TaxTMI 
TaxTMI 
2022 (7) TMI 1201
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....e appeal. We follow Collector Land Acquisition Vs. Mst. Katijoi & Ors. (1987) 167 ITR 471 (SC) to condone the impugned delay. This main appeal is taken up for adjudication on merits. 3. We now advert to the assessee's pleadings of all these years to note that its former twin appeals IT(SS)A 06 & 07/Pun/2017 raise an identical issue of correctness of Section 2(22)(e) deemed dividend addition(s) of Rs.60,92,388/- and Rs.1,08,07,866/; respectively. The CIT(A)'s common detailed discussion affirming the impugned addition to this effect reads as under: - "5. Vide ground No.2, the appellant has contended that the AO erred in invoking the provisions of section 2(22)(e) *in relation to extra payment towards sale price of Rs.,1,19,27,086/- on the, ground that the sum paid did not have any attribute ,of loan and only advances having the attributes of loan are hit by the provisions of section 2(22)(e) and not business advances allowed against value. The AO in the impugned assessment order has dealt with issue in para 06.7 of his assessment order as under : 06.7 Without prejudice to this fact, the assessee is having 34% shareholding in the company. Therefore even at any sta....
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.... the same. It did not bear any interest. 4.5. In similar situation of advance against sale of land, ITAT, Delhi "C‟ Bench, in the case of Gomti Exim Pvt. Ltd. (Page Nos 59 to 62) has held that such advance is not liable to be considered as deemed dividend u/s 2(22)(e). In this context following observations of the Calcutta High Court in the case of Pradip Kumar Malhotra v/s CIT, at Page Nos. 12 & 13 thereof (Page Nos. 63 to 69) also need to be noted - "After hearing the learned Counsel for the parties and after going through the aforesaid provisions of the Act, we are of the opinion that the. phrase "by way of advance or loan" appearing in sub-section (e) must be construed to mean those advances or loans which a share holder enjoys for 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 share holder as a consequence of any further consideration, which is beneficial to the company received from such a share holder, in such cas....
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.... respect to which has been made hereinabove, the issue is whether the payment received by the shareholder would at all fall within the four corners of provisions of Section 2(22)(e) of the Act. Having held otherwise, the said judgments of the Supreme Court, in our view, will have no applicability to the facts of the instant case. 12. In view of the above, the question of law as framed by us is answered in favour of the assessee and against the Revenue. We hold that trade advance does not fall with in the ambit of the provisions of Section 2(22)(e) of the Act. Resultantly, the appeal is dismissed. There shall be, however, no order as to costs." (emphasis supplied) Thus, the advances received from the company against land under development agreement, by owner of it as owner thereof; cannot be said to be hit by the provisions of sec. 2(22)(e) & the A.O. erred in alternatively holding that, the advances paid to appellant by JREPL, in excess of entitlement, constituted dividend income u/s 2(22,)(e). In this connection, reliance is also placed, on the Bombay High Court, decision in the case of CIT vs Nagindas M. Kapadia (1989) 177 ITR 393 (Page Nos 74). 4,6. Al....
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.... notwithstanding the fact that such an event has taken place in the middle of the year. It is so the determination of capital gains is not to wait for the end of the previous year. Similarly, there can be income from other sources also such as receipt of or dividend income or interest which may not have to wait for determination at the end of the year. Similarly, some subsidy may be received from the Government which may be taxable on receipt basis. Such income shall also have to be taken into account in determining the accumulated profits as it has not to wait for determination of income at the dose of the year." From the above decision of the ITAT it is evident that, the A.O. erred in including current year's business profits of JREPL in the accumulated profits for determination of the quantum of deemed dividend taxable in the hands of appellant. Therefore, it is prayed to exclude current year's income from the determination of the amount of accumulated profits, as it consisted of business income. Further, such accumulated profits belonged to all shareholders. Appellant's share in such accumulated profits, in law, was restricted to the extent of his share hol....
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....n account of delay in execution of the project. Alternatively, the AO was of the view that if amount was not in nature of business receipts same would constitute deemed dividend u/s 2(22)( e) of the act. While disposing off Ground No. 2 of this appeal, it has been held vide paras 4.2 to 4.5 that amount received were not in nature of business receipts as amount to the extent of .entitlement under the Development Agreement accrued to the appellant under mercantile system of accounting followed by the appellant. Therefore, alternative addition made by the AO u/s 2(22)(e) is required to be adjudicated. Ledger account of the Company M/s. JREPL in the books of appellant for the year under consideration is produced below: MANOJ JAIKUMAR TIBREWALA JAIKUMAR REAL ESTATES PVT. LTD. Ledger Account 1-April-2011 to 31-March-2012 Date Particulars Vch Type Vch No. Debit Credit 8-4-2911 Cr Union Bank CC A/C 75004 CHQ No. 41110367 BANK PAYMENT BANK PAYMENT/9 25,000.00 17-5-2011 Cr Union Bank CC A/C 75004 CHQ No. 41110415 BANK PAYMENT BANK PAYMENT/59 25,00,000.00 7-7-2011 Cr Union Bank CC A/C 7500....
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....ANK RECEIPT BANK RECEIPT/07- 08/84/134 14,50,000.00 22-2-2012 Dr Union Bank CC A/C 75004 rtgs BANK RECEIPT BANK RECEIPT/0708/138 17,26,500.00 24-2-2012 Dr Union Bank CC A/C 75004 Chq no. 0209583 BANK RECEIPT BANK RECEIPT/0708/139 2,60,385.00 Dr (as per details) Union Bank CC A/C 75004 Bank Charges rtgs BANK RECEIPT BANK RECEIPT/0708/140 29,01,454.00 29-2-2012 Dr Union Bank CC A/C 75004 RTGS BANK RECEIPT BANK RECEIPT/0708/144 5,00,000.00 1-3-2012 Dr Union Bank CC A/C 75004 RTGS BANK RECEIPT BANK RECEIPT/0708/146 5,00,000.00 5-3-2012 Dr (as per details) Union Bank CC A/C 75004 Bank Charges online tr. BANK RECEIPT BANK RECEIPT/0708/150 30,62,000.00 15-3-2012 Dr Union Bank CC A/C 75004 RTGS BANK RECEIPT BANK RECEIPT/0708/151 58,02,708.00 21-3-2012 Dr Union Bank CC A/C 75004 CH NO. 02079568 TR. BANK RECEIPT BANK RECEIPT/0708/155 27,00,000.00 28-3-2012 Dr Union Bank CC A/C 75004 Bank Charges RTGS BANK RECEIPT BANK RECEIPT/0708/160....
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....usted against future entitlement but it was money advanced on account of financial transactions. The contention of appellant that excess amount received was in nature of trade advance is not tenable in view of the fact that no such amount could have been paid to the appellant under the development agreement and appellant initially himself advanced money to the company and later on received huge advance from the company. The decisions relied upon by the appellant are on different facts hence would not apply. Payment of Rs.1,19,27,086/- received by the appellant is in nature of advance as envisaged u/s 2(22)(e) of the Act. Advance received was for the benefit of the appellant who held 34% beneficial shares in the lender company, therefore, I uphold the findings of the AO that provisions of Section 2(22)(e) would apply. 5.3 The AO had treated entire amount of Rs:1,19,27,686/- as deemed dividend considering accumulated profit of M/s. JREPL at Rs1,63,91,548/- as on 31.03.2012. The appellant has contended that accumulated profit would not include current business profits earned during the year as held by the Apex Court in the case of Ashokbhai Chimanbhai (56 ITR 42) and followed....
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....to account the fact that whereas the profits from business for the current year may not be determinable in the middle of the year, there are certain sources of income, the income from which is capable (if determination which, according to the legislative intent, should also be taken into account while determining the accumulated profits on the day of advancing the loan. The company is a person. It may carry on business and may also derive income from various other sources. For example, the company may sell an asset from which capital gains are derived. If the capital gain is derived before the date of advancement of the loan that profit shall have to be taken into account in determining the accumulated profits notwithstanding the fact that such an event has taken place in the middle of the year. It is so the determination of capital gains is not to wait for the end of the previous year. Similarly, there can be income from other sources also such as receipt of or dividend income or interest which may not have to wait for determination at the end of the year. Similarly, some subsidy may be received from the Government which may be taxable on receipt basis. Such income shall also have....
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....eholder, three types of payments made by a company : (1) any payment of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder; (ii) any payment on behalf of a shareholder'; and (iii) any payment for the individual benefit of a shareholder. Two conditions must be fulfilled in order that any such payment should be liable to tax under this clause : (1) the company should not be one in which the public are substantially interested within the meaning of section 23A; and (2) the company should possess accumulated profits at the time it makes the payment. If these two conditions are satisfied, any such payment would be liable to be taxed in the hands of the shareholder as dividend to the extent to which the company possess accumulated profits at the time when such payment is made. Section 2(6A)(e) uses the words "any payment" meaning every payment made by a company which falls within one of the three categories specified in the section and provides that such payment shall' be included within the meaning and connotation of the word "dividend" provided, of course, the two conditions which we have just referred t....
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....ment from the company and this payment is sought to be taxed in his hands as dividend. The language of section 2 (6A) (e) is clear and explicit : it says in words which admit of no doubt or ambiguity and any payment made by a company which falls within one of the three categories specified in the section shall be liable to be treated as dividend subject only to this limitation that it shall be to the extend to which the company possesses accumulated profits at the time of payment." Hon'ble Kolkata High Court also expressed same view in case of Arati Debi (111 ITR 277) (Cal). In view of clear provisions of Section 2(22)(e) (same as Section 2(6A)(e) of earlier Act) and the ratio of the Gujarat and Kolkata High Court, the contention of appellant of treating deemed dividend in proportion to appellant's share holding is rejected. 5.5 To sum up, it is held that advance of Rs.1,19,27,086/- received by the appellant was in nature of payment covered u/s 2(22)(e) of the Act. However, accumulated profit at te time of payment of advance stood to Rs.60,92,388/-, hence deemed dividend can be taxed only upto accumulated profit. Addition of Rs.60,92,388/- u/s 2(22)(e) is ....