Sunview Realcon P. Ltd., New Delhi V. ACIT, New Delhi

ITA 2385/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3780 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 16-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHORE B
• Assessee Lawyers: P D MITTAL
• Keywords: Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH : G NEW DELHI) BEFORE SHRI R.P. TOLANI , JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T.A. NO. 2385/DEL./2010 (ASSESSMENT YEAR : 2006-07) SUNVIEW REALCON PVT. LTD. VS. ACIT, CIRCLE 9(1), 4, BATTERY LANE, RAJPUR ROAD, NEW DELHI. CIVIL LINES, DELHI-110 054. (PAN/GIR NO.AAJCS6686A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.D. MITTAL, ADV. REVENUE BY : SHRI KISHORE B., DR ORDER PER K.D. RAJNAN, AM THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 2006 -07 ARISES OUT OF THE ORDER OF CIT(A)-XII, NEW DELHI. THE GROUNDS OF APPEAL ARE REPRODUCED AS UNDER: 1. THAT THE LD. AO. AS WELL AS LD. CIT (APPEAL) HAVE FAILED TO APPRECIATE THE BASIC ACCOUNTING PRINCIPLE. THE TRANSACTI ONS ENTERED INTO JOURNAL ARE THE TRANSACTIONS IN THE NATURE OF TRANSFER ENTRIES & NOT IN ANY CASE CASH ENTRIES. THE CASH TRANSA CTIONS ARE ALWAYS ENTERED THROUGH CASH BOOK ONLY & NOT THE JOURNAL . THE OBSERVATION OF THE LD. CIT (APPEAL) REPRODUCED BELOW ARE AGAINST THE BASIC PRINCIPLES OF ACCOUNTING; 'THIS CONTENTION OF THE AR IS NOT ACCEPTABLE AS A JOURNA L ENTRY CAN ONLY BE MADE ONLY WHEN A TRANSACTIONS TAKES PLACE & NOT WHEN AN UNDERTAKING FOR A TRANSACTIONS IS MADE BY DEBI TING THE SHARE HOLDER ACCOUNT AND CREDIT THE SHARE CAPITAL ACCOU NT BESIDES IT IS A LEDGER ENTRY. NO SUCH ENTRY CAN BE MAD E UNLESS CASH IS RECEIVED & IS REFLECTED IN THE BOOKS OF ACCOU NTS & THE CONTENTION OF THE AR THAT CASH WAS NOT RECEIVED ONLY A JO URNAL ENTRY WAS MADE SEEMS TO BE SELF SERVING CLAIM & NOT WO RTHY OF SUBSTANCE ', 2. THAT THE LD. AO. AS WELL AS LD. CIT (APPEAL) IS WR ONG IN HOLDING THAT MRS. MADHVI JAIN WAS A SHAREHOLDER ON THE DATE OF TRANSACTION OF TAKING LOAN FROM M/S. PRAVEEN JAIN & CO MPANY P. LTD. I.T.A. NO.2385/DEL./2010 (A.Y. : 2006-07) 2 3. THAT THE ASSESSEE CO. HAS NEVER HELD ANY SHARE IN THE COMPANY NAMELY PARVEEN JAIN & CO. P. LTD. & THUS THE PROVISION S OF SECTION 2 (22) (E) ARE NOT APPLICABLE. 4. THAT THE LD. AO. AS WELL AS LD. CIT (APPEAL) HAVE ERRED WHILE ASSESSING RS. 25 LACS AS A DEEMED DIVIDEND INCOME I N THE HANDS OF THE ASSESSEE CO. ON THE BASIS OF THE PROVISIONS OF SECTION 2 (22) ( E) OF THE I. T. ACT,1961. 5. THAT THE ENTIRE ASSESSMENT ORDER AS WELL AS APPEAL O RDER IS WRONG, ARBITRARY, ILLEGAL, UNJUST AGAINST THE FACT AS WE LL AS AGAINST THE LAW. 2. THE ONLY ISSUE FOR CONSIDERATION INVOLVED IN THE G ROUNDS OF APPEAL RELATES TO ASSESSMENT OF LOAN AS DEEMED DIVIDEND U/S 2 (22)(E) OF THE I.T. ACT, 1961. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE COMPANY RECEIVED A LOAN OF `25 LAKHS FROM M/S PRAVEEN JAIN & CO. PVT. LTD. MRS. MADHVI JAIN WAS HOLDING 25% SHARES IN THE ASSESSEE C OMPANY AND ALSO HELD 23.6% OF SHARES IN M/S PRAVEEN JAIN & CO. PVT. LTD. THE ASSESSING OFFICER APPLIED THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT A ND ASSESSED THE AMOUNT OF LOAN OF ` 25 LAKHS AS DEEMED DIVIDEND IN THE HAND S OF THE ASSESSEE COMPANY. 3. BEFORE CIT(A), IT WAS SUBMITTED THAT MRS. MADHVI JAIN HAD UNDERTAKEN TO SUBSCRIBE 2500 EQUITY SHARES OF THE ASSESSEE COMPAN Y ON 22.2.2006 AND 27.3.2006. SHE PAID A SUM OF `25,000/- IN CASH OUT OF WITHDRAWAL OF `35,000 FROM HER BANK ACCOUNT. IT WAS ALSO SUBMITTED BY THE ASS ESSEE THAT ON THE DATE OF BORROWING, MRS. MADHVI JAIN WAS NOT A SHAREHO LDER OF THE ASSESSEE COMPANY AND SHE BECAME SHAREHOLDER SUBSEQUENTLY AFTER THE DATE OF BORROWING FROM M/S PRAVEEN JAIN & CO. PVT. LTD. HENC E, PREREQUISITION OF SECTION 2(22)(E) OF THE ACT WAS NOT PRESENT. THE CIT(A) , HOWEVER, CONFIRMED THE ADDITION BY OBSERVING AS UNDER: IN RESPONSE TO THE SAME VIDE WRITTEN SUBMISSION DT. 24.2 .10 AR HAS PLEADED THAT SMT. MADHAVI JAIN HAD UNDERTAKEN TO SUBSCRI BE 2500 EQUITY SHARES OF THE ASSESSEE COMPANY ON 22.2.06 AND ON 27.3.06 SHE PAID A SUM OF RS. 25000/- IN CASH OUT OF A WITHDRAWAL OF RS. 35,000/- FROM HER BANK ACCOUNT. NO REASONS AND EXPLANATION HAS BEEN GIVEN BY THE AR HOW A BOOK ENTRY WAS MADE ON THE BASIS OF AN UNDERTAKING I.T.A. NO.2385/DEL./2010 (A.Y. : 2006-07) 3 IN THE LEDGER WITHOUT MENTIONING SO BUT ACTUALLY CREDIT THE SHARE CAPITAL ACCOUNT; AND AS TO WHY THE SAID PAYMENT WAS MADE IN CASH IN- CONTRAVENTION TO THE LEGAL POSITION OF THERE BEING NO TRAN SACTION IN CASH ABOVE RS. 20,000/-. FURTHER, THERE IS NO PROOF G IVEN THAT A SUM OF RS. 35,000/- WITHDRAWN ON 27.3.06 WAS ACTUALLY UTILIZE D FOR PAYMENT OF EQUITY SHARES. FURTHER PERUSAL OF THE BANK ACCOUNT DOES NOT REFLECT THAT, WHAT WAS THE REMAINING RS. 10,000/WITHDRAWAL FOR AND THIS APPEARS TO BE A CASE OF CONVENIENCE 'WHERE CASH WITHD RAWN IS BEING ATTRIBUTED TO SHARE APPLICATION MONEY DEPOSITED IN CASH A T A DATE CONVENIENT TO THE ASSESSEE. AR HAS FURTHER STATED THAT: 'THAT A JOURNAL ENTRY WAS MADE BY THE ASSESSEE COMPANY ON 22.02.06 TO GIVE EFFECT THE UNDERTAKING MADE BY THE SUBS CRIBERS TO THE MEMORANDUM, BY DEBITING THE RESPECTIVE SHARE HOLD ER ACCOUNT AND CREDITING THE SHARE CAPITAL ACCOUNT. THIS JO URNAL ENTRY DOES NOT SHOW THAT THE SHARE MONEY WAS RECEIVED ON THE DATE OF PASSING OF ABOVE ENTRY. THE LD. AO HAS MISINTE RPRETED THIS PROPOSITION. ACCORDINGLY TO THE LD. AO MERELY PASS ING THE JOURNAL ENTRY IN THE BOOKS OF THE ASSESSEE CO. SHOW THA T THE SHARES HAVE BEEN ALLOTTED ON THE SAID DATE. THIS INTERPR ETATION PUT BY THE LD. AO IS ENTIRELY INCORRECT & AGAINST THE FAC TS. THERE IS NOTHING ON RECORD TO SHOW THAT THE SHARES WERE ALLOTTED ON 22.02.06.' THIS CONTENTION OF THE AR IS NOT ACCEPTABLE AS A JOURNAL ENTRY CAN ONLY BE MADE ONLY WHEN A TRANSACTION TAKES PLACE AND NOT WHE N AN UNDERTAKING FOR A TRANSACTION IS MADE BY DEBITING THE SH ARE HOLDER ACCOUNT AND CREDITING THE SHARE CAPITAL ACCOUNT BESIDES IT IS A LEDGER ENTRY. NO SUCH ENTRY CAN BE MADE UNLESS CASH IS RECEI VED & IS REFLECTED IN THE BOOKS OF ACCOUNTS AND THE CONTENTION OF THE AR THAT CASH WAS NOT RECEIVED ONLY A JOURNAL ENTRY WAS MADE, SEEMS TO B E SELF-SERVING CLAIM AND NOT WORTHY OF SUBSTANCE. HENCE THE STAND OF THE AO IS CONFIRMED. 5. IN THE RESULT, THE APPEAL IS DISMISSED. 4. BEFORE US, LD.AR OF THE ASSESSEE REITERATED SIMILAR ARGUMENTS. ON THE OTHER HAND, LD.DR SUPPORTED THE ORDER OF THE CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE M ATERIAL AVAILABLE ON RECORD. THE ASSESSEE COMPANY WAS INCO RPORATED ON 22.2.2006. MRS. MADHVI JAIN WAS SHAREHOLDER OF M/S PRAVEEN JAI N & CO. PVT. LTD. FROM WHOM THE LOAN OF `25 LAKHS WAS RECEIVED BY THE ASSESS EE. M/S PRAVEEN JAIN & CO. PVT. LTD. WAS NOT SHAREHOLDER OF THE ASSESSEE COM PANY. UNDER SECTION I.T.A. NO.2385/DEL./2010 (A.Y. : 2006-07) 4 2(22)(E) OF THE ACT ANY PAYMENT BY A COMPANY NOT BEING A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED OF ANY SUM BY WAY O F ADVANCE OR LOAN TO A SHAREHOLDER BEING A PERSON WHO IS BENEFICIAL OWNER OF SHARE HOLDING NOT LESS THAN 10% OF VOTING POWER OR ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTER EST OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OF OR FOR THE INDIVIDU AL BENEFIT OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSED ACCUMULATED PROFIT SHALL BE ASSESSED AS DEEMED DIVIDE ND. THE ASSESSEE COMPANY IS NOT A SHAREHOLDER IN THE CASE OF M/S PRAVE EN JAIN & CO. PVT. LTD. ITAT, (SPL. BENCH), MUMBAI IN THE CASE OF ACIT VS. B HOWMICK COLOUR P. LTD., 313 ITR (AT) 146 HAS HELD THAT DEEMED DIVIDEND COULD BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LEN DER COMPANY AND NOT IN THE HANDS OF THE PERSON OTHER THAN THE SHAREHOLDER I.E. THE CONCERN. SINCE ASSESSEE COMPANY IS NOT A REGISTERED SHAREHOLDER OF M /S PRAVEEN JAIN & CO. PVT. LTD., THE AMOUNT OF ` 25 LAKHS RECEIVED BY THE ASSE SSEE AS LOAN WILL NOT BE ASSESSABLE AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE, IN VIEW OF DECISION OF SPECIAL BENCH IN THE CASE OF CHOWMICK CO LOUR P. LTD. (SUPRA). IT IS, THEREFORE, HELD THAT THE AMOUNT OF `25 LAKHS RECEIVE D FROM M/S PRAVEEN JAIN & CO. PVT. LTD.(SUPRA) WOULD NOT BE ASSESSABLE AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. THE ORDER PASSED BY THE CIT(A ) IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE RELIEF. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON 17.06.2011. SD/- SD/- (R.P. TOLANI) (K.D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: JUNE 17, 2011 SKB COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-XII, NEW DELHI. 5. DR DEPUTY REGISTRAR I.T.A. NO.2385/DEL./2010 (A.Y. : 2006-07) 5