MOHAMMED A. LOKHANDWALA, MUMBAI V. ACIT CEN CIR 46, MUMBAI

ITA 796/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83843 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-09-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 06-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREETAM SINGH
• Assessee Lawyers: S ATISH CHANDAK; BHUMIKA VORA
• Keywords: Gift; Search and seizure; Deemed dividend
• Section: 143(3); 153A; 132

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA , A M & SHRI AMIT SHUKLA , J M ITA NO. 79 6 / MUM/20 1 2 ( ASSESSMENT YEAR : 200 5 - 0 6 ) MOHAMMED A . LOKHANDWALA, V - 72, GANDHI NAGAR, DAINIK SHIVNER ROAD, WORLI, MUMBAI - 400 018 VS. ACIT, CC - 46, MUMBAI PAN/GIR NO. : A A APL 3 009 Q ( AP PELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI SATISH CHANDAK & BHUMIKA VORA /REVENUE BY : SHRI PREETAM SINGH DATE OF HEARING : 9 TH SEPT. 201 4 DATE OF PR ONOUNCEMENT : 9 TH SEPT , 201 4 O R D E R PER R.C.SHARMA ( A .M.) : THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORDER CIT(A ) , DATED 28 - 11 - 2011 FOR ASSESSMENT YEAR 200 5 - 0 6 , IN THE MATTER OF ORDER PASSED UNDER SECTION 153A R.W.S. 143(3) OF THE ACT ON THE FOLLOWING TWO GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS.1 5 ,43,121/ - MADE BY THE LD.A.O ON ACCOUNT OF ALLEGED DEEMED DIVIDEND BY INVOKING THE PROVI SION OF SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961. 2. ON FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT DURING THE COURSE OF SEARCH NO EVIDENCE/MATERIAL WAS FOUND WHICH INDICATES THAT THE TRANSACTIONS ARE HIT BY THE PROVISIONS OF SECTION 2(22)( E). ITA NO. 79 6 /1 2 2 2 . RIVAL CON TENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT A SEARCH AND SEIZURE ACTION U/S. 132(1) OF THE ACT WAS CARRIED OUT ON THE LOKHANDWALA GROUP OF CASES ON 23 - 12 - 20 08. ASSESSEE WAS COVERED UNDER THE SEARCH U/S. 132(1), CONSEQUENTLY ASSESSMENT WAS FRAMED U/S. 153A R.W.S.143(3) OF THE ACT, WHEREIN AN ADDITION OF RS. 15,43, 121/ - WAS MADE ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) . IN THE ASSESSMENT ORDER, AO STATED THAT AS SESSEE IS HAVING MORE THAN 20% SHAREHOLDING IN M/S LOKHANDWAL SHELTER INDIA PVT. LTD. AND M/S LOKHANDWALA KATARIA CONSTRUCTION PVT. LTD. DURING THE YEAR, M/S LOKHANDWALA KATARIA CONSTRUCTION PVT. LTD. HAS PAID CERTAIN EXPENSES TO THE TUNE OF RS. 15,43,121/ - ON BEHALF OF THE ASSESSEE. IT WAS EXPLAINED TO THE AO THAT TRANSACTIONS MADE BETWEEN THE TWO COMPANIES ARE COMMERCIAL TRANSACTIONS ONLY AND ARE NOT IN THE NATURE OF A LOAN OR ADVANCE GIVEN TO THE OTHER AND THUS THE PROVISION OF SECTION 2(22)(E) ARE NOT A PPLICABLE IN THE CASE OF THE ASSESSEE. HOWEVER, THE AO DID NOT AGREE WITH ASSESSEES CONTENTION AND MADE ADDITION OF RS. 15,43,121/ - ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ADDITION AGAINST WHIC H THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3 . IT WAS ARGUED BY THE LEARNED AR THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH SO AS TO EMPOWER THE AO TO MAKE ADDITION WHILE FRAMING ASSESSMENT U/S. 153A. AS PER LEARNED AR SEARCH WAS CARRIED OUT ON 23 - 12 - 2008 . FOR THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION ASSESSEE HAS FILED RETURN OF INCOME ON 20 - 10 - 2005 . THE LAST DATE FOR ISSUE OF NOTICE U/S. 143(2) IS 31 ST OCTOBER, 2006. HOWEVER, NO ITA NO. 79 6 /1 2 3 NOTICE WAS ISSUED TILL 31 ST OCTOBER 2006, TH EREFORE, IN VIEW OF THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF ALL CARGO GLOBAL LOGISTICS , 137 IT D 287 AND GUR I ND ER SINGH BA WA , ITA NO. 2075/MUM/2010, ORDER DATED 16 - 11 - 2012 NO ADDITION IS REQUIRED TO BE MADE WHEN NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH IN RESPECT OF UNABATED ASSESSMENT . ON MERITS, HE CONTENDED THAT ASSESSEE WAS NOT IN RECEIPT OF ANY AMOUNT FROM LOKHANDWALA KATARIA CONSTRUCTION PVT. LTD. AND IT WAS ACTUALLY PAYMENT OF EXPENSES BY LOKHANDWALA KATARIA CONSTRUCTION PVT. LTD. ON ACCOUNT OF REIMBURSEMENT OF EXPENSES. THUS, THE TRANSACTION WAS NOT IN THE NATURE OF L OANS AND ADVANCE BUT THE PAYMENT WAS OUT OF COMMERCIAL CONSIDERATION S . IT WAS FURTHER SUBMITTED THAT M/S LOKHANDWALA KATARIA CONSTRUCTION PVT. LTD. HAS PAID ADVERTISEMENT EXPENSES OF RS. 1,28,581/ - . THE EXPENSES SO INCURRED WERE THEN APPORTIONED TO THE COMP ANIES CARRYING ON THE PROJECT. THEREFORE, EXPENSES SO MADE WAS REIMBURSED TO M/S LOKHANDWALA SHELTER S PVT. LTD. SUCH REIMBURSEMENT OF EXPENSES ARE PURE COMMERCIAL TRANSACTION AND DOES NOT ATTRACT THE PROVISIONS OF SECTION 2(22)(E) . HE FURTHER SUBMITTED THA T M/ S L OKHANDWALA KATARIA PVT. LTD HAS DEBITED M/S LOKHANDWALA SHELTERS PVT. LIMITED BY RS. 3150000/ - ON ACCOUNT OF REPAIRS AND RENOVATION EXPENSES WHICH IS LATER ON RECTIFIED TO RS. 1414540/ - . IN. THIS RESPECT , M/S LOKHANDWALA SHELTERS PVT LTD SHARE D A C OMMON BUSINESS PREMISES WITH M/S LOKHANDWALA KATARIA CONSTRUCTION PVT. LTD AND THEREFORE THE REPAIRS AND RENOVATION EXPENSES WERE SHARED BY M/ S LOKH ANDWALA SHELTERS PVT LTD. AND M/ S LOKHANDWALA KATARIA PVT. LIMITED. SINCE THE ENTIRE EXPENSES WERE PAID BY M / S LOKHANDWALA KATARIA CONSTRUCTIONS PVT. LIMITED WHICH WERE LATER ON REIMB U RSED BY M/ S ITA NO. 79 6 /1 2 4 LOKHANDWALA SHELTERS PVT. LTD. THUS THE ABOVE REIMBURSEMENT OF EXPENSES ARE BUSINESS TRANSACTIONS OUT OF THE PURVIEW OF LOANS SECTION 2(22)(E). 4 . AS PER LEARNED AR, T HESE TRANSACTIONS CANNOT BE TREATED AS DEEMED DIVIDEND U/ S.2(22)(E) IN VIEW OF THE FOLLOWING DECISIONS: - 1. CIT VS.NAGINDAS M. KAPADIA REPORTED IN 177 ITR 393 (BOM.) 2. CIT VS. LAKRA BROTHERS REPORTED IN 106 TTJ 250 (CHD.) 3. NH SECURITIES LTD VS. DC LT REPORTED IN 11 SOT 302 (MUM) 4. SATISH CHANDRA 5 PANDIT VS. ITA REPORTED IN 19 SOT 213 (MUM) 5 . ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND CONTENDED THAT THE ADVANCE WAS GIVEN BY COMPANY IN CONTRAVENTION OF PROVISI ONS OF SECTION 2(22)(E) , THEREFORE, THE AO WAS JUSTIFIED IN MAKING ADDITION IN THE HANDS OF THE ASSESSEE. HE FURTHER SUBMITTED THAT ONCE SEARCH IS CONDUCTED, THE AO IS EMPOWER ED TO FRAME ASSESSMENT FOR SIX YEARS, ACCORDINGLY, ADDITION MADE ON ACCOUNT OF DE EMED DIVIDEND IN THE ASSESSMENT YEAR FALLING WITHIN SIX YEARS PRIOR TO THE YEAR OF SEARCH WAS LEGALLY JUSTIFIED. 6 . WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE WITH REGARD TO MAKING ADDITION IN RESPECT OF ASSESSMENT COMPLETED AND NO INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH IS SQUARELY COVERED BY THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF ALL CARGO GLOBAL LOGISTICS 137 ITD 287 (MUM)(SB) AND THE DECISION OF ITAT MUMBAI IN THE CASE OF GUR I ND ER SINGH BA WA IN I.T.A.NO. 2075/MUM/2010, ORDER DATED 16.11.2012 , THE ISSUE WAS EX ACTLY SAME I.E. ADDITION ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E). IT WAS OBSERVED BY THE BENCH THAT UNDER PROVISIONS OF SECTION ITA NO. 79 6 /1 2 5 153A, IN ALL CASES, WHERE SEARCH IS CONDUCTED U/S 132 OF THE ACT, THE ASSESSING OFFICER IS EMPOWERED TO ASSESS OR RE - ASSESS T OTAL INCOME OF SIX ASSESSMENT YEARS PRECEDING THE ASSESSMENT YEAR IN WHICH SEARCH WAS CONDUCTED. AS NO INCRIMINATING DOCUMENTS WERE FOUND DURING SEARCH WITH REGARD TO ADDITIONS MADE U/S 2(22)(E) AND THE SUBJECT ASSESSMENTS WERE NOT PENDING THE ADDITIONS SO , MADE WERE HELD TO BE NOT JUSTIFIED. THE PRECISE OBSERVATION OF THE BENCH WAS AS UNDER : - 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE RAISED IS REGARDING LEGAL VALIDITY OF ADDITION MADE BY AO UNDER S ECTION 153A OF THE ACT. UNDER THE PROVISIONS OF SECTION 153A, IN ALL CASES, WHERE SEARCH IS CONDUCTED UNDER SECTION 132 OF THE ACT, AO IS EMPOWERED TO ASSESS OR REASSESS TOTAL INCOME OF SIX ASSESSMENT YEARS PRECEDING THE ASSESSMENT YEAR IN WHICH SEARCH WAS CONDUCTED. THE SECTION ALSO PROVIDES THAT ASSESSMENT OR REASSESSMENT RELATING TO ANY ASSESSMENT YEAR FALLING WITHIN PERIOD OF SIX ASSESSMENT YEAR IF PENDING ON THE DATE OF INITIATION OF SEARCH SHALL ABATE. THERE HAVE BEEN DIVERGENT VIEWS REGARDING SCOPE O F APPLICATION OF SECTION 153A IN CASES WHERE NO INCRIMINATING MATERIAL WAS FOUND INDICATING ANY UNDISCLOSED INCOME. SOME OF THE TRIBUNAL BENCHES HAD TAKEN THE VIEW THAT IN CASE NO INCRIMINATING MATERIAL WAS FOUND AO HAD NO JURISDICTION TO MAKE ASSESSMENT O R REASSESSMENT UNDER SECTION 153A WHILE SOME OTHER BENCHES HELD THAT JURISDICTION UNDER SECTION 153A WAS AUTOMATIC TO REASSESS SIX IMMEDIATE PRECEDING ASSESSMENT YEARS IRRESPECTIVE OF THE FACT WHETHER ANY INCRIMINATING MATERIAL WAS FOUND OR NOT. ANOTHER AS PECT ON WHICH THERE HAD BEEN DIVERGENT VIEWS WAS WHETHER EVEN IF AO HAD JURISDICTION UNDER SECTION 153A, ADDITION CAN BE MADE IN ASSESSMENT/REASSESSMENT ONLY WHEN SOME INCRIMINATING MATERIAL HAS BEEN FOUND. ALL THESE ASPECTS HAD BEEN REFERRED TO THE SPECIA L BENCH OF THE TRIBUNAL IN CASE OF ALL CARGO GLOBAL LOGISTICS LTD. AND ORDER OF SPECIAL BENCH DATED 6.7.2012 HAS BEEN REFERRED. 6.1 THE SPECIAL BENCH IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. (SUPRA), HAS HELD THAT PROVISIONS OF SECTION 153A COME IN TO OPERATION IF A SEARCH OR REQUISITION IS INITIATED AFTER 31.5.2003 AND ON SATISFACTION OF THIS CONDITION, THE AO IS UNDER OBLIGATION TO ISSUE NOTICE TO THE PERSON REQUIRING HIM TO FURNISH THE RETURN OF INCOME FOR SIX YEARS IMMEDIATELY PRECEDING THE YEAR OF SEARCH. THE SPECIAL BENCH FURTHER HELD THAT IN CASE ASSESSMENT HAS ABATED, THE AO RETAINS THE ORIGINAL JURISDICTION AS WELL AS JURISDICTION UNDER SECTION 153A FOR WHICH ASSESSMENT SHALL BE MADE FOR EACH ASSESSMENT YEAR SEPARATELY. THUS IN CASE WHERE ASS ESSMENT HAS ABATED THE AO CAN MAKE ADDITIONS IN THE ASSESSMENT, EVEN IF NO INCRIMINATING MATERIAL HAS BEEN FOUND. BUT IN OTHER CASES THE SPECIAL BENCH HELD THAT THE ASSESSMENT UNDER SECTION 153A CAN BE MADE ON THE BASIS OF INCRIMINATING MATERIAL WHICH IN T HE CONTEXT OF RELEVANT PROVISIONS MEANS BOOKS OF ACCOUNT AND OTHER DOCUMENTS FOUND IN THE COURSE OF ITA NO. 79 6 /1 2 6 SEARCH BUT NOT PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT AND UNDISCLOSED INCOME OR PROPERTY DISCLOSED DURING THE COURSE OF SEARCH. IN THE PRESENT CASE, THE ASSESSMENT HAD BEEN COMPLETED UNDER SUMMARY SCHEME UNDER SECTION 143(1) AND TIME LIMIT FOR ISSUE OF NOTICE UNDER SECTION 143(2) HAD EXPIRED ON THE DATE OF SEARCH. THEREFORE, THERE WAS NO ASSESSMENT PENDING IN THIS CASE AND IN SUCH A CASE THERE WAS NO Q UESTION OF ABATEMENT. THEREFORE, ADDITION COULD BE MADE ONLY ON THE BASIS OF INCRIMINATING MATERIAL FOUND DURING SEARCH. 6.2 IN THIS CASE, THE AO HAD MADE ASSESSMENT ON THE INFORMATION/MATERIAL AVAILABLE IN THE RETURN OF INCOME. THE INFORMATION REGARDING THE GIFT WAS AVAILABLE IN THE RETURN OF INCOME AS CAPITAL ACCOUNT HAD BEEN CREDITED BY THE ASSESSEE BY THE AMOUNT OF GIFT. SIMILAR WAS THE POSITION IN RELATION TO ADDITION UNDER SECTION 2(22)(E). THE AO HAD NOT REFERRED TO ANY INCRIMINATING MATERIAL FOUND DURING THE SEARCH BASED ON WHICH ADDITION HAD BEEN MADE. THEREFORE FOLLOWING THE DECISION OF THE SPECIAL BENCH (SUPRA), WE HOLD THAT THE AO HAD NO JURISDICTION TO MAKE ADDITION UNDER SECTION 153A. THE ADDITION MADE IS THEREFORE DELETED ON THIS LEGAL GROUN D. FURTHERMORE, I.T.A.T., SPECIAL BENCH IN THE CASE OF ALL CARGO GLOBAL LOGISTIC LIMITED VS. DCIT ORDER PASSED IN I.T.A.NOS. 5108 TO 5022 & 5059/ M/2010, VIDE ORDER DATED 6.7.2012, REPORTED AT 137 ITD 287 , HAS CONCLUDED THE SCOPE OF ASSESSMENT AND ABATEM ENT OF ASSESSMENT U/S 153A IN THE FOLLOWING MANNER : - A) IN ASSESSMENTS THAT ARE ABATED, THE ASSESSING OFFICER RETAINS THE O RIGINAL JURISDICTION AS WELL AS JURISDICTION CO NFERRED ON HIM U/S 153A FOR WHICH ASSESSMENT S SHALL BE MADE FOR EACH OF THE SIX ASSE SSMENT YEARS SEPARATELY ; B) IN OTHER CASES, IN ADDITION TO THE INCOME THAT HAS ALREADY BE EN ASSESSED, THE ASSESSMENT U/S 153A WI LL BE MADE ON THE BASIS OF INCRIMINATING MATER IAL, WHICH IN THE CONTEXT OF RELEVANT PROVI SIONS MEANS (I) BOOKS OF ACCOUNT, O THER DOCUMENTS, FOUND I N THE COURSE OF SEARCH BUT NO T PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT, AND (II) UNDISCLOSED INCOME OR PROPER LY DISCOVERED IN THE COURSE OF SEARCH. 7 . IN VIEW OF THE ABOVE, SINCE THE LAST DATE OF ISSUE OF NOTICE U/S.143(2) FOR THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION I.E. A.Y.2005 - 06 HAS ALREADY BEEN EXPIRED ON 31 - 10 - 2006, IN ABSENCE OF ANY INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SEARCH, THE ADDITION SO MADE ON ACCOUNT OF DEEMED DIVIDEND WAS NOT JUSTIFIED. EVEN ON MERITS, ITA NO. 79 6 /1 2 7 WE FOUND THAT AMOUNT WAS NOT GIVEN TO THE ASSESSEE AS A LOAN BUT IT WAS MERE REIMBURSEMENT OF EXPENSES SO INCURRED WHICH IS A NORMAL BUSINESS TRANSACTION AND NO T HIT BY THE DEEMING PROVISIONS OF SECTION 2(22)(E) . 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09/09 / 201 4 . / 2014 SD/ - SD/ - ( ) ( AMIT SHUKLA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 09/09 /2014 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//