G.D. Agrawal, Vice-President (As a Third Member) - There being a difference between the Members who originally heard this appeal, the Hon'ble President has nominated me as a Third Member to resolve the following points of difference under Section 255(4) of the Income-tax Act, 1961:—
| "(1) |
Whether under the facts and circumstances of the case, the payments received by the assessee from M/s Amit Poly Yarn Ltd. (now known as M/s Amitech Ind. Ltd.) are receipt as an advance against sales made during the course of commercial transactions and therefore provisions of section 2(22)(e) of the Income-tax Act, 1961 are not attracted to these payments or the aforesaid payments are purely an advance/loan made to the assessee, attracting the provisions of section 2(22) (e) of the Act? |
(2) |
Whether the issue of allotment of shares for Rs. 10 lakhs can be restored to the Assessing Officer to investigate the fact as to whether the allotment of shares was unilateral act of the company i.e. M/s Amitech Ind. Ltd. or the allotment was done at the instance of the assessee in order to determine the applicability of provisions of section 2(22)(e) of the Act to the benefit accrued to the assessee on allotment of shares or addition of Rs. 10 lakhs can be confirmed by holding that benefit accrued to the assessee on allotment of shares attracts provisions of section 2(22)(e) of the Act on the basis of material available on record?" |
2. The facts of the case are that the assessee is an individual who is dealing in trading of yarn as proprietor of M/s Shweta Enterprises. The assessee is the shareholder of M/s Amit Poly Yarn Limited (now known as M/s Amitech Industries Limited) (hereinafter referred to as AIL) holding 31.77% shares of the company. The said company also had accumulated profit to the extent of Rs. 98,80,832/- as on 31st March, 2006. During the accounting year relevant to the assessment year under consideration, the proprietary concern of the assessee i.e. M/s Shweta Enterprises had a running account with AIL. The Assessing Officer had given the date-wise transaction between M/s Shweta Enterprises and AIL at pages 4, 5 & 6 of his order and thereafter had also given the summary of account. For the sake of brevity, we are reproducing herein below only the summary of the account given at page 6 of the assessment order:—
|
Opening Balance |
3,577,222.19 |
|
(A) |
Purchase Yarn (Total) |
|
6,358,624.00 |
(B) |
Sale Yarn |
4,549,616.68 |
|
(C) |
Payment to Garden Silk Mills Ltd. for benefit of Shweta Entp. |
3,692,547.00 |
|
(D) |
Payment to S. Tax authorities for benefit of Shweta Entp. |
98,472.00 |
|
(E) |
Payment towards share capital |
1,000,000.00 |
|
(F) |
Payment by cheque and credit in bank of Shweta Entp. |
2,652,000.00 |
|
(G) |
Other Debits |
690.13 |
|
(H) |
Payments received from Shweta Entp. By cheque in Bank |
|
4,684,025.00 |
(I) |
Other Credits |
|
506,491.00 |
|
|
15,570,548.00 |
11,549,140.00 |
3. The Assessing Officer had not worked out the closing balance. It was Rs. 40,21,408/-. The Assessing Officer treated all the payments made by AIL to M/s Shweta Enterprises, proprietary concern of the assessee as deemed dividend under Section 2(22)(e), i.e., (i) payment to Garden Silk Mills - Rs. 36,92,547/-, (ii) payment to sales tax authorities on behalf of M/s Shweta Enterprises - Rs. 98,472/- and (iii) payment by cheque and credited in the bank account of Shweta Enterprises -Rs. 26,52,000/-, total - Rs. 64,43,019/-.
4. The company i.e. AIL has also debited the sum of Rs. 10 lakhs to the account of the assessee for which shares were allotted to the assessee. The Assessing Officer treated the said debit of Rs. 10 lakhs also as deemed dividend under Section 2(22)(e). Learned CIT(A) sustained the entire addition. Hence, this appeal by the assessee.
5. In the ITAT, there was a difference of opinion among the Members. So far as learned Judicial Member is concerned, he was of the opinion that the addition of Rs. 64,43,019/- which was the payment made by AIL to the assessee's proprietary concern or to others for and on behalf of assessee's proprietary concern M/s Shweta Enterprises is the payment during the course of trading business of supply of yarn by the assessee to AIL. Therefore, the same cannot be treated as deemed dividend under Section 2(22)(e). Learned Accountant Member agreed with the view of the Assessing Officer as well as CIT(A) and was of the opinion that the payment made by AIL to the proprietary concern of the assessee or to others for and on behalf of the proprietary concern of the assessee is rightly treated as deemed dividend under Section 2(22)(e) by the lower authorities. He, therefore, sustained the addition made under Section 2(22)(e) amounting to Rs. 64,43,019/-. The difference between these two Members with regard to addition of Rs. 64,43,019/- under Section 2(22)(e) is referred for my opinion as Third Member vide question No. l.
6. So far as the sum of Rs. 10 lakhs is concerned which was debited by AIL to the assessee's proprietary account against the allotment of shares to the assessee is concerned, learned Judicial Member proposed to set aside the matter to the file of the Assessing Officer while learned Accountant Member proposed to sustain the addition. Therefore, question No.2 is referred to the undersigned being Third Member.
Regarding question No.1 :—
7. At the time of hearing before me, it is stated by the learned counsel that the assessee is carrying on the business in the regular course for purchase and sale of yarn. In the preceding year as well as in the subsequent year, the assessee sold the yarn to AIL and also others and similarly, the assessee purchased the yarn from AIL and others. Similar business is carried on by the assessee from preceding years and in none of the earlier years, the payment received from AIL was treated as deemed dividend under Section 2(22)(e). That the genuineness of the yarn business being carried on by the assessee is not disputed by the Revenue and the income from yarn business as disclosed in the assessee's profit & loss account has been accepted. That the sale of yarn and receipt from AIL was during the normal course of the carrying on of the business. That from the summary of account of the assessee in the books of AIL, it is evident that the assessee sold the yarn for Rs. 63.58 lakhs and the payment received from AIL was Rs. 64.43 lakhs. Thus, the payment received was almost equal to yarn sold to them. Thus, the payment received from AIL was in the normal course of the assessee's business of purchase and sale of yarn. In support of this contention, he relied upon the following decisions:—
| (i) |
CIT v. Ambassador Travels (P.) Ltd. [2009] 318 ITR 376/[2008] 173 Taxman 407 (Delhi). |
(ii) |
CIT v. Raj Kumar [2009] 318 ITR 462/181 Taxman 155 (Delhi). |
(iii) |
CIT v. Creative Dyeing and Printing (P.) Ltd. [2009] 318 ITR 476/184 Taxman 483 (Delhi). |
8. Learned DR, on the other hand, relied upon the order of the Assessing Officer, CIT(A) as well as learned Accountant Member. He stated that it is not in dispute that the assessee was holding more than 30% shares in AIL. The company AIL was having sufficient accumulated profit which was to the tune of more than Rs. 98 lakhs. That there was already debit balance of the assessee in the books of AIL and, therefore, the goods supplied by the assessee to AIL were adjusted against the debit balance which was already existing. Therefore, the Assessing Officer rightly treated the payment received by the assessee from AIL as deemed dividend under Section 2(22)(e) as all the conditions for application of Section 2(22)(e) were duly fulfilled. In support of this contention, he relied upon the decision of Hon'ble Apex Court in the case of Miss P. Sarada v. CIT [1998] 229 ITR 444/96 Taxman 11 and CIT v. Mukundray K. Shah [2007] 290 ITR 433/160 Taxman 276 (SC) He, therefore, submitted that the order of learned Accountant Member should be approved and the addition made under Section 2(22)(e) should be sustained.
9. I have carefully considered the submissions made by both the sides and perused relevant material placed before me. The main contention of the learned counsel for the assessee is that the amount received by the assessee from AIL was during the course of trading business and therefore not covered by Section 2(22)(e). In support of this contention, he relied upon the three decisions of Hon'ble Delhi High Court. In the case of Ambassador Travels (P.) Ltd.(supra), Hon'ble Delhi High Court held :—
"dismissing the appeal, that the assessee was involved in the booking of resorts for the customers of these companies and entered into normal business transactions as a part of its day-to-day business activities. The financial transactions in any circumstances could not be treated as loans or advances. Hence, section 2(22)(e) was not applicable."
10. In the case of Raj Kumar (supra), the assessee received advance to execute the job work entrusted to the assessee. The Assessing Officer concluded that the money received by the assessee was deemed dividend within the meaning of provision of Section 2(22)(e). The CIT(A) reversed the order of the Assessing Officer. The Tribunal sustained the decision of the CIT(A). On appeal, Hon'ble Delhi High Court held :—
"that the trade advances given to the assessee by C could not be treated as deemed dividend under section 2(22)(e)."
11. Similar view is expressed by Hon'ble Delhi High Court in the case of Creative Dyeing and Printing (P.) Ltd. (supra), wherein their Lordships held :—
"dismissing the appeal, that the amounts advanced for business transaction between the assessee-company and P did not fall within the definition of deemed dividend under section 2(22)(e)."
12. Thus, in all the three decisions, Hon'ble Delhi High Court has held that the amount received during the course of trading transaction or commercial transaction would not fall within the ambit of provision of Section 2(22)(e).
13. Learned DR has relied upon two decisions of Hon'ble Apex Court. In the case of Miss P. Sarada (supra), Hon'ble Apex Court held as under:—
"Held, dismissing the appeal, that section 2(22)(e) as it stood at the material time defined dividend to include "any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who has a substantial interest in the company ... to the extent to which the company ... possesses accumulated profits". In the instant case, there was no dispute that the appellant had a substantial interest in the company. The nature of the company was also not in dispute. The withdrawals made by the appellant from the company amounted to grant of loan or advance by the company to the shareholder. The legal fiction came into play as soon as the monies were paid by the company to the appellant. The High Court had proceeded on the basis of the facts found by the Tribunal. There was no dispute that the appellant had withdrawn various sums of money between July 3, 1972, and March 22, 1973, when she did not have any credit balance with the company. In order to pay her these sums of money, the account of M was not debited at all."
14. In the case of Mukundray K. Shah (supra) relied upon by the learned DR, Hon'ble Apex Court held :—
"(v) That the concept of deemed dividend under section 2(22)(e) postulated two factors : whether the payment was a loan and whether on the date of payment there existed accumulated profits. These two factors had to be correlated and this correlation had been done by the Appellate Tribunal coupled with the fact that all withdrawals were debited in the capital account of the firm leading to the debit balance of Rs.8.18 crores.
(vi) That, therefore, the High Court ought not to have disturbed the finding of fact arrived at by the Appellate Tribunal.
Companies having accumulated profits and companies in which substantial voting power lies in the hands of a person other than public (or controlled) companies are required to distribute accumulated profits as dividends to the shareholders. In such companies, the controlling group can do what it likes with the management of the company, its affairs and its profits. It is for this group to decide whether the profits should be distributed or not. The declaration of dividends is entirely within the discretion of this group. Therefore, the Legislature realized that though funds were available with the company in the form of profits, the controlling group refused to distribute accumulated profits as dividends to the shareholders but adopted the device of advancing the said profits by way of loan to one of its shareholders to avoid payment of tax on accumulated profits. This was the main reason for enacting section 2(22)(e)."
15. From the above, it is evident that in both the cases before the Hon'ble Apex Court, the money was not paid during the course of a trading transaction but it was undisputedly paid by way of loan or advance. Therefore, on these facts, Hon'ble Apex Court held Section 2(22)(e) to be applicable. In the case under consideration before me, the main contention of the learned counsel is that the amount received by the assessee was not by way of loan or advance but the amount was received against the supply of the yarn. Therefore, on facts, the above decisions of Hon'ble Apex Court would not be applicable in the appeal under consideration. In view of above decisions of Hon'ble Delhi High Court, I agree with the learned Judicial Member that Section 2(22)(e) is not applicable where the amount is received during the course of trading transaction.
16. Now, the question remains, whether the amount received by the assessee from AIL was during the course of trading of yarn. To decide this, we revert to the facts of the case. I find that the assessee in its proprietorship firm viz., M/s Shweta Enterprises is carrying on the business of trading of yarn. The assessee sold the yarn to AIL and it also purchased the yarn from AIL. The Assessing Officer has given at pages 4, 5 & 6 of his order the complete date-wise details of transactions between the assessee and AIL. For the sake of brevity, it is not being reproduced here because after giving the date-wise transaction, the Assessing Officer himself has given the summary of the transaction which has been reproduced by me in paragraph 2 above. From the date-wise transactions, it is seen that the assessee sold the yarn to AIL on day-to-day basis and the amount paid by AIL was also on day-to-day basis. If we look at the summary of the transactions, we find that sale of yarn by the assessee to AIL was Rs. 63,58,624/-. The total payment received by the assessee was Rs. 64,43,019/- as under:—
| (i) |
Payment made by AIL to Garden Silk Mills on behalf of the assessee |
: |
Rs. 36,92,547/- |
(ii) |
Payment made by AIL to sales tax authorities on behalf of the assessee |
: |
Rs. 98,472/- |
(iii) |
Payment made by AIL to the assessee by cheque |
: |
Rs. 26,52,000/- |
|
Total |
: |
Rs. 64,43,019/- |
17. Thus, as against the supply of the goods of Rs. 63,58,624/-, the payment received by the assessee was Rs. 64,43,019/-. Similarly, AIL supplied the yarn to the assessee worth Rs. 45,49,616/- and total payment made by the assessee to them by cheque was Rs. 46,84,025/-. Thus, I find that the total amount received by the assessee from AIL was almost equal to the yarn supplied by the assessee. Similarly, the total payment made by the assessee was almost equal to the yarn supplied by AIL to the assessee. On these facts, it can clearly be held that all the amounts received by the assessee from AIL were towards the trading transactions of the yarn i.e. the yarn supplied by the assessee to AIL. Similarly, all the payments made by the assessee to AIL were also towards the supply of the yarn by AIL to the assessee. The Assessing Officer as well as learned DR appearing before me pointed out that there was an opening debit balance in the account of the assessee amounting to Rs. 35,77,222/- and therefore, the supply of the yarn/payment made by the assessee to AIL should be adjusted against the opening debit balance in the account of the assessee. I am unable to agree with this contention of the Revenue because every year is an independent year and moreover, fundamental question is whether the financial transaction between the assessee and AIL is in the nature of transaction of loan or advance or the transaction is in the course of trading business of yarn. After looking into the entire series of transactions, I have no hesitation to hold that there were regular trading transactions of yarn between the assessee and AIL. The assessee was selling the yarn to AIL on regular basis. Similarly, it was purchasing the yarn from AIL on regular basis. The payments were made for the yarn purchased and the payments were received for the yarn sold. Thus, there was a running trading account and all the transactions whether for purchase or sale of yarn or the payment or the receipt of money, it was during the course of trading of such transactions. In such trading transactions, even if there is some debit or credit balance, it cannot be held to be a transaction of loan or advance when predominantly, the transactions are clearly in the nature of trading transactions. Even otherwise, if there was a debit balance in the last year and it was in the nature of a loan transaction, the department ought to have applied Section 2(22)(e) in the said year. At the time of hearing before me, it was stated by the learned counsel that in the preceding year, the debit balance in the account of the assessee has not been treated as deemed dividend under Section 2(22)(e) which also impliedly proves that in the preceding year, the Revenue accepted the transactions to be in the nature of trading transactions and has not charged the debit balance as deemed dividend under Section 2(22)(e). In view of the above factual position and relying upon the decisions of Hon'ble Delhi High Court in the case of Ambassador Travels (P.) Ltd. (supra), Raj Kumar (supra) and Creative Dyeing and Printing (P.) Ltd. (supra), I answer question No. l in favour of the assessee and hold that the payments received by the assessee from AIL are receipt against sales made during the course of commercial transactions and therefore, provision of Section 2(22)(e) is not applicable.
18. Regarding question No.2, at the time of hearing before me, it is submitted by the learned counsel that AIL allotted the shares worth Rs. 10 lakhs to the assessee on 29.05.2006 unilaterally without any application from the assessee. That the assessee came to know of the allotment of shares in the month of December, 2006 and then payment was made there for. He, therefore, submitted that merely because the company unilaterally allotted the shares to the assessee and debited the sum of Rs. 10 lakhs to the assessee's account, it cannot be treated as loan or advance within the meaning of Section 2(22)(e). He further stated that the learned Judicial Member has simply set aside the matter to the file of the Assessing Officer for verification whether the allotment of shares was unilateral or not. He has already observed that if the shares were allotted with the application of the assessee, then the addition is to be sustained under Section 2(22)(e). Thus, there is no loss to the Revenue if the matter is set aside to the file of the Assessing Officer for the purpose of verification. He, therefore, submitted that the order of the learned Judicial Member should be approved.
19. Learned DR, on the other hand, referred to the assessee's reply filed before the Assessing Officer which is reproduced in the assessment order. He pointed out that in the reply, the assessee's counsel has stated before the Assessing Officer that the assessee had applied for the allotment of one lakh equity shares of Rs. 10 each of the company, payment for which was made subsequently. He, therefore, submitted that when the assessee himself has clarified before the Assessing Officer that the shares were allotted on the basis of assessee's application, now, there is no justification for setting aside the matter to the file of the Assessing Officer for verification. He stated that the learned Accountant Member has considered this aspect in detail and thereafter has rightly decided that, the addition under Section 2(22)(e) is correctly made. He, therefore, submitted that the order of the learned Accountant Member should be approved.
20. In the rejoinder, a specific question was asked to the learned counsel that when before the Assessing Officer the assessee's counsel had admitted that the shares have been allotted on the basis of assessee's application for allotment of shares, on what basis he has stated that the allotment of shares was unilateral act of AIL. In reply, learned counsel could not produce any documentary evidence in support of his contention but simply stated that may be the assessee's Chartered Accountant who furnished the reply before the Assessing Officer was not aware of the correct facts.
21. I have carefully considered the submissions of both the sides and perused relevant material placed before me. The Assessing Officer has made the addition of Rs. 10 lakhs under Section 2(22)(e) for allotment of shares of Rs. 10 lakhs to the assessee by AIL and corresponding debit of Rs. 10 lakhs to the account of the assessee. Learned Judicial Member proposed to set aside the issue to the file of the Assessing Officer with the following finding:—
"43. So far as the addition of Rs. 10 lakhs made on account of allotment of shares in favour of the assessee is concerned, we find that in the Company's account shares were allotted to the assessee by the Company on 29.5.2006 by crediting share capital account and debiting trading account of the assessee. But the payments with regard to the shares were made by the assessee during the month of December 2006 through various cheques. The contention of the assessee is that allotment of shares was unilateral transactions of the company and the assessee was not aware of it and when he came to know in the month of December, he made payment of the same. Nothing is placed on record to substantiate whether at the time of allotment of shares any request was made on behalf of the assessee or any correspondence was exchanged in this regard. The assessee's case is that allotment of shares was unilateral act of the Company without receiving any request from the assessee. In order to demolish the stand of the assessee, the Revenue has to bring something on record to establish that shares were allotted to the assessee by the Company on a request and after allotment of shares assessee was communicated in this regard. If the Revenue is able to establish that it is not a unilateral act, but the shares were allotted at the instance of the assessee, the allotment of shares by crediting the capital account and debiting the trading account certainly benefit to the assessee which attracts provisions of section 2(22)(e) of the Act. But in the absence of any evidence, it is very difficult for us to hold so. We are, therefore, of the view that this issue requires fresh adjudication by the Assessing Officer. We accordingly set aside the order of the ld. CIT(A) on this issue to the file of the Assessing Officer for making necessary verification in this regard after affording an opportunity of being heard to the assessee."
22. However, learned Accountant Member proposed to sustain the addition with the following finding:—
'40. Having heard parties with reference to the material on record and precedents cited at bar, I find no merit in the contentions and the plea raised by the appellant. Essentially the appellant is a shareholder and a member of AIL having shareholding to the extent of 31.77% and thus holds substantial interest in the Company. The Assessing Officer in the assessment order itself has reproduced the reply dated 16.12.2009 submitted by the appellant in response to show cause notice and the relevant portion thereof is reproduced as under—
"2. As regards debit entry of Rs.10,00,000/- in the books of the company, it is to submit that assessee during the year applied for allotment of 100,000 equity shares of Rs.10/- each of the company payment of which was made by the assessee as under:—
|
6.12.2006 Ch.No. 035584 |
Rs.2,50,000 |
|
13.12.2006 Ch.No. 035586 |
Rs.4,00,000 |
|
26.03.2007 Ch.No. 035596 |
Rs. 3,50,000 |
|
|
Rs. 10,00,000 |
M/s Amitech Industries Ltd. in its books of account has debited trading account of Shweta Enterprises by Rs.10,00,000/- and credited by the cheque amount as above, instead of directly crediting share application account. The assessee in her books of accounts has correctly passed the above entry, by directly debiting 'Investment A/c'. Copy of Investment A/c is enclosed. Thus it is a simply transaction of payment of share application money and is properly appearing in the books of the assessee and also in the Balance Sheet, question of applicability of provisions of Section 2(22)(e) does not arise. "[EMPHASIS SUPPLIED]
41. From the above reply of the appellant, it is evident that she had made an application for allotment of one lakh shares of Rs. 10 each of the Company, AIL. This Company, after receipt of application, made allotment of shares on 29.5.2006 as were applied by the assessee. These were fully paid shares. It, therefore, is not correct that allotment of shares by AIL to the assessee was unilateral act of AIL without receiving any request from the assessee. The subsequent payment made for Rs. 10 lakhs is in fact repayment of the obligation for which assessee was personally liable for loan availed from the Company. In her own submissions before the assessing authority, the said payment has been stated to be towards payment of share application money which it found to have been debited to her account by AIL at the time of allotment of shares to her on 29.5.2006. In any event, there could be no application by the appellant in December 2006 for any allotment of the shares that stood allotted to her on 29.5.2006. The appellant is not shown to have objected to the aforesaid allotment made on 29.5.2006 to her nor challenged the correctness or the validity of the decision taken in the meeting of the Board of Directors, whereas statutory return of share allotment before the Registrar of Companies was also filed by AIL. The correctness of accounts of the Company has also been accepted by the appellant. Being a substantial shareholder thereof, the appellant has also not proceeded against the Company for mismanagement of the affairs by the Company or any of its officials. In fact the substance of the matter is that the share allotment has gone to the benefit of the assessee and debit made by AIL to her account is a loan to her on which provisions of section 2(22)(e) of the Act have correctly been applied.'
23. From a perusal of the proposed order by both the Members, it is evident that both the learned Members agreed that if the allotment of shares by AIL to the assessee is on the basis of assessee's application or at the instance of the assessee, then provision of Section 2(22)(e) is attracted. Thus, the limited dispute between both the Members was whether the allotment of shares by AIL to the assessee was unilateral i.e. without the knowledge of the assessee or not? Learned Judicial Member is of the opinion that the matter requires verification whether the shares were allotted unilaterally or not. While the learned Accountant Member is of the opinion that the facts on record duly establish that the shares were allotted at the request of the assessee. After considering the facts of the case and the arguments of both the sides, I find substance in the finding of the learned Accountant Member. During the course of assessment proceedings, the Assessing Officer raised the query with regard to applicability of Section 2(22)(e) for the debit entry of Rs. 10 lakhs that was for allotment of shares by AIL to the assessee. In the assessee's written submission dated 16th December, 2009, it was mentioned that "As regards debit entry of Rs. 10,00,000/- in the books of the company, it is to submit that assessee during the year applied for allotment of 100,000 equity shares of Rs.10/- each of the company payment of which was made by the assessee as under:—
|
6.12.2006 Ch.No.035584 |
Rs. 2,50,000 |
|
13.12.2006 Ch.No.035586 |
Rs. 4,00,000 |
|
26.03.2007 Ch.No.035596 |
Rs. 3,50,000 |
|
|
Rs. 10,00,000" |
(Emphasis by underlining supplied by us)
24. Thus, before the Assessing Officer, the assessee clearly mentioned that the assessee had applied for the shares for which the payment was made subsequently. The learned counsel for the assessee has also mentioned in the same letter that "M/s Amitech Industries Ltd. in its books of account has debited trading account of Shweta Enterprises by Rs.10,00,000/- and credited by the cheque amount as above, instead of directly crediting share application account. The assessee in her books of accounts has correctly passed the above entry, by directly debiting 'Investment A/c'. Copy of Investment A/c is enclosed."
25. After looking at the entries passed by the assessee in her books of account, I am of the opinion that when in the books of account the assessee has also credited the AIL and debited to the investment account for the allotment of the shares, it cannot be claimed by the assessee at the stage of the ITAT for the first time that the shares were allotted unilaterally by AIL. The assessee is a substantial shareholder in AIL and it is improbable to believe that the company would allot the shares to the assessee without her knowledge. Moreover, the assessee has not objected to the allotment of shares by the company, on the other hand, made the payment in the month of December. During the course of hearing before me, a specific query was raised to the learned counsel for the assessee that on what basis he is contending that the shares were allotted by AIL unilaterally, especially when in the written submissions before the Assessing Officer, the assessee's counsel mentioned that the assessee applied for the shares. In response, the learned counsel for the assessee could not give any documentary evidence in support of his contention but simply mentioned that the assessee's counsel who appeared before the Assessing Officer incorrectly mentioned that the assessee applied for the shares. I am unable to accept this contention of the learned counsel. When the assessee's counsel's letter dated 16.12.2009 which is reproduced by the Assessing Officer at pages 7 & 8 of the assessment order is considered in toto, it is evident that he has given all the relevant facts and figures. He has given figures of sale of yarn by the assessee to AIL, purchase of yarn from AIL, payments made and received by the assessee in paragraph 1 of the application. In paragraph 2 of the application, he dealt with the debit entry of Rs. 10 lakhs for allotment of shares in which also he mentioned that the assessee had applied for the shares for which payment was made subsequently. He gave the date of payment and cheque number. He also mentioned about the book entries passed by the assessee and AIL. In view of this, the contention of the learned counsel, who appeared before me, that the assessee's counsel who appeared before the Assessing Officer furnished the reply casually, cannot be accepted. Moreover, the learned counsel for the assessee who appeared before me has not given any evidence to support his contention that the shares were allotted by the company to the assessee unilaterally without her knowledge and the reply furnished before the Assessing Officer was factually incorrect. In view of the above, I agree with the learned Accountant Member that there is no necessity of sending this aspect of the matter back to the file of the Assessing Officer for verification. Accordingly, question No.2 is answered in favour of the Revenue and I hold that the addition of Rs. 10 lakhs was correctly made under Section 2(22)(e) in respect of debit entry for allotment of shares.
26. The order passed in this case shall now be placed before the regular Bench for passing consequential order in accordance with law.
ORDER UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961
Sunil Kumar Yadav, Judicial Member - On account of difference of opinion between the Members, who originally heard the appeal, a Third Member was nominated to adjudicate the following questions:—
| (1) |
Whether under the facts and circumstances of the case, the payments received by the assessee from M/s Amit Poly Yarn Ltd. (now known as M/s Amitech Ind. Ltd.) are receipt as an advance against sales made during the course of commercial transactions and therefore provisions of section 2(22)(e) of the Income-tax Act, 1961 are not attracted to these payments or the aforesaid payments are purely an advance/loan made to the assessee, attracting the provisions of section 2(22)(e) of the Act? |
(2) |
Whether the issue of allotment of shares for Rs.10 lakhs can be restored to the Assessing Officer to investigate the fact as to whether the allotment of shares was unilateral act of the company i.e. M/s Amitech Ind. Ltd. or the allotment was done at the instance of the assessee in order to determine the applicability of provisions of section 2(22)(e) of the Act to the benefit accrued to the assessee on allotment of shares or addition of 10 lakhs can be confirmed by holding that benefit accrued to the assessee on allotment of shares attracts provisions of section 2(22)(e) of the Act on the basis of material available on record? |
2. The first question was answered in favour of the assessee by the Third Member by holding that the payments received by the assessee from M/s Amitech Industries Limited are receipts against sale made during the course of commercial transactions, therefore, provisions of section 2(22)(e) of the Act is not applicable.
3. The second question was answered against the assessee by the Third Member by holding that the addition of Rs.10 lakhs was correctly made under section 2(22)(e) of the Act in respect of debit entry for allotment of shares.
4. Therefore, pursuant to the majority view, the advance of Rs.64,43,019/- received by the assessee from M/s Amitech Industries Limited will not be treated to be deemed dividend in the hands of the assessee as per provisions of section 2(22)(e) of the Income-tax Act, 1961. But, the other addition of Rs.10 lakhs, made on account of allotment of shares in favour of the assessee, is upheld. Accordingly, the order of the ld. CIT(A) is partly modified.
5. In the result, appeal of the assessee is partly allowed.