ACIT, New Delhi v. M/s Gurunanak Agencies Pvt. Ltd., New Delhi

ITA 1518/DEL/2011 | 2007-2008
Pronouncement Date: 14-07-2011 | Result: Dismissed

Appeal Details

RSA Number 151820114 RSA 2011
Bench Delhi
Appeal Number ITA 1518/DEL/2011
Duration Of Justice 3 month(s) 16 day(s)
Appellant ACIT, New Delhi
Respondent M/s Gurunanak Agencies Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 14-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 14-07-2011
Date Of Final Hearing 14-07-2011
Next Hearing Date 14-07-2011
Assessment Year 2007-2008
Appeal Filed On 29-03-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `C: NEW DELHI BEFORE SHRI C.L.SETHI JUDICIAL MEMBER AND SHRI K.G. BANSAL ACCOUNTANT MEMBER I.T. A. NO.1518/DEL/2011 ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER OF INCOME-TAX M/S. GURUNANAK AGENCIES CIRCLE 12(1) NEW DELHI. VS. PVT. LTD. 70 RA JOURI GARDEN NEW DELHI. PAN: AACG2345R (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ROHIT GARG SR. DR. RESPONDENT BY: NONE. O R D E R PER C.L. SETHI JUDICIAL MEMBER: THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 20 .12.2010 OF THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR THE ASSESS MENT YEAR 2007-08. 2. THIS APPEAL CAME UP FOR HEARING ON 14.07.2011 W HEN NONE FOR THE ASSESSEE WAS PRESENT. THE LEARNED DR WAS HEARD. 3. GROUND NO.1 IS DIRECTED AGAINST THE CIT(A)S ORD ER IN GIVING RELIEF OF RS.10 000/- OUT OF RS.30 000/- ON ACCOUNT OF DISALL OWANCE OF INTEREST MADE BY THE ASSESSING OFFICER. 3.1 IN THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD GIVEN UNSECURED LOAN ON INTEREST T O THE TUNE OF RS.75 000/- 2 TO ONE OF THE RELATIVE OF DIRECTOR NAMED NAMRATA KA UR. THE RATE AT WHICH LOAN WAS PROVIDED WAS FOUND TO BE EXCESSIVE AND UNR EASONABLE. THE AO OBSERVED THAT THE PREVALENT MARKET RATE AT THAT POI NT OF TIME WAS 9%. HE THEREFORE ALLOWED INTEREST @ 9% AND DISALLOWED THE BALANCE AMOUNT OF INTEREST OF RS.30 000/-. 3.2 ON AN APPEAL THE LEARNED CIT(A) REDUCED THE AD DITION TO RS.10 000/- BY OBSERVING AS UNDER:- 4. GROUND NO.1 RELATES TO THE DISALLOWANCE OF INTE REST PAID OF RS.30 000 TO CREDITOR MS. NAMRATA KAUR AS EXCESS IVE. AS PER THE ASSESSING OFFICER THE UNSECURED LOAN WAS F ROM A RELATIVE OF THE DIRECTOR HENCE PAYMENT OF INTEREST @ 15% BEING EXCESSIVE WAS TO BE DISALLOWED AND INTEREST RATE AS PER MARKET RATE ONLY WAS ADMISSIBLE. IN THE ASSESSING OFFICER S VIEW THE PREVALENT MARKET RATE OF INTEREST WAS 9%. HE THERE FORE DISALLOWED INTEREST OF RS.30 000 AS EXCESSIVE. 4.2 AGAINST THE DISALLOWANCE MADE THE LD. COUNSEL H AS STATED THAT THE INTEREST HAS BEEN PAID AT MARKET RA TES ON UNSECURED PRIVATE LOANS. IT WAS SUBMITTED THAT DUR ING THE ASSESSMENT YEAR 2007-08 THE BANKS WERE GIVING INTE REST @ 11% ON FIXED DEPOSITS AND CHARGING INTEREST @ 14% O N O.D. LIMIT. THEREFORE INTEREST RATE OF 15% PAID BY THE APPELLANT COMPANY IS QUITE REASONABLE. IN MY VIEW TAKING INT O ACCOUNT THE FACT THAT THE UNSECURED LOAN WAS TAKEN FOR A PE RIOD OF 10 MONTHS AND THE FACT THAT THE BANKS WERE GIVING INTE REST @ 9 TO 10% ON FIXED DEPOSITS AN INTEREST RATE OF 11% ON U NSECURED LOAN WOULD BE REASONABLE. THEREFORE OUT OF INTERES T DISALLOWED AT RS.30 000 THE APPELLANT GETS A RELIEF OF RS.10 000. 4. WE HAVE HEARD THE LEARNED DR. NONE FOR THE ASSE SSEE WAS PRESENT. 3 4.1 THE LEARNED CIT(A) HAS ALLOWED THE INTEREST @ 1 1% AS AGAINST 15% CLAIMED BY THE ASSESSEE WHICH IN OUR OPINION IS N OT UNREASONABLE. THEREFORE THE RELIEF OF RS.10 000/- GRANTED BY THE CIT(A) IS FOUND TO BE JUSTIFIED. HENCE THIS GROUND RAISED BY THE REVENU E IS REJECTED. 5. GROUND NO.2 IS DIRECTED AGAINST THE CIT(A)S ORD ER IN DELETING THE ADDITION OF RS.26 99 143/- ON ACCOUNT OF DEEMED DIV IDEND UNDER SEC. 2(22)(E) OF THE ACT MADE BY THE AO. 5.1 IN THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD GIVEN LOAN AND ADVANCE TO ONE M/S. SIMRAN TEXTILES A FIRM IN WHICH ONE OF THE SHARE-H OLDER SHRI JASBIR SINGH HAD SUBSTANTIAL INTEREST. A COPY OF LEDGER ACCOUNT OF M/S. SIMRAN TEXTILES WAS FILED BY THE ASSESSEE BEFORE THE AO. FROM PERU SAL OF THE COPY OF ACCOUNT IT WAS SEEN THAT THE FOLLOWING TRANSACTION S WERE MADE WITH M/S. SIMRAN TEXTILES:- S.NO. DATE AMOUNT OF ADVANCE GIVEN 1 1/04/06 (OPENING BALANCE) 5 99 143/- 2 08/07/06 200 000/- 3 27/11/06 400 000/- 4 06/12/06 200 000/- 5 23/12/06 300 000/- 6 23/01/07 200 000/- 7 24/01/07 200 000/- 8 29/01/07 200 000/- 9 19/02/07 200 000/- 4 10 21/02/07 200 000/- TOTAL 26 99 143/- 5.2 AFTER CONSIDERING THE PROVISIONS OF SEC. 2(22)( E) THE AO FORMED AN OPINION THAT THE ABOVE AMOUNT OF RS.26 99 143/- SHO ULD BE ADDED IN THE HANDS OF THE ASSESSEE COMPANY AS HAD THIS COMPANY N OT ADVANCED LOAN TO ITS RELATED CONCERN PROFIT OF THE COMPANY WOULD BE MOR E THAN WHAT IT HAD DECLARED IN THE RETURN OF INCOME. THE AO THEREFOR E MADE THE ADDITION OF RS.26 99 143/- IN THE ASSESSEES INCOME. 5.3 ON AN APPEAL THE ASSESSEE SUBMITTED BEFORE THE LEARNED CIT(A) AS UNDER:- DURING THE ASSESSMENT YEAR 2007-08 THE APPELLANT M ADE PURCHASE OF RS.362530 DURING THE ASSESSMENT YEAR 20 07-08 AGAINST WHICH THE APPELLANT COMPANY WAS MAKING REGU LAR PAYMENTS BUT INADVERTENTLY SOME OF THE PAYMENTS SO MADE WERE CREDITED TO LOAN ACCOUNT AS A RESULT OF WHICH THERE WERE TWO SEPARATE ACCOUNTS AS PER DETAILS. IT WILL BE SEEN FROM THE STATEMENT OF ACCOUNTS THAT THE APPELLANT COMPANY WA S HAVING A DEBIT BALANCE OF RS.9 98 687 IN THE PURCHASE ACCOUN T ON THE OPENING DAY AND A CREDIT BALANCE OF RS.5 99 554 AS ON 1.4.2006 AND IT IS APPARENT FROM THE STATEMENT OF JOINT ACCO UNT THAT THE APPELLANT COMPANY WAS HAVING A DEBIT BALANCE UP TO 23.1.2007 AND AT THE END OF THE FINANCIAL YEAR I.E. ON 31.3.2 007 THE CREDIT BALANCE WAS ONLY TO TUNE OF RS.3 45 437.11. THE DEPOSITS IN THE LOAN ACCOUNT IS MERELY AN ACCOU NTING ERROR AND ATTENTION OF THE ASSESSING OFFICER WAS DR AWN TO THE OUTSTANDING UNDER THE TRADING TRANSACTION BUT IGNO RING THE SAME THE ASSESSING OFFICER HAS TAKEN ONLY THOSE ENT RIES APPEARING UNDER THE HEAD DEPOSITS/LOANS. FROM THE STATEMENT OF TRADING TRANSACTIONS AS WELL AS STATEMENT OF DEP OSITS/LOANS IT WILL BE SEEN THAT ON 27.11.2006 (THE DATE MENTIONED IN THE 5 ASSESSMENT ORDER) RELATING TO AN ENTRY OF RS.4 00 0 00 STATED TO HAVE BEEN SHOWN IN LOAN ACCOUNT THROUGH CHEQUE NO.3 88648 OF BANK OF MAHARASHTRA PAID TO M/S. SIMRAN TEXTILES I T IS WORTHY TO STATE THAT THE DEBIT BALANCE OUTSTANDING OF THE COMPANY IN THE TRADING ACCOUNT ON THIS DAY WAS AT RS.12 22 306 AND AFTER ADJUSTMENT OF THIS DEPOSIT THE BALANCE STOOD AT RS. 8 22 306 AND SIMILARLY UPTO 23.1.2007 THE COMPANY WAS DEBTOR OF THE FIRM AND LIABILITY STOOD AT RS.19 964/88. THAT THE ADVA NCES MADE BY THE COMPANY WERE FOR THE PURPOSE OF BUSINESS AND TH E ASSESSING OFFICER HAVING NOT CONSIDERED THE MATTER IN PROPER PERSPECTIVE THE MATTER REQUIRES A FRESH LOOK TAKING INTO ACCOUN T THE TRADING TRANSACTIONS AND DEPOSITS/LOANS ADVANCED BY THE COM PANY. THE DEEMED LOANS/DEPOSITS ARE TRANSACTIONS IN THE ORDIN ARY COURSE OF BUSINESS AND THEREFORE NOT COVERED UNDER SECTION 2(22)(E) AND HENCE THE SAME CANNOT BE TREATED AS DEEMED DIVI DEND. 5.4 AFTER CONSIDERING THE ASSESSEES SUBMISSION TH E AOS ORDER AND THE FACTS OF THE CASE THE LEARNED CIT(A) DELETED THE A DDITION BY HOLDING AND OBSERVING AS UNDER:- 5.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. CO UNSEL AS WELL AS THE FACTS ON RECORD. IN MY CONSIDERED VIEW THE ASSESSING OFFICER HAS TOTALLY ERRED IN APPLYING SEC TION 2(22)(E) IN THE CASE OF THE APPELLANT. SECTION 2(22)(E) IS A DEEMING PROVISION AND IT IS TO BE APPLIED IN THE CASE OF TH E RECIPIENT OF THE LOANS/ADVANCES I.E. THE BENEFICIARY THE ENTIT Y WHO HAS ENJOYED THE BENEFIT OF UTILIZATION OF THE FUNDS PRO VIDED BY THE COMPANY. IN THE PRESENT CASE THE APPELLANT IS UND OUBTEDLY THE PROVIDER OF THE FUNDS THEREFORE SECTION 2(22)(E) H AS NO APPLICATION IN ITS CASE AND HAS BEEN WRONGLY APPLIE D BY THE ASSESSING OFFICER. THE REASONING OF THE ASSESSING OFFICER IS THAT THE APPELLANT COMPANY WOULD HAVE HAD MORE PROF ITS HAD THE FUNDS NOT BEEN PROVIDED TO M/S. SIMRAN TEXTILES . THIS CANNOT BE A BASIS FOR INVOKING SECTION 2(22)(E) IN THE CASE OF THE APPELLANT COMPANY. MOREOVER THE ASSESSING OFFI CER HAS TOTALLY IGNORED THE FACT THAT THE TRANSACTIONS WITH M/S. SIMRAN TEXTILES ARE MOSTLY TRADING TRANSACTIONS PAYMENTS FOR PURCHASES MADE BY THE COMPANY. THEREFORE THE ASSES SING 6 OFFICERS REASONING OF THE COMPANYS FUNDS BEING PR OVIDED TO M/S. SIMRAN TEXTILES TO THE COMPANYS OWN COMMERCIA L DETRIMENT IS ALSO CONTRARY TO THE FACTS ON RECORD. BE THAT AS IT MAY FOR THE DISPOSAL OF THIS GROUND IT IS SUFFICI ENT TO HOLD THAT THE ADDITION OF RS.26 99 143 MADE 2(22)(E) IN THE C ASE OF THE APPELLANT IS TOTALLY ERRONEOUS AND THUS UNJUSTIFIE D. IT IS ACCORDINGLY DELETED. THE GROUND RAISED BY THE APPE LLANT THUS SUCCEEDS. 6. WE HAVE HEARD THE LEARNED DR AND PERUSED THE ORD ERS OF THE AUTHORITIES BELOW. 6.1 SECTION 2(22)(E) PROVIDES AS UNDER:- 2(22) DIVIDEND INCLUDES (A) XX XX XX (B) XX XX XX (C ) XX XX XX (D) XX XX XX (E) ANY PAYMENT BY A COMPANY NOT BEING A COMPANY I N WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED OF ANY SUM (WHETHER AS REPRESENTING 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 WHO IS THE BE NEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIX ED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICI PATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A ME MBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREINAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE INDIVIDUA L BENEFIT OF ANY SUCH SHAREHOLDER TO THE EXTENT TO WHICH THE CO MPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS; BUT DIVIDEND DOES NOT INCLUDE (I) TO (V) XX XX XX XX 7 6.2 FROM THE PLAIN READING OF SEC. 2(22)(E) WE FIN D THAT IN ORDER TO ATTRACT SEC. 2(22)(E) OF THE ACT THERE MUST AMONGST OTHER S LOANS AND ADVANCES RECEIVED BY A CONCERN/SHARE-HOLDER FROM A COMPANY IN WHICH THE CONCERN OR SHAREHOLDER HAVE SUBSTANTIAL INTEREST. IN THE PRES ENT CASE THE ASSESSEE COMPANY HAS PROVIDED THE LOAN TO M/S. SIMRAN TEXTIL ES AND THEREFORE PROVISION OF SEC. 2(22)(E) HAS NO APPLICATION IN TH IS CASE. MOREOVER THE AO HAS TOTALLY IGNORED THE FACT THAT THE TRANSACTIONS BETWEEN THE ASSESSEE AND M/S. SIMRAN TEXTILES ARE MOSTLY TOWARDS TRADING TRA NSACTIONS RELATING TO PURCHASES MADE BY THE COMPANY. THUS THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION OF RS.26 99 143/- IS UPHELD A ND THE GROUND RAISED BY THE REVENUE IN THIS REGARD IS REJECTED. 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. 8. THIS DECISION WAS PRONOUNCED ON 14 TH JULY 2011 IMMEDIATELY AFTER THE HEARING WAS OVER. SD/- SD/- (K.G. BANSAL) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14 TH JULY 2011. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR ITAT.