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 Deputy Director Of Income Tax Vs. Virage Logic International

Shri Harsh Dhir, 14, Navjeevan Vihar, New Delhi. Vs. Income Tax Officer,Ward-10(3), New Delhi.
October, 29th 2014
                IN THE INCOME TAX APPELLATE TRIBUNAL
                                  `C' : NEW DELHI
                     DELHI BENCH `C

           BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND
                                GARG, JUDICIAL MEMBER
            SHRI CHANDRA MOHAN GARG,

                             No.4940/Del/2012
                         ITA No.
                                         2009-10
                       Assessment Year : 2009-

Shri Harsh Dhir,                  Vs.      Income Tax Officer,
14, Navjeevan Vihar,                       Ward-
                                           Ward -10(3),
New Delhi.                                 New Delhi.
PAN : ADMPD0596P.
     (Appellant)                                (Respondent)

              Appellant by         :     Shri A.L. Sehgal, CA.
              Respondent by        :     Shri Satpal Singh, Sr.DR.

                                   ORDER

PER G.D. AGRAWAL, VP :
      This appeal by the assessee is directed against the order of
learned CIT(A)-XIII, New Delhi dated 20th July, 2012 for the AY 2009-10.


2.    The assessee has raised various grounds in this appeal.
However, they are all against the addition of `45,36,024/- made under
Section 2(22)(e) of the Income Tax Act, 1961 as deemed dividend.


3.    We have heard the arguments of both the sides and perused
relevant material placed before us. The assessee is a shareholder of
M/s Dhir International Pvt.Ltd. (DIPL) having substantial interest of
more than 20%. As per Assessing Officer, during the accounting year
relevant to the assessment year under consideration, the assessee
received following advances from M/s Dhir International Pvt.Ltd.:-


      On 05.01.2009     Rs.3,00,000/- (in account of proprietary concern of the
                                       assessee, M/s Roots)
      On 01.04.2008     Rs.11,024/-     (in the account of proprietary concern of
                                                            2                                ITA-4940/Del/2012



                                                         the assessee, M/s Roots)
        On 23.04.2008               Rs.1,00,000/- (Loan account of the assessee)
        On 19.11.2008               Rs.6,50,000/- (Loan account of the assessee)
        On 16.02.2009               Rs.14,50,000/- (Loan account of the assessee)
        On 16.02.2009               Rs.10,50,000/- (Loan account of the assessee)
        On 04.03.2009               Rs.9,75,000/- (Loan account of the assessee)
                                    ---------------------
                Total               Rs.45,36,024/-
                                    ---------------------


He, therefore, treated the sum of `45,36,024/- as deemed dividend
under Section 2(22)(e) in the hands of the assessee.


4.      At the time of hearing before us, the learned counsel for the
assessee contended that none of the above amounts received by the
assessee is in the nature of loan or advance which may be treated as
deemed dividend under Section 2(22)(e).                                          We will examine the
assessee's       contention            in     respect            of       each      and    every      alleged
loan/advance.


5.      `3,00,000/- and `11,024/- are debited by DIPL to the account of
the assessee under the name and style `Roots', a proprietorship
concern of the assessee. The same reads as under:-


Date            Particulars                    Vch Type         Vch No.     Debit            Credit


1-4-2008 Cr     Opening Balance                                             35,56,505.45
1-4-2008 Cr     Kamal K.Jain & Co.             Journal                        11,024.00
                Being audit fee
                provision for the
                year 2006-07


14-11-2008 Dr   KBL-1099                       Receipt                852                    3,00,000
                Being amt recd
                from Roots


5-1-2009 Cr     KBL-1099                       Payment                4160 3,00,000.00
                                      3                                   ITA-4940/Del/2012


            Ch.No.408723 being
            amt paid AG on A/C
                                                 ------------------------------------------------
                                                 38,67,529.45            3,00,000
      Dr            Closing Balance                                      35,67,529
                                                 -------------------------------------------------
                                                 38,67,529.45            38,67,529
                                                 -------------------------------------------------


6.    From the above, we find that the first debit to the account of the
assessee is for `11,024/- which is for the provision for audit fee. It was
explained that the auditor of the company and proprietorship business
of the assessee is same and in respect of his professional fee for the
group, the provision and payment is made by DIPL and therefore, they
have debited the audit fee pertaining to the assessee to the account of
the assessee. Considering these facts, in our opinion, the payment of
audit fee by DIPL and recovery thereof from the assessee cannot be
treated to be deemed dividend within the meaning of Section 2(22)(e).
In respect of another transaction of `3 lakhs, we find that the assessee
made the payment of `3 lakhs on 14.11.2008 and thereafter on
5.1.2009, there was a payment by DIPL.        It was contended by the
learned DR that there was an opening debit balance of more than `35
lakhs in the hands of the assessee and the payment of `3 lakhs made
by the assessee was towards the repayment of the earlier advance and
therefore, the payment of `3 lakhs by DIPL to the assessee on 5.1.2009
is certainly in the nature of loan and advance.                    Therefore, the
Assessing Officer rightly applied Section 2(22)(e) thereon. The same
should be sustained.


7.    We are unable to accept the above contention of the learned DR
because firstly, every assessment year is independent and for the
purpose of verifying whether any loan or advance is given during the
year under consideration by the company to the shareholder,
transactions of the current year only are to be looked into. Secondly,
                                                 4                              ITA-4940/Del/2012



whatever is the debit balance ought to have been considered in the
preceding year for the purpose of applicability of Section 2(22)(e) and
if the same amount is adjusted against the transaction of the year
under consideration, then, there would be possibly double taxation
under Section 2(22)(e).           To elaborate, if we see the accounts of the
Roots in the books of DIPL, the opening debit balance is `35,56,505/-
which ought to have been considered for the applicability of Section
2(22)(e) in the respective years in which advance was given. If we see
the closing balance, it is only `35,67,529/-. Thus, the variation is only
on account of debit of audit fee of `11,024/- which has been separately
considered by us. Except this debit of audit fee, there is no variation
between the opening balance and the closing balance. If the sum of `3
lakhs is considered as deemed dividend, then, despite the total debit
balance of only `35,56,505/-, the amount which would be considered
for Section 2(22)(e) would be `38,56,505/- (`35,56,505 in earlier years
and `3,00,000 in the year under consideration) which cannot be the
intention of the legislature.             We may also clarify that even if the
Department has failed to tax the advance given by DIPL to the
assessee in the earlier year under Section 2(22)(e) that may not
change the legal principle. The advance given in the respective year
was chargeable if other conditions are satisfied as deemed dividend
under Section 2(22)(e). In view of the above, we hold that the amount
given by DIPL to the assessee on 5.1.2009 was only the repayment of
amount given by the assessee earlier i.e. on 14.11.2008.


8.      Now, we come to debit balance of `1 lakh. This account in the
books of DIPL is in the name of the assessee and which reads as
under:-
Date           Particulars             Vch Type      Vch No.   Debit            Credit


1-4-2008 Cr    Opening Balance                                 2,76,85,098.00
23-4-2008 Cr   State Bank of India-10886408472   Payment 576     1,00,000.00
                                                      5                    ITA-4940/Del/2012


                   Ch.No.395872 Being amt paid to
                   Harsh Dhir


4-7-2008 Dr        Amex Card 3769 321131 51005          Journal            84,615.00
                   Being amt paid by Harsh Dhir
                   Personal A/c of KBL 826 Vide Ch No
                   710283 dt 04.07.08 Platinum Card
                   -3769 321131 511005


22-7-2008 Dr       State Bank of India-10886408472        Receipt    430   2,00,000.00
                   Ch.No.736009 Being cheque recd from
                   Harsh Dhir


3-8-2008 Dr        State Bank of India-10886408472        Receipt    453   4,50,000.00
                   Ch.No.736811 being ch recd from
                   Harsh Dhir


10-8-2008 Dr       KBL-1099                               Receipt   469    2,00,000.00


23-8-2008 Dr       HSBC 5548 5199 9831 6217               Journal          10,405.00
                   Being payment made by
                   Harsh Dhir on behalf of the
                   Company through Ch No.710287
                   Shilpi Dhir HSBC Card No. 6217


              Dr   HSBC 4384-5937-0617-3483             Journal            20,228.00
                   Being payment made by
                   Harsh Dhir on behalf of the
                   Company through Ch No
                   710288 for Shilpi Dhir
                   HSBC Card No 3483


6-9-2008 Dr        State Bank of India-10886408472 Receipt           564   4,00,000.00
                   Being Ch 736016 recd from
                   Harsh Dhir


10-9-2008 Dr       State Bank of India-10886408472 Receipt          576    8,50,000.00
                   Being Ch 736017 recd from
                   Harsh Dhir


11-10-2008 Dr      State Bank of India-10886408472        Receipt    719   8,00,000.00
                   Being Ch recd from Harsh Dhir


8-11-2008 Dr       KBL-1099                               Receipt    829   8,50,000.00
                   Being amt Trf from Harsh Dhir
                                                    6                                             ITA-4940/Del/2012


18-11-2008        KBL-1099                              Receipt    864                           7,00,000.00
                  Being amt recd from Harsh Dhir


19-11-2008 Cr     State Bank of India-10886408472 Payment 3486                       6,50,000.00
                  Ch.No. 396028 being amt paid AG
                  On A/c


25-11-2008 Dr     Amex Card 3769 321131 51005       Journal                                      8,400.00
                  Being payment made by Harsh
                  Dhir on behalf of the company
                  Through Ch No 736021 for Harsh
                  Dhir Amex Card No 51005


             Dr   Amex Card 3769 163453 03005        Journal                                     5,100.00
                  Being payment made by Harsh
                  Dhir on behalf of the company
                  Through Ch No 736022 for Harsh
                  Dhir Amex Card No 03005


29-11-2008 Dr     HSBC 4384-5937-0617-3483           Journal                                     5,228.00
                  Being payment made by Harsh
                  Dhir on behalf of the company
                  Through Ch No 736024 for
                  Shilpi Dhir HSBC Card No 6041


5-1-2009 Dr       KBL-1099                           Receipt 1018                                7,50,000.00
                  Being Ch 544241 received
                  From Harsh Dhir


4-3-2009 Dr       (as per details)                   Receipt      1266                           10,00,000.00
                  KBL-1099       9,97,000.00 Dr
                  Bank charges       3,000.00 Dr
                  Being Ch 544251 received from
                  Harsh Dhir


         Cr       State Bank of India-10886408472       Payment 5459                 9,75,000.00
                  Ch No.396094 being amt paid AG
                  On A/c
                                                                         -----------------------------------------------
                                                                            2,94,10,098.00             63,39,535.00
         Dr       Closing Balance                                                                   2,30,70,563.00
                                                                         -----------------------------------------------
                                                                            2,94,10,098.00 2,94,10,098.00
                                    7                        ITA-4940/Del/2012



9.    The sum of `1 lakh was paid by DIPL to the assessee on 23rd
April, 2008. During the previous year relevant to the assessment year
under consideration, there was no payment made by the assessee to
DIPL before this date. Therefore, the sum of `1 lakh paid by DIPL to
the assessee on 23rd April, 2008 is in the nature of loan and advance
chargeable as deemed dividend under Section 2(22)(e). The other sum
of `6,50,000/- was paid by DIPL to the assessee on 19.11.2008.
However, before the above date, during the accounting year relevant
to the assessment year under consideration, the payment made by the
assessee to DIPL was much more. The sum of `7 lakhs was paid by the
assessee to DIPL just a day earlier i.e. 18.11.2008. Therefore, for the
detailed discussion in the earlier paragraphs, in our opinion, the sum of
`6,50,000/- cannot be treated as loan and advance within the meaning
of Section 2(22)(e).   Another sum paid by DIPL to the assessee is
`9,75,000/-. We find that on the same date i.e. 4th March, 2008, there
is a payment by the assessee of `10 lakhs to DIPL. Therefore, in our
opinion, the sum of `9,75,000/- also cannot be treated as loan and
advance within the meaning of Section 2(22)(e).


10.   The remaining two amounts i.e. `14,50,000/- and `10,50,000/-
are debited to another account titled as Harsh Dhir Loan account in the
                                                     `A' However, at
books of DIPL, which is annexed herewith as Annexure `A'.
the time of hearing before us, it is submitted by the learned counsel
that the title of the account is factually incorrect and, in fact, all the
transactions noted in this account are in respect of cheque discounting
by the assessee through DIPL.           That the DIPL had a facility of
discounting of cheque with the bank, therefore, the assessee issued
cheque in the name of DIPL and they paid the similar amount to the
assessee and got the cheque discounted through bank. He pointed out
that for each and every transaction, there is a contra entry
immediately within a few days and almost every time, the payment
                                     8                         ITA-4940/Del/2012



made by the assessee is earlier or on the same day. Except in two
cases wherein the assessee paid the cheque of `25 lakhs which was
repaid by them by two cheques of `14,50,000/- and `10,50,000/-, there
is a delay of one day and that is probably because that DIPL delayed
the deposit of the assessee's cheque with their bank. On a perusal of
this account, we found the contention of the assessee to be correct.
For each and every transaction, there is a contra entry almost
simultaneously. In most of the cases, the cheque paid by the assessee
is a day earlier than the cheque received from DIPL.           However, in
respect of `25 lakhs only, we find that the sum of `25 lakhs is credited
to the account of the assessee on 17.2.2009 and the payment of `25
lakhs i.e. by two cheques of `14,50,000/- and `10,50,000/- is debited to
assessee's account on 16.2.2009. Considering these facts, we agree
with the assessee's contention that the cheque was given by the
assessee simultaneously and it is only a delay of deposit of that
cheque by one day by DIPL. Considering the totality of the facts and
the arguments of both the sides, in our opinion, the sum of
`14,50,000/- and `10,50,000/- cannot be treated to be in the nature of
loan and advance so as to treat the same as deemed dividend within
the meaning of Section 2(22)(e).


11.    In view of the above, in our opinion, only a sum of `1 lakh is
liable to be taxed as deemed dividend. Accordingly, the addition of
`45,36,024/- is reduced to `1,00,000/-.
12.    In the result, the appeal of the assessee is partly allowed.
       Decision pronounced in the open Court on 21st October, 2014.
                   Sd/-                                 Sd/-
                      GARG)
      (CHANDRA MOHAN GARG)                            AGRAWAL)
                                                (G.D. AGRAWAL)
         JUDICIAL MEMBER                        VICE PRESIDENT

Dated : 21.10.2014
VK.
                                  9                         ITA-4940/Del/2012




Copy forwarded to: -

1.   Appellant    : Shri Harsh Dhir,
                    14, Navjeevan Vihar, New Delhi.

2.   Respondent : Income Tax Officer,
                  Ward-10(3), New Delhi.
                  Ward-
3.   CIT
4.   CIT(A)
5.   DR, ITAT

                             Assistant Registrar
                                                      ..../..Annexure- A..
10   ITA-4940/Del/2012
11   ITA-4940/Del/2012

 
 
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