TaxTMI 
TaxTMI 
2015 (4) TMI 372
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.... (2) Whether the issue of allotment of shares for Rs. 10 lakhs can be restored to the Assessing Officer to investigate the fact as to whether the allotment of shares was unilateral act of the company i.e. M/s Amitech Ind. Ltd. or the allotment was done at the instance of the assessee in order to determine the applicability of provisions of section 2(22)(e) of the Act to the benefit accrued to the assessee on allotment of shares or addition of Rs. 10 lakhs can be confirmed by holding that benefit accrued to the assessee on allotment of shares attracts provisions of section 2(22)(e) of the Act on the basis of material available on record?" 2. The facts of the case are that the assessee is an individual who is dealing in trading of yarn as proprietor of M/s Shweta Enterprises. The assessee is the shareholder of M/s Amit Poly Yarn Limited (now known as M/s Amitech Industries Limited) (hereinafter referred to as AIL) holding 31.77% shares of the company. The said company also had accumulated profit to the extent of Rs. 98,80,832/- as on 31st March, 2006. During the accounting year relevant to the assessment year under consideration, the proprietary concern of the assessee i.e. M/s ....
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....trading business of supply of yarn by the assessee to AIL. Therefore, the same cannot be treated as deemed dividend under Section 2(22)(e). Learned Accountant Member agreed with the view of the Assessing Officer as well as CIT(A) and was of the opinion that the payment made by AIL to the proprietary concern of the assessee or to others for and on behalf of the proprietary concern of the assessee is rightly treated as deemed dividend under Section 2(22)(e) by the lower authorities. He, therefore, sustained the addition made under Section 2(22)(e) amounting to Rs. 64,43,019/-. The difference between these two Members with regard to addition of Rs. 64,43,019/- under Section 2(22)(e) is referred for my opinion as Third Member vide question No. l. 6. So far as the sum of Rs. 10 lakhs is concerned which was debited by AIL to the assessee's proprietary account against the allotment of shares to the assessee is concerned, learned Judicial Member proposed to set aside the matter to the file of the Assessing Officer while learned Accountant Member proposed to sustain the addition. Therefore, question No.2 is referred to the undersigned being Third Member. Regarding question No.1 :-....
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....ray K. Shah [2007] 290 ITR 433 He, therefore, submitted that the order of learned Accountant Member should be approved and the addition made under Section 2(22)(e) should be sustained. 9. I have carefully considered the submissions made by both the sides and perused relevant material placed before me. The main contention of the learned counsel for the assessee is that the amount received by the assessee from AIL was during the course of trading business and therefore not covered by Section 2(22)(e). In support of this contention, he relied upon the three decisions of Hon'ble Delhi High Court. In the case of Ambassador Travels (P.) Ltd. (supra), Hon'ble Delhi High Court held :- "dismissing the appeal, that the assessee was involved in the booking of resorts for the customers of these companies and entered into normal business transactions as a part of its day-to-day business activities. The financial transactions in any circumstances could not be treated as loans or advances. Hence, section 2(22)(e) was not applicable." 10. In the case of Raj Kumar (supra), the assessee received advance to execute the job work entrusted to the assessee. The Assessing Officer conclud....
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....dividend under section 2(22)(e) postulated two factors : whether the payment was a loan and whether on the date of payment there existed accumulated profits. These two factors had to be correlated and this correlation had been done by the Appellate Tribunal coupled with the fact that all withdrawals were debited in the capital account of the firm leading to the debit balance of Rs. 8.18 crores. (vi) That, therefore, the High Court ought not to have disturbed the finding of fact arrived at by the Appellate Tribunal. Companies having accumulated profits and companies in which substantial voting power lies in the hands of a person other than public (or controlled) companies are required to distribute accumulated profits as dividends to the shareholders. In such companies, the controlling group can do what it likes with the management of the company, its affairs and its profits. It is for this group to decide whether the profits should be distributed or not. The declaration of dividends is entirely within the discretion of this group. Therefore, the Legislature realized that though funds were available with the company in the form of profits, the controlling group refused to dist....
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....f of the assessee : Rs. 98,472/- (iii) Payment made by AIL to the assessee by cheque : Rs. 26,52,000/- Total : Rs. 64,43,019/- 17. Thus, as against the supply of the goods of Rs. 63,58,624/-, the payment received by the assessee was Rs. 64,43,019/-. Similarly, AIL supplied the yarn to the assessee worth Rs. 45,49,616/- and total payment made by the assessee to them by cheque was Rs. 46,84,025/-. Thus, I find that the total amount received by the assessee from AIL was almost equal to the yarn supplied by the assessee. Similarly, the total payment made by the assessee was almost equal to the yarn supplied by AIL to the assessee. On these facts, it can clearly be held that all the amounts received by the assessee from AIL were towards the trading transactions of the yarn i.e. the yarn supplied by the assessee to AIL. Similarly, all the payments made by the assessee to AIL were also towards the supply of the yarn by AIL to the assessee. The Assessing Officer as well as learned DR appearing before me pointed out that there was an opening debit balance in the account of the assessee amounting to Rs. 35,77,222/- and therefore, the....
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....ime of hearing before me, it is submitted by the learned counsel that AIL allotted the shares worth Rs. 10 lakhs to the assessee on 29.05.2006 unilaterally without any application from the assessee. That the assessee came to know of the allotment of shares in the month of December, 2006 and then payment was made there for. He, therefore, submitted that merely because the company unilaterally allotted the shares to the assessee and debited the sum of Rs. 10 lakhs to the assessee's account, it cannot be treated as loan or advance within the meaning of Section 2(22)(e). He further stated that the learned Judicial Member has simply set aside the matter to the file of the Assessing Officer for verification whether the allotment of shares was unilateral or not. He has already observed that if the shares were allotted with the application of the assessee, then the addition is to be sustained under Section 2(22)(e). Thus, there is no loss to the Revenue if the matter is set aside to the file of the Assessing Officer for the purpose of verification. He, therefore, submitted that the order of the learned Judicial Member should be approved. 19. Learned DR, on the other hand, refe....
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....cember 2006 through various cheques. The contention of the assessee is that allotment of shares was unilateral transactions of the company and the assessee was not aware of it and when he came to know in the month of December, he made payment of the same. Nothing is placed on record to substantiate whether at the time of allotment of shares any request was made on behalf of the assessee or any correspondence was exchanged in this regard. The assessee's case is that allotment of shares was unilateral act of the Company without receiving any request from the assessee. In order to demolish the stand of the assessee, the Revenue has to bring something on record to establish that shares were allotted to the assessee by the Company on a request and after allotment of shares assessee was communicated in this regard. If the Revenue is able to establish that it is not a unilateral act, but the shares were allotted at the instance of the assessee, the allotment of shares by crediting the capital account and debiting the trading account certainly benefit to the assessee which attracts provisions of section 2(22)(e) of the Act. But in the absence of any evidence, it is very difficult for u....
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....that allotment of shares by AIL to the assessee was unilateral act of AIL without receiving any request from the assessee. The subsequent payment made for Rs. 10 lakhs is in fact repayment of the obligation for which assessee was personally liable for loan availed from the Company. In her own submissions before the assessing authority, the said payment has been stated to be towards payment of share application money which it found to have been debited to her account by AIL at the time of allotment of shares to her on 29.5.2006. In any event, there could be no application by the appellant in December 2006 for any allotment of the shares that stood allotted to her on 29.5.2006. The appellant is not shown to have objected to the aforesaid allotment made on 29.5.2006 to her nor challenged the correctness or the validity of the decision taken in the meeting of the Board of Directors, whereas statutory return of share allotment before the Registrar of Companies was also filed by AIL. The correctness of accounts of the Company has also been accepted by the appellant. Being a substantial shareholder thereof, the appellant has also not proceeded against the Company for mismanagement of the ....
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....f directly crediting share application account. The assessee in her books of accounts has correctly passed the above entry, by directly debiting 'Investment A/c'. Copy of Investment A/c is enclosed." 25. After looking at the entries passed by the assessee in her books of account, I am of the opinion that when in the books of account the assessee has also credited the AIL and debited to the investment account for the allotment of the shares, it cannot be claimed by the assessee at the stage of the ITAT for the first time that the shares were allotted unilaterally by AIL. The assessee is a substantial shareholder in AIL and it is improbable to believe that the company would allot the shares to the assessee without her knowledge. Moreover, the assessee has not objected to the allotment of shares by the company, on the other hand, made the payment in the month of December. During the course of hearing before me, a specific query was raised to the learned counsel for the assessee that on what basis he is contending that the shares were allotted by AIL unilaterally, especially when in the written submissions before the Assessing Officer, the assessee's counsel mentioned th....