R.K. Auto Engineering Pvt. Ltd., Gurgaon V. ITO, New Delhi

ITA 305/DEL/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0011 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 23-04-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 19-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Assessee Lawyers: A K SRIVASTAVA
• Keywords: Deemed dividend; Reassessment proceedings
• Section: 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F :NEW DELHI BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 305 /DEL / 2012 ASSESSMENT YEAR: 2003 - 04 R.K. AUTO ENGINEERING PVT. LTD. VS. INCOME TAX OFFICER, C/O - MR. AJAY BANSAL 1810, WARD - 15(1), NEW DELHI SECTOR - 17, GURGAON (PAN: AADCR2396G ) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. A.K. SRIVASTAVA, FCA RESPONDEN T BY: SH. VIKRAM SAHAY, SR.DR DATE OF HEARING: 23.04.2015 DATE OF PRONOUNCEMENT: 06.05.2015 ORDER PER SHRI INTURI RAMA RAO, A.M. : THIS IS AN APPEAL FILED BY THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 2003 - 04 RAISING THE FOLLOWING GROUNDS OF APPEAL: I. LOWER AUTHORITIES HAVE PASSED THE ORDERS WHICH ARE AGAINST PROVISION OF INCOME TAX ACT, ARE AGAINST FACTS AND CIRCUMSTANCES OF THE CASE, ARE BASED UPON CONJECTURES AND SURMISES, ARE THEREFORE BAD IN LAW, VOID, ILLEGAL AND BEYOND JURISDICTION. II. LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ACTION OF INITIATION OF PROCEEDING U/S 147/148 BY ASSESSING OFFICER, WHICH IS BEYOND JURISDICTION OF ASSESSING OFFICER. III. LD. CIT(A) HAS GROSSLY ERRED IN CON FIRMING ADDITION MADE BY ASSESSING OFFICER OF RS. 4,00,000/ - ON ACCOUNT OF UNSECURED LOAN TAKEN BY APPELLANT FROM M/S PERFORMANCE TRADING AND INVESTMENT PVT. LTD. AND M/S NISHANT FINVEST PVT. LTD., WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD AGAINST TH E APPELLANT, THEREFORE ADDITION MADE IS ILLEGAL, AGAINST PROVISIONS OF INCOME TAX ACT, AGAINST FACTS & CIRCUMSTANCES AND IS BAD IN LAW. 2 ITA NO. 305/DEL/2012 ASSESSMENT YEAR: 2003 - 04 IV. LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING ADDITION MADE BY ASSESSING OFFICER OF RS. 27,00,000/ - U/S 2(22)(E) ON BASIS OF CONJECTURES & SURMISES. V. LD. CIT(A) HAS GROSSLY ERRED IN TREATING OUTSTANDING LIABILITY ON ACCOUNT OF CONSTRUCTION BILL OF M/S SETH KISHAN CHAND & ASSOCIATION FOR RS. 27,00,000/ - AS LOAN/ADVANCE AND THEREBY TREATING THE SAME AS DIVIDEND PROVISION OF LAW AND DECIDED CASES. VI. LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING ADDITION U/S 2(22)(E) PARTICULARLY WHEN THE ISSUE WAS NOT SUBJECT MATTER OF NOTICE U/S 147/148 OF INCOME TAX ACT. VII. APPELLATE RESERVES THE RIGHT OF ADDITION, DELETING OR MODIFYING ANY GROND OF A PPEAL BEFORE ITS DISPOSAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003 - 04 ON 21.11.2003 DECLARING INCOME OF RS. 3,36,246/ - . THIS RETURN HAS BEEN ACCEPTED UNDER SECTION 143(1) OF THE I NCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) ON 5 TH MARCH, 2004 AND THERE WAS NO SCRU TINY ASSESSMENT. SUBSEQUENTLY, ON THE RECEIPT OF INFORMATION FROM DIT(INVESTIGATION) THAT THE ASSESSEE COMPANY IS THE BENEFICIARY OF BOOK ENTRY PROVIDER FROM M/S MUKESH GUPTA GROUP, THE CASE WAS REOPENED BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT ON 26 TH MARCH, 2010. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE SUBMITTED THE ORIGINAL RETURN OF INCOME FILED MAY BE TREATED AS RETURNED FILED IN RESPONSE TO THE NOTICE UN DER SECTION 148 OF THE ACT AND FINALLY COMPLETED THE ASSESSMENT UNDER SECTION 143 (3) OF THE ACT AT THE TOTAL INCOME OF RS. 35,19,999/ - VIDE ORDER DATED 20 TH DECEMBER, 2010 AFTER MAKING ADDITION OF RS 4,00,000/ - BEING THE AMOUNT RECEIVED FROM THE ALLEGED EN TRY PROVIDER AND ANOTHER ADDITION OF RS. 27,00,000/ - AS DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. BEING AGGRIEVED BY THIS ORDER OF 3 ITA NO. 305/DEL/2012 ASSESSMENT YEAR: 2003 - 04 ASSESSMENT, THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT(A), WHO VIDE ORDER DATED 17.10.201 1 DISMISSED THE APPEAL BOTH ON T HE PRELIMINARY GROUND CHALLENGING IN THE REASSESSMENT PROCEEDINGS AND AS WELL AS ON THE MERITS OF ADDITION S . AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE US WITH THE PRESENT APPEAL. 3. THE LEARNED AUTHORIZED REPRESENTATIVE ARGUED THAT THE REASONS RECORDED UNDER SECTION 148 WERE FURNISHED TO THE ASSESSEE AFTER THE LAPSE OF SIX YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND THEREFORE, THE REASSESSMENT PROCEEDINGS ARE INVALID. HE PLACED STRONG RELIANCE ON THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF HARYANA ACRYLIC MANUFACTURING CO. VS. CIT, 308 ITR 38 IN SUPPORT OF THE ABOVE PROPOSITION. ON THE MERITS, I T WAS ARGUED ON BEHALF OF THE ASSESSEE COMPANY THAT IN RESPECT OF THE UNSECURED LOAN OF RS. 4,00,000/ - REC EIVED FR OM M/S NISHANT FINVEST P. LTD. AND M/S PERFORMANCE TRADING & INVESTMENT RS. 2 LAKHS EACH, THE ASSESSEE DISCHARGED ONUS THAT WAS LYING UPON IT BY FILLING THE CONFIRMATION LETTERS FROM THE RESPECTIVE CREDITORS AS WELL AS BY ESTABLISHING THEIR IDENT ITY AND GENUINENESS OF THE TRANSACTIONS . I N SUPPORT OF THIS , THE ASSESSEE HAD FILED BALANCE SHEET WHICH IS AT PAGE NOS. 21 TO 31 OF PAPER BOOK . IT WAS FURTHER PLEADED THAT THE LOANS WERE REPAID BY ACCOUNT PAYEE CHEQUES AND THE EVIDENCE IN THE FORM OF CERTIFICATE FROM THE BANKER IS FILED VIDE PAGE NO. 45 OF THE PAPER BOOK. IN RESPECT OF DEEMED DIVIDEND IT WAS ARGUED THAT THE AMOUNT WAS SHOWN AS PAYABLE TO M/S SETH 4 ITA NO. 305/DEL/2012 ASSESSMENT YEAR: 2003 - 04 KISHAN CHAND & ASSOCIATES PVT. LTD. FOR THE CONSTRUCTION O F INDUSTRIAL BUILDING AT PLOT 330, PHASE - II, UDYOG VIHAR, GURGAON . T HE COPY OF AGREEMENT ENTERED INTO WAS FILED VIDE PAGE NOS. 38 TO 43 OF THE PAPER BOOK. THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT HAS NO APPLICATION IN SUCH CASES. 4. ON T HE OTHER HAND, LEARNED DR VEHEMENTLY OPPOSED THE PLEA OF THE LEARNED AUTHORIZED REPRESENTATION THAT THE UNSECURED LOANS ARE GENUINE. HE SUBMITTED THAT THE UNSECURED LOANS CANNOT BE ACCEPTED IN THE LIGHT OF THE MATERIAL ON RECORD THAT M/S NISHANT FINVEST P. LTD. AND M/S PERFORMANCE TRADING & INVESTMENT ARE ONLY ENTRY PROVIDERS WHICH MEANS THAT THE MONEY IN CASH WAS P ROVIDED TO THEM BY THE ASSESSEE. T HE ASSESSEE IS SUPPOSED TO PROVE THE SOURCE F OR THIS CASH. HE FURTHER ARGUED THAT THE LOANS WERE ACCEPTED BY WAY OF CHEQUE ARE NOT SACROSANCT . IN RESPECT OF DEEMED DIVIDEND, I T IS SUBMITTED THAT THE PROVISIONS OF SECT ION 2(22)(E) OF THE ACT ARE APPLICABLE. HE PLACED STRONG RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, WE DEAL WITH THE PRELIMINARY GROUND OF APPEAL I.E. GROUND NO. 2, CHALLENGING THE JURISDICTION UNDER SECTION 147/148 OF THE ACT. IN OUR CONSIDERED OPINION, THE SUBMISSION OF LEARNED AUTHORIZED REPRESE NTATIVE IS THAT THE REASSESSMENT PROCEEDINGS ARE INVALID FOR THE REASON THAT THE REASON S RECORDED ARE SUPPLIED AFTER THE EXPIRY OF SIX YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, CANNOT BE ACCEPTED. THE HON BLE SUPREME COURT IN THE CASE OF 5 ITA NO. 305/DEL/2012 ASSESSMENT YEAR: 2003 - 04 G.K.N. DRIVE SHAFTS INDIA LTD. VS. ITO, 259 ITR 19, HELD THAT AFTER FILING THE RETURN OF INCOME, THE ASSESSING OFFICER IS DUTY BOUND TO FURNISH THE REASONS RECORDED WITHIN THE REASONABLE TIME , IF THERE IS A NY SUCH REQUEST FROM THE ASSESSEE. IN THIS CASE, THE NOTI CE WAS ISSUED UNDER SECTION 148 OF THE ACT ON 26 TH MARCH, 2010 AND THE ASSESSEE FILED A LETTER ON 15.04.2010 REQUESTING THE ASSESSING OFFICER TO TREAT THE ORIGINAL RETURN AS THE RETURN FILED IN RESPONSE TO THE NOTICE UNDER SECTION 148 OF THE ACT. THE ASSES SEE ALSO MADE A REQUEST VIDE LETTER DATED 15.04.2010 FOR FURNISHING THE REASONS RECORDED AND THE ASSESSING OFFICER FURNISHED THE REASONS RECORDED UNDER SECTION 148 OF THE ACT ON 10 TH AUGUST , 2010. THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSING OFFICER TO FURNISH THE REASO NS RECORDED ALONG WITH THE ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT. THE ASSESSEE HIMSELF COULD REQUEST FOR THE REASONS AFTER THE EXPIRY OF THE SAID PERIOD OF SIX YEAR AND THE REASONS WERE FURNISHED WITHIN A PERIOD OF LES S THAN 4 MONTHS. THIS CANNOT BE TREATED AS UNREASONABLE TIME AND THE RATIO LAID DOWN BY THE HON BLE DELHI HIGH COURT IN THE CASE OF HARYANA ACRYLIC MANUFACTURING CO. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THAT CASE, T HE REASONS WERE ASKED WITHIN THE PERIOD OF SIX YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND THE ASSESSING OFFICER FAILED TO FURNISH THE SAME BEFORE THE EXPIRY OF SIX YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THEREFORE, THE RATIO LAID DOWN IN HARYANA A CRYLIC MANUFACTURING CO. (SUPRA) IS NOT AT ALL 6 ITA NO. 305/DEL/2012 ASSESSMENT YEAR: 2003 - 04 APPLICABLE TO THE FACT OF THE PRESET CASE. HENCE, THE REASSESSMENT PROCEEDINGS ARE VALID IN LAW. 6. NOW, WE SHALL DEAL WITH THE MERITS OF THE ADDITION ON ACCOUNT UNSECURED LOANS. ADMITTEDLY, THE AMOUNT OF RS. 4,00,000/ - WAS RECEIVED , RS. 2 LAKHS EACH FROM M/S NISHANT FINVEST P. LTD. AND M/S PERFORMANCE TRADING & INVESTMENT BY ACCOUNT PAYEE CHEQUES A ND THE CONFIRMATION LETTERS HAD BEEN FILED . B UT IT DOES NOT MEAN THAT THE ASSESSING OFFICER IS PREVENTED FROM PR OBING THE MATTER FURTHER BASED ON THE INFORMATION FILED BY THE ASSESSEE. IT IS NOTICED BY THE ASSESSING OFFICER THAT THE TRANS ACTIONS IN QUESTION ARE MERELY BOOK ENTRIES AND THE ALLEGATION MADE AGAINST THE ASSESSEE COMPANY IS THAT THE ASSESSEE HAD PROVIDED CASH TO M/S NISHANT FINVEST P. LTD. AND M/S PE RFORMANCE TRADING & INVESTMENT, WHO AFTER DEPOSITING THE CASH IN THE BANK ACCOUNT HAD ISSUED CHEQUES IN FAVOUR OF THE ASSESSEE COMPANY WHICH MEANS THAT THE CASH DEPOSITED IN THE BANK ACCOUNT OF THOSE CONCERNS REALLY BELONGS TO THE ASSESSEE. THIS FACT IS PROVED BY DEPOSIT OF CASH IN EQUIVALENT AMOUNT IN THE BANK ACCOUNTS OF THOSE TWO CONCERNS PRECEDING THE ISSUE OF CHEQUES IN FAVOUR OF THE ASSESSEE . T HE APPELLANT FAILED TO REBUT THIS ALLEGATION. THE APPELLANT ALSO FAILED TO PRODUCE THE DIRECTORS OF THOSE CONCERNS BEFORE THE ASSESSING OFFICER. IN OTHER WORDS, THE APPELLANT ALSO FAILED TO PROVE THE GENUINENESS OF THE TR ANSACTIONS IN THE LIGHT OF THE FACT THAT THOSE CONCERNS AR E ALLEGED TO BE INDULGED IN PROVIDING BOOK ENTIRES . IT IS SETTLED PROPOSITION OF LAW THAT JUST BECAUSE CREDITS WERE ACCEPTED BY ACCOUNT 7 ITA NO. 305/DEL/2012 ASSESSMENT YEAR: 2003 - 04 PAYEE CHEQUES AND CONFIRMATION LETTERS WERE FILED, THE TRANSACTIONS CANNOT BE CALLED SACROSANCT. IN OUR CONSIDERED VIEW, THE ASSESSEE HAD FAILED TO DISCHARGE HIS ONUS THAT WAS LYING UPON IT IN PROVING THE CREDITS UNDER THE PROVISIONS OF SECTION 68 OF THE ACT AND THEREFORE, WE HEREBY CONFIRM THE ADDITION OF RS. 4 LAKHS. 7. AS REGARD THE ADDITION UNDER SECTION 2(22)(E) OF THE ACT IS CONCERNED, THE ADMITTED FACTS ARE THAT THE ASSESSEE HAS GIVEN BUILDING CONTRACT TO ONE OF HIS ASSOCIATE CONCERNS , NAMELY, M/S SETH KISHAN CHAND & ASSOCIATES VIDE AGREEMENT DATED 15 TH MAY, 2001 IN WHICH THE ASSESSEE IS SUBSTANTIALLY INTERESTED FO R CONSTRUCTION OF INDUSTRIAL BUILDING. IN TERMS OF THIS CONTRACT, THE SAID CONCER N M/S SETH KISHAN CHAND AND ASSOCIATES HAD RAISED A BILL FOR SUM OF RS. 27 LAKHS ON 15 TH MARCH, 2003 FOR THE WORK DONE . THIS IS SHOWN AS PAYABLE IN THE BOOKS OF THE APPELLANT FOR THE RELEVANT ASSESSMENT YEAR. THIS, ACCORDING TO THE ASSESSING OFFICER, CONSTITUTED A PAYMENT WITHIN THE PURVIEW OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT WHICH WAS UPHELD BY THE LEARNED CIT(A). AS STATED EARLIER, IT ONLY REPRESENTS BOOK ENTRY NO AC TUAL PAYMENT WAS INVOLVED. IN WHICH EVENT, THERE CANNOT BE A DEEMED DIVIDEND WITHIN THE MEANING OF PROVISIONS OF SECTION 2(22)(E) AS HELD BY THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SMT. SAVITHIRI SAM, 236 ITR 1003, WHEREIN IT WAS HELD VIDE PA GE NO. 1008 AS FOLLOWS: THAT APART, THE PROVISION OF LAW, NAMELY, SECTION 2(22)(E), WHICH WE HAVE ALREADY EXTRACTED ABOVE, SAYS THAT BY A FICTION DIVIDEND IS MADE TO INCLUDE ANY 8 ITA NO. 305/DEL/2012 ASSESSMENT YEAR: 2003 - 04 PAYMENT BY A COMPANY, ETC. THEREFORE, IT IS DIFFICULT FOR US TO INTRODUCE ANO THER FICTION IN RESPECT OF THE WORDS PAYMENT BY THE COMPANY BY CONSTRUING EVEN A TRANSFER ENTRY AS AMOUNTING TO PAYMENT. IN OTHER WORDS, WHEN SECTION 2(22)(E) ITSELF INTRODUCES A FICTION, IT IS IMPROPER FOR US TO INTRODUCE ANOTHER FICTION AND CONSTRUE A PAYMENT AS EQUIVALENT TO A CONSTRUCTIVE PAYMENT. IN THIS VIEW OF THE MATTER, WE ARE NOT INCLINED TO ACCEPT THE ARGUMENTS ADVANCED ON BEHALF OF THE REVENUE AND FOLLOWING THE DECISION IN G.R. GOVINDARAJULU NAIDU V. CIT [1973] 90 ITR 13 (MAD.), WE ANSWER THE REFERENCE IN THE AFFIRMATIVE AND AGAINST THE REVENUE. 8. FURTHER, I T IS SETTLED PROPOSITION OF LAW THAT THE T RANSACTIONS WHICH ARE UNDERTAKEN DURING THE COURSE OF NORMAL BUSINESS ACTIVITY SHALL NOT COME WITHIN THE PURVIEW OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. IN THIS REGARD THE RELIANCE IS PLACED ON THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RAJ KUMAR, 318 ITR 462 . IN THE LIGHT OF THE ABOVE DECISIO N, WE HEREBY DELETE THE ADDITION OF RS. 27 LAKHS ON ACCOUNT OF DEEMED DIVIDEND. ACCORDI NGLY, THE APPEAL IS DISPOSED OF . 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 6 T H M A Y , 2015. S D / - S D / - (G.C. GUPTA) (INTURI RAMA RAO) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 6 T H M A Y , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI