2013 (12) TMI 1156 - HC - Income Tax

Whether amount received for commercial transaction be held as loan or dividend u/s 2(22)(e) - Held that - The Tribunal being final Court of fact accepted the explanation that the amount was received as advance sale consideration for sale of cold storage of the assessee - The agreement could not materialise on which the MOU was executed cancelling the transaction - The payment of the amount in pursuance to the agreement for sale of cold storage would not by itself become loan or partake the character of loan after the agreement was cancelled and MOU signed for returning the amount The MOU was produced by the assessee before CIT(A) - Decided against Revenue. Interest free loan given to family members - Held that - The Tribunal recorded the findings that the assessee in his individual account was having sufficient capital - If he had given the amount as interest free loan to his family members, that by itself could not be put to doubt and on which the interest was disallowed under Section 36 (1) (iii) of the Act Decided against Revenue.

Summary

Issues:
1. Deletion of additions made by the Assessing Officer under various sections of the Income Tax Act.
2. Legality of the deletion of the addition under Section 56 read with Section 2 (22) (e) of the Act.
3. Assessment of whether the amount received was on account of a commercial transaction or a loan.
4. Validity of deleting the addition based on a Memorandum of Understanding (MOU) not examined for genuineness.
5. Deletion of addition under Section 36 (1) (iii) of the Act due to borrowing on interest.

Analysis:
1. The High Court heard an Income Tax Appeal arising from an order of the Income Tax Appellate Tribunal. The Tribunal had allowed the appeal and deleted additions made by the Assessing Officer under various sections of the Income Tax Act.

2. The main legal question raised was whether the Tribunal was correct in deleting the addition under Section 56 read with Section 2 (22) (e) of the Act. The Tribunal accepted the explanation that the amount received was for a business transaction, not falling under the specified provisions.

3. The Court examined whether the amount received was on account of a commercial transaction or a loan. The Tribunal found that the transaction was related to the sale of property and not a loan, based on evidence presented, including a Memorandum of Understanding (MOU).

4. The legality of deleting the addition based on the MOU, which was not furnished before the Assessing Officer but presented during the appeal before CIT (A), was questioned. The Tribunal considered the MOU and other documents to establish the commercial nature of the transaction.

5. Additionally, the Court addressed the deletion of the addition under Section 36 (1) (iii) of the Act, related to borrowing on interest. The Tribunal concluded that the amount in question was part of the assessee's capital and not a loan, hence disallowing the interest under this section.

6. The Court dismissed the Income Tax Appeal, stating that the findings of fact by the Tribunal, as the final court of fact, did not warrant consideration of the legal questions raised. The judgment upheld the Tribunal's decision to delete the additions and affirmed the commercial nature of the transactions in question.