Dr. Sunil Sharma, New Delhi V. DCIT, New Delhi

ITA 5480/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2802 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 09-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Additional evidence; Deemed dividend
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: F , NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 5480 /DEL/201 4 A.Y. 201 1 - 12 SH. SUNIL SHARMA C/O KAPIL GOEL ADVOCATE F 26/124 SECTOR 7, ROHINI NEW DELHI 110 085 PAN: AIAPS3338P VS. DCIT, CIRCLE 8(1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SHRI KAPIL GOEL, ADV. RESPONDENT BY SHRI ATIQ AHMAD, SR.D.R DATE OF HEARING 16 TH NOVEMBER, 2017 DATE OF PRONOUNCEMENT 20 TH DECEMBER , 2017 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER T HE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 11/08/14 PASSED BY LD.CIT(A) - 11, NEW DELHI FOR ASSESSMENT YEAR 2011 - 12 ON THE FOLLOWING GROUNDS OF APPEAL: ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 2 OF 19 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD.CIT(A) ERRED IN SUSTAINING ADDITION TO THE EXTENT OF RS.25,45,305/ - U /S 2(22)(E) OF THE ACT ON THE BASIS OF PERVERSE FINDINGS. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD.CIT(A) ERRED IN SUSTAINING ADDITION TO THE EXTENT OF RS.25,45,305/ - U/S 2(22)(E) OF THE ACT WITHOUT APPRECIATING (INTER ALIA) THAT: A. THE LOAN WAS TAKEN BY APPELLANT FROM M/S SHARMA MEDICA R E P LTD. TO BE PASSED ON TO M/S EASTERN CREATION P LTD. FOR BONAFIDE BUSINESS AND COMMERCIAL PURPOSES; B. THE FACT THAT SUBJECT LOAN CHANNELED THROUGH APPELLANT WAS PASSED ON TO M/S EASTERN CREATION P LTD. FOR ONWARD CONSTRUCTION OF HOSPITAL BUILDING TAKEN ON RENT BY LENDER COMPANY M/S SHARMA MEDICARE P LTD. IS UNDISPUTED AND UNCONTROVERTED; C. THERE IS NO FELONIOUS ACT ON PART OF APPELLANT IN THE SUBJECT TRANSACTION; D. INUNDATED EVIDENCE LI KE REGULAR BOOK ENTRIES ETC. ON RECORDS ESTABLISH THAT LOAN IS IN THE COURSE OF ORDINARY BUSINESS ACTIVITIES. ADDITION OF RS.143,834/ - U/S 40(A)(IA) OF THE ACT : 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD.CIT(A) ERRED IN APPRO VING THE ADDITION OF RS.143,834/ - U/S 40(A)(IA) OF THE ACT WITHOUT GIVING BENEFIT DUE TO APPELLANT UNDER SECOND PROVISO TO SEC.40(A)(IA) WHICH IS RETROSPECTIVE IN NATURE AND OTHER PLAUSIBLE AND AVAILABLE LEGAL GROUNDS. ADDITION OF RS.50,000 SUSTAINED ON A DHOC BASIS 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD.CIT(A) ERRED IN PARTLY APPROVING ADDITION OF RS.50,000 MADE BY ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 3 OF 19 LD.AO ON MERE CONJECTURES AND SURMISES PURELY ON PRESUMPTUOUS REASONING. THAT THE APPELLANT CRAVES LEAVE TO A DD, AMEND, MODIFY, RESCIND, SUPPLEMENT OR ALTER ANY OF THE GROUNDS STATED HEREIN ABOVE, EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 2 . BRIEF FACTS OF THE CASE ARE AS UNDER . T HE ASSESSEE FILED HIS RETURN OF INCOME ON 26/09/11 DECLARING A TOTAL INCOME OF RS. 45,58,640/ - . THE RETURN WAS PROCESSED UNDER SECTION 143 ( 1) OF THE A CT AND CASE WAS SELECTED FOR SCRUTINY. ACCORDINGLY NOTICE UNDER SECTION 143(2) OF THE A CT ALONG WITH DETAILED QUESTIONNAIRE , AND NOTICE UNDER SECTION 142(1) OF THE A CT WER E ISSUED . IN RESPONSE TO STATUTORY NOTICES, REPRESENTATIVES OF ASSESSEE ATTENDED PROCEEDINGS AND FILED DETAILS ASKED FOR. 2.1 . LD. AO OBSERVED THAT ASSESSEE HAS SHOWN INCOME FROM MEDICAL PROFESSION AND OTHER SOURCES ETC. AND A SSESSEE IS DOCTOR BY PROF ESSION. ON PERUSAL OF AUDITED ACCOUNTS , LD. AO NOTICED THAT BESIDES SECURED LOAN OF RS. 51.55 LAKHS, ASSESSEE HAS SHOWN UNSECURED LOAN AT RS. 72.54 LAKH , OUT OF WHICH AMOUNT OF RS.39,67,183/ - HAS BEEN SHOWN TO HAVE BEEN TAKEN FROM M/S SHARMA MEDICARE P V T. L TD . IT WAS ALSO OBSERVED BY LD. AO THAT ASSESSEE HIMSELF IS A DIRECTOR IN THE COMPANY AND H OLDS 91.67% OF ITS SHARES. THE LD. AO ACCORDINGLY ISSUED NOTICE SHOW CAUSING ASSESSEE AS TO WHY THE ABOVE LOAN OF RS.39,67,183/ - ADVANCED BY M/S SHARMA MEDICAR E PVT. LTD. MAY NOT BE TREATED AS DEEMED DIVIDEND , WITHIN THE MEANING OF SECTION 2(22) ( E ) OF THE A CT. ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 4 OF 19 2.2 . IN RESPONSE TO THE NOTICE ASSESSEE REPLIED THAT M/S SHARMA MEDICARE P VT. LTD . HAS GIVEN LOAN/ADVANCED TO DR SUNIL SHARMA FOR CONSTRUCTION OF HOSPITAL BUILDING OF M/S EASTERN C REATION PVT. LTD. , A SISTER CONCERN OF M/S SHARMA MEDICARE PVT. LTD. . IT WAS ALSO SUBMITTED THAT M/S SHARMA MEDICARE P VT. LTD . INTENDED TO TAKE PROPERTY OF M/S EASTERN C REATION PVT. LTD. ON RENT AS PER RENT AGREEMENT DATED 16/03/13. ASSESSEE HAD SUBMITTED COPY OF RENT AGREEMENT BEFORE LD.CIT(A) . IT WAS FURTHER SUBMITTED THAT THE SAID AMOUNT WAS TAKEN FROM M/ S SHARMA MEDICARE P VT. L T D . THROUGH DIRECTOR SUN IL SHARMA TO BE ADJUSTED AGAINST FUTURE RENT/SECURITY AND THEREFORE THE IMPUGNED AMOUNT DOES NOT FALL WITHIN THE AMBIT OF SECTION 2 (22) (E) OF THE A CT. 2.3. LD. AO INVOKED PROVISIONS OF SEC.2(22)(E) AS LOANS TAKEN BY ASSESSEE FROM A COMPANY WHERE ASSESS EE HOLDS SUBSTANTIAL SHARES , AND ADDED BACK RS. 39,67,184/ - TO THE INCOME OF THE ASSESSEE AS DEEMED DIVIDEND. 2.4. AGGRIEVED BY THE ASSESSMENT ORDER PASSED, ASSESSEE PREFERRED APPEAL BEFORE LD.CIT(A). THE LD.CIT(A) OBSERVED AND DECIDED AS UNDER: I HAVE CONSIDERED FACTS OF THE CASE AS WELL AS WRITTEN SUBMISSIONS MADE BY THE APPELLANT VERY CAREFULLY. SO FAR AS, THE SOURCES OF MONEY AVAILABLE WITH M/S SHARMA MEDICARE PVT. LTD. IS CONCERNED, IT IS OBSERVED THAT THE COMPANY HAD TAKEN SECURED LOANS FRO M HDFC BANK (ABOUT RS.52 LACS) AND LOAN FROM TATA CAPITAL LTD. (RS.34.61 LACS). THE EXISTING LOANS OF RS.14,21,889/ - IN THE NAME OF DR. SUNIL SHARMA TAKEN FROM HDFC BANK WERE ALSO TAKEN OVER BY M/S SHARMA MEDICARE PVT. LTD. ON 01.08.2010. IT IS OBSERVE D THAT THE ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 5 OF 19 AMOUNT OF LOAN RECEIVED BY THE APPELLANT FROM M/S SHARMA MEDICARE PVT. LTD. WAS AS UNDER: (I) RS. 7 LAC ON 24.06.2010 (FROM HDFC BANK) (II) RS. 4 LAC AND RS. 8 LAC (TOTAL RS.12 LACS) ON 13.09.2010 (FROM HDFC BANK) (III) RS. 3 LAC ON 15.09.2 010 (FROM HDFC BANK) (IV)RS. 3.5 LAC ON 18.09.2010 (FROM HDFC BANK ) (V) RS.10 LAC ON 04.03.2011 (FROM TATA CAPITAL LTD.) (VI) RS. 3 LAC ON 24.03.2011 (FROM TAT A CAPITAL LTD.) (VII) RS. 1 LAC ON 31.03.2011 (FROM TATA CAPITAL LTD.) THUS, TOTAL OF RS .39,67,184/ - WAS THE AMOUNT OF LOAN TAKEN BY THE APPELLANT FROM M/S SHARMA MEDICARE PVT. LTD. FOR ADVANCING THE SAME TO M/S EASTERN CREATIONS PVT. LTD. SO FAR AS THE ARGUMENT OF THE APPELLANT THAT THE LOAN WAS TAKEN BY THE APPELLANT FOR BUSINESS PURPOSES A ND TO CIRCUMVENT THE RESTRICTION OF SECTION 3 ( 1)(III)(D) OF COMPANIES ACT, 1956 IS CONCERNED, IT IS OBSERVED THAT THE TRANSACTION BETWEEN M/S SHARMA MEDICARE PVT. LTD. AND THE APPELLANT IS TO BE VIEWED FROM THE FINANCIAL STATUS OF THE LOANER COMPANY AND T HE PURPOSE FOR WHICH SUCH LOANS WERE GIVEN TO THE APPELLANT. M/S SHARMA MEDICARE PVT. LTD. WAS NOT HAVING ANY PLOT ON WHICH THE HOSPITAL WAS PROPOSED. THE PLOT WAS EXISTING IN THE NAME OF M/S EASTERN CREATIONS PVT. LTD. IN WHICH THE APPELLANT, DR. SUNIL SH ARMA WAS ONE OF THE DIRECTORS. THUS, THE LOAN GIVEN BY M/S SHARMA MEDICARE PVT. LTD. TO THE APPELLANT WAS FOR THE PURPOSE OF CREATION OF AN ASSET OF M/S EASTERN CREATIONS PVT. LTD. IN WHICH THE APPELLANT WAS HAVING SUBSTANTIAL INTEREST. NO BUSINESS PURPOSE OF M/S SHARMA MEDICARE PVT. LTD. IS SERVED BY ADVANCING LOANS TO THE APPELLANT SINCE ULTIMATELY IT HAD TAKEN THE ASSET (HOSPITAL BUILDING) ON RENT BY PAYING RENT @ RS.22,100/ - W.E.F. 16.03.2013. THEREFORE, SO FAR AS THE STATUS OF M/S SHARMA ME DICARE PVT. LTD. IS CONCERNED IT IS PAYING RENT FOR THE HOSPITAL WHICH IT COULD HAVE OTHERWISE ACQUIRED ON RENT FROM ANY PARTY IMMEDIATELY BEFORE MAKING SUCH ARRANGEMENT OF LOAN. IT IS THEREFORE BEYOND DOUBT THAT THE ARRANGEMENT OF TAKING LOAN IN THE NAME OF M/S SHANNA MEDICARE PVT. LTD. AND ROUTING IT ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 6 OF 19 THROUGH THE APPELLANT AND GIVING IT ULTIMATELY TO M/S EASTERN CREATIONS PVT. LTD. WAS FOR THE BENEFIT O F THE APPELLANT. WHO WAS ONE OF THE DIRECTORS AND SHAREHOLDERS IN M/S EASTERN CREATIONS PVT. LTD. IT IS FURTHER OBSERVED THAT M/S SHANNA MEDICARE PVT. LTD. WAS HAVING RESERVES AND SURPLUS AMOUNTING TO RS.1,06,08,302/ - AS ON 31.03.2011. THEREFORE, IT DOESN' T MAKE A DIFFERENCE WHETHER THE LOANS ADVANCED TO THE APPELLANT WERE PAID FROM RESERVES AND SURPLUSES OR FROM THE SECURED LOAN FRESHLY TAKEN BY THE COMPANY SINCE ULTIMATELY THE FUNDS ARE POOLED IN COMMON HOTCH - POT, PART OF WHICH ARE UTILIZED BY M/S SHANNA MEDICARE PVT. LTD. IN ITS NORMAL CONDUCT OF BUSINESS AND PART THEREOF ARE ADVANCED TO DR. SUNIL SHANNA AND HIS WIFE DR. PREETI AGRAWAL FOR MAKING INVESTMENTS IN M/S EASTERN CREATIONS PVT. LTD. TOWARDS CONSTRUCTION OF HOSPITAL BUILDING. FOR TAKING LOANS FR OM HDFC AND TAT A CAPITAL LTD. M/S SHARMA MEDICARE (P) LTD. MUST HAVE DEPOSED THAT THE LOANS TAKEN BY THEM ARE STRICTLY FOR BUSINESS PURPOSES WHICH WAS NEVER BEEN TO ADVANCE THE MONEY TO THE DIRECTORS. THEREFORE, THE FOLLOWING BASIC CONDITIONS, TO QUALIFY FOR A LOAN TO BE TREATED AS DEEMED DIVIDEND, ARE SATISFIED: - I) THE PAYER COMPANY IS A CLOSELY HELD COMPANY, II) THE PAYER COMPANY HAS ACCUMULATED PROFITS ON THE DATE OF ANY SUCH PAYMENT AND THE PAYMENTS ARE MADE OUT OF SUCH ACCUMULATED PROFITS AND III) THE PAYMENT OF LOAN OR ADVANCE IS NOT IN THE COURSE OF ORDINARY BUSINESS ACTIVITIES 7.4. THEREFORE, THE AMOUNT OF LOAN RECEIVED BY THE APPELLANT FROM M/S SHARMA MEDICARE PVT. LTD. DEFINITELY QUALIFIES TO BE DEEMED DIVIDEND IN THE HANDS OF THE APPELLA NT. HOWEVER, IT IS OBSERVED THAT THE EXISTING LOAN OF RS.14,21,889/ - IN THE HANDS OF T HE APPE1LANT FROM HDFC BANK WAS TAKEN OVER BY THE COMPANY M/S SHARMA MEDICARE PVT. LTD. THROUGH BOOK ENTRY DATED 01.08.2010 AND AS ULTIMATELY SUCH AMOUNT WAS THE PART AN D PARCEL OF THE LOANS ADVANCED BY M/S SHARMA MEDICARE PVT. LTD. TO THE APPELLANT, THE SAME DESERVES TO BE EXCLUDED FROM THE AMBIT OF DEEMED DIVIDEND IN VIEW OF THE DECISIONS ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 7 OF 19 OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ANKITECH PVT. LTD. ITA NO. 462 OF 2009 (DEL). THEREFORE, OUT OF TOTAL LOAN OF RS.39,67,184/ - , RS.14,21,889/ - IS TREATED AS APPELLANT'S OWN AVAILABLE FUNDS WHICH WERE AVAILABLE WITH THE APPELLANT IN THE SHAPE OF LOAN FROM HDFC BANK AND TAKEN OVER BY M/S SHARMA MEDICARE PVT. LTD . THE AMOUNT OF RS.14,21,889/ - IS THEREFORE, DIRECTED TO BE EXCLUDED FROM THE AMOUNT OF DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT. THE BALANCE AMOUNT OF RS.25,45,305/ - IS DEFINITELY DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT IN THE HANDS OF THE APPELLAN T. THE ADDITION TO THE EXTENT OF RS.25,45,305/ - IS THEREFORE, SUSTAINED. THE APPELLANT GETS THE CONSEQUENTIAL RELIEF. GROUND NO.1 OF THE APPEAL IS PARTLY ALLOWED. 3. AGGRIEVED BY THE ORDER OF LD. CIT (A) ASSESSEE IS IN APPEAL BEFORE US NOW . 3.1. I T W AS ARGUED BY LD. AR THAT M /S SHARMA MEDICARE P VT. LTD . INTENDED TO EXPAND ITS BUSINESS ACTIVITY AND TO TAKE THE PROPOSED PROPERTY OF M/S EASTERN C REATIONS P VT. LTD. ON RENT . LD. AR FURTHER SUBMITTED THAT M/S EASTERN C REATIONS P VT. LTD. WAS HAVING A PLOT AT NH - 198, BLOCK , L , D ELTA - II AT G REATER NOIDA FOR HOSPITAL PURPOSES, WHERE THE ASSESSEE AND HIS WIFE WERE HAVING SUBSTANTIAL INTEREST. IT HAS BEEN ARGUED BY THE LD. AR THAT TO FACILITATE THE CONSTRUCTION OF THE HOSPITAL BUILDING IN T HE SAID PLOT ASSESSEE MADE AN ARRANGEMENT IN SEEKING LOANS IN THE HANDS OF M/S SHARMA MEDICARE PVT. LTD . HOWEVER SINCE M /S SHARMA MEDICARE PVT. LTD. WAS PROHIBITED TO DIRECTLY ADVANCE LOAN TO M/S EASTERN C REATIONS PVT. LTD. DUE TO THE RESTRICTIONS IMPOS ED UNDER SECTION 3(1)(III)(D) OF C OMPANIES A CT, 1956, LOANS WERE CHANNELISED FROM SHARMA ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 8 OF 19 MEDICARE PVT. LTD. TO EASTERN C REATIONS PVT. LTD. THROUGH COMMON DIRECTOR DR SUNIL SHARMA. 3. 2 . LD. AR ALSO SUBMITTED THAT M /S SHARMA MEDICARE P VT. LTD . TOOK FRESH SECURED LOANS FROM VARIOUS FINANCIAL INSTITUTIONS DURING THE YEAR UNDER CONSIDERATION FOR THE ADVANCEMENT OF LOAN WHICH WERE MERELY TRADE ADVANCES WHICH WOULD NOT FALL WITHIN THE AMBIT OF PROVISIONS OF SECTION 2 (22) (E) OF THE A CT AS PER THE REC ENT CIRCULAR NO. 19/2017 ISSUED BY CBDT DATED 12/06/17. 3. 3 . THE LD. AR ADVANCED AN APPLICATION FOR PERMISSION TO ADDUCE ADDITIONAL EVIDENCE UNDER RULE 29 OF IT A T RULES. THE LD. AR SUBMITTED THAT THE MEMORANDUM OF UNDERSTANDING BETWEEN M /S SHARMA MEDICAR E P VT. LTD. THROUGH ITS DIRECTOR DR SUNIL SHARMA AND M/S EASTERN C REATIONS P VT. LTD . THROUGH ITS DIRECTOR DR PRITI AGARWAL , MORE PARTICULARLY PLACED AT PAGE 9 OF APPLICATION DATED 16.11.17, SEEKING PERMISSION TO ADDUCE ADDITIONAL EVIDENCE, WOULD BE NECESSARY TO DECIDE THE ISSUE UNDER CONSIDERATION. HE ALSO SUBMITTED THAT AS ASSESSEE WAS SUFFICIENTLY PREVENTED FROM PRODUCING THIS DOCUMENT BEFORE THE AUTHORITIES BELOW, THE ISSUE MAY BE SET - ASIDE BACK TO THE FILE OF LD. AO TO VERIFY IN THE LIGHT OF THE DOCUMENT FILED BEFORE US TODAY. 3. 4 . LD. DR ON THE OTHER HAND OPPOSED FOR THE ADMISSION OF ADDITIONAL EVIDENCE , AS ACCORDING TO HIM , THIS DOCUMENT WAS NEVER AVAILABLE WITH THE ASSESSEE AND THIS IS AN AFTERTHOUGHT BECAUSE OF THE CIRCULAR ISSUED BY CBDT NO. 19/2017 DATED 12/06/17. ON MERITS OF THE CASE LD. DR PLACED HIS RELIANCE UPON THE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 9 OF 19 4. WE HAVE PERUSE D THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. WE HAVE ALSO PERUSED THE DOCUMENT PRO DUCED BY LD. AR UNDER R ULE 29 AS ADDITIONAL EVIDENCE. 5. ON A CAREFUL READING OF THE SAID DOCUMENT, WE OBSERVE THAT IT IS DATED 2 9/09/14 , W HEREAS THE ALLEGED LOAN HAS BEEN ADVANCED BY M/S SHARMA MEDICARE PVT.LTD. TO ASSESSEE IN IMPUGNED A.Y. IT HAS BEEN SUBMITTED BY ASSESSEE BEFORE THE LD.CIT(A) IN ITS WRITTEN SUBMISSION DATED 22/07/14, PLACED AT PAGE 10 - 11 OF PAPER BOOK THAT THE LOANS WERE ADVANCED TO ASSESSEE BY M/S SHARMA MEDICARE P VT . L TD . IN VIEW OF RESTRICTIONS IMPOSED UNDER THE C OMPANIES A CT 1956 UNDER SECTION 3(1)(III)(D). LD. AR SUBMITTED THAT BY VIRTUE OF THIS PROVISION OF THE C OMPANIES A CT, A PRIVATE COMPANY CAN TAKE DEPOSITS/LOAN FROM ITS MEMBERS, DIRECTORS OR THEIR RELATIVES. AND THAT WAS THE REASON WHY LOAN FROM M/S SHARMA MEDICARE PVT. LTD. TO M/S EASTERN C REATION P VT. LTD. WAS CHANNELED THROUGH COMMON DIRECTOR DR SUNIL SHARMA. ASSESSEE IN ITS REPLY DATED 08/07 /14 FILED BEFORE LD.CIT (A) PLACED AT PAGE 14 - 16 OF THE PAPER BOOK PROVIDES THE DETAILS OF ALLEGED LOAN ADVANCED TO M/S EASTERN C REATION PVT. LTD. THROUGH ASSESSEE BY M/S SHARMA MEDICARE PVT. LTD. WHICH HAS BEEN BORROWED FROM VARIOUS FINANCIAL INSTITUTIO NS. THE DETAILS ARE AS UNDER: S.NO. SOURCE DISBURSEMENT 1. LOAN FROM HDFC BANK RS.14,66,183/ - DATED 24.06.10 RS. 7 LAKHS DATED 24/06/10 ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 10 OF 19 2. LOAN FROM HDFC BANK RS.37,77,543/ - DATED 13/09/10 RS. 40 LACS AND RS. 8 LACS DATED 13/09/10; RS. 3 LACS DATED 15/09/10 & RS. 3.50 LACS DATED 18/09/10 (TOTAL RS. 18.50 LACS) 3. LOAN FROM TATA C APITAL LTD., RS.34,61,245/ - DATED 15/01/11, DEPOSITED INTO FDR RS.35 LAKHS, FDR CLOSURE PROCEEDS RS. 35 LAKHS DATED 03/03/11 RS.10 LACS DATED 04/03/11 RS. 3 LACS DATED 24/03/ 11 RS. 1 LAKH DATED 31/03/11 (TOTAL RS.14 LACS) 4. LOAN IN THE NAME OF SUNIL SHARMA FROM HDFC BANK RS.14,21,889.83 TAKEN OVER BY M/S SHARMA MEDICARE PVT. LTD. TRANSFER EQUITY DATED 01/08/10 FOR RS.14,21,889.83 5.1 . WE HAVE OBSERVED THAT ASSESSEE ALONG WITH HIS WIFE DR PREETI AGGARWAL (WHO IS ALSO A SIGNATORY TO THE DOCUMENT ADDUCED AS ADDITIONAL EVIDENCE BEFORE US), ARE DIRECTORS IN M/S SHARMA MEDICARE PVT. LTD. AND A SSESSEE IS A DIRECTOR OF M/S EASTERN CREATION PVT. LTD. 5.2. ON FURTHER PERUSAL OF PAPER BOOK, IT IS OBSERVED THAT LEDGER ACCOUNT OF DR.SUNIL SHARMA IN THE BOOKS OF SHARMA MEDICARE PVT. LTD., AND VICE - A - VERSA IS PLACED AT PAGE 17 - 20. IT APPEARS FROM THE ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 11 OF 19 LEDGER ACCOUNTS THAT SHARMA MEDICARE PVT. LTD., HAS BEEN PAYING ELECTRICITY EXPENSES ON BEHALF OF SUNIL SHARMA. THE BANK STATEMENT OF ASSESSEE FOR THE PERIOD 01/04/10 TO 31/03/11 MAINTAINED WITH THE DENA BANK HAS BEEN PLACED AT PAGE 23 - 34 OF PAPER BOOK. WE DO NOT AGREE WITH THE ARGUMENT ADVANCED BY LD. AR REGARDING THE RESTRICTION IMPOSED BY C OMPANIES A CT 1956 BY VIRTUE OF SECTION 3(1)(III) (D) AS , M/S SHARMA MEDICARE PVT.LTD. COULD HAVE ADVANCED LOANS DIRECTLY TO M/S EASTERN C REATION PVT. LTD. AS INTER CORPORATE LOANS, BOTH BEING SISTER CONCERNS. WE FAI L TO UNDERSTAND THE MECHANISM CARRIED OUT BY ASSESSEE TO TRANSFER THE FUNDS FROM M/S SHARMA MEDICARE PVT.LTD. TO M/S EASTERN C REATION PVT. LTD . THE ALLEGED MEMORANDUM OF UNDERSTANDING PRESENTED BY LD. AR BEFORE US TODAY AS ADDITIONAL EVIDENCE DOES NOT BELO NG TO THE YEAR UNDER CONSIDERATION AS IT HAS BEEN SIGNED BY THE PARTIES THEREIN AS ON 29/09/14 WHICH IS AFTER THE DATE OF IMPUGNED ORDER PASSED BY LD.CIT(A). IT HAS NOT BEEN EXECUTED IN THE PROPER FORM AS REQUIRED UNDER LAW, WHICH COULD HOLD AN EVIDENTIARY VALUE TO ESTABLISH THE ALLEGED TRANSACTION. THE AUTHENTICITY OF SO CALLED MEMORANDUM OF UNDERSTANDING CANNOT ALSO BE CROSS VERIFIED AS IT HAS NOT BEEN REGISTERED WITH THE REGISTERING AUTHORITY. 5. 3 . THE APPEAL WAS PLACED FOR CERTAIN CLARIFICATION ON 13.12 .2017 REGARDING ALLEGED DOCUMENT THAT WAS PLACED BY WAY OF ADDITIONAL EVIDENCE VIDE APPLICATION DATED 16.11.17. WHILE RESPONDING TO QUERIES RAISED, LD.AR PLACED RELIANCE ON OBSERVATION IN THE DECISION BY HON BLE SUPREME COURT IN THE CASE OF CIT VS. MUKU NDRAY K SHAH REPORTED IN 290 ITR 433 WHICH IS AS UNDER. ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 12 OF 19 WE FIND MERIT IN THIS CIVIL APPEAL. THE COMPANIES HAVING ACCUMULATED PROFITS AND THE COMPANIES IN WHICH SUBSTANTIAL VOTING POWER LIES IN THE HANDS OF THE PERSON OTHER THAN THE PUBLIC (CONTROLLED COMPANIES) ARE REQUIRED TO DISTRIBUTE ACCUMULATED PROFITS AS DIVIDENDS TO THE SHAREHOLDERS. IN SUCH COMPANIES, THE CONTROLLING GROUP CAN DO WHAT IT LIKES WITH THE MANAGEMENT OF THE COMPANY, ITS AFFAIRS AND ITS PROFITS. IT IS FOR THIS GROUP TO DECIDE WHETHE R THE PROFITS SHOULD BE DISTRIBUTED AS DIVIDENDS OR NOT. THE DECLARATION OF DIVIDEND IS ENTIRELY WITHIN THE DISCRETION OF THIS GROUP. THEREFORE, THE LEGISLATURE REALIZED THAT THOUGH FUNDS WERE AVAILABLE WITH THE COMPANY IN THE FORM OF PROFITS, THE CONTROLL ING GROUP REFUSED TO DISTRIBUTE ACCUMULATED PROFITS AS DIVIDENDS TO THE SHAREHOLDERS BUT ADOPTED THE DEVICE OF ADVANCING THE SAID PROFITS BY WAY OF LOAN TO ONE OF ITS SHAREHOLDERS SO AS TO AVOID PAYMENT OF TAX ON ACCUMULATED PROFITS. THIS WAS THE MAIN REAS ON FOR ENACTING SECTION 2(22)(E) OF THE ACT. IN THE CASE OF COMMISSIONER OF INCOME - TAX, MADRAS - I V. L. ALAGUSUNDARAM CHETTIAR (1977) 109 ITR 508, THE MADR AS HIGH COURT HELD THAT THE WORD 'PAYMENT' IN THE SAID SECTION MEANS THE ACT OF PAYING AND, THEREFORE, IN THAT CASE IT WAS HELD THAT PAYMENT BY THE COMPANY TO KARUPPIAH CHETTIAR WAS FOR THE BENEFIT OF THE ASSESSEE, THE MANAGING DIRECTOR OF THE COMPANY, L. ALAGUSUNDARAM CHETTIAR, AND WAS THEREFORE ASSESSABLE AS DIVIDEND IN THE HANDS OF THE ASSESSEE. IN THE SAID JUDGMENT IT HAS BEEN HELD THAT THE BASIC TEST TO BE APPLIED IN SUCH CASES IS NOT WHETHER LOAN GIVEN IS A BENEFIT BUT WHETHER PAYMENT BY THE COMPANY T O KARUPPIAH CHETTIAR WAS FOR THE BENEFIT OF THE ASSESSEE WHO WAS THE MANAGING DIRECTOR OF THE PAYING COMPANY. APPLYING THE ABOVE TEST TO THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE TRIBUNAL WAS RIGHT IN HOLDING, ON EXAMINATION OF THE CASH FL OW STATEMENT, THAT MKSEPL HAD MADE PAYMENTS TO MKF AND MKI FOR THE BENEFIT OF THE ASSESSEE WHICH ENABLED THE ASSESSEE TO BUY 9% RBI RELIEF BONDS IN THE F.Y. 1999 - 2000. IT IS IN THIS SENSE ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 13 OF 19 THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE TWO FIRMS WERE USED AS CONDUITS BY THE ASSESSEE. IN OUR CONSIDERED VIEW THE ABOVE REFERRED OBSERVATION IS OF NO ASSISTANCE TO ASSESSEE. FACTUALLY IN PRESENT CASE, IT IS NOT IN DISPUTE THAT ASSESSEE HAD SUBSTANTIAL INTEREST IN THESE COMPANIES. 5. 4 . LD.AR HAS NOT BEEN ABLE TO REBUT THAT LOAN WAS INFACT ADVANCED FOR BENEFIT OF ASSESSEE BY WAY OF ANY PIECE OF EVIDENCE ON RECORD. MERELY PLACING A LETTER SIGNED BY ASSESSEE HIMSELF DOES NOT ESTABLISH , WHAT LD.AR HAS TRIED TO CANVAS BEFORE US. WE THEREFORE REJECT THE ARGUMENTS ADVANCED BY LD.AR IN THIS REGARD AND REACH TO THE CONCLUSION THAT THE TWO COMPANIES WERE USED BY ASSESSEE AS CONDUITS AS HELD BY HON BLE SUPREME COURT IN MUKUNDRAY K SHAH(SUPRA) . 5.5. IN THE INSTANT CASE THE AMOUNTS RECEIVED BY ASSESSEE IS NOTHING BUT LOAN/ADVANCE RECEIVED FROM M/S SHARMA MEDICARE FOR THE BENEFIT OF ASSESSEE, AND ASSESSEE IS CAMOUFLAGING THE SAME AS A COMMERCIAL TRANSACTION TO GET OVER THE PROVISIONS OF SECTION 2 (22)(E) OF THE ACT. WE AGREE WITH THE SUBMISSION ADVANCED BY LD.DR REGARDING THE CREATION OF THIS DOCUMENT BEING AN AFTERTHOUGHT. AND THEREFORE WE ARE NOT INCLINED TO ADMIT THE SAME. WE THUS REJECT THE APPLICATION DATED 16/11/17 . 5. 6 . COMING TO THE MERITS OF THE CASE, ASSESSEE HAS NOT ESTABLISHED REGARDING CONSTRUCTION CARRIED OUT BY EASTERN M/S EASTERN C REATION PVT. LTD . EVEN FROM THE SUBMISSIONS BEFORE LD. CIT (A), ASSESSEE HAS NOT ESTABLISHED ANY REPAYMENT OF THE SAID AMOUNT ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 14 OF 19 BACK TO M/S SHARMA MEDICARE PVT. LTD. BEFORE US THERE HAS BEEN NOTHING THAT IS BROUGHT ON RECORD REGARDING ALLEGED LOAN BEING REPAID BACK TO M/S SHARMA MEDICARE PVT.LTD. UNDER SUCH CIRCUMSTANCES , MORE PARTICULARLY WHEN ASSESSEE WAS HAVING SUBSTANTIAL INTEREST IN EASTERN C REATIONS PVT. LTD. , FINANCIAL EXIGENCY IN TRANSFERRING THE FUNDS FROM M/S SHARMA MEDICARE PVT. LTD. TO M/S EASTERN CR EATIONS PVT. LTD. TH R OUGH ASSESSEE HAS NOT BEEN ESTABLISHED AS PER THE REQUIREMENT OF LAW . WE THEREFORE DO NOT FIND ANY INFIRMITY TO IN TERFERE WITH THE FINDINGS OF LD. CIT (A). 5. 7 . LD.AR EMPHASISED UPON THE REFERENCE MADE BY HON BLE SUPREME COURT IN THE CASE OF CIT VS. L ALAGASUNDARAM CHETTIAR (SUPRA), THE WORD PAYMENT HAS TO BE CONSTRUED IN THE CONTEXT TO KNOW IF ANY BENEFIT HAS ACCR UED TO THE ASSESSEE. HE SUBMITTED THAT IN THE FACTS OF PRESENT CASE ASSESSEE HAS MERELY BEEN A MEDIUM TO TRANSFER THE LOAN AMOUNT BY M/S SHARMA MEDICARE PVT.LTD. TO M/S EASTERN CREATIONS LTD. DUE TO THE RESTRICTION U/S 3(1)(III)(D) OF COMPANIES ACT, 1956. 5. 8 . A SPECIFIC QUERY WAS PUT FORTH BY BENCH TO LD.AR, AS TO WHY INTERCORPORATE LOANS WERE NOT ADVANCED TO M/S EASTERN CREATIONS. LD.AR WAS UNABLE TO REASON OUT THE BUSINESS EXIGENCY FOR ADVANCING LOANS TO M/S EASTERN CREATION THROUGH ASSESSEE. IN OVER ALL CONSIDERATION OF THE ISSUE AS DELIBERATED UPON IN THE FOREGOING PARAGRAPHS, WE ARE OF THE VIEW THAT LD.AO WAS WITHIN HIS REALM TO INVOKE PROVISIONS OF SEC.2(22)(E) OF THE ACT. WE THEREFORE UPHOLD THE ACTION OF AUTHORITIES BELOW. ACCORDINGLY GROUND NO. 1 AND 2 RAISED BY ASSESSEE STAND DISMISSED. ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 15 OF 19 6. GROUND NO. 3 THIS GROUND IS RAISED BY ASSESSEE AGAINST ADDITION OF RS.1,43,834/ - U/S 40(A)(IA) OF THE ACT. 6.1 . IT HAS BEEN SUBMITTED BY LD.AR THAT THIS ADDITION HAS BEEN MADE BY LD.AO FOR NON DEDUCTION OF TDS ON THE PAYMENT OF INTEREST MADE TO M/S RELIANCE CAPITAL LTD. AND M/S BAJAJ CAPITAL LTD. LD.AR SUBMITTED THAT ASSESSEE MAY BE GRANTED BENEFIT AS PER PROVISO TO SEC.40(A)(IA) OF THE ACT, IN THE EVENT THE INTEREST PAID BY ASSESSEE HAS BEEN INCLUDED BY M /S BAJAJ CAPITAL AND M/S RELIANCE CAPITAL IN THEIR TOTAL INCOME FOR THE YEAR UNDER CONSDIERATION. 6.2. LD.AR SUBMITTED THAT THE ISSUE MAY BE SET ASIDE TO ASSESSING OFFICER FOR VERIFICATION OF THE SAME. 6.3 . LD.DR DO NOT OBJECT TO REQUEST ADVANCED BY LD.AR . 6.4 . WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. LD.AO HAS RIGHTLY MADE ADDITION OF INTEREST PAID TO THESE FINANCIAL COMPANIES FOR NON DEDUCTION OF TDS U/S 194 OF THE ACT. HOWEVER IN THE EVENT ASSESS EE IS ABLE TO PRODUCE RELEVANT INFORMATION BEFORE LD.AO TO ESTABLISH THAT M/S RELIANCE CAPITAL LTD. AND M/S BAJAJ CAPITAL LTD. HAVE PAID TAX ON SUCH INTEREST RECEIVED, THEN LD.AO SHALL GRANT RELIEF TO ASSESEE AS PER LAW. 6.5. WE ACCORDINGLY SET ASIDE THIS ISSUE TO LD.AO FOR VERIFICATION OF THE CLAIM AS PER LAW. ASSESSEE IS DIRECTED TO PRODUCE RELEVANT DETAILS TO ESTABLISH ITS CLAIM. ACCORDINGLY GROUND NO.3 STANDS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 16 OF 19 7. GROUND NO.4 THIS GROUND IS IN RESPECT OF ADDITION MADE TOWARDS PURCHASE OF MEDICINES AND MATERIALS. 7.1 . LD.AR SUBMITTED THAT ASSESSEE DEBITED RS.21,41,248/ - TOWARDS PURCHASE OF MEDICINES AND MATERIALS , BUT HAS NOT SHOWN SALE OF MEDICINE. HE SUBMITTED THAT LD.CIT(A) RESTRICTED THE DISALLOWAN CE BY OBSERVING AS UNDER: ON EXAMINING THE FACTS OF THE CASE, IT IS OBSERVED THAT THE APPELLANT BEING A PROFESSIONAL DOCTOR, CHARGES ITS PROFESSIONAL FEE ALONG WITH THE COST OF MEDICINES. THE ACCOUNTS PRODUCED BEFORE THE AO SHOW THAT THERE IS MORE THAN R S.10 LAC SURPLUS GENERATED BY THE APPELLANT, WHICH INCLUDES THE PROFIT ELEMENT FROM THE SALE OF MEDICINE AS WELL AS THE PROFESSIONAL FEE CHARGED BY HIM. THE AO HAS NOT MADE ANY INQUIRY FOR QUANTIFYING THE DISALLOWANCE. AS SUCH DISALLOWANCE HAS BEEN MADE PURELY ON ADHOC BASIS. HOWEVER, THERE IS NO CERTIFICATION FROM THE APPELLANT THAT CLOSING STOCK ON THE LAST DAY OF THE YEAR WAS NIL. EVEN OTHERWISE, IT IS NOT PRACTICALLY POSSIBLE THAT ENTIRE STOCK OF MEDICINES IS UTILISED ON THE LAST DAY OF THE FINANCI AL YEAR WHEN THE OPD OF A PROFESSIONAL DOCTOR IS RUNNING ON DAY - TO - DAY BASIS. KEEPING IN MIND THIS FACTUAL POSITION, IT WOULD BE REASONABLE AND JUSTIFIED TO UPHOLD THE ADDITION AT RS.50,000/ - ONLY ON THIS ISSUE. THE APPELLANT GETS EQ UIVALENT RELIEF. 7. 2 . LD.A.R. SUBMITTED THAT A REASONABLE VIEW THAT ASSESSEE RENDERS OPD SERVICES ON DAY - TO - DAY BASIS. 7. 3 . LD.DR PLACED RELIANCE ON ORDERS OF THE AUTHORITIES BELOW. 7. 4 . WE HAVE PERUSED THE SUBMISSIONS ADVANCED ON THE BASIS OF RECORDS PLACED BEFORE US. FR OM THE SUBMISSIONS ADVANCE D , WE OBSERVE THAT ASSESSEE IS R ENDERING OPD SERVICES , WHERE PATIENTS ARE ATTENDED BY ASSESSEE AND COST OF MEDICINES ISSUED AT THE COUNTER ARE INCLUDED IN THE FEES PAYABLE BY THEM . H OWEVER, WE FAIL ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 17 OF 19 TO UNDERSTAND HOW ENTIRE MEDICINES/MATERIALS WORTH RS.21,41,248/ - WOULD BE DISTRIBUTED AMONGST THE PATIENTS. LD. A R HAS NOT FILED ANY DETAILS LIKE TOTAL NUMBER OF PATIENTS ATTENDED BY ASSESSEE DURING THE YEAR, IN ORDER TO ESTABLISH A REASONABLE DISTRIBUTION OF MEDICINES PURCHASE D BY ASSESSEE . HE HAS ALSO NOT PLACED ON RECORD DETAILS OF MEDICINES/MATERIALS PURCHASED. WE THEREFORE DO NOT FIND ANY INFIRMITY IN RESTRICTING THE DISALLOWANCE TO RS.50,000/ - BY LD.CIT(A) . THE SAME IS THEREFORE UPHELD. 7. 5 . THIS GROUND NO.4 RAISED BY ASSESSEE STANDS DISMISSED . 8. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 20 TH DECEMBER, 2017. S D / - S D / - (R.S. SYAL) (BEENA A PILLAI) VICE PRESIDENT JUDICIAL MEMBER DATED : THE 20 TH DECE MBER, 2017. *MV ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 18 OF 19 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASST. REGISTRAR ITAT, DELHI BENCHES, NEW DELHI ITA NO. 5480/DEL/14 A.Y. 2011 - 12 SH. SUNIL SHARMA PAGE 19 OF 19 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON DRAGON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER