VIJAYSHREE ALLOYS PUNE PRIVATE LTD.,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,,

The assessee in appeal has assailed the order of Commissioner of Income Tax (Appeals) on following grounds : “1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act, the CIT(A) erred in making estimated addition of Rs.89,80,184/ - on account of melting loss. It be held that, the loss claimed by the Appellant is correct. The entire addition/disallowance made may be kindly deleted. In the alternative, it be held that the addition/disallowance made is excessive. The appellant be granted just and proper relief in this respect. 2. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act, the CIT(A) erred in making addition of Rs. 1,10,16,848/ - on account of deemed dividend. It be held that the addition made by the CIT(A) is unwarranted and hence be deleted. The Appellant be granted just and proper relief in this respect. 3. Without prejudice to ground No. 2, on facts and circumstances prevailing in the case and as per provisions & scheme of the Act, the CIT(A) has erred in holding advances given to directors of the Appellant as deemed dividend. It be kindly held that the loans given to the directors of the Appellant are given during the normal course of business and not covered by the provisions of section 2(22)(e).The Appellant be granted just and proper relief in this respect. 4. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held that the CIT(A) has erred in making addition of Rs.35,00,000 incurred on account of premium paid under 'Keyman insurance Policy'. The claim made by the appellant be allowed. The appellant be granted just and proper relief in this respect. 5. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act appellant be granted consequential relief, if any. 5. The appellant prays to be allowed to add, amend, modify, rectify, delete, raise any grounds of appeal at the time of hearing.”

Shri Neelesh Khandelwal appearing on behalf of the assessee submitted that the assessee is a private limited company engaged in the business of manufacturing of aluminium ingots. During the period relevant to assessment year under appeal, as per the audit accounts the melting/burning loss of the assessee is 12.98%. The Assessing Officer observed that in the immediately preceding assessment year the assessee

On the other hand Shri Sudhendu Das representing the Department vehemently defended the impugned order. The ld. DR submitted that the assessee never raised the argument of bad quality of raw material resulting in generation of excessive scrap which has further led to abnormal increase in burning loss before the authorities below. The ld. DR further pointed that alleged inter changing of quantity figures cannot be accepted as the accounts have been duly audited. The argument raised by the assessee are afterthought. The ld. DR prayed for confirming the findings of

We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The assessee in appeal has primarily assailed the order of First Appellate Authority on three issues : i. Estimating addition of Rs.89,80,184/- on account of melting loss. ii. Addition of Rs.1,10,16,848/- on account of deemed dividend u/s. 2(22)(e) of the Act. iii. Addition of Rs.35,00,000/- on account of premium paid under Keyman Insurance Policy.

The assessee is engaged in the business of manufacturing of aluminium ingots. During manufacturing process there is generation of scrap and burning/melting loss of material. In the past undisputedly the assessee has been showing melting loss to the extent of 2.13%. However, I the assessment year under appeal there was substantial increase in melting loss i.e. 12.98%. The ld. AR has pointed that the increase in melting loss is attributable to procurement of poor quality of raw material. The ld. AR submitted that the assessee has even sought compensation from the supplier of the material for supplying sub-standard quality of material. The ld. AR further submitted that in audited accounts in respect of Silicon, the quantitative figures of material „issued for production‟ and „scrap sales‟ have been inadvertently interchanged which has further resulted in aberration of figures of melting loss. We find that both the arguments have been raised for the first time before the Tribunal. The submissions made by the assessee are with respect to the factual aspects

In ground No. 2 the assessee has assailed addition of Rs.1,10,16,848/- on account of deemed dividend u/s. 2(22)(e) of the Act. Before proceedings further to decide this issue it would be relevant to referr to provisions of section 2(22)(e) of the Act. “(22) Dividend includes xxxxxxxxxxxx (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits.”

A bare perusal of provisions would show that deemed dividend is taxable in the hands of the recipients and not the company extending advance or loans. A perusal of the „Note‟ appended at the end of assessment order in the present case further shows that for substantial additions in the name of Directors of the company the Assessing Officer of assessee company communicated to the Assessing Officer‟s of the

In ground No. 3 of the appeal, the assessee has made an alternate prayer without prejudice to the submissions made in respect of ground No. 2. Since, we have allowed the prayer of the assessee in ground No. 2, the ground No. 3 of the appeal has become infructuous and the same is dismissed as such.

In ground No. 4 of the appeal the assessee has assailed addition of Rs.35,00,000/- on account of premium paid under Keyman Insurance Policy. We find that this issue has already been adjudicated by the Co- ordinate Bench of the Tribunal in ITA No. 1048/PUN/2016 (supra). The Tribunal has held that payment of Rs.35,00,000/- towards Keyman Insurance Policy is allowable expenditure in the hands of the assessee u/s. 37(1) of the Act. Thus, in view of the settled position the findings of Commissioner of Income Tax (Appeals) on this issue are reversed and the ground No. 4 of the appeal is allowed.

The ground Nos. 5 and 6 of the appeal are general in nature, hence, require no adjudication.

In the result, the impugned order is set aside and the appeal of assessee is partly allowed in the terms aforesaid.