IN THE ITAT MUMBAI BENCH ‘A’
Income-tax Officer-2(1)(1)
V/s.
Anand Rathi Direct India (P.) Ltd.
IT APPEAL NO. 2556 (MUM.) OF 2010
[ASSESSMENT YEAR 2006-07]
MAY 4, 2012
ORDER
B. Ramakotaiah, Accountant Member – This is Revenue appeal against the order of CIT(A)-Mumbai dated 4.10.2010. The revenue has raised eight grounds on four issues.
2. We have heard learned CIT -DR and learned Counsel in detail. The learned Counsel also placed on record reconciliation of turnover which was relevant for Ground Nos.3 to 6. After hearing them, the grounds were considered as under:
3. Ground Nos. 1 & 2: The Revenue has raised grounds as under:
“1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 67,10,483/- made by the Assessing Officer under section 2(22)(e) of the I.T. Act, 1961 without considering the facts that the provisions of section 2(22)(e) are clearly applicable in this case.
2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in not considering the decision of the ITAT in the case of M/s. Unisol Infraservices Pvt. Ltd v. Income Tax Officer-8(3)(4) vide ITA No. 2088/Mum/2008 dated 11.7.2009″.
4. Assessing Officer while scrutinizing the return noticed that assessee company borrowed an amount of Rs. 67,10,483/- from M/s. Amit Capital & Securities Pvt. Ltd. On noticing that the details filed on record shows that M/s Predict Investment & Financial Consultants (P) Ltd is a common share holder in both the companies and is holding 18.99% in M/s Amit Capital & Securities Pvt. Ltd., of total share holding of company and is also holding 19.72% of total share holding of assessee company. As there was surplus to the tune of Rs. 89,31,955/- as reserves in the balance sheet of M/s Amit Capital & Securities Pvt. Ltd., Assessing Officer invoked provisions of section 2(22)(e) to make an addition of loan amount of Rs. 67,10,483/- as deemed dividend. It was submission of assessee that moneys were advanced in the ordinary course of business and charged interest on advance and M/s Predict Investment & Fin. Con. (P) Ltd does not have any substantial interest on assessee company as per Explanation (3) to section 2(22). Neither party has any substantial interest and the assessee is not a share holder in M/s Amit Capital & Securities Pvt. Ltd. so as to attract provisions of section 2(22)(e). These objections were negatived by Assessing Officer while making addition. However, CIT(A) deleted the addition on the reason that assessee is not covered under section 2(22)(e) as assessee is not holding even a single share in lender company Amit Capital & Securities Pvt. Ltd. Further, M/s Predict Investment & Fin. Con (P) Ltd is holding though more than 10% but less than 20% so as to have ‘substantial interest’. Revenue is aggrieved and preferred above grounds.
5. The learned Departmental Representative relied on orders of Assessing Officer whereas learned Counsel not only submitted that the issue under section 2(22)(e) was decided by Special Bench in the case of Asst. CIT v. Bhaumik Colour (P.) Ltd. [2009] 118 ITD 1 (Mum) which in turn was confirmed by the Hon’ble Bombay High Court in CIT v. Universal Medicare (P.) Ltd. [2010] 324 ITR 263/190 Taxman 144 (Bom). It was further submitted that Assessing Officer did not accept that M/s Predict Investment does not have any substantial share holding and reasoned that explanation-3 covers only an individual and not company, whereas he has not considered section 2(32) where a person who has a substantial interest in a company refers to a person carrying not less than 20% of voting power. Therefore, even on that reason, addition cannot be made.
6. We have considered the issue. As seen from order of Assessing Officer, he has considered that a common share holder M/s Predict Investment has substantial share holding of more than 10%. While analyzing substantial interest, Assessing Officer has only considered Explanation 3 with reference to a person having beneficial interest entitled to not less than 20% of income of such concern so as to attract provisions of section 2(22)(e). However, Assessing Officer has not examined definition given in section 2(32) with reference to company which has a substantial interest in company, wherein it was specifically mentioned of carrying not less than 20% of voting power. Admittedly M/s Predict Investment has less than 20% share holding in both companies i.e. assessee as well as M/s Amit Capital & Securities (P.) Ltd. Therefore, reasoning given by Assessing Officer of a common share holding by Predict Investment does not hold good. Further, it is an admitted fact that assessee is not owning any share in M/s Amit Capital &Securities (P.) Ltd and as held by the Hon’ble Bombay High Court in the case of Universal Medicare (P.) Ltd. (supra), provisions of section 2(22)(e) does not apply unless assessee is a share holder in the company. For both the reasons, we uphold order of CIT(A) and dismiss the grounds raised by Revenue. It is to be noted that the decision relied upon by Revenue in ground was not approved by Special Bench in the case of Bhaumik Colour (P.) Ltd (supra). Therefore, there is no need to consider and analyse the Coordinate Bench Decision stated in Ground No. 2. The grounds are rejected.
7. Ground Nos. 3 to 6: Ground Nos. 3 to 6 raised by Revenue are as under:
“3. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 5,60,89,831/- made by the Assessing Officer by way of rejecting the books of account.
4. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 5,60,89,831/- made by the Assessing Officer as the assessee has failed to reconcile the turnover disclosed in the Profit & Loss A/c with reference to the gross sales and purchases in all the securities traded by the assessee.
5. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 5,60,89,831/- made by the Assessing Officer without appreciating the facts that the assessee had not added the grey trading/speculative transactions as well as the assessee was not able to reconcile the turnover with STT.
6. On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 5,60,89,831/- made by the Assessing Officer estimating the income at the rate of 1% of total turnover as the assessee had failed to reconcile the turnover”.
8. The issue in above grounds is with reference to failure of assessee to reconcile turnover disclosed in Profit & Loss A/c and consequently rejection of books of account by Assessing Officer and estimating income at 1% of turnover. The facts as stated in AO order is as under:
“Para No.7:
During the course of assessment proceedings the assessee was asked to reconcile the turnover disclosed in the Profit & Loss A/c with reference to the gross sales and purchases in all the securities traded by the assessee. The assessee has furnished the arbitrage turnover scrip-wise which is stated at Rs. 347,07,03,891/- on purchase side and Rs. 347,06,31,082/-on sale side. Since the said details submitted by assessee does not include day trading/speculative transaction, a comprehensive effort was made to co-relate the transaction with reference to STT and transaction charges paid and claimed by the assessee. The assessee was asked to reconcile the same with reference to STT and transaction charges paid. A show cause notice dated 24.11.2008 was served on assessee.
In response the assessee made the following submissions as per its letter dated 05-12-2008.
In respect of STT charges, we would like to bring to your notice the correct rates as under:-
