The ACIT, 1 (2), V. Mr Dinesh chand Agrawal,

ITSSA 195/IND/2008

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 8785 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 20-09-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 29-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K SINGH
• Assessee Lawyers: H P VERMA
• Keywords: Depreciation; Deemed dividend
• Section: 143(3); 142(1); 153A; 132; 144; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C.SHARMA, ACCOUNTANT MEMBER PAN NO. : ADOPA5038R I.T(SS).A.NO.195/IND/2010 A.Y. : 2002-03 ACIT, MR.DINESH CHAND AGRAWAL, 1(2), VS E-1/168, ARERA COLONY, BHOPAL. BHOPAL. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.K.SINGH, SR. DR RESPONDENT BY : SHRI H.P.VERMA, ADV. AND SHRI ASHISH GOYAL, C. A. O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 11.7.2008 FOR THE ASSESSMENT YEAR 2 002-03. 2.1 RIVAL CONTENTIONS HAVE BEEN HERD AND RECORDS PERUSED. 2.2 FACTS IN BRIEF ARE THAT THERE WAS A SEARCH AT AGRAW AL GROUP ,MECH & FAB AND GTV GROUP U/S 132 ON 16.9.200 5. VARIOUS ADDITIONS WERE MADE BY THE ASSESSING OFFICE R WHILE FRAMING ASSESSMENT U/S 153A. IN THE APPEAL FILED BE FORE THE CIT(A), VARIOUS ADDITIONS WERE DELETED AND SOME OF THE - 2 - 2 ADDITIONS WERE CONFIRMED. BOTH REVENUE AND ASSESSEE ARE IN APPEALS/CROSS OBJECTION BEFORE US. THE BASIC GRIEV ANCE OF THE LD. CIT DR IN ALL THESE CASES PERTAINS TO ASSESSEE S FAILURE TO FILE RETURN OF INCOME WITHIN TIME, THEREFORE, THE A O DID NOT FIND SUFFICIENT TIME TO ENQUIRE INTO THE MATTER. HE FURT HER SUBMITTED THAT EVEN THE QUESTIONNAIRE ISSUED WAS NO T PROPERLY REPLIED BY THE ASSESSEE AND THE AO WAS LEFT WITH NO OPTION BUT TO COMPLETE THE ASSESSMENT WITHOUT VERIFYING THE TH INGS. AS PER THE LD. CIT DR, THE LD. CIT(A) HAS DISPOSED THE MATTER AND ALLOWED THE ASSESSEES APPEAL IN A SUMMARY MANNER A ND WITHOUT GIVING RELEVANT FINDINGS, THEREFORE, IT WAS SUBMITTED THAT THE ORDER OF LD. CIT(A) SHOULD BE SET-ASIDE AN D THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF AO FOR DECID ING AFRESH. 2.3 ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTATI VE DREW OUR ATTENTION TO THE RESPECTIVE DATES OF ISSUE OF NOTICES U/S 153A, U/S 143(2) AND 142(1) AND ALSO DATE OF IS SUE OF THE QUESTIONNAIRE AND THE RESPECTIVE REPLIES FILED BY T HE ASSESSEE. AS PER LD. AUTHORIZED REPRESENTATIVE, ALL THE FINAL ACCOUNTS AND RECORDS WERE BEFORE THE AO AND HE HAS MADE THE ASSESSMENT AS PROVIDED U/S 143(3) AND NOT U/S 144. BY HIGHLIGHTING THE RELEVANT DATES, THE LD. AUTHORIZED REPRESENTATIVE EMPHASIZED THAT THE DELAY WAS ATTRIB UTABLE TO THE LD. AO FOR WHICH THE ASSESSEE HAS BEEN MADE TO SUFFER UNREASONABLY AND HIGH PITCHED ASSESSMENTS WERE MADE . BY REFERRING TO THE VARIOUS ADDITIONS MADE BY THE ASSE SSING OFFICER, THE LD. AUTHORIZED REPRESENTATIVE CONTENDE D THAT - 3 - 3 GLANCE OF THE ADDITION ITSELF WOULD REVEAL THAT THE RE WAS NO REASON TO MAKE THE IMPUGNED ADDITIONS. THE ADDITION S WERE MADE AND THE LD. AO PREFERRED NOT TO GIVE ANY NOTIC E TO THE ASSESSEE BEFORE DOING SO. IN REPLY TO THE LD. CIT D RS REQUEST FOR RESTORING THE MATTER BACK TO THE FILE OF THE AO BY SETTING ASIDE ORDER OF CIT(A), THE LD. AUTHORIZED REPRESENT ATIVE CONTENDED THAT AN APPEAL WAS FILED AGAINST THE ORDE R OF AO BEFORE THE LD. CIT(A) IN DUPLICATE AND IN TURN A CO PY OF IT WITH I.T.N.S. 51 WAS SENT BY HIM TO THE LD. AO. ONE OF T HE COLUMNS OF THE I.T.N.S. 51 IS WHETHER LD. AO WANTS TO APPEA R BEFORE THE LD. CIT(A). AGAIN WHEN CASES WERE FIXED BEFORE HEAR ING, ONE COPY OF SUCH NOTICE WAS SENT TO THE LD. AO. LD. AUT HORIZED REPRESENTATIVE ALSO INVITED OUR ATTENTION TO THE OR DER OF THE LD. CIT(A), WHEREIN HE HAS REQUISITIONED THE CASE RECOR DS FROM THE LD. AO. RECORDS WERE DULY SUPPLIED BY HIM. HOWEVER, THE AO DID NOT PREFER TO APPEAR BEFORE THE AO WHEN THE HEA RING WAS GOING ON. UNDER THESE CIRCUMSTANCES, THE ASSESSEE C ANNOT BE PENALIZED BY RESTORING THE MATTER BACK TO THE FILE OF THE AO IN SO FAR AS AFTER GIVING DETAILED FINDING, THE LD. CI T(A) HAS DELETED THE ADDITIONS WHICH WERE MADE BY THE ASSESSING OFFI CER WITHOUT GIVING COGENT REASONS. 2.4 WE HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE AND LD. SENIOR D.R. AND F IND FROM THE RECORD THAT THERE WAS A SEARCH AT AGRAWAL GROUP , MECH & FAB, AND GTV GROUPS U/S 132 ON 16.9.2005. NOTICE WA S ISSUED BY THE DEPARTMENT AFTER MORE THAN 6 MONTHS O F THE - 4 - 4 SEARCH U/S 153A. WE FOUND THAT IN ALL THE YEARS EXC EPT FOR ASSESSMENT YEAR 2006-07, NOTICE U/S 153A WAS ISSUED ON ALL THE ASSESSEES ON 22.3.2006, WHICH WAS SERVED ON THE ASSESSEE ON 25.3.2006. THEREAFTER, FORMAL NOTICE U/S 145(2) WAS ISSUED ON 13.6.2006 FIXING THE CASE FOR 20 TH JUNE, 2006. NOTICES U/S 143(2) AND 142(1) WAS ISSUED ON 31.8.2007 AND WAS S ERVED ON THE ASSESSEE ON 12.9.2007. WE FOUND THAT THIS IS AF TER MORE THAN ONE YEAR AND FOUR MONTHS AFTER FILING THE RETU RN. SUCH NOTICE WAS ISSUED TO ALL THE ASSESSEES FALLING IN T HE SAME GROUP ON WHICH SEARCH WAS CONDUCTED. DETAILS WERE FILED B Y THE ASSESSEE ON 18.12.2007. HOWEVER, THE AO DID NOT RAI SE ANY QUERY AND COMPLETED THE ASSESSMENT U/S 143(3). HAD THE AO ANY GRIEVANCE WITH RESPECT TO NON-COOPERATION OF TH E ASSESSEE AND NON-FURNISHING OF THE RELEVANT DETAILS/INFORMAT ION CALLED FOR, HE SHOULD HAVE COMPLETED THE ASSESSMENT U/S 14 4 RATHER U/S 143(3). NOTICES U/S 143(2) & 142(1) WERE ISSUED AFTER MORE THAN ONE YEAR AND FOUR MONTHS AFTER FILING THE RETU RN. THE DELAY IS ATTRIBUTABLE TO THE AO FOR WHICH ASSESSEE HAS BEEN MADE TO SUFFER. AFTER GOING THROUGH THE ORDER OF TH E LD. CIT(A), WE FOUND THAT THE ADDITIONS WERE DELETED AFTER RECO RDING DETAILED FINDINGS. IN NONE OF THE APPEALS, THE REVE NUE HAS RAISED ANY GROUND WITH REGARD TO VIOLATION OF RULE 46A. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE LD. CIT(A) RELIED ON DOCUMENTS WHILE DELETING THE ADDITION, WHICH WAS NO T MADE AVAILABLE TO THE AO OR WHICH WERE IN CONTRAVENTION OF RULE - 5 - 5 46A. THEREFORE, THE ORDER OF THE LD. CIT(A) CANNOT BE SET-ASIDE AND MATTER CANNOT BE RESTORED TO THE AO FOR DECIDIN G AFRESH. 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE SEARCH WAS CONDUCTED IN THE RESIDENTIAL PREMISES OF THE ASSESS EE ON 16- 09-2005. THE LD. ASSESSING OFFICER ISSUED THE NOTI CE U/S. 153A ON 22-03-2006, WHICH WAS SERVED ON THE ASSESSEE ON 25-03- 2006 FOR THE ASSMT. YEAR 2002-03. THE ASSESSEE WAS ASKED TO FILE THE RETURN WITHIN 30 DAYS FROM THE DATE OF SER VICE OF THE NOTICE. THE PERIOD OF 30 DAYS EXPIRED ON 23-04-2006 . BUT, SINCE ON 22-04-2006 AND 23-04-2006 WERE SATURDAY AN D SUNDAY AND THE OFFICE OF THE ASSESSING OFFICER WAS CLOSED ON THESE DAYS. THE RETURN FOR THE ASSMT. YEAR 2002-03 WAS FILED ON 24-04-2006 AND THERE WAS NO DELAY IN FILING OF THE RETURN IN VIEW OF SEC. 10 OF GENERAL CLAUSES ACT. THE LD. ASSESSING OFFICER MADE THE ADDITION TOWARDS INCOME FROM OTHER SOURCES. 4. IN THIS CASE ALSO, THE ADDITION WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SEARCH CARRIED AT A SSESSEES PREMISES AND CONSEQUENTLY ASSESSMENT FRAMED U/S 153A/143(3) OF THE INCOME-TAX ACT, 1961. ALL THE AD DITIONS SO MADE BY AO WERE DELETED BY THE LD. CIT(A) AGAINST W HICH THE REVENUE IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 6. FIRST GRIEVANCE OF THE REVENUE RELATES TO DELETION OF ADDITION OF RS. 3 LAKHS MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF UNSECURED LOANS FROM M/S. R.K. EXPORTS. - 6 - 6 7. FROM THE RECORD, WE FOUND THAT THE ASSESSEE HAS TAKEN A LOAN FROM M/S. R.K. EXPORTS, WHICH WAS DULY REFLECTED IN THE BANK ACCOUNT OF THE ASSESSEE ON 31.7.2001. T HIS LOAN WAS RETURNED BACK TO M/S. R.K. EXPORTS BY CHEQUES O N 31.8.2001 I.E. WITHIN A PERIOD OF ONE MONTH TIME. M/S. R. K. EXPORTS WAS REGULAR INCOME TAX PAYEE WITH PAN NO. ADWPG7715Q AND WAS ASSESSED AT WARD 3(3), MATHURA. SHRI RAJ KUMAR GARG IS A PROPRIETOR OF M/S. R.K. EXPORTS . THE ASSESSEE HAS FURNISHED CERTIFICATE OBTAINED FROM MA NAGER OF GOVINDPURA, S.M.E. BRANCH OF S.B.I. DATED 30.4.2008 THAT SHRI DINESH AGARWAL HAD RECEIVED THE CHEQUES NO.228 51 DATED 30 TH JULY,2001, FOR RS. 3 LAKHS DRAWN ON DENA BANK, BHO PAL, AND THAT SHRI DINESH AGRAWAL HAD ISSUED THE CHEQUE NO. 616734 DATED 31.8.2001 TO M/S. R.K.EXPORTS, WHICH W ERE ENCASHED IN THE BANK ACCOUNT OF THE ASSESSEE SHRI D INESH AGARWAL. 8. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FRO M THE RECORD THAT SEARCH WAS CONDUCTED IN THE RESIDE NTIAL PREMISES OF THE ASSESSEE ON 16-09-2005. THE LD. ASS ESSING OFFICER ISSUED THE NOTICE U/S. 153A ON 22-03-2006, WHICH WAS SERVED ON THE ASSESSEE ON 25-03-2006 FOR THE ASSMT . YEAR 2002-03. THE ASSESSEE WAS ASKED TO FILE THE RETURN WITHIN 30 DAYS FROM THE DATE OF SERVICE OF THE NOTICE. THE PE RIOD OF 30 DAYS EXPIRED ON 23-04-2006. BUT, SINCE ON 22-04-20 06 AND 23-04-2006 WERE SATURDAY AND SUNDAY AND THE OFFICE OF THE ASSESSING OFFICER WAS CLOSED ON THESE DAYS. THE RET URN FOR THE - 7 - 7 ASSMT. YEAR 2002-03 WAS FILED ON 24-04-2006 AND THE RE WAS NO DELAY IN FILING OF THE RETURN IN VIEW OF SEC. 1 0 OF GENERAL CLAUSES ACT. THE LD. ASSESSING OFFICER MADE THE AD DITION TOWARDS INCOME FROM OTHER SOURCES, WHICH WERE DELET ED BY THE CIT(A) BY. OBSERVING THAT NO ADVERSE MATERIAL WAS F OUND DURING THE COURSE OF SEARCH INDICATING THE GENUINEN ESS OF THE TRANSACTION. IT WAS A REGULAR TRANSACTION ENTERED T HROUGH BANKING CHANNEL AND CERTIFICATE FROM BANKER WAS ALS O FURNISHED. IN VIEW OF THE FACT THAT LOAN WAS OBTAIN ED BY CHEQUES AND THE SAME WAS RETURNED BY CHEQUES, WHICH IS DULY SUPPORTED BY THE CERTIFICATE ISSUED BY THE BANKERS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) F OR DELETING THE ADDITION OF RS. 3 LAKHS, WHICH WAS ON ACCOUNT OF LO AN TAKEN FROM M/S. R.K. EXPORTS AND WHICH WAS ALSO RETURNED BACK TO HIM WITHIN A PERIOD OF ONE MONTH TIME BY ACCOUNT PA YEE CHEQUES ONLY. ALL THESE TRANSACTIONS WERE MUCH PRIO R TO THE DATE OF SEARCH AND NOTHING WAS FOUND INCRIMINATING WITH REGARD TO THIS TRANSACTION DURING THE COURSE OF SEA RCH OR EVEN THEREAFTER ON ACCOUNT OF POST SEARCH ENQUIRIES AND INVESTIGATIONS, INDICATING ANY ADVERSE FEATURE ON T HE GENUINENESS OF TRANSACTION OR CREDITWORTHINESS OF C REDITOR. ACCORDINGLY, NO INTERFERENCE IS CALLED IN CIT(A)S ORDER FOR SUCH DELETION. 9. NEXT GRIEVANCE OF THE REVENUE RELATES TO THE DELET ION OF ADDITION OF RS. 10 LAKHS ON ACCOUNT OF LOAN TAKE N FROM M/S. CONFISEC PRINTERS. - 8 - 8 10. FACTS IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT, THE ASSESSEE WAS ASKED TO FILE COPIES O F BANK ACCOUNT OPERATED BY THE ASSESSEE HIMSELF AND HIS FA MILY MEMBERS. IN COMPLIANCE OF QUESTION NO.4 OF THE QUESTIONNAIRE, THE BANK STATEMENTS WERE DULY SUPPLI ED BY THE ASSESSEE. HOWEVER, NO QUESTION WAS ASKED BY THE ASS ESSING OFFICER WITH REGARD TO THE CREDITS APPEARING IN THE SAID BANK ACCOUNT. THE ADDITION WAS MADE BY THE ASSESSING OFF ICER ON THE PLEA THAT LOAN OF RS. 10 LAKHS FROM M/S. CONFIS EC PRINTERS HAS BEEN DIRECTLY CREDITED WITH M/S. MECH MEN MOTOR S IN THE NAME OF THE ASSESSEE. THIS AMOUNT OF RS. 10 LAKHS W AS RECEIVED THROUGH TWO DEMAND DRAFTS OF RS. 9 LAKHS A ND RS. 1 LAKH. THE AO STATED THAT THE AMOUNT OF RS. 10 LAKHS WAS BIFURCATED INTO 2 DRAFTS IN ORDER TO AVOID THE ENQU IRIES FROM THE INCOME TAX DEPARTMENT. THE AO ALSO STATED THAT A LO AN OF RS. 10 LAKHS SO RECEIVED IS STILL OUTSTANDING AGAINST T HE ASSESSEE AND NO INTEREST IS BEING PAID ON THE SAID LOAN. IN VIEW OF THESE OBSERVATIONS, THE AO HELD THAT LOAN TAKEN FROM M/S. CONFISEC PRINTERS WAS NOT GENUINE. 11. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION AFTER HAVING THE FOLLOWING OBSERVATIONS :- I HAVE SEEN THE ASSESSMENT ORDER AND ALSO THE MANNER IN WHICH THE ASSESSMENT HAS BEEN COMPLETED BRINGING THE TWO UNSECURED LOANS OF RS. 3,00,000/- AND RS. 10,00,000/- TO TAX. AS FAR AS THE UNSECURED LOAN OF RS. 3,00,000/- IS CONCERNED, IT WAS OBTAINE D - 9 - 9 ON 31.7.2001 AND RETURNED ON 31.8.2001 THROUGH BANKING CHANNELS. IN THE ABSENCE OF ANY ADVERSE MATERIAL FOUND EITHER DURING THE COURSE OF ACTION U /S 132 OR IN THE POST INVESTIGATION ENQUIRIES, THE AO WAS NOT JUSTIFIED IN SUBJECTING IT TO TAX. AS FAR AS TH E UNSECURED LOAN OF RS. 10,00,000/- IS CONCERNED, IT IS STILL OUTSTANDING. FOR THE SAME REASONS, AS MENTIONED IN THE CASE OF UNSECURED LOAN OF RS. 3,00,000/-, I.E., IN THE ABSENCE OF ENQUIRIES, THE AO WAS NOT JUSTIFIED IN SUBJECTING IT TO TAX. THUS, IN CONCLUSION THIS ADDITION OF RS. 13,00,000/- IS NOT SUSTAINABLE. IN THE CIRCUMSTANCES, THIS GROUND OF T HE APPELLANT IS ALLOWED. 12. AGGRIEVED BY THE SAME, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT LOAN WAS OBTAINED BY THE ASSESSEE FROM HUF PROPRIETARY CONCERN OF HIS BROTHE R. NO ADVERSE MATERIAL WAS FOUND DURING COURSE OF SEARCH NOR DURING ANY POST SEARCH INVESTIGATION. AOS DOUBT OF GENUINENESS OF LOAN WAS BASED ON FACT THAT LOAN WAS OBTAINED BY WAY OF TWO DDS OF RS. 9 LAKHS AND RS. 1 LAKH. HO WEVER, THE REASON FOR SUCH DD WAS POWER OF BANK MANAGER TO ISS UE DD OF PARTICULAR DENOMINATION. NOTHING MORE THAN SUPPR ESSION WAS INDICATED BY THE AO FOR MAKING THE ADDITION. IN VIEW OF THE - 10 - 10 FINDING RECORDED BY THE LD. CIT(A) AT PAGE 4 REPRO DUCED HEREINABOVE, WE DO NOT FIND ANY INFIRMITY FOR DELET ING THE SAID ADDITION OF RS. 10 LAKHS. 14. NEXT GRIEVANCE OF REVENUE RELATES TO DELETION OF ADDITION OF RS. 9 LAKHS ON ACCOUNT OF UNSECURED LOA NS FROM M/S.M.D.OVERSEAS LIMITED. 15. THE AO HAS MADE ADDITION OF RS. 9 LAKHS IN RESPECT OF LOAN TAKEN FROM M/S. M. D. OVERSEAS LIMITED BY WAY OF DDS, ONE OF RS. 4 LAKHS, WHICH WAS OBTAINED ON 31.7.2001 AND SAME WAS RETURNED THROUGH DD OF RS. 4 LAKHS ON 5.2. 2007 AND ANOTHER DD OF RS. 5 LAKHS DATED 7.2.2007 FROM T HE ACCOUNT OF THE ASSESSEE IN M/S. MECH MEN MOTORS LIM ITED. THIS WAS A REGULAR TRANSACTION ENTERED IN THE COURS E OF BUSINESS THROUGH BANKING CHANNELS. NO ADVERSE MATER IAL WAS FOUND DURING THE COURSE OF SEARCH NOR IN THE POST S EARCH INVESTIGATION. THE LD. CIT(A) HAS DELETED THE ADDIT ION AFTER RECORDING HIS FINDING AT PAGE 5. THE FIRM M/S. M.D. OVERSEAS LIMITED WAS REGULARLY ASSESSED TO TAX AT CIRCLE 6(1 ), NEW DELHI, THAT PAN AACCM9507-F AND THE TRANSACTION WAS THRO UGH BANKING CHANNELS. ACCORDINGLY, THERE IS NO INFIRMIT Y IN THE ORDER OF CIT(A) FOR DELETING THE ADDITION MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF GENUINE TRANSACTION ENTERED I N THE REGULAR COURSE OF BUSINESS THROUGH BANKING CHANNELS . 16. LAST GRIEVANCE OF THE REVENUE RELATES TO DELETION OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F PERQUISITE U/S 2(24)(IV) OF THE INCOME-TAX ACT, 196 1. - 11 - 11 17. THE AO STATED THAT THE ASSESSEE IS A DIRECTOR WITH M/S.MECHMEN MOTORS AND HOLDS MORE THAN 10 % SHARES AND HE HAS OBTAINED UNSECURED LOAN OF RS. 4,04,000/- FR OM THIS CONCERN. THE AO TREATED THE SAME AS DEEMED DIVIDEND U/S 2(22)(E) AND BROUGHT THE SAME WITHIN TAX U/S 2(24)( IV) OF THE INCOME-TAX ACT, 1961. 18. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION AFTER HAVING THE FOLLOWING OBSERVATIONS :- I HAVE SEEN THE ASSESSMENT ORDER AND ALSO THE WAY IN WHICH THE AO HAS MADE THE ADDITION OF RS. 4,04,400/- ON ACCOUNT OF DEEMED DIVIDEND OR PERQUISITE. THE FACTS AS BROUGHT OUT HAVE NEGATED T HE OPINION OF THE AO ON DEEMED DIVIDEND AS THERE WERE NO ACCUMULATED PROFITS. IN AS MUCH THE PERQUISITE I S CONCERNED, THE ARGUMENTS OF THE AR ARE REJECTED, AS THAT MUCH OF THE MONEY WAS AVAILABLE TO THE ASSESSEE, WHICH IS NO DOUBT RETURNABLE ON CALL. SIN CE THE ADVANCE IS ALWAYS RETURNABLE, WHICH IS THERE THROUGH OUT THE YEAR WITH THE ASSESSEE, THE PERQUISITE IS WORKED OUT AT 10%, WHICH WORKS OUT TO RS. 40,440/-. THUS, ADDITION ON THIS ACCOUNT IS CONFIRMED TO THE EXTENT OF RS. 40,440/- AND THE ASSESSEE GETS A RELIEF OF RS. 4,00,360/- AND THUS T HIS GROUND OF THE APPELLANT IS PARTLY ALLOWED. 19. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND - 12 - 12 FROM RECORD THAT THE ASSESSEE HAS TAKEN LOAN OF RS. 4,04,000/- FROM ASSOCIATE CONCERN FALLING WITHIN THE AMBIT OF CONCERNS AS DEFINED U/S 2(22)(E). FOR BRINGING ANY SUCH LOAN TA KEN BY THE ASSESSEE WITHIN THE MISCHIEF OF SECTION 2(22)(E), T HE BASIC CONDITIONS OF ACCUMULATED PROFIT WITH THE ASSOCIATE CONCERN GIVING LOAN TO THE ASSESSEE IS MUST. UNLESS THERE I S ACCUMULATED PROFIT IN THE HANDS OF THE CONCERN WHIC H HAS GIVEN LOANS TO THE ASSESSEE, NO ADDITION CAN BE MAD E U/S 2(22)(E). 20. WITH REGARD TO TAXING THE AMOUNT OF LOAN RECEIVED BY THE ASSESSEE FROM M/S. MECHMAN MOTORS, WHEREIN THE ASSESSEE WAS A DIRECTOR, HOLDING MORE THAN 10 % OF ITS SHARES, WE FOUND THAT THE AO HAS BROUGHT IT WITHIN THE TAX NET ON THE PLEA OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. CO NTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT WHILE WO RKING OUT AMOUNT OF DEEMED DIVIDEND IN RESPECT OF LOANS OBTAI NED, THE ACCUMULATED PROFIT OF THE COMPANY IS TO BE ARRIVED AT AFTER MAKING ADJUSTMENT ON ACCOUNT OF DEPRECIATION ETC. A LLOWABLE AS PER THE RATES PRESCRIBED UNDER THE INCOME-TAX AC T/RULES. THUS, THE PHRASE ACCUMULATED PROFIT DOES NOT MEAN PROFIT AS DISCLOSED IN THE COMPANYS BALANCE SHEET, BUT THE P ROFIT ARRIVED AT AFTER ALLOWING ADJUSTMENT OF DEPRECIATIO N ETC. AS PER INCOME-TAX ACT, 1961. FOR THIS PURPOSE, RELIANCE WA S PLACED ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. JAMUNA DAS KHIMJEE KOTHARI, 93 ITR 105. RELIANCE WA S PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF - 13 - 13 P.K. BADIANI, 105 ITR 642, WHEREIN IT WAS HELD THAT EXPRESSION ACCUMULATED PROFIT OCCURRING IN CLAUSE (E) OF SEC TION 2(6A) OR FOR THE MATTER OF THAT IN ANY OTHER CLAUSE, MEANS P ROFIT IN THE COMMERCIAL SENSE AND NOT ASSESSABLE OR TAXABLE PROF IT LIABLE TO BE TAXED AS INCOME UNDER 1922 ACT. 21. IT WAS FURTHER SUBMITTED BY LD. AR THAT ON THE DA TE OF ADVANCING THE LOAN TO THE ASSESSEE THE COMPANY DI D NOT HAVE ANY PROFITS EVEN UNDER THE COMPANY LAW. COPY OF ACC OUNTS OF SHRI DINESH CHAND AGRAWAL IN THE BOOKS OF THE COMPA NY M/S. MECHMEN MOTORS (P) LTD . WAS ALSO REFERRED. AS PER LD. AR THERE IS A RUNNING ACCOUNT OF THE ASSESSEE AND THER E IS NO ADVANCE AS SUCH GIVEN BY THE COMPANY TO SHRI DINES H CHAND AGRAWAL. THERE WAS A OUTSTANDING CREDIT BALANCE OF RS. 3,86,000/- IN THE NAME OF SHRI DINESH AGRAWAL AS ON 1-04- 2001, WHICH WAS TRANSFERRED TO SHARE APPLICATION MO NEY ACCOUNT. THE ASSESSEE RECEIVED THE ADVANCE DURING T HE PREVIOUS YEAR ON 05-02-2002, WHILE THE PROFIT TO TH E COMPANY HAS ACCRUED ON 31-03-2002 UNDER THE COMPANY LAW. IT IMPLIES THAT THE ADVANCE OF RS. 4,04,000/- WAS GI VEN BEFORE THE ACCRUAL OF PROFIT TO THE COMPANY THAT TOO UND ER THE COMPANY LAW AND THEREFORE, THE ADVANCE RECEIVED BY THE ASSESSEE AT RS. 4,04,000/- IS NOT OUT OF THE ACCU MULATED PROFIT OR THE PROFITS ACCRUED TILL THE DATE OF GIV ING THE ADVANCE. 22. ON THE OTHER HAND, THE CONTENTION OF THE LD. CIT D R WAS THAT ACCUMULATED PROFIT MEANS PROFIT AS DISCLOS ED BY THE COMPANY IN ITS AUDITED BOOKS OF ACCOUNT AND NO ADJU STMENT - 14 - 14 WITH REGARD TO ANY CLAIM OF DEPRECIATION EVEN AT TH E RATES PRESCRIBED UNDER THE INCOME TAX RULES CAN BE ALLOWE D. ACCORDINGLY, HE SUBMITTED THAT WRONG RELIANCE WAS P LACED BY THE LD. AUTHORIZED REPRESENTATIVE ON THE DECISION O F BOMBAY HIGH COURT IN THE CASE OF JAMUNA DAS KHIMJEE KOTHAR I (SUPRA). 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT ACCUMULATED PROFIT FOR THE PURPOS E OF ARRIVING AT DEEMED DIVIDEND HAS BEEN JUDICIALLY DEA LT WITH BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE JAMUNA D AS KHIMJEE KOTHARI (SUPRA), WHEREIN A DISTINCTION HAD BEEN DRAWN BETWEEN THE PROFITS AS DISCLOSED IN THE COMPANYS B ALANCE SHEET VIS--VIS PROFIT AS ARRIVED AT AFTER MAKING A DJUSTMENT ON ACCOUNT OF DEPRECIATION ELIGIBLE TO THE ASSESSEE AT THE RATES PRESCRIBED BY THE INCOME TAX ACT/RULES. IT HAS BEEN CATEGORICALLY OBSERVED BY THE BOMBAY HIGH COURT THA T PHRASE ACCUMULATED PROFIT DOES NOT MEAN PROFIT AS DISCLO SED IN THE COMPANYS BALANCE SHEET, BUT THE PROFIT DISCLOSED S HOULD BE SUBJECT TO ADJUSTMENT FOR DEPRECIATION AS