ITO WD 13(2)(1), MUMBAI V. RAJENDRAKUMAR CHOUDHARY, MUMBAI

ITA 7225/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62325 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 21-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE : SHRI P. M. JA GTAP, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.7225 /MUM/2010 ASSESSMENT YEAR: 2007-2008 ITO WD 13 (2)(1), MUMBAI- 400 020. RAJENDRA KUMAR CHOUDHARY, 306, POPATLAL CHAMBERS, DANA BUNDER, MASJID, MUMBAI-400009 PAN NO.AABPC9129M APPELLANT VS. RESPONDENT APPELLANT BY : MR. C.G.K.NAIR RESPONDENT BY : NONE DATE OF HEARING : 30 TH APRIL 2012 DATE OF PRONOUNCEMENT : 11 TH MAY 2012 O R D E R PER AMIT SHUKLA (J.M.) : THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER DATED 16-8-2010, PASSED BY T HE CIT(A)-24, MUMBAI FOR QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2007-2008 ON THE FOLLOWING GROUNDS OF APPEAL :- (1) (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.12,29,392/- MADE UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE I.T.ACT, 1961 BY ADMITTING NEW EVIDENCE IN CONTRAVENTION OF RULE 46A (3) OF THE I.T. RULES. (II) WHILE DOING SO, THE LD. CIT(A) FAILED TO APPRECIATE THAT WHILE EXPLAINING THE LIABILITY OF ` 93.26 LAKHS, THE ASSESSEE HAD BEEN TAKING CONTRADICTORY STANDS AND AT NO POINT OF ITA NO : 7225/MUM/2010 2 TIME IT WAS BROUGHT TO THE NOT ICE OF AO THAT THE AMOUNT WAS RETURNED BY PASSING JOURNAL ENTRIES. THUS, IT WAS AN AFTER-THOUGHT. (III) THE LD. CIT(A) FURTHER FAILED TO APPRECIATE THAT A FINDING HAS BEEN GIVEN IN THE A SSESSMENT ORDER THAT THESE FUNDS WERE UTILIZED FOR PERSONAL BENEFITS AND INVESTED TO EARN TAX FREE INCOME. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HAD NOT BROUGHT ON RECORD ANY SUBSTANTIAL EVIDENCE TO PROVE THAT THE ADVANCE WAS MADE DURING THE ORDINARY COURSE OF BUSINESS. (3) THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSMENT OFFICER BE RESTORED.. 2. THE FACTS RELEVANT FOR THESE GR OUNDS ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND IS A DIRECTOR IN M/S TRUE VALUE ENGINEERING PVT. LTD. (IN SHORT M/S TVEPL) AND IS A PARTNER IN M/S RAJENDRAKUMAR & CO. (IN SHORT M/S RKC). DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FROM THE PERUSAL OF THE BALANCESHEET OF THE ASSESSEE NOTED THAT THE ASSESS EE HAD SHOWN LOAN LIABILITY OF ` .93,26,000/- IN THE NAME OF M/S T VEPL. THE SHARE HOLDING PATTERN OF M/S TVEPL WAS PROVIDED AS UNDER :- I) MR. RAJENDRAKUMAR CHOWDHARY(ASSESSEE) 97.61% II) MR. HANSIRA GAURISHANKAR 2.38% III) MR. UMESH SILK MILL 0.01% TOTAL 100% ======== ITA NO : 7225/MUM/2010 3 THE RESERVES AND SURPLUS OF M /S TVEPL IN ITS BALANCESHEET WAS SHOWN AS UNDER :- AS ON 31.03.2006 RS.11,90,038/- AS ON 31.03.2007 RS.12,29,392/- 2.1 ON THIS BACKGROUND THE ASSESSING OFFICER REQUIRED THE ASSESSEE AS TO WHY THE PROVISIONS OF SECTI ON 2(22)(E) MAY NOT BE INVOKED FOR TREATING THE SAID LOAN TAKEN BY T HE ASSESSEE AS DEEMED DIVIDEND. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE ADVANCES AS ON 31-3-2007 STOOD AT ` .93.26 LAKHS FROM M/S TVEPL WHICH WAS ON ACCOUNT OF SUPPLIES OF IRON AND STEEL, BUT DUE TO MARKET RECESSIONS, THE ASSESSEE COULD NOT SUPPLY THE SAME AND OUTSTANDING LIABILITY WAS SHOWN AS ADVANCE. THEREFORE, UNDER THESE CI RCUMSTANCES, THE PROVISIONS OF DEEMED DIVIDEND WILL NOT ARISE. BEFORE THE ASSESSING OFFICER, THE ASSESSEE VIDE LETTER DATED 16-11-2004, FURNISHED AN ELABORATE EXPLANATION, WHICH HAS BEEN SU MMARIZED AT PAGE 5 & 6 OF THE ASSESSMENT ORDER. THE ASSESSING OF FICER REJECTED THE CONTENTION OF THE ASSESSEE AND TREATED THE SUM OF `, 12,29,392/-, WHICH WAS TO THE EXTENT OF RESERVES AS ON 31-3- 2007, AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. WAS 3. IN THE FIRST APPEAL, THE ASSESSEE REITERATED THE SAME EXPLANATION AND ALSO GAVE SUPPLEMENTED WITH EXHAUSTIVE SUBMISSION BEFORE THE CIT(A), WHICH HAS BEEN INCORPORATED FROM PAGES 2 TO 8 OF THE APPELLATE ORDER. THE LEARNED CIT(A) DULY APPRECIATED THE SUBMISSIONS ITA NO : 7225/MUM/2010 4 AND MATERIAL ON RECORD AND DELETED THE ADDITION OF RS.12,29,392/- ON ACCOUNT OF DEEMED DIVIDEND AFTER OB SERVING AND HOLDING AS UNDER :- 2.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL AND IN THIS CASE IT IS CLEAR THAT THE APPELLANT HAS ONLY RECEIVED ADVANCES FOR SUPPLY OF RAW MATERIALS WHICH BECAUSE OF CERTAIN ADVERSE CONDITIONS THE APPELLANT COULD NOT FULFIL BUT LATER ON SUBSEQUENTLY THE APPELLANT ARR ANGED TO HAVE TH RAW MATERIAL SUPPLIED TO M/S TRUE VALUE E NGINEERING (P) LTD. THROUGH M/S RAJENDRA KUMAR & CO. (IN WHICH THE APPELLANT IS A PARTNER) IN THE FINANCIAL YEAR 2006-2007 OF ` 1.91 CRORES AND IN NEXT F.Y.2007- 2008 OF ` 34.50 LAKHS AND FOR WHICH T HE PAYMENT WAS MADE BY THE APPELLANT TO M/S TRUE VALUE ENGG. (P) LTD. BY PASSING OF APPROPRIATE JOURNAL ENTRIES. T HUS, BASED UPON THESE FACTS AND THE DECISION OF THE HONBLE ITAT IN THE CASE F CIT VS. LAKRA BROS 106 TTJ 250 CHANDIGARH A BENCH IT CAN BE SAID THAT WHEN AN ADVANCE IS GIVEN IN A COMMERC IAL SENSE AND FOR BUSINESS PURPOSES, THEN THE QUESTION OF APPLICABILITY OF DEEMED DIVIDEND PROVISION DOES NOT ARISE. ALSO , THE DECISION OF THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF LAKHMICHAND MUCHHAL VS. CIT 43 ITR 315(MP) AND HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS S AURASHTRA CEMENT INDS. LTD. 101 ITR 502 (GUJ) SUPPORT THIS PROPOSITION. ACCORDINGLY, I AM OF THE OPINION THAT THE ADDITION OF RS .12,29,392/- MADE BY THE AO U/S 2(22)(E) DESERVES TO BE DELETED AND ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED . 4. ON BEHALF OF THE ASSESSEE NOBODY APPEARED. THE MAIN GRIEVANCE OF THE REVENUE IN THE GR OUNDS OF APPEAL, IS ADMITTING OF NEW EVIDENCE IN CONTRAVENTI ON OF RULE 46A OF IT RULES. AT THE TIME OF HEARING, LEARNED SENIOR DR COULD NO T POINT OUT ANY NEW EVIDENCE, WHICH WAS FILED BEFORE THE CIT(A). HO WEVER, HE SUBMITTED THAT IN THE ITA NO : 7225/MUM/2010 5 FINDING OF THE CIT(A), THERE IS A REFERENCE OF PAYMENT MADE BY THE APPELLANT TO M/S TVEPL BY PASSING APPROPRIATE JOURNAL ENTRIES, WHICH HAS NOT BEEN DISCUSSED BY THE ASSESS ING OFFICER NOR SEEMS TO HAVE BEEN FILED BEFORE THE ASSESSING OFFICER. 5. WE HAVE CAREFULLY PERUSED THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE CIT(A). SO FAR AS THE ASSESSEES EXPLANATION THAT IT HAS RECEIVED ADVANCE FROM M/S TVEPL FOR SUPPLY OF RAW MATERIALS, WHICH BECAUSE OF CERTAIN ADVERSE COND ITIONS AND CIRCUMSTANCES, THE ASSESSEE COULD NOT SUPPLY THE SAME. SUBSEQUENTLY, THE ASSESSEE ARRANGED TO SUPPLY THE RAW MATERIALS TO M/S TVEPL THROUGH M/S RAJENDRA KUMAR & CO. IN FINANCIAL YEAR 2006-2007 AND 2007-2008 FOR WHICH THE PAYMENT WAS MADE BY HI M. THIS IS EVIDENT FROM THE EXPLANATION FILED BEFORE THE ASSESSI NG OFFICER AS WELL AS BEFORE THE CIT (A). IT IS NOT DISPUTED BY ANY OF THE AUTHORITIES THAT THE SAID TRANSACTION WAS PURELY FOR COMME RCIAL PURPOSES. THE DEPARTMENT IN THE GROUNDS OF APPEAL IS ONLY AGGRIEV ED BY THE FINDING OF THE CIT(A) THAT THE AMOUNT WAS RETURNED BY PASSING JOURNAL ENTRIES AND IT WAS AN AFTERTHOUGHT. THE FINDING GIVEN BY THE CIT(A) DOES NOT SEEM TO BE SUFFER FROM ANY INFIRMITY EITHER ON FA CTS OR IN LAW, WHICH ARE BASED ON DECISION OF THE ITAT IN THE CASE OF CIT VS. LAKRA BROS. REPORTED IN 106 TTJ 250 (CHANDIGARH) AND OTHER HIGH COURTS DECISIONS. ITA NO : 7225/MUM/2010 6 6 . HOWEVER, THE FACT OF MAKING THE PAYMENT THROUGH JOURNAL ENTRIES IS A VERY VITAL PIECE OF EV IDENCE TO CORROBORATE AND SUBSTANTIATE THE EXPLANATION OF THE ASSESSEE TH AT IT WAS FOR PURELY COMMERCIAL BUSINESS. IT IS ONLY FOR THIS LIMIT ED PURPOSE, THE MATTER IS RESTORED BACK TO THE ASSESSING OFFICER TO EXAMINE WHETHER THE RAW MATERIAL WAS SUPPLIED TO M/S TVEPL THROUGH M/S RAJENDRA KUMAR & CO. IN THE FINANCIAL YEAR 2006-2007 & 2007-2008 FOR WHICH THE PAYMENT WAS MADE BY THE ASSESSEE TO M/S TVEPL BY PASSING AN APPROPRIATE JOURNAL ENTRIES. IF THE ASSESSING O FFICER FINDS THE SAME TO BE CORRECT, THEN NEEDLESS TO SAY THAT NO ADDI TION ON ACCOUNT OF DEEMED DIVIDEND IS CALLED FOR. 7. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSE, SUBJECT TO DIRECTION GIVEN ABOVE. ORDER PRONOUNCED ON THIS . DAY OF MAY, 2012. SD/- SD/- ( P.M.JAGTAP ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT: MAY, 2012 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI PKM