Abhinandan Investment Ltd., New Delhi V. ACIT, New Delhi

ITA 4597/DEL/2010

• Counselvise Citation: 459720114 RSA 2010
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 18-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Keywords: Opportunity of being heard; Deemed dividend
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI B.K. HALDAR, ACCOUNTANT MEMBER I.T.A. NO.4597 /DEL/2010 ASSESSMENT YEAR : 2005-06 ABHINANDAN INVESTMENT LTD., ACIT, 28-NAJAFGARH ROAD, CIRCLE-1(1), NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACA AAACA AAACA AAACA- -- -0372 0372 0372 0372- -- -L LL L APPELLANT BY : SHRI K. SAMPATH, ADVOCATE. RESPONDENT BY : SMT. ANUSHA KHURANA, SR. DR. ORDER PER B.K. HALDAR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD CIT(A) IV, NEW DELHI DATED 26.8.2010 FOR ASSESSMENT YE AR 2005-06. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEALS:- THE APPELLANT PREFERS AN APPEAL AGAINST THE ORDER D ATED 26.8.2010 OF CIT(A)-IV, NEW DELHI ON THE FOLLOWING AMONGST OTHER GROUNDS OF EACH OF WHICH IS WITHOUT PREJUDICE TO ANY OTHER:- 1. THE CIT(A) ERRED IN CONFIRMING ADDITION OF `.1,8 1,00,000/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE INCOME TAX ACT, 1961. PAGE 2 OF 7 ITA NO4597/DEL/10 1.1. THE CIT(A) HAS FILED TO APPRECIATE THAT THE ADV ANCE TO THE APPELLANT COULD NOT HAVE BEEN TREATED AS DEEMED DIVI DEND U/S 2(22)(E) SINCE THE LENDER COMPANY DID NOT POSSESS ACCUMU LATED PROFITS AT THE TIME OF MAKING ADVANCE. 1.2. THE CIT(A) ERRED IN CONFIRMING ADDITION OF `.1 ,81,00,000/- EVEN THOUGH THE PROVISIONS OF SECTION 2(22)(E) WERE NO T APPLICABLE IN THE INSTANT CASE ALSO BECAUSE THE APPELL ANT RECEIVED THE ADVANCE FROM THE LENDER COMPANY M/S EVE RPLUS SECURITIES & FINANCE LTD. ON INTEREST @ 11% IN THE OR DINARY COURSE OF BUSINESS. THE PROVISIONS OF THIS SECTION SPECIFI CALLY EXCLUDE AS CONTAINED IN EXCEPTION (II) OF THE SAID SEC TION) ADVANCE MADE TO SHAREHOLDER BY THE LENDER COMPANY IN THE ORDINARY COURSE OF BUSINESS WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE LENDER COMPANY. 1.3. THE CIT(A) ERRED IN HOLDING THAT THE APPELLANT HAS NOT FILED ANY EVIDENCE TO SHOW THAT THE ADVANCE RECEIVED BY T HE APPELLANT WAS INTEREST BEARING. 1.4. THE ADVANCE RECEIVED BY THE APPELLANT COMPANY COULD NOT HAVE BEEN TREATED AS DEEMED DIVIDEND SINCE THE ADVANC E WAS UTILIZED BY THE APPELLANT COMPANY IN ITS BUSINESS ACTIV ITIES AND NO BENEFIT HAS BEEN DERIVED FROM SUCH ADVANCES. 2. THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF `. 14,52,078/- U/S 14A. 3. THE ASSESSMENT ORDER IS BAD AND WRONG IN LAW. PAGE 3 OF 7 ITA NO4597/DEL/10 4. THE CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFI CER TO SET OFF BROUGHT FORWARD LOSS AGAINST THE INCOME OF ASSESSMENT YEAR 2005-06. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER O R MODIFY ALL OR ANY OF THE ABOVE MENTIONED GROUNDS OF APPEAL. 2. THOUGH THE ASSESSEE HAS TAKEN AS MANY AS FIVE GROUNDS O F APPEALS, NO ARGUMENTS HAVE BEEN OFFERED BY THE LD AR FOR THE ASSESSEE WITH REFERENCE TO GROUND NOI.3 &4. IN VIEW OF THE ABOVE, WE DO NOT ADJUDICATE THE SAME GROUNDS. 3. IN GROUND NO.1. TO 1.4., THE ASSESSEE IS DISPUTING CON FIRMATION OF ADDITION OF `.1,81,00,000/- AS DEEMED DIVIDEND U/S 2( 22)(E) OF THE ACT. THE SAME ADDITION WAS MADE BY THE ASSESSING OFFICER BY HO LDING THAT THE LOSS WHICH WAS ACCUMULATED OVER THE YEARS BY EVERPL US SECURITIES & FINANCE LTD. FROM WHOM THE ASSESSEE BORROWED THE ABOV E AMOUNTS DURING THE RELEVANT PREVIOUS YEAR WAS NOT THE LOSS ON C OMMERCIAL SENSE BUT MERELY A LOSS BASED ON THE ACCOUNTING POLICY ADOPTED BY THE ABOVE COMPANY. IN APPEAL, BEFORE THE LD CIT(A), THE ASSESSEE RELIED ON VARIOUS CASE LAWS AND STATED THAT AS PER THE ANNUAL ACCOUNT OF M/S EVERPLUS SECURITIES & FINANCE LTD., THE ACCUMUL ATED LOSS AS ON 1.4.2004 WAS `.11,79,77,187/- AND THEREFORE IT CANNO T BE SAID THAT THE LOAN OF `.1,81,00,000/- WAS ADVANCED OUT OF ACCUMULA TED PROFIT OF THE SAID COMPANY. THE LD CIT(A), HOWEVER, DID NOT ACCE PT THE CONTENTION OF THE ASSESSEE AS SHE CONCURRED WITH THE FINDING OF THE ASSESSING OFFICER THAT THE LOSS ACCUMULATED OVER THE YEARS WAS NOT A LOSS IN THE COMMERCIAL SENSE BUT WAS BASED ENTIRELY ON THE ACCOUNTI NG POLICY ADOPTED BY THE SAID COMPANY. THE ASSESSEES FURTHER CONT ENTION IS THAT THE SAID LOAN WAS TAKEN AT AN INTEREST WAS ALSO NOT ACCEPTED BY PAGE 4 OF 7 ITA NO4597/DEL/10 THE LD CIT(A) FOR WANT OF EVIDENCE. AGGRIEVED, THE ASSESSEE HAS FILED APPEAL BEFORE US. 4. BEFORE US, THE CONTENTION OF THE APPELLANT REMAIN S THE SAME AS BEFORE THE AUTHORITIES BELOW WHEREAS LD DR HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. IT WAS EMPHASIZED BY HER THAT THE ACCUMULATED LOSS DISCLOSED BY THE LENDING COMPANY WAS NOT THE COMMER CIAL PROFITS. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THOUGH CHARGE HAS BEEN MADE BY THE ASSESSING OFFICER THAT ACCU MULATED LOSS SHOWN BY THE LENDER COMPANY WAS NOT BASED ON COMMERCIA L PRINCIPLES AND WAS ON ACCOUNT OF ACCOUNTING POLICY FOLLOWED BY THE SAID COMPANY WHICH CHARGE HAS BEEN UPHELD BY THE LD CIT(A), NOTH ING HAS BEEN BROUGHT ON RECORD BY EITHER OF THE PARTIES AS TO WHAT WAS SUCH ACCOUNTING POLICY AND WHAT WOULD BE THE COMMERCIAL PROFIT IF SUCH ACCOUNTING POLICY WAS NOT FOLLOWED BY THE SAID COMPAN Y. IN THIS VIEW OF THE MATTER, IT IS NOT POSSIBLE FOR US TO ASCERTAIN A S TO WHAT WAS THE COMMERCIAL ACCUMULATED PROFIT OF THE LENDER COMPANY AS ON 1.4.2004, IN TERMS OF SECTION 2(22)(E) READ WITH ITS EXPLANATIO NS. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER OF THE AU THORITIES BELOW ON THIS ISSUE AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION THAT ACCUMULATED PROFIT IF ANY OF THE LENDER COMPANY AS ON 1.4.2004 SHOULD BE DETERMINING AS PER LA W AFTER GIVING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TH E APPLICABILITY OF SECTION 2(22)(E) SHOULD BE DECIDED ACCORDINGLY. A FRESH ORDER BE PASSED THEREAFTER AS PER LAW. THIS GROUND OF APPEAL IS T HEREFORE ALLOWED FOR STATISTICAL PURPOSES. 6. THE SECOND GROUND TAKEN BY THE ASSESSEE IS WITH REFERE NCE TO DISALLOWANCE OF EXPENSES OF `.14,52,078/- U/S 14A OF TH E ACT. THE PAGE 5 OF 7 ITA NO4597/DEL/10 ASSESSEE HAD DIVIDEND INCOME WHICH WAS EXEMPT FROM TAXAT ION WHICH CONSTITUTED 97.11% OF ITS GROSS REVENUE RECEIPTS. TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE FOR EARNING THE GROSS RECEIPT WAS `.22,44,987/-. THE ASSESSEE DISALLOWED THE AMOUNT OF `.7 ,41,142/- SPENT ON DIRECTORS TRAVELING AND REST OF THE AMOUNT WAS CLAIMED AS ALLOWABLE EXPENDITURE. NO DISALLOWANCE WAS MADE BY IT U/S 14A OF THE ACT. WHEN ASKED TO SHOW CAUSE AS TO WHY DISALLOWANCE SHOU LD NOT BE MADE U/S 14A OF THE ACT, THE ASSESSEE HAS MERELY TAKEN LE GAL GROUNDS WITHOUT GIVING ANY FACTUAL DETAILS. THE ASSESSING OFFIC ER, THEREFORE, DISALLOWED 97.11% OF THE EXPENDITURE CLAIMED BY THE ASSESSEE AMOUNTING TO `.14,52,078/-. THE IMPUGNED DISALLOWANC E WAS UPHELD BY THE LD CIT(A) AS THE ASSESSEE DID NOT FURNISH ANY FACTUAL EVIDENCE BEFORE THE ASSESSING OFFICER. 7. BEFORE US, LD AR FOR THE ASSESSEE HAS CONTENDED THAT IN VIEW OF HON'BLE BOMBAY HIGH COURTS DECISION IN THE CASE OF GO DREJ & BOYCE MFG. COM LTD. V. CIT, RULE 8D WAS NOT APPLICABLE DU RING THE RELEVANT ASSESSMENT YEAR. IT WAS, THEREFORE, CONTENDED THAT THE ISSUE MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR MAKING A REASONABLE DISALLOWANCE. 8. THE LD DR HAS NO SERIOUS OBJECTION TO THE ABOVE CON TENTION OF THE LD AR FOR THE ASSESSEE. 9. IN VIEW OF THE FACTS AND CIRCUMSTANCES NARRATED A BOVE, WE HOLD THAT RULE 8D WAS NOT APPLICABLE IN ASSESSMENT YEAR UNDER CONSIDERATION AND DISALLOWANCE U/S 14A OF THE ACT HAS T O BE MADE ON A REASONABLE BASIS AS PER THE PROVISIONS OF SAID SECTION. W E, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THE IM PUGNED ISSUE AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE PAGE 6 OF 7 ITA NO4597/DEL/10 DIRECTION TO PASS A FRESH ORDER KEEPING IN VIEW OUR DI SCUSSION HEREIN ABOVE AND AS PER LAW AFTER GIVING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. THIS GROUND OF APPEAL FILED BY THE ASSESSEE IS THEREFORE ALSO ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED IN PART FOR STATISTICAL PURPOSES. 11. ORDER PRONOUNCED IN THE OPEN COURT ON THE 5 TH DAY OF AUG., 20101. SD/- SD/- (R.P. TOLANI) (B.K. HAL DAR) JUDICIAL MEMBER ACCOUNTANT MEMBER 25/7/2011 DT. 05.08.2011. HMS 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 DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 21.7.2011 DATE OF DICTATION 22.7.2011 DATE OF ORDER SIGNED BY THE HON'BLE MEMBER. 25 .7.2011 PAGE 7 OF 7 ITA NO4597/DEL/10 DATE OF ORDER SENT TO THE CONCERNED BENCH 10 .8.2011