronounced in the open court on 11th May, 2016 (AMARJIT SINGH) (B.R.BASKARAN) लेखा सद"य / ACCOUNTANT MEMBER "या"यक सद"य/JUDICIAL MEMBER मुंबई Mumbai; "दनांक Dated : 11th May, 2016 MP MP MP MP