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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI G.D. AGRAWALG.D. AGRAWAL & AND BEFORE SHRI G.D. AGRAWALG.D. AGRAWAL & AND SHRI KULDIP SINGH SHRI KULDIP SINGHSHRI KULDIP SINGH SHRI KULDIP SINGH
PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP :- PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP This appeal by the assessee for the assessment year 2006-07 is directed against the order of learned CIT(A)-XXIII, New Delhi dated 3rd December, 2009.
The only ground raised in this appeal by the assessee is against the addition of `28,46,927/- as deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961.
At the time of hearing before us, it is stated by the learned counsel that the assessee is a shareholder in Orient Carpet Gallery Pvt.Ltd. (hereinafter referred to as ‘OCG’). That at the beginning of the year, there was credit balance of the assessee in the company amounting to `3,28,78,073/-. Thus, the assessee was to receive the 2 ITA-401/Del/2010 money from the company. Almost for whole year, the assessee was to receive money from the company. However, on receipt of two cheques of `5 lakhs and `25 lakhs each on 01.02.2006 and 11.02.2006, there was credit balance of the company with the assessee and the assessee has already paid `25,31,866/-. Thus, the credit balance of the company amounting to `28,46,927/- remained only for the period of sixteen days with the assessee as against which the credit of the assessee of more than a Crore was with the company for more than nine months. He, therefore, submitted that merely because in running account just for a few days there was credit of the company, it cannot be said that the assessee has received loan or advance from the company which can be treated as deemed dividend in terms of Section 2(22)(e) of the Act. He also stated that the credit of `5 lakhs was by mistake which the company has paid to the assessee’s son and which was subsequently rectified also. With regard to `22 lakhs, it is stated that this amount was paid to the assessee for searching out the building for the company. The assessee is director in the said company. However, his main argument was that the assessee had a running account with the company and for more than 10-11 months, there was a substantial credit of the assessee in the company and it is only for a few days there was credit of the company with the assessee. Thus, merely because the running account turned to be credit balance for the company for a few days, it cannot be said that such credit balance was in the nature of loan or advance.
Learned DR, on the other hand, relied upon the orders of authorities below. He stated that for the purpose of Section 2(22)(e), each transaction is to be considered in isolation. That as on 19th January, 2006, there was credit balance of `1,46,927/- of OCG with the assessee. Thereafter, the company paid the sum of `5 lakhs on 1st February, 2006 and `22 lakhs on 11th February, 2006 resulting in total
3 ITA-401/Del/2010 credit balance of `28,46,927/-. Thus, credit balance of the company with the assessee was in the nature of loan and advance and Section 2(22)(e) was rightly applied by the Assessing Officer and rightly sustained by learned CIT(A). The assessee has not produced any documentary evidence that the amount was given to the assessee in his capacity as director of the company for acquiring the immovable property of the company. Therefore, this contention is rightly rejected by the CIT(A). He also stated that the assessee is a substantial shareholder of OCG and OCG has accumulated profit. Therefore, all the conditions for applicability of Section 2(22)(e) are duly satisfied. He, therefore, requested that the order of learned CIT(A) should be sustained.
We have carefully considered the submissions of both the sides and perused the material placed before us. For applicability of Section 2(22)(e), apart from other conditions, the amount received by the shareholder should be in the nature of loan or advance. Let us examine the account of the company with the assessee which reads as under :- Satish Kumar Gupta GENERAL LEDGER 01/04/05 to 31/03/06 Date Type/No Description Debit Credit Balance Type Orient Carpet Gallery P.Ltd. 01/Apr/2005 Opening 32878073.00 DR Balance 07/Apr/2005 BR/0001 Chq recd from 250000.00 32628073.00 DR OCG Pvt Ltd 07/Apr/2005 BR/0002 Chq recd from 2000000.00 30628073.00 DR OCG Pvt Ltd 08/Apr/2005 BR/0001 Chq recd from 250000.00 30378073.00 DR OCG Pvt Ltd 15/Apr/2005 BR/0001 Chq recd from 75000.00 30303073.00 DR OCG Pvt Ltd
4 ITA-401/Del/2010 29/Apr/2005 BP/0002 Chq issd to 400000.00 30703073.00 DR OCG Pvt Ltd 30/Apr/2005 BP/0002 Chq issd to 800000.00 31503073.00 DR OCG Pvt Ltd 04/May/2005 BP/0001 Chq issd to 1000000.00 32503073.00 DR OCG Pvt Ltd 06/May/2005 BR/0001 Chq recd from 150000.00 32353073.00 DR OCG Pvt Ltd 26/May/2005 BR/0001 Chq recd from 1100000.00 31253073.00 DR OCG Pvt Ltd 30/May/2005 BR/0001 Chq recd from 50000.00 31203073.00 DR OCG Pvt Ltd 02/Jun/2005 BR/0001 Chq recd from 2000000.00 29203073.00 DR OCG Pvt Ltd 04/Jun/2005 BR/0001 Chq recd from 2000000.00 27203073.00 DR OCG Pvt Ltd 06/Jun/2005 BR/0001 Chq recd from 1000000.00 26203073.00 DR OCG Pvt Ltd 07/Jun/2005 BR/0001 Chq recd from 2000000.00 24203073.00 DR OCG Pvt Ltd 09/Jun/2005 BR/0001 Chq recd from 1000000.00 23203073.00 DR OCG Pvt Ltd 11/Jun/2005 BR/0001 Chq recd from 400000.00 22803073.00 DR OCG Pvt Ltd 13/Jun/2005 BR/0001 Chq recd from 1200000.00 21603073.00 DR OCG Pvt Ltd 15/Jun/2005 BR/0001 Chq recd from 150000.00 21453073.00 DR OCG Pvt Ltd 15/Jun/2005 BR/0002 Chq recd from 400000.00 21053073.00 DR OCG Pvt Ltd 11/Aug/2005 BP/0001 Chq issd to 500000.00 21553073.00 DR OCG Pvt Ltd 17/Aug/2005 BP/0001 Chq issd to 100000.00 21653073.00 DR OCG Pvt Ltd 31/Aug/2005 BP/0001 Chq issd to 500000.00 22153073.00 DR OCG Pvt Ltd 19/Sep/2005 BR/0001 Chq recd from 500000.00 21653073.00 DR OCG Pvt Ltd 27/Sep/2005 BR/0001 Chq recd from 500000.00 21153073.00 DR OCG Pvt Ltd
5 ITA-401/Del/2010 03/Oct/2005 BR/0001 Chq recd from 300000.00 20853073.00 DR OCG Pvt Ltd 26/Oct/2005 BP/0001 Chq issd to 100000.00 20953073.00 DR OCG Pvt Ltd 12/Dec/2005 BR/0001 Chq recd from 5000000.00 15953073.00 DR OCG Pvt Ltd 12/Dec/2005 BR/0002 Chq recd from 1500000.00 14453073.00 DR OCG Pvt Ltd 14/Dec/2005 BR/0001 Chq recd from 600000.00 13853073.00 DR OCG Pvt Ltd 14/Dec/2005 BR/0002 Chq recd from 700000.00 13153073.00 DR OCG Pvt Ltd 16/Dec/2005 BR/0002 Chq recd from 2500000.00 10653073.00 DR OCG Pvt Ltd 17/Dec/2005 BR/0001 Chq recd from 3500000.00 7153073.00 DR OCG Pvt Ltd 22/Dec/2005 BR/0001 Chq recd from 5000000.00 2153073.00 DR OCG Pvt Ltd 03/Jan/2006 BR/0001 Chq recd from 1000000.00 1153073.00 DR OCG Pvt Ltd 10/Jan/2006 BR/0001 Chq recd from 500000.00 653073.00 DR OCG Pvt Ltd 19/Jan/2006 BR/0001 Chq recd from 800000.00 -146927.00 CR OCG Pvt Ltd 01/Feb/2006 BR/0001 Chq recd from 500000.00 -646927.00 CR OCG Pvt Ltd 11/Feb/2006 BR/0001 Chq recd from 2200000.00 -2846927.00 CR OCG Pvt Ltd 27/Feb/2006 BP/0002 Chq issd to 2531866.70 -315060.30 CR OCG Pvt Ltd 31/Mar/2006 Closing -3150060.30 CR Balance Account Totals 38809939.70 39125000.00
From the above, it is evident that there is running account of the company in the books of the assessee. There is regular receipt and payment of money between the assessee and the company. In the beginning of the year i.e., on 1st April, 2005, there was debit balance of `3.28 crores of the company in the books of the assessee. Thus, as on 1st April, 2005, the assessee was to receive more than `3 crores from 6 ITA-401/Del/2010 UCG. We find that till 30th May, 2005, the debit balance remained more than `3 crores and up to 26th October, 2005, the debit balance remained more than `2 crores. Thus, for more than half of the year, the debit balance of the company in the books of the assessee was more than `2 crores. Up to 16th December, 2005, the debit balance of the company was more than a Crore and up to 10th January, 2006, in the running account, there was debit balance of the company. It is only at the end of January or in the beginning of February the credit balance of the company occurred and the highest credit balance remained `28,46,927/- for a period of 17 days. As against this credit balance for a period of 17 days, we find that the debit balance of the company in the accounts of the assessee remained in Crores for months together. In the above circumstances, after considering the entirety of facts and the submission of both the sides, we agree with the assessee that there was a running account of the assessee with OCG and for most of the period, there was huge debit balance of the company and it is only for few days there was a meager credit balance of the company. In our opinion, such meager balance of the company for a few days in a running account wherein there was huge debit balance of the company for months together cannot be said to be loan and advance so as to attract provisions of Section 2(22)(e) of the Act. In view of the above, we hold that on the facts of this case, Section 2(22)(e) was wrongly applied. Accordingly, we delete the addition of `28,46,927/- made by the Assessing Officer.