THE DDIT (IT) 2(1), V. SMT. INDIRA P. VACCHANI,

ITA 983/MUM/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1554 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Assessment Year: 1995-1996
• Appeal Filed On: 13-02-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S B MOREY
• Assessee Lawyers: SUNIL DESAI
• Keywords: Deemed dividend; Set aside
• Section: 2(22)(e); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER A ND SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER. I.T.A. NO. 983 & 984/MUM/2004 ASSESSMENT YEAR : 1995- 96 & 1996-97 DDIT (IT)-2(1), SMT. INDIRA V. VACCHANI. MUMBAI. VS. THRO CONST.ATTORNEY, MRS. NAVNITA H. MELWANI, 10, IRORINE, 154 M.K. ROAD, CHURCHGATE, MUMBAI. PAN : AAM PV5129P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.B. MOREY. RESPONDENT BY : SHR I SUNIL DESAI. O R D E R PER J. SUDHAKAR REDDY, A.M. : BOTH THESE APPEALS ARE FILED BY THE REVENUE AND A RE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-XVII I DATED 10-11-2003 FOR ASSESSMENT YEARS 1995-96 AND 1996-97. 2. FACTS IN BRIEF : THE ASSESSEE IS AN INDIVIDUAL AND IS A SHARE HOLD ER IN M/S JAYEMS ENGINEERING CO. P. LTD. SHE RECEIVES DIVIDE ND ON THE SAID SHARES AND SHE DECLARES THE SAME AND FILES REGULAR RETURN OF INCOME. 2.1 ACTION U/S 132 WAS TAKEN AGAINST THE COMPANY. THE COMPANY DISCLOSED A CASH BALANCE OF RS.34 LAKHS, WH ICH IT RECEIVED AS COMPENSATION TOWARDS THE RELINQUISHMENT OF TENANCY RIGHT. IN FACT THE ASSESSEE COMPANY HAD DISCLOSED THE AMOUNT OF RS.46, 80,000/- U/S 132 2 OF THE INCOME TAX ACT AND PAID TAXES THEREON. THIS FACT IS DISCLOSED IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 1999. ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY HAD, DURING T HE COURSE OF SEARCH STATED THAT THE SUM OF RS.39 LAKH WAS DISTRIBUTED T O THE SHARE HOLDERS. BASED ON THAT STATEMENT, THE AO AT PAR 2 PAGE 2 OBS ERVED AS FOLLOWS : THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE TO ME. AS PER SECTION 8, THE DIVIDEND INCOME SHOULD BE INCLUD ED IN THE TOTAL INCOME OF THE ASSESSEE WHEN THE DIVIDEND DECLARED B Y THE COMPANY OR DISTRIBUTED OR PAID BY IT. THE WORD PAID IS TO BE INCLUDED PAYABLE AS PER THE METHOD OF ACCOUNTING AD OPTED BY THE COMPANY. IN ORDER TO AVOID THE TAXABILITY OF THE DI VIDEND, THE ASSESSEE COMPANY COULD HOLD THE DECLARATION OF DIVI DEND OR COULD HOLD THE PAYMENT WHICH IS NOT ACCORDING TO TH E SYSTEM OF ACCOUNTING. THEREFORE THE INCOME OF THE ASSESSEE IS TAXABLE AS DEEMED DIVIDEND INCOME. PENALTY PROCEEDINGS U/S 271 (1)(C)ARE BEING INITIATED SEPARATELY. THEREAFTER HE TREATED AN AMOUNT OF RS.7,44,813/- AS INCOME FOR THE ASSESSMENT YEAR 1996-97 AND A SIMILAR AMOUNT AS INC OME FOR THE ASSESSMENT YEARS 1995-96 AS DEEMED DIVIDEND U/S 2( 22)(E) OF THE ACT. 2.2 AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY DELETED THE ADDITION. AGG RIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND WITHOUT APPRECIATING THE FOLLOWING FACTS : I) THE ASSESSEE IS A SHAREHOLDER OF M/S JAYEMS ENGINEERING CO. PVT. LTD. WHICH WAS SUBJECTED TO SE ARCH AND SEIZURE ACTION U/S 132 OF THE ACT. THE EXECUTIV E DIRECTOR OF THE COMPANY STATED THAT THE CASH OF RS. 39 LAKHS ALONG WITH INTEREST OF RS.5,12,012/- WAS DIST RIBUTED TO THE SHAREHOLDERS DURING THE A.YS. 1995-96 AND 19 96- 97. II) TILL 31.03.1998, NO CASH IN HAND IN RESPECT OF THE AMOUNT INVOLVED WAS SHOWN IN THE BALANCE SHEET OF THE COMP ANY. III) THE PAYMENTS MADE TO SHAREHOLDER IS A DEEMED D IVIDEND U/S 2(22)(E) OF THE ACT. ALTERNATIVELY, IF IT IS TO BE TREATED AS 3 LOAN OR ADVANCE, THEN ALSO IT WOULD BE DEEMED DIVID END U/S 2(22)(E) OF THE ACT. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSIN G OFFICER RESTORED. 3. WE HAVE HEARD MR. S.B. MOREY, THE LEARNED DR A ND MR. SUNIL DESAI, LEARNED COUNSEL FOR THE ASSESSEE. 4. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIR CUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPERS ON RECORDS AND THE ORDERS OF THE AUTHORITIES BELOW, WE HOLD AS FOLLOWS : 5. FROM THE OFFICE NOTE IT CAN BE SEEN THAT THE SE ARCH OPERATION WAS CARRIED ON IN THE CASE OF M/S JAYEMS ENGINEERING CO. PVT. LTD. ON 14-10-1998 AND DURING THE COURSE OF TH OSE PROCEEDINGS A PAPER WAS SEIZED WHEREIN M/S JAYEMS ENGINEERING CO. PVT. LTD. HAS RECEIVED RS. 39 LAKHS FOR SURRENDER OF TENANCY RIGH TS IN A PORTION OF ITS PROPERTY AT S.B.S. MARG, MUMBAI IN DECEMBER, 1994. ONE SMT. GAYATRI V. PARIKH STATED THAT THE AMOUNT OF RS.39 LAKHS ALONG WITH INTEREST OF RS.5,12,012/- WAS DIRECTLY DISTRIBUTED TO THE SHARE HOLDERS OF THE COMPANY IN PROPORTION TO THE SHARE HOLDINGS. OT HER THAN THIS ALLEGED STATEMENT OF SMT. GAYATRI PARIKH, NO EVIDENCE IS FO UND BY THE REVENUE, TO SUBSTANTIATE ITS CLAIM THAT DIVIDEND WAS DISTRIB UTED OR LOAN WAS TAKEN BY THE SHARE HOLDERS. ON THE OTHER HAND, FROM THE A NNUAL REPORT OF JAYEMS ENGINEERING CO. PVT. LTD. FOR THE YEAR ENDED 31 ST MARCH, 1999, IT CAN BE SEEN THAT THIS AMOUNT OF RS.39 LAKHS ALON G WITH INTEREST WAS DECLARED AS ITS INCOME AND HAS BEEN DISCLOSED AS CA SH HELD BY THE COMPANY. THUS THERE IS NO DISTRIBUTION OF ANY DIVID END FROM THE COMPANY TO THE SHARE HOLDERS. THE REASONING OF THE AO AT PARA 2 PAGE 2 OF HIS ORDER IS MERELY A SURMISE AND IS NOT SUPPO RTED BY ANY EVIDENCE. 4 6. THE FIRST APPELLATE AUTHORITY AT PARA 5.2 PAGE 2 HELD AS FOLLOWS : I HAVE CAREFULLY CONSIDERED THE AFORESAID SUBMISS IONS AND FIND CONSIDERABLE FORCE THEREIN. THE LEARNED A.O. H AS NOT DISCUSSED THE BASIC INFORMATION AS THE DECLARATION OR DISTRIBUTION OF THE DIVIDEND BY THE COMPANY WHILE INVOKING SECTI ON 8 OF THE ACT. FROM THE ABOVE, IT IS EVIDEND THAT THE A.O. HA S NOT GIVEN ANY FINDINGS AS TO WHEN THE DIVIDEND WAS DEEMED TO HAVE BEEN DECLARED/DISTRIBUTED OR PAID. A.O. HAS ALSO NOT GIV EN THE REASONS FOR REJECTING THE APPELLANTS DENIAL OF HAVING RECE IVED THE DEEMED DIVIDEND AND THE COMPANYS DENIAL FOR HAVING DECLAR ED OR DISTRIBUTED THE DIVIDEND. IN VIEW OF THE ABOVE, I C ANNOT BUT HOLD THAT THE ADDITION MADE BY THE A.O. IS ARBITRARY AND UNJUSTIFIED AND THE SAME IS THEREFORE, DELETED. WE FULLY AGREE WITH THIS FINDING. IN ANY EVENT THE SAME ADDITION CANNOT BE MADE FOR BOTH THE ASSESSMENT YEARS. IN VIEW OF T HE ABOVE DISCUSSION, WE UPHOLD THE ORDER OF THE FIRST APPELL ATE AUTHORITY. 7. IN THE RESULT, THE APPEALS OF THE REVENUE ARE D ISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF NOVEMBER, 2009. SD/- SD/- (N.V. VASUDEVAN)) (J. SUDHAKAR R EDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 30 TH NOVEMBER, 2009 WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, L-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES