Appeal Details
Counselvise Citation
[2009] 114 COUNSELVISE.COM (IT) 9503 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 month(s) 30 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-09-2009
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
27-08-2009
Assessment Year
2004-2005
Appeal Filed On
12-05-2009
Judgement Text
ITA.521/BANG/09 PAG E - 1 IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI. K. P. T. THANGAL, VICE PRESIDENT AND SHRI. K. K. GUPTA, ACCOUNTANT MEMBER I.T.A.NO.521/BANG/2009 (ASSESSMENT YEAR : 2004-05) SHRI. BASANT PODDAR, NO.487, 10 TH CROSS, RMV EXTENSION, SADASHIVNAGAR, BANGALORE 560 080 .. APPELLANT V. DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE -1(1), BANGALORE .. RESPONDENT APPELLANT BY : SHRI. K. P. DIWANE/SHRI. P. TIWARI RESPONDENT BY : SHRI. JASON P. BOAZ O R D E R PER K. P. T THANGAL, VICE PRESIDENT : THE APPEAL FILED BY THE ASSESSEE IS IN RESPECT OF ORDER PASSED BY CIT(A) ON 03/03/2009, FOR THE ASSESSMENT YEAR 2004 -05. 2. VIDE GROUND NO. 1 IN THE APPEAL OF ASSESSEE THE ADDITION MADE BY ASSESSING OFFICER U/S 2(22)(E) OF I.T. ACT 1961 AND CONFIRMED BY COMMISSIONER OF INCOME-TAX(A) IS CHALLENGED. THE A SSESSING OFFICER HAS DISCUSSED THE ADDITION AT PARA 8 TO 24 ON PAGE 3 TO 12 OF ITA.521/BANG/09 PAGE - 2 THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS OB SERVED THAT ASSESSEE IS HAVING SUBSTANTIAL INTEREST IN MINERAL ENTERPRISE LTD. (HEREINAFTER REFERRED TO AS MEL FOR SHORT). THE ASSESSEE IS HAVING SUBSTANTIAL SHARE HOLDING OF MORE THAN 10% AND COMP ANY HAS SUFFICIENT ACCUMULATED PROFIT. THE ASSESSING OFFIC ER HAS OBSERVED THAT MEL HAS ADVANCED LOAN OF RS. 11.05 CRORES TO A COMPANY KNOWN AS SOLID REAL ESTATE PVT. LTD., (HEREINAFTER REFERRED TO SREL FOR SHORT). THE ASSESSING OFFICER HAS FURTHER OBS ERVED THAT AMOUNT ADVANCED BY THE COMPANY TO SREL HAS BEEN GIVEN AS LOAN TO SMT. VANDANA PODDAR WHO IS THE WIFE OF THE ASSESSEE. TH E ASSESSING OFFICER HAS HELD THAT LOAN GIVEN TO SMT. VANDANA PO DDAR IS FOR THE BENEFIT OF THE ASSESSEE AND ACCORDINGLY HE HAS MADE ADDITION OF RS.11.05 CRORES AT THE HANDS OF ASSESSEE U/S 2(22)( E) OF INCOME TAX ACT 1961. THE ASSESSING OFFICER IN THE CASE OF SM T. VANDANA PODDAR HAS MADE THE ADDITION OF THE SAME AMOUNT ON PROTECTIVE BASIS. THE ASSESSING OFFICER HAS REFERRED TO THE DECISION OF APEX COURT REPORTED AT 229 ITR 444 (S.C.) IN THE CASE OF MS. P . SARADA VS CIT. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CO MMISSIONER OF INCOME-TAX (A) BANGALORE. THE DETAILED WRITTEN SUB MISSIONS WERE MADE BEFORE COMMISSIONER OF INCOME-TAX (A) WHICH HA S BEEN REPRODUCED IN APPELLATE ORDER. THE COMMISSIONER OF INCOME-TAX (A) ITA.521/BANG/09 PAGE - 3 AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE REFER RED TO TWO DECISIONS OF THE APEX COURT REPORTED AT 252 ITR 893 (SC) IN THE CASE OF L. ALAGU SUNDARAM CHETTIAR VS CIT AND 290 ITR 4 33 (S.C.) IN THE CASE OF CIT VS. MUKUNDRAY K. SHAH. THE COMMISSIO NER OF INCOME- TAX (A) ACCORDINGLY UPHELD ADDITION AS MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS.10.80 CRORES. THE COMMISSIONER OF INCOME-TAX (A) IN APPEAL FILED AGAINST THE ORDER IN THE CASE O F SMT. VANDANA PODDAR HAS DELETED THE PROTECTIVE ADDITION MADE BY ASSESSING OFFICER. THE ORDER PASSED BY COMMISSIONER OF INCOME-TAX (A) IN THE CASE OF SMT. VANDANA PODDAR IS NOT UNDER CHALLENGE BY REVEN UE. 4. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT ADDITION AS MADE BY THE ASSESSING OFFICER IS UNJUST IFIED, UNWARRANTED AND BAD IN LAW. IT IS SUBMITTED THAT PROVISIONS OF SEC. 2(22)(E) OF INCOME TAX ACT, 1961 BRINGS FICTION OF DEEMED DIVID END INCOME. THE PROVISIONS ARE TO BE CONSTRUED STRICTLY. RELIA NCE FOR THIS IS PLACED ON THE DECISION OF THE SUPREME COURT IN COMMISSION ER OF INCOME- TAX V. C. P. SARATHY MUDALIAR (1972) 83 ITR 170 (S .C.). IT IS SUBMITTED THAT ONUS TO SHOW THAT AMOUNT IS ASSESSAB LE AS DEEMED DIVIDEND INCOME IS ON THE REVENUE. THE INCOME CANN OT BE ASSESSED AS DEEMED DIVIDEND INCOME ON INFERENCES OR PRESUMPTION S. ITA.521/BANG/09 PAGE - 4 TRANSACTIONS HAVE STRICTLY TO BE IN THE NATURE OF L OANS OR ADVANCES SO AS TO ASSESS IT AS DEEMED DIVIDEND. IT IS SUBMITTE D THAT PAYMENT IS FOR THE INDIVIDUAL BENEFIT OR ON BEHALF OF THE SHARE HO LDER HAS TO BE ESTABLISHED BY REVENUE ON THE BASIS OF LEGAL EVIDEN CE ON RECORD AND CONCLUSION CANNOT BE DRAWN ON THE BASIS OF INFERENC ES AND PRESUMPTIONS. RELIANCE FOR THIS IS PLACED ON COMMIS SIONER OF INCOME-TAX V. P. V. JOHN REPORTED IN 181 ITR 1 (KE R.). THE ASSESSEE HAS NOT RECEIVED ANY DIRECT PAYMENT FROM COMPANY AS LOAN OR ADVANCE, NOR ANY PAYMENT IS MADE BY COMPANY FOR IND IVIDUAL BENEFIT OR ON BEHALF OF ASSESSEE. THUS PROVISIONS OF SEC. 2(22)(E) OF INCOME TAX ACT, 1961 ARE INAPPLICABLE. IT IS SUBMITTED TH AT CONDITION PRECEDENT FOR INVOKING PROVISIONS OF SEC. 2(22)(E) OF INCOME TAX ACT, 1961 IS ABSENT AND THUS ADDITION MADE AT THE H ANDS OF ASSESSEE IS UNSUSTAINABLE AND LIABLE TO BE DELETED. IT IS SUBM ITTED THAT IN THE COMPANY 'SREL' ASSESSEE IS NEITHER A SHARE HOLDER NOR A DIRECTOR AND HAS NO CONTROL OVER THE AFFAIRS OF COMPANY IN ANY MANNER. IT IS SUBMITTED THAT MEL HAD GIVEN INTER CORPORATE DEPOSI T TO SREL OF RS.11.05 CRORES AND HAS RECEIVED INTEREST ON SUCH D EPOSIT AND THE SAME HAS BEEN OFFERED TO TAX IN ITS RETURN AND IS A SSESSED BY THE SAME ASSESSING OFFICER. THE ASSESSING OFFICER AT PARA 24 HAS OBSERVED THAT THE AMOUNT OF RS.11.05 CRORES IS PAID BY MEL T O SMT. VANDANA ITA.521/BANG/09 PAGE - 5 PODDAR ON BEHALF OF ASSESSEE AND IT IS FOR A PERSON AL BENEFIT TO SHRI BASANT PODDAR AND AS SUCH IS LIABLE TO BE ASSESSED AS DEEMED DIVIDEND. THE OBSERVATION OF THE ASSESSING OFFICER IS FACTUALLY INCORRECT AS THERE IS NO EVIDENCE ON RECORD FOR SUC H OBSERVATION AND, THEREFORE, NO SUM IS ASSESSABLE U/S 2(22)(E) OF INC OME TAX ACT, 1961. IT IS SUBMITTED THAT BALANCE SHEET AND PROFIT & LOS S ACCOUNT OF SREL CLEARLY INDICATE THAT AMOUNT IS ADVANCED BY MEL ON INTEREST. THE REVENUE HAS ACCEPTED IN THE CASE OF SREL THAT INTER CORPORATE DEPOSIT RECEIVED FROM MEL IS GENUINE AND IN FACT HA S ALLOWED THE INTEREST PAYMENT AS DEDUCTION FOR DETERMINING THE T AX LIABILITY IN THE CASE OF SREL. ON THE ABOVE FACTS INTER CORPORATE D EPOSIT RECEIVED BY SREL CANNOT BE SAID TO BE FOR THE BENEFIT OF ASS ESSEE. IN THE CASE OF MEL, THE SAME ASSESSING OFFICER HAS ASSESSED THE INTEREST RECEIVED FROM SREL AS INCOME AND LEVIED TAX THEREUPON. THE VERY SAME ASSESSING OFFICER THUS COULD NOT HAVE REACHED TO A CONTRARY CONCLUSION THAT AMOUNT ADVANCED IS FOR THE BENEFIT OF SHRI BASANT PODDAR. THE CONCLUSION OF THE ASSESSING OFFICER IS THUS ARBITRARY AND UNJUSTIFIED. THE SAME ASSESSING OFFICER IN THE CA SE OF SMT. VANDANA PODDAR HAS ACCEPTED THE LOAN RECEIVED FROM SREL AS GENUINE. GENUINENESS OF THE TRANSACTION IS NOT DISPUTED. TH E SAME ASSESSING OFFICER COULD NOT HAVE COME TO CONTRARY CONCLUSION THAT IT IS NOT A ITA.521/BANG/09 PAGE - 6 LOAN RECEIVED BY SMT. VANDANA PODDAR FROM SREL BUT IT IS A PAYMENT RECEIVED BY HER WHICH IS FOR THE BENEFIT OF SHRI BASANT PODDAR. THE OBSERVATION OF THE ASSESSING OFFICER T HUS ARE APROBATE AND REPROBATE WHICH IS IMPERMISSIBLE. RELIANCE FOR THIS IS PLACED ON: (I) BOMBAY CLOTH SYNDICATE V. CIT(1995) 214 ITR 21 0 (BOM.) & (II) SURESH CHANDRA BHANSALI V. JCIT (2008) 115 TT J (JODPUR) 116. THERE IS NO EVIDENCE ON RECORD TO INDICATE THAT MEL HAS MADE ANY PAYMENT FOR THE BENEFIT OF SHRI BASANT PODDAR AND T HUS NO SUM IS ASSESSABLE U/S 2(22)(E) OF INCOME TAX ACT, 1961. T HE TRANSACTIONS OF LOAN BETWEEN MEL - SOLID REAL ESTATE PVT. LTD. AN D SMT. VANDANA PODDAR ARE THROUGH PROPER BANKING CHANNEL. GENUINE NESS OF TRANSACTION OF LOAN BETWEEN SUCH PERSONS IS NOT IN DISPUTE AND IN FACT REVENUE HAS ACCEPTED THE INTEREST INCOME AND INTERE ST EXPENDITURE IN THE ASSESSMENT FRAMED AT THE HANDS OF RESPECTIVE PE RSONS. 'APPARENT IS REAL' IS A SETTLED POSITION OF LAW. THE TRANSA CTIONS ARE INTER CORPORATE DEPOSIT AND LOAN TRANSACTIONS BETWEEN MEL / SREL / SMT. VANDANA PODDAR AS IS APPARENT FROM THE CORROBORATIV E EVIDENCE ON RECORD. ONUS IS ON THE REVENUE TO SHOW THAT APPARE NT IS NOT REAL. IN THE FACTS OF THE CASE OF ASSESSEE, THE ASSESSING OF FICER HAS NOT LED ANY EVIDENCE TO SHOW THAT APPARENT IS NOT REAL AND PAYM ENT IS MADE BY COMPANY FOR THE BENEFIT OF THE ASSESSEE. PERUSAL O F EXTRACTS OF LEDGER ITA.521/BANG/09 PAGE - 7 ACCOUNT OF SREL IN THE BOOKS OF SMT. VANDANA PODDAR INDICATES THAT MUCH BEFORE THE DATE OF SEARCH, THE LOAN WAS REPAID BY HER TO SREL. THIS CLEARLY DEMONSTRATES THAT AMOUNT RECEIVED AS L OAN BY HER IS NOT FOR THE BENEFIT OF SHRI BASANT PODDAR. THE NOTINGS AS REPRODUCED AT PARA 8 OF ASSESSMENT ORDER WERE EXPLAINED TO BE A M ERE PROPOSAL AND WAS NOT GIVEN EFFECT TO AT ALL. IN ANY CASE THE SE IZED DOCUMENT DOES NOT GIVE REFERENCE TO THE TRANSACTIONS BETWEEN MEL / SREL / SMT. VANDANA PODDAR. THE FIGURES AS FOUND ON LOOSE PAPE R ARE DIFFERENT FROM THE TRANSACTIONS AS FOUND NOTED IN THE REGULAR BOOKS OF ACCOUNT OF MEL / SREL / SMT. VANDANA PODDAR. THUS THE CONC LUSION OF THE ASSESSING OFFICER THAT TRANSACTION FOUND IN THE SEI ZED DOCUMENT RELATES TO TRANSACTION BETWEEN MEL / SREL / VANDANA PODDAR AS RECORDED IN BOOKS IS UNJUSTIFIED AND CONTRARY TO E VIDENCE ON RECORD. THE LOAN AMOUNT GIVEN BY MEL TO SREL IS IN DECEMBER 2003, JANUARY, 2004 AND FEBRUARY 2004. NOTINGS ON SEIZED DOCUMENT DOES NOT REFER TO SUCH TRANSACTIONS. THUS REFERENCE TO SUCH NOTINGS BY THE ASSESSING OFFICER IS MISPLACED AND UNJUSTIFIED. SM T. VANDANA PODDAR HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER ON T HE TRANSACTIONS BETWEEN MEL / SREL / SMT. VANDANA PODDAR. THE CONC LUSION OF THE ASSESSING OFFICER IS THUS ON CONJUNCTURES AND SURMI SES AND IS UNSUSTAINABLE. THE TRANSACTIONS BY COMPANY MEL ARE BUSINESS ITA.521/BANG/09 PAGE - 8 TRANSACTIONS AS IS APPARENT FROM CORROBORATIVE EVID ENCE ON RECORD. THE ASSESSEE HAS NOT RECEIVED ANY MONEY FROM COMPAN Y MEL OR ANY BODY ELSE. ONUS IS ON THE REVENUE TO SHOW THAT APP ARENT IS NOT REAL. IN THE FACTS OF THE CASE OF ASSESSEE, THE ASSESSIN G OFFICER HAS NOT LED ANY EVIDENCE TO SHOW THAT APPARENT IS NOT REAL. T HE DECISION OF APEX COURT REPORTED AT 229 ITR 444 (S.C.) IN THE CASE OF SMT. P. SARADA RELIED UPON BY THE ASSESSING OFFICER IS INAPPLICABL E TO THE FACTS IN THE CASE OF ASSESSEE. IN THE FACTS OF THE SAID CASE TH ERE WAS A DIRECT LOAN TO SHARE HOLDER WHICH WAS SQUARED UP BEFORE THE AC COUNTING YEAR. ON THE ABOVE FACTS IT WAS HELD THAT INITIAL LOAN/AD VANCE WAS ASSESSABLE U/S 2(22)(E). IN THE FACTS OF THE PRESENT CASE ASS ESSEE HAS NOT RECEIVED ANY LOAN OR ADVANCE FROM COMPANY MEL. THE LEARNED COMMISSIONER OF INCOME-TAX (A) HAS PLACED RELIANCE ON TWO DECISI ONS OF APEX COURT WHICH ARE ALSO INAPPLICABLE TO THE FACTS IN THE CAS E OF ASSESSEE. CONSIDERING THE ABOVE RELIANCE BY COMMISSIONER OF I NCOME-TAX (A) ON THE ABOVE DECISIONS TO THE FACTS IN THE CASE OF ASSESSEE WHICH ARE DISTINGUISHABLE IS MISPLACED AND NOT JUSTIFIED. TH E NOTINGS ON THE SEIZED DOCUMENTS REFERRED TO IN ASSESSMENT ORDER AT PARA 8 AS EXPLAINED BY ASSESSEE TO BE A MERE PROPOSAL AND WAS NOT GIVEN EFFECT TO GETS CORROBORATED FROM THE BOOKS OF ACCOUNTS ACC EPTED IN THE CASE OF ASSESSEE AND SMT. VANDANA PODDAR BY THE SAME ASS ESSING OFFICER. ITA.521/BANG/09 PAGE - 9 IN SEARCH NO CORROBORATIVE EVIDENCE IS FOUND TO SUP PORT THE NOTINGS FOUND ON THE LOOSE PAPER. IN VIEW OF THIS NOTHING ADVERSE CAN BE DRAWN FROM THE LOOSE PAPER. TRANSACTION BETWEEN ME L / SREL ARE BUSINESS TRANSACTION AND PROVISIONS OF SEC. 2(22)(E ) ARE INAPPLICABLE TO BUSINESS TRANSACTIONS RELIANCE FOR THIS IS PL ACED ON THE FOLLOWING DECISIONS : (I) 220 CTR (DEL.) 475 CIT VS. AMBASSADOR TRAV ELS (P) LTD., (II) 11 SOT 302 (MUM.) N.H. SECURITIES LTD. VS. DY. CIT AND (III) 122 ITR 405 (CAL.) NANDLAL KANORIA V. CIT THE DECISION OF HONBLE CALCUTTA HIGH COURT REPORTE D AT 122 ITR 405 WAS CONSIDERED BY APEX COURT IN THE CASE OF CIT VS. MUKUNDRAY K. SHAH REPORTED AT 290 ITR 433 (SC). THE HONBLE CAL CUTTA HIGH COURT HAS OBSERVED THAT THE THEORY OF AN INDIRECT L OAN OR ADVANCE WHICH HAS BEEN URGED ON BEHALF OF REVENUE IS DIFFIC ULT TO CONCEIVE. IT IS SUBMITTED THAT TRANSACTION BETWEEN MEL AND SREL ARE INTER CORPORATE DEPOSITS. THE INTER CORPORATE DEPOSITS R ECEIVED BY SREL CAN NOT BE CONSIDERED FOR THE PURPOSE OF INVOKING D EEMED DIVIDEND U/S 2(22)(E) OF I.T. ACT 1961. THE ASSESSEE'S COUN SEL FOR THIS PROPOSITION, PLACED RELIANCE ON THE RECENT DECISION OF ITAT MUMBAI, H BENCH IN THE CASE OF BOMBAY OIL IND. LTD. VS DC IT IN ITA NO. 2895/N/2005 VIDE ORDER DATED 22/01/2009 REPORTED AT 28 SOT 383 ITA.521/BANG/09 PAGE - 10 (MUM). IT IS SUBMITTED THAT IT IS AN UNDISPUTED F ACT ON RECORD THAT SREL HAS RECEIVED INTER CORPORATE DEPOSIT FROM MEL WHICH ONWARD HAS BEEN UTILIZED FOR GIVING LOAN ON INTEREST TO SM T. VANDANA PODDAR. THE UTILIZATION OF INTER CORPORATE DEPOSIT BY SREL CAN NOT BE ASSESSED U/S 2(22)(E) OF I.T. ACT 1961 AS DEEMED IN COME. IT IS SUBMITTED THAT SUBMISSION BEFORE THE COMMISSIONER O F INCOME-TAX(A) THAT TRANSACTION BETWEEN MEL/SREL IS COMMERCIAL TRA NSACTION IS NOT FOUND TO BE INCORRECT OR WRONG BY COMMISSIONER OF I NCOME-TAX (A). IT IS SUBMITTED THAT OBSERVATION IN PARA 22 OF ASSE SSMENT ORDER THAT INTEREST PAYMENT IS BY JOURNAL ENTRIES AND THERE WA S NO REAL TRANSACTION IS NOT JUSTIFIED. IN FACT A.O. ON THE BASIS OF JOURNAL ENTRY ITSELF ASSESSED THE INCOME AT THE HANDS OF RESPECTI VE PARTIES. THE INTEREST IS PAID BY CHEQUE IN THE YEAR ENDING 31/03 /2005 BEFORE THE DATE OF SEARCH. COMMISSIONER OF INCOME-TAX (A) HA S REFERRED TO THE PROVISIONS OF SECTION 132(4A) AND 292C OF I.T. ACT 1961 AND HAS CONCLUDED AGAINST THE ASSESSEE. IT IS SUBMITTED TH AT TRANSACTION BETWEEN MEL/SREL/SMT. VANDANA PODDAR ARE SOUGHT TO BE LINKED TO THE SEIZED DOCUMENT. THE PERUSAL OF PARA 8 OF ASSE SSMENT CLEARLY INDICATES THAT ON SEIZED DOCUMENT THERE IS NOTHING MENTIONED IN RESPECT OF TRANSACTION BETWEEN MEL/SREL AND THUS RE LIANCE ON PROVISIONS OF SECTION 132 (4A) AND 292C IS MISPLACE D. IT IS SUBMITTED ITA.521/BANG/09 PAGE - 11 THAT ALTHOUGH NO AMOUNT IS ASSESSABLE AS DEEMED DIV IDEND U/S 2(22)(E) OF I.T. ACT 1961, THE FIGURE OF ACCUMULAT ED PROFIT OBSERVED BY THE ASSESSING OFFICER IS INCLUDING THE CURRENT YEARS PROFIT WHICH COULD NOT BE INCLUDED FOR THE PURPOSE OF ACCUMULATE D PROFIT TO BE CONSIDERED U/S 2(22)(E) OF I.T. ACT 1961 FOR ASSES SMENT YEAR 2004- 05. THE ASSESSEE FOR THIS PROPOSITION PLACED RELI ANCE ON THE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF M. B. STOCK HOLDING P. LTD., V. ACIT (2003) 84 ITD 542 (AHD). IT IS FURTH ER SUBMITTED THAT ACCUMULATED PROFIT IS REQUIRED TO BE ADJUSTED ON AC COUNT OF DIFFERENCE IN DEPRECIATION AS PROVIDED IN THE BOOKS AND AS ALL OWABLE UNDER INCOME TAX ACT 1961. THE ASSESSEE IN SUPPORT OF AB OVE HAS PLACED RELIANCE ON DECISION OF BOMBAY HIGH COURT IN THE CA SE OF COMMISSIONER OF INCOME-TAX V. JAMNADAS KHIMJI KOTHA RI (1973) 92 ITR 105 (BOM) . INVITING OUR ATTENTION TO VOLUME I I OF PAPER BOOK WHICH IS THE AUDITED STATEMENT OF MEL FOR THE YEAR ENDING 31/03/2003 ALONG WITH CALCULATION OF ACCUMULATED PR OFITS AS PER SUBMISSION MADE HEREINABOVE IT IS SUBMITTED THAT AC CUMULATED PROFIT WORKS OUT TO RS.1,17,47,558/-. IT IS SUBMITTED THA T OBSERVATION OF THE ASSESSING OFFICER AS REGARD TO ACCUMULATED PROFIT F OR THE PURPOSE OF CONSIDERATION OF DEEMED DIVIDEND IN THE ASSESSMENT ORDER IS THUS UNJUSTIFIED AND INCORRECT. CONSIDERING THE ABOVE F ACTS AND ITA.521/BANG/09 PAGE - 12 CIRCUMSTANCES AND EVIDENCE ON RECORD ADDITION AS MA DE BY THE ASSESSING OFFICER AND UPHELD BY COMMISSIONER OF INC OME-TAX (A) IS UNJUSTIFIED AND THEREFORE MAY BE DIRECTED TO BE DE LETED. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTE D THAT ADDITION MADE BY THE ASSESSING OFFICER AND UPHELD B Y THE COMMISSIONER OF INCOME-TAX (A) IS FOR THE DETAILED REASONS INDICATED IN THE ORDER OF LOWER AUTHORITIES. THE DEPARTMENTA L REPRESENTATIVE PLACED STRONG RELIANCE ON THE NOTINGS AND REASONING IN THE ORDER OF LOWER AUTHORITIES. THE LEARNED DEPARTMENTAL REPRES ENTATIVE INVITED OUR ATTENTION TO THE NOTINGS FOUND IN THE SEIZED DO CUMENTS AND REPRODUCED IN ASSESSMENT ORDER. IT IS SUBMITTED TH AT THE AFORESAID NOTINGS CLEARLY EXPLAIN THAT TRANSACTIONS MADE WERE ONLY TO GIVE EFFECT TO THE NOTINGS FOUND IN THE SEIZED DOCUMENT. IT IS SUBMITTED THAT MONEY GIVEN BY MEL TO SREL/SMT. VANDANA PODDAR IS F OR THE BENEFIT OF SHRI BASANT PODDAR AND THIS CLEARLY DEMO NSTRATES THAT PROVISIONS OF SEC. 2(22)(E) OF INCOME TAX ACT, 1961 ARE APPLICABLE. THE COMPANY MEL IS HAVING ACCUMULATED PROFITS AND T HUS THE SAME HAS BEEN CORRECTLY ASSESSED AS DEEMED DIVIDEND U/S 2(22)(E) OF I.T. ACT, 1961. IN VIEW OF ABOVE IT WAS SUBMITTED THAT THERE IS NO MERIT IN ITA.521/BANG/09 PAGE - 13 CONTENTIONS OF ASSESSEE AND, THEREFORE, GROUND OF A PPEAL OF ASSESSEE DESERVES TO BE DISMISSED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE EVIDENCE ON RECORD. IN THE CASE OF ASSESSEE, ASSES SING OFFICER HAS ASSESSED A SUM OF RS. 11.05 CRORES AS DEEMED DIVIDE ND U/S 2(22)(E) OF INCOME TAX ACT 1961. THE AFORESAID AMOUNT HAS BEEN REDUCED BY COMMISSIONER OF INCOME-TAX (A) TO RS.10.80 CRORES I N HIS APPELLATE ORDER. THE ASSESSING OFFICER HAS HELD THAT COMPANY IS HAVING ACCUMULATED PROFITS OF RS.19,04,01,493/- AS ON 31/0 3/2004 BEING PROFITS/LOSS AND RESERVES & SURPLUS AS APPEARING IN BALANCE SHEET OF MEL AS ON 31/03/2004. DURING THE PREVIOUS YEAR UND ER CONSIDERATION MEL HAD ADVANCED INTER CORPORATE DEPO SIT OF RS.11.05 CRORES TO SREL AND THE SAID COMPANY HAS ADVANCED LO AN OF RS.10.80 CRORES TO SMT. VANDANA PODDAR. ON THE ABOVE FACTUA L MATRIX ASSESSING OFFICER HAS CONCLUDED THAT LOAN GIVEN TO SMT. VANDANA PODDAR IS FOR THE BENEFIT OF ASSESSEE AND ACCORDING LY SAME IS LIABLE TO BE ASSESSED U/S 2(22)(E) OF INCOME TAX ACT 1961. ON THE BASIS OF EVIDENCE ON RECORD IT IS SEEN THAT ASSESSEE HAS NOT RECEIVED ANY LOAN OR ADVANCE FROM COMPANY MEL. THE ASSESSEE HAS NO D IRECT OR INDIRECT CONTROL OVER SREL WHICH IS A SEPARATE CORP ORATE ENTITY AND IS ITA.521/BANG/09 PAGE - 14 ASSESSED TO INCOME TAX. THE COMPANY MEL DURING THE COURSE OF ITS ORDINARY ACTIVITY HAS GIVEN INTER CORPORATE DEPOSIT OF RS.11.05 CRORES TO SREL. MEL HAS RECEIVED INTEREST OF RS.10,71,926 /- FROM SREL DURING THE YEAR ENDING 31/03/2004 WHICH HAS BEEN AS SESSED TO INCOME TAX BY THE SAME ASSESSING OFFICER IN THE ASSESSMENT MADE AT THE HANDS OF MEL WITHOUT RECORDING ANY ADVERSE OBSERVAT ION. THE INTEREST RECEIVED FROM SREL IN A.Y. 2005-06 HAS ALS O BEEN ASSESSED TO TAX IN THE CASE OF MEL AS INTEREST RECEIVED FROM SREL. IN THE ASSESSMENT OF SREL INTEREST RECEIVED FROM SMT. VAND ANA PODDAR AND INTEREST PAID TO MEL HAS BEEN ACCEPTED BY REVENUE A UTHORITIES AS SHOWN. THE ASSESSMENT OF SMT. VANDANA PODDAR HAS A LSO BEEN COMPLETED BY THE SAME ASSESSING OFFICER WHEREIN LOA N LIABILITY SHOWN IN RESPECT OF SREL IN FINANCIAL STATEMENT HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSMENT ORDER FOR T HE ASSESSMENT YEAR 2004-05 IN THE CASE OF SMT. VANDANA PODDAR HAS BEEN PLACED IN PAPER BOOK AT PAGES 13 TO 28. IT IS ALSO UNDISPUTED FACT ON RECORD THAT ASSESSEE HAS NO SHAREHOLDING IN SREL AND IS ALSO NO T ON BOARD OF DIRECTORS OF SREL AND THUS HAS NO CONTROL OVER THE MANAGEMENT AND AFFAIRS OF SREL. IN THE FACTS OF THE PRESENT CASE ASSESSING OFFICER HAVING ACCEPTED THE AMOUNT GIVEN BY MEL TO SREL AS INTER CORPORATE DEPOSIT AND SIMILARLY HAVING ACCEPTED THE LOAN RECEIVED BY ITA.521/BANG/09 PAGE - 15 SMT. VANDANA PODDAR AS LOAN RECEIVED FROM SREL AS A LSO INTEREST PAID AND RECEIVED IN THE CASE OF MEL/SREL/VANDANA P ODDAR COULD NOT HAVE COME TO CONCLUSION THAT AMOUNT PAID BY MEL IS FOR THE BENEFIT OF SHRI BASANT PODDAR. IT IS ALSO EVIDENT FROM PAGE NO. 5 & 6 THAT INTER CORPORATE DEPOSIT RECEIVED BY SREL HAS B EEN REPAID ALONG WITH INTEREST TO MEL IN THE ASST. YEAR 2005-06. THE AFORESAID TRANSACTION IN BETWEEN MEL/SREL/SMT. VANDANA PODDAR HAVE ALSO BEEN ACCEPTED IN ASST. YEAR 2005-06. THE ACTION O F THE ASSESSING OFFICER IS THUS APPROBATE AND REPROBATE WHICH IS I MPERMISSIBLE. THIS PROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE BOMBAY HIGH COURT REPORTED AT 214 ITR 210 (BOM.) IN THE CASE OF BOMBAY CLOTH SYNDICATE VS. COMMISSIONER OF INCOME-TAX (SUPRA). SIMILAR VIEW HAS BEEN TAKEN BY CO-ORDINATE BENCH OF ITAT, JODHPU R IN THE CASE REPORTED AT 115 TTJ (JODH.) 116 IN THE CASE OF SH RI SURESH CHANDRA BANSALI VS. JOINT CIT. IT HAS BEEN HELD BY HONB LE ITAT THAT DOCTRINE OF APPROBATE AND REPROBATE PROHIBITS THE R EVENUE AUTHORITIES FROM BLOWING HOT AND COLD IN THE SAME BREATH THEREB Y ACCEPTING ONE PART OF TRANSACTION AND TREATING THE OTHER PART AS INCORRECT. THE RATIO AS LAID DOWN IN THE SAID DECISION SQUARELY APPLIES TO THE FACTS IN THE CASE OF ASSESSEE. THERE IS NO EVIDENCE ON RECORD T O INDICATE THAT ANY PAYMENT HAS BEEN MADE BY COMPANY MEL FOR INDIVIDUAL BENEFIT OR ITA.521/BANG/09 PAGE - 16 ON BEHALF OF ASSESSEE SO AS TO BRING THE SAME AS DE EMED DIVIDEND AT THE HANDS OF ASSESSEE. 6. THE PROVISIONS OF SECTION 2(22)(E) OF I.T. ACT 1 961 BRINGS FICTION OF THE DEEMED DIVIDEND AND IS TO BE CONSTRU ED STRICTLY. THE AFORESAID PROPOSITION HAS BEEN LAID DOWN BY HONBLE APEX COURT IN THE CASE OF CIT VS C.P. SARATHY MUDALIAR REPORTED A T 83 ITR 170 (S.C.). IN THE FACTS OF THE SAID CASE, LOAN WAS GI VEN TO THE HUF WHOSE MEMBERS WERE SHAREHOLDERS OF THE COMPANY. THE FUND S FOR MAKING INVESTMENT IN SHARE CAPITAL OF THE COMPANY WERE FLO WN FROM HUF. THE HONBLE APEX COURT ON SUCH FACTS HAS HELD THAT HUF IS NOT A REGISTERED SHARE HOLDER OF THE COMPANY AND PROVISIO NS OF SECTION 2(22)(E) OF I.T. ACT 1961 ARE INAPPLICABLE. IN THE FACTS OF THE PRESENT CASE THE CONDITION PRECEDENT FOR INVOKING PROVISION S OF SECTION 2(22)(E) OF I.T. ACT 1961 IS ABSENT AND THUS THE AD DITION OF RS.10.80 CRORES AS DEEMED DIVIDEND AT THE HANDS OF ASSESSEE IS UNJUSTIFIED. THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS P. V. JOHN REPORTED AT 181 ITR 1 (KER) HAS OBSERVED THAT FROM THE RELA TIONSHIP ALONE CONCLUSION CANNOT BE DRAWN TO THE EFFECT THAT PAYME NTS ARE MADE ON BEHALF OR BENEFIT OF THE ASSESSEE A SHAREHOLDER. I N THE FACTS OF THE ITA.521/BANG/09 PAGE - 17 PRESENT CASE ASSESSING OFFICER HAS CONCLUDED AGAIN ST THE ASSESSEE ONLY BECAUSE OF THE FACT THAT ASSESSEE IS RELATED TO SMT. VANDANA PODDAR AS HUSBAND. THE RATIO AS LAID DOWN IN THE D ECISION OF KERALA HIGH COURT SQUARELY SUPPORTS THE SUBMISSIONS OF ASS ESSEE AND ADDITION AS MADE BY ASSESSING OFFICER UNDER SECTION 2(22)(E) OF I.T. ACT 1961 IS HELD TO BE UNJUSTIFIED. IT IS SETTLE D PROPOSITION OF LAW THAT APPARENT IS REAL. THE TRANSACTION BETWEEN MEL /SREL/SMT. VANDANA PODDAR ARE CORROBORATED BY LEGAL EVIDENCE O N RECORD. THE ENTIRE TRANSACTIONS ARE ACCEPTED AND CORROBORATED B Y FINANCIAL STATEMENT SUBMITTED ALONG WITH RETURN OF INCOME OF THE RESPECTIVE ASSESSEES. THE ASSESSING OFFICER IN FACT HAS ACCEP TED THE TRANSACTION AS RECORDED IN FINANCIAL STATEMENTS IN THE CASE OF MEL/SREL/VANDANA PODDAR. IN THE CASE OF ASSESSEE T HERE IS NO SHRED OF ANY EVIDENCE ON RECORD TO SHOW THAT APPARE NT IS NOT REAL. IN THE ABSENCE OF ANY SUCH EVIDENCE CONCLUSION OF THE ASSESSING OFFICER TO ASSESS THE AMOUNT RECEIVED AS DEEMED DIVIDEND U/ S 2(22)(E) OF I.T. ACT 1961 IS HELD TO BE UNJUSTIFIED. THE ASSESSING OFFICER HAS REFERRED TO THE DECISION OF APEX COURT REPORTED AT 229 ITR 4 44 (S.C.) IN THE ASSESSMENT ORDER. IN THE FACTS OF THE SAID CASE TH ERE WAS A DIRECT LOAN TO SHAREHOLDER WHICH WAS SQUARED UP BEFORE ACCOUNTI NG YEAR. THE FACTS IN THE SAID CASE ARE DISTINGUISHABLE AND INAP PLICABLE TO THE FACTS ITA.521/BANG/09 PAGE - 18 OF THE CASE OF THE ASSESSEE AS THERE IS NO LOAN REC EIVED BY ASSESSEE FROM COMPANY MEL. IN THE DECISION OF APEX COURT RE FERRED TO IN THE ORDER OF COMMISSIONER OF INCOME-TAX (A) REPORTED A T 252 ITR 893 (SC) THE MANAGING DIRECTOR HAD ACCEPTED THAT HE HAS OBTAINED LOAN FROM COMPANY THROUGH EMPLOYEE. IT IS ON ACCOUNT OF ADMISSION OF MANAGING DIRECTOR THAT ABOVE LOAN HAVING BEEN OBTAI NED FROM COMPANY IT WAS CONCLUDED THAT AMOUNT IS ASSESSABLE AS DEEMED DIVIDEND. THE FACTS AS IN THE SAID CASE ARE DISTIN GUISHABLE FROM THE FACTS IN THE CASE OF THE ASSESSEE AND THUS NOTHING ADVERSE CAN BE HELD FROM THE SAID DECISION IN THE CASE OF ASSESSEE. TH E COMMISSIONER OF INCOME-TAX (A) HAS REFERRED TO DECISION OF APEX COU RT IN THE CIT VS MUKUNDRAY K. SHAH REPORTED AT 290 ITR 433 (S.C.). IN THE AFORESAID CASE HONBLE ITAT HAS RECORDED A FINDING OF FACT THAT AMOUNT GIVEN BY COMPANY TO FIRM WAS FOR THE BENEFIT OF SHAREHOLDER AND HE HAS ONWARD WITHDRAWN EXCESS AMOUNT OVER HIS CAPITAL FROM THE SAID FIRM. IN THE FACTS OF THE SAID CASE SHAREHOLD ER HAD CONTROL OVER THE COMPANY AND ALSO THE FIRM TO WHICH MONEY WAS GI VEN BY THE COMPANY. IN THE FACTS OF THE PRESENT CASE NO LOAN OR ADVANCE IS RECEIVED BY THE ASSESSEE AND HE HAS NO CONTROL OVER SREL WHICH IS A SEPARATE LEGAL ENTITY. THE TRANSACTION BETWEEN MEL/ SREL IS ADMITTEDLY BUSINESS TRANSACTION. NO AMOUNT FLOWN FR OM MEL HAS ITA.521/BANG/09 PAGE - 19 COME TO ASSESSEE. THE FACTS IN THE CASE OF ASSESSE E ARE CLEARLY DISTINGUISHABLE FROM THAT BEFORE HONBLE APEX COURT AND THUS RATIO OF THE SAID DECISION IS INAPPLICABLE TO THE FACTS IN T HE CASE OF ASSESSEE. WE ARE OF THE OPINION THAT RELIANCE BY COMMISSIONER OF INCOME-TAX (A) ON ABOVE DECISION TO THE FACTS IN THE CASE OF A SSESSEE WHICH ARE DISTINGUISHABLE ON FACTS IS MISPLACED AND UNJUSTIFI ED. 7. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HA S REFERRED TO NOTINGS MADE ON SEIZED DOCUMENT WHICH HAVE BEEN REP RODUCED AT PARA 8 OF THE ASSESSMENT ORDER. THE AFORESAID NOTI NGS AS IS EVIDENT FROM SEIZED DOCUMENT NO WAY REFERRED TO TRANSACTION BETWEEN MEL/SREL/VANDANA PODDAR. THE AMOUNT OF INTER CORPO RATE DEPOSIT GIVEN BY MEL TO SREL IS IN DECEMBER 2003 TO FEBRUARY 2004 WHEREAS NOTINGS ARE DATED 24/5/2004. THE NOTI NGS ON SEIZED DOCUMENT DOES NOT FIND THE NAME OF MEL/SREL. NOTIN GS CAN NOT BE CO-RELATED TO BUSINESS TRANSACTION BETWEEN MEL/SREL WHICH ARE CORROBORATED BY LEGAL EVIDENCE ON RECORD. THE ASSE SSING OFFICER HAS NOT EVEN EXAMINED SMT. VANDANA PODDAR FOR TRANSACTI ON BETWEEN HER AND SREL. THE AMOUNTS OF TRANSACTIONS THROUGH PROPE R BANKING CHANNEL ARE DIFFERENT FROM AMOUNTS OBSERVED IN THE SEIZED DOCUMENT. THE TRANSACTION OF INTER CORPORATE DEPOSIT/LOAN ARE CORROBORATED BY ITA.521/BANG/09 PAGE - 20 LEGAL EVIDENCE ON RECORD AND IS THROUGH PROPER BANK ING CHANNEL. NONE OF THE FIGURES NOTED ON THE SEIZED DOCUMENT AR E MATCHING WITH BUSINESS TRANSACTION OF RS.11.05 CRORES. THE INFER ENCE DRAWN BY THE ASSESSING OFFICER THAT FIGURES NOTED ON SEIZED DOCU MENT IS IN RELATION TO TRANSACTION OF MEL/SREL IS UNJUSTIFIED. IN VIE W OF THE ABOVE REFERENCE TO SEIZED DOCUMENT BY THE ASSESSING OFFIC ER FOR CONCLUDING THAT RS.11.05 CRORES IS DEEMED DIVIDEND U/S 2(22)(E ), IS MISPLACED AND IN FACT IT HAS NO RELEVANCE TO BUSINESS TRANSA CTION BETWEEN MEL/SREL. 8. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS AMBASSADOR TRAVELS PVT. LTD. REPORTED AT 220 CTR (D EL) 475 AND HONBLE ITAT IN DECISION REPORTED AT 11 SOT 302 ( MUM.) IN THE CASE OF N.H. SECURITIES LTD. VS. DCIT HAS HELD TH AT TRANSACTION IN THE ORDINARY COURSE OF BUSINESS ARE OUTSIDE THE PURVIEW OF SECTION 2(22)(E) OF I.T. ACT 1961. IN THE FACTS OF THE PRE SENT CASE THE TRANSACTION BETWEEN MEL AND SREL IS ADMITTEDLY BUSI NESS TRANSACTION AS IS EVIDENT FROM LEGAL AND COGENT EVI DENCE ON RECORD. THE ONWARD USE OF AFORESAID AMOUNT THUS CAN NOT BE HELD AS LIABLE FOR ASSESSMENT AS DEEMED DIVIDEND U/S 2(22)(E) OF I.T. ACT 1961. THE ITA.521/BANG/09 PAGE - 21 HONBLE KOLKATTA HIGH COURT IN THE CASE OF SHRI NAN DLAL KANORIA VS CIT REPORTED AT 124 ITR 405 HAS OBSERVED AS UNDER : THE THEORY OF AN INDIRECT LOAN OR ADVANCE WHICH HA S BEEN URGED ON BEHALF OF THE REVENUE IS DIFFICULT TO CONC EIVE. A LOAN CREATES A LEGAL RELATIONSHIP BETWEEN TWO PARTI ES, NAMELY, THE LENDER AND BORROWER. IT DOES NOT APPE AR TO US THAT ON THE FACTS BEFORE US IT CAN BE SAID THAT THI S RELATIONSHIP CAME INTO EXISTENCE BETWEEN THE ASSESS EE AND THE COMPANY NOR IT CAN BE SAID THAT THERE WAS ANY L OAN OR ADVANCE BY THE SAID COMPANY TO THE WHICH THE SAID COMPANY COULD IN LAW RECOVER FROM THE ASSESSEE. FR OM THE DECISIONS CITED THE LAW APPEARS TO BE WELL SETT LED THAT THE SECTION CONCERNED HAS TO BE CONSTRUED STRICTLY . IN THAT VIEW IT WILL NOT BE CORRECT TO CONSTRUE THE SAID SE CTION BY IMPORTING THE EXPRESSION DIRECTLY OR INDIRECTLY I N CONNECTION WITH THE EXPRESSION BY WAY OF ADVANCE O R LOAN TO A SHAREHOLDER AS APPEARING IN S. 2(22)(E) OF T HE ACT OF 1961. THE RATIO OF THE AFORESAID DECISION SUPPORTS THE SU BMISSION OF ASSESSEE THAT AMOUNT RECEIVED FROM SREL BY SMT. VAN DANA PODDAR IS NOT ASSESSABLE AS DEEMED DIVIDEND U/S 2(22)(E) OF I NCOME TAX ACT, 1961. 9. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUM STANCES AND DETAILED REASONS INDICATED HEREINABOVE WE ARE OF TH E OPINION THAT ITA.521/BANG/09 PAGE - 22 PROVISIONS OF SECTION 2(22)(E) OF I.T. ACT 1961 AS APPLIED IN THE CASE OF ASSESSEE ARE INAPPLICABLE TO THE FACTS IN THE CA SE OF ASSESSEE. THE AMOUNT OF RS.10.80 CRORES RECEIVED BY SMT. VANDANA PODDAR FROM SREL CANNOT BE HELD AS AMOUNT RECEIVED BY HER ON BE HALF OF SHRI BASANT PODDAR SO AS TO INVOKE PROVISIONS OF SECTION 2(22)(E) OF I.T. ACT 1961. WE HOLD THAT ON FACTS AND CIRCUMSTANCES THAT TRANSACTION BETWEEN MEL/SREL/SMT. VANDANA PODDAR IN RESPECT OF INTER CORPORATE DEPOSIT OF RS.10.80 CRORES IS BUSINESS TR ANSACTION. MEL HAS NOT GIVEN ANY PAYMENT FOR THE BENEFIT OF OR ON BEHALF OF ASSESSEE TO BRING ANY AMOUNT ASSESSABLE U/S 2(22)(E) OF INCO ME TAX ACT, 1961. WE HOLD THAT ADDITION AS MADE BY ASSESSING OFFICER AND UPHELD BY COMMISSIONER OF INCOME-TAX (A) AT RS.10.80 CRORES I S UNJUSTIFIED. THE FINDINGS OF ASSESSING OFFICER AS WELL AS COMMIS SIONER OF INCOME-TAX (A) FOR HOLDING THAT ADDITION OF RS.10.8 0 CRORES IS DEEMED DIVIDEND AT THE HANDS OF ASSESSEE ARE HELD TO BE UN JUSTIFIED. WE HEREBY DIRECT ASSESSING OFFICER TO DELETE THE ADDIT ION SUSTAINED BY COMMISSIONER OF INCOME-TAX (A) AT RS.10.80 CRORES AT THE HANDS OF ASSESSEE. 10. BEFORE PARTING WE WISH TO OBSERVE THAT IN THE C ASE OF ASSESSEE ASSESSING OFFICER AT PARA 4 OF THE ASSESSMENT ORDER HAS RECORDED A ITA.521/BANG/09 PAGE - 23 FINDING THAT ACCUMULATED PROFIT IN THE CASE OF COMP ANY MEL ARE TO THE EXTENT OF RS.19,04,01,493/- AS ON 31/03/2004. THE COUNSEL OF THE ASSESSEE HAS CONTENDED THAT ACCUMULATED PROFITS FOR THE PURPOSE OF CONSIDERATION OF DEEMED DIVIDEND U/S 2(22)(E) OF I. T. ACT 1961 DURING ASST. YEAR 2004-05 SHALL NOT INCLUDE THE PROFIT OF BUSINESS FOR CURRENT YEAR. IT WAS CONTENDED THAT DATES ON WHICH AMOUNTS WERE GIVEN BY MEL TO M/S SOLID REAL ESTATE LTD. ARE 29/12/2003 TO 4/2/2004 AS IS EVIDENT FROM PARA 14 OF ASSESSMENT ORDER. IN VIEW OF ABOVE ACCUMULATED PROFIT AS ON 31/03/2004 CAN NOT BE CONS IDERED FOR THE PURPOSE OF DEEMED DIVIDEND U/S 2(22)(E) OF I.T. ACT 1961. THE COPY OF AUDITED BALANCE SHEET ALONG WITH TAX AUDIT REPOR T FOR THE YEAR ENDING 31/03/2003 HAS BEEN SUBMITTED IN A SEPARATE PAPER BOOK AS VOLUME II. RELIANCE HAS BEEN PLACED ON THE DECISIO N OF ITAT AHMEDBAD BENCH REPORTED AT 84 ITD 542 (AHD) IN THE CASE OF M.B. STOCKHOLDING PVT. LTD. VS ACIT AND DECISION OF HON' BLE BOMBAY HIGH COURT IN THE CASE REPORTED AT 92 ITR 105 (BOM) IN THE CASE OF CIT VS JAMNADAS KHIMJI KOTHARI. IN VIEW OF ABOVE I T WAS SUBMITTED THAT ACCUMULATED PROFITS OF COMPANY FOR THE PURPOSE OF DEEMED DIVIDEND U/S 2(22)(E) OF I.T. ACT 1961 DURING ASST. YEAR 2004-05 WORKS OUT TO RS.1,17,47,558/- ONLY AND NOT RS.19,04 ,01,493/- AS OBSERVED IN ASSESSMENT ORDER. WE HAVE CONSIDERED S UBMISSIONS OF ITA.521/BANG/09 PAGE - 24 COUNSEL OF ASSESSEE AND PERUSED THE DECISION OF ITA T AHMEDBAD BENCH REPORTED AT 84 ITD 542 (AHD) WHEREIN IT HAS BEEN HELD THAT CURRENT YEAR'S BUSINESS PROFIT CAN NOT BE INCLUDED FOR THE PURPOSE OF DETERMINING THE ACCUMULATED PROFITS FOR THE PURPOSE OF PROVISIONS OF SECTION 2(22)(E) OF I.T. ACT 1961. RESPECTFULLY FO LLOWING THE SAME WE ARE OF THE VIEW THAT ACCUMULATED PROFITS IN THE CASE OF ASSESSEE FOR THE PURPOSE OF PROVISIONS OF SECTION 2(22)(E) OF I. T. ACT 1961 SHALL NOT INCLUDE CURRENT YEAR'S BUSINESS PROFIT. IN VIE W OF ABOVE THE ACCUMULATED PROFITS WHICH ARE REQUIRED TO BE CONSID ERED WOULD BE AS ON 31/03/2003. FURTHER IT IS EVIDENT FROM DEPRECIA TION CHART THAT ALLOWABLE DEPRECIATION AS PER PROVISIONS OF INCOME TAX ACT IS MORE THAN THE DEPRECIATION AS PROVIDED IN THE BOOKS OF A CCOUNT MAINTAINED UNDER THE COMPANIES ACT, 1956. THE HON'BLE BOMBAY HIGH COURT IN THE CASE REPORTED AT 92 ITR 105 HAS HELD AS UNDER : 'THE PHRASE 'ACCUMULATED PROFITS' DOES NOT MEAN PRO FITS AS DISCLOSED BY THE COMPANY'S BALANCE SHEET. THE P ROFITS DISCLOSED WOULD BE SUBJECT TO ADJUSTMENT AND THE DEPRECIATION AS GRANTED IN ACCORDANCE WITH THE RATE S PRESCRIBED BY THE IT ACT WOULD HAVE TO BE DEDUCTED FOR ASCERTAINING THE ACCUMULATED PROFITS.' IN THE FACTS OF THE CASE OF ASSESSEE THE DIFFERENCE IN DEPRECIATION AS PER INCOME TAX AND BOOKS OF ACCOUNT IS RS.85,98,033 /-. THE ITA.521/BANG/09 PAGE - 25 AFORESAID SUM HAS TO BE REDUCED FROM ACCUMULATED PR OFITS SHOWN IN BALANCE SHEET AS ON 31/03/2003 AT RS.2,03,45,591/- SHOWN IN BALANCE SHEET. THE ACCUMULATED PROFITS THUS FOR THE PURPOS E OF PROVISIONS OF SECTION 2(22)(E) OF I.T. ACT 1961 DURING THE A.Y. 2 004-05 WOULD BE RS.1,17,47,558/-. IN VIEW OF ABOVE THE FINDINGS RE CORDED IN ASSESSMENT ORDER BY THE ASSESSING OFFICER THE ACCUM ULATED PROFITS OF THE COMPANY AT RS.19,04,01,493/- IS HELD TO BE UNJU STIFIED AND WE, THEREFORE, HOLD THAT ACCUMULATED PROFIT FOR THE PUR POSE OF DEEMED DIVIDEND U/S 2(22)(E) DURING THE A.Y. 2004-05 WOULD BE RS.1,17,47,558/- ON THE BASIS OF EVIDENCE ON RECORD . IN ANY CASE AS THE ADDITION MADE BY THE ASSESSING OFFICER ITSELF I S DELETED, THEREFORE, NO FURTHER RELIEF IS REQUIRED TO BE GIV EN ON ACCOUNT OF COMPUTATION OF ACCUMULATED PROFITS. . 11. GROUND OF APPEAL IS ALLOWED. 12. IN GROUND NO. 2 ASSESSEE HAS CHALLENGED THE VAL IDITY OF ASSESSMENT FRAMED ON VARIOUS LEGAL FACETS AS DESCRI BED IN GROUNDS OF APPEAL. 13. BEFORE US LEARNED COUNSEL OF ASSESSEE SUBMITTED THAT SIMILAR GROUNDS WERE RAISED BEFORE COMMISSIONER OF INCOME-T AX (A) WHEREIN ITA.521/BANG/09 PAGE - 26 DETAILED WRITTEN SUBMISSIONS WERE MADE WHICH HAVE B EEN REPRODUCED IN APPELLATE ORDER. THE COUNSEL OF THE ASSESSEE HA S PLACED RELIANCE AND SUBMITTED THAT HE HAS NOTHING MORE TO ADD THAN WHAT HAS BEEN SUBMITTED IN WRITTEN SUBMISSION REPRODUCED IN THE O RDER OF COMMISSIONER OF INCOME-TAX (A). IT IS SUBMITTED TH AT IN THE FACTS OF PRESENT CASE NO OPPORTUNITY WAS GRANTED BY ADDL. CI T BEFORE GRANTING APPROVAL AS PROVIDED U/S 153D OF INCOME TAX ACT, 19 61 AND IN VIEW OF ABOVE ORDER PASSED IN THE CASE OF ASSESSEE IS BA D IN LAW. RELIANCE FOR THIS IS PLACED ON 1994 TAX L.R. 468 IN CASE OF KAMALA PROPERTIES VS. INSPECTING ACIT (CAL.). THE ASSESSEE WAS BEING ASSESSED BY DCIT, COMPANY CIRCLE-12(1) AND SUBSEQUENTLY CASE WA S TRANSFERRED TO DCIT, CENTRAL CIRCLE-(1), BANGALORE. ORDER OF T RANSFER WAS NOT COMMUNICATED TO ASSESSEE NOR OPPORTUNITY OF BEING H EARD WAS PROVIDED TO ASSESSEE BEFORE TRANSFER OF CASE AND TH US ORDER PASSED IS BAD IN LAW. 14. THE LEARNED D.R. ON THE OTHER HAND SUBMITTED TH AT IN THE FACTS OF THE PRESENT CASE THE JURISDICTION HAS BEEN TRANS FERRED FROM ONE ASSESSING OFFICER IN THE CITY OF BANGALORE TO THAT WITH ANOTHER ASSESSING OFFICER IN THE SAME CITY. THE LEARNED D. R. INVITING OUR ATTENTION TO PROVISIONS OF SECTION 127(3) OF I.T. A CT 1961 SUBMITTED ITA.521/BANG/09 PAGE - 27 THAT THERE IS NO NECESSITY OF GRANTING OPPORTUNITY TO ASSESSEE ON TRANSFER OF CASE FROM ONE A.O. TO ANOTHER IN THE SA ME CITY. IT WAS SUBMITTED IN VIEW OF CLEAR MANDATE OF PROVISIONS OF SECTION 127(3) OF I.T. ACT 1961 THE CONTENTION OF ASSESSEE AS RAISED IN GROUNDS OF APPEAL IS NOT JUSTIFIED AND GROUNDS OF APPEAL OF AS SESSEE DESERVES TO BE DISMISSED. THE LEARNED D.R. ALSO INVITED OUR AT TENTION TO PARA 8 OF THE APPELLATE ORDER WHEREIN COMMISSIONER OF INCOME- TAX (A) HAS RECORDED A FINDING THAT RECORD SHOWS THAT ADDITIONA L CIT HAS APPROVED THE ASSESSMENT ORDER ON 31/12/2007 IN COMP LIANCE TO TERMS OF SECTION 153D OF I.T. ACT 1961. IT IS SUBMITTED THAT IN VIEW OF CLEAR FINDING AS NOTED BY COMMISSIONER OF INCOME-TAX (A) IN HIS APPELLATE ORDER THERE IS NO MERIT IN APPEAL OF ASSESSEE AND THEREFORE GROUND AS RAISED IN MEMO OF APPEAL IS DISMISSED. 15. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE EVIDENCE ON RECORD. IT IS SEEN THAT SIMILAR LEGAL GROUNDS WERE RAISED BEFORE COMMISSIONER OF INCOME-TAX (A) AND DETAILED SUBMISSIONS AS MADE BY ASSESSEE BEFORE COMMISSIONER OF INCOME-TAX (A) ARE RECORDED IN APPELLATE ORDER. WE HAVE PERUSED THE O RDER OF COMMISSIONER OF INCOME-TAX (A) AND FIND THAT ALL LE GAL FACETS OF THE ASSESSMENT FRAMED HAVE BEEN DELIBERATED UPON IN LIG HT OF THE ITA.521/BANG/09 PAGE - 28 DECISIONS REFERRED TO IN THE APPELLATE ORDER. WE A RE OF THE OPINION THAT GROUNDS OF APPEAL AS RAISED BEFORE COMMISSIONER OF INCOME-TAX (A) HAVE BEEN CORRECTLY DISMISSED AND DOES NOT CALL FOR ANY INTERFERENCE. IN VIEW OF ABOVE WE ARE OF THE OPINION THAT THERE I S NO MERIT IN GROUNDS OF APPEAL OF ASSESSEE AND SAME ARE LIABLE T O BE DISMISSED. GROUND NO. 2 RAISED IN MEMO OF APPEAL IS DISMISSED HAVING NO MERIT IN THE SAME. 16 THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 11TH DAY OF SEPTEMBER, 2009. SD/- SD/- (K. K. GUPTA) (K. P. T. THANGAL) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED : 11TH SEPTEMBER, 2009 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, NEW DELHI 7. GF, ITAT, BANGALORE
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