The Commissioner Of Income Tax (Central), Ludhiana v. Radhe Sham Jain

Income Tax Appeal No.225 of 2013 1 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. Income Tax Appeal No.225 of 2013Date of Decision: 29.10.2013 The Commissioner of Income Tax (Central), Ludhiana ..Appellant. Versus Radhe Sham Jain Respondent CORAM:HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present:Mr. Rajesh Katoch, Advocate, for the appellant. RAJIVE BHALLA, J. The revenue lays challenge order dated 28.9.2012 passed bythe Income Tax Appellate Tribunal, Chandigarh Bench `A', Chandigarh byalleging that the following questions of law arise for adjudication:- “ Whether the Hon'ble ITAT was right in upholding the fact thatthe assessee had given a loan of Rs.1.50 crores to thecompany on 15.03.2008 whereas no such evidence was filednor there was any entry of this amount in the bank account ofthe assessee.” “ Whether the Hon'ble ITAT was right in giving a finding that theshare premium amount lying as reserve and surplus of thecompany is not an income of the company and thus are notaccumulated profit of the company.” Income Tax Appeal No.225 of 2013 2 to the company on 15.3.2008, whereas no such evidence was filed beforethe Assessing Officer or before the Commissioner of Income Tax(Appeals). The Tribunal has also erred in recording a finding that the sharepremium amount cannot be considered as income of the assessee-company because it does not represent accumulated profits of thecompany. We have heard counsel for the revenue, perused theassessment order, orders passed by the Commissioner of Income Tax(Appeals) as well as the Income Tax Appellate Tribunal and find that noquestion of law, much less a substantial question of law, arises forconsideration. The assessee was running a proprietorship concern in thename and style of M/s. Radhe Sham Jain Diamond Jewellers. Theproprietorship concern was converted into private limited company in thename and style of M/s. Radhe Sham Jain Diamond Jewellers PrivateLimited on 9.2.2008. The assessee was allotted 50% shares in theaforesaid company. During assessment proceedings, the Assessing Officernoticed that the assessee had withdrawn Rs.1,81,10,000/- from thecompany. Upon inquiry, the assessee explained that Rs.1.50 croreswithdrawn from the capital account of the proprietorship concern, wasoriginally withdrawn, from the proprietorship concern, but the chequeremained uncleared. The cheque was returned by the assessee to thecompany, which, had, in the meanwhile, come into existence and creditedon 15.3.2008. The Assessing Officer, however, rejected the explanationand treated Rs.1,81,10,000/- as deemed dividend under section 2(22)(e) ofthe Income Tax Act, 1961 (hereinafter referred to as the “Act”). Aggrievedby this order, the assessee filed an appeal. The Commissioner of Incometax (Appeals), accepted the appeal by holding that Rs.1.50 crores was the Income Tax Appeal No.225 of 2013 3 assessee's capital, originally in the hands of the proprietorship concern,which issued a cheque to the assessee, who deposited the cheque with thecompany, which, in turn, returned the amount to the assessee. TheCommissioner of Income Tax, Ludhiana, held that since accumulatedprofits were only Rs.34,858/-, it has to be treated as deemed dividend. Therevenue and the assessee filed separate appeals. The Income TaxAppellate Tribunal considered the entire controversy and held as follows:- Income Tax Appeal No.225 of 2013 3 assessee's capital, originally in the hands of the proprietorship concern,which issued a cheque to the assessee, who deposited the cheque with thecompany, which, in turn, returned the amount to the assessee. TheCommissioner of Income Tax, Ludhiana, held that since accumulatedprofits were only Rs.34,858/-, it has to be treated as deemed dividend. Therevenue and the assessee filed separate appeals. The Income TaxAppellate Tribunal considered the entire controversy and held as follows:- “...... However, the question is whether the said company hasgiven any advance or loan to the assessee or not? Thecompany was incorporated by way of conversion ofproprietorship business of Jain Diamond Jewellers on09.02.2008. Perusal of the balance sheet of the proprietorshipconcern on 09.02.2008 (see paper book page -1). Clearlyshows that there was a capital balance of Rs.12,34,430/-.There was also a liability on account of cheque issued- OBC tothe extent of Rs.1.50 crores. Perusal of the copy of the capitalaccount of the assessee in the proprietary concern at page 11to 13 clearly shows that there was opening capital balance ofRs.1,64,34,402/-. There are various transactions done in thecapital account till 08.02.2008 and there was a credit balanceof Rs.1,59,39,810/- on that date. Against which payment ofRs.1.50 crores was made by the proprietorship concern to theassessee, i.e., Shri Radhe Sham Jain on 08.02.2008. Thischeque was not encashed and shown as liability in the balancesheet. Because of the conversion of the proprietary concerninto a Private Limited Company the cheque could not beencashed later on and the same was returned to the PrivateLimited company which has been credited by the company to Income Tax Appeal No.225 of 2013 4 the assessee's account on 15.03.2008. Thus it is clear that thisamount belonged to the assessee on account of capital in theproprietorship concern and because the cheque could not beencashed, therefore, the money belonged to the assesseewhich has credited by the company. The so called cheque onaccount of loan or advance which have been issued by thecompany have been issued only after 15.03.2008. The AO hasmainly stressed on the fact that this seems to be adjustmententry. We are of the opinion that the AO has failed toappreciate that because of the conversation of theproprietorship concern, the cheque could only be encashed bythe assessee. The cheque has been shown as liability in thebalance sheet of proprietorship concern and was later onreturned by the assessee to the Private Limited Company.Since all the assets have been taken over by the PrivateLimited Company, the said company owed assessee thisamount of Rs.1.50 crores which was credited to his account on15.03.2008. Because of non encashment of the cheque thesame is not reflected in the bank statement. This fact has beencorrectly appreciated by the ld. CIT(A).” A perusal of the order passed by the Income Tax AppellateTribunal reveals that after considering that a cheque was issued in favourof the assessee, from the account of the proprietorship concern, theassessee deposited the cheque in the account of the newly formedcompany, which returned this amount to the assessee, held that theamount belonged to the assessee on account of his capital in theproprietorship concern. The Income Tax Appellate Tribunal also held thatthe Commissioner of Income Tax (Appeals) rightly restricted addition of Income Tax Appeal No.225 of 2013 5 Rs.34,858/-, i.e., to the extent of accumulated profits. A perusal of the order passed by the Income Tax AppellateTribunal reveals that after considering that a cheque was issued in favourof the assessee, from the account of the proprietorship concern, theassessee deposited the cheque in the account of the newly formedcompany, which returned this amount to the assessee, held that theamount belonged to the assessee on account of his capital in theproprietorship concern. The Income Tax Appellate Tribunal also held thatthe Commissioner of Income Tax (Appeals) rightly restricted addition of Income Tax Appeal No.225 of 2013 5 Rs.34,858/-, i.e., to the extent of accumulated profits. We have considered the arguments advanced by counsel forthe revenue and are not inclined to take a view different from the opinionrecorded by the Tribunal. The arguments raise disputed questions of fact,which have been answered in favour of the assessee. In the absence ofany error, while considering the facts or in applying any provision of the Act,we find no reason to hold that findings of facts recorded by the Income TaxAppellate Tribunal and the Commissioner of Income Tax (Appeals) give riseto a question of law, much less, the questions of law framed by therevenue. In view of what has been recorded hereinabove, the appeal isdismissed. ( RAJIVE BHALLA )JUDGE 29.10.2013VK ( DR. BHARAT BHUSHAN PARSOON ) JUDGE