JCIT(OSD), Circle - 8, Kolkata, Kolkata V. M/s. Baljit Securities Pvt. Ltd., Kolkata

ITA 136/KOL/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5001 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 25-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: P K AGARWAL
• Keywords: Business expenditure; Deemed dividend
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A, KOLKATA [BEFORE SHRI P.M.JAGTAP, AM & SHRI S.S.VISWANETHRA RAVI, JM ] ITA NO. 136/KOL/2012 : ASSESSMENT YEAR : 2008- 09 JCIT(OSD), CIRCLE-8, KOLKATA VS M/S. BALJIT SECURITIES PVT. LTD. PAN : AABCB 0779P (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SAURABH KUMAR, JCIT, S R.DR FOR THE RESPONDENT : SHRI P.K.AGARWAL, FCA DATE OF HEARING : 07.01.2016 DATE OF PRONOUNCEMENT : 18.03.2016 ORDER PER SHRI S.S.VISWANETHRA RAVI, JM THIS IS AN APPEAL PREFERRED BY THE REVENUE AGAINST THE ORDER DATED 24.11.2011 PASSED BY THE CIT(APPEALS)-VIII, K OLKATA IN APPEAL NO.307/CIT(A)-VIII/KOL./10-11 FOR THE ASSESS MENT YEAR 2008-09 FRAMED UNDER SECTION 143(3) OF THE ACT. 2. IN THIS APPEAL, THE REVENUE RAISED THE FOLLOWIN G GROUNDS AS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF EXPENDITURE OF RS.14,96,226/- INCUR RED BY THE ASSESSEE TOWARDS EDUCATION EXPENSES FOR STUD Y ABROAD OF THE CHILDREN OF THE RELATIVES OF THE INTE RESTED PERSONS OF THE ASSESSEE COMPANY IN RELATION TO ASSESSMENT YEAR 2008-09. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITI ON OF ITA NO S. 136/KOL/2012 M/S. BA LJIT SECURITIES PVT. LTD.. 2 RS.1,50,00,000/- MADE BY THE ASSESSING OFFICER UNDE R SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961 IN REL ATION TO ASSESSMENT YEAR 2008-09. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WRONGLY ALLOWED THE ASSESSEE S APPEAL WITHOUT GIVING ANY FINDING AS TO HOW THE ADVANCE OF RS.1,50,000/- RECEIVED BY THE ASSESSEE A S LOAN/ADVANCE FROM M/S. RAJRANI EXPORTS (P) LTD. REPRESENTED MARGIN DEPOSIT WITH THE ASSESSEE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY DEALING IN STOCK TRADING AS A STOCK EXCHANGE BROKER . THE ASSESSEE EARNS BROKERAGE ON TRADING OF SHARES AND OTHER INCO ME AS A MEMBER OF NSE, BSE AND SECURITIES ON SELF ACCOUNT. FOR ASSESSMENT YEAR 2008-09, THE ASSESSEE FILED ITS RET URN ON 30.03.2009 DECLARING INCOME OF RS.45,57,136/-. NOTI CES UNDER SECTION 143(2) AND 142(1) OF THE ACT WERE ISSUED UN DER SCRUTINY. 4. DURING SUCH ASSESSMENT, THE AO MADE ADDITION OF RS.14,96,226/- OF WHICH EXPENSES, THE ASSESSEE CLAI MED AS BUSINESS EXPENSES IN SPONSORING THE EDUCATION IN FO REIGN COUNTRIES FOR CHILDREN OF INTERESTED PARTIES. THE AO DISALLOW ED THE SAME ON THE GROUND THAT THE SAID EDUCATION EXPENSES BORNE B Y THE ASSESSEE IS NO WAY RELATED TO THE ASSESSEES BUSINESS NOR IT WOULD BENEFIT ANY WAY ASSESSEES BUSINESS FOR SUCH HUGE EXPENSES TOWARDS GIVEN TO RELATIONS OF INTERESTED PERSONS DIRECTLY/ INDIRE CTLY. 5. IN CHALLENGE BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED THAT THE RELATIVES OF INTERESTED PERSONS ARE EMPLOY EES OF ASSESSEE COMPANY AT THE TIME OF GRANTING OF SPONSORSHIP TO S TUDY ABROAD. ITA NO S. 136/KOL/2012 M/S. BA LJIT SECURITIES PVT. LTD.. 3 THE ASSESSEE COMPANY IMPOSED A CONDITION UNDER AN A GREEMENT THAT BOTH WOULD CONTINUE THEIR EMPLOYMENT FOR THREE YEARS AFTER THE COMPLETION OF THEIR STUDIES ABROAD. THE LD. CIT (A) EXAMINED THE MATERIAL DOCUMENTS PLACED BEFORE HIM AND TAKING INTO CONSIDERATION OF ORDERS OF HIS PREDECESSORS IN ASSE SSEES OWN CASE FOR ASSESSMENT YEARS 2003-04 AND 2007-08 WHO HELD T HAT THE SPONSORSHIP OF EDUCATION EXPENDITURE IS ALLOWABLE B USINESS EXPENDITURE. ACCORDINGLY, THE CIT(A) DELETED THE SA ID ADDITION. 6. THE LD. DR CONTENDED THAT, BEFORE US, THE CIT(A) DID NOT TOUCH UPON THE ISSUE PROPERLY. THE AO RIGHTLY DISAL LOWED THE EDUCATION EXPENSES ADVANCED TO THE RELATIVES OF INT ERESTED PERSON IS NOT A BUSINESS EXPENDITURE OF THE ASSESSEE AND R ELIED ON AOS ORDER. 7. IN REPLY, THE LD. AR REITERATED THE ARGUMENTS AD VANCED BEFORE THE CIT(A) AND AO AND POINTED OUT TO THE PAGE 3 OF PAPER BOOK A CHART THAT WHERE, FOR 2006-07 ASSESSMENT YEAR THAT THE EDUCATION EXPENSES WERE ALLOWED UNDER SECTION 143(3) PROCEEDI NGS. FOR 2007-08, THE SAID EXPENSES WERE DISALLOWED BY THE A O. IN THE FIRST APPEAL CIT(A) DELETED THE SAME WHICH WAS CONFIRMED BY THIS TRIBUNAL. 8. HEARD BOTH REPRESENTATIVES AND PERUSED THE MATER IAL ON RECORD. THE CASE OF THE ASSESSEE IS THAT THE EXPENS ES INCURRED ON HIGHER STUDIES TO THE RELATIVES OF INTERESTED PERSO N, AFTER THEIR RETURN TO INDIA WITH BETTER EDUCATION AND GREATER E XPERIENCE IS ITA NO S. 136/KOL/2012 M/S. BA LJIT SECURITIES PVT. LTD.. 4 HELPFUL TO THE ASSESSEES BUSINESS AND THAT SUCH EX PENSES HAS TO BE TREATED TO BE FOR THE PURPOSE OF BENEFIT OF ASSESSE ES OWN BUSINESS AND SUCH SHOULD BE SEEN AS INCURRED WHOLLY OR EXCLU SIVELY FOR THE BETTERMENT OF ASSESSEE. IN FIRST APPELLATE PROCEEDI NGS CIT-A DISCUSSED ABOUT SALARY PAY-SLIPS, DETAILS OF SALARY ACCOUNT AND SPONSORSHIP EXPENSES OF THE STUDENTS ON WHOM THE AS SESSEE SPENT FOR ABROAD STUDIES AND IT IS PLACED ON RECORD THAT BOTH OF THEM WERE EMPLOYEES WORKING FOR THE ASSESSEE COMPANY AND DURING WHICH PERIOD THE SPONSORSHIP TO STUDY ABROAD WAS GR ANTED. FURTHER MORE THE CIT-A ALSO EXAMINED REQUEST LETTERS MADE T O ASSESSEE COMPANY FOR THEIR OVERSEAS STUDY, TERMS OF AGREEMEN TS, ABSTRACT OF MINUTES OF BOARD OF DIRECTORS, THEIR PASSPORTS, ENR OLMENT DETAILS WITH RESPECTIVE UNIVERSITIES AND FEES STATEMENT FOR WHICH SPONSORSHIP WAS INCURRED. IT IS ALSO NOTICED THE AS SESSEE ISSUED APPOINTMENT LETTERS AFTER COMPLETION OF EDUCATIONAL COURSES. IN THE LIGHT OF ABOVE IT CAN BE CONCLUDED THAT AT THE TIME OF GRANTING OF SPONSORSHIP TO STUDY ABROAD THAT BOTH OF THEM ON WH OM STUDY EXPENSES INCURRED WERE IN THE EMPLOYMENT OF ASSESSE E AND THEY WERE DRAWING THEIR SALARIES AND THEY WERE AGREED TO WORK FOR THE ASSESSEE AFTER THEIR STUDIES ABROAD UNDER AGREEMENT AND IT IS ALSO ESTABLISHED THAT THEY WERE ISSUED APPOINTMENT LETTE RS BY THE ASSESSEE. 9. ON IDENTICAL ISSUES LD. CIT (A) - VIII, KOLKATA ALLOWED EXPENDITURE ON SPONSORSHIP OF EDUCATIONAL IN APPEAL VIDE ORDER DATED 04.L2.2006 EXPENDITURE FOR ASST YR 2003-04 IN THE CASE OF THE ASSESSEE. ITA NO S. 136/KOL/2012 M/S. BA LJIT SECURITIES PVT. LTD.. 5 10. WE HOLD THAT THE OFFER TO PURSUE HIGHER STUDIES OR STUDYING ABROAD IS A BETTER EDUCATION AND WHICH GIVES GREATE R EXPERIENCE AND IT IS HELPFUL TO THE ASSESSEES BUSINESS AND SU CH EXPENSES HAS TO BE TREATED AS INCURRED WHOLLY OR EXCLUSIVELY FOR THE BETTERMENT OF ASSESSEES OWN BUSINESS. THEREFORE, THE EXPENSES INCURRED TOWARDS STUDIES ABROAD OF THE EMPLOYEES CAN BE DISA LLOWED. 11. GROUND NOS. 2 AND 3 ARE COMMON IN ISSUE AND CAN BE DISPOSED OFF TOGETHER AS ONE ISSUE. THE FACTS RELEV ANT TO THIS ISSUE THAT THE AO FOUND THE ASSESSEE RECEIVED RS.1,50,00, 000/- AS LOAN FROM GROUP CONCERN, BY NAME RAJARANI EXPORTS (P) LT D. AND THAT FOUR INDIVIDUALS AS BELOW SHOWN ARE HAVING SHAREHOL DING IN M/S. RAJARANI EXPORTS PVT. LTD. AND M/S. BALJIT SECURITI ES PVT. LTD. THE ASSESSEE CLAIMED THAT THE SAID AMOUNT WAS RECEIVED FROM RAJARANI EXPORTS PVT. LTD. AS MARGIN AS IT WANTED TO ENGAGE IN TRANSACTION OF SHARES AND SECURITIES THROUGH THE ASSESSEE. THE AO WAS OF THE VIEW, ON EXAMINATION, THAT RAJARANI EXPORTS PVT. L TD. IS NOT IN MONEY LAUNDERING BUSINESS AND MADE APPLICABLE SECTI ON 2(22)(E) OF THE ACT AND TREATED RS.1,50,00,000/- AS DEEMED D IVIDEND OF THE ASSESSEE AND ADDED TO THE INCOME OF THE ASSESSEE. 12. THE LD. CIT(A), WHILE DEALING WITH ISSUE, FOLLO WED HIS OWN ORDERS IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2 005-06 AND 2006-07 WHEREIN HE HELD THAT THE PROVISION UNDER SE CTION 2(22)(E) OF THE ACT NOT APPLICABLE TO THE FACTS OF THE ASSES SEES CASE. ACCORDINGLY, AN ADDITION OF RS.1,50,00,000/- ADDED AS DEEMED DIVIDEND WAS DELETED. ITA NO S. 136/KOL/2012 M/S. BA LJIT SECURITIES PVT. LTD.. 6 13. BEFORE THIS TRIBUNAL, THE LD. DR RELIED ON THE AOS ORDER. THE LD. A/R RELIED ON ASSESSEES OWN CASE PASSED BY B BENCH OF KOLKATA BENCH OF ITAT IN ITA NO. 1403/KOL/2011 FOR ASSESSMENT YEAR 2005-06. 14. HEARD BOTH REPRESENTATIVES AND PERUSED THE MATE RIAL ON RECORD. AS OBSERVED BY THE CIT(A), THAT HE EXAMINED THE SAME ISSUE IN DETAIL IN ASSESSEES OWN CASE FOR THE ASSE SSMENT YEARS 2005-06 AND 2006-07, SUCH OBSERVATION IS REPRODUCED HEREINBELOW:- I HAVE GONE THROUGH THE FACTS OF THE CASE, THE WRIT TEN SUBMISSION MADE BY THE APPELLANT ALONG WITH THE CAS E LAWS RELIED UPON AND PERUSED THE IMPUGNED CASES FOR A.Y. 2005-06 & 2006-07 WHILE DISPOSING THE APPEAL O F THE APPELLANT VIDE ORDER DT. 04.08.2011 THIS ISSUE HAS BEEN DISCUSSED IN DETAILS BY ME AND IT WAS HELD THE REIN THAT THE PROVISION OF SEC. 2(22)(E) OF THE IT ACT, CANNOT BE APPLIED TO THE FACTS OF THE CASE OF THE APPELLAN T. THEREFORE FOLLOWING MY DECISION IN APPEAL NOS.321 & 322/CIT(A)-VIII/10-11, RESPECTIVELY, IN THE APPELLA NT'S OWN CASES FOR THE A.YS, 2005-06 & 2006-07, THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) FOR RS.1,50,00,000/- IS DELETED. THUS, THIS GROUND OF A PPEAL OF THE APPELLANT IS ALLOWED. 15. THE REVENUE CHALLENGED SUCH IMPUGNED ORDER FOR THE ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 04.08.2011 BEFORE THE TRIBUNAL AND BY ITS ORDER DATED 21.05.2012, THE TRI BUNAL UPHELD THE ORDER OF LD. CIT(A)WHICH IS REPRODUCED HEREINBE LOW:- 2. THE LEARNED REPRESENTATIVES FAIRLY AGREE THAT T HE ISSUE IS SQUARELY COVERED BY THE SPECIAL BENCH DECI SION IN THE CASE OF ACIT-VS-BHAUMIK COLOUR PVT. LTD. (11 8 ITD SB 1) INASMUCH AS THE AMOUNT IS RECEIVED BY NON ITA NO S. 136/KOL/2012 M/S. BA LJIT SECURITIES PVT. LTD.. 7 SHAREHOLDER AND YET THE SAME HAS BEEN TREATED AS DEEMED DIVIDEND U/S 2(27)(E) OF THE ACT, WHEREAS, I N THE LIGHT OF THE SAID JUDICIAL PRECEDENT, NO SUCH ADDIT ION CAN BE MADE IN THE HANDS OF THE NON-SHAREHOLDER. 3. IN VIEW OF THE ABOVE SITUATION, AND RESPECTFULL Y FOLLOWING SPECIAL BENCH DECISION IN THE CASE OF BHAUMIK COLOUR (SUPRA), WE UPHOLD THE ORDER OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSI NG OFFICER IS DISMISSED. 16. IT IS PERTINENT TO NOTE THAT, WHILE DECIDING TH E ISSUE ABOVE, THE TRIBUNAL FOLLOWED THE ORDER OF SPECIAL BENCH IN THE CASE OF ACIT-VS- BHAUMIK COLOUR PVT. LTD. REPORTED IN 118 I TD SB 1) WHICH IS REPRODUCED HEREINBELOW: C. IN THE EVENT OF THE PAYMENT OF LOAN OR ADVANCE B Y A COMPANY TO A CONCERN BEING TREATED AS DIVIDEND AND TAXED IN THE HANDS OF THE CONCERN THEN, THE BENEFIT OF SET OFF CANNOT BE ALLOWED TO THE CONCERN, BECAUSE THE CONCERN CAN NEVER RECEIVE DIVIDEND FROM THE COMPANY WHICH IS ONLY PAID TO THE SHAREHOLDER, WHO HAS SUBSTANTIAL INTEREST IN THE CONCERN. THE ABOVE PROVISIONS ALSO, THEREFORE, CONTEMPLATE DEEMED DIVIDEND BEING TAXED IN THE HANDS OF A SHAREHOLDER ONLY. D. FOR THE REASONS STATED ABOVE, WE ARE OF THE VI EW THAT THE LAW LAID DOWN IN THE CASE OF NIKKO TECHNOLOGIES (I) (P.) LTD. (SUPRA) IS NOT CORRECT. WE, THEREFORE, HOLD THAT DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961 CAN BE ASSESSE D ONLY IN THE HANDS OF A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF ANY OTHER PERSON. E 41. IN THE LIGHT OF THE ABOVE DISCUSSION, THE QUE STIONS REFERRED TO THE SPECIAL BENCH ARE ANSWERED AS FOLLO WS: ITA NO S. 136/KOL/2012 M/S. BA LJIT SECURITIES PVT. LTD.. 8 ON THE FIRST QUESTION: DEEMED DIVIDEND CAN BE ASSES SED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLDER. ON THE SECOND QUESTION :THE EXPRESSION 'SHAREHOLDER ' REFERRED TO IN SECTION 2(22)(E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL SHAREHOLDER THEN THE PROVISIONS OF SECTI ON 2(22)(E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHO LDER THEN ALSO THE PROVISIONS OF SECTION 2(22)(E) WILL N OT APPLY. 42. IN VIEW OF THE ABOVE DISCUSSION, THERE IS NO ME RIT IN THIS APPEAL BY THE REVENUE AND THE SAME IS, THEREFO RE, DISMISSED. 17. RESPECTFULLY FOLLOWING THE SAME AS IT IS BINDIN G ON US AND REMAINED UNCONTROVERTED BY THE REVENUE, WE UPHOLD T HAT THE SECTION CONTEMPLATED IN 2(22)(E) OF THE ACT IS NOT APPLICABLE TO THE ASSESSEES CASE. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 18. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.03.2016 SD/- SD/- (P.M.JAGTAP) (S.S.VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18/03/2016 TALUKDAR (SR.PS) ITA NO S. 136/KOL/2012 M/S. BA LJIT SECURITIES PVT. LTD.. 9 COPY OF THE ORDER FORWARDED TO: 1. M/S. BALJIT SECURITIES PVT. LTD.,7A, PRETORIA ST REET, KOLKATA 700 071 2 JCIT(OSD) , CIRCLE-8, KOLKATA. 3. THE CIT-I, KOLKATA, 4. THE C IT(A)-I, KOLKATA. 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES