Mr. Mahesh Kumar Gupta, Delhi V. CIT, New Delhi

ITA 1347/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7582 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 21-04-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 07-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SULEKHA VERMA
• Keywords: Deemed dividend; Assessment record
• Section: 143(3); 153A; 263; 132; 15

Judgement Text

1 ITA NO. 1347/DEL /2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI G. D. AGRAWAL, VICE P RESIDENT AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.-1347/DEL/2014 (ASSESSM ENT YEAR-2004-05) MAHESH KUMAR GUPTA 47, SHARDHANAND MARG DELHI AAGPG8365G (APPELLANT) VS CIT(A) CENTRAL-1 NEW DELHI (RESPONDENT) APPELLANT BY SH. NIREN GUPTA, CA RESPONDENT BY MS. SULEKHA VERMA, CIT DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 17/02/2014 PASSED BY CIT(A)- NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. (I) THAT THE CIT HAS WRONGLY ASSUMED JURISDICTI ON U/S 263 AS THE ORDER PASSED U/S 153A WITH THE APPROVAL OF J OINT COMMISSIONER U/S 153D CEASES TO BE AN ORDER OF THE ASSESSING OFFICER AS MENTIONED IN SEC 263(1). THE ORDER OF THE CIT BE CANCELLED AS BEING WITHOUT JURISDICTI ON. DATE OF HEARING 21.04.2016 DATE OF PRONOUNCEMENT 08 .06.2016 2 ITA NO. 1347/DEL /2014 (II) THAT THE CIT HAS WRONGLY RELIED UPON SECTION 2 63(1) EXPLANATION (A) (I) TO ASSUME JURISDICTION WHICH IS INAPPLICABLE. 2. THAT THE CIT WAS WRONG TO DIRECT THE EXAMINATION OF TAXABILITY OF THE DEEMED DIVIDEND IN THE PROCEEDING S U/S 153A WRONGLY WIDENING THE SCOPE OF SEC 153A AS IT W AS NOT A MATERIAL FOUND ON THE BASIS OF SEARCH. THE D IRECTION BE QUASHED. 3. (I) THAT THE CIT WAS WRONG TO TREAT THE COMMENTS OF THE HON'BLE HIGH COURT WHICH ASSESSMENT YEAR IN THE NA TURE OF OBITER AS BINDING PRECEDENT. THE CIT WAS WRONG TO MAKE IT AS A BASIS FOR PASSING THE ORDER U/S 263. (II) THAT THE CIT HAS WRONGLY RELIED ON 20,000/- S EC 263 PROCEEDINGS OF JAKSON GENERATORS (P) LTD. WHICH IS NOT A PART OF THE RECORDS OF THE ASSESSEE. THE SAME BE E XCLUDED FROM CONSIDERATION. 4. THAT THE CIT WAS WRONG TO GIVE A WIDE MEANING TO THE WORD RECORD AS CONTAINED IN SEC 263 EXPLANATION ( B) AND HAS WRONGLY TAKEN INTO CONSIDERATION STATEMENT OF ACCOUNTS WHICH ARE NOT A PART OF THE RECORD OF THE ASSESSEE. THE INFERENCE DRAWN IN UNWARRANTED & MAY BE EXCLUDED FROM CONSIDERATION. 5. THAT THE ORDER U/S 263 BEING CONTRARY TO LAW BE QUASHED. 3. IN THIS CASE SEARCH U/S 132(1) OF THE INCOME TAX ACT, 1961 WAS CONDUCTED ON 10/2/2010 AS PART OF JAKSONS GENER ATOR GROUP OF CASES. DURING THE SEARCH, UNDISCLOSED INCOME OF RS. 19.94 CRORE WAS FOUND WHICH WAS SURRENDERED BY SHRI S. K. GUPTA . ASSESSMENT PROCEEDINGS IN THE CASE WERE INITIATED BY ISSUING N OTICE U/S. 153A DATED 12.11.2010 WHICH WAS DULY SERVED ON THE ASSES SEE. IN RESPONSE TO NOTICE U/S. 153A RETURN DECLARING INCOM E OF RS. 3 ITA NO. 1347/DEL /2014 6,09,677 WAS FILED ON 9.2.2011. DURING THE YEAR UND ER CONSIDERATION THE ASSESSEE WAS A DIRECTOR IN THE CO MPANY JACKSON GENERATORS (P) LTD. THE COMPANY IS ENGAGED IN THE M ANUFACTURE AND SALE OF GEN SETS. HE IS ALSO PARTNER IN THE FIR M M/S. JACKSON & CO. HAVING 33% SHARES IN THE PROFIT & LOSS A/C. THE FIRM IS ENGAGED IN THE MANUFACTURING AND SALE OF GEN SETS AND TRADI NG IN MOTORS, ENGINES ETC. DURING THE YEAR UNDER CONSIDERATION AS SESSEE HAS RECEIVED SALARY FROM JACKSON GENERATORS (P) LTD. AS SESSEE ALSO SHOWN INCOME FROM PROPERTY, BUSINESS AND INCOME FRO M LONG TERM CAPITAL GAINS ETC. THE ASSESSMENT U/S 143(3) R.W.S. 153A WAS COMPLETED ON 9/12/2011 BY ASSESSING INCOME AT RS. 6 ,09,677/-. 4. THE COMMISSIONER OF INCOME TAX, CENTRAL I, NEW DELHI OBSERVED THAT THE ASSESSEE, SHRI MAHESH KUMAR GUPTA IS SHAREHOLDER/DIRECTOR OF M/S JAKSON GENERATOR (P) LT D., HOLDING SUBSTANTIAL SHAREHOLDING OF MORE THAN 43.19% IN THE COMPANY AND HE IS ALSO PARTNER IN M/S. JAKSON & CO. HAVING SHAR ING PROFIT OF 30% IN THE FIRM. FURTHER, THE CIT OBSERVED THAT M/ S JAKSON & CO. HAS TAKEN LOAN OF RS.1,72,15,824/- FROM M/S JAKSON GENERATOR PVT..LTD.- WHICH OUGHT TO BE FIXED AS DEEMED DIVIDE ND U/S 2(22) (E) OF THE INCOME TAX ACT, 1961 IN THE HAND OF SHRI MAH ESH KUMAR GUPTA-AS THIS TRANSFER OF LOAN ATTRACTS THE PROVISI ON OF 2(22) (E) OF THE ACT AS ANY PAYMENT BY A COMPANY (NOT BEING A CO MPANY IN WHICH PUBLIC ARE SUBSTANTIAL INTERESTED) TO A SHARE HOLDER HOLDING NOT LESS THAN 10% VOTING POWER AS TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS PARTNER (HOLDING SUBSTANTIAL SHAREHO LDING 20%). AS THE ABOVE AMOUNT WAS NOT CONSIDERED FOR TAXATION AT THE TIME OF 4 ITA NO. 1347/DEL /2014 ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S 153A OF THE ACT ON 9/12/2011, THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2004-05 IS FOUND TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL T O THE INTEREST OF REVENUE BEING THE ASSESSING OFFICER HAS MADE OMISSI ON OF IGNORING THE PROVISIONS OF DEEMED DIVIDEND AMOUNTING TO RS.1 ,72,15824/-. 5. ACCORDINGLY, NOTICE U/S 263 OF THE I.T. ACT, 196 1 WAS ISSUED TO THE ASSESSEE ON 5/8/2013 APPRISING HIM OF THE ISSUE RELATING TO THE TRANSACTION OF LOAN/ADVANCE RECEIVED BY M/S JAKSON & CO. OF RS.1,72,15,824/- FROM M/S JAKSON GENERATOR PVT. LTD WHICH IS TO BE TAXED AS DEEMED DIVIDEND U/S 2(22) (E) OF THE I. T ACT AS THE LOAN GRANTED BY M/S JAKSON GENERATOR PVT. LTD TO M/S JAK SON & CO. WAS TREATED AS ADVANCEMENT OF LOAN BY A COMPANY IN WHICH THE SUBSTANTIAL SHAREHOLDING I.E. SHRI MAHESH KUMAR GUP TA HOLDS 43.19% SHARES IN M/S JAKSON GENERATOR PVT. LTD AND ALSO CONTROLS M/S JAKSON & CO. BY HOLDING 30% PROFIT SHARING AND TO SHOWCASE AS TO WHY THE PROVISION OF SECTION 263 OF THE I.T A CT SHALL NOT BE INVOKED IN THE CASE. 6. IN RESPONSE TO THE SHOW CAUSE NOTICE U/S 263 OF THE I.T ACT THE ASSESSEE FILED REPLIES RAISING OBJECTIONS THAT COPY OF ACCOUNT OF M/S JAKSON GENERATORS PVT. LTD IN THE BOOKS OF JAKSON & CO. WAS NOT FILED IN THE CASE OF THE ASSESSEE SH. M. K. GUPTA A ND IT CANNOT FORM PART OF ASSESSMENT RECORD OF THE ASSESSEE. THE ASS ESSEE ALSO STATED THAT WHEN HE HAS NOT TAKEN LOAN/ADVANCES, LOAN TAKE N BY M/S JAKSON & CO. FROM M/S JAKSON GENERATORS PVT. LTD HA S BEEN SQUARED OFF. THE INVOCATION OF PROVISION OF SECTION 263 OF THE ACT 5 ITA NO. 1347/DEL /2014 IS NOT PROPERLY JUSTIFIED WHEN ASSESSMENT ORDER WAS PASSED U/S 1143(3) R.W.S. 153A OF THE ACT WITH THE APPROVAL OF JOINT COMMISSIONER OF INCOME TAX. THUS THE CITS FINDING THAT IT WILL ATTRACT SECTION 2(22)(E) OF THE ACT IS NOT CORRECT. 7. THE CIT HELD THAT HE IS SATISFIED THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS P REJUDICIAL TO THE INTEREST OF THE REVENUE AND HENCE THE SAME IS SET A SIDE. THE CIT DIRECTED THE ASSESSING OFFICER TO EXAMINE THE TAXAB ILITY OF THE AMOUNT OF RS. 1,72,15,824/- IN THE HANDS OF THE ASS ESSEE U/S 2(22)(E) OF THE I. T. ACT, 1961. 8. THE ASSESSEE IS BEFORE US IN THE PRESENT APPEAL. 9. THE LD. AR HAS NOT PRESSED GROUND NO. 1, 3, 4 & 5 AND ONLY CONTESTED GROUND NO. 2 OF THE APPEAL. HENCE GROUND NO. 1, 3, 4 AND 5 ARE DISMISSED. 10. THE LD. AR SUBMITTED THAT THE CIT WAS WRONG TO DIRECT THE EXAMINATION OF TAXABILITY OF THE DEEMED DIVIDEND IN THE PROCEEDINGS U/S 153A OF THE ACT. THUS, WRONGLY WIDEN THE SCOPE OF SECTION 153A OF THE ACT AS IT WAS NOT A MATERIAL FOUND ON THE BA SIS OF SEARCH. THE LD. AR RELIED UPON THE ORDER OF ITAT NEW DELHI IN C ASE OF SHRI KABUL CHAWLA VS. ACIT (ITA NO. 779/DEL/2013 DATED 2 3.05.2014, NEW DELHI). 11. THE LD. DR SUBMITTED THAT CIT UNDER SECTION 263 OF THE ACT HAS PROPERLY INVOKED HIS POWERS. THE LD. DR RELIED UPON THE ORDER OF ITAT NEW DELHI IN CASE OF SHRI KABUL CHAWLA VS. ACIT (ITA NO. 6 ITA NO. 1347/DEL /2014 779/DEL/2013 DATED 23.05.2014, NEW DELHI) AS WELL AS THE HONBLE DELHI HIGH COURT DECISION IN CASE OF CIT VS . ANKITECH PVT. LTD. 340 ITR 14. THE SAID CASE LAWS DEALT WITH THE ISSUE THAT WHERE LOANS AND ADVANCES ARE GIVEN IN NORMAL COURSE OF BU SINESS AND TRANSACTION IN QUESTION BENEFITS BOTH PAYER AND PAY EE COMPANIES, PROVISIONS OF SECTION 2(22)(E) CANNOT BE INVOKED. 12. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH THE PARTIES. THE SEARCH UNDER SECTION 132(1) TOOK PLACE IN JAKSO NS GROUP OF CASES AND THE ASSESSMENT ORDER WAS PASSED UNDER SEC TION 143 R.W.S. 153A OF THE ACT. IN CASE OF KABUL CHAWLA (SU PRA), HONBLE DELHI HIGH COURT HELD IN PARA 37 AND PARA 38 AS UND ER: 37. ON A CONSPECTUS OF SECTION 153A(1) OF THE ACT, READ WITH THE PROVISO THERETO, AND IN THE LIGHT OF THE LAW EXPLAINED IN T HE AFOREMENTIONED DECISIONS, THE LEGAL POSITION THAT EMERGES IS AS UN DER:- I. ONCE A SEARCH TAKES PLACE UNDER SECTION 132 OF THE ACT, NOTICE UNDER SECTION 153A(1) WILL HAVE TO BE MANDATORILY ISSUED TO THE PERSON SEARCHED REQUIRING HIM TO FILE RETURNS FOR SIX AYS IMMEDIATE LY PRECEDING THE PREVIOUS YEAR RELEVANT TO THE AY IN WHICH THE SEARCH TAKES P LACE. II. ASSESSMENTS AND REASSESSMENTS PENDING ON THE DATE O F THE SEARCH SHALL ABATE. THE TOTAL INCOME FOR SUCH AYS WILL HAV E TO BE COMPUTED BY THE AOS AS A FRESH EXERCISE. III. THE AO WILL EXERCISE NORMAL ASSESSMENT POWERS IN RE SPECT OF THE SIX YEARS PREVIOUS TO THE RELEVANT AY IN WHICH THE SEAR CH TAKES PLACE. THE AO HAS THE POWER TO ASSESS AND REASSESS THE TOTAL INC OME OF THE AFOREMENTIONED SIX YEARS IN SEPARATE ASSESSMENT ORD ERS FOR EACH OF THE SIX YEARS. IN OTHER WORDS THERE WILL BE ONLY ONE ASSESS MENT ORDER IN RESPECT OF 7 ITA NO. 1347/DEL /2014 EACH OF THE SIX AYS IN WHICH BOTH THE DISCLOSED AN D THE UNDISCLOSED INCOME WOULD BE BROUGHT TO TAX. IV. ALTHOUGH SECTION 153A DOES NOT SAY THAT ADDITIONS S HOULD BE STRICTLY MADE ON THE BASIS OF EVIDENCE FOUND IN THE COURSE O F THE SEARCH, OR OTHER POST SEARCH MATERIAL OR INFORMATION AVAILABLE WITH THE AO WHICH CAN BE RELATED TO THE EVIDENCE FOUND, IT DOES NOT MEAN THA T THE ASSESSMENT CAN BE ARBITRARY OR MADE WITHOUT ANY RELEVANCE OR NEXUS WITH THE SEIZED MATERIAL. OBVIOUSLY AN ASSESSMENT HAS TO BE MADE UN DER THIS SECTION ONLY ON THE BASIS OF SEIZED MATERIAL. V. IN THE ABSENCE OF ANY INCRIMINATING MATERIAL, THE C OMPLETED ASSESSMENT CAN BE REITERATED AND THE ABATED ASSESSM ENT OR REASSESSMENT CAN BE MADE. THE WORD ASSESSS IN SECTION 153A IS RELATABLE TO ABATED PROCEEDINGS (I.E. THOSE PENDING ON THE DATE OF SEAR CH AND THE WORD REASSESS TO COMPLETED ASSESSMENT PROCEEDINGS. VI. INSOFAR AS PENDING ASSESSMENTS ARE CONCERNED, THE J URISDICTION TO MAKE THE ORIGINAL ASSESSMENT AND THE ASSESSMENT UND ER SECTION 153A MERGES INTO ONE. ONLY ONE ASSESSMENT SHALL BE MADE SEPARATELY FOR EACH AY ON THE BASIS OF THE FINDINGS OF THE SEARCH AND A NY OTHER MATERIAL EXISTING OR BROUGHT ON THE RECORD OF THE AO. VII. COMPLETED ASSESSMENTS CAN BE INTERFERED WITH BY THE AO WHILE MAKING THE ASSESSMENT UNDER SECTION 153A ONLY ON TH E BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURING THE COURSE OF SEARCH OR REQUISITION OF DOCUMENTS OR UNDISCLOSED INCOME OR PROPERTY DISC OVERED IN THE COURSE OF SEARCH WHICH WERE NOT PRODUCED OR NOT ALREADY DISCL OSED OR MADE KNOWN IN THE COURSE OF ORIGINAL ASSESSMENT. CONCLUSION 38. THE PRESENT APPEALS CONCERN AYS 2002-03, 2005-0 6 AND 2006-07. ON THE DATE OF THE SEARCH THE SAID ASSESSMENTS ALRE ADY STOOD COMPLETED. SINCE NO INCRIMINATING MATERIAL WAS UNEARTHED DURIN G THE SEARCH, NO ADDITIONS COULD HAVE BEEN MADE TO THE INCOME ALREAD Y ASSESSED. 8 ITA NO. 1347/DEL /2014 THE CLAUSE (IV) ABOVE, THE HONBLE HIGH COURT HELD THAT OBVIOUSLY AN ASSESSMENT HAS TO BE MADE UNDER THIS SECTION ONLY ON THE BASIS OF SEIZED MATERIAL. IN CLAUSE (V), TH E SAME IS REITERATED BY HOLDING IN ABSENCE OF ANY INCRIMINATING MATERIA L, THE COMPLETED ASSESSMENT CAN BE REITERATED AND THE ABATED ASSESSM ENT OR REASSESSMENT CAN BE MADE. IN CLAUSE (VII), IT IS S TATED COMPLETED ASSESSMENTS CAN BE INTERFERED WITH BY THE AO WHILE MAKING THE ASSESSMENT UNDER SECTION 153A ONLY ON THE BASIS OF SOME INCRIMINATING MATERIAL, THE COMPLETED ASSESSMENT CA N BE REITERATED AND THE ABATED ASSESSMENT OR REASSESSMENT CAN BE RE ITERATED AND THE ABATED ASSESSMENT OR REASSESSMENT CAN BE MADE. IN CLAUSE (VII), IT IS STATED COMPLETED ASSESSMENTS CAN BE I NTERFERED WITH BY THE AO WHILE MAKING THE ASSESSMENT UNDER SECTION 15 3A ONLY ON THE BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURING THE COURSE OF SEARCH. THUS, IN PRESENT CASE THE ISSUE OF DEEMED DIVIDEND DOES NOT ARISE FROM THE PROVISIONS OF SECTION 153A OF THE AC T AND THERE IS NO SEIZED MATERIAL UNEARTHED AT THE RELEVANT TIME. THU S IT IS BEYOND ASSESSING OFFICERS POWER TO ADDRESS THE SAID ISSUE IN PROCEEDINGS INITIATED UNDER SECTION 143(3) READ WITH SECTION 15 3A OF THE ACT. THE CIT WAS WRONG IN DIRECTING THE EXAMINATION OF T AXABILITY OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT, IN THE PROCEEDINGS U/S 153A OF THE ACT WHILE PASSING ORDER UNDER SECTION 263 OF THE ACT WHEN THE PROCEEDINGS UNDER SECTION 1 53A ITSELF HAS NOT UNEARTHED THE SAID ISSUE. THUS, THE CIT DO NOT HAVE POWER UNDER SECTION 263 OF THE ACT TO GIVE ITS OWN OPINIO N WHEN THERE IS 9 ITA NO. 1347/DEL /2014 NO NEW MATERIAL UNEARTHED. THE ISSUE TAKEN UP BY TH E CIT WAS NOT WITHIN THE PURVIEW OF THE ASSESSING OFFICER AT THE INCEPTION OF ASSESSMENT PROCEEDINGS. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 08TH OF JUNE, 2016. SD/- SD/- (G. D. AGRAWAL) (SUCHITRA KAMBLE) VICE PRESIDENT JUDIC IAL MEMBER DATED: 08/06/2016 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 21/04/2016 PS 2. DRAFT PLACED BEFORE AUTHOR 22/04/2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 10 ITA NO. 1347/DE L/2014 5. APPROVED DRAFT COMES TO THE SR.PS/PS 0 8 .0 6 .2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 0 8 .0 6 .2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.