TaxTMI 
TaxTMI 
2017 (11) TMI 326
X X X X Extracts X X X X
X X X X Extracts X X X X
.... queried during the course of assessment proceedings, it was explained that the new advance of Rs. 1.53 crores was received from M/s. Nokha Investments Pvt. Ltd. [NIPL] in November, 2012. Out of this, Rs. 1.38 crores and Rs. 15 lakhs were received on 5.11.2012 and on 27.11.2012 respectively. Scrutinizing upon the details furnished by the assessee, the AO found that at the time of receiving the advance, the assessee was a share-holder with 55.05% share-holding in NIPL which was a private limited company in which the public were not substantially interested. According to the AO, as per the balance sheet as on 31.3.2012 [at the end of the earlier previous year] NIPL had accumulated profits of Rs. 1,00,0,743. During the relevant previous year under dispute, NIPL had earned further profits. According to the AO, in terms of s. 2(22)(e), the amount of advance to the extent of accumulated profits as on the date of giving the advance was liable to be taxed as deemed dividend income. After due consideration of the assessee's explanation as incorporated in his impugned order under consideration, the AO had made an addition of Rs. 1,00,50,743 as deemed dividend u/s 2(22)(e) of the Act in the h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2)(e) of the Act were clearly attracted in the case of the assessee. For ready reference, the relevant portions of the reasoning of the CIT (A) are extracted as under: "7......................None of the case laws relied upon by the appellant are applicable to the facts of the case. In view of the definition, the basic criteria for invocation of provision of 2(22)(e) are that (i) The company making payment shall be company in which the public are not substantially interested; (ii) The company shall have accumulated profit; (iii) The share holders must be holding more than 10% of the shares; (iv) The payment to the shareholders or to the concerns in which the shareholder has a substantial interest shall constitute deemed dividend in the hands of the payee; & (v) The deemed dividend shall be restricted to the accumulated profits. Applying the above principles, it is seen that the appellant has more than 10% of shares in M/s. Nokha Investments Pvt Ltd from whom the money was received, M/s. Nokha Investments Pvt Ltd is a company in which the public are not substantially interest and it had sufficient accumulated profits. Thus, the payment made to the appellant can b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....recover the advances along with 12% of interest. In case, NIPL did not acquire the property as agreed upon, then the assessee would be liable to return only the advances so received; - the facts were that on receipt of the advances, the loan with HDFC was cleared and the subject property was free from all the encumbrances as agreed upon. However, due to fall in the market value of the property and consequent changes in the circumstances, the Board of NIPL decided to cancel the MOU entered into, as a result of which, Rs. 1.53 crores was returned by the assessee to NIPL 5.1 Extensively quoting the provisions of s. 2 (22)(e) of the Act and also citing the various case laws, namely: (i) CIT v. Hindustan Petroleum Corporation Ltd - 187 ITR 1 (Bom); (ii) Gopal and Sons (HUF) v. CIT (SC); (iii) CIT v. Creative Dyeing and Printing Pvt Ltd - 318 ITR 476 (Del); (iv) S.A. Builders v. CIT - 288 ITR 1 (SC); (v) M/S. Dina Sudhir Shah Mumbai v. ACIT - ITA NO.4184/Mum/2014Gopal and Sons (HUF) v. CIT (SC); (vi) CIT v. Creative Dyeing and Printing Pvt Ltd - 318 ITR 476 (Del); (vii) S.A. Builders v. CIT - 288 ITR 1 (SC); (viii) M/s. Dina Sudhir Shah Mumbai v. ACIT - ITA NO.41....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his domain to invoke the provisions of s 2 (22)(e) of the Act to treat a sum of Rs. 1,00,50,743/- as deemed dividend? 9.1 It was the case of the assessee that he had entered into a Memorandum of Understanding [dated 7.12.2012] with NIPL to sell the subject property for a consideration of Rs. 3.25,00,000/- (sic) Rs. 3,00,00,000/- [Refer: page 2 of MOU] and received an advance of Rs. 1.53 crores which will be adjusted against the sale consideration of Rs. 3 crores. It was the contention of the assessee that as soon as the receipt of the advance, the same was immediately paid to HDFC Ltd to clear the loan availed on the subject property and, thus, claimed before the AO that the payment made by NIPL was advance for the purchase of the subject property and, hence, such an advance cannot be termed as deemed dividend u/s 2 (22) (e) of the Act. It was, further, argued that due to fall in market value of property, the Board of NIPL decided against acquiring the property and consequently, the assessee returned the advance of Rs. 1.53 crores to NIPL on 26.3.2013. 9.2 However, the AO took a divergent view that at the time of receiving the advance, the assessee was a share-holder with 55.05% ....