Shri.s.ramu v. The Assistant Commissioner Of Income Tax Corporate Circle-1(3), Chennai 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 11.3.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN Tax Case (Appeal) Nos.227 and 228 of 2019 Shri.V.RameshPAN: ADJPR2424H... Appellant/Appellantin TCA 227/2019 Shri.S.RamuPAN: AFVPR5642H ... Appellant inTCA 228/2019Vs. The Assistant Commissioner of Income Tax Corporate Circle-1(3),Chennai 600 034... Respondent/Respondent Tax Case Appeals filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, Madras 'C' Bench, Chennai, dated 24.12.2018 made inITA Nos.2836/Chny/2017 and 2837/Chny/2017. For the AssessmentYear 2006-07, against the order of the Commissioner of IncomeTax(Appeals)-1, Chennai-34, dated 27.09.2017 made inITA.NO.05/CIT(A)-1/2017-18 and ITA.No.04/CIT(A)-1/2017-2018 forthe Assessment Year 2006-07, against the order of the AssistantCommissioner of Income Tax, Company Circle 1(3), Chennai dated17.01.2014 made in PAN/GIR.No. and PAN/GIR.NO. for the Assessment Year 2006-07 respectivley. These Appeals have been filed by the Assessees raisingthe following substantial questions of law arising from theorder passed by the Income Tax Appellate Tribunal dated24.12.2018 for the Assessment Year 2006-2007:- https://hcservices.ecourts.gov.in/hcservices/ "i) Whether, on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in law in notconsidering the ground that the AssessingOfficer has no jurisdiction to re-open theassessment under Section 147 of the Income TaxAct, 1961? ii) Whether, on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in law in notconsidering the fact that the Assessing Officerhas no jurisdiction under Section 147 to re-open an assessment to make a protective re-assessment?" 2. The relevant portion of the order passed by the Tribunalis quoted below for ready reference:- "3. The brief facts of the case are that, boththe assessees are holding 50% equity shares inM/s.Microprints Pvt. Ltd. and M/s.TallboyStationeries Pvt. Ltd., and are also Directorsin both these Companies, filed their return ofincome and thereafter the assessment was re-opened under Section 147 of the Act and finallyassessment order under Section 143(3) read withSection 147 of the Act was passed on 17.1.2014wherein the learned Assessing Officer madeaddition of Rs.53,69,803/- in the hands of eachof the assessees invoking the provisions ofSection 2(22)(e) of the Act because M/s.ChennaiMicro Finance Pvt. Ltd., had extended anadvance of Rs.53,69,803/- to M/s.TallboyStationeries Pvt. Ltd., and the accumulatedreserves and surplus of M/s.Chennai MicroFinance Pvt. Ltd., was over and above the loanextended. 4. At the outset the learned Assessee'sRepresentative submitted before us that whenthe total amount of loan extended byM/s.Chennai Micro Finance Ltd., to M/s.TallbboyStationeries Pvt. Ltd., was Rs.53,69,803/- theentire amount cannot be added to the income ofboth the shareholders having 50% stakes inthose companies by invoking the provisions ofSection 2(22)(e) of the Act, which would amountto double taxation. The learned AR pleaded thatsince both the shareholders are having 50% stake in both the companies, the amount ofRs.53,69,803/- may be proportionately added inthe hands of both the assessees viz.,Rs.26,84,902/- in the case of Shri.V.Ramesh andRs.26,84,901/- in the case of Shri.S.Ramu. Thelearned Department's Representative could notcontrovert to the submission of the learned AR. stake in both the companies, the amount ofRs.53,69,803/- may be proportionately added inthe hands of both the assessees viz.,Rs.26,84,902/- in the case of Shri.V.Ramesh andRs.26,84,901/- in the case of Shri.S.Ramu. Thelearned Department's Representative could notcontrovert to the submission of the learned AR. 5. We have heard the rival submissions andcarefully perused the materials on record. Wefind merit in the contention of the learned AR.Adding the amount of Rs.53,69,803/- in thehands of each of the assessees would amount todouble taxation and that is not permissible.Moreover with respect to the transaction ofextending loan by M/s.Chennai Micro FinanceLtd., to M/s.Tallboy Stationeries Pvt. Ltd.,the provisions of Section 2(22)(e) of the Actattracts the amount of deemed dividend only tothe extent of the loan amount which is furtherrestricted to the extent of reserves andsurplus of the Company advancing loan.Therefore, in the relevant cases before us theaggregate additions in the hands of theshareholders who are the assessees cannot bemade more than Rs.53,69,803/-. Hence, it wouldbe an appropriate analogy that the entireamount which is liable to be treated as deemeddividend has to be apportioned between both theshareholders in whose cases the conditionsstipulated for attracting the provisions ofSection 2(22)(e) of the Act are satisfied.Therefore as pleaded by the learned AR, itwould be judicious to make addition in thehands of Shri.V.Ramesh an amount ofRs.26,84,902/- and Shri.S.Ramu-Rs.26,84,901/-.It is ordered accordingly." 3. At the outset, the learned counsel for theAppellants/Assessees Mr.G.Baskar contended that no suchconcession was made before the learned Tribunal forapportioning the additions made by the Assessing Authority onprotective basis in the hands of the Assessees viz., the twoshareholders who are also Directors of M/s.Tallboy StationeriesPrivate Limited viz., Mr.V.Ramesh and Mr.V.Ramu, under section2(22)(e) of the Act, to the extent of 50% of the total amount ofloans and advances made by M/s.Chennai Micro Finance Ltd., toM/s.Tallboy Stationeries Private Limited for the presentAssessment Year 2006-2007 in question. He further contendedthat by a written submission filed before the learned Tribunal on 9.4.2018, much before the present order passed on 24thDecember 2018, it was clearly submitted before the learnedTribunal that an identical issue came up for considerationbefore the Tribunal in the Assessees' own case for theAssessment Year 2011-12 wherein Tribunal had remitted the caseto the Assessing Officer for fresh consideration by verifying asto whether the amount was finally moved to the Assessees or not.He further submitted that despite the said position, thelearned Tribunal, recording the concession or pleading by thelearned AR made on behalf of the Assessees converted theprotective assessment made by the Assessing Authority into asubstantive one and gave partial relief deciding the saidaddition under section 2(22)(e) of the Act to the extent of 50%in the hands of both the shareholders of both the Companies. 4. The learned Senior Standing Counsel appearing for theRevenue, however, tried to justify the said order and submitthat even though no Affidavit of the counsel was taken by theTribunal, a notice may be issued to the Registrar of theTribunal as it is not known whether in fact such concession wasmade before the Tribunal or not. 5. On merits, the learned counsel for the Assessees submitted that the loans and advances were made by one Companyto another and not to the shareholders and since the money wasnot received even as loans and advances by the two shareholdersin question, the same could not be taxed as deemed dividends inthe hands of the present Assessees. 6. We have heard the learned counsels at some length. 4. The learned Senior Standing Counsel appearing for theRevenue, however, tried to justify the said order and submitthat even though no Affidavit of the counsel was taken by theTribunal, a notice may be issued to the Registrar of theTribunal as it is not known whether in fact such concession wasmade before the Tribunal or not. 5. On merits, the learned counsel for the Assessees submitted that the loans and advances were made by one Companyto another and not to the shareholders and since the money wasnot received even as loans and advances by the two shareholdersin question, the same could not be taxed as deemed dividends inthe hands of the present Assessees. 6. We have heard the learned counsels at some length. 7. We are constrained to observe that the learned Tribunalought not to have recorded any such concession on the part ofthe learned AR on behalf of the Assessees in this mannercontrary to the written submissions filed on 5.4.2018 before it,giving rise to a possibility of contending otherwise before theHigh Court. We had recently noticed this kind of improperrecording of concession on the part of the learned Tribunal evenin yet another case as well in T.C.A.No.1019 of 2009 (M/s.SriKavitha Jewellers v. The Deputy Commissioner of Income Tax)dated 7.3.2019. In that matter, the learned Members of theTribunal had gone to the extent of directing the AuthorisedRepresentative on behalf of the Assessees to make a concessionfor some addition to be upheld in the undisclosed income. TheTribunal, under the Act, is a final fact finding Body and not aCourt of Record. It is vested with a responsible job of https://hcservices.ecourts.gov.in/hcservices/ returning the correct and proper finding of facts based onrelevant evidence and material. 8. We expressed our pain and anxiety against suchobservation of the learned Tribunal. In the present case alsodespite the fact that it was brought to the knowledge of theAssessing Authority by way of written submission on 9.4.2018that an identical issue came up for consideration before theTribunal in the Assessees' own case for the Assessment Year2011-12 wherein Tribunal had remitted the case to the AssessingOfficer for fresh consideration for verifying as to whether theamount has finally moved or reached to the individual Assesseesor not, the Tribunal has proceeded to record such a concessionas having been made on behalf of the Assessees. 9. We do not find any justification on the part of thelearned Members of the Tribunal to record any such concession onbehalf of the Assessees and make additions invoking theprovision under Section 2(22)(e) of the Act in the hands of theindividual Assessees viz., the shareholders of the twoCompanies. Unless the findings of facts are returned by theAssessing Authority on the basis of materials that the moneywas received by the person concerned, there was no question oftaxing the same as 'deemed dividends' in the hands of theindividual Assessees, who are Directors/Shareholders withsubstantial interest. We, therefore, cannot sustain this typeof orders passed by the learned Members of the Tribunal and weare sorry to note this kind of concessions recordedunauthorisedly by the learned Members of the Tribunal. 10. Expressing again our anguish and pain on the same, wedirect that in future, if any such concession is made by anyAuthorised Representative on behalf of the Assessees, theTribunal should take either an Affidavit from Assessee and thecounsel on behalf of the Assessee or atleast a writtenendorsement made on the record of the case duly signed by them,so that no such occasion of taking a stand otherwise or contrato the alleged concession made by them, would arise before thehigher Courts. 10. Expressing again our anguish and pain on the same, wedirect that in future, if any such concession is made by anyAuthorised Representative on behalf of the Assessees, theTribunal should take either an Affidavit from Assessee and thecounsel on behalf of the Assessee or atleast a writtenendorsement made on the record of the case duly signed by them,so that no such occasion of taking a stand otherwise or contrato the alleged concession made by them, would arise before thehigher Courts. 11. We allow these Appeals of the Assessees and remit thematters to the Assessing Authority for the Assessment Year 2006-2007 for deciding the same as done in the Assessment Year 2011-2012 by order dated 23.11.2016 of the Tribunal and where thematter is said to be still pending. A copy of this order besent to the President of the Income Tax Appellate Tribunals for https://hcservices.ecourts.gov.in/hcservices/ circulation to all the Benches of Tribunal for wider circulationto all the concerned and also a copy to the Law Secretary,Ministry of Law and Justice, Delhi for bringing it to the noticeof the newly appointed Members. No costs. Sd/- Assistant Registrar(CCC) //True Copy// ssk.To Sub Assistant Registrar 1. The Assistant Commissioner of Income Tax Corporate Circle-1(3), Chennai 600 034.2. Income Tax Appellate Tribunal, Madras 'C' Bench, Chennai3. The Commissioner of Income Tax (Appeals)-I, Chennai-344. The President of the Income Tax Appellate Tribunals, Chennai.5. The Law Secretary, Ministry of Law and Justice, Delhi.+1cc to Mr.G.Baskar, Advocate, S.R.No.22364+2cc to Mr.T.Ravikumar, Advocate, S.R.No.22731 TCA Nos.227 & 228 of 2019 VBA(CO)CS/23/04/2019 https://hcservices.ecourts.gov.in/hcservices/