2011 (8) TMI 1179 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 27,85,925/- in respect of estimated gross profit.
2. Deletion of addition of Rs. 3,56,878/- in respect of deemed dividend u/s 2(22)(e).

Summary:

Issue 1: Deletion of addition of Rs. 27,85,925/- in respect of estimated gross profit

The assessee company, engaged in real estate development, faced scrutiny for a substantial increase in current liabilities. The AO observed discrepancies in the 'Scheme Account' and concluded that the assessee failed to provide adequate details about the receipts and refunds related to various projects. Consequently, the AO treated the booking amounts received as trade receipts and estimated a gross profit of Rs. 27,85,925/- by applying a 16% GP rate, rejecting the book results u/s 145(3).

Before the CIT(A), the assessee argued that the increase in liabilities was due to advances and booking amounts, not trade receipts. The assessee maintained that it followed a consistent accounting method accepted by the Revenue in previous years. The CIT(A) accepted the assessee's explanation and deleted the addition, stating that profits arise on the transfer of property title, not on receipt of advances.

The Tribunal upheld the CIT(A)'s decision, citing the Jurisdictional High Court's rulings in CIT vs. Asha Land Corporation and CIT vs. Motilal C. Patel and Co., which support the view that profits are assessable in the year of sale completion. The Tribunal found no justification for rejecting the book results and dismissed the Revenue's appeal on this ground.

Issue 2: Deletion of addition of Rs. 3,56,878/- in respect of deemed dividend u/s 2(22)(e)

The AO added Rs. 3,56,878/- as deemed dividend, noting that a significant shareholder held shares in both the assessee company and the lender company, Chase Buildcon Projects (P) Ltd. The AO applied the provisions of section 2(22)(e), considering the unsecured loan as deemed dividend.

The assessee contended before the CIT(A) that it was not a registered shareholder of the lender company, making the addition unsustainable. The CIT(A) agreed, referencing the Tribunal's decision in ACIT vs. Bhaumik Colour (P) Ltd., which clarified that deemed dividend provisions do not apply to non-shareholders.

The Tribunal concurred with the CIT(A), emphasizing that section 2(22)(e) does not extend to loans or advances to non-shareholders. Since the assessee was not a registered shareholder of the lender company, the addition was unjustified. The Tribunal dismissed the Revenue's appeal on this ground as well.

Conclusion:

The appeal filed by the Revenue was dismissed in its entirety. The Tribunal upheld the CIT(A)'s decisions to delete the additions related to estimated gross profit and deemed dividend.