2021 (8) TMI 463 - AT - Income Tax

Tribunal rules in favor of assessee on deemed dividend, upholds car expense disallowance

M/s Lakhmi Chand Tejoo Mal Versus The A.C.I.T. Circle 47 (1) New Delhi

The Tribunal partly allowed the appeal by the assessee. It ruled in favor of the assessee concerning the addition of deemed dividend under Section ... Deemed dividend addition u/s 2(22)(e) - amount received from Brahmand System Private Limited -HELD THAT:- The undisputed fact is that vide agreement to sell dated 16.5.2003, entered into between the assessee and the company Brahmand System Private Limited, the assessee agreed to sell the property situated at Haryana to the said company and the sale consideration was fixed at a sum of ₹ 98 lakhs out of which Brahmand System Private Limited advance ₹ 78 lakhs as earnest money and part payment. There is no dispute in so far as this agreement is concerned. The observation of the Assessing Officer that the purpose of the advance or loan is immaterial is contrary to the CBDT Circular No. 19/2017 dated 12.06.2017 - thus we are of the considered view that the business transaction of ₹ 78 lakhs cannot be treated as deemed dividend u/s 2(22)(e) of the Act. We, accordingly, direct the Assessing Officer to delete the addition Addition on account of 5% of car expenses - HELD THAT:- This issue was not seriously contested by the ld. AR and, therefore, the same is dismissed. Issues:1. Addition of deemed dividend under Section 2(22)(e) of the Act2. Disallowance of car expensesAnalysis:1. Addition of deemed dividend under Section 2(22)(e) of the Act:- The Assessing Officer added &8377; 46,66,803 as deemed dividend, considering the amount received from a company as a loan falling under Section 2(22)(e) of the Act.- The assessee contended that the amount received was an advance for property purchase and not a loan, supported by an agreement to sell.- The CBDT Circular No. 19/2017 clarified that trade advances in commercial transactions do not fall under Section 2(22)(e).- The Tribunal held that the business transaction of &8377; 78 lakhs cannot be treated as deemed dividend, directing the deletion of the addition.2. Disallowance of car expenses:- The Assessing Officer disallowed 5% of car expenses amounting to &8377; 2,42,110.- The issue was not strongly contested by the assessee's representative, leading to its dismissal.In conclusion, the appeal by the assessee was partly allowed, with the Tribunal ruling in favor of the assessee regarding the addition of deemed dividend under Section 2(22)(e) of the Act, based on the CBDT Circular. The disallowance of car expenses was upheld due to lack of substantial contestation.