M/s. Tulips Ambbience Private Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 307/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9529 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 24-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Assessee Lawyers: HARI KRISHAN
• Keywords: Gift; Deemed dividend
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI RAJESH KUMAR , AM . / ITA NO.307/PUN/2015 / ASSESSMENT YEAR : 2010-11 M/S.TULIPS AMBBIENCE PRIVATE LIMITED, 1025-A, SADASHIV PETH, VORA KOTHARI BUILDING, PUNE 411 030 PAN : AABCT 5650M . / APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-7, PUNE . RESPONDENT / APPELLANT BY : SHRI HARI KRISHAN / RESPONDENT BY : MS. ANN KAPTHUAMA DATE OF HEARING : 03.05.2017 / DATE OF PRONOUNCEMENT: 04 .05.2017 / ORDER PER SUSHMA CHOWLA, JM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE IS AGAIN ST ORDER OF CIT(A)-5, PUNE, DATED 14.01.2015 RELATING TO ASSESS MENT YEAR 2010-11 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE IN COME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- '1. THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF ASSESSING OFFICER IN TREATING THE EXPENDITURE OF RS.2,81,000/ - IN THE SHAPE OF COMMISSION/BROKERAGE, AS CAPITAL IN NATURE. ITA NO.307/PUN/2015 2010-11 2 2. IN RESPECT OF THE DISALLOWANCE OF RS.12,60,378/- MADE BY THE ASSESSING OFFICER U/S.269SS AND 269T, THE LD.CIT(A) HAS ERRED, IN OBSERVING THAT THE TRANSACTIONS AMOUNTING TO RS.12, 60,378/- WERE IN THE NATURE OF INTEREST FREE LOANS AND ADVANCES PAID TO THE DIRECTOR, AND IN FURTHER HOLDING THAT THE PROVISIONS OF SECTION 269S S AND 269T ARE APPLICABLE. 3. THE LD.CIT(A) HAS ERRED IN DISMISSING GROUND NO. 2 4. THE LD.CIT(A) HAS ERRED IN NOT ADJUDICATING THE GRIEVANCES RAISED IN GROUND NO.II OF THE APPEAL OF THE ASSESSE E. THE SAID GROUND IS REPRODUCED BELOW : GROUND NO.II DISALLOWANCE OF CURRENT ACCOUNT TRANSACTIONS BETWEE N THE DIRECTOR AND THE COMPANY TO THE TUNE OF RS.12,60,378/-. I. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE ASSESSING OFFICER ERRED IN DISALLOWING THE CURRENT ACCOUNT TRANSACTIONS BETWEEN THE DIRECTOR AND THE COMPANY A ND ADDING RS.12,60,378/- TO THE TOTAL INCOME OF THE COMPANY U NDER SECTION 269SS, 269T AND 40A(3) OF THE INCOME TAX ACT 1961 A ND INITIATING PENALTY PROCEEDINGS FOR CONCEALMENT OF T HE INCOME AND GIVING INACCURATE PARTICULARS. THE ASSESSING OFFIC ER MADE THIS ADDITION TO THE INCOME DISREGARDING THE VARIOUS EXP LANATIONS, SUBMISSIONS AND OTHER EVIDENCES FILED AT THE TIME O F HEARING. II. THE APPELLANT PRAYS THAT THE AFORESAID ADDITION S BE DELETED AND THE PENALTY PROCEEDINGS BE QUASHED. 5. THE LD.CIT(A) HAS ERRED IN HOLDING THAT PAYMENTS MADE ON DIRECTORS BEHALF WHICH ARE PERSONAL IN NATURE SUCH AS GIFT TO HER DAUGHTER, MEDICAL EXPENSES AND OTHER SUCH EXPENSES AMOUNT TO DEEMED DIVIDENDS IN THE HANDS OF THE SHAREHOLDER. 6. THE LD.CIT(A) HAS ERRED IN HOLDING THAT THE PAYM ENTS MADE ON DIRECTORS BEHALF ARE AND AMOUNT TO DEEMED DIVIDEND S AND THAT THE ADDITION TOWARDS DEEMED DIVIDEND OF RS.7,78,670/- M ADE BY THE ASSESSING OFFICER WOULD INCLUDE THE AMOUNT OF RS.2, 21,240/- AS REFLECTED IN THE CURRENT ACCOUNT AND THE AMOUNTS TH AT HAVE BEEN REPAID ON HER (ASSESSEES) BEHALF BY THE COMPANY TOWARDS V ARIOUS LOANS IN THE OTHER LEDGER ACCOUNT ENTITLED DC. 7. THAT LD.CIT(A) ERRED IN HOLDING THAT THE DISALLO WANCE OF RS.16,65,055/- MADE BY THE ASSESSING OFFICER IS JUS TIFIED. 8. THE APPELLANT PRAYS TO ADD, DELETE OR AMEND ANY OF THE ABOVE GROUNDS. 3. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESS EE AT THE OUTSET POINTED OUT THAT GROUNDS OF APPEAL NO. 4, 5 AND 6 A RE NOT PRESSED AND HENCE THE SAME ARE DISMISSED AS NOT PRESSED. ITA NO.307/PUN/2015 2010-11 3 4. THE ISSUE IN GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS AGAINST CLAIM OF DEDUCTION ON ACCOUNT OF COMMISSION/BROKERA GE PAID OF RS.2,81,000/- AGAINST HIRING OF SHOWROOM. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE LEA SE DEED PLACED FROM PAGE 55 ONWARDS FOR LEASING THE SHOWROOM BY THE ASS ESSEE ON MONTHLY RENT. HE FURTHER POINTED OUT THAT THE COMMISSION W AS PAID TO THE AGENT WHO HAD SECURED THE DEAL. HE FURTHER POINTED OUT THAT THE COPY OF THE BILL RAISED BY THE SAID PARTY IS PLACED AT PAGE 45 OF THE PAPER BOOK. 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE ON THE OTHER HAND PLACED RELIANCE ON THE ORDER OF THE CIT(A) AT PARA 3.2. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH ARISES BY WAY OF GROUND OF APPE AL NO.1 IS AGAINST THE CLAIM OF DEDUCTION ON ACCOUNT OF COMMISSION/BROKERA GE PAID BY THE ASSESSEE. THE SAID PLEA OF THE ASSESSEE WAS REJECT ED BY THE ASSESSING OFFICER TREATING THE EXPENDITURE TO BE CAPITAL IN N ATURE. HOWEVER, WHERE THE ASSESSEE HAD PAID COMMISSION/BROKERAGE FOR TAKING O N LEASE PREMISES FROM WHERE THE ASSESSEE IS RUNNING ITS SHOWROOM AND THE CONCERNED PARTY HAD CHARGED COMMISSION/BROKERAGE TO THE ASSESSEE FOR FI NALIZING THE DEAL, THEN THE SAME IS TO BE ALLOWED AS AN EXPENDITURE IN THE HANDS OF ASSESSEE AS REVENUE EXPENSES. THE GROUND OF APPEAL NO.1 IS THU S ALLOWED. 7. THE ISSUE IN GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS AGAINST DISALLOWANCE MADE BY THE ASSESSING OFFICER AT RS.12 ,60,378/- UNDER SECTION 269SS AND 269T OF THE ACT. THE ASSESSING OFFICER W AS OF THE VIEW THAT WHERE THE PAYMENTS HAVE BEEN MADE IN CASH THEN THE SAME ARE TO BE ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE UNDE R SECTION 269SS AND 269T R.W.S. 40A(3) OF THE ACT. THE AO HAD DISALLOW ED THE SAID AMOUNT ON ITA NO.307/PUN/2015 2010-11 4 THIS ACCOUNT. THE CIT(A) HAD UPHELD THE ADDITION I N THE HANDS OF ASSESSEE BY CONCLUDING AS UNDER : 4.1.4. . . . . . . . . . . . . . . . . . . . . . . . . . . IN THE PRESENT CAS E, IT IS UNDISPUTED FACT THAT THE TRANSACTIONS WERE NOT TOWARDS THE BUSINESS PURPOSES BUT WERE IN THE NATURE OF INTEREST FREE LOAN AND ADVANCES PAID TO THE DIRE CTOR. THEREFORE ON CONSIDERATION OF THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE PROVISION OF SECTIONS 269SS AND 269T ARE SQUARE LY APPLICABLE IN THE PRESENT CASE. 8. WE FIND NO MERIT IN THE SAID APPROACH ADOPTED BY THE CIT(A) UPHOLDING THE ADDITION IN THE HANDS OF ASSESSEE THA T THE PROVISIONS OF SECTION 269SS AND 269T OF THE ACT ARE TO BE APPLIED IN MAKING THE AFORESAID DISALLOWANCE. AS PER THE PROVISIONS OF SECTION 271 D AND 271E OF THE ACT, FOR ANY DEFAULT UNDER SECTION 269SS AND 269T OF THE ACT , PENALTY IS LEVIABLE. HOWEVER, SUCH PENALTY IS TO BE IMPOSED BY THE JOINT COMMISSIONER OF INCOME TAX. THE ASSESSMENT ORDER IN THE PRESENT CA SE WAS COMPLETED BY THE ASSISTANT COMMISSIONER OF INCOME TAX AND HENCE BEYOND HIS JURISDICTION. IN ANY CASE, DISALLOWANCE IS MADE UN DER SECTION 269SS AND 269T OF THE ACT WHICH IS INVALID. ACCORDINGLY, THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THUS ALLOWED. 9. THE LAST ISSUE RAISED BY THE ASSESSEE VIDE GROUN D OF APPEAL NO.7 IS AGAINST DISALLOWANCE OF RS.16,65,055/-. 10. BRIEFLY IN THE FACTS OF CASE RELATING TO THE IS SUE ARE THAT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE ADVANCES T O SEVERAL RELATED PERSONS INTEREST FREE ON THE ONE HAND AND HAD CLAIM ED INTEREST EXPENSES OF RS.16,65,055/-. THE ASSESSING OFFICER WAS OF THE V IEW THAT WHERE THE LOANS GIVEN TO THE PARTIES WERE NOT IN NORMAL COURSE OF B USINESS THEN THERE IS NO MERIT IN THE CLAIM OF FINANCE CHARGES OF RS.14,22,7 19/- AND LOAN PROCESSING ITA NO.307/PUN/2015 2010-11 5 CHARGES OF RS.2,42,336/-. THE CIT(A) UPHELD THE OR DER OF THE AO AND THE ASSESSEE IS IN APPEAL AGAINST THE SAME. 11. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE FAIRLY ADMITTED THAT IT HAD MADE INTEREST FREE ADVANCES FOR THE SIS TER CONCERNS ON WHICH NO INTEREST WAS CHARGED. HOWEVER, HE POINTED OUT THAT NO DISALLOWANCE IS WARRANTED IN THE HANDS OF ASSESSEE OUT OF THE FINAN CE CHARGES AND LOAN PROCESSING CHARGES. THE LD. AUTHORISED REPRESENTAT IVE FOR THE ASSESSEE REFERRED TO THE DETAILS OF FINANCE CHARGES AT PAGE 16 OF THE BALANCE SHEET TO POINT OUT THAT THE ASSESSEE HAD SUFFICIENT OWN FUND S AND RESERVES AND SURPLUS, TO TAKE CARE OF THE SAID ADVANCES AND HENC E NO MERIT IN THE SAID DISALLOWANCE. 12. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE ON THE OTHER HAND PLACED RELIANCE ON THE ORDER OF THE CIT(A) WIT H SPECIAL REFERENCE TO PARA NO.7. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAS PLACED THE COPY OF THE BALANCE SHEET O N RECORD AND HAS ALSO PLACED THE LIST OF ADVANCES MADE BY THE ASSESSEE DU RING THE YEAR UNDER CONSIDERATION WHICH IS PLACED AT PAGE 200 OF THE PA PER BOOK. THE PERUSAL OF THE SAID LIST REFLECTS THAT THE ASSESSEE HAD OPENIN G BALANCE AGAINST SEVERAL PARTIES AND MOST OF THESE LOANS WERE REPAID BY THE SAID PARTIES BY THE END OF THE YEAR EXCEPT SHRI VIRENDRAKUMAR CHAGANLAL AND OT HERS. FURTHER THE FUNDS FROM THE LOANS REPAID WERE THEN ADVANCED TO M/S. FO URESSCO TOTALING TO RS.3.05 CRORES. THE ASSESSEE HAS NOT RECEIVED ANY INTEREST ON THE EARLIER ADVANCES MADE AND ALSO FROM M/S. FOURESSCO, WHICH W AS ADVANCED AT THE END OF THE YEAR. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE HAD FAIRLY ADMITTED TO THE POSITION THAT THE ADVANCES T O THE SISTER CONCERNS WERE NOT FOR BUSINESS PURPOSES. HOWEVER, HE HAS VEHEMEN TLY ARGUED THAT NO ITA NO.307/PUN/2015 2010-11 6 DISALLOWANCE OUT OF THE FINANCE CHARGES IS TO BE MA DE IN THE HANDS OF ASSESSEE. THE LIST OF FINANCE CHARGES IS PLACED AT PAGE 10 OF THE PAPER BOOK AND THE BREAK-UP OF RS.16,65,055/- IS AS UNDER : SR.NO. PARTICULARS AMOUNT RS. 1 BANK CHARGES 99,318.32 2 LOAN PROCESSING CHARGES 242,336.00 3 BANK INTEREST 1,069,222.00 4 INTEREST ON TERM LOAN 186,179.04 5 INTEREST ON LOAN 68,000.00 6 BAD DEBITS -- TOTAL 1,665,055.36 14. THE FIRST PLEA OF THE ASSESSEE IS THAT THE BANK CHARGES AND LOAN PROCESSING CHARGES CANNOT BE CONSIDERED FOR MAKING THE SAID DISALLOWANCE AND ALSO INTEREST ON TERM LOAN, WHICH WAS RAISED DU RING THE YEAR UNDER CONSIDERATION AND WAS SPECIFICALLY USED BY THE ASSE SSEE FOR ITS BUSINESS, CANNOT BE DISALLOWED. 15. WE FIND MERIT IN THE PLEA OF THE ASSESSEE IN TH IS REGARD AND HOLD THAT NO DISALLOWANCE IS TO BE MADE OUT OF THE BANK CHARG ES, LOAN PROCESSING CHARGES AND INTEREST ON TERM LOAN. THE ASSESSEE AD MITTEDLY HAD ADVANCED THE SAID LOANS TO THE SISTER CONCERNS IN THE EARLIE R YEARS AND THE TERM LOAN WHICH WAS RAISED DURING THE YEAR IS USED FOR BUSINE SS PURPOSES AND HENCE HAS NO CONNECTION TO THE ADVANCES MADE IN THE EARLI ER YEARS. THE OTHER ITEM IS THE INTEREST PAID ON BANK LOAN OF RS.10,69,222/- AND OTHER LOAN OF RS.68,000/-. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD FURTHER REFERRED TO THE POSITION OF ASSETS H ELD BY THE ASSESSEE AND POINTS OUT THAT SINCE THE ASSESSEE HAS RESERVES AND SURPLUS TO THE EXTENT OF RS.48,55,570/- WHICH WAS ITS OPENING BALANCE AS ON 01-04-2009 THEN THE CREDIT TO THE EXTENT SHOULD BE ALLOWED TO THE ASSES SEE. FURTHER THE ASSESSEE CLAIMS THAT IT HAS AUTHORIZED SHARE CAPITAL OF RS.2 5 LAKHS AND HENCE HAD SUFFICIENT FUNDS TO MAKE THE ADVANCES. ITA NO.307/PUN/2015 2010-11 7 16. THE TOTAL ADVANCES MADE BY THE ASSESSEE ARE TO THE TUNE OF ABOUT RS.3 CRORES AS AGAINST THE SHARE CAPITAL AND THE RE SERVES AND SURPLUS, I.E. OPENING BALANCE AS ON 01-04-2009 THE ASSESSEE HAS M ADE INVESTMENT IN FIXED DEPOSITS AND OTHER INVESTMENTS TOTALING TO RS .4.38 CRORES. ACCORDINGLY, WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE IN THI S REGARD. HOWEVER, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE TO RS.10,6 9,222/- AND RS.68,000/-. THE GROUND OF APPEAL NO.7 RAISED BY THE ASSESSEE IS THUS PARTLY ALLOWED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TH US PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 4 TH DAY OF MAY, 2017. SD/- SD/- (RAJESH KUMAR) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; DATED : 4 TH MAY, 2017. SATISH / COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT; THE RESPONDENT; ( ) THE CIT(A)-5, PUNE; / THE CIT - 5 , PUNE ; , , / DR A, ITAT, PUNE; / GUARD FILE. / BY ORDER // TRUE COPY // / ASSISTANT REGISTRAR, , / ITAT, PUNE