ACIT, CHENNAI V. Padmasingh Issac, CHENNAI

ITA 1266/CHNY/2013

• Counselvise Citation: 126621714 RSA 2013
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 12-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: M NARAYANAN RETD
• Keywords: Deemed dividend
• Section: 69

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1266/MDS/2013 ' (' / ASSESSMENT YEAR : 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE II(3), CHENNAI - 600 034. V. SH. PADMASINGH ISAAC, G-1174, ROSS RESIDENCY, 15 TH STREET, BELLY AREA, ANNA NAGAR WEST, CHENNAI - 600 040. PAN : AIDPP 3634 L (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SH. PATHLAVATH PEERYA, CIT ,-*+ . / / RESPONDENT BY : SH.M. NARAYANAN, RETD. ADDL. CIT 0 . 1$ / DATE OF HEARING : 12.05.2015 2!( . 1$ / DATE OF PRONOUNCEMENT : 29.05.2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, CHENNAI , DATED 11.03.2013 AND PERTAINS TO ASSESSMENT YEAR 2008-09. 2 I.T.A. NO.1266/MDS/13 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO ADDITION OF ` 1,76,39,625/- UNDER SECTION 2(22)(E) OF THE INCOME- TAX ACT, 1961 (IN SHORT 'THE ACT'). 3. SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE IS ONE OF THE MAJOR SHAREHOLDERS IN M/S AACHI MASALA FOODS PRIVATE LIMI ED. ACCORDING TO THE LD. D.R., THE ASSESSEE HAS INFLATED PURCHASE S TO THE EXTENT OF ` 10.64 CRORES IN THE CASE OF NAZARETH ENTERPRISES AN D PAID THE SAME TO PANDIAN ENTERPRISES. ACCORDING TO THE LD. D.R., PANDIAN ENTERPRISES IS A PROPRIETARY CONCERN OF ONE SHRI RA MESH PANDIAN, WHO IS NONE OTHER THAN THE BROTHER-IN-LAW OF THE AS SESSEE. THE MONEY PAID TO PANDIAN ENTERPRISES WAS ACTUALLY TAKE N BACK BY THE ASSESSEE. THEREFORE, ACCORDING TO THE LD. D.R., TH E ACCUMULATED PROFIT OF M/S AACHI MASALA FOODS PRIVATE LIMITED WA S PAID TO THE ASSESSEE BY GIVING CREDIT IN THE BOOKS IN THE NAME OF NAZARETH ENTERPRISES AS IF IT WAS PAID TO PANDIAN ENTERPRISE S. ACCORDING TO THE LD. D.R., SINCE THE ASSESSEE WAS HOLDING SUBSTA NTIAL INTEREST IN THE COMPANY, THE AMOUNT PAID BY THE ASSESSEE TO THE EXTENT OF ` 1,76,39,625/- IS TREATED AS DEEMED DIVIDEND. 4. ON THE CONTRARY, SHRI M. NARAYANAN, THE LD. REPR ESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF 3 I.T.A. NO.1266/MDS/13 MANUFACTURING FOOD MASALA. IN THE COURSE OF BUSINE SS ACTIVITY, THE ASSESSEE PURCHASED SPICES FROM NAZARETH FOODS PVT. LTD. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE M ADE PAYMENT TO NAZARETH FOOD PVT. LTD. HOWEVER, ON THE INSTRUCTIO N OF NAZARETH FOOD PVT. LTD., AN AMOUNT OF ` 10,81,20,000/- WAS TRANSFERRED TO THE ACCOUNT OF PANDIAN ENTERPRISES. THIS TRANSFER OF A MOUNT IS ONLY TOWARDS PURCHASE OF SPICES FROM NAZARETH FOODS PVT. LTD. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE H AS NO BANK TRANSACTION WITH M/S PANDIAN ENTERPRISES. THEREFOR E, ACCORDING TO THE LD. REPRESENTATIVE, IT IS NOT A CASE OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE C AREFULLY GONE THROUGH THE PROVISIONS OF SECTION 2(22)(E) OF THE A CT, WHICH READS AS FOLLOWS:- 2 (22) (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF A NY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF TH E COMPANY OR OTHERWISE) [MADE AFTER THE 31ST DAY OF M AY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, B EING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CO NCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER I N THIS CLAUSE REFERRED TO AS THE SAID CONCERN)] OR ANY PAY MENT 4 I.T.A. NO.1266/MDS/13 BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUA L BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS ; BUT DIVIDEND DOES NOT INCLUDE (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLAU SE (C) OR SUBCLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSIDERATION, WHERE THE HOLDER OF THE SHARE I S NOT ENTITLED IN THE EVENT OF LIQUIDATION TO PARTICIPATE IN THE SURPLUS ASSETS ; [(IA) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CL AUSE (C) OR SUBCLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIBUTABLE TO THE CAPITALISED PROFITS OF THE COMP ANY REPRESENTING BONUS SHARES ALLOTTED TO ITS EQUITY SHAREHOLDERS AFTER THE 31ST DAY OF MARCH, 1964, [AN D BEFORE THE 1ST DAY OF APRIL, 1965] ;] (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER [OR THE SAID CONCERN] BY A COMPANY IN THE ORDINARY COURSE O F ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTI AL PART OF THE BUSINESS OF THE COMPANY ; (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET O FF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SU M PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WIT HIN THE MEANING OF SUB-CLAUSE (E), TO THE EXTENT TO WHICH I T IS SO SET OFF; [(IV) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH TH E PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 195 6 (1 OF 1956); (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERG ER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERGED COMPANY (WHETHER OR NOT THERE IS A REDUCTI ON OF CAPITAL IN THE DEMERGED COMPANY).] EXPLANATION 1.THE EXPRESSION ACCUMULATED PROFITS , WHEREVER IT OCCURS IN THIS CLAUSE, SHALL NOT INCLUD E CAPITAL GAINS ARISING BEFORE THE 1ST DAY OF APRIL, 1946, OR AFTER THE 31ST DAY OF MARCH, 1948, AND BEFORE THE 1ST DAY OF APRIL, 1956. EXPLANATION 2.THE EXPRESSION ACCUMULATED PROFITS IN SUB-CLAUSES (A), (B), (D) AND (E), SHALL INCLUDE AL L PROFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTION OR PAYME NT REFERRED TO IN THOSE SUB-CLAUSES, AND IN SUB-CLAUSE (C) 5 I.T.A. NO.1266/MDS/13 SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF LIQUIDATION, [BUT SHALL NOT, WHERE THE LIQUIDATION IS CONSEQUENT ON THE COMPULSORY ACQUISITION OF ITS UNDERTAKING BY THE GOVERNMENT OR A CORPORATION OWNE D OR CONTROLLED BY THE GOVERNMENT UNDER ANY LAW FOR T HE TIME BEING IN FORCE, INCLUDE ANY PROFITS OF THE COM PANY PRIOR TO THREE SUCCESSIVE PREVIOUS YEARS IMMEDIATEL Y PRECEDING THE PREVIOUS YEAR IN WHICH SUCH ACQUISITI ON TOOK PLACE]. [EXPLANATION 3.FOR THE PURPOSES OF THIS CLAUSE, (A) CONCERN MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUA LS OR A COMPANY ; (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIME DURING THE PREVIOUS YEAR, BENEFICIALLY ENT ITLED TO NOT LESS THAN TWENTY PER CENT OF THE INCOME OF SUCH CONCERN ;] FROM THE ABOVE IT IS OBVIOUS THAT FOR THE PURPOSE O F TREATING AN AMOUNT AS DEEMED DIVIDEND, THE FOLLOWING CONDITIONS SHOULD BE FULFILLED:- (I) THE ASSESSEE SHOULD HAVE A SUBSTANTIAL INTEREST ON THE COMPANY, NOT LESS THAN 10% VOTING POWER. (II) THERE SHOULD BE PAYMENT BY COMPANY BY MEANS OF ADVANCE OR LOAN. IN THIS CASE, ADMITTEDLY, THE ASSESSEE IS HAVING SU BSTANTIAL INTEREST, HAVING MORE THAN 10% VOTING POWER. IT IS NOBODYS CASE THAT THE ASSESSEE HAS BORROWED LOAN OR ADVANCE. THE CASE OF THE REVENUE IS THAT THE ASSESSEE HAS INFLATED THE PURCHASE MADE FROM NAZARETH FOODS PVT. LTD. AND THE AMOUNT WAS PAID TO PANDIAN ENTERPRISES BY CREDITING THE AMOUNT IN THE ACCOUNT OF NAZARETH FOO DS PVT. LTD. 6 I.T.A. NO.1266/MDS/13 THE QUESTION ARISES FOR CONSIDERATION IS MERELY BEC AUSE THE PURCHASE WAS INFLATED AND PAID TO THE OTHER COMPANY , SUCH PAYMENT CAN BE TREATED AS LOAN OR ADVANCE? THIS TR IBUNAL IS OF THE CONSIDERED OPINION THAT THE PAYMENT OF MONEY BY INF LATING THE PURCHASE CANNOT BE CONSTRUED AS LOAN OR ADVANCE. I N THE CASE OF LOAN OR ADVANCE, THE RECIPIENT HAS THE OBLIGATION T O REPAY THE AMOUNT. IN THE CASE OF INFLATING THE PURCHASE AMOU NT, AT THE BEST, WE CAN SAY THAT THE RECIPIENT HAS TO APPROPRIATE TH E AMOUNT. THEREFORE, IT CANNOT BE CONSTRUED AS LOAN OR ADVANC E WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. ONCE IT CA NNOT BE CONSTRUED AS LOAN OR ADVANCE, THE PROVISIONS OF SEC TION 2(22)(E) ARE NOT APPLICABLE. IF THERE IS ANY EVIDENCE TO SHOW T HAT M/S AACHI MASALA FOODS PVT. LTD. HAS INFLATED THE PURCHASE, I T IS FOR THE ASSESSING OFFICER TO EXAMINE AND DISALLOW THE EXPEN DITURE CLAIMED BY M/S AACHI MASALA FOODS PVT. LTD. TOWARDS PURCHAS E OF SPICES. AT ANY STRETCH OF IMAGINATION, SUCH INFLATED PURCHA SE CANNOT BE TREATED AS LOAN OR ADVANCE. THEREFORE, THIS TRIBUN AL IS OF THE CONSIDERED OPINION THAT HERE IS NO INFIRMITY IN THE ORDER OF THE CIT(APPEALS) AND THE SAME IS CONFIRMED. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO ADDI TION OF ` 1,21,20,000/- UNDER SECTION 69 OF THE ACT. 7 I.T.A. NO.1266/MDS/13 7. SH. PATHLAVATH PEERYA, THE LD. D.R. SUBMITTED TH AT ON 17.09.2009, WHILE RECORDING THE STATEMENT OF THE AS SESSEE, HE CLAIMED THAT AN UNACCOUNTED AMOUNT OF ` 46,20,000/- WAS INVESTED IN A PROPERTY AT ATHIPATTU VILLAGE, AMBATTUR AND AN OTHER SUM OF ` 75,00,000/- WAS INVESTED IN A PROPERTY AT ANNA NAGA R, CHENNAI. THE ASSESSEE THOUGH OFFERED EXPLANATION, HE COULD N OT OFFER ANY EXPLANATION WITH REGARD TO INVESTMENT OF ` 1,21,20,000/-. THEREFORE, THE ASSESSING OFFICER MADE AN ADDITION UNDER SECTIO N 69 OF THE ACT. HOWEVER, THE CIT(APPEALS) FOUND THAT THE INVESTMENT S IN THE IMMOVABLE PROPERTY WERE MADE OUT OF THE BORROWINGS, WITHOUT DISCUSSING ANYTHING FURTHER. ACCORDING TO THE LD. D.R., IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE INVESTMENT WAS MADE FROM THE BORROWED FUNDS, CIT(APPEALS) IS NOT JUSTIFIED I N ALLOWING THE CLAIM. 8. ON THE CONTRARY, SHRI M. NARAYANAN, THE LD. REPR ESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFI CER COMPLETED THE ASSESSMENT HURRIEDLY. THE CIT(APPEALS), AFTER VIEWING THE STATEMENT FILED BY THE ASSESSEE, FOUND THAT THE ENT IRE INVESTMENTS WERE MADE FROM THE BORROWED FUNDS. THEREFORE, HE D ELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 8 I.T.A. NO.1266/MDS/13 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSES SING OFFICER CAME TO A CONCLUSION THAT THE ASSESSEE ADMITTED ON 17.09.2009 THAT HE MADE UNACCOUNTED SUM OF ` 46,20,000/- FOR PURCHASE OF A PROPERTY AT ATHIPATTU VILLAGE, AMBATTUR. A COPY OF THE SWORN STATEMENT RECORDED FROM THE ASSESSEE IS AVAILABLE A T PAGE 1 OF THE PAPER-BOOK. THIS SWORN STATEMENT DOES NOT SHOW ANY ADMISSION MADE BY THE ASSESSEE FOR INVESTMENT OF UNACCOUNTED AMOUNT OF ` 46,20,000/-. IT IS NOT KNOWN WHETHER ANY OTHER STA TEMENT WAS RECORDED FROM THE ASSESSEE. THE REVENUE COULD NOT FILE ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS ADMITTED THE UNACCOUNTED SUM OF ` 46,20,000/- FOR PURCHASE OF ATHIPATTU VILLAGE, AMBA TTUR. THE CIT(APPEALS) FOUND THAT THE INVESTMENTS IN IMMO VABLE PROPERTY WERE MADE OUT OF THE BORROWED FUNDS. HOWEVER, THE DETAILS OF BORROWED FUNDS WERE NOT AVAILABLE ON RECORD. IN TH OSE CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSIDERED O PINION THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFF ICER. THE ASSESSING OFFICER SHALL FIND OUT THE DETAILS OF THE BORROWED FUNDS AND ITS NEXUS FOR MAKING INVESTMENTS IN IMMOVABLE P ROPERTY. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LOWER A UTHORITIES AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER TO RECONSIDER THE SAME. THE ASSESSING OFFICER SHALL R ECONSIDER THE 9 I.T.A. NO.1266/MDS/13 ISSUE AFRESH AND THEREAFTER DECIDE THE SAME IN ACCO RDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE . 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 29 TH MAY, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) (. !' ) ( . . . ) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 29 TH MAY, 2015. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-I, CHENNAI 4. 0 81 /CIT, CENTRAL-II, CHENNAI 5. 69 ,1 /DR 6. :' ; /GF.