M/S. ELEGANT EATERIES PVT. LTD, MUMBAI v. THE ITO RG 8(1)(3), MUMBAI

ITA 4791/MUM/2007 | 2004-2005
Pronouncement Date: 03-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 479119914 RSA 2007
Assessee PAN AAACG8656R
Bench Mumbai
Appeal Number ITA 4791/MUM/2007
Duration Of Justice 3 year(s) 4 month(s) 30 day(s)
Appellant M/S. ELEGANT EATERIES PVT. LTD, MUMBAI
Respondent THE ITO RG 8(1)(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 03-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 03-12-2010
Date Of Final Hearing 22-11-2010
Next Hearing Date 22-11-2010
Assessment Year 2004-2005
Appeal Filed On 04-07-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 4791/MUM/2007 (ASSESSMENT YEAR: 2004-05) M/S. ELEGANT EATERIES PVT. LTD. INCOME TAX OFFICER - 8(1)(3) LEELA BAUG SIR M.V. ROAD AAYAKAR BHAVAN M.K. ROAD ANDHERI (E) MUMBAI 400059 VS. MUMBAI 400020 PAN - AAACG 8656 R APPELLANT RESPONDENT ITA NO. 5184/MUM/2007 (ASSESSMENT YEAR: 2004-05) INCOME TAX OFFICER - 8(1)(3) M/S. ELEGANT EATERIES PVT. LTD. ROOM NO. 206 2ND FLOOR LEELA BAUG SIR M.V. ROAD AAYAKAR BHAVAN M.K. ROAD VS. ANDHERI (E) MUMBAI 400059 MUMBAI 400020 PAN - AAACG 8656 R APPELLANT RESPONDENT ASSESSEE BY: SHRI NITESH S. JOSHI REVENUE BY: SHRI SUMEET KUMAR O R D E R PER B. RAMAKOTAIAH A.M. THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE REV ENUE AGAINST THE ORDER OF THE CIT(A) VIII MUMBAI DATED 01.05.2007. ITA NO. 4791/MUM/2007 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED C.I.T.(A) 8 ERRED IN FACT AND IN LAW IN CON FIRMING ASSESSING OFFICERS ORDER FOR TREATING LEASE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY IN PLACE OF APPELLANTS C LAIM AS BUSINESS INCOME. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED C.I.T.(A) ERRED IN FACT AND IN LAW IN CON FIRMING ASSESSING OFFICERS ORDER IN DISALLOWANCE OF INTEREST/FINANCI AL CHARGES PAYABLE TO HDFC AND IN CONFIRMING DISALLOWANCE OF D EPRECIATION.. ITA NOS. 4791&5184/MUM/2007 M/S. ELEGANT EATERIES PVT. LTD. 2 3. DURING THE COURSE OF HEARING THE LEARNED COUNSEL DI D NOT PRESS GROUND NO.1 HENCE IT IS DISMISSED AS NOT PRESSED. 4. GROUND NO. 2 CONTAINS TWO PARTS INTEREST AND FINA NCIAL CHARGES AND DISALLOWANCE OF DEPRECIATION. CONSEQUENT TO GROUND NO. 1 BEING NOT PRESSED THE DISALLOWANCE OF DEPRECIATION WAS ALSO NOT PRESS ED. THAT LEAVES US WITH THE ISSUE OF DISALLOWANCE OF INTEREST AND FINANCIAL CHARGES. 5. THE BRIEF FACTS ARE THAT THE ASSESSEE HAS SHOWN AN INCOME FROM OPERATION OF COMPLEX AT ` 58 07 400/- AGAINST WHICH EXPENSES TO THE TUNE OF ` 42 66 215/- HAD BEEN CLAIMED WHICH INCLUDED INTERES T AND FINANCIAL CHARGES AMOUNTING TO ` 26 75 036/- AND DEPRECIATION AMOUNTING TO ` 8 26 149/-. THE A.O. TREATED THE LEASE RENTAL INCOM E FROM THE COMPLEX AS INCOME FROM PROPERTY. ON APPEAL THE CIT(A) UPHELD THE ORDER OF THE A.O. BEING AGGRIEVED ASSESSEE IS IN APPEAL BEFORE THE T RIBUNAL. 6. IT IS SUBMITTED THAT THE ISSUE OF INTEREST/FINANCIA L CHARGES WAS COVERED BY EARLIER YEARS ORDER ON THE ISSUE WHICH WAS RESTORED TO THE FILE OF THE A.O. BY HOLDING AS UNDER: - 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED MATERI AL ON RECORD. IT IS SEEN FROM THE RECORDS THAT THE ASSESSEE HAS STATED BY LETTER DATED 15- 11-2005 THAT IT UTILIZED THE LOAN FROM HDFC FOR ADV ANCING TO M/S. OCEANIC HOTELS PVT. LTD. FOR PURCHASE OF IMMOVABLE PROPERTY. THE AO DID NOT VERIFY THE SAME. THEREFORE WE SET ASIDE TH E ORDER OF THE CIT(APPEALS) ON THIS POINT AND REMIT THE ISSUE TO T HE AO FRO VERIFYING THIS FACT AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE COORD INATE BENCH WE RESTORE THE MATTER TO THE FILE OF THE A.O. FOR FRESH ADJUDI CATION TO CONSIDER THE ALLOWANCE OF INTEREST ETC WHILE WORKING OUT THE INC OME UNDER THE PROPERTY HEAD. APPEAL IS PARTLY ALLOWED. ITA NO. 5184/MUM/2007 7. IN THIS APPEAL THE REVENUE HAS RAISED THE SOLITARY GROUND ON THE ISSUE OF DELETION OF UNSECURED LOAN TREATED AS DEEMED DIV IDEND UNDER SECTION 2(22)(E). ITA NOS. 4791&5184/MUM/2007 M/S. ELEGANT EATERIES PVT. LTD. 3 8. THE A.O. IN THE ASSESSMENT ORDER HAD EXAMINED THE T RANSACTION REGARDING THE LOAN OF ` 90 03 601/- FROM M/S. LEELA SCOTTISH LACE PVT.LTD. AND AFTER EXAMINING THE SHARE HOLDING PATTERN (PARA 6.4 OF THE ORDER) CONCLUDED THAT THE TRANSACTION WAS COVERED WITHIN T HE PROVISIONS OF SECTION 2(22)(E) OF THE I.T. ACT AND IN THIS CONNECTION REL IED ON THE FOLLOWING DECISIONS: - I) NATVARLAL C. JHAVERI VS. K.K. SEN 56 ITR 198 207-8 (SC) II) M/S. SADHANA TEXTILES MILLS (P) LTD. VS. CIT 188 IT R 381 (BOM) THE A.O. ALSO DID NOT ACCEPT THE PLEA OF THE ASSESS EE THAT SECTION 2(22)(E) WAS NOT APPLICABLE WHERE THERE WAS NO ACTUAL TRANSF ER OF FUNDS AND THE TRANSACTIONS WAS RECORDED ONLY THROUGH JOURNAL VOUC HER ENTRIES. PARA 6.6 OF THE ASSESSMENT ORDER READS AS UNDER: - 6.6 FURTHER THE ASSESSEES SUBMISSIONS REGARDING EN TRIES ROUTED THROUGH THE JOURNAL ARE DULY CONSIDERED. HOWEVER THE SAME ARE N OT ACCEPTABLE FOR THE FOLLOWING REASONS: I) THOUGH SEC. 2(22)(E) SPEAKS OF ANY AMOUNT BY A COMPANY THE LIBERAL CONSTRUCTION OF THE TERM INCLUDE CREDITS MA DE TOWARDS SUCH PAYMENTS. THIS IS SO BECAUSE SUCH PAYMENTS ARE GENE RALLY AMONGST THE MEMBERS/CONCERNS CONTROLLED BY A FAMILY/GROUP. IF T HE ASSESSEES CONTENTION WERE TO BE ACCEPTED THE VERY PURPOSE OF SEC. 2(22)(E) WOULD BE DEFEATED. THUS IT IS HELD THAT THE PAYMENTS REF ERRED TO IN SECTION 2(22)(E) IMPLIES AND INCLUDES CREDITS MADE IN THE A CCOUNTS TOWARDS SUCH PAYMENT. II) IN ANNEXURE III OF TAX AUDIT REPORT THE AUDITO R HAS QUALIFIED THAT THE ASSESSEE COMPANY HAS TAKEN LOAN OF RS.90 03 601/-. THIS AMOUNT INCLUDES JOURNAL ENTRY PASSED FOR AN AMOUNT OF RS.8 8 53 001/-. IT IS NOT ASSESSEES CASE THAT THE AUDITOR HAS WRONGLY QUALIF IED THIS JOURNAL ENTRY. III) PERUSAL OF THE LEDGER ACCOUNTS OF M/S. OCEANIC HOTELS PVT. LTD. IN THE ASSESSEES BOOKS FURTHER REVEALS THAT THIS ACCOUNT HAS BEEN DEBITED BY A SUM OF ` 88 53 001/-. THIS CLEARLY SHOWS THAT M/S. LSL PVT. LTD. HAS PAID THIS AMOUNT TO M/S. OCEANIC HOTELS PVT. LTD. O N BEHALF OF THE A. THE FACT THAT THE PAYMENTS ARE MADE THROUGH JOURNAL VOU CHER CLEARLY ESTABLISHES THE ASSESSEES MODUS OPERANDI TO BYPASS THE PROVISIONS OF SEC. 2 (22)(E). 9. AFTER CONSIDERING ASSESSEES SUBMISSIONS THE CIT(A ) CONSIDERED THE ISSUE AND DELETED THE SAME BY HOLDING AS UNDER: - ITA NOS. 4791&5184/MUM/2007 M/S. ELEGANT EATERIES PVT. LTD. 4 I HAVE CAREFULLY EXAMINED THE ISSUE WHERE AS IT IS TRUE THAT THE TRANSACTIONS WHICH THE A.O. HAS POINTED OUT PRIMA F ACIE APPEARS TO BE COVERED U/S 2(22)(E) OF THE I.T. ACT BUT AT THE SA ME TIME HOWEVER IT IS ALSO CLEAR THAT SECTION 2(22)(E) DOES CLEARLY STIPU LATE THAT TRANSACTION PERTAINS TO ANY PAYMENT BY COMPANY AND THAT THIS PAYMENT HAS TO BE MADE WHETHER IN CASH OR IN CHEQUE AND WOULD NOT INC LUDE TRANSFER ENTRIES THROUGH JOURNAL VOUCHERS WHERE NO MOVEMENT OF FUNDS TAKES PLACE. I AM IN AGREEMENT WITH THE PLEA OF THE LD. C OUNSEL THAT THE AFORESAID ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE CHENNAI HIGH COURT IN THE CASE OF CIT VS. SMT SAVITRI SAM 236 ITR 1003 A DECISION WHICH WAS ARRIVED AT BY THE HON'BLE CO URT AFTER FURTHER RELYING ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF G.R. GOVINDARAJULU NAIDU . HE ALSO EXTRACTED THE ORDER OF THE HON'BLE MADRAS H IGH COURT IN THE CASE OF G.R. GONINDARAJULU NAIDU VS. CIT 90 ITR 13 AND THE ITAT DECISION ON ACIT VS. LAXMIKUTTY NARAYAN 105 ITD 588 (COCHIN) BEFORE DELETING THE ABOVE ADDITION. HENCE THE REVENUE IS AGGRIEVED. 10. THE LEARNED D.R. RELIED ON THE ORDER OF THE A.O. WH EREAS THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A) INVOKING RULE 27. IT WAS THE SUBMISSION OF THE ASSESSEE THAT: - (A) THE ENTRIES IN THE LEDGER ACCOUNT OF ` 88 53 001/- REPRESENTS A JOURNAL ENTRY WITHOUT ANY MOVEMENT OF FUNDS WHICH C ANNOT BE COVERED BY THE PROVISIONS OF SECTION 2(22)(E) OF TH E INCOME-TAX ACT. (B) IN ANY EVENT THE ASSESSEE IS NOT A SHAREHOLDER OF M/S. LEELA SCOTTISH LACE PVT. LTD. FURTHER IT IS ALSO SUBMITTED THAT THE ISSUE IN EAR LIER YEAR ON SIMILAR FACTS WAS ALSO CONTESTED BY REVENUE BEFORE THE HON'BLE HI GH COURT AT BOMBAY IN ITA NO. 1085 OF 2009 WHICH WAS DISMISSED FOR WANT O F SUBSTANTIAL QUESTION OF LAW. 11. WE HAVE CONSIDERED THE ISSUE. AS RIGHTLY CONSIDERED BY THE CIT(A) THERE IS NO NEED FOR ANY ADDITION UNDER SECTION 2(2 2)(E) AS THE ASSESSEE WAS NOT A SHAREHOLDER IN THE OTHER COMPANY. MOREOVER I T IS ONE OF THE CONTENTIONS THAT ONLY JOURNAL ENTRIES HAVE BEEN PAS SED. THE ADDITION CANNOT BE SUSTAINED FOR THE REASON THAT THE ASSESSEE COMPA NY IS NOT A SHAREHOLDER THE PROVISIONS OF SECTION 2(22)(E) ARE NOT ATTRACTE D AS HELD BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF PRAKASH L. SHAH 11 5 ITD 167 (MUM) (SB). ON SIMILAR FACTS THE ORDER OF THE ITAT IN EARLIER Y EAR HAS BECOME FINAL AS THE ITA NOS. 4791&5184/MUM/2007 M/S. ELEGANT EATERIES PVT. LTD. 5 HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE DI SMISSED THE REVENUE APPEAL. IN VIEW OF THIS THE REVENUE GROUND IS DISM ISSED. APPEAL DISMISSED. 12. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DECEMBER 2010. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 3 RD DECEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VIII MUMBAI 4. THE CIT VIII MUMBAI CITY 5. THE DR J BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.