UMA KRISHNAKUMAR MITTAL, MUMBAI V. ITO 8(2)(3), MUMBAI

ITA 1481/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2072 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 24-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 22-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANATHIR GUPTA
• Assessee Lawyers: KALPESH TUEALKAR
• Keywords: Deemed dividend; Reason to believe
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH , JUDICIAL MEMBER ITA NO. 1481/MUM/2013 (ASSESSMENT YEAR: 2005-06) MRS. UMA KRISHNAKUMAR MITTAL VS. INCOME TAX OFFICER - 8(2) - 3 12 - A/B, KINGTON, 1 ST FLOOR LOKHANDWALA COMPLEX ANDHERI (W), MUMBAI 400053 MUMBAI PAN AAGPM3636E APPELLANT RESPONDENT APPELLANT BY: MS. AARTI SATHE & SHRI KALPESH TUEALKAR RESPONDENT BY: SHRI RANATHIR GUPTA DATE OF HEARING: 03.11.2016 DATE OF PRONOUNCEMENT: 09.11.2016 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- 17, MUMBAI DATED 10.12.2012 FOR A.Y. 2005-06. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE FILED HER RETURN OF INCOME FOR A.Y . 2005-06 ON 26.10.2005 DECLARING TOTAL INCOME OF ` 1,24,960/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX AC T, 1961 (IN SHORT 'THE ACT'). PROCEEDINGS UNDER SECTION 147 OF THE ACT WER E INITIATED FOR REOPENING THE ASSESSMENT AND AFTER RECORDING REASONS IN THIS REGARD, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED ON 01.03.2011. IN RESPONSE THERETO, THE ASSESSEE REQUESTED THAT THE ORIGINAL RETURN OF NOTI CE FILED ON 26.10.2005 BE TREATED AS FILED IN RESPONSE TO THE NOTICE ISSUED U NDER SECTION 148 OF THE ACT. THE ASSESSMENT WAS CONCLUDED UNDER SECTION 143 (3) R.W.S 147 OF THE ACT VIDE ORDER DATED 30.08.2011, WHEREIN THE ASSESS EES INCOME WAS DETERMINED AT ` 28,37,705/- IN VIEW OF THE ASSESSING OFFICERS (AO) HOLDING ITA NO. 1481/MUM/2013 MRS. UMA KRISHNAKUMAR MITTAL 2 THAT SINCE THE LOANS AND ADVANCES AMOUNTING TO ` 27,12,747/- BY TWO COMPANIES, I.E. M/S. EURO FLEX INDUSTRIES LTD. AND K.K.M. INTERNATIONAL P. LTD. TO M/S. MITTATEX EXPORTS P. LTD. OF WHICH THE ASSESSEE IS A BENEFICIAL OWNER OF OVER 20% SHARES IN ALL THE ABOVE THREE COM PANIES, THEREFORE AS PER SECTION 2(22)(E) OF THE ACT SUCH LOANS AND ADVA NCES ARE CONSIDERED DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE AND WE RE ACCORDINGLY BROUGHT TO TAX IN THE ASSESSEES HANDS. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR A.Y. 2 005-06 DATED 30.08.2011, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A)-17, MUMBAI WHO DISMISSED THE ASSESSEES APPEAL VIDE THE IMPUGN ED ORDER DATED 10.12.2012. 3. AGGRIEVED BY THE ORDER OF THE CIT(A)-17, MUMBAI DAT ED 10.12.2012 FOR A.Y. 2005-06, THE ASSESSEE HAS PREFERRED THIS A PPEAL RAISING CERTAIN GROUNDS. SUBSEQUENTLY, VIDE LETTER DATED 27.04.2015 , THE ASSESSEE PREFERRED REVISED GROUNDS OF APPEAL WHICH ARE AS UN DER: - 1. THE COMMISSIONER OF INCOME-TAX (APPEALS) [C.I.T -(A)] ERRED IN CONFIRMING THE RE-OPENING OF ASSESSMENT UNDER SECTI ON 147 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E SAID 'ACT') AND FAILED TO APPRECIATE THAT THE CONDITIONS PRECEDENT TO RE-OPENING UNDER SECTION 147 OF THE ACT ARE NOT SATISFIED IN T HE APPELLANT'S CASE AND HENCE THE ORDER PASSED BY THE ASSESSING OF FICER (A.O.) IS HAD IN LAW AND WITHOUT ANY JURISDICTION. 2. THE CIT (A) ERRED IN NOT APPRECIATING THAT THE ORIGINAL ASSESSMENT ORDER HAD BEEN PASSED UNDER SECTION 143(1) OF THE A CT, WHEREIN ALL THE PRIMARY AND MATERIAL FACTS WERE BEFORE THE A.O. AND THE FACTS THE APPELLANT HAD SUBSTANTIAL INTEREST BOTH I N EURO FLEX INDL. P. LTD. AND KKM INTERNATIONAL P. LTD. WAS BEFORE TH E A.O. AT. THE TIME OF PASSING THE ORIGINAL ORDER UNDER SECTION 14 3(1) OF THE ACT. THE IMPUGNED ORDER HAS BEEN PASSED ON A NON-APPLICA TION OF MIND AND IS THEREFORE LIABLE TO BE SET ASIDE. 3. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ORDER OF THE A.O. IN THE RE-OPENING OF ASSESSMENT UNDER SECTION 147 OF THE A CT WITHOUT CONSIDERING THE LEGAL PROVISIONS, THE APPELLANT FUR THER SUBMITS THAT BEFORE PROCEEDINGS UNDER SECTION 148 CAN BE VA LIDLY INITIATED CERTAIN PRECONDITIONS WHICH ARE ENUMERATED HEREINAF TER HAVE TO BE COMPLIED WITH:- (I) THE A.O. MUST HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT; (II) SUCH ESCAPEMENT MUST BE ON ACCOUNT OF A FAILURE ON THE PART ITA NO. 1481/MUM/2013 MRS. UMA KRISHNAKUMAR MITTAL 3 OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MAT ERIAL FACTS NECESSARY FOR ITS ASSESSMENT FOR THE SAID YEAR PROV IDED THAT THE PROCEEDINGS HAVE BEEN INITIATED AFTER A PERIOD OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR TO WHICH THEY RELATE; (III) PRIOR TO THE ISSUANCE OF THE NOTICE UNDER SECTION 1 48 THE A.O. HAS TO RECORD HIS REASONS ON THE BASIS OF WHICH HE FORMS AN OPINION THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT; (IV) THE SANCTION OF THE APPROPRIATE AUTHORITY IS OBTAIN ED ON THE BASIS OF THE REASONS RECORDED BY THE A.O.; (V) THE NOTICE IS VALIDLY ISSUED AND SERVED ON THE ASSE SSEE. THE APPELLANT SUBMITS THAT THE AFORESAID CONDITIONS ARE JURISDICTIONAL FACTS AND ARE TO BE FULFILLED PRIOR TO THE INITIATION OF THE PROCEEDINGS AND IF ANY OF THE SAI D CONDITIONS ARE NOT FULFILLED, THE VERY INITIATION I S BAD IN LAW AND LIABLE TO BE QUASHED. THE APPELLANT SUBMITS THA T IN THE PRESENT CASE ALL THE AFORESAID CONDITIONS HAVE NOT BEEN COMPLIED WITH AND HENCE THE IMPUGNED NOTICES ARE BA D IN LAW AND MUST BE SET ASIDE. 4. THE LEARNED C1T (A) ERRED IN UPHOLDING THE RE-OPENI NG PROCEEDING UNDER SECTION 147 OF THE ACT WHICH WERE INITIATED B Y THE ASSESSING OFFICER (A.O.) ON THE BASIS OF THE SUBSEQ UENT DECISION OF THE HON'BLE TRIBUNAL PASSED IN THE CASE OF M/S. BHA UMIK COLOURS PVT. LTD. REPORTED IN 118 ITD 1 (SB). THE APPELLANT SUBMITS THAT THE RE-OPENING PROCEEDING CANNOT BE INITIATED ON TH E BASIS OF SUBSEQUENT JUDICIAL DECISION. HENCE THE IMPUGNED OR DER IS BAD IN LAW AND LIABLE TO BE SET ASIDE. 5. THE CIT (A) AND A.O. FAILED TO APPRECIATE THE FACTS OF THE CASE AND MERELY RE-OPENED THE CASE, RELYING ON THE DECISION OF M/S. BHAUMIK COLOURS PVT. LTD. REPORTED IN 118 ITD 1 (SB ) WITHOUT APPRECIATING THAT THE SAME IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN THE LAW, THE CIT (A) WHILE PASSING ORDER UNDER SECTION 250 O F THE ACT DATED 10 TH DECEMBER, 2012 ERRED IN UPHOLDING THE ADDITION MAD E BY THE A.O. TO TUNE OF RS. 27,12,747/- 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN THE LAW, THE CIT (A) WHILE PASSING ORDER DATED 10 TH DECEMBER, 2012 OF THE ACT ERRED IN BEING AS DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT WITHOUT ANY FURTHER ENQUIRY EVEN AFTER SU BMITTING THE DETAILS ABOUT THE NATURE OF TRANSACTIONS. 8. THE APPELLANT CRAVES, LEAVE TO ALTER, ADD AMEND AND OR MODIFY ANY OF THE ABOVE REFERRED ADDITIONAL GROUNDS OF APP EAL. ITA NO. 1481/MUM/2013 MRS. UMA KRISHNAKUMAR MITTAL 4 4. GROUNDS 6 & 7 DEEMED DIVIDEND UNDER SECTION 2(22) (E) 4.1 THESE GROUND WERE INITIALLY URGED AT THE INSTAN CE OF THE LEARNED A.R. OF THE ASSESSEE. IN THESE GROUNDS, THE ASSESSEE CHA LLENGES THE ACTION OF THE LEARNED CIT(A) IN UPHOLDING THE ADDITION OF ` 27,12,747/- MADE BY THE AO AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE AC T IN THE HANDS OF THE ASSESSEE WITHOUT ANY FURTHER ENQUIRY AND EVEN AFTER DETAILS IN THE MATTER WERE SUBMITTED. AT THE OUTSET, THE LEARNED A.R. OF THE ASSESSEE SUBMITTED THAT THE IDENTICAL ISSUE OF ADDITION OF ` 27,14,747/- OF A RELATED PARTY, I.E. K.K. MITTAL, HUF FOR A.Y. 2005-06, CAME UP FOR CONS IDERATION BEFORE A COORDINATE BENCH OF THE TRIBUNAL AND IN THAT CASE, THE COORDINATE BENCH IN ITS ORDER IN ITA NO. 1368/MUM/2012 DATED 15.07.2 016 HAS SET ASIDE THE IMPUGNED ORDER AND RESTORED THE SAME TO THE FIL E OF THE AO TO EXAMINE AFRESH THE APPLICABILITY OF SECTION 2(22)(E) OF THE ACT IN THE LIGHT OF THE ASSESSEES CLAIM THAT THE TRANSACTION HAVE BEEN UND ERTAKEN IN THE ORDINARY COURSE OF BUSINESS. 4.1.2 ACCORDING TO THE LEARNED A.R., AS IN THE CITE D CASE (SUPRA) IN THE CASE ON HAND ALSO, THE AO HAS TREATED THE BUSINESS TRANS ACTION WITH THE SISTER CONCERNS IN THE ORDINARY COURSE OF BUSINESS, AS LOA NS AND ADVANCES AND TREATED THE SAME AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. IN THIS REGARD, THE LEARNED A.R. OF THE ASSESSEE SUBMITTED, INTER ALIA, LEDGER ACCOUNTS OF DIFFERENT ASSESSMENT YEARS OF M/S. EURO FLEX INDUSTRIES LTD. AND K.K.M. INTERNATIONAL P. LTD. IN THE BOOKS OF MI TTATEX EXPORTS P. LTD. WHERE THE ASSESSEE IS HAVING SUBSTANTIAL INTERESTS. IT WAS SUBMITTED THAT THESE LEDGER ACCOUNTS WOULD SHOW CONTINUOUS FLOW OF TRANSACTIONS FROM THESE COMPANIES, I.E. M/S. EURO FLEX INDUSTRIES LTD . AND M/S. K.K.M. INTERNATIONAL P. LTD., IN THE BOOKS OF M/S. MITTATE X EXPORTS P. LTD. ACCORDING TO THE LEARNED A.R. ALL THESE THREE COMPA NIES ARE IN THE BUSINESS OF COTTON EXPORT AND HAVE CURRENT ACCOUNT TRANSACTI ONS WITH EACH OTHER IN THE ORDINARY COURSE OF BUSINESS. IT WAS CONTENDED T HAT THESE TRANSACTIONS ARE CERTAINLY NOT LOANS AND ADVANCES WHICH CAN BE B ROUGHT WITHIN THE PURVIEW OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) O F THE ACT. ITA NO. 1481/MUM/2013 MRS. UMA KRISHNAKUMAR MITTAL 5 4.2 PER CONTRA, THE LEARNED D.R. FOR REVENUE SUPPOR TED THE ORDERS OF THE AUTHORITIES BELOW. APART FROM THIS, THE LEARNED D.R . CONTENDED THAT THE ABOVE CONTENTIONS, THAT THESE TRANSACTIONS ARE NOT LOANS AND ADVANCES BUT ARE CURRENT ACCOUNT TRANSACTIONS OF THESE PARTIES C ARRIED OUT BETWEEN THEM IN THE ORDINARY COURSE OF BUSINESS, HAVE BEEN ADVAN CED BY THE ASSESSEE FOR THE FIRST TIME AND THEREFORE THE SAME CANNOT BE ACC EPTED WITHOUT PROPER EXAMINATION AND CERTIFICATION BY THE AUTHORITIES BE LOW. 4.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED (SUPRA) AS WELL AS THE LEDGER ACCOUNTS, ETC. SUBMITTED BY THE ASSESSEE IN SUPPORT OF ITS ASSERTION THAT THE TRANSACTIONS O F M/S. MITTATEX EXPORTS P. LTD. VIS-A-VIS M/S. EURO FLEX INDUSTRIES LTD. AND M /S. K.K.M. INTERNATIONAL P. LTD. ARE CURRENT ACCOUNTS TRANSACTIONS ENTERED I NTO BETWEEN THEM IN THE NORMAL COURSE OF BUSINESS. WE FIND THAT IN THE DECI SION OF THE COORDINATE BENCH IN THE CASE OF A RELATED PARTY, I.E. M/S. K.K . MITTAL, HUF IN ITA NO. 1638/MUM/2012 DATED 15.07.2016 FOR A.Y. 2005-06 ON IDENTICAL FACTS AND ISSUES HAS SET ASIDE THE IMPUGNED ORDER IN THAT CASE AND RESTORED THIS ISSUE TO THE FILE OF THE AO TO EXAMINE THE ISSUE OF THE APPLICABILITY OF SECTION 2(22)(E) OF THE ACT AFRESH IN THE LIGHT OF THE ASSESSEES PLEA THAT THE SAID TRANSACTIONS HAVE BEEN ENTERED INTO IN THE ORD INARY COURSE OF BUSINESS AT PARA 7 AND 8 THEREOF. THE COORDINATE BE NCH HAS HELD AS UNDER: - 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE ACCOUNTS SUBMITTED BY THE ASSESSEE STATING THAT THE TRANSACTIONS OF THE M/S. MITTATEX EXPORTS PVT. LTD. WITH THE TWO OT HER PARTIES ARE CURRENT ACCOUNT TRANSACTION DURING THE COURSE OF BU SINESS. THOUGH THE SAID PLEA IS A NEW PLEA BUT, THE SAME CANNOT BE BRU SHED ASIDE AND IT NEEDS DETAILED VERIFICATION AND EXAMINATION BY AO T O ASCERTAIN THAT WHETHER THE TRANSACTIONS ARE COVERED UNDER THE DEFI NITION OF SECTION 2(22)(E) OF THE ACT OR NOT. THEREFORE, IN OUR CONSI DERED OPINION IN THE INTEREST OF JUSTICE, THE ASSESSEE SHOULD BE GIVEN O NE MORE OPPORTUNITY TO SUBSTANTIATE HIS ARGUMENTS ON APPLICABILITY OF S ECTION 2(22)(E) OF THE ACT ON THE TRANSACTION. HENCE WHILE SETTING ASIDE T HE IMPUGNED ORDER THE MATTER IS SENT BACK TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE WHOLE ISSUE OF APPLICABILITY OF SECTION 2(22)(E) OF THE ACT AFRESH IN THE LIGHT OF ASSESSEES PLEA THAT THE TRA NSACTIONS HAVE BEEN UNDERTAKEN IN THE ORDINARY COURSE OF BUSINESS. ITA NO. 1481/MUM/2013 MRS. UMA KRISHNAKUMAR MITTAL 6 8. NEEDLESS TO SAY THAT AN ADEQUATE OPPORTUNITY OF HEARING TO PUT FORTH THE CASE SHOULD BE GIVEN TO THE ASSESSEE. 4.3.2 FOLLOWING THE AFORESAID DECISION OF THE COORD INATE BENCH IN THE CASE OF M/S. K.K. MITTAL, HUF FOR A.Y. 2005-06, WE ARE O F THE CONCERNED OPINION THAT EVEN THOUGH THE PLEA PUT FORTH BY THE ASSESSEE IS A NEW PLEA, IN THE INTEREST OF EQUITY AND JUSTICE, THE SAME OUGHT NOT TO BE BRUSHED ASIDE AS IT REQUIRES DETAILED EXAMINATION AND VERIFICATION BY T HE AO TO ASCERTAIN WHETHER OR NOT THE SAID TRANSACTIONS ARE TO BE BROU GHT WITHIN THE PURVIEW OF THE DEFINITION OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. IN THAT VIEW OF THE MATTER, WE, IN THE BEST INTERESTS OF JUSTICE AND EQUITY ARE OF THE VIEW THAT THE ASSESSEE BE GIVEN ONE MORE OPPORT UNITY TO SUBSTANTIATE HER ARGUMENTS ON THE APPLICABILITY OR OTHERWISE OF SECTION 2(22)(E) OF THE ACT IN THE CASE ON HAND. WE THEREFORE SET ASIDE THE ORDER OF THE AUTHORITIES BELOW ON THIS ISSUE OF DEEMED DIVIDEND, AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE ISSUE OF APP LICABILITY OF SECTION 2(22)(E) OF THE ACT AFRESH IN THE LIGHT OF THE ASSE SSEES PLEA THAT THE TRANSACTIONS BETWEEN THE THREE CONCERNS, I.E. M/S. EURO FLEX INDUSTRIES LTD., M/S. K.K.M. INTERNATIONAL P. LTD. AND M/S. MI TTATEX EXPORTS P. LTD. HAVE BEEN UNDERTAKEN IN THE ORDINARY COURSE OF BUSI NESS. WE HOLD AND DIRECT ACCORDINGLY. CONSEQUENTLY, GROUNDS 6 & 7 OF ASSESSEES APPEAL ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 5. GROUNDS NO. 1 TO 5 VALIDITY OF INITIATION OF PROC EEDINGS UNDER SECTION 147 OF THE ACT TO REOPEN ASSESSMENT 5.1 SINCE THE ISSUE IN THIS APPEAL, ON MERITS, HAS BEEN RESTORED BY US TO THE FILE OF THE AO FOR CONSIDERATION AND ADJUDICATI ON AFRESH ON THE FRESH PLEA OF THE ASSESSEE AS TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ON THE TRANSACTIONS INVOLVED BE TWEEN THE THREE CONCERNS, M/S. EURO FLEX INDUSTRIES LTD., M/S. K.K.M. INTERNA TIONAL P. LTD. AND M/S. MITTATEX EXPORTS P. LTD. THERE IS NO REQUIREMENT TO ADJUDICATE THESE GROUND 1 TO 5 ON TECHNICAL ISSUES. 6. GROUND NO. 8 IS GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. ITA NO. 1481/MUM/2013 MRS. UMA KRISHNAKUMAR MITTAL 7 7. IN THE RESULT, THE ASSESSEES APPEAL FOR A.Y. 2005- 06 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER, 2016. SD/ - SD/ - (AMARJIT SINGH) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 9 TH NOVEMBER, 2016 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -17, MUMBAI 4. THE CIT - 8, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.