Income Tax Appellate Tribunal - Delhi
Victor Aluminium Industries (P) Ltd. vs Asstt. Cit, Company Circle 3(2), New ... on 31 May, 2006
Equivalent citations: [2006]9SOT197(DELHI)
ORDER
N.V. Vasudevan. Judicial Member This is an appeal by the assessee against the order dated 29-8-2003 of the learned Commissioner (Appeals)-XVI, New Delhi, relating to the assessment year 1998-99.
2. Ground Nos. 1 to 3 of the grounds of appeal of the assessee, read. as follows :
"1. That the learned CIT (Appeals)-XVI, New Delhi, has erred in confirming an addition of Rs. 33,96,656 under section 2(22)(e) of the Income Tax Act, 1961, in respect of a loan which had been obtained from O.B.S. Traders Private Limited. While making this addition he has ignored the relevant evidences which were placed on record and has erroneously taken into consideration evidence which had no connection or relevance to the assessment year in question. Furthermore, he has failed to appreciate that the addition which has been confirmed was based on mere surmises and conjectures;
2. That the learned CIT (Appeals) while making the above mentioned addition of Rs. 33,96,656 has at para 2.5 of the Appellate order ignored and disregarded the voluminous documentary evidence, facts and submissions. Further, his order suffers from the vice of bringing in unsupported, imaginary and irrelevant facts which were based on mere conjectures and surmises;
3. That without prejudice to ground Nos. (1) and (2) above, the learned CIT (Appeals) has erred in treating as loan a sum of R.s. 10,00,000 was Share application money paid to O.B.S. Traders Pvt. Ltd. to make this addition under section 2(22)(e) which is included in the above addition of Rs. 33,96,656."
3. The facts and circumstances under which the aforesaid grounds of appeal arise, are as follows :-
The assessee is a Pvt. Ltd. company engaged in the business of manufacture of garments. For the assessment year 1997-98 a return of income was filed on 30-11-1998 declaring an income of Rs. 48,090. In the course of assessment proceedings under section 143(3) of the Income Tax Act, 1961 'hereinafter referred to as 'the Act') vide order sheet entry dated 12-12-2000 the assessing officer called upon the assessee to furnish details of the interest of the directors in other concerns and in case the assessee has taken any loan from any other person whether the directors are interested in that concern. The assessing officer also wanted a balance sheet of the concern, which has lent loan to the assessee in which the directors of the assessee are interested. Vide letter dated 21-12-2000 the assessee submitted that Shri P.J.S. Bahia, who is a director of the assessee-company held 3,510 equity shares which is 33.33 per cent of the issue capital of a company by name O.B.S. Traders Pvt. Ltd. A photo-copy of the balance sheet for the year ending 31-3-1999 of M/s. O.B.S. Traders was also furnished. The assessing officer thereafter by order sheet entry dated 30-7-2000 called upon the assessee to furnish a copy of the account of OBS Traders as appearing in the books of account of the assessee. The assessing officer also indicated that the provisions of section 2(22)(e) of the Act could be attracted in the case of the assessee and called upon the assessee to show cause as to why the same should not be invoked. The case was adjourned to 5-1-2001. On 5-1-2001, none appeared on behalf of the assessee. The assessing officer, therefore, issued a notice under section 143(2) of the Act fixing the case for hearing on 15-1-2001. On 15-1-2001 again nobody appeared. On 17-1-2001 the assessing officer issued a show cause notice in which after referring to the non-compliance on the part of the assessee, the assessing officer has made the following observations:-
"On examination of the Balance Sheet and considering the shareholding of the Director, Shri Paramjit Singh Bahia the following prerequisites of section 2(22)(e) were apparent:-
(i) The director Shri Paramjit Singh Bahia is holding 33.33 per cent of equity shares issued by M/s. OBS Traders Pvt. Ltd. (lender)
(ii) The director Shri Paramjit Singh Bahia is holding 50 per cent of equity shares issued by M/s. Victor Aluminium Industries Pvt. Ltd. (now known as OBS Exports Pvt. Ltd.)
(iii) As on 31-3-1998 there is a reserve and surplus of Rs. 70,50,388.74 in the Balance Sheet of M/s. OBS Traders Pvt. Ltd. (lender)
(iv) M/s. OBS Traders Pvt. Ltd. has forwarded a loan of Rs. 36,24,884.67 to M/s. Victor Aluminium Industries Pvt. Ltd.
However, to be able to come to a correct conclusion Shri Tandon was asked vide order sheet entry dated 27-12-2000 to give :
Photo copy of account of OBS Traders Pvt. Ltd. in your books of account.
why section 2(22)(e) be not invoked."
4. At this stage it would be relevant to extract the provisions of section 2(22)(e) of the Act --
Section 2(22) "dividend" includes-
(a) To (d) * * -
(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise made after the 31-5-1987, by way of advance or loan to a shareholder, being a person who ig the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits)) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;
but "dividend" does not include-
(i) a distribution made in accordance with sub-clause (c) or sub-clause (a) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets;
(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) insofar as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31-3-1964, and before the 1-4-1965;
(ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company;
(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off;
(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956);
(v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).
Explanation 1 : The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1-4-1946, or after the 31-3-1948, and before the 1-4-1956;
Explanation 2 : The expression "accumulated profits" in sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and insub-clause (c)shale include all profits of the company upto the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place.
Explanation 3 :For the purposes of this clause,-
(a) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company;
(b) a person shall be deemed to have a substantial interestin a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern.
5. In response to the aforesaid notice dated 17-1-2001 of the assessing officer the assessee filed a reply dated 24-1-2001. The stand taken by the assessee in the reply was briefly as follows :-
(a) The shareholding of Shri Paramjit Singh Bahia in M/s. OBS Traders Pvt. Ltd. as reported in the assessee's letter dated 21-12-2000 was the shareholding as on 31-3-1997 and as on 1-4-1997. That on 4-4-1997 Shri Paramjit Singh Bahia sold 3,000 equity shares for Rs. 30,000 to Smt. Manju Chaurasia. That as a result of such sale the shareholding of Shri Paramjit Singh Bahia got reduced to 5 10 equity shares, which constituted only 4.84 per cent of the shareholding in the company M/s. OBS Traders Pvt. Ltd. That the pattern of shareholding as stated in the letter dated 21-12-2000 may be corrected to the extent as stated above;
(b) In view of the above, the provisions of section 2(22)(e) and Explanation (3) thereto will not have any application and, therefore, no addition as proposed can be made;
(c) Without prejudice to what is stated above, the assessee also submitted that even assuming that Shri Paramjit Singh Bahia had a substantial interest in M/s. OBS Traders Pvt. Ltd. and the addition of Rs. 36,24,884.67 asproposed to be made by the assessing officer was not correct for the following reasons.
The assessee enclosed a statement of account of O.B.S. Traders Pvt. Ltd. as appearing in the books of the assessee and brought to the notice of the assessing officer that as on 1-4-1997 there was already an opening balance of Rs. 2,28,228.07 and this cannot be said to be a loan given by M/s. O.B.S. Traders Pvt. Ltd. to the assessee during the previous year. The assessee further pointed out that an aggregate amount of Rs. 80,200 was advanced during the period 1-4-1997 to 26-8-1997 and the balance Rs. 33,16,456.60 paise was advanced between the period 27-8-1997 to 31-3-1998.The amount around which the controversy could have then revolved around would have been Rs. '33,96,656.60 paise and not Rs. 36,24,884.67 paise. Even out of this sum an aggregate amount of Rs. 33,16,456.60 paise was advanced after 1-6-1997, that is, the date with effect from which section 10(33) had been inserted in the Income Tax Act which exempts dividends in the hands of the recipient. At best only a sum of Rs. 80,200 could have then been added as deemed dividend had Mr. Paramjit Singh had substantial interest in M/s. O.B.S. Traders Pvt. Ltd., which is not so.
6. The assessing officer thereafter called upon the assessee to furnish his original transfer deeds, mode of payment by Ms. Manju Chaurasia and the original Minutes of Meeting recording the transfer of shares. The assessee furnished the original transfer deed and the original share certificate, a receipt dated 2-4-1997 evidencing receipt of Rs. 30,000 in cash by Shri Paramjit Singh Bahia from Ms. Manju Chaurasia was also filed. It was pointed out that Ms. Manju Chaurasia was a partner in a firm by named M/s. O.B.S. Exports and as a partner, she withdrew a sum of Rs. 30,000 for making the payment to Shri Paramjit Singh Bahia. A copy of the account of Ms. Manju Chaurasia, as appearing in the firm has also been filed. A copy of the Minutes of the Board Meeting dated 4-4-1997 wherein the transfer of shares was approved by the Board was also filed. It may be relevant that all original of the minutes book, receipt, share certificate and share transfer forms had been filed before the assessing officer. These documents were impounded by the assessing officer under section 131(3) of the Income Tax Act.
7. The assessing officer wrote to the Registrar of Companies (hereinafter referred to as RoC) on 16-2-2001 asking for details of the shareholding as reflected in the annual return and balance sheet filed by M/s. O.B.C. Exports Pvt. Ltd. with them. The RoC vide letter dated 28-2-2001 expressed his inability to produce the balance sheet and annual return as on 31-3-1998 and 31-3-2000 as they were not available presently with him. He, however, provided the balance sheet and annual report as on 31-3-1999 and 28-9-1999 respectively. The assessing officer noticed that in the annual report as on 31-3-1999 furnished by the RoC, Ms. Manju Chaurasia did not own any shares whereas Mr. Paramjit Singh Bahia was shown to be the owner of 3,510 shares, which was the same as in the earlier years. The assessee vide his letter dated 8-3-2001 had submitted that the shares which were transferred by Shri Paramjit Singh Bahia to Ms. Manju Chaurasia on 4-4-1997 were sold back by her to Shri Paramjit Singh Bahia on 17-5-1999 for the very same amount of Rs. 30,000 in cash. An affidavit of Ms. Manju Chaurasia was also filed confirming the above facts. With the aforesaid state of evidence before the assessing officer, the assessing officer was of the view that the theory of sale of shares held by Mr. Paramjit Singh Bahia to Ms. Manju Chaurasia was an after-thought and there was in reality no sale of shares and the entire story put-forth by the assessee was nothing, but an exercise to avoid applicability of the provisions of section 2(22)(e) of the Act. The assessing officer sent the receipt dated 2-4-1997 said to have been signed by Shri Paramjit Singh Bahia, acknowledging receipt of sale consideration of Rs. 30,000 from Ms. Manju Chaurasia on sale of shares to Ms. Manju Chaurasia to the Government Security Press at Nashik for verification. The Deputy Works Manager, Government of India Security Press, Nashik, reported that the stamps affixed on the receipt were first printed only on 25-2-2000 and were first issued from Central Stamp Store, Nashik Road on 28-3-2000 to the treasury for sale to the public. From the above report, the assessing officer concluded that the receipt dated 2-4-1997 put-forth by the assessee was an ante-dated document prepared for the purpose of substantiating a false case of sale of shares on 4-4-1997. The assessee was confronted with the report of the Indian Security Press dated 8-3-2001. The assessee vide his reply dated 26-3-2001 submitted that though the receipt was dated 2-4-1997, the receipt was prepared only in the first week of February, 2001 in the course of assessment proceedings. It was further submitted that since there was a need to have receipt only at this stage, they had made the receipt in February, 2001, but the fact was that the consideration was paid on 2-4-1997 and that is reason why the date of 2-4-1997 had been put on the receipt. The assessing officer, however, refused to accept the plea of the assessee. He held that the loan of Rs. 33,96,656.56 was obtained by the assessee from M/s. O.B.S. Traders Pvt. Ltd. during the relevant previous year to the extent of reserve and surplus available with M/s. O.B.C. Exports Pvt. Ltd. was liable to be considered as a deemed dividend in the hands of the assessee under section 2(22)(e) of the Act. The addition was accordingly made by the assessing officer. This addition made by the assessing officer was upheld by the CIT (Appeals).
8. Before the CIT (Appeals) the submission of the assessee was that in the annual reports filed with the RoC, the shareholding pattern in M/s. OBS Traders Pvt. Ltd. had been duly reflected and that this document filed with the RoC would clearly establish that as on 4-4-1997 Shri Paramjit Singh Bahia held only 4.84 per cent shares of M/s. O.B.S. Traders Pvt. Ltd'. It was further submitted that these annual reports reflected the position of the shareholding in respect of the Annual General Meetings (hereinafter referred to as AGM) held on 29-9-1997 and 29-9-1998 and these reports were filed with the RoC on 29-12-1997 and 11-1- 1999 respectively and were taken on record on the same day by the RoC. The assessee also pointed out that this evidence had been furnished before the assessing officer, but only true copies were filed and not certified copies. The assessee also submitted that certified copies were being applied for and would be furnished shortly. It was also submitted that during the pendency of the proceedings before the assessing officer, these annual reports were not on the file of the assessee-company with the RoC for the reason that the office of the RoC had been shifted from Parayavaran Bhawan to Jawahar Lal Nehru Stadium and were lying a dump in the stores and corridors. The assessee, therefore, pleaded that the position of shareholding as reflected in the annual reports filed with the RoC much prior to the commencement of the assessment proceedings are authentic and puts the issue beyond controversy. The CIT (Appeals), however, held that the filing of the annual reports before the RoC has got no relevance, because the assessee is a closely-held company and the shares are held either with the family members or with the friends. According to the CIT (Appeals), the crucial evidence of receipt of money was found to be fabricated and sham and, therefore, all other subsequent activities have also to be considered as a part of a sham transaction. He, therefore, held that reliance cannot be placed on the annual report, which was prepared by the company and submitted to the RoC.
9. Aggrieved by the order of the CIT (Appeals) the assessee has preferred the aforesaid grounds of appeal before the Tribunal. We have heard the submissions of the learned counsel for the assessee, who reiterated the submissions as were made before the CIT (Appeals). According to him the evidentiary value of a document filed with the RoC prior to the commencement of the assessment proceedings cannot be lightly brushed aside. He also submitted that even before the assessing officer the assessee admitted that the receipt was prepared sometime in February, 2001 when the real need for such a receipt arose. He also submitted that the receipt though prepared in February, 2001 was dated 2-4-1997 for the reason that thatwas the real date on which the cash was paid by Ms. Manju Chaurasia to Mr. Paramjit Singh Bahia. According to him, therefore, no adverse inference can be drawn merely on the basis of the receipt dated 2-4-1997. His further submission was that the other documentary evidence viz., Transfer Deed, Board Resolution, Affidavit of Ms. Manju Chaurasia cannot be simply brushed aside by the assessing officer. The learned departmental Representative submitted before us that this was a case where the assessing officer after due investigation had clearly established that the transaction of sale of shares was not proved and that it had been made up by the assessee only for the purpose of getting over the provisions of section 2(22)(e) of the Act. He also brought to our notice the following two decisions in the case of CIT v. C.P. Sarathy Mudaliar ( 1972) 83 ITR 170 (SC) and in the case of CIT v. P. V John ( 1990) 181 ITR 1 (Ker.) and submitted that provisions of section 2(22)(e) of the Act have to be strictly construed and in the circumstances, the action of the revenue authorities, have to be upheld.
10. We have considered the rival submissions. The only issue that arises for our consideration is as to whether there was a valid sale of shares as on 4-4-1997 by Mr. Paramjit Singh Bahia in favour of Ms. Manju Chaurasia. We have already referred to the various circumstances, which were brought out by the assessing officer in the order of assessment. It is no doubt true that as per the report of the Deputy Works Manager of India Security Press, Nashik, the stamps which had been affixed on the receipt dated 2-4-1997 had in fact been made available for sale to the public through treasury only on 28-3-2000. Therefore, it is very clear that this receipt dated 2-4-1997 was not a contemporaneous document, but a document, which had been ante-dated. The assessee also accepts this fact, but only pleads that on 2-4-1997 when the sale consideration passed between the parties, there was no necessity of taking any receipt and it is only when the assessing officer called for the details they thought it fit to prepare a receipt. The assessee has further explained that the parties merely recorded the date as 2-4-1997 without any motive or ill-intention. We have to now weigh this evidence in the context of the annual reports filed by the assessee with the RoC, Delhi and Haryana. As per the provisions of section 159 of the Companies Act, 1956, every company having a share capital within 60 days from the day on which each of the AGM is held has to prepare and file with the RoC, an annual report containing particulars with regard to registered office, directors etc. One such requirement is to file particulars of its members and debenture holders past and present. In compliance with the aforesaid requirement the assessee had filed its annual report in respect of the meeting held on 29-9-1997. The report had been filed by the assessee on 29-12-1997 in respect of the AGM held on 29-9-1997. In this annual report the details of the shareholders as on the date of AGM has also been furnished. There were only four shareholders of M/s. O.B.S. Traders Pvt. Ltd. They are (a) Shri Paramjit Singh Bahia holding 510 shares; (b) Shri Kuldeep Krishan Sardana 3,510 shares; (c) Shri Atamjit Singh Bawa 3,510 shares; and (a) Ms. Manju Chaurasia 3,000 shares. A certified copy of the annual report filed with RoC has also been filed before us. Similarly the annual report in the AGM to be held on 29-9-1998 filed with the RoC on 11- 1-1999 has also been filed before us and this annual report also reflects the same shareholding position. It is pertinent to note that the certified copies of the annual reports had not been filed before the revenue authorities. It is also further pertinent to note when the assessing officer wrote to the RoC, the RoC expressed his inability to furnish the balance sheet and annual report as on 31-3-1997 and 31-3-1998 as they were not available with him at that point of time. We have also noticed that later on Ms. Manju Chaurasia sold the shares to Mr. Paramjit Singh Bahia on 17-5-1999 for the very same price and this was reflected in the annual report as on 28-9-1999. This was the annual report on the basis of which the assessing officer concluded that Shri Paramjit Singh Bahia continued to hold 3,510 shares of M/s. O.B.S. Traders Pvt. Ltd. It is clear from the aforesaid document that at the relevant point of time Shri Paramjit Singh Bahia held only 4.84 per cent interest in the share capital of O.B.S. Traders Pvt. Ltd. The condition required for application of the provisions of section 2(22)(e) of the Act is that Shri Paramjit Singh Bahia, should a substantial interest in M/s. O.B.S. Traders Pvt. Ltd. and such substantial interest would mean holding at least 20 per cent. The only factor, which goes against the assessee in the present case is the receipt and the assessee has already given an explanation and has accepted that the receipt was prepared only in the first week of February, 2001 though the date 2-4-1997 was put on the receipt. This cannot be the only basis on which it can be held that Shri Paramjit Singh Bahia continued to hold 33.33 per cent shares of M/s. O.B.S. Traders Pvt. Ltd. We may also, at this stage, refer to the provisions of section 164 of the Companies Act, 1956 where it has been laid down that register of members, the register of debenture-holders and the annual reports, certificates and statements referred to in sections 159,160 and 161 shall be prima facie evidence of any matters directed or authorized to be inserted therein by this Act. The annual reports filed with the RoC much before the commencement of the assessment Proceedings before the assessing officer cannot, therefore, be lightly brushed aside. There is a presumption regarding truth of the statements made in these returns. So long as these rurns remain valid, it can held that Shri Paramjit Singh Bahia continued to hold 33.33 per cent shares of. O.B.S. Traders Pvt. Ltd. It is, however noticed that out of the total loans of Rs. 33,96,656.60p. availed by the assess'ee as loan from M/s. O.B.S. Traders Pvt. Ltd., a sum of Rs. 2,71,457 was availed on 1-4-1997 and admittedly as on this date Mr. Paramjit Singh Bahia held 33.33 per cent shares of M/s. O.B.S. Traders Pvt. Ltd. To this extent, the addition made by the revenue authorities have to be sustained. The addition to the extent of Rs. 2,71,457 is, therefore, sustained and the remaining addition is directed to be deleted. In view of the above conclusion, we are of the view that ground No, 3 does not call for any specific adjudication. The appeal of the assessee is accordingly partly allowed.
11. In the result, the appeal by the assessee, is partly allowed. So the result, the appeal by the assessee, is partly allowed.