IN THE HIGH COURT OF JUDICATURE AT MADRAS
\nDATED: 11.3.2019
\nCORAM
\nTHE HON’BLE DR.JUSTICE VINEET KOTHARI
\nAND
\nTHE HON’BLE MR.JUSTICE C.V.KARTHIKEYAN
\nTax Case (Appeal) Nos.227 and 228 of 2019
\nShri.V.Ramesh
\nPAN: ADJPR2424H Appellant in TCA 227\/2019
\nShri.S.Ramu
\nPAN: AFVPR5642H Appellant in TCA 228\/2019
\nVs.
\nThe Assistant Commissioner of Income Tax
\nCorporate Circle-1(3),
\nChennai 600 034. Respondent
\nTax Case Appeals filed under Section 260A of the Income Tax Act,
\n1961 against the order of the Income Tax Appellate Tribunal, Madras ‘C’
\nBench, Chennai, dated 24.12.2018 made in ITA Nos.2836\/Chny\/2017 and
\n2837\/Chny\/2017.
\nFor Appellants : Mr.G.Baskar
\nFor Respondent : Mr.T.Ravikumar,
\nSenior Standing Counsel
\nCOMMON JUDGMENT
\n(Delivered by DR.VINEET KOTHARI, J)
\nThese Appeals have been filed by the Assessees raising the following
\nsubstantial questions of law arising from the order passed by the Income Tax
\nAppellate Tribunal dated 24.12.2018 for the Assessment Year 2006-2007:-
\n“i) Whether, on the facts and in the circumstances of
\nthe case, the Income Tax Appellate Tribunal was right
\nin law in not considering the ground that the
\nAssessing Officer has no jurisdiction to re-open the
\nassessment under Section 147 of the Income Tax Act,
\n1961?
\nii) Whether, on the facts and in the circumstances of
\nthe case, the Income Tax Appellate Tribunal was right
\nin law in not considering the fact that the Assessing
\nOfficer has no jurisdiction under Section 147 to reopen
\nan assessment to make a protective reassessment?”
\n2. The relevant portion of the order passed by the Tribunal is quoted
\nbelow for ready reference:-
\n“3. The brief facts of the case are that, both the
\nassessees are holding 50% equity shares in
\nM\/s.Microprints Pvt. Ltd. and M\/s.Tallboy
\nStationeries Pvt. Ltd., and are also Directors in both
\nthese Companies, filed their return of income and
\nthereafter the assessment was re-opened under
\nSection 147 of the Act and finally assessment order
\nunder Section 143(3) read with Section 147 of the Act
\nwas passed on 17.1.2014 wherein the learned
\nAssessing Officer made addition of Rs.53,69,803\/-
\nin the hands of each of the assessees invoking the
\nprovisions of Section 2(22)(e) of the Act because
\nM\/s.Chennai Micro Finance Pvt. Ltd., had extended an
\nadvance of Rs.53,69,803\/- to M\/s.Tallboy Stationeries
\nPvt. Ltd., and the accumulated reserves and surplus of
\nM\/s.Chennai Micro Finance Pvt. Ltd., was over and
\nabove the loan extended.
\n4. At the outset the learned Assessee’s
\nRepresentative submitted before us that when the
\ntotal amount of loan extended by M\/s.Chennai Micro
\nFinance Ltd., to M\/s.Tallbboy Stationeries Pvt. Ltd.,
\nwas Rs.53,69,803\/- the entire amount cannot be
\nadded to the income of both the shareholders having
\n50% stakes in those companies by invoking the
\nprovisions of Section 2(22)(e) of the Act, which would
\namount to double taxation. The learned AR pleaded
\nthat since both the shareholders are having 50% stake
\nin both the companies, the amount of Rs.53,69,803\/-
\nmay be proportionately added in the hands of
\nboth the assessees viz., Rs.26,84,902\/- in the case
\nof Shri.V.Ramesh and Rs.26,84,901\/- in the case of
\nShri.S.Ramu. The learned Department’s
\nRepresentative could not controvert to the submission
\nof the learned AR.<\/p>\n
5. We have heard the rival submissions and
\ncarefully perused the materials on record. We find
\nmerit in the contention of the learned AR. Adding the
\namount of Rs.53,69,803\/- in the hands of each of the
\nassessees would amount to double taxation and that is
\nnot permissible. Moreover with respect to the
\ntransaction of extending loan by M\/s.Chennai Micro
\nFinance Ltd., to M\/s.Tallboy Stationeries Pvt. Ltd., the
\nprovisions of Section 2(22)(e) of the Act attracts the
\namount of deemed dividend only to the extent of the
\nloan amount which is further restricted to the extent of
\nreserves and surplus of the Company advancing loan.
\nTherefore, in the relevant cases before us the
\naggregate additions in the hands of the shareholders
\nwho are the assessees cannot be made more than
\nRs.53,69,803\/-. Hence, it would be an appropriate
\nanalogy that the entire amount which is liable to be
\ntreated as deemed dividend has to be apportioned
\nbetween both the shareholders in whose cases the
\nconditions stipulated for attracting the provisions of
\nSection 2(22)(e) of the Act are satisfied. Therefore as
\npleaded by the learned AR, it would be judicious to
\nmake addition in the hands of Shri.V.Ramesh an
\namount of Rs.26,84,902\/- and Shri.S.Ramu-
\nRs.26,84,901\/-. It is ordered accordingly.”
\n3. At the outset, the learned counsel for the Appellants\/Assessees
\nMr.G.Baskar contended that no such concession was made before the
\nlearned Tribunal for apportioning the additions made by the Assessing
\nAuthority on protective basis in the hands of the Assessees viz., the two
\nshareholders who are also Directors of M\/s.Tallboy Stationeries Private
\nLimited viz., Mr.V.Ramesh and Mr.V.Ramu, under section 2(22)(e) of the
\nAct, to the extent of 50% of the total amount of loans and advances made
\nby M\/s.Chennai Micro Finance Ltd., to M\/s.Tallboy Stationeries Private
\nLimited for the present Assessment Year 2006-2007 in question. He further
\ncontended that by a written submission filed before the learned Tribunal on
\n9.4.2018, much before the present order passed on 24th December 2018, it
\nwas clearly submitted before the learned Tribunal that an identical issue
\ncame up for consideration before the Tribunal in the Assessees’ own case for
\nthe Assessment Year 2011-12 wherein Tribunal had remitted the case to the
\nAssessing Officer for fresh consideration by verifying as to whether the
\namount was finally moved to the Assessees or not. He further submitted
\nthat despite the said position, the learned Tribunal, recording the concession
\nor pleading by the learned AR made on behalf of the Assessees converted the
\nprotective assessment made by the Assessing Authority into a substantive
\none and gave partial relief deciding the said addition under section 2(22)(e)
\nof the Act to the extent of 50% in the hands of both the shareholders of both
\nthe Companies.
\n4. The learned Senior Standing Counsel appearing for the Revenue,
\nhowever, tried to justify the said order and submit that even though no
\nAffidavit of the counsel was taken by the Tribunal, a notice may be issued to
\nthe Registrar of the Tribunal as it is not known whether in fact such
\nconcession was made before the Tribunal or not.
\n5. On merits, the learned counsel for the Assessees submitted that the
\nloans and advances were made by one Company to another and not to the
\nshareholders and since the money was not received even as loans and
\nadvances by the two shareholders in question, the same could not be taxed
\nas deemed dividends in the hands of the present Assessees.
\n6. We have heard the learned counsels at some length.
\n7. We are constrained to observe that the learned Tribunal ought not
\nto have recorded any such concession on the part of the learned AR on
\nbehalf of the Assessees in this manner contrary to the written submissions
\nfiled on 5.4.2018 before it, giving rise to a possibility of contending
\notherwise before the High Court. We had recently noticed this kind of
\nimproper recording of concession on the part of the learned Tribunal even in
\nyet another case as well in T.C.A.No.1019 of 2009 (M\/s.Sri Kavitha
\nJewellers v. The Deputy Commissioner of Income Tax) dated
\n7.3.2019. In that matter, the learned Members of the Tribunal had gone to
\nthe extent of directing the Authorised Representative on behalf of the
\nAssessees to make a concession for some addition to be upheld in the
\nundisclosed income. The Tribunal, under the Act, is a final fact finding Body
\nand not a Court of Record. It is vested with a responsible job of returning
\nthe correct and proper finding of facts based on relevant evidence and
\nmaterial.
\n8. We expressed our pain and anxiety against such observation of the
\nlearned Tribunal. In the present case also despite the fact that it was
\nbrought to the knowledge of the Assessing Authority by way of written
\nsubmission on 9.4.2018 that an identical issue came up for consideration
\nbefore the Tribunal in the Assessees’ own case for the Assessment Year
\n2011-12 wherein Tribunal had remitted the case to the Assessing Officer for
\nfresh consideration for verifying as to whether the amount has finally moved
\nor reached to the individual Assessees or not, the Tribunal has proceeded to
\nrecord such a concession as having been made on behalf of the Assessees.
\n9. We do not find any justification on the part of the learned Members
\nof the Tribunal to record any such concession on behalf of the Assessees and
\nmake additions invoking the provision under Section 2(22)(e) of the Act in
\nthe hands of the individual Assessees viz., the shareholders of the two
\nCompanies. Unless the findings of facts are returned by the Assessing
\nAuthority on the basis of materials that the money was received by the
\nperson concerned, there was no question of taxing the same as ‘deemed
\ndividends’ in the hands of the individual Assessees, who are
\nDirectors\/Shareholders with substantial interest. We, therefore, cannot
\nsustain this type of orders passed by the learned Members of the Tribunal
\nand we are sorry to note this kind of concessions recorded unauthorisedly by
\nthe learned Members of the Tribunal.
\n10. Expressing again our anguish and pain on the same, we direct that
\nin future, if any such concession is made by any Authorised Representative
\non behalf of the Assessees, the Tribunal should take either an Affidavit from
\nAssessee and the counsel on behalf of the Assessee or atleast a written
\nendorsement made on the record of the case duly signed by them, so that
\nno such occasion of taking a stand otherwise or contra to the alleged
\nconcession made by them, would arise before the higher Courts.
\n11. We allow these Appeals of the Assessees and remit the matters to
\nthe Assessing Authority for the Assessment Year 2006-2007 for deciding the
\nsame as done in the Assessment Year 2011-2012 by order dated 23.11.2016
\nof the Tribunal and where the matter is said to be still pending. A copy of
\nthis order be sent to the President of the Income Tax Appellate
\nTribunals for circulation to all the Benches of Tribunal for wider circulation to
\nall the concerned and also a copy to the Law Secretary, Ministry of Law
\nand Justice, Delhi for bringing it to the notice of the newly appointed
\nMembers. No costs.
\n(V.K.,J.) (C.V.K.,J.)
\n11.3.2019
\nIndex : Yes
\nInternet : Yes
\nssk.
\nhttp:\/\/www.judis.nic.in
\n9
\nTo
\n1. The Assistant Commissioner of Income Tax
\nCorporate Circle-1(3),
\nChennai 600 034.
\n2. Income Tax Appellate Tribunal,
\nMadras ‘C’ Bench, Chennai
\nhttp:\/\/www.judis.nic.in
\n10
\nDR.VINEET KOTHARI, J.
\nand
\nC.V.KARTHIKEYAN, J.
\nssk.
\nTCA Nos.227 & 228 of 2019
\n11.3.2019.
\nhttp:\/\/www.judis.nic.in<\/p>\n","protected":false},"excerpt":{"rendered":"
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<\/p>\n