ACIT, Trivandrum V. Sri.Rajendran Velayudhan Chettiar, Trivandrum

ITA 39/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69025 (ITAT-COCHIN)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-07-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 01-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: RAJEEV A
• Keywords: Opportunity of being heard; Deemed dividend; Commercial expediency

Judgement Text

ITA NO..39/ COCH/ 2013 1 IN THE INCOME TAX APELALTER TIBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI N.R.S. GANESAN, JM & B. R. BASKARAN, AM ITA NO. 39 /COCH/ 2013 (ASST YEAR 2009 - 10 ) THE ASST COMMR OF INCOME TAX CIRCLE 1(1), TRIVANDRUM VS SHRI RAJENDRAN VELAYUDHAN CHETTIAR MANAGING DIRECTOR M/S CAPSTOCKS & SECURITIES (INDIA) P LTD THAKARAPARAMBU ROAD TRIVANDRUM ( APPELLANT) (RESPONDENT) PAN NO. ABXPC7496E ASSESSEE BY SHRI RAJEEV A REVENUE BY SMT S VIJAYAPRABHA, JR DR DATE OF HEARING 15 TH JULY 2013 DATE OF PRONOUNCEMENT 11 TH , OCT 2013 OR D ER PER B.R. BASKARAN, AM: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 21.11.2012 PASSED BY THE LD CIT(A), TRIVANDRUM AND IT RELATES TO THE AY 2009 - 10. THE AMOUNT ASSESSED AS DEEMED DIVIDEND U /S 2(22)(E) OF THE A CT, HAVING BEEN PARTIALLY DELETED BY THE LD CIT(A), THE REVENUE HAS FILED THIS APPEAL BEFORE US. 2 THE FACTS RELATING TO THE ISSUE ARE STATED IN BRIEF: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS RECEIVED A SUM OF RS.2,02,43,645/ - AS LOAN/ADVANCE FROM A COMPANY NAME D M/S CAPSTOCKS AND SECURITIES (INDIA) PVT LTD . THE SAID COMPANY WAS A CLOSELY HELD COMPANY IN WHICH THE ASSESSEE H ELD SUBSTANTIAL INTEREST. THE AO ALSO NOTICED THAT THE ACCUMULATED PROFIT OF THE SAID C OMPANY WAS MORE THAN THE AMOUNT ADVANCED TO THE ASSESSEE . HENCE, THE AO TOOK THE VIEW THAT THE AMOUNT OF RS.2,02,43,465/ - ITA NO..39/ COCH/ 2013 2 RECEIVED BY THE ASSESSEE IS ASSESSABLE AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. WHEN THIS WAS PUT TO THE ASSESSEE, HE SUBMITT ED T HAT HE IS THE MANAGING DIRECTOR OF THE COMPANY AND THE MONEY WAS GIVEN BY THE SAID COMPANY TO HIM TO PARTICIPATE IN A BID FOR PURCHASE OF BUILDING FOR THE PURPOSE S OF THE COMPANY. ACCORDINGLY, IT WAS CONTENDED THAT THE TRANSACTION WA S MOTIVATED BY BUSINE SS CONSIDERATION AND ADVANCE WAS GIVEN FOR THE BUSINESS PURPOSE S. ACCORDINGLY IT WAS CONTENDED THAT THE IMPUGNED PAYMENT WOULD FALL OUTSIDE THE SCOPE OF SECTION 2(22)(E) OF THE ACT. IN THIS REGARD, THE ASSESSEE PLACED RELIANCE ON THE DECISIONS REPORTED I N 318 ITR 476 (DEL); 26 SOT 95 (DEL) AND 90 ITD 1(MUM). THE AO WAS NOT CONVINCED WITH THE EXPLANATION S OF THE ASSESSEE AND ACCORDINGLY ASSESSED THE AMOUNT OF RS.2,02,43,645/ - AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. 