Income Tax Appellate Tribunal - Mumbai
Vasant Umershi Shah, Mumbai vs Department Of Income Tax on 12 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES " F ", MUMBAI
BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER, AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
ITA No. : 5118/Mum/2011
Assessment Year : 2008-09
I.T.O - 9(2)(4), Shri Vasant Umershi Shah
R. No.255, Aayakar Bhavan, Pravin Engg. & Plastic Work
M. K. Road, Mumbai-400 020 14, Sidhpura Ind. Estate,
Vs. Goregaon (W), Mumbai
PAN NO: AAEPS 3187 L
(Appellant) (Respondent)
Appellant by : Shri M. Rajan
Respondent by : Shri G. C. Lalka
Date of hearing : 12.07.2012
Date of Pronouncement : 27.07.2012
ORDER
Per AMIT SHUKLA, J.M. :
This appeal has been filed by the department against order dated 26.04.2011 passed by CIT(A)-20, Mumbai for the quantum of assessment passed u/s.143(3) for the Assessment Year 2008-09 on the following grounds of appeals :-
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) CIT(A) is erred in deleting the addition made by the Assessing Officer on account of deemed dividend inspite of fact the assessee was 20% shareholder in the company which had received loans from the company where the assessee had more than 20% shareholding within the meaning of section 2(22)(e) of the I.T. Act.2
ITA No : 5118/Mum/2011 Shri Vasant Umershi Shah
2. On the facts and in circumstances of the case and in law, the Ld. CIT(A) CIT(A) is erred in allowing the interest expenditure of `.4,10,145/- without considering the facts that the assessee used interest bearing funds for the purpose of giving interest free loans and earning tax free dividend income."
2. The assessee is a director in M/s. Precise Auto Ancilliaries Pvt. Ltd. and derives income from salary and income from other sources. During the course of the assessment proceedings, the A.O. noted that M/s. Precise Auto Ancilliaries Pvt. Ltd. had shown an amount of `.56,50,000/- as unsecured loan received from M/s. Gogri Finance & Investment Pvt. Ltd. The assessee, being a shareholder and director of M/s. Precise Auto Ancilliaries Pvt. Ltd. has more than 20% of share holding in that company and has also shares in M/s. Gogri Finance & Investment Pvt. Ltd. to the extent of 20%. Thus, he was of the opinion that the loan taken by M/s. Precise Auto Ancilliaries Pvt. Ltd. from M/s. Gogri Finance & Investment Pvt. Ltd. should be brought to tax as deemed dividend under the hands of the assessee. The assessee before the A.O. contented that M/s. Gogri Finance & Investment Pvt. Ltd. is in the business of lending and finance and accordingly, the advance given to the said company is part and parcel of its lending and finance activities. The learned A.O. rejected the contention of the assessee after giving detail reasons and relying upon various case laws, made the addition of `.60,71,217/- as deemed dividend as per the working given in the order. 3
ITA No : 5118/Mum/2011 Shri Vasant Umershi Shah Further, the A.O. has made a disallowance of `.4,10,145/- on account of disallowance of excess interest paid.
3. Before the Ld. CIT(A), the assessee contented that M/s. Gogri Finance & Investment Pvt. Ltd. is engaged in the business of lending and finance and his major income is from interest and most of the capital has been deployed towards lending and advance. Therefore, the provisions of section 2(22)e will not be applicable. Reliance was placed in the decision of Hon'ble Bombay High Court in the case of CIT vs. Parle Plastic Ltd. reported in 332 I.T.R 63.
4. The Ld. CIT(A) duly appreciated the submission of the assessee which has been incorporated in page nos. 2 & 3 of the appellate order and reached to the following conclusion :-
"3.5 I have perused the assessment order, written submissions of the appellant and case laws cited. As per Income Tax Act any payment made by a closely held company, by way of sum of money / assets / advance or loan to or on behalf of or for the individual benefit of any benefical shareholder holding more than 10% of voting power or to any concern in which, such shareholder holding more than 10% of voting power or to any concern in which, such shareholder is a member / director/partner with substantial interest, is deemed to be a dividend in accordance with provision of section 2(22)(e) of the Act. However, this deemed dividend does not include in its purview any advance or loan by a company in the ordinary course of its business where the lending of money is substantial part of the business of the company.
Applied to the facts of this case, it is observed that object clause of the Memorandum of association of Gogri 4 ITA No : 5118/Mum/2011 Shri Vasant Umershi Shah Finance and Investments shows that it is in the business of investment and finance and its audited accounts shows that it has earned interest income of `.16,22,535 which works out to 26.61% of its total income of `.60,96,507/-.
It is also observed that out of the total capital of `.5,69,29,766 as on 31.03.2008 the amount invested in loan and advance was `.3,94,27,348 and it comes 69% of the total capital. It is obvious from the above two key parameters that the business of finance is not small or trivial or inconsequential as compared to the whole of the business. Thus, this case squarely fits into the criteria laid down by the Bombay High Court in the case of C.I.T. v. Parle Plastic Ltd. 332 I.T.R. 63.
It is relevant to add here that the A.O. has erroneously concluded that no interest has been charged by Gogri Finance whereas in reality the books of account, loan confirmation reveals that interest of `.5,74,558/- was charged. Taking into account all the facts and circumstances and the Bombay High Court decision, it is concluded that the loan given by Gogri Finance and Investment P. Ltd. to Precise Auto Ancillaries P. Ltd. was in the ordinary course of business and the business of lending money by Gogri Finance and Investment P. Ltd. form substantial part of the business of the company. The consequent addition of `.60,71,217/- as deemed dividend in appellants hand is thereby deleted. This ground of appeal is allowed."
4.1 Both the parties have made their submissions relying upon the orders of the authorities below.
5. After carefully considering the rival submissions and also the findings made by the A.O. and the Ld. CIT(A), we find that it is not disputed fact that M/s. Gogri Finance & Investment Pvt. Ltd. is having its substantial business by providing loan and advances which is more than 69% of its total capital. Interest income is also substantial i.e. 5 ITA No : 5118/Mum/2011 Shri Vasant Umershi Shah 29.69% of its total income. Thus in view of the ratio laid down by the Hon'ble Jurisdictional High Court in the case of CIT vs. Parle Plastic Ltd. (supra) and also in view of clear cut provisions of section 2(22)(e), we do not find any infirmity in the finding of the Ld. CIT(A) and accordingly we uphold the order of the Ld. CIT(A) on this ground.
6. In the result, this ground of the department is dismissed.
7. Regarding disallowance of interest of `.4,10,145/-, the Ld. CIT(A) has given the following findings :-
"3. I have perused the assessment order and written submission. The A.O. has carried out the disallowance u/s.36(1)(iii) in a very summary manner without verifying the key details filed by the appellant during the course of assessment proceedings. It is observed that the appellant had filed details of interest paid and rate thereof in respect of independent parties as well as details of interest received and rate thereof in respect of sister concerns before the A.O. Out of 22 independent parties to whom interest has been paid, 16 parties are such where the rate of interest is 12% which is at par with receipts from sister concerns. In respect of one independent party Mahesh B. Shah, the appellant has charged interest @ 10% which is lower than the received from its associate concern. It is also relevant to add that the appellant has own capital `.1.22 crores which has also been utilized for advancing of loan. It has to be borne in mind that the funds have been borrowed in different timings and so the interest rate may vary. Taking all the facts and circumstances, there is no case for making disallowance of `.4,10,145. This ground of appeal is allowed."
8. In view of the finding given by the Ld. CIT(A) that the assessee had filed details of interest paid and rate thereof in respect of independent parties as well as details of interest received and rate thereof in respect of 6 ITA No : 5118/Mum/2011 Shri Vasant Umershi Shah sister concerns before the A.O. which has neither been controverted by the A.O. nor any infirmity has been found therein by him, these seems to be no reason to deviate from the findings of the Ld. CIT(A) in absence of any contrary material available on record. In the result, this ground filed by the department is also dismissed.
9. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on this 27th day of July, 2012.
-
Sd/- Sd/-
-
( R. S. SYAL ) ( AMIT SHUKLA )
ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, Dt: 27.07.2012
Copy forwarded to :
1. The Appellant,
2. The Respondent,
3. The C.I.T.
4. CIT (A)
5. The DR, - Bench, ITAT, Mumbai
//True Copy//
BY ORDER
ASSISTANT REGISTRAR
ITAT, Mumbai Benches, Mumbai
Roshani