TMI Blog2019 (1) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... nnels. Hence, it cannot be construed as mere journal entries and therefore, it is a business transaction between the assessee and M/s.SREL. Hence, the second substantial question of law is held against the Revenue and in favour of the assessee. - Income Tax Appeal No.73 of 2010 - - - Dated:- 10-12-2018 - Mr. Justice Ravi Malimath And Mr. Justice K. Natarajan For The Appellants : Sri K.V. Aravind, Advocate For The Respondent : Sri A. Shankar, Senior Counsel For Sri M.Lava, Advocate JUDGMENT The assessee filed the return of income for the assessment year 2004-2005 on 28.10.2004, declaring the total income of ₹ 3,85,250/-. The same was processed under Section-143(1) of the Income tax Act (for short Act ). The assessee is also the Managing Director of M/s.Mineral Enterprises Limited (for short MEL ). The assessee was holding 74.84% shares and his wife, viz., Mrs.Vandana Poddar was holding 15.08% shares, along with other family members. The company was being managed and administered by the assessee-Basant Poddar. 2. A search action under Section-132 of the Act was initiated against the assessee on 22.07.2005. During the course of the search proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s.MEL to an extent of 75%, had made the payment due to a personal commitment to his wife. The same could be deduced from the settlement plan, which was seized from the assessee. 7. The plea of the assessee that it was a commercial transaction between M/s. MEL and M/s.SREL was negated.That even the contentions of the assessee that the payment of interest is reflected in the books of accountsM/s.MEL, as well as in the books of M/s.SREL were not accepted on the ground that they are mere Journal Entries and therefore there was no real transactions orpayment of interest. That the motive behind using M/s.SREL was that it could act as a conduct to make payment to Smt.Vandana Poddar, only to evade tax on the dividend, since the assessee was holding more than 10% of the shares of M/s.MEL. That any amount taken out of Reserves And Surplus on his behalf would amount to Dividend under Section-2(22)(e) of the Act. Consequently, such dividend is taxable. Therefore, the entire sum of ₹ 29,78,154/-, declared as payment made on behalf of Vandana Poddar was considered as dividend within the meaning of Section.2(22)(e) of the Act. Therefore, the entire sum of ₹ 11.05 Crores advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from M/s.SREL and also the interest paid and received in the case of M/s.MEL, M/s.SREL and Vandana Poddar, it could not have come to the conclusionthat the amount paid to M/s.MEL is for the sole benefit of the assessee. Furthermore, the Assessing Officer has not even examined Smt.Vandana Poddar for the transaction effected between her and M/s.SREL. That the transactions are through proper banking channels. 10. The Tribunal came to the conclusion that Section-2(22)(e) of the Act is inapplicable to the case of the assessee. That the transactions between M/s.MEL, M/s.SREL and Vandana Poddar are business transactions. That M/s.MEL has not given any payment for the benefit or on behalf of the assessee to bring the amount assessable under Section-2(22)(e) of the Act. Therefore, the Assessing Officer was directed to delete the addition at the hands of the assessee. Questioning the same, the present appeal is filed by Revenue. 11. By the order dated 29.09.2010, the appeal was admitted to consider the following substantial questions of law: 1. Whether the Tribunal was correct in setting-aside the findings of the AO which was confirmed by the CIT(A) that agreement between the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the individual benefit of any of its shareholders to the extent to which the company in either case possesses accumulated profits would stand applicable to the case on hand. Therefore, Section-2(22)(e) of the Act requires to be applied to the case on hand. 14. On the other hand, Sri.A.Shankar, learned Senior Counsel appearing for the respondents counsel disputes the same. He contends that the Tribunal was justified in arriving at the conclusion. That the entire material has been reconsidered and hence no interferenceis called for. The contention of the Revenue that the transactions in question are only journal entries and did not reflect the true transactions between the parties are not correct. The books of accounts have been produced before the authorities. Even though there has been a reference to Journal Entries , the same is also subsequently reflected in the actual payment made through banking channels. Therefore, the contention that they are mere Journal Entries without any banking transaction is incorrect. 15. Secondly, the learned Senior Counsel submitted that Section-2(22)(e) of the Actis applicable to the facts of the case is also incorrect. That the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n treated as a conduce for the transfer of this money. 19. The Tribunal on considering the contentions, was of the view that relying on the said noting would be inappropriate. That the seized documents refers to the transaction between M/s.MEL, M/s.SREL and Smt.Vandana Poddar. The transaction involved herein is the amounts of Inter Corporate Deposit made between M/s.MEL, M/s.SRELand thereafter from M/s.SREL to Smt.Vandana Poddar. The same are satisfied by various entries made so far as M/s.MEL and M/s.SREL are concerned. The deposit made by M/s.MEL to M/s.SREL is also reflected in the books ofaccounts. The deposit received by M/s.SREL from M/s.MEL and further payment to Smt.Vandana Poddar are also reflected in the books of accounts of M/s.SREL. That tax has also been paid on the interest received from M/s.MELand M/s.SREL as well as for the interest received from M/s. SREL to Smt. Vandana Poddar. These are all matters of fact which can be deduced from the books of accounts produced by both the companies, as well as the relevant material produced so far as the relevant bank transactions are concerned. 20. The contention of the Revenue is that they are only Journal Entries, may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts involved and the material produced by the assessee, the Tribunal held that the same constitutes a business transaction and therefore, the provisions of Section-2(22)(e) of the Act would not be applicable. We do not find any reason to take a different view of the matter. The material on record would indicate that all transactions are routed through bank channels. Hence, it cannot be construed as mere journal entries and therefore, it is a business transaction between the assessee and M/s.SREL. 23. Furthermore, the Tribunal was also of the view that the Assessing Officer was the same with reference to the assessee, Sri Basant Poddar, M/s.MEL and Smt. Vandana Poddar. When he accepted the case so far as thistransaction is concerned, with regard to MEL as well Vandana Poddar, the question of raising such a doubt only so far as the assessee is concerned would be inappropriate. Therefore, when the transactions are interrelated and when the Assessing Officer has accepted the case, so far as M/s. MEL as well as Smt. Vandana Poddar is concerned, the question of doubting the transaction so far as assessee is concerned is inappropriate and stands opposed to the transaction made towards ..... X X X X Extracts X X X X X X X X Extracts X X X X
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