ADDL CIT RG 24(1), MUMBAI V. CHANDRAKANT V. GOSALIA, MUMBAI

ITA 104/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92800 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 29-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 06-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Deemed dividend

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./ I.T. A. NO. 104 / MUM/20 1 1 ( / ASSESSMENT YEAR : 20 0 7 - 08 ) A DDL COMMISSIONER OF INCOME TAX, 24 (1), C - 1 3 , ROOM NO.503, PRATYAKSHAKAR BHAVAN, BANDRA - KURLA COMPLEX, BANDRA (E), MUMBAI - 400051. / VS. SHRI CHANDRAKANT V GOSALIA, EESHA KRIPA, B HAHMAN SABHA LANE, MALAND (W), MUMBAI 400064. ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : ADDPG0778M / APPELLANT BY SHRI PREMANAND J / RSPONDENT BY SHRI REEPA L G TRALSHAWALA / DATE OF HEARING : 2 3 .4. 201 5 / DATE OF PRONOUNCEMENT : 3. 6 . 201 5 / O R D E R PER B.R. BASKARAN (AM) THE REVENUE HAS FILED THIS APPEAL CHALLENGING TH E ORDER DATED 27.10.2010 PASSED BY LD CIT(A) - 34, MUMBAI GRANTING PARTIAL RELIEF IN THE MATTER OF ASSESSMENT OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 (THE ACT) IN ASSESSMENT YEAR 2007 - 08. 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BRIEF. THE ASSESSEE HERE IS A DIRECTOR AND SHAREHOLDER IN CLOSELY HELD COMPANY NAMED AS M/S GEMSTAR CONSTRUCTION PVT LTD. THE AO NOTICED THAT THE ASSESSEE HAS ITA NO.104 / MUM/20 1 1 2 BORROWED FUNDS FROM THE ABOVE SAID COMPANY AND HENCE HE PROCEEDED TO EXAMINE THE APPL ICABILITY OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ON THE AMOUNT BORROWED BY THE ASSESSEE FROM THE ABOVE SAID COMPANY. THE AO HAS EXTRACTED THE ACCOUNT COPY OF THE ASSESSEE AS AVAILABLE IN THE BOOKS OF THE COMPANY AND THE SAME IS REPRODUCED BELOW: DATE PARTICULARS DEBIT CREDIT 1.4.2006 OPENING BALANCE 56,22,575 - 17.4.2006 AMT.PAID TOWARDS PREMISES DEPOSIT 50,000 - 19.4.2006 PAYMENT FOR PUBLIC ISSUE RPL - IPO - HNIR 62,00,000 - 24.4.2006 AMT.PAID TOWARDS PREMISES DEPOSIT 1,00,000 - 26.4.2006 AMT .PAID TOWARDS PREMISES DEPOSIT 1,00,000 - 15.5.2006 AMT.PAID TOWARDS PREMISES DEPOSIT 25,000 - 16.5.2006 AMT.PAID TOWARDS PREMISES DEPOSIT 2,25,000 - 17.5.2006 AMT.PAID TOWARDS PREMISES DEPOSIT 1,50,000 - 19.5.2006 AMT. TRANSFERRED FROM TMSB 60,95,840 13.6.2006 AMT.PAID TOWARDS PREMISES DEPOSIT 1,50,000 - 27.6 .2006 AMT.PAID TOWARDS PREMISES DEPOSIT 15000 - 11.7.2006 AMT.PAID TOWARDS PREMISES DEPOSIT 2,00,000 21.7.2006 AMT.PAID TOWARDS PREMISES DEPOSIT 20,000 - 17.8..2006 AMT.PAID TOWARDS PREMISES DEPOSIT 2 5 ,000 - 23.8.2006 AMT.PAID TOWARDS PREMISES DEPOSIT 5 0 ,000 - 15.9.2006 AMT.PAID TOWARDS PREMISES DEPOSIT 6,00,000 - 28.9..2006 AMOUNT TRANSFERRED FROM ABOVE A/C 6,00,000 1,36,32,575 66,95,840 66,36,735 CLOSING BALANCE 1,36,32,575 1,3 6,32,575 DURING THE YEAR THE ASSESSEE HAD RECEIVED A SUM OF RS.80.10 LAKHS FROM M/S GEMSTAR CONSTRUCTION PVT LTD , WHICH CONSISTED OF RS.18.10 LAKHS RECEIVED AS SECURITY DEPOSIT IN RESPECT OF A PREMISES LET OUT BY THE ASSESSEE TO TH E ABOVE SAID COMPANY AN D RS.62 .00 LAKHS RECEIVED FOR SUBSCRIBING TO THE INITIAL PUBLIC OFFCER OF SHARES ISSUED BY M/S RELIANCE PETROLEUM LIMITED (RPL) . THE ASSESSEE HAD REPAID A SUM OF RS.60,95,840 / - ON 19.5.2006 OUT OF THE ABOVE SAID AMOUNT OF RS . 62.00 LAKHS. IT WAS STATED THA T THE ASSESSEE APPLIED FOR PUBLIC ISSUE OF R PL IN HIS NAME FOR AND ON BEHALF OF THE COMPANY AND THE SAME IS SUPPORTED BY THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS . HOWEVER, THE ASSESSEE WAS ITA NO.104 / MUM/20 1 1 3 ALLOTTED THE SHARES ONLY TO THE TUNE OF RS.1 , 04 ,160 / - AND THE BALANCE AMOUNT OF RS.60,95,840/ - WAS REFUNDED BY M/S R PL. THE REFUND AMOUNT WAS DULY RETURNED BACK BY THE ASSESSEE TO THE ABOVE SAID COMPANY. ACCORDINGLY, IT WAS CONTENDED BEFORE THE AO THAT THE ASSESSEE HAS NOT BORROWED ANY FUNDS AS CONTEMPLATED UND ER SECTION 2(22(E) OF THE ACT AND HENCE THE AMOUNT OF RS.62 LAKHS CANNOT BE TAXED AS DEEMED DIVIDEND. WITH REGARD TO THE REMAINING AMOUNT OF RS.18.10 LAKH, THE ASSESSEE SUBMITTED THAT IT HAD RECEIVED A SUM AS LEASE DEPOSITS IN RESPECT OF THE PREMISES LET OUT TO THE ABOVE SAID COMPANY AND HENCE THE PROVISIONS OF SECTION 2(22)(E) ARE NOT ATTRACTED TO THE SAME. THE AO WAS NOT CONVINCED BY THE EXPLANATION OF THE ASSESSEE AND ACCORDINGLY ASSESSED BOTH THE AMOUNT S AGGREGATING TO RS.80.10 LAKHS AS DEEMED DIVIDEN D. 3. IN THE APPELLATE PROCEEDINGS, THE LD.CIT (A) DELETED THE A SSESSMENT OF LEASE DEPOSIT OF RS.18.10 LAKHS , BY FOLLOWING HIS OWN DECISION RENDERED IN THE IMMEDIATELY PRECEDING YEAR ON AN IDENTICAL ISSUE . WITH REGARD TO THE ASSESSMENT OF RS.62.00 LAKHS PERTAINING TO SHARE APPLICATION MONEY, THE LD.CIT(A) ACCEPTED THE CONTENTION S OF THE ASSESSEE. HOWEVER, SINCE THE SHARES WORTH RS.1,04,160/ - ALLOTTED WAS RETAINED BY THE ASSESSEE HIMSELF, AGAIN SUPPORTED BY THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS , THE LD.CIT(A) CONFIRMED THE ASSESSMENT OF DEEMED DIVIDEND TO THE EXTENT OF RS.1,04,160/ - AND DELETED THE ASSESSMENT OF BALANCE AMOUNT OF RS.60 , 95 , 840/ - . AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US. 4. WE HEARD THE PARTIES AND PERUSED TH E RECORD. WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED THE DECISION RENDERED BY THE DELHI BENCH OF ITAT IN THE CASE OF SUNIL SETHI VS. DCIT (2008)(26 SOT 95), WHEREIN IT WAS HELD THAT IF ANY PAYMENT IS MADE TO THE ASSESSEE DIRECTOR FOR OFFICIAL PURPOSES OF T HE COMPANY, I.E., TO BE UTILIZED FOR AND ON BEHALF OF THE COMPANY AND ITA NO.104 / MUM/20 1 1 4 THE SAID FUNDS WERE RETURNED BACK WITHOUT ITS UTILIZATION FOR ANY OTHER PURPOSES BY THE DIRECTOR DUE TO NON - MATERIALISATION OF BUSINESS TRANSACTION, THEN THE INTENTION WAS NOT TO GIVE LO AN TO THE ASSESSEE DIRECTOR AND THAT THE ASSESSEE DIRECTOR WAS ACTING FOR AND ON BEHALF OF THE COMPANY FOR WHICH PROPER RESOLUTION OF BOARD OF DIRECTORS WERE PASSED AND HENCE THE ADDITION MADE AS DEEMED DIVIDEND U/S 2(22)(E) WAS LIABLE TO BE DELETED. THE MAIN CONTENTION OF THE REVENUE IS THAT THE RATIO OF THE DECISION RENDERED IN THE CASE OF SUNIL SETHI (SUPRA) IS NOT APPLICABLE TO THE FACTS PREVAILING IN THE INSTANT CASE. 5. IN THE INSTANT CASE, WE HAVE NOTICED THAT THE ASSESSEE HAD RECEIVED MONEY FR OM M/S GEMSTAR CONSTRUCTION P LTD FOR THE PURPOSE OF INVESTING IN THE INITIAL PUBLIC OFFICER (IPO) OF M/S RPL. IT IS NOT SHOWN TO THE TAX AUTHORITIES THAT M/S GEMSTAR CONSTRUCTION P LTD WAS ENGAG ED IN THE BUSINESS OF DEALING IN SHARES & SECURITIES. HENCE , WE AGREE WITH THE CONTENTIONS OF THE REVENUE THAT THE AMOUNT OF RS.62.00 LAKHS WAS NOT GIVEN TO THE ASSESSEE DURING THE COURSE OF NORMAL BUSINESS FOR THE PURPOSE OF CARRYING OUT ANY BUSINESS TRANSACTION. WE FURTHER NOTICE THAT THE NARRATION GIVEN ON PAY MENT OF RS.62.00 LAKHS WAS PAYMENT FOR PUBLIC ISSUE RPL IPO HNI R. WE WERE GIVEN TO UNDERSTAND THAT THE EXPRESSION HNI R INDICATES HIGH NETWORTH INDIVIDUAL RESIDENT. 6. THE CONTENTION OF THE ASSESSEE WAS THAT THE HE HAD ACTED AS AN AGENT OF M/S GEMSTAR CONSTRUCTIONS P LTD WHILE APPLYING SHARES OF INITIAL PUBLIC OFFER ISSUED BY M/S RPL. IN SUPPORT OF THE SAME, THE ASSESSEE HAS PLACED STRONG RELIANCE ON THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS, WHICH CONSISTED OF ASSESSEE AND HIS SON ONLY. IT IS ALSO SUBMITTED THAT THE REFUND OF EXCESS APPLICATION MONEY WAS DULY RETURNED BACK TO M/S GEMSTAR CONSTRUCTIONS P LTD. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE ITA NO.104 / MUM/20 1 1 5 WAS ALLOWED TO RETAIN THE SHARES ALLOTTED BY M/S RPL, SINCE THE NUMBER OF SHARES ALLOTTED WERE VERY SMALL AND FURTHER THE DECISION WITH REGARD TO THE SAME WAS TAKEN AGAIN BY THE BOARD OF DIRECTORS OF M/S GEMSTAR CONSTRUCTIONS P LTD. 7. A CAREFUL ANALYSIS OF CHRONOLOGY OF EVENTS, IN OUR VIEW, DOES NOT SUPPORT THE CASE OF THE ASSE SSEE. FIRST OF ALL, IT IS NOT SHOWN TO US THAT M/S GEMSTAR CONSTRUCTIONS P LTD WAS NOT BARRED FROM APPLYING FOR IPO OF M/S RPL. SECONDLY, IT WAS NOT SHOWN THAT THE ABOVE SAID COMPANY IS INVOLVED IN DEALING IN SHARES, I.E., IT WAS NOT PART OF BUSINESS TRA NSACTIONS. THIRDLY, THE ASSESSEE WAS ALLOWED TO RETAIN THE SHARES ALLOTTED IN THE IPO, WHICH MILITATES AGAINST THE EXPLANATION GIVEN BY THE ABOVE SAID COMPANY AND ALSO THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS. 8. IT IS IN THE COMMON KNOWLEDGE O F EVERYONE THAT THE ALLOTMENT IS DONE ON PROPORTIONATE BASIS IN CASE OF OVER SUBSCRIPTION OF PUBLIC ISSUE. WHEN THE IPO IS MADE BY REPUTED BUSINESS HOUSES, THE IPO IS USUALLY SUBSCRIBED SEVERAL TIMES AND HENCE THE ALLOTMENT OF SHARES TEND S TO BE VERY MUCH LOWER THAN THAT APPLIED FOR. HENCE, THE EXPLANATION OF THE ASSESSEE THAT M/S GEMSTAR CONSTRUCTIONS P LTD HAS DECIDED TO APPLY FOR SHARES OF M/S RPL IN HIS NAME WITH THE EXPECTATION THAT MORE NUMBER OF SHARES SHALL BE ALLOTTED DOES NOT APPEAL TO COMMON SE NSE. BUT THE VERY FACT THAT THE SHARES SO ALLOTTED BY M/S RPL WERE NOT TAKEN BY M/S GEMSTAR CONSTRUCTIONS P LTD WOULD ONLY SHOW THAT IT DID NOT INTEND TO APPLY FOR THE SHARES, THOUGH THE SAID VIEW IS AGAINST RESOLUTION PASSED BY THE BOARD OF DIRECTORS. BUT, AS CONTENDED BY THE REVENUE, THE RESOLUTIONS SO PASSED ARE WITHIN THE CONTROL OF THE BOARD OF DIRECTORS, WHO AGAIN HAPPENED TO BE THE ASSESSEE AND HIS SON. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW ITA NO.104 / MUM/20 1 1 6 THAT ONE SHOULD TAKE HOLISTIC VIEW OF THE MATTER BY DULY CONSIDERING SURROUNDING CIRCUMSTANCES. 9. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT THE EXPLANATION OF THE ASSESSEE THAT THE IPO OF M/S RPL WAS APPLIED BY THE ASSESSEE FOR AND ON BEHALF OF M/S GERMSTAR CONSTRU CTIONS P LTD IS HARD TO BELIEVE. IT IS WELL ESTABLISHED PRINCIPLE OF LAW THAT MERE REPAYMENT OF MONEY BORROWED BY THE SHARE HOLDER WILL NOT ESCAPE HIM FROM THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT. HENCE THE FACT THAT THE ASSESSEE HAS PAID BACK THE EXC ESS SHARE APPLICATION MONEY REFUNDED BY M/S RPL WILL NOT BE OF ANY HELP TO THE ASSESSEE. HENCE, WE AGREE WITH THE CONTENTIONS OF THE REVENUE THAT THE DECISION RENDERED IN THE CASE OF SUNIL SETHI (SUPRA) IS NOT APPLICABLE TO THE FACTS PREVAILING IN THE INS TANT CASE. ACCORDINGLY, WE ARE OF THE VIEW THAT THE AO WAS JUSTIFIED IN ASSESSING THE AMOUNT OF RS.62.00 LAKHS AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE AO. 1 0 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED. 3RD JUNE , 2015 SD SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 3RD JUNE ,2015 . . . ./ SRL , SR. PS ITA NO.104 / MUM/20 1 1 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI