S THYAGARAJAN,CHENNAI vs. ACIT, CORPORATE CIRCLE -6(2), CHENNAI

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:

In this appeal filed by the assessee, which is directed

against an order dated 29.11.2017 of ld. Commissioner of Income Tax

(Appeals)-15, Chennai, it assails an addition of �29,65,000/- made

u/s.2(22) (e) of the Income Tax Act, 1961 (in short ‘’the Act’’).

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return for the impugned assessment year disclosing income of

�26,79,940/-. The return was originally processed u/s.143(1) of the

Act. Thereafter, the assessment was reopened by issuing notice

u/s.148 of the Act. Reason for issuing such notice, mentioned by the

ld. Assessing Officer read as under:-

‘’In the case of M/s. Embassy Tours & Travels (P) Ltd, assessed to tax in Company Circle II(1), Chennai, it was observed that the company has given loan amounting to �29,65,000/- to Shri S. Thyagarajan who holds 27% shares in the said company. The Reserves and Surplus available with M/s. Embassy Tours & Travels (P) Ltd as on 31.03.2006 is �39,99,380/-.

Therefore, the loan amount of �29,65,000/- given to /s. Embassy Tours & Travels (P) Ltd to Shri S.Thyagarajan is squarely covered by the provisions of Section 2(22) ( e) of the I.T. Act, 1961 and has to be taxed in the hand of Shri. S. Thyagarajan as deemed dividend’’.

assessee submitted ledger accounts in support of its contention that

the transactions considered for addition under section 2(22) (e) of the

Act were between M/s.Skylift Cargo (P) Ltd and M/s. Embassy Tours

& Travels (P) Ltd and not between assessee and M/s. Embassy Tours

& Travels (P) Ltd. Assessee also asserted that the transactions were

all genuine and through cheques. According to the assessee there

were errors in the entries passed in books of accounts, and this would

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not convert transactions between M/s.Skylift Cargo (P) Ltd and M/s.

Embassy Tours & Travels (P) Ltd as deemed dividend in his hands.

above arguments. According to him, it was possible that there were

transactions between M/s.Skylift Cargo (P) Ltd and M/s. Embassy

Tours & Travels (P) Ltd during the relevant previous year. However, as

per the ld. Assessing Officer, assessee having received advances from

M/s. Embassy Tours & Travels (P) Ltd during the relevant previous

year, these advances were deemed dividend u/s.2(22) (e) of the Act. A

sum of �29,65,000/- was added under the said section.

Aggrieved, assessee moved in appeal before ld. 5.

Commissioner of Income Tax (Appeals). Similar contentions as taken

before the ld. Assessing Officer were raised before ld. Commissioner

of Income Tax (Appeals). Apart from these, assessee also furnished

the bank statements before ld. Commissioner of Income Tax

(Appeals). Ld. Commissioner of Income Tax (Appeals) sought a

remand report from the ld. Assessing Officer. Ld. Assessing Officer in

the remand report stated as under:-

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a)‘’Books of both the companies were audited. T he annual reports and Auditor reports were submitted as per companies Act. Hence those entry to be treated as correct as held in ACIT Vs. Ajay Jadeja (lTAT, Delhi) 5 ITR(Trib) 233. b)The books were audited in compliance with s.44 AB of IT Act 1961 and audit reports were finalised after due diligence.

c)In none of the above cases this mistake was qualified. d) If one company had passed a wrong entry we can say it was wrong entry by verifying books of other company. It is very unlikely that both the companies passed wrong entries. It is to be noted that the transaction is not single transaction. There are multiple entries. It is very unlikely that in all the occasions both the companies passed multiple

e)If the transaction was between M/ s Embassy Travels & Tours (P) Ltd and M/ s Sky Lift Cargo (P) Ltd there was no need Jar both the companies to record the transaction in the name of assessee and not in their names f).. This proves that M/ s Embassy Travels & Tours (P) Ltd gave funds to M/ s Sky Lift Cargo (P) Ltd on behalf of assessee and hence name of assessee was used by both the concerns. g) Transaction between assessee & M/ s Embassy Travels & Tours (P) Ltd was not for any trading purpose’’.

Assessee replied to the above remand report stressing that what was

sought to be taxed under Section 2(22) (e) of the Act was the result

of certain errors and mistakes which happened in accounting.

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impressed by the arguments of the assessee. According to him, ld.

Assessing Officer was justified in holding that the advance received by

the assessee from M/s. Embassy Tours & Travels (P) Ltd were deemed

dividend in assessee’s hand. He thus confirmed the addition made by

the ld. Assessing Officer.

Now before us, the ld. Authorised Representative strongly 7.

assailing the orders of the lower authorities submitted that ledger

account of the assessee in M/s. Embassy Tours & Travels (P) Ltd was

placed at paper book pages 1 to 3. As per ld. Authorised

Representative the above mentioned ledger account, included therein

both transactions relating to M/s.Skylift Cargo (P) Ltd as well as that of

assessee. Contention of the ld. Authorised Representative was that if

this ledger account was split into transactions assessee had with M/s.

Embassy Tours & Travels (P) Ltd and transactions M/s.Skylift Cargo

(P) Ltd had with M/s. Embassy Tours & Travels (P) Ltd, it would clearly

demonstrate that there were no outstanding advances to the assessee

from M/s. Embassy Tours & Travels (P) Ltd, which could be

considered for an addition under Section 2(22) (e) of the Act.

Referring to paper book page No.4, which gave the transactions with

reference to M/s.Skylift Cargo (P) Ltd, ld. Authorised Representative

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submitted that in the books of M/s. Embassy Tours & Travels (P) Ltd,

there was a debit balance for M/s.Skylift Cargo (P) Ltd. According to

him, just because some of the cheques were entered in assessee’s

account in the books of M/s. Embassy Tours & Travels (P) Ltd would

not mean that there was any deemed dividend in the hands of the

assessee.

Per contra, ld. Departmental Representative strongly 8.

supporting the orders of the lower authorities submitted that cheques

were issued by M/s. Embassy Tours & Travels (P) Ltd in the name of

the assessee. Thus, as per the ld. Departmental Representative,

assessee could not say that the amounts received by him through

cheques were not advances falling within the definition of deemed

dividend u/s.2(22) (e) of the Act.

orders of the authorities below. Ledger account of the assessee in the

books of M/s. Embassy Tours & Travels (P) Ltd, for the relevant

previous year is reproduced hereunder:-

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Group : Liabilities Account Selection: Selected transacted accounts (All amounts in �)

Document

Date Number Narration Debit Credit Running Balance s. Thyagarajan Loan Opening Balance 0.00 cr

14 Jun, 2005 RR RO5 1342 By BOB Cheque 5,00,000.00 5,00,000.00 Cr No.662566 17 Jun, 2005 RR RO5 1425 By BOB Cheque 5,00,000.00 10,00,000.00 Cr No.662568 22 Jun, 2005 RR RO5 1502 By BOB Cheque 12,00,000.00 22,00,000.00 Cr No.662571 28 Jun, 2005 RR RO51609 By BOB Cheque 5,00,000.00 27,00,000.00 Cr No.662572 07 Jul, 2005 RR RO5 1772 By BOB Cheque 3,00,000.00 30,00,000.00 Cr No.662782 29 Jul, 2005 RR RO5 2177 By BOB Cheque 4,00,000.00 34,00,000.00 Cr No.662787 02 Aug 2005 RR RO5 2241 By BOB Cheque 6,00,000.00 40,00,000.00 Cr No.662788 05 Aug 2005 RR RO5 2287 By BOB Cheque 3,65,000.00 43,65,000.00 Cr No.662789 15 Sept2005 BP HBP5 555 Ch. No.380542 paid 43,65,000.00 0.00 cr to S. Thyagarajan

17 Sept2005 RR RO5 2991 Ch 419401, B.O.B 48,00,000.00 48,00,000.00 Cr Ch-18. Thyagarajan BP HBP5 570 380557 Sky lift 39,00,000.00 9,00,000.00 Cr cargo p. ltd 19 Sept2005 RR RO5 3005 419402 BOB Ch-18 15,00,000.00 24,00,000.00 Cr Recd from Thyaga rajan RR RO5 3015 415911 BOB Ch-18 6,00,000.00 30,00,000.00 Cr Skylift Cargo p. ltd 20 Sept2005 RR RO5 3024 Ch 415917, Skylift 4,00,000.00 34,00,000.00 Cr Cargo p. ltd

RR RO5 3044 Ch 415926, Skylift 10,00,000.00 44,00,000.00 Cr Cargo p. ltd

21 Sept2005 RR RO5 3047 Ch 415927, Skylift 9,00,000.00 53,00,000.00 Cr Cargo p. ltd

22 Sept2005 RR RO5 3075 Ch 415943, Skylift 10,00,000.00 63,00,000.00 Cr Cargo p. ltd

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BP HBP5 582 380569 S. Thyaga 3,00,000.00 60,00,000.00 Cr rajan 24 Sept2005 BP HBP5 589 380576, Skylift 20,00,000.00 40,00,000.00 Cr Cargo p. ltd

30 Sept2005 BP HBP5 611 380593. Thyaga 10,00,000.00 30,00,000.00 Cr rajan BP HBP5 618 Transfer to . Thyaga 10,00,000.00 20,00,000.00 Cr rajan personal a/c. 03 Oct 2005 BP HBP5 625 380605, Skylift 9,00,000.00 11,00,000.00 Cr Cargo p. ltd

04 Oct 2005 RR RO5 3297 Cargo p. Ltd 10,00,000.00 21,00,000.00 Cr Towards Bank tran sfer directly BP HBP5 632 380609. Skylift 4,00,000.00 17,00,000.00 Cr Cargo p. ltd 05 Oct 2005 RR RO5 3328 418775, Skylift 13,00,000.00 30,00,000.00 Cr Cargo p. ltd 06 Oct 2005 RR RO5 3353 418790, Skylift 10,00,000.00 40,00,000.00 Cr Cargo p. ltd 07 Oct 2005 RR RO5 3376 418808, Skylift 10,00,000.00 50,00,000.00 Cr Cargo p. ltd 10 Oct 2005 RR RO5 3393 663133. Recd from 10,00,000.00 60,00,000.00 Cr S. Thyagarajan 20 Oct 2005 BP HBP5 670 380643 Skylift 20,00,000.00 40,00,000.00 Cr Cargo p. ltd BP HBP5 674 380648 Skylift 47,00,000.00 7,00,000.00 Dr. Cargo p. ltd 22 Oct 2005 RR RO5 3597 418863, Skylift 9,00,000.00 2,00,000.00 Cr Cargo p. ltd 24 Oct 2005 RR RO5 3607 418867, Skylift 10,00,000.00 12,00,000.00 Cr Cargo p. ltd RR RO5 3612 419000, Skylift 18,00,000.00 30,00,000.00 Cr Cargo p. ltd RR RO5 3624 418882, Skylift 10,00,000.00 40,00,000.00 Cr Cargo p. ltd 25 Oct 2005 RR RO5 3648 418886, Skylift 20,00,000.00 60,00,000.00 Cr Cargo p. ltd 05 Nov 2005 BP HBP5 718 422136, Skylift 55,00,000.00 05,00,000.00 Cr Cargo p. ltd 07 Nov 2005 BP HBP5 722 422139, Skylift 4,00,000.00 1,00,000.00 Cr Cargo p. ltd 09 Nov 2005 RR RO5 3862 419157 Skylift 8,00,000.00 9,00,000.00 Cr Cargo p. ltd 10 Nov 2005 BP HBP5 735 422149, Skylift 5,00,000.00 4,00,000.00 Cr Cargo p. ltd 12 Nov 2005 RR RO5 3917 419191 Skylift 10,00,000.00 14,00,000.00 Cr Cargo p. ltd 16 Nov 2005 BP HBP5 753 422162, Skylift 32,00,000.00 18,00,000.00 Dr Cargo p. ltd

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18 Nov 2005 RR RO5 4055 425270, Skylift 27,00,000.00 09,00,000.00 Cr Cargo p. ltd 21 Nov 2005 RR RO5 4082 425293, Skylift 10,00,000.00 19,00,000.00 Cr Cargo p. ltd 24 Nov 2005 RR RO5 4124 425355, Skylift 6,00,000.00 25,00,000.00 Cr Cargo p. ltd 28 Nov 2005 RR RO5 4195 425385, Skylift 3,00,000.00 28,00,000.00 Cr Cargo p. ltd 03, Dec 2005 BP HBP5 806 422301, Skylift 5,00,000.00 23,00,000.00 Cr Cargo p. ltd BP HBP5 807 422302, Skylift 4,00,000.00 19,00,000.00 Cr Cargo p. ltd 18 Jan 2006 RR RO5 4999 Ch#663537 Recd 3,00,000.00 22,00,000.00 Cr from Thyagarajan 20 Jan 2006 BP HBP5 941 422411, Skylift 5,00,000.00 17,00,000.00 Cr Cargo p. ltd BP HBP5 949 422419, Skylift 4,00,000.00 13,00,000.00 Cr Cargo p. ltd 23 Jan 2006 BP HBP5 954 422423, paid to 3,00,000.00 10,00,000.00 Cr Thyagarajan 28 Jan 2006 RR RO5 5113 207246, Skylift 4,00,000.00 14,00,000.00 Cr Cargo p. ltd RR RO5 5125 5107417, Skylift 4,00,000.00 18,00,000.00 Cr Cargo p. ltd 02 Feb 2006 RR RO5 5207 663543 Recd 1,50,000.00 19,50,000.00 Cr from Thyagarajan 06 Feb 2006 BP HBP5 992 422449 Skylift 4,00,000.00 15,50,000.00 Cr Cargo p. ltd 09 Feb 2006 RR RO5 5292 207543, Skylift 10,00,000.00 25,50,000.00 Cr Cargo p. ltd 24Feb 2006 BP HBP5 1062 422508 Skylift 6,00,000.00 19,50,000.00 Cr Cargo p. ltd RR RO5 5587 27Feb 2006 199238 Skylift 6,00,000.00 25,50,000.00 Cr Cargo p. ltd 02 Mar 2006 RR RO5 5666 199324 Skylift 22,00,000.00 47,00,000.00 Cr Cargo p. ltd 04 Mar 2006 BP HBP5 1085 409657/ funds 28,00,000.00 19,50,000.00 Cr transfer to Skylift Cargo p. ltd 16 Mar 2006 BP HBP5 1120 422560 Thyagaraj 50,000.00 19,00,000.00 Cr an 20 Mar 2006 RR RO5 5923 199504, Skylift 25,00,000.00 44,00,000.00 Cr Cargo p. ltd BP HBP5 1125 422529 Skylift 24,00,000.00 20,00,000.00 Cr Cargo p. ltd 21 Mar 2006 BP HBP5 422569, Thyagaraj 50,000.00 19,50,000.00 Cr 1134 an 22 Mar 2006 BP HBP5 422573, Thyagaraj 50,000.00 19,00,000.00 Cr 1140 an

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BP HBP51143 422577, Skylift 5,00,000.00 14,00,000.00 Cr Cargo p. ltd 31Mar 2006 JI JV 413 Transferred from 43,65,000.00 29,65,000.00 Dr shares in Malar Hospital A/c. Total /Closing 4,34,80,000.00 4,05,15,000.00 29,65,000.00 Dr Balance

A perusal of the above clearly show that large number of entries were

in the name of M/s.Skylift Cargo (P) Ltd. No doubt some of the entries

were in the name of assessee also. However, the account do indicate

a mixing up of transactions, M/s. Embassy Tours & Travels (P) Ltd

had with S. Thyagarajan and with M/s.Skylift Cargo (P) Ltd. Such

mixing up, in our oponion clearly supports the contention of the

assessee that some of the cheques issued by M/s. Embassy Tours &

Travels (P) Ltd, though in his name, were for the benefit of M/s.Skylift

Cargo (P) Ltd only. In our opinion, just because a few cheques were

issued in assessee’s personal name would not take the sheen out of

the claim of the assessee that such entries were only due to errors

committed by M/s. Embassy Tours & Travels (P) Ltd and all the

transactions were in substance with M/s.Skylift Cargo (P) Ltd and not

connected to the assessee. If we consider the account in its totality,

it can be seen that a sum of �29,65,000/- was a debit balance, due

from M/s. Embassy Tours & Travels (P) Ltd to M/s.Skylift Cargo (P)

Ltd, after considering the transactions in the name of assessee. In

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such circumstances, we are of the opinion that Section 2 (22) (e) of the Act could not have been invoked, taking an isolated view of the cheques issued by M/s. Embassy Tours & Travels (P) Ltd in favour of the assessee, ignoring the true intent of the transactions. Assessee had all along stated that the transactions were in fact between M/s. Embassy Tours & Travels (P) Ltd and M/s.Skylift Cargo (P) Ltd and this claim was not effectively rebutted by the Revenue. We are therefore of the opinion that there was no case for an addition under Section 2(22) (e) of the Act. Such addition stands deleted.

Order pronounced on Tuesday, the 18th day of September, 2018, at Chennai.

Sd/- Sd/- (जॉज� माथन) (अ�ाहम पी. जॉज�) (GEORGE MATHAN) (ABRAHAM P. GEORGE) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai �दनांक/Dated: 18th September, 2018. KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF