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TMI Blog2018 (12) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 10,91,34,125/- (Rs.11,65,43,082/- less income offered ₹ 74,08,957/-) as the income of the assessee by invoking the provisions of Section 68 of the Act. 9.1 On appeal, the Ld.CIT(A) also confirmed the order of the Ld.AO because even before her, the assessee had not explained the transaction with sufficient evidence.Even before us, the assessee has not furnished any materials to substantiate his claim. Therefore we do not find any reason to interfere with the orders of the Ld.Revenue Authorities. - Decided against assessee. - I.T.A.No.1699/Chny/2018, I.T.A.Nos.1132 & 1133/Chny/2018 - - - Dated:- 11-9-2018 - Shri N.R.S. Ganesan, Judicial Member And Shri A. Mohan Alankamony, Accountant Member For the Assessee : Mr.S. Sridhar, Advocate For the Revenue : Mr.AR .V. Sreenivasan, JCIT ORDER PER A. MOHAN ALANKAMONY, AM :- The appeal by the Revenue in the case of M/s. Aban Ventures Pvt. Ltd., is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-1, Chennai, dated 26.02.2018 in ITA No.85/CIT(A)-1/2016-17 for the assessment year 2013-14 passed U/s.250(6) r.w.s. 143(3) of the Act. 2. The two appeals of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - ₹ 1.40 crores. It was further revealed that M/s. Ginger Estate Developers Pvt. Ltd., did not have any reserves as on the date of receipt of loan of ₹ 40 lakhs by the assessee from M/s. Ginger Estate Developers Pvt. Ltd. However M/s. Tuticorin Power Company Ltd., had capital reserves of ₹ 1,59,00,000/- resulting from the sale of land possessed by the company as on the date of receipt of loan of ₹ 1.40 crores by the assessee from M/s. Tuticorin Power Company Ltd. Further it was also revealed that Mr. Reji Abraham had 97% shareholding in the assessee company and 32% of shares in M/s. Tuticorin Power Company Ltd. On query, as to why the provisions of Section 2(22)(e) of the Act be invoked in the case of the assessee company, the assessee came out with the submission that M/s. Tuticorin Power Company Ltd., did not have reserves for distribution of profit and that the available reserves was capital reserves arising out of sale of the land possessed by the assessee. It was therefore stated that the provisions of Section 2(22)(e) of the Act cannot be applied in the case of the assessee company. However the Ld.AO rejected the submission of the assessee and was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of the Hon ble Apex Court in the case CIT Vs. Mukundray K.Shah reported in 290 ITR 433 and the decision of the Hon ble Jurisdictional High Court in the case CIT Vs. L. Alagu Sundaram Chettiyar reported in 109 ITR 508. While doing so, the Ld.AO was of the view that M/s. Aban Ventures Ltd., was used as a conduit company to transfer funds from M/s. Tuticorin Power Company Ltd., to Mr. Reji Abraham. When the matter cropped up before the Ld.CIT(A), the assessee reiterated his submission before the Ld.A.O that M/s. Tuticorin Power Company Ltd., only had capital reserves which cannot be distributed as dividend and therefore provisions of Section 2(22)(e) of the Act cannot be invoked. However the Ld.CIT(A) dismissed the appeal of the assessee by observing as follows: The appellant s contention is considered. The position of law is fairly clear that even capital gains earned by the company forms part of its accumulated profits. The only appreciation in the capital value of an asset which is not taken into account is a capital gain that is not liable to tax under the provisions of the Income Tax Act. In the present case, the profit on sale of land referred to by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on with ₹ 5.99 crores paid by MKSEPL to MKF and MKI and payments by the two firms to the assessee who used the money to buy RBI Relief Bonds. The payments made by the company through the two firms were for the benefit of the assessee. Therefore, the funds were not repayment of loans, they were for the purchase of Bonds by the assessee. (iii) That, on the merger of SCPL with MKSEPL in 1998, the accounts of the two companies had merged and, therefore, the reserves had to be taken on the basis of the merged account. (iv) That the question whether the payments made by the company were for the benefit of the assessee (shareholder) was a question of fact. The Tribunal had concluded that the payments routed through MKF and MKI were for the benefit of the assessee. That was a finding of fact ; it was not perverse. (v) That the concept of deemed dividend under section 2(22)(e) postulated two factors : whether the payment was a loan and whether on the date of payment there existed accumulated profits. These two factors had to be correlated and this correlation had been done by the Appellate Tribunal coupled with the fact that all withdrawals were debited in the capital a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly clear that even if the company advancing loan has capital reserve, provisions of Section 2(22)(e) of the Act, can be invoked. Moreover the Ld.AR has not brought out any convincing materials / explanation before us to establish that the advance made by M/s. Tuticorin Power Company Ltd. to M/s. Aben Ventures Pvt. Ltd. was out of commercial exigencies. In this situation we do not find it necessary to interfere in the orders of the Ld.Revenue Authorities. Hence the appeal of the assessee is devoid of merits and the order of the Ld.AO is hereby confirmed on this issue. 9. Assessee s Appeal, Assessment year 2014-15: The assessee had received ₹ 11,65,43,082/- during the relevant assessment year which was explained to be received on behalf of the erstwhile shareholders of M/s. Aben Construction Company Ltd., which was their share of compensation from the Joint Venture. The details of the transaction narrated before the Ld.AO is extracted herein below for reference:- M/s. Aban Constructions a partnership firm entered into a JV agreement with M/s.Koya Co. a partnership firm and MIs. Thahir Ali and the agreement 'was registered as doc.no.2875 of 1994 for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. M/s.Koya Company Construction Limited has shown ₹ 2,94,92,314/- as the amount paid as contract to the assesse and they have deducted ₹ 74,08,957/- as TDS. The said company has not paid any amount as contract to the assesse hence the assesse has not incorporated the said receipt in has account however since TDS has been shown as credit in the assessee account the said amount ₹ 74,08,957/- has shown as his income under the head Income from Other Sources and the assessee has taken credit for the TDS paid in his income Tax memo. There is no contract between M/s. Koya Co. and Mr.Reji Abraham and the assessee was surprised to see the entry in 26AS in his name from M/s.Koya Co. and protested to M/s.Koya Co., and they have not done anything till now to remove the entry. The assessee protested and informed M/s.Koyas Co. that there is no agreement for doing any contract for M/s.Koya Co. and the assesee has not executed any work o~elJ.c;J1.of the M/s.Koya Co. The amount of ₹ 33,90,86,164/- has been received by M/s.KoyaAban, Joint Venture. And out of this, ₹ 11,65,43,082/- has been received by the assessee as the representative of selling sha ..... 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