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Smt. Nishi Devi Versus DCIT, Central Circle, Rajahmundry

2016 (5) TMI 722 - ITAT VISAKHAPATNAM

Deemed dividend addition u/s 2(22)(e) - Held that:- Though assessee claims that she had given her personal property to the company to be used as a collateral security for the purpose of borrowings from banks and financial institutions failed to furnish any relevant proofs in support of her arguments. We further noticed that in the present case on hand, the agreement entered by the assessee with the company gives rise to so many unanswered questions. Therefore, we hold that the claim of the asses .....

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received by the assesse as deemed dividend under the provisions of section 2(22)(e) of the Act. The CIT(A) has considered the issue elaborately and upheld the additions made by the A.O. Therefore, we upheld the order of the CIT(A) - Decided against assessee - M.P. No.1/Vizag/2016 - Dated:- 7-4-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri G.V.N. Hari, AR For The Respondent : Shri M.K. Sethi, DR ORDER PER G. MANJUNATHA, Accountant Mem .....

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is a mistake apparent from the records, it requires rectification u/s 254(2) of the Income-Tax Act, 1961 (hereinafter called as the Act ). The Ld. A.R. further submitted that the solitary issue involved in this case is addition made u/s 2(22)(e) of the Act towards advance drawn from the company. He further submitted that the assessee had entered into a sale agreement with the company towards sale of property and received advance. The company has not completed the sale transaction because of vari .....

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sted to recall the order passed by the Tribunal in ITA No.186/Vizag/2011 dated 11.12.2015. In support of his arguments, the Ld. A.R. placed his reliance on the judgement of Hon ble Supreme Court of India, in the case of Honda Siel Power Products Ltd. Vs. CIT (2007) 295 ITR 466. 3. On the other hand, the Ld. D.R. did not object the miscellaneous petition filed by the assessee. 4. We have heard both the parties, perused the materials available on record. On verification of the order passed by this .....

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Vs. CIT (2007) 295 ITR 466, the order passed by this Tribunal in ITA No.186/Vizag/2011 dated 11.12.2015 has been recalled, heard and disposed of as under. 5. The brief facts of the case, is that the assessee is an individual who is a shareholder and Director of Nishi Egg Poultry Product Pvt. Ltd. The assessee did not filed the return of income before the due date specified u/s 139, hence, a notice u/s 142(1) of the Income-tax Act, 1961 (hereafter called as the Act ) was issued on 27.11.2007, req .....

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proceedings, the assessing officer found that as per the books of accounts of NEPPP Ltd., the assessee has received an amount of ₹ 35,68,404/-. Since, the assessee was holding beneficial ownership in the company by holding more than 50% shares, the A.O. issued a show cause notice and asked the assessee to explain, why the amount received by her shall not be treated as deemed dividend u/s 2(22)(e) of the Act. In reply to the show cause notice, the assessee submitted that the amount receive .....

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ompany, therefore, the advance received from the company cannot be considered as loan or deposit within the meaning of section 2(22)(e) of the Act. However, the A.O. rejected the explanations offered by the assesse, after analyzing the provisions of section 2(22)(e) of the Act and also relying upon the several judicial decisions, held that the debit balance appearing in the books of the company in the name of the assesse, must be regarded as deemed dividend within the meaning of section 2(22)(e) .....

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further submitted that she did not derive any individual benefit from the said amount, as this is not a loan or advance from the company. The assessee further submitted that just because the amount was shown as director s advance in the company s books of accounts, it cannot be considered as loan or advance to the assessee. The A.O. is required to judge whether the nature of transaction is purely a loan or advance. It is true that the company had made payment of income tax, insurance premium, m .....

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that the assessee has received the loan from the company and to circumvent the transaction created a sale agreement. The CIT(A), further observed that on verification of the said sale agreement, it was noticed that the sale agreement is entered in the year 2005, whereas the stamp paper was purchased in 17.6.2003, therefore, doubted the genuineness of the agreement. The CIT(A) further observed that though the agreement to sale is entered in 2005, even at this stage, the sale is not complete. The .....

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advance paid for purchase of property. The A.R. further submitted that the assesse entered into sale agreement with the company and received money towards advance. The A.R. further submitted that she did not derive any individual benefit from the said amount, as the possession of property was already with the Company and company given the said property as collateral security to bank for availing loan for the company business. The A.R. further submitted that just because the amount was shown as d .....

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with regard to the debit balance and the accumulated profits in the books of accounts of the company to the extent of ₹ 35,68,404/- is not disputed. The only dispute with regard to, whether the said debit balance in the name of the assesse in the company s books, is a loan or deposit which attracts provisions of section 2(22)( e) or which is merely a sale advance, 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, .....

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e company towards sale of property and furnished a copy of sale agreement entered into with the company for sale of property. On perusal of ledger account, we noticed that during the financial year 2006-07, the assessee has drawn an amount of ₹ 43,93,705/- from the company for various purposes. On perusal of the ledger account, we noticed that there are credits in the account in the form of bank receipts, remuneration and rent. The net effect of these transactions appears debit in the name .....

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assessee contended that since the company is unable to pay the agreed sale consideration, therefore the sale is deferred, but, failed to substantiate with any evidence. Therefore, we are of the opinion that the assessee is trying to circumvent the loan taken by her from the company by creating the sale agreement. On perusal of the sale agreement, we noticed that one of the condition of sale agreement is that the sale should be completed within one year from date of the sale agreement. The asses .....

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ral security to bank to avail the loan for the company business purpose. But, from this fact alone we cannot come to the conclusion that the company is having the possession of the property and the assessee has entered into a sale agreement. 10. It is pertinent to discuss here the case law relied upon by the assessee. The assessee has relied upon the coordinate bench decision of Visakhapatnam ITAT, in the case of Ch. Sri Padmavati Vs. DCIT in ITA No.624/Vizag/2013 dated 4.7.2014 and submitted th .....

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he facts of the present case. The case before the coordinate bench of this Tribunal was that the assessee has entered into a sale agreement and also given her personal property on which sale agreement has been entered into the company as a collateral security for the borrowings of the company. Under these circumstances, the coordinate bench held that the assessee has entered into a sale agreement towards sale of property and the company has used the property as a collateral security for the purp .....

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