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TMI Blog2013 (7) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer disallowed interest of ₹ 13,93,080/- which is the interest expenditure claimed by the assessee on the ground that it was not fully utilised for their business purposes. 3. With regard to the second issue, the Assessing Officer added a sum of ₹ 36,14,010/- towards deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. 4. The assessee company identified for property for development into town ships. Due to A.P. Agriculture Land Ceiling Act which restricts holdings of agricultural land in Ranga Reddy District upto ac.54.00 only, the company evolved a scheme by which it authorised some of its Directors and sister companies to acquire the land on its behalf. After converting the land into nonagriculture purposes, that is to develop the property into residential plots, the company had entered into Memorandum of Understanding (MOU) with Directors and sister companies cost to cost basis without element of profit, The company developed 300 acres of land in a phased manner adopting the scheme of authorising its directors and sisters companies to acquire land less than 54 acres each. All sale proceeds of the developed property was accounted for in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey is a substantial part of the business of the company, advance in the ordinary course of carrying on business cannot be considered as dividend within the meaning of section 2(22)(e)." 6. Relying on the decision of the Delhi High Court (supra), the assessee again submitted that the assessee was given advances by the Company as trade advances towards procuring lands at lower cost on behalf of the assessee and were purely meant for benefit of the business of the company i.e. procuring lands at lower cost on behalf of the company. The assessee further substantiated his stand by the decision of the Hon'ble I.T.A.T. Hyderabad Bench in the case of Marc Manufactures Pvt. Ltd. vs. DCIT in ITA.No.1162, 1163 & 1166/Hyd/2008 April 13, 2010 (2010) 5 Taxmann.com 7 (Hyd. ITAT). 7. The CIT(A) after hearing the submissions of the assessee 's authorised representative held as under : 5.1. In the light of above submissions, it is submitted by the Authorised Representative that the Assessing Officer has mistaken the advances taken from the company as loans and has considered as deemed dividend u/s.2(22)(e) of the I.T. Act, 1961. It may be seen that the appellant has been paid by the company thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6-07: The total reserves of ₹ 4,10,62,379/- includes share premium of ₹ 1,78,89,300/- which cannot be considered for deemed dividend and the balance was only ₹ 2,31,73,79/-. The advances paid for purchase of land was ₹ 21,83,30,995/-. There is no distributable profit. Further the amount paid to the assessee and his wife was also for purchase of land. The provisions of section 2(22)(e) have no application. AY 2007-08: The total reserves of ₹ 2,77,62,109/- includes only accumulated profit of ₹ 2,77,62,109/- does not include share premium. The advances paid for purchase of land was ₹ 39,71,40,393/-. There is no distributable profit. Further, the amount paid to the assessee and his wife was also for purchase of land. The provisions of Section 2(22)(e) have no application. 10. The learned Counsel has also submitted before us that the advances paid to Landlords and other suppliers, the decisions in the case of 319 ITR 439 and 105 TTJ 411 (Del.) 26 ITD 520 (Hyd.) supports the case of the assessee. In the case of 328 ITR, the special leave has been dismissed. It is settled law that share premium cannot be considered for the purpose of 2(22)(e) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta, 143 TTJ page 25 (Chand.) 3. CIT Vs. Rajkumar, 318 ITR 462 (Del.) 14. With respect to amounts which are share premium, the Coordinate Bench of Delhi Tribunal has held as follows : "SUb-S. (2) of s. 78 of the Companies Act mentions five purposes for which alone the share premium account may be applied without attracting the provisions of the Companies Act relating to the reduction of the share .capital. Except in these five cases, any other application of proceeds of the share premium account will be treated as a reduction of the company's share capital and the provisions of the Companies Act dealing with this subject stand attracted. When there is a statutory bar on the share premium account being used for distribution of dividend, the deeming provision of s. 2(22)(e) cannot apply. Not only is there a prohibition on the distribution of the share premium account as dividend under the Companies Act, the same is obliged to be treated as part of the share capital of the company and this is made clear in s. 78(1) of the Companies Act which says that any payment out of the share premium account, except for purposes authorised by sub-so (2), will be treated as reduction of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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