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TMI Blog2016 (10) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... (22)(e) of the Income Tax Act. 2. In doing so he has failed to appreciate that the amounts received by the assessee was neither advances or the loan, but was mere advances in the nature of deposit made by the three companies for their business requirement, which deposits were made by them, in order to enable them to participate in the project (undertaken by the assessee) between the assessee and Landmark Apartments Pvt.Ltd. 3. That the learned authorities have failed to appreciate that it is not any and every sum received by a share holder from a company of which he is a share holder could be brought to tax and treated as a deemed dividend within the meaning of section 2(2)(e) of the Act, even when the amount is advanced by the company with the share holder for the purpose of their business. That the findings recorded by the CIT(A) in his order that the companies namely M/s PPSL, M/s PMMPL and M/s SEPL had no apparent business transaction is highly misconceived and is contrary to factual matrix available on record and supported by memorandum of understanding as well as resolution passed by the assessee companies before making the advances by way of deposits of the amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowances totaling Rs. 43,33,088/- were allowable business expenses given the facts and circumstances of the case" is not based on correct appreciation of facts and circumstances of the appellant and therefore unsustainable. 1.4 That furthermore the specific finding recorded by the learned Commissioner of Income Tax, (Appeals) the learned Assessing officer while holding that loss of Rs. 4,08,800/- represents capital loss and not business loss has clearly brought out "that the contention of the appellant that this piece of land was purchased by him from Smt. Kesar Devi for his clients M/s Selene Construction Pvt. Ltd. And M/s Juventus Estates Pvt. Ltd. Was false" is also incorrect, contrary to facts and any case could not have been made a basis to sustain the penalty in the light of the settled judicial position that no penalty under section 271(1)(c) of the Act is leviable for holding the loss as capital loss instead of business loss declared by the appellant. 2. That the learned Commissioner of Income Tax, (Appeals) has further erred in law and on facts in not holding that order of penalty dated 25.03.2013 is barred by limitation and therefore deserves to be quashed as suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive companies named above represents loan and is thus a deemed dividend within the meaning of section 2(2)(e) of the Income Tax Act. 2.2 That apart from the sequence of events (enclosed as Annexure-A), the facts in brief in respect of the said issue is stated as under: 2.3 The assessee is admittedly engaged in the business of development of Real Estate. (Page 25). That the assessee is a shareholder of following three companies and had substantial interest in the aforesaid companies within the meaning of section 2(22)(e) of the Income Tax Act. (i) Prama Project Solution Pvt. Ltd. (ii) Prama Marketing Pvt. Ltd. (iii) M/s Sanyog Estate Pvt. Ltd. 2.4 During the instant year, the aforesaid three companies had advanced sums to the assessee in the course of the business which was credited to the respective accounts in the books of the assessee. The amounts advanced by the aforesaid three companies are as under: S.No. Name of the company from which advance was received in the regular course of business Sum advanced in the regular course of business Addition made u/s 2(22)(e) only to the extent of the accumulated profits. i Prama Project Solution Pvt. Ltd. Rs. 39,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the aforesaid project. However, as the aforesaid project had since not fortified, it requested Landmark Apartments Pvt. Ltd. to refund the amount invested by the assessee which was refunded by M/s Landmark Apartments Pvt. Ltd. on 07.05.2009 (page 199). 2.8 Further, from the perusal of the MOU between assessee and M/s Sanyog Estate Pvt. Ltd. placed at pages 144-146 of PB, it would be seen that sum of Rs. 5,00,000/- has been advanced to the assessee to search out a place in New Delhi/Gurgaon for opening a business centre in commercial location and the price of the property should not exceed Rs. 1,00,00,000/- i.e. sum of Rs. 5,00,000/- advanced was for the purpose of giving advance for the purchase of the business centre. 2.9 The aforesaid facts clearly demonstrate that the amounts received by the assessee from the aforesaid companies were commercial advances made by such of the companies and were not loan per-se so as to bring the same within the meaning of deemed dividend as per the provisions of section 2(22)(e) of the Act. 3. That during the course of the assessment proceedings, appellant contended that the amounts received were not loan per-se and the amounts were re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned AO has rejected the claim of the assessee in the case of M/s Sanyog Estates Pvt. Ltd. on the ground that, "in fact on examining the balance sheet of the assessee for subsequent year i.e. F.Y. 2008-09 it is seen that the above amount still remains in the hands of the assessee and no business transaction has been carried out by the assessee and M/s Sanyog Estate Pvt. Ltd. Accordingly, in this case also the plea that the above advance was part of the business deal is devoid of any basis. On examining the balance sheet of M/s Sanyog Estate Pvt. Ltd., it is seen that the company has accumulated profits to the tune of Rs. 73,224/- only. Accordingly, the deemed dividend u/s 2(22)(e) is computed to the extent of accumulated profits amounting to Rs. 73,224/- and the said amount is added to the total income of the assessee". 5.2 In the case of M/s Prama Marketing Pvt. Ltd. the same has been rejected on the ground that, "here also the only argument which has been advanced by the assessee during the course of these proceedings is that the transactions were a part of business transaction with M/s Prama Marketing Pvt. Ltd. As part of submission on 26.10.2010, the assessee has filed a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that aforesaid finding of the learned AO has been arbitrarily upheld by the learned CIT(A) without appreciating the factual substratum of the case. In fact the finding of the A.O. that no business transaction had been undertaken by the assessee was upon overlooking the facts on record i.e. the assessee had entered into a development transaction on 20.01.2007 with Landmark Apartments Pvt. Ltd. which was also stated in the Memorandum of Understanding entered between the assessee and the aforesaid two creditor companies (see page 105 and 120 of Paper book). 7. At the outset it is submitted that the amount advanced by the three companies were not loan taken by the assessee but were advances made by the such companies in the normal course of business as such, the provisions of section 2(22)(e) of the Act have no application. The claim of the appellant that the amount credited in the books of account was by way of advance which cannot be characterised as loan, has been rejected on mere assumption and in disregard of the fact that such companies had contributed the amount for the project undertake by the assessee with Landmark Apartments Pvt. Ltd. It is submitted that, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan. If this purpose is kept in mind then, in our view, the word 'advance' has to be read in conjunction with the word 'loan'. Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning of term 'advance' may or may not include lending. The word 'advance' if not found in the company of or in conjunction with a word 'loan' may or may not include the obligation of repayment. If it does, then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term 'advance'. The rule of construction to our minds which answers this conundrum is noscitur a sociis. The said rule has been explained both by the Privy Council in the case of Angus Robertson vs. George Day [1879] 5 AC 63 by observing 'it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l which may not be accepted as evidence in a Court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-s. (3) of s. 23 of the Act, the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under s. 23(3). ii) 37 ITR 151(SC) Omar Salay Mohammad Sait v CIT The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicious, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this Court. iii) 26 ITR 736 (SC) Dhirajlal Girdharilal v CIT, Bombay When a Court of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,500/- in August, 2007 and same was sold in December, 2007 at a loss of Rs. 4,08,800/- and such loss was claimed in the P&L Account. Aforesaid loss was disallowed on the ground that such sale and purchase of land is not business transaction but is investment of the assessee and hence is a capital loss. Aforesaid order of the learned AO has been upheld by the learned CIT(A). 13. It is most respectfully submitted that in the instant case, learned AO/CIT(A) both have neither disputed the genuineness of the loss nor has disputed the fact that the assessee is engaged in Real Estate business, however, on arbitrary assumption it was held that aforesaid property was purchased as investment, as such, the loss on sale of land is capital loss. It is submitted that instant addition has been made purely on suspicion and no basis whatsoever has been given for assuming that such land was purchased as investment and not for the purpose of business. It is submitted that aforesaid land was purchased during the course of its business as such, loss incurred on the sale of land is business loss and same cannot be disallowed by holding it to be capital loss. 7. On the contrary, Ld. DR relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding cannot be ignored. In fact it is not in dispute that under the MOU dated 20.01.2007 with M/s Landmark Apartments Pvt. Ltd., assessee has made investment with such company and since the venture did not materialize as such, such invested by the assessee has finally been returned. Hence in such circumstances, we hold that the such advanced by such companies were clearly for the purpose of the business and purely on commercial consideration and hence such sums cannot be termed as deemed dividend. 8.2 Further in respect of sum advanced by M/s Sanyog Estate Pvt. Ltd., it is seen that aforesaid company has also entered into an MOU with the assessee for searching out a place in New Delhi/Gurgaon for opening a business centre in commercial location for a price not exceeding Rs. 1 crore and sum of Rs. 5 lac was given to the assessee as advance for the purchase of the property. However, AO held that apart from this transaction, assessee has not entered with any other transaction with such company. This finding of the AO has been upheld by the CIT(A). We are of the opinion that the findings of the authorities below is unsustainable as from the terms of the MOU it was clear that sum has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be as short term capital loss. In respect of the aforesaid grounds of appeal it has been submitted by assessee that since the assessee has entered into agreement with M/s Selene Constructions Pvt. Ltd. And M/s Juventus Estates Pvt. Ltd. for acquiring land on their behalf in sector 103 and 104 of Gurgaon for group housing, as such, in order to acquire land, in August 2007 it purchased land in revenue estate of village Pawala Khusrupur, Gurgaon for a sum of Rs. 65,62,500/- and also incurred other expenditure of Rs. 4,08,800/- hence, total expenditure incurred for the purchase of land was Rs. 69,71,300/-. Aforesaid land was situated in sector 106 which is adjoining to sector 103 and 104, and assessee believed that it would be able to buy more land on behalf of such companies adjoining to this land. However, since assessee could not get further land in this sector and other land which were ultimately acquired by the assessee for the aforesaid companies were in other sectors as such, this land was not taken by the aforesaid companies and hence the assessee has to sell this land. This land was sold in December, 2007 for a loss of Rs. 4,08,800/-. As the land was acquired for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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