Dr. Ch.Sri Padmavathi, Visakhapatnam V. THE DCIT, CIRCLE - 3(1), Visakhapatnam

ITA 624/VIZ/2013

• Counselvise Citation: 62425314 RSA 2013
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 17-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Salary income; Bonafide belief; Question of law; Deemed dividend; Reason to believe; Capital expenditure
• Section: 147; 148

Judgement Text

ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 624 /VIZAG/ 2013 ASSESSMENT YEAR : 2009-10 DR. CH. SRI PADMAVATHI VISAKHAPATNAM VS. DCIT CENTRAL CIRCLE-3(1) VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AAJPC 8478K ASSESSEE BY: SHRI G.V.N. HARI, ADVOCATE REVENUE BY: SHRI K.V.N. CHARYA, CIT(DR) DATE OF HEARING : 04.07.2014 DATE OF PRONOUNCEMENT : 04.07.2014 ORDER PER BENCH:- THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 20.9.2013 OF THE CIT(A), VISAKHAPATNAM PERTAINING T O THE ASSESSMENT YEAR 2009-10. THE EFFECTIVE GROUNDS OF THE ASSESSEE REA D AS UNDER: 1. THE LD. CIT (A) IS NOT JUSTIFIED IN UPHOLDING THE A DDITION OF RS.4,21,48,280/- MADE BY THE ASSESSING OFFICER U/S 2(22)(E) OF THE ACT. 2. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT THE A MOUNTS GIVEN TO THE APPELLANT WERE FOR CONSIDERATION AND NOT IN LIEU OF DISTRIBUTION OF ACCUMULATED PROFITS. 2. AS CAN BE SEEN BOTH THE GROUNDS RELATE TO THE IS SUE OF ADDITION OF AN AMOUNT OF RS.4,21,48,280/- U/S 2(22)(E) OF THE INCO ME-TAX ACT. BRIEFLY THE FACTS RELATING TO THE ISSUE IN DISPUTE ARE, THE ASS ESSEE IS AN INDIVIDUAL DERIVING INCOME FROM SALARY AS THE MANAGING DIRECTOR OF M/S. MAHATHI SOFTWARE PVT. LTD., VISAKHAPATNAM AND INCOME FROM HOUSE PROPERTY. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE FILED HER RETURN OF I NCOME ON 30.9.2009 DECLARING TOTAL INCOME OF RS.13,62,200/-. INITIALL Y, THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT ON 26.7.2010 ACCEPT ING THE INCOME RETURNED. SUBSEQUENTLY ON VERIFYING THE BALANCE SHEET AS ON 3 1.3.2009 IN RESPECT OF THE COMPANY M/S. MAHATHI SOFTWARE PVT. LTD., IT WAS NO TICED BY THE ASSESSING ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 2 OFFICER THAT THE SAID COMPANY HAD ADVANCED AN AMOUN T OF RS.9,17,21,680/- TO THE ASSESSEE, WHICH HAS BEEN SHOWN UNDER THE HEAD L OANS AND ADVANCES. AS M/S. MAHATHI SOFTWARE PVT. LTD. IS A CLOSELY HELD C OMPANY AND THE ASSESSEE IS A SUBSTANTIAL SHAREHOLDER AND IS ALSO HOLDING SUBST ANTIAL VOTING RIGHT, THE ASSESSING OFFICER INFERRED THAT THE AMOUNT ADVANCED BY THE COMPANY TO THE ASSESSEE PARTAKES THE CHARACTER OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT. ON THE AFORESAID REASON TO BELIEVE, THE ASSESSING O FFICER INITIATED PROCEEDING U/S 147 OF THE ACT BY ISSUING A NOTICE U/S 148 OF T HE ACT ON 4.1.2012. IN THE COURSE OF THE ASSESSMENT PROCEEDING WHEN THE ASSESS ING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY THE LOANS AND ADVANCES TO T HE TUNE OF RS.9,17,21,680/- RECEIVED FROM M/S. MAHATHI SOFTWAR E PVT. LTD. SHOULD NOT BE TREATED AS DEEMED DIVIDEND? THE ASSESSEE SUBMITTED THE DETAILS OF THE AFORESAID LOANS AND ADVANCES AS UNDER: 3. EXPLAINING FURTHER, ASSESSEE STATED AS UNDER:- THIS IS THE AMOUNT PAID TO DR. C.S. PADMAVATHI TO MEET THE CAPITAL EXPENDITURE RELATED TO MAHATHI SOFTWARE PRIVATE LIM ITED FOR WHICH SHE HAS SUBMITTED STATEMENT OF ACCOUNT IN THE FINANCIAL YEA R 2009-10 AND ACCOUNTED IN THE BOOKS OF MAHATHI SOFTWARE PVT. LTD., AS INVE STMENT IN SHARES OF INDIAN INSTITUTE OF CANCER RESEARCH RS.3,55,00,000/-, COST OF STEEL AND OTHER RELATED MATERIALS USED FOR CONSTRUCTION OF BUILDING RELATES TO MAHATHI SOFTWARE PVT. LTD., RS.2,60,00,000/- THE TOTAL AMOUNT DURING THE YEAR 2008-09 IS SHOWN AS ADVANCE AND CAPITALIZED DURING THE FINANCIAL YEAR 2 009-10. DR. C.S. PADMAVATHI RS.3,63,21,635/- THE COMPANY HAS ENTERED AN AGREEMENT TO PURCHASE LAND OF 4.5 ACRES FROM DR. C. S. PADMAVATHI IN THE PARTICULARS DEBIT CREDIT ADVANCE FOR CAPITAL WORK IN PROGRESS 5,54,00,512.00 DR. C.S. PADMAVATHI 3,63,21,635.94 DR. C.S. PADMAVATHI CURRENT A/C 468.00 TOTAL 9,17,22,147.94 NET TOTAL 9,17,21,680.00 ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 3 FINANCIAL YEAR 2007-08 WITH AN UNDERSTANDING TO PAY THE COST OF LAND IN VARIOUS INSTALMENTS AS PER THE CONVENIENT CASH FLOW S OF THE COMPANY AND WITHIN A PERIOD OF 3 YEARS. AS THE SAID LAND BELON GS TO THE DIRECTORS OF THE COMPANY AND OFFERED AS SECURITY TO THE COMPANY TO R AISE LOAN TO UTILIZE THE FUNDS FOR THE PURPOSE OF BUSINESS OF THE COMPANY. ON THIS AGREEMENT THE COMPANY HAS PAID AN AMOUNT OF RS.3.63 CRORES AS ON 31.3.2009 AND AN AMOUNT OF RS.84.00 LAKHS DURING THE FINANCIAL YEAR 2009-10. THE COMPANY NEEDS TO PAY THE BALANCE CONSIDERATION AS PER THE A GREEMENT OF PURCHASE BUT COULD NOT DO IT DUE TO PAUCITY OF FUNDS. THE COMPA NY IS IN THE PROCESS OF PAYING THE BALANCE AND REGISTERING THE SAME IN THE NAME OF THE COMPANY. SINCE THE AMOUNT PAID IS TOWARDS THE ADVANCE FOR TH E PURPOSE OF BUSINESS OF THE COMPANY AND TO PURCHASE THE ASSETS TO THE COMPA NY AND NOT FOR THE PERSONAL USE OF THE DIRECTORS, HENCE THIS DOES NOT ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF IT ACT, 1961 AND REQUESTED TO C ONSIDER THIS EXPLANATION AND DROP THE FURTHER PROCEEDINGS IN THIS REGARD. 4. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND OTHER DOCUMENTS SUCH AS LEDGER EXTRACTS IN SUPPORT OF CLAIM OF UTILIZATI ON OF AMOUNT DRAWN FROM M/S. MAHATHI SOFTWARE PVT. LTD., COPIES OF THE SHAR E CERTIFICATES TOWARDS INVESTMENT IN M/S. INDIAN INSTITUTE OF CANCER & RES EARCH PVT. LTD., COPY OF THE SALE AGREEMENT BETWEEN THE ASSESSEE AND THE COM PANY AND MINUTES OF THE BOARD MEETING OF THE COMPANY DATED 10.10.2009 A ND 15.10.2008, ACCEPTED ASSESSEES EXPLANATION WITH REGARD TO THE INVESTMENT OF RS.3,55,00,000/- IN THE SHARES OF INDIAN INSTITUTE OF CANCER & RESEARCH PVT. LTD. AND AMOUNT OF RS.1.7 CRORES TOWARDS CONSTRUCTI ON OF INFORMATION TECHNOLOGY BUILDING OF THE COMPANY. HOWEVER, SO FA R AS AMOUNT RECEIVED AS ADVANCE TOWARDS SALE OF THE PROPERTY AMOUNTING TO R S.3,63,21,635/-, THE ASSESSING OFFICER DID NOT ACCEPT THE SAME AND WAS O F THE VIEW THAT THE SAME SQUARELY ATTRACTS THE PROVISION OF SECTION 2(22)(E) OF THE ACT. SIMILARLY, PROPORTIONATE AMOUNT OUT OF ADVANCES GIVEN TO M/S. MAHATHI SOFTWARE SOLUTIONS, M/S. SAI DHANVANTHARI MEDICITY AND M/S. GALVANON HEALTH CARE SOFTWARE (INDIA) PVT. LTD. AMOUNTING TO RS.29,26,600 /- AND THE BALANCE ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 4 AMOUNT OF RS.29,00,512/- TOTAL ADDING UP TO RS.58,2 6,645/- WAS TREATED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT AND ADDED T O THE TOTAL INCOME OF THE ASSESSEE. WHILE COMING TO SUCH CONCLUSION THE ASSE SSING OFFICER RELIED UPON THE FOLLOWING DECISIONS: 1. P. SARADA VS. CIT (SC) 229 ITR 444 2. TARULATA SHYAM & ORS. VS. CIT(SC) 108 ITR 345 3. SUJATHA VENKATESWARAN VS. ACIT (ITAT, MAD) 61 ITD 4 85 5. BEING AGGRIEVED OF SUCH ADDITION, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE IN THE LIGHT OF THE DISCUSSIONS MADE BY THE ASSESSING OFFICER AND OTHER MATERIALS ON RECORD HELD THAT THE AGREEMENT OF SALE WAS NOT S IGNED BY ALL THE VENDORS. IT WAS NOTED THAT IN THE AGREEMENT OF SALE, THOUGH T HE ASSESSEE AND HER TWO SONS HAVE ENTERED INTO AN AGREEMENT AS VENDORS WITH THE COMPANY M/S. MAHATHI SOFTWARE PVT. LTD. AS VENDEE TO SELL THEIR LANDED PROPERTY AT RUSHIKONDA FOR A TOTAL CONSIDERATION OF RS.18,65,00 ,000/- TO BE PAID IN DEFERRED INSTALMENTS OVER A PERIOD OF 3 YEARS. HOW EVER, THE SAID SALE AGREEMENT WAS NOT SIGNED BY ANY OF THE VENDORS AND SO FAR AS VENDEE IS CONCERNED, THE ASSESSEE HAS SIGNED THE SALE DEED IN THE CAPACITY OF MANAGING DIRECTOR. HE WAS THEREFORE OF THE VIEW TH AT IN ABSENCE OF SIGNATURE IN AGREEMENT OF SALE BY ANY OF THE VENDORS, THE SAL E AGREEMENT DO NOT HAVE ANY LEGAL SANCTITY AND CANNOT BE TREATED AS AN AGRE EMENT. HENCE, THE ASSESSING OFFICER HAS RIGHTLY NOT TAKEN COGNIZANCE OF THE SAID AGREEMENT. THE CIT(A) OPINED THAT IT IS NOT BELIEVABLE THAT THE CO MPANY WOULD MAKE SUCH A HUGE ADVANCE WITHOUT PROPER AGREEMENT OR DOCUMENTAT ION. THE CIT(A) FURTHER NOTED THAT THE PROPERTY WAS MORTGAGED TO TH E UCO BANK BY THE OWNERS TOWARDS SECURITY FOR THE LOAN AVAILED BY THE COMPANY. THEREFORE, IF THE OWNERS WANTED TO ALIENATE THE SAID ASSET SECURE D WITH THE BANK, THEY ARE REQUIRED TO TAKE PERMISSION OF THE BANK. HE NOTED THAT THOUGH THE ASSESSEE WAS ASKED TO CLARIFY ON THIS ISSUE, THE A.R. OF THE ASSESSEE COULD NOT CLARIFY THE SAME. HE ONLY SUBMITTED A COPY OF THE NOC GIVE N BY THE BANK ON THE PROPOSAL OF THE COMPANY TO CONSTRUCT CERTAIN INFRAS TRUCTURAL FACILITIES ON THE MORTGAGED LAND WHICH WOULD PROVE THAT THE BANK WAS AWARE OF THE PROPOSED ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 5 SALE. THE CIT(A), HOWEVER, HELD THAT BEFORE SALE O F THE PROPERTY, THE BANK WAS NOT INFORMED ABOUT THE SAME BY THE OWNERS. ACC ORDINGLY, HE CONCLUDED THAT THE ENTIRE TRANSACTION IS TO BE TREATED AS SHA M. HE WAS OF THE VIEW THAT IF THE PARTIES REALLY INTENDED TO ENTER INTO A TRAN SACTION OF SALE, THEY WOULD HAVE ENTERED INTO A PROPER AGREEMENT AND INTIMATED THE BANK ABOUT THE PURPORTED ALIENATION AND ALSO REGISTERED THE SALE A GREEMENT AS THE TRANSACTION VALUE EXCEEDS MORE THAN RS.100/-. IN A BSENCE OF ALL THESE FACTORS, THE CLAIM THAT THE COMPANY HAD ADVANCED TH E MONEY FOR ITS BUSINESS PURPOSES IS NOT BELIEVABLE. HE FURTHER NOTED THAT THE ASSESSEE ALSO COULD NOT EXPLAIN WHY THE CONSIDERATION WAS PAID ONLY TO THE ASSESSEE WHEN THERE ARE THREE CO-OWNERS. ACCORDINGLY, THE CIT(A) HELD THAT THE AGREEMENT OF SALE, NOT BEING ACCEPTABLE, THE CLAIM OF THE ASSESSEE THA T THE ADVANCE WAS MADE BY THE COMPANY FOR BUSINESS PURPOSES IS NOT BELIEVA BLE AND ACCORDINGLY UPHELD THE ORDER OF THE ASSESSING OFFICER. 6. THE LD. A.R. SUBMITTED BEFORE US THAT THE ADDITI ON OF RS.4,21,48,280/- AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT COMPRISE S OF THE FOLLOWING: A. ADVANCE RECEIVED FOR SALE OF PROPERTY RS.3,63, 21,635/- B. PROPORTIONATE AMOUNT OUT OF ADVANCES GIVEN TO MAHATHI SOFTWARE SOLUTIONS, SAI DHANVANTARI MEDICITY AND GALVANON HEALTH CARE SOFTWARE (INDIA) (P) LTD. RS.29,26,60 0/- C. BALANCE AMOUNT RS.29,00,045/- TOTAL RS.4,21,48,280/- 7. SO FAR AS THE FIRST AMOUNT OF RS.3,63,21,635/- I S CONCERNED, THE LD. A.R. SUBMITTED THAT MERE NON-REGISTRATION OF THE SA LE AGREEMENT CANNOT BE A REASON TO HOLD THAT THE TRANSACTION IS A SHAM ONE. IT WAS SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO THE AGREEMENT OF SALE WIT H THE COMPANY ON 2.4.2008. IN THIS CONTEXT, THE LD. A.R. REFERRED T O THE AGREEMENT OF SALE, A COPY OF WHICH IS PLACED AT PAGE 48 OF THE PAPER BOO K. IT WAS SUBMITTED BY THE LD. A.R. THAT MANY A TIMES THE AGREEMENT OF SAL E ARE EXECUTED ON STAMP PAPER OF RS.100/- VALUE AND NOT REGISTERED TO SAVE THE COST OF STAMP DUTY. IN THE PRESENT CASE, THE TRANSACTION WAS BETWEEN THE C OMPANY AND THE ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 6 DIRECTORS OF THE COMPANY AND THEREFORE THERE IS NO POSSIBILITY OF THIS AGREEMENT BEING PLACED AS EVIDENCE IN ANY COURT OF LAW. HENCE, TO AVOID PAYMENT OF HUGE STAMP DUTY, IT WAS DECIDED NOT TO G O FOR REGISTRATION OF THE SALE AGREEMENT. THE LD. A.R. SUBMITTED THAT THE DE PARTMENTAL AUTHORITIES HAVE TREATED THE TRANSACTION AS SHAM ONE ONLY ON TH E BASIS THAT THE AGREEMENT OF SALE IS NOT REGISTERED AND SECONDLY IT IS NOT SIGNED BY THE VENDORS. CONTESTING AFORESAID FINDING OF THE DEPAR TMENT, THE LD. A.R. SUBMITTED THAT THE PROPERTY IN QUESTION IS OWNED BY THE ASSESSEE AND HER TWO SONS WHO ARE RESIDING ABROAD. THE ASSESSEE IS THE POWER OF ATTORNEY HOLDER FOR HER TWO SONS. THE ASSESSEE IS ALSO REPR ESENTING THE COMPANY AS THE MANAGING DIRECTOR. THUS, IN EFFECT ALL THE PAR TIES TO THE AGREEMENT ARE INCIDENTALLY REPRESENTED BY ONE SINGLE PERSON THAT IS THE REASON WHY ONLY THE ASSESSEE HAS SIGNED THE AGREEMENT OF SALE. SINCE T HE ASSESSEE WAS ACTING IN MORE THAN ONE CAPACITY, THEREFORE SHE THOUGHT IF SH E ONLY SIGNS IT WILL SERVE THE PURPOSE. EXPLAINING FURTHER, THE LD. A.R. SUBM ITTED THAT FOR THIS REASON ALONE, EVEN THE LOAN DOCUMENTS WITH BANK WERE SIGNE D ONLY BY THE ASSESSEE ON HER OWN BEHALF AND ALSO ON BEHALF OF HER SONS AN D DAUGHTERS-IN-LAW. IN THIS CONTEXT, HE REFERRED TO THE SANCTION LETTER DA TED 22.5.2007 OF STATE BANK OF INDIA OVERSEAS BRANCH, A COPY OF WHICH IS AT PAGE 60 OF THE PAPER BOOK AND SPECIFICALLY REFERRED TO PAGE 62 WHEREIN THE AS SESSEE HAS SIGNED ON BEHALF OF ALL THE PERSONS. IT WAS THEREFORE CONTEND ED THAT NON-SIGNING OF THE AGREEMENT OF SALE BY ALL THE PARTIES IS THEREFORE O N A BONAFIDE BELIEF OF THE ASSESSEE THAT ONLY IF SHE SIGNS, THEN IT WILL MEET THE PURPOSE. SO FAR AS THE ALLEGATION OF THE CIT(A) THAT BEFORE THE PROPOSED S ALE OF THE PROPERTY, THE ASSESSEE HAS NOT OBTAINED PERMISSION OF THE BANK, I T WAS SUBMITTED BY THE LD. A.R. THAT THE AGREEMENT OF SALE WAS ENTERED INT O WITH THE COMPANY ON 2.4.2008 AND ON THAT DATE, THERE WAS NO BANK LOAN O N THIS PROPERTY. HENCE, QUESTION OF TAKING PERMISSION FROM BANK DOES NOT AR ISE. THE LD. A.R. SUBMITTED THAT CONSIDERED IN THE AFORESAID PERSPECT IVE, THE FINDING OF THE DEPARTMENT THAT THE AGREEMENT OF SALE IS A SHAM ONE IS WITHOUT ANY BASIS. THE LD. A.R. SUBMITTED THAT ONCE THE AGREEMENT OF S ALE IS HELD TO BE GENUINE, THE ADVANCE RECEIVED IN PURSUANCE TO THE AGREEMENT WOULD FALL OUTSIDE THE SCOPE OF DEEMED DIVIDEND. IN SUPPORT OF SUCH CONTE NTION, THE LD. A.R. RELIED ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 7 UPON THE DECISION OF HONBLE MADHYA PRADESH HIGH CO URT IN CASE OF CIT VS. OM PRAKASH SURI (2013) 359 ITR 41 AND IN CASE OF CI T VS. SATYANARAYANA NUWAL (2011) 037 ITCL 0060 (BOMBAY). DEVELOPING TH E ARGUMENT FURTHER, THE LD. A.R. SUBMITTED THAT THE COMPANY M/S. MAHATH I SOFTWARE PVT. LTD. AVAILED LOANS TO THE EXTENT OF RS.19.53 CRORES AT T HE RELEVANT TIME AND ALL THESE LOANS WERE EXTENDED BY THE BANK AGAINST COLLA TERAL SECURITY OF PROPERTY BELONGING TO THE ASSESSEE AND ALSO PERSONAL GUARANT EE OF THE ASSESSEE. THUS, THE ASSESSEE WAS UNABLE TO GENERATE FUNDS REQ UIRED FOR INDIVIDUAL PURPOSES AND THE COMPANY WAS UNABLE TO REPAY THE BA NK LOANS AND GET THE COLLATERAL SECURITY RELEASED. IN THIS SITUATION, W HEN THE COMPANY HAS DERIVED ADVANTAGE BY AVAILING LOANS OF HUGE AMOUNT OF ABOUT RS.20 CRORES WITH THE COLLATERAL SECURITY AND PERSONAL GUARANTEE EXTENDED BY THE ASSESSEE, THEN THE AMOUNT ADVANCED BY THE COMPANY TO THE ASSESSEE TOWA RDS ADVANCE SALE CONSIDERATION CANNOT BE CONSIDERED AS GRATUITOUS PA YMENT AND THE ADVANCE GIVEN IS TO BE TREATED AS FOR CONSIDERATION. IN THI S CONTEXT, THE LD. A.R. REFERRED TO THE BALANCE SHEET OF THE COMPANY AT PAG E 5 OF THE PAPER BOOK, WHEREIN THE ENTRIES CLEARLY INDICATE THAT THE LOANS AVAILED FROM SBI & UCO BANKS WERE ON THE PERSONAL GUARANTEES OF THE DIRECT OR. THE LD. A.R. ALSO REFERRED TO THE COPIES OF THE SANCTION LETTERS OF B ANKS AT PAGE 52 TO 69 OF THE PAPER BOOK TO SHOW THE EXTENT OF COLLATERAL SECURIT Y AND PERSONAL GUARANTEE GIVEN BY THE ASSESSEE. THE LD. A.R. SUBMITTED THAT WHEN ALL PERSONAL PROPERTIES OF THE ASSESSEE ARE GIVEN AS GUARANTEE F OR LOANS AVAILED BY THE COMPANY, THEN IT CANNOT BE SAID THAT THE ADVANCE IS GRATUITOUS IN NATURE. IN SUPPORT OF SUCH CONTENTION, THE LD. A.R. RELIED ON THE FOLLOWING DECISIONS: A. PRADIP KUMAR MALHOTRA VS. CIT 338 ITR 538 B. ORDER OF ITAT CHENNAI BENCH IN CASE OF G. SREEVI DYA IN ITA NO.1270/MAD/2011 DATED 28.6.2012. 8. SO FAR AS THE SECOND AND THIRD AMOUNT OF RS.29,2 6,600/- AND RS.29,00,045/- ARE CONCERNED, THE LD. A.R. SUBMITTE D THAT WHILE COMPUTING THE PROPORTIONATE AMOUNT, THE ASSESSING OFFICER HAS FAILED TO TAKE NOTE THAT OUT OF THE AMOUNT OF RS.56,57,880/- IN THE NAME OF M/S. MAHATHI SOFTWARE SOLUTIONS, AN AMOUNT OF RS.55,58,680/- APPEARS AS O PENING BALANCE. HENCE, ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 8 IF AT ALL PROPORTIONATE ADDITION U/S 2(22)(E) OF TH E ACT IS TO BE MADE, THEN IT HAS TO BE MADE ON THE AMOUNT AFTER ADJUSTING THE OP ENING BALANCE. SIMILARLY, IN CASE OF THE AMOUNT OF RS.29,00,445/- THERE IS AN OPENING BALANCE OF RS.23,26,693/-, WHICH NEEDS TO BE EXCLUDED IF AT ALL DEEMED DIVIDEND HAS TO BE ADDED U/S 2(22)(E) OF THE ACT. IN THIS CONTE XT, THE LD. A.R. REFERRED TO THE BALANCE SHEETS SHOWING THE AFORESAID OPENING BA LANCE. 9. THE LD. D.R. SUBMITTED THAT THE ASSESSEE IS ACTI NG BOTH ON BEHALF OF THE COMPANY AS WELL AS HERSELF. THEREFORE, THE AGR EEMENT OF SALE SIGNED BY THE ASSESSEE ONLY HAS RIGHTLY BEEN HELD TO BE A SHA M DOCUMENT. THE LD. D.R. REFERRING TO THE NO OBJECTION CERTIFICATE ISSU ED BY THE BANK, A COPY OF WHICH IS PLACED AT PAGE 37 OF THE PAPER BOOK FILED BY THE DEPARTMENT, SUBMITTED THAT THE SAID DOCUMENT SHOWS THAT THE CON STRUCTION IS NOT DONE IN THE NAME OF COMPANY. THEREFORE, IT CANNOT BE SAID THAT THE ADVANCE MADE BY THE COMPANY IS TOWARDS PURCHASE OF THE PROPERTY. REFERRING TO THE AGREEMENT OF SALE ENTERED INTO BETWEEN THE ASSESSEE AND THE COMPANY, THE LD. D.R. SUBMITTED THAT THE AGREEMENT IS SIGNED BY THE ASSESSEE IN HER CAPACITY AS REPRESENTING THE VENDEE ONLY. HENCE, A S THE AGREEMENT IS NOT SIGNED BY ANY OF THE VENDORS, IT CANNOT BE TREATED AS A VALID AGREEMENT IN ADDITION TO THE FACT THAT IT IS AN UNREGISTERED DOC UMENT. FURTHER, REFERRING TO THE BALANCE SHEET OF THE COMPANY, THE LD. D.R. SUBM ITTED THAT THE NOTINGS IN THE BALANCE SHEET DOES NOT SHOW THAT THE ADVANCE WA S GIVEN FOR PURCHASE OF PROPERTY. FURTHER, REFERRING TO THE MINUTES OF THE BOARD, COPIES OF WHICH ARE PLACED AT PAGE 1 & 3 OF THE PAPER BOOK AND SPECIFIC ALLY REFERRING TO SPECIFIC INSTANCES MENTIONED THEREIN SUBMITTED THAT ANY ACT TO BE DONE BY THE MANAGING DIRECTOR IS AUTHORIZED BY THE BOARD AS REC ORDED IN THE MINUTES. HOWEVER, SO FAR AS THE ADVANCE OF RS.3,65,00,000/- TOWARDS SALE OF THE PROPERTY IS CONCERNED, THERE IS NO MINUTES RECORDED BY THE BOARD, WHICH RAISES A DOUBT WITH REGARD TO THE NATURE OF ADVANCE . REFERRING TO THE LEDGER OF THE ASSESSEE AS APPEARING IN THE BOOKS OF THE CO MPANY, THE LD. D.R. SUBMITTED THAT THE ENTRIES MADE IN THE LEDGER ACCOU NT DOES NOT SPEAK OF ANY ADVANCE BEING GIVEN TOWARDS PURCHASE OF PROPERTY. REFERRING TO THE SPECIFIC ENTRIES IN THE LEDGER ACCOUNT TOWARDS MONEY ADVANCE D FOR PURCHASE OF ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 9 JEWELLERY, ETC. OF THE ASSESSEE, THE LD. D.R. SUBMI TTED THAT WHEN SUCH DETAILS HAVE BEEN MENTIONED AGAINST EACH OF THE ADVANCE MAD E TO THE ASSESSEE, IT IS SURPRISING THAT THERE IS NO NARRATION PERTAINING TO THE LAND PURCHASE. IT WAS SUBMITTED THAT THE LEDGER EXTRACT CLEARLY SHOWS THA T IT IS IN THE NATURE OF A RUNNING ACCOUNT WITH THE MANAGING DIRECTOR. IT WAS SUBMITTED THAT THERE IS NO CLARIFICATION BY AUDITOR AND NO BALANCE SHEET EN TRY, WHICH COULD PROVE THAT THE AMOUNT ADVANCED IS TOWARDS PURCHASE OF THE PROP ERTY WHICH IS FURTHER PROVED FROM THE FACT THAT TILL DATE NO DEVELOPMENT ACTIVITY ON THE LAND HAS TAKEN PLACE. IN THE AFORESAID CONTEXT, IT IS IMPOR TANT TO BEAR IN MIND WHETHER THERE IS AN INTENTION TO BUY, AN INTENTION TO SELL AND WHETHER SUCH INTENTION WAS ACTUALLY FOLLOWED UP. IT WAS SUBMITTED THAT THE ENTIRE TRANSACTION IS AN AFTERTHOUGHT TO AVOID SECTION 2(22)(E) OF THE ACT. REFERRING TO THE DECISION RELIED UPON BY THE LD. A.R., THE LD. D.R. SUBMITTED THAT ALL THOSE CASES HAVE BEEN DECIDED ON THE BASIS OF THEIR OWN FACTS AND CA NNOT BE MADE APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. SPECIFICALLY REFERRING TO THE FACTUAL ASPECT OF THOSE CASES, THE LD. D.R. SUBMITTED THAT THE FAC TS INVOLVED IN ASSESSEES CASE BEING CLEARLY DISTINGUISHABLE, THOSE DECISIONS WOULD NOT APPLY. SO FAR AS THE OTHER TWO ITEMS OF ADDITION U/S 2(22)(E) OF THE ACT IS CONCERNED, THE LD. D.R. SUBMITTED THAT THE CONTENTION OF THE ASSESSEE THAT THERE IS OPENING BALANCE WAS NOT TAKEN EARLIER EITHER BEFORE THE ASS ESSING OFFICER OR THE CIT(A). HENCE, AT THIS STAGE, THE ARGUMENT ADVANCE D BY THE ASSESSEE FOR THE FIRST TIME CANNOT BE ACCEPTED. IN SUPPORT OF HIS C ONTENTIONS, THE LD. D.R. RELIED UPON THE FOLLOWING DECISIONS: 1. ITO VS. NAM ESTATES (P) LTD. (2013) 21 ITR (TRIB) 0 108 2. SHYAMA CHARAN GUPTA VS. CIT (2011) 337 ITR 0511 3. MRS. KIRAN BANSWAL VS. ASST. CIT (2011) 010 ITR (TRIB) 0180 4. ASST. CIT VS. AJAY JADEJA (2010) 005 ITR (TRIB. ) 0233 5. RAJESH P. VED VS. ASST. CIT (2010) 001 ITR (TRI B.) 0275 6. CIT VS. MUKUNDRAY K. SHAH (2007) 290 ITR 0443 7. CIT VS. P.K. ABUBUCKER (2003) 259 ITR 0507 8. CIT VS. P. SARADA (1985) 154 ITR 0387 9. SARADA P. MISS VS. CIT (1998) 229 ITR 0444 10. CIT VS. NATIONAL TRAVEL SERVICES (2012) 347 IT R 0305 10. IN REJOINDER TO THE SUBMISSIONS MADE BY THE LD. D.R. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT SO FAR AS THE CONTENTIO N OF THE DEPARTMENT THAT ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 10 THE NOC IS NOT IN THE NAME OF THE COMPANY, SAME IS NOT CORRECT AS THE NOC AT PAGE 37 & 38 WOULD CLEARLY SHOW THAT IT IS IN TH E NAME OF THE COMPANY THOUGH THE APPLICATION FOR NOC WAS MADE BY THE OWNE RS. SO FAR AS REFERENCE TO THE MINUTES OF THE MEETINGS OF THE BOARDS ARE CO NCERNED, THE LD. A.R. SUBMITTED THAT NEITHER AT THE ASSESSMENT STAGE NOR BEFORE THE CIT(A), THE ISSUE RELATING TO THE ABSENCE OF ANY MINUTES IN RES PECT OF THE AFORESAID SALE TRANSACTION WAS RAISED. THEREFORE, THERE WAS NO OC CASION OR NEED ON THE PART OF THE ASSESSEE TO SUBMIT THE MINUTES IN RESPECT OF THE AGREEMENT OF SALE ENTERED INTO BETWEEN THE ASSESSEE AND THE COMPANY. FURTHER, TO COUNTER THE SUBMISSIONS OF THE LD. D.R., THE LD. A.R. SUBMITTED A COPY OF THE BOARDS MINUTES OF MEETING DATED 5.4.2008, WHEREIN THE ASSE SSEE WAS AUTHORIZED TO PURCHASE ASSETS IN THE INTEREST OF THE COMPANY. IT WAS THEREFORE CONTENDED THAT THE ALLEGATION OF THE LD. D.R. THAT THERE IS N O MINUTES FOR THE AFORESAID TRANSACTION IS NOT CORRECT. FURTHER, THE LD. A.R. SUBMITTED THAT AS THE MINUTES REFERRED TO BY LD. D.R. ARE SUBSEQUENT TO T HE TRANSACTION, THEY HAVE NO RELEVANCE. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDERS OF THE RE VENUE AUTHORITY. WE HAVE ALSO CAREFULLY APPLIED OUR MIND TO THE DECISIONS RE LIED UPON BY THE PARTIES. THERE IS NO DISPUTE TO THE FACT THAT AN AMOUNT OF R S.4,21,48,280/- HAS BEEN ADDED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT TO THE INCOME OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR. IT IS T HE CLAIM OF THE ASSESSEE THAT OUT OF THE SAID AMOUNT, AN AMOUNT OF RS.3,63,2 1,635/- WAS TOWARDS ADVANCE RECEIVED FOR SALE OF PROPERTY. IN THIS CONT EXT, THE LD. A.R. REFERRED TO THE AGREEMENT OF SALE DATED 2.4.2008, A COPY OF WHICH IS PLACED AT PAGE 48 OF THE PAPER BOOK. ON A PERUSAL OF THE ASSESSME NT ORDER, IT IS EVIDENT THAT THE ASSESSING OFFICER HAS REFUSED TO ACCEPT TH E AGREEMENT OF SALE AS A VALID ONE, FIRSTLY BECAUSE IT IS NOT REGISTERED BEF ORE THE SRO AND SECONDLY BECAUSE IT ONLY BEARS THE SIGNATURE OF THE ASSESSEE IN THE CAPACITY AS MANAGING DIRECTOR OF THE COMPANY. THEREFORE, THE A SSESSING OFFICER HOLDING THE AGREEMENT ON SALE AS AN UN-ENFORCEABLE DOCUMENT HAS STATED THAT NO COGNIZANCE OF THE SAID DOCUMENT NEEDS TO BE TAKEN. ACCORDINGLY, HE HAS ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 11 TREATED THE AMOUNT OF RS.3,63,21,635/- AS DEEMED DI VIDEND. THE CIT(A) ON HIS PART HAS ALSO ACCEPTED THE VIEW OF THE ASSESSIN G OFFICER AND ALSO FOR THE REASON THAT THE ASSESSEE HAS NOT TAKEN PERMISSION O F THE BANK BEFORE THE ALIENATION OF THE PROPERTY. AT THIS STAGE, IT WILL BE RELEVANT TO LOOK INTO THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WHICH REA DS AS UNDER: (22) DIVIDEND INCLUDES (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WH ETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE [MAD E AFTER THE 31 ST DAY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLD ER, 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 PARTICI PATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO A NY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH H E HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS T HE SAID CONCERN),] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE I NDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER, TO THE EXTENT TO WHICH THE COMPAN Y IN EITHER CASE POSSESSES ACCUMULATED PROFITS; BUT DIVIDEND DOES NOT INCLUDE (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLAUSE ( C) OR SUB- CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSIDERATION, WHERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN THE EVENT OF LIQUIDATION TO PARTICIPATE IN THE SURP LUS ASSETS; [(IA) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CL AUSE (C) OR SUB- CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIB UTABLE TO THE CAPITALIZED PROFITS OF THE COMPANY REPRESENTING BONUS SHARES AL LOTTED TO ITS EQUITY SHAREHOLDERS AFTER THE 31 ST DAY OF MARCH, 1962, [ AND BEFORE THE 1 ST DAY OF APRIL, 1965] (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER {OR THE S AID CONCERN} BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY; (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET OFF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PR EVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEA NING OF SUB- CLAUSE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF ; (IV) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF ITS OW N SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PR OVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956; (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERGER B Y THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERG ED COMPANY (WHETHER OR NOT THERE IS A REDUCTION OF CAP ITAL IN THE DEMERGED COMPANY) ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 12 EXPLANATION 1: THE EXPRESSION ACCUMULATED PROFITS , WHEREVER IT OCCURS IN THIS CLAUSE, SHALL NOT INCLUDE CAPITAL GAINS ARI SING BEFORE THE 1 ST DAY OF APRIL, 1946, OR AFTER THE 31 ST DAY OF MARCH, 1948, AND BEFORE THE 1 ST DAY OF APRIL, 1956; EXPLANATION 2 : THE EXPRESSION ACCUMULATED PROFITS IN SUB-CLAUSES (A), (B), (D) AND (E) SHALL INCLUDE ALL PROFITS OF THE C OMPANY UPTO THE DATE OF DISTRIBUTION OR PAYMENT REFERRED TO IN THOSE SUB -CLAUSES, AND IN SUB- CLAUSE (C) SHALL INCLUDE ALL PROFITS OF THE COMPANY UPTO THE DATE OF LIQUIDATION [BUT SHALL NOT, WHERE THE LIQUIDATION I S CONSEQUENT ON THE COMPULSORY ACQUISITION OF ITS UNDERTAKING BY THE GO VERNMENT OR A CORPORATION OWNED OR CONTROLLED BY THE GOVERNMENT U NDER ANY LAW FOR THE TIME BEING IN FORCE, INCLUDE ANY PROFITS OF THE COMPANY PRIOR TO THREE SUCCESSIVE PREVIOUS YEARS IMMEDIATELY PRECEDI NG THE PREVIOUS YEAR IN WHICH SUCH ACQUISITION TOOK PLACE]; [EXPLANATION 3 : FOR THE PURPOSES OF THIS CLAUSE, - - (A) CONCERN MEANS A HINDU UNDIVIDED FAMILY, OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY; (B) A PERSON SHALL BE DEEMED TO HAVE A SUBSTANTIAL INTE REST IN A CONCERN, OTHER THAN A COMPANY, IF HE IS, AT ANY TIM E DURING THE PREVIOUS YEAR, BENEFICIALLY ENTITLED TO NOT LESS TH AN TWENTY PER CENT OF THE INCOME OF SUCH CONCERN;] 12. A PLAIN READING OF THE AFORESAID PROVISION WOUL D MAKE IT CLEAR THAT TO COME WITHIN THE AMBIT OF THE PROVISION OF SECTION 2 (22)(E) OF THE ACT, THREE CONDITIONS HAVE TO BE FULFILLED. (I) IT MUST BE A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED (II) THE COMPANY MUST HAVE MADE PAYMENTS BY WAY OF LOAN OR ADVANCE TO A SHAREHOLDER HOLDING MOR E THAN 10% OF THE SHARES OF THE COMPANY (III) THE COMPANY MUST HAVE A CCUMULATED PROFITS DURING THE RELEVANT YEAR. SO FAR AS THE FIRST AND THIRD CONDITIONS ARE CONCERNED, THERE IS NO DISPUTE THAT THEY EXIST IN T HE PRESENT CASE. SO FAR AS SECOND CONDITION IS CONCERNED, IT IS A FACT THAT AS SESSEE IS A SHAREHOLDER OF THE COMPANY AND SHE HOLDS MORE THAN 10% OF THE SHAR ES. THEREFORE, THE CRUCIAL ISSUE TO DECIDE IS WHETHER THE PAYMENTS MAD E BY THE COMPANY TO THE ASSESSEE ARE IN THE NATURE OF LOAN OR ADVANCE. A S REITERATED EARLIER, IT IS THE CONSISTENT CLAIM OF THE ASSESSEE THAT THE AMOUNT PA ID BY THE COMPANY IS TOWARDS ADVANCE FOR PURCHASE OF A PROPERTY. THEREF ORE, IT WILL NOT COME WITHIN THE MEANING OF LOAN OR ADVANCE AS ENVISAGED U/S 2(22)(E) OF THE ACT. THE DEPARTMENT HAS REJECTED SUCH CLAIM OF THE ASSES SEE BY TREATING THE ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 13 TRANSACTION OF SALE OF PROPERTY AS NOT GENUINE. TH EREFORE, THE ISSUE HAS TO BE DECIDED ON THE BASIS OF THE FACTS AVAILABLE ON RECO RD. ON A PERUSAL OF THE AGREEMENT OF SALE DATED 2.4.2008, IT IS TO BE SEEN THAT IT IS EXECUTED IN NON- JUDICIAL STAMP PAPER OF RS.100/- AND BEARS THE SIGN ATURE OF THE ASSESSEE IN THE CAPACITY OF MANAGING DIRECTOR REPRESENTING THE VENDEE. HOWEVER, IT ALSO APPEARS FROM THE PREAMBLE OF THE AGREEMENT OF SALE THAT THE ASSESSEE ALONG WITH TWO OTHERS HAVE ENTERED INTO THE AGREEMENT OF SALE AS VENDOR FOR SALE OF THEIR PROPERTY. IN THIS CONTEXT IT HAS TO BE SEEN W HETHER ONLY ON THE BASIS OF THE FACT THAT THE AGREEMENT OF SALE IS NOT REGISTER ED OR IT HAS NOT BEEN SIGNED BY ALL THE PARTIES, THE TRANSACTION CAN BE TREATED AS A SHAM TRANSACTION. IT IS THE CONTENTION OF THE ASSESSEE THAT SINCE SHE IS TH E POWER OF ATTORNEY HOLDER OF THE OTHER CO-OWNERS AS WELL AS SHE IS REPRESENTI NG THE COMPANY AS MANAGING DIRECTOR SHE WAS ACTING IN MORE THAN ONE C APACITY, HENCE, ONLY HER SIGNATURE IS REQUIRED TO BE PUT IN THE DOCUMENT. T O SUBSTANTIATE SUCH CLAIM, THE LD. A.R. HAS REFERRED TO THE SANCTION LETTER OF THE BANK AT PAGE 60 OF THE PAPER BOOK. ON A PERUSAL OF THE SAID SANCTION LETT ER OF STATE BANK OF INDIA OVERSEAS BRANCH, IT APPEARS THAT THE ASSESSEE HAS S IGNED ON BEHALF OF ALL THE PARTIES. THEREFORE, CONSIDERED IN THE AFORESAID CO NTEXT, WE ARE OF THE VIEW THAT THERE IS FORCE IN THE CONTENTION OF THE ASSESS EE THAT WITH A BONAFIDE BELIEF THAT ONLY HER SIGNATURE IS REQUIRED, NO OTHE R PARTY HAS SIGNED THE DOCUMENT. ANOTHER FACT TO BE CONSIDERED IS, THE AF ORESAID SALE AGREEMENT WAS FILED BY THE ASSESSEE BEFORE THE DEPARTMENTAL A UTHORITY. APART FROM TREATING THE SALE AGREEMENT AS INVALID ON ASSUMPTIO N AND PRESUMPTION, THE DEPARTMENT HAS NOT CONDUCTED ANY SORT OF ENQUIRY TO ESTABLISH ON RECORD THAT ACTUALLY THE TRANSACTION HAS NOT TAKEN PLACE. MERE LY BECAUSE OF THE FACT THAT THE AGREEMENT OF SALE IS NOT REGISTERED OR HAS NOT BEEN SIGNED BY ALL THE PARTIES, THE TRANSACTION CANNOT BE HELD TO BE SHAM WITHOUT BRINGING EVIDENCE ON RECORD TO PROVE THE SAME. BY MERELY RELYING UPO N SUCH CIRCUMSTANTIAL EVIDENCES, A TRANSACTION CANNOT BE TREATED AS SHAM WHEN THE AGREEMENT HAS NOT BEEN DISPUTED BY ANY OF THE PARTIES. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE AGREEMENT OF SALE HAS NOT BEEN ACTED UPON EITHER BY THE VENDOR OR BY THE VENDEE. THE VENDEE HAS ALSO NOT RAISED ANY DISPUTE WITH REGARD TO THE AGREEMENT OF SALE. THAT BEING THE CASE WHEN NE ITHER OF THE PARTIES TO ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 14 THE AGREEMENT OF SALE HAVE ANY DISPUTE WITH REGARD TO THE SAME, THE DEPARTMENT CANNOT DISPUTE THE SAME BY POINTING OUT CERTAIN TECHNICAL DEFICIENCIES AND THAT TOO WITHOUT BRINGING ANY MATE RIAL ON RECORD, AS A RESULT OF ANY ENQUIRY OR OTHER EVIDENCE TO SHOW THAT THE A GREEMENT IS A FALSE ONE. FURTHER, THE SANCTION LETTER DATED 11.10.2010 OF TH E UCO BANK, A COPY OF WHICH IS AT PAGE 37 OF THE DEPARTMENTS PAPER BOOK ON WHICH THE CIT(A) AS WELL AS THE LD. D.R. HAVE PUT MUCH EMPHASIS, ON THE CONTRARY, PROVES THE ASSESSEES CASE. THE APPROVAL OF THE ZONAL OFFICE OF UCO BANK DATED 11.10.2010 AT PAGE 37 OF THE PAPER BOOK AND THE NOC ISSUED BY THE BRANCH ON 4.11.2010 WOULD CLEARLY INDICATE THAT IT IS ISSU ED IN FAVOUR OF THE COMPANY M/S. MAHATHI SOFTWARE PVT. LTD. FOR CONSTRUCTION OF A MULTI USAGE UNITS OF HOSPITAL, CONVENTION HALL, CAFETERIA, 3 TOWERS WITH SERVICE APARTMENTS FOR DOCTORS WITH RECREATION PLACE AND COMMERCIAL CENTRE . THIS FACT CLEARLY PROVES THAT THE AGREEMENT OF SALE IS NOT ONLY INTENDED TO BE ACTED UPON BUT IS ACTUALLY BEING ACTED UPON BY THE PARTIES. IN THE AF ORESAID FACTS AND CIRCUMSTANCES THE INFERENCE OF THE DEPARTMENT THAT THE AGREEMENT OF SALE IS A SHAM TRANSACTION CANNOT BE ACCEPTED. FURTHERMORE , FEW OTHER FACTUAL ASPECTS ALSO DISPROVE THE FINDING OF THE DEPARTMENT . IT IS A FACT THAT OUT OF THE TOTAL ADVANCE OF RS.9,17,21,680/- THE ASSESSING OFFICER AT THE ASSESSMENT STAGE ITSELF HAS ACCEPTED SUBSTANTIAL PART OF IT AN D EXCLUDED FROM APPLICATION OF SECTION 2(22)(E) OF THE ACT. THEREFORE, IT CANN OT BE SAID THAT THE ACCOUNT OF THE ASSESSEE WITH THE COMPANY IS A RUNNING ACCOU NT AND THEREFORE THE THEORY OF ADVANCE GIVEN FOR PURCHASE OF PROPERTY IS NOT TO BE BELIEVED. SO FAR AS THE ALLEGATION OF THE DEPARTMENT THAT IT IS A GR ATUITOUS PAYMENT, THE SAME IS ALSO CONTRARY TO THE FACTS ON RECORD AND UNACCEP TABLE. THE BALANCE SHEET OF THE COMPANY AS WELL AS THE SANCTION LETTER OF TH E BANK CLEARLY REVEAL THAT THE ENTIRE LOAN AVAILED BY THE COMPANY WAS AGAINST THE COLLATERAL SECURITY OF PERSONAL PROPERTIES OF THE ASSESSEE AS WELL AS HER PERSONAL GUARANTEE. THEREFORE, IT IS NOT A FACT THAT ASSESSEE HAS DERIV ED BENEFIT ON ACCOUNT OF THE COMPANY. ON THE CONTRARY, IT IS THE COMPANY WHICH HAS AVAILED HUGE LOANS TO THE EXTENT OF RS.20 CRORES BY KEEPING THE PERSONAL PROPERTIES OF THE ASSESSEE AS COLLATERAL SECURITY. IN THE AFORESAID FACTS AND CIRCUMSTANCES, IT CANNOT BE SAID THAT THE PAYMENT MADE OF RS.3,63,21,635/- BY T HE COMPANY TO THE ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 15 ASSESSEE IS A GRATUITOUS PAYMENT, EVEN ASSUMING DEP ARTMENTS STAND THAT IT IS NOT AGAINST PURCHASE OF PROPERTY. CONSIDERING T HE FACT THAT THE ASSESSEE HAS PUT ALL HIS PROPERTIES AS COLLATERAL SECURITY A S WELL AS EXTENDED PERSONAL GUARANTEE TOWARDS LOAN AVAILED BY THE COMPANY, THE AMOUNT PAID CERTAINLY CANNOT BE TREATED AS GRATUITOUS BUT IS CERTAINLY FO R A CONSIDERATION AND FOR COMPANYS BUSINESS PURPOSES. SO FAR AS THE INFEREN CE DRAWN BY THE CIT(A) THAT THE ASSESSEE HAS NOT TAKEN PRIOR PERMISSION OF THE BANK BEFORE THE PROPOSED ALIENATION OF THE PROPERTY, THE SAME IN OU R VIEW IS TOTALLY IRRELEVANT. ADMITTEDLY, THE ASSESSEE HAS ENTERED INTO THE AGREE MENT WITH THE COMPANY FOR SALE OF THE PROPERTY ON 2.4.2008. WHEREAS, THE PROPERTY IN QUESTION, WHICH WAS SUBJECT MATTER OF TRANSACTION WAS GIVEN A S COLLATERAL SECURITY MUCH AFTER. THEREFORE THERE IS NEITHER ANY OCCASION NOR ANY NECESSITY ON THE PART OF THE ASSESSEE TO TAKE PERMISSION FROM THE BANK FO R THE PROPOSED SALE. SO FAR AS THE CONTENTION OF THE LD. D.R. THAT THERE IS NEITHER ANY RESOLUTION OF THE BOARD NOR CLARIFICATION BY THE AUDITORS OR NOTING, IN THE BALANCE SHEET TOWARDS THE ADVANCE IS CONCERNED, WE FIND THE SAME TO BE FA CTUALLY INCORRECT. AS ALREADY STATED HEREIN BEFORE, THE LD. A.R. HAS PROD UCED BEFORE US, THE COPY OF THE BOARDS RESOLUTION AUTHORIZING THE ASSESSEE FOR ENTERING INTO TRANSACTION OF PURCHASE OF PROPERTY VIDE RESOLUTION DATED 5.4.2008, WHICH HAS NOT BEEN CONTROVERTED BY THE LD. D.R.. IN ANY CASE OF THE MATTER THE RESOLUTIONS REFERRED TO BY LD. D.R. BEING SUBSEQUEN T TO THE EXECUTION OF AGREEMENT OF SALE, THEY ARE NOT RELEVANT FOR THE PU RPOSE OF DECIDING THE ISSUE IN DISPUTE. 13. HAVING CONSIDERED THE FACTUAL ASPECT OF THE IS SUE, WE WILL NOW EXAMINE THE LEGAL ASPECT AS LAID DOWN IN DIFFERENT JUDICIAL PRECEDENTS. THE HONBLE MADHYA PRADESH HIGH COURT IN CIT VS. OM PRAKASH SUR I (SUPRA) WHILE CONSIDERING SIMILAR ISSUE OF ADVANCE MADE BY THE CO MPANY TOWARDS SALE OF LAND BEING TREATED AS LOAN AND ADVANCE TO BRING IT WITHIN SECTION 2(22)(E) OF THE ACT HELD AS UNDER: THE INCOME-TAX APPELLATE TRIBUNAL WHILE DECIDING TH E IDENTICAL FACTS FOR ASSESSMENT YEAR 2005-06 FOUND THAT THE AGREEMEN T TO SALE WAS ALSO WITNESSED PAYMENT OF THE IMPUGNED AMOUNT THROUGH AC COUNT PAYEE CHEQUES ON VARIOUS DATES WHICH WERE MENTIONED ON THE SAID S ALE AGREEMENT AS PER ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 16 THE TERMS AND CONDITIONS OF THE SALE AGREEMENT. TH E AMOUNTS WERE RECEIVED FROM THE ASSESSEE AGAINST THE SALE OF LAND AND THE TITLE OF WHICH WAS CLEAR FROM THE DOCUMENTS PLACED ON RECORD AND THE IMPUGNE D AMOUNTS WERE RECEIVED IN THE NORMAL COURSE OF BUSINESS IN SALE T RANSACTION, CONSEQUENTLY, THESE CANNOT BE BRANDED AS LOAN ADVANCES. THE LEAR NED TRIBUNAL HAS HELD THAT SUCH TRANSACTION WOULD NOT COME UNDER THE PROV ISIONS OF SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961. LEARNED SENIOR COUNSEL FOR THE APPELLANT HAS SUBMI TTED THAT THE ORDER DATED JANUARY 3, 2012, PASSED BY THE INCOME-TAX APP ELLATE TRIBUNAL IN RESPECT OF THE ASSESSMENT YEAR 2005-06 THE SAME HAS ATTAINED FINALITY AND, THEREFORE, RELYING ON THE SAME THE LEARNED TRIBUNAL PASSED THE IMPUGNED ORDER. THE RELEVANT PARAGRAPH OF THE IMPUGNED ORDER READS AS UNDER: WE HAVE PERUSED THE AGREEMENT TO SALE (PAGES 28 T O 32 OF THE PAPER BOOK). AS PER CLAUSE 2 OF THE SAID AGREEMENT (PAGE 39 OF PAPER BOOK), THE AMOUNT OF RS.2,53,60,000 WAS AGREED TO BE GIVEN TO THE ASSESSEE BY THE PURCHASER AND PART OF THE PAYMENT WAS RECEIVED THRO UGH CHEQUE. THE ASSESSEE WAS ALSO SUPPOSED TO GET CONVERSION OF THE LAND WITHIN TWO MONTHS. AS PER CLAUSE 10 (PAGE 31 OF THE PAPER BOOK), THE P URCHASER WAS FREE TO DO THE DEVELOPMENT WORK ON THE LAND AND WAS ALSO FREE TO SELL THE SAME TO ANY THIRD PARTY FOR WHICH THE ASSESSEE HAD NO OBJECTION . IN VIEW OF THESE FACTS, IT CANNOT BE SAID THAT IT WAS A LOAN OR AN ADVANCE TO THE ASSESSEE. THE CONTENTS OF THE SALE AGREEMENTS ARE VERY MUCH CLEAR THAT IT WAS A CLEAR CUT AGREEMENT OF SALE. NO CONTRARY FACTS OR DECISION W AS BROUGHT TO OUR NOTICE BY EITHER SIDE AND MORE SPECIFICALLY THE REVENUE. IN VIEW OF THESE FACTS, WE ARE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN IN T HE ASSESSMENT ORDER AND AFFIRM THE STAND OF THE LEARNED COMMISSIONER OF INCO ME-TAX (APPEALS) IN ACCEPTING THE CLAIM OF THE ASSESSEE, RESULTANTLY, T HERE IS NO MERIT IN THE APPEAL OF THE REVENUE. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. IN VIEW OF THE AFORESAID AND CONSIDERING THE FACT T HAT THIS QUESTION HAS ALSO BEEN CONSIDERED BY THE DIVISION BENCH OF THIS COURT IN THE INCOME TAX APPEAL NO.4 OF 2011 DECIDED ON NOVEMBER 24, 2011, ( SINCE REPORTED IN CIT V. OM PRAKASH (NO.1) [2013] 359 ITR 39 (MP) WE ARE OF THE VIEW THAT THERE IS NO INFIRMITY IN THE IMPUGNED ORDER. NO SUBSTANT IAL QUESTION OF LAW IS ARISING IN THIS APPEAL. ACCORDINGLY, THE APPEAL FA ILS AND IS HEREBY DISMISSED. 14. IN CASE OF CIT VS. SATYANARAYANAN NUWAL (SUPRA) THE HONBLE BOMBAY HIGH COURT HELD AS UNDER: WHERE THE AMOUNT IS ADVANCED BY A COMPANY TOWARDS P ART CONSIDERATION OF A PROPERTY INTENDED TO BE SOLD BY THE ASSESSEE TO THE COMPANY, IT CANNOT BE SAID THAT THE COMPANY HAS ADV ANCED MONEY TO ITS ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 17 SHAREHOLDERS WITHIN THE MEANING OF SECTION 2(22)(E) OF THE IT ACT, MERELY BECAUSE THE SELLER OF THE PROPERTY HAPPENS TO BE TH E SHAREHOLDER OF THE COMPANY. IN OTHER WORDS, WHERE THE AMOUNT IS ADVANC ED TOWARDS PART CONSIDERATION OF THE IMMOVABLE PROPERTY, IT CANNOT BE SAID THAT THE AMOUNT IS ADVANCED BY A COMPANY TO ITS SHAREHOLDERS. 15. THE ALLEGATION OF THE DEPARTMENT THAT THE PAYME NTS BY THE COMPANY TO THE ASSESSEE IS A GRATUITOUS ONE ALSO CANNOT BE ACCEPTED NOT ONLY BECAUSE OF THE FACT THAT IT IS TOWARDS ADVANCE FOR PURCHASE OF LAND BUT ALSO CONSIDERING THE FACT THAT THE ASSESSEE HAS PUT ALL HER PERSONAL PROPERTIES AS COLLATERAL SECURITY FOR THE LOAN AVAILED BY THE COM PANY. THEREFORE, THE COMPANY HAS CERTAINLY DERIVED ADVANTAGE ON ACCOUNT OF THE ASSESSEE. THAT BEING THE CASE, IT CANNOT BE SAID THAT THE AMOUNT P AID, EVEN ASSUMING THAT IT IS NOT TOWARDS SALE CONSIDERATION OF THE PROPERTY, IS A LOAN OR ADVANCE AND NOT FOR THE BUSINESS PURPOSE OF THE COMPANY. IN TH IS CONTEXT, WE REFER TO THE DECISION OF THE ITAT MADRAS BENCH IN CASE OF ACIT V S. SMT. G. SREEVIDYA IN ITA NO.1270/MAD/2011 DATED 28.6.2012 WHEREIN THE HO NBLE BENCH HELD AS UNDER: IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 2(22) (E), THE IMPORTANT CONSIDERATION IS THAT THERE SHOULD BE LOAN/ADVANCE BY A COMPANY TO ITS SHAREHOLDER. EVERY AMOUNT PAID MUST MAKE THE COMPA NY A CREDITOR OF THE SHAREHOLDER OF THAT AMOUNT. AT THE SAME TIME, IT I S TO BE BORNE IN MIND THAT EVERY PAYMENT BY A COMPANY TO ITS SHAREHOLDERS MAY NOT BE LOAN/ADVANCE. IN THE PRESENT CASE, THE AMOUNT WAS WITHDRAWN BY THE ASSESSEE FROM THE COMPANY ONLY TO MEET HER SHORT TERM CASH REQUIREMEN TS. BY VIRTUE OF OFFERING PERSONAL GUARANTEE AND COLLATERAL SECURITY FOR THE BENEFIT OF THE COMPANY, THE LIQUIDITY POSITION OF THE ASSESSEE HAD GONE DOWN. IN THE STRICT SENSE IF IT IS TO BE CONSTRUED THE AMOUNT FORWARDED BY THE COMPANY TO THE ASSESSEE WAS NOT IN THE SHAPE OF ADVANCES OR LOANS. THE ARRANGEMENT BETWEEN THE ASSESSEE AND THE COMPANY WAS MERELY FOR THE SAKE OF CONVENIENCE ARISING OUT OF BUSINESS EXPEDIENCY. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS NOT APPROPRIATE TO HOLD THAT THE AMOUNT WITHDRAWN BY THE ASSESSEE PARTAKES THE CHARACTER OF DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY TH E DIVISION BENCH JUDGEMENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF PRADIP KUMAR MALHOTRA (SUPRA), WHEREIN THE FACTS WERE SIMILAR TO THE FACTS OF THE INSTANT CASE. IN PRADIP KUMARS CASE ASSESSEE HAD SUBSTANTI AL HOLDING IN A PRIVATE COMPANY. THE ASSESSEE PERMITTED HIS IMMOVABLE PROP ERTY TO BE MORTGAGED TO THE BANK FOR ENABLING THE COMPANY TO TAKE THE BE NEFIT OF LOAN. THE BOARD OF DIRECTORS OF THE COMPANY PASSED A RESOLUTION TO OBTAIN INTEREST FREE DEPOSIT UPTO RS.50 LAKHS AS AND WHEN REQUIRED. THE ASSESSEE OBTAINED FROM ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 18 THE COMPANY A SUM OF RS.20,75,000/- BY WAY OF SECUR ITY DEPOSIT. OUT OF THIS AMOUNT, A SUM OF RS.20 LAKHS WAS RETURNED BY THE AS SESSEE TO THE COMPANY. THE ASSESSING OFFICER ADDED THE SUM OF RS.20,75,000 /- AS DEEMED DIVIDEND. THE HONBLE HIGH COURT WHILE ALLOWING THE APPEAL OF THE ASSESSEE HELD THAT FOR RETAINING THE BENEFIT OF LOAN AVAILED OF FROM T HE BANK, IF DECISION WAS TAKEN TO GIVE ADVANCE TO THE ASSESSEE SUCH DECISION WAS NOT TO GIVE GRATUITOUS ADVANCE TO ITS SHAREHOLDER BUT TO PROTEC T THE BUSINESS INTEREST OF THE COMPANY. THE SUM OF RS.20,75,000/- COULD NOT B E TREATED AS DEEMED DIVIDEND. THE DIVISION BENCH OF THE HONBLE CALCUT TA HIGH COUIRT FOLLOWED THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. CREATIVE DYEING & PRINTING P. LTD. REPORTED AS 318 ITR 476 ( DEL). IN THE INSTANT CASDE ALSO THE ASSESSEE WAS ALLOWED TO WITHDRAW FUNDS FRO M THE COMPANY AS PER REQUIREMENT FOR PERSONAL PURPOSES AGAINST THE PERSO NAL GUARANTEE AND THE COLLATERAL SECURITY GIVEN BY HER TO FACILITATE HER AVAILING OF CREDIT FACILITY OF THE COMPANY. IT IS A WELL SETTLED LAW THAT LOAN OR ADVANCE GIVEN TO A SHAREHOLDER BY A COMPANY IN WHICH PUBLIC IS NOT SUBSTANTIALLY INTERE STED AND WHICH HAD ACCUMULATED PROFITS, THE AMOUNT ADVANCED AS LOAN TO SUCH SHAREHOLDER IS DEEMED TO BE DIVIDEND AS PER THE PROVISIONS OF SECT ION 2(22)(E) OF THE ACT. HOWEVER, THE FACTS AND CIRCUMSTANCES OF EACH CASE H AVE TO BE SCRUTINIZED BEFORE APPLYING THE RATIO OF THE CASES HOLDING ABOV E WELL SETTLED LAW. IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, JUDGEM ENTS RELIED UPON BY THE DR IN THE CASES OF SARADA P. (SUPRA), P.K. ABUBUCKE R (SUPRA) AND TARULATA SHYAM (SUPRA) ARE NOT APPLICABLE. THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE ORDER DATED 6.4.2011 HAS RIGHTLY DELETED THE ADDITION MADE ON ACCOUNT OF DEEMED DIVIDEND BY THE ASSESSING OFFICER. WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS). IN VIEW OF O UR AFORESAID FINDINGS, THE APPEAL OF THE REVENUE FAILS AND THE SAME IS DIS MISSED BEING DEVOID OF ANY MERIT. 16. ANOTHER PERTINENT FACT WHICH NEEDS TO BE MENTIO NED HERE IS, THE AFORESAID DECISION OF THE MADRAS BENCH IS AFTER CON SIDERING THE DECISIONS RELIED UPON BY THE DEPARTMENT, WHICH ARE ALSO RELIE D UPON BY THE LD. D.R. BEFORE US THEREFORE, CONSIDERING THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE JUDICIAL PRECEDENTS REFERRED TO HEREIN ABOVE, W E ARE OF THE VIEW THAT THE PAYMENT OF RS.3,63,21,635/- CANNOT BE TREATED AS DE EMED DIVIDEND U/S 2(22)(E) OF THE ACT. ACCORDINGLY, WE DIRECT THE AS SESSING OFFICER TO DELETE THE ADDITION MADE OF THE SAID AMOUNT. SO FAR AS THE OT HER ADDITIONS ARE CONCERNED, IT IS THE CONTENTION OF THE LD. A.R. THA T IF AT ALL THEY ARE TO BE TREATED AS DEEMED DIVIDEND, THEN OPENING BALANCE AS APPEARING AT THE ITA NO.624/VIZAG/2013 DR. CH. SRI PADMAVATHI, VSKP 19 BEGINNING OF THE YEAR HAS TO BE EXCLUDED AND PROPOR TIONATE ADDITION HAS TO BE MADE ON THE BALANCE AMOUNT. HOWEVER, CONSIDERIN G THE FACT THAT THIS ARGUMENT WAS NOT MADE BEFORE THE DEPARTMENTAL AUTHO RITIES, WE CONSIDER IT APPROPRIATE TO REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERING THE SAME AFRESH AFTER VERIFYING THE FAC TS AND MATERIALS ON RECORD. 17. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 4 TH JULY14 SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 4 TH JULY, 2014 COPY TO 1 DR. CH. SRI PADMAVATHI, D.NO.10-27-14/A-2, KAILAS AMETTA, WALTAIR, VISAKHAPATNAM 2 DCIT CENTRAL CIRCLE-3(1), VISAKHAPATNAM 3 THE CIT, VISAKHAPATNAM 4 THE CIT(A), VISAHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM