ACIT, CHENNAI V. Smt. Mary Chellathai, CHENNAI

ITA 1279/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64184 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-08-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 07-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Deemed dividend; Commercial expediency
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A B ENCH C HENN AI BEFORE SHRI N.S.SAINI ACCOUNTANT MEMBER AND SHRI S.S.GODARA , JUDICIAL MEMBER .. ITA NO. 1279 /MDS./ 20 11 ASSESSMENT YEAR: 200 2 - 03 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(2 ), AAYAKAR BHAVAN, MAIN BUILDING, IV FLOOR, 121, M.G.ROAD, NUNGAMBAKKAM, CHENNAI 600034. VS. SMT. MARY CHELLATHAI, NO.1, 9 TH STREET, DR.RADHAKRISHNA SALAI, MYLAPORE, CHENNAI 600 004. PA N AITPM 3194 Q (APPELLANT) (RESPONDENT) ITA NO. 1280 /MDS./20 11 ASSESSMENT YEAR:200 2 - 03 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(2), AAYAKAR BHAVAN, MAIN BUILDING, IV FLOOR, 121, M.G.ROAD, NUNGAMBAKKAM, CHENNAI 600034. VS. SH RI M. NESAMANI MARAN, NO.1, 9 TH STREET, DR.RADHAKRISHNA SALAI, MYLAPORE, CHENNAI 600 004. PAN AAJPM 4798 C (APPELLANT) (RESPONDENT) ITA . 1279 TO 1281 /MDS/ 11 2 ITA NO. 1281 /MDS./20 11 ASSESSMENT YEAR:200 2 - 03 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(2), AAYAKAR BHAVAN, MAIN BUILDING, IV FLOOR, 121, M.G.ROAD, NUNGAMBAKKAM, CHENNAI 600034. VS. SHRI M.G.MUTHU, NO.1, 9 TH STREET, DR.RADHAKRISHNA SALAI, MYLAPORE, CHENNAI 600 004. PAN AEDPG 2508 N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P JACOB, ADDL. CIT D.R RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 02 .0 8 . 12 DATE OF PRONOUNCEMENT : 24 .0 8 .12 O R D E R PER BENCH : THESE THREE REVENUE S APPEAL HAVE BEEN PREFERRED AGAINST COMMON ORDER OF CIT(A) DATED 08/04/2011 IN CASE NO S .ITA NO.224,225 & 226/09 - 10 PERTAINING TO ASSESSMENT YEAR 2002 - 03. THE REL EVANT PROCEEDINGS UNDER SECTION 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ). SINCE GROUNDS RAISED IN ALL APPEALS ARE IDENTICAL, WE TAKE UP ITA NO.1279/MDS./11 AS LEAD CASE . ITA . 1279 TO 1281 /MDS/ 11 3 2. THE DEPARTMENTAL REPRESE NTATIVE IN ALL APPEALS , WHILE ASSAILING THE FINDINGS OF CIT(A) HAS SUBMITTED THAT HE HAS WRONGLY DELETED DEEMED DIVIDEND S ADDITION MADE BY ASSESSING OFFICER. THE AUTHORISED REPRESENTATIVE OF ASSESSEE, ON THE OTHER HAND, HAS DRAWN SUPPORT FROM THE CIT( A) S ORDER. SINCE BOTH PARTIES ARE AT VARIANCE IN THEIR RESPECTIVE SUBMISSION S, WE FRAME THE FOLLOWING ISSUE FOR OUR ADJUDICATIONS: - WHETHER THE CIT(A) HAS ERRED IN DELETING ADDITION OF DEEMED DIVIDEND MADE B Y ASSESSING OFFICER ? 3. BRIEF FACTS RELEVAN T TO THE ISSUE ARE THAT THE ASSESSEE (INDIVIDUAL) HAD FILED RETURN OF CURRENT ASSESSME NT YEAR; ADMITTING INCOME OF ` 11,88,910/ - ON 03.02.03. THE A.O. FINALIZED ASSESSMENT UNDER SECTION 143(1) AND ISSUED NOTICE TO THE ASSESSEE UNDER S ECTION 148 OF THE ACT ON THE BASIS OF FOLLOWING REASONS: - A SUM OF RS.3.49 CRORE WAS ADVANCED AS INTEREST FREE LOAN DURING THE PREVIOUS YEAR 2001 - 02 RELEVANT TO THE ASSESSMENT YEAR 2002 - 03 BY M/S.MGM DIAMOND BEACH RESORTS P. LTD.(COMPANY) TO M/S.ANAND TRANSPORTS (FIRM). TH E ASSESSEE IS A DIRECTOR FIN THE ABOVE COMPANY AND A PARTNER IN THE ABOVE FIRM WHEREIN SHE HAS SUBSTANTIAL INTERESTS. THE ACCUMULATED PROFITS OF THE COMPANY AS ON ITA . 1279 TO 1281 /MDS/ 11 4 31.3.2002 HAS BEEN DECLARED AT 3.85 CRORE. IN A SCENARIO THE PROVISIONS OF SEC.2(22)(E) WOU LD APPLY IN THE CASE OF THE ASSESSEE SINCE THE BENEFICIAL OWNER OF SHARES OF THE COMPANY . HOWEVER, NO DEEMED DIVIDEND HAS BEEN ADMITTED BY THE ASSESSEE IN HIS INDIVIDUAL RETURNS. HENCE, THE PAYMENT MADE BY THE COMPANY IS FOR THE INDIVIDUAL BENEFIT OF THE ASSESSEE WHO IS THE BENEFICIAL OWNER OF SHARES OF THE COMPANY AND THE INCOME CHARGEABLE TO TAX UNDER SECTION.2(22)(E) HAS ESCAPED ASSESSMENT FOR THE INSTANT ASSESSMENT YEAR . 5. THE ASSESSEE IS A DIRECTOR OF A COMPANY, NAMELY M/S.MGM DIAMOND BEACH RESOR TS P. LTD. (HEREINAFTER COMPANY ) WITH 33.33% OF SHAREHOLDING. SIMILARLY, SHE IS ALSO A PARTNER IN A FIRM NAME LY M/S.ANAND TRANSPORTS (IN SHORT THE FIRM ) TO THE EXTENT OF 20% S HARES. THE A.O. EX - FACIE OBSERVED THAT IN THE COMPANY S ASSESSMENT PROCEED INGS, IT HAD BEEN FOUND T HAT AN INTEREST FREE LOAN OF ` 3,49,77,724/ - HAD BEEN ADVANCED TO THE FIRM WHICH WAS IN FACT DEEMED DIVIDEND UNDER SECTION 2(22) OF THE ACT. T HEREFORE, IT WAS LIABLE TO BE TAXED. ACCORDINGLY, INSTEAD OF TAXING THE DEEMED DIV IDEND IN THE HAND OF FIRM, THE ASSESSING OFFICER CHOSE TO ASSESS THE SAID AMOUNT IN THE HANDS OF ASSESSEE . HENCE, ASSESSEE S ASSESSMENT WAS REOPENED. ITA . 1279 TO 1281 /MDS/ 11 5 6. TH E ASSESSEE IN RESPONSE THERETO CONTENDED THE VERY REOPENING BEFORE ASSESSING OFFICER. ON MERITS , THE ASSESS EE S MAIN CONTENTION WAS APPLICABILITY OF SEC.36(1)(III), COMMERCIAL EXPEDIENCY INTERPRETATION OF DEEMED DIVIDEND UNDER SECTION 2(22) OF THE ACT ; WHICH WAS REPELLED BY ASSESSING OFFICER IN RE - ASSESSMENT ORDER DA TED 30.11.2009 AND AMOUNT OF ` 1,16,59,241/ - ( 1/3 RD OF ` 3,49,77,724/ - ) WAS TREATED AS DEEMED DIVIDEND ON PROTECTIVE BASIS AND ADDED IN ASSESSEE S INCOME. 7. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL WHEREIN THE ADDI TION MADE BY ASSESSING OFFICER A S DEEMED DIVIDEN D STANDS DELET ED BY CIT(A) BY CONSIDERING ORDER DATED 16.08.10 (PASSED IN CASE OF FIRM CHALLENGING D EEMED DIVIDEND AMOUNT OF ` 3,49,77,724) . THE CIT(A) HAS ALSO TAKEN COGNIZANCE OF VARIOUS CASE LAWS, AND HELD THAT THE REVENUE HAD FAILED TO ESTABLISH THE BENEFITS ACC RUED AND ACHIEVED BY THE ASSESSEE. FURTHER, IT HAS BEEN OBSERVED THAT ALL CONDITIONS OF DEEMED DIVIDEND UNDER SECTION 2(22) OF THE ACT DO NOT STAND SATISFIED. THE RELEVANT FINDINGS OF CIT(A) READ AS FOLLOWS: - I HAVE GONE THROUGH THE FACTS OF THE CASE AND INCLUDING THE ARGUMENTS ADVANCED IN THE PRESENT PROCEEDINGS ARISING OUT OF ITA . 1279 TO 1281 /MDS/ 11 6 THE PROTECTIVE ASSESSMENT ORDERS FRAMED CONSEQUENT TO THE SUBSTANTIVE ASSESSMENT FRAMED IN THE HANDS OF M/S.ANAND TRANSPORT, PARTNERSHIP FIRM. AS RIGHTLY POINTED OUT THE PROVIS IONS OF SEC.2(22)(E) OF THE ACT ARE CONSIDERED IN BOTH THE SUBSTANTIVE ASSESSMENT AS WELL AS IN THE PROTECTIVE ASSESSMENTS. THE SUBSTANTIVE ASSESSMENT HAS REACHED A PARTICULAR STAGE AND THE FIRST APPELLATE AUTHORITY VIDE HIS ORDER DATED 16.08.2010 IN ITA NO.193/09 - 10 HAS DELETED THE ADDITION OF DEEMED DIVIDEND FOR THE REASONS STATED THEREIN. THE SAID DELETION OF THE ADDITION HAS A CASCADING EFFECT ON THE PRESENT PROTECTIVE ASSESSMENTS AND THE PROPORTIONATE AND THE AMOUNTS RELATABLE ARE BROUGHT TO TAX IN THE RESPECTIVE HANDS/APPELLANT S HANDS. IN THE ABOVE MENTIONED APPELLATE ORDER AT PARA 7.26 THE MONIES PAID BY THE THREE APPELLANTS WHO ARE THE PARTNERS IN M/S.ANAND TRANSPORT AND DIRECTORS IN M/S.MGM DIAMOND BEACH RESORTS P. LTD. TO THE COMPANY WERE NOTI CED AND THE SAME WAS REPAID BY THE SAID COMPANY TO THE PARTNERSHIP FIRM AT THE INSTANCE OF AND ON THE ACCOUNT OF THE THREE APPELLANTS/PARTNERS HEREIN. ITA . 1279 TO 1281 /MDS/ 11 7 THEREFORE, THE REPAYMENT OF THE MONIES GIVEN EARLIER WOULD NOT ATTRACT THE DEEMING PROVISIONS UNDER CONS IDERATION. AS PER THE PROVISIONS IN SEC.2(22)(E) OF THE ACT ANY PAYMENT BY A COMPANY EITHER DIRECTLY OR INDIRECTLY TO THE REGISTERED SHARE HOLDER FOR THE INDIVIDUAL BENEFIT SHOULD BE CONSTRUED AS DEEMED DIVIDEND. HOWEVER, ON THE FACTS OF THE CASE THE RETU RN OF SHARE HOLDERS MONEY SHOULD NOT BE CONSTRUED AS DEEMED DIVIDEND. IN FACT, IN ORDER TO CHECK THE AUTHENTICITY OF THE SAID SUBMISSION I WANTED TO VERIFY THE RECORDS OF THE APPELLANTS AS WELL AS THE COMPANY AND THE PARTNERSHIP FIRM. HOWEVER, THE APPELLA NT REPRESENTATIVE POINTED OUT BY INVITING MY ATTENTION TO THE FOLLOWING PASSAGE IN THE ASSESSMENT ORDER SUBSTANTIVELY FRAMED ON 29.12.2009; AS PER THE BALANCE SHEET OF MGM DIAMOND BEACH RESORTS PVT. LTD., THE AMOUNTS DUE TO THE THREE DIRECTORS (WHO ARE A LSO PARTNERS IN THE FIRM) ARE AS UNDER: 31.3.2002 31.3.2001 MR.M.G.MUTHU 1,96,80,329 2,15,47,934 MR.M.NESAMANI MARAN 2,13,80,329 2,15,47,934 MRS.MARY CHELLATHAI 12,500 12,500 ITA . 1279 TO 1281 /MDS/ 11 8 IN THE LIGHT OF THE UNDISPUTED FACT BROUGHT TO MY NOTICE THE RETURN OF THE MONIES DUE TO THE THREE DIRECTORS /APPELLANTS IS ERRONEOUS CONSIDERED AS DEEMED DIVIDEND AND BASED ON THE LANGUAGE OF THE SAID DEEMING PROVISION WITH REFERENCE TO THE FACTS OF THE CASE PROJECTED BEFORE ME, I HEREBY DELETE THE ADDITION OF RS.1,16,59,241/ - EA CH MADE ON THE APPLICATION OF SEC.2(22)(E) OF THE ACT, IN THE RESPECTIVE IMPUGNED ORDERS ON THE ACCEPTANCE OF RELATED GROUNDS OF APPEAL. THEREFORE, THE REVENUE IS AGGRIEVED. 8. THE D.R. BEFORE US HAS REITERATED VARIOUS PLEAS RAISED IN GROUNDS OF APPEA L. HE ALSO REFERRED T O PAP E R BOOKS PLACED IN RAISING A CONTENTION THAT PER COPY OF BALANCE SHEET OF COMPANY AND ASSESSEE S LETTERS BEFORE ASSESSING OFFICER, THERE WAS NO UNIFORMITY IN EXPLANATIONS TENDERED REGARDING THE AMOUNT SHOWN AS LOAN . THERE WAS NO COMME RCIAL EXPEDIENCY INVOLVED QUA TRANSACTION IN QUESTION. TO SUPPORT HIS SUBMISSIONS, THE D.R ALSO DREW SUPPORT FROM CASE LAW REPORTED AS 5 ITR (TRIB) 233 AJAY JADEJA S CASE . ITA . 1279 TO 1281 /MDS/ 11 9 9. REPLYING, THE A.R S ARGUMENTS BEFORE US HAS STATED AS THAT IN THE FIRM S S CASE WHEREIN THE REVENUE HAD CHALLENGED THE CIT(A) S ORDER DATED 16.08.10(SUPRA), THE CO - ORDINATE BENCH ( ONE OF US N.S.SAINI , AM, WAS MEMBER OF THE BENCH) IN ITA NO.1 954/MDS./10 DECIDED ON 07.09.11 HAD HELD THAT THE SAME AMOUNT ADVANCED BY THE COMPA NY TO FIRM WAS IN FACT A RESULT OF COMMERCIAL EXPE DIENCY. THE NEXT ARGUMENT OF A.R. IS THAT DEEMED DIVIDEND UNDER SEC.2(22)(E) OF THE ACT HAVE TO BE ASSESSED ONLY IN THE HANDS OF RECIPIENT FIRM AND NOT IN THE HANDS OF ASSESSEE. IN SUPPORT OF THIS PLEA, RELIANCE HAS BEEN PLACED ON DECISION OF CO - ORDINATE BENCH DATED 06.0 8.10 (ITA NO.443/MDS./10 TITLED AS HARBINDR SINGH VS ITO) 10. IN REBUTTAL, THE DR HAS VEHEMENTLY ARGUED THAT IT IS FIRM S CASE, IN VIEW OF CA SE LAW 118 ITAT (SB) OF ITAT, IT HAD BEE N HELD THAT IT WAS NOT THE RECIPIENT FIRM BUT THE CONCERNED SHAREHOLDER IN WHOSE HANDS THE MONIES RECEIVED , HAD TO BE TAXED. ACCORDINGLY, HE PRAYED FOR ACCEPTANCE OF APPEAL. 11. WE HAVE CONS IDERED ELOQUENT SUBMISSIONS OF BOTH LE ARNED REPRESENTATIVES AN D WITH THEIR ABLE ASSISTANCE, RELEVANT FINDINGS AND CASE LAW QUOTED HAVE ALSO BEEN GONE INTO . IT IS EVIDENT THAT ITA . 1279 TO 1281 /MDS/ 11 10 NOW THE SCOPE OF ISSUE STANDS CRYSTALLIZED FURTHER I.E. WE HAVE TO EXAMIN E THE EXACT AMOUNT OF LOAN/ADVANCE PROVIDED BY THE COMPANY TO THE FIR M(SUPRA). I F THE SAME IS TREATED AS AN EVENT OF COMMERCIAL EXPEDIENCY, THE TRANSACTION CAN NOT BE TREATED AS DEEMED DIVIDEND . IN THIS REGARD, IT TRANSPIRES THAT IN REVENUE S AP PEAL ITA NO.1954/MDS./10, THE CO - ORDINATE BENCH(SUPRA) WHILST EXAMINING NAT URE OF SAME AMOUNT OF RS.3,49,77,724/ - HAD COME TO A CONCLUSION THAT IT WAS ONLY FOR COMMERCIAL AND BUSINESS EXPEDIENCY , WHICH COULD NOT BE TAXED IN THE HANDS OF RECIPIENT AS UNDER: - 5. WE HAVE COGITATED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE OBTAINING F ACTS AND EVIDENCE OF THIS CASE AVAILABLE BEFORE US AND HAVE FOUND THAT THIS ADVANCE OF THE IMPUGNED AMOUNT TO THE COMPANY WAS OUT OF WITHDRAWALS OF FUNDS FROM THE ACCUMULATED PROFITS OF THE ASSESSEE - FIRM. THESE WITHDRAWALS WERE MADE IN THE CAPACITY OF THE PARTNERS OF THE ASSESSEE - FIRM AND THE ADVANCE AMOUNTS TO THE COMPANY DID NOT CARRY INTEREST WHICH IS VERIFIABLE FROM THE RECORDS. SUBSEQUENTLY, THE ASSESSEE - FIRM WAS IN NEED OF FUNDS, THE COMPANY, M.G.M.DIAMOND BEACH RESORTS PVT. LTD. MADE AVAILABLE THE INTEREST FREE ADVANCE LYING WITH THEM. THESE AMOUNTS WERE ADVANCED ON VARIOUS DATES BY THEM TO M.G.M.DIAMOND BEACH RESORTS PVT. LTD. AND THE BALANCE OUTSTANDING AS ON 31.3.2002 PAYABLE TO THEM WAS TO THE TUNE OF ` 1.11 CRORES. THE ABOVE LOANS WERE ADVANC ED IN THE INITIAL STATE OF ESTABLISHMENT OF THE COMPANY IN WHICH THE PARTNERS OF THE ASSESSEE - FIRM WERE THE ITA . 1279 TO 1281 /MDS/ 11 11 PROMOTERS/DIRECTORS AND SHAREHOLDERS. THE MONIES WERE TAKEN FROM THE COMPANY ONLY FOR THE PURPOSE OF COMMERCIAL AND BUSINESS EXPEDIENCY. THUS, IN OUR CONSIDERED OPINION, THE PRIMARY CONDITION OF THE TRANSACTION BEING IN THE NATURE OF LOAN OR ADVANCE IS MISSING IN THE GIVEN FACTS OF THE CASE WHICH REPELS THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. ANY TRANSACTION WHICH A COMMERCIAL ONE AND IS ON ACCOUNT OF BUSINESS EXPEDIENCY HAS TO BE OUTSIDE THE PURVIEW OF THE DEEMING PROVISIONS AS HAS BEEN HELD BY NUMEROUS COURTS. IN OUR OPINION, THE FINDING OF THE ASSESSING OFFICER GIVEN AT PAGE 4 IN PARA 3 THAT THE TRANSACTION OF FUNDING BY PARTNERS OF TH E FIRM TO PROMOTE THE COMPANY UNDER CONSIDERATION AS WELL AS THE TRANSFER OF FUNDS FROM THE COMPANY TO THE ASSESSEE WERE ONLY TO CIRCUMVENT THE DEEMING PROVISIONS OF THIS SECTION, IS NOT FOUND TO BE A CORRECT FINDING. M/S M.G.M.DIAMOND BEACH RESORTS PVT. LTD. IS A COMPANY INCORPORATED AS A PRIVATE LIMITED COMPANY ON 19.8.1994 WITH THE OBJECT OF RUNNING A THEME PARK IN CHENNAI. THE MAIN PROMOTERS AS DISCUSSED ABOVE, WERE ALSO THE PARTNERS OF THIS FIRM. SINCE THE DEVELOPMENT OF A THEME PARK INVOLVED HUGE I NVESTMENTS, TO MAKE THE AIMS AND OBJECTS OF THE COMPANY FULFILLED, THE MAIN PROMOTERS NAMELY, SHRI M.G.MUTHU, THE CHAIRMAN AND MANAGING DIRECTOR AND SHRI. NESAMANI MARAN, DIRECTOR HAD LENT HUGE AMOUNT OF MONEY TO M.G.M.DIAMOND BEACH RESORTS PVT. LTD.. THE TOTAL AMOUNT ADVANCED BY THEM AS ON 31.3.1999 WAS OF ` 2,38,00,000/ - AND ` 2,10,00,000/ - RESPECTIVELY. THE DIRECTORS HAD NOT CHARGED ANY INTEREST ON THE THESE AMOUNTS AND BALANCE TO THEIR CREDIT AS ON 31.3.2002 WAS TOTALLED TO A SUM OF ` 4,10,32,049/ - . IN THE ASSESSEE - FIRM, THE ABOVE PROMOTERS/MANAGING DIRECTOR ARE PARTNERS. IN THE YEAR 2002, THE ITA . 1279 TO 1281 /MDS/ 11 12 ASSESSEE - FIRM WAS IN DIRE NEED OF FUNDS TO CARRY ON ITS BUSINESS DEVELOPMENT AND A REQUEST WAS MADE TO ITS PARTNERS FOR INVESTMENT OF FUNDS. THE PARTNERS, IN TURN, HAD REQUESTED M.G.M.DIAMOND BEACH RESORTS PVT. LTD. IN WHICH THEY HAD HUGE BALANCE TO LEND MONEY TO THE FIRM OUT OF THEIR BALANCE WITH M.G.M.DIAMOND BEACH RESORTS PVT. LTD. THE TOTAL AMOUNT SO GIVEN BY M.G.M.DIAMOND BEACH RESORTS PV T. LTD. TO THE ASSESSEE - FIRM ON THE INSTRUCTIONS OF ITS DIRECTORS OUT OF THEIR FUNDS AVAILABLE WITH THE COMPANY AS ON 31.3.2002 STOOD AT ` 3,49,77,724/ - RELATE TO THE REPAYMENT OF LOAN WHICH WAS GIVEN TO THE COMPANY BY THE PARTNERS STATED ABOVE AND SUBSEQU ENTLY, UNDER THE INSTRUCTIONS FROM THEM, THE COMPANY WAS DIRECTED TO REPAY THE LOAN TO M/S ANAND TRANSPORT, I.E THE ASSESSEE BEFORE US. BEFORE US, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT . THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WILL NOT AT TRACT WHEN THE SUBJECT MATTER IS ONLY OF REPAYMENT OF LOAN AND NOT EITHER ADVANCE OR LOAN AS ENVISAGED IN THIS SECTION. THE BASIC CHARACTERISTICS OF DIVIDEND HAS ALREADY BEEN HELD BY THE HON'BLE APEX COURT IN THE CASE OF KANTILAL MANILAL & OTHERS VS CIT, 41 ITR 275, AS A SHARE OF PROFITS OF THE COMPANY GIVEN TO ITS SHAREHOLDER. SECTION 206 OF THE COMPANIES ACT PROHIBITS PAYMENT OF DIVIDEND TO ANY PERSON OTHER THAN THE REGISTERED SHAREHOLDER. SECTION 2(22)(E) OF THE ACT HAS TO BE GIVEN STRICT INTERPRETAT ION AS LAID DOWN BY THE HON'BLE APEX COURT IN THE CASE OF CIT VS C.P.SARATHY MUDALIAR, 83 ITR 170. THE APPLICATION OF THIS DEEMING PROVISION IS NOT ENVISAGED TO BUSINESS TRANSACTIONS. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE REPORTED IN 220 CTR 639 HAS CLEARLY STATED SO. THE FOLLOWING DECISIONS ALSO HELP OUR ABOVE OPINION: ITA . 1279 TO 1281 /MDS/ 11 13 (I) VEENADEVI SINGHANIA VS CIT 220 CTR 185 (II) MADURA COATS PVT. LTD 274 ITR 609(MDS) (III) CIT VS SAVITHRI SAM 236 ITR 1003(MDS) (IV) FENNER INDIA LTD 241 ITR 672( MDS) (V) CIT AND ANOTHER VS FORAMER FRANCE 264 ITR 566(SC) (VI) CIT VS KELVINATOR OF INDIA LTD 256 ITR 1(DEL) 6. WE ARE NOT IN AGREEMENT WITH THE ASSESSING OFFICER THAT THERE WERE NO ACCUMULATED PROFITS BECAUSE THE RESERVES OF THE MERGED COMPANY HAVE TO BE TREATED AS ACCUMULATED PROFITS BY AGGREGATING THE RESERVES OF BOTH THE COMPANIES I.E AMALGAMATING AND AMALGAMATED COMPANIES. THEREFORE, IN THE LIGHT OF THE BINDING JUDICIAL PRONOUNCEMENTS CITED ABOVE, THE REVENUE HAS TO ESTABLISH THAT THE BENEFIT HAD ACC RUED TO THE SHAREHOLDER IN THE COURSE OF TRANSACTION ENTERED INTO WITH THE COMPANY BEING LOAN OR ADVANCE COUPLED WITH SATISFYING THE OTHER CONDITIONS. THUS, THE AMOUNT GIVEN BY THE COMPANY TO THE ASSESSEE - FIRM IS ACTUALLY REPAYMENT OF LOAN AND NOT EITHER AS A DEEMED ADVANCE OR LOAN ENVISAGED IN SECTION 2(22)(E) OF THE ACT. HENCE, THIS ADDITION CANNOT BE SUSTAINED AND THEREFORE, HAS BEEN CORRECTLY DELETED BY THE LD. CIT(A). IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 12. IN THE LIGHT THEREOF, IT IS CRYSTAL CLEAR THAT THIS VERY LENDING TRANSACTION HAS A LREADY BEEN TREATED TO BE THAT OF BUSINESS AND COMMERCIAL EXPEDIENCY AND FURTHER, IT HAS BEEN HELD THAT DEEMED DIVIDEND CONCEPT CAN NOT BE APPLIED IN THIS CASE. IT IS SETTLED LAW THA T FINDING ON SAME ISSUE BY A COMPETENT FORUM ITA . 1279 TO 1281 /MDS/ 11 14 WHICH ATTAINS FINALITY OPERATES AS RES JUDICATA . FURTHER, PRINCIPLE OF CONSTRUCTIVE RES JUDICATA IS ALSO APPLICABLE IN THE INSTANT CASE. TO SIMPLIFY THE SAME, THE SPIRIT OF THIS PRINCIPLE OF LAW IS THAT THE FINDING OF THE COURT WHICH HAS DECIDED THE ISSUE EARLIER OPERATES AS RES JUDICATA EVEN IF IN THE EARLIER PROCEEDINGS, ANY GROUND OF ATTACK OR DEFENCE WHICH OUGHT O R MIGHT HAVE TAKEN HAD NOT BEEN TAKEN ; IT IS PRESUMED THAT THE SAME WAS TAKEN AND REJEC TED BY THE EARLIER COURT WHILE DECIDI NG THE ISSUE INVOLVED. HENCE, W E ALSO APPLY THE ABOVE PRINCIPLE IN THIS CASE AND HELD THAT THE EXPLANATION OFFERED BY THE COMPANY ETC. SHALL BE DEEMED TO HAVE BEEN CONSIDERED AND REJECTED BY LEARNED CO - ORDINATE BENCH . 1 3 . IN VIEW OF OUR ABOVE DISCUSSION, TAKING CUE FROM CO - ORDINATE BENCH S ORDER, WE ALSO HOLD THAT THE TRANSACTION IN HAND IS IN FURTHERANCE TO COMMERCIAL AND BUSINESS EXPEDIENCY . THE NECESSARY COROLLARY OF THE SAME IS THAT THE AMOUNT IN QUESTION IS NOT LIABLE TO BE ASSESSED IN THE HANDS OF THE ASSESSEE IN THE NATURE OF DEEMED DIVIDEND HENCE, WE DO NOT SEE ANY REASON TO INTERFERE WITH CIT(A) S ORDER AND THE ISSUE IS THEREFORE, DECIDED AGAINST THE REVENUE. ITA . 1279 TO 1281 /MDS/ 11 15 ITA NOS.1280,1281/MDS./11 14 . SINCE THE LD . REPRESENTATIVES ARE IN UNISON THAT THE SAME ISSUE IS INVOLVED IN OTHER APPEALS AS WELL IN ITA 1280, 1281, SO IN THESE CASES ALSO, CIT(A) S ORDER IS HEREBY UPHELD. 15 . IN THE RESULT, T HE REVENUE S APPEALS STAND DISMISSED. ORDER P RONOUNCED ON FRIDAY , THE 24 TH AUG U ST , 2012 AT CHENNAI . SD/ - SD/ - (N.S.SAINI) ( S.S.GODARA ) ACCOUNTNT MEMBER JUDICIAL MEMBER CHENNAI, DATED 24 TH AUGUST , 2012 . K S SUNDARAM COPY TO: ASSESSEE / AO / CIT (A) / CIT / D.R. / GUARD FILE