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TMI Blog2017 (10) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... t of books. (ii). Whether on the facts and in the circumstances of the case and in law, the ITAT was right in deleting the addition of Rs. 50,26,604/- made by the assessing officer on account of deemed dividend under Section 2(22) (e) of the Income Tax Appeal, 1961." 3. Learned counsel for the appellant, Mr. Anil Mehta has taken us to the order of AO, wherein it has been observed as under:- 8.1 During the course of search proceedings Sh. Agarwal has admitted in his statement recorded u/s 132(4) at the time of search on 22.09.2010 that he had made payment to Sh. Gulam Farooq Ansari for purchase of land at Delhi Road amounting to Rs. 1.50 Crores, which was not recorder in his books of A/c. The relevant portion of the statement Sh. Ashok Agarwal is reproduced as under:- 8.2 Sh. Gulam Farooq Ansari has also admitted this fact during the course of search proceedings as well as assessment proceedings. However, he submitted that the money was returned within span of one month as the deal could not materialize. No documentary evidences to prove that the amount has been returned by him was furnished despite being asked for. 8.3 This surrender was reiterated by Sh. Ashok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now produced before me. The entry of advance given to Sh. Gulam Farooq Ansari was not found in the cash book available before the search party. The reason stated was that the accountant was busy with other work due to which the regular books of account could not be completed, and were therefore not complete on date of search, is merely a statement cannot form the basis of availability of cash of Rs. 1.50 Crores on the day of the search. 8.7 As regard to treating Rs. 1.50 Crores paid to Sh. Gulam Ansari out of his undisclosed income, the assessee stated that there was no material with department that the payment was made out of undisclosed income of the assessee. The assessee group was having sufficient cash balance as on the date of search which was not physically found to the search party, therefore no addition can be made on this a/c is not at all acceptable. The assessee's explanation is not accepted for the following reasons:- a) In respect of this transaction, the assessee had admitted during search that he paid Rs. 1.50 Crores outside his books of A/c. He has further reiterated in statement recorded on 12.10.10 at his office that this amount was out of his books of A/c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw balance at regular interval to lend reliability to the books of A/c which in this case is obviously has not been done. From the perusal of the books of account and P&L A/c for all the years covered by block assessment never ever such huge payment in cash have been made through books of account, so it was otherwise also not a regular practice of the assessee to make such huge payment in cash for purchase of land. h) The assessee is well established businessman who knows very well that any expenditure over Rs. 20,000/- in cash is not allowable u/s 40A (3) of the Income Tax Act, 1961. Therefore he is not expected to make huge cash payment of Rs. 1.5 crores for purchase of land when dealing in land is his business. I) The pattern of cash payment from the books of account of the assessee is reflected from the disallowance of 40A (3) of the Income Tax Act, 1961, which is as under for various years. Disallowance u/s 40A (3) A.Y. Ashok Agarwal Renu Agarwal 2011-12 30,54,560/- 6,85,200/- 2010-11 17,33,000/- 1,00,000/- 2009-10 2,28,309/- NIL 2008-09 NIL NIL 2007-08 4,13,600/- (20%) 1,01,400/- (20%) 2006-07 2,30,600/- (20%) 4,14,260/- (20%) It may be mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eous. 82 ITR 540 (SC) C.I.T. Vs DURGA PRASAD MORE(SC) It is true that an apparent must be considered real. Until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. It all that an assessee who wants to evade tax is to have some recitals made in a documents executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. Dr. S.C. Gupta Vs CIT 248 ITR 782 (Alld) In Pullangeode Rubber Produce Co. Ltd. V. State of Kerala 1973 91 ITR 18 (SC) it was he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to the Company. The copy of agreement to sale is enclosed herewith. The assessee is regular dealer in the land and company is also dealer in the land. The advance transaction is normal business transaction. The normal business advance cannot be treated as deemed dividend as held by Hon'ble Delhi High Court in the case of CIT vs. Creative Dyeing and Printing Pvt. Ltd. ITA No.250/2009 decision dated 22/09/2009. 9.5 The contention of the assessee is not tenable. The provisions of deemed dividend are applicable not only to loans and advances but rather to "any payment" in the nature of loans and advances. In fact, the provisions of Section 2(22) (e) are also applicable to day to day transactions between a company and a share holder. 9.6 In the landmark judgment in the case of Miss P. Sarda vs. CIT reported at 2209 ITR 444, the Hon'ble Supreme Court has held that The withdrawals made by the appellant from the company amounted to grant of loan or advance by the company to the shareholder. The legal fiction came into play as soon as the monies were paid by the company to the appellant. The assessee must be deemed to have received dividends on the dates on which she withdrew t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts, copy of agreements etc were produced before the AO. Since the vouchers were in bulky, therefore the photocopy of the vouchers were not kept by the AO. The chart showing the reconciliation of entries in seized books viz a viz audited books of account has been filed before your honor. The relevant documents in support of the entries in reconciliation chart are submitted before your honor for verification. After the examination of the books of account in details, the id AO accepted the sales, expenses, and entries in the audited books of account. Therefore, the entry as regard the payment of Rs. 1,50,00,000/- recorded in the audited books of account should also be accepted and no addition in this regard deserves to be made." 3.3.3 I have duly considered assessee's submission and also taken a note of judicial pronouncements referred by AO and appellant. I have also carefully perused the assessment order passed U/s 153B r.w.s. 143(3) of the Act and also taken a note of factual matrix of the case. During the course of the appellant proceedings, the assessee has contended that no any incriminating document was found during the search operation showing payment of Rs. 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,341.17 Ashish Agarwal 02-04-2010 9,99,820.00 02-04-2010 9,99,820.00 Ashish Buildcon Pvt Ltd 06-08-2010 22,89,479.00 06-08-2010 26,47,631.00, Total 1,88,10,450.64 2,11,51,196,64 The above chart shows that as per the seized cash book, the total cash balance available to the group was Rs. 1,88,10,450.64 which became to Rs. 2,11,51,196.64 as the result of incorporating all the entries of cash inflow and outflow. The claim of the assessee is that cash books has to be completed after recording all the unrecorded entries based on bank statement and seized material which was subsequently done by the assessee on the basis of bank statements and other documents found during the course of search operation. Vide letter dt 25/3/2015, AR has also submitted the reasons for non-disclosing Rs. 1.50 Crore (payment made to Ansari) and in support of this, copies of letter dt. 23/01/2013 & 27/03/2013 (Refer PB Pg 121-122 & 261-162) were also submitted as supporting evidences. In this regard, it is clarified that cash balance position as on date of search (after duly incorporating all entries in the re-casted books of account which were left in the seized books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd I direct the AO to delete the addition of Rs. 1,50,00,000/-. This ground of the assessee stands as allowed." 4. Further, he has also taken us to the observations made by the Tribunal, wherein it has been observed as under: "We have heard the rival contentions of both the parties and perused the material available on the record. During the course of the first appellant proceedings, the assessee has contended that no incriminating document was found during the search operation showing payment of Rs. 1.50 crore to Ghulam Farooq Ansari. Further, no documents was found from assessee's premises, showing generation of undisclosed income which could be said as utilized in the payment to Ansari. The crux of the issue is whether based on the payment to Ansari. The crux of the issue is whether based on the statement of the assessee recorded u/s 132(4) of the Act, an addition towards Revenue as well as the assessee have relied on the decision of the Hon'ble Supreme Court in case of Pullangode Rubber Produce Co. Ltd vs State of Kerala (91 ITR 18) wherein the Hon'ble Supreme Court has laid down the following proposition in law: "An admission is an extremely piece of evidence but it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the payment of Rs. 1,50,00,000/- to Ansari." During the course of the arguments, the Revenue has not brought anything further to our notice and the findings of Id CIT(A) remain uncontroverted before us. The assessee has successfully demonstrated through its explanation and documentation in terms of recasted books of accounts that the statement made during the course of the search cannot be made the sole basis for making the addition of Rs. 1,50,00,000 in his hands as there was sufficient cash balance in the books of accounts to make the said payment and discharged its onus as laid down by the decision of Hon'ble supreme Court in case of Pullangode Rubber Produce Co (supra) and Rajasthan High Court in case of Ashok Kumar Soni (supra). We therefore do not find any infirmity in the findings of the Id CIT(A). Accordingly, we uphold the order of the Id. CIT(A) and the appeal of the Revenue in this ground is dismissed." and regarding Section 2(22) (e) he has taken us to the observation, which reads as under: "Now, coming to the provisions of section 2(22) (e) of the Act, it is the loan or advance given by the company to its shareholder which can be brought to tax as deemed divide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;dividend'. It does not take into account that dividend which is actually declared or received. The dividend taken note of by this provision is a deemed dividend and not a real dividend. Loan or payment made by the company to its shareholder is actually not a dividend. In fact, such a loan to a shareholder has to be returned by the shareholder to the company. It does not become income of the shareholder. Notwithstanding the same, for certain purposes, the Legislature has deemed such a loan or payment as 'dividend' and made it taxable at the hands of the said shareholder. It is, therefore, not in dispute that such a provision which is a deemed provision and fictionally creates certain kinds of receipts as dividends, is to be given strict interpretation. It follows that unless all the conditions contained in the said provision are fulfilled, the receipt cannot be deemed as dividends. Further, in case of doubt or where two views are possible, benefit shall accrue in favour of the assessee. 6. However, counsel for the respondent-assessee contended that the same judgment is pertaining to the law and not business transaction. 7. Counsel for appellant has also relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is correct in law in holding that the withdrawals made by the assessee from Messers Universal Radiators Private Limited totalling Rs. 93,027 cannot be assessed Under Section 2(22)(e) of the Income- Tax Act, 1961 for the year 1973-74." The High Court answered the question in the negative and in favour of the Revenue. 4. The High Court took note of the fact that the accounting period for the relevant assessment year 1973-74 was 1.4.1.972 to 31.3.1973. The asses-see was a substantial shareholder of the company and was drawing funds from the company till 22.3.1973. As a result of various withdrawals made by the assessee, her credit balance had been entirely wiped out and in fact her account with the company showed excess withdrawal of a sum of Rs. 1,831.14 as on 22.3.1973. In spite of this debit balance the assessee between 3.7.1972 to 22.3.1973 on fourteen different dates withdrew a total a sum of Rs. 93,027. The particulars of the withdrawals are as under : 5. According to the assessee, the withdrawals had not been made from the company's account hut from the amount standing to the credit of Mahesh in the books of the company. The High Court pointed out that the alleg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess withdrawals were made by the assessee on various dates between 3.7.1972 to 22.3.1973 when the account of Mahesh had not been debited. The assessee's account was consequently overdrawn. On the very last day of accounting year some adjustment was made but that will not alter the position that the assessee had drawn a total amount of Rs. 93,027 between 3.7.1972 to 22.3.1973 from the company when her account with the company did not have any credit balance at all. That means these advances made by the company to the assessee will have to be treated as deemed dividends paid on the dates when the withdrawals were allowed to be made. Subsequent adjustment of the account made on the very last day of the accounting year will not alter the position that the assessee had received notional dividends on the various dates when she withdrew the aforesaid amounts from the company. 11. A point was taken that the High Court has reappraised the fact and has disbelieved the letter dated 3.4.1972 which was accepted as genuine by the Tribunal. It was contended that it was not open to the High Court to doubt this letter. 12. This argument is misconceived. The High Court has proceeded on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. It is a general practice in the line of business that most of the land are purchased and sold on agreement to sale basis to save the stamp duty and to increase the profit on the transactions. These facts have been accepted by the AO in scrutiny assessment also in number of years. The condition laid down in the Section 2(22)(e) are squarely applied in case of the assessee but only issue disputed is whether these advances were loan for business purpose or otherwise. The prima facie copy of accounts in the books of the company shows that assessee had paid much more than amount received from the company. The transactions were regular. The assessee produced the evidence before the lower authorities to justify the transaction as a business transaction on the basis of agreement to sale dated 22.7.2009. There were certain conditions as per this Ikrarnama, which could not be fulfilled by the assessee but it does not mean that assessee's loans and advances are not for business purposes. The ld. A/R of the assesse had explained the reasons for not getting 90B done of agricultural land at Village Ajayrajpura, Tehsil Sanganer as Draft Master Plan got changed by the JDA by draft Notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 connection with them" and our Supreme Court in the case of Rohit Pulp & Paper Mills Ltd. v. Collector of Central Excise AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha AIR 1960 SC 610. Therefore, we hold that the Tribunal was correct in holding that the amounts advanced for business transaction between the parties, namely, the assessee company and M/s. Pee Empro Exports Pvt. Ltd. was not such to fall within the definition of deemed dividend under Section 2(22)(e). The present appeal is therefore dismissed. and other decisions in case of: 1. Commissioner of Income Tax vs. Raj Kumar, [2009] 318 ITR 462 (Delhi), wherein it has been observed as under:- 29. 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 re-payment. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgments establish the principle that once the payment made to a shareholder is deemed as dividend then the mere fact that it is repaid would not take it out of the ambit of the tax net. In the instant case, however, a discussion with respect to which has been made hereinabove, the issue is whether the payment received by the shareholder would at all fall within the four corners of provisions of Section 2(22)(e) of the Act. Having held otherwise, the said judgments of the Supreme Court, in our view, will have no applicability to the facts of the instant case. 2. Pradeep Kumar Malhotra vs. Commissioner of Income Tax, [2011] 338 ITR 538 (CAL), wherein it has been observed as under:- After hearing the learned Counsel for the parties and after going through the aforesaid provisions of the Act, we are of the opinion that the phrase "by way of advance or loan" appearing in Subsection (e) must be construed to mean those advances or loans which a share holder enjoys for simply on account of being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a fixed rate of dividend whether with or without a right to participate in profits holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits. 2. The Board has observed that some Courts in the recent past have held that trade advances in the nature of commercial transactions would not fall within the ambit of the provisions of section 2(22) (e) of the Act. Such views have attained finality. 2.1 Some illustrations/examples of trade advances/commercial transactions held to be not covered under section 2(22) (e) of the Act are as follows: (i) Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that amounts advanced for business transactions do not to fall within the definition of deemed dividend under section 2(22) (e) of the Act. (CIT vs. Creative ..... X X X X Extracts X X X X X X X X Extracts X X X X
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