Shri Keshav Chand Jain, Bhopal V. The ACIT, 1(1), Bhopal

ITA 22/IND/2011

• Counselvise Citation: 2222714 RSA 2011
• Duration Of Justice: 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 31-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 28-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: H P VERMA GIRISH AGARWAL; BIPIN GUPTA S
• Keywords: Reasonable cause; Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : ABEPJ8275H I.T.A.NO. 22/IND/2011 A.Y. : 2006 - 07 SHRI KESHAV CHAND JAIN, ACIT, 235, ZONE I, M.P.NAGAR, BHOPAL. VS 1 (1), BHOPAL APPELLANT RESPONDENT APPELLANT BY : S/ SHRI H.P.VERMA, GIRISH AGARWAL AND BIPIN GUPTA, ADVOCATES DEPARTMENT BY : SHRI ARUN DEWAN, SR. DR DATE OF HEARING : 30.11. 201 2 DATE OF PRONOUNCEMENT : 30 . 01 .201 2 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-I, BHOPAL, DATED 6.1.2010 FOR THE ASSESSM ENT YEAR 2006-07. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE : - -: 2: - 2 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. LOWER AUTHORITIES HAVE ERRED IN LAW I N MAKING THE ADDITION OF RS. 1297138/- U/S 2(22)(E) OF THE INCOME-TAX ACT AS DEEMED DIVIDEND. THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD.CIT(A) IS GROSSLY WRONG. 2. THE PRESENT APPEAL IS BEING FILED LATE ABOUT 10 MONTHS AND 15 DAYS. THE DELAY IS BASED UPON REASONABLE CAUSE. THE SEPARATE APPLICATION IS ALSO BEING FILED. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PROPRIETOR OF M/S. NIRMAN INVESTMENTS WHICH WORKS AS SUB-BROKER TO M/S. S.P. JAIN SECURITIES PVT.LTD., MUMBAI. THE ASS ESSEE FURNISHED HIS RETURN OF INCOME FOR A.Y. 2006-07 ON 31.10.2006 DECLARING TOTAL INCOME OF RS. 10,41,428/ - . THE CASE WAS SELECTED FOR SCRUTINY BY ISSUING NOTICE U/ S 143(2) AND ASSESSMENT U/S 143(3) WAS COMPLETED VIDE ORDER DATED 16.12.2008 DETERMINING TOTAL INCOME AT RS. 23,38,57 0/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER NOTICED THAT THE ASSESSEE WAS HOLDING 29.5 % SHARES -: 3: - 3 IN THE COMPANY M/S. NIRMAN SHARE BROKERS PVT. LTD. THE ASSESSEE HAD RECEIVED INTEREST FREE LOANS FROM M/S. NIRMAN SHARES BROKERS PVT. LTD. AMOUNTING TO RS.25.47 LACS AS HAS BEEN SHOWN IN THE BALANCE SHEET AS UNSECURED LOANS BY M/S. NIRMAN SHARES BROKERS PVT. LTD. THEREFORE, THE ASSE SSING OFFICER HAS TREATED THE AMOUNT OF ADVANCE GIVEN BY M/S NIRMAN SHARES BROKERS PVT. LTD. TO THE ASSESSEE AS DEEMED DIVIDEND AS PER SECTION 2(22)(E) OF THE IT ACT. HOW EVER. THE ACCUMULATED PROFITS AVAILABLE WITH M/S. NIRMAN SHARES BROKERS PVT. LTD. WERE TO THE TUNE OF RS.12,97,138/ - ONLY. ACCORDINGLY, THE ASSESSING OFFICER TREATED THE AMOU NT OF RS.12,97,138/- OUT OF THE TOTAL UNSECURED LOANS OF RS.25.47 LACS ADVANCED BY M/S. NIRMAN SHARES BROKERS PVT. LT D. AS DEEMED DIVIDEND U/S 2(22)(E) IN THE HANDS OF THE AS SESSEE AND MADE ADDITION OF RS. 12,97,138/- TO THE RETURNE D INCOME. 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ADDITION BY OBSERVING AS UNDER :- -: 4: - 4 (I) THE COMPANY M/S. NIRMAN SHARE BROKERS PVT.LTD . IS A CLOSELY HELD COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED. (II) THE COMPANY HAS MADE THE PAYMENT OF RS.25,47,OOO/- AS ADVANCE TO THE APPELLANT. THE AMOUNT HAS BEEN SHOWN AS ADVANCE TO NIRMAN INVESTMENTS IN THE BALANCE SHEET OF THE COMPANY. TH IS ADVANCE WAS NOT GIVEN IN THE ORDINARY COURSE OF BUSINESS OF LENDING OF MONEY BY THE COMPANY BECAUSE THE COMPANY WAS ENGAGED IN THE BUSINESS AS STOCK BROKER AND NOT IN MONEYLENDING BUSINESS. (III) THE APPELLANT IS A SHARE HOLDER HAVING 29 .5 % SHARES IN THE COMPANY I.E. HE WAS A SHAREHOLDER HAVING MOR E THAN 10 % OF THE VOTING POWER; AND (IV) THE PAYMENT OF ADVANCE TO THE EXTENT OF RS.12,97.137/- WAS MADE OUT OF ACCUMULATED PROFITS OF THE COMPANY. -: 5: - 5 THEREFORE, CONSIDERING THE ABOVE FACTS, IT IS CLEAR THAT THE APPELLANT'S CASE CLEARLY FALLS UNDER THE MISCHIEF O F DEEMING PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND, THUS, THE AMOUNT TO THE EXTENT OF RS. 12,97,137/- ADVANCED OU T OF ACCUMULATED PROFIT OF THE COMPANY TO THE APPELLANT IS TO BE DEEMED AS DIVIDEND U/S 2(22)(E) OF THE ACT. HENCE, THE ASSESSING OFFICER WAS JUSTIFIED IN ASSESSING THE AM OUNT OF RS.12,97,137/- AS DEEMED DIVIDEND U/S 2(22)(E) OF T HE I.T. ACT AND, THUS, THE ADDITION OF RS.12,97,137/- TO TH E RETURNED INCOME IS CONFIRMED. 5. AGAINST THE ABOVE ORDER OF CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6. IT WAS ARGUED BY THE LD. AUTHORIZED REPRESENTATIVE THAT OWING TO THE BUSINESS NEEDS AND DEVELOPMENT, A CLOSELY HELD COMPANY WAS FORMED BY THE ASSESSEE AND HIS FAM ILY MEMBERS TO ACT AS MAIN BROKER FOR WHICH IT WAS MUTU ALLY AGREED TO TRANSFER THE CLIENTS OF THE ASSESSEE TO T HE COMPANY. BEING IN THE NASCENT STAGE, THE COMPANY ACQUIRED CL IENTS FROM THE ASSESSEE. THE PAYMENT OBLIGATIONS OF THE ASSESS EE TOWARDS SUCH CLIENTS ARISING ON ACCOUNT OF SHIFTING THEM TO THE -: 6: - 6 COMPANY WERE BEING MET OUT BY THE COMPANY BY WAY OF TEMPORARY ADVANCE TO THE ASSESSEE. THE MONEY TAKEN FROM THE COMPANY AS UTILIZED IN THE PAYMENT TO BE MADE TO SU CH CLIENTS ONLY. SUCH TEMPORARY ADVANCES WERE IN THE NATURE O F BUSINESS ADVANCES AND THE ASSESSEE DID NOT DERIVE A NY PERSONAL BENEFITS FROM THIS. IN FACT, THE AMOUNT AD VANCED TO THE ASSESSEE WAS FOR THE BENEFIT OF THE COMPANY AND NOT TO THE ASSESSEE. THE BUSINESS OF THE ASSESSEE GRADUALLY DE CREASED SINCE THE ENTIRE BUSINESS WAS TRANSFERRED TO THE CO MPANY. IT IS EVIDENT FROM THE FOUR YEARS BROKERAGE RECEIPT OF T HE APPELLANT. ASSESSMENT YEAR BROKERAGE RECEIPTS P.B.# 2005 - 06 RS. 55,01,609.03 08 2006 - 07 RS. 28,65,625.00 09 2007 - 08 RS. 66,278.27 10 2008 - 09 RS. 28,909.97 11 THE NET PROFIT RATIOS FOR THE TWO YEARS ALSO SUBSTA NTIATE THE DECLINE IN THE BUSINESS OF THE ASSESSEE AND ITS TRA NSFER TO THE COMPANY THEREBY JUSTIFY THE FACT THAT THE AMOUNT OF ADVANCES -: 7: - 7 FROM THE COMPANY WERE NOT UTILIZED FOR THE BUSINESS AND BENEFIT OF THE ASSESSEE. ASSESSMENT YEAR RECEIPTS/ TURNOVER NET PROFIT N.P. RATIO 2005 - 06 RS.60,01,609.03 17,43,580.23 28.96 % 2006 - 07 RS. 28,70,587.00 7,25,525.01 25.27 % AS A COROLLARY, THE BUSINESS OF THE COMPANY GREW WI TH THE SHIFTING OF CLIENTS FROM THE ASSESSEE AS IS EVIDENT FROM INCREASE IN ITS RESERVES & SURPLUS. ASSESSMENT YEAR RESERVES & SURPLUS 2005 - 06 RS.1,81,156.16 2006 - 07 RS.12,97,187.88 (INCREASE BY RS. 11,15,981.72) 7. IN VIEW OF THE ABOVE, THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT AMOUNT WAS BORR OWED OWING TO THE BUSINESS NEEDS AND DEVELOPMENT OF THE ASSESSEE, THE SAME CANNOT BE BROUGHT IN THE MISCHIEF OF LOANS AND ADVANCES FOR THE PURPOSES OF SECTION 2(22)(E) OF TH E ACT. 8. ON THE OTHER HAND THE LD. SENIOR DR RELIED ON THE FINDINGS RECORDED BY THE LOWER AUTHORITIES. -: 8: - 8 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FOUND FROM RECORD THAT THE ASSESSEE COMPANY HAS TAKEN LOA NS AND ADVANCES FROM A COMPANY IN WHICH IT HAS SUBSTANTIAL INTEREST. EVEN THOUGH THE PURPOSE OF THE LOAN IS TO REPAY ITS OUTSTANDING AND ALSO TO TRANSFER THE CLIENTS OF THE ASSESSEE COMPANY TO THE NEW COMPANY, THE ASSESSEE COMPANY HA D CLEARLY SHOWN THE AMOUNT RECEIVED AS ADVANCE. THIS ADVANCE WAS NOT ADJUSTED AGAINST ANY OF THE NORMAL BUSINESS TRANSACTIONS. THE PURPOSE OF SUCH ADVANCE MAY BE TO SHIFT THE CLIENTS OF EXISTING ASSESSEE TO THE NEW COMPANY BUT ,NEVERTHELESS, THE NATURE OF ADVANCE WILL REMAIN TH E SAME SO AS TO ATTRACT PROVISIONS OF SECTION 2(22)(E). UNDIS PUTEDLY, THE ASSESSEE IS A SHAREHOLDER HAVING 25.9 % SHARES IN T HE COMPANY, THE PAYMENT OF ADVANCE TO THE EXTENT OF IT S ACCUMULATED PROFIT AMOUNTING TO RS. 12,97,137/- WAS CORRECTLY TREATED BY THE ASSESSING OFFICER AS DEEME D DIVIDEND IN THE HANDS OF THE ASSESSEE. THE DETAILED FINDINGS RECORDED BY THE LOWER AUTHORITIES COULD NOT BE CONTROVERTED BY LD. AUTHORIZED REPRESENTATIVE BY BRINING ANY POSITIVE M ATERIAL ON RECORD. WE, THEREFORE, DO NOT FIND ANY REASON TO IN TERFERE IN THE -: 9: - 9 ORDER OF CIT(A) CONFIRMING ADDITION MADE ON ACCOUNT OF DEEMED DIVIDEND. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH JANUARY, 2012. (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH JANUARY, 2012. CPU* 1330