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TMI Blog2018 (8) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition made as deemed dividend u/s. 2(22)(e) of ₹ 13,88,23,000/- was rightly deleted by the Ld. CIT(A) for want of fulfillment of the required conditions stipulated under the said section, which does not need any interference - decided against revenue - I.T.A. No. 1450/DEL/2015, CROSS OBJECTION NO. 280/DEL/2015 - - - Dated:- 11-7-2018 - Shri H. S. Sidhu, Judicial Member And Shri Prashant Maharishi, Accountant Member Department by : Sh. S.S. Rana, CIT(DR) Assessee by : Sh. V.K. Agarwal, A.R. ORDER Per H. S. Sidhu, JM Revenue has filed this appeal and Assessee has filed the Cross Objection which emanate from the order dated 22.12.2014 for A.Y. 2012-13 of the Ld. CIT(A). 2. The Revenue has raised the following grounds:- (i) The order of the Ld. CIT(A) is not correct in law and facts. (ii) On the facts and circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of ₹ 13,88,23,000/- made by the AO u/s. 2(22)(e) of the Income Tax Act, 1961. (iii) The appellant craves leave to add, amend any / all the grounds of appeal before or during the course of hearing of the appeal. 3. The Assessee has raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the business proceeds/of the company. The company on the date of conversion i.e. on 28.03.2012 has not recognized any income in its profit and loss a/c. However, the perusal of the Balance Sheet and Profit and loss a/c of M/s Robin Software LLP shows that the firm has shown profit of ₹ 15,67,47,640/- as on 31.03.2012. It is pertinent to mention that the revenue has been recognized out of sale proceeds received. The majority of the proceeds have been received prior to 28.03.2012. An amount of ₹ 15,53,594/- only has been received after the conversion of the company into LLP out of the total proceeds of ₹ 14,35,25,546/- received during the year. Thus only 1.08% of the revenue has been received after the conversion. When the company was converted into LLP, revenue should have been recognized in the profit and loss a/c of the company. Thus applying the above percentage of 1.08%, out of the total profit of ₹ 15,67,47,640/- recognizes by the LLP, profit of ₹ 15,50,50,923/- should have been recognized in the hands of the company. The company did not do so to avoid the applicability of the provisions of section 2(22)(e) of the I.T Act, 1961. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced. No sale deed has been produced which shows that it was merely an eye-wash agreement. 4. Had this money been transferred to LLP, the assessee Gould not have withdrawn this amount for the next 5 years. 5. Since the assessee has received this money from a company in which he was a substantial shareholder and the company had accumulated reserves during the current financial year, the assessee was liable for tax u/s 2(22)(e) of I.T Act. In the above case, it is humbly submitted that the following decisions may kindly be considered with regard to deemed dividend uls 2(22)(e) of I.T. Act: 1. CIT v Sunil Chopra [2011] 12 taxmann.com 496 (Delhi)/[2011] 201 Taxman 316 (Delhi)/[2011] 242 CTR 498 (Delhi) Tribunal deleted addition accepting assessee's contention that said advances were received against sale of property under terms of agreement dated 18-9-2003 and, therefore, money was taken by assessee in line of his business of real estate. Hon'ble Delhi High Court held that there was great perversity and infirmity in findings and observations of Tribunal and, therE}fore, impugned order was to be set aside. 2. CIT Vs Prasidh Leasing Ltd. [2018] 90 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, which read as under:- 1. In this group, search u/s 132 was conducted on 17/02/2012. The assessment was completed by the Ld. AO u/s 143(3) on 26/03/2014 at an income of ₹ 46,85,27,099/- against the returned income of ₹ 32,97,04,099/- by adding ₹ 13,88,23,000/- u/s 2(22)(e). This amount of ₹ 13,88,23,000/- was received by the assessee from M/s Robin Software Pvt. Ltd. against the sale consideration of ₹ 78,25,00,000/- in respect of house property located at 57-58, Golf Links, New Delhi as per agreement to sell dated 02/04/2010. M/s Robin Software Pvt. Ltd. was converted to LLP on 29/03/2012. 'Since the company did not exist w.e.f. 29/3/2012, the agreement to sell was also terminated by the LLP by mutual consent vide' Termination Agreement dated 29/3/2012. Nature of Receipt 2. The appellant owns a house property located at 57- 58, Golf Links, New Delhi. The appellant entered into an agreement with M/s Robin Software Pvt. Ltd. on 02/04/2010 to sell this property for a consideration of ₹ 78,25,00,000/-. In compliance to this agreement, the company paid ₹ 13,88,23,000/- to the appellant during the F.Y. 2011-12. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the assessee and the company for sale of property belonging to the assessee, it cannot be said that the agreement was not genuine only for the reason that' it was not registered, particularly when the AO did not bring any material on record to substantiate that the said agreement was not a genuine agreement. It was further held that where advance received by the assessee from the company in which he or she is a substantial shareholder was for a transaction relating to sale of property, the deeming provisions of section 2(22)(e) of the Act are not applicable. As the facts and circumstances in the present case are also similar, respectfully following the decision of the Co-ordinate Bench in the case of Smt. T. Vaishnavi Tekumalla (supra), we see no reason to interfere with the order of the CIT(Appeals) Mr MOHANLAL PILLAI vs. ITO, 2011-TIOL-90-ITAT- MUM 12 Whereas, in the case before us, on 1st April, 1999 itself assessee has sold various assets to M/s. Mech Marine Engineers (P) Ltd. and, therefore, on that date there was a debit balance against the company in the books of the assessee and there would be corresponding credit balance in the books of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be accumulated profit of ₹ 13,88,23,000/- for the part period of the year. Hence, even by considering the AO's formula, there were no accumulated profit at the time of reimbursement. b) Further, the facts in brief are that the company has given its land to M/s. Emaar MGF Land Ltd. for development. As per the development agreement the developer was making payments to the company periodically. Since the developer is following percentage completion method as per guidance note issued by the Institute of Chartered Accountants of India on revenue recognition by the real estate developer, the developer recognized the revenue on 31/03/2012. The impugned company was accordingly bound to recognize its profits as per the percentage of completion method only after receiving the certificate from the developer. The developer has been issuing a certificate for each financial year clearly indicating the percentage of the project completed and the profits pertaining to the company including the computation. Accordingly, neither the company knew its profit nor it had any right to receive the profits before 31/03/2012. The right to receive the profits accrue only on 31/03/2012 after de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stockholding Pvt. Ltd., 2015-TIOL- 1139-HC-AHM ++while determining the amount of deemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accumulated profit. As such, as observed by the Tribunal, the issue is already settled by the SC against the Revenue in the case of Associated Banking Corporation of Ind. Ltd. V Is. Commissioner of Income-Tax, Bombay reported in (1965) Vo1.56 ITR 1 (SC) by which, the view taken that the profit accrues when the books of account are closed. OSERVATIONS OF THE AO 6 (a). The Ld. AO has observed that the agreement to sell the property was only a tax evasion scheme (page 5 of the asstt. Order). In this connection it is submitted that the agreements are genuine and even the Ld. AO has not brought any material on record to disprove the genuineness of the agreement to sell and the termination agreement. Both the agreements were duly signed on the stamp papers in the presence of two witnesses. Under similar circumstances even when the agreement was not on the stamp paper, the Hon'ble ITAT Bangalore, in the case of DCIT vs. Smt. Vaishnavi Tekumalla, ITA No. 493/Bang/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or each financial year clearly indicating the percentage of the project completed and the profits pertaining to the company including the computation. Accordingly, neither the company knew its profit nor it had any right to receive the profits before' 31/03/2012. The right to receive the profits accrue only on 31/03/2012 after determination of income by the developer as per the method of accounting being followed by it regularly. Since it was the LLP which existed on 31/03/2012 and not the company, the profits accrued to the LLP only which were duly declared in its IT return and taxed on the returned income. Again the Hon'ble Supreme . Court in the case Ashokbhai Chimanbhai has held The concept of accrual of profits of a business involves the determination by the method of accounting at the end of the accounting year or any shorter period determined by law when upon ascertainment of profits the right of a person to a share therein is determined, the question assumes practical importance, for it is only on the right to receive profits or income, profits accrue to that person. If there Is no right, no profits will be deemed to have accrued ..... . Therefore, the law is well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y holding that there are accumulated profits in the hands of M/s Robin Software Pvt. Ltd. Ld. CIT(A) has also noticed that the AO has completed the assessment of M/s Robin Software Pvt. Ltd. for assessment year 2012-13 and no addition has been made in the hands of that company and return of loss has been accepted. Therefore, the Ld. CIT(A) has rightly cancelled the order of the AO by holding that if the AO has accepted the income returned by the said company and not made any changes in the return of income and assessed the income as declared by the said company, he cannot hold that there was accumulated profits for the purpose of section 2(22)(e) of the Act. We further note that Ld. CIT(A) has observed that assessment of M/s Robin Software Pvt. Ltd has been completed vide order of the same Assessing Officer on 26.3.2014 and AO has accepted the returned of loss ₹ 1,05,460/- as on 28.3.2012 of that company. This being so the same AO could not have adopted a different income / profit figure to make addition u/s 2(22)(e). Hence, Ld. CIT(A) noted that when AO assesses the income of M/s Robin Software Pvt. Ltd. as loss for the same financial year, there could be no ground available ..... X X X X Extracts X X X X X X X X Extracts X X X X
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