Mahender Kumar Gupta (HUF), Ghaziabad V. ACIT, Meerut

ITA 1827/DEL/2012

• Counselvise Citation: 182720114 RSA 2012
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 19-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y KAKKARDR
• Assessee Lawyers: AKHILESH KUMARAR
• Keywords: Principle of natural justice; Deemed dividend; Accommodation entries
• Section: 132

Judgement Text

- 1 - ITA NO.1827/DEL/2012 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI I & SMC BENCH BEFORE SHRI I.C. SUDHIR, JM & SHRI A.N. PAHUJA, A M ITA NO.1827/DEL/2012 ASSESSMENT YEAR: 2004-05 MAHENDER KUMAR GUPTA (HUF), SD-388,SHASTRI NAGAR,GHAZIABAD V/S . ACIT,CENTRAL CIRCLE, MEERUT. [PAN : AAAHM7321Q] (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI AKHILESH KUMAR,,AR REVENUE BY MS. Y. KAKKAR,DR DATE OF HEARING 09-10-2012 DATE OF PRONOUNCEMENT 12-10-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 19.04.2012 BY THE ASSESSEE AG AINST AN ORDER DATED 25.01.2012 OF THE LD. CIT(A)-MEERUT, RAISES F OLLOWING GROUNDS :- 1. THAT THE ORDER OF LEARNED COMMISSIONER OF INCOME TA X (APPEALS) IS BAD IN LAW AS WELL AS IS AGAINST THE FACTS AND CIRC UMSTANCES OF THE CASE. 2. THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN UPHOLDING THE ADDITION IN THE HANDS OF ASSESSEE WHI CH IS A HUF AND ADMITTEDLY NOT A REGISTERED SHAREHOLDER. 3. THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN HOLDING THAT THE AMOUNT IS RECEIVED AS LOAN AND COMPANY WAS HAVING REQUISITE ACCUMULATED INCOME WITHOUT ANY MATERIAL A ND AGAINST THE FACTS ON THE RECORD, AS SUCH TRANSACTION ENTERED IS NOT COVERED UNDER THE PROVISIONS OF SECTION 2(22)(E). 4. THAT WITHOUT PREJUDICE TO ABOVE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) FAILED TO CONSIDER THE PLEA THAT WITH OUT RECORDING ANY SATISFACTION AND WITHOUT FINDING ANY MATERIAL AGA INST THE ASSESSEE IN THE SEARCH, ASSESSMENT U/S 153C ADDITION ITSELF IS ILLEGAL. - 2 - ITA NO.1827/DEL/2012 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT A SEARCH WAS CONDUCTED IN THE PREMISES OF SH. MAHENDER GUPTA AND GROUP COMPANIES U/S 132 OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) ON 27.10 .2006 AND CONCLUDED ON 21.11.2006. DURING THE COURSE OF SEARCH, CERTAIN PAY SLIPS RELA TING TO THE ASSESSEE, DEPOSITING CASH IN THEIR BANK ACCOUNT WERE SEIZED. SUBSEQUENTLY, I N RESPONSE TO A NOTICE DATED 10.11.2008 ISSUED U/S 153C OF THE ACT, THE ASSESSEE SUBMITTED HIS RETURN DECLARING INCOME OF ` 1,12,240/- ON 20.11.2008. TO A QUERY BY THE A.O DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE EXPLAINED THAT NO BOOKS OF ACCOUNTS WERE MAINTAINED NOR ANY CASH FLOW STATEMENT ,INCOME-EXPE NDITURE ACCOUNT OR STATEMENT OF AFFAIRS WAS SUBMITTED NOR THE ASSESSEE EXPLAINED TH E NATURE OF ENTRIES IN THE BANK ACCOUNT. THE SEIZED DOCUMENT AT PAGE 64 I.E PAY-IN -SLIP DATED 4.2.2004 REVEALED THAT AMOUNT OF ` .2,50,000/- RELATED TO SOME CHEQUE FOR THE PROFIT O N SALE OF SHARES AND THE PRINCIPAL AMOUNT. SINCE PROFIT HAD ALREADY BEEN DE CLARED WHILE AMOUNT OF ` .2,50,000/- WAS EXPLAINED TO HAVE BEEN RECEIVED OUT OF THE INC OME OF M/S D.N.KANSAL & SECURITIES PVT. LTD., IN WHICH THE ASSESSEE HAD 12 % SHARE HOL DING, THE ASSESSING OFFICER[AO IN SHORT] BROUGHT TO TAX PROFIT TRANSFERRED TO THE ASS ESSEE, IN TERMS OF PROVISIONS OF SEC.2(22)(E) OF THE ACT. 3. ON APPEAL, THE LD. CIT(A) UPHELD THE ADDITION , HOLDING AS UNDER :- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, AOS ORDER AND THE SUBMISSION OF THE AR ON OTHER ISSUES. I HAVE ALSO GONE THROUGH THE CASE LAWS REFERRED TO BY THE AR. ISSUE OF PROPER OPPORTUNITY IS DECIDED IN THE ORDE R OF DATE IN THE APPEAL OF ASSESSEE OF AY 2002-03(APPEAL NO.383/08-0 9) AND ACCORDINGLY NO RELIEF CAN BE GRANTED ON THIS GROUND. IT IS ALSO ARGUED THAT AS THERE IS NO EVIDENCE OR MATERIAL DURING THE SEARCH OR EVEN DURING ASSESSMENT AND, HENCE, NO ADD ITION CAN BE MADE. HOWEVER, THERE WAS MATERIAL BELONGING TO ASSESSEE, HENCE, THE GROUND IS SUMMARILY REJECTED. ON MERITS THE A.O HAS INVOKED PROVISIONS OF SECTIO N 2(22)(E) ON ` 2.50 LACS, THE AMOUNT RECEIVED FROM M/S D.N.KANSAL SECURITIES (P) LTD. AS TRANSFER OF INCOME. THOUGH THE A.O HAS NOT RECORDE D ANY FINDING BUT I HOLD FROM THE NATURE OF TRANSACTION THAT THE AMOUNT RECE IVED IS IN THE NATURE OF LOAN OR ADVANCE. THOUGH AS PER BALANCE SHEET, ACCU MULATED INCOME OF M/S D.N.KANSAL SECURITIES (P) LTD. IS LESS THAN ` 2.50 LACS BUT AS THE SAID COMPANY HAS DECLARED UNDISCLOSED INCOME, HENCE, ITS ACCUMULATED INCOME IS BOUND TO BE MORE THAN ` .2.50 LACS. ASSESSEE HAS VEHEMENTLY ARGUED THAT PROVISION OF 2(22)(E) CANNOT BE APPLIED TO HIM AS HE IS NOT A REGISTERED SHAREHOLDER OR ABSOLUTE OWNER. BUT THIS IS NOT IN DISPUTE THAT ASSESSEE IS - 3 - ITA NO.1827/DEL/2012 THE BENEFICIAL OWNER OF 12% SHAREHOLDING. HENCE, S AID PROVISIONS ARE FULLY APPLICABLE ON HIM AND HE CANNOT BE ESCAPE THE ADDIT ION OF ` 2.50 LACS. HENCE, ADDITION OF ` 2,50,000/- IS UPHELD. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). AT THE OUTSET, THE LD. AR CONTENDED THAT MERE TRANSFER OF PROFIT BY A COMPANY COULD NOT BE TREATED AS LOAN WITHIN THE MEANING OF PROVISIONS OF SEC. 2(22)(E) OF THE ACT, WHEN THE ASSESSEE WAS NOT REGISTERED SHAREHOLDER IN THE SAID COMPANY. IN THIS CONNECTION, THE LD. AR RELIED UPON THE DECISIONS IN CIT VS. C. P. SARATHY MUDALIAR [1972] 83 ITR 170(SC); CIT VS. JOHN (P.V.)181 ITR 1(KER.); CIT VS. HOTEL HILLTOP,313 ITR 116 (RAJ.),DCIT VS. ATUL ENGINEERING UDHYOG, 13 3 ITD 1 (AGRA), BHAUMIK COLOUR P. LTD. [2009] 313 ITR (AT) 146 (MUMBAI) [SB] , CIT V S. ANKITECH P. LTD.,340 ITR 14 (DEL) AND ARGUED THAT THE ASSESSEE BEING NOT A REGISTERED SHAREHOLDER OF THE COMPANY M/S D.N.KANSAL & SECURITIES PVT. LTD., AMOUNT COULD NOT BE BROUGHT TO TAX BY WAY OF DEEMED DIVIDEND. 5.. ON THE OTHER HAND, THE LD.. DR WHILE CARRYING U S THROUGH EXPLANATION 3 TO SEC. 2(22)(E), INSERTED BY THE FINANCE ACT, 1987 W.E.F. 1.4.1988 CONTENDED THAT THE RELIANCE BY THE LD. AR ON THE DECISIONS RENDERED PRIOR TO TH IS DATE IS TOTALLY MISPLACED. WHILE DISTINGUISHING THE DECISIONS RELIED UPON BY THE LD. AR, THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A) AND FURTHER RELIED UPON THE DECIS ION IN CIT VS. NATIONAL TRAVEL SERVICES,249 CTR 540(DEL.); MRS. KIRAN BANSAL V. AC IT,10 ITR 180 (DEL.); CIT VS. MUKUNDRAY K. SHAH,290 ITR433(SC), RAJESH P. VED V. ACIT,1 ITR(TRIB.) 275(MUM.); AND CIT VS. P.K. ABUBUCKER,259 ITR 507(MAD.) 6. IN HIS REJOINDER, THE LD. AR ON BEHALF OF THE ASSESSEE ARGUED THAT THE AO HIMSELF ACCEPTED IN THE ORDER THAT THE AMOUNT OF ` 2,50,000/- WAS NOT IN THE NATURE OF LOAN OR ADVANCE. 7.. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE A.O BROUGHT TO TAX PROFIT OF ` 2,50,000/- RECEIVED BY THE ASSESSEE HUF IN TERMS OF PROVISIONS OF SECTION 2(22)(E) OF THE A CT ,WITHOUT RECORDING HIS SPECIFIC FINDINGS AS TO WHETHER THE CONDITIONS STIPULATED IN THE SAID SECTION WERE FULFILLED. THE LD. CIT(A) WHILE ACCEPTING THAT THE AO DID NOT RECORD A NY FINDINGS REGARDING THE NATURE OF - 4 - ITA NO.1827/DEL/2012 TRANSACTION, CONCLUDED THAT THE AMOUNT WAS IN THE N ATURE OF LOAN OR ADVANCE. SINCE THE COMPANY M/S D.N.KANSAL SECURITIES (P) LTD. REFLECTE D ACCUMULATED PROFIT LESS THAN PROFIT OF ` 2,50,000/- ,THE LD. CIT(A) WHILE OBSERVING THAT TH E ASSESSEE HAS DECLARED UNDISCLOSED INCOME, UPHOLD THE FINDINGS OF A.O IN BRINGING TO TAX THE AMOUNT OF ` .2,50,000/-.. AS IS APPARENT FROM THE AFORESAID OBSERVATIONS IN THE IMPUGNED ORDER, THE LD. CIT(A) DISMISSED THE APPEAL WITHOUT EVEN AN ALYZING THE ISSUES IN THE LIGHT OF PROVISIONS OF SEC.2(22)(E) OF THE ACT. OR RECORDING HIS SPECIFIC FINDINGS ON THE SAID ISSUES . IN ORDER TO BRING WITHIN THE AMBIT OF PRO VISIONS OF SEC. 2(22)(E) OF THE ACT, THE AMOUNT OF LOAN OR ADVANCE PAID BY A COMPANY SHOUL D BE MADE TO ANY OF THE FOLLOWING THREE PERSONS VIZ. : I) A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFIC IAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN P ERCENT OF THE VOTING POWER; OR II) ANY CONCERN IN WHICH, SUCH SHAREHOLDER IS A MEM BER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CL AUSE REFERRED TO AS THE SAID CONCERN); OR III) A SHAREHOLDER, FOR HIS BEHALF, OR FOR HIS INDIVIDUAL BENEFIT, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS. 7.1 SEC. 2. (32) DEFINES A ' PERSON WHO HAS A SU BSTANTIAL INTEREST IN THE COMPANY ', IN RELATION TO A COMPANY, MEANS A PERSON WHO IS THE BE NEFICIAL OWNER OF SHARES, NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS, CARRYING NOT LESS THAN TWENTY PER CENT OF THE VOTING POWER. EXPLANATION 3 TO THE PROVISION OF SEC. 2(22)(E) OF THE ACT LAYS DOWN THA T FOR THE PURPOSES OF SEC. 2(22)(E)- (A) 'CONCERN' MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY; (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIM E DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS TH AN TWENTY PER CENT. OF THE INCOME OF SUCH CONCERN; 7.2 THOUGH BOTH THE SIDES RELIED UPON A NUMBER OF DECISIONS, FACTUAL MATRIX IN THE CONTEXT OF PROVISIONS OF SEC. 2(22)(E) OF THE ACT H AS NOT BEEN EXPLAINED. EVEN THOUGH - 5 - ITA NO.1827/DEL/2012 THE ASSESSMENT ORDER MENTIONS DATE OF RECEIPT OF PR OFIT ON SALE OF SHARES AS 4.2.2004 AND THE AMOUNT IS CLAIMED TO HAVE BEEN RECEIVED FRO M THE COMPANY M/S DN KANSAL & SECURITIES (P) LTD., THE AO OR THE LD. CIT(A) DID N OT ANALYSE THE NATURE OF TRANSACTION AS TO HOW IT IS LOAN OR ADVANCE NOR ASCERTAINED ACCUM ULATED PROFITS OF THE SAID COMPANY UNTIL THE DATE OF TRANSACTION. THOUGH IT IS MENTIO NED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS 12% SHAREHOLDING IN THE AFORESAID COMP ANY, THE LD. AR ARGUED THAT THE HUF IS NOT THE REGISTERED SHAREHOLDER. HOWEVER, COM PLETE DETAILS OF SHAREHOLDING IN THE SAID COMPANY HAVE NOT BEEN PLACED BEFORE US. THE LD . CIT(A) DID NOT CONSIDER THE IMPACT OF RELEVANT PROVISIONS OF SEC. 2(22)(E), AME NDED BY THE FINANCE ACT,1987 W.E.F.1.4 1988 INCLUDING THE EXPLANATION 3 REFERRED TO BY THE LD. DR, IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS NOR ATTEMPTED TO AS CERTAIN AS TO WHETHER HUF IS THE BENEFICIAL SHAREHOLDER OR REGISTERED SHAREHOLDER. A MERE GLANCE AT THE IMPUGNED ORDER REVEALS THAT THE ORDER PASSED BY THE LD. CIT( A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE, NAMELY, THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUT HORITY MUST PASS A REASONED ORDER, WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEFORE IT. TH E APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFES T ITSELF IN THE ORDER. SECTION 250(6) OF THE ACT MANDATES THAT THE ORDE R OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHA LL STATE THE POINTS FOR DETERMINATION, THE DECISION THEREON AND THE REASONS FOR THE DECISION. THE REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATI ON THEREOF BY THE QUASI-JUDICIAL AUTHORITIES HAS BEEN READ AS AN INTE GRAL PART OF THE CONCEPT OF FAIR PROCEDURE AND IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY, CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRAR INESS IN THE DECISION- MAKING PROCESS. HONBLE JURISDICTIONAL HIGH COURT I N THEIR DECISION IN VODAFONE ESSAR LTD. VS. DRP,196 TAXMAN423(DELHI) HELD THAT WHEN A QUASI JUDICIAL AUTHORITY DEALS WITH A LIS, IT IS OBLIGATORY ON ITS PART TO ASCRIBE COGE NT AND GERMANE REASONS AS THE SAME IS THE HEART AND SOUL OF THE MATTER AND FURTHER, THE S AME ALSO FACILITATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION BEFORE THE SUPERIOR FORUM. WE MAY POINT OUT THAT A DECISION DOES NOT MERELY MEAN THE CONCLUSION. I T EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[ MUKHTIAR SINGH VS. - 6 - ITA NO.1827/DEL/2012 STATE OF PUNJAB,(1995)1SCC 760(SC)].AS ALREADY OBSE RVED, THE IMPUGNED ORDER SUFFERS FROM LACK OF REASONING AND IS NOT A SPEAKING ORDER ON ANY OF THE ISSUES IN RELATION TO PROVISIONS OF SEC. 2(22) (E) OF THE ACT NOR THE LD. AR PLACED BEFORE US COMPLETE FACTS RELATING TO THE ACTUAL NATURE OF TRANSACTION OR SHAREHOLDING PATTERN IN THE AFORESA ID COMPANY AND POSITION OF ACCUMULATED PROFITS UP TO THE DATE OF T RANSACTION, ESPECIALLY WHEN THE SAID COMPANY DECLARED UNDISCLOSED INCOME F ROM ACCOMMODATION ENTRIES . IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE LD. CIT(A) HAVE NOT PASSED A SPEAKING ORDER , WE CONSIDER IT FAIR AND A PPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE AFORESAID ISSUES, AFRESH IN ACCORDANCE WITH LA W, IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS, INCLUDING THOSE REFERRED TO BY BOTH THE SIDES BEFORE US, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL, T HE LD. CIT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS, GR OUND NOS. 2 & 3 IN THE APPEAL ARE DISPOSED OF. 8. GROUND NO. 1 & 4 IN THE APPEAL, BEI NG GENERAL IN NATURE NOR ANY SPECIFIC SUBMISSIONS HAVING BEEN MADE BEFORE US ON THESE GRO UNDS ,DO NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED . 9. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US . 10. IN THE RESULT, APPEAL IS PARTLY ALLOWED BU T FOR STATISTICAL PURPOSES. SD/- SD/- (I.C. SUDHIR) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AMIT KUMAR COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE ORDER PRONOUNCED IN OPEN COURT - 7 - ITA NO.1827/DEL/2012 2. ACIT,CENTRAL CIRCLE,MEERUT 3. CIT CONCERNED. 4. CIT(A)-MEERUT. 5. DR, ITAT, I &SMC BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI