DCIT 2(3), MUMBAI V. SUNIL SURESH SHETH, MUMBAI

ITA 4663/MUM/2010

• Counselvise Citation: 466319914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 17-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 04-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHANTAM BOSE
• Assessee Lawyers: RASHMIKANT C MOD I
• Keywords: Opportunity of being heard; Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI R.S.PADVEKAR, JUDICIAL MEMBER I.T.A. NO. 4663/MUM/2010 ASSESSMENT YEAR : 2007-08. DY. COMMISSIONER OF INCOME-TAX, SHRI SUNIL SURESH SHETH. 2(3), MUMBAI. VS. SURAJ,37, NUTAN LAXMI CHS LTD. BLOCK NO.3, JUHU SCHEME, 10 TH ROAD, VILE PARLE, MUMBAI-56. PAN : AACPS8728H. APPELLANT. RESPONDENT APPELLANT BY : SHRI SHANTAM BOSE. RESPONDENT BY: SHRI RASHMIKANT C. MOD I. DATE OF HEARING : 17-11-2011. DATE OF PRONOUNCEMENT : 25-11-2011. O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-6, MUMBAI DATED 31-03-2010 WHEREBY HE REDUCED THE ADDITION OF RS.98,29,001 MADE BY THE AO U/S 2(22)(E) TO RS.10,3 3,739/-. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 31-10-20 07 DECLARING TOTAL INCOME OF RS.28,90,000/-. IN THE YEAR UNDER CONSIDERATION, HE WAS HOLDING SUBSTANTIAL INTEREST IN A COMPANY, NAMELY, M/S SUNNY FORESIGHT PVT. LTD. OF WHICH HE WAS A MANAGING DIRECTOR. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS RECEIVED SUBSTANTIAL AMOUNT F ROM THE SAID COMPANY AS LOAN. 2 ITA NO.4663/MUM/2010 ASSESSMENT YEAR : 2007-08. HE, THEREFORE, REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAID AMOUNT SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S 2(22)( E) AND BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE. IN REPLY, THE ASSESSEE SUBMI TTED THAT THE AMOUNT OF RS.67,80,000/- WAS RECEIVED BY HIM FROM THE COMPANY AGAINST THE LEASE OF TWO OFFICE PREMISES WHEREAS THE REMAINING AMOUNT OF RS. 10,11,175/- WAS RECEIVED ON ACCOUNT OF DIRECTORS REMUNERATION AND REFUND OF AD VANCES GIVEN EARLIER TO THE SAID COMPANY. THE AO, HOWEVER, FOUND THAT NO SUCH DEPOSI T AGAINST THE LEASE OF OFFICE PREMISES WAS REFLECTED IN THE BALANCE SHEET OF THE COMPANY WHEREIN THE ONLY ENTRY SHOWN WAS ON ACCOUNT OF DIRECTORS CURRENT ACCOUNT. HE ALSO DID NOT FIND MERIT IN THE EXPLANATION OF THE ASSESSEE THAT THE REMAINING AMOUNT WAS RECEIVED FROM THE COMPANY ON ACCOUNT OF DIRECTORS REMUNERATION AND R EFUND OF ADVANCES GIVEN EARLIER. HE, THEREFORE, REJECTED THE EXPLANATION OF FERED BY THE ASSESSEE ON THIS ISSUE AND ADDED THE AMOUNT OF UNSECURED LOAN RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION TOTALING TO RS.98,29,001/- TO T HE TOTAL INCOME OF THE ASSESSEE U/S 2(22)(E) AS DEEMED DIVIDEND IN THE ASSESSMENT C OMPLETED U/S 143(3) VIDE AN ORDER DATED 29-12-2009. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) CHALLE NGING THEREIN THE ADDITION MADE BY THE AO U/S 2(22)(E) ON ACCOUNT OF DEEMED DI VIDEND. DURING THE COURSE OF APPELLATE PROCEEDINGS, IT WAS SUBMITTED ON BEHALF O F THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) THAT THE COMPANY HAD NOT GIVEN ANY LOA N TO HIM BUT THE AMOUNT WAS PAID BY THE COMPANY TOWARDS REPAYMENT OF LOAN ADVAN CED BY HIM EARLIER AS WELL AS TOWARDS DIRECTORS REMUNERATION RECEIVABLE FROM HIM FROM TIME TO TIME. RELIANCE WAS PLACED BY THE ASSESSEE ON THE DECISION IN THE C ASE OF CIT VS. RAJKUMAR 181 TAXMAN 155 TO CONTEND THAT LOANS AND ADVANCES FOR T HE PURPOSE OF SECTION 2(22)(E) SHOULD HAVE OBLIGATION ON THE BORROWER TO PAY BACK THE MONEY AND UNLESS THERE IS 3 ITA NO.4663/MUM/2010 ASSESSMENT YEAR : 2007-08. ANY SUCH OBLIGATION, THE AMOUNT IN QUESTION COULD N OT BE BROUGHT TO TAX AS DEEMED DIVIDEND U/S 2(22)(E). THE LEARNED CIT(APPEALS) FOU ND MERIT IN THIS CONTENTION RAISED BY THE ASSESSEE. HE FOUND THAT THE AO HAD ME CHANICALLY ADDED THE ENTIRE SUM OF CREDIT ENTRIES AGGREGATING TO RS.98,29,001/- WITHOUT EXAMINING THE EXACT NATURE OF THE SAID ENTRIES WHETHER THEY REPRESENTED LOANS AND ADVANCES RECEIVED BY THE ASSESSEE. ACCORDING TO HIM, THE AO SHOULD HAVE DULY CONSIDERED DEBITS IN THE CURRENT ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE COMPANY INCLUDING THE DEBITS ON ACCOUNT OF REMUNERATION ACCRUED TO THE ASSESSEE AS WELL AS PAYMENTS MADE BY HIM TO THE COMPANY EARLIER AS ADVANCE IN ORDER TO ASCER TAIN THE EXACT NATURE OF CREDITS IN THE SAID ACCOUNT. HE HELD THAT THE AO SHOULD HAVE C ORRECTLY CONSIDERED THE BALANCE OUTSTANDING IN THE COMPANYS ACCOUNT AT THE TIME OF EACH CREDIT ENTRY SO AS TO ASCERTAIN WHETHER THE SAME REPRESENTED LOAN OR ADVA NCE GIVEN TO THE ASSESSEE BY THE SAID COMPANY. SINCE THIS EXERCISE WAS NOT DONE BY THE AO, THE LEARNED CIT(APPEALS) PROCEEDED TO DO THAT EXERCISE AND FOUN D THAT THE TOTAL SUM OF CREDITS WHICH COULD BE CONSIDERED AS LOAN OR ADVANCE RECEIV ED BY THE ASSESSEE WAS ONLY TO THE EXTENT OF RS.10,33,759/-. ACCORDINGLY THE ADDIT ION OF RS.98,29,001/- MADE BY THE AO ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) W AS SUSTAINED BY THE LEARNED CIT(APPEALS) TO THE EXTENT OF RS.10,33,759/-. AGGRI EVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE REVENUE HAS PREFERRED THI S APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AFTER CONSIDERING ALL THE RELEV ANT FACTS OF THE CASE AND THE MATERIAL AVAILABLE ON RECORD BEFORE US, WE FIND OUR SELVES IN AGREEMENT WITH THE LEARNED CIT(APPEALS) THAT THERE WAS NO JUSTIFICATIO N IN THE ACTION OF THE AO IN ADDING THE ENTIRE AMOUNT OF CREDIT ENTRIES APPEARIN G IN THE CURRENT ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE COMPANY AS DEEMED DIVI DEND U/S 2(22)(E) WITHOUT EVEN ASCERTAINING THE EXACT NATURE OF THE SAID AMOU NTS IN ORDER TO ASCERTAIN WHETHER 4 ITA NO.4663/MUM/2010 ASSESSMENT YEAR : 2007-08. THE SAME REPRESENTED LOANS AND ADVANCES RECEIVED BY THE ASSESSEE FROM THE COMPANY. SINCE THIS EXERCISE WAS NOT DONE BY THE AO , THE LEARNED CIT(APPEALS) PROCEEDED TO DO THE SAME AND WORKED OUT THE TOTAL A MOUNT OF LOANS AND ADVANCES RECEIVED BY THE ASSESSEE FROM THE COMPANY AT RS.10, 33,759/-. ACCORDINGLY HE SUSTAINED THE ADDITION OF RS.98,29,001/- MADE BY TH E AO ON ACCOUNT OF DEEMED DIVIDEND U/S(22)(E) ONLY TO THE EXTENT OF RS.10,33, 759/-. ALTHOUGH WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LEARNED CIT(AP PEALS) TAKEN ON THIS ISSUE IN PRINCIPLE, WE ARE OF THE VIEW THAT HE SHOULD HAVE G IVEN AN OPPORTUNITY TO THE AO TO VERIFY THE WORKING FROM THE RELEVANT RECORD IN ORDE R TO ASCERTAIN THE TOTAL AMOUNT OF LOANS OR ADVANCES ACTUALLY GIVEN BY THE COMPANY TO THE ASSESSEE. IN THAT VIEW OF THE MATTER, WE RESTORE THIS ISSUE TO THE FILE OF TH E AO FOR THE LIMITED PURPOSE OF SUCH VERIFICATION. THE AO IS DIRECTED TO AFFORD SUF FICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE IN THE L IGHT OF THE DECISION OF THE LEARNED CIT(APPEALS) WHICH HAS BEEN UPHELD BY US IN PRINCIP LE. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREA TED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF NOV., 2011. SD/- S D/- (R.S.PADVEKAR) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 25 TH NOV., 2011. WAKODE 5 ITA NO.4663/MUM/2010 ASSESSMENT YEAR : 2007-08. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, F-BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI.