M/s. Satish Aggarwal & co., Mukerian V. The Deputy Commissioner of Income tax, Hoshiarpur

ITA 148/ASR/2011

• Counselvise Citation: 14820914 RSA 2011
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R L CHHANALIA
• Assessee Lawyers: J S BHASIN
• Keywords: Deemed dividend

Judgement Text

ITA NO.148(ASR)/2011 & ITA NO.250(ASR)/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.148(ASR)/2011 ASSESSMENT YEAR:2007-08 PAN :AADFS1107M M/S. SATISH KUMAR AGGARWAL & CO. VS. THE DY. COMMR. OF INCOME-TAX, MUKERIAN. HOSHIARPUR CIRCLE, HOSHIARPUR. (APPELLANT) (RESPONDENT) I.T.A. NO.250(ASR)/2011 ASSESSMENT YEAR:2007-08 PAN :AADFS1107M THE ASSTT. COMMR. OF INCOME-TAX, VS. M/S. SATISH AG GARWAL & CO. HOSHIARPUR CIRCLE, HOSHIARPUR. HOSHIARPUR. (APPELLANT) (RESPONDENT) ASSESSEE BY:SH. J.S. BHASIN, ADVOCATE DEPARTMENT BY: SH. R.L.CHHANALIA, DR DATE OF HEARING:10/10/2012 DATE OF PRONOUNCEMENT:15/10/2012 ORDER PER BENCH ; THESE CROSS APPEALS OF THE ASSESSEE AND THE REVENU E ARISE FROM THE ORDER OF THE CIT(A), JALANDHAR, DATED 15.02.2011 FO R THE ASSESSMENT YEAR 2007-08. ITA NO.148(ASR)/2011 & ITA NO.250(ASR)/2011 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: 1. THAT THE LD. CIT(A), JALANDHAR HAS ERRED IN UPH OLDING THE AOS ACTION OF DISALLOWANCE OF RS.10,25,900/- OUT OF EAR TH WORK AND STONE METAL EXPENSES DEBITED TO PROFIT & LOSS ACCOU NT. 2. THAT THE IMPUGNED ORDERS OF THE AUTHORITIES BELL OW ARE AGAINST LAW AND FACTS OF THE CASE. 3. THE APPLICANT CRAVES TO RESERVE THE RIGHT TO ALT ER, AMEND OR ADD ANY OF THE GROUNDS OF APPEAL BEFORE THE APPEAL IS H EARD AND DISPOSED OF. 3. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.34,71,027/- MADE ON ACCOUNT OF DEEMED DIVIDEND U /S 2(22)(E) OF THE INCOME-TAX ACT, 1961. 2. THAT, IT IS PRAYED THAT THE ORDER OF THE LD. CIT (A) BE SET ASIDE AND THAT OF THE A.O. RESTORED. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A GOVT. CONTRACTOR FOR CONSTRUCTION OF ROADS. WHILE EXAMINING THE VOUC HERS FOR EXPENSES CLAIMED IN RESPECT OF EARTH WORK AND STONE METAL EX PENSES DEBITED TO THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE, THE AO NOTED THAT MOST OF THE VOUCHERS WERE SELF PREPARED. THE AO ASKED THE ASSES SEE TO PRODUCE BOOKS OF ACCOUNT ALONGWITH BILLS AND VOUCHERS FOR EXPENSES U NDER THE HEAD CRUSHER, SAND, BAJRI, EARTH WORK, STONE METAL AND WAGES. IN THE BOOKS OF ACCOUNT, THE AO NOTED THAT DOCUMENTARY EVIDENCE IN RESPECT O F PAYMENT TO SEVEN PERSONS TOTALING TO RS.10,25,900/- BOOKED IN THE AC COUNTS WAS NOT PRODUCED. ITA NO.148(ASR)/2011 & ITA NO.250(ASR)/2011 3 A SHOW CAUSE WAS GIVEN TO THE ASSESSEE TO EXPLAIN A S TO WHY THESE EXPENSES MAY NOT BE DISALLOWED. THE ASSESSEE SUBMITTED THAT IT HAD PURCHASED MATERIAL FROM DIFFERENT SUPPLIERS, MANY OF WHOM WER E TRUCK OWNERS OR OTHER PETTY SUPPLIERS. IT WAS SUBMITTED THAT THESE SUPPLI ERS COLLECTED MATERIAL FROM DIFFERENT SOURCES AND SUPPLIED TO THE ASSESSEE AND COLLECTED THE PAYMENT FOR THE SAME. IT WAS SUBMITTED THAT THE ASSESSEE DID NO T KNOW MUCH ABOUT THESE PEOPLE SINCE QUALITY WAS NOT AN ISSUE IN RESPECT OF THESE MATERIALS AND THAT THE GOODS WERE PURCHASED FROM WHOSOEVER CAME AND SE TTLED THE RATES AND THAT THERE WAS NO ALTERNATIVE BUT TO PROCURE MATERI AL FROM SUCH PERSONS. IT WAS SUBMITTED THAT IT WAS IMPOSSIBLE TO PRODUCE THE PARTIES AS THEIR WHEREABOUTS WERE NOT KNOWN. THE ASSESSEE FURTHER CO NTENDED THAT THERE WAS NO ORGANIZED SOURCE FOR MATERIAL IN ITS TRADE AND S INCE THE GOVERNMENT CONTRACTS HAD TO BE COMPLETED IN TIME, THE ASSESSEE WAS REQUIRED TO PRODUCE MATERIAL FROM SUCH PERSONS. IT WAS CONTENDED THAT T HE EXPENSES WERE JUSTIFIED AND MAINTAINED IN THE NORMAL COURSE OF BU SINESS AS IN THE EARLIER YEARS. IT WAS SUBMITTED THAT THE PERSONS HAD SIGNE D VOUCHERS CONFIRMING RECEIPT OF THE PAYMENTS AND THAT THE ASSESSEES RES ULTS WERE BETTER AS COMPARED TO THE PRECEDING YEAR. THE AO WAS NOT SATI SFIED WITH THE EXPLANATION AND NOTED THAT NO ADDRESS WAS MENTIONED ON THE VOUCHERS OF THE PERSONS RECEIVING THE PAYMENT. ACCORDING TO AO, THE ASSESSEES EXPLANATION ITA NO.148(ASR)/2011 & ITA NO.250(ASR)/2011 4 WAS CONTRARY SINCE DURING THE ASSESSMENT PROCEEDING S HE WAS ABLE TO PROVIDE THE NAMES AND ADDRESSES OF THE PARTIES. HE ALSO NOT ED THAT THE NAMES OF THE PERSONS WERE NOT OF MIGRATORY LABOUR FROM OTHER STA TES BUT APPEARED TO BE OF LOCAL PERSONS WHO DID NOT MOVE FREQUENTLY. AS PER THE AO, THESE PERSONS WOULD BE EASILY IDENTIFIABLE AND TRACEABLE. THE AO ALSO HELD THOUGH IT WAS CLAIMED THAT THE RECIPIENTS OF PAYMENTS WERE ILLITE RATE, ALL THE VOUCHERS HAD BEEN SIGNED BY THE RECIPIENTS. HE, THEREFORE, HEL D THAT THE SEVEN PARTIES TO WHOM THE IMPUGNED PAYMENTS WERE CLAIMED TO HAVE BE EN MADE WERE FICTITIOUS, AND HE DISALLOWED THE PAYMENTS AS EXPEN DITURE. 5. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 6. THE LD. COUNSEL FOR THE ASSESSEE, SH.J.S. BHASIN , ADVOCATE, ARGUED THAT IT IS IMPERATIVE TO SEE NATURE OF WORKING UNDE RTAKING BY THE ASSESSEE. THE ASSESSEE BEING A GOVERNMENT CONTRACTOR, IT BY W AY OF OPEN TENDER THAT THE WORK OF ROAD CONSTRUCTION IS ALLOTTED TO BE EXE CUTED BY THE PWD B & R, A STATE GOVERNMENT DEPARTMENT. THE TERMS AS TO QUA LITY AND TIME ARE STIPULATED TO BE STRICTLY ADHERED TO AND THE ASSESS EES TIME IS THE ESSENCE OF CONTRACT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE ASSESSEE HAD SUBMITTED COPIES OF THE TENDERS ALLOTTED DURING THE YEAR IN WHICH THE TIME PERIOD FOR COMPLETION OF WORK RANGES BETWEEN TWO MO NTHS TO MAXIMUM NINE MONTHS AND HEAVY PENALTY IS LEVIED FOR ANY DELAY IN EXECUTION. THE ASSESSEE ITA NO.148(ASR)/2011 & ITA NO.250(ASR)/2011 5 ALSO PRODUCED ONE SUCH DOCUMENT DATED 10.05.2006 BE ARING NO.439/M FROM XEN, MUKERIAN, WHEREBY PENALTY OF 7.5% AMOUNTING TO RS.41,95,780/- WAS LEVIED IN THE PRECEDING YEAR AND RECOVERED FROM THE ASSESSEE. THE WORK INVOLVED BEING OF ROAD CONSTRUCTION, WHICH CAN BE ANYWHERE IN THE STATE AND ONCE A WORK IS ALLOTTED, THE MATERIAL REQUIRED HAS TO BE ESSENTIALLY PROCURED FROM THEE NEARBY AREAS. THE EARTH FILLING BEING THE INITIAL WORK, IS NORMALLY ARRANGED THROUGH LOCALS, WHOSEVER APPROACH ES THE ASSESSEE TO SUPPLY MAXIMUM IN MINIMUM TIME ON DAILY BASIS. THER E IS NO DISPUTE TO THE FACT THAT THE EARTH HAS NOT BEEN SUPPLIED WITHOUT W HICH WORK CANNOT BE COMPLETED. THE ASSESSEE HAVING DECLARED BETTER NP D URING THE YEAR AND HAVING PRODUCED THE VOUCHERS FOR THE PURCHASE OF SU CH EARTH WORK, NO ADDITION IS REQUIRED TO BE MADE. 7. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE ARE CONVINCED WITH THE ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE THAT NATURE OF BUSINESS OF THE ASSESSEE IS SUCH THAT THE EARTH HAS TO BE PURCHASED FROM THE LOCALS FOR WHICH NECESSARY VO UCHERS HAVE BEEN PRODUCED. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS NOT DONE SUCH WORKING. THE ASSESSEE HAS DECLARED BETTER NET PROFI T AS COMPARED TO ITA NO.148(ASR)/2011 & ITA NO.250(ASR)/2011 6 PRECEDING YEAR. THEREFORE, WE ARE OF THE VIEW THAT THE AO IS NOT JUSTIFIED IN MAKING ANY ADDITION AND THE SAME IS DIRECTED TO BE DELETED. THUS, ALL THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 9. NOW, WE TAKE UP APPEAL OF THE REVENUE IN ITA NO. 250(ASR)/2011. THE BRIEF FACTS IN THE APPEAL OF THE REVENUE ARE TH AT THE AO ASKED THE ASSESSEE TO SUBMIT DETAILS OF THE SHAREHOLDING OF P ARTNERS OF THE FIRM IN THE SISTER CONCERNS, THE DETAILS OF TRANSACTIONS INCLUD ING THAT OF LOANS AND ADVANCES TAKEN FROM THE SISTER CONCERNS AND TO SUBM IT AS TO WHY THESE TRANSACTIONS WERE NOT COVERED U/S 2(22)(E) OF THE I NCOME-TAX ACT, 1961. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE PROVISION S OF SECTION 2((22)(E) WERE NOT APPLICABLE IN THIS CASE AS THESE WERE APPLICABL E ON A COMPANY AND THAT THIS WAS A FIRM. THE AO HAS NOTED IN THE ASSESSMEN T ORDER THAT THE ASSESSEES ACCOUNT IN THE BOOKS OF M/S. SATISH AGGA RWAL ROAD CONSTRUCTION PVT. LD. SHOWED A PEAK DEBIT BALANCE OF RS.87,47,05 2/- AS ON 01.04.2006 WHICH CONTINUED THROUGHOUT THE RELEVANT PREVIOUS Y EAR YEAR LEAVING A DEBIT BALANCE OF RS.34,78,221/-. HE ALSO NOTED THAT THE A SSESSEE HAD ACCEPTED THAT THIS WAS A LOAN ON WHICH INTEREST HAD BEEN PAID TO THE COMPANY. THE AO ALSO NOTED THAT SH. SATISH AGGARWAL, PARTNER IN THE ASSESSEE FIRM WITH 30%, HELD 25.59% SHARES IN THE SAID COMPANY. HENCE, HE H ELD THAT THE PROVISIONS OF SECTION 2(22)(E) WERE APPLICABLE IN THE CASE OF THE ASSESSEE-FIRM. HE ITA NO.148(ASR)/2011 & ITA NO.250(ASR)/2011 7 ADDED THE ACCUMULATED PROFIT OF THE SAID COMPANY AT RS.34,71,027/- TO THE TOTAL INCOME OF THE ASSESSEE U/S 2(22)(E) OF THE A CT HOLDING THAT THE DEBIT BALANCE AT THE BEGINNING OF THE YEAR ATTRACTED THE PROVISIONS OF SECTION 2(22)(E). 10. THE LD. CIT(A) AFTER CONSIDERING THE APPLICATIO N U/S 146A AND THE REMAND REPORT DELETED THE ADDITION MADE BY THE AO V IDE PARA 2.6 TO 3.2 OF HIS ORDER. 11. THE LD. DR, RELIED ON THE ORDER OF THE ASSESSIN G OFFICER. 12. THE LD. COUNSEL FOR THE ASSESSEE, MR. J.S. BHAS IN, ADVOCATE, RELIED UPON SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND THE ORDER OF THE LD. CIT(A). 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT TH E ASSESSEES MAIN CONTENTION IN ITS WRITTEN SUBMISSION WAS THAT THE P RINCIPLE BUSINESS OF M/S. SATISH AGGARWAL ROAD CONSTRUCTION CO. PVT. LTD. WAS LENDING/INVESTING ITS MOEY ON INTEREST AND NOT IN THE BUSINESS OF ROAD CO NSTRUCTION. THIS CONTENTION HAS NOW BEEN VERIFIED AND ACCEPTED BY TH E A.O. IT IS ALSO APPARENT FROM THE SUMMARY OF THE BALANCE SHEET OF T HE SAID COMPANY THAT MOST OF THE FUNDS OF THE SAID COMPANY WERE ADVANCED AS LOANS TO THE ASSESSEE-FIRM. THE CREDITS IN THE TRADING & PROFIT & LOSS ACCOUNT OF THE SAID ITA NO.148(ASR)/2011 & ITA NO.250(ASR)/2011 8 COMPANY ALSO SHOW THAT IN A.Y.2005-06 AND 2006-07, THE SAID COMPANY HAD NO INCOME FROM CONTRACT RECEIPTS AND HAD ONLY I NCOME UNDER THE HEAD OTHER INCOME AND HIRE CHARGES IN THESE TWO ASSESS MENT YEARS. WHEN A SHAREHOLDER RECEIVES LOAN FROM A COMPANY IN THE ORD INARY COURSE OF ASSESSEES BUSINESS, THE SAID TRANSACTION IS EXEMPT FROM THE PURVIEW OF DEEMED DIVIDEND AS PER THE CLAUSE (II) OF SECTION 2 (22)(E). EVEN OTHERWISE, IT IS SEEN THAT THE SPECIAL BENCH OF THE ITAT HAVE HE LD IN THE CASE OF ACIT VS. BHAUMIC COLOUR PVT. LD. THAT SECTION 2(22)(E) W OULD NOT BE APPLICABLE IN THE CASE OF A FIRM IN WHICH THE SHARE HOLDERS OF TH E COMPANY WERE PARTNERS, EVEN WHEN LOAN OR ADVANCE WAS GIVEN BY THE COMPANY TO THE SAID FIRM. THE HONBLE RAJASTHAN HIGH COURT HAVE ALSO TAKEN THE SA ME VIEW IN THE CASE OF CIT VS. HILLTOP REPORTED AT 313 ITR 116 (RAJ.). THE JURISDICTIONAL TRIBUNAL HAVE UPHELD THIS VIEW IN THEIR DECISION IN THE CASE OF DCIT, CIRCLE-1, JALANDHAR VS. THE MERCHANTS IN ITA NO.331(ASR)/2009 DATED 26.08.2009. THUS, AS PER THE DECISION OF THE JURISDICTIONAL TRI BUNAL IN THE CASE OF DCIT, CIRCLE-1, JALANDHAR VS. THE MERCHANTS(SUPRA) ADDITI ON U/S 2(22)(E) CANNOT BE MADE IN THE CASE OF A FIRM. HENCE, BOTH THE REASONS THAT THE MONEY WAS RECEIVED BY THE ASSESSEE FIRM FROM M/S. SATISH AGGA RWAL ROAD CONSTRUCTION CO. PVT. LTD. IN THE COURSE OF ORDINARY BUSINESS OF LENDING BY THAT COMPANY ITA NO.148(ASR)/2011 & ITA NO.250(ASR)/2011 9 AND BECAUSE SECTION 2(22)(E) IS NOT APPLICABLE IN T HE CASE OF A FIRM, THE ADDITION MADE BY THE AO U/S 2(22)(E) HAS RIGHTLY B EEN DELETED. 13.1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE D ISCUSSED ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS ACCORDINGLY UPHELD. THUS, ALL THE GROUNDS OF THE REVENUE ARE DI SMISSED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.148(ASR)/2011 IS ALLOWED AND THE APPEAL OF THE REVENUE IN ITA NO.250 (ASR)/2011 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15TH OCTOBER, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15TH OCTOBER, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. SATISH AGGARWAL & CO. MUKERIAN. 2. THE ACIT/DCIT, HOSHIARPUR CIRCLE, HOSHIARPUR. 3. THE CIT(A), JLR. 4. THE CIT, JLR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.