MAHENDRA L. JAIN,MUMBAI vs. ITO 32(2)(3), MUMBAI

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ITA 2678/MUM/2015Status: DisposedITAT Mumbai07 January 2016AY 2007-085 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal noted that money lending was a significant business activity of the company. It directed the Assessing Officer to re-examine the case and decide in accordance with the law after providing the assessee an opportunity to present evidence.

What were the facts?

The assessee, a Director and shareholder, received a loan from a company. The Assessing Officer reopened the assessment to treat this loan as a deemed dividend under Section 2(22)(e) of the Income Tax Act. The assessee argued that money lending was the company's main business.

What were the issues?

Whether the loan received by the assessee from a company in which he was a director and shareholder constituted a deemed dividend under Section 2(22)(e), considering the company's primary business activity.

Which sections of the Income-tax Act were involved?

Section 2(22)(e)

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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI

Before: Shri Joginder Singh,

For Appellant: Shri Devendra Kothari
For Respondent: Shri A.K.Dhondial JCIT-DR
Hearing: 07/01/2016

आदेश / O R D E R

1.

The assessee is aggrieved by the impugned order dated 06/02/2015 of the Ld. First Appellate Authority, Mumbai. Only ground raised in this appeal pertains to not considering the facts and related judicial pronouncements as the loan taken by the assessee is not falling within the provisions of section 2(22)(e) of the Income Tax Act, 1961(hereinafter the Act) and further erred in considering the quantum of accumulated profit as on the last date of corresponding previous year instead of accumulative profit at the time of granting loan for the purposes of deemed dividend.

2.

During, hearing of this appeal, the ld. counsel for the assessee, Shri Devendra Kothari, advanced arguments, which is identical to the ground raised by further submitting that while farming the original assessment, the assessee was Director as well as share holder of the company and reopening was made merely on the basis of change of opinion. It was explained that it was initial year of the company of which money lending was the main activity of the company. It was contended that almost 65.98% of the total asset was loan and net profit was Rs.1,75,451/-, which includes interest of Rs.1,33,900/-, by explaining that almost 76.3% of the income was from interest. The crux of the argument is that at the relevant time, money lending was the main business of the company, therefore, deemed dividend is to be taken into account at the time of taking loan. It was explained that the ld. Assessing Officer has taken accumulated profit into consideration on the last day of accounting year. On the other hand, the ld. DR, Shri A.K.Dhondial, defended the conclusion by placing reliance upon the finding contained in the assessment order as well as in the order of the ld. First Appellate Authority.

2.1. I have considered the rival submissions and perused the material available on record. The facts, in brief, are that original assessment u/s 143(3) of the Act was completed, assessing the total income at Rs.8,00,530/- against the returned income of Rs.7,85,530/-, on 30/11/2009. The original assessment was reopened with the issuance of notice u/s 148 of the Act on 26/03/2012 on the reasons of escapement of income of Rs.1,40,656/- on account of section 2(22)(e) of the Act. The ld. Assessing Officer completed the assessment u/s 143(3) r.w.s. 147 of the Act on 14/12/2012 assessing the total income at Rs.9,41,184/- making addition of Rs.1,40,656/- u/s 2(22)(e) of the Act. The assessment order was affirmed by the ld. Commissioner of Income Tax (Appeals) vide impugned order dated 06/02/2015. It is noted that following documents were filed by the assessee before the ld. Commissioner of Income Tax (Appeals), which were also filed during assessment proceedings. i. Computation of Total income where assessee shown income from salary from M/s Aabhushan Forex Pvt. Ltd. ii. Copy of salary certificate from M/s Aabhushan Forex Pvt. Ltd. signed by Mr. Mahendra L. Jain as Director submitted to the Assessing Officer along with Letter dated 23/11/2009 iii. Relevant Annexure-3 of form 3CD in respect to clause 18 giving particulars of payment made to person specified under section 40A(2b). Where payment made to Company as Interest of Loan taken is reported & also relation of the Assessee as Director of the company stated. iv. Relevant Annexure 4 of form 3CD in respect of clause 24 where particulars of Loan taken during the year reported. And the loan taken from the company was clearly shown in the said annexure. v. Annexure-B forming part of Balance sheet where the Loan taken from the company is stated as unsecured Loan at S.N.1. vi. Copy of Loan confirmation in respect of Loan taken from company & submitted during the course of proceeding.

If the totality of facts are analyzed, it is observed that out of the total asset of Rs.28,94,456/-, the assessee took a loan of Rs.19,09,833/- which is approximately 65.98% of the total asset was loans. Similarly, the net profit before tax was Rs.1,75,451/- which includes interest received of Rs.1,33,900/- which is 76.32%, as is evident from balance sheet and profit & loss account. In such a situation, it can be said that money lending was broadly the business of the assessee at the relevant time, therefore, in view of the decision in Rekha Modi vs ITO (2007) 13 SOT 512 (Del.), CIT vs Parle Plastics Ltd. (2011) 196 taxman 62 (Bom.) and Jayant H. Modi vs JCIT (2012) 28 taxman.com 252 (Mum.

Trib.), the ld. Assessing Officer is directed to examine the case of the assessee afresh and decide in accordance with law. Needless to mention here that due opportunity of being heard be provided to the assessee. The assessee is also at liberty to furnish evidence, if any, in support of his claim. Thus, the appeal of the assessee is allowed for statistical purposes only.

Finally, the appeal of the assessee is allowed for statistical purposes only.

This order was pronounced in the open Court in the presence of ld. representative from both sides at the conclusion of the hearing on 07/01/2016.

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