Ita/239/2019 Of Baby Mathew v. The Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI TUESDAY, THE 30 DAY OF NOVEMBER 2021 / 9TH AGRAHAYANA, 1943 ITA NO. 239 OF 2019 AGAINST THE ORDER/JUDGMENT DTD 08.02.2019 IN ITA 269/COCH/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: BABY MATHEW SOMATHEERAM, CHOWRA PO, BALARAMAPURAM, THIRUVANANTHAPURAM-695 501 BY ADV SRI.RAMESH CHERIAN JOHN RESPONDENT/S: 1THE ASSISTANT COMMISSIONER OF INCOME TAXRANGE-I, AAYAKAR BHAVAN, KAWDIAR, THIRUVANANANTHAPURAM-695 003 CIRCLE(1), OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX, 2THE COMMISSIONER OF INCOME TAX, O/O. THE COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN, KAWDIAR, THIRUVANANTHAPURAM-695 003 OTHER PRESENT: SC CHRISTOPHER ABRAHAM THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 30.11.2021, THECOURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA NO. 239 OF 2019 JUDGMENT S.V.Bhatti,J. Mr.Baby Mathew, resident of Thiruvananthapuram/ assessee is the appellant, Assistant Commissioner of IncomeTax, Circle-1(1) and another/Revenue are respondents. 2.The assessee being aggrieved by the order dated08.02.2019 in ITA No.269/Coch/218 of the Income Tax Appellate Tribunal, Cochin Bench, (for short, 'the Tribunal')has filed the appeal under Section 260A of the Income Tax Act,1961 (for short, 'the Act'). 3.The controversy in the appeal relates to theassessment year 2008-09 and involves a question whether theadvances received by the assessee could be treated as ‘deemeddividend’ amounting to Rs.2,22,65,558/- under Section 2(22)(e)of the Act. The dispute touched the doors of the Primary ITA NO. 239 OF 2019 Appellate Authority and the Tribunal on two separateoccasions and from the view we would be recording in thejudgment, it can be appreciated that the proverb ‘a stitch intime saves nine’. 4.The assessee filed return for the assessment year2008-09 declaring total income of Rs.33,65,000/-. The returnwas selected for scrutiny under Section 143(3) of the Act andthe scrutiny related to viz. 1) the deemed dividend incomeunder Section 2(22)(e) of the Act; 2) interest income; 3) incomefrom Keralatourism.com said to have been received by theassessee. 5.In the present litigation the court is concerned withwhether the receipt of loan/advances from sister concerns,where the assessee is one of the directors, could be treated as‘deemed dividend’. The details of the loan/advances receivedare as follows: ITA NO. 239 OF 2019 M/s. Somatheeram research Institute and Ayurveda Hospital Pvt. Ltd: Rs.26,98797.5/-M/s. Manaltheeram Beach resorts Pvt.Ltd: Rs.3929000/-M/s.Somatheeram Ayurvedic Beach resorts Pvt.Ltd: Rs.12771653/-M/s.Manaltheeram Ayurvedic Hospital and research centre Pvt Ltd: Rs.2866107 6.The Assessing Officer rejected the explanation offered by the assessee that the above loans/advances received from the sister companies are regular business transactionsfacilitated by the sister concerns in favour of assessee fordevelopment of business. Result of such rejection, theAssessing Officer treated the loan/advances as deemeddividend income and added to computation of assessee’sincome. The assessee unsuccessfully challenged theassessment order before the Commissioner of Income Tax,(Appeals), Thiruvananthapuram, (for short, CIT(A)) and byorder dated 18.02.2013, the appeal filed before the CIT(A) stooddismissed. The assessee filed ITA No.204/Coch/2013 before the -5- 6.The Assessing Officer rejected the explanation offered by the assessee that the above loans/advances received from the sister companies are regular business transactionsfacilitated by the sister concerns in favour of assessee fordevelopment of business. Result of such rejection, theAssessing Officer treated the loan/advances as deemeddividend income and added to computation of assessee’sincome. The assessee unsuccessfully challenged theassessment order before the Commissioner of Income Tax,(Appeals), Thiruvananthapuram, (for short, CIT(A)) and byorder dated 18.02.2013, the appeal filed before the CIT(A) stooddismissed. The assessee filed ITA No.204/Coch/2013 before the -5- Income Tax Appellate Tribunal, Cochin Bench (for short, 'theTribunal'). The Tribunal vide order dated 25.10.2013, allowedthe appeal filed by the assessee and remitted the matter to theAssessing Officer for de novo Assessment. The arguments, nowput forward on the substantial question of law are viz. whetherthe Assessing Officer, CIT(A) and the Tribunal etc. have takenup and concluded the assessment as directed by the Tribunalin its order dated 25.10.2013 in Annexure-B or not. Theoperative portion of the order of the Tribunal is excerptedhereunder: 3.3 Accordingly, the orders of the lowerauthorities are set aside and the issue with regardto deemed dividend is remanded back to the fileof the Assessing Officer. The Assessing Officershall reconsider the issue in the light of thematerial on record and the available accumulatedprofits and thereafter decide the same by aspeaking order in accordance with law aftergiving a reasonable opportunity of being heard tothe assessee. It is also made it clear that theAssessing Officer shall examine the computationof accumulated profit filed by the assessee and ifany error or mistake is found, the AssessingOfficer shall re-compute the accumulated profit on the basis of the material available on record. Itis also made clear that this Tribunal is notexpressing any opinion on merit; and theAssessing Officer shall decide the matter on meritin accordance with law after giving a reasonableopportunity to the assessee. Second Round 7.The Assessing Officer through Annexure-C assessment order dated 31.03.2015 completed the assessment by recording the following conclusions: The assessee in the submission dated 30.03.2015, hasreduced the deemed dividend of the earlier years inorder to arrive at the actual loan/advances given tothe director during the year. The actual expensesincurred has never be taken into account. The assessee has not taken into account, theexpenses incurred during the year in order to arriveat the net figure. Hence the following is consideredto be deemed dividend u/s.2(22) (e) and brought totax. The amounts mentioned is the actual amountgiven by the companies during the year and hencetreated as deemed dividend as accumulated profitsare there in earlier years. 1) Manaltheeram beach Resorts Pvt.Ltd. Rs.33,29,000/- 2) Somatheeram Research institute and Ayurvedic Hospital Pvt.Ltd. Rs. 5,88,337/- -7- 3)Somatheeram Ayurvedi Beach- Resort (P)Ltd. Rs. 97,08,506/Total Rs.1,36,25,843/- Rs.1,36,25,843/- ============== 8.The assessee now principally is aggrieved by themode and manner of assessment by the Assessing Officer,stated simply that the Assessing Officer ignored the directiveof the Tribunal vide order dated 25.10.2013 in Annexure-B.Much effort is not needed to accept the limited grievance ofthe assessee in this behalf, for the CIT(A) explicitly found soagainst the assessment order in Annexure-C dated 31.03.2015. The operative portion of the order of the CIT(A) in Annexure-Ddated 03.04.2018 is excerpted hereunder: 1) Manaltheeram beach Resorts Pvt.Ltd. Rs.33,29,000/- 2) Somatheeram Research institute and Ayurvedic Hospital Pvt.Ltd. Rs. 5,88,337/- -7- 3)Somatheeram Ayurvedi Beach- Resort (P)Ltd. Rs. 97,08,506/Total Rs.1,36,25,843/- Rs.1,36,25,843/- ============== 8.The assessee now principally is aggrieved by themode and manner of assessment by the Assessing Officer,stated simply that the Assessing Officer ignored the directiveof the Tribunal vide order dated 25.10.2013 in Annexure-B.Much effort is not needed to accept the limited grievance ofthe assessee in this behalf, for the CIT(A) explicitly found soagainst the assessment order in Annexure-C dated 31.03.2015. The operative portion of the order of the CIT(A) in Annexure-Ddated 03.04.2018 is excerpted hereunder: 8.I carefully examined the facts of the case andalso considered the rival contentions. At the outset, Iagree with the assessee that the Assessing Officer inthe appeal effect given order has not executedmeticulously the direction stipulated in theTribunal's Order. As ordered by the Hon'ble Tribunal,the Assessing Officer should have first verified anddecided whether the advances made in the earlierassessment years are for the purpose of business ornot so as to consider the same for the current year aswell. Though the assessee claimed that the amountswere given to him in the normal course of business and to promote the activities of the companies, neverat any point of given time documentary evidenceswere brought out so as to prove that the moneywhich was given to him had actually been spent topromote the business activities of the companies inwhich the assessee was the ManagingDirector/Director. In the absence of credibleevidences brought out in this regard, the amountsgiven to the assessee by all the companies wherein hewas either a Managing Director or Director cannot betreated as given for the purpose of business. Hence,invoking the provisions of section 2(22)(e) has rightlybeen justified. Secondly, the Assessing Officer shouldhave examined the computation of accumulatedprofit worked out by the assessee and if any mistakeis found in the computation then should haverecomputed such profit mis the basis of materialsavailable on record. This important task to myundertaking has not been carried out properly butsimply a mathematical calculation was made byreducing the opening balance and credits in theassessee's account with the companies from whereadvances have been taken. However, this shortfallhas rightly been taken care during the course ofhearing before the undersigned and thereby, theright amount of deemed dividend based on thedetailed working submitted by the assessee is goingto be worked out. With regard to the main issue ofcomputation of accumulated profit the assessee haspostulated an argument stating that accumulatedprofit ac not include current years profit and thedeemed dividend assessable in any of the earlieryears need be reduced from accumulated profit asruled in the decision of the Hon'ble ITAT,Visakhapatnam Bench in the case of P.Satya Prasadvs ITO (141 ITD 403) which followed the decision ofthe Hon'ble ITAT, Cochin Bench in the case of ITO vs Gordhandas Khimji reported (11 ITD 158) which inturn again considered the decision of the Hon'bleSupreme Court in the case of Smt. Tarulata Shyam vsCIT (108 ITR 345). The deemed dividend assessable inany of the earlier years as per the above mentioneddecisions has also to be reduced from theaccumulated profits even if it was not assessed to taxin that year. In view of the specific provisions of theAct and also as per the Hon'ble Tribunal's decisionsmentioned above that the accumulated profit alonehas to be treated as deemed dividend, I have no otheroption but to follow the decisions relied on by theassessee. Accumulated profits as per the decisionsrelied on by the assessee do not include current yearsbusiness profits since it accrues only at the end of theyear and the deemed dividend assessable in any ofthe earlier years has to be reduced from accumulatedprofits even if it was not assessed to tax in that year. 9. Thus, the assessee was directed during thecourse of appeal hearing to furnish all the details soas to work out the deemed dividend as directed bythe Hon'ble ITAT, Cochin Bench. The assesseefurnished the requisite details. He also worked outthe deemed dividend starting from a particularassessment year and while doing so, the accumulatedprofit and deemed dividend of earlier years have notbeen taken into account because of the reason thatthe books of account of earlier years are not availablewith him. This is to be accepted and consideredfurther since the opening balance of the first yearwhich consists of reserve & surplus and accumulatedprofit takes care of the net brought forwardaccumulated profit and even the Assessing Officerwho worked out the accumulated profit subsequentto receiving direction from the Hon'ble Tribunal hasconsidered only the opening balance and advance made during the year under consideration”. 9.The Revenue being aggrieved by determination in the manner excerpted above, filed appeal before the Tribunal and the Tribunal considered it from yet another perspectiveand set aside the order of the CIT(A) in Annexure-D dated03.04.2018. The Tribunal concluded its order with the following finding: “However, the CIT(A) while deciding the issue,considered the amount of deemed dividend whichshould have been assessed in any of the earlier yearsand reduced it from accumulated profits, thoughthere was no assessment of deemed dividend in theearlier year. Hence, this is wrong application of thejudgment of the ITAT, Visakhapatnam in the case ofP.Satya Prasad vs. ITO cited supra by the CIT(A) tothe facts of the present case. Hence, we vacate thefindings of the CIT(A) and restore that of theAssessing Officer which is in conformity of thedecision if the ITAT, Visakhapatnam, cited supra.” 9.1Hence the appeal. The substantial questions raised in the appeal are reproduced hereunder: I)Whether on the facts and circumstances of thecase the order of the Tribunal impugned herein is anon speaking one passed without application of mind and without dealing with and without anyadjudication on the contentions raised by theappellant which were supported by decisions ofvarious Benches of the Tribunal including that of theCochin Bench which were rendered relying on thejudgments of the Hon'ble Supreme Court and variousHigh Courts. 9.1Hence the appeal. The substantial questions raised in the appeal are reproduced hereunder: I)Whether on the facts and circumstances of thecase the order of the Tribunal impugned herein is anon speaking one passed without application of mind and without dealing with and without anyadjudication on the contentions raised by theappellant which were supported by decisions ofvarious Benches of the Tribunal including that of theCochin Bench which were rendered relying on thejudgments of the Hon'ble Supreme Court and variousHigh Courts. ii)Whether on the facts and circumstances of thecase the finding of the Tribunal that there is a wrongapplication of the judgment of the ITATVishakapatanm in the case of P. Sathyaprasad Vs. ITOby the CIT (A) to the facts of the case, when theappellant has relied on the said decision before theCIT (A) for the reason that judgments of the Hon'bleSupreme Court, Various High Courts and decisions ofvarious Tribunals including the Cochin Bench wereconsidered and dealt with therein, which have alldecided the issue of computation of accumulatedprofits after allowing permissible deductions for thepurpose of determining deemed dividend undersection 2 (22) (e) of the Income Tax Act, 1961 and alsoIncome Tax Act, 1922. iii)Whether on the facts and circumstances of thecase the finding of the Tribunal that there is wrongapplication of the judgment of the ITATVishakapattanam in the case P. Sathyaprasad Vs. ITOby the CIT (A) to the facts of the present case isperverse, contrary to law and facts and withoutapplication of mind. iv)Whether on the facts and circumstances of thecase the Tribunal was justified in coming to thefinding that the deemed dividend of the earlier yearsreduced from the accumulated profit should havebeen assessed under the Act and is not the said finding of the Tribunal without anyadjudication on the issue and simply a mere findingwhich is perverse and unsustainable. v) Whether on the facts and circumstances of thecase, the Tribunal was justified in vacating thefindings of the CIT (A), Thiruvananthapuram, dt.03.04.2018 with regard to deduction of current yearsprofit from accumulated profits without consideringor adjudicating on the said issue in the order. vi)Whether on the facts and circumstances of thecase, the Tribunal was justified in vacating the orderof the CIT (A), Thiruvananthapuram, dt. 03.04.2018who had correctly computed the deemed dividendand which was in accordance with settled judicialprinciples and precedents. vii)Whether on the facts and circumstances of thecase, the finding of the Tribunal that the order of theassessing authority computing the deemed dividendis in conformity with the decision of the ITATVishakapattanam in the case P. Sathyaprasad Vs. ITOand is not the said finding illegal, unsustainable,perverse and without application of mind when theissue decided by the Tribunal in the said case waswith respect to clause (iii) of section 2 (22) (e) of theAct which is not the issue involved in this case.” 10.Mr.Ramesh Cherian appearing for the assessee,before making his submissions on the merits on the claim ofthe assessee to treat the loan/advances provided by the sister vii)Whether on the facts and circumstances of thecase, the finding of the Tribunal that the order of theassessing authority computing the deemed dividendis in conformity with the decision of the ITATVishakapattanam in the case P. Sathyaprasad Vs. ITOand is not the said finding illegal, unsustainable,perverse and without application of mind when theissue decided by the Tribunal in the said case waswith respect to clause (iii) of section 2 (22) (e) of theAct which is not the issue involved in this case.” 10.Mr.Ramesh Cherian appearing for the assessee,before making his submissions on the merits on the claim ofthe assessee to treat the loan/advances provided by the sister concerns of the assessee as part of business promotion and aroutine accommodation and does not merit the attraction ofdeemed dividend income to add to the computation,vehemently argued that the second round of consideration anddetermination of deemed dividend income issue arising in thecase on hand not only falls short of the directives given by theTribunal in Annexure-B dated 25.10.2013 and per se contrary toSection 2(22)(e) of the Act. The Tribunal relied on aninapplicable judgment and has erased the findings recorded bythe CIT(A) on merits. Therefore, the Revenue if is aggrieved bythe manner of computation of deemed dividend income by theCIT(A) in Annexure-D order, should have directed theAssessing Officer to redo strictly as per the the directives inAnnexure-B. The directives of the Tribunal, from a mere lookat the orders made in second round would disclose that theseare perfunctory orders, for doing justice and determination of ITA NO. 239 OF 2019 -14- income of the assessee, computation of income is must inaccordance with the directives issued in Annexure-B order. 11.Mr.Christopher Abraham, replying to thepreliminary objection taken by Mr.Ramesh Cherian argues thatthe Assessing Officer appreciated what was concluded by theTribunal in its order in Annexure-B and no doubt, in theassessment made subsequent to remand, sufficient details arenot stated either for accepting or refusing the claim of theassessee. He quickly points out that there could be aperceptible mistake in the consideration of deemed dividendby the Assessing officer, an equal mistake is committed by theCIT(A) by entertaining material placed before him andrecording the findings over and above what has been decidedby the Tribunal in the first round of litigation. Whether theview taken by the Visakhapatnam Bench in P.Satya Prasad vs.ITO case is applicable or not is again dependent on how the findings recorded by the CIT(A) in his order dated 03.04.2018 inAnnexure-D are decided. He does not seriously dispute theargument of the assessee to remit the matter to the AssessingOfficer for consideration and disposal strictly in accordancewith the order in Annexure-B and in accordance with law. 12.Therefore, though several questions have beenraised in the appeal, as we are pursuaded with the firstquestion viz. Whether the the orders made subsequent toremand in Annexure-B order, the Authorities have compliedwith the directions in Annexure-B or not. The portionexcerpted above indicate non-consideration of deemeddividend issue in the manner directed by the Tribunal inAnnexure-B order, virtually amounts to not appreciating theprinciple on which the order of remand is made by theTribunal. We are pursuaded by the first objection raised byMr.Ramesh Cherian and accordingly answer the question in favour the assessee and against the Revenue for the limitedpurpose of setting aside the orders of Assessing Officer, CIT(A)and Tribunal in Annexures C, D and G respectively and remitthe case to Assessing Officer for disposal afresh. 13.For statistical purpose, matter remitted to AssessingOfficer for decision afresh in accordance with law and as perthe directive issued by the Tribunal in Annexure-B dated25.10.2013. favour the assessee and against the Revenue for the limitedpurpose of setting aside the orders of Assessing Officer, CIT(A)and Tribunal in Annexures C, D and G respectively and remitthe case to Assessing Officer for disposal afresh. 13.For statistical purpose, matter remitted to AssessingOfficer for decision afresh in accordance with law and as perthe directive issued by the Tribunal in Annexure-B dated25.10.2013. Appeal is allowed as indicated above. No order as tocosts. Sd/-S.V.BHATTIJUDGE Sd/-BASANT BALAJIJUDGE