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Shri Hemanth Kumar Bothra Versus The Asst. Commissioner of Income-tax, Central Circle 1 (2) , Bengaluru

2017 (11) TMI 326 - ITAT BANGALORE

Deemed dividend u/s 2(22)(e) - receipt of advance against agreement to sale the property to the company - subsequently agreement was cancelled due to fall in market price - Held that:- We find that the assessee had himself signed on behalf of NIPL (purchaser) and for himself (seller). The authenticity of the so called MOU cannot also be cross verified as it was not registered with the registering authority. Thus, the AO’s observation that “the explanation [of the assessee] is a self serving argu .....

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led ‘fall in market value of property and subsequent change in circumstances’ would not have come in the way of alleged sale transaction of the subject property. - We have with due respects perused the case laws on which the assessee had placed strong reliance and of the view that those case laws will not come to the rescue of the assessee. The case laws relied on by the assessee are for the proposition that when amounts are advanced for business transaction / out commercial expediency, the .....

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George K, JM & Shri Jason P.Boaz, AM For The Appellant : Shri Lakshmy Karthik, CA For The Respondent : Shri Padmameenakshi, JCIT ORDER Per George George K, JM This appeal, at the instance of the assessee, is directed against the order of the CIT(A)-11, Bangalore, dated 16.12.2016. The relevant assessment year is 2013-14. 2. The solitary issue raised by the assessee, in his grounds of appeal, is that the CIT (A) erred in confirming the addition of ₹ 1,00,50,743 made by the AO on accoun .....

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it was explained that the new advance of ₹ 1.53 crores was received from M/s. Nokha Investments Pvt. Ltd. [NIPL] in November, 2012. Out of this, ₹ 1.38 crores and ₹ 15 lakhs were received on 5.11.2012 and on 27.11.2012 respectively. Scrutinizing upon the details furnished by the assessee, the AO found that at the time of receiving the advance, the assessee was a share-holder with 55.05% share-holding in NIPL which was a private limited company in which the public were not subs .....

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ation as incorporated in his impugned order under consideration, the AO had made an addition of ₹ 1,00,50,743 as deemed dividend u/s 2(22)(e) of the Act in the hands of the assessee for the following reasons: 5………..The explanation is a self-serving argument and is an attempt to give a simple and straight-forward loan, the colour of an advance for purchase . The unconvincing nature of the explanation is borne out by the fact that the property in question was ultimately .....

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to the company. Therefore, the transaction cannot be accepted a s a commercial transaction and is nothing but a pure and simple loan. The assessee has shown the amount of ₹ 1,53,00,000/- as a loan in the return of income. The assessee owns shares in the company, not being shares entitled to a fixed rate of dividend, holding not less than ten per cent of the voting power. In the circumstances, the provisions of section 2 (22)(e) are clearly attracted in the case of the asssessee. 6. As men .....

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377; 1,00,50,743/- only. 7.……………………………………………………………………… ………….. . 4. Aggrieved, the assessee took up the issue with the first Appellate Authority. After careful consideration of the assessee s contentions, various case laws relied upon by the assessee and extensively quoting the decis .....

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the appellant are applicable to the facts of the case. In view of the definition, the basic criteria for invocation of provision of 2(22)(e) are that (i) The company making payment shall be company in which the public are not substantially interested; (ii) The company shall have accumulated profit; (iii) The share holders must be holding more than 10% of the shares; (iv) The payment to the shareholders or to the concerns in which the shareholder has a substantial interest shall constitute deemed .....

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argument of the appellant that the money was not a loan doesn t appear to be correct. The appellant has taken loan from the company in which it had 55.05% interest. All the paper work submitted by the appellant is only to camouflage the real intention of the appellant. The appellant has given very flimsy reason stating that M/s. Nokha Investments Pvt Ltd was not interested in buying the property due to fall in market value of property and consequent change in circumstances. By this act of the ap .....

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assessee agreed to sell his property situated at III Block, HRBR Extension which he had constructed partly through own funds and through housing loan borrowed from HDFC Bank to NIPL for a consideration of ₹ 3 crores; - that when NIPL was looking for a property around HRBR area for locating its corporate office, the assessee volunteered to sell his property and, accordingly, a Memorandum of Understanding dt. 7.9.2012 was entered into between them wherein it was agreed, among others, that be .....

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expenses in connection with the transfer of the subject property; and that it was agreed that the advances paid would be adjusted towards the total cost of the property to be paid by NIPL to the assessee; - that it was, further, agreed in the MOU that the transaction should be over on or before 4.11.2013 or else, NIPL would be at liberty to cancel the MOU and recover the advances along with 12% of interest. In case, NIPL did not acquire the property as agreed upon, then the assessee would be li .....

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the Act and also citing the various case laws, namely: (i) CIT v. Hindustan Petroleum Corporation Ltd - 187 ITR 1 (Bom); (ii) Gopal and Sons (HUF) v. CIT (SC); (iii) CIT v. Creative Dyeing and Printing Pvt Ltd - 318 ITR 476 (Del); (iv) S.A. Builders v. CIT - 288 ITR 1 (SC); (v) M/S. Dina Sudhir Shah Mumbai v. ACIT - ITA NO.4184/Mum/2014Gopal and Sons (HUF) v. CIT (SC); (vi) CIT v. Creative Dyeing and Printing Pvt Ltd - 318 ITR 476 (Del); (vii) S.A. Builders v. CIT - 288 ITR 1 (SC); (viii) M/s. D .....

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as upheld by various judgments (supra). 5.3 In conclusion, it was prayed that the provisions of s. 2(22)(e) of the Act shall not apply to the impugned transaction and, hence, the addition made by the AO and, subsequent confirmation by the CIT (A) requires to be deleted. 5.4 To substantiate his contentions, the learned counsel had furnished copies of (i) Memorandum of Understanding; and (ii) case laws relied in the form of a paper book. 6. On the other hand, the learned D.R supported the stand ta .....

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t out that during the course of hearing; the learned counsel had sought the permission of this Bench to furnish a petition for admission of additional evidence [dt.23.10.2017] along with the copies of the following documents as additional evidence, namely: (a) copy of bank statement for the period from 1.10.2012 to 31.03.2013 evidencing receipt of advance from the company and also the full and final settlement of loan from HDFC Bank Ltd; and (b) Copy of confirmation letter from HDFC Bank on full .....

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sum of ₹ 1,00,50,743/- as deemed dividend? 9.1 It was the case of the assessee that he had entered into a Memorandum of Understanding [dated 7.12.2012] with NIPL to sell the subject property for a consideration of ₹ 3.25,00,000/- (sic) ₹ 3,00,00,000/- [Refer: page 2 of MOU] and received an advance of ₹ 1.53 crores which will be adjusted against the sale consideration of ₹ 3 crores. It was the contention of the assessee that as soon as the receipt of the advance, th .....

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o NIPL on 26.3.2013. 9.2 However, the AO took a divergent view that at the time of receiving the advance, the assessee was a share-holder with 55.05% share-holding in NIPL which was a private limited company in which the public were not substantially interested. It was, further, stated by the AO that as per the Balance sheet as on 31.3.2012 i.e., at the end of the earlier previous year, the company, NIPL had accumulated profits of ₹ 1,00,50,743/-.During the relevant previous year, NIPL had .....

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the assessee had more than 10% of shares in NIPL from whom the money was received, NIPL was a company in which the public were not substantially interested and it had sufficient accumulated profits. Thus, the payment made to the assessee can be strictly construed as deemed dividend. The argument of the assessee, according to the CIT(A), that the money was not a loan doesn t appear to be correct. The assessee had taken loan from the company in which he had 55.05% interest. All the paper work subm .....

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ful perusal of the copy of the Memorandum of Understanding [Refer: Paper Book of the assessee], we find that the assessee had himself signed on behalf of NIPL (purchaser) and for himself (seller). The authenticity of the so called MOU cannot also be cross verified as it was not registered with the registering authority. Thus, the AO s observation that the explanation [of the assessee] is a self serving argument…. [Para 5 of the asst. order] cannot be brushed aside. The assessee s argument .....

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