2010 (8) TMI 344 - AT - Income Tax

Tax Court Decision: Deemed Dividend Upheld, Improvement Costs Disallowed, Business Loss Set-Off Allowed

Mrs. Kiran Bansal Versus Asstt. CIT

The court upheld the addition of Rs. 3.70 lakh as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961, dismissing the argument that it was ... Deemed Dividend - Addition of income - the assessee received loan/advance from B.G. Creations Pvt. Ltd. on 11.3.2006, and the outstanding balance on 31.3.2006 was Rs. 3.70 lakh - The amount paid is in the nature of 'imprest amount' and not in the nature of a loan or an advance - the ld. DR relied on paragraph No. 30 of the impugned order to argue that the amount was a loan liable to be included in the total income u/s 2(22)(e) of the Act - The certificate of the company is not believable in this regard as no particular purpose has been mentioned - taxable as deemed dividend. Capital Gain – Maintenance Charges as Cost of Improvement - expenditure incurred on its maintenance cannot be taken as the cost of improvementDate of purchase of property versus Date of acquisition of property - Admittedly, the sale was registered on 3.9.2004. The AO has mentioned that possession of the property was also given to the assessee on 3.9.2004. - Before the ld. CIT(Appeals), it was submitted that purchase and sale of an immovable property involve two stages - ld. CIT(Appeals) mentioned that there is some confusion in the mind of the AO because the assessee had also sold another property - under the deeming provision of section 2(47)(v), the date of possession is the material date for finding out the date of transfer as the transfer takes place when the possession is taken in a case covered u/s 53A of the Transfer of Property Act. As all the facts are not available on record, we think it fit to restore this matter to the file of the CIT(A)to ascertain the data of taking possession of the plot of land by the assessee and decide the matter of the date of acquisition accordingly. Issues Involved:1. Addition of Rs. 3.70 lakh as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961.2. Disallowance of Rs. 86,804 as cost of improvement while computing capital gains.3. Determination of the date of acquisition of property for calculating capital gains.4. Set-off of business loss claimed by the assessee.5. Credit for taxes paid in the USA.Issue-wise Detailed Analysis:1. Addition of Rs. 3.70 lakh as Deemed Dividend:The assessee received Rs. 3.70 lakh from B.G. Creations Pvt. Ltd., which was classified as a deemed dividend under section 2(22)(e) of the Income-tax Act, 1961. The conditions for such classification include the payment being made by a company in which the public is not substantially interested, the payment being made by way of loan or advance, the payment being made to a shareholder holding not less than 10% of voting rights, and the amount being paid out of accumulated profits. The CIT(A) upheld the addition, noting that the amount was credited in the assessee's bank account and used to reduce her debit balance, indicating it was a loan. The Tribunal agreed, dismissing the assessee's argument that the amount was an 'imprest amount' and confirming it as a loan covered under section 2(22)(e).2. Disallowance of Rs. 86,804 as Cost of Improvement:The assessee claimed Rs. 86,804 as the cost of improvement for a property in Gurgaon, Haryana. The CIT(A) disallowed this amount, stating that the expenses were for general maintenance and did not add value to the asset. The Tribunal upheld this view, noting that there was no evidence for the payment of Rs. 39,760 as late construction fees and that maintenance charges do not qualify as cost of improvement under the relevant legal provisions.3. Determination of the Date of Acquisition of Property:The revenue appealed against the CIT(A)'s decision that the date of purchase of property was the date of acquiring the asset, not the date of registration. The assessee argued that the property was acquired on 28.12.1996 when all rights were transferred, and the consideration was paid. The AO considered the date of possession and registration (3.9.2004) as the date of acquisition. The Tribunal restored the matter to the CIT(A) to ascertain the exact date of possession and decide accordingly, emphasizing that the date of possession is crucial under section 2(47)(v) of the Act.4. Set-off of Business Loss:The revenue challenged the CIT(A)'s direction to allow the set-off of business loss, which the assessee claimed by letter rather than a revised return. The AO had rejected this based on the Supreme Court decision in Goetze India Ltd. v. CIT. The CIT(A) allowed the claim, citing the Delhi High Court decision in CIT v. Nalwa Investments Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the Tribunal's powers are not restricted by the Supreme Court ruling in Goetze India Ltd.5. Credit for Taxes Paid in the USA:The revenue contended that the CIT(A) erred in directing the AO to allow credit for taxes paid in the USA. The Tribunal noted that the tax rate in the USA was lower than in India, making the issue academic as the liability remained the same regardless of the procedure followed. Thus, this ground was dismissed.Conclusion:(i) Assessee's appeal in ITA No. 2322(Delhi)/2010 is dismissed.(ii) Revenue's appeal in ITA No. 2526(Delhi)/2010 is allowed for statistical purposes.(iii) Assessee's appeal in ITA No. 2323(Delhi)/2010 is dismissed.(iv) Revenue's appeal in ITA No. 2525(Delhi)/2010 is partly allowed for statistical purposes.