ITO, New Delhi V. Vipul Auto Mobiles Pvt. Ltd., New Delhi

ITA 88/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3669 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 14-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: RAJESH ARORA
• Keywords: Reasonable cause; Deemed dividend
• Section: 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H DELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NO. 88(DEL)2011 ASSESSMENT YEAR: 2006-07 INCOME TAX OFFICER, M/S. VIPUL AUT OMOBILES PVT. LTD., WARD 17(3), NEW DELHI. V. B-412-414 ANSAL CHA MBERS, BHIKAJI CAMA PALACE, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: MS. MONA MOHANTY, DR RESPONDENT BY: SHRI RAJESH ARORA, CA ORDER PER A.D. JAIN, J.M. THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YEAR 2006-07, FILED AGAINST THE ORDER DATED 11.10.2010 PASSED BY THE LD . CIT(A), DELETING THE PENALTY OF ` 34,67,815/-, IMPOSED U/S 271 D OF THE I.T. ACT. 2. WHILE IMPOSING THE PENALTY, THE AO OBSERVED, INT ER ALIA, THAT THE ASSESSEE HAD ACCEPTED A LOAN OTHERWISE THAN BY ACCO UNT PAYEE CHEQUE OR BANK DRAFT, EXCEEDING ` 20,000/-, AMOUNTING TO ` 34,67,815/-; THAT THEREFORE, THIS ACTION OF THE ASSESSEE WAS HIT BY THE PROVISIO NS OF SECTION 269 SS OF THE I.T. ACT; THAT THE LOAN AMOUNT HAD BEEN TREATED BY THE AO IN THE ASSESSMENT ITA 88(DEL)2011 2 PROCEEDINGS AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT, AS THE LOAN ADVANCED BY M/S. VIPUL MOTORS PVT. LTD. TO THE ASSE SSEE COMPANY, WAS HIT THEREBY; THAT THE LD. CIT(A) HAD SUSTAINED THE SAID ACTION OF THE AO; THAT THEREFORE, THERE WAS A LOAN ADVANCED BY M/S. VIPUL MOTORS PVT. LTD. TO THE ASSESSEE COMPANY, WHICH LOAN WAS OF MORE THAN ` 20,000/-; THAT THE ASSESSEE HAD ADMITTEDLY CLAIMED TO HAVE TAKEN THE LOAN BY WA Y OF BOOK ENTRY; THAT THE ASSESSEE HAD TAKEN THE STAND THAT M/S. VIPUL MOTOR S PVT. LTD., WHICH WAS A SISTER CONCERN OF THE ASSESSEE COMPANY, HAD ONLY IN CURRED CERTAIN EXPENSES FOR AND ON BEHALF OF THE ASSESSEE COMPANY AND OUT O F THE TOTAL FUNDS TRANSFERRED TO THE ASSESSEE COMPANY, AN AMOUNT OF ` 1,07,440/- WAS ON ACCOUNT OF PHYSICAL TRANSFER OF FUND; THAT THIS LAT TER SUBMISSION OF THE ASSESSEE SHOWED THAT IT WAS INCORRECT TO STATE THAT M/S. VIPUL MOTORS PVT. LTD. HAD ONLY INCURRED CERTAIN EXPENSES FOR AND ON BEHALF OF THE ASSESSEE COMPANY; THAT AS PER THE BALANCE SHEET OF THE ASSES SEE COMPANY FOR THE YEAR ENDING ON 31.3.06, THE AMOUNT OF ` 34,67,865/- HAD BEEN REFLECTED UNDER THE HEAD UNSECURED LOANS; THAT THIS SHOWED THAT THE A SSESSEE HAD ITSELF TREATED THE AMOUNT AS UNSECURED LOAN; THAT THE ASSESSEE HAD ALSO FAILED TO DEMONSTRATE THAT THERE EXISTED ANY REASONABLE CAUSE FOR ACCEPTING THE LOAN OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT; AND THAT THEREFORE, THE ASSESSEE HAD ACCEPTED THE LOAN IN CONTRAVENTION OF THE ITA 88(DEL)2011 3 PROVISIONS OF SECTION 269 SS OF THE ACT WITHOUT ANY REASONABLE CAUSE. IT WAS IN THESE MANNER THAT THE PENALTY WAS LEVIED ON THE ASSESSEE. 3. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE PENALTY LEVIED ON THE ASSESSEE. 4. THE DEPARTMENT IS NOW IN APPEAL AGAINST THE SAID ACTION OF THE LD. CIT(A). 5. CHALLENGING THE IMPUGNED ORDER, THE LD. DR HAS C ONTENDED THAT THE LD. CIT(A) HAS ERRED IN DELETING THE PENALTY OF ` 34,67,865/- ; THAT WHILE DOING SO, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE LO AN HAD BEEN TAKEN THROUGH BANKING CHANNELS, BY ACCOUNT PAYEE CHEQUES; THAT TH E LD. CIT(A) FAILED TO TAKE INTO CONSIDERATION THE FACT THAT IN ITS LETTE R DATED 10.12.08, SUBMITTED BY THE ASSESSEE BEFORE THE AO IN THE ASSESSMENT PROCEE DINGS, THE ASSESSEE HAD ADMITTED THAT MOST OF THE LOAN TRANSACTIONS WERE TH ROUGH JOURNAL ENTRIES AND ONLY A FEW ENTRIES WERE ON ACCOUNT OF ACTUAL TRANSF ER OF FUNDS; AND THAT THE LD. CIT(A) ALSO FAILED TO TAKE INTO CONSIDERATION T HE FACT THAT THE ASSESSEE HAD MISERABLY FAILED TO DEMONSTRATE DURING THE ASSE SSMENT PROCEEDINGS THAT THERE EXISTED ANY REASONABLE CAUSE OR CIRCUMSTANCE FOR ACCEPTING THE LOAN OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT P AYEE BANK DRAFT. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE HAS STRONGLY SUPPORTED THE IMPUGNED ORDER. IT HAS BEEN SUBMITTE D THAT THE ACCOUNT OF ITA 88(DEL)2011 4 M/S. VIPUL MOTORS PVT. LTD. IN THE BOOKS OF THE ASS ESSEE COMPANY WAS A RUNNING CURRENT ACCOUNT, WHICH INCLUDED TRANSACTION S SUCH AS MEETING OF EXPENSES OF THE ASSESSEE COMPANY BY M/S. VIPUL MOTO RS PVT. LTD. AND DIRECT PAYMENTS TO THE ASSESSEE COMPANY FOR MEETING THE IN ITIAL EXPENDITURE; THAT A MAJORITY OF THE PAYMENTS MADE DIRECTLY TO THE ASSES SEE COMPANY FOR THE PURPOSE OF MEETING THE EXPENSES, WERE THROUGH ACCOU NT PAYEE CHEQUES; THAT THE AO ERRED IN IGNORING ALL THE TRANSACTIONS AND P AYMENTS MADE THROUGH ACCOUNT PAYEE CHEQUES DURING THE YEAR; THAT THE ASS ESSEE HAD SUBMITTED A COPY OF A CERTIFICATE ISSUED BY INDIAN OVERSEAS BAN K TO M/S. VIPUL MOTORS PVT. LTD. AND COPIES OF VOUCHERS SUPPORTING THE DOC UMENTS AND BANK STATEMENTS OF M/S. VIPUL MOTORS PVT. LTD., BEFORE T HE LD. CIT(A); THAT ON THIS, THE CIT(A) HAD CALLED FOR A REMAND REPORT FRO M THE AO; THAT IN HIS REMAND REPORT, THE AO HAD, INTER ALIA, CONTENDED TH AT THE ASSESSEE HAD NOT BEEN ABLE TO ESTABLISH THAT PRE-INCORPORATION EXPEN SES INCURRED BY IT WERE MADE BY CROSSED CHEQUES/CROSSED DRAFTS; THAT HOWEVE R, THE LD. CIT(A), WHILE RIGHTLY DELETING THE PENALTY, HAS TAKEN INTO CONSID ERATION THAT M/S. VIPUL MOTORS PVT. LTD., THE LENDER OF THE ASSESSEE, HAD P AID THE AMOUNTS EITHER TO THE ASSESSEE OR TO OTHERS ON BEHALF OF THE ASSESSEE COMPANY, BY WAY OF CHEQUES; THAT A SUM OF ` 23,00,000/- HAD BEEN RECEIVED BY THE ASSESSEE COMPANY FROM M/S. VIPUL MOTORS PVT. LTD., THROUGH A CCOUNT PAYEE CHEQUES, ITA 88(DEL)2011 5 FOR THE PURPOSE OF MEETING THE NECESSARY EXPENSES O F THE ASSESSEE COMPANY, WHICH FACT WAS SUBSTANTIATED BY THE AFORE-MENTIONED CERTIFICATE FROM INDIAN OVERSEAS BANK; THAT THE LD. CIT(A) HAS DULY TAKEN I NTO CONSIDERATION THE FACT THAT IN THE REMAND REPORT, THE AO HAD NOT GIVEN ANY ADVERSE FINDING IN THIS REGARD; THAT FURTHER, PAYMENT OF ` 9,89,434/- HAD ALSO BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES BY M/S. VIPUL MOTORS PVT. LTD ., FOR AND ON BEHALF OF THE ASSESSEE COMPANY, TO DIFFERENT VENDORS, FOR INC URRING CERTAIN EXPENSES FOR THE SETTING UP AND COMMENCEMENT OF THE BUSINESS OF THE ASSESSEE COMPANY, AS ALSO AVAILABLE FROM THE CERTIFICATE OF INDIAN OVERSEAS BANK AND THE BANK STATEMENT OF M/S. VIPUL MOTORS PVT. LTD.; THAT ANOTHER PAYMENT OF ` 83,000/- HAD BEEN MADE BY M/S. VIPUL MOTORS PVT. LT D. ON BEHALF OF THE ASSESSEE COMPANY TOWARDS VARIOUS STATUTORY DUES IN THE NATURE OF TDS; THAT THE ASSESSEE HAD CREDITED THE ACCOUNT OF THE SISTER CONCERN WITH THE AMOUNT OF TDS DEPOSITED BY THE SISTER CONCERN ON ITS BEHAL F; THAT M/S. VIPUL MOTORS PVT. LTD. HAD MADE FURTHER PAYMENTS OF ` 34,537/- REGARDING VARIOUS EXPENSES INCURRED ON BEHALF OF THE ASSESSEE COMPANY , DIRECTLY; THAT AS SUCH, THE ASSESSEE HAD CREDITED THE ACCOUNT OF M/S. VIPU L MOTORS PVT. LTD. FOR SUCH PAYMENTS; AND THAT AS SUCH, THE LD. CIT(A) HAS CORRECTLY DELETED THE PENALTY IN QUESTION AFTER DULY TAKEN INTO CONSIDERA TION ALL THE FACTS AND CIRCUMSTANCES, DUE TO WHICH, THERE IS NO ERROR WHAT SOEVER IN THE ORDER OF THE ITA 88(DEL)2011 6 LD. CIT(A), WHICH BE MAINTAINED WHILE DISMISSING TH E APPEAL FILED BY THE DEPARTMENT. 7. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. IT IS SEEN THAT IT REMAINS UNREBUTTED THAT THE PAYMENT OF ` 23,00,000/- WAS RECEIVED BY THE ASSESSEE COMPANY THROUGH ACCOUNT PA YEE CHEQUES. THIS PAYMENT WAS FOR THE PURPOSE OF MEETING NECESSARY EX PENSES OF THE ASSESSEE COMPANY. IT WAS CONFIRMED BY THE CERTIFICATE ISSU ED BY THE INDIAN OVERSEAS BANK AND THE BANK STATEMENTS OF BOTH THE ASSESSEE C OMPANY AS WELL AS M/S. VIPUL MOTORS PVT. LTD. THE TRANSACTIONS WERE THRO UGH ACCOUNT PAYEE CHEQUES. IN THE REMAND REPORT, THE AO MADE NO ADVE RSE COMMENT WITH REGARD THERETO. 8. APROPOS THE AMOUNT OF ` 9,89,434/-, THESE PAYMENTS HAD ALSO BEEN MADE THROUGH ACCOUNT PAYEE CHEQUES BY M/S. VIPUL MO TORS PVT. LTD. ON BEHALF OF THE ASSESSEE COMPANY, TO VARIOUS VENDORS FOR INCURRING EXPENSES FOR SETTING UP AND COMMENCEMENT OF THE ASSESSEES B USINESS. THESE PAYMENTS WERE ALSO VERIFIABLE FROM THE CERTIFICATE OF INDIAN OVERSEAS BANK AS WELL AS THE BANK STATEMENT OF M/S. VIPUL MOTORS PVT. LTD. THE ASSESSEE HAD CREDITED VARIOUS AMOUNTS PAID BY M/S. VIPUL MOT ORS PVT. LTD. ON ITS BEHALF TO VARIOUS VENDORS, IN ITS BOOKS OF ACCOUNT . THE AMOUNT HAD PASSED THROUGH BANKING CHANNELS. ITA 88(DEL)2011 7 9. THE AMOUNT OF ` 83,000/- REPRESENTED VARIOUS STATUTORY DUES IN THE NATURE OF TDS. THE ASSESSEE COMPANY HAD CREDITED THE ACCOUNT OF M/S. VIPUL MOTORS PVT. LTD. WITH THE AMOUNT OF TDS SO DE POSITED BY M/S. VIPUL MOTORS PVT. LTD. ON BEHALF OF THE ASSESSEE. 10. THE PAYMENT OF ` 34,537/- REPRESENTED EXPENSES INCURRED BY M/S. VIPUL MOTORS PVT. LTD. ON BEHALF OF THE ASSESSEE C OMPANY, MADE DIRECTLY. THE ASSESSEE HAD CREDITED THIS AMOUNT ALSO. 11. BESIDES, THE ASSESSEE WAS UNDISPUTEDLY INCORPOR ATED DURING THE YEAR UNDER CONSIDERATION. BEFORE THE COMMENCEMENT OF I TS COMMERCIAL OPERATIONS, M/S. VIPUL MOTORS PVT. LTD., A SISTER C ONCERN OF THE ASSESSEE COMPANY, HAD BEEN INCURRING EXPENSES FROM TIME TO T IME, FOR THE SETTING UP OF THE ASSESSEES BUSINESS. FOR THE LAST SEVERAL YEARS, M/S. VIPUL MOTORS PVT. LTD. HAD BEEN ENGAGED IN THE BUSINESS OF PURCH ASE, SALE AND SERVICING OF VEHICLES MANUFACTURED BY MARUTI UDYOG LTD. THE IN FRASTRUCTURE OF M/S. VIPUL MOTORS PVT. LTD. HAD ALREADY EXISTED AT FOUR PLACES, I.E., FARIDABAD, GURGAON, JAIPUR AND NOIDA. IT WAS KEEPING IN VIEW THE GOODWILL OF THE COMPANY, ITS INFRASTRUCTURE AND EXPERIENCE, THAT IT HAD BEEN OFFERED DEALERSHIP AND DISTRIBUTORSHIP OF TWO WHEELERS OF SUZUKI MOTOR CYCLES PRIVATE LIMITED, A SUBSIDIARY OF MARUTI UDYOG LIMI TED. THE DEALERSHIP HAD ITA 88(DEL)2011 8 BEEN OFFERED WITH A PRE-CONDITION OF HAVING A SEPA RATE ENTITY. IT WAS IN ORDER TO AVAIL THIS OPPORTUNITY OF EXPANSION OF THE COMPANY, THAT M/S. VIPUL MOTORS PVT. LTD. FORMED THE ASSESSEE COMPANY, I.E., VIPUL AUTOMOBILES PVT. LTD. IT WAS IN ORDER TO AUGMENT THE INITIAL SETT ING UP OF THE ASSESSEE COMPANY, THAT THE EXPENDITURE IN THE FORM OF ROC FE ES FOR INCORPORATION, SECURITY DEPOSIT OF SHOWROOM, SHOWROOM RENT, SECURI TY DEPOSIT OF MARUTI SUZUKI, PROFESSIONAL CHARGES, CHARGES FOR TELEPHONE CONNECTION, APPLICATION CHARGES FOR PAN AND TAN, ETC., WERE INCURRED DIRECT LY BY M/S. VIPUL MOTORS PVT. LTD. ON BEHALF OF THE ASSESSEE COMPANY. AS SUCH, AS ON 31.3.06, THERE WAS A CREDIT BALANCE OF ` 34,67,865/- IN THE BOOKS OF THE ASSESSEE COMPANY, IN THE NAME OF M/S. VIPUL MOTORS PVT. LTD. THIS WAS ON ACCOUNT OF THE EXPENSES INCURRED BY M/S. VIPUL MOTO RS PVT. LTD FOR AND ON BEHALF OF THE ASSESSEE COMPANY. 12. ALL THE ABOVE FACTS HAVE DULY BEEN TAKEN INTO C ONSIDERATION BY THE LD. CIT(A) WHILE CORRECTLY DELETING THE PENALTY IN QUES TION. AS IS EVIDENT FROM THE ABOVE, THERE HAS BEEN NO VIOLATION OF SECTION 2 69 SS OF THE ACT AND THEREFORE, NO PENALTY U/S 271 D OF THE I.T. ACT WAS LEVIABLE. 13. FOR THE ABOVE DISCUSSION, FINDING NO ERROR WHAT SOEVER THERE-WITH, THE WELL REASONED ORDER PASSED BY THE LD. CIT(A) STANDS HEREBY CONFIRMED. THE GRIEVANCE OF THE DEPARTMENT IN THIS REGARD IS REJEC TED. ITA 88(DEL)2011 9 14. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.06.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22.06.2011. *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR