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2016 (3) TMI 965 - ITAT PUNE

2016 (3) TMI 965 - ITAT PUNE - TMI - Deemed dividend u/s.2(22)(e)- CIT(A) allowed part relief - Held that:- CIT(A) after considering the ledger account of the assessee in the books of the company sustained an amount of ₹ 3,44,689/- being the amount outstanding against the assessee out of the addition of ₹ 13,96,057/- made by the AO and deleted the balance amount of ₹ 10,51,368/-. The Revenue is not in appeal before us for the relief granted by the CIT(A). We find the CIT(A) had .....

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in the order of the CIT(A). In our opinion, the order of the CIT(A) is justified under the facts and circumstances of the case since the maximum amount advanced by the company to the assessee which is outstanding at any time during the year is ₹ 3,44,689/-. - Decided against assessee - ITA No.1863/PN/2012, ITA No.1864/PN/2012 - Dated:- 19-2-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri Nikhil Pathak For The Revenue : Shri Manish Kumar Sinha ORDER PER R.K. P .....

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alidity of reassessment proceedings u/s.147 of the I.T. Act. 3. The Ld. Counsel for the assessee at the outset did not press ground of appeal No.1 for which the Ld. Departmental Representative has no objection. Accordingly, the first ground by the assessee is dismissed as not pressed . 4. In grounds of appeal No.2 to 5 the assessee has challenged the order of the CIT(A) in sustaining an amount of ₹ 3,44,689/- out of the addition of ₹ 13,96,057/- by the AO u/s.2(22)(e) of the I.T. Act .....

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ssessee vide letter dated 22-12-2009 submitted as under which has been reproduced by the AO in the body of the assessment order : Without prejudice to the above submissions, assuming that without admitting that the assessee has taken loan or advance, only the amount of accumulated profits of ₹ 5,80,044/- should be considered as deemed dividend. Thus the maximum balance of accumulated profits for the Assessment Year 2005-06 is ₹ 5,80,044/- and without prejudice to the contention that .....

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of the assessee as per the provisions of section 2(22)(e) of the I.T. Act. 8. Before CIT(A) it was submitted that the company Sunako Construction Pvt. Ltd was owned by the assessee and his family members and the company is engaged in the business of developing and constructing housing projects in Pune and the assessee was in possession of a large piece of land beyond Hadapsar admeasuring 204 acres. The company was interested in acquiring a part of the land to the extent of 50 acres for the purpo .....

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for the purchase of the above land. It was accordingly contended that the advances were towards sale of land and thus the said advances were made by the company in the course of its business operations and, therefore, the same could not be considered as deemed dividend. The decision of the Bombay High Court in the case of CIT Vs. Nagindas M. Kapadia (1980) 177 ITR 393 and the decision of the Mumbai Bench of the Tribunal in the case of N.H. Securities Ltd. Vs. DCIT (2007) 11 SOT 302 (Mum) were r .....

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falling within the ambit of deemed dividend u/s 2(22)(e), the deemed dividend is to be restricted to the extent of accumulated profits available with the company. It was argued that the maximum balance of amount advanced by the company to the assessee is of ₹ 3,44,689/-and the accumulated profits as per the balance sheet is of ₹ 13,96,057/-. Hence the disallowance be restricted only to the extent of ₹ 3,44,689/- i.e. the maximum balance outstanding during the year. 9. Based on .....

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acres of land is the reason stated by the appellant for advancing the advances which has been treated by the A.O. to be deemed dividend u/s 2(22)(e) of the I.T. Act. The contention of the appellant that the advances did not constitute the deemed dividend as the same had been given in the course of business operations is difficult to be believed. The land owned by the appellant which became the subject matter of the MOU was located in the forest zone which is an undisputed fact. Therefore, the q .....

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ter receipt of entire consideration and for which the time period given is also a period of 5 years. The appellant has tried to give the money received from the company, the colour of advance and the MOU signed appears to be a device to avoid the tax. The MOU in any case could not be completed as the same was cancelled by the company on 22-12-2005 after having not been able to get the zone changed from the existing forest zone. The veracity of the MOU itself is unbelievable that an agreement exe .....

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licable to the facts of the present case and hence are distinguishable. In the case of CIT Vs Sunil Chopra (2011) 242 CTR 498 (Del), it was held that the contention, that loan / advances were not taken as loans rather they were business receipts in the ordinary course of business was not sustainable. The AO. recorded that agreement was sham in as much as the agreement was executed on 18.09.2003 and the handing over of the property was to be done before 31.12.2008 and the payment was still reflec .....

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or to a concern in which such substantial shareholder has substantial interest (20%) is taxable to the extent of accumulated profit u/s 2(22)(e) of the Act. Such tax is spared only, if such loan or advance is made by a company in the ordinary course of business or where money lending is a substantial part of the assessee s business. By enacting sub clause (e) of sec.2(22) the legislature has created a fiction and has made payment referred to in sub-clause (e) 'dividend' for the purpose o .....

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The loan granted to a shareholder has to be returned to the company. It does not become the income of the shareholder. For certain purpose, the legislature has deemed such loan as 'dividend', hence it must necessarily receive a strict construction where there is a loan amount, it is such amount which will have to be treated as deemed dividend. In the case of CIT Vs Narasimhan (G) (1999) 236 ITR 327 (SC) it was held that advances given by a company to its shareholder should be treated as .....

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ance of the appellant at the beginning of the year before arriving at the taxable deemed dividend u/s 2(22)(e) of ₹ 13,96,057/-. Thus, the amount of advance made by the company to the appellant it is noticed from the ledger account of the appellant in the books of account of the company that the opening balance of the appellant was a credit balance of ₹ 12.70 lacs as on 01.04.2003 and ₹ 7.5 lacs was further advanced by the assessee to the company thus, the credit balance being .....

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l point to be considered is whether at the moment the shareholder became a debtor and company became a creditor. If there was already sufficient credit balance in that account to absorb the debit, said debit would not be deemed dividend u/s 2(22)(e). The debit then would represent repayment by the company of a debt due to the shareholder. If there is a credit balance in that account on the date of debit which is less than the amount for which debit is made, the difference between debited amount .....

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1970) 76 ITR 369 (Bom) and CIT Vs Mrs. Maya B. Ramchand (1986) 162 ITR 460 (Bom). Therefore, the maximum balance of the amount advanced by the company to the appellant is ₹ 3,44,689/- and the accumulated profits as per the balance sheet is ₹ 13,96,057/- and, therefore, the addition on account of deemed dividend u/s 2(22)(e) will have to be restricted to ₹ 3,44,689/- as against ₹ 13,96,057/- taken by the AO. Thus the addition made by the AO. is confirmed to the extent of & .....

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deemed dividend u/s.2(22)(e) of the I.T. Act in the hands of the assessee on account of loan given by the company to the assessee. We find the Ld.CIT(A) after considering the ledger account of the assessee in the books of the company sustained an amount of ₹ 3,44,689/- being the amount outstanding against the assessee out of the addition of ₹ 13,96,057/- made by the AO and deleted the balance amount of ₹ 10,51,368/-. The Revenue is not in appeal before us for the relief grante .....

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der of the CIT(A), we find no infirmity in the order of the CIT(A). In our opinion, the order of the CIT(A) is justified under the facts and circumstances of the case since the maximum amount advanced by the company to the assessee which is outstanding at any time during the year is ₹ 3,44,689/-. We accordingly uphold the order of the CIT(A) which is well reasoned. The grounds raised by the assessee are dismissed. ITA No.1864/PN/2012 (A.Y. 2004-05) (Smt. Suman Suresh Kolhapure) : 12. The o .....

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etails filed by the assessee the AO noted that the assessee has received advance of ₹ 2,59,094/- from the said company. After setting off the amount of ₹ 75,000/- received by the assessee against the amount shown receivable of ₹ 81,250/- and rejecting the various submissions given by the assessee the AO treated the amount of ₹ 2,59,094/- as deemed dividend u/s.2(22)(e) of the I.T. Act in the hands of the assessee. He accordingly made addition to the total income of the as .....

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iving at the taxable amount of ₹ 2,59,094/- as deemed dividend. The appellant's contention that the amount given. was on account of certain reimbursements of expenses cannot be accepted in view of the specific finding of the courts as discussed above and also the express provision of the Act. The appellant has also contended that the closing balance at the end of the year was of ₹ 2,02,377/- after crediting the salary of ₹ 75,000/- as on 31-3-2004 and even otherwise if the .....

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