The ITO, 2(1), V. M/s. Destiny Investment Pvt. Ltd.,

ITA 523/IND/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 9421 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-01-2010
• Assessment Year: 1996-1997
• Appeal Filed On: 10-10-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Keywords: Deemed dividend

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH AND SHRI V.K. GUPTA, AM ITA NO. 523/IND/07 A.Y. 1996-97 INCOME TAX OFFICER 1(2) INDORE APPELLANT VS M/S DESTINY INVESTMENT PVT. LTD INDORE RESPONDENT PAN AAACDS791J APPELLANT BY : SMT. APARNA KARAN, SR. DR RESPONDENT BY : S/SHRI AJAY TULSIYAN & MAHESH AGRAW AL O R D E R PER JOGINDER SINGH, JM THIS APPEAL IS BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(A) DATED 6.7.2007 ON THE GROUND THAT THE LEARNE D CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND. 2. DURING HEARING OF THIS APPEAL WE HAVE HEARD SMT. APARNA 2 KARAN, LEARNED SENIOR DR FOR THE REVENUE AND SHRI A JAY TULSIYAN ALONG WITH SHRI MAHESH AGRAWAL, LEARNED COUNSEL FOR THE ASSESSEE. MRS. KARAN SUPPORTED THE ASSESSMENT ORDER WHEREAS T HE LEARNED COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDE R BY PLACING RELIANCE ON THE DECISION IN THE CASE OF ACIT V. SMT . LAKSHMIKUTTY NARAYANAN;105 ITD 558 (COCHIN) AND CIT VS. SMT. SAV ITHIRI SAM; 236 ITR 1003 (MUMB). 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON THE FILE. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HOLDS 288750 EQUITY SHARES OF RS. 10/- EACH OF MARVEL AGREX LIMITED, WHICH IS MORE THAN 10% OF THE EQUITY SHARES OF THE COMPANY. THE BALANCE SHEET OF THE COMPANY S HOWED UNSECURED LOANS OF RS.14,22,061/-. THE AO, IN VIEW OF THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961, HE LD THAT SINCE THE ASSESSEE COMPANY WAS HOLDING MORE THAN 10% OF THE S HARES OF MARVEL AGREX LIMITED AS ALSO OBTAINED UNSECURED LOA N OF RS.14,22,061/-, THEREFORE, THE UNSECURED LOAN OF RS .14,22,061/- WAS TO BE ASSESSED AS DIVIDEND INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER APPEAL. AGGRIEVED WITH THIS FINDING, THE ASSESSEE PREFERRED 3 APPEAL BEFORE THE LEARNED CIT(A) WHO, AFTER GIVING DETAILED REASONS, HELD THAT THE ASSESSEE HAS NOT RECEIVED ANY BENEFIT AS SIMPLY THE EXISTING LIABILITY CONTINUED IN THE SAME MANNER EXC EPT THE NAME OF THE CREDITOR WAS CHANGED AND AS SUCH THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AS WELL AS CLEAR JUDICIAL VIEW AVAILABLE ON THE ISSUE AS EMPHASIZED BY THE ASSESSEE, CANNOT BE ATTRACTED TO MERE JOURNAL ENTRY PASSED TRANSFERRING THE LIABILITY. THE LEARNED CI T(A), ACCORDINGLY, DELETED THE ADDITION MADE BY THE AO. NOW, THE REVEN UE IS IN APPEAL BEFORE US. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS OF TH E PARTIES IN VIEW OF THE FACTS OF THE CASE AND THE DECISIONS CITED BE FORE US, WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF T HE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. SMT. SAVITHIRI SAM (SUPRA) IN WHICH IT WAS HELD THAT THE PROVISIONS SECTION 2(22)(E) CL EARLY PROVIDE THAT BY A FICTION DIVIDEND IS MADE TO INCLUDE ANY PAYMENT B Y A COMPANY, ETC., THEREFORE, IT IS DIFFICULT TO INTRODUCE ANOTHER FIC TION IN RESPECT OF THE WORDS PAYMENT BY THE COMPANY BY CONSTRUING EVEN A TRANSFER ENTRY AS AMOUNTING TO PAYMENT. IN OTHER WORDS, WHEN SECT ION 2(22)(E) ITSELF INTRODUCES A FICTION, IT IS IMPROPER TO INTRODUCE A NOTHER FICTION AND 4 CONSTRUE A PAYMENT AS EQUIVALENT TO A CONSTRUCTIVE PAYMENT. SIMILARLY, IN THE CASE OF ACIT V. SMT. LAKSHMIKUTTY NARAYANAN (SUPRA) IT WAS HELD BY THE COCHIN A BENCH OF THE ITAT THAT ADVANCE TO THE ASSESSEE SHAREHOLDER DIRECTOR HAVIN G BEEN MADE IN THE NORMAL COURSE OF BUSINESS TRANSACTION BETWEEN THE A SSESSEE AND THE COMPANY, THE SAME COULD NOT BE TREATED AS DEEMED DI VIDEND UNDER SECTION 2(22)(E) OF THE ACT. WE, THEREFORE, FOLLOW ING THE RATIO LAID DOWN IN THESE DECISIONS, HOLD THAT THE LEARNED CIT( A) WAS QUITE JUSTIFIED IN HOLDING THAT IN VIEW OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, THE UNSECURED LOAN OF RS.14,22,061/- CA NNOT BE ASSESSED AS DIVIDEND INCOME IN THE HANDS OF THE ASSESSEE FOR TH E ASSESSMENT YEAR 1996-97. WE, THEREFORE, UPHOLD THE ORDER OF THE LE ARNED CIT(A) AND DISMISS THIS APPEAL OF THE REVENUE. ORDER PRONOUNCED IN OPEN COURT IN THE PRESENCE OF B OTH THE PARTIES AT THE CONCLUSION OF HEARING ON 19 TH JANUARY, 2010. (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED - 5 TH FEBRUARY, 2010 COPY TO APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE 5 DN/-