TMI Blog2016 (10) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee for the purpose of its business and it had not acquired such land for the purpose of investment, hence evenif it is assumed that land in this sector was not part of the deal with such companies, it would not alter the nature of transaction from business to investment. It is settled law that nature of transaction has to be seen at the time of purchase and if at the time of purchase, intention was to earn profit then it would be business transaction and if the property is purchased for the purpose of holding the same then the same would be investment. In the instant case, intention of the asseesse at the time of purchase was clearly to earn profit and hence loss arising from the sale of the land was clearly business loss and not short term capital loss and hence the AO is accordingly directed to delete the addition - Decided in favour of assessee - I.T.A. No. 5722/DEL/2011 AND I.T.A. NO. 996/DEL/2014 - - - Dated:- 19-8-2016 - SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER For The Assessee : Sh. CS Aggarwal, Sr. Adv. and Sh. RP Mall, Adv. For The Department : S h. FR Meena, Sr. DR ORDER PER H.S. SIDHU, JM Assessee has fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the additions sustained to the total income of the assesseee company be directed to be reduced by sums of ₹ 40,61,517/- and ₹ 4,08,800/- and it be further held that the interest levied and sustined under section 234B of the Act of a sum of ₹ 92,18,211/- is not leviable. 2.1 The grounds raised in ITA No. 996/Del/2014 (AY 2008-09) read as under:- 1 That the learned Commissioner of Income Tax, (Appeals), New Delhi has erred both in law and on facts in sustaining penalty of ₹ 14,75,850/- u/s 271(1)(c) of the Act on the following additions/disallowances made in the order of assessment: Sr. No. Particulars of additions/disallowances Amount (Rs.) i) Disallowance of business loss on sale of land by holding the same as capital loss 2,93,070 ii) Addition on account of deemed dividend in respect of transactions with M/s Prama Projects Solutions (P) Ltd. 22,28,293/- iii) Addition on account of deemed dividend in respect of transactions with M/s Prama Marketing Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prayed that the penalty levied of ₹ 14,75,850/- u/s 271(1)(c) of the Act and sustained by the learned Commissioner of Income Tax, (Appeals) may kindly be deleted. It be further held that the order of penalty dated 25.03.2013 was barred by limitation and not in accordance with law and appeal of the appellant may kindly be allowed. 3. The brief facts of the case are that assessee is an individual and derive income from salary, business of real estate, capital gain, house property, other sources and agriculture. For the year under consideration, assessee has filed the return of income on 29.09.2008 declaring an income of ₹ 35,13,02,662/-. In this case return of income of the assessee for the instant assessment year was taken up for scrutiny and notice under section 143(2) of the Act dated 5.8.2009 was issued which has been received by the assessee on 24.09.2009. Thereafter a general questionnaire was issued u/s 142(1) of the Act on 18.01.2010. During the course of the course of the assessment proceedings, assessee on the basis of the advice of the expert, suo moto decided to withdraw the claim of expenses of ₹ 13 Crore for the instant assessment year and acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) only to the extent of the accumulated profits. i Prama Project Solution Pvt. Ltd. ₹ 39,50,000 ₹ 22,28,293 ii Prama Marketing Pvt. Ltd. ₹ 18,60,000 ₹ 18,60,000 iii M/s Sanyog Estate Pvt. Ltd. ₹ 5,00,000 ₹ 73,224 Total addition made by invoking section 2(22)(e) ₹ 40,61,517/- 2.5 It is submitted that before providing the aforesaid advances, the companies had entered into MOU with the assessee stipulating the purpose for which advances were made to the assessee: Date MOU between Pages of PB Purpose of MOU 24.05.2007 Assessee and M/s Prama Project Solution Pvt. Ltd. 104 106 For investing surplus funds into a project which would be a good source of earning with reasonable returns. 24.05.2007 Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercial location and the price of the property should not exceed ₹ 1,00,00,000/- i.e. sum of ₹ 5,00,000/- advanced was for the purpose of giving advance for the purchase of the business centre. 2.9 The aforesaid facts clearly demonstrate that the amounts received by the assessee from the aforesaid companies were commercial advances made by such of the companies and were not loan per-se so as to bring the same within the meaning of deemed dividend as per the provisions of section 2(22)(e) of the Act. 3. That during the course of the assessment proceedings, appellant contended that the amounts received were not loan per-se and the amounts were received from the aforesaid companies during the course of business on their behalf and as such, such advances received is outside the ambit of section 2(22)(e) of the Act. In support the aforesaid submission, that the amount received by assessee is business advance and is not a loan, the assessee had furnished the following evidence: (i) In respect of the credit in the account of M/s Prama Project Solution Pvt. Ltd: a. Copy of Memorandum of Understanding (MOU) executed on 24.05.2007 (pages 104 106). b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l is devoid of any basis. On examining the balance sheet of M/s Sanyog Estate Pvt. Ltd., it is seen that the company has accumulated profits to the tune of ₹ 73,224/- only. Accordingly, the deemed dividend u/s 2(22)(e) is computed to the extent of accumulated profits amounting to ₹ 73,224/- and the said amount is added to the total income of the assessee . 5.2 In the case of M/s Prama Marketing Pvt. Ltd. the same has been rejected on the ground that, here also the only argument which has been advanced by the assessee during the course of these proceedings is that the transactions were a part of business transaction with M/s Prama Marketing Pvt. Ltd. As part of submission on 26.10.2010, the assessee has filed a copy of memorandum of understanding dated 24.05.2007 with M/s Prama Marketing Pvt. Ltd. in whchi 50% shareholding each is held by the assessee and has verified. On behalf of M/s Prama Marketing Pvt. Ltd. Smt. Mamta Singh wife of the assessee has signed the MOU. The MOU provides that M/s Prama Marketing Pvt. Ltd. will make investment in real estate projects out of the sufficient surplus funds from the assessee. The terms of the MOU are totally general in nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Understanding entered between the assessee and the aforesaid two creditor companies (see page 105 and 120 of Paper book). 7. At the outset it is submitted that the amount advanced by the three companies were not loan taken by the assessee but were advances made by the such companies in the normal course of business as such, the provisions of section 2(22)(e) of the Act have no application. The claim of the appellant that the amount credited in the books of account was by way of advance which cannot be characterised as loan, has been rejected on mere assumption and in disregard of the fact that such companies had contributed the amount for the project undertake by the assessee with Landmark Apartments Pvt. Ltd. It is submitted that, in the instant case, the learned A.O. has failed to comprehend that the amount received was an advance but not a loan. He has also failed to comprehend that, had it been a case of loan interest would have normally been paid or charged by the company who had allegedly advanced the loan. It is submitted that sum received by the assessee from such companies was advance and was supported by the documents which establish that the amount received was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning of term advance may or may not include lending. The word advance if not found in the company of or in conjunction with a word loan may or may not include the obligation of repayment. If it does, then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term advance . The rule of construction to our minds which answers this conundrum is noscitur a sociis. The said rule has been explained both by the Privy Council in the case of Angus Robertson vs. George Day [1879] 5 AC 63 by observing it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them and our Supreme Court in the case of Rohit Pulp and Paper Mills Ltd. vs. Collector of Central Excise, AIR 1991 SC 754 and State of Bombay vs. Hospital Mazdoor Sabha, AIR 1960 SC 610 . 9. Same view has been taken in the following judicial pronouncements: a. CIT vs Ambassador Travels (P) Ltd. HC (Delhi) 173 Taxman 407 b. CIT vs Raj Kumar HC (Delhi) 181 Taxman 155 c. CIT vs Creative Dyein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der s. 23(3). ii) 37 ITR 151(SC) Omar Salay Mohammad Sait v CIT The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicious, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this Court. iii) 26 ITR 736 (SC) Dhirajlal Girdharilal v CIT, Bombay When a Court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the Court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material iv) 37 ITR 288 (SC) Lal Chand Bhagat Ambica Ram v CIT The Tribunal in arriving a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the learned AO has been upheld by the learned CIT(A). 13. It is most respectfully submitted that in the instant case, learned AO/CIT(A) both have neither disputed the genuineness of the loss nor has disputed the fact that the assessee is engaged in Real Estate business, however, on arbitrary assumption it was held that aforesaid property was purchased as investment, as such, the loss on sale of land is capital loss. It is submitted that instant addition has been made purely on suspicion and no basis whatsoever has been given for assuming that such land was purchased as investment and not for the purpose of business. It is submitted that aforesaid land was purchased during the course of its business as such, loss incurred on the sale of land is business loss and same cannot be disallowed by holding it to be capital loss. 7. On the contrary, Ld. DR relied upon the order passed by the Ld. First Appellate Authority and Assessing Officer and stated that the Appeal filed by the Assessee may be dismissed. 8. We have heard both the parties and perused the relevant records available with us, especially the orders passed by the revenue authorities alongwith the Written Sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances, we hold that the such advanced by such companies were clearly for the purpose of the business and purely on commercial consideration and hence such sums cannot be termed as deemed dividend. 8.2 Further in respect of sum advanced by M/s Sanyog Estate Pvt. Ltd., it is seen that aforesaid company has also entered into an MOU with the assessee for searching out a place in New Delhi/Gurgaon for opening a business centre in commercial location for a price not exceeding ₹ 1 crore and sum of ₹ 5 lac was given to the assessee as advance for the purchase of the property. However, AO held that apart from this transaction, assessee has not entered with any other transaction with such company. This finding of the AO has been upheld by the CIT(A). We are of the opinion that the findings of the authorities below is unsustainable as from the terms of the MOU it was clear that sum has been advanced to the assessee for searching out a place in New Delhi/Gurgaon for opening a business centre in commercial location and merely because during the year, assessee has not been able to search the space, it does warrant any adverse inference against the assessee. In view thereof, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sector 103 and 104 of Gurgaon for group housing, as such, in order to acquire land, in August 2007 it purchased land in revenue estate of village Pawala Khusrupur, Gurgaon for a sum of ₹ 65,62,500/- and also incurred other expenditure of ₹ 4,08,800/- hence, total expenditure incurred for the purchase of land was ₹ 69,71,300/-. Aforesaid land was situated in sector 106 which is adjoining to sector 103 and 104, and assessee believed that it would be able to buy more land on behalf of such companies adjoining to this land. However, since assessee could not get further land in this sector and other land which were ultimately acquired by the assessee for the aforesaid companies were in other sectors as such, this land was not taken by the aforesaid companies and hence the assessee has to sell this land. This land was sold in December, 2007 for a loss of ₹ 4,08,800/-. As the land was acquired for the purpose of business and not as investment, as such loss suffered on the sale of land was debited in the profit and loss account as business loss. This loss has been disallowed by the AO by holding that the purchase of this land was not part of business or linked to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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