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Judgment
P.P.S. Janarthana Raja, J.—These appeals are filed by the Revenue against the order of the Tribunal, Madras ''A'' Bench dt. 14th Dec.,
2007 In ITA No. IT(SS)A No. 50/Mad/ 2003 and ITA No. IT (SS)A No. 59/Mad/2003 for the asst. yr. 1st April, 1989 to 5th Aug., 1999
raising the following substantial questions of law:
Tax Case (Appeal) No. 1122 of 2008
Whether on the facts and circumstances of the case, the Tribunal was right in holding that out of Rs. 15 lakhs undisclosed income admitted by the
assessee, to have received from another person, only Rs. 10 lakhs had to be treated as undisclosed income of the assessee when said transaction
was not reflected in the books of account of the assessee?
Tax Case (Appeal) No. 1123 of 2008
Whether on the facts and circumstances of the case, the Tribunal was right in holding that the interest free amounts received and returned by the
assessee to the company in which she is a director, cannot be treated as deemed dividend u/s 2(22)(e) in the hands of the assessee?
The brief facts are as follows:
The assessee is the managing director of M/s Horizon Freight Forwarders (P) Ltd. The said company is engaged in clearing and forwarding
business. The assessee is also the proprietrix of M/s Asha & Co., which is carrying on the business of customs house clearing. A raid was
conducted in the premises of the assessee u/s 132(1) of the IT Act, 1961 on 6th Aug., 1999 and 7th Aug., 1999 and it was found that the
assessee was in possession of Rs. 10 lakhs and jewellery of 364 gms., out of which, cash of Rs. 10 lakhs was seized and the same was deposited
in the PD account of the CIT Tamil Nadu V, Chennai-34. Notice u/s 158BC of the IT Act, 1961, dt. 27th April, 2000 was served directing him
to file a return and the same was filed in Form 2B on 10th Aug., 2000. Notices u/s 142(1)/143(2) were issued to the assessee and the assessment
was completed on 31st Sept., 2000 for the block period from 1st April, 1989 to 5th Aug., 1999 and determined undisclosed income at Rs.
30,35,220. While completing the assessment, the AO has made addition of a sum of Rs. 15 lakhs as undisclosed income and also a sum of Rs.
5,37,407 towards deemed dividend u/s 2(22)(e) of the IT Act. Aggrieved by that, the assessee has filed an appeal to the CIT(A). The CIT(A)
deleted the addition of Rs. 15,00,000 and confirmed the order of the AO in respect of the deemed dividend. Aggrieved by the order of the
CIT(A), both the Revenue as well as the assessee have filed appeals before the Tribunal. The Tribunal partly allowed the Revenue''s appeal and
held that the demand for Rs. 10 lakhs only was sustainable and the balance sum of Rs. 5 lakhs was deleted. In respect of assessee''s appeal, the
Tribunal allowed the appeal. Aggrieved by the same, the Revenue filed the present appeals.
Learned Counsel appearing for the Revenue contended that the Tribunal is wrong in holding that out of Rs. 15,00,000, only Rs. 10,00,000 to
be treated as undisclosed income of the assessee. Learned Counsel also contended that the Tribunal ought to have seen that there is a clear
admission by the assessee that the amount of Rs. 15,00,000 has been received from one Senthil and the said fact was not disputed by Senthil and
hence, the AO is right in making addition of Rs. 15,00,000 as undisclosed income. In respect of the deemed dividend, it was contended that the
Tribunal is wrong in holding that no loan was obtained by the assessee from the company. Therefore, the AO is correct in treating the deemed
dividend u/s 2(22)(e) of the Act.
Heard the Counsel. A raid was conducted on 6th Aug., 1999 and 7th Aug., 1999 in the premises of the assessee u/s 132(1) of the IT Act,
1961. During the course of search, it was found that the assessee was in possession of a sum of Rs. 10 lakhs and jewellery of 364 gms. The
assessee was asked to explain the same. It was stated by the assessee that one Senthil, who is the managing partner of M/s Perfect Finance,
handed over a sum of Rs. 15 lakhs to the assessee on 20th July, 1999 for safe custody as he was going to Sabarimala. In turn, the assessee
handed over the said amount to one T.D. Naidu for. safe custody on the same day. The said Senthil, after returning from Sabarimala, has
requested the assessee to return the said amount. Therefore, the assessee has approached T.D. Naidu. But T.D. Naidu gave her only Rs. 3 lakhs
as against Rs. 15 lakhs given by the appellant and the said T.D. Naidu requested her to collect the balance amount later. On 28th July, 1997, the
said T. D. Naidu gave a sum of Rs. 10 lakhs and requested the assessee to come next day for collecting the balance sum. At that point of time, the
ITO searched the premises of the assessee and seized a sum of Rs. 10 lakhs by issuing warrant and enquired about the source for the money. One
Senthil, who is the managing partner of M/s Perfect Finance, has given statement subsequent to the raid and admitted that he had given a sum of
Rs. 15 lakhs to the assessee on 20th July, 1999 and also received back a sum of Rs. 9 lakhs on 27th July, 1999. His explanation for the source is
as follows:
Cash balance in the books of Perfect Finance 9.00 lakhs
Withdrawal from the bank account of Perfect Finance 4.00 lakhs
Withdrawal from bank account of Senthil Construction 2.60 lakhs
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15.60 lakhs
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The AO did not accept the explanation offered by the appellant and added a sum of Rs. 15 lakhs as undisclosed income. The CIT(A) accepted
the explanation offered by the assessee and deleted the addition and on further appeal by the Revenue, the Tribunal considered the materials
available on record and held that Rs. 10 lakhs could be said to be undisclosed income on the ground that a sum of Rs. 10 lakhs alone was seized
from the business premises of the assessee and also, Rs. 15 lakhs was not recorded in the books of Senthil and it is not possible that Senthil could
take out the entire cash available from the business at Rs. 9 lakhs and Rs. 2.6 lakhs from the bank and held as follows:
2.6 Upon a careful consideration of the issue we find that from the facts and circumstances of the case, it sound quite improbable that a person will
take out the entire cash available from his business as well as sum of Rs. 2.60 lakhs from bank and handover the same for safe custody to a private
person, a lady in this case who in turn herself was not capable of safe custody and is said to have handed it over to somebody else. Now, the
delivery of sum for safe custody was also not reflected in the books of Shri Senthil. In that view of the matter, the entire aspect that Rs. 15 lakhs
was given by Shri Senthil to the assessee becomes quite improbable. In this regard, we also place reliance upon the Hon''ble apex Court decision
in the case of Sumati Dayal Vs. Commissioner of Income Tax Bangalore, . However, it is further noted that only a sum of Rs. 10 lakhs has been
seized from the business premises of the assessee and the Revenue had no reason to add Rs. 15 lakhs as undisclosed income except for her
statement that Rs. 15 lakhs was received from Shri Senthil which has not been found true by the AO. The fact that a sum of Rs. 15 lakhs was not
recorded in the books of Shri Senthil but only noted in a letter found at his premises occurred after search during survey. Then, as per Hon''ble
jurisdictional High Court decision in the case of Commissioner of Income Tax Vs. G.K. Senniappan, taking cognizance of any material on survey
conducted after search is not sustainable. Hence, in our opinion, the addition sustainable in this regard is only Rs. 10 lakhs.
From a reading of the above, it is clear that the Tribunal has given a categorical finding for deleting the addition of Rs. 5 lakhs i.e., only Rs. 10
lakhs has been seized from the business premises of the assessee and also mere statement that Rs. 15 lakhs were received from one Senthil, which
had been found true by the AO and further, the said sum was not even recorded in the books of Senthil. It is the question of fact and it is not a
perverse order and the reasoning given by the Tribunal is based on valid materials and we do not find any illegality in the order of the Tribunal.
Therefore, the order passed by the Tribunal is confirmed.
In respect of Tax Case No. 1123 of 2008, the assessee had claimed Rs. 6 lakhs to be the source for repayment to one Senthil. While examining
the source for repayment to Senthil, the AO found that the appellant had drawn an amount of Rs. 6 lakhs from M/s Horizon Freight Forwarders
(P) Ltd. on 27th July, 1999. So, the AO was of the view that it was the loan to the assessee and therefore, out of a sum of Rs. 6 lakhs, an amount
of Rs. 5,37,407 has been treated as deemed dividend in the hands of the assessee u/s 2(22)(e) of the IT Act, 1961, since the reserve and surplus
as on 31st March, 1999 is also Rs. 5,37,407. Aggrieved by that order, an appeal has bean filed before the CIT(A), who has confirmed the order
of the AO. On an appeal to the Tribunal, it was held that there is no loan to the assessee from the company. It is only a business transaction and
subsequently, the said amount was returned to the company and therefore, the Tribunal was of the view that it is not a deemed dividend u/s 2(22)
(e) of the Act and held as follows:
3.3 We have heard both the Counsel and perused the relevant records. We find that there is a presence of sale agreement between the assessee
and M/s Horizon Freight Forwarders (P) Ltd. dt. 26th July, 1999 according to which Rs. 6 lakhs has bean received by the assessee at the time of
signing the agreement and Rs. 18 lakhs was to be paid subsequently. Hence, the argument of the assessee that the company made an advance
towards an agreement for sale of property which is in the course of business of the company and will not come under the provisions of Section
2(22)(e) of the IT Act hold considerable cogency. The learned CIT(A)''s plea that subsequently the sale transaction did not materialise and Rs. 6
lakhs was returned by the assessee which will take the transaction out of the nature of ordinary course of business, is not sustainable. The learned
CIT(A) has not stated that the agreement produced was a sham or a fake one. In such circumstances, this addition of deemed dividend in the
block assessment is not sustainable and hence, the same is deleted.
Here also the Tribunal has given a categorical finding that the amount was given only in the course of the business and also the said amount was
returned subsequently. The sale transaction did not materialise and hence, the amount was returned. It is the question of fact and we find no error
or illegality in the order of the Tribunal and the same is confirmed.
It is also further brought to our notice the recent circular issued by the Central Board, in Instruction No. 5 of 2008, dt. 15th May, 2008 [(2008)
217 CTR J, prescribes the conditions for filing appeal to the Tribunal, High Court and Supreme Court. Para 3 of the circular reads as follows:
Appeal will henceforth be filed only in cases where the tax effect exceeds monetary limits given hereunder:
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S. Appeals in Income Tax matters Monetary limit No.
(In Rs.)
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Appeal before Tribunal 2,00,000
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Appeal u/s 260A before High Court 4,00,000
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Appeal before Supreme Court 10,00,000
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This instruction will apply to appeals filed on or after 15th May, 2008. However, the cases where appeals have been filed before 15th of May,
2008 will be governed by the instructions on this subject, operative at the time when such appeal was filed.
It is clear from the above that in the present case, the tax effect in each tax case is less than Rs. 4 lakhs and also there is no dispute regarding the
same. The said appeals are also filed after 15th May, 2008. Therefore, considering the same, the appeals filed by the Department are not
maintainable in view of the circular.
In these circumstances, we are of the view that the above tax case appeals are dismissed on merits as well as jurisdiction.