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Smt. Neelam Khanna, C/o P. Singh & Co., 103/1, Amar Shree Complex, Delhi Road, Meerut Vs. Income Tax Officer, Ward 1(2), Meerut
April, 28th 2014
                                                  ITA NOS. 2078/Del/2011 & 3268/Del/2012



                 IN THE INCOME TAX APPELLATE TRIBUNAL
                       DELHI BENCH "E" NEW DELHI
              BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND
                SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
                I.T.A. Nos. 2078/DEL/2011 & 3268/DEL/2012
                               A.Y. : 2005-06

Smt. Neelam Khanna,                 vs. Income Tax Officer,
C/o P. Singh & Co.,                     Ward 1(2),
103/1, Amar Shree Complex,              Meerut
Delhi Road, Meerut
(PAN: AAXPK1359H)

(Appellant)                              (Respondent)


           Assessee by               :   Sh. V.K. Goel, Advocate
          Department by              :   Sh. Sunil Bajpai, CIT(DR)

                                  ORDER
PER SHAMIM YAHYA: AM
     These Appeals by the Assessee are directed against the
respective orders of the Ld. Commissioner of Income Tax passed u/s.
263 and u/s. 271(1)(c) of the I.T. Act respectively.

ITA No. 2078/Del/2011

2.   This appeal by the assessee pertains to assessment year 2005-06
and is against order u/s. 263 dated 28.3.2011.

3.   In this case Ld. CIT noted that "on examination of records it was
found that the AO had failed to investigate the advance of Rs.
12,00,000/- received by the assessee from M/s Khanna Plantation Pvt.
Ltd. which was advanced to her for the purchase of FDR.                           The
company possessed Rs. 10,90,965/- as accumulated profits in the
forms of Reserves and Surpluses. Since the assessee is a share holder

                                     1
                                                 ITA NOS. 2078/Del/2011 & 3268/Del/2012



of over 10% shares in the company M/s Khanna Plantation Pvt. Ltd.,
the amount of Rs. 10,90,965/- was required to be assessed in the
hands of the assessee as deemed dividend income of the assessee as
per section 2(22)(e) of the I.T., Act, 1961.       While completing the
assessment the AO had failed to assess the amount of Rs. 10,90,965/-
as deemed divided in the hands of the assessee u/s. 2(22)(e) of the I.T.
Act, 1961".

4.   Pursuant to notice u/s. 263 the assessee's counsel informed that
the share application    money of Rs. 20,39,000/- was lying with M/s
Khanna Plantation Pvt Ltd. in the name of assessee's husband Sh.
Inderjeet Khanna against which the shares could not be allotted. The
payment of Rs. 12 lacs which was received by the company by selling
the popular plants held by it was in fact the refund the share
application money to Sh. Inderjeet Khanna, husband of the assessee.
It was further submitted that FDR made for Rs. 12 lacs pursuant to the
said withdrawal was made in the joint names of Sh. Inderjeet Khanna
and Smt. Neelam Khanna for a period of three months. However, Ld.
CIT was not convinced.    He directed that a sum of Rs. 10,90,965/- be
added u/s 2(22)(e) of the I.T. Act in the hands of the assessee.

5.   Against the above order the assessee is in appeal before us.

6.   We have heard both the counsel and perused the records.                       At
the outset, Ld. Counsel of the assessee submitted that on this very
issue of deemed dividend, assessee's assessment was reopen u/s. 148
of the I.T. Act.    After considering the issue and discussing the
assessee's reply in this regard, the AO has not added the said amount
u/s 2(22)(e) of the I.T. Act.    Hence, ld. Counsel of the assessee
submitted that the AO has duly applied his mind and he has come to




                                    2
                                                 ITA NOS. 2078/Del/2011 & 3268/Del/2012



the conclusion that deemed dividend u/s 2(22)(e) of the I.T. Act, in this
case do not arise in the hands of the assessee. Hence, Ld. Counsel of
the assessee submitted that assumption of jurisdiction of the Ld. CIT
u/s. 263 of the I.T. Act is totally invalid. On merits of the case, the Ld
counsel of the assessee submitted that the assessee company already
owed a sum of Rs. 20,39,000 to the assessee's husband for share
application money. Against the said sum,       a sum Rs. 12 lacs                was
paid for FDR in the joint name of assessee and her            husband.            Ld.
Counsel of the assessee further submitted that upon maturity of the
FDR, the amount involved was also deposited in the account of the
assessee's husband.    Hence, Ld. Counsel of the assessee submitted
that there is no question of deemed dividend u/s. 2(22)(e) in the hands
of the assessee. Ld. Counsel of the assessee further submitted that
assessee and her husband are the only two share holders and
Directors of this company.

7.   Ld. DR on the other hand submitted that AO has not given his
finding on this issue. Hence, assumption of jurisdiction by the Ld. CIT
u/s. 263 was valid. He further supported the order of the Ld. CIT.

8.   Upon careful consideration, we find that section 263(1) of the I.T.

Act postulates that "the Commissioner may call for an examine the

record of any proceeding under this Act, and if he considers that any

order passed therein by the Assessing Officer is erroneous in so far as

it is prejudicial to the interest of the revenue, he may, after giving the

assessee an opportunity of being heard and after making or causing to

be made such inquiry as he deems necessary, pass such order hereon


                                    3
                                                 ITA NOS. 2078/Del/2011 & 3268/Del/2012



as the circumstances of the case justify, including an order enhancing

or modifying the assessment, or cancelling the assessment and

directing a fresh assessment."

9.    Now in this case, we find that Ld. CIT in his order has noted that

in this case while completing the assessment the AO has failed to

examine and assess the amount of Rs. 10,90,965/- as deemed

dividend in the hands of the assessee u/s. 2(22)(e) of the I.T. Act.


10.   Upon careful consideration, we find that the company M/s Khanna

Plantation Pvt. Ltd. had two share holders being the assessee and her

husband.     It is   undisputed that a share application money of Rs.

20,39,000/- was lying with M/s Khanna Plantation Pvt. Ltd. in the name

of assessee's husband, Inderjeet Khanna against which shares could

not allotted. Now the company by way of refund of the above said

share application money obtained a FDR of Rs. 12 lacs in the joint

name of assessee's husband Sh. Injderjeet Khanna and Smt. Neelam

Khanna, the assessee. In these circumstances, we find that a sum of

Rs. 12 lacs being FDR made in the joint name of assessee and her

husband was admittedly refund against the share application of

Rs. 20,39,000/-.     This aspect was duly examined and adjudicated by

the Assessing Officer. In these circumstances, we agree that a sum of

Rs. 12 lacs cannot be treated as loans and advance in the hands of the

                                    4
                                                  ITA NOS. 2078/Del/2011 & 3268/Del/2012



assessee from the said company.           It was only refund of share

application money received by the company from assessee's husband

Sh. Injderjeet Khanna, which was refunded in the joint name of the

assessee and her husband. In these circumstances, in our considered

opinion, the order u/s. 263 of the I.T. Act is not sustainable. The AO

has properly applied his mind in assessment order on the impugned

issue. He has discussed the same and he is correct in holding that any

addition in this case is called for as deemed dividend in the hands of

the assessee. Accordingly, we set aside the order of the Ld. CIT u/s.

263 of the I.T. Act.





11.   In the result, the appeal filed by the assessee is allowed.

ITA NO. 3268/DEL/2012

12.   In this appeal the assessee is aggrieved regarding the penalty

imposed by the Ld. CIT(A) on the assessee of Rs. 3,50,000/- u/s.

271(1)(c) of the I.T. Act.


13.   In this case pursuant to the order u/s. 263 as discussed above on

account of addition of Rs. 10,90,965/- u/s. 271(1)(c) of the I.T. Act. Ld.

CIT(A) has also imposed penalty of Rs. 3,43,752/- u/s. 271(1)(c) of the

I.T. Act. We find that as discussed above, we have already deleted the

addition as made by the Ld. CIT in this regard. As such there is no

basis which now remains for the purpose of this penalty. Accordingly,
                                     5
                                                  ITA NOS. 2078/Del/2011 & 3268/Del/2012



order of the Ld. CIT(A) levying the penalty u/s. 271(1)(c) in this case is

set aside and levy of penalty is deleted.


14.     In the result, both the appeals filed by the Assessee stand

allowed.


        Order pronounced in the Open Court on 22/4/2014, upon

conclusion of hearing.




        Sd/-                                        Sd/-

        TOLANI]
  [R.P. TOLANI]                                [SHAMIM YAHYA]
JUDICIAL MEMBER                              ACCOUNTANT MEMBER

Date:- 22/4/2014
SRBHATNAGAR

Copy forwarded to: -
1.      Appellant 2.     Respondent          3.     CIT      4.       CIT (A)
5.      DR, ITAT
                             TRUE COPY
                                             By Order,




                                                       Assistant Registrar,
                                                       ITAT, Delhi Benches




                                      6
                                                                                        ITA NOS. 2078/Del/2011 & 3268/Del/2012




Date of dictation ..................................

Date on which the typed draft is placed before the Dictating Member...........................

Date on which the approved draft comes to the Sr.PS/PS...................................

Date on which fair order sent to Member for signature....................................

Date on which the fair order comes back after pronouncement to the Sr. PS/PS.....................................

                       goes to the Bench Clerk....................................
Date on which the file goes

Date on which the file goes to the Head Clerk....................................

The date on which the file goes to the Assistant Registrar for Signature on the order..............................

Date of Despatch of the Order ......................................




                                                                       7

 
 
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