Mukundan Vijayan, CHENNAI V. ITO, CHENNAI

ITA 639/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5867 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 15-03-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN JCIT D R
• Assessee Lawyers: S SRIDHAR
• Keywords: Deemed dividend
• Section: 147; 148

Judgement Text

, D/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL D/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.639 /MDS./2017 ( ASSESSMENT YEAR : 2007-08 ) SHRI MUKUNDAN VIJAYAN , FLAT 1A,BLOCK 6, 1ST FLOOR, RANI MEYYAMMAI TOWER, 66,SATHYADEV AVENUE, MRC NAGAR, R.A.PURAM, CHENNI-28. VS. THE INCOME TAX OFFICER, CORPORATE WARD 1(1), CHENNAI-34. PAN AAOPM 6199 G ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.S.SRIDHAR,ADVOCATE / RESPONDENT BY : MR.B.SAGADEVAN, JCIT, D.R ! ' / DATE OF HEARING : 09.11.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 22.11.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-1, CHENNA I DATED 13.01.2017 PERTAINING TO ASSESSMENT YEAR 2007-08. ITA NO.639 /MDS/2017 2 2. THE MAIN GRIEVANCE OF THE ASSESSEE IS WITH REGAR D TO CONFIRMING THE DISALLOWANCE OF ` 22,98,290/- U/S.2(22)(E) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE WAS A DIRECTOR IN M/S ANANDRAM DEVELOPERS P LTD WITH MORE THAN 10% HOLDING IN EQUITY. FURTHER THE ASSESSEE WAS A DIRECTOR IN M/S RAVSHANKAR INDUSTRIES P LTD WITH MORE THAN 10% HOLDING IN EQUI TY. DURING THE ASSESSMENT PROCEEDINGS IN THE CASE OF ANANDRAM DEV ELOPERS FOR THE A.Y. 2007-08 IT CAME TO LIGHT THAT IN THE ASSES SEES ACCOUNT, IN THE BOOKS OF M/S ANANDRAM DEVELOPERS, THERE WAS A D EBIT ENTRY OF RS.43,85,000/- AS ON 31.3.2007 WITH THE NARRATION BEING THE AMOUNTS IN MUKUND VJAYAN TRANSFERRED (EQUITY). THE LD. ASS ESSING OFFICER FOUND THAT THAT THERE WAS ONE MORE DIRECTOR MR. TAR UN KUMAR WHO HAD MORE THAN 10 % HOLDING IN M/S ANANDRAM PROPERTY DEVELOPERS AND HAD BEEN DEBITED WITH AN AMOUNT OF RS.5,05,000 ON 31.3.2007 WITH SIMILAR NARRATION. THE ABOVE TWO COMPANIES ARE CONTROLLED AND MANAGED BY THE SAME GROUP OF SHAREHOLDERS. THEREFOR E, THE AO NOTED THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS IN ANANDRAM DEVELOPERS P LTD FOR A.Y. 2007-08 A SUM OF RS.48,27 ,345/- WAS ITA NO.639 /MDS/2017 3 DEBITED IN THE NAME OF M/S RAVISHANKAR INDUSTRIES P LTD THROUGH A JOURNAL ENTRY WITH A NARRATION BEING THE AMOUNTS I N MUKUND VIJAYAN TRANSFERRED (EQUITY). 3.1 FURTHER THAT THE AUDIT REPORT DATED 3.9.2007 F ORMING PART OF THE ANNUAL REPORT OF M/S ANANDRAM [DEVELOPERS FOR THE Y EAR ENDING 31.3.2007 IN PARA 3 REPORTING INTEREST FREE LOANS U /S. 301 OF THE COMPANIES ACT ALSO MENTIONED THIS ASPECT AS IS EVID ENT IN PARA 2 OF THE ORDER. NOTICING THAT THE AUDITORS HAVING QUALIF IED THAT TRANSACTIONS AS INTEREST FREE LOANS THE AO WHO HAD INITIATED REO PENING OF THE ASSESSMENT U/S 147 R.W.S. 148 ISSUED SHOW-CAUSE T O THE ASSESSEE TO BRING TO TAX THE IMPUGNED AMOUNT U/S 2(22)(E) OF THE ACT. AFTER CONSIDERING THE REPLIES MADE BY THE ASSESSEE DISCUS SED IN DETAIL IN PARAGRAPHS 2 AND 3 OF THE ORDER, THE AO NOTED THE D ETAILED TRANSACTION IN PARA 2(C) OF THE ORDER. THE AO ALSO REJECTED THE PLEA TAKEN BY THE ASSESSEE THAT MERE BOOK ENTRIES DID NO T AMOUNT TO PAYMENT BY RELYING ON THE JUDICIAL PRONOUNCEMENT OF THE BOMBAY HIGH COURT IN CIT V. TRIUMPH INTERNATIONAL FINANCE (INDIA ) LTD 345 ITR 270 WHERE IT WAS OBSERVED REPAYMENT BY DEBIT O F ACCOUNT TO JOURNAL ENTRIES AMOUNTED TO REPAYMENT AS WAS ALSO S IMILARLY HELD BY ITA NO.639 /MDS/2017 4 THE HONBLE RAJASTHAN HIGH COURT IN RAJASTHAN SYNTH ETICS P LTD V. CIT 256 ITR 331. THE AO TREATED THE LOAN AMOUNT OF RS.48,35.000 AS DEEMED DIVIDED IN THE HANDS OF THE ASSESSEE AND KEEPING IN VIEW THAT RESERVES & SURPLUS AVAILABLE AS ON 31.3.2007 I N THE BOOKS OF M/S. ANANDRAM DEVELOPERS WAS ONLY RS.25,25594 AND ALSO W ITH REGARD TO THE LOAN DEBTOR OF RS.5,00,000/- IN THE NAME OF SHR I TARUN KUMAR RESTRICTED THE DISALLOWANCE AT RS.22.95.290 U/S 2(2 2)(E) AS DISCUSSED IN PARA 2(E) OF THE ORDER. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) CONFIRMED THE ACTION OF LD. A SSESSING OFFICER. AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE ME, LD.A.R SUBMITTED THAT THE LD.CIT(A) ERRED IN DECIDING ON THE SUBJECT OF APPLICABILITY OF THE SEC .2(22)(E) BY CITING VARIOUS DECISIONS, WHEREAS THE APPELLANT HAS NOT DE NIED THE APPLICABILITY OF THE SECTION TO THE APPELLANT, BUT ONLY WHETHER THE FACTS OF THE CASE ATTRACTED THE APPLICATION OF THE SECTIO N. THE LD.A.R SUBMITTED THAT LD.CIT(A) FAILED TO APPRECIATE THA T THERE HAS BEEN ONLY BOOK ENTRY IN THE BOOKS OF ACCOUNT OF THE COMP ANY ON THE LAST ITA NO.639 /MDS/2017 5 DATE OF THE ACCOUNTING YEAR IN THE NAME OF THE APPE LLANT TO SUIT ITS CONVENIENCE, WHATSOEVER IT MAY BE, AND THERE HAS BE EN NO ACTUAL PAYMENT TO THE ASSSESSEE BY WAY OF CHEQUE OR BANK O RDER BY DEBIT IN THE BANK ACCOUNT OF THE COMPANY ACCOMPANIED BY CORR ESPONDING CREDIT IN THE BANK ACCOUNT OF THE APPELLANT. THE L D.A.R SUBMITTED THAT THE COMMISSIONER (APPEALS) FURTHER FAILED TO CONSID ER THAT THE IMPUGNED ENTRY HAS BEEN REVERSED ON THE 2 ND DAY OF APRIL OF THE SUCCEEDING YEAR, WHICH ITSELF PROVES THAT THERE HAS BEEN NO ACTUAL PAYMENT OF ANY LOAN TO THE APPELLANT WITHIN THE MEA NING OF SEC.2(22)(E) OF THE ACT AND EVEN THE BOOK ENTRY HAS BEEN NULLIFIED BY ITS SUBSEQUENT REVERSAL AND THUS TAKING AWAY THE VE RY BASIS OF THE IMPUGNED ADDITION UNDER S.2(22)(E). THE LD.A.R SUBM ITTED THAT THE LD.CIT(A) ERRED IN NOT TAKING COGNIZANCE OF THE LE TTER ISSUED BY THE COMPANY CONCERNED AFFIRMING THAT NO LOAN WAS ACTUAL LY PROVIDED TO THE APPELLANT BUT ONLY A MERE BOOK ENTRY WAS MADE A ND IT WAS SUBSEQUENTLY REVERSED. ACCORDING TO LD.A.R, THE SEC TION 2(22)(E) IS NOT APPLICABLE TO THE APPELLANTS CASE IN THE ABSEN CE OF THE ACTUAL PASSING OF MONEY IN CASH OR BY CHEQUE TO THE APPELL ANT AND HAS GROSSLY ERRED IN REJECTING THE PLEA ADVANCED BY THE APPELLANT PLACING ITA NO.639 /MDS/2017 6 UNDUE RELIANCE ON THE BOOK ENTRY, WHICH HAS BEEN MA DE WITHOUT THE KNOWLEDGE OF THE APPELLANT AND WHICH HAS BEEN SUBSE QUENTLY REVERSED, MAKING IT A NON-EST. THE LD.A.R PLEADED T HAT THE ORDER OF THE CIT(APPEALS) IN RESPECT OF ADDITION U/S.2(22) (E) OF THE ACT MAY BE SET ASIDE AND ADDITIONS MAY BE DELETED. 5. ON THE OTHER HAND, LD.D.R SUBMITTED THAT AS PE R S.2(22)(E), DIVIDEND INCLUDES ANY PAYMENT BY A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARE S HOLDING NOT LESS THAN 10% OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER IN WHICH HE HA S A SUBSTANTIAL INTEREST OR ANY PAYMENT BY ANY SUCH COMPANY ON BEH ALF, OR FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER TO THE E XTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S. THE HONBLE SU TOME COURT IN P SARADA V. CIT 229 TR 411 HELD TH AT WITHDRAWAL IS BY SHAREHOLDER WHO HAD SUBSTANTIAL INTEREST BY COMP ANY IN WHICH PUBLIC WERE NOT SUBSTANTIALLY INTERESTED AND WHICH HAD ACCUMULATED PROFITS FROM THE COMPANY AMOUNTED TO LOAN; OR ADVAN CE BY THE COMPANY TO SHAREHOLDER ATTRACTING S.2(22)(E) THE FA CT THAT LOAN OR ITA NO.639 /MDS/2017 7 ADVANCE WAS ULTIMATELY ADJUSTED AT THE END OF THE Y EAR AGAINST THE CREDIT BALANCE OF ANOTHER SHAREHOLDER WILL NOT ALTE R THE POSITION. IN TARULATA SHYAM & OTHERS V. CIT 108 LTR 345 (SC) IT WAS OBSERVED THAT THE PROVISIONS OF S.2(22)(E) ARE ATTRACTED EVE N IN A CASE WHERE LOAN ADVANCED TO A SHAREHOLDER WAS REPAID WITHIN 23 DAYS. SIMILARLY, IN THE CASE OF SUJATHA VENKATESWARAN V. ACIT 61 LTD 485 THE MADRAS ITAT ON THE FACTS WHERE LOAN WAS TAKEN FROM CLOSELY HELD COMPANY WHERE ASSESSEE IS A SHAREHOLDER OBSERVED THAT THE C OMMERCIAL PROFITS UPTO THE DAY OF DISTRIBUTION WAS TO BE COMP UTED AND FOR THE PURPOSE IT WAS REQUIRED TO SEE THE ACCUMULATED PROF ITS FOR WORKING OUT THE EXTENT OF DEEMED DIVIDEND. IN T. SUNDARAM CHETT IAR AND ANOTHER V. CIT 49 ITR 287 THE HONBLE JURISDICTIONAL COURT HAVE HELD THAT PAYMENT FOR THE PURPOSE OF S.2(22)(E) NEED NOT BE CASH PAYMENT. A RELATIONSHIP OF DEBTOR AND CREDITOR BETWEEN THE SHA REHOLDER AND THE COMPANY IS SUFFICIENT. THE LD.D.R SUBMITTED THAT TH E REASONS ADVANCED BY THE ASSESSEE FOR NON-EXIGIBILITY OF S. 2(22)(E) TO THE IMPUGNED TRANSACTION CANNOT BE UPHELD. . THE APPELL ANTS ARGUMENT THAT MERE HOOK ENTRIES PASSED IN THE HOOKS OF THE C OMPANY DO NOT CONSTITUTE LOAN ETC WHEN THERE WAS NO OUTFLOW OF FU NDS THEREFORE ITA NO.639 /MDS/2017 8 CANNOT SUPPORT ITS PLEA. SIMILARLY THE PLEA THAT TH E BOOK ENTRY WAS MADE WITHOUT THE KNOWLEDGE OF THE APPELLANT WHO WAS A MERE EMPLOYEE CANNOT HELP THE CASE IN VIEW OF THE FACT T HAT THE APPELLANT WAS A DIRECTOR WITH SUBSTANTIAL INTEREST IN THE COM PANY. HENCE, THE LD.D.R SUPPORTED THE ORDER OF LOWER AUTHORITIES. 6. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE COMPANY IS HAV ING ACCUMULATED PROFIT AND THE ONLY ARGUMENT OF THE LD.A.R IS THAT IT IS ONLY A JOURNAL ENTRY PASSED BY THE COMPANY, VIZ. M/S.ANANDRAM DEVE LOPERS PVT LTD.,. IN MY OPINION, EVEN JOURNAL ENTRY IS HAVING A FINANCIAL IMPLICATION AND IT MAY NOT BE OVERLOOKED AS DECIDED BY THE TRIBUNAL IN THE CASE OF GURBINDER SINGH VS. ACIT REPORTED IN (2016) 161 ITD 0256 (CHENNAI) WHEREIN HELD THAT:- 12. FURTHER, WE MAKE IT CLEAR THAT IN THE DOUBLE ENTRY OF BOOK KEEPING, THE JOURNAL ENTRY IS ALSO HAVE THE FINANCI AL IMPLICATION AND IT CANNOT BE IGNORED AS ARGUED BY THE LD.A.R. THE JOURNAL ENTRIES ARE ALSO TO BE CONSIDERED WHILE COMPUTING T HE YEARLY DEBIT BALANCE IN RESPECT OF LOANS AND ADVANCES. ITA NO.639 /MDS/2017 9 IN THE PRESENT CASE, THE ASSESSEE IS NOT ABLE TO SH OW HOW IT CANNOT BE CONSIDERED AS DEEMED DIVIDEND IN THE HANDS OF AS SESSEE. ACCORDINGLY, THERE IS NO EVIDENCE BROUGHT ON RECORD TO THIS EFFECT. HENCE, THE ORDER OF THE CIT(APPEALS) IS CONFIRMED. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMI SSED. ORDER PRONOUNCED ON 22 ND NOVEMBER, 2017. SD/- ( ) ( CHANDRA POOJARI ) /AC COUNTANT MEMBER CHENNAI, DATED THE 22 ND NOVEMBER, 2017 . K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF