M/s Sri Uppala Kantha Rao, Secunderabad V. Dy.CIT, Circle-1(1), Hyderabad

ITA 700/HYD/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0305 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 16-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: S RAMA RAO
• Keywords: Deemed dividend
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.700/HYD/2014 ASSESSMENT YEAR 2005-2006 MR. UPPALA KANTHA RAO SECUNDERABAD. PAN AAHPU8093N VS. DCIT, CIRCLE 1(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. S. RAMA RAO FOR REVENUE : MR. RAMAKRISHNA BANDI DATE OF HEARING : 09 .07.2015 DATE OF PRONOUNCEMENT : 29 .07.2015 ORDER PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-II, HYDERABAD DATED 24.11.2014 WHEREBY SHE CONFIRMED THE ADDITION OF RS.3,43,493 MADE BY THE A.O. TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTIO N 2(22)(E) OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUAL WHO IS A DIRECTOR IN M/S. ASTER P. LIMIT ED. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION W AS ORIGINALLY FILED BY HIM ON 30.10.2005 DECLARING TOT AL INCOME OF RS.14,04,442. THE SAID RETURN WAS INITIAL LY 2 ITA.NO.700/HYD/2014 MR. UPPALA KANTHA RAO, HYDERABAD. PROCESSED BY THE A.O. UNDER SECTION 143(1) OF THE A CT. THEREAFTER, ON 25.01.2011 A SURVEY UNDER SECTION 13 3A WAS CARRIED OUT IN THE CASE OF M/S. ASTER P. LIMITE D. AS FOUND DURING THE COURSE OF SURVEY, THE ASSESSEE HAD RECEIVED CERTAIN LOANS/ADVANCES FROM M/S. ASTER P. LIMITED. SINCE THE PROVISIONS OF SECTION 2(22)(E) W ERE APPLICABLE TO THE SAID LOANS/ADVANCES AND THE AMOUN T OF SUCH LOANS/ADVANCES WAS LIABLE TO BE TAXED IN THE H ANDS OF THE ASSESSEE AS DEEMED DIVIDEND FOR THE YEAR UND ER CONSIDERATION, ASSESSMENT WAS REOPENED BY THE A.O. BY ISSUING A NOTICE UNDER SECTION 148 ON 21.03.2011 AF TER RECORDING THE REASONS. IN RESPONSE TO THE SAID NOTI CE, THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 20.06 .2011 DECLARING TOTAL INCOME OF RS.29,85,281 WHICH WAS INCLUSIVE OF AN AMOUNT OF RS.16,15,103 OFFERED BY T HE ASSESSEE ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTIO N 2(22)(E). 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ISSUE RELATING TO QUANTIFICATION OF AMOUNT OF D EEMED DIVIDEND CAME UP FOR CONSIDERATION. IN THIS REGARD, A PETITION UNDER SECTION 144A OF THE ACT WAS FILED BY THE ASSESSEE SEEKING DIRECTIONS FROM THE CONCERNED ADDL . CIT. THE STAND TAKEN BY THE ASSESSEE BEFORE THE ADDL. CI T WAS THAT THE SHARE APPLICATION MONEY DEPOSITED BY HIM W ITH THE COMPANY WAS AVAILABLE AT THE RELEVANT TIME IN A SEPARATE ACCOUNT AND THE SAME SHOULD BE ADJUSTED AGAINST THE LOANS/ADVANCES RECEIVED BY THE ASSESSEE FROM THE COMPANY FOR THE PURPOSE OF WORKING OUT THE AMOU NT 3 ITA.NO.700/HYD/2014 MR. UPPALA KANTHA RAO, HYDERABAD. OF DIVIDEND UNDER SECTION 2(22)(E). THIS STAND OF T HE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE ADDL. CIT AND REJECTING THE SAME, HE ISSUED THE FOLLOWING DIRECTI ONS UNDER SECTION 144A TO THE A.O. (I) THE MONEY ADVANCED BY THE ASSESSEE AS SHARE APPLICATION MONEY IS WITH AN INTENTION FOR THE PURPOSE OF INVESTMENT IN THE SHARES OF THE SAID COMPANY. IT IS NOT ADVANCED BY THE ASSESSEE WITH A VIEW TO MAINTAIN RUNNING BALANCE. ON THE OTHER HAND, CURRENT ACCOUNT IS IN THE NATURE OF PERIODICAL TRANSACTIONS WHEREIN IF THE ASSESSEE NEED MONEY, COMPANY MAY BORROW OR TAKE ADVANCE FROM THE ASSESSEE. THEREFORE, IT WOULD BE IMPROPER TO COMBINE BOTH THE ACCOUNTS FOR THE PURPOSE OF DETERMINATION OF DEEMED DIVIDEND. THEREFORE, THE CURRENT ACCOUNT TO BE CONSIDERED FOR DETERMINATION OF DEEMED DIVIDEND VIS-A-VIS SHARE APPLICATION MONEY ACCOUNT. (II) WHENEVER, THE CURRENT ACCOUNT SHOWS CREDIT BALANCE IN FAVOUR OF THE ASSESSEE, IT CANNOT BE HELD THAT THE ASSESSEE TOOK AN ADVANCE FROM THE COMPANY. EVEN IF HE TOOK SUCH ADVANCE, IT IS FROM THE MONEY LYING WITH THE COMPANY AS BORROWING FROM HIM. THEREFORE, TO THE EXTENT CREDIT IS AVAILABLE TO THE ASSESSEE (AS OPENING BALANCE OR DURING ANY PART OF THE YEAR), NO ADDITION CAN BE MADE ON THE MONEY TAKEN BY HIM AS REPAYMENT OF AN ADVANCE OR SHORT TERM HAND LOAN BY HIM TO THE COMPANY. DEEMED DIVIDEND WOULD ARISE ONLY WHEN THE ADVANCE TAKEN BY THE ASSESSEE EXCEEDS THE CREDIT BALANCE IN HIS NAME TO THE EXTENT THERE IS EXCESS ADVANCE OR IN A SITUATION WHERE THERE IS NO CREDIT BALANCE IN HIS ACCOUNT. IN OTHER WORDS, FOR EACH TRANSACTION, THE OPENING BALANCE IN THE ACCOUNT OF THE 1ESSEE IS TO BE VERIFIED AND DECISION TO BE TAKEN FOR EACH TRANSACTION. 4 ITA.NO.700/HYD/2014 MR. UPPALA KANTHA RAO, HYDERABAD. 4. AS PER THE DIRECTIONS OF THE LEARNED ADDL. CIT GIVEN UNDER SECTION 144A, THE AMOUNT OF DEEMED DIVI DEND LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE UND ER SECTION 2(22)(E) WAS WORKED OUT BY THE A.O. AT RS.19,58,596 AS AGAINST THE AMOUNT OF RS.16,15,103 OFFERED BY THE ASSESSEE AND THE DIFFERENCE OF RS.3, 43,493 WAS ADDED BY HIM TO THE TOTAL INCOME OF THE ASSESSE E IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT VIDE ORDER DATED 16.12.2011. 5. AGAINST THE ORDER PASSED BY THE A.O. UNDER SECTION 143(3) READ WITH SECTION 147, AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) DISPUTING INTER ALIA, ADDITION OF RS.3,43,493 MADE ON ACCOUNT OF DEEMED DIVIDEND UNDER SECTION 2(22)(E). BEFORE THE LD. CIT (A), THE STAND TAKEN BEFORE THE A.O./ADDL. CIT WAS REITERATE D BY THE ASSESSEE CLAIMING ADJUSTMENT/SET OFF ON ACCOUNT OF SHARE APPLICATION MONEY AGAINST THE AMOUNT OF LOANS/DEPOSITS FOR THE PURPOSE OF QUANTIFYING THE A MOUNT OF DIVIDEND UNDER SECTION 2(22)(E). THE LD. CIT(A) HOWEVER, DID NOT FIND MERIT IN THE STAND OF THE ASSESSEE. AC CORDING TO HIM, MONEY AVAILABLE IN THE SHARE APPLICATION AC COUNT WAS AVAILABLE ONLY FOR THE PURPOSE OF ALLOTTING THE SHARES AND THE SAME THEREFORE, COULD NOT BE ADJUSTED AGAIN ST THE AMOUNT OF LOANS/DEPOSITS RECEIVED BY THE ASSESSEE F ROM THE COMPANY FOR WORKING OUT THE AMOUNT OF DEEMED DIVIDEND UNDER SECTION 2(22)(E). HE THEREFORE, CONF IRMED THE ADDITION MADE BY THE A.O. ON THIS ISSUE. AGGRIE VED BY 5 ITA.NO.700/HYD/2014 MR. UPPALA KANTHA RAO, HYDERABAD. THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS PREFE RRED THIS APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE MATERIAL ON RECORD. ALTH OUGH, THE LEARNED D.R. HAS STRONGLY SUPPORTED THE IMPUGNE D ORDER OF THE LD. CIT(A) DECLINING TO GIVE ADJUSTMEN T/SET OFF ON ACCOUNT OF SHARE APPLICATION MONEY FOR THE PURPO SE OF QUANTIFYING THE AMOUNT OF DEEMED DIVIDEND UNDER SEC TION 2(22)(E) BY CONTENDING THAT THE USE OF SHARE APPLIC ATION MONEY IS RESTRICTED AS POINTED OUT BY THE A.O. AS W ELL AS THE LD. CIT(A), THE LD. COUNSEL FOR THE ASSESSEE HA S CONTENDED THAT THIS ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CH. RAVINDRA BABU VS. ACIT, HYDERABAD RENDERED VIDE ITS ORDER DATED 20.05.2015 PASSED IN ITA.NO.85/HYD/2014 WHEREIN A SIMILAR ADJUSTMENT/SET OFF ON ACCOUNT OF SHARE APPLICATION MONEY FOR THE PURPOSE OF QUANTIFYING THE AMOUNT OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) HAS BEEN ALLOWED BY THE TRIBUNAL. HE HAS ALSO PLACED ON RECORD A COPY OF TH E SAID ORDER OF THE TRIBUNAL AND PERUSAL OF THE SAME SHOWS THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AFTER RECORDING ITS OBSERVATIONS IN PARAGRAPH NO.8 OF ITS ORDER WHICH READ AS UNDER : 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIALS ON RECORD. IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT THE AO HAS ACCEPTED ASSESSEE'S PLEA THAT DEPOSITS/CREDITS 6 ITA.NO.700/HYD/2014 MR. UPPALA KANTHA RAO, HYDERABAD. STANDING IN THE NAME OF THE ASSESSEE IN THE BOOKS O F THE COMPANY SHOULD ALSO INCLUDE THE SHARE APPLICATION MONEY. HOWEVER, ON WHAT BASIS THE AO HAS ARRIVED AT THE TOTAL DEPOSITS/CREDITS AT RS. 2,71,08,240/- IS NOT UNDERSTOOD. ON A PERUSAL OF THE RESPECTIVE LEDGER A/CS I.E., SHARE APPLICATION MONEY AND REMUNERATION PAYABLE IN THE NAME OF ASSESSEE IN THE BOOKS OF COMPANY, COPIES OF WHICH ARE AT PAGE NO.5 AND 7 OF PAPER BOOK REVEALS THAT I N THE SHARE APPLICATION MONEY ACCOUNT, TOTAL CREDITS DURING THE YEAR IS RS. 2,68,50,000/- WHICH INCLUDES AN AMOUNT OF RS. 2,61,50,000/- TOWARDS SHARE APPLICATION MONEY, WHILE TOTAL DEBIT STANDS AT RS. 2 CRORES. THUS, THERE IS A CLOSING CREDIT BALANCE OF RS. 68,50,000/-. SIMILARLY, ON GOING THROUGH THE LEDGER COPY OF REMUNERATION PAYABLE ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE COMPANY IT IS SEEN THA T WHILE TOTAL CREDITS DURING THE YEAR IS RS. 1,16,77,808/-, THE TOTAL DEBIT IS RS.1,15,43,512/-. THUS, IN BOTH THE ACCOUNTS, THERE IS A SURPLUS OF CREDIT OVER THE DEBIT. IT IS FURTHER EVIDENT, THOUG H, THE AO WHILE CONSIDERING THE WITHDRAWALS MADE BY THE ASSESSEE HAS TAKEN ALL DEBITS IN BOTH THE ACCOUNTS, HOWEVER, WHILE CONSIDERING THE DEPOSITS, HE HAS NOT TAKEN ALL CREDITS OF BOTH THE ACCOUNTS. IF THE TOTAL CREDIT BALANCE OF BOTH THE ACCOUNTS IS CORRECTLY COMPUTED, THEN, IT WILL COME TO RS. 3,85,27,808/- AS AGAINST RS. 2,71,08,240/- TAKEN BY AO WHICH IS MUCH MORE THAN THE TOTAL WITHDRAWALS OF RS. 3,15,43,512/- CONSIDERED BY THE AO FOR BOTH THE ACCOUNTS. ON PERUSAL OF MATERIALS O N RECORD IT IS CLEARLY EVIDENT THAT ACTUALLY THERE IS NO EXCESS WITHDRAWAL OF MONEY BY THE ASSESSEE FROM THE COMPANY'S ACCOUNT. THE SO CALLED PEAK WITHDRAWAL OF RS. 44,35,272/- IS REALLY NON- EXISTENT, HENCE, CANNOT BE CONSIDERED AS DEEMED DIVIDEND II]. 2 (22)(E) OF THE ACT AT THE HANDS OF THE ASSESSEE. IN OUR VIEW, THE LD.CIT(A) HAS FAILED TO PROPERLY APPRECIATE THE AFORESAID FACTUAL POSITION. IN VIEW OF THE AFORESAID, WE FIND NO REASON TO SUSTAIN THE ADDITION MADE AND ACCORDINGLY DELETE THE AMOUNT OF RS. 44,35,272/-. IN THE RESULT, THE GROUNDS ARE ALLOWED. 7 ITA.NO.700/HYD/2014 MR. UPPALA KANTHA RAO, HYDERABAD. 7. AS THE ISSUE INVOLVED IN THE PRESENT CASE AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THE CASE OF MR. CH. RAVINDRA BABU (SUPRA), WE RESPE CTFULLY FOLLOW THE DECISION RENDERED BY THE COORDINATE BENC H OF THIS TRIBUNAL IN THE SAID CASE AND DELETE THE ADDIT ION OF RS.3,43,494 MADE BY THE A.O. AND CONFIRMED BY THE L D. CIT(A) TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOU NT OF DEEMED DIVIDEND UNDER SECTION 2(22)(E). 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 29.0 7.2015. SD/- SD/- (SAKTIJIT DEY) (P.M. JAGTAP) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATED 29 TH JULY, 2015 VBP/- COPY TO : 1. MR. UPPALA KANTHA RAO, E - 67, 4 TH CRESCENT ROAD, SAINIKPURI, SECUNDERABAD. 2. THE DCIT, CIRCLE 1 ( 1 ), HYDERABAD. 3. CIT (A) - II , HYDERABAD. 4 . CIT - I , HYDERABAD 5 . D.R. ITAT A BENCH, HYDERABAD. 6 . GUARD FILE