2019 (4) TMI 1671 - AT - Income Tax

Tribunal rules in favor of assessee, deems amount as advance against property sale.

The Tribunal directed the Assessing Officer to delete the addition of Rs. 14,11,762 as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961. ... Deemed dividend u/s 2(22)(e) - advance received by the assessee against the property - assessee explained that the money received from HDA Buildcon [P] Ltd. is nothing but advance received by the assessee against the property and being a business transaction - HELD THAT:- There is no dispute that the assessee was having business transaction with HDA Buildcon [P] Ltd. AO himself has accepted the transaction to the extent of ₹ 2.15 crores. CBDT vide Circular No. 19/2017 dated 12.06.2017 issued the Circular to the extent that advances which are in the nature of commercial transactions would not fall within the ambit of the word ‘advance’ in section 2(22)(e) of the Act. In the case of Creative Dyeing and Printing Pvt. Ltd. [2009 (9) TMI 43 - DELHI HIGH COURT] has held that amounts advanced for business transaction do not fall within the definition of ‘deemed dividend’ u/s 2(22)(e) of the IT Act. As in the case of CIT vs. Arvind Kumar Jain [2011 (9) TMI 363 - DELHI HIGH COURT] has held that amount received by the assessee shareholder from a company as a result of trading transaction could not be regarded as deemed dividend Vide agreement dated 20.11.2012 between the appellant and HDA Buildcon [P] Ltd., HDA Buildcon [P] Ltd. has given a sum of ₹ 14 lakhs as an earnest money in advance against the sale of property being entire third floor with its roof/terrace rights upto the sky of the built-up property bearing No. C-377, situated in the layout plan of Government Teachers Co-operative House Building Society Ltd., known as Saraswati Vihar, Pitampura, Delhi. Money received from HDA Buildcon [P] Ltd. is a business transaction and, therefore, outside the ambit of the definition of ‘deemed dividend’ u/s 2(22)(e). Direct the Assessing Officer to delete the impugned addition. - Decided in favour of assessee. Issues:Confirmation of addition under section 2(22)(e) of the Income-tax Act, 1961.Analysis:1. The appeal was against the Commissioner of Income Tax [Appeals] order confirming the addition of Rs. 14,11,762 made by the Assessing Officer under section 2(22)(e) of the Act for the assessment year 2013-14.2. The Assessing Officer observed that the assessee received Rs. 2,55,64,457 from HDA Buildcon [P] Ltd and questioned why this amount should not be taxed as deemed dividend under section 2(22)(e) of the Act.3. The assessee explained that the money received was an advance against property, constituting a business transaction, and hence should not be treated as deemed dividend.4. The Assessing Officer found the explanation unsatisfactory, noting a debit balance and advance received against various properties, but the assessee failed to justify the balance amount of Rs. 14,11,762 received from HDA Buildcon (P) Ltd.5. Considering the shareholding in HDA Buildcon (P) Ltd and other factors, the Assessing Officer treated the balance amount as deemed dividend, initiating penalty proceedings under section 271(1)(c) of the Act.6. The CIT(A) upheld the decision, leading the assessee to appeal the matter.7. The ld. AR argued that the Assessing Officer had accepted the transaction as a business transaction, and therefore, the balance amount should not be treated as deemed dividend.8. The Tribunal referred to a CBDT Circular and Delhi High Court judgments supporting that advances for business transactions do not fall under the definition of deemed dividend.9. It was noted that an agreement showed the money received was earnest money against the sale of property, further supporting the business transaction nature of the amount.10. Based on the CBDT Circular and court decisions, the Tribunal directed the Assessing Officer to delete the addition, allowing the appeal filed by the assessee.This detailed analysis of the judgment highlights the issues involved, the arguments presented, and the legal principles applied to reach the final decision in favor of the assessee.