TMI Blog2019 (10) TMI 442X X X X Extracts X X X X X X X X Extracts X X X X ..... land and the gross receipts of ₹ 100 lakhs, being the advance amount forfeited, was also arisen in respect of the very same land - there is merit in the contentions of the assessee that the development/maintenance of land is related to the real estate activity carried on by the assessee and the above said amount of ₹ 100 lakhs was also received out of the said activity only - the assessee is entitled to claim deduction of ₹ 8.50 lakhs against the gross receipts of ₹ 100 lakhs. Hence we are of the view that the Ld CIT(A) was not justified in confirming the disallowance of ₹ 8.50 lakhs. We also find merit in the alternative contentions of the assessee that the issue relating to deduction of ₹ 8.50 lakhs against the gross receipts of ₹ 100 lakhs is a debatable issue and hence the same is outside the scope of rectification proceedings. Accordingly the impugned orders are liable to be quashed on this ground also. Deemed dividend u/s 2(22)(e) - HELD THAT:- The assessee has maintained a current account/running account with the above said company and the outstanding balances were fluctuating during the course of hearing. We notice that, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook 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 ₹ 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 ₹ 100 lakhs as advance from him. However, the proposed purchaser Shri D.K. Sharma could not complete the sale transaction and hence the assessee forfeited the above said advance amount of ₹ 100 lakhs and the same was taken as his income. After deducting the expenses of ₹ 8.50 lakhs spent on development and other expenses, the assessee offered the remaining amount of ₹ 91.50 lakhs as his income. 6. Subsequently, the AO reopened the assessment by issuing notice u/s 148 of the Act. The AO completed the re-opened assessment on 10-12-2009 by making an addition of ₹ 27,325/- to the returned income. During the course of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 has incurred expenses for development of land and hence the same was not related to the income of ₹ 100 lakhs declared by the assessee, which represented forfeiture amount of land advance. Accordingly he submitted that there was no relationship between the expenses and the income offered by the assessee. Accordingly, the CIT(A) was justified in upholding the disallowance. 12. We heard rival contentions and perused the record. There is no dispute with regard to the fact that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount 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 ₹ 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 ₹ 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 ₹ 100 lakhs as deemed dividend under Section 2(22)(e) of the Act. 16. Before Ld CIT(A), the assessee submitted that the assessee has given personal guarantee for loans taken by M/s B B Infrastructure Ltd, which is mentioned in the term loan sanction letter. Accordingly it was submitted that the above said payment is in return to the guarantee given by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 juncture we would like to refer to principles laid down by Hon ble High Courts in this regard. The Hon ble Calcutta High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvances 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. 2(22)(e) of the Act would not apply. 25. In the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 invoked when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts given in the bracket in the last column of the enclosed balances 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'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciprocal demands between the parties and thus mutual in characteristic. The account so maintained in respect of such mutual transfer of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the addition and this common issue of assessee's appeals is allowed. 14. We are of the view that in the present case also the transactions in question does not benefit the shareholder i.e., the Assessee alone and the results in no benefit to the Company BAPL. The loan account is different from a current account with a shareholder and the transactions between the Assessee and BAPL are in the nature of current account and provisions of Sec.2(22)(e) of the Act will not be applicable to the case of the Assessee. We therefore concur with the decision of the CIT(A) and dismiss the appeal of the Revenue. 28. In the instant case also, the assessee has maintained a current account/running account with the above said company and the outstanding balances were fluctuating during the course of hearing. We notice that, most of the time, the assessee s money was lying with the above said company and only for a short period of about two months, the company s money was available with the assessee. Hence the ratio of above said decisions can also be conveniently applied to the facts of the present case. Hence there is merit in the alternative contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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