M/s MM9 Information Technologies (P) Ltd., Gurgaon V. ITO, Gurgaon

ITA 1593/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3795 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 28-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VED PRAKASH BANSAL
• Keywords: Additional evidence; Deemed dividend
• Section: 143(3)

Judgement Text

1 ITA NO. 1593/DE L/2016 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI G. D. AGRAWAL, PRES IDENT AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 1593/DEL/2 016 (A.Y 2012-13) MM9 INFORMATION TECHNOLOGIES (P) LTD. H. NO. 151, SECTOR-31, GURGAON AACCM6830H (APPELLANT) VS ITO WARD 2(4) GURGAON (RESPONDENT) APPELLANT BY SH. VED PRAKASH BANSAL, CA RESPONDENT BY SH. ARUN KUMAR YADAV, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS BY THE ASSESSEE AGAINST THE ORDER DA TED 09/02/2016 PASSED BY THE CIT(A)-1, GURGAON FOR ASSESSMENT YEAR 2012-13. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D THE LAW INVOLVED, THE CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 16,929/-ON ACCOUNT OF INTEREST ON DEBIT BALANCE OF SHRI PARMIN DER SINGH CHAWLA, DIRECTOR; WHEREAS (I) THE INTEREST OF RS. 14,568/- IS PAYABLE IN THE ACC OUNT AND NOT CHARGEABLE. DATE OF HEARING 06.12.2017 DATE OF PRONOUNCEMENT 07.02.2018 2 ITA NO. 1593/DE L/2016 (II) THE SUFFICIENT INTEREST FREE FUNDS ARE AVAILABLE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D THE LAW INVOLVED, THE CIT (A) HAS ERRED IN CONFIRMING THE LOAN AND ADVANC ES OF RS. 17,06,432/- AS DEEMED DIVIDEND U/S 2(22) (E) IN RESPECT OF DEBIT B ALANCE IN THE ACCOUNT OF SHRI PARMINDER SINGH CHAWLA, DIRECTOR/SHAREHOLDER; WHEREAS A) THE TEMPORARY ADVANCE GIVEN TO THE DIRECTOR/SHAR EHOLDER HAS BEEN GIVEN FOR CONSIDERATION AGAINST PERSONAL GUARANTEE AND COLLATERAL SECURITY FURNISHED TO THE BANKERS. (B) WITHOUT PREJUDICE TO THE ABOVE, THE DEBIT BALA NCE IN THE ACCOUNT WORKS OUT AT RS. 10,16,434/- AS AGAINST RS. 17,06,4 34/- TAKEN BY THE A.O. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 3,28,964/- @ 5% OF RS. 65,79,299/- OUT OF SCOOTER EXPENSES AND SERVICE AND MAINTENANCE CHARGE S ON ADHOC BASIS. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,67,051/- @ 5% OF RS.33,41,033/- BUSINESS PROMOTION, SALES PROMOTION AND CONVEYANCE EXPENSE ON ADHOC BASIS WITHOUT POINTING OUT ANY SPECIFIC EXPENDITURE OF NO N ALLOWABLE NATURE OR HAVING INCURRED FOR NON-BUSINESS PURPOSES. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN HOLDING THAT MERE OBSERVATIONS HAVE BEEN MADE BY TH E AO AND NEITHER PENALTY WAS PROPOSED OR IMPOSED; WHEREAS AN ADDITIO N OF RS. 20,000/- HAS BEEN MADE U/S 269T AND THE PENALTY U/S 271 E HAS BEEN PROPOSED. 3 ITA NO. 1593/DE L/2016 3. THE ASSESSEE IS ENGAGED IN TRADING OF HARDWARE & SO FTWARE OF COMPUTERS, PERIPHERALS & SERVICE/MAINTENANCE OF COMPUTERS AND RUNNING BUSINESS AT GURGAON WITH BRANCH IN NEW DELHI. THE INCOME TAX RE TURN WAS FILED ON 29.09.2012 DECLARING AN INCOME OF RS.32,33,000/-. T HE ASSESSMENT WAS COMPLETED ON 27.02.2015 U/S 143(3) ON AN INCOME OF RS.45,57,389/-. THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS IN T HE INCOME: I. EMPLOYEES CONTRIBUTION TOWARDS ESI U/S 36(1)(VA)/2( 24)(X) RS. 37499 II. EMPLOYEES CONTRIBUTION TOWARDS PF U/S 36(1)(VA)/2(2 4)(X) RS. 131164 III.INTEREST ON DEBIT BALANCES OF SHRI PARMINDER SI NGH RS. 16929 CHAWLA, DIRECTOR IV. INTEREST ON ADVANCES PAID TO J.M.D. LTD. AND VIPUL WORLD RS.632782 COMMERCIAL LTD. (FOR COMMERCIAL PURPOSES) V. DEEMED DIVIDEND U/S 2(22)(E) IN RESPECT OF ADVANCE PAID RS.1706434 TO PARMINDER SINGH CHAWLA VI. 5% OF THE SCOOTER EXPENSES AND SERVICE/MAINTENANCE RS. 328964 CHARGES-I.E 5% OF 6579299 + 4410895 VII. 5% OF BUSINESS PROMOTION, SALES PROMOTION, SALES R S. 167051 COMMISSION EXPENSES- I.E. 5% OF 3341033 (297414+330200+2713419) VIII. CASH PAID TO SHRI PARMINDER SINGH CHAWLA(U/S269T) R S. 20000 4. BEING AGGRIEVED BY THE SAID ASSESSMENT ORDER, THE A SSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE. 4 ITA NO. 1593/DE L/2016 5. THE LD. AR SUBMITTED THAT AS REGARDS GROUND NO. 1 R ELATING TO DISALLOWANCE OF INTEREST OF RS.16,929/- ON ACCOUNT OF DEBIT BALANCE OF SHRI PARMINDER SINGH, DIRECTOR, THE ASSESSING OFFICER HA S CALCULATED INTEREST ON DEBIT ENTRIES. THE LD. AR SUBMITTED THAT THE CREDIT ENTRIES IN THE ACCOUNT NOT CONSIDERED BY THE ASSESSING OFFICER. THE LD. AR FUR THER SUBMITTED THAT THE INTEREST OF RS. 14,568/- PAYABLE INSTEAD OF CHARGEA BLE. THE COMPANY HAS SUFFICIENT INTEREST FREE FUNDS. 6. AS RELATES TO GROUND NO. 2 REGARDING DEEMED DIVIDEN D OF RS. 17,06,434 IN RESPECT OF DEBIT BALANCE IN THE ACCOUNT OF SHRI PAR MINDER SINGH, DIRECTOR/SHAREHOLDER, THE LD. AR SUBMITTED THAT THE ADVANCE GIVEN TO THE DIRECTOR IS TEMPORARY AND AS A CONSIDERATION AGAINS T PERSONAL GUARANTEE AND COLLATERAL SECURITY GIVEN TO BANKERS AGAINST VARIOU S LOANS/ CREDIT FACILITIES. FURTHER, 2 CHEQUES OF RS. 3,00.000/- EACH WAS GIVEN ON 10.11.2012 AND THE SAME WERE ENTERED ON 01.04.2012. THE LD. AR FURTHER SUBMITTED THAT AFTER CONSIDERING THESE TWO CHEQUES AND DIRECTORS REMUNE RATION OF RS.90,000/-, THE DEBIT BALANCE WILL APPEAL AT RS.10,16,434/- AS AGAI NST RS.17,06,434/-. THE LD. AR FURTHER SUBMITTED THESE DETAILS OF CHEQUES WERE FILED BEFORE THE ASSESSING OFFICER BY THE ASSESSEE. 7. THE LD. AR IN RESPECT OF GROUND NO. 3 REGARDING DIS ALLOWANCE OF RS.3,28,964/- RELATING TO SCOOTER AND OTHER VEHICLE EXPENSES AND SERVICE AND MAINTENANCE OF COMPUTERS, SUBMITTED THAT THE DISALL OWANCE IS ON AD-HOC BASIS WITHOUT POINTING OUT ANY SPECIFIC EXPENDITURE OF NO N-ALLOWABLE NATURE OR HAVING INCURRED FOR NON-BUSINESS PURPOSES. THE LD. AR FURTHER SUBMITTED THAT THE TOTAL TURNOVER OF THE COMPANY DURING THE YEAR I S RS.37.78 CRORES. 8. REGARDING GROUND NO. 4 RELATING TO DISALLOWANCE OF RS.1,67,051/- RELATED TO BUSINESS PROMOTION, SALES PROMOTION AND COMMISSI ON, THE LD. AR SUBMITTED THAT THE DISALLOWANCE MADE ON AD HOC BASIS WITHOUT POINTING OUT ANY SPECIFIC EXPENDITURE OF NON-ALLOWABLE NATURE OR HAVING INCUR RED FOR NON-BUSINESS PURPOSES. THE LD. AR FURTHER SUBMITTED THAT THE TOT AL TURNOVER OF THE COMPANY 5 ITA NO. 1593/DE L/2016 DURING THE YEAR IS RS.37.78 CRORES. 9. THE LD. AR IN RESPECT OF GROUND NO. 5 RELATING TO D ISALLOWANCE OF RS.20,000/- U/S 269T AND PENALTY U/S 271E SUBMITTED THAT THE DISALLOWANCE IS ON ACCOUNT OF CASH PAYMENT TO A DIRECTOR WHICH W AS PAID TO THE DIRECTOR AT THE TIME OF HIS MOTHERS ILLNESS. THUS, THE SAID AM OUNT SHOULD NOT BE ADDED IN THE INCOME OF THE COMPANY. THE LD. AR FURTHER SUBMI TTED THAT THE AMOUNT GIVEN IS NEITHER A LOAN NOR DEPOSIT AS PER THE PROV ISIONS OF SECTION 269T. 10. THE LD. DR SUBMITTED THAT AS RELATES TO GROUND NO. 1, AS THE COMPANY IS PAYING INTEREST ON BORROWED CAPITAL AND AT THE SAME TIME THE ASSESSEE COMPANY IS NOT PERMITTED TO ALLOW THE ACCOUNT OF TH E DIRECTOR TO HAVE DEBIT BALANCE. IN FACT, ASSESSEE IS INCURRING HUGE EXPENS ES ON INTEREST IN RESPECT OF LOANS AVAILED BY THE COMPANY. AS THE COMPANYS FUND S USED BY THE DIRECTOR FOR PERSONAL PURPOSE DURING THE PERIOD AS GIVEN IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING DISALLOWA NCE OF RS.16,929/- WHICH IS CONFIRMED BY THE CIT(A). 11. THE LD. DR SUBMITTED AS RELATES TO GROUND NO. 2 THA T THE CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION AS THE DIRECTOR OF T HE ASSESSEE COMPANY RECEIVED LOAN/ADVANCE DESPITE HAVING ALLOWABLE DIVIDEND IN T HE HANDS OF THE DIRECTOR. 12. AS REGARDING GROUND NO. 3 & 4, THE LD. DR RELIED UP ON THE ORDERS OF THE CIT(A) AND THE ASSESSING OFFICER. 13. AS REGARDING GROUND NO. 5, THE LD. DR SUBMITTED THA T THE CIT(A) RIGHTLY CONFIRMED THIS ADDITION. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORDS. REGARDING GROUND NO. 1 THE CIT(A) WHILE C ONFIRMING THE ADDITION GIVEN A FINDING THAT THE ASSESSEE COMPANY IS PAYING INTEREST ON BORROWED CAPITAL AND THUS IS NOT PERMITTED TO ALLOW THE ACCO UNT OF THE DIRECTOR TO HAVE DEBIT BALANCE. THE CIT(A) HAS RELIED UPON THE DECI SIONS OF HONBLE ALLAHABAD 6 ITA NO. 1593/DE L/2016 HIGH COURT AND COORDINATE BENCH OF THE TRIBUNAL (CO CHIN). IN THIS PARTICULAR CASE, THE ASSESSING OFFICER AT NO POINT OF TIME GIV EN A FINDING THAT THERE WAS A DIVERGENT OF INTEREST BEARING FUND. THE DECISIONS CITED BY THE CIT (A) ARE NOT APPLICABLE IN THE PRESENT CASE AS IN THE PRESENT CA SE, THE ASSESSEE COMPANY HAS GIVEN ALL THE DETAILS BEFORE THE ASSESSING OFFI CER. THE COMPANY IS HAVING SUFFICIENT INTEREST FREE FUNDS. THE SAME WAS PLACE D BEFORE THE ASSESSING OFFICER AS WELL AS CIT (A). BUT BOTH THE AUTHORIT IES HAVE FAILED TO TAKE COGNIZANCE OF THE SAME. IN-FACT, THE LD. AR SUBMIT TED BEFORE US THAT THE ASSESSING OFFICER CALCULATED INTEREST ON DEBIT ENTR IES AND HAS NOT TAKEN INTO CONSIDERATION THE CREDIT ENTRIES WHICH IS NOT JUST AND PROPER ON THE PART OF THE ASSESSING OFFICER. IT IS PERTINENT TO NOTE, THE AS SESSEE HAS SUBMITTED THE RECORD BEFORE THE ASSESSING OFFICER REGARDING THE A CCOUNT BALANCE AND DEBIT AND CREDIT ENTRIES. THE ASSESSING OFFICER HAS TOTA LLY IGNORED THE SAME. IN-FACT, THE CIT(A) ALSO HAS NOT TAKEN COGNIZANCE OF THESE E NTRIES. THEREFORE, GROUND NO. 1 OF THE ASSESSEES APPEAL IS ALLOWED. 15. AS RELATED TO GROUND NO.2, THE ADVANCES GIVEN TO TH E DIRECTOR WAS TEMPORARY AND AS CONSIDERATION AGAINST THE PERSONAL GUARANTEE AND CO LATERAL SECURITY GIVEN TO BANKERS AGAINST VARIOUS LOANS/CRE DIT FACILITIES AS PR THE SUBMISSIONS OF THE LD. AR. AT THE TIME OF APPELLAT E PROCEEDINGS BEFORE THE CIT(A). THE ASSESSEE HAS PRODUCED AS EVIDENCE REGA RDING TWO CHEQUES OF RS.3 LAKHS EACH. THE SAID EVIDENCE WAS REJECTED BY THE CIT (A) STATING THAT THE SAME WAS NOT PRODUCED BEFORE THE ASSESSING OFFICER AND T HERE IS NO REQUEST FOR ADDITIONAL EVIDENCE. IT IS PERTINENT TO NOTE THAT SINCE THE ASSESSEE IS HAVING CERTAIN EVIDENCE WHICH NEEDS TO BE EXAMINED. THIS ISSUE HAS NOT PROPERLY DEAL BY THE CIT(A). IN-FACT, THE APPLICATION OF SECTION 2(22) (E) OF THE ACT WILL NOT BE APPLICABLE IN THE PRESENT CASE. AS THE ADDITION SH OULD HAVE BEEN MADE IN THE HANDS OF DIRECTOR AND NOT IN THE COMPANY. THEREFOR E, THE GROUND NO. 2 IS ALLOWED. 7 ITA NO. 1593/DE L/2016 16. AS RELATED TO GROUND NO.3, THE DISALLOWANCE IS MADE ON AD-HOC BASIS WITHOUT POINTING OUT ANY SPECIFIC EXPENDITURE OF NO N ALLOWABLE NATURE OR HAVING INCURRED ON NON BUSINESS PURPOSES BY BOTH THE REVEN UE AUTHORITIES. THEREFORE, THE GROUND NO. 3 IS ALLOWED. 17. AS RELATED TO GROUND NO, 4 THE SAME IS ALSO MADE ON AD-HOC BASIS WHICH IS NOT JUSTIFIED ON PART OF THE ASSESSING OFFICER. THE TOTAL TURNOVER OF THE COMPANY DURING THE YEAR IS RS.37.78 CRORES. THE ASS ESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC EXPENDITURE OF NON-ALLOWAB LE NATURE OR HAVING INCURRED FOR NON-BUSINESS PURPOSES. THEREFORE, GROU ND NO. 4 IS ALSO ALLOWED. 18. AS RELATED TO GROUND NO.5, THE DISALLOWANCE IS ON A CCOUNT OF CASH PAYMENT TO A DIRECTOR AND IT IS NOT A LOAN OR DEPOS IT. THEREFORE, THE SAME CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE COMPA NY. THUS, GROUND NO. 5 IS ALLOWED. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH FEBRUARY, 2018 . SD/- SD/- (G. D. AGRAWAL) (SUCHITRA KAMBLE) PRESIDENT JUDICIAL MEMBER DATED: 07/02/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 8 ITA NO. 1593/DE L/2016 ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 06/12/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 07/12/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 7 . 2 . 1 8 PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7 . 2 . 2 0 1 8 PS 7. FILE SENT TO THE BENCH CLERK 7 . 2 . 1 8 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.