NAVROZE SHIAMAK MARSHALL, MUMBAI V. ACIT (OSD) CIR 2(1), MUMBAI

ITA 7694/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62518 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAVIN VARMA
• Keywords: Gift; Additional evidence; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI R.S.SYAL (A.M) & SHRI I.P.BANSAL (J. M) ITA NO. 7694/MUM/2010(A.Y. 2007-08) MR. NAVROZE SHIAMK MARSHALL, APEEJAY CHAMBERS, 5, WALLACE STREET, FORT, MUMBAI - 400 001 PAN: AACPM 5508 R (APPELLANT) VS. ASSTT. COMMISSIONER OF INCOME - TAX, CIR. 12(1), AAYKAR BHAVAN, M.K.ROAD, MUMBAI - 20. (RESPONDENT) APPELLANT BY : SHRI J.P.BAIRAGRA RESPONDENT BY : SHRI PRAVIN VARMA DATE OF HEARING : 28/05/2012 DATE OF PRONOUNCEMENT : 06 /06/2012 ORDER PER I.P.BANSAL, J.M THIS APPEAL IS FILED BY THE ASSESSEE. IT IS DIREC TED AGAINST THE ORDER PASSED BY THE CIT(A)-23, MUMBAI DATED 26/08/2010 FOR ASSESSMENT YEAR 2007-08. THE GROUNDS OF APPEAL RAISED BY THE ASSE SSEE READ AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN CONFIRMING THE ADDITION OF RS. 2,63,70,760/- ON ACC OUNT OF ALLEGED DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOM E TAX ACT, 1961. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) FURTHER ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN H OLDING THAT PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX AC T, 1961 ARE APPLICABLE IN THE CASE OF THE APPELLANT. ITA NO. 7694/MUM/2010(A.Y. 2007-08) 2 2. THE ASSESSEE IN THE PRESENT CASE IS A DIRECTOR A ND SHAREHOLDER OF M/S. S.J. MARSHALL TRADING COMPANY PVT. LTD, FORT, MUMBA I. FROM THE COPY OF ACCOUNT OF THE ASSESSEE WITH THE AFOREMENTIONED COM PANY IT WAS FOUND BY THE AO THAT TWO PAYMENTS OF RS. 1.60 CRORES AND RS. 1.10 CRORES WERE MADE TO THE ASSESSEE. THERE BEING SUFFICIENT RESE RVE AND SURPLUS AVAILABLE WITH THE AFOREMENTIONED COMPANY TO THE TUNE OF RS. 3,34,00,000/- AS ON 31/3/2007, THE AO ASKED THE ASSESSEE TO EXPLAIN A S TO WHY THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 (TH E ACT) SHOULD NOT BE INVOKED. IT WILL BE RELEVANT TO REPRODUCE THE LEDG ER ACCOUNT OF THE ASSESSEE WITH THE AFOREMENTIONED COMPANY. LEDGER ACCOUNT OF NAVROZE S . MARSHALL V.NO. DATE PARTICULARS BOOK DEBIT CREDIT BALANCE MASTER MAVROZE S. MARSHALL 2501N01 OPENING BALANCE 0.00 629239.68 BC01UB003 20-04-06 ON ACCOUNT B 16000000.00 15370760.32DB DD05UB003 29-08-06 ON ACCOUNT B 10400000.00 DD05UB004 29-08-06 ON ACCOUNT B 600000.00 BC04UB011 30-08-06 B 11000000.00 15370760.32DB BD10CB025 23-01-07 NAVROZE MARSHALL B 5000000.00 10370760.32DB JJ120010 31-03-07 BEING THE ENTRY FOR ADJUSTMENT OF ABOVE ACCOUNTS AS PER LETTER ATTACHED J 10370760.12 --------------- ------------- 0.00 CR TOTAL 27000000.00 27000000.00 CLS. BAL. 0.00 0.00 27000000.00 27000000.00 2.1 BEFORE AO,THE ASSESSEE CLAIMED THAT SHRI S.J. M ARSHALL (SJM), THE FATHER OF THE ASSESSEE HAD INSTRUCTED THE COMPANY T O GIFT A SUM OF RS. 1.60 CRORES TO HIS SON ( THE ASSESSEE). A LETTER DATED 18/4/2006 TO THE SAID EFFECT WAS WRITTEN BY THE FATHER OF THE ASSESSEE TO THE CO MPANY A COPY OF WHICH WAS ALSO FILED WITH THE AO. FROM THESE CONTENTIONS OF THE ASSESSEE THE AO NOTICED THAT THERE WAS NO TRACE TOWARDS A CORRESPON DING ADJUSTMENT ENTRY IN ITA NO. 7694/MUM/2010(A.Y. 2007-08) 3 THE ACCOUNT OF SJM. THE AO ALSO NOTICED THAT THR OUGH ANOTHER LETTER DATED 31/3/2007 SJM HAD INSTRUCTED THE COMPANY TO SQUAR E OFF THE OUTSTANDING DEBIT BALANCE OF RS. 1.03 CRORES IN HIS SONS (ASSES SEES) ACCOUNT BY DEBITING HIS ACCOUNT. THE ACCOUNT OF THE FATHER WITH THE A SSESSEE COMPANY IS ALSO REPRODUCED IN THE ASSESSMENT ORDER AND THE SAME IS REPRODUCED AS UNDER: LEDGER ACCOUNT OF S.J. M ARSHALL V.NO. DATE PARTICULARS BOOK DEBIT CREDIT BALANCE S.J. MARSHALL 2501N01 OPENING BALANCE 4498606.12 0.00 JJ12001 04/04/06 BEING THE ENTRY FOR NOW ADJUSTING YOUR ACCOUNT TOWARDS COST OF PAINTINGS RENDERED FROM YOU AS PER STATEMENT ATTACHED. J 17300000.00 12801393.88CR BC02UB005 0/4/05/06 SUPERSTAR VIDEO LABS B 36000.00 12765393.88CR BC11CB035 02/02/07 ON ACCOUNT B 800000.00 11965393.88CR JJ120008 31/3/07 BEING ENTRY FOR RECORDING J 17485.00 JJ120010 31/03/07 BEING THE ENTRY FOR ADJUSTMENT OF ABOVE ACCOUNTS AS PER LETTER ATTACHED J 12575566.06 JJ120011 31-03-07 BEING THE ENTRY FOR ADJUSTMENT OF ABOVE ACCOUNTS AS PER LETTER ATTACHED B 166750.00 460907.18DB -------------- ---------------- TOTAL 17927657.18 17466750.00 CLS. BAL. 0.00 460907.18 DB 17927657.18 17927657.18 2.2 THE AO NOTICED THAT ASSESSEE WAS HOLDING 76% OF EQUITY SHARES OF THE AFOREMENTIONED COMPANY AND BALANCE 24% SHARES ARE H ELD BY THE MOTHER OF THE ASSESSEE. THE AO ALSO NOTICED THAT THE AMOUNT OF RS. 1.60 CRORES GIVEN ITA NO. 7694/MUM/2010(A.Y. 2007-08) 4 TO THE ASSESSEE WAS UTILIZED FOR HIS INDIVIDUAL BEN EFIT AS MUTUAL FUND UNITS WERE PURCHASED FROM THE SAID FUNDS BY THE ASSESSEE. VIDE LETTER DATED 11/8/2009, IT WAS EXPLAINED THAT THE AFOREMENTI ONED LETTERS OF THE FATHER OF THE ASSESSEE WRITTEN TO THE COMPANY WERE SELF EX PLANATORY. COPY OF PAINTING ACCOUNT IN THE BOOKS OF THE COMPANY WER E ALSO FILED SHOWING THE PURCHASE MADE BY THE COMPANY OF PAINTING WORTH RS . 1.73 CRORES. IT WAS SUBMITTED THAT PAINTINGS WERE PERSONAL EFFECTS OWNE D BY THE FATHER OF THE ASSESSEE AND SAID PURCHASE OF PAINTING WAS APPEAR ING IN THE BALANCE SHEET OF THE SAID COMPANY IN THE FIXED ASSET SCHEDULE. I T WAS CLAIMED THAT THE AMOUNT OF RS. 1.60 CORES WAS RECEIVED BY HIM ON ACC OUNT OF GIFT FROM HIS FATHER AND WAS NOT PAID TO HIM BY THE COMPANY. T HE A.O REJECTED SUCH CONTENTIONS OF THE ASSESSEE ON THE FOLLOWING GROUN DS: (I) THE AMOUNT OF RS. 1.60 CRORES IS CLEARLY REFLE CTED AS DEBIT BALANCE, THEREFORE, THE ASSESSEE OWED A HUGE SUM TO THE C OMPANY RIGHT FROM 20/4/2006 TILL THE END OF THE YEAR UNTIL SUCH ADJU STMENT WAS MADE ON THE DIRECTION OF SJM VIDE LETTER DATED 31/3/2007. THE SAID AMOUNT WAS NOT A GIFT AS THE SAID AMOUNT WAS NOT DEBITED TO THE ACCO UNT OF THE FATHER ON THE SAME DAY I.E. 20/4/2006, WHEN THE ACTUAL BANK TRA NSFER WAS MADE FROM THE COMPANYS BANK ACCOUNT. THE LETTER DATED 18/4 /2006 WRITTEN BY SJM TO THE AFOREMENTIONED COMPANY WAS JUST AN AFTERTHOU GHT. THE LETTER WAS SELF SERVING AND WAS TO BE DISCARDED AS HAVING NO EVIDE NTIARY VALUE. THERE WAS NO CONFIRMATION FROM THE COMPANY EITHER FOR THE REC EIPT OF SUCH REQUEST FROM SJM OR THE ACKNOWLEDGEMENT ON THE SUCCESSFUL EXEC UTION OF THE SAID REQUEST. IN THIS MANNER THE AO DISCARDED THE CONTE NTION OF THE ASSESSEE REGARDING HAVING RECEIVED THE SAID AMOUNT AS GIFT F ROM HIS FATHER. (II) THE LEDGER ACCOUNT OF THE ASSESSEE WILL REVE AL THAT THE CLOSING DEBIT BALANCE IN THE SAID ACCOUNT WAS TO THE TUNE OF RS. 1.03 CRORES WHICH WAS SQUARED OFF WITH THE CREDIT ENTRY OF THE SAME AMOUN T AND AS AGAINST THAT ITA NO. 7694/MUM/2010(A.Y. 2007-08) 5 DEBIT ENTRY IN THE ACCOUNT OF THE FATHER AS ON 31/3 /2007 WAS THAT OF RS. 1.25 CORES. (III) THE ASSESSEE HAS FAILED TO EXPLAIN THE CREDI T ENTRY OF RS. 1.03 CRORES AND CORRESPONDING ADJUSTMENT ENTRY OF HIS FATHERS ACCO UNT OF RS.1.25 CRORES. THE AO ALSO DISBELIEVED THE VERSION OF THE ASSESSE E THAT OUT OF RS. 1.25 CRORES DEBITED AS ADJUSTMENT ENTRIES IN THE FATHER S ACCOUNT, A SUM OF RS. 1.03 CRORES WAS ADJUSTED FROM ASSESSEES ACCOUNT A ND THE REMAINING RS.22.00 LACS WAS ADJUSTED FROM OTHER ACCOUNTS AND ALSO THE FACT THAT PLETHORA OF ADJUSTMENT ENTRIES MADE ON 31/3/2007 I S NOT SUFFICIENT TO PROVE THE GIFT WHICH WAS STATED TO BE RECEIVED BY THE ASS ESSEE FROM HIS FATHER ON 20/4/2006. 2.3 THE AO ALSO OBSERVED THAT EVEN IF IT IS ASSUME D THAT ADJUSTMENT ENTRY IS A GIFT THEN ALSO THE SAME CAN BE SAID TO HAVE T AKEN PLACE ONLY ON 31/3/2007, ON WHICH DATE SUCH ADJUSTMENT ENTRIES WERE MADE AND DEBIT PRIOR THERETO OF THE SUMS OF RS.1.60 CORES AND RS. 1.10 CORES ON 20/4/2006 AND 30/8/2006 RESPECTIVELY ARE LOANS RECEIVED BY T HE ASSESSEE FROM AFOREMENTIONED COMPANY. THE AO ALSO OBSERVED THAT THE COURSE ADOPTED BY THE ASSESSEE TO EFFECT SO CALLED GIFT BEING EXECUTE D BY MEANS OF COMPLEX ACCOUNTING ENTRIES WAS NOT A PROPER COURSE TO BE ENTERED IN THE NORMAL COURSE. THE FATHER OF THE ASSESSEE HAD RECEIVED ON LY RS. 8.00 LACS IN HIS ACCOUNT AND BALANCE AMOUNT OF RS. 1.60 CORES ( OU T OF RS. 1.73 CRORE OF PAINTING SOLD) IS PAID TO THE FATHER OF THE ASSESS EE BY WAY OF ACCOUNTING ENTRIES ONLY. HE ALSO NOTICED THAT FATHER OF THE A SSESSEE DID NOT PAY INCOME TAX ON SALE OF SUCH PAINTING. THEREFORE, THE AO OBSERVED THAT THE SO CALLED GIFT TRANSACTION ROUTED THROUGH THE COMPANY WAS NOT HING BUT A COLORABLE DEVICE TO EVADE TAX LIABILITY ON THE CAPITAL RECEIV ED. THEREAFTER, THE AO DISCUSSED THE PROVISIONS OF SECTION 2(22)(E) OF TH E ACT AND HAS COME TO A CONCLUSION THAT ALL THE CONDITIONS MENTIONED IN SE CTION 2(22)(E) OF THE ACT ARE FULFILLED IN THE FOLLOWING MANNER: ITA NO. 7694/MUM/2010(A.Y. 2007-08) 6 (I) S.J.MARSHALL TRADING CO. LTD. IS A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTEREST. (II) MR.NAVROZE S. MARSHALL, THE ASSESSEE, IS THE BENEFI CIAL OWNER OF EQUITY SHARES HOLDING 76% OF THE VOTING POWER. (III) THE COMPANY POSSESSES ACCUMULATED PROFITS OF MORE THAN RS.3.25 CRORES THROUGHOUT THE YEAR. (IV) THE PAYMENT MADE TO THE ASSESSEE BY THE COMPANY IS NOT DONE IN ITS ORDINARY COURSE OF BUSINESS SINCE LENDING OF MO NEY IS NOT A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. 2.4 THE AO MADE REFERENCE TO THE FOLLOWING DECISION S TO COME TO THE CONCLUSION THAT SUCH AMOUNT WAS TAXABLE IN THE HAND S OF THE ASSESSEE. (I) SMT. TARULATA SHYAM & OTHERS , 108 ITR 345(SC) (II) MS P. SARADA, 229 ITR 444(SC) IN THIS MANNER THE AO ADDED A SUM OF RS. 2,63,70,76 0/- TO THE INCOME OF THE ASSESSEE UNDER SECTION 2(22)(E) OF THE ACT BEIN G THE TOTAL AMOUNT OF RS. 2,70,00,000/- DRAWN BY THE ASSESSEE FROM THE AFORE MENTIONED COMPANY MINUS THE OPENING CREDIT BALANCE OF RS.6,29,240/-. 3. THE SUBMISSIONS MADE BEFORE AO WERE REITERATED B EFORE THE CIT(A). FROM THE COPY OF THE ACCOUNT OF THE ASSESSEE WITH THE COMPANY IT WAS NOTICED BY CIT(A) THAT THE ASSESSEE HAD OWED A LARG E SUM TO THE COMPANY RIGHT FROM 20/4/2006 TILL THE END OF THE YEAR UNTIL ADJUSTMENT OF RS.1.03 CRORES WAS MADE AS PER LETTER DATED 31/3/2007 WRITT EN BY THE FATHER OF THE ASSESSE TO THE AFOREMENTIONED COMPANY. IF THE AMOU NT OF RS. 1.60 CRORES INDEED WAS A GIFT, THE LEDGER ACCOUNT OF THE FATHE R AND THE SON SHOULDHAVE BEEN DEBITED AND CREDITED RESPECTIVELY ON THE SA ME DAY I.E. ON 20/4/2006, WHEN THE ACTUAL BANK TRANSFER WAS MADE FROM THE COM PANYS BANK ACCOUNT. ITA NO. 7694/MUM/2010(A.Y. 2007-08) 7 THE CIT(A) OBSERVED THAT THERE WAS NO CONFIRMATI ON FROM THE COMPANY EITHER FOR THE RECEIPT OF SUCH REQUEST FROM THE FA THER OF THE ASSESSEE OR ACKNOWLEDGEMENT ON THE SUCCESSFUL EXECUTION OF THE SAID REQUEST. THEREFORE, CIT(A) HAS HELD THAT THE THEORY ADVANCED BY THE ASSESSEE COULD NOT BE ACCEPTED. LD. CIT(A) HAS ALSO OBSERVED TH AT ADJUSTMENT ENTRIES MADE ON 31/3/2007 WERE NOT SUFFICIENT TO PROVE THAT THE GIFT WAS RECEIVED BY THE ASSESSEE FROM HIS FATHER ON 20/4/2006 AND THE CONTENTION THAT GIFT WAS MADE ON 20/4/2006 IS SELF SERVING AND IS NOT SUPPO RTED BY THE ENTRIES MADE IN THE BOOKS OF ACCOUNT. WHAT HAS BEEN DONE I N THE BOOKS OF THE COMPANY IS THAT AMOUNT OUTSTANDING IN THE ACCOUNT O F THE ASSESSEE WAS SQUARED OFF AT THE END OF THE YEAR THROUGH ADJUSTM ENT ENTRIES BETWEEN VARIOUS ACCOUNTS WHICH DOES NOT CONVEY THAT THE AD JUSTMENT IS MADE IN LIEU OF AN UNRECORDED GIFT. LD. CIT(A) ALSO OBSERVED TH AT THE FATHER OF THE ASSESSEE DID NOT OFFER THE SAID AMOUNT OF RS. 1.73 CRORES FOR TAXATION AND THE STATEMENT THAT THE AMOUNT OF RS. 1.60 CORES WAS GI FTED ON 20/4/2006 IS AFTER THOUGHT AND HAS NOT BEEN CORROBORATED BY THE ENTRIES IN THE BOOKS OF ACCOUNT. THE CONDITIONS LAID DOWN IN SECTION 2(22) (E) OF THE ACT ARE FULFILLED. THE CASE LAW RELIED UPON BY THE ASSESSEE DO NOT SU PPORT THE CASE OF THE ASSESSEE AND THUS THE AO WAS RIGHT IN MAKING THE AD DITION TO THE EXTENT OF RS. 1,53,70,760/- ON ACCOUNT OF AMOUNT DRAWN BY THE ASSESSEE OF RS.1.60 CRORES ON 20/4/06 AND ALSO THE AMOUNT OF RS. 1.10 C ORES DRAWN BY THE ASSESSEE ON 30/8/2006 AND BOTH THESE AMOUNTS CONST ITUTE DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. THEREFORE, LD. CIT(A) HAS UPHELD THE ADDITION TO THE EXTENT OF RS . 2,63,70,760/- BY GIVING THE CREDIT OF OPENING BALANCE TO THE ASSESSEE OF AN AMOUNT OF RS.6,29,239.68. IN THIS MANNER CIT(A) UPHELD THE ADDITION. AGGRIEVED, ASSESSEE HAS FILED THE APPEAL BEFORE THE TRIBUNAL AND HAS RAISED AFOREMENTIONED GROUNDS OF APPEAL. ITA NO. 7694/MUM/2010(A.Y. 2007-08) 8 4. BEFORE PROCEEDING FURTHER, IT MAY BE MENTIONED THAT AN APPLICATION HAS FILED BY THE LD. A.R FILING SOME ADDITIONAL EVIDENCE, WHICH DURING THE COURSE OF HEARING WAS NOT PRESSED BY LD. A.R AND AC CORDINGLY NOT CONSIDERED. 5. AFTER NARRATING THE FACTS IT WAS PLEADED BY THE LD. A.R THAT THE FATHER OF THE ASSESSEE HAD SOLD PAINTINGS WHICH WERE ART ICLES OF PERSONAL EFFECTS IN THE HANDS OF THE FATHER AND THOSE WERE SOLD FOR A S UM OF RS. 1.73 CRORES. THE FATHER OF THE ASSESSEE HAD DIRECTED THE COMPANY TO PAY A SUM OF RS. 1.60 CORES OUT OF THE SALE PROCEEDS OF THOSE PAINT ING TO THE ASSESSEE AND THUS THE AMOUNT RECEIVED BY THE ASSESSEE OF RS. 1.6 0 CRORES FROM THE COMPANY COULD NOT BE TERMED AS LOAN OR ADVANCES MAD E BY THE COMPANY TO THE ASSESSEE AND THUS PROVISIONS OF SECTION 2(22)( E) OF THE ACT COULD NOT BE APPLIED. HE SUBMITTED THAT THE SALE OF THE PAIN TING HAS NOT BEEN DENIED OR DOUBTED BY THE AO. HE SUBMITTED THAT THE ONLY OBJE CTION OF THE AO IS THAT THE LETTER WRITTEN BY THE FATHER OF THE ASSESSEE IS AN AFTER THOUGHT MOVE. HE SUBMITTED THAT NO MATERIAL WHATSOEVER HAS BEEN BROU GHT ON RECORD BY THE AO TO HOLD THAT THE LETTER WRITTEN BY THE FATHER OF THE ASSESSEE WAS AFTER THOUGHT. HE SUBMITTED THAT THIS FACT WAS DULY BROU GHT TO THE NOTICE OF A.O VIDE WRITTEN SUBMISSION DATED 13/11/2009, COPY OF WHICH IS FILED AT PAGES 22 TO 23 OF THE PAPER BOOK AND ALSO THE WRITTEN SUB MISSION FURNISHED ON 8/12/2009, COPY OF WHICH IS FILED AT PAGES 24 TO 25 OF THE PAPER BOOK. HE SUBMITTED THAT THE ASSESSEE IS MAINLY AN INVESTMENT COMPANY AND HAS NO EMPLOYEES. FOR THIS PURPOSE LD. A.R REFERRED TO PA GE 14 OF THE PAPER BOOKS, WHERE COPY OF P&L ACCOUNT IS SUBMITTED TO CONTEND THAT NO EXPENSES ON ACCOUNT OF SALARY HAS BEEN DEBITED TO THE P&L ACCO UNT. HE SUBMITTED THAT IN ABSENCE OF ANY ASSISTANCE REGARDING ACCOUN TS, SHRI JIMMY B. ZAIWALLA, BEING ACCOUNTANT OF M/S. SIMMONDS MARSH ALL LTD. ( A GROUP COMPANY) WAS WRITING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. HE SUBMITTED THAT DUE TO NON-AVAILABILITY OF PROPER ACCOUNTANTS FACILITY, THE CORRESPONDING ENTRIES INTO THE ACCOUNT OF THE FATHER COULD NOT BE PASSED. HE SUBMITTED THAT NON-PASSING OF THE ENTRY IN THE ACCOUNT OF THE FATHER CANNOT BE VIEWED ITA NO. 7694/MUM/2010(A.Y. 2007-08) 9 ADVERSELY IN VIEW OF THE LETTER FILED BY THE FATH ER OF THE ASSESSEE WITH THE COMPANY. HE ALSO REFERRED TO THE MEMORANDUM OF AS SOCIATION AND ARTICLE OF ASSOCIATION OF THE COMPANY, COPY OF WHICH IS PLACE D AT PAGES 82 TO 94 OF THE PAPER BOOK AND ALSO THE LEDGER ACCOUNT OF THE PAIN TING PURCHASED BY THE SAID COMPANY, WHICH IS PLACED AT PAGE 76 OF THE PAP ER BOOK. THESE DOCUMENTS WERE REFERRED FOR THE CONTENTION THAT THE PAINTINGS PURCHASED BY THE COMPANY FROM THE FATHER OF THE ASSESSEE WERE I N THE REGULAR COURSE OF BUSINESS, AS ACCORDING TO LD. A.R THE COMPANY HAD PURCHASED OTHER PAINTINGS ALSO AFTER PURCHASING THE PAINTINGS OF TH E FATHER OF THE ASSESSEE AND TOTAL PAINTINGS PURCHASED DURING THE YEAR ARE O F A SUM OF RS.1,76,61,875/-. 5.1 LD. A.R FURTHER CONTENDED THAT IN ANY CASE ANO THER SUM OF RS. 1.10 CRORES COULD NOT AT ALL TO BE ADDED TO THE INCOME O F THE ASSESSEE WHICH IS STATED TO BE WITHDRAWN ON 30/8/2006 AS THAT WAS NEI THER A LOAN NOR AN ADVANCE TAKEN BY THE ASSESSEE FROM THE COMPANY. RE FERRING TO THE COPY OF ACCOUNT OF THE ASSESSEE WITH THE SAID COMPANY WHICH HAS BEEN REPRODUCED ABOVE, IT WAS SUBMITTED BY HIM THAT PRIOR TO WITHD RAWAL OF A SUM OF RS. 1.10 CORES ON 30/8/2006, THE ASSESSEE HAD DEPOSITED TWO AMOUNTS OF RS. 1.04 CORES AND RS.6.00 LACS ON 29/8/2006. HE, THE REFORE, SUBMITTED THAT THE ADDITION OF RS. 1.10 CORES IS WITHOUT ANY BASIS AND REQUIRES DELETION. 5.2 FOR RAISING THE AFOREMENTIONED CONTENTIONS LD. A.R RELIED UPON THE FOLLOWING DECISIONS: (1) CIT VS. RAJ KUMAR 318 ITR 462 (DEL) TO CONTENT THAT IN SECTION 2(22)(E) OF THE ACT THE WORD ADVANCE HAS TO BE READ IN CONJ UNCTION WITH THE WORD LOAN. USUALLY A LOAN INVOLVES POSITIVE ACT OF LENDING COUPLED WITH ACCEPTANCE OF MONEY AS LOAN BY THE OTHER SIDE AND THERE IS AN OBLIGATION OF REPAYMENT . THE TERM ADVANCE IN ITS WIDEST MEAN ING MAY OR MAY NOT INCLUDE LENDING. ADVANCE, IF NOT FOUND IN THE C OMPANY OR IN CONJUNCTION ITA NO. 7694/MUM/2010(A.Y. 2007-08) 10 WITH LOAN MAY OR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT AND APPLYING RULE OF NOSCITUR A SOCIIS THE WORD ADVANCE WHICH APPEARS IN THE COMPANY OF THE WORD LOAN COULD ONLY MEAN S UCH ADVANCE WHICH CARRIES WITH IT AN OBLIGATION OF REPAYMENT. HE SU BMITTED THAT THE AMOUNT TAKEN BY THE ASSESSEE FROM THE COMPANY HAD NO OBLI GATION FOR REPAYMENT, THEREFORE, THE AMOUNT OBTAINED BY THE ASSESSEE FROM THE COMPANY WAS OUTSIDE THE AMBIT OF SECTION 2(22)(E) OF THE ACT. (2) CIT VS. ARVIND KUMAR JAIN 205 TAXMAN 44 (DEL) TO CONTEND THAT MERE NOMENCLATURE OF AN ENTRY IN THE BOOKS OF ACCOUNTS IS NOT DETERMINATIVE OF THE TRUE NATURE OF TRANSACTION. THIS PLEA WAS TAKE N BY LD. A.R FOR THE CONTENTION THAT NON-PASSING OF THE SIMILAR ENTRY I N THE ACCOUNT OF FATHER CANNOT BE VIEWED ADVERSELY AGAINST THE ASSESSEE AND WHAT IS RELEVANT TO BE SEEN IS THE SUBSTANCE OF THE TRANSACTION. (3) ANIL KUMAR AGARWAL VS. ITO 132 ITD 314(MUM), WHEREIN THE PERSON IN WHOSE HAND SECTION 2(22)(E) WAS APPLIED WAS MAINTA INING THREE ACCOUNTS AND IN ONE ACCOUNT THERE WAS PEAK LOAN AMOUNTING TO RS. 23,65,000/- WHICH WAS TREATED AS DEEMED DIVIDEND. FINDING THAT ALL THE THREE ACCOUNTS TAKEN TOGETHER, THE ASSESSEE DID NOT OWE ANY SUM TO THE COMPANY, THEREFORE, IT WAS HELD THAT SECTION 2(22)(E) COULD NOT BE APPL IED. (4) CIT VS. UNIVERSAL MEDICARE (P). LTD., 324 ITR 263 (BOM) WHEREIN IT WAS HELD THAT WHEN AMOUNT RECEIVED FROM A COMPANY WAS M ISAPPROPRIATED BY A SHAREHOLDER, IT WAS NOT IN THE NATURE OF LOAN OR AD VANCE. (5) ACIT VS. HARSHAD V. DOSHI, 130 ITD 137, WHERE IN FINDING THAT RENT WAS PAID IN ADVANCE OF RS. 19,89,000/- AND THERE BEING NO MATERIAL ON RECORD BROUGHT BY THE REVENUE TO REBUT THE SAID CO NTENTION, IT WAS HELD THAT SECTION 2(22)(E) OF THE ACT COULD NOT BE APPLIED TO THE SAID AMOUNT. LD. A.R SUBMITTED THAT THE ASSESSEE HAD PLACED MATERIAL ON RECORD TO SHOW THAT THE AMOUNT OBTAINED BY THE ASSESSEE WAS GIVEN TO HIM O N THE INSTRUCTION OF HIS ITA NO. 7694/MUM/2010(A.Y. 2007-08) 11 FATHER WHO HAD SOLD PAINTINGS TO THE COMPANY AND R EVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO HOLD THAT THE SAID CO NTENTION OF THE ASSESSEE IS INCORRECT, THEREFORE, THE ADDITION CANNOT BE MADE . HE ALSO SUBMITTED THAT IN THE SAID CASE THE ADVANCES WERE ALSO RECEIVED BY THE ASSESSEE BEING MANAGING DIRECTOR FOR PURCHASE OF LAND TO REDUCE TH E INCIDENCE OF STAMP DUTY AND IT WAS HELD THAT SECTION 2(22)(E) COULD NO T BE APPLIED TO THE SAID AMOUNT. 5.3 IT WAS ALSO CONTENDED BY LD. A.R THAT THE TRANS ACTION OF PURCHASE OF PAINTING BY THE COMPANY FROM THE FATHER OF THE ASSE SSEE WAS BUSINESS TRANSACTION, THEREFORE, ALSO PROVISIONS OF SECTION 2(22)(E) COULD NOT BE APPLIED AND FOR THIS PURPOSE, APART FROM THE AFOREMENTIONED DECISIONS LD. A.R RELIED UPON THE DECISION IN THE CASE OF CIT VS. NAGINDAS M. KAPADIA, 177 ITR 393(BOM) WHEREIN THE COMPANY WAS MAINTAINING A RUN NING ACCOUNT IN THE NAME OF A CONCERN R.P. OF WHICH THE ASSESSEE WAS A PROPRIETOR AND IT WAS HELD THAT ADVANCES RECEIVED BY THE ASSESSEE TOWARD S PURCHASES TO BE MADE BY THE COMPANY FROM A CONCERN WAS NOT DIVIDEND INCO ME UNDER SECTION 2(22)(E) OF THE ACT. HE ALSO SUBMITTED THAT THE PR OVISIONS OF SECTION 2(22)(E) BEING DEEMING PROVISION IS REQUIRED TO BE STRICTLY CONSTRUED AND FOR THE PURPOSE LD. A.R RELIED UPON THE DECISION IN THE CAS E OF CIT VS. C.P. SARATHY MUDALIAR 83 ITR 170 (SC). 5.4 IN THIS MANNER LD. A.R CONCLUDED HIS ARGUMEN TS AND PLEADED THAT THE ADDITION MADE BY THE AO AND SUSTAINED BY LD. CI T(A) SHOULD BE DELETED. 6. LD. D.R SUBMITTED THAT THE ENTRIES MADE IN THE A CCOUNT OF THE ASSESSEE AS WELL AS FATHER OF THE ASSESSEE REPRODUC ED IN THE ASSESSMENT ORDER HAVE NOT BEEN DISPUTED BY THE ASSESSEE. THE CASE OF THE ASSESEE IS ENTIRELY REST UPON THE LETTER DATED 18/04/2006 WRIT TEN BY THE FATHER OF THE ASSESSEE. HE SUBMITTED THAT SALE OF PAINTING IS NO T DENIED BUT THE AUTHENTICITY OF LETTER HAS BEEN DOUBTED BY THE AO A S WELL AS CIT(A). HE ITA NO. 7694/MUM/2010(A.Y. 2007-08) 12 SUBMITTED THAT RELYING UPON THE FINDING RECORDED BY AO AND CIT(A) IT IS THE SUBMISSION OF THE REVENUE THAT THE LETTER WRITTEN B Y THE FATHER OF THE ASSESSEE TO THE COMPANY IS AFTER THOUGHT AND, THE REFORE, ADDITION HAS RIGHTLY BEEN SUSTAINED BY CIT(A). HE SUBMITTED THA T ONCE ENTRY IS MADE IT IS CONCLUSIVE AND THE CASE LAW RELIED UPON BY THE LD. A.R ARE NOT APPLICABLE TO THE FACTS OF THE CASE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE CASE OF THE ASSESSE E HAS BEEN MAINLY REJECTED ON THE GROUND THAT THE LETTER WRITTEN BY THE FATHER OF THE ASSESSEE TO THE COMPANY WAS AFTER THOUGHT MOVED OF THE ASSES SEE. IT IS NOT THE CASE OF THE REVENUE THAT THE FATHER OF THE ASSESSEE WAS NOT AVAILABLE FOR EXAMINATION. THE CASE OF THE A.O AND CIT(A) IS THAT THE SAID LETTER IS AFTER- THOUGHT. THE SALE OF THE PAINTING BY THE F ATHER OF THE ASSESSE HAS NOT BEEN DENIED. IT HAS BEEN THE CONTENTION OF THE AS SESSEE THAT IT WAS PURCHASING PAINTINGS IN THE REGULAR COURSE, AS AF TER PURCHASING THE PAINTINGS FROM THE FATHER OTHER PURCHASES OF PAIN TING ARE ALSO MADE. NO MATERIAL WHATSOEVER HAS NOT BEEN BROUGHT ON RECORD BY THE REVENUE TO SUGGEST THAT THE LETTER WRITTEN BY THE FATHER OF TH E ASSESSEE TO THE COMPANY WAS AN AFTERTHOUGHT MOVE. THE AO COULD HAVE EXAMI NED THE ASSESSEE AS WELL AS HIS FATHER AND ALSO THE COMPANY ON THIS I SSUE. THIS EXERCISE HAS NEITHER BEEN DONE BY A.O NOR BY CIT(A) TO ESTABL ISH THAT THE LETTER WRITTEN BY THE FATHER OF THE ASSESSEE TO THE COMPANY IS AF TER THOUGHT. IF THE GENUINENESS OF THE PURCHASE OF PAINTING BY THE COM PANY FROM THE FATHER OF THE ASSESSEE IS NOT DENIED THEN IN ABSENCE OF ANY MATERIAL IT CANNOT STRAIGHTAWAY BE HELD THAT THE LETTER WRITTEN BY THE FATHER OF THE ASSESSEE TO THE COMPANY WAS AFTER-THOUGHT. THE MATTER WAS REQ UIRED TO BE EXAMINED. THEREFORE, IN OUR VIEW, IT WILL BE APPROPRIATE TO R ESTORE THIS ISSUE TO THE FILE OF THE AO FOR ADJUDICATION OF THE SAME AFTER GIVING TH E ASSESSEE A REASONABLE AND SUFFICIENT OPPORTUNITY OF HEARING. AS THE MAT TER IS TO BE RE-EXAMINED WE DONT CONSIDER TO GO INTO THE OTHER ISSUE RAISED BY LD. A.R THAT ANOTHER ITA NO. 7694/MUM/2010(A.Y. 2007-08) 13 AMOUNT OF RS, 1.10 CRORES APART FROM RS. 1.60 CROR ES COULD NOT BE ADDED AS THAT ISSUE ALSO WILL DEPEND UPON ADJUDICATION OF THE ISSUE REGARDING THE AMOUNT OF RS. 1.60 CRORE AS IF THE SAME IS FOUND TO BE GENUINE THEN THE SOURCE OF THE SAME CAN BE CONSIDERED TO BE RS.1.60 CRORE. WITH THESE OBSERVATIONS WE RESTORE THE ENTIRE ISSUE TO THE FIL E OF AO FOR RE-ADJUDICATION IN THE LIGHT OF AFOREMENTIONED OBSERVATIONS. WE D IRECT ACCORDINGLY. 8. IN THE RESULT, FOR STATISTICAL PURPOSES THE APPE AL FILED BY THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON THE 6 TH DAY OF JUNE, 2012 SD/- SD/- (R.S.SYAL ) (I.P.BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 6 TH JUNE, 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RB BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.