K. Sreedharan vs Commissioner of Income Tax and Another

K.A. Nayar, J.—For the assessment year 1984-85, the petitioner was assessed to Income Tax. Exhibit P-l is the assessment order. In computing the income of the petitioner, the Income Tax Officer made the following additions to the petitioner''s income :

(Rs.)

(a) Deemed dividend u/s 2(22)(e) of the Income Tax Act. 1,20,000

(b) Addition for insufficient drawings 10,928

(c) Unexplained investment in Ramananda Textiles 10,000

(d) 4/5ths share of agricultural income of minor sons and wife 11,260

Aggrieved by the assessment order, the petitioner filed a revision. Exhibit P-2 is the revisional order. The revisional authority accepted the claim of the petitioner to exclude the addition of 4/5ths share of agricultural income of minor sons and wife. The revisional authority has not accepted the contention of the petitioner in respect of the addition to the petitioner''s income under the heads (a), (b) and (c) mentioned above. The petitioner, therefore, filed this writ petition challenging exhibit P-2 revisional order. The addition on account of insufficient drawings has not been challenged before me. The only challenge is on account of addition of deemed dividend and unexplained investment. Regarding the unexplained investment, the contention of the assessee was that a sum of Rs. 10,000 was invested in a sister concern and the amount was withdrawn on July 23, 1983, from the private limited company, namely, M/s. Sreedharan and Co. Ltd. This argument was considered by the first respondent and found that the investment was on July 6, 1983, while the withdrawal from the company was on July 23, 1983. The explanation, therefore, cannot be accepted. For the first time, it was contended before me that the withdrawal on July 23, 1983, was a mistake for July 6, 1983. It is stated to be a clerical mistake. Such a contention cannot be raised for the first time in this writ petition as there was no such contention before the Income Tax Officer or even before the revisional authority, the first respondent. Therefore, exhibit P-2 in so far as rejecting the contention of the petitioner under the unexplained investment and directing the addition of Rs. 10,000 as income from other sources is not liable to be interfered with.

The other main contention relates to the addition of deemed dividend u/s 2(22)(e) of the Income Tax Act. u/s 2(22)(e), any payment by a private limited company, not being a company in which the public are substantially interested by way of advance or loan to a shareholder who is also substantially interested will be deemed as a dividend. Therefore, the question is whether the amount of Rs. 1,20,000 received by the petitioner on March 26, 1984, from the company is a loan or advance, coming within the definition of deemed dividend. The petitioner is the managing director and the company is a private limited company and Section 2(22)(e) is admittedly attracted in a case provided what is paid to the managing director by the company on March 26, 1984, to be characterised as a loan or advance. The petitioner''s contention was that he has not taken any loan or advance from the company. He had availed of a loan of Rs. 2,57,250 from Syndicate Bank on March 2, 1984, which was paid to the company on the same day and the company acknowledged the receipt of the said amount. That was a loan from the managing director to the company. That loan was partly repaid on March 26, 1984. The amount of Rs. 1,20,000 received on March 26, 1984, by the petitioner is in repayment of the said loan of Rs. 2,57,250 earlier advanced by the petitioner to the company. That contention may be right or incorrect. I am concerned only with the decision-making process evidenced by exhibit P-2. The revisional authority says that, on verification, it was noticed that the amount of Rs. 1,20,000 was actually an advance given by the company and, thereafter, he further added that the assessee was asked to produce a copy of the bank account from where loan was availed and advanced to the company. Thereafter, he extracted a portion from the letter dated February 15, 1988, sent by the assessee to the officer by way of clarification which reads as under : " the amount of Rs. 1,20,000 was returned by Sreedharan and Co. Ltd., on March 26, 1984, to me which was then paid to K. Sreedharan and Co., on the same day, which was in turn utilised to pay Income Tax payment of Rs. 1,00,000 for the assessment year 1979-80 in my personal case, and Rs. 20,000 was paid to Cannanore Central Oil Mills, another sister concern." Thereafter, the first respondent concluded that it is clear that the amount of Rs. 1,20,000 received from Sreedharan and Co. Ltd. was only for the purpose of Income Tax payment. The purpose for which the money has been spent by the assessee is not the main concern. The question before the first respondent was whether the amount of Rs. 1,20,000 was a loan or advance. The explanation of the assessee was that it was not a loan or advance, but only a repayment of part-payment of the loan earlier advanced by the assessee to the company. In order to verify that the respondents would have called for the bank account of the assessee and the assessee may not have furnished the bank account. There is no statement that the bank account has not been produced and it is also not stated that there is no evidence before the first respondent, or the revisional authority to come to the conclusion that the petitioner availed of a loan from any bank and that the amount has been given by way of loan to the private limited company. Therefore, exhibit P-2 in so far as it rejects the claim of the petitioner called for interference. I, therefore, quash exhibit P-2 in so far as it rejects the contention of the petitioner in respect of Rs. 1,20,000 added by the Income tax Officer as deemed dividend in the income of the petitioner for the year 1984-85. The first respondent will take on file the revision petition of the petitioner, No. RP. 25/S. 264/87-88/CIT(C) and dispose of the claim of the petitioner for exclusion of the income, namely, Rs. 1,20,000 after giving an opportunity of being heard to the petitioner.

Original petition is allowed as above.