Farook N. Merchant, Pune V. Deputy Commissioner of Income-tax,

ITA 131/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1863 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-05-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 20-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL CHAWARE
• Assessee Lawyers: P D KUDWA
• Keywords: Deemed dividend; Reason to believe; Reassessment proceedings
• Section: 142(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , . . , , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 13 1 /PN/201 4 / ASSESSMENT YEAR : 20 0 5 - 0 6 FAROOK N. MERCHANT MERCHANT BUNGALOW, CLOVER MYSTIQUE, SOUTH AVENUE, KALYANI NAGAR, PUNE 41 1006 . / APPELLANT PUNE 41 1006 . / APPELLANT PAN: AA ZPM6542Q VS. THE DY . COMMISSIONER OF INCOME TAX, CIRCL E 7 , PUNE . / RESPONDENT / APPELLANT BY : SHRI P.D. KUDWA / RESPONDENT BY : SHRI ANIL CHAWARE / DATE OF HEARING : 0 9 . 0 5 .201 6 / DATE OF PRONOUNCEMENT: 13 . 0 5 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - II I , PUNE , DATED 14 . 1 0 .20 1 3 RELATING TO ASSESSMENT YEAR 20 0 5 - 0 6 AGAINST ORDER PASSED UNDER SECTION 1 4 3(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 . THE HON CIT(A) ERRED IN UPHOLDING THE ASSESSMENT ORDER PASSED BY THE A O TREATING THE AMOUNT OF 15,00,000 RECEIVED BY THE ASSESSEE ON 16.12.2004 FROM MESSUNG SYSTEMS PVT. LTD. AS DEEM ED DIVIDEND U / S 2(22)(E) OF THE INCOME TAX ACT, 1961. 2 . THE HON CIT(A) AND THE A O FAILED TO APPRECIATE THAT IN THE BOOKS OF MESSUNG SYSTEMS PVT. LTD. THE ASSESSEE HAD A CREDIT BALANCE OF 32,69,095 MESSUNG SYSTEMS PVT. LTD. THE ASSESSEE HAD A CREDIT BALANCE OF 32,69,095 FROM 30.09.2004 AND AT THE TUNE OF PAYMENT OF RS.15,00,000 A ND THEREAFTER THERE STILL REMAINED A CREDIT BALANCE IN THE ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE COMPANY. ITA NO. 13 1 /PN/20 1 4 FAROOK N. MERCHANT 2 3 . THE APPELLANT PLEADS THAT THE PAYMENT OF RS.15,00,000 ON 16.12.2004 BY MESSUNG SYSTEMS PVT. LTD. TO THE ASSESSEE DOES NOT FALL WITHIN THE SCOPE OF 'DEEMED DIVIDEND' U/S 2(22)( E) OF THE INCOME TAX ACT, 1961. 4 . THE APPELLANT PLEADS FOR DIRECTIONS ALLOWING THE APPEAL AND CRAVES LEAVE TO ADD TO, DELETE, AMEND, MODIFY OR WITHDRAW GROUNDS OF APPEAL. ADD TO, DELETE, AMEND, MODIFY OR WITHDRAW GROUNDS OF APPEAL. 3. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND O F APPEAL, WHICH READS AS UNDER: - 5. ON FACTS & CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAVING ACCEPTED THAT CREDIT CARD PAYMENTS FOR WHICH REASONS WERE RECORDED HAD NOT ESCAPED ASSESSMENT, HE HAD NO REASON TO BELIEVE THAT THE ASSESSEES OTHER REC EIPTS HAD ESCAPED ASSESSMENT. THE APPELLANT RELIES ON CIT VS. JET AIRWAYS (I) LTD. (2011) 33 ITR 236 (BOM) AND PLEADS THAT THE ISSUE OF NOTICE AND REASSESSMENT IS INVALID. 4. THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE BEING LEGAL, IS ADMITT ED FOR ADJUDICATION. 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FURNISHED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.2,11,36,250/ - ON 28.10.2005 . THE ITO (CIB) - 2, PUNE RECEIVED INFORMATION FROM AIR REGARDING PAYMENT OF RS. 5,00,784/ - THROUG H CREDIT CARD OF CITI BANK DURING THE FINANCIAL YEAR 2004 - 05 RS. 5,00,784/ - THROUG H CREDIT CARD OF CITI BANK DURING THE FINANCIAL YEAR 2004 - 05 AND ISSUED NOTICE UNDER SECTION 142(1) OF THE ACT ON 29.08.2007 AND FORWARDED THE CASE TO THE ASSESSING OFFICER, CIRCLE 7, PUNE. THEREAFTER, THE CASE OF THE ASSESSEE WAS REOPENED AFTER RECORDI NG REASONS FOR REOPENING UNDER SECTION 147 OF THE ACT AND NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED TO THE ASSESSEE. THE ASSESSEE DID NOT FILE ANY RETURN OF INCOME IN RESPONSE TO THE SAID NOTICE. FURTHER, NOTICES UNDER SECTION 142(1) AND 143(2) OF T HE ACT WERE SAID NOTICE. FURTHER, NOTICES UNDER SECTION 142(1) AND 143(2) OF T HE ACT WERE ISSUED TO THE ASSESSEE AND AFTER CONTINUOUS FOLLOW UP, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURNISHED THE DETAILS. FROM THE PERUSAL OF BANK ACCOUNT EXTRACT, THE ASSESSING OFFICER NOTED THAT ON 16.12.2004, THE ASSESSEE HAD TAK EN SUM OF RS. 15 LAKHS FROM M/S. MESSUNG SYSTEMS PVT. LTD. (MSPL) VIDE CHEQUE NO.429974 UNDER NARRATION TEMPORARY LOAN FROM MSPL AGAINST REMUNERATION AND TURNOVER COMMISSION. SINCE IT WAS TEMPORARY LOAN AGAINST REMUNERATION AND TURNOVER COMMISSION. SINCE IT WAS TEMPORARY LOAN TAKEN BY THE ASSESSEE , WHO WAS DIRECTOR OF THE COMPAN Y AND WAS HOLDING MORE ITA NO. 13 1 /PN/20 1 4 FAROOK N. MERCHANT 3 THAN 10% SHARES OF THE SAID COMPANY, THE ASSESSEE WAS ASKED TO EXPLAIN THE TRANSACTION AND JUSTIFY AS TO WHY THE SAME SHOULD NOT BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THE ASSESSEE IN REPLY, FURNISHED INFOR MATION AND AFTER TAKING NOTE OF THE SAME, THE ASSESSING OFFICER DID NOT MAKE ANY ADDITION ON ACCOUNT OF REASONS RECORDED FOR REOPENING THE ASSESSMENT. HOWEVER, AN ADDITION OF RS.15 LAKHS WAS MADE ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THE ASSESSING OFFICER IN THIS REGARD CONSIDERED VARIOUS CONFLICTING EXPLANATIONS FILED BY THE ASSESSEE AND REJECTED THE SAME. 6. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER REJECTING THE EXPLANATION OF ASSESSEE SINCE THE ORIGINAL ACCOUNTS STAT EMENT FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS DID NOT REFLECT THE ENTRY REGARDING DECLARATION OF DIVIDEND OF RS.32,69,095/ - ON 30.09.2004 , WHICH WAS PAID TO THE ASSESSEE ON 18.12.2004 AND ALSO THE LOAN OF RS.15 LAKHS TAKEN BY THE ASSESSEE WAS SIMULTANEOUSLY REPAID. 7. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 8. THE FIRST OBJECTION RAISED BY THE ASSESSEE BY WAY OF ADDITIONAL GROUND OF APPEAL IS AGAINST REASSESSMENT PROCEEDINGS COMPLETED UNDER SECTION 147/148 OF THE ACT , WHEREIN NO ADDITION WAS MADE ON ACCOUNT OF REASONS RECORDED FOR REOPENING THE ASSESSMENT AND IN THE ABSENCE OF ANY REASONS RECORDED TO BELIEVE THAT THE ASSESSEE S OTHER RECEIPTS HAD ESCAPED ASSESSMENT, THE ADDITION SO MADE OF RS.15 LAKHS WAS NOT CORRECT. IN THIS REGARD, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. JET AIRWAYS (I) LTD. (2010) 331 ITR 236 (BOM) . IN RESPECT OF THE ISSUE RAISED ON MERITS, TH E LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE AMOUNT OF RS.15 LAKHS RECEIVED BY IT WAS AGAINST AMOUNT ALREADY DUE TO IT AND HENCE, WAS ITA NO. 13 1 /PN/20 1 4 FAROOK N. MERCHANT 4 NOT BY WAY OF ANY LOAN THOUGH IN THE COPY OF ACCOUNTS, THERE WAS A NARRATION TO THE EFFECT TH AT A TEMPORARY LOAN WAS RECEIVED FROM MSPL AGAINST REMUNERATION AND TURNOVER COMMISSION. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACING RELIANCE ON THE ORDER OF CIT(A) HAS REFERR ED TO THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN CIT VS. MEHAK FINVEST (P.) LTD. (2014) 367 ITR 769 (P&H) . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT HONBLE PUNJAB & HARYANA HIGH COURT IN MAJINDER SINGH KANG VS. CIT (2012) 344 ITR 358 (P&H) HAD LAID DOWN THE PROPOSITION THAT THE ASSESSING OFFICER WHILE PASSING REASSESSMENT ORDER UNDER SECTION 147/148 OF THE ACT WAS EMPOWERED TO MAKE ADDITION EVEN ON GROUND ON WHICH THE REASSESSMENT NOTICE MIGHT NOT HAVE BEEN ISSUED , WHERE SOME OTHER INCOME ESCAPING TH E ASSESSMENT COMES TO HIS NOTICE DURING THE COURSE OF PROCEEDINGS FOR REASSESSMENT UNDER SECTION 148 OF THE ACT. IT WAS FURTHER POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT THE HONBLE SUPREME COURT HAS DISMISSED THE SPECIAL LEAVE PETITION BEARING SLP (C) NO.13028/2011 ON 19.08.2011, AGAINST THE JUDGMENT IN THE CASE OF MAJINDER SINGH KANG VS. CIT (SUPRA) . 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE TO BE ADDRESSED BY THE TRIBUNAL IS THE V ALIDITY OF REASSESSMENT PROCEEDINGS INITIATED UNDER SECTION 147/148 OF THE ACT. THE ITO(CIB) - 2, PUNE HAD RECEIVED CERTAIN INFORMATION IN RESPECT OF CREDIT CARD PAYMENTS MADE BY THE ASSESSEE AND THE SAID INFORMATION WAS SENT TO THE ASSESSING OFFICER , CIRCL E 7, PUNE , WHO IS INCHARGE OF THE ASSESSEE. THE ASSESSING OFFICER THEREAFTER RECORDED REASONS FOR REOPENING THE ASSESSMENT AND ALSO ISSUED NOTICE UNDER SECTION 148 OF THE ACT . THE ASSESSEE THOUGH HAD FILED THE ORIGINAL RETURN OF INCOME BUT DID NOT FILE A NY RETURN OF INCOME IN RESPONSE TO THE SAID ITA NO. 13 1 /PN/20 1 4 FAROOK N. MERCHANT 5 NOTICE ISSUED UNDER SECTION 148 OF THE ACT. THOUGH NO ADDITION WAS MADE ON ACCOUNT OF CREDIT CARD PAYMENTS, BUT THE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECEIVED SUM OF RS.15 LAKHS FROM MSPL I.E. A COMPANY IN WHICH HE WAS BENEFICIAL OWNER HOLDING MORE THAN 10% VOTING POWER AND HENCE, THE PROVISIONS OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT WERE ATTRACTED. THE CASE OF THE ASSESSEE ON THE OTHER HAND, WAS THA T THE SAID AMOUNT WAS RECEIVED BY THE ASSESSEE ON ACCOUNT OF DIVIDEND AMOUNT WHICH WAS DUE TO IT AND THOUGH THE NARRATION IN THE COPY OF ACCOUNTS OF THE ASSESSEE IN THE BOOKS OF ACCOUNT OF MSPL WAS A TEMPORARY LOAN TO THE ASSESSEE ON ACCOUNT OF REMUNERATIO N AND COMMISSION, BUT IN ACTUAL FACT THE SAID AMOUNT WAS ON ACCOUNT OF PART PAYMENT OF DIVIDEND AMOUNT DUE TO THE ASSESSEE. ADMITTEDLY, THE ASSESSEE WAS TO RECEIVE DIVIDEND INCOME TO THE EXTENT OF RS. 32,69,095/ - FROM MSPL AGAINST ITS SHAREHOLDING IN THE S AID CONCERN. THE ASSESSEE H AS FILED VARIOUS EXPLANATIONS BY WAY OF VARIOUS COPIES OF ACCOUNTS. HOWEVER, THE SAME HAVE NOT BEEN ACCEPTED BY THE AUTHORITIES OF ACCOUNTS. HOWEVER, THE SAME HAVE NOT BEEN ACCEPTED BY THE AUTHORITIES BELOW ON THE SURMISE THAT THE AMOUNT RECEIVED BY THE ASSESSEE OF RS.15 LAKHS WAS ADMITTEDLY, A LOAN . THE DIVIDEND DUE TO THE ASSESSEE FROM MSPL WAS DECLARED AS PER THE MINUTES OF NINTH ANNUAL GENERAL MEETING HELD ON 30.09.2004, COPY OF MINUTES IS PLACED AT PAGE 30 OF THE PAPER BOOK, UNDER WHICH MSPL PROPOSED A FINAL DIVIDEND OF 80.18%. THE ACCOUNTS OF THE SAID COMPANY WERE APPROVED BY THE BOARD OF DIRECTORS ON 01.09.2004 AND THE ACCOUNTS OF PROPOSED DIVIDEND WERE APPROVED BY THE SHAREHOLDERS IN THE AGM HELD ON 30.09.2004 . A GAINST THE ASSESSEES HOLDING OF 76% IN THE SAID CONCERN AND THE BALANCE 24% BE ING HELD BY HIS MOTHER MRS.KHATIJA MERCHANT , DIVIDEND DUE TO THE ASSESSEE AS ON 30.09.2004 WAS RS.32,69,094/ - . THE ASSESSEE TOOK TEMPORARY LOAN OF RS.15 LAKHS FROM THE SAID CONCERN ON 16.09.2004. ON THE OTHER HAND, THE COMPANY MSPL PAID FULL DIVIDEND OF RS.32,69,095/ - ON 18.12.2004 AND THE ASSESSEE ALSO REFUNDED THE LOAN OF RS.15 LAKHS ON THE SAID DATE BY WAY OF ACCOUNT PAYEE CHEQUE. ITA NO. 13 1 /PN/20 1 4 FAROOK N. MERCHANT 6 11. THE QUESTION WHICH ARISES BEFORE US IS AS TO THE TAXABILITY OF RS.15 LAKHS ADVANCED BY MSPL TO THE ASSESSEE ON 16.12. 2004. ADMITTEDLY, AS ON 30.09.2004 , A PROPOSAL FOR THE DIVIDEND DUE TO THE SHAREHOLDERS WAS PASSED AND THE ASSESSEE WAS ENTITLED TO THE CLAIM OF DIVIDEND TO THE EXTENT OF RS.32,69,095/ - . THE AMOUNT WITHDRAWN BY THE ASSESSEE FROM MSPL AS ON 16.12.2004 OF RS.15 LAKHS COULD AT BEST BE SAID TO BE THE AMOUNT PAID TO THE ASSESSEE OUT OF DIVIDEND DUE TO IT , THOUGH IN THE BOOKS OF ACCOUNT THE ENTRY IS MADE OF TEMPORARY LOAN BEING GIVEN TO THE ASSESSEE. WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN REJEC TING THE EXPLANATION OF ASSESSEE ON THE BASIS OF MERE ENTRIES, WHICH ARE NOT DECISIVE TO DECIDE THE NATURE OF ENTRY . THE AMOUNT RECEIVED BY THE ASSESSEE WAS IN LIEU OF DIVIDEND TO BE RECEIVED BY THE ASSESSEE THOUGH ON A LATER DATE, THE ASSESSEE NOT ONLY R ECEIVED FULL DIVIDEND OF RS. 32,69,095/ - I.E. ON 18.12.2004 AND SIMULTANEOUSLY REFUNDED LOAN OF RS.15 LAKHS . W HERE THE AMOUNT WAS DUE TO THE ASSESSEE IN ITS BOOKS OF ACCOUNT ON ACCOUNT OF DIVIDEND , WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN ACCOUNT OF DIVIDEND , WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN HOL DING THAT THE AMOUNT SO RECEIVED BY THE ASSESSEE IS TO BE TAXED IN HIS HANDS AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, WE HOLD SO AND DIRECT THE ASSESSING OFFICER TO DELETE ADDITION OF RS.15 LAKHS. 12. NOW, COMING TO THE JURISDIC TIONAL PLEA RAISED BY THE ASSESSEE BY WAY ADDITIONAL GROUND OF APPEAL. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF JURISDICTIONAL HIGH COURT IN CIT VS. JET AIRWAYS (I) LTD. (SUPRA), WHEREIN IT HAS BEEN LAID DOWN TH AT IN CASES WHERE THE REASS ESSMENT PROCEEDINGS ARE INITIATED ON A PARTICULAR ISSUE AND NO ADDITION IS MADE ON ACCOUNT OF SAID ISSUE, THEN NO FURTHER ADDITION COULD BE MADE IN THE HANDS OF ASSESSEE ON ACCOUNT OF ANY OTHER ISSUE. THE SAID DECISION HAS BEEN LAID DOWN BY THE JURISDICTIONAL HIGH COURT AND IS SQUARELY BINDING ON US. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, HAS RELIED ON THE RATIO LAID DOWN BY THE PUNJAB & HARYANA HIGH COURT IN CIT VS. ITA NO. 13 1 /PN/20 1 4 FAROOK N. MERCHANT 7 MEHAK FINVEST (P.) LTD. (S UPRA) AND MAJINDER SINGH KANG VS. CIT (SUPRA) AND THAT SLP HAS BEEN DISMISSED IN THE SAID CASES. HOWEVER, IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENTS ON THE SAID ISSUE, MERE DISMISSAL OF SLP DOES NOT DECIDE THE ISSUE . WE ARE BOUND BY THE DECISION OF JURIS DICTIONAL BOMBAY HIGH COURT AND APPLYING THE SAID RATIO, WE HOLD THAT REASSESSMENT COMPLETED IN THE HANDS OF ASSESSEE ON A N ISSUE, AGAINST WHICH NO REASONS WERE RECORDED BY REOPENING, DOES NOT STAND. THE REASSESSMENT PROCEEDINGS ARE HELD TO BE NOT VALID A ND THE ASSESSMENT FRAMED ON THIS GROUND IS ALSO CANCELLED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 1 3 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON THIS 13 TH DAY OF MAY , 201 6 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) ( R.K. PANDA ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 13 TH MAY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - II I , PUNE ; 4. / THE CIT - I V , PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE