M/s. Indu Wadhwa, New Delhi V. ACIT, New Delhi

ITA 4682/DEL/2011

• Counselvise Citation: 468220114 RSA 2011
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 24-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Gift; Share purchase agreement

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI RAJPAL YADAV , JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO . 4682 / DEL / 201 1 ASSESSMENT YEAR : 200 6 - 0 7 MS. INDU WADHWA 4200, SECTOR - B, 5&6 VASANT KUNJ, NEW DELH I - 110070 VS . ACIT, CIRCLE - 37 (1) NEW DELHI - 110002 (APPEL LANT) (RESPONDENT) A PPELLANT BY : SHRI SATISH AGARWAL , ADVOCATE RESPONDENT BY : SHRI SATPAL SINGH , SR. D.R. ORDER PER SHRI RAJPAL YADAV , J M : 1. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORDER OF LD. CIT(A) - XX VI II, NEW DELHI DATED 2 5 .0 8 .201 1 PASSED FOR A.Y. 200 6 - 0 7 . THE ASSESSEE HAS TAKEN FOUR GROUNDS OF APPEAL , WHICH CONTAINS SUB GROUNDS ALSO . T HESE GROUNDS A RE NOT IN CONSONANCE WITH RULE - 8 OF THE ITAT, RULE , THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. 2. IN BRIEF , GRIEVANCE OF ASSESSEE IS THAT LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.11,92,382/ - , ADDED BY THE ASSESSING OFFICER WITH THE HEL P OF SECTION 2(22) (E) OF THE INCOME TAX ACT, 1961 BY TREATING THE FOLLOWING AMOUNTS AS DEEM DIVIDEND: - ITA NO. 4682 /DEL /201 1 ASSESSMENT YEAR : 200 6 - 0 7 2 (A) M/S SATGURU FINANCIAL SERVICES LTD. RS.6,68,781/ - (B) M/S SATGURU FINANCIAL SERVICES LTD. RS.21,410/ - (C) M/S MIDDAS TOUCH SECURITIES P. LTD.RS.5,0 0,000/ - (D) M/S ONS INSURANCE AGENT P. LTD. RS.2,191/ - 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS FILED HER RETURN OF INCOME ON 17.08.2006, DECLARING AN INCOME OF RS.9,55,071/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NO TICE U/S 143(2) OF THE ACT WAS ISSUED ON 19.07.2007. WHILE SCRUTINIZING THE DETAILS , IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE HAS RECEIVED A LOAN OF RS.1,40,00,000/ - ON 07.04.2005 FROM M/S SATGURU FINANCIAL SERVICES LTD. F URTHER , SHE RECEIVED A D EPOSIT OF RS.1.00 CRORES ON 07.04.2005 FROM M/S SATGURU FINANCIAL SERVICES PVT. LTD. TOWARDS SECURITY FOR LETTING OFFICE PREMISES TO M/S SATGURU FINANCIAL SERVICES LTD. SIMILARLY SHE HAD RECEIVED A DEPOSIT OF RS.5.00 LAKH FROM M/S MIDDAS TOUCH SECURITIES P . LTD. FOR PREMISES E - 1/17, VASANT VIHAR ON 14.06.2005. ACCORDING TO THE ASSESSING OFFICER, ASSESSEE WAS HOLDING 50% SHARES HOLDING IN M/S SATGURU FINANCIAL SERVICES LTD., THEREFORE, THE LOAN RECEIVED FROM M/S SATGURU FINANCIAL SERVICES LTD. WOULD BE TREAT ED AS DEEM DIVIDEND EQUIVALENT TO THE AMOUNT OF ACCUMULATED PROFIT IN M/S SATGURU FINANCIAL SERVICES LTD. PRIOR TO 31.03.2005 OR ON THE DATE OF LOANS. SIMILARLY, HE OBSERVED THAT ASSESSEE HAS BEEN HAVING MORE THAN THE PRESCRIBED LIMIT OF THE SHARE IN M/S M IDDAS TOUCH SECURITIES P. LTD. THE LOAN/ALLEGED DEPOSIT DESERVES TO BE TREATED AS DEEM ITA NO. 4682 /DEL /201 1 ASSESSMENT YEAR : 200 6 - 0 7 3 DIVIDEND IN HER HANDS. HE CONFRONTED THE ASSESSEE AS TO WHY THESE AMOUNTS BE NOT TREATED AS DEEM DIVIDEND IN HER HANDS. IN RESPONSE TO THE SHOW CAUSE NOTICE , IT WAS CONT ENDED BY THE ASSESSEE THAT AS ON 31.03.2006 SHE HELD 100 SHARES OF M/S SATGURU FINANCIAL SERVICES LTD. THEREFORE, HER SHARE HOLDING WAS LESS THAN 1% OF THE TOTAL SHARES HOLDING. IT WAS ALSO CONTENDED THAT HER MOTHER WAS HOLDING TWO LAKH SHARES , WHICH WERE GIFTED TO THE ASSESSEE ON 28.09.2006. ON THE STRENGTH OF THIS PLEA , IT WAS CONTENDED THAT SECTION 2(22)(E) IS NOT APPLICABLE IN THE GIVEN FACTS. ALTERNATIVELY , IT WAS CONTENDED THAT M/S SATGURU FINANCIAL SERVICES LTD. IS ENGAGED IN MONEY LENDING BUSINESS. THE LOAN WAS ADVANCED IN THE ORDINARY COURSE OF BUSINESS AND CANNOT BE TREATED AS DEEM DIVIDEND IN THE HANDS OF THE ASSESSEE. WITH REGARD TO RS.5.00 LAKH RECEIVED FROM M/S MIDDAS TOUCH SECURITIES P. LTD IT WAS CONTENDED THAT A DEPOSIT OF RS.5.00 LAKH WAS GIVEN BY M/S MIDDAS TOUCH SECURITIES P. LTD. FOR HIRING THE PREMISES OF THE ASSESSEE BEARING NO. E - 1/17 VASANT VIHAR, NEW DELHI. THE LEASE DEED COULD NOT BE EXECUTED BECAUSE OF DEMOLITION DERIVE CONDUCTED BY THE MUNICIPAL COMMITTEE OF THE DELHI. THE PREMIS ES WERE NOT ULTIMATELY GIVEN ON RENT AND THE SECURITY DEPOSIT WAS REFUNDED. A MEMORANDUM OF UNDERSTANDING WAS EXECUTED BETWEEN THE PARTIES. ASSESSEE PRODUCED THE COPY OF THE M EMORANDUM BEFORE THE ASSESSING OFFICER. 4. THE LD. ASSESSING OFFICER HAS REJECTE D THE CONTENTIONS OF THE ASSESSEE , HE OBSERVED THAT M/S SATGURU FINANCIAL SERVICES PVT. LTD. WAS NOT SUBSTANTIALLY ITA NO. 4682 /DEL /201 1 ASSESSMENT YEAR : 200 6 - 0 7 4 ENGAGED IN THE MONEY LENDING BUSINESS. ACCORDING TO THE ASSESSING OFFICER, THE INTEREST INCOME EARNED BY M/S SATGURU FINANCIAL SERVICES PVT. LTD IS OF RS.3,38,831/ - WHICH IS ASSESSED AS INCOME FROM OTHER SOURCES, WHEREAS THE TOTAL INCOME IS OF RS.54,89,624/ - , IN TERMS OF PERCENTAGE THIS OTHER INCOME COMES TO 6.5% ONLY OF THE TOTAL INCOME. WITH REGARD TO PLEA OF ASSESSEE THAT SHE WAS NOT HOLDING 10% OF THE TOTAL SHARE HOLDING ON THE DATE OF THE LOAN. LD. ASSESSING OFFICER HAS OBSERVED THAT HE HAS OBTAINED COPIES OF ANNUAL RETURN OF THE COMPANY FROM THE WEBSITE OF MINISTRY OF CORPORATE AFFAIRS. THE ASSESSEE WAS SHOWN , HOLDING SHARES 2 LAKH 100 AS ON 28.09.2004 THIS POSITION CONTINUED UP TO 28.09.2007 , THE RETURN FOR 2005 - 0 6 WAS NOT FILED WITH THE REGISTRAR OF COMPANIES . O N THE STRENGTH OF THESE RETURNS , H E H ELD THAT ASSESSEE WAS HOLDING 50% SHARES OF TOTAL SHARE HOLDING OF M/S SATGURU FINANCIAL SER VICES PVT. LTD ., WITH REGARD TO ALLEGED SECURITY DEPOSIT OF RS.5.00 LAKH FROM M/S MIDDAS TOUCH SECURITIES P. LTD. LD. ASSESSING OFFICER REJECTED THE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT AS PER MOU , RENT WAS FIXED AT RS.10,000/ - PER MONTH, NO TENA NT WOULD GIVEN A DEPOSIT OF RS.5.00 LAKH , THE DEPOSIT COULD RANGE IN BETWEEN 3 TO 6 MONTHS RENT. 5. A PPEAL TO LD. CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT TOTAL INCOME FROM FINANCING BUSINESS IN THE HANDS OF M/S SATGURU FINANCIAL SERVICES PVT. LTD IS OF RS.12,88,831/ - . THE DECLARED INTEREST INCOME OF RS.3,38,831/ - IS NET INTEREST ITA NO. 4682 /DEL /201 1 ASSESSMENT YEAR : 200 6 - 0 7 5 INCOME. THIS AMOUNT IS AFTER EXCLUDING THE INTEREST INCOME OF RS.9,50,000/ - FROM THE ASSESSEE AS THE COMPANY DEBITED NE T OF THE EXPENDITURE ON ACCOUNT OF INTEREST PAID. THUS, THE TOTAL INCOME FROM FINANCIAL SERVICES IN THE HANDS OF M/S SATGURU FINANCIAL SERVICES PVT. LTD. IS 23.48% OF THE TOTAL INCOME. IT CAN BE TERMED AS A SUBSTANTIAL INCOME. IN SUPPORT OF HIS CONTENTION , HE RELIED UPON THE DECISION OF THE ITAT IN THE CASE OF REKHA MODI VS. ITO REPORTED IN 13 SOT PAGE 512 . W ITH REGARD TO SHARE H E LD BY THE ASSESSEE ON THE DATE OF LOAN , HE RELIED UPON THE SUBMISSIONS OF THE ASSESSEE REPRODUCED BY THE LD. CIT(A). ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORDERS OF THE LD. REVENUE AUTHORITIES BELOW. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. AS PER SECTION 2(22)(E), BEFORE EXPLORING THE EXISTENCE OF CONDITIONS ENUMERATED IN THIS S UB CLAUSE, THE PRIMARY CONDITION FOR DEEMING THE LOANS GIVEN BY THE COMPANY TO SHARE HOLDER AS DIVIDEND IS THAT SUCH SHARE HOLDER SHOULD HELD SHARES MORE THAN 10% OF THE TOTAL SHARE HOLDING. WE FIND THAT ASSESSEE HAS NOT OBJECTED TO THE AVAILABILITY OF AL L OTHER CONDITIONS EXCEPT THE TWO I.E., (A) SHE WAS NOT HOLDING MORE THAN 10% OF THE TOTAL SHARE HOLDING (B) LOANS WERE GIVEN IN THE ORDINARY COURSE OF BUSINESS. THE CONTENTIONS OF THE ASSESSEE IS THAT THE COMPANY M/S SATGURU FINANCIAL SERVICES PVT. LTD. CAME INTO EXISTENCE IN 1997 , ITS SHARES WERE HELD BY SHRI ANAND PRAKASH AGARWAL AND SHANTI AGARWAL . I N 1999 , T HE SHARES WERE TRANSFERRED TO SPRING VALLEY SECURITAS P. LTD. AND BHAISKA FINANCIAL SERVICES LTD. T HEY WERE HOLDING TWO LAKH SHARES ITA NO. 4682 /DEL /201 1 ASSESSMENT YEAR : 200 6 - 0 7 6 EACH. SIMILARL Y , SMT. USHA WADHWA AND DEV RAJ WADHWA H E LD TWO LAKH SHARE EACH UPTO 28.09.2006. SMT. USHA WADHWA MOTHER OF THE ASSESSEE HAD GIFTED TWO LAKH SHARES ON 28.09.2006 TO THE ASSESSEE. THE ASSESSEE HAD PRODUCED COPY OF THE GIFT DEED, SHARE CERTIFICATE , ORIGINAL REGIST ER OF THE SHARES AND ALL OTHER DETAILS. THE ASSESSING OFFICER HAS REJECTED HER CONTENTIONS ON THE GROUND THAT IN THE WEBSITE OF MINISTRY OF CORPORATE AFFAIR. THE DETAILS OF FOUR A.G.M ARE AVAILABLE , WHERE NO CHANGE IN THE SHARES H E LD BY THE SHARE HOL DER WAS BEING SHOWN. HE HAS OBTAINED THESE DETAILS AND TREATED THOSE DETAILS AS A GOSPEL TRUTH. THE ASSESSEE CONTENDED THAT COMPANY SECRETARY HAS COMMITTED ERROR , W HILE FILING THE RETURN , OTHERWISE THE GIFT DEED IS BEING PREPARED ON STAMP PAPER ON 03.04.20 06 IN ANY CASE THE GIFT CANNOT BE PRIOR TO 03.04.2006. 8. WE HAVE GONE THROUGH THE RECORDS, I T IS PERTINENT TO MENTION HERE THAT THE COMPANY M/S SATGURU FINANCIAL SERVICES PVT. LTD. HAS RECTIFIED I TS MISTAKE AND REVISED ITS ANNUAL RETURN WITH THE ROC . I T PAID COMPOUNDING FEES AND ITS RETURN HAVE BEEN ACCEPTED. THOUGH THIS EXERCISE HAS BEEN DONE AFTER THE ASSESSMENT ORDER BUT THIS WAS BROUGHT TO THE NOTICE OF LD. CIT(A) . I T IS TO BE KEPT IN MIND THAT FOR ARRIVING AT ANY CONCLUSION , THE ADJUDICATOR H AS TO AN ALYSIS THE DETAILS AVAILABLE ON THE RECORD. THERE ARE TWO SIMPLE METHODS FOR MAKING AN ANALYSIS OF THE EVIDENCE, NAMELY ; (A) DEDUCTIVE REASONING (B) INDUCTIVE REASONING , UNDER THE FIRST METHOD THE ADJUDICATOR HAS TO DRAW INFERENCE OR CONCLUSION FROM THE EX ISTING MATERIAL BUT IN CASE HE FACED ANY DIFFICULTY FOR ARRIVING AT ANY FIRM ITA NO. 4682 /DEL /201 1 ASSESSMENT YEAR : 200 6 - 0 7 7 CONCLUSION THEN HE HAS TO INDUCT REASONING FROM THE SURROUNDING CIRCUMSTANCES OR SECONDARY EVIDENCE. FOR EXAMPLE A&B ENTERED INTO AGREEMENT FOR SALE OF PROPERTY, SOME OF THE CLAU SES ARE NOT SPECIFIC BUT LITTLE VAGUE , WHEN THE NATURE OF RIGHTS FLOWING FROM THE AGREEMENT ARE TO BE DETERMINED AND ANY DIFFICULTY IS FACED, THEN A REFERENCE TO THE EARLIER PROCEEDINGS WHETHER LANDLORD TENANCY RELATIONSHIP ARE THERE OR SOME OTHER SURROUND ING DETAILS FROM NEIGHBORHOOD ETC. CAN ALSO BE SEEN IN THIS METHOD. THE ADJUDICATOR IS INDUCTING SOMETHING FROM THE OUTSIDE. IN THE PRESENT CASE, THE PRIMARY EVIDENCE IS THE SHARE CERTIFICATE , RECORDS OF THE COMPANY I.E. SHARE REGISTER WHICH ARE MAINTAINED BY THE COMPANY IN THEIR ORIGINAL FORM , GIFT DEED ETC. LD. ASSESSING OFFICER OUGHT TO HAVE FIRST EXAMINED THOSE REGISTER AS A DIRECT EVIDENCE INCLUDING GIFT DEED . H E COULD HAVE RECORDED THE STATEMENT OF THE PARTIES THEN HE COULD HAVE FIND OUT WHETHER ANY E RROR WAS COMMITTED BY THE COMPANY SECRETARY IN FILING THE RETURN WITH ROC . H E CANNOT BRUSH ASIDE DIRECT AND PRIMARY EVIDENCE WITH THE HELP OF SECONDARY EVIDENCE OR SURROUNDING EVIDENCE. IT IS A FALLACIOUS APPROACH ADOPTED BY THE ASSESSING OFFICER. SIMILARL Y, THE ASSESSING OFFICER HAS WORKED OUT THE INCOME FROM FINANCIAL SERVICES AT RS.3,38,831/ - AND TERMED IT HAS 6. 5% OF THE TOTAL INCOME. HE FAILED TO NOTICE THAT IT IS A NET INCOME , THE TOTAL FINANCIAL INCOME IS OF RS.12,88,831/ - WHICH IS 23.48% OF THE TOT AL INCOME. 9. THE THIRD ASPECT IS THAT THE ASSESSING OFFICER IS SIMPLY DISBELIEVING THE VERSION OF ASSESSEE THAT SHE HAD RECEIVED RS.5.00 LAKH AS A SECURITY FROM MIDDAS ITA NO. 4682 /DEL /201 1 ASSESSMENT YEAR : 200 6 - 0 7 8 TOUCH SECURITIES P. LTD. PERUSAL OF THE IMPUGNED ORDER , IT REVEAL ED THAT SUBMISSIONS OF THE ASSESSEE ARE NOT ACCEPTABLE THOUGH NO REASONS ARE AVAILABLE FOR NOT ACCEPTING HER SUBMISSION. LD. ASSESSING OFFICER COULD HAVE RECORDED THE STATEMENT OF THE CONCERNED PERSONS FOR ASCERTAIN ING, WHETHER ANY NEGOTIATION HAD TAKEN PLACE OR NOT ?, AT THA T STAGE ONLY MOU WAS EXECUTED , FINAL LEASE DEED WAS NOT DRAWN , H OW IT WAS NOT BELIEVABLE IS NOT DISCERNABLE , IT SHOULD DISCERNABLE FROM THE ASSESSMENT ORDER . 10. CONSIDERING THE CUMULATIVE SETTING OF ALL THESE FACTS , WE ARE OF THE VIEW THAT THIS ISSUE DES ERVES TO BE REEXAMINED AT THE LEVEL OF THE ASSESSING OFFICER. LD. ASSESSING OFFICER HAS TO DETERMINED WHETHER 23.48% OF THE TOTAL INCOME EARNED BY COMPANY AS INCOME FROM FINANCING BUSINESS CAN BE TERMED AS A SUBSTANTIAL INCOME FOR CONSIDERING THE LOAN GIVE N TO THE ASSESSEE BY M/S SATGURU FINANCIAL SERVICES LTD. IN THE ORDINARY COURSE OF BUSINESS OR NOT. 11. THE ASSESSING OFFICER HAS TO RECORD A SPECIFIC FINDING ABOUT THE SHARE HOLDING OF THE ASSESSEE ON THE DATE OF RECEIPT OF THE LOAN. THE ASSESSING OFFIC ER HAS TO RECORD FINDING ABOUT THE ALLEGED SECURITY AMOUNT RECEIVED BY THE ASSESSEE FROM M/S MIDDAS TOUCH SECURITIES P. LTD. I T IS TO BE ASCERTAINED , WHETHER ANY NEG OTIATION HAD TAKEN PLACE OR NOT ? WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFI CER FOR READJUDICATION. THE ASSESSEE WILL BE AT LIBERTY TO SUBMIT ANY DETAIL IN HER DEFENCE AND THE ASSESSING OFFICER WILL GRANT DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO. 4682 /DEL /201 1 ASSESSMENT YEAR : 200 6 - 0 7 9 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. T H E DECISION IS PRONOUNCED IN THE OPEN COURT ON 20 TH OCTO BER, 201 4 . SD/ - SD/ - ( B.C. MEENA ) ( RAJPAL YADAV ) A CCOUNTANT MEMBER J UDICIAL MEMBER DATED: 20 TH OCTOBER , 201 4 . AKS/ - COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST . REGISTRAR, ITAT, NEW DELHI