Vijayshree Alloys Pune Private Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 1049/PUN/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 6804 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 18-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Deemed dividend; Reassessment proceedings
• Section: 143(3); 2(22)(e); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 1 049 /P U N/201 6 / ASSESSMENT YEAR : 20 10 - 11 VIJAYSHREE ALLOYS PUNE PRIVATE LIMITED, MZSK & ASSOCIATES, CHARTERED ACCOUNTANTS, LEVEL 3, BUSINESS BAY, PLOT NO. 84, WELLESLEY ROAD, NEAR RTO, PUNE 411001 PAN : AAACV6109J ....... / APPELLANT / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE / RESPONDENT ASSESSEE BY : S HRI NEELESH KHANDELWAL REVENUE BY : SHRI SUDHENDU DAS / DATE OF HEARING : 2 4 - 09 - 201 8 / DATE OF PRONOUNCEMENT : 20 - 12 - 201 8 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMI SSIONER OF INCOME TAX (APPEALS) - 5, PUNE DATED 15 - 03 - 2016 FOR THE ASSESSMENT Y EAR 20 10 - 11. 2 ITA NO . 1049/PUN/2016, A.Y. 2010 - 11 2. THE ASSESSEE IN APPEAL HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON FOLLOWING GROUNDS : 1. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS & SCHEME OF THE ACT, THE CIT(A) ERRED IN MAKING ESTIMATED ADDITION OF RS. 89,80,184/ - ON ACCOUNT OF MELTING LOSS. IT BE HELD THAT, THE LOSS CLAIMED BY THE APPELLANT IS CORRECT. THE ENTIRE ADDITION/DISALLOWANCE MADE MAY BE KINDLY DELETED. IN THE ALTERNATIVE, IT BE HELD THAT THE ADDITION/DISALLOWANCE MADE IS EXCESSIVE. THE APPELLANT BE GR ANTED JUST AND PROPER RELIEF IN THIS RESPECT. 2. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS & SCHEME OF THE ACT, THE CIT(A) ERRED IN MAKING ADDITION OF RS. 1,10,16,848/ - ON ACCOUNT OF DEEMED DIVIDEND. IT BE HELD THAT THE ADD ITION MADE BY THE CIT(A) IS UNWARRANTED AND HENCE BE DELETED. THE APPELLANT BE GRANTED JUST AND PROPER RELIEF IN THIS RESPECT. 3. WITHOUT PREJUDICE TO GROUND NO. 2, ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS & SCHEME OF THE ACT, THE CIT(A) HAS ERRED IN HOLDING ADVANCES GIVEN TO DIRECTORS OF THE APPELLANT AS DEEMED DIVIDEND. IT BE KINDLY HELD THAT THE LOANS GIVEN TO THE DIRECTORS OF THE APPELLANT ARE GIVEN DURING THE NORMAL COURSE OF BUSINESS AND NOT COVERED BY T HE PROVISIONS OF SECTION 2(22)(E).THE APPELLANT BE GRANTED JUST AND PROPER RELIEF IN THIS RESPECT. 4. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS & SCHEME OF THE ACT IT BE HELD THAT THE CIT(A) HAS ERRED IN MAKING ADDITION OF R S . 35,00,000 INC URRED ON ACCOUNT OF PREMIUM PAID UNDER 'KEYMAN INSURANCE POLICY'. THE CLAIM MADE BY THE APPELLANT BE ALLOWED. THE APPELLANT BE GRANTED JUST AND PROPER RELIEF IN THIS RESPECT. 5. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS & SCHEME OF THE ACT APPELLANT BE GRANTED CONSEQUENTIAL RELIEF, IF ANY. 5. T HE APPELLANT PRAYS TO BE ALLOWED TO ADD, AMEND, MODIFY, RECTIFY, DELETE, RAISE ANY GROUNDS OF APPEAL AT THE TIME OF HEARING. 3. SHRI NEELESH KHANDELWAL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF ALUMINIUM INGOTS. D URING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL , AS PER THE AUDIT ACCOUNTS THE MELTING/BURNING LOSS OF THE ASSESSEE IS 12.98%. THE ASSESSING OFFICER OBSERVED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE ASSESSEE 3 ITA NO . 1049/PUN/2016, A.Y. 2010 - 11 HAD DISCLOSED MELTING LOSS OF 2.13%. THE ASSESSEE TRIED TO EXPLAIN THE REASON FOR ABNORMAL INCREASE IN MELTING L OSS. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE. THE ASSESSING OFFICER FINALLY RESTRICTED MELTING LOSS TO 8% AND TREATED THE BALANCE AMOUNT AS SUPPRESSION OF SCRAP GENERATION. IN FIRST APPEAL THE COMMISSIONER OF INCOME T AX (APPEALS) CONFIRMED THE FINDINGS OF ASSESSING OFFICER. 3.1 ASSAILING THE FINDINGS OF AUTHORITIES BELOW, THE LD. AR MADE TWO FOLD SUBMISSIONS. THE FIRST CONTENTION OF THE LD. AR EXPLAINING HIGHER MELTING LOSS IS , POOR QUALITY OF RAW MATERIAL WHICH HAS RESULTED IN GENERATION OF MS SCRAP AND SILICON SCRAP. THE SECOND REASON FOR HIGHER BURNING LOSS AS REFLECTED IN THE AUDITED ACCOUNTS IS INTERCHANGING OF FIGURES OF SILICON SCRAP ISSUED FOR PRODUCTION WITH SCRAP SALES . THE LD. AR REFERRED TO QUANTITA TIVE DETAILS OF THE MATERIAL AT PAGE 187 OF THE PAPER BOOK. THE LD. AR POINTED THAT IN THE QUANTITY COLUMN OF SCRAP SALE, THE FIGURE 10005 HAS BEEN WRONGLY MENTIONED INSTEAD OF 116448 . THE LD.AR SUBMITTED THAT DUE TO WRONG FIGURES OF QUANTITY THE MELTIN G LOSS FIGURES INCREASED SHARPLY. 3.2 IN RESPECT OF GROUND NO. 2 RELATING TO THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT THE LD. AR SUBMITTED THAT THE AUTHORITIES BELOW HAVE ERRED IN MAKING ADDITION OF RS.1,10,16,848/ - ON ACCOUNT O F DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPANY. THE LD. AR SUBMITTED THAT KALPESH OSWAL AND PRAKASH OSWAL ARE THE DIRECTORS OF THE ASSESSEE COMPANY. THE COMPANY HAS EXTENDED UNSECURED LOANS TO THE DIRECTORS. IF THE SAID AMOUNT IS TREATED AS DEEM ED DIVIDEND THE ADDITION HAS TO BE IN THE HANDS OF THE RECIPIENTS AND NOT THE COMPANY. THE LD. AR POINTED THAT ASSESSMENTS OF THE DIRECTORS WERE REOPENED BUT NO ADDITION WAS MADE. THE LD. AR REFERRED TO THE NOTE AT THE END OF THE ASSESSMENT 4 ITA NO . 1049/PUN/2016, A.Y. 2010 - 11 ORDER WHEREIN THE ASSESSING OFFICER HAS MENTIONED THAT THE ADDITION MADE BY ASSESSING OFFICER ON THE ISSUE OF DEEMED DIVIDEND IS PROTECTIVE IN NATURE AND FOR SUBSTANTIAL ADDITIONS IN THE NAME OF DIRECTORS, THE RESPECTIVE ASSESSING OFFICERS IN D C/AC CIRCLE - 4, PUNE INCO ME TAX OFFICER, WARD - 4(5) , PUNE HAVE BEEN COMMUNICATED IN WRITING. THE LD. AR SUBMITTED THAT THEREAFTER ASSESS MENT OF KALPESH OSWAL AND PRAKASH OSWAL, DIRECTORS WERE REOPENED. THE LD. AR REFERRED TO ASSESSMENT ORDER IN THE CASE OF PRAKASH R. OSWAL DATED 03.02.2016 PASSED U/S.143(3) R.W.S.147 OF THE ACT AT PAGE 229 TO 241 OF THE PAPER BOOK AND SUBMITTED THAT T HE ASSESSING OFFICER IN REASSESSMENT PROCEEDINGS MADE ADDITION OF RS.5,45,000/ - IN THE HANDS OF PRAKASH OSWAL AND THE REASSESSMENT PROCEEDINGS IN T HE CASE OF K A LPESH OSWAL WERE DROPPED. 3.3 IN RESPECT OF GROUND NO. 4 THE LD. AR SUBMITTED THAT THE ADDITION OF RS.35,00,000/ - WAS MADE ON ACCOUNT OF PREMIUM PAID UNDER KEYMAN INSURANCE POLICY. SIMILAR ADDITION WAS MADE IN THE ASSESSMENT YEAR 2008 - 09. THE MATTER TRAVELLED UP TO THE TRIBUNAL IN IT A NO. 1048/PUN/2016. THE CO - ORDINATE BENCH OF THE TRIBUNAL VIDE ORDER DATED 16 - 03 - 2018 ALLOWED THE PAYMENT OF PREMIUM AS EXPENDITURE U/S. 37(1) OF THE ACT. 4. ON THE OTHER HAND SHRI SUDHENDU DAS REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUG NED ORDER. THE LD. DR SUBMITTED THAT THE ASSESSEE NEVER RAISED THE ARGUMENT OF BAD QUALITY OF RAW MATERIAL RESULTING IN GENERATION OF EXCES SIVE SCRAP WHICH HAS FURTHER LED TO ABNORMAL INCREASE IN BURNING LOSS BEFORE THE AUTHORITIES BELOW. THE LD. DR FURTH ER POINTED THAT ALLEGED INTER CHANGING OF QUANTITY FIGURES CANNOT BE ACCEPTED AS THE ACCOUNTS HAVE BEEN DULY AUDITED. THE ARGUMENT RAISED BY THE ASSESSEE ARE AFTERTHOUGHT. THE LD. DR PRAYED FOR CONFIRMING THE FINDINGS OF 5 ITA NO . 1049/PUN/2016, A.Y. 2010 - 11 COMMISSIONER OF INCOME TAX (APPEA LS) AND DISMISSING THE APPEAL OF ASSESSEE. 5. W E HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW . THE ASSESSEE IN APPEAL HAS PRIMARILY ASSAILED THE ORDER OF FIRST APPELLATE AUTHORITY ON THREE ISSUES : I . ESTIMATING ADDITION OF RS.89,80,184/ - ON ACCOUNT OF MELTING LOSS. II . ADDITION OF RS.1,10,16,848/ - ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. III . ADDITION OF RS.35,00,000/ - ON ACCOUNT OF PREMIUM PAID UNDER KEYMAN INSURANCE POLICY. 6. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ALUMINIUM INGOTS. DURING MANUFACTURING PROCESS THERE IS GENERATION OF SCRAP AND BURNING/MELTING LOSS OF MATERIAL. IN THE PAST UNDISPUTEDLY THE ASSESSEE HAS BEEN SHOWING MELTING LOSS TO THE E XTENT OF 2.13%. HOWEVER, I THE ASSESSMENT YEAR UNDER APPEAL THERE WAS SUBSTANTIAL INCREASE IN MELTING LOSS I.E. 12.98%. THE LD. AR HAS POINTED THAT THE INCREASE IN MELTING LOSS IS ATTRIBUTABLE TO PROCUREMENT OF POOR QUALITY OF RAW MATERIAL. THE LD. AR S UBMITTED THAT THE ASSESSEE HAS EVEN SOUGHT COMPENSATION FROM THE SU PPLIER OF THE MATERIAL FOR SUPPLYING SUB - STANDARD QUALITY OF MATERIAL . THE LD. AR FURTHER SUBMITTED THAT IN AUDITED ACCOUNTS IN RESPECT OF SILICON , THE QUANTITATIVE FIGURES OF MATERIAL ISSUE D FOR PRODUCTION AND SCRAP SALES HAVE BEEN INADVERTENTLY INTERCHANGED WHICH HAS FURTHER RESULTED IN ABERRATION OF FIGURES OF MELTING LOSS. WE FIND THAT BOTH THE ARGUMENTS HAVE BEEN RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL. THE SUBMISSIONS MA DE BY THE ASSESSEE ARE WITH RESPECT TO THE FACTUAL ASPECTS 6 ITA NO . 1049/PUN/2016, A.Y. 2010 - 11 WHICH NEEDS VERIFICATION. IN THE BACKDROP OF THESE SUBMISSIONS, W E ARE OF CONSIDERED VIEW THAT THIS ISSUE NEEDS REVISIT TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION OF THE FACTS WHICH HAVE NO W BEEN PUT FORTH BY THE AR OF THE ASSESSEE. THE ASSESSING OFFICER WHILE DECIDING THE ISSUE DE - NOVO SHALL DECIDE THIS ISSUE IN THE LIGHT OF FRESH SUBMISSIONS MADE BY THE ASSESSEE. NEEDLESS TO SAY THE ASSESSING OFFICER SHALL GRANT REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WITH LAW. THE GROUND NO. 1 OF THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 7. IN GROUND NO. 2 THE ASSESSEE HAS ASSAILED ADDITION OF RS. 1,10,16,848/ - ON ACCO UNT OF DEEMED DIVIDEND U/S. 2(22 )(E) OF THE ACT. BEFO RE PROCEEDINGS FURTHER TO DECIDE THIS ISSUE IT WOULD BE RELEVANT TO REFERR TO PROVISIONS OF SECTION 2(22)(E) OF THE ACT. (22) DIVIDEND INCLUDES XXXXXXXXXXXX (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTIT LED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTERE ST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS. 8. A BARE PERUSAL O F PROVISIONS WOULD SHOW THAT DEEMED DIVIDEND IS TAXABLE IN THE HANDS OF THE RECIPIENTS AND NOT THE COMPANY EXTENDING ADVANCE OR LOANS. A PERUSAL OF THE N OTE APPENDED AT THE END OF ASSESSMENT ORDER IN THE PRESENT CASE FURTHER SHOWS THAT FOR SUBSTANTIAL ADDITION S IN THE NAME OF DIRECTORS OF THE COMPANY THE ASSESSING OFFICER OF ASSESSEE COMPANY COMMUNICATED TO THE ASSESSING OFFICERS OF THE 7 ITA NO . 1049/PUN/2016, A.Y. 2010 - 11 RESPECTIVE DIRECTORS TO REOPEN THE CASE FOR MAKING SUBSTANTIAL ADDITION ON ACCOUNT OF DEEMED DIVIDEND. THE LD. AR HAS POINTED THAT ADDITION U/S.2(22)(E) WAS MADE IN THE HANDS OF PRAKASH OSWAL , DIRECTOR IN REASSESSMENT PROCEEDINGS VIDE ASSESSMENT ORDER DATED 03 - 02 - 2016 PASSED U/S. 143(3) R.W.S. 147 AND IN CASE OF ANOTHER DIRECTOR I.E. KALPESH OSWAL , REOPENI NG PROCEEDINGS HAVE BEEN DROPPED. THUS, IN VIEW OF THE FACT THAT THE ADDITIONS ON ACCOUNT DEEMED DIVIDEND IS ONLY SUSTAINABLE IN THE HANDS OF THE RECIPIENTS, NO ADDITION U/S. 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE COMPANY CAN BE MADE. ACCORDING LY, GROUND NO. 2 RAISED IN THE APPEAL IS ALLOWED. 9. IN GROUND NO. 3 OF THE APPEAL , THE ASSESSEE HAS MADE AN ALTERNATE PRAYER WITHOUT PREJUDICE TO THE SUBMISSIONS MADE IN RESPECT OF GROUND NO. 2. SINCE, WE HAVE ALLOWED THE PRAYER OF THE ASSESSEE IN GRO UND NO. 2, THE GROUND NO. 3 OF THE APPEAL HAS BECOME INFRUCTUOUS AND THE SAME IS DISMISSED AS SUCH. 10. IN GROUND NO. 4 OF THE APPEAL THE ASSESSEE HAS ASSAILED ADDITION OF RS.35,00,000/ - ON ACCOUNT OF PREMIUM PAID UNDER KEYMAN INSURANCE POLICY. WE FIND THAT THIS ISSUE HAS ALREADY BEEN ADJUDICATED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ITA NO. 1048/PUN/2016 (SUPRA). THE TRIBUNAL HAS HELD THAT PAYMENT OF RS.35,00,000/ - TOWARDS KEYMAN INSURANCE POLICY IS ALLOWABLE EXPENDITURE IN THE HANDS OF THE ASSE SSEE U/S. 37(1) OF THE ACT. THUS, IN VIEW OF THE SETTLED POSITION THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE ARE REVERSED AND THE GROUND NO. 4 OF THE APPEAL IS ALLOWED. 8 ITA NO . 1049/PUN/2016, A.Y. 2010 - 11 11. THE GROUND NOS. 5 AND 6 OF THE APPEAL ARE GENERAL IN NA TURE, HENCE, REQUIRE NO ADJUDICATION. 12. IN THE RESULT, THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL OF ASSESSEE IS PARTLY ALLOWED IN THE TERMS AFORESAID. ORDER PRONOUNCED ON THURSDAY, THE 20 TH DAY OF DECEMBER, 201 8 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 20 TH DECEMBER, 2018 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 5, PUNE 4. THE PR. COMMISSIONER OF INCOME TAX - 4, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE