AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (7) TMI 1197
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.... assessee is an individual deriving income from salary as the Managing Director of M/s. Mahathi Software Pvt. Ltd., Visakhapatnam and income from house property. For the impugned assessment year, the assessee filed her return of income on 30.9.2009 declaring total income of Rs. 13,62,200/-. Initially, the return of income was processed u/s 143(1) of the Act on 26.7.2010 accepting the income returned. Subsequently on verifying the balance sheet as on 31.3.2009 in respect of the company M/s. Mahathi Software Pvt. Ltd., it was noticed by the assessing officer that the said company had advanced an amount of Rs. 9,17,21,680/- to the assessee, which has been shown under the head loans and advances. As M/s. Mahathi Software Pvt. Ltd. is a closely held company and the assessee is a substantial shareholder and is also holding substantial voting right, the assessing officer inferred that the amount advanced by the company to the assessee partakes the character of deemed dividend u/s 2(22)(e) of the Act. On the aforesaid reason to believe, the assessing officer initiated proceeding u/s 147 of the Act by issuing a notice u/s 148 of the Act on 4.1.2012. In the course of the assessment proceedin....
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....ion 2(22)(e) of IT Act, 1961 and requested to consider this explanation and drop the further proceedings in this regard." 4. During the course of assessment proceeding, the assessing officer after considering the submissions of the assessee and other documents such as ledger extracts in support of claim of utilization of amount drawn from M/s. Mahathi Software Pvt. Ltd., copies of the share certificates towards investment in M/s. Indian Institute of Cancer & Research Pvt. Ltd., copy of the sale agreement between the assessee and the company and minutes of the board meeting of the company dated 10.10.2009 and 15.10.2008, accepted assessee's explanation with regard to the investment of Rs. 3,55,00,000/- in the shares of Indian Institute of Cancer & Research Pvt. Ltd. and amount of Rs. 1.7 crores towards construction of Information Technology building of the company. However, so far as amount received as advance towards sale of the property amounting to Rs. 3,63,21,635/-, the assessing officer did not accept the same and was of the view that the same squarely attracts the provision of section 2(22)(e) of the Act. Similarly, proportionate amount out of advances given to M/s. Mahathi....
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....proposed sale. The CIT(A), however, held that before sale of the property, the bank was not informed about the same by the owners. Accordingly, he concluded that the entire transaction is to be treated as sham. He was of the view that if the parties really intended to enter into a transaction of sale, they would have entered into a proper agreement and intimated the bank about the purported alienation and also registered the sale agreement as the transaction value exceeds more than Rs. 100/-. In absence of all these factors, the claim that the company had advanced the money for it's business purposes is not believable. He further noted that the assessee also could not explain why the consideration was paid only to the assessee when there are three co-owners. Accordingly, the CIT(A) held that the agreement of sale, not being acceptable, the claim of the assessee that the advance was made by the company for business purposes is not believable and accordingly upheld the order of the assessing officer. 6. The Ld. A.R. submitted before us that the addition of Rs. 4,21,48,280/- as deemed dividend u/s 2(22)(e) of the Act comprises of the following: a. Advance received for sale of pr....
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....signed on behalf of all the persons. It was therefore contended that non-signing of the agreement of sale by all the parties is therefore on a bonafide belief of the assessee that only if she signs, then it will meet the purpose. So far as the allegation of the CIT(A) that before the proposed sale of the property, the assessee has not obtained permission of the bank, it was submitted by the Ld. A.R. that the agreement of sale was entered into with the company on 2.4.2008 and on that date, there was no bank loan on this property. Hence, question of taking permission from bank does not arise. The ld. A.R. submitted that considered in the aforesaid perspective, the finding of the department that the agreement of sale is a sham one is without any basis. The Ld. A.R. submitted that once the agreement of sale is held to be genuine, the advance received in pursuance to the agreement would fall outside the scope of deemed dividend. In support of such contention, the Ld. A.R. relied upon the decision of Hon'ble Madhya Pradesh High Court in case of CIT Vs. Om Prakash Suri (2013) 359 ITR 41 and in case of CIT Vs. Satyanarayana Nuwal (2011) 037 ITCL 0060 (Bombay). Developing the argument fu....
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.... added u/s 2(22)(e) of the Act. In this context, the Ld. A.R. referred to the balance sheets showing the aforesaid opening balance. 9. The Ld. D.R. submitted that the assessee is acting both on behalf of the company as well as herself. Therefore, the agreement of sale signed by the assessee only has rightly been held to be a sham document. The Ld. D.R. referring to the No Objection Certificate issued by the bank, a copy of which is placed at page 37 of the paper book filed by the department, submitted that the said document shows that the construction is not done in the name of company. Therefore, it cannot be said that the advance made by the company is towards purchase of the property. Referring to the agreement of sale entered into between the assessee and the company, the Ld. D.R. submitted that the agreement is signed by the assessee in her capacity as representing the vendee only. Hence, as the agreement is not signed by any of the vendors, it cannot be treated as a valid agreement in addition to the fact that it is an unregistered document. Further, referring to the balance sheet of the company, the Ld. D.R. submitted that the notings in the balance sheet does not show th....
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....). Hence, at this stage, the argument advanced by the assessee for the first time cannot be accepted. In support of his contentions, the Ld. D.R. relied upon the following decisions: 1. ITO Vs. Nam Estates (P) Ltd. (2013) 21 ITR (Trib) 0108 2. Shyama Charan Gupta Vs. CIT (2011) 337 itr 0511 3. Mrs. Kiran Banswal Vs. Asst. CIT (2011) 010 ITR (Trib) 0180 4. Asst. CIT Vs. Ajay Jadeja (2010) 005 ITR (Trib.) 0233 5. Rajesh P. Ved Vs. Asst. CIT (2010) 001 ITR (Trib.) 0275 6. CIT Vs. Mukundray K. Shah (2007) 290 ITR 0443 7. CIT Vs. P.K. Abubucker (2003) 259 ITR 0507 8. CIT Vs. P. Sarada (1985) 154 ITR 0387 9. Sarada P. Miss Vs. CIT (1998) 229 ITR 0444 10. CIT Vs. National Travel Services (2012) 347 ITR 0305 10. In rejoinder to the submissions made by the Ld. D.R. the counsel for the assessee submitted that so far as the contention of the department that the NOC is not in the name of the company, same is not correct as the NOC at page 37 & 38 would clearly show that it is in the name of the company though the application for NOC was made by the owners. So far as reference to the minutes of the meetings of the boards are concerned, the Ld. A.R. submitted tha....
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....ividend' includes- (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise [made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern),] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; But 'dividend' does not include - (i) a distribution made in accordance with sub-clause (c) or subclause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; [(ia) a distribution made in accordance w....
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....concern;]" 12. A plain reading of the aforesaid provision would make it clear that to come within the ambit of the provision of section 2(22)(e) of the Act, three conditions have to be fulfilled. (i) it must be a company in which public are not substantially interested (ii) the company must have made payments by way of loan or advance to a shareholder holding more than 10% of the shares of the company (iii) the company must have accumulated profits during the relevant year. So far as the first and third conditions are concerned, there is no dispute that they exist in the present case. So far as second condition is concerned, it is a fact that assessee is a shareholder of the company and she holds more than 10% of the shares. Therefore, the crucial issue to decide is whether the payments made by the company to the assessee are in the nature of 'loan or advance'. As reiterated earlier, it is the consistent claim of the assessee that the amount paid by the company is towards advance for purchase of a property. Therefore, it will not come within the meaning of' loan or advance as envisaged u/s 2(22)(e) of the Act. The department has rejected such claim of the assessee by....
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....s also not raised any dispute with regard to the agreement of sale. That being the case when neither of the parties to the agreement of sale have any dispute with regard to the same, the department cannot dispute the same by pointing out certain technical deficiencies and that too without bringing any material on record, as a result of any enquiry or other evidence to show that the agreement is a false one. Further, the sanction letter dated 11.10.2010 of the UCO bank, a copy of which is at page 37 of the department's paper book on which the CIT(A) as well as the Ld. D.R. have put much emphasis, on the contrary, proves the assessee's case. The approval of the zonal office of UCO bank dated 11.10.2010 at page 37 of the paper book and the NOC issued by the branch on 4.11.2010 would clearly indicate that it is issued in favour of the company M/s. Mahathi Software Pvt. Ltd. for construction of a multi usage units of hospital, convention hall, cafeteria, 3 towers with service apartments for doctors with recreation place and commercial centre. This fact clearly proves that the agreement of sale is not only intended to be acted upon but is actually being acted upon by the parties. In t....
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....ntention of the Ld. D.R. that there is neither any resolution of the board nor clarification by the auditors or noting, in the balance sheet towards the advance is concerned, we find the same to be factually incorrect. As already stated herein before, the Ld. A.R. has produced before us, the copy of the board's resolution authorizing the assessee for entering into transaction of purchase of property vide resolution dated 5.4.2008, which has not been controverted by the Ld. D.R.. In any case of the matter the resolutions referred to by Ld. D.R. being subsequent to the execution of agreement of sale, they are not relevant for the purpose of deciding the issue in dispute. 13. Having considered the factual aspect of the issue, we will now examine the legal aspect as laid down in different judicial precedents. The Hon'ble Madhya Pradesh High Court in CIT Vs. Om Prakash Suri (supra) while considering similar issue of advance made by the company towards sale of land being treated as loan and advance to bring it within section 2(22)(e) of the Act held as under: "The Income-tax Appellate Tribunal while deciding the identical facts for assessment year 2005-06 found that the agreement t....
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....CIT v. Om Prakash (No.1) [2013] 359 ITR 39 (MP) we are of the view that there is no infirmity in the impugned order. No substantial question of law is arising in this appeal. Accordingly, the appeal fails and is hereby dismissed." 14. In case of CIT Vs. Satyanarayanan Nuwal (supra) the Hon'ble Bombay High Court held as under: "Where the amount is advanced by a company towards part consideration of a property intended to be sold by the assessee to the company, it cannot be said that the company has advanced money to its shareholders within the meaning of section 2(22)(e) of the IT Act, merely because the seller of the property happens to be the shareholder of the Company. In other words, where the amount is advanced towards part consideration of the immovable property, it cannot be said that the amount is advanced by a Company to its shareholders." 15. The allegation of the department that the payments by the company to the assessee is a gratuitous one also cannot be accepted not only because of the fact that it is towards advance for purchase of land but also considering the fact that the assessee has put all her personal properties as collateral security for the loan avai....
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....Rs. 20,75,000/- as deemed dividend. The Hon'ble High Court while allowing the appeal of the assessee held that for retaining the benefit of loan availed of from the bank, if decision was taken to give advance to the assessee such decision was not to give gratuitous advance to its shareholder but to protect the business interest of the company. The sum of Rs. 20,75,000/- could not be treated as deemed dividend. The Division Bench of the Hon'ble Calcutta High Couirt followed the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Creative Dyeing & Printing P. Ltd. reported as 318 ITR 476 (Del). In the instant casde also the assessee was allowed to withdraw funds from the company as per requirement for personal purposes against the personal guarantee and the collateral security given by her to facilitate her availing of credit facility of the company. It is a well settled law that loan or advance given to a shareholder by a company in which public is not substantially interested and which had accumulated profits, the amount advanced as loan to such shareholder is deemed to be dividend as per the provisions of section 2(22)(e) of the Act. However, the facts and cir....