Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 3105 (ITAT-NAGPUR)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
8 year(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
16-04-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB
Assessment Year
2006-2007
Appeal Filed On
05-04-2011
Judgement Text
, - IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR , BENCH , ( E - COURT), MUMBAI , BEFORE SHRI R.K.GUPTA , J M & SHRI RAJENDRA , A M / ITA NO S . 65 & 66 / NAG /20 1 1 ( ASSESSMENT YEAR S : 2006 - 07 & 07 - 08) DCIT, CIR - 3, SADAR, NAGPUR - 440 001 VS. M/S BHARAT HARDWARE & IRON STORES, OLD MOTOR STAND, BHANDARA ROAD, NAGPUR. PAN/GIR NO. : AABFB 3048 A ( APPELLANT ) .. ( RESPONDENT ) AND / ITA NO S . 6 8 & 6 9 /NAG /20 11 ( ASSESSMENT YEARS :2006 - 07 & 07 - 08) M/S BHARAT HARDWARE & IRON STORES, AGRAWAL CHHALLANI & CO, 51, NEW COLONY, BEHIND CHHAONI POLICE CHOWK Y, NAGPUR - 440 001 . VS. DCIT, CIR - 3, SADAR, NAGPUR - 440 001 PAN/GIR NO. : AABFB 3048 A ( APPELLANT ) .. ( RESPONDENT ) AND / ITA NO. 70 /NAG /20 11 ( ASSESSMENT YEAR :2006 - 07) M/S RAJU STEEL INDUSTIRES , AGRAWAL CHHALLANI & CO, 51, NEW COLONY, BEHIND CHHAONI POLICE CHOWKY, NAGPUR - 440 001. VS. DCIT, CIR - 3, SADAR, NAGPUR - 440 001 PAN/GIR NO. : AA AFR 9206 K ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : MR. H.WANARE & MR. B.RAJARAM /ASSESSEE BY : SHRI K.P.DEWANI DATE OF HEARING : 1 8 TH DEC ., 2012 DATE OF PRONOUNCEMENT : 9 TH JAN . , 201 3 ITA NO S . 65&66 /NAG /20 1 1 & ITA NOS. 68 TO 70 /NAG/201 1 2 O R D E R P ER SHRI R.K.GUPTA, J.M : THE SE ARE 5 APPEALS BY THE DEPARTMENT AND TWO DIFFERENT ASSESSEE S AGAINST THE ORDER OF LEANED CIT(A) - II , NAGPUR (MAHARASHTRA) , RELATING TO ASSESSMENT YEARS 200 6 - 0 7 & 2007 - 08 , RESPECTIVELY. SINCE THE COMMON ISSUES ARE INVOLVED IN ALL THE CASES , THEREFORE, FOR THE SAKE OF CONVENIENCE , ALL THE CASES HAVE BEEN HEARD THROUGH E - COURT, MUMBAI AND DISPOSED OF BY THIS CONSOLIDATED ORDER TOGETHER . 2 . W E WILL TAKE UP FIRST ITA NO. 65 & 66 /NAG/201 1 IN CASE M/S BHARAT HARDWARE & IR ON STORES FILED BY THE DEPARTMENT FOR BOTH OF THE YEARS I.E. AY 2006 - 07 & 2007 - 08 . 3 . THE DEPARTMENT HAS RAISED THE GROUND S IN REGARD TO DELETION OF ADDITION OF RS. 39,22,792/ - MADE BY THE AO AS DEEMED DIVIDEND IN VIEW OF SECTION 2(22)(E) OF THE ACT AND D ELETI O N THE ADDITION OF RS. 19,22,957/ - MADE BY THE AO AS DEEMED DIVIDEND INCOME UNDER SECTION 2(22)(E) AND DELETION OF CONSEQUENTIAL ADDITION OF RS. 24742/ - MADE BY THE AO ON THE GROUND OF DISALLOWANCE OF INTEREST ON DEEMED DIVIDEND INCOME. 4. THE BRIEF F ACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT A SISTER CONCERN ORANGE CITY STEEL INDUSTRIES PVT. LTD. (HEREINAFTER REFERRED TO AS OCSIPL) HA S ITA NO S . 