Smt Nishi Devi, Tanuku, Tanuku V. The DCIT, Central Circle, Rajahmundry

ITA 186/VIZ/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0181 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 18-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M NARAYANA RAO
• Keywords: Deemed dividend
• Section: 142(1)

Judgement Text

ITA NO.186/VIZAG/2011 SMT. NISHI DEVI, TANUKU 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . . . . , . . . . , $ $ $ $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.186/VIZAG/2011 ( / ASSESSMENT YEAR : 2007-08 ) SMT. NISHI DEVI TANUKU VS. DCIT CENTRAL CIRCLE RAJAHMUNDRY [ PAN : ACFPN 7450A ] ( & & & & / APPELLANT) ( '(& '(& '(& '(& / RESPONDENT ) & ) / APPELLANT BY : SHRI G.V.N. HARI, AR '(& ) / RESPONDENT BY : SHRI M. NARAYANA RAO, DR ) - / DATE OF HEARING : 18.11.2015 ) - / DATE OF PRONOUNCEMENT : 11/12/2015 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE CIT(A)-1, HYDERABAD DATED 25.1.2011 FOR THE ASS ESSMENT YEAR 2007-08. THE ASSESSEE HAS RAISED THE FOLLOWING GRO UNDS: ITA NO.186/VIZAG/2011 SMT. NISHI DEVI, TANUKU 2 1. THE LD. CIT(A)-I, HYDERABAD HAS NOT CONSIDERED THE F ACTS AND CIRCUMSTANCES OF THE CASE WHILE CONCLUDING THE APPE AL. 2. THE LD. CIT(A)-I, HYDERABAD IS NOT JUSTIFIED IN SUS TAINING THE ADDITION U/S 2 (22)(E) WITHOUT CONSIDERING THE FACTS AND CIRCUMS TANCES OF THE CASE. 2. THE BRIEF FACTS OF THE CASE, IS THAT THE ASSESSE E IS AN INDIVIDUAL WHO IS A SHAREHOLDER AND DIRECTOR OF NISHI EGG POUL TRY PRODUCT PVT. LTD. THE ASSESSEE DID NOT FILED THE RETURN OF INCOME BEF ORE THE DUE DATE SPECIFIED U/S 139, HENCE, A NOTICE U/S 142(1) OF TH E INCOME-TAX ACT, 1961 (HEREAFTER CALLED AS THE ACT) WAS ISSUED ON 27.11.2007, REQUESTING ASSESSEE TO FILE RETURN OF INCOME ON OR BEFORE 17.12.2007. IN RESPONSE TO THIS NOTICE, THE ASSESSEE FILED A RETUR N OF INCOME ON 20.3.2009 DECLARING TOTAL INCOME OF RS.6,55,900/-. THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE U/S 14 2(1) OF THE ACT ALONG WITH QUESTIONNAIRE WAS ISSUED TO THE ASSESSEE. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEES AUTHORIZED REPRESENTAT IVE APPEARED FROM TIME TO TIME AND FURNISHED THE INFORMATION CALLED F OR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FO UND THAT AS PER THE BOOKS OF ACCOUNTS OF NEPPP LTD., THE ASSESSEE HAS R ECEIVED AN AMOUNT OF RS.35,68,404/-. SINCE, THE ASSESSEE WAS HOLDING BENEFICIAL OWNERSHIP IN THE COMPANY BY HOLDING MORE THAN 50% SHARES, THE A.O. ISSUED A SHOW CAUSE NOTICE AND ASKED THE ASSESSEE TO EXPLAIN , WHY THE AMOUNT RECEIVED BY HER SHALL NOT BE TREATED AS DEEMED DIVI DEND U/S 2(22)(E) OF ITA NO.186/VIZAG/2011 SMT. NISHI DEVI, TANUKU 3 THE ACT. IN REPLY TO THE SHOW CAUSE NOTICE, THE AS SESSEE SUBMITTED THAT THE AMOUNT RECEIVED FROM THE COMPANY WAS TOWARDS SA LE OF THE PROPERTY, THEREFORE, THE PROVISIONS OF SECTION 2(22 )(E) OF THE ACT CANNOT BE APPLIED. SHE FURTHER EXPLAINED THAT DUE TO LACK OF LIQUIDITY OF CASH, SHE HAD DECIDED TO SELL HER PROPERTY TO THE COMPANY AND ENTERED INTO AN AGREEMENT OF SALE, FOR A CONSIDERATION OF RS.80 LAK HS AND RECEIVED ADVANCE TOWARDS SALE OF PROPERTY. SHE FURTHER CLAI MS THAT THE SAID PROPERTY WAS GIVEN TO BANK AS A COLLATERAL SECURITY FOR AVAILING THE WORKING CAPITAL LOAN FOR THE COMPANY, THEREFORE, TH E ADVANCE RECEIVED FROM THE COMPANY CANNOT BE CONSIDERED AS LOAN OR DE POSIT WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. HOWEVER, T HE A.O. REJECTED THE EXPLANATIONS OFFERED BY THE ASSESSE, AFTER ANALYZIN G THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND ALSO RELYING UPON T HE SEVERAL JUDICIAL DECISIONS, HELD THAT THE DEBIT BALANCE APPEARING IN THE BOOKS OF THE COMPANY IN THE NAME OF THE ASSESSE, MUST BE REGARDE D AS DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE CIT(A), THE ASSES SEE SUBMITTED THAT THE A.O. MADE THE ADDITIONS PURELY ON GUESS AND SUR MISES WITHOUT CONSIDERING THE FACT THAT ALL DEBIT BALANCES CANNOT BE CONSIDERED AS LOAN ITA NO.186/VIZAG/2011 SMT. NISHI DEVI, TANUKU 4 OR DEPOSIT. THE ASSESSE FURTHER SUBMITTED THAT SHE HAD RECEIVED THE AMOUNT FROM THE COMPANY TOWARDS SALE OF PROPERTY, T O THIS EFFECT FURNISHED A COPY OF THE SALE AGREEMENT ENTERED INTO WITH THE COMPANY. THE ASSESSEE FURTHER SUBMITTED THAT SHE DID NOT DER IVE ANY INDIVIDUAL BENEFIT FROM THE SAID AMOUNT, AS THIS IS NOT A LOAN OR ADVANCE FROM THE COMPANY. THE ASSESSEE FURTHER SUBMITTED THAT JUST BECAUSE THE AMOUNT WAS SHOWN AS DIRECTORS ADVANCE IN THE COMPANYS BO OKS OF ACCOUNTS, IT CANNOT BE CONSIDERED AS LOAN OR ADVANCE TO THE ASSE SSEE. THE A.O. IS REQUIRED TO JUDGE WHETHER THE NATURE OF TRANSACTION IS PURELY A LOAN OR ADVANCE. IT IS TRUE THAT THE COMPANY HAD MADE PAYM ENT OF INCOME TAX, INSURANCE PREMIUM, MUNICIPAL TAXES, ETC. ON BEHALF OF THE ASSESSEE. DUE TO LACK OF LIQUIDITY THE ASSESSEE AGREED TO SEL L HER PROPERTY TO THE COMPANY AND RECEIVED THE AMOUNT PERIODICALLY FROM T HE COMPANY TOWARDS SALE ADVANCE. SHE FURTHER CLAIMED THAT SIN CE, THE COMPANY IS UNABLE TO PAY THE SALE ADVANCE IN ONE STRETCH, SHE HAS ACCEPTED PERIODICAL PAYMENT AS AND WHEN SHE REQUIRED THE MON EY. THEREFORE, THIS CANNOT BE CONSIDERED AS LOAN OR DEPOSIT FOR TH E PURPOSE OF SECTION 2(22)(E) OF THE ACT. THE CIT(A), HOWEVER, HELD THA T THE ASSESSEE HAS RECEIVED THE LOAN FROM THE COMPANY AND TO CIRCUMVEN T THE TRANSACTION CREATED A SALE AGREEMENT. THE CIT(A), FURTHER OBSE RVED THAT ON VERIFICATION OF THE SAID SALE AGREEMENT, IT WAS NOT ICED THAT THE SALE ITA NO.186/VIZAG/2011 SMT. NISHI DEVI, TANUKU 5 AGREEMENT IS ENTERED IN THE YEAR 2005, WHEREAS THE STAMP PAPER WAS PURCHASED IN 17.6.2003, THEREFORE, DOUBTED THE GENU INENESS OF THE AGREEMENT. THE CIT(A) FURTHER OBSERVED THAT THOUGH THE AGREEMENT TO SALE IS ENTERED IN 2005, EVEN AT THIS STAGE, THE SA LE IS NOT COMPLETE. THEREFORE, THE SALE AGREEMENT CANNOT BE ACCEPTED AS A DOCUMENT IN SUPPORT OF HER CLAIM. THE CIT(A), FURTHER HELD THA T THE ASSESSEE IS TRYING TO COVER UP THE SAID ADVANCE BY CREATING A F ICTITIOUS SALE AGREEMENT WHICH CANNOT BE ACCEPTED. THEREFORE, CON FIRMED THE ADDITIONS MADE BY THE A.O. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE AUTHROISED REPRESENTATIVE OF THE ASSESSE, SU BMITTED THAT THE DEBIT BALANCE APPEARING IN THE COMPANY BOOKS IN THE NAME OF THE ASSESSE IS THE ADVANCE PAID FOR PURCHASE OF PROPERT Y. THE A.R. FURTHER SUBMITTED THAT THE ASSESSE ENTERED INTO SALE AGREEM ENT WITH THE COMPANY AND RECEIVED MONEY TOWARDS ADVANCE. THE A. R. FURTHER SUBMITTED THAT SHE DID NOT DERIVE ANY INDIVIDUAL BE NEFIT FROM THE SAID AMOUNT, AS THE POSSESSION OF PROPERTY WAS ALREADY W ITH THE COMPANY AND COMPANY GIVEN THE SAID PROPERTY AS COLLATERAL S ECURITY TO BANK FOR AVAILING LOAN FOR THE COMPANY BUSINESS. THE A.R. F URTHER SUBMITTED THAT JUST BECAUSE THE AMOUNT WAS SHOWN AS DIRECTORS ADV ANCE IN THE ITA NO.186/VIZAG/2011 SMT. NISHI DEVI, TANUKU 6 COMPANYS BOOKS OF ACCOUNTS, IT CANNOT BE CONSIDERE D AS LOAN OR ADVANCE TO THE ASSESSE WITHIN THE MEANING OF SECTIO N 2(22)( E ) OF THE ACT. ON THE OTHER HAND, THE D.R. STRONGLY SUPPORTED THE ORDERS OF CIT(A). 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. THE FACTS WITH REGARD TO THE DEBIT BALANCE AND THE ACCUMULATED PROFITS IN THE BOOKS OF ACCOUNTS OF THE COMPANY TO THE EXTENT OF RS.35,68,404/- IS NOT DISPUTED. THE ONLY DISPUTE WITH REGARD TO, WHETHER THE SAID DEBIT BALANCE IN THE NAME OF T HE ASSESSE IN THE COMPANYS BOOKS, IS A LOAN OR DEPOSIT WHICH ATTRACT S PROVISIONS OF SECTION 2(22)( E) OR WHICH IS MERELY A SALE ADVANCE , IS THE QUESTION BEFORE US FOR OUR CONSIDERATION. IN THIS CASE, THE A.O. INVOKED THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, FOR THE REASON THAT THE ASSESSEE HAS RECEIVED THE LOAN FROM ACCUMULATED PRO FITS OF THE COMPANY. THE A.O. WAS OF THE OPINION THAT THE ASSE SSEE HAS PERIODICALLY DRAWN THE AMOUNT TOWARDS HER PERSONAL EXPENDITURE, LIKE PAYMENT OF INSURANCE PREMIUM, INCOME TAX AND REPAYM ENT OF LOANS AND THESE AMOUNTS WERE DEBITED TO HER ACCOUNT IN THE CO MPANYS BOOKS OF ACCOUNTS, THEREFORE, INVOKED THE PROVISIONS OF SECT ION 2(22)(E) OF THE ACT. THE ASSESSEES CONTENTION IS THAT SHE HAS R ECEIVED THE AMOUNT ITA NO.186/VIZAG/2011 SMT. NISHI DEVI, TANUKU 7 FROM THE COMPANY TOWARDS SALE OF PROPERTY AND FURNI SHED A COPY OF SALE AGREEMENT ENTERED INTO WITH THE COMPANY FOR SALE OF PROPERTY. ON PERUSAL OF LEDGER ACCOUNT, WE NOTICED THAT DURING T HE FINANCIAL YEAR 2006-07, THE ASSESSEE HAS DRAWN AN AMOUNT OF RS.43, 93,705/- FROM THE COMPANY FOR VARIOUS PURPOSES. ON PERUSAL OF THE LE DGER ACCOUNT, WE NOTICED THAT THERE ARE CREDITS IN THE ACCOUNT IN TH E FORM OF BANK RECEIPTS, REMUNERATION AND RENT. THE NET EFFECT OF THESE TRANSACTIONS APPEARS DEBIT IN THE NAME OF THE ASSESSEE FOR AN AM OUNT OF RS.35,68,404/-. WE ALSO EXAMINED THE COPY OF SALE AG REEMENT FILED BY THE ASSESSEE AND NOTICED THAT THE SAID SALE AGREEME NT IS UNREGISTERED ONE, WHICH IS ALSO ENTERED IN THE YEAR 2005, ON THE STAMP PAPER WHICH WAS PURCHASED IN THE YEAR 2003. THE ASSESSEE COULD NOT ADDUCE ANY REASONS FOR USING THE STAMP PAPER PURCHASED ALMOST 2 YEARS BACK FOR ENTERING THE SALE AGREEMENT. AS STATED BY THE CIT(A ) IN HIS ORDER, THE SALE TRANSACTION IS NOT COMPLETED EVEN NOW. THE ASS ESSEE CONTENDED IS THAT SINCE, THE COMPANY IS UNABLE TO PAY THE AGREED SALE CONSIDERATION, THEREFORE THE SALE IS DEFERRED, BUT, FAILED TO SUBS TANTIATE WITH ANY EVIDENCE. THEREFORE, WE ARE OF THE OPINION THAT THE ASSESSEE IS TRYING TO CIRCUMVENT THE LOAN TAKEN BY HER FROM THE COMPANY B Y CREATING THE SALE AGREEMENT. ON PERUSAL OF THE SALE AGREEMENT, WE NOT ICED THAT ONE OF THE CONDITION OF SALE AGREEMENT IS THAT THE SALE SH OULD BE COMPLETED ITA NO.186/VIZAG/2011 SMT. NISHI DEVI, TANUKU 8 WITHIN ONE YEAR FROM DATE OF THE SALE AGREEMENT. T HE ASSESSEE COULD NOT ADDUCE ANY REASON FOR NOT COMPLETING THE SALE. IT IS QUITE UNUSUAL THAT AGREEMENT OF SALE HAS BEEN PREPARED ON STAMP P APER WHICH WAS PURCHASED ALMOST TWO YEARS BACK. FURTHER, THERE IS NOTHING IN THE COMPANYS BOOKS TO INDICATE THAT ANY SUCH TRANSACTI ON HAS BEEN TAKEN DURING THE RELEVANT FINANCIAL YEAR UNDER CONSIDERAT ION. THE ASSESSEE IS CONTINUING TO ENJOY THE BENEFITS OF THE PROPERTY BY GETTING RENT FROM THE COMPANY. THE ASSESSE CONTENTION IS THAT THE PROPERT Y IS GIVEN AS COLLATERAL SECURITY TO BANK TO AVAIL THE LOAN FOR T HE COMPANY BUSINESS PURPOSE. BUT, FROM THIS FACT ALONE WE CANNOT COME T O THE CONCLUSION THAT THE COMPANY IS HAVING THE POSSESSION OF THE PR OPERTY AND THE ASSESSEE HAS ENTERED INTO A SALE AGREEMENT. THEREF ORE, IN OUR OPINION, THE ASSESSEE IS TRYING TO CIRCUMVENT THE ALLEGED LO AN AND ADVANCES BY FURNISHING AN UNREGISTERED SALE AGREEMENT, WHICH WA S LATER NOT ACTED UPON BY BOTH THE PARTIES EVEN NOW. HENCE, WE HOLD THAT THE A.O. IS RIGHT IN TREATING THE LOAN RECEIVED BY THE ASSESSE AS DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT . THE CIT(A) HAS CONSIDERED THE ISSUE ELABORATELY AND UPHELD THE ADD ITIONS MADE BY THE A.O. THEREFORE, WE UPHELD THE ORDER OF THE CIT(A) A ND DISMISS THE APPEAL FILED BY THE ASSESSEE. ITA NO.186/VIZAG/2011 SMT. NISHI DEVI, TANUKU 9 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 11 TH DEC15. SD/- SD/- ( . ) ( . . . . ) ( (( ( V. DURGA RAO ) )) ) ( G. MANJUNATHA) / // / JUDICIAL MEMBER / // / ACCOUNTANT MEMBER /VISAKHAPATNAM: 3 / DATED : VG/SPS ) ' 4 / COPY OF THE ORDER FORWARDED TO :- 1. & / THE APPELLANT I.S.B. SHANKAR, AUDITOR, D.NO.35-3-2/1, STATION ROA D, NEAR HEAD POST OFFICE, TANUKU-534211. 2. '(& / THE RESPONDENT DCIT CENTRAL CIRCLE, RAJAHMUNDRY 3. 5 / THE CIT (CENTRAL), HYDERABAD, 4. 5 () / THE CIT (A)-I, HYDERABAD 5. THE ACIT, CENTRAL RANGE, VISAKHAPATNAM 6. ' , , / // / DR, ITAT, VISAKHAPATNAM 6 . . . . / GUARD FILE / BY ORDER // TRUE COPY // 9: ( SR.PRIVATE SECRETARY ) , / // / ITAT, VISAKHAPATNAM SL. NO. DESCRIPTION DATE INITIALS 1. DATE OF DICTATION BY THE AUTHOR SR.PS 2. DRAFT PLACED BEFORE THE DICTATING MEMBER SR.PS 3. DRAFT PLACED BEFORE THE SECOND MEMBER SR. PS 4. DRAFT APPROVED BY THE SECOND MEMBER SR. PS 5. DATE OF APPROVED ORDER COMES TO THE SR. PS SR. PS 6. DATE OF PRONOUNCEMENT OF ORDER SR. PS 7. DATE OF FILE SENT TO THE BENCH CLERK SR. PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK HD. C LK 9. DATE OF DISPATCH OF ORDER SR. PS