2010 (2) TMI 980 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - assessee has taken advances/ loans from various companies where he is holding more than 10 percent shares - HELD THAT - The assessee right from the very beginning is contending that he is in the business of brokering of real estate. The companies whenever had any surplus fund they advance it to the assessee for making investment in the real estate. Neither the assessee nor the companies are disputing this conduct. The assessee is claiming these advances as advance for investment in his books of account. This aspect has not been disputed by the AO. Argument of business advance for taking away the amount from the ambit of deemed dividend can be considered only when advancing company is in the money lending business. The nature of the assessee s business is such that he is earning income from brokerage of real estate. He alleged that these companies have advanced money for investment in the real estate. This demonstrates that money was taken by the assessee in the line of his business. AO has not brought any contrary material on the record rather he presumed every type of amount as deemed dividend. Taking into consideration this approach of the AO vis-a-vis the contention of the assessee and the judgment of Creative Dyeing and Printing Pvt. 2009 (9) TMI 43 - DELHI HIGH COURT we allow the first fold of grievance raised by the assessee and delete the additions. Addition of repair, maintenance and depreciation of vehicles, etc - HELD THAT - As We merit in the ground raised by the assessee because he failed to submit the complete details in respect of vehicle expenses, car maintenance, etc. AO has made a disallowance at one-tenth of the total expenses. The disallowance has rightly been estimated because possibility of personal use of these facilities cannot be ruled out. More so learned counsel for the assessee at the time of hearing did not advance any specific arguments on these issues. Appeal of assessee partly allowed.

Summary

Issues Involved:
1. Deemed Dividend under Section 2(22)(e) of the Income-tax Act.
2. Disallowance of repair, maintenance, and depreciation of vehicles.

Issue-wise Detailed Analysis:

1. Deemed Dividend under Section 2(22)(e) of the Income-tax Act:

The assessee and the Revenue filed cross-appeals against the order of the Commissioner of Income-tax (Appeals) regarding the assessment year 2005-06. The primary grievance of the assessee was the confirmation of the Assessing Officer's action to treat certain loans as deemed dividends under Section 2(22)(e). The Revenue contested the exclusion of a particular sum from the ambit of deemed dividend.

The facts revealed that the assessee, a property broker, received advances/loans from various companies where he held more than 10% shares. The Assessing Officer categorized these transactions under Section 2(22)(e) and computed the deemed dividend at Rs. 1,40,04,030.

Upon appeal, the Commissioner of Income-tax (Appeals) deleted certain additions, verifying that some transactions did not occur during the relevant assessment year or that the assessee did not hold sufficient shares to attract Section 2(22)(e). The Revenue did not challenge these deletions.

Regarding the sum of Rs. 13,00,000, the Commissioner of Income-tax (Appeals) concluded that share application money cannot be treated as a loan/advance under Section 2(22)(e), citing the ITAT decision in Ardee Finvest P. Ltd. The Revenue argued that the shares were allotted much later, suggesting an afterthought by the company.

The assessee contended that the advances were received in the ordinary course of business, not as loans, referencing the Delhi High Court's ruling in CIT v. Creative Dyeing and Printing Pvt. Ltd. The court held that business transactions do not fall within the definition of deemed dividend under Section 2(22)(e).

The Tribunal observed that the Assessing Officer treated all receipts as deemed dividends without proper analysis. The Commissioner of Income-tax (Appeals) excluded substantial portions, and the Revenue accepted these exclusions, except for the disputed Rs. 13,00,000.

Considering the business nature of the transactions and the judgment in CIT v. Creative Dyeing and Printing Pvt. Ltd., the Tribunal allowed the assessee's appeal, deleting the additions of Rs. 10,20,000, Rs. 15,40,000, and Rs. 20,70,000. The deletion of Rs. 13,00,000 as share application money was also upheld.

2. Disallowance of Repair, Maintenance, and Depreciation of Vehicles:

The assessee's second grievance involved the disallowance of Rs. 14,165 and Rs. 21,133 for vehicle expenses. The Tribunal found no merit in this ground as the assessee failed to provide complete details. The disallowance was justified due to the possibility of personal use. The counsel for the assessee did not present specific arguments on this issue during the hearing, leading to the confirmation of the disallowance.

Conclusion:

The appeal of the assessee was partly allowed, deleting certain additions related to deemed dividends. The appeal of the Revenue was dismissed, and the disallowance of vehicle expenses was confirmed. The order was pronounced in the open court on February 12, 2010.