Income Tax Appellate Tribunal - Mumbai
Mohit Kamboj, Mumbai vs Assessee on 13 July, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" Bench, Mumbai
Before Shri B.R. Baskaran (AM) & Shri Ram Lal Negi
I.T.A. No. 3365/Mum/2013
(Assessment Year 2008-09)
I.T.A. No. 3366/Mum/2013
(Assessment Year 2009-10)
Mohit Kamboj ITO-6(2)(1)
66/66A, KBJ Plaza Vs. Mumbai
Zaveri Bazar
Mumbai-400 002.
(Appellant) (Respondent)
PAN No.ALCPK2213Q
Assessee by Shri Hari Raheja
Department by Smt. Vinita Menon
Date of Hearing 23.6.2016
Date of Pronouncement 13.7.2016
ORDER
Per B.R. Baskaran (AM) :-
Both the appeals filed by the assessee are directed against the separate orders dated 31-01-2013 passed by Ld CIT(A)-12, Mumbai for assessment years 2008-09. The issues urged in both the appeals relate to the assessment of deemed dividend u/s 2(22)(e) of the Act.
2. The assessee is a share holder holding more than 10% stake in some private limited companies. In the year relevant to the assessment year 2008-09, the assessee had received loans from the following companies:-
NAME OF COMPANY MAXIMUM AMOUNT O/S
M/s KBJ Jewellery Pvt Ltd Rs.27,58,851/-
M/s KBJ Motors Pvt Ltd Rs. 1,99,931/-
The accumulated profit held by the above said companies was Rs.30,22,622/- and Rs.83,501/- respectively. Accordingly the AO assessed the loan amount of 2 Mohit Kamboj Rs.27,58,851/- received from M/s KBJ Jewellery Pvt Ltd as deemed dividend u/s 2(22)(e) of the Act. In respect of the loan received from M/s KBJ Motors Pvt Ltd, the AO assessed deemed dividend to the extent of accumulated profit of Rs.83,501/-. Accordingly a sum of Rs.28,42,352/- as deemed dividend u/s 2(22)(e) of the Act.
3. In the year relevant to the assessment year 2009-10, the assessee had received loans from the following companies:-
NAME OF COMPANY MAXIMUM AMOUNT O/S ACCUMULATED PROFIT M/s KBJ Developers Ltd Rs. 37,44,000/- 10,62,201 M/s KBJ Jewellery Pvt Ltd Rs.2,11,99,806/- 2,51,66,552
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2,62,28,753 ========= Since the amount to be assessed as deemed dividend u/s 2(22)(e) of the Act cannot exceed accumulated profits, the AO assessed Rs.10,62,201/- in respect of loan received from M/s KBJ Developers Ltd and Rs.2,11,99,806/- in respect of loan received from M/s KBJ Jewellery Pvt Ltd as deemed dividend.
4. In the year relevant to the assessment year 2008-09, the assessee's mother named Pinky Kamboj had also received loan from the very same companies and the AO had also assessed the same as deemed dividend in the like manner. The assessee contended before the Ld CIT(A) that the accumulated profits should be distributed between the assessee and her mother in the ratio of share holdings held by them and the deemed dividend should be assessed accordingly. The Ld CIT(A) was convinced with the same and issued direction to the AO accordingly. In respect of "accumulated profits" also, the assessee contended that the same should be computed upto the date of receipt of loan, i.e., opening balance of accumulated profit plus the profit of the year under consideration upto the date of receipt of loan. The Ld CIT(A) also 3 Mohit Kamboj accepted the said contentions of the assessee also and accordingly issued necessary directions to the AO.
5. In the year relevant to the AY 2009-10, the assessee submitted that the accumulated profits of Rs.2,51,66,552/- computed by the AO included Share Premium balance of Rs.1,66,96,000/-. The assessee submitted that the amounts received by the assessee as Share premium shall not form part of "accumulated profits" and in this regard, the assessee placed reliance on the decision rendered by the Delhi bench of Tribunal in the case of MAIPO India Limited (2008)(24 SOT 42). By placing reliance on the decision rendered by the Hon'ble Supreme Court in the case of P.K.Badani Vs. CIT (1970)(76 ITR 369), the assessee submitted that the deemed dividend, if any, assessed in the earlier years should be excluded while computing accumulated profits for the current year. The Ld CIT(A) accepted the contentions of the assessee and accordingly directed the AO
(a) to exclude share premium account balance from the computation of accumulated profits and accordingly remaining balance of Rs.84,70,552/- should alone be considered for the purposes of sec. 2(22)(e) of the Act.
(b) to compute the accumulated profits as opening balance plus profits upto the date of receipt of loan.
(c) to exclude the deemed dividend already assessed in the earlier year from the amount of accumulated profit.
(d) to distribute the accumulated profits proportionate to the share holding of the assessee and his mother and accordingly compute the deemed dividend.
Still aggrieved, the assessee has filed these appeals before us.
6. The Ld A.R invited our attention to the Ledger account copy of the assessee and submitted that the remuneration and rent payable to the assessee has been 4 Mohit Kamboj credited to the account and hence the withdrawals to the extent of such credits should be excluded from the computation of loan amount. The Ld A.R submitted that the above said contention of the assessee has been rejected by the tax authorities without assigning proper reasons. He further submitted that the current year's profit shall accrue only on the last day of the year on which the books of account are closed and hence the accumulated profits should be taken as the opening balance available in that account.
7. The Ld D.R, on the contrary, submitted that amount withdrawn by the assessee alone should be considered for the purposes of sec. 2(22)(e) of the Act. He submitted that the accumulated profits shall include the profits earned upto the date of withdrawal.
8. We heard the rival contentions and perused the record. A careful perusal of the Ledger account copy of the assessee as available in the books of M/s KBJ Jewellery Pvt. Ltd shows that the same has been operated as a current account, i.e., there has been credit of Director's remuneration; Rent, rates & taxes etc., Besides that there has been repeated deposit and withdrawal of cash. When the credits in the nature of income payable to the assessee are credited to the account of the assessee, the same signifies that those credits constitute liability in the hands of the above said company and hence the above said company is liable to pay those amount to the assessee. Under these set of facts, we find merit in the contentions of the assessee. Accordingly, we are also of the view that the amount withdrawn by the assessee, either by way of advance or as subsequent payment, to the extent of the liability of the company towards Directors Remuneration, Rent, other income items etc. credited to the account, should be considered as payment made towards settlement of those liabilities. Accordingly, in our view, withdrawals to that extent cannot be considered as loan taken by the assessee, which would attract the provisions of sec. 2(22)(e) 5 Mohit Kamboj of the Act. Accordingly, we modify the orders passed by the Ld CIT(A) and direct the AO to compute the loan amount by excluding the withdrawals as stated above in the case of KBJ Jewellery (P) Ltd and also in other two companies referred above.
9. With regard to the computation of accumulated profits also, the Ld A.R submitted that the inclusion of proportionate profits of current year is not correct, since the profits are deemed to accrue only at the end of the accounting year, when the books of account are closed. In support of this proposition, the Ld A.R placed reliance on the decision rendered by Hon'ble Gujarat High Court in the case of CIT Vs. M.B. Stockholding (P) Ltd (2015)(64 taxmann.com 138). We find merit in the said contentions of the also. The following observations made by Hon'ble Gujarat High Court in the above said case are relevant here:-
"4.1 Having heard Mrs. Bhatt, learned advocate appearing on behalf of the Revenue and considering the provisions of Section 2(22)(e) of the Act, more particularly, Explanation 2 to Section 2(22)(e) of the Act, it cannot be said that the learned Tribunal has committed any error in directing the Assessing Officer not to include the current profit to be part of accumulated profit while determining the amount of deemed dividend under Section 2(22)(e) of the Act. While determining the amount of deemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accumulated profit. As such, as observed by the learned Tribunal, the issue is already settled by the Hon'ble Supreme Court against the Revenue in the case of Associated Banking Corporation of India Ltd Vs. CIT (1965)(56 ITR 1) by which, the view taken that the profit accrues when the books of account are closed."
By respectfully following the above said decisions, we hold that the accumulated profits shall not include current year's proportionate profit, since the current years profit shall be deemed to accrue only when the books of account are closed at the year end. Accordingly we direct the AO to compute the 6 Mohit Kamboj accumulated profit in the manner discussed above for the purpose of sec. 2(22)(e) of the Act in respect of all the companies.
10. The orders passed by Ld CIT(A) stand modified accordingly.
11. In the result, both the appeals filed by the assessee are partly allowed.
Order has been pronounced in the Court on 23.7.2016 Sd/- Sd/-
(RAM LAL NEGI) (B.R.BASKARAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 23/7/2016
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT(A)
4. CIT
5. DR, ITAT, Mumbai
6. Guard File.
BY ORDER,
//True Copy//
(Dy./Asstt. Registrar)
ITAT, Mumbai
PS