V. Ramesh vs. ACIT (Madras High Court)

IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 11.3.2019
CORAM
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MR.JUSTICE C.V.KARTHIKEYAN
Tax Case (Appeal) Nos.227 and 228 of 2019
Shri.V.Ramesh
PAN: ADJPR2424H Appellant in TCA 227/2019
Shri.S.Ramu
PAN: AFVPR5642H Appellant in TCA 228/2019
Vs.
The Assistant Commissioner of Income Tax
Corporate Circle-1(3),
Chennai 600 034. Respondent
Tax Case Appeals filed under Section 260A of the Income Tax Act,
1961 against the order of the Income Tax Appellate Tribunal, Madras ‘C’
Bench, Chennai, dated 24.12.2018 made in ITA Nos.2836/Chny/2017 and
2837/Chny/2017.
For Appellants : Mr.G.Baskar
For Respondent : Mr.T.Ravikumar,
Senior Standing Counsel
COMMON JUDGMENT
(Delivered by DR.VINEET KOTHARI, J)
These Appeals have been filed by the Assessees raising the following
substantial questions of law arising from the order passed by the Income Tax
Appellate Tribunal dated 24.12.2018 for the Assessment Year 2006-2007:-
“i) Whether, on the facts and in the circumstances of
the case, the Income Tax Appellate Tribunal was right
in law in not considering the ground that the
Assessing Officer has no jurisdiction to re-open the
assessment under Section 147 of the Income Tax Act,
1961?
ii) Whether, on the facts and in the circumstances of
the case, the Income Tax Appellate Tribunal was right
in law in not considering the fact that the Assessing
Officer has no jurisdiction under Section 147 to reopen
an assessment to make a protective reassessment?”
2. The relevant portion of the order passed by the Tribunal is quoted
below for ready reference:-
“3. The brief facts of the case are that, both the
assessees are holding 50% equity shares in
M/s.Microprints Pvt. Ltd. and M/s.Tallboy
Stationeries Pvt. Ltd., and are also Directors in both
these Companies, filed their return of income and
thereafter the assessment was re-opened under
Section 147 of the Act and finally assessment order
under Section 143(3) read with Section 147 of the Act
was passed on 17.1.2014 wherein the learned
Assessing Officer made addition of Rs.53,69,803/-
in the hands of each of the assessees invoking the
provisions of Section 2(22)(e) of the Act because
M/s.Chennai Micro Finance Pvt. Ltd., had extended an
advance of Rs.53,69,803/- to M/s.Tallboy Stationeries
Pvt. Ltd., and the accumulated reserves and surplus of
M/s.Chennai Micro Finance Pvt. Ltd., was over and
above the loan extended.
4. At the outset the learned Assessee’s
Representative submitted before us that when the
total amount of loan extended by M/s.Chennai Micro
Finance Ltd., to M/s.Tallbboy Stationeries Pvt. Ltd.,
was Rs.53,69,803/- the entire amount cannot be
added to the income of both the shareholders having
50% stakes in those companies by invoking the
provisions of Section 2(22)(e) of the Act, which would
amount to double taxation. The learned AR pleaded
that since both the shareholders are having 50% stake
in both the companies, the amount of Rs.53,69,803/-
may be proportionately added in the hands of
both the assessees viz., Rs.26,84,902/- in the case
of Shri.V.Ramesh and Rs.26,84,901/- in the case of
Shri.S.Ramu. The learned Department’s
Representative could not controvert to the submission
of the learned AR.

5. We have heard the rival submissions and
carefully perused the materials on record. We find
merit in the contention of the learned AR. Adding the
amount of Rs.53,69,803/- in the hands of each of the
assessees would amount to double taxation and that is
not permissible. Moreover with respect to the
transaction of extending loan by M/s.Chennai Micro
Finance Ltd., to M/s.Tallboy Stationeries Pvt. Ltd., the
provisions of Section 2(22)(e) of the Act attracts the
amount of deemed dividend only to the extent of the
loan amount which is further restricted to the extent of
reserves and surplus of the Company advancing loan.
Therefore, in the relevant cases before us the
aggregate additions in the hands of the shareholders
who are the assessees cannot be made more than
Rs.53,69,803/-. Hence, it would be an appropriate
analogy that the entire amount which is liable to be
treated as deemed dividend has to be apportioned
between both the shareholders in whose cases the
conditions stipulated for attracting the provisions of
Section 2(22)(e) of the Act are satisfied. Therefore as
pleaded by the learned AR, it would be judicious to
make addition in the hands of Shri.V.Ramesh an
amount of Rs.26,84,902/- and Shri.S.Ramu-
Rs.26,84,901/-. It is ordered accordingly.”
3. At the outset, the learned counsel for the Appellants/Assessees
Mr.G.Baskar contended that no such concession was made before the
learned Tribunal for apportioning the additions made by the Assessing
Authority on protective basis in the hands of the Assessees viz., the two
shareholders who are also Directors of M/s.Tallboy Stationeries Private
Limited viz., Mr.V.Ramesh and Mr.V.Ramu, under section 2(22)(e) of the
Act, to the extent of 50% of the total amount of loans and advances made
by M/s.Chennai Micro Finance Ltd., to M/s.Tallboy Stationeries Private
Limited for the present Assessment Year 2006-2007 in question. He further
contended that by a written submission filed before the learned Tribunal on
9.4.2018, much before the present order passed on 24th December 2018, it
was clearly submitted before the learned Tribunal that an identical issue
came up for consideration before the Tribunal in the Assessees’ own case for
the Assessment Year 2011-12 wherein Tribunal had remitted the case to the
Assessing Officer for fresh consideration by verifying as to whether the
amount was finally moved to the Assessees or not. He further submitted
that despite the said position, the learned Tribunal, recording the concession
or pleading by the learned AR made on behalf of the Assessees converted the
protective assessment made by the Assessing Authority into a substantive
one and gave partial relief deciding the said addition 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 the Revenue,
however, tried to justify the said order and submit that even though no
Affidavit of the counsel was taken by the Tribunal, a notice may be issued to
the Registrar of the Tribunal as it is not known whether in fact such
concession was made before the Tribunal or not.
5. On merits, the learned counsel for the Assessees submitted that the
loans and advances were made by one Company to another and not to the
shareholders and since the money was not received even as loans and
advances by the two shareholders in question, the same could not be taxed
as deemed dividends in the hands of the present Assessees.
6. We have heard the learned counsels at some length.
7. We are constrained to observe that the learned Tribunal ought not
to have recorded any such concession on the part of the learned AR on
behalf of the Assessees in this manner contrary to the written submissions
filed on 5.4.2018 before it, giving rise to a possibility of contending
otherwise before the High Court. We had recently noticed this kind of
improper recording of concession on the part of the learned Tribunal even in
yet another case as well in T.C.A.No.1019 of 2009 (M/s.Sri Kavitha
Jewellers v. The Deputy Commissioner of Income Tax) dated
7.3.2019. In that matter, the learned Members of the Tribunal had gone to
the extent of directing the Authorised Representative on behalf of the
Assessees to make a concession for some addition to be upheld in the
undisclosed income. The Tribunal, under the Act, is a final fact finding Body
and not a Court of Record. It is vested with a responsible job of returning
the correct and proper finding of facts based on relevant evidence and
material.
8. We expressed our pain and anxiety against such observation of the
learned Tribunal. In the present case also despite the fact that it was
brought to the knowledge of the Assessing Authority by way of written
submission on 9.4.2018 that an identical issue came up for consideration
before the Tribunal in the Assessees’ own case for the Assessment Year
2011-12 wherein Tribunal had remitted the case to the Assessing Officer for
fresh consideration for verifying as to whether the amount has finally moved
or reached to the individual Assessees or not, the Tribunal has proceeded to
record such a concession as having been made on behalf of the Assessees.
9. We do not find any justification on the part of the learned Members
of the Tribunal to record any such concession on behalf of the Assessees and
make additions invoking the provision under Section 2(22)(e) of the Act in
the hands of the individual Assessees viz., the shareholders of the two
Companies. Unless the findings of facts are returned by the Assessing
Authority on the basis of materials that the money was received by the
person concerned, there was no question of taxing the same as ‘deemed
dividends’ in the hands of the individual Assessees, who are
Directors/Shareholders with substantial interest. We, therefore, cannot
sustain this type of orders passed by the learned Members of the Tribunal
and we are sorry to note this kind of concessions recorded unauthorisedly by
the learned Members of the Tribunal.
10. Expressing again our anguish and pain on the same, we direct that
in future, if any such concession is made by any Authorised Representative
on behalf of the Assessees, the Tribunal should take either an Affidavit from
Assessee and the counsel on behalf of the Assessee or atleast a written
endorsement made on the record of the case duly signed by them, so that
no such occasion of taking a stand otherwise or contra to the alleged
concession made by them, would arise before the higher Courts.
11. We allow these Appeals of the Assessees and remit the matters 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 the matter is said to be still pending. A copy of
this order be sent to the President of the Income Tax Appellate
Tribunals for circulation to all the Benches of Tribunal for wider circulation to
all the concerned and also a copy to the Law Secretary, Ministry of Law
and Justice, Delhi for bringing it to the notice of the newly appointed
Members. No costs.
(V.K.,J.) (C.V.K.,J.)
11.3.2019
Index : Yes
Internet : Yes
ssk.
http://www.judis.nic.in
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To
1. The Assistant Commissioner of Income Tax
Corporate Circle-1(3),
Chennai 600 034.
2. Income Tax Appellate Tribunal,
Madras ‘C’ Bench, Chennai
http://www.judis.nic.in
10
DR.VINEET KOTHARI, J.
and
C.V.KARTHIKEYAN, J.
ssk.
TCA Nos.227 & 228 of 2019
11.3.2019.
http://www.judis.nic.in