SUMIT MOHANSINGH GANDHI,MUMBAI vs. ASSTT. CIT -25(1), MUMBAI

The fact in brief is that the return of income declaring total income of Rs.73,93,200/- was filed on 10.08.2013. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 02.09.2014. During the course of assessment proceedings the A.O noticed that there was difference in the total TDS as per Form 26AS and as shown by the assessee in the return of income for the year under consideration. On perusal of Form 26AS it was found that mismatch/ difference was occurred due to payment of Rs.6,90,000/- as advance rent to the assessee by Asian Business Corporation Limited, the company in which the assessee was director having more than 10% of shareholding. The assessing officer has treated the aforesaid advance rent as deemed dividend u/s 2(22)(e) of the Act and added to the total income of the assessee. 4. Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal. 5. During the course of appellate proceedings before us the ld. Counsel contended that assessee has received advance rent of 3 months on let-out his office premises to Asian Business Corporation Limited. The ld. Counsel during the course of appellate proceedings has filed a paper book comprising copies of document and written submission filed before the lower authorities. The ld. Counsel referred CBDT Circular No. 19/2017 regarding not to treat commercial transaction between company and shareholder because of business expediency as deemed dividend u/s 2(22)(e) of the Act. The ld. Counsel also referred the judicial pronouncement in the case of Bagmane Construction Pvt. Ltd. Vs. CIT (2014) (Karnataka) ITA No. 473/2013; CIT Vs. Rajkumar (2009) 318 ITR 462 (Delhi); Pradeep Kumar Vs. ITO (2011) 338 ITR 538 (Kolkata. On the other hand the ld. D.R has relied on the order of the lower authorities.

Heard both the side and perused the material on record. During the year the assessee has received advance rent amounting to Rs.6,90,000/- on let-out of his office premises to Asian Business Corporation Limited, the company in which the assessee being director was having more than 10% of the shareholding. The Asian Business Corporation Limited had given advance rent for next 3 months to its licensors from whom offices were taken on rent and the assessee had dully offered the advance rent received for tax in the subsequent financial year 2013-14. The assessee explained during the course of assessment and appellate proceedings that advance rent for 3 months was commercial transaction and same was offered for tax in the subsequent year. We have perused the judicial pronouncements relied upon by the assessee. In the case of CIT Vs. Rajkumar as supra, the Hon’ble Delhi High Court held that a trade advance which is in nature of money transacted to give effect to a commercial transactions cannot be treated as deemed dividend. In the case of Smt. Jamuna Vernekar (2021) 129 taxman.com 380 (Karnataka) Hon’ble High Court of Karnataka held that where the assessee, director of the company, received advance from company for construction of building of plot owned by him and such advance was letter adjusted towards security deposit and rent payable to assessee, it would be a commercial transaction and would be outside purview of Section 2(22)(e) of the Act. It is undisputed fact that assessee has received advance rent for 3 months on providing office premises on lease to the aforesaid company where the assessee was having shareholding of more than 10%. The assessee had explained with relevant material along with judicial pronouncements before the lower authorities that same was purely a commercial transaction and there was no tax evasion made on the basis of this transaction. We find that assessee has already paid due tax on the

In the result, the appeal of the assessee is allowed.