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TMI Blog2002 (8) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholding of the members of the HUF in these companies, total share capital and the accumulated profit as on31st March, 1990, are enclosed as Annex. I to the AO's assessment order. 4. The AO found that these companies had given loans and advances to M/s Nagar Trading Co., the main business unit of the assessee-HUF. The details of maximum amount of loan outstanding given by these companies to M/s Nagar Trading Co., as noted at p. 3 of the impugned assessment are as follows: Name of the company Amount of loan as on 31-3-1990 Maximum amount of loan during the year Amount restricted to the accumulated profit 1. Chirag Export (P) Ltd. 2,35,000 2,35,000 2,29,372 2. Palace (P) Ltd. 8,61,897 8,61,897 3,06,886 3. Renould Fashion (P) Ltd. 6,84,000 6,84,000 6,84,000 4. Moonlite Fashions (P) Ltd. 3,92,000 3,98,000 3,98,000 5. Lotus Fashion (P) Ltd. 1,04,550 1,04,550 1,04,550 6. Excell Fashion (P) Ltd. 2,73,000 3,90,000 3,90,000 7. Ace Fashions (P) Ltd. 3,00,000 3,00,000 3,00,000 8. Aquo Puu Fashion 3,06,697 3,06,697 3,06,697 9. Alpha Fashions (P) Ltd. 4,52,148 4,52,147 4,52,147 10. Inclo Craft Ltd. 9,50,000 9,50,000 9,50,000 41,21,65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Nanak Mehta and Gautam Mehta are concerned, since their shareholding was much below the 10 per cent of the voting power in the company, the amount of loans and advances taken by the HUF from the company would not be regarded as payment to a concern to which provisions of cl. (b) of Expln. 3 were applicable. 8. The AO also asked the assessee to explain the source of investment by Radhika Mehta in the purchase of shares of the company. In reply, the assessee submitted that Radhika Mehta had purchased shares out of gifts received from friends and relatives on various occasions. 9. The AO was not satisfied and convinced with the submissions and contentions of the assessee. He observed that Radhika Mehta was member of the assessee-HUF. He referred to para 295 of Commentary of B.K. Singhania on Direct Tax Order 1989-90 as under: "The Hindu Undivided Family has not been defined under the income-tax law. The expression is, however, defined under Hindu Law as a family which consists of all persons lineally decended from a common ancestor and includes their wives and unmarried daughters". He further observed that the Supreme Court in the two cases of C. Krishna Prasad vs. CIT (1975) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HUF and satisfied all the conditions laid down u/s 2(22)(e) of the Act. Accordingly, the entire amount of loans given by these companies to M/s Nagar Trading Co. (unit of Vijay Mehta) to the extent of accumulated profit which comes to Rs. 41,21,652 is added to the income of the assessee as deemed divided under s. 2(22)(e) of the Act, 1961." 12. Aggrieved by the impugned addition of Rs. 41,21,652 under s. 2(22)(e) of the Act, the assessee preferred first appeal before the learned CIT(A) who after considering the submissions made before him deleted the addition of Rs. 41,21,652. He observed that the shareholdings in the eleven companies were obtained in earlier year with gifts given by friends and relatives. He added that the Department in the earlier years had accepted the shareholding and passed order to the said effect. Therefore, in later years, without any independent evidence it was not possible to come to the conclusion that money invested in the shareholding had come from the undisclosed funds of Shri Vijay Mehta. He further observed that the AO had not taken any action to assess the income of the eleven companies in the hands of either Shri Vijay Mehta, individual and Vija ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case vide p. 4 of the AO's order. The companies were private limited companies, they were profit making companies, they had large amount of accumulated profits, they had given loans and advances to the assessee-HUF which were less than accumulated profits, the members of the HUF including Radhika Mehta had 20 per cent voting right/share capital of the company, etc. In view of these facts, the provisions of s. 2(22)(e) were clearly attracted in the case and the learned CIT(A) had wrongly deleted the addition without proper appreciation of the facts of the case, the provisions of law and the detailed reasons given by the ITO in the impugned assessment order. 16. The learned Departmental Representative further submitted that the learned CIT(A) had wrongly mentioned that the Department had accepted the shareholding of the said members of the HUF as their own individual shareholding in earlier years. The assessee had not brought any evidence on record to this effect. There was no evidence of independent source of acquisition of shareholding by the said members of the HUF. He pointed out that the AO had given opportunity to the assessee to explain the source of investment by Radhik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought any material on record to prove that the sources of investments in the shares were from the assessee-HUF and not the independent source of the registered owner. He, therefore, contended that the assessee-HUF would not be treated as beneficial owner of these shares also. 19. The learned counsel for the assessee supported the order of the learned CIT(A). In this connection he relied on the decisions in S.K. Umar vs. Asstt. CIT (1993) 46 ITD 463 (Mad) and Mithilesh Kumari & Anr. vs. Prem Behari Khare (1989) 76 CTR (SC) 27 : (1989) 177 ITR 97 (SC). 20. The learned counsel further submitted that the amounts received by the assessee-HUF from the said private limited companies had wrongly been treated by the AO as loans and advances. He stated that the amounts were received on account of business transactions/sales. He further submitted that some of the amounts received were mere transfer entries and did not represent actual receipt of loans or advances in cash or by cheque. He contended that such credit entries were not covered under s. 2(22)(e) of the Act. 21. After considering the aforesaid submissions and the materials on the file, the learned counsel was asked to furnish f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yed was furnished. Copies of accounts of the company in the books of the HUF were also furnished. Evidence of repayment was placed at pp. 19-27 of the annexure. The learned counsel further contended that the issue involved in the present appeal before the Tribunal was not to be decided based upon the information to be furnished which information in any case was not in possession of the assessee. 24.The learned Departmental Representative as well as the learned counsel were heard after the submission of the above reply. During the hearing the learned Departmental Representative contended that since the assessee had failed to furnish any evidence of sources of investments in the shares out of gifts, etc. received by Radhika Mehta, the presumption that the shares were purchased in her name by the assessee-HUF out of its own funds was proper and valid. He further contended that the assessee's claim that the amounts received from the said companies were not loans and advances but the amounts were given by the said companies on account of business transactions/sales could not be accepted without proper verification by the AO. 25. The learned counsel, on the other hand, reiterated the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shareholding in the aforesaid companies by Radhika Mehta were gifts received by her and that the HUF had not invested its own funds for the purchase of shares. It is noted that the AO had asked the assessee to furnish details and evidence in this regard but the assessee failed to furnish the required details and evidence. The learned CIT(A) accepted this plea of the assessee without bringing the required details and evidence on record and getting them verified. In the course of hearing of the appeal before us we called for similar details and evidence but the learned counsel expressed his inability to comply. We are of the view that this plea of the assessee on the facts and in the circumstances of the case cannot be accepted merely on the assessee's claim without the support of details and evidence, Radhika Mehta was a minor daughter of the Karta of the HUF during the relevant year. She did not have any independent source of income or fund. No details and evidence were furnished in support of the claim of receipts of gifts. No gift-tax assessment order, donor's declaration, bank account, etc. were filed for the same. The total value of shares in the name of Miss Radhika Mehta al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-HUF is a concern under Expln. 3(a) above and Radhika Mehta, etc. who together hold more than 10 per cent enquiry shares/voting power of the companies are members of the assessee-HUF having substantial interest in it as they were beneficially entitled to not less than 20 per cent of the income of the assessee-HUF. Thus, the requisite conditions are fulfilled and there is no provision to the effect that if shares were acquired by the members of the HUF out of their own funds then in such case the amount of advance or loan to the concern will not be treated as dividend. 27B. In the above view of the matter, it is held that the learned CIT(A) had not correctly appreciated the provisions of s. 2(22)(e) and he had misdirected himself in giving his finding on consideration of assessee's claim that Radhika Mehta had acquired the shares out of alleged gifts received by her. 28. As regards the next contention that the amounts received from the said companies were not loans and advances but they were received on account of business transactions/sales and hence the provisions of s. 2(22)(e) of the Act were not applicable in the case, we are of the view that the assessee had failed to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 2,56,000 made on account of deemed dividend under s. 2(22)(e) of the Act. The CIT(A) decided this issue against the Revenue on the basis of the order of the CIT(A) for asst. yr. 1990-91. It seems the Revenue has accepted this decision and hence the CIT(A) following the decision of the immediately earlier years deleted this addition also. Keeping in view these facts we do not find any reasons to interfere on this account as well." 30. In view of the above, the contention of the learned counsel that we should follow the Tribunal order for the asst. yr. 1991-92 and similarly uphold the CIT(A)'s order for asst. yr. 1990-91 cannot be accepted. 31. The amended provisions (amendment by Finance Act, 1987, w.e.f.1st April, 1988) are applicable in a case where a shareholder held 10 per cent on more of equity capital. Further, deemed dividend would be taxed in the hands of a concern where all the following conditions are satisfied: "(i) Where the company takes the payment by way of loans or advances from a concern; (ii) where a member or a partner of the concern holds 10 per cent of the voting power in the company; and (iii) where the member or partner of the concern is b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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