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10-07-2019, Anil Verma, Section 2(22(e), 153A, 54, 68, Tribunal Chandigarh

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3 months 3 days ago #10040 by amit
Section - 2(22(e), 153A, 54, 68
Order Date - 10-07-2019
Favouring - Assessee
Court - Tribunal Chandigarh
Appellant - Anil Verma
Respondent - DCIT
Citation - 719Taxpundit134
Appeal No. - ITA Nos. 931 & 932/CHD/2014
Asstt. Year - 2009- 10 & 2010-11


PER : Sanjay Garg

These bunch of appeals arise from the common order dated 28.8.2014 of Ld. Commissioner of Income Tax (Central), Gurgaon [hereinafter referred to as’ CIT(A)’] for different assessment years passed separately in cases of each of the assessee before us.

2. The common issue involved in all the appeals is relating to the validity of the addition made by the Assessing Officer and further confirmed by the CIT(A) u/s 2(22)(e) of the Income Tax Act, 1961 (in short 'the Act') treating the amount received by the individual assessees from the company namely ‘M/s VTC Transport Pvt. Ltd. (in short ‘VTC Limited’) as deemed dividend.

3. Briefly stated, the facts of the case are that the appellant-assessees are substantial shareholders in VTC Limited. A search and seizure operation was conducted on 30.6.2010 in the VTC group of cases. The assessees / appellants named above were also covered in the search action. Pursuant to the search action, the assessees were called upon to file the returns of income for preceding six assessment years relevant to the previous year in which search was conducted. Accordingly, the assessment u/s 153 A of the Act was made by the Assessing Officer for assessment years 2005-06 to 2010-11. During the assessment proceedings, the Assessing Officer observed that the assessees / appellants had taken hefty loans and advances from M/s VTC Transport Pvt. Ltd. That the assessees had substantial shareholding in ‘VTC Limited’. He further observed that the said company VTC Limited had huge accumulated profits in the form of reserves and surpluses. When called upon to explain as to why the aforesaid loans and advances be not treated as deemed dividend in the hands of the respective assessee u/s 2(22)(e) of the Income Tax Act, 1961, the assessees explained that the company VTC Limited had hired their land and premises, for its
business activity. The company apart from paying the annual rent as per the rend deed had also agreed to make interest free security deposits of Rs. 5 crores to be paid from 1.4.2004 to 31.3.2007, which was further revised to Rs. 10 cores after 31.3.2007. It was also agreed that the interest free deposits would be made over a period of time according to the availability of funds with the company, hence, it was not that Rs. 5 cores would be given immediately. That no specific period had been clarified in the agreement with regard to the deposits to be given by the company to the land owners. Since the sufficient funds were not available with the company, the full security deposits could not be given by the company to the co-owners / assessees. However, the amount of security deposits did not ever increase the amount stipulated / agreed as per the lease agreement. It was also pleaded that even the individual assessees had shown the rental income received from the company in their returns of income which was duly accepted by the Assessing Officer, hence, the terms of the lease agreement could not be disputed at this stage by the Assessing Officer. However, the Assessing Officer did not agree with the above contentions of the assessees and treated the aforesaid alleged security deposits as loan and advances made by the company to the assessees out of its reserves and surpluses and made the addition of the same into the income of the assessees as deemed dividend u/s 2(22)(e) of the Act.

4. The Ld. CIT(A) also did not accept the contention of the assessees regarding the amount received as security deposits in respect of land leased out to the company. He, however, agreed with the alterative contention of the assessees that the total addition be restricted to the total accumulated profits of that relevant year or the amount advanced, whichever is lower, after netting of the amount already added as deemed dividend in the immediately preceding assessment year. The Ld. CIT(A) subject to the above restriction confirmed the action of the Assessing Officer in treating the amounts received by the assessees during different assessment years from VTC Limited as deemed dividend u/s 2(22)(e) of the Act.

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