SHREENATHJI BALAJI COMUTECH P. LTD, MUMBAI v. DCIT 7(2), MUMBAI

ITA 6041/MUM/2009 | 2005-2006
Pronouncement Date: 04-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 604119914 RSA 2009
Assessee PAN AAECS7702C
Bench Mumbai
Appeal Number ITA 6041/MUM/2009
Duration Of Justice 1 year(s) 11 month(s) 18 day(s)
Appellant SHREENATHJI BALAJI COMUTECH P. LTD, MUMBAI
Respondent DCIT 7(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 04-11-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 04-11-2011
Date Of Final Hearing 31-10-2011
Next Hearing Date 31-10-2011
Assessment Year 2005-2006
Appeal Filed On 16-11-2009
Judgment Text
1 SHREENATHJI BALAJI COMPUTECH P LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI BENCHES MUMBAI BEFORE SHRI B RAMAKOTAIAH AM & SHRI VIJAY PAL RAO JM ITA NO. 6041/MUM/2009 (ASST YEAR 2005-06) SHREENATHJI BALAJI COMPUTECH P LTD 13/14 BHARAT NIWAS SONAWALA AGIYARI LANE MAHIM (W) MUMBAI 16 VS THE DY COMMR OF INCOME TAX 7(2) MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAECS7702C ASSESSEE BY SHRI S C TIWARI/MS NATASHA MANGAT REVENUE BY SHRI G P TRIVEDI DT.OF HEARING 31 ST OCT 2011 DT OF PRONOUNCEMENT 4 TH NOV 2011 PER VIJAY PAL RAO JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 25 TH AUG 2009 OF THE CIT(A) FOR THE AY 2005-06. 2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1.UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED COMMISSIONER OF INCOME TAX (A) VII MUMBAI (HEREINAF TER REFERRED TO AS CIT(A)) HAS ERRED IN CONCLUDING THAT THE APPELLANT COMPANY HAS FAILED TO JUSTIFY THE EXPENSES ATTRIBUTABLE TO EARNING THE EX EMPT INCOME. 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE AS PER RULE 8D READ WITH SEC 14A. 3. THE LEARNED CIT(A) HAS ERRED IN CONTENDING THAT T HE EXPENSES ARE INCURRED FOR EXEMPT INCOME WITHOUT BRINGING ANY MATERIAL ON RE CORD PURELY ON SURMISES AND CONJUNCTION. 4. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED 2 SHREENATHJI BALAJI COMPUTECH P LTD CIT(A) HAS ERRED BY IGNORING THE FACTS ABOUT THE INTE R CORPORATE DEPOSITS AND INVOKING THE PROVISIONS SEC. 2(22)(E) AND THEREBY EN HANCING THE ADDITION FROM RS. 19 68 464/- TO RS. 20 00 000/-. 3 GROUND NOS 1 TO 3 REGARDING THE DISALLOWANCE U/S 14A OF THE I T ACT. 3.1 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE ADMI TTED THE EXEMPTED DIVIDEND INCOME OF RS. 11 20 000/-. THE ASSESSING OFFICER D ISALLOWED 10% OF THE DIVIDEND INCOME AMOUNTING TO RS. 1 12 000/- U/S 14A OF THE I T ACT. 3.2 ON APPEAL THE CIT(A) DIRECTED THE ASSESSING OF FICER TO WORK OUT THE EXPENDITURE ATTRIBUTABLE TO EARN THE DIVIDEND INCOM E AS PER RULE 8D R.W.S 14A. 4 THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT RULE 8D IS NOT APPLICABLE FOR THE AY UNDER CONSIDERATION; THEREFORE THE DIRECTIONS G IVEN BY THE CIT(A) ARE NOT SUSTAINABLE . HE HAS FURTHER STATED THAT THE ASSE SSEE WOULD ACCEPT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND TH EREFORE THE ASSESSEE WOULD NOT SEEK ANY RELIEF AGAINST THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER EXCEPT THE DIRECTIONS OF THE CIT(A) FOR WORKING OUT THE EXPEND ITURE UNDER RULE 8D. 4.1 ON THE OTHER HAND THE LD DR HAS FAIRLY AGREED TO THE DISALLOWANCE ACCEPTED BY THE ASSESSEE AND MADE BY THE ASSESSING OFFICER U /S 14A AT 10% DIVIDEND INCOME. 5 SINCE RULE 8D IS NOT APPLICABLE FOR THE ASSESSME NT YEAR UNDER CONSIDERATION IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. V. DEPUTY COMMISSIONER OF I NCOME-TAX REPORTED IN 328 ITR 81; THEREFORE THE DIRECTIONS GIVEN BY THE CIT(A) F OR APPLYING RULE 8D ARE SET ASIDE. SINCE THE ASSESSEE HAS ACCEPTED THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER; ACCORDINGLY WE SUSTAIN THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER AT 10% DIVIDEND INCOME U/S 14A. 3 SHREENATHJI BALAJI COMPUTECH P LTD 6 GROUND NO.4 IS REGARDING DEEMED DIVIDEND U/S 2(22 ) (E). 6.1 THE ASSESSING OFFICER NOTICED THAT A SUM OF RS. 19 68 464/- HAS BEEN ADVANCED TO THE ASSESSEE BY M/S MAHALAKSHI ENGINEER ING CO PVT LTD AN ASSOCIATED COMPANY WHEREIN THE DIRECTORS OF THE ASSESSEE COMPA NY ARE SUBSTANTIAL INTERESTED. ACCORDINGLY THE ASSESSING OFFICER MADE AN ADDITION OF THE SAID AMOUNT U/S 2(22)(E) OF THE I T ACT AS DEEMED DIVIDEND. 6.2 ON APPEAL THE CIT(A) CONCURRED WITH THE VIEW O F THE ASSESSING OFFICER . 7 BEFORE US THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE ASSESSEE IS NOT THE SHAREHOLDER OF M/S MAHALAKSHI ENGINEERING CO PVT LT D ; THEREFORE NO ADDITION CAN BE MADE U/S 2(22)(E) OF THE ACT AS DEEMED DIVIDEND. HE HAS RELIED UPON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF ASSISTANT COMMISSIONER OF INCOME-TAX V. BHAUMIK COLOUR (P.) LTD. REPORTED IN 118 ITD 1 AS WELL AS THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF COMMISSIONER OF INCOME-TAX V. UNIVERSAL MEDICARE PRIVATE LIMITED REPORTED IN 324 ITR 263. 7.1 ON THE OTHER HAND THE LD DR HAS RELIED UPON TH E ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT AS PER THE PROVISION S OF SEC. 2(22)(E) THE AMOUNT OF ADVANCE OR LOAN WILL BE DEEMED AS DIVIDEND IF THE SAME IS GIVEN TO ANY CONCERNED IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST. 8 WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERUS ED THE RELEVANT MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSES SEE IS NOT A SHAREHOLDER OF M/S MAHALAKSHI ENGINEERING CO PVT LTD; THEREFORE EVEN IF THE SHARE HOLDER AND THE DIRECTORS OF BOTH ASSESSEE AND THE OTHER COMPANY AR E COMMON NO ADDITION CAN BE MADE U/S 2(22)(E) BEING DEEMED DIVIDEND IN THE H AND OF A PERSON WHO IS NOT A 4 SHREENATHJI BALAJI COMPUTECH P LTD SHAREHOLDER. THE PRIMARY CONDITION FOR TREATING TH E BENEFIT/ADVANCESAS DEEMED DIVIDEND IN THE HAND OF THE PERSON WHO IS THE BEN EFICIAL OWNER OF THE SHARES OF THE COMPANY WHO HAS ADVANCED THE LOAN EITHER DIRECTLY TO THE SHAREHOLDER OR TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST. THUS IT IS CLEAR THAT THE AD DITION CAN BE MADE ONLY IN THE HAND OF THE SHAREHOLDER IF THE CONDITIONS PROVIDED U/S 2(22)(E) ARE FULFILLED. 8.2 THE HONBLE JURISDICTIONAL HIGH COURT IN THE CA SE OF UNIVERSAL MEDICARE PRIVATE LIMITED (SUPRA) HAS HELD THAT DEEMED DIVIDEND IS SU STAINABLE IN THE HAND OF THE SHAREHOLDER. 8.3 SINCE THE ASSESSEE IS NOT THE SHAREHOLDER OF M/ S MAHALAKSHMI ENGINEERING CO PVT LTD; THEREFORE IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOUR (P.) LTD. (SUPRA) AS WELL AS THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE PRIVATE LIMITED (SUPRA) NO ADDITION CAN BE MADE BEING DEEMED DIVIDEND IN THE HAND OF THE ASSESSEE. ACCORDINGLY THIS GROUND OF THE ASSESSEE IS ALLOWED . 9 IN THE RESULT THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED ON THE 4 TH DAY OF NOV 2011. SD/ SD/ ( B RAMAKOTAIAH ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 4 TH NOV 2011 RAJ* 5 SHREENATHJI BALAJI COMPUTECH P LTD COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI