M/S ASHIANA HOMES PVT. LTD.,KOLKATA vs. DCIT, CIR-8(1), KOLKATA, KOLKATA

ORDER Per M.Balaganesh, AM

2. The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the addition made in the sum of Rs. 94,36,038/- towards

3 M/s Ashiana Homes Pvt. Ltd. A.Yr. 2011-12 Saaket Estates Ltd., the said agreement was terminated by the assessee company and the entire trade deposit was refunded along with interest at a lower rate of 9% as per clause 9 of the said agreement. It was pleaded that the trade deposit received by the assessee was not in the nature of loan or advance as contemplated in the section 2(22)(e) of the Act and that they were received in the normal course of carrying on business by the assessee. The Ld. AO observed that the contention of the assessee by classifying the receipt of money as trade deposit is nothing but a colorable device to circumvent the provisions of section 2(22)(e) of the Act. He observed that M/s Saaket Estates Ltd. did not carry on any business operation on behalf of the assessee so as to accept that the amounts were received by the assessee in the normal course of its business. He observed that the substantial portion of the accumulated profits of M/s Saaket Estates Ltd. had been advanced to the assessee company. No agreement/brokerage as reflected in the agreement dated 09.10.2008 was paid by the assessee to M/s Saaket Estates Ltd. Moreover, the agreement dated 09.10.2008 was only for a period of six months which proves that the entire agreement was prepared by the assessee as an afterthought in view of the close connection between itself and subsidiary company (i.e. falling under the same management). Accordingly he held that the amount received by the assessee company from its subsidiary company had no business motives and the provision of section 2(22)(e) would get attracted and accordingly he made the addition of Rs. 94,36,038/- in the assessment. Before the Ld. CIT(A) , the assessee reiterated the submissions made before the ld. AO and tried to distinguish the treatment of loan, advance, deposit by placing reliance on various decisions and effectively pleaded that the said amounts were received only in the course of business transaction by the assessee and that the trade deposit would not fall under the ambit of loan/advance so as to attract the provision of 2(22)(e) of 3

4 M/s Ashiana Homes Pvt. Ltd. A.Yr. 2011-12 the Act. The Ld. CIT(A) did not heed to the contentions of the assessee and upheld the action of the ld. AO. Aggrieved the assessee is in appeal before us on the following grounds: 1. For that under the facts and circumstances of the case both Ld. Assessing Officer as well as Ld. Commissioner of Income Tax (Appeals) had erred in making an addition/confirming the addition of Rs. 94,36,038/- u/s 2(22)(e) of the Income Tax Act, 1961 by treating the same as deemed dividend.

2. For that Ld. CIT(Appeals) as well as Ld. Assessing Officer both had erred in treating the agreement for appointment of M/s Saaket Estatess Ltd. as Sole organizer and solicit bookings of residential units in assessee company’s project dated 9th October, 2008, as an agreement to vitiate the provisions of sec. 2(22)(e) of the Act.

3. For that the appellant assessee company being engaged in development and promotion of residential unit had to appoint agents for booking of residential units and it is customery in the real Estates business to demand deposit from real Estates agents which is in the ordinary course of business and this aspect has been ignored by Ld. Assessing Officer as well as Ld. CIT(Appeals). 4. For that Ld. CIT(Appeals) as well as Ld. Assessing both had failed to appreciate the fact that the question of payment of brokerage by the assessee company could not arise in absence of fulfillment of obligations by M/s Saaket Estatess Ltd. as per the terms of the agreement. 5. For that Ld. AO and Ld. CIT(A) both had erred in treating the security deposit of Rs. 94,36,038/- received from real Estates agent, as deemed dividend u/s 2(22)(e) of the Act as the appellant assessee company is incidentally a shareholder of the said agent company, under the facts and circumstances of the case. 6. For that your appellant craves leave to add or alter and modify the grounds of appeal before or at the time of appeal hearing.

3. Whereas the second party shall procure bookings for residential units in the aforesaid project at prices as per Company’s Price List as applicable at the time of booking and on such terms and conditions as may be stipulated by the company from time to time in writing.

4. Whereas in consideration of the above services rendered by the second party, the Company will pay 2% commission on Basic Sale Price of the residential unit for which bookings are procured by the second party and accepted by the company. The second party will not be paid commission on any other charges.

5. Whereas the second party agrees to deposit Rs. 15,000,000(rupees one crore fifty lacs only) as security deposit with the company.

6 M/s Ashiana Homes Pvt. Ltd. A.Yr. 2011-12 4.1. From the aforesaid clauses in the said agreement it would be inferred that M/s Saaket Estates Ltd. is obligated to bring business in the form of prospective customers for minimum 50 lacs. per month which was not admittedly done by it. The agreement was valid only for six months. Since, M/s Saaket Estates Ltd. had not performed its obligation, the assessee chose to terminate the agreement and decided to refund the entire monies received with interest rate of 9%. But from the facts narrated above, we are not inclined to accept the stand of the assessee in as much as the said agreement clearly warrants performance of certain obligations on the part of M/s Saaket Estates Ltd. by bringing new customers for purchasing the residential units promoted by the assessee. Even though the assessee had stated the receipt of moneys as trade deposit in its tax audit report filed along with return of income, there was no evidence to prove that the business nexus with the receipt of both amounts from the subsidiary company. Hence we are convinced that the said amounts were not received by the assessee in the ordinary course of business. Admittedly M/s Saaket Estates Ltd. is also not engaged in the business of lending. We hold that merely mentioning the receipt of money from subsidiary company which is nomenclatured as trade deposit in the books of accounts, would not change the real character of the transaction, which in the present case, is clearly a loan/ advance by the subsidiary company to the assessee company. There is no dispute that the assessee is holding more than 10% of voting power and has got substantial interest in the subsidiary company i.e. Saaket Estates ltd.. Hence, this is a clear case of receipt of loan by the assessee in its capacity as a shareholder from Saaket Estates Ltd.. Hence, this transaction would squarely fall within the ambit of provision of section 2(22)(e) of the Act. We hold that the agreement dated 09.10.2008 between the assessee and Saaket Estates Ltd. at mutually agreed terms is done only with a view to circumvent the provisions of 6

7 M/s Ashiana Homes Pvt. Ltd. A.Yr. 2011-12 section 2(22)(e) of the Act and does not fall within the ambit of commercial transaction so as to fall outside the scope of section 2(22)(e). We also find that there was no intention to do any business by the subsidiary company on behalf of the assessee pursuant to the said agreement as admittedly their agreement was valid only for a period of six months. We also find that M/s Saaket Estates Ltd. had given away substantial portion of its accumulated profits in the form of loan to the assessee company thereby squarely inviting the provisions of section 2(22)(e) of the Act. Accordingly, the grounds raised by the assessee are dismissed.

Order pronounced in the Court on 07.02.2018