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TMI Blog2020 (4) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... . BNT Connection's was taken over by M/s. BNT Connections Impacts Limited. During the year 2011-12, the company entered in to sale agreement with the assessee for the purchase of the land and building situated in Perambur for a sale consideration of Rs. 10 crores and in pursuance of the agreement, the company made a property advance during the financial years viz, (f y) 2011-12: Rs. 10,00000, fy 2012-13: Rs .1,35,00,000, fy2013-14 :Rs. 2.31,00,000. On 05.12.2013, the two parties extended the period of agreement for one more year that is still 31.03.2016 and further an advance of Rs. 79 lakhs was paid and thus a total of Rs. 4,55,00,000 paid. While making the assessment for the AY 20014-15, the A O considered these transactions and the assessee's explanation, material etc and treated Rs. 2.31 crore as deemed dividend . The AO also found that the assessee has not received any rental income for the use of its land and building situated in Perambur from 2005 onwards and found that from April 2015 onwards, started collecting rent of Rs. 5lakhs per month . Therefore, the A O charged Rs. 60 lakhs as rental income and after allowing the deduction u/s 24 , assessed Rs. 42 lakhs as income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee for the previous years. 10 For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Commissioner of lncome Tax (Appeals) be set aside and that of the Assessing Officer be restored." The ld DR presented the case on the above lines and relied on the decisions of Supreme Court in the case of Smt. Tarulata Shyam vs CIT 108 ITR 345 (SC) and CIT vs. P.K. Abubucker, 259 ITR 507 (Mad) and pleaded to restore the order of the AO . 3. Per contra, the ld AR submitted that the assessee was then carrying on business as manufacturer and exporter of garments individually under the name and style of BNT Connections. He is a substantial shareholder of M/s BNT Connections Impex Ltd. ("company"). The company is carrying on business as Manufacturer and exporter of readymade garments. During the year 2005/06, the management decided to consolidate the operations and hence decided to merge the Garment Division of M/s BNT Connections with M/s BNT Connections Impex Ltd as a going concern. As a result, they entered into Memorandum of Understanding with BNT Connections dated 07/07/2005 wherein the business of the Manufacturer and E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bankers were taken into confidence and explained the rationale behind the intended purchase. The banks welcomed the BNT connections Impex Ltd. initiative and were supportive of company's plan. However, they advised the company to use the premises for manufacture and export of garments for company operations without paying any rent to the promoters' premises since the company was been permitted by the bankers to pay purchase consideration during the next three years in order to strengthen and to expand the company manufacturing base. Hence the assessee being the principal founder promoter of the company, went ahead and signed the agreement on the understanding that the company would have the right to use the premises for the manufacture of export garments without payment of rent from the company to the assessee. The company is not entitled for any interest on the advances paid under the sale agreement in lieu of non-payment of rent during the sale agreement period. 3.2 After the factory building's sale agreement was executed and the additional new plant and machinery were installed in the said assessee's factory buildings, the company's operating profits started turning positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2014/15, the company paid an advance for the purchase of this property. The balance amount was paid during April 2015 and the property was registered in the name of the company . The company is now in an advance stage of planning to set up an integrated factory in the said land. As the company had acquired a better and more convenient property at Andhra Pradesh, it has simultaneously dropped the idea of purchasing the property of the appellant during the last quarter of the financial year 2014-15 and accordingly the agreement of sale was cancelled in march 2015 and the entire advance of Rs. 4.55 Crores was repaid by the appellant at one stroke on 31 .03.2015. 3.5 Therefore, the assessee has submitted that the transaction by a company to purchase a property for its business purposes is a transaction in the nature of commercial transaction and therefore the advance for purchase of property cannot be considered as deemed dividend u/s 2(22)(e) in the light of the above binding Circular of the CBDT No.19 of 2017 dated 12th June, 2017 wherein the Board has clarified as under: "In view of the above it is, a settled position that trade advances, which are in the nature of commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted and relied on the order of the ld. CIT(A). 5. We considered the rival submissions. The relevant portion of the order of the Ld. CIT(A) is extracted as under: "At this juncture, attention is drawn to Section 2(22)(e) of the Income tax act 1961 as follows. The section 2(22)(e) is read as follows: Any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or Loan to a shareholder , being a person who is beneficial owner of Shares , holding not less than 10% of voting powers or To any concern in which such shareholder is a member or a partner and in which he has a substantial interest, or Any payment by any such company on behalf, or Any payment for the individual benefit of any such shareholder to the extent to which the company in either case possesses accumulated profits. If we carefully go through the section it is clear that any payment made by the company to a shareholder having more than 10% of Voting rights for the individual benefit of the share holder then such payments are to be treated as deemed dividend. However in the assessee's case the company M/s BNT Connections lmpex limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit accruing to the assessee from such transaction. My attention was also drawn to the Jurisdictional Tribunal's decision in the case of G. Sreevidya, Chennai vs Department of Income-tax dated 23.05.2015, the relevant extracts of which is reproduced below: "The case of the assessee is squarely covered by Division Bench judgment of the Hon'ble Calcutta High Court in the case of Pradip Kumar Ma/hotra (Supra), wherein the facts were similar to the facts of the instant case. In Pradip Kumar's case assessee had substantial holding in a private company. The assessee permitted his immovable property to be mortgaged to the bank for enabling the company to take the benefit of loan. The Board of Directors of the company passed a resolution to obtain interest free deposit upto 50 lakhs as and when required. The assessee obtained from the company a sum of 20,75,000/- by way of security deposit. Out of this amount, a sum of 20 lakhs was returned by the assessee to the company. The Assessing Officer added the sum of 20,75,000/- as deemed dividend. The Hon'ble High Court while allowing the appeal of assessee held that for retaining the benefit of loan availed of from the bank, if decision wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit accruing to the assessee from such transaction. Thus, on the above facts and circumstances , the assessee has clearly established that the impugned transactions are not following within the scope of section 2(22)(e). The Revenue is not able to dislodge such findings recorded by the Ld. CIT(A) by relevant material. Therefore, the case laws relied on by the Ld DR is not of any help to the revenue on the above facts and circumstances of this case. Hence, we do not find any reason to interfere with the order of the Ld. CIT(A). Therefore, we dismiss the Revenue's corresponding grounds of appeal. 6. With regard to the addition made under the head house property, it is clear that the assessee is owner of the land and building. It was used by the company towards its business purposes. Therefore, the annual value of property, i.e. the income arising from the house property, has to be assessed to tax u/s.s 22 to 27 of the Income Tax Act. The AO has based the rental income received by the assessee in the immediately succeeding year, as the sum for which the property might reasonably be expected to let from year to year and particularly for this assessment year. On which, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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