The ACIT, Bhopal V. M/s. Writers & Publishers Ltd., Bhopal

ITA 518/IND/2009

• Counselvise Citation: 51822714 RSA 2009
• Duration Of Justice: 1 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 11-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KESHAV SAXENA
• Assessee Lawyers: S S DESH
• Keywords: Gift; Additional evidence; Corroborative evidences; Deemed dividend; Scheme of amalgamation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARM A, A.M. PAN NO. : AAACW1376J I.T.A.NO. 518/IND/2010 A.Y. : 2005-06 ACIT, M/S.WRITERS & PUBLISHERS LIMITED, 3(1), VS BHOPAL. BHOPAL APPELLANT RESPONDENT APPELLANT BY : SHRI KESHAV SAXENA, CIT DR RESPONDENT BY : SHRI S.S.DESHPANDE, C.A. DATE OF HEARING : 17.10.2011 DATE OF PRONOUNCEMENT : 21.10.2011 O R D E R PER R. C. SHARMA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 30 TH JULY, 2009, FOR THE ASSESSMENT YEAR 2005- 06 IN THE MATTER OF ORDER PASSED BY THE ASSESSING O FFICER U/S 143(3) DATED 31.12.2007. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE :- -: 2: - 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN :- 1. DELETING THE ADDITION OF RS. 58,40,226/- OUT OF INTEREST OF RS. 60,92,226/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOAN GIVEN WITHOUT INTEREST. 2. DELETING THE ADDITION OF RS. 1,74,27,588/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEEMED DIVIDEND U/S 2(22)(E)/ 3. ACCEPTING THE ADDITIONAL EVIDENCE DURING THE COURSE OF APPELLATE PROCEEDINGS IN VIOLATION OF RULE 46A O F INCOME TAX RULES, 1962. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS IN THE BUSINESS OF PUBLISHING OF HINDI NEWS PAPERS. DURING THE YEAR THE COMPANY BHASKAR GRAPHIC & PRINTING ARTS LIMITED HAS BEEN AMALGAMATED WITH THE ASSESSEE COMPANY W.E.F. 1.4.04 BY M.P. HIGH COURT ORDER DATED 30.11.04. AS PER THE SCHEME OF AMALGAMATION THE ASSESSEE HAS ISSUED SEVEN EQUITY S HARES AGAINST TEN EQUITY SHARES OF BHASKAR GRAPHIC & PRIN TING ARTS PVT.LTD. RESULTING IN ISSUE OF 3,57,630 EQUITY SHAR ES OF RS. -: 3: - 3 10/- DURING THE YEAR. DUE TO THE ADJUSTMENT ENTRIES SO PASSED IN THE BOOKS OF THE ASSESSEE COMPANY HAD CREDIT BAL ANCE IN THE NAME OF M/S. BHASKAR GRAPHIC & PRINTING ARTS LI MITED. 4. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO HA S MADE A DISALLOWANCE OF INTEREST AMOUNTING TO RS. 60 ,92,226/- OUT OF THE INTEREST EXPENSES CLAIMED AT RS. 13,11,7 9,033/- ON THE GROUND THAT THE ASSESSEE HAD GIVEN LOANS AND AD VANCES INTEREST FREE TO THE TUNE OF RS. 35,32,26,710/- WHI CH WERE NOT FOR THE PURPOSE OF HIS BUSINESS. THE NAME AND ADDRE SS OF THE PARTIES WERE FURNISHED BEFORE THE AO TO WHOM LOAN/A DVANCES WERE GIVEN BUT THE NATURE AND PURPOSE OF SUCH LOANS AND ADVANCES COULD NOT BE EXPLAINED BEFORE THE AO. IN V IEW OF THE ABOVE FACTS, THE AO PROCEEDED TO DISALLOW INTEREST AMOUNTING TO RS. 60,12,226/- FOR THE YEAR UNDER CONSIDERATION . 5. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION TO THE EXTENT OF RS. 58,40,226/- OUT OF TO TAL ADDITION/DISALLOWANCES OF INTEREST OF RS. 60,92,226 /- MADE BY AO, AFTER HAVING THE FOLLOWING OBSERVATIONS :- I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE SUBMISSION/DETAILS FURNISHED BEFORE ME. FROM THE -: 4: - 4 DETAILS FURNISHED IT IS CLEAR THAT THE APPELLANT HA S CHARGED INTEREST ON LOANS AND ADVANCES FROM THE PARTIES AS MENTIONED IN ANNEXURE-A OF THE ASSESSMENT ORDER AMOUNTING TO RS. 37,79,233/- AND DISCLOSED THE SAME IN THE BOOKS OF ACCOUNT. IN RESPECT OF THE ABOVE MENTIONED THREE PARTIES, IT WA S EXPLAINED THAT ADVANCE WAS GIVEN TO KOPRAN PHARMACEUTICALS ON 31.02.2005 AGAINST DELIVERY OF GIFT ARTICLES IN THE SUBSEQUENT YEAR. A COPY OF LED GER ACCOUNT WAS FURNISHED FOR MY PERUSAL. THE EXPLANATION GIVEN IN THIS REGARD IS, THEREFORE, ACCEPTABLE. IT WAS ALSO SUBMITTED THAT ADVANCES OF RS. 9,00,000/- WAS GIVEN TO THE CARGO CO. LTD. DURI NG THE FAG END OF THE RELEVANT YEAR AND THE INTEREST O F RS. 24,177/- HAS BEEN CHARGED AND ACCOUNTED FOR IN THE NEXT YEAR. REGARDING SHRI BHARTIYA SANSKRITI SANSTHAN TO WHOM LOANS AND ADVANCES OF RS. 50,00,000/- WAS GIVEN DURING THE YEAR, IT WAS STATE D THAT THE SAME IS GIVEN AS ADVANCE AGAINST LAND AND EXPENSES. THE NATURE AND PURPOSE OF LOAN GIVEN HAS -: 5: - 5 NOT BEEN SPECIFIED BEFORE THE AO OR BEFORE ME. IT I S SIGNIFICANT TO NOTE THAT THE APPELLANT COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE INTEREST ACCOUNTED FOR IN THE CASE OF CARGO CO.LTD. IN ASSESSMENT YEAR 2006-07 SHOULD HAVE BEEN ACCOUNTED FOR IN THE YEAR UNDER APPEAL I.E. ASSESSMENT YEAR 2005-06. HENCE, THE GROSS INTEREST CHARGEABLE BY THE APPELLANT FROM THE SAID PARTY AMOUNTING TO RS. 27,000/- IS BROUGHT TO TAX IN THIS YEAR. REGARDING BHARTIYA SANSKRITI SANSTHAN LIMITED TO WHOM LOANS/ADVANCES HAS BEEN GIVEN INTEREST FREE BY THE APPELLANT THE OUTSTANDING BALANCE AS ON 31.03.2005 IS 50,00,000. IT HAS BEEN SIMPLY STATED THAT THE SAME HAS BEEN GIVEN AGAINST LAND AND EXPENSES. NO FURTHER DETAILS REGARDING THE PURPOSE OF LOAN GIVEN OR SUPPORTING EVIDENCE GIVEN TO THE SAID PARTY WAS FOR BUSINESS PURPOSE. IN VIEW OF THE ABOV E FACTS INTEREST ATTRIBUTABLE TO IT AMOUNTING TO RS. 2,25,000/- HAS TO BE TAXED IN THE YEAR. THE INTERES T -: 6: - 6 HAS BEEN CALCULATED ON THE BASIS OF THE PERIOD OF LOAN/ADVANCES GIVEN TO SHRI BHARTIYA SANSKRITI SANSTHAN. RELIANCE IS PLACED IN THE CASE OF CIT VS. ABHISHEKH INDUSTRIES LIMITED, 286 ITR 1 ( P & H). I N THIS CASE THE HON'BLE HIGH COURT HAS HELD THAT IF T HE APPELLANT IS PAYING INTEREST ON BORROWED CAPITAL AN D IF INTEREST FREE LOANS HAVE BEEN ADVANCED TO SISTER CONCERN FOR NON BUSINESS PURPOSE THAN THE INTEREST RELATING TO THE EXTENT OF INTEREST FREE LOANS IS TO BE DISALLOWED WHILE COMPUTING THE INCOME OF APPELLANT. 6. IT WAS ARGUED BY THE LD. CIT D.R. THAT IN RESPECT OF TOTAL ADVANCE OF RS. 35.32 CRORES, THE ASSESSEE WAS UNABLE TO FURNISH REASONS AND PURPOSE OF ADVANCE, WHEREAS THE CIT(A) HAS CONSIDERED THE ADVANCE OF RS. 60,92,226/- ONLY, WHILE DELETING THE DISALLOWANCE OF INTEREST ON THE PLEA T HAT THE ASSESSEE HAS DULY RECEIVED INTEREST ON THESE ADVANC ES. THE LD. CIT DR ALSO ARGUED THAT THE CIT(A) HAS VIOLATED RUL E 46A BY ACCEPTING ADDITIONAL EVIDENCE WHILE DELETING THE DI SALLOWANCE OF INTEREST. -: 7: - 7 7. ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTATIV E DREW OUR ATTENTION TO THE ANNEXURE A FORMING PART O F THE ASSESSMENT ORDER, WHEREIN THE AO HAS DISCUSSED DISA LLOWANCE OF INTEREST WITH RESPECT TO VARIOUS CREDITORS HAVIN G TOTAL OUTSTANDING OF RS. 60,92,226/-. HE FURTHER SUBMITTE D THAT THE ASSESSEE WAS ALREADY IN RECEIPT OF INTEREST ON THES E ADVANCES, WHICH IS CLEAR FROM THE STATEMENT OF ACCOUNT IN RES PECT OF THESE ADVANCES FURNISHED BEFORE THE LOWER AUTHORITI ES. HE FURTHER OBSERVED THAT ONLY DISALLOWANCE WAS WARRANT ED IN RESPECT OF ADVANCE TO M/S. CARGO COMPANY, SHRI BHAT IYA SANSKRITI SANSTHAN AND KOPRAN PHARMACEUTICALS. AS P ER LD. AUTHORIZED REPRESENTATIVE, AFTER CALCULATING INTERE ST ON LOANS AND ADVANCE AS PER THE DURATION OF THE LOAN GIVEN, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE. HE FURTHER SUB MITTED THAT DUE INTEREST WAS RECEIVED EVEN IN RESPECT OF THESE PARTIES IN THE SUBSEQUENT YEARS AND THE SAME HAVE BEEN ACCOUNT ED FOR AS INCOME, THEREFORE, WHATEVER ADDITION IS SUSTAINE D BY THE LD. CIT(A) IS ALSO DESERVES TO BE DELETED OR REQUIRED T O BE ADJUSTED IN THE NEXT YEAR WHEN INTEREST INCOME WAS DULY OFFE RED. -: 8: - 8 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT THERE WERE TOTAL CREDITORS OF RS. 35.32 CRORES IN ASSESSEES BOOKS OF ACCOUNT, OUT OF WHICH AO FOU ND THAT THE ASSESSEE HAD GIVEN ADVANCE TO THE SISTER CONCERN/AS SOCIATE CONCERN WITHOUT CHARGING INTEREST IN RESPECT OF CRE DITORS AMOUNTING TO RS. 13.11 CRORES. SEPARATE ANNEXURES F OR THESE ADVANCES WERE PREPARED BY THE ASSESSING OFFICER, WH ICH WAS FORMING PART OF ASSESSMENT ORDER IN THE FORM OF ANN EXURE A. BY APPLYING INTEREST RATE OF 12 % ON THESE ADVANCES OF RS. 13.11 CRORES, THE AO HAS DISALLOWED INTEREST OF RS. 60,92,226/-. THE LD. CIT(A) HAS DULY CONSIDERED ALL THESE ADVANCES AND IT WAS FOUND THAT THE ASSESSEE HAS DUL Y CHARGED INTEREST OF RS. 37,79,233/- AND OFFERED THE SAME IN THE BOOKS OF ACCOUNT. ONLY IN RESPECT OF THREE PARTIES STATED ABOVE, IT WAS OBSERVED BY THE LD. CIT(A) THAT ADVANCE WAS GIVEN T O KOPRAN PHARMACEUTICALS ON 31.3.2005 AGAINST DELIVERY OF AR TICLES IN THE SUBSEQUENT YEAR. COPY OF LEDGER ACCOUNT WAS FUR NISHED. IT WAS ALSO FOUND THAT THE ADVANCE OF RS. 9 LAKHS WAS GIVEN TO CARGO CO.LIMITED DURING THE FAG END OF THE RELEVANT YEAR AND -: 9: - 9 INTEREST OF RS. 24,177/- HAS BEEN CHARGED FOR IN TH E NEXT YEAR. IN RESPECT OF ADVANCE GIVEN TO SHRI BHARTIYA SANSKR ITI SANSTHAN, IT WAS OBSERVED THAT ADVANCE OF RS. 50 LA KHS WAS GIVEN DURING THE YEAR AGAINST LAND AND EXPENSES. TH E NATURE AND PURPOSE OF LOAN GIVEN HAS NOT BEEN SPECIFIED BE FORE THE AO. THEREFORE, THE CIT(A) HAS SUITABLY WORKED OUT I NTEREST ON THESE ADVANCES ON THE BASIS OF PERIOD FOR WHICH LOA N WAS OUTSTANDING DURING THE YEAR AND SUSTAINED THE ADDI TION TO THE EXTENT OF RS. 2,52,000/-. THE FINDINGS RECORDED BY THE LD. CIT(A) HAS NOT BEEN CONTROVERTED BY THE LD. CIT DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. WE ALSO DO NOT FIN D ANY DOCUMENTS HAVING BEEN ACCEPTED BY THE LD. CIT(A) WH ILE DELETING THE DISALLOWANCE, THUS, THERE WAS NO VIOLA TION OF RULE 46A. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN T HE ORDER OF THE LD. CIT(A) FOR DELETING ADDITION OF RS. 58,40,2 26/- OUT OF DISALLOWANCE OF INTEREST OF RS. 60,92,226/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOAN GIVEN WITHOUT CHARGING ANY INTEREST. -: 10: - 10 9. NEXT GRIEVANCE OF THE REVENUE RELATES TO ADDITION O F RS. 1,74,27,588/- AS DEEMED DIVIDEND U/S 2(22)(E) OF TH E INCOME- TAX ACT, 1961. 10. THE LD. AO HAS ADDED RS. 1,74,27,588/- TO THE TOTA L INCOME OF THE ASSESSEE AS DEEMED DIVIDEND U/S 2(22) (E) OF THE ACT. WHILE MAKING AN ADDITION OF DEEMED DIVIDEND U/ S 2(22)(E), THE AO HAS MADE THE FOLLOWING OBSERVATION S IN THE ASSESSMENT ORDER :- DURING THE ASSESSMENT YEAR THE COMPANY HAS SHOWN UNSECURED LOANS FROM BODIES CORPORATE AT RS. 6,37,01,913/- AS ON 31.3.2005. THE LOANS AND ADVANCES OF RS. 6,37,01,913/- INCLUDE LOAN TAKEN FROM THE SISTER COMPANY BHASKAR MULTINET LTD. THE COPY OF ACCOUNT OF ASSESSEE IN THE BOOKS OF BHASKAR MULTINET LIMITED SHOWS TOTAL ADDITION OF RS. 54,03,93,819/- DURING THE ASSESSMENT YEAR. ONE OF THE SHAREHOLDERS OF M/S. BHASKAR MULTINET IS SHRI R. C. AGARWAL HOLDING 10 % SHARES ( AS PER REP LY OF ASSESSEE PLACED AT ANNEXURE B TO HIS ORDER) IN THAT COMPANY DURING ASSESSMENT YEAR 2005-06. SHRI -: 11: - 11 R. C. AGARWAL IS ALSO SHAREHOLDER HOLDING 20 % SHAREHOLDING IN ASSESSEE COMPANY AS PER REPLY FILED BY ASSESSEE PLACED AT ANNEXURE-C TO THIS ORDER. THEREFORE, LOAN GIVEN BY MULTINET TO ASSESSEE COMPANY IS TAXABLE AS DEEMED DIVIDEND TO THE EXTENT OF ACCUMULATED PROFITS OF MULTINET. ANNEXURE C WHIC H ARE RS. 1,74,27,588/- AS PER BALANCE SHEET OF MULTINET PLACED AT ANNEXURE D TO THIS ORDER. THE AMOUNT OF RS. 1,74,27,588/- IS TAXED AS DEEMED DIVIDEND U/S 2(22)(E). 11. BY THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION MADE U/S 2(22)(E) OF THE ACT AFTER HAVING THE FOLLOWING OBSERVATIONS :- I HAVE GONE THROUGH THE FACTS OF THE CASE, THE SUBMISSION OFFERED BY THE LD. AUTHORIZED REPRESENTATIVE OF THE APPELLANT, CASE LAWS CITED BY HIM AND SUPPORTING EVIDENCES FILED DURING THE APPELLATE PROCEEDINGS. IT IS SEEN THAT THE AO WHILE MAKING AN ADDITION OF RS. 1,74,27,588/- U/S 2(22)(E ) OF THE INCOME-TAX ACT, 1961, HAS STATED THAT THE -: 12: - 12 APPELLANT DURING THE YEAR HAS TAKEN LOAN OF RS. 54,03,93,819/- FROM M/S BHASKAR MULTINET LIMITED. IT WAS OBSERVED THAT MR. R. C. AGARWAL HAD 10% SHAREHOLDING IN M/S. BHASKAR MULTINET LIMITED AND 20% SHAREHOLDING IN THE APPELLANT COMPANY. THE AO CONCLUDED THAT IN VIEW OF THE ABOVE FACTS LOAN GIVE N BY M/S. BHASKAR MULTINET LIMITED TO THE APPELLANT COMPANY IS TAXABLE AS DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT U/S 2(22)(E). THE AMOUNT OF RS. 1,74,27,588/- WAS THUS ADDED REPRESENTING ACCUMULATED PROFITS OF M/S. BHASKAR MULTINET LIMITED. THE LEARNED COUNSEL OF THE APPELLANT DISPUTED THE ADDITION MADE BY THE ASSESSING OFFICE R AND VEHEMENTLY ARGUED THAT THE ADDITION IS WRONG BOTH ON GROUND OF FACTS AND LAW. FROM THE PLAIN READING OF THE SECTION 2(22)(E), THE FIRST AND FOREMOST CONDITION WHICH IS TO BE SEEN FO R THE APPLICABILITY OF THIS SECTION IS PAYMENT OF LOA NS AND ADVANCES BY A COMPANY TO A SHAREHOLDER. THE WORD PAYMENT DENOTES ACTUAL FLOW OF FUND AND NOT -: 13: - 13 NOTIONAL ENTRIES BY WAY OF TRANSFER OR OTHERWISE. I N THE INSTANT CASE ALL THE ENTRIES WHICH HAVE BEEN PASSED BY THE APPELLANT IS IN THE NATURE OF TRANSFE R ENTRIES EXCEPT RS. 5,00,000/- WHICH IS ACTUALLY REPAYMENT OF LOAN BY CHEQUES TO THE APPELLANT AND NOT A LOAN TAKEN FROM M/S. BHASKAR MULTINET LIMITED . RELIANCE IN THIS REGARD IS PLACED IN THE CASE OF G. R. GOVINDARAJULU NAIDU VS. CIT, (1973) 90 ITR (MAD) WHEREIN IT HAS BEEN HELD THAT THE WORDS PAYMENT BY WAY OF LOAN AND ADVANCE EMPLOYED IN SECTION 2(22)(E) MEANS OUTGOING OR OUTFLOW OF MONEY FROM TH E COMPANY TO THE SHAREHOLDER SO AS TO ATTRACT SUCH PROVISION AND A NOTIONAL PAYMENT BY WAY OF BOOK ENTRIES WILL NOT BE INCLUDED. IN THE INSTANT CASE T HERE IS NO FLOW OF FUND FROM M/S. BHASKAR MULTINET LIMITED TO THE APPELLANT COMPANY. THE SECOND CONDITION LAID DOWN IN SECTION 2(22)(E) IS PAYMENT OF ADVANCE OR LOAN TO A SHAREHOLDER. IT HAS BEEN EXPLAINED BY THE A. R. THAT THE APPELLANT HAD A DEBIT BALANCE OF RS. 2,31,55,377/- WITH M/S. -: 14: - 14 BHASKAR MULTINET LIMITED ON 30.03.2005 OUT OF WHICH RS. 5,00,000/- WAS RETURNED BY CHEQUES DURING THE YEAR. IT WAS IN PURSUANCE OF THE PROPOSAL FOR DEMERGER OF ASSESSEES NEWSPAPER BUSINESS WITH ASSOCIATE CONCERN M/S. D. B. CORP. THAT THE TRANSFE R ENTRIES WERE PASSED WHICH RESULTED IN CREDIT BALANC E OF RS. 2,88,01,913/-. THE PASSING OF THESE ENTRIES BY THE APPELLANT IN VIEW OF THE PROPOSED DEMERGER WHIC H WAS CONSEQUENTLY APPROVED BY THE GUJARAT HIGH COURT CANNOT BE TREATED AS LOAN OR ADVANCE FOR THE PURPOSE OF SECTION. 2(22)(E) BECAUSE THE SECTION TA LKS OF ACTUAL PAYMENT AND NOT NOTIONAL PAYMENT BY WAY OF TRANSFER ENTRIES. ON THIS COUNT ALSO SECTION 2(2 2)(E) IS NOT APPLICABLE TO THE PRESENT CASE. THE OTHER IMPORTANT CRITERION WHICH IS TO BE TAKEN IN TO CONSIDERATION WHILE DECIDING THE ISSUE IS ADVANC E OR LOANS TO A SHAREHOLDER. THE SPECIAL BENCH OF I.T.A.T., MUMBAI IN THE CASE OF ACIT VS. BHAUMIK COLOUR HAS AFFIRMED THE RATIO LAID DOWN IN THE CASE OF CIT VS. HOTEL HILLTOP REPORTED IN 217 CTR 327 (RAJ) -: 15: - 15 THAT DEEMED DIVIDEND CAN BE TAXED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT A PERSON OTHER THAN A SHAREHOLDER. IN THE CASE OF BHAUMIK COLOUR IT HAS BEEN ALSO CLARIFIED THAT A DEEMED DIVIDEND IS APPLICABLE ONLY WHEN LOAN OR ADVANCE HAS BEEN GIVEN TO A PERSON WHO IS NOT ONLY A REGISTERED SHAREHOLDER BUT ALSO A BENEFICIAL SHAREHOLDER. HENCE, BOTH THE CONDITIONS ARE TO BE CUMULATIVELY SATISFIED FOR TAXING THE LOA N AND ADVANCES AS DEEMED DIVIDEND U/S 2(22)(E). IN THE PRESENT CASE, THE APPELLANT COMPANY IS NOT A SHAREHOLDER OF M/S. BHASKAR MULTINET LIMITED AND HENCE TRANSACTIONS BETWEEN THE TWO COMPANIES WILL NOT FALL WITHIN THE AMBIT OF SECTION 2(22)(E). FURT HER, IN THE CASE OF ANKITECH PVT.LTD. VS. JCIT I.T.A.NO. 388/DEL/2007, IT IS HELD THAT DEEMED DIVIDEND CANNOT BE ASSESSED IN THE HANDS OF A NONE SHAREHOLDER AS PRIMARY REQUIREMENT FOR DIVIDEND T O BE RECEIVED RESTS WITH A SHAREHOLDER AND NONE ELSE. -: 16: - 16 THE AO IN THE ASSESSMENT ORDER HAS ADDED RS. 1,74,27,588/- AS DEEMED DIVIDEND U/S 2(22)(E) IN TH E HANDS OF THE APPELLANT REPRESENTING THE RESERVE & SURPLUS OF M/S. BHASKAR MULTINET LIMITED AS ON 31.3.2005 DUE TO THE REASON THAT MR. R. C. AGARWAL IS A MAJOR SHAREHOLDER IN BOTH THE COMPANIES AND IN TURN BECOMES THE BENEFICIAL SHAREHOLDER OF THE COMPANY GIVING SUCH LOAN OR ADVANCE. IN THIS CONTEX T, THE A. R. OF THE APPELLANT HAS SUBMITTED THAT MR. R . C. AGARWAL BECOME A MAJOR SHAREHOLDER IN BOTH THE COMPANIES ON 31.03.2005 AND NOT BEFORE THAT WHEN THE RELEVANT ENTRIES WERE PASSED IN VIEW OF THE PROPOSED DEMERGER OF GROUP ENTITIES. IN OTHER WORDS , ONLY PAYMENTS MADE ON OR AFTER 1.4.2005 CAN BE CONSIDERED FOR APPLICABILITY OF SECTION 2(22)(E). E VEN OTHERWISE NO PAYMENTS ARE POSSIBLE OR MADE BECAUSE SHARES WERE ALLOTTED TO MR. R. C. AGRAWAL O N 31.3.2005. IN THE INSTANT CASE ALL THE JOURNAL ENTR IES HAVE BEEN PASSED ON 31.3.2005 AND THEREFORE THE -: 17: - 17 PROVISIONS OF SECTION 2(22)(E) IS NOT APPLICABLE IN THE YEAR UNDER APPEAL. FROM THE ABOVE FACTS AND CIRCUMSTANCES, IT IS VERY CLEAR THAT THE CASE OF THE APPELLANT DOES NOT FALL WITHIN THE AMBIT OF THE DEEMING PROVISIONS OF SECTI ON 2(22)(E) OF THE I. T. ACT.1961, AND THEREFORE THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS. 1,74,27,588/- IS HEREBY DELETED. THIS GROUND OF THE APPELLANT IS ALLOWED. 12. AGGRIEVED BY THE ABOVE ORDER, THE REVENUE IS IN FURTHER APPEAL BEFORE US. IT WAS CONTENDED BY THE L D. CIT DR THAT AMOUNT PAYABLE BY THE ASSESSEE DUE TO ADJUSTME NT ENTRY PASSED ON AMALGAMATION OF ASSESSEE COMPANY WITH BHA SKAR GRAPHIC AND PRINTING ARTS LIMITED, WHEREIN ONE OF T HE DIRECTORS OF THE ASSESSEE COMPANY HAVING SUBSTANTIA L INTEREST, AMOUNTS TO LOANS AND ADVANCES GIVEN BY BHASKAR GRAP HICS AND PRINTING ARTS LIMITED TO THE ASSESSEE COMPANY. AS PER LD. CIT DR, IT IS NOT NECESSARY THAT EVERY LOAN AND ADV ANCE SHOULD BE GIVEN BY CHEQUES OR CASH, EVEN THE ADJUSTMENT EN TRY PASSED DUE TO WHICH ASSESSEE HAVE SOME CREDIT BALAN CE, THE -: 18: - 18 SAME AMOUNTS TO LOAN AND ADVANCES IN THE HANDS OF T HE ASSESSEE COMPANY AND WHILE INVOKING PROVISIONS OF D EEMED DIVIDEND U/S 2(22)(E), SUCH ADJUSTMENT ENTRY CANNOT BE BRUSHED ASIDE TO HOLD THAT NO LOANS OR ADVANCES WAS GIVEN TO THE ASSESSEE COMPANY. 13. HE FURTHER SUBMITTED THAT AS PER THE CORRECT PROPOSITION OF LAW EVERY PAYMENT OF LOAN OR ADVANCE TO CONCERN WILL BE COVERED BY THE DEEMING PROVISIONS OF SECTIO N 2(22)(E), AND MERELY ON THE PLEA THAT THE ASSESSEE COMPANY WA S NOT A SHAREHOLDER OF LENDER COMPANY, THE AMOUNT SO RECEIV ED BY THE ASSESSEE COMPANY AS A LOAN CANNOT BE IGNORED ON THE PLEA OF DECISION OF I.T.A.T., SPECIAL BENCH IN THE CASE OF BHAUMUK COLOUR LAB. THE LD. CIT DR ALSO PLACED ON RECORD RE CENT DECISION OF DELHI HIGH COURT DATED 25.4.2011 IN THE CASE OF NATIONAL TRAVELS SERVICES LIMITED, WHEREIN AFTER CO NSIDERING SECOND AND THIRD LIMB OF SECTION 2(22)(E), THE AMOU NT OF LOAN RECEIVED BY THE PARTNERSHIP FIRM, WHO IS NOT A SHAR EHOLDER OF THE LENDER COMPANY WAS BROUGHT IN THE MISCHIEF OF S ECTION 2(22)(E) OF THE ACT. THE LD. CIT DR FURTHER ELABORA TED THE PROPOSITION LAID DOWN IN THIS CASE AND SUBMITTED TH AT EVEN -: 19: - 19 THOUGH THE PARTNERSHIP FIRM WAS NOT A SHAREHOLDER O F THE LENDER COMPANY AND ONLY ONE OF ITS PARTNER WAS SHAR EHOLDER OF THE LENDER COMPANY, THE HON'BLE DELHI HIGH COURT HE LD THAT SECTION 2(22)(E) WILL BE ATTRACTED IN RESPECT OF LO AN GIVEN TO THE PARTNERSHIP FIRM, NOTWITHSTANDING, THE FACT THAT TH E PARTNERSHIP FIRM WAS NOT SHAREHOLDER OF THE LENDER COMPANY. 14. ON THE OTHER HAND, IT WAS ARGUED BY THE LD. AUTHORI ZED REPRESENTATIVE THAT THE ASSESSEE COMPANY WAS NOT IN RECEIPT OF ANY LOANS AND ADVANCES FROM M/S. BHASKAR GRAPHIC AND PRINTING ARTS LIMITED, WHEREIN COMMON DIRECTOR OF T HE ASSESSEE COMPANY HAVING SUBSTANTIAL INTEREST, DUE T O SCHEME OF AMALGAMATION OF THE ASSESSEE COMPANY WITH M/S. B HASKAR GRAPHICS PRINTING ARTS LIMITED. THE AMOUNT WAS PAYA BLE BY ASSESSEE COMPANY ONLY DUE TO THE ADJUSTMENT ENTRY P ASSED BY THE ASSESSEE, WHICH CANNOT BE REGARDED AS LOANS OR ADVANCES RECEIVED BY THE ASSESSEE COMPANY SO AS TO BRING THE SAME WITHIN THE MISCHIEF OF SECTION 2(22)(E) OF THE INCO ME-TAX ACT, 1961. 15. RIVAL CONTENTIONS HAVE BEEN CONSIDERED AND RECORD PERUSED. IN THIS CASE, THE ASSESSEE COMPANY HAS MER GED WITH -: 20: - 20 M/S. BHASKAR GRAPHIC AND PRINTING ARTS LIMITED. DUE TO THIS MERGER, SAME ADJUSTMENT ENTRIES WERE PASSED DUE TO WHICH DEBIT BALANCE OF M/S. BHASKAR GRAPHIC PRINTING ARTS LIMITED IN ASSESSEES BOOKS OF ACCOUNT, TURNED TO BE IN CRE DIT BALANCE. THIS CREDIT BALANCE WAS TREATED BY THE ASSESSING OF FICER AS LOANS AND ADVANCES TO ASSESSEE COMPANY FROM M/S. BH ASKAR GRAPHIC AND PRINTING ARTS LIMITED. SINCE ONE OF THE DIRECTORS WAS HAVING SUBSTANTIAL INTEREST IN BOTH THE COMPANI ES, THE AO TREATED THE CREDIT BALANCE AS LOANS AND ADVANCES RE CEIVED BY THE ASSESSEE COMPANY WITHIN THE PURVIEW OF SECTION 2(22)(E). ACCORDINGLY, THE AO TREATED SUCH LOAN AS DEEMED DIV IDEND IN ASSESSEES HANDS. THE ORDER OF THE AO IS DEVOID OF ANY MERIT IN SO FAR AS THERE WAS NO ACTUAL GIVING OF ANY LOANS B Y CASH OR CHEQUES AND IT WAS ONLY DUE TO PASSING OF ADJUSTMEN T ENTRIES ON ACCOUNT OF AMALGAMATION THAT THE DEBIT BALANCE I N ASSESSEES BOOKS TURNED TO BE CREDIT BALANCE. EVEN THE SHAREHOLDING OF COMMON DIRECTOR WAS INCREASED ONLY ON 31 ST MARCH, 2005, AND PRIOR TO WHICH EVEN THE PROVISIONS OF SECTION 2(22)(E) WAS NOT APPLICABLE. FURTHER, ASSESSEE COMP ANY WAS NOT HAVING SHAREHOLDING IN BHASKAR GRAPHIC AND PRIN TING ARTS -: 21: - 21 LIMITED. IT IS ONLY ONE OF ITS DIRECTORS WAS HAVING SHAREHOLDING IN BHASKAR GRAPHIC PRINTING ARTS LIMITED. AS PER OU R CONSIDERED VIEW, SUCH CREDIT BALANCE IN ASSESSEES BOOKS OF ACCOUNT DUE TO THE ADJUSTMENT ENTRY PASSED ON AMALG AMATION DOES NOT AMOUNT TO RECEIVING OF ANY LOANS AND ADVAN CES BY THE ASSESSEE COMPANY. THE CREDIT BALANCE WAS CREATED TH ROUGH ADJUSTMENT ENTRY AND NOT BY ANY ACTUAL DELIVERY OF CASH OR CHEQUES. THE DEEMING PROVISIONS CANNOT BE EXTENDED TO BRING WITHIN ITS MISCHIEF SUCH ADJUSTMENT ENTRIES, WHEN N O ACTUAL LOANS OR ADVANCES WAS RECEIVED BY THE ASSESSEE COMP ANY. FURTHERMORE, IN VIEW OF THE DECISION OF I.T.A.T., S PECIAL BENCH IN THE CASE OF BHAUMIK COLOUR LAB (SUPRA), THE PROV ISIONS OF SECTION 2(22)(E) CAN BE ATTRACTED ONLY WHEN THE ASS ESSEE COMPANY IS REGISTERED AND BENEFICIAL OWNER OF SHARE S IN THE LENDER COMPANY. FURTHERMORE, IN THE CASE OF CIT VS. INDIAN TECHNOCRAFT LTD ,ITA NO. 352 OF 2011 ORDER DATED 11 TH MAY, 2011 THE HONBLE DELHI HIGH COURT BY CONSIDERING TH E DECISION OF C.P.SARATHY MUDALIAR 1972) 83 ITR 170 AND RAMES HWARLAL SANWARMAL VS. CIT (1980) 122 ITR 1 (SC) HELD AS UND ER:- PAGE 46 PARA 22 -: 22: - 22 IT IS THUS CLEAR FROM THE AFORESAID PRONOUNCEMENT OF THE HONBLE SUPREME COURT THAT TO ATTRACT THE FIRST LIMB OF THE PROVISIONS OF SECTION 2 (22) (E) THE PAYMENT MUST BE TO A PERSON WHO IS A REGISTERED HOLDER OF SHARES. AS ALREADY MENTIONED THE CONDITION UNDER THE 1922 ACT AND THE 1961 ACT REGARDING THE PAYEE BEING A SHAREHOLDER REMAINS THE SAME AND IT IS THE CONDITION UNDER THAT SUCH SHAREHOLDER SHOULD BE BENEFICIAL OWNER OF THE SHARES AND THE PERCENTAGE OF VOTING POWER THAT SUCH SHAREHOLDER SHOULD HOLD THAT HAS BEEN PRESCRIBED AS AN ADDITIONAL CONDITION UNDER THE 1961 ACT. THE WORD SHAREHOLDER ALONE EXISTED IN THE DEFINITION OF DIVIDEND IN THE 1922 ACT. THE EXPRESSION SHAREHOLDER HAS BEEN INTERPRETED UNDER THE 1922 ACT TO MEAN A REGISTERED SHAREHOLDER. THIS EXPRESSION SHAREHOLDER FOUND IN THE 1961 ACT HAS TO BE THEREFORE CONSTRUED AS APPLYING ONLY TO REGISTERED SHAREHOLDER. IT IS A PRINCIPLE OF -: 23: - 23 INTERPRETATION OF STATUTES THAT WHERE ONCE CERTAIN WORDS IN AN ACT HAVE RECEIVED A JUDICIAL CONSTRUCTION IN ONE OF THE SUPERIOR COURTS, AND THE LEGISLATURE HAS REPEATED THEM IN A SUBSEQUENT STATUTE, THE LEGISLATURE MUST BE TAKEN TO HAVE USED THEM ACCORDING TO THE MEANING WHICH A COURT OF COMPETENT JURISDICTION HAS GIVEN THEM. PAGE 46 PARA 23 IN THE 1961 ACT, THE WORD SHAREHOLDER IS FOLLOWED BY THE FOLLOWING WORDS BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES. THIS EXPRESSION USED IN SECTION 2 (22)(E) , BOTH IN THE 1961 ACT AND IN THE AMENDED PROVISIONS W.E.F. 1 ST APRIL ,1968 ONLY QUALIFIES THE WORD SHAREHOLDER AND DOES NOT IN ANY WAY ALTER THE POSITION THAT THE SHAREHOLDER HAS TO BE A REGISTERED SHAREHOLDER. THESE PROVISIONS ALSO DO NOT SUBSTITUTE THE AFORESAID REQUIREMENT TO A REQUIREMENT OF MERELY HOLDING A BENEFICIAL INTEREST IN THE SHARES WITHOUT BEING A REGISTERED -: 24: - 24 HOLDER OF SHARES. THE EXPRESSION BEING IS A PRESENT PARTICIPLE. A PARTICIPLE IS A WORD WHICH IS PARTLY A VERB AND PARTLY AN ADJECTIVE. IN SECTION 2(22) (E) , THE PRESENT PARTICIPLE BEING IS USED TO DESCRIBED THE NOUN SHAREHOLDER LIKE AN ADJECTIVE. THE EXPRESSION BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES IS THEREFORE A FURTHER REQUIREMENT BEFORE A SHAREHOLDER CAN BE SAID TO FALL WITHIN THE PARAMETERS OF SECTION 2 (22) (E) OF THE ACT. IN THE 1961 ACT, SECTION HAS ALSO TO BE BENEFICIAL OWNER OF SHARES ( NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POWER. IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT UNDER THE 1961 ACT THERE IS NO REQUIREMENT OF A SHAREHOLDER BEING A REGISTERED HOLDER AND -: 25: - 25 THAT EVEN A BENEFICIAL OWNERSHIP OF SHARES WOULD BE SUFFICIENT. PAGE 47 PARA 24 THE EXPRESSION SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES REFERRED TO IN THE FIRST LIMB OF SECTION 2(22) (E) REFERS TO BOTH A REGISTERED SHAREHOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHARES HOLDER BUT NOT HE BENEFICIAL THEN THE PROVISION OF SECTION 2(22) (E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENEFICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN ALSO THE FIRST LIMB OF PROVISIONS OF SECTION 2 (22) (E) WILL NOT APPLY . PAGE 47 PARA 46 IN VIEW OF THE ABOVE, THIS APPEAL IS ALSO DISMISSED. A XEROX COPY OF THE ORDER IS ENCLOSED HEREWITH. RELIANCE IS ALSO PLACED ON THE FOLLOWING DECISION S:- (I) ACIT VS. BHAUMIK COLOUR P.LTD (2009) 313 ITR (A.T) 146 (MUMBAI) (SB). -: 26: - 26 (II) JCIT VS. KUNAL ORGANICS (P) LTD. 164 TAXMAN 169 (AHD.) THUS EVEN WITH THE CHANGE IN THE DEFINITION UNDER THE CURRENT PROVISIONS OF THE INCOME-TAX ACT, 1961, WHE REIN THE DEFINITION OF DEEMED DIVIDEND IS APPLICABLE TO LOAN OR ADVANCE GIVEN TO A REGISTERED AND A BENEFICIAL SHAREHOLDER, THE AFOREMENTIONED DECISION OF THE SUPREME COURT IN T HE CASE OF RAMESHWARLAL SANWARMAL (SUPRA) IS NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. (II). SAI NARAYAN ROW (SUPRA) THIS CASE DEALS WITH THE REFUND OF THE ILLEGAL LEV Y OF TAXES AND THUS HAS FACTS WHICH ARE MATERIALLY DIFFERENT FROM THE PRESENT FACTS AND THUS THE SAME CANNOT BE MADE APPL ICABLE. 16. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE ADDITION MADE ON A CCOUNT OF DEEMED DIVIDEND U/S 2(22)(E) OF THE INCOME-TAX ACT, 1961. -: 27: - 27 17. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 21 ST OCTOBER, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 21 ST OCTOBER, 2011. CPU* 1821