DEVKANT SYNTHETICS (I) P.LTD, MUMBAI V. ITO 3(1)(2), MUMBAI

ITA 1251/MUM/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5073 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 13-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice
• Section: 234B; 14A; 154

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ./I.T.A. NO.7729/M/2011 (AY: 2008 - 2009) ./I.T.A. NO.1251/M/2013 (AY: 2008 - 2009) ./I.T.A. NO.720/M/2013 (AY: 2009 - 2010) DEVKANT SYNTHETICS (I) P. LTD., 1006, RAHEJA CENTRE, 10 TH FLOOR, NARIMAN POINT, MUMBAI 400 021. / VS. ITO - 9(1)(3), MUMBAI. ./ PAN : AAACD 2102 K ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI RAJIV KHANDELWAL / REVENUE BY : SHRI RITESH MISRA, DR / DATE OF HEARING : 11.12.2013 / DATE OF PRONOUNCEMENT : 20 .12.2013 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TH REE APPEALS UNDER CONSIDERATION AND THEY ARE FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDERS OF THE CIT (A) - 19 AND CIT (A) - 6, MUMBAI FOR THE ASSESSMENT YEARS 2008 - 09 AND 2009 - 2010. SINCE, THE ISSUES RAISED IN ALL THE THREE APPEALS ARE INTERCONNECTED, FO R THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS COMPOSITE ORDER. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE SUCCEEDING PARAGRAPHS. 2. AT THE OUTSET, SHRI RAJIV KHANDELWAL, LD COUNSEL FOR THE ASSESSEE BROU GHT OUR ATTENTION TO THE TWO APPEALS FOR THE AY 2008 - 2009 AND MENTIONED THAT ALL THE ISSUES INVOLVED IN THESE APPEALS ARE REQUIRED TO BE REMANDED TO THE CIT (A) WITH CERTAIN DIRECTIONS. BRINGING OUR ATTENTION TO THE GROUND NO.1 OF THE ITA NO.7729/M/2011 , LD COUNSEL MENTIONED THAT THE CORE ISSUE RELATES TO WHETHER THERE IS A NEED FOR GIVING ADVANCES TO CERTAIN PARTIES FREE OF ANY INTEREST. THE OTHER LIMB OF THE GROUND NO.1 RELATES TO THE DISALLOWANCE @ 20% BY PRODUCT METHOD IN 2 RESPECT OF SUCH INTEREST FREE ADVANCES. FURTHER, LD COUNSEL BROUGHT OUR ATTENTION TO THE GROUNDS RAISED IN ITA NO.1251/M/2013 AND STATED THAT THE ISSUES RAISED IN THE SAID GROUNDS EMANATES FROM THE M ODIFICATION ORDER PASSED U/S 154 OF THE ACT ON THIS ISSUE RAISED IN RELATION TO THE A BOVE SAID GROUND NO.1 OF THE ITA NO. 7729/M/2011. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION AND ATTEMPTED TO DEMONSTRATE THAT THE ASSESSEE HAS ADEQUATE INTEREST FREE FUNDS . LOANS / ADVANCES GIVEN BY THE ASSESSEE FREE OF INTEREST HAVE SOURCES IN TH E ABOVE MENTIONED INTEREST FREE LOANS / EXCESS FUNDS OF THE ASSESSEE. IN THAT CASE, THE NEXUS SHOULD BE APPRECIATED UNDER THE PRESUMPTION THAT NON - INTEREST BEARING FUNDS WERE UTILIZED FOR GIVING INTEREST FREE ADVANCES SHOULD BE APPRECIATED CONSIDERING THE BINDING HIGH COURT JUDGMENT IN THE CASE OF COMMISSIONER OF INCOME - TAX VS RELIANCE UTILITIES AND POWER LTD. (BOM) 313 ITR 340 . FURTHER, HE MENTIONED THAT THE CIT (A) HAS IGNORED THE ASSESSEES WRITTEN SUBMISSIONS FILED BEFORE HIM. IN THIS REGARD, HE REL IED ON THE CONTENTS OF SUB - PARA ( F ) OF PARA 1.3 OF THE SAID WRITTEN SUBMISSIONS FILED BY THE ASSESSEE . FURTHER, LD COUNSEL ALSO BROUGHT OUR ATTENTION TO THE VARIOUS PAGES OF THE PAPER BOOK TO DEMONSTRATE THAT THE ASSESSEE HAS RECEIVED INTEREST FREE FUNDS FROM MW INFRA HOLDING PVT LTD; TRIVENI MANAGEMENT CONSULTANCY SERVICES AND GLOBAL ABSOLUTE RESEARCH PVT LTD (PAGE 15 OF THE PAPER BOOK IS RELEVANT IN THIS REGARD). HOWEVER, HE COULD NOT DEMONSTRATE THE EXACT DATES OF RECEIPT OF THESE LOANS FOR EXPLAINING THE INTEREST FREE ADVANCES GRANTED BY THE ASSESSEE. LD COUNSEL ALSO BROUGHT OUR ATTENTION TO PAGE 9 OF THE PAPER BOOK AND MENTIONED THAT ASSESSEE HAS REVERSES AS WELL AS SHARE CAPITAL TO EXPLAIN THE IMPUGNED LOANS GIVEN WITHOUT CHARGING THE INTEREST. 3. O N THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE AO AND MENTIONED THAT THE ASSESSEE FAILED TO DEMONSTRATE THE NEXUS BETWEEN THE INTEREST FREE ADVANCES AND THE INTEREST FREE LOANS TAKEN BY THE ASSESSEE. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE OR DERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. THE LIMITED ISSUE RAISED BY THE ASSESSEE RELATES TO THE APPLICABILITY OF THE BINDING JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF RELIANCE UTILI TIES AND POWER LTD (SUPRA). DESPITE THE FACT THAT THE ASSESSEE RAISED THIS ISSUE BEFORE THE CIT (A), NO 3 SPECIFIC ADJUDICATION IS GIVEN BY THE CIT (A) ON IT. IN OUR OPINION, THERE IS A NEED FOR CIT (A) TO PASS A SPEAKING ORDER ON THIS CRUCIAL ISSUE ON THE VERY FACT OF APPLICABILITY OF THE SAID JUDGMENT. FOR THIS, THE ASSESSEE IS UNDER OBLIGATION TO DEMONSTRATE WITH EVIDENCES AND DETAILS ABOUT THE NEXUS BETWEEN THE INTEREST FREE ADVANCES GIVEN AND THE INTEREST FREE LOANS TAKEN BY THE ASSESSEE. AS DISCUSSE D IN THE OPEN COURT, WE PROCEED TO REMAND THIS ISSUE TO THE FILES OF THE CIT (A) TO ADJUDICATE THE SAME IN A TIME BOUND MANNER I.E., TO SAY WITHIN 45 DAYS FROM THE DATE OF RECEIPT OF THIS ORDER, AFTER HEARING THE ASSESSEE IN ACCORDANCE WITH THE SET PRINCIP LES OF NATURAL JUSTICE. ACCORDINGLY, GROUND NO.1 OF ITA NO.7729/M/2011 AND OTHER GROUNDS RAISED IN ITA NO.1251/M/2013 ARE ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NO.2 OF APPEAL ITA NO. 7729/M/2011 RELATES TO THE ADDITION OF RS.40 LACS. IN THIS REGARD, LD COUNSEL MENTIONED THAT ASSESSEE ACQUIRED CERTAIN SHARES @ RS.45/ - PER SHARE FROM THE EXISTING SHAREHOLDERS OF MIDVALLY ENTERTAINMENT LTD. THESE SHARES WERE SOLD CONDITIONALLY DURING THE PRE - IPO ( INITIAL PUBLIC OFFER) PERIOD OF THE SAID COMPANY @ RS. 65/ - PER SHARE AND THERE IS A SHARE TRANSACTION AGREEMENT DATED 18.10.2007 TO SUPPORT THE SAME (PAGE 37 TO 55 OF THE PAPER BOOK IS RELEVANT IN THIS REGARD). AS PER THE CLAUSE - 2 OF THE SAID AGREEMENT, THERE ARE CERTAIN CONDITIONS STIPULATED AND THE PRICE OF RS. 65/ - MENTIONED ABOVE IS DISTURBED DEPENDING ON THE ACTUAL OFFER PRICE TO BE ANNOUNCED BY THE SAID COMPANY DURING THE IPO PERIOD. THE IPO DID NOT MATERIALIZE IN THIS YEAR AND THE TRANSFEREES OF T HE SHARES DEMANDED FOR REFUND OF THE MONEY IN CANCELLATION OF THE CITED AGREEMENT. IN COMPLIANCE OF THE SAID ORAL REQUEST, ASSESSEE REFUNDED THE SAME, HOWEVER, THESE AMOUNTS WERE FINALLY TRANSFERRED TO DR. MURALI MANOHAR AT THE HIGHER RATES. ON THESE FAC TS, LD COUNSEL SUBMITTED THAT ASSESSEE OFFERED THE PROFITS, ON SALE OF THE SHARES TO DR. MURALI MANOHAR, TO TAX IN THE AY 2009 - 2010. IGNORING THE SAME, THE AO RECOGNIZED THE PROFITS IN THE YEAR UNDER CONSIDERATION AND DID NOT GIVE ANY RELIEF IN RESPECT OF THE PROFITS OFFERED BY THE ASSESSEE IN THE AY 2009 - 2010. IN THAT SENSE, THIS IS A CASE OF DOUBLE TAXATION OF THE SAME PROFITS. FURTHER, IT IS THE SUBMISSIONS OF THE LD COUNSEL THAT THE RECEIPT OF RS. 65/ - PER SHARE SHOULD NOT BE CONSIDERED AS AN INCOME OF THE ASSESSEE AS THE SAME WAS REFUNDED IN LATER DAYS. THEREFORE, IT IS A CASE OF PURCHASE OF SHARE FOR RS. 45/ - . SINCE, THE INCOME IS ALREADY OFFERED IN THE 4 AY 2009 - 2010, THERE IS NO NEED FOR RECOGNIZING THE PROFITS ON THE SAME TRANSACTIONS IN THE AY20 08 - 2009. WITHOUT PREJUDICE, LD COUNSEL ALSO MENTIONED THAT IF THE SAME HAS TO BE TAXED IN THE AY 2008 - 2009, ASSESSEE IS ENTITLED TO RELIEF IN THE YEAR 2009 - 2010 NET ON THE PROFITS TAXED IN THE AY 2008 - 2009. 6. ON THE OTHER HAND, LD DR HAS, IN PRINCIPLE, N O OBJECTION FOR REMANDING THE MATTER TO THE FILES OF THE AO SO LONG THE PROFITS ARE PROPERLY OFFERED IN ANY ONE OF THE ASSESSMENT YEAR. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RECORD PLACED BEFORE US. ON HEARING OF BOTH THE PARTIES ON THIS ISSUE, WE FIND THAT THIS IS A CASE OF TAXING THE PROFITS IN TWO ASSESSMENT YEARS I.E., (I) ON ACCOUNT OF ASSESSEES OWN OFFER IN THE AY 2009 - 2010; AND (II) ON ACCOUNT OF TAXATION BY THE ASSESSING OFFICER. IN PRI NCIPLE, THIS CANNOT BE APPRECIATED THAT ASSESSEE AS SUCH IS READY TO OFFER THE INCOME IN ONE YEAR AND NOT IN TWO ASSESSMENT YEARS. IF THE SALE CONSIDERATION IS TAKEN AT RS. 65/ - PER SHARE IN THIS YEAR AND THE SAID PRICE SHOULD BECOME COST OF THE SHARES U/ S 48 OF THE ACT WHEN THE SHARES ARE TRANSFERRED TO DR. MURALI MANOHAR. CIT (A) NEEDS TO TAKE A CONSISTENT STAND IN THIS REGARD AND IS REQUIRED TO PASS A SPEAKING ORDER CONSIDERING THE FACT THAT THE SAME INCOME SHOULD NOT BE TAXED TWICE. FOR THIS PURPOSE, WE REMIT THE MATTER TO THE FILES OF THE FILES OF THE CIT (A) TO ADJUDICATE THE ISSUE AFRESH AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE SET ASIDE PROCEEDINGS, ASSESSEE IS FREE TO PROVIDE NECESSARY CALCULATIONS AND EVIDE NCES WHICH ARE REQUIRED. IN THIS REGARD, CIT (A) MAY CALL FOR REMAND REPORTS, IF NECESSARY, IN ACCORDANCE WITH THE RULES IN EXISTENCE. ACCORDINGLY, GROUND NO.2 OF APPEAL ITA NO. 7729/M/2011 IS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, TWO APPEA LS OF THE ASSESSEE I.E., ITA NO. 7729/M/2011 AND ITA NO.1251/M/2013, ARE ALLOWED FOR STATISTICAL PURPOSES. ./I.T.A. NO.720/M/2013 (AY: 2009 - 2010) 9. THIS APPEAL FILED BY THE ASSESSEE ON 28.01.2013 IS AGAINST THE ORDER OF THE CIT (A) - 6, MUMBAI DATED 31.12.2012 FOR THE ASSESSMENT YEAR 2009 - 2010. 5 10. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE GROUNDS RAISED IN THIS APPEAL AND MENTIONED THAT GROUND NO.1 IS NOT PRESSED IN VIEW OF THE THIRD MEMBER DECISION OF THE ITAT IN THE CASE OF D.H. SECURITIES PRIVATE LIMITED (ITAT MUMBAI) (THIRD MEMBER) , WHICH IS RELEVANT FOR THE PROPOSITION THAT THE PROVISIONS OF SECTION 14A READ WITH RULE - 8D OF IT RULES, 1962 ARE APPLICABLE EVEN TO THE SHARES HELD AS STOCK - IN - TRADE. ON HEARING THE PARTIES AND AFTER CONSIDERING THE LD COUNSELS ORAL REQUEST BEFORE US, WE PROCEED TO DISMISS THE SAID GROUND AS NOT PRESSED. ACCORDINGLY, GROUND NO.1 IS DISMISSED AS NOT PRESSED. 11. REFERRING TO THE GROUND NO.2 THAT THE SAME NEEDS TO REVISIT THE FILES O F THE CIT (A) AS THE SAID GROUND IS IDENTICAL TO THE SECOND LIMB OF THE GROUND NO.1 OF THE APPEAL ITA NO. 7729/M/2011 . CONSIDERING THE SAME, WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT (A) IN THIS REGARD AND THE GROUND NO.2 IS ALLOWED FOR STATISTICAL PU RPOSES WITH IDENTICAL DIRECTIONS. 12. GROUND NO.3 RAISED IN THIS APPEAL IS EXACTLY AKIN TO THE GROUND NO.2 OF THE ITA NO. 7729/M/2011 . WHILE ADJUDICATING THE SAID GROUND NO.2 IN ITA NO.7729/M/2011 WE REMIT THE ISSUE TO THE FILES OF THE CIT (A) WITH CERTAI N DIRECTIONS. CONSIDERING THE SAME, WE REMIT THIS GROUND NO.3 ALSO WITH IDENTICAL DIRECTIONS. ACCORDINGLY, GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NO.4 RELATES TO THE INTEREST U/S 234B AND 234C OF THE ACT. CONSIDERING THE CONSEQUENTIA L NATURE OF THE ISSUES INVOLVED IN THIS GROUND, THE SAID GROUND NO.4 IS DISMISSED AS CONSEQUENTIAL. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONO UNCED IN THE OPEN COURT ON 2 0 T H DECEMBER, 2013. S D / - S D / - (VIVEK VARMA) (D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 2 0 .12.2013 . . ./ OKK , SR. PS 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI