SANITECH ENGINEERS P.LTD, MUMBAI V. ACIT 10(3), MUMBAI

CO 144/MUM/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7707 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 29-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: HARSHAVARDHAN DATAR
• Keywords: Maximum Marginal Rate; Deemed dividend

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI .. , ! ' , # !, $ BEFORE SHRI R.S.SYAL, AM AND SHRI VIVEK VARMA, JM ./ ITA NO.6157/MUM/2011 ( #& ' #& ' #& ' #& ' / / / / ASSESSMENT YEAR : 2008-2009) THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 10(3) MUMBAI. M/S.SANITECH ENGINEERS PVT. LTD. W-199E, MIDC, TTC INDUSTRIAL AREA THANE-BELAPUR ROAD NAVI MUMBAI 400 705. PAN : AAACN1876C. ( () / // / APPELLANT) & & & & / VS. ( *+()/ RESPONDENT) *+$ ./ CO NO.144/MUM/2012 ( #& ' #& ' #& ' #& ' / / / / ASSESSMENT YEAR :2008-2009) M/S.SANITECH ENGINEERS PVT. LTD. W-199E, MIDC, TTC INDUSTRIAL AREA THANE-BELAPUR ROAD NAVI MUMBAI 400 705. THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 10(3) MUMBAI. ( *+$ / CROSS OBJECTOR) & & & & / VS. ( *+()/ RESPONDENT) , , , , - -- - . . . . / REVENUE BY : SHRI V.KRISHNAMOORTHY #& /0 #& /0 #& /0 #& /0 - . - . - . - . / ASSESSEE BY : SHRI HARSHAVARDHAN DATAR & - 0 / / / / DATE OF HEARING : 21.08.2012 12' - 0 / DATE OF PRONOUNCEMENT : 24.08.2012 !3 !3 !3 !3 / / / / O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER O F INCOME-TAX (APPEALS) ON 09.06.2011 IN RELATION TO THE ASSESSME NT YEAR 2008- 2009. ITA NO.6157/MUM/2011 & CO.144/M/2012 M/S.SANITECH ENGINEERS PVT.LTD. 2 2. FIRST GROUND OF THE REVENUES APPEAL IS AGAINST THE DELETION OF DISALLOWANCE OF ` 1,19,82,954 MADE BY THE ASSESSING OFFICER U/S 2(22)(E) OF THE ACT. BRIEFLY STATED THE FACTS OF T HIS GROUND ARE THAT THE ASSESSEE RECEIVED ADVANCE MONEY / UNSECURED LOAN FR OM M/S NISHOTECH SYSTEMS PRIVATE LIMITED IN WHICH SHRI NIL ESH BADANI AND SHRI SANJAY BADANI WERE HAVING 33.41% AND 22.11% SH AREHOLDING DURING THE YEAR. THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO SHOW AS TO WHY THE UNSECURED LOANS RECEIVED FROM TH E COMPANY SHOULD NOT BE TREATED AS DEEMED DIVIDEND IN THE HAN DS OF THE ASSESSEE-COMPANY U/S 2(22)(E) OF THE ACT. IT WAS CO NTENDED ON BEHALF OF THE ASSESSEE THAT PRIMARILY MONEY WAS RECEIVED F OR BUSINESS CONSIDERATION AND SECONDLY, SHRI NILESH BADANI AND SHRI SANJAY BADANI HAVING THE AFORE-QUOTED PERCENTAGE OF SHARES IN M/S. NISHOTECH SYSTEMS PRIVATE LIMITED WERE ALSO HOLDING MORE THAN 10% SHAREHOLDING IN THE ASSESSEE-COMPANY. IT WAS ALSO ARGUED THAT THE ASSESSEE-COMPANY WAS NOT SHAREHOLDER IN M/S.NISHOTE CH SYSTEMS PRIVATE LIMITED, WHO HAD ADVANCED THE LOAN TO THE A SSESSEE. THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTIO N AND MADE THE ADDITION OF ` 1.19 CRORE U/S 2(22)(E) BEING THE AMOUNT ADVANCED A S LOAN TO THE ASSESSEE-COMPANY. THE LEARNED CIT(A), R ELYING ON THE ORDER PASSED BY THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF ACIT V. BHAUMIK COLOUR PRIVATE LIMITED [(2009) 27 SOT 27 0 (MUM.) (SB)], DELETED THE ADDITION. THE REVENUE IS AGGRIEVED AGA INST THE VIEW TAKEN BY THE LEARNED CIT(A). ITA NO.6157/MUM/2011 & CO.144/M/2012 M/S.SANITECH ENGINEERS PVT.LTD. 3 3. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD, IT IS FOUND AS AN ADMITTED POSI TION EVEN BY THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE ASSESS EE-COMPANY WAS NOT SHAREHOLDER OF M/S.NISHOTECH SYSTEMS PRIVATE L IMITED WHICH HAD ADVANCED LOAN TO IT. RATHER, THE SHAREHOLDERS O F THE ASSESSEE- COMPANY WERE ALSO THE SHAREHOLDERS IN THE OTHER COM PANY. THE SPECIAL BENCH ORDER OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOUR PRIVATE LIMITED (SUPRA) STRICTLY GOVERNS THE SITUAT ION. AS PER THIS ORDER, THERE CAN BE NO ADDITION U/S 2(22)(E) UNDER THE PRESENT CIRCUMSTANCES. IT IS FURTHER OBSERVED THAT THE HON BLE BOMBAY HIGH COURT HAS UPHELD THE VIEW TAKEN BY THE SPECIAL BENC H IN THE CASE OF BHAUMIK COLOUR PRIVATE LIMITED (SUPRA) . IN VIEW OF THE FOREGOING REASONS, WE ARE NOT INCLINED TO DISTURB THE FINDING GIVEN BY THE LEARNED CIT(A) ON THIS ISSUE. THIS GROUND IS NOT AL LOWED. 4. GROUND NO.2 OF THE APPEAL IS AGAINST THE DELETIO N OF ADDITION OF ` 60 LAKH MADE BY THE A.O. U/S 40A(2)(B) OF THE ACT. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE DEBI TED A SUM OF ` 24 LAKH TOWARDS ENGINEERING SERVICES AND ` 36 LAKH TOWARDS EQUIPMENT HIRE CHARGES. THE A.O. WAS OBSERVED THAT THERE WAS NO MATCHING EXPENDITURE IN THE PRECEDING YEAR. ON BEING CALLED UPON TO SUBSTANTIATE THE CLAIM, THE ASSESSEE FURNISHED DETA ILS AND COPIES OF BILLS RAISED AND DOCUMENTARY EVIDENCES IN SUPPORT O F THE SAME. ON GOING THROUGH THE SAME, THE ASSESSING OFFICER OBSE RVED THAT A SINGLE INVOICE WAS RAISED TOWARDS EACH OF THE ABOVE EXPENS ES ON 31.03.2008 BY M/S.NISHOTECH SYSTEMS PRIVATE LIMITED. IT WAS AL SO OBSERVED THAT ITA NO.6157/MUM/2011 & CO.144/M/2012 M/S.SANITECH ENGINEERS PVT.LTD. 4 THE SAID AMOUNT WAS PURPORTEDLY PAID AS PER AGREEME NT ENTERED DURING AUGUST 2007 WITH EFFECT FROM 01.04.2007. SIN CE SUCH AGREEMENT WAS NOT REGISTERED NOR NOTARIZED AND FURT HER THE AUDITOR HAD NOT MENTIONED THIS FACT IN AUDIT REPORT, THE A. O. HELD THAT THE SAID AMOUNT WAS NOT LIABLE TO BE ALLOWED AS DEDUCTION. T HE LEARNED CIT(A) DELETED THE ADDITION. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS OBSERVED THAT THE ASSESSING OFFICER HAS PRIMARILY MADE ADDITION U/S 40A(2) OF THE ACT B Y TREATING THE AMOUNT OF ` 60 LAKH PAID TO M/S.NISHOTECH SYSTEMS PRIVATE LIMIT ED. THE MAIN REASON WHICH WEIGHED WITH THE ASSESSING OF FICER FOR MAKING THIS ADDITION WAS THAT THERE WAS SINGLE INVO ICE BY A GROUP CONCERN AND FURTHER THE AGREEMENT WAS NOT REGISTERE D OR NOTARIZED. THE LEARNED CIT(A) HAS RECORDED A CATEGORICAL FINDI NG THAT BOTH THE ASSESSEE AS WELL AS M/S.NISHOTECH SYSTEMS PRIVATE L IMITED HAVE SUFFERED TAX AT THE MAXIMUM MARGINAL RATE AND THERE WAS NO TAX EVASION BY UNNECESSARILY BOOKING MORE EXPENDITURE I N THE HANDS OF THE ASSESSEE. WE ARE UNABLE TO UPHOLD THE VIEW TAKE N BY THE ASSESSING OFFICER FOR THE REASON THAT IN ORDER TO I NVOKE THE MANDATE OF SECTION 40A(2), IT IS INCUMBENT ON THE PART OF THE ASSESSING OFFICER TO SPECIFICALLY POINT OUT AS TO HOW THE SAI D EXPENDITURE IS EXCESSIVE HAVING REGARD TO THE NEEDS OF THE ASSESSE E OR THE MARKET VALUE THE GOODS OR SERVICES PURCHASED / AVAILED FRO M ITS SISTER CONCERNS. NOTHING OF THIS SORT HAS BEEN DONE IN THI S CASE. ON THE CONTRARY, THE ENTIRE AMOUNT HAS BEEN DISALLOWED WI THOUT SHOWING AS ITA NO.6157/MUM/2011 & CO.144/M/2012 M/S.SANITECH ENGINEERS PVT.LTD. 5 TO HOW THE PAYMENT WAS EXCESSIVE OR WAS NOT IN ACCO RDANCE WITH THE MARKET VALUE OF THE SERVICES AVAILED BY THE ASSESSE E-COMPANY. THE MERE FACT THAT THE AGREEMENT WAS NOT NOTARIZED OR R EGISTERED CANNOT BE A REASON TO DISALLOW THE EXPENDITURE WHEN IT HAS BEEN PROPERLY ACTED UPON. UNDER THESE CIRCUMSTANCES WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DI SALLOWING THIS ADDITION OF ` 60 LAKH. THIS GROUND IS NOT ALLOWED. 6. LAST EFFECTIVE GROUND OF THE APPEAL IS AGAINST D ELETION OF DISALLOWANCE OF ` 13,14,577 OUT OF STORES AND SPARES. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE DEBITED A SUM OF ` 65 LAKH IN ITS ACCOUNT TOWARDS SPARES AND TOOLS. THE A.O. OBSE RVED THAT SUCH EXPENDITURE HAS INCREASED FROM ` 13 LAKH IN THE PRECEDING YEAR TO ` 65 LAKH IN THE CURRENT YEAR. IT WAS ALSO NOTICED THAT THE SALES HAD MARGINALLY INCREASED FROM ` 2.08 CRORE TO ` 3.78 CRORE. ON BEING CALLED UPON TO JUSTIFY THE DEDUCTIBILITY OF THE EXPENDITUR E, THE ASSESSEE STATED THAT THIS EXPENDITURE WAS MAINLY ON ACCOUNT OF PURC HASE OF CYLINDERS AND SPARE EQUIPMENTS FOR WELDING AT CUSTOMERS SITE . COPIES OF INVOICES WERE ALSO FURNISHED. THE ASSESSING OFFICER MADE 20% DISALLOWANCE OF THE TOTAL EXPENDITURE WHICH RESULTE D INTO AN ADDITION OF ` 13,15,577. THE LEARNED CIT(A) DELETED THIS ADDITION . 7. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD IT IS OBSERVED THAT THE ASSESSIN G OFFICER HAS MADE AD HOC DISALLOWANCE OF THE EXPENDITURE WITHOUT DOUBTING TH E GENUINENESS OF THE EXPENSES. INVOICES WERE PRODUCED BEFORE THE A.O. ITA NO.6157/MUM/2011 & CO.144/M/2012 M/S.SANITECH ENGINEERS PVT.LTD. 6 WHICH WERE NOT FOUND TO BE BOGUS. THE CASE OF THE A SSESSING OFFICER COULD HAVE BEEN TO ASCERTAIN THE VALUE OF CLOSING S TOCK OF STORES AND SPARES IN A PROPER AND SCIENTIFIC MANNER THEREBY RE STRICTING THE ALLOWABILITY OF EXPENDITURE ACCORDINGLY. SINCE THE ASSESSING OFFICER HAS MADE AD HOC DISALLOWANCE AT 20% OF TOTAL EXPENSES, WITHOUT RESORTING TO A PROPER EXERCISE TO FIND THE VALUE OF CLOSING STOCK OF STORES AND SPARES, IN OUR CONSIDERED OPINION, NO FA ULT CAN BE FOUND IN THE ACTION OF THE LEARNED CIT(A) IN DELETING THE AD DITION. THIS GROUND IS ALSO NOT ALLOWED. 8. CROSS OBJECTION FILED BY THE ASSESSEE REQUIRES T HE AWARDING OF SUITABLE COSTS. IN OUR CONSIDERED OPINION, NO CASE HAS BEEN MADE OUT FOR AWARDING COST IN FAVOUR OF THE ASSESSEE. 9. / 04 , - 5 #& /0 - *+$ /, - ,0 67 IN THE RESULT, THE APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF AUGUST, 2012. !3 - 12' 8!&4 2 - 9 SD/- SD/- (VIVEK VARMA) (R.S.SYAL) # ! # ! # ! # ! / JUDICIAL MEMBER ! ! ! ! / ACCOUNTANT MEMBER MUMBAI ; 8!& DATED : 24 TH AUGUST, 2012. DEVDAS* ITA NO.6157/MUM/2011 & CO.144/M/2012 M/S.SANITECH ENGINEERS PVT.LTD. 7 !3 - *#0:' ;''0 !3 - *#0:' ;''0 !3 - *#0:' ;''0 !3 - *#0:' ;''0/ COPY OF THE ORDER FORWARDED TO : 1. () / THE APPELLANT 2. *+() / THE RESPONDENT. 3. < () / THE CIT(A)-XXII, MUMBAI. 4. < / CIT 5. '?9 *#0#& , , / DR, ITAT, MUMBAI 6. 9@ A / GUARD FILE. !3& !3& !3& !3& / BY ORDER, +'0 *#0 //TRUE COPY// B B B B/ // /6 , 6 , 6 , 6 , ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI