R.K. Auto Engineering Pvt. Ltd., ... vs Assessee

R.K. Auto Engineering Pvt. Ltd. Vs. Income Tax Officer, C/o- Mr. Ajay Bansal 1810, Ward-15(1), New Delhi Sector-17, Gurgaon (PAN: AADCR2396G) (Appellant) (Respondent)

Appellant by : Sh. A.K. Srivastava, FCA Respondent by: Sh. Vikram Sahay, Sr.DR

Date of hearing: 23.04.2015 Date of pronouncement: 06.05.2015

ORDER

PER SHRI INTURI RAMA RAO, A.M.:

This is an appeal filed by the assessee company for the assessment year

2003-04 raising the following grounds of appeal:

i. Lower Authorities have passed the orders which are against provision of Income Tax Act, are against facts and circumstances of the case, are based upon conjectures and surmises, are therefore bad in law, void, illegal and beyond jurisdiction.

ii. Ld. CIT(A) has grossly erred in confirming the action of initiation of proceeding u/s 147/148 by Assessing Officer, which is beyond jurisdiction of Assessing Officer.

iii. Ld. CIT(A) has grossly erred in confirming addition made by Assessing Officer of Rs. 4,00,000/- on account of unsecured loan taken by Appellant from M/s Performance Trading and Investment Pvt. Ltd. and M/s Nishant Finvest Pvt. Ltd., without bringing any adverse material on record against the appellant, therefore addition made is illegal, against provisions of Income Tax Act, against facts & circumstances and is bad in law.

2 ITA No. 305/Del/2012 Assessment Year: 2003-04

iv. Ld. CIT(A) has grossly erred in confirming addition made by Assessing Officer of Rs. 27,00,000/- u/s 2(22)(e) on basis of conjectures & surmises. v. Ld. CIT(A) has grossly erred in treating outstanding liability on account of construction bill of M/s Seth Kishan Chand & Association for Rs. 27,00,000/- as loan/advance and thereby treating the same as dividend provision of law and decided cases.

vi. Ld. CIT(A) has grossly erred in confirming addition u/s 2(22)(e) particularly when the issue was not subject matter of notice u/s 147/148 of Income Tax Act.

vii. Appellate reserves the right of addition, deleting or modifying any grond of appeal before its disposal.

2. The brief facts of the case are that the assessee company filed return

of income for the assessment year 2003-04 on 21.11.2003 declaring income of

Rs. 3,36,246/-. This return has been accepted under Section 143(1) of the

Income-tax Act, 1961 (for short "the Act") on 5th March, 2004 and there was no

scrutiny assessment. Subsequently, on the receipt of information from

DIT(Investigation) that the assessee company is the beneficiary of book entry

provider from M/s Mukesh Gupta Group, the case was reopened by issuing

notice under Section 148 of the Act on 26th March, 2010. In response to the said

notice, the assessee submitted the original return of income filed may be treated

as returned filed in response to the notice under Section 148 of the Act and

finally completed the assessment under Section 143(3) of the Act at the total

income of Rs. 35,19,999/- vide order dated 20th December, 2010 after making

addition of Rs 4,00,000/- being the amount received from the alleged entry

provider and another addition of Rs. 27,00,000/- as deemed dividend under the

provisions of Section 2(22)(e) of the Act. Being aggrieved by this order of 3 ITA No. 305/Del/2012 Assessment Year: 2003-04

assessment, the assessee filed an appeal before the learned CIT(A), who vide

order dated 17.10.2011 dismissed the appeal both on the preliminary ground

challenging in the reassessment proceedings and as well as on the merits of

additions. Aggrieved, the assessee has come up before us with the present

appeal.

3. The learned Authorized Representative argued that the reasons

recorded under Section 148 were furnished to the assessee after the lapse of six

years from the end of the relevant assessment year and therefore, the

reassessment proceedings are invalid. He placed strong reliance on the decision

of Hon'ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co.

Vs. CIT, 308 ITR 38 in support of the above proposition. On the merits, it was

argued on behalf of the assessee company that in respect of the unsecured loan

of Rs. 4,00,000/- received from M/s Nishant Finvest P. Ltd. and M/s

Performance Trading & Investment Rs. 2 lakhs each, the assessee discharged

onus that was lying upon it by filling the confirmation letters from the

respective creditors as well as by establishing their identity and genuineness of

the transactions. In support of this, the assessee had filed balance sheet which is

at page nos. 21 to 31 of paper book. It was further pleaded that the loans were

repaid by account payee cheques and the evidence in the form of certificate from

the banker is filed vide page no. 45 of the paper book.In respect of deemed

dividend it was argued that the amount was shown as payable to M/s Seth 4 ITA No. 305/Del/2012 Assessment Year: 2003-04

Kishan Chand & Associates Pvt. Ltd. for the construction of industrial building

at plot 330, Phase-II, Udyog Vihar, Gurgaon. The copy of agreement entered

into was filed vide page nos. 38 to 43 of the paper book. Therefore, the

provisions of Section 2(22)(e) of the Act has no application in such cases.

4. On the other hand, learned DR vehemently opposed the plea of the

learned Authorized Representation that the unsecured loans are genuine. He

submitted that the unsecured loans cannot be accepted in the light of the material

on record that M/s Nishant Finvest P. Ltd. and M/s Performance Trading &

Investment are only entry providers which means that the money in cash was

provided to them by the assessee. The assessee is supposed to prove the source

for this cash. He further argued that the loans were accepted by way of cheque

are not sacrosanct. In respect of deemed dividend, it is submitted that the

provisions of Section 2(22)(e) of the act are applicable. He placed strong

reliance on the orders of the authorities below.

5. We have heard the rival submissions and have perused the material

available on record. Firstly, we deal with the preliminary ground of appeal i.e.

ground no. 2, challenging the jurisdiction under Section 147/148 of the Act. In

our considered opinion, the submission of learned Authorized Representative is

that the reassessment proceedings are invalid for the reason that the reasons

recorded are supplied after the expiry of six years from the end of the relevant

assessment year, cannot be accepted. The Hon'ble Supreme Court in the case of 5 ITA No. 305/Del/2012 Assessment Year: 2003-04

G.K.N. Drive Shafts India Ltd. Vs. ITO, 259 ITR 19, held that after filing the

return of income, the Assessing Officer is duty bound to furnish the reasons

recorded within the reasonable time, if there is any such request from the

assessee. In this case, the notice was issued under Section 148 of the Act on 26th

March, 2010 and the assessee filed a letter on 15.04.2010 requesting the

Assessing Officer to treat the original return as the return filed in response to the

notice under Section 148 of the Act. The assessee also made a request vide letter

dated 15.04.2010 for furnishing the reasons recorded and the Assessing Officer

furnished the reasons recorded under Section 148 of the Act on 10th August,

2010. There was no obligation on the part of the Assessing Officer to furnish the

reasons recorded along with the issuance of notice under Section 148 of the Act.

The assessee himself could request for the reasons after the expiry of the said

period of six year and the reasons were furnished within a period of less than 4

months. This cannot be treated as unreasonable time and the ratio laid down by

the Hon'ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co.

(supra) is not applicable to the facts of the present case. In that case, the reasons

were asked within the period of six years from the end of the relevant

assessment year and the Assessing Officer failed to furnish the same before the

expiry of six years from the end of the relevant assessment year. Therefore, the

ratio laid down in Haryana Acrylic Manufacturing Co. (supra) is not at all 6 ITA No. 305/Del/2012 Assessment Year: 2003-04

applicable to the fact of the preset case. Hence, the reassessment proceedings are

valid in law.

6. Now, we shall deal with the merits of the addition on account

unsecured loans. Admittedly, the amount of Rs. 4,00,000/- was received, Rs. 2

lakhs each from M/s Nishant Finvest P. Ltd. and M/s Performance Trading &

Investment by account payee cheques and the confirmation letters had been

filed. But it does not mean that the Assessing Officer is prevented from probing

the matter further based on the information filed by the assessee. It is noticed by

the Assessing Officer that the transactions in question are merely book entries

and the allegation made against the assessee company is that the assessee had

provided cash to M/s Nishant Finvest P. Ltd. and M/s Performance Trading &

Investment, who after depositing the cash in the bank account had issued

cheques in favour of the assessee company which means that the cash deposited

in the bank account of those concerns really belongs to the assessee. This fact is

proved by deposit of cash in equivalent amount in the bank accounts of those

two concerns preceding the issue of cheques in favour of the assessee. The

appellant failed to rebut this allegation. The appellant also failed to produce the

Directors of those concerns before the Assessing Officer. In other words, the

appellant also failed to prove the genuineness of the transactions in the light of

the fact that those concerns are alleged to be indulged in providing book entires.

It is settled proposition of law that just because credits were accepted by account 7 ITA No. 305/Del/2012 Assessment Year: 2003-04

payee cheques and confirmation letters were filed, the transactions cannot be

called sacrosanct. In our considered view, the assessee had failed to discharge

his onus that was lying upon it in proving the credits under the provisions of

Section 68 of the Act and therefore, we hereby confirm the addition of Rs. 4

lakhs.

7. As regard the addition under Section 2(22)(e) of the Act is

concerned, the admitted facts are that the assessee has given building contract to

one of his associate concerns, namely, M/s Seth Kishan Chand & Associates

vide agreement dated 15th May, 2001 in which the assessee is substantially

interested for construction of industrial building. In terms of this contract, the

said concern M/s Seth Kishan Chand and Associates had raised a bill for sum of

Rs. 27 lakhs on 15th March, 2003 for the work done. This is shown as payable in

the books of the appellant for the relevant assessment year. This, according to

the Assessing Officer, constituted a payment within the purview of provisions of

Section 2(22)(e) of the Act which was upheld by the learned CIT(A). As stated

earlier, it only represents book entry no actual payment was involved. In which

event, there cannot be a deemed dividend within the meaning of provisions of

Section 2(22)(e) as held by the Hon'ble Madras High Court in the case of CIT

Vs. Smt. Savithiri Sam, 236 ITR 1003, wherein it was held vide page no. 1008

as follows:

"That apart, the provision of law, namely, section 2(22)(e), which we have already extracted above, says that by a fiction dividend is made to include any 8 ITA No. 305/Del/2012 Assessment Year: 2003-04

payment by a company, etc. Therefore, it is difficult for us to introduce another fiction in respect of the words "payment by the company" by construing even a transfer entry as amounting to payment. In other words, when section 2(22)(e) itself introduces a fiction, it is improper for us to introduce another fiction and construe a payment as equivalent to a constructive payment. In this view of the matter, we are not inclined to accept the arguments advanced on behalf of the Revenue and following the decision in G.R. Govindarajulu Naidu V. CIT [1973] 90 ITR 13 (Mad.), we answer the reference in the affirmative and against the Revenue.

8. Further, it is settled proposition of law that the transactions which

are undertaken during the course of normal business activity shall not come

within the purview of the provisions of Section 2(22)(e) of the Act. In this

regard the reliance is placed on the decision of Hon'ble Jurisdictional High

Court in the case of CIT Vs. Raj Kumar, 318 ITR 462. In the light of the above

decision, we hereby delete the addition of Rs. 27 lakhs on account of deemed

dividend. Accordingly, the appeal is disposed of.

9. In the result, the appeal is partly allowed for statistical purposes.

The decision is pronounced in the open court on 6 th May, 2015.

Sd/- Sd/- (G.C. GUPTA) (INTURI RAMA RAO) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 6th May, 2015. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi