DCIT 3 (2)(2), MUMBAI vs. NEW INDIA MINING CORPORATION PVT. LTD., MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.351/Mum/2019 for A.Y.2014-15 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-8, Mumbai in appeal No.CIT(A)-8/IT-438/16-17 dated 20/11/2018 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/12/2016 by the ld. Asstt. Commissioner of Income Tax, Circle-3(2)(2), Mumbai (hereinafter referred to as ld. AO).

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2.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee is a private limited company engaged in the business of mining and extraction of iron ore. The return of income for the Asst Year 2014-15 was filed by the assessee company on 29.11.2014 declaring total income of Rs 1,61,97,404/-. During the year under consideration, the assessee company received certain amounts from its sister concern M/s Deccan Minerals Pvt Ltd of Rs. 2,57,57,374/- which were categorised by the assessee as ‘trade advances’. It was submitted that both the assessee company as well as the sister concerns are having common shareholders as under:-

SR. Name of Shareholders Percentage of shareholding NO. New India Mining Deccan Minerals Pvt Corporation Pvt Ltd Ltd 30% 33.50% 1 Mr. Shyamsundar Shrivastav and Mrs. Sudha Shrivastav

25% 23.75% 2 Mr. Sandeep Shrivastav 3 25% 23.75% Mr. Sudeep Shrivastav 4 20% 19.00% Mrs. Nitu Narain

2.2. We find that the ld AO observed that the amounts received were not trade advances and infact they were actually loans received from sister concern having common shareholders. Accordingly, the ld AO show caused the assessee as to why the provisions of section 2(22)(e ) of the Act should not be applied in respect of amounts received from Deccan

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Minerals Pvt Ltd. We find that the assessee had furnished a detailed reply in this regard as to how the provisions of section 2(22)(e ) of the Act would not be applicable to it in the peculiar facts and circumstances vide its letter dated 7.12.2016 which is enclosed in pages 48 to 67 of the Paper Book filed before us. It was submitted by the assessee that it was having a running account / current account with Deccan Minerals Pvt Ltd and that the amounts received were only in the nature of trade advances. The assessee furnished the copy of ledger account of assessee company in the books of Deccan Minerals Pvt Ltd. We find that the ld AO did not heed to the contentions of the assessee and observed that both the companies are having common shareholders and that the shareholders have substantial interest in both the companies. Accordingly, he proceeded to treat the amounts received from Deccan Minerals Pvt Ltd as deemed dividend u/s 2(22)( e) of the Act in the assessment.

2.3. From the perusal of the ledger account of assessee company in the books of Deccan Minerals Pvt Ltd which is already forming part of the records, we find that as on 1.4.2013, there was an opening credit balance of Rs.1,24,99,001.63 in the said account, meaning thereby– that assessee had already advanced Rs.1,24,99,001.63 to Deccan Minerals Pvt Ltd. During the financial year 2013-14, the assessee has received back a total sum of Rs 3,82,56,736/- on various dates from the said company apart from making fresh contributions to the said company to the tune of Rs.14,68,642/- on various dates. We find that the ld AO had arrived at the deemed dividend figure of Rs.2,57,57,374/- by considering the total amounts received during the year amounting to Rs.3,82,56,736/- and had reduced the opening credit balance of Rs.1,24,99,002/- from the same. We find that the bare reading of the ledger account clearly shows that the assessee company was indeed having a running current account with

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Deccan Minerals Pvt Ltd and there was no isolated loan transaction thereon. On most of the dates, there was sufficient credit balance available in the ledger account, meaning thereby – that assessee company was only receiving back its monies which it had advanced in earlier years. Only on 23.10.2013, the assessee had overdrawn beyond its balance outstanding from Deccan Minerals Pvt Ltd.

2.4. We find that the ld AO had stated that the assessee had not submitted financials of Deccan Minerals Pvt ltd for Asst Year 2013-14 so that the addition u/s 2(22)( e) of the Act could be restricted to the extent of accumulated profits thereon. For this, the assessee had pleaded before the ld CITA that it had indeed submitted the audited balance sheet of Deccan Minerals Pvt Ltd for Asst Year 2014-15 , wherein the previous year figures were also reflected and hence it would be very easy to find out the accumulated profits of Deccan Minerals Pvt Ltd. It was argued by the ld AR before us that from the balance sheet of Deccan Minerals Pvt Ltd as on 31.3.2014, it could be easily deciphered that the accumulated profits of Deccan Minerals Pvt Ltd as on 1.4.2013 would be only Rs.91,60,075/- and hence in any case, the addition should have been restricted only to the extent of Rs. 91,60,075/- and not Rs. 2,57,57,374/-.

2.5. We find that the ld CITA had addressed the core issue as to whether the provisions of section 2(22)(e ) of the Act per se could be invoked in the present case or not, since the assessee company was not a registered shareholder of the lending company. We find that the assessee had contended that it is neither a registered shareholder nor a beneficial shareholder of Deccan Minerals Pvt Ltd and accordingly the provisions of section 2(22)(e ) of the Act are not attracted herein. We find that the ld CITA had noted that assessee had placed reliance on the decision of

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Hon’ble Apex Court in the case of CIT vs Madhur Housing and Development Company reported in 401 ITR 152 wherein it was held that deemed dividend was a legal fiction and that the concept of legal fiction does not extend to the term shareholder and could not be further extended for broadening the concept of shareholders. The ld CITA noted that the Hon’ble Apex Court had dismissed the appeal of the revenue stating that the deemed dividend could be assessed only in the hands of the shareholder. Since assessee company was not a shareholder in the lending company, the provisions of section 2(22)(e ) of the Act could not be invoked thereon. We find that the ld CITA had also extensively reproduced the decision of Hon’ble Delhi High Court in the case of CIT vs Ankitech Pvt Ltd reported in 340 ITR 14 (Del) from pages 10 to 34 of his order and deleted the addition made on account of deemed dividend u/s 2(22)( e) of the Act in the hands of the assessee company. We further find that the revenue in its ground no. (iii) had stated that against the decision of Hon’ble Delhi High Court, the department had preferred Special Leave Petition (SLP) and Hon’ble Apex Court had referred the matter to a larger bench for reconsideration keeping the question of law open and thus the matter had not reached finalilty. The reference to larger bench was made by the Hon’ble Apex Court in the case of National Travel Services vs CIT reported in 401 ITR 154 (SC). The ld AR before us tried to distinguish the said case on facts by stating that in that case, the assessee was a partnership firm which had taken a loan of Rs 28.52 crores from M/s Jetair Pvt Ltd. In that company, the assessee firm subscribed to its equity capital in the name of two of its partners. Hence the partners of the firm held the aforesaid shares for and on behalf of the firm, which happens to be the beneficial shareholder. Hence it was argued by the ld AR that the case law relied upon bv the revenue is factually distinguishable. The ld AR vehemently argued that the decision

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of Hon’ble Delhi High Court was neither stayed nor reversed by Hon’ble Supreme Court and hence the same would be binding on this tribunal. We find that the ld AR further relied on the following decisions of Hon’ble Jurisdictional High Court :-

a) CIT vs Impact Containers (P) Ltd reported in 367 ITR 346 (Bom) b) CIT vs Alfa Sai Minerals (P) Ltd reported in 398 ITR 660 (Bom)

2.6. We find that the aforesaid decisions of Hon’ble Jurisdictional High Court squarely address the issue in dispute before us and respectfully following the same, we do not find any infirmity in the order passed by the ld CITA deleting the addition made on account of deemed dividend u/s 2(22)( e ) of the Act in the facts and circumstances of the instant case. Accordingly, the Ground Nos. (i) to (iii) raised by the revenue are dismissed.

3.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee company during the year had incurred repairs and maintenance expenses of Rs 33,88,881/- in the following premises:-

a) Post Redi, Mining Branch office of the company b) Nirmal Building, Nariman Point, Mumbai – Registered office of the company

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c) Ashutosh Building, Napean Sea Road, Mumbai – office cum residence of Managing Director of the company

3.2. We find that the entire details of repairs and maintenance expenses are enclosed in pages 68 to 69 of the paper book filed before us, which contains the date of incurrence together with detailed description of repairs and the amount thereon. We find that out of the total expenses of Rs. 33,88,881/-, expenses incurred in Ashutosh Building was Rs.27,21,041/- and balance Rs.6,67,840/- was incurred on other business premsies of the assessee. We find that the assessee had submitted before the ld AO that Ashutosh Building Napean Sea Road, Mumbai was the residence of Chairman and Managing Director of the assessee company and that he was a senior citizen not keeping good health and hence requiring frequent medical attention and treatment, all the business operations and activities which warrant his concurrence and approvals are carried on in the said building. In order to avoid physical stress and travelling due to his old age and ill health, the assessee company had set up a separate administration office at Napean Sea Road, Mumbai for the convenience of Chairman and Managing Director . For the use of the said administrative office, the assessee company had not paid any rent for the use of the premises. We find that the ld AO on perusal of the bills for repairs and maintenance submitted by the assessee observed that the expenses are predominantly incurred on interior designing of the residence, purchase of silver articles, false ceiling painting and melamine polishing sanitation and plumbing work of bathrooms etc. Few invoices were even raised in the name of Sudeep Business Centre and Deccan Minerals Pvt Ltd. With these observations, the ld AO proceeded to disallow the entire expenditure incurred on

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account of repairs and maintenance in the sum of Rs 33,88,881/- in the assessment.

3.3. We find that the assessee had pleaded that the Chairman and Managing Director of the assessee company Shri Shyamkumar Shrivastava is a pioneer having rich experience in the field of mines and mines related activities for more than 5 decades. Due to his rich experience and business relationship developed in the market, the company could achieve tremendous growth in turnover as well as profitability of the company. We find that the ld CITA granted 50% relief on the expenses incurred towards repairs and maintenance on Ashutosh Building ,Napean Sea Road , Mumbai and deleted 100% of the remaining sums of Rs. 6,67,840/- which were incurred for other business premises of the assessee. Aggrieved by this, only revenue is in appeal before us and assessee had accepted to the order of the ld CITA.

3.4. We find that the ld CITA while granting 50% relief to the assessee towards repairs and maintenance incurred in Ashutosh Building, Napean Sea Road, Mumbai, had categorically observed the following:-

a) It is also a fact that the senior most director of the company is physically indisposed and is not in a position to move a lot. b) It is also a fact that he is the most experienced guy in the company as he has a lot of experience in the mining field. c) He also continues to be on the payroll of the company. d) He also takes all the important decisions on behalf of the company. e) In such a situation, it can be said that the said premises are being used for business purposes.

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f) It is also a fact that repairs of premises may not be a recurrent or annual phenomenon. g) In such a situation, the reasonable claim of expenditure on repairs does appear to be allowable.

3.5. We find that the ld CITA had already confirmed the disallowance on account of personal usage of the facilities at the residence which works out to Rs.13,60,520/- ( 27,21,041 * 50%) , against which, the assessee is not in appeal before us. None of the factual findings given by the ld CITA had been controverted by the ld DR before us with any cogent evidences. We hold that once it is categorically held that the said premises is also used for business purposes of the assessee company and also reasonable disallowance to the extent of 50% is already made on account of personal usage thereon, no further disallowance of expenses need to be made. Hence we do not find any infirmity in the order of the ld CITA granting relief to the assessee herein. Accordingly, the Ground No. (iv) raised by the revenue is dismissed.

4.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee company during the year had invested in additions to plant and machinery and furniture and fixtures, the details of which were duly furnished together with the invoices before the ld AO in the course of assessment proceedings. The entire details have been reproduced in para 6.1. of the assessment order

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by the ld AO. We find that the ld AO had observed that additions to the extent of Rs.38,44,030/- were not put to use for the purpose of business of the assessee company and that the same were used in the residence of the managing director of the assessee company at Ashutosh Building, Napean Sea Road, Mumbai. Accordingly, the proportionate depreciation thereon amounting to Rs.4,02,275/- was identified and worked out separately and sought to be disallowed by the ld AO as not meant for the purpose of business. We find that the assessee had submitted that the items purchased were of pipes, flanges pipes, pipes angels, MS pipes, office furniture bearings, De watering pumps, spare parts of De watering pumps totalling to Rs.38,04,330/- on which depreciation was claimed at Rs.4,02,275/-. These details were completely ignored by the ld AO while framing the assessment and the ld AO, out of mere suspicion, concluded that these items were used for renovation at the residential premises of Managing Director of the assessee company at Ashutosh Building, Napean Sea Road, Mumbai and disallowed depreciation thereon. We find that this was rightly appreciated by the ld CITA and disallowance was duly deleted. We find that from the details of the description of the items purchased , these items could be used only at the business premises of the assessee company and cannot be used in the residential premises. We find that the ld CITA had observed that these items could be used only for mining business at the premises at Sindhudurg and cannot be used for personal purposes. This factual finding given by the ld CITA in para 3.3.2 of his order was not controverted by the revenue before us. Hence we do not find any infirmity in the order passed by the ld CITA in this regard. Accordingly, the Ground no. (v) raised by the revenue is dismissed.

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5.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee company during the year had not earned any exempt income , on which there is absolutely no dispute. We find that the ld AO had applied the computation mechanism provided in Rule 8D(2) of the Rules and disallowed a sum of Rs.67,484/- in the assessment, which was deleted by the ld CITA. We find that the issue is now very well settled by the decision of Hon’ble Supreme Court in the case of Maxopp Investments reported in 402 ITR 640 (SC) which was relied upon by the ld CIT(A), while deleting the disallowance. Hence we do not find any infirmity in the order passed by the ld CITA in this regard. Accordingly, the Ground no. (vi) raised by the revenue is dismissed.

Order pronounced on 31/03/2021 by way of proper mentioning in the notice board.

Sd/- Sd/- (PAVAN KUMAR GADALE) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 31/03/2021 KARUNA, sr.ps

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Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. 6. //True Copy//

BY ORDER,

(Asstt. Registrar) ITAT, Mumbai