MASITIA CAPITAL SERVICES LTD, MUMBAI V. ASST CIT CEN CIR 35, MUMBAI

ITA 5242/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83569 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 13-08-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 17-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V R PATIL
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Depreciation; Search and seizure; Deemed dividend; Bonafide mistake
• Section: 132; 153A

Judgement Text

, CH CHCH CH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - B BENCH. . . , , BEFORE S/SH.I.P.BANSAL, JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 5242/MUM/2012, ! ! ! ! / ASSESSMENT YEAR-2002-03 M/S MASITIA CAPITAL SERVICES LTD. 142, ANDHERI INDUSTRIAL ESTATE, OPP VEERA DESAI ROAD, ANDHERI (W), MUMBAI-400053 VS ACIT CENTRAL CIRCLE 35, R. NO. 103, AAYAKAR BHAVAN, MUMBAI-400020 PAN: AACCM3929K ( '# / APPELLANT) ( $%'# / RESPONDENT) &' &' &' &' ( ( ( ( / ASSESSEE BY : SHRI VIJAY MEHTA ) ( / REVENUE BY : SHRI V.R. PATIL ) )) ) '* '* '* '* / DATE OF HEARING : 14-08-2014 +,! ) '* / DATE OF PRONOUNCEMENT : 20-08-2014 , 1961 ) )) ) 254 )1( '-' '-' '-' '-' . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CHALLENGING THE ORDER DATED.02.07.2012 OF THE CIT(A )-41,MUMBAI, ASSESSEE HAS RAISED FOLLOWING GROUNDS APPEAL: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE C IT(A) HAD ERRED IN LAW AND FACTS IN UPHOLDING THE PENALTY IMPOSED U/S 271(1) (C) R.W.S. 274 OF TH E I.T. ACT, 1961 ON THE ADDITION OF RS.3,90,146/- MADE IN THE ASSESSMENT ORDER ON ACCOUNT OF DEEMED D IVIDEND U/S 2(22)(E) OF THE ACT. 2 YOUR APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY , ALTER AND/OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. BACK GROUND AND BRIEF FACTS: 2. A SEARCH AND SEIZURE OPERATION U/S 132 OF ACT WAS CARRIED OUT ON 11-4-2007 IN THE BUSINESS PREMISES OF THE ETCO GROUP AS WELL AS IN THE RESIDE NTIAL PREMISES OF THE DIRECTORS. DURING THE COURSE OF SEARCH AND SEIZURE OPERATION, AN AMOUNT O F RS.7,08,69,757/- WAS SURRENDERED IN THE HANDS OF DIFFERENT CONCERNS/PERSONS OF THE GROUP. M /S. MASITIA CAPITAL SERVICES LIMITED(MCSL) IS ONE OF THE CONCERNS OF ETCO GROUP, WHICH HAD MADE D ISCLOSURE OF RS.41,53,112/- FOR A.Y. 2002-03 TO 2007-08. THE TOTAL AMOUNT SURRENDERED FOR A.Y. 2 002-03 WAS RS.17,61,753/- ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22) (E).IN RESPONSE TO NOTICE U/S. 153A OF THE ACT,THE ASSESSEE FILED ITS RETURN,BUT THE AMOUNT OF DISCLOSURE WAS NOT SHOWN I N THE RETURN. DURING THE ASSESSMENT PROCEEDINGS,THE AO GAVE A SHO W CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN WHY THE AMOUNT OF RS.21,51,899/- SHOULD NOT BE ADDE D BACK UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AS DEEMED DIVIDEND. AFTER CONS IDERING THE REPLY OF THE APPELLANT,HE MADE AN ADDITION OF RS.21,51,899/- U/S. 2(22)(E) AND INITIA TED PENALTY U/S. 271(1)(C). AFTER CONSIDERING THE REPLY OF THE APPELLANT TO THE PENALTY NOTICE,THE AO HELD THAT DURING THE COURSE OF SEARCH AND SEIZURE OPERATION, CERTAIN DOC UMENTS WERE FOUND AND SEIZED AND THE ASSESSEE HAD DECLARED A SUM OF RS.17,61,753/- AS ADDITIONAL INCOME AS DEEMED DIVIDEND U/S. 2(22)(E),THAT THE SAID AMOUNT WAS NOT DECLARED IN THE RETURN FILE D U/S. 153A,THAT AN ADDITION OF RS.21,51,899/- WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE,THAT T HE ASSESSEE HAD SUBMITTED INACCURATE PARTICULARS OF INCOME BY NOT DECLARING THIS AMOUNT IN THE RETUR N FILED.HE LEVIED A PENALTY OF RS.7,68,2281- U/S. 271(1)(C) OF THE ACT. ITA NO. 5242/MUM/2012 M/S MASITIA CAPITAL SERVIC ES LTD. 2 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST A PPELLATE AUTHORITY(FAA).BEFORE HIM IT WAS STATED THAT THE RETURN OF INCOME U/S 153A WAS FILED ON 22.04.2008 SHOWING NIL INCOME INSTEAD OF RS.. 3, 93,600/- AS SHOWN IN COMPUTATION OF TOTAL I NCOME,THAT A LETTER DATED 28.07.2008 WAS FILED SUBMITTING THAT NIL INCOME WAS SHOWN DUE TO OVERSIG HT INSTEAD OF INCOME OF RS. 3,93,600/- AND TO TREAT THE SAID RETURN OF INCOME U/S 153A AS MOD IFIED/ CORRECTED AS ABOVE,THAT THE TAX COMPUTATION SHOWED THAT IT HAD NO INTENTION OF CON CEALING ANY INCOME OR FURNISHING OF ANY INACCURATE PARTICULARS OF INCOME,THAT IT WAS A GENU INE AND BONAFIDE MISTAKE ON THE PART OF THE ASSESSEE IN SHOWING NIL INCOME AGAINST THE PARTIC ULAR COLUMN IN THE RETURN,THAT THE COMPUTATION SHEET SHOWED THE INCOME CORRECTLY,THAT THE TAX CALC ULATION IN THE CORRESPONDING COLUMNS IN THE RETURN OF INCOME HAD BEEN CORRECTLY SHOWN,THAT THE AO MADE AN ADDITION OF RS. 21,51,899/- ON ACCOUNT OF DEEMED DIVIDEND U/S 2 (22) (E) AND FINAL LY LEVIED PENALTY U/S 271(1)(C) CONSIDERING THIS AMOUNT OF RS.21,51,899/- AS ASSESSEES CONCEALED IN COME,THAT IT HAD ALREADY DISCLOSED RS. 17, 61, 753/- AS DEEMED DIVIDEND U/S 132 (4) OF THE ACT IN THE COMPUTATION OF INCOME,THA NO PENALTY SHOULD BE LEVIED ON THE SAID AMOUNT.A REFERENCE WAS MADE TO EXPLANATION 5 TO SECTION271(1) (C) OF ACT. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,AS SESSMENT AND PENALTY ORDERS,THE FAA HELD THAT DURING THE COURSE OF SEARCH AND SEIZURE OPERATION C ERTAIN DOCUMENTS WERE FOUND AND SEIZED,THAT IN THE POST SEARCH ENQUIRIES,IT WAS ASKED TO EXPLAIN W HY THE PROVISIONS OF SECTION 2(22)(E) SHOULD NOT BE INVOKED,THAT THE ASSESSEE HAD DECLARED AN AMOUNT OF RS.17,61,753/- ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) DURING THE SEARCH AND SEIZUR E OPERATION,THAT IN THE RETURN FILED IN RESPONSE TO NOTICE U/S. 153A IT HAD DECLARED THE INCOME AT RS. NIL ON THAT ACCOUNT,THAT AFTER VERIFYING THE DETAILS,THE AO HAD HELD THAT THE ADDITION OF RS.21, 51,899/- WAS TO BE MADE U/S. 2(22)(E),THAT THE ASSESSEE HAD ARGUED THAT THE AMOUNT OF RS.17,61,753 /- WAS ALSO DECLARED IN THE COMPUTATION OF INCOME AND SHOWN A NET INCOME OF RS.3,93,600/-AFTER SET-OFF OF BROUGHT FORWARD DEPRECIATION AND LOSS,THAT AS PER RECORD THE CONTENTION OF THE ASSES SEE WAS TRUE,THAT IT HAD DECLARED THE UNDISCLOSED INCOME OF RS.17,61,753/- IN THE COMPUTATION CHART,T HAT HAD COMMITTED A MISTAKE BY SHOWING NIL INCOME IN THE RETURN,THAT IT WAS ELIGIBLE FOR IMMUN ITY UNDER EXPLANATION 5 TO SECTION 271(1)(C) OF THE ACT. FAA RELIED UPON THE DECISIONS OF CIT VS. SURESH CHANDRA MITTAL (251 ITR 9 (SC) SK,SHADILAL SUGAR & GENERAL MILLS LTD AND OTHERS VS CIT DELHI - 168 ITR 705, S.D. V. CHANDRU 266 ITR 175 (MAD.),VSHHABRA EMPORIUM - 264 ITR 249 (DEL).HE FURTHER HELD THAT IT WAS ELIGIBLE FOR IMMUNITY UNDER EXPLANATION 5 TO SECTION 271(1)( C),THAT THE BALANCE AMOUNT OF RS 3,90,146/- (RS.21,51,899 RS.17,6 1,753 ) WAS CONCEALED INCOM E OF THE ASSESSEE WHICH WAS NOT DECLARED IN THE RETURN FILED IN RESPONSE TO NOTICE U/S 153A.HE DIRECTED THE AO TO RE-COMPUTE THE PENALTY ON THE INCOME OF RS. 3, 90,146/-.HE DELETED THE PENALT Y ON THE BALANCE AMOUNT. 4. BEFORE US, AUTHORISED REPRESENTATIVE (AR) STATED TH AT ADDITION WAS MADE BY THE AO U/S 2(22(E) OF THE ACT FOR DEEMED DIVIDEND, THAT THE ASSESSEE W AS NOT A SHAREHOLDER OF ETL THE COMPANY WHICH HAD ADVANCED AMOUNT TO THE ASSESSEE,THAT THE ADDITION MADE AND CONFIRMED BY THE AO/FAA WAS UNTENABLE. HE REFERRED TO THE CERTIFICATE ISSUE D BY ETL IN RESPECT OF ITS SHAREHOLDER FOR THE AY 2002-03 AND ARGUED THAT R.D. SHAH WAS A COMMON S HAREHOLDER OF THE ASSESSEE COMPANY AND ETL,THAT IN ADDITION ON ACCOUNT OF DEEMED DIVIDEND COULD BE MADE ONLY IN THE HANDS OF SHAREHOLDER. HE RELIED UPON THE ORDER OF UNIVERSAL MEDICARE PVT. LTD. (324 ITR 263) AND IMPACT CONTAINERS PVT. LTD, (ITA NO. 114 OF 2012) DT. 04.0 7.2014.DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA.ON A SPECIFIC QUERY BY THE BENCH DR STATED THAT THE AO HAD NOT FILED ANY APPEAL AGAINST THE ORDER OF THE FAA. 5. WE HAVE HEARD AND PERUSED THE MATERIAL BEFORE US.IT IS FOUND THAT THAT THE ASSESSEE WAS NOT THE SHAREHOLDER OF THE LENDER COMPANY.THEREFORE, THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT.HERE WE WOULD LIKE T O REPRODUCE THE RELEVANT PORTION OF UNIVERSAL MEDICARE PVT. LTD. (SUPRA)WHEREIN FOLLOWING HAD BEE N HELD: IN ORDER THAT THE FIRST PART OF CLAUSE (E) OF SECT ION 2(22) OF THE INCOME-TAX ACT, 1961, IS ATTRACTED , ITA NO. 5242/MUM/2012 M/S MASITIA CAPITAL SERVIC ES LTD. 3 THE PAYMENT BY A COMPANY HAD TO BE BY WAY OF AN ADV ANCE OR LOAN. THE ADVANCE OR LOAN HAD TO BE MADE, AS THE CASE MAY BE, EITHER TO A SHAREHOLDER, BEING A BENEFICIAL OWNER HOLDING NOT LESS THAN TEN PER CENT. OF THE VOTING POWER OR TO ANY CONCERN IN WHICH SUCH A SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAD A SUBSTANTIAL INTEREST. SECTION 2(22)(E) DEFINES THE AMBIT OF THE EXPRESSION 'DIVIDEND'. ALL PAYMENTS BY WAY OF DIVID END HAVE TO BE TAXED IN THE HANDS OF THE RECIPIENT OF THE DIVIDEND NAMELY THE SHAREHOLDER. C ONSEQUENTLY, THE EFFECT OF CLAUSE (E) OF SECTION 2(22) IS TO BROADEN THE AMBIT OF THE EXPRESSION 'DI VIDEND' BY INCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAD MADE BY WAY OF A LOAN OR ADVANCE OR PAY MENTS MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DEFINITION DOES NOT ALTER THE LEGAL POSITION THAT DIVIDEND HAD TO BE TAXED IN THE HANDS OF THE SHAREHOLDER IN SHORT FOR APPLYING DEEMING PROVISIONS,RECEIPENT SHOULD BE A SHAREHOLDER.IN THIS CASE PENALTY U/S 271(1) (C) OF THE ACT WAS IMPOSED ON THE BASIS THAT THE ASSESSEE WAS A SHAREHOLDER. BUT, THE FACT IS THAT HE WAS NOT A SHAREHOLDER.IN THESE CIRUCUMSTANC ES,APPLYING THE PROVISIONS OF SECTION 2 (22)(E) OF THE ACT WAS NOT AS PER THE PROVISIONS OF THE ACT .SO,RESULTANT PENALTY CANNOT BE UPHELD. IN OUR OPINION,THE ORDER OF THE FAA,PARTLY CONFIRMING THE ORDER OF THE AO,CANNOT BE ENDORSED, CONSIDER -ING THE FACTS OF THE CASE. THEREFORE,REVERSING HIS ORDER ,WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL F ILED BY THE ASSESSEE STANDS ALLOWED. /'0 &' ) 1 ) ' 23 . ORDER PRONOUNCED IN THE OPEN COURT ON 20TH AUGUST 2014 . . ) +,! 4 5 20 -' , 201 4 , ) - 6 SD/- SD/- . . / I.P. BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 5 /DATE: 20.08 . 2014. SK . . . . ) )) ) $'7 $'7 $'7 $'7 87!' 87!' 87!' 87!' / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 3. THE CONCERNED CIT(A)/ 9 : , 4. THE CONCERNED CIT / 9 : 5. DR B BENCH, ITAT, MUMBAI / 7;- $' CH , . . . 6. GUARD FILE/ - / %7' %7' %7' %7' $' $'$' $' //TRUE COPY// . / BY ORDER, < / 2 DY./ASST. REGISTRAR , /ITAT, MUMBAI