TaxTMI 
TaxTMI 
2013 (9) TMI 43
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....t, Mumbai. From the copy of account of the assessee 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 ....
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.... JJ120010 31/03/07 Being the entry for adjustment of above accounts as per letter attached J 12575566.06 JJ120011 31-03-07 Being the entry for adjustment of above accounts as per letter attached B 166750.00 460907.18DB -------------- -------------- 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 ....
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....on 20/4/2006. 2.3 The AO also observed that even if it is assumed that adjustment entry is a gift then also the same can be said to have taken place only on 31/3/2007, on which date such adjustment entries were made and debit prior thereto of the sums of Rs.1.60 cores and Rs. 1.10 cores on 20/4/2006 and 30/8/2006 respectively are loans received by the assessee from aforementioned company. The AO also observed that the course adopted by the assessee to effect so called gift being executed by means of complex 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 ....
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....ooks of the company is that amount outstanding in the account of the assessee was squared off at the end of the year through adjustment entries between various accounts which does not convey that the adjustment is made in lieu of an unrecorded gift. Ld. CIT(A) also observed that the father of the assessee did not offer the said amount of Rs. 1.73 crores for taxation and the statement that the amount of Rs. 1.60 cores was gifted on 20/4/2006 is after thought and has not been corroborated by the entries in the books of account. The conditions 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....
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....her of the assessee with the company. He also referred to the Memorandum of Association and Article of Association of the company, copy of which is placed at pages 82 to 94 of the paper book and also the ledger account of the painting purchased by the said company, which is placed at page 76 of the paper book. These documents were referred for the contention that the paintings purchased by the company from the father of the assessee were in the regular course of business, as according to ld. A.R the company had purchased other paintings also 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....
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....ld that section 2(22)(e) of the Act could not be applied to the said amount. Ld. A.R submitted that the assessee had placed material on record to show that the amount obtained by the assessee was given to him on the instruction of his father who had sold paintings to the company and Revenue has not brought any material on record to hold that the said contention of the assessee is incorrect, therefore, the addition cannot be made. He also submitted that in the said case the advances were also received by the assessee being Managing Director for purchase of 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 ....