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2017 (2) TMI 284 - ITAT HYDERABAD

2017 (2) TMI 284 - ITAT HYDERABAD - TMI - Deemed dividend u/s 2(22)(e) - Held that:- The assessee has advanced interest free loans to the company and it is only for a brief period of 34 days in the A.Y 2009-10 that there was a small amount of ₹ 3,34,000/- as on 03-04-2011 debit balance in favour of the assessee in the books of the company. Even if the assessee’s contentions about receiving the consideration towards development agreement is not acceptable, the decision of the Hon’ble Punjab .....

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sessee : Shri V. Raghavendra Rao For The Revenue : Smt U. Mini Chandran ORDER PER P. MADHAVI DEVI, J.M.: Both the above appeals are filed by the assessee against the common and consolidated order of the CIT(A)- XI dated 12-03-2015, for the assessment years 2009-10 & 2011-12 respectfully. For the A.Y. 2009-10, the assessment was completed u/s 143(3) r.w.s 153C of the Income Tax Act, while for assessment year 2011-12, the assessment was completed u/s 143(3) of the Act. ITA Nos. 755 & 756/H .....

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he same, a notice u/s 153C was issued to the assessee. In response to the said notice, the assessee filed his return of income, returning ₹ 15.29,210/- and ₹ 1,68,61,090/-, as his income for the assessment years 2009-10 & 2010-11 respectively. The Assessing Officer observed that the ledger account of copies of Shri R.R. Varma in the books of M/s. RRV Infrastructure Ltd., showed a debit balance of ₹ 20,34,665/-as on 10-02-2009. The assessee was, therefore, asked to explain w .....

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that the assessee has been advancing interest free loans to the company over a period of time and there was a debit balance in his account only for a very short period during the relevant F.Ys and that the assessee has running current account with the company and the debit balance for a short period should not be treated as deemed dividend in the hands of the assessee u/s 2(22)(e) of the Act. In support of his contentions, he placed reliance upon the decision of the Hon ble Punjab & Haryana .....

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of proceedings u/s 153C of the Act. It is submitted that in the case of the assessee before us, though the notice u/s 153C is allegedly issued for six assessment years i.e A.Ys 2005-06 to 2010-11, it does not mentione any of the particulars regarding the person in whose case, the relevant search was conducted or the money, bullion or jewellary or any books of accounts or documents seized belong to the assessee and the satisfaction, if any, recorded u/s 153C of the Act by the Assessing Officer ha .....

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Ltd., and also refer to the documents relating to both the assessee s before us, i.e Shri R. Rajendra Varma and Shri R. Ravi Varma and also to the quantum of income that might not have been disclosed in their books of account. Therefore, we are satisfied that the requirements of assuming jurisdiction under section 153C are fulfilled by the relevant Assessing Officer. Therefore, the additional ground of appeal for the A.Y 2009-10 is rejected. 5. On merits, for both the A.Ys, the Ld. counsel for .....

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nces to the company. As pointed out by the Ld. counsel for the assessee, the debit balances have been for a very brief period, i.e only for less than 50 days for an amount of ₹ 20,34,665/- and less than 21 days for an amount of ₹ 1,57,200/- as is evident from the books of account produced before us. We find that the Hon ble Punjab & Haryana High Court in the case of CIT Vs Suraj Dev Dada (cited supra) as considered the exactly similar situation and at paras 8 to 10 has held as un .....

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sment years 2006-07 and 2007-08, similar additions had been deleted which has attained f inally. The judgment in S. A. Builders' case (supra), thus, does not help the Revenue. 9. Incidentally, it may be noticed that on March 18, 2013, notice of motion was issued on question No. ( iii) only when the following order was passed: "Present: Ms. Savita Saxena, advocate for the appellant. Notice of motion for May 27, 2013, in respect of substantial question No. (iii) only. The learned counsel .....

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s) with respect to questions Nos. (i) and (ii) had noticed as under: "4. I have gone through the assessment order passed by the Assessing Off icer and reply submitted by the counsel of the appellant. I am of the considered opinion that section 2(22)(e) of the Act is a deeming provision which assumes existence of certain facts if the conditions specif ied in a particular section are fulf illed. We agree that these provisions are to be construed strictly. This legal f iction has to be carried .....

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misuse of the funds belonging to a private limited company by its shareholders but not when there is running current account of the appellant with the company and the appellant has in fact for most the time lent the money to the company. This section had been inserted to stop the misuse of the taxing provisions by the assessees by taking the funds out of the company by way of loans or advances instead of dividends and thus avoid tax. But in this case where there is no such intention of the appe .....

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t to the facts of the present case whether in fact the person concerned has not gained any benef it from the funds of the company and one has to consider the totality of the facts and circumstances of the case before applying the provisions of this section. Hence, the provisions of section 2(22)(e) could not be invoked when there is a genuine business transaction between the two entities and funds of the appellant-director were in fact lying with the company for most of the time. 4.1 In view of .....

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td. and had been advancing money to it. It was further observed that the provisions of section 2(22)(e) of the Act were not attracted in the present case as this provision was inserted to stop the misuse by the assessee by taking the funds out of the company by way of loan advances instead of dividends and thereby avoid tax. In the present case, the assessee had in fact advanced money to the company and there was credit for only 55 days for which the provisions of section 2(22)(e) of the Act cou .....

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nces in the case of the assessee herein are also similar to the facts of the above assessee in ITA Nos. 755 & 757/Hyd/2015. The assessee herein is the brother of Shri Rudraraju Rajendra Verma and is the executive director of M/s RRV Infrastructure Ltd. During the course of search in the case of M/s. RRV Infrastructure Ltd, certain loose sheets and documents were seized, in view of which, notices u/s 153C were issued to the assessee. In response to the said notices, the assessee filed his ret .....

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found that there was a debit balance in the assessee s ledger account in the books of the company M/s RRV Infrastructure Ltd and the assessee s explanation was called for. It is submitted that, since the assessee could not explain the said entry in the books, the Assessing Officer treated it as deemed dividend u/s 2(22)(e) of the Act, in the hands of the assessee and brought it to tax. On appeal to the CIT(A), the assessee submitted that the sum of ₹ 53,80,801/- was an advance received by .....

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ent agreement which was cancelled later on as the company was unable to file the application for permission before the HUDA, due to the regularization problem and the company had asked the assessee to return the advance money within two weeks therefrom, failing which interest @ 2% p.m was to be charged for the delayed period. The assessee did not produce any evidence regarding these contentions before the CIT(A) on before us except for the unregistered development agreement. The CIT(A) has consi .....

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