DCIT, CIR-8(2), KOLKATA, KOLKATA vs MS. MINU BUDHIA, KOLKATA

Income Tax Appellate Tribunal, “B” BENCH : KOLKATA

Before: Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM]

Hearing: 09.08.2018Pronounced: 24.08.2018

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : KOLKATA [Before Hon’ble Shri M.Balaganesh, AM & Hon’ble Shri S.S.Viswanethra Ravi, JM] I.T.A No. 1450/Kol/2015 Assessment Year : 2008-09 DCIT, Circle-8(2), Kolkata -vs- Ms. Minu Budhia [PAN: AEFPB 5941 N] (Appellant) (Respondent)

C.O. No. 128/Kol/2017 (Arising out of I.T.A No. 1450/Kol/2015) Assessment Year : 2008-09 Ms. Minu Budhia -vs- DCIT, Circle-8(2), Kolkata [PAN: AEFPB 5941 N] (Cross Objector) (Respondent) For the Department : Shri S. Dasgupta, Addl. CIT DR For the Assessee : Shri D.K. Kothari, AR Shri V.K. Jain, FCA Date of Hearing : 09.08.2018 Date of Pronouncement : 24.08.2018

ORDER Per M.Balaganesh, AM

This appeal by the Revenue and the Cross Objection by the assessee arise out of the order of the Learned Commissioner of Income Tax(Appeals)-20, Kolkata [in short the ld CIT(A)] in Appeal No. 708/CIT(A)-20/CC-1(2)/14-15 dated 23.09.2015 against the order passed by the DCIT, CC-II, Kolkata [ in short the ld AO] under section

2 ITA No.1450/Kol/2015& C.O. No. 128/Kol/2017 Ms. Minu Budhia A.Yr. 2008-09 143(3)/263/143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 31.03.2014 for the Assessment Year 2008-09.

At the outset, we find that there is a delay of 696 days in filing the cross objection by the assessee before us. The assessee has filed a delayed condonation petition for the same. At the time of hearing, the ld. AR stated that the cross objection preferred by the assessee are only supportive of the order of the ld. CIT(A) and hence he is not pressing the same, in support of which, necessary endorsement has been made by the ld. AR in our file. Accordingly, cross objection preferred by the assessee is dismissed as not pressed.

The only issue to be decided in this appeal of the revenue is as to whether the ld. CIT(A) was justified in deleting the addition of Rs. 2,30,00,000/- made u/s 2(22)(e) of the Act towards deemed dividend, in the facts and circumstances of the case.

The brief facts of this issue are that the assessee filed her return of income for the assessment year 2008-09 on 10.09.2008 declaring total income of Rs. 1,86,55,853/-. The assessee is deriving income from salary, house property, capital gains and other sources. The assessment was completed u/s 143(3) of the Act on 12.04.2010 accepting the returned income. Later assessment was set aside to the file of ld. AO vide order u/s 263 of the Act passed by the CIT on 21.01.2013 for making a fresh assessment as per provisions of section 2(22)(e) of the Act, after making necessary investigation about the claims of the assessee in connection with i) whether the advance was interest bearing and ii) whether the advance was made to her by the company during the ordinary course of money lending business of the company. The ld. AO as well as ld. CIT observed that the assessee had taken an advance of Rs. 2,30,00,000/-from M/s Patton International Ltd., a company in which the assessee holds 23% of its share capital. Admittedly, M/s Patton International Ltd. had accumulated profits as on 31.03.2007 of Rs. 2

3 ITA No.1450/Kol/2015& C.O. No. 128/Kol/2017 Ms. Minu Budhia A.Yr. 2008-09 22,82,41,790/- and Rs. 36,56,84,224/- as on 31.03.2008. The assessee was directed to explain as to why the said receipt of Rs. 2,30,00,000/- from the closely held company in which she is holding more than 10% of voting power, be not construed as receipt falling within the ambit of provisions of section 2(22)(e) of the Act. In response thereto, the assessee stated that M/s Patton International Ltd. had given deposits to the assessee company pursuant to two separate lease agreements entered on 31.03.2008 for leasing two offices premises measuring a) 777 sq. ft. built up area on 6th Floor at 3C, Camac Street, Kolkata-16 for which deposit sum of Rs. 1 crore was received by the assessee and b) 777 sq. ft. built up area on 9th Floor at 3C, Camac Street, Kolkata-16 for which deposit amount of Rs. 1,30,00,000/- was received by the assessee from M/s Patton International Ltd. . The assessee placed the lease agreements dated 31.03.2008 before the authorities. It was found that M/s Patton International Ltd. had given 2,30,00,000/- as interest free advance to the assessee.

4.1. The property situated at 9th Floor at 3C, Camac Street, Kolkata-16 was already occupied by the old tenant M/s All Cargo Movers (India) Pvt. Ltd., whose lease agreement had expired on 31.03.2008 and that the said tenant had not vacated the premises on 31.03.2008 and had in fact sought for extension of lease period by another 12 months due to unavoidable circumstances. The assessee had agreed for such extension of tenancy to the old tenant stated supra. The lease agreement dated 31.03.2008 entered with M/s Patton International Ltd. by the assessee in respect of flat situated at 9th Floor, 3C, Camac Street, Kol-16 specifically mentioned that the assessee was in the process of taking possession from M/s All Cargo Movers (I) Pvt. Ltd. pursuant to the said tenant vacating the premises.

4.2. In another lease agreement dated 31.03.2008 entered into by the assessee with M/s Patton International Ltd. in respect of flat situated at 6th floor, 3C, Camac Street, Kol- 16, it was specifically mentioned in the lease agreement that the lessor i.e. the assessee 3

4 ITA No.1450/Kol/2015& C.O. No. 128/Kol/2017 Ms. Minu Budhia A.Yr. 2008-09 was in the process of becoming owner of the said premises which actually belonged to her father-in-law Shri H.P. Budhia, who expressed his desire to gift the flat to her on the occasion of his 50th marriage anniversary and the assessee decided to lease out the said premises to M/s Patton International Ltd. as soon as she became owner of the premises.

4.3. Both the lease agreements contained a clause that if possession was not given within a year, the advance/deposit money had to be refunded back on demand to the lessee i.e. M/s Patton International ltd. The assessee pursuant to the aforesaid lease agreements dated 31.03.2008 sought to categorize the receipt of Rs. 2,30,00,000/- (1crore + 1.30 Crores) from M/s Patton International Ltd. as lease security deposit and that the same would not be construed as loan/advance within the meaning of Section 2(22)(e) of the Act as the said security deposits were received by the assessee as commercial transaction in the ordinary course of her business.

The ld. AO observed in his assessment order that with regard to the flat situated at 9th Floor, 3C, Camac Street, Kolkata-16, though the lease agreement with All Cargo Movers (I) Pvt. Ltd. had expired on 31.03.2008, the said tenant expressed its inability to vacate the premises and requested to extend the lease by 12 months. Consequently, the assessee was unable to hand over the flat to M/s Patton International Ltd pursuant to lease agreement dated 31.03.2008 entered into by the assessee.

5.1. The ld. AO also observed in his assessment order that the father-in-law of the assessee Shri Hari Prasad Budhia (H.P. Budhia) was unable to make the intended gift of the flat situated at 6th Floor, 3C, Camac Street, Kol-16 to the assessee within the prescribed time and therefore, the assessee was unable to hand over the said flat to M/s Patton International Ltd. Ultimately the said flat was gifted by father-in-law to the assessee vide deed of gift dated 15.09.2009. In the said deed of gift, it was noticed that

5 ITA No.1450/Kol/2015& C.O. No. 128/Kol/2017 Ms. Minu Budhia A.Yr. 2008-09 the subject mentioned flat was already occupied by a tenant and that the said flat was gifted by father-in-law to the assessee together with such existing tenant.

5.2. Based on the aforesaid facts, the ld. AO observed that the assessee did not possess any clear title [ free of any encumbrance – i.e without tenancy] in respect of the flat situated at 9th Floor, 3C, Camac Street, Kol-16 so as to make it eligible to be leased out to M/s Patton International Ltd. on 31.03.2008 for which the lease agreement was entered on 31.03.2008. Similarly the assessee was not having possession of the flat situated at 6th Floor, 3C, Camac Street, Kol-16 as on 31.03.2008 so as to lease it out to M/s Patton International Ltd. for which lease agreement dated 31.03.2008 was entered by the assessee. Hence the ld. AO concluded that the money received from M/s Patton International Ltd. cannot be characterized as a lease deposit and is accordingly a loan drawn by the assessee from the said company which possessed sufficient accumulated profits and hence the subject mentioned transaction would fall within the mischief of section 2(22)(e) of the Act and accordingly, added the sum of Rs. 2,30,00,000/- as deemed dividend in the hands of the assessee.

The ld. CIT(A) deleted the addition by observing as under: 6. During the appellate proceeding the AR has submitted copies of all the relevant documents to prove that the assessee could not hand over the possession of both the leased premises to M/s Patton International on 01-04-2008 because of some unavoidable reasons which were beyond the control of the assessee. Although the assessee handed over the possession of both the leased premises to M/s Patton International on subsequent dates. The AR has also submitted that it was a bonafide business agreement and transaction between the assessee and M/s Patton International. Therefore relying on various case laws, the AR has argued that as lease advance was a genuine business transaction, so it cannot be treated as deemed dividend u/s 2(22)(e). 7. The AR has also brought on record that according to various judicial pronouncements, the purpose of bringing provisions of section 2(22)(e) of the statute book is to tax such assessee who avoids paying tax on dividend in the guise of amount received as advances and loans. In this case the assessee has received huge dividend from M/s Patton International and the same has been offered for taxation. The AR has also pointed out that the assessee has received salary of Rs.559750O/- as director from 5

6 ITA No.1450/Kol/2015& C.O. No. 128/Kol/2017 Ms. Minu Budhia A.Yr. 2008-09 M/s Patton International. This amount has also been offered for taxation. Therefore there was no occasion to take some amount from the same company in the form of lease advance to avoid taxation. It is important to note that in both the cases the assessee has returned back the lease advance to M/s Patton International with interest. 8. I have considered the finding of the AO that both the lease agreements in which assessee entered into with M/s Patton International could not materialise. The AO has correctly pointed out that on the date of signing of lease agreements, in the case of first office premise at 6th floor of 3C, Camac Street, Kol-i6 the assessee was not the rightful owner and in the second premise at 9th, floor of the same building although the assessee was the owner but it had given possession of this premise to an earlier tenant who had not vacated this premise as yet. I have also considered the submission of the AR that both the lease agreements were signed on lll-03-2008 on the bonafide belief of the assessee that the first premise would come to her as a gift from her father-in-law (as a letter of this purpose was received by the assessee from her father-in-law) and the second premise, as the lease agreement with the earlier tenant had already lapsed therefore from 01.04. 2008 when the possession was to be given by the assessee, this office premise was getting vacated by the earlier tenant on 31.03.2008. The AR has also submitted that on subsequent dates possession of both these premises was given on lease to M/s. Patton International Ltd., therefore simply because the possession could not be given on 01.04.2008 (for reasons beyond assessee’s control) and that, the assessee had to pay back the lease advance with interest as per the terms and conditions of the lease agreement; this act of receiving lease advance may not be treated as deemed dividend as per section 2(22)(e) of the IT Act, 1961. I have also considered different case laws brought on record by the A.O. in the assessment order and by the AR in the written submission. I find that although lease agreements entered into by the assessee could not materialise but at the same time it is also a matter of fact that the assessee has already been offered for taxation. Therefore in my view avoidance of taxation cannot be the reason to enter into lease agreements with M/s. Patton International Ltd. and to receive lease advance from the company. I think the purpose of receiving the lease advance was to complete a genuine business transaction and as any amount received as advance in a normal course of business transaction is not to be treated as deemed dividend u/s 2(22)(e) of the IT Act, 1961. Therefore, keeping in view various judicial pronouncements on this issue and respectfully following the same, assessee’s appeals on ground no 1 to 6 are allowed.”

Aggrieved the revenue is in appeal before us.

We have heard the rival submissions. At the outset, we find that the following points are not in dispute: a) the assessee is a registered-cum-beneficial shareholder in M/s Patton International Ltd. holding more than 10% of voting power thereon. 6

7 ITA No.1450/Kol/2015& C.O. No. 128/Kol/2017 Ms. Minu Budhia A.Yr. 2008-09 b) M/s Patton International is a closely held company. c) M/s Patton International possesses sufficient accumulated profits as on 31.03.2007 to the tune of Rs. 22.82 crores and Rs. 36.57 crores as on 31.03.2008.

7.1. The short point that arises for our consideration is whether the receipt of Rs. 2,30,00,000/- by the assessee pursuant to lease agreement dated 31.03.2008 could be characterized as money received in the nature of commercial transaction towards lease deposit so as to fall outside the mischief of provision of section 2(22)(e) of the Act. We find from the facts narrated above that the assessee at the first instance in respect of flat situated at 6th Floor, 3C, Camac Street, Kolkata-16 did not possess any title towards the same as admittedly the gift of such flat was done by her father-in-law only on 15.09.2009, falling in assessment year 2010-11. Hence the subject mentioned flat was not available in absolute possession of the assessee so as to enable her to lease it out to M/s Patton International Ltd. as on 31.03.2008. From the contents of gift deed on 15.09.2009 enclosed in paper book filed by the assessee, in para 2 thereon, we find that the said flat was gifted by assessee’s father-in-law together with the tenancy right thereon, meaning thereby, that there was an existing tenant already occupying the subject mentioned flat, even as on 15.09.2009. Hence under any circumstances, this property could not have been legally leased out by the assessee to M/s Patton International on 31.03.2008 for which purpose the purported receipt categorized as lease deposit was received.

7.2. Similarly with regard to flat situated at 9th Floor, M/s All Cargo Movers (I) Pvt. Ltd. [the existing tenant of the assessee ] did not vacate the said flat on 31.03.2008 and had even sought for extension of the lease by another 12 months. This fact clearly goes to prove that the assessee in any case could not have leased out the subject mentioned flat to M/s Patton International Ltd. for which the money was received in the form of lease deposit. 7

8 ITA No.1450/Kol/2015& C.O. No. 128/Kol/2017 Ms. Minu Budhia A.Yr. 2008-09 7.3. The aforesaid facts and conduct of the assessee clearly prove that the amount received by the assessee from M/s Patton International Ltd. in the sum of Rs. 2.30 crores was clearly not in the nature of lease deposit / security deposit pursuant to lease agreement dated 31.03.2008. Hence it cannot take character of lease deposit and in our considered opinion, the said receipt is a clear loan received by the assessee from M/s Patton International Ltd, hence it clearly falls within the mischief of section 2(22)(e) of the Act. The ld. AR also stated that the said lease deposit of Rs. 2,30,00,000/- was refunded to M/s Patton International Ltd. in the subsequent financial year, since the assessee could not hand over vacant possession of the subject mentioned flats (i.e. flat at 6th Floor and 9th Floor) to M/s Patton International Ltd. pursuant to the lease agreement dated 31.03.2008. The ld. AR also stated before us that once the vacant possession of the flat was leased out to M/s Patton International Ltd. subsequently on vacation of existing tenant situated at 9th Floor, 3C, Camac Street, Kol-16 (All Cargo Movers (I) Pvt. Ltd. ), no fresh lease deposit in the sum of Rs. 1 crore was received by the assessee. This act also further proves the conduct of the assessee to show that she never intended to collect the monies of 1 crore and 1.30 crores from M/s Patton International Ltd. in the form of lease deposit free of any encumbrance. Hence it could be safely concluded that even the subsequent conduct of the assessee does not prove the so-called alleged commercial transaction entered into by the assessee vide lease agreement dated 31.03.2008.

7.4. In view of the aforesaid factual observations, there is no need to go into the various case laws relied upon by the ld. AR and the CBDT Circular No. 19/2017 dated 12.06.2017 relied upon by the ld. AR, inasmuch as all those case laws and CBDT Circular supported the fact that if the receipt is in the nature of trade advance or receipt in the course of commercial transactions, then the provision of section 2(22)(e) would not get attracted. Whereas in the instant case, the subject mentioned receipt of Rs. 2,30,00,000/- by the assessee cannot be categorized as trade advance or commercial 8

9 ITA No.1450/Kol/2015& C.O. No. 128/Kol/2017 Ms. Minu Budhia A.Yr. 2008-09 transaction and as we have already observed hereinabove, the assessee neither possessed the flat free of any encumbrance or the title to the flat so as to lease it out, as the case may be.

7.5. In view of the aforesaid observations, in the facts and circumstances of the case, we hold that the ld. AO had rightly made an addition towards deemed dividend u/s 2(22)(e) in the hands of the assessee in the sum of Rs. 2,30,00,000/-. Accordingly, grounds raised by the revenue are allowed.

In the result, the appeal of the revenue is allowed and the cross objection of the assessee is dismissed as not pressed.

Order pronounced in the Court on 24.08.2018

Sd/- Sd/- [S.S. Viswanethra Ravi] [ M.Balaganesh ] Judicial Member Accountant Member

Dated : 24.08.2018 SB, Sr. PS Copy of the order forwarded to: 1. DCIT, Circle-8(2), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata- 700069. 2. Ms. Minu Budhia, 3C, Camac Street, Kolkata-700016. 3..C.I.T(A).- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.

DCIT, CIR-8(2), KOLKATA, KOLKATA vs. MS. MINU BUDHIA, KOLKATA