DCIT, Bangalore V. M/s Chariot International P. Ltd., Bangalore

ITA 1503/BANG/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68362 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 19-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L V BHASKARA REDDY
• Assessee Lawyers: VENKATESH KUMAR
• Keywords: Deemed dividend
• Section: 10B

Judgement Text

ITA NO.1503 OF 2012 CHARIOT INTERNATIONAL PVT LTD B ANGALORE PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BBENCH, BANGALORE BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1503/BANG/2012 (ASSESSMENT YEAR: 2006-07) DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(2) BANGALORE VS. M/S CHARIOT INTERNATIONAL (P) LTD NO.107 AGRAHARA TOWN, NEXT TO IT PARK, BACK GATE, WHITEFIELD ROAD, BANGALORE 560066 PAN: AAACC 5718 N (APPELLANT) (RESPONDENT) C.O. NO.53/BANG/2013 (ARISING OUT OF ITA NO.1503/BANG/2012) ( ASSESSMENT YEAR: 2006-07 ) M/S CHARIOT INTERNATIONAL (P) LTD NO.107 AGRAHARA TOWN, NEXT TO IT PARK, BACK GATE, WHITEFIELD ROAD, BANGALORE 560066 PAN: AAACC 5718 N VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(2) BANGALORE (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY: SHRI L.V.BHASKARA REDDY, DR ASSESSEE BY: SHRI VENKATESH KUMAR, CA DATE OF HEARING: 20/11/2013 DATE OF PRONOUNCEMENT: 29/11/2013 O R D E R PER GEORGE GEORGE K. J.M. THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT (A)-I, BANGALORE DATED 30.8.2012. THE ASSESSEE ITA NO.1503 OF 2012 CHARIOT INTERNATIONAL PVT LTD B ANGALORE PAGE 2 OF 8 COMPANY HAD ALSO FILED ITS CROSS OBJECTION. THE RE LEVANT ASSESSMENT YEAR IS 2006-07. 2. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. ON THE OTHER HAND, THE ASSESSEE COMPANY HAS, IN ITS CROSS OBJECTION, SUPPO RTED THE ORDER OF CIT(A). 3. AS THE ISSUE RAISED BY THE REVEN UE AND THE CROSS OBJECTION OF THE ASSESSEE ARE COMMON, THEY WERE HEA RD TOGETHER AND DISPOSED OF IN THIS CONSOLIDATED ORDER. 4. BRIEFLY STATED, THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CONV ERSION OF ROUGH GRANITE BLOCKS/SLABS INTO POLISHED GRANITE SL ABS, GRANITE TILES AND MONUMENTS. THE ASSESSEE IS 100% EOU, APP ROVED BY THE SPECIFIC AUTHORITY UNDER THE ACT. WHILE CONCLU DING THE ASSESSMENT FOR THE ASSESSMENT YEAR UNDER DISPUTE, T HE AO DISALLOWED, AMONG OTHERS, THE BENEFITS OF DEDUCTION U/S 10B OF THE ACT AND ALSO MADE AN ADDITION U/S 2 (22)(E)OF T HE ACT. THE BASIS OF THE ADDITION OF RS.10.47 LAKHS AS DEEMED D IVIDEND U/S 2 (22)(E) OF THE ACT BY THE AO WAS THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT MR. SANDE EP WADHWA AND MR VIJAY K BHATIA WERE HOLDING SHARES WI TH VOTING POWER OF 75% AND 25% RESPECTIVELY. M/S. STONE WORL D DIRECT EXPORT PVT. LTD [SWDEPL] IS A SISTER CONCERN IN WHI CH MR. SANDEEP WADHWA WAS HOLDING 66.8% OF VOTING RIGHTS. SWDPL HAD ACCUMULATED PROFITS OF RS.10.47 LAKHS AS ON 31. 3.2006 AND IT HAD ALSO SHOWN A CREDIT BALANCE OF RS.21.24 LAKH S AS ON ITA NO.1503 OF 2012 CHARIOT INTERNATIONAL PVT LTD B ANGALORE PAGE 3 OF 8 1.4.2005 AND, THUS, THERE WAS A DEBIT OF RS.40 LAKH S ON THE SAME DAY, RESULTING IN, AN EXCESS PAYMENT AND ALSO A CRE DIT BALANCE OF RS.45,97,558/- AS ON 31.3.2006. AFTER HAVING EXAMI NED THE ACCOUNTS AS WELL AS THE DETAILS FURNISHED BY THE AS SESSEE, THE AO WAS OF THE VIEW THAT THERE WAS LOAN/ADVANCE WITHIN THE MEANING OF S. 2 (22)(E) OF THE ACT AND, ACCORDINGLY, TREATE D THE AMOUNT OF ACCUMULATED PROFIT OF RS.10,47,834/- AS DEEMED DIVI DEND. 4.1. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUES, A MONG OTHERS, BEFORE THE CIT (A). DURING THE COURSE OF AP PELLATE PROCEEDINGS, THE ASSESSEE HAD FILED DETAILS OF VARI OUS BILLS AND OTHER EVIDENCES TO PROVE THE POINT THAT THOSE WERE BUSINESS TRANSACTIONS. AFTER TAKING INTO ACCOUNT THE NEW EV IDENCE PRODUCED BY THE ASSESSEE AS WELL AS THE REMAND REPO RT OF THE AO ON THE SAME, THE CIT (A) HAD DELETED THE ADDITION M ADE U/S 2 (22)(E) OF THE ACT BY THE AO FOR THE FOLLOWING REAS ONING, NAMELY: (ON PAGE 10) I HAVE CONSIDERED THE SUBMISSION OF T HE APPELLANT AND ALSO THE REASONS GIVEN BY THE ASSESSI NG OFFICER IN THE ASSESSMENT YEAR (SIC) ORDER AND THE REMAND REPORT. THE ASSESSING OFFICER IN HIS REPORT HAS CATEGORICALLY STATED THAT THE TRANSACTION BETWEEN T HE ASSESSEE AND THE SISTER CONCERN ARE BUSINESS TRANSACTIONS AS PER THE EVIDENCE FILED, HOWEVER, HE CHOSE TO RELY ON THE DECISION OF THE HONBLE HIGH COURT O F MUMBAI IN THE CASE OF BADIYANI (76 ITR 369), AND SUBMITTED THAT THE SAID AMOUNTS CAN BE CONSIDERED A S LOAN OR ADVANCE WITHIN THE MEANING OF SECTION 2 ( 22)(E) OF THE ACT. THE FACTUAL SUBMISSIONS MADE BY THE ASSESSING OFFICER REVEAL THAT THE TRANSACTIONS ARE OF COMMERCIAL IN NATURE, THEREFORE THE CONCLUSION ARRI VED (AT) BY THE ASSESSING OFFICER THAT THESE ARE LOANS OR AD VANCES WITHIN THE MEANING OF SECTION 2(22)(E) IS TOTALLY A GAINST THE PROVISIONS OF THE SAID SECTION. THE HEAVY RELI ANCE ON THE DECISION OF THE BOMBAY HIGH COURT MENTIONED ABO VE IS NOT JUSTIFIABLE AS THE RATIO LAID DOWN BY THE HI GH COURT IS DIFFERENT. THE ASSESSING OFFICER CHOSE TO RELY ON THE ITA NO.1503 OF 2012 CHARIOT INTERNATIONAL PVT LTD B ANGALORE PAGE 4 OF 8 OBSERVATION OF THE COURT AND THE SAME DO NOT APPLY TO THE PRESENT FACTS OF THE CASE. THE HONBLE HIGH COURT OF DELHI IN THE CASE OF V.S.RAJKUMAR (318 ITR 462) HELD THAT WHERE ADVANCE WHICH IS IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTI ON, THE SAME CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22) (E) OF THE ACT. AS THE TRANSACTION IN THE INSTANT CASE ARE UNDISPUTEDLY OF COMMERCIAL/BUSINESS NATURE, THEN TH E PROVISIONS OF SECTION 2 (22)(E) ARE NOT APPLICABLE TO THE PRESENT CASE IN VIEW OF THE DECISION OF DELHI HIGH COURT MENTIONED ABOVE. 5. AGGRIEVED, THE REVENUE HAS COME UP BEFORE US WI TH THE PRESENT APPEAL. DURING THE COURSE OF HEARING, THE LEARNED DR SUBMITTED THAT THE CIT (A) HAD ERRED IN NOT APPR ECIATING THE FACT THAT THE ASSESSEE RECEIVED AND WAS IN POSSESSI ON OF EXCESSIVE FUNDS THROUGHOUT THE YEAR WHICH WAS NOT A NORMAL BUSINESS PRACTICE AND SUCH A PRACTICE ADOPTED WAS N OT IN CONFORMITY WITH THE COMMERCIAL TRANSACTIONS IN THE OPEN MARKET. IT WAS, FURTHER, CONTENDED THAT THE CIT (A) ALSO ER RED IN NOT APPRECIATING THE FACT THAT THE FACTS OF THE INSTANT CASE GO TO PROVE THAT THE EXCESS RECEIPTS WERE NOT MADE DUE TO COMME RCIAL OR TRADE TRANSACTIONS BUT DUE TO THEIR COMMON OWNERSHI PS. IT WAS ALSO THE VIEW OF THE LEARNED DR THAT THE CIT (A) HA D FAILED TO APPRECIATE THE FACT THAT S. 2 (22)(E) OF THE ACT NO T ONLY COVERS LOAN TRANSACTIONS BUT ALSO ADVANCES WITH THE EXCEPTION OF ADVANCE IN THE ORDINARY COURSE OF BUSINESS WHERE THE LENDING O F MONEY WAS A SUBSTANTIAL PART OF THE BUSINESS. IT WAS, THEREF ORE, PRAYED THAT THE FINDINGS OF THE CIT (A) BE REVERSED AND THAT OF THE AO BE RESTORED IN SO FAR AS THE ISSUE OF DEEMED DIVIDEND U/S 2 (22)(E) OF THE ACT WAS CONCERNED. 5.1. ON THE OTHER HAND, THE LEARNED AR HAD STRONGL Y SUPPORTED THE FINDINGS OF THE CIT (A) ON THE ISSUE. IT CONCLUSION, ITA NO.1503 OF 2012 CHARIOT INTERNATIONAL PVT LTD B ANGALORE PAGE 5 OF 8 IT WAS PLEADED THAT AS THERE WAS NO ANY INFIRMITY I N THE STAND OF THE CIT (A) WARRANTING INTERFERENCE. 6. WE HAVE CAREFULLY EXAMINED THE RIVAL SUBMISSION S, PERUSED THE RELEVANT CASE RECORDS AND ALSO THE CASE LAWS ON WHICH BOTH THE PARTIES HAVE PLACED THEIR STRONG REL IANCE. AT THE OUT-SET, WE WOULD LIKE TO POINT OUT THAT AT THE TIM E OF ASSESSMENT PROCEEDINGS, THE AO, BASED ON THE DETAILS MADE AVAI LABLE AT THAT RELEVANT TIME BY THE ASSESSEE, CAME TO THE CONCLUSI ON THAT THERE WAS LOAN/ADVANCE WITHIN THE MEANING OF S. 2 (22)(E) OF THE ACT AND, ACCORDINGLY, TREATED THE AMOUNT OF ACCUMULATED PROFIT OF RS.10.47 LAKHS AS DEEMED DIVIDEND. HOWEVER, DURING THE COURSE OF APPELLATE PROCEEDINGS, THE CIT (A) SOUGHT A REPO RT FROM THE AO, BASED ON THE NEW EVIDENCE ADVANCED BY THE ASSESSEE BEFORE HIM. IN COMPLIANCE, THE AO HAD, IN HIS REMAND REPORT, ST ATED THAT THE DETAILS NOW SUPPLIED WITH REGARD TO VARIOUS TR ANSACTIONS APPEARING IN THE DOCUMENT AND THE COPIES OF THE COM MERCIAL INVOICES FILED HAVE ALSO BEEN CONSIDERED. THE CLAI M MADE BY THE ASSESSEE THAT IT HAS (A) REGULAR BUSINESS TRANSACTI ONS OF TRADING, PURCHASE /SALES OF MATERIAL WITH M/S STONE WORLD DI RECT EXPORTS HAS ALSO BEEN CONSIDERED. THE TRANSACTIONS NOW EXP LAINED ARE OF COURSE BUSINESS TRANSACTIONS AS PER THE COPIES OF THE INV OICES FILED [SOURCE: ON PAGE 9 OF CIT(A)S ORDER]. WHILE ADJU DICATING THE ISSUE, THE CIT (A) HAD EXPLICITLY MADE OUT A CA SE THAT THE FACTUAL SUBMISSIONS MADE BY THE ASSESSING OFFICER R EVEAL THAT THE TRANSACTIONS ARE OF COMMERCIAL IN NATURE, THEREFORE , THE CONCLUSION ARRIVED (AT) BY THE ASSESSING OFFICER THAT THESE AR E LOANS OR ADVANCES WITHIN THE MEANING OF SECTION 2 (22)(E) IS TOTALLY AGAINST THE PROVISIONS OF THE SAID SECTION . [REFER: PAGE 10 OF CIT (A)S ORDER]. THE CIT (A) HAD ALSO DISTINGUISH ED THE CASE LAW ITA NO.1503 OF 2012 CHARIOT INTERNATIONAL PVT LTD B ANGALORE PAGE 6 OF 8 ON WHICH THE AO, IN HIS REMAND REPORT, SOUGHT TO PL ACE STRONG RELIANCE, WITH AN OBSERVATION THAT THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF BADIYANI (76 ITR 369)IS N OT JUSTIFIABLE AS THE RATIO LAID DOWN BY THE HIGH COURT IS DIFFERE NT. 6.1. WE HAVE ALSO PERUSED THE JUDGMENT OF THE HON BLE DELHI COURT IN THE CASE OF CIT V. RAJ KUMAR REPORTE D IN (2009) 318 ITR 462 (DEL) WHICH IS DIRECTLY ON THE ISSUE UN DER CONSIDERATION. FOR APPRECIATION OF FACTS, THE ISSU E BEFORE THE HONBLE COURT, IN BRIEF, WAS THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CUSTOMIZED KITCHEN EQU IPMENT. HE WAS ALSO THE M.D. OF A COMPANY - CEI AND HELD NEARL Y 65% OF THE PAID UP SHARE CAPITAL THEREOF. A SUBSTANTIAL PART OF THE BUSINESS OF THE ASSESSEE WAS OBTAINED THROUGH CEI AND FOR TH AT PURPOSE CEI WAS PASSING ON THE ADVANCE RECEIVED BY IT FROM ITS CUSTOMERS TO THE ASSESSEE TO EXECUTE THE JOB-WORK ENTRUSTED T O HIM. THE AO HAD, HOWEVER, NOTICED THAT THE ASSESSEE OWED CERTAI N AMOUNT TO CEI WHICH HAD BEEN SHOWN BY THE ASSESSEE UNDER THE HEAD ADVANCES RECEIVED FROM CUSTOMERS AND ASKED THE AS SESSEE TO EXPLAIN THE NATURE OF RECEIPT. IT WAS EXPLAINED BY THE ASSESSEE THAT THE ADVANCES RECEIVED AND SHOWN UNDER THE HEAD ADVANCES RECEIVED FROM CUSTOMERS WERE TRADE ADVANCES RECEIV ED AGAINST THE FUTURE SUPPLIES WHICH WERE BACKED BY SALES MADE IMMEDIATELY UPON MANUFACTURE OF GOODS IN ISSUE; THA T THE ADVANCES RECEIVED NOT RETURNED BY CHEQUE OR OTHERWI SE, AND IN ANY EVENT, S. 2 (22)(E) DID NOT BRING WITHIN ITS AM BIT ADVANCES RECEIVED AGAINST THE FUTURE SUPPLY OF GOODS. THE A O, HOWEVER, HELD THAT THE MONEY RECEIVED BY THE ASSESSEE FROM C EI WAS IN THE NATURE OF DEEMED DIVIDEND UNDER THE PROVISION S OF S. 2 (22)(E). ON AN APPEAL, THE CIT (A) HELD THAT THE AM OUNTS RECEIVED ITA NO.1503 OF 2012 CHARIOT INTERNATIONAL PVT LTD B ANGALORE PAGE 7 OF 8 BY THE ASSESSEE FROM CEI WERE WITH RESPECT TO PURCH ASE OF MATERIALS AND THE SAME COULD NOT BE BROUGHT WITHIN THE AMBIT OF S. 2 (22)(E) OF THE ACT. ON REVENUES APPEAL, THE TRIBUNAL SUSTAINED THE ORDER OF THE CIT (A). ON THE REVENUE S APPEAL, THE HONBLE COURT HAS HELD AS UNDER: 10.9. KEEPING THE AFORESAID RULE IN MIND, WE ARE OF THE OPINION THAT THE WORD ADVANCE WHICH APPEARS I N THE COMPANY OF THE WORD LOAN COULD ONLY MEAN SUCH ADVANCE WHICH CARRIES WITH IT AN OBLIGATION OF REPAYMENT. TRADE ADVANCE WHICH ARE IN THE NATURE O F MONEY TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTIONS WOULD NOT, IN OUR VIEW, FALL WITHIN TH E AMBIT OF THE PROVISIONS OF SECTION 2 (22)(E) OF THE ACT.. 6.2. ABOVE ALL, THE ASSESSING OFFICER HAD, IN HIS REMAND REPORT TO THE APPELLATE AUTHORITY, FAIRLY CONCEDED THAT (AT THE COST OF REPETITION) THE DETAILS NOW SUPPLIED WITH REGARD TO VARIOUS TRANSACTIONS APPEARING IN THE DOCUMENT AND THE COPI ES OF THE COMMERCIAL INVOICES FILED HAVE ALSO BEEN CONSIDERED . THE CLAIM MADE BY THE ASSESSEE THAT IT HAS (A) REGULAR BUSINE SS TRANSACTIONS OF TRADING, PURCHASE /SALES OF MATERIAL WITH M/S ST ONE WORLD DIRECT EXPORTS HAS ALSO BEEN CONSIDERED. THE TRANS ACTIONS NOW EXPLAINED ARE OF COURSE BUSINESS TRANSACTIONS AS PER THE COPIES OF THE INVOICES FILED 6.3. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AS DISCUSSED ABOVE AND ALSO IN CONFORMITY WITH THE JUD GMENT OF THE HONBLE DELHI HIGH COURT (SUPRA), WE ARE OF THE OPI NION THAT THE CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION MADE U/S 2 (22)(E) OF THE ACT BY THE ASSESSING OFFICER. IT IS ORDERED AC CORDINGLY. ITA NO.1503 OF 2012 CHARIOT INTERNATIONAL PVT LTD B ANGALORE PAGE 8 OF 8 CROSS OBJECTION NO.53/BANG/2013 BY THE ASSESSEE: 7. AT THE OUT-SET, WE WOULD LIKE TO POINT OUT THAT THE ISSUE OF ADDITION MADE U/S 2 (22)(E) OF THE ACT HAS SINCE BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE IN REVENUES APPEAL (SUPRA), THE CROSS OBJECTION OF THE ASSESSEE ON THE SAME ISSUE BECOMES SUPERFLUOUS. ACCORDINGLY, THE ASSESSEES C ROSS OBJECTION IS DISMISSED AS INFRUCTUOUS. 8. IN THE RESULT: (I) THE REVENUES APPEAL IS DISMISSED; & (II) THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2013. SD/- SD/- (JASON P. BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 29 TH NOVEMBER,, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE