ACIT, CHENNAI V. Sri Harinder Singh, CHENNAI

ITA 1408/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57843 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 05-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB IRS
• Assessee Lawyers: T BANUSEKAR
• Keywords: Deemed dividend
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER ITA NOS.1398 TO 1401(MDS)/2011 ASSESSMENT YEARS : 2005-06 TO 2008-09 THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE V(3), CHENNAI. VS. SHRI GURBINDER SINGH, DIRECTOR, RATTHA HOLDINGS CO.P. LTD., 37-TTK ROAD, ALWARPET, CHENNAI-600 018. PAN AAGPG9885M. (APPELLANT) (RESPONDENT) ITA NOS.1402 TO 1405(MDS)/2011 ASSESSMENT YEARS : 2005-06 TO 2008- 09 THE ASSISTANT COMMISSIONER SHRI HARBI NDER SINGH, OF INCOME-TAX, DIRECTOR, R ATTHA HOLDINGS COMPANY CIRCLE V(3), VS. CO. P. LTD., 37-TTK ROAD, CHENNAI. ALWARPET,CHENNAI600018 PAN AAAPH9969F. (APPELLANT) (RESPONDENT) AND ITA NOS.1406 TO 1409(MDS)/20 11 ASSESSMENT YEARS : 2005-06 TO 200 8-09 THE ASSISTANT COMMISSIONER SHRI HARIN DER SINGH, OF INCOME-TAX, DIRECTOR, RATTHA HOLDINGS COMPANY CIRCLE V(3), VS. CO. P.L TD., 37-TTK ROAD, CHENNAI. ALWARPET,CHENNAI600018 PAN AARPH6987Q. (APPELLANT) (RESPONDENT) - - ITA 1398 TO 1409 OF 2011 2 APPELLANT BY : SHRI SHAJI P JACOB, IRS, ADDL.CIT RESPONDENTS BY : SHRI T.BANUSEKAR, FCA. DATE OF HEARING : 17 TH JANUARY, 2012 DATE OF PRONOUNCEMENT : 17 TH JANUARY, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS IS A BUNCH OF TWELVE APPEALS. THE APPEALS A RE FILED BY THE REVENUE. THE RESPONDENTS ARE THREE ASSESSEE S, WHO ARE THE DIRECTORS OF M/S.RATTHA HOLDINGS COMPANY PRIVAT E LIMITED. THE APPEALS RELATE TO THE FOUR ASSESSMENT YEARS 200 5-06, 2006-07, 2007-08 AND 2008-09. 2. THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE COMMON ORDERS PASSED BY THE COMMISSIONE R OF INCOME-TAX(APPEALS)-V AT CHENNAI, DATED 2-5-2011. 3. THE APPEALS IN THE CASES OF SHRI GURBINDER SING H AND SHRI HARBINDER SINGH ARISE OUT OF THE ASSESSMEN TS COMPLETED UNDER SECTION 143(3) READ WITH SECTION 14 7 OF THE INCOME-TAX ACT, 1961 FOR THE ASSESSMENT YEARS 2005- 06, 2006-07 AND 2007-08. THE APPEALS FOR THE ASSESSMEN T YEAR - - ITA 1398 TO 1409 OF 2011 3 2008-09 ARISE OUT OF THE ASSESSMENT COMPLETED UNDER SECTION 143(3). IN THE CASE OF THE APPEALS FILED AGAINST S HRI HARINDER SINGH, ALL THE APPEALS ARISE OUT OF THE ASSESSMENTS COMPLETED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE I NCOME-TAX ACT, 1961. 4. IN ALL THESE APPEALS, THE GROUNDS RAISED BY THE REVENUE ARE COMMON. THE GROUNDS RELATE TO THE SING LE ISSUE OF APPLYING THE DEEMING PROVISIONS OF LAW STATED IN SE CTION 2(22)(E) OF THE ACT, AGAINST THE ASSESSEES. THE ACCOUNTS OF THE THREE ASSESSEES ARE CREDITED FOR THE FIRST THREE ASSESSME NT YEARS 2005-06, 2006-07 AND 2007-08 WITH VARIOUS AMOUNTS O N DIFFERENT DATES. THE ASSESSING AUTHORITY TREATED ALL THESE C REDITS AS DEEMED DIVIDENDS IN THE HANDS OF THE ASSESSEES, INV OKING SECTION 2(22)(E) OF THE ACT. 5. FOR THE ASSESSMENT YEAR 2008-09, AMOUNTS WERE PAID BY THE COMPANY INTO THE ACCOUNTS OF THE THREE DIRECTORS, WHICH ALSO HAVE BEEN TREATED AS DEEMED DIVIDENDS BY THE ASSESSING AUTHORITY IN TERMS OF SECTION 2(22)(E) OF THE ACT. 6. WHEN THE MATTERS WERE TAKEN IN FIRST APPEALS, T HE COMMISSIONER OF INCOME-TAX(APPEALS) HELD THAT THE A MOUNTS - - ITA 1398 TO 1409 OF 2011 4 TRANSFERRED BY PASSING JOURNAL ENTRIES CANNOT BE HE LD TO BE IN THE NATURE OF DEEMED DIVIDENDS, AS PROVIDED IN SECTION 2(22)(E) OF THE ACT. HE, THEREFORE, HELD THAT THE AMOUNTS CRED ITED IN THE ACCOUNTS OF THE ASSESSEES BY PASSING JOURNAL ENTRIE S FOR THE ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08 COULD NOT BE HELD TO BE DEEMED DIVIDENDS IN THE HANDS OF THE ASS ESSEES. AS FAR AS THE ASSESSMENT YEAR 2008-09 IS CONCERNED, TH E COMMISSIONER OF INCOME-TAX(APPEALS) HELD THAT MONEY S WERE PAID TO THE ASSESSEES FOR PURCHASING LAND FOR THE C OMPANY AND, THEREFORE, THE PAYMENTS WERE MADE IN THE COURSE OF CARRYING ON OF THE BUSINESS AND, THEREFORE, THE SAME COULD NOT BE HELD TO BE DEEMED DIVIDENDS IN THE HANDS OF THE ASSESSEES. CONSEQUENTLY, RELIEFS HAVE BEEN GRANTED BY THE COMM ISSIONER OF INCOME-TAX(APPEALS). 7. THE REVENUE IS AGGRIEVED AND, THEREFORE, THESE APPEALS BEFORE US. IT IS THE COMMON GROUND OF THE REVENUE THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED I N HOLDING THAT THE AMOUNTS PAID TO THE ASSESSEES BY MEANS OF JOURNAL ENTRIES IN THE BOOKS OF ACCOUNTS OF THE COMPANY SHA LL NOT BE TAXED AS DEEMED DIVIDENDS UNDER SECTION 2(22)(E) OF THE ACT. IT - - ITA 1398 TO 1409 OF 2011 5 IS THE CASE OF THE REVENUE THAT SECTION 2(22)(E) DO ES NOT STIPULATE THAT ADDITION SHOULD BE MADE ONLY ON ACTU AL PAYMENT BASIS. THE REVENUE CONTENDS THAT WHEN AN ENTRY IN THE BOOKS OF THE COMPANY IS PASSED IN FAVOUR OF THE ASSESSEE, TH AT WOULD AMOUNT TO RECEIPT IN THE HANDS OF THE ASSESSEE, EIT HER NOW OR LATER. THE REVENUE HAS ALSO POINTED OUT THAT THE A MOUNTS WERE ACCOUNTED UNDER THE HEAD ADVANCES BOTH IN THE BOO KS OF THE ASSESSEES AS WELL AS IN THE BOOKS OF THE COMPANY, W HICH PROVED THAT THE AMOUNTS ARE COVERED BY THE DEFINITION OF S ECTION 2(22)(E) OF THE ACT. 8. AS FAR AS THE ASSESSMENT YEAR 2008-09 IS CONCERNED, THE CONTENTION OF THE REVENUE IS THAT TH E COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN HO LDING THAT THE AMOUNTS GIVEN TO THE ASSESSEES REPRESENTED ADVA NCES PAID BY THE COMPANY FOR THE PURCHASE OF PROPERTIES FROM THE ASSESSEES. IT IS THE ARGUMENT OF THE REVENUE THAT RELIEFS WERE GRANTED TO THE ASSESSEES ON THE BASIS OF THE FRESH MATERIALS FILED BY THEM BEFORE THE COMMISSIONER OF INCOME-TAX(APPEA LS), WHICH WERE NOT PRODUCED BEFORE THE ASSESSING AUTHORITY AN D THUS - - ITA 1398 TO 1409 OF 2011 6 VIOLATION OF RULE 46A REFLECTED IN THE ORDERS PASSE D BY THE COMMISSIONER OF INCOME-TAX(APPEALS). 9. WE HEARD SHRI SHAJI P JACOB, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENU E AND SHRI T.BANUSEKAR, THE LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE RESPONDENT-ASSESSEES. 10. THE LEARNED COMMISSIONER OF INCOME-TAX CONTENDED THAT IT IS NOT NECESSARY FOR THE PURPOSE OF SECTION 2(22)(E) THAT THE ASSESSEE SHOULD ALWAYS RECEIVE A BENEFIT IN CASH OR IN SPECIE FROM THE COMPANY. EVEN WHERE AN ASSESSEE IS PERSONALLY LIABLE FOR A LOAN AVAILED FROM THE COMPA NY, SUCCEEDED ON HIM ON THE DEATH OF HIS MOTHER, THE LOAN ITSELF IS TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE, AS HE LD BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF T.SUNDARAM CHETTIAR & ANR. VS. COMMISSIONER OF INCOME-TAX, 49 ITR 287. H E FURTHER EXPLAINED THAT WHILE ACCEPTING THE CONTENTIONS OF T HE ASSESSEES THAT THE AMOUNTS GIVEN TO THEM IN THE PERIOD RELEVA NT TO THE ASSESSMENT YEAR 2008-09 WERE MADE AGAINST PURCHASE OF PROPERTIES, THE LEARNED COMMISSIONER OF INCOME-TAX CONTENDED THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS RE LIED ON - - ITA 1398 TO 1409 OF 2011 7 MATERIALS PLACED BEFORE HIM FOR THE FIRST TIME WITH OUT GIVING AN OPPORTUNITY TO THE ASSESSING AUTHORITY. 11. THE LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE RESPONDENT-ASSESSEES CONTENDED THAT THE ASSESSING O FFICER HAS JUMPED INTO A CONCLUSION IN TREATING ALL THE JOURNA L ENTRIES AS INSTANCES OF DEEMED DIVIDENDS WITHOUT VERIFYING THE CONTEXT IN WHICH THE JOURNAL ENTRIES WERE PASSED AND WITHOUT E XAMINING THE NATURE OF THE TRANSACTIONS, WHICH ULTIMATELY RESULT ED IN PASSING CREDIT ENTRIES IN FAVOUR OF THE ASSESSEES. HE CONT ENDED THAT JOURNAL ENTRIES PER SE MAY NOT BE EXCLUDED FROM THE AMBIT OF SECTION 2(22)(E), BUT IT IS INCUMBENT ON THE PART O F THE ASSESSING OFFICER TO ESTABLISH THAT THE COMPANY HAS PASSED CE RTAIN FUNDS TO THE BENEFITS OF THE ASSESSEES THROUGH THE MEDIUM OF JOURNAL ENTRIES AS IN THE NATURE PROVIDED IN SECTION 2(22)( E) OF THE ACT. HE FURTHER CONTENDED THAT THE COMMISSIONER OF INCOM E- TAX(APPEALS) HAS ACCEPTED THE CONTENTIONS OF THE AS SESSEES FOR THE ASSESSMENT YEAR 2008-09 ON THE BASIS OF DOCUMEN TARY EVIDENCES AND THE COMMISSIONER OF INCOME-TAX(APPEAL S) IS COMPETENT TO EXAMINE SUCH EVIDENCES PRODUCED BY THE - - ITA 1398 TO 1409 OF 2011 8 ASSESSEES AS HIS AUTHORITY IS QUA TERMINUS WITH THA T OF THE ASSESSING AUTHORITY. 12. WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED T HE ISSUE. IT IS NOT PROPER ON THE PART OF THE COMMISS IONER OF INCOME-TAX(APPEALS) TO HOLD THAT CREDIT ENTRIES MAD E IN THE ACCOUNTS OF THE ASSESSEES BY THE COMPANY WOULD NOT FALL UNDER SECTION 2(22)(E) ONLY FOR THE REASON THAT THE CREDI TS WERE PROVIDED THROUGH JOURNAL ENTRIES. THAT IS NOT A SU STAINABLE PROPOSITION. AN ASSESSEE MAY AVAIL BENEFIT EITHER BY DIRECT TRANSFER OF FUNDS OR BY CONFERRING CREDIT BY PASSIN G JOURNAL ENTRY OR THROUGH ANY OTHER LAWFUL METHOD AND STILL SUCH B ENEFIT WOULD AMOUNT TO DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THEREFORE, IT IS NOT THE FORM WHICH IS PARAMOUNT, WHAT IS IMPORTANT IS THE SUBSTANCE. THE ASSESSING AUTHORITY SHOULD HAVE EXAMINED EVERY JOURNAL ENTRY CONFERRING CREDIT TO T HE ASSESSEES AND VERIFY WHETHER ANY FUND/BENEFIT HAS BEEN TRANSF ERRED BY THE COMPANY TO THE ASSESSEES DIRECTLY OR INDIRECTLY. T HE ASSESSING AUTHORITY SHOULD EXAMINE THE CONTEXT IN WHICH THE C REDIT ENTRY WAS PASSED. THE ASSESSING AUTHORITY SHOULD ALSO EX AMINE THE PURPOSE FOR WHICH THE JOURNAL ENTRIES WERE PASSED. THE - - ITA 1398 TO 1409 OF 2011 9 ASSESSING AUTHORITY SHOULD FURTHER EXAMINE WHETHER THE ASSESSEES HAVE DRAWN FUNDS FROM THEIR ACCOUNTS AND FROM THE COMPANY IN THE BACKDROP OF THE EARLIER CREDITS TRAN SFERRED TO THEIR PERSONAL ACCOUNTS BY MEANS OF JOURNAL ENTRIES. ALL THESE MATTERS HAVE TO BE LOOKED INTO. WITHOUT MAKING ANY SUCH EN QUIRY, IT IS NOT POSSIBLE FOR THE ASSESSING AUTHORITY TO COME TO A LAWFUL CONCLUSION THAT THE CREDIT ENTRIES PASSED IN FAVOUR OF THE ASSESSEES COULD BE IN THE NATURE OF DEEMED DIVIDEND S UNDER SECTION 2(22)(E) OF THE ACT. AS FAR AS THESE CASES ARE CONCERNED, THE ASSESSING AUTHORITY HAS NOT UNDERTAKEN ANY SUCH ENQUIRY OR VERIFICATION. THE COMMISSIONER OF INCOME-TAX(APPEA LS) ALSO WENT WRONG IN COMING TO THE CONCLUSION THAT THE CRE DIT ENTRIES WOULD NOT AMOUNT TO DEEMED DIVIDENDS UNDER SECTION 2(22)(E) JUST FOR THE REASON THAT THE CREDITS WERE PASSED BY MEANS OF JOURNAL ENTRIES. 13. THEREFORE, WE SET ASIDE THE ORDERS OF THE COMMISSIONER OF INCOME-TAX(APPEALS) AS WELL AS THE ASSESSING AUTHORITY ON THIS POINT FOR THE ASSESSMENT YEARS 20 05-06, 2006-07 AND 2007-08. THE ISSUE IS REMITTED BACK TO THE ASSESSING OFFICER TO RE-EXAMINE THE NATURE AND CHAR ACTER OF THE - - ITA 1398 TO 1409 OF 2011 10 JOURNAL ENTRIES PASSED BY THE COMPANY GIVING CREDIT S TO THE ASSESSEES. THE ASSESSING AUTHORITY IS DIRECTED TO COME TO A CONCLUSION AFTER SUCH EXAMINATION AND VERIFICATION OF THE FACTS AND CIRCUMSTANCES OF EVERY JOURNAL ENTRY PASSED WIT H REFERENCE TO THE ASSESSEES. 14. REGARDING THE ASSESSMENT YEAR 2008-09, WE FIND THAT THE MATERIALS RELIED ON BY THE COMMISSIONER OF INCOME- TAX(APPEALS) WERE PLACED BEFORE HIM BY THE ASSESSEE S FOR THE FIRST TIME. THE ASSESSING AUTHORITY HAD NO OCCASIO N TO EXAMINE THE ISSUE IN THE LIGHT OF THOSE EVIDENCES, LATER ON RELIED ON BY THE ASSESSEES. THEREFORE, THERE IS A CLEAR VIOLATION O F RULE 46A. IN THESE CIRCUMSTANCE WE SET ASIDE THE SAID ORDERS OF THE COMMISSIONER OF INCOME-TAX(APPEALS) FOR THE ASSESSM ENT YEAR 2008-09 AND REMIT BACK THE ISSUE TO THE ASSESSING A UTHORITY. THE ASSESSEES ARE DIRECTED TO PRODUCE EVIDENCES BEF ORE THE ASSESSING AUTHORITY TO PROVE THEIR CASES THAT THE A MOUNTS WERE PAID TO THE ASSESSEES BY THE COMPANY FOR THE PURPOS E OF ACQUIRING PROPERTIES IN ITS NAME. 15. IN RESULT, WE HAVE SET ASIDE THE ORDERS OF BOT H THE ASSESSING AUTHORITY AND THE COMMISSIONER OF INCOME- - - ITA 1398 TO 1409 OF 2011 11 TAX(APPEALS) FOR ALL THE FOUR ASSESSMENT YEARS UNDE R APPEAL. THE FILES ARE REMITTED BACK TO THE ASSESSING AUTHOR ITY. HE IS DIRECTED TO EXAMINE THE EVIDENCES AND DETAILS WITH REFERENCE TO THE ISSUES AND ARRIVE AT A LAWFUL CONCLUSION, BEFOR E WHICH HE SHALL PROVIDE AMPLE OPPORTUNITIES TO THE ASSESSEES TO PRESENT THEIR CASES BEFORE HIM. 16. IN RESULT, ALL THESE APPEALS FILED BY THE REVE NUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON TUESDAY, THE 17 TH JANUARY, 2012 AT CHENNAI. SD/ SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 17 TH JANUARY, 2012. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT S (3) CIT (4) CIT(A) (5) D.R. (6) G.F.