DCIT 11(1)(1), MUMBAI V. RITIKA HOTAS PVT.LTD., MUMBAI

ITA 6131/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7697 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 06-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Assessee Lawyers: D C JAIN
• Keywords: Business income; Earning of tax free income; Deemed dividend; Revenue expenditure
• Section: 2(22)(e)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI BEFORE SHRI C.N. PRASAD, JM & SHRI M.BALAGANESH, AM ITA NO. 6131 / MUM/20 1 7 & 6132/MUM/2017 ( ASSESSMENT YEAR : 2012 - 13 & 2013 - 14 ) DY. COMMISSIONER OF INCOME TAX 11(1)(1), MUMBAI, ROOM NO.204, AAYAKAR BHAVAN, M.K.MARG MUMBAI 400 020 VS. M/S. RITIKA HOTELS PVT. LTD., AMAR MAHAL, ANAND RAO DEVLE ROAD, JUHU, MUMBAI 400 049 PAN/GIR NO. AABCR0837Q ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI D.G. PANSARI ASSESSEE BY SHRI D.C. JAIN DAT E OF HEARING 09 / 04 /201 9 DATE OF PRONOUNCEMENT 24 / 04 /201 9 / O R D E R PER M. BALAGANESH (A.M) : THESE APPEAL S IN ITA NO S . 6131/MUM/2017 & 6132/MUM/2017 FOR A.Y. 2012 - 13 & 2013 - 14 ARISE OUT OF THE ORDER BY THE LD. COMMISSIONER OF INC OME TAX (APPEALS) - 18, MUMBAI IN APPEAL NO. CIT(A) - 18/IT - 179/AC - 11(1)(1)/15 - 16 DATED 28/06/2017 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 27/03/2015 BY THE LD. AS SISTANT COMMISSIONER OF INCOME TAX - 11(1)(1), MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). SINCE IDENTICAL ISSUES ARE INVOLVED IN THESE APPEALS, ITA NOS.6131 & 6132/MUM/2017 M/S. RITIKA HOTELS PVT. LTD., 2 THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATE ORDER, FOR THE SAKE OF CONVENIENCE. THE FACTS OF A.Y.2012 - 13 ARE TAKEN UP FOR ADJUDICATION AND THE DECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE FOR A.Y.2013 - 14 ALSO EXCEPT WITH VARIANCE IN FIGURES. 2. THE FIRST ISSUE INVOLVED IN THIS APPEAL IS WITH REGARD TO DELETION OF DISALLOWANCE U /S.14A OF THE ACT BY THE LD. CIT(A). 2.1. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE LD. CIT(A) HAD DELETED THE DISALLOWANCE MADE BY THE LD. AO U/S.14A OF THE ACT ON THE GROUND THAT ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDE R CONSIDERATION. IT IS NOW WELL SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF ESSAR TELEHOLDINGS LTD REPORTED IN 401 ITR 445 (SC) THAT NO DISALLOWANCE U/S.14A OF THE ACT COULD BE MADE WHEN THERE IS NO EXEMPT INCOME CLAIMED BY THE ASSESSEE. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) IN THIS REGARD. ACCORDINGLY GROUND NO.1 RAISED BY THE REVENUE FOR BOTH THE YEARS IS DISMISSED. 2.2. THE NEXT COMMON ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DEL ETING THE ADDITION MADE U/S.41(1) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE IS A BUILDER AND DEVELOPER AND DERIVING BOTH BUSINESS INCOME AS WELL AS RENTAL INCOME. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO FURNISH PARTY WISE DETAILS OF VARIOUS SUNDRY CREDITORS SHOWN IN THE BALANCE SHEET TOGETHER WITH THE MOVEMENT OF THOSE CREDITORS GIVING BREAK - UP OF OPENING BALANCE, PURCHASES MADE DURING THE YEAR, PAYMENTS MA DE DURING THE YEAR AND CLOSING BALANCE. THE SAME WAS DULY PRODUCED BEFORE THE LD. AO AND THE LD. AO OBSERVED THAT IN RESPECT OF 19 PARTIES THERE WAS NO MOVEMENT IN THE ACCOUNTS OF THOSE CREDITORS BECAUSE OPENING AND CLOSING BALANCE WERE REMAINING SAME AND ACCORDINGLY, HE CAME TO THE CONCLUSION THAT THOSE CREDITORS CEASED TO EXIST AS ON THE BALANCE SHEET DATE. ACCORDINGLY, THE LD. AO INVOKED PROVISIONS OF SECTION ITA NOS.6131 & 6132/MUM/2017 M/S. RITIKA HOTELS PVT. LTD., 3 41(1) OF THE ACT AND MADE AN ADDITION OF RS.75,17,483/ - IN THE ASSESSMENT FOR WANT OF SUPPORTING DOCUMENTARY EVIDENCES FROM THE SIDE OF THE ASSESSEE AND FOR NOT PROVING THE FACT THAT THE SAID LIABILITIES STILL EXIST ON THE BALANCE SHEET DATE. 3.1. BEFORE THE LD. CIT(A), THE ASSESSEE PLEADED THAT IT HAD NOT CLAIMED ANY ALLOWANCE OR DEDUCTION IN RESPEC T OF THOSE SUNDRY CREDITORS REFLECTED BY THE ASSESSEE. IT WAS ALSO PLEADED THAT NO BENEFIT WAS OBTAINED IN RESPECT OF SUCH LIABILITIES AND THERE WAS NO CESSATION OF REMISSION THEREON DURING THE YEAR. THOSE LIABILITIES STILL CONTINUE TO REMAIN AS PAYABLE ON THE BALANCE SHEET DATE. IT WAS ALSO PLEADED THAT THOSE SUNDRY CREDITORS PERTAIN TO CAPITAL SUPPLIES MADE BY THOSE PARTIES TO THE ASSESSEE FOR CONSTRUCTION OF BUILDING FOR EDUCATIONAL TRUST I.E., SAI BABA EDUCATIONAL TRUST AT THANE AS WELL AS CONSTRUCTION OF SURAJ PLAZA AT THANE. IT WAS PLEADED THAT BOTH THE PROJECTS WERE UNDER CONSTRUCTION AND THE EXPENSES INCURRED THEREON WERE REFLECTED IN WORK IN PROGRESS ACCOUNT FROM YEAR ON YEAR AND NO EXPENSES THEREON WERE CLAIMED AS REVENUE EXPENDITURE EITHER BY TH E ASSESSEE IN THE RETURN OR HAVE BEEN ALLOWED IN THE ASSESSMENT PROCEEDINGS IN THE EARL IER YEAR BY THE REVENUE . ACCORDINGLY, IT WAS PLEADED THAT THE PROVISIONS OF SECTION 41(1) OF THE ACT COULD NOT BE MADE APPLICABLE TO THE FACTS OF THE INSTANT CASE. THE L D. CIT(A) DULY APPRECIATED THE SAID FACT THAT NO DEDUCTION WAS CLAIMED BY THE ASSESSEE IN THE EARLIER YEAR S . THE LD. CIT(A) ALSO FURTHER OBSERVED THAT MERELY BECAUSE A PARTICULAR LIABILITY IS BARRED BY LIMITATION IT CANNOT BE SAID THAT IT CEASED TO EXIST. HE FURTHER HELD THAT THE PROVISIONS OF SECTION 41(1) OF THE ACT COULD BE APPLIED ONLY WHEN THE ASSESSEE UNILATERALLY EXPRESSED ITS INTENTION NOT TO PAY THE DUE S EITHER DUE TO LIMITATION OF TIME OR DUE TO ANY OTHER REASON EVEN WHEN THE SAME WAS DEMANDED BY THE CONCERNED SUNDRY CREDITORS. WITH THESE OBSERVATIONS, HE DELETED THE ADDITION MADE U/S.41(1) OF THE ACT. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. ITA NOS.6131 & 6132/MUM/2017 M/S. RITIKA HOTELS PVT. LTD., 4 5. WE HAVE HEARD RIVAL SUBMISSIONS. WE FIND THAT THE FACTUAL FINDING GIVEN BY THE LD. CIT(A) AS R EITERATED HEREINABOVE WERE NOT CONTROVERTED BY THE REVENUE BEFORE US. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAD CLAIMED DEDUCTION OR ALLOWANCE IN THE EARLIER YEARS WITH REGARD TO THESE SUNDRY CREDITORS. IT IS NOT IN DISPUTE THAT THE S E SUNDRY CREDITORS PERTAIN TO CAPITAL ACCOUNT TRANSACTIONS AND HENCE, DOES NOT FALL WITHIN THE AMBIT OF A TRADING LIABILITY OF THE ASSESSEE. HENCE, WE HOLD THAT THE LD. CIT(A) HAD RIGHTLY DELETED THE ADDITION MADE U/S. 41(1) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY, THE GROUND NOS. 2 & 3 RAISED BY THE REVENUE FOR BOTH THE YEARS ARE DISMISSED. 6. ACCORDINGLY, THE APPEAL OF THE REVENUE FOR A.Y.2012 - 13 IS DISMISSED. 7. THE NEXT ISSUE TO BE DECIDED IN THE APPEAL OF THE REVENUE FOR A.Y.2013 - 14 IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE TOWARDS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE LD. AO OBSERVED THAT THE ASSESSEE COMPANY HAD RECEIVED LOAN OF RS.34,00,000/ - FROM MUCHHALA MAGIC LAND PVT. LTD. THE ASSESSEE WAS ASKED TO PROVIDE THE SHAREHOLDING PATTERN, RETURN OF INCOME, COMPUTATION OF INCOME AND AUDIT REPORT OF MUCHHALA MAGIC LAND PVT. LTD. FROM THE DETAILS SO FILED BY THE ASSESSEE, THE LD. AO OBSERVED THAT MR. ARUNKUMAR J MUCHHALA IS HOLDING 32.18% OF SHARES OF RITHIKA HOTELS PVT. LTD., I.E., THE ASSESSEE COMPANY AND WAS ALSO HOLDING 32% SHARES IN MUCHHALA MAGIC LAND PVT. LTD. THE LD. AO ALSO OBSERVED THAT AS ON 31/03/2012 , MUCHHALA MAGIC LAND PVT. LTD. HAD ACCUMULATED PROFITS OF RS.5,25,64,264/ - AND AS ON 31/03/201 3 OF RS.3,02,70,140/ - . ACCORDINGLY, THE LD. AO HELD THAT ALL THE CONDITIONS PRESCRIBED IN PARA 10.3 OF CIRCULAR NO.495 WERE DULY COMPLIED WITH BY THE ASSESSEE AND HENCE, THE LOAN OF RS.34,00,000/ - RECEIVED BY THE ASSESSEE ITA NOS.6131 & 6132/MUM/2017 M/S. RITIKA HOTELS PVT. LTD., 5 FROM MUCHHALA MAGIC LAND PVT. LTD., IS TO BE TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT AND ACCORDINGLY, THE LD. AO ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 9. THE ASSESSEE BEF ORE THE LD. CIT(A) STATED THAT IT HAS A CURRENT ACCOUNT WITH MUCHHALA MAGIC LAND PVT. LTD., WHEREIN THERE IS AN OPENING DEBIT BALANCE OF RS.32,26,000/ - AND THERE WAS A RECEIPT OF RS.50,000 DURING THE YEAR AND THE CLOSING BALANCE STOOD AT RS.31,76,000/ - . TH E COPY OF LEDGER ACCOUNT OF THE ASSESSEE IN THE BOOKS OF MUCHH ALA MAGIC LAND PVT. LTD WAS F ILED. IT WAS SPECIFICALLY STATED THAT ASSESSEE COMPANY WAS NOT HOLDING ANY SHARES IN MUCHHALA MAGIC LAND PVT. LTD., I.E., THE LENDING COMPANY , IN SUPPORT OF WHICH , T HE ASSESSEE COMPANY PRODUCED THE ENTIRE LIST OF SHARE HOLDERS OF MUCHHALA MAGIC LAND PVT. LTD. IT WAS SPECIFICALLY PLEADED THAT IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, THE PAYMENT SHOULD BE MADE TO A SHAREHOLDER BEING A PERSON WH O IS BENEFICIA L HOLDER OF SHARES AND WHO HAS A SUBSTANTIAL INTEREST IN THE COMPANY HAVING MINIMUM 10% OF VOTING POWER THEREON. RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD., REPORTED IN 324 ITR 263 (BOM) . 1 0 . THE LD. CIT(A) ON PERUSAL OF THE LIST OF SHAREHOLDERS OF MUCHHALA MAGIC LAND PVT. LTD., OBSERVED THAT ASSESSEE COMPANY IS NOT HOLDING ANY SHARES IN THE SAID COMPANY. HENCE, HE HELD THAT THE PROVISIONS OF SECTI ON 2(22)(E) OF THE ACT CANNOT BE APPLIED TO THE FACTS OF THE INSTANT CASE. HE ALSO PLACED RELIANCE ON THE DECISION OF THE CO - ORDINATE BENCH OF KOLKATA TRIBUNAL IN THE CASE OF GAYATRI CHAKRABORTY VS. ITO WHEREIN IT WAS HELD THAT A LOAN ACCOUNT IS DIFFERENT FROM CURRENT ACCOUNT AND IN THE INSTANT CASE, THE ASSESSEE HAD MAINTAINED CURRENT ACCOUNT TRANSACTIONS WITH MUCHHALA MAGIC LAND PVT. LTD., AND HENCE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT COULD NOT BE ATTRACTED THEREON. WITH THESE ITA NOS.6131 & 6132/MUM/2017 M/S. RITIKA HOTELS PVT. LTD., 6 OBSERVATIONS, H E D ELETED THE ADDITIONS MADE TOWARDS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT IN THE SUM OF RS.34 LAKHS FOR THE A.Y.2013 - 14. 1 1 . AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 1 2 . WE HAVE HEARD RIVAL SUBMISSIONS. THE LD. DR BEFORE US VEHEMENTLY ARGUED THAT MUCH HALA MAGIC LAND PVT. LTD., IS NOT ENGAGED IN THE BUSINESS OF LENDING. HENCE, THE OBSERVATION MADE BY THE LD. CIT(A) , THAT ASSESSEE HAD MAINTAINED CURRENT ACCOUNT TRANSACTIONS WITH IT AND THAT THE LOAN ACCOUNT IS DIFFERENT FROM CURRENT ACCOUNT , IS INCORRECT . HE ARGUED THAT THE PROVISIONS OF THE INCOME TAX ACT DOES NOT BIFURCATE BETWEEN THE TWO. PER CONTRA, THE LD. AR VEHEMENTLY RELIED ON THE ORDER OF THE LD. CIT(A). WE FIND THAT THERE IS NO NEED IN THE FACTS OF THE INSTANT CASE TO LOOK INTO THE DISPUTE AS T O WHETHER THE ASSESSEE HAD MAINTAINED A CURRENT ACCOUNT WITH MUCHHALA MAGIC LAND PVT. LTD.,(LENDING COMPANY) AND THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT COULD INDEED BE MADE APPLICABLE TO THE SAME AS THE ASSESSEE HAD BEEN GIVEN REL IEF BY THE LD. CIT(A) ON THE GROUND THAT IT WAS NOT HOLDING ANY SHARES IN THE LENDING COMPANY. IN OUR CONSIDERED OPINION, THAT THIS IS A PRIMARY CONDITION TO BE SATISFIED IN ORDER TO INVOKE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS ANKITECH (P) LTD & ORS REPORTED IN 340 ITR 14 (DEL) WHICH IN TURN FOLLOWED THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS UNIVERSAL MEDICARE (P) LTD REPORTED IN 324 ITR 263(BOM). WE ALSO FIND THAT THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ANKITECH P LTD HAD BEEN APPROVED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT DELHI VS MADHUR HOUSING AND DEVELOPMENT COMPANY IN CIVIL APPEAL NO. 3961 OF 2013 ALON G WITH OTHER CIVIL APPEALS VIDE ORDER DATED 5.10.2017 BY FULLY ENDORSING THE VIEWS OF THE HONBLE DELHI HIGH COURT SUPRA. ACCORDINGLY, WE HOLD THAT ASSESSEE COMPANY IS ITA NOS.6131 & 6132/MUM/2017 M/S. RITIKA HOTELS PVT. LTD., 7 NOT A SHAREHOLDER IN THE LENDING COMPANY AND HENCE, THE PROVISIONS OF SECTION 2(22)(E) O F THE ACT CANNOT BE MADE APPLICABLE IN THE FACTS OF THE INSTANT CASE. WE FIND THAT THE LD, CIT(A) HAD RIGHTLY DELETED THE ADDITION IN THIS REGARD. ACCORDINGLY, GROUND NO.4 RAISED BY THE REVENUE FOR THE A.Y.2013 - 14 IS DISMISSED. 1 3 . GROUND NO.4 & 5 FOR A.Y. 2012 - 13 AND GROUND NO.5 & 6 FOR A.Y 2013 - 14 RAISED BY THE REVENUE ARE GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. ACCORDINGLY BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. 1 4 . IN THE RESULT, APPEALS OF THE REVENUE ARE DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 24 / 04 /201 9 SD/ - ( C.N. PRASAD) SD/ - ( M.BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 24 / 04 /201 9 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITA T, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//