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ACIT, New Delhi Versus Wellworth Developers (P) Ltd.

2016 (5) TMI 457 - ITAT DELHI

Disallowance u/s 37(1) - additional payment in violation of Stamp Duty Act, 1899 - Held that:- Since the material issue is that the said payment was never claimed by the assessee as business expenditure, the occasion to make a disallowance of the same does not arise. There is no dispute on the fact that the expenditure was not claimed as an expense by the assessee. In the circumstances, the occasion to make an addition of the same by way of a disallowance does not arise. Accordingly, we hold tha .....

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d addition u/s 2(22) - Held that:- The assessee company is not a registered shareholder of the payer companies who have advanced loans to the assessee company. Thus we hold that the amount is not taxable as deemed dividend in the hands of the assessee company u/s 2(22)(e) of the Act as the assessee company is not a shareholder of the payer companies - Decided against revenue - ITA No. 1675/Del/2013, ITA No. 1761/Del/2013 - Dated:- 10-2-2016 - Shri J. Sudhakar Reddy, Accountant Member And Sh. Sud .....

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this common order. 2. The facts of the case, as borne from the records, are that the assessee is a company incorporated under the Indian Companies Act, 1956 and engaged in the business of Real Estate. Return of income declaring an income of ₹ 408,225/- was filed on 20.11.2006 and subsequently the assessee s case was selected for scrutiny. During the year under consideration, the assessee had purchased land from farmers/villagers and after taking over possession of the land so purchased, it .....

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ing land from the villages through registered sale deeds and transferring the land so acquired to M/s Country Wide Promoters (Pvt.) Ltd. The Assessing Officer noted that a sum of ₹ 67,18,002/- was paid in cash towards the purchase of land to different parties, and as, according to him, the land purchased constituted stock-in-trade of the assessee, he disallowed a sum equal to 20% of the amount paid in cash (being ₹ 13,43,600/-) u/s 40A(3) of the Act. The Assessing Officer also added .....

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he Ld. CIT (A) wherein the Ld. CIT (A) upheld the disallowance made u/s 40A (3) but deleted the addition pertaining to deemed dividend. As far as the issue of disallowance of additional payment was concerned, the Ld. CIT (A) held that additional payment was not illegal under any provisions of the Stamp Act and was not hit by Explanation to section 37(1) of the Income Tax Act, 1961. He, however, upheld the disallowance to the extent the additional payments were made to persons who did not have an .....

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2. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of ₹ 7,96,743/-, made by the Assessing Officer in view of the provisions of Section 2(22)(e) of the Income tax Act, 1961 on account of deemed dividend. 5. On the issue of additional payments made for the purchase of land, the Ld. DR submitted that the assessee is not entitled to claim the deduction of this additional payment because there is no consideration received in lieu of these payment .....

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ompany. He further submitted that the amount of additional payments have been added to the cost of the land and no stamp duty has been paid on the said additional payment which means that the assessee company has claimed in its books all the payments which have been made over and above the sale consideration as described in the sale deed and on which no stamp duty has been paid to the Government. As per Indian Stamps Act, prosecution proceedings can be initiated for this violation. Hence, these .....

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and to avoid any litigation with the department, it had offered the same to be taxed as deemed dividend and thus, the Ld. CIT(A) has wrongly deleted the addition. He submitted that the order of the Assessing Officer should be restored on both the counts. 7. The assessee has raised as many as six grounds of appeal. However, the main ground pertaining to the issue of disallowance u/s 40A (3) of the Income Tax Act, 1961 is ground no. 4, which reads as under:- 4. That on facts and circumstances of t .....

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the assessee had transferred the land to M/s Country Wide Promoters Pvt. Ltd. He submitted that the Assessing Officer has drawn a wrong inference that the land was acquired as a stock in trade. He submitted that the assessee had not claimed any deduction in respect of cost of land in the computation of total income under the head business income and therefore section 40A(3) was not applicable. Since no deduction has been claimed, no disallowance can be made. He also placed reliance on the decis .....

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Ltd. 11 Taxmann.com 100 (Del) (iv) CIT vs Navyug Promoters Pvt. Ltd. 16 Txmann.com 292 (Del) (v) CIT vs Marketing P. Ltd. 16 Taxmann.com 411 (Del) 10. On the issue of additional payment towards purchase of land, the Ld. AR submitted that the additional payment recorded has not been claimed as an expense, therefore, no disallowance was called for in assessee s case and in any case the cost has been reimbursed by M/s Country Wide Promoters (P) Ltd to the assessee company. 11. In response to the Ld .....

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the case of CIT vs Ankitech (P) Ltd. (supra) as under:- Further, it is an admitted case that under normal circumstances, such a loan or advance given to the shareholders or to a concern, would not qualify as dividend. It has been made so by legal fiction created under section 2(22) (e) of the Act. We have to keep in mind that this legal provision relates to dividend . Thus by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to shareholder . .....

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in), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of deeming shareholder then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsels for the revenue w .....

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shareholder, and that affording to us is the correct legal position, such a circular would be of no avail. 13. Respectfully following the decision of the Hon'ble High Court, we hold that the amount of ₹ 796,743/- is not taxable as deemed dividend in the hands of the assessee company u/s 2(22)(e) of the Act as the assessee company is not a shareholder of the payer companies. Hence, this ground of appeal of the Department is rejected. 14. As far as the issue of deletion of disallowance o .....

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the occasion to make a disallowance of the same does not arise. There is no dispute on the fact that the expenditure was not claimed as an expense by the assessee. In the circumstances, the occasion to make an addition of the same by way of a disallowance does not arise. Accordingly, we hold that the disallowance of ₹ 875,000/- on account of additional payments was wrongly made by the Assessing Officer. Moreover, the partial sustenance of this addition by the Ld. CIT (A) is also incorrect .....

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. CIT (A), was never claimed as an expense by the assessee. Section 40A starts with the non-obstante clause setting out that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provisions of the Act relating to the computation of income under the head profits and gains of business or profession . Sub-section (3) of section 40A is an exception to the deductibility of expenditure under the computation provisions of profits and gains of b .....

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as not claimed any deduction of any expenditure the question of not allowing any part of that expenditure as deduction does not arise. For readyreference, we extract the relevant finding of their Lordships from the said judgement:- In our view, a bare reading of the language of this sub-section is enough to show, that in the circumstances of the case, provisions of s.40A(3) are not attracted with respect to either of the transactions; obviously because it only prohibits allowing of deduction as .....

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question of not allowing any part of that expenditure, as deduction. Thus, the finding arrived at in this regard, by the learned CIT (A), and the learned Tribunal cannot be said to be wrong. Question No.2 is accordingly answered in favour of the assessee and against the Revenue. 17. Similarly, it is seen that the judgement of the Hon ble Punjab & Haryana High Court in the case of CIT vs Alpha Toyo Ltd. (2008) 174 Taxmann 427 (P & H) also fully supports the view taken. For ready-referenc .....

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