ACIT, Ludhiana V. Sh. Vivek Goyal, Ludhiana

ITA 7/CHANDI/2011

• Counselvise Citation: 721514 RSA 2011
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 03-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Business income; Deemed dividend
• Section: 28; 133A; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: CHANDIGARH BENCH A BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENTAND SHRI MEHAR SINGH, HONBLE ACCOUNTANT MEMBER ITA NO. 07/CHANDI/2011 ASSESSMENT YEAR 2007-08 A.C.I.T. C-V, LUDHIANA V. VIVEK GOYAL C/O M/S HAPPY MACHINE TOOLS KANGANWAL ROAD LUDHIANA PAN: AFOPG 2427 A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K. SAINI RESPONDENT BY: SHRI SUDHIR SEHGAL DATE OF HEARING: 21.9.2011 DATE OF PRONOUNCEMENT: 29 .9.2011 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE FOR ASSES SMENT YEAR 2007- 08, IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-II, LUDHIANA DATED 29.10.2010 U/S 250 (6) OF THE INCOME-TAX ACT (IN S HORT THE ACT). 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL:- 1 THAT THE LD. CIT(A)-II, LUDHIANA HAS ERRED IN LA W AND ON FACTS IN DELETING THE ADDITION OF RS. 1,53,333/- MADE BY THE AO BY MAKING DISALLOWANCES U/S 14A OF THE INCOME-TAX ACT OUT OF INTEREST PAID ON BORROWED CAPITAL. 2 THAT LD. CIT(A)-II, LUDHIANA HAS ERRED IN LAW AN D ON FACTS IN DELETING THE ADDITION OF RS. 1,20,000/- MADE BY THE AO ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWALS. 3 THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN DELETING ADDITION OF RS. 4,88,399/- OUT OF TOTAL ADDITION OF RS. 7,50,000/- MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND U/S 2( 22)(E) OF THE INCOME-TAX ACT. 4 THAT THE ORDER OF THE LD. CIT(A)-II BE SET ASIDE AND THAT OF THE AO BE RESTORED. ITA NO. 07/CHANDI/2011 ACIT V. VIVEK GOYAL 2 5. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 3. IN GROUND NO. 1, THE REVENUE CONTENDED THAT THE LD. CIT(A) ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS. 1,53, 333/- MADE BY THE AO BY MAKING DISALLOWANCES U/S 14A OF THE ACT. THE AO DISALLOWED THE INTEREST ON THE BORROWED CAPITAL INVESTED BY THE AS SESSEE IN THE SAID FIRM BY INVOKING THE PROVISIONS OF SECTION 14A OF THE AC T. 4. THE LD. AR FOR THE ASSESSEE CONTENDED THAT THE ACTION OF THE AO IS AGAINST THE RELEVANT PROVISIONS OF THE ACT. THE AS SESSEES INCOME IS ASSESSABLE U/S 28 OF THE ACT AND HENCE IT IS NOT EX EMPT INCOME. IT WAS, FURTHER, CONTENDED THAT THERE IS NO INCREASE IN THE SHARE OF PROFIT BY WAY OF MAKING INVESTMENT IN THE FIRM. HE PLACED RELIAN CE ON THE DECISION OF THE LD. CIT(A). 5. THE DR ON THE OTHER HAND, CONTENDED THAT THE P ROVISIONS OF SECTION 14A ARE APPLICABLE IN RESPECT OF ENHANCED SHARE OF PROFIT EARNED BY THE ASSESSEE BY VIRTUE OF INTRODUCING FRESH CAPI TAL. 6. WE HAVE CAREFULLY PERUSED THE FACTS OF THE CASE, RIVAL SUBMISSIONS AND THE RELEVANT CASE LAWS. IT IS PERTINENT TO REPR ODUCE THE FINDINGS OF LD. CIT(A) HEREUNDER:- 3.2 IN THE LIGHT OF ABOVE ARGUMENTS ASSESSEES COU NSEL HAS PRAYED THAT THE ABOVE ADDITION BE DELETED IN TOTO. AFTER GOING THROUGH ASSESSMENT ORDER AND ABOVE SUBMISSIONS I AM CONVINC ED THAT INTEREST PAID ON BORROWED CAPITAL IS AN ALLOWABLE D EDUCTION U/S30 TO 37 OF THE ACT. MOREOVER, THE AO HAS NOT BEEN ABLE TO BRING ANYTHING ON RECORD TO PROVE THAT THE AMOUNT BORROWE D WAS NOT INVESTED WITH THE FIRM. MOREOVER, QUANTUM OF SHARE OF PROFIT EXEMPT FROM TAX IS NOT DIRECTLY RELATED TO THE AMOU NT OF CAPITAL INVESTED IN THE FIRM WHEREAS INTEREST EARNED ON CAP ITAL IS TAXABLE U/S 28(V) OF THE ACT AS DEEMED BUSINESS INCOME AND IS D IRECTLY RELATED TO THE AMOUNT OF INVESTMENT INVOLVED. HENCE THERE IS NO JUSTIFICATION IN DISALLOWANCES OF INTEREST PAID ON BORROWED CAPITAL AMOUNTING TO RS. 1,53,333/-. THUS, THIS GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. 6(I) A BARE PERUSAL OF THE FINDINGS OF THE LD. CIT( A) CLEARLY REVEALS THAT THE SAME HAVE BEEN ARRIVED AT AFTER APPRECIATION OF EVIDENCE BROUGHT ON ITA NO. 07/CHANDI/2011 ACIT V. VIVEK GOYAL 3 RECORD BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS A LSO CONSIDERED THE NUMBER OF DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT. IN VIEW OF THIS THE ACTION OF THE AO IS NOT STATUTORILY JUSTIFIED. THEREFORE, THE FINDINGS OF THE LD. CIT(A) ARE UPHELD. 7. IN THE GROUND NO. 2, THE REVENUE HAS CONTENDED T HAT THE LD. CIT(A) ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS. 1,20,000/- MADE ON ACCOUNT OF HOUSEHOLD WITHDRAWALS . 8. THE DR PLACED RELIANCE ON THE ORDER OF AO. 9. THE LD. AR FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF LD. CIT(A). 10. WE HAVE CAREFULLY PERUSED THE RELEVANT RECORD A ND FIND THAT THE ADDITION MADE BY THE AO IS MERELY ON THE BASIS OF S URMISES AND CONJECTURES AND HENCE THE SAME CANNOT BE UPHELD. T HIS GROUND OF REVNUES APPEAL IS DISMISSED. 11. IN GROUND NO. 3, THE REVENUE CONTENDED THAT THE LD. CIT(A) ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS. 4,88, 399/- OUT OF TOTAL ADDITION OF RS. 7,50,000/- MADE BY THE AO U/S 2(22) (E) OF THE ACT. 12. THE DR CONTENDED THAT THE UNDISCLOSED INCOME OF THE ASSESSEE IS PART OF ACCUMULATED PROFIT FOR THE PURPOSE OF SEC 2 (22)(E) OF THE ACT. 13. THE LD AR FOR THE ASSESSEE, ON THE OTHER HAND , GAVE DETAILED WORKING OF THE ACCUMULATED PROFIT AND CONTENDED THA T THE CASE OF THE ASSESSEE IS COVERED UNDER THE DECISIONS OF DELHI BE NCH OF ITAT IN THE CASE OF PARMOD KUMAR DANG, 105 TTJ 511. THE RELEVA NT FINDING OF THE LD. CIT(A) AS CONTENDED IN PARA 5.2 OF THE ORDER ARE RE PRODUCED HEREUNDER:- 5.2 IT HAS BEEN ARGUED BY ASSESSEES COUNSE THAT T HE COMPANY SUDERSHAN FORGE PVT LTD HAD SURRENDERED A SUM OF RS . 5.00 LACS AS ADDITIONAL INCOME DURING SURVEY U/S 133A DURING THE YEAR. THE ABOVE AMOUNT THOUGH FORM PART OF ASSESSABLE OR PROF IT LIABLE TO BE TAXED AS INCOME COULD NOT BE ACCUMULATED PROFITS FO R PURPOSES OF SEC 2(22)(E) OF THE ACT. DETAILED WORKING OF ACCUM ULATED PROFIT AND DEEMED DIVIDEND U/S 2(122)(E) HAS BEEN FILED BY THE COUNSE. HENCE ITA NO. 07/CHANDI/2011 ACIT V. VIVEK GOYAL 4 ADDITION ON ACCOUNT OF DEEMED DIVIDEND IS CONFIRMED TOTEH EXTENT OF RS. 2,61,601/-. THEREFORE, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 14. WE ARE IN AGREEMENT WITH THE FINDINGS OF LD. CI T(A) THAT THE SURRENDER INCOME COULD ONLY BE CONSIDERED AS INCOME AND NOT ACCUMULATED PROFIT WITHIN THE MEANING OF SECTION 2(22)(E) OF TH E ACT. THEREFORE, HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE FINDINGS OF LD. CIT(A) ARE UPHELD. 15. GROUNDS NO. 4 & 5 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. 16. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED ON 29.9.2011 SD/- SD/- (H.L. KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNANT MEMBER CHANDIGARH, THE29.9.2011 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE CIT(A) / THE DR