2006 (8) TMI 441 - AT - Income Tax

Addition on account of deemed dividend u/s 2(22)(e) - Validity of the assessment u/s 143(3) - notice served - Bar of limitation period prescribed in proviso to section 143(2) - HELD THAT - Since the notice originally sent was received by the assessee before it was redirected on 31-10-2002. The notice is within the limitation period and hence the assessment made pursuant to such notice is valid assessment. It is seen that the appellant is not a shareholder in any of the companies M/s. Nulon Global Ltd. or Nulon Electronics Ltd. The loan has been given to the appellant company. The loan is not given to any concern in which the assessee as a member or partner having substantial interest. The loan is not given to the appellant company for the benefit of any shareholder. The amount is received by the appellant company itself which is not a shareholder of any of the Payer Companies. The holding of Shri S.D. Goliyan in the appellant company to the extent of 37.5 per cent or is holding of 17.68 per cent and 8.13 per cent in Nulon Global Ltd. and Nulon Electronics Ltd. respectively will neither after the situation nor such factor will bring the payment by way of advance to the appellant company as deemed dividend u/s 2(22)(e). Since the appellant is not a shareholder holding any share in the Payer Companies the provision of section 2(22)(e) are not attracted. The payment is not given to any other concern or for the benefit of any shareholder. Thus the provision of section 2(22)(e) are not attracted. We accordingly delete the addition made in this regard. In the result, the appeal is partly allowed.

Issues Involved:
1. Validity of assessment under section 143(3)
2. Addition of Rs. 60,22,000 as deemed dividend under section 2(22)(e)
3. Disallowance of Rs. 2,000 treated as donation
4. Disallowance of Rs. 1,35,595 as expenses incurred through credit card

Issue-wise Detailed Analysis:

1. Validity of Assessment under Section 143(3):

The assessee challenged the validity of the assessment on the grounds that the notice under section 143(2) was served beyond the prescribed limitation period. The notice was issued on 29th October 2002 and sent by speed post on 30th October 2002 to the address mentioned in the return of income. It was redirected and served at a new address on 6th November 2002. The assessee argued that service of notice on 6th November 2002 was beyond the limitation period, relying on the decision in CIT v. Lunar Diamonds Ltd.

The Tribunal held that the notice was initially served at the address mentioned in the return of income on 31st October 2002, within the limitation period. Therefore, the assessment made pursuant to such notice was valid. The Tribunal also referenced the case of Shri Balaji Agro Industries, where it was presumed that a notice sent by speed post is served in the local area the next day.

2. Addition of Rs. 60,22,000 as Deemed Dividend under Section 2(22)(e):

The assessee received Rs. 1,00,000 from M/s. Nulon Electronics Ltd. and Rs. 59,22,000 as share application money from M/s. Nulon Global Ltd., which was later transferred as an unsecured loan. The Assessing Officer treated these amounts as deemed dividends, citing the substantial interest of a common shareholder in the involved companies.

The Tribunal concluded that the assessee was not a shareholder in M/s. Nulon Global Ltd. or M/s. Nulon Electronics Ltd. The loan was not given to any concern in which the assessee had a substantial interest, nor was it for the benefit of any shareholder. Therefore, the provisions of section 2(22)(e) were not applicable, and the addition of Rs. 60,22,000 was deleted.

3. Disallowance of Rs. 2,000 Treated as Donation:

The Tribunal upheld the disallowance of Rs. 2,000 treated as a donation. The appellant failed to provide sufficient evidence to challenge the disallowance.

4. Disallowance of Rs. 1,35,595 as Expenses Incurred through Credit Card:

The expenses were incurred by directors for hotel stays and purchases, which were deemed personal in nature. The assessee contended that the expenses were for business purposes, but failed to provide conclusive evidence. The Tribunal upheld the disallowance, as the appellant could not prove that the expenses were wholly and exclusively for business purposes.

Conclusion:

The appeal was partly allowed. The Tribunal validated the assessment under section 143(3) and upheld the disallowances of Rs. 2,000 and Rs. 1,35,595. However, the addition of Rs. 60,22,000 as deemed dividend under section 2(22)(e) was deleted.

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