2.1 THE ASSESSEE CHALLENGED THE SAME BY FILING APPEAL BEFORE THE LD CIT(A). BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS HAVING A RUNNING ACCOUNT WITH COMPANY CONSISTING OF DEPOSITS AND WITHDRAWALS. THE NET BALANCE, AT THE END OF EACH DAY, WOU LD SHOW THAT THE MONEY SHALL BE DUE FROM THE COMPANY TO THE ASSESSEE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED A SUM OF RS.70.00 LAKHS ON 7.4.2008 FROM THE COMPANY IN ORDER TO PARTICIPATE IN A BID FOR THE PURPOSE OF AND FOR THE BENEFIT OF THE COMPANY. BARRING THIS AMOUNT OF RS.70.00 LAKHS, THE ASSESSEE DID NOT RECEIVE ANY MONEY FROM THE COMPANY. ACCORDINGLY IT WAS SUBMITTED THAT THE AMOUNT OF RS.2,02,43,465/ - DETERMINED BY THE AO CAN BE GROUPED INTO TWO ITEMS VIZ., RS.70,00,000/ - AND RS.1,32,43,465/ - . IT WAS FURTHER SUBMITTED THAT THE AO HAS AGGREGATED ALL THE AMOUNT RECEIVED FROM THE COMPANY DURING THE PERIOD FROM 8.4.2008 TO 31.3.2009 AND ARRIVED AT THE FIGURE OF RS.1,32,43,465/ - . IT WAS SUBMITTED THAT T HE AO HAS IGNORED THE PAYME NTS MADE TO THE COMPANY AND ALSO THE FACT THAT THE ASSESSEE HAS RECEIVED THE ABOVE SAID PAYMENTS AGAINST THE AMOUNT DUE TO HIM FROM THE ITA NO..39/ COCH/ 2013 3 COMPANY. ACCORDINGLY HE CONTENDED THAT THE AO WAS NOT RIGHT IN ASSESSING THE A BOVE SAID AMOUNT OF RS.1.32 CRORE S AS DEE MED DIVIDEND. THE ASSESSEE ALSO SUBMITTED A RECAST RUNNING ACCOUNT BY EXCLUDING THE RECEIPT OF RS.70.00 LAKHS IN ORDER TO SUPPORT HIS CLAIM THAT THE COMPANY ALWAYS OWED MONEY TO HIM . 2.2 WITH REGARD TO RS. 70 LACS, THE ASSESSEE SUBMITTED THAT THE BUIL DING , WHERE THE BUSINESS IS CARR I ED ON BY THE COMPANY FOR MORE THAN TWO DECADES , WAS PUT TO AUCTION. IN ORDER TO HAVE A BETTER CHANCE , BOTH THE COMPANY AS WELL AS THE ASSESSEE SUBMITTED ONE BID EACH . ACCORDINGLY IT WAS SUBMITTED THAT THE ASSESSEE PARTIC IPATED IN THE BID FOR THE PURPOSE OF AND FOR THE BENEFIT OF THE COMPANY BY RECEIVING THE AMOUNT OF RS. 70 LACS FROM IT . FURTHER THE COMPANY ITSELF HAS ALLOWED THE ASSESSEE TO PARTICIPATE IN THE BID BY PASSING A BOARD RESOLUTION PASSED ON 13.3.2008. ACCOR DINGLY , IT WAS SUBMITTED THAT THE AMOUNT GIVEN TO THE ASSESSEE WAS NEITHER A LOAN NOR AN ADVANCE AND FURTHER IT WAS NOT FOR THE INDIVIDUAL BENEFIT OF THE ASSESSEE. ACCORDINGLY, IT WAS SUBMITTED THAT THE TRANSACTION IS MOTIVATED BY BUSINESS CONSIDERATION A ND COMMERCIAL EXPEDIENCY AND THEREFORE, IT CANNOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. WITH REGARD TO THE ASSESSMENT OF RS.1.32 CRORES, IT WAS SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN ASSESSING THE AGGREGATE AMOUNT REPAID BY THE COMPAN Y AGAINST THE AMOUNT DUE TO THE ASSESSEE , S INCE SUCH KIND OF REPAYMENTS OF AMOUNT DUE TO THE ASSESSEE CANNOT BE CONSIDERED AS RECEIPT OR LOAN/ADVANCE BY THE ASSESSEE. IN THIS REGARD, THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING CASE LAWS BEFORE LD CIT(A) : I) N H SECURITIES LTD V DCIT (2007) 11 SOT 302 (MUM) II) CIT VS CREATIVE DYEING AND PRINTING P LTD - (2009) 318 ITR 476 (DEL) III) PRADIP KUMAR MALHOTRA VS CIT (2011) 33 8 ITR 538(CAL) IV) SUNIL SETHI VS DC IT (2008) 26 SOT 95 (DEL) V) ACIT VS. HARSAD V DOSHI (2011) 136 TTJ 351 VI) DCIT VS LAKRA BROTHERS (2007) 106 TT J 250( CHAND) VII) JHAMU U SUGHAND VS DCIT (2006) 99 ITD 1 (MUM) ITA NO..39/ COCH/ 2013 4 3 THE LD CIT(A) WAS CONVINCED WITH THE EXPLANATION S OF THE ASSESSEE. THE OBSERVATIONS GIVEN BY THE LD CIT(A) WITH REGARD TO THE RECEIPT OF RS. 70 LACS ARE EXTRACTED BELOW: 12. IT IS CLEAR FROM THE FACTS ON RECORD THAT THE AP PELLANT WAS AUTHORIZED BY THE SAID COMPANY TO SUBMIT THE BID FOR ITS BENEFITS AND FOR THE PURPOSE A AMOUNT OF RS. 70 LACS WAS GIVEN TO IT WHICH WAS CREDITED IN THE ACCOUNT OF THE APPELLANT WITH THE COMPANY ON 7.4.2008. AS PER THE BANK STATEMENT OF THE APPE LLANT WITH THE AXIS BANK, AN AMOUNT OF RS. 66,88,000/ - WAS PAID TO M/S INDUSIND BANK, OUT OF THE AFORESAID AMOUNT OF RS. 70 LACS ON 8.4.2008. THE BALANCE AMOUNT OF RS. 3,20,000 REMAINED WITH ASSESSEE. AS ON 6.4.2008 THE ASSESSEE WAS HAVING CREDIT BALANCE O F RS. 2075666/ - WITH THE COMPANY AND THEREFORE THE AMOUNT OF RS. 3,20,000/ - IS TO BE TAKEN AS REPAYMENT OF LOAN BY THE COMPANY TO THE ASSESSEE. IT IS ALSO SEEN FROM THE RECONSTRUCTED LEDGER ACCOUNT COMPANY OF ASSESSEE IN THE BOOKS OF THE COMPANY AFTER EXCL UDING THE AMOUNT OF RS. 70 LACS WHICH WAS FILED BEFORE THE AO ALONG WITH THE LETTER DATED 19.12.2011, THAT ON EXCLUSION OF THE AFORESAID AMOUNT OF RS. 70 LACS EVEN ON DAILY BASIS THERE WILL ALWAYS BE DUES PENDING IN FAVOUR OF ASSESSEE FROM THE COMPANY. 13 . FOR THE SAKE OF DISCUSSION, THEREFORE, THE AFORESAID AMOUNT OF RS. 70 LAKHS IS DIVIDED IN TWO PARTS (I) AMOUNT OF RS. 66,88,000/ - PAID BY APPELLANT TO INDUSLAND BANK FOR SECURING BID AND (II) AMOUNT OF RS. 3,20,000/ - REMAINING WITH IT. 3.1 ACCORDING LY, THE LD CIT(A) HELD THAT OUT OF THE AMOUNT OF RS. 70 LACS, THE AMOUNT OF RS.66.80 LACS REPRESENTS ADVANCE GIVEN FOR THE BENEFIT AND FOR THE PURPOSE OF THE COMPANY AND HENCE, IT CANNOT BE TREATED AS DEEMED DIVIDEND. THE LD CIT(A) HELD THAT THE REMAINING AMOUNT OF RS. 3.20 LACS REPRESENT REPAYMENT OF AMOUNT ALREADY DUE FROM THE COMPANY AND HENCE, THE SAME FALLS BEYOND THE MISCHIEF OF PROVISIONS OF SEC. 2(22)(E) OF THE ACT. 3.2 WITH REGARD TO THE AMOUNT OF RS. 1.32 CRORES, THE LD CIT(A), AFTER GOING THR OUGH THE RUNNING ACCOUNT, NOTICED THAT THERE WAS A CREDIT BALANCE OF RS. 2,60,795/ - ON 11.9.2008 , I.E., IT REPRESENT ED THE AMOUNT DUE TO THE COMPANY . THEREAFTER THE ASSESSEE HA D RECEIVED A FURTHER AMOUNT OF RS. 35,000/ - ON 16.9.2008. IN ALL OTHER DAYS OF THE YEAR, THE COMPANY ONLY OWED MONEY TO THE ASSESSEE . ACCORDINGLY, THE LD CIT(A) HELD THAT THE AO COULD ASSESSEE A SUM OF RS. 2,95,795/ - ONLY AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. ACCORDINGLY, THE LD CIT(A) ITA NO..39/ COCH/ 2013 5 SUSTAINED THE ASSESSMENT OF DEEMED D IVIDEND TO THE EXTENT OF RS. 2,95,759/ - AND DELETED THE BALANCE AMOUNT OF ADDITION. AGGRIEVE D BY THE DECISION OF THE LD CIT(A), THE REVENUE HAS FILED THE PRESENT APPEA L BEFORE US. 4. THE LD D.R SUBMITTED THAT THE LD CIT(A) WAS WRONG IN HOLDING THAT T HE AMOUNT OF RS.70.00 LAKHS WAS GIVEN BY THE COMPANY TO THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS, I.E., FOR SECURING BID FOR THE BENEFITS OF THE COMPANY. THE LD D.R SUBMITTED THAT THE BID IN THE NAME OF THE COMPANY WAS SUBMITTED ONLY TO AVOID THE A PPLICABILITY OF PROVISIONS OF SEC. 2(22)(E) OF THE ACT, WHICH IS PROVED BY THE FACT THAT THE BUILDING WAS ULTIMATELY PURCHASED IN THE NAME OF THE ASSESSEE. THE LD D.R FURTHER SUBMITTED THAT THE ASSESSEE HIMSELF HAS ADMITTED BEFORE LD CIT(A) THAT THE BUILD ING WAS NOT YET TRANSFERRED TO THE COMPANY. ACCORDING TO LD D.R, THIS FACTUAL POSITION AMPLY CLARIFIES THE TRUTH THAT THE AMOUNT OF RS.70.00 LAKHS WAS RECEIVED BY THE ASSESSEE FOR HIS PERSONAL PURPOSES. THE LD D.R PLACED RELIANCE ON THE DECISION OF HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. P.K. ABUBACKER (259 ITR 507) AND SUBMITTED THAT IN THE ABOVE CITED CASE, ADVANCE WAS GIVEN TO MANAGING DIRECTOR FOR CONSTRUCTION OF A BUILDING, WHICH SHALL BE TAKEN ON LEASE BY THE COMPANY LATER AND FURTHER IT WAS AGREED THAT SUCH ADVANCE SHALL BE SET OFF AGAINST FUTURE RENT. THE HONBLE MADRAS HIGH COURT HELD THAT THE ADVANCE SO GIVEN SHALL ATTRACT THE PROVISIONS OF SEC. 2(22)(E) OF THE ACT. 5. ON THE CONTRARY, THE LD A.R SUBMITTED THAT THE ASSESSEE HA S GIVEN THE AMOUNT OF RS.70.00 LAKHS FOR THE BENEFIT AND FOR THE PURPOSES OF THE COMPANY AND IN THE REGULAR COURSE OF BUSINESS AND HENCE THE PROVISIONS OF SEC. 2(22)(E) ARE NOT ATTRACTED. HE FURTHER SUBMITTED THAT THE REMAINING AMOUNT OF RS.1.30 CRORES RE PRESENT THE AMOUNTS RECEIVED BY THE ASSESSEE AGAINST THE AMOUNT DUE FROM THE COMPANY AND HENCE THE LD CIT(A) HAS RIGHTLY DELETED THE ASSESSMENT OF THE SAME. THE LD A.R PLACED RELIANCE ON THE FOLLOWING CASE LAW BEFORE US: - ITA NO..39/ COCH/ 2013 6 (A) CIT VS. CREATIVE DYEING & PRINTING (P) LTD (2009)(318 ITR 476)(DELHI) (B) PRADIP KUMAR MALHOTRA VS. CIT (2011)(338 ITR 538)(CAL) (C) ACIT VS. HARSHAD V DOSHI (2011)(130 ITD 137)(CHEN)(TRIB) 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY PERUSED THE RECORD. THE LD CIT(A) HAS ADJUDICATED THE ISSUE BY BIFURCATING THE AMOUNT OF RS.2.02 CRORES ASSESSED BY THE AO INTO RS.70.00 LAKHS AND RS.1.32 CRORES. WITH REGARD TO THE AMOUNT OF RS.70.00 LAKHS, THE LD CIT(A) HAS HELD THAT A SUM OF RS.66.80 LAKHS REPRESENTS THE AMOUNT GIVEN AS ADVANCE FOR THE BENEFIT OF THE COMPANY AND HENCE THE PROVISIONS OF SEC. 2(22)(E) SHALL NOT APPLY. THE BALANCE AMOUNT OF RS.3.20 LAKHS WAS HELD TO BE THE AMOUNT RECEIVED BY THE ASSESSEE AGAINST THE AMOUNT DUE TO HIM FROM THE COMPANY. WITH REGARD TO THE AMOUNT OF RS.1.32 CRORES ALSO, THE LD CIT(A) HAS HELD THAT , BARRING AN AMOUNT OF RS. 2,95,795/ - , THE BALANCE AMOUNT REPRESENTS REPAYMENT OF AMOUNT DUE TO THE ASSESSEE BY THE COMPANY. 6 . 1 THE PROVISIONS OF SEC. 2(22)(E), INTER ALIA, EXCLUD ES THE FOLLOWING PAYMENT, VIZ., ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR THE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY . THE PRESENT DISPUTE REV OLVES AROUND THE ABOVE CITED CLAUSE. THE ASSESSEE HAS PLACED HEAVY RELIANCE ON THE ABOVE SAID PROVISION TO CONTEND THAT HE RECEIVED THE AMOUNT OF RS.70.00 LAKHS TO PARTICIPATE IN A BID FOR THE BENEFIT OF THE COMPANY ONLY AND IT WAS SUBMITTED THAT THE SAME IS SUPPORTED BY A BOARD RESOLUTION. NOW WE HAVE TO CONSIDER WHETHER THE AMOUN T OF RS.70.00 LAKHS WAS GIVEN BY THE COMPANY TO THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS FOR THE BENEFIT OF THE COMPANY OR NOT . 6.2 A PLAIN READING OF THE PROVISION , EXTRACTED ABOVE , SUGGESTS THAT THE SAME IS APPLICABLE TO ADVANCE OR LOAN GIVEN TO A SHARE HOLDER IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE SUBSTANTIAL ITA NO..39/ COCH/ 2013 7 PART OF BUSINESS OF THE COMPANY IS LENDING OF MONEY. HOWEVER, THE VARIOUS HIGH COURTS HAVE GIVEN LI BERA L INTERPRET ATION TO THE ABOVE SAID PROVISION AND HAVE HELD THAT THE MONEY ADVANCED BY THE TRADING AND MANUFACTURING COMPANIES IN THE ORDINARY COURSE OF BUSINESS SHALL ALSO BE COVERED BY THE ABOVE SAID PROVISION. THE VARIOUS CASE LAW, RELIED UPON BY TH E ASSESSEE, SUPPORT THE ABOVE SAID LIBERAL VIEW. 6.3 IN THE INSTANT CASE, THE FACT REMAINS THAT THE ASSESSEE RECEIVED THE SUM OF RS.70.00 LAKHS FOR THE PURPOSE OF PARTICIPATING IN A BID TO PURCHASE A BUILDING. IT WAS SUBMITTED THAT THE COMPANY ALSO P ARTICIPATED IN THE BID. IT WAS SUBMITTED THAT THE OFFICE OF THE COMPANY IS LOCATED IN THE VERY SAME BUILDING , FOR WHICH THE BID WAS LODGED . THE ASSESSEE FURTHER STATED THAT HE WAS INSTRUCTED TO PARTICIPATE IN THE BID IN ORDER TO INCREASE THE PROSPECTS OF WINNING THE BID. HOWEVER, WE NOTICE THAT THE ABOVE SAID CONTENTIONS HAVE NOT BEEN VERIFIED EITHER BY THE AO OR BY LD CIT(A) . BE THAT AS IT MAY, WE NOTICE THAT T HE ASSESSEE HAS FILED BEFORE US A COPY OF RESOLUTION DATED 13.3.2008 PASSED BY THE BOARD OF DIRECTORS OF THE COMPANY. THE SAID RESOLUTION IS EXTRACTED BELOW: - AUCTION SALE BY INDUSIND BANK LTD RESOLVED THAT THE C OMPANY IS HEREBY AUTHORIZED TO PARTICIPATE IN THE BIND, FOR THE LEASED PREMISES HOUSING THE REGISTERED OFFICE OF THE COMPANY AND PUT FOR SALE BY THE INDUSIND BANK LTD., VIDE SALE NOTICE DATED 8.3.2008, PUBLISHED IN THE INDIAN EXPRESS AND MATHURBHUMI DAILY ON 8.3.2008. RESOLVED FURTHER THAT SHRI RAJENDRAN V MANAGING DIRECTOR BE AND IS HEREBY AUTHORIZED TO PARTICIPATE IN THE BID IN HIS INDIVIDUAL NAME, TO BETTER THE PROSPECT OF ATTAINING THE BID, FOR SALE OF THE PREMISES TAKEN ON LEASE, BY THE COMPANY. RESOLVED FURTHER THAT SHRI RAJENDRAN V , BE AND IS HEREBY AUTHORIZED TO SUBMIT THE BID CUM APPLICATION FOR AN ON BEHALF OF THE COMPANY AN D THE AMOUNT OF BID SHALL BE CONCLUDED AT RS. 81,21,000/ - AND BY SHRI RAJENDRAN V , IN HIS INDIVIDUAL CAPACITY FOR AN AMOUNT OF RS. 91,80,000/ ITA NO..39/ COCH/ 2013 8 A CAREFUL PERUSAL OF THE RESOLUTION WOULD SHOW THAT THE ASSESSEE WAS AUTHORIZED TO PARTICIPATE IN THE BID IN HIS INDIVIDUAL NAME. FURTHER THE COMPANY SHALL BID THE BUILDING FOR A SUM OF RS.81.21 LAKHS AND THE ASSESSEE , IN HIS INDIVIDUAL CAPACITY , SHALL BI D FOR AN AMOUN T O F RS.91.80 LAKHS. IT CAN BE SEEN THAT T HE VALUE , THAT WILL BE QUOTED BY THE ASSESSEE IN H IS INDIVIDUAL CAPACITY SHALL BE MORE THAN THE BID AMOUNT THAT SHALL BE QUOTED BY THE COMPANY. THOUGH THE COPIES OF BID DOCUMENTS WERE NOT FURNISHED BEFORE US, THE POSSIBILITY IS THAT BOTH THE ASSESSEE AS WELL AS THE COMPANY SHOULD HAVE QUOTED THE BID AMOUN T AS PER THE BOARD RESOLUTION ONLY. THE ABOVE SAID INFERENCE IS SUPPORTED BY THE FACT THAT THE ASSESSEE HAS WON THE BID IN HIS INDIVIDUAL CAPACITY, SINCE HE HAS QUOTED HIGHER AMOUNT. SINCE THE ASSESSEE HAS QUOTED HIGHER AMOUNT, THE APPARENT INTENTION O F THE ASSESSEE AS WELL AS THE COMPANY SHOUL D ONLY BE THAT THE BID SHOULD BE WON BY THE ASSESSEE AND HE SHOULD PURCHASE TH E SAID BUILDING. THIS CONDUCT OF THE PARTIES DISCUSSED ABOVE MILITATES AGAINST THE CONTENTIONS URGED BEFORE THE TAX AUTHORITIES AS WEL L AS BEFORE US. IN OUR VIEW, IF IT WAS THE INTENTION OF THE COMPANY TO PURCHASE THE BUILDING TO FURTHER ITS BUSINESS INTERESTS AND IN THAT PROCESS THE STRATEGY OF SUBMITTING TWO SEPARATE BID DOCUMENT S WAS FOLLOWED, THEN LOGICALLY THE COMPANY SHOULD HAVE Q UOTED HIGHER AMOUNT. IT IS KNOWN TO EVERYBODY THAT ONLY TH AT PERSON , WHO HAS QUOTED HIGHEST AMOUNT , WOULD WIN IN AN AUCTION. IN THE INSTANT CASE, IT WAS OTHERWISE. THE COMPANY HAS QUOTED LOWER AMOUNT AND THE ASSESSEE, BEING THE MANAGING DIRECTOR OF THE COMPANY, HAS QUOTED HIGHER AMOUNT. HENCE, IT SEEMS THAT THE PURPOSE OF SUBMITTING TWO BIDS , AS SUBMITTED BY LD D.R, WAS TO ENSURE THAT THE ASSESSEE SHOULD WIN THE BID AND PURCHASE THE BUILDING. 6.4 THE CONTENTION OF THE ASSESSEE WAS THAT HE TOOK P ART IN THE BID IN ORDER TO INCREASE THE PROSPECTS OF PURCHASING THE BUILDING FOR THE BENEFITS OF THE COMPANY. THE VERY FACT THAT THE ASSESSEE HAS QUOTED HIGHER AMOUNT THAN THAT QUOTED BY THE COMPANY WOULD CLEARLY SHOW THAT ITA NO..39/ COCH/ 2013 9 IT IS THE ASSESSEE, WHO ACTUALLY WANTED TO WIN THE BID AND NOT THE COMPANY. IF IT WAS REALLY INTENDED THAT THE COMPANY SHOULD PURCHASE THE BUILDING, THEN THERE WAS NO NECESSITY FOR THE ASSESSEE TO QUOTE HIGHER AMOUNT. THE COMPANY COULD HAVE VERY WELL QUOTED HIGHER AMOUNT AND COULD HAVE WON THE BID AND PURCHASED THE BUILDING. FURTHER WINNING T HE BID BY THE ASSESSEE AND SUBSEQUENTLY TRANSFERRING THE BUILDING SO PURCHASED TO THE C OMPANY WOULD INVOLVE ADDITIONAL EXPENDITURE IN THE FORM OF DOCUMENT DAFTING CHARGES, STAMP DUTY, REGISTRATION FEE ETC., WHICH A PRUDENT BUSINESS MAN WOULD ALWAYS AVOID. HENCE, IN OUR VIEW, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CLAIM OF THE ASSESSEE THAT HE RECEIVED THE AMOUNT OF RS.70.00 LAKHS ON ACCOUNT OF BUSINESS CONSIDERATIONS IN THE ORDINARY COURS E OF BUSINESS STANDS UNPROVED. ON THE CONTRARY, THE FACTS DISCUSSED ABOVE ONLY SHOW THAT THE OBJECTIVE OF GIVING ADVANCE OF RS.70 LAKHS TO THE ASSESSEE WAS TO ENSURE THAT THE ASSESSEE SHOULD PURCHASE THE BUILDING IN HIS INDIVIDUAL CAPACITY. THIS IS FURTH ER REINFORCED BY THE FACT THAT THE ASSESSEE HAS PURCHASED THE SAID BUILDING AND IS ALSO HOLDING THE SAME WITHOUT TRANSFERRING IT TO THE COMPANY. 6.5 IN THE VARIOUS CASE LAW RELIED UPON BY THE ASSESSEE, THE INTRICATE BUSINESS CONNECTION OR BUSINESS CO MPULSION FOR GIVING LOAN OR ADVANCE TO THE SHARE HOLDER WAS CLEARLY ESTABLISHED. IN THE CASE OF M/S CREATIVE DYEING & PRINTING (P) LTD (SUPRA), THE ASSESSEE THEREIN WAS ACTING AS AN ANCILLARY UNIT OF M/S PEE EMPRO EXPORTS (P) LTD FOR LAST SEVERAL YEARS. THE SAID PEE EMPO EXPORTS (P) LTD, IN ORDER TO INCREASE ITS EXPORT BUSINESS AND TO COMPETE WITH THE INTERNATIONAL STANDARDS, SUGGESTED FOR MODERNIZATION AND EXPANSION TO THE ASSE SSEE COMPANY. SINCE IT INVOLVED INVESTMENT OF HUGE FUNDS, THE ASSESSEE COMPAN Y EXPRESSED ITS INABILITY TO INVEST SUCH A HUGE AMOUNT. UNDER THESE CIRCUMSTANCES, M/S PEE EMPO EXPORTS (P) LTD CAME FORWARD TO MAKE AVAILABLE 50% OF COST, BECAUSE IT NOT ONLY PROMOTED ITS INTEREST BUT AL S O ON ACCOUNT OF ITA NO..39/ COCH/ 2013 10 THE FACT THAT M/S PEE EMPO EXPORTS (P) LTD HELD 50% SHARE OF THE ASSESSEE COMPANY. UNDER THESE SET OF FACTS, IT WAS HELD BY THE HONBLE DELHI HIGH COURT THAT THE TRANSACTION WAS A BUSINESS TRANSACTION. 6.6 IN THE CASE OF PRADIP KUMAR MALHOTRA (SUPRA), THE ASSESSEE THEREIN PERMITTED THE COMPANY TO GIVE THE PR OPERTY OWNED BY HIM ( WHICH WAS HAVING A SUBSTANTIAL MARKET VALUE) AS COLLATERAL SECURITY TO VIJAYA BANK IN ORDER TO ENABLE THE SAID COMPANY TO OBTAIN LOAN FROM THE BANK. SUBSEQUENTLY, WHEN THE ASSESSEE WAS IN NEED OF MONEY, HE REQUE STED THE COMPANY EITHER TO GET THE PROPERTY RELEASED OR PURCHASE THE SAME. WHEN THE COMPANY WAS NOT ABLE TO DO EITHER OF THE TWO, IT CAME FORWARD TO ADVANCE MONEY TO THE ASSESSEE. UNDER THESE SET OF FACTS, IT WAS HELD BY THE HONBLE CALCUTTA HIGH COURT THAT THE ADVANCE SO GIVEN IS NOT GRATUITOUS ADVANCE BUT TO PROTECT THE BUSINESS INTEREST OF THE COMPANY. 6.7 IN THE CASE OF HARSHAD V DOSHI (SUPRA), THE ASSESSEE THEREIN USED THE MONEY RECEIVED FROM THE COMPANY TO PURCHASE LAND, WHICH WAS TO BE DEVELO PED BY THE COMPANY. THE ASSESSEE DEMONSTRATED ABOUT THE BUSINESS NECESSITY FOR DOING SO. HENCE, IT WAS HELD THAT THE PROVISIONS OF SEC. 2(22)(E) SHALL NOT APPLY. 7. IN THE INSTANT CASE, WE HAVE ALREADY NOTICED THAT THE ASSESSEE HAS PARTICIPATED IN TH E BID BY QUOTING HIGHER AMOUNT THAN TH AT QUOTED BY THE COMPANY AND HENCE, IN OUR VIEW, THERE WAS NO BUSINESS CONSIDERATION OR BUSINESS COMPULSION IN GIVING THE ADVANCE OF RS.70.00 LAKHS TO THE ASSESSEE. FURTHER, THE ASSESSEE HIMSELF HAS ADMITTED THAT HE HAS WON THE BID AND PURCHASED THE BUILDING AND FURTHER THE SAID BUILDING STILL REMAINS IN HIS NAME ONLY, WHICH FACT ALSO PROVES THAT THERE WAS NO BUSINESS NECESSITY FOR THE COMPANY TO ADVANCE THE ABOVE SAID AMOUNT. THE ONLY BUSINESS NEXUS STATED BY THE AS SESSEE WAS THAT IT WAS CARR Y ING ON BUSINESS IN THE VERY ITA NO..39/ COCH/ 2013 11 SAME BUILDING. BUT, IN VIEW OF THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF P.K. ABUBAKER (SUPRA), THE BUILDING PURCHASED BY THE ASSESSEE, INSTEAD OF THE COMPANY, CANNOT BE CONSIDERED AS A BUSINESS NECESSITY OR ON BUSINESS COMPULSIONS. ACCORDINGLY, WE ARE UNABLE TO AGREE WITH THE VIEW TAKEN BY LD CIT(A) IN THIS REGARD AND ACCORDINGLY SET ASIDE HIS ORDER ON THIS ISSUE. 8. NOW COMING TO THE QUESTION OF DETERMINING THE QUANTUM TO BE ASS ESSED AS DEEMED DIVIDEND, WE NOTICE THAT THE ASSESSEE WAS HAVING A RUNNING ACCOUNT WITH THE COMPANY. ACCORDING TO THE ASSESSEE, THE AO HAS AGGREGATED ALL THE CREDITS AND ASSESSED THE SAME AS DEEMED DIVIDEND. ACCORDING TO THE ASSESSEE, THE POSITION AT THE END OF EACH DAY WAS THAT THE COMPANY ALWAYS OWED MONEY TO THE ASSESSEE, BARRING THE TRANSACTION OF RS.70.00 LAKHS REFERRED ABOVE. IN SUPPORT OF THE SAID SUBMISSIONS, THE ASSESSEE HAS FILED A RECAST RUNNING ACCOUNT EXCLUDING THE AMOUNT OF RS.70.00 LAKHS. BY CONSIDERING THE SAID RUNNING ACCOUNT , THE LD CIT(A) HAS HELD THAT A SUM OF RS.3,20,000/ - , OUT OF THE ABOVE AMOUNT OF RS.70.00 LAKHS , REPRESENT REPAYMENT OF AMOUNT DUE TO THE ASSESSEE. SIMILARLY, OUT OF RS.1.32 CRORES, THE LD CIT(A) HAS HELD THAT A S UM OF RS.2,95,976/ - ONLY REPRESENTS THE MONEY RECEIVED BY THE ASSESSEE FROM THE COMPANY AND ALL OTHER RECEIPTS REPRESENT PAYMENT RECEIVED BY THE ASSESSEE AGAINST THE AMOUNT DUE FROM THE COMPANY. 8.1 WE TEND TO AGREE WITH THE PRINCIPLE EXPRESSED BY T HE LD CIT(A) IN THIS REGARD. THE LOAN OR ADVANCE CONTEMPLATED IN SEC. 2(22)(E) , IN OUR VIEW, I S AMOUNT RECEIVED BY THE ASSESSEE FROM THE COMPANY AS SUCH AS LOAN OR ADVANCE. IF THE ASSESSEE HAS GIVEN MONEY TO THE COMPANY AND LATER RECEIVED BACK THE SAME, THE SAID RECEIPT, IN OUR VIEW ALSO, CANNOT BE TREATED AS LOAN OR ADVANCE. ITA NO..39/ COCH/ 2013 12 8. 2 WE NOTICE T HAT THE ASSESSEE HAS RAISED THE ABOVE SAID CONTENTION RELATING TO RUNNING ACCOUNT AND HAS ALSO GIVEN THE WORKINGS IN THIS REGARD FOR THE FIRST TIME BEFORE LD CI T(A). HENCE, THERE WAS NO OCCASION FOR THE AO TO EXAMINE THE ABOVE SAID CLAIM OR THE WORKINGS FURNISHED BY THE ASSESSEE . WE ALSO NOTICE THAT THE LD CIT(A) DID NOT CONFRONT THE ABOVE SAID CONTENTIONS/DOCUMENTS TO THE AO. HENCE, IN OUR VIEW, THE SAID CO NTENTIONS OF THE ASSESSEE AS WELL AS THE WORKINGS GIVEN BY HIM IN THIS REGARD REQUIRE EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXA MINE THE WORKINGS GIVEN BY THE ASSESSEE AND EXCLUDE THOSE PAYMENTS, WHICH WERE RECEIVED AGAINST THE AMOUNT DUE TO THE ASSESSEE FROM THE COMPANY AND ACCORDINGLY DETERMINE THE AMOUNT OF DEEMED DIVIDEND TO BE ASSESSED U/S 2(22)(E) OF THE ACT. THE ASSESSEE SH OULD BE GIVEN NECESSARY OPPORTUNITY OF BEING HEARD. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH , DAY OF OCT 2013. SD/ - SD/ - (N.R.S. GANESAN) ( B.R. BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN: DATED 11 TH OCT 2013 RAJ* ITA NO..39/ COCH/ 2013 13 COPY TO: 1 THE APPELLANT THE ASST COMMR OF INCOME TAX, CIRCLE 1(1), TRIVANDUM 2 RESPONDENT - SHRI RAJENDRAN VELAYUDHAN CHETTIAR - MANAGING DIRECTOR M/S C APSTOCKS & SECURITIES (INDIA) P LTD THAKARAPARAMBU ROAD TRIVANDRUM 3 CIT(A) 4 CIT , TRIVANDRFUM 5 DR 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN