2012 (8) TMI 1057 - AT - Income Tax

Addition on account of deemed dividend - Held that - The impugned amounts were received by the assessee through account payee cheques against sale of land owned by the assessee in the normal course of business therefore it cannot be branded as loan and advances. We have perused the agreement to sale. As per clause 2 of the said agreement the amount of 2, 53, 60, 000/- was agreed to be given to the assessee by the purchaser and part of the payment was received through cheque. The assessee was also supposed to get conversion of the land within two months. As per clause 10 the purchaser was free to do the developmental work on the land and was also free to sell the same to any third party for which the assessee had no objection. It cannot be said that it was a loan or an advance to the assessee. The contents of the sale agreements are very much clear that it was a clearcut agreement of sale. No contrary facts or decision was brought to our notice by either side and more specifically the Revenue. In view of these facts we are not in agreement with the conclusion drawn in the assessment order and affirm the stand of the ld. CIT(A) in accepting the claim of the assessee resultantly there is no merit in the appeal of the Revenue.

Summary

Issues:
1. Addition on account of deemed dividend under section 2(22)(e) of the Income Tax Act.
2. Interpretation of transactions involving receipt of amounts against sale of land as loans and advances.

Analysis:
1. The Revenue challenged the deletion of the addition on account of deemed dividend by the CIT(A) for AY 2005-06. The Tribunal examined the transactions where the assessee received amounts against the sale of land from a company. The Assessing Officer treated these amounts as loans and advances, invoking section 2(22)(e) of the Act. However, the Tribunal found that the payments were part of the sale consideration received in the normal course of business. The Tribunal referred to the agreement to sell, which clearly indicated the nature of the transaction. The Tribunal held that since the amounts were received against the sale of land and not as loans or advances, they did not fall under the purview of deemed dividend. The Tribunal relied on precedents where similar transactions were held not to be covered under section 2(22)(e) of the Act. The Tribunal upheld the decision of the CIT(A) and dismissed the Revenue's appeal.

2. The Tribunal analyzed the facts of the case for AY 2005-06, where similar transactions were involved. The Tribunal found that the payments received by the assessee against the sale of land were clearly documented in the sale agreement and were part of the sale consideration. The Tribunal held that such transactions, being part of the normal course of business, could not be categorized as loans and advances. Citing relevant case laws, the Tribunal emphasized that payments received in the context of a commercial transaction do not fall within the ambit of section 2(22)(e) of the Act. The Tribunal scrutinized the sale agreement and concluded that it was a clear agreement of sale, not a loan or advance. No contradictory evidence was presented by either party, and the Tribunal affirmed the decision of the CIT(A) in favor of the assessee. Consequently, the Tribunal dismissed the Revenue's appeal based on the findings of the case for AY 2005-06.

In conclusion, the Tribunal, in both instances, ruled in favor of the assessee regarding the addition on account of deemed dividend under section 2(22)(e) of the Income Tax Act, emphasizing that the amounts received against the sale of land were part of the sale consideration and not loans or advances. The Tribunal's decisions were supported by the examination of the sale agreements and relevant legal precedents, leading to the dismissal of the Revenue's appeals.