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TMI Blog2024 (9) TMI 1511X X X X Extracts X X X X X X X X Extracts X X X X ..... t payment of Rs. 3.00 crores on account of security does not fall within the definition of deemed dividends as per the provisions of section 2(22)(e) of the Act. Thus, the ground no. 1 and 2 of the department are rejected. Advancement paid by the company to the appellant assessee hit by section 2(22)(e) - In the present case the assessee has leased prime properties at Chandigarh and received an advance rent in respect of the said premises leased out to the company, and such advance was to be later adjusted towards rent payable by the company. In our view, the amount of advance rent received by the assessee from the company would be a commercial transaction and it would certainly fall outside the purview of section 2(22)(e) - The assessee being having substantial interest in the company would not change the character of the transaction. In the present case where we have a situation of contrary views having been expressed by the non-jurisdictional High Courts and there is no decision of M/s Vegetables Products Ltd [ 1973 (1) TMI 1 - SUPREME COURT] where it was held that where the provision is capable of more than one reasonable interpretation and different High Courts have taken diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case, were not struck by the provisions of section 2(22)(e) of the income-tax Act, 1961, particularly as the entire story made up by the assessee is clearly an afterthought. 3. The Appellant craves to add or amend any grounds of appeal before the appeal is heard and disposed off. 3. Grounds of appeal in C. O. No. 33/Asr/2013: 1. That in the facts and circumstances of the case, the Id. Commissioner of Income Tax (Appeals) gravely erred in holding the advance rent of Rs. 8601836/-, received by assessee from M/s Orbit Resorts Pvt. Ltd. as deemed dividend under Section 2(22)(e) of the Income Tax Act. 2. That the appellant craves to add, amend or alter any ground of appeal before or at the time of hearing of appeal, with the permission of the Hon ble Income Tax Appellate Tribunal, Amritsar. 4. Briefly facts of the case are that the assessee filed his return of income disclosing total income of Rs. 1,31,68,060/- and agricultural income of Rs. 27,76,000/-, on 29.01.2007. Regular assessment was completed u/s 143(3) on 26.12.2008 at a total income of Rs. 1,34,69,680/- and agricultural income at Rs. 24,98,380/-. Against this assessment order, an appeal was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment as it had not been disclosed in the return. Such proceedings were objected vide letter dated 15-12-2007 which, somehow, did not find favour with the Ld. AO. It was also brought to his notice that copy of account of the assessee as appearing in the books of M/s Orbit Resorts (P) Ltd., Chandigarh was submitted during original assessment proceedings in as much as the various stipulations of Lease Agreement entered into between the assessee and the aforesaid company were also discussed at length and after considering all the facts and documents, he had completed the original assessment on 26-12-2008 after having satisfied himself that no income on account of the amount received from the aforesaid company was liable to tax in the hands of the assessee. However, without proper appreciation of facts, the re-assessment was completed by him on 24-12- 2010 u/s 147/143(3) of the Act by making addition of Rs. 4,66,08,911/-. This assessment order is now in appeal before your honour. The comments of the ld. AO in the remand report that assessee was receiving huge amounts intermittently from the aforesaid company without any semblance of quid pro quo is also without any basis because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ukhbir Singh s Memo. Books of A/c Books As per Orbit Resort s Totals of credit/debit side of the account. 5,08,31,604.98 4,97,08,865.98 Less: Wrong /contra entry by bank on 3-3-2006 3,40,862.00 0.00 5,04,90,742.00 4,97,08,865.98 Less: Opening balance on 1-4-2005. 16,02,805.00 16,02,805.00 4,88,87,937.984,81,06,060.98 Less: Interest credited in the account. 14,97,282,9814,97,282,98 4,73,90,655.00 4,66,08,778.00 Security received (as per annexure-A attached). 3,00,00,000.00 3,00,00,000.00 On account of rent (after TDS) 7,71,919.00 7,09,542.00 [(771919-62377) paid out of account direct Payment] On account of salary (after TDS) 80,16,900.00 72,97,400.00 {(8016900-719500) paid out of account direct Payment} On account of advance rent. 86,01,836.00 86,01,836.00 4,73,90,655.004,66,08,778.00 From the facts and details given above, it would be seen that the objections/comments of the Ld. AO in this regard is ill-founded, without any merit and has no legal force. The fact of the matter is that the advance payments have been made to the appellant in accordance with the terms and conditions of Lease Agreement and in the interest of business and thus the provisions of section 2(22)(e) were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 10%, the receipt of Rs. 4,66,08,911/- is covered in the definition of Dividend as per section 2(22) of I.T. Act, 1961. The assessee has filed the return of income declaring an income of Rs. 1,31,68,060/- with agriculture income of Rs. 27,76,000/- and it does not include any dividend income of Rs. 4,66,08,911/-. As the assessee has not disclosed this dividend income in the return of income, therefore, I have reasons to believe that an income of Rs. 4,66,08,911/- chargeable to tax has escaped assessment for the assessment year 2006-07. Hence to bring this income under tax and also any other income chargeable to tax which has escaped assessment and which may come into notice subsequently in the course of proceedings u/s 148, the notice u/s 148 is hereby issued. Objections to the initiation of proceedings u/s 147 were filed by the appellant assessee vide letter dated 15-12-2007 but the AO did not agree with them mainly for the reason that material facts had not been disclosed during original assessment proceedings. From the perusal of records, it is noticed that during original assessment proceedings, the appellant assessee furnished copy of his account as appearing in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments made to the appellant assessee were not loans but payments on account of security and advance-rent which were made for business considerations and thus did not fall within the ambit of section 2(22)(e) of the Act. During appellate proceedings, the A/Rs of the appellant assessee have vehemently contended that all the material facts of the case were available on record during original assessment proceedings and thus the provisions of section 147 could not be invoked in view of the facts and circumstances in this case. Apart from the other judgments relied upon by the A/Rs, they have strongly argued that the judgments in the case of Dr. Habicht vs. Makhija (1985) 154 ITR 552 (Bom.). Lokendra Singh vs. ITO (1981) 128 ITR 450 (MP) and Atma Ram Properties Private Limited versus DCIT in ITA No.87/2010 decided on 11-11- 2011 (Delhi) reported at (2012) SITC 237 (Del.). In the judgment of Dr. Habicht vs. Makhija (1985) 154 ITR 552 (Bom., it has been held that simply because the ITO was not aware of the Circular of the Board is not enough to re-open an assessment. In the case of Lokendra Singh, mentioned supra, the H ble MP High Court has observed that when at the time of original ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would apply in the case and in the latter situation the judgment of H ble Madhya Pradesh in the case of Lokendra Singh vs. ITO, quoted, supra, would come into play. Thus, in both the situations, the provisions of section 147 of the Act could not be invoked in this case. Further, in the reasons recorded, the AO has no where mentioned that the appellant assessee has failed to fully and truly disclose all the material facts necessary for his assessment during original assessment proceedings. The facts and circumstances of the case lead to the conclusion that all the material facts were available on record and no material facts were to be inferred or discovered by the AO once the copy of account of the appellant assessee in the books of M/s Orbit Resorts Private Limited, Chandigarh and vice-versa were available on record. The assessee was not required to disclose, state or explain the law. Failure to apply law or a section to the admitted facts on record is not covered by Explanation (1) to section 147 of the Act. Explanation (1) applies when the AO on the basis of account books or other evidence fails to discover or infer material facts which with due diligence could have been discove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act by the CIT(A). On this issue, I would like to submit that the assessee has filed return in Form No. 2D (SARAL). The assessee neither in the return of income nor during the course of original assessment proceedings disclosed / made any submission indicating that he was having substantial interest (60%) in the company - M/s Orbit Resorts Pvt. Ltd. wherefrom he had received an amount of Rs. 3 Cr. in the Form of Security Deposit and Rs. 2 Cr. as Advance Rent. It is therefore apparent that the appellant failed to disclose material facts while filing the return of income or in the original assessment proceedings which resulted in reopening of the assessment u/s 147 of the Act and therefore, the action of the AO in this regard was legal and valid. In this regard, I would like to rely upon the decision of the Hon ble Gujarat High Court in the case of Dishman Pharmaceuticals Chemicals Ltd. Vs DCIT [2013] 30 taxmann.com 67 (Gujarat). The operational part of the order is a under - 13. The fact remains that from the return filed and the documents annexed with the return, nowhere it can be ascertained what was the holding of the assessee-company (in terms of voting power) in SDBL. If, up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal No.219- IT-CIT(A)/BTI/08- 09 dated 15-06-2010 allowed certain relief to the assessee. However, after the completion of original assessment on 26-12-2008, the AO received information from Addl. Commissioner of Income-tax, Range-I, Chandigarh that Shri Sukhbir Singh Badal has interest of more than 60% in M/s Orbit Resorts Private Limited, Gurgaon and the said company had advanced loan of Rs. 4,66,08,911/- to him during the period relevant for the assessment year 2006-07 and consequently reopened the assessment by recording the reasons on 25-03-2010 for issue of notice u/s 148 of the IT Act, 1961 based on the aforesaid information. 10. The Ld. CIT(A) has stated that objections to the initiation of proceedings u/s 147 were filed by the appellant assessee vide letter dated 15-12-2007 but the AO did not agree with them mainly for the reason that material facts had not been disclosed during original assessment proceedings. From the perusal of records, it is noticed that during original assessment proceedings, the appellant assessee furnished copy of his account as appearing in the books of M/s Orbit Resorts Private Limited, Chandigarh wherein complete narration regarding the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd further by raising a normal query, he could also ascertain the shareholdings of the appellant in the said company. The Ld. CIT(A) has rightly observed that the AO did not take any adverse view in this regard while completing the original assessment, either the AO was not aware about the provisions of section 2(22)(e) or the AO was satisfied that the advances received by the appellant assessee on account of security and advance-Rent were for business considerations and thus the provisions of section 2(22)(e) could not be invoked in the circumstances of the case. In the first situation, the judgment in the case of Dr. Habicht vs. Makhija (Supra) would apply and in the latter situation the judgment of H ble Madhya Pradesh in the case of Lokendra Singh vs. ITO, quoted, supra, by the CIT(A) would come into play. Thus, under both the situations, the provisions of section 147 of the Act could not be invoked in present case of the appellant. 13. From the reasons recorded, it is evident that the AO has no where alleged that the appellant assessee has failed to fully and truly disclose all the material facts necessary for his assessment during original assessment proceedings. Meaning ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occupy the said premises for the times to come and thus agreed to make the said payment and also incorporated this clause in the lease-agreement . This fact remains uncontroverted by the department. Merely alleging that the entire story made up by the assessee is clearly an afterthought would be of no help to revenue unless the factual evidence brought on record and contention of the appellant are disproved. The Ld. CIT(A) has been justified in relying on the judgement delivered on similar fact in the case of Pradip Kumar Malhotra vs. CIT (Supra). Therefore, no interference is called for in the decision of the Ld. CIT(A) in holding that the payment of Rs. 3.00 crores on account of security does not fall within the definition of deemed dividends as per the provisions of section 2(22)(e) of the Act. 17. In view of that matter we find no infirmity or perversity in the decision of the Ld. CIT(A) to the facts on record in quashing the reopening of the assessment u/s 147 of the Act and that payment of Rs. 3.00 crores on account of security does not fall within the definition of deemed dividends as per the provisions of section 2(22)(e) of the Act. Thus, the ground no. 1 and 2 of the depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture rent. In the Remand Report also, the AO has also stated that receipt of advance rent is not borne out from the Income Tax Return of the assessee and that the payments made intermittently throughout the year were not any kind of advance in lieu of availing of any premises on rent/lease. It has also been stated by him that odd figure of payments of Rs. 7,41,778/- on 23-02- 2006 and Rs. 3,40,862/- on 03-03- 2006 could not be said to be against the agreed security. The A/Rs of the appellant assessee on the other hand have explained that the genuineness of the Lease Agreement executed on 10-11-2004 between the assessee and the said company has not at all been doubted by the AO, in consonance of which the payments on account of security and advance-rent have been made by the company. It has also been explained that the Accountant of the company without going through the Lease Agreement mentioned the word loan in the books of account which was an error clerical in nature and as a result of this inadvertent mistake, the word loan was mentioned in the Cash Flow Statement and other replies furnished during assessment proceedings. That the said error was natural because the agreement has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment of security and advance-rent were agreed to be made to the assessee as per the stipulations of the lease agreement and thus these payments were for business considerations and did not fall within the ambit of section 2(22)(e) of the Act. Reliance in this regard has also been placed on the judgment of Hon ble High Court of Calcutta in the case of Pradip Kumar Malhotra vs. CIT in ITA No.219 of 2003 wherein it has been held that gratuitous loan by company in return to an advantage conferred upon the company by such shareholder is not deemed dividend . The relevant extract of this judgment has been reproduced in the foregoing paragraphs and for the sake of brevity; the same is not being reproduced again. It is a fact that the AO has not challenged the genuineness of the Lease Agreement executed between the appellant assessee and M/s Orbit Resorts Private Limited, Chandigarh. It is also a fact that the payments of security and advance-rent have been made to the assessee in consonance of the said agreement. The AO has pressed into service the provisions of section 2(22)(e) of the Act mainly because the word loan has been mentioned in the copy of account whereas plausible expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt has arrived at the following conclusion:- Advance given by company to assessee (managing director) for construction of a building constituted deemed dividend under section 2(22) (e) even though the building was to be leased out to the company and the advance was required to be set off against the rents payable in future years. In view of the aforesaid facts and circumstances of the case and the judgment quoted supra, the addition of Rs. 8601836/- on account of advance- rent paid by the company to the appellant assessee is hit by section 2(22)(e) and thus requires to be sustained. 19. Having heard both the sides and perusal of material we find that the AO has not challenged the genuineness of the Lease Agreement executed between the appellant assessee and M/s Orbit Resorts Private Limited, Chandigarh. It is an undisputed fact that the payments in advance of rent have been made to the appellant assessee by the company in consonance of the said agreement. The Ld. AR submitted before the CIT(A) that the addition of Rs. 4,66,08,911/- was made by the AO as intimated by the Addl. CIT, Range-I, Chandigarh without going through the copy of account of the assessee in the books of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 12(5), Bangalore,[2021] 129 taxmann.com 380 (Karnataka) IT Appeal No. 43 of 2013, February 10, 2021 where the Hon ble Court adjudicated the issue whether loan or advance given to a shareholder can be treated as deemed dividend under section 2(22)(e) of the Act, in favour of the assessee vide para 6 and 7 as under: 6. We have considered the submissions made on both sides and have perused the record. The only issue, which arises for consideration in this appeal is whether loan or advance given to a shareholder can be treated as deemed dividend under section 2(22)(e) of the Act, which reads as under: any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets-of the company or otherwise) 5 made after the 31st day of May, 1987, by way of advance or loan to a shareholder, 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 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 substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial transactions, the assessee had given prime property and after construction to the company and the company was benefited as the building after construction was let out to the company at much lower rate than the market price and therefore, the transaction in question is commercial transaction and is outside the purview of section 2(22)(e) of the Act. However, the aforesaid aspect of the matter has not appreciated by the tribunal. Therefore, the finding recorded by the tribunal cannot but be termed as perverse. In view of preceding analysis, the substantial question of law is answered in the negative and in favour of the assessee and against the revenue. 22. Without prejudice to the above, ld. counsel for the assessee submitted that the advance rent paid was not liable to be taxed during the year under consideration and would be taxable in the year the rent is accounted for by accrual in books. In support, he placed reliance on the judgment delivered in the case of Delhi Tourism Transportation Development Corporation Ltd. vs Additional Commissioner of Income-tax [2023] 156 taxmann.com 550 (Delhi - Trib.) where a similar issue was decided in favour of assessee that assessee receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent received by the assessee from the company would be a commercial transaction and it would certainly fall outside the purview of section 2(22)(e) of the Act. The assessee being having substantial interest in the company would not change the character of the transaction. In the present case where we have a situation of contrary views having been expressed by the non-jurisdictional High Courts and there is no decision of Hon ble Jurisdictional Punjab and Haryana High Court, we are guided by the decision of the Hon ble Supreme Court in case of Commissioner of Income tax vs M/s Vegetables Products Ltd reported in 88 ITR 192 where it was held that where the provision is capable of more than one reasonable interpretation and different High Courts have taken different view on the matter, the view which is favourable to the assessee should be adopted. In view of the same, we are inclined to follow the views expressed by Hon ble Karnataka High Court in the case of Smt. Jamuna Vernekar Vs. Deputy Commissioner of Income-tax (Supra), where it was observed that such loan or advance is given to a shareholder as a consequence of any further consideration which is beneficial to the company rec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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