M/S. CHECKMATE SERVICES PVT. LTD.,,AHMEDABAD vs. THE DY.CIT.,CIRCLE-1(1),, BARODA

Firstly, we would like to take up M/s. Checkmate Services Pvt. Ltd., wherein assessee has taken following grounds:

The facts of the case are that assessee is a private company engaged in service industry dealing in providing security. During the previous year relevant to the assessment year under consideration the assessee has shown gross profit of Rs.58,27,29,357/- on the total turnover of Rs.2,95,80,95,278/- which works out the gross profit rate at 19.70%. In this case, a survey proceedings under S.133A of the Act was carried out in the case of M/s. Checkmate Services Pvt. Ltd. and its group concerns on 06.12.2010. The findings of survey action related to AY 2010-11 in relation to Checkmate Services Pvt. Ltd. that assessee company made investment in property at Gurgaon amounting to Rs. 1,57,00,000/- and same was made in property through MRS. Sharmila Mahurkar who is one of the Director in Checkmate Services Pvt. Ltd. vide MOU executed between CSPL & MRS. Sharmila Mahurkar with an intention to become major partner 399/Ahd/15 (M/s. Checkmate Service s Pvt. Ltd. & Anr.) AYs. 2010-11 - 4 - in the firm. The company is engaged in in guarding business and as per the prevailing practice in the state of Haryana, no security company can directly purchase the property in the Industrial Area and accordingly the company decided to go for manufacturing unit in the name of Mrs. Sharmila Mahurkar one of the Director of the company for stitching of dress material, the requirement of which is very high in the security business and accordingly the company entered into memorandum of understanding (MOU) with Mrs. Sharmila Mahurkar for purchase of the property in her name for which a separate proprietary concern in the name and style of M/s Checkmate Apparels and all the payments for acquisition of the property shall be made by the company, based on the above agreement the company made payment of Rs. 1,57,00,000/- which was debited in the account of M/s checkmate Apparels the proprietary concern of Mrs. Sharmila Mahurkar. Though, this amount was debited in the account of Checkmate Apparels, however the amount was given to the intending seller of the property. The Director of the company further submitted that survey declaration also contains deemed dividend for AY 2010-11 of Mrs. Sharmila Mahurkar amounting to Rs. 28331391/-(which includes deemed dividend of Checkmate apparels of Rs. 223772891). While arriving at deemed dividend of M/s Checkmate Apparels the amount of Rs. 1,57,00,000/- was also considered. Learned AO mentioned that the submission of the assessee had been considered but not found acceptable. As the director of the company Shri Vikram Mahurkar was confronted with the contents of Black diary 2009 page-83 dated 29.06.2009 which 399/Ahd/15 (M/s. Checkmate Service s Pvt. Ltd. & Anr.) AYs. 2010-11 - 5 - mentioned the transaction of land purchase at Gurgaon. During the survey proceedings the director vide reply to question no.3, dated 07.12.2010 had accepted that Rs.1.57 crores was paid out of books in respect to land purchased at Gurgaon and the same has been offered for taxation for A.Y.2010-11. Further, statement of shri Vikram Mahurkar was "recorded u/s 131(1A) of the Act on l7.01.2011 wherein Director of the company disclosed Rs.1.57 crore being investment in property in Gurgaon in the hands of company. The assessee has not taken the said investment in its books contending that the investment has been included into deemed dividend declared in the hands of sharmila Mahurkar, the Director of the assessee company and the same has been offered for taxation for A.Y.2010-11. Based on the aforementioned facts & discussion as above, Rs.1.57 crores is added back to the income of the assessee company.

We have hard both the parties and perused the impugned order and material available on record. In our considered opinion, this matter is squarely covered against the assessee by the Jurisdictional High Court in the case of CIT vs. GSRTC [2014] 366 ITR 170 (Guj.). The Hon’ble High Court held as under:

Thereafter, the assessee preferred first statutory appeal before the learned CIT(A). The learned CIT(A) confirmed by holding that during survey proceedings, the Director of the company voluntarily made statement for disclosure of Rs.1,57,00,000/- that this amount was paid out of books in respect of land purchase in Gurgaon and same was offered for taxation for A.Y. 2010-11 and till the date of assessment proceedings, this statement did not reiterated by the assessee. On the other hand, learned AR for the assessee cited judgment of Hon’ble Supreme Court in case of CIT vs. S. Khader Khan Son [2012] 25 taxmann.com 413 (SC), wherein it was held that in survey proceedings whether Section 133A of the Act does not empower any ITO to examine any person on oath. So, statement recorded under S.133A of the Act has no 399/Ahd/15 (M/s. Checkmate Service s Pvt. Ltd. & Anr.) AYs. 2010-11 - 8 - evidentiary value and any admission made during such statement cannot be made basis of addition and this matter was held in favour of the assessee.

Now, against the order of the CIT(A), assessee has filed an appeal before us.

We have gone through the relevant record and impugned order. In this case AO has accepted part of investments made in Checkmate Apparels. Out of total debits of Rs.3,08,88,748/-, AO has doubted investments of only Rs.1,57,00,000/-. The rest of the investment has been accepted by the learned AO. In support of its contention, the assessee has filed deed of partnership with Mrs. Sharmila Mahurkar. As per entering by MOU, copy of deed partnership is placed at page nos. 72 to 77 of the paper book and Checkmate Services Pvt. Ltd. secured 95% of share in the capacity of partner and the same has not been disputed by the learned AO. Learned AR of the assessee has submitted before the lower authorities that as per prevailing practice in the State of Haryana, security companies cannot start manufacturing business of stitching of dress material. Such notification or order of State of Haryana was not brought to our notice and assessee has been failed to produce such notification of State of Haryana before the lower authorities. As we have noticed that advance was given in 2009 wherein apparel business was started in 2011. The assessee has filed an MOU and partnership deed between Mrs. Sharmila Mahurkar and M/s. Checkmate Services Pvt. Ltd. was 399/Ahd/15 (M/s. Checkmate Service s Pvt. Ltd. & Anr.) AYs. 2010-11 - 9 - executed on 1st April, 2011 and same is part of paper book page nos.72 to 77. A survey proceeding was carried out on the group on 06.12.2010. During the survey proceedings, Shri Vikram Mahurkar admitted that Rs.1,57,00,000/- was paid out of books. In his statement, he has not mentioned that the said amount has been paid for the business of stitching of apparel material of the security guards. In our considered opinion, it amounts to afterthought. Moreover, not any Haryana Government’s notification which supports contentions of the assessee/agency has been submitted before the lower authorities as well as before us which says that if any agency is doing business of providing security, same cannot run business of stitching of uniform/dresses of the Security Guards etc. The amount was paid way back in the month of July, 2009 and assessee has produced partners deed dated 19th April, 2011 first time before the Revenue and during survey, statement made by Shri Vikram Mahurkar. No such averments were made by Shri Vikram Mahurkar. In view of the above, we do not see any infirmity in the order passed by the lower authorities and do not want to intervene in the order passed by the learned CIT(A), therefore, appeal of the assessee is dismissed.

In the result, both grounds of appeal raised by assessee are dismissed.

Now, we come to (Smt. Sharmila Vikram Mahurkar).

At the time of hearing, learned AR categorically mentioned in his statement that he does not wish to press the legal ground on legality of the order and reopening under s.148 of the Act and he wishes to argue his case on merit only.

The facts of the case are that the assessee is a Director of M/s. Checkmate Services Pvt. Ltd. and Checkmate Facility & Electronic Solutions Pvt. Ltd. and also has a proprietorship concern in the name and style of Checkmate Apparels. The assessee is a substantial share holder in both the companies. During the year under consideration the assessee has received interest free loan/advance from M/s. Checkmate Services Pvt. Ltd. which was found during the course of survey proceedings conducted upon M/s Checkmate Services Pvt. Ltd. on 06.12.2010. Therefore, as per the provision of Section 2(22)(e) of IT Act deemed dividend provision be attracted in the hands of the assessee. The CIT(A) also decline the deemed dividend of Rs.2,23,72,891/- in the hands of Checkmate Apparels which is proprietary concern of the assessee and amounting to Rs.59,58,000/- in the hands of assessee in her personal capacity. Accordingly, Rs.2,82,31,391/- was added to the total income of the assessee.

We have gone through the relevant records and impugned order. It is fact that Mrs. Sharmila Mahurkar was share holder of and M/s. Checkmate Services Pvt. Ltd. which is closely held company and Mrs. Sharmila Mahurkar has 10% voting power in M/s. Checkmate Services Pvt. Ltd. and Mrs. Sharmila Mahurkar was having interest 100% in her proprietary concern i.e. Checkmate Apparel. Since, the amounts were advanced by M/s. Checkmate Services Pvt. Ltd. from its accumulated profit to Mrs. Sharmila Mahurkar and therefore, she was directly beneficiary. Same amount was used for the proprietorship firm of Mrs. Sharmila Mahurkar. So far partnership deed of the Checkmate apparel is concerned same was prepared on 1st April 2011 meaning thereby after the date of survey. At the time of survey, partnership deed was not in existence meaning thereby wherein 95% share with Mrs. Sharmila Mahurkar was not with the assessee. Surprisingly, M/s. Checkmate Services Pvt. Ltd. is showing above loans and advances in the asset sides in its balance sheet and same are being shown as liability in her proprietary 399/Ahd/15 (M/s. Checkmate Service s Pvt. Ltd. & Anr.) AYs. 2010-11 - 13 - concern. On the other hand, learned AR argued that same amounts were given for the business purposes and stated that this ground is squarely covered by the CBDT Circular No. 19/2017, wherein it is mentioned as under:

The learned AR also cited an order of co-ordinate bench in in case of ITO Vs. Mehulbhai D Zhaveri, order dated 23.12.2016, wherein Tribunal followed Hon’ble High Courts’ orders are as under:

The issue is substantially one of appreciation of facts. When the CIT(Appeals) as well as Tribunal concurrently held that looking to large number of adjustment entries in the accounts between two entities, the amounts were not in the nature of loan or deposit, but merely adjustments, application of section 2(22)(e) of the Act would not arise. Consequently, no question of law arises. Tax appeals are dismissed.”

As we have held that on the date of survey proceedings on 06.12.2010, no firm was in existence and money was paid by the M/s. Checkmate Services Pvt. Ltd. to Mrs. Sharmila Mahurkar and at the time of survey, no partnership firm was 399/Ahd/15 (M/s. Checkmate Service s Pvt. Ltd. & Anr.) AYs. 2010-11 - 15 - in existence. Hence, when it is proved that on the date of survey or in the month of July, 2009, no firm was in existence. So, in such facts and circumstances, arguments of learned AR cannot be accepted that this amount was paid for the business purposes. Therefore, in our considered opinion, CBDT Circular and ITAT order is not applicable in the case. Therefore, we do not find any merit in the appeal filed by the assessee. We do not find any infirmity in the order passed by the learned CIT(A).

In the result, appeal filed by the assessee is dismissed.

In the combined result, both appeals filed by the assessee are dismissed.