M/s Ashiana Homes Pvt. Ltd., Kolkata V. DCIT, CIR-8(1), KOLKATA, Kolkata

ITA 148/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1698 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 02-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: PAWAN KR AGARWAL
• Keywords: Deemed dividend
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI M.BALAGANESH, AM & SHRI S.S. VISWANETHRA RAVI, JM] I.T.A NO. 148/KOL/201 6 ASSESSMENT YEAR : 2009-1 0 ASHIANA HOMES (P) LTD. -VS- DCIT, CIRCL E 8(1), KOLKATA [PAN: AACCA 1100 E] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI PAWAN KR. AGA RWAL, AR FOR THE RESPONDENT : SHRI SALLONG YADEN, ADDL . CIT DATE OF HEARING : 24.01.2018 DATE OF PRONOUNCEMENT : 07.02.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-11, KOLKATA [IN SHORT THE LD CIT(A)] IN APPEAL NO.488/CIT(A)-11/C-8/14-15/KOL DATED 09.11.2 015 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE-8, KOLKATA [ IN SHORT TH E LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) D ATED 31.01.2014 FOR THE ASSESSMENT YEAR 2009-10. 2 . THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE ADDITION MADE IN THE SUM OF RS. 94,36,038/- TOWARDS 2 ITA NO.148/KOL/2016 M/S ASHIANA HOMES PVT. LTD. A.YR. 2011-12 2 DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT IN THE FACT S AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IN ENGAGED IN THE BUSINESS OF REAL ESTATE AND HAD FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 27.09.2009 DECLARING TOTAL INCOME OF RS. 15,75,66,8 74/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 25.03.2011 DETER MINING THE TOTAL INCOME OF RS. 15,79.85,688/-. THE LD. CIT LATER INVOKED THE R EVISIONARY JURISDICTION U/S 263 OF THE ACT AND PASSED A REVISION ORDER THEREON AND DIRECTED THE LD. AO TO EXAMINE THE APPLICABILITY OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT WITH REGARD TO THE AMOUNTS RECEIVED BY THE ASSESSEE COMPANY FRO M ITS SUBSIDIARY COMPANY M/S SAAKET ESTATES LTD. THE LD. AO IN THE GIVING EF FECT PROCEEDING TO SECTION 263 ORDER, RAISED QUERIES WITH REGARD TO AMOUNTS RE CEIVED BY THE ASSESSEE FROM M/S SAAKET ESTATES LTD. AMONG OTHERS. THE LD. AO OB SERVED THAT THE ASSESSEE HAD RAISED A SUM OF RS. 94,36,038/- FROM M/S SAAKET EST ATES LTD, A SUBSIDIARY COMPANY OF THE ASSESSEE, WHICH IS ALSO ENGAGED IN T HE BUSINESS OF REAL ESTATE. THE LD. AO OBSERVED THAT THE ACCUMULATED PROFITS OF M/S SAAKET ESTATES LTD. AS ON 31.03.2009 WAS RS. 1,05,20,109/-/ . THE ASSESSEE WA S HOLDING 92.33% OF SHARES OF M/S SAAKET ESTATES LTD. ACCORDINGLY, HE SOUGHT T O INVOKE THE PROVISIONS OF SECTION 2(22)(E) IN RESPECT OF AMOUNTS RECEIVED IN THE SUM OF RS. 94,36,038/-. IN RESPONSE TO THIS SHOW CAUSE NOTICE, THE ASSESSEE RE PLIED THAT IT HAD APPOINTED M/S SAAKET ESTATES LTD. AS THE SOLE ORGANIZER (I.E. COM MISSION AGENT) VIDE AGREEMENT DATED 09.10.2008 TO PROCURE AND SOLICIT BOOKINGS OF RESIDENTIAL UNITS IN ITS PROJECTS ASHIANA LE RESIDENCY. THE ASSESSEE STATED THAT PURSUANT TO THE SAID AGREEMENT, IT HAD RECEIVED 92,40,000/- AS PART PAYM ENT OF TRADE DEPOSIT ON WHICH INTEREST WAS PAYABLE AT 12% AND DUE TO NON-PERFORM ANCE OF ITS OBLIGATION BY M/S 3 ITA NO.148/KOL/2016 M/S ASHIANA HOMES PVT. LTD. A.YR. 2011-12 3 SAAKET ESTATES LTD., THE SAID AGREEMENT WAS TERMINA TED BY THE ASSESSEE COMPANY AND THE ENTIRE TRADE DEPOSIT WAS REFUNDED ALONG WIT H INTEREST AT A LOWER RATE OF 9% AS PER CLAUSE 9 OF THE SAID AGREEMENT. IT WAS PLEAD ED THAT THE TRADE DEPOSIT RECEIVED BY THE ASSESSEE WAS NOT IN THE NATURE OF L OAN OR ADVANCE AS CONTEMPLATED IN THE SECTION 2(22)(E) OF THE ACT AND THAT THEY WE RE RECEIVED IN THE NORMAL COURSE OF CARRYING ON BUSINESS BY THE ASSESSEE. THE LD. AO OBSERVED THAT THE CONTENTION OF THE ASSESSEE BY CLASSIFYING THE RECEIPT OF MONEY AS TRADE DEPOSIT IS NOTHING BUT A COLORABLE DEVICE TO CIRCUMVENT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. HE OBSERVED THAT M/S SAAKET ESTATES LTD. DID NOT CARRY ON ANY BUSINESS OPERATION ON BEHALF OF THE ASSESSEE SO AS TO ACCEPT THAT THE AMO UNTS WERE RECEIVED BY THE ASSESSEE IN THE NORMAL COURSE OF ITS BUSINESS. HE O BSERVED THAT THE SUBSTANTIAL PORTION OF THE ACCUMULATED PROFITS OF M/S SAAKET ES TATES LTD. HAD BEEN ADVANCED TO THE ASSESSEE COMPANY. NO AGREEMENT/BROKERAGE AS REFLECTED IN THE AGREEMENT DATED 09.10.2008 WAS PAID BY THE ASSESSEE TO M/S SA AKET ESTATES LTD. MOREOVER, THE AGREEMENT DATED 09.10.2008 WAS ONLY FOR A PERIO D OF SIX MONTHS WHICH PROVES THAT THE ENTIRE AGREEMENT WAS PREPARED BY THE ASSES SEE AS AN AFTERTHOUGHT IN VIEW OF THE CLOSE CONNECTION BETWEEN ITSELF AND SUBSIDIA RY COMPANY (I.E. FALLING UNDER THE SAME MANAGEMENT). ACCORDINGLY HE HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE COMPANY FROM ITS SUBSIDIARY COMPANY HAD NO BUSINESS MOTIVES AND THE PROVISION OF SECTION 2(22)(E) WOULD GET ATTRACTED A ND ACCORDINGLY HE MADE THE ADDITION OF RS. 94,36,038/- IN THE ASSESSMENT. B EFORE THE LD. CIT(A) , THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. AO AND TRIED TO DISTINGUISH THE TREATMENT OF LOAN, ADVANCE, DEPOSIT BY PLACING RELIANCE ON VARIOUS DECISIONS AND EFFECTIVELY PLEADED THAT THE SAID AMO UNTS WERE RECEIVED ONLY IN THE COURSE OF BUSINESS TRANSACTION BY THE ASSESSEE AND THAT THE TRADE DEPOSIT WOULD NOT FALL UNDER THE AMBIT OF LOAN/ADVANCE SO AS TO ATTRA CT THE PROVISION OF 2(22)(E) OF 4 ITA NO.148/KOL/2016 M/S ASHIANA HOMES PVT. LTD. A.YR. 2011-12 4 THE ACT. THE LD. CIT(A) DID NOT HEED TO THE CONTENT IONS OF THE ASSESSEE AND UPHELD THE ACTION OF THE LD. AO. AGGRIEVED THE ASSE SSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 1. FOR THAT UNDER THE FACTS AND CIRCUMSTANCES OF TH E CASE BOTH LD. ASSESSING OFFICER AS WELL AS LD. COMMISSIONER OF INCOME TAX ( APPEALS) HAD ERRED IN MAKING AN ADDITION/CONFIRMING THE ADDITION OF RS. 9 4,36,038/- U/S 2(22)(E) OF THE INCOME TAX ACT, 1961 BY TREATING THE SAME AS DEEME D DIVIDEND. 2. FOR THAT LD. CIT(APPEALS) AS WELL AS LD. ASSESSI NG OFFICER BOTH HAD ERRED IN TREATING THE AGREEMENT FOR APPOINTMENT OF M/S SAAKE T ESTATESS LTD. AS SOLE ORGANIZER AND SOLICIT BOOKINGS OF RESIDENTIAL UNITS IN ASSESSEE COMPANYS PROJECT DATED 9 TH OCTOBER, 2008, AS AN AGREEMENT TO VITIATE THE PROV ISIONS OF SEC. 2(22)(E) OF THE ACT. 3. FOR THAT THE APPELLANT ASSESSEE COMPANY BEING EN GAGED IN DEVELOPMENT AND PROMOTION OF RESIDENTIAL UNIT HAD TO APPOINT AGENTS FOR BOOKING OF RESIDENTIAL UNITS AND IT IS CUSTOMERY IN THE REAL ESTATES BUSIN ESS TO DEMAND DEPOSIT FROM REAL ESTATES AGENTS WHICH IS IN THE ORDINARY COURSE OF B USINESS AND THIS ASPECT HAS BEEN IGNORED BY LD. ASSESSING OFFICER AS WELL AS LD . CIT(APPEALS). 4. FOR THAT LD. CIT(APPEALS) AS WELL AS LD. ASSESSI NG BOTH HAD FAILED TO APPRECIATE THE FACT THAT THE QUESTION OF PAYMENT OF BROKERAGE BY THE ASSESSEE COMPANY COULD NOT ARISE IN ABSENCE OF FULFILLMENT O F OBLIGATIONS BY M/S SAAKET ESTATESS LTD. AS PER THE TERMS OF THE AGREEMENT. 5. FOR THAT LD. AO AND LD. CIT(A) BOTH HAD ERRED IN TREATING THE SECURITY DEPOSIT OF RS. 94,36,038/- RECEIVED FROM REAL ESTATES AGENT , AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT AS THE APPELLANT ASSESSEE COMPA NY IS INCIDENTALLY A SHAREHOLDER OF THE SAID AGENT COMPANY, UNDER THE FA CTS AND CIRCUMSTANCES OF THE CASE. 6. FOR THAT YOUR APPELLANT CRAVES LEAVE TO ADD OR A LTER AND MODIFY THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF APPEAL HEARING. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING PAPER BOOKS FILED BY THE ASSESSEE. IN THE SAID PAPER BOOK VIDE PAGES 6 TO 9, THE ASSESSEE HAD ENCLOSED THE AGREEME NT ENTERED INTO WITH ITS SUBSIDIARY COMPANY DATED 09.10.2008. FROM THE PERUS AL OF THE SAID AGREEMENT WE 5 ITA NO.148/KOL/2016 M/S ASHIANA HOMES PVT. LTD. A.YR. 2011-12 5 FIND THAT THE PARTY OF THE FIRST PART IS ASHIANA HO MES PVT. LTD. I.E THE ASSESSEE HEREIN, AND THE PARTY OF THE SECOND PART IS SAAKET ESTATES LTD. RELEVANT CLAUSES IN THE SAID AGREEMENT ARE REPRODUCED HEREUNDER: 1. WHEREAS THE FIRST PARTY APPOINTS THE SECOND PAR TY AS SALE ORGANIZER TO PROCURE AND SOLICIT BOOKINGS OF RESIDENTIAL UNITS IN THE PROJEC T, ASHIANA LE RESIDENCY, IN THE NAME OF THE COMPANY AND THE BOOKINGS SO SOLICITED OR PROCUR ED SHALL BE SUBJECT TO RATIFICATION AND APPROVAL BY THE FIRST PARTY. 2. WHEREAS THE SECOND PARTY AGREED NOT TO ACT AS AG ENT OF THE FIRST PARTY BUT SHALL ONLY PROCURE BOOKING AS STATED IN POINT ONE ABOVE. 3. WHEREAS THE SECOND PARTY SHALL PROCURE BOOKINGS FOR RESIDENTIAL UNITS IN THE AFORESAID PROJECT AT PRICES AS PER COMPANYS PRICE LIST AS APPLICABLE AT THE TIME OF BOOKING AND ON SUCH TERMS AND CONDITIONS AS MAY BE STIPULATED BY THE COMPANY FROM TIME TO TIME IN WRITING. 4. WHEREAS IN CONSIDERATION OF THE ABOVE SERVICES R ENDERED BY THE SECOND PARTY, THE COMPANY WILL PAY 2% COMMISSION ON BASIC SALE PRICE OF THE RESIDENTIAL UNIT FOR WHICH BOOKINGS ARE PROCURED BY THE SECOND PARTY AND ACCEP TED BY THE COMPANY. THE SECOND PARTY WILL NOT BE PAID COMMISSION ON ANY OTHER CHAR GES. 5. WHEREAS THE SECOND PARTY AGREES TO DEPOSIT RS. 1 5,000,000(RUPEES ONE CRORE FIFTY LACS ONLY) AS SECURITY DEPOSIT WITH THE COMPANY. 6. WHEREAS THE FIRST PARTY AGREES TO PAY INTEREST @ 12% PA ON AFORESAID SECURITY DEPOSIT. 7. WHEREAS THE SECOND PARTY AGREES TO BRING NEW BUS INESS/PROSPECTIVE CUSTOMERS FOR MINIMUM RS. 50,00,000/-(RUPEES FIVE CRORES ONLY) PE R MONTH. 8. WHEREAS THE FIRST PARTY HAS FULL RIGHT TO REFUND THE AFORESAID SECURITY DEPOSIT ALONG WITH INTEREST AT ANY TIME WITHOUT GIVING ANY EXPLAN ATION. 9. WHEREAS THE FIRST PARTY HAVE THE RIGHT TO DEDUCT ANY PENALTY AMOUNT AND/OR PAY INTEREST AT LOWER INTEREST THEN AFORESAID AGREED RA TES IN CASE OF NON-PERFORMANCE OR BELOW AGREED PERFORMANCE. 10. WHEREAS THIS AGREEMENT SHALL BE VALID FOR A PER IOD OF SIX MONTHS FROM THE DATE OF AGREEMENT. 15. WHEREAS THIS AGREEMENT CAN BE TERMINATED BY EIT HER PARTY BY GIVING ONE MONTHS NOTICE IN WRITING TO THE OTHER. 6 ITA NO.148/KOL/2016 M/S ASHIANA HOMES PVT. LTD. A.YR. 2011-12 6 4.1. FROM THE AFORESAID CLAUSES IN THE SAID AGREEME NT IT WOULD BE INFERRED THAT M/S SAAKET ESTATES LTD. IS OBLIGATED TO BRING BUSIN ESS IN THE FORM OF PROSPECTIVE CUSTOMERS FOR MINIMUM 50 LACS. PER MONTH WHICH WAS NOT ADMITTEDLY DONE BY IT. THE AGREEMENT WAS VALID ONLY FOR SIX MONTHS. SINCE, M/S SAAKET ESTATES LTD. HAD NOT PERFORMED ITS OBLIGATION, THE ASSESSEE CHOSE T O TERMINATE THE AGREEMENT AND DECIDED TO REFUND THE ENTIRE MONIES RECEIVED WITH I NTEREST RATE OF 9%. BUT FROM THE FACTS NARRATED ABOVE, WE ARE NOT INCLINED TO A CCEPT THE STAND OF THE ASSESSEE IN AS MUCH AS THE SAID AGREEMENT CLEARLY WARRANTS PERF ORMANCE OF CERTAIN OBLIGATIONS ON THE PART OF M/S SAAKET ESTATES LTD. BY BRINGING NEW CUSTOMERS FOR PURCHASING THE RESIDENTIAL UNITS PROMOTED BY THE ASSESSEE. EVE N THOUGH THE ASSESSEE HAD STATED THE RECEIPT OF MONEYS AS TRADE DEPOSIT IN IT S TAX AUDIT REPORT FILED ALONG WITH RETURN OF INCOME, THERE WAS NO EVIDENCE TO PROVE TH AT THE BUSINESS NEXUS WITH THE RECEIPT OF BOTH AMOUNTS FROM THE SUBSIDIARY COMPANY . HENCE WE ARE CONVINCED THAT THE SAID AMOUNTS WERE NOT RECEIVED BY THE ASSE SSEE IN THE ORDINARY COURSE OF BUSINESS. ADMITTEDLY M/S SAAKET ESTATES LTD. IS ALS O NOT ENGAGED IN THE BUSINESS OF LENDING. WE HOLD THAT MERELY MENTIONING THE REC EIPT OF MONEY FROM SUBSIDIARY COMPANY WHICH IS NOMENCLATURED AS TRADE DEPOSIT IN THE BOOKS OF ACCOUNTS, WOULD NOT CHANGE THE REAL CHARACTER OF THE TRANSACT ION, WHICH IN THE PRESENT CASE, IS CLEARLY A LOAN/ ADVANCE BY THE SUBSIDIARY COMPAN Y TO THE ASSESSEE COMPANY. THERE IS NO DISPUTE THAT THE ASSESSEE IS HOLDING MO RE THAN 10% OF VOTING POWER AND HAS GOT SUBSTANTIAL INTEREST IN THE SUBSIDIARY COMPANY I.E. SAAKET ESTATES LTD.. HENCE, THIS IS A CLEAR CASE OF RECEIPT OF LOAN BY T HE ASSESSEE IN ITS CAPACITY AS A SHAREHOLDER FROM SAAKET ESTATES LTD.. HENCE, THIS TRANSACTION WOULD SQUARELY FALL WITHIN THE AMBIT OF PROVISION OF SECTION 2(22)(E) O F THE ACT. WE HOLD THAT THE AGREEMENT DATED 09.10.2008 BETWEEN THE ASSESSEE AND SAAKET ESTATES LTD. AT MUTUALLY AGREED TERMS IS DONE ONLY WITH A VIEW TO C IRCUMVENT THE PROVISIONS OF 7 ITA NO.148/KOL/2016 M/S ASHIANA HOMES PVT. LTD. A.YR. 2011-12 7 SECTION 2(22)(E) OF THE ACT AND DOES NOT FALL WITHI N THE AMBIT OF COMMERCIAL TRANSACTION SO AS TO FALL OUTSIDE THE SCOPE OF SECT ION 2(22)(E). WE ALSO FIND THAT THERE WAS NO INTENTION TO DO ANY BUSINESS BY THE SU BSIDIARY COMPANY ON BEHALF OF THE ASSESSEE PURSUANT TO THE SAID AGREEMENT AS ADMI TTEDLY THEIR AGREEMENT WAS VALID ONLY FOR A PERIOD OF SIX MONTHS. WE ALSO FIND THAT M/S SAAKET ESTATES LTD. HAD GIVEN AWAY SUBSTANTIAL PORTION OF ITS ACCUMULAT ED PROFITS IN THE FORM OF LOAN TO THE ASSESSEE COMPANY THEREBY SQUARELY INVITING T HE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, THE GROUNDS RAIS ED BY THE ASSESSEE ARE DISMISSED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 07.02.2018 SD/- SD/- [S.S. VISWANETHRA RAVI] [ M.BAL AGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 07.02.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. M/S ASHIANA HOMES PVT. LTD., 46C, CHOWRINGHEE RO AD, 5F, EVEREST, KOLKATA-700069 2. DCIT, CIRCLE-8(1), KOLKATA, P-7, CHOWRINGHEE SQU ARE, KOLKATA -700069. 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S 8 ITA NO.148/KOL/2016 M/S ASHIANA HOMES PVT. LTD. A.YR. 2011-12 8