Dr. H.C. Popli, Hisar V. ACIT, Hisar

ITA 1218/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3600 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 09-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO. 1218/DEL/2011 ASSESSMENT YEAR: 2007-08 DR. H.C. POPLI, VS. ACIT, 40A, BANK COLONY, HISAR. HISAR. ABFPP8219E (APPELLANT) (RESPONDENT) APPELLANT BY : SH. K. SAMPATH, ADV. RESPONDENT BY : SHRI ROHIT GARG, SR. DR ORDER PER C.L. SETHI, J.M. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 24.01.2011 OF LD. CIT(A) PASSED IN THE MATER OF ASS ESSMENT MADE BY THE ASSESSING OFFICER U/S 143(3) OF THE INC OME TAX ACT, 1961 (ACT) FOR THE A.Y. 2007-08. THE GROUNDS OF APPEAL READ AS UNDER: - THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF THE AO OF BRINGING TO TAX NET U/S 2(22)(E) AS DE EMED DIVIDEND, THE ALLEGED LOAN/ADVANCE RECEIVED BY THE APPELLANT ITA NO. 1218/D/2011 2 OF RS. 444153, FROM THE COMPANY, IN WHICH HE WAS HA VING A SUBSTANTIAL INTEREST. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR MODIFY ANY OF THE GROUNDS OF APPEAL. 2. THE ASSESSEE FILED HIS RETURN OF INCOME ON 20.11 .2007 DECLARING TOTAL INCOME AT RS. 11,66,090/-. THE CAS E WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2)/142(1) OF THE ACT WERE ACCORDINGLY ISSUED, WHICH WERE COMPLIED WITH B Y THE ASSESSEE BY FILING VARIOUS DETAILS AND ATTENDING TH E HEARING BEFORE THE AO. 3. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT THE ASSESSEE HAD RECEIVED LOAN FROM PROGRESSIV E MEDICAL HEALTH CARE CENTRE PVT. LTD. AMOUNTING TO RS. 4,44, 153/- DURING THE YEAR. THE ASSESSEE WAS ONE OF THE MAJOR SHAREHOLDERS OF THE SAID COMPANY HAVING 31.27% SHAR E HOLDING AS ON 31.3.2007. IT WAS ALSO NOTICED BY TH E AO THAT PROGRESSIVE MEDICAL HEALTH CARE CENTRE PVT. LTD. WA S HAVING POSITIVE RESERVES AND SURPLUS AS ON 31.3.2007 AT RS . 8,66,207/-. IT WAS OBSERVED BY THE AO THAT RESERVE AND SURPLUS OF THE COMPANY AMOUNTING TO RS. 8,66,207/- WAS IN ITA NO. 1218/D/2011 3 EXCESS OF THE LOAN AMOUNT OF RS. 4,44,153/- GIVEN T O THE ASSESSEE. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE LOAN TAKEN FROM SAID COMPANY SHOULD NOT BE CONS TRUED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE ASSES SEE SUBMITTED HIS REPLY ON 10.09.2009 STATING AS UNDER: - IT MAY BE MENTIONED THAT I AM HAVING A RUNNING ACCOUNT WITH THE COMPANY AND THE TEMPORARY ADVANCE WAS TAKEN DURING THE COURSE OF BUSINESS HOWEVER, THEY WERE ADJUSTED DURING THE YEAR END. IT MAY BE MENTIONED THAT DR. H.C. POPLI IS MAINLY RESPONSIBLE FOR LOOKING AFTER THE DAY-TO-DAY WORKING OF THE COMPANY AND IS THE FOUNDER AND EXECUTIVE DIRECTOR OF THE COMPANY AND HAS ALSO LEASED-OUT HIS EQUIPMENTS TO THE COMPANY. THE COMPANY HAS ALSO TAKEN LOAN FROM DR. H.C. POPLI ON MANY OCCASIONS THUS, THERE WAS DEBIT AS WELL AS CREDIT BALANCE THROUGHOUT THE YEAR AS PER NEEDS OF THE COMPANY OR THE DIRECTORS. MOREOVER, AN ADDITION OF RS. 6,79,375/- HAS ALREADY BEEN MADE ON THIS ACCOUNT IN LAST YEAR, HENCE NO FURTHER ADDITION ON THIS ACCOUNT IS CALLED FOR. 4. AFTER CONSIDERING THE ASSESSEES SUBMISSION, PRO VISIONS OF SEC. 2(22)(E) OF THE ACT AND CONSIDERING THE DEC ISIONS THE ITA NO. 1218/D/2011 4 AO TREATED THE LOAN AMOUNT OF RS. 4,44,153/- AS DEE MED DIVIDEND U/S 2(22)(E) OF THE ACT IN THE HANDS OF TH E ASSESSEE. THE AO, THEREFORE, BROUGHT THE SAME TO TAX WHILE CO MPETING THE ASSESSMENT. 5. ON AN APPEAL, LD. CIT(A) CONFIRMED THE ADDITIONS BY OBSERVING AS UNDER: - 4.4 DURING THE COURSE OF APPEAL PROCEEDINGS, THE AR FURNISHED A COPY OF THE ORDER OF HONBLE ITAT DELHI IN ITA NO. 682/DEL/2010 DATED 13.08.2010 IN THE CASE OF THE APPELLANT FOR THE A.Y. 2006-07 WHEREIN THE ACTION OF THE AO IN BRINING THE LOAN/ADVANCE TO THE ASSESSEE TO TAX U/S 2(22)(E) HAS BEEN UPHELD. REGARDING THE WORKING OF QUANTUM, THE MATTER HAS BEEN REMITTED TO THE FILE OF THE AO. THE AR CONTENDED THAT OUT OF THE RESERVES OF RS. 8,66,207/-, AN AMOUNT OF RS. 6,79,375/- HAS ALREADY BEEN BROUGHT TO TAX AS DEEMED DIVIDEND U/S 2(22)(E) IN THE A.Y. 2006-07 AND, THEREFORE, ONLY THE BALANCE AMOUNT OF RS. 186832/- COULD BE BROUGHT TO TAX AS DEEMED DIVIDEND U/S 2(22)(E) IN ITA NO. 1218/D/2011 5 THE APPEAL UNDER REFERENCE FOR THE A.Y. 2007-08. HE RELIED UPON THE CASE LAW OF CIT VS. NARSIMHAN (1999) 236 ITR 327 (SC) IN THIS REGARD. 5. I HAVE CONSIDERED THE ISSUE, THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE AR. THE AR COULD NOT BRING ON RECORD AS TO HOW THE ADVANCES GIVEN BY THE COMPANY TO THE ASSESSEE ARE IN THE NORMAL COURSE OF BUSINESS TRANSACTIONS. THE CASE LAW OF MS. P. SHARDA VS. CIT (SUPRA) IS SQUARELY APPLICABLE IN THIS CASE, AS HELD BY HONBLE ITAT IN THE CASE OF THE APPELLANT FOR THE AY 2006-07. THEREFORE, THE ACTION OF THE AO IN BRINGING TO TAX THE LOAN/ADVANCE GIVEN TO THE APPELLANT OF RS. 4,44,153/- AS DEEMED DIVIDEND U/S 2(22)(E) IS UPHELD. REGARDING CONTENTION OF THE APPELLANT THAT ONLY THE BALANCE AMOUNT OF RS. 1,86,832/- SHOULD BE BROUGHT TO TAX, IT IS SEEN THAT THE QUANTUM TO BE BROUGHT TO TAX AS DEEMED DIVIDEND U/S 2(22)(E) HAS BEEN REMITTED TO THE FILE OF AO BY THE HONBLE ITAT FOR THE AY 2006-07 ITA NO. 1218/D/2011 6 AND, THEREFORE, THE BALANCE AMOUNT IS NOT ASCERTAINABLE. THEREFORE, THE GROUND OF APPEAL IS DISMISSED. 6. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 8. IN THE COURSE OF HEARING OF THIS APPEAL, LD. COU NSEL FOR THE ASSESSEE HAS FURNISHED A COPY OF ORDER DATED 13 .08.2010 PASSED BY INCOME TAX APPELLATE TRIBUNAL, DELHI BENC H C, NEW DELHI IN THE ASSESSEES OWN CASE PERTAINING TO THE A.Y. 2006-07 PASSED IN ITA NO. 682/DEL/2010. ON PERUSAL OF THIS TRIBUNALS ORDER, WE FIND THAT IN THE IMMEDIATE PRE CEDING A.Y. 2006-07 A LOAN AMOUNT OF RS. 6,79,375/- RECEIVED BY THE ASSESSEE FROM M/S PROGRESSIVE MEDICAL CARE AND RESE ARCH CENTRE PVT. LTD. WAS BROUGHT TO TAX BY THE AO. ON AN APPEAL, THE TRIBUNAL PASSED THE ORDER HOLDING AND OBSERVING AS UNDER: 6.2 WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT ASSESSEE ALSO HAD OPENING BALANCE OF CREDIT AMOUNTING TO RS. 1120625/-. THEREAFTER AFTER SEVERAL TRANSACTIONS FOR ITA NO. 1218/D/2011 7 THE FIRST TIME ON 9.2.2006 THE BALANCE BECAME DEBIT AND CAME TO THE EXTENT OF RS. 679375/-. NOW THIS AMOUNT HAS BEEN TREATED BY THE REVENUE AS DEEMED DIVIDEND U/S 2(22)(E). IT IS CLEAR THAT THE SAID AMOUNT IS ONLY A RESULTANT FIGURE FROM THE BALANCE OF RS. 1120625/- APPEARING IN CREDIT BEFORE GIVING THE AMOUNT OF RS. 8 LACS ON 9.2.2006. ASSESSEE HAS ALSO WORKED OUT THE ADJUSTMENT WHICH CAN BE MADE IN THE SAID AMOUNT OF RS. 679375/- ON ACCOUNT OF INTEREST PAYABLE UPTO THE DATE AS ADVANCE ON CREDIT BALANCE OF DR. H.C. POPLI, EQUIPMENT LEASE RENT PAYABLE TO HIM UPTO JAN, 2006 AND SALARY PAYABLE FOR JAN., 2006 THUS, TOTALING TO RS. 3,70,500/- AND THE ASSESSEES COUNSEL CLAIM IS THAT ONLY THE RESULTANT FIGURE OF RS. 308875/- SHOULD BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E). 6.3 UPON CAREFUL CONSIDERATION, WE FIND THAT REVENUE HAS CORRECTLY RELIED UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF MS. P. SARDA VS. CIT (SUPRA) IN REBUTTING THE ASSESSEES CONTENTION THAT THE AMOUNT INVOLVED WAS NOT DEEMED DIVIDEND U/S 2(22)(E) WAS A CURRENT ACCOUNT. IN THE SAID CASE ITA NO. 1218/D/2011 8 LAW IT WAS HELD THAT WITHDRAWALS MADE BY A MAJOR SHAREHOLDER FROM THE COMPANY ON VARIOUS DATES AMOUNTED TO GRANT OF LOAN, OR ADVANCE WITHIN THE MEANING OF SECTION 2(22)(E) EVEN THOUGH ULTIMATELY THE AMOUNT WAS ADJUSTED AGAINST THE CREDIT BALANCE OF ANOTHER SHAREHOLDER AT THE END OF THE YEAR. HOWEVER, WE FIND CONSIDERABLE COGENCY IN THE ASSESSES PLEA THAT IF THERE ARE OTHER AMOUNTS DUE FROM THE COMPANY THE SAME NEED TO BE ADJUSTED TO ARRIVE AT THE CORRECT FIGURE OF THE AMOUNT WHICH CAN BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E). AS ADMITTEDLY ASSESSEE CAN BE SAID TO HAVE BENEFITED BY THE ADVANCE RECEIVED ONLY TO THE EXTENT IT WAS NOT ADJUSTABLE AGAINST OTHER DUES PAYABLE BY THE COMPANY TO HIM. SINCE, WE DO NOT HAVE THE FACTUAL RECORDS AND DETAILS OF THE ADJUSTMENT ON ACCOUNT OF INTEREST, EQUIPMENT LEASE RENT AND SALARY AS CLAIMED BY THE ASSESSEE, WE REMIT THIS ISSUE TO THE FILES OF THE ASSESSING OFFICER. THE AO SHALL EXAMINE THE VERACITY OF THESE CLAIMS AND ACCORDINGLY TREAT THE RESULTANT FIGURES AS DEEMED DIVIDEND. NEEDLESS TO ADD THAT THE ITA NO. 1218/D/2011 9 ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF BEING HEARD. 9. FROM THE AFORESAID JUDGMENT, IT IS CLEAR THAT TH E QUANTUM OF DEEMED DIVIDEND ASSESSABLE IN ASSESSEES HAND IN THE A.Y. 2006-07 HAS BEEN RESTORED BACK TO THE FILE OF THE A O WITH A DIRECTION TO EXAMINE THE ASSESSEES CLAIM THAT AMOU NT DUE FROM THE COMPANY TO THE ASSESSEE NEED TO BE ADJUSTE D TO ARRIVE AT THE CORRECT FIGURE OF THE AMOUNT WHICH CO ULD BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE FRESH ASSESSMENT ORDER BY THE AO IN PURSUANCE TO THE TRIB UNALS DIRECTION HAS NOT BEEN PLACED BEFORE US. IN THE PR ESENT ASSESSMENT YEAR, THE TOTAL RESERVE AND SURPLUS OF T HE COMPANY ARE OF RS. 8,66,207/-. THE AMOUNT OF DEEME D DIVIDEND ALREADY TAXED IN THE ASSESSEES HAND IN EA RLIER YEAR IS INVARIABLY TO BE ADJUSTED AGAINST THE RESERVE AN D SURPLUS AMOUNT OF RS. 8,666,207/- BEFORE MAKING SOME ADDITI ON OF DEEMED DIVIDEND IN THE CURRENT YEAR. FURTHER IT IS ALSO NECESSARY TO EXAMINE THE MATTER IN THE LIGHT OF THE DIRECTION GIVEN BY THE TRIBUNAL REGARDING ASCERTAINMENT OF CO RRECT FIGURE OF LOAN AFTER ADJUSTING THE AMOUNT DUE FROM THE COM PANY TO THE ASSESSEE IN THE CURRENT YEAR. WE, THEREFORE, R ESTORE THIS MATTER BACK TO THE FILE OF AO FOR HIS FRESH ADJUDIC ATION AFTER ITA NO. 1218/D/2011 10 PROVIDING A REASONABLE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. WE ORDER ACCORDINGLY. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED TO BE ALLOWED FOR A STATISTICAL PURPOSE. THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 1 5 TH JULY, 2011. SD/- SD/- (K.G. BANSAL) (C.L . SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15.07.2011 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR