ACIT, Bhubaneswar V. Bhagirathi Metal Industries Pvt. Ltd, Bhubaneswar

ITA 265/CTK/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4432 (ITAT-CUTTACK)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 19-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-07-2010
• Court: TRIBUNAL
• Department Lawyers: PA NIGRAHI
• Assessee Lawyers: B MOHANTY
• Keywords: Deemed dividend

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , S HRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 265/CTK/2010 / ASSESSMENT YEAR 2006 - 07 ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), BHUBANESWAR. - - - VERSUS - M/S.BHAGIRATHI METAL INDUSRIES PVT. LTD. S - 1/116 & 101, ID CO, NEW INDUSTRIAL ESTATE, RASULGARH, BHUBANESWAR 751 010 PAN: AABCB 1788 L ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI M.R.PANIGRAHI, DR / FOR THE RESPONDENT: / SHRI B.MOHANTY, A R / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST ORDER DT.23.4.2010 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) DELETING THE ADDITION OF DEEMED DIVIDEND U/S.2(22)(E) OF THE INCOME - TAX ACT,1961 MADE BY THE ASSESSING OFFICER, BY STATING THE TRANSACTIONS ARE NOT IN THE NATURE OF LOANS AND ADVANCES AND THE SAME CANNOT BE BROUGHT TO THE AMBIT OF PROVISION OF SECTION2(22)(E). 2. THE RELEVANT FACTS ARE THAT DURING THE COURSE OF ASS ESSMENT, FROM THE REPORT OF THE AUDITOR U/S.44AB, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD RECEIVED AN UNSECURED LOAN OF 19,70,993 FROM AN ASSOCIATE CONCERN M/S.BHAGIRATHI MECHANICAL PRODUCTS PVT. LTD., WHEREIN ONE OF THE SHARE HOLDERS OF THE ASSESSEE - COMPANY PRADEEP KUMAR GUPTA (HUF) HELD 23.56% SHARES IN THE ASSESSEE - COMPANY AND ALSO HELD 36.25% SHARES IN THE COMPANY M/S .BHAGIRATHI MECHANICAL PRODUCTS PVT. LTD., WHO HAD ACCUMULATED 2 I.T. A.NO. 265/CTK/2010 PROFITS TO THE EXTENT OF 6,25,106. THE ASSESSING OFFICER HELD THE SAME AS DEEMED DIVIDEND AND BROUGHT TO TAX BY MAKING ADDITION U/S.2(22)(E). ON APPEAL, THE LEARNED CIT(A) DELETED THE SAID ADD ITION AND HENCE, THE REVENUE HAS FILED THE PRESENT APPEAL. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AFTER CAREFULLY GOING THROUGH THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT W HILE DEALING WITH THE ISSUE AFTER EXAMINING THE COPY OF ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE M/S.BHAGIRATHI MEDHCANICAL PRODUCTS PVT.LTD., WHICH IS QUOTED ON BODY OF THE FIRST APPELLATE ORDER, THE LEARNED CIT(A) OBSERVED IN HIS ORDER THIS AMOUNT DID NOT REPRESENT A LOAN AT ALL BUT WAS ONLY A TRADING TRANSACTION AND THE ENTIRE CONFUSION AROSE BECAUSE OF THE WRONG DEPICTION OF THE TRANSACTION IN THE AUDIT REPORT. THE RELEVANT PORTION OF PARAGRAPH 4 OF THE APPELLATE ORDER, IS REPRODUCED AS UNDER: 4. . IT IS EXPLAINED THAT FROM TIME TO TIME, ADVANCES HAVE BEEN MADE TO THE SAID COMPANY FOR SUPPLY OF MATERIAL. ON 17.02.2006 THERE IS A DEBIT OF 19,70,993/ - IN THE ACCOUNT OF THE APPELLANT, BY CREDIT TO MIS. MALHOTRA STEEL TUBES, OF A CORRESPONDING AMOUNT. IT IS EXPLAINED THAT MATERIAL WAS PROCURED FROM M/S. MALHOTRA STEEL TUBES BY M/S. BHAGIRATHI MECHANICAL PRODUCTS PVT. LTD. AND SUPPLIED TO THE APPELLANT. THE COST OF T HE MATERIAL SO PURCHASED FROM M/ S. MALHOTRA STEEL TUBES WAS 19,70,993/ - . THIS AMOUNT WAS THEREFORE PAID TOWARDS THE COST OF MATERIAL. COPY OF THE INVOICES ISSUED BY M/S. MALHOTRA STEEL TUBES IN THE NAME OF THE APPELLANT COMPANY, BE ARING NO.155 DT.07.10.2005 FOR 5,37,581/ - , NO.162 DT. 24.10.2005 FOR 6,61,533/ - AND NO.168 DT.04.11.2005 FOR 7,71,877/ - HAVE BEEN FILED. IT IS ALSO EXPLAINED THAT THE COMPANY M/S. BHAGIRATHI MECHANICAL PRODUCTS PVT. LTD. HAS THREE UNITS VIZ; THE MAIN UN IT, MIS. BHAGIRATHI COMPUTECH SYSTEMS AND M/S. BHAGIRATHI MARKETING CHANNEL. THE TRANSACTION IN QUESTION WAS DONE THROUGH M/S. BHAGIRATHI COMPUTECH SYSTEMS. THE STATEMENT OF ACCOUNT 3 I.T. A.NO. 265/CTK/2010 FILED HAS BEEN EXPLAINED DURING THE PROCEEDINGS. AS ON 01.04.2005, THE APP ELLANT WAS TO RECEIVE MATERIALS FROM THE SISTER CONCERNS WORTH 1,30,000/ - , SINCE ADVANCE HAD BEEN PAID TO THAT EXTENT. UP TO 27.01.2006, FURTHER ADVANCES OF 35,53,036/ - WERE GIVEN FOR THE PURCHASE OF RAW MATERIAL. IT WAS AGAINST THESE ADVANCES THAT AN AMOUNT OF 19,70,993/ - WAS CREDITED ON 17.02.2006 FOR PAYMENT MAD E THROUGH M/S. BHAGIRATHI MECHNICAL PRODCUTS PVT. LTD. TO M/S. MALHOTRA STEEL TUBES . EVEN AFTER THIS, THE DEBIT BAL ANCE CONTINUED IN THE SENSE THAT SOME MORE RAW MATERIAL WAS TO BE RECEIVED BY THE APPELLANT. ON 20/28.02.2006, FURTHER ADVANCE OF 6,07,849/ - WAS MADE TOWARDS PURCHASES. ON 28.02.2006 THE APPELLANT RECEIVED RISER PIPES WORTH 20,18,250/ - AGAINST THE ADVANCES PAID. ONE MORE ADVANCE OF 4,00,576/ WAS PAID ON 23.0.2 006 FOR PURCHASE OF MATERIAL. ON 23.03.2006 THE APPELLANT RECEIVED MATERIAL FOR 7, 02,218/ - , WHICH RESULTED IN THE ACCOUNT BETWEEN THE TWO COMPANIES BEING SQUARED UP. THEREFORE, ALL THE TRANSACTIONS BETWEEN THE TWO COMPANIES ARE TRADING TRANSACTIONS. THE CREDIT OF 19,70,993/ - ON 17.02.2006 WAS ONLY TOWARDS SUPPLY OF MATERIAL BY M/ S. MAL HOTRA STEEL TUBES. IT WAS A LOAN RECEIVED. TH E INVOICES ISSUED BY THE SAID M/ S. MALHOTRA STEEL TUBES ARE IN RESPECT OF VARIOUS SPARE PARTS, ACCESSORIES ETC RELATING TO HAND PUMP SETS. THESE INVOICES ARE IN THE NAME OF THE APPELLANT COMPANY. IN THE CIRCUMST ANCES, IT IS CLEAR THAT THE AMOUNT OF 19,70,993/ - WAS A TRADING TRANSACTION AND M/ S. BHAGIRATHI MECHANICAL PRODUCTS PVT. LTD. DURING THE YEAR TOWARDS ADVANCES AND HAS NOT RECEIVED ANY MONEY FROM THAT COMPANY FOR ANY PURPOSE. THE ENTIRE CONFUSION AROSE NO T A LOAN TRANSACTION. AS A MATTER OF FACT, THE APPELLANT HAS MADE A SERIES OF PAYMENTS TO BECAUSE OF THE WRONG DEPICTION OF THE TRANSACTION IN THE AUDIT REPORT. THE ADDITION OF 6,25,106/ - U/S.2(22)(E) OF THE ACT IS THEREFORE, DELETED. BEFORE US, THE LEA RNED DR COULD NOT NEGATE THE ABOVE FACTS RECORDED BY THE LEARNED CIT(A). WE FIND THAT THE LEARNED CIT(A) HAS EXAMINED ALL THE DETAILS AND CAME TO A CONCLUSION THAT THE A MOUNT IN QUESTION IS A TRADING 4 I.T. A.NO. 265/CTK/2010 TRANSACTION. IN THE CASE OF CIT V. RAJ KUMAR (318 ITR 46 2), HONBLE DELHI HIGH COURT HAS HELD THAT TRADE ADVANCE, WHICH IS IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTION, WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22)(E). SIMILAR VIEW HAS ALSO BEEN EXPRESSED BY THE SAID HONBLE HIGH COURT IN THE CASE OF CIT V. CREATIVE DYEING & PRINTING (P) LTD (318 ITR 476). CONSIDERING THE FACTS OF THE PRESENT CASE ON HAND, WE FIND THAT THESE DECISIONS OF HONBLE DELHI HIGH COURT ARE CLEARLY APPLICABLE. THEREFORE, FOLLOWING THE RATIO OF THESE DECISIONS, WE ARE OF THE CONSIDERED VIEW THAT THE LEARNED CIT(A) IS PERFECTLY JUSTIFIED IN DELETING THE IMPUGNED ADDITION OF 6,25,106 MADE U/S.2(22)(E). WE UPHOLD THE SAME AND DISMISS THE APPEAL OF THE REVENUE. 4. IN THE RESULT, THE APPEA L OF THE REVENUE IS DISMISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 28 TH APRIL, 2011 S D/ - S D/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 28 TH APRIL, 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : ASST.COMMISSIONER OF INCOME - T AX, CIRCLE 1(1), BHUBANESWAR. 2 / THE RESPONDENT: M/S.BHAGIRATHI METAL INDUSRIES PVT. LTD. S - 1/116 & 101, IDCO, NEW INDUSTRIAL ESTATE, RASULGARH, BHUBANESWAR 751 010 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY.