Income Tax Appellate Tribunal - Mumbai
Sunil Mantril Trinity Projects Ltd, ... vs Assessee on 22 August, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "E", MUMBAI
BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND
DR. S.T.M. PAVALAN, JUDICIAL MEMBER
Sr ITA No. A.Y. Appellant Address Respondent PAN
1& ITA No. 2008-09 Shri Sunil P. Shri Prakash Asst. CIT ABNPM
2 5402/M/2011 Mantri Jhunjhunwala, Central Circle 4825 D
& C.A. 5, Jolly (29)
ITA No. 2009-10 Bhawan No. 2 Gr. Mumbai.
5407/M/2011 Floor, 7, New
Marine Lines,
Churchgate,
Mumbai-20
3& ITA No. 2008-09 Asst. CIT G-1, Court Shri Sunil P. ABNPM
4 5702/M/2011 Central Circle Chambers, Mantri 4825 D
& (29) Ground Floor, V.
5703/M/2011 2009-10 Mumbai. Thakersey Marg,
35, New Marine
Lines,
Churchgate,
Mumbai
5 ITA No. 2008-09 Asst. CIT G-1, Court M/s. Sunil AAFCM
5689/M/2011 Central Circle Chambers, Mantri 0504 P
(29) Ground Floor, V. Buildtech Pvt.
Mumbai. Thakersey Marg, Ltd
35, New Marine
Lines,
Churchgate,
Mumbai
6 ITA No. 2008-09 Asst. CIT G-1, Court Sunil Mantri AAFCM
5682/M/2011 Central Circle Chambers, Trinity 0168 F
(29) Ground Floor, V. Projects P.
Mumbai. Thakersey Marg, Ltd.
35, New Marine
Lines,
Churchgate,
Mumbai
7 ITA No. 2009-10 Asst. CIT G-1, Court Mantri Power AAFCM
5704/M/2011 Central Circle Chambers, Ltd. 0508 B
(29) Ground Floor, V.
Mumbai. Thakersey Marg,
35, New Marine
Lines,
Churchgate,
Mumbai
8 ITA No. 2009-10 Asst. CIT G-1, Court Sunil Mantri AAFCM
5681/M/2011 Central Circle Chambers, Griha Nirman 2227 B
(29) Ground Floor, V. P. Ltd.
Mumbai. Thakersey Marg,
35, New Marine
Lines,
Churchgate,
Mumbai
2 ITA Nos. 5402, 5407, 5689, 5682, 5702, 5703, 5704 &
5681/Mum/2011
C.O. Nos.132, 134, 135 & 136/M/2012
M/s. Sunil P. Mantri & others
Assessment Year: 2008-09 & 2009-10
9 C.O. 2009-10 Mantri Power Shri Prakash Asst. CIT ABNPM
132/M/2012 Limited Jhunjhunwala, Central Circle 4825 D
(Arising Out of C.A. 5, Jolly (29)
ITA No. Bhawan No. 2 Gr. Mumbai.
5704/M/11) Floor, 7, New
Marine Lines,
Churchgate,
Mumbai-20
10 C.O. 2008-09 Sunil Mantri Shri Prakash Asst. CIT AAFCM
134/M/2012 Trinity Jhunjhunwala, Central Circle 0168 F
(Arising Out of Projects Ltd. C.A. 5, Jolly (29)
ITA No. Bhawan No. 2 Gr. Mumbai.
5682/M/11) Floor, 7, New
Marine Lines,
Churchgate,
Mumbai-20
11 C.O. 2009-10 Sunil Mantri Shri Prakash Asst. CIT AAFCM
135/M/2012 Griha Nirman Jhunjhunwala, Central Circle 2227 B
(Arising Out of P. Ltd. C.A. 5, Jolly (29)
ITA No. Bhawan No. 2 Gr. Mumbai.
5681/M/11) Floor, 7, New
Marine Lines,
Churchgate,
Mumbai-20
12 C.O. 2008-09 M/s. Sunil Shri Prakash Asst. CIT AAFCM
136/M/2012 Mantri Jhunjhunwala, Central Circle 0504 P
(Arising Out of Buildtech Pvt. C.A. 5, Jolly (29)
ITA No. Ltd Bhawan No. 2 Gr. Mumbai.
5689/M/11) Floor, 7, New
Marine Lines,
Churchgate,
Mumbai-20
Assessee by : Shri Prakash Jhunjhunwala
Revenue by : Shri Girija Dayal
Date of hearing : 22.08.2013
Date of Pronouncement : 14.11.2013
ORDER
PER BENCH:
These bunch of 12 appeals, cross appeals and cross objections filed by the assessees and the revenue as aforementioned in the cause list are directed against the order of the Ld.CIT(A)-40, Mumbai all dated 31.05.2011 for the Assessment Years 2008- 09 & 2009-10. Since the issues involved in all these appeals, cross appeals and cross objections are common and identical, the same are disposed off by this common order.
3 ITA Nos. 5402, 5407, 5689, 5682, 5702, 5703, 5704 & 5681/Mum/2011 C.O. Nos.132, 134, 135 & 136/M/2012 M/s. Sunil P. Mantri & others Assessment Year: 2008-09 & 2009-10
2. The first common issue in all the appeals, cross appeals and the cross objections relates to the decision of the Ld.CIT(A) on the addition of deemed dividend u/s 2(22)(e) of the Income Tax Act made in the assessment. The relevant facts are that one Shri Sunil P. Mantri, an individual was a shareholder holding shares of 85.50% in M/S Sunil Mantri Reality Ltd, which made advances/loans to various concerns in which Shri Sunil P. Mantri was holding shares. The details of the share holding pattern of Shri Sunil P. Mantri in various concerns to which M/S Sunil Mantri Reality Ltd made the advances/loans during the years under consideration and the respective amounts are as below:-
Sl Concerns to which Shareholding A.Y. 2008-09 A.Y. 2009-10 No. loans/advances made pattern of Sunil P. Mantri 1 M/s. Mantri Power Ltd. 49.95% Rs. 60,22,308/- Rs. 1,28,07,500/- 2 M/s. Sunil Mantri 50% Rs. 3,87,38,299/- -
Buildtech P. Ltd.
3 M/s. Sunil Mantri Trinity 50% Rs. 21,15,00,000/-
Projects P. Ltd. -
4 M/s. Mantri Lifestyle 50% Rs.1,35,609/- -
Developers P. Ltd.
5 M/s. Mantri Properties P. 50% - Rs.37,31,757/-
Ltd.
6 M/s. Sunil Mantri Griha 50% - Rs.58,68,903/-
Nirman P. Ltd
Total Rs.25,63,96,216/- Rs.2,19,08,160/-
In the assessment framed u/s 143(3) read with section 153A, the AO after observing the aforementioned shareholding pattern, invoked section 2(22)(e) of the Act and thereby treated the said amounts as deemed dividend in the hands of common share holder, Sunil P. Mantri as he was holding substantial control over the lender concern, M/S Sunil Mantri Reality Ltd. The said additions of the total amounts advanced to various concerns have been made in the hands of Sunil P. Mantri on substantive basis. The amounts received by the respective concerns were added on protective basis in the hands of the said concerns respectively.
4 ITA Nos. 5402, 5407, 5689, 5682, 5702, 5703, 5704 & 5681/Mum/2011 C.O. Nos.132, 134, 135 & 136/M/2012 M/s. Sunil P. Mantri & others Assessment Year: 2008-09 & 2009-10
3. On appeal, the Ld.CIT(A) confirmed the additions made in the hands of Sunil P.Mantri on account of the loans/advances made to various concerns. However, for the a.y 2008-09, the Ld.CIT(A) deleted the addition made on the amount received by M/s.Sunil Mantri Trinity Projects Pvt. Ltd since Sunil P.Mantri was not a common shareholder having substantial interest at the time of advancing the amount by Sunil Mantri Reality P. Ltd to Sunil Mantri Trinity Projects P. Ltd. For A.Y. 2009-10, the Ld.CIT(A) directed the AO to restrict the addition after deleting the amounts earlier repaid by the said three group of concerns to M/s. Sunil Mantri Reality Ltd. In the process, the Ld.CIT(A) has also restricted the addition made in the hands of Sunil P.Mantri to the extent of accumulated profits of the lender concern and thereby determined the addition at Rs.3,75,54,438/- and Rs.1,13,89,110/- for the A.Ys 2008-09 and 2009-10 respectively. On confirming the additions made in the hands of the common share holder, Sunil P. Mantri, the Ld.CIT(A) deleted the additions made on the protective basis in the hands of the recipient concerns.
4. The assessee, Sunil P. Mantri in ITA No. 5402/Mum/2011 and ITA No. 5407/Mum/2011 respectively for the A.Ys. 2008-09 and 2009-10 has agitated the action of the Ld. CIT(A) confirming the addition of deemed dividend u/s 2(22)(e) that have been made in his case on substantive basis in respect of the loans/advances received by the group of concerns from Sunil Mantri Reality Ltd.
4.1 The revenue, in the cross appeals in ITA No. 5702/Mum/2011 and 5703/Mum/2011 has agitated the action of the Ld. CIT(A) in taking the value of accumulated profit of the lender concern for the purpose of restricting the additions made u/s 2(22)(e). In addition, the revenue has also agitated the action of the Ld.CIT(A) in deleting the additions made by the AO in respect of loan/advance received by Sunil Mantri Trinity Projects P. Ltd for the A.Y 2008-09 and the sums repaid by the recipient concerns to the lender company for the A.Y 2009-10.
4.2 In other four appeals filed by the revenue, the Department has challenged the action of the Ld.CIT(A) deleting the addition made on protective basis in the hands of the recipient concerns. The four cross objections filed by the assesses/recipient concerns arising out of the said four appeals of the revenue relate to the claim of the assessees that the concerns have received deposits from Sunil Mantri Reality Ltd. in the normal 5 ITA Nos. 5402, 5407, 5689, 5682, 5702, 5703, 5704 & 5681/Mum/2011 C.O. Nos.132, 134, 135 & 136/M/2012 M/s. Sunil P. Mantri & others Assessment Year: 2008-09 & 2009-10 course of business and a further claim that refund of loan earlier paid by the assessees does not pertain to the loans received during the year. The adjudication of the issues raised in the 12 bunches of appeals, cross appeals and the cross objections are discussed in the succeeding paragraphs.
5. Firstly, as regards the addition made on substantive basis in the hands of Shri Sunil P. Mantri, it is the contention of the assessee that Sunil Mantri Reality Ltd., has made payments directly to the four group concerns and since no payment either directly or indirectly made to the assessee, there is no individual benefit received by the assessee. Further, Sunil Mantri Reality Ltd. has made payments to the said concerns in the normal course of business wherein provisions of section 2(22)(e) shall not apply. It is also the contention of the assessee that the MOU dated 15th May, 2007 evidences payments of advances towards awarding of preferential contract to lender concern of any new project that may arise in future by the recipient concerns. Alternatively, the Ld.AR has argued that in case if the Bench arrives at a decision that Sunil P.Mantri's case falls within the provisions of section 2(22)(e), in such an event, the addition is to be restricted only to the extent of the accumulated profits of the lender concern up to March 31st of the previous years relevant to the assessment years under consideration during which the loans/advances have been made to various concerns. Per contra, it is the case of the revenue that Sunil P. Mantri is the registered and beneficial owner of shares in Sunil Mantri Reality Ltd. having more than 10% voting power and also has substantial interest in the concerns to which the loans and advances have been made which clearly attracts the provision of section 2(22)(e).
5.1 Having heard both the sides and perused the material on record, it is pertinent to note that the case of the assessee, Shri Sunil P. Mantri clearly falls within the purview of section 2(22)(e), which is evidenced by the share holding pattern of Shri Sunil P. Mantri in the lending and receiving concerns in which the assessee respectively has substantial control and substantial interest. Since, Shri Sunil P.Mantri is a common shareholder of M/s. Sunil Mantri Realty Ltd. and its 3 group concerns, namely, M/s Mantri Power Ltd, M/s Sunil Mantri Builtech Pvt Ltd and M/s Mantri Lifestyle Developers Pvt Ltd, it is difficult to accept the argument of the Ld AR's that there is no benefit accruing to the account of the assessee for the reason that he is a common shareholder having adequate control over all 6 ITA Nos. 5402, 5407, 5689, 5682, 5702, 5703, 5704 & 5681/Mum/2011 C.O. Nos.132, 134, 135 & 136/M/2012 M/s. Sunil P. Mantri & others Assessment Year: 2008-09 & 2009-10 3 group concerns and he is entitled to receive all benefits that shall accrue, directly or indirectly, to the said 3 group concerns. Thus, merely because the assessee, Sunil P. Mantri has not received any sum directly from the lender concern M/s Sunil Mantri Realty Ltd. or through above said 3 group concerns, it cannot be said that assessee has not received any benefits from the transactions. The argument of the assessee that the loans/advances have been made in the normal course of business is also not acceptable as the assessee has not brought on record to prove the same. It is also not disputed that the lender concern, M/s Sunil Mantri Reality Ltd is not engaged in the business of money lending. The contention of the assessee that the MoU dated 15th May, 2007 evidences payments of advances towards awarding of preferential contract to lender concern of any new project that may arise in future by the recipient concerns, in our view, is hypothetical in nature which lacks any evidentiary value as the MoU pertains to future projects, if any which does not quantify any amounts of consideration. Also, it has not been proved that the MoU has resulted in any such project or the parties have acted in furtherance of the MoU. In view of the aforementioned discussions, we are of the considered opinion that the Ld.CIT(A) has rightly decided that the case of Sunil P.Mantri clearly falls u/s 2(22)(e) of the Act. However, we are inclined to accept the alternate arguments of the Ld.AR that the additions are to be restricted only to the extent of the accumulated profits of the lender concern up to March 31st of the previous years relevant to the assessment years under consideration during which the loans/advances have been made to various concerns. Therefore, as regards the additions made in the hands of Sunil P.Mantri for assessment years 2008-09 and 2009-10, we direct the AO to restrict the additions based on the accumulated profits of M/s Sunil Mantri Realty Ltd as on 31.03.2007 and 31.03.2008 respectively, corresponding to the loans/advances made for the relevant assessment years i.e., 2008-09 and 2009-10.
5.1.1 Secondly, as regards the issue raised in the appeal of the Revenue in the case of Sunil Mantri, for the assessment year 2008-09, agitating the decision of the Ld. CIT(A) deleting the addition made on account of the loans/advance received by Sunil Mantri Trinity Projects P. Ltd, we are of the considered opinion that the Ld. CIT(A) has correctly done so since for the period during which the loans/advances have been made by Sunil Mantri Reality Ltd does not fall during the period in which Sunil P. Mantri has been a 7 ITA Nos. 5402, 5407, 5689, 5682, 5702, 5703, 5704 & 5681/Mum/2011 C.O. Nos.132, 134, 135 & 136/M/2012 M/s. Sunil P. Mantri & others Assessment Year: 2008-09 & 2009-10 share-holder of the recipient concern as stated in para 7.12.2 of the order of the Ld.CIT(A).
5.1.2 Thirdly, on the decision of the Ld.CIT(A) in deleting the additions made by the AO in respect the sums repaid by the recipient concerns to the lender company for the A.Y 2009-10, we do not find Any infirmity in the said decision of the Ld.CIT(A) as the same is in line with the ratio of the Hon'ble Bombay High Court in the case of P.K.Baddiani reported in 76 ITR 369 which has been rightly relied by the Ld.CIT(A).
5.1.3 Fourthly, regarding the decision of the Ld. CIT(A) in restricting the addition to the extent of accumulated profit of Sunil Mantri Reality Ltd., it is pertinent to note that it is an accepted principle of law that the addition of deemed dividend u/s 2(22)(e) can be made only to the extent of which the lender concern possesses accumulated profits. This proposition is supported by a number of judicial decisions including the one in the case of NCK Sons Exports P. Ltd. Vs. ITO reported in 102 ITD 311 (Mum). Therefore, we do not find any infirmity in the decision of the Ld.CIT(A) on this count.
5.1.4 Fifthly, another common issue raised in the appeals of the assessee, Sunil P. Mantri and the respective cross appeals of the Revenue relates to the disallowance/addition on account of notional interest in respect of the property located at Ambey Valley, Lonawala and the allowability of interest expenses respectively. It is observed that the AO estimated the gross annual value @ 7% of the cost of acquisition and after allowing 30% standard deduction u/s 24(a), the AO determined the income from house property. The same has been confirmed by the Ld.CIT(A). Having heard both the sides and perused the material on record on this issue, it is pertinent to note that when the assessee claims for a lower ALV, the assessee is duty bound to file municipal valuation to substantiate his claim of lower value, which he has not discharged during the assessment/appellate proceedings. Accordingly, we do not find any merit in the contention of the Ld.AR that the estimation of gross annual value ought to have been made as per the rent fixed by the municipal authority. In view of that matter, we do not find any justifiable reason to interfere with the decision of the Ld.CIT(A) that the gross rent estimated by AO @ 7% of cost of the property is reasonable. The fact that the assessee has paid interest on borrowed capital is also not disputed. Therefore, we do not 8 ITA Nos. 5402, 5407, 5689, 5682, 5702, 5703, 5704 & 5681/Mum/2011 C.O. Nos.132, 134, 135 & 136/M/2012 M/s. Sunil P. Mantri & others Assessment Year: 2008-09 & 2009-10 find any infirmity in the decision of the Ld.CIT(A) that the assessee is eligible for claim of deduction in respect of interest paid.
5.1.5 Resultantly, (i) the additions confirmed by the Ld.CIT(A) u/s 2(22)(e) in the hands of Sunil P. Mantri on the substantive basis for the assessment years 2008-09 & 2009-10, subject to our direction that the additions made for the said assessment years is to be restricted to the extent of the accumulated profits of M/s Sunil Mantri Realty Ltd as on 31.03.2007 and 31.03.2008 respectively, corresponding to the loans/advances made for the relevant assessment years i.e., 2008-09 and 2009-10 (ii) the decision of the Ld.CIT(A) deleting the addition made by the AO in the hands of Sunil P. Mantri on account of the loans and advances received by Sunil Mantri Trinity Projects P. Ltd. for the assessment year 2008-09 (iii) decision of the Ld.CIT(A) in deleting the additions made by the AO in respect the sums repaid by the recipient concerns to the lender company for the A.Y 2009-10, (iv) the decision of the Ld.CIT(A) restricting the additions to the extent of the accumulated profits of the lender concern (v) the decision of the Ld.CIT(A) that the gross rent estimated by AO @ 7% of cost of the property interest in respect of the property located at Ambey Valley, Lonawala is reasonable and (vi) the decision of the Ld.CIT(A) that the assessee is eligible for claim of deduction in respect of interest paid are upheld.
6. As regards the other four appeals filed by the revenue against the decision of the Ld.CIT(A) resulting in the deletion of the additions made in the hands of the recipient concerns on protective basis, we are of the considered view that the Ld.CIT(A) has correctly relied on the decisions of Special Bench in the case of ACIT Vs. Bhaumik Colour P. Ltd. reported in 27 SOT 270 (Mum) wherein it has been held that the intention behind the provision of section 2(22)(e) is to tax dividend in the hands of share-holder. The deeming provisions as it applies to the case of loans or advances by a concern to concern in which its share-holder has substantial interest, is based on the presumption that the loans or advance would ultimately be made available to the share-holder of the concern giving the loans or advances. The intention of the legislature is therefore to tax dividend only in the hands of the share-holder and not in the hands the concern. The said proposition is supported by the decision of the Bombay High Court in the case of CIT Vs. Universal Medicare P. Ltd. reported in 324 (ITR) 263 (Bom). Accordingly, the decision of 9 ITA Nos. 5402, 5407, 5689, 5682, 5702, 5703, 5704 & 5681/Mum/2011 C.O. Nos.132, 134, 135 & 136/M/2012 M/s. Sunil P. Mantri & others Assessment Year: 2008-09 & 2009-10 the Ld. CIT(A) in deleting the additions made by the AO on protective basis in the hands of the recipient concerns are upheld.
7. Regarding the four cross objections filed by the recipient concerns arising out of the four appeals of the Revenue, the same become infructuous as the decision of the Ld.CIT(A) in deleting the addition made on protective basis in the hands of the four concerns are upheld.
8. In the result,
(i) the appeals filed by the assessee, Sunil P.Mantri (ITA No. 5402/M/2011 & ITA No. 5407/M/2011) are partly allowed.
(ii) the cross appeals filed by the Revenue in the cases of Sunil P Mantri Ltd (ITA No. 5702/M/2011 & 5703/M/2011) are dismissed.
(iii) the other four appeals filed by the Revenue (ITA No. 5689/M/2011, ITA No. 5682/M/2011, ITA No. 5704/M/2011 and ITA No. 5681/M/2011) in respect of the recipients concerns are dismissed.
(iv) the cross objections filed by the assessees, the recipient concerns (C.O.132/M/2012, C.O. 134/M/2012, C.O.135/M/2012 and C.O. 136/M/2012) become infructuous and the same are dismissed.
Order pronounced in the open court on this 14th day of November, 2013.
Sd/- Sd/-
(P.M. JAGTAP) (Dr. S.T.M. PAVALAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 14.11.2013.
*Srivastava
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR "E" Bench
//True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.