DCIT, Ludhiana V. M/s Octave Apparels, Ludhiana

ITA 31/CHANDI/2011

• Counselvise Citation: 3121514 RSA 2011
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 11-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAISHREE SHARMADR
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.31/CHD/2011 (ASSESSMENT YEAR : 2007-08) THE D.C.I.T., VS. M/S OCTAVE APPARELS, CIRCLE-III, G.T. ROAD, LUDHIANA. LUDHIANA. PAN: AAAFO3397G (APPELLANT) (RESPONDENT) APPELLANT BY : SMT.JAISHREE SHARMA,DR RESPONDENT BY : SHRI SUDHIR SEHGAL DATE OF HEARING : 24.11.2011 DATE OF PRONOUNCEMENT : 27.01.2012 O R D E R PER SUSHMA CHOWLA, J.M, : THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, LUDHIANA DAT ED 08.10.2010 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORD ER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: 1. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,30,86,070/- MADE BY AO TREATING THE CURRENT LIABILITY STANDING IN THE NAME OF M/S OCTAVE APPARELS PVT. LTD. AS DEEMED DIVIDEND U/S 2(22)(E), WITHOUT ASSIGNING ANY REASON. 2. THAT THE FACTUAL MISTAKES HAVE BEEN COMMITTED BY LD. CIT(A) IN DELETING THE ADDITION OF RS.2,30,86,070/- MADE BY AO TREATING THE CURRENT LIABILITY STANDING IN THE NAME OF M/S OCTAVE APPARELS PVT. LTD. AS DEEMED DIVIDEND U/S 2(22)(E) AND THAT THE ORDER IS SO POORLY DRAFTED THAT THE SAME IS REQUIRED TO BE STRUCK 2 DOWN BEING PERVERSE AND ERRONEOUS IN ITS CONCLUSION AND WITHOUT ANY BASIS. 3. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.4,49,967/- MADE BY AO BY DISALLOWING 20% OF BONUS AND WAGES, IGNORING THE FACT THAT THE AO HAS CLEARLY BROUGHT OUT IN THE ASSESSMENT ORDER THAT THE SIGNATURES AND THUMB IMPRESSIONS OF THE WORKERS DO NOT MATCH IN THESE REGISTERS. 3. THE ISSUE RAISED VIDE GROUND NOS.1 AND 2 BY THE REVENUE IS IN RELATION TO THE APPLICATION OF PROVISIONS OF SECTIO N 2(22)(E) OF THE INCOME TAX ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FIRM IS CONSTITUTED OF THREE PARTNERS SHRI BALBIR KUMAR 40% SHARE, SHRI HARSH KUMAR 40% SHARE AND M/S OCTAVE APPARELS 20% SHARE. THE ASSES SEE IN ITS BALANCE SHEET UNDER THE HEAD CURRENT LIABILITIES HAD SHOW N BALANCE OF RS.2,98,07,898/-/- AGAINST THE SISTER CONCERN M/S O CTAVE APPARELS PVT. LTD. ON PERUSAL OF THE COPIES OF ACCOUNT THE ASSES SING OFFICER NOTED THAT THOUGH THE CREDIT BALANCE WAS APPEARING IN THE SAID ACCOUNT OF THE SISTER CONCERN, HOWEVER, ON 28.3.2006, CHEQUE OF RS .2.50 CRORES WAS RECEIVED FROM THE SAID CONCERN. THE COPY OF ACCOUN T FOR THE YEAR ENDING 31.3.2005 TO 31.3.2007 ARE INCORPORATED AT PAGES 6 AND 7 OF THE ASSESSMENT ORDER. FURTHER THE CAPITAL ACCOUNT OF P ARTNER M/S OCTAVE APPARELS PVT. LTD. FOR THE FINANCIAL YEAR 2006-07 I S REPRODUCED AT PAGES 7 AND 8 OF THE ASSESSMENT ORDER. THE LIST OF SHARE HOLDING OF THE SAID CONCERN IS AT PAGE 8 OF THE PAPER BOOK. THE SAID L IST REVEALS THAT MAJOR SHARE HOLDER IN THE SAID CONCERN IS SMT.KRISHNA RAN I WITH 81.87% OF SHAREHOLDING, SHRI BALBIR KUMAR HOLDING 6.64%, SHRI HARSH KUMAR HOLDS 6% AND THE FIRM M/S OCTAVE APPARELS HOLDS 1.07%, IN ADDITION TO SHAREHOLDING BY OTHER PERSONS. THE ASSESSING OFFIC ER SHOW CAUSED THE ASSESSEE AS TO WHY THE LOAN RECEIVED FROM M/S OCTAV E APPARELS PVT. LTD. SHOULD NOT BE TREATED AS DEEMED DIVIDEND IN THE HAN DS OF THE ASSESSEE 3 UNDER SECTION 2(22)(E) OF THE ACT. THE ASSESSING O FFICER CONSIDERED THE SHAREHOLDING OF S/SHRI BALBIR KUMAR, HARSH KUMAR AN D M/S OCTAVE APPARELS, FIRM BEING 12.71% OF THE TOTAL HOLDING OF THE CONCERN AND AS THE PARTNERS ARE SEVERALLY AND JOINTLY RESPONSIBLE FOR THE BUSINESS OF THE FIRM, THE ASSESSING OFFICER WAS OF THE VIEW THAT TH EY ENJOYED THE BENEFITS TOGETHER OF THE DEALINGS. THE ASSESSING O FFICER WAS OF THE VIEW THAT THE PARTNERS AS SUCH HAD COLLECTIVELY MORE THA N 10% VOTING POWER AND MAJORITY OF THE SHARES BELONGED TO THE MOTHER O F THE TWO INDIVIDUAL PARTNERS AND BALANCE TO OTHER FAMILY MEMBERS, WHO W ERE SPECIFIED PERSONS UNDER SECTION 40A(2) OF THE ACT. ACCORDING LY, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE APPLICABLE. HOWEV ER, SAID PROVISIONS WERE TO BE APPLIED TO THE EXTENT OF THE RESERVES AN D SURPLUS OF THE CONCERN AND AS THE COMPANY HAD RESERVES AND SURPLUS OF RS.2,30,86,070/- THE ASSESSING OFFICER MADE THE ADDITION TO THE EXTE NT OF THE ACCUMULATED PROFITS IN THE HANDS OF M/S OCTAVE APPARELS PVT. LT D. THUS A SUM OF RS.2,30,86,070/- WAS TREATED AS INCOME OF THE ASSES SEE AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. 5. BEFORE THE CIT (APPEALS) THE ASSESSEE FURNISHED WRITTEN SUBMISSION WHICH ARE REPRODUCED UNDER PARA 4.1 AT P AGES 5 TO 15 OF THE APPELLATE ORDER. THE CIT (APPEALS) OBSERVED THAT A S PER THE PROVISIONS OF SECTION 2(22)(E), IN ORDER TO COVER PAYMENT TO A SHAREHOLDER, WITHIN THE ABOVE PROVISIONS, THE SHAREHOLDER SHOULD HOLD N OT LESS THAN 10% OF THE VOTING POWER. THE CIT (APPEALS) FURTHER OBSERV ED IN THIS CASE THE ASSESSEE IS HOLDING THROUGH ITS PARTNERS ONLY 1.07% OF THE SHARE HOLDING IN M/S OCTAVE APPARELS PVT. LTD. AND THUS THE SAID PAYMENTS ARE NOT COVERED WITHIN THE PURVIEW OF ABOVE PROVISION. IT WAS ALSO OBSERVED THAT PAYMENT MADE BY THE CONCERN TO THE FIRM WAS NO T FOR THE INDIVIDUAL BENEFIT OF ANY SHAREHOLDER AND AS THE FIRM WAS AN I NDEPENDENT INCOME- 4 TAX ASSESSEE, THERE IS NO MERIT IN APPLYING THE PRO VISIONS OF SECTION 2(22)(E) OF THE ACT BY CLUBBING THE SHAREHOLDING OF THE DIFFERENT PERSONS. IN VIEW THEREOF, THE ADDITION MADE UNDER SECTION 2(22)(E) OF THE ACT WAS DELETED BY THE CIT (APPEALS). 6. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF THE CIT (APPEALS). THE LEARNED D.R. FOR THE REVENUE POINTE D OUT THAT BOTH THE PARTNERS AND THE PARTNERSHIP CONCERN WERE NOT SEPAR ATE AND SECONDLY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE SQUA RELY APPLICABLE TO THE PRESENT FACTS. 7. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT TH AT THE CONCERN M/S OCTAVE APPARELS PVT. LTD. WAS PARTNER IN THE ASSESS EE FIRM AND SHARE OF PROFITS WAS TO THE EXTENT OF 20%. AS PER THE BALAN CE SHEET OF THE COMPANY PLACED AT PAGE 122 OF THE PAPER BOOK, THE T OTAL CAPITAL WAS SHOWN AT RS.4,05,95,933/-, WHEREAS AS PER THE BOOKS OF ACCOUNT OF THE PARTNERSHIP CONCERN, THE CAPITAL CONTRIBUTION OF TH E COMPANY WAS SHOWN AT RS.1,07,88,035/- AND THE CURRENT LIABILITIES WER E DECLARED AT RS.2,98,07,898/-. OUR ATTENTION WAS DRAWN TO THE B ALANCE SHEET ALONGWITH ANNEXURE PLACED AT PAGES 29 TO 34 OF THE PAPER BOOK. THE LEARNED A.R. FOR THE ASSESSEE FAIRLY SUBMITTED THAT THE ADDITION WAS LIMITED TO ACCUMULATED PROFITS. THE LEARNED A.R. F OR THE ASSESSEE PLACING RELIANCE ON THE ORDER OF CIT (APPEALS) POIN TED OUT THAT THE ISSUE IS COVERED BY THE RATIO LAID DOWN BY THE AMRITSAR B ENCH OF THE TRIBUNAL IN ACIT VS. SANJIV MEHRA, 149 TAXMAN (TAX MAGAZINE) 40, IN THE CASE OF SMT.GUNWANTI R.MEHTA VS. ITO, 45 ITD 382 (MUM)AN D IN THE CASE OF ACIT VS. SH.SANJIV GUPTA (ITA NO.738/CHD/2011) DATE OF ORDER 19.9.2011. 5 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FACTUAL ASPECTS OF THE CASE BEFORE US ARE THAT THE ASSESSEE IS A PARTNERSHIP CONCERN CONSISTING OF THREE PARTNERS AS UNDER: I) SHRI BALBIR KUMAR 40% II) SHRI HARSH KUMAR 40% III) M/S OCTAVE APPARELS PVT. LTD. 20% 9. THE INDIVIDUAL PARTNERS ARE SHAREHOLDERS OF THE CONCERN M/S OCTAVE APPARELS PVT. LTD., WHICH IS A CLOSELY HELD COMPANY AND THE DETAILS OF SHAREHOLDINGS ARE AS UNDER: S.NO. NAME NO.OF SHARES PAID UP VALUE PAID UP CAPITAL % TOTAL % 1. SMT.KRISHNA RANI 1475000 240000 10 2.5 14750000 600000 78.67 3.20 81.87 2. SH.BALBIR KUMAR 12510 448000 10 2.5 125100 1120000 0.67 5.97 6.64 3. HARSH KUMAR 12510 400000 10 2.5 125100 1000000 0.67 5.33 6.00 4. MRS.SANJANA ARORA 20000 2.5 50000 0.27 02.7 5. MRS.REKHA ARORA 80888 2.5 200000 1.07 1.07 6. M/S OCTAVE APPARELS PVT. LTD. 80000 2.5 200000 1.07 1.07 7. SH.ABHISHEK ARORA 31980 2.5 79950 0.43 0.43 8. HARSH KUMAR HUF 100000 2.5 2,50000 1.33 1.33 9. BALBIR KUMAR HUF 100000 2.5 250000 1.33 1.33 TOTAL 18750150 100 100 10. THE CONCERN M/S OCTAVE APPARELS PVT. LTD. HAD T OTAL CAPITAL BALANCE AS ON 31.3.2000 AT RS.1,07,88,035/- AND THE BREAK-UP OF THE CAPITAL ACCOUNT IS REPRODUCED AT PAGES 7 AND 8 OF T HE ASSESSMENT ORDER. FURTHER THE ASSESSEE-FIRM HAD ALSO SHOWN AMOUNT REC EIVED FROM M/S OCTAVE APPARELS PVT. LTD. UNDER THE HEAD CURRENT L IABILITIES AND AS ON 31.3.2000 THE BALANCE WAS RS.2,98,07,898/-. THE BR EAK-UP OF COPIES OF ACCOUNT OF THE SAID CONCERN IN THE BOOKS OF THE ASS ESSEE-FIRM ARE INCORPORATED AT PAGES 6 AND 7 OF THE ASSESSMENT ORD ER. THE PERUSAL OF 6 THE COPIES OF ACCOUNT FOR THE FINANCIAL YEAR 2006-0 7 REVEALS THAT THERE WAS OPENING BALANCE OF RS.295.40 LACS AND THERE WAS CLOSING BALANCE OF RS.298.07 LACS. DURING THE YEAR UNDER CONSIDERATIO N, THE ASSESSEE HAS ONLY RECEIVED CHEQUE OF RS.2,66,972/- ON 15.11.2006 AND THE BALANCE WAS THE OPENING BALANCE AS ON 1.4.2006. 11. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN R ELATION TO THE APPLICABILITY OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT, WHICH READS AS UNDER: 2. (22) DIVIDEND INCLUDES (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WH ETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) [MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER , BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHA RES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVID END WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHIC H SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBS TANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID C ONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE I NDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFITS ; 12. THE PROVISIONS OF SECTION 2(22)(E) WERE CONSIDE RED BY THE TRIBUNAL IN ITA NO.738/CHD/20911 RELATING TO ASSESSMENT YEAR 2008-09 IN THE CASE OF ACIT VS. SH.SANJIV GUPTA AND VIDE ORDER DAT ED 19.9.2011 IT WAS OBSERVED AS UNDER: 10. UNDER THE PROVISIONS OF SECTION 2(22)(E) OF TH E ACT, IT IS PROVIDED THAT ANY PAYMENT BY A COMPANY, IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, AND IS BENEFICIAL OWNER OF SHARES HOLDING NOT LESS THAN 10% OF THE VOTING POWER OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS THE MEMBER/PARTNER OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT OF THE ACCUMULATED PROFITS OF THE COMPANY, IS TO BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE PERSON MAKING SUCH ADVANCES. THE SECTION IS A DEEMING PROVISION UNDER WHICH IT IS PROVIDED THAT WHERE ANY MONEY IS EITHER ADVANCED AS A 7 LOAN TO A SHAREHOLDER OR TO ANY CONCERN IN WHICH SUCH A SHAREHOLDER IS A MEMBER OR PARTNER OR WHERE ANY PAYMENT IS MADE BY THE COMPANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER BUT, LIMITED TO THE EXTENT OF THE ACCUMULATIVE PROFITS, THEN SUCH PAYMENT IS TO BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE SHAREHOLDER. THE SHAREHOLDER REFERRED TO IN THE SAID SUB-SECTION IS A PERSON WHO IS BENEFICIAL OWNER OF SHARES IN THE SAID COMPANY HOLDING NOT LESS THAN 10% OF THE VOTING POWER. 13. COMING TO THE FACTS OF THE PRESENT VASE WE FIND THAT THE ASSESSEE- FIRM HOLDS ONLY 1.07% SHARES OF THE SISTER CONCERN, WHEREAS THE PARTNERS OF THE ASSESSEE-FIRM SHRI BALBIR KUMAR AND SHRI HAR SH KUMAR HOLD 6.64% AND 6.% SHAREHOLDING RESPECTIVELY. THE ASSES SING OFFICER HAD OBSERVED THAT THE CUMULATIVE HOLDING OF BOTH THE PA RTNERS OF ASSESSEE- FIRM BEING MORE THAN 10%, RESULTS IN APPLICATION OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT. UNDOUBTEDLY, THE ASSESSEE-FIR M ON ITS OWN IS HOLDING ONLY 1.07% OF SHAREHOLDING IN THE CONCERN. 14. THE ISSUE TO BE CONSIDERED IS WHETHER FOR APPLY ING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT THE ACCUMULATIVE HOL DING OF THE ASSESSEE- FIRM AND ITS PARTNERS IS TO BE CONSIDERED OR THE SH AREHOLDING OF THE FIRM IN ISOLATION IS TO BE CONSIDERED. 15. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE RAJ ASTHAN HIGH COURT IN CIT VS. HOTEL HILLTOP [313 ITR 116 (RAJ)], WHEREIN IT WAS HELD AS UNDER: IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961, THE FOLLOWING FOUR CONDITIONS ARE THE SINE QUA NON : (I) THE ASSESSEE SHOULD BE A SHAREHOLDER OF THE COMPANY; (I I) THE COMPANY SHOULD BE A CLOSELY HELD COMPANY IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED; (III) THERE MUST BE PAYMENT BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER OR ANY PAYMENT BY THE COMPANY ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF THE SHAREHOLDER; AND (IV) THERE MUST BE SUFFICIENT ACCUMULATED PROFITS IN THE HANDS OF THE COMPANY UP TO THE DATE OF SUCH PAYMENT. 8 HELD, (I) THAT THE ASSESSEE WAS NOT SHOWN TO BE THE SHAREHOLDER OF THE COMPANY AND THE TWO INDIVIDUALS WHO WERE PARTNERS OF THE FIRM WERE THE MAJORITY SHAREHOLDERS OF THE COMPANY. THEREFORE TH E SECURITY ADVANCED BY THE COMPANY TO THE ASSESSEE COULD NOT BE DEEMED TO BE DIVIDEND AS THE ASSESSEE WAS NOT A SHAREHOLDER IN THE COMPANY. THE AMOUNT WAS PAID BY THE COMPANY TO THE ASSESSEE ON BEHALF O F THE INDIVIDUALS. THEREFORE, THE LIABILITY OF TAX A S DEEMED DIVIDEND COULD BE ATTRACTED IN THE HANDS OF THE INDIVIDUALS, BEING THE SHAREHOLDERS IN THE COMPANY. THE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE ORDER OF THE COMMISSIONER (APPEALS) DELETING TH E ADDITION OF RS.10 LAKHS MADE AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. 16. WE FIND THAT SIMILAR ISSUE WAS CONSIDERED AT LE NGTH BY THE SPECIAL BENCH OF MUMBAI OF TRIBUNAL IN ACIT VS. BHAUMIK COL OUR P. LTD., 313 ITR (AT) 146 (MUMBAI) (SB) WHEREIN IT HAS BEEN HELD AS UNDER : THE PROVISIONS OF SECTION 2(22)(E) AS AMENDED BY THE FINANCE ACT, 1987, WITH EFFECT FROM APRIL 1, 1988, DO NOT SAY IN WHOSE HANDS THE DIVIDEND HAS TO BE BROUGHT TO TAX, WHETHER IN THE HANDS OF THE CONCERN OR THE SHAREHOLDER. THE INTENTION BEHIND ENACTING THE PROVISIONS OF SECTION 2(22)(E) AROSE FROM THAT FACT THAT CLOSELY HELD COMPANIES WHICH ARE CONTROLLED BY A GROUP OF MEMBERS, WOULD NOT DISTRIBUTE SUCH PROFIT AS DIVIDEND BECAUSE THE DIVIDEND INCOME WOULD BECOME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. INSTEAD, COMPANIES DISTRIBUTE THEM AS LOANS OR ADVANCES TO THE SHAREHOLDERS OR TO A CONCERN IN WHICH SUCH SHAREHOLDER HAS A SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR TH E INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BY THE DEEMING PROVISIONS SUCH PAYMENT BY TH E COMPANY IS TREATED AS DIVIDEND. THE PROVISIONS CONTEMPLATE A CHARGE TO TAX IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF A NON- SHAREHOLDER, VIZ., THE CONCERN. THE DEFINITION OF DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT IS AN INCLUSIVE DEFINITION WHIC H ENLARGES THE MEANING OF THE TERM DIVIDEND ACCORDING TO ITS ORDINARY AND NATURAL MEANING TO INCLUDE EVEN A LOAN OR ADVANCE. THE ORDINARY AND NATURAL MEANING OF THE TERM DIVIDEND WOULD BE A SHARE IN PROFITS TO AN INVESTOR IN THE SHARE CAPITA L OF A LIMITED COMPANY. IF THE DEFINITION OF DIVIDEND IS EXTENDED TO A LOAN OR ADVANCE TO A NON-SHAREHOLDER THE ORDINARY AND NATURAL MEANING OF THE WORK DIVIDEND IS TAKEN AWAY. DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT CAN BE ASSESSED ONLY IN 9 THE HANDS OF A SHAREHOLDER OF THE LENDER COMPANY AN D NOT IN THE HANDS OF ANY OTHER PERSON. 17. IN VIEW OF THE SETTLED PRINCIPLE WE HOLD THAT W HERE THE ASSESSEE- FIRM IN THE PRESET CASE IS HOLDING LESS THAN 10% OF SHAREHOLDING, ANY AMOUNT ADVANCED BY CLOSELY HELD COMPANY TO THE ASSE SSEE-FIRM IS NOT TO BE TREATED AS DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, IRRESPECTIVE OF THE FACT THAT THE SHARE HOLDING OF THE FIRM TO WHOM ADVANCE HAD BEEN MADE AND THE PARTNERS OF THE SAID FIRM HAVE SHAREHOLDING MORE THAN 10% OF THE SAID CONCERN, WHI CH HAD ADVANCED THE AMOUNT. UPHOLDING THE ORDER OF CIT (APPEALS) WE DI SMISS GROUND NOS. 1 AND 2 RAISED BY THE REVENUE. 18. THE ISSUE IN GROUND NO.3 RAISED BY THE REVENUE IS AGAINST THE DISALLOWANCE OF 20% OF BONUS AND WAGES. THE ASSESS ING OFFICER HAD DISALLOWED 20% OF THE TOTAL EXPENDITURE CLAIMED UND ER THE HEAD BONUS & WAGES OBSERVING THAT AT PLACES THERE WERE VARIAT ION IN THE SIGNATURES OF THE WORKERS AND SOME TIME LANGUAGE OF THE SIGNAT URES WAS DIFFERENT. TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE WAS RS.22 ,49,836/-. HOWEVER, ADHOC DISALLOWANCE OF RS.4,49,967/- WAS MADE BY THE ASSESSING OFFICER WITHOUT POINTING OUT DEFECTS IN SPECIFIC VOUCHERS F OR MAKING SUCH DISALLOWANCE. IN THE ABSENCE OF ANY SPECIFIC DEFEC TS BEING REFERRED BY THE ASSESSING OFFICER AND THE ORDER OF THE ASSESSIN G OFFICER IN ALLOWING 80% OF THE EXPENDITURE, WE FIND NO MERIT IN 20% DIS ALLOWANCE MADE BY THE ASSESSING OFFICER. WE ARE IN AGREEMENT WITH THE ORDER OF CIT 10 (APPEALS) IN THIS REGARD AND UPHOLDING THE SAME DIS MISS GROUND NO.3 RAISED BY THE REVENUE. 19. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DAY OF JANUARY, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 27 TH JANUARY, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH