2015 (9) TMI 840 - AT - Income Tax

ITAT affirms CIT(A) in tax dispute, cites precedents on interest, disallowances, cash payments, deemed dividends

The ITAT upheld the CIT(A)'s order in a tax dispute case, dismissing the grounds of both the assessee and the department. The ITAT found precedent in ... Addition made on account of interest on Post Dated Cheques (PDCs) - Held that:- As decided in the case of ACIT Vs M/s IAG Promoters and Developers Pvt. Ltd. [2014 (12) TMI 216 - ITAT DELHI] CIT(A) was rightly of the view that there is no evidence which proves that interest is paid from the date of sale to date of encashment of postdated cheques - where ever the date of PDCs are extended interest is paid @ 15% per annum in cash out of books of accounts which are evident from seized material - therefore, interest on PDCs to the extent of extension period appears to quite reasonable and logical - The ground raised by the Revenue is misconceived because CIT(A) has not deleted the addition but has only directed to recalculate the interest - after examining the loose papers seized at the time of search at the assessee’s premises, it was noticed that interest is paid on the PDCs only during the period of extension of PDCs – CIT(A) rightly directed the AO to re-compute the interest on PDCs at the time of extension of the PDCs - if it is not possible to work out the extension of PDCs in each case, then the AO is directed to recomputed interest on PDCs after six months from the date of issue of the PDCs – the order of the CIT(A) is upheld – Decided against revenue. Disallowance on account of additional payments for the purchase of land - Held that:- As decided in the case of M/s Westland Developers Pvt. Ltd. Vs ACIT [2014 (12) TMI 254 - ITAT DELHI ]Section 40A(4) starts with the non-obstante clause setting out that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provisions of the Act relating to the computation of income under the head ‘profits and gains of business or profession’ – if a transaction is embodied in a document, the liability to tax depends upon the meaning and content of the language used i.e. the Court has to look to the terms of the contract between the parties as to what is the true nature and effect of the terms embodied in an agreement between the parties - the assessee claimed relying upon the agreement entered that the assessee had acquired various lands through farmers/villagers and after acquiring the same handed over to the developer for development of an integrated township project and in terms of the collaboration agreement the assessee received a consolidated fee - relying upon Commissioner Of Income-Tax Versus Industrial Engineering Projects Pvt. Limited [1992 (7) TMI 38 - DELHI High Court] – section 40A(3) of the Act has been wrongly invoked as admittedly no expenses relatable to the addition has been claimed and the assessee has successfully demonstrated that the payment were reimbursement made by CWPPL – Decided in favour of assessee. Addition u/s 2(22) - Held that:- The Revenue wants the deeming provision to be extended which is illogical and attempt is to create a real legal fiction, which is not created by the Legislature. - the definition of shareholder is not enlarged by any fiction - The assessee who was recipient of the amount was not the shareholder in the payer company and therefore, provisions of Section 2(22)(e) of the Act were not applicable. - Even the money which was paid was not in the nature of loan or advance simplicitor, but the amounts were advanced for business transaction. The expression 'shareholder being a person who is the beneficial owner of shares' referred to in the first limb of Section 2(22)(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial then the provision of Section 2(22)(e) will not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of provisions of Section 2(22)(e) will not apply. See CIT Vs Ankitech Pvt. Ltd. [2011 (5) TMI 325 - DELHI HIGH COURT] - Decided in favour of assessee. Issues Involved:1. Legality of the assessment order under sections 153C vs. 143(3)/147 of the Income Tax Act.2. Addition on account of interest on Post Dated Cheques (PDCs).3. Disallowance on account of additional payments for the purchase of land.4. Disallowance under section 40A(3) of the Income Tax Act.5. Addition under section 2(22)(e) of the Income Tax Act on account of deemed dividend.Detailed Analysis:1. Legality of the Assessment Order:The assessee argued that the assessment order was void ab-initio as it should have been made under section 153C instead of sections 143(3)/147. However, this ground was not pressed during the hearing and was therefore dismissed.2. Addition on Account of Interest on PDCs:The Assessing Officer (AO) made an addition of Rs. 28,42,472/- on account of interest on PDCs. The CIT(A) directed the AO to recompute the interest if it was not possible to work out the extension of PDCs. The ITAT found that an identical issue was previously adjudicated in the case of M/s IAG Promoters and Developers Pvt. Ltd., where the CIT(A) had directed the AO to recalculate the interest on PDCs at the time of extension. Following this precedent, the ITAT upheld the CIT(A)'s order, dismissing the grounds of both the assessee and the department.3. Disallowance on Account of Additional Payments for Purchase of Land:The AO disallowed Rs. 15,66,979/- for additional payments made for land purchase, citing violation of the Stamp Duty Act and Section 37(1) of the Income Tax Act. The CIT(A) partly upheld this disallowance, allowing payments made by account payee cheque but disallowing others due to lack of business expediency. The ITAT referred to the case of M/s Westland Developers Pvt. Ltd., where it was held that since the expenditure was not claimed as a business expense, no disallowance could be made. Following this precedent, the ITAT decided in favor of the assessee and against the Revenue.4. Disallowance Under Section 40A(3):The assessee contested the disallowance under section 40A(3) for payments made in cash. The ITAT referred to the case of Westland Developers Pvt. Ltd., where it was held that Section 40A(3) was wrongly invoked as no expenses were claimed, and the payments were reimbursements. Following this, the ITAT decided in favor of the assessee.5. Addition Under Section 2(22)(e) on Account of Deemed Dividend:The department appealed against the deletion of additions made under section 2(22)(e) for deemed dividends. The CIT(A) had deleted the additions, following the judgment in CIT Vs Ankitech Pvt. Ltd., which held that such additions could not be made if the payment was not in the course of ordinary business activities. The ITAT upheld the CIT(A)'s decision, finding no merit in the department's appeal.Separate Judgments:The ITAT delivered a consolidated order for convenience and brevity, covering cross appeals involving different entities but similar issues. The judgments were consistent with previous rulings on similar matters, ensuring uniformity in the application of legal principles.