SMT. RINKU CHAKRABORTHY V. THE DEPUTY COMMISSIONER

ITA/445/2018

AI Insights

The case involves an appeal by Smt. Rinku Chakraborthy against the order of the Income Tax Appellate Tribunal (ITAT) which dismissed her appeal regarding the treatment of Rs.6.60 Lakhs received from M/s. DTDC Ltd. The amount was initially intended for the purchase of property but was later treated as a deposit for construction. The ITAT had earlier treated this amount as a deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961, which the appellant contested. The High Court found that the ITAT had not adequately considered the implications of the property transaction and the subsequent use of the funds, leading to the decision to remit the case back to the ITAT for a thorough re-examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 743570 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 09-01-2023
• Assessment Year: misc
• Other Referred Cases: CIT and another Vs. Rinku Chakravarthy
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATHI
• Assessee Lawyers: H VANI
• Keywords: Block period assessment; Business advances; Deemed dividend; Income tax appeal; Search and seizure
• Section: 143(3); 2(22)(e); 158BC; 260-A

Judgement Text

" - 1 - ITA No. 445 of 2018 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9TH DAY OF JANUARY, 2023 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE G BASAVARAJA INCOME TAX APPEAL NO. 445 OF 2018 BETWEEN : SMT. RINKU CHAKRABORTHY W/O SRI. DEBASISH CHAKRAVARTY AGED ABOUT 58 YEARS RESIDING NOW AT NO.1702 AMBROSIA BUILDING HIRANANDANI GARDEN POWAI, MUMBAI-400 076 MAHARASHTRA …APPELLANT (BY SMT. H. VANI, ADVOCATE) AND : THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1) BANGALORE …RESPONDENT (BY SHRI. E.I. SANMATHI, SENIOR STANDING COUNSEL) . . . . THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 13.09.2017, PASSED IN ITA NO.1474/BANG/2004, FOR THE ASSESSMENT YEAR 1995-96, VIDE ANNEXURE-F, PRAYING TO FORMULATE THE SUBSTANTIAL Digitally signed by YASHODHA N Location: HIGH COURT OF KARNATAKA - 2 - ITA No. 445 of 2018 QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET-ASIDE THE IMPUGNED ORDER OF THE INCOME TAX APPELLATE TRIBUNAL PASSED IN ITA NO. 1474/BANG/2004 RELATING TO ASSESSMENT YEAR 1995-96 IN SO FAR AS THE APPELLANT IS CONCERNED VIDE ANNEXURE-F AND ETC. THIS ITA COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING: JUDGMENT This appeal by the assessee challenging ITA No.1474/Bang/2004 for A.Y. 1995-96, out of the common order dated 13.09.2017 passed by the ITAT1 has been admitted to consider the following questions of law: 1. Whether on facts and circumstances of the case the Appellate Tribunal was justified in dismissing the appeals without considering all the grounds of appeal on merits and documents relied upon in support of the claim that the business advances made by the Company cannot be held to be deemed dividend under Section 2(22)(e) of the Income tax Act? 2. Whether on facts and circumstances of the case the order of the Appellate Tribunal holding that there is a deemed dividend merely based on the accumulated profits, is arbitrary unreasonable and perverse? 1 Income Tax Appellate Tribunal - 3 - ITA No. 445 of 2018 2. Brief facts of the case are, assessee, at material point of time was a Director with M/s. DTDC Ltd. On March 28, 1995, M/s. DTDC gave Rs.6.60 Lakhs to the assessee and five other Directors, who were the joint owners of a property situated on Victoria Road, Bengaluru, with an intention to purchase the same for the benefit of the Company. According to Smt. Vani, learned Advocate for the assessee, the sum of Rs.6.60 Lakhs was paid to purchase the property for the benefit of the Company. The Board passed a Resolution on March 30, 1995 to purchase the land from the Directors. But, subsequently, the Board passed another Resolution on October 24, 1995 to treat the advance sale consideration of Rs.39.60 Lakhs as deposit towards construction. The Directors constructed the building and sold the ground floor of the building to the Company. 3. There was a search in the premises of the assessee on January 6, 1999. Pursuant thereto, notice - 4 - ITA No. 445 of 2018 under Section 158BC of the Income Tax Act, 1961 was issued and the assessee filed Block Period return of income from 01.04.1998 to 06.01.1999. The Assessing Officer completed the Block Period assessment recording that the Company had paid a sum of Rs.6.60 Lakhs to each Director and the said amount was required to be adjusted against the Sale consideration of the property to be transferred to the Company as and when Sale deed were to be executed. 4. For A.Y. 1995-96, the assessment under Section 143(3) of the IT Act was concluded on 28.03.2003. In the said assessment order, the Assessing Officer has held that the advance amount of Rs.6.60 Lakhs could be at best considered as ‘deemed dividend’ under Section 2(22)e of the IT Act. On appeal by the assessee, the CIT(A), vide order dated 30.01.2004, dismissed the appeal. On further appeal, the ITAT vide order dated 24.02.2005 set-aside the Order passed under Section 147 of the IT Act. The said order was challenged by the Revenue in ITA No.2781/2005 - 5 - ITA No. 445 of 2018 and connected cases (CIT and another Vs. Rinku Chakravarthy). This Court allowed the appeals and remanded the matter to the ITAT for re-consideration in accordance with law. After re-consideration, by the impugned order, the ITAT has dismissed assessee's appeal. 5. Smt. Vani, assailing the impugned order submitted that it is not in dispute that Rs.6.60 Lakhs was paid by M/s. DTDC towards purchase of the property. In view of the changed circumstances, M/s. DTDC thought it appropriate to treat the amount paid to the Directors as advance towards construction of ground floor premises and remaining towards deposit for taking the first floor and other floors on lease. She contended that the assessee and other Directors having constructed the building (ground + four floors) have executed a sale deed in respect of the ground floor of the premises in favour of M/s. DTDC and they have leased the remaining area to DTDC on subsidized rent. Therefore, treating the receipt of - 6 - ITA No. 445 of 2018 Rs.6.60 Lakhs as dividend under Section 2(22)(e) of the IT Act is perverse and bad in law. 6. Shri. E.I. Sanmathi, in support of the impugned order, submitted that the ‘Agreement to sell’ entered into between M/s. DTDC and the Directors of the Company did not fructify. Admittedly, the Directors have received the amount between F.Y. 1994 and 1995. They have utilized the said amount for their own purposes. Therefore, the amount paid to the Directors must be necessarily considered as dividend. 7. We have carefully considered rival contentions and perused the records. 8. Undisputed facts of the case are, in the Assessment order for A.Y. 1995-96, the Assessing Officer has held that the advance amount given to the Directors could be considered as simple advance amount and it had no relation to any business with M/s. DTDC. Whilst the - 7 - ITA No. 445 of 2018 challenge to the said assessment order was pending consideration, there was a search in the premises of the assessee and in the Block/bulk assessment order dated 25.09.2000 (Annexure-A) under Section 158BC of the Act, the Assessing Officer has recorded that the Directors had entered into an agreement with M/s. DTDC for sale of ground floor portion to be constructed on the land in question. He has further recorded that M/s. DTDC has paid an advance of Rs.6.60 Lakhs to each of the Directors totalling to Rs.39.60 Lakhs with an agreement that the amount paid would be adjusted towards sale consideration of the property to be transferred to the Company as and when the sale deed were executed. It is also recorded that the building was constructed through a Company named M/s. Surya Homes. Parties are not at variance with regard to sale of ground floor to M/s. DTDC for a sale consideration of Rs.8,87,500/-. Thus, a portion of the agreement between M/s. DTDC and its Directors has been acted upon and an area of 963 sq. ft. in the ground floor - 8 - ITA No. 445 of 2018 has been sold in favour of M/s. DTDC. It is the specific contention of the assessee before this Court that the remaining amount out of Rs.39.60 Lakhs has also been beneficial to the Company because, the first floor and upper floors have been leased out on subsidized rental value. The impugned order by the ITAT has emanated out of the Assessment order dated 28.03.2003. In the said Assessment order, the sum of Rs.6.60 Lakhs has been treated as dividend paid to the share holder/Director. In our considered view, the Assessing Officer, CIT(A), as also the ITAT have missed a relevant point that the ground floor of the premises has been purchased by M/s. DTDC. If the consideration amount towards the ground floor is considered, the entire sum of Rs.6.60 Lakhs cannot be treated as dividend. Therefore, the matter requires re- consideration in the hands of ITAT which is the last fact finding authority. We also notice that ITAT has not recorded any reasons on this aspect. - 9 - ITA No. 445 of 2018 9. At this stage, Smt. Vani submitted that any finding recorded by this Court with regard to the construction value of Rs.8.87 Lakhs may influence the ITAT. 10. We clarify that having noticed the sale of ground floor, in our view, at least the consideration amount of Rs.8.87 Lakhs ought to have been considered as a part of advance sale consideration. Therefore, the entire matter requires re-consideration. We make it clear and direct that the ITAT shall pass fresh orders wholly uninfluenced by any observations made by this Court. 11. In view of the above, the following: ORDER (a) Appeal is allowed. (b) The order dated 13.09.2017 in ITA No.1474/Bang/2004 passed by the ITAT is set- aside. - 10 - ITA No. 445 of 2018 (c) The matter is remitted to the ITAT to re-examine the matter and pass fresh orders in accordance with law. (d) In view of the matter having been remitted to the ITAT, the questions of law has not been answered. (e) All contentions of parties are kept open. No costs. Sd/- JUDGE Sd/- JUDGE SPS List No.: 1 Sl No.: 60 "