IN THE INCOME TAX APPELLATE TRIBUNAL DELHI `A' BENCH
BEFORE SHRI R.K. GUPTA , JM & SHRI A.N. PAHUJA, AM
ITA No.2858/Del/2012
Assessment year:2008-09
Deputy CIT, Circle 1(1), V/s . M/s Alpex Exports (P) Ltd.
Room no.390,C.R. Building, IP B-79, Shivalik, Near Malviya
Estate, New Delhi Nagar, New Delhi
[PAN : AABCA 0842 N]
(Appellant) (Respondent)
Assessee by Shri Tarun Kumar, AR
Revenue by Shri Neeraj Kumar,DR
Date of hearing 08-08-2012
Date of pronouncement 28-08-2012
ORDER
A.N.Pahuja:- This appeal filed on 08th June, 2012 by the Revenue against an
order dated 30th March, 2012 of the ld. CIT(A)-IV, New Delhi, raises the following
grounds:-
1 "The ld. CIT(A) has erred on facts and in law in
deleting addition of ``1,03,96,888/- on account of
disallowance u/s 2(22)(e) of the Income-tax Act, 1961.
The learned CIT(A) has totally ignored the reasons
given by the Assessing Officer for application of
section 2(22)(e). The assessee is trying to show the
real transaction of loan/advance as receipt of share
application money and allotment of share (which is
not genuine activity); only as an afterthought.
2 That the appellant craves leave for reserving the right
to amend, modify, alter, add or forego any ground (s)
of appeal at any time before or during the hearing of
this appeal. "
2 ITA no.2858/Del./2012
2. At the outset, considering the nature of issue, the Bench rejected
the request for adjournment on behalf of the assessee and proceeded to dispose
of the appeal after hearing the representatives from both the sides.
3. Facts, in brief, as per relevant orders are that the return declaring income
of ``4,29,40,331/- filed on 27.09.2008 by the assessee, engaged in the business
of import and trading in yarn and knitting needles besides generation of wind
power, was selected for scrutiny with the service of a notice u/s 143(2) of the
Income-tax Act 1961 (hereinafter referred to as the `Act') issued on 17th August,
2009. During the course of assessment proceedings, the Assessing Officer[AO in
short] noticed that Shri Ashwani Sehgal and Mrs. Monica Sehgal had 41.52%
and 24.81% of the shareholding of the company while M/s Karsihma Machine
Tools Pvt. Ltd. was reflected as sundry creditor to the tune of `1,67,42,661/-. To
a query by the AO , the assessee replied that M/s Karishma Machine Tools Pvt.
Ltd.[KMPTL] had invested `100 lacs by way of share application money besides
advance of `63,58,573 against purchase of material and `3,96,888/- on account
of advance against order. Since Mr. Ashwani Sehgal & Mrs. Monica Sehgal had
39.2% share holding each in M/s Karishma Machine Tools Pvt. Ltd. and the said
company had reserves and surplus of `3,42,23,672.26, the AO showcaused the
assessee as to why the amount of `100 lacs by way of share application money
as also advances of `63,58,573 and `3,96,888/- , be not taxed as deemed
dividend u/s 2(22)(e) of the Act. In reply, the assessee submitted that share
application money of ``1 crore was not covered within the meaning of provisions
of sec. 2(22)(e) of the Act nor the aforesaid two advances. However, the AO did
not accept the submissions of the assessee in view of decision in the case of
Balotia Engg. Works Pvt. Ltd. vs. CIT, 275 ITR 399 (Jharkhand),holding that
share application money parttook the character of deposit. Since the share
application money was deposited with the assessee on 20-12-2007 while shares
were allotted only in July, 2010 i.e. after a period of more than 30 months in
pursuance to the board resolution dated 22nd July, 2010, the AO concluded that
3 ITA no.2858/Del./2012
the amount of ``1 crore was, in fact, advance and explanation regarding share
application money was an afterthought, query having been raised much earlier
regarding taxation of amount as deemed dividend . Accordingly, the AO brought
to tax the amount of `1 crore and advance of `3,96,888/- as deemed dividend
within the meaning of provisions of sec. 2(22)(e) of the Act while accepting the
contentions of the assessee in respect of the amount of ``63,58,573/-.
4. On appeal, the assessee contended before the ld. CIT(A) that the
aforesaid amounts were not covered within the definition of deemed dividend u/s
2(22)(e) of the Act and relied upon a number of decisions in Ardee Finvest (P)
Ltd. DCIT; 79 ITD 547 (Del),CIT Vs. Sunil Chopra in I.T.A. No.106/2011, dated
27.4.2011; VLS Foods (P) Ltd. Vs. ACIT, (2010) 128 TTJ (Del.)(UO) 1;CIT Vs.
Raj Kumar, 318 ITR 462,;CIT Vs. Shri Satyanarayan Nuwal In I.T.A. 19/2009, dt.
Of order 17.9.2010 ;CIT Vs. Creative Dyeing and Printing (P) Ltd., 318 ITR
476(Del.), and CIT Vs. Arvind Kumar Jain in I.T.A. No.589/2011, dated
30.9.2011(Del.). In the light of these decisions, the ld. CIT(A) deleted the
addition,holding as under:
"6.2 I have carefully considered the assessment order and
the submission made by the learned AR along with the documents
placed on record as part of the paper book. It is seen that the
break up and nature of advances received from KMTPL along with
documentary evidences were duly produced by the appellant
before the Assessing Officer during the assessment proceeding.
The appellant has furnished copy of share application form dt.
20.12.2007 filed by KMTPL clearly indicating the amount of `` 1
crore and the cheque numbers etc. for purchase of 50,000 shares
of the appellant company, copy of related share certificate
no.01/10-11 dt. 22.07.2010, copy of the audited balance sheet,
ledger accounts etc. of the appellant company and KMTPL for the
year ended 31.3.2008 duly showing the receipt of the above
amounts as chare capital/advance against orders, copy of Board
Resolution dt. 22.7.2010 of the appellant company allotting 50,000
share KMTPL, copy of list of allottees, copy of receipt no.GAR7 of
MCAS and Form No.2 showing the above allotment of shares, copy
of bank statement with Indusland Bank, New Delhi Branch
maintained by the appellant company and 10B, Vasant Vihar
Branch maintained by KMTPL showing the payments and receipts
4 ITA no.2858/Del./2012
of the above amounts, copy of the Income Tax return of KMTPL for
assessment year 2008-09 etc. in support of its contention. In view
of the aforesaid documentary evidence, it is abundantly clear that
the impugned amounts were received by the appellant company
from KMTPL on account of share application money and advance
against orders. It is settled law that commercial advance and
advance for business transaction is outside the purview of the
deeming provisions of section 2(22)(e) of the Act. The Assessing
Officer has also himself accepted the receipt of ``63,58,573/-
against purchase of material, while he has rejected the other two
amounts on account of share application money and advance
against orders under similar facts and circumstances without
assigning any valid reason. In view of the above, the impugned
addition of ``1,03,96,888/- cannot be sustained either on facts or in
law. The same is, therefore, deleted."
5. The Revenue is now in appeal before us against the aforesaid
findings of the ld. CIT(A) . The ld. DR supported the order of the AO while the ld.
AR on behalf of the assessee relied upon the findings in the impugned order.
6. We have heard both the parties and gone through the facts of the
case. The issue before us is as to whether the amount of `1 crore on account
of share application money and `3,96,888/- by way of advance against order
received by the assessee from M/s Karishma Machine Tools Pvt. Ltd., could be
taxed in the hands of the assessee, by way of deemed dividend in terms of
provisions of sec. 2(22)(e) of the Act. The AO brought to tax the amount of `1
crore in the hands of the assessee in the light of decision in Balotia Engg. Works
Pvt. Ltd. (supra) and did not adduce any reason in support of the amount of
`3,96,888/- .On appeal, the ld. CIT(A) ,on the basis of copy of share application
form dated 20.12.2007 filed by KMTPL for purchase of 50,000 shares of the
assessee company, copy of related share certificate no.01/10-11 dated
22.07.2010, copy of the audited balance sheet, ledger accounts etc. for the year
ended 31.3.2008 of the assessee company and KMTPL copy of Board
Resolution dated 22.7.2010 of the assessee company allotting 50,000 share to
KMTPL, copy of list of allottees, copy of receipt no.GAR7 of MCAS and Form
No.2 showing the allotment of shares, and copy of the Income Tax return of
KMTPL for assessment year 2008-09, concluded that the amount was actually
5 ITA no.2858/Del./2012
received by way of share application money from KMPTL. Accordingly, the ld.
CIT(A) concluded that commercial advance and advance for business
transaction is outside the purview of the deeming provisions of section 2(22)(e) of
the Act. In order to bring within the ambit of provisions of sec. 2(22)(e) of the Act,
the amount of loan or advance paid by a company should be made to any of
the following three persons viz. :
i) 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 percent of the
voting power; or
ii) 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
iii) a shareholder, for his behalf, or for his individual benefit,
to the extent to which the company in either case possesses accumulated
profits.
6.1 We find that the AO relied upon decision in M/s Bhalotia Engineering
Works Pvt. Ltd. (supra) wherein it was held that receipt of share application
monies in cash, in violation of provisions of section 269SS of the Act should be
treated as "deposit" with the consequence that the assessee would be liable for
penalty under Section 271D of the Act. The AO in the said case did not examine
whether the share application money can be treated as "loan" or "deposit" within
the meaning of provisions of sec. 269SS of the Act nor the Addl. CIT. The ld.
CIT(A) found as a fact that the shares were subsequently allotted to the
applicant-companies as shown by the form filed before the Registrar of
Companies. Neither the AO nor the Additional CIT took the trouble to examine
this aspect while imposing the penalty and merely relied on the judgment of the
Hon'ble Jharkhand High Court (supra). Similar is the situation in the instant
case. The AO did not even attempt to examine as to whether or not the share
application money can be treated as "loan" or "advance" within the meaning of
6 ITA no.2858/Del./2012
provisions of sec. 2(22)(e) of the Act. There is nothing on record to show
that these transactions were attached with certain conditions or
stipulation as to period of repayment, rate of interest, manner of
repayment, etc. so as to treat the said transactions as loans or
advances. Moreover, the Revenue have not placed before us any
material, suggesting that the transactions were actually in the
nature of loans or advances. In these circumstances, the reliance on
the decision in M/s Bhalotia Engineering Works Pvt. Ltd. (supra),in our opinion, is
totally misplaced. Hon'ble Madras High Court in CIT Vs. Rugmini Ram Ragav
Spinners Private Ltd. (2008), 304 ITR 417 held that the money in cash by a
company towards allotment of shares, was neither a loan nor a deposit. In
Baidya Nath Plastic Industries (P) Ltd. and Ors vs K.L. Anand (1998) 230 ITR
522, Hon'ble Delhi High Court pointed out the distinction between a loan and a
deposit while observing that in the case of the former it is ordinarily the duty of
the debtor to seek out the creditor and to repay the money according to the
agreement while in the case of a deposit it is generally the duty of the depositor
to go to the banker or to the depositee, as the case may be, and make a demand
for it. This judgment was cited in Director of Income Tax (Exemption) vs ACME
Educational Society (2010) 326 ITR 146 (Del) and it was held that a loan grants
temporary use of money, or temporary accommodation, and that the essence of
a deposit is that there must be a liability to return it to the party by whom or on
whose behalf it has been made, on fulfillment of certain conditions. In CIT vs.
Sunil Chopra, Hon'ble jurisdictional High Court in their decision dated 27.4.2010
in ITA no.106 of 2011 held that share application money could not be construed
as loan or advance within the meaning of sec. 2(22)(e) of the Act. In CIT vs. I.P.
India Pvt. Ltd., Hon'ble jurisdictional High Court in their decision dated
21.11.2011 in ITA no. 1192/2011 concluded that the receipt of share application
monies for allotment of shares in the assessee-company could not be treated as
receipt of loan or deposit. In the light of view taken by the Hon'ble jurisdictional
High Court in the aforesaid decisions, especially when the ld. CIT(A) found as a
fact that the amount of `1 crore was indeed received by the assessee from
7 ITA no.2858/Del./2012
KMPTL as share application money, we are not inclined to interfere with the
findings of the ld. CIT(A).
6.2 As regards advance of `3,96,888/- against order, the AO did not record any
reasons to tax the amount by way of deemed dividend. On appeal, the ld. CIT(A)
concluded that commercial advance was outside the purview of the deeming
provisions of section 2(22)(e) of the Act. Hon'ble jurisdictional High Court in Raj
Kumar(supra) following the view in CIT vs. Nagindas M Kapadia,177 ITR
393(Bom.) held that the trade advance which is in the nature of money
transacted to give effect to a commercial transaction does not fall within the
ambit of the provisions of sec. 2(22)(e) of the Act. Similar view was taken in
Creative Dyeing & Printing (P) Ltd.(supra) and Arvind Jain(supra). In the light of
these decisions, especially when the Revenue have not placed before us any
material, controverting the aforesaid findings of the ld. CIT(A) so as to enable us
to take a different view in the matter, we are not inclined to interfere.
6.3. In view of the foregoing, ground no.1 in the appeal is dismissed.
7. No additional ground having been raised before us in term of
residuary ground no.2 in the appeal, accordingly, this ground is dismissed.
8. No other plea or argument was made before us.
9. In the result, appeal is dismissed.
Order pronounced in open Court
Sd/- Sd/-
(R.K. GUPTA) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
NS
Copy of the Order forwarded to:-
1. Assessee
8 ITA no.2858/Del./2012
2. Deputy CIT, Circle 1(1), Room no.390,C.R. Building, IP Estate,
New Delhi
3. CIT(A) concerned
4. CIT-IV, New Delhi
5. DR, ITAT,'A' Bench, New Delhi
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Delhi
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