Shri Parda Agencies Pvt. Ltd, Indore V. The ITO, Indore

ITA 355/IND/2010

• Counselvise Citation: 35522714 RSA 2010
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 31-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: S S SOLANKI
• Keywords: Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M. PAN NO. : AABCP0230F I.T.A.NO. 355 / IND /20 10 A.Y. : 2006 - 07 SHRI PARDA AGENCIES PVT.LTD., ITO, 208, APOLLO TRADE CENTER, VS IN DORE. A.B.ROAD, INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI S.S.SOLANKI, C. A. RESPONDENT BY : SHRI ARUN DEWAN, SR. DR O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 15 TH FEBRUARY, 2010, FOR THE ASSESSMENT YEAR 200 6 - 07, IN THE MATTER OF ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) . - : 2 : - 2 2. THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO ADDITION OF RS. 31,35,513/ - MADE BY THE ASSESSING OFFICER BY INVOKING PROVISIONS OF SECT ION 2(22)(E) OF THE ACT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF IRON AND STEEL AS CONSIGNMENT AGENT AND TRADING OF POLYMER , AND IRON AND STEEL PRODUCTS. DURING THE COURSE OF ASSESSMENT, THE AO FOUND THAT THE ASSESSEE COMPANY HAD ENTERED INTO TRANSACTION OF LOAN/ADVANCE WITH M/S. PATWA STEEL INDORE PRIVATE LIMITED FREQUENTLY DURING THE ACCOUNTING YEAR UNDER CONSIDERATION. AS THE DIRECTOR OF THE ASSESSEE COMPANY W AS HAVING CONTROLLING INTEREST OVER THE SAID COMPANY, BY INVOKING THE PROVISIONS OF SECTION 2(22)(E), THE AO COMPUTED TOTAL OF VARIOUS ADVANCES RECEIVED BY THE ASSESSEE COMPANY AND AFTER TAKING INTO ACCOUNT THE ACCUMULATED PROFIT OF M/S. PATWA STEEL INDORE PRIVATE LIMITED ALONGWITH PROFIT ACCRUING ON EACH AND EVERY DATE DURING THE YEAR UNDER CONSIDERATION WORKED OUT THE AMOUNT TO BE DISALLOWED U/S 2(22)(E) AT RS. 31,35,513/ - . BY - : 3 : - 3 THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ADDITION AND THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. IT WAS CONTENDED BY THE LD. AUTHORIZED REPRESENTATIVE THAT THE ASSESSEE COMPANY HAS A C. C. ACCOUNT IN PUNJAB NATIONAL BANK, WHEREIN THE ASSESSEE WAS ENJOYING C. C. LIMIT OF RS. 1 CRORE. THERE WAS A RESTRICTION BY PNB ON THE A SSESSEE COMPANY FOR NOT OPENING ANY TYPE OF ACCOUNT WITH ANY OTHER BANK AND TO HAVE ALL THE TRANSACTIONS WITH IT ONLY. AS THE ASSESSEE WAS HAVING ITS CUSTOMER NET WORK THROUGH OUT INDIA, IT WAS IN THE BUSINESS INTEREST OF THE ASSESSEE TO HAVE BANK ACCOUNT IN A BANK WHERE CORE BANKING FACILITY IS AVAILABLE. THEREFORE, THE ASSESSEE HAD TO OPEN ACCOUNT WITH IDBI BANK WHERE BANKING FACILITY WAS AVAILABLE. IT WAS CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE THAT THROUGH CORE BANKING FACILITY OF I.D.B.I., THE REALIZATION OF PAYMENT WAS MUCH FASTER, WHICH WAS TAKING 7 8 DAYS IN CASE OF PNB TO MAKE THE PAYMENT MORE FASTER IN BANK ACCOUNT AND ALSO TO AVOID PROBLEMS OF PNB, ITS PRINCIPAL BANK, THE ASSESSEE OPENED A BANK AC COUNT WITH IDBI WHERE CORE BANKING AND WH ERE THE A CCOUNT OF PATWA STEEL INDORE P RIVATE L IMITED WAS ALSO THERE. - : 4 : - 4 BY HAVING SUCH FACILITY, THE ASSESSEE IMMEDIATELY ON RECEIVING PAYMENT TRANSFERRED IT TO PATWA STEEL IDBI ACCOUNT, WHO TRANSFERS THE SAME TO THE ASSESSEE PNB ACCOUNT. AS PER LD. AUTHORIZ ED REPRESENTATIVE, THESE TRANSACTIONS OF GIVING AND REPAYING THE AMOUNT TO PATWA SALES WAS JUST TO FACILITATE ITS BUSINESS TRANSACTION AND IT CANNOT BE SAID TO BE ANY LOANS AND ADVANCES TO THE ASSESSEE BY PATWA SALES LIMITED, SO AS TO BRING THE SAME WITHIN THE MISCHIEF OF SECTION 2(22 ) (E) OF THE INCOME - TAX ACT, 1961. 5. HE FURTHER INVITED OUR ATTENTION TO THE STATEMENT OF ASSESSEE S ACCOUNT IN THE BOOKS OF PATWA SALES, WHEREIN MAXIMUM OUTSTANDING BALANCE WAS RS. 20 LAKHS AND NOT RS. 30 LAKHS AS STATED BY THE A SSESSING OFFICER. AS PER THE LD. AUTHORIZED REPRESENTATIVE, EVEN U/S 2(22)(E) TOTAL OF ALL THE TRANSACTIONS OF RECEIVING AND MAKING REPAYMENT CANNOT BE TAKEN AS LOANS AND ADVANCES, BUT THE MAXIMUM AMOUNT OUTSTANDING AT A TIME CAN BE TAKEN INTO CONSIDERATIO N FOR MAKING ADDITION U/S 2(22)(E) OF THE ACT. 6. ON THE OTHER HAND, THE CONTENTION OF THE LD. SENIOR D.R. WAS THAT FOR THE PURPOSE OF SECTION 2(22)(E) ALL THE - : 5 : - 5 TRANSACTIONS OF ADVANCES TO BE TAKEN INTO ACCOUNT IRRESPECTIVE OF THE FACT THAT THE SAME HAS BEEN R EPAID IMMEDIATELY AND THE MAXIMUM OUTSTANDING BALANCES IS NOT TO BE CONSIDERED FOR THE PURPOSE OF MAKING ADDITION U/S 2(22)(E) OF THE ACT. HE FURTHER RELIED ON THE ORDER OF THE LOWER AUTHORITIES FOR JUSTIFYING THEIR ACTION OF MAKING ADDITION OF RS. 31,35,5 13/ - U/S 2(22)(E) OF THE ACT. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT THE ASSESSEE COMPANY WAS HAVING CLOSE CONNECTION WITH M/S. PATWA SALES, WHICH IS A SISTER CONCERN OF THE ASSESSEE IN VIEW OF THE COMMON HOLDINGS OF SHARES BY THE DIRECTORS OF BOTH THE COMPANIES. TO FACILITATE ITS BANKING TRANSACTION, THE ASSESSEE HAS TAKEN VARIOUS PAYMENTS DURING THE YEAR AND ALSO IMMEDIATELY REPAID BY WAY OF TRANSFER ENTRY OF THE SAID AMOUNT . EVEN THOUGH IN THE FULL YEAR, THE ASSESSEE HAS TAKEN CHEQUES OF RS. 3.27 CRORES, BUT AT THE VERY SAME TIME AFTER EACH TRANSACTION OF TAKING CHEQUES, THE ASSESSEE HAS REPAID THE SAME AND THE TOTAL REPAYMENT MADE BY THE ASSESSEE DURING THE YEAR WORK S OUT TO BE RS. 3.32 CRORES . THE - : 6 : - 6 MAXIMUM AMOUNT OUTSTANDING AT A POINT OF TIME AS PER AO WORKS OUT TO BE RS. 30 LAKHS WHERE AS PER THE STATEMENT OF ACCOUNT OF ASSESSEE WITH M/S. PATWA SALES WORKS OUT TO BE RS. 20 LAKHS. IT APPEARS THAT THE PAYMENT OF RS. 10 LAKHS IN THE ACCOUNT OF THE ASSESSEE BANK WAS ACKNOWLEDGED ON 10. 6. 2005 WHEREAS THE AO TREATED THIS TRANSACTION AS REALIZATION ON 8.6.2005, THUS, THE MAXIMUM OUTSTANDING BALANCE AS PER AO WORKS OUT TO BE RS. 30 LAKHS. SINCE TOTAL OF ALL TRANSFER ENTRIES OF CHEQUES IN FAVOUR OF ASSESSEE COMPANY WAS RS.3.27 CRORES , AFTER TAKING INTO ACCOUNT THE ACCUMULATED PROFIT OF M/S. PATWA STEELS LTD. , THE AO HAS RESTRICTED THE ADDITION U/S 2(22)(E) AT RS.31,35,513/ - . AS PER OUR CONSIDERED VIEW WHENEVER THERE ARE MULT IPLE TRANSACTION S OF RECEIVING AND PAYING BACK THE AMOUNT IMMEDIATELY AFTER ITS RECEIPT, THE MAXIMUM OUTSTANDING BALANCE AT ANY POINT OF TIME IN A YEAR IS TO BE CONSIDERED AS ADVANCE FOR THE PURPOSE OF SECTION 2(22) ( E) . TOTAL OF EACH T RANSACTION OF TRANSFE R OF CHEQUES CANNOT BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF SECTION 2(22 ) (E) BY DISREGARDING THE REPAYMENT MADE BY ASSESSEE COMPANY. . THE LEGISLATIVE INTENT BEHIND INTRODUCING SECTION 2(22)(E) IS TO - : 7 : - 7 CHECK THE ADVANCEMENT OF ANY LOAN AND ADVANCE BY THE TW O SISTER CONCERNS HAVING ACCUMULATED PROFIT, SO AS TO AVOID TAX LIABILITY BOTH ON THE RECEIVING COMPANY AND ON THE PAYING COMPANY IN THE FORM OF DIVIDEND DISTRIBUTION TAX. BY TAKING SUCH ACCUMULATED PROFIT IN THE FORM OF LOAN AND ADVANCE, THE RECEIVING COM PANY AVOIDS PAYMENT OF INCOME TAX THEREO N IN SO FAR AS SAID AMOUNT SO RECEIVED IS BEING TREATED BY IT AS THE LOANS AND ADVANCES AND NOT AS DIVIDEND INCOME, AT THE VERY SAME TIME THE PAYING COMPANY IS AVOIDING DIVIDEND DISTRIBUTION TAX BY MAKING PAYMENT OF ACCUMULATED PROFIT IN THE FORM OF LOANS AND ADVANCES. NO WHERE LEGISLATURE INTENDED TO BRING INTO MISCHIEF OF SECTION 2(22)(E) TOTAL OF ALL TRANSACTION S OF RECEIVING CHEQUES BY DISR E G A RDING THE REPAYMENT MADE BY ASSESSEE COMPANY. AT THE MOST, THE MAXIMUM A MOUNT OUTSTANDING AT ANY POINT OF TIME DURING THE YEAR CAN BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF MAKING ADDITION U/S 2(22)(E) OF THE ACT. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE ACTION OF LOWER AUTHORITIES FOR TAKING TOTAL OF ALL THE TRANSACTIONS OF TRANSFER ENTRIES IN FAVOUR OF ASSESSEE COMPANY AND TREATING THEM LOANS AND ADVANCES TO THE - : 8 : - 8 ASSESSEE COMPANY, WHICH UNDISPUTEDLY HAS BEEN REPAID IMMEDIATELY. IT IS PERTINENT TO MENTION HERE THAT FOR THE FIRST TIME, THE ASSESSEE HAS PLACED BEFORE US COPY OF ACCOUNT OF IDBI AND PATWA SALES, COPY OF ACCOUNT OF PATWA SALES AS PER BANK TRANSACTION, COPY OF IDBI BANK ACCOUNT OF DIRECTORS OF THE COMPANY. FOR THE FIRST TIME, THE ASSESSEE HAS BROUGHT ONE NEW FACT BEFORE US THAT THE ACTUAL AMOUNT OUTSTANDING AS ON 1 0 TH JUNE, 2005 , WAS RS. 20 LAKHS IN PLACE OF MAXIMUM AMOUNT OF RS. 30 LAKHS AS STATED BY THE ASSESSING OFFICER IN HIS ORDER. 8. IN VIEW OF THE ABOVE DISCUSSION, WE DIRECT THE AO AS UNDER : - (I) TO TAKE INTO ACCOUNT THE MAXIMUM AMOUNT OF LOANS AND ADVANCES OUTSTAND ING AS ON A PARTICULAR DATE, RATHER THAN AGGREGATE OF VARIOUS PAYMENTS RECEIVED BY ASSESSEE WHICH HAS BEEN REPAID BY THE ASSESSEE , IMMEDIATELY. (II) THE AO IS ALSO DIRECTED TO VERIFY THE CORRECT MAXIMUM AMOUNT OUTSTANDING WHETHER RS.20 LACS AS CLAIMED BY ASSESS EE AS PER STATEMENT - : 9 : - 9 OF ACCOUNT WITH PATWA STEELS LTD. , IN VIEW OF THE ADDITIONAL EVIDENCE PLACED BEFORE US OR RS.30 LACS AS STATED BY AO, AND TO RESTRICT THE ADDITION ACCORDINGLY TO THE EXTENT OF MAXIMUM ADVANCE OUTSTANDING AT A POINT OF TIME. (III) THE AO IS T O REFRAME THE ASSESSMENT WITH REGARD TO ADDITION U/S 2(22)(E) BY TAKING INTO ACCOUNT OUR ABOVE OBSERVATION. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSES IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE , 2011. S D/ - S D/ - (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH JUNE , 2011 . CPU* 226