TaxTMI 
TaxTMI 
2018 (8) TMI 51
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....as grossly erred on facts as well as in law in holding that the agreement between the appellant and M/s Robin Software (P) Ltd. cannot be genuine as it was subsequently cancelled. (ii) The Ld. CIT(A) has grossly erred on facts as well as in law in holding that profit of the business accrues from day to day and current year's profit would be includible in the accumulated profits. REVENUE'S APPEAL 4. The brief facts of the case are that a search and seizure action was conducted on Pasco Group of cases on 17.2.2012 u/s. 132 of the Income tax Act, 1961. The case of the assessee was also covered u/s 132 of the Income Tax Act, 1961. The case of the assessee was centralized by Commissioner of Income Tax, Delhi-XI, New Delhi by virtue of Order u/s 127 of the Income Tax Act, 1961 dated 22.05.2012. Notice u/s. 153A of the Act was issued to the assessee on 25.10.2012. The assessee had filed his original return of income for the assessment year 2012-13 on 23.09.2012, declaring a total income of Rs. 32,97,04,099/-. The return of income was processed u/s 143(1) of the Income Tax Act and the case of the assessee was selected for assessment scrutiny for the assessment year 2012-13. ....
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....cause as to why the amount of Rs. 13,88,23,000/- received by the assessee as loan from M/s Robin Software Pvt. Ltd. be not treated as deemed dividend u/s 2(22)(e) of the I.T Act, 1961 and added to the income of the assessee for the year under consideration. Assessee filed its reply dated 21.3.2014 and raised objections. After considering the same, the AO observed that the company of M/s Robin Software Pvt. Ltd. had ceased to exist on 28.03.2012. The company was bound to recognize revenue on that date i.e. 28.03.2012. However the company did not do so, so as to avoid the applicability of section 2(22)(e) of the I.T Act, 1961 in respect of the loan given to the assessee. Hence the amount of Rs. 13,88,23,000/- was treated as deemed dividend in the hands of the assessee and added to his taxable income for the year under consideration vide order dated 26.3.2014 passed u/s. 143(3) of the Act and assessed the income of the assessee at 46,85,27,099/- 4.1 Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A) who vide his impugned order dated 22.12.2014 deleted the addition by holding that when AO assess the income of M/s Robin Software Pvt. Ltd. as loss....
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....29 (Delhi)/[2018] 301 CTR 526 (Delhi) (Copy Enclosed) where Hon'ble Delhi High Court held that where 'G' advanced certain sums to assessee to procure import licenses, however, real intent of 'G' in advancing sums was to share its profit, sums so advanced clearly fell within description of 'deemed dividend' under section 2(22). Where guarantee commission fee had not been made for purpose of business, disallowance of guarantee commission was justified 3. CIT Vs Mukundray K. Shah [2007] 160 Taxman 276 (SC)/[2007] 290 ITR 433 (SC)/[2007] 209 CTR 97 (SC) (Copy Enclosed) A search conducted at assessee's premises led to seizure of a diary, which contained purchasing of nine per cent RBI relief bonds by assessee from funds received from two firms 'B' and 'C' in which he was a partner. Tribunal after examination of cash flow statement held that two firms were used as conduits by assessee; that 'A' had made payments to 'B' and 'C' for benefit of' assessee, which enabled him to buy nine per cent RBI Relief Bonds and upheld finding of Assessing Officer. Upheld addition u/s 2(22(e) of I.T. Act....
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....a loan nor an advance but the amount in respect of the transaction relating to sale of house property and hence section 2(22)(e) cannot be invoked. By now it is judicially settled that money received for a transaction relating to sale of property cannot be covered u/s 2(22)(e). Therefore, Ld. CIT (A)'s was justified in deleting the addition. Reliance is placed on the following: - DCIT vs. Smt. Vaishnavi Tekumalla, ITA No. 493/Bang/2011, Date of order, 13/06/2012 "11. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is not in dispute that the assessee held 97.83% shares in the company from which advance of Q 1 crore was received by the assessee against the sale of property belonging to her. The assessee furnished a copy of the agreement to sell before the AO, who did not accept that agreement as genuine for the reason that it was not registered and was also not on the stamp paper, however, nothing was brought on record to substantiate that there was not an agreement between the assessee and the company M/s. Mc Creade Software (Asia) Pvt. Ltd. for the sale of property belo....
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....on account of such trading transactions. Only after these transactions, the assessee company has made certain payments but in turn assessee has also transferred certain money through other transactions and the net result of the account is that the outstanding loan at the beginning of the year which was at Rs. 28,24,700/- got reduced to Rs. 25,10,155/-. Therefore, it is clear that all the transactions are mainly trading transactions and in our view provisions of section 2(22)(e) are not applicable even if the money is received against the sale of assets or from other trading transactions. Accordingly, we set aside the order of the ld. CIT[A] and delete the addition on account of deemed dividend." Accumulated Profit 3. The company prepared its account for the period from 01/04/2011 to 28/03/2012 and filed its return declaring loss of Rs. 1,05,460/-. The company had accumulated profits of Rs. 1,04,029/- as on 31/03/2011 and accumulated losses amounting to Rs. 1,431/- as on 28/03/2012. The assessment of the company was completed at a loss of Rs. 1,0.5,460/-, i.e., the returned loss. Therefore, without prejudice to the above submissions, since there was no accumulated ....
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....per as per the method of accounting being followed by it regularly. Since it was the LLP which existed on 31/03/2012 and not the company, the profits accrued to the LLP only which were duly declared in its IT return and taxed on the returned income by the same AO on the same date. c) Therefore, the revenue, in fact the same AO on the same date, has taken totally contradictory stand in the case of the appellant. He has' accepted the income of Rs. 23,47,49,071/- through development agreement in the hands of LLP after due deliberations u/s 143(3). He has also accepted the loss of Rs. 1,05,460/- in the hands of the company upto 28/03/2012, i.e., the date on which company was converted into LLP. That being so, the same profit which was taxed in the hands of the LLP, cannot be migrated to the company to determine the accumulated profit. Therefore, the fallacy in the assessment is obvious and hence the CIT(A) was justified in deleting the addition. Accumulated Profit do not include current year profit 5. By Now it is also judicially held that the accumulated profits do not include the current year's business profit as it accrues at the end of the year. P....
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....eld that the agreement to sell the property is genuine in the absence of any evidence to the contrary. Since the company ceased to exist on 29/3/2012, the agreement had to be terminated. The successor LLP was not ready to enter into such an agreement to sell. Therefore, it cannot be said that there was any intention to evade tax. (b) The Ld. AO has also observed that the amount received by the appellant was never refunded back (page 6 of the asstt. Order). On termination of the agreement the money received by the appellant was accounted for as Current Capital Account in the LLP being debit balance. Since the amount received was not forfeited and shown as debit balance in the books of LLP, it cannot be said that the amount was not refunded. (c) The Ld. AO has also mentioned that current year income has to be part of accumulated profits (page 13 of the asstt. order). The Ld. AO has not appreciated the judgment of Hon'ble Supreme Court in the case Ashokbhai Chimanbhai wherein it was held "6. In the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss; on such dormant profit or loss undoubte....
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.... well settled that the profits will accrue only when there is a right to receive the same. Since the right to receive the profits accrued only on 31/03/2012 when the developer determined the share of profits and the company having been converted into LLP before 31/03/2012, no income could accrue to the company as it did not exist on 31/03/2012. The Observations of CIT(A) 7. a) The Ld. CITCA), in para 3.2.16 has held that the fact that the agreement has been subsequently cancelled, would show that the agreement cannot be genuine one. This means that no genuine agreement can be cancelled subsequently. According to him, the moment a genuine agreement is cancelled, it becomes non-genuine. There is no such law in this country. Agreement is genuine ,or non-genuine by itself and does not depends on its cancellation. Neither the Ld. AO nor the Ld. CIT(A) has brought any material on record to established that the agreement for sale of property is not genuine. Ld. CIT(A) has also admitted that there is no adverse material in respect of sale of property agreement (para 3.2.16 of CIT(A)'s order). Hence what the appellant received from the company was against sale....