Mokul International Ltd., V. ITO, Ward-5(4),

ITA 3047/DEL/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9859 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 03-09-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 04-07-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G S SAHOTA
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Additional evidence; Deemed dividend
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E DELHI) BEFORE SHRI A.D. JAIN AND SHRI A.K. GARODIA ITA NO. 3313(DEL)2005 ASSESSMENT YEAR 2001-02 INCOME TAX OFFICER, WARD 5(4), M/S. MOK UL INERNATIONAL LTD. NEW DELHI. V. C/O V.K.VERMA& CO.CAS C-37, CONNAUGHT PLACE, N.DELHI. ITA NO.3047(DEL)2005 ASSESSMENT YEAR 2001-02 M/S. MOKUL INTERNATIONAL LTD., INCOM E TAX OFFICER, C-37, CONNAUGHT PLACE, N.DELHI. V. WARD 5(4) , NEW DELHI. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI G.S. SAHOTA, SR. DR ASSESSEE BY: SHRI ASHWANI TANEJA, CA ORDER PER A.D. JAIN, J.M. ITA NO. 3313(DEL)2005: THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEA R 2001-02 TAKING THE FOLLOWING GROUNDS:- 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 47,61,186/- MADE ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE I .T. ACT, 1961? ITA NOS. 3313 & 3047(DEL)05 2 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE O F RS. 39,43,825/- OUT OF FOREIGN TRAVEL, BUSINESS PROMOTION, LOCAL TR AVEL EXPENSES IN VIOLATION OF RULE 46-A? 2. THE ASSESSING OFFICER MADE ADDITION OF RS. 47,61 ,186/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT. THE ASSESS EE HAD TAKEN UNSECURED LOANS FROM M/S. MOKUL OVERSEAS LTD. THE AO NOTICE D THAT SHRI MOHINDER SINGH SAHNI AND SMT. KULBEER KAUR SAHNI WERE HAVING 58% AND 42% OF SHAREHOLDING RESPECTIVELY IN M/S. MOKUL OVERSEAS LT D. THEY WERE ALSO HAVING SHAREHOLDING OF 22% AND 10% RESPECTIVELY IN THE ASSESSEE COMPANY, I.E., MOKUL INTERNATIONAL LTD.; THAT DURING THE YEA R, THERE WAS A CREDIT BALANCE OF RS.4,55,01,012/- OF MOKUL OVERSEAS LTD. AS ON 31 .03.2001 IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY; AND THAT ,ON TH E OTHER HAND, THE OPENING BALANCE AS ON 1.4.2000 WAS OF RS. 4,07,39,826/-. THE AO HELD THAT SHRI MOHINDER SINGH SAHNI WAS HAVING 58% SHARE IN M/S. M OKUL OVERSEAS LTD. WHO HAD GIVEN LOAN OR ADVANCE TO THE ASSESSEE COMPA NY IN WHICH SHRI MOHINDER SINGH SAHNI HAD A SUBSTANTIAL INTEREST OF 22% SHAREHOLDING; THAT THE PAYMENTS MADE BY M/S. MOKUL OVERSEAS LTD. TO TH E ASSESSEE COMPANY WERE COVERED IN THE DEFINITION OF DEEMED DIVIDEND , WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. ITA NOS. 3313 & 3047(DEL)05 3 3. BY VIRTUE OF THE IMPUGNED ORDER, THE LEARNED CIT (A) DELETED THE AFORESAID ADDITION. 4. AGGRIEVED, THE DEPARTMENT IS IN APPEAL. 5. THE LEARNED DR HAS ARGUED THAT THE LEARNED CIT(A ) HAS ERRED IN DELETING THE ADDITION OF RS. 47,61,186/- MADE ON AC COUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT; THAT AS PER THIS PROVISION, DIVIDEND INCLUDES ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WH ICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED OF ANY SUM, MADE AFTER 31 .5.1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES HOLDING NOT LESS THAN 10 PERCENT OF THE V OTING POWER. 6. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, HAS STRONGLY SUPPORTED THE IMPUGNED ORDER. IT HAS BEEN SUBMITT ED THAT THE PAYMENT IN QUESTION WAS NOT MADE FOR THE BENEFIT OF ANY SHAREH OLDER; THAT RATHER, IT WAS MADE FOR GENUINE BUSINESS REQUIREMENTS; THAT THE AM OUNT WAS UTILIZED BY THE ASSESSEE FOR SPECIFIC BUSINESS PURPOSES BY WAY OF P AYMENT TO SUPPLIERS, PAYMENT OF FREIGHT, PRINTING AND STATIONERY, SALARI ES, ETC.; THAT A PORTION OF THIS PAYMENT WAS LATER ON ADJUSTED, AS AVAILABLE F ROM THE DEBIT ENTRIES IN THE ACCOUNTS OF M/S. MOKUL OVERSEAS LTD.; THAT THE ASSE SSEE COMPANY WAS NOT A SHAREHOLDER IN M/S. MOKUL OVERSEAS LTD.; THAT THE PROVISIONS OF SECTION ITA NOS. 3313 & 3047(DEL)05 4 2(22)(E) OF THE ACT WERE NOT APPLICABLE; AND THAT , THEREFORE, THE LD. CIT(A) HAS CORRECTLY DELETED THE ADDITION. 7. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. UNDISPUTEDLY, THE ASSESSEE COMPANY IS NOT A SHAREHO LDER IN M/S. MOKUL OVERSEAS LTD., WHO ADVANCED THE AMOUNT. THEREFORE , THE PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE. MOREOVER, TH E MATTER, IT IS SEEN, IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE S PECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF BHAUMIC COLOUR. 8. IN VIEW OF THE ABOVE, FINDING NO MERIT IN THE GR OUNDS RAISED BY THE DEPARTMENT, THE SAME IS HEREBY REJECTED. 9. WITH REGARD TO GROUND NO.2, THE LEARNED DR HAS C ONTENDED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWAN CE OF RS.39,43,825/- OUT OF FOREIGN TRAVEL, BUSINESS PROMOTION AND LOCAL TRAVEL EXPENSES IN VIOLATION OF RULE 46 A OF THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE HAS, PER CONTRA, STRONGLY RELIED ON THE IMPUGNED ORDER. 10. IN THIS REGARD, THE CONTENTION OF THE DEPARTMEN T IS FOUND TO BE INCORRECT. A PERUSAL OF THE IMPUGNED ORDER SHOWS (PARA 3.2.THEREOF), THAT THE ADDITIONAL EVIDENCE WAS CONFRONTED TO THE AO AN D THE AO FILED HIS REMAND REPORT THEREOF. IT WAS ONLY THEREAFTER THA T THE CIT(A) ADMITTED SUCH EVIDENCE. IN PARA 3.4 ALSO, WITH REGARD TO FOREIGN TRAVEL EXPENSES, THE LD. ITA NOS. 3313 & 3047(DEL)05 5 CIT(A) HAD OBSERVED THAT THE AO DID NOT POINT OUT T O THE ASSESSEE AS TO WHICH EVIDENCE IN RESPECT OF FOREIGN TRAVEL EXPENSE S HAD NOT BEEN FILED BEFORE HIM; AND THAT IT WAS A FIT CASE FOR ADMISSIO N OF ADDITIONAL EVIDENCE. 11. IN VIEW OF THE ABOVE, FINDING NO MERIT THEREIN, GROUND NO.2 RAISED BY THE DEPARTMENT IS REJECTED. ITA NO.3047(DEL)2005: 12. THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YE AR 2001-02 RAISING THE FOLLOWING GROUNDS:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ITO IS NOT JUSTIFIED IN MAKING AN ADDITION OF RS.13,16,539/- IN THE FORE IGN TRAVEL EXPENSES CLAIMED BY THE APPELLANT. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ITO IS NOT JUSTIFIED IN MAKING AN ADDITION OF RS. 63,925/- IN BANK INTER EST EXPENSES CLAIMED BY THE APPELLANT. 13. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASS ESSEE HAS STATED AT THE BAR THAT GROUND NO.2 IS NOT PRESSED. REJECTED AS NOT PRESSED. 14. APROPOS GROUND NO.1, THE AO MADE DISALLOWANCE O UT OF FOREIGN TRAVEL EXPENSES CONCERNING MRS. M.S. SAHNI . THE LEARNED COUNSEL HAS SUBMITTED AS HAS ALSO BEEN STATED IN THE BRIEF SYN OPSIS FILED BEFORE US, THAT ITA NOS. 3313 & 3047(DEL)05 6 MRS. SAHNI WAS ALSO A DIRECTOR OF THE ASSESSEE COMP ANY AND ,THEREFORE, THE DISALLOWANCE WAS NOT PROPER. NOW IT IS SEEN THAT T HIS PLEA WAS NOT BEFORE THE AUTHORITIES BELOW. HOWEVER, THE DECISION AS TO WH ETHER MRS. SAHNI WAS A DIRECTOR AND PARTICULARLY WHETHER A WORKING DIRECTO R, WOULD BE ESSENTIAL TO DECIDE THE ISSUE AT HAND. THE MATTER IS, THEREFOR E, REMITTED TO THE FILE OF THE AO TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW ON F IRST DECIDING ON THE BASIS OF MATERIAL TO BE FILED BY THE ASSESSEE AS TO THE STATUS OF MRS. SAHNI AS DIRECTOR/WORKING DIRECTOR OF THE ASSESSEE COMPANY. 15. GROUND NO.1 IS,THEREFORE, FOR STATISTICAL PURPO SES, TREATED AS ACCEPTED. 16. IN THE RESULT, ITA NO. 3313(DEL)2005 FILED BY THE DEPARTMENT IS DISMISSED WHEREAS ITA NO.3047(DEL)2005 FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED, FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 03.09.2009. SD/- SD/- (A.K. GARODIA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 03.09.2009 *RM ITA NOS. 3313 & 3047(DEL)05 7 COPY FORWARDED TO: 1 INCOME TAX OFFICER, WARD 5(4), NEW DELHI. 2. M/S. MOKUL INERNATIONAL LTD. C/O V.K.VERMA& CO.C AS C-37, CONNAUGHT PLACE, N.DELHI. 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR