Sh. Ashok Kumar Malhotra (Deceased), Jalandhar V. The DCIT, Jalandhar

ITA 516/ASR/2011

• Counselvise Citation: 51620914 RSA 2011
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 11-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R L CHHANALIA
• Keywords: Gross profit estimation; Rejection of books of accounts; Depreciation; Share purchase agreement; Principle of natural justice; Additional evidence; Deemed dividend; Documents seized
• Section: 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.164(ASR)/2010 ASSESSMENT YEAR:2006-07 PAN:AARPM7568A LATE SH. ASHOK KUMAR MALHOTRA, VS. JT. COMMISSIONE R OF INCOME-TAX, PROP. M/S. MODERN PUBLISHERS, NOW DCIT CC-II, MBDHOUSE, JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) I.T.A. NO.238(ASR)2010 ASSESSMENT YEAR: 2006-07 ASSTT. COMMR. OF INCOME-TAX, VS. LATE SH. ASHOK KUM AR MALHOTRA, CC-II, JALANDHAR. THROUGH LEGAL HEIRS SMT. SATISH BALA MALHOTRA SMT. MONICA MALHOTRA SMT. SONICAMALHOTRA APPELLANT) (RESPONDENT) I.T.A. NO.516(ASR)/2010 ASSESSMENT YEAR:2006-07 PAN:AARPM7568A LATE SH. ASHOK KUMAR MALHOTRA, VS. DY. COMMISSIONE R OF INCOME-TAX, PROP. M/S. MODERN PUBLISHERS, CIRCLE-II, JALANDHA R. THROUGH L/H SMT. SATISH BALA MALHOTR, JALANDHAR. (APPELLANT) (RESPONDENT) 2 I.T.A. NO.532(ASR)2011 ASSESSMENT YEAR: 2006-07 DT. COMMR. OF INCOME-TAX, VS. LATE SH. ASHOK KUMAR MALHOTRA, CRICLE-II, JALANDHAR. (DECEASED)THROUGH LEGAL HEI R SMT. SATISH BALA MALHOTRA, MBD HOUSE, JALANDHAR. (APPELLANT) (RESPONDENT) I.T.A. NO.563(ASR)2011 ASSESSMENT YEAR: 2007-08 DT. COMMR. OF INCOME-TAX, VS. LATE SH. ASHOK KUMAR MALHOTRA, CRICLE-II, JALANDHAR. (DECEASED)THROUGH LEGAL HEI R SMT. SATISH BALA MALHOTRA, MBD HOUSE, JALANDHAR. (APPELLANT) (RESPONDENT) ASSESSEE BY: SH. SUDHIR SEHGAL, ADV. DEPARTMENT BY: SH. R.L. CHHANALIA, DR DATE OF HEARING :11.04.2012 DATE OF PRONOUNCEMENT:23/04/2012 ORDER PER BENCH; THESE APPEALS OF THE ASSESEE AND THE REVENUE ARISE FROM THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEAL), AS MENTION ED HEREINBELOW: ITA NO. ASSTT. YEAR APPEAL FILED BY ARISING OUT OF 164(ASR)/2010 2006-07 ASSESSEE CIT(A), JALANDHAR DATED 26.02.2010 532(ASR)/2011 2006-07 REVENUE CIT(A), LUDHIANA 3 DATED 11.8.2011 563(ASR)/2011 2007-08 REVENUE CIT(A), LUDHIANA DATED 01.09.2011 238(ASR)/2011 2006-07 REVENUE CIT(A), JALANDHAR DATED 26.02.2010 516(ASR)/2011 2006-07 CIT(A), LUDHIANA DATED 11.08.2011 SINCE THE ISSUES INVOLVED IN ALL THE APPEALS ARE ID ENTICAL AND THEREFORE, ALL THE APPEALS ARE BEING TAKEN UP BY THIS CONSOLIDATED ORD ER FOR THE SAKE OF CONVENIENCE. THE ASSESSEE AND THE REVENUE IN THE AP PEALS MENTIONED HEREINABOVE HAS RAISED THE GROUNDS, AS UNDER: 2. IN ITA NO.164(ASR)/2010 FOR THE ASSESSMENT YEAR 2006-07, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1. THAT THE ORDER OF LD. CIT(A) IS AGAINST LAW AND FACTS HENCE, LIABLE TO BE SET-ASIDE. 2. THAT THE LD. CIT(A) HAS FAILED TO CONSIDER THE REAS ONING AND SUBMISSIONS MADE BY THE ASSESSEE IN PROPER CONTEXT AND THEREFORE HIS FINDINGS ARE NOT SUSTAINABLE IN LAW. 3(A) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS OF THE CASE BY SUSTAINING ADDITION OF RS.10,55,63,625/- U/S 2(22)( E). (B) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE TH AT THE A.O. EXCEEDED HIS JURISDICTION BY INVOKING THE PROVISION S OF SECTION 2(22) (E) OF THE ACT. 4.3(A) THAT THE DECISION OF LD. CIT(A) IN SUSTAININ G THE INTEREST TO THE TUNE OF RS.29,89,000/- IS CONTRARY TO FACTS AND LAW . (B) THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT I NTEREST FREE ADVANCES WERE GIVEN TO SISTER CONCERNS, WHEN THERE WAS NET 4 CREDIT OF INTEREST RECEIVED FROM SISTER CONCERN IN PROFIT & LOSS A/C. 5. THAT THE ASSESSEE RESERVES ITS RIGHT TO AMEND TO ADD ANY FRESH GROUNDS WITH THE PERMISSION OF THE BENCH. 3. IN ITA NO.532(ASR)/2011 FOR THE ASSESSMENT YEAR 2006-07, THE REVEUE HAS RAISED FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED BOTH IN LAW AND O N FACTS OF THE CASE IN OBSERVING THAT THE DOCUMENTS SEIZED DURING SEARCH ACTION U/S 132 I.E. ANNEXURE A-2/PAGES 24 & 25 (AT PREMISES DB -1), MADE ANNEXURE B OF THE ASSESSMENT ORDER, WHICH SHOWS T HE NAME OF THE SHAREHOLDER OF M/S. HOLY FAITH INTERNATIONAL (P) LT D.; AS SH. A.K. MALHOTRA AND NOT SH. A.K. MALHOTRA (HUF), IS NOT TO BE RELIED UPON. 2. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE G ROUNDS OF APPEAL ON OR BEFORE THE APPEAL IS HEARD AND DISPOSE D OFF. 4. IN ITA NO.516(ASR)/2011 FOR THE ASSESSMENT YEAR 2006-07, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1. THAT THE ORDER OF THE LD. CIT(A) IS AGAINST FAC TS AND IS LIABLE TO BE SET-ASIDE. 2. THAT THE LD. CIT(A) HAS FAILED TO CONSIDER THE R EASONING AND SUBMISSIONS MADE BY THE APPELLANT IN PROPER CONTEXT AND THEREFORE HIS FINDINGS ARE NOT SUSTAINABLE IN LAW. 3.(A) THAT DECISION OF LD. CIT(A) IN SUSTAINING THE INTEREST EXPENDITURE TO THE TUNE OF RS.29,89,000/- IS CONTRA RY TO THE FACTS AND LAW. (B) THAT THE LD. CIT(A) HAS ERRED IN HOLDING T HAT INTEREST FREE ADVANCES WERE GIVEN TO SISTER CONCERN, WHEN THERE W AS NET CREDIT OF INTEREST RECEIVED FROM SISTER CONCERN IN P&L ACCOUNT. 5 4. THAT THE APPELLANT RESERVES RIGHT TO AMEND TO AD D ANY FRESH GROUND WITH THE PERMISSION OF BENCH. 5. IN ITA NO.238(ASR)/2011 FOR THE ASSESSMENT YEAR 2006-07, THE REVENUE HAS RAISED FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED BOTH IN LAW AND O N FACTS OF THE CASE IN NOT UPHOLDING THE AOS ACTION OF REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE I.T. ACT, WHICH WAS BASE D ON SPECIFIC ACCOUNTING INCONSISTENCIES POINTED OUT BY THE A.O. 2. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACT S OF THE CASE IN DELETING THE ADDITION OF RS.2,69,00,000/- MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF LOW GP RATE DETERMI NED UPON REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT . 3. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACT S OF THE CASE IN DELETING THE ADDITION TO THE EXTENT OF RS.4,11,000/ - OUT OF TOTAL ADDITION OF RS.34,00,000/- MADE BY THE ASSESSING OF FICER U/S 36(1)(III) OF THE I.T. ACT. 4. THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO CALCULATE INTEREST U/S 234C OF THE ACT, ATTRIBUTABLE TO LONG TERM CAPITAL GAINS FROM 21.01.2006, INSTEAD OF 12.09.2005 HELD B Y THE A.O. TO BE THE ACTUAL DATE OF TRANSFER OF SHARES, DESPIT E THE ASSESSEES INABILITY TO CONCLUSIVELY PROVE THAT SHARES WERE TR ANSFERRED ON 21.01.2006. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL ON OR BEFORE THE APPEAL IS HEARD AND DISPOSE D OFF. 6. IN ITA NO.563(ASR)/2011 FOR THE ASSESSMENT YEAR 2007-08, THE REVENUE HAS RAISED FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED BOTH IN LAW AND O N FACTS OF THE CASE IN OBSERVING THAT THE DOCUMENTS SEIZED DURING SEARCH ACTION U/S 132 I.E. ANNEXURE A-2/PAGES 24 & 25 (AT PREMISES DB -1), MADE ANNEXURE B OF THE ASSESSMENT ORDER, WHICH SHOWS T HE NAME OF THE 6 SHAREHOLDER OF M/S. HOLY FAITH INTERNATIONAL (P) LT D.; AS SH. A.K. MALHOTRA AND NOT SH. A.K. MALHOTRA (HUF), IS NOT TO BE RELIED UPON. 2. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE G ROUNDS OF APPEAL ON OR BEFORE THE APPEAL IS HEARD AND DISPOSE D OFF. 7. THE LD. COUNSEL FOR THE ASSESSEE, SH. SUDHIR SEH GAL, ADVOCATE, ARGUED THAT MR. ASHOK KUMAR MALHOTRA IN THE CAPACIT Y AS HUF IS HOLDING SUBSTANTIAL INTEREST NOT AS AN INDIVIDUAL BUT AS A HUF IN M/S. HOLY FAITH INTERNATIONAL (P) LTD. THE ASSESSEE DIED ON 30.12.2 009. A SEARCH WAS CARRIED OUT ON THE ASSESSEE ON 22.01.2009 WHEN THE CASES OF THE ASSESSEE WERE REOPENED. AS REGARDS APPEAL OF THE ASSESSEE IN ITA NO.164(ASR)/2010 ESPECIALLY WITH REGARD TO GROUND NO.4 OF THE ASSESS EE, THE BRIEF FACTS ARE THAT THE ASSESSEE IS A PROPRIETOR OF M/S. MODERN PUBLISH ERS, JALANDHAR AND IS ALSO A MAJOR SHAREHOLDER OF M/S. HOLY FAITH INTERNATIONA L PRIVATE LIMITED HAVING 99.9% OF THE TOTAL SHAREHOLDINGS. THE REMAINING 0.1 % EQUITY SHARES ARE HELD BY HIS WIFE NAMELY SMT. SATISH BALA MALHOTRA. THE AO OBSERVED THAT IN M/S. HOLY FAITH INTERNATIONAL PRIVATE LIMITED IN WH ICH THE ASSESSEE HAD SUBSTANTIAL INTEREST WAS HAVING ACCUMULATED PROFITS OF RS.10,55,63,625/-. THE AO OBSERVED THAT THE ASSESSEE HAD RECEIVED AMO UNTS OF RS.14.19 CRORES FROM HOLY FAITH INTERNATIONAL PRIVATE LIMITED AND T HERE WAS A DEBIT BALANCE IN THE CURRENT ACCOUNT AMOUNTING TO RS.0.05 CRORES. THUS, THE TOTAL CREDIT BALANCE IN THE NAME OF M/S. HOLY FAITH INTERNATIONA L PRIVATE LIMITED IN THE 7 BOOKS OF ACCOUNT OF THE ASSESSEE WAS RS.14.14 CRORE S. THE AO OBSERVED THAT THE SAID AMOUNT REPRESENTED DEEMED DIVIDEND TO THE EXTENT OF ACCUMULATED PROFITS OF RS.10,55,63,625/- OF THE AFO RESAID COMPANY WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. WHEN TH E ASSESSEE WAS CALLED UPON TO SHOW CAUSE AS TO WHY SUCH ADDITION SHOULD N OT BE MADE, IT WAS EXPLAINED TO THE AO THAT PROVISIONS OF SECTION 2(22 )(E) WERE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE BECAUSE IMPUGNED A MOUNT RECEIVED FROM THE COMPANY WAS NEITHER A LOAN NOR AN ADVANCE. IT W AS STATED THAT THE AMOUNT IN QUESTION REPRESENTED AN EARNEST MONEY (BIANA) FOR SALE OF PROPERTY AT 27-28 UDYOG VIHAR, PHASE VI, GURGAON FOR TOTAL CONS IDERATION OF RS.38 CRORES. IT WAS STATED THAT THE PROPERTY COULD NOT B E TRANSFERRED FOR THE REASON THAT ENTIRE SALE CONSIDERATION HAD NOT BEEN RECEIVE D AND THE APPROVAL OF H.S.I.D.C. WAS STILL AWAITED. HOWEVER, THE A.O. REJ ECTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE AMOUNT REPRESEN TED DEEMED DIVIDEND TO THE EXTENT OF ACCUMULATED PROFITS OF THE COMPANY IN WHICH THE ASSESSEE HAD SUBSTANTIAL INTEREST WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT; THAT NO DOCUMENTARY EVIDENCE WAS PRODUCED TO SHOW THAT THE AMOUNT RECEIVED WAS AN EARNEST MONEY FOR SALE OF PROPERTY; AND THAT THE PROPERTY HAD NOT BEEN TRANSFERRED IN THE NAME OF THE ASSESSEE. ACCORDINGL Y, THE AO MADE THE ADDITION OF THE ABOVE SAID AMOUNT. 8 8. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 9. THE ASSESSEE ALSO FILED ADDITIONAL EVIDENCES BEF ORE THE BENCH VIDE LETTER DATED 25.03.2012 BY WAY OF SEPARATE APPLICAT ION WITH REGARD TO THE FACT THAT SH. ASHOK KUMAR MALHOTRA WAS NOT SHAREHOLDER I N M/S. HOLY FAITH INTERNATIONAL PRIVATE LIMITED IN HIS INDIVIDUAL CAP ACITY BUT IN FACT, HE WAS SHAREHOLDER IN HIS HUF CAPACITY FOR THAT THE ASSESS EE HAS ALREADY FILED A CERTIFIED TRUE COPY OF ANNUAL REPORT UNDER THE SEA L OF REGISTRAR OF COMPANIES, THE SHARE CERTIFICATES AS ISSUED IN THE NAME OF SH. ASHOK KUMAR MALHOTRA HUF BY THE HOLY FAITH INTERNATIONAL PVT. L TD. AND OTHER EVIDENCES TO SUBSTANTIATE THAT AS PER THE RECORD OF THE INCO ME TAX ALSO, THE HUF IS THE SHAREHOLDER AND NOT THE INDIVIDUAL. THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN T HE CASE OF M/S. MUKTA METAL WORKS, REPORTED IN 336 ITR 555, WHERE IT HAS BEEN HELD THAT WHERE THE ADDITIONAL EVIDENCE IS MUST FOR JUST DECISION OF TH E CASE, THE SAME SHOULD BE ADMITTED. THE SAME VIEW WAS TAKEN IN THE FOLLOWING OTHER JUDGMENTS: I.) CIT VS. SURETECH HOSPITAL & RESEARCH CENTRE LTD . 293 ITR 53 (BOM). II) SMT. PRABHAVATI S. SHAH VS. CIT 231 ITR 1 9.1. IT WAS ALSO SUBMITTED THAT ON ACCOUNT OF SEARC H AND SEIZURE OPERATIONS ON THE GROUP IN THE YEAR 2009, THE ASSESSMENT FOR T HE ASSESSMENT YEAR 2006- 07 WAS REOPENED U/S 153A AND ALL SUCH EVIDENCES, WH ICH HAVE BEEN FILED 9 NOW WERE GIVEN TO THE AO WHO HAD LOOKED INTO EACH A ND EVERY ASPECT OF SUCH EVIDENCES AND STILL, HE MADE THE ADDITION AND THE MATTER WAS CARRIED TO THE CIT(A), WHO HAS ADJUDICATED THE ISSUE WITH REGA RD TO ALL SUCH EVIDENCES WHICH WERE FURNISHED BEFORE THE A.O. DURING THE COU RSE OF PROCEEDINGS U/S 153A AFTER CALLING FOR THE REMAND REPORT AND AS SU CH THE ADDITION OF DEEMED DIVIDEND HAS BEEN DELETED ON THE FACT THAT SH. ASHO K KUMAR MALHOTRA WAS NOT A SHAREHOLDER IN HIS INDIVIDUAL CAPACITY. THUS, THE DEEMED DIVIDEND U/S 2(22)(E) WAS NOT JUSTIFIED AND THE DEPARTMENT HAD FILED THE APPEAL IN ITA NO.532(ASR)/2011. IT WAS SUBMITTED THAT THE DEPARTM ENT HAS ALREADY LOOKED INTO SUCH ADDITIONAL EVIDENCES AND THEREFORE, IT WA S SUBMITTED THAT THE APPEAL OF THE DEPARTMENT IN ITA NO.532(ASR)/2011 MAY BE T AKEN UP FIRST OR ALONG WITH APPEAL OF THE ASSESSEE IN ITA NO.164(ASR)/2010 SINCE THE DEPARTMENT HAS ALREADY VERIFIED THE ADDITIONAL EVIDENCE NOW SU BMITTED BEFORE THE BENCH IN ITA NO.164(ASR)/2010 OTHERWISE IT WILL INV OLVE DUPLICATION OF PROCEEDINGS BOTH FOR THE ASSESSEE AND THE DEPARTMEN T AND ISSUE DECIDED BY THE LD. CIT(A) IN ITA NO.532(ASR)/2011 GOES IN TO T HE ROOT OF MATTER WHICH IS THE SAME ISSUE IN ITA NO.164(ASR)/2011 9.2. SH. SUDHIR SEHGAL, THE LD. COUNSEL FOR THE ASS ESSEE, INVITED OUR ATTENTION TO THE APPEAL OF THE REVENUE IN ITA NO.53 2(ASR)/2011 WHERE THE 10 FACTS AS APPEARING AT PAGES 13 TO 15 OF THE CIT(A) S ORDER DATED 11.08.2011 ARE REPRODUCED AS UNDER: THE AO HAS MADE ADDITION U/S 2(22)(E) HOLDING THAT THE ASSESSEE WAS A SHAREHOLDER IN HOLY FAITH INTERNATIONAL PRIVA TE LIMITED. THE CONTENTION OF THE A.O. IS THAT AS PER SEIZED DOCU MENT ANNEXURE-A NAMES OF SHAREHOLDERS OF HOLY FAITH INTERNATIONAL P VT. LTD. HAVE MENTIONED AND IT IS STATED THERE THAT SH. ASHOK KUM AR MALHOTRA (60,001 SHARES) AND SMT. SATISH BALA MALHOTRA ( 1 S HARE) WERE SHAREHOLDERS SINCE INCORPORATION. FURTHER THE A.O . HAS REFERRED TO PRINTED MEMORANDUM OF ASSOCIATION OF COMPANY WHERE THE NAME OF SHAREHOLDERS IS MENTIONED AS SH. ASHOK KUMAR MALHOT RA S/O SH. BALBIR SINGH MALHOTRA. THUS, THE A.O. CONCLUDED TH AT SH. ASHOK KUMAR MALHOTRA WAS SHAREHOLDER OF HOLY FAITH INTERN ATIONAL PVT. LTD. HOWEVER, THE ADDITION WAS MADE TO THE EXTENT OF ACC UMULATED PROFITS I.E. RS.10,55,63,625/- AND RS.2,05,20,671/- FOR ASS ESSMENT YEARS 2006-07 & 2007-08 RESPECTIVELY. THE ASSESSEE HAD PLACED ON RECORD SHARE CERTIFICATE S TO CLARIFY THAT ASHOK KUMAR MALHOTRA (HUF) WAS SHAREHOLDERS IN HOLY FAITH INTERNATIONAL PVT. LTD. IN THIS REGARD, IT IS SUBMITTED THAT THE ASSESSEE H AD PLACED ON RECORD REPLY DATED 07.12.2010 (SUPRA) VIA WHICH AUTHENTIC RECORD OF REGISTRAR OF COMPANIES IN FORM OF FORM NO.2 (WHICH IS FILED BY A PAPER BOOK-1). IN FORM NO.2 DATED 14 TH JANUARY, 2004M IT IS SPECIFICALLY MENTIONED THAT 55000 SHARES WERE ALLOTTED TO ASHOK KUMAR MALHOTRA (HUF). FURTHER, THE STATEMENT OF WEALTH OF ASHOK KU MAR MALHOTRA (HUF) FOR VARIOUS ASSESSMENT YEARS 1986-87, 1992-93 , 1996-97 (PAGE NO.11 TO 20 OF PAPER BOOK-1) TO PROVE THE SOURCE OF INVESTMENT IN HOLY FAITH INTERNATIONAL PVT. LTD. WAS THAT OF ASHO K KUMAR MALHOTRA (HUF) AND NOT OF SH. ASHOK KUMAR MALHOTRA (IND.). T HIS IS AUTHENTIC EVIDENCE PLACED ON THE FILE OF A.O. VIDE OUR REPLY DATED 07.12.2010 (SUPRA) AND AUTHENTICATES THAT SH. ASHOK KUMAR MALH OTRA WAS NOT A SHAREHOLDER IN SAID COMPANY SINCE ITS INCEPTION. COPY OF ACCOUNT OF SHARE APPLICATION MONEY OF HOLY FAITH INTERNATIONAL PRIVATE LTD. CLEARLY INDICATES THAT RS.60 LACS WAS RECEIVED OD LOAN ACCOUNT OF ASHOK KUMAR MALHOTRA (H UF). AGAINST 11 THIS VERY AMOUNT SHARES WERE SUBSEQUENTLY ALLOTTED TO ASHOK KUMAR MALHOTRA (HUF). NOW, THE ASSESSEE BEGS TO YOUR HONOUR TO PLACE ON R ECORD ADDITIONAL EVIDENCE FILED AT PAPER BOOK-III IN FORM OF CERTIFI ED TRUE COPY OF ANNUAL RETURN ISSUED BY REGISTRAR OF COMPANIES, C HANDIGARH. IN THIS FORM, LIST OF SHAREHOLDERS ARE DULY PROVIDED A ND IT IS AUTHENTICATED BY THE REGISTRAR OF COMPANIES. A LIST OF SHAREHOLDE RS OF HOLY FAITH INTERNATIONAL PVT. LTD. IS AS UNDER: 1. ASHOK KUMAR MALHOTRA (HUF) : 60001 A-9/6, VASANT VIHAR, NEW DELHI (FOLIO NO.1) 2. MRS. SATISH BALA MALHOTRA, : 01 W/O SH. ASHOK KUMAR MALHOTRA, A-9/6, VASANT VIHAR, NEW DELHI, (FOLIO NO.01) _____ 60002 EQUITY SHARES OF RS.100/- EACH. THIS CERTIFICATE ISSUED BY REGISTRAR OF COMPANIES C ONFIRMS THE FACT THAT SH. ASHOK KUMAR MALHOTRA WAS NEVER A SHAREHOLD ER IN THE AFORESAID COMPANY. IN FACT, ASHOK KUMAR MALHOTRA (H UF) WAS A SHAREHOLDER OF THE SAID COMPANY SINCE ITS INCEPTION . THUS, WE WISH TO HUMBLY SUBMIT BEFORE YOUR HONOUR THAT THERE WERE OV ERWHELMING EVIDENCE BEFORE THE AO IN THE FORM OF SHARE CERTIFI CATES, RETURN OF ALLOTMENT FILED WITH THE ROC AND THE BANK STATEMENT OF ASHOK KUMAR MALHOTRA (HUF) EVIDENCING THE FACT THAT THE SHARES WERE BELONGING TO THE HUF AND THE REGISTERED AS WELL AS THE BENEFICIA L OWNER OF SHARES IS THE HUF. THIS IS FURTHER FORTIFIED BY THE ADDITIONA L EVIDENCE IN THE SHAPE OF ANNUAL RETURNS AS FILED NOW WHICH FURTHE R STRENGTHENS THE FACTUAL POSITION STATED BY THE APPELLANT. BESIDES THIS, WE WISH TO STATE HERE THAT IN OUR CAS E, THE REGISTERED SHAREHOLDERS AS WELL AS THE BENEFICIAL SHAREHOLDER IS ASHOK KUMAR MALAHOTRA (HUF) AND THEREFORE THERE IS NO CASE FOR ASSESSING THE DEEMED DIVIDEND FOR THE MONEY RECEIVED BY THE ASSES SEE FROM M/S. HOLY FAITH INTERNATIONAL (P) LTD. 12 FURTHER, WE WISH TO STATE THAT THE ONLY OBJECTIONS STATED BY THE A.O. NOT ACCEPTING OUR SUBMISSION IS THE LIST OF SHAREHO LDERS AS SEIZED AT THE TIME OF SEARCH AND THE MEMORANDUM AND ARTICLES OF A SSOCIATION OF THE COMPANY. IN THIS REGARD, WE WISH TO SUBMIT AS U NDER: I) THE LIST AS SEIZED DURING THE COURSE OF SEARCH HAS NO VALUE ESPECIALLY WHEN WE HAVE PRODUCED THE DULY AUTHENTIC ATED RECORD IN THE FORM OF SHARE CERTIFICATES, RETURN OF ALLOTMENT, BANK STATEMENT OF HUF, FORM 2 AND ANNUAL RETURNS. II) THE MEMORANDUM & ARTICLES OF ASSOCIATION STATES THE SHAREHOLDING AS ASHOK KUMAR MALHOTRA HAVING 1 (ONE ) SHARE. FIRSTLY, WE HAVE ALREADY GIVEN THE EVIDENCE THAT TH E SHARE WAS SUBSCRIBED BY THE HUF. SECONDLY EVEN OTHERWISE, IT IS ASSUMED THAT (ONE) SHARE AS STATED IN THE MOA IS BELONGING TO SH . ASHOK KUMAR MALHOTRA (IND.), STILL THIS IS TO BE CONSIDERED AS THE POSITION OF THE SHAREHOLDING AT THE TIME OF FORMATION OF THE COMPAN Y WHICH WAS IN THE YEAR 1986, FOR THE PURPOSE OF SECTION 2(22)(E), THE SHAREHOLDING IS TO BE SEEN AT THE TIME OF GIVING THE ADVANCE OR LOA N BY THE COMPANY TO THE SHAREHOLDER WHICH IS IN THE PRESENT ASSESSMENT I.E. 2006-07 & 2007-08 AND WE HAVE GIVEN SUFFICIENT EVIDENCES ( AS LISTED ABOVE), WHICH CLARIFY BEYOND DOUBT THAT THE SHARES ARE IN T HE NAME OF HUF. JUST TO EMPHASIZE AGAIN THE DATE OF THE SHARE CERTI FICATES FOR 55000 SHARES IS 16.01.2004 AND FOR 5000 SHARES IS 12.02.1 997. THE RETURN OF ALLOTMENT IN FORM NO.2 DATED 14.01.2004 ALL CLARIFI ES THAT THE SHAREHOLDING IN THE NAME OF ASHOK KUMAR MALHOTRA (H UF). THE CONCEPT OF DEEMED DIVIDEND IS RECEIVED BY THE S HAREHOLDERS OF A COMPANY. EVEN SECTION 2(22)(E) WHICH IS A DEEMING FIXATION REQUIRES THAT A TRANSACTION CAN ONLY BE TAXABLE IN THE HANDS OF REGISTERED AS WELL AS BENEFICIAL SHAREHOLDER. RELIA NCE IN THIS REGARD IS PLACED ON THE DECISION OF SPECIAL BENCH OF HONBLE ITAT BOMBAY BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LT D. (2009) 120 TTJ 865 (MUMBAI (SB). THIS CASE HAS BEEN FURTHER AF FIRMED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UN IVERSAL MEDICATE (P) LTD. (2010) 37 DTR 409 (BOM.). 13 9.3. THE SUBMISSIONS OF THE ASSESSEE WHEREIN HE HAS SOUGHT TO FILE ADDITIONAL EVIDENCE IN THE FORM OF RETURN FILED WIT H THE REGISTRAR OF COMPANIES WERE SENT TO AO FOR HIS COMMENTS. THE AO SUBMITTED HIS VIEWS VIDE LETTER DATED 29.06.2011 WHICH WAS RECEIVED BY THE LD. CIT(A) ON 04.07.2011 AVAILABLE AS PER LD. CIT(A)S ORDER PA GES 22 & 23. 9.4. THE MAIN CONTENTION OF THE AO WAS THAT ALL THE SE DOCUMENTS WERE NOT BROUGHT ON RECORD BY THE ASSESSEE AT THE TIME OF OR IGINAL APPELLATE PROCEEDINGS BEFORE THE LD. CIT(A), JALANDHAR AND AL SO BEFORE THE PRESENT AO AT THE TIME OF ASSESSMENT U/S 153A OF THE ACT. IT I S QUITE APPARENT THAT THE ASSESSEES STAND ON THIS POINT IS AN OFFSHOOT OF A CALCULATED AND FABRICATED AFTERTHOUGHT AND ALL THESE DOCUMENTS REQUIRE THOROU GH AND ELABORATE INVESTIGATION BEFORE ANY PLAUSIBLE COMMENT ON THEIR VERACITY CAN BE GIVEN. THE LD. COUNSEL FOR THE ASSESSEE IN THE REJOINDER SUBMITTED THE EXPLANATION BEFORE THE AO, WHICH IS AVAILABLE AT PAGES 23 TO 28 . IT WAS BROUGHT TO OUR NOTICE BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE A.O. HAD WRITTEN DIRECTLY TO THE REGISTRAR OF COMPANIES WHO HAD GIVEN REPORT TO THE A.O. THAT MR. ASHOK KUMAR MALHOTRA, HUF IS THE SHAREHOLDER. THE S AID COPIES ARE ON RECORD. THE LD. COUNSEL FOR THE ASSESSEE POINTED OU T AND READ THE FINDINGS OF THE LD. CIT(A) IN PARA 9 WHICH ARE VERY MUCH RELEV ANT FOR THE DECISION OF THE PRESENT ISSUE IN HAND. FOR THE SAKE OF CLARITY THE DECISION OF THE LD. 14 CIT(A) IN HIS ORDER DATED 11.08.2011 AT PAGE 30 TO 33 IN PARA 9 IS REPRODUCED AS UNDER: 9. I HAVE CONSIDERED THE BASIS UPON WHICH THE AO PROCEEDED TO MAKE AN ADDITION U/S 2(22)(E) AND THE SUBMISSIONS OF THE APPELLANT, WHEREIN, FOLLOWING ISSUES HAVE BE EN HIGHLIGHTED: I) THAT THE ASSESSMENT YEAR 2006-07, BEING PENDING BEFORE THE HONBLE ITAT, DID NOT ABATE AND THEREFORE THE A O WAS WRONG IN INITIATING PROCEEDINGS U/S 153 WITHOUT BRI NGING ON RECORD ANY ADDITIONAL EVIDENCE FOUND DURING THE COU RSE OF SEARCH OPERATION. THE AR IN HIS DETAILED SUBMISSION S HAS RELIED UPON VARIOUS JUDICIAL PRONOUNCEMENTS ESPECIALLY IN THE CASE OF GURU PRERNA VS. ACIT IN ITA NO.255, 256 & 257/MUMBAI/2010, WHEREIN, IT WAS FINALLY HELD THAT THE POINTS/ISSUES DECIDED IN THE ASSESSMENT CANNOT BE R ECONSIDERED IN THE PROCEEDINGS U/S 153A UNLESS THERE WAS SOME F RESH MATERIAL FOUND DURING THE COURSE OF SEARCH IN RELAT ION TO SUCH POINTS/ISSUES. IN THIS REGARD, THE PERUSAL OF THE A SSESSMENT ORDER REVEALS THAT THE AO HAS REFERRED TO ONE DOCUMENT FO UND AND SEIZED AT ANNEXURE A2/PAGE 24-25 (AT PREMISES DB-1) TO CONCLUDE THAT THE CLAIM OF THE APPELLANT THAT SHAR ES HELD IN M/S. HOLY FAITH INTERNATIONAL PVT. LTD. WERE BY A.K. MAL HOTRA (HUF), WAS INCORRECT. IN THE CIRCUMSTANCES, IT BECO MES CLEAR THAT THE AO COULD VALIDLY PROCEED U/S 153A IN RESP ECT OF A/Y 2006-07/2007-08. II) THAT THE EVIDENCE SUBMITTED DURING THE ASSESSME NT PROCEEDINGS TO THE EFFECT THAT SHARES IN M/S. HOLY FAITH INTERNATIONAL PVT. LTD. WERE HELD BY ASHOK KUMAR MA LHOTRA (HUF) AND NOT ASHOK KUMAR MALHOTRA (IND.), HAS NEIT HER BEEN VERIFIED BY THE AO NOR REBUTTED AND THE ASSESSMENT HAD BEEN FRAMED IGNORING THIS VITAL EVIDENCE IT WAS THEREFO RE SUBMITTED BY THE AR THAT THE ADDITIONAL EVIDENCE IN THE FORM OF CERTIFIED COPIES OF RETURNS FILED WITH REGISTRAR OF COMPANIES NEED TO BE ADMITTED TO FURTHER VERIFY THE CLAIM OF APPELLANT A S ORIGINALLY MADE DURING THE ASSESSMENT PROCEEDINGS. I HAVE GON E THRUGH THE FACTS OF THE CASE AND THE REPORT OF THE AO ON T HE WRITTEN SUBMISSIONS MADE BY THE AR DURING THE APPELLATE PRO CEEDINGS 15 AND IT BECOMES APPARENT THAT THE AO HAS NOT REBUTTE D OR CONTROVERTED THE FOLLOWING EVIDENCE FILED DURING TH E ASSESSMENT PROCEEDINGS: I) SHARE CERTIFICATES ISSUED BY M/S. HOLY FAITH INTERNATIONAL PVT LTD. CLARIFYING THAT SHARES WERE HELD THAT ASHOK KUMAR MALHOTRA (HUF). II) FORM NO.2 FILED WITH THE REGISTRAR OF COMPANIES AT THE TIME OF ALLOTMENT OF SHARES. THIS FORM CLEARLY RECORDS THAT 55,000 SHARES WERE ALLOTTED TO ASHOK KUMAR MALHOTRA (HUF). III) THE STATEMENT OF WEALTH OF ASHOK KUMAR MALHOTRA )HUF) FOR AY 1986-87, 1992-93, 1996-97 CONFIRMING THE CLAIM THAT ASHOK KUMAR MALHOTRA (HUF) WAS SHAREHOLDER IN M/S. HOLY FAITH INTERNATIONAL PVT. LTD. IV) COPY OF OD LOAN A/C OF ASHOK KUMAR MALHOTRA (HUF) TO PROVE THE SOURCE OF INVESTMENT IN PURCHASE OF SHARES OF M/S. HOLY FAITH INTERNATIONAL PVT. LTD. V) COPY OF ACCOUNT OF SHARE APPLICATION MONEY OF M/S. HOLY FAITH INTERNATIONAL PVT. LTD. INDICATING THAT RS.60.00 LACS HAD BEEN RECEIVED. THE PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT TH E EVIDENCE SUBMITTED BY THE ASSESSEE HAS NOT BEEN CONTROVERTED AT ALL BY THE AP AND THE AO IN FACT HAS WRITTEN IN THE ASSESSMENT OR DER IN PARA 5 THAT THE ARGUMENT OF THE ASSESSEE THAT IT WAS NOT THE SH AREHOLDER IN M/S. HOLY FAITH INTERNATIONAL PVT. LTD. CANNOT BE ADJUDI CATED AT THIS JUNCTURE AS THE MATTER WAS PENDING BEFORE THE HONB LE ITAT. THE AO IN HIS REMAND REPORT DATED 29.06.2011 IN PARA 6.3 H AS OBSERVED THAT PROCEEDINGS U/S 153A ARE VIRTUALLY REOPENING PROCEE DINGS ON THE BASIS OF FRESH REVELATIONS OF FACTS AND ACQUISITION OF EV IDENCE IN THE WAKE OF SUCH PROCEEDINGS AND THE ASSESSEE HAD NEITHER ANY S COPE NOR ANY LIBERTY TO AVAIL OF THIS OPPORTUNITY TO BRING ON RE CORD ANY NEW FACT. THE AOS VIEW POINT IS THAT IT IS OPEN TO THE DEPAR TMENT TO PROCEED AGAINST THE ASSESSEE ON A PARTICULAR ISSUE ON THE B ASIS OF SOME 16 DOCUMENTS SEIZED DURING SEARCH BUT THE ASSESSEE DO ES NOT HAVE ANY RIGHT TO DEFEND HIMSELF ON THE ISSUE BY RELYING UPO N ANY NEW FACT. I DO NOT AGREE WITH THIS VIEW OF THE AO AS IT PLAINLY GO ES AGAINST THE PRINCIPLE OF NATURAL JUSTICE. THE FACT RELIED UPON BY THE ASSESSEE GOES TO THE ROOT OF THE MATTER AND THIS FACT CAME INTO F OCUS ONLY AT TIME OF EXAMINATION OF DOCUMENTS AFTER THE DEATH OF SH. ASH OK KUMAR MALHOTRA. THE VIEW OF THE AO THAT THIS ARGUMENT HAD NOT BEEN TAKEN DURING THE REGULAR ASSESSMENT PROCEEDINGS AND ALSO BEFORE THE CIT(A) AND THEREFORE, THE SAME CANNOT BE TAKEN UP IN THE P ROCEEDINGS U/S 153A/CONSEQUENT APPELLATE PROCEEDINGS IS ERRONEOUS AS IT IS NOT A MATTER OF CHOICE THAT THE ASSESSEE DID NOT TAKE THI S ARGUMENT IN THE REGULAR ASSESSMENT/APPELLATE PROCEEDINGS AS IT HAS TO BE BELIEVED THAT THE ASSESSEE WAS UNAWARE OF THIS FACT AT THAT POINT OF TIME. IF THIS FACT WAS AVAILABLE TO THE ASSESSEE IN THE ORIGINAL ASSES SMENT PROCEEDINGS THERE IS NO REASON THE SAME WOULD NOT HAVE BEEN TAK EN AS DEFENCE AGAINST THE PROPOSED ADDITION U/S 2(22)(E). THE ASS ESSEE, HOWEVER HAS SUFFERED BECAUSE OF THIS IGNORANCE AS THE ISSUE GOT DECIDED AGAINST HIM BEFORE THE AO AS WELL AS CIT(A) AND IS PENDING BEF ORE THE HNBLE ITAT. HOWEVER WHEN THE PROCEEDINGS U/S 153A ARE UND ERWAY AND THIS FACT HAS BEEN SUBMITTED BY THE ASSESSEE BEFORE THE AO, THE SAME SHOULD HAVE BEEN THOROUGHLY SUBJECTED TO INVESTIGAT ION/CONFIRMATION. IN THE CIRCUMSTANCES, THE APPELLANTS APPLICATION T O FILE ADDITIONAL EVIDENCE IS IN ORDER AND THEREFORE, THE ADDITIONAL EVIDENCE SO FILED IS ADMITTED. THE VERIFICATION CARRIED OUT BY THE AO DU RING THE REMAND PROCEEDINGS CLEARLY SHOWS THAT THE SHARES IN M/S. H OLY FAITH INTERNATIONAL PVT. LTD. ARE HELD BY ASHOK KUMAR MAL HOTRA (HUF) TO THE EXTENT OF 60,001 SHARES AND INTIMATION OF THE S AME HAD BEEN DULY GIVEN TO THE COMPETENT/AUTHORIZED AUTHORITY I.E. RE GISTRAR OF COMPANIES IN THE FORM OF RETURNS FILED. THE ALLOTME NT OF SHARES ACCOMPANIED BY FILING FEE OF RS.1,500/- DEPOSITED V IDE RECEIPT NO.27608 DATED 12.03.2004 PROVES THAT SUCH ALLOTMEN T TO ASHOK KUMAR MALHOTRA (HUF) WAS IN THE DUE COURSE OF BUSIN ESS AND NOT AN AFTER THOUGH DESIGNED TO CIRCUMVENT THE APPLICATIO N OF PROVISIONS OF SECTION 2(22)(E). IT IS ALSO VITAL TO APPRECIATE TH AT THE EVIDENCE FILED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS IN T HE FORM OF WEALTH TAX STATEMENTS, COPY OF OD A/C EVIDENCING PAYMENT O F RS.60.00 LACS FOR PURCHASE OF SHARES HAVE NOT BEEN CONTROVERTED B Y THE AO EITHER IN THE ASSESSMENT PROCEEDINGS OR APPELLATE PROCEEDING S. IT CLEARLY SHOWS THAT THE EVIDENCE SUBMITTED BY THE ASSESSEE LEAVES NO ROOM FOR DOUBT THAT THE SHARES OF M/S. HOLY INTERNATIONAL PVT. LTD . WERE HELD BY SH. 17 ASHOK KUMAR MALHOTRA (HUF) AND NOT INDIVIDUAL. AS A GAINST THIS INCONTROVERTIBLE AND VERIFIED EVIDENCE, THE AO HAS ONLY REFERRED TO A PRINTED PAPER FOUND DURING THE COURSE OF SEARCH, WH EREIN, THE WORD HUF HAS NOT BEEN WRITTEN IN AGAINST ASHOK KUMAR M ALHOTRA AND THE MEMORANDUM OF ASSOCIATION ALSO REFERS TO ASHOK KUMA R MALHOTRA ONLY. IT IS AGREED THAT PRIMA FACIE THE FIRST IMPRE SSION ON PERUSING SUCH DOCUMENTS WOULD BE THAT THE HOLDER OF SHARES IS ASH OK KUMAR MALHOTRA (IND.) ONLY BUT ONE NEEDS TO GO BEYOND THI S TO ESTABLISH AS A MATTER OF RECORD AS TO WHO IS THE HOLDER OF SHARES AS PER RECORDS OF THE COMPANY AS WELL AS THE RECORD SUBMITTED TO THE REGI STRAR OF COMPANIES. IT ALSO NEEDS TO BE ESTABLISHED AS TO FR OM WHERE AND WHOSE BANK A/C THE INVESTMENT FOR THE PURCHASE OF S HARES HAS BEEN MADE. SINCE, ALL THESE ISSUES HAVE BEEN ESTABLISHE D/CONFIRMED TO BE IN THE FAVOUR OF ASHOK KUMAR MALHOTRA (HUF) AS THE RE AL OWNER OF SHARES OF M/S. HOLY FAITH INTERNATIONAL PVT. LTD., THE CREDENCE GIVEN TO THE DOCUMENTS SEIZED DURING SEARCH BY THE AO IS ABSOLUTELY MISPLACED. IN THE CIRCUMSTANCES, I HAVE NO HESITATI ON TO HOLD THAT ASHOK KUMAR MALHOTRA (INDL.) CANNOT BE DEEMED TO HA VE RECEIVE THE DIVIDED AS PER THE PROVISIONS OF S.2(22)(E) AS HE WAS NOT THE SHARE HOLDER OF M/S. HOLY FAITH INTERNATIONAL PVT. LTD. D URING THE RELEVANT PERIOD.S 9.5. THE LD. CIT(A) IN HIS ORDER DATED 11.08.2011, THEREFORE, HELD THAT THE SH. ASHOK MALHOTRA, INDIVIDUAL CANNOT BE DEEMED TO HAVE RECEIVED DIVIDEND AS PER SECTION AS HE WAS NOT SHAREHOLDER OF M/S. H OLY FAITH INTERNATIONAL PVT. LTD. DURING THE RELEVANT PERIOD. 9.6. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, A RGUED THAT THE ADDITIONAL EVIDENCE IN THE APPEAL OF THE ASSESSEE IN ITA NO.16 4(ASR/2010 MAY BE ADMITTED AND AFTER ADMISSION SINCE THE SAID EVIDENC E HAS ALREADY BEEN EXAMINED BY THE DEPARTMENT IN THE PROCEEDINGS UNDER SECTION 153A OF THE ACT, AND THE A.O. HAS DIRECTLY INVESTIGATED THE MAT TER FROM THE REGISTRAR OF 18 COMPANIES AND WITHOUT SENDING THE SAME BEFORE THE A UTHORITIES BELOW TO AVOID DUPLICACY OF THE MATTER, THEREFORE, THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED IN ITA NO.164(ASR)/2010 AND APPEAL OF THE R EVENUE IN ITA NO.532(ASR)/2010 BE DISMISSED. 10. THE IDENTICAL ISSUE IS THERE IN ITA NO.563(ASR) /2011 FOR THE ASSESSMENT YEAR 2007-08 AND THE AND THE APPEAL OF THE REVENUE BE ALSO DISMISSED ON THE SAME FACTS AND CIRCUMSTANCES OF TH E CASE. 11. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND THE LD. CIT(A) IN ITA NO.164(ASR)/2010 AND ORDER OF THE ASSESSING OFFICER IN ITA NO. 532(ASR)/2011 & ITA NO .563(ASR)/2011. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE, SH. SUDHIR SEHGAL, ADV. THAT THERE WAS SUFFICIENT CAUSE FOR ADMISSION OF AD DITIONAL EVIDENCE BEFORE THE ITAT IN ITA NO.164(ASR)/2010 SINCE THE LEGAL H EIR CAME TO KNOW OF THE FACT ONLY AFTER THE DEATH OF THE ASSESSEE ON 30.12. 2009 BY THE TIME SEARCH HAD BEEN MADE ON THE ASSESSEE. SINCE THE IDENTICAL ISSUE IS THERE IN ITA NO.532(ASR)/2011 & ITA NO.563(ASR)/2011 FOR THE ASS ESSMENT YEARS 2006- 07 & 2007-08 BEING THE DEPARTMENTS APPEAL IN THE P ROCEEDINGS U/S 153A OF THE ACT AND, THEREFORE, AS PRAYED BY THE LD. COUNS EL FOR THE ASSESSEE, MR. SUDHIR SEHGAL IN ITA NO.164ASR)/2010 TO ADMIT THE A DDITIONAL EVIDENCE, 19 WHICH HAS ALREADY BEEN EXAMINED IN THE PROCEEDINGS U/S 153A OF THE ACT. THEREFORE, THE DOCUMENTS FOUND AND SEIZED AT ANNEXU RE A FROM PAGE 22 TO 25 AT PREMISES MARKED AS DB-1. THE AO SHOULD HAVE V ALIDLY PROCEEDED TO VERIFY THE CLAIM OF THE ASSESSEE. THE ASSESSMENT FR AMED BY THE AO BY IGNORING VITAL EVIDENCE IN THE PROCEEDINGS U/S 153A OF THE ACT, IS BAD IN LAW. THE AO IN THE ASSESSMENT PROCEEDINGS HAD VERIFIED R ATHER INVESTIGATED THE ISSUE OF WHETHER MR. ASHOK KUMAR MALHOTRA AS AN IND IVIDUAL OR IN THE CAPACITY OF HUF IS A SHAREHOLDER. AS PER REPORT OF THE REGISTRAR OF COMPANIES, WHICH IS A MATTER OF RECORD, SH. ASHOK K UMAR MALHOTRA, HUF IS THE SHAREHOLDER. THEREFORE, THE AO IS NOT JUSTIFIED IN GIVING THE FINDING IN THE PRESENT SET OF FACTS AND CIRCUMSTANCES OF THE C ASE TO IGNORE SUCH VITAL EVIDENCES. AT PAPER BOOK PAGE -1, THE AO ISSUED A S HOW CAUSE NOTICE DATED 22.11.2010. THE ASSESSEE SUBMITTED THE EXPLANATION THAT SH. ASHOK KUMAR MALHOTRA INDIVIDUAL WAS NEVER A SHAREHOLDER AND IN FACT SH. ASHOK KUMAR MALHOTRA (HUF) WAS THE SHAREHOLDER IN M/S. HOLY FAI TH INTERNATIONAL PVT. LTD. AND HAD 60001 SHARES OUT OF 60002 SHARES . THE ASSESSEE ENCLOSED SHARES CERTIFICATE ISSUED BY M/S. HOLY FAITH INTERN ATIONAL PVT. LTD. IN RESPECT OF SHARES ISSUED TO MR. ASHOK KUMAR MALHOTRA HUF AL ONG WITH BANK ACCOUNT FROM WHICH CHEQUE HAS BEEN ISSUED FOR RS.64 LACS ON 22.03.2011. THE LAW REQUIRES THAT TRANSACTIONS CAN ONLY BE TAXA BLE IN THE HANDS OF 20 REGISTERED AS WELL AS BENEFICIAL SHAREHOLDER. THE R ELIANCE WAS PLACED ON THE DECISION OF ITAT BOMBAY BENCH (SB) IN THE CASE OF A CIT VS. BHAUMIK COLOUR (P) LTD. (2009) 120 TTJ 865. THE SAID DECIS ION OF SPECIAL BENCH OF ITAT MUMBAI BENCH HAS BEEN AFFIRMED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD. (2010) 37 DTR 409 (BOM.). THEREFORE, SH. ASHOK KUMAR MALHOTRA INDIV IDUAL IS NOT SHAREHOLDER IN THE AFORESAID COMPANY AND CONCEPT OF DEEMED DIVIDEND U/S 2(22)(E) IS NOT APPLICABLE IN THE PRESENT CASE. A COPY OF RETURN OF ALLOTMENT AND COPY OF WEALTH TAX RETURN OF ASHOK KUMAR MALH OTRA, HUF, WERE ALSO PLACED ON RECORD TO SUBSTANTIATE THE CLAIM OF THE A SSESSEE. A COPY OF THE ANNUAL RETURNS FOR THE YEAR ENDING 31.03.2044 TO 31.03.2008 FILED WHICH THE REGISTRAR OF COMPANIES FOR EXPLAINING THE POSITIO N OF SHAREHOLDERS AS AT 28.9.2004, 28.09.2005, 29.09.2006, 28.07.2006 & 28. 07.2007 RESPECTIVELY THAT SH. ASHOK KUMAR MALHOTRA, HUF WAS THE SHAREHO LDER WAS PLACED ON RECORD, IN PAPER BOOK 3 AT PAGES 103, 78, 53 & 35 RESPECTIVELY. A COPY OF THE REMAND REPORT IN WHICH THE AO HAD SUBMITTED HIS REPORT CONFIRMING THAT SH. ASHOK KUMAR MALHOTRA, HUF IS THE SHAREHOLDER IS ALSO AVAILABLE AT PB 26 TO 30 AND 33 TO 44 AND 46. THE AO HAS TAKEN INTO ACCOUNT ANNEXURE AB OF THE SEIZED ANNEXURE BUT HAS IGNORED ANNEXURE C WHICH ARE THREE CERTIFICATES IN THE NAME OF SH. ASHOK KUMAR MALHOTR A, HUF WHICH ARE ALSO 21 PART OF THE SEIZED ANNEXURE. THIS APPROACH OF ARRIV ING AT THE CONCLUSION IS BENEFICIAL TO THE REVENUE AND AGAINST THE ASSESSEE CANNOT BE ACCEPTED. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE ADDITIONAL EVIDENCE OF THE ASSESSEE IN ITA NO.164(ASR)/2010 IS ADMITTED AND SINCE THE SAME HAS BEEN VERIFIED, INVESTIGATED AS MENTIONED HEREINABO VE BY THE AO AND THE REPORT SUBMITTED BY THE AO TO THE LD. CIT(A) IN ITA NO.532(ASR)/2011 IN VIEW OF THE DOCUMENTS FOUND WHICH WERE SEIZED DURIN G THE SEARCH AND IT HAS BEEN FOUND THAT SH. ASHOK MALHOTRA, HUF IS THE SHAR EHOLDER. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. C IT(A) THAT SH. ASHOK KUMAR MALHOTRA, IS AN INDIVIDUAL AS PER PROVISIONS OF SECTION 2(22)(E) OF THE ACT, AS HE WAS NOT SHAREHOLDER OF M/S./ HOLY FAITH INTERNATIONAL PVT. LTD. DURING THE RELEVANT PERIOD.. THEREFORE, GROUND NO.3 (A) & 3(B) OF THE ASSESSEES APPEAL IN ITA NO.164(ASR)/2010 ARE ALLOW ED AND ALL THE GROUNDS OF APPEAL OF THE REVENUE IN ITA NO.532(ASR)/2011 AN D ITA NO.563(ASR)/2011 ARE DISMISSED. 13. GROUND NOS. 1, 2 & 5 IN THE APPEAL OF THE ASSES SEE IN ITA NO.164(ASR)/2010 ARE GENERAL IN NATURE, THEREFORE, DO NOT REQUIRE ADJUDICATION. 22 14. AS REGARDS GROUND NO. 4(A) & (B) IN ITA NO. 16 4(ASR)/2010 FOR THE ASSESSMENT YEAR 2006-07 ARE HAVING IDENTICAL ISSUE AS IN GROUND NO.3 IN ITA NO.238(ASR)/2011 BEING DEPARTMENT APPEAL AND ITA N O.516(ASR)/2011 IN ASSESSEES APPEAL IS ON ACCOUNT OF DISALLOWING INTE REST BY THE A.O. UNDER SECTION 36(1)(III) OF THE ACT. THE BRIEF FACTS IN I TA NO.164(ASR)/2010 ARE THAT THE AO OBSERVED THAT SECURED LOANS AMOUNTING T O RS.15.32 CRORES WERE OUTSTANDING AS ON 31.03.2006. THE ASSESSEE HAD GIVE N LOANS AMOUNTING TO RS.11.19 CRORES TO ITS SISTER CONCERNS. WHILE THE A SSESSEE HAS CHARGED INTEREST IN RESPECT OF LOANS AGGREGATING TO 3.82 CRORES GIVE N TO ITS TWO SISTER CONCERNS, NO INTEREST WAS CHARGED IN RESPECT OF LOANS AMOUNTI NG TO RS.7.37 CRORES GIVEN TO SIX OF SISTER CONCERNS. THE AO ALSO OBSERV ED THAT THE ASSESSEE HAD PAID INTEREST AMOUNTING TO RS.46.63 LACS AND FURTHE R AMOUNTS OF RS.25.00 LACS, 50 LACS, 40 LACS WERE GIVEN DURING THE ACCOUN TING YEAR UNDER REFERENCE FROM THE OVERDRAFT ACCOUNT. THE AO, THEREFORE, PROP OSED TO DISALLOW THE INTEREST PAID ON PROPORTIONATE BUSINESS. THE ASSESS EE FURNISHED DETAILED REPLY STATING THEREIN INTERALIA THAT THE ASSESSEE HAD HUG E AMOUNT OF CAPITAL OF RS.12.96 CRORES, INTEREST FREE LOAN OF RS.1.18 CROR ES RECEIVED FROM SMT. SATISH BALA MALHOTRA AND FURTHER PROFIT OF RS.11.1 1 CRORES FOR THE ASSESSMENT YEAR UNDER REFERENCE. THEREFORE, THESE W ERE SUFFICIENT REASONS TO COVER INTEREST FREE ADVANCE. HOWEVER, THE AO REJECT ED THESE SUBMISSIONS 23 AND DISALLOWED INTEREST OF RS.34.00 LACS ON PROPORT IONATE BASIS U/S 36(1)(III) OF THE ACT. 14.1. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AS SESSING OFFICER. 14.2. AN IDENTICAL FACTS ARE THERE IN ASSESSEES AP PEAL IN ITA NO.516(ASR)/2011 AND REVENUES APPEAL IN ITA NO.238 (ASR)/2011 FOR THE DELETION OF ADDITION OF RS.4.11 LACS. 14.3. THE LD. COUNSEL FOR THE ASSESSEE, SH. SUDHIR SEHGAL, ARGUED THAT THE ADDITION IN SOURCES OF FUNDS DURING THE ASSESSMENT YEAR 2006-07 ON ACCOUNT OF CAPITAL IS RS.11.78 CRORES, INTEREST FREE LOAN R S.1.18 CRORES, NET CURRENT ASSETS INCREASED EXCLUDE INTEREST FREE ADVANCE OF RS.10.23 CRORES TOTALING RS.23.19 CRORES. WHEREAS THE ASSESSEE HAD APPLICATI ON OF FUNDS TO THE EXTENT OF RS.23.19 CRORES AND THEREAFTER THE FUNDS WERE AP PLIED AS ON 31.03.2005 AS PER BALANCE SHEET OF M/S. MODERN PUBLISHERS TO THE EXTENT OF RS.1.60 CRORES AND AS AT 31 ST MARCH, 2006 AT RS.11.19 CRORES, TOTALING RS.9.59 C RORES. THE LOAN HAD BEEN RAISED BY THE ASSESSEE FOR HIS BUSINE SS PURPOSES AND THE SAME HAS BEEN UTILIZED FOR THE BUSINESS PURPOSES ONLY. T HE MAXIMUM AMOUNT BORROWED FROM THE YEAR 1993 UPTO 31 ST MARCH, 2006 IS RS.19,86,16,637.35 AS AT 31 ST MARCH, 2005. NO NEW AMOUNT HAS BEEN RAISED DURING THE YEAR, RATHER THE ASSESSEE HAD REPAID RS.4,53,69,591 DURING THE Y EAR. THEREFORE, THERE IS NO ADDITION IN SOURCE IN THE FORM OF INTEREST BEARI NG LOANS DURING THE YEAR 24 AND IF THERE IS NO ADDITION, THERE CANNOT BE ANY QU ESTION OF UTILIZING THE SAME FOR INTEREST FREE LOANS. 14.4. THE LD. DR, ON THE OTHER HAND RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IN THE PRESENT CASE, THE ASSESSEE HAD SUBMITTED THA T IT IS HAVING INTEREST FREE CAPITAL BEFORE ANY INTEREST FREE ADVANCE IS MADE. M OREOVER, THERE IS NOTHING ON RECORD BY ANY OF THE AUTHORITIES BELOW THAT THE ASSESSEE HAS USED THE INTEREST BEARING FUNDS FOR OTHER THAN BUSINESS PURP OSES, WHEREAS THE ASSESSEE HAD SUBMITTED THAT LOAN RAISED BY THE ASSESSEE HAS BEEN USED FOR THE PURPOSES OF BUSINESS. THEREFORE, IN THE FACTS AN D CIRCUMSTANCES OF THE CASE, NO DISALLOWANCE CAN BE MADE BY THE A.O. THE DISAL LOWANCE SUSTAINED BY THE LD. CIT(A) IS DIRECTED TO BE DELETED. THUS, GRO UND NO.4(A) & (B) IN ITA NO.164(ASR)/2011 AND GROUND NO.3 (A) AND (B) IN ITA NO.516(ASR)/2011 ARE ALLOWED AND GROUND NO.3 OF THE REVENUES APPEAL IN ITA NO.238(ASR)/2011 IS DISMISSED. 16. AS REGARDS GROUND NOS.1 & 2 IN ITA NO.238(ASR)/ 2011 OF THE REVENUES APPEAL, THE BRIEF FACTS ARE THAT THE ASSESSEE WAS A PROPRIETOR IN M/S. MODERN 25 PUBLISHERS, WHICH IS IN BUSINESS OF PUBLICATION. M/ S. MODERN PUBLISHERS ALSO DID NOT OWN ANY MACHINERY AND GOT THE PRINTING AND BINDING WORK DONE BY ITS SISTER/GROUP CONCERN. NO DEPRECIATION HAS BEEN CLAIMED BY THE ASSESSEE. THE ASSESSEE DID NOT MAINTAIN THE STOCK REGISTER AN D THERE WERE NOT QUANTITATIVE DETAILS ON RECORD OF SALES AND PURCHAS E AND THEREFORE, THE BOOKS OF ACCOUNT COULD NOT REVEAL CORRECT AND TRUE PROFIT . THE AO OBSERVED THAT M/S. PRADEEP PUBLICATION IS IN THE BUSINESS OF PUBL ICATION OF BOOKS EXACTLY SIMILAR TO THAT OF THE ASSESSEE AND M/S. PRADEEP PU BLICATION HAD TURNOVER OF RS.16.09 CRORES AND HAD DECLARED GP RATE WAS AT 41. 5%. THE ASSESSEE WAS GIVEN SHOW CAUSE NOTICE WHY NOT THE G.P. RATE OF M /S. PRADEEP PUBLICATION AT 41.5% MAY NOT BE ADOPTED. THE ASSESSEE SUBMITTED THE REPLY VIDE LETTER DATED 10/12/2008, WHICH WAS NOT ACCEPTABLE TO THE A .O. FOR THE REASONS MENTIONED IN PARA 17.1, WHICH IS REPRODUCED FOR THE SAKE OF CLARITY AS UNDER: 17.1. THE ASSESSEES CONTENTION IS NOT ACCEPTABLE FOR THE FOLLOWING REASON: I) PUCHASE OF BOOK WAS FOR AN AMOUNT OF RS.2.37 CRORE AS AGAINST THE TOTAL EXPENSES OF RS.12.53 CRORE. THE PERCENTAG E OF THE SO CALLED TRADING ACTIVITY TO THE TOTAL ACTIVITY IS NO T A MINOR PART, BUT 20% OF THE WHOLE BUSINESS. II) TRADING ACTIVITY IS SUPPOSED TO YIELD LESS GROSS PR OFIT. IF IN THE TRADING ACTIVITY THE GP RATIO IS 46%, THEN FOR THE WHOLE OF BUSINESS THE G.P WOULD BE MUCH HIGHER. III) THE ASSESSEES CLAIM THAT THERE ARE TWO KINDS OF AC TIVITIES I.E. TRADING AND NON-TRADING ACTIVITY IS INCORRECT. THE BUSINESS OF THE 26 ASSESSEE IS ONLY PUBLISHING. THE BOOK ARE PRINTED A ND FABRICATED BY THE SISTER/GROUPS CONCERN. THE ONLY DIFFERENCE I N PRINTING AND FABRICATION IS THAT IN THE FABRICATION WORK, TH E MATERIAL LIKE PAPER IS SUPPLIED BY THE CONCERN DOING THE JOB WORK . SINCE MATERIAL IS SUPPLIED BY THE ASSESSEE IN PRINTING WO RK, THERE IS COST SAVING AND HENCE THE G.P. WOULD BE MUCH HIGHER . THIS ESTABLISHES THAT THE G.P. WOULD BE HIGHER IN THE AC TIVITY TO WHICH THE ASSESSEE IS REFERRING AS NON-TRADING ACTI VITY. 16.1. THE A.O. FURTHER OBSERVED THAT CLOSING STOCK WAS NOT PROPERLY VALUED, GROSS PROFIT FOR EACH TRANSACTION OF PURCHASE AND S ALE WAS HIGHER THAN THE G.P. RETURNED IN THE BOOKS OF ACCOUNT AND STOCK REG ISTER WAS NOT MAINTAINED AND THERE WAS NO QUANTITATIVE DETAIL OF SALES AND P URCHASES. THEREFORE, THE INVOCATION OF PROVISIONS OF SECTION 145(3) OF THE A CT ARE REJECTED AFTER GIVING SHOW CAUSE NOTICE TO THE ASSESSEE AND CONSID ERING THE EXPLANATION OF THE ASSESSEE WHICH WAS NOT FOUND SATISFACTORY AND A PPLIED THE GP. RATE AT 41.55% AN ADDED RS.2,69,00,000/- TO THE INCOME OF T HE ASSESSEE AT TRADING ACCOUNT. THE LD. CIT(A) FOR THE REASON MENTIONED IN HIS ORDER ESPECIALLY POINTING OUT THAT THE AO CANNOT REJECT THE BOOKS OF ACCOUNT UNLESS ANY DEFECT HAS BEEN POINTED OUT. ACCORDINGLY, THE LD. CIT(A) D ELETED THE ADDITION MADE BY THE A.O. VIDE PARA 7 OF HIS ORDER. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE FACTS OF THE CASE. THE FINDING OF THE LD. CIT(A) THAT THE AO HAS NOT POINTED OUT ANY DEFECTS 27 CANNOT BE ACCEPTED FOR THE REASON THAT THE ASSESSEE DOES NOT MAINTAIN ANY STOCK REGISTER, NO QUANTITATIVE DETAILS AND SALE & PURCHASE REGISTERS HAVE BEEN MAINTAINED, CLOSING STOCK HAS NOT BEEN PROPERL Y VALUED AND GP OF EACH TRANSACTION ON SALE AND PURCHASE WAS FOUND TO BE HI GHER THAN THE GP RETURNED IN THE BOOKS OF ACCOUNT. THEREFORE, THE LD . CIT(A) IS NOT JUSTIFIED IN GIVING FINDING THAT THE AO IS NOT JUSTIFIED IN REJE CTING THE BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 145(3). THUS , THE ORDER OF THE LD. CIT(A) IS REVERSED TO THAT EXTENT. 17.1 ONCE THE BOOKS OF ACCOUNT HAVE BEEN FOUND TO B E REJECTED THEN THE GP RATE HAS TO BE ESTIMATED. IT WAS ARGUED BY THE ASS ESSEE THAT THE ASSESSEE HAS BEEN DECLARING HIGHER GP AT 25.34% AS COMPARED TO 2 2.52% OF THE LAST YEAR I.E. 2005-06 AND IN THE PRECEDING LAST YEAR. AS REG ARDS THE SIMILARITY IN THE BUSINESS OF M/S. PRADEEP PUBLICATION, THE ASSESSEE HAD SUBMITTED MANY DIFFERENCES IN THE WORKING O THE ASSESSEE AND THAT OF M/S. PRADEEP PUBLICATION WHICH WERE NOT TAKEN INTO CONSIDERATION BY THE A.O. THE AO HAS TO BRING ON RECORD THE COMPARABLE CASE WHICH IS APP LICABLE IN THE PRESENT CIRCUMSTANCES AND FACTS OF THE ASSESSEES CASE FOR THE YEAR IN HAND. IF IT IS NOT SO, IT IS NOT NECESSARY TO MAKE ADDITION ALWAYS EV EN IF THE BOOKS OF ACCOUNT ARE REJECTED, AS BEEN HELD BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. GOTAN LIME KHANIJ UDHYOG REPORTED IN (2002 ) 256 ITR 243. 28 THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE AO WAS NOT JUSTIFIED IN MAKING ANY ADDITION AND TO THAT EXTENT , WE CONFIRM THE ORDER OF THE LD. CIT(A). THUS, GROUND NO.1 OF THE REVENUE IS ALLOWED AND GROUND NO.2 OF THE REVENUES APPEAL IS DISMISSED.. 18. GROUND NO.1, 2 & 4 OF REVENUES APPEAL IN ITA NO. 516(ASR)/2011 ARE GENERAL IN NATURE AND THEREFORE, DO NOT REQUIRE ANY ADJUDICATION. GROUND NO.4 IN ITA NO.4 IN ITA NO.238(ASR)/2011 IS WITH RE FERENCE TO CHARGING OF INTEREST U/S 234C OF THE ACT, WHICH IS MANDATORY A ND CONSEQUENTIAL IN NATURE AND GROUND NO.5 IS GENERAL NATURE AND THERE FORE, DO NOT REQUIRE ANY ADJUDICATION. 19. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN ITA NO.164(ASR)/2010 & ITA NO.516(ASR)/2011 ARE ALLOWED AND APPEALS OF THE REVENUE IN ITA NOS.532(ASR)/2011& 563(ASR)/2011 ARE DISMISSED AND APPEAL OF THE REVENUE IN ITA NO. 238(ASR)/2011 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23RD APRIL, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23RD APRIL, 2012 /SKR/ COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE: SH. ASHOK KUMAR MALHOTRA THROUGH SMT. SATISH BALA MALHOTRA, MBD HOUSE, JALANDHAR. 2. THE ACIT/DCIT/JCIT 29 3. THE CIT(A), JLR. 4. THE CIT, JLR 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH : AMRITSAR.