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2016 (2) TMI 379 - ITAT VISAKHAPATNAM

2016 (2) TMI 379 - ITAT VISAKHAPATNAM - TMI - Deemed dividend under sec. 2(22)(e) - the company maintained separate accounts for land advance and other loans and that the amount was not reflected in the accounts of the land advance - Held that:- A.O. did not pointed out any mistakes, other than the deemed addition under sec. 2(22)(e), the additional income offered should be telescoped against the deemed addition made under sec. 2(22)(e). We do not find any merits in the arguments of the assessee .....

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ding - Held that:- Coming to the additional ground raised by the assessee that without prejudice to the claim that the addition towards deemed dividend under sec. 2(22)(e) of the Act is not sustainable in the hands of assessee, if at all the dividend is taxable, it is reasonable to consider the addition to the extent of 20% of the accumulated profits in the hands of assessee and the remaining may be ordered to be assessed in the hands of other four shareholders, as all the shareholders have take .....

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ed dividend in his hand, later come with different explanation at different levels. - Decided against assessee - I.T.A.No.308 to 310/Vizag/2011 - Dated:- 8-1-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri Madhusudhan, AR For The Respondent : Shri G. Guruswamy, DR ORDER PER G. MANJUNATHA, Accountant Member: These three appeals are filed by the assessee against the separate, but identical orders of Commissioner of Income-tax (Appeals)-I .....

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Commissioner of Income Tax (Appeals)-I, Hyderabad ought to have noticed that the impugned advance which is subject matter of dispute represented only advances paid by the company in which he is a director for purchase of land and towards other expenses and did in fact not represent loan or advance falling within the ambit of Section 2(22)(e) of the Income Tax Act, 1961. 3. The Ld Commissioner of Income Tax (Appeals)-I, Hyderabad ought to have noticed that it is a well settled law that the way in .....

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to have noticed that the claim of the assessee contained in his reply dated 0111212010 to the effect that the impugned advance for purchase of lands was summarily rejected by the Assessing Officer without affording any opportunity to defend his stand and thereby patent ly there was non-adherence of principles of natural justice and such a technical flaw by itself may make the impugned addition to be void in the eyes of the law. 5. For these reasons and such other reasons which may be raised dur .....

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sment year under review, viz., AY 2008-09 that the appellant held a profit sharing ratio of only 20%, the addition if at all considered necessary u/s 2(22)(e) of the Act, the same may be restricted to 20% of the accumulated profit of ₹ 40,15,919/- and there from the claim of TELESCOPING sought for may be considered. 2. It is earnestly prayed in the Grounds of Appeal annexed to Form 36 for the Assessment Year 2008-09 in para 5, line 3, ₹ 40,15,919/- may be replaced for ₹ 3,53,66 .....

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ntur on 24-7-2008. During the course of search, it was found that the assessee was a shareholder, holding 12% shares in M/s Chalapathi Estates Pvt Ltd, has taken loan amounting to ₹ 57,50,000/- which was used for investment in another company. During the course of search, it was found that M/s Chalapathi Estates Pvt Ltd was a closely held company, in which public are not substantially interested and the company has accumulated profits, therefore, the loan drawn by the assessee is hit by th .....

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2007-08 on 30-07-2010 declaring total income of ₹ 30,98,669/-. The case was selected for scrutiny, accordingly, notice u/s 143(2) and 142(1) of the Act were issued. In response to notice, the authorised representative of the assessee appeared from time to time and furnished the details called for. During the course of assessment proceedings, the A.O. noticed that, during the course of search operation, the assessee has admitted additional income in the form of deemed dividend of ₹ 3 .....

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mpany, therefore, the same cannot be treated as deemed dividend within the meaning of section 2(22)(e ) of the Act. However, the A.O. did not convinced with the explanation offered by the assessee, held that the assessee is having beneficial ownership of more than 10% shares in the company and the company has accumulated profit of ₹ 3,53,661/-, therefore, the loan taken by the assessee is hit by the provisions of section 2(22)(e ) of the Act. Hence, made addition of ₹ 3,53,661/- unde .....

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endent enquiry just relied upon the sworn statement given during the search operation. The assessee further submitted that the assessee has made voluntary disclosure of ₹ 16,65,000, so as to cover the inherent deficiencies in the books of account maintained by him, therefore, the authorities should have been telescoped the said amount against the addition made towards deemed dividend under sec. 2(22) (e) of the Act. The CIT (A), after considering the submissions of the assessee confirmed t .....

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ch was repayable with interest. The company has charged interest on the loan for the period 2008-09 and 2009-10, therefore, it cannot be treated as gratuitous payments, so as to invoke the provisions of section 2(22)(e) of the Act. The company is having a policy of providing housing loan to eligible employees and as a matter of fact, one Mr. M.S. Choudhary was granted housing loan of ₹ 3,00,000/- in the same period. Similarly, the company has granted housing loan to the assessee as an empl .....

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e has made voluntary disclosure of ₹ 16,65,000/- to cover up the inherent deficiencies in the books of accounts. Therefore, the A.O. ought to have telescoped the additional income to the income voluntary disclosed at the time of search. 6. The learned authorised representative made an alternative plea and submitted that without prejudice to the claim that the addition towards deemed dividend under sec. 2(22)(e) of the Act is not sustainable in the hands of assessee, if at all the dividend .....

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resentative strongly supported the order of CIT(A). The ld. D.R. further submitted that the assessee has accepted the said finding of fact before the investigation officer and agreed to disclose the additional income to the extent of accumulated profit under sec. 2(22)(e) of the Act, has changed his stand and come up with a explanation that the impugned loan is a housing loan. The D.R. further submitted that the additional ground cannot be accepted at this stage as the same was neither claimed b .....

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ken loan from company. When these facts were confronted to the assessee, he has admitted in his sworn statement recorded under sec. 132(4) of the Act and greed to declare additional income to the extent of accumulated profit as deemed dividend under sec. 2(22)(e) of the Act, however, failed to disclose in the return filed in response to notice under sec. 153A of the Act. Therefore, the A.O. issued a show cause notice and asked him to explain, as to why the loan shall not be treated as deemed div .....

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xtent of ₹ 3,53,661/- is not disputed. The only dispute with regard to, whether the said debit balance in the name of the assessee in the company s books is a loan or deposit which attracts provisions of section 2(22)(e) or which is merely a advance in the normal course of business for the purpose of purchase of land for company, is the question before us for our consideration. In this case, the A.O. invoked the provisions of section 2(22)(e) of the Act, for the reason that the assessee ha .....

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, therefore, the same cannot be treated as loan within the meaning of sec. 2(22)(e) of the Act. 10. We have gone through the provisions of section 2(22)( e) of the Act. A careful study of the above provisions make it clear that the legislature wanted to bring to tax the amount paid by closely held companies to their principle shareholders to avoid dividend distribution tax. The Hon ble Supreme Court also held in the case of Navneet Lal C. Jhaveri vs. K K Sen (1965) 56 ITR 198 (S.C), that the pro .....

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t the assessee has accepted the facts at the time of search proceedings and agreed to disclose income and pay tax, which is evident from the sworn statement recorded during the course of search. But, during the assessment proceedings, the assessee has retracted his admission and explained that the amount received from the company is not a loan, but it is an advance for purchase of land for company, therefore, the provisions of section 2(22)(e) cannot be applied. Though, the assessee claimed to h .....

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ssing officer and explained that the said amount is not loan, but it is only an advance in the normal course of business for the purpose of purchasing lands for company. Now, before us, he has come up with yet another argument that the said amount is housing loan granted by the company as an employee, but not as loan to director. Therefore, we are of the opinion that, the assessee is trying to circumvent the loan taken from the company by different explanation at different stages of proceedings, .....

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ed that he has taken housing loan from company and the company has charged interest on such loan. However, on perusal of ledger account copy, we find that no such interest is debited to assessee account. The assessee has merely claims that the he has taken housing loan from the company, but, failed to prove that the said advance is nothing but housing loan with any material evidence. Therefore, we are of the opinion that the loans and advances are hit by the provisions of sec. 2(22)(e) of the Ac .....

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he deemed addition under sec. 2(22)(e), the additional income offered should be telescoped against the deemed addition made under sec. 2(22)(e). We do not find any merits in the arguments of the assessee, as the addition made under deeming provision is nothing to do with the income offered to cover up the deficiencies in the books of accounts. Insofar addition under sec. 2(22)(e) is concerned, the said addition is made under deeming provision, therefore, it cannot be said that the disclosure mad .....

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