2017 (8) TMI 1186 - AT - Income Tax

Reopening of assessment - deemed dividend addition u/s 2(22)(e) - nature of receipt - advances against sale of land - percentage of shareholding - director of a company holding more than 10% of the shares, had during the year under consideration received an amount from the company - Held that - The impugned agreement to sell projected by the assessee to justify his claim that the amount of ₹ 17,50,000/- (supra) was received by him from the company in lieu of a transaction of an anticipated sale of land by him to the company, which however could not fructify on account of compulsory acquisition of the land by the government is merely an arrangement tailored by the assessee with the sole intent to wriggle out of the ramifications of having received the aforesaid amount from the company, which as per law was liable to be assessed as deemed dividend u/s. 2(22)(e) in his hands. We find ourselves to be in absolute agreement with the observations of the CIT(A) that the claim raised by the assessee and the contentions raised in context thereto have serious loose ends which clearly militate against the basic principle of preponderance of human probabilities, and rather, as a matter of fact goes to prove to the hilt that the said claim of the assessee is the brain child of an afterthought, which was guided by an ulterior motive of avoiding assessing of the aforesaid amount as a deemed dividend in the hands of the assessee. We find ourselves to be in agreement with the observations of the CIT(A), and are of the considered view that neither the contentions raised by the assessee before the lower authorities nor the material available on record, supports the claim of the assessee that the amount of ₹ 17,50,000/- (supra) was received by him as an advance for an anticipated sale of land by him to the company. We thus in light of our aforesaid observations uphold the order of the CIT(A). - Decided against assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment beyond a period of 4 years.
2. Addition of ?17,50,000/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening the Assessment Beyond a Period of 4 Years:
The assessee contended that the reopening of the assessment under Section 147 was invalid as it was based on a mere "change of opinion" without any new material. The Tribunal examined whether the processing of a return under Section 143(1) could be considered an assessment and whether the reassessment could be initiated without fresh material. The Tribunal cited the Supreme Court's decision in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., which clarified that an intimation under Section 143(1) is not an assessment, and thus, reopening under Section 147 does not require a "change of opinion" test. Consequently, the Tribunal upheld the validity of the reassessment proceedings initiated by the Assessing Officer (A.O).

2. Addition of ?17,50,000/- as Deemed Dividend under Section 2(22)(e):
The A.O. assessed ?17,50,000/- received by the assessee from a company in which he held more than 10% of the shares as "deemed dividend" under Section 2(22)(e). The assessee argued that the amount was an advance for the sale of agricultural land, supported by an unregistered "Agreement to Sell" dated 29.06.2002. The Tribunal scrutinized the authenticity of the agreement and the transaction:

- Unregistered Agreement: The agreement was on a stamp paper dated 11.01.2000, more than two years before the agreement date, and not issued in the name of either party, raising doubts about its authenticity.
- Books of Account: The transaction was not reflected in the company's books, indicating that it was not a genuine commercial transaction.
- Board Meeting Minutes: The minutes were signed much later than the meeting date, further questioning the transaction's genuineness.
- Non-Compliance with Agreement Terms: The assessee did not take necessary steps to convert the land for industrial purposes, as required by the agreement.
- Delayed Refund: Despite the land being acquired by the government in 2008, the assessee refunded only a part of the advance in 2008 and the balance in 2010, which was inconsistent with a genuine commercial transaction.

The Tribunal concluded that the "Agreement to Sell" was a fabricated document intended to avoid the provisions of deemed dividend. The Tribunal agreed with the CIT(A) that the amount was rightly assessed as deemed dividend under Section 2(22)(e) and dismissed the appeal of the assessee.

Conclusion:
The Tribunal upheld the reassessment proceedings and confirmed the addition of ?17,50,000/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The appeal filed by the assessee was dismissed.