Ita/77/2010 Of The Commissioner Of Income Tax v. Shri Basant Poddar

IN THE HIGH COURT OF KARNATAKA AT BENGALURU| ON THE 10 DAY OF DECEMBER, 2018. BEFORE THE HON BLE MR. JUSTICE RAVI MALIMATH| AND| THE HON'BLE MR. JUSTICE K. NATARAJAN) INCOME TAX APPEAL NO.//7 OF ZOL BEI|WEE 1THE COMMISSIONER OF INCOME-TA®™ CENTRAL CIRCLE, C.R. BUILDING, | QUEENS ROAD,BENGALURU.BENGALURU. 2 |THE DEPUTY COMMISSIONER OF INCOME-TAX.CENTRAL CIRCLE-1(1),CENTRAL CIRCLE-1(1), C.R. BUILDING, |QUEENS ROAD,QUEENS ROAD, BENGALURU. ... APPELLANTS | (BY SRI K.V. ARAVIND, ADVOCATE) ? ANI SHRI BASANT PODDAR|NO.48/7, 1 CROSS,|RMV EXTENSION, SADASHIVNAGAR,BENGALURU. .., RESPONDENT | (BY SRI A. SHANKAR, SENIOR COUNSEL,ALONG WITH SRI M. LAVA, ADVOCATE) x KK THIS INCOME TAX APPEAL IS FILED UNDER|SECTION 260A OF THE INCOME TAX ACT, 1961,|PRAYING|TO.FORMULATETHE.SUBSTANTIALQUESTIONS OF LAW STATED THEREIN AND ALLOW|THE APPEAL AND SET ASIDE THE ORDERS PASSED BY.THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU,|IN I.T.A. NO.528/BANG/2009 DATED 11-9-2009 AND.CONFIRMTHEORDER|OF|THE.APPELLATE|COMMISSIONER CONFIRMING THE ORDER PASSED BY.THE.DEPUTYCOMMISSIONER.OF|INCOME|TAX,CENTRAL CIRCLE-1(1), BENGALURU. THIS INCOME TAX APPEAL COMING ON FORHEARING THIS DAY, RAVI MALIMATH, J., DELIVERED|THE FOLLOWING: JUDGMENT The assessee filed his return of Income for the|Assessment Year 2005-06 declaring a total income of Rs.23,50,963/-. He is the Managing Director ofM/s. Mineral Enterprises Limited (hereinafter referredto as MEL’). He was holding 74.84% of shares along|with various snares of nis wife and otner members otfthe family. Tne Company was being managed and|administered by the assessee as a Managing Director.A search under Section 132 of the Income Tax Act,1961, (for short, ‘the Act’) was initiated and during the|course of search proceedings, several books. ofaccounts and incriminating documents were found and|seized. Consequent to the search, a notice under|Section 153A of the Act was issued to the assessee. In|response, he filed the return of income declaring the|Same income as originally returned at Rs.23,50,963/.Subsequently, a notice under Section 143(2) of the Act|was issued to him. A notice under Section 142(1) of | the Act along with questionnaires were issued on|various dates to the assessee and he filed replies. ?. One of the documents seized indicated thepayment with regard to a sum of Rs.25 crores to the|wife of the assessee. Furtnermore, it was found that)Sri K.P. Poddar, namely the father of the assessee, nadpaid various amount to the assessee on different dates|in all amounting to Rs.17.90 crores. The assessee|furnished a copy of the agreement said to nave been|enteredInto|betweenMELancnisSri K.P. Poddar on 16-8-27004. In terms of the!agreement, the mining lease rights were transferred|from Sri K.P. Poddar to MEL and a sum of Rs.1/7.50crores was given to Sri K.P. Poddar as a refundable|deposit. A sum of Rs.25 lakh was also given by MELto |Sri K.P. Poddar. The Assessing Officer came to the|view that the agreement is artificially created for the|purpose of withdrawing money by the assessee from|the accumulated profits of MEL. That MEL was'| fatner, | fatner, | operating the mines even before and after the date of|signing of the agreement. That the funds paid by MEL|to Sri K.P. Poddar were immediately withdrawn by himand tnereafter, it was transferred to Sri Basant Poddar,|who is the ultimate beneficiary of the said transactions.That the mining lease license still continues in the|name of M/s. Deepcnand Kisnanlal and there is nochange. Therefore, he came to the conclusion that in |order to avoid tax, the assessee has created ansartificial transaction between MEL and Sri K.P. Poddar|and transferred the funds to his personal account.Therefore, Rs.17.90 crores paid to Sri K.P. Poddar was|treated as a dividend within the meaning of Section|2(22)(e) of the Act. Aggrieved by the same, anappeal was filed before the Commissioner of Income|Tax (Appeals). Tne Commissioner of Income Tax'|(Appeals) in paragraph No.15 of its order came to the|conclusion that the payment made to Sri K.P. Poddar|by MEL was only an expenditure incurred for business| expansion and profits of the Company. However, it|confirmedtneOrder|oftneASS@SSINQOfficer. |Aggrieved by tne same, tne matter was taken up’before tne Tribunal. Tne Tribunal allowed the appeal.It came to the conclusion that the provisions of Section2(22)(e) of the Act as applied in the case of the’assessee are inapplicable to the facts in the case of|assessee, Tnat the amount of Rs.1/7.90 crores received|by the assessee from Sri K.P. Poddar is the amount|received by the assessee from his father and cannot beneld as the amount received py the assessee Company|so as to invoke the provisions of Section 2(22)(e) of|tne Act. Therefore, the Assessing Officer was directedto delete the additions at Rs.17.90 crores. Questioningthe same, this appeal is filed by the Revenue. 3. By the order dated 19-10-2011, the appeal.was admitted to consider the following substantial|question of law: Whether gq sum of Rs.17.50 croresreceived from M/s. MEL by Sri K.P.|Poddar and transferred to the assessee|who was the sheareno/der constitutesdividendincomeofthe|dssesseelU/s.2(22)(e) of the Income Tax Act? 4. Sri K.V. Aravind, the learned counsel for the.Revenue, contends that MEL was extracting mines.mucn prior to the date of tne agreement. The'agreement is dated 16-8-2004 between MEL and |Sri K.P. Poddar. Tne material on record would indicate|that extracts took place from 2002-03 onwards.Therefore, the agreement was set up as a means to'evade tax. The findings of the Tribunal, that Section|2(22)(e) of the Act is not applicable, is erroneous. 5. Sri A. Shankar, the learned senior counsel|appearing for the counsel representing the respondent,disputes the same. He contends that MEL has since)returned a gross income of Rs.40 crores for the years| 2005-06, 2006-07 and 2007-08 in a sum of almost.Rs.80 crores. Therefore, the question of holding thatthe provision of Section 2(22)(e) of the Act is|applicable would be inappropriate. Tne material wouldindicate that in terms of the agreement dated16-8-2004,tnepaymentnasbeen|madeSri K.P. Poddar, who was the agreement holder.Tnerefore, the same cannot be doubted. — to 6. Heard learned counsels. 7. Tne material on record would indicate that afamily settlement was arrived between Sri K.P. Poddar|and his family members. The land in question fell to |the share of Sri K.P. Poddar. Thereafter, an agreement|was entered into between Sri K.P. Poddar and MEL.In terms of the said agreement, tne lease hold rights|were transferred to MEL in order to operate the mininglease. For this, a refundable deposit amounting toRs.1/7.50Croresnaspeen|given.DY MEL| to to 6. Heard learned counsels. 7. Tne material on record would indicate that afamily settlement was arrived between Sri K.P. Poddar|and his family members. The land in question fell to |the share of Sri K.P. Poddar. Thereafter, an agreement|was entered into between Sri K.P. Poddar and MEL.In terms of the said agreement, tne lease hold rights|were transferred to MEL in order to operate the mininglease. For this, a refundable deposit amounting toRs.1/7.50Croresnaspeen|given.DY MEL| to Sri K.P. Poddar. An additional sum of Rs.25 lakh was§/§given to Sri K.P. Poddar. The said amount has been|taxed in the hands of Sri K.P. Poddar. Therefore, the|mining activities conducted by MEL even prior to the|date|Of tneagreement|would.really|naveno|Significance at all. The accounts of MEL would indicatetne|nature|OT transactions.betweenIT Sri K.P. Poddar. The Appellate Autnority does notdispute the said agreement. In fact, it came to the|conclusion that the payment made to Sri K.P. Poddar|by MEL was only an expenditure incurred for business|expansion and profits of the Company. The Tribunal,|on tne other hand, considering the said agreement|entered into between Sri K.P. Poddar and MEL, also}recorded a finding that the genuineness of agreement|is not disputed by the Assessing Officer, as could be|evident from the assessment order of MEL andSri K.P. Poddar. Tnat the Company has_ sincegenerated substantial revenue from exploitation of the| and mines. The ledger account of the assessee with |Sri K.P. Poddar clearly demonstrates that some amount)is also repaid to Sri K.P. Poddar and the said amount|nas not gone back to MEL. Tne same would indicate|that the initial amount received from Sri K.P. Poddar|was not the amount received from MEL for the benefit|of the assessee, or on benalf of tne assessee. |Sri K.P. Poddar, namely, tne father of the assessee,|who is aged 80 years, nad given the money received ina commercial transaction to his son. Therefore,|transfer of money from father to son is_ nothingunusual. Moreover, the Assessing Officer has not.examined Sri K.P. Poddar. He accepted the transactionof refundable non-interest bearing security deposit for|mines aS a commercial transaction. Therefore, we of)the view that appreciation of the material on record by the Tribunal is just and appropriate. Even otherwise,|we are also of the view that the issue involved revolves|around appreciation of facts. 8. Under these circumstances, we do not findthat the order of the Tribunal suffers from anyinfirmity. Therefore, we are of the view that there is |no ground for any interference. Consequently, we holdthat a sum of Rs.17.50 crores received from MEL by |Sri K.P. Poddar and transferred to the assessee, who|was the shareholder, cannot be treated as dividend|income of the assessee under Section 2(22)(e) of the|Act. Tne substantial question of law is, accordingly,|answered in favour of the assessee and against the|Revenue. The appeal is disposed off. SD/- JUDGE | SD/-|JUDGE kKVK