MR. RAJESH L. DURGANI, v. M/S. ACIT CIR 18(3),

ITA 9501/MUM/2004 | 2001-2002
Pronouncement Date: 30-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 950119914 RSA 2004
Assessee PAN AACPD2487Q
Bench Mumbai
Appeal Number ITA 9501/MUM/2004
Duration Of Justice 6 year(s) 9 month(s) 3 day(s)
Appellant MR. RAJESH L. DURGANI,
Respondent M/S. ACIT CIR 18(3),
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 30-09-2011
Date Of Final Hearing 19-09-2011
Next Hearing Date 19-09-2011
Assessment Year 2001-2002
Appeal Filed On 27-12-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO.9096/MUM/2004 (ASSESSMENT YEAR: 1996-97) ITA NO.9501/MUM/2004 (ASSESSMENT YEAR: 2001-02) ITA NO.2103/MUM/2007 (ASSESSMENT YEAR: 2003-04) SHRI RAJESH L. DURGANI BLDG. NO.505 OWNER INDL. ESTATE L.J. ROAD MAHIM (W) MUMBAI -400 016 ....... APPELLANT VS ADDL. COMMISSIONER OF INCOME-TAX RANGE 18(3) MUMBAI ..... RESPONDENT ITA NO. 870/MUM/2005 (ASSESSMENT YEAR: 2001-02) ADDL. COMMISSIONER OF INCOME-TAX RANGE 18(3) MUMBAI ....... APPELLANT VS SHRI RAJESH L. DURGANI BLDG. NO.505 OWNER INDL. ESTATE L.J. ROAD MAHIM (W) MUMBAI -400 016 ..... RESPONDENT PAN: AACPD 2487 Q APPELLANT-ASSESSEE BY: SHRI VIMAL PUNMIYA RESPONDENT BY: SHRI A.K. NAYAK DATE OF HEARING: DATE OF PRONOUNCEMENT: 19.09.2011 30.09.2011 ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 2 O R D E R PER R.S. PADVEKAR JM: IN THIS BATCH OF FOUR APPEALS THREE ARE FILED BY T HE ASSESSEE CHALLENGING THE RESPECTIVE ORDERS OF THE LD. CIT (A ) FOR THE A.Y. 1996- 97 2001-02 2003-04 AND THE REVENUE HAS ALSO FILED AN APPEAL FOR THE A.Y. 2001-02. I. ITA NO.9096/MUM/2004 A.Y. 1996-97 ASSESSEES APPE AL : 2. IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE I MPUGNED ORDER OF THE LD. CIT (A)-28 MUMBAI DATED 16.11.2004 FOR THE A.Y. 1996-97. THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROU NDS:- 1. THE LD. ADDITIONAL COMMISSIONER OF INCOME TAX E RRED IN TAXING LEASE DEPOSIT AS DEEMED DIVIDEND BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX AC T 1961 OF ` 8 78 578/-. 3. BRIEFLY STATED THE FACTS ARE AS UNDER. THE ASSE SSEE IS AN INDIVIDUAL AND HE IS ALSO SHAREHOLDER OF M/S. ASHRA J FOODS & BEVERAGES PVT. LTD. (IN SHORT M/S. ASHRAJ FOODS). IT WAS NOTICED BY THE A.O. THAT WHILE COMPLETING THE ASSESSMENT PROCEEDIN GS M/S. ASHRAJ FOODS & BEVERAGES PVT. LTD. IT WAS FOUND THAT THE SAID COMPANY HAS GIVEN/PAID AN ADVANCE OF ` 1.15 CRORE TO THE ASSESSEE. AS NOTED BY THE A.O. THE GENERAL RESERVES AVAILABLE WITH THE COMPANY AS ON 31.03.1996 IS AT ` 8 75 578/-. THE ASSESSEE WAS HOLDING 87.5% SHARES OF THE SAID COMPANY AND HENCE THE A.O. WAS O F THE OPINION THAT THE PROVISIONS OF SEC 2(22)(E) OF THE I.T. ACT WERE APPLICABLE TO THE EXTENT OF THE RESERVES AVAILABLE AND THE ADVANCE G IVEN BY M/S. ASHRAJ ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 3 FOODS IS TO BE TAXED AS DEEMED DIVIDEND IN THE HA NDS OF THE ASSESSEE. THE ASSESSEE STATED BEFORE THE A.O. THAT HE IS NOT BENEFITED BY ADVANCES GIVEN BY M/S. ASHRAJ FOODS AS MONEY RECEIV ED FROM THE SAID COMPANY WAS IMMEDIATELY FLOWN BACK TO THE SAID COMP ANY FOR ACQUISITION OF THE SHARES. THE ASSESSEE THEREFORE PLEADED THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS NEVER USED BY H IM FOR ANY OTHER PURPOSE BUT THE SAME WAS RETURNED TO THE COMPANY IN ANOTHER FORM AS SHARE