ANUJ MATHUR, Jaipur V. DCIT, Jaipur

ITA 1023/JPR/2010

• Counselvise Citation: 102323114 RSA 2010
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 13-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S L PODDAR
• Keywords: Question of law; Deemed dividend
• Section: 56

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.1023/JP/2010 ASSESSMENT YEAR 2007-08 PAN: AEZPM 2576 G SHRI ANUJ MATHUR VS. THE DCIT A-8, SHYAM NAGAR, AJMER ROAD CIRCLE- 2 JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI S.L.PODDAR DEPARTMENT BY : SHRI SANJAY KUMAR ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED AN APPEAL AGAINST THE OR DER OF THE LD. CIT(A)- I, JAIPUR DATED 08-07-2010 FOR THE ASSESSMENT YEA R 2007-08. 2.1 THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS A GAINST CONFIRMATION OF TRADING ADDITION OF RS. 22,543/-. THIS GROUND OF AP PEAL WAS NOT PRESSED BY THE LD. AR OF THE ASSESSEE, HENCE, THE SAME IS DISM ISSED BEING NOT PRESSED. 3.1 THE SECOND GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 15,59,880/- ON ACCOUNT OF DEEMED DIVIDEND BY INVOKING THE PROVISIONS OF SECTION 2(22 )(2) OF THE ACT. 3.2 FROM THE BOOKS OF ACCOUNTS, THE AO NOTICED THAT THE ASSESSEE HAS SHOWN THE LOAN TAKEN OF RS. 31.00 LACS FROM THE COM PANY NAMED SAND DUNE 2 CONSTRUCTION (P) LTD. ON 12-07-2006. THE ASSESSEE I S HOLDING SHARES WORTH OF 27.43% IN THE COMPANY. THE COMPANY IS HAVING RES ERVE AND SURPLUS OF RS. 10,30,736/-AS ON 31-03-2006 AND OF RS. 29,05,86 3/- AS ON 31-03-2007. THE AO WAS OF THE VIEW THAT THE LOAN TAKEN BY THE A SSESSEE FROM THE COMPANY IS TO BE CONSIDERED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT AS THE CONDITIONS AS MENTIONED IN THAT PROVISIONS ARE FULFILLED. THE ASSESSEE FILED THE REPLY VIDE LETTER DATED 13-11-2009 TO EXP LAIN AS TO WHY THE CREDIT ENTRIES IN THE BOOKS OF THE ASSESSEE AND IN THE NAM E OF COMPANY SHOULD NOT BE TREATED AS DEEMED DIVIDEND. THE ASSESSEE RECEIVE D A SUM OF RS. 21.00 LACS ON 12-07-2006 AND THE SAME WAS RECEIVED FOR TH E PURPOSE OF ACQUIRING SOME PLOT OF LAND. THE ASSESSEE EARLIER PURCHASED A PLOT IN PARTNERSHIP WITH THE COMPANY. THE AMOUNT WAS RECEIVED FOR PURCHASING ANOTHER PLOT OF LAND IN PARTNERSHIP. THE DEAL IN RESPECT OF PURCHASE OF PLOT DID NOT MATERIALIZE AND THEREFORE, THE AMOUNT WAS RETURNED ON 15-07-06 TO THE EXTENT OF RS. 24.00 LACS. THE FACT THAT THE ASSESSEE RETURNED RS . 24.00 LACS WHICH SHOWS THAT THE AMOUNT OF S 21.00 LACS WAS NOT A LOAN OR A DVANCE BECAUSE THE FIGURES OF RECEIVING THE AMOUNT AND THE FIGURES OF REPAYING ARE DIFFERENT. THE ASSESSEE CREDITED RS. 10.00 LACS ON 17-7-06 IN THE NAME OF M/S SAND DUNE CONSTRUCTION (P) LTD. THE AMOUNT WAS RECEIVED BY TH E ASSESSEE FROM SHRI SUNIL KUMAR GOYAL ON BEHALF OF M/S SAND DUNE CONSTR UCTION (P) LTD. 3 UNDER THE FACTS AND CIRCUMSTANCES, THE AMOUNT HAS N OT BEEN RECEIVED AS LOAN OR ADVANCE FROM M/S SAND DUNE CONSTRUCTION (P) LTD. . THESE TRANSACTIONS ESTABLISHES THE REGULARITY OF THE BUSINESS TRANSACT IONS WITH M/S SAND DUNE CONSTRUCTION (P) LTD. IT WAS THEREFORE, CONTENDED T HAT CREDIT ENTRIES IN THE NAME OF M/S SAND DUNE CONSTRUCTION (P) LTD. IN THE BOOKS OF THE ASSESSEE CANNOT BE CONSIDERED AS DEEMED DIVIDEND. FOR THIS P URPOSE, THE RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS. 1. CIT VS. AMABSSADOR TRAVELS (P) LTD. (2008) 220 C TR 475 (DEL.) 2. CIT VS. CREATING DYEING & PRINTING LTD. 250/ 200 9 (DEL.) IT WAS FURTHER SUBMITTED THAT DEEMED DIVIDEND CAN B E ADDED TO THE EXTENT OF RESERVES AND SURPLUS AND SUCH ACCUMULATED PROFITS A RE TO BE TAKEN AS ON 01- 04-2006. THE ALTERNATIVE SUBMISSION BEFORE THE AO W AS THAT DEEMED DIVIDEND, IF ANY, CAN BE ADDED TO THE EXTENT OF ACC UMULATED PROFIT AS ON 01- 04-2006 IN THE HANDS OF THE COMPANY AND SUCH ACCUMU LATED PROFIT IS RS. 10,30,736/-. THE AO OBSERVED THAT THE CONTENTION O F THE ASSESSEE THAT RECEIPT OF RS. 21.00 LACS AS BUSINESS TRANSACTION I S NOT CORRECT. NO EVIDENCE OR PROOF OF BUSINESS TRANSACTION IS ON RECORD. ACCO RDING TO THE AO, IT IS MERE AN AFTER THOUGHT TO ACCOMMODATE OR CAMOUFLAGE FOR L OAN/ ADVANCE TRANSACTION. THE AO ALSO OBSERVED THAT SHRI SUNIL K UMAR GOYAL WAS DEBTOR 4 OF THE COMPANY AND THEREFORE, THE AMOUNT RECEIVED F ROM SHRI SUNIL KUMAR GOYAL BY THE ASSESSEE IS THE AMOUNT WHICH IS PAYABL E BY SHRI SUNIL KUMAR GOYAL TO THE COMPANY. THEREFORE, THE SUM IS ALSO LO AN OR ADVANCE. THE AO ACCORDINGLY ADDED A SUM OF RS. 31.00 LACS AS DEEMED DIVIDEND U 2(22)(E) OF THE ACT. 3.3 BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED T HAT THE AMOUNT OF RS. 21.00 LACS WAS RECEIVED FROM THE COMPANY FOR PURCHA SE OF PLOT OF LAND IN PARTNERSHIP. SUCH AMOUNT WAS ALSO RECEIVED IN REGUL AR COURSE OF BUSINESS. THERE ARE MANY TRANSACTIONS DURING THE YEAR AND THE ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE COMPANY IS NOT AN ACCOUNT OF LO AN OR ADVANCE GIVEN BY THE COMPANY. BEFORE THE LD. CIT(A), RELIANCE WAS PL ACED ON THE FOLLOWING DECISIONS. 1. N.H. SECURITIES LTD. VS. DCIT (2007) 11 SOT 302 (MUM) 2. CIT VS. AMBASSADOR TRAVELS (P) LTD., (2008) 220 CTR 475 (DEL._ 3.4 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE RESTRICTED DEEMED DIVIDEND TO THE EXTENT OF RS. 15, 59,880/-. CONTENTION OF AR IS CONSIDERED. THE APPELLANT F AILED TO PROVE THAT ANY LIABILITY WAS EXISTING AND THE PA YMENT WAS FOR THE PURPOSE OF REPAYMENT OF EXISTING LIABILITY. IN ABSENCE OF ANY 5 AGREEMENT, THE APPELLANT FAILED TO ESTABLISH THAT T HE PAYMENTS WERE RECEIVED FOR THE PURPOSE OF BUSINESS. RS.21 L ACS RECEIVED BY THE APPELLANT ON 12-07-06 WAS RECEIVED AGAINST W HICH LIABILITY, THE SAME COULD NOT BE EXPLAINED. FURTHER RS. 10 LACS RECEIVED FROM SHRI SUNIL KUMAR GOYAL WAS ALSO ON BEHALF OF THE M/S SAND DUNE CONSTRUCTION (P) LTD. AND NOT AGA INST ANY EXISTING LIABILITY. THUS BOTH THE CREDIT AMOUNTS OF RS. 21 LACS AND RS. 10 LACS ATTRACT THE PROVISIONS OF SECTION 2 (22)(E). ALL OTHER CONDITIONS AS PROVIDED IN SECTION 2(22)(E) AR E FULFILLED AND THEREFORE, THE ACTION OF AO IS HEREBY APPROVED. THE QUANTUM OF ADDITION HAS NOT BEEN CHALLENGED AND THE REFORE, THE ADDITION OF RS. 15559880/- IS RESTRICTED TO THE ACC UMULATED PROFIT OF M/S SAND DUNE CONSTRUCTION (P) LTD. U/S 2 (22)(E) IS THEREFORE, CONFIRMED. 3.5 WE HAVE HEARD BOTH THE PARTIES. THE HON'BLE APE X COURT IN THE CASE OF NAVNEET LAL C JHAVERI VS. K.K. SEN, AAC (1965) 56 ITR 198 SC HAD AN OCCASION TO CONSIDER TO DEAL WITH LEGISLATIVE INTEN TION OF INTRODUCING SIMILAR PROVISIONS IN INDIAN INCOME TAX ACT, 1922. IT WILL BE USEFUL TO REPRODUCE THE FOLLOWING PARAGRAPH FROM THE JUDGEMENT AS UNDER:- ' IN DEALING WITH MR. PATHAK' S ARGUMENT IN THE PRE SENT CASE, LET US RECALL THE RELEVANT FACTS. THE COMPANI ES TO WHICH THE IMPUGNED SECTION APPLIES ARE COMPANIES IN WHICH AT LEAST 75 PER CENT. OF THE VOTING POWER LIES IN THE HANDS OF OTHER THAN THE PUBLIC, AND THAT MEANS THAT THE COMPANIES ARE CONTROLLED BY A GROUP OF PERSONS ALLIED 6 TOGETHER AND HAVING THE SAME INTEREST. IN THE CASE OF SUCH COMPANIES, THE CONTROLLING GROUP CAN DO WHAT IT LIKES WITH THE MANAGEMENT OF THE COMPANY, ITS AFFAIRS AND ITS PROFITS WITHIN THE LIM ITS OF THE COMPANIES ACT. IT IS FOR THIS GROUP TO DETERMINE WHETHER THE PROFITS MADE BY THE COMPANY SHOULD BE DISTRIBUTED AS DIVIDENDS OR NOT. THE DECLARATION OF DIVIDEND IS ENTIRELY WITHIN THE DISCRETION OF THIS GROUP. WHEN THE LEGISLATURE REALIZED THAT THOUGH MONEY WAS REASONAB LY AVAILABLE WITH THE COMPANY IN THE FORM OF PROFITS, THOSE IN CHARGE OF THE COMPANY DELIBERATELY REFUSED TO DISTRIBUTE IT AS DIVIDENDS TO THE SHAREHOLDERS, BUT ADOPTED THE DEVICE OF ADVANCING THE SAID ACCUMU LATED PROFITS BY WAY OF LOAN OR ADVANCE TO ONE OF ITS SHAREHOLDERS, IT WAS PLAIN THAT THE OBJECT OF SUCH A LOAN OR ADVANCE WAS TO EVADE THE P AYMENT OF TAX ON ACCUMULATED PROFITS UNDER SECTION 23A. IT WILL BE R EMEMBERED THAT AN ADVANCE OR LOAN WHICH FALLS WITHIN THE MISCHIEF OF THE IMPUGNED SECTION IS ADVANCE OR LOAN MADE BY A COMPANY WHICH DOES NOT NORMALLY DEAL IN MONEY-LENDING, AND IT IS MADE WITH THE FULL KNOWLEDGE OF THE PROVISIONS CONTAINED IN THE IMPUGN ED SECTION. THE OBJECT OF KEEPING ACCUMULATED PROFITS WITHOUT DISTR IBUTING THEM OBVIOUSLY IS TO TAKE THE BENEFIT OF THE LOWER RATE OF SUPER-TAX PRESCRIBED FOR COMPANIES. THIS OBJECT WAS DEFEATED BY SECTION 23A WHICH PROVIDES THAT IN THE CASE OF UNDISTRIBUTED PR OFITS, TAX WOULD BE LEVIED ON THE SHAREHOLDERS ON THE BASIS THAT THE AC CUMULATED PROFITS WILL BE DEEMED TO HAVE BEEN DISTRIBUTED AMONGST THE M. SIMILARLY, SECTION 12(1B) PROVIDES THAT IF A CONTROLLED COMPAN Y ADOPTS THE DEVICE OF MAKING A LOAN OR ADVANCE TO ONE OF ITS SH AREHOLDERS, SUCH SHAREHOLDERS WILL BE DEEMED TO HAVE RECEIVED THE SA ID AMOUNT OUT OF THE ACCUMULATED PROFITS AND WOULD BE LIABLE TO PAY TAX ON THE BASIS 7 THAT HE HAS RECEIVED THE SAID LOAN BY WAY OF DIVIDE ND. IT IS CLEAR THAT, WHEN SUCH A DEVICE IS ADOPTED BY A CONTROLLED COMPA NY, THE CONTROLLING GROUP CONSISTING OF SHAREHOLDERS HAVE D ELIBERATELY, DECIDED TO ADOPT THE DEVICE OF MAKING A LOAN OR ADV ANCE. SUCH AN ARRANGEMENT IS INTENDED TO EVADE THE APPLICATION OF SECTION 23A. THE LOAN MAY CARRY INTEREST AND THE SAID INTEREST MAY B E RECEIVED BY THE COMPANY ; BUT THE MAIN OBJECT UNDERLYING THE LOAN I S TO AVOID PAYMENT OF TAX' . 3.6 SECTION 2(22)(E) MAKES THE LOANS AND ADVANCES A S DEEMED DIVIDEND IF SUCH LOANS AND ADVANCES ARE GIVEN BY THE COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED AND SUCH LOANS AND ADVANCE S ARE GIVEN TO A SHAREHOLDER WHO IS HAVING SUBSTANTIAL INTEREST AND SUCH LOAN AND ADVANCE IS LESS THAN THE ACCUMULATED PROFITS. IF THE TRANSACTI ON IS CARRIED OUT IN THE COURSE OF BUSINESS BETWEEN A COMPANY AND A SHAREHOL DER THEN SUCH TRANSACTION OF ADVANCE WHICH HAS A MUTUAL INTEREST CANNOT BE CONSIDERED FOR THE PURPOSE OF DEEMED DIVIDEND AS MENTIONED IN SECT ION 2(22)(E) OF THE ACT. HENCE, THE ADVANCE IF GIVEN FOR BUSINESS PURPOSE O F THE COMPANY AND IF SUCH AN ADVANCE SERVES THE BUSINESS INTEREST OF THE COMPANY THEN SUCH ADVANCE WILL NOT BE COVERED U/S 2(22)(E) OF THE ACT . FOR THIS PURPOSE, WE PLACE RELIANCE ON THE FOLLOWING DECISIONS. 1. CIT VS. NAGIN DAS M KAPADIA (1989) 177 ITR 393 (BOM.) 8 2. CIT VS. AMBASSADOR TRAVELS (P) LTD. , 318 ITR 37 6 (DEL.) 3. ACIT VS. HARSHAD V DOSHI, 136 TTJ 351 (CHEN.) 4. CIT VS. CREATIVE DYEING & PRINTING (P) LTD., 31 8 ITR 476 (DEL.) THE HON'BLE APEX COURT HAS DISMISSED THE SLP OF THE DEPARTMENT AGAINST THE DECISION OF HON'BLE DELHI HI GH COURT IN THIS CASE (REFER TO 328 ITR 10 (ST.) 3.7 THE ASSESSEE BEFORE THE LOWER AUTHORITIES HAS C ONTENDED THAT THE AMOUNT OF RS. 21.00 LACS WAS RECEIVED FOR THE PURPO SE OF PURCHASING A PLOT. THE DEAL WAS NOT STRUCK AND THEREFORE, THE AMOUNT W AS RETURNED BACK. THE ASSESSEE WAS REQUIRED BY THE BENCH TO FILE THE COPY OF ACCOUNT OF THE ASSESSEE IN THE BANK ACCOUNT IN WHICH CHEQUE WAS DE POSITED. IN THE BANK ACCOUNT, THE CHEQUE HAS BEEN CREDITED ON 12-07-06. THE BALANCE IN THE BANK ACCOUNT ON 13 TH JULY AND 14 TH JULY, 2006 IS MORE RS. 29.00 LACS. THE REPAYMENT OF CHEQUE OF S 24.00 LACS IS DEBITED IN T HE BANK ACCOUNT ON 15-07- 06. THERE ARE NO DEPOSITS IN THE BANK ACCOUNT FROM 13-07-06 TO 15-07-06. FROM THE BANK ACCOUNT, IT IS CLEAR THAT THE ASSESSE E HAS NOT UTILISED THE SUM OF RS. 21.00 LACS RECEIVED FROM THE COMPANY. THUS THERE IS A CIRCUMSTANTIAL EVIDENCE TO SUGGEST THAT THE AMOUNT OF RS. 21.00 LA CS WAS TAKEN FOR THE 9 PURPOSE OF BUSINESS I.E. TO PURCHASE A PLOT. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT FILED THE AFFIDAVIT OF TH E ASSESSEE OR CONFIRMATION FROM THE COMPANY. THE AO COULD HAVE EXAMINED THE AS SESSEE. THE ASSESSEE GAVE ITS CONTENTION AND THERE IS NO MATERIAL TO REB UT SUCH CONTENTIONS. WE THEREFORE, FEEL THAT THE SUM OF RS. 21.00 LACS RECE IVED BY THE ASSESSEE FROM THE COMPANY WAS FOR THE PURPOSE OF BUSINESS AND NOT A LOAN OR ADVANCE SIMPLICITOR SO AS TO INVOKE THE PROVISIONS OF SECTI ON 2(22)(E) OF THE ACT. HENCE, A SUM OF RS. 21.00 LACS CANNOT BE CONSIDERED FOR THE PURPOSE OF DEEMED DIVIDEND. 3.8 THE ASSESSEE RECEIVED A SUM OF S 10.00 LACS ON 12-07-06 FROM SHRI SUNIL KUMAR GOYAL THROUGH CHEQUE ISSUED ON PUNJAB N ATIONAL BANK. THROUGH JOURNAL ENTRY DATED 17-07-06, THE COMPANY C REDITED THE ACCOUNT OF SHRI SUNIL KUMAR GOYAL AND DEBITED THE ACCOUNT OF T HE ASSESSEE. THUS THE FUNDS WERE INITIALLY RECEIVED FROM SHRI SUNIL KUMAR GOYAL AND SUBSEQUENTLY JOURNAL ENTRY , THE SAME HAVE BEEN CONSIDERED TO HA VE BEEN RECEIVED FROM THE COMPANY AS SHRI SUNIL KUMAR GOYAL BECAME THE CR EDITOR OF THE COMPANY. THE LEDGER ACCOUNT OF SHRI SUNIL KUMAR GOY AL IN M/S SAND DUNE CONSTRUCTION (P) LTD. DID NOT SHOW THAT THE COMPANY WAS TO RECEIVE ANY AMOUNT FROM SHRI SUNIL KUMAR GOYAL. SECTION 2 (22) (E) IS APPLICABLE IN CASE THERE IS ANY PAYMENT BY A COMPANY BY WAY OF AD VANCE OR LOAN TO 10 SHAREHOLDER. THE WORD PAYMENT HAS BEEN CONSIDERED BY HON'BLE MADRAS HIGH COURT IN THE CASE OF G.R. GOVINDARAJULU NAIDU & ANR VS. CIT, 90 ITR 13. A NOTIONAL PAYMENT OF BOOK ENTRIES DOES NOT CONSTITUTE PAYMENT BY WAY OF LOAN OR ADVANCE. IT WILL BE USEFUL TO REPROD UCE THE HELD PORTION. HAVING REGARD TO THE WORDS ' PAYMENT BY WAY OF LO AN OR ADVANCE ' EMPLOYED IN SECTION 2(6A)(E), WE ARE OF T HE VIEW THAT THERE SHOULD BE AN OUTGOING OR FLOW OF MONEY FROM THE COM PANY TO THE SHAREHOLDER SO AS TO ATTRACT THE SAID PROVISION. SO ME LIGHT IS THROWN BY THE PROVISION IN SECTION 205(5) OF THE COMPANIES AC T, 1956, WHICH PROVIDES THAT NO DIVIDEND SHALL BE PAYABLE EXCEPT I N CASH, THE ONLY EXCEPTION BEING THE ISSUE OF FULLY PAID UP BONUS SH ARES OR THE PAYMENT TOWARDS UNPAID CALL MONIES ON ANY SHARES HELD BY TH E MEMBERS. IN THIS CASE, THERE CANNOT BE ANY DISPUTE THAT THE SUM OF RS. 1,65,000 CANNOT BE TREATED AS AN ADVANCE, FOR IT IS NOT AN A MOUNT PAID TOWARDS ANY OTHER AMOUNT DUE BY THE COMPANY TO THE ASSESSEE FAMILY. THE ONLY QUESTION THEN IS WHETHER THE SAID SUM REPRESEN TS THE PAYMENT BY WAY OF LOAN BY THE COMPANY TO THE ASSESSEE FAMILY. HAVING REGARD TO THE SETTING IN WHICH THE SAID CLAUSE (E) OF SECTION 2(6A) OCCURS, IT IS NOT POSSIBLE TO SAY THAT THE PAYMENT CONTEMPLATED W ILL INCLUDE A NOTIONAL PAYMENT BY WAY OF BOOK ENTRIES. THE LEARNE D COUNSEL FOR THE REVENUE, HOWEVER, CONTENDS THAT THE ASSESSEE FAMILY WAS UNDER A LEGAL OBLIGATION TO PAY THE CALL MONIES AS AND WHEN DEMAN DED AND THAT IN MAKING A CREDIT ENTRY IN FAVOUR OF THE COMPANY AND A DEBIT ENTRY AGAINST THE ASSESSEE FAMILY THERE IS A NOTIONAL PAY MENT BY THE COMPANY TO THE ASSESSEE AND A NOTIONAL REPAYMENT BY THE ASSESSEE 11 FAMILY TO THE COMPANY TOWARDS THE CALL ARREARS AND THAT THE CREATION OF THE DEBTOR AND CREDITOR RELATIONSHIP AS A RESULT OF THE BOOK ENTRIES MADE BY THE COMPANY IS QUITE SUFFICIENT TO TREAT TH E COMPANY AS THE LENDER AND THE ASSESSEE FAMILY AS A BORROWER. BUT I N THE CASE ON HAND, THERE IS NO PAYMENT OF LOAN AS SUCH AND THE CALL AM OUNTS DUE BY THE ASSESSEE WERE TREATED AS HAVING BEEN PAID UP BY MAK ING A CREDIT ENTRY IN FAVOUR OF THE ASSESSEE FAMILY. IT IS DIFFICULT T O TREAT THIS AS THE ACTUAL PAYMENT BY WAY OF A LOAN. THEREFORE, THE SUM OF RS. 1,65,000/- CANNOT BE TREATED AS PAYMENT BY WAY OF LOAN BY THE COMPANY TO THE ASSESSEE FAMILY AND THEREFORE, SECTION 2(6A)(E) COU LD NOT BE INVOKED . T SUNDRARAM CHETTIAR VS. CIT (1963), 49 ITR 287 (MA D) : TC 41R, 314 DISTINGUISHED. SECTION 2(6A) DEEMS A LOAN TAKEN BY A SHAREHOLDER F ROM A COMPANY AS A DIVIDEND RECEIVED BY HIM. FOR INVOKING THIS DEEMING PROVISION, THE LOAN MUST BE BY A COMPANY TO THE REG ISTERED SHAREHOLDER, AS, OTHERWISE, THE SAID SECTION WILL C REATE A DEEMED DIVIDEND EVEN WHEN THERE IS A LOAN BY A COMPANY TO A PERSON OTHER THAN A SHAREHOLDER, WHICH THE COMPANY CANNOT DO UND ER SECTION 206 OF THE COMPANIES ACT. IT IS NOT AS IF SECTION 2(6A) EM POWERS THE COMPANY TO PAY DIVIDENDS TO PERSONS OTHER THAN ITS REGISTERED SHAREHOLDERS. THE MERE FACT THAT THE HINDU UNDIVIDE D FAMILY IS THE BENEFICIAL OWNER OF THE SHARES WILL NOT MAKE IT A R EGISTERED SHAREHOLDER. AS A MATTER OF FACT THERE IS A SPECIFI C PROHIBITION OF THE HINDU JOINT FAMILY BEING A SHAREHOLDER OF A COMPANY , AS SECTION 153 OF THE COMPANIES ACT PROHIBITS A TRUST, EITHER EXPR ESS, IMPLIED OR CONSTRUCTIVE, BEING RECOGNISED AS A SHARE HOLDER. I N THOSE CIRCUMSTANCES, SECTION 2(6A)(E) CANNOT BE INVOKED U NLESS THE 12 LEGISLATURE INTRODUCES A FURTHER DEEMING CLAUSE TO THE EFFECT THAT THE JOINT FAMILY WHICH IS THE BENEFICIAL OWNER OF THE S HARES SHALL BE DEEMED TO BE THE REGISTERED SHAREHOLDER OF THE COMP ANY. SECTION 2(6A) HAS TO BE STRICTLY CONSTRUED, AND IT IS NOT P OSSIBLE TO CONSTRUE THAT SECTION AS IMPORTING TWO FICTIONS, ONE THAT TH E LOAN GRANTED TO A SHAREHOLDER SHOULD BE DEEMED TO BE A DIVIDEND AND T HAT THE BENEFICIAL OWNER OF THE SHARES IS DEEMED A REGISTERED SHAREHOL DER OF THE COMPANY. CIT VS. C.P. SARATHY MUDALIAR (1972), 8 3 ITR 170 (SC) : TC41R, 284 FOLLOWED. 3.9 THE HON'BLE MADRAS HIGH COURT IN THE CASE OF C IT VS. SMT. SAVITHIRI SAM, 236 ITR 1003 HAS HELD THAT IT IS DIFFICULT TO INTRODUCE ANOTHER FICTION IN THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT BY CO NSTRUING EVEN A TRANSFER ENTRY AS AMOUNTING TO PAYMENT. A SUM OF S 10.00 CRE DITED IN THE NAME OF THE COMPANY IN THE BOOKS OF THE ASSESSEE IS THROUGH A J OURNAL ENTRY I.E. A TRANSFER ENTRY. LOOKING TO THE FACTS AS DISCUSSED A BOVE AND CONSIDERING THAT THE AMOUNT IS NOT PAID BY THE COMPANY TO THE ASSESS EE, THEREFORE, THE SAME CANNOT BE A DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT . THUS A SUM OF RS. 10.00 LACS CANNOT BE INCLUDED FOR THE PURPOSE OF DE EMED DIVIDEND. 4.1 THE THIRD GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 5.33 LACS O N ACCOUNT OF DEEMED DIVIDEND BY INVOKING THE PROVISIONS OF SECTION (22) (E) OF THE ACT. 4.2 THE ASSESSEE PURCHASED FLATS FROM THE COMPANY ON 12 TH DEC. 2006. 13 ACCORDING TO THE AO, FLATS WERE SOLD AT LOWER RATES THAN DLC RATS. THE BENEFIT THEREFORE, WAS DIVERTED BY THE COMPANY TO T HE DIRECTOR IN THE FORM OF LESSER SALE PRICE OF FLATS AND THEREFORE, THE AO MA DE THE ADDITION OF RS. 5.33 LACS BY TREATING THE DIFFERENCE AS DEEMED DIVIDEND. 4.3 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT SE CTION 2(22)(E) IS APPLICABLE IN RESPECT OF LOAN OR ADVANCE AND THERE FORE, SUCH PROVISIONS COULD NOT HAVE BEEN INVOKED BY THE AO. THE LD. CIT( A) CONFIRMED THE ADDITION AFTER OBSERVING AS UNDER:- CONTENTION OF THE A.R. IS CONSIDERED. THE PAYMENT DOES NOT MEAN PAYMENT IN CASH OR CHEQUE B UT IT CAN BE IN KIND ALSO. IN SECTION 2(22)(E) THE WOR DS USED ANY PAYMENT AND THEREFORE, IT INCLUDES PAYMENT MA DE BY ANY MODE. AS LONG AS IF SUCH PAYMENT IS FOR THE INDIVIDUAL BENEFIT OF THE SHAREHOLDERS THE PROVISIO NS OF SECTION 2(22)(E) WILL BE ATTRACTED. IN THE PRESENT CASE, THE PAYMENT HAS BEEN RECEIVED BY THE APPELLANT INDIRECT LY AS HE HAS BEEN BENEFITED TO THE EXTENT OF LESSER VALUE PAID TO M/S SAND DUNE CONSTRUCTION (P) LTD. IT IS THE BENEF IT DERIVED BY THE INDIVIDUAL SHAREHOLDERS WHICH WILL B E TAXED U/S 2(22)(E). THE AO HAS ESTABLISHED THAT BY NOT PAYING FOR THE FLATS @ DLC RATE BUT A LESSER RATE, THE APPELLANT WAS BENEFITED TO THE EXTENT OF RS. 5,33,0 00/- AND THEREFORE, TO THIS EXTENT THE APPELLANT IS LIAB LE TO BE TAXED U/S 2(22)(E). THE BENEFIT OF RS. 5,33,000/- R ECEIVED 14 BY THE APPELLANT HAS RIGHTLY BEEN TAXED AS DEEMED DIVIDEND U/S 2(22)(E). 4.4 WE HAVE HEARD BOTH THE PARTIES. SECTION 2(22)(E ) IS APPLICABLE IF THE PAYMENT IS MADE BY THE COMPANY IN THE FORM OF LOAN OR ADVANCE OR PAYMENT BY THE COMPANY FOR INDIVIDUAL BENEFIT OF ANY SHAREH OLDER WHO IS HAVING SUBSTANTIAL INTEREST. IN THE INSTANT CASE, THERE IS NO PAYMENT. HENCE, SECTION 2(22)(E) IS NOT APPLICABLE AS THERE IS NO PAYMENT. IF AN IMMOVABLE PROPERTY IS TRANSFERRED AS A CONSIDERATION BELOW THE FAIR MA RKET VALUE THAN THE DIFFERENCE CAN BE ADDED UNDER THE HEAD INCOME FROM OTHER SOURCES U/S 56 OF THE ACT AND SUCH PROVISIONS HAS BEEN INTRODUCED BY THE FINANCE ACT 2010 W.E.F. 1-10-2009. HENCE, THE AO WAS NOT JUSTIFIED I N ADDING THE SUM OF RS. 5.33 LACS. 5.1 DURING THE COURSE OF PROCEEDINGS BEFORE US, AN ADDITIONAL GROUND HAS BEEN TAKEN BY THE LD. AR IN WHICH IT HAS BEEN MENTI ONED THAT THE AO HAS WRONGLY DETERMINED THE AMOUNT OF ACCUMULATED PROFIT S BY INCLUDING CURRENT YEARS PROFITS OF THE COMPANY FOR THE PURPOSE OF DE EMED DIVIDEND. 5.2 THE ABOVE REFERRED ISSUE STANDS DECIDED BY THE HON'BLE APEX COURT IN THE CASE OF IN THE CASE OF CIT VS. V DAMODARAN, 121 ITR 572. IN THE CASE BEFORE THE HON'BLE APEX COURT, THE HON'BLE MADRAS H IGH COURT HELD THAT EXPRESSION ACCUMULATED PROFITS CANNOT TAKE INTO CUR RENT PROFITS AND HON'BLE 15 APEX COURT HELD THAT THE HON'BLE HIGH COURT WAS RIG HT IN ANSWERING THE QUESTION IN FAVOUR OF THE ASSESSEE. THUS THE ADDITI ONAL GROUND BEING THE LEGAL QUESTION OF LAW RAISED BY THE ASSESSEE STANDS ADMIT TED AND IS DECIDED IN ITS FAVOUR IN VIEW OF THE DECISION OF HON'BLE APEX COUR T IN THE CASE OF IN THE CASE OF CIT VS. DAMODARAN (SUPRA). 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 24-06 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 24/06/2011 *MISHRA COPY FORWARDED TO :- 1. SHRI ANUJ MATHUR , JAIPUR 2. THE DCIT, CIRCLE- 2, JAIPUR 3. THE LD. CIT 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.1023/JP /10) BY ORDER A.R, ITAT, JAIPUR 16