PINKY DEEPAK KAMBOJ, MUMBAI V. ITO 6(2)(1), MUMBAI

ITA 3440/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9434 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 12-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S ATISH CHANDAK
• Keywords: Opportunity of being heard; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM ./ I.T.A. NOS. 3439 & 3440/MUM/2013 ( / ASSESSMENT YEARS: 2009-10 & 2008-09) PINKI DEEPAK KAMBOJ, 66/66A, KBJ PLAZA, ZAVERI BAZAR, MUMBAI-400 002 / VS. ITO-6(2)(1), MUMBAI ! ./' ./PAN/GIR NO. ACSPK 9043 M ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !# & ' / APPELLANT BY : SHRI SATISH CHANDAK $%!# & ' / RESPONDENT BY : SHRI SACHCHIDANAND DUBEY () * & + / DATE OF HEARING : 18.11.2014 ,-. & + / DATE OF PRONOUNCEMENT : 16.02.2015 / O R D E R PER SANJAY ARORA, A. M.: THIS IS SET OF TWO APPEALS BY THE ASSESSEE BEING FO R ASSESSMENT YEARS (A.Y.) 2008-09 AND 2009-10, ARISING OUT OF THE SEPARATE AP PELLATE ORDERS BY THE COMMISSIONER OF INCOME TAX (APPEALS)-12, MUMBAI (CIT(A) FOR SH ORT), PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE RELEVANT YEARS. THE ISSUE ARIS ING IN BOTH THE APPEALS BEING THE SAME, THE SAME WERE POSTED FOR AND ACCORDINGLY HEARD TOGE THER. 2. THE APPEALS CONCERN THE PART CONFIRMATION OF THE DEEMED DIVIDEND ASSESSED U/S.2(22)(E) OF THE ACT. THE ASSESSEE WAS DURING TH E COURSE OF THE ASSESSMENT PROCEEDINGS 2 ITA NOS. 3439 & 3440/M/13 (A.YS. 09-10 & 08-09) PINKI DEEPAK KAMBOJ VS. ITO OBSERVED TO HAVE RECEIVED SUMS, THROUGH THE CURRENT ACCOUNT MAINTAINED WITH TWO CONCERNS IN WHICH HE HAD SUBSTANTIAL INTEREST, I.E. , IN EXCESS OF 10% OF THE TOTAL SHAREHOLDING IN THE RELEVANT COMPANY, WHICH IS A TH RESHOLD LIMIT UNDER THE RELEVANT PROVISION, AS UNDER: A.Y. NAME OF THE COMPANY AMT. (RS.) MAXIMUM AMT. O/S (RS.) CLOSING BALANCE (RS.) ACCUMULATED PROFIT (RS.) 2009-10 KBJ JEWELLERY PVT. LTD. 166.94 LACS 1,03,17,648 NIL 2,51,66,552/- 2008-09 KBJ JEWELLERY PVT. LTD. - 5,39,656/- 5,39,656/- 30,22,622 2008-09 KBJ MOTORS P. LTD. - 51,617/- 51,617/- 83,501/- ALL THE CONDITIONS FOR THE APPLICABILITY OF SECTION 2(22)(E) BEING SATISFIED, THE MAXMIMUM OUTSTANDING BALANCE WAS ADDED AS INCOME BY WAY OF DEEMED DIVIDEND IN ASSESSMENT. THE ASSESSEE, IN APPEAL, RAISED CONTENT IONS ALONG THE FOLLOWING LINES: A) THE AMOUNTS ADVANCED WAS IN THE FORM OF A REGULAR, CURRENT ACCOUNT, AND NOT A LOAN ACCOUNT; B) THE AMOUNTS WERE ADVANCED FOR REIMBURSEMENT OF EXPE NSES; C) THE AMOUNTS ADVANCED HAD BEEN REPAID OR THE CREDIT RECEIVED RETURNED; D) THE ASSESSEES SON, MOHIT KAMBHOJ, HAD LIKEWISE AVA ILED OF CREDIT FROM THE SAID CONCERNS, AND IN WHOSE CASE, AGAIN, SIMILAR AD DITIONS HAD BEEN MADE. SURELY, THE ADDITION WOULD HAVE TO BE RESTRICTED TO THE AMOUNT OF ACCUMULATED PROFIT; E) ONLY THE ACCUMULATED PROFIT AS AT THE BEGINNING OF THE YEAR PLUS THE PROPORTIONATE PROFIT, WORKED ASSUMING A UNIFORM ACC RUAL OF THE PROFIT DURING THE RELEVANT YEAR, TO BE THE TIME DURING THE RELEVANT YEAR CORRESPONDING TO THE AVERAGE OUTSTANDING BALANCE FO R THE YEAR, COULD BE CONSIDERED AS A RELEVANT ACCUMULATED PROFIT; AND F) THE AMOUNT ADVANCED OUT OF SHARE PREMIUM FUND COULD NOT BE CONSIDERED AS DEEMED DIVIDEND. THE LD. CIT(A) EXAMINED EACH OF THE CONTENTIONS RAI SED BY THE ASSESSEE IN DETAIL, ALLOWING IT PARTIAL RELIEF. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 3 ITA NOS. 3439 & 3440/M/13 (A.YS. 09-10 & 08-09) PINKI DEEPAK KAMBOJ VS. ITO 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE NOMENCLATURE OF THE ACCOUNT IN WHICH THE AMOUNT S HAVE BEEN RECEIVED, I.E., WHETHER LOAN OR CURRENT OR ANY OTHER, AS CORRECTLY OBSERVED BY THE LD. CIT(A), IS NOT RELEVANT; THE ONLY RELEVANT FACT BEING THAT OF THE AMOUNT BEING RECEIVED BY A PERSON FROM A COMPANY IN WHICH HE HAS SUBSTANTIAL INTEREST IN T ERMS OF VOTING POWER. THE ASSESSEES CLAIM OF THE AMOUNT HAVING BEEN RECEIVED FOR REIMBU RSEMENT OF EXPENSES WAS, AGAIN, RIGHTLY CONSIDERED AS WITHOUT BASIS IN FACTS. THE C LAIM WOULD REQUIRE BEING PROVED, WHILE THERE WAS NO SUBSTANTIATION. FURTHER, WHAT WERE THE SE EXPENSES, OF WHICH THERE IS NO MENTION OR DETAILS OR EVEN PRECEDENCE. IN FACT, THE EXPENSES WOULD ONLY BE BOOKED IN THE ACCOUNTS OF THE PAYER-COMPANY, I.E., WITH REFERENCE TO THE EXPENDITURE ACTUALLY INCURRED, FOR WHICH THE SAME HAD BEEN ADVANCED IN THE FIRST P LACE. FURTHER, CLEARLY, IN THAT CASE THE AMOUNT WOULD STAND TO BE ADJUSTED AGAINST EXPENDITU RE, WHILE ITS STAND RECEIVED IN CASH, AND WHICH WOULD RATHER RAISE A QUESTION AS TO THE S OURCE OF THE SAID REPAYMENT, I.E., CONSIDERING THAT THE AMOUNT ADVANCED HAD BEEN EXPEN DED BY THE ASSESSEE. THE REPAYMENT OF THE CREDIT WOULD AGAIN BE OF LITTLE CONSEQUENCE, AS IT IS WELL SETTLED PER A SERIES OF DECISIONS, WITH THE LD. CIT(A) QUOTING SOME, INCLUD ING BY THE HONBLE APEX COURT. AS REGARDS THE WORKING OF THE ACCUMULATED PROFIT, THE SAME WOULD BE RELEVANT WHERE THE MAXIMUM OUTSTANDING BALANCE, FOR WHICH THE DIVIDEND HAS BEEN ADDED (FOR A.Y. 2009- 10), EXCEEDS THAT OUTSTANDING AS AT THE BEGINNING O F THE YEAR, SO THAT WE ARE UNABLE TO SEE AS TO HOW ITS RELEVANCE ARISES. THE SAME WOULD THOU GH REQUIRE BEING APPORTIONED, I.E., BETWEEN THE ASSESSEE AND HER SON, WHERE THE ADDITIO N IN THE HANDS OF BOTH EXCEEDS THE ACCUMULATED PROFIT. THE PROFIT FOR THE CURRENT YEAR WOULD IN THAT CASE ALSO NEED TO BE INCLUDED AND, ACCORDINGLY, COMPUTED PROPORTIONATELY , I.E., UP TO THE DATE OF PAYMENT OR DISTRIBUTION OF DIVIDEND (REFER EXPLANATION 2 TO THE PROVISION). THE ASSESSEES STANCE OF WORKING OUT THE SAME ON THE BASIS OF THE AVERAGE BA LANCE OUTSTANDING DURING THE YEAR IS WITHOUT ANY BASIS IN LAW. THE DIVIDEND LIABLE FOR I NCLUSION U/S.2(22)(E) OF THE ACT IS THAT RECEIVED DURING THE YEAR, SO THAT EVEN THE CONCEPT OF MAXIMUM BALANCE, AS ADOPTED BY THE REVENUE, GIVING THUS CREDENCE TO THE REPAYMENT, IS INCONSISTENT WITH THE LAW AS EXPLAINED 4 ITA NOS. 3439 & 3440/M/13 (A.YS. 09-10 & 08-09) PINKI DEEPAK KAMBOJ VS. ITO BY THE HIGHER COURTS. THE PROPORTIONATE ACCUMULATED PROFITS WOULD THUS HAVE TO BE COMPUTED UP TO THE RELEVANT DATE/S, I.E., OF THE RE CEIPT OF PAYMENT, AND THE CONCEPT OF AVERAGE BALANCE SHALL NOT OBTAIN OR APPLY. LIKEWISE , THERE IS NO CONCEPT OF REPAYMENT, AND THAT THEREFORE THE CLOSING BALANCE, WHICH APPEA RS TO BE NIL FOR BOTH THE YEARS, WOULD BE OF LITTLE CONSEQUENCE. REFERENCE MAY PROFITABLY BE MADE TO THE DECISION, INTER ALIA , BY THE APEX COURT IN THE CASE OF TARULATA SHYAM VS. CIT [1977] 108 ITR 345 (SC). THE PROVISION EXPLAINING THE COMPUTATION OF DEEMED DIVI DEND TO BE DATE-WISE, THE APPORTIONMENT OF ACCUMULATED PROFIT, I.E., WHERE RE LEVANT, BETWEEN THE ASSESSEE AND HER SON, WOULD THUS ONLY BE ON THAT BASIS, I.E., DATE-W ISE. ONE THING THOUGH IS CERTAIN, THAT ONCE AN AMOUNT ST ANDS TO BE BROUGHT TO TAX AS DIVIDEND, THE ACCUMULATED PROFIT WOULD REQUIRE BEIN G REDUCED TO THAT EXTENT, AS THE SAME CANNOT BE CONSIDERED AS APPLIED OR DISTRIBUTED AGAI N. THIS IS ONLY TAKING THE CONCEPT OF THE DEEMING OF DIVIDEND TO ITS LOGICAL CONCLUSION. COMING TO THE CONCEPT OF THE PAYMENT AGAINST SHARE PREMIUM ACCOUNT, THE SAME THOUGH CONS IDERED AND TAKEN AS A PART OF THE RESERVE AND SURPLUS IN THE BALANCE-SHEET OF THE PAY ER-COMPANY, I.E., KBJ JEWELLERY PVT. LTD., AS AT THE RELEVANT YEAR END/S (AT PB PGS. 5-5 2), IS ACTUALLY A PART OF ITS CAPITAL. PAYMENT THEREOF TO THE SHAREHOLDER IS IN FACT PROHI BITED BY LAW, I.E., COULD ONLY BE IN THE CASE OF CAPITAL REDUCTION, UPON THE SCHEME THEREFOR BEING APPROVED BY THE HONBLE JURISDICTIONAL HIGH COURT. THE SAME, THUS, CANNOT B E CONCEPTUALLY DIVIDEND, WHICH, BY DEFINITION, IS ONLY THE DISTRIBUTION OF PROFIT. ALL THAT SECTION 2(22)(E) DEEMS IS ANY PAYMENT BY A COMPANY IN WHICH THE PUBLIC IS NOT SUB STANTIALLY INTERESTED, TO A PERSON HAVING SUBSTANTIAL INTEREST THEREIN, I.E., AS DEFIN ED IN THE SECTION, OR TO ANY PERSON RELATED THERETO, AGAIN SPECIFIED, AS DIVIDEND TO THE EXTENT THE COMPANY HAS ACCUMULATED PROFITS. RELIANCE BY THE ASSESSEE THUS ON THE DECISION IN TH E CASE OF DY. CIT VS. MAIPO INDIA LTD. [2008] 24 SOT 42 (DEL), WHERE THE ENTIRE RESERVE AN D SURPLUS AS APPEARING IN THE BOOKS OF THE PAYER-COMPANY CONSISTED OF SHARE PREMIUM, IS APPOSITE. IN CONSEQUENCE, THE ACCUMULATED PROFIT IN THE INSTANT CASE WOULD HAVE T O BE CONSIDERED BY EXCLUDING THE SHARE PREMIUM. 5 ITA NOS. 3439 & 3440/M/13 (A.YS. 09-10 & 08-09) PINKI DEEPAK KAMBOJ VS. ITO THE MATTER, IN VIEW OF THE FOREGOING OBSERVATIONS; OUR PURVIEW IN THE INSTANT PROCEEDINGS BEING THE CORRECT ASSESSMENT OF THE SUM , IF ANY, LIABLE TO BE CONSIDERED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE FOR EI THER YEAR QUA THE TWO COMPANIES SPECIFIED, SHALL REQUIRE BEING RESTORED BACK TO THE FILE OF THE A.O. FOR AN ADJUDICATION AFRESH IN ACCORDANCE WITH LAW AS EXPLAINED BY THE H IGHER COURTS, AND WHICH WE HAVE BRIEFLY ADVERTED TO, AND AFTER ALLOWING THE ASSESSE E AN OPPORTUNITY OF BEING HEARD IN THE MATTER. BEFORE PARTING, WE MAY ALSO ADD THAT THE CO PY OF THE ASSESSEES LEDGER ACCOUNT IN THE BOOKS OF THE KBJ JEWELLERY PVT. LTD. FOR A.Y. 2 008-09 (PB PGS. 64-65), REVEALS IT TO HAVE NO DEBIT BALANCE AT ANY TIME DURING THE YEAR, AND ALSO DOES NOT BEAR THE BALANCE OF THE SUM OF RS.5,39,156/-, DEEMED AS DIVIDEND, RAISI NG DOUBTS AS TO ITS VERACITY IN-AS-MUCH AS WE OBSERVE NO DISPUTE AS TO THIS AMOUNT. WE MAY THOUGH CLARIFY THAT THE ASSESSEES CONTENTION THAT THE CREDIT IN RESPECT OF DIRECTORS REMUNERATION OR OTHER CHARGES SHALL REQUIRE BEING CONSIDERED ON A MONTHLY BASIS, I.E., AS DUE, CANNOT BE FAULTED WITH, WHERE A CONSOLIDATED SUM FOR THE WHOLE YEAR STANDS ALREADY CREDITED AT THE YEAR-END. THIS IS AS ONLY THE AMOUNT RECEIVED IN EXCESS OF THE CREDIT BA LANCE SO ARRIVED AT THAT WOULD BE LIABLE TO BE CONSIDERED AS PAYMENT BY THE COMPANY AND, CON SEQUENTLY, AS DIVIDEND IN THE HANDS OF THE PAYEE. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEALS ARE ALLOWE D FOR STATISTICAL PURPOSES. /. 0 (1 2/ & 3 4& 56 7 8 ) 9 & :; ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 16, 2015 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER <* MUMBAI; =( DATED : 16.02.2015 ).(../ ROSHANI , SR. PS 6 ITA NOS. 3439 & 3440/M/13 (A.YS. 09-10 & 08-09) PINKI DEEPAK KAMBOJ VS. ITO ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. @)A B $(C1 , + C1. , <* / DR, ITAT, MUMBAI 6. B E2 F * / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , <* / ITAT, MUMBAI