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TMI Blog2015 (6) TMI 1242X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that appellant company was incorporated during the year and there was no source of income which could be alleged to have been introduced by way of share capital. 4(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs. 5,79,203/- on account of advance received against the land invoking the provision of section 2(22)(e) of the Act. (ii) That the above said addition has been confirmed ignoring arbitrarily the evidence brought on record that the transaction was entered into in due course of the business of the assessee and as such does not come under the purview of section 2(22)(e) of the Act. (iii) That the appellant company not being a shareholder, no addition can be made in the hands of the appellant on account of dividend. 5. That the appellant craves leave to add, amend or alter any of the grounds of appeal." 3. Ground no. 1 and 5 are general in nature so do not require any comments on our part. 4. Vide ground no. 2 (i), (ii) and (iii) the grievance of the assessee relates to the confirmation of addition of Rs. 10,00,000/- made by the AO on account of share application money. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teller Investment Ltd., [2001] 251 ITR 263 (SC)." 6. Being aggrieved the assessee carried the matter to the Ld. C.I.T.(A) and submitted that the assessee produced following evidences before the AO to prove the identity and creditworthiness of Shri Vinod Kumar :- "(i) Copy of Share Application received from Mr. Vinod Kumar (ii) Copy of Shares Certificate of shares Allotted to him (iii) Copy of confirmation received from him (iv) Copy of Annual Return and Form 2 filed before the Registrar of Companies (v) Various documents related to assets owned by him, Identity Card." It was further submitted that the assessee produced the person who confirmed the amount of contribution to the assessee. It was also stated that the assessee produced various papers related to land and other assets owned by Shri Vinod Kumar which could establish his creditworthiness and to prove the genuineness of the transaction it was necessary to prove the identity and creditworthiness of the creditor. It was submitted that the AO specifically mentioned in his order that Shri Vinod Kumar appeared before him and produced details of assets owned by him. Therefore, assessee discharged the onus cast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained by the AO was not justified. 9. In his rival submissions, the ld. DR strongly supported the order of the authorities below and further submitted that the assessee could not produce the creditworthiness of Shri Vinod Kumar and the genuineness of transaction was in doubt. Therefore, the ld. CIT(A) was fully justified in confirming the addition made by the AO u/s 68 of the Act. Reliance was placed in the following case laws :- -- C.I.T. vs. NOVA PROMOTERS AND FINLEASE (P) LTD.342 ITR 169 (Del.) -- C.I.T. vs. FAIR FINVEST LTD. 357 ITR 146 (Del.) -- C.I.T. vs. GANGESHWARI METAL P. LTD. 361 ITR 10 (Del.) --C.I.T. vs. LOVELY EXPORTS P. LTD. [2009] 319 ITR (St.) 5 (SC) 10. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the asessee received a sum of Rs. 10,00,000/- as share application money from Shri Vinod Kumar. The assessee furnished copy of PAN Card, Annual return, Share application form, copy of share certificate, copy of Khasra Khatauni before the AO vide letter dated 11.12.2008 copies of the above documents are placed at page nos. 17 to 49 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s noticed that the assessee had taken an advance of Rs. 10,00,000/- from M/s. Precision Stock and Credit Pvt. Ltd. in which Shri Jasbir Singh held 22,000 out of 1,03,500 shares i.e. a beneficial holding of 21% shares with voting right. He further, observed that Shri Jasbir Singh had holding of 24.52% in assessee's company and that the balance sheet of M/s Precision Stock and Credit Pvt. Ltd. revealed that it had an accumulated profit of Rs. 579203/- in the beginning of year, thus, satisfying the conditions of applicability of Section 2(22)(e) of the Act. The AO asked the assessee to explain as to why the amount of advance received to the extent of accumulated profits of M/s Precision Stock and Credit Pvt. Ltd. may not be taxed as deemed dividend as per the provisions of Section 2(22)(e) of the Act. The Assessee submitted that the advance was received against the land which was in the nature of normal business transaction, M/s Precision Stock and Credit Pvt. Ltd. had no accumulated profits and the advance was given only out of share premium available with that company which could not be termed as part of accumulated profit as such the provisions of section 2(22)(e) of the Act were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of Rs. 5,79,203/-. The Ld. CIT was of the view that the provisions of Section 2(22)(e) of the Act would be applicable in the present case, since Sh. Jasbir Singh was holding more than 20% to the shares in both the assessee and M/s Precision Stock and Credit Pvt. Ltd. He also mentioned that the assessee could not prove on the basis of evidence that the transaction was in the nature of the business transaction. He, therefore, confirmed the addition made by the AO. Now, the assessee is in appeal. 15. Ld. Counsel for the assessee submitted that since the assessee company was not a share holder of M/s Precision Stock and Credit Pvt. Ltd. and just because of a common share holder the addition u/s 2(22)(e) of the Act cannot be made. Reliance was placed on the following case laws :- 1. Commissioner of Income Tax vs. Ambassador Travels P. Ltd. [2009] 318 ITR 376(Delhi) 2. Commissioner of Income Tax vs. Shri Raj Kumar [2009]318 ITR 462(Delhi) 3. Commissioner of Income Tax vs. Creative Dyeing & Printing Pvt. Ltd. [2009]318 ITR 476 (Delhi) It was further submitted that the assessee had received advance against land from M/s Precision Stock and Credit Pvt. Ltd. which is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern, would not qualify as dividend. It has been made so by legal fiction created under section 2(22)(e) of the Act. We have to keep in mind that this legal provision relates to "dividend". Thus, by a deeming provision, it is the definition of dividend which is enlarged. Legal fiction does not extend to "shareholder". When we keep in mind this aspect, the conclusion would be obvious, viz., loan or advance given under the conditions specified under section 2(22)(e) of the Act would also be treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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