ITA No.5273 of 2007 Shreyas S. Morakhia Mumbai E Bench
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" Bench, Mumbai
Before Shri B.R. Mittal, Judicial Member and
Shri B. Ramakotaiah, Accountant Member
ITA No.5273/Mum/2007
(Assessment year: 1999-2000)
Shreyas S. Morakhia, C/o Vs. Dy. CIT, Central Circle-22,
Arvind H. Shah & Associates, Aayakar Bhavan, M.K. Road,
512, Jolly Bhavan, No.1, 10 Mumbai 400020
New Marine Lines,
Mumbai 400 020
PAN: AACPM 9855 F
(Appellant) (Respondent)
Assessee by: Shri Hiro Rai,
Department by: Shri B. Jaya Kumar, DR
Date of Hearing: 30/07/2012
Date of Pronouncement: 29/08/2012
ORDER
Per B. Ramakotaiah, A.M.
This is an assessee appeal against the orders of the CIT (A)-4
Mumbai, dated 15/06/2007. The issue in this appeal is
quantification of deemed dividend to the extent of accumilated
profits.
2. Briefly stated, assessee is engaged in the business of share
brokerage and the return was filed declaring income at `8,01,032/-
which has been assessed by AO at `72,96,740/-. A search & seizure
action was conducted on SSKI group by warrant dated 01.08.2003.
The residence of assessee A-1/22, Prithvi Apartments, 21,
Altamount Road, Mumbai-24 was also covered by the search.
Assessee derived income from share broking as sub-broker of M/s
SSKI Investor Services Pvt. Ltd and also earns introductory
fee/brokerage, share trading, professional fees and income from
other sources being interest and rent from sublet property. The
relevant facts of the case are that assessee is one of the major
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ITA No.5273 of 2007 Shreyas S. Morakhia Mumbai E Bench
shareholder and director of the company named M/s SSKI Investor
Services Pvt. Ltd (Earlier known as Sevantilal Kantilal Securities
Pvt.Ltd). Assessee holds 51% of total paid up capital of the said
company as on 31.03.1999. Assessee received unsecured loan of
`1,85,89,052/- from the said company as on 01.04.1998 which
increased to `3,05,07,923/- during the year. At the end of the year
there was a debit balance of `24,98,463/-. Assessee being a
substantial shareholder in the said company having more than 10%
voting power, was construed to have received "Deemed Dividend" as
defined under section 2(22)(e) of the I.T. Act. AO proceeded to treat
the money received from M/s SSKI Investors Services Pvt. Ltd as
"Deemed dividend" to the extent of accumulated profits. Assessee is
aggrieved by the addition. Hence this appeal.
3. Before the CIT (A) the contentions raised by assessee are that
the accumulated profit in the case of M/s SSKI Investors Services
Pvt. Ltd as on 31.03.1998 was `8,84,059/- which increased to
`63,87,555/- as on 31.03.1999. Since the amounts were paid to
assessee upto 18.12.1998, hence on a proportionate basis AO
determined the accumulated profit at `47,82,368/-. The detailed
working of the determination of accumulated profit is given on page
4 & 5 of the assessment order. However, in the assessment order
passed under section 153A dated 28.03,2006 for assessment year
1998-99 in the case of SSKI Investors Services Limited, a tax
demand of `72,44,632/- has been raised. The learned Authorized
Representative mentioned that this tax demand exceeds the
accumulated profit computed by AO and the accumulated profits
are therefore reduced to Nil. Thus, there is no question of taxing any
amount as deemed dividend in the hands of assessee. In
propounding this logic, reliance was placed upon by the decision of
the Hon'ble Supreme Court reported in the case of CST vs. K.S.N.
Bhatt, 145 ITR 1. The learned Counsel also relied on the judgment
of the Hon'ble Apex Court in the case of CWT vs. Vadilal Lallubhai
(145 ITR 7) and (145 ITR 11), CST vs. Vimlaben Vadilal Mehta.
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ITA No.5273 of 2007 Shreyas S. Morakhia Mumbai E Bench
Hence it was submitted that the addition made by AO on account of
deemed dividend in the hands of assessee is not justified.
4. The learned CIT(A) examined the facts and confirmed the
additions so made by stating as under:
"9. I have carefully considered the underlying facts of the
case, the contentions of AO as also the detailed arguments
and submissions which were put forth by the learned
Authorized Representative. The appellant, in this ground
disputes the addition made by AO on account of deemed
dividend under section 2(22)(e) of the Act. I do not find any
infirmity in the action of AO. The reason why I have given
such a firm and categorical finding is stated hereunder:
10. Section 2(22)(e) categorically states that dividend
includes any payment by a company by way of advance
or loan to a shareholder, being a person who is the
beneficial owner of shares holding not less than 10% of
the voting power to the extent to which the company
possesses accumulated profits.
11. From the ledger account of M/s SSKI Investor Pvt. Ltd
in the books of the appellant, it is noticed that the
appellant received payments from the said company till
18.12.1998 and from 29.12.1998, a debit balance was
created in the said account which remained the debit
balance till the end of the year. Hence all payments
received by the appellant till 29.12.1998 fall within the
ambit of "Deemed Dividend". There was a opening credit
balance of `.1,85,89,052/- in the above account and
thereafter the appellant continued to receive substantial
payments from the said company. The appellant could not
substantiate its claim either before AO or before me that
the payments were received in the normal course of
business. AO determined the accumulated profits at
`.47,82,368/- and the same was assessed as deemed
dividend".
5. Aggrieved assessee raised the following ground:
"1.Under the facts and circumstances of your appellant,
the Hon'ble Commissioner of Income Tax (A), Cent.IV erred
in confirming the addition of `.47,82,368/- as deemed
dividend under section 2(22)(e) of I.T. Act, 1961"
6. At the outset, the learned Counsel admitted that similar issue
in assessment year 1998-99 has been restored to AO for fresh
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ITA No.5273 of 2007 Shreyas S. Morakhia Mumbai E Bench
examination in the light of the decision of the Tribunal in the case
of M.S. Stock Holding (P) Ltd vs. ACIT (2002) 75 TTJ (Ahd) 898.
However, the learned Counsel also raised an issue that since there
is no seized material and assessment under section 153A cannot be
made making the addition, relied on the Special Bench decision in
the case of All Cargo Global Logistics Ltd vs. DCIT in ITA Appeal
No.5018 to 5022 & 5059(Mum.) of 2010 dated 6.7.2012, more
particularly to the findings given in Para 53 which is extracted
below:
"53. The question now is what is the scope of
assessment or re-assessment of total income under
section 153A (1)(b) and the first proviso?. We are of the
view that for answering this question, guidance will
have to be sought from section 132(1). If any books of
account or other documents relevant to the assessment
had not been produced in the course of original
assessment and found in the course of search in our
humble opinion such books of account or other
documents have to be taken into account while making
assessment or re-assessment of total income under the
aforesaid provision. Similar position will obtain in a
case where undisclosed income or undisclosed property
has been found as a consequence of search. In other
words, harmonious interpretation will produce the
following results:
(a) In so far as pending assessments are concerned, the
jurisdiction to make original assessment and
assessment under section 153A merge into one and
only one assessment for each assessment year shall be
made separately on the basis of the findings of the
search and any other material existing or brought on the
record of AO
(b) in respect of non-abated assessments, the
assessment will be made on the basis of books of
account or other documents not produced in the course
of original assessment but found in the course of search
and undisclosed income or undisclosed property
discovered in the course of search".
7. Relying on the above, it was his submission that assessment
shall be on the basis of books of account or other documents found
in the course of search and undisclosed income or undisclosed
property discovered in the course of search. It was his submissions
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ITA No.5273 of 2007 Shreyas S. Morakhia Mumbai E Bench
that since no incriminating material was found in the course of
search, the assessment made under section 153A itself is bad in
law.
8. The learned DR however, submitted that the decision on All
Cargo Global Logistics Ltd (supra) does not apply as there is no
assessment under section 143(3) and only under section 143(1)
return was processed. Therefore, it cannot be considered that the
assessment was completed on the basis of books of account. Since
no books of account were produced or could be produced since no
assessment was done originally, the above special bench decision
does not apply. He has however, no objection if the matter was
restored to the file of AO as was done in earlier years. He also
referred to the decision of ITAT Mumbai in the case of NCK Sons
Exports Pvt. Ltd. vs. Income Tax Officer, 102 ITD 311 (Mum)
wherein the decision of M.B. Stock Holding (P) Ltd was referred to
and dissented. It was his submission that income other than
business profits has to be considered on day to day basis and
business profits at the end of the year. So the computation of
deemed dividend income requires re-examination by AO.
9. We have considered the issue and examined the contentions
of the rival parties. It is not in dispute that the provisions of section
2(22)(e) are applicable on the facts of the case. We do not agree with
the contention of the learned Counsel that assessment under
section 153A can not be made in this case. The issue before the
Hon'ble Special Bench in the case of All Cargo Global & Logistics
Pvt. Ltd was with reference to the claim of section 80IB which was
denied in the proceedings under section 143(3) r.w.s 153A. Even
though in some of the years the assessments were completed under
section 143(1), the basic thrust of the arguments were with
reference to claim under section 80IB which was examined and
allowed in some of the years. In that context the Hon'ble Special
Bench of the ITAT held that scope of assessment or re-assessment
of the total income under section 153A considering two situations.
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ITA No.5273 of 2007 Shreyas S. Morakhia Mumbai E Bench
However, in our opinion since no assessment has been done under
section 143(1) and as proceedings under section 143(1) cannot be
considered as assessment following principles laid down by the
Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock
Brokers (P) Ltd (2007) 291 ITR 500 (SC) we are not persuaded by
the arguments of the learned Counsel that the principles laid down
by the Special Bench will apply. Be that as it may, as seen from the
record assessee has not raised any additional ground. He has not
even raised a ground before the lower authorities on this issue. In
fact the validity of the jurisdiction of the ITAT to consider a ground
raised before it but not raised before the lower authorities itself was
subject matter of an interim order in the case of All Cargo Global &
Logistics (P) Ltd vide order dated 21-05-2012. The question was
answered stating `the question which has not been raised before
any of the lower authorities and obviously not decided by any one of
them cannot lead to a grievance in respect of which a ground can be
validly taken in the memorandum of appeal'. As seen from the
memorandum of appeal, assessee has not taken a ground
questioning the jurisdiction under section 153A. Special Bench also
held that even though the question was not raised earlier if it is one
of law and not one of fact that can be raised as an additional
ground for which ITAT has powers to consider. In this case except
placing the special bench order on record and relying of Para 53 of
the said order, assessee has not raised any additional ground also
before us. Since no ground or additional ground was raised, it is not
proper on our part to adjudicate the issue without any ground/
additional ground raised before us, giving due opportunity to rival
party and examining the merits of the case. Therefore, in view of the
reasons stated above, the arguments placed in this regard regarding
jurisdiction of AO completing the assessment under section 153A
need not be considered and accordingly they are rejected.
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ITA No.5273 of 2007 Shreyas S. Morakhia Mumbai E Bench
10. Coming to the issue of section 2(22)(e), the Coordinate Bench
in earlier year in ITA No.3374/Mum/2004 dated 19.01.11 has
restored the issue to the file of AO by holding as under:
"11. We have carefully considered the submissions of the
rival parties and perused the material available on
record. We find that the fact are not in dispute in as much
as it is also not in dispute that the provisions of section
2(22)(e) are not applicable on the facts of this case. We
further find merit in the plea of the learned Counsel for
assessee that the business profits of the company accrue
only at the end of the year and current year's business
profits are not to be included. The Tribunal in the case of
M.B.Stock Holding (P) Ltd (supra), after considering the
provisions of law and various decisions including the
decision in the case of CIT vs. V. Damodaran (1980) 121
ITR 572 (SC) has held in Para 32 appearing at Page 913
of 75 TTJ as under:
"32. Therefore, whereas the aforementioned
adjustments and other adjustments as may be
permissible in law are to be made and
accordingly accumulated profits worked out on
each day of loan or advance is made to the
shareholder, we are of the firm view that all the
profit that have not accrued to the company
advancing the loan upto the each day of
advance/loan have to be taken into account in
working the accumulated profits within the
meaning of section 2(22)(e). But since the
business profits of the company accrue only at
the end of the year, the current year's business
profits are not to be included. We would,
therefore, in the interest of justice, restore this
issue to the file of AO for the purpose of
working out the accumulated profits on each
day of advancing the loan to the appellant and
apply section 2(22)(e) to such loans subject to
the maximum of accumulated profits upto the
date of advancement of the loan".
In the absence of any distinguishing feature brought on
record by the revenue, we respectfully following the order
of the Tribunal hold that since the business profits of the
company accrue only at the end of the year, the current
year's business profits are not to be included. However,
since AO has not worked out the accumulated profit on
each day of advancing loan to assessee for the purpose
of addition under section 2(22)(e), we restore back the
issue to the file of AO who shall re-compute the amount of
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ITA No.5273 of 2007 Shreyas S. Morakhia Mumbai E Bench
deemed dividend under section 2(22)(e) afresh in the light
of the direction of the Tribunal in M.B. Stock Holding (P)
Ltd supra, and according to law after providing
reasonable opportunity of being heard to assessee. The
grounds taken by the revenue are, therefore, partly
allowed for statistical purposes".
Consistent with the above view, since the order is in assessee's own
case (one of the Member (AM) is also Member in the other order),
will follow the order of the Coordinate Bench in assessee's own case
and direct AO to determine the income accordingly after arriving at
the accumulated profits as per the facts and law that may be relied
on. Accordingly this issue was restored to the file of AO to do after
examination of facts and according to the law.
11. In the result appeal filed by assessee is allowed for statistical
purposes.
Order pronounced in the open court on 29th August, 2012.
Sd/- Sd/-
(B.R. Mittal) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, dated 29th August, 2012.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, "E " Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
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