GRANTED I N ACCORDANCE WITH THE RATES PRESCRIBED BY THE INCOME TAX ACT, AND SUCH DEPRECIATION WOULD HAVE TO BE DEDUCTED FOR ASCERTAINING THE ACCUMULATED PROFIT. FURTHERMORE, H ON'BLE SUPREME COURT IN THE CASE OF P.K. BAIDIANI (SUPRA) HAS ALSO DEALT WITH THE MEANING OF EXPRESSION ACCUMULATED P ROFIT AND OBSERVED THAT ACCUMULATED PROFIT MEANS PROFIT IN TH E COMMERCIAL SENSE AND NOT ASSESSABLE OR TAXABLE PROF ITS LIABLE - 15 - 15 TO TAX AS INCOME UNDER THE 1922 ACT. IT WAS ALSO OB SERVED BY THE HON'BLE SUPREME COURT THAT MERE TRANSFERRING OF AMOUNT FROM PROFIT AND LOSS ACCOUNT TO THE DEVELOPMENT RES ERVE ACCOUNT DOES NOT AMOUNT TO CAPITALIZATION OF PROFIT . ACCORDINGLY, HON'BLE SUPREME COURT AFFIRMED THE DEC ISION OF BOMBAY HIGH COURT IN THE CASE OF P. K. BAIDIANI. TH IS DECISION OF HON'BLE SUPREME COURT WAS SUBSEQUENTLY FOLLOWED BY THE HON'BLE SUPREME COURT ITSELF IN THE CASE OF URMILA RAMESH, 230 ITR 422. 24. IN VIEW OF THE ABOVE DISCUSSION, WE ARE INCLINED T O AGREE WITH THE LD. AUTHORIZED REPRESENTATIVE THAT F OR THE PURPOSE OF WORKING OUT AMOUNT OF DEEMED DIVIDEND LI ABLE TO BE INCLUDED IN THE INCOME OF THE ASSESSEE, IS TO BE WO RKED OUT ON THE BASIS OF ACCUMULATED PROFIT ARRIVED AT AFTER AL LOWING CLAIM OF DEPRECIATION ETC. AS PER THE INCOME TAX RULES. I N THE INSTANT CASE BEFORE US THE LD. CIT(A) AFTER ALLOWING THE AD JUSTMENT IN ACCUMULATED PROFIT IT TERMS OF ABOVE DECISIONS CAME TO THE CONCLUSION THAT THERE WAS NO ACCUMULATED PROFIT WIT H M/S. MECHMAN MOTORS, ACCORDINGLY, THE LOAN SO RECEIVED B Y THE ASSESSEE CANNOT BE BROUGHT TO TAX NET AS DEEMED DIV IDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, THERE IS NO INFIRMITY IN THE ORDER OF THE CIT(A) FO R FOLLOWING THE DECISION OF HON'BLE SUPREME COURT AND BOMBAY HIGH C OURT, WHILE ARRIVING AT THE CONCLUSION THAT THERE WAS NO ACCUMULATED PROFIT, THEREFORE, THERE IS NO QUESTION OF ANY - 16 - 16 DEEMED DIVIDEND BEING INCLUDED IN ASSESSEES INCOME U/S 2(22)(E) OF THE INCOME-TAX ACT, 1961. 25. A CATEGORICAL FINDING TO THE EFFECT THAT M/S. MECH MEN MOTORS WAS NOT HAVING ANY ACCUMULATED PROFIT WAS RE CORDED BY THE LD. CIT(A), WHICH HAS NOT BEEN CONTROVERTED BY BRINGING ANY POSITIVE MATERIAL ON RECORD. HOWEVER, BY CONSID ERING THAT THE ASSESSEE HAS OBTAINED PERQUISITE IN THE FORM OF TAKING INTEREST FREE LOAN, AN ADDITION TO THE EXTENT OF 10 % WAS RETAINED BY THE CIT(A) TO THE EXTENT OF RS. 40,440/ -. 26. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE C IT(A) FOR DELETING THE ADDITION MADE ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E), WHEREAS AT THE SAME TIME ADDITION RET AINED TO THE EXTENT OF 10 % OF SUCH LOAN ON ACCOUNT OF PERQUISIT E IN THE HANDS OF THE ASSESSEE IS CONFIRMED. 27. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2010. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH NOVEMBER,2010. CPU* 29