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TMI Blog2019 (8) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... HAT:- The Hon ble Supreme court in the case of Uma Charan Shaw [ 1959 (5) TMI 11 - SUPREME COURT] has clearly held that suspicion howsoever strong anything on record to prove the production of finished goods i.e. Ferro Alloys and sale thereof. We have also considered the ratio decided by the Hon ble Delhi High Court in the case of Bhagirath Agarwal [ 2013 (2) TMI 48 - DELHI HIGH COURT] wherein it has been held that an addition in assessee s income relying on statements recorded during search operation cannot be deleted without proving statements to be incorrect. We find that here in this case the statement was wrong/ incorrect. Neither any evidence of the production of Ferro Alloys nor any evidence of its sales have been brought on record by the A.O. Therefore, respectfully following the decision of the Hon ble Supreme Court in the case of Uma Charan Shaw (supra), we note that the ld. CIT(A) has rightly deleted the addition made by Assessing Officer. That being so , we decline to interfere in the order passed by the ld. CIT(A), his order on this issue, is hereby upheld and the grounds of appeal raised by the revenue is dismissed. - IT(SS)A Nos.113 And 114/Kol/2017 - - - Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ijeet Group of cases on 18.01.2011 and subsequent dates. Besides, survey u/s 133A was also conducted in some cases of group. As part of the said search and seizure operation, a search warrant was issued upon the assessee M/s Corporate Ispat Alloys Ltd. The assessee had filed its original return of income on 30.09.2011 declaring total income of Rs. (-) 8,44,47,600/- and subsequently revised return was filed by the assessee on 11.10.2012 declaring total income of Rs. (-) 8,39,67,111/-. During the assessment proceedings, the Assessing Officer noted that assessee had received unsecured loan form Abhijeet Infrastructure Limited (AIL) (lender company). The assessee was asked to furnish certain details such as balance sheet of AIL as on 31.03.2011, ledger account of unsecured loan received from AIL, shareholding pattern of lender and borrower company etc. On submission of the same, ld. Assessing Officer noticed the followings: i) against outstanding loan of ₹ 6,42,07,965/- as on 31.03.2010, further loan of ₹ 24,33,20,477/- was taken by CIAL from AIL during the period between 19.07.2010 to 31.03.2011 and this amount is inclusive of interest charged by the lender for the FY 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, all the conditions specified for attracting provisions laid down in section 2(22)(e) of Act are satisfied. Therefore, an addition of ₹ 24,33,20,477/- was made by Assessing Officer as deemed dividend u /s 2(22)(e) of the Act in the hand of the assessee company M/s Corporate Ispat Alloys Ltd. for this A.Y. 2011-12. 8. Ld. Assessing Officer also noted that in the assessment order passed for A.Y. 2010-11, in the case of M/s CIAL, a sum of ₹ 6,42,07,965/- has been added as deemed dividend income received from the same lender i.e. M/s AIL consequently the accumulated profit of M/s AIL stood reduced to ₹ 17,35,96,613/- as [₹ 23,78,04,578 (-) ₹ 6,42,07,965/-] as on 31.03.2010 and now after making a further addition of ₹ 24,33,20,477/- u/s 2(22)(e) in this assessment order, the accumulated profit of M/s AIL for the purpose of determining any further deemed dividend payment by that company in subsequent years, the accumulated profit stands reduced to ₹ 5,33,65,501/- [₹ 36,08,93,943/- less (₹ 24,33,20,477/- + ₹ 6,42,07,965/-)]. 9. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in his hands by invoking the said section. It was noted that the assessee who was not a shareholder of the company from which it received a loan or an advance could not be treated as covered by the definition of the word dividend as contained in section 2(22)(e). 13. We note that also in the case of CIT v. Navyug Promoters (P) Ltd.(2011) 203 TAXMAN 0618(DEL-HC] where the facts of the case are that during the relevant assessment year, the assessee, private limited company, received loans and advances from two companies, though the assessee did not hold any shares in the aforesaid companies. In the assessment made under section 143(3) the AO made certain addition as deemed dividend under section 2(22)(e) in respect of the amount of advanced by assessee from two companies. On appeal, the CIT(A) deleted the additions. The appeal filed by the revenue, against the decision of the CIT(A), was dismissed by the Tribunal. In doing so, the Tribunal found that the assessee-company was not a shareholder holding the required percentage of shares in the two companies from which it had received the loan or advance. The Hon ble Court further held that the controversy is now concluded by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o given as under: NAME OF SHAREHOLDERS NOS. OF SHARES HOLDING % OF SHAREHOLDING KISHORE.S.GOLANI 15000 50% RAVI.S.GOLANI 5000 16.67% AKASH K GOLANI 1000 33.33% TOTAL 3000 100% It is clear from the above that two partners of the assessee firm Kishore S Golani and Ravi S. Golani were holding shares in the lender company i.e. M/s. Golani Construction India Pvt. Ltd. M/s. Gulani Brothers to the extent of 15000 and 5000 shares. The shareholding percentage worked out 15% 16.67% respectively for both the shareholders. This is also undisputed that these shareholders have bought the shares in the lender company on their own absolute right and not on behalf of the firm. Now the issue before us whether the loan advanced by the M/s. Golani Construction India Pvt. Ltd. of ₹ 2.10 crores to the assessee firm could be considered as deemed dividend under section 2(22)(e) of the Act to the extent the lender company has accumulated reserved and surpluses. It is clear from the above that the firm M/s. Golani Bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived loan from another company. The assessee was not a shareholder of the other company. However, there was a common shareholder (individual) who held more than 50% in both the companies. In view of the above facts the AO held that the amount received by the assessee from an another company was a deemed dividend u/s 2(22)(e) of the Act. The CIT(A) upheld the AO's order. On further appeal, the Tribunal deleted the addition made by AO following the decision of the jurisdictional High Court in CIT v. Ankitech (P.) Ltd. 340 ITR 14 (Delhi) where it has been held that deemed dividend provisions cannot be invoked merely because there are common shareholders between the two companies. The High Court followed the aforesaid judgment and dismissed revenue's appeal. 14. From the record, we also found that assessee has not invested even a single rupee in share capital of EIPL. Both the companies EIPL as well as NHBPL are part of Gundecha Group of Companies. The transactions between the group companies were current and inter banking accounts containing both type of entries i.e. receipts and payments. There are total 61 transactions entered during the year on need basis. In case whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el Services (supra) are also distinguishable on facts. In view of the above legal position vis a vis the ratio laid down by various judicial forums , we are of the opinion that the provisions of section 2(22)(e) of the Act are not applicable to the assessee and accordingly AO is directed to delete the addition of ₹ 1,29,61,420/- made on account of deemed dividend. ii)Sangita Jain in I.T.A. No. 1817/Kol/2009 order dated 11.03.2016 (ITAT Kolkata) wherein it was held as follows: 5. We have heard the arguments of both the sides and also perused the relevant material available on record. One of the main contentions raised by the ld. counsel for the assessee at the time of hearing before us is that the loan in question treated as deemed dividend under section 2(22)(e) by the authorities below was taken by the assessee from M/s. Surya Business Pvt. Limited on interest and since the said Company was compensated by way of interest paid by the assessee on loan, the assessee in real sense did not derive any benefit from the funds of the Company so I . T. A . N o. 1 8 1 7 / KO L . / 2 0 0 9 Assessment year: 2006-2007 as to attract the provisions of section 2(22)(e). Although the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (22)(e) on account of loan received by the assessee from M/s. Surya Business Pvt. Limited on which consideration in the form of interest was paid by the assessee to the benefit of the Company is not sustainable. We, therefore, delete the same and allow Grounds No. 1 2 of the assessee's appeal. 7. As regards the issue involved in Ground No. 3 of the assessee's appeal relating to the disallowance of ₹ 28,267/-, ₹ 11,869/- and ₹ 38,353/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) out of travelling conveyance, telephone expenses and sales promotion expenses respectively, it is observed that these disallowances to the extent of 10% out of corresponding expenses were made by the Assessing Officer and confirmed by the ld. CIT(Appeals) for the involvement of personal element. At the time of hearing before us, the ld. counsel for the assessee has not been able to establish that proper record in the form of log book, call register, etc. is maintained by the assessee in order to show that all the expenses incurred under these three heads are wholly and exclusively for the purpose of assessee's business. Keeping in view this failu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of himself, his family members and some of the group companies and in a letter submission dated 16.05.2011 of ₹ 71,03,79,670/- out of the above disclosure was specifically identified as income of the assessee company all for the assessment year 2011-12. Out of above mentioned disclosure of ₹ 71,03,79,670/- claimed by the assessee company, ₹ 63,02,27,350/- was on account of physical shortage of manganese ore which were sold prior to search but not accounted for till the date of search and ₹ 8,01,52,320/- was on account of reversal of consumption of coal from the books of accounts and its subsequent sale in cash after date of search. The assessee was asked to explain how it can take the benefit of the amount of ₹ 71,03,79,670/- and can set off the same against the total disclosure of ₹ 125 crores made on 28.01.2011 by Chairman of the Group on behalf of himself, his family members and some of the Group companies as the difference of stock with comparison to physical verification done by a surveyor appointed by the company management and seized as page 14 of CIAL/20 which is not out of books and without corresponding undisclosed purchase. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted notional trading account showing a gross profit of ₹ 102.73 crores considering the above option. The second option with the company was to voluntarily disclose the shortages as sales without booking it as consumption as it would not have been possible for the company to keep the shortages in its books beyond March, 2011 because Excise Audit and/or stock Audit that would have been conducted by Excise Department and/or working capital lenders would have pointed out the same and these shortages would have to be booked as consumption. The assessee submitted trading account showing a gross profit of ₹ 173.76 corroes considering the second option. Thus, by adopting second option, the gross profit of the company was more by ₹ 71.03 crores. d) The assessee company submitted copy of ER-6 (statement filed by the assessee to the Central Excise Department) to vouch for shortages of raw materials and to show that the effects of sales were given in only March, 2011. The assessee further submitted that the sales cannot be corroborated with the purchase of raw materials , the consumption and the sales are continuously taking place on day to day basis. The compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sake of brevity and on the other hand, the ld. Counsel for the assessee has defended the order of the ld. CIT(A). 22. We have heard both the parties and perused the material available on record. We note that from the perusal of the assessment order of the A.O. and the written submission filed by the A.R. following facts emerged. i) That the assessee had already got on audit of its raw materials before the date of search. ii) That the Chairman of the company in his statement recorded u/s 132(4) accepted shortage of raw material on account of cash sale of the raw material itself. iii) That in his statement recorded u/s 132(4) the chairman of the company had made disclosure of ₹ 125 crores which was accepted by the Department. iv) That the A.O. has not brought on record any evidence of the production of finished goods and its sales. v) That no paper / documents was either found or seized during the search operation or found in post search investigation, indicating the production of finished goods and the sales thereof. Keeping in view, facts mentioned above, we have considered different case laws brought on record by the ld. Counsel. The Hon ble Supreme ..... 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