TMI Blog2023 (7) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... both the transactions with the aforesaid concerns were business and commercial arrangements duly supported not only by agreements but also by the conduct of the parties involved. CIT(A) has further observed that it was not the case of the Ao that the said amounts were given gratuitously to the assessee only by virtue of its company beneficial shareholder. This addition was not based on any incriminating material found during the search action and that in the absence of incriminating material found during the search action, no addition could have been made by the Assessing Officer in an assessment carried u/s 153A of the Act. The above issue is squarely covered by the recent decision of the Hon ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd. reported in [ 2023 (4) TMI 1056 - SUPREME COURT] No reason to interfere with the above findings of the ld. CIT(A), the same are accordingly upheld. Addition u/s 14A r.w.r. 8D - proportionate disallowance of expenditure relating to earning of tax exempt income - HELD THAT:- Since this was a case of reassessment proceedings u/s 153A pursuant to the search action u/s 132 of the Act, therefore, the addition if any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. 3. That on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition u/s 24(i) of the I.T. Act 1961. 4. That the Revenue reserves its right to substantiate, modify, delete, supplement and/or alter the grounds at any time of the appeal proceedings. 3. Ground No.1 Vide this ground, the revenue has contested the action of the CIT(A) in deleting the addition made by the Assessing Officer on account of deemed dividend u/s 2(22)(e) of the Act. The brief facts of the case are that the assessee company has been in the business of development and construction of real estate projects. During the assessment proceedings, the Assessing Officer noted that the assessee had received substantial advances from various parties against which interest was paid after due deduction of tax at source (TDS). One of the entities namely Safari Retreats Pvt. Ltd. from whom an advance of Rs17,15,00,000/- was received was a group company of the assessee. The Assessing Officer noted that the assessee had substantial share holding in the said company. The Assessing Officer further noted that the assessee had also received advance of Rs. 44,62,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of real estate projects. During the year, the AO has noted that the appellant received substantial advances from various parties against which interest was due paid after due deduction of TDS. One of the entities from whom such advance was received was Safari Retreats Pvt. Ltd, amounting to Rs 17,15,00,000/-, which was, as noted by the AO, a group company. The AO, in another place of his order has also called these advances loans. Be that as it may, it is undisputed that during the impugned period, the other conditions applicable for inviting the mischief of section 2(22)e were undisputedly satisfied including the percentage shareholding required as well as the presence of accumulated profits. The AO did not accept the appellant's submission that these moneys were advanced out of commercial expediency, and that interest was duly paid upon them and that the agency advancing the said amounts was in the business of making loans and advances. For this last argument, the appellant had pointed out to the AO that the entire capital of the lending company, Safari Resorts Pvt Ltd, had been used in the following manner: Fixed assets: 14.76 crore Fixed deposits: 10.99 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r advance but it was given in return to an advantage conferred upon the company by such share holders. This advantage is accepted by the AO in the form of huge payments of interest upon such loans. These loans/advances were given against an interest rate of 12% per annum, which is a reasonably high commercial rate of interest. The fact that these loans were given in the ordinary course of business of the loan advancing company just adds further Credence to the already accepted fact that this loan was not gratuitous and given only by Virtue of the fact that the appellant held a beneficial interest in the loan advancing company. The AO has not suspected that these loans were in any way bogus or that the interest charged- which would constitute the consideration in this was not at an arms length. As per the decision of the Hon'ble Jurisdictional High Court, mentioned above, the provisions of section 2(22)e are not attracted in cases where an advantage is conferred upon the entity that has advanced the loan; This is squarely applicable to the facts as they stand in this case, where, as discussed earlier, an advantage has been conferred in the form of interest, upon the company that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer after having noticed that interest at the rate of 9% per annum was paid by the assessee on such loan, which, according to him, was a consideration received from her shareholders, which was beneficial to the Company and the order of the ld. CIT(Appeals) giving relief to the assessee was upheld by the Tribunal vide its order dated 29.06.2015 passed in ITA No. 1124/KOL/2012 by relying on the decision of the Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra (supra). Keeping in view the said decision of the Hon'ble Calcutta High which has been followed by the Co-ordinate Bench of this Tribunal in the case of M/s. Zenon (India) Pvt. Limited (supra), we hold that the addition made by the Assessing Officer and sustained by the ld. CIT(Appeals) under section 2(22)(e) on account of loan received by the assessee from M/s. Surya Business Pvt. Ltd. on which consideration in the form of interest was paid by the assessee to the benefit of the Company is not sustainable. We, therefore, delete the same and allow Grounds No. 1 2 of the assessee's appeal. There are a plethora of decisions that have explained this set of facts that section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thought it wise not to invest in M/s. Forum Projects Pvt. Ltd., therefore, the said agreement dated 24.01.2010 was cancelled by an exit agreement dated 29.01.2010. This agreement has also been provided by the appellant and is contained on pages- 71 to 74 in the paper book. The said amount of Rs. 44 62,00,000/ was accordingly refunded by M/s. Forum Projects Pvt. Ltd. to M/s. Forum Venture Pvt. Ltd, as a measure of full and final settlement between the two parties. The appellant as stated that the AO despite being fully aware of all the facts and ignoring the Fact this was a purely business Venture or which all the facts were present on record, went ahead and treated this commercial advance as deemed dividend. I have examined the entire material including the two agreements which form part of a larger set of agreements for a commercial venture. I find that the AO has not discussed this aspect of a commercial transaction at all and has concentrated upon only the technical addition of u/s. 2(22)e. The overall facts of this case are that this is a commercial transaction in the form of a duly executed contractual agreement, wherein two parties have entered into a legally b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envisaged under section 2(22)(e), it is observed that the judicial pronouncements cited by the ld. counsel for the assessee clearly support the case of the assessee. 6. In the case of Pradip Kumar Malhotra reported in 338 ITR 538 cited by the ld. counsel for the assessee, I was held by the Hon'ble Calcutta High Court that the phrase by way of advance or loan appearing in section 2(22)(e) must be construed to mean those advances or loans which a shareholder enjoys for simply on account of being a partner, who is the beneficial owner of shares, but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the Company, received from such shareholder, in such case such advance or loan cannot be said to be deemed dividend within the meaning of the Act It was held that gratuitous loan or advance given by a company to those classes of shareholders thus would come within the purview of section 2(22)(e) but not the cases where the loan or advance is given in return to an advantage conferred upon the Company by such shareholder. In the case of ACIT -Vs. - M/s. Zenon (India) Pvt. Limited, a loan taken by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow the transaction itself can be construed to be anything other than the sum total of its individual parts. Respectfully following the propositions and tests laid down in the aforementioned citations I cannot agree with the AO in his action in this regard. The impugned transaction is clearly a commercial transaction in which two parties entered into a sale purchase agreement for the sale purchase of flats. This is a standard agreement between an investor and a developer for the future purchase of property that was to be developed by the developer. The contractual agreement was binding on both parties. The moneys advanced by the purchaser was against a consideration the right to purchase the flats specified in the agreement. Within just a few days, the agreement was lawfully rescinded, with the developer returning the money in its entirety. The ratio of the above discussed citations clearly establishes that the impugned transaction is not governed by the mischief of section 2(22) e of the Act. Coming to the aspect of this appeal raised by the appellant in his ground number 1, I find that in this case, the AO has not brought on record any material to show that the impugned add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exempt income. Without prejudice to the above observation, the ld. CIT(A) further held that since this was a case of reassessment proceedings u/s 153A pursuant to the search action u/s 132 of the Act, therefore, the addition if any could have been based on the basis of incriminating material found during the search action. He observed that the aforesaid addition u/s 14A was not based on any incriminating material found during the search action. He therefore deleted the impugned addition. After hearing the ld. representatives of the parties, we do not find any reason to interfere with the above findings of the CIT(A). 5. Ground No.3 - Vide Ground No.3, the revenue has contested the action of the CIT(A) in deleting the addition made by the Assessing Officer on account of disallowance of statutory deduction claimed by the assessee u/s 24(i) of the Act. The Assessing Officer observed that the assessee company was engaged in real estate business and that the assessee had claimed certain administrative expenses in his business income and at the same time had claimed standard deduction u/s 24(i) of the Act. He therefore deleted the statutory deduction u/s 24(i) of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt as compared to the market rate. The ld. counsel for the assessee has invited our attention to the paper-book page 65, to show that the assessee did not have any share holding in the said concern i.e. Technopolis Infrastructure Pvt. Ltd. The Assessing Officer perhaps has mistaken the assessee with the another concern namely Forum Project Holding Pvt. Ltd. Therefore, the provisions of section 2(22)(e) of the Act were not attracted in this case. Even otherwise, this addition was not made by the Assessing Officer on account of any incriminating material found during the search action. Therefore, we do not find any infirmity in the order of the CIT(A) in this respect. 9. Ground No.2 Vide Ground No.2, the revenue has contested the addition made by the Assessing Officer on account of disallowance made u/s 40(a)(ia) of the Act for non-deduction of TDS on certain payments made by the assessee. At the outset, the ld. counsel for the assessee has submitted that the issue has already been discussed and decided in favour of the assessee by the Tribunal in relation to appeal filed against the demand raised u/s 201(1)/201A of the Act vide order dated 05.09.2022 passed in ITA No.188 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the I.T. Act 1961. 4. That the Revenue reserves its right to substantiate, modify, delete, supplement and/or alter the grounds at any time of the appeal proceedings. 13. Ground No.1 The Assessing Officer noted that during the year the assessee had taken loan from M/s Forum Riviera Construction Pvt Ltd. of Rs. 149,78,646/-. The Assessing Officer made the addition u/s 2(22)(e) of the Act and treated the said amount as deemed income of the assessee. At the outset, the ld. counsel for the assessee has invited our attention to page 63 of paper-book to submit that the assessee during the year was not having only substantial shareholding of the said Forum Projects Pvt. Ltd. . The share holding of the assessee during the year in the said company was 0.40% only and moreover the assessee has paid high interest on the said amount @12%. The aforesaid addition was not based on any incriminating material found during the search action. Therefore, there is no merit in the above ground of the Revenue. 14. Ground No.2 3 - Ground No.2 is relating to the disallowance of expenditure u/s 40(a)(ia) of the Act, whereas, Ground no.3 is relating to the statutory deduction u/s 24(i) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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