ITO, CHENNAI v. Mrs. Sujatha Venkateswaran & Others, New York

ITA 2511/CHNY/1987 | misc
Pronouncement Date: 16-07-2010 | Result: Dismissed

Appeal Details

RSA Number 251121714 RSA 1987
Bench Chennai
Appeal Number ITA 2511/CHNY/1987
Duration Of Justice 22 year(s) 11 month(s) 11 day(s)
Appellant ITO, CHENNAI
Respondent Mrs. Sujatha Venkateswaran & Others, New York
Appeal Type Income Tax Appeal
Pronouncement Date 16-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 16-07-2010
Date Of Final Hearing 06-07-2010
Next Hearing Date 06-07-2010
Assessment Year misc
Appeal Filed On 05-08-1987
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEMBER) .. I.T.A. NOS. 2510 & 2511/MDS/87 ASSESSMENT YEARS : 1983-84 & 1984-85 THE INCOME TAX OFFICER CENTRAL CIRCLE I CHENNAI 600 034. (APPELLANT) V. SHRI G. VENKATESWARAN 23 HARRINGTON ROAD CHENNAI. (RESPONDENT) CORRIGENDUM THIS CORRIGENDUM IS ISSUED TO ORDER IN I.T.A. NOS. 2510 & 2511/MDS/87 FOR CORRECTING THE CAUSE TITLE. 2. THE ASSESSEE SHRI G. VENKATESWARAN HAD DIED AND THE DEPARTMENT HAD PLACED LEGAL HEIRS ON RECORD. NEVERTHELESS IN THE ORDER BY MISTAKE THE NAME OF THE ASSESSEE WAS SHOWN AS G. VENKATESWARAN. THIS I S CORRECTED AND IT SHOULD BE READ AS GIVEN BELOW:- THE INCOME TAX OFFICER CENTRAL CIRCLE I CHENNAI 600 034. (APPELLANT) V. LATE SHRI G. VENKATESWARAN BY L/HS: (1) MRS. SUJATHA VENKATESWARAN 188 EAST 64 TH STREET NEW YORK NY 10065 USA (2) SHRI V. JAYACHANDRAN (SON) 188 EAST 64 TH STREET NEW YORK NY 10065 USA (3) MRS. PRIYA AJAY SINGH (DAUGHTER) 1243 LAUREL STREET APT 13 MENIO PARK C.A. 94025 (RESPONDENT) SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 18 TH APRIL 2011. COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/D.R./GUARD FILE ITA 2510 & 2511/MDS/87 2 IN THE INCOME TAX APPELLATE TRIBUNAL BENCH -- D CHENNAI (BEFORE SHRI ABRAHAM P.GEORGE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEMBER) ..... IN ITA NO.2510 AND 2511/MDS/87 ASSESSMENT YEARS :1983-84 AND 1984-85 THE INCOME-TAX OFFICER CENTRAL CIR.I CHENNAI (APPELLANT) V. SHRI G.VENKATESWARAN 23 HARRINGTON RD CHENNAI (RESPONDENT) APPELLANT BY : SRI OMKARESWAR CHIDRA CIT(D.R) RESPONDENT BY : NONE O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER : THESE APPEALS FILED BY REVENUE FOR ASSESSMENT YEAR S 1983-84 AND 1984- 85 ARE AGAINST THE ORDERS OF THE CIT(APPEALS) FOR T HE RESPECTIVE ASSESSMENT YEARS. APPEAL FOR ASST. YEAR 1983-84 IS TAKEN UP FI RST FOR DISPOSAL. 2. GROUNDS 1 AND 12 ARE GENERAL NEEDING NO ADJUDICA TION. ITA 2510 & 2511/MDS/87 3 3. VIDE ITS GROUND NOS. 2 TO 5 GRIEVANCE OF THE REV ENUE IS THAT THE CIT(A) RESTRICTED THE ADDITION MADE BY ASSESSING OFFICER TOWARDS UNDERSTATEMENT IN THE SALE OF A FILM CALLED RAJA PARVAI FROM RS.7 LAKHS TO RS.1 LAKH. RELIANCE HAS BEEN PLACED ON THE DECISIONS OF HONBLE APEX CO URT IN THE CASE OF JUGGILAL KAMLAPAT VS. CIT (73 ITR 702) AND MC .DOWELL & CO. LTD. V. CTO (154 ITR 148). 4. SHORT FACTS APROPOS ARE THAT THE ASSESSEE AS WEL L AS HIS WIFE WERE IN THE FIELD OF FILM BUSINESS. ALONGWITH HIS WIFE ASSESSEE ALSO OWNED EQUITY SHARES IN A COMPANY FIRM CALLED M/S SUJATHA FILMS (P) LTD. ASS ESSEE WAS ALSO DIRECTOR OF A NUMBER OF OTHER COMPANIES DURING THE RELEVANT PREVI OUS YEAR. ASSESSEES WIFE MRS. SUJATHA VENKATESWARAN SOLD RIGHTS OF THE FILM CALLED RAJA PARVAI TO THE ASSESSEE ON 1-4-1982 FOR A PRICE OF RS.13 000/-. T HEREAFTER ON 1-10-1982 ASSESSEE SOLD IT TO M/S SUJATHA FILMS P. LTD. FOR R S.1 LAKH. LATER THE SAID COMPANY SOLD SUCH RIGHTS DURING THE SAME MONTH TO O NE M/S PARAMOUNT AGENCIES FOR RS. 7 LAKHS. ASSESSING OFFICER AFTER D WELLING UPON THE HISTORY OF THE TRANSFER OF THE RIGHTS CAME TO THE CONCLUSION THAT THE ACTUAL SALE PRICE OF THE FILM SHOULD HAVE BEEN RS.7 LAKHS AND NOT RS.1 LAKH. ASSESSEE HAD OFFERED EXPLANATION THAT THE COLLECTIONS FROM THE FILM EVEN AFTER SALE TO M/S PARAMOUNT AGENCIES WAS JUST RS.1 LAKH AND HENCE THE SALE PRIC E OF RS.1 LAKH FETCHED BY HIM ON SALE OF RIGHT OF THE SAID FILM TO M/S SUJATH A FILMS P. LTD. WAS COMMERCIALLY APPROPRIATE. HOWEVER THE ASSESSING OF FICER WAS OF THE OPINION THAT IF THE FILM WAS NOT IN A POSITION TO FETCH EVE N RS.1 LAKH THEN M/S SUJATHA FILMS P.LTD. TO WHICH ASSESSEE HAD SOLD THE RIGHTS COULD NOT HAVE IN TURN SOLD IT TO M/S PARAMOUNT AGENCIES FOR RS. 7 LAKHS IN THE SA ME MONTH. ACCORDING TO HIM ITA 2510 & 2511/MDS/87 4 ASSESSEE HIMSELF WAS THE MANAGING DIRECTOR OF M/S S UJATHA FILMS (P) LTD. AND IF HE HAS SOLD THE FILM DIRECTLY TO M/S PARAMOUNT PICT URES WITHOUT ROUTING IT THROUGH M/S SUJATHA FILMS P. LTD. HE COULD HAVE EA RNED THE PROFIT FOR HIMSELF. HENCE ACCORDING TO HIM THE DEVICE OF ROUTING THE T RANSACTIONS THROUGH MS.SUJATHA FILMS P. LTD. WAS ADOPTED BY THE ASSESS EE ONLY TO REDUCE THE TAX INCIDENCE. 5. IN HIS APPEAL BEFORE THE CIT(A) ASSESSEE ARGUED THAT SALE PRICE OF THE FILM DEPENDED ON MARKET CONDITIONS AND ABILITY OF T HE DISTRIBUTOR TO CREATE THE RIGHT ATMOSPHERE FOR THE MARKETING OF THE FILM. ARG UMENT OF THE ASSESSEE WAS THAT THE FUTURE OF A FILM WAS UNPREDICTABLE AND NOT HING COULD BE TAKEN FOR GRANTED THAT THE PURCHASES AND SALES WERE ALL CORR ECTLY RECORDED IN HIS BOOKS AND THERE WERE NO LAPSES ANYWHERE ON HIS PART. THE CIT(A) AFTER VERIFYING THE DETAILS OF THE TRANSACTION WAS OF THE OPINION THAT THE PURCHASE PRICE OF RS.13 000/- PAID BY THE ASSESSEE TO HIS WIFE FOR AC QUIRING THE RIGHTS OF THE FILM WAS CLEARLY UNDERSTATED AND THERE COULD HAVE BEEN S OME DEEMED GIFT IN THE TRANSACTION. HOWEVER ACCORDING TO HIM THE PRICE T HAT THE ASSESSEE OUGHT TO HAVE RECEIVED IN ALL FAIRNESS SHOULD BE MORE AND WA S NEVER LESS THAN RS. 2LAKHS. ACCORDING TO HIM THERE WAS NO INTEREST FOR THE ASS ESSEE IN M/S PARAMOUNT AGENCIES WHICH HAD ACQUIRED RIGHTS OF THE FILM FOR RS.7 LAKHS FROM M/S SUJATHA FILMS P.LTD AND THEREFORE THE DIFFERENCE IF ANY C ONSTITUTED ONLY THE PROFIT OF THE SAID COMPANY AND NOT THAT OF THE ASSESSEE. HE THEREFORE REDUCED THE ADDITION MADE BY THE ASSESSING OFFICER TO RS.1 LAKH FROM RS.6 LAKHS. ITA 2510 & 2511/MDS/87 5 . 6. NOW BEFORE US THE LD. D.R SUBMITTED THAT ALL THE PARTIES WERE CLOSELY RELATED. ACCORDING TO HIM ASSESSEE HAD PURCHASED THE RIGHTS OF THE FILM FROM HIS WIFE AND SOLD IT TO A COMPANY IN WHICH HE AND H IS WIFE WERE HOLDING THE EQUITY. THEREFORE AS PER THE LD. D.R. THE LATER S ALE TO M/S PARAMOUNT AGENCIES FOR RS.7 LAKHS WAS ONLY TO REDUCE THE PROF IT OF THE ASSESSEE AND HENCE THE CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSEE. RELIANCE WAS PLACED ON THE DECISION OF MC.DOWELL & CO.(SUPRA). NONE APPEARED O N BEHALF OF THE ASSESSEE. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTEN TIONS OF THE LD.D.R. NO DOUBT ASSESSEE PURCHASED THE RIGHTS OF THE FILM F ROM HIS WIFE AND SOLD IT TO A COMPANY IN WHICH HE AND HIS WIFE WERE EQUITY HOLDER S. SUCH COMPANY THEREAFTER SOLD THE RIGHTS TO M/S PARAMOUNT AGENCIE S. WHATSOEVER IT MAY BE THE GENUINENESS OF THE SALE BY M/S. SUJATHA FILMS P . LTD. TO M/S PARAMOUNT PICTURES HAS NOT BEEN DOUBTED BY ANY OF THE AUTHORI TIES BELOW. THERE IS NO CASE FOR THE REVENUE THAT THE ASSESSEE AND/OR HIS WIFE H AD ANY INTEREST IN M/S PARAMOUNT AGENCIES. IF THE PLOY OF THE ASSESSEE WAS TO REDUCE THE INCIDENCE OF TAX THEN HIS WIFE SMT.SUJATHA VENKATESWARN WOULD HAVE DIRECTLY SOLD THE FILM TO M/S PARAMOUNT AGENCIES INSTEAD OF ROUTING IT FIR ST THROUGH HER HUSBAND AND THEN THROUGH THE COMPANY M/S SUJATHA FILMS P.LTD. AS NOTED BY THE CIT(A) THE PRICE OF RIGHTS IN A FILM IS NOT EASY TO BE FIXED. IT CANNOT BE COMPARED TO OTHER ORDINARY TRADING COMMODITIES. VAGARIES THEREOF CAN NEVER BE PREDICTED. IF NOT THE ASSESSEE THE COMPANY IN WHICH HE WAS THE MANAG ING DIRECTOR AND IN WHICH HE ALONGWITH HIS WIFE HELD THE SHARES HAD MADE SUBS TANTIAL PROFITS WHEN THE RIGHTS WERE SOLD TO M/S PARAMOUNT AGENCIES. THE CHA IN OF TRANSACTIONS ITA 2510 & 2511/MDS/87 6 THEREFORE WOULD NOT SHOW ANY PREMEDITATED STEPS TA KEN TO REDUCE THE TAX INCIDENCE WHICH HAD NO COMMERCIAL RELEVANCY. AS H ELD BY THE HONBLE APEX COURT IN THE CASE OF UNION OF INDIA VS. AZADI BACHA O ANDOLAN (263 ITR 706) ONLY IF THE COURT FINDS THAT NOTWITHSTANDING A SERIES O F LEGAL STEPS TAKEN BY THE ASSESSEE THE INTENDED RESULT WAS NOT ACHIEVED A C OURT COULD OVERLOOK SUCH INTERMEDIATE STEPS. FURTHER IT WAS OBSERVED BY THEI R LORDSHIPS THAT NOT ONLY WAS THE PRINCIPLE OF DUKE OF WESTMINISTER ALIVE AND KICKING IN ENGLAND BUT IT HAD THE JUDICIAL BENEDICTION OF THE CONSTITUTIONAL BENCH IN INDIA NOTWITHSTANDING THE TEMPORARY TURBULENCE CREATED IN THE WAKE OF MCDOWELL & LTD (SUPRA). WE ARE THEREFORE OF THE OPINION THAT THE ADDITION MADE BY THE ASSESSING OFFICER WAS RIGHTLY REDUCED BY THE CIT(A) TO RS.1 LAKH. NO INTERFERENCE IS CALLED FOR. GROUND NOS.1 TO 5 OF TH E REVENUE STAND DISMISSED. 8. VIDE ITS GROUND NOS. 6 TO 8 REVENUE IS AGGRIEVED THAT INTEREST DISALLOWED ON AN ADVANCE GIVEN TO SRI P.N. ARUMUGAM WAS DELETE D BY THE CIT(A). ACCORDING TO THE REVENUE THE CIT(A) WRONGLY PRESUM ED THAT THE LOAN GIVEN BY THE ASSESSEE TO SRI P.N.ARUMUGAM WAS THAT OF M/S.S UJATHA FILMS P.LTD. 9. SHORT FACTS APROPOS ARE THAT A SUM OF RS.7 25 00 0/- WAS GIVEN BY THE ASSESSEE AS ADVANCE FOR PURCHASE OF A PROPERTY TO S RI P.N.ARUMUGAM. ASSESSING OFFICER CONSIDERED SUCH ADVANCE TO HAVE BEEN GIVEN FOR NON BUSINESS PURPOSES. SINCE ASSESSEE HAD INTEREST BEARING BORROWED FUNDS ASSESSING OFFICER DISALLOWED THE PRO-RATA INTEREST ON SUCH ADVANCES AND ADDED BACK RS.81 166/- . ITA 2510 & 2511/MDS/87 7 10. IN HIS APPEAL BEFORE THE CIT(A) THE ARGUMENT OF THE ASSESSEE WAS THIS LOAN WAS GIVEN BY M/S SUJATHA FILMS P.LTD. AND NOT THE ASSESSEE. THE CIT(A) AGREED WITH THIS CONTENTION AND DELETED TLHE DISALL OWANCE. 11. NOW BEFORE US THE LD. D.R SUBMITTED THAT THE LO AN WAS NOT GIVEN BY M/S SUJATHA FILMS P.LTD. BUT THE ASSESSEE HIMSELF. 12. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTEN TIONS OF THE LD. D.R. THE STAND OF THE REVENUE IS THAT THE ADVANCE OF RS. 7.25 LAKHS TO SRI P.N.ARUMUGAM WAS GIVEN BY THE ASSESSEE AND NOT BY M /S SUJATHA FILMS P.LTD. AS HELD BY THE CIT(A). BE THAT AS IT MAY DISALLOWA NCE WAS FOR THE REASON THAT THE ADVANCE FOR PURCHASE OF PROPERTY WAS A NON-BUSI NESS PURPOSE. NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT THE ADVANCE GIVEN WAS FOR A NON-BUSINESS PURPOSE. NOTHING HAS A LSO BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT SUCH ADVANCE WAS GIVEN OUT OF INTEREST BEARING FUNDS. THE DISALLOWANCE WAS BASED ON PURE ASSUMPTION THAT SUCH FUNDS WERE GIVEN FOR NON-BUSINESS PURPOSES AND THAT TOO O UT OF INTEREST BEARING FUNDS. ALTHOUGH FOR A DIFFERENT REASON WE FULLY AG REE WITH THE FINDING OF THE LD. CIT(A) THAT THE DISALLOWANCE WAS UNCALLED FOR. NO INTERFERENCE IS CALLED FOR. GROUND NOS.6 TO 8 OF THE REVENUE STAND DISMSISSED. 13. VIDE ITS GROUND NOS.9 TO 11 GRIEVANCE OF THE RE VENUE IS THAT THE CIT(APPEALS) DELETED ADDITION OF RS.33 150/- BEING INTEREST DUE TO THE ASSESSEE FROM ONE SRI S.KRISHNASWAMY. ACCORDING TO REVENUE ASSESSEE WAS FOLLOWING ITA 2510 & 2511/MDS/87 8 MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE THE INTEREST HAD ACCRUED DURING THE YEAR EVEN IF THE LOAN WAS STICKY. RELIANCE WAS PLACED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF STATE BANK OF TRA VANCORE V. CIT 186 ITR 187. 14. SHORT FACTS APROPOS ARE THAT A SUM OF RS.2 21 0 00 WAS DUE TO THE ASSESSEE FROM ONE SHRI S. KRISHNASWAMY. ASSESSEE H AD NOT SHOWN ANY INTEREST AS RECEIVABLE FROM THAT PARTY. EXPLANATION OF THE A SSESSEE WAS THAT IT WAS AN OLD DEBT AND THE DEBT ITSELF WAS DOUBTFUL. THEREFO RE ACCORDING TO HIM THOUGH HE MAINTAINED HIS ACCOUNTS ON MERCANTILE BASIS THE RE WAS NO QUESTION OF ANY INTEREST BEING ACCRUED THEREON. HOWEVER THE A.O. DID NOT FIND IT ACCEPTABLE. RELYING ON THE DECISION OF STATE BANK OF TRAVANCORE SUPRA HE HELD THAT INTEREST HAD TO BE CHARGED SO LONG AS THE DEBT WAS NOT CLAIM ED AS BAD. CALCULATING SUCH INTEREST AT THE RATE OF 15% PER ANNUM HE MADE AN ADDITION OF RS.33 150/- 15. IN HIS APPEAL BEFORE THE CIT(APPEALS) THE SUB MISSION OF THE ASSESSEE WAS THAT HE HAD A RIGHT NOT TO CHARGE INTEREST EVEN IF IT WAS A BUSINESS LOAN. CIT(A) ACCEPTED THIS CONTENTION. ACCORDING TO HIM ASSESSEE WAS WELL WITHIN HIS RIGHTS NOT TO CHARGE ANY INTEREST IN ORDER TO AVOID FRUITLESS LITIGATION. 16. BEFORE US THE LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE LD. A.O. 17. WE HAVE HEARD THE LEARNED D.R. AND ALSO PERUSED THE ORDERS. FIRST REQUIREMENT FOR RECOGNIZING AN INCOME BASED ON ACCR UAL PRINCIPLE IS THAT THERE SHOULD BE A RIGHT FOR ENFORCING THE CLAIM. THERE IS NOTHING PLACED ON RECORD BY ITA 2510 & 2511/MDS/87 9 THE A.O. TO SHOW THAT THERE WAS ANY AGREEMENT ENTER ED INTO BETWEEN THE ASSESSEE AND SHRI S. KRISHNASWAMY BY WHICH THE LATT ER HAD AGREED TO PAY INTEREST AT THE INTEREST OF 15% PER ANNUM. JUST BE CAUSE THE DEBT WAS OUTSTANDING IT COULD NOT BE CONSIDERED THAT INTERE ST WOULD AUTOMATICALLY ACCRUE THEREON. FOR INTEREST TO ACCRUE THERE SHOU LD HAVE BEEN AN AGREEMENT AND THE ASSESSEE SHOULD HAVE A RIGHT OF ENFORCEMENT IN LAW. NO DOUBT IN THE CASE OF STATE BANK OF TRAVANCORE (SUPRA) INTEREST ON STICKY LOAN WAS HELD TO BE INCOME BUT NEVERTHELESS THIS DECISION WOULD NOT H AVE ANY APPLICATION HERE. IN THE FIRST PLACE ASSESSEE WAS NOT A BANKING COMP ANY AND IN THE SECOND PLACE AS AGAINST LOANS GIVEN BY A BANKING COMPANY WHERE THERE WOULD BE SEPARATE INDIVIDUAL AGREEMENT WITH THE LENDERS SPECIFYING TH E INTEREST CHARGEABLE THEREON HERE THERE WAS NOTHING ON RECORD TO SHOW ANY AGREEMENT THAT ASSESSEE HAD WITH SHRI S. KRISHNASWAMY. THIS BEING THE POSITION THE ADDITION WAS MADE ON A PURE HYPOTHETICAL BASIS AND RIGHTLY D ELETED BY THE CIT(A). NO INTERFERENCE IS CALLED FOR. GROUND NOS.9 TO 11 OF THE REVENUE STANDS DISMISSED. 18. IN THE RESULT APPEAL OF THE REVENUE IN I.T.A. NO.2510/MDS/87 STANDS DISMISSED. 19. NOW WE TAKE UP THE APPEAL FOR THE ASSESSMENT Y EAR 1984-85. 20. GROUNDS 1 AND 7 ARE GENERAL NEEDING NO ADJUD ICATION. ITA 2510 & 2511/MDS/87 10 21. VIDE ITS GROUND NOS.2 TO 5 GRIEVANCE OF THE RE VENUE REGARDING THE ADDITION OF RS.4 67 583/- DELETED BY THE CIT(A). SUCH ADDITION WAS MADE BY THE A.O. FOR NON-CHARGING OF INTEREST ON CERTAIN AD VANCES. ACCORDING TO THE REVENUE SUCH INTEREST FREE ADVANCES WERE TRACEABLE TO BORROWED FUNDS. 22. FACTS APROPOS ARE THAT THE A.O. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAD GIVEN INTE REST FREE LOANS TO THE FOLLOWING PARTIES: 1. M/S ARUNA INTERNATIONAL PVT. LTD. RS.5 93 000 2. L.R. SIVA PRASAD RS.7 44 000 3. P.N. ARUMUGAM RS.7 55 000 4. S. KRISHNASWAMY RS 2 21 000 5. P.S. SRIKANTH RS.1 00 000 6. SIVA SAKTHI FILMS RS. 76 000 7. GOPAL MUTHUSWAMY RS.30 000 8 PRIYA VENKATESH RS.4 02 000 9 M. SIVARAMAN RS.37 727 10. BAKER BROTHER. RS.22 500 11. SUJATHA VENKATESWARAN RS.6 79 453 12. VENUE MOVIES RS.17 102 ACCORDING TO A.O. THOUGH SUCH ADVANCES WERE NOT GI VEN DIRECTLY FROM BORROWED FUNDS THE ORIGIN OF SUCH ADVANCES COULD B E TRACED TO BORROWED FUNDS. ACCORDING TO HIM THE INTEREST THAT WAS NEC ESSARY TO BE DISALLOWED ON ITA 2510 & 2511/MDS/87 11 THE ABOVE ADVANCES WORKED OUT TO RS.6 42 908/- HOW EVER SINCE ASSESSEE HAD HIMSELF CLAIMED INTEREST PAYMENT OF RS.4 67 583/- O NLY HE LIMITED THE DISALLOWANCE TO THAT AMOUNT. 23. IN HIS APPEAL BEFORE THE CIT (APPEALS) CON TENTION OF THE ASSESSEE WAS THAT NONE OF THE INTEREST BEARING FUNDS WERE UTILIZ ED BY HIM FOR GIVING SUCH ADVANCES. ACCORDING TO HIM THERE WERE HEAVY BORROW INGS FROM M/S.SUJATHA FILMS P. LTD. FREE OF INTEREST AND IT HAD BUSINE SS RELATIONSHIP WITH THE PARTIES MENTIONED ABOVE. ACCEPTING THESE CONTENTION S THE LD. CIT(A) DELETED THE ABOVE ADDITION. 24. BEFORE US THE LD. D.R. STRONGLY SUPPORTED THE O RDERS OF THE A.O. 25. WE HAVE HEARD THE CONTENTIONS OF THE LD. D.R. A ND PERUSED THE ORDERS. NO DOUBT ASSESSEE HAD MADE ADVANCES MENTIONED ABOV E TO VARIOUS PARTIES. ALL THESE PARTIES WERE INVOLVED IN THE SAME LINE OF BUS INESS AS THAT OF THE ASSESSEE EXCEPT ONE SRI P.N. ARUMUGAM TO WHOM THE MONEY WAS GIVEN FOR THE PURCHASE OF A PROPERTY. NEVERTHELESS THERE WAS NO FINDING BY THE A.O. THAT THE ADVANCES WERE GIVEN NOT FOR COMMERCIAL EXPEDIENCY. FURTHER ASSESSEE HAD ADMITTEDLY BORROWED A SUM OF RS.32 52 584/- FROM M/S.SUJATHA F ILMS P.LTD. WHICH WAS INTEREST FREE. THOUGH THE A.O. HAD CONCLUDED THAT ORIGIN OF THE ADVANCE COULD BE TRACED TO BORROWED FUNDS HE HAS ALSO ADMITTED T HAT THE ADVANCES WERE NOT GIVEN DIRECTLY FROM BORROWED FUNDS. IN OTHER WORDS IT COULD NOT BE ESTABLISHED WHETHER THE ADVANCED AMOUNTS WERE OUT OF INTEREST B EARING BORROWED FUNDS OR ITA 2510 & 2511/MDS/87 12 FUNDS AVAILABLE WITH THE ASSESSEE WHICH WERE INTERE ST FREE. WITHOUT ESTABLISHING THE NEXUS IN OUR OPINION ANY DISALLO WANCE OF INTEREST COULD NOT HAVE BEEN MADE. THIS WAS THEREFORE RIGHTLY DELETED BY THE LD. CIT(A) AND HENCE NO INTERFERENCE IS CALLED FOR. GROUNDS 2 TO OF THE REVENUE ARE DISMISSED. 26. VIDE GROUND NOS. 6 TO 8 GRIEVANCE OF THE REVENU E IS REGARDING A DIRECTION OF THE LD. CIT(A) TO THE A.O THAT PART OF THE LOAN S ADVANCED BY M/S SUJATHA FILMS P. LTD. TO THE ASSESSEE BEFORE 30-11-1983 SHOULD BE EXCLUDED FOR THE PURPOSE OF WORKING OUT THE DEEMED DIVIDEND. U/S 2(2 2)(E) OF THE ACT. ACCORDING TO REVENUE FOR THE PURPOSE OF CALCULATING THE DEEM ED DIVIDEND ACCUMULATED PROFIT UP TO THE DATE OF PAYMENT OF THE LOAN BY TH E COMPANY TO THE ASSESSEE HAD TO BE CONSIDERED AS PER EXPLANATION 2 TO SEC. 2 (22)(E) OF THE ACT. 27. SHORT FACTS APROPOS ARE THAT ASSESSEE ALONGWITH HIS WIFE WERE HOLDING SUBSTANTIAL SHARES IN A COMPANY M/S SUJATHA FILMS P .LTD. WHICH CALLED FOR APPLICATION OF SEC. 2(22)(E) OF THE ACT. ASSESSEE W AS GIVEN A SUM OF RS.30 49 173 AS LOAN BY M/S SUJATHA FILMS P.LTD DU RING THE PREVIOUS YEAR ENDED 31-3-1983. THE SAID COMPANY WAS FOLLOWING A D IFFERENT PREVIOUS YEAR FOR THE PURPOSE OF ITS ASSESSMENT. ITS PREVIOUS YEAR FO R THE ASST. YEAR 1985-86 ENDED ON 30-11-1984 WHEREAS ITS PREVIOUS YEAR FOR ASSESSMENT YEAR 1984-85 ENDED ON 30-11-1983. ACCUMULATED PROFITS OF THAT CO MPANY AS ON 30-11-1983 WAS RS.79 68 439/- AND ACCUMULATED PROFIT AS ON 30- 11-1984 WAS RS.91 21 789/-. ASSESSEE DID NOT DISPUTE THAT HE W AS A SHAREHOLDER HAVING SUBSTANTIAL INTEREST IN THE SAID COMPANY BUT HIS C ONTENTION WAS THAT ITA 2510 & 2511/MDS/87 13 ACCUMULATED PROFIT WOULD NOT INCLUDE CURRENT PROFIT OF THAT COMPANY FOR ASST. YEAR 1984-85 WHICH IS THE IMPUGNED ASSESSMENT YEAR. FOR THIS HE RELIED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF P .K.BADIANI VS. CIT (105 ITR 642). A.O READILY AGREED WITH THE CONTENTION OF TH E ASSESSEE REGARDING THE DICTUM LAID DOWN BY THE HONBLE APEX COURT IN THE C ASE OF P.K.BADIANI (SUPRA). ACCORDING TO HIM IT WAS TRUE THAT CURRENT YEARS PR OFIT WOULD NOT FORM PART OF THE ACCUMULATED PROFIT. HOWEVER AS PER A.O THE SAI D DECISION WAS NOT APPLICABLE IN ASSESSEES CASE SINCE ASSESSEES PREV IOUS YEAR ENDED ON 31-3- 1984 WHEREAS THAT OF THE COMPANY ENDED ON 30-11-19 83 FOR A.Y 1984-85. ACCORDING TO THE LD. A.O PROFIT OF THE SAID COMPA NY AS ON 30-11-1983 WAS ACCUMULATED AND BROUGHT FORWARD TO THE NEXT ACCOUNT ING YEAR DURING WHICH ASSESSEE CLOSED HIS ACCOUNTS AND THEREFORE SUCH PROFITS WHICH WERE AVAILABLE FOR WITHDRAWAL DURING THE YEAR. HE THEREFORE HELD THAT THE SUM OF RS.30 49 173 AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. 28. IN HIS APPEAL BEFORE THE CIT(A) CONTENTION OF T HE ASSESSEE ONCE AGAIN WAS THAT ACCUMULATED PROFIT WOULD NOT INCLUDE CURR ENT YEARS PROFIT. CIT(A) DID NOT AGREE WITH THE PROPOSITION THAT DECISION OF HONBLE APEX COURT IN P.K.BADIANIS CASE (SUPRA) APPLIED ON FACTS HERE. HOWEVER ACCORDING TO HIM PROFIT UP TO 30-11-83 THOUGH PERTAINING TO ASST. YE AR 1984-85 OF THE SAID COMPANY WAS NOT ITS CURRENT YEARS PROFIT. THEREFO RE ACCORDING TO HIM IF ANY PART OF THE LOAN WAS ADVANCED TO THE ASSESSEE BEFOR E 30-11-1983 THEN IT WOULD HAVE TO BE EXCLUDED FROM THE INCOME OF THE ASSESSEE FOR THE IMPUGNED ITA 2510 & 2511/MDS/87 14 ASSESSMENT YEAR. THEREFORE HE DIRECTED THE A.O TO EXCLUDE THAT PART OF THE LOAN ADVANCED TO THE ASSESSEE PRIOR TO 30-11-1983. 29. NOW BEFORE US ASSAILING THE ORDER OF THE CIT(A ) THE LD. D.R. VEHEMENTLY SUPPORTED THE ORDER OF THE A.O. 30. WE HAVE HEARD THE CONTENTIONS OF THE LD.D.R AND PERUSED THE ORDERS. BOTH THE AUTHORITIES BELOW HAD ACCEPTED THE PROPOSI TION OF LAW LAID DOWN BY THE HONBLE APEX COURT IN P.K.BADIANIS CASE (SUPRA ) THAT ACCUMULATED PROFITS WOULD NOT INCLUDE CURRENT PROFIT OF A COMPANY. HER E THERE IS NO DISPUTE THAT FOR THE SAME ASST. YEAR 1984-85 THE PREVIOUS YEAR O F THE COMPANY ENDED ON 30- 11-83 WHEREAS THAT OF THE ASSESSEE ENDED ON 31-3-84 . ONLY LOANS ADVANCED TO THE EXTENT OF ACCUMULATED PROFIT WOULD HAVE BEEN CO NSIDERED FOR CALCULATING DEEMED DIVIDEND. PREVIOUS YEAR OF THE COMPANY ENDED ON 30-11-83 AND THEREFORE LOANS ADVANCED PRIOR TO THAT DATE WOULD BE OUT OF ACCUMULATED PROFITS UP TO THAT DATE HENCE ANY PART OF THE LOAN ADVANCED PRIOR TO 30-11-83 WHICH WAS PART OF THE ACCUMULATED PROFIT OF THE SAI D COMPANY AS ON 30-11- 1983 COULD NOT BE CONSIDERED FOR ADDITION IN THE I MPUGNED ASSESSMENT YEAR IN THE HANDS OF THE ASSESSEE. IN OUR OPINION THE LD. CIT(A) RIGHTLY HELD SO. NO DOUBT EXPLANATION 2 TO SEC. 2(22)(E) CLEARLY MENTI ONS THAT ACCUMULATED PROFITS WOULD INCLUDE ALL PROFITS UP TO THE DISTRIBUTION OF LOANS. HOWEVER IN OUR OPINION LOANS TAKEN IN AN EARLIER YEAR COULD NOT B E CONSIDERED FOR ADDITION IN A SUBSEQUENT YEAR TAKING REFUGE UNDER THIS EXPLANATIO N. THEREFORE THE DIRECTION GIVEN BY THE CIT(A) WAS JUSTIFIED AND NO INTERFEREN CE IS CALLED FOR. ITA 2510 & 2511/MDS/87 15 31. GROUNDS 6 TO 8 OF THE REVENUE THEREFORE STAND DISMISSED. 32. IN THE RESULT APPEALS OF THE REVENUE FOR BOTH THE ASSESSMENT YEARS ARE DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 16.0 7.2010. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 16 TH JULY 2010 NBR CC: THE ASSESSEE/ASSESSING OFFICER/CIT(A)/CIT/DR/GU ARD FILE