ACIT, NEW DELHI vs. SH. SIDDHARTH GUPTA, NEW DELHI

ORDER ORDER ORDER ORDER PER PER H.S. SIDHU PER PER H.S. SIDHU H.S. SIDHU : : : : JM H.S. SIDHU

This appeal by the Revenue is directed against the Order of the Ld. Commissioner of Income Tax (Appeals)-I, New Delhi dated 23.9.2013 pertaining to assessment year 2010-11 on the following grounds:-

1. The order of Ld. CIT(A) is not correct in law and facts.

2. On the facts and circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition on account of “Deemed Dividend” under section 2(22)(e) of the Income Tax Act, 1961 amounting to Rs. 6,26,90,640/-.

3. The appellant craves leave to add, amend any / all the grounds of appeal before or during the course of hearing of the appeal.

The case of the assessee was selected for scrutiny and notice u/s. 143(2) of the I.T. Act, 1961 dated 29.8.2011 was issued and served on the assessee. In this case, notice u/s. 142(1) of the Income Tax Act, 1961 dated 3.6.2011 was issued to the assessee, requiring him to file the details, which was remained un-complied with. Thereafter, notice u/s. 143(2) & 142(1) of the Act alongwith questionnaire were issued to the assessee on 28.9.2012 fixing the case for 12.10.2012. In response thereto, Assessee’s A.R. attended the proceedings from time to time and filed the requisite details. The AO after considering the details observed that M/s Vishnu Apartment Pvt. Ltd. has sold 17633 sq.ft. of commercial space for a consideration of Rs. 6,26,90,640/- to M/s SSP Developers Pvt. Ltd. on 01.12.2009 without any involvement of the assessee. The AO has assessed the income of the assessee at an income of Rs. 9,25,52,920/- after making certain addition of Rs. 6,26,90,640/- as deemed dividend u/s. 2(22)(e) of the I.T. Act, 1961 vide his order dated 28.3.2013 passed u/s. 143(3) of the I.T. Act, 1961.

6. On the other hand, Ld. Counsel of the Assessee relied upon the order of the Ld. CIT(A) and reiterated the contentions made before the Ld. CIT(A)’s order at page no. 3 to 9, which are not reproduced here for the sake of brevity. He further stated that since the Ld. CIT(A) has passed the well reasoned order which does not need any interference on our part. Hence, the appeal of the Revenue may be dismissed.

“4.3 I have considered the assessment order, the submissions made and the rival claims. It is not disputed that the subject of transaction was transfer of commercial space by VAPL to SSPD. It is also not disputed that the appellant holds interest in both the transacting companies. It is undisputed that the appellant held 50% shares in SSPD. While the revenue has opined that the appellant held 18.33% shares in VAPL, the appellant submits that his interest was diluted to 5.5.% due to additional allotment of 14,00,000 shares to M/s Discovery Estate Pvt. Ltd. on 5.5.2009. thus, as on the date of transaction between VAPL and SSPD, i.e. 1.12.2009, the appellant held 5.5.% shares in VAPL and 50% shares in SSPD. The words use in section 2(22)(e) are “any payment”, and the word

‘payment’ is not defined in the Act. Therefore, its ordinary or commercial meaning is to be taken. While

Cambridge dictionary defines payment as “an amount of money paid” or “reward”, the Oxford dictionary defines it as “the action or process of paying someone or something or of being paid". Thus, in the ordinary sense the word payment means a payment or reward or benefit in cash in consideration for some goods or services or favours. In the present case, the transaction is of sale of commercial property for money between two companies. No doubt, the appellant holds interest in both companies, although technically he held less than

10% interest in the transferor company as on the date of transaction. The revenue's suspicion arose as the appellant was holding interest in both the transferor and transferee companies, and the amount remained unpaid during the year. However, there is no transfer of funds to the appellant and, therefore, it cannot be said that the appellant has received "any payment". It is not a case of payment of cash but transfer of assets, and the transaction was duly recorded in the books of both entities. These accounting entries and the books of account have not been rejected or assailed by the revenue. Further, there is no evidence to suggest that the appellant was the real beneficiary and the transaction itself was sham. Thus, there appears no justification for the assumption that the appellant stood to benefit from the transfer. Suspicion, however strong, cannot take the place of evidence as has been held in a catena of judgments. As rightly pleaded by Ld. AR, the case is also not hit by the provisions of section 2(22)(a) as it is not the case of revenue that profits have been distributed. Thus, the argument of the appellant that VAPL did not have accumulated profits, or that the AO was wrong in considering the assessed income as part of accumulated profits, is only academic and not relevant to the case. The plea of the appellant that he was not provided adequate opportunity is also of no consequence as such opportunity was available and availed during these proceedings.

4.4 In view of the above facts and circumstances, it is my considered opinion that there is no basis for concluding that the transaction of transfer of commercial space between V APL and SSPD was sham or colourabIe, and amounted to payment for the benefit of the appellant.

Even if it was for the benefit of the appellant, no money has been received by the appellant and the appellant did not hold controlling shares in the transferor 6 company. Thus, the provisions of section 2(22)(e) are not applicable. The case is also not hit by the provisions of section 2(22)(e). I hold accordingly. The addition made is deleted and the grounds of appeal are allowed.”

8. After perusing the aforesaid finding, we find that it is not disputed that the subject of transaction was transfer of commercial space by VAPL to SSPD. It is also not disputed that the assessee holds interest in both the transacting companies. It is undisputed that the assessee held 50% shares in SSPD. While the revenue has opined that the assessee held 18.33% shares in VAPL. We note that before the Ld. CIT(A), the assessee submitted that his interest was diluted to 5.5.% due to additional allotment of 14,00,000 shares to M/s Discovery Estate Pvt. Ltd. on 5.5.2009. Thus, as on the date of transaction between VAPL and SSPD, i.e. 1.12.2009, the assessee held 5.5.% shares in VAPL and 50% shares in SSPD. We further note that the words use in section 2(22)(e) are “any payment”, and the word ‘payment’ is not defined in the Act.

Therefore, its ordinary or commercial meaning is to be taken. While Cambridge dictionary defines payment as “an amount of money paid” or “reward”, the Oxford dictionary defines it as “the action or process of paying someone or something or of being paid". Thus, in the ordinary sense the word payment means a payment or reward or benefit in cash in consideration for some goods or services or favours. In the present case, the transaction is of sale of commercial property for money between two 7 companies. No doubt, the assessee holds interest in both companies, although technically he held less than 10% interest in the transferor company as on the date of transaction. The revenue's suspicion arose as the assessee was holding interest in both the transferor and transferee companies, and the amount remained unpaid during the year. However, there is no transfer of funds to the assessee and, therefore, it cannot be said that the assessee has received "any payment". It is not a case of payment of cash but transfer of assets, and the transaction was duly recorded in the books of both entities. These accounting entries and the books of account have not been rejected or assailed by the revenue.

Further, there is no evidence to suggest that the assessee was the real beneficiary and the transaction itself was sham. Thus, there appears no justification for the assumption that the assessee stood to benefit from the transfer. Suspicion, however strong, cannot take the place of evidence as has been held in a catena of judgments. We further find that the present case is also not hit by the provisions of section 2(22)(a) of the Act as it is not the case of revenue that profits have been distributed. Thus, the argument of the assessee that VAPL did not have accumulated profits, or that the AO was wrong in considering the assessed income as part of accumulated profits, is only academic and not relevant to the case. In view of the above facts and circumstances, we are of the considered view that there is no basis for concluding that the transaction of transfer of commercial space between VAPL and SSPD was sham or colourable, and amounted to payment for the benefit of the assessee. Even if it was for the benefit of the assessee, no money has been received by the assessee and the assessee did not hold controlling shares in the transferor company. Thus, the provisions of section 2(22)(e) are not applicable. The case is also not hit by the provisions of section 2(22)(e). Therefore, the Ld. CIT(A) has rightly deleted the addition/disallowance in dispute by passing a well reasoned order, which does need any interference on our part, hence, we uphold the same by dismissing the Appeal filed by the Revenue.

Order pronounced in the Open Court on 30/05/2017.