2012 (9) TMI 825 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - Assessee held 97.83% shares in the company from which advance was received against sale of property - Assessee furnished a copy of the agreement to sell before the AO Held that - As the advance received by the assessee from the company in which she is a substantial shareholder, was for a transaction relating to sale of property, the deeming provisions of Sec. 2(22)(e) of the Act were not applicable. If the advance was not in the nature of lending money, it cannot be held as dividend. In the present case, the assessee received the advance against sale of property belonging to her, therefore the transaction could not be brought under the provisions of Sec. 2(22)(e). Appeal decides in favour of assessee

Summary

Issues Involved:
1. Deletion of addition of Rs. 1 crore under Section 2(22)(e) of the Income-tax Act, 1961.
2. Validity and genuineness of the agreement of sale between the assessee and the company.
3. Applicability of precedents cited by the Assessing Officer (AO) and the assessee.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 1 crore under Section 2(22)(e) of the Income-tax Act, 1961:
The primary grievance of the department was the deletion of the addition of Rs. 1 crore made by the AO under Section 2(22)(e) of the Income-tax Act, 1961. The AO had treated the amount received by the assessee from the company as deemed dividend. The CIT(A) deleted this addition, concluding that the advance was for the purchase of property and not for the benefit of the shareholder, thereby not falling under the purview of deemed dividend.

2. Validity and Genuineness of the Agreement of Sale:
The AO questioned the genuineness of the sale agreement, noting that it was not executed on a stamp paper and lacked registration. However, the assessee contended that the agreement was for the sale of a property and provided the necessary documentation to support the transaction. The CIT(A) accepted the assessee's submission, emphasizing that the transaction was a business activity and not a device to circumvent tax provisions. The Tribunal upheld this view, noting that the AO did not provide evidence to prove the agreement was not genuine.

3. Applicability of Precedents Cited by the AO and the Assessee:
The AO relied on the cases of M.D. Jindal v. CIT (1987) 164 ITR 28 (Cal) and Smt. Tarulata Shyam v. CIT (1977) 108 ITR 345 (SC) to support the addition. The assessee argued that these cases were not applicable to her situation as they involved advances that benefited the shareholder without any requirement to transfer an asset. The CIT(A) and the Tribunal agreed with the assessee, stating that the advance was for the purchase of property and thus did not constitute a benefit to the shareholder. The Tribunal also considered various other judgments cited by the assessee, such as CIT v. Creative Dying & Printing (P) Ltd (2009) 318 ITR 476 and others, which supported the view that advances made during the course of business transactions do not qualify as deemed dividends.

Conclusion:
The Tribunal dismissed the department's appeal, affirming the CIT(A)'s decision to delete the addition of Rs. 1 crore. The Tribunal concluded that the advance received by the assessee was for the sale of property and not a loan or advance that could be treated as deemed dividend under Section 2(22)(e) of the Act. The Tribunal emphasized the importance of genuine business transactions and the need for substantial evidence to challenge the validity of such agreements.