M/s. International Land Development (P) Ltd., New Delhi V. ITO, Delhi

CO 218/DEL/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 5928 (ITAT-DELHI)
• Duration Of Justice: 9 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 06-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: C S AGGARWAL; R P MALL
• Keywords: Deemed dividend
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH C CC C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI K.D.RANJAN K.D.RANJAN K.D.RANJAN K.D.RANJAN, AM , AM , AM , AM ITA NO ITA NO ITA NO ITA NOS SS S. .. .3390/DEL/2010 & 3391/DEL/2010 3390/DEL/2010 & 3391/DEL/2010 3390/DEL/2010 & 3391/DEL/2010 3390/DEL/2010 & 3391/DEL/2010 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEARS SS S : : : : 2005 2005 2005 2005- -- -06 & 2007 06 & 2007 06 & 2007 06 & 2007- -- -08 0808 08 INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -50(1), 50(1), 50(1), 50(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/S INTERNATI M/S INTERNATI M/S INTERNATI M/S INTERNATIONAL LAND ONAL LAND ONAL LAND ONAL LAND DEVELOPMENT (P) LTD., DEVELOPMENT (P) LTD., DEVELOPMENT (P) LTD., DEVELOPMENT (P) LTD., B BB B- -- -418, NEW FRIENDS COLONY, 418, NEW FRIENDS COLONY, 418, NEW FRIENDS COLONY, 418, NEW FRIENDS COLONY, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. T TT TAN NO. AN NO. AN NO. AN NO.DELI02173D. DELI02173D. DELI02173D. DELI02173D. (APPELLANT) (RESPONDENT) CROSS CROSS CROSS CROSS- -- -OBJECTION NOS.218/DEL/2010 & 219/DEL/2010 OBJECTION NOS.218/DEL/2010 & 219/DEL/2010 OBJECTION NOS.218/DEL/2010 & 219/DEL/2010 OBJECTION NOS.218/DEL/2010 & 219/DEL/2010 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEARS SS S : : : : 2005 2005 2005 2005- -- -06 & 2007 06 & 2007 06 & 2007 06 & 2007- -- -08 0808 08 M/S INTERNATIONAL LAND M/S INTERNATIONAL LAND M/S INTERNATIONAL LAND M/S INTERNATIONAL LAND DEVELOPMENT ( DEVELOPMENT ( DEVELOPMENT ( DEVELOPMENT (P) LTD., P) LTD., P) LTD., P) LTD., B BB B- -- -418, NEW FRIENDS COLONY, 418, NEW FRIENDS COLONY, 418, NEW FRIENDS COLONY, 418, NEW FRIENDS COLONY, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. TAN NO.DELI02173D. TAN NO.DELI02173D. TAN NO.DELI02173D. TAN NO.DELI02173D. VS. VS. VS. VS. INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -50(1), 50(1), 50(1), 50(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) REVENUE BY : MS.MONA MOHANTY, SR.DR ASSESSEE BY : SHRI C.S.AGGARWAL, SR.ADVOCATE AND SHRI R.P.MALL, ADVOCATE. ORDER ORDER ORDER ORDER PER BENCH PER BENCH PER BENCH PER BENCH : :: : THESE TWO APPEALS, FILED BY THE REVENUE ARE DIRECT ED AGAINST THE COMMON ORDER DATED 30.4.2010 PASSED BY LEARNED CIT( A) IN THE MATTER OF AN ORDER PASSED U/S 201/201(1A) OF THE INCOME-TA X ACT, 1961 FOR THE FY 2003-04, 2004-05 AND 2006-07 RELEVANT TO THE AY 2004-05, 2005-06 & 2007-08 RESPECTIVELY. IN THESE APPEALS, WE ARE C ONCERNED ONLY WITH THE AY 2005-06 & 2007-08. 2. THE ASSESSEE HAS ALSO FILED CROSS-OBJECTIONS ARI SING FROM THE SAID APPEALS. ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 2 3. WE SHALL FIRST TAKE THE APPEAL FILED BY THE REVE NUE PERTAINING TO THE FY 2004-05 RELEVANT TO AY 2005-06. 4. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN (I) HOLDING THAT THE RELEVANT PAYMENTS COULD NOT BE TREATED AS DEEMED DIVIDEND IN VIEW OF THE FACT THAT PAYMENT UNDER CONSIDERATION HAS NOT BEEN ASSESSED A S DEEMED DIVIDEND IN THE HANDS OF THE RECIPIENTS IN T HE RELEVANT ASSESSMENT YEAR. SUCH FINDING OF THE LD. CIT(A) IS INCORRECT IN LAW BECAUSE ASSESSMENT OF INCOME IN TH E HANDS OF RECIPIENT IS NOT A PRE CONDITION TO DETERM INE THE LIABILITY OF TDS. THE LIABILITY TO DEDUCT TAX, WHI CH IS ONLY A MODE OF COLLECTION ARISES ONCE THE NATURE OF PAYMEN TS FULFILLS THE CONDITIONS MENTIONED IN THE RELEVANT S ECTION. (II) IGNORING THE SECTION 194 MAKES THE PRINCIPAL O FFICER OF A COMPANY RESPONSIBLE TO DEDUCT TAX BEFORE MAKIN G ANY PAYMENT OF ANY DIVIDEND WITHIN THE MEANING OF SECTI ON 2(22)(E) OF THE I.T.ACT WHICH NO WHERE TALKS OF ASS ESSMENT OF SUCH DIVIDEND IN THE CASE OF RECIPIENT. (III) HOLDING THAT PAYMENT TO M/S ALM INFOTECH CITY (P) LTD. AND INTERNATIONAL LAND DEVELOPERS LTD. COULD N OT BE TREATED AS DEEMED DIVIDEND ON THE GROUND THAT PAYME NT TO ABOVE ENTITIES (ALM & INTL) IS VERY MUCH COVERED IN THE DEFINITION OF DIVIDEND U/S 2(22)(E) OF I.T.ACT IN V IEW OF LANGUAGE OF THAT SECTION OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OF A PARTNER AND IN WH ICH HE HAS A SUBSTANTIAL INTEREST. (IV) IGNORING THE FACT THAT SH.ALIMUDDIN WHO IS SU CH SHAREHOLDER (AS HE HOLDS 36.79% OF SHARES OF ASSES SEE COMPANY) HOLDS 21.19% SHARE IN ALM INFOTECH CITY (P ) LTD AND THEREFORE HAS SUBSTANTIAL INTEREST IN THAT CONC ERN AND ACCORDINGLY THE PAYMENT TO THAT CONCERN (ALM INFOTE CH CITY (P) LTD) IS TO BE TREATED AS DIVIDEND. (V) HOLDING THAT PAYMENTS TO ALIMUDDIN AND GOLDMAN MALLS PVT.LTD. WERE MADE FOR BUSINESS EXIGENCIES/PU RPOSES IGNORING THE FACT THAT NO SUCH CONTENTION WAS TAKEN BEFORE THE AO DURING THE PROCEEDINGS U/S 201 OF INCOME TAX ACT. ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 3 MOREOVER, THE PAYMENT HAS BEEN SHOWN IN THE LOANS A ND ADVANCES ACCOUNT BY THE ASSESSEE COMPANY ITSELF IN ITS BOOKS OF ACCOUNTS. 5. IN THIS CASE, A SURVEY U/S 133A OF THE INCOME-TA X ACT WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE ON 30.3.2007 IN ORDER TO VERIFY THE COMPLIANCE OF VARIOUS PROVISION S OF TAX DEDUCTION AT SOURCE AS PER CHAPTER XVII OF THE ACT. IT HAS BEEN ALLEGED BY THE REVENUE THAT THE ASSESSEE COMPANY HAD MADE CERTAIN ADVANCES TO INDIVIDUAL AND COMPANIES, WHICH WERE ITS SHAREHOLDE RS, AND THESE PAYMENTS WERE IN THE NATURE OF DEEMED DIVIDEND AS D EFINED IN SECTION 2(22)(E) OF THE ACT BUT ASSESSEE HAS NOT DEDUCTED T AX AT SOURCE AS REQUIRED U/S 194 OF THE ACT. 6. THE ASSESSEE WAS INCORPORATED ON 22.6.1993 AND W HICH IS ENGAGED IN THE BUSINESS OF REAL ESTATE. THE AO INI TIATED THE PROCEEDINGS U/S 201/201(1A) OF THE ACT IN THE COURS E OF WHICH ASSESSEES AUTHORIZED REPRESENTATIVE APPEARED AND F ILED VARIOUS DETAILS FOR FY 2002-03 TO 2006-07. 7. ON EXAMINATION OF DETAILS, IT WAS NOTED BY THE A O THAT ASSESSEE HAS MADE PAYMENT OF `5,50,000/- TO M/S ALM INFOTECH CITY (P) LTD. AND SUM OF `7 LAKHS TO ONE SHRI ALIMUDDIN ON WHICH THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE. THE AFORESAID PAYMENT MADE T O M/S ALM INFOTECH CITY (P) LTD. AND SHRI ALIMUDDIN HAS BEEN TREATED TO BE IN THE NATURE OF DEEMED DIVIDEND AS DEFINED IN SECTION 2(2 2)(E) OF THE ACT BY THE AO. THE AO, THEREFORE, WORKED OUT THE TDS LIAB ILITY OF `2,61,375/- AND INTEREST PAYABLE THEREUPON U/S 201 AMOUNTING TO `86,253/-, AGGREGATING TO `3,47,628/-. THE AO, THEREFORE, ISS UED DEMAND NOTICE TO THE ASSESSEE TO MAKE THE PAYMENT OF `3,47,628/-. 8. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 4 9. BEFORE THE LEARNED CIT(A), THE ASSESSEE STATED T HAT PAYMENT MADE TO INTERNATIONAL LAND DEVELOPERS LTD. IS NOT C OVERED UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT INASMUCH AS THE SAID RECIPIENT IS NOT A SHAREHOLDER OF THE ASSESSEE COMPANY. IT W AS FURTHER SUBMITTED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) THAT PAYMENT MADE TO SHRI ALIMUDDIN IS ALSO NOT COVERED UNDER TH E PROVISIONS OF SECTION 2(22)(E) OF THE ACT INASMUCH AS THE PAYMENT WAS MADE PURELY FOR COMMERCIAL CONSIDERATION AND FOR THE COMMERCIAL EXIGENCIES MADE IN THE REGULAR COURSE OF ASSESSEES BUSINESS ACTIVI TIES. IN SUPPORT OF THE AFORESAID SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON VARIOUS DECISIONS. 10. AFTER CONSIDERING THE ASSESSEES SUBMISSION, VA RIOUS DECISIONS CITED BY THE ASSESSEE AND AOS ORDER, THE LEARNED C IT(A) HAS TAKEN A VIEW THAT THE PAYMENT MADE BY THE ASSESSEE TO M/S A LM INFOTECH CITY (P) LTD. AND SHRI ALIMUDDIN IS NOT COVERED BY THE P ROVISIONS CONTAINED IN SECTION 2(22)(E) OF THE ACT. THE OPERATIVE PORTI ON OF THE LEARNED CIT(A)S CONSOLIDATED ORDER RUNS AS UNDER:- 5. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE, THE ORDER OF THE ASSESSING OFFICER AS WEL L AS THE REMAND REPORT SENT BY THE AO IN THIS MATTER AND I A M CONVINCED WITH THE ASSESSEES ARGUMENTS FOR TWO REAS ONS:- 1. M/S ALM INFOTECH CITY PVT.LTD. AND M/S INTERNATI ONAL LAND DEVELOPERS LTD. ARE NOT A SHARE HOLDER IN THE ASSESSEE COMPANY, THEREFORE PROVISIONS OF SECTION 2 (22)(E) OF THE IT ACT ARE NOT APPLICABLE IN RESPECT OF THE PAYMENT OF ADVANCE/SECURITY DEPOSIT MADE BY THE ASSESSEE COMPANY AND ALSO IN VIEW OF THE FACT THAT ASSESSMEN TS OF THE RECIPIENT FOR THE YEAR UNDER REFERENCE HAVE ALR EADY BEEN COMPLETED AND DEEMED DIVIDEND HAS NOT BEEN ASSESSED IN THEIR HANDS. 2. IN THE CASE OF ALIMMUDDIN AND GOLDMAN MALLS P.LT D. ALTHOUGH BOTH ARE SHARE HOLDERS IN THE ASSESSEE COM PANY, IT HAS BEEN DEMONSTRATED WITH EVIDENCE THAT THE PAY MENTS ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 5 WERE MADE FOR BUSINESS EXIGENCIES/PURPOSES AND IN V IEW OF THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT VS. SUNIL SETHI, ITA 569/2009 THESE PAYMENTS CANNOT BE TREATED AS DEEMED DIVIDEND AND IN ANY CASE THE ASSESSMENT OF ALM INFOTECH CITY PVT.LTD. AND ALLIMU DDIN HAS SINCE BEEN COMPLETED AND NO INCOME ON ACCOUNT O F BEEN DIVIDEND HAS BEEN ASSESSED IN THE HANDS OF EIT HER ALM INFOTECH CITY PVT.LTD. OR ALLIMUDDIN. IN VIEW OF FACTS AS DISCUSSED ABOVE I HOLD THAT THE ASSESSEE COMPANY CANNOT BE HELD AS ASSESSEE IN DEFAULT U/S 201/201(1A) READ WITH SECTION 194 OF IT ACT FOR NON DEDUCTION OF TDS ON TOTAL PAYMENT OF RS.95,196/- FO R F.Y. 2003-04, RS.3,47,628/- FOR F.Y. 2004-05 AND RS.36,8 3,053/- FOR F.Y. 2006-07. I, THEREFORE DELETE THE ABOVE DE MAND OF RAISED BY THE U/S 201/201(1A) OF I.T.ACT. 11. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE US. 12. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE DELIBERAT ED UPON THE VARIOUS DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSE SSEE, COPIES OF WHICH HAVE BEEN PRODUCED BEFORE US IN THE COMPILATI ON OF JUDGMENTS CONTAINING TEN JUDGMENTS RUNNING INTO 72 PAGES. IN SOFAR AS PAYMENT MADE TO M/S ALM INFOTECH CITY (P) LTD. IS CONCERNED , WE ARE OF THE CONSIDERED VIEW THAT THIS PAYMENT IS NOT COVERED BY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT INASMUCH AS M/S ALM INF OTECH CITY (P) LTD. IS NOT A SHAREHOLDER OF THE ASSESSEE COMPANY. IT I S ALTOGETHER A DIFFERENT MATTER THAT SOME SHAREHOLDER OF M/S ALM I NFOTECH CITY (P) LTD. MAY BE A SHAREHOLDER IN THE ASSESSEE COMPANY B UT THE TWIN CONDITIONS CONTEMPLATED U/S 2(22)(E) AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. BHOWMICK COLOR PVT.LTD. 118 ITD 1(SB)(MUM) ARE NOT SATISFIED. IN THE CASE OF BHOWM ICK COLOR PVT.LTD. (SUPRA), IT HAS BEEN HELD BY THE SPECIAL BENCH THAT FOLLOWING TWO CONDITIONS ARE PRECEDENT FOR INVOKING SECTION 2(22) (E) OF THE ACT:- (I) THE SHAREHOLDER SHOULD BE A REGISTERED SHAREHOLDER, AND ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 6 (II) THE SHAREHOLDER SHOULD ALSO BE A BENEFICIAL OWNER O F THE SHARES. 13. SINCE M/S ALM INFOTECH CITY (P) LTD. IS ADMITTE DLY NOT A REGISTERED SHAREHOLDER OF THE ASSESSEE COMPANY NOTWITHSTANDING THE FACT THAT ITS SHAREHOLDER SHRI ALIMUDDIN HOLDS SHARES IN M/S ALM INFOTECH CITY (P) LTD., THE PROVISIONS OF SECTION 2(22)(E) CANNOT BE APPLIED TO ANY PAYMENT MADE TO M/S ALM INFOTECH CITY (P) LTD. IN THIS CONNECTION, RELIANCE MAY BE PLACED UPON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HOTEL HILLTOP 313 IT R 116 WHERE THE HONBLE HIGH COURT HELD THAT WHERE THE FIRM WAS NOT A SHAREHOLDER IN HOTEL HILLTOP AND ONLY ITS TWO PARTNERS WERE SHAREH OLDERS IN HOTEL HILLTOP HOLDING 23% AND 25% SHARES, THE ADVANCE PAI D TO FIRM COULD NOT BE ASSESSED IN THE FIRMS HANDS AS DEEMED DIVID END. THIS COULD BE DEEMED DIVIDEND IN THE HANDS OF ITS PARTNERS. IN T HE CASE OF CIT VS. UNIVERSAL MEDICARE 190 TAXMAN 144 (MUM), THE HON' BLE BOMBAY HIGH COURT HAS ALSO TAKEN A VIEW THAT ALL PAYMENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF THE RECIPIENT OF T HE DIVIDEND, NAMELY, THE SHAREHOLDER. THE LEGAL POSITION IS THAT A DIVI DEND HAS TO BE TAXED IN THE HANDS OF A SHAREHOLDER. CONSEQUENTLY, IN TH AT CASE, THE PAYMENT, EVEN ASSUMING THAT IT WAS DIVIDEND, WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSESSEE BUT IN THE HANDS O F THE SHAREHOLDER. IN THIS VIEW OF THE MATTER, WE, THEREFORE, HOLD THA T SECTION 2(22)(E) IS NOT APPLICABLE INSOFAR AS PAYMENT MADE TO M/S ALM I NFOTECH CITY (P) LTD. IS CONCERNED AS M/S ALM INFOTECH CITY (P) LTD. IS NOT THE SHAREHOLDER. 14. IT WAS FURTHER CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE THE LEARNED CIT(A) THAT THE PAYMENT TO M/S A LM INFOTECH CITY (P) LTD. WAS MADE ON COMMERCIAL CONSIDERATION. THIS FA CT EMPHASIZED BY THE ASSESSEE WAS BROUGHT TO THE KNOWLEDGE OF THE AO BY THE LEARNED CIT(A) WITH A DIRECTION TO SEND A REMAND REPORT. A COPY OF MOU DATED ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 7 15.3.2002 ENTERED INTO WITH M/S ALM INFOTECH CITY ( P) LTD. HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 23 TO 29 FILED BE FORE US UNDER WHICH THE ASSESSEE HAD AGREED TO ADVANCE A SUM OF `30 LAK HS TO M/S ALM INFOTECH CITY (P) LTD. TO ENABLE IT TO ACQUIRE THE TITLE AND OWNERSHIP RIGHT OF THE LANDS FOR THE PROJECTS. HOWEVER, IN T HE REMAND REPORT, THE AO HAS REITERATED HIS ORDER PASSED U/S 201/201(1A) AND HAS NOT DISPUTED THE FACTS SO SUBMITTED BY THE ASSESSEE BEF ORE THE LEARNED CIT(A). THEREFORE, THE LEARNED CIT(A) HAS TAKEN A VIEW THAT M/S ALM INFOTECH CITY (P) LTD. IS NOT A SHAREHOLDER IN THE ASSESSEE COMPANY AND PROVISIONS OF SECTION 2(22)(E) ARE NOT APPLICABLE I N RESPECT OF THE PAYMENT OF ADVANCE/SECURITY DEPOSIT MADE BY THE ASS ESSEE COMPANY. IN THE COURSE OF HEARING OF THIS APPEAL, THE LEARNE D COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE PAYMENT TO M/S ALM INFOTECH CITY (P) LTD. WAS MADE UNDER A MOU DATED 15.3.2002 TO ACQUIR E LAND ON BEHALF OF THE ASSESSEE AND WAS NOT AN AMOUNT ADVANCED BY W AY OF LOAN. THIS FACT HAS NOT BEEN DISPUTED BY THE AO IN HIS REMAND REPORT AS SO STATED BY THE CIT(A) IN HIS ORDER. IT WAS FURTHER CONTEND ED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE THE LEARNED CIT(A) THAT THE PAYMENT MADE TO M/S ALM INFOTECH CITY (P) LTD. HAS NOT BEEN ASSESSED AS DEEMED DIVIDEND IN ITS HANDS WHILE COMPLETING THE A SSESSMENT U/S 143(3) OF THE ACT AND LEARNED CIT(A) HAS TAKEN THIS FACT INTO ACCOUNT, AND HE SET ASIDE THE ORDER OF THE AO ALSO IN VIEW O F THE FACT THAT DEEMED DIVIDEND HAS NOT BEEN ASSESSED IN THE HANDS OF M/S ALM INFOTECH CITY (P) LTD. IN THE LIGHT OF DISCUSSIONS MADE ABOVE, WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER O F LEARNED CIT(A) IN VACATING THE DEMAND OF TDS WITH REGARD TO PAYMENT M ADE TO M/S ALM INFOTECH CITY (P) LTD. 15. WITH REGARD TO PAYMENT MADE TO SHRI ALIMUDDIN, THE ASSESSEE SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE PAYMEN T MADE TO SHRI ALIMUDDIN WAS NOT IN THE NATURE OF ANY LOAN OR ADVA NCE BUT WAS MADE IN THE REGULAR COURSE OF ASSESSEES BUSINESS IN TER MS OF MOU FOR THE ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 8 ACQUISITION OF LAND ON BEHALF OF THE ASSESSEE) AND, THEREFORE, THE PAYMENT IS NOT COVERED BY SECTION 2(22)(E) OF THE A CT. IN SUPPORT OF THE CONTENTION THAT THE MONEY ADVANCED IN THE REGUL AR COURSE OF BUSINESS CANNOT BE TREATED AS DEEMED DIVIDEND, NUMB ER OF DECISIONS WERE CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE THE LEARNED CIT(A). 16. AFTER CONSIDERING THE ASSESSEES SUBMISSION AND AOS ORDER, THE LEARNED CIT(A) HAS OBSERVED THAT IT HAS BEEN DEMONS TRATED WITH EVIDENCE THAT THE PAYMENT WAS MADE FOR BUSINESS EXI GENCIES/PURPOSES AND IN VIEW OF THE DECISION OF HON'BLE DELHI HIGH C OURT IN THE CASE OF CIT VS. SUNIL SETHI ITA NO.569/2009, PAYMENT MADE TO SHRI ALIMUDDIN CANNOT BE TREATED AS DEEMED DIVIDEND. THE LEARNED CIT(A) FURTHER OBSERVED THAT THE PAYMENT MADE TO SHRI ALIMUDDIN HA S NOT BEEN ASSESSED AS DEEMED DIVIDEND IN HIS HANDS. 17. IN THE COURSE OF HEARING OF THIS APPEAL, THE LE ARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN AGREEMENT WAS EXECUT ED BETWEEN ASSESSEE AND PROPRIETARY CONCERN OF SHRI ALIMUDDIN TO ACQUIRE LOAN SUITABLE FOR THE FORTHCOMING PROJECT OF THE ASSESSE E COMPANY AND THE SAID AMOUNT WAS NOT UTILIZED BY SHRI ALIMUDDIN FOR HIS PERSONAL PURPOSES. IT WAS THUS CONTENDED THAT THE PAYMENTS MADE BY THE ASSESSEE WERE FOR BUSINESS EXIGENCIES AS PER AGREEM ENT EXECUTED BETWEEN THE PARTIES. A COPY OF MEMORANDUM OF UNDER STANDING EXECUTED ON 5.7.2002 WITH M/S ALM INTERNATIONAL, A PROPRIETARY CONCERN OF SHRI ALIMUDDIN HAS BEEN PLACED BEFORE US AT PAGES 75 TO 78 OF THE PAPER BOOK FILED BY THE ASSESSEE WHERE UNDER THE ASSESSEE HAD AGREED TO ADVANCE UPTO `1 CRORE TO HIM TO ENABLE HI M TO ACQUIRE THE TITLE AND OWNERSHIP RIGHTS OF THE LAND FOR THE PROJ ECTS AND TO INCUR OTHER COSTS AND EXPENSES IN RELATION THERETO. THIS AGREE MENT IS NOT FOUND TO BE BOGUS OR SHAM BY THE AO BY MAKING ANY COMMENT IN THE REMAND REPORT. IT WAS FURTHER SUBMITTED THAT THESE FACTS W ERE PLACED BEFORE THE ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 9 AO, AND AO HAS NOT MADE ANY COMMENT ON THE ASSESSEE S SUBMISSION, BUT MERELY STATED THAT HE SUPPORTED THE ORDER PASSE D BY HIM. 18. IT IS NOT IN DISPUTE THAT THE MONEYS ADVANCED I N THE REGULAR COURSE OF BUSINESS CANNOT BE TREATED AS DEEMED DIVI DEND AS HELD IN THE FOLLOWING CASES:- (I) CIT VS. AMBASSADOR TRAVELS (P) LTD. 173 TAXMAN 40 7 (DEL). (II) CIT VS. RAJ KUMAR 181 TAXMAN 155 (DEL). (III) CIT VS. NITIN SHANTILAL PARIKH INCOME TAX REFEREN CE NO.66 OF 1999 (GUJARAT). (IV) CIT VS. CREATIVE DYEING & PRINTING (P) LTD. 184 T AXMAN 483 (DEL). (V) CIT VS. SUNIL SETHI ITA 569/2009. (VI) ATUL MITTAL IN ITA NO.3863/DEL/2002 (ITAT DEL). (VII) NIGAM CHAWALA (PAGE 303 OF THE PAPER BOOK). 19. IN THE CASE OF CIT VS. SUNIL SETHI ITA NO.569 /2009, THE HONBLE HIGH COURT OF DELHI HAS HELD THAT SINCE THE AMOUNT OF `30 LAKHS WHICH WAS GIVEN TO THE ASSESSEE WAS IN THE NATURE OF IMPR EST PAYMENT, THE SAME COULD NOT BE TREATED AS DEEMED DIVIDEND U/S 2( 22)(E) OF THE ACT. IN THIS CASE, A SUM OF `30 LAKHS WAS GIVEN TO THE A SSESSEE FOR THE PURPOSE OF MAKING ADVANCE IN RESPECT OF CERTAIN LAN D DEALINGS WHICH WERE PROPOSED TO BE ENTERED INTO BY THE COMPANY THR OUGH THE ASSESSEE AND THE TRIBUNAL NOTED THAT NO MATERIAL WA S BROUGHT ON RECORD TO SUGGEST THAT WHATEVER WAS EXPLAINED BY TH E ASSESSEE WAS INCORRECT. 20. IN THE CASE OF CIT VS. CREATIVE DYEING & PRINTI NG (P) LTD. 184 TAXMAN 483, THE HONBLE HIGH COURT HAS HELD THAT TH E AMOUNT ADVANCED FOR BUSINESS TRANSACTION BETWEEN THE PARTI ES WOULD NOT FALL ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 10 WITHIN THE DEFINITION OF DEEMED DIVIDEND U/S 2(22)( E) OF THE ACT. IN THIS CASE, THE HON'BLE DELHI HIGH COURT HAS FOLLOWED ITS OWN DECISION IN THE CASE OF CIT VS. RAJ KUMAR 181 TAXMAN 155 (DEL). IN THE COURSE OF HEARING OF THIS APPEAL, THE LEARNED DR HAS NOT BEEN ABLE TO CONTROVERT THE FACT THAT THE PAYMENT WAS MADE BY THE ASSESSEE TO SHRI ALIMUDDIN UNDER MOU FOR THE ACQUISITION OF LAND ON BEHALF OF THE ASSESSEE NOR THIS FACT WAS DISPUTED BY THE AO IN HIS REMAND REPORT. 21. THE AOS REMAND REPORT DATED 27.9.2009 HAS BEEN PLACED AT PAGES 297 TO 299 OF THE PAPER BOOK FILED BY THE ASS ESSEE. IN THIS REMAND REPORT, THE AO HAS ADMITTED THE FACT THAT TH E ASSESSEE HAS FILED THE COPY OF AGREEMENTS AND MEMORANDUM OF UNDE RTAKING EXECUTED BY THE PARTIES AND OTHER CONNECTED PAPERS, AND THE ORDER OF THE PARTY FOR THE RELEVANT ASSESSMENT YEAR WAS ALSO FILED. THE AO FURTHER STATED THAT ASSESSEE HAS ALSO EXPLAINED THE BUSINESS EXIGENCIES UNDER WHICH SUCH AMOUNTS WERE PAID. HE FURTHER STATED THAT ASSESSEE HAS IN SUPPORT RELIED UPON THE DECISI ONS PASSED AT ITAT DELHI BENCH IN THE CASE OF SMT.NIGAM CHAWALA 28 S OT 503 (DEL), BOMBAY OIL INDUSTRIES LTD. 28 SOT 383 (MUM). THE AO, THEREFORE, CONCLUDED THAT THE ASSESSEE HAS SUPPORTED ITS CONTE NTIONS BY DECISIONS. THE AO STATED MERELY IN THE REMAND REPO RT THAT HE HAS MADE THE ADDITION WITHIN THE AMBIT OF SECTION 2(22) (E) OF THE ACT. IT IS THUS CLEAR THAT NO ADVERSE COMMENTS HAVE BEEN GIVEN BY THE AO IN RESPECT OF THE AGREEMENTS AND MEMORANDUM OF UNDERTA KING EXECUTED BY THE PARTIES ON WHICH RELIANCE WAS PLACED BY THE ASSESSEE. 22. IN THE LIGHT OF THE DISCUSSIONS MADE ABOVE, WE, THEREFORE, HOLD THAT CIT(A) WAS JUSTIFIED IN VACATING THE DEMAND IN RESPECT OF PAYMENT MADE TO M/S ALM INFOTECH CITY (P) LTD. AS WELL AS T O SHRI ALIMUDDIN. 23. NOW, WE SHALL COME TO THE APPEAL FOR AY 2007-08 . ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 11 24. IN THIS YEAR, THE AO HAS TREATED THE FOLLOWING PAYMENT IN THE NATURE OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT:- (I) PAYMENT TO INTERNATIONAL LAND DEVELOPERS LTD. `3,15,515/-. (II) ILD TRADE CENTRES - `37,17,194/-. (III) SHRI ALIMUDDIN - `10 LAKHS. (IV) GOLDMAN MALLS PVT.LTD. `1,00,25,000/-. 25. WITH REGARD TO THE PAYMENT OF `3,15,515/- PAID TO INTERNATIONAL LAND DEVELOPERS LTD., THE ASSESSEE SUBMITTED BEFORE THE LEARNED CIT(A) THAT PAYMENT TO M/S INTERNATIONAL LAND DEVEL OPERS LTD. IS NOT COVERED BY SECTION 2(22)(E) OF THE ACT INASMUCH AS THIS CONCERN IS NOT A SHAREHOLDER OF THE ASSESSEE COMPANY. THE LEARNED CIT(A) DELETED THE ADDITION FOR THIS REASON ALSO. IN THE LIGHT OF OUR VIEW TAKEN IN AY 2005-06, WE HOLD THAT PAYMENT MADE TO INTERNATIONAL LAND DEVELOPERS LTD. DOES NOT COME UNDER THE AMBIT OF SECTION 2(22) (E) OF THE ACT INASMUCH AS INTERNATIONAL LAND DEVELOPERS LTD. IS N OT A SHAREHOLDER OF THE ASSESSEE COMPANY. 26. NOW, WE COME TO PAYMENT OF `37,17,194/- MADE TO ILD TRADE CENTRES A BUSINESS CONCERN OF M/S ALM INFOTECH CITY (P) LTD. IN THIS RESPECT, THE LEARNED COUNSEL FOR THE ASSESSEE HAS I NVITED OUR ATTENTION TO THE COPY OF AGREEMENT EXECUTED BETWEEN THE ASSES SEE AND M/S ALM INFOTECH CITY (P) LTD. DATED 20.10.2006 PLACED AT P AGES 161 TO 202 OF THE PAPER BOOK. THIS IS A DEVELOPER BUYER AGREEMEN T DATED 20.10.2006 ENTERED INTO BY THE ASSESSEE WITH M/S AL M INFOTECH CITY (P) LTD. M/S ALM INFOTECH CITY (P) LTD. WAS DEVELOPING AND CONSTRUCTING A RETAIL CUM COMMERCIAL COMPLEX CALLED ILD TRADE CEN TRE. THE ASSESSEE BEING ALLOTTEE HAD AGREED TO PURCHASE SHOP /OFFICE UNIT NO.705 MEASURING 1133.74 SQ.FT. FOR A TOTAL CONSIDE RATION OF `39,68,090/-, OUT OF WHICH, A SUM OF `37,17,194/- W AS PAID ON ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 12 20.10.2006 AND THE BALANCE SUM OF `2,50,896/- WAS A GREED TO BE PAID ON DELIVERY OF POSSESSION. THUS, IT IS A CASE OF B USINESS/COMMERCIAL TRANSACTION AND IS NOT COVERED BY SECTION 2(22)(E) OF THE ACT. 27. NOW, WE COME TO THE PAYMENT OF `10 LAKHS MADE T O SHRI ALIMUDDIN. THE NATURE OF THIS PAYMENT HAS ALREADY BEEN EXAMINED AND DECIDED BY US IN THE AY 2005-06. THE FACTS ARE IDENTICAL IN THIS YEAR. THEREFORE, IN THE LIGHT OF OUR DECISION FOR AY 2005-06 VIDE THIS COMMON ORDER, WE UPHOLD THE ORDER OF CIT(A) IN HOLD ING THAT THE PAYMENT OF `10 LAKHS TO SHRI ALIMUDDIN IS NOT COVER ED BY SECTION 2(22)(E) OF THE ACT. 28. NEXT PAYMENT IS OF `1,00,25,000/- MADE TO GOLDM AN MALLS PVT.LTD. THE LEARNED CIT(A) HAS VACATED THE DEMAND WITH REGARD TO PAYMENT MADE TO GOLDMAN MALLS PVT.LTD. FOR THE REAS ON THAT THE PAYMENTS WERE MADE FOR BUSINESS EXIGENCIES AS WELL AS GOLDMAN MALLS PVT.LTD. IS NOT SHAREHOLDER OF THE ASSESSEE COMPANY . WE HAVE PERUSED THE MEMORANDUM OF UNDERSTANDING EXECUTED ON 1.12.20 06 BETWEEN THE ASSESSEE COMPANY AND GOLDMAN MALLS PVT.LTD. PLA CED AT PAGES 255 TO 260 OF THE PAPER BOOK FILED BY THE ASSESSEE. UN DER THIS AGREEMENT, THE ASSESSEE HAD AGREED TO ADVANCE UPTO `5 CRORES T O GOLDMAN MALLS PVT.LTD. TO ENABLE IT TO ACQUIRE THE TITLE AND OWNE RSHIP RIGHTS OF THE LAND FOR THE PROJECTS AND TO INCUR OTHER COSTS AND EXPENSES IN RELATION THERETO. THIS AGREEMENT WAS PRODUCED BEFORE THE CI T(A) AND WAS SENT TO THE AO FOR HIS COMMENTS. THOUGH THE AO STATED I N THE REMAND REPORT THAT THE ASSESSEE HAS FILED THE COPY OF THE AGREEMENTS AND MEMORANDUM OF UNDERSTANDING EXECUTED BY THE PARTIES AND OTHER CONNECTED PAPERS, HE HAS NOT GIVEN ANY ADVERSE COMM ENT ON THIS EXCEPT REITERATING THAT AO HAS MADE THE ADDITION WI THIN THE AMBIT OF SECTION 2(22)(E) OF THE ACT. MOREOVER, GOLDMAN MAL LS PVT.LTD. IS NOT A SHAREHOLDER OF THE ASSESSEE COMPANY. THEREFORE, TH E LEARNED CIT(A) ITA -3390 & 3391/D/2010 & CO-218 & 219/D/2010 13 HAS RIGHTLY VACATED THE DEMAND IN RESPECT OF THE PA YMENT MADE TO GOLDMAN MALLS PVT.LTD. 29. FOR THE REASONS AND DISCUSSIONS MADE ABOVE, WE, THEREFORE, UPHOLD THE ORDER OF CIT(A) IN VACATING THE DEMAND P ERTAINING TO THE AY 2007-08. 30. THE ASSESSEE HAS ALSO FILED CROSS-OBJECTIONS IN BOTH THE ASSESSMENT YEARS. HOWEVER, IN THE LIGHT OF OUR ORD ER IN THE DEPARTMENTAL APPEAL WHERE THE ORDER OF LEARNED CIT( A) HAS BEEN UPHELD IN VACATING THE DEMAND RAISED BY THE AO U/S 201/201(1A), THE CROSS-OBJECTIONS FILED BY THE ASSESSEE HAVE BECOME REDUNDANT AND NEED NO ADJUDICATION AT THIS STAGE. 31. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED, AND CROSS-OBJECTIONS OF THE ASSESSEE ARE TREATED TO BE INFRUCTUOUS. DECISION PRONOUNCED IN THE OPEN COURT ON 6 TH MAY, 2011. SD/- SD/- (K.D.RANJAN (K.D.RANJAN (K.D.RANJAN (K.D.RANJAN) )) ) (C.L.SETHI (C.L.SETHI (C.L.SETHI (C.L.SETHI) )) ) ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 06.05.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR