Balasaheb Madhavrao Khairnar,, Nashik vs Assessee

Shri Balasaheb Madhavrao Khairnar, A-1, Heera Panna Housing Society, Near Ashirwad Shop, Nashik Road, Nashik PAN No. ABAPK2597F .. Appellant Vs.

Dy.CIT, Circle-1, Nashik .. Respondent

Assessee by : Shri Pramod Shingte Revenue by : Shri Santosh Kumar Date of Hearing : 04-02-2015 Date of Pronouncement : 11-02-2015

ORDER

PER SUSHMA CHOWLA, JM :

This appeal filed by the assessee is against the order of CIT(A)-

I, Nashik dated 14-12-2012 relating to assessment year 2009-10

against order passed u/s.143(3) of the Act.

2. The only ground of appeal raised in the present appeal is

against the invoking of provisions of section 2(22)(e) of the Act

resulting in addition of Rs.38,76,000/-.

3. The brief facts relating to the issue are that during the course

of assessment proceedings the assessee was asked to furnish his

shareholding in various companies and also to furnish the extract of

account of the assessee appearing in the books of account of the

said companies. The AO noted that M/s. Precision Auto Industries

Pvt. Ltd had advanced loans/advances to the assessee during the

financial year 2008-09 in which company the assessee was holding

more than 10% shares. The company had accumulated reserves 2

and surplus of Rs.1.30 crores in assessment year 2009-10 and the

assessee had taken advance of Rs.38,76,000/- from the said

company. The assessee was show caused to explain as to his

liability to pay tax on the said dividend received or advanced from

the concern in which he had beneficial interest. The assessee

admitted that he was a beneficial shareholder in the various Private

Limited companies and 2 of the companies were having

accumulated profits, while other concerns were running into losses.

The plea of the assessee before the Assessing Officer was that he

had given unsecured loans to both the above-mentioned companies

from time to time and the payments received by the assessee from

the said companies were less than the amounts paid to the said

companies. The assessee also pointed that in the case of M/s.

Precision Auto Industries Pvt. Ltd. in the account of the assessee

there was credit of Rs.1,08,15,225/- and debit of Rs.85,45,780/-.

So it is clear, that the payments were received from the company out

of the advances given to the company and not out of the

accumulated profits of the company. The Assessing Officer rejecting

the claim of the assessee invoked provisions of section 2(22)(e) of the

Act and made addition of Rs.38,76,000/-. The said addition was

confirmed by the CIT(A) against which the assessee is in appeal

before us.

4. The Learned Authorised Representative for the assessee fairly

admitted that the provisions of section 2(22)(e) of the Act were

attracted in the case as it satisfid all the conditions provided

thereunder. However, it was pointed out by the learned Authorised

Representative for the assessee that the perusal of the copy of the

account placed at pages 1 and 2 of the paper book reflect that the

maximum amount withdrawn was Rs.38,76,000/- whereas the 3

opening and closing balances were credit amounts. The learned

Authorised Representative, however, drew our attention to the copy

of the balance sheet placed at page 11 of the paper book where

along with the share capital account it was pointed out that the

assessee had advanced share application money of Rs.40 lakhs.

The learned Authorised Representative for the assessee in this

regard placed reliance on the following decisions :

i. Anil Kumar Vs. ITO (2011) 9 taxmann.com 131 (Mum) - ITA No.6481/Mum/2007 order dated 29-04-2009

ii. Dy.CIT Vs. Vikas Oberoi (2013) 37 taxmann.com 46 (Mumbai) - ITA Nos.4362 to 4364, 4440 & 4495/Mum/2011, CO Nos. 112 & 113, 169 & 170/Mum/2012 order dated 20-03-2013.

5. The plea of the Authorised Representative for the assessee

before us was that complete account of the assessee should be

considered for the year under appeal and no disallowance was

warranted. It was also pointed by the learned counsel that no

allotment against the share application money has been made till

date. The plea raised by the assessee before us was admittedly a

fresh plea.

6. The learned Departmental Representative for the Revenue on

the other hand placed reliance on the order of the CIT(A) and

pointed out that the provisions of section 2(22)(e) of the Act are

squarely attracted. In this case, reliance was placed at para 5.2 of

the CIT(A)'s order and it was pointed out that the addition in the

case was warranted.

7. We have heard the rival contentions and perused the record.

The limited issue arising was that in view of the provisions of section

2(22)(e) of the Act whether the assessee had advanced sufficient

funds which far exceeded the withdrawals made by the assessee and

any disallowance be made u/s.2(22)(e) of the Act on account of 4

deemed income. The assessee was a Director in M/s. Precision Auto

Industries Ltd. and had more than 10% shares in the said concern.

The said company had reserves and surplus of Rs.1.30 crores in

assessment year 2009-10 and the assessee had taken an advance of

Rs.38,76,000/- as on 16-04-2008. The copy of the ledger account

placed at pages 1 and 2 of the paper book reflect that both the

opening and the closing balances were in credit, however, during the

accounting period, the assessee had made certain withdrawals on

account of which there was debit balance against the assessee. The

assessee in addition to holding the investment of Rs.53,55,000/- in

the share capital account had also advanced share application

money of Rs.40 lakhs which is clearly reflected from the balance

sheet of M/s. Precision Auto Industries Ltd. filed at pages 11 to 21

of the paper book. The claim of the assessee before us was that the

advances made by the assessee to the said company far exceeded

the withdrawals made by the assessee from the said company.

7.1 We are in conformity with the said stand of the assessee that

in addition to the share capital account there was an outstanding

share application money of Rs.40 lakhs in the books of M/s.

Precision Auto Industries Ltd. against which till date no shares have

been allotted, as pointed by the learned Authorised Representative

for the assessee. The maximum withdrawal by the assessee during

the financial year 2008-09 from the said company was

Rs.38,76,000/- which was admittedly was less than the share

application money outstanding of the assessee. In the above said

facts and circumstances where on consideration of the total account

of the assessee including the share application money, which was

loan account, till the shares were allotted to the assessee and the

withdrawal made by the assessee, being less than the amount 5

advanced by the assessee, then there was no loan or advance

received by the assessee from the said company justifying the

invoking of provisions of section 2(22)(e) of the Act.

7.2 We find support from the ratio laid down by the Mumbai

Benches of the Tribunal in the case of Anil Kumar Vs. ITO (Supra)

and Dy.CIT Vs. Vikas Oberoi (Supra) and following the same parity

of reasoning we hold that there is no merit in the addition on

account of deemed dividend u/s.2(22)(e) of the Act. The plea raised

by the assessee before us even if is a new plea arise from the

material on record and there is no merit in the arguments of the

learned Departmental Representative for the Revenue in this regard.

Accordingly, we direct the Assessing Officer to delete the addition of

Rs.38,76,000/-.

8. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on this 11th day of

February, 2015.

Sd/- Sd/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune Dated: 11th February, 2015 Satish

Copy of the order forwarded to :

1. Assessee 2. Department 3. The CIT(A)-I, Nashik 4. The CIT-I, Nashik 5. The D.R, "B" Pune Bench 6. Guard File By order

// True Copy // Assistant Registrar ITAT, Pune Benches, Pune