Mr Manish V Jain, Pune V. Dy. CIT Cir-4, Pune

ITA 197/PUN/2012

• Counselvise Citation: 19724514 RSA 2012
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 01-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH; MRS SUNITA RAO
• Keywords: Deemed dividend
• Section: 143(3); 147; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER SR. NO. ITA NO. A.Y. APPELLANT RESPONDENT 1. 193/PN/12 2003-04 MR. KEWALKUMAR JAIN, 2413 EAST STREET, KUMAR CAPITAL, 1 ST FLOOR, CAMP, PUNE 411 001 PAN AAYPJ 2209 C ASSTT. CIT CIR. 4, PUNE. 2. 194/PN/12 2003-04 -DO- DY. CIT CIR. 4, PUNE. 3. 195/PN/12 2003-04 SMT. RANJANA JAIN LH OF LATE INDERKUMAR K. JAIN 2413 EAST STREET, KUMAR CAPITAL, 1 ST FLOOR, CAMP, PUNE 411 001 PAN AAYPJ 2212 M -DO- 4. 196/PN/12 2003-04 -DO- -DO- 5. 197/PN/12 2003-04 MR. MANISH V. JAIN LH LATE VIMALKUMAR K. JAIN 2413 EAST STREET, KUMAR CAPITAL, 1 ST FLOOR, CAMP, PUNE 411 001 PAN AAYPJ 2208 D -DO- 6. 198/PN/12 2003-04 -DO- ASSTT. CIT CIR. 4, PUNE. APPELLANT BY : MR. RAJAN VORA & MR. RAJENDRA AGIWAL RESPONDENT BY : MR. S.K. SINGH & MRS. SUNITA RAO DATE OF HEARING : 11-06-2013 DATE OF PRONOUNCEMENT : 24-06-2013 ORDER PER G. S. PANNU, AM ALL THE CAPTIONED APPEALS INVOLVE A COMMON ISSUE. T HEREFORE, THEY HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF BREVITY. 2. ITA NO. 193/PN/2012 PERTAINING TO A.Y. 2003-04 I S TAKEN UP AS THE LEAD CASE IN DEFERENCE TO THE SUBMISSIONS BY THE RIVAL P ARTIES. THIS IS AN APPEAL PAGE 2 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (IN SHORT THE COMMISSIONER) DATED 31.03.2010 PASS ED UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) HOLDING T HAT THE ORDER OF ASSESSMENT PASSED BY THE ASSESSING OFFICER ON 12.06.2007 UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE WITHIN THE MEANING OF SECTION 263 OF THE AC T. 3. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE APPEAL FILED BY THE ASSESSEE WAS DELAYED BY 20 MONT HS. HOWEVER, IT IS SUBMITTED THAT THE DELAY BE CONDONED AS SAME WAS UNINTENTIONA L AND ON ACCOUNT OF MISUNDERSTANDING OF LAW AND IN SUPPORT, A DETAILED AFFIDAVIT OF THE ASSESSEE HAS BEEN FURNISHED. 4. THE REASONS FOR THE DELAY HAVE BEEN EXPLAINED AS FOLLOWS. THAT THERE WAS A CHANGE IN CONSULTANT AND WHEN THE IMPUGNED ORDER WAS PASSED BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT, ASSESSEE WAS ADVISED NOT TO FILE AN APPEAL AGAINST THE SAID ORDER AND ASSESSEE WAS UNDE R A BONA-FIDE BELIEF THAT THE CONSEQUENTIAL ORDER OF THE ASSESSING OFFICER UNDER SECTION 143(3) READ WITH SECTION 263 OF THE ACT IS ONLY APPEALABLE BEFORE TH E CIT(A), AND THAT THE ORDER PASSED UNDER SECTION 263 OF THE ACT CANNOT BE SEPAR ATELY CHALLENGED. PURSUANT TO THE ORDER OF THE COMMISSIONER UNDER SECTION 263 OF THE ACT DIRECTING THE ASSESSING OFFICER TO VERIFY THE QUANTUM OF DEEMED DIVIDEND ASSESSABLE IN THE HANDS OF THE ASSESSEE, THE ASSESSING OFFICER FRAMED AN ASSESSMENT, WHICH WAS CHALLENGED IN APPEAL BEFORE THE CIT(A). THE CIT(A) MERELY RELIED UPON ON THE FINDINGS OF THE COMMISSIONER PASSED IN THE ORDER UN DER SECTION 263 OF THE ACT WITHOUT CONSIDERING THE MERITS OF THE CASE, AND HOL DING THAT THE CIT(A) CANNOT SIT OVER COMMISSIONERS DECISION. THE SAID UNEXPECTED D ECISION OF THE CIT(A) MADE THE ASSESSEE OPT FOR FILING OF AN APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE COMMISSIONER PASSED UNDER SECTION 263 OF THE AC T. THE AFORESAID FACT SITUATION LED TO THE DELAY IN FILING OF APPEAL BEFO RE THE TRIBUNAL. PAGE 3 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 5. THE LEARNED COUNSEL FOR THE ASSESSEE HAS EXPLAIN ED THAT ALL ALONG ASSESSEE WANTED TO AGITATE THE DIRECTIONS GIVEN BY THE COMMISSIONER IN HIS ORDER PASSED UNDER SECTION 263 OF THE ACT AND OPTED TO SE EK REMEDY FOR FILING OF AN APPEAL BEFORE THE LEARNED CIT(A) AGAINST THE CONSEQ UENTIAL ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) READ WITH SE CTION 263 OF THE ACT UNDER A MISUNDERSTANDING OF LAW. LEARNED COUNSEL SUBMITTED THAT IN A SIMILAR SITUATION AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF SAKA R PATAL VIBHAG JUNGLE KAMDARR SAHAKARI MANDLI LTD. VS. ITO (1991) 39 TTJ 54 (AHD.) CONDONED THE DELAY IN FILING OF APPEAL AGAINST THE ORDER OF THE COMMISSIONER UNDER SECTION 263 OF THE ACT. THE LEARNED COUNSEL HAS ALSO PLACED REL IANCE ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TAJ SATS A IR CATERING LTD. VS. CIT, ITA NO.1096 OF 2012 (BOM.) AND THAT OF THE HONBLE SUPR EME COURT IN THE CASE OF COLLECTOR OF LAND ACQUISITION VS. MST. KATIJI & OTH ERS (1987) 167 ITR 471 (SC) TO JUSTIFY THE CONDONATION OF DELAY. 6. ON THIS ASPECT, THE LEARNED DEPARTMENTAL REPRESE NTATIVE HAS NOT DOUBTED THE BONA-FIDES OF THE REASONS FOR THE DELAY, BUT HA S SUBMITTED THAT THE BURDEN IS ON THE ASSESSEE TO EXPLAIN THE DELAY APPROPRIATELY. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND ALSO PERUSED THE AFFIDAVIT FILED BY THE ASSESSEE. IN OUR CONSIDERED OPINION, THE FACTS OF THE CASE DO NOT SUGGEST THAT THE ASSESSEE ACTED IN A NEGLIGENT OR IN A MALA-FIDE MANNER QUA THE DELAY IN FILING OF APPEAL BEFORE THE TRIBUNAL. THE HONBLE SUPREME COURT IN THE CASE OF MST. KATIJI & OTHERS (SUPRA) HAD EXPLAI NED, IN THE CONTEXT OF THE EXPRESSION SUFFICIENT CAUSE THAT IT REFERS TO ENA BLING THE COURTS TO APPLY THE LAW IN A MEANINGFUL MANNER WHICH SERVES THE ENDS OF JUS TICE. AS PER THE HONBLE SUPREME COURT, IN MATTERS WHERE SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERATIONS ARE PITTED AGAINST EACH OTHER, THE CAUSE OF SUBSTAN TIAL JUSTICE DESERVES TO BE PREFERRED AND EVEN A LIBERAL APPROACH IN SUCH MATTE RS IS ALSO JUSTIFIED. IN THIS BACKGROUND, WE MAY EXAMINE THE REASONS ADVANCED BY THE ASSESSEE FOR DELAY PAGE 4 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 IN FILING OF APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER PASSED BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT. 8. PRIMARILY, THE COMMISSIONER SET-ASIDE THE ASSESS MENT WITH A DIRECTION TO THE ASSESSING OFFICER TO ARRIVE AT THE CORRECT AVAI LABLE ACCUMULATED PROFITS FOR THE PURPOSES OF CONSIDERING THE AMOUNT OF DEEMED D IVIDEND ASSESSABLE IN THE HANDS OF THE ASSESSEE UNDER SECTION 2(22)(E) OF THE ACT . A PERUSAL OF THE ORDER OF THE COMMISSIONER WOULD REVEAL THAT THE EFFECT OF THE ORDER WAS AGAINST THE ASSESSEE; BUT THE ASSESSEE MISCONSTRUED IT BY ASSUM ING THAT SINCE THE MATTER WAS REMITTED BACK TO THE ASSESSING OFFICER, HE COUL D AGITATE THE CONSEQUENTIAL ORDER TO BE PASSED BY THE ASSESSING OFFICER IN THE APPEAL PROCEEDINGS BEFORE THE CIT(A) ONLY. IN VIEW OF THE NATURE OF THE ORDER PAS SED BY THE COMMISSIONER UNDER SECTION 263 OF THE ACT, ASSESSEE ENTERTAINED A BELIEF THAT AS THE ORIGINAL ASSESSMENT HAD BEEN SET-ASIDE, THERE WAS NO NECESSI TY OF CHALLENGING THE ORDER OF THE COMMISSIONER IN APPEAL BEFORE THE TRIBUNAL. IT WAS IN FACT AFTER THE DECISION OF HIS APPEAL BY THE CIT(A) AGAINST THE OR DER OF FRESH ASSESSMENT THAT THE ASSESSEE REALIZED THAT IT OUGHT TO HAVE CHALLEN GED THE ORDER OF THE COMMISSIONER PASSED UNDER SECTION 263 OF THE ACT IN APPEAL BEFORE THE TRIBUNAL. IN OUR CONSIDERED OPINION, MISCONSTRUCTIO N OF THE ORDER OF THE COMMISSIONER BY THE ASSESSEE AND NOT FILING AN APPE AL AGAINST IT WITHIN TIME IS WRONG BUT THE SAME CANNOT BE CONSIDERED TO BE MALA- FIDE OR WITH ANY ULTERIOR PURPOSE. BECAUSE, THE ASSESSEE WAS AGGRIEVED WITH T HE MANNER IN WHICH THE AMOUNTS HAVE BEEN DETERMINED TO BE ASSESSABLE UNDER SECTION 2(22)(E) OF THE ACT BY THE COMMISSIONER, AND OPPOSED THE SAME DURIN G THE CONSEQUENTIAL ASSESSMENT PROCEEDINGS. THEREFORE, IT IS NOT A CASE WHERE ASSESSEE INTENDED TO GIVE UP THE CHALLENGE TO THE ENHANCED AMOUNT SOUGHT TO BE ASSESSED BY THE COMMISSIONER UNDER SECTION 2(22)(E) OF THE ACT. 9. WE MAY REFER TO THE JUDGEMENT OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF TAJ SATS AIR CATERING LTD. (SUPRA) WHEREIN THE ASSESSEE HAD FILED AN PAGE 5 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 APPEAL BEFORE THE HONBLE HIGH COURT BELATEDLY BY 1 ,195 DAYS. ALTHOUGH, DELAY WAS SUBSTANTIAL, THE HONBLE HIGH COURT CONDONED TH E DELAY BY OBSERVING THAT THE ISSUE RAISED IN APPEAL WAS BEING CONTESTED BY T HE ASSESSEE IN THE OTHER YEARS AND THEREFORE IT WAS CLEAR THAT THE ASSESSEE NEVER INTENDED TO GIVE UP THE CHALLENGE IN RESPECT OF IMPUGNED ISSUES MERELY ON A CCOUNT OF MISCONSTRUCTION OF AN ORDER OF THE TRIBUNAL WHEREBY THE ISSUES WERE SE T-ASIDE TO THE ASSESSING OFFICER. 10. CONSIDERED IN THE LIGHT OF THE ABOVE REASONING AND THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT IN THE ABSE NCE OF ANY MALA-FIDE OR ULTERIOR PURPOSE, THE ASSESSEE CAN BE SAID TO HAVE SUFFICIE NT CAUSE FOR NOT PRESENTING ITS APPEAL BEFORE THE TRIBUNAL IN TIME AGAINST THE ORDE R OF THE COMMISSIONER PASSED UNDER SECTION 263 OF THE ACT. WE, THEREFORE, CONDON E THE DELAY IN FILING OF APPEAL BEFORE THE TRIBUNAL. THE AFORESAID DECISION WAS PRO NOUNCED IN THE OPEN COURT AT THE TIME OF HEARING AND ACCORDINGLY THE RIVAL PARTI ES PROCEEDED TO ADDRESS THE CONTROVERSY ON ITS MERITS. 11. THE RELEVANT BACKGROUND TO APPRECIATE THE PRESE NT DISPUTE RAISED BY THE ASSESSEE CAN BE UNDERSTOOD AS FOLLOWS. THE APPELLA NT, AN INDIVIDUAL, IS A SHAREHOLDER IN M/S. APOORVA PROPERTIES AND ESTATES PVT. LTD. (IN SHORT THE COMPANY), A COMPANY INCORPORATED UNDER THE PROVISI ONS OF THE COMPANIES ACT, 1956 IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTE RESTED. THE ASSESSEE WAS FOUND TO HAVE RECEIVED A LOAN FROM THE SAID COMPANY WHICH STOOD AT RS.1,51,06,825/- AS ON 31.03.2003 OUT OF WHICH RS.7 6,33,928/- WAS RECEIVED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE WAS OWNING 14% SHAREHOLDING IN THE COM PANY AND THEREFORE, THE AMOUNT OF LOAN RECEIVED FROM THE SAID COMPANY WAS L IABLE TO BE TREATED AS A DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE TO THE EXTENT THE COMPANY POSSESSED ACCUMULATED PR OFITS. APART FROM THE ASSESSEE, THERE WERE THREE OTHER SHAREHOLDERS IN TH E COMPANY WHO HAD ALSO PAGE 6 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 RECEIVED LOANS/ADVANCES DURING THE YEAR UNDER CONSI DERATION FROM THE SAID COMPANY AND THEIR RESPECTIVE SHAREHOLDING ALSO EXCE EDED 10%, THE LIMIT PRESCRIBED IN SECTION 2(22)(E) OF THE ACT IN ORDER TO BRING SUCH PAYMENTS WITHIN THE FOLD OF SECTION 2(22)(E) OF THE ACT. THE OTHER THREE SHAREHOLDERS AND THE AMOUNT OF LOANS RECEIVED DURING THE YEAR WERE (I) A VINASH BHOSALE RS.1,52,67,276/- (HOLDING 59% SHAREHOLDING); (II) I NDERKUMAR JAIN RS.76,33,928/- (HOLDING 13% SHAREHOLDING); (III) VI MALKUMAR JAIN RS.76,33,928/- (HOLDING 14% SHAREHOLDING) THEREBY REFLECTING TOTAL LOANS OF RS.3,81,69,640/- RECEIVED BY THE SHAREHOLDERS DURING THE YEAR UNDER CONSIDERATION FROM THE COMPANY WHICH FELL WITHIN THE PURVIEW OF SECTION 2( 22)(E) OF THE ACT IN THE HANDS OF RESPECTIVE FOUR SHAREHOLDERS, INCLUDING THE ASSE SSEE. 12. FOR THE A.Y 2003-04 I.E. ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE ORIGINALLY FILED A RETURN OF INCOME ON 29.09.2003 D ECLARING TOTAL INCOME OF RS.34,80,900/-, WHICH WAS PROCESSED UNDER SECTION 1 43(1) OF THE ACT ON 19.11.2003. SUBSEQUENTLY, THE ASSESSING OFFICER RE OPENED SUCH ASSESSMENT BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT ON 28.0 5.2007 IN ORDER TO TAX AN INCOME CHARGEABLE TO TAX WHICH HAD ESCAPED ASSESSME NT. IN THE CONSEQUENT ASSESSMENT FRAMED UNDER SECTION 143(3) READ WITH SE CTION 147 OF THE ACT DATED 12.06.2007, THE TOTAL INCOME OF THE ASSESSEE HAS BE EN ASSESSED AT RS.77,59,640/- AS AGAINST RETURNED INCOME OF RS.34, 80,900/-, THEREBY RESULTING IN AN ADDITION OF RS.42,78,740/- ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT AMOUNTING TO RS.42,49,008/- AND A SUM OF RS. 29,730/- ON ACCOUNT OF CAPITAL GAIN. 13. SUBSEQUENTLY, THE COMMISSIONER SHOW CAUSED THE ASSESSEE ON 08.03.2010 AS TO WHY THE ASSESSMENT ORDER DATED 12. 06.2006 (SUPRA) BE NOT CONSIDERED AS ERRONEOUS IN SO FAR AS IT IS PREJUDIC IAL TO THE INTERESTS OF REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT ON THE GROUND THAT WHILE THE ASSESSEE HAD RECEIVED A LOAN OF RS. 76,33,928/- FRO M THE COMPANY, WHAT WAS PAGE 7 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 ASSESSED UNDER SECTION 2(22)(E) OF THE ACT AS DEEM ED DIVIDEND WAS ONLY RS.42,49,008/-. THUS, AS PER THE COMMISSIONER, THER E WAS AN UNDER ASSESSMENT OF INCOME TO THE EXTENT OF RS. 33,84,920/-. 14. IN ORDER TO APPRECIATE THE AFORESAID POINT OF T HE COMMISSIONER, A BRIEF REFERENCE TO THE MANNER IN WHICH THE ASSESSING OFFI CER HAS TAXED THE SUM OF RS.42,49,008/- UNDER SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE IS RELEVANT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE EXPLAINED THE FACTUAL POSITION VIDE COMMUNICATION DATED 06.06.200 7, A COPY OF WHICH HAS ALSO BEEN PLACED ON RECORD. IN TERMS OF THE SAID COMMUN ICATION, WHICH HAS ALSO BEEN REFERRED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, IT TRANSPIRES THAT THE ASSESSEE EXPLAINED THAT THE TOTAL LOAN RECEIVED BY THE SHAREHOLDERS HOLDING AT LEAST 10% OF THE VOTING POWER IN THE COMPANY DURING THE YEAR AMOUNTED TO RS.3,81,69,640/-, WHEREAS THE TOTAL ACCUMULATED PR OFITS AVAILABLE WAS ONLY RS.2,61,19,957/- AND THEREFORE, THE AMOUNT ASSESSAB LE UNDER SECTION 2(22)(E) OF THE ACT WAS TO BE LIMITED TO THE EXTENT OF THE AVAI LABILITY OF ACCUMULATED PROFITS. AS THE SHAREHOLDING OF THE ASSESSEE WAS 14%, THE CO RRESPONDING SHARE OF THE ASSESSEE IN THE ACCUMULATED PROFITS WAS TAKEN AT RS . 36,56,738/- AND ACCORDINGLY, OUT OF THE TOTAL LOAN OF RS. 76,33,928 /- RECEIVED BY THE ASSESSEE FROM THE COMPANY DURING THE YEAR UNDER CONSIDERATIO N, ONLY AN AMOUNT OF RS.36,56,738/-, BEING HIS SHARE OF THE ACCUMULATED PROFITS OF RS.2,61,19,957/- WAS ASSESSED UNDER SECTION 2(22)(E) OF THE ACT. THE ASSESSING OFFICER ACCEPTED THE SAID POSITION AND IN ADDITION FURTHER TAXED A S UM OF RS.5,92,270/- WHICH ACCORDING TO HIM WAS THE SHARE OF THE ASSESSEE (I.E . 14%) OF THE ACCUMULATED PROFITS REFLECTED BY THE GENERAL RESERVE APPEARIN G IN THE BALANCE-SHEET AS ON 31.03.2003 AT RS.42,30,501/-. IN THIS MANNER, THE A SSESSING OFFICER TAXED AN AMOUNT OF RS.42,49,008/- UNDER SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE. PAGE 8 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 15. AS PER THE COMMISSIONER, THE ACTION OF THE ASSE SSING OFFICER IN RESTRICTING THE ADDITION TO RS. 42,49,008/- I.E. 14% OF THE AC CUMULATED PROFITS CORRESPONDING TO ASSESSEES SHAREHOLDING OF 14% IN THE COMPANY, WAS INCORRECT, BECAUSE THERE WAS NOTHING IN SECTION 2(22)(E) OF TH E ACT PERMITTING OR PRESCRIBING SUCH A RESTRICTION. FURTHER, IN THE ORDER PASSED B Y THE COMMISSIONER THE DETERMINATION OF ACCUMULATED PROFITS BY THE ASSES SING OFFICER IS FOUND TO BE INCORRECT. AS PER THE COMMISSIONER, THE ACCUMULAT ED PROFITS AVAILABLE AS PER THE BALANCE-SHEET OF THE ASSESSEE FOR THE YEAR ENDI NG 31.03.2002 I.E. PRECEDING YEAR WAS RS.1,94,62,774/- AND AFTER TAKING INTO CON SIDERATION THE POST-TAX PROFIT OF THE YEAR UNDER CONSIDERATION, THE ACCUMULATED P ROFITS AS ON 31.03.2003 WOULD WORK OUT TO RS.4,36,08,197/-. THEREFORE, ACC ORDING TO THE COMMISSIONER, THE AFORESAID AMOUNT OF ACCUMULATED PROFITS WERE ENOUGH TO TAKE INTO CONSIDERATION THE ENTIRE AMOUNT OF LOAN ADVANCED BY THE COMPANY TO THE FOUR SHAREHOLDERS DURING THE YEAR UNDER CONSIDERATION I. E. RS. 3,81,69,640/-. IN THIS BACKGROUND, THE COMMISSIONER OBSERVED THAT THE ACTI ON OF THE ASSESSING OFFICER IN RESTRICTING THE AMOUNT OF DEEMED DIVIDEND ASSE SSABLE IN THE HANDS OF THE ASSESSEE UNDER SECTION 2(22)(E) OF THE ACT TO RS.42 ,49,008/- AS AGAINST THE ACTUAL LOAN RECEIVED FROM THE COMPANY OF RS.76,33,9 28/-, WAS ERRONEOUS IN LAW. ACCORDINGLY, THE COMMISSIONER DIRECTED THE ASSESSIN G OFFICER TO CORRECT THE AVAILABLE ACCUMULATED PROFITS FOR THE PURPOSES OF CONSIDERING THE DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT ASSESSA BLE IN THE HANDS OF THE ASSESSEE. 16. THE FIRST POINT RAISED BY THE ASSESSEE IS WITH REGARD TO THE MANNER OF DETERMINATION OF ACCUMULATED PROFITS MADE BY THE COMMISSIONER. AS PER THE ASSESSEE, THE ASSESSING OFFICER MADE NO MISTAKE IN DETERMINING THE ACCUMULATED PROFITS IN THE ASSESSMENT ORDER DATED 12.06.2007 (SUPRA). EARLIER, WE HAD NOTED THAT THE ASSESSING OFFICER CONSIDERED THE ACCUMULATE PROFITS AT RS.2,61,19,957/- IN ORDER TO ARRIVE AT THE AMOUNT O F DEEMED DIVIDEND ASSESSABLE UNDER SECTION 2(22)(E) OF THE ACT AMOUNT ING TO RS.36,56,738/-. PAGE 9 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 PRIMARY DIFFERENCE BETWEEN THE AMOUNT OF ACCUMULAT ED PROFITS AS ON 31.03.2003 CONSIDERED BY THE COMMISSIONER AT RS.4,36,08,197/- AND THE AMOUNT OF RS.2,61,19,957/- TAKEN BY THE ASSESSING OFFICER IS ON ACCOUNT OF INCLUSION OF THE ACCUMULATED PROFITS AS ON 31.03.2002 (I.E. OPENIN G BALANCE FOR THE CURRENT YEAR) AMOUNTING TO RS.1,94,62,774/-. THE ASSESSEE IN THE COURSE OF ITS SUBMISSIONS BEFORE THE ASSESSING OFFICER HAD EXPLAINED THAT THE ADVANCES OR LOANS MADE IN THE EARLIER YEARS TO THE SHAREHOLDERS WERE LIABLE T O BE REDUCED FROM THE OPENING BALANCE OF ACCUMULATED PROFITS FOR COMPUTING THE ACCUMULATED PROFITS FOR THE CURRENT YEAR. AS PER THE ASSESSEE, THE LOANS ADVANC ED TO THE FOUR SHAREHOLDERS IN QUESTION, AND WHICH FELL WITHIN THE PURVIEW OF S ECTION 2(22)(E) OF THE ACT, UPTO THE PRECEDING ASSESSMENT YEAR OF 2002-03 WAS RS.3,7 3,65,065/- AND THEREFORE, THERE WERE NO ACCUMULATED PROFITS AS ON 31.03.200 2 TO BE CONSIDERED FOR THE YEAR UNDER CONSIDERATION. IN OTHER WORDS, THE ACCU MULATED PROFITS UPTO 31.03.2002 AMOUNTING TO RS.1,94,62,774/- WAS TO BE REDUCED TO THE EXTENT OF THE LOANS AND ADVANCES MADE IN THE EARLIER YEARS AND AF TER DOING SO, THERE DID NOT REMAIN ANY POSITIVE FIGURE. 17. IN THIS CONTEXT, IT IS TO BE NOTED THAT UNDER S ECTION 2(22)(E) OF THE ACT, ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED, OF ANY SUM BY WAY OF ANY LOAN OR ADVANCE TO A SHAREHOLDER, TO THE EXTENT THAT THE COMPANY POSSESS ES ACCUMULATED PROFITS, IS LIABLE TO BE CONSIDERED AS DEEMED DIVIDEND PAID T O THE SHAREHOLDER. QUITE CLEARLY THE AMOUNTS PAID TO THE SHAREHOLDER ARE LIA BLE TO THE TREATED AS DEEMED DIVIDEND ONLY TO THE EXTENT COMPANY POSSESSES ACC UMULATED PROFITS. IN THE CONTEXT OF THE PRESENT CONTROVERSY, THE MOOT POINT IS AS TO WHETHER THE LOANS/ADVANCES GIVEN TO THE SHAREHOLDERS IN THE EAR LIER YEARS WHICH ARE ASSESSABLE AS DEEMED DIVIDEND IN THE HANDS OF THE RESPECTIVE SHAREHOLDERS IN THE PAST YEARS, SHOULD BE REDUCED FROM THE SURPLUS WHILE DETERMINING THE ACCUMULATED PROFITS IN THE HANDS OF THE COMPANY D URING THE YEAR UNDER CONSIDERATION. THE HONBLE SUPREME COURT IN THE CAS E OF CIT VS. G. NARASIHMA PAGE 10 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 (DIED) (1999) 236 ITR 327 (SC) CONSIDERED A SIMILAR QUESTION AND HELD THAT THE LOANS OR ADVANCES MADE IN THE EARLIER YEARS TO THE SHAREHOLDERS, NEED TO BE REDUCED TO COMPUTE THE ACCUMULATED PROFITS FOR TH E CURRENT YEAR. THE AFORESAID PROPOSITION UPHELD BY THE HONBLE SUPREME COURT CLE ARLY SUPPORTS THE CASE MADE OUT BY THE ASSESSEE. IN FACT IN ITS WRITTEN SU BMISSIONS DATED 06.06.2007 ADDRESSED TO THE ASSESSING OFFICER IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, ASSESSEE SPECIFICALLY RELIED UPON THE DECISION OF T HE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. GORDHANDAS KHIMJI ( 1985) 11 ITD 158 (COCH.) TO SUBMIT THAT THE ADVANCES OR LOANS MADE IN EARLIER Y EARS TO THE SHAREHOLDERS NEED TO BE REDUCED FROM THE ACCUMULATED PROFITS, FOR C OMPUTING THE ACCUMULATED PROFITS FOR CURRENT YEAR, IRRESPECTIVE OF WHETHER THE PRIOR LOANS WERE ASSESSED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT OR NOT. ACCORDINGLY, THE ACCUMULATED PROFITS AS ON 31.03.2002 OF THE COMPA NY WAS RS.1,94,62,774/- AND THE LOANS/ADVANCES ON EVEN DATE TO THE SHAREHOLDERS HOLDING IN EXCESS OF 10% VOTING POWER WAS RS.3,73,65,065/- AND IN THIS MANNE R, IT WAS SUBMITTED THAT THERE WAS NO ACCUMULATED PROFITS AS ON 31.03.2002 . THE AFORESAID PROPOSITION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER IN THE A SSESSMENT ORDER DATED 12.06.2007 INASMUCH AS THE ASSESSING OFFICER CONSID ERED ONLY THE PROFITS THAT ACCRUED DURING THE PERIOD FROM 01.04.2002 TO 31.03. 2003 AMOUNTING TO RS.2,61,19,957/- FOR THE PURPOSES OF COMPUTING THE AMOUNT ASSESSABLE UNDER SECTION 2(22)(E) OF THE ACT. IN OUR CONSIDERED OPIN ION, THE ASSESSING OFFICER MADE NO MISTAKE IN EXCLUDING THE SUM OF RS.1,94,62, 774/- WHILE DETERMINING THE ACCUMULATED PROFITS FOR THE PURPOSES OF COMPUTING THE AMOUNT ASSESSABLE UNDER SECTION 2(22)(E) OF THE ACT. THE ACTION OF TH E ASSESSING OFFICER, IS IN LINE WITH THE DECISION OF COCHIN BENCH OF THE TRIBUNAL I N THE CASE OF GORDHANDAS KHIMJI (SUPRA). IN THE COURSE OF HEARING, LEARNED C OUNSEL FOR THE ASSESSEE POINTED OUT THAT THE SUBSEQUENT DECISION OF VISAKHA PATNAM BENCH OF THE TRIBUNAL IN THE CASE OF P. SATYA PRASAD VS. ITO (20 12), ITA NO.293/VIZAG/2012 DATED 16.11.2012 AND DELHI BENCH OF THE TRIBUNAL IN THE CASE OF A.R. CHADHA & CO. INDIA (P) LTD. VS. DCIT (2010) 133 TTJ 490 (DEL ) ALSO SUPPORT THE PROPOSITION PAGE 11 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 ACCEPTED BY THE ASSESSING OFFICER. IN OUR CONSIDERE D OPINION, THE COMMISSIONER HAS DIFFERED WITH THE LEGAL POSITION ACCEPTED BY TH E ASSESSING OFFICER WITHOUT ANY JUSTIFIABLE REASON. IN FACT, IT WOULD BE IN FITNESS TO THINGS TO OBSERVE THAT THE VIEW ADOPTED BY THE ASSESSING OFFICER ON THE AFORESAID A SPECT WAS A POSSIBLE VIEW WHICH IS SUPPORTED BY JUDICIAL PRONOUNCEMENTS AND T HE COMMISSIONER HAS NOT FOUND IT ERRONEOUS ON THE BASIS OF ANY CONTRARY JUD GEMENT OR LEGAL POSITION. NOTABLY, THE INVOKING OF SECTION 263 OF THE ACT CAN BE JUSTIFIED ONLY WHERE THE COMMISSIONER IS ABLE TO ESTABLISH THAT THE ORDER PA SSED BY THE ASSESSING OFFICER IS ERRONEOUS IN THE EYES OF LAW SO AS TO CAUSE PREJ UDICE TO THE INTEREST OF THE REVENUE. IN THE PRESENT CASE, WHERE THE ASSESSING O FFICER HAS ADOPTED A POSSIBLE VIEW, BASED ON LEGAL PRECEDENTS, AND THE C OMMISSIONER IS DENUDED FROM EXERCISING HIS POWER UNDER SECTION 263 OF THE ACT. WE HOLD SO. 18. THE SECOND ASPECT BROUGHT OUT BY THE COMMISSION ER IS WITH REGARD TO THE AMOUNT ASSESSABLE UNDER SECTION 2(22)(E) OF THE ACT . AS PER THE FACTUAL DETAILS NOTED EARLIER BY US, THE AMOUNT OF LOANS AND ADVANC ES MADE TO THE SHAREHOLDERS HOLDING IN EXCESS OF 10% VOTING POWER WAS RS.3,81,6 9,640/- WHEREAS THE TOTAL ACCUMULATED PROFITS AMOUNTED TO RS.2,61,19,957/-, THEREFORE, THE ASSESSING OFFICER RESTRICTED THE AMOUNT ASSESSABLE UNDER SECT ION 2(22)(E) OF THE ACT IN THE HANDS OF SUCH SHAREHOLDERS TO THE EXTENT OF THE AVA ILABLE ACCUMULATED PROFITS I.E. RS.2,61,19,957/-. THE ASSESSING OFFICER BROUGH T TO TAX 14% OF THE ACCUMULATED PROFITS I.E. RS.36,56,738/- IN THE HA NDS OF THE ASSESSEE WHICH CORRESPONDED TO THE SHAREHOLDING HELD BY THE ASSESS EE IN THE COMPANY I.E. 14%. AS PER THE COMMISSIONER, THE RESTRICTION RESORTED T O BY THE ASSESSING OFFICER WAS WRONG BECAUSE THERE IS NOTHING IN SECTION 2(22)(E) PERMI TTING OR PRESCRIBING SUCH RESTRICTION. IN OUR CONSIDERED OPINION, THE AFORESAID OBSERVATIO N OF THE COMMISSIONER IS CONTRARY TO THE EXPLICIT PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND IS THEREFORE UNTENABLE. AT THIS POINT WE MAY AL SO REFER TO THE JUDGMENTS OF THE HONBLE GUJARAT HIGH COURT AND HONBLE CALCUTTA HIGH COURT IN THE CASES OF CIT VS. MAYUR MADHUKANT MEHTA (1972) 85 ITR 230 (GU J.) AND CIT VS. ARATI DEBI PAGE 12 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 & ORS. (1976) 111 ITR 277 (CAL.) RELIED UPON BY THE COMMISSIONER. WE HAVE PERUSED THE SAID JUDGEMENTS AND FIND THAT THEY HAVE BEEN RENDERED IN DIFFERENT SET OF FACTS AND DO NOT RENDER THE ASSESSMENT ORDER DATED 12.06.2007 (SUPRA) ERRONEOUS ON THE AFORESAID POINT. IN THE CASE BEFOR E THE HONBLE CALCUTTA HIGH COURT, THE ISSUE RELATED TO ASSESSMENT YEAR 1952-53 WHERE IT WAS FOUND THAT A LOAN OF RS.29,563/- WAS MADE TO THE ASSESSEE SHAREH OLDER AND IN THAT YEAR THE ACCUMULATED PROFITS OF THE COMPANY WAS RS.4,003/- . AS THE ASSESSEE WAS ONLY INTERESTED TO THE EXTENT OF 25% IN THE SHAREHOLDING OF THE COMPANY, THE ASSESSEE CANVASSED THAT ONLY ONE-FOURTH AMOUNT WOULD BE LIAB LE TO BE TAXED AS DIVIDEND UNDER SECTION 2(6A)(E) READ WITH SECTION 12(IB) OF THE ERSTWHILE INDIAN INCOME TAX ACT, 1922. THE HONBLE HIGH COURT REFERRED TO I TS EARLIER JUDGEMENT IN THE CASE OF CIT VS. BHAGWAT TEWARI (1976) 105 ITR 62 (C AL.) AND OBSERVED THAT ...THE ENTIRETY OF THE PAYMENT IN THE HANDS OF T HE SHAREHOLDER TO THE EXTENT THE COMPANY POSSESSES ACCUMULATED PROFIT WOULD BE DEEMED TO BE DIVIDEND IN HIS HANDS... THE HONBLE HIGH COURT UPHELD THE POSITION THAT IF A SHAREHOLDER BORROWS MONEY AND IS PAID ADVANCES OR LOANS IN EXCE SS OF THE ACCUMULATED PROFIT; THEN THE AMOUNT WHICH WOULD BE TREATED AS DIVIDEND IN HIS HANDS WOULD BE LIMITED TO THE EXTENT OF ACCUMULATED PROFIT. IF, ON THE OTHER HAND, A SHAREHOLDER TAKES ADVANCES OR LOANS, WHICH IS LESS THAN THE AC CUMULATED PROFIT, THEN THE ENTIRETY OF THE LOAN TO THE EXTENT THE COMPANY HAS ACCUMULATED PROFIT WOULD BE TREATED AS DIVIDEND IN THE HANDS OF THE SHAREHOLDER . IN THIS MANNER, THE HONBLE HIGH COURT HELD THAT THE ADVANCE MADE TO THE ASSESS EE TO THE EXTENT OF THE ACCUMULATED PROFIT OF THAT YEAR I.E. RS.4,003/- A ND NOT TO THE EXTENT OF 25% (BEING THE ONE-FOURTH SHARE OF THE ASSESSEE) OF THE SAID AMOUNT OF ACCUMULATED PROFIT, WAS TO BE TAXED. QUITE CLEARLY THE AFORESA ID DECISION DOES NOT RENDER ANY ERROR IN THE ASSESSMENT ORDER DATED 12.06.2007 (SUP RA). IN THE PRESENT CASE, THE TOTAL ACCUMULATED PROFIT AVAILABLE IS RS.2,61,19, 957/- WHEREAS FOUR SHAREHOLDERS (INCLUDING THE ASSESSEE) HAVING VOTING POWER MORE T HAN 10% IN THE COMPANY, HAVE RECEIVED LOANS AND ADVANCES OF RS.3,81,69,640/ -. THE ENTIRE AVAILABLE ACCUMULATED PROFITS AMOUNTING TO RS.2,61,19,957/- HAS BEEN BROUGHT TO TAX AS PAGE 13 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE RESPECTIVE SHAREHOLDERS BUT AS THE ADDITION WAS LIA BLE TO BE RESTRICTED TO THE TOTAL AMOUNT OF ACCUMULATED PROFITS, THE SAME HAS BEEN ASSESSED IN PROPORTION TO THEIR SHAREHOLDING IN THE COMPANY. FOR INSTANCE, IN THE CASE OF THE ASSESSEE 14% OF ACCUMULATED PROFITS I.E. RS.36,56,738/- HA S BEEN ASSESSED UNDER SECTION 2(22)(E) OF THE ACT INSTEAD OF THE ENTIRE A MOUNT OF LOAN GIVEN DURING THE YEAR AMOUNTING TO RS.76,33,928/-. SO HOWEVER, IT IS NOT THE CASE OF THE REVENUE THAT THE BALANCE OF THE ACCUMULATED PROFIT HAS NO T SUFFERED TAXATION UNDER SECTION 2(22)(E) OF THE ACT IN THE HANDS OF THE OTH ER SHAREHOLDERS. IN THE CASE BEFORE THE HONBLE HIGH COURT THE ACCUMULATED PRO FITS ONLY TO THE EXTENT OF SHAREHOLDING WAS BROUGHT TO TAX, LEAVING AN AMOUNT OF ACCUMULATED PROFIT WHICH WAS AVAILABLE TO COVER THE UNTAXED AMOUNT OF LOAN A DVANCED TO THE SHAREHOLDER. THEREFORE, IN SO FAR AS THE PRESENT CASE IS CONCERN ED THE JUDGEMENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF ARATI DE BI AND ORS. (SUPRA) DOES NOT HELP THE STAND OF THE COMMISSIONER. TO THE SIMILAR EFFECT IS RATIO OF THE JUDGEMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF MA YUR MADHUKANT MEHTA (SUPRA), WHICH IS ALSO INAPPLICABLE TO THE PRESENT CASE. 19. THEREFORE, HAVING REGARD TO THE AFORESAID DISCU SSION, IN OUR VIEW, THE ERROR IN THE ASSESSMENT ORDER DATED 12.06.2007 (SUPRA) SO UGHT TO BE MADE OUT BY THE COMMISSIONER IS MISPLACED AND THERE IS NO JUSTIFIAB LE GROUNDS FOR INVOKING THE JURISDICTION UNDER SECTION 263 OF THE ACT. 20. THUS, WE SET ASIDE THE ORDER THE COMMISSIONER A ND THE APPEAL OF THE ASSESSEE IS STAND ALLOWED. 21. SIMILARLY IN THE CASES OF SMT. RANJANA JAIN AND MR. MANISH V. JAIN VIDE ITA NOS.196 & 198/PN/2012, BEING APPEALS PREFERRED AGAINST THE RESPECTIVE ORDERS PASSED BY THE COMMISSIONER UNDER SECTION 263 DATED 31.03.2010 IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE FACTS A ND CIRCUMSTANCES ARE SIMILAR PAGE 14 OF 14 ITA NO.193 TO 198/PN/2012 JAIN GROUP A.Y. 2003-04 TO THOSE CONSIDERED BY US IN ITA NO. 193/PN/2012. A CCORDINGLY, OUR DECISION IN ITA NO.193/PN/2012 APPLIES MUTATIS-MUTANDIS IN OTHER TWO APPEALS ALSO, AND THEY STAND ALLOWED. 22. THE APPEALS IN ITA NOS. 194, 195 & 197/PN/2012 ARISE OUT OF THE RESPECTIVE ORDERS OF THE CIT(A) DATED 25.11.2011 WH ICH, IN TURN, HAVE ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER DATED 30. 12.2010 UNDER SECTION 143(3) READ WITH SECTION 263 OF THE ACT IN CONSEQUE NCE TO THE ORDER PASSED BY THE COMMISSIONER UNDER SECTION 263 DATED 31.03.2010 . SINCE THE ORDER PASSED BY THE COMMISSIONER OF SECTION 263 OF THE ACT HAS B EEN SET-ASIDE, THE CONSEQUENTIAL ASSESSMENTS FRAMED BY THE ASSESSING O FFICER ALSO DO NOT SURVIVE FOR CONSIDERATION, AND ARE ACCORDINGLY QUASHED. THE REFORE, THE AFORESAID APPEALS OF THE ASSESSEE ARE ACCORDINGLY ALLOWED. 23. RESULTANTLY, ALL CAPTIONED APPEALS STAND ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JUNE, 2013. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 24 TH JUNE, 2013 ANKAM/SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-II, PUNE; 4) THE CIT-II, PUNE; 5) THE DR, B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE