2013 (9) TMI 196 - AT - Income Tax

Tax Tribunal Upholds CIT(A)'s Decisions on Share Application Money & Section 54F Exemption

DCIT-CENTRAL CIRCLE-23 Versus SHRI VIKAS OBEROI

The Tribunal dismissed all five appeals of the Revenue and all four Cross Objections of the assessee. It upheld the CIT(A)'s decisions, confirming that ... Deemed dividend - whether refund of Share application money to be treated as loan and advance - Applicability of section 2(22)(e) of the Income Tax Act – Held that:- Share application money or share application advance is distinct from the ‘loan or advance'. Although the share application money is one kind of advance given with the intention to obtain the allotment of shares/equity/preference shares etc, such advances are innately different form the normal loan or advances specified both in section 269SS or 2(22)(e) of the Act. Unless the mala fide is demonstrated by the AO with evidence, the book entries or resolution of the Board of the assessee become relevant and credible, which should not be dismissed without bringing any adverse material to demonstrate the contrary - Share application money when partly returned without any allotment of shares, such refunds should not be classified as ‘loan or advance' merely because, share application advance is returned without allotment of share. In the instant case, the refund of the amount was done for commercial reasons and also in the best interest of the prospective Share applicant. Further, it is self explanatory that the assessee being a ‘beneficial share holder', derives no benefit whatsoever, when the impugned ‘share application money/advance' is finally returned without any allotment of shares for commercial reasons. In this kind of situations, the books entries become really relevant as they show the initial intentions of the parties into the transactions. Books entries suggest clearly the ‘share application' nature of the advance and not the ‘loan or advance'. As such the revenue has merely suspected the transactions without containing any material to support the suspicion. Therefore, the share application money may be an advance but they are not advances which are referred to in section 2(22)(e) of the Act. Such advances, when returned without any allotment or part allotment of shares to the applicant/subscriber, will not take a nature of the loan merely because the same is repaid or returned or refunded in the same year or later years after keeping the money for some time with the company – Reliance has been placed upon the Madras High Court judgment in the case of CIT vs. Rugmini Ram Ragav Spinners P Ltd [2007 (7) TMI 237 - MADRAS HIGH COURT] and also on the judgment of the Hon’ble Tribunal, Delhi bench in the case of Ardee Finvest (P) Ltd[2000 (11) TMI 291 - ITAT DELHI-E ] – Decided against the Revenue. Limitation – Condonation of delay in filing cross-objection – Appeal of the Department was received by the respondent on 19th March, 2012, the cross objection ought to have been filed u/s 253(4) by 18th April, 2012. As the Cross Objection is being filed on 18th July, 2012, there is a delay of 90 days -Respondent submits that the said delay was inadvertent and was caused due to the Respondent not being aware of the judgment of the Special Bench of the Tribunal (All Cargo Global Logistics Ltd vs DCIT) which is dated 6th July, 2012 – Held that:- It is a settled law that while condoning the delay, the Court needs to take a lenient view considering the preciousness of the right of appeal granted to parties aggrieved. On considering the SB decision based reasons, the explanation is bona fide and reasonable one – Condonation of delay granted – Decided against the Revenue. Allowability of exemption u/s 54F when the capital amount invested in two adjacent residential flats - Held that:- Reliance has been placed upon the judgment in the case of CIT vs. Gita Duggal [2013 (3) TMI 101 - DELHI HIGH COURT] and applying the ratio of the decision of the abovementioned case to the facts of the present case it has been held that two flats in question are not adjacent and they are not functionally one residential house with two adjacent units. Revenue has not brought any contrary decision to notice of the ITAT – Decided against the Revenue. Construction of a residential house with several independent units - Held that:- The judgment relied upon is CIT vs. Gita Duggal [2013 (3) TMI 101 - DELHI HIGH COURT], wherein it has been held that Section 54/54F requires the assessee to acquire a 'residential house' and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the section should be taken to have been satisfied - There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, income tax authorities cannot insist upon that requirement - Residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under section 54/54F. It is neither expressly nor by necessary implication prohibited. - Decided in favor of assessee. Issues Involved:1. Applicability of Section 2(22)(e) of the Income Tax Act, 1961.2. Nature of share application money.3. Validity of assessment orders under Section 153A.4. Condonation of delay in filing Cross Objections.5. Exemption under Section 54F of the Income Tax Act.Detailed Analysis:Issue 1: Applicability of Section 2(22)(e) of the Income Tax Act, 1961The core issue in all appeals revolves around the applicability of Section 2(22)(e) of the Income Tax Act, 1961, which pertains to deemed dividends. The Revenue contested that the share application money received by various entities should be treated as deemed dividends. The assessee argued that the share application money does not amount to 'loans or advances' under Section 2(22)(e).Issue 2: Nature of Share Application MoneyThe Tribunal analyzed whether the share application money could be considered as loans or advances. The Tribunal relied on several judicial precedents, including the Delhi High Court's judgment in CIT vs. Sunil Chopra, which held that share application money is not a loan or advance and thus does not attract the provisions of Section 2(22)(e). The Tribunal also referred to the ITAT Delhi Bench decision in Ardee Finvest (P) Ltd. vs. DCIT, which supported the same proposition. The Tribunal concluded that share application money, even if refunded, does not transform into a loan or advance unless there is evidence of mala fide intentions.Issue 3: Validity of Assessment Orders under Section 153AThe assessee raised the issue of whether the addition of deemed dividend under Section 2(22)(e) in an assessment order passed under Section 153A is justified when it is not based on any incriminating documents found during the search. The Tribunal noted that this issue becomes academic if the main appeal is decided on merits. Since the Tribunal dismissed the Revenue's appeals on merits, the Cross Objections on this issue were treated as academic and dismissed.Issue 4: Condonation of Delay in Filing Cross ObjectionsThe assessee filed Cross Objections with delays ranging from 60 to 90 days. The Tribunal considered the reasons provided by the assessee, including the relevance of the Special Bench decision in All Cargo Global Logistics Ltd vs. DCIT, and found them to be bona fide and reasonable. The delays were condoned, and the Cross Objections were admitted.Issue 5: Exemption under Section 54F of the Income Tax ActThe Revenue challenged the CIT(A)'s decision to allow exemption under Section 54F for investment in two adjacent residential flats. The Tribunal relied on the Delhi High Court's judgment in CIT vs. Gita Duggal, which held that the expression 'a residential house' in Section 54/54F does not imply a single residential unit but can include multiple units used as a single residential house. The Tribunal upheld the CIT(A)'s decision, allowing the exemption under Section 54F.Conclusion:The Tribunal dismissed all five appeals of the Revenue and all four Cross Objections of the assessee. The Tribunal upheld the CIT(A)'s decisions, confirming that share application money does not fall under the purview of Section 2(22)(e) and that the exemption under Section 54F is applicable for investments in adjacent residential units used as a single residential house.