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TMI Blog2013 (9) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... see with the aforementioned company it was found by the AO that two payments of Rs. 1.60 crores and Rs. 1.10 crores were made to the assessee. There being sufficient reserve and surplus available with the aforementioned company to the tune of Rs. 3,34,00,000/- as on 31/3/2007, the AO asked the assessee to explain as to why the provisions of section 2(22)(e) of the Income Tax Act, 1961 (the Act) should not be invoked. It will be relevant to reproduce the ledger account of the assessee with the aforementioned company. Ledger Account of Navroze S. Marshall V.No. Date Particulars Book Debit Credit Balance 2501N01 Master Mavroze S. Marshall Opening Balance 0.00 629239.68 BC01UB003 20-04-06 On Account B 16000000.00 15370760.32DB DD05UB003 29-08-06 On Account B 10400000.00 DD05UB004 29-08-06 On Account B 600000.00 BC04UB011 30-08-06 B 11000000.00 15370760.32DB BD10CB025 23-01-07 Navroze Marshall B 5000000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; Total 17927657.18 17466750.00 Cls. Bal. 0.00 460907.18 DB 17927657.18 17927657.18 2.2 The AO noticed that assessee was holding 76% of equity shares of the aforementioned company and balance 24% shares are held by the mother of the assessee. The AO also noticed that the amount of Rs. 1.60 crores given to the assessee was utilized for his individual benefit as mutual fund units were purchased from the said funds by the assessee. Vide letter dated 11/8/2009, it was explained that the aforementioned letters of the father of the assessee written to the company were self explanatory. Copy of painting account in the books of the company were also filed showing the purchase made by the company of painting worth Rs. 1.73 crores. It was submitted that paintings were personal effects owned by the father of the assessee and said purchase of painting was appearing in the balance sheet of the said company in the fixed asset schedule. It was claimed that the amount of Rs. 1.60 cores was received by him on account of gift from his father and was not paid to him by the company. The A.O rejected such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting entries was not a proper course to be entered in the normal course. The father of the assessee had received only Rs. 8.00 lacs in his account and balance amount of Rs. 1.60 cores ( out of Rs. 1.73 crore of painting sold) is paid to the father of the assessee by way of accounting entries only. He also noticed that father of the assessee did not pay income tax on sale of such painting. Therefore, the AO observed that the so called gift transaction routed through the company was nothing but a colorable device to evade tax liability on the capital received. Thereafter, the AO discussed the provisions of section 2(22)(e) of the Act and has come to a conclusion that all the conditions mentioned in section 2(22)(e) of the Act are fulfilled in the following manner: (i) S.J. Marshall Trading Co. Ltd. is a company in which public are not substantially interest. (ii) Mr.Navroze S. Marshall, the assessee, is the beneficial owner of equity shares holding 76% of the voting power. (iii) The company possesses accumulated profits of more than Rs.3.25 crores throughout the year. (iv) The payment made to the assessee by the company is not done in its ordinary course of business since l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions laid down in section 2(22)(e) of the Act are fulfilled. The case law relied upon by the assessee do not support the case of the assessee and thus the AO was right in making the addition to the extent of Rs. 1,53,70,760/- on account of amount drawn by the assessee of Rs.1.60 crores on 20/4/06 and also the amount of Rs. 1.10 cores drawn by the assessee on 30/8/2006 and both these amounts constitute deemed dividend within the meaning of section 2(22)(e) of the Act. Therefore, Ld. CIT(A) has upheld the addition to the extent of Rs. 2,63,70,760/- by giving the credit of opening balance to the assessee of an amount of Rs.6,29,239.68. In this manner CIT(A) upheld the addition. Aggrieved, assessee has filed the appeal before the Tribunal and has raised aforementioned grounds of appeal. 4. Before proceeding further, it may be mentioned that an application has filed by the ld. A.R filing some additional evidence, which during the course of hearing was not pressed by ld. A.R and accordingly not considered. 5. After narrating the facts it was pleaded by the ld. A.R that the father of the assessee had sold paintings which were articles of personal effects in the hands of the father ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o after purchasing the paintings of the father of the assessee and total paintings purchased during the year are of a sum of Rs.1,76,61,875/-. 5.1 Ld. A.R further contended that in any case another sum of Rs. 1.10 crores could not at all to be added to the income of the assessee which is stated to be withdrawn on 30/8/2006 as that was neither a loan nor an advance taken by the assessee from the company. Referring to the copy of account of the assessee with the said company which has been reproduced above, it was submitted by him that prior to withdrawal of a sum of Rs. 1.10 cores on 30/8/2006, the assessee had deposited two amounts of Rs. 1.04 cores and Rs.6.00 lacs on 29/8/2006. He, therefore, submitted that the addition of Rs. 1.10 cores is without any basis and requires deletion. 5.2 For raising the aforementioned contentions ld. A.R relied upon the following decisions: (1) CIT vs. Raj Kumar 318 ITR 462 (Del) to content that in section 2(22)(e) of the Act the word " advance" has to be read in conjunction with the word "loan". Usually a loan involves positive act of lending coupled with acceptance of money as "loan" by the other side and there is an obligation of repayment . T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f land to reduce the incidence of Stamp Duty and it was held that section 2(22)(e) could not be applied to the said amount. 5.3 It was also contended by ld. A.R that the transaction of purchase of painting by the company from the father of the assessee was business transaction, therefore, also provisions of section 2(22)(e) could not be applied and for this purpose, apart from the aforementioned decisions ld. A.R relied upon the decision in the case of CIT vs. Nagindas M. Kapadia, 177 ITR 393(Bom) wherein the company was maintaining a running account in the name of a concern R.P. of which the assessee was a proprietor and it was held that advances received by the assessee towards purchases to be made by the company from a concern was not dividend income under section 2(22)(e) of the Act. He also submitted that the provisions of section 2(22)(e) being deeming provision is required to be strictly construed and for the purpose ld. A.R relied upon the decision in the case of CIT vs. C.P. Sarathy Mudaliar 83 ITR 170 (SC). 5.4 In this manner ld. A.R concluded his arguments and pleaded that the addition made by the AO and sustained by ld. CIT(A) should be deleted. 6. Ld. D.R submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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