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TMI Blog2013 (9) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... of the prospective Share applicant. Further, it is self explanatory that the assessee being a ‘beneficial share holder', derives no benefit whatsoever, when the impugned ‘share application money/advance' is finally returned without any allotment of shares for commercial reasons. In this kind of situations, the books entries become really relevant as they show the initial intentions of the parties into the transactions. Books entries suggest clearly the ‘share application' nature of the advance and not the ‘loan or advance'. As such the revenue has merely suspected the transactions without containing any material to support the suspicion. Therefore, the share application money may be an advance but they are not advances which are referred to in section 2(22)(e) of the Act. Such advances, when returned without any allotment or part allotment of shares to the applicant/subscriber, will not take a nature of the loan merely because the same is repaid or returned or refunded in the same year or later years after keeping the money for some time with the company – Reliance has been placed upon the Madras High Court judgment in the case of CIT vs. Rugmini Ram Ragav Spinners P Ltd [2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, income tax authorities cannot insist upon that requirement - Residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under section 54/54F. It is neither expressly nor by necessary implication prohibited. - Decided in favor of assessee. - I.T.A. NO.4362,4363,4364,4495,,4440/M/2011 - - - Dated:- 20-3-2013 - D Karunakara Rao and Vivek Varma, JJ. For the Appellant : Shri Muralidhar For the Respondent : Shri A P Singh, CIT-DR ORDER:- Per: D Karunakara Rao: There are nine appeals under consideration and the five appeals are filed by the revenue and assessee filed four COs as per the details given above. Considering the fact that the core issue in all these appeals revolves around the applicability of the provisions of section 2(22)(e) of the Act, all these appeals are clubbed and they are being disposed of in this order. However, the appeal I.T.A. NO.4364/M/2011 for AY: 2005-06 is filed by the revenue against the relief gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three years. With regard to subsequent AYs, other group companies which have reserves have contributed towards the share application money and got allotment of shares either in the same AY or in the subsequent AYs. Details of contributors amounts of the share application money, relevant AYs and if the share are allotted or amounts refunded are depicted in the table as follows. Particulars of Subscription by AY Share application Money received Allotment Made in AY Limited to Accumulated Profits Mr. Ranvir Oberoi AY: 2002-03 79,98,000 AY 2002-03 Mr. Vikas Oberoi AY: 2002-03 2,19,98,000 AY 2002-03 Ms Santosh Oberoi AY: 2002-03 99,98,000 AY 2002-03 New dimension Constructions P Ltd -NDCPL AY: 2002-03 1,40,03,700 Refunded 74,06,226 R.S. Estate Developers P Ltd. AY: 2004-05 12,32,40,000 AY 2005-06 6,79,41,437 R.S. Estate Developers P Ltd. AY: 2005-06 5,67,60,000 AY 2005-06 3,67,60,000 R.S. Estate Developers P Ltd AY: 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29 ITR 444) (4) CIT vs. P.K. Abubucker (259 ITR 507) (5) CIT vs. TPSH Selva Saroja (244 ITR 671) (6) CIT vs. Jamnadas Sriniwas Pvt. Ltd. (1970) 76 ITR 656, 660 (Cal.) (7) KMS Lakshmana Aiyar vs. Addl. ITO (1960) 40 ITR 469, 473 (Mad.) (8) CIT vs. Sushma Saxena (1997) (233 ITR 395) (9) DCIT vs. Nikko Technologies (I) P. Ltd. (ITA No. 4077/Mum/2002) 8. Originally, AO made this addition in the hands of the assessee on protective basis and made substantive addition in the hands of KPPL. Subsequently, the addition in the hands of KPPL on the substantive basis came up for judicial review of the Mumbai Bench Tribunal vide ITA No.4330/M/2011; 4331 to 4334/M/2011 and 4309/M/2011 and Tribunal adjudicated the issue vide the order dated 16.6.2012 and para 17 to 19 of the order said order is relevant. In the said paragraphs, Honble Tribunal has held that the provisions of section 2(22)(e) are not applicable in the case of the KPPL and KPPL is not a beneficial share holder of NDCPL and the binding judgment of jurisdictional High Court in Universal Medicare P Ltd (2010) 324 ITR 264 (Bom) helped M/s KPPL in winning its appeal. In the process, Tribunal has confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od of three years. Further, assessee submitted that the additions were thus made in both the situations ie (1) application money paid and refunded without allotment of shares; and (2) equity shares allotted. The fact in the impugned AY 2003-04 is the case of refund. In this context, assessee brought our attention to para 5.5 of the impugned order and mentioned that (i) share application money is not construed as "loans and advances for the purpose of section 2(22)(e) of the Act"; (ii) provisions of section 2(22)(e) are deemed fiction and they cannot be stretched to apply to share application money; (iii) the transaction between the NDCPL and KPPL is a legitimate transaction carried out in the ordinary course of business and intention was never to confer to Mr. Vikas. Further, assessee mentioned that the amount of Rs. 74,06,226/- has not benefited assessee. In this regard, assessee relied on the decision of ITAT, Delhi Bench in the case of Ardee Finvest P. Ltd vs. DCIT (79 ITD 547) (Del.) for the proposition that the share application money given for allotment of shares is not an advance or loan to attract the provisions of section 2(22)(e) of the Act. He also relied on the other de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount was never intended for share application money and therefore, it is a case of advance refunded by KPPL and therefore, the books entries are not reliable. Referring to refunds to unsuccessful application, which happens in the cases of Initial Public Offers - IPOs, Sri Singh mentioned the same are incomparable procedurally with that of the present transactions. Otherwise, Ld DR relied on the order of the AO in its entirety and summed up by mentioning that the present dispute for adjudication revolves around the nature of the impugned amount of Rs. 74,06,226/-. Further, Ld DR mentioned that the advance means "something that precedes, something paid in advance; such as a payment of money made before it is due" (as per the Law Lexicon). Referring to the decision of Hyderabad Bench of this Tribunal in the case of Hyderabad Chemical Products vs. ITO [2000] 72 ITD 323 (Hyd.), Ld DR mentioned that description in the balance sheet is not a conclusive in the case, where unsecured loan was converted into the share application money and the same should be deemed as dividend within the meaning of section 2(22)(e) of the Act. The onus' is on the assessee to demonstrate that the amounts in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the character of loan or advance and therefore, the provisions of section 2(22)(e) are not attracted to share application advance. The refunding of the said payment does not alter the situation. Further, Ld Counsel relied on another decision of Hon'ble ITAT, Mumbai Bench in the case of Shubhmangal Credit Capital P. Ltd vs. DIT vide ITA No.7328/Mum/2008 for an identical proposition that the share application money cannot be deemed to be loan or advance, even if any part of the said amount was returned or refunded without allotment of shares for any reason and of course, so long as the payments is made originally for share allotment only. On the issue of colorable nature of the transaction, Ld Counsel relied on the Hon'ble Supreme Court judgment in the case of Union of India and Another vs. Azadi Bachao Andoland and Another (263 ITR 706) (SC) = (2003-TII-02-SC-INTL) and also the judgment in the case of Vodafone 341 ITR 1 (SC) = (2012-TII-01-SC-INTL) for deciding the issue in his favour. 13. At the end, referring to the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Sunil Chopra, which was strongly relied by Ld DR, Sri Muralidhar, Ld Counsel filed a copy of ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial shareholder of both the companies. B. Per contra, the case of the assessee is the book entries evidences and reveals the original intention of the assessee and the amount so returned which is a result of a commercial decision of the assessee by preferring to make allotment of shares to other companies which is a business decision, therefore, refunding will not ascribe the loan nature of the impugned amount. The share application money paid for allotment of shares to NDCPL and it does not permit any flow of benefit of the assessee. Considering the ITAT, Delhi Bench decision in the case of Ardee Finvest (P) Ltd. (supra) and the ratio' of the judgment and not the obiter dicta' of Hon'ble Delhi High Court in the case of Sunil Chopra (supra) assessee concludes that the share application advance' is not a loan or advance' within the meaning of section 2(22)(e) of the Act. 15. We have perused the contents of the para 5.9.1 of the impugned order and find it is appropriate to insert relevant portions in this order for the sake of completeness of the order and the same is reproduced here under: "5.9.1. Having held so, the main issue to be considered in the case is whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne side and the Board's resolutions on the other as well as the conduct of NDCPL in subscribing SAM to the KPPL. From the same, it is understood that there is no dispute on related fact and the dispute is legal in nature and the CIT(A) has relied on the various decisions to derive strength for finalizing that share application money' (SAM) is outside the scope of section 2(22)(e) of Act. 16. On the issue of initial intention of NDCPL in subscribing to the SAM into KPPL, it is undisputed fact that none of the subscribers to SAM are in the habit of giving advance towards SAM and taking refunds of the same later. In this regard, we have examined the said pages 13 and 19 and relevant book entries in the Schedules of the B/S read as follows: a. Extracts from the Balance Sheet of M/s Kingston Properties P Limited,- "Shareholders' Funds Share Capital Sch-1 Rs. 2,00,00,000/- Share Application Money Rs. 1,40,03,700/- Reserves and Surplus Sch-2 Rs. 2,29,60,830/- Rs. 5,69,64,530/-" b. Extracts from the Balance Sheet of the Subscriber of SAM ie New Dimension Consultants P Ltd,- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that making of entry or absence of an entry cannot determine right and liability of party. This being so and in the absence of any material placed on record by the Revenue to show that TIPL has not applied for shares or the entries recorded in the books of account in this regard are false, untrue and without any basis, we are of the view that the amount received by the assessee does not come under the scheme of loan and advances, therefore, the Ld CIT (A) was carefully justified in holding that the provisions of section 2(22)(e) are not attracted and hence, the case falls outside the ambit of deemed dividend u/s 2(22)(e). We while upholding the order of the CIT (A) on this account, reject the grounds taken by the Revenue." iii. The judgment of the Hon'ble Delhi High Court in the case of CIT vs. Sunil Chopra is directly on the topic and Ld Counsel filed a copy of the judgment dated 27.4.2011 vide ITA No.106/2011. The question of reference before the Delhi High Court and judgment on the same are extracted as under: "Following the question of law is proposed in this appeal (of the revenue). (a) Whether ITAT was correct in law in deleting the additions of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be followed. Therefore, as per Ld Counsel, the references made to the issue relating to Rs 13 lakhs, which is considered as deemed dividend' should not be taken as a ratio in view of the clear cut adjudication vide the IT Appeal no 106 of 2011. On perusal of available material on the issue, we find there is some confusion over the matter. But the fact is that the ratio of the judgment vide the I T Appeal no 106 of 2010 is not only expressly rejected but also the same is favourable to the assessee. Considering the settled nature of the judicial discipline to follow the judgment favourable to the assessee, we find no difficulty to imitate the same. v. M/s Subhmangal Credit Capital P Ltd ITA NO 7238/Mum/2008: This is the decision dated 19.01.2010 of the coordinate bench relevant for the proposition that share application money is deemed dividend' u/s 2(22)(e) of the Act. The facts of this case are that assessee received SAM towards the allotment of equity and preference shares and part allotment was made and balance of SAM was returned like in the present case. Para 3 of the decision was relevant and significant. Therefore relevant lines are inserted as follows. 3. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' merely because, share application advance is returned without allotment of share. In the instant case, the refund of the amount was done for commercial reasons and also in the best interest of the prospective Share applicant. Further, it is self explanatory that the assessee being a beneficial share holder', derives no benefit whatsoever, when the impugned share application money/advance' is finally returned without any allotment of shares for commercial reasons. In this kind of situations, the books entries become really relevant as they show the initial intentions of the parties into the transactions. It is undisputed that the books entries suggest clearly the share application' nature of the advance and not the loan or advance'. As such the revenue has merely suspected the transactions without containing any material to support the suspicion. Therefore, the share application money may be an advance but they are not advances which are referred to in section 2(22)(e) of the Act. Such advances, when returned without any allotment or part allotment of shares to the applicant/subscriber, will not take a nature of the loan merely because the same is repaid or returned or refunde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee on the issue of condonation of delay of 90 days in filing the Cross Objection and examined the reasons for the delay ie SB decision in the case of All Cargo Global Logistics Ltd, supra. We have considered the objections of the Ld DR, who dutifully opposed the condonation prayer of the assessee. On considering the arguments of the parties relating to the condonation prayer, prima facie, we find that said SB decision has direct relevance to the facts of the appeals under consideration. Further, it is a settled law that while condoning the delay, the Court needs to take a lenient view considering the preciousness of the right of appeal granted to parties aggrieved. On considering the SB decision based reasons, we find that the explanation is bona fide and reasonable one. In view of this legal and factual position, we condone the delay in these four COs filed before the Tribunal and we proceed to adjudicate the issues raised in them at appropriate parts of this order. Thus, delay is condoned and COs are admitted. 24. Further, Ld Counsel mentioned that in case the appeal of the revenue is dismissed on its merits, the adjudication of the Cross Objection, that relates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion advance, and find the said decisions apply with equal force to the appeal of the revenue and also the CO of the assessee. Therefore, we confirm the conclusions of Ld CIT(A) for different other reasons as well and paragraphs 15 to 18 of this order is relevant. Therefore, the grounds raised by the revenue are dismissed. Cross Objection: 170/M/2012 - AY 2004-05 29. There is an issue of condonation of delay in this CO and we have granted the prayer of the assessee in this regard for the reasons given in para 22 above. Further, Ld Counsel mentioned that in case the appeal of the revenue is dismissed on its merits, the adjudication of the Cross Objection, that relates to the legal issue relating to the validity of the notice issued by the AO u/s 153A of the Act in the absence of incriminating material relating to the issue of deemed dividend, becomes purely an academic exercise. Considering our agreement with the order of the CIT(A) on merits and dismissal of the revenue's ground, the adjudication of the CO becomes merely an academic exercise. Therefore, we dismiss the CO 170/M/2012 as an academic. 30. In the result, the CO 170/M/2012 is dismissed. 31. In the result, the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue's appeal ITA No. 4495/M/2011: 1. On the facts and circumstances of the case and in law, the Ld CIT (A) erred in deleting the addition of Rs. 17,24,34,900/- being deemed dividend within the meaning of section 2(22)(e) of the Act. 2. On the facts and circumstances of the case and in law, the Ld CIT (A) erred in holding that an advance received in the grab of share application money is beyond the purview of section 2(22)(e) of the Act. 3. On the facts and circumstances of the case and in law, the Ld CIT (A) erred in allowing exemption u/s 54F of the IT Act of Rs. 1,23,50,854/- towards investment made in two residential houses against long term capital gain. 4. On the facts and circumstances of the case and in law, the Ld CIT (A) erred in holding that investment made in two distinct adjacent flats would qualify for exemption u/s 54F without appreciating the facts that the said section provides for exemption in respect of a residential property implying a single residential unit only." 37. Grounds 1 and 2 deal with the issue of applicability of section 2(22)(e) of the Act to the advance by way of share application money'. In this AY 2006-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units as comprising of a residential house and the relevant para is reproduced here under: "6.9.5. Having analyzed the judgments which end up defining "a residential house" for the purpose of exemption from capital gains tax, it is relevant to notice in this case that the same appellant has purchased two contiguous flats with a common wall. In view of the fact that the Courts have been of the opinion that flats on different floors being utilized for different purposes also qualify to be considered as "a residential house", there is no reason to treat two contiguous houses as separate for this purpose. Accordingly, it is held that the Ld AO is not justified in not allowing exemption in respect of investment in one of the units. The AO is directed to recompute the exemption u/s 54F by treating both the units as comprising of "a residential house" for this purpose. This ground of appeal is accordingly allowed." 41. Aggrieved, the Revenue is in appeal before the Tribunal. 42. During the proceedings before us Ld Counsel brought our notice that an identical issue was adjudicated by the Hon'ble Delhi High Court in the case of CIT vs. Gita Duggal vide ITA 1237/2011 dated 21.03.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esidential house. We do not thing that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under section 54/54F. It is neither expressly nor by necessary implication prohibited. For all the above reasons, we are of the view that the Tribunal took the correct view. No substantial question of law arises for our consideration. The appeal is accordingly dismissed." 43. We have applied the above ratio to the facts of the instant case and find the two flats in question are not adjacent and they are not functionally one residential house with two adjacent units. Revenue has not brought any contrary decision to our notice. Considering the settled nature of the issue, we are of the opinion, the order the CIT(A) does not call for any interference on this issue. Accordingly, the grounds 3 and 4 are dismissed. 44. In the result, the appeal of the revenue is dismissed. Cross Objection: 112/M/2012 - AY 2006-07 45. There is an issue of condonation of delay in this CO and we have granted the prayer of the assessee in this regard for the reasons given in para 22 above. Further, Ld Counsel mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusions of Ld CIT (A) for different other reasons as well and paragraphs 15 to 18 of this order is relevant. Therefore, the grounds raised by the revenue are dismissed. Cross Objection: 113/M/2012 - AY 2007-08 51. There is an issue of condonation of delay in this CO and we have granted the prayer of the assessee in this regard for the reasons given in para 22 above. Further, Ld Counsel mentioned that in case the appeal of the revenue is dismissed on its merits, the adjudication of the Cross Objection, that relates to the legal issue relating to the validity of the notice issued by the AO u/s 153A of the Act in the absence of incriminating material relating to the issue of deemed dividend, becomes purely an academic exercise. Referring to the deduction u/s 54F of the Act appearing in the CO, Ld Counsel mentioned that the same is not pressed. Considering our agreement with the order of the CIT(A) on merits and dismissal of the revenue's ground, the adjudication of the CO becomes merely an academic exercise. Therefore, we dismiss the CO 113/M/2012 as an academic. 52. In the result, the CO 113/M/2012 is dismissed. 53. To sum up, all the five appeals of the revenue and a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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