M/s. Standipack Pvt. Ltd., New Delhi V. DCIT, New Delhi

CO 293/DEL/2010

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5492 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-12-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 16-12-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 30-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: KRISHNA B
• Keywords: Additional evidence; Cost of acquisition; Deemed dividend
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 3791/DEL/2010 ASSESSMENT YEAR: 2006-07 DCIT, CIRCLE 9(1), C.R. BLDG., NEW DELHI. VS. STANDIPACK PVT. LTD., 25, COMMUNITY CENTRE, EAST OF KAILASH, NEW DELHI. AAHCS0121J (APPELLANT) (RESPONDENT) & CROSS OBJECTION NO. 293/DEL/2010 ASSESSMENT YEAR: 2006-07 STANDIPACK PVT. LTD., 25, COMMUNITY CENTRE, EAST OF KAILASH, NEW DELHI. AAHCS0121J VS. DCIT, CIRCLE 9(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : KRISHNA. B., DR RESPONDENT BY : SACHIT JOLLY, ADV. O R D E R PER I.P. BANSAL, J.M. THE APPEAL IS FILED BY THE REVENUE AND CROSS OBJ ECTION BY THE ASSESSEE. BOTH OF THEM ARE DIRECTED AGAINST THE ORDER OF CIT( A) DATED 30.3.10 FOR A.Y. 2006-07. 2 ITA NO. 3791/DEL/2010 & CO NO. 293/DEL/2010 GROUNDS OF APPEAL READ AS UNDER: - 1. LD. CIT(A) ERRED, IN LAW AND ON THE FACTS AND C IRCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF RS. 16,751/- MADE BY TH E AO U/S 2(24)(X) READ WITH SEC. 36(1)(VA) OF THE I.T. ACT ON ACCOUNT OF P F & ESIC. 2. LD. CIT(A) ERRED, IN LAW AND ON THE FACTS AND CI RCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF RS. 70,00,000/- MADE BY THE AO U/S 2(22)(E) OF THE I.T. ACT ON ACCOUNT OF DEEMED DIVIDEND. 3. LD. CIT(A) ERRED, IN LAW AND ON THE FACTS AND CI RCUMSTANCES OF THE CASE, BY ACCEPTING ADDITIONAL EVIDENCES IN VIOLATION OF R ULE 46A OF THE I.T. RULE. 4. LD. CIT(A) ERRED, IN LAW AND ON THE FACTS AND CI RCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF RS. 6,19,095/- MADE BY THE AO ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 5. THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. GROUNDS OF CROSS OBJECTION READ AS UNDER: - 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CO NFIRMING THE ACTION OF THE AO IN DISALLOWING EXPENSES OF RS. 1,38,927/- U/S 14 A OF THE INCOME TAX ACT, 1961 (THE ACT) BY APPLYING RULE 8D OF THE IN COME TAX RULES, 1962 (IT RULES). 1.1THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CON FIRMING THE ACTION OF THE AO IN INVOKING RULE 8D OF THE IT RULES WITHOUT APPR ECIATING THAT THE SAID RULE WAS NOT APPLICABLE FOR THE ASSESSMENT YEAR IN QUESTION. 1.2THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CON FIRMING THE ACTION OF THE AO IN INVOKING RULE 8D OF THE IT RULES TO DISALLOW EXPENDITURE U/S 14A OF THE ACT, WITHOUT APPRECIATING THAT THE AO FAILED TO RECORD ANY SATISFACTION TO THE EFFECT EXPENDITURE HAD, IN FACT, BEEN INCURR ED IN EARNING THE EXEMPT DIVIDEND INCOME. 1.3THAT, WITHOUT PREJUDICE, THE CIT(A) ERRED ON FAC TS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING DEDUCTION OF EX PENSES OF RS. 1,38,927/- WITHOUT APPRECIATING THAT THE AO HAD HIM SELF ADMITTED, IN THE REMAND REPORT, THAT THE DISALLOWANCE WAS EXCESSIVE. 3 ITA NO. 3791/DEL/2010 & CO NO. 293/DEL/2010 2. REVENUES APPEAL: - APROPOS GROUND NO.1 A FINDING HAS BEEN RECORDED BY LD. CIT(A) AFTER CONSIDERING THE REMAND REPORT OF THE AO THAT ALL TH E PAYMENTS HAVE BEEN MADE PRIOR TO FILING THE RETURN OF INCOME AND, THEREFORE , LD.CIT(A) RELYING UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. P.M. ELECTRONICS PVT. LTD. 177 TAXMAN 1 (DEL.) HAS DELETED THE DISAL LOWANCE. 3. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND WE FOUND THAT DISALLOWANCE HAS RIGHTLY BEEN MADE BY LD. CIT(A) AS THE SAME IS NOT ONLY IN ACCORDANCE WITH AFOREMENTIONED DECISION OF DELHI HI GH COURT WITH THE VIEW TAKEN BY HONBLE DELHI HIGH COURT HAS BEEN CONFIRME D BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALOM ELECTRONICS LTD. 319 ITR 306. THEREFORE, WE DISMISS GROUND NO. 1 OF THE REVENUE. 4. APROPOS GROUND NO. 2 & 3 WE FOUND THAT AS PER CH ART DESCRIBED IN PARA 6 OF ORDER OF CIT(A). M/S SAUMYA MEATTLE IS ONLY TH E BENEFICIAL OWNER OF THE SHARES BUT NOT REGISTERED OWNER AS THE REGISTERED O WNER OF THE SHARES IS STANDIPACK PVT. LTD.. THOUGH LD. CIT(A) HAS DELETE D THE ADDITION ON THE GROUND THAT ASSESSEE COMPANY IS LEGAL AND BENEFICIAL OWNER SHIP OF LESS THAN 10% BUT DURING THE COURSE OF DISCUSSION IT WAS FOUND THAT S TANDIPACK PVT. LTD. IS ONLY THE REGISTERED SHAREHOLDER OF WHICH THE SOMYA METAL IS BENEFICIAL HOLDER. IT WILL BE APPROPRIATE IF PARA 6 OF ORDER OF CIT(A) VIDE WH ICH THE IMPUGNED ADDITION HAS BEEN DEALT WITH IS REPRODUCED BELOW: - 4 ITA NO. 3791/DEL/2010 & CO NO. 293/DEL/2010 6. THE 3 RD GROUND OF APPEAL PERTAINS TO AN ADDITION OF RS. 70,00,000/- AS DEEMED DIVIDEND U/S 2922)(E) OF THE I.T. ACT, 1961. IT HAS BEEN CLAIMED THAT THE SAID AMOUNT IS NOT IN THE NATURE OF LOAN OR ADVANCES. VIDE REMAND REPORT DATED 8.3. 10 AO HAS BROUGHT ON RECORD THAT THE ASSESSEE COMPANY WAS HOLDING 30,470 SHARES ONBEHALF OF M/S SAUMYA MEATTL E, WHO WAS THE BENEFICIAL OWNER OF THE SHARES AND SHARE HO LDING AS PER THE ANNUAL RETURN HAS BEEN CLAIMED AS FOLLOWS: - NAME OF THE SHAREHOLDER NO. OF SHARES BENEFICIAL OWNER % PAHARPUR HEAT TRANSFER 4,165 SAME AS COL. 1 3.21 SELECTO SYSTEMS PVT. LTD. 4,000 SAME AS COL.1 3.08 SWARUP M GYAN 5 SAME AS COL.1 0.003 STANDIPACK P. LTD. 30,470 SAUMYA MEATTLE 23.48 TELECOM ANCILLARIES P. LTD. 31,010 SAME AS COL.1 23.90 UNISYSTEMS P. LTD. 30,100 SAME AS COL.1 23.12 GORIMA P. LTD. 30,100 SAME AS COL.1 23.20 TOTAL 1,29,750 THE ASSESSEE HAS ALSO CLARIFIED THAT PAYMENT FOR AC QUISITION OF THESE SHARES HAS ALSO BEEN MADE BY SAUMYA MEATTLE A ND THESE SHARES WERE HELD IN THE NAME OF THE ASSESSEE COMPAN Y AS SAUMYA MEATTLE DURING THE RELEVANT PERIOD WAS OUT O F THE COUNTRY. AO HAS FURTHER BROUGHT ON RECORD THAT THE ASSESSEE HAS PROVIDED DOCUMENTARY EVIDENCE REGARDING BENEFICIAL OWNERSHIP OF SAUMYA MEATTLE BY PRODUCING COPY OF DOCUMENTS FILED WITH REGISTRAR OF THE COMPANY. DUR ING THE APPELLATE PROCEEDINGS, AR HAS REITERATED THAT SINCE ASSESSEE COMPANYS LEGAL AND BENEFICIAL OWNERSHIP W AS LESS THAN 10% THE SAID PROVISION IS NOT ATTRACTED. IN VIEW OF THE OBSERVATION OF THE AO REGARDING BENEFICIAL OWNE RSHIP, IT IS HELD THAT THE SAID PROVISION IS NOT ATTRACTED IN THE CASE OF THE ASSESSEE AND ASSESSEE TO GET RELIEF ACCORDINGLY . 5 ITA NO. 3791/DEL/2010 & CO NO. 293/DEL/2010 5. FROM THE ABOVE POSITION IT IS CLEAR THAT THE ASS ESSEE COMPANY IS ONLY THE REGISTERED HOLDER OF THE SHARES. LD. DR HOWEVER, R ELIED UPON THE ORDER OF AO AND AS AGAINST THAT LD. AR HAS PLACED RELIANCE ON T HE DECISION OF SPL. BENCH OF MUMBAI IN THE CASE OF ACIT VS. BHOOMI COLOURS PVT. LTD. 27 SOT 270 (MUMB.) (SPL. BENCH) AND IT WAS SUBMITTED BY HIM THAT SEC. 2(22)(E) COULD BE APPLIED ONLY IN A CASE WHERE THE PERSON IS HAVING BOTH THE CAPACITIES I.E. REGISTERED SHAREHOLDERS AS WELL AS BENEFICIAL SHAREHOLDER. HE DREW OUR ATTENTION TOWARDS CONCLUSION DRAWN BY THE SPL. BENCH IN THAT REGARD I N PARA 41 AND THE QUESTION NO. 2 WHICH WAS REQUIRED TO BE ANSWERED BY THE SPL. BENCH. THE QUESTION AS POSED TO THE SPL. BENCH WAS AS UNDER: - (2) WHETHER THE WORDS SUCH SHAREHOLDER OCCURRIN G IN SEC. 2(22)(E) REFER TO A SHAREHOLDER WHO IS BOTH THE RE GISTERED SHAREHOLDER AND THE BENEFICIAL SHAREHOLDER? 6. THE ANSWER RECORDED BY SPL. BENCH IN THIS REGARD AS CONTAINED IN PARA NO. 41 WAS AS UNDER: - ON THE SECOND QUESTION: THE EXPRESSION SHAREHOLDE R REFERRED TO IN SEC. 2(22)(E) REFERS TO BOTH A REGIS TERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSO N IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHARE HOLDER THAN THE PROVISIONS OF SEC. 2(22)(E) WILL NOT APPLY . SIMILARLY, IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A R EGISTERED SHAREHOLDER THAN ALSO THE PROVISIONS OF SEC. 2(22)( E) WILL NOT APPLY. 7. IN THIS VIEW OF THE SITUATION, AS FACTUAL ASPECT THAT ASSESSEE COMPANY IS ONLY A REGISTERED SHAREHOLDER AND NOT BENEFICIAL SH AREHOLDER COULD NOT BE CONTROVERTED, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND RESPECTFULLY 6 ITA NO. 3791/DEL/2010 & CO NO. 293/DEL/2010 FOLLOWING THE AFOREMENTIONED DECISION OF SPL. BENCH IT HAS TO BE HELD THAT ADDITION COULD NOT BE MADE U/S 2(22)(E) AS THE ASSE SSEE COMPANY IS NOT THE BENEFICIAL SHAREHOLDER OF THE OTHER COMPANY FROM WH OM THE ASSESSEE HAD ACQUIRED LOAN. 8. IN VIEW OF ABOVE DISCUSSION, GROUND NO. 2 7 3 AR E DISMISSED. 9. APROPOS GROUND NO. 4 THIS ADDITION HAS BEEN DELE TED BY LD. CIT(A) AS PER PARA 7 WITH THE FOLLOWING OBSERVATIONS: - 7. THE 4 TH GROUND OF APPEAL PERTAINS TO UNDER VALUATION OF CLOSING STOCK OF RS. 6,19,095/-. WHILE MAKING THE SAID ADDITION, AO OBSERVED THAT TH E AUDITORS HAD CERTIFIED IN FORM NO. 3 CD AT COLUMN N O. 12- B THAT CLOSING STOCK IS UNDER VALUED AT RS. 6,19,09 5/-. THE AUDITORS HAD FURTHER COMMENTED THAT THIS HAD NO EFF ECT ON INCOME. THEY HAVE ALSO OBSERVED THAT DUE TO INVOL VEMENT OF LARGE NUMBER OF SMALL ITEMS NO ADJUSTMENT WITH R ESPECT TO EXCISE DUTY OR CENVAT CREDIT IS MADE. SECTION 145A OF THE ACT SPECIFIES THAT THE PROJECT COST HAS TO INCLUDE ALL TAXES AND LEVIES IRRESPECTIVE OF WHE THER THE CREDIT FOR THE SAME IS AVAILABLE. THE ASSESSEE HAS FOLLOWED THE ADJUSTMENT AS PER ACCOUNTING STANDARD AS-2 BOTH IN RESPECT OF CLOSING AND OPENING STOCK AND HE NCE, AO IS DIRECTED TO DELETE THE SAID ADDITION. 10. DURING THE COURSE OF HEARING IT WAS BROUGHT TO OUR NOTICE THAT THE AO IN THE REMAND REPORT CALLED FOR BY LD. CIT(A) HAS ADMI TTED THAT SUCH AMOUNT HAD NO IMPACT ON PROFIT AND LOSS ACCOUNT OF THE ASSESSE E. COPY OF REMAND REPORT HAS BEEN FILED BY THE ASSESSEE AT PAGES 127 TO 130 OF THE PAPER BOOK AND THE 7 ITA NO. 3791/DEL/2010 & CO NO. 293/DEL/2010 OBSERVATIONS OF AO ON THIS ISSUE AS CONTAINED IN TH E REMAND REPORT ARE AS FOLLOWS: - DISALLOWANCE ON ACCOUNT OF UNDERVALUATION OF STOCK THIS ADDITION WAS MADE ON THE BASIS OF A COMMENT IN THE TAX AUDIT REPORT COL. NO. 12B WHICH STATES THAT THE CLOSING STOCK OF RAW MATERIAL HAVE BEEN UNDERVALUED BY RS. 619,095/- BUT IT HAS NO IMPACT ON PROFIT AS COMPUTE D UNDER THE ACT AS EXPLAINED IT ANNEXURE-D. ANNEXURE-D GIVES DETAILS OF DEVIATION IN VALUATION OF CLOSING STOCK. IT IS TRUE THAT ADDITION WAS MADE ON THE BASIS OF T HE AFORESAID COMMENT IN TAX AUDIT REPORT WITHOUT ANY FURTHER CLA RIFICATION FROM THE ASSESSEE. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE MADE CLARIFICATION WITH R EFERENCE TO CERTIFICATE OF STATUTORY AUDITOR, THE CONTENTS O F WHICH ARE REPRODUCED HERE UNDER: THE ACCOUNTING STANDARD AS-2 ON VALUATION OF INVENT ORIES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA REQUIRES ACCOUNTING FOR COST OF INVENTORIES EXCLUDI NG TAXES AND OTHER LEVIES FOR WHICH CREDIT IS AVAILABLE. AC CORDINGLY, THE COMPANY HAS ACCOUNTED FOR EXCISE DUTY PAID ON R AW MATERIALS ON WHICH CENVAT CREDIT HAS BEEN AVAILED A S AN ASSET AND NOT INCLUDED THE SAME IN COST OF PURCHASE S OF RAW MATERIALS. HOWEVER, SEC. 145A OF THE I.T. ACT, 196 1 REQUIRES THE PURCHASE COST TO INCLUDE ALL TAXES AND LEVIES, IRRESPECTIVE WHETHER THE CREDIT FOR THE SAME IS AVAILABLE. ACCO RDINGLY, THE ELEMENT OF CENVAT (EXCISE DUTY ON PURCHASE) ON OPEN ING STOCK AS ON 1.4.05, ON PURCHASE DURING THE YEAR, ON CLOSING STOCK OF RAW MATERIAL AS ON 31.3.06 AND ON CONSUMPT ION OF RAW MATERIAL DURING THE FINANCIAL YEAR HAS BEEN IDE NTIFIED SEPARATELY AND ACCOUNTED FOR AS AN ASSET IN THE BOO KS OF ACCOUNT. THE RELEVANT FIGURES HAVE BEEN SHOWN IN 8 ITA NO. 3791/DEL/2010 & CO NO. 293/DEL/2010 ANNEXURE-D, AS MENTIONED ABOVE. THE IMPACT OF THE SAME ON PROFIT AND LOSS IS NIL. IT IS FOUND THAT ADJUSTMENT IS IN OPENING AND CLOSI NG STOCK AND THERE IS NO IMPACT ON PROFIT AND LOSS ACCOUNT. THE ISSUE MAY BE DECIDED IN THE LIGHT OF OBSERVATION MADE ABO VE. 11. IN THIS VIEW OF THE SITUATION, AFTER HEARING BO TH THE PARTIES, WE FOUND THAT REVENUE HAS NO CASE ON THIS GROUND AND THE ADDITION HAS RIGHTLY BEEN DELETED BY LD. CIT(A) IN WHICH NO INFERENCE IS REQUIRED TO BE MADE FROM OUR SIDE. THEREFORE, THIS GROUND IS ALSO DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 13. CROSS OBJECTION FILED BY THE ASSESSEE: - LD. AR OF THE ASSESSEE DID NOT PRESS THE CROSS OBJE CTION AND TO THAT EXTENT HE HAS WRITTEN AT THE BACK OF FORM NO. 36A THE CROSS OBJECTION IS WITHDRAWN. IN SUCH A SITUATION, THE CO FILED BY THE ASSESSEE IS D ISMISSED AS WITHDRAWN. 14. IN THE RESULT, THE DEPARTMENTAL APPEAL AS WELL AS CROSS OBJECTION ARE DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22.12.10 ( SHAMIM YAHYA ) ACCOUNTANT MEMBER (I.P. BANSAL) JUDICIAL MEMBER DATED: *KAVITA 9 ITA NO. 3791/DEL/2010 & CO NO. 293/DEL/2010 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR