TaxTMI 
TaxTMI 
2013 (9) TMI 196
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....ction 169/M/2012 2. Grounds raised in ITA No.4362/M/2011 are as follows: 1. On the facts and circumstances of the case and in law, the Ld CIT (A) erred in deleting the addition of Rs. 74,06,226/- being deemed dividend within the meaning of section 2(22)(e) of the IT Act, 1961. 2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in holding that an advance received in the grab of share application money is beyond purview of section 2(22)(e) of IT Act, 1961. 3. Ground raised in the said CO No.169/M/2012 is as follows. 1. Whether, on the facts and the circumstances of the case and in law, an addition in respect of deemed dividend u/s 2(22)(e), is an assessment order passed u/s 153A is justified when the same is not based on any incriminating documents found in the search and is based on material already on records." 4. Briefly stated relevant facts of the case are that the assessee is an individual and is a partner / director / shareholder in various Oberoi Group entities. There was a search action on the assessee on 19.7.2007 and the same resulted ....
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.... is clear the above table that NDCPL contributed towards share application money into KPPL amounting to Rs 1,40,03,700/- in this year and the shares were not allotted. Consequently, the said amount was refunded in November, 2004. This transaction is the subject matter of addition by the AO by invoking the provisions of section 2(22)(e) of the Act. On finding that the Reserves available with the NDCPL is only Rs. 74,06,226/- and therefore, AO invoked the provisions and restricted the addition u/s 2(22)(e) of the Act to Rs.74,06,226/-only. The relevant assessment order does not contain full particulars of the reasons for addition and however, it contains the reference to the discussion given in the assessment order in the case of KPPL for the assessment year 2002-03. 7. According to the said order in the case of KPPL, the case of the AO is that the said share application money constitutes an amount of advance given by NDCPL to KPPL. The said amount was returned or refunded to NDCPL after lapse of three years as the intended shares were never allotted. (3) The assessee being a beneficial share holder, has chosen this route to enrich his wealth by increasing net worth of the KPPL, w....
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....ered the issue. It is apparent from the facts of the case that M/s. KPPL is not beneficial shareholder of M/s. NDCPL and, therefore, the issue of taxability of deemed dividend u/s 2(22)(e) is squarely covered by the decision of jurisdictional High Court in Universal Medicare P. Ltd. (2010) 324 ITR 264 (Bom) and, accordingly, the said addition made in the case of M/s. KPPL has been deleted by my in the appellate order no. CIT (A)- 40/IT/DCCC-23/351/09-10 dated 22.03.2011 for the year under consideration. Therefore, the protective addition made in the case of appellant has to be treated as substantive while dealing with this ground of appeal and the addition made is being considered on merits in the following paragraphs." 9. Thus, regarding the nature of addition in the hands of the assessee ie substantive or protective, it is a settled issue at the level of this Tribunal that the addition of Rs. 74,06,226/- constitutes a substantive addition in the hands of the assessee - Sri Vikas Oberoi. Aggrieved with the substantive addition of Rs 74,06,226/- in the hands of Sri Vikas Oberoi u/s 2(22)(e) of the Act, assessee carried the matter in appeal before the CIT (A). 10. Before Ld CI....
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....nding balances of the assessee with KPPL amounting to Rs. 8.95 Cr and held that assessee was never benefited as he himself was made various advances to KPPL. Further, CIT (A) decided the issues in favour of the assessee by holding that the share application money is not an advance and relied on the above cited decision in the case of Nagindas M. Kapadia (supra). Thus, the CIT(A) held that the book entries reflects the original intentions of the assessee and the advance is question, whether refunded or otherwise, when the same is towards the share application money, the provisions of section 2(22)(e) of the Act has no application. CIT(A) granted relief for the reasons discussed in para 5.9.1 of his order. Aggrieved with the above, Revenue is in appeal before the Tribunal as per the details given in initial pages of this order. 11. Before Honble ITAT - Arguments of the Representatives: For revenue, Shri A.P. Singh CIT-DR opened the discussion and narrated the above cited facts of the case and fairly mentioned that there is no dispute on the facts relevant for adjudicating the appeals under consideration. However, he mentioned that the share application money paid essentially is in....
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....s allow lifting up of the corporate veil though these are the deemed fictions'. Finally, relying on the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Sunil Chopra [2011] 12 Taxmann.com 496 (Del) and mentioned that in the context, where the assessee fails to evidence the allotment of shares, by furnishing a certificate from the Registrar of Companies in support of assessee's contention that the shares are intended to be allotted by the company, the impugned payments for the 'share application money' attracts the provisions of section 2(22)(e) of the Act. 12. Per contra, Shri Muralidhar, Advocate for the assessee, relied heavily on the order of the CIT (A). Opening his arguments, inter alia, on the book entries issue, Ld Council has brought our attention to the paper book (page 13 and 19) and demonstrated that the books entries suggest the amounts paid by NDCPL to KPPL is the 'share application money'. Later on, referring to the Delhi Bench of this Tribunal in the case of Ardee Finvest (P) Ltd. vs. DCIT vide ITA No.218/Del/2000 (AY: 1996- 97), Ld Counsel mentioned that such the 'share application money' is not loan or advance and therefore, it is outside the scop....
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.... one at (a), Ld Counsel mentioned that Honble High court held that the 'share application advance' is outside the ken of the provisions of section 2(22)(e) of the Act and this ratio apply directly to the present appeals. Referring to the other judgment delivered in May 2011, Ld AR mentioned that that these observations are merely an obiter dicta. As per Ld AR, when there is clash between a 'ratio' favouring the assessee and a 'obiter dicta' against the assessee, the former one, being the favourable one should prevail. In this regard, Ld Counsel relied on number of judgments to support the assessee's line. Ex consequenti, the ratio of the decision dated 27.4.2011 vide the appeal No.106/2011 is binding legally. Thus, he summed up by stating the in view of the judgment of Honble High courts of Delhi and Chennai read with number of coordinate bench decisions directly on the impugned issue relating to 'share application advance' qua the provisions of section 2(22)(e) of the Act, the conclusions given in the order of the CIT(A) should not be disturbed. 14. Tribunal's Conclusions: We have heard both the parties and perused the orders of the Revenue Authorities and the citations relied ....
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....of the advance is only an advance. ......... The Ld AO has not refuted the positive assertion by the appellant that even the book entries in the books of M/s. NDCPL shows the sum as share application money paid in the books of M/s. KPPL the same is shown as share application money received under the shareholder's fund. The appellant has backed these entries with Board Resolution of both the companies. To call such transactions as an arranged affair, amounts to not believing the assertion without sufficient reason. It is not the AO's case that the appellant has been in the habit of giving such advances in the name of share application money and receiving a refund thereof subsequently. The Ld AO seems to have given undue weightage to statutory distinction provided in the Limitation Act, 1963 between mutual, open and current account and an advance / loan. The share application money is an advance given for appropriation at a future date for shares to be allotted. Therefore, the Ld AO's argument is that until the share are allotted in respect of this advance, the sum remains only an advance in the hands of the recipient company. However, it is seen that none of the cases which have con....
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.... the paper book demonstrate that the KPPL received the share application money of Rs. 1,40,03,700/- and the contents of page 19 shows that the M/s NDCPL reflects the payment of Rs. 1,42,03,825/- and the said amount is the share application money. 17. Then we have examined the judicial finding on the issue ie the SAM constitutes 'loans or advances' for the purposes of section 2(22)(e) of the Act. i. To start, we have taken up the Delhi Bench of this Tribunal in the case of Ardee Finvest (P) Ltd. vs. DCIT vide ITA No.218/Del/2000 (AY: 1996-97) and the same read out the relevant conclusion which reads that the "Share application money received from a closely-held company could not be treated as loan to the assessee-company in terms of section 2(22)(e) and it could not be considered as deemed dividend, when in fact shares were allotted subsequently." In the said case, Delhi Bench of the Tribunal held that the payments made which are in the nature of share application money is beyond the ken of section 2(22)(e) of the Act. ii. M/s Direct Information P Ltd vide ITA NO 2576/m/2011 DT 31.1.2012 is another relevant one on the topic under consideration, whe....
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....nbsp; We may record that the assessee had received the aforesaid amount of Rs. 13,00,000/- from National Capital regional Electronics P Ltd as share application money. The CIT (A), on that ground deleted the addition as it was not loan or advance. The ITAT has upheld the same. We do not find any infirmity in the orders passed by the CIT (A) as well as the ITAT. More particularly, when we take not of the fact that the CIT (A) has stated this amount of share application money cannot be construed as loan or advance and hence would fall beyond the definition of section of 2(22)(e) of the Income Tax Act. This appeal is accordingly dismissed." 18. Thus, Honble Delhi High court held that the share application money of Rs 13 lakhs, which was considered as loan u/s 2(22)(e) of the Act by the AO, is outside the scope of the said provisions and deleted the addition as 'deemed dividend' and upheld the decisions of the AO and ITAT. iv. Regarding the other judgment of the Delhi High Court in the same case vide the IT Appeal no 1879 of 2010 dated 11th May 2011, report....
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.... is that the assessee had received certain share application money and had disclosed the same as such in the balance sheet. The total amount received as SAM was Rs ..... Out of this, the assessee company had allotted preference shares for Rs..... to ..... against SAM received. The balance was returned. The first appellate authority, in our considered opinion, had correctly dealt with a matter and held that SAM cannot be deemed to be loan or deposit. 19. Thus, in the factual matrix that the assessee allotted shares towards the share application money received, the amounts cannot be held as loan or deposit. The refund of the part amount shall not alter the situation. vi. In the case of M/s Rugmini Ram Gagav Spinners P Ltd 304 ITR 417, Madras High court arrived at an opinion that the 'share application advance' is distinguishable from 'loan or advance' for the purpose of section 269SS r w 271E of the Act. Relevant portion from 'Held' segment is extracted as under: Held, dismissing the appeal of the revenue, that the assessee had received cash over a period of time as advance towards allotment of shares from 16 persons ..... th....
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....he same is repaid or returned or refunded in the same year or later years after keeping the money for some time with the company. So long as the original intention of payment of share application money is towards the allotment of shares of any kind, the same cannot be deemed as 'loan or advance' unless the mala fide intentions are exposed by the AO with evidence. Therefore, relying on the cited judgments of Madras High court and the Delhi High court, supra and further relying on the number of coordinate bench decisions of Mumbai Tribunal and others, we are of the opinion, the decisions given by the CIT(A) vide para 9.2.1 of the impugned order does not call for any interference. Accordingly, the grounds raised by the revenue are dismissed. 21. In the result, the appeal of the revenue is dismissed. Assessee's Cross Objection 169/M/2012 - AY:2002-03 22. Condonation of delay: Sri Muralidhar, Ld Counsel for the assessee mentioned that the assessee filed Cross Objections for the AYs 2002-03, 2004-05, 2006-07 and 2007-08 and mentioned that they were filed belatedly. The periods of delay for these four AYs are 90 days, 90 days, 60 days and 60 days respectively. In this regard, Ld ....
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....ue is dismissed on its merits, the adjudication of the Cross Objection, that relates to the legal issue relating to the validity of the notice issued by the AO u/s 153A of the Act in the absence of incriminating material relating to the issue of deemed dividend, becomes purely an academic exercise. Considering our agreement with the order of CIT(A) on merits and dismissal of the revenue's ground, the adjudication of the CO becomes merely an academic exercise. Therefore, we dismiss the CO 169/M/2012 for AY: 2002-03 as an academic. 25. In the result, the CO 169/M/2012 is dismissed. ITA No.4363/M/2011 & Cross Objection 170/M/2012 (AY: 2004-05) 26. This appeal filed by the Revenue on 30.5.2011 is against the order of CIT (A)- 40, Mumbai dated 23.3.2011 for the AY: 2004-05 and the Cross Objection filed by the assessee on 31.7.2012 for the same assessment years. But for the amounts, the issues raised by the revenue are identical to the ones discussed in the appeal for the AY 2002-03. Same is the case with the CO of the assessee too. For the sake of completeness, the Grounds raised in Revenue's appeal ITA No. 4363/M/2011 read as under:- 1. On the facts and circ....
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....he CO 170/M/2012 as an academic. 30. In the result, the CO 170/M/2012 is dismissed. 31. In the result, the appeal of the revenue and the CO of the assessee are dismissed. ITA No.4364/M/2011 - AY: 2005-06 32. This appeal filed by the Revenue on 30.5.2011 is against the order of CIT (A)- 40, Mumbai dated 23.3.2011 for the AY: 2005-06. The grounds raised in the Revenue's appeal read as under: 1. On the facts and circumstances of the case and in law, the Ld CIT (A) erred in deleting the addition of Rs. 3,67,60,000/- being deemed dividend within the meaning of section 2(22)(e) of the IT Act, 1961. 2. On the facts and circumstances of the case and in law, the Ld CIT (A) erred in holding that an advance received in the grab of share application money is beyond the purview of section 2(22)(e) of the Act." 33. In this AY 2005-06, the distinguishable facts are that the share application money of Rs.3,67,60,000/- was contributed by R S Estate Developers P Ltd = RSEDPL (not M/s. Oberoi Construction P Ltd wrongly mentioned by the AO in his order); and (b) M/s KPPL made allotment of shares in the AY 2005-06 in return of the Share application money s....
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....acts that the said section provides for exemption in respect of a residential property implying a single residential unit only." 37. Grounds 1 and 2 deal with the issue of applicability of section 2(22)(e) of the Act to the advance by way of 'share application money'. In this AY 2006-07, the distinguishable facts are: (a) Siddhivinayak Realties P Ltd (SRPL) received a sum of Rs 10,35,34,900 from M/s Oberoi Constructions P Ltd; (b) KPPL also received a sum of Rs 6,89,00,000/- from RSEDPL in the form of share application advances; (c) Total 'share application advance' works out to Rs. 17,24,34,900/-; and (d) so far as the share application advance of Rs 6,89,00,000/- is concerned, the same is refunded as part of the business considerations in December, 2006. It is submitted that the said sum was refunded to RSEDPL as the KKPL received Rs 675 crores of share application money on 17.1.2207 from Morgan Stanely group and of course, undisputedly, the shares are accordingly allotted on the same date. Otherwise, the conclusions of the revenue authorities, submissions of the assessee before the I T Authorities et cetera are the same. Even before us, both the parties in the dispute fairly ....
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....peal is accordingly allowed." 41. Aggrieved, the Revenue is in appeal before the Tribunal. 42. During the proceedings before us Ld Counsel brought our notice that an identical issue was adjudicated by the Hon'ble Delhi High Court in the case of CIT vs. Gita Duggal vide ITA 1237/2011 dated 21.03.2013 and para 8 from the said order is relevant in this regard which is reproduced here under: "There could also be another angle. Section 54/54F uses the expression "a residential house". The expression used is not "a residential unit". This is a new concept introduced by the assessing officer into the section. 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 u....
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....ds 3 and 4 are dismissed. 44. In the result, the appeal of the revenue is dismissed. Cross Objection: 112/M/2012 - AY 2006-07 45. There is an issue of condonation of delay in this CO and we have granted the prayer of the assessee in this regard for the reasons given in para 22 above. Further, Ld Counsel mentioned that in case the appeal of the revenue is dismissed on its merits, the adjudication of the Cross Objection, that relates to the legal issue relating to the validity of the notice issued by the AO u/s 153A of the Act in the absence of incriminating material relating to the issue of deemed dividend, becomes purely an academic exercise. Considering our agreement with the order of the CIT(A) on merits and dismissal of the revenue's ground, the adjudication of the CO becomes merely an academic exercise. Therefore, we dismiss the CO 112/M/2012 as an academic. 46. In the result, the CO 112/M/2012 is dismissed. 47. In the result, the appeal of the revenue and the CO of the assessee are dismissed. ITA No.4440/M/2011 and CO No.113/M/2012 -(AY: 2007-08) 48. This appeal (ITA No.4440/M/2011) filed by the Revenue on 2.6.2011 is against the order of CIT (A)-40, Mu....