ACIT, New Delhi V. M/s Genesis Colors Pvt. Ltd., New Delhi

ITA 3941/DEL/2016

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 8702 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 05-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Related party transaction; Earning of tax free income; Deemed dividend; Onus to prove; Revenue expenditure; Rule 8D
• Section: 2(22)(e); 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SH. BHAVNESH SAINI, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 3941/DEL/2016 : ASSTT. YEAR : 2012-13 DCIT, CIRCLE-10(1), NEW DELHI VS M/S GENESIS COLORS PVT. LTD., FLAT NO. 3A/1, TAJ APARTMENTS RAO, TUAL RAM MARG, NEW DELHI-11002 (APPELLANT) (RESPONDENT) PAN NO. AA BCG4825H ASSESSEE BY : SH. VED JAIN, ADV. & SH. AKSHIT GOEL, CA REVENUE BY : MS. SUNITA SINGH, CIT DR DATE OF HEAR ING: 20 . 0 1 .20 2 1 DATE OF PRONOUNCEMENT: 24 .03 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A GAINST THE ORDER OF THE LD. CIT(A)-4, NEW DELHI DATED 29.0 4.2016. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENU E: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) IS CORRECT IN DELE TING THE ADDITION OF RS.1,21,00,957/- MADE BY THE AO U/S 14A WITHOUT APPRECIATING THE DEPARTMENTAL STAND IN THE CASES OF M/S CHEMNIVEST LTD. AND M/S HOLCIM INDIA LTD. WHICH CLARIFIED THE DISALLOWANCE OF EXPENDITURE U/S 14A R.W. RULE 8D IN THE ABSENCE OF EXEMPT INCOME. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT (A) ERRED IN HOLDI NG THE PURCHASE OF COMPUTERS AND ITS PART AS REVENUE I N ITA NO. 3941/DEL/2016 GENESIS COLORS PVT. LTD. 2 NATURE AND DELETING ADDITION OF RS.1,85,592/- WHICH WAS HELD BY THE AO AS CAPITAL IN NATURE IGNORING TH E FACT THAT PURCHASE OF NEW COMPUTERS IS NOT ALLOWABL E AS REVENUE EXPENDITURE. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT (A) ERRED IN DELET ING ADDITION OF RS.10,24,849/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF ADVANCES WRITTEN OFF IGNORING THE FACT THAT THE ASSESSEE COMPANY HAS FAILED TO SUBMIT ANY DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM DURING THE ASSESSMENT AS WELL AS APPELLATE PROCEEDINGS. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT (A) ERRED IN DELET ING ADDITION OF RS.12,94,50,034/- MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND IGNORING THE FACT THAT LOAN AND ADVANCES RECEIVED BY THE ASSESSEE SHAREHOLDER FROM CERTAIN COMPANY AGAINST SALE OF A PROPERTY IS ALSO TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961. 3. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE AS SESSEE, M/S GENESIS COLORS PVT. LTD. ('GCPL') HAS 61.00% SH AREHOLDING IN GENESIS LUXURY FASHION PVT. LTD. ('GLFPL') A REL ATED COMPANY. GCPL OWNED THE PROPERTY LOCATED AT PLOT NO . 28, SECTOR-6, INDUSTRIAL ESTATE, IMT MANESAR, HARYANA, HAVING BASEMENT, GROUND FLOOR, FIRST FLOOR & SECOND FLOOR WITH A TOTAL AREA OF 4050 SQ.MTRS. GCPL OWNS THE BRAND 'SATYAPAU L' AND USED THIS PREMISES FOR WAREHOUSING ACTIVITY. GLFPL IS THE SOLE DISTRIBUTORS OF INTERNATIONAL BRANDS LIKE CANALI, P AUL SMITH, JIMMY CHOO ETC. GLFPL INTENDED TO PURCHASE THE GCPL PROPERTY AS IT WAS DEALING IN MULTIPLE BRANDS ACROSS THE WOR LD AND WANTED ITS OWN STORE OPERATIONS. ITA NO. 3941/DEL/2016 GENESIS COLORS PVT. LTD. 3 4. THE SUM OF RS.20 CRORE HAD BEEN GIVEN TO GCPL ON 30.07.2011 AS ADVANCE FOR PURCHASE OF ABOVE SAID PR OPERTY BY GLFPL FOR THE PURPOSE OF CONSTRUCTION OF ITS OWN WA REHOUSE. THE FACT HAS BEEN STATED IN THE AUDITED BALANCE SHEET O F GCPL FOR THE IMPUGNED ASSESSMENT YEAR. 5. AN AGREEMENT HAS BEEN ENTERED BETWEEN GLFPL AND GCPL FOR PURCHASE OF PROPERTY OF THE ASSESSEE VIDE AGRE EMENT OF SALE DATED 28.07.2011. GCPL COULD NOT FULFILL THE CONDITIONS PRESCRIBED IN THE AGREEMENT WHICH INCLUDED GETTING THE PROPERTY PLEDGED TO THE BANK TO BE RELEASED WITHIN 18 MONTHS OF THE EXECUTION OF THE AGREEMENT. THEREFORE, GLFPL DECIDE D NOT TO PURCHASE THE AFORESAID PROPERTY AND CANCELLED THE A GREEMENT VIDE DEED OF CANCELLATION DATED 21.12.2012. 6. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER TREATED THE ADVANCE RECEIVED U/S 2(22)(E) HOLDING, THAT GLFPL HAS GRANTED LOANS OF RS. 15,00,00,000/- AND RS.5,00,00,000/- ON 30.07.2011 TO M/S GENESIS COLOU RS PVT. LTD. AS PER THE RELATED PARTY TRANSACTION CHAR T SHOWN IN NOTES TO ACCOUNTS OF THE ACCOUNTS OF GLFPL AND C OPY OF ACCOUNTS SUBMITTED WITH GCPL BY GLFPL AT THE TIME O F ITS SCRUTINY ASSESSMENT. THAT AGREEMENT TO SELL AND DEED OF SETTLEMENT ARE N EITHER NOTARIZED AND NOR REGISTERED ANYWHERE. THAT AGREEMENT SHOWING THE ADVANCE AS CAPITAL ADVAN CE AND CANCELLATION THEREOF HAS BEEN PREPARED TO GIVE COLOUR OF LOAN AMOUNT AS CAPITAL ADVANCE. ITA NO. 3941/DEL/2016 GENESIS COLORS PVT. LTD. 4 7. AGAINST THE CONTENTIONS OF THE ASSESSING OFFICER , THE ASSESSEE SUBMITTED AN AGREEMENT, TO BE ENFORCEABLE BY LAW, MUST POSSESS THE ESSENTIAL ELEMENTS OF A VALID CONT RACT AS CONTAINED IN SECTION 10 OF THE INDIAN CONTRACT ACT. ACCORDING TO SECTION 10, 'ALL AGREEMENTS ARE CONTRACT IF THEY AR E MADE BY THE FREE CONSENT OF THE PARTIES, COMPETENT TO CONTR ACT, FOR A LAWFUL CONSIDERATION AND WITH A LAWFUL OBJECT AND A RE NOT EXPRESSLY DECLARED TO BE VOID.' IT WAS SUBMITTED TH AT THE ENTIRE TRANSACTION IS SUPPORTED BY THE BOARD RESOLUTION, A GREEMENT TO SELL AND CONFIRMATION. THERE WAS NO DISPUTE ABOUT T HE FACTS THAT THE AMOUNTS HAVE BEEN PAID ON 30.07.2011 AND RECEIV ED BACK ON 21.12.2012 AND ARE PERTAINING TO THE INTENDED P URCHASE OF THE PROPERTY FROM THE ASSESSEE BY GLFPL AND IT IS A BUSINESS TRANSACTION, PURELY COMMERCIAL IN NATURE AND HENCE PROVISIONS OF SECTION 2(22)(E) ARE NOT ATTRACTED. 8. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERU SED THE MATERIAL AVAILABLE ON RECORD. 9. WE FIND THAT THE DECISION CANNOT BE MADE MERELY ON THE BASIS OF NON-NOTARIZATION OR REGISTRATION OF THE DO CUMENT. THE REVENUE NEED TO PROVE THAT THE DOCUMENTS HAVE BEEN FABRICATED OR MADE BELIEVE TO BRING THE AMOUNT TO TAX U/S 2(22 )(E). THE BURDEN OF PROOF LAID ON THE DEPARTMENT HAS NOT BEEN DISCHARGED. THE COMMERCIAL TRANSACTION BETWEEN THE RELATED COMPANY DO NOT NECESSARILY ATTRACT THE PROVISIONS O F SECTION 2(22)(E) UNLESS CONVINCINGLY PROVED THAT THE TRANSA CTIONS WERE NOT COMMERCIAL IN NATURE BY BRINGING APPROPRIATE MA TERIAL ON RECORD AND WITH PROPER INVESTIGATION. IN THE PRESEN T CASE, THERE IS NO PRIMA FACIE REASON TO DISPUTE THAT GLFPL INTENDED TO ITA NO. 3941/DEL/2016 GENESIS COLORS PVT. LTD. 5 PURCHASE THE SPACE FROM THE ASSESSEE AND THE ASSESS EE FAILED TO RELEASE THE MORTGAGE WHICH CONSEQUENTLY LED TO C ANCELLATION OF THE TRANSACTION AND RETURNING OF THE AMOUNTS. HE NCE, WE DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT (A). 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/03/2021. SD/- SD/- (BHAVNESH SAINI) (DR. B. R. R. KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED: 24/03/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR