2016 (6) TMI 735 - AT - Income Tax

Assessee wins appeal, assessment void ab-initio, transaction not loan,

Prateek Kothari Versus Assistant Commissioner of Income Tax, Central Circle-2, Jaipur

Prateek Kothari Versus Assistant Commissioner of Income Tax, Central Circle-2, Jaipur - TMI Issues Involved:1. Confirmation of addition of Rs. 24,80,911/- on account of advance received from M/s Nakshatra Real Estates Private Limited.2. Applicability of Section 2(22)(e) of the Income Tax Act, 1961 regarding the advance received.3. Validity of the assessment order under Section 153A read with Section 143(3) of the Income Tax Act, 1961.Detailed Analysis:1. Confirmation of Addition of Rs. 24,80,911/- on Account of Advance Received:The Assessing Officer (AO) observed that the assessee had taken a loan of Rs. 31.65 lacs from M/s Nakshatra Real Estates Developers Pvt. Ltd., where the assessee holds a 50% share. The AO deemed Rs. 24,80,911/- as dividend under Section 2(22)(e) of the Income Tax Act, 1961, considering it as a loan rather than an advance for a sale transaction. The CIT(A) confirmed this addition, noting that the agreement to sell was an afterthought and not materialized into an actual sale. The assessee contended that the amount was an advance for the sale of plots, not a loan, and thus should not be covered under Section 2(22)(e).2. Applicability of Section 2(22)(e) of the Income Tax Act, 1961:The CIT(A) held that the advance received was a loan, thereby attracting the provisions of Section 2(22)(e). The assessee argued that the advance was for a business transaction, specifically the sale of two plots, and thus should not be treated as a deemed dividend. The CIT(A) dismissed this claim, stating that the plots were not saleable as per JDA norms and the transaction seemed to be a regular loan. The Tribunal, however, found that the transaction was indeed a business transaction and not a loan, thereby not falling under the purview of Section 2(22)(e).3. Validity of the Assessment Order under Section 153A read with Section 143(3):The assessee raised a technical ground challenging the validity of the assessment under Section 153A, arguing that no incriminating material was found during the search, and thus no addition could be made. The Tribunal agreed with the assessee, stating that the scope of Section 153A is limited to assessments based on incriminating documents found during the search. Since no such documents were found, the assessment was deemed void ab-initio. The Tribunal cited various judicial precedents supporting this view, including the Hon'ble Supreme Court's decision in National Thermal Power Co. Ltd. Vs CIT and the Hon'ble Jurisdictional High Court's decision in Zakir Hussain Vs. CIT & Anr.Conclusion:The Tribunal allowed the appeal of the assessee on both the technical ground and the merits. It held that the assessment made under Section 153A read with Section 143(3) was out of jurisdiction due to the absence of incriminating documents. Furthermore, it concluded that the transaction between the assessee and the company was a business transaction and not a loan, thus not attracting the provisions of Section 2(22)(e). Consequently, the addition of Rs. 24,80,911/- was deleted, and the appeal was allowed.