Mr. C.P.Kunhi Mohammed, Calicut V. ACIT, CHENNAI

ITA 274/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64150 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 09-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 09-02-2012
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA JT
• Assessee Lawyers: S RAMESH
• Keywords: Opportunity of being heard; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE SHRI N.S. SAINI , ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ] I.T.A.NO S . 274 & 577/MDS/2012 ASSESSMENT YEAR S : 2006 - 07 AND 2007 - 08 SHRI C.P.KUNHI MOHAMMED DIRECTOR M/S KERALA ROADWAYS PVT. LTD KRS PLAZA, INDIRA GANDHI ROAD CALICUT 673 001 [PAN AAPPK2443N] VS THE ACIT CENTRAL CIRCLE II(4) CHENNAI ( APPELLANT) (RESPONDENT) I.T.A.NO.275/MDS/2012 ASSESSMEN T YEAR : 2006 - 07 SHRI M.K.SIRAJ JOINT MAN A GING DIRECTOR M/S KERALA ROADWAYS PVT. LTD KRS PLAZA, INDIRA GANDHI ROAD CALICUT 673 001 [PAN AAJPS 5966N] VS THE ACIT CENTRAL CIRCLE II(4) CHENNAI ( APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. RAMESH, CA RESPONDENT BY : SHRI S. DASGUPTA, JT. CIT DATE OF HEARING : 09 - 08 - 2012 DATE OF PRONOUNCEMENT : 09 - 08 - 2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THESE ARE THE APPEALS FILED BY THE ABOVE MENTIONED ASSESSEES AGAINST SEPARATE ORDERS OF THE CIT(A) - II, CHENNAI, DATED I.T.A.NO 274,577 & 275/12 . : - 2 - : 24.10.2011, FOR ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 IN THE CASE OF SHRI C.P.KUNHI MOHAMMED AND FOR ASSESSMENT YEAR 2006 - 07 IN THE CASE OF SHRI M.K.SIRAJ. 2 . AT THE OUTSET, IT WAS NOTICED THAT TH E APPEALS FOR ASSESSMENT YEAR 2006 - 07 IN BOTH THE CASES ARE BARRED BY LIMITATION OF 23 DAYS AND THE APPEAL FOR ASSESSMENT YEAR 2007 - 08 IN THE CASE OF SHRI C.P.KUNHI MOHAMMED IS BARRED BY LIMITATION OF 62 DAYS. THE ASSESSEES HAVE FILED AFFIDAVITS EXPLAINI NG THE REASONS FOR DELAY IN PRESENTING THE APPEALS BEFORE THE TRIBUNAL . THE DR DID NOT HAVE ANY OBJECTION IN CONDONING THE DELAY AND ADMITTING THE APPEALS FOR HEARING. HENCE, WE CONDONE THE DELAY IN FILING THE APPEALS AND ADMIT THE APPEALS IN BOTH THE C ASES FOR HEARING. 3 . IN ALL THE THREE APPEALS, THE SOLE ISSUE INVOLVED IS THAT THE CIT(A) ERRED IN CONCLUDING THAT ` 8,91,046/ - IN ASSESSMENT YEAR 2006 - 07 AND ` 6,17,000/ - IN ASSESSMENT YEAR 2007 - 08 WAS LIABLE TO BE ASSESSED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT OF THE ACT IN THE HANDS OF SHRI C.P.KUNHI MOHAMMED AND ` 7,90,803/ - WAS LIABLE TO BE ASSESSED IN ASSESSMENT YEAR 2006 - 07 AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT OF THE ACT IN THE HANDS OF SHRI M.K.SIRAJ. 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS SHAREHOLDER HOLDING MORE THAN 10% OF SHARES IN M/S KERALA ROADWAYS PRIVATE LTD., I.T.A.NO 274,577 & 275/12 . : - 3 - : A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED. DURING THE YEARS UNDER APPEAL, IN THE BOOKS OF THE COMPANY, THE ASSESSEE HAD DEBIT BALAN CE S . THE ASSESSING OFFICER ASKED THE ASSESSEE WHY THE PEAK OF THE DEBIT BALANCE SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. THE A.R OF THE ASSESSEE, IN REPLY, SUBMITTED THAT THE LAW IN ITSELF AND THE INTENTION OF THE LEGISLATION ARE NOT IN RIGHT PERSPECTIVE . THE ASSESSING OFFICER , OBSERVING THAT IT WAS BEYOND THE PURVIEW OF HIS OFFICE TO DECIDE UPON THE INTENTION OF THE LEGISLATURE AS WELL AS THE VALIDITY OF THE LAW AND THE CONSTRUCTION OF THE WORDS IN THE STATUTE AND AS THE ASSESSEE HAS NOT CONTESTED ABOUT THE APPLICATION OF DEFINITION OF SECTION 2(22)(E) OF THE ACT, HE ADDED THE PEAK OF THE CREDIT BALANCE S OF FINANCIAL YEAR AS DEEMED DIVIDEND UNDER THE HEAD INCOME FROM OTHER SOURCES TO THE INCOME OF THE ASSESSEE. 5 . ON A PPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OBSERVING AS UNDER IN CASE OF BOTH THE ASSESSEES EXCEPT FOR CHANGE IN FIGURE : 9. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. A. R. I FIND THAT THE SUBMISSIONS OF THE LD.A.R. ON THE CONST RUCTION AND INTERPRETATION OF THE RELEVANT SECTIONS ARE NOT IN ACCORDANCE WITH THE SPECIFIC AND UNAMBIGUOUS PROVISIONS OF THOSE SECTIONS. SECTION 10(34) R.W.S. 115 - O MAKES IT CLEAR THAT DEEMED DIVIDENDS U/S 2(22)(E) ARE NOT EXEMPT. THE SUBMISSIONS OF THE LD. A. R. THAT BECAUSE THE LEGISLATURE USED AN EXPLANATION INSTEAD OF A PROVISO IN SECTION 115 - 0, THE EXPLANATION SHOULD BE TREATED AS NON EST IS COMPLETELY UNTENABLE AND IS NOT SUPPORTED BY ANY JUDICIAL PRONOUNCEMENTS. DI V IDENDS IS INCLUDED UNDER THE HE AD INCOME FROM OTHER SOURCES IN SECTION 56(2)(I). DEEMED DIVIDENDS U/S 2(22) (E) SHOULD THEREFORE BE ASSESSED AS INCOME I.T.A.NO 274,577 & 275/12 . : - 4 - : FROM OTHER SOURCES' AND INCLUDED IN THE COMPUTATION OF TOTAL INCOME WHICH IS TAXED AT THE RATES SPECIFIED. THE SUBMISSIONS OF THE APPE LLANT THAT DEEMED DIVIDENDS, EVEN IF THEY ARE TAXABLE SHOULD BE TAXED AT DIVIDEND DISTRIBUTION TAX RATE IS CONTRARY TO THE PROVISIONS OF THE I. T ACT. THE GROUNDS OF APPEAL OF THE APPELLANT CONTESTING THE ADDITION OF DEEMED DIVIDEND U/S 2(22)(E) OF RS.8 ,91,046/ - ARE, THEREFORE, DISMISSED. ACCORDINGLY, THE ADDITION OF DEEMED DIVIDENDS U/S 2(22)(E) OF THE I.T.ACT OF RS.8,91,046/ - UNDER 'INCOME FROM OTHER SOURCES' MADE IN THE ASSESSMENT ORDER IS SUSTAINED. 6 . BOTH THE PARTIES BEFORE US AGREED THAT THE MA TTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE - ADJUDICATION OF THE ISSUE AFTER VERIFICATION AS BECAUSE THE ASSESSEE SUBMITTED AT THE TIME OF HEARING THAT THE ACCOUNT WITH THE COMPANY OF THE ASSESSEE WAS A CURRENT ACCOUNT WHICH S OMETIMES WAS IN DEBIT AND SOMETIMES WAS IN CREDIT. THE ACCOUNT WAS CREATED WITH THE SALARY RECEIVABLE BY THE ASSESSEE AS D IRECTOR OF THE COMPANY. THE SAID ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE COMPANY WAS NOT FILED EITHER BEFORE THE ASSESSING OFF ICER OR BEFORE THE CIT(A) AND BOTH THE LOWER AUTHORITIES HAVE NOT EXAMINED THE SAME TO ARRIVE AT THE CONCLUSION THAT THE AMOUNT STANDING TO THE DEBIT OF THE ASSESSEE IN THE BOOKS OF ACCOUNT OF THE COMPANY WAS IN FACT THE DEEMED DIVIDEND ASSESSABLE TO TAX IN THE HANDS OF THE ASSESSEE. BOTH THE LOWER AUTHORITIES HAVE NOT BROUGHT ON RECORD THE POSITION OF THE RESERVES AND SURPLUS ACCOUNT OF THE COMPANY FROM WHOM THE ASSESSEE HAS RECEIVED THE AMOUNT. ACCORDING TO THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT THE AMOUNT RECEIVED BY A SHAREHOLDER HAVING SUBSTANTIAL INTEREST IN THE COMPANY I.T.A.NO 274,577 & 275/12 . : - 5 - : CAN BE TREATED AS DEEMED DIVIDEND TO THE EXTENT CREDIT BALANCE IN THE RESERVES AND SURPLUS ACCOUNT OF THE COMPANY. THUS, IT IS SEEN THAT ALL THESE FACTS HAVE TO BE VERIFIE D AND HAVE TO BE BROUGHT ON RECORD TO ADJUDICATE THE ISSUE WHETHER THE ASSESSEE IS LIABLE TO TAX ON THE AMOUNTS RECEIVED FROM THE COMPANY AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. WE, THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION IN THE LIGHT OF THE OBSERVATIONS MADE HEREIN ABOVE AND THEREAFTER ADJUDICATE THE ISSUE AFRESH AS PER LAW AFTER ALLOWING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEES. THUS, TH E GROUNDS OF APPEAL RAISED BY BOTH THE ASSESSEES ARE ALLOWED FOR STATISTICAL PURPOSES. 7 . IN THE RESULT, THE APPEALS FILED BY BOTH THE ASSESSEES ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON THURSDAY, THE 09 TH OF AUGUST, 2012, AT CHENNAI SD/ - SD/ - (VIKAS AWASTHY) JUDICIAL MEMBER ( N.S.SAINI ) ACCOUNTANT MEMBER DATED: 09 TH AUGUST , 2012 RD COPY TO: APPELLANT / RESPONDENT / CIT(A) /CIT/ DR