2016 (6) TMI 735 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - Assessment made by the Assessing Officer U/s 153A - Held that - Assessment U/s 153A read with Section 143(3), the ld Assessing Officer has to assess the income in abated year only where incriminating documents were found and seized and no regular addition can be made under this section as the Coordinate Bench has decided this identical issue in the case of M/s Jadau Jewellers and Manufacturers P. Ltd. (2015 (12) TMI 1526 - ITAT JAIPUR ) wherein it has been held that technical ground raised by the assessee succeeds and order passed U/s 153A read with Section 143(3) of the Act has been held void ab-initio. The other case laws referred by the assessee is also squarely applicable. Therefore, we have considered view that assessment made by the Assessing Officer U/s 153A read with Section 143(3) of the Act is out of jurisdiction. Accordingly, we allow the assessee s appeal on this ground. In real estate most of the transactions are being made on the basis of agreement to sale and to avoid the stamp duty payment. In real estate business number of transactions of purchase and sale of the plots are being made and stamp duty finally is to be borne by the actual user of the plot at the time of registration. Therefore, generally the transactions made on agreement to sale basis. It is also a fact that this transaction was in between director of the company and company even as per this agreement, the assessee has to make registry of both the plots at the time of final conversion and allotment of Patta. The correspondence between the assessee and the JDA shows that there was efforts to convert the land commercially and get the patta from the JDA, which cannot be doubted. The assessee relied on various decisions on deemed dividend wherein it has been held that loan advances given against the consideration are business transactions not deemed dividend U/s 2(22)(e) of the Act. Therefore, we held that the transaction made between the assessee and the company are business transactions and is not covered U/s 2(22)(e) of the Act. Accordingly, we reverse the order of the ld CIT(A) - Decided in favour of assessee

Summary

Issues Involved:
1. Confirmation of addition of ?24,80,911/- on account of advance received from M/s Nakshatra Real Estates Private Limited.
2. Applicability of Section 2(22)(e) of the Income Tax Act, 1961 regarding the advance received.
3. Validity of the assessment order under Section 153A read with Section 143(3) of the Income Tax Act, 1961.

Detailed Analysis:

1. Confirmation of Addition of ?24,80,911/- on Account of Advance Received:
The Assessing Officer (AO) observed that the assessee had taken a loan of ?31.65 lacs from M/s Nakshatra Real Estates Developers Pvt. Ltd., where the assessee holds a 50% share. The AO deemed ?24,80,911/- as dividend under Section 2(22)(e) of the Income Tax Act, 1961, considering it as a loan rather than an advance for a sale transaction. The CIT(A) confirmed this addition, noting that the agreement to sell was an afterthought and not materialized into an actual sale. The assessee contended that the amount was an advance for the sale of plots, not a loan, and thus should not be covered under Section 2(22)(e).

2. Applicability of Section 2(22)(e) of the Income Tax Act, 1961:
The CIT(A) held that the advance received was a loan, thereby attracting the provisions of Section 2(22)(e). The assessee argued that the advance was for a business transaction, specifically the sale of two plots, and thus should not be treated as a deemed dividend. The CIT(A) dismissed this claim, stating that the plots were not saleable as per JDA norms and the transaction seemed to be a regular loan. The Tribunal, however, found that the transaction was indeed a business transaction and not a loan, thereby not falling under the purview of Section 2(22)(e).

3. Validity of the Assessment Order under Section 153A read with Section 143(3):
The assessee raised a technical ground challenging the validity of the assessment under Section 153A, arguing that no incriminating material was found during the search, and thus no addition could be made. The Tribunal agreed with the assessee, stating that the scope of Section 153A is limited to assessments based on incriminating documents found during the search. Since no such documents were found, the assessment was deemed void ab-initio. The Tribunal cited various judicial precedents supporting this view, including the Hon'ble Supreme Court's decision in National Thermal Power Co. Ltd. Vs CIT and the Hon'ble Jurisdictional High Court's decision in Zakir Hussain Vs. CIT & Anr.

Conclusion:
The Tribunal allowed the appeal of the assessee on both the technical ground and the merits. It held that the assessment made under Section 153A read with Section 143(3) was out of jurisdiction due to the absence of incriminating documents. Furthermore, it concluded that the transaction between the assessee and the company was a business transaction and not a loan, thus not attracting the provisions of Section 2(22)(e). Consequently, the addition of ?24,80,911/- was deleted, and the appeal was allowed.