ACIT, Muzaffarnagar V. M/s. Hari Cold Storage & General Mills Ltd., Muzaffarnagar

ITA 4485/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61594 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-04-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: M P RASTOGIAR
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI C BENC H BEFORE SHRI U.B.S. BEDI, JM & SHRI A.N. PAHUJA, A M ITA NO.4485/DEL/2011 ASSESSMENT YEAR:2008-09 ASSISTANT C.I.T.,CIRCLE-1, MUZAFFARNAGAR V/S . M/S HARI COLD STORAGE & GENERAL MILLS LTD., POST BOX NO.209, RAMBAGH, MUZAFFARNAGAR [PAN : AAACH 4097 E) (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI M.P.RASTOGI,AR REVENUE BY SHRI SAT PAL SINGH, DR DATE OF HEARING 04-04-2012 DATE OF PRONOUNCEMENT 04-04-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 07.12.2011 BY THE REVENUE AGAI NST AN ORDER DATED 30.06.2011 OF THE LD. CIT(A), MUZAFFARNAGAR, RAISES THE FOLLOWING GROUNDS:- 1. ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN LAW BY DELETING THE ADDITION OF ` `26,40,101/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOAN AND ADVANCES TO THE DIRECTOR U/S 2(22)(E) OF THE I T ACT, 1961 WITHOUT CONSIDERING T HAT THE ADVANCES MADE TO SHRI RAHUL SWARUP WHO HOLDS 40% OF THE SHARE WITH THE ASSESSEE COMPANY AND TO M/S VENUS AGRO PRODUCTION (P) LTD. IN WHICH SHRI RAHUL SWARUP IS A DIRECTOR. THE MONEY ADVANCED TO THEM COMES UNDER PURVIEW OF SECTION 2(22)(E) AND SHOULD BE TREATED AS DEEMED DIVIDEND. FURTHER THE CIT(A) IS NOT JUSTIFIED IN NOT CONSIDERING THE LOAN S ADVANCED TO SHRI RAHUL SWARUP AND M/S VENUS AGRO PRODUCTION (P) LTD. & ONLY CONSIDERING THE ADVANCES TO SHRI ARUN SWARUP WHILE ALLOWING THE APPEAL. THE CIT(A) HAS ALSO NOT CONSIDERED THE NECESSITY OF GIV ING ITA N O.4485 /DEL./2011 2 ADVANCES WHEN IT ITSELF IS SUFFERING FROM LOSSES SI NCE THE YEAR 2000-01. THE COMPANY IS HAVING LOSSES BECAUSE THE SHARE APPLICATION MONEY POSSESSED WITH COMPANY IS USED FOR ADVANCE AND LOANS TO THE DIRECTORS AND THE PERSON HAVING SUBSTANTIAL INTERES T IN THE COMPANY RATHER THAN UTILIZING IT FOR EARNING IN COME FOR THE COMPANY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF ` 30,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SELF MADE VOUCHERS. THE CIT( A) IS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE MA DE TO ` `60,000/- AS COMPARED TO ` `90,000/- ON ACCOUNT OF WANT OF PROPER BILLS/VOUCHERS AND SELF MADE VOUCHER S. THE ACTION OF THE CIT(A) IS NOT ACCEPTABLE AS REGARDING THE NATURE OF BUSINESS OF THE ASSESSEE COMPANY 80% OF THE SELF MADE VOUCHERS WERE ACCEPTED BY THE ASSESSING OFFICER. 3. THE ORDER OF THE CIT(A) IS SET ASIDE AND THAT O F AO BE RESTORED. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THA T E-RETURN DECLARING NIL INCOME FILED ON 24.09.2008 BY THE ASSESSEE, RUNNING A COLD STORAGE, AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT) WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE ADVANCED AN AMOUNT OF ` `3,41,371/- TO SHRI ARUN KUMAR SWARUP, ` ` 18,60,020/- TO SHRI RAHUL SWARUP (BOTH DIRECTORS OF THE ASSESSEE COMPANY) AND ` ` 4,22,710/- TO M/S VENUS AGRO PRODUCTS PVT. LTD. IN WHICH SHRI ARUN KUMAR SWARUP AND SHRI RAHUL SWARUP BOTH WERE DIRECTORS, HAVING SHARE MORE THAN 10% SHARE HOLDING IN THE ASS ESSEE COMPANY. IN THE LIGHT OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT, THE AO BROUGHT TO TAX THE AFORESAID AMOUNT OF ` `26,24,101/- (`3,41,371+18,60,020+4,22,710). 3 ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION, HOLDING AS UNDER:- 3. THE FACTS OF THE CASE AS WELL AS SUBMISSIONS MADE BY THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. IT IS OB SERVED THAT THE ITA N O.4485 /DEL./2011 3 ASSESSING OFFICER TREATED THE LOANS AND ADVANCES OF ` ` 26,24,101/- GIVEN TO THE SHAREHOLDERS BEING A PERSON WHO WAS A BENEFICIAL OWNER OF THE SHARES HOLDING NOT LESS THAN 10% OF TH E VOTING POWER OR TO A CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMB ER AND IN WHICH HE HAS SUBSTANTIAL INTEREST TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S AS DEEMED DIVIDEND AS PER PROVISIONS OF SECTION 2(22)(E) OF T HE ACT. HOWEVER, IT IS A FACT THAT THE COMPANY WAS RUNNING IN LOSSES AND DOES NOT POSSESS ANY ACCUMULATED PROFITS AT ALL UPTO 31.03.2 008. THE APPELLANT HAD ALSO ENCLOSED THE COPIES OF AUDITED B ALANCE SHEET AND P&L A/C ALONG WITH COMPUTATION OF INCOME FOR AS SESSMENT YEAR 2008-09 FOR VERIFICATION OF THE FACTS. IT WAS OBSE RVED THAT AS PER THE COMBINED MEANING OF PROVISIONS OF SECTION 115-O AND SECTION 2(22) OF THE ACT, THE DIVIDEND DECLARED, DISTRIBUTE D OR PAID ON OR AFTER APRIL 1, 2003 IS ONLY SUBJECT TO ADDITIONAL T AX @15% AND THAT TOO DOES NOT INCLUDE THE DEEMED DIVIDEND AS GIVEN I N SECTION 2(22)(E) OF THE I.T. ACT. THE QUESTION OF DEEMED D IVIDEND U/S 2(22)(E) OF THE ACT ONLY ARISES WHEN THE COMPANY IS HAVING ACCUMULATED PROFITS AND NOT IN SUCH CIRCUMSTANCES W HEN IT WAS RUNNING IN LOSSES, AS PER CITED CASES BY THE APPELL ANT. FURTHER, THE ASSESSING OFFICER MISERABLY FAILED TO NOTICE THAT S HRI ARUN KUMAR SWARUP WAS HOLDING LESS THAN 10% OF VOTING POWER AS HE WAS HOLDING 200 SHARES OF ` `100/- EACH OUT OF TOTAL SHARES OF 2500 SHOWN OF ` ` 100/- EACH DURING THE YEAR. IT IS ALSO OBSERVED T HAT THE ASSESSING OFFICER HAD NOT ISSUED SHOW CAUSE NOTICE TO THE APPELLANT COMPANY BEFORE MAKING SUCH ASSESSMENT, EL SE, THE APPELLANT COULD HAVE EXPLAINED THE FACTUAL POSITION AT THE TIME OF ASSESSMENT ONLY. FROM THE ABOVE DISCUSSION IT IS O BSERVED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING A DDITION U/S 2(22)(E) OF THE ACT ON ACCOUNT OF LOANS AND ADVANCE S TO DIRECTORS AT ` `26,40,101/-. THE SAME IS HEREBY DISMISSED. GROUN D OF APPEAL NO.1 IS HEREBY ALLOWED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR MERELY SUPPO RTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON TH E FINDINGS OF THE LD. CIT(A). 5.WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE FACTS OF THE CASE. BEFORE ADVERTING TO THE FACTS OF THE CASE, WE MAY HAVE A L OOK AT THE RELEVANT PROVISIONS OF SEC. 2(22)( E ) OF THE ACT, WHICH READ AS UNDER : 'ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY I N WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS RE PRESENTING A PART OF THE ITA N O.4485 /DEL./2011 4 ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PE RSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUC H SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTE REST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULA TED PROFITS;' 5.1 INDISPUTABLY, THE ASSESSEE IS RUNNING A COLD S TORAGE AT JAUNPUR (U.P.) AND IS RUNNING IN TO LOSSES. AS PER BALANCE SHEET AS ON 31 .03.2007 ,DEBIT BALANCE IN THE PROFIT & LOSS ACCOUNT IS ` `7,91,871/- AND AS ON 31.03.2008- ` ` 22,03,538/-. ACCORDING TO THE AO, THE ASSESSEE ADVANCED AN AMOUN T OF ` `3,41,371/- TO SHRI ARUN KUMAR SWARUP, ` `18,60,020/- TO SHRI RAHUL SWARUP (BOTH DIRECTORS O F THE ASSESSEE COMPANY) AND ` `4,22,710/- TO M/S VENUS AGRO PRODUCTS PVT. LTD. IN WHICH SHRI ARUN KUMAR SWARUP AND SHRI RAHUL SWARUP BOTH ARE DIRECTORS, HAVING SHARE MORE THAN 10% SHARE HOLDING IN THE ASS ESSEE COMPANY. UNDER THE PROVISIONS OF SEC. 2(22)( E ) OF THE ACT, WHERE ANY MONEY IS EITHER ADVANCED AS A LOAN TO A SHAREHOLDER OR TO ANY CONCERN IN WHICH SU CH A SHAREHOLDER IS A MEMBER OR PARTNER OR WHERE ANY PAYMENT IS MADE BY THE COMP ANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER BUT, LIM ITED TO THE EXTENT OF THE ACCUMULATIVE PROFITS, THEN SUCH PAYMENT IS TO BE TR EATED AS DEEMED DIVIDEND IN THE HANDS OF THE SHAREHOLDER. THE SHAREHOLDER REFER RED TO IN THE SAID SUB-SECTION IS A PERSON WHO IS BENEFICIAL OWNER OF SHARES IN TH E SAID COMPANY HOLDING NOT LESS THAN 10% OF THE VOTING POWER. APPARENTLY, DEEM ED DIVIDEND IS TAXED IN THE HANDS OF THE RECIPIENT OF ADVANCE I.E THE SHAREHOLD ER OR THE CONCERN FOR THE INDIVIDUAL BENEFIT OF SHAREHOLDER AND NOT THE PAYER COMPANY. IN THE INSTANT CASE, THE AO BROUGHT TO TAX DEEMED DIVIDEND IN THE HANDS OF THE PAYER AND NOT THE RECIPIENT SHAREHOLDER, WITHOUT EVEN RECORDING ANY FINDINGS AS TO WHETHER OR NOT THE ASSESSEE COMPANY HAD ACCUMULATED PROFITS. THE L D. CIT(A) DELETED THE ADDITION WITHOUT EVEN ANALYSING THE RELEVANT PROVIS IONS OF SEC.2(22)(E) OF THE ACT AND IN THE ABSENCE OF ANY ACCUMULATED PROFITS, IGN ORING THE FACT THAT DEEMED DIVIDEND CAN BE BROUGHT TO TAX IN THE HANDS OF A SH AREHOLDER TO WHOM PAYMENT IS ITA N O.4485 /DEL./2011 5 MADE OR A CONCERN TO WHOM PAYMENT IS MADE FOR THE I NDIVIDUAL BENEFIT OF SHAREHOLDER AND NOT THE PAYER COMPANY. IN THESE CIR CUMSTANCES, WE ARE OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN INVOKING T HE PROVISIONS OF SEC. 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE COMPANY . IN VIEW THEREOF, WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE CONCLUSION OF THE LD. CIT(A),THOUGH FOR DIFFERENT REASONS. CONSEQUENTLY, GROUND NO. 1 IN THE APPEAL IS DISMISSED. . 6.. GROUND NO.2 IN THE APPEAL RELATES TO RESTRICTI ON OF THE DISALLOWANCE OF ` `90,000/- TO ` ` 60,000/-. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSEE WAS ASKED TO PRODUCE THE BILLS AND VOUCHER S OF THE FOLLOWING EXPENSES:- [IN ` ] POTATO STORAGE EXPENSE ` 1,26,748/- TRAVELLING & CONVEYANCE 56,066/- POSTATE, TELEGRAM & TELEPHONE `32,100 /- REPAIR & MAINTENANCE `1,27,757/- LUBRICANTS, GAS & STORES CONSUMED. `3,37,384/- `6,80,055/- 6.1 THOUGH THE ASSESSEE PRODUCED SOME OF THE BILLS AND VOUCHERS, IT WAS NOTICED THAT VOUCHERS TO THE EXTENT OF ` `4,50,000/- WERE SELF MADE. IN THE ABSENCE OF ORIGINAL BILLS AND VOUCHERS FOR THIS AMO UNT, THE AO DISALLOWED 20% OF THE EXPENSES, RESULTING IN DISALLOWANCE OF ` ` 90,000/-. 7. ON APPEAL, THE LD. CIT(A) REDUCED THE DISALLOWA NCE OF ` `60,000/- IN THE FOLLOWING TERMS:- THE FACTS OF THE CASE AS WELL AS SUBMISSIONS MADE BY THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. IT IS OB SERVED THAT LOOKING TO THE NATURE OF TRADE OF THE APPELLANT, IT IS REALLY NOT POSSIBLE TO PRODUCE THE PRINTED BILLS AND VOUCHERS EVERY TIME. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING ` ` 90,000/- UNDER THIS HEAD WHICH SEEMS TO BE EXCESSIV E. REGARDING MERITS OF ADDITION, IT IS OBSERVED THAT T HE BASIS OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS UPHEL D IN PRINCIPLE BUT THE SAME IS ON THE HIGHER SIDE. IT WOULD AMPLY MEET BOTH THE ITA N O.4485 /DEL./2011 6 ENDS OF JUSTICE IF THE DISALLOWANCE IS RESTRICTED T O ` `60,000/-. THUS THE APPELLANT IS ENTITLED FOR RELIEF OF ` ` 30,000/- ON THIS SCORE. GROUND OF APPEAL NO.3 IS PARTLY ALLOWED. 8.. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDIN GS OF THE LD. CIT(A).. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE AO MADE ESTIMATED DISALLOWA NCE OUT OF THE EXPENSES FOR WHICH VOUCHERS WERE NOT PRODUCED. ON APPEAL, THE L D. CIT(A) CONCLUDED THAT ENDS OF JUSTICE WOULD BE MET IF DISALLOWANCE IS RED UCED TO ` ` 60,000/-.SINCE THE LD. DR DID NOT PLACE ANY MATERIAL BEFORE US IN ORDER TO CONTROVERT THE FINDINGS OF THE LD. CIT(A) NOR POINTED OUT ANY INFIRMITY IN THE IMP UGNED ORDER, ACCORDINGLY, THERE IS NO BASIS TO INTERFERE. THEREFORE, GROUND NO.2 IN THE APPEAL IS ALSO DISMISSED. 10. GROUND NO.3 IN THE APPEAL BEING GENERAL IN NAT URE, DOES NOT REQUIRE ANY SEPARATE ADJUDICATION, AND IS, THEREFORE, DISM ISSED. 11. NO OTHER ARGUMENT OR PLEA WAS MADE BEFORE US. 12. IN THE RESULT, APPEAL IS DISMISSED. SD/- SD/- (U.B.S. BEDI) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. ASSTT. CIT, CIRCLE-1, MUZAFFARNAGAR. 2. M/S HARI COLD STORAGE & GENERAL MILLS LTD., POST BOX NO.209, RAMBAGH, MUZAFFARNAGAR 3. CIT, MUZAFFARNAGAR. 4. CIT(A), MUZAFFARNAGAR ORDER PRONOUNCED IN OPEN COURT ITA N O.4485 /DEL./2011 7 5. DR, ITAT,C BENCH, NEW DELHI 6.. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI