M. J. Johnson, Cochin V. ACIT, Kottayam

ITSSA 19/COCH/2007

• Counselvise Citation: [2012] 124 COUNSELVISE.COM (IT) 7812 (ITAT-COCHIN)
• Duration Of Justice: 4 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 29-12-2011
• Assessment Year: misc
• Appeal Filed On: 05-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R J VINCENT
• Assessee Lawyers: K R SUDHAKARAN PILLAI
• Keywords: Deemed dividend
• Section: 143(3); 131

Judgement Text

1 ITSS NO.19/COCH/2007 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI SANJAY AROR A (AM) I.T(S&S) A NO. 19/COCH/2007 (BLOCK PERIOD AYS 1999-91 TO 1999-2000) SHRI M.J. JOHNSON VS ASSIST.COMMISSIONER OF INCO ME-TAX FLAT NO.8C, LINK MANOR CIRCLE-1, KOTTAYAM OLD RAILWAY STATION ROAD KOCHI-682 018 PAN : ACMPJ5391D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.R. SUDHAKARAN PILLAI RESPONDENT BY : SHRI R.J. VINCENT DATE OF HEARING : 29-12-2011 DATE OF PRONOUNCEMENT : 25-01-2012 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME-TAX(A)-IV, KOCHI DATED 15-01-2007 AND PERTAIN S TO BLOCK PERIOD 1990- 91 TO 1999-2000. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS ADDI TION OF RS.4 LAKHS U/S 2(22)(E) OF THE ACT. 2 ITSS NO.19/COCH/2007 3. SHRI K.R. SUDHAKARAN PILLAI, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS TAKEN A LOAN OF RS.4 LAKHS FOR THE ASSESSMENT YEAR 1993-94 FROM M/S VELLAPALLY NATESAN & CO PVT LT D. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE IS A DIRECTOR IN M/S V ELLAPALLY NATESAN & CO PVT LTD. THE LOAN WAS DISCLOSED IN THE BALANCE-SHEET OF THE C OMPANY. THE COMPANY HAS FILED RETURN OF INCOME ALONG WITH THE BALANCE-SHEET DISCLOSING THE LOAN GIVEN TO THE ASSESSEE. THE LD.REPRESENTATIVE FURTHER SUBMIT TED THAT A SURVEY WAS ALSO CONDUCTED AND THE ASSESSEE WAS EXAMINED ON 25-06-1993 . THE ASSESSEE IN HIS STATEMENT DATED 25-06-1993 IN CONNECTION WITH NOTICE ISSUED BY THE DEPUTY DIRECTOR OF INCOME-TAX (INVESTIGATION) HAS DISCLOSED THE RECEIPT OF LOAN FROM M/S VELLAPALLY NATESAN & CO PVT LTD AS A SOURCE FOR INV ESTMENT FOR PURCHASING AN APARTMENT IN LINK MANOR, COCHIN. THEREFORE, ACCORDI NG TO THE LD.REPRESENTATIVE, THE FACT OF LOAN TAKEN BY THE ASSESSEE FROM M/S VELL APALLY NATESAN & CO PVT LTD TO THE EXTENT OF R.4 LAKHS WAS DISCLOSED TO THE DEPA RTMENT BY THE COMPANY, VIZ. M/S VILLAPALLY NATESAN & CO PVT LTD AS ALSO BY THE ASSESSEE IN HIS STATEMENT RECORDED ON 25-06-1993. ACCORDING TO THE LD.REPRESEN TATIVE, THERE WAS A SEARCH ON 16-12-1999 IN VELLAPALLY NATESANS HOUSE AT KANICHI KULANGARA, ALLEPPEY DISTRICT. CONSEQUENT TO THE SEARCH MADE IN VELLAPA LLY NATESANS HOUSE, A SURVEY WAS ALSO CONDUCTED IN THE PREMISES OF THE ASSESSEE. IN CONNECTION WITH THE SURVEY AN ENQUIRY WAS CONDUCTED BY ISSUING A QUESTI ONNAIRE DATED 25-06-1993. THE ASSESSEE HAS FILED THE COPY OF THE QUESTIONNAIR E AND THE REPLY MADE THEREUNDER. AS PER THIS QUESTIONNAIRE THE ASSESSE E HAS DISCLOSED THE INVESTMENT IN THE APARTMENT, LINK MANOR FROM THE LOAN TAKEN FR OM M/S VELLAPALLY NATESAN & CO PVT LTD. THEREFORE, ACCORDING TO THE LD.REPRE SENTATIVE, THE FACT OF LOAN TAKEN BY THE ASSESSEE WAS WITHIN THE KNOWLEDGE OF THE DEPA RTMENT BEFORE THE DATE OF SEARCH. THEREFORE, THE LOAN TAKEN BY THE ASSESSEE C ANNOT BE TREATED AS UNDISCLOSED INCOME FOR THE BLOCK PERIOD. THE LD.REP RESENTATIVE PLACED HIS 3 ITSS NO.19/COCH/2007 RELIANCE ON THE DECISION OF THE NAGPUR BENCH OF THI S TRIBUNAL IN SMT. B GULAKANDI DEVI AGRAWAL VS ASSIST.COMMISSIONER OF INCOME-TAX ( 2000) 66 TTJ (NAG) 844. THE LD. REPRESENTATIVE HAS ALSO PLACED RELIANCE ON THE JODHPUR BENCH OF THIS TRIBUNAL IN ITO VS ASHOK KUMAR RATHI (2009) 32 DTR (JD)(TRIB) 521. 4. ON THE CONTRARY, SHRI T.J. VINCENT, THE LD.DR SU BMITTED THAT MERELY BECAUSE THE COMPANY HAS DISCLOSED THE LOAN IN THE B ALANCE-SHEET TO THE DEPARTMENT THAT CANNOT BE A DISCLOSURE BY THE ASSES SEE. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEE HAS TO DISCLOSE TH E SAME BY FILING THE RETURN OF INCOME. THEREFORE, THE ASSESSMENT MADE BY THE LOWE R AUTHORITIES AS UNDISCLOSED INCOME HAS TO BE UPHELD. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. SECTION 158B(B) DEFINES THE U NDISCLOSED INCOME. FOR THE SAKE OF CONVENIENCE, WE ARE REPRODUCING HERE BELOW S ECTION 158B(B) OF THE ACT:- (B) UNDISCLOSED INCOME INCLUDES ANY MONEY, BULLIO N, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY INCOME BA SED ON ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSA CTIONS, WHERE SUCH MONEY, BULLION, JEWELLERY, VALUABLE ARTICLE, T HING, ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT OR TRANSACTION RE PRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT B EEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSES OF THIS AC T, OR ANY EXPENSES, DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE. IN VIEW OF THE ABOVE DEFINITION, THE REVENUE HAS TO SHOW THAT THE INCOME UNEARTHED DURING THE COURSE OF SEARCH OPERATION HAS NOT BEEN DISCLOSED FOR THE PURPOSE OF INCOME-TAX ACT OR WOULD NOT HAVE BEEN DIS CLOSED. THE DEFINITION IN SECTION 158B(B) DOES NOT SAY THAT THE INCOME HAS TO BE DISCLOSED BY THE ASSESSEE. 4 ITSS NO.19/COCH/2007 WHAT IS REQUIRED IS DISCLOSURE UNDER THE INCOME-TAX ACT. WHEN THE COMPANY DISCLOSES THE FACT OF LOAN GIVEN TO THE ASSESSEE BY FILING A RETURN OF INCOME ALONG WITH THE BALANCE-SHEET BEFORE THE DATE OF SEARCH, TH AT FACT IS WITHIN THE KNOWLEDGE OF THE DEPARTMENT. THEREFORE, IT IS FOR T HE DEPARTMENT TO MAKE NECESSARY ENQUIRY AND BRING TO TAX UNDER THE PROVIS IONS OF SECTION 143(3) OF THE ACT. IN THIS CASE, THE ASSESSEE WAS ALSO ENQUIRED INTO DURING THE COURSE OF SURVEY OPERATION. THE COPY OF THE QUESTIONNAIRE, ISSUED B Y THE DEPUTY DIRECTOR OF INCOME-TAX (INVESTIGATION) IN FILE NO. CIB 026/24/93 -94 DATED 25-06-1993, SHOWS THAT THERE WAS AN ENQUIRY ABOUT THE INVESTMENT MADE BY THE ASSESSEE IN LINK MANOR APARTMENT. THE ASSESSEE, BY WAY OF REPLY, D ISCLOSED THE FACT OF LOAN FROM M/S VELLAPALLY NATESAN & CO PVT LTD TO THE EXTENT O F RS.4 LAKHS. THEREFORE, AS ON 25-06-1993 THE DEPARTMENT IS AWARE THAT THE ASSESSEE HAS TAKEN LOAN FROM M/S VELLAPALLY NATESAN & CO PVT LTD TO THE EXTENT OF RS .4 LAKHS. APART FROM THIS, THE COMPANY M/S VELLAPALLY NATESAN & CO PVT LTD HAS ALS O FILED THE RETURN OF INCOME IN THE REGULAR COURSE AND DISCLOSED THE LOAN GIVEN TO THE ASSESSEE. ADMITTEDLY, THE SEARCH TOOK PLACE ON 16-12-1999. HOWEVER, THE FAC T OF LOAN WAS WITHIN THE KNOWLEDGE OF THE DEPARTMENT IN THE YEAR 1993 ITSELF. THEREFORE, NOW THE DEPARTMENT CANNOT CLAIM THAT THE LOAN TAKEN BY THE A SSESSEE WAS NOT DISCLOSED TO THE DEPARTMENT UNDER THE INCOME-TAX ACT. THE INF ORMATION GIVEN BY THE ASSESSEE IN THE COURSE OF SURVEY OPERATION IS ALSO AN INFORMATION DISCLOSED TO THE DEPARTMENT UNDER THE INCOME-TAX ACT. THE INFORMATIO N FURNISHED BY THE COMPANY WHILE FILING A REGULAR RETURN OF INCOME ALO NG WITH THE BALANCE-SHEET IS ALSO AN INFORMATION AVAILABLE WITH THE DEPARTMENT U NDER THE INCOME-TAX ACT. THEREFORE, IT CANNOT BE SAID THAT THE LOAN TAKEN BY THE ASSESSEE TO THE EXTENT OF RS.4 LAKHS FROM M/S VELLAPALLY NATESAN & CO PVT LTD WAS NOT DISCLOSED TO THE DEPARTMENT. SINCE IT IS DISCLOSED TO THE DEPARTMEN T BEFORE THE DATE OF SEARCH, THIS TRIBUNAL IS OF THE OPINION THAT THE LOAN TAKEN BY THE ASSESSEE TO THE EXTENT OF 5 ITSS NO.19/COCH/2007 RS.4 LAKHS CANNOT BE ASSESSED AS UNDISCLOSED INCOME FOR THE BLOCK PERIOD. AT THE BEST, IT CAN BE CONSIDERED ONLY IN THE REGULAR ASSE SSMENT. THEREFORE, ADDITION OF RS.4 LAKHS AS DEEMED DIVIDEND FOR THE BLOCK PERIOD IS NOT JUSTIFIED. ACCORDINGLY, THE ORDERS OF LOWER AUTHORITIES ARE SET ASIDE AND T HE ADDITION OF RS.4 LAKHS AS DEEMED DIVIDEND IS DELETED. 6. THE NEXT ISSUE IS WITH REGARD TO INCLUSION OF DI VIDEND INCOME OF US-64. SHRI K.R. SUDHAKARAN PILLAI, THE LD.REPRESENTATIVE FO R THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS OPTED FOR CUMULATIVE INCOME AND AD OPTED CASH BASIS OF ACCOUNTING. THEREFORE, ACCORDING TO THE LD.REPRESE NTATIVE, THE INCOME CAN BE ASCERTAINED ONLY AT THE TIME OF REDEMPTION. THE LD .REPRESENTATIVE FURTHER SUBMITTED THAT THE VALUE OF US-64 UNITS ITSELF HAS G ONE DOWN AND THE ASSESSEE CANNOT EVEN GET THE PURCHASE PRICE OF THE UNITS. T HEREFORE, ACCORDING TO THE LD.REPRESENTATIVE, THERE IS NO QUESTION OF MAKING AN Y FURTHER ADDITION AS UNDISCLOSED INCOME FOR THE BLOCK PERIOD. 7. ON THE CONTRARY, SHRI T.J. VINCENT, THE LD.DR SU BMITTED THAT THESE CERTIFICATES ARE BONUS UNITS. IN THE YEAR 1996, 20 % DIVIDEND WAS DECLARED AND ISSUED BONUS UNITS @10% OF THE TOTAL UNITS IN HELD BY THE ASSESSEE. ACCORDING TO THE LD. REPRESENTATIVE, THESE UNITS ARE RE-INVESTMEN T TYPE OF UNITS. UNDER THE SCHEME OF UTI, THE DIVIDEND DECLARED ON RE-INVESTMEN T UNITS IS NOT DISBURSED TO THE UNIT HOLDER BUT IS INVESTED ON HIS BEHALF IN FR ESH UNITS AT THE PREVAILING RATE AS ON THE DATE OF DECLARATION. THEREFORE, THE ASSESSI NG OFFICER ESTIMATED THE DIVIDEND ON THE UNITS AND BROUGHT THE SAME FOR TAXA TION AS UNDISCLOSED INCOME. ACCORDING TO THE LD.REPRESENTATIVE, MERELY BECAUSE THE ASSESSEE HAS NOT RECEIVED THE DIVIDEND PHYSICALLY IT CANNOT BE SAID THAT IT D ID NOT FORM PART OF HIS TOTAL INCOME. THE VERY FACT THAT THE INVESTMENT WAS MADE IN HIS NAME AS PER THE 6 ITSS NO.19/COCH/2007 SCHEME OF THE UNIT IT FORMED PART OF HIS TOTAL INCO ME. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY ADDED THE SAME ON ESTIMATE BASI S. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RECORDS. THE CONTENTION OF THE ASSESSEE IS THAT HE IS FOLLOW ING CASH SYSTEM OF ACCOUNTING; THEREFORE, IT CANNOT BE INCLUDED UNLESS IT IS PHYSI CALLY RECEIVED. THE FACT REMAINS IS THAT AS PER THE SCHEME OF UTI IT IS A REINVESTME NT PLAN. THEREFORE, THE DIVIDEND ACCRUED ON THE UNIT WOULD BE REINVESTED IN THE NAME OF THE ASSESSEE. THE MOMENT THE DIVIDEND IS REINVESTED, THERE IS A CONST RUCTIVE RECEIPT, AND IT FORMS PART OF INCOME OF THE ASSESSEE. THEREFORE, MERELY BECAUSE THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING, IT CANNOT BE S AID THAT IT WILL NOT FORM PART OF TOTAL INCOME OF THE ASSESSEE. THIS TRIBUNAL IS OF THE OPINION THAT THE INVESTMENT MADE AS PER THE SCHEME OF INVESTMENT WOULD FORM PAR T OF HIS TOTAL INCOME, THEREFORE, IT HAS TO BE ADDED TO HIS TOTAL INCOME. THE ASSESSING OFFICER ESTIMATED THE DIVIDEND. THE BASIS OF ESTIMATION IS NOT KNOWN. WHEN THE UTI DECLARED DIVIDEND, THE ASSESSING OFFICER CAN VERY WELL GET T HE DETAILS FROM THE UTI AS PER THE INVESTMENT AND ASSESS THE ACTUAL DIVIDEND REINV ESTED IN THE NAME OF ASSESSEE. THEREFORE, THE QUESTION OF ESTIMATION MA Y NOT ARISE FOR CONSIDERATION. THE ASSESSING OFFICER BEING A QUASI JUDICIAL AUTHOR ITY HAS TO ESTIMATE THE INCOME IN CASE THE REAL INCOME WAS NOT ASCERTAINED. IN TH IS CASE, ADMITTEDLY, THE DIVIDEND WAS DECLARED BY UTI WHICH WAS REINVESTED I N THE UNIT IN THE NAME OF THE ASSESSEE. THEREFORE, THE DIVIDEND DECLARED BY THE UTI CAN BE ASCERTAINED BY THE ASSESSING OFFICER BY EXERCISE OF HIS POWER UNDER SE CTION 131 OF THE ACT. THEREFORE, ESTIMATION MADE BY THE ASSESSING OFFICER WITHOUT CALLING FOR THE DETAILS MAY NOT BE JUSTIFIED AT ALL. ACCORDINGLY, THE ORDE RS OF LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE OF ESTIMATION OF INCOME FROM UN IT-64 IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFIC ER SHALL CALL FOR THE DETAILS FROM THE 7 ITSS NO.19/COCH/2007 UTI AND DETERMINE THE DIVIDEND ACCRUED ON THE UNITS HELD BY THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 9. THE ASSESSEE HAS TAKEN ONE ADDITIONAL GROUND WITH REGARD TO DEDUCTION U/S 80L OF THE ACT. 10. WE HAVE HEARD THE LD.REPRESENTATIVE FOR THE ASS ESSEE AND THE LD.DR. THE ISSUE RAISED WITH REGARD TO DEDUCTION U/S 80L IS A LEGAL ISSUE. THE INCOME FOR THE BLOCK PERIOD HAS TO BE COMPUTED UNDER THE OTHER PROV ISIONS OF THE INCOME-TAX ACT. THEREFORE, THE ASSESSEE IS NECESSARILY ENTITL ED FOR DEDUCTION U/S 80L IN RESPECT OF THE ELIGIBLE INCOME. WHEN THE ASSESSEE HAS ELIGIBLE INCOME FOR DEDUCTION U/S 80-L, IT HAS TO BE ALLOWED WHILE COMPU TING THE UNDISCLOSED INCOME. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO COMPU TE THE ELIGIBLE INCOME AND ALLOW DEDUCTION U/S 80-L IN ACCORDANCE WITH LAW. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF JANUARY, 2012. SD/- SD/- (SANJAY ARORA) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 25 TH JANUARY, 2012 PK/- COPY TO: 1. SHRI M.J. JOHNSON, FLAT NO.8C, LINK MANOR, OLD RAIL WAY STATION ROAD, KOCHI 2. ASSIST.COMMISSIONER OF INCOME-TAX, CIR.1, KOTTAYAM 3. THE COMMISSIONER OF INCOME-TAX(A)-IV, KOCHI 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH