M/s Madhukar Kapur, Agra V. A.C.I.T.-1, Agra

ITA 392/AGR/2012

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0626 (ITAT-AGRA)
• Duration Of Justice: 6 year(s) 9 month(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-01-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 09-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V K NAGPAL
• Keywords: Business income; Salary income; Source of fund; Question of law; Cost of acquisition; Deemed dividend; Set aside
• Section: 80C; 143(3); 2(22)(e); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 392/AGRA/2012 ASSTT. YEAR : 2008-09 SRI MADHUKAR KAPUR, VS. A.C.I.T. 1, AGRA 64, SURYA NAGAR, AGRA. (PAN : ACNPK 8849 G) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.K. NAGPAL, C.A. RESPONDENT BY : SHRI WASEEM ARSHAD, SR. D.R. DATE OF HEARING : 08.01.2013 DATE OF PRONOUNCEMENT OF ORDER : 29.01.2013 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A)-I, AGRA DATED 08.02.2012 FOR THE ASSESSMENT YEAR 2008- 09 ON THE FOLLOWING GROUNDS : 1. THAT THE ORDER IS AGAINST FACTS AND LAW AND IS BASE D ON WRONG INTERPRETATIONS OF LAW & FACTS HENCE IS LIABLE TO B E STRUCK DOWN. 2. THE ADDITION OF RS. 12324568/-IS AGAINST FACTS & LA W & IS BASED ON ASSUMPTIONS & CONJECTURES & BASED ON CONCLUSIONS EX TRANEOUS TO THE ISSUE INVOLVED & THE LAW ON THE POINT. 3. THAT CONCLUSION THAT THE TRANSFER OF GENUINE CREDIT S OF FAMILY MEMBERS TO THE ASSESSEE IS SHAM FOR NOT BEING AUTHO RIZED IN ABSENCE OF ANY DECISION OF FAMILY MEMBERS TO AVOID OR RESCIND THE TRANSACTION/ TRANSFERS OF THEIR CREDITS TO ASSESSEE IS WRONG & AGAINST LAW ON THE POINT &FACTS. IGNORING THE TRANS FER OF CREDIT ITA NO. 392/AGRA/2012 2 BALANCES OF FAMILY MEMBERS IN SUCH CIRCUMSTANCES IS NOT PERMITTED TO STRANGERS INCLUDING TAX DEPARTMENT. 4. THE DEEMING DIVIDEND PROVISIONS OF SEC. 2(22)(E) AR E NOT APPLICABLE IF THE AMOUNTS ARE PAID OUT OF THE CREDI T BALANCE & NOT OUT OF ACCUMULATED PROFITS. 5. THE LD. CIT(A) HAS ERRED IN CONCLUDING THAT THE PAY MENTS BY M/S MAHIM PATRAN PVT. TO M/S MANAK SHEETAL PVT. LTD. WE RE NOT MADE ON ACCOUNT OF BUSINESS REASONS. 6. THE LD. CIT(A) HAS ERRED IN CONFIRMING DEEMED DIVI DEND AMOUNTING TO RS. 7,66,667/- AS THE PAYMENTS WERE OU T OF CREDIT BALANCES OF THE ASSESSEE & WERE NOT LOAN OR ADVANCE TO ASSESSEE AND WERE NOT OUT OF ACCUMULATED PROFITS. 7. THE FICTION OF SEC. 2(22)(E) OF THE INCOME TAX ACT HAS TO BE STRICTLY CONSTRUED IT IS NOT PERMITTED TO ASSUME ANOTHER FIC TION TO BRING A PARTICULAR TRANSACTION UNDER THE AMBIT OF THIS SECT ION. 8. THE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 7,66, 667/- IS AGAINST LAW & FACTS. THE PAYMENTS HAVE BEEN PAID TO EARN OT HER INCOME & BUSINESS INCOME HENCE IS ALLOWABLE. 2. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF AUTHORITIES BELOW AND CONSIDERED THE MA TERIAL AVAILABLE ON RECORD. 3. IN THIS CASE, ASSESSMENT ORDER HAS BEEN PASSED U /S. 143(3) OF THE INCOME TAX ACT, 1961 VIDE ORDER DATED 30.12.2010 DETERMINING T HE ASSESSED INCOME OF RS.1,53,39,250/- AS AGAINST THE RETURNED INCOME OF RS.5,23,652/-. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE AO FOUND THAT THERE WAS A FAMILY DISPUTE IN THE FAMILY OF THE ASSESSEE. AS PER THE FAMILY SETTL EMENT FINALIZED, AN AGREEMENT ITA NO. 392/AGRA/2012 3 WAS DRAWN ON 15.06.2007 AND THE ASSESSEE WAS REQUIR ED TO MAKE PAYMENT OF RS.5CRORE TO HIS BROTHER SHRI ARVIND KAPOOR FOR TRA NSFERRING OF HIS 1/3 RD SHARE IN FAMILY BUSINESS TO THE ASSESSEE AND OUT OF THE ABOV E PAYMENT, RS.2.5 CRORE WAS REQUIRED TO BE PAID IMMEDIATELY FOR ACTUAL TRANSFER OF FAMILY BUSINESS IN THE HANDS OF THE ASSESSEE. ON FURTHER EXAMINATION OF THE SOUR CE OF FUNDS ARRANGED BY THE ASSESSEE FOR MAKING IMMEDIATE PAYMENT OF RS.2.5 CRO RE TO HIS BROTHER, IT HAS BEEN FOUND THAT AN AMOUNT OF RS.1,75,00,000/- WAS FIRST TRANSFERRED FROM A COMPANY M/S MAHIM PATRAN PVT. LTD.(HEREINAFTER REFERRED AS M/S MAHIM) TO ANOTHER COMPANY M/S MANAK SHEETAL PVT. LTD. (HEREINAFTER REFERRED A S M/S MANAK) AND THEREAFTER, THIS AMOUNT WAS TRANSFERRED FROM THE ACCOUNT OF M/S MANAK TO THE ASSESSEE. IN M/S MAHIM, SHARE HOLDING OF THE ASSESSEE IS MORE THAN 1 0% BUT IN M/S MANAK, THE ASSESSEE IS NEITHER DIRECTOR, NOR HAVE ANY SHARE HO LDING BUT AS PER THE FINDING OF THE AO, THIS COMPANY RUNS UNDER THE CONTROL OF THE ASSE SSEE AND HIS FAMILY. THIS PAYMENT WAS EXAMINED BY THE AO IN DETAIL AS DISCUSS ED IN THE ASSESSMENT ORDER FROM PAGE NO. 3 TO PAGE NO.11 AND AFTER ANALYZING A LL THE DETAILS FURNISHED BY THE ASSESSEE, THE AO FOUND THAT AN AMOUNT OF RS. 1,31,5 0,000/- OUT OF TOTAL AMOUNT OF RS. 1,75,00,000/- RECEIVED BY THE ASSESSEE IS IN TH E NATURE OF DEEMED DIVIDEND LIABLE TO BE TAXED UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. DURING THE COURSE OF EXAMINATION OF THE ACCOUNT OF THE ASSESSE E IN THE BOOKS OF M/S MAHIM, THE AO ALSO FOUND THAT AN AMOUNT OF RS. 6,66,667/- AND RS. 1,00,000/- WAS PAID AS ITA NO. 392/AGRA/2012 4 INTEREST ON BEHALF OF THE ASSESSEE TO SHRI ARVIND K APOOR (BROTHER OF THE ASSESSEE) AND SMT. NIRMALA KAPOOR (MOTHER OF THE ASSESSEE) RE SPECTIVELY. THESE INTERESTS WERE PAYABLE BY THE ASSESSEE TO SHRI ARVIND KAPOOR AND SMT. NIRMALA KAPOOR DUE TO DELAY IN PAYMENT OF THE SETTLEMENT AMOUNT ON ACC OUNT OF SETTLING THE FAMILY DISPUTE BUT SINCE THIS INTEREST WAS PAID BY THE COM PANY M/S MAHIM ON BEHALF OF THE ASSESSEE, THIS PAYMENT WAS ALSO HELD BY THE AO TO BE DEEMED DIVIDEND U/S. 2(22)(E) TOTALING TO RS.7,66,667/-. THE AO HAS FURT HER MADE ADDITION OF RS. 7,66,667/- BY DISALLOWING THE LIABILITY OF INTEREST PAYABLE BY THE ASSESSEE ON ACCOUNT OF DELAY IN PAYMENT OF SETTLEMENT AMOUNT AS THIS INTEREST AMOUNT HAS NOT BEEN FOUND AS PAID TOWARDS EARNING OF ANY INCOME. A NOTHER ADDITION OF RS.1,32,266/- HAS BEEN MADE BY THE AO ON THE BASIS OF AN AIR INFORMATION THAT ASSESSEE HAD RECEIVED CERTAIN BANK INTERESTS WHICH WAS NOT SHOWN BY HIM IN THE RETURN OF INCOME. IN VIEW OF THE ABOVE FOUR ADDITIO N AS DETERMINED BY THE A.O. IN THE ASSESSMENT ORDER, THE ASSESSED INCOME OF THE AS SESSEE HAS BEEN DETERMINED AS UNDER:- INCOME FROM SALARY (AS PER ASSESSEE) RS. 3,82,800/- INCOME FROM HOUSE PROPERTY ( AS PER ASSESSEE) RS. 92,262/- INCOME FROM OTHER SOURCES ( AS PER ASSESSEE) RS. 1,48,590/- ADD: ( AS HELD IN ASSESSMENT ORDER AND DISCUSSED BRIEFLY ABOVE) U/S 2(22)(E) RS. 1,31,50,000/- ITA NO. 392/AGRA/2012 5 U/S 2(22)(E) RS. 7,66,667/- U/S 57 RS. 7,66,667/- REGARDING AIR RS. 1,32,266/- RS. 1,48,15,600/- RS. 1,49,64,190/- TOTAL INCOME RS. 1,54,39,252/- LESS : DEDUCTION U/S 80C RS. 1,00,000/- TAXABLE INCOME RS. 1,53,39,252/- OR RS. 1,53,39,250/- 3.1 THE ASSESSEE DISPUTED THE ADDITION OF RS.1,31,50,00 0/- BEFORE THE LD. CIT(A) CLAIMING THAT NO SUCH ADDITION COULD BE MADE U/S. 2 (22)(E) OF THE IT ACT. THIS ADDITION WAS MADE BY THE AO CONSIDERING THE DEEMED DIVIDEND U/S. 2(22)(E) OUT OF THE TOTAL AMOUNT OF RS.1,75,00,000/- RECEIVED FROM M/S. MAHIM PASSING THIS AMOUNT THROUGH ACCOUNT OF ANOTHER COMPANY M/S. MANA K. IT IS STATED THAT THERE WAS A FAMILY DISPUTE IN WHICH IT HAS BEEN SETTLED T HAT THE BROTHER OF THE ASSESSEE SHRI ARVIND KAPUR HAD TO TRANSFER 1/3 SHARE IN THE FAMILY BUSINESS CONCERNS TO THE ASSESSEE AND FOR TRANSFERRING OF SHARES BY HIM, THE ASSESSEE WOULD HAVE TO PAY RS.5,00,00,000/- TO HIM OUT OF WHICH RS.2.5 CRORES WAS REQUIRED TO BE GIVEN IMMEDIATELY FOR GIVING ACTUAL CONTROL OVER THE FAMI LY BUSINESS TO THE ASSESSEE. ON ASCERTAINING THE SOURCE OF FUNDS UTILIZED FOR PAYME NT OF RS.2.5 CRORES WHICH WAS PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDER ATION, IT HAS BEEN OBSERVED BY THE AO THAT ONE COMPANY M/S. MAHIM IN WHICH THE SHA RE HOLDING OF THE ASSESSEE IS ABOVE 10%, MADE PAYMENT OF RS.1,75,00,000/- TO ANOT HER COMPANY M/S. MANAK ON 23.06.2007 AND SUBSEQUENTLY ON 25.06.2007, SAME AMO UNT HAS BEEN PAID TO THE ITA NO. 392/AGRA/2012 6 ASSESSEE AND THEREAFTER THE ASSESSEE ARRANGED BALAN CE FUNDS FROM HIS MOTHER AND SOME OTHER SOURCES AND MADE THE PAYMENT OF RS.2.5 C RORES TO SHRI ARVIND KAPUR ON 26.06.2007. THE AO GAVE SHOW CAUSE NOTICE TO THE ASSESSEE WHY THE SAID TRANSACTION BE NOT TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE IT ACT BECAUSE THE FUNDS WERE TRANSFERRED FROM M/S. MAHIM TO M/S. MANAK, IN WHICH THE ASSESSEE IS NOT SHARE HOLDER JUST TO AVOID THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT. IN RESPONSE TO THE NOTICE ISSUED BY THE AO, IT WAS REP LIED BY THE ASSESSEE THAT AS PER THE COPY OF ACCOUNT OF M/S MAHIM IN THE BOOKS OF M/ S MANAK, IT CAN BE SEEN THAT THIS COMPANY OWED AN AMOUNT OF RS.1,68,95,250.82 TI LL 15.06.2007 AND AGAINST THIS AMOUNT, M/S MAHIM PAID RS.1,75,00,000/- TO M/S MANAK AND HENCE, IT HAS BEEN CONTENDED BY THE LD. AR THAT IN VIEW OF THE AB OVE LIABILITY OF M/S MAHIM TOWARDS M/S MANAK, ONLY RS. 6,04,649/- PAID IN EXCE SS WAS THE OWN FUNDS OF M/S MAHIM. IT WAS FURTHER CONTENDED BY THE LD. AR THAT WHAT WAS LENT TO THE ASSESSEE BY M/S MANAK WAS ITS OWN FUNDS AND PAYMENT MADE BY M/S MAHIM TO M/S MANAK WAS NOT UTILIZED FOR ASSESSEES BENEFIT, THOUGH M/S MANAK DID USE ITS OWN FUND FOR ASSESSEES BENEFIT. HE ALSO CONTENDED THAT IN FACT M/S MANAK ALSO OWED RS. 1,25,45,350/- TO THE ASSESSEE AND HENCE, OUT OF PAY MENT OF RS. 1,75,00,000/- MADE BY M/S MANAK TO ASSESSEE, THE ACTUAL LENDING BY M/S MANAK TO THE ASSESSEE IS ONLY RS. 49,54,649.82/- { RS. 1,75,00,000 (-) RS. 1,25,4 5,350} WHICH WAS PAID IN ITA NO. 392/AGRA/2012 7 EXCESS. IN SUPPORT OF HIS ARGUMENTS, THE LD. AR SUB MITTED FOLLOWING DOCUMENT WITH THE AO:- (1) A CERTIFICATE FROM M/S MAHIM CONFIRMING THAT THEY P AID RS. 1,68,95,350.81 TO M/S MANAK AGAINST AMOUNT OWED BY THEM. (2) A CERTIFICATE OF M/S MANAK CONFIRMING THAT AMOUNT O F RS. 49,54,649.18 LENT BY IT TO ASSESSEE WAS OUT OF ITS OWN FUNDS. IN VIEW OF ABOVE EXPLANATION AND RELYING ON THE ABO VE DOCUMENTS, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT HE MAY AT THE MOST CONCLUDE THAT RS. 6,04,649.18 PAID BY M/S MAHIM TO M/S MANAK OVER AND ABOVE THE AMOUNT DUE WAS USED BY M/S MANK FOR THE BENEFIT OF ASSESSEE BUT FU RTHER CONTENDED THAT IT IS NOT A CORRECT ASSUMPTION BECAUSE THERE IS A STRONG BUSINE SS RELATIONSHIP BETWEEN M/S MAHIM AND M/S MANAK AND THERE ARE DEBIT AND CREDIT BALANCES IN NORMAL COURSE OF BUSINESS ALSO. 3.2 THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FAMILY SETTLEMENT FOUND THAT THE FAMILY OF THE ASSESSEE IS IN BUSINESS OF PRINTING AND ICE- CREAM IN THE NAMES OF VARIOUS ENTITIES INCLUDING M/ S. MAHIM PATRAN PVT. LTD., M/S. MANAK SHEETAL PVT. LTD., M/S. NIRMALA REALTORS PVT. LTD., M/S. NIRMITI ASSOCIATES PVT. LTD., M/S. MADHU MUDRAK ETC. IN THE FAMILY SET TLEMENT FINALIZED ON 15.06.2007, ENTIRE BUSINESS WOULD COME TO THE ASSES SEE IN LIEU OF RS.5,00,00,000/- ITA NO. 392/AGRA/2012 8 TO BE PAID TO SHRI ARVIND KAPUR, THE YOUNGER BROTHE R OF THE ASSESSEE AND RS.0.5 CRORES TO BE PAID TO SMT. NIRMALA DEVI, MOTHER OF T HE ASSESSEE. OTHER TERMS OF THE PAYMENT FOR DELAY WERE SUBJECTED TO SIMPLE RATE OF INTEREST OF 8%. THE AO, THEREFORE, CONSIDERING THE BACKGROUND OF THE CASE F OUND THAT THE ASSESSEE WAS REQUIRED TO MAKE PAYMENT OF RS.2.5 CRORES IMMEDIATE LY TO HIS BROTHER SHRI ARVIND KAPUR FOR TAKING THE CONTROL OF THE ENTIRE BUSINESS . THE AO FURTHER FOUND THAT M/S. MANAK IS SOLE DISTRIBUTOR OF ICE-PRODUCTS, A DIVISI ON OF M/S. MAHIM FOR DISTRIBUTION OF ICE CREAM WITH BRAND NAME MADHU ICE CREAM. AS PER DOCUMENTS SUBMITTED WITH ROC, THE AO FOUND THAT THE ASSESSEE IS NOT SHA RE HOLDER IN THE COMPANY M/S. MANAK AND ITS DIRECTORS ARE OTHER PERSONS. THE AO F URTHER FOUND THAT THE ASSESSEE HAS NEITHER ANY DIRECT BUSINESS CONNECTION NOR ANY INTEREST WITH M/S. MANAK THEN WHY DID M/S. MANAK AFTER REALIZATION OF ITS DEBT FR OM M/S. MAHIM TRANSFERRED THE SAME AMOUNT TO THE ASSESSEE. THE AO, THEREFORE, CON CLUDED THAT AFTER RECEIVING FUNDS OF RS.1,75,00,000/- FROM M/S. MANAK, THE ASSE SSEE MADE PAYMENT OF 2.5 CRORES TO HIS BROTHER AND THEREFORE, OBSERVED THAT ENTIRE AMOUNT IS ROUTED FROM M/S. MAHIM TO M/S. MANAK FOR THE INDIVIDUAL BENEFIT OF T HE ASSESSEE TO DISCHARGE HIS LIABILITY. THEREFORE, THE PROVISIONS OF SECTION 2(2 2)(E) WOULD APPLY IN THE CASE OF ASSESSEE. THE AO RELIED UPON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS. L. ALAGUSUNDARAM CHETTIAR, 109 ITR 508 IN W HICH IT WAS HELD THAT WHEN A COMPANY HAS GIVEN ADVANCE/UNSECURED LOAN TO A THIRD PERSON AND THAT PERSON IN ITA NO. 392/AGRA/2012 9 TURN PASSED THE MONEY TO THE DIRECTOR, IT WAS HELD TO BE FOR THE INDIVIDUAL BENEFIT OF THE DIRECTOR HIMSELF AND DECIDED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE IT ACT. THE AO FURTHER EXAMINED AS TO HOW MUCH ADDITION IS TO BE MADE OUT OF ENTIRE PAYMENT. THE AO FUND THAT THERE WERE ADJUSTMENT ENT RIES IN THE NAME OF MS. VANI KAPOOR AND M/S. MADHU MUDRAK TOTALING TO RS.1,25,45 ,350/-, HAS BEEN MADE. THE AO FURTHER FOUND THAT M/S. MANAK SHEETAL HAS NO BUS INESS DEALING WITH THE ASSESSEE AND IT IS INEXPLICABLE AS TO WHY M/S. MANA K SHOULD GIVE NET LOAN OF RS.46,54,649/- TO THE ASSESSEE AND SUBSEQUENTLY, TH E SAID AMOUNT COULD BE CREDITED OF RS.1,25,45,350/- IN THE BOOK BY JOURNAL ENTRIES IN THE NAME OF THE ASSESSEE. THEREFORE, IT WAS DONE TO AVOID THE PROVISIONS OF S ECTION 2(22)(E) OF THE IT ACT. THEREFORE, AFTER DENYING THE BENEFIT OF RS.1,25,45, 350/-, THE AO HAS FINALLY COMPUTED THE NET AMOUNT TRANSFERRED TO THE ASSESSEE AT RS.1,31,50,000/- . THE AO FURTHER OBSERVED THAT CLAIM OF THE ASSESSEE THAT AM OUNT OF RS.1,75,00,000/- WAS PAID BY M/S. MANAK FROM ITS OWN AVAILABLE FUNDS, IT WAS ONLY ADJUSTMENT ENTRY. THEREFORE, THERE WAS A DIRECT NEXUS OF MONEY FLOWED FROM M/S. MAHIM TO THE ASSESSEE THROUGH M/S. MANAK. 4. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A) AND WRITTEN SUBMISSIONS OF THE ASSESSEE IS REPRODUCED IN THE AP PELLATE ORDER, IN WHICH THE ASSESSEE BRIEFLY EXPLAINED THE SAME FACTS AS WERE E XPLAINED BEFORE THE AO AND IT ITA NO. 392/AGRA/2012 10 WAS SUBMITTED THAT ALL THE JOURNAL ENTRIES ARE GENU INE ENTRIES AND THE SAME HAVE NOT BEEN MADE TO CIRCUMVENT THE PROVISIONS OF LAW. THER E WERE GENUINE ADJUSTMENT ENTRIES OF THE FAMILY MEMBERS IN THE NAME OF ASSESS EE IN THE BOOKS OF M/S. MANAK SHEETAL, MADHU MUDRAK, PIYUSH KAPOOR, PUNEETA KAPOO R, ASSESSEE AND VANI KAPOOR AND THESE WERE IN FACT LOAN GIVEN TO M/S. MA HIM, WHICH HAVE BEEN ADJUSTED BY ENTRIES IN THE NAME OF ASSESSEE. IT WAS , THEREFORE, SUBMITTED THAT ALL THE LOANS GIVEN EARLIER WERE THE GENUINE ENTRIES AND IN NUTSHELL THE ADJUSTMENT ENTRIES REFLECT GENUINE CEASING OF LIABILITIES OF M/S. MAHI M & M/S. MANAKS ASSETS AND LIABILITY POSITION. M/S. MANAK HAD CREDITED IN THE BOOKS OF M/S. MAHIM WHICH WERE PAID BY M/S. MAHIM TO M/S. MANAK. THEREFORE, M/S. M ANAK USED THEIR OWN FUNDS AND NOT THE FUNDS OF M/S. MAHIM TO PAY RS.1.75 CROR ES TO THE ASSESSEE AND AS SUCH NO FUNDS WERE PAID BY M/S. MAHIM TO M/S. MANAK FOR THE BENEFIT OF ASSESSEE. THE ASSESSEE RELIED UPON THE DECISION IN THE CASE OF CI T VS. RAJ KUMAR, 318 ITR 462 IN WHICH IT WAS HELD THAT THE PURPOSE OF INSERTION OF THESE SECTIONS WAS TO BRING WITHIN THE TAX NET MONIES PAID BY CLOSELY HELD COMP ANIES TO THEIR PRINCIPAL SHARE HOLDERS IN THE GUISE OF LOANS AND ADVANCES TO AVOID PAYMENT OF TAX. IT WAS, THEREFORE, SUBMITTED THAT THE ADDITION IS WHOLLY UN JUSTIFIED. THE ASSESSEE REITERATED THE SAME SUBMISSIONS IN THE ARGUMENTS BEFORE THE LD . CIT(A) AND SUBMITTED THAT THE GENERAL ENTRIES DO CREATE GENUINE LIABILITIES A ND THEY ARE RECOVERABLE AND ALSO RELIED UPON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. ITA NO. 392/AGRA/2012 11 FOJMAL RAJMAL CHHABRA, 254 ITR 320 IN WHICH THE GIF T MADE BY BOOK ENTRIES WAS HELD TO BE GENUINE EVEN THOUGH NO PHYSICAL OR ACTUA L PAYMENT WAS MADE. THE ASSESSEE, THEREFORE, SUBMITTED THAT THE GENERAL ENT RIES WERE GENUINE ENTRIES AND WAS NOT MADE TO CIRCUMVENT THE PROVISIONS OF LAW. IT WA S, THEREFORE, SUBMITTED THAT THE ENTIRE ADDITION MAY BE DELETED. 4.1 THE LD. CIT(A) CONSIDERED THIS ISSUE RELATING T O ADDITION MADE U/S. 2(22)(E) OF THE IT ACT IN THE LIGHT OF FAMILY SETTLEMENT AND THE BOOK ADJUSTMENT MADE BY THE ASSESSEE AND TO SEE WHETHER SUCH ENTRIES WERE MADE ONLY TO CIRCUMVENT THE PROVISIONS OF LAW. SINCE THE ASSESSEE CLAIMED THAT THE AO HAS MADE THE ADDITION WITHOUT ANALYZING THE FACTS AND WITHOUT GIVING ANY SUBSTANTIAL ARGUMENTS, THEREFORE, THE MATTER WAS REMANDED TO THE AO WHO HA S GIVEN THE REMAND REPORT DATED 16.01.2012, IN WHICH THE AO OBSERVED THAT M/S . MAHIM HAS TAKEN UNSECURED LOANS FROM DIFFERENT FAMILY MEMBERS OF ARVIND KAPUR , THE ASSESSEE, MADHU MUDRAK AND HUF. ON 15.06.2007, M/S. MAHIM TRANSFERR ED THESE UNSECURED LOANS TO ASSESSEE, WHO SUBSEQUENTLY TRANSFERRED THE SAME TO MANAK THROUGH BOOK ENTRIES. NO FAMILY MEMBERS ARE DIRECTORS IN M/S. MANAK AND T HERE IS NO APPARENT BUSINESS CONNECTION WITH HIM. THEREFORE, THE AO REITERATED H IS SUBMISSIONS THAT THESE ENTRIES DO NOT MAKE ANY BUSINESS SENSE AND ARE MADE TO CIRCUMVENT THE PROVISIONS OF LAW. FURTHER, IT WAS OBSERVED THAT EVEN AS PER T HE DOCUMENTS, THE ASSESSEE WAS ITA NO. 392/AGRA/2012 12 NOT AUTHORIZED TO APPROPRIATE UNSECURED LOANS OF FA MILY MEMBERS INCLUDING THOSE OF ARVIND KAPUR AND FAMILY IN HIS NAME. THE ASSESSE E ALSO FILED FURTHER SUBMISSIONS BEFORE THE LD. CIT(A) TAKING THE SAME S TAND THAT EARLIER LOANS WERE TAKEN BY M/S. MAHIM AND GENUINE ADJUSTMENT ENTRIES HAVE BEEN MADE. ALL THE FUNDS OF CHILDREN OF ASSESSEE AND HIS FAMILY MEMBER S WERE, IN FACT, LYING WITH M/S. MAHIM AND LOAN WHICH WERE CLEARED FROM THE BALANCE SHEET ENDING ON 31.03.2007 AND 31.03.2008. THE LOANS WERE REPAID AND CLEARED B Y M/S. M/S. MAHIM BY 31.03.2008. LOANS OF FAMILY MEMBERS OF ASSESSEE WER E AVAILABLE TO M/S. MAHIM TILL 15.06.2007 AND WERE NOT AVAILABLE TO M/S. MAHI M ANY MORE INSTEAD THESE WERE AVAILABLE TO M/S. MANAK SHEETAL. IN OTHER WORDS, T HE CHILDREN GOT THE LOANS BACK FROM MAHIM AND GAVE THE SAME TO M/S. MANAK. THEREFO RE, SUFFICIENT FUNDS WERE AVAILABLE IN THE NAME OF ASSESSEE ON ADJUSTMENT ENT RIES. THEREFORE, NONE OF THE FUNDS OF M/S. MAHIM WERE GIVEN TO M/S. MANAK FOR TH E BENEFIT OF THE ASSESSEE. 4.2 THE LD. CIT(A) CONSIDERED THE ISSUE IN THE LIGH T OF FAMILY SETTLEMENT AND BOOK ENTRIES MADE IN BOOKS OF ACCOUNTS OF THE COMPA NIES AND FOUND THAT THE BUSINESS CONCERNS OF THE FAMILY CONSISTS OF VARIOUS COMPANIES NOTED ABOVE INCLUDING M/S. MAHIM AND M/S. MANAK SHEETAL AND ALL BUSINESS CONCERNS WERE HANDED OVER TO THE ASSESSEE FOR CONSIDERATION ABOVE TO HIS BROTHER ARVIND KAPUR AND HIS MOTHER NIRMALA KAPUR. IN ORDER TO PAY AMOUN T OF RS.2.5 CRORES ITA NO. 392/AGRA/2012 13 IMMEDIATELY BY THE ASSESSEE TO HIS BROTHER, ALL THE SE ADJUSTMENTS HAVE BEEN MADE IN ORDER TO GET CONTROL OVER THE ENTIRE BUSINESS. T HE LD. CIT(A) ALSO OBSERVED THAT THE ASSESSEE COULD HAVE APPROPRIATED THE LOANS OF O THER FAMILY MEMBERS AS PER SETTLEMENT AND CONFIRMED THE ORDER OF THE AO THAT J OURNAL ENTRY HAVE TRANSFERRED ALL LOANS OF FAMILY MEMBERS OF THE ASSESSEE FROM M/S. M AHIM TO M/S. MANAK DO NOT MAKE ANY BUSINESS SENSE AND THESE WERE MADE TO CIRC UMVENT THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT AND THE ASSESSEE WAS NOT AUTHORIZED TO APPROPRIATE UNSECURED LOANS OF FAMILY MEMBERS INCLUDING SHRI AR VIND KAPUR AND HIS FAMILY AND HELD THAT THE PAYMENTS MADE BY M/S. MAHIM AND M /S. MANAK AND ULTIMATELY TO THE ASSESSEE WOULD BE LIABLE TO TAX U/S. 2(22)(E) A S DEEMED DIVIDEND. THE LD. CIT(A), HOWEVER, GRANTED BENEFIT OF RS.43,50,000/- ON ACCOUNT OF AMOUNT ADJUSTED TOWARDS THE CREDIT BALANCE OF M/S. MANAK BEFORE BOO K ADJUSTMENT ENTRIES AND ALSO GAVE BENEFIT OF RS.8,25,432/- ON ACCOUNT OF OPENING CREDIT BALANCE IN THE ACCOUNT OF THE ASSESSEE. THUS, RS.51,75,432/- WAS DEDUCTED FROM THE TOTAL AMOUNT OF RS.1,75,00,000/- AND ADDITION WAS CONFIRMED IN A SU M OF RS.1,23,24,568/- ON ACCOUNT OF NET AMOUNT PAID TO THE ASSESSEE FOR HIS BENEFIT IN THE LIGHT OF DECISION IN THE CASE OF L. ALAGUSUNDARAM CHETTIAR (SUPRA) AND T HE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED ON THIS ISSUE. ITA NO. 392/AGRA/2012 14 5. THE ASSESSEE ON GROUND NO. 1 TO 5 CHALLENGED THE ADDITION OF RS.1,23,24,568/- ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE IT ACT. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT IT IS ADMITTED FACT THAT THE ASSESSEE IS NEITHER A SHARE HOLDER NOR CONNECTED WITH M/S. MANAK SHEETAL CO., FROM WHOM THE ASSESSEE HAD RECEIVED RS.1.75 CRORES. HE HAS FILED DOCUMENTS REFERRED TO BEFORE THE AO AND THE CERTIFICATES OF BOTH THE COMPANIES AT PAGES 59, 59A, 79, 127 AND 128 OF THE PAPER BOOK. HE HAS REFERRED TO REMAND REPORT OF THE AO FILED BEFORE THE LD. CIT(A) IN WHICH THE AO ADMITTED THAT M/S. MAHIM HAS TAKEN UNSECURED LOANS FROM DIFFERENT FAMILY MEMBERS OF THE ASSESSEE AND ARVIND KAPUR AND THOSE WERE TRANSFERRED TO M/S. MANAK SHEETAL THROUGH BOOK ENTR Y. THEREFORE, THERE WERE LOANS TAKEN BY M/S. MAHIM PRIOR TO THE ABOVE TRANSACTIONS AND AS SUCH THERE WERE GENUINE BOOK ENTRIES MADE AND NO AMOUNT OF M/S. MAH IM WAS TRANSFERRED TO THE ASSESSEE FOR THE BENEFIT OF ASSESSEE. PB-193 IS CHA RT OF FUNDS USED BY THE FAMILY AND PB-1/125 IS THE CERTIFICATE OF SHRI ARVIND KAPU R DATED 25.10.2012 IN WHICH IT WAS CLARIFIED THAT THE ASSESSEE WAS ENTITLED TO TRA NSFER VARIOUS MOVABLE ASSETS ESTIMATED AT RS.4.20 CRORES AS PER FAMILY SETTLEMEN T WHICH INCLUDED SECURITIES, BALANCES, FIXED DEPOSITS IN BANK, BALANCE WITH GROU P COMPANIES OF THE FAMILY MEMBERS ETC. INCLUDING IN HIS OWN NAME AND FAMILY M EMBERS AND THE MOTHERS ITA NO. 392/AGRA/2012 15 ACCOUNT WHICH COULD BE UTILIZED FOR MAKING NECESSAR Y PAYMENTS. HE HAS SUBMITTED THAT SINCE THERE WERE CREDIT BALANCE APPEARING WITH M/S. MAHIM TO M/S. MANAK AND THE ASSESSEE ALSO HAS OWN MONEY WITH M/S. MANAK SHE ETAL. THEREFORE, IT IS NOT A CASE OF GIVING ANY LOAN OR ADVANCE TO THE ASSESSEE TO CIRCUMVENT THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT. 7. ON THE OTHER HAND, THE LD. DR RELIED UPON THE OR DERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT ACCORDING TO FAMILY SETTLEMENT, THE ASSESSEE WAS REQUIRED TO PAY RS.5.00 CRORES TO SHRI ARVIND KAPUR, HIS BROTHER AN D OTHER AMOUNT TO HIS MOTHER FOR TAKING CONTROL OF ENTIRE BUSINESS AND FOR MAKIN G THE PAYMENT OF RS.2.5 CRORES. ENTIRE ADJUSTMENT HAS BEEN MADE WHICH IS NOTHING BU T DEFEATING PROVISIONS OF LAW. THESE HAVE NO RELATION WITH THE DEBT. THE AMOUNT GI VEN BY M/S. MAHIM TO M/S. MANAK OF RS.1.75 CRORES WAS TO THE BENEFIT OF THE A SSESSEE AND RELIED UPON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF L. ALA GUSUNDARAM CHETTIAR (SUPRA). THE ENTRIES ARE FINANCIAL ENTRIES. THEREFORE, THE A UTHORITIES BELOW CORRECTLY APPRECIATED THE FACTS OF THE CASE IN THE LIGHT OF P ROVISIONS OF LAW FOR MAKING ADDITION AGAINST THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. ITAT, AGRA BENCH IN THE CASE OF ACIT VS. M/ S. INDIA CASTING CO. IN ITA NO. 392/AGRA/2012 16 ITA NO. 55/AGR/2012 VIDE ORDER DATED 09.08.2012 CON SIDERED THE ISSUE OF APPLICABILITY OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT AND DECIDED THE APPEAL IN FAVOUR OF THE ASSESSEE BY CONSIDERING SEV ERAL JUDGMENTS ON THE POINT IN ISSUE AND DISMISSED THE DEPARTMENTAL APPEA L. THE FINDINGS OF THE TRIBUNAL IN PARA 6 TO 13 OF THIS ORDER ARE REPRODUC ED AS UNDER : 6. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE P ARTIES AND RECORDS PERUSED. THE ADMITTED FACTS OF THE CASE UN DER CONSIDERATION ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM. THE P ARTNERSHIP FIRM IS NOT A REGISTERED SHARE HOLDER OF BOTH THE PRIVATE LIMIT ED COMPANIES, HOWEVER, PARTNERS OF ASSESSEE FIRM WERE SHARE HOLDE RS OF THE COMPANIES. FROM A READING OF THE PROVISION OF SECT ION 2(22)(E) OF THE ACT, IT IS CLEAR THAT IT COMPREHENDS MANIFOLD REQUI REMENTS, THE FIRST BEING THE PAYMENT SHOULD BE MADE BY WAY OF LOAN OR ADVANCE TO THE CONCERN. OF COURSE, ON THIS ASPECT, THE CONCLUSION HAS BEEN RECORDED BY THE REVENUE AUTHORITIES IN FAVOUR OF THE REVENUE WHICH IS NOT IN DISPUTE. THE MORE IMPORTANT ASPECT, BEING THE REQU IREMENT OF SECTION 2(22)(E) IS THAT THE PAYMENT MAY BE MADE TO ANY C ONCERN, IN WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER AND IN WHIC H HE HAS SUBSTANTIAL INTEREST OR ANY PAYMENT BY ANY SUCH COM PANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER . . . THUS, THE SUBSTANCE OF THE REQUIREMENT IS THAT THE PAYMENT S HOULD BE MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER, OBVIOUSLY, THE PROVISION IS INTENDED TO ATTRACT THE LIABILITY OF TAX ON THE PERSON, ON WHOSE BEHALF OR FOR WHOSE INDIVIDUAL BEN EFIT THE AMOUNT IS PAID BY THE COMPANY WHETHER TO THE SHAREHOLDER OR T O THE CONCERNED FIRM. IN WHICH EVENT, IT WOULD FALL WITHIN THE EXP RESSION DEEMED DIVIDEND. OBVIOUSLY, INCOME FROM DIVIDEND IS TAXAB LE AS INCOME FROM OTHER SOURCE UNDER SECTION 56 OF THE ACT AND I N THE VERY NATURE OF THINGS THE INCOME HAS TO BE OF THE PERSON EARNING T HE INCOME. THE ASSESSEE PARTNERSHIP IN THE PRESENT CASE IS NOT SHO WN TO BE ONE OF THE PERSONS BEING SHAREHOLDER. OF COURSE, THE TWO INDI VIDUALS BEING SHRI AJAY KUMAR AGARWAL, AND SHRI G.K. AGARWAL PERSONS H OLDING MORE THAN REQUISITE AMOUNT OF SHAREHOLDING AND HAVING RE QUISITE INTEREST IN THE FIRM BUT THEN THEREBY THE DEEMED DIVIDEND WOULD NOT BE DEEMED DIVIDEND IN THE HANDS OF THE FIRM RATHER IT WOULD O BVIOUSLY BE DEEMED ITA NO. 392/AGRA/2012 17 DIVIDEND IN THE HANDS OF THE INDIVIDUALS ON WHOSE B EHALF OR ON WHOSE INDIVIDUAL BENEFIT BEING SUCH SHAREHOLDER THE AMOUN T IS PAID BY THE COMPANY TO THE CONCERN. THUS, THE SIGNIFICANT REQUI REMENT OF SECTION 2(22)(E) IS NOT SHOWN TO EXIST. THE LIABILITY OF TAX AS DEEMED DIVIDEND COULD BE ATTRACTED IN THE HANDS OF THE IND IVIDUALS BEING THE SHAREHOLDERS AND NOT IN THE HANDS OF THE FIRM. THI S VIEW IS FORTIFIED BY THE ORDER OF I.T.A.T., SPECIAL BENCH, MUMBAI IN THE CASE OF ASSTT. CIT VS. BHAUMIK COLOUR P. LTD, 313 ITR (AT) 146 (MU M) (SB) WHEREIN IT WAS HELD THAT PROVISIONS OF SECTION 2(22 )(E) FOR MAKING ADDITION CAN BE INVOKED IN THE CASE OF REGISTERED S HARE HOLDERS. THE ORDER OF I.T.A.T., SPECIAL BENCH, MUMBAI IN THE CAS E OF ASSTT. CIT VS. BHAUMIK COLOUR PVT. LTD. HAS BEEN CONFIRMED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PVT. LTD., 190 TAXMAN 144 (BOMBAY). THE RELEVANT QUESTI ON BEFORE THE HONBLE BOMBAY HIGH COURT AND THEIR FINDING ARE AS UNDER :- 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ITAT, IN LAW, WAS RIGHT IN DELETING THE A DDITION OF RS.35 LAKHS TREATED AS DEEMED DIVIDEND UNDER SEC TION 2(22)( E) OF THE INCOME-TAX ACT, 1961, BY STATING T HAT SINCE THE TRANSACTIONS ARE NOT REFLECTED IN THE BOO KS OF ACCOUNT, IT CANNOT BE TREATED AS DEEMED DIVIDEND ? 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IN LAW, WAS RIGHT IN HOLDING THA T THE ASSESSING OFFICER HAS NOT ESTABLISHED THAT THE MONE Y WAS ADVANCED FOR THE BENEFIT OF ANY SHAREHOLDER AND THE SAME HAS TO BE TAXED IN THE HANDS OF SUCH SHAREHOLDER WH O OBTAINED THE BENEFIT AND NOT IN THE HANDS OF THE AS SESSEE- COMPANY, FOLLOWING THE RATIO OF DECISION IN THE CAS E OF ACIT V. BHAUMIK COLOUR (P.) LTD. 27 SOT 270 (SB) ? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE ITAT IN LAW WAS RIGHT IN DIRECTING THE AS SESSING OFFICER TO ALLOW THE AMOUNT OF PROVISION FOR LEAVE ENCASHMENT WITHOUT APPRECIATING THE FACT THAT THE DISALLOWANCE WAS MADE AS THERE WAS NO PROOF OF PAYM ENT FURNISHED TO THE EFFECT THAT THE SAME WAS PAID BEFO RE THE DUE DATE OF FILING THE RETURN UNDER SECTION 139(1) OF THE INCOMES-TAX ACT ? ITA NO. 392/AGRA/2012 18 2. FOR CONVENIENCE OF REFERENCE, IT WOULD BE APPROP RIATE TO TAKE UP THE THIRD QUESTION INITIALLY. THE TRIBUNAL HAS R ELIED UPON THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. V. UNION OF INDIA [2007] 292 ITR 4701, IN WHIC H THE PROVISIONS OF SECTION 43B(F) HAVE BEEN STRUCK DOWN. THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO ALLOW THE AMOUNT AS CLAIMED TO WARDS LEAVE ENCASHMENT. THE ISSUE AS REGARDS THE CORRECTNESS OF THE JUDGMENT OF THE CALCUTTA HIGH COURT IN EXIDE INDUSTRIES LTD.S CASE (SUPRA) IS PENDING IN APPEAL BEFORE THE SUPREME COURT AND INTE RIM ORDERS HAVE BEEN PASSED. THE APPEAL, INSOFAR AS THE ISSUE OF LE AVE ENCASHMENT IS CONCERNED IS ADMITTED ON THE FOLLOWING QUESTION OF LAW : WHETHER THE TRIBUNAL WAS JUSTIFIED IN DIRECTING TH E ASSESSING OFFICER TO ALLOW THE AMOUNT CLAIMED BY WA Y OF PROVISION FOR LEAVE ENCASHMENT IN VIEW OF THE PROVI SIONS OF SECTION 43B(F) OF THE INCOME-TAX ACT, 1961 ? 3. THE FIRST AND SECOND QUESTIONS ARE NOW TAKEN UP . BRIEFLY STATED, THE ADMITTED FACTS ARE THAT AN AMOUNT OF RS. 32,00, 000 WAS TRANSFERRED FROM THE BANK ACCOUNT OF A COMPANY BY T HE NAME OF CAPSULATION SERVICES PRIVATE LIMITED (CSPL) TO THE ACCOUNT OF THE ASSESSEE MAINTAINED IN THE CHEMBUR BRANCH OF THE ST ATE BANK OF INDIA. MR. VIKRAM TANNAN WAS A DIRECTOR OF CSPL. HE HELD OVER 10 PER CENT OF THE EQUITY CAPITAL OF CSPL AND OVER 20 PER CENT OF THE EQUITY CAPITAL OF THE ASSESSEE. THE ASSESSING OFFI CER, IN THE COURSE OF THE ORDER OF ASSESSMENT, RELIED ON THE PROVISIONS O F SECTION 2(22)(E) AND TREATED THE AMOUNT OF RS. 35,00,000 AS DEEMED D IVIDEND IN THE HANDS OF THE ASSESSEE AND DIRECTED THAT THE AMOUNT BE ADDED BACK TO ITS TOTAL INCOME. THE ASSESSEE CONTENDED THAT ONE MR. TEREDESAI, VICE PRESIDENT (FINANCE) HAD MISAPPROPRIATED LARGE SUMS OF MONEY BY OPENING BANK ACCOUNTS AND THE TRANSACTION BY WHICH AN AMOUNT OF RS. 32,00,000 WAS TRANSFERRED FROM CSPL WAS PART OF THE MISAPPROPRIATION. ACCORDING TO THE ASSESSEE, THE AM OUNT WAS NOT REFLECTED IN THE BOOKS OF THE ASSESSEE SINCE IT HAD BEEN MISAPPROPRIATED BY THE VICE PRESIDENT (FINANCE). TH E FACT THAT THE AMOUNT HAS BEEN DEFALCATED COULD NOT, ACCORDING TO THE ASSESSEE, BE DISPUTED IN VIEW OF THE FACT IT HAS BEEN ALLOWED BY THE ASSESSING OFFICER AS A BUSINESS LOSS DURING THE ASSESSMENT YE AR 2006-07. HENCE, ITA NO. 392/AGRA/2012 19 THE CONTENTION OF THE ASSESSEE WAS TWO-FOLD. FIRST, ACCORDING TO THE ASSESSEE, FOR SECTION 2(22)(E) TO APPLY THE AMOUNT OUGHT TO HAVE BEEN RECEIVED AS AN ADVANCE OR LOAN FROM A COMPANY TO A CONCERN IN WHICH THE SHAREHOLDER HAD SUBSTANTIAL INTEREST. THIS COND ITION, ACCORDING TO THE ASSESSEE, WAS NOT MET SINCE THE AMOUNT WAS NEIT HER AN ADVANCE NOR A LOAN TO THE ASSESSEE BUT REPRESENTED MISAPPRO PRIATION OF FUNDS BY THE VICE PRESIDENT (FINANCE). CONSEQUENTLY, EVEN IF THE AMOUNT IS TREATED AS DEEMED DIVIDEND WITHIN THE MEANING OF SE CTION 2(22)(E) IT IS TAXABLE IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF THE ASSESSEE. SECONDLY, EVEN ON THE ASSUMPTION THAT THI S WAS AN AMOUNT ADVANCED TO THE ASSESSEE BY THE CSPL, FOR THE PURPO SES OF TAXATION A DEEMED DIVIDEND WOULD BE TAXABLE IN THE HANDS OF TH E SHAREHOLDER AND NOT THE ASSESSEE TO WHOM THE PAYMENT WAS ADVANC ED. 4. THE ASSESSING OFFICER CAME TO THE CONCLUSION TH AT THE PROVISIONS OF SECTION 2(22)(E) ARE ATTRACTED THE MO MENT A LOAN OR ADVANCE IS MADE AND THE SUBSEQUENT DEFALCATION OF F UNDS WAS IMMATERIAL. THE ASSESSING OFFICER HELD THAT THE LOA N WAS RECEIVED FROM THE BANK ACCOUNT OF CSPL; THE MONEY WAS DEPOSI TED IN THE BANK ACCOUNT OF THE ASSESSEE AND THE SUBSEQUENT DEFALCAT ION OF THE FUNDS AFTER THE RECEIPT OF MONEYS BY THE ASSESSEE WAS AN EXTRANEOUS CIRCUMSTANCE WHICH MADE NO DIFFERENCE TO THE APPLIC ATION OF SECTION 2(22)(E). THE ASSESSING OFFICER FOUND THAT MR. VIKR AM TANNAN WHO WAS A DIRECTOR OF THE ASSESSEE HELD MORE THAN 20 PE R CENT OF THE EQUITY CAPITAL OF CSPL. THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT ALL THE CONDITIONS FOR THE APPLICATION OF SECT ION 2(22)(E) WERE FULFILLED AND THE LOAN OF RS.35,00,000 FROM CSPL WO ULD HAVE TO BE TREATED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSE SSEE. 5. IN APPEAL, THE COMMISSIONER OF INCOME-TAX (APPE ALS) AFFIRMED THE ORDER OF THE ASSESSING OFFICER, SAVE AND EXCEPT WITH A MODIFICATION THAT THE ACTUAL AMOUNT WHICH HAS BEEN RECEIVED BY T HE ASSESSEE WAS HELD TO BE RS.32,00,000 AND NOT RS.35,00,000 AS DET ERMINED BY THE ASSESSING OFFICER. 6. THE TRIBUNAL IN APPEAL HAS REVERSED THE FINDING S OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON TWO COUNTS. FIRSTLY, THE TRIBUNAL HELD THAT THE PROVISIONS OF SECTION 2(22)( E) WOULD BE ATTRACTED IF A LOAN WAS TAKEN BY THE SHAREHOLDER FR OM ANY CLOSELY HELD COMPANY. IN THE PRESENT CASE, THE TRIBUNAL NOTED TH AT THE AMOUNT WAS PART OF A FRAUD COMMITTED ON THE ASSESSEE AND THE T RANSACTION WAS NOT ITA NO. 392/AGRA/2012 20 REFLECTED IN ITS BOOKS OF ACCOUNT. IN THE CIRCUMSTA NCES, SECTION 2(22)(E) WAS HELD NOT TO APPLY. SECONDLY, THE TRIBU NAL HELD THAT EVEN OTHERWISE, THE AMOUNT WOULD HAVE TO BE TAXED IN THE HANDS OF THE SHAREHOLDER WHO OBTAINED THE BENEFIT AND NOT IN THE HANDS OF THE ASSESSEE. 7. UNDER SECTION 56, INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FROM THE TOTAL INCOME UNDER THE ACT IS CHA RGEABLE TO INCOME- TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, IF IT IS NOT CHARGEABLE TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN I TEMS (A) TO (E) OF SECTION 14. UNDER CLAUSE (1) OF SUB-SECTION (2), IN COME BY WAY OF DIVIDEND IS CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. SECTION 2(22) PROVIDES AN INCLUSIVE DEFINITION OF THE EXPRESSION DIVIDEND FOR THE PURPOSES OF THE ACT. SECTION 2(22)(E) IS AS FOLLOWS :- (22) DIVIDEND INCLUDES (A) TO (D) ** ** ** (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY I N WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OR A NY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF TH E COMPANY OR OTHERWISE) MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITL ED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF T HE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTI AL 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 PROFIT S; 8. CLAUSE (E) OF SECTION 2(22) IS NOT ARTISTICALLY WORDED. FOR FACILITY OF EXPOSITION, THE CONTENTS CAN BE BROKEN DOWN FOR ANALYSIS : (I) CLAUSE (E) APPLIES TO ANY PAYMENT BY A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC IS SUBSTANTIALLY INTERE STED OF ANY SUM, WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE MADE AFTER THE 31 MAY, 1987; (II) CLAUSE (E) COVERS A ITA NO. 392/AGRA/2012 21 PAYMENT MADE BY WAY OF A LOAN OR ADVANCE TO (A) A S HAREHOLDER, BEING A BENEFICIAL OWNER OF SHARES (NOT BEING SHARE S ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER; OR (B) ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER O R A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST; (III) CLAUS E (E) ALSO INCLUDES IN ITS PURVIEW ANY PAYMENT MADE BY A COMPANY ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER; (IV) C LAUSE (E) WILL APPLY TO THE EXTENT TO WHICH THE COMPANY, IN EITHER CASE, POSSESSES ACCUMULATED PROFITS. THE REMAINING PART OF THE PROV ISION IS NOT MATERIAL FOR THE PURPOSES OF THIS APPEAL. BY PROVI DING AN INCLUSIVE DEFINITION OF THE EXPRESSION DIVIDEND, SECTION 2( 22) BRINGS WITHIN ITS PURVIEW ITEMS WHICH MAY NOT ORDINARILY CONSTITUTE T HE PAYMENT OF DIVIDEND. PARLIAMENT HAS EXPANDED THE AMBIT OF THE EXPRESSION DIVIDEND BY PROVIDING AN INCLUSIVE DEFINITION. 9. IN ORDER THAT THE FIRST PART OF CLAUSE (E) OF SE CTION 2(22) IS ATTRACTED, THE PAYMENT BY A COMPANY HAS TO BE BY WA Y OF AN ADVANCE OR LOAN. THE ADVANCE OR LOAN HAS TO BE MADE, AS THE CASE MAY BE, EITHER TO A SHAREHOLDER, BEING A BENEFICIAL OWNER H OLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER OR TO ANY CONCERN TO WHICH SUCH A SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH H E HAS A SUBSTANTIAL INTEREST. THE TRIBUNAL IN THE PRESENT C ASE HAS FOUND THAT AS A MATTER OF FACT NO LOAN OR ADVANCE WAS GRANTED TO THE ASSESSEE, SINCE THE AMOUNT IN QUESTION HAD ACTUALLY BEEN DEFALCATED AND WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE FACT THAT THERE WAS A DEFALCATION SEEMS TO HAVE BEEN ACCEPTED SINCE THIS AMOUNT WAS ALLOWED AS A BUSINESS LOSS DURING THE COURSE OF ASS ESSMENT YEAR 2006- 07. CONSEQUENTLY, ACCORDING TO THE TRIBUNAL THE FIR ST REQUIREMENT OF THERE BEING AN ADVANCE OR LOAN WAS NOT FULFILLED. IN OUR VIEW, THE FINDING THAT THERE WAS NO ADVANCE OR LOAN IS A PURE FINDING OF FACT WHICH DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTIO N OF LAW. HOWEVER, EVEN ON THE SECOND ASPECT WHICH HAS WEIGHED WITH TH E TRIBUNAL, WE ARE OF THE VIEW THAT THE CONSTRUCTION WHICH HAS BEE N PLACED ON THE PROVISIONS OF SECTION 2(22)(E) IS CORRECT. SECTION 2(22)(E) DEFINES THE AMBIT OF THE EXPRESSION DIVIDEND. ALL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECIPIENT OF T HE DIVIDEND NAMELY THE SHAREHOLDER. THE EFFECT OF SECTION 2(22) IS TO PROVIDE AN INCLUSIVE DEFINITION OF THE EXPRESSION DIVIDEND. CLAUSE (E) EXPANDS THE NATURE OF PAYMENTS WHICH CAN BE CLASSIFIED AS A DIVIDEND. CLAUSE (E) OF ITA NO. 392/AGRA/2012 22 SECTION 2(22) INCLUDES A PAYMENT MADE BY THE COMPAN Y IN WHICH THE PUBLIC IS NOT SUBSTANTIALLY INTERESTED BY WAY OF AN ADVANCE OR LOAN TO A SHAREHOLDER OR TO ANY CONCERN TO WHICH SUCH SHARE HOLDER IS A MEMBER OR PARTNER, SUBJECT TO THE FULFILLMENT OF TH E REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVISION. SIMILARLY, A PAYMENT MADE BY A COMPANY ON BEHALF, OF FOR THE INDIVIDUAL BENEFIT, O F ANY SUCH SHAREHOLDER IS TREATED BY CLAUSE (E) TO BE INCLUDED IN THE EXPRESSION DIVIDEND. CONSEQUENTLY, THE EFFECT OF CLAUSE (E) OF SECTION 2(22) IS TO BROADEN THE AMBIT OF THE EXPRESSION DIVIDEND BY I NCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOA N OR ADVANCE OR PAYMENTS MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DEFINITION DOES NOT ALTER THE LEG AL POSITION THAT DIVIDEND HAS TO BE TAXED IN THE HANDS OF THE SHAREH OLDER. CONSEQUENTLY IN THE PRESENT CASE THE PAYMENT, EVEN ASSUMING THAT IT WAS A DIVIDEND, WOULD HAVE TO BE TAXED NOT IN THE H ANDS OF THE ASSESSEE BUT IN THE HANDS OF THE SHAREHOLDER. THE T RIBUNAL WAS, IN THE CIRCUMSTANCES, JUSTIFIED IN COMING TO THE CONCLUSIO N THAT, IN ANY EVENT, THE PAYMENT COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE. WE MAY IN CONCLUDING NOTE THAT THE BASIS ON WHICH THE ASSE SSEE IS SOUGHT TO BE TAXED IN THE PRESENT CASE IN RESPECT OF THE AMOUNT OF RS.32,00,000 IS THAT THERE WAS A DIVIDEND UNDER SECTION 2(22)(E) AN D NO OTHER BASIS HAS BEEN SUGGESTED IN THE ORDER OF THE ASSESSING OF FICER. 10. FOR THE AFORESAID REASONS, THE FIRST AND SECOND QUESTIONS WILL NOT GIVE RISE TO ANY SUBSTANTIAL QUESTIONS OF LAW. 7. FURTHER, ON IDENTICAL SET OF FACTS, THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP, 313 IT R 116 (RAJ) HAS HELD AS UNDER :- (PAGE NOS.117 TO 120) THIS APPEAL BY THE REVENUE AGAINST THE JUDGMENT OF THE TRIBUNAL DATED SEPTEMBER 16, 2004, WAS ADMITTED, VI DE ORDER DATED MARCH 29, 2005, BY FRAMING THE FOLLOWING SUBSTANTIA L QUESTIONS OF LAW:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED TRIBUNAL WAS JUSTIFIED IN U PHOLDING THE ORDER OF LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) DELETING THE ADDITION OF RS.10 LAKHS AS DEEMED DIVI DEND UNDER SECTION 2(22)(E) OF THE INCOME-TAX ACT ? ITA NO. 392/AGRA/2012 23 2. WHETHER THE ASSESSEE-FIRM WHOSE PARTNERS HOLD 1 00% SHARE IN M/S. HILLTOP PALACE HOTELS (P.) LTD., HAD RECEIVED THE PAYMENT OF RS.10 LAKHS BY WAY OF SECURITY AND NOT A S AN ADVANCE IS PERVERSE? THE NECESSARY FACTS ARE THAT A RETURN WAS FILED BY THE ASSESSEE (FIRM) M/S. HOTEL HILLTOP, 5, AMBAVGARH, UDAIPUR, D ECLARING INCOME OF RS.72,000/- ON JANUARY 3, 1992. THE CASE WAS TA KEN UNDER SCRUTINY AND NOTICES WERE ISSUED. IT APPEARED THAT THE ASS ESSEE HAD SHOWN LIABILITY OF RS.12,46,058/- UNDER THE HEAD OTHER L IABILITIES OUT OF WHICH A LIABILITY TO THE EXTENT OF RS.10,87,747/- PERTAINED TO M/S. HILLTOP PALACE HOTELS (P.) LTD. IT ALSO TRANSPIRE D TO THE ASSESSING OFFICER THAT THIS LIABILITY CONSISTED OF RS.10 LAK HS RECEIVED AS AN ADVANCE AGAINST THE SECURITY FROM THE COMPANY TO TH E FIRM UNDER THE AGREEMENT TO HAND OVER THE MANAGEMENT OF THE FIRMS HOTEL TO THE COMPANY AND THE BALANCE AMOUNT OF RS.87,747/- ARE O F TRADE CREDITS. THE ASSESSEE, VIDE ORDER-SHEET DATED AUGUST 13, 199 3, WAS ASKED TO EXPLAIN WHY THE SECURITY OF RS.10 LAKHS BE NOT TREATED AS DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME-TAX A CT AND ADDED TO THE INCOME OF THE FIRM. IT IS NOT IN DISPUTE THAT THE AMOUNT OF RS.10 LAKHS PROCEEDED FROM THE COMPANY TO THE FIRM. IT I S ALSO NOT IN DISPUTE THAT THE SHAREHOLDING PATTERN OF THE COMPAN Y IS AS UNDER : SHAREHOLDING PATTERN OF M/S. HILLTOP PALACE HOTELS (P.) LTD. (1) SHRI ROOP KUMAR KHURANA 23.33% (2) SMT. SAROJ KHURANA 4.67% (3) VIKAS KHURANA 22% (4) DESHBANDHU KHURANA 25% (5) SHRI RAJIV KHURANA 25% LIKEWISE, IT IS ALSO NOT IN DISPUTE THAT AT THE REL EVANT TIME CONSTITUTION OF THE FIRM WAS AS UNDER :- CONSTITUTION OF M/S HOTEL HILLTOP : 1. SHRI ROOP KUMAR KHURANA 45% 2. SHRI DESHBANDHU KHURANA 55% ITA NO. 392/AGRA/2012 24 THE ASSESSING OFFICER, IN THESE CIRCUMSTANCES, FOUN D THE AMOUNT TO BE DEEMED DIVIDEND UNDER SECTION 2(22)(E) AND ASSESSED IT IN THE HANDS OF THE FIRM. THIS ORDER WAS CHALLENGE D IN APPEAL AND THE LEARNED COMMISSIONER (APPEALS) FOUND THAT SINCE TH E FIRM IS NOT A SHAREHOLDER OF THE COMPANY THE AMOUNT OF RS.10 LAK HS CANNOT BE ASSESSED TO TAX UNDER SECTION 2(22)(E) AND THUS IT WAS DELETED. AGAINST THIS ORDER OF THE COMMISSIONER OF INCOME-TA X (APPEALS), THE REVENUE FILED AN APPEAL BEFORE THE L EARNED TRIBUNAL AND THE TRIBUNAL FOUND THAT THE PROVISIONS UNDER SE CTION 2(22)(E) ARE DEEMING PROVISIONS AND ARE AIMED AT INCLUDING THE OBVIOUS OR WHAT IS UNCERTAIN OR TO IMPOSE FOR THE PURPOSE OF A STATUT E AN ARTIFICIAL CONSTRUCTION OF A WORD OR PHRASE THAT WOULD NOT OTH ERWISE PREVAIL. THEN THE DEFINITION, AS GIVEN IN SECTION 2(22)(E) WAS ALSO CONSIDERED AND FOUND THAT SINCE THE FIRM IS NOT A SHAREHOLDER OF THE COMPANY THE AMOUNT OF RS.10 LAKHS COULD NOT BE ASSESSED TO TAX UNDER SECTION 2(22)(E). IT WAS ALSO FOUND THAT THIS AMOUNT CANNO T BE STATED TO BE AN ADVANCE OR LOAN AS THE AGREEMENT SPECIFICALLY MENTI ONS IT AS SECURITY. IT WAS ALSO CONSIDERED THAT AS ON APRIL 1, 1990, TH E COMPANY HAS ACCUMULATED PROFITS OF RS.44,825/- ONLY. THUS, THE INGREDIENTS OF THE DEEMING CLAUSE ARE NOT SATISFIED. IT WAS REITERATED THAT UNLESS THE FIRM IS A REGISTERED SHAREHOLDER OF THE COMPANY ANY AMOU NT OF ADVANCE TO THE PARTNER CANNOT BE TAXED IN THE HANDS OF THE FIR M AS SUCH. THUS, THE APPEAL WAS DISMISSED. WE HAVE HEARD LEARNED COUNSEL ON THE QUESTIONS FRAM ED. LONG DRAWN ARGUMENTS WERE MADE ON EITHER SIDE. HOWEVER, BEFORE PROCEEDING FURTHER, WE MAY GAINFULLY QUOTE THE PROV ISIONS OF SECTION 2(22)(E), WHICH READ AS UNDER :- 2(22)(E) ANY PAYMENT BY A COMPANY, NOT BEING A COM PANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF A NY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF TH E COMPANY OR OTHERWISE) MADE AFTER THE 31ST DAY OF MAY, 1987, B Y WAY OF ADVANCE OR LOAN TO A SHARE HOLDER, BEING A PERSON W HO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTIT LED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITH OUT A RIGHT T O PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT. OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A ITA NO. 392/AGRA/2012 25 MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTI AL 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 PROFIT S; FROM A READING OF THE ABOVE PROVISION, IT IS CLEAR THAT IT COMPREHENDS MANIFOLD REQUIREMENTS, THE FIRST BEING THE PAYMENT SHOULD BE MADE BY WAY OF LOAN OR ADVANCE TO THE CON CERN. OF COURSE ON THIS ASPECT, THE CONCLUSION HAS BEEN RECORDED B Y THE TRIBUNAL AGAINST THE REVENUE BUT THEN ON A BARE READING OF THE AGREEMENT AND CONSIDERING THE TOTALITY OF CIRCUMSTANCES INCLUDIN G THE VERY NATURE OF THE TERM SECURITY AND THE FACT THAT SUBSTANTIAL P ORTION OF THIS RS.10 LAKHS OF AMOUNT, SAY MORE THAN RS.9 LAKHS, HAVE BE EN ADVANCED ONLY DURING JANUARY 7, 1991, TO MARCH 22, 1991, IT IS DI FFICULT TO ACCEPT IT AS A SECURITY IN THE SENSE OF THE TERM AS COMPREHEN DED IN THE AGREEMENT RATHER IT CLEARLY APPEARS TO BE SIMPLY A NOMENCLATURE USED TO BORROW THE WORDS OF THE ASSESSING OFFICER TRAN SPARENT COVER. BE THAT AS IT MAY. THE MORE IMPORTANT ASPECT, BEING THE REQUIREMENT OF SECTION 2(22)(E) IS THAT THE PAYMENT MAY BE MADE TO ANY C ONCERN, IN WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER AND IN WHI CH HE HAS SUBSTANTIAL INTEREST OR ANY PAYMENT BY ANY SUCH COM PANY ON BEHALF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER . . . THUS, THE SUBSTANCE OF THE REQUIREMENT IS THAT THE PAYMENT S HOULD BE MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER, OBVIOUSLY, THE PROVISION IS INTENDED TO ATTRACT THE LIABILITY OF TAX ON THE PERSON, ON WHOSE BEHALF OR FOR WHOSE INDIVIDUAL BENEFIT THE AMOUNT IS PAID BY THE COMPANY WHETHER TO THE SHAREH OLDER OR TO THE CONCERNED FIRM. IN WHICH EVENT, IT WOULD FALL WITHI N THE EXPRESSION DEEMED DIVIDEND. OBVIOUSLY, INCOME FROM DIVIDEND IS TAXABLE AS INCOME FROM OTHER SOURCE UNDER SECTION 56 OF THE AC T AND IN THE VERY NATURE OF THINGS THE INCOME HAS TO BE OF THE PERSON EARNING THE INCOME. THE ASSESSEE IN THE PRESENT CASE IS NOT SH OWN TO BE ONE OF THE PERSONS BEING SHAREHOLDER. OF COURSE, THE TWO INDIV IDUALS BEING ROOP KUMAR AND DEVENDRA KUMAR ARE THE COMMON PERSONS HOL DING MORE THAN REQUISITE AMOUNT OF SHAREHOLDING AND HAVING RE QUISITE INTEREST IN THE FIRM BUT THEN THEREBY THE DEEMED DIVIDEND WOULD NOT BE DEEMED DIVIDEND IN THE HANDS OF THE FIRM RATHER IT WOULD O BVIOUSLY BE DEEMED ITA NO. 392/AGRA/2012 26 DIVIDEND IN THE HANDS OF THE INDIVIDUALS ON WHOSE B EHALF OR ON WHOSE INDIVIDUAL BENEFIT BEING SUCH SHAREHOLDER THE AMOUN T IS PAID BY THE COMPANY TO THE CONCERN. THUS, THE SIGNIFICANT REQUIREMENT OF SECTION 2(22)( E) IS NOT SHOWN TO EXIST. THE LIABILITY OF TAX AS DEEMED DIV IDEND COULD BE ATTRACTED IN THE HANDS OF THE INDIVIDUALS BEING THE SHAREHOLDERS AND NOT IN THE HANDS OF THE FIRM. THUS, THE RESULT OF THE AFORESAID DISCUSSION IS THA T QUESTION NO. 2, AS FRAMED, IS ANSWERED IN FAVOUR OF THE REVENUE, AND AGAINST THE ASSESSEE, WHILE QUESTION NO. 1 IS ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE THOUGH FOR DIFFERENT REA SONS. THE NET RESULT OF THE ANSWER TO THE ABOVE QUESTIONS IS, THAT THE APPEAL FAILS AND IS DISMISSED. 8. AS REGARDS THE JUDGEMENT OF HONBLE DELHI HIGH C OURT IN THE CASE OF CIT VS. NATIONAL TRAVEL SERVICES, 202 TAXMA N 327 (DELHI) CITED BY THE LD. DEPARTMENTAL REPRESENTATIVE, WE NO TICED THAT IN ANOTHER JUDGEMENT IN THE CASE OF CIT VS. ANKITECH ( P) LTD., 199 TAXMAN 341 (DEL), THE HONBLE DELHI HIGH COURT DECI DED THE ISSUE IN FAVOUR OF THE ASSESSEE CONSIDERING THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICAR E PVT. LTD., 190 TAXMAN 144 (MUM) AND JUDGMENT OF RAJASTHAN HIGH COU RT IN THE CASE OF CIT VS. HOTEL HILLTOP (SUPRA). IN THE CASE OF CIT VS. ANKITECH (P) LTD. (SUPRA), THE HONBLE DELHI HIGH COURT HAS AFFIRMED THE ORDER OF I.T.A.T., SPECIAL BENCH, MUMBAI IN THE CASE OF B AUMIK COLOUR (SUPRA). HOWEVER, THE HONBLE DELHI HIGH COURT HAS TAKEN A DIFFERENT VIEW IN THE CASE OF CIT VS. NATIONAL TRAV EL SERVICES (SUPRA) WHEREIN IT HAS BEEN HELD THAT FOR THE PURPOSE OF SE CTION 2(22)(E) OF THE ACT THE PARTNERSHIP FIRM IS TO BE TREATED AS THE SH ARE HOLDER AND IT IS NOT NECESSARY THAT IT IS TO BE REGISTERED SHARE HO LDER. THE HONBLE DELHI HIGH COURT HAS DECIDED THE ISSUE IN FAVOR OF THE REVENUE. 9. FROM THE ABOVE DISCUSSION, WE HAVE NOTICED THAT THERE ARE TWO POSSIBLE VIEWS AND INTERPRETATION ON THE ISSUE IS U NDER CONSIDERATION. HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UN IVERSAL MEDICARE PVT. LTD. (SUPRA), HONBLE RAJASTHAN HIGH COURT IN THE CASE ITA NO. 392/AGRA/2012 27 OF CIT VS. HOTEL HILLTOP (SUPRA) AND HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANKITECH (P) LTD. (SUPRA) DECIDED T HE ISSUE IN FAVOUR OF THE ASSESSEE BUT IN SUBSEQUENT JUDGEMENT HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NATIONAL TRAVEL SERVIC ES (SUPRA) HAS DECIDED THE ISSUE AGAINST THE ASSESSEE AND IN FAVOU R OF THE REVENUE. UNDER SUCH CIRCUMSTANCES, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LIMITED, 88 ITR 192 (SC) HAS HELD AS UNDER:- THERE IS NO DOUBT THAT THE ACCEPTANCE OF ONE OR TH E OTHER INTERPRETATION SOUGHT TO BE PLACED ON SECTION 271(1 ) (A)(I) BY THE PARTIES WILLFUL LEAD TO SOME INCONVENIENT RESULT, B UT THE DUTY OF THE COURT IS TO READ THE SECTION, UNDERSTAND ITS LANGUA GE AND GIVE EFFECT TO THE SAME. IF THE LANGUAGE IS PLAIN, THE FACT THAT T HE CONSEQUENCE OF GIVING EFFECT TO IT MAY LEAD TO SOME ABSURD RESULT IS NOT A FACTOR TO BE TAKEN INTO ACCOUNT IN INTERPRETING A PROVISION. IT IS FOR THE LEGISLATURE TO STEP IN AND REMOVE THE ABSURDITY. ON THE OTHER H AND, IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADO PTED. THIS IS A WELL-ACCEPTED RULE OF CONSTRUCTION RECOGNISED BY TH IS COURT IN SEVERAL OF ITS DECISIONS. HENCE, ALL THAT WE HAVE TO SEE IS , WHAT IS THE TRUE EFFECT OF THE LANGUAGE EMPLOYED IN SECTION 271(1)(A )(I). IF WE FIND THAT LANGUAGE TO BE AMBIGUOUS OR CAPABLE OF MORE MEANING S THAN ONE, THEN WE HAVE TO ADOPT THAT INTERPRETATION WHICH FAV OURS THE ASSESSEE, MORE PARTICULARLY SO BECAUSE THE PROVISION RELATES TO IMPOSITION OF PENALTY. 10. THE HONBLE PATNA HIGH COURT IN THE CASE OF TAT A IRON & STEEL C. LTD. VS. UNION OF INDIA, 75 ITR 676 (PATNA) HAS HELD THAT IN A CASE OF REASONABLE DOUBT, THE CONSTRUCTION MUST BE BENEF ICIAL TO THE TAX PAYER IS TO BE ADOPTED. 11. IN ADDITION TO ABOVE, THE PROPOSITION OF LAW RE LATING TO THE ISSUE AS TO WHICH VIEW, IN CASE THERE ARE TWO POSSIBLE VI EWS, SHOULD BE FOLLOWED, THE DECISION IN THE FOLLOWING CASES HAVE BEEN DEALT WITH THIS PROPOSITION OF LAW AND HAVE HELD THAT IN CASE OF PR OVISION OF LAW IS LIABLE TO INTERPRETATION, THEN INTERPRETATION IN FA VOUR OF THE ASSESSEE SHOULD BE ADOPTED. (1) MYSORE MINERALS LTD. VS. CIT, 239 ITR 775 (SC) (2) ORISSA STATE WAREHOUSING CORPORATION VS. CIT, 237 ITR589 (SC) ITA NO. 392/AGRA/2012 28 (3) CIT VS. PODAR CEMENT PVT. LTD. & OTHERS, 226 I TR 625 (SC) (4) CIT VS. GWALIOR RAYON SILK MFG. CO. LTD., 196 ITR 149 (SC) (5) CIT VS. SAHAZADA NAND, 60 ITR 392 (SC) (6) CIT VS. KULU VALLEY TRANSPORT CO. LTD., 77 IT R 518, 530 (SC) (7) CIT VS. VEGETABLE PRODUCTS LTD., 88 ITR 192 (S C) (8) CIT VS. NAGA HILLS TEA CO. LTD., 89 ITR 236, 2 40 (SC) (9) CONTR. ED VS. KANAKASABAI, 89 ITR 251, 257(SC) (10) CIT VS. MADHO JATIA, 105 ITR 179, 184 (SC) 12. IN THE LIGHT OF ABOVE DISCUSSIONS, WE FIND THAT THE CIT(A) FOLLOWED THE ONE POSSIBLE VIEW IN FAVOUR OF THE ASS ESSEE FOLLOWING THE JUDGEMENT OF THE HONBLE RAJASTHAN HIGH COURT IN TH E CASE OF CIT VS. HOTEL HILLTOP AND THE ORDER OF I.T.A.T. SPECIAL BEN CH, BOMBAY IN THE CASE OF ASSTT. CIT VS. BAUMIK COLOUR PVT. LTD. IN THE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE ABOVE DISCUSSIONS, WE CONFIRM THE ORDER OF THE CIT(A). 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 8.1 IT IS ADMITTED FACT THAT THE ASSESSEE IS NOT RE GISTERED SHARE HOLDER OF M/S. MANAK SHEETAL PVT. LTD. CO. FROM WHERE THE ASSESSEE HAS RECEIVED RS.1.75 CRORES. THE AO VERIFIED THIS FACT FROM THE OFFICE OF THE RE GISTRAR OF COMPANIES AND NEVER DISPUTED THIS FACT. COPY OF ACCOUNT OF M/S. MANAK S HEETAL PVT. LTD. IN THE BOOKS OF M/S. MAHIM HAS BEEN FILED AT PAGE 59 OF THE PAPER B OOK WHICH SHOWED THAT M/S. MAHIM HAS A LIABILITY OF RS.1,68,95,351/- TOWARDS M /S. MANAK SHEETAL TILL 15.06.2007 AND AGAINST THIS AMOUNT, M/S. MAHIM PAID RS.1.75 CRORES TO M/S. MANAK. THE CHART OF THE TRANSACTION DESCRIPTION IS FILED AT PAGE 59A OF THE PAPER BOOK. IT WOULD, THEREFORE, SHOW THAT WHAT M/S. MAHI M HAS PAID TO M/S. MANAK WAS THE AMOUNT OF MANAK SHEETAL PVT. LTD. WHICH WAS PAI D SLIGHTLY EXCESS BY ITA NO. 392/AGRA/2012 29 RS.6,04,649/-. THEREFORE, THE AMOUNT PAID BY M/S. M AHIM TO M/S. MANAK WAS NOT UTILIZED OR TAKEN FOR THE ASSESSEES BENEFIT. PB-79 IS THE LEDGER ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S. MANAK SHEETAL PVT. LT D. IN WHICH ON 15.06.2007 M/S. MANAK SHEETAL ALSO OWED RS.1,25,45,350/- TO THE ASS ESSEE AS AGAINST WHICH RS.1.75 CRORES HAVE BEEN PAID TO THE ASSESSEE LEAVING CLOSI NG BALANCE OF RS.49,54,649/-. M/S. MAHIM ISSUED CONFIRMATION LETTER (PB-127) THRO UGH WHICH IT WAS CONFIRMED THAT M/S. MAHIM PAID RS.1.75 CRORES TO M/S. MANAK S HEETAL OUT OF WHICH RS.1,68,95,350/- WAS PAID AGAINST THE AMOUNT OWED B Y THE COMPANY TO M/S. MANAK SHEETAL PVT. LTD. PB-128 IS THE CERTIFICATE ISSUED BY M/S. MANAK SHEETAL PVT. LTD. WHEREBY IT WAS CONFIRMED THAT THE AMOUNT OF RS.49,5 4,649/- WAS LENT BY THIS COMPANY TO THE ASSESSEE OUT OF OWN FUNDS AVAILABLE WITH THE COMPANY. PB-1/125 IS THE CERTIFICATE OF ARVIND KAPUR WHEREBY HE HAS CLAR IFIED THAT THE ASSESSEE WAS ENTITLED FOR TRANSFER OF ALL MOVABLE ASSETS ESTIMAT ED AT RS.4.20 CRORE AS PER FAMILY SETTLEMENT, WHICH INCLUDES BALANCES FROM GROUP COMP ANIES AND FAMILY MEMBERS ETC. THE AO IN THE REMAND REPORT DATED 16.01.2012 C ONFIRMED THAT M/S. MAHIM HAD TAKEN LOANS FROM DIFFERENT FAMILY MEMBERS OF AS SESSEE AND HIS BROTHERS. THESE LOANS WERE TRANSFERRED TO THE ASSESSEE WHICH SUBSEQ UENTLY TRANSFERRED THE SAME TO MANAK SHEETAL THROUGH BOOK ENTRY. HOWEVER, IT WAS E MPHASIZED THAT THE ASSESSEE WAS NOT AUTHORIZED TO APPROPRIATE THESE LOANS. THE ASSESSEE SUBMITTED WRITTEN SUBMISSIONS IN DETAIL TO SHOW THAT THESE LOANS BY T HE FAMILY MEMBERS OF THE ITA NO. 392/AGRA/2012 30 ASSESSEE AND HIS BROTHER WERE GIVEN TO M/S. MAHIM I N EARLIER YEAR ENDING ON 31.03.2007, WHICH IS ALSO CLEAR FROM THE BALANCE SH EET. THIS FACT HAS NOT BEEN DISPUTED BY THE AUTHORITIES BELOW. THE AUTHORITIES BELOW DENIED THE CLAIM OF THE ASSESSEE THAT THE PROVISIONS OF SECTION 2(22)(E) IS NOT APPLICABLE IN THIS CASE, MAINLY ON THE REASONS THAT JOURNAL ENTRIES FOR TRAN SFER OF LOANS OF FAMILY MEMBERS OF THE ASSESSEE FROM M/S. MAHIM TO M/S. MANAK DO NO T MAKE ANY BUSINESS SENSE, BUT THESE ARE MADE TO CIRCUMVENT THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT AND THAT THE ASSESSEE WAS NOT AUTHORIZED TO APPROPR IATE UNSECURED LOANS OF HIS FAMILY MEMBERS AND HIS BROTHER AS PER SETTLED DEED. HOWEVER, THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD IF THE FAMILY MEMBER S OF ASSESSEE OR FAMILY MEMBERS OF HIS BROTHER HAVE EVER OBJECTED TO THE AP PROPRIATION OF LOANS IN FAVOUR OF THE ASSESSEE. NONE OF THE FAMILY MEMBERS OF ASSE SSEE AND HIS BROTHER HAVE BEEN EXAMINED BY THE AO AND THE FAMILY MEMBERS NEVER OBJ ECTED TO SUCH A TREATMENT GIVEN THROUGH ADJUSTMENT ENTRIES IN BOOKS OF ACCOUN T OF VARIOUS FAMILY CONCERNS. THUS, THERE WAS NOTHING ON RECORD TO PROVE THAT THE ASSESSEE WAS NOT AUTHORIZED TO REALIZE THE AMOUNT OF LOANS OF FAMILY MEMBERS. SHRI ARVIND KAPUR IN HIS SUBSEQUENT CERTIFICATE (PB-1/125) CLARIFIED THE SAM E POSITION THAT THE ASSESSEE WAS AUTHORIZED / ENTITLED TO TRANSFER VARIOUS MOVABLE A SSETS AND BALANCES WITH GROUP COMPANIES OF THE FAMILY MEMBERS ETC. IN HIS NAME AS MAY DEEM FIT FOR MAKING THE PAYMENT. THUS, IT IS CLEAR THAT THERE WERE LOANS GI VEN BY VARIOUS FAMILY MEMBERS TO ITA NO. 392/AGRA/2012 31 M/S. MAHIM PRIOR TO THE FAMILY SETTLEMENT IN EARLIE R YEARS. THEREFORE, IF ANY ADJUSTMENT ENTRIES HAVE BEEN MADE IN THE NAME OF AS SESSEE TRANSFERRING THE CREDIT BALANCES TO THE ASSESSEE BY THE FAMILY MEMBERS, THE RE WAS NOTHING WRONG UNDER THE IT ACT OR UNDER ANY OTHER LAW OF LAND. THUS, TH E ASSESSEE HAS BEEN ABLE TO PROVE THAT M/S. MAHIM WAS HAVING LIABILITY TOWARD M /S. MANAK SHEETAL PVT. LTD. ON APPROPRIATION OF LOANS OF FAMILY MEMBERS OF ASSE SSEE IN A SUM OF RS.1,68,95,250/- AGAINST WHICH IF M/S. MAHIM HAS PA ID RS.1.75 CRORES TO M/S. MANAK SHEETAL, THERE WAS NOTHING WRONG TO SAY THAT IT WAS DONE JUST TO CIRCUMVENT THE PROVISIONS OF LAW. SIMILARLY, THE FAMILY MEMBER S HAVE TRANSFERRED THEIR LOANS IN FAVOUR OF THE ASSESSEE AND THUS, THERE WAS CREDIT B ALANCE IN THE NAME OF ASSESSEE IN A SUM OF RS.1,25,45,350/- WITH THE COMPANY M/S. MAN AK SHEETAL PVT. LTD. THUS, M/S. MAHIM USED THEIR OWN FUNDS IN ORDER TO DISCHAR GE ITS LIABILITY ON ACCOUNT OF DISCHARGE OF LOANS AND SIMILARLY, M/S. MANAK SHEETA L OWED RS.1,25,45,350/- TO THE ASSESSEE. IT WAS ALSO CONFIRMED BY M/S. MANAK IN TH EIR CERTIFICATE THAT BALANCE OF RS.49,54,649/- WAS PAID TO THE ASSESSEE OUT OF OWN FUNDS AVAILABLE WITH THE COMPANY. THUS, THERE IS NOTHING ON RECORD TO SHOW T HAT M/S. MAHIM PAID RS.1.75 CRORES TO M/S. MANAK FOR THE BENEFIT OF ASSESSEE PA RTICULARLY WHEN THE ASSESSEE IS NEITHER DIRECTOR NOR SHARE HOLDER OF M/S. MANAK SHE ETAL FROM WHERE HE HAS GOT THE MONEY IN QUESTION. THE AUTHORITIES BELOW HAVE ALSO HEAVILY RELIED UPON THE FAMILY SETTLEMENT AS THE BASIS TO MAKE PAYMENT OF RS.2.5 C RORES TO SHRI ARVIND KAPUR, BUT ITA NO. 392/AGRA/2012 32 THERE WAS NOTHING IN THE FAMILY SETTLEMENT THAT SUC H AMOUNT SHALL BE PAID BY MAKING BOOK ENTRIES. THEREFORE, THE AUTHORITIES BEL OW HAVE WRONGLY PLACED RELIANCE UPON THE FAMILY SETTLEMENT FOR THE PURPOSE OF APPLYING THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT AGAINST THE ASSESSEE . FROM THE READING OF PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT, IT IS CLEAR THAT IT COMPREHENDS MANY FOLD REQUIREMENTS. FIRST IS THAT THE PAYMENTS SHOULD BE MADE BYWAY OF LOAN OR ADVANCE TO THE CONCERNED, WHICH CASE IS NOT SET UP AGAINST THE ASSESSEE AND THAT ANOTHER IMPORTANT ASPECT BEING THE REQUIREMENT OF SECTION 2 (22)(E) IS THAT THE PAYMENT MAY BE MADE TO ANY CONCERN IN WHICH SUCH SHARE HOLDER I S A MEMBER OR PARTNER AND IN WHICH HE HAS SUBSTANTIAL INTEREST OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT. THUS, THE SUBSTAN CE OF THE REQUIREMENT IS THAT THE PAYMENT SHOULD BE MADE ON BEHALF OF OR FOR THE INDI VIDUAL BENEFIT OF ANY SUCH SHARE HOLDER, OBVIOUSLY THE PROVISION IS INTENDED T O ATTRACT LIABILITY OF TAX ON THE PERSON, ON WHOSE BEHALF OR FOR WHOSE INDIVIDUAL BEN EFIT, AMOUNT IS PAID BY THE COMPANY WHETHER TO THE SHARE HOLDER OR TO THE CONCE RNED COMPANY. THE ASSESSEE IS NOT SHOWN TO BE ONE OF THE PERSONS, BEING SHARE HOL DER IN M/S. MANAK SHEETAL PVT. LTD. AND NO PAYMENT IS MADE TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A MEMBER. THEREFORE, ALL THE THREE CONDITIONS OF SECT ION WOULD NOT APPLY IN THE CASE OF THE ASSESSEE. FURTHER, THE PROVISIONS OF SECTION 2(22)(E) WOULD APPLY TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSE S ACCUMULATED PROFIT. HOWEVER, ITA NO. 392/AGRA/2012 33 THE ADDITION IS MADE AGAINST THE ASSESSEE ON ACCOUN T OF APPROPRIATION/REALIZATION OF THE LOANS OF THE FAMILY MEMBERS, WHICH DO NOT FALL IN PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT. THUS, THE SECOND REQUIREMENT OF SECT ION 2(22)(E) OF THE IT ACT IS NOT SHOWN TO EXIST. THE LIABILITY OF TAX AS DEEMED DIVI DEND COULD BE ATTRACTED IN THE HANDS OF INDIVIDUAL BEING THE SHARE HOLDER AND NOT IN THE HANDS OF OTHERS. SINCE THE ASSESSEE IS NOT REGISTERED SHARE HOLDER IN M/S. MAN AK SHEETAL PVT. LTD. FROM WHERE HE HAS OBTAINED MONEY IN QUESTION AND THAT M/S. MAH IM PATRAN PAID THE AMOUNT TO MANAK SHEETAL OUT OF THE LIABILITIES DISCHARGED ON ACCOUNT OF LOANS TAKEN FROM FAMILY MEMBERS OF ASSESSEE AND HIS BROTHER, THEREFO RE, THE PROVISIONS OF SECTION 2(22)(E) CANNOT BE APPLIED AGAINST THE ASSESSEE. TH E DECISION OF THE TRIBUNAL IN THE CASE OF M/S. INDIA CASTING CO. (SUPRA) SQUARELY APP LIES IN THE CASE OF ASSESSEE. CONSIDERING THE ABOVE DISCUSSION, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.1,23,24,568/-. RESULT ANTLY, GROUNDS NOS. 1 TO 5 OF APPEAL OF THE ASSESSEE ARE ALLOWED. 9. ON GROUND NO. 6 & 7, THE ASSESSEE CHALLENGED CON FIRMATION OF ADDITION OF RS.7,66,667/- ON ACCOUNT OF DEEMED DIVIDEND U/S. 2( 22)(E) OF THE IT ACT. THE AO FOUND THAT INTEREST OF RS.6,66,667/- HAS BEEN PAID TO SHRI ARVIND KAPUR AND RS.1,00,000/- IS PAID TO SMT. NIRMALA KAPUR. THESE AMOUNTS WERE PAID ON ACCOUNT OF INTEREST LIABILITY, WHICH THE ASSESSEE WAS TO PA Y TO THESE PERSONS. IT WAS FURTHER ITA NO. 392/AGRA/2012 34 FOUND THAT THESE AMOUNTS WERE PAID BY M/S. MAHIM TO THESE PERSONS AND THE ASSESSEE CONTENDED THAT THE AMOUNT WAS PAID ON HIS BEHALF FROM HIS ACCOUNT AND IT WAS NOT LOAN OR ADVANCE. THE AO CONSIDERING THE ISS UE OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE IT ACT IN A SUM OF RS.1,31,50,000/- ON GROUND NO. 1 TO 5 FOUND THAT AFTER ADJUSTMENT OF THIS AMOUNT, THE ASSESSEE WOULD BE HAVING DEBIT BALANCE IN THE BOOKS OF M/S. MAHIM AND SINCE THE ASSESSEE HAS MORE THAN 10% OF SHARE HOLDING IN M/S. MAHIM, THEREFORE, THE PROVISIONS OF SECTION 2(22)(E) WOULD ATTRACT AND ACCORDINGLY ADDITION WAS MADE. THE ASSESSEE SUBMITT ED BEFORE THE LD. CIT(A) THAT THE ASSESSEE HAS CREDIT BALANCE WITH M/S. MAHIM AND INTEREST WAS PAID BY M/S. MAHIM ON BEHALF OF THE ASSESSEE ON ACCOUNT OF INTER EST PAYABLE TO THESE PERSONS. THEREFORE, THERE WAS NO LOAN OR ADVANCE. THE LD. CI T(A), HOWEVER, DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND FOUND THAT THERE WAS DEBIT BALANCE ON ACCOUNT OF DEBITING THE AMOUNT OF RS.1,31,50,000/- IN THE ACCOUNT OF THE ASSESSEE AFTER DISCUSSING THE ISSUE ON GROUND NO. 1 AND CONF IRMED THE ADDITION. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO. PR ECISELY, ON THIS ISSUE, THE ADDITION WAS MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) BECAUSE AFTER CONSIDERING THE ADDITION OF RS.1,31,50,000/- U/S. 2(22)(E) OF T HE IT ACT, THERE WOULD BE A DEBIT BALANCE IN THE NAME OF ASSESSEE IN THE BOOKS OF M/S . MAHIM. SINCE ON THIS ISSUE, ITA NO. 392/AGRA/2012 35 WE HAVE ALREADY SET ASIDE THE ORDERS OF THE AUTHORI TIES BELOW, DELETING THE ADDITION AND THE AVAILABILITY OF FUNDS IN THE ACCOUNT OF THE ASSESSEE HAVE NOT BEEN CONSIDERED BY THE AUTHORITIES BELOW. THEREFORE, IT WOULD BE REASONABLE AND APPROPRIATE TO SET ASIDE THE ORDERS OF THE AUTHORIT IES BELOW AND RESTORE THIS ISSUE TO THE FILE OF AO FOR RECONSIDERATION AFRESH. WE ACCOR DINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND RESTORE THIS IS SUE TO THE FILE OF AO WITH THE DIRECTION TO REDECIDE THIS ISSUE IN THE LIGHT OF SU BMISSIONS OF THE ASSESSEE IN THE LIGHT OF THE FINDINGS OF THE TRIBUNAL ON GROUND NO. 1 TO 5 ABOVE. THE AO SHALL GIVE REASONABLE AND SUFFICIENT OPPORTUNITY OF BEING HEAR D TO THE ASSESSEE BEFORE PASSING THE ORDER ON THIS ISSUE. IN THE RESULT, GROUNDS NOS . 6 & 7 OF APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 11. ON GROUND NO.8, THE ASSESSEE CHALLENGED DISALLO WANCE OF INTEREST AMOUNTING TO RS.7,66,667/-. THE AO DISALLOWED THE INTEREST AM OUNT U/S. 57 OF THE I.T. ACT. THE AO FOUND THAT INTEREST PAYMENT WAS NOT FOR THE PURPOSE OF EARNING OF ANY INCOME BY THE ASSESSEE. THE ASSESSEE CONTENDED THAT HE HAS RECEIVED IMMOVABLE ASSETS ON FAMILY SETTLEMENT INCLUDING FDRS, LOANS I N VARIOUS COMPANIES AND BALANCES IN OTHER INVESTMENTS ETC. FROM OUTGOING FA MILY MEMBERS WHICH, ACCORDING TO HIM, TO THE EXTENT OF RS.1.80 CRORES WERE PAID T ILL THE END OF THE ACCOUNTING PERIOD AND FURTHER AN AMOUNT OF RS.51,16,000/- WAS NOT PAID AND WAS OUTSTANDING ITA NO. 392/AGRA/2012 36 AS ON 31.03.2008 AND THESE FUNDS WERE INVESTED AND HAVE LED TO THE INTEREST INCOME. THEREFORE, ACCORDING TO HIM, INTEREST WAS E ARNED FROM THE SAME FUNDS, WHICH WERE NOT PAID AND SECOND CONTENTION WAS THAT INTEREST WAS PAID ON THE OUTSTANDING AMOUNT TO BE PAID TO SRI ARVIND KAPUR A ND SMT. NIRMALA KAPUR AS PER FAMILY SETTLEMENT FOR ACQUIRING THE SHARES OF VARIO US COMPANIES AND SINCE THE AMOUNT COULD NOT BE PAID IN TIME, INTEREST WAS PAID . HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAJEND RA PRASAD MOODY, 115 ITR 519. THE AO EXAMINED THE ISSUE IN THE LIGHT OF THE PROVISIONS OF LAW AND FOUND THAT INTEREST WAS NOT PAID WHOLLY AND EXCLUSIVELY F OR EARNING OF INCOME AND HELD THAT THE ASSESSEE HAS FAILED TO PROVE THE NEXUS OF PAYMENT OF INTEREST RELATING TO EARNING OF INCOME BY HIM. ACCORDINGLY, THE ADDITION WAS MADE. THE ADDITION WAS CHALLENGED BEFORE THE LD. CIT(A), WHO HAS ALSO CONF IRMED THE ADDITION. THE LD. CIT(A) FOUND THAT THE INTEREST WAS PAID TO SHRI ARV IND KAPUR AND SMT. NIRMALA KAPUR DUE TO DELAY IN PAYMENT OF FAMILY SETTLEMENT AMOUNT AGREED TO BE PAID BY THE ASSESSEE TO HIS BROTHER AND MOTHER. IT WAS, THE REFORE, CLEAR THAT THE PAYMENT WAS TO BE MADE FOR THE PURPOSE OF ACQUIRING THE SHARES FOR CONTROLLING THE COMPANIES AND THEREFORE, THE PAYMENT WAS IN THE NATURE OF CAP ITAL EXPENDITURE AND WOULD COME TOWARDS COST OF SHARES OR COST OF ACQUISITION OF OTHER BUSINESS. THEREFORE, THE ADDITION WAS CONFIRMED. THE DECISION RELIED UPON BY THE ASSESSEE WAS HELD TO BE DISTINGUISHABLE ON FACTS. ITA NO. 392/AGRA/2012 37 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT IN DISPUTE THAT THE ASSESSEE PAID INTEREST TO HIS BROTHER AND MOTHER ON ACCOUNT OF DELAY IN PAYMENT AS PER SETTLEMENT DEED THROUGH WHICH THE ASSESSEE HAS ACQUIRED ENTIRE BUSINESS OF THE FAMILY. THUS, IT IS CLEAR THAT THE INTEREST WAS PAI D FOR ACQUIRING BUSINESS ENTITIES AND THE SHARES HELD IN THESE COMPANIES. THUS, IT WAS CA PITAL IN NATURE AND FURTHER NOTHING IS PROVED THAT THE INTEREST WAS PAID FOR EA RNING INCOME. FURTHER, THE ASSESSEE HAS FAILED TO PROVE THE NEXUS OF PAYMENT O F INTEREST RELATING TO EARNING OF INCOME BY HIM. GROUND NO.8 OF THE APPEAL OF THE ASS ESSEE IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY