Deputy Commissioner of Income tax, Jalgaon V. M/s. Rajmal Lakhichand, Jalgaon

ITA 1396/PUN/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1615 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 29-06-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 01-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Earning of tax free income; Deemed dividend; Rule 8D
• Section: 2(22)(e); 14A; 201; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, J UDICIAL MEMBER . / ITA NO . 1213 /PUN/20 17 / ASSESSMENT YEAR : 20 1 2 - 13 M /S. RAJMAL LAKHICHAND, 169, BALAJI PETH, JALGAON 425001 PAN : AACFR8609L ...... / APPELLANT / V/S. ITO, WARD - 2(2), JALGAON / RESPONDENT . / ITA NO.1396/PUN/2017 / ASSESSMENT YEAR : 2012 - 13 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, JALGAON ...... / APPELLANT / V/S. M/S. RAJMAL LAKHICHAND, 169, BALAJI PETH, JALGAON 425001 PAN : AACFR8609L / RESPONDENT ASSESSEE BY : SHRI NIKHIL S. PATHAK REVENUE BY : SHRI S.P. WALIMBE / DATE OF HEARING : 2 9 - 06 - 2021 / DATE OF PRONOUNCEMENT : 01 - 0 7 - 2021 2 ITA NOS.1213 & 1396/PUN/2017, A.Y. 2012 - 13 / ORDER PER S.S. VISWANETHRA RAVI, JM : TH ESE TWO APPEALS BY THE ASSESSEE AND REVENUE, RESPECTIVELY AGAINST THE COMMON ORDER DATED 31 - 03 - 2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 2, NASHIK [CIT(A)] FOR ASSESSMENT YEAR 201 2 - 13. 2. BOTH THE PARTIES CONSENTED THAT THE ISSUES RAISED IN BOTH THE APPEALS ARE BASED ON SIMILAR IDENTICAL FACTS AND PRAYED TO TAKE UP THE SAME TOGETHER. THEREFORE, WITH THE CONSENT OF BOTH THE PARTIES, WE PROCEED TO HEAR BOTH THE APPEALS TOGETHER AND TO PASS A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. FIRST, WE SHALL TAKE UP APPE AL OF ASSESSEE IN ITA NO. 1213/PUN/2017. 4. THE ONLY ISSUE RAISED FOR OUR CONSIDERATION IS AS TO WHETHER THE CIT(A) JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE AO U/S. 2(22)(E) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. HEARD BOTH T HE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE IS A REGISTERED FIRM AND DEALS IN THE BUSINESS OF SILVER , GOLD ORNAMENT AND BULLION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE PURCHASED SHARES FROM PRIVATE LIMITED COMPANIES THROUGH ITS PARTNER HAVING THE SHARE HOLDING MORE THAN 10%. ACCORDING TO THE AO, THE ASSESSEE IS A BENEFICIARY SHARE HOLDER AND THE SAID INVESTMENTS OF THE SHARES ARE REFLECTED IN THE BALANCE 3 ITA NOS.1213 & 1396/PUN/2017, A.Y. 2012 - 13 SHEET AND SHOW CAUSED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT SHOULD NOT BE APPLIED. THE ASSESSEE GIVEN EXPLANATION WHICH IS REPRODUCED IN ASSESSMENT ORDER. THE AO HELD THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT IS APPLICABLE AND AN AMO UNT OF RS.1,26,86,901/ - WERE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE CIT(A) JUSTIFIED THE ORDER OF AO IN HOLDING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE ATTRACTED. BEFORE US, THE LD. AR SUBMITTED THAT THE SIMILAR ISSUE WERE RAISED IN EAR LIER YEARS AND THIS TRIBUNAL REMANDED THE MATTER TO THE FILE OF AO FOR VERIFICATION OF THE PAYMENTS RECEIVED BY THE ASSESSEE CONSTITUTE NON - TRADE ADVANCES AND NOT ON ACCOUNT OF CURRENT ACCOUNT TO RECORD THE BUSINESS TRANSACTIONS BETWEEN OR AMONG THE GROUP CONCERNS. WE NOTE THAT THE ORDER FOR A.Y. 2010 - 11 IS PLACED AT PAGE NO. 1 OF THE PAPER BOOK AND THE ORDER FOR A.Y. 2011 - 12 IS PLACED AT PAGE NO. 33 OF THE PAPER BOOK. WE NOTE THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN A.Y. 2011 - 12 FOLLOWED THE DIRECT ION RENDERED BY THIS TRIBUNAL IN A.Y. 2010 - 11 AND REMANDED THE MATTER TO THE FILE OF AO TO DECIDE THE ISSUE RAISED THEREIN WHICH IS SIMILAR TO THE ISSUE RAISED IN THIS APPEAL IN CONFORMITY WITH THE DIRECTIONS RENDERED BY THE TRIBUNAL IN ITS ORDER FOR PRECE DING A.Y. 2010 - 11 VIDE PARA NO. 7. FOR READY REFERENCE THE RELEVANT PORTION OF THE SAID ORDER IN A.Y. 2011 - 12 IS REPRODUCED HERE - IN - BELOW : 5. THE NEXT ISSUE TAKEN UP BY THE ASSESSEE IN ITS APPEAL IS AGAINST CONFIRMATION OF ADDITION AMOUNTING TO RS.2,07, 84,694/ - U/S.2(22)(E) OF THE ACT. 6. THE FACTS APROPOS THIS ISSUE ARE THAT THE AO FOUND THE ASSESSEE TO HAVE RECEIVED LOANS FROM M/S. MANRAJ JEWELLERS PVT. LTD. AND M/S. R.L. GOLD PVT. LTD., WITH OPENING BALANCES AT RS.37.67 CRORE AND RS.42.76 CRORE RESPE CTIVELY AND CORRESPONDING CLOSING BALANCES AT RS.55.69 CRORE AND RS.60.13 CRORE RESPECTIVELY. CONSIDERING THE FACT THAT HE HAD MADE A SIMILAR ADDITION IN THE PRECEDING YEAR, THE AO MADE AN ADDITION OF RS.2,07,48,694/ - , BEING, THE AMOUNT OF DEEMED DIVIDEND OF RS.1.18 CRORE IN RESPECT OF M/S. MANRAJ JEWELLERS PVT. LTD. AND RS.89.01 LAKH IN RESPECT OF M/S. R.L. GOLD 4 ITA NOS.1213 & 1396/PUN/2017, A.Y. 2012 - 13 PVT. LTD. THE LD. CIT(A) SUSTAINED THE ADDITION, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 7. HAVING HEARD BOTH THE S IDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2010 - 11. A DETAILED DISCUSSION HAS BEEN MADE IN THE ORDER FOR SUCH YEAR AND EVENTUALL Y THE MATTER HAS BEEN RESTORED TO THE FILE OF AO FOR A FRESH A DECISION. ADMITTEDLY, THE FACTS AND CIRCUMSTANCES OF THE GROUND FOR THE INSTANT YEAR ARE SIMILAR TO THOSE OF THE PRECEDING YEAR. RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET - ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF AO FOR DECIDING THIS ISSUE IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ITS ORDER FOR THE PRECEDING YEAR. 6. IN THE LIGHT OF THE ABOVE, WE DEEM IT PROPER TO REMAND THE MATTER TO THE FILE OF AO TO DECIDE THE ISSUE REGARDING THE APPLICABILITY OF SECTION 2(22)(E) OF THE ACT IN CONFORMITY WITH THE DIRECTIONS RENDERED BY THIS TRIBUNAL IN EARLIER YEARS. THUS, THE GROUND S RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 8. NOW, WE SHALL TAKE UP APPEAL OF REVENUE IN ITA NO. 1396/PUN/2017. 9 . THE ONLY ISSUE RAISED BY THE REVENUE FOR OUR CONSIDERATION IS AS TO WHETHER THE CIT(A) JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE MADE U/S. 14A R.W. RULE 8D IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 10 . HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT ACCORDING TO THE AO THE ASSESSEE HAS UTI LIZED THE BUSINESS FUNDS FOR INVESTMENT IN EQUITY SHARES AND MADE APPLICABLE RULE 8D FOR THE 5 ITA NOS.1213 & 1396/PUN/2017, A.Y. 2012 - 13 PURPOSE OF COMPUTING THE EXPENDITURE IN RELATION TO THE EXEMPT INCOME. ACCORDINGLY, AN AMOUNT OF RS.7,34,02,058/ - HAS BEEN DISALLOWED U/S. 14A R.W. RULE 8D BY MAK ING APPLICABLE THE CBDT CIRCULAR NO. 5/2014 DATED 11 - 02 - 2014. THE CIT(A) HELD THE CIRCULAR ISSUED BY THE CBDT IS NOT BINDING ON THE APPELLATE AUTHORITY AS WAS INTERPRETED BY THE HONBLE SUPREME COURT AND HIGH COURTS DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE U/S. 14A R.W. RULE 8D. THE LD. DR RELIED ON THE ORDER OF AO AND PRAYED TO RESTORE THE SAME BY ALLOWING THE GROUNDS OF APPEAL. 1 1 . WE NOTE THAT THE ASSESSEE CLEARLY CONTENDED BEFORE THE AO THAT WHEN THERE IS NO EXEMPT INCOME THE METHOD PRESCRIBED IN RULE 8D IS NOT APPLICABLE WHICH IS EVIDENT FROM THE ASSESSMENT ORDER AT PARA NO. 5.2 INSPITE OF WHICH THE AO PROCEEDED TO MADE APPLICABLE THE CIRCULAR ISSUED BY THE CBDT BY HOLDING IT IS BINDING ON THE ASSESSING AUTHORITY. THE FACT RE MAINS ADMITTED BY BOTH THE PARTIES BEFORE US AND ALSO BORN BY THE RECORD THAT NO EXEMPT INCOME WAS DERIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE CIT(A) EXAMINED THE RECORD AND FOUND THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME WAR RANTING THE DISALLOWANCE U/S. 14A R.W. RULE 8D. ADMITTEDLY, THE CIRCULAR ISSUED BY THE CBDT IS NOT BINDING ON THE APPELLATE AUTHORITY AS RIGHTLY HELD BY THE CIT(A) IN IMPUGNED ORDER AT PAGE NO. 13 AND IT IS JUSTIFIED. AS DISCUSSED ABOVE IT IS CLEARLY EST ABLISHED THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. THEREFORE, NO DISALLOWANCE IS WARRANTED BY APPLYING THE METHOD PRESCRIBED UNDER RULE 8D. THEREFORE, IN OUR OPINION THE DISALLOWANCE MADE BY THE AO IS NOT WARRANTED AND THE CIT(A) RIGHTLY DELETE D THE SAME , THEREFORE, WE FIND 6 ITA NOS.1213 & 1396/PUN/2017, A.Y. 2012 - 13 NO INFIRMITY IN THE ORDER OF CIT(A) . THUS, THE GROUNDS RAISED BY THE REVENUE FAILS AND ARE DISMISSED. 12. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. 13. TO SUM UP, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTI CAL PURPOSE AND THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01 ST JU LY, 202 1 . SD/ - SD/ - ( R.S. SYAL ) ( S.S. VISWANETHRA RAVI ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 01 ST JU LY , 202 1 . RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A) - 2, NASHIK 4. THE PR. CIT - 2, NASHIK 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE