ACIT, Trichy V. Shri M.Anand and Others, Legal Heirs of Late Shri M.V.Maruthachalam, Trichy

ITA 4/CHNY/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68669 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 03-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VENKATESH R
• Keywords: Deemed dividend; Commercial expediency
• Section: 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NOS. 2, 3 & 4/MDS/2011 (ASSESSMENT YEARS : 2005-06 TO 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE I, TIRUCHIRAPPALLI. (APPELLANT) V. SHRI M. ANAND & OTHERS, L/RS OF SHRI M.V. MARUTHACHALAM, C-11, 3 RD CROSS WESTERN EXTENSION, THILLAINAGAR, TRICHY 620 018. PAN: AACPM 7037 M (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY : SHRI VENKATESH. R., CA DATE OF HEARING : 12.08.2013 DATE OF PRONOUNCEMENT : 22.08.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THESE APPEALS FILED BY THE REVENUE, A COMMON G ROUND APPEARS, APART FROM OTHERS, ASSAILING DELETION OF A N ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 2(22)(E) OF INC OME-TAX ACT, 1961 (IN SHORT 'THE ACT'). THIS COMMON GROUND IS TAKEN UP FIRST. I.T.A. NOS. 2,3&4/MDS/11 2 2. FACTS APROPOS ARE THAT ASSESSEE, A MANAGING DIRE CTOR OF ONE M/S M/S ROHINI HOUSING DEVELOPERS PVT. LTD., WAS AL SO A PROPRIETOR OF A CONCERN CALLED M/S ROHINI HOUSING DEVELOPERS. TH ERE WAS A SEARCH IN THE GROUP CONCERNS ON 29.8.2007. FROM TH E RECORDS, IT WAS FOUND THAT ASSESSEE HAD WITHDRAWN SUBSTANTIAL SUMS FROM M/S ROHINI HOUSING DEVELOPERS PVT. LTD., A CLOSELY HELD COMPAN Y (HEREINAFTER REFERRED AS THE COMPANY), ON VARIOUS DATES, DURIN G THE PERIOD 1.4.2004 TO 31.3.2007. ASSESSEE WAS A REGISTERED S HAREHOLDER OF THIS COMPANY HOLDING 63% OF TOTAL SHARES. ASSESSIN G OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, REQUIRED THE ASSESSEE TO EXPLAIN WHY SECTION 2(22)(E) SHOULD NOT BE APPLIED FOR THE LOANS TAKEN BY HIM FROM THE COMPANY SINCE IT WAS HAVING S UBSTANTIAL RESERVES. REPLY OF THE ASSESSEE WAS THAT THE AMOU NTS GIVEN BY THE COMPANY TO THE ASSESSEE WAS PURSUANT TO CERTAIN RES OLUTIONS PASSED BY THE BOARD OF DIRECTORS OF THE COMPANY ON 4 TH DAY OF OCTOBER, 2004. AS PER THE ASSESSEE, THROUGH SUCH RESOLUTIONS, THE COMPANY HAD DECIDED THAT WHEN THERE WERE PRACTICAL PROBLEMS IN ACQUIRING THE PROPERTY IN THE NAME OF THE COMPANY, IT COULD ACQUI RE SUCH PROPERTY IN THE NAME OF ITS MANAGING DIRECTOR AND / OR DIREC TORS. ASSESSEE ALSO SUBMITTED THAT BOARD OF DIRECTORS OF THE COMPA NY HAD AUTHORIZED THE ASSESSEE TO WITHDRAW MONEY, WHICH WAS NECESSARY FOR SUCH I.T.A. NOS. 2,3&4/MDS/11 3 ACQUISITION OF LAND. AS PER THE ASSESSEE, THE COMP ANY HAD ENTERED INTO A DEVELOPMENT AGREEMENT WITH SMT. M. PADMAVATH Y, SHRI M. SIVARAMAN, SMT. M. JAYANTHI AND SMT. M. SARASWATHY, ON 1.11.2004 AND ON BEHALF OF THE COMPANY, AN AGREEMENT WAS SIGN ED BY THE ASSESSEE WITH THE SAID PERSONS FOR A PROPERTY CALLE D JAYANTHI HOTEL PROPERTY HELD BY THEM. A SUM OF ` 30 LAKHS WAS ALSO PAID BY THE ASSESSEE TO SUCH PERSONS, OUT OF WHICH, ` 23.75 LAKHS WAS DIRECTLY PAID BY THE ASSESSEE, BY CLOSING A FIXED DEPOSIT IN HIS NAME IN M/S SYNDICATE BANK. ON THE SAME DAY, A POWER OF ATTORN EY WAS ALSO OBTAINED FROM THE SAID PERSONS IN THE NAME OF SHRI M. ANAND, WHO WAS SON OF THE ASSESSEE. SHRI M. ANAND WAS ALSO A DIRECTOR OF THE COMPANY. 3. FURTHER, AS PER THE ASSESSEE, THE COMPANY WANTED TO PURCHASE THE PROPERTY HELD BY SMT. M. PADMAVATHY AND OTHERS, IN THE PERSONAL NAME OF THE ASSESSEE, IN ORDER TO AVOID LEGAL COMPL ICATIONS AND PROCEEDINGS, WHICH WOULD OTHERWISE GET FASTENED ON THE COMPANY. THERE WERE CERTAIN HURDLES IN PURCHASING THE PROPER TY ON ACCOUNT OF DISPUTES BETWEEN THE CO-OWNERS. THEREFORE, AS PER THE ASSESSEE, THE MONEY WITHDRAWN BY HIM FROM THE COMPANY FOR THE PURPOSE OF MAKING PAYMENTS TO THE SELLERS, WAS KEPT IN HIS BAN K ACCOUNT. AS PER THE ASSESSEE, AT NO POINT OF TIME, SUCH SUMS WERE U TILIZED BY HIM FOR I.T.A. NOS. 2,3&4/MDS/11 4 PERSONAL PURPOSES. THE INTENDED PURCHASE COULD NOT COME THROUGH DUE TO BICKERINGS BETWEEN THE CO-OWNERS, WHICH ALL GOT FINALLY SETTLED ONLY ON 3.5.2007, WHEN A COMPROMISE WAS ENTERED WIT H ONE OF THE CO-OWNERS SHRI M. SIVARAMAN. THEREAFTER, FOR SETTL ING THE AMOUNTS DUE TO THE BUYERS, ASSESSEE HAD RETURNED THE MONEY TO THE COMPANY AND SUCH MONEY WAS UTILIZED BY THE COMPANY FOR PURC HASING THE PROPERTY. RELIANCE WAS PLACED BY THE ASSESSEE ON T HE DECISION OF HON'BLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD . V. CIT (288 ITR 1) AND THAT OF DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF SUNIL SETHI V. DCIT (2008) 26 SOT 95. CRUX OF THE ASSESSEES CONT ENTION WAS THAT IT WAS ONLY A LOAN GIVEN WITH COMMERCIAL INTENTION, WHICH ANY PRUDENT BUSINESSMAN WOULD DO THAT TOO ONLY FOR PURSUING THE OBJECTS OF THE COMPANY AND THEREFORE, IT WOULD NOT COME WITHIN THE REALM OF SECTION 2(22)(E) OF THE ACT. ASSESSEE ALSO POINTED OUT THA T INTEREST RECEIVED BY HIM ON THE DEPOSITS MADE OUT OF THE MONEY DRAWN FROM THE COMPANY, WAS SHOWN IN THE RETURN OF INCOME FOR ASSE SSMENT YEARS 2005-06 AND 2006-07. FURTHER, SUBMISSION OF THE AS SESSEE WAS THAT HE WAS ONE OF THE MAIN PROMOTERS OF THE COMPANY AND INTEREST RECEIVED WAS TO BE VIEWED ONLY AS A REWARD FOR HARD WORK PUT IN BY HIM, IN HIS ROLE AS MANAGING DIRECTOR OF THE COMPAN Y. I.T.A. NOS. 2,3&4/MDS/11 5 4. ASSESSING OFFICER HOWEVER WAS NOT IMPRESSED. AC CORDING TO HIM, BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2005 SHOWED THAT ASSESSEE HAD PURCHASED A PROPERTY IN HIS INDIVIDUAL NAME AT MELUR FOR A CONSIDERATION OF ` 2,57,74,647/-. ASSESSING OFFICER ALSO RELIED ON A SWORN STATEMENT RECORDED FROM THE ASSESSEE ON 23 RD NOVEMBER, 2007 UNDER SECTION 131 OF THE ACT, WHEREIN IN ANSWE R TO QUERY NO.13, ASSESSEE MENTIONED THAT THE AMOUNTS RECEIVED FROM T HE COMPANY WERE UTILIZED FOR MEETING THE NEEDS OF HIS PROPRIET ARY CONCERN M/S ROHINI HOUSING DEVELOPERS. ACCORDING TO THE A.O., THE COMPANY BEING A LEGAL ENTITY CAPABLE OF PURCHASING PROPERTY ON ITS OWN, THERE WAS NO NEED TO DO SO THROUGH THE ASSESSEE. ASSESSE E WAS ALLOWED TO ENJOY THE MONEY OF THE COMPANY. RELYING ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF SMT. TARULATA SHY AM V. CIT (108 ITR 345), A.O. HELD THAT THE AMOUNTS GIVEN BY THE C OMPANY TO THE ASSESSEE FELL WITHIN THE MEANING OF DEEMED DIVIDEN D UNDER SECTION 2(22)(E) OF THE ACT. BASED ON A CHART PREPARED BY THE ASSESSEE, A.O. HELD THAT THE ACCUMULATED DEEMED DIVIDEND IN THE AS SESSEES HAND WOULD BE ` 1,66,04,545/- FOR ASSESSMENT YEAR 2005-06, ` 99,96,229/- FOR ASSESSMENT YEAR 2006-07 AND ` 18,58,500/- FOR ASSESSMENT YEAR 2007-08. ASSESSMENTS WERE ACCORDINGLY COMPLETED. I.T.A. NOS. 2,3&4/MDS/11 6 5. AGGRIEVED, ASSESSEE MOVED IN APPEALS BEFORE CIT( APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT THE AMOUNTS RECEI VED BY HIM FROM THE COMPANY WERE KEPT IN BANK DEPOSITS AND WER E NOT USED FOR PURCHASING ANY PROPERTY AT MELUR, SRIRANGAM. AS PE R THE ASSESSEE, THIS FACT WAS BORNE OUT OF THE OBSERVATION OF THE A SSESSING OFFICER ON PAGE 7 OF THE ASSESSMENT ORDER. INTEREST GENERATED WAS ONLY INCIDENTAL. THERE WAS AN INITIAL PAYMENT OF ` 23.75 LAKHS MADE BY THE ASSESSEE BY CLOSING HIS OWN BANK ACCOUNT, TO THE SE LLERS OF THE PROPERTY AND THIS CLEARLY PROVED THE INTENTION. TH E PAYMENTS MADE BY THE COMPANY TO THE ASSESSEE WERE FOR BUSINESS EX PEDIENCY FOR PURCHASING THE JAYANTHI HOTEL PROPERTY OWNED BY SMT . M. PADMAVATHY, SHRI M. SIVARAMAN, SMT. M. JAYANTHI AND SMT. M. SARASWATHY. AS PER ASSESSEE, THERE WAS NO BENEFIT RECEIVED BY HIM ON ACCOUNT OF THE MONEY RECEIVED FROM THE COMPANY. THE SMALL INTEREST ON DEPOSITS WAS ONLY A JUST REWARD FOR THE VALUABLE SERVICE RENDERED BY HIM FOR THE COMPANY. RELIANCE WAS PLAC ED ON THE DECISION OF CHANDIGARH BENCH OF THIS TRIBUNAL IN TH E CASE OF DCIT V. LAKRA BROTHERS (106 TTJ 250), THAT OF HON'BLE BOMBA Y HIGH COURT IN THE CASE OF CIT V. NAGINDAS M. KAPADIA (177 ITR 393 ), THAT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. RAJK UMAR (318 ITR I.T.A. NOS. 2,3&4/MDS/11 7 462) AND THAT OF HON'BLE APEX COURT IN THE CASE OF S.A. BUILDERS V. CIT (288 ITR 1). 6. CIT(APPEALS) WAS IMPRESSED BY ABOVE CONTENTIONS OF THE ASSESSEE. ACCORDING TO HIM, THERE WAS A RESOLUTION PASSED BY THE BOARD OF THE COMPANY M/S ROHINI HOUSING DEVELOPERS PVT. LTD. ON 4.10.2004, WHICH AUTHORIZED THE ASSESSEE TO NEGOTIA TE WITH THE CO- OWNERS OF JAYANTHI HOTEL PROPERTY, FOR PURCHASING S UCH PROPERTY, AND HAD ALSO AUTHORIZED PAYMENTS TO THE ASSESSEE, WHO W AS THE MANAGING DIRECTOR OF THE SAID COMPANY, FOR CLINCHIN G THE DEAL. FURTHER, AS PER CIT(APPEALS), THE DELAY IN PURCHASI NG JAYANTHI HOTEL PROPERTY WAS ONLY DUE TO DISPUTES AMONG ITS CO-OWNE RS AND ASSESSEE WAS FORCED TO KEEP THE MONEY RECEIVED FROM THE COMP ANY IN BANK DEPOSITS ONLY BECAUSE OF SUCH DELAY, AND ALSO TO EN SURE LIQUIDITY. ON FINALIZATION OF THE DEAL, THE MONEY WAS RETURNED TO THE POWER OF ATTORNEY HOLDER, SHRI M. ANAND, WHO WAS THE SON OF THE ASSESSEE AND ALSO A DIRECTOR OF THE COMPANY. ACCORDING TO CIT(A PPEALS), ASSESSING OFFICERS OBSERVATION THAT ASSESSEE HAD U TILIZED THE MONEY RECEIVED FROM THE COMPANY FOR PURCHASING A PROPERTY AT MELUR, SRIRANGAM, WENT AGAINST HIS OWN FINDING THAT ` 238.25 LAKHS OUT OF ` 261.33 LAKHS RECEIVED BY THE ASSESSEE FROM THE COMP ANY, WAS KEPT BY THE ASSESSEE IN BANK DEPOSITS. ACCORDING TO HIM , CONSIDERING THE I.T.A. NOS. 2,3&4/MDS/11 8 COMMERCIAL NEED OF THE TRANSACTION AND ALSO THE PIV OTAL ROLE PLAYED BY THE ASSESSEE IN M/S ROHINI HOUSING DEVELOPERS PV T. LTD., WHAT WAS RECEIVED BY THE ASSESSEE FROM HIS COMPANY COULD NOT BE CONSIDERED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E ) OF THE ACT. 7. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDERS OF CIT(APPEALS), SUBMITTED THAT THE SO-CALLED DEVELOPM ENT AGREEMENT BETWEEN THE COMPANY M/S ROHINI HOUSING DEVELOPERS P VT. LTD. AND SHRI M. SIVARAMAN AND OTHER CO-OWNERS, PLACED AT PA PER-BOOK PAGES 12 TO 27 OF THE ASSESSEE CLEARLY MENTIONED THE COMP ANY AS PARTY OF THE SECOND PART. ON BEHALF OF THE COMPANY, ASSESSE E HAD SIGNED THE SAID AGREEMENT. AS PER LEARNED D.R., ON THE SAME D ATE, THERE WAS A GENERAL POWER OF ATTORNEY EXECUTED BY THE CO-OWNERS IN FAVOUR OF SHRI M. ANAND, DIRECTOR OF THE SAID COMPANY, FOR MANAGIN G THE PROPERTY UNTIL IT WAS SOLD AND FOR PREPARING APPLICATIONS, S UBMITTING THE PLANS AND OBTAINING SANCTION FOR CONSTRUCTION OF BUILDING . EVEN IF WE ACCEPT THE RESOLUTIONS PASSED BY THE COMPANY ON 4.1 0.2004, TO BE GENUINE, STILL FUNDS OUGHT HAVE BEEN GIVEN ONLY TO SHRI M. ANAND AND NOT TO THE ASSESSEE. THERE WAS NOTHING WHICH COULD LINK THE ADVANCES GIVEN BY THE COMPANY TO THE ASSESSEE WITH THE CONTEMPLATED PURCHASE OF JAYANTHI HOTEL BY THE COMP ANY. JUST BECAUSE ASSESSEE HAD MADE A DIRECT PAYMENT OF `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` 23.75 LAKHS MADE BY THE ASSESSEE DIRECTLY TO THE CO -OWNERS OF THE PROPERTY, BY CLOSING HIS FIXED DEPOSIT, WOULD NOT I N ANY WAY DILUTE THE SITUATION. THE FACT REMAINS THAT SUBSTANTIAL FUNDS WERE TRANSFERRED BY THE COMPANY TO THE ASSESSEE AND ASSESSEE ENJOYED SU CH FUNDS DURING THE RELEVANT PREVIOUS YEARS. SECTION 2(22)( E) OF THE ACT IS VERY RELEVANT AT THIS POINT, WHICH IS REPRODUCED HEREUND ER:- 2(22)(E) - ANY PAYMENT BY A COMPANY, NOT BEING A CO MPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF A NY SUM (WHETHER AS REPRESENTING A PART OF THE ASSETS OF TH E COMPANY OR OTHERWISE) [MADE AFTER THE 31ST DAY OF MAY, 1987, B Y WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITL ED 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, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBE R OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN)] OR AN Y PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL B ENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPAN Y IN EITHER CASE POSSESSES ACCUMULATED PROFITS 10. WHEN AN ADVANCE OR LOAN GIVEN TO SHAREHOLDER, W HO IS HAVING SUBSTANTIAL INTEREST, THE SAID SUB-SECTION GETS ATT RACTED. HERE, NOT ONLY WERE LOANS GIVEN, ADMITTEDLY, ASSESSEE ENJOYED ITS FRUITS AS WELL. IN THE CASE OF SMT. TARULATA SHYAM (SUPRA), IT WAS HELD BY HON'BLE I.T.A. NOS. 2,3&4/MDS/11 14 APEX COURT IN RELATION TO SECTION 2(6A)(E) OF INCOM E-TAX ACT, 1922, WHICH DEALT WITH THE ASPECT OF DEEMED DIVIDEND, AS UNDER:- ONCE IT IS SHOWN THAT THE CASE OF THE ASSESSEE COME S WITHIN THE LETTER OF THE LAW, HE MUST BE TAXED, HOWEVER GREAT THE HARDSHIP MAY APPEAR TO THE JUDICIAL MIND TO BE THE LEGI SLATURE HAS DELIBERATELY NOT MADE THE SUBSISTENCE OF THE LOAN O R ADVANCE, OR ITS BEING OUTSTANDING ON THE LAST DATE OF THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR, A PRE-REQUISITE FO R RAISING THE STATUTORY FICTION. IN OTHER WORDS, EVEN IF THE LOA N OR ADVANCE CEASES TO BE OUTSTANDING AT THE END OF THE PREVIOUS YEAR, IT STILL BE DEEMED AS A DIVIDEND IF THE OTHER FOUR CONDITI ONS FACTUALLY EXIST, TO THE EXTENT OF THE ACCUMULATED PROFITS POS SESSED BY THE COMPANY. 11. NONE OF THE RECORDS PRODUCED BY THE ASSESSEE WO ULD SHOW THAT THE AMOUNTS RECEIVED BY HIM FROM THE COMPANY, WERE FOR THE PURPOSE OF BUSINESS OF THE SAID COMPANY. JUST BECAUSE MONE Y WAS RETURNED BY THE ASSESSEE TO THE COMPANY AT A LATER POINT OF TIME WOULD NOT ABSOLVE THE ASSESSEE FROM APPLICATION OF SECTION 2( 22)(E) OF THE ACT. AS TO THE RELIANCE PLACED BY THE LEARNED A.R. ON TH E DECISION OF CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF HARS HAD V. DOSHI (SUPRA), THERE WAS A CLEAR FINDING THAT BIFURCATION OF OWNERSHIP, FROM DEVELOPMENT OF LAND WAS ONLY WITH THE INTENTION OF KEEPING THE COST DOWN. IN THE SAID CASE, THE FUNDS TRANSFERRED WERE NOT HELD BY THE BENEFICIAL SHAREHOLDER FOR ANY MEANINGFUL PERIOD OF TIME AND THERE WAS NO BENEFIT DERIVED THEREFROM. PROJECTS UNDERTA KEN BY THE COMPANY IN THE SAID CASE CLEARLY SHOWED THAT THE AD VANCES GIVEN TO I.T.A. NOS. 2,3&4/MDS/11 15 THE DIRECTOR WERE IN THE ORDINARY COURSE OF BUSINES S FOR BUSINESS EXPEDIENCY. THE ARRANGEMENT IN THE SAID CASE WAS T O KEEP THE COMPANY COMPETITIVE IN A FIERCELY COMPETITIVE MARKE T BY ADOPTING LEGAL MEANS FOR REDUCING THE TAX INCIDENCE ON ITS U LTIMATE CUSTOMERS. AS AGAINST THIS, HERE THE FACTS ARE ENTIRELY DIFFER ENT. ASSESSEE HAD NOT ONLY ENJOYED THE FRUITS OF THE MONEY RECEIVED F ROM THE COMPANY, BUT ALSO FAILED TO ESTABLISH ANY COMMERCIAL INTERES T. AS FOR THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN T HE CASE OF FARIDA HOLDINGS (P.) LTD. (SUPRA), THE MONEY RECEIVED WERE ADVANCED IN TURN TO OTHER SUBSIDIARIES OF THE HOLDING COMPANY. THE FACTS WERE ENTIRELY DIFFERENT. WE ARE, THEREFORE, OF THE OPINION THAT ASSESSING OFFICER RIGHTLY RELIED ON THE DECISION OF HON'BLE APEX COUR T IN THE CASE OF SMT. TARULATA SHYAM (SUPRA) AND HELD THAT RIGOURS O F SECTION 2(22)(E) OF THE ACT STOOD ATTRACTED. THE CIT(APPEALS), IN O UR OPINION, FELL IN ERROR IN DELETING THE ADDITIONS. ORDERS OF CIT(AP PEALS) ON THIS ASPECT ARE SET ASIDE AND ADDITIONS ON DEEMED DIVIDEND MADE BY THE A.O., ARE REINSTATED. 12. THERE IS ONE OTHER GROUND RAISED BY THE REVENUE , FOR ASSESSMENT YEAR 2006-07 AND ASSESSMENT YEAR 2007-08 , WHICH RELATES TO DEDUCTION UNDER SECTION 80-IB(10) GIVEN TO THE ASSESSEE FOR FLATS HAVING BUILT-UP AREA LESS THAN 1500 SQ. F T, ON PRO-RATA BASIS. I.T.A. NOS. 2,3&4/MDS/11 16 WE ARE OF THE OPINION THAT THE DECISION OF LD. CIT( APPEALS) IS SUPPORTED BY THE THIRD MEMBER DECISION OF THIS TRIB UNAL IN THE CASE OF SANGHVI AND DOSHI ENTERPRISE V. ITO (131 ITD 151 ). WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER ON THIS ASPECT. 13. IN THE RESULT, APPEALS FILED BY THE REVENUE FOR ASSESSMENT YEAR 2005-06 STANDS ALLOWED, WHEREAS ITS APPEALS FOR ASS ESSMENT YEARS 2006-07 AND 2007-08 ARE PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 22 ND OF AUGUST, 2013, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 22 ND AUGUST, 2013. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), TIRUCHIRAPPALLI (4) CIT, CENTRAL-II, CHENNAI (5) D.R. (6) GUARD FILE