PR COMMISSIONER OF INCOME TAX-I vs. M/S RATAN TEXTILES PVT LTD

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ITA/286/2017HC RajasthanRJHC02099036201713 March 201813 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that all issues were required to be answered in favour of the assessee and against the department. The reasoning was based on the cited decisions of the High Court itself. In relation to Section 2(22)(e), the Court referred to Commissioner of Income Tax vs. Suram Holding (P) Ltd. and Commissioner of Income Tax vs. Hotel Hilltop. These judgments established that deemed dividend under Section 2(22)(e) is taxable in the hands of the individual shareholder or the person for whose benefit the payment is made, not in the hands of a firm or a concern unless that concern is a shareholder or the payment is for the individual benefit of a shareholder. Since the assessee was not a shareholder of the sister concern, and the payments were related to tenancy, the addition under Section 2(22)(e) was not justified. The judgment implies that the Tribunal's findings on job work and stipend expenses were also upheld, as the Court concluded no substantial question of law arose for consideration, and the Tribunal's findings were not open to attack. The appeals filed by the revenue were dismissed.

What were the facts?

This judgment concerns appeals filed by the Principal Commissioner of Income Tax-I against orders of the Income Tax Appellate Tribunal (ITAT) that allowed appeals of the assessee, M/s. Ratan Textiles Pvt. Ltd. The appeals relate to assessment years not explicitly stated but involve challenges to additions made by the Assessing Officer (AO) and sustained in part by the Commissioner of Income Tax (Appeals) [CIT(A)]. The disputed amounts pertain to job work charges, stipend expenses, and deemed dividends under Section 2(22)(e) of the Income Tax Act, 1961. The High Court admitted these appeals, framing substantial questions of law.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the Tribunal was justified in deleting additions made on account of alleged bogus job work charges, considering that payments were allegedly bogus and cash was immediately withdrawn from the bank account after receipt (Section 68). 2. Whether the Tribunal was justified in deleting additions sustained by the CIT(A) on account of unjustifiable stipend expenses, when the assessee allegedly did not have a training institute or earmarked space for training (Section 37). 3. Whether the Tribunal was justified in deleting additions made on account of loans and advances treated as deemed dividend under Section 2(22)(e), where payments were made by a sister concern to the assessee in respect of tenancy. 4. Whether the Tribunal's findings were perverse, contrary to the record, and untenable in law. Assessee's Arguments: The judgment does not explicitly record the assessee's arguments. However, the Tribunal's decision implies that the assessee successfully argued against the additions made by the revenue authorities. Revenue's Arguments: The revenue contended that job work payments were bogus, evidenced by immediate cash withdrawals. They also argued that stipend expenses were unjustifiable as the assessee lacked training infrastructure. Regarding Section 2(22)(e), the revenue treated loans and advances from a sister concern as deemed dividend. The revenue relied on the AO's observations regarding the lack of infrastructure for job work and training, and the nature of cash withdrawals.

Which sections of the Income-tax Act were involved?

Section 2(22)(e),Section 68,Section 37

AI-generated summary — verify with the full judgment below

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 286 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur(raj) ----Appellant Versus M/s. Ratan Textiles Pvt. Ltd., Papriwal Cottage, Ajmer Road, Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 287 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur(raj) ----Appellant Versus M/s. Ratan Textiles Pvt. Ltd., Papriwal Cottage, Ajmer Road Jaipur ----Respondent D.B. Income Tax Appeal No. 288 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building, State Circle, Jaipur Raj. ----Appellant Versus M/s Ratan Textiles, Pvt. Ltd., Papriwal Cottage, Ajmer Road, Jaipur. ----Respondent D.B. Income Tax Appeal No. 289 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur Raj. ----Appellant Versus M./s Ratan Textiles Pvt. Ltd., Papriwal Cottage, Ajmer Road, Jaipur ----Respondent D.B. Income Tax Appeal No. 290 / 2017

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Principal Commissioner of Income Tax-I, New Central Revenue Building, State Circle, Jaipur Raj. ----Appellant Versus M./s Ratan Textiles Pvt. Ltd., Papriwal Cottage Ajmer Road Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay & Mr. N.S. Bhati For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 13/03/2018 1. By way of these appeals, the appellants have challenged the judgment and order of Tribunal whereby the Tribunal has allowed the appeals of the assessee and dismissed the appeals of the revenue. 2. This Court while admitting the following appeals on 10.10.2017 framed following substantial questions of law: In DBITA No. 286/2017 i) Whether the Tribunal was justified in deleting the addition of Rs. 10,00,000/- made on account of bogus job work charges claimed by the assessee ignoring that the said payments were bogus and cash was immediately withdrawan from the ban account after receipt of the same. ii) Whether the Tribunal was justified in not only confirming the deletion of Rs. 14,93,076/- but further deleting the addition of Rs. 5,42,937/- sustained by CIT(A), which was made on account of unjustifiable stipend expenses when

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the assessee was not having any training institute or any earmarked space for imparting training? iii) Whether on the facts and circumstances of the case, the finding of the Tribunal is perverse, contrary to the record and untenable in the eye of law?” In DBITA No. 287/2017 i) Whether the Tribunal was justified in deleting the addition of Rs. 15,00,000/- made on account of bogus job work charges claimed by the assessee ignoring that the said payments were bogus and cash was immediately withdrawn from the bank account after receipt of the same. ii) Whether the Tribunal was justified in not only confirming the deletion of Rs. 5,65,975/- but further deleting the addition of Rs. 2,05,809/- sustained by CIT(A), which was made on account of unjustifiable stipend expenses when the assessee was not having any training institute or any earmarked space for imparting training? iii) Whether on the facts and circumstances of the case, the finding of the Tribunal is perverse, contrary to the record and untenable in the eye of law?” In DBITA No. 288/2017 i) Whether the Tribunal was justified in deleting the addition of Rs. 30,00,000/- made on account of bogus job work charges claimed by the assessee ignoring that the said payments were bogus and cash was immediately withdrawn from the bank account after receipt of the same. ii) Whether the Tribunal was justified in not only confirming the deletion of Rs. 17,14,976/- but further deleting the addition of Rs. 6,23,627/- sustained by CIT(A), which was made on account of unjustifiable stipend expenses when the assessee was not having any training institute or any earmarked space for imparting training? iii) Whether the Tribunal was justified in deleting the addition of Rs. 55,00,000/- being loans and advances made u/s 2(22)(e) on account of deemed dividend, which was paid by a sister concern-Ratan Papers Pvt. Ltd. to the assessee in respect of tenancy of a property having

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monthly rental of Rs. 10,000/-?” In DBITA No. 289/2017 i) Whether the Tribunal was justified in deleting the addition of Rs. 25,00,000/- made on account of bogus job work charges claimed by the assessee ignoring that the said payments were bogus and cash was immediately withdrawn from the bank account after receipt of the same. ii) Whether the Tribunal was justified in not only confirming the deletion of Rs. 14,66,481/- but further deleting the addition of Rs. 5,33,266/- sustained by CIT(A), which was made on account of unjustifiable stipend expenses when the assessee was not having any training institute or any earmarked space for imparting training? iii) Whether the Tribunal was justified in deleting the addition of Rs. 36,85,000/ being loans and advances made u/s 2(22)(e) on account of deemed dividend, which was paid by a sister concern-Ratan Papers Pvt. Ltd. to the assessee in respect of tenancy of a property having monthly rental or Rs. 10,000?” In DBITA No. 290/2017 i) Whether the Tribunal was justified in deleting the addition of Rs. 30,00,000/- made on account of bogus job work charges claimed by the assessee ignoring that the said payments were bogus and cash was immediately withdrawn from the bank account after receipt of the same. ii) Whether the Tribunal was justified in not only confirming the deletion of Rs. 16,97,076/- but further deleting the addition of Rs. 6,17,118/- sustained by CIT(A), which was made on account of unjustifiable stipend expenses when the assessee was not having any training institute or any earmarked space for imparting training? iii) Whether on the facts and circumstances of the case, the finding of the Tribunal is perverse, contrary to the record and untenable in the eye of law?” 3. Learned counsel for the appellant has taken us to the order of AO wherein it has been observed as under:

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8.

I have considered the above submissions carefully and I do not find any merit therein because Firstly there is no logic in submission that job work was got done from the above said two concerns to maintain secrecy of business in view of the facts that there are hundreds of employees dealing with the patterns, designs etc Secondly merely furnishing of returns does not prove that whatever has been shown is correct and true. Here I want to refer answer of Shri Harak Chand Jain in reply to question No10 in his statements dated 04/08/2011 wherein he stated that both of the concerns do not have any infrastructure. Thirdly there is no substance in submission that Statements of Shri Harak Chand Jain were recorded under coercion and under pressure, I have gone through the statements of Shri Harak Chand Jain carefully, it is found that it is not an small piece of dictated document. In fact Shri Harak hand has stated on various queries and the statements runs in 15 pages. Statement was recorded at the business premise of the assessee where his employers were there, it is not believable that one can be forced to make statements against one's wish and that too at his own place and in the presence of his senior colleagues and employer. It is also a matter of fact that he did not complain about such coercion or pressure before the senior officers of the department on next day or till two and half months. Fourthly considering the assessee's submission that it is ready to produce further information details with regard to the job work expenses, the assessee was asked to produce complete documents/accounts or any other evidence on which the assessee may rely in support of its claim of job work got done from the above said two concerns. Books of accounts of the assessee as well as of the said two concerns produced by the assesee were examined on test check basis. An attempt was made to verify the contents of the books of accounts/documents in this on perusal of a receipt challan for Washing & Spoting dated 14.10.2006 enclosed with invoice no. 91 dated 14.10.2006 of M/s Kalpana Handicrafts, it was observed that the description of the goods in the challan was mentioned ‘SAMPLE'. There was an initial of a person who prepared the challan whose name was printed- Chandan. In order to verify movement of the goods from assessee to M/s Kalpana Handicrafts and M/s Kalpana

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Handicrafts to the assessee, the assessee was asked to produce Shri Chandan for examination. He was produced on 01.11.2012 and his statement was recorded on oath, the Photostat copy of the challan was shown to him and he was asked to state whether the challan was issued by him. In reply to question no. 07 in this regard he deposed that the initial on the challan are different. It was also deposed by him that items in such quantity (6375 pieces) are not issued for Sample. Shri Chandan Singh Chouhan was store incharge of the assessee and in answer to the question that whether any concern other than the assessee was existed in the assessee premise he denied of existence of any other concern there. This question was (question no. 4) specifically put in the light of the fact that M/s Kalpana Handicrafts and M/s Kalpana Impex do not have any business premise/place to carry out job work. The claim of the assessee was that these concerns were operating from the business premise of the assessee. The statements of Shri Chandan Singh are reproduced as under- iz’u%1 d`i;k viuk ifjp; nsaA mRrj% esjk uke panu flag gS eS us B.COM rd f’k{kk izkIr dh gSA eSus 01-01-2004 dks EkS0 jru VSDlVkby izk- fy- dks crkSjk Store Assistant Rs. 2500/- dh ekfld osru ij Job fd;k Fkk rFkk 12-04-2009 dks Sotre incharge ds in ij Rs 5500/- dh ekfld osru ij dk;Z djrs gq, bl dEiuh dks NksM+k FkkA iz’u% 2 d`i;k eS0 jru VSDlVkbZy izk0 fy0 ds store dh vkod izfd;k ds ckjsa esa foLrkj ls crkosaA mRrj% eS0 jru VSDlLVkby izk0 fy0 bZ- ih- flrkiqjk ds fLFkr gSA ogkW ij tks Hkh grey Fabric vkrk gSA mlds fy, Purchase department dh vkSj ls bilty (G.R) transports ds ikl Hksth tkrh Fkh blds ckn transports ls fcy ,oa iSafdx fLyi ds lkFk eky gekjh daiuh esa vkrk Fkk ftls daiuh ds lkWIV~os;j ds vuqlkj esa LVkWd esa tek djrk Fkk blds ckn eky dks Cyhp] Dying Printinjg ds fy;s jru biSDl lkaxkusj vFkok jru biSDl xks;y gkml ds ikl vtesj jksM+ t;iqj Hkstk tkrk FkkA ogkW ls izkslsLM+ eky iqu% LVkSj esa vkrk FkkA ftls eS tek djrk FkkA blds ckn eky dks bZ- ih fLFkr QsDVªh ifjlj esa nh izFke ry ij cuh izkWMD’ku foHkkx esa Hkstk tkrk Fkk ogkW ij eky dh dfVax] flykbZ] fQfuf’kax ,oa rs;kj eky dh iSfdx dk dke gksrk FkkA ogkW ls eky lh/kk ,DliksVZ fd;k tkrk Fkk esjs ikl izkslsLM+ eky dks izkWMD’ku nkmu esa Hkstus rd dk fjdkMZ Maintain fd;k tkrk FkkA

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iz’u 3- d`i;k crk,W fd eS0 jru VSDLVkby izk0 fy0 esa vizsy 2009 dks ¼tc vkus ogkW ls dke NksM+k½ fdrus deZpkjh dke djrs Fks \ mRrj% esjs dke NksM+us rd ogkW rd yxHkx ipkl O;fDr daEiuh fu;fer dEkZpkjh ds :i es dke dj jgs Fks rFkk yxHkx 125 O;fDr Bsdsnkjksa ds }kjk eky dh dfVax] fLVfpax gSfYiax iSfdx ds dkeksa esa yxk, gq, FksA vU; lHkh O;fDr;ksa dk Hkqxru RTIL }kjk fd;k tkrk FkkA iz’u 4- d`i;k crk, fd D;k bl QSDVªh esas RTPL ds vykok vU; fdlh O;fDr vFkok Qze dk Hkh O;olk; pyrk Fkk\ mRrj% ;gkW ij tks Hkh dk;Z gksrk Fkk] rFkk tks Hkh izkslflax ,oa mlls lcafU/kr dk;Z gksrk Fkk og RTPL ds fu;fer deZpkfj;ksa ,oa muds }kjk fd;k tkrk Fkk ogkW ij vU; fdlh O;fDr vFkok QeZ dks dksbZ ifjlj ugh Fkk] rFkk ;gkW ls fdlh vU; O;fDr vFkok QeZ dh O;kolkf;d xfrfof/k;kW ugh gksrh FkhA iz’u 5- d`i;k crk,a fd D;k eky ds izkslsl ¼ ;kfu flykbZ oaxsjg gksdj rS;kj gks pqdus ½ ds ckn Hkh vkids ikl eky Receipt ,oa Despatch ds fy;s vkrk Fkk\ mRRkj% esjk jksy izkslsl djus ds fy;s eky dk Production Depot esa Hkstus rd dk Fkk] rS;kj eky ls esjk dksbZ ysuk nsuk ugh FkkA iz’u 6- d`i;k crk,a fd D;k vkius VSCky daoj eSV] dq’ku daoj] dksLVj] Stole tSls items dks vkids LVksj ls vkxs Jobwork ds fy, Hkstk Fkk Jobwork iwjk djok fy;s tkus ds ckn mijksDr Items dks Receive fd;k Fkk \ mRrj% tgkW rd eq>s ;kn gS eSusa rS;kj ekYk dks tkWc odZ ds fy;s uk Despatch fd;k gS uk gh Receive fd;k gSA rS;kj eky ls esjk eryc finished eky ls gSA iz’u 7- eS vkids esjs le{k daiuh }kjk nkf[ky fd;s x;s ,d “Issue challan for washing and spotting” fnukad 04-10-2006 dks Nk;k izfr vkidksa fn[kyk jgk gqWA daiuh dh vkSj ls Nk;k izkfr gh nkf[ky gks xbZ gA vr% d`i;k bls nh ns[ks ,oa crk, fd D;k sample ds :i esa fnukad 04-10-2006 dks blesa n’kkZ;h x;h ek=k esa Table Couse Mat, dq’ku daoj costs ,oa stiles Washing ,oa spotting ds fy;s D;k ;g Challan vkids }kjk tkjh fd;k x;k gS rFkk rFkk bl ij tks y?kq gLrk{kj fd;s gq, gSA og vkids gS\ mRrj% blesa igyh ckr rks Sample Print fd;k gqvk gSA vkSj Sample ds :i esa bruh ek=k esa ugh tkjh fd;s tkrs nwljh ckr eSusa vHkh tks Initial fd;s gS og vkids lkeusa gS vkSj bl Challan ij tks bfuf’k;y gS og Hkh vkids lkeus gS vkSj nksuksa esa vraj Li"V :i ls ns[kk tk ldrk gSA vr% eSa fcuk ewy pkyku ns[kks ;g ugh eku ldrk gwW fd ;g pkyku esjs }kjk tkjh fd;k x; gSA ;gh ckr eSa vkids }kjk fnukad 14-10-2006 ds Receipt challan for washing and spoting ds fy;s dguk pkgrk gwWA

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iz’u% 08 D;k vkis mijksDr ds vykok vkSj dqN dguk@Li"V djuk vFkok c;kuksas esa dqN tksM+uk pkgrs gSaA mRrj% th ugh] eSaus tks Hkh c;ku fn, gSa] og lksp&le>dj fn, gS vkSj blls vf/kd vkSj dqN ugha dguk pkgrkA CROSS EXAMINATION BY SHRI RAJEEV KUMAR A/R OF THE ASSESSEE: iz’u%1 d`i;k crk,a fd RTPL ls eky rS;kj gksus ds fy;s Jobwork gsrq fdl ikVhZ dks tkrk FkkA mRrj% th ugha] eq>s bl ckjs esa irk ugha gSA esjh tkudkjh esa Friends Rui, Solanki ,oa pkWanuh fidks dks tkWc odZ ds fy;s eky Hkstk tkrk FkkA iz’u%2 vkius iz’u-6 ds mRrj esa dgk gS eSus eky dks tkWc odZ ds fy;s uk Receipt fd;k uk Dispatch fd;k] tcfd vc vki dg jgs gSa fd vkius Friends

Rui, Solanki ,oa pkWnuh fidks dks Jobwork ds fy;s eky fn;k] bl fojks/kkHkkl dks Li"V fdft,A mRrj% bls eSa Li"V djuk pkgrk gwW fd tks eky QsDVªh ds vanj vkrk gS mlds fy;s eSa fjlhIV tkjh djrk Fkk vkSj eky QSDVªh ifjlj ls ckgj tkrk Fkk mlds fy;s fMLisp ds pkyku tkjh djrk Fkk] QSDVªh ds vUnj izFke ry ij fLFkr tkWc odZ dk dke ogkW dk izksMD’ku fMikVZesUV ns[krk Fkk mlls esjk ysuk&nsuk ugha gSA iz’u%3 iz’u la[;k 7 ds mRrj esa vkius dgk gS fd Sample print :i esa mruh ek=k esa tkjh ugha fd;s tkrs blesa d`i;k crk,a fd pkyku ij tks Sample print fd;k gS mldk D;k rkRi;Z gS\ mRrj% eSaus Sample okyh ckr 04-10-2006 dks ds ckjs esa dgh gS vkSj washing vkSj spoting dk dke RTPL ds First Floor ij gksrk Fkk vkSj ogkW ij D;k pkyku curs Fks bldh eq>s tkudkjh ugh gSA eSus viuh le> ds vuqlkj crk;k gS fd Sample dks :i esa bruh ek=k esa ugh Items ugha gksrs gSA 13. I have considered the submission of the assessee carefully and 1 do not find any merit therein having regard to the assessee's submission that these two concern i.e. M/s Kalpana Handicraft and M/s Kalpana Impex could perform job work only for the assessee company and another group firm due to limited resources and infrastructure. It is surprising to note that in last many years these two concerns only worked for the concerns of the assessee group and never tried to develop its clientele base, which seems beyond the habits of a prudent business man. The basic difference in the bills of other job workers and the above said two concerns are that from the face of the other bills it can easily be seen that the bill has been checked in all respect by various officials of the

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assessee and then only the bill is passed for payment but in the case of these two concerns things are different. For instance -Kalpna Impex issues invoice no 2009-10/1 dated 15/04/2009 for Rs 35,192/- (Copy placed on record) and the bill bears simple stamp "passed for payment". How it is paid with out verification. It is, because the authorized signatory and passing official is same; Shri Harak Chand Jain and in fact it is not a payment but an accommodation entry to the assessee group. With regard to the assessee's claim that the bills of M/s Kalpana lmpex and M/s Kalpana Handicraft are supported with challans it is to be pointed out that veracity of such challans have been examined and statement of Shri Chandan Singh Chouhan have already been recorded as mentioned in the earlier paras of this order and it is found that the challans are not reliable. Having regard to the assessee's submission that there cannot be a fixed format of bills by the job workers, agreed that there cannot be a fixed format of bills but what is important is that the bills of other parties were passed in the normal course of business and signatures/initials of the passing officials are there on the bills but in the case of these two concerns such process of clearance of bills does not exist, which is indicative of fact that these are not the genuine bills/invoices but devise for accommodation entries. and order of the CIT (A) wherein it has been observed which reads as under: “ From the above, it is evident that the ld. CIT(A) has restricted the disallowance on ad hoc basis. After considering the material placed before this Tribunal, we are of the considered view that when the inspection was carried out by the ESI and PF department, no discrepancy was reported in respect of rate of stipend and payment of stipend. The Assessing Officer has not placed any material suggesting that the number of trainees was not correct. Moreover, the Assessing Officer has based his finding on the basis of presumption that the assessee is not charitable institute than why it would provide training with stipend to the persons who would quit after training. This observation of the Assessing Officer is purely based on the conjecture and surmises, which cannot be the

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basis for making disallowance. If the Assessing Officer’s reasoning is accepted, then it would make the assessee liable for prosecution for practicing the bonded labour. Therefore, this disallowance is unjustified and the same is hereby deleted. The facts are identical in this year as well as no change into the facts is pointed out by the revenue. Therefore the grounds of appeal are allowed. 29. Ground No. 5 of the appeal is general in nature, therefore, requires no separate adjudication. Accordingly, the same is hereby dismissed. 30. The finding made by the Bench in ITA No. 531/JP/2016 is also applied in the appeals of the assessee in ITA No. 525 & 526/JP/2016. Accordingly, the appeals of the assessee are allowed. 31. In the result, all the appeals of the assessee are allowed and the appeals of the revenue are dismissed.” 4. He contended that the Tribunal has seriously committed error in allowing the appeal preferred by the assessee and wrongly dismissed the appeal of the revenue. 5. Counsel for the respondents relied upon the following decisions: 1. Jiyajeerao Cotton Mills Ltd. vs. Commissioner of Income Tax and Excess Profits Tax, Bombay, [1958] 34 ITR 888 (SC), wherein it has been observed as under: 16. We have considered all the contentions urged on behalf of the appellant at some length. We would like to make it clear that we are not sitting here as a court of appeal on facts. We have examined the record only with a view to see whether there is any misdirection or non- direction, such as is likely to have affected the result, and we have come to the conclusion that there is none, and that the finding of the Tribunal is not therefore open to attack.

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2.

Commissioner of Income Tax. Vs. Suram Holding (P) Ltd., (2014) 220 TAXMAN 0327 (Rajasthan), wherein it has been observed as under: “2. It has been alleged by the revenue that the assessee derives income from trading of shares and during the course of assessment proceedings it was revealed that the assessee has received a sum of Rs. 23.00 lacs from M/s. Japanwala Jewellers (P.) Ltd., Jaipur on the ground that it was towards share application money. The assessing authority after taking note of Sec. 2(22)(e) and available records observed that the share application money of Rs. 23.00 lacs received by the assessee company is in the nature of unsecured loan and further held to be the deemed dividend in the hands of assessee company as per provisions of Sec. 2(22)(e) of IT Act, 1961 and such deemed dividend was considered as income in the hands of the assessee. However, against the order of assessing authority, appeal came to be preferred before the Commissioner of Income-tax Appeals (I), Jaipur and the question was as to whether holding share application money of Rs. 23.00 lacs received from M/s. Japanwala Jewelers (P) Ltd. can be considered as unsecured loan and thereby considered as deemed dividend u/S. 2(22)(e) of the Act. However, the appellate authority taking note of the judgment of this Court in Hotel Hilltop case (supra) observed that deemed income cannot be taxed in the hands of non-shareholders namely the concern. As the concern can never receive dividend from the company, as dividend is paid only to the shareholders, benefit of set off as per section 2(22)(e)(iii) cannot be allowed to the concern and further observed that substance of the requirements of provisions of the Act is that the payment should be made on behalf of or for any individual benefit of any such shareholders and further observed that the proceedings which have

been

initiated

against

the person/shareholder for whose individual benefit the amount was paid by the company and deemed income is taxable under the head 'income from other sources' and accordingly it should be taxed in the case of the individual and the assessee being not a shareholder is not one of the persons and Shri Ramsaran Gupta is

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beneficiary shareholder having requisite interest in the assessee company as well as other concern and accordingly such deemed dividend should have been considered in the hands of the individual Ramsaran Gupta and not in the hands of the assessee company. 3. Against the order of Commissioner of Appeals, the revenue preferred appeal before the ITAT and placing reliance on the judgment referred to supra the Tribunal was also of the view that liability of tax as deemed dividend would be attracted in the hands of the individuals being shareholders and not in the hands of the firm and this was not the case of the Revenue that assessee company was a registered shareholder of M/s. Japanwala Jewelers (P.) Ltd. and taking note thereof, dismissed the appeal of the Revenue. 4. We have heard the appellant at length and in our considered view from the submission made in our opinion, no substantial question of law emerges for consideration in the instant appeal which may require interference by this Court.” 3. Commissioner of Income Tax Vs. Hotel Hilltop, (2009) 313 ITR 0116, wherein it has been observed as under: “7. The more important aspect, being the requirement of Section 2(22)(e) is, that "the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he has substantial interest, or any payment by any such company, on behalf, or for the

individual

benefit

any

such shareholder...." Thus, the substance of the requirement is, that the payment should be made on behalf of, or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf, or for whose individual benefit, the amount is paid by the company, whether to the shareholder, or to the concern firm. In which event, it would fall within the expression "deemed dividend". Obviously, income from dividend, is taxable as income from other sources, under Section 56 of the Act, and in the very nature of things, the income has to be, of the person earning the income. The

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assessee in the present case is not shown to be one of the persons, being shareholder. Of course the two individuals being Roop Kumar and Devendra Kumar, are the common persons, holding more than requisite amount of share holding, and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to the concern. 8. Thus, the significant requirement of Section 2(22)(e) is not shown to exist. The liability of tax, as deemed dividend, could be attracted in the hands of the individuals, being the shareholders, and not in the hands of the firm.” 6. Taking into consideration the above decisions, all the issues are required to be answered in favour of assessee and against the department. 7. The appeals stand dismissed. 8. Copy of this order be placed in other connected files. (VIJAY KUMAR VYAS)J. (K. S. JHAVERI)J. Chauhan/45-49

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