Sh. Jaskaran Singh, Chandigarh V. ITO, Chandigarh

ITA 1030/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80862 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Keywords: Deemed dividend

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1030/CHD/2013 ASSESSMENT YEARS: 2009-10 SH. JASKARAN SINGH VS. THE I.T.O, CHANDIGARH WARD 1 (2) CHANDIGARH PAN NO. AXTPS3137L & ITA NO. 1031/CHD/2013 ASSESSMENT YEARS: 2010-11 SH. JASKARAN SINGH VS. THE I.T.O, CHANDIGARH WARD 1 (3) CHANDIGARH PAN NO. AXTPS3137L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRIKSHIT AGGARWAL RESPONDENT BY : SHRI J.S. NAGAR DATE OF HEARING : 06/08/2014 DATE OF PRONOUNCEMENT : 10.09.2014 ORDER PER T.R.SOOD, A.M. BOTH THE APPEALS FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDERS DATED 06/08/2013 OF CIT(APPEALS), CHANDIGARH 2. SINCE THE ISSUES RAISED IN BOTH THE APPEALS ARE IDENTICAL AND APPEALS WERE HEARD TOGETHER THE SAME ARE BEING DISPOSED OF BY TH IS COMMON AND CONSOLIDATED ORDER FOR THE SAKE OF BREVITY. 3. FIRST WE SHALL DEAL WITH ITA NO. 1030/CHD/2013. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 2 1. THAT ON FACTS, CIRCUMSTANCES AND LEGAL POSITION OF THE CASE, THE WORTHY CIT(A) THROUGH HIS ORDER DATED 06.08.2013 HAS ERRED IN PASSING THAT ORDER IN CONTRAVENTION OF THE PROVISIONS OF SECTION 250(6) O F THE INCOME TAX ACT, 1961. 2. THAT ON FACTS, CIRCUMSTANCES AND LEGAL POSITION OF THE CASE, THE WORTHY CIT(A) HAS ERRED IN SUSTAINING THE ADDITION ON ACCOUNT OF ALLEGED DEEMED DIVIDEND OF R S. 10,99,518/- U/S 2(22)(E) OF THE ACT ON ACCOUNT OF R ECEIPT OF ADVANCE FROM M/S EMDIS HEALTHCARE P. LIMITED EVEN W HEN THE IMPUGNED TRANSACTION IS NOT TAXABLE UNDER THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT . . 4. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOTICED THAT ASSESSEE WAS HAVING SUBSTANTIAL SHARE HOLDING OF 49.95% IN M/S EMDIS HEALTHCARE (P) LTD. THE ASSESS EE HAD ALSO RECEIVED PAYMENT AGGREGATING TO RS. 12,27,115/- ON DIFFERENT DATES. IN ENQUIRY BY ASSESSING OFFICER THAT WHY THIS PAYMENTS SHOULD NOT BE ADDED AS DIVIDEND U/S 2(22)(E), IT WAS STATED THAT AMOUNT WAS WITHDRAWN B Y THE ASSESSEE FOR PURCHASE OF LAND IN HIMACHAL PRADESH FOR SETTING OF A RESORT BUT DUE TO RESTRICTION ON BUYING OF LAND IN THE STATE OF HIMACHAL PRADESH, T HE DEAL DID NOT MATERIALIZE AND, THEREFORE, THE AMOUNT WAS RETURNED. THE ASSE SSING OFFICER DID NOT FIND FORCE IN THIS CONTENTION AND INVOKED THE PROVISIONS OF SECTION 2(22(E) AND TREATED THE AMOUNT OF RS. 12,27,115/- AS DEEMED DIV IDEND BECAUSE THE COMPANY FROM WHICH LOAN WAS TAKEN WAS HAVING ACCUMULATED PR OFITS OF RS. 3.42 CRORES. 5. ON APPEAL, THE SUBMISSIONS MADE BEFORE THE ASSES SING OFFICER WERE REITERATED. IT WAS FURTHER SUBMITTED THAT AS PER TH E LEDGER ACCOUNT, PEAK ADVANCE WAS OF RS. 10,99,518/-, IT WAS FURTHER SUBMITTED THAT THE COMPANY FROM WHICH ADVANCE WAS TAKEN WAS DOING MONEY LENDING BUSINESS AND, THEREFORE, SUCH ADVANCE COULD NOT BE TREATED AS DEEMED DIVIDEND. T HE LD. CIT(A) DID NOT 3 ACCEPT THE SUBMISSIONS AND DECIDED THE ISSUE AGAINS T THE ISSUE VIDE PARA 3.3, WHICH IS AS UNDER:- 3.1 I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNSEL. THE EXPLANATION OF THE LD. COUNSEL THAT TH E APPELLANT, IN THE CAPACITY OF DIRECTOR HAD WITHDRAW N MONEY FOR PURCHASING LAND IN HIMACHAL PRADESH, BUT DUE TO RESTRICTIONS IN BUYING THE LAND IN HIMACHAL PRADESH , THE SAID DEED DID NOT MATERIALIZE AND THE MONEY WAS RETURNED BACK AND SO THE PROVISIONS OF SECTION 2(22)(E) DO NOT AP PLY IS NOT ACCEPTABLE BECAUSE THE EXCEPTIONS FOR NON-APPLICABI LITY OF PROVISIONS OF SECTION 2(22)(E) ARE PROVIDED IN CLAU SES (I) TO (V) OF SECTION 2(22)(E) OF THE ACT AND THE SAID EXP LANATION IS NOT COVERED BY ANY OF THESE CLAUSES. HENCE, THIS EX PLANATION OF THE APPELLANT IS NOT ACCEPTABLE. 3.3.1 THE ARGUMENT OF THE LD. LD. COUNSEL FOR THE ASSESSEE THAT THE MONEY WAS RETURNED BACK BY THE AP PELLANT TO THE COMPANY WITHIN THE SAME YEAR AND SO PROVISIONS OF SECTION 2(22)(E) DO NOT APPLY TO THE APPELLANT DOES NOT HOLD WATER BECAUSE SUCH A SITUATION LIKE RETURNING THE M ONEY IS NOT EXCLUDED BY CLAUSE (I) TO (V) OF SECTION 2(22)(E) O F THE ACT, AS PER WHICH THE ADVANCE / LOAN IS TO BE TREATED AS DE EMED DIVIDEND U/S 2(22)(E) OF THE ACT. 3.3.2 THE APPELLANT HAS ALSO ARGUED THAT THE SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY WAS MONEY LENDING AND SO THE AMOUNT ADVANCED CANNOT BE TREATE D AS DEEMED DIVIDEND AS PER CLAUSE (II) OF SECTION 2(22) (E) OF THE ACT. THIS CONTENTION OF THE APPELLANT IS NOT CORREC T BECAUSE AS PER THE PROFITS AND LOSS ACCOUNT, THE COMPANY (M/S EHPL) HAS EARNED INTEREST OF RS. 9,13,406/-, BUT IT IS IN TEREST ON FIXED DEPOSITS WITH CITI BANK OF RS. 1,00,78,249/- AND SO IT CANNOT BE SAID THAT SUBSTANTIAL PART OF THE BUSINES S OF M/S EHPL WAS MONEY LENDING. HENCE, THE CONTENTION OF TH E APPELLANT IN THIS REGARD IS FACTUALLY NOT CORRECT. 3.3.3 THE ARGUMENT OF THE LD. LD. COUNSEL FOR THE ASSESSEE THAT ONLY PEAK OF THE ADVANCE FROM M/S EHP L TO THE 4 APPELLANT OF RS. 10,99,518/- SHOULD HAVE BEEN ADDED IS CORRECT, SINCE AGGREGATE OF ALL THE AMOUNTS ADVANCE D CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE A CT. HENCE, THE AMOUNT OF DEEMED DIVIDEND TO BE ADDED U/S 2(22) (E) SHOULD BE RS. 10,99,518/-. THE APPELLANT GETS RELIE F OF RS. 1,27,597/- (12,27,115 10,99,518/-. GROUND OF APPE AL NO. 2 IS PARTLY ALLOWED. 6. BEFORE US, LD. COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND EMPHASIZED THAT BASICALLY ADV ANCE WAS TAKEN FOR THE PURPOSE OF PURCHASE OF LAND IN HIMACHAL PRADESH AND BECAUSE OF THE RESTRICTION, LAND COULD NOT BE PURCHASED AND, THEREFORE, AMOUNT WAS RETURNED, THEREFORE, THE TRANSACTION WAS OF THE BUSINESS NATURE AND THE SAME CANNOT BE TREATED AS DEEMED DIVIDEND. IN THIS REGARD HE RELIED ON THE DECISIO N OF HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT V OM PARKASH SURI 359 ITR 41 (M.P.) HE ALSO SUBMITTED THAT MAIN BUSINESS OF THE COMPANY FROM WH ICH ADVANCE WAS TAKEN WAS MONEY LENDING AND IN THIS REGARD HE REFERRED TO PAG E 19 OF THE PAPER BOOK WHICH IS COPY OF THE PROFIT AND LOSS ACCOUNT GIVING DETAI LS OF THE INCOME AND SHOWS THAT MAIN INCOME WAS FROM INTEREST. HOWEVER, WHEN THE BENCH ASKED A SIMPLE QUESTION WHETHER THE ASSESSEE HAS BORROWED MONEY ON INTEREST, HE FAIRLY ADMITTED THAT ADVANCE TAKEN BY THE ASSESSEE WAS FRE E OF INTEREST. 7. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED THE ORDER OF CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. RELEVANT PORTION OF SECTION 2(22)(E) OF THE ACT READS AS UNDER:- SECTION 2(22)(E) - DIVIDEND INCLUDES. (A) TO (D). (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 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER , BEING A PERSON W HO IS THE BENEFICIAL OWNER OF SHARES ( NOT BEING SHARES ENTIT LED TO A 5 FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RI GHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN P ER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH H E HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFE RRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY O N BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE P OSSESSES ACCUMULATED PROFITS. 9. THE PLAIN READING OF THE ABOVE CLEARLY SHOWS THA T IF A PERSON WHO IS A SUBSTANTIAL SHARE HOLDER TAKES A LOAN OR ADVANCE FR OM A COMPANY IN WHICH HE IS SUBSTANTIAL SHARE HOLDER I.E. MORE THAN 10% SHARE H OLDER THEN SUCH ADVANCE HAS TO BE TREATED AS DEEMED DIVIDEND INCOME UPTO THE EX TENT OF ACCUMULATED RESERVES OF THE SAID COMPANY. IT IS NOT DISPUTED THAT ASSESSEE IS A SUBSTANTIAL SHARE HOLDER AND THE COMPANY WHICH HAS GIVEN THE AD VANCE POSSESSED SUBSTANTIAL ACCUMULATED PROFITS. THE DISPUTE HAS BEEN RAISED ON TWO COUNTS. FIRSTLY, IT WAS A BUSINESS TRANSACTION. WE DO NOT FIND ANY FORCE I N THESE SUBMISSIONS. THERE IS NO EVIDENCE TO SHOW THAT COMPANY WHERE THE ASSESSEE WAS DIRECTOR WANTED TO SET UP A RESORT IN THE STATE OF HIMACHAL PRADESH. EVEN IF SUCH COMPANY WANTED TO SET UP A RESORT, THE COMPANY ITSELF COULD HAVE INVE STED THE MONEY DIRECTLY IN ITS OWN NAME AND THAT WOULD HAVE BEEN PERMISSIBLE IN TH E STATE OF HIMACHAL PRADESH BECAUSE LAND CAN BE PURCHASED IN THE STATE OF HIMACHAL PRADESH FOR BUSINESS PURPOSES. THEREFORE, CLEARLY THIS EXPLANAT ION IS NOT ACCEPTABLE. AS FAR AS THE DECISION OF HON'BLE MADHYA PRADESH HIGH COUR T IN THE CASE OF CIT V OM PARKASH SURI IS CONCERNED, THE SAME IS CLEARLY DI STINGUISHABLE BECAUSE IN THAT CASE THE ASSESSEE HAD RECEIVED THE AMOUNT AS ADVANC E AGAINST SALE OF HIS LAND. AN AGREEMENT TO THAT EFFECT WAS ALSO ENTERED AND TH E SAID AMOUNT OF LOAN WAS DULY MENTIONED IN THE AGREEMENT TO SELL. IN THE CAS E BEFORE US, THERE IS NO SUCH AGREEMENT AND IT IS NOWHERE SHOWN THAT ASSESSEE WAS OWNING ANY LAND, THEREFORE, CLEARLY THE PROVISIONS OF SECTION 2(22)( E) ARE APPLICABLE. 6 10. COMING BACK TO THE SECOND ASPECT, FIRST OF ALL IT CANNOT BE SAID THAT THE COMPANY WHICH GAVE ADVANCE IS ENGAGED IN THE BUSINE SS OF LENDING. THE SCHEDULE SHOWING THE INCOME OF THE COMPANY READS AS UNDER:- INCOMES AS AT 31.03.2010 AS AT 31.03.2009 SHORT TERM CAPITAL GAINS DIVIDEND RECEIVED 1,406,663.00 301,703.00 INTEREST RECEIVED 913,406.00 INTEREST ON FIXED DEPOSIT RESERVES 1,542,209.63 PROFIT ON SALE OF ASSETS 89.66 DISCOUNT 250.00 LONG TERM CAPITAL GAIN ON INVESTMENT INCOME FROM DERIVATES MISC INCOME 19.91 TOTAL 2,948,872.63 1,215,468.57 11. THE ABOVE CLEARLY SHOWS THAT THE COMPANY IS MA INLY EARNING INCOME FROM DIVIDEND AND INTEREST ON FIXED DEPOSITS. IN 2009, T HIS COMPANY HAS RECEIVED SOME INTEREST ALSO. THE SCHEDULE OF ASSETS AT PAGE 16 CLEARLY SHOWS THAT MOST OF THE INVESTMENTS HAVE BEEN CLEARLY MADE IN THE MUTUA L FUNDS. EVEN IF IT IS ASSUMED THAT COMPANY IS MAINLY ENGAGED IN THE BUSIN ESS OF LENDING MONEY THEN IT CANNOT BE SAID THAT THE SAID COMPANY HAS LENT MO NEY TO THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS BECAUSE FOR THAT TO HAP PEN THE SAID COMPANY WOULD HAVE DEFINITELY CHARGED THE INTEREST. THE MAKING OF ADVANCES IN THE ORDINARY COURSE OF BUSINESS OF LENDING ITSELF CONNOTES CHARG ING OF INTEREST ON SUCH LENDING AND ADMITTEDLY THE ASSESSEE HAD RECEIVED TH E ADVANCE WITHOUT ANY INTEREST. THIRDLY, THIS IS ONLY AN AFTER THOUGHT BE CAUSE ORIGINAL EXPLANATION BEFORE THE LOWER AUTHORITY AND EVEN BEFORE US WAS T HAT MONEY WAS TAKEN FOR THE PURPOSE OF PURCHASE OF LAND IN HIMACHAL PRADESH AND IT WAS NEVER CLAIMED THAT MONEY WAS LENT TO THE ASSESSEE IN THE ORDINARY COUR SE OF BUSINESS OF LENDING, THEREFORE, WE FIND NO FORCE IN THESE SUBMISSIONS. IN VIEW OF THIS, WE FIND 7 NOTHING WRONG WITH THE ORDER OF CIT(A) AND WE CONFI RM THE SAME. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS DISMISSED. ITA NO. 1031/CHD/2013 12. SINCE THE FACTS AND CIRCUMSTANCES INVOLVED IN T HIS APPEAL ARE IDENTICAL TO THE FACTS AND CIRCUMSTANCES INVOLVED IN ITA NO. 103 0/CHD/201 EXCEPT THE AMOUNT OF ADDITION, THEREFORE, FOLLOWING THE ABOVE ORDER, WE FIND NOTHING WRONG IN THE ORDER OF CIT(A) AND CONFIRM THE SAME. THE AP PEAL OF ASSESSEE IS DISMISSED. 13. IN THE RESULT, BOTH THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10.09.2 014 SD/- SD/- (SUSHMA CHOWLA) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10 TH SEPT., 2014 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR