Income Tax Appellate Tribunal - Panji
The Dcit,, Visakhapatnam vs Sri Ram Venkata Srinivasa Rao,, Guntur on 19 January, 2018
आयकर अपीलीय अधधकरण, धिशाखापटणम पीठ, धिशाखापटणम
IN THE INCOME TAX APPELLATE TRIBUNAL,
VISAKHAPATNAM BENCH, VISAKHAPATNAM
श्री िी. दुगााराि, न्याधयक सदस्य एिं
श्री धड.एस. सुन्दर ससह, लेखा सदस्य के समक्ष
BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER &
SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A.No.620/Vizag/2014
(धनधाारण िर्ा / Assessment Year: 2008-09)
DCIT, Central Circle, Smt. Sriram Satyavathi,
Vijayawada Guntur
[PAN No.AGZPS2069J]
(अपीलाथी / Appellant) (प्रत्याथी / Respondent)
आयकर अपील सं./I.T.A.No.179/Vizag/2015
(धनधाारण िर्ा / Assessment Year: 2008-09)
DCIT, Central Circle, Sri Sriram Venkata
Vijayawada Srinivasa Rao,
Piduguralla
[PAN No.AGZPS2049C]
(अपीलाथी / Appellant) (प्रत्याथी / Respondent)
अपीलाथी की ओर से / Appellant by : Shri Debakumar Sonowal, DR
प्रत्याथी की ओर से / Respondent by : Shri G.V.N.Hari, AR
सुनिाई की तारीख / Date of hearing : 09.01.2018
घोषणा की तारीख/Date of Pronouncement : 19.01.2018
आदेश / O R D E R
Per Bench :
These appeals filed by different assessees against different orders
of Commissioner of Income Tax (Appeals)-I, {CIT(A)}, Hyderabad vide
2
ITA No.620/Vizag/2014 & ITA No.179/Vizag/2015
Smt. Sri Ram Satyavathi, Guntur &
Sri Sriram Venkata Srinivasa Rao, Piduguralla
Nos.024 to 025A/DCIT-VIJ/CIT(A)-13-14 dated 26.9.2014 and
No.027/CIT(A)/3/Vizag/2013-14 dated 27.2.2015 for the assessment
year 2008-09. Since, the facts are identical and issues are common,
they are clubbed, heard together and disposed-off by way of this
common order for the sake of convenience.
ITA No.620/Vizag/2014 (A.Y. 2008-09):
2. All the grounds of appeal are related to the deletion of addition of
` 35 lakhs assessed as deemed dividend u/s 2(22)(e) of the Income Tax
Act, 1961 (hereinafter called as 'the Act'). A search u/s 132 of the Act
was conducted in the group cases of Bhavanasi Anjaneyulu, Pidiguralla,
Guntur District on 22.1.2011. During the course of search, a promissory
note executed in favour of the assessee by Mr. Ch. Madan Mohan dated
28.11.2007 representing Vijetha Foundation and Constructions Pvt.
Ltd.(M/s Vijetha Constructions, in short) for a sum of ` 35 lakhs was
found and seized as page No.1 of Annexure A/BA/Res./01 dated
21.1.2011. The said sum was paid by cheque No.685243 dated
28.1.2007 drawn on ING Vysya Bank Limited, Madhapur, Hyderabad and
the bank account was pertaining to M/s. First Tek Pvt. Ltd. (FTPL), in
which the assessee is holding 5000 shares out of total shares of 10000.
3
ITA No.620/Vizag/2014 & ITA No.179/Vizag/2015
Smt. Sri Ram Satyavathi, Guntur &
Sri Sriram Venkata Srinivasa Rao, Piduguralla
Thus, the assessee is holding more than 10% of the share capital,
hence, the A.O. called for explanation from the assessee as to why the
loan given to M/s. Vijetha Constructions should not be brought to tax
u/s 2(22)(e) of the Act in the hands of the assessee. The assessee
explained that M/s. First Tek Pvt. Ltd. had advanced a sum of ` 35 lakhs
to M/s. Vijetha Foundation and Constructions Pvt. Ltd. for purchase of
property and as a precautionary measure, a pro note was executed in
favour of the assessee by M/s. Vijetha Constructions and no monetary
transaction was exchanged between the assessee and M/s. Vijetha
Constructions in respect of ` 35 lakhs. Hence, submitted that there is
no case for treating the said sum as deemed dividend u/s 2(22)(e) of
the Act. Not being convinced with the explanation of the assessee, the
A.O. held that the contention of the assessee that the promissory note
was executed in favour of the assessee as a security is not believable
and the said sum required to be brought to tax as deemed dividend u/s
2(22)(e) of the Act, accordingly invoked the provisions of section
2(22)(e) of the Act and made the addition of ` 35 lakhs in the hands of
the assessee.
4
ITA No.620/Vizag/2014 & ITA No.179/Vizag/2015
Smt. Sri Ram Satyavathi, Guntur &
Sri Sriram Venkata Srinivasa Rao, Piduguralla
3. Aggrieved by the order of the A.O., the assessee went on appeal
before the CIT(A) and the Ld. CIT(A) deleted the addition holding that
these transactions were purely sale and purchase transactions but not
the finance transactions or any loan to hold the payment as a deemed
dividend u/s 2(22)(e) of the Act. Hence, the revenue preferred appeal
before this Tribunal.
4. During the appeal hearing, the Ld. D.R. submitted that in the
search u/s 132 of the Act, a promissory note was found in favour of the
assessee and it was observed that the company M/s. First Tek Pvt. Ltd.
had advanced a sum of ` 35 lakhs to M/s. Vijetha Constructions which in
turn has executed promissory note in favour of the assessee, thereby
derived the benefit of advance to M/s Vijetha Constructions from the
company in which the assessee has substantial interest. The Ld.DR
argued that the assessee has derived the monetary benefit and thus the
A.O. has rightly invoked the provisions of section 2(22)(e) of the Act and
brought to tax in her hands as deemed dividend. The Ld. D.R. further
submitted that it is established that the said loan was given to M/s.
Vijetha Constructions under instructions from the assessee and hence
pro note was in the name of Smt. Sriram Satyavathi. Therefore, the Ld.
5
ITA No.620/Vizag/2014 & ITA No.179/Vizag/2015
Smt. Sri Ram Satyavathi, Guntur &
Sri Sriram Venkata Srinivasa Rao, Piduguralla
D.R. argued that the A.O. has rightly made the addition, which required
to be upheld.
5. On the other hand, the Ld. A.R. relied on the orders of the Ld.
CIT(A).
6. We have heard both the parties, perused the materials available
on record and gone through the orders of the authorities below. During
the search in the group cases of Bhavanasi Anjaneyulu, a promissory
note for an amount of ` 35 lakhs drawn in favour of the assessee was
found and seized, which was drawn by M/s. Vijetha Constructions and as
per which the amount was paid through cheque No.685243 dated
28.1.2007. The promissory note was dated 28.11.2007. The assessee
explained before the A.O. that the cheque bearing No.685243 was
pertaining to the bank account of M/s. First Tek Pvt. Ltd. operated in
ING Vysya Bank, Madhapur, Hyderabad and the company M/s. First Tek
Pvt. Ltd. has advanced a sum of ` 35 lakhs to M/s. Vijetha Foundation
and Constructions Pvt. Ltd. for purchase of assets and as a
precautionary measure, a pro note was executed in favour of the
assessee as a security for the amounts advanced by First Tek Pvt. Ltd.
6
ITA No.620/Vizag/2014 & ITA No.179/Vizag/2015
Smt. Sri Ram Satyavathi, Guntur &
Sri Sriram Venkata Srinivasa Rao, Piduguralla
and no amount has been received by the assessee either from M/s.
Vijetha Constructions or M/s. First Tek Pvt. Ltd so as to treat the said
amount as deemed dividend u/s 2(22)(e) of the Act. The Ld. A.R.
submitted the paper book enclosing sale deeds for purchase of flats
from M/s. Vijetha Constructions, in Page Nos.22 to 36 and Page Nos.37
to 49. As per the sale deed in page No.22, the company M/s. First Tek
Pvt. Ltd. has purchased flat Nos.303 & 503 and page No.29, the
company has paid the consideration of ` 32 lakhs by way of cheque
No.685243 dated 28.11.2007 drawn on ING Vysya Bank Ltd., Madhapur,
Hyderabad. The cheque No. and date are one and the same which was
stated to be the advance given to M/s. Vijetha Constructions by the
assessee. It is noted from the CIT(A) order that M/s. Vijetha
Constructions has taken amount of ` 1.10 crores vide cheque No.685243
dated 28.11.2007 drawn on ING Vysya Bank Ltd. from M/s. First Tek
Pvt. Ltd. against the agreement of sale for flat No.103, 303 & 503 in
Midas Touch Apartments, Kondapur, Hyderabad vide registered
document bearing No.13846/07 dated 28.11.2007. Subsequently, due
to financial problems and international recession as well as local and
regional issues, M/s. Vijetha Constructions has given cheques and pro
notes in the names of the Directors and their family members of
7
ITA No.620/Vizag/2014 & ITA No.179/Vizag/2015
Smt. Sri Ram Satyavathi, Guntur &
Sri Sriram Venkata Srinivasa Rao, Piduguralla
M/s. First Tek Pvt. Ltd. towards the security. Subsequently, the
company has executed the sale deeds for flat No.303 & 503 vide
document No.3358/09 & 3359/09 dated 23.7.2009. The fact that the
company M/s. Vijetha Constructions has taken the advances for sale of
flats was substantiated by the registered sale agreements. The same
cheque No. and the dates were mentioned in the promissory note and
the sale deeds which fortifies the assessee's contention that the
promissory note was obtained as a security. From the balance sheet of
assessee, it is observed that there was no such items of loan relating to
M/s. Vijetha Constructions. The Ld. CIT(A) has perused the seized
material and observed that the promissory note for an amount of ` 35
lakhs dated 28.11.2007 in favour of the assessee was a security for the
payment made by M/s. First Tek Pvt. Ltd. to M/s. Vijetha Constructions.
The deemed dividend is applicable in circumstances of payment made
by the company to the shareholder, having beneficial ownership of 10%
or more than 10% of the shares, the amount should have been provided
by way of loan or advance to shareholder and such amount should be
for the benefit of the shareholder and the company should have
sufficient reserves. In the instant case, it is established that the
payment of ` 35 lakhs by cheque No.685243 was towards the
8
ITA No.620/Vizag/2014 & ITA No.179/Vizag/2015
Smt. Sri Ram Satyavathi, Guntur &
Sri Sriram Venkata Srinivasa Rao, Piduguralla
consideration for purchase of flat from M/s. Vijetha Constructions by
M/s. First Tek Pvt. Ltd and none of the conditions or clauses discussed
above are applicable in the case of the assessee. Therefore, we hold
that the assessee has not derived any benefit out of payment made to
M/s. Vijetha Constructions by M/s. First Tek Pvt. Ltd, hence, no case for
holding the amount as deemed dividend. Accordingly, we uphold the
order of the Ld. CIT(A) and dismiss the appeal of the revenue.
ITA No.179/Vizag/2015 (A.Y. 2008-09):
7. During the search conducted in the business premises of
Bhavanasi Anjaneyulu, group cases on 21.1.2011, a promissory note in
favour of the assessee was found in the residential premises of Sri
Anjaneyulu and was seized as annexure A/BA/Res.PO-1/01 page 3 dated
14.2.2011. In the promissory note, it was recorded that the amount of
` 35 lakhs was paid by cheque No.685243 dated 28.1.2007 drawn on
ING Vysya Bank Limited, Madhapur, Hyderabad and the account was
related to the M/s. First Tek Pvt. Ltd. in which the assessee is holding
5000 shares out of total shares of 10000. Thus, the A.O. held that the
said loan was given to M/s. Vijetha Constructions by M/s. First Tek Pvt.
Ltd. under the instructions of Sri Sriram Venkata Srinivasa Rao, hence,
9
ITA No.620/Vizag/2014 & ITA No.179/Vizag/2015
Smt. Sri Ram Satyavathi, Guntur &
Sri Sriram Venkata Srinivasa Rao, Piduguralla
the pro note was issued in the name of the assessee, thereby the
assessee got the indirect benefit out of the amounts advanced to Vijetha
Constructions. Accordingly held the payment as deemed dividend u/s
2(22)(e) of the Act, and brought to tax in the hands of the assessee.
8. Aggrieved by the order of the A.O., the assessee went on appeal
before the CIT(A) and the Ld. CIT(A) deleted the addition made by the
A.O. following the order in the case of Smt. Sriram Satyavathi discussed
in the preceding paragraphs in this order on the similar facts. Hence,
the revenue is in appeal before this Tribunal.
9. The facts of the assessee's case are identical to the facts in the
case of Smt. Sriram Satyavathi in appeal No.620/Vizag/2014 for the A.Y.
2008-09 discussed in this order. Therefore, following the view taken in
the case of Smt. Sriram Satyavathi, we hold that the payment is made
towards purchase of flat and cannot be treated as deemed dividend in
the hands of the assessee, accordingly we uphold the order of the Ld.
CIT(A) and dismiss the appeal of the revenue.
10
ITA No.620/Vizag/2014 & ITA No.179/Vizag/2015
Smt. Sri Ram Satyavathi, Guntur &
Sri Sriram Venkata Srinivasa Rao, Piduguralla
10. In the result, the appeal filed by the revenue in ITA
No.620/Vizag/2014 and ITA No.179/Vizag/2015 are dismissed.
The above order was pronounced in the open court
on 19thJan'18.
Sd/- Sd/-
(धड.एस. सुन्दर ससह) (िी. दुगााराि)
(D.S. SUNDER SINGH) (V. DURGA RAO)
लेखा सदस्य/ACCOUNTANT MEMBER न्याधयक सदस्य/JUDICIAL MEMBER
धिशाखापटणम /Visakhapatnam:
ददनांक /Dated : 19.01.2018
VG/SPS
आदेश की प्रधतधलधप अग्रेधर्त/Copy of the order forwarded to:-
1. अपीलाथी / The Appellant - The DCIT, Central Circle, Vijayawada
2. प्रत्याथी / The Respondent - Smt. Sriram Satyavathi, Prop: Sri Satya Lime
Syndicate, D.No.9-18/1, Opp: Andhra Bank Street, Piduguralla, Guntur Dist.
3. प्रत्याथी / The Respondent - Sri Sriram Venkata Srinivasa Rao, D.No.9-18/1, Opp.
Andhra Bank Street, Piduguralla, Guntur Dist.
4. आयकर आयुक्त / The CIT (Central), Hyderabad
5. आयकर आयुक्त (अपील) / The CIT (A)-I, Hyderabad
6. धिभागीय प्रधतधनधध, आय कर अपीलीय अधधकरण, धिशाखापटणम /
DR, ITAT, Visakhapatnam
7. गाडा फ़ाईल / Guard file
आदेशानुसार / BY ORDER
// True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM