Shri Jagjeet Singh Channa, Baroda V. The Income tax Officer,Cent.Ward-1, Baroda

ITA 2903/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6072 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 19-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Assessee Lawyers: P K TANDON
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURVED I, A.M.) I.T. A. NO. 2902 TO 2904/AHD/2010 (ASSESSMENT Y EAR: 2007-08) SHRI JASWINDER SINGH SETHI 45 GREEN PARK SOCIETY MAKARPURA, BARODA PAN NO. ACBP52718J V/S THE I.T.O CENTRAL WARD-1, BARODA (APPELLANT) (RESPONDENT) SHRI JAGJEET SINGH CHANNA 3 RD FLOOR, ORIENT BUSINESS CENTRE, SAYAJIGUNJ BARODA 390005 PAN NO. ACDPC 3771F V/S THE I.T.O CENTRAL WARD-1, BARODA (APPELLANT) (RESPONDENT) SHRI KULDEEP SINGH C. MEHTA 8, SANGEET CO- OPERATIVE HOUSING SOCIETY, VASANA ROAD BARODA PAN NO. ACKPM 4531C V/S THE I.T.O CENTRAL WARD-1, BARODA (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.K. TANDON A.R. RESPONDENT BY : SHRI K.C. MATHEWS, SR. D.R ( )/ ORDER DATE OF HEARING : 16-04-2014 DATE OF PRONOUNCEMENT : 27-06-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE THREE APPEALS FILED BY THE 3 DIFFERENT ASS ESSEE ARE AGAINST THE ORDER OF CIT(A)-IV, AHMEDABAD DATED 29.07.2010 FOR A.Y. 2007 -08. ITA NOS. 2902 TO 2904/AHD/2010 . A.Y. 2007-08 2 2. BEFORE US, AT THE OUTSET, THE LD. A.R. SUBMITTED THAT THOUGH THE 3 APPEAL RELATES TO 3 DIFFERENT ASSESSEES, BUT THE FACTS OF THE CASE ARE IDENTICAL IN ALL THE CASES EXCEPT FOR THE AMOUNT AND THEREFORE THAT THE SUBMISSIONS MADE BY HIM IN CASE OF ONE WOULD BE EQUALLY APPLICABLE TO O THER CASES ALSO. WE THEREFORE FOR THE SAKE OF CONVENIENCE PROCEED TO PA SS TO DISPOSE OF ALL THE APPEALS BY A CONSOLIDATED ORDER. WE THUS PROCEED WI TH THE FACTS OF ITA NO. 2902/AHD/2010 IN THE CASE OF SHRI JASWINDER SINGH S ETHI. 3. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD ARE AS UNDER. 4. ASSESSEE IS AN INDIVIDUAL STATED TO BE HAVING IN COME FROM SALARY, HOUSE PROPERTY AND OTHER SOURCES. ASSESSEE FILED HIS RETU RN OF INCOME FOR A.Y. 07-08 ON 31.10.2007 DECLARING TOTAL INCOME OF RS. 14,55,9 70/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 30.12.2009 AND THE TOTAL IN COME WAS DETERMINED AT RS. 18,96,770/-. AGGRIEVED BY THE ORDER OF A.O, AS SESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 29.07.2010 P ARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUN D:- 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-IV AHMEDABAD, IS ERRED IN CONFIRMING THE AMOUNT RECEIVED FOR PURPOSES OF MEETING EXPENSES TOWARDS TRAVELLING, LODGING & BOARDING ETC. BY THE APPELLANT FROM THE COMPANY IN WHICH HE IS DIRECTOR AS DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E ) OF THE INCOME TAX ACT 1961. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE WAS A SHAREHOLDER HAVING VOTING POWER OF MORE THAN 10% IN COMED CHEMICAL LTD. ON PERUSING THE LEDGER ACCOUNT OF THE ASSESSEE OBTAINED FROM COMED CHEMICALS LTD. U/S. 133(6), A.O NOTICED THAT THE COMPANY WAS MAINTAINING AN IMPREST ACCOUNT OF THE ASSESSEE. T HE IMPREST ACCOUNT CONTAINED VARIOUS PAYMENTS MADE TO THE ASSESSEE WHI CH ACCORDING TO THE A.O WERE PERSONAL IN NATURE. THE IMPREST ACCOUNT H AS BEEN REPRODUCED BY THE A.O AT PAGE 2 TO 5 OF THE ASSESSMENT ORDER. ON PERUSAL OF THE IMPREST ACCOUNT, A.O NOTICED THAT THE ASSESSEE WAS ALSO DRA WING SALARY WHICH WAS ITA NOS. 2902 TO 2904/AHD/2010 . A.Y. 2007-08 3 CREDITED TO THE IMPREST ACCOUNT AND COMPANY HAD ALS O MADE PAYMENTS OVER AND ABOVE THE SALARY ENTITLEMENT OF THE ASSESSEE AN D ACCORDING TO A.O THOSE PAYMENTS WERE PERSONAL IN NATURE AND FURTHER MOST O F THE PAYMENTS WERE MADE IN CASH. A.O. WAS OF THE VIEW THAT THE SALARY ACCRUED TO THE ASSESSEE ON MONTHLY BASIS BUT THE PAYMENTS MADE OVER AND ABO VE THE SALARY IN BETWEEN THE PERIOD FELL UNDER THE CATEGORY OF LOAN S AND ADVANCE. HE ACCORDINGLY WORKED OUT THE EXCESS PAYMENT MADE TO T HE ASSESSEE IN EXCESS OF THE ACCRUED SALARY FOR VARIOUS MONTHS WHICH AGGR EGATED TO RS. 2,54,435/- AND THE EXCESS PAYMENT SO WORKED OUT WAS ADDED TO THE INCOME UNDER SECTION 2(22)(E) OF THE ACT. A.O. ALSO NOTICED THA T ASSESSEE HAD BEEN PAID RENT ON MONTHLY BASIS AND THE ADVANCE RENT OF RS. 1 ,37,500/- WAS RECEIVED BY THE ASSESSEE. A.O CONSIDERED THE ADVANCE RENT OF RS . 1,37,500/- TO BE IN THE NATURE OF LOANS AND ADVANCE GIVEN TO THE BENEFIT OF THE SHARE HOLDER AND CONSIDERED IT TO BE DEEMED DIVIDEND U/S. 2(22)(E) A ND ADDED TO THE INCOME. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE GRANTED PARTIAL RELIEF BY HOLDING AS UNDER:- 3.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE LD. COUNSEL AND ALSO GONE THROUGH THE FINDINGS RECORDED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. I AGREE WITH THE LD. COUNSEL THAT TRADE ADVANCES WHICH ARE IN THE NATURE OF MONEY TRANSACTE D TO GIVE EFFECT TO A COMMERCIAL TRANSACTION WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECT ION 2(22)(E) OF THE ACT AS HELD BY THE DELHI HIGH C OURT VIDE DECISION DATED 14.5.2009 IN THE CASE OF CIT VS . RAJKUMAR. HOWEVER, THE DEFINITION OF DIVIDEND IS AN INCLUSIVE DEFINITION AND A RECEIPT BY A SHARE HO LDER WHICH DOES NOT FALL WITHIN THE DEFINITION, MAY POSSIBLY TREATED AS DIVIDEND WITHIN THE MEANING OF THE ACT UNLESS THE CONTEXT NEGATIVES THAT VIEW. THI S VIEW WAS EXPRESSED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. NALIN BEHARILAL SINGHA 74 ITR 849 (SC). THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. K. SRINIVASAN 59 ITR 788 (MAD) HAS HELD THAT SECTION 2(6A)(E) OF THE 1922 ACT COVE RS NOT ONLY ADVANCES AND LOANS TO SHARE HOLDER BUT ANY OTHER PAYMENT BY THE COMPANY ON BEHALF OF OR FO R THE INDIVIDUAL SHARE HOLDER, SUCH AS PAYMENTS TO SHARE HOLDER'S PERSONAL EXPENSES, INCOME TAX DUE S, INSURANCE PREMIUM ETC. TO THE EXTENT OF THE ACCUMULATED PROFITS OF THE COMPANY. LIKEWISE, THE H ON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. P.K ABUBUCKAR 259 ITR 507 (MAD) HAD HELD THAT WHERE THE ASSESSEE WAS MANAGING DIRECTOR OF THE COMPANY AND THE COMPANY HAD AGREED TO PAY ADVANCE O F- RS. 10 LAKHS WHEN IT HAD TAKEN THE FIRST FLOOR ON LEASE FROM THE ASSESSEE FOR THE PURPOSE OF MEETI NG THE COST OF CONSTRUCTION OF THE OTHER THREE FLOO RS AND THE LEASE DEED PROVIDED EXPLICITLY THAT THE ADV ANCES SO PAID WAS TO BE ADJUSTED AGAINST THE RENT PAYABLE FOR THE OTHER THREE FLOORS, ADVANCE SO PAID WAS TO BE ADJUSTED AGAINST THE RENT PAYABLE FOR TH E OTHE THREE FLOORS, ADVANCE WAS TO BE TREATED AS DEE MED DIVIDEND IN THE ASSESSEE'S HAND. THE HON'BLE HYDERABAD TRIBUNAL HAD TAKEN THE FOLLOWING VIEW WHI LE DECIDING THE CASE OF DEEMED DIVIDEND IN THE CASE OF HYDERABAD CHEMICAL PRODUCTS V/S. ITO, 72 IT D 323(HYD) BY HOLDING THAT: THE 'DEEMED DIVIDEND' COMPREHENDED BY SUB-CLAUSE (E ) OF SECTION 2(22)(E) IS NOT A DIVIDEND THAT ARISES OUT OF DISTRIBUTION, BUT IS A DIVIDEND WHICH ARISES OUT OF PAYMENTS. SUB-CLAUSE (D) OF SECTION 2(22) SPEAKS OF DISTRIBUTION, BUT SUB-CLAUSE (E) SPEAKS O F PAYMENT. THE DISTINCTION BETWEEN 'DISTRIBUTION' A ND 'PAYMENT' IS THAT, WHILE DISTRIBUTION' CONNOTES TWO ACTS, (A) A DIVISION AND (B) A DELIVERY, 'PAYMENT' ITA NOS. 2902 TO 2904/AHD/2010 . A.Y. 2007-08 4 CONNOTES SOMETHING THAT IS GIVEN, AND IT NEED NOT H AVE BEEN APPORTIONED AND DISBURSED THE TWO EXPRESSIONS 'DISTRIBUTION' AND 'PAYMENT' CONNOTE DI FFERENT THINGS. 'DISTRIBUTION 'IS A DIVISION AMONGS T SEVERAL PERSONS. IN THE CASE OF 'DISTRIBUTION' THE RECIPIENTS WOULD BE MORE THAN ONE, WHILE IN THE CAS E OF 'PAYMENT' SUCH RECIPIENT MAY BE A SINGLE PERSON. BY ENACTING SECTION 2(22)(E), THE LEGISLATURE HAS C REATED A FICTION AND HAS MADE 'PAYMENT' REFERRED TO IN SUB-CLAUSE (E) A 'DIVIDEND' FOR THE PURPOSE OF T HE ACT. IN OTHER WORDS THE INSTANT ONE SPRINGS OUT OF PAYMENT. FOR A DIVIDEND TO ARISE UNDER THIS CLAUSE, THE FOLLOWING CONDITIONS SHOULD BE FULFILLED - (1) THE COMPANY MUST BE A COMPANY, THE SHARES OF WHICH ARE CLOSELY HELD, (2) MONEY (NOT MONEY'S WORTH) SHOULD BE PAID BY THE COMPANY, (3) THE MONEY MUST F ORM A PART OF THE ASSETS OF THE COMPANY, (4) IT MAY BE PAID EITHER BY WAY OF ADVANCE OR LOAN OR IT MAY BE IN ANY PAYMENT, (5) (I) THE PAYEE MUST BE A SHAREHOLDER OF THE COMPANY HAVING SUBSTANTIAL INTER EST IN THE COMPANY, OR (U) THE PAYEE MUST BE A PERSON WHO IS ACTING ON BEHALF OF OR FOR THE INDIVI DUAL BENEFIT OF SUCH SHAREHOLDER. A PAYMENT TO A SHAREHOLDER, IN ORDER TO ATTRACT THE CHARGE AS 'DEEMED DIVIDEND' NEED NOT NECESSARILY BE A LOAN OR ADVANCE TO A SHAREHOLDER. THE SECTION INCLUDES WITHIN ITS SCOPE AND AMBIT ALL PAYMENTS MADE BY THE COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF THE SHAREHOLDER. 3.3 IN VIEW OF THE ABOVE DISCUSSION AND THE LAW LAI D DOWN BY VARIOUS JUDICIAL AUTHORITIES, I AM OF THE VIEW THAT ALL THE PAYMENTS MADE BY THE COMPANY ON B EHALF OR FOR THE INDIVIDUAL BENEFIT OF THE SHAREHOLDER INCLUDING THE PERSONAL EXPENSES, OR THE ADVANCES AGAINST FUTURE LIABILITY WILL AMOUNT TO LOANS AND ADVANCES AND WILL BE TREATED AS DEEMED DI VIDEND. HOWEVER, THE TRADE ADVANCES FOR THE WORK OF THE COMPANY SUCH AS ADVANCE PAYMENTS PAYMENTS FO R TRAVELLING ETC. TO THE MANAGING DIRECTOR OR THE DIRECTOR WILL NOT BE COVERED IN THE AMBIT OF SECTIO N 2(22)(E) OF THE ACT. HOWEVER, IF ANY PAYMENT MADE IS NOT CONNECTED WITH THE TRAVELLING ETC. OR OTHER WORK OF THE COMPANY, THE AMOUNT EVEN IF REPAID WILL BE CONSIDERED AS DEEMED DIVIDEND. 3.3 .1 HAVE GONE THROUGH THE LIST OF PAYMENTS MADE TO THE APPELLANT WHO IS THE MANAGING DIRECTOR OF THE COMPANY AND NOTICED THAT THE PAYMENTS OF RS. 1, 86,043/- WERE MADE BY THE COMPANY WHICH ARE PERSONAL EXPENSES OF THE APPELLANT INCLUDING THE PA YMENT OF ELECTRICITY BILL OF RESIDENCE OF THE ASSES SEE, PAYMENTS MADE FOR MANIPAL HOSTEL, PAYMENTS OF PREMI UM, PAYMENTS FOR PURCHASE OF DRAFTS ON HIS BEHALF AND SO ON THE OTHER PERSONAL PAYMENTS. THESE PAYMENTS ARE CLEARLY IN THE NATURE OF ADVANCES FOR THE BENEFIT OF THE ASSESSEE AND ARE COVERED UND ER THE AMBIT OF DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. THE OTHER PAYMENTS ARE FOR THE PURPOSES FOR TR AVELLING EXPENSES WHICH WAS GIVEN TO CARRY OUT THE WORK OF THE COMPANY AND THEREFORE, DOES NOT AMOUNT TO DEEMED DIVIDEND. IN VIEW OF THE ABOVE DISCUSSION THE ADDITION OF RS. 2,54,435/- IS RESTRI CTED TO RS. 1,86,043/- AND REST OF THE ADDITION IS DELETED. AS REGARDS THE AMOUNT OF ADVANCE RENT OF R S. 1,37,500/- IT IS HELD THAT THIS ISSUE IS DIRECTL Y COVERED BY THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. P.K. ABUBUCKAR 259 ITR 507 (MAD) AND THUS TREATED AS DEEMED DIVIDEND. THE ADDITION OF RS. 1,37,500/- IS CONFIRMED. THE SECOND GROUND OF APPEAL IS ACCORDINGLY PARTLY ALLOW ED. 6. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NO W IN APPEAL BEFORE US. 7. BEFORE US, THE LD. A.R. REITERATED THE SUBMISSIO NS MADE BEFORE THE A.O AND CIT(A). HE FURTHER SUBMITTED THAT ASSESSEE WAS LOOK ING AFTER THE WORK OF MARKETING, ADMINISTRATION AND FINANCE OF COMPANY WH ICH INVOLVED LOT OF TRAVELLING TO VARIOUS PLACES. IN ORDER TO MEET THE EXPENSES OF TRAVELLING, LODGING AND BOARDING MONEY WAS PROVIDED BY THE CO. AND THE SAME WAS FOR THE BENEFIT OF THE COMPANY. AFTER THE COMPLETION OF TOUR AND ON FURNISHING THE FULL DETAILS OF EXPENSES OF TOUR THE TOTAL NET EXPE NSES WAS ACCOUNTED AS TRAVELLING EXPENSES IN THE BOOKS OF THE COMPANY. HE FURTHER SUBMITTED THAT ITA NOS. 2902 TO 2904/AHD/2010 . A.Y. 2007-08 5 THE ADVANCE TAKEN FOR TRAVELLING CANNOT BE TERMED A S ADVANCE OR LOAN. WITH RESPECT TO ADVANCE RENT IT WAS SUBMITTED THAT THE A DVANCE RENT WAS RECEIVED BY ASSESSEE AND WAS SUBSEQUENT BY ADJUSTED IN SUCCE EDING MONTHS AND THEREFORE CANNOT BE CONSIDERED TO BE DEEMED DIVIDEN D. HE FURTHER PLACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS. AMB ASSADOR TRAVELS PVT. LTD (2009) 318 ITR 376 (DEL) AND THE DECISION IN THE CA SE OF CIT VS. RAJKUMAR 318 ITR 462 (DEL). HE THUS SUBMITTED THAT IN VIEW OF THE AFORESAID DECISION RELIED UPON BY THE ASSESSEE NO ADDITION U/S 2(22)(E ) WAS CALLED FOR. 8. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORD ER OF A.O AND CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE CONFIRMING THE ADDITION OF R S. 1,86,043/- HAS GIVEN A FINDING THAT THE PAYMENTS WERE MADE BY THE CO. WHIC H WERE THE PERSONAL EXPENSES OF ASSESSEE AND WERE CLEARLY IN THE NATURE OF ADVANCES FOR THE BENEFIT OF THE ASSESSEE AND ARE COVERED UNDER THE A MBIT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. HE HAS ALSO GIVEN A FIND ING THAT THE PAYMENT FOR THE PURPOSE OF TRAVELLING GIVEN TO CARRY OUT THE WORK O F THE CO. CANNOT BE TREATED AS DEEMED DIVIDEND AND THUS GRANTED RELIEF TO THE E XTENT OF RS. 68,392/-. WITH RESPECT TO ADVANCE RENT, CIT(A) HAS NOTED THAT THE ISSUE IS DIRECTLY COVERED AGAINST THE ASSESSEE BY THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS. P.K. ABUBUCKAR 259 ITR 507 (MADRAS). BEFORE US, LD. A.R. COULD NOT CONTROVERT THE FINDINGS OF CIT(A) BY PLACING ANY CO NTRARY AND BINDING DECISION. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON T O INTERFERE WITH THE ORDER OF CIT(A) AND THUS THE GROUND OF ASSESSEE IS DISMISSED . 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMIS SED. ITA NO. 2903 & 2904/AHD/2010 FOR A.Y. 2007-08 . ITA NOS. 2902 TO 2904/AHD/2010 . A.Y. 2007-08 6 11. SINCE THE LD. A.R. HAS SUBMITTED THAT THE FACTS OF THE CASE IN BOTH THE APPEALS ARE IDENTICAL TO ITA NO. 2902/AHD/2011 AND SINCE TH E APPEAL OF ASSESSEE IN ITA NO. 2902 IS DISMISSED HEREINABOVE, WE FOR THE S IMILAR REASONS, DISMISS BOTH THE APPEALS OF ASSESSEE. 12. IN THE RESULT, ALL THE APPEALS OF ASSESSEE ARE DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON 27 - 06 - 2014. SD/- SD/- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD