M/s. North West Carrying Company, New Delhi V. ACIT, New Delhi

CO 31/DEL/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9251 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-01-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 08-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 12-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: RAJ KUMARCA
• Keywords: Depreciation; Deemed dividend; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C: NEW DELHI) BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO.340 /DEL/ 2013 (ASSESSMENT YEAR :2009-2010) ACIT VS. NORTH WEST CARRYING COMPANY CIRCLE-33(1), ROOM NO. 1505, 1002, 10 TH FLOOR, 15 TH FLOOR, PRAGATI TOWER,26, DR. SHYAMA PRASAD MUKHERJEE CIVIC RAJENDRA PLACE, CENTRE. NEW DELHI NEW DELHI. PAN: AABFN7388M (APPELLANT) (RESPONDENT) CROSS OBJECTION NO. 31/DEL/ 2013 IN ITA NO. 340/DEL/2013 (ASSESSMENT YEAR:2009-10) NORTH WEST CARRYING COMPANY VS. ACIT C/O. RAJ KUMAR & ASSOCIATES, CA. CIRCLE-33(1), ROO M NO. 1505, 4435/7, ANSARI ROAD, DARYA GANJ 15 TH FLOOR, DR. SHYAMA PD. MUKHERJEE CIVIC CENTRE, NEW DELHI. NEW DELHI PAN: AABFN7388M (APPELLANT) (RESPONDENT) ASSESSEE BY :SHRI RAJ KUMAR,CA. REVENUE BY :SHRI KEYUR PATEL, SR. DR. ORDER PER J. S. REDDY, A M: THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XXVI, LAXMI NA GAR, DELHI VIDE DATED 25.10.2012 FOR THE ASSESSMENT YEAR 2009-10. ITA NO.340/DEL/2013 & C.O-31/DEL/2013 2 2. THE GROUNDS OF APPEAL ARISE FOR ADJUDICATION ARE AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT (A) HAS ERRED IN LAW AND ON FACTS IN RESTRI CTING THE ADDITION TO RS.1,66,897/- OUT OF TOTAL ADDITION OF RS.88,66,897/- MADE BY THE ASSESSING OFFICER U/S 2( 22) (E) OF THE I. T. ACT 1961 ON ACCOUNT OF DEEMED DIVI DEND. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT (A) HAS ERRED IN LAW AND ON FACTS IN HOLDIN G THAT THE SECURITY PREMIUM AMOUNT IS NOT TO BE INCLUDED IN THE ACCUMULATED PROFIT FOR INVOKING SECTION 2(22)(E) OF THE I. T. ACT 1961. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETI NG THE ADDITION OF RS.1,35,020/- MADE BY THE ASSESSING OFF ICER U/S 40A(2) (A) OF THE I. T. ACT 1961. 4. THE ORDER OF THE CIT (A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY/ ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARING OF THE APPEAL. 2. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE M R. SHRI RAJ KUMAR AND SR. KEYUR PATEL, SR. DEPARTMENTAL REPRESENTATIV E ON BEHALF OF THE REVENUE. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF THE PAPERS ON RECORD AND ORDERS OF T HE AUTHORITIES BELOW, WE HOLD AS FOLLOWS: ON GROUND NO.1 WE FIND THAT THE LD. CIT (A) HAS FO LLOWED THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F P. K. BADHANI VS. ITA NO.340/DEL/2013 & C.O-31/DEL/2013 3 CIT REPORTED IN 105 ITR 642 AND THAT THE MEANING OF THE ACCUMULATED PROFITS OCCURRING IN SECTION 2(22) (E) MEANS PROFIT S IN THE COMMERCIAL SENSE. 3. PROVISION HAS A REVERSE MEANT FOR SPECIFIC LIABI LITY IS NOT TO BE INCLUDED. HE HELD THE PROVISIONS OF INCOME TAX, DIV IDEND, RESERVES FOR DEPRECIATION, DO NOT FORM PART OF THE ACCUMULATED P ROFITS AT PARA 6.4 HELD AS FOLLOWS: 6.4. AS IS SEEN FROM THE ABOVE TABLE, THE RESERVES AND SURPLUS IN THE CASE OF M/S NWCC LOGISTICS PVT. LTD. INCLUDES A SECURITY PREMIUM OF RS.81,00,000/-. THE BALANCE OF RS.81,00,000/- SHOWN IN THE SECURITY PRE MIUM AMOUNT IS ON ACCOUNT OF PREMIUM RECEIVED BY THE COMPANY AGAINST THE ISSUE OF SHARES AT PREMIUM TO T HE SHARE HOLDERS IN EARLIER YEARS. THE AMOUNT OF SHARE PREMIUM IS NOT ACCUMULATED PROFITS AND HENCE THE DEEMING PROVISIONS OF SECTION 2(22) (E) CANNOT BE APPLIED. IN THIS ISSUE RELIANCE IS PLACED ON THE JU DICIAL DECISION IN THE CASE OF CIT VS. MAJPO INDIA LTD. (2 008) 24SOT 42 DELHI. THEREFORE, THE ASSESSING OFFICER HA S WRONGLY TAKEN THE ACCUMULATED PROFITS OF M/S NWCC LOGISTICS PVT. LTD. AT RS.82,66,897/- WHICH ARE THE ACTUAL ACCUMULATED PROFITS IN THE CASE OF M/S NWCC LOGISTI CS PVT. LTD. AND TO WHICH THE DEEMING PROVISIONS OF SE CTION 2(22) (E) SHALL APPLY. THE ASSESSING OFFICER IS THE REFORE, DIRECTED TO TAX THE DEEMED DIVIDEND TO THE EXTENT O F RS.1,66,897/- ONLY U/S 2(22) (E) OF THE IT ACT,1961 . 4. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CO NTROVERT THESE FINDINGS AND DISMISS GROUND NO.1 AND 2 OF THE REVEN UE. GROUND NO.3 IS AGAINST THE DISALLOWANCE U/S 40A (2) (A). THE FIRST APPELLATE AUTHORITY AT PARA 8.2 HELD AS FOLLOWS: ITA NO.340/DEL/2013 & C.O-31/DEL/2013 4 8.2. I HAVE CONSIDERED FACTS OF THE CASE AND SUBMI SSIONS OF THE APPELLANT. I FIND THAT THE ASSESSING OFFICER HAS NOT MADE OUT ANY CASE FOR MAKING THE IMPUGNED DISALLOWANCE. I AGREE WITH THE SUBMISSIONS OF THE APPELLANT THAT THE INTEREST PAID IS REASONABLE AND THE RATE OF INTEREST TO BE PAID IS DECIDED DEPENDING ON THE CIRCUMSTANCES AT THE TIME WHEN THE LOAN WAS TAKEN. I ALSO FIND THAT THE APPELLANT HAS BEEN PAYING INTEREST @ 16.5% ON UNSECURED LOANS TAKEN FROM ICICI BANK, WHICH WAS MUCH HIGHER THAN THE RATE OF INTEREST PAID I.E. 12% ON THE UNSECURED LOANS TAKEN FROM PARTNERS HUF. THEREFORE, ON CONSIDERING ALL THE FACTS I SEE NO JUSTIFICATION FO R THE ASSESSING OFFICER TO MAKE THIS DISALLOWANCE. THE ADDITION OF RS.1,35,020/- IS ACCORDINGLY DELETED. 5. WE FIND NO INFIRMITY IN THE SAME. IN THE RESULT GROUND NO.3 IS DISMISSED. GROUND NO. 4 AND 5 ARE GENERAL IN NATURE . IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. 6. COMING TO THE CROSS OBJECTIONS ARE ON THE FOLLOW ING GROUNDS. 1.1. THAT UNDER THE FACTS AND CIRCUMSTANCES, TRANS ACTIONS BETWEEN ASSESSEE AND M/S. NWCC LOGISTICS (PVT.) LTD . ARE IN THE NATURE OF TRADE TRANSACTIONS, HENCE, NOT HIT B Y THE PROVISIONS OF SSEC.2(22) (E). 1.2. THAT WITHOUT PREJUDICE, UNDER THE FACTS AND CIRCUMSTANCES, UNDER NO CIRCUMSTANCES, ADDITION U/S 2(22) (E) CAN BE MADE IN THE HANDS OF THE ASSESSEE. 1.3 THAT WITHOUT PREJUDICE, UNDER THE FACTS AND CIRCUMSTANCES, THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN SUSTAINING ADDITION TO THE EXTENT OF RS.1,66,897/- U/S 2(22)(E). 2. THAT UNDER THE FACTS AND CIRCUMSTANCES, ADDITION OF RS.1,04,512/- AS DEEMED INTEREST @12% ON DEBIT BALA NCES OF PARTNERS CAPITAL ACCOUNTS IS UN-JUSTIFIED AND UN-S USTAINABLE IN LAW AS WELL AS ON MERITS. ITA NO.340/DEL/2013 & C.O-31/DEL/2013 5 7. GROUND NO.1 AND 1.2 ARE DISMISSED AS NOT PRESSED . GROUND NO. 1.3 IS AN ADDITION MADE OF NOTIONAL INTEREST BASED ON CLAU SE 9 OF THE PARTNER SHIP ACT. THE ASSESSEES CASE IS THAT THE FUND HAD NOT C HARGED INTEREST ON THE DEBIT BALANCES IN THE PARTNERS ACTION AND HAS ALSO NOT P AID INTEREST ON THE CREDIT BALANCES IN THE PARTNERS CAPITAL ACCOUNT, THOUGH C LAUSE 9 OF THE PARTNER SHIP DEED CONTEMPLATES THAT THE PARTNERS SHALL BE PAID INTEREST ON THE CAPITAL, CURRENT LOAN ACCOUNTS @ 12 % PER ANNUM ON AT SUCH R ATE AS MAY BE MUTUALLY AGREED. SIMILAR INTEREST WAS CONTEMPLATED ON DEBIT BALANCES IN THE CAPITAL- CURRENT LOAN ACCOUNT OF THE PARTNERS. INTEREST WAS NOT CHARGED BY MUTUAL AGREEMENT. ON THESE FACTS, WE HAVE OUR CONSIDERED O PINION THAT THE ASSESSING OFFICER IS WRONG IN NOTIONALLY BRINGING T O TAX INTEREST, WHICH WAS NEVER CHARGED BY THE ASSESSEE FIRM. IN THE RESULT T HIS GROUND IN THE CROSS OBJECTION IS ALLOWED. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISMIS SED AND THE APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28 /01/ 201 4. SD/- SD/- (A. T. VARKEY) (J. S. REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NO.340/DEL/2013 & C.O-31/DEL/2013 6 DATED THE 28 TH DAY OF JANUARY, 2014 S.SINHA COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT(ITAT), NEW DELHI. AR,ITAT NEW DELHI.