2021 (5) TMI 721 - AT - Income Tax

Deemed dividend u/s.2(22)(e) - business advance in the hands of the assessee (Director) to purchase the property on behalf of Company - HELD THAT - We do not agree with the contention that looking to large number of entries in the account between company and shareholder, then it should not be treated in the nature of loan and advances as stipulated u/s.2(22)(e). If the investment in the residential property at Gurgaon for which Board resolution was passed on 12.03.2014 was for and on behalf of the company then only any such advance will not be treated in the nature of deemed dividend u/s.2(22)(e). The Board of Directors have passed a resolution for making payment up to ₹ 5 crore to Smt. Neena Kandari for the specific purpose of purchase of residential property, solely for the purpose of Company s business or asset and even if the balance amount was invested by the assessee through her own sources, then also it does not lead to inference that property is of the assessee only. The property was meant to be used for the residence of the Directors provided by the company. To justify the name of assessee in the said property, the contention of the assessee has been that, under the RBI guidelines, housing loan can be granted only to the individual and not to the company, and therefore, instead of buying the property in company s name, it was decided to buy the property in the individual name of the Directors on behalf of the company. In support of this contention, it has been shown before us that the Builder of the flat where the assessee company intended to purchase the flat had written a letter dated 04.02.2015 to register the property in the joint name of the company as well as the Directors. Even the housing loan sanctioned by the HDFC Bank shows the company as a co-borrower. Thus, as culled out from the records placed, the property was jointly purchased by the assessee and M/s. Enrich Agro Foods Products Pvt. Ltd. We are remanding this issue to the file of the Assessing Officer only for the purpose of examining, firstly whether the company had given the advance to the assessee for the purpose of acquisition of an asset/ property to be used for the purpose of company and; secondly, in whose name property has been finally registered. The Assessing Officer shall provide sufficient opportunity to the assessee to establish and substantiated the aforesaid facts. With this observation, the appeal of the Revenue is treated as partly allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition made under Section 2(22)(e) by treating it as a business advance in the hands of the assessee.
2. Nature of the ledger accounts and their classification as loans/advances or running/current accounts.
3. Purpose of the advance given for the purchase of property and its implications under Section 2(22)(e).
4. Examination of new evidence regarding the final allotment of the property.

Detailed Analysis:

1. Deletion of Addition under Section 2(22)(e):
The Revenue challenged the deletion of the addition of ?1,97,99,254/- made under Section 2(22)(e) by the Assessing Officer (AO), who treated the amount as deemed dividend in the hands of the assessee. The AO observed that the company, M/s. Enrich Agro Foods Products Pvt. Ltd., had given regular advances/loans to major shareholders, including the assessee and her husband. The assessee contended that the amount was a business advance for property acquisition. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the AO had not provided a reasoned finding that the amount was unexplained and emphasized that the advance was for property purchase, a commercial transaction benefiting the company.

2. Nature of Ledger Accounts:
The CIT(A) examined three ledger accounts maintained by the company in the name of the assessee:
- Loan Account with an opening credit balance of ?1,05,10,980/- and a closing balance of ?1,33,00,746/-.
- Advance for Property Account with a closing debit balance of ?3,31,00,000/-.
- Salary Account with nil opening and closing balances.

The CIT(A) concluded that the consolidated ledger account, with 56 entries throughout the year, indicated a running/current account rather than a loan/advance account. The CIT(A) relied on various case laws to support that Section 2(22)(e) does not apply to running/current accounts, as these involve multiple entries and mutual benefits between the company and the shareholder.

3. Purpose of the Advance for Property Purchase:
The CIT(A) noted that the company had decided to invest in a residential property in Gurgaon for business purposes, as evidenced by a board resolution. The property was intended for the directors' residence, and the purchase was to be made in the directors' names due to RBI guidelines on housing loans. The CIT(A) held that the advance was for acquiring property on behalf of the company, not for personal use, and thus, Section 2(22)(e) could not be invoked. The CIT(A) cited case laws supporting that advances for business purposes do not amount to deemed dividends.

4. Examination of New Evidence:
The Tribunal noted that the AO taxed the amount as unexplained deemed dividend under Section 2(22)(e). However, the Tribunal found that the property was intended for the company's use, supported by a board resolution and a letter from the builder to register the property in the joint names of the company and the director. The Tribunal observed that the final allotment of the property was made in the company's name through another director, indicating that the property belonged to the company.

The Tribunal remanded the issue to the AO to examine:
- Whether the advance was given for acquiring an asset/property for the company's use.
- In whose name the property was finally registered.

The AO was directed to provide the assessee with an opportunity to substantiate these facts. The appeal was partly allowed for statistical purposes.

Conclusion:
The Tribunal set aside the matter to the AO for further examination of the purpose of the advance and the final registration of the property, emphasizing that Section 2(22)(e) applies only if the advance is solely for the shareholder's benefit and not for the company's business purposes. The appeal was partly allowed for statistical purposes.