The Asstt. Commissioner of Income-tax, Jammu V. M/s. G.I. Power Corporation Ltd, Jalandhar

ITA 372/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8779 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-03-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 06-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K AGGARWAL
• Keywords: Business expenditure; Principle of natural justice; Deemed dividend; Notional interest; Capital expenditure
• Section: 68; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR BEFORE SH. A.D.JAIN, HONBLE JUDICIAL MEMBER AND SH. T.S. KAPOOR, HONBLE ACCOUNTANT MEMBER I.T.A NO. 305(ASR)/2014 ASSESSMENT YEAR: 2007-08 M/S. GI POWER CORPORATION LTD. 2 ND FLOOR, B1/E3, MOHAN CO- OPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI-110044. PAN:AABCG5354K VS. DY. CIT, CIRCLE-II, JAMMU. (APPELLANT) (RESPONDENT) I.T.A NO.372(ASR)/2014 ASSESSMENT YEAR: 2007-08 ACIT, CIRCLE-2, JAMMU. VS. M/S. GI POWER CORPORATION LTD. 77-KALI JANI, JAMMU. PAN:AABCG5354K (APPELLANT) (RESPONDENT) APPELLANT BY: SH. V. K. AGGARWAL RESPONDENT BY: SH. TARSEM LAL (DR.) DATE OF HEARING: 01.03.2016 DATE OF PRONO UNCEMENT: 23.03.2016 ORDER PER BENCH: THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST THE ORDER OF LEARNED CIT(A) DATED 2 0.03.2014 FOR ASST. YEAR 2007-08. 2. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE REPRODUCED BELOW: ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 2 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLATE ORDER PASSED BY THE LD. CIT- (A) IS ILLEGAL BEING A GAINST THE PRINCIPLES OF NATURAL JUSTICE AND AGAINST THE PROVI SIONS OF IT ACT, 1961. 2. THE LD. CIT-(A) HAS GROSSLY ERRED ON FACTS AS WELL AS IN LAW IN CONFIRMING THE ADDITION OF RS. 30,00,000/- AND RS.5 ,00,000/- ON ACCOUNT OF OLD ICDS RECEIVED FROM M/S TANS INVESTM ENT PVT. LTD. & M/S HARPRASHAD & CO. LTD. RESPECTIVELY IN EA RLIER YEARS. 3. THE LD. C1T-(A) HAS GROSSLY ERRED ON FACTS AS WELL AS IN LAW IN CONFIRMING THE ADDITION OF RS. 22,54,758/- BEING AM OUNTS REIMBURSED TO M/S GOETZE (INDIA) LTD., M/S GOSSINI FASHIONS LTD. AND M/S AKME PROJECTS LTD. WHICH HAVE INCURRED BUSINESS EXPENDITURE ON BEHALF OF THE APPELLANT. 4. THE LD. CIT-(A) HAS GROSSLY ERRED ON FACTS AS WELL AS IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.1,16,64,875- BEIN G 75% OF FOREIGN TRAVELLING EXPENSES OF THE DIRECTORS. 5. THE LD. CIT-(A) HAS GROSSLY ERRED ON FACTS AS WEL L AS IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 10,61,949/- BEIN G LEGAL & PROFESSIONAL EXPENSES. 6. THE LD. CIT-(A) HAS GROSSLY ERRED ON FACTS AS WE LL AS IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 10,08,690/- BEIN G 100% OF THE TELEPHONE, POSTAGE & TELEGRAM EXPENSES AS IF THE OF FICE CAN BE RUN WITHOUT THESE FACILITIES. 7. THE LD. CIT-(A) HAS GROSSLY ERRED ON FACTS AS WE LL AS IN LAW IN HOLDING THAT THE AMOUNT OF RS. 18,75,00,000/- R ECEIVED BY THE APPELLANT FROM M/S JOINT INVESTMENT PVT. LTD. IS NO T AN ICD BUT LOAN COVERED U/S 2(22)(E). 8. THE LD. CIT-(A) HAS GROSSLY ERRED ON FACTS AS WELL AS IN LAW IN DIRECTING THE LD. AO OF SH. ANIL NANDA TO CONSIDER THE APPLICABILITY OF DEEMED DIVIDEND IN THE HANDS OF SH . ANIL NANDA THOUGH HE WAS NOT IN APPEAL BEFORE HIM AND WITHOUT PROVIDING ANY OPPORTUNITY OF HEARING TO SH. ANIL NANDA. 9. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY AN D WITHDRAW ANY GROUND OF APPEAL BEFORE OR DURING THE APPELLATE PROCEEDINGS. WHEREAS THE FOLLOWING GROUNDS OF APPEAL HAS BEEN TA KEN BY THE REVENUE. (I) WHETHER THE COMMISSIONER OF INCOME TAX (APPEAL S), JAMMU WAS RIGHT IN LAW TO ALLOW RELIEF IN RESPECT OF ADDITION AS DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT,1961. ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 3 (II) WHETHER THE COMMISSIONER OF INCOME TAX(APPEALS ), JAMMU WAS RIGHT IN LAW TO ALLOW RELIEF IN RESPECT OF ADDITION MADE ON REIMBURSEMENT OF EXPENSES. (II) WHETHER THE COMMISSIONER OF INCOME TAX (APPEAL S), JAMMU WAS RIGHT IN LAW TO ALLOW RELIEF IN RESPECT OF ADDITION MADE ON ACCOUNT OF UNEXPLAINED EXPENSES DEBITED TO THE P/L ACCOUNT. (IV) WHETHER THE COMMISSIONER OF INCOME TAX(APPEAL S), JAMMU WAS RIGHT IN LAW TO ALLOW RELIEF IN RESPECT OF ADDITION MADE ON ACCOUNT OF INTEREST FREE ADVANCES. 3. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT THE ASSESSEE FILED RETURN OF INCOME DECLARING NET LOSS OF RS.1,57,86,712/-. THE CASE OF THE ASSESSEE WAS SELE CTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER MADE THE FOLLOWING ADDITIONS: (I) DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT AT RS.18.75 CRORES. (II) ADDITION ON ACCOUNT OF UNCONFIRMED UNSECURED LOANS 35 LACS. (III) REPAYMENT OF EXPENSES U/S 40A 2(B) RS.7,55,4 31/-. (IV) ADDITION AN ACCOUNT OF DISALLOWANCE OF EXPENS ES AMOUNTING TO RS.1,97,55,276/-. (V) ADDITION AN ACCOUNT OF NOTIONAL INTEREST ON IN TEREST FREE ADVANCE RS.14,89,911/-. (VI) ADDITION ON ACCOUNT VIOLATION OF PROVISIONS O F SECTION 40(I)(A) RS.10,08,975/-. 4. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE LEA RNED CIT(A) AND SUBMITTED VARIOUS SUBMISSIONS. THE LEARNED CIT(A) F ORWARDED THE SUBMISSIONS TO ASSESSING OFFICER AND OBTAINED REMAN D REPORT FROM HIM AND ON THE BASIS OF REMAND REPORT AND REJOINDER TO REMAND REPORT AND OTHER MATERIALS ON RECORD PARTLY ALLOWED THE RELIEF TO ASSESSEE BY HOLDING AS UNDER: ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 4 6. DETERMINATION: I HAVE CONSIDERED THE FINDING S OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, SUBMISSIONS OF THE APPELLANT THROUGH TWO AUTHORIZED REPRESENTATIVES SEPARATELY, REMAND REPORT BY THE ASSESSING OFFICER AND REJOINDER TO THE REMAN D REPORT BY THE APPELLANT. VARIOUS GROUNDS ARE DECIDED AS UNDER: 6.1 GROUND OF APPEAL NO 1 IS GENERAL IN NATURE, REQ UIRES NO ADJUDICATION AND ACCORDINGLY DISMISSED. 6.2. GROUND OF APPEAL NO 2 RELATES TO ADDITION OF RS 18,75,00,000/- BY INVOKING THE PROVISIONS OF SECTIO N 2(22)(E) OF THE ACT. THE APPELLANT HAS ARGUED THAT THE APPELLANT CO MPANY IS NOT A SHAREHOLDER OF M/S JOINT INVESTMENT (P) LTD AND ACC ORDINGLY THE PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE T O THE APPELLANT COMPANY. THE APPELLANT HAS FURTHER ARGUED THAT THE AMOUNT RECEIVED BY M/S JOINT INVESTMENT (P) LTD IS IN THE NATURE OF DEPOSIT AND NOT LOANS. THE MATTER WAS REMANDED .TO THE AO F OR VERIFICATION AND HIS COMMENTS THEREON. I HAVE GONE THROUGH THE SUBMISSION OF THE APPELLANT , ASSESSMENT ORDER AND REMAND REPORT. THE PLEA OF THE APPELLANT THAT THE AMOUNT RECEIVED IS IN THE NATURE OF DEPOSIT AND NOT LOAN I S NOT ACCEPTABLE. THE APPELLANT HIMSELF IN ITS SUBMISSION DATED 30.12 .2012 HAS ACCEPTED THAT THE APPELLANT COMPANY HAS RECEIVED LO AN FROM M/S JOINT INVESTMENT (P) LTD. FURTHER, THE APPELLANT HA S FAILED TO JUSTIFY HIS ARGUMENTS AND PROVIDE THE NATURE AND REASONS FO R SUCH DEPOSITS. ANOTHER PLEA OF THE APPELLANT THAT THE PROVISION OF SECTION 2(22)(E) OF THE ACT COULD NOT BE INVOKED AS THE APPELLANT COMPA NY IS NOT A SHARE HOLDER OF M/S JOINT INVESTMENT (P) LTD IS ALS O NOT ACCEPTABLE. THE PROVISIONS OF SECTION 2(22)(E) WERE AMENDED WIT H EFFECT FROM 1ST APRIL, 1988, BY THE FINANCE ACT, 1987. PRIOR TO THE AMENDMENT, ONLY A LOAN OR ADVANCE TO A SHAREHOLDER, BEING A PERSON WHO HAD A SUBSTANTIAL INTEREST IN A COMPANY, OR ANY PAYMENT B Y ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, O F ANY SUCH SHAREHOLDER, WAS TAXABLE AS DIVIDEND. THE AMENDMENT INTRODUCED THE REQUIREMENT OF THE SHAREHOLDER BEING A BENEFICI AL OWNER OF SHARES HOLDING NOT LESS THAN 10% OF THE VOTING POWE R, AS WELL AS EXTENDED THE DEFINITION TO CONCERNS IN WHICH SUCH S HAREHOLDER WAS A MEMBER OR PARTNER, IN WHICH HE HAS A SUBSTANTIAL INTEREST. THIS AMENDMENT ALSO INSERTED THE DEFINITION OF 'CONCERN' IN EXPLANATION 3(A), TO MEAN AN HUF, OR A FIRM, OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY. SECTION 2(22)(E) - DIVIDEND INCLUDES ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC AR E ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 5 SUBSTANTIALLY INTERESTED, OF ANY SUM BY WAY OF ADVA NCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BE NEFICIAL OWNER OF SHARES HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTAN TIAL INTEREST OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHA LF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER , TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSE S ACCUMULATED PROFITS. FURTHER EXPLANATION 3 IS REPRODUCED AS UNDER: (A) A 'CONCERN' MEANS A HINDU UNDIVIDED FAMILY, OR A F IRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY ; (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INT EREST IN ACONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TI ME DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS TH AN TWENTY PER CENT OF THE INCOME OF SUCH CONCERN ;] IN THE PRESENT CASE THE PAYMENT HAS BEEN MADE BY M/ S JOINT INVESTMENT (P) LTD TO THE APPELLANT COMPANY IN WHIC H SH. ANIL NANDA HAVING 27.90% OF SHAREHOLDING OF APPELLANT CO MPANY IS ALSO A SHAREHOLDER WITH 65.6% SHAREHOLDING IN M/S JOINT INVESTMENT (P) LTD. THEREFORE, ON THE PERUSAL OF THE SECTION 2(22) (E), IT IS OBSERVED THAT, THE AO HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ON THE PAYMENT OF RS 18.75 CRORE BY M/S JOI NT INVESTMENT (P) LTD TO THE APPELLANT COMPANY. THE HON'BLE ITAT BENCH MUMBAI IN THE CASE OF SKYLINE INDIA RECRUIT COMPANY (P)LTD VS ITO (2008} 24 SOT 402 (MUM) HAS HELD THAT FOR APPLICABILITY OF S. 2(22)(E), IT IS NOT NECESSARY THAT THE PAYER OR THE PAYEE MUST HAVE SHA REHOLDINGS IN OTHER COMPANY. IF THE LOANS AND ADVANCES ARE GIVEN BY ONE COMPANY TO OTHER COMPANY IN WHICH THE SHAREHOLDER I S COMMON HAVING SUFFICIENT HOLDING OR HAS A BENEFICIAL INTER EST IN BOTH THE COMPANIES, PROVISIONS OF S. 2(22)(E) CAN BE INVOKED . NOW THE QUESTION ARISES IN WHOSE HANDS , THE DEEMED DIVIDEND SO DETERMINED SHOULD BE TAXED. THE FACT THAT A COMPANY IS SPECIFICALLY LISTED AMONG THE ENTITIES THAT ARE REGARDED AS 'CON CERN' INDICATES THAT THE INTENTION IS ALSO TO ROPE IN LOANS OR ADVA NCES TO COMPANIES AND PARTNERSHIP FIRMS, AND TO ACHIEVE THAT THE PAYM ENTS TO SUCH CONCERNS HAS TO BE TAXED BUT WILL BE TAXED IN THE H ANDS OF SUCH PERSON WHO OWNS SHARES WITH CERTAIN PERCENTAGE OF V OTING RIGHTS AND SHAREHOLDERS HOLDING A SUBSTANTIAL INTEREST IN THE COMPANY. ON THE PERUSAL OF PROVISIONS OF THE ACT AND RELEVAN T JUDGMENTS , I AM OF THE OPINION THAT SINCE THE ENTIRE PURPOSE IS TO TAX DIVIDENDS, AND DIVIDENDS CAN ARISE ONLY TO THE SHAREHOLDER, IT IS ONLY THE SHAREHOLDER WHO CAN BE TAXED, EVEN IF THE ADVANCE I S TO A CONCERN IN WHICH HE IS SUBSTANTIALLY INTERESTED, SINCE THE SHAREHOLDER IS DERIVING AN INDIRECT ADVANTAGE OR BENEFIT THROUGH S UCH CONCERN. ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 6 ACCORDINGLY , IT IS DIRECTED TO DELETE THE ADDITION IN THE HANDS OF THE APPELLANT COMPANY AND PASS THE INFORMATION TO THE A O OF SH ANIL NANDA WHO HAS SUBSTANTIAL INTEREST IN BOTH THE PAYE R AND PAYEE COMPANY TO CONSIDER THE APPLICABILITY OF DEEMED DIV IDEND IN HIS HANDS. SH ANIL NANDA WAS HOLDING 65.6 % SHARE CAPIT AL OF JOINT INVESTMENTS PVT LTD AND 27.90% SHAREHOLDING IN G I POWER CORPORATION LTD AS ON 31.03.2007. FOR THE PURPOSE O F PROVISIONS OF SECTION 2(22)(E), EXPLANATION 3 PROVIDES THAT A PER SON SHALL BE DEEMED TO HAVE SUBSTANTIAL INTEREST FOR THE PURPOS E OF SECTION 2(22)(E), EXPLANATION 3 PROVIDES THAT A PERSON SHAL L BE DEEMED TO HAVE SUBSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIME DURING THE PREVIOUS YEAR, BENEFICIA LLY ENTITLED TO NOT LESS THAN TWENTY PERCENT OF THE INCOME OF SUCH CONC ERN. THEREFORE, THE DEEMED DIVIDEND IS NOT TAXABLE IN THE HANDS OF COMPANY BUT TO THE SHAREHOLDER HAVING SUBSTANTIAL INTEREST IN BOTH THE COMPANIES. IN A SIMILAR ISSUE OF M/S GTZ SECURITIES LTD (SISTE R CONCERN OF THE APPELLANT COMPANY) HON'BLE ITAT (AMRITSAR) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WHICH WAS SUBSEQUENTLY UPHEL D BY THE HON'BLE HC OF J&K. FOLLOWING THE ABOVE DECISIONS RE SPECTFULLY, THIS GROUND OF APPEAL OF THE APPELLANT COMPANY IS ALLOWE D AND HENCE A RELIEF OF RS 18,75,00,000/-. 6.3. GROUND OF APPEAL NO 3 RELATES TO ADDITI ON OF RS 35,00,000/- AS UNEXPLAINED UNSECURED LOAN. THE APPE LLANT HAS ARGUED THAT THE LOAN OF RS 30,00,000/- WAS OUTSTAND ING IN THE NAMES OF M/S TANS INVESTMENT (P) LTD AND RS 5,00,00 0/- IN THE NAME OF M/S HARPRASHAD & CO (P) LTD. THE APPELLANT HAS ARGUED THAT SINCE THE SAID LOANS HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS IN THE ASSESSMENT YEAR 2012-13 AND ACCORDI NGLY THE ADDITION OF SUCH AMOUNT WOULD LEAD TO DOUBLE TAXATI ON. I HAVE GONE THROUGH THE SUBMISSION OF THE APPELLANT AND ASSESSM ENT ORDER. IT IS NOTICED THAT THE AO MADE THE ADDITION OF RS 35,00,0 00/- IN THE INCOME OF THE APPELLANT FOR THE ASSESSMENT YEAR 200 7-08 AND PASSED THE ORDER ON 31.12.2009. THE ACTION OF THE A PPELLANT BY WRITING OFF SUCH AMOUNT IN THE FINANCIAL YEAR RELEV ANT TO ASSESSMENT YEAR 20012-13 ITSELF CLARIFIES THAT THE SAID AMOUNT S STANDING IN THE BOOKS OF THE APPELLANT WERE NOT PAYABLE BY THE APPE LLANT AND THEREFORE, JUSTIFIES THE ADDITION MADE BY THE AO. T HE PLEA OF THE APPELLANT THAT IT HAS WRITTEN OFF THESE AMOUNTS ITS ELF IN THE BOOKS OF THE COMPANY IS NOT ACCEPTABLE AS SUCH ACTION WAS TA KEN BY THE COMPANY LONG AFTER THE ADDITION WAS MADE BY THE AO ONLY TO AVOID THE INTEREST ON TAX ON SUCH ADDITION AND PENALTY IN ITIATED BY THE AO ON SUCH ADDITION. THIS GROUND OF APPEAL OF THE APPE LLANT IS THEREFORE DISMISSED. HOWEVER, THE APPELLANT MAY REVISE THE RE TURN FOR THE ASSESSMENT YEAR 2012-13 OR FILE RECTIFICATION APPLI CATION U/S 154 FOR THE SAID YEAR TO AVOID DOUBLE TAXATION. 6.4. GROUND OF APPEAL NO 4 RELATES TO ADDITI ON OF RS 7,14,870/- AND RS 15,803/- ON ACCOUNT OF REIMBURSEMENT OF EXPE NSES BY INVOKING THE PROVISIONS OF SECTION 40(A)(2)(B) OF T HE ACT. THE ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 7 APPELLANT HAS ARGUED THAT THESE EXPENSES WERE INCUR RED ON BEHALF OF SISTER CONCERNS AND WERE REIMBURSED BY THOSE CON CERNS. THESE EXPENSES WERE NOT BOOKED IN THE PROFIT AND LOSS ACC OUNT AND ACCORDINGLY NO DISALLOWANCE IS CALLED FOR. THE MATT ER WAS REMANDED TO THE AO FOR VERIFICATION AND THE AO IN HIS REMAND REPORT HAS NOT MADE ANY ADVERSE COMMENT ON THE PLEA OF THE APPELLA NT. THEREFORE, SINCE THE EXPENSES WERE NOT CLAIMED IN THE PROFIT A ND LOSS ACCOUNT, THE DISALLOWANCE OF SUCH EXPENSES IS NOT JUSTIFIED. THIS GROUND OF APPEAL IS ACCEPTED AND A RELIEF OF RS 7,30,673/- IS ALLOWED. 6.5. GROUND OF APPEAL NO 5 RELATES TO ADDI TION OF RS 52,22,424/-, RS 3,271/- AND RS 15,29,063/- ON ACCOU NT OF EXPENSES INCURRED BY THE SISTER CONCERNS ON BEHALF OF THE APPELLANT COMPANY FOR WHICH NO EXPLANATION IN RESPECT ON NATU RE OF EXPENSES, ITS SUPPORTING VOUCHERS AND APPLICABILITY OF 40(A)(IAL WAS EXPLAINED OR PROVIDED BY THE APPELLANT. THE APPELLANT HAS ARG UED THAT THESE PAYMENTS INCLUDE RS 30,00,000/- ON ACCOUNT OF ADVAN CE FOR BOOKING OF CAR TO RAJPAL MOTORS AND BALANCE AMOUNT REPRESENTS VARIOUS EXPENSES INCURRED BY GOETZE INDIA LTD & AKM E PROJECTS PVT LTD ON BEHALF THE APPELLANT COMPANY. THE MATTER WAS REMANDED TO THE AO FOR VERIFICATION AND COMMENTS. ON THE PERUSA L OF SUBMISSION OF APPELLANT, REMAND REPORT AND ASSESSMENT ORDER, I T IS NOTICED THAT THE APPELLANT HAS MADE REIMBURSEMENT OF PAYMENTS MA DE BY THE SISTER CONCERN ON ITS BEHALF. HOWEVER, THE APPELLAN T COULD NOT PRODUCE THE NECESSARY DOCUMENTS TO JUSTIFY THAT THE SAID EXPENDITURE INCURRED BY THE SISTER CONCERN OF THE A PPELLANT COMPANY ON BEHALF OF THE APPELLANT COMPANY ARE ALLOWABLE EX PENSES EXCEPT FOR RS 15,00,000/- PAID BY AKME PROJECTS PVT LTD AS ELECTRICITY DUTY ON BEHALF OF APPELLANT COMPANY. REGARDING THE AMOUN T OF RS 30,00,000/-, IT IS OBSERVED THAT SINCE THE AMOUNT O F RS 30,00,000/- WAS PAID AS ADVANCE FOR BOOKING OF CAR, THE SAME IS CAPITAL EXPENDITURE AND CANNOT BE ADDED TO THE INCOME OF TH E APPELLANT. THE APPELLANT COMPANY COULD NOT PRODUCE VALID PRIMA RY SUPPORTING DOCUMENTS IN RESPECT OF OTHER EXPENSES. THEREFORE, IT IS DIRECTED TO DELETE THE ADDITION OF RS 30,00,000/- BEING CAPITAL EXPENDITURE & RS 15,00,000/- BEING ALLOWABLE EXPENDITURE AND UPHE LD THE BALANCE ADDITION OF RS 22,54,758/-. THUS, THIS GROU ND OF APPEAL IS PARTLY ALLOWED. 6.6. GROUND OF APPEAL NO 6 RELATES TO DISALLOW ANCE OF TRAVELLING EXPENSES AMOUNTING TO RS 1,69,23,913/- ON THE GROUN D THAT NO DETAILS, VOUCHERS , NATURE AND BUSINESS EXPEDIENCY OF SUCH A HUGE EXPENDITURE ON TRAVELLING WAS PROVIDED BY THE APPEL LANT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT HAS FILED DETAILS OF TRAVELLING EXPENSES WHICH WERE REMANDED TO THE AO F OR VERIFICATION. THE AO IN HIS REMAND REPORT HAS REPORTED THAT OUT O F RS 1,69,23,913/-, RS 1,55,53,166/- HAS BEEN EXPENDED O N FOREIGN TRAVEL OF THE DIRECTORS AND THE NARRATION MADE BY T HE APPELLANT IN THE SUB LEDGER MENTIONS THAT THE TRAVELS ARE MADE F OR EXPLORING FURTHER BUSINESS OPPORTUNITIES. ON PERUSAL OF SUBMI SSION OF THE ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 8 APPELLANT, ASSESSMENT ORDER AND REMAND REPORT, IT I S NOTICED THAT THERE IS NO BUSINESS OF THE COMPANY IN THE FOREIGN COUNTRIES VISITED BY THE DIRECTORS. THE PLEA OF THE APPELLANT THAT TH E EXPENDITURE OF RS 1.69 CRORE ON FOREIGN TRAVEL WAS WHOLLY EXPENDED FO R EXPLORING NEW BUSINESS COULD NOT BE ACCEPTED. THIS EXPENDITURE IN CLUDED TRAVEL EXPENSES OF PERSONAL ATTENDANT OF THE DIRECTOR. THE RESULT OF SUCH HUGE EXPENSES ON FOREIGN TRAVELLING SHOULD HAVE BEE N REFLECTED IN SOME WIDENING OF BUSINESS OPPORTUNITY AND POTENTIAL , WHICH IS NOT THE CASE. THE FOREIGN TRAVEL EXPENSES ARE NOT COMME NSURATE BUT DISPROPORTIONATE TO THE INCOME. I AM OF THE OPINION THAT THE EXPENDITURE ON FOREIGN TRAVELS OF DIRECTOR IS EXCES SIVE AND INVOLVES THE EXPENDITURE OF PERSONAL NATURE AND ACCORDINGLY, IT IS DIRECTED TO UPHELD THE DISALLOWANCE OF 75% OUT OF EXPENDITURE O N FOREIGN TRAVEL (APPROX RS. 1,16,64,875/-) AND ALLOW THE BALANCE EX PENDITURE ON FOREIGN TRAVEL OF DIRECTORS, AND HIS SUPERVISORS, M ANAGER AND OTHER DOMESTIC TRAVELLING EXPENDITURE. THEREFORE, THIS GR OUND OF APPEAL IS PARTLY ALLOWED AND A RELIEF OF RS 52,59,038/- IS AL LOWED. 6.7. GROUND OF APPEAL NO 7 RELATES TO DISALLOW ANCE OF LEGAL AND PROFESSIONAL CHARGES AMOUNTING TO RS 18,22,673/- ON THE GROUND THAT NO DETAILS, VOUCHERS , NATURE AND BUSINESS EXP EDIENCY OF SUCH EXPENDITURE WAS PROVIDED BY THE APPELLANT. DURING T HE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT HAS PROVIDED T HE DETAILS OF SUCH EXPENDITURE WHICH WAS REMANDED TO THE AO FOR V ERIFICATION AND COMMENTS THEREON. THE AO IN HIS REMAND REPORT R EPORTED THAT THE APPELLANT HAS NOT PRODUCED THE NECESSARY BILLS AND VOUCHERS FOR VERIFICATION AND ACCORDINGLY THE EXPENDITURE COULD NOT BE ALLOWED. THE APPELLANT THEREAFTER, PROVIDED THE SUPPORTING D OCUMENTS ALONG WITH TDS DETAILS IN RESPECT OF EXPENSES OF RS 7,60, 724/-. THE DOCUMENTS PRODUCED BY THE APPELLANT WERE VERIFIED A ND FOUND TO BE GENUINE. THEREFORE, IT IS DIRECTED TO DELETE THE AD DITION ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES TO THE EXTENT OF RS 7,60,724/- AND UPHELD THE ADDITION OF RS 10,61,949/-.THIS GROUND O F APPEAL IS PARTLY ALLOWED. 6.8. GROUND OF APPEAL NO 8 RELATES TO DISALLOW ANCE OF TELEPHONE EXPENSES AMOUNTING TO RS 10,08,690/- ON THE GROUND THAT NO DETAILS, VOUCHERS OF SUCH EXPENDITURE WAS PROVIDED BY THE APPELLANT. DURING THE COURSE OF APPELLATE PROCEEDIN GS, THE APPELLANT HAS PROVIDED THE DETAILS OF SUCH EXPENDITURE WHICH WAS REMANDED TO THE AO FOR VERIFICATION AND COMMENTS THEREON. TH E AO IN HIS REMAND REPORT REPORTED THAT THE APPELLANT HAS NOT P RODUCED THE NECESSARY BILLS AND VOUCHERS FOR VERIFICATION AND A CCORDINGLY THE EXPENDITURE COULD NOT BE ALLOWED. THEREAFTER, THE A PPELLANT COMPANY PRODUCED CERTAIN MOBILE BILLS. ON THE PERUS AL OF THE BILLS PRODUCED BY THE APPELLANT, IT IS FOUND THAT ALL THE BILLS ARE IN THE NAME OF GOETZ INDIA LTD, EMPLOYEES OF GOETZ INDIA L TD AND EMPLOYEES OF SAMSUNG. NO BILL IS IN THE NAME OF THE APPELLATE COMPANY OR ITS EMPLOYEES. THEREFORE, IN THE ABSENCE OF VALID EVIDENCE IN SUPPORT OF THE APPELLANTS CLAIM, IT IS DIRECTED TO UPHELD ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 9 DISALLOWANCE MADE BY THE AO. THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. 6.9. GROUND OF APPEAL NO 9 RELATES TO DISALLO WANCE OF RS 14,89,911/- OUT OF INTEREST EXPENSES BEING 12% OF T HE INTEREST FREE ADVANCES OF RS 1,24,15,932/- GIVEN BY THE APPELLANT . THE APPELLANT HAS PROVIDED DETAILS OF THESE ADVANCES AND ARGUED T HAT THE DISALLOWANCE OF INTEREST EXPENDITURE MADE BY THE AO IS NOT JUSTIFIED. THE SUBMISSION OF THE APPELLANT WAS REMA NDED TO THE AO FOR VERIFICATION AND COMMENTS THEREON. THE AO IN HI S REMAND REPORT HAS REPORTED THAT MOST OF THE AMOUNT REPRESENTS THE CHARGES RECEIVABLE FROM PARTIES ARE IN THE NATURE OF DEBTOR S AND DOES NOT REPRESENTS CASH ADVANCES. THESE ADVANCES ALSO INCLU DES RS 60,00,000/- FOR PURCHASE OF VEHICLES AND RS 26,40,5 60/- BEING AMOUNT EMBEZZLED BY AN EMPLOYEE STANDING IN HIS NAM E. FROM THE PERUSAL OF SUBMISSION OF THE APPELLANT, ASSESSMENT ORDER AND REMAND REPORT, IT IS OBSERVED THAT AMOUNTS STANDING IN THE CURRENT ASSETS DOES NOT REPRESENT THE INTEREST FREE ADVANCE S AND ACCORDINGLY THE DISALLOWANCE OF INTEREST EXPENSES I S NOT JUSTIFIED. THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED AND A RELIEF OF RS 14,89,911/- IS ALLOWED. 6.10. GROUND OF APPEAL NO 10 RELATES TO DISA LLOWANCE OF RS 1,00,89,075/- OF MAINTENANCE AND OPERATION EXPENSES FOR PROFESSIONAL SERVICES PROVIDED BY M/S ENERCON (INDI A) LTD U/S 40(A)(IA) OF THE ACT AS THE APPELLANT DID NOT PROVI DE THE DETAILS OF TDS DEDUCTED/DEPOSITED AND DID NOT PRODUCE BOOKS OF ACCOUNTS FOR VERIFICATION DURING THE COURSE OF ASSESSMENT. DURIN G THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT HAS PRODUCED TH E DETAILS OF TDS DEDUCTED AND DEPOSITED ON SUCH EXPENSES BEFORE ME. THESE DETAILS WERE FORWARDED TO THE AO FOR VERIFICATION AND COMME NTS THEREON. THE AO IN HIS REMAND REPORT HAS REPORTED THAT THE T DS HAS BEEN DEDUCTED AND DEPOSITED IN ACCORDANCE WITH THE PROVI SIONS OF THE ACT ON MAINTENANCE AND OPERATION EXPENSES AND THE DISAL LOWANCE U/S 40(A)(IA) OF THE ACT IS NOT CALLED FOR. FROM THE PE RUSAL OF SUBMISSION OF THE APPELLANT, ASSESSMENT ORDER AND REMAND REPOR T, IT IS NOTICED THAT SINCE THE AO HAS VERIFIED THE TDS DEDUCTED AND DEPOSITED ON THESE EXPENSES , THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT NEEDS TO BE DELETED. THIS GROUND OF APPEAL IS ACCORDINGLY AL LOWED AND A RELIEF OF RS 1,00,89,075/- IS ALLOWED. 6.11. GROUND OF APPEAL NO.11&12 HAS BEEN WITHDRAWN BY THE APPELLANT AS THE ISSUE THEREIN HAS BEEN RECTIFIED B Y THE AO BY PASSING ORDER U/S 154 OF THE ACT. THESE GROUNDS OF APPEAL ARE THEREFORE IN FRUCTUOUS AND ACCORDINGLY DELETED. ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 10 5. AGGRIEVED WITH THE ORDERS OF LEARNED CIT(A) BOTH PARTIES ARE IN APPEAL BEFORE US. 6. AT THE OUTSET, THE LEARNED AR TOOK THE ASSESSEE S APPEAL FIRST AND TAKING GROUND NO.2, THE LEARNED AR SUBMITTED THAT T HE LOANS OF RS.30,00,0000/- AND RS.5,00,000/- WERE RECEIVED FRO M TANS INVESTMENT PVT. LTD. & M/S HARPRASHAD & CO. LTD. RESPECTIVELY IN EARLIER YEARS AND THEY WERE REFLECTED AS OPENING BALANCE AS ON 1.4.20 06 AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO PAPER BOOK PAGE 120, 8 0, 81 AND 83 AND OUR SPECIFIC ATTENTION WAS INVITED TO SCHEDULE 4 OF BAL ANCE SHEET. HE SUBMITTED THAT EVEN ASSESSING OFFICER IN HIS REMAND REPORT DATED 20.1.2014 HAD NOT DENIED THIS FACT. THEREFORE, HE A RGUED THAT SINCE THE AMOUNTS WERE NOT RECEIVED DURING THIS YEAR, THEREFO RE, THE SAME COULD NOT HAVE BEEN ADDED IN THIS YEAR. RELIANCE WAS PLAC ED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. (I) WESTFALIA SEPARATOR INDIA LTD. VS. ACIT, 108 DT R (DEL) (TRIB) 376 (II) ACIT VS. ATS PROMOTERS & BUILDERS PVT. LTD. 9 0 CCH 0172. 7. WITHOUT PREJUDICE TO THE ABOVE, IT WAS FURTHER SUBMITTED THAT BOTH THE ICDS WERE WRITTEN BACK ON 31.3.2012 AND WERE DU LY CREDITED TO P & L ACCOUNT AND IN THIS RESPECT OUR ATTENTION WAS INVIT ED TO PAPER BOOK PAGE 82. HE SUBMITTED THAT THIS FACT OF WRITTEN BACK WAS ALSO NOT DENIED BY ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 11 ASSESSING OFFICER IN HIS REMAND REPORT. HE ARGUED T HAT IT HAS BEEN JUDICIALLY SETTLED THAT NO ADDITION CAN BE MADE IN THE YEAR IN WHICH THERE IS NO REMISSION OR NO CESSATION OF LIABILITY. THE L IABILITY WAS SHOWN IN THE BALANCE SHEET AS ON 31.3.2007 AND SINCE THE ASSESSE E WAS A LIMITED COMPANY THIS AMOUNTED TO ACKNOWLEDGEMENT OF DEBTS I N FAVOUR OF THE CREDITORS. THEREFORE, HE ARGUED THAT IN VIEW OF THE CIRCUMSTANCES NO ADDITION COULD BE MADE FOR THE CREDIT OF RS.35,00,0 00/- WHICH WAS CONTINUING FROM EARLIER YEARS. RELIANCE IN THIS RE SPECT WAS PLACED ON THE FOLLOWING CASE LAWS. (I) CIT VS. NARENDRA MOHAN MATHUR, (2014)97 DTR 428 (II) CIT VS. ENAM SECURITIES PVT. LTD., (2012) 345 ITR 64 (BOM) (III) CIT VS. BHOGILAL RAMJIBHAI ATARA, 22 TAXMAN 3 13 (GUJ). (IV) CIT VS.VARDMAN OVERSEAS LTD. 343 ITR 408 (DELH I). (VI) DCIT VS. HOTEL EXCELSIOR LTD., 60 DTR 450 (DEL ) (TRIB). 8. ARGUING UPON GROUND NO.3, THE LEARNED AR SUBMITT ED THAT THE THE AMOUNTS WERE REIMBURSED TO GROUP COMPANIES M/S GOET ZE (INDIA) LTD., M/S GOSSIM FASHIONS LTD. AND M/S AKME PROJECTS LTD. WHICH HAD INCURRED BUSINESS EXPENDITURE ON BEHALF OF THE APPE LLANT, AND THEREFORE, THE PROVISIONS OF SECTION 40A(2) (B) WERE NOT APPLI CABLE TO THE ASSESSEE. WITHOUT PREJUDICE IT WAS SUBMITTED THAT DETAILS OF REIMBURSEMENT OF EXPENSES WERE ALREADY FILED EXPLAINING THE EXPENSES INCURRED BY ABOVE SISTER COMPANIES. THE LEARNED AR SUBMITTED THAT M/ S GOETZE (INDIA) LTD. HAD MADE PAYMENTS FOR MEDICLAIM INSURANCE OF ALL EM PLOYEES OF GROUP COMPANIES TO OBTAIN HANDSOME DISCOUNT FROM INSURANC E COMPANIES. IT WAS SUBMITTED THAT M/S GOETZE INDIA HAD DEBITED RS. 5,02,152/- TO THE ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 12 APPELLANT AND THREE OTHER GROUP COMPANIES AND ASSE SSEE HAD DEBITED IN P&L ACCOUNT ONLY RS.87,320/-AND BALANCE WAS DEBITED TO OTHER THREE GROUP COMPANIES AND IN THIS RESPECT OUR ATTENTION W AS INVITED TO PAPER BOOK PAGE 230-232. 9. SIMILARLY INVITING OUR ATTENTION TO THE AMOUNT O F RS.17,17,948/- INCURRED BY M/S GEOTZE (INDIA) LTD., THE LEARNED AR SUBMITTED THAT ALL THESE PAYMENTS WERE MADE TO EMPLOYEES OF THE ASSESS EE COMPANY AND HAD BEEN REFLECTED IN BALANCE SHEET AND HAS NOT BEE N DEBITED IN THE P&L ACCOUNT. IN THIS RESPECT OUR ATTENTION WAS INVITED TO PAPER BOOK PAGE 233 & 239. 10. ARGUING UPON GROUND NO.4 BEING DISALLOWANCE ON ACCOUNT OF 75% OF FOREIGN TRAVELING EXPENSES OF DIRECTORS AND OTHE R EMPLOYEES, THE LEARNED AR SUBMITTED THAT THE MAIN PURPOSE OF FOREI GN TRAVELING WAS TO MEET THE FOREIGN INVESTORS FOR THE PURPOSES OF EXPA NSION OF THE EXISTING BUSINESS OF POWER GENERATION OF WINDMILL PROJECTS. INVITING OUR ATTENTION TO PAGE 4 OF HIS WRITTEN SUBMISSIONS, THE LEARNED A R SUBMITTED THAT MAXIMUM EXPENDITURE WAS INCURRED BY MR. V.K. SINHA WHO WAS CONSULTANT. HE SUBMITTED THAT THE JOB OF MR. V.K. S INHA WAS BUSINESS DEVELOPMENT, THEREFORE, MAXIMUM TRIPS WERE UNDERTAK EN BY HIM. HE SUBMITTED THAT IT IS JUDICIALLY SETTLED THAT FOREIG N TOUR EXPENSES FOR EXPANSION OF EXISTING BUSINESS AND FOR OBTAINING LA TEST INFORMATION ON ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 13 TECHNICAL ACHIEVEMENT ARE FULLY ALLOWABLE. RELIANCE IN THIS RESPECT WAS PLACED ON THE FOLLOWING CASE LAWS . (I) I.J. TOOLS & CASTINGS (P.) LTD. VS. ACIT, (2011 ) 139 ITD 414 (AMRITSAR) (II) CIT VS. NUCHEM LTD. 20 TAXMAN. COM 814 (PUN & HAR) (III) CIT VS. J.K. SYNTHETICS LTD., 11 TAXMAN.COM. 280(DEL). (IV) DCIT VS. B2C IMPLANTS, 141 TTJ(MUM).638. IT WAS SUBMITTED THAT LEARNED CIT(A) DURING THE COU RSE OF HEARING HAD SPECIFICALLY REQUIRED ASSESSEE TO FILE VOUCHERS FOR AMOUNT EXCEEDING RS.10,00,000/- EACH AND ACCORDINGLY, THE RELEVANT V OUCHERS WERE FILED ON 11.03.2014 AND IN THIS RESPECT OUR ATTENTION WAS IN VITED TO PAPER BOOK PAGE 181. HE SUBMITTED THAT LEARNED CIT(A) DID NOT FIND ANYTHING WRONG EITHER WITH THE DETAILS OF THE EXPENDITURE OR WITH THE VOUCHERS. HOWEVER, HE DISALLOWED 75% OF EXPENDITURE PURELY ON THE BASI S OF SURMISES AND CONJECTURES. 11. ARGUING UPON THE GROUND NO.5, THE LEARNED AR SU BMITTED THAT EXPENSES WERE INCURRED ON LEGAL AND PROFESSIONAL EX PENSES AND DETAILS OF SUCH EXPENSES WERE FILED INDICATING THE PURPOSE OF EACH EXPENDITURE. DURING THE COURSE OF HEARING THE LEARNED CIT(A) SPE CIFICALLY REQUIRED THE ASSESSEE TO FILE VOUCHERS FOR AMOUNT EXCEEDING RS.1 ,00,000/-. ACCORDINGLY, THE VOUCHERS WERE FILED VIDE LETTER DA TED 11.03.2014 AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO PAPER BOO K PAGE 180. THE LEARNED CIT(A) ALLOWED THE EXPENDITURE FOR WHICH TH E VOUCHERS WERE FILED AND THE BALANCE WAS DISALLOWED FOR WHICH VOUCHERS W ERE NOT FILED. THE ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 14 LEARNED AR SUBMITTED THAT THE ASSESSEE COMPANY HAD CARRIED VOUCHERS TO JAMMU ON 28.11.2013 BUT UNFORTUNATELY THE LEARNE D AO WAS ON TOUR AND THEREFORE VOUCHERS COULD NOT BE PRODUCED, HOWEV ER, HE ARGUED THAT THE SAME CAN BE PRODUCED AT ANY TIME BEFORE ANY AUT HORITY. 12. ARGUING UPON THE GROUND NO.6, LEANED AR SUBMITT ED THAT ASSESSING OFFICER HAD DISALLOWED 100% OF THE TELEPH ONE, POSTAGE & TELEGRAM EXPENSES WHICH WAS NOT JUSTIFIED AS THESE ARE NECESSARY EXPENSES NO OFFICE CAN BE RUN WITHOUT THESE FACILIT IES. HE SUBMITTED THAT OUT OF RS.10,08,690/-, RS.7,17,631/- PERTAINS TO TE LEPHONE EXPENSES OF DIRECTORS AND RS.83002/- PERTAINS TO PESTLE/TELEGRA M/COURIER. HE SUBMITTED THAT NECESSARY DETAILS ALONG WITH THE DET AILS OF CHEQUES, BANK ACCOUNT, DETAILS OF PAYEE, DETAILS OF INVOICES, DAT E OF PAYMENT ETC. WERE PROVIDED. THE LEARNED CIT(A) DURING THE COURSE OF H EARING ON 21.2.2014 HAD SPECIFICALLY REQUIRED APPELLANT TO FILE CERTAIN VOUCHERS., ACCORDINGLY THE SAME WERE FILED. HE SUBMITTED THAT IT IS CORREC T THAT BILLS WERE IN THE NAME OF M/S GOETZE INDIA LTD. BECAUSE THE OFFICE BU ILDING LOCATED AT A- 26/3, MOHAN CO-OPERATIVE INDUSTIRAL AREA, MATHURA R OAD, NEW DELHI BELONGS TO M/S GOETZE INDIA LTD. ALL TELECOMMUNICAT ION SYSTEM WAS TAKEN BY M/S GOETZE INDIA LTD. AND THE FACILITY WAS BEING USED BY ASSESSEE AND EXPENSES WERE CHARGED TO IT. ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 15 13. ARGUING UPON GROUND NO.7, THE LEARNED AR SUBMIT TED THAT LEARNED CIT(A) HAS WRONGLY HELD THAT AMOUNT OF RS.1 8.75 CREORES RECEIVED BY APPELLANT FROM M/S JOINT INVESTMENT (P) LTD. WAS NOT AN ICD BUT WAS A LOAN COVERED U/S 2(22)(E) OF THE ACT. HE SUBMITTED THAT ASSESSEE HAD NOT TAKEN ANY LOAN OR ADVANCE FROM M/S JOINT INVESTMENT (P) LTD. COMPANY BUT M/S JOINT INVESTMENT (P) LTD. COMPANY VIDE RESOLUTION DATED 24.03.2006 HAD AUTHORIZED ITSELF T O PLACE INTER- CORPORATE DEPOSIT UPTO RS.25,00,000/- WITH THE ASSE SSEE AND SAID ICD CARRIED INTEREST @ 8% AND THE ASSESSEE HAD ACCEPTED THE ICD FOR RS.18.75 CRORES ON THE OFFERED TERMS AND CONDITIONS . ELABORATING DIFFERENCE BETWEEN ADVANCE AND DEPOSIT THE LEARNED AR SUBMITTED THAT IN THE CASE OF LOAN IT IS A DUTY OF THE DEBTOR TO REPA Y THE MONEY TO THE CREDITOR AS PER AGREEMENT WHEREAS IN THE CASE OF DE POSIT IT IS THE DEPOSITOR WHO DEMANDS REPAYMENT. AS AGAINST THIS DE POSIT ADVANCE AS OPPOSED TO DEPOSIT IS SOMETHING PAID TO A PERSON BE FORE IT IS DUE AND FOR WHICH ACCOUNT HAS TO GIVE LATER ON THEREFORE, HE AR GUED THAT DEPOSIT IS ENTIRELY DIFFERENT FROM A LOAN OR ADVANCE AND LEARN ED CIT(A) HAS WRONGLY RECORDED HIS FINDINGS THAT ICD IS A LOAN COVERED U/ S 2(22)(E) OF THE ACT. RELIANCE IN THIS RESPECT WAS PLACED ON THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. M/S ATUL ENGINEERING UDYOG, TS- 609-HC- 2014(ALL). THE LEARNED AR FURTHER PLACED HIS RELIANCE ON THE F OLLOWING CASE LAWS. (I) BAIDYANATH PLASTIC INDUSTRIES (P) LTD. & ORS. V S. K. L. ANAND, ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 16 ITO,230 ITR 522 (DEL). (II) INDUSTRIAL ENTERPRISES VS. DCIT,73 ITD 252 (HY D). INVITING OUR ATTENTION TO THE BALANCE SHEET PLACED AT PAPER BOOK PAGE 120, THE LEARNED AR SUBMITTED THAT ASSESSEE HAD CLA SSIFIED THE AMOUNT AS INTER-CORPORATE DEPOSIT AND IT WAS GROUPED UNDER THE BROADER HEAD OF UNSECURED LOANS AS THERE IS NO OTHER HEAD IN THE FO RMAT OF BALANCE SHEET PRESCRIBED UNDER THE COMPANIES ACT. HE SUBMITTED TH AT M/S JOINT INVESTMENT LTD. HAD SHOWN THE AMOUNT GIVEN TO THE A SSESSEE UNDER THE HEAD CURRENT ASSETS, LOANS & ADVANCES AS PER SCHE DULE F OF ITS BALANCE SHEET (PAGE 107). IN VIEW OF THE ABOVE FACT S IT WAS SUBMITTED THAT THE FINDINGS OF LEARNED CIT(A) THAT THE AMOUNT RECE IVED BY ASSESSEE IS NOT ICD BUT LOAN MAY BE KINDLY BE DELETED. 14. ARGUING UPON GROUND NO.8, REGARDING THE DIRECTI ON OF LEARNED CIT(A) TO THE ASSESSING OFFICER TO CONSIDER THE APP LICABILITY OF DEEMED DIVIDEND IN THE HANDS OF SH. ANIL NANDA THE LEARNED AR SUBMITTED THAT THOUGH HE WAS NOT IN APPEAL BEFORE HIM AND WITHOUT PROVIDING ANY OPPORTUNITY OF HEARING TO SH. ANIL NANDA SUCH DIREC TION WAS NOT JUSTIFIED. RELIANCE IN THIS RESPECT WAS PLACED ON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. KRISHI UTPADAN MANDI SAMITY, BANSI SIDDHARTH NAGAR, 336 ITR 77 (ALL). IN VIEW OF THE ABOVE, THE LEARNED AR PRAYED THAT THE ORDER OF CIT(A) MAY KINDLY BE MODIF IED BY DELETING THE IMPUGNED OBSERVATIONS MADE BY HIM IN RESPECT OF SH. ANIL NANDA. ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 17 15. THE LEANED DR, ON THE OTHER HAND, IN ITS REPLY ARGUING GROUND NO.2 OF ASSESSEES APPEAL SUBMITTED THAT IN RESPECT OF RS.35,00,000/-, SECTION 68 WAS NOT APPLICABLE AS IT WAS A LIABILITY WHICH HAD CEASED TO EXIST AND THEREFORE, WAS TAXABLE U/S 41(1) OF THE A CT, THEREFORE, JUDGMENTS RELIED UPON BY THE LEARNED AR ARE NOT APP LICABLE TO THE FACTS OF THE PRESENT CASE. 16. AS REGARDS GROUND NO.3, REGARDING ADDITION U/S 40 A(2)(B). THE LEARNED DR INVITED OUR ATTENTION TO PARA 6.5 OF THE ORDER OF CIT(A) AND SUBMITTED THAT LEARNED CIT(A) HAS ALREADY ALLOWED R ELIEF OF RS.45,00,000/- AND HAS UPHELD THE ADDITIONS OF RS.2 2,22,424/- AS THE ASSESSEE WAS NOT ABLE TO PRODUCE SEPARATE VOUCHERS FOR REIMBURSEMENT OF EXPENSES AND THEREFORE, THE GROUNDS OF APPEALS T AKEN BY ASSESSEE SHOULD BE DISMISSED. 17. AS REGARDS GROUND NO.4, THE LEARNED DR SUBMITTE D THAT ASSESSEE HAD NOT PRODUCED EVEN A SINGLE PIECE OF EVIDENCE SU GGESTING THE TRAVEL WAS FOR BUSINESS PURPOSES. AS REGARDS THE BILLS OF TELEPHONE EXPENSES, THE LEARNED DR SUBMITTED THAT THE BILLS ARE IN THE NAME OF M/S. GOETZE (INDIA) LTD. WHICH MIGHT HAVE CLAIMED SUCH EXPENSES IN THEIR P&L ACCOUNT, THEREFORE, LEANED CIT(A) HAS RIGHTLY UPHEL D THE PART ADDITION. 18. REGARDING GROUND NO.7 TAKEN BY THE ASSESSEE WHE REBY THE ASSESSEE IS AGGRIEVED WITH THE FINDINGS OF LEARNED CIT(A) THAT THE AMOUNT OF RS.18.75 CRORES WAS A LOAN, THE LEARNED DR SUBMI TTED THAT THE ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 18 NOMENCLATURE AND CLASSIFICATION OF ENTRY IN THE BAL ANCE SHEET DOES NOT ALTER THE NATURE OF TRANSACTION AND THE FACT REMAIN S THAT THE ASSESSEE HAD RECEIVED RS.18.75 CRORES AS LOAN AND THEREFORE FINDINGS IN THIS RESPECT ARE CORRECT. 19. ARGUING GROUND NO.8, REGARDING LEARNED CIT(A)S DIRECTION TO ASSESSING OFFICER IN THE CASE OF SH. ANIL NANDA, TH E LEARNED DR SUBMITTED THAT CIT(A) HAD EXERCISED THE POWER AS AN INVESTIGATOR AS HE HAS POWER OF BOTH I.E., AS AN ADJUDICATOR AND AS IN VESTIGATOR. THE LEARNED DR SUBMITTED THAT SINCE THE LEARNED CIT(A) HAS GIVE N THE DIRECTIONS AS AN INVESTIGATOR AND THEREFORE, NO APPEAL AGAINST TH E INVESTIGATOR LIES BEFORE ITAT AND THEREFORE, IT WAS SUBMITTED THAT TH E GROUND MAY BE DISMISSED. 20. THE LEARNED AR IN HIS REJOINDER SUBMITTED THAT ALL DETAILS AND DETAILS AS REQUIRED BY LEARNED CIT(A) WERE FILED BE FORE HIM AND HE HAD SENT THE SAME TO ASSESSING OFFICER FOR THE COMMENTS , HOWEVER, THE ASSESSING OFFICER WAS NOT AVAILABLE AS HE WAS ON TO UR, THEREFORE, THERE IS NO FAULT OF THE ASSESSEE. THE LEARNED AR SUBMITTED THAT NATURE OF ICD AS EXPLAINED EARLIER IS DIFFERENT THEN THAT OF LOANS O R ADVANCE AND THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) WERE NOT APPLICA BLE AS THE DEFINITION COVERS ONLY LOANS OR ADVANCE AND DOES NOT COVER ICD . 21. ARGUING APPEAL FILED BY THE DEPARTMENT, THE LEA RNED DR SUBMITTED THAT ALL THE POINTS OF DIPSUTE HAS ALREADY CONSIDER ED WHILE MAKING ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 19 ARGUMENTS IN ASSESSEES APPEAL AND THE GROUNDS TAKE N BY REVENUE ARE ONLY AGAINST PARTIAL RELIEF ALLOWED BY LEARNED CIT( A) AND THEREOFRE, IN THIS RESPECT HE HEAVILY PLACED HIS RELINACE ON THE ORDER OF ASSESSING OFFICER. 22. THE LEARNED AR, ON THE OTHER HAND, RELIED ON TH E ORDER OF LEARNED CIT(A). 23. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATEIRAL PLACED ON RECORD. 24. GROUND NO.1 OF ASSESSEES APPEAL BEING GENERAL DO NOT REQUIRE ADJUJDICATION. 25. GROUND NO.2 RELATES TO THE ADDITION OF RS.35,00 ,000/-. ADMITTEDLY THE AMOUNT WAS NOT RECEIVED DURING THE YEAR UNDER C ONSIDERATION AS IT WAS REFLECTED AS OPENING BALANCE AS ON 01.04.2006 A S PER SHEDULE-4 OF THE BALANCE SHEET PLACED AT PAPER BOOK PAGE 120 AND THEREFORE, THE ADDITION IN THIS YEAR IS NOT SUSTAINABLE AS HELD IN THE CASE LAW RELIED UPON BY LEARNED AR. THE HONBLE TRIBUNAL IN CASE OF WESTFALIA SEPARATOR INDIA (P) LTD. VS. ACIT, 108 DTR 376 HAS HELD THAT IF THE CREDIT IN RESPECT OF AMOUNT DID NOT GENERATED DURING THE YEAR, THERE IS NO QUESTION OF APPLICABILITY OF SECTION 68 TO SUCH CREDIT. THE HON BLE ALLAHABAD HIGH COURT IN THE CASE OF ACIT VS. ATS PROMOTERS & BUILDERS PVT. LTD., 90 CCH 0172 , HAS HELD THAT SECTION 68, PERMITS AN ADDITION TO BE MADE ONLY WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF ACC OUNT OF THE ASSESSEE ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 20 FOR THAT SPECIFIC YEAR. WE FURTHER FIND THAT ASSESS EE DURING THE COURSE OF PROCEEDINGS HAD FILED NECESSARY INFORMATION IN RESP ECT OF COMPANIES AND HAD FILED CONFIRMATIONS ALSO AND THEREFORE, THE ADD ITIONS SUSTAINED BY LEARNED CIT(A) IS NOT AS PER PROVISIONS OF LAW BECA USE OF THE FACT THAT AMOUNT OF RS.35,00,000/- WAS NOT FOUND CREDITED DUR ING THE YEAR AS IT IS WAS ONLY THE OPENING BALANCE CARRIED FORWARDED FROM EARLIER YEARS. IN VIEW OF THE JUDIDICAL PRECEDENTS RELIED UPON BY LEA RNED AR AND IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ALLOW G ROUND NO.2. AS REGARDS ARGUMENT OF LEARNED DR THAT SECTION 68 WAS NOT APPLICABLE AND RATHER IT WAS TAXABLE U/S 41(1) OF THE ACT WE DO NO AGREE WITH THE ARGUMENTS OF LEARNED DR AS EVEN ADDITION U/S 41(1) CANNOT BE MADE AS ASSESSEE HAD NOT WRITTEN BACK THE AMOUNT DURING THE YEAR AND HAD DECLARED THE SAME AS DEBT OF THE COMPANY IN ITS BAL ANCE SHEET. 26. GROUND NO.3, REGARDING SUSTAINING OF ADDITION O F RS.22,54758/- BEING AN AMOUNT REIMBURSED TO M/S GOETZE (INDIA) LT D., M/S GOSSINI FASHIONS LTD. AND M/S AKME PROJECTS LTD., WE FIND THAT THE ASSESSEE HAD NOT FILED VOUCHERS IN SUPPORT OF THE EXPENSES C LAIMED TO HAVE BEEN REIMBURSED AND LEARNED AR HAD FURTHER ARGUED THAT O UT OF REIMBURSEMENT MADE FOR AMOUNT OF RS.5,02,152/- ONLY RS.87,320/- WAS TAKEN TO P&L ACCOUNT. WE FIND THAT THIS ARGUMENT WA S TAKEN BEFORE US AND LEARNED CIT(A) ALSO HAD OBTAINED REMAND REPORT FROM ASSESSING OFFICER AND DURING REMAND PROCEEDINGS THE ASSESSING OFFICER HAD MADE ADVERSE COMMENTS IN THIS RESPECT AND IN RESPONSE TO REMAND REPORT THE ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 21 ASSESSEE VIDE LETTER DATED 21.02.2014 HAD AGAIN SU BMITTED THAT NATURE OF EXPENSES AND DETAILS OF CHEQUES AND BANK ACCOUNT DETAILS OF PAYEE OF EACH AND EVERY ITEM OF EXPENDITURE WAS SUBMITTED AN D AS REGARDS VOUCHERS AND NATURE OF EXPENSES THE ASSESSEE HAD SU BMITTED THAT THEY WERE CARRIED TO JAMMU BUT AO UNFORTUNATELY WAS ON T OUR, THEREFORE, THIS COULD NOT BE PRODUCED BEFORE HIM, THEREFORE, IN THE INTEREST OF JUSTICE WE RESTORE THIS GROUND TO THE OFFICE OF ASSESSING OFFI CER WHO ON THE BASIS OF VOUCHERS AND NATURE OF EXPENSES SHOULD DECIDE THE I SSUE AFRESH. THE ASSESSING OFFICER SHOULD ALSO EXAMINE THE CLAIM OF THE LEARNED AR THAT A PART OF EXPENSES WAS NOT DEBITED TO P&L ACCOUNT AND WAS TAKEN TO BALANCE SHEET. IN VIEW OF THE GROUND NO.3 IS ALLOWE D FOR STATISTICAL PURPOSES. 27. AS REGARDS GROUND NO.4 REGARDING DISALLOWANCE O F 75% OF FOREIGN TRAVELING EXPENSES OF DIRECTORS, WE FIND THAT THERE IS NO DOUBT ABOUT THE PROPOSITION THAT FOREIGN TRAVELING EXPENSES ARE ALL OWABLE AS A DEDUCTION IF THE EXPENSES ARE INCURRED FOR THE PURPOSES OF BUSIN ESS. WE ALSO AGREE THAT EXPENDITURE ON FOREIGN TRAVEL MAY NOT RESULT I NTO INCREASE IN NEW AGREEMENTS FOR BUSINESS BUT THE FACT REMAINS THAT T HE ASSESSEE HAS TO FIRST PROVE THAT EXPENSES WERE INCURRED FOR THE PUR POSES OF BUSINESS. IN RESPECT OF CLAIM OF SUCH EXPENSES THE ASSESSEE COUL D HAVE FILED SOME CORRESPONDENCE WITH THE PERSONS OF VISITED COUNTRY WITH WHOM THEY HAD EXPLORED FURTHER BUSINESS OPPORTUNITIES OR IT COULD HAVE FILED THE DETAILS OF MEETINGS AND DISCUSSIONS WITH THE PERSONS WITH W HOM SUCH BUSINESS ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 22 OPPORTUNITY WAS DISCUSSED. NO SUCH DETAILS HAS BEEN FILED BEFORE THE AUTHORITIES BELOW DURING ORIGINAL/OR REMAND PROCEED INGS NOR AN ARGUMENT HAS BEEN MADE BEFORE US THAT THE ASSESSEE CAN FILE THESE DETAILS BEFORE THE AUTHORITIES BELOW. THE ASSESSEE DID NOT FILE ANY EVIDENCE TO SUBSTANTIATE ITS CLAIM OTHER THAN BREAK UP OF TRAVELING EXPENSES. MOREOVER, THE LEARNED CIT(A) HAS MADE A F INDING OF FACT THAT THERE IS NO BUSINESS OF THE COMPANY IN THE VISITED COUNTRIES AND EXPENDITURE ALSO INCLUDED EXPENSES ON PERSONAL ATTE NDANTS OF DIRECTORS. THEREFORE, WE DO NOT FIND FORCE IN THE ARGUMENT OF LEARNED AR THAT THE EXPENSES WERE INCURRED FOR THE PURPOSES OF BUSINESS . IN VIEW OF THE ABOVE, GROUND NO.4 IS DISMISSED. 28. GROUND NO.5, REGARDING THE DISALLOWANCE OF LEG AL AND PROFESSION CHARGES WE FIND THAT LEARNED CIT(A) OBTAINED REMAND REPORT FROM ASSESSING OFFICER. IN THIS RESPECT, THE ASSESSING O FFICER COULD FIND EVIDENCE IN RESPECT OF ONLY RS.7,60,724/- DURING RE MAND PROCEEDINGS AND FOR THE REMAINING AMOUNT OF RS.10,61,949/- NO D OCUMENTS/EVIDENCE WAS PROVIDED DURING ORIGINAL AS WELL AS REMAND PROC EEDINGS. HOWEVER, THE LEARNED AR IN HIS SUBMISSIONS HAS SUBMITTED THA T WHEN VOUCHERS WERE CARRIED TO JAMMU FOR VERIFICATION BY ASSESSING OFFICER, HE WAS FOUND TO BE ON TOUR THEREFORE, IN THE INTEREST OF JUSTICE THIS GROUND IS RESTORED TO THE OFFICE OF ASSESSING OFFICER WHO WILL CONSIDER T HE ALLOWABILITY OF SAME AFTER VERIFICATION OF VOUCHERS. IN VIEW OF THE ABOV E, GROUND NO.5 IS ALLOWED FOR STATISTICAL PURPOSE. ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 23 29. AS REGARDS GROUND NO.6 REGARDING UPHOLDING OF 1 00% DISALLOWANCE OF TELEPHONE EXPENSES AND TELEGRAM EXPENSES, WE FIN D THAT THERE IS NO DISPUTE THAT NO BILL WAS IN THE NAME OF ASSESSEES COMPANY OR ITS EMPLOYEES, HOWEVER, IT IS ALSO A FACT THAT NO OFFIC E CAN BE RUN WITHOUT INCURRENCE OF THESE EXPENSES. THE LEARNED CIT(A) HA S UPHELD THE ADDITION IN THE ABSENCE OF VALID EVIDENCE IN RESPECT OF THES E EXPENSES. THE LEARNED AR DURING APPELLANT PROCEEDINGS BEFORE US HAD SUBMI TTED THAT BILLS WERE IN THE NAME OF M/S GOETZE INDIA AND A PART OF EXPEN SES WERE CHARGED TO ASSESSEE COMPANY. THEREFORE, WE RESTORE THIS GROUND OF APPEAL TO ASSESSING OFFICER WHO SHOULD DECIDE THE ISSUE AFRES H AFTER TAKING INTO ACCOUNT THE BASIS OF CHARGING OF THESE BILLS TO THE ASSESSEE. HE CAN ARRIVE AT THE DECISION AFTER TAKING INTO ACCOUNT THE PRACT ICE OF ASSESSEE IN ALLOCATION OF THESE EXPENSES IN EARLIER YEARS. IN V IEW OF THE ABOVE, GROUND NO.6 IS ALLOWED FOR STATISTICAL PURPOSES. 30. NOW COMING TO GROUND NO.7, REGARDING THE GRIEVA NCE OF ASSESSEE WITH THE FINDINGS OF LEARNED CIT(A) THAT THE AMOUNT OF RS.18.75 CRORES RECEIVED BY IT WAS A NOT AN ICD BUT WAS A LOAN. WE FIND THAT ICD MEANS INTER-CORPORATE DEPOSITS WHICH TERM IS USED FOR MAKING OR ACCEPTING DEPOSITS BETWEEN TWO COMPANIES. ICD AS THE NAME ALS O SUGGEST THAT IT IS A PART OF BROADER TERM DEPOSITS AND THEREFORE, IT C ANNOT BE DISTINGUISHED FROM THE DEPOSITS AS ARGUED BY LEARNED AR. THE CASE LAWS RELIED BY LEARNED AR RELATES TO DISTINCTION BETWEEN LOANS AND DEPOSITS AND NONE OF THE CASE LAWS RELATES TO DISTINCTION BETWEEN DEPOSI TS AND ICD, THEREFORE, ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 24 CASE LAWS AS RELIED UP BY LEARNED AR ARE NOT APPLIC ABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, WE HOLD THAT ICD IS A PART OF DEPOSITS AND IS NOT DIFFERENT FROM BROADER DEFINITI ON OF DEPOSITS AND THEREFORE, WE DO NOT FIND ANY FORCE IN THE ARGUMENT OF LEARNED AR THAT ICD ARE DIFFERENT THAN LOANS OR DEPOSITS AND IN FAC T IT IS PART OF DEPOSITS. IN VIEW OF THE ABOVE GROUND NO.7 IS DISMISSED. 31. NOW COMING TO GROUND NO.8 REGARDING GRIEVANCE O F ASSESSEE AGAINST DIRECTION OF LEARNED CIT(A) TO ASSESSING OF FICER TO PASS THE INFORMATION RELATING TO DIVIDEND RECEIVED BY SH. A NIL NANDA. WE FIND THAT SH. ANIL NANDA WAS NOT A PARTY TO THE PROCEEDINGS B EFORE LEARNED CIT(A) AND LEARNED CIT(A) HAS DIRECTED THE ASSESSING OFFIC ER WITHOUT PROVIDING ANY OPPORTUNITY OF HEARING TO SH. ANIL NANDA. THE A CTION OF LEARNED CIT(A) IS BEYOND HIS JURISDICTION AS HELD BY HONBL E ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. KRISHI UTPADAN MANDI SAMITY, BANSI SIDDHARTH NAGAR, 336 ITR 779 (ALL). IN THIS CASE LEARNED CIT( A) ON APPEAL BY ASSESSEE HAD DIRECTED THE AO TO MAKE REFERENCE TO T HE AO OF RECIPIENTS OF EXPENSES INCURRED BY ASSESSEE. IN THAT CASE THE HO NBLE HIGH COURT HAS HELD THAT IT WAS NOT OPEN TO ANOTHER QUASI JUDICIAL AUTHORITY OF LIMITED JURISDICTION, IN THE MATTER OF LIS BETWEEN THE ASSE SSEE AND REVENUE BEFORE IT TO PROCEED TO DETERMINE THE RIGHTS OR LIABILITIE S OF A THIRD PARTY, WHO WAS NOT BEFORE IT. THE HONBLE COURT HELD THAT OBSE RVATION OF THE CIT(A) WAS CLEARLY UNNECESSARY AND WITHOUT JURISDICTION. R ESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT WE MODIFY THE ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 25 ORDER OF LEARNED CIT(A) BY DELETING THE OBSERVATION S MADE BY HIM IN RESPECT OF ANIL NANDA. IN VIEW OF THE ABOVE, GROUND NO.8 IS ALLOWED. 32. IN NUTSHELL THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED, PARTLY DISMISSED AND PARTLY ALLOWED FOR STATISTICAL PURPOS ES. 33. NOW COMING TO REVENUES APPEAL, WE FIND THAT TH E FIRST GROUND OF APPEAL TAKEN BY REVENUE IS THE ADDITION OF DEEMED D IVIDEND DELETED BY LEARNED CIT(A). IN THIS RESPECT, WE FIND THAT ADMIT TEDLY THE ASSESSEE WAS NOT A SHARE HOLDER IN THE COMPANY M/S JOINT INVESTM ENT PVT. LTD. WHO HAD MADE LOANS TO THE ASSESSEE COMPANY. ONE OF THE CONDITIONS FOR APPLICATION OF SECTION 2(22)(E) IS THAT LOAN/DEPOSI T SHOULD HAVE BEEN MADE TO THE SHARE HOLDER. THE LEARNED DR HAD HEAVIL Y PLACED HIS RELIANCE ON THE SECOND LIMB OF SECTION 2(22)(E) AND HAD ARGU ED THAT HIS STRESS IS ON OR TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A MEMBER OR A PARTNER IN WHICH HE HAS A SUBSTANTIAL INTEREST. IN THIS RESPECT, WE FIND THAT THE SECOND LIMB ALSO TALKS ABOUT THE INTEREST OF SHARE HOLDER IN ANY CONCERN, THEREFORE, FIRST AND FOREMOST CONDITIONS F OR THE APPLICATION OF SECTION 2(22)(E) IS THAT PAYEE MUST BE A SHARE HOLD ER WHICH IS NOT THE CASE IN THE PRESENT CASE. WE FURTHER FIND THAT IN THE CASE OF SISTER CONCERN OF THE ASSESSEE M/S GTZ SECURITIES LTD. SIM ILAR QUESTION AROSE AND THE HONBLE J&K HIGH COURT IN THIS CASE OF CIT VS. GTZ SECURITIES LTD. REPORTED AT 359 ITR 345 HAS HELD THAT DEEMED D IVIDEND U/S 2(22)(E) IS TAXABLE ONLY IN THE HANDS OF REGISTERED SHARE HO LDER OF THE LENDING ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 26 ENTITY. FOR THE SAKE OF COMPLETENESS THE PARA 9 AN D 14 OF THE JUDGMENT ARE REPRODUCED BELOW. 9. PER CONTRA, MR. KAUSHIK, APPEARING FOR THE ASSE SSEE, SUBMITS THAT ANY LOAN OR ADVANCE RECEIVED BY AN ASSESSEE FROM AN ENTITY IN A SITUATION OF HAVING COMMON SHAREHOLDER BETWEEN THE ASSESSEE A ND HE ENTITY GIVING LOAN OR ADVANCE IS TO BE TAXABLE AS A DEEMED DIVID END UNDER SECTION 2(22)(E) ONLY IN THE HANDS OF A REGISTERED SHAREHOL DER OF THE LENDING ENTITY AND NOT IN THE HANDS OF AN ASSESSEE, WHO IS NOT A R EGISTERED SHAREHOLDER OF THE LENDING ENTITY. LEARNED COUNSEL SUBMITTED TH AT ON THE FACTS OF THE PRESENT CASE, IT IS AN UNDISPUTED POSITION THAT THE ASSESSEE IS NOT A SHARE HOLDER IN THE LENDING ENTITY, VIZ., G.I. POWER CORP ORATION LTD. 14. WE ARE NOT INCLINED TO ACCEPT THE ARGUMENT OF M RS. THAKUR FOR THE REASON THAT WHEN THE CASE OF THE ASSESSEE FOR THE A SSESSMENT YEAR 2003- 04 LANDED BEFORE LEARNED TRIBUNAL, COUNSEL FOR BOTH THE REVENUE AND THE ASSESSEE CONCEDED THAT THE ISSUE INVOLVED IN THE AP PEAL HAS ALREADY BEEN ADJUDICATED UPON AND DECIDED BY THE HONBLE HIGH CO URT OF PUNJAB AND HARYAN IN SHARMANS CASE (SUPRA), WHEREIN IT HAS BE EN HELD THAT LOAN ADVANCED TO THE ASSESSEE-COMPANY CANNOT BE TREATED AS DIVIDEND IN TERMS OF SECTION 2(22)(E) OF THE INCOME TAX ACT, IF THE A SSESSEE IS NOT A SHAREHOLDER OF THE LENDING COMPANY. IT WOULD BE APT TO REPRODUCE THE RELEVANT PARAGRAPH FROM THE IMPUGNED ORDER DATED JU LY,27,2012, AND IT READS: 3. AT THE TIME OF HEARING BOTH THE PARTIES CONCEDE D THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL HAS ALREADY BEEN ADJ UDICATED AND DECIDED BY THE HONBLE HIGH COURT OF PUNJAB AND HAR YANA IN THE CASE OF CIT V. SHARMAN WOLLEN MILLS, LTD. REPORTED IN 2011-TIOL- 639-HC P&H-IT ON SEPTEMBER 28,2011. THE HONBLE JUR ISDICTIONAL HIGH COURT, HAS HELD THAT THE LOAN ADVANCED TO THE ASSESSEE- COMPANY CANNOT BE TREATED AS DIVIDEND IN TERMS OF S ECTION 2(22)(E) OF THE ACT, IF THE ASSESSEE IS NOT A SHAREHOLDER OF THE LENDING COMPANY. WE FIND THAT FACTS AND CIRCUMSTANCES IN THE PRESENT CASE ARE SIMILAR AS THAT IN THE CASE OF M/S G.T.Z SECURITIES LTD., THER EFORE, RESPECTFULLY FOLLOWING THE SAME WE HOLD THAT PROVISIONS OF SECTI ON 2(22)(E) ARE NOT APPLICABLE TO THE ASSESSEE AS IT WAS NOT A SHAREHOL DER IN THE LENDING ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 27 COMPANY. IN VIEW OF THE ABOVE, GROUND NO. 1 OF REVE NUES APPEAL IS DISMISSED. 34. AS REGARDS GROUND NO.2 WE FIND THAT LEARNED CIT (A) HAS ALLOWED RELIEF TO THE ASSESSEE ON THE BASIS OF REMAND REPOR T BY ASSESSING OFFICER AND LEARNED CIT(A) HAS ALLOWED RELIEF ONLY TO THE E XTENT OF VERIFICATION OF VOUCHERS BY ASSESSING OFFICER. THE LEARNED DR WAS N OT ABLE TO CONTROVERT THE FINDINGS OF LEARNED CIT(A) IN THIS RESPECT. THE REFORE, GROUND NO.2 IS DISMISSED. 35. AS REGARDS GROUND NO.3, WE FIND THAT LEARNED CI T(A) HAD ALLOWED PART RELIEF ON ACCOUNT OF UNEXPLAINED EXPENSES ON THE BASIS OF REMAND REPORT RECEIVED FROM ASSESSING OFFICER. THE LEARNED CIT(A) HAS ALLOWED RELIEF TO THE EXTENT FOR AN AMOUNT FOR WHICH ASSESS ING OFFICER IN HIS REMAND REPORT HAS ACCEPTED TO HAVE VERIFIED THE VOU CHERS. THE LEARNED DR WAS NOT ABLE TO CONTROVERT FINDINGS OF LEARNED C IT(A) IN THIS RESPECT. THEREFORE, GROUND NO.3 IS DISMISSED. 36. AS REGARDS GROUND NO.4, REGARDING NOTIONAL INTE REST ON INTEREST FREE ADVANCES, WE FIND THAT THAT AO IN HIS REMAND R EPORT HAS REPORTED THAT MOST OF THE AMOUNT REPRESENTED CHARGES RECEIVA BLE FROM PARTIES AND AMOUNT RECEIVABLE WERE IN THE NATURE OF DEBTORS AND DID NOT REPRESENT CASH ADVANCES. THE ASSESSING OFFICER ALSO MENTIONED THAT OUT OF ADVANCES RS.60,00,000/- WAS FOR PURCHASE OF VEHICLE S AND RS.26,40,560/- WAS ON ACCOUNT OF AMOUNT EMBEZZLED B Y AN EMPLOYEE, ITA NOS.305 & 372 (ASR)/2014 AS ST. YEAR: 2007-08 28 THEREFORE, LEARNED CIT(A) HAS RIGHTLY DELETED THE A DDITION AND WE DO NOT FIND ANY INFIRMITY IN THE SAME, THEREFORE, GROUND N O.4 IS ALSO DISMISSED. 37. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE R EVENUE IS DISMISSED. 38. IN NUTSHELL, THE APPEAL FILED BY ASSESSEE IS PA RTLY ALLOWED, PARTLY DISMISSED AND PARTLY ALLOWED FOR STATISTICAL PURPOS ES, WHEREAS THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH, 2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED:23.03.2016. /PK/PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.