TMI Blog2015 (9) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... having, perhaps inadvertently, violated the law in-asmuch as he could not, as a substantial shareholder, have, except by way of dividend, diverted the profits of a company in which public is not substantially interested, for his personal purposes. Precisely what we are saying, i.e., that the assessee having realized his mistake well in time, with the default u/s. 2(22)(e) – the law on which is very clear, having been committed, he ought to have returned the said income in-asmuch as he has no reason for not so doing, preferring instead not to return his income – in the admitted facts of the case, in accordance with law. He could have, at least, while not returning the same, narrated the sequence of events leading to the attraction of the provision of section 2(22)(e), besides the subsequent events, pleading to an indulgence in non-invoking section 2(22)(e). It is though doubtful if this would have served the purpose in-as-much as the assessee himself admits to have realized his mistake, i.e., having become aware of the position of law, and which gets established by his ‘immediate’ returning the funds back to the company. The same, however, would have provided scope for consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend u/s.2(22)(e) of the Act. The matter carried to the Tribunal, which found that the assessee had been as unable to substantiate his claim of the investment having been actually sought to be made in the name, or as an investment, of the company. The sustenance of the advance was again not a criterion for the attraction of the said provision, so that the fact that it stood returned subsequently, or was not outstanding as at the year-end, was of little consequence. The addition was upheld in principle, relying on the decisions in the case of Tarulata Shyam vs. CIT [1977] 108 ITR 345 (SC) and P. Sarada v. CIT [1998] 229 ITR 444 (SC), also reproducing from the latter (ITA No. 1663/Mum/2011 dated 13.02.2015/copy on record). The tribunal, however, restricted the addition to the net advance to the assessee in-as-much as the assessee had a credit balance in his account with the company at ₹ 3,78,535/- as at the date of the advance, i.e., 21.06.2005. 2.2 In penalty proceedings, initiated at the time of assessment, the assessee reiterated his stand, emphasizing on the repayment of the loan/advance within a short period of time, by liquidating the investment in the Mutual F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action as soon as he realized his mistake, itself belies his earlier explanation. If the funds were released to the assessee s bank account for investment on behalf of the company, what, we wonder, is the mistake committed ? The investment being unable to be held in the company s name, for some unstated technical reason/s, could always be held by a director for and on behalf of the company, who would in that case be liable to return the sale proceeds of the investment, and not the only amount advanced, as in the present case, establishing it to be a transaction of loan or advance. We may toward this advert to parallel provisions under the Companies Act, 1956. Section 187-C relates to the declaration/s by a person not holding beneficial interest in any share, while sections 153B and 187B are with regard to the declaration in respect of shares in a company held in trust. 3.3 We may next examine the assessee s modified - in-as-much as we observe it to have undergone a qualitative change over time, explanation, i.e., that the investment, though made by him by drawing on the funds, representing the profits of the company, were not intended to be so diverted, which occurred on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does by liquidating the investment, which again proves it to be a personal investment, definitely establishes his bona fides . At the same time, however, the provision having been attracted, which fact comes to his knowledge well before the filing of his return of income for the year, it was incumbent on him to include the same as his income per the return of income. The explanation, it needs to be appreciated, that the assessee is required to furnish is toward not offering the said sum as his income in accordance with the law, i.e., for not returning the income by way of deemed dividend per his return of income. This is in fact puzzling in-as-much as he admits to have realized his mistake in appropriating the company s funds for personal purposes, thereby attracting section 2(22)(e), perhaps unintentionally. It may be argued that, if so returned, the question of penalty would not arise. But then, that is precisely what we are saying, i.e., that the assessee having realized his mistake well in time, with the default u/s. 2(22)(e) the law on which is very clear, having been committed, he ought to have returned the said income in-asmuch as he has no reason for not so doing, prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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