M/s. Rajendra R.Ahuja,HUF, Ahmedabad V. The Income tax Officer,Ward-11(4), Ahmedabad

ITA 3045/AHD/2010

• Counselvise Citation: 304520514 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 29-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV; T SANKAR SRDR
• Keywords: Deemed to accrue or arise in india; Fair market value; Deemed dividend
• Section: 68

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , .'# $ ,%& % ' BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER 1. ./ I.T.A.NO.3045/AHD/2010 - # ) # ) # ) # )/ // / A.Y. 2007-08 2. ./ I.T.A.NO.2943/AHD/2010 - # ) # ) # ) # )/ // / A.Y. 2007-08 1. RAJENDRAKUMAR R.AHUJA HUF, PROP.VARUN TEXTILES 102, NEW CLOTH MARKET O/S.RAIPUR GATE AHMEDABAD 2. INCOME TAX OFFICER WARD-11(4), AHMEDABAD # # # # / VS. 1. INCOME TAX OFFICER WARD-11(4), AHMEDABAD 2. RAJENDRAKUMAR R.AHUJA- -HUF, AHMEDABAD * %& ./+, ./ PAN/GIR NO. : AADHR 6107E ( *- / // / APPELLANTS ) .. ( ./*- / RESPONDENTS ) ASSESSEE BY : SHRI SANJAY R.SHAH, A.R. REVENUE BY : SHRI B.L.YADAV, SR.DR AND SHRI T.SANKAR, SR.DR #0 1 & / / / / DATE OF HEARING : 01/08/2012 2') 1 & / DATE OF PRONOUNCEMENT : 03/08/12 %3 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THESE TWO APPEALS ARE THE CROSS-APPEALS RESPECTIV ELY FILED BY THE ASSESSEE AND THE REVENUE ARISING FROM THE ORDER OF THE LEARNED CIT(APPEALS)-XVI, AHMEDABAD DATED 16/08/2010. [A] ASSESSEES APPEAL (ITA NO.3045/AHD/2010) 2. ASSESSEE HAS RAISED THE CONCISE GROUNDS AS UN DER:- ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 2 - YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-XVI, AHMEDABAD , HEREINAFTER REFERRED TO LEARNED CIT(A), PRESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GRO UNDS OF APPEAL. THE GROUNDS OF APPEAL SET OUT HEREUNDER AR E INDEPENDENT OF AND WITHOUT PREJUDICE TO EACH OTHER. 1.0 LEARNED CIT(A) ERRED IN LAW AND ON THE FACTS I N CONFIRMING ADDITION OF RS.14,00,596 BY WAY OF DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. IT IS SUBMITTED THAT IT BE SO HELD NOW AN D ADDITION MADE BE DELETED. 1.1 WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT LEARNED A.O. AS WELL AS CIT(A) ERRED IN COMPUTING DEEMED DI VIDEND IN THE HANDS OF THE APPELLANT AT RS.14,00,596. 2.0 LEARNED CIT(A) FAILED TO APPRECIATE THE FACT T HAT THE AMOUNT ADVANCED BY M/S.R.KUMAR SPUN TEX PRIVATE LIMITED TO THE APPELLANT IS IN ORDINARY COURSE OF ITS BUSINESS AS THE APPELLANT IS THE DEALER IN THE PRODUCTS MANUFACTURED BY M/S.R.KU MAR SPUN TEX PRIVATE LIMITED. IT IS SUBMITTED THAT IT BE SO HEL D NOW. 3.0 LEARNED CIT(A) GROSSLY ERRED IN LAW AND ON THE FACTS IN UPHOLDING ADDITION U/S.2(22)(E) OF THE ACT FOR A SU M OF RS.14,00,596 IN SPITE OF THE FACT THAT APPELLANT IS NOT A REGISTERED SHAREHOLDER OF M/S.R.KUMAR SPUN TEX PRIVATE LIMITED AND HENCE ITS CASE IS SQUARELY COVERED IN FAVOUR OF THE APPEL LANT BY THE RATIO OF SPECIAL BENCH, MUMBAI ITAT DECISION IN THE CASE OF BHAUMIK COLOUR CO.PRIVATE LIMITED 120 TTJ 865. IT IS SUBMI TTED THAT IT BE SO HELD NOW. 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPOND ING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T.ACT DATED 21.12.2009 W ERE THAT THE ASSESSEE- HUF IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF CLOTH. IT WAS NOTED ON VERIFICATION OF UNSECURED LOANS THA T THE ASSESSEE HAD ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 3 - TAKEN LOAN FROM M/S.R.KUMAR SPUN TEX PVT.LTD. ACC ORDING TO AO, M/S.R.KUMAR SPUN TEX PVT.LTD. HAD ONLY SHARE CAPITA L OF RS.15 LACS. THE ASSESSEES INVESTMENT WAS FOUND TO BE RS.4 LACS , THEREFORE, ACCORDING TO AO, THE ASSESSEES PERCENTAGE OF SHARE-HOLDING W AS 26.67% PERCENT IN THE SAID COMPANY. THEREAFTER, THE AO HAS REPRODU CED SECTION 2(22)(E) OF IT ACT AND HELD THAT THE ASSESSEE WAS HAVING MOR E THAN 10% OF THE VOTING POWER IN THE SAID COMPANY, THEREFORE THE PRO VISIONS OF DEEMED INCOME WERE TO BE ATTRACTED AND, THEREAFTER THE ADD ITION WAS MADE AS UNDER:- SINCE THE ASSESSEE HAS NOT SUBMITTED ANY DETAILS A S CALLED FOR IN RESPONSE TO THE ABOVE SHOW CAUSE TILL DATE, IT IS C LEAR THAT THE ASSESSEE HAS NO EXPLANATION TO OFFER AND THEREFORE, I PROCEED TO INVOKE THE PROVISIONS OF SECTION 2(22)(E) OF THE AC T. DURING THE A.Y. 2007-2008 HE MAXIMUM CREDIT BALANCE OF LOAN RE CEIVED FROM M/S.R. KUMAR SPUN TEX PVT.LTD. IN THE BOOKS OF THE ASSESSEE IS RS.41,62,995/- AND M/S.R.KUMAR SPUN TEX PVT.LTD., H AS RESERVE AND SURPLUS TO THE TUNE OF RS.10,35,586/- AND PROFI T FOR THE YEAR UNDER CONSIDERATION OF RS.3,65,010/-. I THEREFORE, ADD AN AMOUNT OF RS.14,00,596/- I.E. (RS.10,35,586 + RS.3,65,010) AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. UNDER THE CIRCUM STANCES I AM ALSO SATISFIED THAT THE ASSESSEE HAS SUBMITTED INAC CURATE PARTICULARS OF INCOME AND THEREBY CONCEALED THE INC OME. THEREFORE, PENALTY PROCEEDINGS U/S.274 R.W.S. 271(1 )(C) IS INITIATED SEPARATELY. 4. BEFORE LD.CIT(A), IT WAS PLEADED THAT THE IN VESTMENT WAS IN THE NAME OF THE FATHER, NAMELY, MR.RAMKRISHNA AHUJA AND THE ASSESSEE IS NOT THE REGISTERED SHARE-HOLDER. SECOND ARGUMENT WAS T HAT THERE WAS BUSINESS TRANSACTION BETWEEN THE ASSESSEE AND THE S AID COMPANY, THEREFORE THE NATURE OF THE TRANSACTION WAS NOT LOA N TRANSACTION. ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 4 - HOWEVER, THE LD.CIT(A) WAS NOT CONVINCED AND UPHELD THE ACTION OF THE AO AS FOLLOWS:- 2.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE AO. THE FACT OF HAVING TAKEN LO AN IS NOT DENIED. THE ONLY ARGUMENT OF THE APPELLANT IS THAT THE APPE LLANT HAD MADE THE INVESTMENT OF SHARES IN THE COMPANY BUT THE SHA RES ARE REGISTERED IN THE NAME OF RAMKRISHNA AHUJA. I DO N OT AGREE WITH THE APPELLANT THAT BY THIS MANIPULATION, THE APPELL ANT CAN COME WITHIN THE PURVIEW OF THE DECISION RELIED UPON BY T HE APPELLANT. EVEN IF THE SHARES ARE IN THE NAME OF MR.RAMKRISHNA R AHUJA STILL. THE SHARES HAVE BEEN PURCHASED BY THE APPELLANT FRO M RAMKRISHNA AHUJA AND SIMPLY BECAUSE THESE SHARES AR E NOT TRANSFERRED IN ITS NAME, THE APPELLANT IS THE BENEF ICIAL OWNER, THE APPELLANT CANNOT ESCAPE FROM BEING TAXED AS DEEMED DIVIDEND. THE APPELLANT IS NOT AN INDEPENDENT SHAREHOLDER. T HE COMPANY IS CLOSELY HELD COMPANY MANAGED BY THE FAMILY MEMBERS OF THE APPELLANT HUF AND HENCE THE DECISION OF THE HONORAB LE SPECIAL BENCH MUMBAI QUOTED BY THE APPELLANT ABOVE CANNOT C OME TO ITS RESCUE. IN FACT THIS IS A FIT CASE FOR APPLY THE D ECISION OF HON'BLE SUPREME COURT IN THE CASE OF MC DOWEL (154 ITR 148) . HENCE THE ADDITION MADE BY THE AO IS CONFIRMED AD THIS GROUN D OF APPEAL IS DISMISSED. 5. FROM THE SIDE OF THE APPELLANT-ASSESSEE, LD.AR MR.SANJAY R.SHAH HAS RAISED FEW POINTS. HE HAS INFORMED THAT THE CA LCULATION OF THE DEEMED DIVIDEND ITSELF WAS INCORRECT. ACCORDING TO THE POSITION OF THE ACCOUNTS, THE SURPLUS OF THE ACCUMULATED PROFIT AS ON 31.3.2006 WAS ONLY RS.4,61,454/-. LD.AR HAS THEN INFORMED THAT THE ACCUMULATED PROFIT AS ON 31.3.2007 WAS ONLY RS.10,35,586/-. THE AO HAS WRONGLY COMPUTED THE DEEMED DIVIDEND AT RS.14,00,596/-. LD.AR HAS A LSO ARGUED THAT WITHOUT PREJUDICE TO THE REST OF THE ARGUMENTS, IF AT ALL, THE AO WANTED TO ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 5 - INVOKE THE PROVISIONS OF SECTION 2(22)(E) OF THE AC T, THEN THE ACCUMULATED PROFIT FOR THE YEAR UNDER CONSIDERATION COULD HAVE BEEN TAXED AND THAT TOO UPTO THE PERCENTAGE OF THE SHAR E-HOLDING OF THE ASSESSEE. THE SECOND ARGUMENT WAS THAT THE SHARES WERE NOT REGISTERED IN THE NAME OF THE ASSESSEE BUT IN THE NAME OF HIS FAT HER, NAMELY SHRI RAMKRISHNA AHUJA. IT WAS WRONG ON THE PART OF THE AO TO HOLD THAT THE ASSESSEE WAS A REGISTERED SHARE-HOLDER OF THOSE SHA RES. FOR THIS LEGAL PROPOSITION RELIANCE WAS PLACED ON CIT VS. C.P. SAR ATHY MUDALIAR (1972) 83 ITR 170 (SC). THEN, LD.AR HAS PLEADED THAT AN ACTION CAN BE TAKEN ONLY IF THE SHARE-HOLDER IS BOTH BENEFICIAL AS WELL AS REGISTERED SHARE- HOLDER. FOR THIS LEGAL PROPOSITION, RELIANCE WAS P LACED ON ASST.CIT VS. BHAUMIK COLOUR (P) LTD. (2009) 120 TTJ (MUMBAI) (S B) 865. 6. FROM THE SIDE OF THE REVENUE, LD.SR.DRS MR.T.SAN KAR & MR.B.L.YADAV APPEARED. RELIANCE WAS PLACED ON THE VIEW TAKEN BY THE AO AND LD.CIT(A). IT WAS PLEADED THAT THE SAID A DVANCE WAS NOTHING BUT IN THE NATURE OF DISTRIBUTION OF DIVIDEND EITHE R TO SHARE-HOLDER OR THE RELATIVES OF SHARE-HOLDER, THEREFORE THE AO HAD RIG HTLY INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF IT ACT. THE ASS ESSEE HAS MANAGED THE ACCOUNTS IN SUCH A MANNER THAT THE INVESTMENT WAS M ADE IN SHARES THROUGH AN INDIVIDUAL BUT THE AMOUNT OF INVESTMENT BELONGED TO THE ASSESSEE, THEREFORE, THE ASSESSEE HAPPENED TO BE TH E BENEFACTOR TO BE HELD AS REGISTERED AS ALSO BENEFICIAL SHARE-HOLDER OF TH E SAID COMPANY. ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 6 - 7. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE ALSO CAREFULLY PERUSED THE CONNECTED DOCUMENTS IN THE LI GHT OF THE CASE-LAW CITED. THE FIRST PLANK OF ARGUMENT AS NOTED BY U S IS THAT THE ASSESSEE- HUF HAD BUSINESS TRANSACTION WITH THE SAID COMPANY. FACTS OF THE CASE HAVE REVEALED THAT M/S.R.KUMAR SPUN TEX PVT.LTD. HAS MANUFACTURED THE GREY CLOTH AND IT WAS SOLD THROUGH VARUN TEXTIL E UNDER PROPRIETORSHIP OF THE ASSESSEE-HUF. IN THIS REGARD, CORRESPONDI NG COPIES OF ACCOUNTS HAVE BEEN PLACED ON RECORD. OUR ATTENTION HAS BE EN DRAWN THAT IN THE BOOKS OF M/S.R.KUMAR SPUN TEX PVT.LTD. UNDER THE LI ST OF SUNDRY DEBTORS THE NAME OF THE ASSESSEE AS PROPRIETOR OF VARUN TEX TILE HAS APPEARED AND AS ON THE ACCOUNTING PERIOD THE OUTSTANDING BALANCE WAS RS.15,55,953/-. OUR ATTENTION HAS FURTHER BEEN DRAWN THAT THE IMPUG NED AMOUNT OF RS.29,26,805/- WHICH WAS TREATED AS LOAN BY THE A O IN FACT WAS A TRADE ADVANCE TO THE ASSESSEE. THIS FACT HAS BEEN ASCERT AINED BY EXAMINING THE ANNEXURES OF THE BALANCE-SHEET THROUGH WHICH THE O THER ADVANCES AND TRADE ADVANCES WERE GROUPED TOGETHER AND THE NAME OF VARUN TEXTILE (PROPRIETOR-ASSESSEE) HAD APPEARED DISCLOSING AN OU TSTANDING BALANCE OF RS.29,26,805/-. ON THE BASIS OF SUCH EVIDENCES, S UCH AS, CURRENT ACCOUNT AND THE NATURE OF THE TRANSACTION CARRIED OUT BETWE EN THE TWO PARTIES, IT WAS ASCERTAINED THAT THE IMPUGNED AMOUNT WAS NOT SI MPLY A LAN AMOUNT AS PRESUMED BY THE AO. IN THIS CONNECTION, WE H AVE PERUSED THE CASE LAW VIZ. DY.CIT VS. LAKRA BROTHERS OF ITAT CHANDIG ARH A BENCH REPORTED AT (2007) 106 TTJ (CHD.) 250, WHEREIN IT W AS HELD THAT THE ADVANCE WERE MADE DURING THE ORDINARY COURSE OF BUS INESS FOR BUSINESS EXPEDIENCY, THEREFORE, DID NOT CONSTITUTE LOAN AS INCORPORATED FOR THE ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 7 - PURPOSE OF INVOCATION OF SECTION 2(22)(E) OF IT ACT . FOLLOWING THIS DECISION, WE HEREBY HOLD THAT THE AOS ACTION WAS U NWARRANTED. 8. THE NEXT PLANK OF ARGUMENT OF THE APPELLANT IS T HAT THE SHARES WERE NEITHER IN THE NAME OF THE ASSESSEE-HUF NOR IN THE NAME OF INDIVIDUAL, I.E. SHRI RAJENDRAKUMAR R.AHUJA. BUT AS PER THE ADMITTED FACT, THE SHARES WERE IN THE NAME OF THE FATHER NAMELY, SHRI RAMKRISHNA AHUJA. IN THIS REGARD, WE HAVE PERUSED THE DECISION OF C.P . SARATHY MUDALIAR (SUPRA), WHEREIN THE HONBLE SUPREME COURT HAS OPIN ED THAT A SHARE- HOLDER FOR THE PURPOSE OF SECTION 2(6A)(E) REFERS TO ONLY REGISTERED SHARE-HOLDER AND NOT BENEFICIAL OWNERS OF THE SHARE S. RATHER, IT WAS OPINED THAT SHARES ACQUIRED BY MEMBERS OF HUF BY UT ILIZING HUF FUNDS, THEN AN HUF CANNOT BE SHAREHOLDER OF THE COMPANY. IT WAS CONCLUDED BY THE HONBLE COURT THAT IT WAS ONLY THE LOAN GRAN TED TO THE MEMBERS WHO IN TURN WERE HOLDING THE SHARES. IN THIS REGA RD, OUR ATTENTION HAS ALSO BEEN DRAWN ON THE DECISION OF M/S.BHAUMIK COLO UR CO.PRIVATE LIMITED(SUPRA), WHEREIN THE RESPECTED SPECIAL BENCH HAS OPINED THAT FOR THE PURPOSE OF SECTION 2(22)(E) THE TERM SUCH SHAR EHOLDER, OCCURRING IN THE LAST LIMB, MUST BE BOTH BENEFICIAL AND REGISTER ED SHAREHOLDER. IN THAT CASE, IT WAS HELD THAT LOAN TO SHAREHOLDER VIS--VI S CONCERN IN WHICH SHAREHOLDER IS A MEMBER THEN DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE L ENDER COMPANY AND NOT IN THE HANDS OF THE BORROWING CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER. KEEPING THAT LEGAL ASPECT IN MIND, THE HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANKITECH (P) LTD. (20 11)57 DTR 345 ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 8 - (DELHI) HAS HELD THAT QUOTE THUS, BY A DEEMING PROVISION, IT IS THE DEFINITION OF DIVIDEND WHICH IS ENLARGED. LEGAL FI CTION DOES NOT EXTEND TO SHAREHOLDER. KEEPING IN MIND THIS ASPECT, THE CO NCLUSION WOULD BE OBVIOUS, VIZ., LOAN OR ADVANCE GIVEN UNDER THE COND ITIONS SPECIFIED UNDER S. 2(22)(E) WOULD ALSO BE TREATED AS DIVIDEND. THE FICTION HAS TO STOP HERE AND IS NOT TO BE EXTENDED FURTHER FOR BROADENI NG THE CONCEPT OF SHAREHOLDERS BY WAY OF LEGAL FICTION. IT IS A COMM ON CASE THAT ANY COMPANY IS SUPPOSED TO DISTRIBUTE THE PROFITS IN TH E FORM OF DIVIDEND TO ITS SHAREHOLDERS/MEMBERS AND SUCH DIVIDEND CANNOT BE GI VEN TO NON- MEMBERS. THE SECOND CATEGORY SPECIFIED UNDER S.2(2 2)(E) VIZ., A CONCERN (LIKE THE ASSESSEE HEREIN), WHICH IS GIVEN THE LOAN OR ADVANCE IS ADMITTEDLY NOT A SHAREHOLDER/MEMBER OF THE PAYER CO MPANY. THEREFORE, UNDER NO CIRCUMSTANCE, IT COULD BE TREATED AS SHARE HOLDER/MEMBER RECEIVING DIVIDEND. IF THE INTENTION OF THE LEGISL ATURE WAS TO TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HANDS OF DEEM ING SHAREHOLDER, THEN THE LEGISLATURE WOULD HAVE INSERTED DEEMING PR OVISION IN RESPECT OF SHAREHOLDER AS WELL, THAT HAS NOT HAPPENED. UNQUOTE. RESPECTFULLY FOLLOWING THESE DECISIONS, WE HEREBY HOLD THAT BECA USE OF THIS LEGAL ASPECT AS WELL THE AO HAS WRONGLY INVOKED THE PROVI SIONS OF SECTION 2(22)(E) OF IT ACT IN THE HANDS OF THE ASSESSEE. 9. LASTLY, THE MANNER IN WHICH THE AO HAD ARRIV ED AT THE FIGURE OF DEEMED DIVIDEND APPEARS TO BE INCORRECT BECAUSE IN THE CASE OF ITO VS. GORDHANDAS KHIMJI OF ITAT COCHIN BENCH REPORTED AT (1985) 11 ITD 158 (COCH), WHEREIN THE VIEW EXPRESSED WAS THAT, QU OTE ONLY THE ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 9 - ADVANCES OR LOANS TO THE EXTENT TO WHICH THEY WERE BACKED UP BY ACCUMULATED PROFITS, AS REDUCED BY EARLIER ADVANCES OR LOANS COULD BE TREATED AS DEEMED DIVIDEND. UNQUOTE. IN THE LIGHT OF THE ABOVE DISCUSSION, WE HEREBY CONCLUDE THAT THE AO HAS WRON GLY INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF IT ACT, HENCE WE HEREBY REVERSE THE FINDINGS OF THE AUTHORITIES BELOW AND DIRECT TO DEL ETE THE ADDITION. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. [B] REVENUES APPEAL (ITA NO.2943/AHD/2010) 11. REVENUE HAS RAISED THE FOLLOWING GROUNDS IN I TS APPEAL:- (1) THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.2 LACS MADE BY THE AO U/S.68 OF THE I.T. ACT WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. (1.1) THE LD.CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT, DESPITE ADEQUATE OP PORTUNITY HAVING BEEN ALLOWED BY THE AO, THE ASSESSEE COULD NOT DISC HARGE THE ONUS OF ESTABLISHING THE CREDITWORTHINESS OF THE CREDITO R AND THE GENUINENESS OF THE LOAN. (2) THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.94,843/- MADE BY THE AO ON ACCOUNT OF MEDICAL EXPENSES WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. (2.1) THE ASSESSEE HAS FAILED TO FURNISH EVIDENCES BEFORE THE ASSESSING OFFICER TO SUBSTANTIATE ITS CLAIM BUT SUB MITTED RELEVANT BILLS BEFORE THE LD.CIT(A) DURING APPELLATE PROCEED INGS. THE STATEMENT OF THE CIT(A) THAT THE EVIDENCE FILED BEF ORE HIM WERE ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 10 - GIVEN TO THE A.O. DURING THE REMAND PROCEEDINGS WAS FACTUALLY INCORRECT. THE CIT(A) SHOULD HAVE GIVEN OPPORTUNIT Y TO THE ASSESSING OFFICER TO VERIFY ASSESSEES CLAIMS BASED ON FRESH EVIDENCE FILED BEFORE THE CIT(A) AND ADMITTED BY HI M. THUS, THE ACTION OF CIT(A) IS AGAINST THE PRINCIPLES OF NATUR AL JUSTICE AND RULE 46A WHICH REQUIRES CIT(A) NOT TO ADMIT FRESH E VIDENCE AND IF HE DESIRES TO ADMIT, HE SHOULD GIVE AN OPPORTUNITY TO THE ASSESSING OFFICER TO BE HEARD AND FILE WRITTEN SUBMISSIONS OR OBJECTIONS. HENCE, THE DECISION OF CIT(A) IS AGAINST THE RULES OF JUSTICE, RULE OF EVIDENCE AND RULE 46A. THEREFORE, THE DECISION OF THE LD.CIT(A) IS NOT ACCEPTABLE. (3) THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.6,33,642/- MADE BY THE AO U/S.40A(2) (B) OF THE ACT ON ACCOUNT OF INFLATED EXPENSES IN RESPECT OF PURCH ASE OF CLOTH AND JOB CHARGES WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN T HE CASE OF CORONATION FLOUR MILLS VS. ACIT 20 DTR 312. 12. APROPOS TO GROUND NOS.1 & 1.1, IT WAS NOTED BY THE AO THAT AN UNSECURED LOAN OF RS.2 LACS WAS RECEIVED FROM SHRI SATISH U.SHUKHAWANI. ACCORDING TO AO, THE ASSESSEE HAS NO T DISCHARGED THE ONUS OF PROVING THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION. IN THE RESULT, THE SAID AMOUNT WAS TAXED BY INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT. 13. WHEN THE MATTER WAS CARRIED BEFORE THE LD.CIT(A ), A REMAND REPORT WAS CALLED FOR AND AFTER CONSIDERING THE ASSESSEES REPLY, IT WAS HELD AS UNDER:- 3.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE AO. THE CONFIRMATION WAS GIVEN EARLIER. THE CONFIRMATION HAD ADDRESS AND PAN NUMBER. THEREFORE , IT WAS THE ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 11 - DUTY OF THE AO TO MAKE FORMAL INQUIRY IF CONSIDERE D NECESSARY. IN THE REMAND REPORT, THE AO HAS ADMITTED THAT IT HAS RECEIVED THE LETTER DATED 11.12.2009 AND 16.12.2009. IT IS CLEA R THAT THE APPELLANT HAD SUBMITTED THE CONFIRMATION OF THIS PA RTY. WITHY THE LETTER DATED 16.12.2009, WHICH CONTAINED THE FULL A DDRESS, PAN NUMBER. IN VIEW OF THIS THE ONUS HAD SHIFTED TO TH E AO. HENCE THE ADDITION MADE BY THE AO IS NOT CORRECT. THE ADDIT ION IS DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 14. WE HAVE HEARD BOTH THE SIDES. FROM THE SIDE O F THE REVENUE, THE MAIN OBJECTION WAS THAT THE CONNECTED EVIDENCES, CO NFIRMATION LETTER, ETC. WERE FILED BY THE ASSESSEE BEFORE LD.CIT(A) INSTEAD OF FILING THOSE EVIDENCES AT THE ASSESSMENT STAGE. HOWEVER, WE FIN D NO FORCE IN THIS OBJECTION OF THE DR BECAUSE A REMAND REPORT WAS DUL Y CONSIDERED AND THEREAFTER LD.CIT(A) HAS NOTED THAT IN THE REMAND R EPORT IT WAS ADMITTED BY THE AO THAT THE CONFIRMATION LETTER AND SUPPORTI NG EVIDENCES WERE RECEIVED AT THE ASSESSMENT STAGE. A COPY OF THE REMAND REPORT HAS ALSO BEEN FILED BEFORE US IN THE COMPILATION ON PAGES 59 TO 63. FURTHER, ON PAGE 81, A LETTER IS PLACED ON RECORD THROUGH WHICH THE PAN OF THE DEPOSITOR HAS BEEN INFORMED TO AO. OUR ATTENTION HAS ALSO BEEN DRAWN ON THE CORRESPONDENCE AND THE SUBMISSIONS TO WHICH IT WAS INTIMATED THAT THE SAID AMOUNT OF RS.2 LACS WAS TRANSACTED TO UNI ON BANK OF INDIA BY AN ACCOUNT PAYEE CHEQUE. THE TOTALITY OF THE CI RCUMSTANCES HAVE THUS DEMONSTRATED THAT LD.CIT(A) HAS RIGHTLY DELETED THE ADDITION. GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE HEREBY DIS MISSED. ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 12 - 15. APROPOS TO GROUND NOS.2 & 2.1, THE AO HAS NOT ED THAT A MEDICAL EXPENSE WAS CLAIMED WHICH ACCORDING TO HIM WAS PERS ONAL IN NATURE, THEREFORE IN THE ABSENCE OF ANY MEDICAL BILL THE SA ME WAS DISALLOWED. 16. WHEN THE MATTER WAS CARRIED BEFORE THE LD.CIT(A ) ON THE BILLS AND VOUCHERS, IT WAS HELD THAT THE EXPENDITURE WAS IN R ESPECT OF AN EMPLOYEE, THEREFORE INCURRED FOR THE BUSINESS PURPOSES. THE FINDINGS OF LD.CIT(A) ARE REPRODUCED BELOW:- 4.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE AO. THE APPELLANT HAS SUBMITTED THE BILLS DURING THE APPELLATE PROCEEDINGS. THE DETAILS FILE D BY THE APPELLANT WERE GIVEN TO THE AO DURING THE REMAND P ROCEEDINGS. IT IS CLEAR THAT THESE EXPENSES ARE IN RESPECT OF EMPL OYEES. THE AO HAS NOT DISPUTED THIS AND HENCE THIS EXPENDITURE IS ALLOWABLE. IN VIEW OF THE ABOVE, THE DISALLOWANCE IS DELETED AND THE GROUND OF APPEAL IS ALLOWED. 17. WE FIND NO FALLACY IN THE VIEW TAKEN BY LD.CIT( A) WHO HAS DULY CONSIDERED THE REMAND REPORT IN THE LIGHT OF THE CO RROBORATIVE EVIDENCE PERTAINING TO MEDICAL EXPENSES WERE DULY EXAMINED. RESULTANTLY, THIS GROUND OF THE REVENUE IS DISMISSED. 18. APROPOS TO GROUND NO.3, THE AO HAS NOTED THAT T HE ASSESSEE HAD MADE PAYMENT TO M/S.R.KUMAR SPUN TEX PVT.LTD. AND T HE SAID PAYMENT WAS COVERED U/S.40A(2)(B) OF THE IT ACT. IT WAS NO TED THAT PURCHASES OF CLOTH AND JOB CHARGES AMOUNTING TO RS.22,08,936/- A ND RS.41,27,486/- WERE RESPECTIVELY MADE TO THE SAID CONCERN. AO HA S CONCLUDED THAT 10% WAS EXCESSIVELY PAID AND CONSIDERING THE SAME AS UN REASONABLE PAYMENT ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 13 - HE HAS INVOKED THE PROVISIONS OF SECTION 40A(2)(B) AND, THEREFORE, TAXED RS.6,33,642/- IN THE HANDS OF THE ASSESSEE. THE M ATTER WAS CARRIED BEFORE THE LD.CIT(A). 19. IN RESPECT OF THIS ADDITION AGAIN LD.CIT(A) HAS EXAMINED THE REMAND REPORT AND THEREAFTER DECIDED IN THE FOLLOWI NG MANNER:- 6.2. DURING THE APPELLATE PROCEEDING, THE APPELLAN T STATED THAT IT HAS GIVEN COPIES OF BILLS TO THE AO IN RESPECT OF O UTSIDE PARTIES ALSO. FROM THERE IT IS CLEAR THAT THE PRICES PAID BY THE ASSESSEE IS LESS THAN THE PRICES PAID FOR SIMILAR JOBS TO THE O UTSIDE PARTIES. COPIES OF THESE BILLS WERE GIVEN TO THE AO DURING THE REMAND PROCEEDINGS. IN THE REMAND REPORT.THE AO STATED T HAT THE ASSESSEE HAD GIVEN ONLY FOUR PURCHASE BILLS OF VERY SMALL AMOUNTS. ALL BI8LL WERE OF RS.20,000 OR SO. THE ASSESSEE DI D NOT GIVE ANY PURCHASE BILLS IN RESPECT OF OTHER PARTIES. IN REP LY TO THE REMAND REPORT, THE APPELLANT STATED THAT THE APPELLANT HAS PAID MUCH LESS JOB CHARGES THAN OTHER CUSTOMERS. THE APPELLANT PA ID RS.4.50 PER METER, WHEREAS OTHER PARTIES PAID RS.4.75 PER METER TO ITS SISTER CONCERN. WITH RESPECT TO PURCHASE OF CLOTH. THE A PPELLANT STATED THAT IT HAS PAID MUCH LESS PRICE THAN THE OUTSIDE P ARTIES. 6.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND OBSERVATION OF THE AO. FOR MAKING DISALLOWANCE U NDER SECTION 40 A[2] [B], THE AO WHO HAS TO PROVE THAT THE PRIC E PAID BY THE ASSESSEE IS MORE THAN THE MARKET PRICE. VARIOUS CO URTS HAVE HELD THAT THE AO CANNOT DICTATE TO THE ASSESSEE AS TO H OW THE BUSINESS SHOULD BE DONE. HONBLE ITAT IN THE CASE OF BINIT CORPORATION [24 TTJ 571] HAS AFTER CONSIDERING VARIOUS JUDICIAL PRONOUNCEMENT STATED THAT FIRST OF ALL THE AO HAS TO SATISFY HIMSELF WHETHER THE EXPENDITURE ITSELF IS GENUINE OR NOT AN D IF IT IS GENUINE THEN FOR THE PURPOSE OF FINDING OUT THE PORTION OF DISALLOWANCE HE SHALL HAVE TO FIND OUT THE FAIR MARKET VALUE OF THE SERVICES AND THIS WOULD PRESUPPOSE THAT SERVICES ARE COMMONLY AVAILAB LE FOR WHICH MARKET VALUE CAN BE KNOWN. THEREAFTER THE AO SHAL L HAVE TO ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 14 - EVALUATE THE LEGITIMATE NEEDS OF THE BUSINESS AT A POINT OF TIME WHEN THE SERVICES WERE RENDERED AND THIS WOULD INVO LVE AN INQUIRY AS A BUSINESS MAN BECAUSE IN TIMES OF DIRE NEED SER VICES ARE OBTAINED EVEN AT HIGHER COST, THE ULTIMATE AIM BEIN G TO EARN PROFIT OR TO MAINTAIN THE BUSINESS RELATIONS. ACCORDING T O THE ITAT THE AO SHALL HAVE TO FIND OUT WHAT BENEFIT IS DERIVED B Y THE ASSESSEE AND THIS WOULD NOT NECESSARILY CONFINE TO THE YEAR IN QUESTION BUT SHALL HAVE TO TAKE OVERALL PICTURE DEPENDING UPON T HE FACTS OF EACH CASE. EVEN THE BENEFIT ACCRUING TO THE ASSESSEE SH ALL HAVE TO BE EVALUATED. EVEN THE BENEFIT ACCRUING TO THE ASSESS EE SHALL HAVE TO BE EVALUATED. THIS AGAIN MAY NOT BE CONFINED TO TH E PERIOD OF ACCOUNTING YEAR ONLY AND AGAIN IT WOULD NOT BE ESSE NTIAL THAT BENEFIT MUST BE IN THE REVENUE FIELD. THEREAFTER A CCORDING TO THE ITAT THE AO SHALL HAVE TO GIVE REASONABLE OPPORTUN ITY TO THE ASSESSEE TO REBUT HIS FINDING. IF COMPARABLE INSTA NCES OF OTHER PARTIES ARE NOT AVAILABLE AT LEAST COMPARE WITH EAR LIER YEAR. SIMPLY ADHOC DISALLOWANCE CANNOT BE STAND THE TEST OF APPEAL. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE AO HAS BRO UGHT NO MATERIAL ON RECORD TO PROVE THAT THE ASSESSEE HAS PAID HIGHE R PRICE FOR JOB CHARGES AND MORE FOR PURCHASES THAN THE FAIR MARKET VALUE. IN VIEW OF THIS, I AGREE WITH THE APPELLANT THAT THE D ISALLOWANCE IS AD HOC AND WITHOUT BRINGING ANY MATERIAL ON RECORD. T HE DISALLOWANCE IS DELETED AND THIS GROUND OF APPEAL I S ALLOWED. 20. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE HAVE NOTED THAT THE AO HAS MERELY ESTIMATED THE IMPUGNED DISALLOWAN CE WITHOUT PLACING ON RECORD ANY COMPARABLE INSTANCE TO ESTABLISH THAT THE PAYMENT MADE TO THE SAID CONCERN WAS EITHER EXCESSIVE OR UNREASONAB LE. ON THE OTHER HAND, FROM THE SIDE OF THE ASSESSEE, CERTAIN EVIDEN CES HAVE BEEN PLACED ON RECORD TO ESTABLISH THAT THE SAID PAYMENTS TOWAR DS JOB CHARGES OR PURCHASES, BOTH WERE AT PAR WITH THE OTHER NON-RELA TED CONCERNS. A COMPARISON OF JOB CHARGES IS PLACED ON RECORD TO ES TABLISH THAT THE SAME PERCENTAGE OF JOB CHARGE WAS PAID TO OTHER PARTIES TO WHOM THE JOB ITA NO.3045/AHD/2010 (BY ASSESSEE) AND ITA NO.2943/AHD/2010 (BY REVENUE) RAJENDRA R.AHUJA HUF VS. ITO ASST.YEAR 2007-08 - 15 - CHARGES WERE PAID. LIKEWISE, THE ASSESSEE HAS AL SO PLACED A COMPARISON STATEMENT OF THE PURCHASES TO DEMONSTRATE THAT THE SAME WERE AT PAR WITH OTHER PARTIES AS PER THE BILLS ON RECORD. WE THERE FORE CONCLUDE THAT LD.CIT(A) HAS RIGHTLY HELD THAT THE ONUS WAS ON THE AO TO PLACE ON RECORD CERTAIN MATERIAL TO ESTABLISH THAT THE ASSESSEE HAD MADE EXCESSIVE PAYMENT BUT NO SUCH MATERIAL WAS GATHERED BY THE AO , THEREFORE THE ACTION OF ADHOC DISALLOWANCE WAS BAD IN LAW. WE HO LD ACCORDINGLY AND DISMISS THIS GROUND OF THE REVENUE. 21. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED, WHEREAS REVENUES APPEAL IS DISMISSED. SD/- SD/- ( .'# $ ) ( ) %& ( A. MOHAN ALANKAMONY ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIA L MEMBER AHMEDABAD; DATED 03/ 08 /2012 4..#, .#../ T.C. NAIR, SR. PS %3 1 .5 6%5) %3 1 .5 6%5) %3 1 .5 6%5) %3 1 .5 6%5)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT 3. 7 / CONCERNED CIT 4. 7() / THE CIT(A)-XVI, AHMEDABAD 5. 5:; .# , , / DR, ITAT, AHMEDABAD 6. ; <0 / GUARD FILE. %3# %3# %3# %3# / BY ORDER, /5 . //TRUE COPY// = == =/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD