Shiv Saran Chand Ved Prakash, New Delhi V. ACIT, New Delhi

CO 125/DEL/2014

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2952 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 18-05-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 23-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S S RANA
• Keywords: Deemed dividend; Capital receipt
• Section: 153A; 132

Judgement Text

1 ITA NO. 5448/DEL/2013 & C.O125/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO.5448/DEL/20 13 (A.Y 2004-05) ACIT CENTRAL CIRCLE-03, ROOM NO. 355, 3 RD FLOOR, ARA CENTRE, JHANDEWALAN EXTN. NEW DELHI (APPELLANT) VS SHIV SARAN CHAND VED PRAKASH 2042, KATRA TOBACCO, KHARI BAOLI, NEW DELHI AAPFS4149B (RESPONDENT) C.O NO.125/DEL/2014 (A.Y 2004-05) SHIV SARAN CHAND VED PRAKASH 2042, KATRA TOBACCO, KHARI BAOLI NEW DELHI AAPFS4149B (APPELLANT) VS ACIT CENTRAL CIRCLE-03, ROOM NO. 355, 3 RD FLOOR, ARA CENTRE, JHANDEWALAN EXTN. NEW DELHI (RESPONDENT) APPELLANT BY SH. S. S. RANA, CIT DR RESPONDENT BY SH. SURESH KUMAR GUPTA, CA ORDER PER BENCH THE APPEAL IS FILED BY THE REVENUE AGAINST THE ORDE R DATED 22/7/2013 PASSED BY CIT(A)-1, NEW DELHI. THE CROSS OBJECTION IS FILED BY THE ASSESSEE. 2. THE GROUND OF APPEAL ARE AS UNDER:- (ITA NO. 5448/DEL/13) 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.37 ,67,550/- MADE BY DATE OF HEARING 18.05.2017 DATE OF PRONOUNCEMENT 19.05.2017 2 ITA NO. 5448/DEL/2013 & C.O125/DEL/2014 THE ASSESSING OFFICER ON ACCOUNT OF APPLICABILITY OF SECTION 2(22)(E) OF THE I.T ACT. 2(A). THE ORDER OF THE CIT(A) IS ERRONEOUS AND NOT TENABLE IN LAW AND ON FACTS. (B) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR A MEN ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE O F THE HEARING OF THE APPEAL. 3. THE GROUND OF CROSS OBJECTION IS AS UNDER:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT QUASHING THE ADDITION U/S 2(22)(E) OF THE IT ACT OF RS.37,67,550 /- ON THE GROUND THAT THE ABOVE ADDITIONS WERE NOT BASED ON ANY INCR IMINATING MATERIAL FOUND IN THE COURSE OF SEARCH ON THE RESPO NDENT ASSESSEE WHEN THE ORIGINAL ASSESSMENT PROCEEDINGS IN THE CAS E HAD NOT ABATED AS PER PROVISO TO SECTION 153A(1) OF THE IT ACT. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF COMMI SSION AGENT AND TRADING OF VARIOUS MERCHANDISE. HE SUBMITTED HIS RETURN OF INCOME ON 1/11/2004 DECLARING AN INCOME OF RS.24,890/-. A SEARCH AND S EIZURE OPERATION WAS INITIATED U/S 132 IN THE MAHESH MEHTA GROUP OF CASE S ON 30/6/2009. NOTICE U/S 153A WAS ISSUED ON 6/4/2011 IN RESPONSE TO WHIC H THE ASSESSEE FILED A LETTER STATING THAT THE RETURN FILED ORIGINALLY U/S 139(1) BE TREATED AS RETURN IN RESPONSE TO THE SAID NOTICE. NOTICES U/S 143 (2)/1 42(1) WERE SUBSEQUENTLY ISSUED ALONG WITH QUESTIONNAIRE. THESE NOTICE WERE COMPLIED WITH NECESSARY DETAILS/CLARIFICATION WAS FILED. THE ASSESSING OFF ICER MADE AN ADDITION OF RS.37,92,440/- U/S 2(22) (E). 6. BEING AGGRIEVED BY THE SAID ADDITIONS, THE ASSES SEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) DELETED THE SAID ADDITIONS BY HOLDING THAT SECTION 2(22)(E) IS APPLICABLE TO PAYMENTS FOR THE BENEFIT OF THE RECIPIENTS AND NOT TO PAYMENTS FOR CONSIDERATION. THE CIT(A) FURTHER HELD THAT TO AVOID GENUINE TRANSACTIONS FROM BEING HIT BY THE PROVISION OF SEC TION 2(22)(E) EXCEPTIONS HAVE BEEN MADE IN THE SECOND PART OF THE SAID CLAUSE WHE REIN DIVIDEND DOES NOT 3 ITA NO. 5448/DEL/2013 & C.O125/DEL/2014 INCLUDE ANY ADVANCE OR LOAN MADE TO A SHARE HOLDER OR THE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHE RE THE LENDING MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. TH US, THE CIT(A) HELD THAT THE TRANSACTIONS CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT AND DELETED THE ADDITION MADE BY THE AO 7. THE LD. DR SUBMITS THAT THE ASSESSING OFFICER HA S RIGHTY MADE AN ADDITION AS THE ASSESSEE FIRM WAS MAINTAINING A RUN NING LOAN ACCOUNT OF M/S MAHESH WOOD PRODUCTS PVT. LTD IN ITS BOOKS OF ACCOU NTS. THE ASSESSEE FIRM HAS TAKEN THE LOAN/ADVANCE OF RS.1,00,08,000/- FROM M/S MAHESH WOOD PRODUCTS PVT. LTD. THE ASSESSEE HAS NOT FILED ANY SUPPORTIN G DOCUMENTS THAT IT WAS A BUSINESS TRANSACTIONS. BOTH THE FIRM AND THE COMPA NIES ARE CONTROLLED BY SHRI MAHESH MEHTA AND HENCE THE CONTENTION OF THE ASSESS EE THAT AFTER INSPECTING THE STOCK OF THE SUPARI IT CANCELED IS DIFFERENT ON THE PLEA THAT THE QUALITY IS NOT OF THE LEVEL AGREED UPON. THE SAME WAS NOT ACCEPTE D BY THE ASSESSING OFFICER. THE ASSESSING OFFICER ALSO RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN CASE OF P. SARDA VS. CIT 229 ITR 444 WHER EIN IT IS HELD THAT THE ADVANCES MADE BY COMPANY TO ASSESSEE WOULD HAVE TO BE TREATED AS DEEMED DIVIDENDS PAID ON DATES WHEN WITHDRAWALS WERE ALLOW ED TO BE MADE AND SUBSEQUENT ADJUSTMENT OF ACCOUNT MADE ON VERY LAST DAY OF ACCOUNTING YEAR WOULD NOT ALTER POSITION THAT ASSESSEE RECEIVED NO TIONAL DIVIDEND ON VARIOUS DATES. THE ASSESSING OFFICERS OBSERVATION THAT THE CHARACTER OF THE RECEIPT EITHER AS CAPITAL RECEIPT OR AS INCOME SHOULD NOT B E BASED ON THE NAME GIVEN TO THE AMOUNT RECEIVED BY THE ASSESSEE IS CORRECT. BEC AUSE IN LAW THE REAL NATURE AND CHARACTER OF THE TRANSACTION MUST BE DETERMINED IN THE LIGHT OF THE TERMS OF THE CONTRACT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES FOLLOWING THEIR FROM UNGUIDED BY THE NOMENCLATURES TRANSACTION AS HELD B Y THE APEX COURT IN THE CASE OF NATIONAL CEMENT MINES INDUSTRIES LTD. VS. C IT 42 ITR 69. 8. THE LD. DR ALSO RELIED UPON THE VARIOUS JUDGMENT S WHICH ARE AS FOLLOWS:- 4 ITA NO. 5448/DEL/2013 & C.O125/DEL/2014 1. M. AMARESWARA RAO VS. DY CIT(A) [157 ITD 657/136 DTR 153/178 TTJ 700] 2. CIT VS. KESARWANI ZARDA BHANDAR SAHSON ALLD. [IT A NO. 270 OF 2014] (ALLAHABAD). 9. THE LD. AR SUBMITTED THAT IN CASE OF ACIT VS. S UPERB DEVELOPERS P LTD. (ITA NO. 52/DEL/2014 ORDER DATED 21.04.2017) BY THE DELHI ITAT, SIMILAR ISSUE WAS DECIDED AGAINST THE REVENUE. IN THE SAID ORDER THIS TRIBUNAL RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. KABUL CHAWLA 380 ITR 573. 10. WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE W AS HAVING BUSINESS DEAL WITH M/S MAHESH WOOD PRODUCTS LTD. AFTER INSPECTING THE STOCK OF SUPARI REQUESTED THE ASSESSEE TO CANCEL THE DEAL SAYING TH AT THE QUALITY IS NOT OF THE LEVEL AGREED UPON AT THE TIME OF THE DEAL. THE ASSE SSEE FIRM AGREED FOR CANCELLATION OF THE DEAL BUT EXPRESSED ITS INABILIT Y TO REFUND THE AMOUNT OF ADVANCE AS FUNDS WERE BLOCKED IN THE STOCK SPECIFIC ALLY PURCHASED FOR THE SAID COMPANY. THE SAME WAS EXPLAINED BY THE ASSESSEE FIR M DURING THE ASSESSMENT PROCEEDINGS THAT IT HAD RECEIVED ADVANCE OF RS.1,02 ,46,933/- FROM THE SAID PROSPECTIVE BUYER AND SINCE IT IS RELATED TO BUSINE SS, SECTION 2(22)(E) DOES NOT APPLY. THERE IS NO INCRIMINATING MATERIAL FOUND BY THE ASSESSING OFFICER AGAINST THE SAID BUSINESS DEAL. THE HONBLE DELHI H IGH COURT IN CASE OF CIT VS. KABUL CHAWLA 380 ITR 573, HELD THAT IF THERE IS NOT INCRIMINATING MATERIAL FOUND THEN SUCH ADDITIONS ARE NOT PROPER. THE ADDIT ION WAS MADE BY THE A.O DESPITE THE FACT THAT THERE WAS NO INCRIMINATING MA TERIAL (WHETHER BY WAY OF STATEMENT OR DOCUMENT OR ASSET, ETC.) UNEARTHED DUR ING THE COURSE OF SEARCH RELEVANT FOR ANY ASSESSMENT YEAR. ALSO, NO PROCEED INGS WERE PENDING FOR THIS ASSESSMENT YEAR ON THE DATE OF SEARCH. IN THESE FA CTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE MATTER IS SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE BY PRECEDENT OF HONBLE JURISDICTIONAL HIG H COURT IN THE CASE OF KABUL CHAWLA (SUPRA). THEREFORE, WE HOLD THAT IN THE ABSE NCE OF ANY INCRIMINATING 5 ITA NO. 5448/DEL/2013 & C.O125/DEL/2014 MATERIAL UNEARTHED DURING THE COURSE OF SEARCH, THE A.O HAD NO JURISDICTION TO INITIATE PROCEEDINGS U/S 153A OF THE ACT WHEN NO AS SESSMENT PROCEEDINGS WERE PENDING FOR THIS. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH MAY, 2017 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 19/05/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 17/05/2017 PS 2. DRAFT PLACED BEFORE AUTHOR PS 6 ITA NO. 5448/DEL/2013 & C.O125/DEL/2014 18/05/2017 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 19.05.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 1 9 .05.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.