APPLICATION MONEY. THE ASSESSEE ALSO CONT ENDED THAT THE SAID AMOUNT WAS TOWARDS LEASE DEPOSIT FOR LEASING O UT THE INDUSTRIAL GALAS TO THE COMPANY AND HENCE THE SAID TRANSACTION WAS A COMMERCIAL TRANSACTION BETWEEN THE ASSESSEE AND M/S . ASHRAJ FOODS AND HENCE THE SAID AMOUNT WILL NOT ATTRACT PROVISI ONS OF SEC. 2(22)(E) OF THE ACT. THE ASSESSEE ALSO CONTENDED THAT THERE WAS NO WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND THE SAID COMPANY . AS NOTED BY THE A.O. THE SUM OF RS 1.5 CRORE WAS RECEIVED BY T HE ASSESSEE ON VARIOUS DAYS IN THE MONTH OF FEBRUARY 1996 BY WAY O F 10 DIFFERENT CHEQUES. THE ASSESSEE USED THE SAID MONEY TO MAKE T HE INVESTMENT IN THE SHARES OF THE SAME COMPANY I.E. M/S. ASHRAJ FOO DS AND IN THE OPINION OF THE A.O. THE ASSESSEE WILL NOT BE RELIE VED FROM APPLICABILITY OF SEC. 2(22)(E) OF THE ACT. THE A.O. ALSO NOTED T HAT THE ASSESSEE COULD NOT EVEN PRODUCE ANY LEASE AGREEMENT TO SUBSTANTIAT E THE CLAIM THAT THE SAID MONEY WAS TOWARDS THE LEASE DEPOSIT FOR LE TTING OUT OF THE GALAS/UNITS. THE A.O. RELIED ON THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF MISS P. SARDA VS. CIT 229 ITR 444 AND MADE THE ADDITION OF ` 8 78 578/- TO THE EXTENT OF THE RESERVES AND SURPL US IN THE COMPANY. THE ASSESSEE CHALLENGED THE SAID ADDI TION BEFORE THE LD. CIT (A) BUT DID NOT FIND FAVOUR AND ADDITION WA S CONFIRMED. THE FINDINGS OF THE LD. CIT (A) ARE AS UNDER:- 3.2 I HAVE CONSIDERED VARIOUS SUBMISSIONS OF THE L EARNED AR AS WELL AS PERUSED THE ORDER OF THE AO AND THE LEGA L POSITION ON THIS ISSUE. REGARDING THE FIRST CONTEN TION OF THE ASSESSEE THAT THE AMOUNT REPRESENTS LEASE DEPOSITS ON ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 4 ACCOUNT OF COMMERCIAL RELATIONSHIP BETWEEN THE PART IES I AM OF THE VIEW THAT THIS CONTENTION OF THE APPELLAN T IS NOT BASED ON CORRECT APPRECIATION OF FACTS. IT IS AN A DMITTED AND UNDISPUTED FACT THAT THE SAID AMOUNT OF RS 1.15 CRORE RECEIVED BY THE APPELLANT WAS USED BY HIM FOR THE PURCHASE OF SHARES OF THE SAME COMPANY IMMEDIATELY AFTER ITS RECEIPT AND HENCE THE NATURE OF THIS TRANSACTI ON IS AN ADVANCE RATHER THAN A LEASE DEPOSIT SINCE THERE WAS NO SUCH LEASE AGREEMENT ENTERED BY BOTH PARTIES. HENC E IT CANNOT BE ACCEPTED THAT WAS NO SUCH LEASE AGREEMENT ENTERED BY BOTH PARTIES. HENCE IT CANNOT BE ACCEP TED THAT THE SAID AMOUNT WAS SIMPLY OF THE NATURE OF LEASE D EPOSIT. FURTHERMORE PHOTOCOPIES OF THE VARIOUS LEASE AGREE MENTS FILED BY THE APPELLANT DURING THE COURSE OF PRESENT APPELLATE PROCEEDINGS DO NOT CARRY ANY EVIDENTIARY VALUE. T HIS IS SO BECAUSE THE ASSESSEE HAD ADMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE HIS LETTER DATED 30/12/ 2003 THAT THERE IS NOT WRITTEN BETWEEN THE ASSESSEE AND THE SAID COMPANY REGARDING THE LEASING OF THE SAID PROPERTY. THE SAID LETTER OF THE APPELLANT HAS BEEN REPRODUCED BY THE AO ON PAGE 2 (BOTTOM PARA) OF THE ASSESSMENT ORDER. F ROM THIS FACT IT IS VERY CLEAR THAT THE CONTENTION THAT THE SAID AMOUNT REPRESENTED LEASE DEPOSIT IS ONLY AN AFTERT HOUGHT. THE BASIC NATURE OF THE SAID TRANSACTION IS THAT TH E APPELLANT HAD RECEIVED THE SAID AMOUNT AS LOAN OR A DVANCE FROM THE SAID COMPANY WHICH WAS UTILIZED BY HIM IMMEDIATELY TO PURCHASE THE SHARES OF THE SAME COMP ANY. THUS IT WAS A CLEVER MOVE OF THE APPELLANT TO ENHA NCE HIS INTEREST IN THE MANAGEMENT OF THE SAID COMPANY BY BECOMING THE OWNER OF A HIGHER PERCENTAGE OF SHARES . HENCE THE FIRST CONTENTION OF THE APPELLANT ON THI S ISSUE IS OUTRIGHTLY REJECTED. ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 5 3.3 KEEPING IN VIEW THE DISCUSSIONS HELD IN THE PRE CEDING PARA I DO NOT FIND ANY FORCE IN THE SECOND CONTENTION OF THE APPELLANT ALSO WHEREBY IT WAS HELD THAT THE MONEY HAS IMMEDIATELY GONE BACK TO THE SAID COMPANY AND HENCE IT CANNOT BE ADDED AS DEEMED DIVIDEND INCOME IN THE HA NDS OF THE APPELLANT. IN THIS REGARD REFERENCE MAY BE MADE TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F CIT V. C.P. SARATHY MUDLIAR 83 ITR 170 173 WHEREIN IT W AS HELD THAT THE PROVISIONS OF SECTION 2(22)(E) REQUIRE STR ICT CONSTRUCTION AND INTERPRETATION. IT WAS FURTHER HE LD THAT THE ARTIFICIAL DEFINITION OF DIVIDENDS GIVEN BY THE LEG ISLATURE IN THE SAID PROVISIONS TO TAX THE LOANS AND ADVANCES A S DEEMED DIVIDEND NEEDS TO BE APPLIED STRICTLY. IT W AS ALSO HELD BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF NANDLAL KANORIA VS. CIT 122 ITR 405 415 THAT THERE SHOULD BE STRICT INTERPRETATION OF THESE PROVISIONS AND THERE IS NO NEED TO CONSTRUE WHETHER THE LOAN IS DIRECT O R INDIRECT. KEEPING IN VIEW THIS LEGAL POSITION THE SECOND CON TENTION OF THE APPELLANT ALSO DESERVES TO BE DISMISSED. 3.4 THE THIRD CONTENTION OF THE APPELLANT IS THAT A.O. WAS REQUIRED TO TAX ONLY THE SURPLUS PROFITS IN THE FOR M OF RESERVES ON THE DAY OF SUCH ADVANCE. IT HAS BEEN P OINTED OUT BY THE LEARNED AO THAT THE GENERAL RESERVE OF T HE SAID COMPANY AS ON 31/3/1996 WAS RS 8 78 578/-. THE SAI D FIGURE IS BASED ON THE FINAL ACCOUNTS OF THE SAID C OMPANY. THE APPELLANT WAS HOLD 87.5% SHARES OF THE SAID COM PANY. THE APPELLANT HAD RECEIVED THE SAID LOAN OR ADVANCE OF RS 1.15 CRORE FROM THE SAID COMPANY ON VARIOUS DATES I N THE VARIOUS DATES IN THE PREVIOUS YEAR PERTAINING TO A. Y. 1996- 97. THE A.O. HAS MENTIONED THESE FACTS ON PAGE 3 O F THE ASSESSMENT ORDER THAT THE SAID AMOUNT WAS RECEIVED BY THE APPELLANT ON VARIOUS DATES IN THE MONTH OF FEBR UARY ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 6 1996 IN THE FORM OF 10 CHEQUES. FROM THESE FACTS IT IS VERY CLEAR THAT THE APPELLANT WAS HAVING SUBSTANTIAL INT EREST IN THE SAID COMPANY NAMELY M/S. ASHARAJ FOODS & BEVERAGES PVT. LTD. HENCE IT WAS THE DUTY OF THE APPELLANT TO DRAW THE AUDITED ACCOUNTS OF THE SAID COMPANY AS ON THE DATE ON WHICH THE SAID AMOUNTS HAVE BEEN RECEIV ED BY HIM. THESE DETAILS WERE NEITHER FILED BY THE APPEL LANT BEFORE THE A.O. NOR DURING THE COURSE OF PRESENT A PPELLATE PROCEEDINGS. IN VIEW OF THESE FACTS I AM OF THE C ONSIDERED VIEW THAT THE AO WAS JUSTIFIED IN TAKING THE AMOUNT OF RESERVES OF THE SAID COMPANY AS PER ITS BALANCE SHE ET AS ON 31/3/1996 AS THE DEEMED DIVIDEND TAXABLE IN THE HANDS OF THE APPELLANT. IT HAS BEEN HELD AS BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. DAMODARAN 121 I TR 572 THAT FOR TAXING DEEMED DIVIDEND U/S.2(22)(E) T HERE IS NO REQUIREMENT OF CONSIDERATION OF PROFITS OF THE C URRENT YEAR. IN THE SAID DECISION THE HONBLE SUPREME CO URT HAS AFFIRMED THE EARLIER DECISION OF HONBLE KERALA HIG H COURT REPORTED IN 81 ITR 590 AND THAT OF MADRAS HIGH COUR T IN 111 ITR 220. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. WE HAVE ALSO PERUSED THE PAPER BOOK F ILED BY THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS FILED THE COPIES OF DEED OF LEAVE AND LICENSE DATED 15.08.1993 (PAGES 38 TO 41 OF PAPER BOOK) AND A COPY OF THE DEED OF LEAVE AND LICENSE ANOTHE R AGREEMENT DATED 03.02.1996. BOTH THE AGREEMENTS HAVE BEEN SHOWN TO HAVE ENTERED INTO BETWEEN THE ASSESSEE AND M/S. ASHRAJ FOODS. 6. THE FIRST QUESTION OF THE FACT WHICH WE HAVE TO DECIDE IS THE NATURE OF AMOUNT RECEIVED BY THE ASSESSEE FROM M/S. ASHRAJ FOODS. ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 7 THE LD. COUNSEL ARGUES THAT THE COMPANY WAS HAVING BAD TIME AND WAS STRUGGLING TO REVIVE AND HENCE IT WAS DECIDED TO INCREASE THE SHARE-CAPITAL. THE LD. COUNSEL ALSO REFERRED TO TH E COPY OF THE LEAVE AND LICENSE AGREEMENT WHICH IS PLACED IN THE PAPER BOOK COMPILATION AND SUBMITS THAT THE AMOUNT WAS PAID TO THE ASSESSE E AS DEPOSIT FOR LETTING OUT THE COMMERCIAL GALAS/UNITS AND IT WAS N OT FOR ANY ADVANCE OR LOAN WHICH IS CONTEMPLATED SEC. 2(22)(E) OF THE ACT. HE THEREFORE PLEADED THAT THERE IS NO JUSTIFICATION FOR INVOKING THE PROVISION OF SEC. 2(22)(E) OF THE ACT. ALTERNATIVELY HE PLEADED THA T EVEN IF IT IS TREATED AS ADVANCE THEN TO THE EXTENT OF THE OPENING BALAN CE OF THE ACCUMULATED PROFIT IN THE BALANCE-SHEET OF THE COMP ANY. WE HAVE ALSO HEARD THE LD. D.R. 7. SO FAR AS THE CLAIM OF THE ASSESSEE THAT THE ASS ESSEE RECEIVED THE MONEY TOWARDS THE DEPOSIT FOR LETTING OUT THE C OMMERCIAL UNITS/GALAS CANNOT BE ACCEPTED. WE HAVE PERUSED CO PY OF DEED OF LEAVE AND LICENSE (REFERRED TO ABOVE) WHICH IS A PA RT OF THE COMPILATION. IN THIS CASE IT IS NOT DISPUTED THAT THE ASSESSEE IS HOLDING 87.5% SHARES IN M/S. ASHRAJ FOODS. WE FURT HER FIND THAT BEFORE THE A.O. THAT THE ASSESSEE TOOK A CONTENTION THAT NO WRITTEN AGREEMENT OF LEAVE AND LICENSE WAS EXECUTED BETWEEN THE ASSESSEE AND THE M/S. ASHRAJ FOODS. WE FURTHER FIND THAT E VEN BEFORE THE LD. CIT (A) THE SAID ADMISSION WAS NEVER REBUTTED. THO UGH THE AGREEMENT WAS EXECUTED ON THE STAMP-PAPER DATING BACK BUT THE ASSESSEE COULD NOT PLACE ANYTHING BEFORE US TO REBUT THE ADMISSION GIVEN BEFORE THE A.O. AS WELL AS THE LD. CIT (A) WHY THE SAID STATE MENT WAS MADE THAT NO WRITTEN AGREEMENT WAS EXECUTED. IN OUR OPINION THE ASSESSEE TRIED TO GIVE DIFFERENT COLOUR TO THE ADVANCE TOOK FROM M /S. ASHRAJ FOODS AS THE ASSESSEE WAS ALREADY USING THE COMMERCIAL GALAS /UNITS FOR THE PURPOSE OF HIS OWN BUSINESS. WE THEREFORE HOLD TH AT THE NATURE OF THE MONEY RECEIVED FROM M/S. ASHRAJ FOODS BY THE AS SESSEE CANNOT BE SAID TO BE IN NATURE OF DEPOSIT TOWARDS LETTING OU T OF THE COMMERCIAL ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 8 UNITS AND THE AGREEMENTS EXECUTED WITH THE ASSESSEE (COPIES PLACED ON RECORD) ARE ONLY AFTER THOUGHT USING THE BACK DA TED STAMP-PAPER. 8. IN THIS CASE NOWHERE IT IS DISPUTED THAT THE AS SESSEE IS HAVING SUBSTANTIAL SHAREHOLDING IN THE COMPANY AS REQUIRED UNDER SEC 2(22)(E) OF THE ACT. THE MAIN ARGUMENT OF THE LD. COUNSEL IS THAT THE ENTIRE MONEY HAS GONE BACK TO THE M/S. ASHRAJ FOODS BY WAY OF SHARE APPLICATION MONEY. IT IS SOMETHING STRANGE WHEN M/S . ASHRAJ FOODS WAS MONETARILY STRUGGLING THEN HOW SAID COMPANY COU LD SIPHONED THEIR OWN FUNDS TO THE ASSESSE AND AGAIN THE ASSESS EE GIVES THE MONEY BACK TO THE SAID COMPANY AND IN THAT SITUATION SAID COMPANY COULD HAVE SEARCHED FOR ALTERNATE SOURCE. HENCE ASSESSEE S CONTENTION IS NOT CONVINCING. IN THIS CASE THE ADDITION IS MADE TO THE EXTENT OF THE ACCUMULATED PROFIT (GENERAL RESERVES) AND SURPLUS O F ` 8 78 578/-. 9. WE FIND THAT PROVISION OF SEC 2(22)(E) IS APPLIC ABLE TO THE AMOUNT RECEIVED BY ASSESSEE FROM M/S. ASHRAJ FOODS BUT AT THE SAME TIME ADMITTEDLY THE SAID AMOUNT IS RECEIVED ON DIFFEREN T DATES BY WAY OF 10 DIFFERENT CHEQUES. THE A.O. HAS NOT WORKED OUT THE ADDITION ON THE BASIS OF THE ACCUMULATED PROFIT ON THE DATES ON WHI CH ADVANCES WERE GIVEN TO THE ASSESSEE. WE THEREFORE RESTORE THIS ISSUE TO THE FILE OF THE A.O. TO WORK OUT THE QUANTUM OF ADDITION AFTER CONSIDERING THE ACCUMULATED PROFIT IN THE HANDS OF THE COMPANY I.E. M/S. ASHRAJ FOODS AFTER CONSIDERING ACCUMULATED PROFIT ON EACH DATE OF TRANSACTION GIVING ADVANCE TO ASSESSEE. IF THERE I S NOT ACCUMULATED PROFIT THEN NEEDLESS TO SAY NO ADDITION CAN BE MADE . THE ASSESSEE IS ALSO DIRECTED TO FILE THE WORKING OF THE ACCUMULATE D PROFIT IN THE CASE OF M/S. ASHRAJ FOODS ON EACH DATE ON WHICH THE ADVA NCE WAS GIVEN BY THE COMPANY. THE A.O. SHOULD GIVEN REASONABLE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. 10. IN RESULT ASSESSEES APPEAL IS ALLOWED FOR THE STATISTICAL PURPOSES. ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 9 II. ITA NO.9501/MUM/2004 A.Y. 2001-02 (ASSESSEES APPEAL): 11. IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER OF THE LD. CIT (A) MUMBAI DATED 30.11.2004 FOR THE A.Y. 2001-02 THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUND:- 1. THE LD. COMMISSIONER OF INCOME TAX (A) GROSSLY ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFIC ER OF ` 12 93 750/- BEING THE NOTIONAL INTEREST CALCULATED BY ASSESSING OFFICER ON AN INTEREST FREE DEPOSIT RECEI VED BY THE ASSESSEE BY INVOKING THE PROVISIONS OF SEC. 23( 1)(A) & TAXING THE SAME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. . 12. THE SHORT CONTROVERSY IS IN RESPECT OF DETERMIN ATION OF THE ANNUAL VALUE OF THE PROPERTY (ALV) U/S.23(1)(A) OF THE ACT. THE A.O. HAS WORKED OUT THE NOTIONAL INTEREST ON THE INTERES T-FREE DEPOSIT RECEIVED FROM M/S. ASHRAJ FOODS BY THE ASSESSEE FOR DETERMINING THE ALV UNDER THE SAID PROVISION. THE FACTS WHICH REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE HAS CLAIMED TO H AVE RECEIVED THE INTEREST-FREE DEPOSIT OF RS 1.15 CRORE FROM M/S. AS HRAJ FOODS IN WHICH THE ASSESSEE IS A DIRECTOR AND ALSO HAVING SUBSTANT IAL SHAREHOLDING OF 87.5%. THE ASSESSEE CLAIMED THAT THE COMPANY WAS N OT PAYING ANY RENT OR COMPENSATION BUT THE DEPOSIT OF RS 1.15 CRO RE WAS PAID TO THE ASSESSEE FOR LETTING OUT THE INDUSTRIAL/COMMERCIAL GALAS AND THE SAID DEPOSIT WAS INTEREST-FREE DEPOSIT. THE SAID DEPOSI T WAS TAKEN BY THE ASSESSEE IN THE FINANCIAL YEAR 1995-96 RELEVANT TO THE A.Y. 1996-97. THE A.O. THEREFORE CAME TO THE CONCLUSION THAT TH OUGH THE ASSESSE HAS NOT SHOWN ANY RENTAL INCOME BUT AT THE SAME TI ME THE ANNUAL LETTING VALUE HAS TO BE DETERMINED U/S.23(1)(A) OF THE ACT. THE A.O. THEREFORE WORKED OUT THE ALV BY TAKING THE NOTIONA L INTEREST ON RS 1.15 CRORE AT 15% AND AFTER NOT ALLOWING ADMISSIBLE DEDUCTION THE NET ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 10 VALUE IS DETERMINED AT ` 12 93 750/-. THE ASSESSEE CHALLENGED THE SAME BEFORE THE LD. CIT (A) BUT WITHOUT SUCCESS. NO W THE ASSESSEE IS IN APPEAL BEFORE US. 13. WE HAVE HEARD THE PARTIES. WHILE DECIDING THE ASSESSEES APPEAL FOR THE A.Y. 1996-97 WE HAVE DECIDED THE ISSUE OF DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. IN THE AID YEAR THOUGH T HE ASSESSEE HAS TAKEN THE STAND THAT THE AMOUNT RECEIVED FROM M/S. ASHRAJ FOODS WAS TOWARDS DEPOSIT FOR LEASING OUT THE GALAS TO THE SA ID COMPANY TO THE EXTENT OF RS 1.15 CRORE BUT THE SAME WAS REJECTED B Y THE A.O. AS WELL BY THE LD. CIT (A) AND WE HAVE ALSO CONFIRMED THE F INDING GIVEN BY THE AUTHORITIES BELOW IN RESPECT OF THE NATURE OF THE A DVANCE AND HELD THAT IT WAS NOT TOWARDS THE DEPOSIT FOR LEASING OUT GALAS/UNITS BUT SIMPLE ADVANCE. ONCE IT IS HELD THAT THE AMOUNT RE CEIVED BY THE ASSESSEE IS NOT IN THE NATURE OF THE DEPOSIT FOR LE ASING OUT ANY PROPERTY THEN THE SAME CANNOT AT THE FIRST INSTANC E BE CONSIDERED FOR THE PURPOSE OF COMPUTING THE ANNUAL VALUE ALV U/S.2 3(1)(A) OF THE ACT. ADMITTEDLY IN THE PRESENT CASE IT IS CLAIME D THAT THE ASSESSEE HAS NOT RECEIVED ANY RENT FROM M/S. ASHRAJ FOODS AN D HENCE SEC.23(1)(B) IS NOT APPLICABLE. SO FAR AS SEC.23(1 )(A) IS CONCERNED THAT CONTEMPLATES THE FACTUM OF THE PROPERTY GIVEN ON LE ASE/LEAVE & LICENSE. IT IS CERTAINLY STRANGE THAT IN THE A.Y. 1996-97 THE A.O. REJECTED THE CLAIM OF THE ASSESSEE THAT THE AMOUNT RECEIVED FROM M/S. ASHRAJ FOODS WAS TOWARDS DEPOSIT FOR RENTING OUT GA LAS/UNITS WHEN ADMITTEDLY IT IS THE SAME AMOUNT WHICH IS CONSIDER ED TO BRING TO TAX BY INVOKING THE PROVISIONS OF SEC.2(22)(E) OF THE A CT. WE THEREFORE HOLD THAT THE AMOUNT RECEIVED BY THE ASSESSEE IS NO T AT ALL TOWARDS RENTING OUT OR LEASING OUT ANY PREMISES OR GALAS AN D HENCE THE SAME CANNOT BE CONSIDERED FOR DETERMINING ALV U/S.23(1)( A) OF THE ACT. 13.1 AT THE SAME TIME THE ASSESSEE HIMSELF STATED THAT THE UNITS / GALAS ARE NOT USED FOR HIS BUSINESS HENCE THE SAME WILL ATTRACT THE PROVISIONS OF SEC. 23(1)(A) OF THE ACT. WE THEREF ORE CONSIDER IT FIT TO ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 11 RESTORE THE ISSUE OF DETERMINING THE ALV OF THE GAL AS / UNITS TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. THE AO IS DIRE CTED TO DETERMINE THE ALV U/S. 23(1)(A) WHICH SHOULD BE EQUIVALENT TO STA NDARD RENT APPLICABLE TO THE SAID UNITS / GALAS AS PER MAHARAS HTRA RENT CONTROL ACT 1999 OR THE MUNICIPAL RATABLE VALUE (AS PER TH E LATEST ASSESSMENT MADE BY THE CORPORATION) WHICHEVER IS HIGHER. NEE DLESS TO SAY THE A.O. SHOULD GIVE REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. ACCORDINGLY RESPECTIVE GROUND OF THE AP PEAL IN THE A.Y. 2001-02 IS ALLOWED FOR STATISTICAL PURPOSES. III. ITA NO. 870/MUM/2005 A.Y. 2001-02 (REVENUES APPEA L) : 14. IN THIS APPEAL THE REVENUE HAS CHALLENGED THE I MPUGNED ORDER OF THE LD. CIT (A) MUMBAI FOR THE A.Y. 2001-02. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN THE APPEAL:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AS WELL AS IN LAW THE LD. CIT (A) HAS ERRED IN I) DELETING THE ADDITION OF RS 9 78 150/- MADE BY THE AO U/S.14A AS EXPENDITURE INCURRED TO EARN EXEMPT DIVIDEND INCOME IGNORING THE PROPER INTERPRETATION OF THE PROVISIONS IN SECTION 14A OF THE INCOME-TAX ACT 1961. II) DELETING THE ADDITION OF RS 9 98 150/- MADE BY THE AO U/S.14A AS EXPENDITURE INCURRED TO EARN DIVIDEND INCOME IGNORING THAT THE APPELLANT INCURRED AND CLAIMED SUCH EXPENDITURE TO EARN EXEMPT INCOME BEING DIVIDEND INCOME. III) DELETING THE ADDITION OF RS 9 98 150/- MADE BY THE AO U/S.14A AS EXPENDITURE INCURRED TO EARN EXEMPT DIVIDEND INCOME HOLDING THAT SINCE NO INCOME IS ACCRUED AND CLAIMED AS EXEMPT INCOME DISALLOWANCE CANNOT BE MADE WITHOUT APPRECIATING ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 12 THAT SECTION 14A OF THE INCOME TAX ACT 1961 DOES NOT SAY THAT INCOME HAS TO BE ACCRUED DURING THE YEAR. 15. WE HAVE HEARD THE PARTIES. IT WAS NOTICED BY T HE A.O. THAT THE ASSESSEE HAS MADE THE FOLLOWING INVESTMENTS IN THE EQUITY SHARES OF NATIONAL TRADING COMPANY:- AMT. IN ` PARTICULARS CLOSING BAL.(DEBIT) INVESTMENT IN EQTY. SHARES OF ASHRAJ F. EXP.P. L. 499 000 INVT. IN EQTY. SHARES OF ASHRAJ F. SPECIALITIES 499 000 INVESTMENT IN EQTY. SHARES OF ASHRAJ F. & B. P.L. 1 0 924 000 INVESTMENT IN EQTY. SHARES OF ASHRAJ L.& F. P.LTD. 499 000 SHARES WITH BHAVANI BANK 100 000 TOTAL: 12 521 000 16. THE ASSESSEE IS HAVING LOAN AND BORROWING OF RS 1 31 41 023/- AS WELL AS LEASE DEPOSIT OF RS 60 00 000/-. THE A. O. WAS OF THE OPINION THAT THE PROVISIONS OF SEC.14A ARE APPLICAB LE AS THE ASSESSEE HAS MADE THE INVESTMENTS IN THE SHARE EARNING TAX F REE INCOME AND AT THE SAME TIME THE ASSESSEE HAS PAID THE INTEREST OF ` 18 87 466/- ON BORROWINGS/LOANS. THE A.O. THEREFORE (AFTER DEDU CTING THE LEASE DEPOSIT I.E ` 60 00 000/-) MADE AN ADDITION OF ` 9 78 150/- BY MAKING DISALLOWANCE UNDER SEC. 14A OF THE ACT. 17. BOTH THE PARTIES AGREED THAT NOW THIS ISSUE HAS GO BACK TO THE FILES OF THE A.O. TO DECIDE THE SAME AFRESH IN THE LIGHT OF THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GOD REJ & BOYCEE CO. PVT. LTD. 233 ITR 87 (BOM). WE ACCORDINGLY RESTO RE THE ISSUE TO THE FILE OF THE A.O. WITH THE DIRECTION TO DECIDE THE S AME IN THE LIGHT OF THE LEGAL PRINCIPLES LAID DOWN IN THE CASE OF GODREJ & BOYCEE CO. PVT. LTD. (SUPRA). NEEDLESS TO SAY THE A.O. SHOULD GIVE REAS ONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. RESULTANTLY THE R EVENUES APPEAL IS PARTLY ALLOWED FOR THE STATISTICAL PURPOSES. ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 13 IV. ITA NO.2103/MUM/2007 A.Y. 2003-04 (ASSESSEES APP EAL) :- 18. IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMPUGNED ORDER OF THE LD. CIT (A)-28 MUMBAI DATED 29.12.2006 FOR THE A.Y. 2003-04. GROUND NO.1 READS AS UNDER:- 1. THE LD. COMMISSIONER OF INCOME TAX (A) XXVIII H AS GROSSLY ERRED IN CONFIRMING ADDITIONS OF RS 1 03 572/- IN T HE HEAD OF PROPERTY INCOME. 19. THE ISSUE IS IN RESPECT OF THE DETERMINATION OF THE ANNUAL LETTING VALUE (ALV) IN RESPECT OF THE GALAS/UNITS GIVEN BY ASSESSEE ON LEAVE & LICENSE BASIS TO M/S. ASHRAJ FOODS. 20. THE ASSESSEE STATED THAT THE ASSESSEE IS NOT CH ARGING THE RENT TO M/S. ASHRAJ FOODS. IN THE PRECEDING YEAR THE A.O. HAS DETERMINED THE ANNUAL LETTING VALUE (ALV) OF THE GALAS AFTER C ONSIDERING THE ADVANCE RECEIVED BY THE ASSESSEE OF RS 1.15 CRORE B Y ESTIMATING THE NOTIONAL INTEREST @ 15% ON THE SAID AMOUNT AND TREA TED THE SAME AS AN ANNUAL VALUE OF THE GALAS/UNITS ALLEGEDLY GIVEN TO M/S. ASHRAJ FOODS. 21. WE HAVE ALREADY HELD THAT THE SAID AMOUNT WAS N OT RECEIVED BY THE ASSESSEE TOWARDS THE INTEREST FREE DEPOSIT FOR LEASING OUT ANY PROPERTY. IN THIS YEAR THE A.O. HAS WORKED OUT AN NUAL VALUE OF GALA NO.26A AT KANDIVALI WHICH IS OF 411 SQ. FT. BY TREA TING THE MONTHLY RENT PER MONTH AT RS 30/- PER SQ.FT. AND ACCORDINGL Y ESTIMATED ANNUAL VALUE OF THE SAID PROPERTY AT RS 1 47 960/-. THE A .O. HAS ACCEPTED THE FACT THAT THE ASSESSEE IS NOT RECEIVING ANY REN T FROM M/S. ASHRAJ FOODS BUT HAS DETERMINED THE ANNUAL VALUE U/S.23(1) (A) OF THE ACT. IN THE PRECEDING YEAR WE HAVE RESTORED THIS ISSUE TO THE FILE OF THE A.O. WITH THE DIRECTION TO DETERMINE THE ANNUAL VALUE BY APPLYING SEC. 23(1)(A) AFTER CONSIDERING THE STANDARD RENT APPLIC ABLE TO THE PREMISES ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 14 UNDER THE MAHARASHTRA RENT CONTROL ACT 1999 OR MUN ICIPAL RATABLE VALUE ( AS PER LATEST ASSESSMENT). IF MUNICIPAL RA TABLE VALUATION IS MORE THAN THE STANDARD RENT APPLICABLE TO SAID GALA S/UNITS THEN HIGHER OF THE TWO I.E. STANDARD RENT OR RATABLE VAL UE OF THE SAID PROPERTY U/S.23(1)(A) OF THE ACT IS TO BE CONSIDERE D AND ACCORDINGLY THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS TO BE DETERMINED. ACCORDINGLY GROUND NO.1 IS ALLOWED FO R THE STATISTICAL PURPOSES. 22. GROUND NO.2 IS IN RESPECT OF AD-HOC 20% DISALLO WANCE ON MOTOR CAR EXPANSES AND THE DEPRECIATION. 23. THE ASSESSEE HAS DEBITED MOTOR CAR EXPENSES OF RS 83 895/- AS WELL AS THE DEPRECIATION OF RS 6 68 895/- CLAIMING THE TOTAL EXPENDITURE TOWARDS MOTOR CAR AT RS 7 52 540/- AS A BUSINESS EXPENDITURE. THE A.O. MADE AD-HOC DISALLOWANCE OF 20% BY GIVING REASON THAT THE PERSONAL USE OF THE MOTOR CARE CANN OT BE RULED OUT. THE TOTAL DISALLOWANCE OUT OF THE MOTOR CAR EXPENSE S AND DEPRECIATION WAS TO THE EXTENT OF RS 1 50 508/-. 24. THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE LD. CIT (A) BUT THE SAME DISALLOWANCE WAS CONFIRMED. NOW THE A SSESSEE IS IN APPEAL BEFORE US. 25. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR DS. WE HAVE AGREED WITH THE FINDING OF THE AUTHORITIES BELOW VI Z. PERSONAL USE OF THE MOTOR CAR CANNOT BE RULED OUT BUT AT THE SAM E TIME IN OUR OPINION AD HOC DISALLOWANCE @ 20% IS ON THE HIGHER SIDE AND IF THE SAME IS RESTRICTED TO 15% THAT WOULD MEET THE ENDS OF JUSTICE. THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE @ 15% IN LIEU OF 20% ALLOWED BY THE A.O. ACCORDINGLY GROUND NO. 2 IS P ARTLY ALLOWED FOR THE STATISTICAL PURPOSES. ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 15 26. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLO WED FOR THE STATISTICAL PURPOSES. 27. TO SUM-UP BOTH THE APPEALS OF THE ASSESSEE BEI NG ITA NO. 9096/M/04 AND ITA NO.9501/M/04 ARE ALLOWED FOR STAT ISTICAL PURPOSES AND ITA NO. 2103/M/07 IS PARTLY ALLOWED FO R STATISTICAL PURPOSES AND REVENUES APPEAL BEING ITA NO.870/M/05 IS ALSO PARTLY ALLOWED FOR THE STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 3 0TH SEPTEMBER 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATED : 30TH SEPTEMBER 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) -32 MUMBAI. 4) THE CIT-CITY-21 MUMBAI. 5) THE D.R. G BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITAS 9096 9501 /M/2004 ITA 870/M/2005 ITA 2103/M/2007 SHRI RAJESH L. DURGANI 16 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 19.09.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 19.09.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER