DCIT, CC-1(2), KOLKATA , Kolkata V. Corporate Ispat Alloys Ltd., Kolkata

ITSSA 114/KOL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5878 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 09-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-06-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 17-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RADHEY SHYAM
• Assessee Lawyers: M D SHAH
• Keywords: Search and seizure; Deemed dividend; Accommodation entries; Revised return
• Section: 143(3); 133A; 153A; 2(22)(e); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI A.T.VARKEY, JM &DR. A.L.SAINI, AM ./IT(SS)A NOS.113 & 114/KOL/2017 ( / ASSESSMENT YEAR:2010-11 & 2011-12) ACIT, CC-1(2), KOLKATA VS. CORPORATE ISPAT ALLOYS LTD. EN-1, INSIGNIA TOWER, SECOR-V, KOLKATA-700091 ./ ./PAN/GIR NO.: AAACC 8109 R (ASSESSEE) .. (REVENUE) ASSESSEE BY : SHRI RADHEY SHYAM, CIT DR RESPONDENT BY : SHRI M. D. SHAH, AR / DATE OF HEARING : 18/06/2019 /DATE OF PRONOUNCEMENT : 09/08/2019 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED TWO APPEALS FILED BY THE REVENUE, P ERTAINING TO ASSESSMENT YEARS 2010-11 & 2011-12 RESPECTIVELY, ARE DIRECTED AGAIN ST SEPARATE ORDERS PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-20, KO LKATA (IN SHORT THE LD. CIT(A)], WHICH IN TURN ARISE OUT OF SEPARATE ASSESSMENT O RDERS PASSED BY THE ASSESSING OFFICER U/S 153A / 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATED 30/03/2013. 2. THE APPEAL FILED BY THE REVENUE FOR AY 2010-11 ( IT(SS) A NO. 113/KOL/2017) IS BARRED BY LIMITATION BY 11 DAYS. THE REVENUE FIL ED A PETITION FOR CONDONATION OF DELAY. WE HAVE HEARD BOTH THE PARTIES ON THIS PRELI MINARY ISSUE AND HAVING REGARD TO THE REASONS GIVEN IN THE PETITION FOR CONDONATIO N OF DELAY. WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR HEARING. CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 2 3. IN THESE TWO APPEALS FILED BY THE REVENUE COMMON AND IDENTICAL ISSUES ARE INVOLVED THEREFORE THESE HAVE BEEN CLUBBED AND HEAR D TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE A ND BREVITY. THE APPEAL FILED BY THE REVENUE IN I.T(SS)A NO. 114/KOL/2017 FOR A.Y. 2 011-12 IS TAKEN AS THE LEAD CASE. 4. WE NOTE THAT IN BOTH THE APPEALS FILED BY THE RE VENUE, THE REVENUE HAS RAISED MULTIPLE GROUNDS OF APPEAL, HOWEVER, TO MEET THE EN D OF JUSTICE WE CONFINE OURSELVES TO THE CORE CONTROVERSY IN THESE APPEALS THEREFORE WE SUMMARIZE AND CONCISE THE GROUNDS RAISED BY THE REVENUE AS FOLLOW S: I) GROUND NO. 1 RAISED BY THE REVENUE RELATES TO DE LETION OF ADDITION OF RS. 6,42,07,965/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THIS IS COMMON ISSUE IN BOTH THE APPEALS. II) GROUND NO. 2 RAISED BY THE REVENUE RELATES TO D ELETION OF ADDITION OF RS. 11,96,88,790/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF SALE OF UNACCOUNTED RAW MATERIAL GOODS (THIS GROUND RELATES TO ONLY FOR A.Y. 2011-12) 5. NOW WE SHALL TAKE COMMON GROUND RAISED BY THE RE VENUE IN BOTH THE APPEALS WHICH RELATE TO DELETION OF ADDITION OF RS. 6,42,07,965/- MADE B Y THE ASSESSING OFFICER ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 6. BRIEF FACTS QUA THE ISSUE ARE THAT A SEARCH AND SEIZURE OPERATION WAS CONDUCTED U/S 132 OF THE ACT IN ABHIJEET GROUP OF CASES ON 18.01.2011 AND SUBSEQUENT DATES. BESIDES, SURVEY U/S 133A WAS ALSO CONDUCTED IN SOME CASES OF GROUP. AS PART OF THE SAID SEARCH AND SEIZURE OPERATION, A SE ARCH WARRANT WAS ISSUED UPON THE ASSESSEE M/S CORPORATE ISPAT ALLOYS LTD. THE ASSESS EE HAD FILED ITS ORIGINAL RETURN OF INCOME ON 30.09.2011 DECLARING TOTAL INCOME OF R S. (-) 8,44,47,600/- AND SUBSEQUENTLY REVISED RETURN WAS FILED BY THE ASSESS EE ON 11.10.2012 DECLARING TOTAL INCOME OF RS. (-) 8,39,67,111/-. DURING THE ASSESSM ENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD RECEIVED UNSECURED LOAN FORM ABHIJEET INFRASTRUCTURE LIMITED (AIL) (LENDER COMPANY). THE ASSESSEE WAS ASKED TO FURNISH CERTAIN DETAILS SUCH AS BALANCE SHEET OF AIL AS ON 31.03.2011, LEDGER ACCOUNT OF CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 3 UNSECURED LOAN RECEIVED FROM AIL, SHAREHOLDING PAT TERN OF LENDER AND BORROWER COMPANY ETC. ON SUBMISSION OF THE SAME, LD. ASSESS ING OFFICER NOTICED THE FOLLOWINGS: I) AGAINST OUTSTANDING LOAN OF RS. 6,42 ,07,965/- AS ON 31.03.2010, FURTHER LOAN OF RS. 24,33,20,477/- WAS TAKEN BY CIA L FROM AIL DURING THE PERIOD BETWEEN 19.07.2010 TO 31.03.2011 AND THIS AMOUNT IS INCLUSIVE OF INTEREST CHARGED BY THE LENDER FOR THE FY 2010-11 AMOUNTING TO RS. 2 ,33,20,477/- II) M/S ABHIJEET VENTURES LIMITED, HOLDING COMPANY OF BOTH THE COMPA NIES WAS HOLDING 1,04,12,392/- NOS. OF EQUITY SHARES IN ASSESSEE COM PANY WHICH IS 51.34% OF PAID UP EQUITY SHARE CAPITAL OF BORROWER COMPANY III) ON VERIFICATION OF THE BALANCE SHEET OF AIL, IT IS FOUND THAT ITS ACCUMULATED PROF IT AS ON 31.03.2011 STOOD AT RS. 36,08,93,943/- AND CORRESPONDING ACCUMULATED PROFI T AS ON 31.03.2010 WAS RS. 23,78,04,578/-. CONSIDERING THE ABOVE, IT WAS OBVIO US THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WAS ATTRACTED IN THE AS SESSEES CASE AND THE ADDITIONAL LOAN OF RS. 24,33,20,477/- WAS TO BE TREATED AS DEE MED DIVIDEND U/S 2(22)(E) OF THE ACT IN THE HAND OF THE BORROWER COMPANY IN THE PRESENT CASE M/S CIAL. 7. LD. ASSESSING OFFICER OBSERVED THAT AS PER SECTI ON 2(22)(E) OF THE ACT, DIVIDEND INCLUDES INTER ALIA THE FOLLOWING AS MENTIONED IN C LAUSE (E) OF SUB-SECTION (22) OF SECTION 2 OF THE ACT. ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN W HICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED OF ANY SUM (WHETHER AS REP RESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) (MADE AFTER THE 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLD ER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT . CONSIDERING THE ABOVE, SINCE IN THE INSTANT CASE, M/S ABHIJEET VENTURES LIMITED (FORMERLY KNOWN AS PARICHAY POWER LIMITED) WAS HOLD ING MORE THAN 10% OF THE PAID UP EQUITY SHARE CAPITAL OF THE LENDER COMPANY I.E. M/S AIL AND ALSO HAD SUBSTANTIAL INTEREST IN THE BORROWER COMPANY M/S CI AL BY HOLDING ABOVE 20% OF THE PAID UP EQUITY SHARE CAPITAL (ABHIJEET VENTURES LIMITED ACQUIRED SUCH SHARES CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 4 IN THE BOTH LENDER AND BORROWER COMPANIES ON 31 ST MAY, 2010) AND THE LENDER COMPANY AS ON 31.03.2011 HAD ACCUMULATED PROFIT EXC EEDING THE AMOUNT OF LOAN EXTENDED TO THE BORROWER COMPANY, THEREFORE, ALL T HE CONDITIONS SPECIFIED FOR ATTRACTING PROVISIONS LAID DOWN IN SECTION 2(22)(E) OF ACT ARE SATISFIED. THEREFORE, AN ADDITION OF RS. 24,33,20,477/- WAS MADE BY ASSES SING OFFICER AS DEEMED DIVIDEND U /S 2(22)(E) OF THE ACT IN THE HAND OF TH E ASSESSEE COMPANY M/S CORPORATE ISPAT ALLOYS LTD. FOR THIS A.Y. 2011-12. 8. LD. ASSESSING OFFICER ALSO NOTED THAT IN THE ASS ESSMENT ORDER PASSED FOR A.Y. 2010-11, IN THE CASE OF M/S CIAL, A SUM OF RS. 6,42 ,07,965/- HAS BEEN ADDED AS DEEMED DIVIDEND INCOME RECEIVED FROM THE SAME LENDE R I.E. M/S AIL CONSEQUENTLY THE ACCUMULATED PROFIT OF M/S AIL STOOD REDUCED TO RS. 17,35,96,613/- AS [RS. 23,78,04,578 (-) RS. 6,42,07,965/-] AS ON 31.03.201 0 AND NOW AFTER MAKING A FURTHER ADDITION OF RS. 24,33,20,477/- U/S 2(22)(E) IN THIS ASSESSMENT ORDER, THE ACCUMULATED PROFIT OF M/S AIL FOR THE PURPOSE OF DE TERMINING ANY FURTHER DEEMED DIVIDEND PAYMENT BY THAT COMPANY IN SUBSEQUENT YEAR S, THE ACCUMULATED PROFIT STANDS REDUCED TO RS. 5,33,65,501/- [RS. 36,08,93,9 43/- LESS (RS. 24,33,20,477/- + RS. 6,42,07,965/-)]. 9. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 10. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE RE VENUE IS IN APPEAL BEFORE US. 11. THE LD. DR HAS PRIMARILY REITERATED THE STAND T AKEN BY THE ASSESSING OFFICER WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY AND ON THE OTHER HAND THE L D. COUNSEL HAS DEFENDED THE ORDER OF THE LD. CIT(A). CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 5 55 5 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT FOLLOWING FACTS EMERGED FROM THE DI SCUSSION AND THE SUBMISSIONS MADE BY LD. COUNSEL: I) THAT THE LOAN WAS TAKEN BY A COMPANY WHICH WAS NOT A SHARE HOLDER IN THE LENDING COMPANY. II) THAT THE LOAN GIVEN WAS NOT FREE OF COST/GRATUITOUS IN NATURE. RATHER THE LENDER COMPANY CHARGED INTEREST ALONG WITH THE LOAN OF RS. 2,33,20,477/- WHICH WAS PAID / PAYABLE BY THE BORRO WER COMPANY. III) THAT, IT IS TRUE, M/S ABHIJEET VENTURES LTD WAS HOL DING MORE THAN 10% PAID UP EQUITY SHARE CAPITAL IN BOTH THE BORROW ERS COMPANY AND THE LENDER COMPANY. BUT THE LOAN WAS NOT TAKEN/GIV EN BY M/S ABHIJEET VENTURES LTD.. THE LOAN WAS TAKEN BY THE C OMPANY WHICH DID NOT HAVE ANY SHARE IN THE LENDING COMPANY. WE NOTE THAT BASED ON THE ABOVE IDENTICAL FACTS THE CASE LAWS BROUGHT ON RECORD BY THE LD. COUNSEL WHEREIN IT HAS BEEN HELD IN THE CASE OF CIT V. SHARMAN. WOOLEN MILLS LTD.(2012) 204 TAXMAN 82(P&H-HC] THAT THE ASSESSEE COMPANY HAD RECEIVED UNSECURED LOAN FROM A COMPANY IN WHICH IT IS NOT A SHAREHOLDER AO HELD THAT SUCH LOAN AMOUNT SHOULD BE TREATED AS DEE MED DIVIDEND UNDER SECTION 2 (22)(E) , AS SHAREHOLDERS OF BOTH THE COMPANIES ARE SAME. THE HONBLE COURT HELD THAT IT WAS NOT JUSTIFIED. DIVIDEND INCOME IS ASSES SABLE ONLY IN THE HANDS OF SHAREHOLDERS OF THE LENDING COMPANY. ASSESSEE COMPA NY IS A SEPARATE ENTITY THAN ITS SHAREHOLDERS. THEREFORE, THE SAID AMOUNT CANNOT BE ASSESSED IN THE HANDS OF ASSESSEE UNDER SECTION 2(22)(E) OF THE ACT. SIMILAR LY IN THE CASE OF CIT V. MCC MARKETING (P) LTD.(2012) 343 ITR 350(DEL-HC] ASSESS EE COMPANY HAD RECEIVED AN UNSECURED LOAN FROM ANOTHER SISTER-CONCERN. THER E WAS COMMON SHAREHOLDER IN BOTH SISTER CONCERNS. REVENUE TAXED THE SAID LOAN B Y INVOKING PROVISIONS OF SECTION 2(22)(E). ASSESSEE CONTENDED THAT WHERE THE RECIPIENT OF THE LOAN OR ADVANCE WAS NOT A SHAREHOLDER IN THE COMPANY, NO AD DITION COULD BE MADE IN HIS HANDS BY INVOKING THE SAID SECTION. IT WAS NOTED TH AT THE ASSESSEE WHO WAS NOT A SHAREHOLDER OF THE COMPANY FROM WHICH IT RECEIVED A LOAN OR AN ADVANCE COULD NOT CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 6 66 6 BE TREATED AS COVERED BY THE DEFINITION OF THE WORD DIVIDEND AS CONTAINED IN SECTION 2(22)(E). 13. WE NOTE THAT ALSO IN THE CASE OF CIT V. NAVYUG PROMOTERS (P) LTD.(2011) 203 TAXMAN 0618(DEL-HC] WHERE THE FACTS OF THE CASE ARE THAT DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE, PRIVATE LIMITED COMP ANY, RECEIVED LOANS AND ADVANCES FROM TWO COMPANIES, THOUGH THE ASSESSEE DI D NOT HOLD ANY SHARES IN THE AFORESAID COMPANIES. IN THE ASSESSMENT MADE UNDER S ECTION 143(3) THE AO MADE CERTAIN ADDITION AS DEEMED DIVIDEND UNDER SECTION 2 (22)(E) IN RESPECT OF THE AMOUNT OF ADVANCED BY ASSESSEE FROM TWO COMPANIES. ON APPEAL, THE CIT(A) DELETED THE ADDITIONS. THE APPEAL FILED BY THE REVE NUE, AGAINST THE DECISION OF THE CIT(A), WAS DISMISSED BY THE TRIBUNAL. IN DOING SO, THE TRIBUNAL FOUND THAT THE ASSESSEE-COMPANY WAS NOT A SHAREHOLDER HOLDING THE REQUIRED PERCENTAGE OF SHARES IN THE TWO COMPANIES FROM WHICH IT HAD RECEIVED THE LOAN OR ADVANCE. THE HONBLE COURT FURTHER HELD THAT THE CONTROVERSY IS NOW CONC LUDED BY THE JUDGMENT OF A DIVISION BENCH OF THIS COURT IN THE CASE OF CIT V. ANKITECH (P) LTD. (2011) 39 ITCL 365 (DEL-HV): (2011) 340 ITR 14 (DEL-HC) : (20 11) 199 TAXMAN 314(DEL). THE DIVISION BENCH OF THIS COURT IN THE AFORESAID C ASE HAS HELD THAT AN ASSESSEE WHO IS NOT A SHAREHOLDER OF THE COMPANY, FROM WHICH HE RECEIVED A LOAN OR AN ADVANCE CANNOT BE TREATED AS BEING COVERED BY THE D EFINITION OF THE WORD DIVIDEND AS PROVIDED IN SECTION 2(22)(E) OF THE ACT. WE HAVE ALSO CONSIDERED THE RATIO DECIDED BY THE JURISDICTIONAL CALCUTTA HIGH COURT I N THE CASE OF PRADIP KUMAR MALHOTRA VS CIT (2011) 338 ITR 538 CALCUTTA. IN THI S CASE THE HON'BLE JURISDICTIONAL HIGH COURT HAS DECIDED THE RATIO THA T FOR GRATUITOUS LOAN OR ADVANCES GIVEN BY A COMPANY TO THOSE CLASSES OF SHA REHOLDERS WOULD COME WITHIN THE PURVIEW OF SECTION 2(22)(E) BUT NOT TO THE CLAS SES WHERE LOAN OR ADVANCES IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON THE COMPANY BY SUCH SHAREHOLDERS. IN THIS CASE ALSO THE ASSESSEE COMPAN Y WHICH HAS BORROWED LOAN OR INTEREST FROM SISTER CONCERN HAS MADE PAYMENT OF IN TEREST. THEREFORE BY NO STRETCH OF IMAGINATION IT CAN BE REFERRED AS GRATUITOUS IN NATURE. ACCORDINGLY, RESPECTFULLY FOLLOWING THE RATIO DECIDED BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 7 77 7 PRADIP KUMAR MALHOTRA (SUPRA). WE DO NOT FIND ANY I NFIRMITY IN THE ORDER PASSED BY LD. CIT(A). 15. WE NOTE THAT FIRST OF ALL THE ASSESSEE IS NOT T HE SHAREHOLDER IN M/S ABHIJEET INFRASTRUCTURE LTD. (AIL) THEREFORE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT DOES NOT APPLY TO THE ASSESSEE. WE NOTE THAT IN ORD ER TO SUBSTANTIATE ASSESSEES CLAIM THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED O N THE FOLLOWING JUDGMENTS: I) M/S GOLANI BROTHERS VS. DCIT IN I.T.A. NO. 2 615/M/2017 ORDER DATED 07.02.2019 (ITAT MUMBAI) WHEREIN IT WAS HELD AS FO LLOWS: 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS A REGISTERED FIRM WHO HAS TAKEN LOAN FROM ANOTHER COMPANY NAMELY M/S. GOLANI CONSTRUCTIO N INDIA PVT. LTD. OF RS.2.10 CRORES. THE FIRM HAS FOLLOWING SHAREHOLDERS: NAME OF PARTNER SHARE OF PROFIT FROM SHARE OF PROFI T FROM 01.04.2010 TO 17.02.2011 18.02.2011 TO 31.03.2011 M IRA .S. GOLANI 7% 7% KISHORE .S. GOLANI 50% 68.5% RAVI.S.GOLANI 7% 24.5% NARSINGLAL D. GOLANI 36% - THE SHAREHOLDING OF THE LENDER COMPANY IS ALSO GIVE N AS UNDER: NAME OF SHAREHOLDERS NOS. OF SHARES HOLDING % OF S HAREHOLDING KISHORE.S.GOLANI 15000 50% RAVI.S.GOLANI 5000 16.67% AKASH K GOLANI 1000 33.33% TOTAL 3000 100% IT IS CLEAR FROM THE ABOVE THAT TWO PARTNERS OF THE ASSESSEE FIRM KISHORE S GOLANI AND RAVI S. GOLANI WERE HOLDING SHARES IN THE LENDER CO MPANY I.E. M/S. GOLANI CONSTRUCTION INDIA PVT. LTD. M/S. GULANI BROTHERS TO THE EXTENT OF 15000 AND 500 0 SHARES. THE SHAREHOLDING PERCENTAGE WORKED OUT 15% & 16.67% RESPECTIVELY FOR BOTH THE SHAREHOLDERS. THIS IS ALSO UNDISPUTED THAT THESE SHAREHOLDERS HAVE BOUGHT THE SHARES IN THE LENDER COMPANY ON THEIR OWN ABSOLUTE RIGHT AND NOT ON BEHALF OF THE F IRM. NOW THE ISSUE BEFORE US WHETHER THE LOAN ADVANCED BY THE M/S. GOLANI CONSTRUCTION I NDIA PVT. LTD. OF RS.2.10 CRORES TO CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 8 88 8 THE ASSESSEE FIRM COULD BE CONSIDERED AS DEEMED DIV IDEND UNDER SECTION 2(22)(E) OF THE ACT TO THE EXTENT THE LENDER COMPANY HAS ACCUMULATE D RESERVED AND SURPLUSES. IT IS CLEAR FROM THE ABOVE THAT THE FIRM M/S. GOLANI BROTHERS I S NEITHER A REGISTERED SHAREHOLDER NOR A BENEFICIAL SHAREHOLDER IN THE M/S. GOLANI CONSTRU CTION INDIA PVT. LTD. BEFORE REACHING ANY CONCLUSION WE WOULD LIKE TO TOUCH UPON THE DECI SION OF THE VARIOUS JUDICIAL FIRMS ON THE MATTER WHICH IS REPRODUCED AS UNDER: '10.. HON'BLE SUPREME COURT HAS APPROVED THE DECISI ON OF HON'BLE DELHI HIGH COURT IN CASE OF ANKITECH PVT. LTD., (2011) 199 TAXMAN 341, WHILE DECIDING THE CIVIL APPEAL NO.3961 OF 2013. HON'BLE SUPREME COURT OBSERVED THA T ONCE IT IS FOUND THAT SUCH A LOAN OR ADVANCE CANNOT BE TREATED AS DEEMED DIVIDEND AT THE HANDS OF SUCH A CONCERN WHICH IS NOT SHAREHOLDER, THE PROVISIONS OF SECTION 2(22)E C ANNOT BE APPLIED. HON'BLE SUPREME COURT FURTHER OBSERVED AS UNDER:- 'HAVING PERUSED THE JUDGMENT AND HAVING HEARD ARGUM ENTS, WE ARE OF THE VIEW THAT THE JUDGMENT IS A DETAILED JUDGMENT GOING INTO SECTION 2(22)(E) OF THE INCOME TAX ACT WHICH ARISES AT THE CORRECT CONSTRUCTION OF THE SAID SECT ION. WE DO NOT WISH TO ADD ANYTHING TO THE JUDGMENT EXCEPT TO SAY THAT WE AGREE THEREWITH. ' 11. HON'BLE BOMBAY HIGH COURT IN THE CASE OF IMPACT CONTAINERS LTD., (2014) 48 TAXMAN.COM 294 OBSERVED THAT WHERE CERTAIN COMPANIE S ADVANCED MONEY TO ASSESSEE- COMPANY IN WHICH ONE DIRECTOR OF ASSESSEE WAS HOLDI NG MORE THAN 10 PER CENT EQUITY SHARES, SINCE ASSESSEE ITSELF WAS NOT SHAREHOLDER O F THOSE LENDING COMPANIES, IMPUGNED ADDITION MADE BY ASSESSING OFFICER BY INVOKING PROV ISIONS OF SECTION 2(22)(E) WAS NOT SUSTAINABLE. 12. HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SAR VA EQUITY (P) LTD., (2014) 44 TAXMANN.COM 28 OBSERVED AS UNDER: M/S. GULANI BROTHERS 'WHETHER IN TERMS OF SECTION 2(22)(E) , IT IS ONLY PERSON WHOSE NAME IS ENTERED IN REGISTER OF SHAREHOLDERS OF COMPANY A S HOLDER OF SHARES WHO CAN BE SAID TO BE A SHAREHOLDER QUA COMPANY AND- NOT A PERSON BENE FICIALLY ENTITLED TO SHARES - HELD, YES - WHETHER, THEREFORE, IT IS ONLY WHERE A LOAN I S ADVANCED BY COMPANY TO REGISTERED SHAREHOLDER AND OTHER CONDITIONS SET OUT IN SECTION 2 (22}(E) ARE SATISFIED, SAID AMOUNT OF LOAN WOULD BE LIABLE TO BE REGARDED AS DEEMED DIVID END WITHIN MEANING OF SAID SECTION - HELD, YES.' 13. IN THE CASE OF CIT VS. AR MAGNETICS (P) LTD ., (2014) 220 TAXMAN 209 (DELHI) (HC) & CIT VS. DAISY PACKERS (P) LTD., (2014) 220 TAXMAN 3 31 (GUJ) (HC), THE COURT OBSERVED AS UNDER:- 'THE ASSESSEE COMPANY HAD RECEIVED LOAN FROM ANOTHE R COMPANY. THE ASSESSEE WAS NOT A SHAREHOLDER OF THE OTHER COMPANY. HOWEVER, THERE WA S A COMMON SHAREHOLDER (INDIVIDUAL) WHO HELD MORE THAN 50% IN BOTH THE COM PANIES. IN VIEW OF THE ABOVE FACTS THE AO HELD THAT THE AMOUNT RECEIVED BY THE ASSESSE E FROM AN ANOTHER COMPANY WAS A DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE CIT(A) UPHELD THE AO'S ORDER. ON FURTHER APPEAL, THE TRIBUNAL DELETED THE ADDITION MADE BY A O FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN CIT V. ANKITECH (P .) LTD. 340 ITR 14 (DELHI) WHERE IT HAS BEEN HELD THAT DEEMED DIVIDEND PROVISIONS CANNOT BE INVOKED MERELY BECAUSE THERE ARE COMMON SHAREHOLDERS BETWEEN THE TWO COMPANIES. THE HIGH COURT FOLLOWED THE AFORESAID JUDGMENT AND DISMISSED REVENUE'S APPEAL.' 14. FROM THE RECORD, WE ALSO FOUND THAT ASSESSEE HA S NOT INVESTED EVEN A SINGLE RUPEE IN SHARE CAPITAL OF EIPL. BOTH THE COMPANIES EIPL AS W ELL AS NHBPL ARE PART OF GUNDECHA GROUP OF COMPANIES. THE TRANSACTIONS BETWEEN THE GR OUP COMPANIES WERE CURRENT AND CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 9 99 9 INTER BANKING ACCOUNTS CONTAINING BOTH TYPE OF ENTR IES I.E. RECEIPTS AND PAYMENTS. THERE ARE TOTAL 61 TRANSACTIONS ENTERED DURING THE YEAR O N NEED BASIS. IN CASE WHERE BOTH RECEIPTS AND PAYMENTS IS TAKING PLACE IN INTER BANK ING ACCOUNTS THE SAME CANNOT BE REGARDED AS LOANS AND ADVANCES AS CONTEMPLATED U/S 2(22)(E) AND THUS NO ADDITION COULD BE MADE AS DEEMED DIVIDEND. OUR VIEW IS SUPPORTED B Y THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF SCHUTZ DISHMAN BIO-TECH (P) LT D., (IT APPEAL NOS. 958 & 959 OF 2015 OF 2015) (GUJ. HC) OBSERVED AS UNDER:- 'IF THERE ARE TRANSACTIONS IN THE FORM OF CURRENT A CCOMMODATION ENTRIES, THEY CANNOT BE REGARDED TO BE LOANS AND ADVANCES FOR THE PURPOSE O F DEEMED DIVIDEND.' 15. ITAT MUMBAI BENCH IN THE CASE OF RAVINDRA R FOT EDAR (2017) 85 TAXMANN.COM 314 OBSERVED AS UNDER:- 'WHETHER WHERE ASSESSING OFFICER MADE ADDITION TO A SSESSEE'S INCOME 'UNDER SECTION 2(22)(E) IN RESPECT OF LOAN GIVEN BY ONE COMPANY TO ANOTHER COMPANY BY TAKING A VIEW THAT ASSESSEE WAS HOLDING SUBSTANTIAL INTEREST I.E. MORE THAN TEN PER CENT SHAREHOLDING IN BOTH COMPANIES, IN VIEW OF FACT THAT TRANSACTIONS W ERE IN FORM OF CURRENT ACCOMMODATION ENTRIES AND THERE WAS MOVEMENT OF FUNDS IN BOTH WAY S ON NEED BASIS, AMOUNT IN QUESTION COULDM/S. GULANI BROTHERS NOT BE REGARDED AS DEEMED DIVIDEND AND, CONSEQUENTLY, IMPUGNED ADDITION WAS TO BE DELETED - HELD, YES.' 16. DELHI TRIBUNAL IN THE CASE OF SAAMAG DEVELOPERS (P) LTD., (2018) 90 TAXMANN.COM 20 OBSERVED AS UNDER:- 'TRANSACTIONS BETWEEN GROUP CONCERNS BEING CURRENT AND INTER BANKING ACCOUNTS, ADDITIONS MADE TO ASSESSEE'S INCOME UNDER SECTION 2(22)(E) IN RESPECT OF AMOUNTS RECEIVED FROM VARIOUS GROUP COMPANIES COULD NOT BE CONSIDERED AS LOANS AND ADVANCES AS CONTEMPLATED UNDER SECTION 2(22)(E) , HENCE, NO ADDITIONS COULD BE MADE AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) .' 17. IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS SI NCE TRANSACTION BETWEEN GROUP COMPANIES WERE CARRIED AS INTER BANKING ACCOUNTS CO NTAINING BOTH THE TYPES OF ENTRIES I.E., RECEIPTS AND PAYMENTS, HAVING ENTITLED THESE TWO TRANSACTIONS, THE AMOUNT CANNOT BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSE SSEE COMPANY.' IN THE CASE OF GOPAL AND SONS (HUF) VS CIT [2017] 7 7 TAXMANN.COM 71 (SC) , THE FACTS ARE DISTINGUISHABLE AS IN THAT CASE ASSESSEE WAS RE GISTERED AS WELL AS BENEFICIAL SHAREHOLDER WHEREAS IN THE PRESENT THE ASSESSEE IS NEITHER A REGISTERED NOR BENEFICIAL SHAREHOLDER OF M/S GOLANI CONSTRUCTION INDIA PVT LT D. SIMILARLY THE FACTS IN CIT VS. NATIONAL TRAVEL SERVICES (SUPRA) ARE ALSO DISTINGUISHABLE ON FACTS. IN VIEW OF THE ABOVE LEGAL POSITION VIS A VIS THE RATIO LAID DOWN BY VAR IOUS JUDICIAL FORUMS , WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEE AND ACCORDINGLY AO IS DIRECTED TO DELETE T HE ADDITION OF RS. 1,29,61,420/- MADE ON ACCOUNT OF DEEMED DIVIDEND. II)SANGITA JAIN IN I.T.A. NO. 1817/KOL/2009 ORDER D ATED 11.03.2016 (ITAT KOLKATA) WHEREIN IT WAS HELD AS FOLLOWS: 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ONE OF THE MAIN CONTE NTIONS RAISED BY THE LD. CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 10 00 0 COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEF ORE US IS THAT THE LOAN IN QUESTION TREATED AS DEEMED DIVIDEND UNDER SECTION 2 (22)(E) BY THE AUTHORITIES BELOW WAS TAKEN BY THE ASSESSEE FROM M/S. SURYA BUS INESS PVT. LIMITED ON INTEREST AND SINCE THE SAID COMPANY WAS COMPENSATED BY WAY O F INTEREST PAID BY THE ASSESSEE ON LOAN, THE ASSESSEE IN REAL SENSE DID NO T DERIVE ANY BENEFIT FROM THE FUNDS OF THE COMPANY SO I . T. A . N O. 1 8 1 7 / K O L . / 2 0 0 9 ASSESSMENT YEAR: 2006-2007 AS TO ATTRACT THE PROVISIONS OF SECTION 2 (22)(E). ALTHOUGH THE LD. D.R. HAS VEHEMENTLY OPPOSED THIS CONTENTION OF THE LD. C OUNSEL FOR THE ASSESSEE BY SUBMITTING THAT THE PAYMENT OF INTEREST ALONE CANNO T BE CONSIDERED FROM THE BENEFIT ANGLE AS ENVISAGED UNDER SECTION 2(22)(E), IT IS OBSERVED THAT THE JUDICIAL PRONOUNCEMENTS CITED BY THE LD. COUNSEL FOR THE ASS ESSEE CLEARLY SUPPORT THE CASE OF THE ASSESSEE. 6. IN THE CASE OF PRADIP KUMAR MALHOTRA REPORTED IN 338 ITR 538 CITED BY THE LD. COUNSEL FOR THE ASSESESE, IT WAS HELD BY THE HON'BL E CALCUTTA HIGH COURT THAT THE PHRASE 'BY WAY OF ADVANCE OR LOAN' APPEARING IN SEC TION 2(22)(E) MUST BE CONSTRUED TO MEAN THOSE ADVANCES OR LOANS, WHICH A SHAREHOLDER ENJOYS FOR SIMPLY ON ACCOUNT OF BEING A PARTNER, WHO IS THE BE NEFICIAL OWNER OF SHARES, BUT IF SUCH LOAN OR ADVANCE IS GIVEN TO SUCH SHAREHOLDER A S A CONSEQUENCE OF ANY FURTHER CONSIDERATION, WHICH IS BENEFICIAL TO THE C OMPANY, RECEIVED FROM SUCH SHAREHOLDER, IN SUCH CASE, SUCH ADVANCE OR LOAN CAN NOT BE SAID TO BE DEEMED DIVIDEND WITHIN THE MEANING OF THE ACT. IT WAS HELD THAT GRATUITOUS LOAN OR ADVANCE GIVEN BY A COMPANY TO THOSE CLASSES OF SHAR EHOLDERS THUS WOULD COME WITHIN THE PURVIEW OF SECTION 2(22)(E) BUT NOT THE CASES WHERE THE LOAN OR ADVANCE IS GIVEN IN RETURN TO AN ADVANTAGE CONFERRED UPON T HE COMPANY BY SUCH SHAREHOLDER. IN THE CASE OF ACIT -VS.- M/S. ZENON ( INDIA) PVT. LIMITED, A LOAN TAKEN BY THE ASSESSEE WAS TREATED BY THE ASSESSING OFFICER AS DEEMED DIVIDEND UNDER SECTION 2(22)(E), BUT THE LD. CIT(APPEALS) DI D NOT APPROVE THE ACTION OF THE ASSESSING OFFICER AFTER HAVING NOTICED THAT INTERES T AT THE RATE OF 9% PER ANNUM WAS PAID BY THE ASSESSEE ON SUCH LOAN, WHICH, ACCOR DING TO HIM, WAS A CONSIDERATION RECEIVED FROM HER SHAREHOLDERS, WHICH WAS BENEFICIAL TO THE COMPANY AND THE ORDER OF THE LD. CIT(APPEALS) GIVIN G RELIEF TO THE ASSESSEE WAS UPHELD BY THE TRIBUNAL VIDE ITS ORDER DATED 29.06.2 015 PASSED IN ITA NO. 1124/KOL/2012 BY RELYING ON THE DECISION OF THE HON 'BLE CALCUTTA HIGH COURT IN THE CASE OF PRADIP KUMAR MALHOTRA (SUPRA). KEEPING IN VIEW THE SAID DECISION OF THE HON'BLE CALCUTTA HIGH COURT WHICH HAS BEEN FOLL OWED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. ZENON (I NDIA) PVT. LIMITED I . T. A . N O. 1 8 1 7 / KO L . / 2 0 0 9 ASSESSMENT YEAR: 2006-20 07 (SUPRA), WE HOLD THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINE D BY THE LD. CIT(APPEALS) UNDER SECTION 2(22)(E) ON ACCOUNT OF LOAN RECEIVED BY THE ASSESSEE FROM M/S. SURYA BUSINESS PVT. LIMITED ON WHICH CONSIDERATION IN THE FORM OF INTEREST WAS PAID BY THE ASSESSEE TO THE BENEFIT OF THE COMPANY IS NOT SUSTAINABLE. WE, THEREFORE, DELETE THE SAME AND ALLOW GROUNDS NO. 1 & 2 OF THE ASSESSEE'S APPEAL. 7. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 3 OF THE ASSESSEE'S APPEAL RELATING TO THE DISALLOWANCE OF RS.28,267/-, RS.11,869/- AND RS.38,353/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPE ALS) OUT OF TRAVELLING & CONVEYANCE, TELEPHONE EXPENSES AND SALES PROMOTION EXPENSES RESPECTIVELY, IT IS OBSERVED THAT THESE DISALLOWANCES TO THE EXTENT OF 10% OUT OF CORRESPONDING EXPENSES WERE MADE BY THE ASSESSING OFFICER AND CON FIRMED BY THE LD. CIT(APPEALS) FOR THE INVOLVEMENT OF PERSONAL ELEMEN T. AT THE TIME OF HEARING CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 11 11 1 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT PROPER RECORD IN THE FORM OF LOG BOOK, CALL REGISTE R, ETC. IS MAINTAINED BY THE ASSESSEE IN ORDER TO SHOW THAT ALL THE EXPENSES INC URRED UNDER THESE THREE HEADS ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSES SEE'S BUSINESS. KEEPING IN VIEW THIS FAILURE OF THE ASSESSEE AND HAVING REGARD TO T HE NATURE OF EXPENSES CLAIMED, WE FIND OURSELVES IN AGREEMENT WITH THE AUTHORITIES BELOW THAT THE INVOLVEMENT OF PERSONAL ELEMENT IN THESE EXPENSES CANNOT BE RULED OUT AND SINCE THE DISALLOWANCE MADE AT 10% FOR SUCH PERSONAL ELEMENT, IN OUR OPINION, IS QUITE FAIR AND REASONABLE, WE FIND NO JUSTIFIABLE REASON TO IN TERFERE WITH THE SAME. GROUND NO. 3 OF THE ASSESSEE'S APPEAL IS ACCORDINGLY DISMI SSED. III)BHAUMIK COLOUR (P) LTD. ITA NO. 5030/MUM/2014 (MUMBAI SPECIAL BENCH) ORDER DATED 19.11.2008 WHEREIN IT WAS HELD THAT IF A PERSON IS A REGISTERED SHAREHOLDER BUT NOT THE BENEFICIAL THEN THE PROVISI ONS OF SECTION 2(22)E WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREH OLDER BUT NOT A REGISTERED SHAREHOLDER THEN ALSO THE FIRST LIMB OF PROVISIONS OF SECTION 2(22)(E) WILL NOT APPLY. 15. WE NOTE THAT THE ASSESSEE COMPANY M/S CORPORATE ISPAT ALLOYS LTD. (CIAL) HAS TAKEN LOAN FROM M/S ABHIJEET INFRASTRUCTURE LTD . (AIL). THE AIL-LENDER COMPANY CHARGES INTEREST FROM CIAL, THAT IS, IT IS NOT AN INTEREST FREE LOAN THEREFORE PROVISIONS OF SECTION 2(22)E DOES NOT AT TRACT. MOREOVER, THE CIAL IS NOT A SHAREHOLDER IN AIL, THEREFORE QUESTION OF DEEMED DIVIDEND DOES NOT ARISE; AS HAS BEEN HELD BY THE SPECIAL BENCH MUMBAI ITAT, IN THE CASE OF BHAUMIK COLOUR(P) LTD. (SUPRA). WE NOTE THAT HONBLE CALCUTTA HIGH C OURT IN THE CASE OF PRADIP KUMAR MALHOTRA (SUPRA) HELD THAT WHERE LOAN AND ADV ANCE IS GIVEN IN RETURN TO AN ADVANTAGE (INTEREST) THEN PROVISIONS OF SECTION 2(2 2)(E) DOES NOT APPLY. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE CALC UTTA HIGH COURT (SUPRA), WE UPHOLD THE ORDER OF LD. CIT(A), AND THE GROUND NOS. 1 AND 2 RAISED BY THE REVENUE IN IT(SS)A NO. 114/KOL/2017 AND GROUND NOS. 1 AND 2 RAISED BY THE REVENUE IN IT(SS)A NO. 113/KOL/2017 ARE DISMISSED. 16. NOW WE SHALL TAKE GROUND NO. 2 WHICH IS REPRO DUCED BELOW FOR READY REFERENCE: CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 12 22 2 II) GROUND NO. 2 RAISED BY THE REVENUE RELATES TO D ELETION OF ADDITION OF RS. 11,96,88,790/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF SALE OF UNACCOUNTED FINISHED GOODS (THIS GROUND RELATES TO ONLY FOR AY 2011-12) 17. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE S EARCH AND SEIZURE OPERATION, SHRI MANOJ JAISWAL, CHAIRMAN OF ABHIJEET GROUP, IN A DIS CLOSURE PETITION U/S 132(4) OF ACT MADE ON 28.01.2011 DISCLOSED AN AGGREGATE SUM O F RS. 125 CRORES ON BEHALF OF HIMSELF, HIS FAMILY MEMBERS AND SOME OF THE GROUP C OMPANIES AND IN A LETTER SUBMISSION DATED 16.05.2011 OF RS. 71,03,79,670/- O UT OF THE ABOVE DISCLOSURE WAS SPECIFICALLY IDENTIFIED AS INCOME OF THE ASSESSEE C OMPANY ALL FOR THE ASSESSMENT YEAR 2011-12. OUT OF ABOVE MENTIONED DISCLOSURE OF RS. 71,03,79,670/- CLAIMED BY THE ASSESSEE COMPANY, RS. 63,02,27,350/- WAS ON ACC OUNT OF PHYSICAL SHORTAGE OF MANGANESE ORE WHICH WERE SOLD PRIOR TO SEARCH BUT N OT ACCOUNTED FOR TILL THE DATE OF SEARCH AND RS. 8,01,52,320/- WAS ON ACCOUNT OF R EVERSAL OF CONSUMPTION OF COAL FROM THE BOOKS OF ACCOUNTS AND ITS SUBSEQUENT SALE IN CASH AFTER DATE OF SEARCH. THE ASSESSEE WAS ASKED TO EXPLAIN HOW IT CAN TAKE T HE BENEFIT OF THE AMOUNT OF RS. 71,03,79,670/- AND CAN SET OFF THE SAME AGAINST THE TOTAL DISCLOSURE OF RS. 125 CRORES MADE ON 28.01.2011 BY CHAIRMAN OF THE GROUP ON BEHALF OF HIMSELF, HIS FAMILY MEMBERS AND SOME OF THE GROUP COMPANIES AS T HE DIFFERENCE OF STOCK WITH COMPARISON TO PHYSICAL VERIFICATION DONE BY A SURVE YOR APPOINTED BY THE COMPANY MANAGEMENT AND SEIZED AS PAGE 14 OF CIAL/20 WHICH I S NOT OUT OF BOOKS AND WITHOUT CORRESPONDING UNDISCLOSED PURCHASE. 18. IN RESPONSE TO THE SAME, THE ASSESSEE HAS MADE A SUBMISSION AS FOLLOWS: OUT OF THE ABOVE MENTIONED DISCLOSURE OF RS. 71,03 ,79,670/- CLAIMED BY THE ASSESSEE COMPANY A) RS. 8,01,52,320/- WAS ON ACCOUN T OF REVERSAL OF CONSUMPTION OF COAL FROM THE BOOKS OF ACCOUNTS AND ITS SUBSEQUENT SALE IN CASH AFTER THE DATE OF SEARCH. THE COMPANY OPERATES 25MW THERMAL POWER PLANT AT DURGAPUR AND FOR THIS COAL IS THE RAW MATERIAL FOR PRODUCING POWER 29,797.46 MT OF COAL PURCHASED BY THE COMPANY WERE REVERSED F ROM CONSUMPTION AND WERE SOLD IN CASH. BOTH TYPES OF ENTRIES VIZ. REVERSAL O F CONSUMPTION AND ITS SUBSEQUENT SALE IN CASH WERE RECORDED IN THE BOOKS IN MARCH 20 11 I.E. AFTER THE DATE OF SEARCH. EXTRACT OF PURCHASE REGISTER OF COAL, ITS C ONSUMPTION WITHDRAWAL STATEMENT AND STATEMENT SHOWING DETAILS OF SUCH SAL E HAS BEEN SUBMITTED BY THE COMPANY. CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 13 33 3 B) THE ASSESSEE COMPANY HAS FURTHER MADE A SUBMISSI ON THAT THERE WAS A SHORTAGE OF 21,180 MT OF MANGANESE ORE DETECTED IN OCTOBER, 2010 AS COMPARED TO BOOK STOCK, WHEN IT CARRIED OUT PHYSICAL VERIFICATION O F THESE RAW MATERIALS THROUGH AN INDEPENDENT GOVERNMENT APPROVED, INSPECTION AGENCY (RELATED DOCUMENTS VIZ. CIAL-13 PAGE NO. 25 AND CIAL-20 PAGE NO. 14 WERE S EIZED IN THE COURSE OF SEARCH THAT COMMENCED ON 18.01.2011). THE SHORTAGE OF MANGANESE ORE WAS ON ACCOUNT OF ITS SALE IN CASH DURING THE F.Y. 2010-11 BEFORE THE DATE OF SEARCH AND SEIZURE PROCEEDINGS U/S 132 OF THE ACT. THE SALE TO OK PLACE OVER A PERIOD OF TIME BEFORE THE DATE OF CARRYING OUT PHYSICAL VERIFICATI ON. TILL THE DATE OF SEARCH, THE COMPANY DID NOT REDUCE THE QUANTITY OF SHORTAGES OF STOCK IN ITS BOOKS EVEN THOUGH THERE WAS PHYSICAL WITHDRAWAL OF STOCK. THES E SALES WERE RECORDED IN THE REGULAR BOOKS OF ACCOUNTS BY THE ASSESSEE COMPANY I N MARCH, 2011 ONLY I.E. AFTER THE DATE OF SEARCH. THE AMOUNT OF SUCH SALES AS PER THE SUBMISSION OF THE COMPANY STOOD AT RS. 63,02,27,350/-. C) THERE WERE ONLY TWO OPTIONS LEFT WITH THE COMPAN Y TO DEAL WITH THE SHORTAGES. ONE OPTION WAS TO BOOK THE ENTIRE SHORTAGE AS CONS UMPTION AND CHARGE THE SAME IN ITS BOOKS OWING TO THE FACT THAT THE COMPANY DID NOT HAVE PHYSICAL POSSESSION OF STOCK AND ALSO IT WAS NOT POSSIBLE FOR THE COMPANY TO MANUFACTURE A SINGLE TON OF FINISHED GOODS AGAINST SUCH CONSUMPTION AS THE SAI D QUANTITY OF MATERIALS WERE NOT IN PHYSICAL POSSESSION OF THE COMPANY. THE AS SESSEE SUBMITTED NOTIONAL TRADING ACCOUNT SHOWING A GROSS PROFIT OF RS. 102.7 3 CRORES CONSIDERING THE ABOVE OPTION. THE SECOND OPTION WITH THE COMPANY WAS TO V OLUNTARILY DISCLOSE THE SHORTAGES AS SALES WITHOUT BOOKING IT AS CONSUMPTIO N AS IT WOULD NOT HAVE BEEN POSSIBLE FOR THE COMPANY TO KEEP THE SHORTAGES IN ITS BOOKS BEYOND MARCH, 2011 BECAUSE EXCISE AUDIT AND/OR STOCK AUDIT THAT WOULD HAVE BEEN CONDUCTED BY EXCISE DEPARTMENT AND/OR WORKING CAPITAL LENDERS W OULD HAVE POINTED OUT THE SAME AND THESE SHORTAGES WOULD HAVE TO BE BOOKED AS CONSUMPTION. THE ASSESSEE SUBMITTED TRADING ACCOUNT SHOWING A GROSS PROFIT OF RS. 173.76 CORROES CONSIDERING THE SECOND OPTION. THUS, BY ADOPTING SE COND OPTION, THE GROSS PROFIT OF THE COMPANY WAS MORE BY RS. 71.03 CRORES. D) THE ASSESSEE COMPANY SUBMITTED COPY OF ER-6 (STA TEMENT FILED BY THE ASSESSEE TO THE CENTRAL EXCISE DEPARTMENT) TO VOUCH FOR SHOR TAGES OF RAW MATERIALS AND TO SHOW THAT THE EFFECTS OF SALES WERE GIVEN IN ONLY M ARCH, 2011. THE ASSESSEE FURTHER SUBMITTED THAT THE SALES CANNO T BE CORROBORATED WITH THE PURCHASE OF RAW MATERIALS , THE CONSUMPTION AND TH E SALES ARE CONTINUOUSLY TAKING PLACE ON DAY TO DAY BASIS. THE COMPANY NORMA LLY KEEPS APPROXIMATELY 60,000 MT OF RAW MATERIAL STOCK ON A CONTINUOUS BA SIS AND IT IS IMPOSSIBLE AND IMPRACTICABLE TO KEEP TRACK OF ITS EACH MOVEMENT. S TOCKS CAN BE IDENTIFIED GRADE WISE BUT EACH INDIVIDUAL LOT OF SALE CANNOT BE COR ROBORATED WITH EACH INDIVIDUAL LOT OF PURCHASES. THE REVERSAL OF COUNTERVAILING DU LY (CVD) ON PURCHASES OF IMPORTED MANGANESE ORE SUBSTANTIATE THEIR CLAIMS TH AT PURCHASES WERE RECORDED BY THE COMPANY IN ITS BOOKS OF ACCOUNTS. 19. HOWEVER, LD. ASSESSING OFFICER REJECTED THE CON TENTION OF THE ASSESSEE AND THE QUANTUM OF SUCH SUPPRESSED SALE WAS ANALYZED AND C OMPUTED AS UNDER: CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 14 44 4 THE COMPANY IS ENGAGED IN MANUFACTURING AND SALE OF FERRO ALLOY IN ITS MANUFACTURING UNIT LOCATED AT PLOT NO. 6, SMALL IND USTRIAL AREA DEGAUL AVENUE, DURGAPUR, WEST BENGAL, MANGANESE ORE IS MAJOR RAW M ATERIAL FOR PRODUCTION OF FERRO ALLOYS. THE COMPANY PRODUCES FERRO ALLOYS FRO M THIS PRINCIPAL RAW MATERIALS I.E. MANGANESE ORE. THE INPUT / OUTPUT R ATIO OF RAW MATERIAL TO FINISHED GOODS IS 26831 MT I.E. FOR MANUFACTURING 1 MT OF FINISHED GOODS, 26831 MT OF RAW MATERIALS WOULD BE REQUIRED. THIS RATIO CAN BE VERIFIED FROM ANNEXURE-M OF TAX AUDIT REPORT OF THE COMPANY FOR THE A.Y. 2011-1 2. THE COMPANY WAS AWARDED A BULK CONTRACT FOR SALE OF FERRO ALLOYS @ 95,000/- PMT FROM ONE OF ITS MAJOR CUSTOMERS. THE COMPANY WOULD HAVE PRODUCED 7 893.85 MT OF FINISHED GOODS FROM THE PURPORTED SHORTAGE OF 21,180 MT OF R AW MATERIALS. THE SALE PROCEEDS OF 7,893.85 MT OF FINISHED GOODS @ RS. 95, 000/- PMT OF THE COMPANY WOULD HAVE BEEN RS. 74,99,16,140/- (7,893.85 MT * R S. 95,000/- PMT). THE CHAIRMAN OF THE GROUP MADE A DISCLOSURE OF RS. 63, 02,27,350/- ON ACCOUNT OF SALE OF RAW MATERIALS OF THE COMPANY IN HIS DISCLOSURE P ETITION. THUS, THERE IS AN UNDISCLOSED INCOME TO THE TUNE OF RS. 11,68,88,790/ - (RS. 74,99,16,140/- LESS RS. 63,02,27,350/- = 11,96,88,790/-) WHICH WAS ADDED B ACK TO THE TAXABLE INCOME OF THE ASSESSEE. 20. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF THE LD . CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 21. THE LD. DR HAS PRIMARILY REITERATED THE STAND T AKEN BY THE ASSESSING OFFICER WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY AND ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS DEFENDED THE ORDER OF THE LD. CIT(A). 22. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT FROM THE PERUSAL OF THE ASSESSMENT OR DER OF THE A.O. AND THE WRITTEN SUBMISSION FILED BY THE A.R. FOLLOWING FACTS EMERGE D. CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 15 55 5 I) THAT THE ASSESSEE HAD ALREADY GOT ON AUDIT OF ITS R AW MATERIALS BEFORE THE DATE OF SEARCH. II) THAT THE CHAIRMAN OF THE COMPANY IN HIS STATEMENT RECORDED U/S 132(4) ACCEPTED SHORTAGE OF RAW MATERIAL ON ACCOUNT OF CASH SALE OF THE RAW MATERIAL ITSELF. III) THAT IN HIS STATEMENT RECORDED U/S 132(4) THE CHAIR MAN OF THE COMPANY HAD MADE DISCLOSURE OF RS. 125 CRORES WHICH WAS ACCEPTED BY THE DEPARTMENT. IV) THAT THE A.O. HAS NOT BROUGHT ON RECORD ANY EVIDENC E OF THE PRODUCTION OF FINISHED GOODS AND ITS SALES. V) THAT NO PAPER / DOCUMENTS WAS EITHER FOUND OR SEIZE D DURING THE SEARCH OPERATION OR FOUND IN POST SEARCH INVESTIGAT ION, INDICATING THE PRODUCTION OF FINISHED GOODS AND THE SALES THEREOF. KEEPING IN VIEW, FACTS MENTIONED ABOVE, WE HAVE CON SIDERED DIFFERENT CASE LAWS BROUGHT ON RECORD BY THE LD. COUNSEL. THE HONBLE S UPREME COURT IN THE CASE OF UMA CHARAN SHAW 371 ITR 271(SC) HAS CLEARLY HELD TH AT SUSPICION HOWSOEVER STRONG ANYTHING ON RECORD TO PROVE THE PRODUCTION OF FINISHED GOODS I.E. FERRO ALLOYS AND SALE THEREOF. WE HAVE ALSO CONSIDERED TH E RATIO DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF BHAGIRATH AGARWAL 351 ITR 143 (DEL) WHEREIN IT HAS BEEN HELD THAT AN ADDITION IN ASSESSEES INCOM E RELYING ON STATEMENTS RECORDED DURING SEARCH OPERATION CANNOT BE DELETED WITHOUT PROVING STATEMENTS TO BE INCORRECT. WE FIND THAT HERE IN THIS CASE THE S TATEMENT WAS WRONG/ INCORRECT. NEITHER ANY EVIDENCE OF THE PRODUCTION OF FERRO ALL OYS NOR ANY EVIDENCE OF ITS SALES HAVE BEEN BROUGHT ON RECORD BY THE A.O. THE REFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF UMA CHARAN SHAW CORPORATE ISPAT ALLOYS LTD. IT(SS)A NOS.113&114/KOL/2017 ASSESSMENT YEARS:2010-11 & 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 16 66 6 (SUPRA), WE NOTE THAT THE LD. CIT(A) HAS RIGHTLY DE LETED THE ADDITION MADE BY ASSESSING OFFICER. THAT BEING SO , WE DECLINE TO IN TERFERE IN THE ORDER PASSED BY THE LD. CIT(A), HIS ORDER ON THIS ISSUE, IS HEREBY UPHELD AND THE GROUNDS OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 23. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 09.08.2019 SD/- ( A.T.VARKEY ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 09/08/2019 ( SB, SR.PS ) COPY OF THE ORDER FORWARDED TO: 1. ACIT, C.C-1(2), KOLKATA 2. CORPORATE ISPAT ALLOYS LTD. 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES