Income Tax Appellate Tribunal - Delhi
Standipack Pvt. Ltd., New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'G': NEW DELHI
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
ITA No. 3791/Del/2010
Assessment Year: 2006-07
DCIT, Standipack Pvt. Ltd.,
Circle 9(1), 25, Community Centre,
C.R. Bldg., Vs. East of Kailash,
New Delhi. New Delhi.
AAHCS0121J
(Appellant) (Respondent)
&
Cross Objection No. 293/Del/2010
Assessment Year: 2006-07
Standipack Pvt. Ltd., Vs. DCIT,
25, Community Centre, Circle 9(1),
East of Kailash, New Delhi. New Delhi.
AAHCS0121J
(Appellant) (Respondent)
Appellant by : Krishna. B., DR
Respondent by : Sachit Jolly, Adv.
ORDER
PER I.P. BANSAL, J.M.
The appeal is filed by the revenue and cross objection by the assessee. Both of them are directed against the order of CIT(A) dated 30.3.10 for A.Y. 2006-07.
ITA No. 3791/Del/2010 & CO No. 293/Del/2010 2Grounds of appeal read as under: -
1. "Ld. CIT(A) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs. 16,751/- made by the AO u/s 2(24)(x) read with sec. 36(1)(va) of the I.T. Act on account of PF & ESIC.
2. Ld. CIT(A) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs. 70,00,000/- made by the AO u/s 2(22)(e) of the I.T. Act on account of deemed dividend.
3. Ld. CIT(A) erred, in law and on the facts and circumstances of the case, by accepting additional evidences in violation of rule 46A of the I.T. Rule.
4. Ld. CIT(A) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs. 6,19,095/- made by the AO on account of under valuation of closing stock.
5. The appellant craves to amend modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal."
Grounds of cross objection read as under: -
1. "That the CIT(A) erred on facts and in law in confirming the action of the AO in disallowing expenses of Rs. 1,38,927/- u/s 14A of the Income Tax Act, 1961 ('the Act') by applying rule 8D of the Income Tax Rules, 1962 ('IT Rules').
1.1That the CIT(A) erred on facts and in law in confirming the action of the AO in invoking rule 8D of the IT Rules without appreciating that the said rule was not applicable for the assessment year in question. 1.2That the CIT(A) erred on facts and in law in confirming the action of the AO in invoking rule 8D of the IT Rules to disallow expenditure u/s 14A of the Act, without appreciating that the AO failed to record any satisfaction to the effect expenditure had, in fact, been incurred in earning the exempt dividend income.
1.3That, without prejudice, the CIT(A) erred on facts and in law in confirming the action of the AO in disallowing deduction of expenses of Rs.
1,38,927/- without appreciating that the AO had himself admitted, in the remand report, that the disallowance was excessive." ITA No. 3791/Del/2010 & CO No. 293/Del/2010 3
2. Revenue's appeal: -
Apropos ground no.1 a finding has been recorded by ld. CIT(A) after considering the remand report of the AO that all the payments have been made prior to filing the return of income and, therefore, ld.CIT(A) relying upon the decision of Hon'ble Delhi High Court in the case of CIT Vs. P.M. Electronics Pvt. Ltd. 177 Taxman 1 (Del.) has deleted the disallowance.
3. We have heard both the parties on this issue and we found that disallowance has rightly been made by ld. CIT(A) as the same is not only in accordance with aforementioned decision of Delhi High Court with the view taken by Hon'ble Delhi High Court has been confirmed by Hon'ble Supreme Court in the case of CIT Vs. Alom Electronics Ltd. 319 ITR 306. Therefore, we dismiss ground no. 1 of the revenue.
4. Apropos ground no. 2 & 3 we found that as per chart described in para 6 of order of CIT(A). M/s Saumya Meattle is only the beneficial owner of the shares but not registered owner as the registered owner of the shares is Standipack Pvt. Ltd.. Though ld. CIT(A) has deleted the addition on the ground that assessee company is legal and beneficial ownership of less than 10% but during the course of discussion it was found that Standipack Pvt. Ltd. is only the registered shareholder of which the Somya Metal is beneficial holder. It will be appropriate if para 6 of order of CIT(A) vide which the impugned addition has been dealt with is reproduced below: -
ITA No. 3791/Del/2010 & CO No. 293/Del/2010 4
"6. The 3rd ground of appeal pertains to an addition of Rs. 70,00,000/- as deemed dividend u/s 2922)(e) of the I.T. Act, 1961.
It has been claimed that the said amount is not in the nature of loan or advances. Vide remand report dated 8.3.10 AO has brought on record that the assessee company was holding 30,470 shares onbehalf of M/s Saumya Meattle, who was the beneficial owner of the shares and share holding as per the annual Return has been claimed as follows: -
"Name of the No. of Shares Beneficial Owner % Shareholder Paharpur Heat 4,165 Same as Col. 1 3.21 Transfer Selecto 4,000 Same as Col.1 3.08 Systems Pvt.
Ltd.
Swarup M 5 Same as Col.1 0.003 Gyan Standipack P. 30,470 Saumya Meattle 23.48 Ltd. Telecom 31,010 Same as Col.1 23.90 Ancillaries P. Ltd. Unisystems P. 30,100 Same as Col.1 23.12 Ltd. Gorima P. Ltd. 30,100 Same as Col.1 23.20 Total 1,29,750
The assessee has also clarified that payment for acquisition of these shares has also been made by Saumya Meattle and these shares were held in the name of the assessee company as Saumya Meattle during the relevant period was out of the country."
AO has further brought on record that the assessee has provided documentary evidence regarding beneficial ownership of Saumya Meattle by producing copy of documents filed with Registrar of the Company. During the appellate proceedings, AR has reiterated that since assessee company's legal and beneficial ownership was less than 10% the said provision is not attracted. In view of the observation of the AO regarding beneficial ownership, it is held that the said provision is not attracted in the case of the assessee and assessee to get relief accordingly." ITA No. 3791/Del/2010 & CO No. 293/Del/2010 5
5. From the above position it is clear that the assessee company is only the registered holder of the shares. Ld. DR however, relied upon the order of AO and as against that ld. AR has placed reliance on the decision of Spl. Bench of Mumbai in the case of ACIT Vs. Bhoomi Colours Pvt. Ltd. 27 SOT 270 (Mumb.) (Spl. Bench) and it was submitted by him that sec. 2(22)(e) could be applied only in a case where the person is having both the capacities i.e. registered shareholders as well as beneficial shareholder. He drew our attention towards conclusion drawn by the Spl. Bench in that regard in para 41 and the question no. 2 which was required to be answered by the Spl. Bench. The question as posed to the Spl. Bench was as under: -
"(2) Whether the words "such shareholder" occurring in sec.
2(22)(e) refer to a shareholder who is both the 'registered' shareholder and the beneficial shareholder?"
6. The answer recorded by Spl. Bench in this regard as contained in para no. 41 was as under: -
"On the second question: The expression 'shareholder' referred to in sec. 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder than the provisions of sec. 2(22)(e) will not apply. Similarly, if a person is a beneficial shareholder but not a registered shareholder than also the provisions of sec. 2(22)(e) will not apply."
7. In this view of the situation, as factual aspect that assessee company is only a registered shareholder and not beneficial shareholder could not be controverted, we find no infirmity in the order of CIT(A) and respectfully ITA No. 3791/Del/2010 & CO No. 293/Del/2010 6 following the aforementioned decision of Spl. Bench it has to be held that addition could not be made u/s 2(22)(e) as the assessee company is not the beneficial shareholder of the other company from whom the assessee had acquired loan.
8. In view of above discussion, ground no. 2 7 3 are dismissed.
9. Apropos ground no. 4 this addition has been deleted by ld. CIT(A) as per para 7 with the following observations: -
"7. The 4th ground of appeal pertains to under valuation of closing stock of Rs. 6,19,095/-.
While making the said addition, AO observed that the auditors had certified in Form No. 3 CD at Column No. 12- B that closing stock is under valued at Rs. 6,19,095/-. The auditors had further commented that this had no effect on income. They have also observed that "due to involvement of large number of small items no adjustment with respect to Excise Duty or Cenvat credit is made."
Section 145A of the Act specifies that the project cost has to include all taxes and levies irrespective of whether the credit for the same is available. The assessee has followed the adjustment as per Accounting Standard AS-2 both in respect of closing and opening stock and hence, AO is directed to delete the said addition."
10. During the course of hearing it was brought to our notice that the AO in the remand report called for by ld. CIT(A) has admitted that such amount had no impact on profit and loss account of the assessee. Copy of remand report has been filed by the assessee at pages 127 to 130 of the paper book and the ITA No. 3791/Del/2010 & CO No. 293/Del/2010 7 observations of AO on this issue as contained in the remand report are as follows: -
Disallowance on account of undervaluation of stock This addition was made on the basis of a comment in the Tax Audit Report Col. No. 12B which states that the closing stock of raw material have been undervalued by Rs. 619,095/- but it has no impact on profit as computed under the Act as explained it Annexure-D. Annexure-D gives details of deviation in valuation of closing stock.
It is true that addition was made on the basis of the aforesaid comment in Tax Audit Report without any further clarification from the assessee. During the course of appellate proceedings, the assessee made clarification with reference to certificate of statutory auditor, the contents of which are reproduced here under:
The Accounting Standard AS-2 on Valuation of Inventories issued by the Institute of Chartered Accountants of India requires accounting for cost of inventories excluding taxes and other levies for which credit is available. Accordingly, the company has accounted for excise duty paid on raw materials on which cenvat credit has been availed as an asset and not included the same in cost of purchases of raw materials. However, sec. 145A of the I.T. Act, 1961 requires the purchase cost to include all taxes and levies, irrespective whether the credit for the same is available. Accordingly, the element of cenvat (excise duty on purchase) on opening stock as on 1.4.05, on purchase during the year, on closing stock of raw material as on 31.3.06 and on consumption of raw material during the financial year has been identified separately and accounted for as an asset in the books of account. The relevant figures have been shown in ITA No. 3791/Del/2010 & CO No. 293/Del/2010 8 Annexure-D, as mentioned above. The impact of the same on profit and loss is Nil."
It is found that adjustment is in opening and closing stock and there is no impact on profit and loss account. The issue may be decided in the light of observation made above."
11. In this view of the situation, after hearing both the parties, we found that revenue has no case on this ground and the addition has rightly been deleted by ld. CIT(A) in which no inference is required to be made from our side. Therefore, this ground is also dismissed.
12. In the result, the appeal filed by the revenue is dismissed.
13. Cross objection filed by the assessee: -
Ld. AR of the assessee did not press the cross objection and to that extent he has written at the back of form no. 36A "the Cross Objection is withdrawn". In such a situation, the CO filed by the assessee is dismissed as withdrawn.
14. In the result, the departmental appeal as well as cross objection are dismissed.
Order was pronounced in the open court on 22.12.10 (SHAMIM YAHYA) (I.P. BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated:
*Kavita ITA No. 3791/Del/2010 & CO No. 293/Del/2010 9 Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
TRUE COPY By Order DEPUTY REGISTRAR