SH. HARISH KANWAR,NEW DELHI vs. ITO, NEW DELHI

ORDER PER H.S. SIDHU : JM

Assessee has filed this Appeal against the impugned Order dated 12.10.2016 passed by the Ld. CIT(A)-2, New Delhi relevant to assessment year 2011-12 on the following grounds:-

Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts.

2. 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.3,09,38,391/- made by the AO invoking the provisions of Section 2(22)(e) of the Act.

3(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the above addition despite the fact that the said amount was never received by the assessee from the companies but was a fraudulent act committed by the officer of the bank.

(ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in ignoring the contention of the assessee that the above- said amount was not in the nature of loans and advances.

4. Without prejudice to the above and in the alternative, the learned CIT(A) has erred both on facts

and in law in rejecting the contention of the assessee that the computation of 'accumulated profits' made by the AO is wrong.

5(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of an amount of Rs.34,27,655/- being deduction under Section 54 of the Act despite the assessee being eligible for the same. 2

(ii) That the disallowance of exemption under Section 54 amounts to double addition, the assessee himself added the same in subsequent assessment year.

6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in disallowing an amount of Rs.1,13,375/- being brokerage and legal

expenses, while computing capital gain on sale of property bearing No. B-7, Sector-72, Noida.

7. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in not allowing the deduction of Rs.2,00,000/- being the expenditure

incurred on additional alteration while computing capital gain in respect of property bearing No. 8-143, Greater

Kailash, Part II, New Delhi, sold by the assessee.

8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in not allowing

deduction of Rs1,00,000/- being the expenditure incurred on legal and brokerage expenses in respect of sale of property bearing No. S-143, Greater Kailash,

Part II, New Delhi.

9. The appellant craves leave to add, amend or alter

any of the grounds of appeal.

2. The brief facts of the case are that Assessee filed his return of income on 30.07.2011 declaring an income or Rs.30,56,940/-. The Return of the assessee was processed u/s 143(1) of the Income Tax Act, 1961 and thereafter the case was selected for scrutiny. Statutory notice u/s 143(2) of the Income Tax Act, 1961 was issued in this case in response to which, the A.R. of the assessee attended the proceedings from time to time. The assessee has shown income from salary, capital gains and other sources. The details and information filed have been examined. The assessee is Director/Shareholder in M/s Craftpac Containers Pvt. Ltd. (79.58% share-holding); M/s CPC Polymers Pvt. Ltd. (51% shareholding); and M/s Trimaxx Infrastructure Development Pvt. Ltd. (50% shareholding). Perusal of the details filed reveals that during the year the assessee received an amount or RS.3,01,00,000/- from M/s Craftpac Containers Pvt. Ltd. and Rs.99,00,000/- from M/s CPC Polymers Pvt. Ltd. and in turn had provided an FDR to M/s Craftpac Containers Pvt. Ltd. Since no shareholding held by the assessee is more than the specified limit provided u/s 2(22)(e) of the Act the provisions of section 2(22)(e) of the Act have been attracted. Accordingly, the assessee was required to furnish his explanation. The assessee furnished its explanation vide letter dated 25.1.2013 and has relied upon various case laws. After considering the submissions and the case laws, the AO has completed the assessment of the assessee at an income of Rs. 3,77,96,067/- as against returned 4 income of Rs. 3056940/- by making an addition of Rs. 30938391/- on account of deemed dividend and addition of Rs. 3948167/- be re-computing the capital gain declared by the assessee. The AO has also completed the assessment of company M/s Craftpac Containers Pvt. Ltd. whereby he made an addition of Rs. 10035866/- on account of deemed dividend. The AO completed the assessment at Rs. 3,77,96,067/- vide order dated 28.2.2014 passed u/s 143(3) of the Act.

3. Aggrieved with the assessment order dated 28.2.2014, the assessee preferred an appeal before the Ld. CIT(A), who vide his common impugned order dated 12.10.2016 has dismissed the appeal of the assessee and deleted the addition of Rs. 1,00,35,866/- of the case i.e.

4. Against the common impugned order dated 12.10.2016, assessee has filed the Appeal before the Tribunal.

To support his contention, he relied upon the case law of Hon’ble Bombay High Court in the case of (i) CIT vs. Universal Medical Pvt. Ltd. 324 ITR 263; ITAT, Delhi in the case of Sh. Harsh Dhir vs. ITO 2014 (10) TMI 847; (iii) Hon’ble Delhi High Court decision in the case of CIT vs. Harsh Dhir 2015 (9) TMI 1243 and Hon’ble Bombay High Court in the case of CIT vs. Pravin Bhimshi Chheda (2014) 48 taxmann.com 151 (Bombay) and ITAT, Kolkata decision in the case of ITO vs. Bimal Kumar Khaitan 2016 (3)

TMI 443.

5.1 With regard to disallowance of exemption u/s. 54 of the Act claimed by the assessee is concerned, Ld. Counsel of the assessee stated that assesssee in the present case has in fact offered this amount as income in the subsequent assessment year and has already paid due taxes in the subsequent year AY 2012-13. Thus, Ld. CIT(A) has wrongly confirmed the addition in this year and the same needs to be deleted.

5.2 With regard to ground relating to disallowance of an amount of Rs. 1,13,375/- being brokerage and legal expenses paid by the assessee is concerned, Ld. Counsel of the assessee stated that a sum of Rs. 2,26,750/- was paid to NOIDA Authority as one time lease charges at the time of purchase of plot and the evidence of the same was submitted, which is now placed at page no. 99 and 101 of the Paper Book, which was not considered and Ld. CIT(A) has wrongly confirmed the addition made by the AO, which needs to be deleted.

5.3 Apropos ground no. 7 relating to disallowance of deduction of Rs.2,00,000/- being the expenditure incurred by the assessee in respect of property No. S-143, Greater Kailash, Part-II, New Delhi is concerned, Ld. Counsel of the assesee stated that this amount was incurred by the assessee on this property after the purchase and the same be included in the cost while computing the capital gain. The lower authorities have ignored the evidences of this expenditure, hence, he requested that the addition in dispute may be deleted.

5.4 With regard to ground no. 8 relating to disallowance of Rs. 1,00,000/- being the expenditure incurred on legal and brokerage at the time of sale of above property, Ld. Counsel of the assessee has stated that the as per the provisions of the Section 48, the capital gain is to be completed after deducting from the actual consideration received, the expenditure incurred in connection with such sales, hence, he requested that the addition in dispute may be deleted.

“In the above case, it is humbly submitted that the following decisions may kindly be considered while adjudicating the issue of addition made by the Ld. AO u/s 2(22)(e) of the IT Act 1961:

“1. Miss P. Sarada Vs CIT [96 Taxman 11. 229 ITR

444.144 CTR 209] (Copy Enclosed) where Hon'ble Supreme Court held that advances made by company to assessee would have to be treated as deemed dividends paid on dates when withdrawals were allowed to be made and subsequent adjustment of account made on very last day of accounting year would not alter position that assessee received notional dividends on various dates.

the ground floor of a building to a company in which he had substantial interest and at the same time taken an advance /loan of Rs. 10 lacs from the company for the purpose of construction of upper floors. This advance was to be adjusted against the rent accruing in the future month on the letting out of the ground floor. It was held by the Hon'ble High Court that "ADVANCE" implies payment of a sum which was not due at the time it was paid and in the case of the assessee when advance was paid by the company nothing was due to be paid to the assessee and it was only against future rent that this advance was to be set off. Hon'ble court held that advance paid is a deemed dividend within the meaning of section 2(22)(e) of the IT Act.

Services [2011] 14 taxmann.com 14 (Delhi) (Copy

Enclosed) Where Hon'ble Delhi High Court held that for purpose of section 2(22)(e), a partnership firm having purchased shares through its partners in company which has paid loans is to be treated as a shareholder and it is not necessary that it has to be 'registered shareholder' of company.

Trading Co[2012] 21 taxmann.com 543 (Delhi) (Copy

Enclosed) - Assessee-firm consisted of two partners -

They were holding shares in a company - Firm received certain sum from company - Assessing Officer made addition to income treating same as deemed dividend applying section 2(22)(c) as partners were holding more than 10 per cent shares - Whether addition was justified

- Held, yes [In favour of revenue]”

3,77,96,067/- as against returned income of Rs. 30,56,940/- by making an addition of Rs. 3,09,38,391/- on account of deemed dividend and addition of Rs. 39,48,167/- be re-computing the capital gain declared by the assessee. The AO has also completed the assessment of company M/s Craftpac Containers Pvt. Ltd. whereby he made an addition of Rs. 1,00,35,866/- on account of deemed dividend. Both these appeals were heard together. The Ld. CIT(A) in the case of the company Craftpac Container Pvt. Ltd. deleted the addition of Rs. 1,00,35,866/- made by the AO. However, she enhanced the income of the company by Rs.4,00,00,000/-. In the case of the assessee, the Ld. CIT(A) has confirmed the additions made by the AO. Assessee appealed against the order passed by the Ld. CIT(A) in the case of Craftpac Container Pvt. Ltd. wherein the ITAT vide its order dated 28.8.2017 passed in has deleted the addition in dispute. Now the assessee is appeal before the Tribunal and has raised as many as 09 grounds, as aforesaid.

i). In the case of CIT Vs. Universal Medical Pvt. Ltd. 324

ITR 263 (Bombay), which is squarely applicable to the facts of the present case wherein it was held that where the amount was transferred from bank account of the company to the bank account of the assessee and no loan or advance was granted and infact the amount in question has actually been defalcated and not shown in the books of accounts, the provision of Section 2(22)(e) of the Act could not be invoked to tax in assessee's hands. Relevant para is as under:

"9. In order that the first part of clause (e) of section 2(22) is attracted, the payment by a company has to be by way of an advance or loan.

The advance or loan has to be made, as the case may be, either to a shareholder, being a beneficial owner holding not less than ten per cent of the voting power or to any concern to which such a shareholder is a member or a partner and in which he has a substantial interest. The Tribunal in the present case has found that as a matter of fact no loan or advance was granted to the assessee, since the amount in question had actually been defalcated and was not reflected in the books of account of the assessee. The fact that there was a defalcation seems to have been accepted since this amount was allowed as a business loss during the course of assessment year 2006-07. Consequently, according to the Tribunal the first requirement of there being an advance or loan was not fulfilled. In our view, the finding that there was no advance or loan is a pure finding of fact which does not give rise to any substantial question of law. " ii). In the case of Shri Harsh Dhir, Versus Income Tax

Officer, Ward 10 (3) , New Delhi 2014 (10) TMI 847 -

ITAT DELHI similar proposition was laid down.

"9. The sum of Rs. 1 lakh was paid by DIPL to the assessee on 23rd April, 2008. During the previous year relevant to the assessment year under consideration, there was no payment made by the assessee to DIPL before this date. Therefore, the sum of Rs. 1 lakh paid by DIPL to the assessee on 23rd April, 2008 is in the nature of loan and advance chargeable as deemed dividend under Section 2(22)(e). The other sum of Rs.

6,50,000/- was paid by DIPL to the assessee on 19.11.2008. However, before the above date, during the accounting year relevant to the assessment year under consideration, the payment made by the assessee to DIPL was much more. The sum of Rs. 7 lakhs was paid by the assessee to OIPL just a day earlier i.e.

18.11.2008. Therefore, for the detailed discussion in the earlier paragraphs, in our opinion, the sum of Rs. 6,50,000/- cannot be treated as loan and advance within the meaning of Section 2(22)(e).

Another sum paid by DIPL to the assessee is U

9,75,000/-. We find that on the same date i.e. 4th

March, 2008, there is a payment by the assessee of Rs. 10 lakhs to DIPL. Therefore, in our opinion, the sum of Rs. 9,75,000/- also cannot be treated as loan and advance within the meaning of Section 2(22)(e)." iii). The above judgement is affirmed by the Delhi

High Court in the case of Commissioner of Income

Tax, Delhi-III Versus Harsh Dhir 2015 (9) TMI

1243 - DELHI HIGH COURT iv). In the case of Commissioner of Income-tax-22 v. Pravin Bhimshi Chheda [2014] 48 taxmann.com

151 (Bombay) wherein it has been held that Circuitous transfer of funds to shareholder's firm wasn't deemed dividend if Co. got back its fund on same day. Relevant para is as under:

"6. Upon a bare perusal of the said provision and the transaction in question, the Tribunal concluded that in this case the transaction was a circuitous transaction and the money which initially belongs to M/s. Swati Energy and Projects Pvt. Ltd. was returned to the same company on the very same day through M/s. Power Service Corporation.

The object and purpose of section 2(22)(e) was noted by the Tribunal. We need not go into that aspect or any wider controversy.

The Tribunal, then, analyses this transaction and holds that there is no flow of fund or any benefit from M/s. Swati Energy and Projects Pvf. Ltd. to Mis. Sujyoti Enterprises or to its partner Mr. Pravin B. Chheda. Mr.

Pravin Bhimshi Chheda is the respondent assessee before us. It is in these circumstances, that the Tribunal concluded that this is not a loan or advance so as to attract section 2(22)(e). We are not required to go into any further controversy or larger question. The Tribunal may have addressed itself to the status of Mr. Manish

Oedhia and the financial position of M/s.

Power Service Corporation possibly to take care of the argument of the revenue that these were entities closely connected and possibly the money was routed through them although there was no genuine business transaction. In taking care of that argument, the status and financial position of all the entities, their annual income has been referred by the Tribunal. Once, we are of the view that the transaction essentially carried out in this case is not falling under section 2(22)(e), then, the finding of fact rendered by the Tribunal cannot be said to be perverse or vitiated by any error of law apparent on the face of the record." v). Income Tax Officer, Ward-9 (1) Kolkata Versus

Bimal Kumar Khaitan 2016 (3) TMI 443 - ITAT

KOLKATA has confirmed the decision of Ld.CIT(A) and Ld CIT(A) held as under:

"5.9. CIT(A) also held that since the money in question remanded with the assessee only for one day and was returned to GCP without any utilisation it cannot be treated as advance or loan within the meaning of section 2(22)(e) of the Act and came to the aforesaid conclusion. CIT(A) placed reliance on the decision of ITAT Mumbai Bench in the case of Praveen Bhimshi Chheda Shiv Sadan vs DCIT 11 ITR 705 (Mumbai) wherein it was held that the provision of section 2(22)(e) of the Act cannot be attracted where the transaction was circuitous transaction and the money which initially belonged to the company was returned to it on the very same day. The Tribunal held that looking at the transactions from the objects of section 2(22)(e) of the Act it cannot be said that there was diversion of dividend in the form of loans or advances.

CIT(A) accordingly deleted the addition made by AO."

9.1 In the background of the aforesaid discussions and respectfully follow the precedents, as aforesaid, we delete the addition in dispute and allow the ground.

In view of this fact, we are of the view that the issue needs to be set aside to the file of the AO with the directions that he shall verify the return for the next assessment year. In case the capital declared in the subsequent year, then the said capital gain needd to be deleted.

Accordingly, the AO is directed to verify the claim of the assessee. In case the AO is of the view that the capital gain is chargeable to tax in the year under consideration, then he shall delete the income in the subsequent assessment year 2012-13, as we are of the view that the same income cannot be taxed twice.

In our view the same is to be included in the cost while computing the capital gain. The AO has disallowed the same and the Ld. CIT(A) has confirmed the disallowance ignoring the explanation and evidences submitted by the assessee in support thereof. Since the assessee having incurred the expenditure the same ought to have been allowed while computing cost of the assets sold, hence, the addition in dispute is deleted.

Order pronounced in the Open Court on 18/10/2017.