2006 (5) TMI 256 - AT - Income Tax

Summary

Issues Involved:
1. Addition under Section 2(22)(e) of the Income-tax Act, 1961.
2. Validity of the sale of shares by a director to avoid deemed dividend.
3. Evidentiary value of documents filed with the Registrar of Companies (RoC).

Detailed Analysis:

Issue 1: Addition under Section 2(22)(e) of the Income-tax Act, 1961
The primary issue was whether the addition of Rs. 33,96,656 under Section 2(22)(e) of the Income-tax Act, 1961, was justified. The assessee argued that the addition was made based on irrelevant evidence and mere conjectures. The Assessing Officer (AO) had called for details regarding the interest of directors in other concerns and loans taken from such concerns. It was found that a director of the assessee-company, Mr. P.J.S. Bahia, held 33.33% of the equity shares in O.B.S. Traders Pvt. Ltd., which had lent a loan to the assessee. The AO concluded that the loan amount should be treated as deemed dividend under Section 2(22)(e) of the Act, considering the reserves and surplus of O.B.S. Traders Pvt. Ltd.

Issue 2: Validity of the Sale of Shares by a Director to Avoid Deemed Dividend
The assessee contended that Mr. P.J.S. Bahia had sold 3,000 equity shares on 4-4-1997, reducing his shareholding to 4.84%, thus negating the applicability of Section 2(22)(e). The AO, however, suspected the authenticity of this transaction, especially since the receipt for the sale was found to be ante-dated. Despite the assessee's explanation that the receipt was prepared in February 2001, the AO concluded that the sale was fabricated to avoid the deemed dividend provision.

Issue 3: Evidentiary Value of Documents Filed with the Registrar of Companies (RoC)
The assessee submitted annual reports filed with the RoC, showing the shareholding pattern that supported their claim of reduced shareholding by Mr. P.J.S. Bahia. The CIT (Appeals) dismissed these reports, considering them irrelevant due to the fabricated receipt. However, the Tribunal noted that these documents were filed with the RoC before the assessment proceedings and should be considered prima facie evidence under Section 164 of the Companies Act, 1956. The Tribunal emphasized the presumption of truth for statements made in these returns unless proven otherwise.

Tribunal's Conclusion:
The Tribunal partly allowed the appeal, concluding that:
- The addition under Section 2(22)(e) should be limited to Rs. 2,71,457, corresponding to the loan availed on 1-4-1997 when Mr. P.J.S. Bahia held 33.33% shares.
- The remaining addition was deleted, as the evidence from the RoC supported the assessee's claim of reduced shareholding.
- The fabricated receipt alone could not negate the evidentiary value of the annual reports filed with the RoC.

Result:
The appeal by the assessee was partly allowed, with the addition being sustained only to the extent of Rs. 2,71,457.