ACIT, CHENNAI v. Shri Madurai Chettiyar Karthikeyan, CHENNAI

ITA 723/CHNY/2010 | 2007-2008
Pronouncement Date: 28-01-2011 | Result: Dismissed

Appeal Details

RSA Number 72321714 RSA 2010
Assessee PAN AAGOP4110D
Bench Chennai
Appeal Number ITA 723/CHNY/2010
Duration Of Justice 8 month(s) 14 day(s)
Appellant ACIT, CHENNAI
Respondent Shri Madurai Chettiyar Karthikeyan, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-01-2011
Date Of Final Hearing 19-01-2011
Next Hearing Date 19-01-2011
Assessment Year 2007-2008
Appeal Filed On 14-05-2010
Judgment Text
IN THE INCOMETAX APPELLATE TRIBUNAL: B- BENCH:CHENN AI (BEFORE SHRI ABRAHAM P. GEORGE. ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEM BER) ITA NO. 723 / MDS/10 ASST. YEAR 2007-08 THE ACIT CO. CIR.VI(3) CHENNAI VS. SHRI MADURAI CHETTIYAR KARTHIKEYAN 64 4 TH TRUST CROSS ST. MANDAVELIPAKKAM CHENNAI 600028 PAN AAGOP4110D (APPELLANT) (RESPONDENT) APPELLANT BY : RESPONDENT BY: SHRI P.B.SEKARAN CIT(DR) SHRI G.SITARAMAN ORDER PER SHRI ABRAHAM P.GEORGE A.M: IN THIS APPEAL FILED BY REVENUE ITS GRIEVANCES AR E TWOFOLD. FIRST ONE IS THAT THE CIT(A) DELETED AN ADDITION OF ` 2 LAKHS MADE ON ACCOUNT OF CREDITS BEING NOT SUBSTANTIATED BY ASSESSEE. SECOND ONE IS THAT CIT(A) DELETED AN ADDITION OF ` 87 57 297/- MADE BY THE AO UNDER SEC. 2(22)(E) OF THE INCOME-TAX ACT 11961 (THE ACT FOR SHORT) 2. WITH REGARD TO THE FIRST ISSUE LD. COUNSEL FOR THE REVENUE SUBMITTED THAT THE CIT(A) HAD ADMITTED ADDITIONAL EVIDENCE IN THE FORM OF LETTER DATED ITA NO. 723/MDS /10 2 19-01-2010 FROM M/S ICICI BANK LTD. AND THIS WAS NO T PUT BEFORE THE AO. PER CONTRA LD. AR SUPPORTED THE ORDER OF THE CIT(A ). 3. AO HAD IN THE ASSESSMENT MADE AN ADDITION OF ` 2 LAKHS AS ASSESSEES OWN MONEY INTRODUCED IN THE GARB OF LOAN . CONTENTION OF THE ASSESSEE WAS THAT AMOUNTS WERE RECEIVED BY TWO CHEQ UES OF ` 1 LAKH EACH FROM ONE M/S M/S PRADEEP INVESTMENT AND ONE M/S SIM PLE INVESTMENT. ON VERIFICATION OF THE BANK STATEMENT FILED BY ASSESSE E AO COULD NOT FIND THE ENTRIES FOR THE CHEQUES FROM THE ABOVE TWO PARTIES AND HE THEREFORE CONCLUDED THAT THESE SUMS WERE UNVERIFIABLE. ASSESS EE HAD FILED A LETTER OF CONFIRMATION FROM ONE SRI NARENDRA P.JAIN WHEREIN PAN OF THE ABOVE TWO PARTIES AND CHEQUE NUMBERS WERE ALSO GIVEN BUT THE SE WERE NOT ACCEPTED BY AO FOR THE REASON CITED ABOVE. 4. IN HIS APPEAL BEFORE THE CIT(A) ASSESSEE FILED L ETTERS DATED 19-01- 2010 FROM M/S ICICI BANK LTD. WHICH CONFIRMED CREDI T OF THE CHEQUES IN ACCOUNT NO. 602001317229. BASED ON THESE CONFIRMAT ION LETTERS CIT(A) HELD THAT THE ADDITION WAS NOT JUSTIFIED. 5. NOW BEFORE US AS AFORESAID LD. DR THERE WAS VI OLATION OF RULE 46A OF THE I.T. RULES. LETTERS FROM M/S ICICI BANK LTD. WERE NEVER PUT BEFORE THE AO. ITA NO. 723/MDS /10 3 6. WE HAVE PERUSED THE ORDERS AND HEARD BOTH THE PA RTIES. WITHOUT DOUBT AO HAD MADE THE ADDITION FOR A REASON THAT TH E BANK STATEMENT DID NOT REFLECT ENTRIES RELATING TO THE AMOUNTS RECEIVE D FROM M/S PRADEEP INVESTMENT AND M/S SIMPLE INVESTMENT. CIT(A) CONSID ERED CONFIRMATIONS ISSUED BY M/S ICICI BANK WHILE DELETING THIS ADDITI ON. HOWEVER WE FIND THAT THE CIT(A) HAD NEVER PUT BEFORE THE AO THESE CONFIR MATIONS FOR HIS COMMENT OR REPORT. THEREFORE THERE IS A CLEAR VIOL ATION OF RULE 46A OF THE I.T. RULES. CIT(A) OUGHT HAVE SENT THESE CONFIRMATI ONS TO THE AO FOR A REMAND REPORT BEFORE PROCEEDING IN THE MATTER. WE THEREFORE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE ISISUE BACK TO T HE FILE .OF THE AO FOR CONSIDERATION AFRESH. AO SHALL CONSIDER THE CONFIRM ATIONS FILED BY ASSESSEE FROM M/S ICICI BANK AS ALSO ANY OTHER RELEVANT FAC TS AND ADJUDICATE THE ISSUE. RELATED GROUND NO.2 OF THE REVENUE IS THER EFORE ALLOWED FOR STATISTICAL PURPOSES. 7. SHORT FACTS RELATING TO THE OTHER GRIEVANCE OF T HE REVENUE IS THAT ASSESSEE HAS MORE THAN 10% HOLDING OF EQUITY SHARE S IN A COMPANY CALLED M/S SOUTHERN ACADEMY MARITIME STUDIES P. LTD. (M/S SAMS FOR SHORT). THE SAID COMPANY WAS ONE IN WHICH PUBLIC WERE NOT SUBST ANTIALLY INTERESTED AND IT HAD A SURPLUS OF ` 87 57 297/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE AO THAT THERE WERE RECEIPTS OF CASH OF `1 00 74 998/- IN ASSESSEES BANK ACCOUNT WHICH CAS H HAD COME FROM THE ABOVE ITA NO. 723/MDS /10 4 MENTIONED COMPANY. AO PUT THE ASSESSEE ON NOTICE AS TO WHY SEC. 2(22)(E) OF THE ACT SHOULD NOT BE APPLIED AND THE ABOVE SUM TRE ATED AS DIVIDEND IN HIS HANDS. EXPLANATION OF THE ASSESSEE IN THIS REGARD WA S: I AM THE SOLE PROPRIETOR OF SRI VEEKKALLAMMAN BUIL DERS AND PROMOTERS AND DURING THE FINANCIAL YEAR I EXECUTED CONTRACT WORK FOR CONSTRUCTION OF COLLEGE BUILDINGS FOR SAMS P LTD. AN D SRI VEKKALIAMMAN EDUCATION & CHARITABLE TRUST. I HAVE RECEIVED MONEY FROM THE CONCE4RNED COMPANIES FOR THE CONSTRUCTION WORK DONE WHICH ARE BEING REFLECTED IN MY BANK ACCOUNTS. APART FROM THIS CER TAIN CASH PAYMENTS AT SITES WERE MADE BY THESE COMPANIES ON OUR BEHAL F FOR SITE EXPENSES. AT THAT TIMES I HAVE ALSO MOBILISED FUNDS FROM OUT SIDE SOURCE FRIENDS AND RELATIVES TO PAY OFF LABOUR CHARGES. I WOULD ALSO BRING TO YOUR KIND NOTICE THAT T HE MONEY TRANSFERRED/RECEIVED FROM THE SAMS P. LTD AND TRUST WERE ONLY TOWARDS AS PAYMENT FOR WORK DONE (I .E. FOR CONSTR UCTION OF BUILDING FOT THE COLLEGE) AND NOT FOR PERSONAL REASONS. THE ABOVE BEING THE CASE THE DEEMED DIVIDEND PROVISION WILL NOT APPLY A ND ALSO NO VIOLATION U/S 269SS. 8. AO WAS OF THE OPINION THAT EVEN IF FUNDS RECEIVE D WERE TO PROMOTE MUTUAL BUSINESS INTEREST SEC.2(22)(E) WAS ATTRACTE D. ACCORDING TO HIM BY VIRTUE OF DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS JAMUNADAS KHRIMJI KOTHARI (92 ITR 105) AND THAT OF HONBLE AP EX COURT IN THE CASE OF MISS P.SARADA VS. CIT (229 ITR 444) AMOUNTS HAD TO BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. HENCE HE CONSIDERED THE SUM OF ` 87 57 297/- BEING THE BALANCE IN RESERVE AND SURPLU S OF M/S SAMS LTD. AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSE E. 9. BEFORE THE CIT(A) ARGUMENT OF THE ASSESSE WAS TH AT M/S SAMS LTD. HAD AWARDED A CONSTRUCTION CONTRACT TO ASSESSEES P ROPRIETARY CONCERN. ITA NO. 723/MDS /10 5 ACCORDING TO ASSESSEE SINCE ITS BUSINESS WAS BUILD ING CONSTRUCTION AND HE HAD DONE SUCH CONSTRUCTION FOR OTHER CONCERNS ALSO THE TRANSACTIONS WERE IN THE COURSE OF NORMAL BUSINESS AND DID NOT FALL W ITHIN THE SCOPE OF LOANS AND ADVANCES SPECIFIED UNDER SEC. 2(22)(E) OF THE A CT. CONTENTION OF THE ASSESSEE WAS THAT TRADE ADVANCES FOR GIVING EFFECT TO COMMERCIAL TRANSACTIONS DID NOT PARTAKE THE MEANING OF LOANS AND ADVANCES WHICH WOULD FALL WITHIN THE AMBIT OF SEC.2(22)(E) OF THE ACT. 10. LD. CIT(A) WAS APPRECIATIVE OF THESE CONTENTION S OF THE ASSESSEE. ACCORDING TO HIM ASSESSEE HAD PRODUCED THE MINUTES OF THE BOARD MEETING OF M/S SAMS LTD. AS ALSO LEDGER COPIES WHICH PROVED THAT THE TRANSACTIONS WERE IN THE NATURE OF TRADING ADVANCES. RELYING ON THE DECISION OF CIT VS. AMBASSADOR TRAVELS P. LTD. (318 ITR 376) OF HONBLE DELHI HIGH COURT LD. CIT(A) HELD THAT THE AMOUNTS COULD NOT BE TREATED A S DEEMED DIVIDEND IN THE ASESSEES HANDS. HE THEREFORE DELETED THE ADDI TION. 11. NOW BEFORE US LD. DR STRONGLY ASSAILING THE OR DER OF THE CIT(A) SUBMITTED THAT THE AMOUNTS WERE PURELY IN THE NATUR E OF LOANS AND NOT TRADE ADVANCES. HENCE AS PER THE LD. DR CIT(A) APPLIED A WRONG INTERPRETATION OF LAW TO THE FACTS OF THE CASE. PER CONTRA THE LD . AR STRONGLY SUPPORTED THE ORDER OF CIT(A). ITA NO. 723/MDS /10 6 12. WE HAVE GONE THROUGH THE ORDERS AND HEARD THE R IVAL CONTENTIONS. ADMITTEDLY THE AMOUNTS RECEIVED BY THE ASSESSEE WER E FROM A COMPANY CALLED M/S SAMS LTD. IN WHICH ASSESSEE HAD SUBSTANT IAL INTEREST. SUBMISSION OF THE ASSESSEE IS THAT THE