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ACIT, Central Circle-7, New Delhi Versus Anil Kumar Sharma And Vica-Versa

2015 (11) TMI 422 - ITAT DELHI

Addition on account of benefit/perquisite u/s 2(24)(iv) - receipt of loan/advance - CIT(A) deleted the addition - Held that:- We are inclined to agree with the conclusion of the CIT(A) that no amount of loan/advance was actually received by the assessee from AIPL but it was only a journal entry passed on 31/03/2010 debiting the assessee’s account and correspondingly crediting the UHCPL account to enhance the promoters contribution in the Joint Venture object between AIPL and UHCPL. Hence, estima .....

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he Act because this provision is only applicable to the cases wherein a company provides benefits/perquisites and this provision is not applicable in the case of partnership firm such as AHS. We are unable to see any infirmity or perversity or any other valid reason to interfere with the order of the first appellate authority and we uphold the same. - Decided against revenue. - I.T.A. No. 6204/Del/2013, Cross Objection No. 230/Del/2015 - Dated:- 23-9-2015 - Shri Chandra Mohan Garg, Judicial Memb .....

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the facts and circumstances of the case the ld. CIT(A) has erred in law in deleting the addition of ₹ 2,28,27,650/- made by the AO on account of benefit/perquisite u/s 2(24)(iv) of the Income Tax Act, 1961. 2. Briefly stated the facts giving rise to this appeal are that a search and seizure operation u/s 132 of the Income Tax Act, 1961 (for short the Act) was carried out on 09/09/2010 in the M/s Amrapali Group of cases, which, inter-alia, include the assessee Shri Anil Kumar Sharma who is .....

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u/s 143(3) read with section 153A of the Act on 26/03/2013 making two additions viz. income on account of benefit/perquisite u/s 2(24)(iv) of the Act pertaining to M/s AHS Joint Venture (AHS) and income on account of benefit/perquisite pertaining to M/s Amrapali Infrastructure Pvt. Ltd. (AIPL) assessed the taxable income at ₹ 5,31,83,754/- by making total addition of ₹ 2,28,27,650/- under the said provision. 3. Being aggrieved by the above assessment order, the assessee filed an app .....

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he assessee from M/s AHS under the current account was primarily being used for providing interest free loans to the Directors/substantive shareholders of M/s UHCPL. Therefore, the payment received by the assessee amounting to ₹ 5,67,70,500/- from M/s UHCPL was rooted through the firm i.e. M/s AHS Joint Venture and thus, this transaction attract provisions of section 2(24)(iv) of the Act. The ld. DR further pointed out that the interest free advance shown from the books of M/s AIPL apparen .....

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y taxed in the hands of the assessee as the benefit/perquisite received by the Directors to be taxed as income u/s 2(24)(iv) of the Act. 6. The ld. DR strongly contended that the CIT(A) granted relief to the assessee without any justified reason because the said loan payment were de-facto made by UHCPL but only rooted through M/s AHS Joint Venture to the assessee. The ld. DR lastly prayed that the impugned order may be set aside by restoring that of the AO. 7. Replying to the above, the ld. Auth .....

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2(24)(iv) of the Act. He further drawn our attention towards assessee s paper book page 19, 21 & 22 and submitted that the provisions of section 2(24)(iv) of the Act are not applicable in the case of partnership firm but are applicable only in the case of companies and the amount received by the assessee from M/s AHS Joint Venture it is ample clear that there is no payment by M/s UHCPL to AHS which can be linked even remotely to the said amount of advance made by AHS Joint Venture to the ass .....

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ount to enhance the promoters contribution in the joint venture project between AIPL & UHCPL. The ld. AR further submitted that this book entry was made to facilitate bank finance for the project and does not have any tax implication and hence under these factual matrix and legal position the additions made by the AO could not be sustained which were rightly deleted by the ld. CIT(A). 9. On a careful consideration of rival submissions at the very outset, we observe that the AO made impugned .....

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interest income nor any interest has accrued to it. It is only the real income that can be brought to tax. In the absence of any real income, there can be no taxability. The additions made by the AO are of hypothetical income and not of any real income. The AO has himself recognized the additions as on account of notional income. The question which needs to be asked is as to why the AO has estimated the alleged interest income @6% p.a. or not at 5% of 10% or any other rate, for that matter? The .....

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ncome tax. The aforesaid proposition with regard to real income theory was reaffirmed by Apex Court in the case of CIT vs. Sujata vs. Manohar and G.B. Pattanaik (1999) 236 ITR 315 (SC). 2. There is no involvement of any Benefit or Perquisite given by company to the assessee. Similarly there is no payment for any obligation of the appellant by the company. There is no agreement or contract between the company and the assessee regarding provision or payment by the company of any perquisite, benefi .....

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ether convertible into money or not. Thus, it cannot be money itself because if it is money, the question of its convertibility into money or not will not arise. The section speaks of value of any perquisite or benefit. 2.1 In the case of CIT vs. G. Venkataraman (1978) 111 ITR 444 (673) (Mad.), the Hon ble High Court while considering the provisions of section 2(24)(iv) {corresponding section 2(6C)(iii) of Indian Income Tax, 1922} held as under: - There are two aspects of the matter to be consid .....

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te on the one hand and any sum paid on the other. That itself will show that the benefit or perquisite contemplated by this section should be other than money. 2.2 In the case of Ravinder Singh vs. CIT (1994) 205 ITR 353 (Delhi), the assessee was a partner in a firm. During the course of assessment proceedings of the firm, the AO found debit balance in the capital account of assessee and that the assessee had utilized those over withdrawn funds without paying any interest. The AO applying sectio .....

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Supply (P) Ltd. vs. CIT [1984] 149 ITR 457, this Court examined the term whether convertible into money or not as appearing in section 40(a)(v) of the Act when the following question of law had been referred to it for decision for the A.Y. 1969-70 and 1970-71: Whether, on the facts and in the circumstances and on a true interpretation of section 40(a)(v) of the Income-tax Act, 1961, reimbursement of the medical expenses to the managing director has been correctly restricted by the Tribunal to & .....

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no question of considering the value of such monetary benefit or perquisite under clause (iv) of section 28. It held that it was only if the benefit or perquisite was not in cash or money that section 28(iv) would apply. 2.3 In the case of CIT Madhu Gupta (2012) 303 Taxman 303 (P&H) the Hon ble Punjab & Haryana High Court held that interest on interest free loans availed by assessee from companies in which she was a director, could not be treated as per deemed income in terms of section .....

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be the cost/loss incurred/suffered by the company. In the appellant s case before your honour, because of the interest free advances received by the assessee company, there has been no cost incurred/no loss suffered by AHS Joint Venture or Amrapali Infrastructure Pvt. Ltd. as they had the availability of interest free funds with them. The AO has himself admitted in para 6.2 of the assessment order that the interest free funds advances shown from the company apparently do not fetch interest cost .....

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t value of flat and other factors computed the value of perquisite/benefit u/s 2(24)(iv) at ₹ 80 lacs and made addition thereof to the assessee s income. The Hon ble ITAT held that since the company has suffered loss of ₹ 65.90 lacs, loss so suffered could only be considered as a benefit received by the assessee u/s 2(24)(iv) of Income Tax Act, 1961. 4. With regard to addition of ₹ 3406230/- in respect of advances received from AHS Joint Venture, the AO has ignored the basic pr .....

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itted that firstly, there is no nexus established by the AO between the amount received by AHS Joint Venture from Ultra Home Construction P. Ltd. and the amount granted by AHS Joint Venture to the assessee. Moreover, under any circumstances, no adverse inference can be drawn in the hand of the appellant even if AHS Joint Venture had received any amount from Ultra Home Construction. AHS Joint Venture and Ultra Home are separate independent entities and they have their own transactions between the .....

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edger account of appellant in the books of AIPL, the same is on account of journal entries in relation to project contribution to Ultra Home and that too at the end of the year. M/s AIPL & M/s Ultra Home between themselves and also along with the appellant have been doing real estate projects. The individual promoters being, fountain heads of the group, are required to be involved in the projects by the bankers and other stakeholders. Since no money has come into the bank account of assessee .....

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O has however, brushed aside the submission of appellant by merely referring to the book value of properties, ignoring the market value and also the fact that the advances were also for properties/projects to be acquired/developed. In view of the fact that transaction is a commercial transaction, there is no applicability of section 2(24)(iv) of Income Tax Act, 1961. In view of the above, it is submitted that the additions made u/s 2(24)(iv) by the AO, being erroneous on facts and in law, is lia .....

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to AHS which can be linked even remotely to the said advance. Therefore, the averment of the revenue that the advance originated from UHC has no factual basis. It is further noted that the provisions of section 2(24)(iv) are not applicable in the case of partnership firm but are applicable only in the case of companies. Thus, the provision is inapplicable in the present case. Regarding the amount of ₹ 1,94,21,420/- received from Amrapali Infrastructure P. Ltd. (AIPL), it is seen from the .....

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e cannot be sustained and are deleted. These grounds of appeal are allowed and appellant gets relief of ₹ 2,28,27,650/-. 11. On careful consideration of above rival submissions of both the sides and operative part of the impugned order of the first appellate authority, we note that the AO invoked provisions of section 2(24)(iv) of the and for making two additions first of ₹ 34,06,230/- and second of ₹ 1,94,21,420/-. In regard to first addition the ld. Departmental Representativ .....

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Venture which can be linked even remotely to the said advanced amount. Therefore, the provisions of sectin 2(24)(iv) of the Act are not applicable in the case of partnership firm and the same are applicable only in the cases of companies. 12. On a careful consideration of above submissions from the bare reading of the ledger account of assessee Shri Anil Kumar Sharma in the books of AHS Joint Venture from 01/04/2009 to 31/03/2010 it is apparent that there was no transaction during the financial .....

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ccounts of the assessee and M/s UHCPL in the books of AHS Joint Venture there is no payment from UHCPL to AHS Joint Venture which could be linked even remotely to the said interest free loan to the assessee. Undisputedly and admittedly AHS Joint Venture is a partnership firm and provisions of section 2(24)(iv) of the Act are only applicable in the case of companies and the same is not applicable in the case of partnership firm, thus, conclusion of the CIT(A) in this regard is correct and we upho .....

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and the group companies and advancing interest free loans to themselves without charging any interest is a self serving arrangement to avoid the tax. The ld. DR supporting the action of the AO submitted that the AO by taking a balancing and conservative and reasonable estimate determined the value of the benefit by taking the rate of interest of 6% p.a. and made the addition on correct and justified basis. The ld. DR vehemently pointed out that the CIT(A) granted relief to the assessee without a .....

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urther pointed out that the said journal entry was made to facilitate bank finance for the project and does not have any tax implication as wrongly noted by the AO. 15. On careful consideration of above submission and facts and circumstances of the present case, we observe that section 2(24)(iv) of the Act deals with any benefit or perquisite , whether convertible into money or not. Therefore, obviously and necessarily there must be some cost/loss incurred/suffered by the company. In the present .....

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/advance/loans. 16. When we consider the ratio of the judgment of Hon ble Punjab & Haryana High Court in the case of CIT vs. Madhu Gupta (supra), we note that their lordships held that interest on interest free loans availed by the assessee from a company in which she was a director, could not be treated as deemed income u/s 2(24)(iv) of the Act. The relevant operative part of this order at paras 9 to 11 reads as under: 9. Ld. Counsel for the assessee pointed out that the judgments of Calcut .....

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s the intention of the Legislature clear that had the existing provisions been sufficient to treat the benefit of interest free loan, as deemed income, the same would not have been incorporated by way of amendment and subsequent repealed. In the aforesaid case, the assessee was in appeal aggrieved against the judgment of Karnataka High Court, wherein reliance was placed upon judgments of Madras High Court, as mentioned above. The Hon ble Supreme Court has also quoted with approval, the passage f .....

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sting provisions of the Act. We do not think this approach was also correct. An amending provision can certainly give guidance to interpretation of the existing provisions. The judgments of the Madras High Court which were relied upon by the High Court in the impugned judgment were for the period prior to the 1984 amendment and the Madras High Court had no occasion to consider the impact of the amendments to section 17(2) and section 40A(5) of the Act. ****** The High Court in the impugned judgm .....

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business or profession . Section 2(24)(iv) does not define the expression any benefit or perquisite . The perquisite has been defined in section 17(2) and also were defined in Section 40A(5) prior to its omission by Direct Tax Laws (Amendment) Act, 1987. The provisions of section 40A(5) prior to its omission, deal with expenditure resulting directly or indirectly in the provision of any perquisite whether convertible into money or not i.e. the converse of section 2(24)(iv). Therefore, the interp .....

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nts, we are of the opinion that interest on interest free loans advanced to the assessee by the company cannot be treated as deemed income in terms of section 2(24)(iv) of the Act. 17. On similar issue the Hon ble Jurisdictional High Court of Delhi, following the law laid down by the Hon ble Apex Court in the case of V.M. Salgaoncan and Bros. Pvt. Ltd. vs. CIT (2000) 243 ITR 383 (SC), in the judgment in the case of Sohan Singh vs. CIT (2002) 253 ITR 331 (Delhi) held that in view of insertion of .....

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roduced as follows: The apex court had an occasion to consider a similar questin in V.M. Salgaocar and Bros. Pvt. Ltd. vs. CIT [2000] 243 ITR 383. It was, inter alia, held as follows (headnote): Sections 17(2) and 40A of the Income Tax Act, 1961, were amended by the Taxation Laws (Amendment) Act, 1984. Sub-clause (vi) of clause (2) of sectin 17 of the Act, as inserted by the Amendment Act of 1984, provided that where the employer has advanced any loan to the employee and either no interest is ch .....

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loan at the rate so specified and the interest charged by the employer, shall be deemed to be a perquisite. An amendment on similar lines was made in section 40A of the Act to provide that the amount of interest referred to an item (a) or item (b), as the case may be of sub-clause (vi) of section 17(2) of the Act, shall be regarded as perquisite provided by the assessee to his employee for the purposes of section 40A(5) of the Act. These amendments were intended to take effect from April 1, 1985 .....

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d June 12, 1985, incorporating the objectives sought to be achieved by omission of clause (vi). Earlier, the Central Board of Direct Taxes had issued a circular explaining the objectives in inserting clause (vi). By the 1984 Amendment Act, Parliament wanted to carve out a particular exception from the otherwise exclusionary clauses for the purposes of computation of income-tax. This provides a clear direction to interpret the provisions of sections 17(2) and 40A(5) before insertion of clause (vi .....

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