Ita/64/2018 Of Pr Commissioner Of Income Tax v. Sri P M A Razak

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9 DAY OF JANUARY, 2023 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR JUSTICE G BASAVARAJA INCOME TAX APPEAL NO. 64 OF 2018 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX ATTAVARA, MANGALORE ATTAVARA, MANGALORE 2. DEPUTY COMMISIONER OF INCOME-TAX, CENTRAL CIRCLE-2, MANGALORE …APPELLANTS (BY SRI. E I SANMATHI, ADVOCATE) AND: SRI P M A RAZAK, HC-12, HIS GRACE APARTMENTS, MARTIN PAES ROAD, HAT HILL, MANGALORE …RESPONDENT (BY SRI. A MAHESH CHOWDHARY, ADVOCATE) Digitally signedby MADHURI SLocation: HighCourt ofKarnataka THIS APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 31.08.2017 PASSED IN ITA NO. 1637/BANG/2016, FOR THE ASSESSMENT YEAR 2013-14, PRAYING TO (A) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. (B) SET ASIDE THE APPELLATE ORDER DATED 31.08.2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'C' BENCH, BANGALORE, IN APPEAL PROCEEDINGS IN ITA NO. 1637/BANG/2016 FOR ASSESSMENT YEAR 2013-14, AS SOUGHT FOR IN THIS APPEAL AND ETC. THIS APPEAL, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT This appeal by the Revenue, challenging order dated 31.08.2017 in ITA.No.1637/Bang/2016 for the A.Y.[1]2013-14, has been admitted to consider the following question of law: "Whether in the facts and circumstances of the case, the Tribunal is right in law in confirming the deletion of addition of Rs.8,52,05,481/- by CIT(A) holding that since the loan and advances were not obtained by the assessee from the company, the provisions of section-2(22)(e) of the Act cannot be invoked and that Revenue has not brought any material on record to demonstrate the facts otherwise even when the assessee failed to prove that advances were taken for commercial purpose so as to make applicable circular No.19 of 2017 and assessing authority had given valid reasoning's for such addition under Section 2(22)(e) of the Act since all ingredients said section were satisfied in the case of the assessee?" 2. Heard Shri.E.I.Sanmathi, learned Standing Counsel for appellants/Revenue and Shri.A.Mahesh Chowdhary, learned Advocate for respondent-Assessee. 3. A search was conducted in the residential premises of the assessee on 09.01.2013 and notice under Section 142(1) was issued.In response to the notice, assessee filed return of income on 18.02.2015 declaring an income of Rs.35.11 Lakhs and AO[2] completed the assessment proceedings and made additions amounting to Rs.8.52 Crores as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1981[3]. 2Assessing Officer 3 'the Act' for short 4. The CIT(A)[4] allowed assessee's appeal holding that assessee shareholder had given loan to the company and it cannot be taxed as deemed dividend. 5. The appeal filed by the Revenue challenging CIT(A)’s order before the ITAT[5] has been partly allowed. The issue with regard to the payment of dividend under Section 2(22)(e) of the Act is held against the Revenue. Hence, this appeal. 6. Shri. Sanmathi submitted that assessee’s case is, he had borrowed money and given the same as loan to the company. He adverted to para 3 and 3.1 of CIT(A)’s order and submitted that assessee had advanced a sum of Rs.13.62 Lakhs as loan, whereas, assessee had withdrawn is only Rs.8.52 Crores. He submitted that the CIT(A) and 4Commissioner of Income Tax (Appeals) 5Income Tax Appellate Tribunal the ITAT have misconstrued the facts and not recorded any reasons for allowing the appeals. 5. The appeal filed by the Revenue challenging CIT(A)’s order before the ITAT[5] has been partly allowed. The issue with regard to the payment of dividend under Section 2(22)(e) of the Act is held against the Revenue. Hence, this appeal. 6. Shri. Sanmathi submitted that assessee’s case is, he had borrowed money and given the same as loan to the company. He adverted to para 3 and 3.1 of CIT(A)’s order and submitted that assessee had advanced a sum of Rs.13.62 Lakhs as loan, whereas, assessee had withdrawn is only Rs.8.52 Crores. He submitted that the CIT(A) and 4Commissioner of Income Tax (Appeals) 5Income Tax Appellate Tribunal the ITAT have misconstrued the facts and not recorded any reasons for allowing the appeals. 7. Shri. Mahesh Chowdhary submitted that the AO has recorded in para 5.7 of the impugned order that assessee had explained that he had got loans to the company by borrowing from private financiers and submitted its proof. With regard to CIT(A)'s order that assessee had given loan of Rs.13.62 Lakhs but drawn only Rs.8.52 Crores, he submitted that loan was given in the year 2010 and it is a running account. Therefore, the company has repaid the loan as and when it was due. 8. We have carefully considered the rival contentions and perused the records. 9. It is not in dispute that the CIT(A) has recorded that assessee had advanced Rs.13.62 Lakhs to the company. It is also not in dispute that AO has noticed that assessee had withdrawn Rs.8.52 Crores. Thus, neither the order passed by the AO nor the CIT(A) nor the ITAT clearly show as to how much amount was advanced by the assessee and how much was repaid towards loan. In the absence of specific finding regarding repayment of loan, the amount drawn by assessee will have to be treated as dividend under Section 2(22)(e) of the Act. 10. In the facts and circumstances of the case, we are of the opinion that assessee's claim that he had given loan to the company and received corresponding payment by the company towards repayment of loan has to be correctly determined. The ITAT is the last fact finding authority. We deem it appropriate to remand the matter to ITAT for re-consideration in the light of observations made hereinabove. In view of the above, the following: ORDER (i) Appeal is allowed. (ii) Order dated 31.08.2017 ITA No.1637/Bang/2016 is set aside. in (iii) Matter is remanded to the ITAT for reconsideration afresh. (iv) All the contentions of the parties are kept open. (v) Since the appeal is remanded, the question of law raised by the Revenue is not answered. No costs. Sd/- JUDGE Sd/- JUDGE BH