TMI Blog2006 (5) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... which has been confirmed was based on mere surmises and conjectures; 2. That the ld. CIT (Appeals) while making the above mentioned addition of Rs. 33,96,656 has at para 2.5 of the Appellate Order ignored and disregarded the voluminous documentary evidence, facts and submissions. Further his order suffers from the vice of bringing in unsupported, imaginary and irrelevant facts which were based on mere conjectures and surmises; 3. That without prejudice to ground Nos. (1) and (2) above, the ld. CIT (Appeals) has erred in treating as loan a sum of Rs. 10,00,000 was Share application money paid to O.B.S. Traders Pvt. Ltd. to make this addition under section 2(22)( e ) which is included in the above addition of Rs. 33,96,656." 3. The facts and circumstances under which the aforesaid grounds of appeal arise, are as follows : The assessee is a Pvt. Ltd. company engaged in the business of manufacture of garments. For the assessment year 1997-98 a return of income was filed on 30-11-1998 declaring an income of Rs. 48,090. In the course of assessment proceedings under section 143(3) of the Income-tax Act, 1961 [hereinafter referred to as the Act ] vide order sheet entry dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a correct conclusion Shri Tandon was asked vide order sheet entry dated 27-12-2000 to give : Photo copy of account of OBS Traders Pvt. Ltd. in your books of account. Why section 2(22)( e ) be not invoked." 4. At this stage it would be relevant to extract the provisions of section 2(22)( e ) of the Act : Section 2(22) "dividend" includes ( a )To ( d ) ****** ( e ) any payment by a company, not being a company in which the public are substantially interested, of any sum [whether as representing a part of the assets of the company or otherwise made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits)] holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case posse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 : For the purposes of this clause, ( a ) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; ( b ) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern. 5. In response to the aforesaid notice dated 17-1-2001 of the Assessing Officer the assessee filed a reply dated 24-1-2001. The stand taken by the assessee in the reply was briefly as follows : ( a )The shareholding of Shri Paramjit Singh Bahia in M/s. OBS Traders Pvt. Ltd. as reported in the assessee s letter dated 21-12-2000 was the shareholding as on 31-3-1997 and as on 1-4-1997. That on 4-4-1997 Shri Paramjit Singh Bahia sold 3,000 equity shares for Rs. 30,000 to Smt. Manju Chaurasia. That as a result of such sale the shareholding of Shri Paramjit Singh Bahia got reduced to 510 equity shares, which constituted only 4.84 per cent of the shareholding in the company M/s. OBS Traders Pvt. Ltd. That the pattern of shareholding as stated in the letter dated 21-12-2000 may be correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led. A copy of the Minutes of the Board Meeting dated 4-4-1997 wherein the transfer of shares was approved by the Board was also filed. It may be relevant that all original of the minutes book, receipt, share certificate and share transfer forms had been filed before the Assessing Officer. These documents were impounded by the Assessing Officer under section 131(3) of the I.T. Act. 7. The Assessing Officer wrote to the Registrar of Companies [hereinafter referred to as RoC] on 16-2-2001 asking for details of the shareholding as reflected in the annual return and balance sheet filed by M/s. O.B.C. Exports Pvt. Ltd. with them. The RoC vide letter dated 28-2-2001 expressed his inability to produce the balance sheet and annual return as on 31-3-1998 and 31-3-2000 as they were not available presently with him. He, however, provided the balance sheet and annual report as on 31-3-1999 and 28-9-1999 respectively. The Assessing Officer noticed that in the annual report as on 31-3-1999 furnished by the RoC, Ms. Manju Chaurasia did not own any shares whereas Mr. Paramjit Singh Bahia was shown to be the owner of 3,510 shares, which was the same as in the earlier years. The assessee vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to be considered as a deemed dividend in the hands of the assessee under section 2(22)( e ) of the Act. The addition was accordingly made by the Assessing Officer. This addition made by the Assessing Officer was upheld by the CIT (Appeals). 8. Before the CIT (Appeals) the submission of the assessee was that in the annual reports filed with the RoC, the shareholding pattern in M/s. OBS Traders Pvt. Ltd. had been duly reflected and that this document filed with the RoC would clearly establish that as on 4-4-1997 Shri Paramjit Singh Bahia held only 4.84 per cent shares of M/s. O.B.S. Traders Pvt. Ltd. It was further submitted that these annual reports reflected the position of the shareholding in respect of the Annual General Meetings [hereinafter referred to as AGM] held on 29-9-1997 and 29-9-1998 and these reports were filed with the RoC on 29-12-1997 and 11-1-1999 respectively and were taken on record on the same day by the RoC. The assessee also pointed out that this evidence had been furnished before the Assessing Officer, but only true copies were filed and not certified copies. The assessee also submitted that certified copies were being applied for and would be fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer after due investigation had clearly established that the transaction of sale of shares was not proved and that it had been made up by the assessee only for the purpose of getting over the provisions of section 2(22)( e ) of the Act. He also brought to our notice the following two decisions in the case of CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC) and in the case of CIT v. P.V. John [1990] 181 ITR 1 1 (Ker.) and submitted that provisions of section 2(22)( e ) of the Act have to be strictly construed and in the circumstances, the action of the revenue authorities, have to be upheld. 10. We have considered the rival submissions. The only issue that arises for our consideration is as to whether there was a valid sale of shares as on 4-4-1997 by Mr. Paramjit Singh Bahia in favour of Ms. Manju Chaurasia. We have already referred to the various circumstances, which were brought out by the Assessing Officer in the order of assessment. It is no doubt true that as per the report of the Deputy Works Manager of India Security Press, Nashik, the stamps which had been affixed on the receipt dated 2-4-1997 had in fact been made available for sale to the public thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shares to Mr. Paramjit Singh Bahia on 17-5-1999 for the very same price and this was reflected in the annual report as on 28-9-1999. This was the annual report on the basis of which the Assessing Officer concluded that Shri Paramjit Singh Bahia continued to hold 3,510 shares of M/s. O.B.S. Traders Pvt. Ltd. It is clear from the aforesaid document that at the relevant point of time Shri Paramjit Singh Bahia held only 4.84 per cent interest in the share capital of O.B.S. Traders Pvt. Ltd. The condition required for application of the provisions of section 2(22)( e ) of the Act is that Shri Paramjit Singh Bahia, should a substantial interest in M/s. O.B.S. Traders Pvt. Ltd. and such substantial interest would mean holding at least 20 per cent. The only factor, which goes against the assessee in the present case is the receipt and the assessee has already given an explanation and has accepted that the receipt was prepared only in the first week of February, 2001 though the date 2-4-1997 was put on the receipt. This cannot be the only basis on which it can be held that Shri Paramjit Singh Bahia continued to hold 33.33 per cent shares of M/s. O.B.S. Traders Pvt. Ltd. We may also, at t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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