65&66 /NAG /20 1 1 & ITA NOS. 68 TO 70 /NAG/201 1 3 ADVANCED LOANS TO THE FIRM AMOUNTING TO RS. 1.55 CRORES FOR THE ASSE SSMENT YEAR 2006 - 07. THE AO ALSO NOTICED THAT PARTNERS IN THE ASSESSEES FIRM ARE ALSO SHARE HOLDERS IN OCSIPL. ONE OF THE PARTNER NAMELY, M/S DOLLY WEIGH BRIDGE PVT. LTD. WHICH HAS 40% PROFIT SHARE RATIO IN THE ASSESSEES FIRM ALSO HAS A SHARE HOLDING OF NEARLY 30% OF OCSIPL. ACCORDING TO THE AO THESE AMOUNTS ARE NOT RECEIVED IN THE ORDINARY COURSE OF BUSINESS OF THE COMPANY AND ASSESSEES CONTENTION THAT THE OCSIPL WAS IN THE BUSINESS OF MONEY LENDING WAS NOT CORRECT. ACCORDINGLY, HE MADE ADDITION OF RS. 39,22,792/ - AS DEEMED INCOME UNDER SECTION 2(22)(E). SIMILARLY, THE ADDITION OF RS. 19,121,971/ - WAS MADE FOR ASSESSMENT YEAR 2007 - 08. 5 . BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE ASSESSEE HAD ADVANCED THESE MONEY IN THE ORDINARY COURSE OF BUSINESS. IT WAS ALSO SUBMITTED THAT MONEY LENDING IS A SUBSTANTIAL PART OF THE CREDITOR I.E. M/S OCSIPL AS IS EVIDENT FROM THE OBJECT CLAUSE OF THE MEMORANDUM OF ARTICLE. IT WAS ALSO SUBMITTED THAT THE ASSESSEES FIRM I.E.M/S BHARAT HARDWARE & IRON STORES IS NEITHER A SHAREHOLDER NOR A BENEFICIARY SHAREHOLDER OF THE SHARE OF THE SAID COMPANY. ONLY THE PARTNER OF THE FIRM WAS SHAREHOLDER AND THE BENEFICIARY SHAREHOLDER OF THE FIRM. ACCORDINGLY, IT WAS HELD THAT SECTION 2(22)(E) WAS NOT APPLICABLE IN THE FACTS AND CIRC UMSTANCES OF THE CASE. RELIANCE WAS PLACED IN VARIOUS CASE LAWS REPORTED IN 122 ITR 1 (SC); 217 CTR 527 (RAJ); 199 ITR 88 (ALL.) AND IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. 118 ITD 1 . AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RE CORD ITA NO S . 65&66 /NAG /20 1 1 & ITA NOS. 68 TO 70 /NAG/201 1 4 AND ALSO TAKING INTO CONSIDERATION THE PROVISION OF SECTION 2(22)(E) OF THE ACT, LEARNED CIT(A) FOUND THAT THE DEEMED DIVIDEND INCOME CAN BE MADE IN THE HANDS OF BENEFICIARY SHAREHOLDERS. IN CASE OF BHAUMIK COLOUR (P) LTD. (SUPRA ) , IT HAS BEEN HELD TH AT DEEMED DIVIDEND INCOME CAN BE ASSESSED IN THE HANDS OF SHARE HOLDER ONLY. ACCORDINGLY, LEARNED CIT(A) NOTED THAT NEITHER THE ASSESSEES FIRM IS A REGISTERED SHAREHOLDER NOR BENEFICIARY SHAREHOLDER IN THE SAID COMPANY, THEREFORE, PROVISION OF SECTION 2(2 2)(E) ARE NOT ATTRACTED ON THE FACTS OF THE PRESENT CASE. THE ADDITION SO MADE BY THE AO WAS DELETED BY THE LEARNED CIT(A) . 5 . 1 SIMILAR ADDITION MADE FOR THE ASSESSMENT YEAR 2007 - 08 WAS ALSO DELETED BY THE LEARNED CIT(A) BY THE AO UNDER SECTION 2(22)(E) . THE ADDITION ON ACCOUNT OF INTEREST ON THE AMOUNT OF DEEMED DIVIDEND WAS ALSO DELETED AS THE SAME WAS DELETED BEING CONSEQUENTIAL ADDITION IN VIEW OF THE PROVISION OF SECTION 2(22)(E) . 6. LEARNED DR PLACED RELIANCE ON THE ORDER OF LEARNED AO. ON THE OTHE R HAND, LEARNED COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE ORDER OF LEARNED CIT(A) FOR BOTH OF THE YEARS. 7. A FTER CONSIDERING THE ORDER OF AO AND CIT(A), WE FOUND NO INFIRMITY IN THE FIND INGS OF THE LEARNED CIT(A) . THE ASSESSEES FIRM IS NEITHER A RE GISTERED SHAREHOLDER NOR BENEFICIARY SHARE HOLDER IN THE SAID COMPANY, WHO IS A CREDITOR OF THE ASSESSEE FIRM. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOUR (P) LTD. (SUPRA) , ITA NO S . 65&66 /NAG /20 1 1 & ITA NOS. 68 TO 70 /NAG/201 1 5 HAS HELD THAT ADDITION CAN BE MADE UNDER SECTION 2(22)(E) IN TH E CASE OF BENEFICIARY SHAREHOLDER ONLY. THIS VIEW OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PVT. LTD., REPORTED IN 324 ITR 263 (BOM) . IN VIEW OF THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT LEARNED CIT(A) WAS RIGHT IN DELETING THE ADDITION MADE BY THE AO IN VIEW OF THE PROVISION OF SECTION 2(22)(E) AND DISALLOWING THE IN TEREST WHICH WAS CONSEQUENTIAL TO THE ADDITION MADE AS DEEMED DIVIDEND. ACCORDINGLY, WE CONFIRM THE ORDER OF T HE LEARNED CIT(A) FOR BOTH OF THE YEARS. HENCE, APPEALS OF THE DEPARTMENT I.E. ITA NO.65&66/NAG/2011 FAIL AND THE SAME ARE DISMISSED. 8 . NOW, WE WILL TAKE UP THE APPEALS OF THE ASSESSEE I.E. ITA NO. 68&69/NAG/2011 FOR AY 2006 - 07 & 2007 - 08. . 9 . THE ONLY IS SUE IN APPEALS OF THE ASSESSEE IS AGAINST CONFIRMING THE DISALLOWANCE OF RS. 8,48,034/ - & RS. 10,57,490/ - OUT OF INTEREST PAID AS NON - BUSINESS PURPOSE EXPENDITURE RESPECTIVELY FOR BOTH OF THE YEARS. 10 . THE BRIEF FACTS IN THIS REGARD ARE THAT THE PARTNER O F THE ASSESSEE FIRM WITHDREW SOME CAPITAL OUT OF CREDIT BALANCE IN THEIR CREDIT ON ACCOUNT OF CAPITAL IN THE FIRM AND ADVANCED TO THE SISTER CONCERN I.E. M/S RAJU STEEL INDUSTRIES. SIMILARLY THE PARTNER OF M/S RAJU STEEL INDUSTRIES PVT. LTD. WITHDREW SOME CAPITAL FROM M/S RAJU STEEL INDUSTRIES PVT. LTD. AND ADVANCED TO THE ASSESSEES FIRM. THE AO WAS ITA NO S . 65&66 /NAG /20 1 1 & ITA NOS. 68 TO 70 /NAG/201 1 6 OF THE VIEW THAT SINCE THE PARTNER IN BOTH THE FIRMS HAVE WITHDRAWN THEIR CAPITAL IN THE RESPECTIVE FIRMS AND HAVE ADVANCED THE LOANS TO EACH OTHER, THEREFORE, INTEREST PAID TO THE LENDERS WAS NOT ALLOWABLE UNDER SECTION 37(1) . 11 . LEARNED CIT(A) HAS ALSO CONFIRMED THE ACTION OF THE AO. 12 . AFTER CONSIDERING THE SUBMISSION AND PERUSING THE ORDERS OF THE AUTHORITIES BELOW, WE FOUND THAT THE ASSESSEE DESERVES TO SUCCEED ON THE ISSUE INVOLVED IN BOTH THESE APPEALS. THE PARTNERS HAVE WITHDRAWN THEIR CAPITAL, WHICH WERE CREDITED IN THE FIRM. THERE IS NO B AR TO WITHDRAW THEIR CAPITAL AS THEY HAVE WITHDRAWN THEIR CAPITAL OUT OF THE TOTAL CAPITAL INVESTED IN THE FIRM . THEY HAVE ADVANCED THESE AMOUNTS TO ANOTHER FIRM I.E. M/S RAJU STEEL INDUSTRIES ON WHICH THEY HAVE CHARGED INTEREST AND THAT INTEREST INCOME HAS BEEN SHOWN IN THE HANDS OF THESE PARTNERS. SIMILARLY, THE PARTNER OF M/S RAJU STEEL INDUSTRIES HAS WITHDRAWN SOME CAPITAL FROM THEIR PARTNERSHIP FIRM AND ADVANCED THE MONEY TO THIS PARTNERSHIP CONCERN. THIS PARTNERSHIP CONCERN HAS PAID INTEREST TO THEM AND THE INTEREST INCOME HAS BEEN SHOWN IN THEIR RESPECTIVE HANDS. THEREFORE, IN OUR CONSIDERED VIEW, THERE IS NO LOSS OF REVENUE AT ALL. THE FIRM IS PAYING INTEREST AND CLAIMING DEDUCTION IN PROFIT AND LOSS ACCOUNT, ON THE OTHER HAND, THE LENDERS HAVE SHOWN THE INTEREST INCOME IN THEIR HANDS AND PAYING DUE TAX ON THAT INCOME. THE RATE OF TAX IS SAME, THEREFORE, IN O UR CONSIDERED VIEW, DISALLOWANCE OF INTEREST PAID WAS NOT JUSTIFIED UNDER SECTION 37(1). THIS IS THE BUSINESS ITA NO S . 65&66 /NAG /20 1 1 & ITA NOS. 68 TO 70 /NAG/201 1 7 MAN WHO KNOWS HOW TO RUN HIS BUSINESS ACTIVITY. THE ASSESSEE HAS RUN HIS BUSINESS ACTIVITIES IN A WAY WHICH THEY LIKE AND WAS BENEFICIAL FOR THEM. IF BY ANY REASON THEY HAVE MADE SOME TAX PLANNING, THAT TAX PLANNING IS ALSO IN THE FOUR CORNER OF LAW, WHICH IS PERMISSIBLE. THEREFORE, FOR THIS REASON ALSO, DISALLOWANCE OF INTEREST WAS NOT JUSTIFIED. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE DELETE THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST FOR BOTH OF THE YEARS. 1 3 . NOW, WE WILL TAKE APPEAL FILED BY THE ASSESSEE M/S RAJU STEEL INDUSTRIES I.E. ITA NO. 70/NAG/2011 FOR THE ASSESSMENT YEAR 2006 - 07. 1 4 . THE ASSESSEE IS OBJE CTING THE CONFIRMING THE DISALLOWANCE OF RS. 6,29,463/ - OUT OF INTEREST PAID AS NON - BUSINESS PURPOS E. 1 5 . SIMILAR ADDITIONS WERE MADE IN THE CASE OF M/S BHARAT HARDWARE & IRO N STORES . WE HAVE ALREADY DISPOSED OF THE APPEALS IN THE CASE OF M /S BHARAT HARDW ARE & IRON STORE, WHEREIN WE HAVE DELETED THE ADDITIONS MADE AND CONFIRMED BY THE LOWER AUTHORITIES ON ACCOUNT OF DISALLOWANCE OF INTEREST. SINCE, FACTS ARE SIMILAR, THEREFORE, FOR THE SAME REASONS, THE ADDITION MADE AND CONFIRMED BY THE LOWER AUTHORITIES IS HEREBY DELETED. 1 6 . RESULTANTLY , THE APPEAL S OF THE DEPARTMENT I.E. ITA NOS. 65&66/NAG/2011 ARE DISMISSED AND APPEALS OF THE ASSESSEES I.E. ITA NOS. 6 8 TO 70/NAG/2011 ARE ALLOWED . ITA NO S . 65&66 /NAG /20 1 1 & ITA NOS. 68 TO 70 /NAG/201 1 8 I.E. ITA NOS.65&66/NAG/2011 I.E. ITA NOS. 6 8 TO 70/NAG/2011 ORDER PRONOUNCED IN THE E - COURT ON THIS 9 TH DAY OF JAN.2013. - 201 3 SD/ - SD/ - ( ) ( RAJENDRA ) ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : / / 201 3 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI / NAGPUR . 4. / CIT 5. / DR, ITAT, MUMBAI / NAGPUR . 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( DY./ASSTT. REGISTRA R) / ITAT, MUMBAI
