TMI Blog2018 (3) TMI 1575X X X X Extracts X X X X X X X X Extracts X X X X ..... produce before us. - Decided in favour of assessee. For deemed dividend addition u/s 2(22)(e) transactions of the loan received by the assessee is also required to be examined from the aspect of the circular where it has been stated that the nature of advances given will determine whether it would be considered as deemed dividend or not. Some of the decisions relied upon by the assessee before the Ld. CIT (A) are also mentioned in the above circular however, the Ld. CIT appeal has not verified whether the facts of the present case are covered by those decisions. In view of above facts, in the interest of Justice, we set aside ground No. 2 of the appeal back to the file of the Ld. AO. for examination of the full facts of the loans given by the lender company to the assessee and its taxability as deemed dividend. The assessee is first directed to produce all the necessary details to show that how the advances received by the assessee does not fall into the definition of deemed dividend. Addition of benefit or perquisite under section 2 (24) (iv) - Held that:- We reject the finding of the Ld. CIT (A) that benefit is to be "received" from the company. We could not find the text ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is liable to be quashed. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) should have held that the assessment order passed by the Assessing Officer is bad-in-law and void. 2. On the facts and circumstances of the case and in law, the initiation of assessment proceedings and issue / service of notices by the assessing officer is not in accordance with the provisions of law and accordingly the assessment order passed is liable to be quashed. 3. On the facts and circumstances of the case and in law, the addition of ₹ 6307160/- made by A.O. by the assessing officer is beyond the scope of provision of section 153A of Income Tax Act, 1961. 4. On the facts and circumstances of the case and in law, the addition of ₹ 6307160/- made by A.O. by applying provisions of section 2(22)(e) of Income Tax Act, 1961 is totally erroneous. On the facts and circumstances of the case and in law, the assessing officer has misapplied the provisions of section 2(22)(e) of Income Tax Act, 1961. 4. The brief facts of the case shows that the assessee is an individual who is chief managing director of M/s. Ultra Home Construction Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guarantee commission to the assessee but providing loan to the assessee. Therefore, she submitted that the assessee has given merely a fa ade to get out of the taxability of the deemed dividend that advances were given because of commercial expediency. On the cross objection of the assessee she submitted that addition has been correctly made u/s 153A of the Act by the ld Assessing Officer. The ld CIT (A) has also upheld the same indirectly as per para No. 4.1 of the order. 8. Despite notice by speed post at the address mentioned in the cross objection filed by the assessee it has been returned back as unserved with a remark left . No new address has been provided by the assessee. Therefore, the issue is decided on the basis of information available on record on merit. 9. We have carefully considered the contentions of the ld CIT DR and perused the orders of the lower authorities. In the present case, the search took place on 09.09.2010 in Amrapali Group of Cases. The impugned Assessment Year before us is Assessment Year 2007-08. The assessee filed return of income on 22.10.2007. The notice u/s 143(2) of the Act could have been issued to the assessee up to 30.09.2008. No such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Year 2008-09:- 1. On the facts and circumstances of the case and in law, the notice u/s 153A issued in this case is illegal without jurisdiction and accordingly, the assessment order passed on the foundation of such notice is not sustainable and is liable to be quashed. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) should have held that the assessment order passed by the Assessing Officer is bad-in-law and void. 2. On the facts and circumstances of the case and in law, the initiation of assessment proceedings and issue / service of notices by the assessing officer is not in accordance with the provisions of law and accordingly the assessment order passed is liable to be quashed. 3. On the facts and circumstances of the case and in law, the addition of ₹ 96,61,785/- made by A.O. by the assessing officer is beyond the scope of provision of section 153A of Income Tax Act, 1961. 4. On the facts and circumstances of the case and in law, the addition of ₹ 34,20,000/- made by A.O. by the assessing officer is beyond the scope of provision of section 153A of Income Tax Act, 1961. 5. On the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of benefits received by the Director and relatives of Director of a company and not from partnership firm. He further stated that it is also given for commercial expediency. 20. The ld CIT(A) did not adjudicate the issue of addition u/s 153A of the Act without any incriminating material as he has deleted the addition on its merit. Therefore, the revenue is in appeal against the deletion of the addition whereas the assessee has filed cross objection contesting that no addition can be made in such assessment without incriminating material. 21. The ld CIT Departmental Representative vehemently submitted that the ld CIT (A) has deleted the whole addition merely on the basis of submission made by the assessee. She submitted that before the ld Assessing Officer no explanation was given by the assessee. She submitted that the person guarantee provided by the assessee of more than ₹ 20 crores for bank loan is totally unsubstantiated. She further stated that as a Director one has to provide guarantee to the banker when the assessee is Chief Executive Officer of that company. She submitted that it is not the case of providing guarantee commission to the assessee but pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend and of ₹ 3420000/- because of benefit u/s 2(24) (iv) made by the ld Assessing Officer is unsustainable in law. In view of this we allow the cross objection of the assessee and consequently the appeal of the revenue for AY 2008-09 is dismissed. 24. It is made clear that we do make any comment on the merits of the addition. 25. In the result, appeal of the revenue is dismissed and Cross objection of the assessee is partly allowed. 26. Now we come to the Assessment Year 2009-10. 27. The revenue has filed the appeal against the order of the ld CIT(A) passed on 18.06.2014 wherein, following grounds of appeal has been raised:- 1. The order of the ld CIT(A) is not correct in law and facts. 2. On the facts and circumstances of the case the ld CIT(A) has erred in deleting the addition of ₹ 3692002/- made by AO on account of deemed dividend u/s 2(22) of the IT Act. 3. On the facts and circumstances of the case the ld CIT(A) has erred in deleting the addition of ₹ 3406230/- made by the AO on account of Benefit perquisite u./s 2(24)(iv) of the IT Act. 28. The assessee has filed cross objection and raised the following grounds of appeal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - was advanced by Ultra Home Constructions Pvt. Ltd to the assessee during the year and assessee holds 37.65% shares in the company. According to the ld AO this income is chargeable to tax as deemed dividend but no reply was filed by the assessee. Therefore, addition of ₹ 3692002/- was made because of deemed dividend. 31. Further, it was noted by the ld Assessing Officer that assessee has received advance of ₹ 5670500/- from M/s. AHS Joint Venture for which no interest has been paid and the joint venture was paid loan of ₹ 127712707/- from M/s. Ultra Home Construction Pvt. Ltd. Therefore, the benefit was given to the assessee by providing interest free loan by the joint venture. Therefore, the ld Assessing Officer made an addition u/s 2(24)(iv) of the Act considering interest @6% of amounting to ₹ 34.06 lacs as benefit received by UHCPL as income. Consequently, assessment u/s 143(3) read with section 153A of the Act was passed on 26.03.2013. 32. On appeal before the ld CIT(A) the addition of deemed dividend was deleted for the similar reasons as given by him in AY 2007-08 stating that assessee has given guarantee more than ₹ 251 crores for bank l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout hypothecation of any immovable property. She further submitted that there is no agreement placed by the assessee before the Ld. CIT (A as well as before the Ld. assessing officer of the bank loan to show that on what conditions that company (the loan and for what reasons the assessee has given its personal guarantee. She further stated that it is not known what is the personal capacity of the assessee and how the assessee was to give personal guarantee of more than 251 crores to the bank and what is the net worth of the assessee. It was her strong contention that the whole story raised by the assessee before the Ld. CIT (A) was devoid of any merit and does not have any backing of the law. Therefore, she submitted that the assessee has given merely a fa ade to get out of the taxability of the deemed dividend that advances were given because of commercial expediency. 35. She further stated that addition u/s 2(24) (iv) was the direct benefit given by the partnership firm which is deleted by the ld CIT (A) on superfluous explanation. She submitted that in the present case the benefit is provide by the company to the assessee by in turn providing interest free or lower interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his we are of the opinion that addition of deemed dividend could have been made in the hands of the assessee even in absence of any incriminating material, if other conditions have been fulfilled. In view of this ground No. 3 of the cross objection of the assessee is rejected. Further similarly, the ground No. 4 with respect to addition of ₹ 3406230/- is also rejected. All other grounds of cross objection are supportive in nature and therefore they are dismissed. 39. In the result, cross objection filed by the assessee is dismissed. 40. Now we come to the appeal of the revenue where ground No. 2 related to the addition of deemed dividend of ₹ 3692002/- and ground No. 3 relates to addition of ₹ 3406230/- because of benefit of perquisite u/s 2(24(iv) of the Act. 41. Now we 1st come to the issue of the deletion of the addition of ₹ 3 6, 92, 002/ made by the Ld. AO on account of deemed dividend under section 2 (22) (is) of the income tax act. The brief facts shows that during the year under consideration the assessee has taken advance against property from M/s ultra home constructions private limited at ₹ 36,92,002/ resulting into total advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal and further a sum of ₹ 1 9.26 Lacs have been paid on account of share application money and ₹ 3 7, 756/ on account of the receivables were outstanding recoverable by the appellant from the aforesaid company. The assessee further relied on the decision of the Hon‟ble Delhi High Court in case of control and switchgear connectors Ltd versus DCIT. It was further submitted that the advances given by the company to the appellant were purely because of commercial expediency and there is no case for applying provisions of the deemed dividend in treating the advance is deemed dividend. For this assessee relied upon CIT versus creative dying and printing private limited 318 ITR 476, CIT versus Ambassador travels private limited 318 ITR 376, in CIT versus Rajkumar 318 ITR 462. 43. The Ld. CIT (A) deleted the addition holding that appellant has provided personal guarantee of more than ₹ 2 51 crore for bank loans raised by the company and shares of ₹ 12.22 crores held by the assessee have also been pledged to the bank and therefore the sum total of the above is much more than the amount received from that company. He therefore held that there is a commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and that it could not be treated as a loan simpliciter, so as to attract section 2(22)(e) of the Act ; it has to be treated as one in the course of business. In coming to the conclusion, the High Court followed the rationale of the decisions in CIT v. Creative Dyeing and Printing P. Ltd. [2009] 318 ITR 476 (Delhi) and CIT v. Nagindas M. Kapadia [1989] 177 ITR 393 (Bom). No such facts are available in the present case. It is not the case of the assessee that assessee-wanted funds and therefore has requested the lender company either to buy back its shares or to get them released. Such facts are also not available on record that whether all the key management personnel have provided for pledging of their shares in terms of loan (by the lender company, which is generally the case. Therefore merely because the assessee has provided the pledge of the shares held by him in the assessee company to the bank as a condition of loan granted by banks to the lender company and therefore loan given by the lender company to the assessee becomes a case of business expediency. Such story cannot be believed on face value unless they are shown to have existed at the time of pledging of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) (e) of the Act. Such views have attained finality. 2.1 Some illustrations/examples of trade advances/commercial transactions held to be not covered under section 2(22) (e) of the Act are as follows: i. Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that amounts advanced for business transactions do not to fall within the definition of deemed dividend under section 2(22) (e) of the Act. (CIT v. Creative Dyeing Printing Pvt. Ltd.1, Delhi High Court). ii. Advance was made by a company to its shareholder to install plant and machinery at the shareholder's premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (CIT v. Amrik Singh, P H High Court)2. iii. A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilised gas available to it from GAIL to generate electricity and supplied it to the sister con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts shows that during the year the assessee has received advance of ₹ 5.67 crores from one joint-venture for which no interest has been paid. M/s a capital H capital as capital joint-venture firm has received an amount of ₹ 12.77 crores from M/s Ultra home constructions private limited wherein the assessee is holding the beneficial interest of more than 39%. Assessee is also one of the partners in the firm. Therefore the claim of the Ld. assessing officer is that the joint-venture firm wherein the assessee is a partner has received a sum of ₹ 12.77 crores as loan and in turn has granted loan of ₹ 5.67 crores to the assessee without charging interest. Therefore the Ld. AO held that 6% of the interest on the amount advanced by the joint-venture firm to the assessee is in the nature of benefit chargeable to tax under section 2 (24) (IV) of the act. 47. Assessee preferred appeal before the Ld. CIT (A) who held that such income is chargeable to tax in the hands of the assessee only if it is received from the company in which the assessee is holding substantial interest but not from a partnership firm. He further stated that the amount was advanced to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has applied the reasons given by him while deleting the addition of the deemed dividend also for deleting the above addition with respect to the benefit of deemed. In view of above findings, we set aside ground No. 3 of the appeal of the revenue to the file of the Ld. assessing officer with a direction to the assessee to show before him that how the about transaction of receiving loan from a firm to the assessee free of interest where a company where the assessee is director which is provided huge interest free funds to such firm is not chargeable to tax as income under section 2 (24) (iv) of the act. The Ld. AO may examine the arguments of the assessee and decide the issue afresh in accordance with the law after granting assessee adequate opportunity of hearing. Accordingly, ground No. 3 of the appeal of the revenue is allowed with above direction. 49. Ground No. 1 of the appeal of the revenue is general in nature and therefore it is dismissed. 50. In the result, appeal of the revenue is allowed for assessment year 2009- 10 in ITA No. 4836/Del/2014 statistical purposes and cross objection of the assessee in CO No. 150/Del/2015 is dismissed. 51. In the result all 6 app ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
