KAILASH G. ANWALA, MUMBAI V. DCIT CEN CIR 3(4), MUMBAI

ITA 725/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9971 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 02-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JANARDHANAN
• Assessee Lawyers: RAJESH N VORA
• Keywords: Opportunity of being heard; Deemed dividend

Judgement Text

, SMC , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.725/MUM/2017 : ASST.YEAR 2012-2013 SHRI KAILASH G. ANWALA ROW HOUSE NO.4, DHEERAJ SAVERA OPP : SIDDHARTH NAGAR, BORIVALI MUMBAI 400 066. PAN : AEIPA8481R. / VS. DY.COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE 3(4) MUMBAI. ( / APPELLANT) ( / RESPONDENT) /APPELLANT BY : SHRI RAJESH N.VORA /RESPONDENT BY : SHRI V.JANARDHANAN / DATE OF HEARING : 04.07.2017 / DATE OF PRONOUNCEMENT : 01.09.2017 / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) DATED 29.11.2016 PERTAINING TO ASSESSMENT YEAR 2012-2013. 2. THE GROUNDS OF APPEAL READ AS UNDER:- ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER UPHOLDING ASSESSMENT OF RS.8,73,934/- ASSESSED TO TAX AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE I. T. ACT, 1961 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAS A RUNNING CURRENT ACCOUNT AND THE DEBITS IN THE SAID ACCOUNT DOES NOT FALL TO BE DEEMED DIVIDEND U/S. 2(22)(E) OF THE I. T. ACT, 1961 3. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE APPELLANT HAD TRANSFERRED THE SAID AMOUNT OF RS.8,73,934/- TO HIS PERSONAL ACCOUNT APPREHENDING ONLINE FRAUDS AND CYBER RELATED CRIMES ON WHICH THE RESERVE BANK HAD CAUTIONED. HE SHOULD HAVE APPRECIATED THAT COMPANY'S ACCOUNTS WERE SOFT TARGETS THAN INDIVIDUAL ACCOUNTS AND ITA NO.725/MUM/2017. SHRI KAILASH G ANWALA. 2 THEREFORE HE HAD TRANSFERRED THE SAID AMOUNT IN SAFEGUARDING INTERESTS OF THE COMPANY. HE OUGHT NOT TO HAVE CONSIDERED THE SAME AS LOAN TAKEN BY THE APPELLANT TO CHARGE U/S. 2(22)(E) OF THE I. T. ACT 1961. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AMEND, VARY OR DELETE ANY OR ALL THE ABOVE GROUNDS OF APPEAL. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT ASSESSEE IS AN INDIVIDUAL. HE IS ALSO A SHAREHOLDER AND DIRECTOR IN NEXUS PROJECTS SOLUTIONS PRIVATE LIMITED. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR ASSESSEE HAD TAKEN A LOAN OF RS.8,73,934 FROM NEXUS PROJECT SOLUTIONS PRIVATE LIMITED, WHEREIN HE WAS THE DIRECTOR HOLDING MORE THAN 10% OF VOTING POWER AND HENCE, THE AMOUNT OF RS.8,73,934 WAS TAXED IN THE HANDS OF THE ASSESSEE BY CONSIDERING THE SAME AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 4. UPON ASSESSEES APPEAL, LEARNED CIT(A) CONFIRMED THE ADDITION BY HOLDING AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMISSIONS AND CONTENTIONS OF THE APPELLANT, AS ALSO THE ORDER OF THE AO. IN ITS SUBMISSIONS, THE ASSESSEE HAS BROUGHT OUT THE FACTS THAT DUE TO RECENT EPISODES OF ONLINE FRAUDS AND CYBER CRIMES, HE BEING A DIRECTOR OF A SMALL COMPANY, WAS WORRIED ABOUT THE FUNDS IN THE COMPANY'S ACCOUNTS AND AS A RATIONALE PRECAUTION THE ASSESSEE CLAIMED THAT HE TRANSFERRED AN AMOUNT OF RS 8,73,934/- FROM COMPANY'S ACCOUNT TO HIS ACCOUNT WITH A VIEW TO SECURE THE SAME AMOUNT FROM ANY KIND OF ONLINE FRAUDS AND CYBER RELATED CRIMES. IT IS NOT UNDERSTANDABLE AS TO WHEN THIS AMOUNT WAS UNSAFE IN COMPANY'S ACCOUNT THEN HOW THIS AMOUNT WOULD REMAIN SAFE IN ASSESSEE'S OWN ACCOUNT. IF THE COMPANY'S ACCOUNT CAN BE HACKED OR MANIPULATED BY CYBER CRIMINALS, IT COULD VERY WELL HAPPEN WITH THE ACCOUNT OF ASSESSEE ALSO. THEREFORE, THIS EXPLANATION OF THE ASSESSEE DOES NOT INSPIRE ANY ITA NO.725/MUM/2017. SHRI KAILASH G ANWALA. 3 CONFIDENCE AND LACKS SUBSTANCE. AS STATED ABOVE, THE AMOUNT OF RS 8,73,934/- IS TRANSFERRED FROM COMPANY'S ACCOUNT TO THE ASSESSEE'S ACCOUNT AND ASSESSEE HOLDS MORE THAN 10% OF VOTING POWER THEREFORE SUCH A TRANSFER IS STRUCK BY THE PROVISIONS OF SEC. 2(22)(E) WHICH PROHIBITS DIRECTOR HOLDING OF SUBSTANTIAL INTEREST IN COMPANY, TO ENJOY ANY FUNDS OF THE COMPANY. THEREFORE, CONSIDERING THE OVERALL FACTS OF THE CASE, I UPHOLD THE STAND TAKEN BY THE AO AND CONFIRM THE ADDITION OF RS.8,73,934/- MADE U/S 2(22)(E) OF THE ACT. 5. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 6. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE REITERATED THE SUBMISSION THAT THE ASSESSEE HAD REMOVED THE SAID AMOUNT FROM THE COMPANYS BANK ACCOUNT TO HIS PERSONAL ACCOUNT TO SAVE THE MONEY IN COMPANY ACCOUNT FROM CYBER FRAUD. HE SUBMITTED THAT ASSESSEE HAD SUFFICIENT MEANS AND THERE WAS NO NEED FOR THE ASSESSEE TO TAKE ANY LOAN FROM THE COMPANY. HE FURTHER SUBMITTED THAT ASSESSEE IS A DIRECTOR OF THE COMPANY AND HE HAD THE CURRENT ACCOUNT WITH THE COMPANY WHEREIN BOTH DEBIT AND CREDIT ENTRIES ARE THERE. HENCE HE SUBMITTED THAT THE ADDITION IN THIS CASE AS DEEMED DIVIDEND IS NOT CALLED FOR. 7. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT AUTHORITIES BELOW HAVE PASSED THE CORRECT ORDER AFTER APPRECIATION OF THE FACTS OF THE CASE. HE CLAIMED THAT ASSESSEES PLEA THAT HE HAD TO TRANSFER THE MONEY FROM THE COMPANYS BANK ACCOUNT TO HIS PERSONAL ACCOUNT TO SAVE THE COMPANYS MONEY FROM CYBER FRAUD IS TOTALLY WITHOUT ANY BASIS. HENCE HE SUBMITTED THAT THE ORDERS OF THE AUTHORITIES BELOW SHOULD BE UPHELD. 8. UPON CAREFUL CONSIDERATION, I FIND THAT THE PLEA OF THE ASSESSEE THAT HE HAD TRANSFERRED THE SAID AMOUNT FROM COMPANYS ACCOUNT TO HIS PERSONAL ITA NO.725/MUM/2017. SHRI KAILASH G ANWALA. 4 ACCOUNT TO SAVE THE COMPANYS MONEY FROM CYBER FRAUD IS NOT BASED UPON ANY COGENT MATERIAL ON RECORD. HENCE THIS PLEA IS DEVOID OF ANY COGENCY. FURTHERMORE, NO SUCH EXCEPTION IS CARVED OUT IN THE DEEMING PROVISIONS OF SECTION 2(22)(E) 9. HOWEVER, THE ASSESSEES PLEA THAT ASSESSEE IS DIRECTOR OF THE COMPANY AND HE HAD A CURRENT ACCOUNT WITH THE COMPANY WITH DEBIT AND CREDIT ENTRY NEEDS CONSIDERATION. I FIND THAT THIS ARGUMENT WAS NOT BEFORE THE AUTHORITIES BELOW. HENCE IT NEEDS FACTUAL RECONSIDERATION AT THE LEVEL OF THE ASSESSING OFFICER. FURTHERMORE, I NOTE THAT HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. IDHAYAM PUBLICATIONS 285 ITR 221, HAS HELD THAT CURRENT ACCOUNT WITH THE DIRECTOR DOES NOT GIVE RISE TO ANY LOAN OR DEPOSIT. HENCE I REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE ISSUE AFRESH KEEPING IN MIND THE DISCUSSIONS AS ABOVE. NEEDLESS TO ADD, THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 01 ST DAY OF SEPTEMBER, 2017. SD/- ( SHAMIM YAHYA ) ACCOUNTANT MEMBER MUMBAI; DATED : 01 ST SEPTEMBER, 2017. DEVDAS* ITA NO.725/MUM/2017. SHRI KAILASH G ANWALA. 5 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A), MUMBAI 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE.