VALI KASIM, MUMBAI V. DCIT 8(2), MUMBAI

ITA 5158/MUM/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0032 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 01-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 05-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Keywords: Peak credit; Question of law; Deemed dividend
• Section: 143(3); 234B; 56

Judgement Text

1 VALI KASIM IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO. 2881/MUM /2011 - ASSESSMENT YEAR: 2005-06 ITA NO. 5158/MUM /2011 - ASSESSMENT YEAR: 2007-08 ITA NO. 2882/MUM /2011 - ASSESSMENT YEAR: 2005-06 VALI KASIM LEGAL HEIR MRS IQBAL KASIM, 9, MANEK MAHAL, VEER NARIMAN ROAD, CHURCHGATE, MUMBAI-20 PAN : ABTPK4063B VS DCIT, 8(2), M UMBAI APPELLANT RESPONDENT APPELLANT BY SHRI MAYUR KISNADWALA RESPONDENT BY MS POOJA SWAROOP DATE OF HEARING 15-06-2017 DATE OF PRONOUNCEMENT 06-2017 O R D E R PER G MANJUNATHA, AM : THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST THE ORDER OF THE CIT(A)-17, MUMBAI DATED 15-12-2010 & 25-03-2011 FOR THE AYS 2005-06 & 2007-08. SINCE, THE FACTS ARE IDENTICAL AND ISSUES AS COMMON, THESE THREE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. ITAS 2881/MUM/2011 & 5158/MUM/2011 2 VALI KASIM 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AD FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 ON 22-07-2005 DECLA RING TOTAL INCOME OF RS.18,97, 277. THE ASSESSMENT WAS COMPLETED U/S 14 3(3) ON 19-12-2007 DETERMINING TOTAL INCOME AT RS.4,17,82,378/- TOWARD S INTER-GROUP COMPANIES LOANS AND ADVANCES AS DEEMED DIVIDEND U/S 2(22)(E) OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HAS CARRIED THE MATTER IN APPEA L BEFORE THE FIRST APPELLATE AUTHORITY. THE CIT(A), FOR THE REASONS RECORDED IN HIS ORDER, CONFIRMED THE ADDITIONS MADE BY THE AO. THE ASSESSEE CARRIED THE MATTER IN FURTHER APPEAL BEFORE THE ITAT. THE HONBLE ITAT, F-BENCH, MUMBAI , VIDE ORDER DATED 31-03- 2009 IN ITA NO.6181/MUM/2008 HAS UPHELD THE ORDER O F THE AO INSOFAR AS APPLICATION OF THE PROVISIONS OF SECTION 2(22)(E) T OWARDS LOANS AND ADVANCES MADE BETWEEN THE GROUP COMPANIES INTER SE IN THE HA NDS OF THE ASSESSEE AS THE ASSESSEE BEING A BENEFICIAL SHAREHOLDER OF THE COMPANIES; HOWEVER, SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FURTHER V ERIFICATION WITH REGARD TO THE CLAIM OF THE ASSESSEE FOR DETERMINING QUANTUM OF DE EMED DIVIDEND CONSIDERING THE NATURE OF ENTRIES APPEARING IN THE LEDGER ACCOUNTS OF THE INTER- GROUP COMPANIES ON THE GROUND THAT THE AO HAS IGNOR ED THE ASSESSEES CLAIM OF CERTAIN JOURNAL ENTRIES PASSED IN THE BOOKS OF A CCOUNT TO GIVE EFFECT TO COMMERCIAL TRANSACTIONS IN THE NATURE OF SALES, PUR CHASES AND APPORTIONMENT OF COMMON EXPENSES AMONGST GROUP COMPANIES. 3 VALI KASIM 3. CONSEQUENT TO THE DIRECTIONS OF ITAT, THE AO ASKED THE ASSESSEE TO FURNISH DETAILS OF ENTRIES APPEARING IN THE INTER-G ROUP COMPANY TRANSACTIONS TO DETERMINE THE QUANTUM OF DEEMED DIVIDEND. IN RESPO NSE TO NOTICE, THE ASSESSEE FURNISHED RELEVANT DETAILS AND CLASSIFIED THE TOTAL ENTRIES APPEARED IN THE LEDGER ACCOUNTS AS PAYMENTS / RECEIPTS AGAINST SALE / PURCHASE TRANSACTIONS, ASSIGNMENT OF DEBTORS, SHARE OF COMMO N EXPENSES, COLLECTION OF COMMON DEBTORS, ETC. AND OTHER ENTRIES. THE ASSESS EE FURTHER STATED THAT THE TRANSACTIONS BETWEEN INTER-COMPANIES ARE MAINLY REL ATED TO PAYMENTS MADE AGAINST STOCKS SENT ON CONSIGNMENT BASIS BETWEEN IN TER-GROUP COMPANIES, IN WHICH SALE INVOICE HAS BEEN RAISED AS AND WHEN THE SALE IS CONFIRMED BY THE PARTIES AND IT WAS FURTHER SUBMITTED THAT THESE SAL ES AND PURCHASE TRANSACTIONS BETWEEN GROUP COMPANIES WERE ON THE BASIS OF DELIVE RY CHALLANS WHICH WERE SOLD BY THE GROUP COMPANY TO OUTSIDE PARTY PRIOR TO MARCH, 2005 BUT SALES INVOICES WERE RAISED IN MARCH, 2005, THEREFORE, A C ONSOLIDATED JOURNAL ENTRY HAS BEEN PASSED AMONGST THE GROUP COMPANIES TO GIVE EFFECT TO THE ABOVE TRANSACTIONS AT THE END OF THE FINANCIAL YEAR. THE ASSESSEE FURTHER SUBMITTED THAT THE MONIES WERE GIVEN AGAINST THE STOCK OF THE OTHER COMPANY LYING WITH THE COMPANY. TO THIS EFFECT, THE ASSESSEE FILED ST ATEMENT EXPLAINING THE LOAN AMOUNT ALONG WITH CORRESPONDING TOTAL STOCK HELD BY THE ASSESSEE OF OTHER COMPANIES SENT ON CONSIGNMENT BASIS AND CLAIMED THA T THE STOCK HELD BY THE 4 VALI KASIM ASSESSEE ON CONSIGNMENT BASIS IS MORE THAN THE AMOU NT PAID TO OTHER COMPANIES, THEREFORE, THESE PAYMENTS ARE MADE IN TH E NORMAL COURSE OF ITS BUSINESS, WHICH CANNOT BE CONSIDERED AS LOANS AND A DVANCES WITHIN THE AMBIT OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT. ALTE RNATIVELY, THE ASSESSEE HAS FILED A WORKING EXPLAINING ALL THE ENTRIES AND ALSO CLASS IFIED OTHER ENTRIES TO SHOW THE PEAK BALANCE IN THE STATEMENT REGARDING OTHER E NTRIES. THE ASSESSEE ALSO RELIED UPON CERTAIN JUDICIAL PRECEDENTS INCLUDING T HE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS NAGINDAS M KAPADIA 177 ITR 393 (BOM) AND SUBMITTED THAT THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND TOWARDS TRANSFERS BETWEEN INTER-GROUP COMPANIES IN THE NORMAL COURSE OF BUSINESS, MORE PARTICULARLY, AGAINST STOCK TRANSFER RED ON CONSIGNMENT BASIS, CANNOT BE CONSIDERED FOR THE PURPOSE OF DEEMED DIVI DEND. 4. THE AO, AFTER CONSIDERING THE EXPLANATIONS OF THE A SSESSEE HELD THAT THE QUESTION OF APPLICABILITY OF PROVISIONS OF SECTION 2(22(E) TO THE LOANS AND ADVANCES BETWEEN INTER-GROUP COMPANIES IN THE HANDS OF THE ASSESSEE HAS BEEN ALREADY DECIDED BY THE ITAT. THEREFORE, THERE IS NO MERITS IN THE CLAIM OF THE ASSESSEE THAT THESE TRANSACTIONS ARE NORMAL BUS INESS TRANSACTIONS, WHICH CANNOT BE CONSIDERED AS LOANS AND ADVANCES FOR THE PURPOSE OF DEEMED DIVIDEND. INSOFAR AS QUANTIFICATION OF DEEMED DIVI DEND, THE AO HAS ACCEPTED THAT THE STOCKS WERE TRANSFERRED BETWEEN COMPANIES INTER SE ON THE BASIS OF 5 VALI KASIM DELIVERY CHALLANS FOR WHICH THE ASSESSEE HAD FURNIS HED THE REQUISITE EVIDENCES; HOWEVER, FURTHER OBSERVED THAT THE ASSESSEE COULD N OT FURNISH ANY DETAILS OR EVIDENCES WITH REGARD TO THE CLAIM OF ON-ACCOUNT PA YMENTS MADE TOWARDS STOCK TRANSFERRED ON CONSIGNMENT BASIS, AND THEREFO RE, OFFERED THE PEAK BALANCE OF OTHER ENTRIES IN THE STATEMENT OF LEDG ER ACCOUNTS OF THE GROUP COMPANIES AS THEY APPEARED IN THE BOOKS OF THE ASSO CIATE COMPANIES. HE, THEREFORE, REJECTED THE EXPLANATION OF THE ASSESSEE WITH REGARD TO THE OTHER ENTRIES APPEARED IN THE LEDGER ACCOUNTS AND RE-COMP UTED DEEMED DIVIDEND ON THE BASIS OF PEAK BALANCE APPEARED IN THE LEDGER AC COUNTS OF THE GROUP COMPANIES WHICH WORKED OUT TO RS.1,28,81,968 AND TH E SAME HAS BEEN ADDED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 5. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PRE FERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS OB JECTED TO THE AOS OBSERVATION THAT THE ASSESSEE OFFERED PEAK BALANCE OF RS.1,28,81,968 AS THE AMOUNT OF DEEMED DIVIDEND. THE ASSESSEE FURTHER ST ATED THAT AS PER THE LETTER DATED 22-09-2009, THE ASSESSEE HAD EXPLAINED IN DET AIL EVERY CATEGORY OF TRANSACTIONS BETWEEN THE COMPANIES INTER-SE AND AT THE END OF THE LETTER, HAS DRAWN THE ATTENTION OF THE AO TO THE DECISION OF TH E JURISDICTIONAL HIGH COURT IN CIT VS NAGINDAS M KAPADIA 177 ITR 393 (BOM) AND IT WAS SUBMITTED THAT THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND REQUIRES TO BE DELETED. AS REGARDS 6 VALI KASIM THE MERITS, THE ASSESSEE HAD DEMONSTRATED VIDE HIS SUBMISSIONS DATED 28-07- 2009 THAT IN EACH CASE, THE MONEY WAS GIVEN AGAINST STOCKS OF THE OTHER COMPANY LYING WITH THE COMPANY. THE ASSESSEE HAS F ILED A DETAILED WORKING OF PEAK BALANCE GIVEN BY EACH COMPANY AND ALSO THE STO CK LYING WITH THE COMPANY SENT ON CONSIGNMENT BASIS AND TRIED TO EXPL AIN THAT THE STOCK IS MORE THAN THE PEAK BALANCE GIVEN BY THE COMPANIES, THERE FORE, THESE PAYMENTS ARE MADE AGAINST STOCKS SENT ON CONSIGNMENT BASIS WHICH CANNOT BE CONSIDERED AS LOANS AND ADVANCES FOR THE PURPOSES OF DETERMINATIO N OF DEEMED DIVIDEND. 6. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE OBSERVED THAT THE ITAT HAS ALREADY DECIDED THE ISSUE OF APPL ICABILITY OF THE PROVISIONS OF DEEMED DIVIDEND TOWARDS INTER SE TRANSFERS BETWEEN THE GROUP COMPANIES IN THE HANDS OF THE ASSESSEE. THEREFORE, THERE IS NO MERIT IN THE ARGUMENTS OF THE ASSESSEE THAT THESE TRANSACTIONS ARE NORMAL BUSINES S TRANSACTIONS, WHICH ARE NOT COMING WITHIN THE PURVIEW OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. INSOFAR AS QUANTIFICATION OF DEEMED DIVIDEND AS PE R THE DIRECTIONS OF THE ITAT, THE CIT(A) OBSERVED THAT THE ASSESSEE HAS FILED DET AILS OF THE TRANSACTIONS WHICH HAS BEEN DIVIDED INTO SALES / PURCHASES JOUR NAL ENTRIES AND OTHER ENTRIES RELATED TO ADVANCES GIVEN AGAINST GOODS SUPPLIED ON CONSIGNMENT BASIS. THE AO HAS ACCEPTED THE CONTENTION OF THE ASSESSEE THAT A MAJOR PORTION OF THE TRANSACTIONS RELATED TO SALES, PURCHASES AND OTHER RELATED TRANSACTIONS IN THE 7 VALI KASIM NORMAL COURSE OF BUSINESS. AS REGARDS OTHER ENTRIE S, THE AO TOOK A STAND THAT THE ASSESSEE HAS FAILED TO FURNISH ANY OTHER EVIDEN CE, EXCEPT THE DELIVERY CHALLAN TO PROVE THE GOODS SENT ON CONSIGNMENT BAS IS, THEREFORE, OPINED THAT THE ASSESSEE HAS NOT FILED NECESSARY EVIDENCES IN S UPPORT OF ITS ARGUMENTS THAT THE OTHER ENTRIES REPRESENT AMOUNTS PAID AGAINST GO ODS SENT ON CONSIGNMENT BASIS. THE CIT(A) FURTHER OBSERVED THAT THE ONLY E VIDENCE FURNISHED BY THE ASSESSEE IS COPIES OF DELIVERY CHALLANS. THEREFORE , IT CANNOT BE SAID THAT SUCH DELIVERY CHALLANS CONSTITUTE SUFFICIENT EVIDENCE TO HOLD THAT THERE IS A DIRECT AND IMMEDIATE NEXUS BETWEEN MONEY GIVEN BY ONE COMP ANY TO OTHER AND THE GOODS RECEIVED BY IT FROM OTHERS ON CONSIGNMENT BAS IS. IT IS POSSIBLE THAT FUNDS WERE TRANSFERRED BETWEEN COMPANIES BASED ON S TOCK RECEIVED BY ONE COMPANY FROM THE OTHER. HOWEVER, THERE IS NOTHING IN THE NARRATION OF ENTRIES GIVEN UNDER THE HEAD OTHER ENTRIES TO INDICATE TH AT MONEY WAS GIVEN BASED ON TRANSFER OF GOODS. THUS, IT IS TO BE CONCLUDED THAT THERE WAS NO DIRECT AND IMMEDIATE NEXUS BETWEEN MONEY ADVANCED AND TRANSFER OF GOODS AS CLAIMED BY THE ASSESSEE AND HENCE, THE AMOUNT QUANTIFIED BY THE AO ON THE BASIS OF PEAK BALANCE WAS CONFIRMED. AGGRIEVED BY THE CIT(A )S ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 7. SINCE THE FACTS RELATING TO ASSESSMENT YEAR 2007-08 ARE IDENTICAL TO FACTS FOR ASSESSMENT YEAR 2005-06 BUT FOR THE FIGURES, WE DEEM IT NOT NECESSARY TO 8 VALI KASIM THRIVE INTO THE SAME AGAIN FOR THE SAKE OF BREVITY AND AVOIDING REPETITION. 8. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE LD.C IT(A) ERRED IN CONFIRMING THE ADDITION OF RS.1,28,81,968 AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT, EVEN THOUGH THE AO HAS ACCEPTED THAT MAJOR ITY OF THE TRANSACTIONS RELATE TO TRANSFER OF GOODS BETWEEN INTER GROUP COM PANIES OBVIOUSLY ON STOCK SENT ON CONSIGNMENT BASIS. THE AR FURTHER SUBMITTE D THAT THE ASSESSEE HAS FILED NECESSARY EVIDENCES IN THE FORM OF DELIVERY C HALLANS AND ALSO FILED WORKINGS TO PROVE THAT THE GOODS SENT ON CONSIGNMEN T BASIS IS MORE THAN THE AMOUNT ARRIVED AT BY THE AO ON PEAK BALANCE. THERE FORE, THE AO HAS ERRED IN TREATING THE OTHER ENTRIES AS LOANS AND ADVANCES MERELY BECAUSE THERE WAS NO NARRATION GIVEN IN THE JOURNAL ENTRIES. THE AO AS WELL AS THE CIT(A) HAVING ACCEPTED THAT THE OTHER ENTRIES WERE BASED ON STOCK TRANSFERRED ON CONSIGNMENT BASIS SHOULD HAVE HELD THAT THESE WERE ALSO FOR BUSINESS PURPOSES, CANNOT BE CONSIDERED FOR THE PURPOSE OF Q UANTIFICATION OF DEEMED DIVIDEND. ON THE OTHER HAND, LD.DR STRONGLY SUPPOR TED THE ORDER OF THE CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA L AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE FACTS WITH REGARD TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 2(22)(E) TO THE TRANSACTIONS OF INTER- GROUP COMPANIES IN THE HANDS OF THE ASSESSEE IS ALR EADY DECIDED BY THE ITAT IN 9 VALI KASIM THE FIRST ROUND OF LITIGATION. THE ONLY DISPUTE IS WITH REGARD TO THE QUANTIFICATION OF AMOUNT FOR THE PURPOSE OF DETERMI NATION OF DEEMED DIVIDEND. THE ASSESSEE CLAIMS THAT THE AO HAS CONS IDERED JOURNAL ENTRIES PASSED IN THE BOOKS OF ACCOUNT TO GIVE EFFECT TO NO RMAL BUSINESS TRANSACTIONS OF PURCHASES, SALES, ALLOCATION OF COMMON EXPENSES AND STOCK SENT ON CONSIGNMENT BASIS BETWEEN GROUP COMPANIES. IN THE PREVIOUS PROCEEDINGS, THE ITAT HAS CONSIDERED THE CLAIM OF THE ASSESSEE A ND SET ASIDE THE ISSUE TO THE AO TO ASCERTAIN THE CORRECT AMOUNT WHICH IS COMING WITHIN THE MEANING OF LOANS AND ADVANCES AS DEFINED U/S 2(22)(E) OF THE ACT. IN THE REMAND PROCEEDINGS, THE ASSESSEE HAS ANALYSED EACH AND EVE RY TRANSACTION APPEARING IN THE LEDGER ACCOUNT AND CLASSIFIED BROADLY INTO F OUR CATEGORIES, VIZ. SALES, PURCHASES, ALLOCATION OF COMMON EXPENSES AND STOCK TRANSFERRED ON CONSIGNMENT BASIS. THE AO HAS ACCEPTED ENTRIES REL ATING TO SALES, PURCHASES AND ALLOCATION OF COMMON EXPENSES AND EXCLUDED THOS E ITEMS FOR THE PURPOSE OF QUANTIFICATION. AS REGARDS OTHER ENTRIES, THE A O HAS REJECTED THE EXPLANATION OF THE ASSESSEE WITH THE OTHER ENTRIES REPRESENTING AMOUNT TRANSFERRED AGAINST GOODS SENT ON CONSIGNMENT BASIS ON THE SOLE GROUND THAT THERE IS NO NARRATION IN THE JOURNAL ENTRIES EXPLAI NING THE OTHER ENTRIES. 10. THE AO HAS ACCEPTED THE EXPLANATION OF THE ASSESSEE THAT MAJORITY OF THE TRANSACTIONS RELATE TO SALES, PURCHASES, ALLOCATION OF COMMON EXPENSES AND 10 VALI KASIM STOCK TRANSFERS ON CONSIGNMENT BASIS BETWEEN GROUP COMPANIES. IT IS ALSO AN ADMITTED FACT THAT THE AO HAS ACCEPTED THAT THE ASS ESSEE HAS FURNISHED NECESSARY EVIDENCE IN THE FORM OF DELIVERY CHALLANS TO PROVE THE GOODS SENT ON CONSIGNMENT BASIS. HOWEVER, REJECTED THE CLAIM OF THE ASSESSEE ON THE SOLE GROUND THAT THERE IS NO NARRATION IN THE JOURNAL EN TRIES TO EXPLAIN OTHER ENTRIES APPEARING IN THE LEDGER ACCOUNT. WE DO NOT FIND AN Y MERIT IN THE FINDINGS OF THE AO FOR THE REASON THAT MERELY BECAUSE THERE IS NO NARRATION PROVIDED IN THE JOURNAL ENTRIES EXPLAINING THE ENTRY, THE OTHER EVIDENCES FILED BY THE ASSESSEE IN THE FORM OF DELIVERY CHALLANS TO PROVE THE GOODS SENT ON CONSIGNMENT BASIS CANNOT BE IGNORED. IN THIS CASE, THE ASSESSEE HAS FILED SAMPLE COPIES OF DELIVERY CHALLANS TO EXPLAIN THE O THER ENTRIES APPEARING IN THE LEDGER ACCOUNTS. THE ASSESSEE HAS ALSO FILED NECES SARY DETAILS TO EXPLAIN THE OTHER ENTRIES APPEARING IN THE LEDGER ACCOUNTS WITH CORRESPONDING GOODS BELONGING TO OTHER COMPANIES LYING WITH THE ASSESSE E. THEREFORE, WE ARE OF THE VIEW THAT THE AO AS WELL AS THE CIT(A) HAVING A CCEPTED THE FACT THAT GOODS SENT ON CONSIGNMENT BASIS IS SUPPORTED BY DELIVERY CHALLANS AND ALSO IS A FACT THAT IT IS POSSIBLE THAT THESE GOODS WERE TRANSFERR ED BETWEEN COMPANIES BASED ON STOCK RECEIVED BY ONE COMPANY FROM THE OTHER, ER RED IN REJECTING THE EXPLANATIONS OF THE ASSESSEE MERELY FOR THE REASON THAT THERE IS NO NARRATION OF ENTRIES GIVEN UNDER THE HEAD OTHER ENTRIES TO IND ICATE THAT MONEY WAS GIVEN 11 VALI KASIM BASED ON TRANSFER OF GOODS. WE, FURTHER ARE OF THE OPINION THAT IF THE GOODS SENT ON CONSIGNMENT BASIS IS MORE THAN THE AMOUNT O F OTHER ENTRIES APPEARING IN THE LEDGER ACCOUNTS, AND WHICH HAS A DIRECT AND IMMEDIATE NEXUS BETWEEN MONEY ADVANCED AND TRANSFER OF GOODS AS CLAIMED BY THE ASSESSEE, THE AO WAS INCORRECT IN INCLUDING THOSE ITEMS FOR THE PURPOSE OF QUANTIFICATION OF DEEMED DIVIDEND. THEREFORE, WE DEEM IT APPROPRIATE TO SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FURTHER VERIFICATION WITH REFERENCE T O THE DETAILS FILED BY THE ASSESSEE TO ASCERTAIN THE CORRECT FACTS AS TO WHETH ER THE OTHER ENTRIES APPEARING IN THE LEDGER ACCOUNTS REPRESENT AMOUNT P AID AGAINST GOODS SENT ON CONSIGNMENT BASIS; HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT THE AO TO VERIFY THE ISSUE BEFORE QUANTIFYIN G THE AMOUNT OF DEEMED DIVIDEND FOR THE ASSESSMENT YEARS 2005-06 AND 2007- 08. 11. THE NEXT GROUND RAISED BY THE ASSESSEE FOR THE ASSE SSMENT YEAR 2005-06 RELATES TO SET OFF OF DEEMED DIVIDEND AGAINST ACTUA L DIVIDEND PAID BY CERTAIN COMPANIES. 11(A). THE AR SUBMITTED THAT THE SUBSEQUENT ACTUAL DIVIDEN D DECLARED AND PAID BY ITPL WAS NOT LIABLE TO DIVIDEND DISTRIBUTION TAX U/S 115-O READ WITH SECTION 2(22)(E). M/S ITPL HAD DECLARED AND PAID DIVIDEND WHICH NEEDS TO BE SET OFF AGAINST THE DEEMED DIVIDEND QUANTIFIED BY THE AO. WE DO NOT FIND ANY MERITS IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THA T DIVIDEND DISTRIBUTION TAX 12 VALI KASIM AS PER SECTION 115-O IS IN RESPECT OF DIVIDEND COVE RED BY CLAUSES (A) TO (D) OF SECTION 2(22) AND SUCH INCOME IS EXEMPT IN THE HAND S OF SHAREHOLDERS U/S 10(34). HOWEVER, DEEMED DIVIDEND U/S 2(22)(E) IS T AXABLE AS NO DIVIDEND DISTRIBUTION TAX IS PAYABLE ON THIS INCOME. THEREF ORE, THE ARGUMENTS OF THE ASSESSEE WITH REGARD TO SET OFF OF DEEMED DIVIDEND AGAINST ACTUAL DIVIDEND PAID IS REJECTED. 12. THE NEXT ISSUE THAT COME UP FOR OUR CONSIDERATION I S DISALLOWANCE OF INTEREST EXPENDITURE OF RS.1,37,304 AGAINST INTERES T INCOME ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE AO DISALLOWE D INTEREST EXPENDITURE AS THE ASSESSEE WAS UNABLE TO CO-RELATE THE INTEREST I NCOME WITH INTEREST EXPENDITURE. THEREFORE, NETTING OFF OF INTEREST WA S NOT CONSIDERED. THE CONTENTION OF THE ASSESSEE THAT HE HAD BORROWED OVE RDRAFT LOAN AGAINST FIXED DEPOSIT AND THE RESULTANT INTEREST PAID ON OVERDRAF T LOAN IS SET OFF AGAINST INTEREST EARNED ON FIXED DEPOSIT,HENCE, THE AO WAS ERRED IN NOT ALLOWING INTEREST EXPENDITURE ON OVERDRAFT WHICH WAS WHOLLY AND EXCLUSIVELY INCURRED FOR EARNING OF INTEREST INCOME AND ALLOWABLE U/S 5 7 OF THE ACT. WE FIND MERITS IN THE ARGUMENTS OF THE ASSSSSEE FOR THE REASON THA T ANY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING INCOME WHICH IS TAXABLE U/S 56 IS ALLOWABLE AS DEDUCTION U/S 57 OF THE ACT. IN THIS CASE, THE ASSESSEE CLAIMS TO HAVE TAKEN OVERDRAFT LOAN AGAINST FIXED DEPOSIT AND THE RESULT ANT INTEREST HAS BEEN 13 VALI KASIM CLAIMED AS DEDUCTION AGAINST INTEREST INCOME. HOWE VER, THE ASSESSEE HAS FAILED TO FURNISH NECESSARY DETAILS WITH REGARD TO THE UTILIZATION OF OVERDRAFT LOAN AVAILED AGAINST FDS TO ASCERTAIN WHETHER THE S AID INTEREST EXPENDITURE IS WHOLLY AND EXCLUSIVELY INCURRED FOR EARNING INTERES T INCOME. THEREFORE, WE ARE OF THE VIEW THAT THE ISSUE NEEDS TO BE EXAMINED BY THE AO IN THE LIGHT OF THE ABOVE DISCUSSIONS AND HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FURTHER VERIFICATION. 13. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION IS LE VY OF INTEREST U/S 220(2) OF THE ACT. THE LEVY OF INTEREST U/S 220(2) IS CON SEQUENTIAL IN NATURE WHICH IS DEPENDENT UPON THE QUANTUM OF TAX LIABILITY DETERMI NED IN THE ASSESSMENT PROCEEDINGS. HOWEVER, SINCE THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE AO FOR DETERMINATION OF DEEMED DIVIDEND, THE AO IS DIR ECTED TO RE-COMPUTE THE INTEREST CHARGEABLE U/S 220(2) OF THE ACT AFTER DET ERMINATION OF FINAL TAX LIABILITY IN THE ASSESSMENT PROCEEDINGS. 14. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S LEVY OF INTEREST U/S 234B & 234C OF THE ACT. THE LEVY OF INTEREST U/S 2 34B & 234C IS MANDATORY AND CONSEQUENTIAL IN NATURE AND THE AO DO NOT HAVE ANY DISCRETIONARY POWERS IN CHARGING INTEREST U/S 234B & 234C. THEREFORE, T HE GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 15. IN THE RESULT, APPEALS FILED BY THE ASSESSEE IN ITA NOS.2881 & 14 VALI KASIM 5158/MUM/2011 ARE PARTLY ALLOWED, FOR STATISTICAL P URPOSE. ITA NO.2882/MUM/2011 16. THE ASSESSEE HAS FILED THIS APPEAL AGAINST ORDER OF THE CIT(A)-17, MUMBAI DATED 15-12-2010 CONFIRMING LEVY OF PENALTY U/S 271 (1)(C) OF THE INCOME-TAX ACT, 1961. 17. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS FILED HIS RETURN OF INCOME OR THE AY 2005-06 DECLARING TOTAL INCOME OF RS.18,97,277. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 19-12-2007 D ETERMINING TOTAL INCOME AT RS.4,17,82,379 MAKING ADDITIONS OF RS.3,98,53,26 2 TOWARDS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. ON APPEAL BEFORE CIT(A), THE CIT(A) CONFIRMED THE ADDITIONS MADE BY THE AO. THE ASSESSEE CARRIED THE MATTER IN FURTHER APPEAL BEFORE ITAT. THE F-BENCH OF THE ITAT, MUMBA I IN ITA NO.618/MUM/2008 DATED 31-03-2009 SET ASIDE THE ORDE R OF THE CIT(A) AND RESTORED THE ISSUE TO THE FILE OF THE AO TO DECIDE THE QUANTUM OF DEEMED DIVIDEND AFRESH IN THE LIGHT OF THE EXPLANATIONS OF THE ASSESSEE. THE AO PASSED ORDER U/S 143(3) R.W.S. 254 ON 22-10-2009 AND MODIF IED THE AMOUNT OF ADDITION MADE U/S 2(22)(E) TO RS.1,28,81,968. THER EAFTER, THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) FOR FURNISHING IN ACCURATE PARTICULARS / CONCEALMENT OF INCOME. THE AO, AFTER CONSIDERING T HE EXPLANATIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAS FURNISHED I NACCURATE PARTICULARS / 15 VALI KASIM CONCEALED PARTICULARS OF INCOME WHICH WARRANTS LEVY OF PENALTY UNDER CLAUSE (A) TO EXPLANATION 1 OF SECTION 271(1)(C) OF THE AC T. ACCORDINGLY, HE LEVIED PENALTY OF RS.43,36,070 WHICH IS 100% OF THE TAX SO UGHT TO BE EVADED. AGGRIEVED BY THE PENALTY ORDER, THE ASSESSEE PREFER RED APPEAL BEFORE CIT(A). THE CIT(A), VIDE ORDER DATED 15-12-2010 CONFIRMED P ENALTY LEVIED BY THE AO U/S 271(1)(C) BY HOLDING THAT THE ITAT HAS UPHELD T HE ADDITION MADE BY THE AO TOWARDS DEEMED DIVIDEND AND HENCE, PAYMENTS MADE AG AINST NORMAL BUSINESS TRANSACTIONS ON STOCKS SENT ON CONSIGNMENT BASIS IS NOT ACCEPTABLE. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL B EFORE US. 18. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI T(A) ERRED IN CONFIRMING THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT IGNORING THE FACT THAT THERE IS NO CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME AS THE ADDITION IS MADE BY IN VOKING THE DEEMING PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE AR FURTHER SUBMITTED THAT THE ASSESSEE HAS PREFERRED AN APPEAL AGAINST THE ORDER OF THE CIT(A) CONFIRMING THE ACTION OF THE AO INVOKING DEEMING PROVISIONS OF SEC TION 2(22)(E) TOWARDS INTER- GROUP COMPANIES TRANSFERS BETWEEN GROUP COMPANIES B EFORE THE HONBLE HIGH COURT OF BOMBAY AND THE APPEAL HAS BEEN ADMITTED FO R ADJUDICATION. ONCE THE ISSUE HAS BEEN ADMITTED BY THE HIGH COURT, NO PENAL TY CAN BE LEVIED FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME U/S 16 VALI KASIM 271(1)(C) OF THE ACT. ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDER OF THE CIT(A). 19. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE M ATERIAL AVAILABLE ON RECORD. THE AO LEVIED PENALTY U/S 271(1)(C) FOR CO NCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCO ME IN RESPECT OF DEEMED DIVIDEND QUANTIFIED IN PURSUANCE TO DIRECTIONS OF I TAT. THE AO WAS OF THE OPINION THAT THE ASSESSEES CASE IS COVERED BY CLAU SE (A) TO EXPLANATION 1 OF SECTION 271(1)(C) FOR WHICH THE ASSESSEE IS LIABLE FOR PENALTY. THE ASSESSEE CLAIMS THAT PENALTY U/S 271(1)(C) IS NOT LEVIABLE A S THE ADDITION IS MADE BY INVOKING THE DEEMING PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE ASSESSEE FURTHER CONTENDED THAT ONCE THE QUESTION OF LAW HAS BEEN ADMITTED BY THE HIGH COURT, THEN, NO PENALTY CAN BE LEVIED FOR CONC EALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 20. HAVING HEARD BOTH PARTIES, WE FIND THAT THE ADDITIO NS MADE BY THE AO U/S 2(22)(E) TOWARDS INTER-GROUP COMPANIES TRANSFERS H AS BEEN SET ASIDE BY US TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN THE LI GHT OF EXPLANATIONS OF THE ASSESSEE THAT THESE PAYMENTS ARE MADE AGAINST STOCK S SENT ON CONSIGNMENT BASIS. SINCE THE ISSUE HAS BEEN SET ASIDE TO THE F ILE OF THE AO, THE ORDER PASSED BY THE AO LEVYING PENALTY U/S 271(1)(C) CANNOT BE S USTAINED AND HENCE, THE SAME IS HEREBY QUASHED AND THE ISSUE IS LEFT OPEN T O THE AO TO INITIATE PENALTY 17 VALI KASIM PROCEEDINGS AFTER COMPLETION OF ASSESSMENT PROCEEDI NGS, AS PER LAW. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.2882/MUM/2011 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2017. SD/- SD/- (D.T. GARASIA) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 30 TH JUNE, 2017 COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) BY ORDER 4. CIT 5. DR /TRUE COPY/ ASSTT. REGISTRAR, ITAT, MUMBAI