VIVEK I GUPTA, MUMBAI V. ITO 12(2)2, MUMBAI

ITA 3598/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2182 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 07-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA
• Keywords: Deemed dividend

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI N.K . BILLAIYA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER / I .T.A. NO . 3598/MUM/2013 ( / ASSESSMENT YEAR : 2009 - 10 SHRI VIVEK I GUPTA, D/21, DHANRAJ MAHAL, CSM MARG, COLABA, MUMBAI - 400 039 / VS. THE ITO - 12(2)(2), AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN/GIR NO. : AAEPG 1004E ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI VIJAY MEHTA / RESPONDENT BY: SHRI PAWAN KUMAR BEERLA / DATE OF HEARING : 01 . 1 2 .2015 / DATE OF PRONOUNCEMENT : 09 .12 .2015 / O R D E R PER N.K. BILLAIYA, AM: WITH T HIS APPEAL THE ASSESSEE HAS CHALLENGED THE CORRECTNESS OF THE ORDER OF THE LD. CIT(A) - 23 , MUMBAI D ATED 7 .0 3 .201 3 PERTAINING TO ASSESSMENT YEAR 200 9 - 1 0. 2. THE SOLE GRIEVANCE OF THE ASSESSEE RELATES TO THE ADDITION MADE U/S. 2(22)(E) OF THE ACT MADE BY THE AO AT RS. 81,07,672/ - WHICH IS ENHANCED BY THE LD. CIT(A) TO RS. 1,64,57,672/ - . ITA. NO. 3598/M/2013 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRADER IN S HARES AND DERIVATIVES AND COMMODITIES. THE RETURN FOR THE YEAR WAS FILED ON 23.9.2009 DECLARING TOTAL INCOME AT RS. 7,10,106/ - . THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE IS A DIRECTOR IN GUPTA EQUITIES PVT. LTD IN WHICH THE ASSESSEE IS HAVING SUBSTANTIAL INTEREST AS PER THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT. T HE ASSESSEE WAS ASKED TO PRODUCE THE LEDGER ACCOUNT WITH THE SAID COMPANY ALONGWITH THE BALANCE SHEET OF THE COMPANY. ON SCRUTINIZING THE LEDGER ACCOUNT, THE AO FOUND THAT THE SAID COMPANY HAS MADE PAYMENTS/ADVANCES TO THE ASSESSEE. INVOKING THE PROVISIO NS OF SEC. 2(22)(E) OF THE ACT, THE AO TREATED A SUM OF RS. 81,07,672/ - AS DEEMED DIVIDEND WITHIN THE PROVISIONS OF SEC 2(22)(E) OF THE ACT. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND VEHEMENTLY CONTENDED THAT THE ASSESSEE WAS ONE OF THE CLIENTS OF GUPTA EQUITIES PVT. LTD WHICH COMPANY IS TRADING IN DERIVATIVES IN THE STOCK MARKET. IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT THE TRANSACTIONS ARE PURELY COMMERCIAL IN NATURE AND THEREFORE OUTSIDE THE AMBIT OF SEC. 2(22)(E) OF TH E ACT. 5.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS IN THE LIGHT OF THE COPIES OF THE LEDGER ACCOUNT, THE LD. CIT(A) OBSERVED THAT THE ADVANCES HAVE NO NEXUS TO THE TRADING ACTIVITY CARRIED OUT BY THE ASSESSEE. THE LD. CIT(A) WENT ON TO COMPUTE THE DEEMED DIVIDEND AS ITA. NO. 3598/M/2013 3 PER THE CALCULATION INCORPORATED AT PARA - 2.8 ON PAGE - 8 OF HIS ORDER AND COMPUTED THE DEEMED DIVIDEND AT RS. 1,64,57,672/ - . SINCE THE ADDITIONS MADE BY THE AO WERE AT RS. 81,07,672/ - , A NOTICE OF ENHANCEMENT WAS ISSUED AND SERVED UP ON THE ASSESSEE AND FINALLY THE ADDITION WAS CONFIRMED AT RS. 1,64,57,672/ - . 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERAT ED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE IS MAINTAINING TWO LEDGER ACCOUNT WITH THE COMPANY M/S. GUPTA EQUITIES PVT. LTD., ONE ACCOUNT RELATES TO THE MARGIN MONEY IN RELATION TO THE TRANSACTIONS IN THE DERIVATIVES AND THE SECOND ACCOUNT RELATES TO THE MARK - TO - MARK ET PRO FIT/LOSS ARISING OUT OF THE SAID TRANSACTION. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE RESPECTIVE LEDGER ACCOUNTS. THE LD. COUNSEL EXPLAINED THE NATURE OF TRANSACTION BY POINTING OUT THAT THE SAID TRANSACTIONS WERE DONE IN THE ORDINARY COURSE OF BUSINESS OF TRADING IN DERIVATIVES, THEREFORE, THE TRANSACTIONS ARE OUTSIDE THE PURVIEW OF SEC. 2(22)(E) OF THE ACT. STRONG RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS AMBASSADOR TRAVELS PVT. LT D. 318 ITR 376. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF PRADIPKUMAR MALHOTRA VS CIT 338 ITR 538. THE LD. COUNSEL CONCLUDED BY STATING THAT SINCE THE TRANSACTIONS ARE PURELY COMMERCIAL IN NATURE, THE REFORE, PROVISIONS OF SEC. 2(22)(E) OF THE ACT CANNOT BE APPLIED. ITA. NO. 3598/M/2013 4 8. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE FINDINGS OF THE LD. CIT(A) BUT COULD NOT BRING ANY DECISION IN FAVOUR OF THE REVENUE. 9. WE HAVE GIVEN A THOUG HTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW AND WITH THE ASSISTANCE OF THE LD. COUNSEL WE HAVE GONE THROUGH THE RELATED DOCUMENTARY EVIDENCES BROUGHT ON RECORD AND REFERRED TO. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS HAVING SUBSTANTIA L SHARE HOLDING IN GUPTA EQUITIES PVT. LTD. IT IS ALSO AN UNDISPUTED FACT THAT THE SAID COMPANY IS TRADING IN DERIVATIVES IN THE STOCK MARKET AND LIKE MANY OTHER CLIENTS , T HE ASSESSEE WAS ALSO HAVING MARGIN MONEY ACCOUNT IN THE SAID COMPANY. 9.1. ON PERUSAL OF THE LEDGER ACCOUNT RELATING TO MARGIN MONEY SHOWS THAT THE COMPANY WAS INDEBTED TO THE ASSESSEE BY A SUM OF RS. 1.46 CRORES AND DURING THE COURSE OF THE YEAR, THE COMPANY HAS REFUNDED THE MARGIN MONEY . ON PERUSAL OF THE SECOND LEDGER ACCOUNT RELATING TO MARK TO MARKET LOSSES/PROFIT SHOW THAT IN THAT LEDGER ACCOUNT ALSO THE OPENING BALANCE IS A CREDIT BALANCE WITH MEANS THAT THE COMPANY WAS INDEBTED TO THE ASSESSEE AT THE BEGINNING OF THE YEAR AND DURING THE COURSE OF THE YEAR, NOTIONAL LOSSES WERE DEBITED BY THE COMPANY IN THIS ACCOUNT. THUS, A CLOSE PERUSAL OF THE BOTH LEDGER ACCOUNTS SHOWS THAT THE ASSESSEE AND THE COMPANY HAVE ENTERED INTO NORMAL BUSINESS TRANSACTION AS A PART OF ITS DAY TODAY BUSINESS ACTIVITIES. THE RATIO LAID DOWN BY T HE HONBLE HIGH COURT OF DELHI IN THE CASE OF AMBASSADOR TRAVELS PVT. LTD.(SUPRA) SQUARELY APPLY WHEREIN THE HONBLE HIGH COURT HAS LAID DOWN THE RATIO THAT THE FINANCIAL TRANSACTIONS IN ANY CIRCUMSTANCES COULD NOT BE TREATED AS ITA. NO. 3598/M/2013 5 LOANS OR ADVANCES AND THER EFORE SEC. 2(22)(E) IS NOT APPLICABLE. A SIMILAR VIEW HAS TAKEN BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS RAJ KUMAR 318 ITR 462 WHEREIN IT WAS HELD THAT THE TRADE ADVANCES GIVEN TO THE ASSESSEE BY THE COMPANY COULD NOT BE TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. ONCE AGAIN, THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS CREATIVE DYEING & PRINTING PVT. LTD. 318 ITR 476 HAS REITERATED WHAT HAS BEEN HELD IN THE CASE OF AMBASSADOR TRAVELS PVT. LTD. AND RAJ KUMAR (SUPRA). I N THIS CASE ALSO, THE HONBLE HIGH COURT DISMISSED THE APPEAL OF THE REVENUE HOLDING THAT THE AMOUNT ADVANCED FOR BUSINESS TRANSACTION BETWEEN THE ASSESSEE COMPANY AND ITS SISTER CONCERN DID NOT FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND U/S. 2(22)(E) O F THE ACT. RESPECTFULLY FOLLOWING THE DECISIONS OF THE HONBLE HIGH COURT (SUPRA) IN THE LIGHT OF THE TRANSACTIONS IN THE CASE IN HAND, WE HAVE NO HESITATION TO HOLD THAT THE TRANSACTIONS WERE DONE IN THE NORMAL COURSE OF BUSINESS AND THEREFORE ARE OUTS IDE THE AMBIT OF THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT. WE, THEREFORE, SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ENTIRE ADDITION OF RS. 1,64,57,672/ - . 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH DECEMBER , 2015 SD/ - SD/ - ( PAWAN SINGH ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 9 TH DECEMBER , 2015 . . ./ RJ , SR. PS ITA. NO. 3598/M/2013 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI