Shri Peter K Manavalan, CHENNAI V. ACIT, CHENNAI

ITA 1642/CHNY/2009

• Counselvise Citation: 164221714 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 19-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB IRS A DDL
• Assessee Lawyers: N DEVANATHAN; K S MURAL IDHARAN
• Keywords: Salary income; Deemed dividend
• Section: 143(3)

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 NO.1642(MDS)/2009 ASSESSMENT YEAR : 2005-06 SHRI PETER K.MANAVALAN, 20, CHESNEY TOWN HOUSE, ETHIRAJ SALAI, CHENNAI-600 008. PAN AAJPM9088P. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE VI(2), CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.DEVANATHAN, ADV OCATE & SHRI K.S.MURAL IDHARAN, FCA. RESPONDENT BY : SHRI SHAJI P JACOB, IRS, A DDL. CIT. DATE OF HEARING : 16 TH JANUARY, 2012 DATE OF PRONOUNCEMENT : 17 TH JANUARY, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2005-06. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-V AT CHENNAI, - - ITA 1642 OF 2009 2 DATED 6-2-2009. THE APPEAL ARISES OUT OF THE ASSES SMENT COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX AC T, 1961. 2. THE ASSESSEE IN THIS CASE IS THE MANAGING DIREC TOR OF M/S.SEVEN SEAS PETROLEUM PVT. LTD. IN THE COURS E OF THE SCRUTINY ASSESSMENT, THE ASSESSING OFFICER FOUND TH AT M/S.SEVEN SEAS PETROLEUM PVT. LTD. HAD PAID VARIOUS AMOUNTS T O THE ASSESSEE IN THE COURSE OF THE RELEVANT PREVIOUS YEA R, TOTALING TO ` 44,90,000/-. AS THE ASSESSEE IS HAVING 23.52% OF SHARE CAPITAL HOLDING IN THE COMPANY, ACCORDING TO THE AS SESSING AUTHORITY, HE ISSUED SHOW CAUSE NOTICE AS TO WHY TH E SAID TOTAL AMOUNT OF ` 44,90,000/- SHOULD NOT BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE UNDER SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961. EVEN THOUGH THE ASSESSEE HAD PLACED EXPLANATION BEFORE THE ASSESSING AUTHORITY, HE MADE AN ADDITION OF ` 44,90,000/-, AS STATED ABOVE, AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME-TAX ACT,1961. 3. IN FIRST APPEAL, THE COMMISSIONER OF INCOME- TAX(APPEALS) HELD THAT THE CREDIT FOR THE SALARY DU E TO THE ASSESSEE SHOULD BE DEDUCTED FROM THE TOTAL AMOUNT O F ` 44,90,000/-. HE ESTIMATED THE SALARY AT ` 5,50,000/- AND - - ITA 1642 OF 2009 3 EXCLUDED THE SAID AMOUNT FROM THE AMBIT OF SECTION 2(22)(E). HE SUSTAINED AN ADDITION OF THE BALANCE AMOUNT OF ` 39,40,000/-. THE ASSESSEE IS AGGRIEVED AND, THEREFORE, THE SECON D APPEAL BEFORE THE TRIBUNAL. 4. SHRI N.DEVANATHAN, THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE, EXPLAINED THAT THE PROVISION OF L AW CONTAINED IN SECTION 2(22)(E) WILL NOT APPLY IN THE PRESENT CASE . HE EXPLAINED THAT THE ASSESSEE IS NOT HOLDING MORE THAN 10% OF T HE SHAREHOLDING IN THE CAPITAL OF M/S.SEVEN SEAS PETRO LEUM PVT. LTD. AND, THEREFORE, THE PROVISION RELATING TO DEEM ED DIVIDEND WILL NOT APPLY TO THE ASSESSEE. ACCORDING TO THE LEARNE D COUNSEL, THE ASSESSEE IS HAVING A SHAREHOLDING OF ONLY 5.5%. HE EXPLAINED THAT THE ASSESSING AUTHORITY HAS NOT CONSIDERED THE TRANSFER OF SHARES MADE BY THE ASSESSEE, EVEN THOUGH THE TRANSF ER OF THOSE SHARES WERE NOT REFLECTED IN THE DETAIL FURNISHED A LONGWITH THE RETURN OF INCOME. IT IS THE CASE OF THE LEARNED CO UNSEL THAT THE ASSESSING AUTHORITY HAS NOT GIVEN DEDUCTION FOR THE CREDIT DUE TO THE ASSESSEE AND IF AT ALL THERE WAS OCCASION TO MA KE ANY ADDITION, THE DIFFERENTIAL AMOUNT ALONE SHOULD HAVE BEEN ADDED UNDER SECTION 2(220(E). THE LEARNED COUNSEL FURTHE R EXPLAINED - - ITA 1642 OF 2009 4 THAT THE AMOUNTS WERE DEBITED IN THE ACCOUNTS OF TH E ASSESSEE NOT AS PART OF THE LOANS OR ADVANCES ENJOYED BY THE ASSESSEE, BUT AS PART OF THE RETURN OF THE FINANCE RECEIVED F ROM HIS WIFE AND ALSO TOWARDS ALLOTMENT OF SHARES. HE SUBMITTED THA T THE LOWER AUTHORITIES HAVE MADE THE ADDITION WITHOUT EXAMININ G ANY OF THE ABOVE COMPELLING CIRCUMSTANCES OF THE CASE. HE FUR THER SUBMITTED THAT THE COMMISSIONER OF INCOME-TAX(APPEA LS) HAS EVEN ESTIMATED THE SALARY INCOME OF THE ASSESSEE FO R THE PURPOSE OF EXCLUDING FROM SECTION 2(22)(E) OF THE A CT. 5. SHRI SHAJI P JACOB, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENUE, ON THE OTHER HAND, EXPLAINED THAT THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE DO NOT CONFORM TO THE FACTS OF THE CASE AV AILABLE ON RECORD. HE PLACED BEFORE US HIS DETAILED SUBMISSIO NS IN THE FORM OF WRITTEN SUBMISSIONS AND ALSO A PAPER-BOOK CONTAI NING THE RELEVANT MATERIALS TO SUPPORT HIS ARGUMENTS. HE HA S FILED COPIES OF THE LETTER WRITTEN BY THE ASSESSEE ON 17-4-2004 AND THE DETAILS FURNISHED ALONGWITH THE RETURNS OF INCOME OF M/S.SE VEN SEAS PETROLEUM PVT. LTD. FOR THE ASSESSMENT YEARS 2005-0 6 AND 2006-07 TO SHOW THAT THE ASSESSEE WAS HOLDING A SHA REHOLDING - - ITA 1642 OF 2009 5 OF MORE THAN 10%. ON THE BASIS OF THOSE DOCUMENTAR Y EVIDENCES, THE LEARNED COMMISSIONER OF INCOME-TAX T RIED TO ESTABLISH THAT THE ASSESSEE WAS HOLDING MORE THAN 1 0% IN THE CAPITAL OF THE COMPANY AND THAT THE ARGUMENTS OF TH E ASSESSEE IS WITHOUT ANY BASIS. HE FURTHER EXPLAINED THAT TH E THEORY OF LOAN OF ` 20 LAKHS DUE TO THE ASSESSEES WIFE AND REPAYMENT OF THE SAID AMOUNT THROUGH THE ASSESSEES PERSONAL ACCOUNT DOES NOT MERIT CONSIDERATION, AS THERE WAS NO HARM IN DIRECT LY RETURNING THE MONEY BACK TO THE ASSESSEES WIFE HERSELF. 6. WE HEARD BOTH THE SIDES IN DETAIL AND ALSO CONSIDERED THE VARIOUS DECISIONS RELIED UPON BY BOT H THE PARTIES. EVEN THOUGH THE COMMISSIONER OF INCOME-TAX HAS ARGU ED ON VARIOUS ASPECTS OF THE ISSUE IN A CONVINCING MANNER , WE FIND THAT A LITTLE BIT OF FACTS ARE TO BE FURTHER EXAMINED TO COME TO A RIGHT CONCLUSION REGARDING THE APPLICABILITY OF SECTION 2 (22)(E) IN THE CASE OF THE ASSESSEE. THE ASSESSING OFFICER HAS TO EXAMINE THE NATURE OF EVERY DEBIT MADE IN THE PERSONAL ACCOUNT OF THE ASSESSEE. AS RIGHTLY POINTED OUT BY THE COMMISSION ER OF INCOME-TAX THAT EVEN IF THE SURPLUS AMOUNT IS KEPT BY THE ASSESSEE FOR A SINGLE DAY, HE IS HIT BY SECTION 2(2 2)(E). BUT TO - - ITA 1642 OF 2009 6 COME TO SUCH A CONCLUSION, IT IS NECESSARY THAT THE NATURE OF EVERY ENTRY SHOULD BE EXAMINED BY THE ASSESSING AUT HORITY. THE ASSESSING AUTHORITY HAS NOT CONSIDERED THE AMOUNT O F SALARY DUE TO THE ASSESSEE. THE SALARY WAS ESTIMATED BY THE COMMISSIONER OF INCOME-TAX(APPEALS). THE EXACT DET AILS OF SALARY ARE AVAILABLE IN THE ACCOUNTS OF THE COMPANY M/S.SEVEN SEAS PETROLEUM PVT. LTD. THE ISSUE OF CREDIT AVAIL ABLE TO THE ASSESSEE IN THE BOOKS OF ACCOUNTS OF M/S.SEVEN SEAS PETROLEUM PVT. LTD. WAS NOT AT ALL CONSIDERED EITHER BY THE A SSESSING AUTHORITY OR BY THE COMMISSIONER OF INCOME-TAX(APPE ALS). THIS CRUCIAL ARGUMENT OF THE ASSESSEE OUGHT TO HAVE BEEN VERIFIED BY THE LOWER AUTHORITIES. LIKEWISE, THE FACT THAT AN AMOUNT WAS DUE TO THE ASSESSEES WIFE AND THE SAME WAS REFUNDED TH ROUGH THE ACCOUNTS OF THE ASSESSEE HAS NOT BEEN FURTHER PROBE D INTO BY THE ASSESSING AUTHORITY. THEREFORE, ON EITHER SIDE, A NUMBER OF FACTUAL LINKS ARE MISSING IN THE PRESENT CASE. 7. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE ARE OF THE CONSIDERED OPINION THAT THE MAT TER SHOULD BE EXAMINED BY THE ASSESSING OFFICER IN THE LIGHT OF T HE EVIDENCES AND EXPLANATIONS THAT MAY BE PRODUCED/OFFERED BY TH E ASSESSEE - - ITA 1642 OF 2009 7 AND PLACED BEFORE HIM. THE ORDERS OF THE LOWER AUT HORITIES ON THIS POINT ARE SET ASIDE AND THE ISSUE IS SENT BACK TO THE ASSESSING AUTHORITY FOR DE NOVO DISPOSAL. THE ASSE SSEE SHALL BE HEARD BEFORE PASSING THE REMAND ASSESSMENT. 8. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON TUESDAY, THE 17 TH OF 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 (3) CIT (4) CIT(A) (5) D.R. (6) G.F.