Sh. Moni Kumar Subba, New Delhi V. ACIT, New Delhi

ITA 2107/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7069 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 23-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 09-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Keywords: Deemed dividend; Notional interest

Judgement Text

PAGE 1 OF 5 MONI KUMAR SUBBA VS. ACIT, I TA NO .2107/DEL/2014 (ASSESSMENT YEAR: 2009 - 10 ) INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E : NEW DELHI BEFORE SH. H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI , ACCOUNTANT MEMBER I TA NO . 2107/DEL/2014 (ASSESSMENT YEAR: 2009 - 10 ) MONI KUMAR SUBBA, SUBBA FARM HOUSE, 118, VILLAGE SULTANPUR, MEHRAULI, GURGAON ROAD, DELHI - 30 PAN:AASPS1484J VS. ACIT, CENTRAL CIRCLE - 4, ARA BUILDING, 3 RD FLOOR, JHANDEWALAN ETX., NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SATYAJEET GOEL, CA REVENUE BY: SH. P. DAM KANUNJNA, SR. DR DATE OF HEARING 23/06/ 2016 DATE OF PRONOUNCEMENT 2 9 / 06 /2016 O R D E R PER PRASHANT MAHARISHI , A . M . 1. THIS APPEAL IS FILED BY ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) XII NEW DELHI DATED 22 ND OF JANUARY 2014. 2. BY THIS APPEAL ASSESSEE HAS CHALLENGED ONLY T W O ISSUES AS UNDER: A. GROUND NO. 1 IT HAS CHALLENGED INFORMATION OF THE ADDITION OF RS. 5233200/ - IN RESPECT OF RENTED PROPERTIES DESPITE THERE BEING DECISION OF HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE B. GROUND NO. 2 IS RELATING TO CON FIRMATION OF ADDITION OF RS. 1123602 UNDER SECTION 2 (22) (E) OF THE INCOME TAX ACT 3. BRIEF FACTS OF THE CASE IS THAT THE APPELLANT IS AN INDIVIDUAL EARNS INCOME FROM HOUSE PROPERTY, INCOME FROM OTHER SOURCES AND CAPITAL GAINS. FOR THE YEAR ASSESSEE FILED H IS RETURN OF INCOME ON 20 TH MARCH 201 0 SHOWING TOTAL INCOME OF RS. 19472 82/ - . THE LD. ASSESSING OFFICER FRAMED ASSESSMENT UNDER SECTION 143 (3) OF THE INCOME TAX ACT BY MAKING 2 ADDITIONS ONE ON ACCOUNT OF DEEMED DIVIDEND OF RS. 11.23 LACS AND ANOTHER OF 5 2.33 LACS UNDER THE PAGE 2 OF 5 MONI KUMAR SUBBA VS. ACIT, I TA NO .2107/DEL/2014 (ASSESSMENT YEAR: 2009 - 10 ) HEAD INCOME FROM HOUSE PROPERTY. BOTH THESE ADDITIONS WERE CHALLENGED BY THE ASSESSEE BEFORE THE LD. CIT (A) WHO IN TURN CONFIRMED THOSE ADDITIONS AND THEREFORE ASSESSEE IS IN APPEAL BEFORE US. 4. THE 1 ST GROUND OF APPEAL DIVIDED INTO THRE E PARTS IS AGAINST THE ADDITION OF RS. 52.33 LACS IN RESPECT OF RENTED PROPERTY AT 267, MASJID MOTH , AND ADHICHINI IN NEW DELHI. ASSESSEE HAS LET OUT THESE PROPERT IES TO ONE OF THE COMPANY WHERE ASSESSEE HAS MADE SOME INVESTMENT. THE RENTAL INCOME FROM T HEIR PROPERTIES IS RS. 1.80 LACS WHEREAS SECURITY DEPOSIT OF RS. 10.78 CRORE IS RECEIVED BY THE ASSESSEE. OUT OF THE ABOVE AMOUNT OF SECURITY DEPOSIT 2.20 CRORES HAS HOWEVER BEEN REFUNDED THEREFORE THERE IS A NET BALANCE OF 7.27 CRORES OUTSTANDING AS SECUR ITY DEPOSIT FROM THOSE SISTER CONCERN. THEREFORE LD. ASSESSING OFFICER AFTER MAKING E NQUIRY DETERMINED THE ANNUAL LET OUT VALUE OF THE PROPERTY AT MASJID WARD TO RS. 77.76 LACS. WITH RESPECT TO THE OTHER PROPERTY AT SHRI ADHICHINI ARBINDO MARG, WHERE THE ANNUAL LET OUT VALUE WAS SHOWN TO BE RS. 60,000 IN THE RETURN OF INCOME OF THE ASSESSEE AND AS PER THE ENQUIRY REPORT ACTUAL RENT RECEIVABLE BY THE ASSESSEE FROM 4 FLOORS OF THAT PROPERTY WAS RS. 2.6 LACS PER MONTH. THEREFORE , ALV OF THE PROPERTY WAS DETERMINED AT RS. 7.20 LACS AGAINST RS. 60,000 SHOWN BY THE ASSESSEE AND NET ADDITION OF RS. 6.60 LACS WAS MADE TO THE DECLARED RENTAL INCOME OF THE ASSESSEE. AS THE ASSESSEE SHOWED INCOME OF THE 656185/ - AND INCOME FROM HOUSE PROPERTY IN THAT ADDITION OF RS. 5233200/ - WAS MADE TO THE INCOME OF THE ASSESSEE. ASSESSEE CHALLENGED THIS ADDITION BEFORE COMMISSIONER OF INCOME TAX (APPEALS) UNSUCCESSFULLY. THEREFORE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE US ON THIS GROUND. 5. LD. AR OF THE ASS ESSEE SUBMITTED BEFORE US THAT THIS ISSUE IS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE DELHI HIGH COURT WHEREIN IT HAS BEEN HELD THAT THE THOUGH ASSESSEE IS TAKING INORDINATELY LARGE SUM AS INTEREST - FREE DEPOSIT COMPARED TO AGREE D MONTHLY RENT BUT THE PAGE 3 OF 5 MONI KUMAR SUBBA VS. ACIT, I TA NO .2107/DEL/2014 (ASSESSMENT YEAR: 2009 - 10 ) ADDITION OF NOTIONAL INTEREST THEREON IS NOT PROPER AND FAIR RENT MUST BE DETERMINED. THEREFORE HE SUBMITTED THAT THIS GROUND OF APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. 6. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF LOWER AUTHORITIES AND SUBMITTED THAT THI S DECISION HAS NOT BEEN ACCEPTED BY THE REVENUE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND WE HAVE ALSO PERUSED THE ORDER OF THE HONBLE DELHI HIGH COURT FULL BENCH REPORTED AT 333 ITR 38 ( D EL ) DEALING WITH THE IDENTICAL ISSUE WITH RESPECT TO THE SAME PROPERTIES WHERE ISSUES HAVE BEEN DECIDED BY THE HONBLE HIGH COURT IN FAVOUR OF THE ASSESSEE. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE HIGH COURT WE DECIDE GROUND NO. 1 IN FAVOUR OF THE ASSESSEE REVERSING THE ORDER OF THE LOWER AUTHORITIES DELETING ADDITION OF RS. 52.33 LACS BEEN MADE IN RESPECT OF RENTED PROPERTIES. THEREFORE GROUND NO. 1 OF THE APPEAL IS ALLOWED. 8. GROUND NO. 2 OF THE APPEAL IS AGAINST AN ADDITION OF RS. 11. 23 LACS AS DEEMED DIVIDEND. DURING THE YEAR THE ASSESSEE HAS RECEIVED AN ADVANCE OF RS. 11.23 LACS FROM M/S SUBA MICROSYSTEMS PRIVATE LIMITED A CLOSELY HELD COMPANY CONTROLLED BY THE ASSESSEE THROUGH HIS MINOR SON HAVING SHAREHOLDING OF MORE THAN 67.14%. THIS TRANSACTION ATTRACTS THE PROVISIONS OF SECTION 2 (22)(E) OF THE INCOME TAX ACT AS THE COMPANY POSSESSES SUFFICIENT A CUMULATIVE PROFITS. BEFORE THE ASSESSING OFFICER ASSESSEE SUBMITTED THAT ASSESSEE HOLDS LESS THAN 10% SHARES IN THAT COMPANY AND HIS M INOR SON IS HOLDING SHARES OF 67.14%. THE 2 ND ARGUMENT WAS THAT THE ASSESSEE RECEIVE D RENT FROM THAT PARTICULAR COMPANY AS PER THE LEASE AGREEMENT AND AFORESAID COMPANY MAINTAINS A CURRENT ACCOUNT IN THE NAME OF THE ASSESSEE AND THIS AMOUNT IS SUBSEQUENTLY ADJUSTED FROM THE MONTHLY RENTAL INCOME RECEIVABLE BY THE ASSESSEE FROM THE COMPANY. IN VIEW OF THIS ASSESSEE CONTENDED THAT THE PROVISIONS OF DEEMED DIVIDEND DOES NOT ATTRACT PAGE 4 OF 5 MONI KUMAR SUBBA VS. ACIT, I TA NO .2107/DEL/2014 (ASSESSMENT YEAR: 2009 - 10 ) IN THE CASE OF THE ASSESSING AS IT IS CURRENT ACCOUNT AND BUSINESS TRANSACTION . HOWEVER LD AO REJECTED THE CONTENTION OF THE ASSESSEE AND MADE AN ADDITION TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF DEEMED DIVIDEND. THE MATTER WAS CARRIED BEFORE THE LD. CIT (A) WHO CONFIRMED THE ADDITION AS ACCORDING TO HIM THE COMPANIES CONTROLLED BY THE ASSESSEE THROUGH THE SHAREHOLDING OF HIS MINOR SON. 9. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE REPEATED THE SAME ARGUMENTS WHICH WERE MADE BY ASSESSEE BEFORE THE LOWER AUTHORITIES. LD DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT MINOR IS NOT A SHAREHOLDER BUT THE REAL SHAREHOLDER I S THE ASSESSEE WHO CONTROLS THE COMPANY BY HOLDING OF THE MINOR SON OF THE ASSESSEE. THEREFORE HIS CONTENTION WAS THAT THE LD. AO HAS RIGHTLY MADE THE ADDITION. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND A LSO PERUSED THE DECISIONS OF LOWER AUTHORITIES. ACCORDING TO THE FACTS RECORDED BY THE LOWER AUTHORITIES THE ASSESSEE HAS RECEIVED A SUM OF RS. 11.23 LACS FROM THE COMPANY IN WHICH HIS MINOR SON HOLDS 67.14% SHAREHOLDING. ACCORDING TO THE PROVISIONS OF SEC TION 2 (22) (E) OF THE INCOME TAX ACT DIVIDEND INCLUDES 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) MADE AFTER THE 31S T 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. THEREFORE ACCORDING TO THE PROVISIONS OF THE LAW THE ASSESSEE MUST BE THE BENEFICIAL OWNER OF THE SHARES OF 10% OR MORE. IN THIS CASE LD AO HAS NOT ESTABLISHED WHETHER THE ASSESSEE IS HOLDING SHARES AS THE BENEFICIAL SHAREHO LDER OF 10% OR MORE. WE DO NOT FIND ANY SUCH FINDING IN THE ASSESSMENT ORDER. MERELY BECAUSE THE SHARES ARE PAGE 5 OF 5 MONI KUMAR SUBBA VS. ACIT, I TA NO .2107/DEL/2014 (ASSESSMENT YEAR: 2009 - 10 ) HELD BY THE MINOR SON OF THE ASSESSEE AND THE LOAN IS RECEIVED BY THE ASSESSEE IT CANNOT BE ESTABLISHED THAT ASSESSEE IS THE BENEFICIAL SHAREHOLDER OF 10% OR MORE AND THEREFORE SUCH LOAN AMOUNT IS NOT CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. FURTHERMORE THE SUBMISSION OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT IT IS IN THE NATURE OF ADVANCE RENT AS WHENEVER THE RENT IS PAYABLE BY THE COM PANY TO THE ASSESSEE SAME IS DEDUCTIBLE FROM THIS AMOUNT THEREFORE IT PARTAKES THE CHARACTER OF ADVANCE RENT. THE LD. AO HAS ALSO NOT CATEGORICALLY STATED THAT THIS AMOUNT IS NOT ADVANCE RENT AND NOT ADJUSTED SUBSEQUENTLY AGAINST THE RENT PAYABLE BY THE CO MPANY TO THE ASSESSEE. ACCORDING TO US IF IT IS AN ADVANCE RENT THEN IT BECOMES A BUSINESS TRANSACTION AND THE PROVISIONS OF DEEMED DIVIDEND CANNOT APPLY TO SUCH TRANSACTIONS. IN VIEW OF THIS WE REVERSE THE FINDING OF LOWER AUTHORITIES IN CONFIRMING AN ADD ITION OF RS. 11.23 LACS ON ACCOUNT OF ADVANCE RENT RECEIVED BY THE ASSESSEE FROM THE SUBA MICROSYSTEMS PRIVATE LIMITED. IN THE RESULT GROUND NO. 2 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 11. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 2 9 / 06 /2016 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 9 / 06 / 2016 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI