Spry Hospitality Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 3593/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2297 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 26-11-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 18-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHORE B
• Keywords: Depreciation; Opportunity of being heard; Deemed dividend; Set aside
• Section: 2(22)(e)

Judgement Text

I.T.A. NO.3593 /DEL/09 1/6 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D NEW DELHI) BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO.3593 /DEL/2009 ASSESSMENT YEAR : 2005-06 SPRY HOSPITALITY PVT. LTD., DCIT, H-3/16, DLF PHASE-I, CIRCLE-9 (1), GURGAON. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO.AATCF-2968-A APPELLANT BY : SHRI TAPAS MISRA, ADVOCATE. RESPONDENT BY : SHRI KISHORE B. SR. DR. ORDER PER A.K. GARODIA, AM: THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE O RDER OF LD CIT(A)-XII, NEW DELHI DATED 26.3.2009 FOR ASSESSMENT YEAR 2005- 06. 2. GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE. AS PER GROUND NO.2, 3 & 4, THE DISPUTE IS REGARDING ASSESSMENT OF RS.71,06,013 /- AS DEEMED DIVIDEND U/S 2(22)(E) BEING THE AMOUNT OF RS.55 LAKHS RECEIVED B Y THE ASSESSEE AS UN- SECURED LOAN FROM M/S KMB EXPORTS PVT. LTD. AND RS. 16,06,013/- BEING THE AMOUNT OF LOAN RECEIVED BY THE ASSESSEE FROM M/S AY AN CONSTRUCTION (P) LTD. IT MAY ALSO BE NOTED THAT TOTAL LOAN RECEIVED BY THE A SSESSEE FROM M/S AYAN CONSTRUCTION (P) LTD. WAS RS.127.09 LAKHS BUT SINCE THAT COMPANY WAS HAVING ACCUMULATED PROFITS OF ONLY RS.16,06,013/-, ADDITIO N U/S 2(22)(E) WAS MADE TO THE . I.T.A. NO3593/DEL/09 2/6 EXTENT OF ACCUMULATED PROFITS ONLY I.E. RS.16,06,01 3/-. IN THIS MANNER, TOTAL ADDITION WAS MADE OF RS.71,06,013/-. 3. IT IS SUBMITTED BY THE LD AR OF THE ASSESSEE THA T THE ASSESSEE IS NOT A SHAREHOLDER OF BOTH THESE COMPANIES. IT IS POINTED OUT THAT ON PAGE NO.2 OF THE ASSESSMENT ORDER, IT HAS BEEN OBSERVED BY THE AO TH AT THE AO HAS NOTED THAT LIST OF SHAREHOLDERS ALONG WITH COPIES OF FINANCIAL STAT EMENT OF THESE TWO COMPANIES WERE CALLED FOR AND FROM THE SAME, IT IS OBSERVED B Y THE AO THAT ONE SHAREHOLDER NAMELY SHRI SUNIL BHALLA HAD MORE THAN 10% SHARE HO LDING IN THESE COMPANIES AND HE IS ALSO HOLDING MORE THAN 20% SHARES IN THE ASSESSEE COMPANY AND THERE IS NO MENTION THAT THE ASSESSEE IS ALSO A SHA REHOLDER OF THESE TWO COMPANIES. WHEN IT WAS ENQUIRED BY THE BENCH AS TO WHETHER THE LIST OF SHAREHOLDERS OF THESE TWO COMPANIES DURING THE RELE VANT PERIOD IS AVAILABLE ON RECORD, IT WAS SUBMITTED BY THE LD AR OF THE ASSESS EE THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE AO FOR A FRESH DEC ISION IN THE LIGHT OF THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CA SE OF BHOMIC COLOUR AS REPORTED IN 27 SOT 270. 4. LD DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GON E THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT LIST OF SHAREHOL DERS OF THESE TWO COMPANIES IS NOT AVAILABLE ON RECORD AND THERE IS NO MENTION IN THE ASSESSMENT ORDER OR IN THE ORDER OF LD CIT(A) AS TO WHETHER THE ASSESSEE COMPA NY IS ALSO HOLDING SHARES IN THESE TWO COMPANIES. IN THE CASE OF BHOMIC COLOUR ( SUPRA), IT WAS HELD BY SPECIAL BENCH OF THE TRIBUNAL THAT IN ORDER TO MAKE ADDITION U/S 2(22)(E) AS DEEMED DIVIDEND, IT IS NECESSARY THAT THE ASSESSEE SHOULD BE FOUND AS A REGISTERED SHAREHOLDER AS WELL AS BENEFICIAL SHAREH OLDER OF THE COMPANY FROM WHICH, THE AMOUNT IN QUESTION WAS RECEIVED BY THE ASSESSEE. SINCE THIS ASPECT IS NOT CLEAR AND THIS JUDGMENT OF THE SPECIAL BENCH OF THE TRIBUNAL WAS NOT AVAILABLE BEFORE AUTHORITIES BELOW, WE ARE IN AGREE MENT WITH LD AR OF THE . I.T.A. NO3593/DEL/09 3/6 ASSESSEE THAT THIS MATTER SHOULD GO BACK TO THE FIL E OF THE AO FOR A FRESH DECISION AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD CI T(A) ON THIS ISSUE AND RESTORE THIS MATTER BACK TO THE FILE OF THE AO FOR A FRESH DECISION IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL RENDE RED IN THE CASE OF BHOMIC COLOUR (SUPRA). THE ASSESSEE SHOULD FURNISH THE LI ST OF SHAREHOLDERS OF THESE TWO COMPANIES DURING THE RELEVANT PERIOD AND THEREAFTER THE AO SHOULD PASS NECESSARY ORDER AS PER LAW AS PER ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. GROUND NO.2,3 & 4 STANDS ALLOWED FOR STATISTICAL PURPOSES. 7. GROUND NO.5 OF THE APPEAL READS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED ON FACTS AND IN LAW IN NOT DELETING THE AD HO C DISALLOWANCE OF RS.15,00,000/- OUT OF OPERATING AND ADMINISTRATIVE EXPENSES. 5.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE BIL LS AND VOUCHERS PRODUCED IN THE COURSE OF APPELLATE PROCEEDINGS WERE NOT VER IFIABLE IN THE ABSENCE OF BOOKS OF ACCOUNT, EVEN THOUGH THERE WAS NO DIREC TION TO GET THESE BILLS ETC. VERIFIED AGAINST BOOKS OF ACCOUNT IN THE SAID PROCEEDINGS. 8. BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE AO ON PAGE NO.3 OF THE ASSESSMENT ORDER THAT THE ASSESSEE COMPANY HAS CLAI MED EXPENSES UNDER THE HEAD ADMINISTRATIVE EXPENSES AMOUNTING TO RS.48,78, 444/- AGAINST SALES OF RS.60,186/-. IT IS ALSO NOTED BY THE AO THAT SOME OF THE EXPENSES CLAIMED ARE NOT BACKED BY SUPPORTING VOUCHERS. IT IS FURTHER N OTED BY THE ASSESSING OFFICER THAT SOME OF THE EXPENSES ARE CAPITAL EXPENSES IN N ATURE AND HE HAS GIVEN ONE EXAMPLE OF RS.3,27,496/- CLAIMED UNDER THE HEAD FAC TORY BUILDING MATERIAL,. IT IS FURTHER NOTED BY THE ASSESSING OFFICER THAT SOME OF THE EXPENSES CLAIMED ARE . I.T.A. NO3593/DEL/09 4/6 VERY DISPROPORTIONATE AS COMPARED TO THE SALES MADE BY THE ASSESSEE COMPANY E.G. EXPENSES CLAIMED UNDER THE HEAD PACKING EXPENS ES ARE RS.334,987/-. THEREAFTER, THE ASSESSING OFFICER HAS MADE AD HOC D ISALLOWANCE OF RS.15 LAKHS. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT(A). LD CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOW 50% OF THE EXPENSES CLAIMED UNDER THE HEAD PACKING EXPENSES BUT CONFIRMED OTHER DISALLOWANCES AND NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 9. IT IS SUBMITTED BY THE LD AR OF THE ASSESSEE THA T DISALLOWANCE MADE BY THE ASSESSING OFFICER IS AD HOC WHICH IS NOT JUSTIF IED. WHEN IT WAS POINTED OUT BY THE BENCH THAT THE ASSESSING OFFICER HAS POINTED OU T AT LEAST ONE EXPENSES AS CAPITAL IN NATURE I.E. EXPENSES REGARDING FACTORY B UILDING MATERIAL OF RS.327.496/-, IT WAS SUBMITTED BY LD AR OF THE ASSESSEE THAT IN T HAT SITUATION, THE DISALLOWANCE CAN BE OF THIS AMOUNT ONLY AND NO FURTHER DISALLOWA NCE CAN BE MADE. 10. LD DR OF THE REVENUE SUPPORTED THE ORDERS OF TH E AUTHORITIES BELOW. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GO NE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT ALTHOUGH THE ASSE SSING OFFICER SAYS THAT SOME OF THE EXPENSES CLAIMED ARE NOT BACKED BY SUPPORTIN G VOUCHERS BUT HE HAS NOT POINTED OUT EVEN A SINGLE INSTANCE OF SUCH EXPENSES WHICH ARE NOT BACKED BY SUPPORTING VOUCHERS. REGARDING THIS ALLEGATION THAT SOME OF THE EXPENSES ARE CAPITAL IN NATURE, THE ASSESSING OFFICER HAS POINTE D OUT ONLY ONE INSTANCE OF RS.327.496/- REGARDING FACTORY BUILDING MATERIAL AN D NO OTHER EXPENSES HAVE BEEN POINTED OUT WHICH CAN BE CONSIDERED AS EXPENSE S OF CAPITAL NATURE. REGARDING EXPENSES OF RS.327.496/-, WE FIND THAT LD CIT(A) HAS ALSO EXAMINED THE VOUCHERS ETC. PRODUCED BEFORE HIM AND IT IS NOT ED BY HIM THAT THE SAME PERTAINS TO BRICK WORK AND SOME WOOD WORK AND IT IS HELD BY HIM THAT THE ASSESSING OFFICER HAS RIGHTLY CAPITALIZED THE EXPEN SES AS THE ASSESSEE HAS A LEASE OF THE SAID PREMISES FOR SIX YEARS AND THESE MATERIAL WAS FOR LONG TERM BASIS. CONSIDERING THE FACTS OF THE PRESENT CASE, WE ARE OF THE CONSIDERED . I.T.A. NO3593/DEL/09 5/6 OPINION THAT THE DISALLOWANCE TO THE EXTENT OF RS.3 27,496/- IS JUSTIFIED BECAUSE THE SAME IS HELD BY THE LD CIT(A) AS EXPENSES OF CA PITAL NATURE AND NOTHING HAS BEEN PRODUCED BEFORE US TO HOLD OTHERWISE. LD CIT( A) HAS ALREADY DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE SAME . REGARDING ONE MORE SPECIFIC INSTANCE GIVEN BY THE ASSESSING OFFICER OF PACKING EXPENSES OF RS.334,987/-, WE FIND THAT THE SALE DURING THE PRES ENT YEAR IS ONLY OF RS.6,01,836/- AND CLOSING STOCK IS OF RS.1692/- ONL Y. IT IS HELD BY THE LD CIT(A) THAT 50% OF THE EXPENSES CLAIMED UNDER THE HEAD PAC KING EXPENSES BE ALLOWED. 50% OF SUCH PACKING EXPENSES COMES TO RS.1,67,493.5 0 WHICH IS EQUAL TO ABOUT 27% OF SALES AND CLOSING STOCK OF THE PRESENT YEAR. NOTHING HAS BEEN PRODUCED BEFORE US TO SHOW AND JUSTIFY THAT ACTUAL PACKING E XPENSES IS MORE THAN THIS PERCENTAGE OF GOODS PRODUCED AND HENCE ON THIS ASPE CT ALSO, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD CIT(A). FOR THE BALANCE AMOUNT OF DISALLOWANCE I.E. RS.8,37,517./- (RS.15 LAKHS RS. 3,27.496/- - RS.3,34,987/-), WE FIND NO BASIS FOR MAKING SUCH DISALLOWANCE IN THE A BSENCE OF ANY OTHER INSTANCE OF THE EXPENSES BEING CAPITAL NATURE OR EXPENSES NO T SUPPORTED BY EVIDENCE AND HENCE THIS AMOUNT OF DISALLOWANCE I.E. RS.8,37,517/ - IS ALSO DELETED IN ADDITION TO THE AMOUNT OF RS.167493.50 DELETED BY LD CIT(A).. T HIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S PARTLY ALLOWED AS INDICATED ABOVE. 13. ORDER PRONOUNCED IN THE OPEN COURT ON 4TH DECEM BER, 2009. SD/- SD/- (GEORGE MATHAN) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 4 .12.2009. HMS . I.T.A. NO3593/DEL/09 6/6 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI).