HEMANT M. SHAH, MUMBAI V. DCIT CEN CIR 36, MUMBAI

ITA 4690/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55565 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 06-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G SRINIWAS RAO
• Keywords: Salary income; Deemed dividend
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI R.V. EASWAR, HONBLE PRESIDENT AND SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO.4690/MUM/2010 ASSESSMENT YEAR : 2005-06 SHRI HEMANT M. SHAH, 23-F,AKRUTI, DOONGERSEY ROAD, WALKESHWAR, MUMBAI-400 006 APPELLANT. PAN AAHPS2340E VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 36, MUMBAI. RESPONDENT. APPELLANT BY : SHRI VIJAY MEHTA. RESPONDENT BY : SHRI G. SRINIWAS RAO. DATE OF HEARING : 06-09-2011 DATE OF PRONOUNCEMENT : 28-09-2011. O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF LEARNED CIT(APPEALS)-41, MUMBAI DATED 19.03.2010 AND THE SO LITARY ISSUE ARISING OUT OF THE SAME RELATES TO THE ADDITION OF RS.1,45,000 MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) ON ACCOUNT OF DEEMED DIVIDEND U/ S.2(22)(E) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO IS A DIRECTOR IN THE VARIOUS COMPANIES BELONGING TO AKRUTI GROUP. IN ONE OF SU CH COMPANIES NAMELY M/S. AKRUTI NIRMAN LIMITED, HE WAS A WORKING DIRECTOR DURING TH E YEAR UNDER CONSIDERATION. FROM THE PERUSAL OF THE ACCOUNT OF THE ASSESSEE MAINTAINED I N THE BOOKS OF THE SAID COMPANY, THE A.O. NOTICED THAT THE ASSESSEE HAD RECEIVED AN ADVA NCE OF RS.1,29,500 AND RS.15,500 FROM 2 ITA NO.4690/MUM/2010 THE SAID COMPANY ON 30.12.2004 AND 19.2.2005 RESPEC TIVELY. AS THE ASSESSEE WAS HOLDING 13.54% OF THE TOTAL PAID UP SHARE CAPITAL OF THE SA ID COMPANY WHICH HAD SUBSTANTIAL ACCUMULATED PROFIT AT THE RELEVANT TIME, THE A.O. T REATED THE AMOUNT OF RS.1,45,000 RECEIVED BY THE ASSESSEE AS ADVANCE FROM THE SAID C OMPANY AS DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) AND THE SAME WAS BRO UGHT TO TAX BY HIM IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. THE MATTER WAS CARRIED BEFORE THE LEARNED CIT(A) IN AN APPEAL BY THE ASSESSEE AND IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE T HE LEARNED CIT(A) THAT THE REMUNERATION OF RS.2 LAKHS FOR THE MONTH OF DEC., 2 004 WAS DUE TO THE ASSESSEE ON 30.12.2004. IT WAS SUBMITTED THAT ALTHOUGH A CHEQU E FOR RS.1,30,000 WAS ISSUED AGAINST THE SAID REMUNERATION TO THE ASSESSEE ON 30.12.2004 , ENTRY FOR REMUNERATION PAYABLE WAS PASSED IN THE BOOKS OF ACCOUNT OF THE COMPANY ONLY ON 31.12.2004. IT WAS CONTENDED THAT DEBIT OF BALANCE OF RS.1,29,500 REFLECTED IN THE AC COUNT OF THE ASSESSEE AS ON 30.12.2004 THUS DID NOT REPRESENT ANY ADVANCE PAID BY THE SAID COMPANY TO THE ASSESSEE BUT THE SAME WAS A RESULT OF DELAY IN PASSING THE ENTRY FOR REMU NERATION PAYABLE TO THE ASSESSEE IN THE BOOKS OF THE COMPANY. IT WAS FURTHER SUBMITTED TH AT SIMILARLY WHEN THERE WAS A DEBIT BALANCE OF RS.15,500 IN THE ACCOUNTS OF THE ASSESSE E ON 19.2.2005, THE REMUNERATION FOR THE PERIOD OF 19 DAYS IN THE MONTH OF FEBRUARY HAD ALREADY BECOME DUE TO THE ASSESSEE AND THE SAID DEBIT BALANCE THUS COULD NOT BE TREATE D AS ADVANCE GIVEN TO THE ASSESSEE BY THE COMPANY. IT WAS CONTENDED THAT THE TWO DEBIT B ALANCES REFLECTED IN THE ACCOUNT OF THE ASSESSEE AGGREGATING RS.1,45,000 THUS DID NOT REPRESENT ANY ADVANCE GIVEN TO THE ASSESSEE BY THE SAID COMPANY AND THERE WAS NO JUSTI FICATION TO TREAT THE SAID AMOUNT AS DEEMED DIVIDEND CHARGEABLE TO TAX IN THE HANDS OF T HE ASSESSEE U/S.2(22)(E). 4. THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE LEARNED CIT(A) WHO CONFIRMED THE ADDITION OF RS.1,45,000 MA DE BY THE A.O. U/S.2(22)(E) FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NOS.3.8 TO 3.1 1 OF HIS APPELLATE ORDER - 3 ITA NO.4690/MUM/2010 3.8 I HAVE CONSIDERED THE REPLY OF THE APP ELLANT AND PERUSED THE ASSESSMENT ORDER. A REMAND REPORT WAS CALLED FOR V IDE THIS OFFICE LETTER NO. CIT(A)C-VI/APPELLATE PROC/2009-10 DATED 7.9.2009 ON FILING OF PETITION ON THE ADDITIONAL GROUND OF APPEAL. THE A.O. IN HIS REPOR T DATED 20.10.2009 HAS SUPPORTED THE VIEW TAKEN BY THE A.O. AND STATED THA T THE ADVANCE OF RS.1,45,000 MAY BE TREATED AS DEEMED DIVIDEND. THE A.O. HAS AL SO SUBMITTED COPY OF ORDER SHEET, IN WHICH AUTHORISED REPRESENTATIVE OF THE AP PELLANT HAS ADMITTED THAT DEEMED DIVIDEND HAS NOT BEEN SHOWN DUE TO INADVERTE NT MISTAKE AND AGREED FOR THE ADDITION. OBJECTION OF THE APPELLANT ON THE RE MAND REPORT WAS ALSO CALLED FOR VIDE ORDER SHEET ENTRY DATED 14.1.2010 AND CONS IDERED WHILE DECIDING THE ISSUE. 3.9 THE APPELLANT HAS CLAIMED THAT THERE IS NO DE BIT BALANCE OF RS.1,29,500 ON 13.12.2004 AS THE APPELLANT IS RECEIVING SALARY FRO M THE COMPANY, M/S. AKRUTI NIRMAN LTD AMOUNTING TO RS.2,00,000 PER MONTH. THI S SALARY IS DUE ON 30.12.2004 BUT THE COMPANY HAS CREDITED THE SALARY ON 31.12.2004. EVEN IF THE PROPER SALARY DEEMED TO BE ACCRUED TO THE APPELLANT THERE IS NO ADVANCE TO THE APPELLANT. THIS CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE AS SALARY DOES NOT ACCRUE DAY TO DAY BUT ACCRUE AT THE END OF THE MONT H I.E. AT 31.3.2004 UNLESS THE EMPLOYEE IS RESIGNED IN BETWEEN OR HIS SERVICE IS T ERMINATED. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT THE SALARY WAS DUE ON 30.12.2004 AND THERE IS NO ADVANCE OF RS.1,29,500 TO THE APPELLANT IS NOT CORR ECT. 3.10 THE APPELLANT HAS FURTHER STATED THAT THE APPELLANT HAS NOT RECEIVED ANY LOAN OR ADVANCE AS THE NATURE OF THE ADVANCE IS NOT SUCH THEREFORE, PROVISIONS OF SECTION 2(22)(E) IS NOT APPLICABLE. THIS CONTENTIO N IS ALSO NOT CORRECT AS THE CONDITIONS SPECIFIED UNDER SECTION 2(22)(E) IS FULF ILLED IN THE CASE OF THE APPELLANT AS THE DEEMED PAYMENT INCLUDES ANY PAYMEN T BY A COMPANY NOT BEING A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTEREST TO ANY SUM (WHETHER AS REPRESENTATIVE A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER COMPANY, BEING A P ERSON WHO IS THE BENEFICIAL OWNER OF THE SHARES. ANY PAYMENT HAS BEEN MADE BY THE COMPANY TO THE ASSESSEE WITHOUT ANY LIABILITY IS AN ADVANCE AND PR OVISIONS OF SECTION 2(22)(E) IS APPLICABLE ON SUCH ADVANCE. 3.11 SIMILAR POSITION IS WITH REGARD TO A DVANCE OF RS.15,500TAKEN ON 19.2.2005. THE APPELLANT HAS CLAIMED THAT THE PART OF SALARY OF FEBRUARY, 2005 IS DUE TO THE APPELLANT HENCE, THE PAYMENT IS AGAIN ST THE LIABILITY AND NOT TAXABLE AS DEEMED DIVIDEND. THIS CONTENTION OF THE APPELLA NT IS ALSO NOT ACCEPTABLE AS REASON GIVEN IN PRECEDING PARAGRAPH. THE CASE LAW RELIED UPON BY THE APPELLANT IS DISTINGUISHABLE ON FACTS AND DO NOT APPLY TO THE CA SE OF THE APPELLANT. IN VIEW OF THIS FACT, THE ADDITIONAL GROUND RAISED BY THE APPE LLANT HAS NO FORCE HENCE 4 ITA NO.4690/MUM/2010 DECIDED AGAINST THE APPELLANT. THE ADDITION OF RS. 1,45,000 MADE BY THE ASSESSING OFFICER IS CONFIRMED. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), THE A SSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE HAS TAKEN US THROUGH THE COPY OF LEDGER ACCONT EXTRACT OF THE ASSESSEE MAINTAINED IN THE BOOKS OF M/S. AKRUTI NIRMAN LIMITED PLACED AT PAGE NOS.1 & 2 OF THE PAPER BOOK TO SHOW THAT THE REMUNERATION PAYABLE TO THE ASSESSEE AT RS.2 LAKHS PER MONTH WAS CREDITE D TO THE SAID ACCOUNT ON REGULAR BASIS AND PAYMENT MADE AGAINST THE REMUNERATION SO PAYABL E WAS DEBITED. BESIDES REITERATING THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A) THAT THE DEBIT BALANCES APPEARING IN THE SAID LEDGER ACCOUNT ON 13.12.2004 AND 19.2.2005 AGG REGATING TO RS.1,45,000 DID NOT ACTUALLY REPRESENT ADVANCE PAID TO THE ASSESSEE, TH E LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT EVEN IF THE SAID DEBIT BALANCES ARE TO BE TREATED AS ADVANCE PAID TO THE ASSESSEE, THE SAME REPRESENT SALARY PAID IN ADVANCE AND THIS POSITION CLEARLY MANIFEST FROM THE RELEVANT LEDGER ACCOUNT MAINTAINED SPECIFI CALLY AND SEPARATELY IN RESPECT OF REMUNERATION TO THE ASSESSEE AS A DIRECTOR IN THE B OOKS OF M/S.AKRUTI NIRMAN LIMITED HAS NOT BEEN DISPUTED EVEN BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE DEFINI TION OF SALARY GIVEN IN SECTION 17(1) INCLUDES ANY ADVANCE OF SALARY FOR THE PURPOSE OF S ECTIONS 15 & 16 AND ACCORDINGLY, THE REMUNERATION RECEIVED BY THE ASSESSEE IN ADVANCE FR OM M/S. AKRUTI NIRMAN LIMITED AMOUNTING TO RS.1,45,000 WAS EVEN OTHERWISE CHARGEA BLE TO TAX IN HIS HANDS UNDER THE HEAD INCOME FROM SALARY FOR THE YEAR UNDER CONSID ERATION. WE, THEREFORE, FIND MERIT IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSES SEE THAT THE AMOUNT OF RS.1,45,000 WHICH WAS OTHERWISE CHARGEABLE TO TAX AS INCOME OF THE ASSESSEE COULD NOT BE TREATED AS ADVANCE RECEIVED BY THE ASSESSEE AND THE SAME COULD NOT BE BROUGHT TO TAX IN HIS HANDS AGAIN AS DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT WH ICH APPLY ONLY TO THE PAYMENT MADE BY WAY OF ADVANCE OR LOAN. WE, THEREFORE, DELETE THE ADDITION OF RS.1,45,000 MADE BY THE 5 ITA NO.4690/MUM/2010 A.O. U/S.2(22)(E) AND CONFIRMED BY THE LEARNED CIT( A) AND ALLOW THIS APPEAL OF THE ASSESSEE. 5. IN THE RESULT THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF SEPT., 2011. SD/- SD/- (R.V. EASWAR) (P.M. JAGTAP) PRESIDENT. ACCOUNTANT MEMBER MUMBAI, DATED: 28 TH SEPT., 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, H-BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI *REDDY GP