Appeal Details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 2129 (ITAT-JAIPUR)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
11 month(s) 5 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-04-2017
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
Not Allotted
Assessment Year
2009-2010
Appeal Filed On
16-05-2016
Judgement Text
VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 527/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 M/S RATAN TEXTILES P. LTD., PAPRIWAL COTTAGE, AJMER ROAD, JAIPUR. CUKE VS. D.C.I.T., CIRCLE-2, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR 3760 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPO NDENT VK;DJ VIHY LA- @ ITA NO. 595/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 DY. COMMISSIONER OF INCOME TAX, CIRCLE-2, JAIPUR. CUKE VS. M/S RATAN TEXTILES P. LTD., PAPRIWAL COTTAGE, AJMER ROAD, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR 3760 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 528/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2011-12 M/S RATAN TEXTILES P. LTD., PAPRIWAL COTTAGE, AJMER ROAD, JAIPUR. CUKE VS. D.C.I.T., CIRCLE-2, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR 3760 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 2 VK;DJ VIHY LA- @ ITA NO. 596/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2011-12 DY. COMMISSIONER OF INCOME TAX, CIRCLE-2, JAIPUR. CUKE VS. M/S RATAN TEXTILES P. LTD., PAPRIWAL COTTAGE, AJMER ROAD, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR 3760 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NOS. 531, 525 & 526/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEARS : 2007-08 TO 2009-10 M/S RATAN TEXTILES P. LTD., PAPRIWAL COTTAGE, AJMER ROAD, JAIPUR. CUKE VS. D.C.I.T., CIRCLE-2, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCR 3760 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI MANISH AGARWAL & SHRI O.P. AGARWAL (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAJENDRA SINGH (ADDL.CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 28/03/2017 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 21/04/2017 VKNS'K@ ORDER PER: KUL BHARAT, J.M. THIS IS A BUNCH OF SEVEN APPEALS FILED BY THE ASSES SEE AND THE REVENUE ARISE AGAINST THE SEPARATE ORDERS DATED 31/ 3/2016 PASSED BY THE LD. CIT(A)-I, JAIPUR PERTAINING TO THE A.YS. 2007-08 TO 2011-12. 2. ALL THE APPEALS ARE BEING HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE AND BREVITY, A CONSOLIDATED ORDER IS BE ING PASSED. ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 3 3. AT THE TIME OF HEARING, IT WAS SUBMITTED BY THE A UTHORIZED REPRESENTATIVES THAT THE CROSS APPEALS BEING ITA NO . 527/JP/2016 AND 595/JP/2016 PERTAINING TO THE ASSESSMENT YEAR 2010- 11 MAY BE TAKEN AS A LEAD CASE AS THE FACTS AND GROUNDS ARE IDENTICAL AN D ARISE FROM THE SIMILAR ISSUES. THEREFORE, WE FIRST TAKE UP CROSS APPEALS BE ING ITA NO. 527/JP/2016 FILED BY THE ASSESSEE AND ITA NO. 595/J P/2016 FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2010-11, WHEREIN THE ASSESSEE AND THE REVENUE HAVE TAKEN FOLLOWING GROUNDS OF APPEAL: GROUNDS OF ASSESSEES APPEAL IN ITA NO. 527/JP/20 16. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ADDIT ION MADE IN THE ASSESSMENT COMPLETED U/S 143(3) SOLELY ON THE BASIS OF STATEMENTS RECORDED DURING THE COURSE OF SURVEY WHICH STOOD RETRACTED BY THE ASSESSEE THROUGH AN AFFIDAVIT FILED BY ITS DIRECTOR. THUS, THE ADDITI ONS MADE SOLELY ON THE BASIS OF SUCH RETRACTED STATEMEN TS DESERVE TO BE DELETED. 1.1 THAT, THE LD. AO HAS FURTHER ERRED IN NOT ACCEP TING THE AFFIDAVIT GIVEN BY THE DIRECTOR OF THE ASSESSEE COM PANY WITHOUT ANY BASIS AND WITH THE SOLE PURPOSE TO MAKE ADDITIONS WITHOUT BRINING ON RECORD ANY CORROBORATIV E MATERIAL FOUND DURING THE COURSE OF SURVEY OR DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, AND ALSO BY COMPLETELY IGNORING THE WELL ESTABLISHED LAW THAT NO ADDITION CAN BE MADE SOLELY ON THE BASIS OF STATEME NTS RECORDED ON OATH DURING THE COURSE OF SURVEY CONDUCTED U/S 133A OF THE ACT, WHEN THE ASSESSEE EXTENDED FULL COOPERATION. THUS, THE ASSESSMENT ORDE R ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 4 DESERVES TO BE HELD BAD IN LAW AND THE ADDITIONS MAD E THEREUNDER DESERVE TO BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE APPLICATION OF PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE LD. AO HAD MISERABLY FAILED TO POINT OUT A NY MATERIAL DEFECT IN THE BOOKS OF ACCOUNT OF ASSESSEE . THUS, THE ACTION OF LD. AO IN REJECTING THE BOOKS O F ACCOUNT OF ASSESSEE U/S 145(3) DESERVES TO BE HELD BAD IN LAW. 2.1 THAT, THE LD. AO AND THE LD. CIT(A) HAS FURTHER ERRED IN REJECTING THE BOOKS OF ACCOUNT OF ASSESSEE U/S 145(3) SOLELY ON THE BASIS OF THE ALLEGATION THAT T HE JOB WORK CHARGES AND STIPEND PAID BY ASSESSEE ARE UNVERIFIABLE/UNJUSTIFIED BY COMPLETELY IGNORING THE SUBMISSIONS MADE AND EVIDENCES ADDUCED IN ORDER TO ESTABLISH THE GENUINENESS OF THE EXPENSES INCURRED BY THE ASSESSEE. THUS THE LD. AO HAS FAILED TO REACH T HE SATISFACTION THAT TRUE PROFITS CANNOT BE DEDUCED FR OM THE BOOKS OF ACCOUNT OF ASSESSEE, HENCE THE ACTION OF LD. AO IN INVOKING THE PROVISIONS OF SECTION 145(3) DESERVES TO BE HELD BAD IN LAW. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS GROSSLY ERRED IN MAKING LUMP SUM TRADING ADDITION OF RS. 25,00,000/- WITHOUT ANY BASI S AND WITHOUT ESTABLISHING AS TO HOW THE TRADING RESULT S DECLARED BY THE ASSESSEE ARE NOT TRUE AND CORRECT. THUS, THE TRADING ADDITION OF RS. 25,00,000/- DESERV ES TO BE DELETED. 3.1 THAT, THE LD. AO AND LD. CIT(A) HAVE FURTHER ERR ED IN HOLDING THAT THE JOB WORK CHARGES PAID TO M/S KALPAN A HANDICRAFT AND M/S KALPANA IMPEX ARE BOGUS AND ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 5 UNVERIFIABLE (THOUGH NO SEPARATE ADDITION MADE ON T HIS ACCOUNT) WHEN ALL THE NECESSARY DETAILS REGARDING RENDERING OF SERVICES BY THESE PARTIES WERE SUBMITTE D, THUS THE JOB CHARGES PAID TO THESE CONCERN DESERVES TO BE TREATED AS GENUINE AND THE OBSERVATION OF LD. AO TREATING THE AFORESAID PAYMENT AS NON-GENUINE / UNVERIFIABLE DESERVES TO BE IGNORED AND EXCLUDED AN D THE ADDITION MADE BASED ON SUCH CONCLUSION DESERVES TO BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS FURTHER ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 5,33,266/- BEING 20% OF THE STIPEND EXPENSES CLAIMED BY ASSESSEE OUT OF THE TOT AL DISALLOWANCE OF RS. 19,99,747/- MADE BY LD. AO BEING 75% OF THE STIPEND EXPENSES CLAIMED AT RS. 26,66,330/-, WITHOUT ANY BASIS AND WITHOUT CONSIDERIN G THE SUBMISSIONS MADE BY ASSESSEE AND THE EVIDENCES ADDUCED IN SUPPORT OF THE GENUINENESS OF THE EXPENS ES CLAIMED BY ASSESSEE. THUS, THE DISALLOWANCE OF RS. 5,33,266/- SUSTAINED BY THE LD. CIT(A) DESERVES TO BE DELETED. 4.1 WITHOUT PREJUDICE TO GROUND OF APPEAL NO. 01 T O 04 AND IN THE ALTERNATIVE, THE LD. CIT(A) HAS GROSSLY E RRED IN CONFIRMING FURTHER DISALLOWANCE OF RS. 5,33,266/- OUT OF THE STIPEND EXPENSES WHEN THE TRADING RESULTS ARE NOT ACCEPTED AND THE PROVISIONS OF SECTION 145(3) A RE INVOKED. GROUNDS OF REVENUES APPEAL IN ITA NO. 595/JP/201 6. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF STIPEND EXPENSES @ 20% AS AGAINST 75% APPLIED BY THE A.O. ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 6 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT. SIMILAR IDENTICAL GROUNDS HAVE ALSO BEEN TAKEN BY T HE ASSESSEE AS WELL AS THE REVENUE IN ALL THE OTHER APPEALS FOR THE A.Y. 2 007-08, 2008-09, 2009- 10 AND 2011-12. 4. BRIEFLY STATED FACTS OF THE CASE ARE THAT A SURV EY U/S 133A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE AC T) WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 04/8/2011. DURING THE COURSE OF SURVEY, THE STATEMENT OF THE DIRECTORS OF THE ASSES SEE COMPANY AND THE EMPLOYEES WERE RECORDED. ON THE BASIS OF THE MATERIA L GATHERED AND THE STATEMENT OF THE DIRECTORS OF THE ASSESSEE COMPANY, THE CASE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S 1 43(3) OF THE ACT WAS FRAMED VIDE ORDER DATED 26/3/2013. WHILE FRAMING TH E ASSESSMENT, THE ASSESSING OFFICER MADE ADDITIONS ON ACCOUNT OF TRAD ING ADDITION OF RS. 25.00 LACS, DISALLOWANCE OUT OF STIPEND EXPENSES OF RS. 19,99,747/-, DEEMED DIVIDEND OF RS. 36,85,000/- AND DISALLOWANCE U/S 14A OF THE ACT OF RS. 45,795/-. 5. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO AFTER C ONSIDERING THE SUBMISSIONS, PARTLY ALLOWED THE APPEAL. WHILE PARTLY ALLOWING THE APPEAL, ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 7 THE LD. CIT(A) DELETED THE ADDITION MADE ON ACCOUNT OF DEEMED DIVIDEND OF RS. 36,85,000/- AND RESTRICTED THE DISALLOWANCE OF S TIPEND EXPENSES TO THE EXTENT OF RS. 5,33,266/- AGAINST RS. 19,99,747/- AN D CONFIRMED THE TRADING ADDITION OF RS. 25.00 LACS. 6. AGAINST THE ORDER OF THE LD. CIT(A), THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEALS BEFORE THIS BENCH. GROUNDS N O. 1 TO 3 OF THE ASSESSEES APPEAL ARE AGAINST REJECTION OF BOOKS OF ACCOUNT AND MAKING TRADING ADDITION OF RS. 25.00 LACS. THE LD AR OF THE ASSESSEE REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN BRIEF. HE SUBMITT ED THAT THE ENTIRE ASSESSMENT IS BASED ON THE BASIS OF THE STATEMENT R ECORDED DURING THE COURSE OF SURVEY. HE SUBMITTED THAT THE STATEMENT S O RECORDED WERE SUBSEQUENTLY RETRACTED BY THE ASSESSEE. HE SUBMITTE D THAT THE ACTION OF THE AUTHORITIES BELOW RELYING UPON THE STATEMENT REC ORDED DURING THE COURSE OF SURVEY IS CONTRARY TO RATIO LAID IN THE J UDGMENT OF THE HON'BLE SUPREME COURT RENDERED IN THE CASE OF CIT VS. S. KHA DER KHAN SON (2013) 352 ITR 480 (SC) AND ALSO THE JUDGMENTS OF THE HONB LE HIGH COURTS OF DELHI AND KERALA IN THE CASES OF CIT VS. DHINGRA MET AL WORKS AND PAUL MATHEWS AND SONS VS. CIT (2003) 263 ITR 101 (KER). HE SUBMITTED THAT THE TAX WAS DEPOSITED UNDER PROTEST. THE ASSESSING OF FICER PRESUMED PAYMENT OF TAX ON THE SURRENDERED AMOUNT DURING THE COURSE OF SURVEY AS IF THE ASSESSEE HAD ACCEPTED THE SURRENDERED AMOUNT AS CORRECT. HE ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 8 CONTENDED THAT THE ASSESSING OFFICER DOUBTED ABOUT THE PAYMENTS MADE TO M/S KALPANA IMPEX AND M/S KALPANA HANDICRAFTS. HE S UBMITTED THAT BOTH WERE PROVIDING SERVICES TO THE ASSESSEE. HE SUBMITTE D THAT THE AUTHORITIES HAVE BASED THEIR FINDINGS ON THE BASIS OF PICK AND CHOOSE OF THE CONTENTS OF STATEMENTS, WHICH IS ALSO NOT PERMISSIBLE UNDER THE LAW. HE CONTENDED THAT THE FIRMS, WHO HAD RENDERED SERVICES WERE DULY R EGISTERED UNDER THE PROVISIONS OF ESI. HE CONTENDED THAT IN THE CASE OF M/S KALPANA IMPEX, ESI WAS DULY DEDUCTED FROM THE PAYMENTS MADE TO THE LABOURERS, WHICH ESTABLISHED THE EXISTENCE OF GENUINENESS OF THE TRA NSACTIONS. HE SUBMITTED THAT THE STATEMENTS OF SHRI NARESH KUMAR JAIN, DIRE CTOR OF THE COMPANY, SHRI HARAK CHAND JAIN, EMPLOYEE OF THE COMPANY WERE TAKEN DURING THE COURSE OF SURVEY WITHOUT PROVIDING THEM BOOKS OF ACC OUNT ETC., THEREFORE, THEIR STATEMENTS WERE NOT VOLUNTARY AND AS SUCH THES E STATEMENTS WERE DULY RETRACTED BY THE MAKER OF THE STATEMENTS. HENC E, IT HAS NO EVIDENTIARY VALUE. THEREFORE, BASING THE ASSUMPTION ON SUCH STAT EMENT IS CONTRARY TO THE SETTLED PRINCIPLE OF LAW. HE SUBMITTED THAT THE STATEMENTS ARE NOT THE CONCLUDING PIECE OF EVIDENCE. 7. ON THE CONTRARY, THE LD SR. DR HAS VEHEMENTLY SU PPORTED THE ORDERS OF THE AUTHORITIES BELOW AND FURTHER ARGUED THAT MER ELY BECAUSE THE ASSESSEE HAD RETRACTED THE STATEMENT WOULD NOT PROHI BIT THE ASSESSING OFFICER TO MAKE USE OF THE INFORMATION AND THE MATE RIAL GATHERED DURING ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 9 THE COURSE OF SURVEY. HE SUBMITTED THAT IT IS ON RE CORD THAT THE PROPRIETOR OF THE SO CALLED FIRMS WAS NOT AWARE OF THE WHEREABOU TS OF THEIR BUSINESS PREMISES AND HOW MANY PEOPLE WERE WORKING UNDER THIS PREMISES. THEREFORE, THE AUTHORITIES BELOW ARE JUSTIFIED IN REJ ECTING THE EXPLANATION OF THE ASSESSEE AND MAKING ADDITIONS BY REJECTING THE BOOKS OF ACCOUNT. 8. IN REJOINDER, THE LD. AR OF THE ASSESSEE HAS SUB MITTED THAT IF WE COMPARE THE TOTAL PAYMENTS MADE BY THE ASSESSEE ON ACCOUNT OF STITCHING JOB CHARGES DURING THE YEAR UNDER APPEAL, WHICH IS O F RS. 1,18,52,754/- OUT OF WHICH RS. 21,87,127/- WERE PAID TO M/S KALPANA IMPEX, WHICH IN TERMS OF PERCENTAGE COMES TO 18.45%. SIMILARLY, THE PAYMENTS ON ACCOUNT OF PRINTING CHARGES OF RS. 2,23,91,991/- OF WHICH RS . 93,079/- ONLY WAS PAID TO M/S KALPANA HANDICRAFTS FOR WASHING AND SPOT TING JOB WORK, WHICH IN TERMS OF PERCENTAGE COMES TO 0.41% ONLY. HE SUBM ITTED THAT IN FACT PERCENTAGE OF TOTAL DISALLOWED EXPENSES IN TERMS WITH TOTAL MANUFACTURING EXPENSES BOOKED BY THE ASSESSEE COMPANY DURING THE YEAR IS LESS THAN EVEN 1%. LD. COUNSEL FURTHER SUBMITTED THAT THE INF ERENCE DRAWN FROM THE STATEMENTS OF SHRI CHANDAN SINGH CHOUHAN IS NOT COR RECT. HE SUBMITTED THAT THE STATEMENT GIVEN BY SHRI CHANDAN SINGH CHOU HAN WOULD NOT INSPIRE CONFIDENCE AS THE CONTENTS OF THE SAME ARE SELF CON TRADICTORY. 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THERE IS NO DI SPUTE WITH REGARD TO THE ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 10 PROPOSITION THAT STATEMENTS RECORDED DURING THE COU RSE OF SURVEY HAS NO EVIDENTIARY VALUE. SUCH STATEMENTS IF RETRACTED BY THE ASSESSEE WOULD SHIFT THE ONUS ON THE ASSESSING OFFICER TO PROVE THE CONT ENTS OF THE STATEMENT AS CORRECT BY PLACING MATERIAL CORROBORATING THE CO RRECTNESS OF SUCH STATEMENTS ON RECORD. IN THE PRESENT CASE, THE ASSE SSING OFFICER BASED HIS FINDINGS SOLELY ON THE BASIS OF THE CONTENTS OF THE STATEMENT RECORDED DURING THE COURSE OF SURVEY. NO OTHER MATERIAL IS G ATHERED SUGGESTING THAT THE STATEMENTS WERE NOT CORRECT. AS PER THE ASSESSEE , ONE OF THE FIRM M/S KALPANA IMPEX IS REGISTERED WITH ESI AND DEDUCTING C ONTRIBUTION AND DEPOSITING THE SAME TO THE CONCERNED AUTHORITY. THE ASSESSING OFFICER WAS REQUIRED TO MAKE INQUIRY ON THESE CONTENTS SINCE TH E STATEMENT WAS RECORDED DURING THE COURSE OF SURVEY AND SUCH STATE MENTS STATED A FACT WHICH WAS REQUIRED TO BE FURTHER CORROBORATED WITH A P LAUSIBLE EVIDENCE. WE FIND THAT THE ASSESSEE HAD ENCLOSED DETAILS OF C ONTRACTORS FROM WHOM IT HAD GOT THE WORK DONE AT PAGE 9 OF THE PAPER BOOK. A LETTER ADDRESSED TO THE REGISTERING AUTHORITY UNDER THE CONTRACT LABOUR ACT IS ENCLOSED, WHICH WAS RECEIVED BY THE CONCERNED DEPARTMENT ON 26/1/201 1. AT PAGE NO. 7 OF PAPER BOOK, A REGISTRATION CERTIFICATE DATED 09/9/2 005 IS ENCLOSED, WHICH INCLUDES NAME OF SMT. KALPANA JAIN. THESE DETAILS DE MONSTRATE THAT PROPRIETOR OF M/S KALPANA IMPEX WAS REGISTERED WITH C ONCERNED AUTHORITY OF LABOUR DEPARTMENT FOR THE PURPOSE OF STITCHING. FROM THE RECORDS, AS ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 11 MADE AVAILABLE, IT IS TRANSPIRED THAT THE ASSESSEE WAS ENGAGING PERSONS ON CONTRACT FOR ITS WORK. ON THIS ASPECT, NO INQUIRY WAS MADE BY THE ASSESSING OFFICER. IN OUR CONSIDERED VIEW, THE ASSESSING OFFIC ER OUGHT NOT TO HAVE BASED THE ASSESSMENT SOLELY ON THE STATEMENTS RECOR DED DURING THE COURSE OF SURVEY, HE SHOULD HAVE BROUGHT MATERIAL SUGGESTI NG THAT NO JOB WORK WAS DONE BY THE SAID FIRMS. THE HONBLE RAJASTHAN HI GH COURT IN THE CASE OF CIT, UDAIPUR VS. SHRI ROSHAN LAL LODHA IN I.T. APP EAL NO. 185/2014 ORDER DATED 03/11/2015 HAS HELD AS UNDER:- IN THE CASE AFORESAID, HON'BLE APEX COURT HELD THA T SECTION 133-A OF THE INCOME TAX ACT DOES NOT EMPOWER INCOME TAX OFFICER TO EXAM INE ANY PERSON ON OATH; HENCE, THE STATEMENT RECORDED UNDER SECTION 133-A H AS NO EVIDENTIARY VALUE AND ANY ADMISSION MADE DURING SUCH STATEMENT CANNOT BE MADE BASIS OF ADDITION. THE APPEAL PREFERRED BY THE REVENUE BEFORE THE INCO ME TAX APPELLATE TRIBUNAL CAME LO BE DISMISSED BY THE JUDGMENT IMPUGNED. LEARNED COUNSEL APPEARING ON BEHALF OF THE APPELLAN T SUBMITS THAT THE ASSESSEE IN THE INSTANT MATTER DID NOT RETRACT FROM HIS STATEME NT, THEREFORE, THE LAW LAID DOWN IN THE CASE OF S. KHADER KHAN SON (SUPRA) IS NOT AP PLICABLE. WE DO NOT FIND ANY MERIT IN THE ARGUMENT ADVANCED. THE ASSESSEE FILED AN APPEAL BEFORE THE [3] COMMISSIONER, INCOME TAX (APPEALS), WITH SPECIFIC ASSERTION THAT THE STATEMENT MADE BY HIM WOULD HAVE NOT BEEN ACCEPTED TO MAKE ANY ADDITION AND THEREFORE, HIS DENIAL IS APPARENT. IN VIEW OF IT, THE ORDERS PASSED BY THE COMMISSIONE R, INCOME TAX (APPEALS) AND THE INCOME TAX APPELLATE TRIBUNAL DO NOT SUFFER FROM AN Y WRONG. THE APPEAL IS HAVING NO SUBSTANTIAL QUESTION OF LAW. HENCE, THE SAME IS DISMISSED. IF WE APPLY THE RATIO OF THE JUDGMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS. S.KHADER KHAN SON (SUPRA) ON THE FACTS OF THE PRESENT CASE, THE AUTHORITIES BELOW WERE NO JUSTIFIE D IN MAKING THE ADDITION ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 12 ON THE BASIS OF THE STATEMENT RECORDED DURING THE C OURSE OF SURVEY. NO OTHER MATERIAL SUGGESTING THAT THE CLAIM OF THE ASS ESSEE WAS FALSE, IS BROUGHT ON RECORD BY THE REVENUE. UNDER THESE FACTS AND IN VIEW OF THE BINDING PRECEDENT, WE ARE UNABLE TO CONFIRM THE FIND ING OF THE LD. CIT(A). THEREFORE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE TRADING ADDITION OF RS. 25.00 LACS. GROUNDS NO. 1 TO 3.1 OF THE ASSESSE ES APPEAL ARE DISPOSED OFF IN INDICATED HEREINBEFORE. 10. GROUNDS NO. 4 AND 4.1 OF THE ASSESSEES APPEAL ARE AGAINST CONFIRMING THE DISALLOWANCE OF STIPEND EXPENSES TO T HE EXTENT OF RS. 5,33,266/-. THE LD A.R. OF THE ASSESSEE HAS REITERAT ED THE SUBMISSIONS AS MADE IN THE WRITTEN SUBMISSIONS. HE SUBMITTED THAT T HE ASSESSING OFFICER MADE DISALLOWANCE OF THE STIPEND EXPENSES SOLELY ON THE BASIS OF THE STATEMENT OF SHRI NARESH KUMAR JAIN RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS. HE SUBMITTED THAT THE STATEMENTS RECOR DED OF SHRI NARESH KUMAR JAIN DURING THE SURVEY, A SURRENDER WAS OBTAIN ED FROM HIM WHEREIN HE ADMITTED 50% OF THE PAYMENT MADE TO TRAINEES AS BOGUS. HOWEVER, IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE LU MP SUM ADDITION @ 75% OF TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE CO MPANY IN ALL THE YEARS. HOWEVER, THE LD CIT(A) CONSIDERING THE EVIDENC E AND SUBMISSIONS BY THE ASSESSEE RESTRICTED THE ADDITION @ 20% OF EXP ENSES CLAIMED. HE SUBMITTED THAT IN THE INSTANT CASE, THE ASSESSING O FFICER HAS REJECTED THE ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 13 BOOKS OF ACCOUNT AND MADE LUMP SUM ADDITION OF RS. 25.00 LACS ON THIS ACCOUNT, WHICH VERY WELL COVER ANY AND EVERY DISCREPA NCY IN THE BOOKS OF ACCOUNT, THUS NO SEPARATE DISALLOWANCE IS CALLED FOR ON THE ALLEGATION OF STIPEND EXPENSES BEING HELD AS BOGUS. HE SUBMITTED THAT IT IS SETTLED POSITION OF LAW THAT ONCE BOOKS OF ACCOUNT ARE REJEC TED, THE SAME CANNOT BE RELIED FOR THE PURPOSES OF MAKING ADDITION OF A PARTICULAR ITEM OF EXPENDITURE IN THE P&L ACCOUNT. IN SUPPORT OF THIS CONTENTION, THE LD COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE FOLLOWI NG CASE LAWS:- (I) INDWELL CONSTRUCTIONS V. COMMISSIONER OF INCOME- TAX REPORTED IN 232 ITR 0776-[1998] (II) 037 ITR 0369 MADDI SUDARSANAM OIL MILLS CO. V. CIT [ANDHRA PRADESH HIGH COURT] (III) 36 DTR 220 TEJA CONSTRUCTIONS VS. ASSTT. CIT (HY D. A) (IV) 116 TTJ 289 ITO VS. KENARAM SAHA & SUBHASH SAHA (KOL.) (V) 58 DTR 368 ITO VS. SADHWANI BROTEHRS (JP 'B') (VI) SINGHAL BUILDERS CONTRACTOR V. ADDL. CIT [2011] 12 TAXMAN.COM 199 (JP. ITAT) (VII) [2011] 007 ITR (TRIB) 0183 RELIABLE SURFACE COA TINGS VS. ACIT. 11. ON THE CONTRARY, THE LD SR.DR HAS VEHEMENTLY SU PPORTED THE ORDERS OF THE AUTHORITIES BELOW. HOWEVER, HE SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO THE EXTENT OF 20% FOR WHICH THE REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL. ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 14 12. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD. CIT(A) HAS DECIDED THE ISSUE BY OBSERVING AS UNDER:- (V) IT IS NOTED FROM THE ABOVE DETAILS THAT DURING THE COURSE OF SURVEY U/S 133A OF THE ACT, SHRI NARESH JAIN, THE DIRECTOR OF THE APPELLANT COMPANY SURRENDERED A SUM OF RS. 50 LAC, OUT OF TOTAL EXPEN DITURE OF RS. 95,41,465/- CLAIMED BY THE APPELLANT FROM FY 2006-0 7 TO 2009-10 AS PER FOLLOWING DETAILS: F.Y. AMOUNT 2006-07 RS. 10,55,585/- 2007-08 RS. 27,37,958/- 2008-09 RS. 30,85,592/- 2009-10 RS. 26,66,320/- TOTAL RS. 95,41,465/- (VI) HOWEVER, SUBSEQUENTLY, THE SAID SURRENDER WAS RETRACTED BY THE APPELLANT. IT IS NOTED FROM THE ASSESSMENT ORDER TH AT THE AO RELIED HEAVILY ON THE STATEMENTS OF SHRI NARESH JAIN AND S HRI BUNKAR RECORDED DURING THE COURSE OF SURVEY U/S 133A OF THE ACT. TH E AO DISALLOWED 75% OF THE STIPEND EXPENDITURE CLAIMED BY THE APPELLANT AGAINST APPROXIMATELY 50% SURRENDERED DURING SURVEY ON THE BASIS OF FOLLOWING ADDITIONAL FINDINGS: THE PAYMENTS WERE MADE IN CASH AND NO PF/ESI HAS BE EN DEDUCTED WHILE MAKING SUCH PAYMENTS. THERE IS NO BASIS OF DETERMINING MINIMUM OR MAXIMUM AMOUNT OF STIPEND. VARIOUS DISCREPANCIES ARE NOTICED IN THE SALARY/WAG ES SHEETS. OUT OF LIST OF 147 TRAINEES SUBMITTED BY THE APPELL ANT, THE AO NOTED THAT 50% OF THE MOBILE NUMBERS WERE EITHER WRONG OR INCORRECT ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 15 OUT OF THE 10 TRAINEES REQUIRED BY THE AO TO PRODUC E (WHO WERE WORKING DURING DIFFERENT PERIODS), ONLY 3 WERE PROD UCED BEFORE THE AO. (VII) IT IS NOTED THAT THE AO HAS JUST IGNORED THE VARIOUS DOCUMENTARY EVIDENCES FILED BY THE APPELLANT INCLUDING THE ATTE NDANCE SHEETS OF THE TRAINEES, RETRACTION BY SHRI NARESH KUMAR JAIN, COP IES OF THE COMPLETE SET OF APPOINTMENT DOCUMENTS OF EACH TRAINEE CONSISTING OF APPLICATIONS MADE BY THE INDIVIDUALS FOR BEING APPOINTED AS TRAI NEE IN THE APPELLANT, ALONG WITH HIS BIO DATA, QUALIFICATION , ADDRESS / IDENTITY VERIFICATION , AND THE APPOINTMENT LETTER ISSUED BY THE APPELLANT MENT IONING THEREIN THE DATE OF JOINING, INITIAL SALARY AND JOB DETAILS, AT TENDANCE REGISTER, SHOWING THE DAILY ATTENDANCE OF EACH TRAINEE ALONG WITH FAC TORY IN AND OUT TIME , ON THE BASIS OF WHICH MONTHLY STIPEND PAYMENT IS DO NE , ALONG WITH COPY OF ENTRY CARD OF EACH TRAINEE. COPY OF MONTHLY STIP END PAYMENT SHEET, DULY REFLECTING THE AMOUNT PAID TO EACH TRAINEE COM PUTED ON THE BASIS OF HIS AGREED STIPEND RATE, NUMBER OF DAYS WORKED ETC, ALONG WITH RECEIPTS OF EACH TRAINEE THEREON. THE AO HAS ALSO IGNORED TH E FACT THAT THE APPLICABILITY OF ESI / PF LAW WAS NOT MANDATORY UP TO JUNE-2010 ON THE PAYMENT MADE TO STIPEND TRAINEES. THE INSPECTION RE PORT OF ESI OFFICIALS REVEAL THAT NO SUCH DISCREPANCY WAS REPORTED BY THE PF / ESI DEPARTMENT OFFICIALS. FURTHER, THE INCORRECT MOBILE NUMBERS AN D INABILITY OF THE APPELLANT TO PRODUCE THE TRAINEES WHO HAD ALREADY L EFT THE APPELLANT AND CASH PAYMENTS TO TRAINEES CANNOT BE THE GROUNDS FOR DISALLOWING 75% OF THE STIPEND EXPENSES CLAIMED BY THE APPELLANT. (VIII) IT MAY BE MENTIONED THAT IN THE CASE OF CIT VS SHRI ROSHAN LAI (SUPRA), IT HAS BEEN HELD BY THE HONBLE RAJASTHAN HIGH COURT T HAT THE STATEMENT RECORDED UNDER SECTION 133A HAS NO EVIDENTIARY VALU E AND ANY ADMISSION MADE DURING SUCH STATEMENT CANNOT BE MADE BASIS OF ADDITION. FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS S. KHADER KHAN SON ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 16 [2012] 25 TAXMANN.COM 413 (SC)DISMISSED THE CIVIL A PPEAL BY THE INCOME TAX DEPARTMENT AND CONFIRMED THE ORDER OF HONBLE M ADRAS HIGH COURT IN THE CASE OF CIT VS S. KHADER KHAN SON [2008] 300 IT R 157 (MAD.) WHEREIN IT WAS HELD BY THE HONBLE HIGH COURT OF MADRAS THA T: FROM THE FOREGOING DISCUSSION, THE FOLLOWING PRIN CIPLES CAN BE CULLED OUT: (I) AN ADMISSION IS AN EXTREMELY IMPORTANT PIECE O F EVIDENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE AND IT IS OPEN TO THE PERSON WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT AND THAT THE ASSESSEE SHOULD BE GIVEN A PROPER OPPORTUNITY TO SH OW THAT THE BOOKS OF ACCOUNT DO NOT CORRECTLY DISCLOSE THE CORR ECT STATE OF FACTS, VIDE DECISION OF THE APEX COURT IN PULKNGODE RUBBER PRODUCE CO. LTD. V. STATE OF KERALA [1973] 91 ITR 18; (II) IN CONTRADISTINCTION TO THE POWER UNDER SECTIO N 133A, SECTION 132(4] OF THE INCOME-TAX ACT ENABLES THE AUTHORIZED OFFICE R TO EXAMINE A PERSON ON OATH AND ANY STATEMENT MADE BY SUCH PERSO N DURING SUCH EXAMINATION CAN ALSO BE USED IN EVIDENCE UNDER THE INCOME-TAX ACT. ON THE OTHER HAND, WHATEVER STATEMENT IS RECORDED UNDE R SECTION 133A OF THE INCOME-TAX ACT IS NOT GIVEN ANY EVIDENT IARY VALUE OBVIOUSLY FOR THE REASON THAT THE OFFICER IS NOT AU THORIZED TO ADMINISTER OATH AND TO TAKE ANY SWORN STATEMENT WHI CH ALONE HAS EVIDENTIARY VALUE AS CONTEMPLATED UNDER LAW, VIDE P AUL MATHEWS AND SONS V. CIT [2003] 263 ITR 101 (KER.); (III) THE EXPRESSION 'SUCH OTHER MATERIALS OR INFOR MATION AS ARE AVAILABLE WITH THE ASSESSING OFFICER' CONTAINED IN SECTION 15 8BB OF THE INCOME-TAX ACT, 1961, WOULD INCLUDE THE MATERIALS G ATHERED DURING THE SURVEY OPERATION UNDER SECTION 133A, VIDE CIT V . G. K. SENNIAPPAN [2006] 284 ITR 220 (MAD.); (IV) THE MATERIAL OR INFORMATION FOUND IN THE COURS E OF SURVEY PROCEEDING COULD NOT BE A BASIS FOR MAKING ANY ADDI TION IN THE BLOCK ASSESSMENT, VIDE DECISION OF THIS COURT IN T. C (A) NO. 2620 OF 2006 (BETWEEN CIT V. S. AJIT KUMAR [2008] 300 ITR 152 (M AD.); ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 17 (V) FINALLY, THE WORD 'MAY' USED IN SECTION 133A(3) (HI) OF THE ACT, VIZ., 'RECORD THE STATEMENT OF ANY PERSON WHICH MAY BE US EFUL FOR, OR RELEVANT TO, ANY PROCEEDING UNDER THIS ACT', AS ALR EADY EXTRACTED ABOVE, MAKES IT CLEAR THAT THE MATERIALS COLLECTED AND THE STATEMENT RECORDED DURING THE SURVEY UNDER SECTION 133A ARE N OT CONCLUSIVE PIECE OF EVIDENCE BY ITSELF. FOR ALL THESE REASONS, PARTICULARLY, WHEN THE COMM ISSIONER AND THE TRIBUNAL FOLLOWED THE CIRCULAR OF THE CENTRAL BOARD OF DIRECT TAXES DATED MARCH 10, 2003, EXTRACTED ABOVE, FOR ARRIVING AT THE CONCLUSION THAT THE MATERIALS COLLECTED AND THE STA TEMENT, OBTAINED UNDER SECTION 133A WOULD NOT AUTOMATICALLY BIND UPO N THE ASSESSES WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF THE TRIBUNAL.' (IX) THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING 75% OF THE TRAINEE STIPEND CLAIMED BY THE APPELLANT. HOWEVER, THE DISCREPANCIES AS OBSERVED B Y THE AO - CANNOT BE TOTALLY BRUSHED ASIDE. HENCE, CONSIDERING THE TOTAL ITY OF FACTS AND CIRCUMSTANCES OF THE CASE, I THINK IT WOULD BE APPR OPRIATE TO RESTRICT THE DISALLOWANCES TO 20% INSTEAD OF 75% OF THE AMOUNT C LAIMED BY THE APPELLANT. HENCE, DISALLOWANCE OUT OF STIPEND EXPEN SES IS RESTRICTED TO RS. 5,33,266/- AGAINST RS. 19,99,747/- MADE BY THE AO. FROM THE ABOVE, IT IS EVIDENT THAT THE LD. CIT(A) H AS RESTRICTED THE DISALLOWANCE ON AD HOC BASIS. AFTER CONSIDERING THE MATERIAL PLACED BEFORE THIS TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE INSPECTION WAS CARRIED OUT BY THE ESI AND PF DEPARTMENT, NO DISCRE PANCY WAS REPORTED IN RESPECT OF RATE OF STIPEND AND PAYMENT OF STIPEND. THE ASSESSING OFFICER HAS NOT PLACED ANY MATERIAL SUGGESTING THAT THE NUM BER OF TRAINEES WAS NOT CORRECT. MOREOVER, THE ASSESSING OFFICER HAS BA SED HIS FINDING ON THE BASIS OF PRESUMPTION THAT THE ASSESSEE IS NOT CHARI TABLE INSTITUTE THAN WHY ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 18 IT WOULD PROVIDE TRAINING WITH STIPEND TO THE PERSONS WHO WOULD QUIT AFTER TRAINING. THIS OBSERVATION OF THE ASSESSING OFFICER IS PURELY BASED ON THE CONJECTURE AND SURMISES, WHICH CANNOT BE THE BASIS F OR MAKING DISALLOWANCE. IF THE ASSESSING OFFICERS REASONING I S ACCEPTED, THEN IT WOULD MAKE THE ASSESSEE LIABLE FOR PROSECUTION FOR PRACTI CING THE BONDED LABOUR. THEREFORE, THIS DISALLOWANCE IS UNJUSTIFIED AND THE S AME IS HEREBY DELETED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO. 527/JP/2016 IS ALLOWED. 14. NOW WE TAKE REVENUES APPEAL BEING ITA NO. 595/JP /2016 FOR THE ASSESSMENT YEAR 2010-11. THE FIRST GROUND OF THE APP EAL IS AGAINST RESTRICTING THE DISALLOWANCE OF STIPEND EXPENSES @ 20 % AGAINST 75% APPLIED BY THE ASSESSING OFFICER. BOTH THE REPRESEN TATIVE OF THE PARTIES ADOPTED THE SAME ARGUMENT AS WAS MADE IN ITA NO. 527 /JP/2016. 15. SINCE, WE HAVE DECIDED THIS ISSUE IN FAVOUR OF T HE ASSESSEE BY OBSERVING AS UNDER:- FROM THE ABOVE, IT IS EVIDENT THAT THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE ON AD HOC BASIS. AFTER CONSIDERING THE MATERIAL PLACED BEFORE THIS TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT W HEN THE INSPECTION WAS CARRIED OUT BY THE ESI AND PF DEPARTMENT, NO DISCRE PANCY WAS REPORTED IN RESPECT OF RATE OF STIPEND AND PAYMENT OF STIPEND. THE ASSESSING OFFICER HAS NOT PLACED ANY MATERIAL SUGGESTING THAT THE NUMBER OF TRAINEES WAS NOT CORRECT. MOREOVER, THE ASSESSING OFFICER HAS BASED HIS FINDING ON THE BASIS OF PRESUMPTION THAT THE ASSESSEE IS NOT CHARITABLE INS TITUTE THAN WHY IT WOULD PROVIDE TRAINING WITH STIPEND TO THE PERSONS WHO WO ULD QUIT AFTER TRAINING. THIS OBSERVATION OF THE ASSESSING OFFICER IS PURELY BASED ON THE CONJECTURE AND SURMISES, WHICH CANNOT BE THE BASIS FOR MAKING DISALLOWANCE. IF THE ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 19 ASSESSING OFFICERS REASONING IS ACCEPTED, THEN IT WOULD MAKE THE ASSESSEE LIABLE FOR PROSECUTION FOR PRACTICING THE BONDED LA BOUR. THEREFORE, THIS DISALLOWANCE IS UNJUSTIFIED AND THE SAME IS HEREBY DELETED. ACCORDINGLY, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. 16. GROUND NO. 2 OF THE REVENUES APPEAL IS AGAINST THE DECISION MADE ON ACCOUNT OF DEEMED DIVIDEND. THE LD. SR.DR HAS SUP PORTED THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE LD. CI T(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. 17. ON THE CONTRARY, THE LD AR OF THE ASSESSEE HAS SUPPORTED THE ORDER OF THE LD. CIT(A) AND REITERATED THE SUBMISSIONS AS MADE IN THE WRITTEN SUBMISSIONS. 18. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND ALSO GONE THRO UGH THE ORDERS OF THE AUTHORITIES BELOW. THE LD. CIT(A) HAS ELABORATELY EXAM INED THIS ISSUE IN HIS ORDER AND DECIDED THE SAME BY HOLDING AS UNDER:- 3.3.2 DETERMINATION: (I) I HAVE DULY CONSIDERED THE ASSESSMENT ORDER, SU BMISSIONS OF THE APPELLANT AND THE MATERIAL PLACED ON RECORD. DURING THE YEAR UNDER CONSIDERATION THE APPELLANT COMPANY RECEIVED A SUM OF RS. 36,85,000/- FROM M/S RATAN PAPERS PVT. LTD. AS PER THE FOLLOWIN G DETAILS: DATE AMOUNT (IN RS.) 08.01.2010 20,00,000/ - 05.02.2010 5,50,000/ - 24.02.2010 11,35,000/ - TOTAL 36,85,000/ - ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 20 (II) THE AO HAS TREATED THE ABOVE AMOUNT OF RS. 36, 85,000/- AS DEEMED DIVIDEND U/S 2(22) (E) OF THE ACT AND MADE ADDITION TO THE INCOME OF THE APPELLANT. THE ISSUE HAS BEEN DISCUSSED FROM PARA 4 4 TO 52 ON PAGES 35 TO 42 OF THE ASSESSMENT ORDER. DURING THE ASSESSMENT P ROCEEDINGS, IT WAS THE SUBMISSION OF THE APPELLANT THAT: (A) THE ASSESSEE M/S RATON TEXTILES PVT. LTD. IS A CLOSELY HELD COMPANY AND ITS FACTORY PREMISES IS SITUATED AT 199-200, SITAPURA I NDUSTRIAL AREA JAIPUR. CERTAIN PORTION OF THE SAID PREMISES IS LET OUT BY THE ASSESSEE COMPANY TO ITS SISTER CONCERN / GROUP COMPANY M/S RATAN PAPERS PVT. LTD. AND DURING THE YEAR MONTHLY RENT OF RS. 10,000/- WAS CHARGED I N CONSIDERATION OF TENANCY RIGHTS GIVEN. DURING THE YEAR ASSESSEE COMP ANY OBTAINED FROM M/S RATAN PAPERS PVT. LTD. SUM OF RS. 36,85,000/- BY WA Y OF SECURITY DEPOSITS FOR PROVIDING THE TENANCY RIGHTS IN THE FACTORY PRE MISES AND FOR ALLOWING THE FACILITY OF MORTGAGING ITS IMMOVABLE ASSETS. (B) THE THREE SHARE HOLDERS, HAVING THE SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY, ARE THE DIRECTORS IN M/S RATAN PAPERS PVT. LTD. (C) THE TENANT I.E. M/S RATAN PAPER PVT. LTD. IS E NJOYING BOTH FUND BASED AND NON FUND BASED BANK LIMITS FROM INDIAN BANK MLA. RO AD BRANCH, JAIPUR. THE ASSESSEE COMPANY PERMITTED ITS IMMOVABLE PROPERTY ( OF VALUE RS. 6.00 CRORES APPROX) TO BE MORTGAGED TO THE BANK AS COLLA TERAL SECURITY FOR ENABLING M/S RATAN PAPERS PVT. LTD. TO TAKE THE BEN EFIT OF BANK LIMITS. FURTHER THE ASSESSEE ALSO PROVIDED THE CORPORATE GU ARANTEE TO THE BANK TO ENABLE M/S RATAN PAPERS PVT. LTD. TO ENJOY THE BANK LIMIT FACILITY. IN THE COURSE OF SURVEY PROCEEDINGS THE SUM OF RS. 36,85,000/- GIVEN AS SECURITY DEPOSITS BY M/S RATAN PAPERS PVT. LTD. TO THE ASSESSEE COMPANY WAS TREATED AS DEEMED DIVIDEND U/S 2(22) (E), BUT T HE CIRCUMSTANCES AND NATURE OF TRANSACTION EXPLAINED ABOVE DOES NOT COME WITHIN THE PURVIEW OF SECTION 2(22) BECAUSE THE PHRASE BY WAY OF ADVANCE OR LOAN' APPEARING IN SUB-CLAUSE (E) OF SECTION 2(22) OF THE I.T. ACT, 19 61, MUST BE CONSTRUED TO MEAN THOSE ADVANCES OR LOANS WHICH A SHAREHOLDER OR ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WH ICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS REPLY REFER RED TO AS THE SAID CONCERN), ENJOYS SIMPLY ON ACCOUNT OF BEING A PERSON WHO IS T HE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER; BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER OR ANY CONCERN IN WHICH SUCH SHAREHOLDE R IS A MEMBER OR A ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 21 PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO THE CO MPANY RECEIVED FROM SUCH A SHARE-HOLDER OR SAID CONCERN, IN SUCH CASE, SUCH ADVANCE OR LOAN CANNOT BE SAID TO BE DEEMED DIVIDEND WITHIN THE MEA NING OF THE ACT. THUS, GRATUITIONS LOAN OR ADVANCE GIVEN BY A COMPANY TO T HOSE CLASSES OF SHAREHOLDERS OR ANY CONCERN IN WHICH SUCH SHAREHOLD ER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST WOULD COME WITHIN THE PURVIEW OF SECTION 2(22) BUT NOT CASES WHERE THE SECURITY DEPOSITS OFFERED BY TENANT IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON TH E COMPANY BY SUCH SHAREHOLDER OR ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEM BER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. THE ASSESSEE M/S RATAN TEXTILES PVT. LTD. HAD SUBST ANTIAL INTEREST IN M/S RATAN PAPERS PVT. LTD. THROUGH ITS SHAREHOLDERS. TH E ASSESSEE PERMITTED ITS IMMOVABLE PROPERTY TO BE MORTGAGED TO THE BANK FOR ENABLING THE TENANT COMPANY (RPPL) TO TAKE THE BENEFIT OF BANK LIMITS A ND THE TENANT M/S RATAN PAPERS PVT. LTD. GIVEN THE SUM OF RS. 36,85,000/- A S SECURITY DEPOSITS FOR UTILIZING THE SPACE OF ASSESSEE AND FOR RETAINING T HE BENEFIT OF LOAN AVAILED FROM THE BANK BY MORTGAGING THE IMMOVABLE PROPERTY BELONGING TO THE ASSESSEE AND IF DECISION WAS TAKEN TO GIVE ADVANCE TO THE ASSESSEE SUCH DECISION WAS NOT TO GIVE GRATUITIONS ADVANCE TO THE ASSESSEE COMPANY BUT TO PROTECT THE BUSINESS INTEREST OF THE COMPANY. TH E SUM OF RS. 36,85,000/- COULD NOT BE TREATED AS DEEMED DIVIDEND, BECAUSE TH E ASSESSEE'S VALUABLE IMMOVABLE PROPERTY WAS MORTGAGED WITH THE BANK AS S ECURITY FOR THE LOAN FACILITY ENJOYED BY THE SAID TENANT COMPANY. WE RELY ON PRADIP KUMAR MALHOTRA V. COMMISSIONER O F INCOME-TAX [2011] 338 ITR 0538-[IN THE CALCUTTA HIGH COURT] FOR YOUR READY REFERENCE AND KIND PERUSAL WE ARE E NCLOSING THE COPY OF SANCTION LETTER DATED 20/07/2009 ISSUED BY INDIAN B ANK IN FAVOUR OF M/S RATAN PAPER PVT. LTD., DISCLOSING THE CONDITION FOR MORTGAGING THE IMMOVABLE PROPERTY OF THE ASSESSEE COMPANY, AS COLL ATERAL SECURITY. (III) THE AO HAS CONSIDERED THE ABOVE SUBMISSION OF THE A PPELLANT AND OBSERVED THAT THE THEORY OF SECURITY DEPOSIT DEVISE D BY THE APPELLANT IS NOTHING BUT AN AFTERTHOUGHT BECAUSE OF THE FOLLOWIN G: I) NO SUCH SECURITY DEPOSIT IS THERE IN THE AUDITED BA LANCE SHEET OF THE ASSESSEE COMPANY AS ON 31/03/2011. IN THE LIABILITY PART ONE IS SHARE HOLDERS FUND AND OTHER SEGMENT IS LOAN FUNDS (DIVID ED IN SECURED LOANS, UNSECURED LOANS AND DEFERRED LIABILITY). ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 22 II) AS PER THE ASSESSEE, THE PORTION TO BE LET OUT WAS FOR THE MONTHLY RENT OF RS 10,000/-. IT CANNOT BE BELIEVED THAT SECURITY DEPOS IT FOR THAT PORTION WAS RS. 36,85,000/-. THERE IS NO BASIS OF THE SO CALLED SECURITY DEPOSIT. III) ON PERUSAL OF THE LETTER DATED 20/07/2009 OF I NDIAN BANK, MOTI LAI ATAL ROAD, JAIPUR, IT IS OBSERVED THAT THIS IS WITH REGA RD TO RENEWAL OF CREDIT FACILITIES FOR M/S RATAN PAPER PVT. LTD. AND THE AS SESSEE COMPANY BOTH (AS MENTIONED UNDER THE HEAD OTHER LIABILITY OF THE GRO UP ACCOUNT M/S RTPL RENEWED ON 01.07.2009. IV) IT CANNOT BE SAID THAT M/S RATAN PAPER PVT. LTD ALONE HAD AVAILED BENEFIT OF CORPORATE GUARANTEE BY THE ASSESSEE BECAUSE THE ASS ESSEE ITSELF IS ALSO ONE OF THE BENEFICIARY OF THE BANK LIMITS. IT WAS ALSO OBSERVED BY THE AO THAT: THE ASSESSEE IS THE BENEFICIAL OWNER OF SHARES HAVI NG MORE THAN 10% OF THE VOTING POWER IN THE COMPANY, M/S RATAN PAPERS PVT. LTD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION H AS TAKEN LOAN FROM M/S RATAN PAPERS PVT. LTD, CLAIMING THE SAME AS SECURIT Y DEPOSIT. FROM THE COPY OF ACCOUNT OF THE ASSESSEE IN THE BOO KS OF M/S RATAN PAPERS PVT. LTD. IT IS APPEARING THAT THERE IS A DEBIT BAL ANCE OF RS. 36,85,000/-. (IV) IN VIEW OF THE ABOVE FACTS, THE AO INVOKED THE PROV ISIONS OF SECTION 2(22)(E) OF THE ACT AND MADE ADDITION OF RS. 36,85, 000/- TO THE INCOME OF THE APPELLANT COMPANY. (V) BEFORE PROCEEDING FURTHER, IT WOULD BE APPROPRI ATE TO MENTION THE SHARE HOLDING PATTERN OF BOTH THE COMPANIES I.E. RTPL AND RPPL AS ON 31.03.2010 AS UNDER: RATAN TEXTILES PVT. LTD. 31.03.2010 RATAN PAPERS PVT. LTD. 31.03.2010 NAME O THE SHARE HOLDER NO . OF SHARES %OF SHARE HOLDING NAME OF THE SHARE HOLDER NO OF SHARES %OF SHARE HOLDING DINESH KU. JAIN HUP 100 SAVITA JAIN 1 SAVITA JAIN 100 SUNIT JAIN 95 9.5% GAURAV JAIN 20100 24.75% SAPNA JAIN 1 POOJA JAIN 100 GAURAV JAIN 501 50.1% ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 23 VAIBHAV JAIN 3150 VAIBHAV J AIN 24 RASHMI JAIN 100 ANANT JAIN 1 ANANT JAIN 2500 NARESH KU.JAIN 1600 NARESH KU. JAIN HUF 100 RAJSHREE JAIN 100 SUNIT JAIN 20100 SAPNA JAIN 2600 TOTAL 81200 1000 (VI) DURING THE COURSE OF APPELLATE PROCEEDINGS, IT WAS SUBMITTED BY THE AR THAT RTPL WAS NOT THE SHARE HOLDER OF PAYER COMPANY I.E. RPPL RATHER THE DIRECTORS OF THE APPELLANT COMPANY ARE THE SHARE HO LDERS OF RPPL AND THE PAYMENT OF THE SECURITY DEPOSIT WAS MADE TO THE APP ELLANT COMPANY AND NOT TO ITS SHARE HOLDERS, THEREFORE, THE PROVISIONS OF SECTION 2(22) (E) IS NOT APPLICABLE TO THE APPELLANT COMPANY. RELIANCE W AS PLACED ON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CAS ES OF CIT VS HOTEL HILLTOP [2009] 313 ITR 116(RAJ) AND HONBLE ITAT, A GRA IN THE CASE OF INDIAN CASTING COMPANY VS. INCOME TAX DEPARTMENT (1 9.07.2012) IN WHICH THE ABOVE DECISION WAS FOLLOWED. (VII) IT MAY BE MENTIONED THAT THE HONBLE RAJASTHA N HIGH COURT IN THE CASE OF CIT VS HOTEL HILLTOP (SUPRA) HELD THAT: FROM READING OF SECTION 2(22)(E) IT IS CLEAR, THAT IT COMPREHENDS MANIFOLD REQUIREMENTS, THE FIRST BEING, THE PAYMENT SHOULD B E MADE BY WAY OF LOAN OR ADVANCE, TO THE CONCERN. OF COURSE ON THIS ASPEC T, THE CONCLUSION HAS BEEN RECORDED BY THE TRIBUNAL AGAINST THE REVENUE, BUT THEN ON BARE READING OF THE AGREEMENT AND CONSIDERING THE TOTALI TY OF CIRCUMSTANCES, INCLUDING THE VERY NATURE OF THE TERM 'SECURITY', A ND THE FACT, THAT SUBSTANTIAL PORTION OF THIS RS. 10 LAKHS OF AMOUNT SAY MORE THAN 9 LAKHS, HAVE BEEN ADVANCED ONLY DURING 7-1-91 TO 22-3-91, I T IS DIFFICULT TO ACCEPT, IT AS A SECURITY, IN THE SENSE OF THE TERM, AS COMPREH ENDED IN THE AGREEMENT, RATHER IT CLEARLY APPEARS TO BE SIMPLY A NOMENCLATU RE USED, TO BORROW THE WORDS OF THE ASSESSING OFFICER 'TRANSPARENT COVER'. [PARA 7] ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 24 THE MORE IMPORTANT ASPECT, BEING THE REQUIREMENT O F SECTION 2(22) (E) IS, THAT 'THE PAYMENT MAY BE MADE TO ANY CONCERN, IN WH ICH SUCH SHAREHOLDER IS A MEMBER, OR THE PARTNER, AND IN WHICH HE AS SUB STANTIAL INTEREST, OR ANY PAYMENT BY ANY SUCH COMPANY, ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDERS THUS, THE SUBSTANCE OF THE RE QUIREMENT IS, THAT THE PAYMENT SHOULD BE MADE ON BEHALF OF, OR FOR THE IND IVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER. OBVIOUSLY, THE PROVISION IS INTEN DED TO ATTRACT THE LIABILITY OF TAX ON THE PERSON, ON WHOSE BEHALF, OR FOR WHOSE INDIVIDUAL BENEFIT, THE AMOUNT IS PAID BY THE COMPANY, WHETHER TO THE SHARE HOLDER, OR TO THE CONCERN FIRM, IN WHICH EVENT IF WOULD FALL WITHIN T HE EXPRESSION 'DEEMED DIVIDEND'. OBVIOUSLY, INCOME FROM DIVIDEND, IS FAXA BLE AS INCOME FROM OF HER SOURCES, UNDER SECTION 56, AND IN THE VERY NATU RE OF THINGS, THE INCOME HAS TO BE, OF THE PERSON EARNING THE INCOME. THE ASSESSEE IN THE INSTANT CASE IS NOT SHOWN TO BE ONE OF THE PERSONS, BEING S HAREHOLDER. OF COURSE THE TWO INDIVIDUALS BEING PARTNERS OF THE ASSESSEE- FIRM ARE THE COMMON PERSONS, HOLDING MORE THAN REQUISITE AMOUNT OF SHAR EHOLDING, AND ARE HAVING REQUISITE INTEREST, IN THE FIRM, BUT THEN, T HEREBY THE DEEMED DIVIDEND WOULD NOT BE DEEMED DIVIDEND IN THE HANDS OF THE FIRM, RATHER IT WOULD OBVIOUSLY BE DEEMED DIVIDEND IN THE HANDS OF THE INDIVIDUALS, ON WHOSE BEHALF, OR ON WHOSE INDIVIDUAL BENEFIT, BEING SUCH SHAREHOLDER, THE AMOUNT IS PAID BY THE COMPANY TO THE CONCERN. [PARA 8] THUS, THE SIGNIFICANT REQUIREMENT OF SECTION 2(22) (E) IS NOT SHOWN TO EXIST. THE LIABILITY OF TAX, AS DEEMED DIVIDEND, COULD BE ATTRACTED IN THE HANDS OF THE INDIVIDUALS, BEING THE SHAREHOLDERS, AND NOT IN THE HANDS OF THE FIRM. [PARA 9' (VIII) FURTHER, IN THE CASE OF CIT VS SURAM HOLDINGS P LTD [2014] 41 TAXMANN.COM, THE HONBLE RAJASTHAN HIGH COURT HAS F OLLOWED ITS EARLIER DECISION IN THE CASE OF CIT VS. HOTEL HILLTOP (SUPR A). IT WOULD BE APPROPRIATE TO REPRODUCE HEREUNDER THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. SURAM HOLDINGS PVT. LTD. (SUPRA) AS UNDER: 1. INSTANT APPEAL HAS BEEN FILED BY THE REVENUE AGAINS T THE ORDER OF ITAT DT. 19-3-2010 WHICH IS PRIMARILY BASED ON THE JUDGMENT OF THIS COURT IN CIT V. HOTEL HILLTOP [2009] 313 ITR 116/[2012] 205 TAXMAN 91/18 TAXMAN.COM 308 DECIDED ON 17-3-2008. 2. IT HAS BEEN ALLEGED BY THE REVENUE THAT THE ASSE SSEE DERIVES INCOME FROM TRADING OF SHARES AND DURING THE COURSE OF ASSESSME NT PROCEEDINGS IT WAS ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 25 REVEALED THAT THE ASSESSEE HAS RECEIVED A SUM OF RS .23.00 LACS FROM M/S. JAPANWALA JEWELLERS (P.) LTD., JAIPUR ON THE GROUND THAT IT WAS TOWARDS SHARE APPLICATION MONEY. THE ASSESSING AUTHORITY AF TER TAKING NOTE OF SEC. 2(22) (E) AND AVAILABLE RECORDS OBSERVED THAT THE S HARE APPLICATION MONEY OF RS. 23.00 LACS RECEIVED BY THE ASSESSEE COMPANY IS IN THE NATURE OF UNSECURED LOAN AND FURTHER HELD TO BE THE DEEMED DI VIDEND IN THE HANDS OF ASSESSEE COMPANY AS PER PROVISIONS OF SEC. 2(22] (E ] OF IT ACT, 1961 AND SUCH DEEMED DIVIDEND WAS CONSIDERED AS INCOME IN TH E HANDS OF THE ASSESSEE. HOWEVER, AGAINST THE ORDER OF ASSESSING A UTHORITY, APPEAL CAME TO BE PREFERRED BEFORE THE COMMISSIONER OF INCOME-T AX APPEALS (I), JAIPUR AND THE QUESTION WAS AS TO WHETHER HOLDING SHARE AP PLICATION MONEY OF RS. 23.00 LACS RECEIVED FROM M/S. JAPANWALA JEWELERS (P ) LTD. CAN BE CONSIDERED AS UNSECURED LOAN AND THEREBY CONSIDERED AS DEEMED DIVIDEND U/S. 2(22) (EJ OF THE ACT. HOWEVER, THE APPELLATE A UTHORITY TAKING NOTE OF THE JUDGMENT OF THIS COURT IN HOTEL HILLTOP CASE (S UPRA) OBSERVED THAT DEEMED INCOME CANNOT BE TAXED IN THE HANDS OF NON-S HAREHOLDERS NAMELY THE CONCERN. AS THE CONCERN CAN NEVER RECEIVE DIVID END FROM THE COMPANY, AS DIVIDEND IS PAID ONLY TO THE SHAREHOLDERS, BENEF IT OF SET OFF AS PER SECTION 2 (22) (E)(III) CANNOT BE ALLOWED TO THE CONCERN AN D FURTHER OBSERVED THAT SUBSTANCE OF THE REQUIREMENTS OF PROVISIONS OF THE ACT IS THAT THE PAYMENT SHOULD BE MADE ON BEHALF OF OR FOR ANY INDIVIDUAL B ENEFIT OF ANY SUCH SHAREHOLDERS AND FURTHER OBSERVED THAT THE PROCEEDI NGS WHICH HAVE BEEN INITIATED AGAINST THE PERSON /SHAREHOLDER FOR WHOSE INDIVIDUAL BENEFIT THE AMOUNT WAS PAID BY THE COMPANY AND DEEMED INCOME IS TAXABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND ACCORDINGLY IT SHOULD BE TAXED IN THE CASE OF THE INDIVIDUAL AND THE ASSESSEE BEING NOT A SHAREHOLDER IS NOT ONE OF THE PERSONS AND SHRI RAMSHARAN GUPTA IS BENEFICI ARY SHAREHOLDER HAVING REQUISITE INTEREST IN THE ASSESSEE COMPANY AS WELL AS OTHER CONCERN AND ACCORDINGLY SUCH DEEMED DIVIDEND SHOULD HAVE BEEN C ONSIDERED IN THE HANDS OF THE INDIVIDUAL RAMSHARAN GUPTA AND NOT IN THE HANDS OF THE ASSESSEE COMPANY. 3. AGAINST THE ORDER OF COMMISSIONER OF APPEALS, TH E REVENUE PREFERRED APPEAL BEFORE THE ITAT AND PLACING RELIANCE ON THE JUDGMENT REFERRED TO SUPRA THE TRIBUNAL WAS ALSO OF THE VIEW THAT LIABIL ITY OF TAX AS DEEMED DIVIDEND WOULD BE ATTRACTED IN THE HANDS OF THE IND IVIDUALS BEING SHAREHOLDERS AND NOT IN THE HANDS OF THE FIRM AND T HIS WAS NOT THE CASE OF THE REVENUE THAT ASSESSEE COMPANY WAS A REGISTERED SHAREHOLDER OF M/S. JAPANWALA JEWELERS (P.) LTD. AND TAKING NOTE THEREO F, DISMISSED THE APPEAL OF THE REVENUE. ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 26 4. WE HAVE HEARD THE APPELLANT AT LENGTH AND IN OUR CONSI DERED VIEW FROM THE SUBMISSION MADE IN OUR OPINION, NO SUBSTANTIAL QUES TION OF LOW EMERGES FOR CONSIDERATION IN THE INSTANT APPEAL WHICH MAY R EQUIRE INTERFERENCE BY THIS COURT. 5. CONSEQUENTLY, THE APPEAL BEING DEVOID OF MERIT I S HEREBY DISMISSED. (IX) IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FO LLOWING THE DECISIONS OF JURISDICTIONAL HIGH COURT IN THE ABOVE REFERRED CAS ES, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN TREATING THE SUM OF RS. 36,85, 000/- AS DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT COMPANY AS T HE APPELLANT COMPANY IS NOT THE REGISTERED OWNER OF SHARES OF RPPL. THER EFORE, THE ADDITION OF RS. 36,85,000/- MADE BY THE AO U/S 2(22) (E) OF THE ACT IS HEREBY DELETED. IT WAS CONTENDED BEFORE THE LD. CIT(A) THAT THE ASSE SSEE COMPANY WAS NOT THE SHARE HOLDER OF THE BARE COMPANY RATHER THE DIR ECTORS OF THE APPELLANT COMPANY ARE THE SHARE HOLDERS OF THE RPPL AND THE P AYMENT OF THE SECURITY DEPOSIT ARE MADE TO THE APPELLANT COMPANY AND NOT TO SHARE HOLDERS. THEREFORE, THE PROVISIONS OF SECTION 2(22)( E) OF THE ACT IS NOT APPLICABLE TO THE APPELLANT COMPANY. IN THIS REGARD , RELIANCE IS PLACED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. HOTEL HILLTOP (SUPRA), WHEREIN THE HON'BLE HIGH COUR T HAS HELD AS UNDER:- FROM READING OF SECTION 2(22)(E) IT IS CLEAR, THAT IT COMPREHENDS MANIFOLD REQUIREMENTS, THE FIRST BEING, THE PAYMENT SHOULD B E MADE BY WAY OF LOAN OR ADVANCE, TO THE CONCERN. OF COURSE ON THIS ASPEC T, THE CONCLUSION HAS BEEN RECORDED BY THE TRIBUNAL AGAINST THE REVENUE, BUT THEN ON BARE READING OF THE AGREEMENT AND CONSIDERING THE TOTALI TY OF CIRCUMSTANCES, INCLUDING THE VERY NATURE OF THE TERM 'SECURITY', A ND THE FACT, THAT SUBSTANTIAL PORTION OF THIS RS. 10 LAKHS OF AMOUNT SAY MORE THAN 9 LAKHS, HAVE BEEN ADVANCED ONLY DURING 7-1-91 TO 22-3-91, I T IS DIFFICULT TO ACCEPT, IT AS A SECURITY, IN THE SENSE OF THE TERM, AS COMPREH ENDED IN THE AGREEMENT, ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 27 RATHER IT CLEARLY APPEARS TO BE SIMPLY A NOMENCLATU RE USED, TO BORROW THE WORDS OF THE ASSESSING OFFICER 'TRANSPARENT COVER'. [PARA 7] THE MORE IMPORTANT ASPECT, BEING THE REQUIREMENT O F SECTION 2(22) (E) IS, THAT 'THE PAYMENT MAY BE MADE TO ANY CONCERN, IN WH ICH SUCH SHAREHOLDER IS A MEMBER, OR THE PARTNER, AND IN WHICH HE AS SUB STANTIAL INTEREST, OR ANY PAYMENT BY ANY SUCH COMPANY, ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDERS THUS, THE SUBSTANCE OF THE RE QUIREMENT IS, THAT THE PAYMENT SHOULD BE MADE ON BEHALF OF, OR FOR THE IND IVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER. OBVIOUSLY, THE PROVISION IS INTEN DED TO ATTRACT THE LIABILITY OF TAX ON THE PERSON, ON WHOSE BEHALF, OR FOR WHOSE INDIVIDUAL BENEFIT, THE AMOUNT IS PAID BY THE COMPANY, WHETHER TO THE SHARE HOLDER, OR TO THE CONCERN FIRM, IN WHICH EVENT IF WOULD FALL WITHIN T HE EXPRESSION 'DEEMED DIVIDEND'. OBVIOUSLY, INCOME FROM DIVIDEND, IS FAXA BLE AS INCOME FROM OF HER SOURCES, UNDER SECTION 56, AND IN THE VERY NATU RE OF THINGS, THE INCOME HAS TO BE, OF THE PERSON EARNING THE INCOME. THE ASSESSEE IN THE INSTANT CASE IS NOT SHOWN TO BE ONE OF THE PERSONS, BEING S HAREHOLDER. OF COURSE THE TWO INDIVIDUALS BEING PARTNERS OF THE ASSESSEE- FIRM ARE THE COMMON PERSONS, HOLDING MORE THAN REQUISITE AMOUNT OF SHAR EHOLDING, AND ARE HAVING REQUISITE INTEREST, IN THE FIRM, BUT THEN, T HEREBY THE DEEMED DIVIDEND WOULD NOT BE DEEMED DIVIDEND IN THE HANDS OF THE FIRM, RATHER IT WOULD OBVIOUSLY BE DEEMED DIVIDEND IN THE HANDS OF THE INDIVIDUALS, ON WHOSE BEHALF, OR ON WHOSE INDIVIDUAL BENEFIT, BEING SUCH SHAREHOLDER, THE AMOUNT IS PAID BY THE COMPANY TO THE CONCERN. [PARA 8] THUS, THE SIGNIFICANT REQUIREMENT OF SECTION 2(22) (E) IS NOT SHOWN TO EXIST. THE LIABILITY OF TAX, AS DEEMED DIVIDEND, COULD BE ATTRACTED IN THE HANDS OF THE INDIVIDUALS, BEING THE SHAREHOLDERS, AND NOT IN THE HANDS OF THE FIRM. [PARA 9' WE FIND THAT THE LD. CIT(A) HAS RIGHTLY FOLLOWED THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT. THE REVENUE HAS NOT PLACE D ANY CONTRARY MATERIAL BEFORE THIS BENCH, THEREFORE, WE SUSTAIN THE ORDER O F THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE REVENUES GROUND OF APPEAL. H ENCE, THE REVENUES APPEAL IN ITA NO. 595/JP/2016 IS DISMISSED. ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 28 19. NOW WE TAKE ITA NO. 528/JP/2016 FILED BY THE ASSE SSEE AND ITA NO. 596/JP/2016 FILED BY THE REVENUE PERTAINING TO THE ASSESSMENT YEAR 2011- 12. IN BOTH THE APPEALS, THE ASSESSEE AND THE REVEN UE HAVE TAKEN FOLLOWING GROUNDS OF APPEAL: GROUNDS OF ASSESSEES APPEAL IN ITA NO. 528/JP/20 16. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ADDIT ION MADE IN THE ASSESSMENT COMPLETED U/S 143(3) SOLELY ON THE BASIS OF STATEMENTS RECORDED DURING THE COURSE OF SURVEY WHICH STOOD RETRACTED BY THE ASSESSEE THROUGH AN AFFIDAVIT FILED BY ITS DIRECTOR. THUS, THE ADDITI ONS MADE SOLELY ON THE BASIS OF SUCH RETRACTED STATEMEN TS DESERVE TO BE DELETED. 1.1 THAT, THE LD. AO HAS FURTHER ERRED IN NOT ACCEP TING THE AFFIDAVIT GIVEN BY THE DIRECTOR OF THE ASSESSEE COM PANY WITHOUT ANY BASIS AND WITH THE SOLE PURPOSE TO MAKE ADDITIONS WITHOUT BRINING ON RECORD ANY CORROBORATIV E MATERIAL FOUND DURING THE COURSE OF SURVEY OR DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, AND ALSO BY COMPLETELY IGNORING THE WELL ESTABLISHED LAW THAT NO ADDITION CAN BE MADE SOLELY ON THE BASIS OF STATEME NTS RECORDED ON OATH DURING THE COURSE OF SURVEY CONDUCTED U/S 133A OF THE ACT, WHEN THE ASSESSEE EXTENDED FULL COOPERATION. THUS, THE ASSESSMENT ORDE R DESERVES TO BE HELD BAD IN LAW AND THE ADDITIONS MAD E THEREUNDER DESERVE TO BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE APPLICATION OF PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACT ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 29 THAT THE LD. AO HAD MISERABLY FAILED TO POINT OUT A NY MATERIAL DEFECT IN THE BOOKS OF ACCOUNT OF ASSESSEE . THUS, THE ACTION OF LD. AO IN REJECTING THE BOOKS OF ACCOUNT OF ASSESSEE U/S 145(3) DESERVES TO BE HELD BAD IN LAW. 2.1 THAT, THE LD. AO AND THE LD. CIT(A) HAS FURTHER ERRED IN REJECTING THE BOOKS OF ACCOUNT OF ASSESSEE U/S 145(3) SOLELY ON THE BASIS OF THE ALLEGATION THAT T HE JOB WORK CHARGES AND STIPEND PAID BY ASSESSEE ARE UNVERIFIABLE/UNJUSTIFIED BY COMPLETELY IGNORING THE SUBMISSIONS MADE AND EVIDENCES ADDUCED IN ORDER TO ESTABLISH THE GENUINENESS OF THE EXPENSES INCURRED BY THE ASSESSEE. THUS THE LD. AO HAS FAILED TO REACH T HE SATISFACTION THAT TRUE PROFITS CANNOT BE DEDUCED FR OM THE BOOKS OF ACCOUNT OF ASSESSEE, HENCE THE ACTION OF LD. AO IN INVOKING THE PROVISIONS OF SECTION 145(3) DESERVES TO BE HELD BAD IN LAW. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS GROSSLY ERRED IN MAKING LUMP SUM TRADING ADDITION OF RS. 30,00,000/- WITHOUT ANY BASI S AND WITHOUT ESTABLISHING AS TO HOW THE TRADING RESULT S DECLARED BY THE ASSESSEE ARE NOT TRUE AND CORRECT. THUS, THE TRADING ADDITION OF RS. 30,00,000/- DESERV ES TO BE DELETED. 3.1 THAT, THE LD. AO AND LD. CIT(A) HAVE FURTHER ERR ED IN HOLDING THAT THE JOB WORK CHARGES PAID TO M/S KALPAN A HANDICRAFT AND M/S KALPANA IMPEX ARE BOGUS AND UNVERIFIABLE (THOUGH NO SEPARATE ADDITION MADE ON T HIS ACCOUNT) WHEN ALL THE NECESSARY DETAILS REGARDING RENDERING OF SERVICES BY THESE PARTIES WERE SUBMITTE D, THUS THE JOB CHARGES PAID TO THESE CONCERN DESERVES TO BE TREATED AS GENUINE AND THE OBSERVATION OF LD. AO TREATING THE AFORESAID PAYMENT AS NON-GENUINE / UNVERIFIABLE DESERVES TO BE IGNORED AND EXCLUDED AN D ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 30 THE ADDITION MADE BASED ON SUCH CONCLUSION DESERVES TO BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS FURTHER ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 6,23,627/- BEING 20% OF THE STIPEND EXPENSES CLAIMED BY ASSESSEE OUT OF THE TOT AL DISALLOWANCE OF RS. 23,38,603/- MADE BY LD. AO BEING 75% OF THE STIPEND EXPENSES CLAIMED AT RS. 31,18,137/-, WITHOUT ANY BASIS AND WITHOUT CONSIDERIN G THE SUBMISSIONS MADE BY ASSESSEE AND THE EVIDENCES ADDUCED IN SUPPORT OF THE GENUINENESS OF THE EXPENS ES CLAIMED BY ASSESSEE. THUS, THE DISALLOWANCE OF RS. 6,23,627/- SUSTAINED BY THE LD. CIT(A) DESERVES TO BE DELETED. 4.1 WITHOUT PREJUDICE TO GROUND OF APPEAL NO. 01 T O 04 AND IN THE ALTERNATIVE, THE LD. CIT(A) HAS GROSSLY E RRED IN CONFIRMING FURTHER DISALLOWANCE OF RS. 6,23,627/- OUT OF THE STIPEND EXPENSES WHEN THE TRADING RESULTS ARE NOT ACCEPTED AND THE PROVISIONS OF SECTION 145(3) A RE INVOKED. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING THE ADDI TION OF RS. 45,795/- MADE BY THE LD. AO U/S 14A OF THE INCOME TAX ACT, 1961 WITHOUT RECORDING ANY SATISFACTION INASMUCH AS NO SHOW CAUSE NOTICE WAS ISSUED, THEREBY DENYING THE OPPORTUNITY OF BEING HE ARD ON THIS ISSUE. THUS, THE ACTION OF THE LD. A.O. AND LD. CIT(A) DESERVES TO BE HELD BAD IN LAW AND THE ADDITIO N SO MADE DESERVES TO BE DELETED GROUNDS OF REVENUES APPEAL IN ITA NO. 596/JP/201 6. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN RESTRICTING THE ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 31 DISALLOWANCE OF STIPEND EXPENSES @ 20% AS AGAINST 75% APPLIED BY THE A.O. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT. 20. SINCE THE PARTIES HAVE ADOPTED THE SAME ARGUMEN TS AS MADE IN ITA NO. 527/JP/2016 AND 595/JP/2016 REGARDING ASSESSEE S APPEAL GROUND NO. 1 TO 4.1 AND BOTH THE GROUNDS OF THE REVENUES APPE AL BEING IDENTICAL GROUNDS. WE HAVE DECIDED THE IDENTICAL GROUNDS BY O BSERVING AS UNDER:- 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT STATEMENTS RECO RDED DURING THE COURSE OF SURVEY HAS NO EVIDENTIARY VALUE. SUCH STA TEMENTS IF RETRACTED BY THE ASSESSEE WOULD SHIFT THE ONUS ON T HE ASSESSING OFFICER TO PROVE THE CONTENTS OF THE STATEMENT AS C ORRECT BY PLACING MATERIAL CORROBORATING THE CORRECTNESS OF SUCH STAT EMENTS ON RECORD. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS BASED HIS FINDINGS SOLELY ON THE BASIS OF THE CONTENTS OF THE STATEMENT RECORDED DURING THE COURSE OF SURVEY. NO OTHER MATE RIAL IS GATHERED SUGGESTING THAT THE STATEMENTS WERE NOT CORRECT. AS PER THE ASSESSEE, ONE OF THE FIRM M/S KALPANA IMPEX IS REGI STERED WITH ESI AND DEDUCTING CONTRIBUTION AND DEPOSITING THE SAME TO THE CONCERNED AUTHORITY. THE ASSESSING OFFICER WAS REQU IRED TO MAKE INQUIRY ON THESE CONTENTS MERELY BECAUSE THE STATEM ENT IS RECORDED DURING THE COURSE OF SURVEY AND SUCH STATEMENTS STA TED A FACT WHICH IS REQUIRED TO BE FURTHER CORROBORATED WITH A PLAUSIBLE EVIDENCE. WE FIND THAT THE ASSESSEE HAS ENCLOSED DE TAILS OF ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 32 CONTRACTORS FROM WHOM IT HAD GOT THE WORK DONE AT P AGE 9 OF THE PAPER BOOK. A LETTER ADDRESSED TO THE REGISTERING A UTHORITY UNDER THE CONTRACT LABOUR ACT IS ENCLOSED, WHICH WAS RECE IVED BY THE CONCERNED DEPARTMENT ON 26/1/2011. AT PAGE NO. 7 OF PAPER BOOK, A REGISTRATION CERTIFICATE DATED 09/9/2005 IS ENCLO SED, WHICH INCLUDES NAME OF SMT. KALPANA JAIN. THESE DETAILS D EMONSTRATE THAT PROPRIETOR OF M/S KALPANA IMPEX WAS REGISTERED WITH CONCERNED AUTHORITY OF LABOUR DEPARTMENT FOR THE PURPOSE OF S TITCHING. FROM THE RECORDS, AS MADE AVAILABLE, IT IS TRANSPIRED TH AT THE ASSESSEE WAS ENGAGING PERSONS ON CONTRACT FOR ITS WORK. ON T HIS ASPECT, NO INQUIRY WAS MADE BY THE ASSESSING OFFICER. IN OUR C ONSIDERED VIEW, THE ASSESSING OFFICER OUGHT NOT TO HAVE BASED THE A SSESSMENT SOLELY ON THE STATEMENTS RECORDED DURING THE COURSE OF SURVEY, HE SHOULD HAVE BROUGHT MATERIAL SUGGESTING THAT NO JOB WORK WAS DONE BY THE SAID FIRMS. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT, UDAIPUR VS. SHRI ROSHAN LAL LODHA IN I .T. APPEAL NO. 185/2014 ORDER DATED 03/11/2015 HAS HELD AS UNDER:- IN THE CASE AFORESAID, HON'BLE APEX COURT HELD THA T SECTION 133-A OF THE INCOME TAX ACT DOES NOT EMPOWER INCOME TAX OFFICER TO EXAMINE ANY PERSON ON OATH; HENCE, THE STATEMENT RECORDED UNDER SECTIO N 133-A HAS NO EVIDENTIARY VALUE AND ANY ADMISSION MADE DURING SUC H STATEMENT CANNOT BE MADE BASIS OF ADDITION. THE APPEAL PREFERRED BY THE REVENUE BEFORE THE INCO ME TAX APPELLATE TRIBUNAL CAME LO BE DISMISSED BY THE JUDGMENT IMPUGNED. LEARNED COUNSEL APPEARING ON BEHALF OF THE APPELLAN T SUBMITS THAT THE ASSESSEE IN THE INSTANT MATTER DID NOT RETRACT FROM HIS STATEMENT, THEREFORE, THE LAW LAID DOWN IN THE CASE OF S. KHADER KHAN SON (SUPRA) IS NOT APPLICABLE. WE DO NOT FIND ANY MERIT IN THE ARGUMENT ADVANCED. THE ASSESSEE FILED AN APPEAL BEFORE THE [3] COMMISSIONER, INCOME TAX (APP EALS), WITH SPECIFIC ASSERTION THAT THE STATEMENT MADE BY HIM WOULD HAVE NOT BEEN ACCEPTED TO MAKE ANY ADDITION AND THEREFORE, HIS DENIAL IS APPA RENT. ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 33 IN VIEW OF IT, THE ORDERS PASSED BY THE COMMISSIONE R, INCOME TAX (APPEALS) AND THE INCOME TAX APPELLATE TRIBUNAL DO NOT SUFFER FROM ANY WRONG. THE APPEAL IS HAVING NO SUBSTANTIAL QUESTION OF LAW. HE NCE, THE SAME IS DISMISSED. IF WE APPLY THE RATIO OF THE JUDGMENT OF THE HONBL E APEX COURT RENDERED IN THE CASE OF CIT VS. S.KHADER KHAN SON ( SUPRA) ON THE FACTS OF THE PRESENT CASE, THE AUTHORITIES BELOW WE RE NO JUSTIFIED IN MAKING THE ADDITION ON THE BASIS OF THE STATEMENT R ECORDED DURING THE COURSE OF SURVEY. NO OTHER MATERIAL SUGGESTING THAT THE CLAIM OF THE ASSESSEE WAS FALSE, IS BROUGHT ON RECORD BY THE REVENUE. UNDER THESE FACTS AND IN VIEW OF THE BINDING PRECEDENT, W E ARE UNABLE TO CONFIRM THE FINDING OF THE LD. CIT(A). THEREFORE, W E DIRECT THE ASSESSING OFFICER TO DELETE THE TRADING ADDITION OF RS. 25.00 LACS. GROUNDS NO. 1 TO 3.1 OF THE ASSESSEES APPEAL ARE D ISPOSED OFF IN TERMS OF THE ABOVE. 12. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE L D. CIT(A) HAS DECIDED THE ISSUE BY OBSERVING AS UNDER:- (V) IT IS NOTED FROM THE ABOVE DETAILS THAT DURING THE COURSE OF SURVEY U/S 133A OF THE ACT, SHRI NARESH JAIN, THE DIRECTOR OF THE APPELLANT COMPANY SURRENDERED A SUM OF RS. 50 LAC, OUT OF TOTAL EXPEN DITURE OF RS. 95,41,465/- CLAIMED BY THE APPELLANT FROM FY 2006-0 7 TO 2009-10 AS PER FOLLOWING DETAILS: F.Y. AMOUNT 2006-07 RS. 10,55,585/- 2007-08 RS. 27,37,958/- 2008-09 RS. 30,85,592/- 2009-10 RS. 26,66,320/- TOTAL RS. 95,41,465/- (VI) HOWEVER, SUBSEQUENTLY, THE SAID SURRENDER WAS RETRACTED BY THE APPELLANT. IT IS NOTED FROM THE ASSESSMENT ORDER TH AT THE AO RELIED HEAVILY ON THE STATEMENTS OF SHRI NARESH JAIN AND S HRI BUNKAR RECORDED DURING THE COURSE OF SURVEY U/S 133A OF THE ACT. TH E AO DISALLOWED 75% ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 34 OF THE STIPEND EXPENDITURE CLAIMED BY THE APPELLANT AGAINST APPROXIMATELY 50% SURRENDERED DURING SURVEY ON THE BASIS OF FOLLOWING ADDITIONAL FINDINGS: THE PAYMENTS WERE MADE IN CASH AND NO PF/ESI HAS BE EN DEDUCTED WHILE MAKING SUCH PAYMENTS. THERE IS NO BASIS OF DETERMINING MINIMUM OR MAXIMUM AMOUNT OF STIPEND. VARIOUS DISCREPANCIES ARE NOTICED IN THE SALARY/WAG ES SHEETS. OUT OF LIST OF 147 TRAINEES SUBMITTED BY THE APPELL ANT, THE AO NOTED THAT 50% OF THE MOBILE NUMBERS WERE EITHER WRONG OR INCORRECT OUT OF THE 10 TRAINEES REQUIRED BY THE AO TO PRODUC E (WHO WERE WORKING DURING DIFFERENT PERIODS), ONLY 3 WERE PROD UCED BEFORE THE AO. (VII) IT IS NOTED THAT THE AO HAS JUST IGNORED THE VARIOUS DOCUMENTARY EVIDENCES FILED BY THE APPELLANT INCLUDING THE ATTE NDANCE SHEETS OF THE TRAINEES, RETRACTION BY SHRI NARESH KUMAR JAIN, COP IES OF THE COMPLETE SET OF APPOINTMENT DOCUMENTS OF EACH TRAINEE CONSISTING OF APPLICATIONS MADE BY THE INDIVIDUALS FOR BEING APPOINTED AS TRAI NEE IN THE APPELLANT, ALONG WITH HIS BIO DATA, QUALIFICATION , ADDRESS / IDENTITY VERIFICATION , AND THE APPOINTMENT LETTER ISSUED BY THE APPELLANT MENT IONING THEREIN THE DATE OF JOINING, INITIAL SALARY AND JOB DETAILS, AT TENDANCE REGISTER, SHOWING THE DAILY ATTENDANCE OF EACH TRAINEE ALONG WITH FAC TORY IN AND OUT TIME , ON THE BASIS OF WHICH MONTHLY STIPEND PAYMENT IS DO NE, ALONG WITH COPY OF ENTRY CARD OF EACH TRAINEE. COPY OF MONTHLY STIP END PAYMENT SHEET, DULY REFLECTING THE AMOUNT PAID TO EACH TRAINEE COM PUTED ON THE BASIS OF HIS AGREED STIPEND RATE, NUMBER OF DAYS WORKED ETC, ALONG WITH RECEIPTS OF EACH TRAINEE THEREON. THE AO HAS ALSO IGNORED TH E FACT THAT THE APPLICABILITY OF ESI / PF LAW WAS NOT MANDATORY UP TO JUNE-2010 ON THE PAYMENT MADE TO STIPEND TRAINEES. THE INSPECTION RE PORT OF ESI OFFICIALS REVEAL THAT NO SUCH DISCREPANCY WAS REPORTED BY THE PF / ESI DEPARTMENT OFFICIALS. FURTHER, THE INCORRECT MOBILE NUMBERS AN D INABILITY OF THE APPELLANT TO PRODUCE THE TRAINEES WHO HAD ALREADY L EFT THE APPELLANT AND ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 35 CASH PAYMENTS TO TRAINEES CANNOT BE THE GROUNDS FOR DISALLOWING 75% OF THE STIPEND EXPENSES CLAIMED BY THE APPELLANT. (VIII) IT MAY BE MENTIONED THAT IN THE CASE OF CIT VS SHRI ROSHAN LAI (SUPRA), IT HAS BEEN HELD BY THE HONBLE RAJASTHAN HIGH COURT T HAT THE STATEMENT RECORDED UNDER SECTION 133A HAS NO EVIDENTIARY VALU E AND ANY ADMISSION MADE DURING SUCH STATEMENT CANNOT BE MADE BASIS OF ADDITION. FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS S. KHADER KHAN SON [2012] 25 TAXMANN.COM 413 (SC) DISMISSED THE CIVIL APPEAL BY THE INCOME TAX DEPARTMENT AND CONFIRMED THE ORDER OF HONBLE M ADRAS HIGH COURT IN THE CASE OF CIT VS S. KHADER KHAN SON [2008] 300 IT R 157 (MAD.) WHEREIN IT WAS HELD BY THE HONBLE HIGH COURT OF MADRAS THA T: FROM THE FOREGOING DISCUSSION, THE FOLLOWING PRIN CIPLES CAN BE CULLED OUT: (I) AN ADMISSION IS AN EXTREMELY IMPORTANT PIECE O F EVIDENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE AND IT IS OPEN TO THE PERSON WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT AND THAT THE ASSESSEE SHOULD BE GIVEN A PROPER OPPORTUNITY TO SH OW THAT THE BOOKS OF ACCOUNT DO NOT CORRECTLY DISCLOSE THE CORR ECT STATE OF FACTS, VIDE DECISION OF THE APEX COURT IN PULKNGODE RUBBER PRODUCE CO. LTD. V. STATE OF KERALA [1973] 91 ITR 18; (II) IN CONTRADISTINCTION TO THE POWER UNDER SECTIO N 133A, SECTION 132(4] OF THE INCOME-TAX ACT ENABLES THE AUTHORIZED OFFICE R TO EXAMINE A PERSON ON OATH AND ANY STATEMENT MADE BY SUCH PERSO N DURING SUCH EXAMINATION CAN ALSO BE USED IN EVIDENCE UNDER THE INCOME-TAX ACT. ON THE OTHER HAND, WHATEVER STATEMENT IS RECORDED UNDE R SECTION 133A OF THE INCOME-TAX ACT IS NOT GIVEN ANY EVIDENT IARY VALUE OBVIOUSLY FOR THE REASON THAT THE OFFICER IS NOT AU THORIZED TO ADMINISTER OATH AND TO TAKE ANY SWORN STATEMENT WHI CH ALONE HAS EVIDENTIARY VALUE AS CONTEMPLATED UNDER LAW, VIDE P AUL MATHEWS AND SONS V. CIT [2003] 263 ITR 101 (KER.); (III) THE EXPRESSION 'SUCH OTHER MATERIALS OR INFOR MATION AS ARE AVAILABLE WITH THE ASSESSING OFFICER' CONTAINED IN SECTION 15 8BB OF THE INCOME-TAX ACT, 1961, WOULD INCLUDE THE MATERIALS G ATHERED DURING THE SURVEY OPERATION UNDER SECTION 133A, VIDE CIT V . G. K. SENNIAPPAN [2006] 284 ITR 220 (MAD.); ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 36 (IV) THE MATERIAL OR INFORMATION FOUND IN THE COURS E OF SURVEY PROCEEDING COULD NOT BE A BASIS FOR MAKING ANY ADDI TION IN THE BLOCK ASSESSMENT, VIDE DECISION OF THIS COURT IN T. C (A) NO. 2620 OF 2006 (BETWEEN CIT V. S. AJIT KUMAR [2008] 300 ITR 152 (M AD.); (V) FINALLY, THE WORD 'MAY' USED IN SECTION 133A(3) (HI) OF THE ACT, VIZ., 'RECORD THE STATEMENT OF ANY PERSON WHICH MAY BE US EFUL FOR, OR RELEVANT TO, ANY PROCEEDING UNDER THIS ACT', AS ALR EADY EXTRACTED ABOVE, MAKES IT CLEAR THAT THE MATERIALS COLLECTED AND THE STATEMENT RECORDED DURING THE SURVEY UNDER SECTION 133A ARE N OT CONCLUSIVE PIECE OF EVIDENCE BY ITSELF. FOR ALL THESE REASONS, PARTICULARLY, WHEN THE COMM ISSIONER AND THE TRIBUNAL FOLLOWED THE CIRCULAR OF THE CENTRAL BOARD OF DIRECT TAXES DATED MARCH 10, 2003, EXTRACTED ABOVE, FOR ARRIVING AT THE CONCLUSION THAT THE MATERIALS COLLECTED AND THE STA TEMENT, OBTAINED UNDER SECTION 133A WOULD NOT AUTOMATICALLY BIND UPO N THE ASSESSES WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF THE TRIBUNAL.' (IX) THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING 75% OF THE TRAINEE STIPEND CLAIMED BY THE APPELLANT. HOWEVER, THE DISCREPANCIES AS OBSERVED B Y THE AO - CANNOT BE TOTALLY BRUSHED ASIDE. HENCE, CONSIDERING THE TOTAL ITY OF FACTS AND CIRCUMSTANCES OF THE CASE, I THINK IT WOULD BE APPR OPRIATE TO RESTRICT THE DISALLOWANCES TO 20% INSTEAD OF 75% OF THE AMOUNT C LAIMED BY THE APPELLANT. HENCE, DISALLOWANCE OUT OF STIPEND EXPEN SES IS RESTRICTED TO RS. 5,33,266/- AGAINST RS. 19,99,747/- MADE BY THE AO. FROM THE ABOVE, IT IS EVIDENT THAT THE LD. CIT(A) H AS RESTRICTED THE DISALLOWANCE ON AD HOC BASIS. AFTER CONSIDERING THE MATERIAL PLACED BEFORE THIS TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE INSPECTION WAS CARRIED OUT BY THE ESI AND PF DEPARTM ENT, NO DISCREPANCY WAS REPORTED IN RESPECT OF RATE OF STIP END AND PAYMENT OF STIPEND. THE ASSESSING OFFICER HAS NOT PLACED AN Y MATERIAL SUGGESTING THAT THE NUMBER OF TRAINEES WAS NOT CORR ECT. MOREOVER, THE ASSESSING OFFICER HAS BASED HIS FINDING ON THE BASIS OF ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 37 PRESUMPTION THAT THE ASSESSEE IS NOT CHARITABLE INS TITUTE THAN WHY IT WOULD PROVIDE TRAINING WITH STIPEND TO THE PERSONS WHO WOULD QUIT AFTER TRAINING. THIS OBSERVATION OF THE ASSESSING O FFICER IS PURELY BASED ON THE CONJECTURE AND SURMISES, WHICH CANNOT BE THE BASIS FOR MAKING DISALLOWANCE. IF THE ASSESSING OFFICERS REASONING IS ACCEPTED, THEN IT WOULD MAKE THE ASSESSEE LIABLE FO R PROSECUTION FOR PRACTICING THE BONDED LABOUR. THEREFORE, THIS DISAL LOWANCE IS UNJUSTIFIED AND THE SAME IS HEREBY DELETED. THE FACTS ARE IDENTICAL IN THIS YEAR AS WELL AS NO CH ANGE INTO THE FACTS IS POINTED OUT BY THE REVENUE. THEREFORE, THE GROUNDS O F APPEAL ARE ALLOWED. 21. THE 5 TH GROUND OF THE ASSESSEES APPEAL IS AGAINST SUSTAIN ING THE ADDITION OF RS. 45,795/- MADE BY THE ASSESSING OFFI CER U/S 14A OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COM PANY HAD DEBITED INTEREST EXPENSES OF RS. 44,74,970/- AND HAD SHOWN D IVIDEND INCOME OF RS. 40,353/-. THE DIVIDEND INCOME WAS EXEMPTED INCOME U/S 10(34) OF THE ACT. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXP LAIN AS TO WHY DISALLOWANCE U/S 14A SHOULD NOT BE MADE ON THIS INCO ME. THE ASSESSING OFFICER OBSERVED THAT THERE CANNOT BE ANY SEPARATIO N WITH REGARD TO DAY TO DAY INVESTMENTS OUT OF THE BANK ACCOUNTS WHAT WHICH PART PERTAIN TO THE INTEREST BEARING FUNDS AND WHICH PART NOT. THEREFORE, HE DISALLOWED RS. 45,795/- U/S 14A OF THE ACT. 22. THE LD. CIT(A) SUSTAINED THE ADDITION BY HOLDING AS UNDER:- ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 38 I HAVE DULY CONSIDERED THE ASSESSMENT ORDER AND THE OTHER MATERIAL PLACED ON RECORD. THE ISSUED HAS BEEN DISCUSSED BY THE AO IN PARA 37 OF THE ASSESSMENT ORDER WHEREIN IT WAS STATED BY THE AO TH AT THE APPELLANT HAS RECEIVED DIVIDEND INCOME OF RS. 40,353/- AND IT HAS DEBITED INTEREST EXPENSES OF RS. 44,74,970/- IN ITS P&L ACCOUNT. DURING ASSES SMENT PROCEEDINGS, THE APPELLANT WAS REQUIRED TO EXPLAIN WHY DISALLOWANCES U/S 14A SHOULD NOT BE MADE ON ACCOUNT OF INCOME WHICH DO NOT FORM PART OF THE INCOME. IT WAS STATED BY THE APPELLANT THAT THE INVESTMENT WAS MAD E OUT OF NON INTEREST GIVING FUNDS AND THEREFORE, NO DISALLOWANCES CAN BE MADE. THE AO AFTER EXAMINING THE MATTER, MADE DISALLOWANCE OF RS. 45,7 95/- U/S 14A OF THE ACT. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT HAS NOT MADE ANY SUBMISSION IN THIS REGARD. THEREFORE, THE DISALLOWANCE OF RS. 45,795/- MADE BY THE ASSESSING OFFICER U/S 14A IS HEREBY SUSTAINED. HENC E, THIS GROUND OF APPEAL IS REJECTED. 23. THE LD COUNSEL OF THE ASSESSEE HAS SUBMITTED THA T THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING THE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT AND CONFIRMED THE SAME. 24. ON THE OTHER HAND, THE LD SR.DR HAS OPPOSED THE SUBMISSION AND SUBMITTED THAT THERE IS NO DISPUTE WITH REGARD TO TH E FACT THAT THE ASSESSEE HAS EARNED EXEMPT INCOME, THEREFORE, THE EXPENDITUR E RELATED TO SUCH INCOME IS NOT ALLOWABLE. MOREOVER, HE SUBMITTED THAT BEFORE THE LD. CIT(A), NO SUBMISSION WAS MADE. 25. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND ALSO GONE THRO UGH THE ORDERS OF THE ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 39 AUTHORITIES BELOW. FROM PERUSAL OF THE RECORD, IT TR ANSPIRES THAT THE ASSESSEE HAD NOT MADE ANY SUBMISSION ON THE GROUND TAKEN U/S 14A OF THE ACT BEFORE THE LD. CIT(A), THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY AFFIRMED. ACC ORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. 26. NOW WE TAKE REVENUES APPEAL IN ITA NO. 596/JP/20 16. SINCE THE PARTIES HAVE ADOPTED THE SAME ARGUMENTS AS MADE IN ITA NO. 595/JP/2016 REGARDING BOTH THE GROUNDS OF THE REVEN UES APPEAL BEING IDENTICAL GROUNDS. WE HAVE DECIDED THE IDENTICAL GR OUNDS BY OBSERVING AS UNDER:- 15. SINCE, WE HAVE DECIDED THIS ISSUE IN FAVOUR O F THE ASSESSEE BY OBSERVING AS UNDER:- FROM THE ABOVE, IT IS EVIDENT THAT THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE ON AD HOC BASIS. AFTER CONSIDERING THE MATERIAL PLACED BEFORE THIS TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE INSPECTION WAS CARRIED OUT BY THE ESI AND PF DEPART MENT, NO DISCREPANCY WAS REPORTED IN RESPECT OF RATE OF STIP END AND PAYMENT OF STIPEND. THE ASSESSING OFFICER HAS NOT PLACED ANY M ATERIAL SUGGESTING THAT THE NUMBER OF TRAINEES WAS NOT CORRECT. MOREOV ER, THE ASSESSING OFFICER HAS BASED HIS FINDING ON THE BASIS OF PRESU MPTION THAT THE ASSESSEE IS NOT CHARITABLE INSTITUTE THAN WHY IT WO ULD PROVIDE TRAINING WITH STIPEND TO THE PERSONS WHO WOULD QUIT AFTER TR AINING. THIS OBSERVATION OF THE ASSESSING OFFICER IS PURELY BASE D ON THE CONJECTURE AND SURMISES, WHICH CANNOT BE THE BASIS FOR MAKING DISALLOWANCE. IF THE ASSESSING OFFICERS REASONING IS ACCEPTED, THEN IT WOULD MAKE THE ASSESSEE LIABLE FOR PROSECUTION FOR PRACTICING THE BONDED LABOUR. THEREFORE, THIS DISALLOWANCE IS UNJUSTIFIED AND THE SAME IS HEREBY DELETED. ACCORDINGLY, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 40 18. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE LD. CIT(A) HAS ELABORATELY EXAMINED THIS ISSUE IN HIS ORDER AND DECIDED THE SA ME BY HOLDING AS UNDER:- 3.3.2 DETERMINATION: (I) I HAVE DULY CONSIDERED THE ASSESSMENT ORDER, SU BMISSIONS OF THE APPELLANT AND THE MATERIAL PLACED ON RECORD. DURING THE YEAR UNDER CONSIDERATION THE APPELLANT COMPANY RECEIVED A SUM OF RS. 36,85,000/- FROM M/S RATAN PAPERS PVT. LTD. AS PER THE FOLLOWIN G DETAILS: DATE AMOUNT (IN RS.) 08.01.2010 20,00,000/ - 05.02.2010 5,50,000/ - 24.02.2010 11,35,000/ - TOTAL 36,85,000/ - (II) THE AO HAS TREATED THE ABOVE AMOUNT OF RS. 36, 85,000/- AS DEEMED DIVIDEND U/S 2(22) (E) OF THE ACT AND MADE ADDITION TO THE INCOME OF THE APPELLANT. THE ISSUE HAS BEEN DISCUSSED FROM PARA 4 4 TO 52 ON PAGES 35 TO 42 OF THE ASSESSMENT ORDER. DURING THE ASSESSMENT P ROCEEDINGS, IT WAS THE SUBMISSION OF THE APPELLANT THAT: (A) THE ASSESSEE M/S RATON TEXTILES PVT. LTD. IS A CLOSELY HELD COMPANY AND ITS FACTORY PREMISES IS SITUATED AT 199-200, SITAPURA I NDUSTRIAL AREA JAIPUR. CERTAIN PORTION OF THE SAID PREMISES IS LET OUT BY THE ASSESSEE COMPANY TO ITS SISTER CONCERN / GROUP COMPANY M/S RATAN PAPERS PVT. LTD. AND DURING THE YEAR MONTHLY RENT OF RS. 10,000/- WAS CHARGED I N CONSIDERATION OF TENANCY RIGHTS GIVEN. DURING THE YEAR ASSESSEE COMP ANY OBTAINED FROM M/S RATAN PAPERS PVT. LTD. SUM OF RS. 36,85,000/- BY WA Y OF SECURITY DEPOSITS FOR PROVIDING THE TENANCY RIGHTS IN THE FACTORY PRE MISES AND FOR ALLOWING THE FACILITY OF MORTGAGING ITS IMMOVABLE ASSETS. (B) THE THREE SHARE HOLDERS, HAVING THE SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY, ARE THE DIRECTORS IN M/S RATAN PAPERS PVT. LTD. (C) THE TENANT I.E. M/S RATAN PAPER PVT. LTD. IS E NJOYING BOTH FUND BASED AND NON FUND BASED BANK LIMITS FROM INDIAN BANK MLA. RO AD BRANCH, JAIPUR. THE ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 41 ASSESSEE COMPANY PERMITTED ITS IMMOVABLE PROPERTY ( OF VALUE RS. 6.00 CRORES APPROX) TO BE MORTGAGED TO THE BANK AS COLLA TERAL SECURITY FOR ENABLING M/S RATAN PAPERS PVT. LTD. TO TAKE THE BEN EFIT OF BANK LIMITS. FURTHER THE ASSESSEE ALSO PROVIDED THE CORPORATE GU ARANTEE TO THE BANK TO ENABLE M/S RATAN PAPERS PVT. LTD. TO ENJOY THE BANK LIMIT FACILITY. IN THE COURSE OF SURVEY PROCEEDINGS THE SUM OF RS. 36,85,000/- GIVEN AS SECURITY DEPOSITS BY M/S RATAN PAPERS PVT. LTD. TO THE ASSESSEE COMPANY WAS TREATED AS DEEMED DIVIDEND U/S 2(22) (E), BUT T HE CIRCUMSTANCES AND NATURE OF TRANSACTION EXPLAINED ABOVE DOES NOT COME WITHIN THE PURVIEW OF SECTION 2(22) BECAUSE THE PHRASE BY WAY OF ADVANCE OR LOAN' APPEARING IN SUB-CLAUSE (E) OF SECTION 2(22) OF THE I.T. ACT, 19 61, MUST BE CONSTRUED TO MEAN THOSE ADVANCES OR LOANS WHICH A SHAREHOLDER OR ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WH ICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS REPLY REFER RED TO AS THE SAID CONCERN), ENJOYS SIMPLY ON ACCOUNT OF BEING A PERSON WHO IS T HE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER; BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER OR ANY CONCERN IN WHICH SUCH SHAREHOLDE R IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST AS A CONSEQUENCE OF ANY FURTHER CONSIDERATION WHICH IS BENEFICIAL TO THE CO MPANY RECEIVED FROM SUCH A SHARE-HOLDER OR SAID CONCERN, IN SUCH CASE, SUCH ADVANCE OR LOAN CANNOT BE SAID TO BE DEEMED DIVIDEND WITHIN THE MEA NING OF THE ACT. THUS, GRATUITIONS LOAN OR ADVANCE GIVEN BY A COMPANY TO T HOSE CLASSES OF SHAREHOLDERS OR ANY CONCERN IN WHICH SUCH SHAREHOLD ER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST WOULD COME WITHIN THE PURVIEW OF SECTION 2(22) BUT NOT CASES WHERE THE SECURITY DEPOSITS OFFERED BY TENANT IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON TH E COMPANY BY SUCH SHAREHOLDER OR ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEM BER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. THE ASSESSEE M/S RATAN TEXTILES PVT. LTD. HAD SUBST ANTIAL INTEREST IN M/S RATAN PAPERS PVT. LTD. THROUGH ITS SHAREHOLDERS. TH E ASSESSEE PERMITTED ITS IMMOVABLE PROPERTY TO BE MORTGAGED TO THE BANK FOR ENABLING THE TENANT COMPANY (RPPL) TO TAKE THE BENEFIT OF BANK LIMITS A ND THE TENANT M/S RATAN PAPERS PVT. LTD. GIVEN THE SUM OF RS. 36,85,000/- A S SECURITY DEPOSITS FOR UTILIZING THE SPACE OF ASSESSEE AND FOR RETAINING T HE BENEFIT OF LOAN AVAILED FROM THE BANK BY MORTGAGING THE IMMOVABLE PROPERTY BELONGING TO THE ASSESSEE AND IF DECISION WAS TAKEN TO GIVE ADVANCE TO THE ASSESSEE SUCH DECISION WAS NOT TO GIVE GRATUITIONS ADVANCE TO THE ASSESSEE COMPANY BUT TO PROTECT THE BUSINESS INTEREST OF THE COMPANY. TH E SUM OF RS. 36,85,000/- ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 42 COULD NOT BE TREATED AS DEEMED DIVIDEND, BECAUSE TH E ASSESSEE'S VALUABLE IMMOVABLE PROPERTY WAS MORTGAGED WITH THE BANK AS S ECURITY FOR THE LOAN FACILITY ENJOYED BY THE SAID TENANT COMPANY. WE RELY ON PRADIP KUMAR MALHOTRA V. COMMISSIONER O F INCOME-TAX [2011] 338 ITR 0538-[IN THE CALCUTTA HIGH COURT] FOR YOUR READY REFERENCE AND KIND PERUSAL WE ARE E NCLOSING THE COPY OF SANCTION LETTER DATED 20/07/2009 ISSUED BY INDIAN B ANK IN FAVOUR OF M/S RATAN PAPER PVT. LTD., DISCLOSING THE CONDITION FOR MORTGAGING THE IMMOVABLE PROPERTY OF THE ASSESSEE COMPANY, AS COLL ATERAL SECURITY. (III) THE AO HAS CONSIDERED THE ABOVE SUBMISSION OF THE A PPELLANT AND OBSERVED THAT THE THEORY OF SECURITY DEPOSIT DEVISE D BY THE APPELLANT IS NOTHING BUT AN AFTERTHOUGHT BECAUSE OF THE FOLLOWIN G: I) NO SUCH SECURITY DEPOSIT IS THERE IN THE AUDITED BA LANCE SHEET OF THE ASSESSEE COMPANY AS ON 31/03/2011. IN THE LIABILITY PART ONE IS SHARE HOLDERS FUND AND OTHER SEGMENT IS LOAN FUNDS (DIVID ED IN SECURED LOANS, UNSECURED LOANS AND DEFERRED LIABILITY). II) AS PER THE ASSESSEE, THE PORTION TO BE LET OUT WAS FOR THE MONTHLY RENT OF RS 10,000/-. IT CANNOT BE BELIEVED THAT SECURITY DEPOS IT FOR THAT PORTION WAS RS. 36,85,000/-. THERE IS NO BASIS OF THE SO CALLED SECURITY DEPOSIT. III) ON PERUSAL OF THE LETTER DATED 20/07/2009 OF I NDIAN BANK, MOTI LAI ATAL ROAD, JAIPUR, IT IS OBSERVED THAT THIS IS WITH REGA RD TO RENEWAL OF CREDIT FACILITIES FOR M/S RATAN PAPER PVT. LTD. AND THE AS SESSEE COMPANY BOTH (AS MENTIONED UNDER THE HEAD OTHER LIABILITY OF THE GRO UP ACCOUNT M/S RTPL RENEWED ON 01.07.2009. IV) IT CANNOT BE SAID THAT M/S RATAN PAPER PVT. LTD ALONE HAD AVAILED BENEFIT OF CORPORATE GUARANTEE BY THE ASSESSEE BECAUSE THE ASS ESSEE ITSELF IS ALSO ONE OF THE BENEFICIARY OF THE BANK LIMITS. IT WAS ALSO OBSERVED BY THE AO THAT: THE ASSESSEE IS THE BENEFICIAL OWNER OF SHARES HAVI NG MORE THAN 10% OF THE VOTING POWER IN THE COMPANY, M/S RATAN PAPERS PVT. LTD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION H AS TAKEN LOAN FROM M/S RATAN PAPERS PVT. LTD, CLAIMING THE SAME AS SECURIT Y DEPOSIT. ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 43 FROM THE COPY OF ACCOUNT OF THE ASSESSEE IN THE BOO KS OF M/S RATAN PAPERS PVT. LTD. IT IS APPEARING THAT THERE IS A DEBIT BAL ANCE OF RS. 36,85,000/-. (IV) IN VIEW OF THE ABOVE FACTS, THE AO INVOKED THE PROV ISIONS OF SECTION 2(22)(E) OF THE ACT AND MADE ADDITION OF RS. 36,85, 000/- TO THE INCOME OF THE APPELLANT COMPANY. (V) BEFORE PROCEEDING FURTHER, IT WOULD BE APPROPRI ATE TO MENTION THE SHARE HOLDING PATTERN OF BOTH THE COMPANIES I.E. RTPL AND RPPL AS ON 31.03.2010 AS UNDER: RATAN TEXTILES PVT. LTD. 31.03.2010 RATAN PAPERS PVT. LTD. 31.03.2010 NAME O THE SHARE HOLDER NO. OF SHARES %OF SHARE HOLDING NAME OF THE SHARE HOLDER NO OF SHARES %OF SHARE HOLDING DINESH KU. JAIN HUP 100 SAVITA J AIN 1 SAVITA JAIN 100 SUNIT JAIN 95 9.5% GAURAV JAIN 20100 24.75% SAPNA JAIN 1 POOJA JAIN 100 GAURAV JAIN 501 50.1% VAIBHAV JAIN 3150 VAIBHAV JAIN 24 RASHMI JAIN 100 ANANT JAIN 1 ANANT JAIN 2500 NARESH KU.JAIN 1600 NARESH KU. JAIN HUF 100 RAJSHREE JAIN 100 SUNIT JAIN 20100 SAPNA JAIN 2600 TOTAL 81200 1000 (VI) DURING THE COURSE OF APPELLATE PROCEEDINGS, IT WAS SUBMITTED BY THE AR THAT RTPL WAS NOT THE SHARE HOLDER OF PAYER COMPANY I.E. RPPL RATHER THE DIRECTORS OF THE APPELLANT COMPANY ARE THE SHARE HO LDERS OF RPPL AND THE PAYMENT OF THE SECURITY DEPOSIT WAS MADE TO THE APP ELLANT COMPANY AND NOT TO ITS SHARE HOLDERS, THEREFORE, THE PROVISIONS OF SECTION 2(22) (E) IS NOT APPLICABLE TO THE APPELLANT COMPANY. RELIANCE W AS PLACED ON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CAS ES OF CIT VS HOTEL ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 44 HILLTOP [2009] 313 ITR 116(RAJ) AND HONBLE ITAT, A GRA IN THE CASE OF INDIAN CASTING COMPANY VS. INCOME TAX DEPARTMENT (1 9.07.2012) IN WHICH THE ABOVE DECISION WAS FOLLOWED. (VII) IT MAY BE MENTIONED THAT THE HONBLE RAJASTHA N HIGH COURT IN THE CASE OF CIT VS HOTEL HILLTOP (SUPRA) HELD THAT: FROM READING OF SECTION 2(22)(E) IT IS CLEAR, THAT IT COMPREHENDS MANIFOLD REQUIREMENTS, THE FIRST BEING, THE PAYMENT SHOULD B E MADE BY WAY OF LOAN OR ADVANCE, TO THE CONCERN. OF COURSE ON THIS ASPEC T, THE CONCLUSION HAS BEEN RECORDED BY THE TRIBUNAL AGAINST THE REVENUE, BUT THEN ON BARE READING OF THE AGREEMENT AND CONSIDERING THE TOTALI TY OF CIRCUMSTANCES, INCLUDING THE VERY NATURE OF THE TERM 'SECURITY', A ND THE FACT, THAT SUBSTANTIAL PORTION OF THIS RS. 10 LAKHS OF AMOUNT SAY MORE THAN 9 LAKHS, HAVE BEEN ADVANCED ONLY DURING 7-1-91 TO 22-3-91, I T IS DIFFICULT TO ACCEPT, IT AS A SECURITY, IN THE SENSE OF THE TERM, AS COMPREH ENDED IN THE AGREEMENT, RATHER IT CLEARLY APPEARS TO BE SIMPLY A NOMENCLATU RE USED, TO BORROW THE WORDS OF THE ASSESSING OFFICER 'TRANSPARENT COVER'. [PARA 7] THE MORE IMPORTANT ASPECT, BEING THE REQUIREMENT O F SECTION 2(22) (E) IS, THAT 'THE PAYMENT MAY BE MADE TO ANY CONCERN, IN WH ICH SUCH SHAREHOLDER IS A MEMBER, OR THE PARTNER, AND IN WHICH HE AS SUB STANTIAL INTEREST, OR ANY PAYMENT BY ANY SUCH COMPANY, ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDERS THUS, THE SUBSTANCE OF THE RE QUIREMENT IS, THAT THE PAYMENT SHOULD BE MADE ON BEHALF OF, OR FOR THE IND IVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER. OBVIOUSLY, THE PROVISION IS INTEN DED TO ATTRACT THE LIABILITY OF TAX ON THE PERSON, ON WHOSE BEHALF, OR FOR WHOSE INDIVIDUAL BENEFIT, THE AMOUNT IS PAID BY THE COMPANY, WHETHER TO THE SHARE HOLDER, OR TO THE CONCERN FIRM, IN WHICH EVENT IF WOULD FALL WITHIN T HE EXPRESSION 'DEEMED DIVIDEND'. OBVIOUSLY, INCOME FROM DIVIDEND, IS FAXA BLE AS INCOME FROM OF HER SOURCES, UNDER SECTION 56, AND IN THE VERY NATU RE OF THINGS, THE INCOME HAS TO BE, OF THE PERSON EARNING THE INCOME. THE ASSESSEE IN THE INSTANT CASE IS NOT SHOWN TO BE ONE OF THE PERSONS, BEING S HAREHOLDER. OF COURSE THE TWO INDIVIDUALS BEING PARTNERS OF THE ASSESSEE- FIRM ARE THE COMMON PERSONS, HOLDING MORE THAN REQUISITE AMOUNT OF SHAR EHOLDING, AND ARE HAVING REQUISITE INTEREST, IN THE FIRM, BUT THEN, T HEREBY THE DEEMED DIVIDEND WOULD NOT BE DEEMED DIVIDEND IN THE HANDS OF THE FIRM, RATHER IT WOULD OBVIOUSLY BE DEEMED DIVIDEND IN THE HANDS OF THE INDIVIDUALS, ON WHOSE BEHALF, OR ON WHOSE INDIVIDUAL BENEFIT, BEING SUCH SHAREHOLDER, THE AMOUNT IS PAID BY THE COMPANY TO THE CONCERN. [PARA 8] ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 45 THUS, THE SIGNIFICANT REQUIREMENT OF SECTION 2(22) (E) IS NOT SHOWN TO EXIST. THE LIABILITY OF TAX, AS DEEMED DIVIDEND, COULD BE ATTRACTED IN THE HANDS OF THE INDIVIDUALS, BEING THE SHAREHOLDERS, AND NOT IN THE HANDS OF THE FIRM. [PARA 9' (VIII) FURTHER, IN THE CASE OF CIT VS SURAM HOLDINGS P LTD [2014] 41 TAXMANN.COM, THE HONBLE RAJASTHAN HIGH COURT HAS F OLLOWED ITS EARLIER DECISION IN THE CASE OF CIT VS. HOTEL HILLTOP (SUPR A). IT WOULD BE APPROPRIATE TO REPRODUCE HEREUNDER THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. SURAM HOLDINGS PVT. LTD. (SUPRA) AS UNDER: 1. INSTANT APPEAL HAS BEEN FILED BY THE REVENUE AGAINS T THE ORDER OF ITAT DT. 19-3-2010 WHICH IS PRIMARILY BASED ON THE JUDGMENT OF THIS COURT IN CIT V. HOTEL HILLTOP [2009] 313 ITR 116/[2012] 205 TAXMAN 91/18 TAXMAN.COM 308 DECIDED ON 17-3-2008. 2. IT HAS BEEN ALLEGED BY THE REVENUE THAT THE ASSE SSEE DERIVES INCOME FROM TRADING OF SHARES AND DURING THE COURSE OF ASSESSME NT PROCEEDINGS IT WAS REVEALED THAT THE ASSESSEE HAS RECEIVED A SUM OF RS .23.00 LACS FROM M/S. JAPANWALA JEWELLERS (P.) LTD., JAIPUR ON THE GROUND THAT IT WAS TOWARDS SHARE APPLICATION MONEY. THE ASSESSING AUTHORITY AF TER TAKING NOTE OF SEC. 2(22) (E) AND AVAILABLE RECORDS OBSERVED THAT THE S HARE APPLICATION MONEY OF RS. 23.00 LACS RECEIVED BY THE ASSESSEE COMPANY IS IN THE NATURE OF UNSECURED LOAN AND FURTHER HELD TO BE THE DEEMED DI VIDEND IN THE HANDS OF ASSESSEE COMPANY AS PER PROVISIONS OF SEC. 2(22] (E ] OF IT ACT, 1961 AND SUCH DEEMED DIVIDEND WAS CONSIDERED AS INCOME IN TH E HANDS OF THE ASSESSEE. HOWEVER, AGAINST THE ORDER OF ASSESSING A UTHORITY, APPEAL CAME TO BE PREFERRED BEFORE THE COMMISSIONER OF INCOME-T AX APPEALS (I), JAIPUR AND THE QUESTION WAS AS TO WHETHER HOLDING SHARE AP PLICATION MONEY OF RS. 23.00 LACS RECEIVED FROM M/S. JAPANWALA JEWELERS (P ) LTD. CAN BE CONSIDERED AS UNSECURED LOAN AND THEREBY CONSIDERED AS DEEMED DIVIDEND U/S. 2(22) (EJ OF THE ACT. HOWEVER, THE APPELLATE A UTHORITY TAKING NOTE OF THE JUDGMENT OF THIS COURT IN HOTEL HILLTOP CASE (S UPRA) OBSERVED THAT DEEMED INCOME CANNOT BE TAXED IN THE HANDS OF NON-S HAREHOLDERS NAMELY THE CONCERN. AS THE CONCERN CAN NEVER RECEIVE DIVID END FROM THE COMPANY, AS DIVIDEND IS PAID ONLY TO THE SHAREHOLDERS, BENEF IT OF SET OFF AS PER SECTION 2 (22) (E)(III) CANNOT BE ALLOWED TO THE CONCERN AN D FURTHER OBSERVED THAT SUBSTANCE OF THE REQUIREMENTS OF PROVISIONS OF THE ACT IS THAT THE PAYMENT SHOULD BE MADE ON BEHALF OF OR FOR ANY INDIVIDUAL B ENEFIT OF ANY SUCH SHAREHOLDERS AND FURTHER OBSERVED THAT THE PROCEEDI NGS WHICH HAVE BEEN ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 46 INITIATED AGAINST THE PERSON /SHAREHOLDER FOR WHOSE INDIVIDUAL BENEFIT THE AMOUNT WAS PAID BY THE COMPANY AND DEEMED INCOME IS TAXABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND ACCORDINGLY IT SHOULD BE TAXED IN THE CASE OF THE INDIVIDUAL AND THE ASSESSEE BEING NOT A SHAREHOLDER IS NOT ONE OF THE PERSONS AND SHRI RAMSHARAN GUPTA IS BENEFICI ARY SHAREHOLDER HAVING REQUISITE INTEREST IN THE ASSESSEE COMPANY AS WELL AS OTHER CONCERN AND ACCORDINGLY SUCH DEEMED DIVIDEND SHOULD HAVE BEEN C ONSIDERED IN THE HANDS OF THE INDIVIDUAL RAMSHARAN GUPTA AND NOT IN THE HANDS OF THE ASSESSEE COMPANY. 3. AGAINST THE ORDER OF COMMISSIONER OF APPEALS, TH E REVENUE PREFERRED APPEAL BEFORE THE ITAT AND PLACING RELIANCE ON THE JUDGMENT REFERRED TO SUPRA THE TRIBUNAL WAS ALSO OF THE VIEW THAT LIABIL ITY OF TAX AS DEEMED DIVIDEND WOULD BE ATTRACTED IN THE HANDS OF THE IND IVIDUALS BEING SHAREHOLDERS AND NOT IN THE HANDS OF THE FIRM AND T HIS WAS NOT THE CASE OF THE REVENUE THAT ASSESSEE COMPANY WAS A REGISTERED SHAREHOLDER OF M/S. JAPANWALA JEWELERS (P.) LTD. AND TAKING NOTE THEREO F, DISMISSED THE APPEAL OF THE REVENUE. 4. WE HAVE HEARD THE APPELLANT AT LENGTH AND IN OUR CONSI DERED VIEW FROM THE SUBMISSION MADE IN OUR OPINION, NO SUBSTANTIAL QUES TION OF LOW EMERGES FOR CONSIDERATION IN THE INSTANT APPEAL WHICH MAY R EQUIRE INTERFERENCE BY THIS COURT. 5. CONSEQUENTLY, THE APPEAL BEING DEVOID OF MERIT I S HEREBY DISMISSED. (IX) IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FO LLOWING THE DECISIONS OF JURISDICTIONAL HIGH COURT IN THE ABOVE REFERRED CAS ES, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN TREATING THE SUM OF RS. 36,85, 000/- AS DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT COMPANY AS T HE APPELLANT COMPANY IS NOT THE REGISTERED OWNER OF SHARES OF RPPL. THER EFORE, THE ADDITION OF RS. 36,85,000/- MADE BY THE AO U/S 2(22) (E) OF THE ACT IS HEREBY DELETED. IT WAS CONTENDED BEFORE THE LD. CIT(A) THAT THE ASS ESSEE COMPANY WAS NOT THE SHARE HOLDER OF THE BARE COMPANY RATHER THE DIRECTORS OF THE APPELLANT COMPANY ARE THE SHARE HOLDERS OF THE RPPL AND THE PAYMENT OF THE SECURITY DEPOSIT ARE MADE TO THE APP ELLANT COMPANY AND NOT TO SHARE HOLDERS. THEREFORE, THE PROVISIONS OF SECTION ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 47 2(22)(E) OF THE ACT IS NOT APPLICABLE TO THE APPELL ANT COMPANY. IN THIS REGARD, RELIANCE IS PLACED ON THE DECISION OF THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP (SU PRA), WHEREIN THE HON'BLE HIGH COURT HAS HELD AS UNDER:- FROM READING OF SECTION 2(22)(E) IT IS CLEAR, THAT IT COMPREHENDS MANIFOLD REQUIREMENTS, THE FIRST BEING, THE PAYMENT SHOULD B E MADE BY WAY OF LOAN OR ADVANCE, TO THE CONCERN. OF COURSE ON THIS ASPEC T, THE CONCLUSION HAS BEEN RECORDED BY THE TRIBUNAL AGAINST THE REVENUE, BUT THEN ON BARE READING OF THE AGREEMENT AND CONSIDERING THE TOTALI TY OF CIRCUMSTANCES, INCLUDING THE VERY NATURE OF THE TERM 'SECURITY', A ND THE FACT, THAT SUBSTANTIAL PORTION OF THIS RS. 10 LAKHS OF AMOUNT SAY MORE THAN 9 LAKHS, HAVE BEEN ADVANCED ONLY DURING 7-1-91 TO 22-3-91, I T IS DIFFICULT TO ACCEPT, IT AS A SECURITY, IN THE SENSE OF THE TERM, AS COMPREH ENDED IN THE AGREEMENT, RATHER IT CLEARLY APPEARS TO BE SIMPLY A NOMENCLATU RE USED, TO BORROW THE WORDS OF THE ASSESSING OFFICER 'TRANSPARENT COVER'. [PARA 7] THE MORE IMPORTANT ASPECT, BEING THE REQUIREMENT O F SECTION 2(22) (E) IS, THAT 'THE PAYMENT MAY BE MADE TO ANY CONCERN, IN WH ICH SUCH SHAREHOLDER IS A MEMBER, OR THE PARTNER, AND IN WHICH HE AS SUB STANTIAL INTEREST, OR ANY PAYMENT BY ANY SUCH COMPANY, ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDERS THUS, THE SUBSTANCE OF THE RE QUIREMENT IS, THAT THE PAYMENT SHOULD BE MADE ON BEHALF OF, OR FOR THE IND IVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER. OBVIOUSLY, THE PROVISION IS INTEN DED TO ATTRACT THE LIABILITY OF TAX ON THE PERSON, ON WHOSE BEHALF, OR FOR WHOSE INDIVIDUAL BENEFIT, THE AMOUNT IS PAID BY THE COMPANY, WHETHER TO THE SHARE HOLDER, OR TO THE CONCERN FIRM, IN WHICH EVENT IF WOULD FALL WITHIN T HE EXPRESSION 'DEEMED DIVIDEND'. OBVIOUSLY, INCOME FROM DIVIDEND, IS FAXA BLE AS INCOME FROM OF HER SOURCES, UNDER SECTION 56, AND IN THE VERY NATU RE OF THINGS, THE INCOME HAS TO BE, OF THE PERSON EARNING THE INCOME. THE ASSESSEE IN THE INSTANT CASE IS NOT SHOWN TO BE ONE OF THE PERSONS, BEING S HAREHOLDER. OF COURSE THE TWO INDIVIDUALS BEING PARTNERS OF THE ASSESSEE- FIRM ARE THE COMMON PERSONS, HOLDING MORE THAN REQUISITE AMOUNT OF SHAR EHOLDING, AND ARE HAVING REQUISITE INTEREST, IN THE FIRM, BUT THEN, T HEREBY THE DEEMED DIVIDEND WOULD NOT BE DEEMED DIVIDEND IN THE HANDS OF THE FIRM, RATHER IT WOULD OBVIOUSLY BE DEEMED DIVIDEND IN THE HANDS OF THE INDIVIDUALS, ON WHOSE BEHALF, OR ON WHOSE INDIVIDUAL BENEFIT, BEING SUCH SHAREHOLDER, THE AMOUNT IS PAID BY THE COMPANY TO THE CONCERN. [PARA 8] THUS, THE SIGNIFICANT REQUIREMENT OF SECTION 2(22) (E) IS NOT SHOWN TO EXIST. THE LIABILITY OF TAX, AS DEEMED DIVIDEND, COULD BE ATTRACTED IN THE HANDS OF ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 48 THE INDIVIDUALS, BEING THE SHAREHOLDERS, AND NOT IN THE HANDS OF THE FIRM. [PARA 9' WE FIND THAT THE LD. CIT(A) HAS RIGHTLY FOLLOWED TH E DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT. THE REVENUE HAS NOT PLACED ANY CONTRARY MATERIAL BEFORE THIS BENCH, THEREFORE, WE SUSTAIN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE REVENU ES GROUND OF APPEAL. THE FACTS ARE IDENTICAL IN THIS YEAR AS WELL AS NO CH ANGE INTO THE FACTS AND CIRCUMSTANCES. THE REVENUE HAS NOT POINTED OUT ANY N EW MATERIAL FACT, THEREFORE, THE GROUNDS OF APPEAL ARE DISMISSED. 27. NOW WE TAKE ASSESSEES APPEAL BEING ITA NO. 531, 525 & 526/JP/2016 PERTAINING TO THE ASSESSMENT YEAR 2007- 08 TO 2009-10. IN ITA NO. 531/JP/2016, THE ASSESSEE HAS TAKEN FOLLOWING GR OUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE ADDIT ION MADE IN THE ASSESSMENT COMPLETED U/S 143(3) SOLELY ON THE BASIS OF STATEMENTS RECORDED DURING THE COURSE OF SURVEY WHICH STOOD RETRACTED BY THE ASSESSEE THROUGH AN AFFIDAVIT FILED BY ITS DIRECTOR. THUS, THE ADDITI ONS MADE SOLELY ON THE BASIS OF SUCH RETRACTED STATEMEN TS DESERVE TO BE DELETED. 1.1 THAT, THE LD. AO HAS FURTHER ERRED IN NOT ACCEP TING THE AFFIDAVIT GIVEN BY THE DIRECTOR OF THE ASSESSEE COM PANY WITHOUT ANY BASIS AND WITH THE SOLE PURPOSE TO MAKE ADDITIONS WITHOUT BRINING ON RECORD ANY CORROBORATIV E MATERIAL FOUND DURING THE COURSE OF SURVEY OR DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, AND ALSO BY COMPLETELY IGNORING THE WELL ESTABLISHED LAW THAT NO ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 49 ADDITION CAN BE MADE SOLELY ON THE BASIS OF STATEME NTS RECORDED ON OATH DURING THE COURSE OF SURVEY CONDUCTED U/S 133A OF THE ACT, WHEN THE ASSESSEE EXTENDED FULL COOPERATION. THUS, THE ASSESSMENT ORDE R DESERVES TO BE HELD BAD IN LAW AND THE ADDITIONS MAD E THEREUNDER DESERVE TO BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE APPLICATION OF PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE LD. AO HAD MISERABLY FAILED TO POINT OUT A NY MATERIAL DEFECT IN THE BOOKS OF ACCOUNT OF ASSESSEE . THUS, THE ACTION OF LD. AO IN REJECTING THE BOOKS OF ACCOUNT OF ASSESSEE U/S 145(3) DESERVES TO BE HELD BAD IN LAW. 2.1 THAT, THE LD. AO AND THE LD. CIT(A) HAS FURTHER ERRED IN REJECTING THE BOOKS OF ACCOUNT OF ASSESSEE U/S 145(3) SOLELY ON THE BASIS OF THE ALLEGATION THAT T HE JOB WORK CHARGES AND STIPEND PAID BY ASSESSEE ARE UNVERIFIABLE/UNJUSTIFIED BY COMPLETELY IGNORING THE SUBMISSIONS MADE AND EVIDENCES ADDUCED IN ORDER TO ESTABLISH THE GENUINENESS OF THE EXPENSES INCURRED BY THE ASSESSEE. THUS THE LD. AO HAS FAILED TO REACH T HE SATISFACTION THAT TRUE PROFITS CANNOT BE DEDUCED FR OM THE BOOKS OF ACCOUNT OF ASSESSEE, HENCE THE ACTION OF LD. AO IN INVOKING THE PROVISIONS OF SECTION 145(3) DESERVES TO BE HELD BAD IN LAW. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS GROSSLY ERRED IN MAKING LUMP SUM TRADING ADDITION OF RS. 15,00,000/- WITHOUT ANY BASI S AND WITHOUT ESTABLISHING AS TO HOW THE TRADING RESULT S DECLARED BY THE ASSESSEE ARE NOT TRUE AND CORRECT. THUS, THE TRADING ADDITION OF RS. 15,00,000/- DESERV ES TO BE DELETED. ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 50 3.1 THAT, THE LD. AO AND LD. CIT(A) HAVE FURTHER ERR ED IN HOLDING THAT THE JOB WORK CHARGES PAID TO M/S KALPAN A HANDICRAFT AND M/S KALPANA IMPEX ARE BOGUS AND UNVERIFIABLE (THOUGH NO SEPARATE ADDITION MADE ON T HIS ACCOUNT) WHEN ALL THE NECESSARY DETAILS REGARDING RENDERING OF SERVICES BY THESE PARTIES WERE SUBMITTE D, THUS THE JOB CHARGES PAID TO THESE CONCERN DESERVES TO BE TREATED AS GENUINE AND THE OBSERVATION OF LD. AO TREATING THE AFORESAID PAYMENT AS NON-GENUINE / UNVERIFIABLE DESERVES TO BE IGNORED AND EXCLUDED AN D THE ADDITION MADE BASED ON SUCH CONCLUSION DESERVES TO BE DELETED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS FURTHER ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 2,05,809/- BEING 20% OF THE STIPEND EXPENSES CLAIMED BY ASSESSEE OUT OF THE TOT AL DISALLOWANCE OF RS. 7,71,784/- MADE BY LD. AO BEING 75% OF THE STIPEND EXPENSES CLAIMED AT RS. 10,29,045/-, WITHOUT ANY BASIS AND WITHOUT CONSIDERIN G THE SUBMISSIONS MADE BY ASSESSEE AND THE EVIDENCES ADDUCED IN SUPPORT OF THE GENUINENESS OF THE EXPENS ES CLAIMED BY ASSESSEE. THUS, THE DISALLOWANCE OF RS. 2,05,809/- SUSTAINED BY THE LD. CIT(A) DESERVES TO BE DELETED. 4.1 WITHOUT PREJUDICE TO GROUND OF APPEAL NO. 01 T O 04 AND IN THE ALTERNATIVE, THE LD. CIT(A) HAS GROSSLY E RRED IN CONFIRMING FURTHER DISALLOWANCE OF RS. 2,05,809/- OUT OF THE STIPEND EXPENSES WHEN THE TRADING RESULTS ARE NOT ACCEPTED AND THE PROVISIONS OF SECTION 145(3) A RE INVOKED. 5. THAT THE APPELLANT CRAVES THE RIGHT TO ADD, DELE TE, AMEND OR ABANDON ANY OF THE GROUNDS OF APPEAL EITHE R BEFORE OR AT THE TIME OF HEARING OF APPEAL. ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 51 IN ITA NOS. 525 & 526/JP/2016, THE ASSESSEE HAS TAK EN IDENTICAL GROUNDS OF APPEAL AS WAS TAKEN IN ITA NO. 531/JP/2016. 28. SINCE THE PARTIES HAVE ADOPTED THE SAME ARGUMEN TS AS MADE IN ITA NO. 527/JP/2016 REGARDING ASSESSEES APPEAL GROUND NO. 1 TO 4.1. WE HAVE DECIDED THE IDENTICAL GROUNDS BY OBSERVING AS UNDER:- 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT STATEMENTS RECO RDED DURING THE COURSE OF SURVEY HAS NO EVIDENTIARY VALUE. SUCH STA TEMENTS IF RETRACTED BY THE ASSESSEE WOULD SHIFT THE ONUS ON T HE ASSESSING OFFICER TO PROVE THE CONTENTS OF THE STATEMENT AS C ORRECT BY PLACING MATERIAL CORROBORATING THE CORRECTNESS OF SUCH STAT EMENTS ON RECORD. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS BASED HIS FINDINGS SOLELY ON THE BASIS OF THE CONTENTS OF THE STATEMENT RECORDED DURING THE COURSE OF SURVEY. NO OTHER MATE RIAL IS GATHERED SUGGESTING THAT THE STATEMENTS WERE NOT CORRECT. AS PER THE ASSESSEE, ONE OF THE FIRM M/S KALPANA IMPEX IS REGI STERED WITH ESI AND DEDUCTING CONTRIBUTION AND DEPOSITING THE SAME TO THE CONCERNED AUTHORITY. THE ASSESSING OFFICER WAS REQU IRED TO MAKE INQUIRY ON THESE CONTENTS MERELY BECAUSE THE STATEM ENT IS RECORDED DURING THE COURSE OF SURVEY AND SUCH STATEMENTS STA TED A FACT WHICH IS REQUIRED TO BE FURTHER CORROBORATED WITH A PLAUSIBLE EVIDENCE. WE FIND THAT THE ASSESSEE HAS ENCLOSED DE TAILS OF CONTRACTORS FROM WHOM IT HAD GOT THE WORK DONE AT P AGE 9 OF THE PAPER BOOK. A LETTER ADDRESSED TO THE REGISTERING A UTHORITY UNDER THE CONTRACT LABOUR ACT, 1917 IS ENCLOSED, WHICH WA S RECEIVED BY THE CONCERNED DEPARTMENT ON 26/1/2011. AT PAGE NO. 7 OF PAPER BOOK, A REGISTRATION CERTIFICATE DATED 09/9/2005 IS ENCLOSED, WHICH INCLUDES NAME OF SMT. KALPANA JAIN. THESE DETAILS D EMONSTRATE THAT PROPRIETOR OF M/S KALPANA IMPEX WAS REGISTERED WITH CONCERNED AUTHORITY OF LABOUR DEPARTMENT FOR THE PURPOSE OF S TITCHING. FROM THE RECORDS, AS MADE AVAILABLE, IT IS TRANSPIRED TH AT THE ASSESSEE ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 52 WAS ENGAGING PERSONS ON CONTRACT FOR ITS WORK. ON T HIS ASPECT, NO INQUIRY WAS MADE BY THE ASSESSING OFFICER. IN OUR C ONSIDERED VIEW, THE ASSESSING OFFICER OUGHT NOT TO HAVE BASED THE A SSESSMENT SOLELY ON THE STATEMENTS RECORDED DURING THE COURSE OF SURVEY, HE SHOULD HAVE BROUGHT MATERIAL SUGGESTING THAT NO JOB WORK WAS DONE BY THE SAID FIRMS. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT, UDAIPUR VS. SHRI ROSHAN LAL LODHA IN I .T. APPEAL NO. 185/2014 ORDER DATED 03/11/2015 HAS HELD AS UNDER:- IN THE CASE AFORESAID, HON'BLE APEX COURT HELD THA T SECTION 133-A OF THE INCOME TAX ACT DOES NOT EMPOWER INCOME TAX OFFICER TO EXAMINE ANY PERSON ON OATH; HENCE, THE STATEMENT RECORDED UNDER SECTIO N 133-A HAS NO EVIDENTIARY VALUE AND ANY ADMISSION MADE DURING SUC H STATEMENT CANNOT BE MADE BASIS OF ADDITION. THE APPEAL PREFERRED BY THE REVENUE BEFORE THE INCO ME TAX APPELLATE TRIBUNAL CAME LO BE DISMISSED BY THE JUDGMENT IMPUGNED. LEARNED COUNSEL APPEARING ON BEHALF OF THE APPELLAN T SUBMITS THAT THE ASSESSEE IN THE INSTANT MATTER DID NOT RETRACT FROM HIS STATEMENT, THEREFORE, THE LAW LAID DOWN IN THE CASE OF S. KHADER KHAN SON (SUPRA) IS NOT APPLICABLE. WE DO NOT FIND ANY MERIT IN THE ARGUMENT ADVANCED. THE ASSESSEE FILED AN APPEAL BEFORE THE [3] COMMISSIONER, INCOME TAX (APP EALS), WITH SPECIFIC ASSERTION THAT THE STATEMENT MADE BY HIM WOULD HAVE NOT BEEN ACCEPTED TO MAKE ANY ADDITION AND THEREFORE, HIS DENIAL IS APPA RENT. IN VIEW OF IT, THE ORDERS PASSED BY THE COMMISSIONE R, INCOME TAX (APPEALS) AND THE INCOME TAX APPELLATE TRIBUNAL DO NOT SUFFER FROM ANY WRONG. THE APPEAL IS HAVING NO SUBSTANTIAL QUESTION OF LAW. HE NCE, THE SAME IS DISMISSED. IF WE APPLY THE RATIO OF THE JUDGMENT OF THE HONBL E APEX COURT RENDERED IN THE CASE OF CIT VS. S.KHADER KHAN SON ( SUPRA) ON THE FACTS OF THE PRESENT CASE, THE AUTHORITIES BELOW WE RE NO JUSTIFIED IN MAKING THE ADDITION ON THE BASIS OF THE STATEMENT R ECORDED DURING THE COURSE OF SURVEY. NO OTHER MATERIAL SUGGESTING THAT THE CLAIM OF THE ASSESSEE WAS FALSE, IS BROUGHT ON RECORD BY THE REVENUE. UNDER THESE FACTS AND IN VIEW OF THE BINDING PRECEDENT, W E ARE UNABLE TO CONFIRM THE FINDING OF THE LD. CIT(A). THEREFORE, W E DIRECT THE ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 53 ASSESSING OFFICER TO DELETE THE TRADING ADDITION OF RS. 25.00 LACS. GROUNDS NO. 1 TO 3.1 OF THE ASSESSEES APPEAL ARE D ISPOSED OFF IN TERMS OF THE ABOVE. 12. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE L D. CIT(A) HAS DECIDED THE ISSUE BY OBSERVING AS UNDER:- (V) IT IS NOTED FROM THE ABOVE DETAILS THAT DURING THE COURSE OF SURVEY U/S 133A OF THE ACT, SHRI NARESH JAIN, THE DIRECTOR OF THE APPELLANT COMPANY SURRENDERED A SUM OF RS. 50 LAC, OUT OF TOTAL EXPEN DITURE OF RS. 95,41,465/- CLAIMED BY THE APPELLANT FROM FY 2006-0 7 TO 2009-10 AS PER FOLLOWING DETAILS: F.Y. AMOUNT 2006-07 RS. 10,55,585/- 2007-08 RS. 27,37,958/- 2008-09 RS. 30,85,592/- 2009-10 RS. 26,66,320/- TOTAL RS. 95,41,465/- (VI) HOWEVER, SUBSEQUENTLY, THE SAID SURRENDER WAS RETRACTED BY THE APPELLANT. IT IS NOTED FROM THE ASSESSMENT ORDER TH AT THE AO RELIED HEAVILY ON THE STATEMENTS OF SHRI NARESH JAIN AND S HRI BUNKAR RECORDED DURING THE COURSE OF SURVEY U/S 133A OF THE ACT. TH E AO DISALLOWED 75% OF THE STIPEND EXPENDITURE CLAIMED BY THE APPELLANT AGAINST APPROXIMATELY 50% SURRENDERED DURING SURVEY ON THE BASIS OF FOLLOWING ADDITIONAL FINDINGS: THE PAYMENTS WERE MADE IN CASH AND NO PF/ESI HAS BE EN DEDUCTED WHILE MAKING SUCH PAYMENTS. THERE IS NO BASIS OF DETERMINING MINIMUM OR MAXIMUM AMOUNT OF STIPEND. VARIOUS DISCREPANCIES ARE NOTICED IN THE SALARY/WAG ES SHEETS. OUT OF LIST OF 147 TRAINEES SUBMITTED BY THE APPELL ANT, THE AO NOTED THAT 50% OF THE MOBILE NUMBERS WERE EITHER WRONG OR INCORRECT ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 54 OUT OF THE 10 TRAINEES REQUIRED BY THE AO TO PRODUC E (WHO WERE WORKING DURING DIFFERENT PERIODS), ONLY 3 WERE PROD UCED BEFORE THE AO. (VII) IT IS NOTED THAT THE AO HAS JUST IGNORED THE VARIOUS DOCUMENTARY EVIDENCES FILED BY THE APPELLANT INCLUDING THE ATTE NDANCE SHEETS OF THE TRAINEES, RETRACTION BY SHRI NARESH KUMAR JAIN, COP IES OF THE COMPLETE SET OF APPOINTMENT DOCUMENTS OF EACH TRAINEE CONSISTING OF APPLICATIONS MADE BY THE INDIVIDUALS FOR BEING APPOINTED AS TRAI NEE IN THE APPELLANT, ALONG WITH HIS BIO DATA, QUALIFICATION , ADDRESS / IDENTITY VERIFICATION , AND THE APPOINTMENT LETTER ISSUED BY THE APPELLANT MENT IONING THEREIN THE DATE OF JOINING, INITIAL SALARY AND JOB DETAILS, AT TENDANCE REGISTER, SHOWING THE DAILY ATTENDANCE OF EACH TRAINEE ALONG WITH FAC TORY IN AND OUT TIME , ON THE BASIS OF WHICH MONTHLY STIPEND PAYMENT IS DO NE , ALONG WITH COPY OF ENTRY CARD OF EACH TRAINEE. COPY OF MONTHLY STIP END PAYMENT SHEET, DULY REFLECTING THE AMOUNT PAID TO EACH TRAINEE COM PUTED ON THE BASIS OF HIS AGREED STIPEND RATE, NUMBER OF DAYS WORKED ETC, ALONG WITH RECEIPTS OF EACH TRAINEE THEREON. THE AO HAS ALSO IGNORED TH E FACT THAT THE APPLICABILITY OF ESI / PF LAW WAS NOT MANDATORY UP TO JUNE-2010 ON THE PAYMENT MADE TO STIPEND TRAINEES. THE INSPECTION RE PORT OF ESI OFFICIALS REVEAL THAT NO SUCH DISCREPANCY WAS REPORTED BY THE PF / ESI DEPARTMENT OFFICIALS. FURTHER, THE INCORRECT MOBILE NUMBERS AN D INABILITY OF THE APPELLANT TO PRODUCE THE TRAINEES WHO HAD ALREADY L EFT THE APPELLANT AND CASH PAYMENTS TO TRAINEES CANNOT BE THE GROUNDS FOR DISALLOWING 75% OF THE STIPEND EXPENSES CLAIMED BY THE APPELLANT. (VIII) IT MAY BE MENTIONED THAT IN THE CASE OF CIT VS SHRI ROSHAN LAI (SUPRA), IT HAS BEEN HELD BY THE HONBLE RAJASTHAN HIGH COURT T HAT THE STATEMENT RECORDED UNDER SECTION 133A HAS NO EVIDENTIARY VALU E AND ANY ADMISSION MADE DURING SUCH STATEMENT CANNOT BE MADE BASIS OF ADDITION. FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS S. KHADER KHAN SON [2012] 25 TAXMANN.COM 413 (SC)DISMISSED THE CIVIL A PPEAL BY THE INCOME TAX DEPARTMENT AND CONFIRMED THE ORDER OF HONBLE M ADRAS HIGH COURT IN THE CASE OF CIT VS S. KHADER KHAN SON [2008] 300 IT R 157 (MAD.) WHEREIN IT WAS HELD BY THE HONBLE HIGH COURT OF MADRAS THA T: FROM THE FOREGOING DISCUSSION, THE FOLLOWING PRIN CIPLES CAN BE CULLED OUT: ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 55 (I) AN ADMISSION IS AN EXTREMELY IMPORTANT PIECE O F EVIDENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE AND IT IS OPEN TO THE PERSON WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT AND THAT THE ASSESSEE SHOULD BE GIVEN A PROPER OPPORTUNITY TO SH OW THAT THE BOOKS OF ACCOUNT DO NOT CORRECTLY DISCLOSE THE CORR ECT STATE OF FACTS, VIDE DECISION OF THE APEX COURT IN PULKNGODE RUBBER PRODUCE CO. LTD. V. STATE OF KERALA [1973] 91 ITR 18; (II) IN CONTRADISTINCTION TO THE POWER UNDER SECTIO N 133A, SECTION 132(4] OF THE INCOME-TAX ACT ENABLES THE AUTHORIZED OFFICE R TO EXAMINE A PERSON ON OATH AND ANY STATEMENT MADE BY SUCH PERSO N DURING SUCH EXAMINATION CAN ALSO BE USED IN EVIDENCE UNDER THE INCOME-TAX ACT. ON THE OTHER HAND, WHATEVER STATEMENT IS RECORDED UNDE R SECTION 133A OF THE INCOME-TAX ACT IS NOT GIVEN ANY EVIDENT IARY VALUE OBVIOUSLY FOR THE REASON THAT THE OFFICER IS NOT AU THORIZED TO ADMINISTER OATH AND TO TAKE ANY SWORN STATEMENT WHI CH ALONE HAS EVIDENTIARY VALUE AS CONTEMPLATED UNDER LAW, VIDE P AUL MATHEWS AND SONS V. CIT [2003] 263 ITR 101 (KER.); (III) THE EXPRESSION 'SUCH OTHER MATERIALS OR INFOR MATION AS ARE AVAILABLE WITH THE ASSESSING OFFICER' CONTAINED IN SECTION 15 8BB OF THE INCOME-TAX ACT, 1961, WOULD INCLUDE THE MATERIALS G ATHERED DURING THE SURVEY OPERATION UNDER SECTION 133A, VIDE CIT V . G. K. SENNIAPPAN [2006] 284 ITR 220 (MAD.); (IV) THE MATERIAL OR INFORMATION FOUND IN THE COURS E OF SURVEY PROCEEDING COULD NOT BE A BASIS FOR MAKING ANY ADDI TION IN THE BLOCK ASSESSMENT, VIDE DECISION OF THIS COURT IN T. C (A) NO. 2620 OF 2006 (BETWEEN CIT V. S. AJIT KUMAR [2008] 300 ITR 152 (M AD.); (V) FINALLY, THE WORD 'MAY' USED IN SECTION 133A(3) (HI) OF THE ACT, VIZ., 'RECORD THE STATEMENT OF ANY PERSON WHICH MAY BE US EFUL FOR, OR RELEVANT TO, ANY PROCEEDING UNDER THIS ACT', AS ALR EADY EXTRACTED ABOVE, MAKES IT CLEAR THAT THE MATERIALS COLLECTED AND THE STATEMENT RECORDED DURING THE SURVEY UNDER SECTION 133A ARE N OT CONCLUSIVE PIECE OF EVIDENCE BY ITSELF. FOR ALL THESE REASONS, PARTICULARLY, WHEN THE COMM ISSIONER AND THE TRIBUNAL FOLLOWED THE CIRCULAR OF THE CENTRAL BOARD OF DIRECT TAXES ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 56 DATED MARCH 10, 2003, EXTRACTED ABOVE, FOR ARRIVING AT THE CONCLUSION THAT THE MATERIALS COLLECTED AND THE STA TEMENT, OBTAINED UNDER SECTION 133A WOULD NOT AUTOMATICALLY BIND UPO N THE ASSESSES WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF THE TRIBUNAL.' (IX) THEREFORE, IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING 75% OF THE TRAINEE STIPEND CLAIMED BY THE APPELLANT. HOWEVER, THE DISCREPANCIES AS OBSERVED B Y THE AO - CANNOT BE TOTALLY BRUSHED ASIDE. HENCE, CONSIDERING THE TOTAL ITY OF FACTS AND CIRCUMSTANCES OF THE CASE, I THINK IT WOULD BE APPR OPRIATE TO RESTRICT THE DISALLOWANCES TO 20% INSTEAD OF 75% OF THE AMOUNT C LAIMED BY THE APPELLANT. HENCE, DISALLOWANCE OUT OF STIPEND EXPEN SES IS RESTRICTED TO RS. 5,33,266/- AGAINST RS. 19,99,747/- MADE BY THE AO. FROM THE ABOVE, IT IS EVIDENT THAT THE LD. CIT(A) H AS RESTRICTED THE DISALLOWANCE ON AD HOC BASIS. AFTER CONSIDERING THE MATERIAL PLACED BEFORE THIS TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE INSPECTION WAS CARRIED OUT BY THE ESI AND PF DEPARTM ENT, NO DISCREPANCY WAS REPORTED IN RESPECT OF RATE OF STIP END AND PAYMENT OF STIPEND. THE ASSESSING OFFICER HAS NOT PLACED AN Y MATERIAL SUGGESTING THAT THE NUMBER OF TRAINEES WAS NOT CORR ECT. MOREOVER, THE ASSESSING OFFICER HAS BASED HIS FINDING ON THE BASIS OF PRESUMPTION THAT THE ASSESSEE IS NOT CHARITABLE INS TITUTE THAN WHY IT WOULD PROVIDE TRAINING WITH STIPEND TO THE PERSONS WHO WOULD QUIT AFTER TRAINING. THIS OBSERVATION OF THE ASSESSING O FFICER IS PURELY BASED ON THE CONJECTURE AND SURMISES, WHICH CANNOT BE THE BASIS FOR MAKING DISALLOWANCE. IF THE ASSESSING OFFICERS REASONING IS ACCEPTED, THEN IT WOULD MAKE THE ASSESSEE LIABLE FO R PROSECUTION FOR PRACTICING THE BONDED LABOUR. THEREFORE, THIS DISAL LOWANCE IS UNJUSTIFIED AND THE SAME IS HEREBY DELETED. ITA 527 & 595/JP/2016 WITH ORS. 5 APPEALS_ M/S RATAN TEXTILES P LTD. VS DCIT 57 THE FACTS ARE IDENTICAL IN THIS YEAR AS WELL AS NO CH ANGE INTO THE FACTS IS POINTED OUT BY THE REVENUE. THEREFORE, THE GROUNDS O F APPEAL ARE ALLOWED. 29. GROUND NO. 5 OF THE APPEAL IS GENERAL IN NATURE , THEREFORE, REQUIRES NO SEPARATE ADJUDICATION. ACCORDINGLY, THE SAME IS HEREBY DISMISSED. 30. THE FINDING MADE BY THE BENCH IN ITA NO. 531/JP/ 2016 IS ALSO APPLIED IN THE APPEALS OF THE ASSESSEE IN ITA NO. 5 25 & 526/JP/2016. ACCORDINGLY, THE APPEALS OF THE ASSESSEE ARE ALLOWED . 31. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED AND THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/04/2017, SD/- SD/- FOE FLAG ;KNO DQY HKKJR (VIKRAM SINGH YADAV) (KUL BHARAT) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 21 ST APRIL, 2017 * RANJAN VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S RATAN TEXTILES P. LTD., JAIPUR.. 2. IZR;FKHZ@ THE RESPONDENT- D.C.I.T., CIRCLE-2, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 527, 595, 528, 596, 531, 525 & 526/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR
Other Referred Cases
-
Laws Referred To
-
1:1 Consultation on Business Development
₹1
Guide to Charitable Trusts: Formation, Benefits, and Compliance
₹0
Tax Holiday Secrets for Startups
₹0
Income Tax Act 2025
₹0
CRM Implementation Plan
₹0
Finance Bill, 2026: Key GST Reforms that will Reshape Compliance and Cash Flows
Team Counselvise - February 03, 2026
When Global Talent Meets GST: The Huawei Secondment Ruling explained
Team Counselvise - March 09, 2026
Minimum Alternate Tax (MAT): Comprehensive Overview and Key Changes under Finance Bill, 2026
Team Counselvise - February 06, 2026