P.K.Jayagopal, Namakkal V. ACIT, Salem

ITA 445/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90664 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 02-07-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2015
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR; SHRI P R
• Keywords: Gift; Deemed dividend

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHE NNAI , . ! ! ! ! , ' ' ' ' #$ #$ #$ #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 445/MDS/2015 ASSESSMENT YEAR : 2011-12 SHRI P.K. JAYAGOPAL, 5, BYE-PASS ROAD, PALLIAPALAYAM 638 006, NAMAKKAL DIST. [PAN: ACFPJ3546H] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE I(1), SALEM. ( %& %& %& %& /APPELLANT ) ( '( '( '( '( %& %&%& %& / RESPONDENT ) %& ) * / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE '(%& ) * / RESPONDENT BY : SHRI P. RADHAKRISHNAN, JCIT ) + / DATE OF HEARING : 02.07.2015 ,-. ) + /DATE OF PRONOUNCEMENT : 17.07.2015 / / / / / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), SALEM, DA TED 30.01.2015 RELEVANT TO THE ASSESSMENT YEAR 2011-12. 2. THE ISSUE INVOLVED IN THIS APPEAL OF THE ASSESS EE IS RELATING TO DEEMED DIVIDEND. IN THE ASSESSMENT ORDER, THE ASSES SING OFFICER HAS OBSERVED THAT FROM THE BALANCE SHEET OF M/S. PKPN S PINNING MILLS (P) LTD. A SUM OF .79,08,532/- WAS SHOWN AS LOANS AND ADVANCES TO THE ASSESSEE SHRI P.K. JAYAGOPAL. THE ASSESSEE IS A DIRECTOR OF M/S. PKPN SPINNING MILLS I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .445 445445 445/M/1 /M/1 /M/1 /M/15 55 5 2 (P) LTD. AND HOLDING SUBSTANTIAL INTEREST IN THE CO MPANY. SINCE THE TRANSACTION HIT BY THE PROVISIONS OF SECTION 2(22)( E) OF THE INCOME TAX ACT, THE ASSESSEE WAS ASKED TO GIVE EXPLANATION WITH REG ARD TO APPLICATION OF SECTION 2(22)(E) OF THE ACT. THE CA APPEARED BEFORE THE ASSESSING OFFICER AND CERTIFIED THAT THE TRANSACTIONS ARE IN THE NATU RE OF LOANS AND ADVANCES. THE ASSESSEE HAS ALSO NOT DISPUTED THAT THE AMOUNT TAKEN AS LOANS AND THERE WAS NO INTEREST CHARGED BY THE COMPANY. THE A SSESSEE HAS FURTHER SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE FIN ANCIAL TRANSACTIONS WERE DONE FOR THE PURPOSE OF SMOOTH CONDUCT OF THE BUSIN ESS. THEREFORE, THE ASSESSING OFFICER, IN VIEW OF THE SECTION 2(22)(E) OF THE ACT, HAS NOTICED THAT THE UNSECURED LOAN GIVEN BY THE COMPANY PKPN SPINNI NG MILLS (P) LTD. IS A COMPANY, WHERE THE PUBLIC ARE NOT SUBSTANTIALLY INT ERESTED AND IT HAD GIVEN LOAN TO THE ASSESSEE P.K. JAYAGOPAL, A SHAREHOLDER; THE ASSESSEE, P.K. JAYAGOPAL HAVING SHARES MORE THAN 20% IN THE COMPAN Y PKPN SPINNING MILLS (P) LTD. AND THE SHAREHOLDING PERCENTAGE FULF ILS THE CONDITIONS AS PER SECTION 2(22)(E). THUS, THE ASSESSEE IS HAVING SUBS TANTIAL INTEREST IN THE COMPANY; M/S. PKPN SPINNING MILLS (P) LTD., WHICH H AD GRANTED LOAN HAVING AN ACCUMULATED PROFIT TO THE EXTENT OF .79,08,532/-. ACCORDINGLY, THE ASSESSING OFFICER CAME TO A CONCLUSION THAT THE ASS ESSEE HAS RECEIVED DEEMED DIVIDEND FROM PKPN SPINNING MILLS (P) LTD. I N THE FORM OF LOANS AND ADVANCES AND IT HAS TO BE TAXED UNDER SECTION 2(22) (E) OF THE ACT. THEREFORE, A SUM OF .79,08,532/- WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .445 445445 445/M/1 /M/1 /M/1 /M/15 55 5 3 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LD. CIT(A) AND THE LD. CIT(A) CONFIRMED THE ORDER PASSED BY THE AS SESSING OFFICER. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL B EFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT AS PER THE LEDGER EXTRACT SHOWS THAT THE ACCOUNT OF THE ASSESSEE WAS DEBITED TO THE EXTENT OF .34,01,550/- AS ON 31.03.2011, WHICH REPRESENTS CON TRA ENTRIES RELATING TO SHRI J. LAKSHMIDHARAN AND SHRI J. THIRUVADHANAN AND THE CORRESPONDING ENTRIES FIND PLACE IN THE LEDGER EXTRACTS. HE FURTH ER SUBMITTED THAT AS THE ABOVE SUM OF .34,01,550/- DID NOT INVOLVE OUTGOING OR FLOW OF MO NEY FROM THE COMPANY TO THE ASSESSEE SHARE HOLDER SO AS TO A TTRACT THE SAID PROVISION AND HAVING REGARD TO THE SAID SECTION 2(22)(E) OF T HE ACT. HE HAS ALSO SUBMITTED THAT THE SHARE HOLDING PATTERN AS ON 31.0 3.2010 AND 31.03.2011 AND RETURN OF ALLOTMENT IN FORM NO.2 PROVES THAT TH E ASSESSEE DID NOT HAVE THE REQUIRED PERCENTAGE OF VOTING POWER TILL 11.11. 2010 MEANING THEREBY THAT THE TRANSACTIONS BETWEEN THE ASSESSEE AND M/S. PKPN SPINNING MILLS (P) LTD. FROM 01.04.2010 TO 11.11.2010 ARE NOT TO BE CO NSIDERED FOR THE PURPOSE OF SECTION 2(22)(E) OF THE ACT 6. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THA T THE ASSESSEE HAS ACCEPTED BEFORE THE ASSESSING OFFICER THAT HE HAS R ECEIVED THE AMOUNT OF .79,08,532/- AS LOANS AND ADVANCES AND NOW THE ASSE SSEE SUBMITS A I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .445 445445 445/M/1 /M/1 /M/1 /M/15 55 5 4 CONTRARY PLEA THAT THE AMOUNT OF .34,01,550/- DID NOT INVOLVE OUTGOING OR FLOW OF MONEY FROM THE COMPANY. IN SO FAR AS TRANSA CTION BETWEEN THE ASSESSEE AND M/S. PKPN SPINNING MILLS (P) LTD., THE LD. DR HAS SUBMITTED THAT THE EXPLANATION (3)(B) TO SECTION 2(22)(E) MAK ES IT CLEAR THAT A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTEREST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIME DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER CENT OF THE INCOME OF S UCH CONCERN. THEREFORE, HE SUBMITS THAT THE ASSESSEE IS HAVING REQUISITE IN TEREST IN THE CONCERN DURING THE PREVIOUS YEAR. 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS EE IS A DIRECTOR OF M/S. PKPN SPINNING MILLS (P) LTD. AND HE HAS RECEIVED A SUM OF .79,08,532/-. IN THE ACCOUNTS OF THE COMPANY, IT HAS SHOWN AS LOANS AND ADVANCES TO THE ASSESSEE SHRI P.K. JAYAGOPAL. BEFORE THE ASSESSING OFFICER, THE CA OF THE ASSESSEE HAS CERTIFIED THAT THE AMOUNT OF .79,08,532/- RECEIVED AS LOANS AND ADVANCES AND THE COMPANY HAS NOT CHARGED ANY IN TEREST. THE ONLY SUBMISSION OF THE ASSESSEE BEFORE THE ASSESSING OFF ICER WAS THAT THE FINANCIAL TRANSACTION WAS DONE FOR THE PURPOSE OF S MOOTH CONDUCT OF BUSINESS. THE ASSESSEE HAS NOT PRODUCED ANY EVIDENC E BEFORE THE ASSESSING OFFICER THE ACTUAL PURPOSE FOR WHICH THE AMOUNT WAS RECEIVED AND HOW THE TRANSACTION HELPS PKPN SPINNING MILLS (P) L TD. FOR SMOOTH I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .445 445445 445/M/1 /M/1 /M/1 /M/15 55 5 5 FUNCTIONING. IN SO FAR AS APPLICATION OF SECTION 2( 22)(E) IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE APPEARED BEFORE US HAS NOT DISPUTED. HE HAS ONLY SUBMITTED THAT THE AMOUNT OF .34,01,550/- DID NOT INVOLVE OUTGOING OR FLOW OF MONEY FROM THE COMPANY TO THE ASSESSEE. THIS ARGUME NT OF THE LD. COUNSEL FOR THE ASSESSEE IS AN AFTERTHOUGHT AND IT CANNOT B E ACCEPTED FOR THE REASON THAT IN THE BALANCE SHEET OF M/S. PKPN SPINNING MIL LS (P) LTD., A SUM OF .79,08,532/- WAS SHOWN AS LOANS AND ADVANCES TO SHR I JAYAGOPAL AND THIS FACT WAS NOT DISPUTED BY THE ASSESSEE NEITHER BEFOR E THE ASSESSING OFFICER NOR BEFORE THE LD. CIT(A) OR EVEN BEFORE US. MOREOV ER, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT ABLE TO EXPLAIN THE SUBSTANCE IN M AKING THE ENTRIES. HE SAYS THAT IT IS ONLY A NOTIONAL PAYMENT. THEREFORE, THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE IN THIS REGARD IS REJECTED . 8. SO FAR AS OTHER ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE IS CONCERNED, THE TRANSACTION BETWEEN THE ASSESSEE AND M/S. PKPN SPINNING MILLS (P) LTD. ON 01.04.2010 TO 11.11.2010, THE ASS ESSEE IS NOT HAVING REQUIRED PERCENTAGE OF VOTING POWER AND THEREFORE, SECTION 2(22)(E) IS NOT ATTRACTED. FROM THE EXPLANATION 3(B) TO SECTION 2(2 2)(E),IT IS VERY CLEAR THAT A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTE REST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIME DURING THE PR EVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS THAN TWENTY PER CENT OF THE IN COME OF SUCH CONCERN. THIS EXPLANATION CLEARLY MENTIONS ABOUT ANY TIME DURING THE PREVIOUS YEAR. IT IS I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .445 445445 445/M/1 /M/1 /M/1 /M/15 55 5 6 NOT AS STATED BY THE LD. COUNSEL FOR THE ASSESSEE B ETWEEN 01.04.2010 TO 11.10.2010 AND THIS HAS TO BE UNDERSTOOD AS 31.03.2 011 BECAUSE THE ASSESSMENT YEAR INVOLVED IS 2011-12 AND FOR THE PUR POSE OF SECTION 2(22)(E), THE SHARE HOLDING PATTERN HAS TO BE SEEN AS ON 31.03.2011. THE ASSESSEE IS HAVING MORE THAN 25% AS ON 31.03.2011. THEREFORE, SECTION 2(22)(E) SQUARELY APPLIES TO ASSESSEES CASE. 9. SO FAR AS CASE LAW RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IS CONCERNED, IN THE CASE OF CIT V. SMT. PARVATHAVARTH INI AMMAL 219 ITR 661, THE HONBLE KERALA HIGH COURT HAS CONSIDERED SECTIO N 2(22)(E) AND OBSERVED THAT GIFT OF SHARES EVEN FOUND TO BE GENUINE AND SH ARES ALSO REGISTERED IN THE NAMES OF DONEE. THE TRANSFER OF SHARES HAS TO B E TAKEN ON THE DATE OF TRANSFER FORMS AND NOT ON THE DATE OF COMPANY REGIS TERED THE SHARES IN THE NAMES OF DONE. SHARES HAVING BEEN GIFTED TO THE ASS ESSEE AND FOUND TO BE GENUINE AND THE DEEMED DIVIDEND COULD NOT ASSESSED IN HER HANDS. IN HIS CASE, THE ABOVE DECISION OF THE HONBLE KERALA HIGH COURT RELATING TO ASSESSMENT YEAR 1979-80. THE PROVISO TO EXPLANATION 3(B) TO SECTION 2(22)(E) WAS INSERTED BY THE FINANCE ACT, 1987. THE FACTS OF THE CASE IN HAND ARE ALSO DIFFERENT. KEEPING IN VIEW OF THE ABO VE, WE FIND THAT SECTION 2(22)(E) OF THE ACT SQUARELY APPLIES TO ASSESSEES CASE AND ACCORDINGLY, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NO. .. .445 445445 445/M/1 /M/1 /M/1 /M/15 55 5 7 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 17 TH OF JULY, 2015 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 17.07.2015 VM/- / ) ''+01 21.+ /COPY TO: 1. %& / APPELLANT, 2. '(%& / RESPONDENT, 3. 3 ( ) /CIT(A), 4. 3 /CIT, 5. 14 ''+' /DR & 6. 5! 6 /GF.