The Income Tax Appellate Tribunal recently ordered that the provisions of ‘deemed dividend’ under the Income Tax Act would not attract in a case where the assessee pledged his personal properties to Bank for the purpose of loan and other credit facilities granted to the company.
The Kolkata bench held so while upholding the order of CIT (A) and dismisses the appeal of the revenue.
In the instant case, the Revenue filed an appeal filed before the bench including Shri J.Sudhakar Reddy and Shri A.T.Varkey, against the order of the Commissioner of Income Tax-(A)-10, Kolkata relating to A.Y. 2010-11.
Earlier, the assessee, an individual and derives income from salary and other sources. He filed a return of his income amounted to Rs.14,63,490/-. But in his revised return declaring the total income at Rs.7, 53,930/-. The AO received information that the assessee is one of the managing director of the company M/s. Palsons Drugs Pvt. Ltd. He was having a substantial interest in his company and the same was not a company in which the public are substantially interested.
Assessments were reopened by issue of notice under Section 148 of the Income Tax Act, 1961 (Act) and the AO proposed an addition u/s 2(22) (e) of the Act. The assessee showed their intention to book their flats for residential purpose and later will convert into the company’s holdings.
Aggrieved with the additions made in the return the assessee went for an appeal before CIT (A) and claimed as he stood as a guarantor for some of the loan facilities taken by the company and had also pledged his personal property to the bank to borrow money for the company.
The assessee relied on the judgment of the Jurisdictional High Court in the case of Pradip Kumar Malhotra vs CIT, West Bengal 338 ITR 538(Cal). Accepting his contentions, the CIT (A) has granted relief to him by applying the proposition of law laid down in such cases.
Before the Trbunal, the Revenue pleaded that CIT(A) erred in deleting the addition of Rs.49.85 lakhs as deemed dividend u/s 2(22)(e) made by the AO relying on assessee’s submission during the state in contravention of Rule 46A.
The counsel for the revenue contended that the issue of the assessee standing as a guarantor and mortgaging his personal assets to enable the company to obtain loan and other credit facilities was not brought to the notice of the AO. Thus he submits that this line of argument should not have been accepted by the CIT (A). On a query from the bench, he could not controvert this factual finding of the CIT (A).
On the contrary, the assessee argued that the above said matter doesn’t involves any dispute and also added that this facts are not disputed the proposition of law laid down by the Jurisdictional High Court is applicable and the order of the ld. CIT(A) was correct.
After hearing the rival contention and on perusal of records the court declared that the assessee had given his personal property as collateral security for enabling M/s. Palsons Drugs Pvt. Ltd to obtain loan and other credit facilities is not in dispute. Under the circumstances, it was noted that the proposition of law as laid down by the Jurisdictional High Court in the case of ‘Pradip Kumar Malhotra vs CIT’ (supra) squarely applies to the facts of the case. In view of the above discussion the court upholds the order of CIT (A) and dismisses this appeal of the revenue.
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