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TMI Blog2015 (2) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... plied to expenses as provisions of section 40A(3) are not applicable to block proceedings - Held that:- AO has himself noted that "as per the MOU, the amount of ₹ 5,94,96,000 was to be paid to the respective members of the Society (i.e., Jai Ganesh Society) at the time final selling of the plot to another party or on or before 31.01.2008 whichever is earlier. Accordingly the cash payment made to the CHS was made directly by ICONIC REALTORS but on behalf of M/s Pathik Constructions so that the transaction can be completed expeditiously. Hence, taxing M/s Pathik Construction on this account does not arise as no payment has been made by the assessee firm in cash. Therefore, provisions of section 69C or 40A(3) are not applicable in the assessee firm’s case. Accordingly, we do not find any infirmity in the order of CIT(A) deleting the addition - Decided in favour of assessee. Deemed dividend u/s.2(22)(e) - whether advances received by the assessee from MIs Kalpana Struct Con Private Limited are commercial transactions - Held that:- CIT(A) has held that there is no question of attracting the provisions of section 2(22)(e). The findings of CIT(A) had not been controverted by ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of loans and advances only . 3. The Revenue for the assessment year 2009-10, has taken following grounds :- Whether, on facts and in the circumstances of the case and in law, CIT(A) is red in holding that provisions of section 2(22)(e) of the income tax act are not applicable to in present case as advances received by the assessee from M/s Kalpana Struct Con Private Limited are commercial transactions without appreciating that there are enough evidences to show that transaction are in the nature of loans and advances only . 4. Rival contentions have been heard and record perused. Facts in brief are that assessee is involved in the business of purchase and sale of land. The AO in his order observed that search and seizure action u/s.132 was carried out in the case of Mr.Madan Kolambekar Group on 22.01.2009, who was dealing in land. Various incriminating evidences gathered during the course of search in his group cases showed that huge cash payments were made to various persons for purchase of land by him. One such cash payment of ₹ 10.65 crore was made to assessee M/s Pathik Constructions. Thereafter search and seizure action was carried out in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he seized documents were confronted to Shri Ajit Thumer, one of the key partners of the assessee firm in Q. No. 13 he has confirmed that this transaction was taken place by the assessee firm in FY 2007-08 on which profit of ₹ 96.8 lakh was declared in the return of income. In Q. No. 14 15 of this statement, he has confirmed that as per the sale agreement, the consideration was shown only at ₹ 3.25 crore but the plot was actually sold for ₹ 14.20 crore and the difference was received in cash. Shri Chaturbhai Thumer, another key partner of the assessee firm has confirmed the cash component involved in this transaction as stated by Shri Ajit Thurner. in Q. No.4 of his statement recorded on 01.05.09. The other supporting documents as per Annexure A-l, page 20 seized from the residence of Shri Sandeep Totade further confirmed that ₹ 60 lakhs and ₹ 55 lakhs were paid to Shri Chaturbhai Thumer, partner of the firm on 14.12.07 and ₹ 45 lakhs on 15.12.07. The AO has further noticed that although the assessee has admitted the cash receipt of ₹ 10,65,00,000/- in this land transaction but it was claimed that the entire money was not undisclosed incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. The retraction of statement as discussed above was without any basis and was not accepted by the AO and also rejected by the undersigned. 3.4 Before me, the AR of the appellant has submitted that certain unaccounted cash expenses were incurred to earn unaccounted income declared by the assessee in its revised return filed on 09.08.10 amounting to ₹ 2,31,90,000/-. It was further alleged that on account of the constant pursuing of the DCIT, the appellant has filed another return in which an additional income of ₹ 3.05 crore was declared and additional tax was paid. The AR of the appellant has also submitted that the AO has made double addition of ₹ 36,90,000/- which was declared as additional income included in the declaration of ₹ 2,31,90,000/-. Similarly, the AO has not allowed the credit of ₹ 5,94,96,000/- in the computation while arriving at the figure of ₹ 11,98,80,000/- (page 13 of the assessment order). It was alleged that when the AO has arrived at this figure of ₹ 11,98,80,000/-, the amount of ₹ 5,94,96,000/- was not deducted. Therefore, it was a double addition of the same amount. Further, the AR of the appellant h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lained expenditure was incurred it is covered under the proviso to section 69C w.e.f. 01.04.99 where it is held that any unexplained expenditure which has been deemed to be the income of the assessee, has been made non-deductible expenditure under any head of income. The AO has relied on the statement of the assessee recorded during the course of search but it is not substantiated by any documentary evidence found and seized during the course of search in the case of the assessee and in the case of Shri Madan Kolambekar from where the documents were seized relating to the transaction with the assessee firm. Regarding the applicability of section 40A(3), the AR of the appellant has submitted that the Hon'ble Delhi High Court in the case of CIT vs. Anand swarup Khandelwal in Appeal No. 596 of 2006 dated 08.09.08 has held that section 40A(3) could only be taken in the course of regular assessment. The AR has also relied in the case of CIT vs. Raja Pal Automobiles of Allahabad High Court in Appeal No. 34 of 1999 dated 30.06.09. Although, the AO has not made the addition u/s. 40A(3) separately but as per the decisions relied on by the appellant, it is not applicable in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and entitled to 23% of the income of the firm. It was also noted that M/s. Kalpana Struct Con Pvt. Ltd. is not a company in which public are substantially interested. The AO has also observed that the loan given to the assessee is not in the ordinary course of business of the company because lending is not the business activity of the company. Accordingly, a show-cause notice was issued to the assessee to explain why provisions of section 2(22)( e) may not be invoked in your case. In response to this show cause notice, the AR of the assessee has not submitted any plausible reply before the AO. Therefore, he has invoked the provisions of section 2(22)( e) and made addition of ₹ 1,14,63,383/- for the AY 2008-09 and ₹ 2,06,66,690/- for the AY 2009-10. 7. By the impugned order, the CIT(A) deleted the addition after having following observations :- 4.3 I have considered the submissions of the appellant, order of the AO and facts of the case carefully. The AR of the appellant has submitted that the loan was received by the assessee on the basis of the Finance Agreement which was prepared before the search and copy of the ledger account in the books of M/s. Kalpana Struc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the books of KSCPL, but all of sudden this 'Agreement of Finance' is appearing on 21.01.2008. This raises doubts about authenticity and genuineness of this agreement itself. This agreement appears to be an attempt on the assesee's part to divert attention from substance and actual nature of these transactions and give them a different colour. Even, the contents of the Agreement of Finance suggest and further strengthens that the amount given by KSCPL to the assessee is loan/advance only, as rate of interest (which is 9% in the present case) inter alia is also agreed upon. Moreover, KSCPL has not advanced any money to the assessee for KSCPL's own business. Even as per the Agreement, KSCPL has agreed to provide finance to the assessee for the assessee's business which is loan/advance only and the same is clearly covered by the provisions of section 2(22)(e) of the Act. For such finance provided to the assessee, interest is chargeable by KSCPL. Regarding commission of 12% as provided in the Agreement, firstly it is mentioned that there is no truth in it because neither the assessee has claimed any such commission in its P L account for A Ys. 2008-09 and 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the form of letters apart from the personal meetings in accordance with the clauses of the Agreement. As per the AO's request, the said letters were submitted with the AO on November 30 2011 which are submitted. The Agreement was produced in original before the AO as per his request. On perusal of the agreement the following points should be noted: a. The Agreement of Finance is a notarized and a stamped agreement. b. The Agreement is duly signed by the authorized person. e. Prior to entering into the Agreement, both the parties made several meetings and exchanged correspondences. d. The Agreement as noted before was entered into on January 8, 2008 which implies that the Agreement was available during the course of the assessment proceedings. e. The parties have acted in pursuance of the Agreement and accordingly a commission of 12% is paid on the total sale value of the plot along with normal interest on finance amount as decided upon by both parties from time to time. f. In the four years from AY 2008-09 to AY 20011-12, only one sale transaction has been entered into which is in the AY 2011-12 on which a commission of 12% has been paid by the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly recorded in the books of account that loan was received to invest in the land and the interest was paid and commission was to be paid at the final sale of the land. The AO has argued that commission has not been reflected in the AYs. 08-09 09-10 but the AR of the appellant has submitted that during the year under consideration, the land was purchased and not sold, therefore, the question of showing any commission does not arise. From these facts it is clear that the assessee firm has received loan from the group company in both the years but the factor is to decide the issue whether it is covered under the provisions of section 2(22)(e) is to prove that whether it was a business transaction. To answer this question, it is very clear from the Finance Agreement submitted by the AR of the appellant that it was a business transaction and the loan was taken for purchasing the land and commission was to be paid on it. Since the land was not sold in the year under consideration, therefore, no commission payment has been shown. Thus, ,it proves that it is clearly a business transaction. To strengthen its view, the AR of the appellant has also relied on the decision of the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a capital to the company, as the same cannot be regarded as profit capable of being capitalised, the return being of capital itself. Profits mean only commercial profit - (Paper Book Page 24 to 35) . In view of the facts and circumstances of the case and decision of the Hon'ble Courts, it is held that the advance received by the assessee firm was purely a commercial transaction and the provisions of section 2(22)( e) is not applicable as per the decision of Hon'ble Courts. Therefore, the additions made by the AO are not sustainable, hence deleted. The ground of appeal is allowed. 8. In the assessment year 2009-10 similar additions was made by the AO u/s.2(22)(e) in respect of advance received by assessee from M/s Kalpana Struct Con Private Limited amounting to ₹ 1,14,63,383/-. Similar observation was made by AO as was in the assessment year 2008-09. By the impugned order, the CIT(A) deleted the addition after having the following observation :- 4.3 I have considered the submissions of the appellant, order of the AO and facts of the case carefully. The AR of the appellant has submitted that the loan was received by the assessee on the basis of the Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced by KSCPL to the assessee prior to 21.01.2008 also as it can be seen from the ledger account of the assessee in the books of KSCPL, but all of sudden this 'Agreement of Finance' is appearing on 21.01.2008. This raises doubts about authenticity and genuineness of this agreement itself. This agreement appears to be an attempt on the assesee's part to divert attention from substance and actual nature of these transactions and give them a different colour. Even, the contents of the Agreement of Finance suggest and further strengthens that the amount given by KSCPL to the assessee is loan/advance only, as rate of interest (which is 9% in the present case) inter alia is also agreed upon. Moreover, KSCPL has not advanced any money to the assessee for KSCPL's own business. Even as per the Agreement, KSCPL has agreed to provide finance to the assessee for the assessee's business which is loan/advance only and the same is clearly covered by the provisions of section 2(22)(e) of the Act. For such finance provided to the assessee, interest is chargeable by KSCPL. Regarding commission of 12% as provided in the Agreement, firstly it is mentioned that there is no tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anuary 21, 2008. In this regard, we wish to inform you that there were many correspondences between the parties in the form of letters apart from the personal meetings in accordance with the clauses of the Agreement. As per the AO's request, the said letters were submitted with the AO on November 30 2011 which are submitted. The Agreement was produced in original before the AO as per his request. On perusal of the agreement the following points should be noted: a. The Agreement of Finance is a notarized and a stamped agreement. b. The Agreement is duly signed by the authorized person. e. Prior to entering into the Agreement, both the parties made several meetings and exchanged correspondences. d. The Agreement as noted before was entered into on January 8, 2008 which implies that the Agreement was available during the course of the assessment proceedings. e. The parties have acted in pursuance of the Agreement and accordingly a commission of 12% is paid on the total sale value of the plot along with normal interest on finance amount as decided upon by both parties from time to time. f. In the four years from AY 2008-09 to AY 20011-12, only one sale trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied on the Finance Agreement and ledger account in the books of the company that it was a business transaction clearly recorded in the books of account that loan was received to invest in the land and the interest was paid and commission was to be paid at the final sale of the land. The AO has argued that commission has not been reflected in the AYs. 08-09 09-10 but the AR of the appellant has submitted that during the year under consideration, the land was purchased and not sold, therefore, the question of showing any commission does not arise. From these facts it is clear that the assessee firm has received loan from the group company in both the years but the factor is to decide the issue whether it is covered under the provisions of section 2(22)(e) is to prove that whether it was a business transaction. To answer this question, it is very clear from the Finance Agreement submitted by the AR of the appellant that it was a business transaction and the loan was taken for purchasing the land and commission was to be paid on it. Since the land was not sold in the year under consideration, therefore, no commission payment has been shown. Thus, ,it proves that it is clearly a bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of profits which the company could have distributed to its shareholders. This would clearly exclude return of part of a capital to the company, as the same cannot be regarded as profit capable of being capitalised, the return being of capital itself. Profits mean only commercial profit - (Paper Book Page 24 to 35) . In view of the facts and circumstances of the case and decision of the Hon'ble Courts, it is held that the advance received by the assessee firm was purely a commercial transaction and the provisions of section 2(22)( e) is not applicable as per the decision of Hon'ble Courts. Therefore, the additions made by the AO are not sustainable, hence deleted. The ground of appeal is allowed. Against the above order of CIT(A), revenue is in appeal before us. 9. It was argued by ld. DR that the CIT(A) was not justified in deleting the addition of ₹ 3,41,90,000/- merely on the plea that it was a double addition. He further submitted that the assessee filed return for this year on 9-7-2008 declaring income of ₹ 65,77,480/-. This return was filed prior to the date of search. A search and seizure action was carried out at the business premises of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total income Rs.19,14,26,643/- In view of the above, ld. DR contended that assessing officer has not made any separate addition of ₹ 36,90,000/ - and ₹ 3,05,00,000/- though he has discussed the issue in the assessment order These amounts were declared as income by the assessee himself. However in para 3.3 of the order CIT(A) has directed the assessing officer to allow credit of ₹ 36,90,000/ - and ₹ 3,05,00,000/ -. As explained above, the assessing officer has not made any addition of these two amounts while computing the taxable income. Hence there is no double addition of ₹ 36,90,000/ - and no non allowance of declared income of ₹ 3,05,00,000/-. Hence, submissions of the assessee taken before ClT(A) and reproduced in para 3.2 of the order of the CIT(A) is without basis. Hence these directions of the CIT(A) are without any basis and are required to be reversed. 11. With regard to the deletion of addition made u/s.69C, the contention of ld. DR was that the assessee sold plot no 31 sector 47 Oronagiri during the year under consideration on 16/1/2008. This plot was purchased on 24/4/2007. Profit on the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. DR was that CIT(A) is not justified in holding that amounts were advanced by the assessee for business purpose. It may be noted that real nature of amounts advanced is loan and not business as claimed by the assessee. As per ld. DR, the assessee has not shared any the risk of, business with the assessee. The assessee has agreed to pay interest per anum and commission at the time of sale. M/s KSCPL is getting interest. Further as per this finance agreement, on termination of agreement, KSCPL will be getting the amount back. (PB-42 term and validity ). Thus M/ s KSCPL has not shared the risk of loss. It is also not sharing profits. It is only entitled to commission if plot purchased with finance are sold for profit. 14. On the other hand, ld. AR relied on the findings recorded by CIT(A) and contended that the department was not justified in ignoring the entry in the same seized document which indicated payment of ₹ 5,94,96,000/- and at the very same time accepting cheque payment of ₹ 2,22,00,000/-. 15. We have considered rival contentions and carefully gone through the orders of the authorities below and also gone through the statement on oath of Shri Ajit G. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition made u/s. 69C and 40A(3) on the basis of Annexure0-2, the AO on page 11 of the assessment order has held that the MOU dtd. 20.04.2007 is not reliable as he doubts the authenticity and credibility of the so-called MOU. The AO also found that the MOU was unsigned. About the unsigned MOU, it is not in dispute that the said document has been found and seized by the search party and it is not a document submitted by the assessee firm before the AO. Furthermore, when the other unsigned documents/papers particularly AnnexureO-2 found and/or seized can be admitted and taken as evidence, the said unsigned MOU should also be admitted as a whole and no different treatment can be meted out to the MOU alone. However, the facts and figures shown in the Annexure O-2 is further supported by:- i) the detailed statements recorded u/s.132 on 19.02.2009 from Shri Ajit Thumar and from Shri Chaturbhai Thumar on 01.05.2009(Q.No.13 to 20 and ii) also MOU stated above. 17. It is pertinent to mention that on 22.01.2009 (search date) the search party could come across only the unsigned MOU dtd. 20.04.2007 but the said draft MOU was signed by all the parties to the agreement on stamp paper o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Dept. cannot admit the evidence selectively (and only a part) which is in their favour. For this purpose, reliance can be placed on the following decisions:- i) CIT Vs Anant Swarup Khandelwal (2009) (177 Taxmann 450)(Del) ii) CIT Vs P 0 Abraham (349 ITR 442 - Ker.) iii) Dhanvarsha Builders Developers Vs DClT (105 ITj 376(Pune ITAT)] 19. During the course of hearing, our attention was drawn to the land transaction in respect of Dronagiri plot was as per a Regd. TRIPARTITE agreement dt. 16.01.2008 between CIDCO, M/s Pathik Constructions and ICONIC REALTORS. In Para 7.2 of the asst. order (page 9 - last two lines) the AO has himself noted that as per the MOU, the amount of ₹ 5,94,96,000 was to be paid to the respective members of the Society (i.e., Jai Ganesh Society) at the time final selling of the plot to another party or on or before 31.01.2008 whichever is earlier. Accordingly the cash payment made to the CHS was made directly by ICONIC REALTORS but on behalf of M/s Pathik Constructions so that the transaction can be completed expeditiously. Hence, taxing M/s Pathik Construction on this account does not arise as no payment has been made by the assessee fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kalpana Struct Con., therefore, the amount received by the assessee is not liable to be taxed u/s 2(22)(e) of the Act. This finding of the ld. CIT(A) has not been controverted by the ld. D.R. by bringing any positive material on record. The ITAT Special Bench in the case of ACIT vs. Bhaumik Colours Pvt. Ltd. 118 ITD 1 held that provisions of section 2(22)(e) can be applied only in the hands of the beneficial and registered shareholder of the company which has given loan. Respectfully following the decision of Hon ble jurisdictional High Court and ITAT Special Bench, as discussed above we do not find any infirmity in the order of the ld. CIT(A) for deleting the addition made u/s 2(22)(e) of the Act. 22. The CIT(A) has relied on the copy of the Finance Agreement and held that the loan in question was for business purpose. The ClT(A) further went through the matter and noted that the AO did not agree with this stand mainly because the element of commission mentioned in the agreement has not been reflected in the AYs 2008-09 and 2009-10. The CIT(A) himself looked into the facts in this connection (page 16 of CIT(A) s order) and after due consideration has come to the conclusion th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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