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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI J.S. REDDY & SHRI A.T. VARKEY
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘A’ : NEW DELHI) BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER and SHRI A.T. VARKEY, JUDICIAL MEMBER ITA No.5618/Del./2013 (ASSESSMENT YEAR : 2007-08) ACIT, Central Circle 2, vs. Shri Atul Kumar Mittal, New Delhi. A – 287, Rajouri Garden, New Delhi. (PAN : AAAHA5422N) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Ved Jain, Advocate REVENUE BY : Shri Anil Jain, CIT DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :
This is an appeal filed by the revenue against the order of the CIT (Appeals)-XXXI, New Delhi dated 12.07.2013 for the assessment year 2007- 08.
Grounds No.1, 2 & 3 relate to deletion of addition of Rs.4,07,30,000/- made by the AO on account of deemed dividend under section 2(22)(e) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
Brief facts of the case are that there was a search and seizure operation u/s 132 of the Act carried out in the case of the assessee on 26.04.2007 and assessment was completed by making addition of Rs.4,07,30,000/- on account of deemed dividend by the AO. Aggrieved, the assessee preferred an appeal before the CIT (A) who was pleased to delete the same.
Aggrieved by the aforesaid order of the ld. CIT (A), the revenue is in appeal before us.
Ld. DR brought to our notice that it is the second round of litigation before us. He pointed out that CIT (A) in the first round vide his order dated 31.03.2010 allowed the appeal which was challenged before the Tribunal by the revenue and the ITAT vide order dated 19.10.2011 remanded the matter back to the file of the CIT (A) to decide the matter after hearing the AO.
Thus, the impugned order of CIT (A) is that of the second round wherein he concurred with the views of his predecessor’s order dated 31.03.2010 and the impugned order was passed vide order dated 12.07.2013 which is under challenge before us. Ld. DR took our attention to page 3 of the assessment order and took our attention to the chart on which various dates along with amount advanced to the assessee from M/s. A.K. Services Pvt. Ltd. where the assessee was a substantial shareholder. According to the ld. DR, the said M/s. A.K. Services Pvt. Ltd. has advanced an amount of Rs.4,07,30,000/- to the assessee in the relevant assessment year and the assessee did not give any explanation to the AO forcing the AO to take the view that the advances from M/s. A.K. Services Pvt. Ltd. to assessee as deemed dividend u/s 2(22)(e) of the Act. The ld. DR pointed out that the CIT (A) have not discussed the merits and have only endorsed the order of his predecessor by saying that the AO could not shed any new facts before him for taking a different view.
Therefore, according to the ld. DR, the CIT (A) erred in deciding the matter and he wants us to reverse the order of the CIT (A) and uphold the order of the AO.
On the other hand, the ld. AR brought to our notice that the sole basis for making the addition of Rs.4,07,30,000/- was that the payments of Rs.4,07,30,000/- were made by M/s. A.K. Services Pvt. Ltd. to the assessee. According to the ld. AR, the said payments were in fact repayment/refund of money advanced by the assessee to M/s. A.K. Services Pvt. Ltd. and without appreciating the said factual fact, the AO made the addition. He submitted that the refund/repayment of money advanced by the assessee to M/s. A.K.
Services Pvt. Ltd. cannot come in the ken of section 2(22)(e) of the Act, therefore, the ld. CIT (A), after going through the accounts of the assessee and after verifying from the books of account maintained by M/s. A.K.
Services Pvt. Ltd. for the period 01.04.2006 to 31.03.2007, has made a factual finding that it was a fact that the assessee had advanced/deposited Rs.4,07,30,000/- in the company, M/s. A.K. Services Pvt. Ltd.; and M/s. A.K.
Services Pvt. Ltd. in the relevant assessment year had repaid the said deposit back to the assessee, so the repayment of loan by M/s. A.K. Services cannot be treated as deemed dividend u/s 2(22)(e) of the Act. Therefore, the CIT (A) has correctly appreciated the facts and has deleted the addition. So, according to the ld. AR, the order of the CIT (A) is legally correct and, therefore, he does not want us to interfere in the order of the ld. CIT (A).
We have heard both the parties and perused the record. We find that this is the second round of litigation before us. During the first round, the Tribunal had set aside the orders of the CIT (A) and remanded the matter back to the CIT (A) to facilitate an opportunity to the AO before passing the order vide order dated 14.10.2011. Pursuant to the remand, the CIT (A) has passed the impugned order, which is in appeal before us, of course after hearing the AO. The CIT (A) in the impugned order has categorically stated that the AO could not shed any new light which could have changed the finding recorded by his predecessor. Therefore, he concurred with the view taken by the predecessor CIT (A) and deleted the addition made by the AO.
For ready reference, section 2 (22)(e) of the Act is extracted below :- “2(22) "dividend" includes— (a) any distribution by a company of accumulated profits, whether capitalized or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company ; (b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, whether with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalized or not ; (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalized or not ; (d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalized or not ; (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but "dividend" does not include— (i) a distribution made in accordance with sub-clause (c) or sub- clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ; (ia) a distribution made in accordance with sub-clause (c) or sub- clause (d) in so far as such distribution is attributable to the capitalized profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965; (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company ; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off;
(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956); (v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).”
A bare reading of the section reveals that under the following circumstances, deemed dividend is attracted i.e. (i) when any payment is made by way of advance or loan to a shareholder holding not less than 10% of the voting power in the company; (ii) the payment is made by way of advance or loan to any concern in which such a shareholder is a member or a partner and in which he has a substantial interest; and (iii) when such payment is made by way of advance or loan to any person on behalf of or for the individual benefit of such shareholder. The ld. AR has not disputed that the amount of Rs.4,07,30,000/- of payment received by the assessee. However, he took our attention to the copy of the ledger account of the assessee in the books of M/s.
A.K. Services Pvt. Ltd. which is placed at paper book pages 36 & 37 for the relevant assessment year and took our attention to the fact that the amount of Rs.4,07,30,000/- was in fact advance/deposit made by the assessee to M/s.
A.K. Services Pvt. Ltd. and the said amount of Rs.4,07,30,000/- which was paid to assessee by M/s. A.K. Services Pvt. Ltd. was in fact refund/ repayment of the said advance/deposit given by the assessee. Therefore, the assessee does not fall in the ken of section 2(22)(e) of the Act and, therefore, we find that the assessee cannot be saddled with the addition made without looking and appreciating the fact that assessee had in fact advanced the said amount to M/s. A.K. Services Pvt. Ltd. and the said company had refunded the said money to the assessee which cannot attract deeming provision of deemed dividend as envisaged under section 2(22)(e) of the Act. Thus, we find no infirmity in the order of the CIT (A) and we uphold the order of the ld. CIT (A) on this issue. Accordingly, grounds no.1, 2 & 3 are dismissed.
Grounds No.4, 5 & 6 are regarding deletion of addition of Rs.42 lakhs made by the AO U/S 69 of the Act being undisclosed investment in the relevant assessment year.
Brief facts of this issue are that during the search carried out in the 9. residence of the assessee on 26.04.2007, a paper (page 135 of the seized document) reflected that there was investment in shares in the name of Yash and Vasanti. The AO stated that the said document was found from the locker no.104 of OBC, World Trade Centre, Mumbai. The AO asked the assessee to explain who these persons are and why the amount invested be not treated as undisclosed investment u/s 69 of the Act. The assessee replied that the said paper was not recovered from the locker as stated by the AO and was only a piece of loose paper lying at his residence along with other papers and the assessee had nothing to do with the said paper and it doe s not relate to his business. Not satisfied with the reply of the assessee, the AO made the addition of Rs.42 lakhs as undisclosed investment of the assessee for the relevant assessment year.
Aggrieved by the said order of the AO, the assessee preferred an appeal before the CIT (A) who was pleased to delete the same. The revenue’s appeal before the ITAT in the first round resulted in the remand to CIT (A), as stated earlier, for hearing the AO before passing the order. In the second round, the CIT (A) held that the AO could not adduce any new material which could enable him to take a different view. So, after hearing the AO, he was pleased to concur with the decision rendered by his predecessor CIT (A) and so he deleted the addition of Rs.42 lakhs.
Now, the revenue is in appeal before us on this issue. 12. The ld. DR took our attention to page 4 of AO’s order and stated that the Annexure A-1 at page 135 of the seized document clearly reflected that investments in lakhs were done in the name of Yash and Vasanti. When the assessee was confronted with the aforesaid document, he simply stated the same to be a dump document and it had nothing to do with the assessee; and the piece of paper was used as a rough paper for writing on the plain side of the same. Therefore, since the assessee could not explain the identity of Yash and Vasanti or unable to explain the contents of the document, the AO was justified in making the addition u/s 68 of the Act. He submitted that however, ld. CIT (A) has simply believed the statement of the assessee and has deleted the addition which is erroneous and, therefore, needs to be set aside and the AO’s order be restored on this issue.
On the other hand, the ld. AR pointed out that initially, the AO stated that the loose paper was seized from the locker of the assessee. However, the AO had to reconcile later that this was a loose paper found from the premises of assessee’s residence along with some papers. The ld. AR stressed that the AO failed to establish whether the handwriting matched with that of the assessee and he pointed out that the handwriting is not that of the assessee. It was a piece of paper with names of two people who had nothing to do with the assessee. The assessee does not know about any Yash and Vasanti. According to him, the AO failed to bring any material on record to relate to the loose paper and no adverse inference could be validly drawn against the assessee on the basis of a loose paper without any corroborative evidence. Therefore, he contended that the CIT (A) appreciated these facts and deleted the addition which need not be disturbed.
We have heard both the parties and perused the record. We observe that the AO found a loose paper on which investment of Yash and Vasanti has been written with certain amounts mentioned on it. The assessee is a substantial shareholder in M/s. A.K. Services Pvt. Ltd. and has 30% shareholding in M/s. A.K. Capital Services Limited which is a listed company. Though the AO in his notice to the assessee had claimed that this loose paper was seized from his locker has reconciled to the fact that the paper was seized from his residence. A paper on which two names of Yash and Vasanti and certain amounts were written cannot be the sole basis on which addition can be made u/s 69 of the Act. In order to make addition, there has to be some evidence to corroborate or support that this investment has been done by the assessee in the name of these two individuals. The AO had all the powers to enquire from both the companies whether there was any Yash and Vasanti holding any shares in the said companies. A reference by the AO that one Bobby Singh, Senior Executive of M/s. A.K. Capital Services Ltd. whose name also being found in the said loose paper with the correct shareholding, according to the AO, points out that this paper is not a dump document as suggested by the assessee. If the argument of the AO that in the said paper, the Senior Executive of M/s. A.K. Capital Services Ltd., Shri Bobby Singh, with his correct shareholding mentioned that shows that the document is a true document. If that is so, then Yash and Vasanti should also be holding shares in M/s. A.K. Capital Services Ltd. or M/s. A.K. Services Pvt. Ltd. The AO once found out that Bobby Singh had correct number of shares as mentioned in the paper should have found out how much Yash and Vasanti was having in these companies, if any. The AO has not made any enquiry from the companies whether there was any employee or whether there was any relative of the assessee in the name of Yash and Vasanti.
Without making any enquiry just because a paper was found in the premises of the assessee with some names and some figures written, cannot be the sole evidence which could warrant an addition u/s 68 of the Act. For the aforesaid reasons, we do not find any infirmity in the order of the CIT (A) on this issue and we uphold the same. These revenue’s grounds are therefore dismissed. 15. In the result, the appeal of the revenue for assessment year 2007-08 is dismissed.
Order pronounced in open court on this 4th day of March, 2016.