TaxTMI 
TaxTMI 
2019 (10) TMI 442
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....t and also in confirming the addition made therein. 4. The facts relating to the above said issue are stated in brief. The assessee filed his return of income for AY 2007-08 on 15-02- 2008 and the same was processed u/s 143(1) of the Act on 01-07- 2008. In the return of income, the assessee had offered "other income" of Rs. 91.50 lakhs. The assessee had declared gross receipt of Rs. 100.00 lakhs and after deducting expenses of Rs. 8.50 lakhs, he had offered Rs. 91.50 lakhs as 'other income'. 5. The facts relating to the above said 'other income' are stated in brief. The assessee owned certain lands at Kattigenahalli, Veersandra Village, Bangalore. He took the responsibility to sell adjacent land belonging to some other person admeasuring 12.50 acres. The assessee developed the adjacent land by incurring expenses towards cleaning the same, putting fencing, paying watchman salary, legal fees etc., aggregating to Rs. 8.50 lakhs. It is stated that the assessee incurred those expenses in order to make the land attractive and also to put it in saleable condition. The assessee identified a buyer named Sri D.K.Sarma and entered an agreement with him and received a sum of Rs. 100 l....
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.... completed the assessment of the year under consideration twice, i.e., once u/s 148 of the Act and again u/s 153C of the Act. The AO has not found fault with the impugned claim. He submitted that the AO was not correct in observing that the expenditure of Rs. 8.50 lakhs incurred by the assessee is capital in nature, since the assessee is not the owner of the land. He submitted that the assessee has undertaken responsibility to sell the land as a broker and accordingly incurred the above said expenses of Rs. 8.50 lakhs in his capacity as broker. Hence those expenses are related to the real estate activity carried on by the assessee and hence the same is deductible as expenses related to the real estate income. He further submitted that, in any case, the view entertained by the AO is debatable one and hence the same cannot be considered as mistake apparent from record as held by Hon'ble Supreme Court in the case of T.S. Balaram ITO vs. Volkart brothers (82 ITR 50). Accordingly he submitted that the impugned rectification proceedings is liable to be quashed. 11. The Ld D.R, on the contrary, submitted that the assessee has not carried out any real estate activity as claimed. He ....
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....ing Officer noticed that the assessee herein is a substantial share holder in a closed held company namely M/s. B & B Infrastructure Limited. From the Balance Sheet of the assessee, the Assessing Officer noticed that the assessee has to receive Rs. 29.72 lakhs from the above said company. When questioned about this, the assessee furnished current account copy of transactions entered between the assessee and the above said company. From the scrutiny of the above said ledger copy, the Assessing Officer noticed that the assessee has received Rs. 100 lakhs from the above said company on 19.4.2010 and the same was repaid on 12.06.2010. When the Assessing Officer asked the assessee to explain as to why the above said amount of Rs. 100 lakhs should not be taxed as deemed dividend under Section 2(22)(e) of the Act, the assessee submitted that the same was a business transaction and more in the nature of reimbursements. Accordingly, the assessee submitted that the above said amount is not loan / advance attracting the provisions of Section 2(22)(e) of the Act. The Assessing Officer did not accept the submission of the assessee and accordingly taxed Rs. 100 lakhs as deemed dividend under ....
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....nt account transactions. He submitted that the provisions of sec.2(22)(e) shall be attracted the moment the assessee was allowed to make withdrawals. In this regard, he placed his reliance on the decision rendered by Hon'ble Supreme Court in the case of Miss P Sarada vs. CIT (229 ITR 444)(SC). 20. We heard the rival submissions and perused the record. There is no dispute with regard to the fact that the assessee is maintaining a current account/running account with M/s B and B Infrastructure Ltd. The AO has extracted the same in page Nos.8 and 9 of the asst. order. A perusal of the same would show that the assessee's money is always lying with M/s B and B Infrastructure Ltd. Only the payment of Rs. 100 lakhs received by the assessee from the above said company has made the account balance of the assessee into a debit balance in the books of M/s B and B Infrastructure Ltd. 21. The submission of the assessee before the AO was that the above said amount was received in the normal course of business. Before the ld CIT(A) the assessee also pointed out that he has given personal guarantee to the term long taken by the above said company from M/s Canara Bank. 22. At this....
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....Act. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the Individual benefit of such shareholder, in such an event, by the deeming provisions, such payment by the company is treated as dividend. It is so made by legal fiction created under s. 2(22)(e) of the Act. Thus, the definition of dividend has been enlarged, and that loan or advances given under the conditions specified under this provision would also be treated as dividend. Thus, for gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of s. 2(22) but not to the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. The intention behind the provisions of s. 2(22)(e) of the Act is to tax dividend in the hands of shareholders." 24. A perusal of the above said observations would show that if the payment of loan or advance is given in return to the advantage conferred upon the company by such shareholder then the provision of sec....
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....rent account of the appellant with the company and the appellant has in fact for most the time lent the money to the company. This section had been inserted to stop the misuse of the taxing provisions by the assessees by taking the funds out of the company by way of loans or advances instead of dividends and thus avoid tax. But in this case where there is no such intention of the appellant and he had in fact advanced money to the company, credit in that account for some days cannot be treated as deemed dividend under section 2(22)(e). It is evident fact that the appellant in real sense not derived any benefit from the funds of the company and, therefore, by no stretch of imagination it can be said that the company has disbursed or given dividend to its shareholder/director in the guise of loan. It will be travesty of law to apply the provisions of section 2(22)(e) of the Act to the facts of the present case whether in fact the person concerned has not gained any benefit from the funds of the company and one has to consider the totality of the facts and circumstances of the case before applying the provisions of this section. Hence, the provisions of section 2(22)(e) could not be in....
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....ances in the running current account is the amount which BAPL owed the Assessee. Mutual transactions go on in this fashion throughout the previous year and as on the last date of the previous year the account is squared i.e., neither the Assessee owes BAPL nor BAPL owes Assessee any sum. The Assessee was beneficiary of the sums given by BAPL at some point of time during the previous year and BAPL was the beneficiary of the sums given by the Assessee at another point of time during the previous year. It was therefore a case of mutual running or current account which created independent obligations on the other and not merely transactions which created obligations on the other side, those on the other being merely complete or partial discharge of such obligations. There were reciprocal demands between the parties and the account was mutual. 13. This tribunal in the case of Mr.Purushottam Das Mimani (supra) on identical facts came to the conclusion that the account between the Assessee and a public limited company was a running mutual current account and thereafter following the decision of the Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra (supra) held ....
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....amount by way of giving and taking financial assistance is, therefore, a current account and this current account is different from a loan account for the sole reason that feature of mutuality is not present in a loan transaction. 5. Here in the present case, from the facts narrated above, it is clear that both the parties are beneficiary of the transaction being current account of the above transactions i.e. shifting balances. This issue has been answered by Hon 'ble Calcutta High Court in the case of Pradip Kumar Maihotra v. CIT 338 ITR 538 (Cal) wherein Hon 'ble High Court held as under: "The phrase "by way of advance or loan" appearing in sub-clause (e) of section 2(22) of the Income-tax Act, 1961, must be construed to mean those advances or loans which a shareholder enjoys simply on account of 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; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the c....