DCIT, CHENNAI V. Smt. Reeta Lankalingam, CHENNAI

ITA 2242/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86344 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 23-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR ANITHA SUMANTH
• Assessee Lawyers: N RANGARAJ IRS CIT
• Keywords: Document seized; Additional evidence; Bad and doubtful debts; Deemed dividend; Assessment record; Right to appeal; Commercial expediency; Documents seized
• Section: 40A(3); 143(3); 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI .. , . . , BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ I.T.A. NOS.19 TO 25/MDS/2014 ( / ASSESSMENT YEARS : 2005-2006 TO 2011-2012) SHRI. LANKALINGAM MURUGESU, NO.12 & 13, KOTHARI ROAD, NUNGAMBAKKAM CHENNAI 600 034. [PAN :AACPL0314N] ( /APPELLANT) VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE III (2), CHENNAI 600 034. ( !' /RESPONDENT) ./ I.T.A. NO.2242/MDS/2013 ( / ASSESSMENT YEAR : 2008-2009) THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE III (2), CHENNAI 600 034. ( /APPELLANT) VS. SMT. REETA LANKALINGAM NO.12 & 13, KOTHARI ROAD, NUNGAMBAKKAM CHENNAI 600 034. [PAN : ABEPL 4560Q] ( !' /RESPONDENT) I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 2 -: ITA NO. 15 TO 18/MDS/2014 AND C.O.NO.11/MDS/2014 (IN ITA NO.2242/MDS/2013) ( / ASSESSMENT YEARS : 2008-2009, 2009-10, 2010-11 , 2011-2012 & 2008-2009) SMT. REETA LANKALINGAM NO.12 & 13, KOTHARI ROAD, NUNGAMBAKKAM CHENNAI 600 034. [PAN : ABEPL 4560Q] ( /APPELLANT/ CROSS OBJECTOR) VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE III (2), CHENNAI 600 034. ( !' /RESPONDENT) ! ' / APPELLANT BY : DR. ANITHA SUMANTH, ADVOCATE #$ ! ' / RESPONDENT BY : SHRI. N. RANGARAJ, IRS, CIT. % & ! '( /DATE OF HEARING : 04.02.2015. )* ! '( /DATE OF PRONOUNCEMENT : 27.02.2015. # / O R D E R PER S.S. GODARA, JUDICIAL MEMBER THIS BATCH OF 13 CASES PERTAINS TO TWO DIFFERENT AS SESSEES NAMELY SHRI. LANKALINGAM MURUGESU AND SMT. REETA LA NKALINGAM. THE FORMER ASSESSEE HAS FILED SEVEN APPEALS. THE LA TTER ONE HAS PREFERRED FOUR APPEALS AND X-OBJECTIONS IN THE REVE NUES SOLE APPEAL. RELEVANT ASSESSMENT YEARS ARE FROM 2005-06 TO 2011- 12. THESE CASES ARISES FROM DIFFERENT ORDERS OF COMMISSIONER OF INC OME TAX (APPEALS)(C)-II, CHENNAI; ALL DATED 30.09.2013 IN P ROCEEDINGS I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 3 -: U/S.153A R.W.S. 143(3) OF THE INCOME TAX ACT, 1961 [ IN SHORT THE ACT]. 2. THE ASSESSEES FILE COMPOSITE CHARTS OF T HE GROUNDS RAISED IN THIS BATCH OF 12 CASES. THE REVENUE DOES NOT DISPUT E CORRECTNESS THEREOF. THE SAME READS AS UNDER:- ASSESSEE : SHRI. LANKALINGAM MURUGESU. SL.NO ITA NO. APPEAL BY A.Y. ISSUES INVOLVED 1 19/2014 ASSESSEE 2005 - 06 1. DEEMED DIVIDEND U/S.2 (22) (E) ADDITION OF H18,06,358/- 2. LEVY OF INTEREST U/S.234B. 2 20/2014 ASSESSEE 2006 - 07 1. DEEMED DIVIDEND U/S.2 (22) (E) ADDITION OF H20,03,789/- 2. LEVY OF INTEREST U/S.234B 3 21/2014 ASSESSEE 2007 - 08 1. DEEMED DIVIDEND U/S.2 (22) (E) ADDITION OF H7,66,915/-. 2. DISALLOWANCE OF EXPENDITURE U/S.40A (3) DISALLOWANCE OF H79,38,484/-. 3. LEVY OF INTEREST U/S.234B 4 22/2014 ASSESSEE 2008 - 09 1. DEEMED DIVIDEND U/S.2 (22) (E) ADDITION OF H2,64,29,468/- 2. DISALLOWANCE OF EXPENDITURE U/S.40A (3) DISALLOWANCE OF H58,99,389/- 3. LEVY OF INTEREST U/S.234B 5 23/2014 ASSESSEE 2009 - 10 1. DEEMED DIVIDEND U/S.2 (22) (E) ADDITION OF H1,59,85,847/- 2. DISALLOWANCE OF EXPENDITURE U/S.40A (3) I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 4 -: DISALLOWANCE OF H29,83,455/ - 3. LEVY OF INTEREST U/S.234B 6 24/2014 ASSESSEE 2010 - 11 1. DEEMED DIVIDEND U/S.2 (22) (E) ADDITION OF H66,86,508/- 2. DISALLOWANCE OF EXPENDITURE U/S.40A (3) DISALLOWANCE OF H63,25,065/-. 3. LEVY OF INTEREST U/S.234B ASSESSEE MRS. REETA LANKALINGAM SL.NO ITA NO. APPEAL BY A.Y. ISSUES INVOLVED 1 15/2014 ASSESSEE 2008 - 09 1. DISALLO W ANCE OF INTEREST ON LOAN TAKEN FOR IMMOVABLE PROPERTY DISALLOWANCE OF H26,13,233/- 2 2242/2013 DEPARTMENT 2008 - 09 1. DISALLO W ANCE OF BAD DEBTS TO THE TUNE OF H31,83,626/- 3 CO 11/2014 ASSESSEE 2008 - 09 1. DISALLO W ANCE OF INTEREST ON LOAN TAKEN FOR IMMOVABLE PROPERTY DISALLOWANCE OF H26,13,233/- 4 16/2014 ASSESSEE 2009 - 10 1. DEEMED DIVIDEND U/S.2(22) (E) ADDITION OF H 1,62,17,271/- 5 17/2014 ASSESSEE 2010 - 11 1. DEEMED DIVIDEND U/S.2(22) (E) ADDITION OF H 66,86,509/- 6 18/2014 ASSESSEE 2011 - 12 1. DEEMED DIVIDEND U/S.2(22) (E) ADDITION OF H 2,42,99,879/- IN THE COURSE OF HEARING, BOTH PARTIES AGREE THAT I TA NO.19/MDS/2014 FOR THE ASSESSMENT YEAR 2005-2006 AN D ITA NO. 21/MDS/2014 FOR THE ASSESSMENT YEAR 2007-2008 IN CA SE OF SHRI. LANKALINGAM BE TREATED AS THE LEAD CASES FOR DECI DING COMMON I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 5 -: ISSUES OF DEEMED DIVIDEND U/S.2(22)(E) AND DISALL OWANCE OF EXPENDITURE U/S.40A(3); RESPECTIVELY. WE PROCEED A CCORDINGLY. ITA NO.19/MDS/2014 IS TAKEN UP FOR DECIDING CORRECTNESS OF DEEMED DIVIDEND ADDITION AMOUNTING TO H.18,06,358/- MADE IN THE COURSE OF ASSESSMENT AND UPHELD IN THE LOWER APPELLATE ORDER. 3. THE ASSESSEE; SHRI. LANKALINGAM MURUGESU, IS AN INDIVIDUAL. HE IS A PROPRIETOR OF M/S. LANSON VENTURES CARRYING O UT DIVERSIFIED BUSINESS IN VARIOUS FIELDS. THE ASSESSEE HAD FILED HIS RETURN ON 31.03.2006 ADMITTING INCOME OF H7,20,11,094/-. THER EAFTER, THE DEPARTMENT CONDUCTED A SEARCH/SURVEY DATED 23.04.20 10 CONDUCTED IN THIS ASSESSEES CASE; HIS WIFE MRS. REETA LANKALING AM AND ALSO THE LANSON GROUP OF COMPANIES CULMINATING IN SECTION 15 3A NOTICE DATED 25.07.2012. THE ASSESSEE FILED A FRESH RETURN D ATED 07.12.2012 INCREASING HIS INCOME TO H8,00,94,916/-. 4. THE ASSESSING OFFICER TOOK UP SCRUTINY . HE NOTICED FROM THE SEIZED DOCUMENTS THAT ONE OF THE GROUP CONCERNS M/S . LANSON MOTOR CARS PRIVATE LIMITED HAD ADVANCED LOANS OF H18,06,3 58/- TO M/S. LINK ENTERPRISES. ASSESSEE IS PROPRIETOR OF THE LATTER FIRM. THE COMPANY HAD ACCUMULATED PROFITS OF H1,18,94,917/-. THE AS SESSEE HOLDS NOT I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 6 -: LESS THAN 10% OF ITS SHARE HOLDING. THE ASSESSING OFFICER FORMED AN OPINION THAT THIS LOAN AMOUNTED TO DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. 5. THE ASSESSEE FILED HIS RESPONSE. HE STATED THAT THE CREDITOR COMPANY NEEDED MORE FUNDS. HE HAD FURNISHED HIS PER SONAL PROPERTIES AS COLLATERAL SECURITIES IN OBTAINING FUNDS FROM BA NKS AND OTHER FINANCIAL INSTITUTIONS. HE CLAIMED TO HAVE REQUESTE D THE LENDER COMPANY TO LEND ADVANCES TO HIS FIRM FOR SAFE GUARD ING HIS INTEREST. THE COMPANY WAS ALSO STATED TO BE CHARGING INTEREST . LOANS PURPOSE WAS CLARIFIED AS TO SECURE HIS PROPERTIES GIVEN AS COLLATERALS. CASE LAW I.E. (2012) 24 TAXMAN 75 (CHENNAI) ACIT VS. SMT. G. SREEVIDYA AND (2011) 203 TAXMAN 110 (CALCUTTA) IN PRADIP KUMAR MA LHOTRA VS. CIT WAS REFERRED TO. THE ASSESSEE SUBMITTED THAT THE L ENDER COMPANY HAD FUNDED HIS FIRM FOR DAY TO DAY BUSINESS OPERATIONS. HE CATEGORIZED THE IMPUGNED LOANS AS MERE TRADE ADVANCES. 6. THESE PLEADING FAILED TO CONVINCE THE ASSESSING AUTHORITY. IT CITED LACK OF EVIDENCE FOR ENTERTAINING THE ASSESSE ES PLEA OF SAFEGUARDING ITS INTEREST. AND ALSO THAT NO DOCUME NTS /WRITTEN AGREEMENTS WERE FORTHCOMING FOR RECEIVING SINGLE RE TURN LUMPSUM I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 7 -: BENEFITS. IT WAS OF THE VIEW THAT IMPUGNED PAYMENT DID NOT SHOW ANY TYPE OF REGULARITY OR PERIODICITY. THE ASSESSING OF FICER GAVE A FINDING THAT THE ASSESSEE HAD BORROWED FUNDS FROM LENDER CO MPANY LIKE CURRENT ACCOUNT. AND HIS PERSONAL EXPENSES WERE R EFLECTED IN THE LOAN ACCOUNT. HE HELD THAT CHARGING OF THIS INTEREST @ 8 -10% WOULD NOT CHANGE CHARACTER OF THE DEEMED DIVIDENDS UNLESS SI GNIFICANT PART OF THE CREDITOR ENTITYS BUSINESS WAS MONEY LENDING. THE COMPANY ALSO ADMITTED GIVING LOANS TO THE ASSESSEE. ALL THIS MA DE THE ASSESSING OFFICER TO VIEW THE IMPUGNED AMOUNTS AS ADVANCES O NLY. HE DISTINGUISHED AFORESAID CASE LAWS (SUPRA) AS WELL. HE WENT ON TO OBSERVE THAT THE ASSESSEES PLEA TO ADD THESE SUMS IN ONE OF HIS CONCERNS MET THE SAME FATE WITH A REMARK THAT THEY WERE NOT SHAREHOLDERS IN THE LENDER ENTITY AS PER EXPRESSION ANY CONCERN USED IN THE SECTION 2(22) (E) OF THE ACT. HE ALSO QUOTED NAVNIT LAL C. JHAVERI VS. K.K. SEN (1965) 56 ITR 198 (SC) TO DISC USS NATURE AND SCOPE OF RELEVANT STATUTORY PROVISION. THE ASSESSIN G OFFICER HELD IN THESE FACTS AND CIRCUMSTANCES THAT LOAN IN QUESTION OF H18,06,358/- HAD TO BE TREATED AS DEEMED DIVIDENDS ONLY. THE AS SESSMENT ORDER DATED 31.03.2013 READS THAT THE ASSESSEE HAD FILED A LETTER DATED 28.03.2013 AGREEING TO THE AFORESAID ADDITION. ALL THIS RESULTED IN DEEMED DIVIDEND ADDITION OF H18,06,358/-. I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 8 -: 7. THE ASSESSEE PREFERRED AN APPEAL. HIS SOLE SUBS TANTIVE GROUND WAS THAT IMPUGNED LOAN IS SECURITY OFFERED BY THE CREDITOR ENTITY IN LIEU OF HIS AMOUNTS PLEDGED AS COLLATERAL SECURIT IES. THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTS HIS CO NTENTION AS UNDER:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, GROUNDS OF APPEAL AND VARIOUS SUBMISSIONS MADE BY THE LEARNED AR AND THE ASSESSMENT ORDER. THE SUBMISSIONS MADE BEFORE ME, DURING THE COURSE OF APPEAL PROCEEDINGS, ARE MORE O R LESS THE SAME AS HAD BEEN MADE BEFORE THE ASSESSING OFFICER. TO COME WITHIN THE AMBIT OF THE AFORESAID PROVISIONS, ' THE FOLLOWING CONDITIONS MUST EXIST- (A) IT MUST BE A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED. (B) THE COMPANY MUST HAVE MADE PAYMENTS BY WAY OF ADVANCE OR LOAN TO A SHARE-HOLDER, HOLDING MORE THAN 10% OF THE SHARES OF THE COMPANY; (C) THE COMPANY MUST HAVE ACCUMULATED PROFITS DURING THE RELEVANT YEAR; (II) OF U/S. 2(22 ) (E) CARVES OUT AN EXCEPTION BY PROVIDING THAT ANY LOAN OR ADVANCE TO A SHARE-HOLDER BV A COMPANY, WHICH IS ENGAGED IN MONEY LENDING BUSINESS, ' IN THE ORDINARY COURSE OF ITS BUSINESS; SHALL NOT BE TREATED AS DIVIDEND. IN THE FACTS OF THE PRESENT CASE, IT IS NOT DISPUTED THAT ALL THE CONDITIONS ATTRACTING THE PROVISIONS O F S. 2(22) (E) EXIST. THE QUANTUM OF ADDITION MADE ON ACCOUNT OF DEEMED . DIVIDEND IS ALSO NOT DISPUTED BY THE APPELLANT . THE AVAILABILITY OF ACCUMULATED PROFITS HAS ALSO NOT BEEN DISPUTED IN THE PRESENT APPEALS. BEFORE ME THE APPELLANT HAS NOT SUBMITTED OR ARGUED THAT THE MONIES RECEIVED WERE . ON ACCOUNT OF ADVANCE AGAINST ANY PROPERTY TRANSACTION BETWEEN THE APPELLANT'S WIFE AND THE COMPANY AND THE AMOUNTS WERE RECEIVED ON THAT BEHALF. BEFORE ME, IT IS THE CASE OF THE APPELLANT THAT SINCE HE& HIS WIFE HAVE MORTGAGED THEIR PROPERTY WITH THE BANK TO ENABLE I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 9 -: THE COMPANY TO AVAIL FINANCE FACILITIES FROM ' THE BANK, THE ADVANCE BY THE COMPANY IS NOT A GRATUITOUS LOAN OR ADVANCE, BUT IN RETURN FOR AN ADVANTAGE WHICH THE COMPANY HAS A LREADY AVAILED ON ACCOUNT OF MORTGAGING OF PROPERTIES DONE BY THE APPELLANT. . THIS CONTENTION OF THE APPELLANT IS NOT TENABLE FOR THE FOLLOWING FACTUAL AND LEGAL POS I TION : THE LANGUAGE OF SECTION 2(22) (E) IS CLEAR AND UNAMBIGUOUS AND DOES NOT LEAVE ANY SCOPE FOR INTERPRETING IT IN A DIFFERENT MANNER. IT IS A SETTLED LAW THAT THE DEEMING PROVISIONS HAVE TO BE INTERPRETED STRICTLY IN ACCORDANCE WITH THE SPIRIT OF THE LANGUAGE CONTAINED THEREIN. THE PROVISIONS SECTION 2(22) (E) BEING A DEEMING PROVISION, HAVE BEEN INTERPRETED STRICTLY IN ACCORDANCE WITH THE SPIRIT OF THE LANGUAGE CONTAINED THEREIN. DURING THE COURSE OF SEARCH AND THEREAFTER IT HAS BEEN CLAIMED BY THE APPELLANT THAT THE TRANSACTIONS REPRESENTS PAYMENT OF AMOUNTS BY THE COMPANY TO HIM ARE NOT IN THE CAPACITY AS DIRECTOR OR AS SHAREHOLDER BUT THESE PAYMENTS WERE RECEIVED BY HIM ON BEHALF OF HIS WIFE AND THAT THESE PAYMENTS REPRESENT ADVANCE TOWARDS PURCHASE OF PROPERTY BELONGING . TO HIS WIFE WHO AUTHORIZED HIM TO COLLECT THE MONEY. HOWEVER, WHEN THE APPELLANT HAD NOT BEEN ABLE . TO . SUBSTANTIATE THE ABOVE CLAIM WITH ANY MATERIAL OR EVIDENCE, THE APPELLANT CHANGED STANCE AND MADE AN ATTEMPT TO BRING THE FACTS OF HI S CASE WITHIN SCOPE OF THE DECISION IN THE CASE OF ACIT V. G. SREEVIDYA (SUPRA) THOUGH AS WOULD HE DISCUSSED IN THE ENSUING PART OF THIS ORDER IN THE FACTS OF THE PRESENT CASE THE RATIO OF THE AFORESA ID DECISION IS NOT APPLICABLE . IN THE PRIVATE LIMITED COMPANY MORTGAGE OF THE PERSONAL PROPERTIES BY THE DIRECTORS FOR THE COMPAN Y TO RAISE FINANCE IS QUIRE COMMON AND SO IS THE CASES OF THE APPELLANT WHO ALONG WITH HIS WIFE HAS A GIVEN PERSONAL GUARANTEE AND / OR MORTGAGED PERSONAL PROPERTY TO HELP THE COMPANY AVAIL LOAN/ CREDITED FACILITY FROM THE BANK. IT IS ONLY INCIDENTAL IN , THE PRESENT CASE THAT THE APPELLANT ALONG WITH HIS WIFE HAVE MORTGAGED THEIR PERSONAL PROPERTY ARID APPARENTLY, THERE WAS NO CONDITION OR UNDERSTANDING AT THE TIME OF MORTGAGE I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 10 -: THAT THE DIRECTORS COULD WITHDRAW MONEY IS ACCORDING TO THEIR NEEDS AS AND WHEN THEY WISHED. . IT IS A FACT BORNE OUT OF THE ASSESSMENT RECORDS THAT THE COMPANY MIS LANSON MOTORS PRIVATE LTD. HAD ALSO MORTGAGED ITS . PROPERTY TO THE CITY BANK AGAINST LOAN TAKEN BY ITS DIRECTOR . SUCH IS THE LOAN IN THE ASSESSMENT YEAR 2007-08 WAS RS. 400 LAKHS AND IN THE ASSESSMENT YEAR 2008-09 THE SAID LOAN IS TO THE EXTENT OF RS.400IAKHS. THE COMPANY HAS ALSO GIVEN A CROSS . GUARANTEE ON BEHALF OF AN ASSOCIATE CONCERN . FOR AN AMOUNT UP TO 2050.00 LAKHS . THEREFORE THE TRANSACTIONS OF MORTGAGE OF PROPERTIES AND/OR OFFERING PERSONAL GUARANTEES AMONGST THE GROUP CONCERNS AND THE DIRECTOR(S) FOR AVAILING LOANS FRO M BANKS ARE BASED ON COMMERCIAL CONVENIENCES. NO EVIDENCE TO THE EFFECT THAT THERE WAS ANY CONDIT ION OR UNDERSTANDING ON WHICH THE APPELLANT ALONG WITH HIS WIFE HAD MORTGAGED THEIR PROPERTIES WITH THE BANK H AS BEEN PRODUCED EITHER BEFORE THE ASSESSING OFFICER O R BEFORE ME. NO RESOLUTION TO THAT EFFECT HAS BEEN PASSED. THE RELIANCE OF THE APPELLANT ON THE DECISION OF IT AT CHENNAI IN THE CASE OF ACIT VS. SMT. G. SREEVIDYA [2012(24 TAXMAN 75) CHENNAI] IS MISPLACED IN AS MUCH AS IN THE SAID CASE THE AMOUNT WAS ADVANCE TO HER (SMT. G. SREEVIDYA) AS PER HER PRE-CONDITION OF GRANTING BANK GUARANTEE AND A COLLATERAL SECURITY F OR FUNDING OF THE COMPANY. RELEVANT EXTRACT FROM THE DECISION IS REPRODUCED AS UNDER:- THE ASSESSEE CONTENDED THAT THE AMOUNT WAS ADVANCED TO HER AS PER HER PRE-CONDITION OF GRANTING BANK GUARANTEE AND A COLLATERAL SECURITY FOR FUNDING OF THE COMPANY . SHE FURTHER, SUBMITTED THAT SHE HAD GIVEN PERSONAL GUARANTEE AND HAD GIVEN COLLATERAL SECURITY TO FACILITATE AVAILING OF CREDI T FACILITY BY THE COMPANY . AT TIME OF EXTENDING QUARANTEE/SECURITY SHE HAD SOUGHT LIBERTY TO WITHDRAW FUNDS FROM COMPANY AS AND WHEN REQUIRED BY HER FOR PERSONAL PURPOSES. IT WAS THUS IN THIS BACKGROUND, THE ASSESSEE HAD I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 11 -: WITHDRAWN CERTAIN AMOUNT FROM THE COMPANY AND HAD ALSO REPAID THE AMOUNTS WITHDRAWN PERIODICALLY. THEREFORE, THE TRANSACTION BETWEEN THE ASSESSEE AND THE COMPANY WAS PURELY OUT OF BUSINESS CONSIDERATION AND COULD NOT BE TERMED AS DEEMED DIVIDEND. (EMPHSIS SUPPLIED). WHEREAS, NO MATERIAL OR EVIDENCE WITH REGARD TO EXISTENCE OF SUCH CONDITIONS HAS BEEN BROUGHT ON RECORD BY THE PRESENT APPELLANT. IN VIEW OF THE CL EAR DISTINCTION OF THE FACTS, AS DISCUSSED ABOVE, THE R ATIO OF THE CASE OF SMT. G. SREEVIDYA (SUPRA) IS NOT APPLICABLE TO THE PRESENT APPELLANTS FACTS. THE APPELLANT HAS ALSO NOT PRODUCED ANY CORRESPONDING MADE EITHER WITH THE BANK OR WITH THE COMPANY TOWARDS RELEASE OF THE PROPERTIES MORTGAGED AS WAS THE FACT IN THE CASE OF PRADIP KUMAR MALHOTR A. (SUPRA). THEREFORE THE RELIANCE OF THE APPELLANT O N THE SAID CASE OF PRADIP KUMAR MALHOTRA V. CIT [2011] 338 ITR 538/203 TAXMAN 110 IS ALSO MISPLACED. RELIANCE IS PLACED ON THE DECISION OF ITAT HYDERABAD BENCH A IN THE CASE OF DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(3) V. B. DHANUNJAYA RAO [2013] 29 TAXMANN.COM 254 (HYD.) WHEREIN THE ITAT, DISTINGUISHING THE CASE OF PRADIP KUMAR MALHOTRA V. CIT (SUPRA), HELD THAT THE PROVISIONS OF SECTION 2(22)(E) WERE APPLICABLE ON SIMILAR FACTS. FURTHER HON'BLE HIGH COURT OF MADRAS IN THE CASE OF COMMISSIONER OF INCOME TAX V. P.K. ABUBUCKER [2004] 135 TAXMAN 77 (MAD.) ON THE FACTS OF AN ASSESSEE WHO WAS MANAGING DIRECTOR OF A PRIVATE LIMITED COMPANY AND HAD SUBSTANTIAL INTERES T IN IT HAD LEASED OUT PREMISES OWNED BY HIM TO THAT COMPANY AND THAT COMPANY IN TERMS OF AGREEMENT ADVANCED CERTAIN SUM TO HIM FOR MEETING COST OF CONSTRUCTION OF ADDITIONAL FLOORS TO SAID PREMISES, WHICH INCOME-TAX AUTHORITIES TREATED AS DEEMED DIVIDEND WITHIN MEANING OF SECTION 2(22)(E) ANSWERED THE QUESTION- WHETHER FACT THAT ADVANCE PAID TO ASSESSEE WAS TO BE SET OFF AGAINST FUTURE RENT WOULD NOT ALTER FACT THAT ASSESSEE IN EYES OF LAW HAD RECEIVED DIVIDEND FROM COMPANY DURING ACCOUNTING YEAR RELEVANT TO ASSESSMENT YEAR IN QUESTION WHICH WAS ASSESSABLE AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) - I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 12 -: IN THE AFFIRMATIVE HOLDING THAT THE AMOUNT WAS CORRECTLY TAXED AS DEEMED DIVIDEND. WHILE HOLDING SO THE HON'BLE JURISDICTIONAL HIGH COURT QUOTED THE SUPREME COURT IN THE CASE OF MISS P. SHARDA V. CIT [1998] 229 ITR 444, WHEREIN THE APEX COURT CONSIDERED SECTION 2(22)(E) OF THE ACT AND WHEREIN IT WAS HELD THAT: . . . THE LOAN OR ADVANCE TAKEN FROM THE COMPANY MAY HAVE BEEN ULTIMATELY REPAID OR ADJUSTED, BUT THAT WILL NOT ALTER THE FACT THAT THE ASSESSEE, IN THE EYE OF LAW, HAD RECEIVED DIVIDEND FROM THE COMPANY DURING THE RELEVANT ACCOUNTING PERIOD . AND OBSERVED THAT THE FACT THAT ADVANCE PAID TO THE ASSESSEE WAS TO BE SET OFF AGAINST THE FUTURE RENTS WOULD THEREFORE NOT ALTER THE FACT THAT THE ASSESSE E IN THE EVERY OF LAW HAD RECEIVED DIVIDEND FROM THE COMPANY DURING THE RELEVANT ACCOUNTING PERIOD. AS ALREADY REITERATED HEREINABOVE, THE PAYMENTS MADE BY THE COMPANY TOWARDS ADVANCES TO THE APPELLANT FULFILS ALL THE CHARACTERISTICS OF DIVID END AS ENVISAGED IN SECTION 2(22) (E). IN THE AFORESAID CIRCUMSTANCES, THERE CANOE BE ANY OTHER CONCLUSION EXCEPT TO CONSIDERING THE ADVANCES GIVEN BY THE COMPANY TO THE APPELLANT AS DEEMED DIVIDEND AT THE HANDS OF THE APPELLANT. IN VIEW OF THE ABOVE DISCUSSED FACTUAL AND LEGAL POSITION, I UPHOLD THE ACTION OF THE ASSESSING OFFI CER IN BRINGING TO TAX THE ADVANCES RECEIVED BY THE APPELL ANT IN VIEW OF THE PROVISIONS OF SECTION 2(22) (E) IN ALL THE 7 APPEALS IN ITA NOS. 207 TO 213. THE GROUNDS OF APPEAL WITH REGARD TO THIS ISSUE IN ALL THESE APPEA LS ARE, THEREFORE, DISMISSED. THIS LEAVES THE ASSESSEE AGGRIEVED. 08. THE ASSESSEES ARGUMENTS CHALLENGE THIS DEE MED DIVIDEND ADDITION AND SEEK ITS DELETION. THE REVENUE SUPPO RTS THE CIT(A)S I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 13 -: ORDER. THE QUESTION THAT ARISES FOR OUR CONSIDER ATION IS AS TO WHETHER AUTHORITIES BELOW HAVE RIGHTLY ADDED THE IM PUGNED LOAN ADVANCED OF H18,06,358/- AS DEEMED DIVIDENDS U/S 2( 22)(E) OF THE ACT OR NOT. ADMITTED FACTUAL POSITION IS THAT THE ASSES SEE IS A SHARE HOLDER/ DIRECTOR OF THE CREDITOR COMPANY. HE IS AL SO PROPRIETOR OF THE RECIPIENT FIRM. HE QUALIFIES SHARE HOLDING STRENGT H STIPULATED U/S.2(22)(E) OF THE ACT AS WELL. THIS LENDER ENTIT YS ACCUMULATED PROFITS ARE ALREADY ON RECORD (SUPRA). THERE IS NO QUARREL ABOUT THE QUANTUM OF IMPUGNED LOANS ADVANCED TO M/S. LINK ENT ERPRISES. THE ASSESSEES SOLE ARGUMENT IS THAT THIS LOAN ADVAN CE IS IN LIEU OF HIS COLLATERAL SECURITIES FURNISHED TO THE LENDER ENTIT YS CREDITORS. HE PLACES ON RECORD VARIOUS CORRESPONDENCE(S) (DATED 1 7.07.20013, 30.07.2003, 31.07.2003, 27.02.2007, 10.04.2007 AND 17.03.2011 FROM M/S. HDFC BANK, LANSON TOYOTA, UTI BANK AND AX IS BANK ETC). CASE LAW OF SMT. G. SREEVIDYA, PRADIP KUMAR MALHOT RA, NANNIT LAL C. JHAVERI AND CIT VS. CREATIVE DYEING AND PRINTING PV T. LTD ( 2009) 318 ITR 476 (DELHI). 09. IT IS NOTICED FROM PAGE 3 OF THE AFORESAID PAPE R BOOK THAT ASSESSEE HAD FURNISHED COLLATERAL SECURITIES TO BA NKS AND OTHER FINANCIAL INSTITUTIONS FOR GETTING LOANS APPROVED F OR M/S. LANSON I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 14 -: MOTORS/ THE PAYER ENTITY. THE REVENUE TERMS IT AS ADDITIONAL EVIDENCE NOT LIABLE TO BE ACCEPTED. WE FIND IT TO BE RELEVA NT FOR APPROPRIATE ADJUDICATION OF THE ISSUE INVOLVED. THE REVENUES O BJECTION IS OVERRULED. THE ASSESSEE TERMS THIS EVIDENCE AS S UFFICIENT TO PROVE THE ELEMENT OF BUSINESS/COMMERCIAL EXPEDIENCY IN OBTAINING THE LOANS IN QUESTION. WE ARE NOT IMPRESSED. IT SEEM S TO BE ONLY ONE SIDE OF THE COIN. THE LOWER APPELLATE AUTHORITY RE CORDS IN EVERY CLEAR TERMS THAT THE LENDER ENTITY HAD ALSO FURNISHED SIM ILAR HUGE SECURITIES IN ASSESSEE/ ITS DIRECTORS FAVOUR IN SUCCEEDING A SSESSMENT YEARS. HE HAS NOWHERE CONTROVERTED THIS FACT IN ARGUMENTS RA ISED BEFORE US. THIS LEADS TO AN INFERENCE THAT THE LENDER COMPANY, ASSESSEE AND HIS PAYEE CONCERN HAVE BEEN HELPING EACH OTHER BY PLE DGING COLLATERAL SECURITIES AND THE QUID PRO QUO IS A ROUTINE AFFAI R EXIST. THESE FACT INDICATE THAT THE LENDER ENTITY HAS ALREADY OBLIGED THE ASSESSEE IN RETURN. THUS, THE IMPUGNED LOANS ARE OVER AND ABOV E THE SAID MUTUAL ARRANGEMENT. THIS NEGATES THE ASSESSEES CONTENTIO N TO HAVE HELPED THE LENDER COMPANY IN RAISING LOANS FROM BANKS AND FINANCIAL INSTITUTIONS. THEREFORE, HIS ARGUMENT PROJECTING B USINESS/COMMERCIAL EXPEDIENCY ON THE LENDER ENTITYS PART IN ADVANCING LOAN TO THE PROPRIETARY CONCERN IS NOT ACCEPTED. I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 15 -: 10. NOW WE COME TO CASE LAW. THE FIRST JUDGMENT IS IN SMT. G. SREEVIDYAS CASE (SUPRA). THE ASSESSEE THEREIN HAD WITHDRAWN AMOUNTS IN QUESTION TO MEET HER SHORT TERM CASH REQ UIREMENT TO TIDE OVER LIQUIDITY CRUNCH ARISING FROM HER ACTION OF GI VING PERSONAL GUARANTEES AND COLLATERAL SECURITIES IN FAVOUR OF T HE LENDER ENTITY WHO HAD ADVANCED MONIES TO HER. SHE HAD ALSO REPAID T HE AMOUNT. NO SUCH MATERIAL IS AVAILABLE POINTING OUT SUCH CIRCU MSTANCES IN THE PRESENT CASE. WE MAKE IT CLEAR THAT OUR FINDINGS O N QUID PRO QUO ARRANGEMENT ALREADY GO AGAINST THE ASSESSEE. THIS CASE LAW STANDS DISTINGUISHED. 11. THE SECOND JUDGMENT IS THAT OF PRADIP KUMAR M ALHOTRA (SUPRA) HE HAD MORTGAGED HIS PERSONAL PROPERTIES TO THE BANK F OR ENABLING THE LENDER COMPANY TO RAISE LOANS. HE REQUESTED THE COM PANY TO ARRANGE RELEASE OF HIS ASSETS. IT WAS UNABLE TO DO SO. ITS DIRECTORS PASSED A RESOLUTION AUTHORIZING THE ASSESSEE TO OBTAIN INTER EST FREE DEPOSITS UPTO H.50,00,000/-, AS AND WHEN REQUIRED. THE ASSE SSEE OBTAINED A SUM OF H.20,75,000/- ONLY. THE HONBLE CALCUTTA HIG H COURT IN THESE CIRCUMSTANCES HELD THAT ADVANCES IN QUESTION HAD NO T ARISEN OUT OF GRATUITOUS ELEMENT BECAUSE OF THE LENDER ENTITYS B USINESS INTEREST. THE PRESENT CASE DOES NOT INVOLVE SUCH FACTS OR AN Y BUSINESS INTEREST. I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 16 -: THE ASSESSEE, HIS PROPRIETARY CONCERN AND THE LEN DER ENTITY HAVE ALREADY BEEN FOUND FURNISHING ASSETS AS COLLATERALS IN EACH OTHERS FAVOUR. THIS CASE LAW ALSO DOES NOT APPLY ON FACTS OF INSTANT CASE. 12. THE ASSESSEES THIRD JUDGMENT IS IN M/S. CREAT IVE DYING AND PRINTING CASE (SUPRA). THE HONBLE DELHI HIGH COUR T HOLDS THAT ADVANCES MADE FOR BUSINESS TRANSACTIONS DO NOT AMOU NT TO DEEMED DIVIDENDS U/S.2(22) (E). THE HONBLE APEX COURT HA S AFFIRMED THE SAID VIEW. WE REITERATE THAT THERE IS NO BUSINESS TRANS ACTION INVOLVED IN FACTS OF THIS CASE. 13. THE LAST JUDGMENT IS OF NAVNIT LAL C. JHAVERI ( SUPRA). THE ASSESSEE HAD CHALLENGED VIRES OF THE CORRESPONDING PROVISIONS IN INCOME TAX ACT 1922. THEIR LORDSHIPS MAJORITY VIE W UPHOLDS ITS CONSTITUTIONALITY AND OBSERVES THAT THE DEEMED FICT ION OF DIVIDENDS DOES NOT VIOLATE ARTICLES 19(1)(F) AND (G) OF THE C ONSTITUTION. NATURE AND AMBIT OF THIS DEEMING FICTION HAS BEEN ELABORAT ELY DISCUSSED. WE QUOTE OUR DISCUSSION HEREINABOVE THAT THIS CASE SA TISFIES ALL CONDITIONS ENVISAGED U/S. 2(22) (E) OF THE ACT. THIS LAST JUD GMENT RATHER GOES AGAINST THE ASSESSEE. WE CONCLUDE THAT THE AUTHOR ITIES BELOW HAVE RIGHTLY ASSESSED IMPUGNED LOANS/ ADVANCES OF H18,06 ,358/- GIVEN BY I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 17 -: M/S. LANSON CARS (P) LTD TO M/S. LINK ENTERPRISES A S DEEMED DIVIDENDS. THE ASSESSEES GROUND FAILS. 14. WE FIND THAT THIS IS NOT END OF THE ISSUE. WE HAD HEARD THESE CASES ON 27.01.2015. WE FOUND THAT THE ASSESSMENT ORDER MENTIONS ABOUT A LETTER DATED 28.03.2013 RECORDING ASSESSE ES AGREEMENT IN FAVOUR OF THE IMPUGNED ADDITION. HE COULD NOT GIV E A CLEAR REPLY. IT WAS URGED THAT EVEN IF THE SAID CONSENT IS GIVEN, T HE SAME WOULD NOT AMOUNT TO ANY ESTOPPEL AGAINST THE LAW PRECLUDING H IM FOR FILING THESE APPEALS. WE FIXED THE CASE AS PART HEARD FOR 04.02. 2015. THE ASSESSEE APPEARED ON THE SAID DATE. HE SUBMITTED A PAPER BOOK. IT IS EVIDENT THAT HE HAD FILED LETTER DATED 28.03.2013 BEFORE THE DCIT, CENTRAL CIRCLE III (2), CHENNAI EXPRESSING WILLING NESS FOR THE ADDITION WITHOUT PREJUDICE TO HIS RIGHT OF APPEAL. ON THE SAME DAY I.E. 28.03.2013, THE ASSESSEE MOVED YET ANOTHER WRITTEN COMMUNICATION UNCONDITIONALLY AGREEING FOR ADDING THE IMPUGNED DEEMED DIVIDENDS. 15. THE ASSESSEE STRONGLY ARGUES THAT THE SAID LETT ER DATED 28.03.2013 WAS FILED IN DURESS. WE DO NOT AGREE. MUCH WATER HAS FLOWN DOWNSTREAM SINCE 28.03.2013, I.E, A PERIOD OF TWO YEARS. HIS CASE ON MERITS HAS ALSO BEEN REJECTED. THUS, THE A SSESSEES RELEVANT I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 18 -: GROUND IS NOT MAINTAINABLE FOR WANT OF A VALID CAU SE OF ACTION. HE FURTHER ARGUES THAT THE REVENUE OUGHT TO HAVE OBJEC TED NON- MAINTAINABILITY OF HIS APPEAL IN THE LOWER APPEAL P ROCEEDINGS AND NOT AT THIS STAGE. CASE LAW OF M/S. RITAMBARA ASSOCIATE S VS. DCIT IN ITA NO.14/MDS/2014 DECIDED ON 25.05.2014 IS ALSO QUOTED. THE TRIBUNAL HOLDS THEREIN THAT ADDITION OF DEEMED DIVIDEND CANN OT BE SUSTAINED MERELY ON AGREEMENT AND ESTOPPEL PRINCIPLE IN ABSEN CE OF THE SPECIFIC CONDITIONS U/S.2(22) (E) OF THE ACT. WE OBSERVE TH AT FACTS OF THIS CASE ARE OTHERWISE. THUS, WE QUOTE OUR INHERENT JURISDI CTION U/S.254(1) OF THE ACT, TAKE NOTICE OF THE ASSESSEES UNCONDITIONA L WRITTEN CONCESSION AND HOLD THIS GROUND AS NOT MAINTENABLE. THE RELE VANT QUESTION STANDS DECIDED IN THE REVENUES FAVOUR. 16. NOW, WE COME TO CASE ITA 21/2014 RAISING CHALL ENGING DISALLOWANCE OF EXPENDITURE U/S.40A(3) AMOUNTING H7 9,38,484/- MADE IN THE COURSE OF ASSESSMENT AND AFFIRMED IN THE LOW ER APPELLATE ORDER. 17. THE ASSESSEE HAD MADE CASH PAYMENTS FOR PAPADA M PACKING EXPENSES, FREIGHT, COMMISSION AND MISCELLANEOUS CHA RGES OF H.8,09,050/- H7,23,980/-, H.57,47,746/- AND H.6,57, 708/- RESPECTIVELY. THESE AMOUNT TOTALLED TO RS.79,38,484/-. THE ASSES SING OFFICER I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 19 -: QUOTED RULE 6 DD(K) OF THE INCOME TAX RULES READIN G WHERE THE PAYMENT IS MADE BY ANY PERSON TO THIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVICES ON BEHALF OF SUCH PERSON. THE ASSESSEE PLEADED THAT THE EXPENSES WERE PAID TO HIS PAPADAM PACKING WORKERS IN LIEU OF THEIR SERVICES. THE ASSESSING O FFICER EXPRESSED DISAGREEMENT. HE RELIED ON THE AFORESAID RULE AND O PINED THAT AGENT WORD USED IN THE RULE WOULD NOT INCLUDE AN EMPLOYE E. THE PAYEES NAME IN THIS CASE IS MS. INDIRA. SHE CLAIMED HERS ELF TO BE A PACKING CONTRACTOR FOR M/S. LANSON VENTURES FROM THE YEAR 2 002 AND ITS EMPLOYEE IN THE PRECEDING PERIOD. THIS PAYEE CLARIF IED THAT SHE WAS RESPONSIBLE FOR QUALITY PACKING, WIPING, WEIGHING A ND PACKING OF PAPADUM IN FACTORIES LOCATED AT TIRUCHENDUR AND KAT HIRVEDU. THE STRENGTH OF THE LABOUR IN SAID TWO LOCATIONS WAS ST ATED TO BE 80 & 90; RESPECTIVELY. HER REMUNERATION ON COMMISSION BASIS WAS QUOTED @ 5 PAISA/ PER KG WITH BONUS. FOR ASSESSMENT YEARS 2006-07 TO 2009- 2010, PACKING EXPENSES AMOUNTING TO RS.69,31,973/- HAD BEEN PAID TO HER. SMT. INDIRA TOOK A CATEGORICAL STAND THAT THE SAID PAYMENTS HAD BEEN RECEIVED AND DISTRIBUTED TO THE PAPADAM PA CKING WORKERS. 18. THE ASSESSING OFFICER SOUGHT TO VERIFY THE AFOR ESAID ACTUAL POSITION. THE ASSESSEE EXPLAINED THAT THESE AMOUNTS WERE SALARY I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 20 -: PAYMENTS LESS THAN RS.20,000/- GIVEN TO THE WORKING LABOURS THROUGH SMT.INDIRA. THE ASSESSING OFFICER WAS OF THE VIEW T HAT SUCH PAYMENT TOTALING TO H. 69,31,973/- IN FOUR FINANCIAL YEARS (SUPRA) HAD TO BE DISALLOWED U/S. 40A(3). IT WAS HELD THAT SMT. INDI RA WAS AN EMPLOYEE AND NOT AN AGENT AS PER RULE 6DD. THE ASSESSING OF FICER FOUND SMT. INDIRA NOT TO HAVE DISCLOSED IMPUGNED AMOUNTS DEP OSITED IN HER ACCOUNT AS INCOME IN TOTO. AND ALSO REFERRED TO NO M-COMPLIANCE OF THE RELEVANT ESI AND PF PROVISIONS. HE FURTHER QUOT ED IRREGULARITIES IN FUNDS DEDUCTED AND THEIR REIMBURSEMENT. ALL THIS R ESULTED IN ADDING IMPUGNED DISALLOWED SUMS OF H79,38,484/-. 19. THE CIT(A) FINDINGS RELY HEAVILY ON THE ASSESSEE CONSENT IN LETTER DATED 30.03.2003 FOR UPHOLDING THE AO ACTION AS UND ER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLA NT AND HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER. THE CONTEN TIONS OF THE APPELLANT HAVE NOT BEEN ACCEPTED BY THE ASSESSI NG OFFICER FOR THE DETAILED REASONS DISCUSSED IN THE ASSESSMEN T ORDER. THE ASSESSING OFFICER HAS ALSO DETAILED REASONS AS TO WHY THE CASE OF THE APPELLANT WOULD NOT BE COVERED BY THE PROVISIONS OF RULE 6DD (K) READ WITH SECTION 40A(3) AND ALSO A S TO WHICH THE RATIO OF THE DECISIONS RELIED ON BY THE APPELLA NT WOULD NOT BE APPLICABLE TO THE FACTS OF THE APPELLANTS CASE. IT IS ALSO SEEN FROM THE ASSESSMENT ORDER THAT THE APPELLANT, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HAD AGREED FOR TH E AFORESAID DISALLOWANCE/ADDITION UNDER SEC 40A(3). THE RELEVANT EXTRACT OF THE ASSESSMENT ORDER FOR THE AS SESSMENT YEAR 2007-2008, IN THIS REGARD, IS REPRODUCED AS UN DER:- I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 21 -: THE ASSESSEE SUBMITTED A LETTER DATED 30.03.2013 STATING THE ABOVE PAYMENTS ARE GENUINE PAYMENTS. HOWEVER, THEY HAVE OFFERED THE ABOVE PAYMENTS TO BE DISALLOWED TO SUBMIT TO THE LEGALITY OF THE ISSUE IN THE LARGER INTEREST OF THE SOCIETY. AN D ALSO PRAYED TO VIEW THE ISSUE FAVOURABLY AND TO DROP ANY PENAL ACTION. HENCE, ACCORDINGLY TO THE DISCUSSION S ABOVE A SUM OF H79,38,484/- IS DISALLOWED U/S.40A(3 ) AND ADDED TO THE TOTAL INCOME. THE ASSESSEES AR H AS CONCURRED FOR THE DISALLOWANCE VIDE LETTER DATED 30.03.2013. SIMILAR IS THE POSITION WITH REGARD TO THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER IN THE OTHER TWO ASSESSMENT Y EARS VIZ., 2008-09 & 2009-10 AND ASSESSING OFFICER HAS MENTION ED IN THE RESPECTIVE ASSESSMENTS ORDERS THE FACT WITH REGARD TO THE AR OF THE APPELLANT HAVING AGREED TO THE DISALLOWANCE VID E LETTER DATED 30.3.2013. THE AFORESAID FACTS WITH REGARD TO THE APPELLANT HA VING AGREED TO THE AFORESAID DISALLOWANCES UNDER SECTION 40A(3) AND WITH REGARD TO THE APPELLANT CONCURRENCE, THE AR HAS NO T CONTROVERTED BEFORE ME DURING THE APPEAL PROCEEDI NGS. ONCE THE APPELLANT HAD AGREED TO A PARTICULAR ADDITION B EFORE THE ASSESSING OFFICER, HE CANNOT BE ALLOWED TO CHALLENG E IT IN THE APPEAL PROCEEDINGS. IN VIEW OF THESE FACTS, THE AC TION OF THE ASSESSING OFFICER IN MAKING DISALLOWANCE OF THE CAS H PAYMENTS IN CONTRAVENTION OF THE PROVISION OF SECTION 40A(3) IS UPHELD AND THE GROUNDS OF APPEAL WITH REGARD TO THIS ISSUE D IN ITA NOS.209,210 & 211/13-14 ARE ALSO DISMISSED . 20. BOTH SIDES HEARD. RECORDS STAND PERUSED. THE QUESTION BEFORE US IS TO WHETHER SEC 40A (3) DISALLOWANCES OF H.79, 38,484/- ARISING FROM CASH PAYMENTS EXCEEDS RS.20,000/- FOR PAPADAM PACKING, FREIGHT, COMMISSION AND MISCELLANEOUS EXPENSES HAVE BEEN RIGHTLY MADE OR NOT. IT IS EVIDENT THAT THE ASSESSEE DURIN G SCRUTINY HAD ONLY JUSTIFIED HIS CASH PAYMENTS OF PAPADAM PACKING CHA RGES AND NOT THE I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 22 -: OTHER THREE HEADS (SUPRA). HIS EXPLANATION ON THESE EXPENSES CAME ONLY ON 30.03.2013 AS UNDER:- FREIGHT: - THE RAW MATERIAL BLACK GRAM OF THE QUALITY NEEDED B Y LANSON VENTURES IS PURCHASED THROUGH BROKERS FROM ANDHRA P RADESH AND MAHARASHTRA AND LORRY FREIGHT IS INCURRED TO BRING THE MATERIALS TO THE FACTORIES OF LANSON VENTURES. THR SUPPLIERS OF RAW MATERIAL BELONG TO UNORGANIZED SECTOR IN RURAL AREAS, WHERE THEY ARRAN GE LORRY DRIVERS AVAILABLE TO DISPATCH GOODS. THE LORRY FREIGHT IS COST OF PURCHASE OF BLACK GRAM AND IT IS DEDUCTED FROM THE AMOUNT PAID TO THE SUPPLIER OF BLACK GRAM. PAYMENT IN CASH WERE DONE TO THE LO RRY DRIVER, FOR AND ON BEHALF OF THE SUPPLIER OF BLACK GRAM AS CARR IAGE INWARDS. THIS IS AN ARRANGEMENT WHERE BY THE SAFETY AND QUALITY O F THE PRODUCT IS ENSURED. CHEQUES ARE NOT NORMALLY ACCEPTED BY THE LORRY DRIVERS/AGENCIES, AS THEY OWN ONLY 1 OR 2 VEHICLES. THIS IS THE TRUTH OF THE WHOLE TRANSACTIONS. CONVERSION EXPENSES :- AS POINTED, THERE WERE PAYMENTS IN CASH TO CONTRACT ORS FOR CONVERSION OF RAW MATERIAL TO FINISHED GOODS DURING 2006-2007 TO 2009-2010. THESE MATERIALS WERE MADE PRIMARILY FOR DISTRIBUTION OF WORKERS WAGES, WHICH ARE PAYABLE AT THE WEEK END. THE CONTRACTORS PRODUCE THEIR PRODUCTION DETAILS TO THE CONCERN, FO R PAYMENT BY MID WEEK. THE RATE OF CONVERSION IS AS PER ORAL AGREEM ENT BETWEEN M/S. LANSON VENTURES AND THE CONTRACTORS AND THEIR MARGI N IS PAID PACKING EXPENSES, WERE WAGES PAID IN RANI MAHARAJAPURAM, A FACTORY OF M/S LANSON VENTRUES, FOR LANSON VENTURES PACKING WORKER S IN CASH THROUGH AN ASSISTANT OF M/S. INDIRA, ONE OF THE PA CKING CONTRACTORS IN LANSON VENTURES. CASH WAS PAID ON BEHALF OF THE PAC KING CONTRACTOR. PAPPADUM PACKING EXPENSES PAID TO T. INDIRA: PACKING EXPENSES, WERE WAGES PAID IN RANI MAHARAJAP URAM, A FACTORY OF M/S. LANSON VENTURES, FOR LANSON VENTURE S PACKING WORKERS IN CASH THROUGH AN ASSISTANT OF MS. INDIRA, ONE OF THE PACKING CONTACTORS IN LANSON VENTURES. CASH WAS PAID ON BE HALF OF THE PACKING CONTRACTOR. MISCELLANEOUS EXPENSES:- THESE EXPENSES WEE PAID IN CASH FOR VARIOUS REASONS . I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 23 -: THE PAYMENT ARE GENUINE PAYMENTS. HOWEVER TO SUBMI T TO THE LEGALITY OF THE ISSUE IN THE LARGE INTEREST OF THE SOCIETY, WE OFFER TO ABOVE PAYMENTS TO BE DISALLOWED AS PER THE GOVERNIN G RATES. HAVING SUBMITTED, I REQUEST YOU TO VIEW US FAVOURAB LY AND DROP PENALTY AND PROSECUTION PROCEEDINGS FOR THE ABOVE T RANSACTIONS. THIS FACTUAL POSITION CONTINUED IN HIS GROUNDS OF A PPEAL FILED IN THE LOWER APPELLATE PROCEEDINGS. RELEVANT PLEADINGS IN FORM 35 ARE SILENT ON THE ISSUES OF COMMISSION, PAYMENT OF FREIGHT AND OTHER MISCELLANEOUS CHARGES ETC. THEREFORE, THESE THREE P AYMENTS HAVE TO BE DISALLOWED IN ANY CASE FOR WANT OF ANY EXPLANATI ON MUCH LESS A SATISFACTORY ONE. WE COME TO PAPADAM PACKING EXPEN SES NOW. THE ASSESSEE HAS ALREADY AGREED FOR DISALLOWANCE. THER EFORE, WE ADOPT SIMILAR REASONING AS DISCUSSED ON THE ISSUE OF DEEM ED DIVIDEND DECIDED HEREINABOVE, INVOKE ESTOPPEL PRINCIPLE AND REJECT THE ASSESSEES GROUNDS AS NOT MAINTAINABLE. IT IS MADE CLEAR THAT THIS ESTOPPEL BARS THE ASSESSEE ONLY ON FACTS AND NOT O N LAW. ON LATTER LIMB, WE ARE OF THE VIEW THAT EVEN IF AN ASSESSEE S UBMITS TO ASSESSMENT OF A PARTICULAR SUM, HE CAN STILL ARGUE FOR APPROPRIATE APPLICATION OF THE STATUTORY PROVISIONS ENSHRINED IN THE ACT. IT IS TO BE SEEN THAT SEC. 40A (3) (A) AS IN ASSESSMENT YEAR 20 07-2008 READS WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESP ECT OF WHICH PAYMENT IS MADE IN A SUM EXCEEDING TWENTY THOUSAND RUPEES OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 24 -: ACCOUNT PAYEE BANK DRAFT, NO DEDUCTION SHALL BE ALL OWED IN RESPECT OF SUCH EXPENDITURE. WE FIND THAT THE AUTHORITIES BE LOW HAVE INVOKED THE SAID PROVISION IN VIEW OF CASH PAYMENTS ONLY WITHOU T ANY REFERENCE TO THE STATUTORY EXPRESSIONS I.E. PAYMENTS MADE IS A SUM EXCEEDING TWENTY THOUSAND RUPEES USED THEREIN. WE REITERATE THE SETTLED LAW THAT A DISALLOWING PROVISION IN TAX STATUTES HAS TO BE LITERALLY INTERPRETED. THEREFORE, THE ASSESSEES PRESENT GROU ND DESERVES ACCEPTANCE ON LEGALITY ASPECT ONLY. THE IMPUGNED D ISALLOWANCE OF H.79,38,484/- IS REMITTED BACK TO THE ASSESSING OFF ICER FOR A LIMITED EXERCISE OF RECOMPUTATION AS PER THE STATUTORY EXP RESSIONS EMPLOYED IN SEC 40A(3) EXTRACTED HEREINABOVE. THE RELEVANT G ROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. HE SHALL ALSO TAK E INTO ACCOUNT AMENDMENTS IF ANY MADE IN THE RELEVANT STATUTORY PR OVISION WHEREVER NECESSARY. 21. THE THIRD GROUND CHALLENGING SEC.234B INTEREST IS TREATED AS CONSEQUENTIAL IN NATURE. 22. IN VIEW OF THE ABOVE FINDINGS, SHRI. LANKALING AM MURUGESU APPEALS IN ITA NOS.19,20 AND 25/MDS/2014 ARE DISMIS SED AND ITA NOS.21 TO 24 ARE PARTLY ALLOWED FOR STATISTICAL PUR POSES. 23. NOW WE COME TO APPEALS RELATING TO THE OTHER AS SESSEE SMT. REETA LANKALINGAM. THERE ARE TOTAL SIX CASES. FOR ASSESSMENT YEAR I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 25 -: 2008-2009, ITA NO15/MDS/2014 IS ASSESSEES APPEAL . THE REVENUE HAS FILED ITA NO.2242/MDS/2013 AND ASSESSEE PREFERS C.O.NO.11/2014 THEREIN. WE TAKE UP ASSESSEES APPEAL NO. ITA 15/M DS/2014 FIRST. HER SOLE SUBSTANTIVE GROUND CHALLENGES CORRECTNESS OF THE LOWER APPELLATE ORDER UPHOLDING THE ASSESSING OFFICERS ACTION IN DI SALLOWING INTEREST ON LOAN TAKEN FOR IMMOVABLE PROPERTY OF H26,13,233/-. THE ASSESSEE HAD SOLD A PROPERTY IN KODAIKANAL RESULTING IN SHORT TE RM CAPITAL GAINS. SHE CLAIMED COST OF BUILDING IMPROVEMENT AS PER BILLS. THE ASSESSING OFFICER SOUGHT COPIES THEREOF. THE ASSESSEE PRODU CED THE SAME. THE ASSESSING OFFICER OBSERVED THAT THESE BILLS DID NOT PERTAIN TO THE PROPERTY IN QUESTION. THIS LED TO IMPUGNED INTERES T DISALLOWANCE OF H26,13,233/- FOR WANT OF EVIDENCE THAT THE LOAN WAS UTILIZED FOR IMPROVING THE PROPERTY SOLD. 24. THE CIT(A)S ORDER CITES ASSESSEES FAILURE TO PROVE THE EVIDENCE OF THE EXPENDITURE BY WAY OF SUPPORTING MATERIAL OR EVIDENCE. 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH RELEVANT FINDINGS. THE ASSESSEE APPEARS TO HAVE FILED SAME B ILLS AND OTHER DETAILS IN SUPPORT OF THE IMPUGNED EXPENDITURE INCU RRED FOR IMPROVEMENT OF THE PROPERTY SOLD. NEITHER OF THE L OWER AUTHORITY I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 26 -: MATCHING OF IMPUGNED EXPENDITURE VIS--VIS THE PROP ERTY IS ONLY A TALLYING EXERCISE. IN THESE CIRCUMSTANCES, INTERES T OF JUSTICE WOULD BE MET IN THE ASSESSING OFFICER RE-EXAMINES THE ISSU E. THE ASSESSEE WILL BE AT LIBERTY TO PLACE ON RECORD ALL HER DOCUMENTS IN THREE EFFECTIVE OPPORTUNITIES OF HEARING. THE RELEVANT GROUND IS RE MITTED BACK TO THE ASSESSING OFFICER. CASE ITA NO.15/MDS/2014 IS ALLOWED FOR STATISTICAL PURPOSES. 26. NOW, WE COME TO REVENUES APPEAL IN ITA 2242/MD S/2013 RAISING SOLE SUBSTANTIVE ISSUE OF BAD DEBTS AMOUNTI NG TO H31,83,626/- DISALLOWED/ADDED IN COURSE OF A REGULAR ASSESSM ENT AND DELETED IN THE LOWER APPELLATE ORDER. 27. THE ASSESSEE HAD CLAIMED AFORESAID BAD DEBTS IN ACCOUNTS OF M/S. LANSON VALUE ADDED SERVICES AS ITS PROPRIETRIX . THESE DEBTS HAD ARISEN FROM SALE OF ACCESSORIES AND POLISHING SERVI CE TO ITS CUSTOMERS IN SMALL AMOUNTS. RELEVANT ASSESSMENT YEARS WERE FROM 2005-06 ONWARDS. THESE SUMS HAD NOT BEEN RECOVERED. THE ASSESSEE APPEARS TO HAVE EXPRESSED HER INABILITY TO PRODUCE SUPPORTIVE DETAILS WITH REGARD TO THEIR TRACEABILITY OF COLLECTIONS TH EREOF. THE ASSESSING I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 27 -: OFFICER REJECTED THE CLAIM U/S.36(2) OF THE ACT. H E TOOK INTO CONSIDERATION PROMINENT NAMES IN THE DEBTORS LIST EG M/S. MRF LTD, M/S. BRAKES INDIA LTD, M/S. CHIEF WORKSHOP MANAGER AND M/S. CATERPILLAR INDIA LTD TO HOLD THAT THE DEBT IN SUCH CASES COULD NOT HAVE BEEN TERMED AS BAD. THIS RESULTED IN THE IMPUGNED D ISALLOWANCE /ADDITION. 28. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS A CCEPTED THE ASSESSEES CONTENTION BY RELYING ON CASE LAW OF TRF LTD IN 327 ITR 416 AS UNDER:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE LEARNED AR. THE ASSESSING O FFICER HAS MENTIONED IN THE ASSESSMENT ORDER THAT THE AR HAD A LSO STATED THAT NO DETAILS THE STEPS TAKEN TO RECOVER THE SAME WERE AVAILABLE AND SHE COLD NOT PROVE THAT IT WAS A BAD DEBT TO THE SA TISFACTION OF THE ASSESSING OFFICER AND THAT IT WAS NOT BELIEVABLE TH AT DEBTS WERE NOT RECOVERABLE FROM SUCH MNC COMPANIES LIKE M/S. MRF L TD, M/S. BRAKES INDIA LTD ETC. THOUGH I SUBSCRIBE TO THE VIE WS OF THE AO THAT EVEN AFTER THE AMENDMENT TO SECTION 36(1)(VII) THE DEFT FROM 01.04.1989 IT IS NOT EVERY DEBT THAT CAN BE WRITTEN OFF AND WOULD BE ALLOWABLE UNDER THE PROVISIONS OF THIS SECTION. TO COME WITHIN THE AMBIT OF ALLOW ABILITY A DEBT HAS TO BE ONLY A BAD DEBT. HOWEVER, NOW IT IS A SETTLED LAW THAT THE DECISION WITH REGARD T O THE ALLOW ABILITY OF A BAD DEBT IS REQUIRED TO BE TAKEN ON THE FINDING OF FACTS THAT THE DEBT HAS ACTUALLY BEEN WRITTEN OFF IN THE BOOKS OF ACCOU NT OF THE ASSESSEE. THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD V. CIT (SUPRA) HAD HELD, WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUN T IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING T HE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION I S DEDUCTED FROM SUNDRY DEBTORS. THE ASSESSING OFFICER, IT HAS BEEN HELD, HAS TO EXAMINE WHETHER, IN FACT, THE BAD DEBT OR PART THER EOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSED LEGAL POSITION, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF BAD DEBTS OF THE APPELLANT AFTER VERIFICATION THAT THE BAD DEBTS HAVE IN FACT BEEN WRITTEN OFF IN THE I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 28 -: ACCOUNTS OF THE APPELLANT AS MANDATED BY THE HONBL E SUPREME COURT IN THE CASE OF TRF LTD V. CIT (SUPRA). THE G ROUNDS OF APPEAL, AS THEY RELATE TO THIS ISSUE, ARE CONSIDERED ALLOWE D FOR STATISTICAL PURPOSES. 29. HEARD BOTH SIDES. RECORDS PERUSED. THE REVENUE SEEKS TO RESTORE IMPUGNED BAD DEBTS DISALLOWANCE. THE LOWER APPELLATE AUTHORITIES HAS ACCEPTED ASSESSEES GROUND ON LEGAL ITY ISSUE PER TRF CASE (SUPRA). THE FACTUAL ASPECT STANDS REMITTED B ACK TO ASSESSING OFFICER FOR VERIFICATION IE WHETHER BAD DEBTS CLAI MED HAD BEEN ACTUALLY WRITTEN OFF OR NOT. THE REVENUE FAILS TO POINT OUT ANY DISTINCTION TO THE SAID LAW OR ANY JUDGMENT TO THE CONTRARY. THEREFOR E, WE UPHOLD THE FINDINGS UNDER CHALLENGE. THE REVENUES APPEAL I TA NO.2242/MDS/2013 IS DISMISSED. THIS LEAVES US WITH THE ASSESSEES CROSS-OBJECTION S NO.11/2014. SHE HAS RAISED TWO GROUNDS IE DISALLOWANCE OF INTE REST AND BAD DEBTS. WE HAVE ALREADY DEALT WITH THE SAME IN CROSS-APPEAL S DECIDED HEREINABOVE. THIS RENDERS THE CROSS OBJECTIONS INFR UCTUOUS. 30. NOW, WE COME TO ITAS NO.16 TO 18/MDS/14 RAIS ING IDENTICAL ISSUE OF DEEMED DIVIDENDS AND FIND IT TO BE COVERED BY OU R DISCUSSION IN ITA NO.19/MDS/14 DECIDED HEREINABOVE. WE APPRECIATE BOT H PARTIES FAIR I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 29 -: STAND AND REJECT THE ASSESSEES IDENTICAL GROUND IN ALL THREE CASES. ITAS 16-18/MDS/2014 ARE DISMISSED. TO SUMUP : ITAS 19 & 20 AND 25/MDS/2014 : DISMISSED . 21 TO 24/MDS/2014 : PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15/MDS/2014 : ALLOWED FOR STATISTICAL PURPOSES. 2242/MDS/2013 : DISMISSED. C.O. NO.11/MDS/2014 : DISMISSED AS INFRUCTUOUS. 16 TO 18/MDS/2014 : DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 27TH OF FEBRUARY, 2015, AT CHENNAI. SD/ - (.. ) (B.R. BASKARAN) $ / ACCOUNTANT MEMBER SD/ - ( . . ) (S.S. GODARA) /JUDICIAL MEMBER K.V 67 & /CHENNAI 8 /DATED:27.02.2015. 9 ! #': ; <;' /COPY TO: 1. / APPELLANT 2. #$ / RESPONDENT 3. % =' ( )/CIT(A) 4. % =' /CIT 5. ;>? #' @ /DR 6. ?A B& /GF. I.T.A.NO.15 /MDS/2014 AND OTHERS. . :- 30 -: