DCIT, Coimbatore V. Shri M.Ravichandran, Coimbatore

ITA 1793/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0872 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-02-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 01-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K RAGHU
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO. 1793/MDS/2012 ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(2), INCOME TAX BUILDING, RACE COURSE ROAD, COIMBATORE 641 018. VS. SHRI M. RAVICHANDRAN, NO. 5, PARTHIBAN ILLAM, LAKSHMIPURAM, GANAPATHY, COIMBATORE 641 006. [PAN:ADIPR9353C] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY : SHRI K. RAGHU, C.A. DATE OF HEARING : 04 .0 2 .2013 DATE OF PRONOUNCEMENT : 08.02.2013 ORDER PER S.S. GODARA, JUDICIAL MEMBER IN THIS APPEAL, THE REVENUE CHALLENGES THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS) I, COIMBATORE DATED 18.07. 2012 IN APPEAL NO. 175/11-12 FOR THE ASSESSMENT YEAR 2009-10 IN PROCEE DINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 [IN SHORT THE AC T]. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER: 1. THE ORDER OF THE LEARNED CIT(A) IS AGAINST FAC TS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN IGNORING THE SUBMIS SION MADE BY THE ASSESSEE IN FRONT OF THE ASSESSING OFFICER, WHEREIN HE HIMSE LF HAS SUBMITTED THAT RS.34.50 LAKHS IS THE INVESTMENT MADE BY HIM IN M/S. SURYA B ALAJI STEELS PVT LTD. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1793 1793 1793 1793/M/12 /M/12 /M/12 /M/12 2 3. THE LEARNED CIT(A) ERRED IN BELIEVING THE AFTERT HOUGHT OF THE ASSESSEE'S CLAIM THAT IT IS NOT INVESTMENT BUT ONLY TRANSFER OF MONE Y FROM M/S. PADMA BALAJI STEELS PVT LTD. TO M/S. SURYA BALAJI STEELS THROUGH ASSESS EE, WITHOUT ANY EVIDENCE OR BASIS. 4. THE LEARNED CIT(A) HAS ERRED BY ACTING AGAINST T HE DEEMING PROVISION U/S 2(22)(E) OF THE INCOME TAX ACT, 1961. SECTION 2(22) (E) DOES NOT SAY ANYTHING ABOUT THE UTILIZATION OF MONEY BY THE RECEIVER OF THE MON EY FROM THE COMPANY AFTER THE RECEIPT. 5. THE LEARNED CIT (A) HAS ERRED BY NOT CONSIDERING THE FINDINGS OF THE ASSESSING OFFICER THAT THE ENTRIES MADE IN THE BOOKS OF ACCOU NT OF M/S. PADMA BALAJI STEELS AND M/S. SURYA BALAJI STEELS ARE SIMPLY COLORABLE D EVICES TO HIDE THE ACTUAL NATURE OF TRANSACTIONS. 6. THE LEARNED CIT(A) OUGHT TO HAVE OBSERVED THAT T HE AMOUNT OF RS.34,52,896/- WAS CREDITED THROUGH THE CURRENT ACCOUNT NO.10030 ( FROM M/S. SREE PADMA BALAJI STEELS PVT LTD.) AND THE SAID AMOUNT WAS TRANSFERRE D TO THE ACCOUNT OF M/S. SURYA BALAJI STEELS AS INVESTMENT, AS GIVEN IN THE NARRAT ION SUBMITTED BY THE AR, LATER CLAIMED TO BE THE LOAN FROM M/S. SRI SURYA BALAJI S TEELS. 7. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT(A) MAY BE CANCELLED AND TH AT OF THE ASSESSING OFFICER RESTORED. 3. IN THE COURSE OF HEARING, THE DR ON BEHALF OF T HE REVENUE HAS VEHEMENTLY CONTENDED THAT THE CIT(A) HAS WRONGLY DE LETED THE ADDITION MADE BY THE ASSESSING OFFICER IN ASSESSEES CASE QU A THE ISSUE OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. TO BU TTRESS HIS SUBMISSIONS, HE HAS REITERATED THE PLEADINGS ABOVE SAID RAISED IN T HE GROUNDS AND PRAYED FOR ACCEPTANCE OF THE APPEAL. 4. OPPOSING THIS, IT HAS BEEN ARGUED BY THE ASSESS EES AR THAT THE ASSESSING OFFICER HAD WRONGLY MADE THE ADDITION IN QUESTION, WHICH HAS BEEN RIGHTLY UPSET BY THE CIT(A). IN THIS MANNER, H E HAS PLACED STRONG I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1793 1793 1793 1793/M/12 /M/12 /M/12 /M/12 3 RELIANCE ON THE REASONS CONTAINED IN CIT(A)S ORDER AND PRAYED FOR REJECTION OF THE APPEAL. THE ASSESSEE HAS ALSO FILED A PAPER BOOK CONTAINING DETAILS OF ASSESSEES SAVING BANK ACCOUNT AND STATEMENTS OF TH E ENTITY NAMELY SRI PADMABALAJI STEELS (P) LTD. AND SURYABALAJI STEELS (P) LTD. AS WELL AS THEIR LEDGER ACCOUNTS AND PRAYED FOR REJECTION OF THE APP EAL. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INDIVIDUAL. HE IS MANAGING DIRECTOR OF COMPANIES NAMELY SRI PADMABALA JI STEELS (P) LTD. AND SURYABALAJI STEELS (P) LTD. HE HOLDS 35.01% AND 4.2 8% OF THE SHARES RESPECTIVELY; IN THE ABOVE ENTITIES. ON 23.03.2010, THE ASSESSEE HAD FILED HIS RETURN FOR THE IMPUGNED ASSESSMENT YEAR AND DECLA RED HIS INCOME AS ` .9,49,290/- UNDER THE HEADS SALARY AND INCOME FRO M OTHER SOURCES. 6. IN SCRUTINY PROCEEDINGS, THE ASSESSING OFFICE R NOTICED THAT ON 04.06.2008, AN AMOUNT OF ` .34,52,896/- STOOD CREDITED IN ASSESSEES SB ACCOUNT FROM SRI PADMABALAJI STEELS (P) LTD. AND ON THE SAME DAY, AN AMOUNT OF ` .34,50,000/- HAD BEEN TRANSFERRED TO THE ACCOUNT OF SURYA BALAJI STEELS (P) LTD. IN SUPPORT, THE ASSESSEE CLAIMED TH AT SINCE DIRECT TRANSFER BETWEEN THE TWO ENTITIES WAS NOT PERMISSIBLE, HE HA D ADOPTED THE ABOVE CHANNEL OF TRANSFERRING THE SUM IN QUESTION. HE ALS O SUBMITTED THAT SINCE LOAN OF SURYABALAJI STEELS (P) LTD. WAS NOT YET SAN CTIONED, THEREFORE, THE OTHER ENTITY NAMELY SREE PADMABALAJI STEELS (P) LTD . HAD OBTAINED A LOAN FROM BARCLAYS BANK AND CREDITED IT IN ASSESSEES AC COUNT, WHO LATER ON I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1793 1793 1793 1793/M/12 /M/12 /M/12 /M/12 4 DEBITED IT IN FAVOUR OF THE ULTIMATE PAYEE NAMELY S URYABALAJI STEELS (P) LTD., WHICH IS NOT COVERED BY THE PROVISIONS OF DEEMED DIVIDEND ENSHRINED IN SECTION 2(22)(E) OF THE ACT. HE ALSO TOOK THE PLE A OF COMMERCIAL EXPEDIENCE. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE ABOVE SAID EXPLANATION TENDERED BY THE ASSESSEE. TH EREFORE, IN THE ASSESSMENT ORDER DATED 14.12.2011, HE HELD THAT THE RE WAS NO COMMERCIAL EXPEDIENCE INVOLVED SINCE THE ASSESSEE IS A SUBSTAN TIAL SHARE HOLDERS, THE PAYMENT ABOVE SAID WAS COVERED BY SECTION 2(22)(E) OF THE ACT. THEREFORE, HE MADE THE ADDITION OF ` .34,50,000/- IN ASSESSEES TOTAL INCOME. 7. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL. THE C IT(A) IN THE APPELLATE PROCEEDINGS HAS DELETED THE ADDITION MADE BY THE AS SESSING OFFICER BY HOLDING AS UNDER: 5.3 I HAVE GONE THROUGH THE SUBMISSIONS MADE BY TH E APPELLANT AND THE ORDER OF THE ASSESSING OFFICER. AS SEEN FROM THE FA CTS ON RECORD, THE APPELLANT HAS NOT MAINTAINED ANY PERSONAL BOOKS OF ACCOUNT. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT WAS DIRECTED TO FILE STATEMENT OF AFFAIRS AND RECONCILE THE ENTRIES WITH THE PASS BOOK. AS SE EN FROM THE STATEMENT OF AFFAIRS FILED BEFORE THE ASSESSING OFFICER, AN AMOU NT OF RS.34.50 LAKHS WAS RECEIVED BY THE APPELLANT FROM SRI PADMA BALAJI STE ELS P LIMITED (SPBS) AND THE SAID AMOUNT WAS TRANSFERRED TO SURYA BALAJI STE ELS (P LIMITED (SBS), WHICH WAS INADVERTENTLY MENTIONED AS 'INVESTMENT BY THE APPELLANT IN SBS' AS SUBMITTED BY THE AR. THE APPELLANT FILED THE ACCOUN T COPY OF SBS IN THE BOOKS OF SPBS. THE APPELLANT ALSO FILED THE LEDGER ACCOUN T OF BARCLAYS BANK LOAN OF RS.34.50 LAKHS AND THE REPAYMENT SCHEDULE OF INSTAL MENTS TO THE BANK IN THE BOOKS OF SBS. AS SEEN FROM THE INFORMATION FILED BY THE LD.AR IN THE BOOKS OF SBS, THE MONTHLY INSTALMENTS WERE PAID TO SPBS WHIC H WERE FURTHER PAID TO BARCLAYS BANK LOAN ACCOUNT. DURING THE FINANCIAL YE AR 2008-09, THE ENTIRE AMOUNT OF LOAN OF RS.34.50 LAKHS WAS REPAID WITH IN TEREST. AS SEEN FROM THE LEDGER EXTRACTS FILED BY THE APPELLANT, THE APPELLA NT'S ACCOUNT WAS NOT DEBITED IN THE BOOKS OF SPBS AND IN THE BOOKS OF ACCOUNT OF SBS, NEITHER WAS IT CREDITED IN THE NAME OF THE APPELLANT AS PERSON FRO M WHOM THE AMOUNT HAS I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1793 1793 1793 1793/M/12 /M/12 /M/12 /M/12 5 BEEN RECEIVED' BY IT. THE APPELLANT WAS ONLY A MIDD LEMAN IN WHICH THE AMOUNT OF RS.34.50 LAKHS WAS PASSED ON FROM SPBS TO SBS. T HE PROVISIONS OF SECTION 2(22)(E) STATE THAT ANY PAYMENT BY A COMPANY, NOT B EING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM MADE AFTER 31 ST DAY OF MAY, 1997 BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BE ING A PERSON WHO IS THE BENEFICIAL OWNER OF THE SHARE HOLDING NOT LESS THAN 10% OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A ME MBER OR A PARTNER AND IN WHICH HAS A SUBSTANTIAL INTEREST OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULA TED PROFITS. THE BROAD REQUISITES FOR TREATING ANY PAYMENT AS DEEMED DIVID END U/S 2(22)(E) ARE (A) ANY PAYMENT IN THE NATURE OF LOAN OR ADVANCE T O THE SHAREHOLDER WHO IS THE BENEFICIAL OWNER OF SHARES. (B) ANY PAYMENT FOR THE INDIVIDUAL BENEFIT OF THE B ENEFICIAL OWNER OF THE SHARES. 5.4 IN THE FACTS OF THE PRESENT CASE, IT IS VERY C LEAR THAT THERE IS NO PAYMENT BY THE COMPANY IN THE NATURE OF LOAN OR ADVANCE TO THE SHAREHOLDER AND ALSO THE PAYMENT BY SPBS IS NOT FOR THE INDIVIDUAL BENEF IT OF THE APPELLANT. THE APPELLANT WAS AUTHORIZED BY SBS TO RECEIVE THE CHEQ UE ON ITS BEHALF FROM SPBS. THE BOARD OF DIRECTORS OF SPBS RESOLVED TO AC CEPT THE REQUEST OF SBS AND ACCORDINGLY THE PAYMENT OF RS.34.50 LAKHS WAS M ADE TO SBS. I HAVE ALSO GONE THROUGH THE BANK STATEMENTS OF THE APPELLANT I N THE INDIAN OVERSEAS BANK. IN THE SAVINGS BANK ACCOUNT OF THE APPELLANT, AN AMOUNT OF RS.72,599/- WAS OUTSTANDING BALANCE ON 4.6.2008. ON THE SAME DA Y, AN AMOUNT OF RS.34,52,896/- WAS TRANSFERRED INTO THE SAVINGS BAN K ACCOUNT AND ON THE SAME DAY IT WAS RETRANSFERRED TO THE ACCOUNT OF SBS. NO OTHER TRANSACTION TOOK PLACE ON 4.6.2008. THE CLOSING BALANCE AS ON 4.6.2008 IS RS.75,495/-. HENCE, IT IS VERY CLEAR THAT THE APPELLANT WAS NOT A BENEFICIARY OF THE AMOUNT ADVANCED BY SPBS. THE FUNDS WERE RECEIVED AND TRANSFERRED ON TH E SAME DAY. THE INTEREST AND OTHER CHARGES ARE BORNE BY SBS. SINCE THE PROVI SIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLANT, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. THESE G ROUNDS OF APPEAL ARE ALLOWED. IN THIS MANNER, THE REVENUE IS IN APPEAL BEFORE US . 8. WE HAVE HEARD BOTH PARTIES, PERUSED THE FINDING S OF THE ASSESSING OFFICER, CIT(A) AS WELL AS PAPER BOOK FILED BY THE ASSESSEE. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT ON 04.06.2008, THE AMOUNT IN QUESTION OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1793 1793 1793 1793/M/12 /M/12 /M/12 /M/12 6 ` .34,52,896/- WAS CREDITED IN ASSESSEES ACCOUNT BY SRI PADMABALAJI STEELS (P) LTD. (SUPRA). THE ASSESSEES SHARE HOLDING IN T HE ABOVE SAID COMPANY IS ALSO SUBSTANTIVE I.E. 35.01%. THE ASSESSEE CLAIMS T HAT SINCE THE ABOVE SAID AMOUNT HAD BEEN TRANSFERRED IN THE ACCOUNT OF SURYA BALAJI STEELS PVT. LTD., IT WAS ONLY COMMERCIAL EXPEDIENCE AND NOT A CASE OF DE EMED DIVIDEND. THE SOLE ISSUE WHICH REQUIRES ADJUDICATION ON OUR PART IS AS TO WHETHER THE ABOVE SAID TRANSACTION OF ` .34,52,896/- DEPOSITED IN ASSESSEES ACCOUNT BY SRI PADMABALAJI STEELS (P) LTD. CAN BE TREATED AS DEEME D DIVIDEND OR NOT. WE CLARIFY THAT IT IS NOBODYS CASE THAT THE ABOVE SAI D COMPANY DID NOT HAVE ACCUMULATED PROFITS. THE ASSESSEES SUBMISSIONS IN SUPPORT OF THE CIT(A)S ORDER ARE THAT THE AMOUNT WAS TRANSFERRED BY FOLLOW ING COMMERCIAL EXPEDIENCE AND NOT FOR HIS OWN INDIVIDUAL BENEFIT. IN THE PAPER BOOK FILED BY THE ASSESSEE BEFORE US, WE FIND NO EVIDENCE OF COMM ERCIAL EXPEDIENCE. THEREFORE, A MERE ASSERTION ON ASSESSEES PART CANN OT BE A GROUND TO PROCEED ON THE ABOVE ANALOGY IN THE ABSENCE OF COGE NT EVIDENCE ADDUCED ON RECORD OF THE CASE BY THE ASSESSEE. ACCORDINGLY, WE TURN DOWN THIS PLEA OF THE ASSESSEE. 9. SO FAR AS THE OTHER PLEA OF THE ASSESSEE THAT H E DID NOT GET ANY INDIVIDUAL BENEFIT BECAUSE OF THE CREDIT ENTRY IN Q UESTION SINCE THE AMOUNT WAS RECEIVED ON 04.06.2008 AND ON THE SAME DAY, IT WAS DEBITED IN THE ACCOUNTS OF ENTITY SURYABALAJI STEELS PVT. LTD. IS CONCERNED, IN THIS REGARD, I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1793 1793 1793 1793/M/12 /M/12 /M/12 /M/12 7 WE NOTICE FROM ASSESSEES SB ACCOUNT DETAILS AVAILA BLE AT PAGE NO. 1 OF THE PAPER BOOK THAT HE HAD HIMSELF CATEGORIZED THE ABOV E SAID DEBIT TRANSACTION FROM HIS ACCOUNT AS AN INVESTMENT MADE IN SURYABALA JI STEELS PVT. LTD. HENCE, WE FAIL TO AGREE WITH THE CONTENTION OF THE ASSESSEE THAT IT WAS A MONETARY TRANSACTION BETWEEN TWO ENTITIES AFORESAID AND HE HAD MERELY ACTED AS AN INTERMEDIARY. IN OUR OPINION, THE ACCOU NTING TREATMENT GIVEN BY THE ASSESSEE HIMSELF IS OF PRIME SIGNIFICANCE RATHE R THAN THE LEDGER BOOKS OF THE TWO ENTITIES REFERRED ABOVE. THEREFORE, ASSESSE ES ARGUMENT THAT HE DID NOT INTEND TO GET ANY INDIVIDUAL BENEFIT AS HELD BY THE CIT(A) ALSO STANDS FALSIFIED BY THE ASSESSEES PAPER BOOK PRODUCED BY HIMSELF. HENCE, BOTH ARGUMENTS RAISED BY THE ASSESSEE FAIL TO CONVINCE U S. ACCORDINGLY, WE HOLD THAT THE CIT(A) HAS WRONGLY INTERFERED IN THE FINDI NGS OF THE ASSESSING OFFICER QUA ADDITION OF DEEMED DIVIDEND IN QUESTION. AS A R ESULT, WE ACCEPT REVENUES APPEAL AND RESTORE THE ADDITION MADE BY T HE ASSESSING OFFICER. 10. CONSEQUENTLY, THE REVENUES APPEAL STANDS ALLO WED. ORDER PRONOUNCED ON FRIDAY, THE 8 TH OF FEBRUARY, 2013 AT CHENNAI. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER CHENNAI, DATED, THE 08.02.2013 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.