ITO, Bangalore V. Shri. Raghu Varma, Bangalore

ITA 796/BANG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0621 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 07-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Keywords: Deemed dividend
• Section: 143(3)

Judgement Text

PAGE 1 OF 9 ITA NO.79 6/BANG/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.796/BANG/2012 (ASST. YEAR 2008-09) THE INCOME TAX OFFICER, WARD-11(1), BANGALORE. VS SHRI RAGHU VARMA, 2 ND FLOOR, O M CHAMBERS 3, NEW BEL ROAD, BANGALORE-94. PA NO. AAVPV 0713 C (APPELLANT) (RESPONDENT) DATE OF HEARING : 26.02.2013 DATE OF PRONOUNCEMENT : 01.03.2013 APPELLANT BY : SMT. SUSAN THOMAS JOSE, JCIT RESPONDENT BY : SHRI S ANANTHAN, C.A. OR DER PER GEORGE GEORGE K : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-I, BANGALORE DATED 27.3.2012. THE RELEVANT ASSESSMENT YEAR IS 2008-09. 2. THOUGH, THE REVENUE HAS, IN ITS GROUNDS OF APPE AL, RAISED SEVEN GROUNDS, ALL THE GROUNDS RELATES TO A SOLITARY ISSUE , NAMELY, THE CIT (A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.88,25, 000/- MADE U/S 2(22)(E) OF THE ACT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS FOL LOWS: PAGE 2 OF 9 ITA NO.79 6/BANG/2012 2 THE ASSESSEE IS AN INDIVIDUAL. HE IS HOLDING MA JORITY SHARES AND IS ALSO A DIRECTOR IN M/S. SHADE FASHIONS PRIVATE L IMITED. THE RETURN OF INCOME WAS FILED ON 30/7/2008 ADMITTING A TOTAL INC OME OF RS.34,37,600/-. THE AO HAD, HOWEVER, CONCLUDED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT, DETERMINING THE INCOME AT RS.1,22,62,600/-. W HILE DOING SO, THE AO HAD MADE AN ADDITION OF RS.88,25,000/- AS DEEMED DI VIDEND U/S 2(22)(E) OF THE ACT FOR THE DETAILED REASONS RECORDED THEREIN. 4. AGGRIEVED, THE ASSESSEE TOOK UP THE MATTER BEFO RE THE CIT (A) FOR THE DELETION OF THE IMPUGNED ADDITION. AFTER TAKING INTO ACCOUNT THE LENGTHY AND ELABORATE ARGUMENTS PUT-FORTH BY THE ASSE SSEE AND ALSO THE REMAND REPORT OF THE AO, THE CIT (A) CAME TO THE CO NCLUSION THAT THE AO WAS NOT JUSTIFIED IN CONSIDERING THE AMOUNT OF THE LOAN ROUTED THROUGH THE ASSESSEE BY THE CITI BANK TO M/S. SHADE FASHIONS PRI VATE LIMITED [SFPL] AS DEEMED DIVIDEND U/S 2 (22) (E) OF THE ACT. THE REA SONS RECORDED BY THE CIT (A) IN DECIDING THE ISSUE IN FAVOUR OF THE ASSE SSEE ARE EXTRACTED AS UNDER: 5. (ON PAGE 10) THE ONLY ISSUE FOR CONSIDERATION IN THE INSTANT CASE IS WHETHER THE AO WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SEC. 2 (22) (E) OF THE ACT. NO DOUBT THAT THE ASSESSEE WAS A MAJOR SH ARE HOLDER APART FROM BEING A DIRECTOR OF THE SAID COMP ANY. IT IS ALSO A FACT THAT THE APPELLANT RECEIVED CERTA IN MONEYS FROM THE COMPANY, BUT, THE POINT WHETHER SUCH RECEIPTS BY THE APPELLANT WERE IN THE NATURE OF LOAN OR ADVANCE FOR THE PURPOSE OF DEEMED DIVIDEND U/S 2 (2 2)(E) OF THE ACT WAS NOT PROPERLY EXAMINED BY THE AO. DURI NG THE ASSESSMENT PROCEEDINGS, THE AO CALLED FOR VARIO US DETAILS AND WHILE EXAMINING THE BANK ANALYSIS OF C ITY (SIC) CITI BANK A/C NUMBER 808 FOR THE FY 07-08 NOTICED A PAGE 3 OF 9 ITA NO.79 6/BANG/2012 3 SUM OF RS.88,25,000/- AS RECEIVED FROM M/S. SHADE FASHIONS CO. LTD. THE AO JUMPED INTO CONCLUSION TH AT THE SAID MONEYS WERE AMOUNTING TO LOAN AND ADVANCE WITHOUT AFFORDING PROPER OPPORTUNITY TO THE APPELLAN T. IT MAY BE SEEN FROM THE BANK ANALYSIS OF CITI BANK THOUG H AN AMOUNT OF RS.88,25,000/- SHOWN TO HAVE BEEN RECEIVED FROM THE CITI BANK AT THE SAME TIME, AN AMOUNT OF RS.1267,43,189/- WAS ALSO SHOWN AS PAYMENT S MADE TO AND ON BEHALF OF THE COMPANY. THIS FACT WAS OMITTED TO BE CONSIDERED BY THE AO. IT IS ALSO AN UNDISPUTED FACT THAT THE APPELLANT COMPANY AVAILED A LOAN FROM CITI BANK AMOUNTING TO RS.80,00,000/- ON THE SECURITY OF THE PERSONAL PROPERTIES OF THE DIRECTOR. THE OUTSTANDING LOAN WAS DULY REFLECTED IN THE BALANCE S HEET OF THE COMPANY AS ON 31.3.8. SINCE THE DIRECTOR HAS GIVEN THE PERSONAL SECURITY FOR THE LOAN OF THE COMPANY, TH E MONEYS WERE ROUTED THROUGH THE APPELLANT TO THE COMPANY WHICH WAS REFLECTED IN THE ANALYSIS OF THE CI TI BANK STATEMENT PRODUCED BEFORE THE AO. THE APPELLA NT RECEIVED MONEY FOR PURCHASE OF PROPERTIES FOR THE COMPANY AND THE SAME WAS REFLECTED IN THE BALANCE SH EET OF THE COMPANY. THIS IS VERY CLEAR FROM THE DOCUMENT S FILED BY THE APPELLANT BY WAY OF BALANCE SHEET AS ON 31.3.08 AND NOT DOUBTED BY THE AO. EVEN AS PER THE ACCOUNTS STATEMENT OF THE APPELLANT FOR THE PERIOD 1.4.07 TO 31.3.08 AS APPEARING IN THE BOOKS OF THE COMPANY, THERE IS NO DEBIT BALANCE (MEANING THEREBY GRANT OF ANY LOAN OR ADVANCE TO THE APPELLANT) IN THE ASSESSEES ACCOUNT. THE ACCOUNT ALWAYS SHOWED A CREDIT BALANCE . IT MAY BE SEEN THAT THERE IS OPENING CREDIT BALANCE. T HIS FACT WAS ALSO NOT DISPUTED BY THE AO. THEREFORE, TH E APPELLANTS CONTENTION THAT THE MONEYS WERE TAKEN ON BEHALF OF THE COMPANY FOR THE PURPOSE OF COMPANYS PROPERTY INVESTMENT CANNOT BE IGNORED. THE ONLY OBJECTION RAISED BY THE AO IN HIS REMAND REPORT THAT THE PROPERTY WAS REGISTERED ONLY AFTER 4 MONTHS FROM THE DATE OF ASSESSMENT THEREBY DOUBTING THE TRANSACTION IS NOT CORRECT. IT MAY BE SEEN THAT THE APPELLANT COMP ANY PAGE 4 OF 9 ITA NO.79 6/BANG/2012 4 SHOWED THE SAID PROPERTY AS INVESTMENT EVEN AS ON 31.3.08 IN THE BALANCE SHEET PREPARED BY THE COMPANY BY 1.8.08 WHEREAS THE ASSESSMENT PROCEEDINGS COMMENCED IN AUGUST 2010. THE FINANCIAL STATEMENTS OF THE CO MPANY WERE AUDITED AND FILED BEFORE THE REGISTRAR OF COMPANIES AND CANNOT BE SAID THAT THE REGISTRATION OF THE PROPERTY AFTER THE COMPLETION OF ASSESSMENT IS A N AFTER-THOUGHT. THE CASE LAW RELIED ON BY THE ASSESS EE SUPPORTS THE ASSESSEES CLAIM. THEREFORE, CONSIDER ING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, TH E AO IS NOT JUSTIFIED IN CONSIDERING THE AMOUNT OF LOAN ROUTED THROUGH THE APPELLANT BY THE CITI BANK TO M/S. SHADE FASHIONS LTD AS DEEMED DIVIDEND U/S 2 (22)(E) OF TH E I.T. ACT 5. AGGRIEVED, THE REVENUE HAS COME UP WITH THE PRE SENT APPEAL. THE SUBMISSIONS MADE ON BEHALF OF THE REVENUE ARE S UMMARIZED AS UNDER: (I) THAT THE CIT (A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.88.25 LAKHS IN TERMS OF THE PROVISIO NS OF S. 2 (22)(E) OF THE ACT ON ACCOUNT OF DEEMED DIVIDEND WITHOUT APPRECIATING THE CIRCUMSTANCES UNDER WHICH THE DISALLOWANCE WAS MADE BY THE AO; (II) THAT HE ALSO ERRED IN ALLOWING RELIEF TO THE ASSESS EE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD REGISTERED THE PROPERTY CONVENIENTLY IN THE NAME OF T HE COMPANY ONLY AFTER FOUR MONTHS OF THE COMPLETION OF T HE ASSESSMENT AND SUCH AN AFTER THOUGHT ACT WAS TO NUL LIFY THE EFFECT OF THE PROVISIONS OF S. 2 (22)(E) OF THE ACT; (III) THAT THE CIT (A) HAD ERRED IN ALLOWING RELIEF TO TH E ASSESSEE BASED ON THE DECISION OF THE HONBLE DELHI HIGH COURT WITHOUT APPRECIATING THAT THE FACTS OF THE SA ID CASE ARE DIFFERENT FROM THAT OF THE ASSESSEES CASE AND THE RATIO OF THE DECISION WILL NOT BE APPLICABLE TO THE ASSESSEES CASE; PAGE 5 OF 9 ITA NO.79 6/BANG/2012 5 5.1. IN CONCLUSION, IT WAS PLEADED THAT THE STAND OF THE AO REQUIRES TO BE RESTORED BY REJECTING THE CIT(A)S OBSERVATION S ON THE ISSUE. 5.2. ON THE OTHER HAND, THE LEARNED A R, REBUTTING THE REVENUES STAND, HAS SUBMITTED AS UNDER: FROM THE BANK ANALYSIS STATEMENT THAT THE AMOUNT OF RS.88.25 LAKHS WAS SHOWN ON THE RECEIPT SIDE AS RECEIVED FRO M THE COMPANY AND ALSO IT HAS BEEN CLEARLY SHOWN THAT THE PAYMENT OF RS.1,67,43 ,189/- WAS PAID ON BEHALF OF THE COMPANY. IT WAS SUBMITTED THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE COMPANY HAD GIVEN ANY LOAN TO THE AS SESSEE AND THE AO HAD ALSO NOT BROUGHT ANY PROOF ON RECORD TO SHOW THAT T HE COMPANY HAD IN FACT GIVEN THE AMOUNT OF RS.88.25 LAKHS AS LOAN TO THE A SSESSEE. IT WAS, FURTHER, SUBMITTED THAT THE ENTIRE ADDITION WAS MADE BASED O N THE AMOUNT SHOWN ON THE RECEIPT SIDE OF THE STATEMENT OF BANK ANALYSIS. IT WAS EXPLAINED THAT THE ASSESSEE HAD RECEIVED THE MONEY FROM THE COMPANY AND ALSO MADE PAYMENTS ON BEHALF OF THE COMPANY AND, IN FACT, THE P AYMENTS MADE WAS MORE THAN THE RECEIPTS. EVEN ON THE BASIS OF THE S TATEMENT OF BANK ANALYSIS, IT WAS ARGUED, IT CANNOT BE CONCLUDED THAT THE ASSESSEE HAD RECEIVED LOAN FROM THE COMPANY, RATHER, IT CAN BE SA ID THAT THE ASSESSEE HAD GIVEN LOAN TO THE COMPANY SINCE THE PAYMENT EXCEEDED THE RECEIPTS. IT WAS SUBMITTED THAT THERE WAS NO LOAN OR ADVANCE GIVEN B Y THE COMPANY TO THE ASSESSEE AND, THUS, THE QUESTION OF TAXING ANY AMOU NT AS DEEMED DIVIDEND WILL NOT ARISE. IT WAS, FURTHER, SUBMITTED THAT FO R THE SAKE OF CONVENIENCE, CERTAIN AMOUNTS HAVE BEEN PAID BY THE ASSESSEE ON BE HALF OF THE COMPANY AND LATER ON THE COMPANY REIMBURSED THE SAME TO THE ASSESSEE. PAGE 6 OF 9 ITA NO.79 6/BANG/2012 6 BEFORE CONCLUDING, THE LEARNED AR SUBMITTED THAT WITHOUT ANALYZING THE ISSUE IN A PROPER PERSPECTIVE, THE AO HAD WRONGLY COME TO A CONCLUSION THAT THE ASSESSEE HAD TAKEN A LOAN OF RS .88.25 LAKHS FROM THE COMPANY AND, THUS, TREATED THE SAME AS DEEMED DIVIDE ND U/S 2 (22)(E) OF THE ACT IN THE HANDS OF THE ASSESSEE. IT WAS, THER EFORE, PLEADED THAT AS THERE WAS NO INFIRMITY IN THE STAND OF THE CIT (A) W ARRANTING THE INTERVENTION OF THE HONBLE BENCH. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIALS ON RECORD. 6.1. THE AO HAD COME TO A CONCLUSION ON THE BASIS OF THE DETAILS FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSES SMENT PROCEEDINGS THAT THE ASSESSEE HAD TAKEN A LOAN OF RS.88.25 LAKHS FRO M SFPL WHERE THE ASSSESSEE IS HOLDING SHARES MORE THAN 10% AND, ACCO RDINGLY TREATED THE SAID SUM AS A DEEMED DIVIDEND U/S 2 (22)(E) OF THE ACT. HOWEVER, THE ASSESSEE HAD ARGUED THAT NO LOAN WAS GRANTED BY THE COMPANY AS ALLEGED BY THE AO, INSTEAD, THE ASSESSEE HAD RECEIVED THE AMOUNT UNDER TRUST FOR THE PURPOSE OF MAKING PAYMENTS ON BEHALF OF THE COMPANY AND RECEI VED THE MONEY BACK AS REIMBURSEMENT FROM THE COMPANY. 6.2. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE WA S A MAJOR SHARE- HOLDER AND ALSO THE DIRECTOR OF THE SAID COMPANY. I T WAS ALSO A FACT THAT HE HAD RECEIVED CERTAIN MONIES FROM THE COMPANY. HOWEVE R, WHETHER SUCH RECEIPTS OF MONIES BY THE ASSESSEE WAS IN THE NATUR E OF A LOAN OR AN ADVANCE SO AS TO INVOKE THE PROVISIONS OF SECTION 2 (22)(E) OF THE ACT IS THE MOOT POINT FOR OUR CONSIDERATION. ON A PERUSAL OF THE BANK ANALYSIS STATEMENT OF PAGE 7 OF 9 ITA NO.79 6/BANG/2012 7 CITI BANK FOR THE YEAR-ENDED 31 ST MARCH, 2008, IT IS NOTICED THAT THOUGH RS.88.25 LAKHS SHOWN TO HAVE BEEN RECEIVED FROM TO M/S. SHADE FASHIONS PRIVATE LIMITED, BUT, AT THE SAME TIME, A SUM OF RS .1.67 CRORES WAS ALSO SHOWN AS PAYMENTS MADE BY THE ASSESSEE ON BEHALF OF T HE COMPANY. THUS, THE PAYMENT MADE BY THE ASSESSEE WAS MORE THAN WHAT WAS THE RECEIPT FROM THE COMPANY. THIS VITAL FACT HAS BEEN IGNORED BY THE AO WHILE ARRIVING AT SUCH A CONCLUSION THAT THE ASSESSEE RECEIVED A LOAN FROM THE COMPANY. THE DOCUMENTARY EVIDENCES ADDUCED BY THE ASSESSEE (PLACED ON RECORD) SUBSTANTIATE THE FACT THAT THE COMPANY AVAILED A LOA N OF RS.80 LAKHS ON THE BASIS AND STRENGTH OF THE SECURITY PROVIDED BY THE AS SESSEE IN THE FORM OF HIS PERSONAL PROPERTIES [SOURCE: CITI BANKS PROPER TY POWER SANCTION LETTER DATED 26.3.2007 IN THE NAME OF THE COMPANY]. THE OUT STANDING LOAN WAS ALSO FINDING A PLACE IN THE BALANCE SHEET AS ON 31.3.200 8. AS THE SAID LOAN WAS SANCTIONED BY THE CITI BANK ONLY ON THE BASIS OF THE DIRECTOR (THE ASSESSEE) STOOD AS A PERSONAL SECURITY, THE LOAN AMO UNT WAS ROUTED THROUGH THE BANK ACCOUNT OF THE ASSESSEE FOR AND ON BEHALF OF THE COMPANY WHICH HAS BEEN REFLECTED IN THE BANK ANALYSIS STATEMENT. IT IS ALSO SEEN FROM THE BALANCE SHEET OF THE COMPANY WHEREIN THE MONIES RECE IVED BY THE ASSESSEE FOR THE PURCHASE OF PROPERTY ON BEHALF OF THE COMPAN Y HAS BEEN DULY REFLECTED. ALSO RIGHTLY HIGHLIGHTED BY THE CIT (A) IN HIS ANALYSIS THAT AS PER THE ACCOUNTS STATEMENT OF THE ASSESSEE FOR THE PERI OD ENDED 31.3.2008 AS APPEARING IN THE BOOKS OF THE COMPANY, THERE WAS NO DEBIT BALANCE IN THE ASSESSEES ACCOUNT WHICH CLEARLY EXHIBIT THAT THERE WAS NO GRANT OF ANY LOAN BY THE COMPANY TO THE ASSESSEE AS ATTRIBUTED BY THE AO IN HIS IMPUGNED ORDER. ANOTHER SALIENT FEATURE WHICH WE HAVE NOTIC ED WAS THAT THE SAID ACCOUNT SHOWS A CREDIT BALANCE. THIS MAKES IT EXPL ICIT THE ASSESSEES PAGE 8 OF 9 ITA NO.79 6/BANG/2012 8 ARGUMENT THAT THE MONIES WERE RECEIVED BY THE ASSESS EE FOR THE SOLE PURPOSE OF PROPERTY INVESTMENT ON BEHALF OF THE COM PANY. WE ALSO FIND FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE TRAN SACTIONS WERE MADE IN THE COURSE OF BUSINESS OF THE COMPANY AND FOR THE SA KE OF CONVENIENCE CERTAIN AMOUNTS HAVE BEEN PAID BY THE ASSESSEE ON BE HALF OF THE COMPANY WHICH WAS DULY REIMBURSED BY THE COMPANY. IT IS, FURT HER, NOTICED THAT DURING THE FINANCIAL YEAR 2007-08, THE COMPANY HAD O BTAINED THE SAID LOAN OF RS.80 LAKHS FROM THE CITI BANK FOR THE PURCHASE OF A PROPERTY FROM ADARSH DEVELOPERS AND TO AVAIL SUCH A FACILITY, AS S TATED ABOVE, THE ASSESSEE HAD SHOWN HIS RESIDENTIAL PROPERTY AS SECURITY AND TH AT THE ADVANCE MADE TO ADARSH DEVELOPERS WAS SHOWN IN THE CURRENT ASSETS O F THE COMPANY FOR THE F.Y 2007-08 [SOURCE: CURRENT ASSETS FOR THE PERIOD 1.4.2007 31.3.2008 OF THE COMPANY]. 6.3. TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMS TANCES OF THE ISSUE AS DELIBERATED UPON IN THE FORE-GOING PARAGRAPHS AN D ALSO IN CONSONANCE WITH THE CASE-LAWS AS RELIED ON BY THE ASSESSEE, WE ARE O F THE CONSIDERED VIEW THAT THE CIT (A) WAS JUSTIFIED IN HIS STAND WHICH R EQUIRES NO INTERVENTION OF THIS BENCH. 7. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST DAY OF MARCH, 2013. SD/- SD/- (JASON P BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER PAGE 9 OF 9 ITA NO.79 6/BANG/2012 9 COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.