The ITO, Ward-4(4), Ahmedabad V. Medical Technologies Ltd., Ahmedabad

ITA 785/AHD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76681 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 18-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA SRDR
• Keywords: Earning of tax free income; Deemed dividend
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD , , , , BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND , SHRI N. S. SAINI , ACCOUNTANT MEMBER .., ! ITA NO. 785/AHD/2013 ASSESSMENT YEAR :2008-09 INCOME-TAX OFFICER, WARD-4(4), AHMEDABAD V/S . MEDICAL TECHNOLOGIES LTD, 4 TH FLOOR, NOBLES, NR. NEHRU BRIDGE CORNER, ASHRAM ROAD, AHMEDABAD PAN NO. AABCM0639H (APPELLANT) .. (RESPONDENT) '# $ % / BY APPELLANT SHRI O. P. BATHEJA, SR. D.R. &''# $ % /BY RESPONDENT SHRI S.N. SOPARKAR, A.R. ( $ )! /DATE OF HEARING 09.04.2014 *+, $ )! /DATE OF PRONOUNCEMENT 17.04.2014 O R D E R PER : SHRI N. S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)- VIII, AHMEDABAD, DATED 24.12.2012. 2. GROUND NO. 1 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) DELETING THE ADDITION MADE ON ACCOUNT OF DEEMED DIV IDEND INCOME OF RS. 8 LACS U/S. ITA NO. 785/AHD/13 A.Y. 08-09 PAGE 2 ITO VS. MEDICAL TECHNOLOGIES LTD 2(22)(E) OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE AO MADE ADD ITION OF RS. 8 LACS ON ACCOUNT OF DEEMED DIVIDEND INCOME BY INVOKING THE PROVISION S OF SECTION 2(22)(E) OF THE IT ACT IN RESPECT OF ALLEGED LOANS STATED TO HAVE BEEN RECEIVED BY THE ASSESSEE COMPANY FROM SARJAN FINANCIAL PVT. LTD. THE AO OBS ERVED THAT DURING THE YEAR UNDER APPEAL, THE ASSESSEE-COMPANY WAS SHOWING OUTS TANDING BALANCE OF LOANS FROM SARJAN FINANCIAL PVT. LTD AMOUNTING TO RS. 8 L ACS. 4. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFOR E LD. CIT(A) AND SUBMITTED AS UNDER:- II FIRST AND FOREMOST REQUIREMENT FOR INVOKING THE PROVISIONS OF SECTION 2 (22) (E) OF THE I.T. ACT IS THAT THERE SHOULD BE A PAYMENT B Y A PRIVATE LIMITED COMPANY TO A SHAREHOLDER BY WAY OF LOANS AND ADVANCES. AS CAN BE SEEN FROM THE ASSESSMENT ORDER UNDER APPEAL, THERE IS NO ALLEGATION WHATSOEV ER THAT DURING THE YEAR UNDER APPEAL, M/S. SARJAN FINANCIAL PVT. LTD. HAS MADE PA YMENT TO THE APPELLANT COMPANY BY WAY OF ADVANCE OR LOAN. III. AS A MATTER OF FACT, NO LOAN OR ADVANCE WAS RE CEIVED BY THE APPELLANT COMPANY FROM SARJAN FINANCIAL PVT. LTD. DURING THE YEAR UNDER APPEAL. ADVANCE OF RS. 8,00,000/- WAS RECEIVED BY THE APPELLANT COM PANY FROM M/S. SARJAN FINANCIAL PVT. LTD. ON 10/7/2006- COPY OF THE LED GER ACCOUNT OF THE APPELLANT COMPANY FROM THE BOOKS OF SARJAN FINANCIAL PVT. LTD . WHICH WAS FURNISHED BEFORE THE AO IN THE COURSE OF ASSESSMENT PROCEEDIN GS IS ATTACHED HEREWITH FOR YOUR HONOUR'S PERUSAL. FROM WHICH IT WILL BE EV IDENT THAT THE SAID SARJAN FINANCIAL PVT. LTD. HAD PAID AN AMOUNT OF RS. 8,00, 000/- TO THE APPELLANT COMPANY ON 10/7/2006. AS PER PARAGRAPH 3.1 OF THE A SSESSMENT ORDER UNDER APPEAL, THE AO HAS CLEARLY MENTIONED THAT 'DURING T HE YEAR UNDER CONSIDERATION THE MEDICAL TECHNOLOGIES LIMITED IS S HOWING OUTSTANDING BALANCE OF LOAN FROM SARJAN FINANCIAL PVT. LTD. AMO UNTING TO RS. 8,00,000/-.' THE AMOUNT OF RS.8,00,000/- REFERRED TO BY THE AO A S OUTSTANDING LOAN RECEIVED FROM SARJAN FINANCIAL PVT. LTD IS IN FACT THE AMOUNT RECEIVED BY THE APPELLANT COMPANY FROM THE SAID COMPANY IN THE PREC EDING ASSESSMENT YEAR. SINCE, NO ADVANCE OR LOAN WAS RECEIVED BY THE APPEL LANT COMPANY FROM SARJAN FINANCIAL PVT. LTD., DURING THE PREVIOUS YEA R RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THERE IS NO QU ESTION OF ANY DEEMED DIVIDEND WITHIN THE MEANING AND SCOPE OF SECTION 2 (22) (E) OF THE I.T. ACT. THE LEARNED ASSESSING OFFICER GROSSLY ERRED IN NOT APPRECIATING THE FACT THAT THE ADVANCE/LOAN IN QUESTION WAS RECEIVED BY THE AS SESSEE FROM SARJAN ITA NO. 785/AHD/13 A.Y. 08-09 PAGE 3 ITO VS. MEDICAL TECHNOLOGIES LTD FINANCIAL PVT. LTD. BY CHEQUE NO. 851453 DATED 10/7 /2006 AND NO FURTHER LOAN HAS BEEN RECEIVED BY THE ASSESSEE DURING THE Y EAR UNDER CONSIDERATION. IT IS THEREFORE PRAYED THAT THE ADDITION MADE BY TH E AO MAY PLEASE BE DELETED, IV. WITHOUT PREJUDICE TO THE ABOVE, IT IS FURTHER S UBMITTED THAT THE APPELLANT COMPANY HAD RECEIVED THE PAYMENT BY WAY OF ADVANCE LOAN IN THE EARLIER ASSESSMENT YEAR FROM SARJAN FINANCIAL PVT. LTD WHOS E MAIN OBJECT OF THE BUSINESS IS FINANCING /MONEY LENDING AND THEREFORE THE AMOUNT IN THE NORMAL COURSE OF BUSINESS OF FINANCING IS NOT DIVIDEND. A S PER CLAUSE (II) OF SECTION 2(22)(E), DIVIDEND DOES INCLUDE ANY ADVANCE OR LOAN MADE TO AS SHAREHOLDER OR THE SAID CONCERN BY A COMPANY IN THE ORDINARY CO URSE OF ITS BUSINESS WHERE THE LENDING OF MONEY IS SUBSTANTIAL PART OF THE COM PANY. IT IS SUBMITTED THAT LENDING OF MONEY IS A SUBSTANTIAL PART OF THE ECONO MY. IT IS SUBMITTED THAT LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSIN ESS OF SARJAN FINANCIAL PVT. LTD. THEREFORE THE AMOUNT RECEIVED IN A.Y. 2007-08 AS ADVANCE/LOAN BY THE APPELLANT COMPANY FROM SARJAN FINANCIAL PVT. LTD. W HOSE SUBSTANTIAL PART OF BUSINESS IS LENDING OF MONEY/FINANCING DOES NOT CON STITUTE DEEMED DIVIDEND WITHIN THE MEANING AND SCOPE OF SECTION 2 (22) (E). IT IS THEREFORE SUBMITTED THAT THE AMOUNT IN QUESTION IS NOT TAXABLE AS DEEME D DIVIDEND U/S. 2 (22) (E) OF THE IT. ACT IN THE CASE OF THE APPELLANT COMPANY EVEN IN THE ASSESSMENT YEAR 2007-08 WHEN THE ADVANCE/LOAN WAS RECEIVED IN THE NORMAL COURSE OF THE BUSINESS OF FINANCING BY THE LENDER COMPANY. IN VIEW OF THE FACTS AND CIRCUMSTANCES NARRATED AS ABOVE, THERE BEING NO LOAN /ADVANCE RECEIVED BY THE APPELLANT FROM SARJAN FINA NCIAL PVT. LTD. AND IN VIEW OF THE JUDICIAL PRONOUNCEMENT CITED SUPRA, THE IMPU TED ADDITION MADE BY THE AO AS DEEMED DIVIDEND U/S. 2 (22) (E) IS NOT SUSTAI NABLE IN THE EYES OF LAW. THE SAME MAY THEREFORE PLEASE BE DELETED.' 5. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD AS UNDER:- 4.2. I HAVE GIVEN CAREFUL CONSIDERATION TO THE SUB MISSIONS MADE BY THE APPELLANT AND ALSO HAVE GONE THROUGH THE RELEVANT P ARA OF THE ASSESSMENT ORDER UNDER APPEAL. IN THE COURSE OF APPELLATE PROC EEDINGS BEFORE ME, THE A.R. OF THE APPELLANT REITERATED THE CONTENTS OF TH E WRITTEN SUBMISSIONS REPRODUCED HEREINABOVE AND ARGUED THAT IN POINT OF FACT, NO LOAN / ADVANCE WAS RECEIVED BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION FROM SARJAN FINANCIAL PVT. LTD. I FIND CONSIDERABLE FORC E OF MERIT IN THE APPELLANT'S SUBMISSIONS. AS A MATTER OF FACT, THE AO HAS NOT ME NTIONED IN THE ASSESSMENT ORDER UNDER APPEAL THAT THE LOAN/ADVANCE IN QUESTION WAS RECEIVED BY THE APPELLANT DURING THE ASSESSMENT YEA R UNDER APPEAL; THERE IS NO MENTION WHATSOEVER IN THE ASSESSMENT ORDER AS TO THE DATE OF RECEIPT OF THE LOAN / ADVANCE FROM SARJAN FINANCIAL PVT. LTD. THE AO HAD AT PARAGRAPH 3.1 OF THE ASSESSMENT ORDER UNDER APPEAL MENTIONED THAT 'DURING THE YEAR ITA NO. 785/AHD/13 A.Y. 08-09 PAGE 4 ITO VS. MEDICAL TECHNOLOGIES LTD UNDER CONSIDERATION, MEDICAL TECHNOLOGIES LIMITED IS SHOWING OUTSTANDING BALANCE OF LOAN FROM SARJAN FINANCIAL PVT LTD. AMOU NTING TO RS.8,00,000/-'. THE APPELLANT HAD STATED THAT THE ADVANCE / LOAN WA S RECEIVED BY THE APPELLANT COMPANY FROM SARJAN FINANCIAL PVT. LTD. BY CHEQUE NO.851453 DATED 10/07/2006 AND THEREAFTER, NO FURTHER LOAN HA S BEEN RECEIVED BY THE APPELLANT DURING THE YEAR UNDER APPEAL WHICH IS EVI DENT FROM THE COPY OF THE LEDGER ACCOUNT OF SARJAN FINANCIAL PVT. LTD. FOR TH E YEAR ENDED 31ST MARCH, 2007 AND ALSO 31ST MARCH, 2008. THESE LEDGER ACCOUN TS WERE SUBMITTED BY THE APPELLANT BEFORE THE AO IN THE COURSE OF ASSESS MENT PROCEEDINGS. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS OBVIOUS THAT THE LOAN/ADVANCE IN QUESTION WAS NOT RECEIVED BY THE APPELLANT COMPANY DURING THE YEAR UNDER APPEAL AND THEREFORE THE AO IS NOT JUSTIFIED IN MAK ING THE IMPUGNED ADDITION BY INVOKING THE DEEMING PROVISIONS OF SECTION 2(22) (E) OF THE IT. ACT. ACCORDINGLY, THE ADDITION OF RS.8,00,000/- MADE BY THE AO TOWARDS DEEMED DIVIDEND IS HEREBY DIRECTED TO BE DELETED. THESE GR OUNDS ARE ALLOWED IN FAVOUR OF THE APPELLANT. 6. LD. DR RELIED ON THE ORDER OF AO. 7. LD. AR OF THE ASSESSEE SUBMITTED THAT THE AMOUNT OF RS. 8 LACS OUTSTANDING IN THE BOOKS OF ACCOUNTS WAS THE BROUGHT FORWARD BALAN CE FROM THE EARLIER YEARS. DURING THE YEAR UNDER CONSIDERATION NO AMOUNT OF RS . 8 LACS WAS RECEIVED AS LOANS FROM M/S. SARJAN FINANCIAL PVT. LTD HENCE THERE WAS NO QUESTION OF DISALLOWING RS. 8 LACS BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD, WE FI ND THAT THE AO MADE ADDITION OF RS. 8 LACS TO THE INCOME OF THE ASSESSEE BY INVOKIN G THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ON ACCOUNT OF LOANS RECEIVED FR OM M/S. SARJAN FINANCIAL PVT. LTD. THE LD. CIT(A) DELETED THE ADDITION FOR THE REASONS AS QUOTED ABOVE IN THIS ORDER. LD. DR MERELY RELIED ON THE ORDER OF THE AO. HE C OULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF LD. CIT(A). LD. DR ALSO COUL D NOT CONTROVERT THE FINDING OF THE LD. CIT(A) THAT THE AMOUNT OF RS. 8 LACS OUTSTANDI NG LOAN FROM M/S. SARJAN FINANCIAL PVT. LTD WAS THE OPENING BALANCE OF THE YEAR UNDER CONSIDERATION. LD. DR COULD NOT BRING ANY MATERIAL BEFORE US TO SHOW THAT ANY AMOUN T WAS RECEIVED BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL FROM M/S. SARJAN FINANCIAL PVT LTD AS LOAN OR ADVANCE. IN VIE W OF THE ABOVE, WE DO NOT FIND ANY ITA NO. 785/AHD/13 A.Y. 08-09 PAGE 5 ITO VS. MEDICAL TECHNOLOGIES LTD GOOD AND JUSTIFIABLE REASONS TO INTERFERE WITH THE ORDER OF LD. CIT(A). IT IS CONFIRMED AND THE GROUND OF APPEAL OF REVENUE IS DISMISSED. 9. GROUND NO. 2 IS DIRECTED AGAINST THE ORDER OF LD . CIT(A) DIRECTED THE AO TO RESTRICT THE DISALLOWANCE OUT OF OPERATING EXPENSES OF RS. 1,28,074/- U/S. 14A OF THE ACT. 10. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT ASSESSEE-COMPANY HAS INCURRED OPERATING EXPENDITURE OF RS. 7,82,066/- AN D THAT THE ASSESSEE HAS ALSO EARNED EXEMPT DIVIDEND INCOME OF RS. 46,90,480/- AN D THAT U/S. 14A OF THE INCOME TAX ACT READ WITH RULE 8D EXPENSES INCURRED FOR EAR NING EXEMPT DIVIDEND INCOME WAS TO BE DISALLOWED DEDUCTION TO THE ASSESSEE. HE THEREFORE MADE PROPORTIONATE DISALLOWANCE OF OPERATING EXPENSES OF RS. 7,41,434/ - 11. BEING AGGRIEVED THE ASSESSEE FILED APPEAL BEFOR E LD. CIT(A). 12. THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE OF EXPENDITURE HAS TO BE MADE IN ACCORDANCE WITH THE PRESCRIBED METHOD FOR DETERM INATION OF SUCH EXPENDITURE AS GIVEN IN RULE 8D OF THE INCOME TAX ACT. THE AO HAS STATED IN THE ASSESSMENT ORDER THAT RULE 8D WAS NOT APPLICABLE TO THE ASSESSEE AS THE MAJOR INCOME EARNED BY THE ASSESSEE BY WAY OF DIVIDEND INCOME HENCE NO DISALLO WANCE OF EXPENDITURE COULD BE MADE BY THE AO AND THEREFORE THE DISALLOWANCE MADE MAY BE DELETED. 13. LD. CIT(A) DIRECTED THE AO TO RESTRICT THE DISA LLOWANCE OF OPERATING EXPENSES TO % OF THE AVERAGE INVESTMENTS IN SHARES AMOUNTI NG TO RS. 2,56,14,875/- WHICH WORKS OUT TO RS. 1,28,074 AND DELETED THE BALANCE D ISALLOWANCE OF RS. 6,13,360/-. 14. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFOR E US. ITA NO. 785/AHD/13 A.Y. 08-09 PAGE 6 ITO VS. MEDICAL TECHNOLOGIES LTD 15. LD. DR SUBMITTED THAT AS THE MAIN BUSINESS OF T HE ASSESSEE WAS OF EARNING DIVIDEND INCOME, THEREFORE THE AO WAS FULLY JUSTIFI ED IN MAKING DISALLOWANCE OF OPERATING EXPENDITURE BY CALCULATING THE SAME BY TH E FORMULA TOTAL EXEMPT INCOME X TOTAL OPERATING EXPENDITURE/TOTAL INCOME AND THER EBY DISALLOWANCE OF RS. 7,41,434/- 16. ON THE OTHER HAND LD. AR OF THE ASSESSEE SUBMIT TED THAT THE DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING DI VIDEND INCOME WAS TO BE COMPUTED IN ACCORDANCE WITH RULE 8D OF THE INCOME T AX RULE 1962 AND NOT ANY OTHER MANNER. LD. CIT(A) HAS RESTRICTED THE DISALL OWANCE TO RS. 1,28,000/- AS PER WORKING MADE UNDER RULE 8D OF THE INCOME TAX RULE, 1962. THEREFORE THERE IS NO ERROR IN THE ORDER OF LD. CIT(A) AND THE SAME SHOUL D BE UPHELD AND THE APPEAL OF THE REVENUE SHOULD BE DISMISSED. 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD, THE U NDISPUTED FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER APPEAL THE ASSESSEE EARNED DI VIDEND INCOME OF RS. 46,90,480/-. THE ASSESSEE INCURRED OPERATING EXPENS ES OF RS. 7,82,062/-. ACCORDING TO THE AO SINCE THE MAJOR INCOME OF THE A SSESSEE WAS BY WAY OF DIVIDEND THEREFORE RULE 8D WAS NOT APPLICABLE TO THE ASSESSE E, HE THEREFORE DISALLOWED PROPORTIONATE OPERATING EXPENSES OF RS. 7,41,434/- BY TAKING THE PROPORTIONATE TOTAL EXEMPT INCOME AND TOTAL INCOME. IN APPEAL, LD. CIT (A) RESTRICTED THE DISALLOWANCE TO RS. 1,28,000/- BY WORKING OUT THE SAME IN ACCORD ANCE WITH RULE 8D OF THE INCOME TAX RULE, 1962. BEFORE US THE LD. DR COULD NOT SH OW ANY PROVISION OF LAW WHICH EMPOWERS THE REVENUE TO OVER-RIDE THE PROVISIONS OF RULE 8D WHILE WORKING OUT DISALLOWANCE U/S. 14A OF THE ACT SO AS TO MAKE DISA LLOWANCE OF AN AMOUNT MORE THAN THE AMOUNT WORKED OUT AS PER RULE 8D. IN ABSENCE O F THE SAME AND IN ABSENCE OF ANY ERROR BEING POINTED OUT IN THE WORKING OF AMOUN T MADE BY THE LD. CIT(A) AS PER RULE 8D, WE DO NOT FIND ANY REASON TO INTERFERE WIT H THE ORDER OF LD. CIT(A). IT IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE I S DISMISSED. ITA NO. 785/AHD/13 A.Y. 08-09 PAGE 7 ITO VS. MEDICAL TECHNOLOGIES LTD 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE COURT ON THRUSDAY THE 17TH DAY OF APRIL, 2014, AT AHMADABAD. SD/- SD/- ( MUKUL KR. SHRAWAT ) (N. S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER A.K. - - - - $ $$ $ &. &. &. &. / ., / ., / ., / ., / COPY OF ORDER FORWARDED TO:- 1. '# / APPELLANT 2. &''# / RESPONDENT 3. 3 / CONCERNED CIT 4. 3- / CIT (A) 5. .78 & , , / DR, ITAT, AHMEDABAD 6. 8:; <= / GUARD FILE. BY ORDER/ - , >/ @ , A