2020 (1) TMI 314 - AT - Income Tax

Tribunal rules trade advance, not loan, under Income Tax Act, dismissing revenue's appeal.

The Tribunal upheld the CIT (A)'s decision to delete the addition made under Section 2(22)(e) of the Income Tax Act, ruling that the amount received from ... Deemed dividend addition u/s 2(22)(e) - AO has highlighted the fact that the assessee was holding 86.67% shares in M/s Apra Auto India P. Ltd and had been in receipt of amount running into ₹ 10.57 crores from the account of M/s Apra auto India P. Ltd. - HELD THAT:- Assessee has also not received any advance in the nature of loan or advances as contemplated in the section 2(22)(e) of the Income tax Act, 1961 but received advance against sale of commercial space developed by the assessee on his own land in collaboration with M/s Unitech Limited as per Buyer's agreement. We find that provisions of section 2(22)(e) of the Income tax Act, 1961 are not applicable in case of the assessee as the assessee has received advance of ₹ 5,62,00,000/- from the said company against sale of commercial space in Signature Tower - II, Sector - 15, Gurgaon, Haryana. Since, the said receipts of advance of ₹ 5,62,00,000/- against sale of commercial space is not a receipt in the nature of loan or advance as contemplated in section 2(22)(e) of the Income tax Act, 1961 which attracts the provisions of in that section as the said advance is in the nature of business advance which did not fall within the ambit of provisions of section 2(22)(e) of the Income tax Act, 1961. It it is the company which owes the assessee the money rather vice-versa, it is unequivocally proved that the advance received from the company by the assessee is in the nature of trade advance against the booking of commercial place being built by the assessee, we hereby decline to interfere with the order of the ld. CIT (A) in deleting the addition made by the AO u/s 2(22)(e). - Decided against revenue Issues Involved:1. Deletion of additions made under Section 2(22)(e) of the Income Tax Act on account of deemed dividend.Issue-wise Detailed Analysis:1. Deletion of Additions under Section 2(22)(e) on Account of Deemed DividendFacts and Arguments:- The revenue appealed against the order of the CIT (A) deleting the addition of Rs. 10,57,01,194 made under Section 2(22)(e) of the Income Tax Act, 1961.- The Assessing Officer (AO) treated the amount received by the assessee from M/s Apra Auto India Pvt. Ltd., where the assessee held 86.67% shares, as deemed dividend due to the company's accumulated profits of Rs. 21.65 crore.- The assessee contended that the amounts received were:- Rs. 5,62,00,000 as advance against a commercial building,- Rs. 73,76,584 in the expense account,- Rs. 6,00,84,793 in the ledger account.Assessment Officer's Findings:- The AO considered the agreement to sell between the assessee and M/s Apra Auto India Pvt. Ltd., dated 03.04.2011, as a ploy to evade the provisions of Section 2(22)(e).- The AO relied on several judgments to support the contention that the transactions were designed to avoid tax implications.Arguments before ITAT:- The Departmental Representative (DR) argued that the trifurcation of the amount was a cover-up to disguise the deemed dividend.- The assessee reiterated the arguments made before the CIT (A) and supported the order of the CIT (A).Tribunal's Analysis:- The assessee was involved in real estate development and had entered into a buyer's agreement with M/s Apra Auto India Pvt. Ltd. for the sale of commercial space.- The agreement stipulated that if the buyer failed to pay the total consideration by the scheduled date, the agreement would be terminated, and the advance would be refunded without interest.- The assessee refunded the advance of Rs. 5,62,00,000 after the agreement was terminated.- The assessee had a credit balance throughout the financial year in the books of M/s Apra Auto India Pvt. Ltd., indicating no loan was taken from the company.CIT (A)'s Findings:- The CIT (A) found that the transactions were in the normal course of business and the advance received was not in the nature of a loan or advance as contemplated in Section 2(22)(e).- The CIT (A) noted that the assessee had similar transactions with other parties, which were accepted by the AO without invoking Section 2(22)(e).- The CIT (A) concluded that the AO's observations lacked factual basis and directed the deletion of the addition.Tribunal's Conclusion:- The Tribunal upheld the CIT (A)'s order, stating that the advance received from M/s Apra Auto India Pvt. Ltd. was a trade advance and not a loan.- The Tribunal emphasized that the provisions of Section 2(22)(e) were not applicable as the transactions were in the normal course of business.- The appeal of the revenue was dismissed.Final Order:- The appeal of the revenue was dismissed, and the deletion of the addition made by the AO under Section 2(22)(e) was upheld.Order Pronounced:- The order was pronounced in the open court on 26/12/2019.