UNIVERSAL MEDICARE P.LTD, MUMBAI v. ACIT 10(3), MUMBAI

ITA 6485/MUM/2009 | 2005-2006
Pronouncement Date: 08-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 648519914 RSA 2009
Bench Mumbai
Appeal Number ITA 6485/MUM/2009
Duration Of Justice 2 year(s) 1 month(s) 22 day(s)
Appellant UNIVERSAL MEDICARE P.LTD, MUMBAI
Respondent ACIT 10(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 08-02-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 08-02-2012
Date Of Final Hearing 31-01-2012
Next Hearing Date 31-01-2012
Assessment Year 2005-2006
Appeal Filed On 17-12-2009
Judgment Text
M/S UNIVERSAL MEDICARE PVT LTD 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN DISALLOW ING PURCHASES FROM M/S LUCID PRINTS AMOUNTING TO RS. 14 67 110/- ON THE AL LEGED GROUNDS THAT NO GOODS RECEIPT NOTE (GRNS) ARE AVAILABLE FOR CERTAIN INVOICES EITHER WITH THE SUPPLIER OR WITH THE APPELLANT. 3 GROUND NO.1 IS REGARDING DISALLOWANCE U/S 14A OF THE I T ACT. 3.1 THE ASSESSEE HAS EARNED DIVIDEND INCOME AMOUNTI NG TO RS. 26 50 652/- DURING THE YEAR UNDER CONSIDERATION ON THE INVESTM ENT IN MUTUAL FUNDS AND SHARES. THE SAID INCOME IS EXEMPT U/S 10(34)(35). THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT ALLOCATED THE EX PENDITURE AGAINST SUCH EXEMPT INCOME. ACCORDINGLY THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 29 53 916/- U/S 14A. WHILE WORKING OUT THE DIS ALLOWANCE OF INTEREST EXPENDITURE THE ASSESSING OFFICER HAS COMPUTED THE SAME ON THE RATIO OF THE TOTAL INVESTMENT TO TOTAL FUND EXCLUDING THE CURRE NT LIABILITY. 3.2 ON APPEAL THE CIT(A) HAS CONCURRED WITH THE VI EW OF THE ASSESSING OFFICER. 4 BEFORE US THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE ASSESSEE IS HAVING ITS OWN FUND MORE THAN THE AMOUNT OF INVESTM ENT; THEREFORE NO EXPENDITURE TOWARDS THE INTEREST SHALL BE DISALLOWE D UNDER THE PROVISIONS OF SEC. 14A. THE LD AR HAS REFERRED PAGE 24 OF THE PAPER B OOK AND SUBMITTED THAT THE ASSESSEE IS HAVING NON-INTEREST BEARING FUND FOR TH E AY 1998-99 TO 2004-05 MORE THAN THE INVESTMENT IN THE RESPECTIVE YEARS. SHE H AS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. RELIANCE UTILITIES AND POWER LTD. REPORTED IN 3 13 ITR 340 AND SUBMITTED THAT WHEN THE ASSESSEE IS HAVING ITS OWN SUFFICIENT FUND S FOR INVESTMENT THEN NO EXPENDITURE TOWARDS INTEREST CAN BE DISALLOWED U/S 14A. THE LD AR HAS SUBMITTED THAT IN VARIOUS DECISIONS THE TRIBUNAL H AS TAKEN A VIEW THAT UPTO 5% OF THE DIVIDEND IS REASONABLE DISALLOWANCE AS FAR A S THEOTHER EXPENDITURE IS M/S UNIVERSAL MEDICARE PVT LTD 4 EARNING OF BOTH TAXABLE AND NON TAXABLE INCOME IT WOULD BE NECESSARY TO APPORTION THE EXPENDITURE INCURRED BY THE ASSESSEE. HOWEVER ONLY THAT PART OF THE EXPENDITURE WHICH IS INCURRED IN RELATION TO TH E INCOME WHICH FORMS PART OF THE TOTAL INCOME SHOULD BE ALLOWED. THE EXPENDITUR E INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME HAS TO BE DISALLOWED. IN ORDER TO DISALLOW THE EXPENDITURE THE ASSESSING OF FICER HAS TO SEE THAT THERE MUST BE PROXIMATE RELATIONSHIP BETWEEN THE EXPENDI TURE AND THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. 5.3 HAVING REGARD TO THESE FACTS WE ARE OF THE CON SIDERED OPINION THAT IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD (SUPRA) NO DISALLOWANCE IS CALLED FOR WHEN THE ASSESSEE IS HAVING ITS OWN SUFFICIENT FUNDS. THE HONBLE HIGH COURT HAS HELD IN PARA 8 TO 10 AS UNDER: 8 WE HAVE HEARD LEARNED COUNSEL FOR BOTH THE PARTI ES. IN OUR OPINION THE VERY BASIS ON WHICH THE REVENUE HAD SOUGHT TO CONTEND OR ARGUE THEIR CASE THAT THE SHAREHOLDERS FUNDS TO THE TUNE OF OV ER RS. 172 CRORES WAS UTILISED FOR THE PURPOSE OF FIXED ASSETS IN TERMS OF THE BALANCE-SHEET AS ON MARCH 31 1999 IS FALLACIOUS. FIRSTLY WE ARE NOT CONCERNED WITH THE BALANCE-SHEET AS ON MARCH 31 1999. WHAT WOULD BE R ELEVANT WOULD BE THE BALANCE-SHEET AS ON MARCH 31 2000. APART FROM THA T THE LEARNED COUNSEL HAS BEEN UNABLE TO POINT OUT TO US FROM THE BALANC E-SHEET THAT THE BALANCE-SHEET AS ON MARCH 31 1999 SHOWED THAT TH E SHAREHOLDERS FUNDS WERE UTILIZED FOR THE PURPOSE OF FIXED ASSETS. TO O UR MIND THE PROFIT AND LOSS ACCOUNT AND THE BALANCE- SHEET WOULD NOT SHOW WHETHER THE SHAREHOLDERS FUNDS HAVE BEEN UTILIZED FOR INVESTME NTS. THE ARGUMENT HAS TO BE REJECTED ON THIS COUNT ALSO. APART FROM THAT WE HAVE NOTED EARLIER THAT BOTH IN THE ORDER OF THE COM- MISSIONER OF INCOME-TAX (APPEALS) AS ALSO THE APPEL LATE TRIBUNAL A CLEAR FINDING IS RECORDED THAT THE ASSESSEE HAD INTEREST- FREE FUNDS OF ITS OWN WHICH HAD BEEN GENERATED IN THE COURSE OF THE YEAR COMMENCING FROM APRIL 1 1999. APART FROM THAT IN TERMS OF THE BALA NCE-SHEET THERE WAS A FURTHER AVAILABILITY OF RS. 398.19 CRORES INCLUDING RS. 180 CRORES OF SHARE CAPITAL. IN THIS CONTEXT IN OUR OPINION THE FINDI NG OF FACT RECORDED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE INCOME -TAX APPELLATE TRIBUNAL AS TO AVAILABILITY OF INTEREST-FREE FUNDS REALLY CANNOT BE FAULTED. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN AS SESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE H AD RAISED A LOAN IT CAN M/S UNIVERSAL MEDICARE PVT LTD 6 8.1 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE HAS BEEN DECIDED BY THE HONBLE JURISDICTIONA L HIGH COURT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 IN 190 T AXMAN 144(BOM). THE HONBLE HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN PARA 9 AS UNDER: 9. IN ORDER THAT THE FIRST PART OF CLAUSE (E) OF S ECTION 2(22) IS ATTRACTED THE PAYMENT BY A COMPANY HAS TO BE BY WAY OF AN ADVANCE OR LOAN. THE ADVANCE OR LOAN HAS TO BE MADE AS THE CASE MAY BE EITHER TO A SHAREHOLDER BEING A BENEFICIAL OWNER HOLDING NOT L ESS THAN TEN PER CENT OF THE VOTING POWER OR TO ANY CONCERN TO WHICH SUCH A SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTI AL INTEREST. THE TRIBUNAL IN THE PRESENT CASE HAS FOUND THAT AS A MA TTER OF FACT NO LOAN OR ADVANCE WAS GRANTED TO THE ASSESSEE SINCE THE AMOU NT IN QUESTION HAD ACTUALLY BEEN DEFALCATED AND WAS NOT REFLECTED IN T HE BOOKS OF ACCOUNT OF THE ASSESSEE. THE FACT THAT THERE WAS A DEFALCATION SEEMS TO HAVE BEEN ACCEPTED SINCE THIS AMOUNT WAS ALLOWED AS A BUSINES S LOSS DURING THE COURSE OF ASSESSMENT YEAR 2006-07. CONSEQUENTLY AC CORDING TO THE TRIBUNAL THE FIRST REQUIREMENT OF THERE BEING AN AD VANCE OR LOAN WAS NOT FULFILLED. IN OUR VIEW THE FINDING THAT THERE WAS NO ADVANCE OR LOAN IS A PURE FINDING OF FACT WHICH DOES NOT GIVE RISE TO AN Y SUBSTANTIAL QUESTION OF LAW. HOWEVER EVEN ON THE SECOND ASPECT WHICH HAS W EIGHED WITH THE TRIBUNAL WE ARE OF THE VIEW THAT THE CONSTRUCTION WHICH HAS BEEN PLACED ON THE PROVISIONS OF SECTION 2(22)(E) IS CORRECT. S ECTION 2(22)(E) DEFINES THE AMBIT OF THE EXPRESSION DIVIDEND. ALL PAYMENT S BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECIPIENT OF T HE DIVIDEND NAMELY THE SHAREHOLDER. THE EFFECT OF SECTION 2(22) IS TO PROV IDE AN INCLUSIVE DEFINITION OF THE EXPRESSION DIVIDEND. CLAUSE (E) EXPANDS TH E NATURE OF PAYMENTS WHICH CAN BE CLASSIFIED AS A DIVIDEND. CLAUSE (E) O F SECTION 2(22) INCLUDES A PAYMENT MADE BY THE COMPANY IN WHICH THE PUBLIC I S NOT SUBSTANTIALLY INTERESTED BY WAY OF AN ADVANCE OR LOAN TO A SHAREH OLDER OR TO ANY CONCERN TO WHICH SUCH SHAREHOLDER IS A MEMBER OR PA RTNER SUBJECT TO THE FULFILLMENT OF THE REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVISION. SIMILARLY A PAYMENT MADE BY A COMPANY ON BEHALF O F FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER IS TREATED BY CLAU SE (E) TO BE INCLUDED IN THE EXPRESSION DIVIDEND. CONSEQUENTLY THE EFFECT OF CLAUSE (E) OF SECTION 2(22) IS TO BROADEN THE AMBIT OF THE EXPRESSION DI VIDEND BY INCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MADE ON BEHALF OF OR FOR THE IN DIVIDUAL BENEFIT OF A SHAREHOLDER. THE DEFINITION DOES NOT ALTER THE LEGA L POSITION THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREHOLDER. CO NSEQUENTLY IN THE PRESENT CASE THE PAYMENT EVEN ASSUMING THAT IT WAS A DIVIDEND WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSESSEE B UT IN THE HANDS OF THE SHAREHOLDER. THE TRIBUNAL WAS IN THE CIRCUMSTANCES JUSTIFIED IN COMING TO THE CONCLUSION THAT IN ANY EVENT THE PAYMENT COUL D NOT BE TAXED IN THE HANDS OF THE ASSESSEE. WE MAY IN CONCLUDING NOTE TH AT THE BASIS ON WHICH THE ASSESSEE IS SOUGHT TO BE TAXED IN THE PRESENT C ASE IN RESPECT OF THE M/S UNIVERSAL MEDICARE PVT LTD 8 HAS NOT BEEN DISPUTED AND THE ACCOUNTS OF THE ASSES SEE HAS NOT BEEN REJECTED BY THE ASSESSING OFFICER. THEREFORE MERELY ON THE GROUND OF NON PRODUCTION OF GRN THE PURCHASES MADE BY THE ASSESSEE CANNOT BE H ELD AS NON GENUINE. 11.1 ON THE OTHER HAND THE LD DR HAS SUBMITTED THA T WHEN THE ASSESSING OFFICER HAS SPECIFICALLY ASKED TO PRODUCE THE EVIDE NCE IN SUPPORT OF THE DELIVERY OF THE GOODS THEN THE ONUS IS ON THE ASSESSEE TO P ROVE THE GENUINENESS OF THE PURCHASES. SINCE THE ASSESSEE FAILED TO PRODUCE AN Y EVIDENCE TO SHOW THE DELIVERY OF THE GOODS THEN THE ASSESSING OFFICER I S JUSTIFIED IN TREATING THE DISALLOWANCE OF THE AMOUNT ON ACCOUNT OF NON GENUI NE PURCHASES. HE HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 12 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS EXPLAINED BEFORE THE L OWER AUTHORITIES THAT SINCE THE INVOICES ARE IN RESPECT OF THE PURCHASE OF PROM OTIONAL MATERIAL AND VARIOUS ITEMS WERE DIRECTLY DISPATCHED THROUGH COURIER TO D IFFERENT LOCATIONS; THEREFORE THE GRNS WERE NOT READILY AVAILABLE WITH THE ASSESS EE. WE FURTHER NOTE THAT WHEN THE SUPPLIER OF THE GOODS HAS CONFIRMED THE PU RCHASE TRANSACTION AND THE PAYMENT HAS BEEN MADE THROUGH CHEQUE WHICH HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER THEN ONLY BECAUSE IN SOME OF TH E CASES THE ASSESSEE COULD NOT PRODUCE THE GRNS CANNOT BE A BASIS FOR HOLDING THAT THE PURCHASE IS NOT GENUINE. ACCORDINGLY IN THE TOTALLY OF THE FACTS OF THE CASE AND WHEN THE PAYMENT ARE MADE THROUGH BANKING CHANNEL AND THERE IS NO ALLEGATION OF THE AMOUNT RECEIVED BY THE ASSESSEE BACK COUPLED WITH THE FACTS THAT THE SUPPLIER HAS CONFIRMED THE TRANSACTION OF PURCHASES THEN TH E DISALLOWANCE OF PURCHASE IS NOT JUSTIFIED. ACCORDINGLY WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NON GENUINE PURCHASES.