TaxTMI 
TaxTMI 
2016 (10) TMI 221
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....ddition of Rs. 40,61,517/- as deemed income u/s 2(22)(e) of the Income Tax Act. 2. In doing so he has failed to appreciate that the amounts received by the assessee was neither advances or the loan, but was mere advances in the nature of deposit made by the three companies for their business requirement, which deposits were made by them, in order to enable them to participate in the project (undertaken by the assessee) between the assessee and Landmark Apartments Pvt.Ltd. 3. That the learned authorities have failed to appreciate that it is not any and every sum received by a share holder from a company of which he is a share holder could be brought to tax and treated as a deemed dividend within the meaning of section 2(2)(e) of the Act, even when the amount is advanced by the company with the share holder for the purpose of their business. That the findings recorded by the CIT(A) in his order that the companies namely M/s PPSL, M/s PMMPL and M/s SEPL had no apparent business transaction is highly misconceived and is contrary to factual matrix available on record and supported by memorandum of understanding as well as resolution passed by the assessee comp....
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....ty u/s 271(1)(c) of the Act. 1.3 That the finding that "the AO has effectively demolished the appellant's argument that the said additions/disallowances totaling Rs. 43,33,088/- were allowable business expenses given the facts and circumstances of the case" is not based on correct appreciation of facts and circumstances of the appellant and therefore unsustainable. 1.4 That furthermore the specific finding recorded by the learned Commissioner of Income Tax, (Appeals) the learned Assessing officer while holding that loss of Rs. 4,08,800/- represents capital loss and not business loss has clearly brought out "that the contention of the appellant that this piece of land was purchased by him from Smt. Kesar Devi for his clients M/s Selene Construction Pvt. Ltd. And M/s Juventus Estates Pvt. Ltd. Was false" is also incorrect, contrary to facts and any case could not have been made a basis to sustain the penalty in the light of the settled judicial position that no penalty under section 271(1)(c) of the Act is leviable for holding the loss as capital loss instead of business loss declared by the appellant. 2. That the learned Commissioner of Income Tax, (Appeal....
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....ct: (Ground No. 1-3) 2.1 In so far as the first issue is concerned, the learned A.O. has held that the amounts received by the assessee and credited in the accounts of the respective companies named above represents loan and is thus a deemed dividend within the meaning of section 2(2)(e) of the Income Tax Act. 2.2 That apart from the sequence of events (enclosed as Annexure-A), the facts in brief in respect of the said issue is stated as under: 2.3 The assessee is admittedly engaged in the business of development of Real Estate. (Page 25). That the assessee is a shareholder of following three companies and had substantial interest in the aforesaid companies within the meaning of section 2(22)(e) of the Income Tax Act. (i) Prama Project Solution Pvt. Ltd. (ii) Prama Marketing Pvt. Ltd. (iii) M/s Sanyog Estate Pvt. Ltd. 2.4 During the instant year, the aforesaid three companies had advanced sums to the assessee in the course of the business which was credited to the respective accounts in the books of the assessee. The amounts advanced by the aforesaid three companies are as under: S.No. Name of the company from whi....
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....t assessee has sufficient funds available with him and has the capacity to arrange funds from other sources including foreign investors and were desirous to deploy the same for the project. That M/s Prama Project Solution Pvt. Ltd. and M/s Prama Marketing Pvt. Ltd. had advanced sums to the assessee to make investment in the aforesaid project. However, as the aforesaid project had since not fortified, it requested Landmark Apartments Pvt. Ltd. to refund the amount invested by the assessee which was refunded by M/s Landmark Apartments Pvt. Ltd. on 07.05.2009 (page 199). 2.8 Further, from the perusal of the MOU between assessee and M/s Sanyog Estate Pvt. Ltd. placed at pages 144-146 of PB, it would be seen that sum of Rs. 5,00,000/- has been advanced to the assessee to search out a place in New Delhi/Gurgaon for opening a business centre in commercial location and the price of the property should not exceed Rs. 1,00,00,000/- i.e. sum of Rs. 5,00,000/- advanced was for the purpose of giving advance for the purchase of the business centre. 2.9 The aforesaid facts clearly demonstrate that the amounts received by the assessee from the aforesaid companies were commercial ....
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....tion has undertaken between the assessee and such companies, as such, he held that such transaction cannot be held to be business and hence he made the addition by invoking section 2(22)(e) of the Act to the extent of the accumulated profits by such companies. 5. The Finding of the learned AO while holding that sum received is deemed dividend in respect of sum received from aforesaid three companies are as under: 5.1 The learned AO has rejected the claim of the assessee in the case of M/s Sanyog Estates Pvt. Ltd. on the ground that, "in fact on examining the balance sheet of the assessee for subsequent year i.e. F.Y. 2008-09 it is seen that the above amount still remains in the hands of the assessee and no business transaction has been carried out by the assessee and M/s Sanyog Estate Pvt. Ltd. Accordingly, in this case also the plea that the above advance was part of the business deal is devoid of any basis. On examining the balance sheet of M/s Sanyog Estate Pvt. Ltd., it is seen that the company has accumulated profits to the tune of Rs. 73,224/- only. Accordingly, the deemed dividend u/s 2(22)(e) is computed to the extent of accumulated profits amounting to Rs....
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....ITO, 28 SOT 503) is not only distinguishable on facts but is also not applicable in this case on principle. On examining the Balance sheet of M/s PPSPL as on 31.03.2008, it is seen that there was accumulated profits to the extent of Rs. 22,28,293/- and accordingly the deemed dividend u/s 2(22)(e) is computed to the extent of accumulated profits amounting to Rs. 22,28,293/- and the said amount is added to the total income of the assessee." 6. It is submitted that aforesaid finding of the learned AO has been arbitrarily upheld by the learned CIT(A) without appreciating the factual substratum of the case. In fact the finding of the A.O. that no business transaction had been undertaken by the assessee was upon overlooking the facts on record i.e. the assessee had entered into a development transaction on 20.01.2007 with Landmark Apartments Pvt. Ltd. which was also stated in the Memorandum of Understanding entered between the assessee and the aforesaid two creditor companies (see page 105 and 120 of Paper book). 7. At the outset it is submitted that the amount advanced by the three companies were not loan taken by the assessee but were advances made by the such compani....
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....kept in mind, it is clear that sub-clause (e) of section 2(22) of the Act, which is in parimateria with sub-clause (e) of section 2(6A) of the 1922 Act, plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their affairs in the manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan. If this purpose is kept in mind then, in our view, the word 'advance' has to be read in conjunction with the word 'loan'. Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning of term 'advance' may or may not include lending. The word 'advance' if not found in the company of or in conjunction with a word 'loan' may or may not include the obligat....
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.... basis of surmises, suspicion and conjectures. Reliance for this proposition is placed on 37 ITR 271 (SC) Uma Charan Shaw & Bros. Co. v. CIT. It has been further held in the following cases that suspicion howsoever strong cannot take the place of proof: i) 26 ITR 775 (SC) at 782 (SC) Dhakeswari Cotton Mills Ltd. vs. CIT 'As regards the second contention, we are in entire agreement with the learned Solicitor General when he says that the ITO is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a Court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-s. (3) of s. 23 of the Act, the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under s. 23(3). ii) 37 ITR 151(SC) Omar Salay Mohammad Sait v CIT The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which....
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....ing the evidence furnished by the assessee, the learned A.O. went wrong in concluding that the amount received by the assessee was a loan and was not a sum advanced by the companies for commercial dealing i.e. to make them enable to participate in the project undertaken by the assessee on his own behalf and also for the benefit of participators. Re: Business loss of Rs. 4,08,000/- 12. Apart from the aforesaid, learned AO has also made a disallowance of Rs. 4,08,000/- in respect of the loss on sale of land at Pawala Khushpur. It is submitted that assessee in the course of its business has purchased a land for Rs. 65,62,500/- in August, 2007 and same was sold in December, 2007 at a loss of Rs. 4,08,800/- and such loss was claimed in the P&L Account. Aforesaid loss was disallowed on the ground that such sale and purchase of land is not business transaction but is investment of the assessee and hence is a capital loss. Aforesaid order of the learned AO has been upheld by the learned CIT(A). 13. It is most respectfully submitted that in the instant case, learned AO/CIT(A) both have neither disputed the genuineness of the loss nor has disputed the fact that the....
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....anies have joined hands with the assessee for making investment in M/s Landmark Apartments Pvt. Ltd and it has also been agreed that profit arising from the investment would be shared in the proportion of the investment. That merely because the MOU was not registered or not notorised or transaction did not fructify, does not mean that advance was not for the purpose of business. AO also went wrong in holding that MOU has no legal value as it is settled law that even the oral contract are binding. In the instant case, terms of the understanding are clearly stipulated and under the such terms sums have been advanced to the assessee. This understanding cannot be ignored. In fact it is not in dispute that under the MOU dated 20.01.2007 with M/s Landmark Apartments Pvt. Ltd., assessee has made investment with such company and since the venture did not materialize as such, such invested by the assessee has finally been returned. Hence in such circumstances, we hold that the such advanced by such companies were clearly for the purpose of the business and purely on commercial consideration and hence such sums cannot be termed as deemed dividend. 8.2 Further in respect of sum advanced by....
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....lopment Pvt. Ltd. 1296/2011 & 1297/2011 dated 02.02.2012 HC (Delhi) e. Atul Mittal in ITA No. 3863/Del/2002 (ITAT Del). f. Nigam Chawala 2009 28 SOT 503 8.4 That since in the instant case, sum advanced to the assessee by the aforesaid three companies were purely on commercial consideration and was business advance as such, same cannot be treated as deemed dividend u/s 2(22)(e) of the Act, hence we hold that authorities below are not right in treating the aforesaid sums as deemed dividend. The AO is accordingly directed to delete the addition. Thus, ground no. 1-3 are allowed. 8.5 Ground no. 4 is regarding disallowing the business loss of Rs. 4,08,800/- by holding the same to be as short term capital loss. In respect of the aforesaid grounds of appeal it has been submitted by assessee that since the assessee has entered into agreement with M/s Selene Constructions Pvt. Ltd. And M/s Juventus Estates Pvt. Ltd. for acquiring land on their behalf in sector 103 and 104 of Gurgaon for group housing, as such, in order to acquire land, in August 2007 it purchased land in revenue estate of village Pawala Khusrupur, Gurgaon for a sum of Rs. 65,62,500/- and also incurre....