ACIT, Pune V. M/s. N.K. Associates, Pune

ITA 1116/PUN/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59998 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 09-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed dividend; Retraction

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI G.S. PANNU ( AM) ITA NO.1116/PN/2010 ASSESSMENT YEAR: 2007-2008 A.C.I.T., CIRCLE - 4, ROOM NO.212, 2 ND FLOOR, PMT COMMERCIAL COMPLEX, VS. SWARGATE, PUNE 411 037. M/S. N.K. ASSOCIATES, 129/2, MONT VERT MARE, PASHAN SUS ROAD, PASHAN, PUNE 411 021. PAN: AAFFN 0659K (APPELLANT) (RESPONDENT) C.O. NO.93/PN/2011 (ARISING OUT OF ITA NO.1116/PN/2010) M/S. N.K. ASSOCIATES, 129/2, MONT VERT MARE, PASHAN SUS ROAD, VS. PASHAN, PUNE 411 021. PAN: AAFFN 0659K A.C.I.T., CIRCLE-4, ROOM NO.212, 2 ND FLOOR, PMT COMMERCIAL COMPLEX, SWARGATE, PUNE 411 037 (CROSS OBJECTOR) (RESPONDENT) ASSESSEE BY: REVENUE BY: SHRI SUNIL GANOO, AR MS ANN KAPTHUAMA, DR DATE OF HEARING: DATE OF PRONOUNCEMENT: 14 - 01 - 2011 -02-2011 ORDER PER I.C. SUDHIR, J.M ITA NO. 1116/PN/2010: 1. THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER ON SEVERAL GROUNDS INVOLVING THE ISSUE WHETHER AS TO WHETHER THE LD. C IT (A) HAS ERRED IN DELETING THE 2 ITA NO.1116/PN/2010 C.O.NO.93/PN/2011 M/S. N.K. ASSOCIATES A.Y. 2007-08 ADDITION OF RS. 1,02,00,000/- MADE BY THE ASSESSING OFFICER U/S 2(22)(E) OF THE INCOME TAX ACT, 1961 INSTEAD OF CONFIRMING THE SAID ADDITION. 2. THE FACTS IN BRIEF ARE THAT ASSESSEE A PARTNERSH IP FIRM IS CARRYING ON THE BUSINESS OF PROMOTER, BUILDER, DEVELOPER AND CIVIL CONTRACTOR. DURING THE COURSE OF ASSESSMENT THE AO NOTED THAT THE ASSESSEE HAD ACCEP TED AN AMOUNT OF RS. 1,02,00,000/- AS LOAN FROM NIRAJ KUMAR ASSOCIATES P RIVATE LIMITED (NKAPL). THE AO DID NOT ACCEPTED THE CONTENTION OF THE ASSESSEE THA T IT WAS A FIRM, WHICH COULD NOT HAVE BECOME MEMBER OF ANY PUBLIC OR PRIVATE LIMITED COMPANY AND IT WAS NOT DIRECTLY OR INDIRECTLY MEMBER/SHAREHOLDER OF M/S. N KAPL AND OCTON INDIA PVT. LTD. THE AO DID NOT ACCEPT THE FURTHER CONTENTION OF THE ASSESSEE THAT THE AMOUNTS TAKEN AS LOAN WERE BOTH PURELY BUSINESS ADVANCES FO R WHICH LEDGER ACCOUNTS WERE ALSO SUBMITTED. THE ASSESSING OFFICER WAS OF THE O PINION THAT THE LEGAL FICTION WAS APPLICABLE AS SOON AS THE MONEY WAS RECEIVED BY THE ASSESSEE FROM THE COMPANY AND IT WAS APPLICABLE INSPITE OF THE FACT THAT THE LOAN OR ADVANCE MAY HAVE ULTIMATELY BEING PAID OR ADJUSTED. ACCORDINGLY THE AO ASSESSED THE AMOUNT OF RS. 1,02,00,000/- AS DEEMED DIVIDEND U/S 2(22)(E) OF TH E ACT. 3. BEFORE THE LD. CIT (A) THE ASSESSEE CONTENDED TH AT THE DEEMED DIVIDEND CANNOT BE ASSESSED IN THE HANDS OF THE ASSESSEE SIN CE THE ASSESSEE WAS NOT A SHAREHOLDER OF THE COMPANY. THE LD. CIT (A) HAS AC CEPTED THIS CONTENTION OF THE ASSESSEE ON THE BASIS OF SEVERAL DECISIONS INCLUDIN G DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. BHAUMIK COLOU R (P) LTD (2009) 120 TTJ (MUM) (SB) 865 AND ORS CITED IN SUPPORT. THE LD. CIT (A) HOWEVER DID NOT ACCEPTED THE 3 ITA NO.1116/PN/2010 C.O.NO.93/PN/2011 M/S. N.K. ASSOCIATES A.Y. 2007-08 ALTERNATIVE CONTENTION OF THE ASSESSEE THAT THE ADV ANCES IN QUESTION WERE RECEIVED FROM M/S. NKAPL AS BUSINESS TRANSACTIONS AND IT DID NOT BEAR THE CHARACTER OF LOAN. THE REVENUE HAS QUESTIONED THE ACTION OF THE LD. CI T (A) IN NOT TREATING THE AMOUNT AS DIVIDEND U/S 2(22)(E) OF THE ACT. THE ASSESSEE ON THE OTHER HAND HAS OBJECTED (C.O. NO.93/PN/2011) THE ACTION OF THE LD. CIT (A) IN NOT ACCEPTING THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT THE ADVANCES IN QUE STION WERE RECEIVED FROM M/S. NKAPL AS BUSINESS TRANSACTIONS AND IT DID NOT BEAR THE CHARACTER OF LOAN. 4. IN SUPPORT OF THE GROUNDS INVOLVING THE ISSUE, T HE LEARNED DR SUBMITTED THAT THE LD. CIT (A) HAS FAILED TO APPRECIATE THE FACT O F THE CASE THAT ONE OF THE PERSONS OF THE ASSESSEE FIRM HAS MORE THAN 10% OF THE VOTIN G POWER IN THE LANDING COMPANY WHICH IS A CLOSELY HELD COMPANY AND IS HAVING SUBST ANTIAL INTEREST IN THE ASSESSEE FIRM. SHE SUBMITTED THAT INTENTION BEHIND THE ENAC TMENT OF PROVISIONS OF SEC. 2(22)(E) IS TO FORBID CLOSELY HELD COMPANIES FROM A VOIDING TAX LIABILITY ON DIVIDEND DISTRIBUTED TO THE SHAREHOLDERS BY DISTRIBUTING PRO FITS AS LOAN OR ADVANCES. SHE CONTENDED THAT THE PROVISIONS OF SEC.2(22)(E) OF TH E INCOME TAX ACT, 1961 ARE APPLICABLE TO THE BENEFICIAL OWNER OF SHAREHOLDERS IN A CLOSELY HELD COMPANY TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST. 5. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTIF Y THE ACTION OF THE LD. CIT (A) ON THE ISSUE. HE REITERATED THE SUBMISSIONS MADE B EFORE THE AUTHORITIES BELOW AND PLACED RELIANCE ON THE FOLLOWING DECISIONS: ACIT V S. BHAUMIK COLOUR (P) LTD (2009) 4 ITA NO.1116/PN/2010 C.O.NO.93/PN/2011 M/S. N.K. ASSOCIATES A.Y. 2007-08 120 TTJ (MUM) (SB) 865; CIT VS. HILLTOP (2008) 217 CTR (RAJ) 527; DCIT VS. NATIONAL TRAVEL SERVICES (2009) 31 SOT 76 (DEL). 6. CONSIDERING THE SUBMISSIONS WE FIND THAT THE ISS UE RAISED IN THE PRESENT APPEAL IS FULLY COVERED BY THE ABOVE CITED DECISION S BY THE LEARNED AR. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HILLTOP (SUPRA) HAS BEEN PLEASED TO HOLD THAT THE AMOUNT ADVANCED BY THE COMPANY TO A FIRM C ANNOT BE ASSESSED AS A DEEMED DIVIDEND IN THE CASE OF THE FIRM WHICH IS NO T A SHAREHOLDER OF A COMPANY EVEN THOUGH ALL THE PARTNERS OF THE FIRM ARE SHAREH OLDERS IN THE COMPANY. IT WAS FURTHER HELD THAT THE DEEMED DIVIDEND WOULD ONLY BE ASSESSED IN THE HANDS OF THE INDIVIDUAL WHO WAS A SHAREHOLDER IN THE COMPANY. T HE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD (SUP RA) HAS DECIDED THE ISSUE REGARDING A LOAN GIVEN TO A SHAREHOLDER VIS A VIS TO A CONCERN IN WHICH THE SHAREHOLDER IS A MEMBER/PARTNER, DISCUSSING THE PRO VISIONS OF SEC.2(22)(E) OF THE ACT. THE RELEVANT EXTRACT OF THE DECISION IS BEING REPRODUCED HERE UNDER FOR A READY REFERENCE: DEEMED DIVIDEND CAN BE ASSESSED ONLY IN THE HANDS O F A PERSON WHO IS A SHAREHOLDER OF THE LENDER COMPANY AND NOT IN THE HA NDS OF A PERSON OTHER THAN A SHAREHOLDER. THE PROVISIONS OF SEC. 2(22)(E) DO NO T SPELL OUT AS TO WHETHER THE INCOME HAS TO BE TAXED IN THE HANDS OF THE SHAREHOL DER OR THE CONCERN (NON- SHAREHOLDER). THE PROVISIONS ARE AMBIGUOUS. IT IS THEREFORE NECESSARY TO EXAMINE THE INTENTION BEHIND ENACTING THE PROVISIONS OF SEC . 2(22)(E). THE INTENTION BEHIND ENACTING PROVISIONS OF SEC. 2(22)(E) IS THAT CLOSEL Y HELD COMPANIES (I.E., COMPANIES IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED) W HICH ARE CONTROLLED BY A GROUP OF MEMBERS, EVEN THOUGH THE COMPANY HAS ACCUMULATED PR OFITS WOULD NOT DISTRIBUTE SUCH PROFITS AS DIVIDEND BECAUSE IF SO DISTRIBUTED THE DIVIDEND INCOME WOULD BECOME TAXABLE IN THE HANDS OF THE SHAREHOLDERS. INSTEAD OF DISTRIBUTING ACCUMULATED PROFITS AS DIVIDEND, COMPANIES DISTRIBUTE THEM AS LOAN OR A DVANCES TO SHAREHOLDERS OR TO CONCERN IN WHICH SUCH SHAREHOLDERS HAVE SUBSTANTIAL INTEREST OR MAKE ANY PAYMENT ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. IN SUCH AN EVENT, BUT THE DEEMING PROVISIONS, SUCH PAYMENT BY THE COMPANY IS TREATED AS DIVIDEND. THE 5 ITA NO.1116/PN/2010 C.O.NO.93/PN/2011 M/S. N.K. ASSOCIATES A.Y. 2007-08 INTENTION BEHIND THE PROVISIONS OF SEC. 2(22)(E) IS TO TAX DIVIDEND IN THE HANDS OF THE SHAREHOLDER. THE DEEMING PROVISIONS AS IT APPLIES TO THE CASE OF LOANS OR ADVANCES BY A COMPANY TO A CONCERN IN WHICH ITS SHAREHOLDER HAS SUBSTANTIAL INTEREST IS BASED ON THE PRESUMPTION THAT THE LOAN OR ADVANCES WOULD ULTIMATELY BE MADE AVAILABLE TO THE SHAREHOLDERS OF THE COMPANY GIVING THE LOAN OR ADVANCE. THE INTENTION OF THE LEGISLATURE IS THEREFORE TO DIVIDEND ONLY I THE HAN DS OF THE SHAREHOLDER AND NOT IN THE HANDS OF THE CONCERN. THE BASIS OF BRINGING IN THE AMENDMENT TO SEC. 2(22)(E) BY THE FINANCE ACT, 1987 W.E.F., 1 ST APRIL, 1988 IS TO ENSURE THAT PERSONS WHO CONTROL THE AFFAIRS OF A COMPANY AS WELL AS THAT OF A FIRM CAN HAVE THE PAYMENT MADE TO A CONCERN FROM THE COMPANY AND THE PERSON WHO CAN CON TROL THE AFFAIRS OF THE CONCERN CAN DRAW THE SAME FROM THE CONCERN INSTEAD OF THE COMPANY DIRECTLY MAKING THE AFFAIRS OF THE COMPANY AND THE CONCERN I S THE BASIS ON WHICH THESE PROVISIONS HAVE BEEN MADE. IT IS THEREFORE PROPER TO CONSTRUE THOSE PROVISIONS AS CONTEMPLATING A CHARGE TO TAX IN THE HANDS OF THE S HAREHOLDER AND NOT IN THE HANDS OF THE NON-SHAREHOLDER VIZ., CONCERN. 7. IT IS AN UNDISPUTED FACT IN THE PRESENT CASE BEF ORE US THAT THE ASSESSEE FIRM WAS NOT A SHAREHOLDER OF M/S. NKAPL. THE CASE OF A SSESSING OFFICER IS THAT THE PAYMENT HAS BEEN MADE TO THE ASSESSEE FIRM BY M/S. NKAPL. ONE SHAREHOLDER IN NKAPL I.E., JAYANT KANERIA HAS MORE THAN 10% OF VOT ING POWER (5625 SHARES HELD OUT OF 30,000 SHARES, I.E. 18.75% OF TOTAL SHARES). THE AO HAS NOTED THAT THE SAME PERSON HAS A SUBSTANTIAL INTEREST IN THE ASSESSEE F IRM (ENTITLED TO 32.5% OF THE INCOME OF THE FIRM). SINCE THERE IS NO DISPUTE THA T THE ADVANCE IN QUESTION HAS BEEN PAID BY NKAPL TO THE ASSESSEE FIRM, WE FIND THAT T HE CITED DECISIONS BY THE LEARNED AR FULLY COVER THE ISSUE IN FAVOUR OF THE ASSESSEE. IN THE CITED DECISIONS IT HAS BEEN HELD THAT THE AMOUNT ADVANCED BY A COMPANY OR BY A FIRM CANNOT ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE FIRM WHICH IS N OT A SHAREHOLDER OF THE COMPANY EVEN THOUGH ALL THE PARTNERS OF THE FIRM ARE SHAREH OLDERS IN THE COMPANY. IN VIEW OF THESE CITED DECISIONS ON THE ISSUE WE DID NOT FI ND REASON TO INTERFERE WITH THE FINDING OF THE LD. CIT (A) UNDER THE FACTS OF THE P RESENT CASE THAT THE AMOUNT IN QUESTION PAID IN ADVANCE CANNOT BE TREATED AS DIVID END U/S 2(22)(E) OF THE ACT IN THE 6 ITA NO.1116/PN/2010 C.O.NO.93/PN/2011 M/S. N.K. ASSOCIATES A.Y. 2007-08 CASE OF THE ASSESSEE FIRM. THE FIRST APPELLATE ORD ER IN THIS REGARD IS UPHELD. THE ISSUE IS THUS DECIDED AGAINST THE REVENUE. THE REL ATED GROUNDS ARE ACCORDINGLY REJECTED. 8. CONSEQUENTLY THE APPEAL IS DISMISSED. C.O. NO.93/PN/2011: 9. THE ASSESSEE HAS OBJECTED THE FIRST APPELLATE OR DER ON FOLLOWING BASIS: IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, IT MAY PLEASE BE HELD THAT AN AMOUNT OF RS. 1,02,00,000/- RECEIVED B Y THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR FROM M/S. NIRAJ K UMAR ASSOCIATES PVT. LTD. WAS NOT A LOAN TRANSACTION BUT THE SAME CONSTI TUTED CONSIDERATION ARISING OUT OF BUSINESS TRANSACTION AND HENCE WAS O UTSIDE THE PURVIEW AND SCOPE OF THE PROVISIONS OF SECTION 2(22)(E) OF THE I.T. ACT, 1961. 10. IN SUPPORT OF THE OBJECTION THE LEARNED AR SUBM ITTED THAT ADVANCES IN QUESTION WERE RECEIVED FROM M/S. NKAPL AS BUSINESS TRANSACTIONS AND IT DID NOT BEAR THE CHARACTER OF LOAN. HE SUBMITTED THAT THE AMOUN T WAS IN THE NATURE OF EARNEST MONEY FOR PROPERTY TRANSACTION AND SINCE THE TRANSA CTIONS COULD NOT BE COMPLETED, THE INTEREST WAS PAID AS COMPENSATION AND TDS WAS A LSO DEDUCTED. HE SUBMITTED THAT BEFORE THE LD. CIT(A) THE ASSESSEE HAD MADE S IMILAR SUBMISSION BY FURNISHING DOCUMENTS IN SUPPORT ALONG WITH LETTER DATED 22.04. 2010 IN THIS REGARD. HE SUBMITTED THAT ON THE SUBJECT GROUND NO.3 WAS ALSO RAISED BEFORE THE LD. CIT (A) BUT HE FAILED TO APPRECIATE THE FACTS OF THE CASE I N PROPER PROSPECTIVE. THE LEARNED AR ARGUED THAT THE INTEREST WAS PAID BY WAY OF COMP ENSATION SINCE THE ASSESSEE FIRM COULD NOT COMPLY WITH THE TERM OF THE AGREEME NT. HE REFERRED PAGE NOS. 1-52 OF THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE I .E., COPY OF WRITTEN SUBMISSIONS 7 ITA NO.1116/PN/2010 C.O.NO.93/PN/2011 M/S. N.K. ASSOCIATES A.Y. 2007-08 DATED 22.04.2010 ALONG WITH DOCUMENTS IN SUPPORT. HE REFERRED PAGE NOS. 14,15, 25 AND 26 OF THE PAPER BOOK WHEREIN RELEVANT TERMS IN THE AGREEMENT HAVE BEEN MENTIONED. THE LD. A.R SUBMITTED THAT THE SUBMISSI ON AND INFORMATION GIVEN ON THE PART OF ASSESSEE HAS NOT BEEN PROPERLY UNDERSTOOD A ND INSTEAD OF GOING MERELY BY THE STATEMENTS OR CLAIMS OF THE ASSESSEE OR ITS AUD ITOR/COUNSEL THE AUTHORITIES BELOW SHOULD HAVE ALSO EXAMINED THE VERY NATURE OF THE TR ANSACTION FOR MAKING JUST AND PROPER ASSESSMENT. HE PLACED RELIANCE ON THE FOLLO WING DECISIONS : 1. SHRINIVASA PITTI AND SONS VS. CIT, 173 ITR 306 (AP) 2. CIT VS. RAMDAS PHARMACY, 77 ITR 276 (MAD.) 3. CIT VS. UNIVERSAL MEDICARE (P) LTD. (2010) 324 ITR 263 (PUN.) 11. THE LD. D.R. ON THE OTHER HAND CONTENDED THAT T HE AUTHORITIES BELOW ARE JUSTIFIED IN HOLDING THE AMOUNT IN QUESTION AS LO AN SINCE THE SAME IS BASED UPON THE SUBMISSION OF THE ASSESSEE ITSELF. SHE POINTED OUT THAT IN ANNEXURE NO.2 UNDER CLAUSE 24(A) TO THE TAX AUDIT REPORT U/S. 44AB OF T HE ACT, THE AMOUNT HAS BEEN SHOWN AS LOAN OR DEPOSIT FROM NKAPL. AGAIN IN ITS SUBMISSION DATED 11.12.2009 ADDRESSED TO THE ACIT, THE ASSESSEE HAS ACCEPTED TH E AMOUNT AS LOAN FROM NKAPL. 12. WE HAVE CONSIDERED ABOVE SUBMISSIONS AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD, ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS RELIED UPON. THERE IS NO DOUBT THE TRIBUNAL, BEING THE FI NAL FACT FINDING AUTHORITY HAS TO CONSIDER AND DECIDE ALL THE ISSUES THAT ARE BROUGHT BEFORE IT TO ENSURE END OF JUSTICE. WE ALSO CONCUR WITH THE ARGUMENT OF THE L D. A.R THAT PREFERENCE SHOULD BE 8 ITA NO.1116/PN/2010 C.O.NO.93/PN/2011 M/S. N.K. ASSOCIATES A.Y. 2007-08 GIVEN TO THE MATERIAL AVAILABLE ON RECORD COUPLED W ITH THE SURROUNDING CIRCUMSTANCES TO EXAMINE THE VERY NATURE OF THE TRANSACTION IN QU ESTION RATHER THE CLAIM OR SUBMISSION OF THE ASSESSEE. IN OTHER WORDS A CLA IM OF A PERSON DEHORS EVIDENCE IN SUPPORT CAN NOT BE ACCEPTED. IT IS AN ESTABLISHED PROPOSITION OF LAW. APPLYING THE SAME RATIO EVEN A STATEMENT OF AN ASSESSEE FAVOURA BLE TO THE REVENUE CAN NOT BE ACCEPTED IF THE MATERIAL AVAILABLE ON RECORD SPEAK S OTHERWISE. IN OUR VIEW THE PURSUATION OF THIS RATIO WILL NOT ONLY STRENGTHEN THE CASE OF THE REVENUE BUT ALSO MEET THE END OF JUSTICE WHICH IS THE VERY OBJECT OF THE JURISPRUDENCE. APPRECIATING THIS ASPECT THE CBDT (LETTER NO. F 286/2/2003/IT (I NV.) DATED 11.3.2003) HAS ALSO INSTRUCTED THE REVENUE ESPECIALLY IN SEARCH AND SUR VEY MATTERS TO ALWAYS PROCEED ON THE MATERIAL AVAILABLE ON RECORD DESPITE HAVING C ONFESSIONAL ACCEPTANCE OF THE ASSESSEE FAVOURABLE TO THE REVENUE SO THAT IN CASE OF SUBSEQUENT RETRACTION BY THE ASSESSEE FROM ITS ACCEPTANCE, THE CASE OF REVENUE SHOULD STAND ON ITS MERITS. 13. HERE IN THE PRESENT CASE BEFORE US THE CONTENTI ON OF THE LD. A.R. IS THAT INFORMATION AND SUBMISSION ON THE PART OF THE ASSES SEE ABOUT THE TRANSACTION HAVE NOT BEEN PROPERLY UNDERSTOOD BY THE AUTHORITIES BEL OW. HE WENT EVEN TO THIS EXTENT BY SAYING THAT THE AUTHORITIES BELOW SHOULD HAVE TR USTED THE DOCUMENTS ON RECORD IN PREFERENCE TO THE SUBMISSION OF THE ASSESSEE WHILE ASCERTAINING THE NATURE OF TRANSACTION IN QUESTION. 14. ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BEL OW WE FIND THAT THE LD. CIT(A) HAS UPHELD THE ASSESSMENT ORDER ON THE ISSUE AS TO WHETHER THE AMOUNT IN QUESTION 9 ITA NO.1116/PN/2010 C.O.NO.93/PN/2011 M/S. N.K. ASSOCIATES A.Y. 2007-08 WAS LOAN OR A BUSINESS TRANSACTION, ON THE BASIS OF AUDITORS REPORT AND SUBMISSION DATED 11.12.2009 OF THE ASSESSEE. HE HAS OBSERVE D IN PARA NO. 3.7 OF THE ORDER THAT THE ANNEXURE NO.2 UNDER CLAUSE 24(A) TO THE T AX AUDIT REPORT U/S. 44AB REVEALED THAT THE ASSESSEE HAD ACCEPTED THE AMOUNT OF RS. 1,02,00,000/- AS LOAN OR DEPOSIT FROM NKAPL AND THAT ON THE AMOUNT INTERE ST WAS ALSO PAID BY THE ASSESSEE AS WELL AS TDS WAS MADE. REGARDING THE DO CUMENTS SUBMITTED ALONGWITH ITS SUBMISSION DATED 22.4.2010 BY THE ASSESSEE BEF ORE THE LD. CIT(A), HE HAS STATED THAT THESE ARE NOT FOUND ON RECORD. BEFORE US WITH THE HELP OF THESE DOCUMENTS THE ASSESSEE WANTS TO ESTABLISH THAT THE AMOUNT IN QUE STION WAS NOT LOAN BUT A BUSINESS TRANSACTION. THUS IT IS EVIDENT THAT THES E DOCUMENTS HAVE NOT BEEN CONSIDERED BY THE AUTHORITY BELOW WHILE DECIDING TH E ISSUE. HAVING GONE THROUGH THESE DOCUMENTS WE FIND, THESE ARE COPIES OF MEMORA NDUM OF UNDERSTANDING DATED 26.4.2006, CANCELLATION DEED DATED 3.9.2006, MEMOR ANDUM OF UNDERSTANDINGS DATED 20.10.2006 AND 11.12.2006. THE ASSESSEE HAS SUBMITTED IN PARA NO. 4 OF ITS SUBMISSION DATED 22.4.10 TO THE LD. CIT(A) THAT THE SE DOCUMENTS WERE ALSO MADE AVAILABLE TO THE A.O. FOR VERIFICATION BUT HE HAS QUIETLY IGNORED THE SAME. 15. THE SUBMISSIONS OF THE ASSESSEE BEFORE THE A.O AND LD. CIT(A) REMAINED THAT THE AMOUNTS RECEIVED BY THE ASSESSEE FROM NKAPL WER E IN THE NATURE OF EARNEST MONEY FOR PROPERTY TRANSACTIONS AND SINCE THE TRANS ACTION COULD NOT BE COMPLETED, THE INTEREST WAS PAID AS COMPENSATION. THE TDS T HEREON WAS DEDUCTED IN VIEW OF THE DEFINITION OF THE TERM INTEREST AS PER SECTI ON 2(28A) OF THE I.T. ACT. IN FACT 10 ITA NO.1116/PN/2010 C.O.NO.93/PN/2011 M/S. N.K. ASSOCIATES A.Y. 2007-08 THE INTEREST PAID WAS IN THE NATURE OF COMPENSATION AND THEREFORE NO ADVERSE INFERENCE CAN BE DRAWN AGAINST THE ASSESSEE, CONTEN DED THE LD. A.R. 16. THE MEMORANDUM OF UNDERSTANDING (MOU) DATED 26. 4.2006, A COPY OF WHICH HAS BEEN MADE AVAILABLE AT PAGE NO. 10 TO 19 OF THE PAPER BOOK FILED BY THE ASSESSEE BEFORE THE TRIBUNAL, WAS ENTERED INTO AMON GST THE ASSESSEE AS THE FIRST PART AND NKAPL AS THE SECOND PART AND OTHERS AS THE THIRD PART. IN THIS UNDERSTANDING, THE ASSESSEE (THE FIRST PART) HAS BE EN SHOWN AS THE PROMOTER, NKAPL (THE SECOND PART) AS THE PURCHASER AND SMT. NILIMA B. DEODHAR AND OTHERS AROUND 22 PERSONS AS THE CONFIRMING PARTY. THE CONFIRMING PARTY ARE THE OWNERS OF THE LAND (DESCRIBED IN THE FIRST SCHEDULE), NKA PL (THE SECOND PART) IS THE PURCHASER AND THE ASSESSEE (THE FIRST PART) IS THE PROMOTER. AS PER THIS UNDERSTANDING DEED THE ASSESSEE AGREED TO DEVELOP T HE SAID LAND BY CONSTRUCTING A PROJECT COMPRISING OF COMMERCIAL CUM RESIDENTIAL BU ILDING(S) ON THE SAID LAND KNOWN AS MONT VEST FINESSE. AT PAGE NO. 5 (INTERNAL) ( PAGE NO. 14 PB) IT HAS BEEN SHOWN THAT NKAPL WERE DESIROUS TO PURCHASE CERTAIN SHOPS FOR THEIR BUSINESS AND APPROACHED THE ASSESSEE AND THEY AGREED UPON THE CO NSIDERATION OF RS. 85,93,000/- AND THE AMOUNT OF RS.10,00,000/- PAID AND SCHEDULE OF PAYMENT OF THE REMAINING AMOUNT HAVE BEEN RECITED IN CLAUSE 1 OF THE SAME PA GE. AT PAGE NO. 15 I.E. INTERNAL PAGE 6 OF THE DEED IN CLAUSE NO. 2 IT WAS AGREED UP ON THAT WITHIN THE PRESCRIBED TIME LIMIT THE ASSESSEE WILL OBTAIN NECESSARY COMP LETION CERTIFICATE OF THE BUILDING C WING AND WILL HAND OVER THE POSSESSION OF THE A GREED SHOPS IN THE BUILDING TO NKAPL, THE PURCHASER. AT PAGE NO. 18 HAS BEEN MADE AVAILABLE THE PLAN AND AT 11 ITA NO.1116/PN/2010 C.O.NO.93/PN/2011 M/S. N.K. ASSOCIATES A.Y. 2007-08 PAGE NO. 19 HAS BEEN PLACED THE COMMENCEMENT CERTI FICATE OF THE CONSTRUCTION OF THE BUILDINGS ISSUED BY THE PUNE MUNICIPAL CORPORAT ION (PMC). 17. AT PAGE NOS. 21 TO 30 OF THE PAPER BOOK, THE AS SESSEE HAS MADE AVAILABLE THE COPY OF THE CANCELLATION DEED DATED 3.9.2006 ENTERE D INTO BY THE ABOVESTATED SAME THREE PARTIES AGREEING UPON TO CANCEL THE AFORESAID MOU DATED 26.4.2006 SINCE THE ASSESSEE (PROMOTER), DUE TO NON-AVAILABILITY OF TDR WAS NOT IN A POSITION TO OBTAIN COMPLETION CERTIFICATE BEFORE THE AGREED DATE 26.10 .2006 (CLAUSE C). 18. THEY ALSO AGREED (CLASUE 3,(E)) PAGE 26 P.B.) T HAT THE PROMOTER I.E. THE ASSESSEE WILL REFUND THE AGREED AMOUNT TO THE PURC HASER I.E. NKAPL WITH INTEREST @ 12% PER ANNUM AS COMPENSATION AND DAMAGE SUBJECT TO TDS. 19. AT PAGE NOS. 32 TO 52 OF THE PAPER BOOK THE ASS ESSEE HAS MADE AVAILABLE THE COPIES OF MOU DATE 20.10.2006 (PAGE 32 TO 37), MOU DATED 6.11.2006 (PAGE 38 TO 41), MOU DATED 11.12.2006 (PAGE 43 TO 47) AND CAN CELLATION DEED DATED 23.12.2006 (PAGE 49 TO 52). AT PAGE NOS. 5 TO 8 HA VE BEEN PLACED THE COPIES OF LEDGER ACCOUNT OF NKAPL IN THE BOOK OF ASSESSEE AN D VICE-VERSA. 20. ON PERUSAL OF THE ABOVE DOCUMENTS, WE PRIMA FAC IE FIND SUBSTANCE IN THE CONTENTION OF THE LD. A.R THAT THE RECEIPT OF THE A MOUNT IN QUESTION BY THE ASSESSEE FROM NKAPL WAS A BUSINESS TRANSACTION AND NOT LOAN OR DEPOSIT (AS HELD BY THE AUTHORITIES BELOW). SINCE THE AUTHORITIES BELOW HA VE NOT EXAMINED THE VERACITY OF 12 ITA NO.1116/PN/2010 C.O.NO.93/PN/2011 M/S. N.K. ASSOCIATES A.Y. 2007-08 THESE ABOVE DISCUSSED DOCUMENTS, WE SET ASIDE THE M ATTER TOTHE FILE OF THE A.O WITH THIS DIRECTION THAT IF HE/SHE ON VERIFICATION FINDS THE ABOVE DISCUSSED DOCUMENTS AS CORRECT AND TRUE, THEN ALLOW THE CLAIMED TREATMENT THAT THE RECEIPT OF THE MONEY IN QUESTION WAS OUT OF A BUSINESS TRANSACTION BETWEEN THE ASSESSEE AND NKAPL, HENCE IT CAN NOT DEEMED AS DIVIDEND UNDER SECTION 2(22(E) OF THE ACT. THE CROSS OBJECTION IS THUS ALLOWED FOR STATISTICAL PURPOSES. 21. IN RESULT, ITA NO. 1116/PN/10 PREFERRED BY THE REVENUE IS DISMISSED AND C.O. NO. 93/PN/2011 IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 13TH FEBRUARY 2012. SD/- SD/- ( G.S. PANNU ) ACCOUNTANT MEMBER (I.C. SUDHIR ) JUDICIAL MEMBER PUNE, DATED THE 13TH FEBRUARY, 2012 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT -II, PUNE 4. THE CIT(A)- II,PUNE 5. THE D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE