Shri Pradeep Singh, New Delhi V. ACIT, New Delhi

ITA 996/DEL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7356 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 10-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 20-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Assessee Lawyers: C S AGGARWAL; R P MALL
• Keywords: Business expenditure; Salary income; Deemed to accrue or arise in india; Tangible material; Deemed dividend
• Section: 143(3); 142(1); 234B

Judgement Text

ITA NOS. 5722/DEL/2011 & 996/DEL/2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.A. NO. 5722/DEL/2011 (AY. 2008-09) AND I.T.A. NO. 996/DEL/2014 (AY 2008-09) SH. PRADEEP SINGH, A-13A, GREEN PARK MAIN, NEW DELHI 110 016 (PAN: ABIPS8126Q) VS. ACIT, RANGE-24, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. CS AGGARWAL, SR. ADV. & SH. RP MALL, ADV. DEPARTMENT BY : SH. FR MEENA, SR. DR DATE OF HEARING : 10-08-2016 DATE OF ORDER : 19-08-2016 ORDER PER H.S. SIDHU, JM ASSESSEE HAS FILED THESE TWO APPEALS AGAINST THE SEPARAT E ORDERS DATED 5.10.2011 AND 13.1.2014 RESPECTIVELY PASSED BY TH E LD. COMMISSIONER OF INCOME TAX (APPEALS)XXIII, NEW DELHI PERTAINING TO ASSESSMENT YEAR 2008-09. SINCE THESE APPEALS PERTAIN TO QU ANTUM ADDITION AND PENALTY FOR THE SAME ASSESSMENT YEAR, HENCE, THE APP EALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF ITA NOS. 5722/DEL/2011 & 996/DEL/2014 2 CONVENIENCE. WE ARE DEALING WITH FIRST WITH QUANTUM ADDITION RAISED IN ITA NO. 5722/DEL/2011 (AY 2008-09). 2. THE GROUNDS RAISED IN ITA NO. 5722/DEL/2011 (AY 2 008-09) READ AS UNDER: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED BOTH IN LAW AND ON FACTS IN SUSTAINING AN AGGREGATE A DDITION OF RS. 40,61,517/- AS DEEMED INCOME U/S 2(22)(E) OF THE INCOME TAX ACT. 2. IN DOING SO HE HAS FAILED TO APPRECIATE THAT THE A MOUNTS RECEIVED BY THE ASSESSEE WAS NEITHER ADVANCES OR THE LOAN, BUT WAS MER E ADVANCES IN THE NATURE OF DEPOSIT MADE BY THE THREE COMPANIES FOR THEIR BUSINESS REQUIREMENT, WHICH DEPOSITS WERE MADE BY THEM, IN ORDE R TO ENABLE THEM TO PARTICIPATE IN THE PROJECT (UNDERTAKEN BY THE ASSESSEE) B ETWEEN THE ASSESSEE AND LANDMARK APARTMENTS PVT.LTD. 3. THAT THE LEARNED AUTHORITIES HAVE FAILED TO APPRE CIATE THAT IT IS NOT ANY AND EVERY SUM RECEIVED BY A SHARE HOLDER FROM A COMPANY OF WHICH HE IS A SHARE HOLDER COULD BE BROUGHT TO TAX AND TREATED AS A DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(2)(E) OF THE ACT, EVEN WHEN THE AMOUNT IS ADVANCED BY THE COMPANY WITH THE SHARE HOLDER FOR THE PURPOSE OF THEIR BUSINESS. THAT THE FINDINGS RECORDED BY THE CIT(A) IN HIS ORDER THAT THE COMPANIES NAMELY M/S PPSL, M/S PMMPL AND M/S SEPL HAD NO APPAREN T BUSINESS TRANSACTION IS HIGHLY MISCONCEIVED AND IS CONTRARY TO FACTU AL MATRIX AVAILABLE ON RECORD AND SUPPORTED BY MEMORANDUM OF UNDERSTANDING AS WELL AS RESOLUTION PASSED BY THE ASSESSEE COMPANIES BEFORE MAKING TH E ADVANCES BY WAY OF DEPOSITS OF THE AMOUNTS WITH THE ASSESSEE FOR TH E PURPOSES OF THEIR BUSINESS. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) HAS FURTHER ERRED IN SUSTAINING A DISALLOWNACE OF RS. 4,08,800/- BEI NG THE BUSINESS LOSS SUFFERED BY THE ASSESSEE IN THE COURSE OF HIS REAL ESTATE BUSINESS. THE FINDINGS THAT IT REPRESENTED THE AMOUNT OF LOSS SUFFERED REPRESENT CAPITAL LOSS IS ERRONEOUS BOTH ON FACTS AND IN LAW. ITA NOS. 5722/DEL/2011 & 996/DEL/2014 3 IT IS THEREFORE PRAYED THAT THE ADDITIONS SUSTAINED TO THE TOTAL INCOME OF THE ASSESSEEE COMPANY BE DIRECTED TO BE REDUCED BY SUMS OF RS. 40 ,61,517/- AND RS. 4,08,800/- AND IT BE FURTHER HELD THAT THE I NTEREST LEVIED AND SUSTINED UNDER SECTION 234B OF THE ACT OF A SUM OF RS. 92, 18,211/- IS NOT LEVIABLE. 2.1 THE GROUNDS RAISED IN ITA NO. 996/DEL/2014 (AY 20 08-09) READ AS UNDER:- 1 THAT THE LEARNED COMMISSIONER OF INCOME TAX, (APPE ALS), NEW DELHI HAS ERRED BOTH IN LAW AND ON FACTS IN SUSTAINING PENALT Y OF RS. 14,75,850/- U/S 271(1)(C) OF THE ACT ON THE FOLLOWING ADDITIONS/D ISALLOWANCES MADE IN THE ORDER OF ASSESSMENT: SR. NO. PARTICULARS OF ADDITIONS/DISALLOWANCES AMOUNT (RS.) I) DISALLOWANCE OF BUSINESS LOSS ON SALE OF LAND BY HOLDING THE SAME AS CAPITAL LOSS 2,93,070 II) ADDITION ON ACCOUNT OF DEEMED DIVIDEND IN RESPECT OF TRANSACTIONS WITH M/S PRAMA PROJECTS SOLUTIONS (P) LTD. 22,28,293/- III) ADDITION ON ACCOUNT OF DEEMED DIVIDEND IN RESPECT OF TRANSACTIONS WITH M/S PRAMA MARKETING PVT. LTD. 17,00,000/- IV) ADDITION ON ACCOUNT OF DEEMED DIVIDEND IN RESPECT OF TRANSACTIONS WITH M/S SANYOG ESTATE PVT. LTD. 73,224/- V) DISALLOWANCE OUT OF LEGAL AND PROFESSIONAL EXPENSES 3 8,500/- TOTAL 43,33,087/- 1.1 THAT SINCE THERE WAS NO SATISFACTION RECORDED IN RESP ECT OF ADDITIONS AGGREGATING TO RS. 43,33,087/- IN THE ORDER OF ASSESSMEN T U/S 143(3) OF THE ACT, THE PENALTY LEVIED AND SUSTAINED IS PER SE WITHOUT JURISDICTION. 1.2 THAT THE LEARNED COMMISSIONER OF INCOME TAX, (APP EALS) HAS FAILED TO APPRECIATE THAT IT WAS NOT A CASE WHERE ANY FACT HAD BEE N INCORRECTLY DISCLOSED BY ASSESSEE BUT WAS A CASE WHERE A CONCLUSION WHICH WA S NOT IN AGREEMENT WITH THE CLAIM OF THE ASSESSEE WAS ARRIVED IN THE ORDER OF ITA NOS. 5722/DEL/2011 & 996/DEL/2014 4 ASSESSMENT AND HENCE THERE COULD BE NO VALID BASIS TO HOLD THAT ASSESSEE IS LIABLE FOR PENALTY U/S 271(1)(C) OF THE ACT. 1.3 THAT THE FINDING THAT THE AO HAS EFFECTIVELY DEM OLISHED THE APPELLANTS ARGUMENT THAT THE SAID ADDITIONS/DISALLOWA NCES TOTALING RS. 43,33,088/- WERE ALLOWABLE BUSINESS EXPENSES GIVEN THE FACTS AND CIRCUMSTANCES OF THE CASE IS NOT BASED ON CORRECT APPRECIATIO N OF FACTS AND CIRCUMSTANCES OF THE APPELLANT AND THEREFORE UNSUSTAINABLE . 1.4 THAT FURTHERMORE THE SPECIFIC FINDING RECORDED BY THE LEARNED COMMISSIONER OF INCOME TAX, (APPEALS) THE LEARNED ASSESSIN G OFFICER WHILE HOLDING THAT LOSS OF RS. 4,08,800/- REPRESENTS CAPITAL LO SS AND NOT BUSINESS LOSS HAS CLEARLY BROUGHT OUT THAT THE CONTENTION OF TH E APPELLANT THAT THIS PIECE OF LAND WAS PURCHASED BY HIM FROM SMT. KESAR DEVI FOR HIS CLIENTS M/S SELENE CONSTRUCTION PVT. LTD. AND M/S JUVENTUS ESTATES PV T. LTD. WAS FALSE IS ALSO INCORRECT, CONTRARY TO FACTS AND ANY CASE COULD NOT HAVE BEEN MADE A BASIS TO SUSTAIN THE PENALTY IN THE LIGHT OF THE SETTLED JUDICIAL POSITION THAT NO PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS LEVIABLE FOR HOLDING THE LOSS AS CAPITAL LOSS INSTEAD OF BUSINESS LOSS DECLARED BY THE APPE LLANT. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX, (APPE ALS) HAS FURTHER ERRED IN LAW AND ON FACTS IN NOT HOLDING THAT ORDER O F PENALTY DATED 25.03.2013 IS BARRED BY LIMITATION AND THEREFORE DESE RVES TO BE QUASHED AS SUCH. IT IS THEREFORE PRAYED THAT THE PENALTY LEVIED OF RS. 14,75,850/- U/S 271(1)(C) OF THE ACT AND SUSTAINED BY THE LEARNED CO MMISSIONER OF INCOME TAX, (APPEALS) MAY KINDLY BE DELETED. IT BE FURTHER HELD THAT THE ORDER OF PENALTY DATED 25.03.2013 WAS BARRED BY LIMITATION AN D NOT IN ACCORDANCE WITH LAW AND APPEAL OF THE APPELLANT MAY KINDLY BE ALLOWED. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN INDI VIDUAL AND DERIVE INCOME FROM SALARY, BUSINESS OF REAL ESTATE, CAPI TAL GAIN, HOUSE PROPERTY, OTHER SOURCES AND AGRICULTURE. FOR THE YEAR U NDER CONSIDERATION, ASSESSEE HAS FILED THE RETURN OF INCOME ON 29.09.2008 DE CLARING AN INCOME OF RS. 35,13,02,662/-. IN THIS CASE RETURN OF INCOME OF THE ASSESSEE FOR THE INSTANT ASSESSMENT YEAR WAS TAKEN UP FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT DATED 5.8.2009 WAS ISSUED WHICH HAS BE EN RECEIVED BY THE ASSESSEE ON 24.09.2009. THEREAFTER A GENERAL QUESTIONNA IRE WAS ISSUED U/S 142(1) OF THE ACT ON 18.01.2010. DURING THE COURSE OF THE COURSE OF THE ITA NOS. 5722/DEL/2011 & 996/DEL/2014 5 ASSESSMENT PROCEEDINGS, ASSESSEE ON THE BASIS OF THE ADVICE OF THE EXPERT, SUO MOTO DECIDED TO WITHDRAW THE CLAIM OF EXPENSES OF R S 13 CRORE FOR THE INSTANT ASSESSMENT YEAR AND ACCORDINGLY IT FILED A LETTER DATED 26.08.2010 WHEREIN IT PRAYED THAT THE EXPENSES CLAIMED IN AY 2008 -09 OF RS. 13 CRORES BE TREATED AS WITHDRAWN, AND RETURNED INCOME BE KINDL Y INCREASED BY INCLUDING THE SAID SUM. AFTER GOING THROUGH THE RECORD S, AO HAS COMPLETED THE ASSESSMENT U/S. 143(3) OF THE I.T. ACT VIDE HIS ORDER DATED 26.11.2010 AND MADE THE VARIOUS ADDITIONS. 4. AGAINST THE ASSESSMENT ORDER DATED 26.11.2010, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATE D 05.10.2011 HAS PARTIALLY UPHELD THE ADDITIONS MADE IN THE ORDER OF ASSESSMENT AND PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. AGGRIEVED WITH THE AFORESAID ORDER OF THE LD. CIT (A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. LD. COUNSEL OF THE ASSESSEE IN SUPPORT OF HIS CONTENTION HAS FILED THE WRITTEN SYNOPSIS. FOR THE SAKE OF CONVENIENCE, WE ARE R EPRODUCING THE SAME AS UNDER: 2. ADDITION MADE BY THE LEARNED AO AND SUSTAINED BY THE LEARNED CIT(A) OF A SUM OF RS. 40,61,517/- BY INVOKING SECT ION 2(22)(E) OF THE ACT: (GROUND NO. 1-3) 2.1 IN SO FAR AS THE FIRST ISSUE IS CONCERNED, THE LEARNED A.O. HAS HELD THAT THE AMOUNTS RECEIVED BY THE ASSESSEE AND CREDITED IN THE A CCOUNTS OF THE RESPECTIVE COMPANIES NAMED ABOVE REPRESENTS LOAN AND IS T HUS A DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(2)(E) OF TH E INCOME TAX ACT. 2.2 THAT APART FROM THE SEQUENCE OF EVENTS (ENCLOSED AS A NNEXURE-A), THE FACTS IN BRIEF IN RESPECT OF THE SAID ISSUE IS STATED AS UN DER: 2.3 THE ASSESSEE IS ADMITTEDLY ENGAGED IN THE BUSINESS OF D EVELOPMENT OF REAL ESTATE. (PAGE 25). THAT THE ASSESSEE IS A SHAREHOLDER OF FOLLOWING ITA NOS. 5722/DEL/2011 & 996/DEL/2014 6 THREE COMPANIES AND HAD SUBSTANTIAL INTEREST IN THE AFORESAID COMPANIES WITHIN THE MEANING OF SECTION 2(22)(E) OF THE INCOME T AX ACT. (I) PRAMA PROJECT SOLUTION PVT. LTD. (II) PRAMA MARKETING PVT. LTD. (III) M/S SANYOG ESTATE PVT. LTD. 2.4 DURING THE INSTANT YEAR, THE AFORESAID THREE COMP ANIES HAD ADVANCED SUMS TO THE ASSESSEE IN THE COURSE OF THE BUSINESS WHICH WAS CRE DITED TO THE RESPECTIVE ACCOUNTS IN THE BOOKS OF THE ASSESSEE. THE AMOUN TS ADVANCED BY THE AFORESAID THREE COMPANIES ARE AS UNDER: S.NO. NAME OF THE COMPANY FROM WHICH ADVANCE WAS RECEIVED IN THE REGULAR COURSE OF BUSINESS SUM ADVANCED IN THE REGULAR COURSE OF BUSINESS ADDITION MADE U/S 2(22)(E) ONLY TO THE EXTENT OF THE ACCUMULATED PROFITS. I. PRAMA PROJECT SOLUTION PVT. LTD. RS. 39,50,000 RS. 22,28,293 II. PRAMA MARKETING PVT. LTD. RS. 18,60,000 RS. 18,60,000 III. M/S SANYOG ESTATE PVT. LTD. RS. 5,00,000 RS. 73,224 TOTAL ADDITION MADE BY INVOKING SECTION 2(22)(E) RS. 40,61,517/- 2.5 IT IS SUBMITTED THAT BEFORE PROVIDING THE AFORESAI D ADVANCES, THE COMPANIES HAD ENTERED INTO MOU WITH THE ASSESSEE STIPULA TING THE PURPOSE FOR WHICH ADVANCES WERE MADE TO THE ASSESSEE: DATE MOU BETWEEN PAGES OF PB PURPOSE OF MOU 24.05.2007 ASSESSEE AND M/S PRAMA PROJECT SOLUTION PVT. LTD. 104 106 FOR INVESTING SURPLUS FUNDS INTO A PROJECT WHICH WOULD BE A GOOD SOURCE OF EARNING WITH REASONABLE RETURNS. 24.05.2007 ASSESSEE AND M/S PRAMA MARKETING PVT. LTD. 119 121 FOR INVESTING SURPLUS FUNDS INTO A PROJECT WHICH WOULD BE A GOOD SOURCE OF EARNING WITH REASONABLE RETURNS. 24.05.2007 ASSESSEE AND M/S SANYOG ESTATE PVT. LTD. 144-146 FOR ACQUIRING A COMMERCIAL SPACE FOR ESTABLISHING BUSINESS CENTER AND IS LOOKING OUT FOR A PROPERTY SUITABLE FOR A BUSINESS CENTER IN ITA NOS. 5722/DEL/2011 & 996/DEL/2014 7 NEW DELHI/GURGAON IN COMMERCIAL LOCATION. 2.6 IT WOULD BE SEEN FROM THE AFORESAID MOUS WITH M/S P RAMA PROJECT SOLUTION PVT. LTD. AND M/S PRAMA MARKETING PVT. LTD . THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH M/S LANDMARK APARTMEN TS PVT. LTD. FOR INVESTING SUFFICIENT SURPLUS FUNDS INTO A PROJECT WHICH WOULD BE A GOOD SOURCE OF EARNING REASONABLE RETURNS AND THUS AS THE ASSESSEE WAS FINDING DIFFICULTY/ALONE TO INVEST SUCH LARGE CAPITAL AND WAS L OOKING OUT FOR ANOTHER INVESTOR TO JOIN HANDS, AS SUCH, THE AFORESAID COMPANIES HAD AGREED TO JOIN HANDS WITH ASSESSEE AND AGREED TO MAKE INVESTMENT IN THE PROJECT AND IT WAS FOR THE AFORESAID PURPOSE AFORESAID COMPANIES HAS ADV ANCED THE SUM OF RS. 39,50,000/- AND RS. 18,60,000 RESPECTIVELY. 2.7 THAT THE ASSESSEE HAD FURTHER SUBMITTED THAT, THE ASSE SSEE HAD ENTERED INTO A MEMORANDUM OF UNDERSTANDING ON 20.01. 2007 WITH M/S LANDMARK APARTMENTS PVT. LTD. TO JOIN HAND TO ESTABLI SH I.T. PARK/CALL CENTRE AS A PROJECT AND IT WAS STATED IN THE AGREEMENT WITH M/S LANDMARK APARTMENTS PVT. LTD. THAT ASSESSEE HAS SUFFICIENT FUNDS AVA ILABLE WITH HIM AND HAS THE CAPACITY TO ARRANGE FUNDS FROM OTHER SOURCE S INCLUDING FOREIGN INVESTORS AND WERE DESIROUS TO DEPLOY THE SAME FOR THE P ROJECT. THAT M/S PRAMA PROJECT SOLUTION PVT. LTD. AND M/S PRAMA MARKET ING PVT. LTD. HAD ADVANCED SUMS TO THE ASSESSEE TO MAKE INVESTMENT IN THE AFO RESAID PROJECT. HOWEVER, AS THE AFORESAID PROJECT HAD SINCE NOT FORTIFIED , IT REQUESTED LANDMARK APARTMENTS PVT. LTD. TO REFUND THE AMOUNT I NVESTED BY THE ASSESSEE WHICH WAS REFUNDED BY M/S LANDMARK APARTMENTS PVT . LTD. ON 07.05.2009 (PAGE 199). 2.8 FURTHER, FROM THE PERUSAL OF THE MOU BETWEEN ASSESS EE AND M/S SANYOG ESTATE PVT. LTD. PLACED AT PAGES 144-146 OF PB, IT WOULD BE SEEN THAT SUM OF RS. 5,00,000/- HAS BEEN ADVANCED TO THE ASSESSE E TO SEARCH OUT A PLACE IN NEW DELHI/GURGAON FOR OPENING A BUSINESS CEN TRE IN COMMERCIAL LOCATION AND THE PRICE OF THE PROPERTY SHOULD NOT EXCEE D RS. 1,00,00,000/- I.E. SUM OF RS. 5,00,000/- ADVANCED WAS FOR THE PURPOSE OF GIVING ADVANCE FOR THE PURCHASE OF THE BUSINESS CENTRE. 2.9 THE AFORESAID FACTS CLEARLY DEMONSTRATE THAT THE AMO UNTS RECEIVED BY THE ASSESSEE FROM THE AFORESAID COMPANIES WERE COMMERCIAL AD VANCES MADE BY SUCH OF THE COMPANIES AND WERE NOT LOAN PER-SE SO AS TO BRING THE SAME WITHIN THE MEANING OF DEEMED DIVIDEND AS PER THE PRO VISIONS OF SECTION 2(22)(E) OF THE ACT. ITA NOS. 5722/DEL/2011 & 996/DEL/2014 8 3. THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, APPELLANT CONTENDED THAT THE AMOUNTS RECEIVED WERE NOT LOAN PER- SE AND THE AMOUNTS WERE RECEIVED FROM THE AFORESAID COMPANIES DURING THE C OURSE OF BUSINESS ON THEIR BEHALF AND AS SUCH, SUCH ADVANCES RECEIVED IS OUTSID E THE AMBIT OF SECTION 2(22)(E) OF THE ACT. IN SUPPORT THE AFORESAID SUB MISSION, THAT THE AMOUNT RECEIVED BY ASSESSEE IS BUSINESS ADVANCE AND IS NOT A LOAN, THE ASSESSEE HAD FURNISHED THE FOLLOWING EVIDENCE: (I) IN RESPECT OF THE CREDIT IN THE ACCOUNT OF M/S PRAMA PROJECT SOLUTION PVT. LTD : A. COPY OF MEMORANDUM OF UNDERSTANDING (MOU) EXECUTED ON 24.05.2007 (PAGES 104 106). B. COPY OF THE ACCOUNT OF M/S PRAMA PROJECT SOLUTION PVT. LTD. IN THE BOOKS OF ASSESSEE (PAGE 107). C. COPY OF THE AUDITORS REPORT ALONGWITH AUDITED BALANC E SHEET AS ON 31.03.2007 (PAGES 108-110) . (II) IN RESPECT OF M/S PRAMA MARKETING PVT. LTD : A. COPY OF MEMORANDUM OF UNDERSTANDING (MOU) EXECUTED ON 24.05.2007 (PAGES 119 -121); B. COPY OF THE ACCOUNT OF M/S PRAMA MARKETING PVT. LTD. I N THE BOOKS OF ASSESSEE (PAGE 122). C. COPY OF THE AUDITORS REPORT ALONGWITH AUDITED BALANC E SHEET AS ON 31.03.2007 (PAGES 123-134) . D. COPY OF THE AUDITORS REPORT ALONGWITH AUDITED BALANC E SHEET AS ON 31.03.2008 (PAGES 135-143) . (III) SIMILARLY IN RESPECT OF M/S SANYOG ESTATES PVT. LTD .: A. COPY OF MEMORANDUM OF UNDERSTANDING (MOU) EXECUTED ON 24.05.2007 (PAGES 144 146); B. COPY OF THE ACCOUNT OF M/S SANYOG ESTATES PVT. LTD. IN THE BOOKS OF ASSESSEE (PAGE 147). C. SHAREHOLDING PATTERN OF M/S SANYOG ESTATES PVT. LTD. (PAGE 148) D. COPY OF THE AUDITORS REPORT ALONGWITH AUDITED BALANC E SHEET AS ON 31.03.2007 (PAGES 149-158) . E. COPY OF THE AUDITORS REPORT ALONGWITH AUDITED BALANC E SHEET AS ON 31.03.2008 (PAGES 159-164). 4. THE A.O. HOWEVER DESPITE THE AFORESAID CONTENTIONS REJECTED THE SUBMISSION OF THE ASSESSEE ON THE GROUND THAT, MOU WAS GENE RAL IN NATURE, AND SAME HAS NO LEGAL VALUE AS IT IS NEITHER REGISTERED NOR NOTARIZED. HE HAS FURTHER HELD THAT APART FROM THE AFORESAID TRANSACTION S, NO BUSINESS TRANSACTION HAS UNDERTAKEN BETWEEN THE ASSESSEE AND SUCH COM PANIES, AS SUCH, HE HELD THAT SUCH TRANSACTION CANNOT BE HELD TO BE BUSINESS AND HENCE ITA NOS. 5722/DEL/2011 & 996/DEL/2014 9 HE MADE THE ADDITION BY INVOKING SECTION 2(22)(E) OF THE ACT TO THE EXTENT OF THE ACCUMULATED PROFITS BY SUCH COMPANIES. 5. THE FINDING OF THE LEARNED AO WHILE HOLDING THAT SUM RECEIVED IS DEEMED DIVIDEND IN RESPECT OF SUM RECEIVED FROM AFORESA ID THREE COMPANIES ARE AS UNDER: 5.1 THE LEARNED AO HAS REJECTED THE CLAIM OF THE ASSESSE E IN THE CASE OF M/S SANYOG ESTATES PVT. LTD. ON THE GROUND THAT, IN FACT ON EXAMINING THE BALANCE SHEET OF THE ASSESSEE FOR SUBSEQUENT YEAR I.E. F.Y. 2008-09 IT IS SEEN THAT THE ABOVE AMOUNT STILL REMAINS IN THE HANDS O F THE ASSESSEE AND NO BUSINESS TRANSACTION HAS BEEN CARRIED OUT BY THE ASSESSEE AND M/S SANYOG ESTATE PVT. LTD. ACCORDINGLY, IN THIS CASE ALSO THE PLEA THAT THE ABOVE ADVANCE WAS PART OF THE BUSINESS DEAL IS DEVOID OF ANY BA SIS. ON EXAMINING THE BALANCE SHEET OF M/S SANYOG ESTATE PVT. LTD., IT IS SEEN THAT THE COMPANY HAS ACCUMULATED PROFITS TO THE TUNE OF RS. 73,22 4/- ONLY. ACCORDINGLY, THE DEEMED DIVIDEND U/S 2(22)(E) IS COMPUT ED TO THE EXTENT OF ACCUMULATED PROFITS AMOUNTING TO RS. 73,224/- AND THE SAID AMOUNT IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5.2 IN THE CASE OF M/S PRAMA MARKETING PVT. LTD. THE SA ME HAS BEEN REJECTED ON THE GROUND THAT, HERE ALSO THE ONLY ARGU MENT WHICH HAS BEEN ADVANCED BY THE ASSESSEE DURING THE COURSE OF THESE PROCEE DINGS IS THAT THE TRANSACTIONS WERE A PART OF BUSINESS TRANSACTION WITH M/S PR AMA MARKETING PVT. LTD. AS PART OF SUBMISSION ON 26.10.2010, THE ASSESSE E HAS FILED A COPY OF MEMORANDUM OF UNDERSTANDING DATED 24.05.2007 WITH M/S PRAMA MARKETING PVT. LTD. IN WHCHI 50% SHAREHOLDING EACH IS HELD BY THE ASSESSEE AND HAS VERIFIED. ON BEHALF OF M/S PRAMA MARKETING PV T. LTD. SMT. MAMTA SINGH WIFE OF THE ASSESSEE HAS SIGNED THE MOU. THE MOU PR OVIDES THAT M/S PRAMA MARKETING PVT. LTD. WILL MAKE INVESTMENT IN RE AL ESTATE PROJECTS OUT OF THE SUFFICIENT SURPLUS FUNDS FROM THE ASSESSEE. THE TERMS OF THE MOU ARE TOTALLY GENERAL IN NATURE AND THERE IS NO SPECIFIC TRA NSACTION WHICH IS MENTIONED HEREIN. THE MOU HAS NO LEGAL VALUE AS IT IS NOT REGISTERED OR NOTARIZED AND IS THEREFORE A PLAIN PIECE OF PAPER WHI CH DOES NOT ADD ANY LEGAL CREDENCE TO THE CLAIM OF THE ASSESSEE. AS CAN ALSO BE SE EN FROM THE COPIES OF ACCOUNTS WHICH ARE PRODUCED ABOVE THERE IS NOT A SINGLE TRANSACTION BETWEEN THE ASSESSEE AND M/S PRAMA MARKETING P VT. LTD. APART FROM THE GIVE AND TAKE OF THE SAID LOAN OF THE ADVAN CES. AS SUCH THE CLAIM OF THE ASSESSEE THAT THIS IS THE BUSINESS DEAL LACKS BASIS ENTIRELY . 5.3 IN THE CASE OF M/S PRAMA PROJECT SOLUTION PVT. LTD. THE A.O. HELD THAT, THE MOU PROVIDES THAT M/S PPSPL WILL MAKE INVESTMENT IN REAL ESTATE ITA NOS. 5722/DEL/2011 & 996/DEL/2014 10 PROJECTS OUT OF THE SUFFICIENT SURPLUS FUNDS FROM THE ASSES SEE. THE TERMS OF THE MOU ARE TOTALLY GENERAL IN NATURE AND THERE IS N O SPECIFIC TRANSACTION WHICH IS MENTIONED HEREIN. THE MOU HAS NO LEGAL VALUE AS IT IS NO REGISTERED OR NOTARIZED AND IS THEREFORE A PLAIN PIECE OF PAPER WHICH DOES NOT ADD ANY LEGAL CREDENCE TO THE CLAIM OF THE ASSESSEE. AS CAN ALSO BE SE EN FROM THE COPY OF ACCOUNTS WHICH HAS BEEN PRODUED ABOVE THAT THERE IS NOT A SINGLE TRANSACTION BETWEEN THE ASSESSEE AND M/S PPSPL APART FROM THE GIVE AND TAKE OF THE SAID LOAN/ADVANCES WHICH FURTHER ESTABLISHES NO SUCH BUSINESS TRANSACTION TOOK PLACE LATER ALSO. AS SUCH THE CLAIM OF TH E ASSESSEE THAT THIS IS A BUSINESS DEAL LACKS BASIS ENTIRELY AND JUDICIAL DECISIO N CITED BY THE ASSESSEE (SMT. NIGAM CHAWLA VS. ITO, 28 SOT 503) IS NOT O NLY DISTINGUISHABLE ON FACTS BUT IS ALSO NOT APPLICABLE IN THI S CASE ON PRINCIPLE. ON EXAMINING THE BALANCE SHEET OF M/S PPSPL AS ON 31.03 .2008, IT IS SEEN THAT THERE WAS ACCUMULATED PROFITS TO THE EXTENT OF RS. 22,28,293/- AND ACCORDINGLY THE DEEMED DIVIDEND U/S 2(22)(E) IS COMPUTED TO THE EXTENT OF ACCUMULATED PROFITS AMOUNTING TO RS. 22,28,293/- AND T HE SAID AMOUNT IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 6. IT IS SUBMITTED THAT AFORESAID FINDING OF THE LEAR NED AO HAS BEEN ARBITRARILY UPHELD BY THE LEARNED CIT(A) WITHOUT AP PRECIATING THE FACTUAL SUBSTRATUM OF THE CASE. IN FACT THE FINDING OF THE A.O. THAT NO BUSINESS TRANSACTION HAD BEEN UNDERTAKEN BY THE ASSESSEE WAS UPON O VERLOOKING THE FACTS ON RECORD I.E. THE ASSESSEE HAD ENTERED INTO A DEVEL OPMENT TRANSACTION ON 20.01.2007 WITH LANDMARK APARTMENTS PVT. LTD. WHI CH WAS ALSO STATED IN THE MEMORANDUM OF UNDERSTANDING ENTERED BETWEEN THE ASSESSEE AND THE AFORESAID TWO CREDITOR COMPANIES (SEE PAGE 105 AND 120 O F PAPER BOOK). 7. AT THE OUTSET IT IS SUBMITTED THAT THE AMOUNT ADVAN CED BY THE THREE COMPANIES WERE NOT LOAN TAKEN BY THE ASSESSEE BUT WERE AD VANCES MADE BY THE SUCH COMPANIES IN THE NORMAL COURSE OF BUSINESS AS SUCH, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT HAVE NO APPLICATION. TH E CLAIM OF THE APPELLANT THAT THE AMOUNT CREDITED IN THE BOOKS OF ACCOUNT WAS BY WAY OF ADVANCE WHICH CANNOT BE CHARACTERISED AS LOAN, HAS BEEN REJECTED ON MERE ASSUMPTION AND IN DISREGARD OF THE FACT THAT SUCH COMPANI ES HAD CONTRIBUTED THE AMOUNT FOR THE PROJECT UNDERTAKE BY THE ASSESSEE WIT H LANDMARK APARTMENTS PVT. LTD. IT IS SUBMITTED THAT, IN THE INS TANT CASE, THE LEARNED A.O. HAS FAILED TO COMPREHEND THAT THE AMOUNT RECEIVED WAS AN ADVANCE BUT NOT A LOAN. HE HAS ALSO FAILED TO COMPREHEND THAT, HAD IT BEEN A CASE OF LOAN INTEREST WOULD HAVE NORMALLY BEEN PAID OR CHARGED BY THE COMPANY WHO HAD ALLEGEDLY ADVANCED THE LOAN . IT IS SUBMITTED THAT SUM RECEIVED BY THE ASSESSEE FROM SUCH COMPANIES WAS ADVANCE AND WAS SUPPORTED BY THE DOCUMENTS WHICH ESTABLISH THAT THE AMOUNT RECEIVED WAS ON ACCOUNT OF ITA NOS. 5722/DEL/2011 & 996/DEL/2014 11 COMMERCIAL CONSIDERATION. IT IS WELL SETTLED RULE OF LAW THAT THE NATURE OF RECEIPT IS TO BE SEEN AT THE TIME OF RECEIPT OF THE MO NEY AND IN THE ABSENCE OF ANY EVIDENCE TO THE CONTRARY, THAT THE AMOUNT RECEI VED HAD NOT BEEN RECEIVED FOR A COMMERCIAL TRANSACTION, THE A.O. WAS NOT JUSTIFIED IN HOLDING THAT THE AMOUNT RECEIVED WERE DEEMED DIVIDEND WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. 8. THE APPELLANT SUBMITS THAT THE HONBLE DELHI HIGH CO URT IN THE CASE OF CIT VS. RAJ KUMAR REPORTED IN 318 ITR 462, HAS TAKEN A VIEW ON THE INTERPRETATION OF SECTION 2(22)(E) OF THE INCOME TAX A CT THAT, EVERY ADVANCE IS NOT A LOAN WHEN RECEIVED BY A SHAREHOLDER AND CANNOT BE TREATED TO BE DEEMED DIVIDEND. IN THE AFORESAID JUDGMENT, HONBLE HI GH COURT AT PAGE 483 HAS HELD AS UNDER: THIS COURT IN RAJ KUMARS CASE EXTENSIVELY REFERRED TO T HE REPORT OF THE TAXATION ENQUIRY COMMISSION AND THE SPEECH OF THE FINA NCE MINISTER IN THE BUDGET WHILE INTRODUCING THE FINANCE BILL. ULTIMATELY , THIS COURT IN THE SAID JUDGMENT HELD AS UNDER (PAGE 473): A BARE READING OF THE RECOMMENDATIONS OF THE COMMISSIO N AND THE SPEECH OF THE THEN FINANCE MINISTER WOULD SHOW THAT THE PURP OSE OF THE INSERTION OF SUB-CLAUSE (E) TO SECTION 2(6A) IN THE 1922 ACT WAS TO B RING WITHIN THE TAX NET MONIES PAID BY CLOSELY HELD COMPANIES TO THEIR PRINC IPAL SHAREHOLDERS IN THE GUISE OF LOANS AND ADVANCES TO AVOID PAYMENT OF TAX . THEREFORE, IF THE SAID BACKGROUND IS KEPT IN MIND, IT IS CLEAR THAT SUB-CLAUSE (E) OF SECTION 2(22) OF THE ACT, WHICH IS IN PARIMATER IA WITH SUB-CLAUSE (E) OF SECTION 2(6A) OF THE 1922 ACT, PLAINLY SEEKS TO BRING WI THIN THE TAX NET ACCUMULATED PROFITS WHICH ARE DISTRIBUTED BY CLOSELY HELD COMPANIES TO ITS SHAREHOLDERS IN THE FORM OF LOANS. THE PURPOSE BEING TH AT PERSONS WHO MANAGE SUCH CLOSELY HELD COMPANIES SHOULD NOT ARRANGE T HEIR AFFAIRS IN THE MANNER THAT THEY ASSIST THE SHAREHOLDERS IN AVOIDING THE PAYMENT OF TAXES BY HAVING THESE COMPANIES PAY OR DISTRIBUTE, WHAT WOULD LEGITIMATELY BE DIVIDEND IN THE HANDS OF THE SHAREHOLDERS, MONEY IN T HE FORM OF AN ADVANCE OR LOAN. IF THIS PURPOSE IS KEPT IN MIND THEN, IN OUR VIEW, THE WORD ADVANCE HAS TO BE READ IN CONJUNCTION WITH THE WORD LOAN. USUALLY A TTRIBUTES OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING COUPLED WITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN: IT GENERALLY CARRIES AN INTE REST AND THERE IS AN OBLIGATION OF REPAYMENT. ON THE OTHER HAND, IN ITS W IDEST MEANING OF TERM ADVANCE MAY OR MAY NOT INCLUDE LENDING. THE WORD A DVANCE IF NOT FOUND IN THE COMPANY OF OR IN CONJUNCTION WITH A WORD LOAN M AY OR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES, THEN IT WO ULD BE A LOAN. THUS, ARISES THE CONUNDRUM AS TO WHAT MEANING ONE WOULD ATTRIBUTE TO THE TERM ITA NOS. 5722/DEL/2011 & 996/DEL/2014 12 ADVANCE. THE RULE OF CONSTRUCTION TO OUR MINDS WHICH AN SWERS THIS CONUNDRUM IS NOSCITUR A SOCIIS. THE SAID RULE HAS BEEN EXPLA INED BOTH BY THE PRIVY COUNCIL IN THE CASE OF ANGUS ROBERTSON VS. GEORGE D AY [1879] 5 AC 63 BY OBSERVING IT IS A LEGITIMATE RULE OF CONSTRUCTION TO CONSTRUE WORDS IN AN ACT OF PARLIAMENT WITH REFERENCE TO WORDS FOUND IN IMM EDIATE CONNECTION WITH THEM AND OUR SUPREME COURT IN THE CASE OF ROHIT PULP AND PAPER MILLS LTD. VS. COLLECTOR OF CENTRAL EXCISE, AIR 1991 SC 754 AND STATE OF BOMBAY VS. HOSPITAL MAZDOOR SABHA, AIR 1960 SC 610. 9. SAME VIEW HAS BEEN TAKEN IN THE FOLLOWING JUDICIA L PRONOUNCEMENTS: A. CIT VS AMBASSADOR TRAVELS (P) LTD. HC (DELHI) 173 TAXMAN 407 B. CIT VS RAJ KUMAR HC (DELHI) 181 TAXMAN 155 C. CIT VS CREATIVE DYEING AND PRINTING (P) LTD. HC (DELHI) 184 TAXMAN 483 D. CIT VS SUNIL SETHI ITA 569/2009 HC (DELHI) E. CIT VS ARVIND KUMAR JAIN ITA 589 OF 2011 (30 SEPTEMBER 2011) F. CIT VS. INTERNATIONAL LAND DEVELOPMENT PVT. LTD. 12 96/2011 & 1297/2011 DATED 02.02.2012 HC (DELHI) G. ATUL MITTAL IN ITA NO. 3863/DEL/2002 (ITAT DEL). H. NIGAM CHAWALA 2009 28 SOT 503 10. IT IS FURTHER SUBMITTED THAT FROM THE PERUSAL OF T HE DOCUMENTS AND BOOKS OF ACCOUNTS PRODUCED DURING THE COURSE OF ASSESSMENT, I T WOULD BE SEEN THAT THE ENTRIES IN THE BOOKS OF ACCOUNTS DID NOT RE FLECT THE SUM RECEIVED AS A LOAN AND NO EFFORTS WERE MADE BY THE LEA RNED AO TO MAKE ANY ENQUIRY FROM THE SUCH COMPANIES ABOUT THE NATURE OF THE ADVANCES MADE BY THEM ON THE RESPECTIVE DATES AND THUS THE REVENUE FAIL ED TO DISCHARGE ITS BURDEN IN REBUTTAL TO THE EVIDENCE FURNISHED BY THE A SSESSEE. IT IS SUBMITTED THAT WHILE MAKING THE AFORESAID ADDITION, THE EVIDEN CE FURNISHED BY THE ASSESSEE HAS BEEN REJECTED ON ARBITRARY GROUNDS. IN THE FA CE OF THE DOCUMENTARY EVIDENCE, THE CLAIM OF THE ASSESSEE COULD NOT HAVE BEEN REJECTED WITHOUT ANY POSITIVE AND TANGIBLE MATERIAL T O REBUT THE SAME. THE FINDINGS OF THE LEARNED A.O. AND CIT(A) BOTH ARE BASE D ON MERE CONJECTURES, UNSUPPORTED BY ANY EVIDENCE WITHOUT PREJUDICE, NO ADVE RSE FINDINGS COULD HAVE BEEN RECORDED BY THE AUTHORITIES BASED ON MERE SUS PICION. IT IS SETTLED LAW THAT, NO ADDITION CAN BE MADE ON THE BASIS OF SURMISES, S USPICION AND CONJECTURES . RELIANCE FOR THIS PROPOSITION IS PLACED ON 37 ITR 271 (SC) UMA CHARAN SHAW & BROS. CO. V. CIT . IT HAS BEEN FURTHER HELD IN THE FOLLOWING CASES THAT SUSPICION HOWSOEVER STRONG CANNOT TAKE THE PLACE OF PROOF: I) 26 ITR 775 (SC) AT 782 (SC) DHAKESWARI COTTON MILLS LTD. VS. CIT ITA NOS. 5722/DEL/2011 & 996/DEL/2014 13 'AS REGARDS THE SECOND CONTENTION, WE ARE IN ENTIRE AGRE EMENT WITH THE LEARNED SOLICITOR GENERAL WHEN HE SAYS THAT THE ITO IS NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AND PLEADINGS, AND THAT HE IS ENTITLED TO ACT ON MATERIAL WHICH MAY NOT BE ACCEPTED AS EVIDENCE IN A C OURT OF LAW, BUT THERE THE AGREEMENT ENDS; BECAUSE IT IS EQUALLY CLE AR THAT IN MAKING THE ASSESSMENT UNDER SUB-S. (3) OF S. 23 OF THE A CT, THE ITO IS NOT ENTITLED TO MAKE A PURE GUESS AND MAKE AN ASSESSMENT WITHOUT REFERENCE TO ANY EVIDENCE OR ANY MATERIAL AT ALL. THE RE MUST BE SOMETHING MORE THAN BARE SUSPICION TO SUPPORT THE ASSESSME NT UNDER S. 23(3). II) 37 ITR 151(SC) OMAR SALAY MOHAMMAD SAIT V CIT THE CONCLUSIONS REACHED BY THE TRIBUNAL SHOULD NOT BE COLO URED BY ANY IRRELEVANT CONSIDERATIONS OR MATTERS OF PREJUDICE AND IF THERE ARE ANY CIRCUMSTANCES WHICH REQUIRED TO BE EXPLAINED BY THE ASSESSE E, THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY OF DOING SO. ON N O ACCOUNT WHATEVER SHOULD THE TRIBUNAL BASE ITS FINDINGS ON SUSPIC IOUS, CONJECTURES OR SURMISES NOR SHOULD IT ACT ON NO EVIDENCE AT ALL OR ON IMPROPER REJECTION OF MATERIAL AND RELEVANT EVIDENCE OR PARTLY ON EVIDENCE AND PARTLY ON SUSPICIONS, CONJECTURES OR SURMISES AND IF IT DOES ANYTHING OF THE SORT, ITS FINDINGS, EVEN THOUGH ON QUESTIONS OF FACT, WILL BE LIABLE TO BE SET ASIDE BY THIS COURT. III) 26 ITR 736 (SC) DHIRAJLAL GIRDHARILAL V CIT, BOMBAY WHEN A COURT OF FACT ACTS ON MATERIAL, PARTLY RELEVANT AND PARTLY IRRELEVANT, IT IS IMPOSSIBLE TO SAY TO WHAT EXTENT THE MIND OF THE COURT WAS AFFECTED BY THE IRRELEVANT MATERIAL USED BY IT IN ARRIVING AT ITS FINDING. SUCH A FINDING IS VITIATED BECAUSE OF THE USE OF INADMISSIBLE MATERIAL IV) 37 ITR 288 (SC) LAL CHAND BHAGAT AMBICA RAM V CIT THE TRIBUNAL IN ARRIVING AT THE CONCLUSION IT DID IN T HE PRESENT CASE INDULGED IN SUSPICIONS, CONJECTURES AND SURMISES AND ACTED WITHOUT ANY EVIDENCE OR UPON A VIEW OF THE FACTS WHICH COULD NOT REASONABLY BE ENTERTAINED OR THE FACTS FOUND WERE SUCH THAT NO PER SON ACTING JUDICIALLY AND PROPERLY INSTRUCTED AS TO THE RELEVANT LAW COULD HAVE FOUND, OR THE FINDING WAS, IN OTHER WORDS, PERVERSE AND THE COURT IS ENTITLED TO INTERFERE. V) AIR 1977 SC 796 KRISHNAND VS. STATE OF MADHYA PRADE SH VI) AIR 1974 SC 171 JAYADAYAL PODDAR VS. MST BIBI HAZRA VII) 242 ITR 133 (KER CIT VS. K. MAHIM UDMA ITA NOS. 5722/DEL/2011 & 996/DEL/2014 14 11. IN THE INSTANT CASE IT WOULD BE SEEN THAT THE LEA RNED A.O. HAS COMPLETELY ERRED IN HOLDING THAT THE AMOUNT WAS RECEIV ED BY THE ASSESSEE AS LOAN, DESPITE THE FACT THAT NECESSARY EVIDENCE TO SUPPORT THAT THE AMOUNT WAS ADVANCED TO THE ASSESSEE BY THE COMPANY IN WHICH IT WAS THE SHAREHOLDER WAS SUPPORTED BY THE DOCUMENTARY EVIDENCE N AMELY THE MOUS. NO EXPLANATION WAS SOUGHT BY THE A.O. OR ANY EFFORT WAS MADE BY THE A.O. TO DISPROVE THE EVIDENCE FURNISHED BY THE ASSESSEE. IT I S FURTHER SUBMITTED THAT, THERE CAN BE NO DENYING OF THE FACT THAT THE ASSE SSEE DID DISCHARGE ITS ONUS WHEN IT LED THE NECESSARY EVIDENCE IN THE FORM OF M OUS. HOWEVER, THE BURDEN THEREAFTER LAY ON THE REVENUE TO DISPROVE TH E EVIDENCE PLACED ON RECORD BY THE ASSESSEE ( CIT V GENESIS COMMET (P) LTD REPORTED IN 163 TAXMAN 482 (DEL) ). IN THE ABSENCE OF REBUTTING THE EVIDENCE FURNISHED B Y THE ASSESSEE, THE LEARNED A.O. WENT WRONG IN CONCLUDING T HAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS A LOAN AND WAS NOT A SUM ADVA NCED BY THE COMPANIES FOR COMMERCIAL DEALING I.E. TO MAKE THEM ENAB LE TO PARTICIPATE IN THE PROJECT UNDERTAKEN BY THE ASSESSEE ON HIS OWN BEHALF AND ALSO FOR THE BENEFIT OF PARTICIPATORS. RE: BUSINESS LOSS OF RS. 4,08,000/- 12. APART FROM THE AFORESAID, LEARNED AO HAS ALSO MADE A DISALLOWANCE OF RS. 4,08,000/- IN RESPECT OF THE LOSS ON SALE OF LAND AT PAWALA KHUSHPUR. IT IS SUBMITTED THAT ASSESSEE IN THE COURSE OF ITS BUSINESS HAS PURCH ASED A LAND FOR RS. 65,62,500/- IN AUGUST, 2007 AND SAME WAS SOLD IN DECEMBER, 2007 AT A LOSS OF RS. 4,08,800/- AND SUCH LOSS WAS CLAIMED IN THE P&L ACCOUNT. AFORESAID LOSS WAS DISALLOWED ON THE GROUND THAT SUCH SALE AND PURCHASE OF LAND IS NOT BUSINESS TRANSACTION BUT IS INVESTMENT OF THE ASSESSEE AND HENCE IS A CAPITAL LOSS. AFORESAID ORDER OF THE LEARNED AO HAS BEEN UPHELD BY THE LEARNED CIT(A). 13. IT IS MOST RESPECTFULLY SUBMITTED THAT IN THE INST ANT CASE, LEARNED AO/CIT(A) BOTH HAVE NEITHER DISPUTED THE GENUINENESS OF THE LOSS NOR HAS DISPUTED THE FACT THAT THE ASSESSEE IS ENGAGED IN REAL EST ATE BUSINESS, HOWEVER, ON ARBITRARY ASSUMPTION IT WAS HELD THAT AFOR ESAID PROPERTY WAS PURCHASED AS INVESTMENT, AS SUCH, THE LOSS ON SALE OF LAND I S CAPITAL LOSS. IT IS SUBMITTED THAT INSTANT ADDITION HAS BEEN MADE PURELY ON SUSPICION AND NO BASIS WHATSOEVER HAS BEEN GIVEN FOR ASSUMING THAT SUCH LAN D WAS PURCHASED AS INVESTMENT AND NOT FOR THE PURPOSE OF BUSINESS. IT IS SU BMITTED THAT AFORESAID LAND WAS PURCHASED DURING THE COURSE OF ITS BUSI NESS AS SUCH, LOSS INCURRED ON THE SALE OF LAND IS BUSINESS LOSS AND SAME CANN OT BE DISALLOWED BY HOLDING IT TO BE CAPITAL LOSS. ITA NOS. 5722/DEL/2011 & 996/DEL/2014 15 7. ON THE CONTRARY, LD. DR RELIED UPON THE ORDER PASSED B Y THE LD. FIRST APPELLATE AUTHORITY AND ASSESSING OFFICER AND STATED THA T THE APPEAL FILED BY THE ASSESSEE MAY BE DISMISSED. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE LEVANT RECORDS AVAILABLE WITH US, ESPECIALLY THE ORDERS PASSED BY THE RE VENUE AUTHORITIES ALONGWITH THE WRITTEN SYNOPSIS FILED BY THE ASSESSEE AS WE LL AS THE CASE LAWS CITED BY HIM, AS AFORESAID. 8.1 GROUND NO. 1-3 RELATE TO THE ADDITION MADE BY T HE AO AND SUSTAINED BY THE CIT(A) OF A SUM OF RS. 40,61,517/- BY INVOKING SECTION 2(22)(E) OF THE ACT. FROM THE PERUSAL OF THE ORDERS OF THE AO & C IT(A), PAPER BOOK AND WRITTEN SUBMISSIONS FILED BY THE ASSESSEE, IT IS EVIDENT T HAT ASSESSEE HAS ENTERED INTO A MEMORANDUM OF UNDERSTANDING ON 20.01. 2007 WITH M/S LANDMARK APARTMENTS PVT. LTD. TO ESTABLISH I.T. PARK/ CALL CENTRE AND UNDER THE AFORESAID MOU ASSESSEE HAS UNDERTAKEN TO ARRANGE FUND S. AS SUCH, ON 24.05.2007, ASSESSEE HAS ENTERED IN TO MOU WITH M/S PRAMA PROJECT SOLUTION PVT. LTD. AND M/S PRAMA MARKETING PVT. LTD. TO INVEST INTO M/S LANDMARK APARTMENTS PVT. LTD. AND IT WAS ALSO AGREED BETWEEN THEM THAT THE PROFIT ON THE JOINT INVESTMENT IN M/S LANDMARK AP ARTMENTS PVT. LTD. WILL BE SHARED IN THE RATIO OF THE INVESTMENT. AS SUCH, AFOR ESAID COMPANIES HAD ADVANCED THEIR SURPLUS FUNDS FOR MAKING INVESTMENT IN TH E M/S LANDMARK APARTMENTS PVT. LTD. HOWEVER, AO HELD THAT THE SUM AD VANCED BY SUCH COMPANIES ARE DEEMED DIVIDEND AND NOT BUSINESS TRANSACTIO N ON THE GROUND THAT MOU HAS NO LEGAL VALUE AND EVEN THE MOU IS NEITH ER REGISTERED NOR NOTORISED. THE AFORESAID FINDING HAS BEEN UPHELD BY T HE CIT(A). WE ARE OF THE OPINION THAT THE FINDINGS OF THE AUTHORITIES BELO W IS UNSUSTAINABLE AS FROM THE TERMS OF THE MOU IT WAS CLEAR THAT SUCH COMPANIE S HAVE JOINED HANDS WITH THE ASSESSEE FOR MAKING INVESTMENT IN M/S LAND MARK APARTMENTS PVT. LTD AND IT HAS ALSO BEEN AGREED THAT PROFIT ARI SING FROM THE INVESTMENT ITA NOS. 5722/DEL/2011 & 996/DEL/2014 16 WOULD BE SHARED IN THE PROPORTION OF THE INVESTMENT. THAT MERELY BECAUSE THE MOU WAS NOT REGISTERED OR NOT NOTORISED OR TRANSACTI ON DID NOT FRUCTIFY, DOES NOT MEAN THAT ADVANCE WAS NOT FOR THE PURPOSE OF B USINESS. AO ALSO WENT WRONG IN HOLDING THAT MOU HAS NO LEGAL VALUE AS IT IS SETTLED LAW THAT EVEN THE ORAL CONTRACT ARE BINDING. IN THE INSTANT CASE , TERMS OF THE UNDERSTANDING ARE CLEARLY STIPULATED AND UNDER THE SUCH TERMS SUMS HAVE BEEN ADVANCED TO THE ASSESSEE. THIS UNDERSTANDING CANNOT BE IGNORED. IN FACT IT IS NOT IN DISPUTE THAT UNDER THE MOU DATED 20. 01.2007 WITH M/S LANDMARK APARTMENTS PVT. LTD., ASSESSEE HAS MADE INVESTME NT WITH SUCH COMPANY AND SINCE THE VENTURE DID NOT MATERIALIZE AS SUC H, SUCH INVESTED BY THE ASSESSEE HAS FINALLY BEEN RETURNED. HENCE IN SUCH CIRCUM STANCES, WE HOLD THAT THE SUCH ADVANCED BY SUCH COMPANIES WERE CLEARL Y FOR THE PURPOSE OF THE BUSINESS AND PURELY ON COMMERCIAL CONSIDERATION AND HENCE SUCH SUMS CANNOT BE TERMED AS DEEMED DIVIDEND. 8.2 FURTHER IN RESPECT OF SUM ADVANCED BY M/S SANYOG ESTA TE PVT. LTD., IT IS SEEN THAT AFORESAID COMPANY HAS ALSO ENTERED INTO AN M OU WITH THE ASSESSEE FOR SEARCHING OUT A PLACE IN NEW DELHI/GURGAON F OR OPENING A BUSINESS CENTRE IN COMMERCIAL LOCATION FOR A PRICE NOT EXCE EDING RS. 1 CRORE AND SUM OF RS. 5 LAC WAS GIVEN TO THE ASSESSEE AS ADVANCE FOR THE PURCHASE OF THE PROPERTY. HOWEVER, AO HELD THAT APART FROM TH IS TRANSACTION, ASSESSEE HAS NOT ENTERED WITH ANY OTHER TRANSACTION WITH SUCH COM PANY. THIS FINDING OF THE AO HAS BEEN UPHELD BY THE CIT(A). WE ARE OF THE OPINION THAT THE FINDINGS OF THE AUTHORITIES BELOW IS UNSUSTAINABLE AS FRO M THE TERMS OF THE MOU IT WAS CLEAR THAT SUM HAS BEEN ADVANCED TO THE ASSESSEE FOR SEARCHING OUT A PLACE IN NEW DELHI/GURGAON FOR OPENING A BUSINE SS CENTRE IN COMMERCIAL LOCATION AND MERELY BECAUSE DURING THE YEAR, ASSESSEE HAS NOT BEEN ABLE TO SEARCH THE SPACE, IT DOES WARRANT ANY ADVER SE INFERENCE AGAINST THE ASSESSEE. IN VIEW THEREOF, IT IS HELD THAT THE SUM AD VANCED BY M/S SANYOG ESTATE PVT. LTD IS FOR THE PURPOSE OF THE BUSINE SS AND PURELY ON ITA NOS. 5722/DEL/2011 & 996/DEL/2014 17 COMMERCIAL CONSIDERATION AND HENCE SUCH SUMS CANNOT BE TERME D AS DEEMED DIVIDEND. 8.3 THAT THE HIGH COURT OF DELHI IN THE CASE OF CIT V S. AMBASSADOR TRAVELS (P.) LTD. REPORTED IN [2009] 318 ITR 376 (DELHI) HA S HELD THAT IF THE TRANSACTIONS ARE NORMAL BUSINESS TRANSACTIONS, WHICH WERE CAR RIED OUT DURING THE COURSE OF THE RELEVANT PREVIOUS YEAR, THEY CANNOT B E DESCRIBED AS ADVANCES OR LOANS, WHICH FORM A DISTINCT CATEGORY OF FINAN CIAL TRANSACTIONS AND THEREFORE THE PROVISIONS OF SECTION 2(22)( E) OF TH E ACT WERE NOT AT ALL APPLICABLE. SIMILARILY IN THE CASE OF CIT VS. RAJ KUMAR REPORTED IN [2009] 318 ITR 462 HIGH COURT OF DELHI HAS HELD THAT THE WO RD 'ADVANCE' WHICH APPEARS IN THE COMPANY OF THE WORD 'LOAN' COULD ONLY M EAN SUCH ADVANCE WHICH CARRIES WITH IT AN OBLIGATION OF REPAYMENT. TRAD E ADVANCE WHICH ARE IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO A COMM ERCIAL TRANSACTIONS WOULD NOT, FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2( 22 )( E ) OF THE ACT. SAME VIEW HAS BEEN TAKEN IN THE FOLLOWING JUDGM ENTS WHICH HAS BEEN RELIED BY THE ASSESSEE: A. CIT VS CREATIVE DYEING AND PRINTING (P) LTD. HC (DELH I)184 TAXMAN 483 B. CIT VS SUNIL SETHI ITA 569/2009 HC (DELHI) C. CIT VS ARVIND KUMAR JAIN ITA 589 OF 2011 (30 SEPTEMB ER 2011) D. CIT VS. INTERNATIONAL LAND DEVELOPMENT PVT. LTD. 129 6/2011 & 1297/2011 DATED 02.02.2012 HC (DELHI) E. ATUL MITTAL IN ITA NO. 3863/DEL/2002 (ITAT DEL). F. NIGAM CHAWALA 2009 28 SOT 503 8.4 THAT SINCE IN THE INSTANT CASE, SUM ADVANCED TO THE ASSE SSEE BY THE AFORESAID THREE COMPANIES WERE PURELY ON COMMERCIAL CONSID ERATION AND WAS BUSINESS ADVANCE AS SUCH, SAME CANNOT BE TREATED AS DEEMED DI VIDEND U/S ITA NOS. 5722/DEL/2011 & 996/DEL/2014 18 2(22)(E) OF THE ACT, HENCE WE HOLD THAT AUTHORITIES B ELOW ARE NOT RIGHT IN TREATING THE AFORESAID SUMS AS DEEMED DIVIDEND. THE AO IS ACCORDINGLY DIRECTED TO DELETE THE ADDITION. THUS, GRO UND NO. 1-3 ARE ALLOWED. 8.5 GROUND NO. 4 IS REGARDING DISALLOWING THE BUSINESS L OSS OF RS. 4,08,800/- BY HOLDING THE SAME TO BE AS SHORT TERM CAPI TAL LOSS. IN RESPECT OF THE AFORESAID GROUNDS OF APPEAL IT HAS BEEN SUBMITTE D BY ASSESSEE THAT SINCE THE ASSESSEE HAS ENTERED INTO AGREEMENT WITH M/S SEL ENE CONSTRUCTIONS PVT. LTD. AND M/S JUVENTUS ESTATES PVT. LTD. FOR ACQUIRING LAND ON THEIR BEHALF IN SECTOR 103 AND 104 OF GURGAON FOR GROUP HOUSING, AS SUCH, IN ORDER TO ACQUIRE LAND, IN AUGUST 2007 IT PURCHASED LAND IN REVENUE ESTATE OF VILLAGE PAWALA KHUSRUPUR, GURGAON FOR A SUM OF RS. 65,62,500/- AND ALSO INCURRED OTHER EXPENDITURE OF RS. 4,08,800/- HENCE, TO TAL EXPENDITURE INCURRED FOR THE PURCHASE OF LAND WAS RS. 69,71,300/-. AFORESAID LAND WAS SITUATED IN SECTOR 106 WHICH IS ADJOINING TO SECTOR 103 AN D 104, AND ASSESSEE BELIEVED THAT IT WOULD BE ABLE TO BUY MORE LAN D ON BEHALF OF SUCH COMPANIES ADJOINING TO THIS LAND. HOWEVER, SINCE ASSESSEE COU LD NOT GET FURTHER LAND IN THIS SECTOR AND OTHER LAND WHICH WERE U LTIMATELY ACQUIRED BY THE ASSESSEE FOR THE AFORESAID COMPANIES WERE IN OTHER SECTO RS AS SUCH, THIS LAND WAS NOT TAKEN BY THE AFORESAID COMPANIES AND HENCE THE ASSESSEE HAS TO SELL THIS LAND. THIS LAND WAS SOLD IN DECEMBER, 2007 F OR A LOSS OF RS. 4,08,800/-. AS THE LAND WAS ACQUIRED FOR THE PURPOSE OF BUSINESS AND NOT AS INVESTMENT, AS SUCH LOSS SUFFERED ON THE SALE OF LAND WAS DEBITED IN THE ITA NOS. 5722/DEL/2011 & 996/DEL/2014 19 PROFIT AND LOSS ACCOUNT AS BUSINESS LOSS. THIS LOSS HAS BEEN DISA LLOWED BY THE AO BY HOLDING THAT THE PURCHASE OF THIS LAND WAS NOT PA RT OF BUSINESS OR LINKED TO THE DEAL WITH THE M/S SELENE CONSTRUCTIONS PV T. LTD. AND M/S JUVENTUS ESTATES PVT. LTD. AND THIS FINDING OF THE AO WAS ALSO CONFIRMED BY THE CIT(A), HOWEVER CIT(A) HAS ALLOWED THE SETOFF OF THE SAME WITH SHORT TERM CAPITAL GAINS OF RS. 1,15,730/-. THE AFORESAID FIN DING OF THE AO AND CIT(A) IS UNJUSTIFIED AND DOES NOT DESERVE ACCEPTANCE AS AD MITTEDLY ASSESSEE IS IN THE BUSINESS OF REAL ESTATE AND INFACT IT HAS A LSO ENTERED INTO M/S SELENE CONSTRUCTIONS PVT. LTD. AND M/S JUVENTUS ESTATE S PVT. LTD. FOR ACQUIRING LAND ON THEIR BEHALF. AS SUCH, ONE THING IS MO RE THAN APPARENT THAT THE ASSESSEE IS IN THE BUSINESS OF SALE AND PURCHASE OF LAND. FURTHER, THE AFORESAID LAND WAS ACQUIRED BY THE ASSESSEE FOR THE PURP OSE OF ITS BUSINESS AND IT HAD NOT ACQUIRED SUCH LAND FOR THE PURPOSE OF I NVESTMENT, HENCE EVENIF IT IS ASSUMED THAT LAND IN THIS SECTOR WAS NOT PAR T OF THE DEAL WITH SUCH COMPANIES, IT WOULD NOT ALTER THE NATURE OF TRANSACT ION FROM BUSINESS TO INVESTMENT. IT IS SETTLED LAW THAT NATURE OF TRANSACTION HAS TO BE SEEN AT THE TIME OF PURCHASE AND IF AT THE TIME OF PURCHASE, INTENT ION WAS TO EARN PROFIT THEN IT WOULD BE BUSINESS TRANSACTION AND IF THE PROPERT Y IS PURCHASED FOR THE PURPOSE OF HOLDING THE SAME THEN THE SAME WOULD BE INV ESTMENT. IN THE INSTANT CASE, INTENTION OF THE ASSEESSE AT THE TIME OF PUR CHASE WAS CLEARLY TO EARN PROFIT AND HENCE LOSS ARISING FROM THE SALE OF THE LAND WAS CLEARLY BUSINESS LOSS AND NOT SHORT TERM CAPITAL LOSS AND HENCE THE AO IS ITA NOS. 5722/DEL/2011 & 996/DEL/2014 20 ACCORDINGLY DIRECTED TO DELETE THE ADDITION. THUS, GROU ND NO. 4 IS ALLOWED. IN VIEW OF THE ABOVE, THE FINDING OF THE AO/CIT(A) IS DELETED AND APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 996/DEL/2014 (AY 2008-09) 9. SINCE WE HAVE ALREADY DECIDED THE ITA NO. 5722/DEL /2011 (AY 2008- 09) IN FAVOUR OF THE ASSESSEE IN QUANTUM APPEAL, AS AFOR ESAID AND DELETED THE ADDITIONS IN DISPUTE, HENCE, THE PENALTY ARISES T HEREFROM WHICH IS IN DISPUTE WILL NOT SURVIVE. ACCORDINGLY, WE SET ASIDE TH E ORDERS OF THE AUTHORITIES BELOW AND DELETE THE PENALTY IN DISPUTE AND ALLOW THE APPEAL FILED BY THE ASSESSEE. 10. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSE E STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/08/2016. SD/- SD/- [O.P. KANT] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE19/08/2016 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY OR DER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES