JAGDISHKUMAR GUPRA, MUMBAI V. J.C.I.T.(OSD) CENTRAL CIRCLE 39, MUMBAI

ITA 5103/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7968 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 24-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 09-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Bogus purchase; Unexplained investment; Search and seizure; Opportunity of being heard; Retrospective amendment; Deemed dividend; Notional interest; Tax effect

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J B ENCH, MUMBAI ! , ' #$ % % % % , , #$ & BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUICIAL MEMBER ./ I.T.A. NOS.4974 TO 4980/MUM/2012 ( ' ' ' ' / ASSESSMENT YEARS :2004-05 TO 2010-11 THE DCIT, CENT. CIR-39, AAYAKAR BHAVAN, MUMBAI-400 020 / VS. SHRI JAGDISH M. GUPTA, 16A, ANDHERI INDUSTRIAL ESTATE,VEERA DESAI ROAD, ANDHERI (W), MUMBAI-400 058 ./ I.T.A. NOS.5103 TO 5105/MUM/2012 ( ' ' ' ' / ASSESSMENT YEARS :2006-07,2009-10 & 2010-11 SHRI JAGDISH M. GUPTA, 16A, ANDHERI INDUSTRIAL ESTATE,VEERA DESAI ROAD, ANDHERI (W), MUMBAI-400 058 / VS. THE DCIT, CENT. CIR-39, AAYAKAR BHAVAN, MUMBAI-400 020 $( ' ./ ) ./ PAN/GIR NO. : AACPG 2753N ( (* / APPELLANT ) .. ( +,(* / RESPONDENT ) (* - / REVENUE BY: SHRI S.D. SRIVASTAVA +,(* . - / ASSESSEE BY: SHRI VIJAY KOTHARI . /0' / DATE OF HEARING :30.07.2014 12' . /0' / DATE OF PRONOUNCEMENT :13.08.2014 SHRI JAGDISH KUMAR GUPTA 2 #3 / O R D E R PER BENCH: THESE 7 APPEALS BY THE REVENUE AND 3 APPEALS BY THE ASSESSEE ARE AGAINST THE ORDERS OF THE LD. CIT(A)-41, MUMBAI DT. 28.5.2012 PERTAINING TO A.YRS.2004-05 TO 2010-11. SINCE THES E APPEALS WERE HEARD TOGETHER, THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE COMMON GRIEVANCE OF THE REVENUE IN ALL THE A PPEALS READ AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN HOLDING ANNUAL LETTING VALUE OF PROPERTIES OWNED BY THE ASSESSEE C ANNOT BE TAKEN INTO ACCOUNT FOR COMPUTING INCOME FROM HOUSE PROPERTY AS THESE PROPERTY WAS NOT LET OUT DURING T HE YEAR UNDER CONSIDERATION, WHEN THESE PROPERTIES WERE NOT LET OUT VOLUNTARILY. 3. FOR OUR CONVENIENCE, WE ARE TAKING THE FACTS OF A.Y. 2004-05. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS FOR THE IMPUGNED ASSESSMENT YEARS, THE ASSESSING OFFICER NO TICED THAT THOUGH THE ASSESSEE HAS SHOWN PROPERTIES BUT HAS NOT OFFERED A NNUAL VALUE OF SUCH PROPERTIES U/S. 23 OF THE ACT. THE PROPERTIES IN Q UESTION ARE BUNGALOW AT NASIK, FLAT NO. 602 & 603 OF MARIGOLD, GOPAL GARAGE , SHOP AT BANGUR NAGAR, SHOP NO. 101 (LINK ROAD, MALAD) AND FLAT AT JAL PADMA. THE ASSESSEE WAS ASKED TO JUSTIFY WHY ANNUAL VALUE OF P ROPERTIES OTHER THAN SOP SHOULD NOT BE COMPUTED IN ACCORDANCE WITH THE P ROVISIONS OF SEC. 23 OF THE ACT. SHRI JAGDISH KUMAR GUPTA 3 3.1. THE ASSESSEE SIMPLY STATED THAT SINCE THE FLAT S WERE NOT LET OUT ITS ANNUAL VALUE SHOULD BE TAKEN AS RS. NIL. THIS SUBM ISSION OF THE ASSESSEE WAS REJECTED BY THE AO WHO WAS OF THE FIRM BELIEF T HAT UNDER THE PROVISIONS OF THE ACT, A METHODOLOGY OF COMPUTATION OF ANNUAL VALUE HAS BEEN PRESCRIBED ACCORDINGLY A NOTIONAL MARKET RENT, WHEN THE PROPERTY IS NOT ACTUALLY LET OUT HAS TO BE TAKEN AS THE ANNUAL VALUE WITHIN THE MEANING OF PROVISIONS OF SEC. 23(1)(A) OF THE ACT. THE AO PROCEEDED BY TAKING 8% OF COST OF THE PROPERTY AND AVERAGE ANNUAL INCRE ASE IN RENTAL VALUE@ 10% PER ANNUM AND COMPUTED THE ANNUAL RENT FOR A. Y. 2004-05 AT RS. 45,50,786/-. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND REITERATED ITS CLAIM THAT THE PROPERTY WERE VACANT THROUGH OUT THE YEAR AND THEREFORE NO ANNUAL LET OUT VALUE SHOULD BE TAXED. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) PROCEEDED BY CONSIDERING VARIOUS JUDICIAL DECISIONS DISCUSSED B Y HIM IN HIS APPELLATE ORDER AND FINALLY CONCLUDED THAT NOTIONAL INCOME CA NNOT BE TAXED BECAUSE THE PROPERTIES WERE NOT LET OUT DURING THE YEAR UND ER CONSIDERATION. 5. AGGRIEVED BY THIS, REVENUE IS BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY CON TENDED THAT THE LD. CIT(A) HAS PROCEEDED ON WRONG UNDERSTANDING OF THE PROVISIONS OF SEC. 23 THEREFORE THE ORDER OF THE LD. CIT(A) IS ER RONEOUS. 7. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. IT IS NOT IN DISPUTE THAT THE PROPERTIES OF THE ASSESSEE WERE LYING VACANT. IT IS SHRI JAGDISH KUMAR GUPTA 4 ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS SHOWN N IL ANNUAL LET OUT VALUE FROM THESE PROPERTIES. THE ASSESSEE OUGHT TO HAVE SHOWN ANNUAL LET OUT VALUE FROM THESE PROPERTIES AND OFFERED THE SAME FO R TAXATION. WE FIND THAT THE LD. CIT(A) HAS CONSIDERED THE JUDICIAL DEC ISIONS IN THE WRONG PERCEPTIVE OF THE FACTS. ALL THE DECISIONS CONSIDE RED BY THE LD. CIT(A) RELATE TO CHARGING OF NOTIONAL INTEREST ON INTEREST FREE DEPOSITS. THIS ISSUE IS NOT AT ALL PRESENT IN THE CASE OF THE ASSESSEE. UNDOUBTEDLY, THE FINDINGS OF THE LD. CIT(A) ARE ERRONEOUS. SINCE THE ASSESSE E HAS NOT DISCLOSED ANNUAL LET OUT VALUE OF THE PROPERTIES, THE ALV NEE DS TO BE RECOMPUTED BECAUSE THE BASIS TAKEN BY THE AO FOR COMPUTING THE ALV IS ALSO ERRONEOUS. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILES OF THE AO TO BE DECIDED AFRESH . THE ASSESSEE IS DIRECTED TO SUBMI T THE MUNICIPAL RATEABLE VALUE OF ALL THE PROPERTIES. THE AO IS DIRECTED TO CONSIDER THE MUNICIPAL RATEABLE VALUE OF THE PROPERTIES AND DECIDE THE ISS UE AS PER THE PROVISIONS OF LAW. THIS GRIEVANCE OF THE REVENUE IS ALLOWED F OR STATISTICAL PURPOSE. ITA NO. 4979/MUM/2012 A.Y. 2009-10 REVENUES AP PEAL 9. THE SECOND GRIEVANCE OF THE REVENUE READS AS UND ER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING AD DITION OF RS. 32,09,902/- U/S. 2(22)(E) OF THE I.T. ACT MADE BY AO IN THE HAND OF THE ASSESSEE, WHO IS REGISTERED AND BEN EFICIAL OWNER OF SHARES, BY FOLLOWING DECISION OF BOMBAY HI GH COURT IN THE CASE OF BHAUMIK COLOURS PVT. LTD. 313 ITR 146 WHEREAS AS PER RATIO OF THIS DECISION ADDITION WAS REQUIRED TO BE UPHELD. 10. A PERUSAL OF THE ORDER OF THE LD. CIT(A) SHOWS THAT THIS ISSUE HAS BEEN DECIDED BY HIM AT PARA-3.6 ON PAGE 23 OF THE O RDER. WE FIND THAT THE LD. CIT(A) HAS CONFIRMED THE ADDITION OF RS. 32,09, 002/- AGAINST WHICH THE ASSESSEE IS IN APPEAL. WE FAILED TO UNDERSTAND HOW REVENUE IS IN SHRI JAGDISH KUMAR GUPTA 5 APPEAL AGAINST THE ADDITION WHICH HAS BEEN CONFIRME D BY THE LD. CIT(A). THIS GROUND IS FRIVOLOUS AND ACCORDINGLY DISMISSED. ITA NO. 4980/M/12 A.Y. 2010-11 REVENUES APPEAL 11. GROUND NO. 2 & 4 OF REVENUES APPEAL READ AS UN DER: 2. WHETHER, ON FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN REDUCING TH E ADDITION MADE BY AO U/S. 2(22)(E) OF THE I.T. ACT F ROM RS. 2,71,66,140/- TO RS. 2,39,56,138/- BY HOLDING THAT ACCUMULATED PROFITS FOR THE CURRENT YEAR IS TO BE W ORKED OUT BY EXCLUDING AMOUNTS TAXED U/S. 2(22)(E) IN EARLIER YEARS. 4. WHETHER, ON FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) HAS JUSTIFIED, IN DELETI NG ADDITION OF RS. 2,71,66,140/- MADE UNDER THE PROVISION OF CL AUSE 2(22)(E) OF THE I.T. ACT ON THE GROUND THAT SUCH AD DITION CANNOT BE MADE IN THE HAND OF BORROWER COMPANY BY FOLLOWING DECISION OF BOMBAY HIGH COURT IN THE CASE OF BHAUMIK COLOURS PVT. LTD. 313 ITR 146 WHICH WAS NO T ACCEPTED BY DEPARTMENT ON MERIT BUT APPEAL WAS NOT FILED DUE TO LOW TAX EFFECT. 12. THE ADDITION OF RS. 2,71,66,140/- WAS MADE BY T HE AO U/S. 2(22)(E) OF THE ACT. THE LD. CIT(A) HAS REDUCED TH IS ADDITION BY RS. 32,09,002/- AND CONFIRMED THE ADDITION OF RS. 2,39, 56,138/-. 13. THE ASSESSEE IS IN APPEAL AGAINST THIS FINDING OF THE LD. CIT(A). WE DO NOT FIND ANY REASON WHY THE REVENUE HAS TAKE N THIS GROUND WHEN THE ADDITION HAS BEEN CONFIRMED BY THE LD. CIT(A). THIS GROUND IS FRIVOLOUS AND ACCORDINGLY DISMISSED. GROUND NO. 2 & 4 IS DISMISSED. 14. GROUND NO. 3 RAISED BY THE REVENUE READS AS UN DER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, LD. CIT(A) HAS ERRED IN DELETING ADDITI ON OF RS. SHRI JAGDISH KUMAR GUPTA 6 8,40,000/- MADE BY THE AO ON ACCOUNT OF UNEXPLAINED INVESTMENT MADE IN JEWELLERY. 15. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PR OCEEDINGS, VARIOUS JEWELLERY ITEMS WERE FOUND FROM THE RESIDENTIAL PRE MISES OF THE ASSESSEE AND LOCKERS. SHRI KAMAL GUPTA WAS CONFRONTED WITH THIS ISSUE AND IN HIS STATEMENT RECORDED ON OATH U/S. 132(4) OFFERED THE EXCESS JEWELLERY FOR TAXATION. DURING THE COURSE OF THE ASSESSMENT PROC EEDINGS, THE ASSESSEE WAS ASKED TO RECONCILE THE TOTAL AMOUNT OF JEWELLER Y FOUND DURING THE SEARCH ALONGWITH SUPPORTING DOCUMENTS. ON RECEIVIN G NO PLAUSIBLE REPLY AND CONSIDERING THE STATEMENT OF SHRI KAMAL GUPTA, THE TOTAL VALUE OF UNEXPLAINED JEWELLERY AMOUNTING TO RS. 42 LAKHS WAS ADDED IN THE HANDS OF SHRI KAMAL GUPTA ON SUBSTANTIVE BASIS AND THE SA ME WAS ALSO ADDED IN EQUAL PROPORTION IN THE HANDS OF THE FAMILY MEMBERS ON PROTECTIVE BASIS AND ACCORDINGLY ADDITION OF RS. 8,40,000/- WAS MADE IN THE HANDS OF THE ASSESSEE ON PROTECTIVE BASIS. 16. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). THE ASSESSEE FILED A DETAILED RECONCILIATION STATEMENT AND STATED THAT THE SAME WAS ALSO FURNISHED BEFORE THE AO BUT THE AO DECLINE D TO CONSIDER THE SAME BECAUSE HE WAS INFLUENCED BY THE STATEMENT OF SHRI KAMAL GUPTA. AFTER CONSIDERING THE FACTS AND THE RECONCILIATION STATEMENT AT PARA-5.3 OF HIS ORDER, THE LD. CIT(A) WAS CONVINCED WITH THE CO NTENTION OF THE ASSESSEE. THE LD. CIT(A) DELETED THE PROTECTIVE AD DITION MADE BY THE AO HOLDING THAT THE ACCEPTANCE BY SHRI KAMAL GUPTA DURING THE COURSE OF SEARCH PROCEEDINGS IS NOT THE CONCLUSIVE EVIDENCE T O MAKE THE ADDITION. 17. AGGRIEVED BY THIS, REVENUE IS BEFORE US. 18. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SU PPORTED THE FINDINGS OF THE AO. SHRI JAGDISH KUMAR GUPTA 7 19. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE RE ITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LD. CIT(A). 20. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOW ER AUTHORITIES. ADMITTEDLY, THE AO HAS MADE THE ADDITION ON THE BAS IS OF THE STATEMENT OF SHRI KAMAL GUPTA. A PERUSAL OF THE ORDER OF THE LD . CIT(A) SHOWS THAT THE ASSESSEE HAS SUCCESSFULLY RECONCILED THE EXCESS JEWELLERY FOUND. THE ASSESSEE HAS ALSO EXPLAINED THE SOURCE OF THE PURCH ASE OF JEWELLERY AS THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUE WHICH HA VE BEEN DULY VERIFIED BY THE LD. CIT(A). AS THE EXCESS JEWELERY FOUND STAND RECONCILED IN THE HANDS OF THE ASSESSEE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GRO UND NO. 3 IS ACCORDINGLY DISMISSED. ITA NO. 5103/MUM/2012 A.Y. 2006-07 ASSESSEES A PPEAL 21. THE SOLE GRIEVANCE OF THE ASSESSEE READS AS UND ER: ON THE FACTS AND CIRCUMSTANCE OF THE CASE & LAW ON SUBJECT THE AO ERRED IN ADDING RS. 20939467/- AS DEEMED DIV IDEND U/S. 2(22)(E) OF THE I.T. ACT, 1961. ON THE FACTS AND CIRCUMSTANCE OF THE CASE & LAW ON SUBJECT THE AO ER RED IN UPHOLDING THE ADDITION OF RS. 7939467/- OUT OF THE ADDITION OF RS. 20939467/-. ON THE FACTS AND CIRCUMSTANCE OF THE CASE & LAW ON SUBJECT THE ADDITION BE DELETED. 22. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE AO NOTICED THAT AS PER BALANCE SHEET OF THE PROPRIETARY CONCER N OF THE ASSESSEE M./S. J. KUMAR & CO., AN AMOUNT OF RS. 8,55,65,174/- IS S HOWN TO HAVE BEEN TAKEN AS UNSECURED LOAN FROM M/S. J. KUMAR INFRAPRO JECTS LTD (JKIL). THE AO WENT ON TO CONSIDER THE SHARE HOLDING PATTER N OF M/S. JKIL AND FOUND THAT THE SHARE HOLDING OF THE ASSESSEE IS 40% . THE AO FURTHER SHRI JAGDISH KUMAR GUPTA 8 FOUND THAT THE ACCUMULATED PROFIT WAS TO THE TUNE O F RS. 79,39,467/-. THE AO FURTHER OBSERVED THAT JKIL HAS DISCLOSED ADDITIO NAL INCOME OF RS. 1.30 CRORES THEREFORE THE TOTAL ACCUMULATED PROFIT CAME TO RS. 2,09,39,467/-. THE ASSESSEE WAS ASKED TO EXPLAIN W HY THIS AMOUNT SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. IT WAS EXPLAINED THAT JKIL WAS INCORPORATED TO TAKE OVER B USINESS OF THE ASSESSEE M/S. J. KUMAR & CO ACCORDINGLY COMPANY ENT ERED INTO AN AGREEMENT WITH THE PROPRIETARY CONCERN OF THE ASSE SSEE FOR PURCHASE OF THE ASSETS AND TRANSFER OF THE BUSINESS. THE AO FO UND THAT THE UNSECURED LOAN WAS IN EXCESS OF THE VALUE OF THE BUSINESS TRA NSFERRED AND WENT ON TO TREAT RS. 2,09,39,467/- AS DEEMED DIVIDEND U/S. 2(2 2)(E) OF THE ACT. 23. BEFORE THE LD. CIT(A) THE ASSESSEE REITERATED I TS CLAIM THAT THE SAID AMOUNT REFLECTS BUSINESS TRANSACTION OF THE ASSESSE E AND THEREFORE IT CANNOT BE TREATED AS DEEMED DIVIDEND. THE ASSESSEE FURTHER OBJECTED TO THE ACTION OF THE AO FOR CONSIDERING THE AMOUNT OF RS. 1.30 CRORES AS ACCUMULATED PROFIT OF JKIL. IT WAS STRONGLY CONTEN DED THAT THE AMOUNT OF RS. 1.30 CRORES WAS DECLARED BY THE ASSESSEE AND UT ILIZED FOR THE SHARE APPLICATION MONEY ARISING OUT OF THE BOGUS PURCHASE S OFFERED FOR TAXATION BY THE ASSESSEE AND OTHER ASSOCIATES. THE LD. CIT( A) WAS CONVINCED BY THIS SUBMISSION OF THE ASSESSEE AND DELETED THE AMO UNT OF RS. 1.30 CRORES AND RESTRICTED THE ADDITION OF THE AO TO RS. 79,39, 467/-. 24. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 25. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHA T HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. THE LD. COU NSEL ALSO FURNISHED THE MEMORANDUM OF UNDERSTANDING BETWEEN JKIPL AND THE ASSESSEE AND POINTED OUT THAT WITH THIS MOU, IT WAS AGREED THAT THE COMPANY SHALL PROVIDE ADVANCE MONIES AS SECURITY TO SHRI JAGDISH KUMAR GUPTA AS AND SHRI JAGDISH KUMAR GUPTA 9 WHEN REQUIRED FOR ENTERING INTO CONTRACT, OBTAINING PERMISSIONS FOR CONCERNED GOVERNMENT DEPARTMENTS AND FOR DISCHARG ING LIABILITIES OF CREDITORS ETC. IT IS THE SAY OF THE LD. COUNSEL TH AT IT WAS PURELY A BUSINESS TRANSACTION THEREFORE OUTSIDE THE PURVIEW OF SEC. 2 (22)(E) OF THE ACT. 26. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE LOWER AUTHORITIES. 27. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW AND THE RELEVANT MATERIAL EVIDENCES BROUGHT BEFORE US. THE UNDISPUTED FACT IS THAT M/S. J. KUMAR & CO PVT. LTD HAS TAKEN OVER THE BUSINESS OF J. KUMAR & CO, PROPRIETARY CONCERN OF THE ASSESSEE VI DE AGREEMENT DT. 1.12.2005 BY WHICH THE ENTIRE BUSINESS OF THE PROPR IETORSHIP FIRM WAS TAKEN OVER BY THE COMPANY. IT IS ALSO NOT IN DISPU TE THAT THE CONSIDERATION FOR THE TRANSFER WAS IN EXCESS OF THE VALUE OF THE ASSETS TRANSFERRED. WE HAVE ALSO PERUSED THE MOU BETWEEN THE COMPANY AND T HE ASSESSEE DT. 1.8.2004 BY WHICH THE COMPANY AGREED TO PROVIDE ADV ANCE MONIES TO THE ASSESSEE FOR THE PURPOSE OF BUSINESS. THE HONBE DL EHI HIGH COURT IN THE CASE OF CIT VS CREATIVE DYEING & PRINTING PVT. LTD. 318 ITR 476 HAS HELD THAT IF AN ADVANCE IS PURELY FOR COMMERCIAL PU RPOSE WHICH IS NOT A LOAN SIMPLICITER AND BOTH THE GIVER AND THE ACQUIRE R ARE TO BENEFIT COMMERCIALLY, THE MISCHIEF OF SEC. 2(22)(E) WILL NO T BE ATTRACTED. AFTER CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF T HE AGREEMENT TO PURCHASE ASSETS OF THE ASSESSEE BY THE COMPANY AND THE MOU, IN OUR CONSIDERED VIEW, THE ADVANCE IS PURELY FOR COMMERCIAL PURPOSE AND CANNOT BE TERMED AS A LOAN THEREFORE IN THE LIGHT OF THE DECISION OF THE HONBLE DELHI HIGH COURT (SUPRA), WE DO NOT FIND ANY REASON TO SUSTAIN THE ADDITION OF RS. 79,39,469/-. THE AO IS DIRECTED TO DELETE THE ADDI TION OF RS. 79,39,469/-. APPEAL FILED BY THE ASSESSEE IS ACCORDINGLY ALLOWE D. SHRI JAGDISH KUMAR GUPTA 10 ITA NO. 5104/MUM/ 2012 A.Y. 2009-10 28. THE SOLE GRIEVANCE OF THE ASSESSEE READS AS UND ER: ON THE FACTS AND CIRCUMSTANCE OF THE CASE & LAW ON SUBJECT THE AO ERRED IN ADDING RS. 32,09,002/- AS DEEMED DI VIDEND U/S. 2(22)(E) OF THE I.T. ACT, 1961. ON THE FACTS AND CIRCUMSTANCE OF THE CASE & LAW ON SUBJECT THE CIT(A ) ERRED IN UPHOLDING THE ADDITION OF RS. 79,39,467/- OUT OF THE ADDITION OF RS. 32,09,0027/-. ON THE FACTS AND CIRC UMSTANCE OF THE CASE & LAW ON SUBJECT THE ADDITION BE DELETE D. 29. WHILE SCRUTINIZING THE RETURN, THE AO NOTICED T HAT AN AMOUNT OF RS. 1.05 CRORES IS SHOWN TO HAVE BEEN TAKEN AS UNS ECURED LOAN/ADVANCE FROM M/S. J. KUMAR SOFTWARE SYSTEMS (I) PVT. LTD. ( JKSSIPL). AS PER THE SHARE HOLDING DETAIL OF JKSSIPL, THE AO FOUND T HAT THE ASSESSEE WAS HOLDING 40% OF SHARES AND 24.58% SHARES OF M/S. J. KUMAR INFRAPROJECTS LTD.(JKIL) THE AO FURTHER NOTICED THAT IN JKSSIPL, THE ACCUMULATED PROFITS WERE AT RS. 32,09,002/-. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THIS AMOUNT SHOULD NOT BE TREATED AS DEEMED DIVIDEN D OF THE ASSESSEE. WHILE HOLDING THIS, THE AO CONCLUDED BY STATING THA T RS. 32,09,002/- WAS ADDED AS DEEMED DIVIDEND IN THE HANDS OF M/S. JKIL ON SUBSTANTIVE BASIS, THE SAME WAS ADDED IN THE HANDS OF THE ASSESSEE ON PROTECTIVE BASIS. 30. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 31. BEFORE US, IT WAS STATED THAT THE TRANSACTION RELATED TO THE PURCHASE OF PLOT AT PUNE. IT WAS FURTHER CONTENDED THAT THE RE WAS NO ACCUMULATED PROFIT AT THE BEGINNING OF THE YEAR. THE AO HAS WR ONGLY TAKEN THE CLOSING BALANCE OF THE YEAR UNDER CONSIDERATION. SHRI JAGDISH KUMAR GUPTA 11 32. THE LD. DR SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 33. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW AND THE FINANCIAL STATEMENT PRODUCED BEFORE US. A PERU SAL OF THE BALANCE SHEET OF JKSSIPL SHOWS THAT THE RESERVES AND SURPLU S AS ON 31.3.2008 WAS A NEGATIVE BALANCE OF RS. 77,655/-. WE FIND FO RCE IN THE CONTENTION OF THE LD. COUNSEL THAT THE AO HAS ADDED THE CLOSIN G BALANCE OF RESERVES AND SURPLUS AS ON 31.3.2009. THIS BEING THE FACT O F THE MATTER, WE RESTORE THIS ISSUE TO THE FILE OF THE AO TO RECOMPUTE THE D EEMED DIVIDEND ON THE BASIS OF THE ACCUMULATED PROFIT ON THE DATE OF GIVI NG OF THE LOAN AS THE TRIBUNAL AHMEDABAD BENCH IN THE CASE OF M.B. STOCK HOLDING (P) LTD. VS ACIT HAS HELD THAT THERE WAS A DISTINCTION BETWE EN ACCUMULATED PROFIT OF THE BUSINESS AND THE CURRENT YEAR PROFIT OF THE BUSINESS. FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF SARADA (P) (M ISS) VS CIT 229 ITR 444 HAS HELD THAT THE LEGAL FICTION EMBEDDED IN SEC. 2(22)(E) COMES INTO PLAY AS SOON AS MONIES WERE PAID BY THE COMPAN Y. 34. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 5105/M/2012 A.Y. 2010-11- ASSESSEES APPEA L 35. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE & LAW ON SUBJECT THE AO ERRED IN ADDING RS. 2,87,32,687/- AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE I.T. ACT, 1961 . ON THE FACTS AND CIRCUMSTANCE OF THE CASE & LAW ON SUB JECT THE AO ERRED IN UPHOLDING THE ADDITION OF RS. 2,39,57,138/- OUT OF THE ADDITION OF RS. 2,87,32,68 7/- ON SHRI JAGDISH KUMAR GUPTA 12 THE FACTS AND CIRCUMSTANCE OF THE CASE & LAW ON SUB JECT THE ADDITION BE DELETED. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE & LAW ON SUBJECT THE AO ERRED IN MAKING ADDITION OF RS. 80,00,000/- AS UNDISCLOSED INCOME BEING CASH FOUND & SEIZED AT THE TIME OF SEARCH U/S. 132(4). ON THE F ACTS AND CIRCUMSTANCE OF THE CASE & LAW ON SUBJECT THE LD. C IT(A) ERRED IN UPHOLDING THE ADDITION MADE. ON THE FACTS AND CIRCUMSTANCE OF THE CASE & LAW ON THE SUBJECT THE ADDITION BE DELETED. 36. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PR OCEEDINGS, THE AO NOTICED THAT AN AMOUNT OF RS. 8.36 CRORES HAVE BEEN TAKEN AS UNSECURED LOAN/ADVANCE FROM JKSSIPL DURING THE DURING THE YE AR UNDER CONSIDERATION. THE AO FURTHER OBSERVED THAT THE AS SESSEE IS HOLDING 40% SHARES OF JKSSIPL. THE AO FOUND THAT IN THE BALAN CE SHEET OF JKSSIPL, THERE WAS AN ACCUMULATED PROFIT OF RS. 2.71 CRORES. INVOKING THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT, THE AO ADDE D RS. 2,71,66,140/- AS DEEMED DIVIDEND. THE AO FURTHER FOUND THAT AN AMOU NT OF RS. 3.20 CRORES HAVE BEEN TAKEN AS UNSECURED LOANS/ADVANCE F ROM J. KUMAR MINERALS & MINES (I) PVT. LTD (IKMMIPL) DURING THE YEAR UNDER CONSIDERATION. THE AO FOUND THAT THE ASSESSEE IS HO LDING 40% SHARES OF JKMMIPL. THE AO NOTICED THAT THE ACCUMULATED PROFI T OF JKMMIPL WAS TO THE TUNE OF RS. 15,66,547/- AS DEEMED DIVIDE ND IN THE HANDS OF THE ASSESSEE. 36.1. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE M ATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 37. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT THE LOAN WAS TAKEN IN THE ORDINARY COURSE OF BUSINESS. IN ALTER NATIVE, THE LD. COUNSEL POINTED OUT THAT IN THE CASE OF JKSSIPL UNDER THE H EAD RESERVES AND SHRI JAGDISH KUMAR GUPTA 13 SURPLUS, THE OPENING BALANCE WAS RS. 32,09,002/- AN D CURRENT YEARS PROFIT WAS RS. 2,39,57,`138/-. THE CLOSING BALANCE UNDER THE HEAD RESERVES & SURPLUS WAS RS. 2,71,66,140/-. THE AO HAS TAKEN THIS AMOUNT AS DEEMED DIVIDEND. WHEN THE OPENING BALANC E OF RS. 32 LAKHS HAVE ALREADY BEEN CONSIDERED AS DEEMED DIVIDEND IN EARLIER ASSESSMENT YEAR, THEREFORE, THE AO SHOULD NOT HAVE TAKEN CURRE NT YEARS PROFIT AS PART OF THE ACCUMULATED PROFIT. SIMILARLY IN THE CASE O F JKMMIPL, THE OPENING BALANCE UNDER THE HEAD RESERVES AND SURPLU S WAS IN NEGATIVE FIGURE OF RS. 9,780 TO WHICH CURRENT YEARS PROFIT OF RS. 15,76,327/- WAS ADDED AND THE CLOSING BALANCE UNDER THE HEAD RESERV ES AND SURPLUS WAS RS. 15,66,547/-. THE AO HAS TAKEN THE CLOSING BALA NCE AS ACCUMULATED PROFIT WHEN THE SAME INCLUDES CURRENT YEARS PROFIT ALSO. 38. THE LD. DR STRONGLY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 39. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. WE FIND FORCE IN THE CONTENTION OF THE SUBMISSION OF T HE LD. COUNSEL. WE HAVE CAREFULLY PERUSED THE BALANCE SHEET OF BOTH TH E COMPANIES I.E. JKSSIPL AND JKMMIPL. UNDER THE INCOME TAX ACT OF 1 922, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS DAMODAR AN (V) HAS HELD THAT CURRENT PROFIT COULD NOT BE INCLUDED IN THE AC CUMULATED PROFIT FOR SEC. 2(22) OF THE ACT. BY THE DIRECT TAX AMENDMENT ACT 1964, EXPLANATION-2 WAS AMENDED WITH RETROSPECTIVE EFFECT WHICH PROVIDE S THAT THE EXPRESSION ACCUMULATED PROFITS IN SUB-CLAUSES (A), (B), (D) AND (E) SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTI ON OR PAYMENT REFERRED TO IN THOSE SUB-CLAUSE AND IN SUB-CLAUSE (E) SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF LIQUIDATION. CONSIDERING THE AFORESAID EXPLANATION, IN THE LIGHT OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF SARADA (P) (MISS) VS CIT 229 ITR 444 HAS HELD THAT SHRI JAGDISH KUMAR GUPTA 14 THE LEGAL FICTION EMBEDDED IN SEC. 2(22)(E) COMES I NTO PLAY AS SOON AS MONIES WERE PAID BY THE COMPANY. WE, THEREFORE, RE STORE THIS ISSUE TO THE FILE OF THE AO. THE AO IS DIRECTED TO RECOMPU TE THE AMOUNT OF DEEMED DIVIDEND, IF ANY, ON THE DATES WHENH THE MON IES WERE GIVEN BY THE COMPANY TO THE ASSESSEE. GROUND NO. 1 IS ALLOW ED FOR STATISTICAL PURPOSE. 40. GROUND NO. 2 RELATES TO THE ADDITION OF RS. 80 LAKHS AS UNDISCLOSED INCOME. 40.1. THIS ISSUE HAS BEEN CONSIDERED BY THE AO AT P ARA-7 ON PAGE-6 OF HIS ORDER. THE AO OBSERVED THAT DURING THE COURSE OF SEARCH AND SEIZURE OPERATION, CASH OF RS. 2.44 CRORES WAS FOUND. THE AO FURTHER OBSERVED THAT WHEN IT WAS CONFRONTED TO THE ASSESSEE, THE AS SESSEE OFFERED RS. 2.20 CRORES FOR TAX IN HIS HANDS AND IN THE HANDS OF HIS TWO SONS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE CLAIMED THAT THE SOURCE OF THE CASH FOUND AT THE TIME OF SEARCH IS B OGUS PURCHASE BILLS ADMITTED IN ITS CASE AND BOGUS BILLS DEBITED IN JKI LS CASE. THIS EXPLANATION OF THE ASSESSEE DID NOT FIND FAVOUR FRO M THE AO AND DECLINED TO GIVE RELIEF OF RS. 80 LAKHS. 41. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A), IT WAS CONTENDED THAT THE ASSESSEE HAS DISCLOSED A SUM OF RS. 2,81,17,112/- BEING ACCOMMODATION PURCHASE BILL IN HIS PROPRIETORSHIP FIRM M/S. J. KUMAR & CO. AND GOLDLINE ADVERTISER. THE CASH SO FOUND WAS OUT OF THIS BOGUS PURCHASES BOOKED IN THE BOOKS OF ACCOUNT. IT WAS FURTHER EXPLAINED THAT BECAUSE OF VOLUMINOUS TRANSA CTIONS IN THE SEIZED PAPER AND THE COMPLEXITIES INVOLVED THEREIN, THE AS SESSEE HAS WRONGLY ADDED RS. 80,00,000/- IN ITS RETURN OF INCOME. THE LD. CIT(A) DID NOT ACCEPT THIS CONTENTION OF THE ASSESSEE HOLDING THAT THE ASSESSEE SHOULD SHRI JAGDISH KUMAR GUPTA 15 HAVE REVISED THE RETURN OF INCOME FILED BY HIM IN T HE LIGHT OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF G OETZ (INDIA) LTD. VS CIT 284 ITR 323. THE LD. CIT(A) CONFIRMED THE ASSE SSMENT ORDER. 42. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT THE FUNDAMENTAL PRINCIPLE OF TAXATION REQUIRED THE AO TO COMPUTE THE REAL INCOME AND NOT TO TAKE BENEFIT OF ASSESSEES IGNORANCE OR MISTAKE. THE LD. COUNSEL FURTHER STATED THAT ON CE THE DEPARTMENT HAS ACCEPTED THAT THE ASSESSEE WAS ENGAGED IN BOOKING B OGUS PURCHASE BILLS IN HIS BOOKS OF ACCOUNT, THEN THE DEPARTMENT SHOULD HAVE ACCEPTED CASH IN HAND WHICH WAS GENERATED OUT OF THE BOGUS PURCHASES BOOKED. 43. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF T HE LOWER AUTHORITIES. 44. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. IT IS NOT IN DISPUTE THAT NOT ONLY IN ASSESSEES CASE BUT ALSO IN THE CASES OF GROUP, THERE HAS BEEN BOGUS PURCHASE BILLS FOUND BO OKED IN THE BOOKS. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE WAS RECEIV ING MONIES OUT OF THE BOGUS PURCHASE BILLS. THIS PLEA OF THE ASSESSEE CA NNOT BE BRUSHED OUT LIGHTLY ON THE FACTS OF THE CASE AND ALSO ON THE FA CTS OF OTHER CASES OF THE GROUP. ONCE IT IS ADMITTED THAT THE ASSESSEE WAS I NDULGED IN BOOKING BOGUS PURCHASES THEN THE GENERATION OF CASH OUT OF SUCH BOGUS PURCHASE BILLS CANNOT BE REJECTED SO LIGHTLY. WE, THEREFORE , RESTORE THIS ISSUE TO THE FILE OF THE AO. THE ASSESSEE IS DIRECTED TO SUBSTA NTIATE HIS CLAIM BY PRODUCING COGENT MATERIAL EVIDENCE SHOWING HOW BOGU S PURCHASES WERE BOOKED AND WHEN THE AMOUNT WAS RECEIVED BACK. THE AO IS DIRECTED TO VERIFY SUCH DETAILS FILED BY THE ASSESSEE AND DECID E THIS ISSUE AFRESH IN THE LIGHT OF THE EXPLANATION FURNISHED BY THE ASSESSEE AFTER GIVING REASONABLE SHRI JAGDISH KUMAR GUPTA 16 OPPORTUNITY OF BEING HEARD. THIS GROUND OF THE ASSE SSEE IS ALLOWED FOR STATISTICAL PURPOSE. 45. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPEALS FILED BY TH E ASSESSEE IN ITA NO. 5103/M/12 IS ALLOWED AND ITA NOS. 5104 & 5105/M/12 ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH AUGUST, 2014 SD/- SD/- (VIVEK VARMA ) (N.K. BILLAIYA) #$ / JUDICIAL MEMBER ' #$ / ACCOUNTANT MEMBER MUMBAI; 4# DATED : 13 TH AUGUST, 2014 . . ./ RJ , SR. PS #3 #3 #3 #3 . .. . +/ +/ +/ +/ 5'/ 5'/ 5'/ 5'/ / COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 78 +/ , , / DR, ITAT, MUMBAI 6. 89 : / GUARD FILE. #3 #3 #3 #3 / BY ORDER, ,/ +/ //TRUE COPY// ; ;; ; / < < < < (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI