Income Tax Appellate Tribunal - Chennai
Acit, Tuticorin vs V.Govindarajan, Kovilpatti on 2 April, 2018
आयकर अपील य अ धकरण ,' डी ' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, CHENNAI
ी एन.आर.एस. गणेशन, या यक सद य एवं ी एस जयरामन, लेखा सद य केसम$
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI S. JAYARAMAN, ACCOUNTANT MEMBER
आयकर अपील सं/. I.T.A. No. 1462/Chny/2017
नधारण वष/Assessment Year : 2013-14
Assistant Commissioner of Income Tax, Shri V. Govindarajan,
Circle -1, Vs. 42, Aarthi Mahal,
Tuticorin, Kathiresan Koil Street,
Pin: 628 001. Kovilpatti - 628 501.
[PAN: ABEPG 6033E]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ& क' ओर से/Appellant by : Mrs. Vijayaprabha, JCIT
*+यथ& क' ओर से/Respondent by : Shri. S. Sridhar, Advocate
सुनवाई क' तार ख/Date of Hearing : 03.01.2018
घोषणा क' तार ख/Date of Pronouncement : 02.04.2018
आदे श/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The Revenue filed this appeal against the order of the Commissioner of Income Tax (Appeals)-1, Madurai in ITA No. 72/2016-17 dated 07.03.2017 for assessment year 2013-14.
:-2-: ITA No. 1462/Chny/2017
2. Shri V. Govindarajan, the assessee, an individual, derives income from salary as director, partner, hiring freezer box, lease rent, letting out marriage hall, consulting charges, sitting fees etc. At the time of making assessment for ay 2013-14, the AO found that credit balance of Rs. 84,87,012/- was appearing in the name of M/s Aarthi Scans Limited, where the assessee has more than 10% voting power, one of the directors and M/s Aarthi Scans Limited had surplus funds. After examining the assessee's submissions etc on this issue, the AO treated Rs.84,87,012/- received from M/s Aarthi Scans Limited as a deemed dividend u/s2(22)(e) and brought to tax. Further, the AO made a disallowance of Rs. 1,52,364/- u/s 14A. Aggrieved, the assessee filed an appeal before the CIT(A) and the appeal was allowed. Against the order of the CIT(A), the Revenue filed this appeal with following grounds :
"1. The order of the CIT(A) is opposed to law on the facts and in the circumstances of the case.
2.1 The CIT(A) has erred in deleting that the disallowance u/s.14A of Rs. 1,52,364/- on the ground since the assessee has not claimed any income as exempt from shares and hence no disallowance u/s. 14A could be made following the decision of the Hon'ble Madras High Court in the case of M/s. Redington (India) Ltd,.
2.2 The decision relied on by the CIT(A) in the case of M/s. Redington (India) Ltd, has not become final and the department has filed SLP and the same is pending. 2.3 The CIT(A), ought to have seen the addition on account of disallowance u/s.14A has been made as per Rule 80 of the IT Rules and hence ought to have sustained the addition made by the AO.
:-3-: ITA No. 1462/Chny/2017 3.1 The CIT(A) has erred in holding that the outstanding amount due from the assessee to the company represents only journal entries and the assessee has not received any loan or advance from the company and hence section 2(22)(e) is not applicable.
3.2 The CIT(A) has failed to consider the fact that the company M/s. Aarthi Scans Private Limited has constructed building on the land owned by the assessee who is the Director of the above company by incurring cost of construction of Rs.33,99,755/-, and the above cost is nothing but loan or advance from the company for which section 2(22)(e) is applicable and hence ought to have sustained the addition.
3.3 The CIT(A) has further erred in holding that the amount was given to the assessee during the course of business for constructing the building which was utilised by the company for running its own business and therefore section 2(22)(e) is not applicable.
3.4 The CIT(A) ought to have seen that building utilisation by the company for running its own business is not during the course of business and hence ought to have sustained the addition made u/s. 2(22)(e).
4. For these and such other grounds that may be adduced at the time of hearing it is prayed that the order of the CIT(A) may be reversed and that of the Assessing Officer restored."
3. The DR submitted that the A O found that a credit balance was appearing in the name of M/s Aarthi Scans Limited to the extent of Rs.84,87,012/- as shown below:
:-4-: ITA No. 1462/Chny/2017 "Credit balance in Aarthi Scan (P) Ltd . Opening balance of Aarthi Mahal Prop of Govindarajan 30,36,388
Credited during the year in the name of Aarthi Mahal Prop of 82,83,722 Govindarajan Credited during the year in the name of Govindarajan 17,03,330 1,30,23,440 Closing balance 99,87,012 Less : Unsecured loan in Aarthi Scans (p) Ltd as on 31.03.2013- 15,00,000 V. Govindarajan Net Credit balance in Aarthi Scans (p) Ltd., 84,87,012 The AO after examining the assessee's submissions etc , correctly treated the receipt of Rs.84,87,012/- from M/s Aarthi Scans Limited as a deemed dividend u/s2(22)(e) as the assessee had more than 10% voting power, he was one of the directors and M/s Aarthi Scans Limited had surplus funds. However, the CIT(A) failed in appreciating the facts and circumstances, allowed the appeal, hence pleaded that the order of the CIT(A) may be reversed and that of the Assessing Officer be restored. Per contra, the A R submitted that Mr. Govindarajan has purchased a land at Thenkasi for Rs. 29,13,100/- during the year 2010-11. Aarthi Scan Pvt. Ltd constructed building at this place during the asst. year 2013-14. Total cost of construction incurred by M/s.Aarthi Scan Pvt. Ltd., is Rs.33,99,755/-. Since land is in the name of Mr. Govindarajan, Aarthi Scan Pvt. Ltd., has transferred :-5-: ITA No. 1462/Chny/2017 the building a/c to Aarthi Mahal a/c by passing a journal on 25.03.2013. This building is used by Aarthi Scan Pvt. Ltd., for its business. Further, Mr.Govindarajan has purchased a land at Vellacheery for Rs.1,40,31,563/- during the year 2011-12. Mr. Govindarajan, Prop. Aarthi Mahal started constructing a building at Velachery during the year 2011-12 which was continued and completed during the year 2012-13 by M/s. Aarthi Scan Pvt. Ltd., for a total cost of Rs.1,04,62,355/-. As in the case of Thenkasi building, here also since the land is in the name of Mr. V. Govindarajan, the building a/c is transferred to Aarthi Mahal by passing a journal entry on 25.03.2013. This building is also used by Aarthi Scan Pvt. Ltd., for its business. The CIT(A) very correctly held that Aarthi Scan Pvt. Ltd., the company, constructed the buildings in the land owned by the assessee for the purpose of running the clinical laboratory, which is the business carried on by the company. Accordingly, the amount was given to the assessee during the course of business for constructing the building which was utilised by the company for running its own business. The outstanding amount due to the company represents only journal entries and the assessee has not received any loan or advance from the company. Section 2(22) (e) is applicable only when the loan is taken by the share holder having substantial interest in the company. Since the outstanding amount does not represent any loan or advance, there is no case for the addition u/s. 2(22)(e) and, therefore, the AR submitted that the CIT(A) has correctly deleted the addition which may be upheld.
:-6-: ITA No. 1462/Chny/2017
4. We heard the rival submissions and gone through the relevant orders. The Assessing Officer made the impugned addition, primarily, that the assessee was in receipt of Rs.84,87,012/- from M/s Aarthi Scans Limited where he had more than 10% voting power, he was one of the directors and M/s Aarthi Scans Limited had surplus funds. From the order of the CIT(A) , it appears, that the assessee pleaded that Aarthi Scan Pvt. Ltd., the company, constructed the buildings in the land owned by the assessee for the purpose of running clinical laboratory, which is the business carried on by the company. Accordingly, the amount was given to the assessee during the course of business for constructing the building which was utilised by the company for running its own business. The outstanding amount due to the company represents only journal entries and the assessee has not received any loan or advance from the company etc which has been accepted by the CIT(A) without proper examination. M/s Aarthi Scans Limited is a company where in the assessee is one of the directors having more than 10% voting power . In the assessee's books of account, the cost of the land is shown as "assets " and the impugned construction costs is shown as "liability" in the name of the company. Further, the closing balances in the accounts are reduced by crediting "Unsecured loan" from the assessee in each year as extracted, supra. Thus, the assessee's plea that they are not loans, prima facie, stands contradicted. M/s Aarthi Scans Limited, being a company there should have been contemporaneous documents for the impugned transactions :-7-: ITA No. 1462/Chny/2017 which might indicate the nature and scope of the transactions. Further, the assesse pleads that in the assessee's land M/s Aarthi Scans Limited has constructed buildings and used for its business purposes. In this regard, was there any contemporaneous agreement, if so, what are the terms and conditions including the rent, if any, offered to the assessee, whether such rent is admitted by the assessee or not etc are not discernible from the orders of the lower authorities. Since the required facts and circumstances associated with the impugned transactions are not on record, we deem it fit to set aside this issue back to the AO for a fresh examination, de novo. The AO after affording adequate opportunity to the assessee decide all the issues in accordance with law. Corresponding Revenue's grounds are treated as allowed for statistical purposes.
5. With regard to the disallowance made u/s 14A, the DR submitted on the lines of the grounds of appeal. Per contra, the AR submitted the assessee invested Rs. 50 lakhs in M/s Reginex P Ltd in the year 2008-09 out of own savings and it has not incurred any expenditure. Further, the assessee has not received any exempt income during the year. The CIT (A) correctly applied the ratio of the decision of the Hon'ble Madras High Court in the case of M/s. Redington (India) Ltd and hence pleaded to sustain such decision.
:-8-: ITA No. 1462/Chny/2017
6. We heard the rival submissions and find merit in the submission of the AR. Since the CIT (A) has applied the decision of the Hon'ble jurisdictional High Court, we do not find any reason to interfere with his order. Corresponding Revenue's grounds are dismissed.
7. In the result, the Revenue's appeal is treated as partly allowed for statistical purposes.
Order pronounced on Monday, the 02nd day of April, 2018 at Chennai.
Sd/- Sd/-
(एन.आर.एस .गणेशन) (एस जयरामन)
(N.R.S. GANESAN) (S. JAYARAMAN)
या यक सद!य/Judicial Member लेखा सद!य/Accountant Member
चे नई/Chennai,
1दनांक/Dated: 02nd April, 2018
JPV
आदे श क' * त2ल3प अ4े3षत/Copy to:
1. अपीलाथ&/Appellant 2. *+यथ&/Respondent 3. आयकर आय5
ु त) अपील(/CIT(A)
4. आयकर आय5
ु त/CIT 5. 3वभागीय * त न ध/DR 6. गाड7 फाईल/GF