THE LAUREN SOFTWARE PVT. LTD, MUMBAI V. M/S. ITO 9(2)(4), MUMBAI

ITA 3258/MUM/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3741 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 04-11-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 09-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: MATHURIA
• Keywords: Principle of natural justice; Additional evidence; Deemed dividend
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI T.R. SOOD (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO. 3258/MUM/2008 ASSESSMENT YEAR- 2001-02 M/S. LAUREN SOFTWARE PVT. LTD., JAIN ARCADE, 3 RD FLOOR, KHAR DANDA, 14 TH ROAD, KHAR(W), MUMBAI-400 052 PAN-AAACL5292L THE ITO 9(2)(4), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) VS. (RESPONDENT) ITA NO. 3259/MUM/2008 ASSESSMENT YEAR- 2001-02 M/S. LAUREN INFORMATION TECHNOLOGIES PVT. LTD., JAIN ARCADE, 3 RD FLOOR, 14 TH ROAD, KHAR(W), MUMBAI-400 052 PAN-AAACL1424A THE ITO 9(2)(4), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI M.S. MATHURIA RESPONDENT BY: SHRI O.P. SINGH O R D E R PER ASHA VIJAYARAGHAVAN (JM) THESE TWO APPEALS PREFERRED BY THE ASSESSEE ARE DIR ECTED AGAINST THE ORDERS DATED 5.2.2008 PASSED BY THE LD. CIT(A)- IX FOR THE ASSESSMENT YEAR 2001-02. 2. THE GROUNDS RAISED BY THE ASSESSEE IN BOTH THE A PPEALS ARE AS FOLLOWS: 1. THE CIT(A) ERRED IN UPHOLDING ASSESSMENT OF DEE MED DIVIDEND U/S. 2(22)(E) OF THE ACT. ITA NOS.3258 & 59/M/08 2 2. THE CIT(A) FAILED TO APPRECIATE THAT ACCOUNT WIT H LAUREN SOFTWARE PVT. LTD. WAS A MUTUAL, OPEN AND CURRENT ACCOUNT AND HENCE SEC. 2(22)(E) WAS IN APPLICABLE T O ITS CASE. 3. IN ANY EVENT CIT(A) FAILED TO APPRECIATE THAT AD DITION SUSTAINED BY HIM AS DEEMED DIVIDEND REPRESENT BUSINESS TRANSACTIONS WHICH CANNOT BE REGARDED AS LOAN OR ADVANCE WHICH IS A PRE CONDITION FOR APPLIC ATION OF SEC. 2(22)(E) OF THE ACT. 3. ON APPEAL BEFORE US, THE LD. COUNSEL FOR THE ASS ESSEE SHRI M.S. MATHURIA REQUESTED THAT IN ACCORDANCE WITH RULE 29 OF THE I.T. RULES, 1963 PERMISSION MAY BE GRANTED FOR PRODUCTION OF AD DITIONAL EVIDENCE BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESS EE SUBMITTED AS FOLLOWS: WHILE PASSING IMPUGNED ASSESSMENT ORDER DT. 29.3.2 004 FOR A.Y. 2001-02, THE LD. AO HAS ERRED IN APPLYING PROV ISIONS OF SEC. 2(22)(E) OF THE I.T. ACT, 1961 AND HAS WRONGLY ASSUMED THAT M/S. LAUREN INFORMATION AND TECHNOLOGIES PVT. LTD WAS SHAREHOLDER OF THE APPELLANT COMPANY (M/S. LAUREN INFORMATION AND TECHNOLOGIES PVT. LTD) WITH EFFECT FROM 14.4.2000 TO 31.3.2001 INSTEAD OF 16.3.2001 TO 31.3 .2001 AS COPY OF ANNUAL RETURN FILED WITH THE REGISTRAR OF C OMPANIES, MUMBAI WAS NOT READILY AVAILABLE WITH US FOR THE RE ASONS EXPLAINED TO HIM THAT OURS IS A SMALL SCALE COMPANY DEALING IN HARDWARE/SOFTWARE/MAINTENANCE SERVICE FOR INFORMATI ON TECHNOLOGY (POPULARLY KNOWN AS IT INDUSTRY} TO W ITHSTAND FIERCE COMPETITION IN THE IT INDUSTRY IT WAS DECIDE D TO MERGE OUR COMPANY (I.E. M/S. LAUREN SOFTWARE PVT LTD) WIT H ANOTHER COMPANY NAMELY, M/S. LAUREN INFORMATION TECHNOLOGIE S PVT. LTD AND TO ECONOMIZE AND TO SAVE ON OVERLAPPING ROU TINE AND ADMINISTRATIVE EXPENSES IT WAS DECIDED TO CARRY ON BUSINESS OF BOTH THE COMPANIES FROM THE SAME PLACE AND ACCOR DINGLY, PROCESS OF MERGER PRESCRIBED UNDER THE COMPANIES AC T, 1956, WAS INITIATED DURING THE FINANCIAL YEAR 2003-04 AND IT IS POINTED OUT TO HIM THAT DUE TO INCREASE IN BUSINESS ACTIVITY, SPACE AVAILABLE IN CORPORATE OFFICE AT JAIN ARCADE, 3 RD FLOOR, MUMBAI WAS FOUND INSUFFICIENT AND, THEREFORE, ALL O LD RECORDS OF PRE-MERGED BOTH THE COMPANIES WERE SHIFTED DURIN G THE FINANCIAL YEAR 2003-04 TO OUR WAREHOUSE AT FOLLOWIN G ADDRESS: ITA NOS.3258 & 59/M/08 3 SHOP NO. 11, PLOT NO. 12, SECTOR 26, KAMOTHE TALUKA , PANVEL, JAIN PARK, NAVI MUMBAI-401 209. IT IS PERTINENT TO NOTE THAT DURING THE ASSESSMENT PROCEEDINGS FOR CAPTIONED ASSESSMENT YEAR VARIOUS D ETAILS CALLED FOR BY THE SAID AO FROM TIME TO TIME WERE SU BMITTED BEFORE HIM WITH SUPPORTING DOCUMENTS/EVIDENCES. HE WAS SUPPLIED WITH A CHART SHOWING PATTERN OF SHAREHOLDE RS HOLDINGS FOR THE YEARS 1998-99, 1999-2000, 2000-01 AND SPECIFICALLY SHOWING THAT ABOVE SAID M/S. LAUREN IN FORMATION TECHNOLOGIES PVT. LTD BECAME SHAREHOLDER OF OUR COM PANY ONLY W.E.F. 16.3.2001 BUT, FOR UNKNOWN REASONS, THE SAID AO INSISTED FOR COPY OF ANNUAL RETURN FILED WITH THE R EGISTRAR OF COMPANIES WHICH WAS NOT READILY AVAILABLE WITH US A ND WAS NOT IMMEDIATELY TRACEABLE DUE TO SHIFTING OF ALL OL D RECORDS OF BOTH THE COMPANIES FROM CORPORATE OFFICE TO ABOVE G IVEN WAREHOUSE ADDRESS. FURTHERMORE CERTAIN SENIOR EMPLOYEES FROM OUR HR DEPARTMENT AND ACCOUNTS DEPARTMENT HAD RESIGNED IN BETWEEN PERIOD AND THE NEW INCUMBENTS WERE UNABLE T O LAY HANDS ON REQUIRED FILES CONTAINING COPIES OF VARIOU S COMMUNICATIONS FILED WITH THE REGISTRAR OF COMPANIE S, MUMBAI. THE SAID AO WAS NOT WILLING TO GIVE FURTHE R TIME TO SEARCH THE RECORDS AS THE PROCEEDINGS WAS GETTING B ARRED BY LIMITATION BY 31.3.2004 AND THEREFORE, UNDER THE CIRCUMSTANCES EXPLAINED ABOVE, HE PASSED IMPUGNED ASSESSMENT ORDER ON 29.3.2004 ASSUMING SHAREHOLDING S AS PER PARA 8.1 OF HIS ASSESSMENT ORDER AND MAKING ARB ITRARY ADDITION OF RS. 52,83,293/- AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. IMPUGNED ADDITION IS OTHERWISE BAD IN LAW AB INITIO BECAUSE ANY ADDITION U/S. 2(22)9E) IS TO REQ UIRED BE MADE IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF THE COMPANY IN WHICH SUCH SHAREHOLDER HOLDS THE SHA RES. IT IS PERTINENT TO NOTE THAT THE APPELLANT COMPANY (I. E M/S. LAUREN SOFTWARE PVT LTD) HAVE NOT ACQUIRED ANY SHAR ES IN THE COMPANY, NAMELY M/S. LAUREN INFORMATION AND TECHNOL OGIES PVT. LTD. UNFORTUNATELY, DUE TO UNPRECEDENTED RAINS IN THE L AST WEEK OF JULY, 2005 IN MUMBAI AND MANY DISTRICTS OF MAHARASHTRA THERE WERE HEAVY WATER CLOGGING AND UNPRECEDENTED FLOODS ON 25.7.2005 AND 26.7.2005 IN MUMBAI DISRUPTING NORMAL LIFE OF CITIZENS TILL ALMOST 5.8. 2005 AND DUE ITA NOS.3258 & 59/M/08 4 TO SUCH CALAMITIES LOTS OF OUR OLD RECORDS/DOCUMENTS/EVIDENCES FOR VARIOUS YEARS STORE D IN OUR ABOVE SAID WAREHOUSE WERE COMPLETELY AND IRREPARABL Y DESTROYED/DAMAGED. UNDER THE CIRCUMSTANCES, WE APPLIED TO THE REGISTRA R OF COMPANIES FOR SUPPLY OF CERTIFIED TRUE COPY OF ANNU AL RETURN FILED BY US 28.9.2001 SHOWING DETAILS OF SHAREHOLDE RS FOR THE RELEVANT ACCOUNTING YEAR FROM 1.4.2000 TO 31.3.2001 COPY OF WHICH ANNUAL RETURN IS FILED AT PAGE NOS. 1 TO 15 O F THIS PAPER BOOK SUPPORTED BY SOLEMN AFFIDAVIT DT. 24.3.2010 FI LED AT PAGE NOS. 16 TO 18 OF THIS PAPER BOOK. AUDITED BALANCE SHEET FOR THE YEAR ENDED 31 ST MARCH, 2000 IS FILED AT PAGE NOS. 19 TO 28 IN SUPPORT OF LIST OF SHAREHOLDERS WITH THEIR HOLDI NGS FOR THE YEARS: 1998-99, 1999-2000, 2000=01 AND GENERAL RESE RVES AND SURPLUS FOR SAID YEARS FILED AT PAGE NOS 29 TO 35 OF THIS PAPER BOOK. ON THE FACTS AND IN THE CIRCUMSTANCES, WE EARNESTLY REQUEST YOUR HONOURS TO ADMIT THESE ADDITIONAL EVID ENCES IN THE INTEREST OF NATURAL JUSTICE FOR ADJUDICATION OF THE CAPTIONED APPEAL UNDER THE APPLICABLE PROVISIONS OF THE LAW. 4. WITH REGARD TO ADMISSIBILITY OF ADDITIONAL EVIDE NCE, WE ARE OF THE OPINION THAT THE SAME CAN BE ADMITTED PLACING RELIA NCE ON THE DECISIONS IN THE CASE OF RAJNISH INDUSTRIES VS. ITO AND PATNA BENCH OF ITAT IN THE CASE OF ABHAY KUMAR SHROFF. IN THE CASE OF ABHAY K UMAR SHROFF 63 ITD 144 WHEREIN IT HAS BEEN HELD AS FOLLOWS: IT WAS THAT THE ASSESSEE AS A MATTER OF RIGHT COUL D NOT FILE OR FILED THEM BEFORE THE TRIBUNAL AS A MATTER OF COUR SE. IF THE ASSESSEE PRODUCES SOME DOCUMENTS AT THE APPROPRIATE TIME, THEY HAVE TO BE TAKEN INTO CONSIDERATION SUBJECT OF COURSE TO ALL JUST EXCEPTIONS, SUCH AS THEIR RELEVANCE, ETC. IF NOT DONE AT THE ASSESSMENT STAGE, THE ADMISSION OF DOCUMENTS HA S TO BE GOVERNED BY RULE 46A OF THE I.T. RULES, 1962, IF P RODUCED FOR THE FIRST TIME BEFORE THE FIRST APPELLATE AUTHORIT Y. HAVING MISSED THE BUS AND THE MATTER HAVING TRAVELLED TO T HE TRIBUNAL, THE ADMISSION OF DOCUMENTS IS TO BE GOVER NED BY RULE 29 OF THE APPELLATE TRIBUNAL RULES. HENCE, IF THE DOCUMENTS SOUGHT TO BE ADMITTED EVEN AT THE SECOND APPELLATE STAGE ARE OF A NATURE AND QUANTITATIVELY SUCH THAT THEY RENDER ASSISTANCE TO THE TRIBUNAL IN PASSING ORDERS OR A RE REQUIRED ITA NOS.3258 & 59/M/08 5 TO BE ADMITTED FOR ANY OTHER SUBSTANTIAL CAUSE, I T WOULD RATHER BE THE DUTY OF THE TRIBUNAL TO ADMIT THEM. THEREFORE, IF THE RECEIPT OR ADMISSION OF ADDITIONAL EVIDENCE IS VITAL AND ESSENTIAL FOR THE PURPOSE OF CONSIDERATION OF THE SUBJECT MATTER OF APPEAL AND TO ARRIVE AT A FINAL AND ULTIM ATE DECISION, THE TRIBUNAL IS AMPLY EMPOWERED TO ADMIT ADDITIONAL EVIDENCE UNDER RULE 29. THEREFORE, THE TRIBUNAL HAD TO ADMI T ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE SINCE THAT WAS VI TAL AND ESSENTIAL FOR RENDERING JUSTICE AND IN DECIDING APP EALS. HOWEVER, IT WAS NECESSARY TO GIVE THE DEPARTMENT A REASONABLE OPPORTUNITY OF REBUTTING IT ACCORDING TO THE PRINCIPLE OF NATURE JUSTICE AND FOR THAT PURPOSE TH E MATTER WAS RESTORED TO THE FILE OF THE AO. FOLLOWING THE RATIO OF THE ABOVE SAID DECISION, WE REMIT THE ISSUE BACK TO THE FILE OF THE AO FOR GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PRODUCE BEFORE THE AO ALL THE EVIDENCES AND THEREAFTER THE AO SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 5. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE S ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 10 TH DAY OF NOVEMBER, 2010 SD/- SD/- (T.R. SOOD) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 10 TH NOVEMBER, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NOS.3258 & 59/M/08 6 DATE INITIALS 1 DRAFT DICTATED ON: 4.11.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 8.11.2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______