AMOUNTS WERE RECEIVED BY IT IN THE COURSE OF ITS NORMAL TRADING ACTIVITIES. ASSESSEE W AS ENGAGED IN CONTRACT WORK. AO HAD MADE THE ADDITIONS RELYING ON THE DECI SION OF HONBLE BOMBAY HIGH COURT IN JAMUNADAS KHRIMJI KOGTHARI (SU PRA) AND THAT OF HONBLE APEX COURT IN MISS.P.SARADAS CASE (SUPRA). IN THE FORMER CASE THE CONTENTION OF THE ASSESSEE CONCERNED WAS THAT THE B ALANCES WERE AS A RESULT OF THE TRANSACTIONS IN A MUTUAL AND CURRENT ACCOUNT WHICH ON FACTS WERE FOUND TO BE INCORRECT. OR IN OTHER WORDS ASSE SSEE COULD NOT PROVE BUSINESS DEALINGS WHICH HE WAS HAVING WITH THE COMP ANY. BUT HERE ON THE OTHER HAND THERE IS A CLEAR FINDING BY CIT(A) AFT ER VERIFYING THE MINUTES AND LEDGER COPIES THAT AMOUNTS RECEIVED BY ASSESSEE WE RE IN THE COURSE OF NORMAL BUSINESS TRANSACTION AGAINST SERVICES RENDER ED BY IT TO M/S. SAMS LTD. FOR CONSTRUCTING BUILDINGS. THIS WAS NOT EFFEC TIVELY REBUTTED BY THE REVENUE BY PRODUCING ANY DOCUMENTS TO THE CONTRARY. COMING TO THE DECISION OF MISS.P. SARADA (SUPRA) RELIED ON BY THE AO THERE IT WAS NOBODYS CASE THAT THE AMOUNTS RECEIVED WERE FROM ANY BUSINESS TRANSACTION AT ALL. AS AGAINST THIS WE FIND THAT HERE LD. CIT(A) HAS RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN AMBASSA DOR TRAVELS P. LTD.(SUPRA) WHEREIN IT WAS CLEARLY HELD THAT TRADE ADVANCES WHICH ARE IN THE ITA NO. 723/MDS /10 7 NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO COMMER CIAL TRANSACTIONS COULD NOT BE TREATED AS DEEMED DIVIDEND FALLING WITHIN TH E AMBIT OF SEC.2(22)(E) OF THE ACT. WE ALSO FIND THAT AO HAS AT ONE PLACE STAT ED THAT THE AMOUNTS WERE RECEIVED BY THE ASSESSEE FROM M/S SAMS LTD. WHERE AS AT PARA-4.2 OF HIS ORDER MENTIONS ANOTHER COMPANY IN THE NAME OF M/S V ISTA SECURITIES TECHNICS PVT. L:TD. CLEARLY SHOWING THAT AO WAS N OT CLEAR AS TO FROM WHICH COMPANY ASSESSEE HAD RECEIVED THE SUMS. AS FOR THE RELIANCE PLACED BY THE LD. DR ON THE DECISION OF CIT VS. K.SRINIVASAN (50 ITR 788) OF THE HONBLE JURISDICTIONAL HIGH COURT THERE ALSO THERE IT WAS NOBODYS CASE THAT THE SUMS WERE IN THE NATURE OF TRADE ADVANCES IN TH E COURSE OF ORDINARY BUSINESS OF THE ASSESSEE. WE DO NOT FIND ANY APPLIC ABILITY OF THIS CASE ON THE FACTS HERE. THUS THERE IS NO REASON FOR US TO I NTERFERE WITH THE ORDER OF THE LD. CIT(A).. GROUND NO.3 OF THE REVENUE STANDS DISMISSED. 13. IN THE RESULT APPEAL OF THE REVENUE STANDS DIS MISSED. ORDER PRONOUNCED IN OPEN COURT ON 28 -01-2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI: 28TH JANUARY 2011. NBR CC: ASSESSEE/ ASSESSING OFFICER/ CIT(A)/ CIT/ D .R/ GUARD FILE.