DEPUTY COMMISSIONER OF INCOME TAX,, JALGAON vs. M/S. RAJMAL LAKHICHAND,, JALGAON

These two appeals by the assessee and Revenue, respectively against the common order dated 31-03-2017 passed by the Commissioner of Income Tax (Appeals)-2, Nashik [„CIT(A)‟] for assessment year 2012-13.

Both the parties consented that the issues raised in both the appeals are based on similar identical facts and prayed to take up the same together. Therefore, with the consent of both the parties, we proceed to hear both the appeals together and to pass a consolidated order for the sake of convenience.

First, we shall take up appeal of assessee in ITA No. 1213/PUN/2017.

The only issue raised for our consideration is as to whether the CIT(A) justified in confirming the addition made by the AO u/s. 2(22)(e) of the Act in the facts and circumstances of the case.

Heard both the parties and perused the material available on record. We note that the assessee is a registered firm and deals in the business of silver, gold ornament and bullion. During the course of assessment proceedings, the AO found that the assessee purchased shares from private limited companies through its partner having the share holding more than 10%. According to the AO, the assessee is a beneficiary share holder and the said investments of the shares are reflected in the Balance sheet and show caused the assessee to explain as to why the provisions of section 2(22)(e) of the Act should not be applied. The assessee given explanation which is reproduced in assessment order. The AO held the provisions of section 2(22)(e) of the Act is applicable and an amount of Rs.1,26,86,901/- were added to the total income of the assessee. The CIT(A) justified the order of AO in holding the provisions of section 2(22)(e) of the Act are attracted. Before us, the ld. AR submitted that the similar issue were raised in earlier years and this Tribunal remanded the matter to the file of AO for verification of the payments received by the assessee constitute non-trade advances and not on account of current account to record the business transactions between or among the group concerns. We note that the order for A.Y. 2010-11 is placed at page No. 1 of the paper book and the order for A.Y. 2011-12 is placed at page No. 33 of the paper book. We note that the Co-ordinate Bench of this Tribunal in A.Y. 2011-12 followed the direction rendered by this Tribunal in A.Y. 2010-11 and remanded the matter to the file of AO to decide the issue raised therein which is similar to the issue raised in this appeal in conformity with the directions rendered by the Tribunal in its order for preceding A.Y. 2010-11 vide para No. 7. For ready reference the relevant portion of the said order in A.Y. 2011-12 is reproduced here-in-below : “5. The next issue taken up by the assessee in its appeal is against confirmation of addition amounting to Rs.2,07,84,694/- u/s.2(22)(e) of the Act.

In the light of the above, we deem it proper to remand the matter to the file of AO to decide the issue regarding the applicability of section 2(22)(e) of the Act in conformity with the directions rendered by this Tribunal in earlier years. Thus, the grounds raised by the assessee are allowed for statistical purpose.

In the result, the appeal of assessee is allowed for statistical purpose.

Now, we shall take up appeal of Revenue in .

The only issue raised by the Revenue for our consideration is as to whether the CIT(A) justified in deleting the addition made on account of disallowance made u/s. 14A r.w. Rule 8D in the facts and circumstances of the case.

Heard both the parties and perused the material available on record. We note that according to the AO the assessee has utilized the business funds for investment in equity shares and made applicable Rule 8D for the purpose of computing the expenditure in relation to the exempt income. Accordingly, an amount of Rs.7,34,02,058/- has been disallowed u/s. 14A r.w. Rule 8D by making applicable the CBDT Circular No. 5/2014 dated 11-02-2014. The CIT(A) held the circular issued by the CBDT is not binding on the appellate authority as was interpreted by the Hon‟ble Supreme Court and High Courts deleted the addition made by the AO on account of disallowance u/s. 14A r.w. Rule 8D. The ld. DR relied on the order of AO and prayed to restore the same by allowing the grounds of appeal.

In the result, the appeal of Revenue is dismissed.

To sum up, the appeal of assessee is allowed for statistical purpose and the appeal of Revenue is dismissed.