ACIT, Bhubaneswar V. M/s Bhagirathi Mechanical Products (P) Ltd, Bhubaneswar

ITA 270/CTK/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4429 (ITAT-CUTTACK)
• Duration Of Justice: 9 month(s) 19 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: 09-07-2010
• 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. 270/CTK/2010 / ASSESSMENT YEAR 2006 - 07 ASST.COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), BHUBANESWAR. - - - VERSUS - M/S.BHAGIRATHI MECHANICAL PRODUCTS (P) LTD., 208, BHAGAWAN TOWER, CUTTACK ROAD, BHUBANESWAR 751 006 PAN: AABCB 3908 N ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI M.R.PANIGRAHI, DR / FOR THE RESPONDENT: / SHRI B.MOHANTY, AR / 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,1 961 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 ASSESSMENT, THE ASS ESSING OFFICER FOUND THAT ONE OF THE SUNDRY CREDITORS WAS M/S.BHAGIRATHI METAL INDUSTRIES (P) LTD., BHUBANESWAR, A SISTER CONCERN, WHICH HAD DISBURSED AN AMOUNT OF 23,26,382 AND 3,54,914 AS SUBMITTED BY THE LEDGER ACCOUNT FOR THE FINANCIAL YEAR 2005 - 06 RELEVANT TO THE ASSESSMENT YEAR 2006 - 07 TO THE ASSESSEE - COMPANY . THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS THE SAME DIRECTORS AS THAT OF THE CREDI TOR WHO HAVE ALSO I.T.A.NO. 270/CTK/2010 2 SUBSTANTIAL INTEREST IN THE SAID CONCERN. ON BEING ASKED BY THE ASSESSING OFFICER AS TO WHY THE CREDIT BALANCE SHOULD NOT BE TREATED AS DEEMED DIVIDEND , THE ASSESSEE EXPLAINED THAT THE CREDIT BALANCE WAS DUE TODAY - TO - DAY TRANSACTIONS OF PURCHASE AND SALE OF AUTO SPARE PARTS AND THEREFORE, SECTION 2(22)(E) IS NOT APPLICABLE TO THE INSTANT CASE. THE ASSESSING OFFICER THOUGH NOT DISPUTED THE NATURE OF TRANSACTIONS AS TRADING TRANSACTIONS, RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SADHANA TEXTILE MILLS (P) LTD., 188 ITR 318 , WHERE IT HAS BEEN HELD THAT REGULAR SALE AND PURCHASE BETWEEN THE TWO SISTER CONCERNS ALSO ATTRACTS THE PROVISIONS OF SECTION 2(22)(E) , HE HAS HELD THE SURPLUS BALANCE IN THIS REGARD HITS THE PRO VISIONS OF SECTION 2(22)(E) AND THEREFORE, HE TREATED THE CREDIT BALANCE OF 26,81,296 AS DEEMED DIVIDEND SUBJECT TO THE ACCUMULATED PROFIT OF 63,75,869. HOWEVER, IN THE COMPUTATION OF INCOME 63,75,879 WAS ADDED BY THE ASSESSING OFFICER BY MISTAKE SUBSEQUENTLY RECTIFIED VIDE ORDER DT.23.1.2009 U/S.154 REVISING THE ADDITION TO 26,81,296. 3. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY . THE LEARNED CIT(A) OBSERVED THAT THE COPY OF THE LEDGER ACCOUNT SHOW REGULAR TRANSACTIONS OF PURCHASE AND SALE BETWEEN THE TWO CONCERNS AND SOMETIMES ON BEHALF OF THIRD PARTIES THROUGH JOURNAL ENTRIES. HE HAS FURTHER OBSERVED THAT THERE IS NOTHING ON RECORD OR IN THE ORDER OF THE ASSESSING OFFICER TO DISPROVE THAT THE CREDIT BALANCE APPEARING AT THE END OF THE YEAR ARISES FROM THE TRADING TRANSACTIONS WHICH HAS B EEN WIPED OUT IN THE FIRST WEEK OF THE FOLLOWING YEAR. CONSIDERING THE ABOVE FACTS , SUBMISSIONS OF THE ASSESSEE - APPELLANT BEFORE HIM AND PLACING RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. RAJ KUMAR , (318 ITR 462) AND CIT V. CREATIVE DYEING & PRINTING (P) LTD., (318 ITR 476), HE WAS OF THE VIEW I.T.A.NO. 270/CTK/2010 3 THAT IT IS NOT CORRECT TO BRING IN CREDIT BALANCES ARISING OUT OF REGULAR BUSINESS TRANSACTIONS BETWEEN SISTER CONCERNS TO THE AMBIT OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. TH EREFORE, HE DIRECTED THE AO TO DELETE THE IMPUGNED ADDITION OF 26,81,296, AGAINST WHICH THE REVENUE IS IN THE PRESENT APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LEARNED AR OF THE ASSESS EE SUBMITTED THAT THE AMOUNT IN QUESTION DID NOT REPRESENT A LOAN BUT THEY ARE TRADING TRANSACTIONS. WE FIND THAT SIMILAR CONTENTION WAS ALSO RAISED BEFORE THE LEARNED CIT(A) , WHO AFTER VERIFICATION OF EVIDENCE PRODUCED BY THE ASSESSEE - APPELLANT BEFORE HIM , HAS CATEGORICALLY OBSERVED THAT IT SHOWS REGULAR TRANSACTIONS OF PURCHASES AND SALES BETWEEN THE TWO CONCERNS AND SOMETIMES ON BEHALF OF THIRD PARTIES THROUGH JOURNAL ENTRIES. HE FURTHER OBSERVED THAT THE ASSESSING OFFICER HAS NOT DISPUTED THE NATURE OF TRANSACTIONS AS TRADING TRANSACTIONS. BEFORE US, THE LEARNED DR COULD NOT NEGATE SUCH OBSERVATION OF THE LEARNED CIT(A). IN THE CASE OF CIT V. RAJ KUMAR (318 ITR 462), HONBLE DELHI HIGH COURT HAS HELD THAT TRADE ADVANCE, WHICH IS IN THE NATURE OF MONEY T RANSACTED 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 HON BLE 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 THESE DECISIONS OF HONBLE DELHI HIGH COURT ARE CLEARLY APPLICABLE, AS RIGHTLY RELIED ON BY THE LEARNED CIT(A). WE FIND THAT THE LEARNED CIT(A) HAS CORRECTLY DISTINGUISHED ON FACTS THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SADHANA TEXTILE MILLS (P) LTD., 188 ITR 318 . THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IN ITS ENTIRETY, WE DO NOT F IND ANY INFIRMITY IN THE I.T.A.NO. 270/CTK/2010 4 IMPUGNED ORDER OF THE LEARNED CIT(A) ON THE ISSUE. WE CONFIRM THE SAME AND DISMISS THE APPEAL OF THE REVENUE. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER IS PRONOU NCED 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 - TAX, CIRCLE 1(1), BHUBANESWAR. 2 / THE RESPONDENT: M/S.BHAGIRATHI MEC HANICAL PRODUCTS (P) LTD., 208, BHAGAWAN TOWER, CUTTACK ROAD, BHUBANESWAR 751 006 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, [ ] SENIOR PRIVATE SECRETARY ( ), ( H.K.PADHEE ), SENI OR.PRIVATE SECRETARY.