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2016 (4) TMI 344 - AT - Income TaxDeemed dividend u/s 2(22)(e) - whether the advances were loan for business purposes or otherwise - Held that - The prima facie copy of accounts in the books of the company shows that assessee had paid much more than amount received from the company. The transactions were regular. The assessee produced the evidence before the lower authorities to justify the transaction as a business transaction on the basis of agreement to sale dated 22.7.2009. There were certain conditions as per this Ikrarnama, which could not be fulfilled by the assessee but it does not mean that assessee s loans and advances are not for business purposes. The ld. A/R of the assessee has explained the reasons for not getting 90B done of agricultural land at village Ajayrajpura, Tehsil Sanganer as Draft Master Plan got changed by the JDA by draft Notification dated 10.11.2009 wherein it has been decided by the JDA that land use under 90B was to be approved not less than 25 acres but in final Master Plan this area has been reduced to 10 hectares. The assessee filed application on 23.08.2012 under section 90B of the Land Revenue Act before the JDA which was rejected by the JDA. The case laws relied on by the ld. A/R are squarely applicable on the facts of the case. Therefore, we hold that transactions made by the assessee and the company are for business purposes and are not deemed dividend under section 2(22)(e) of the Act. - Decided in favour of assessee
Issues Involved:
1. Addition of Rs. 99,50,794/- as deemed dividend under section 2(22)(e) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Addition of Rs. 99,50,794/- as Deemed Dividend: The primary issue revolves around the addition of Rs. 99,50,794/- made by the Assessing Officer (AO) under section 2(22)(e) of the Income Tax Act, treating the amount as deemed dividend. The AO observed that the assessee, a director with more than 10% shareholding in M/s. Ashish Buildcon Pvt. Ltd., received an advance of Rs. 1,22,55,000/- from the company. The AO noted that the company had accumulated reserves and surplus of Rs. 99,50,794/-, and since M/s. Ashish Buildcon Pvt. Ltd. is not a company in which the public is substantially interested, the provisions of deemed dividend were applicable. The AO concluded that the payment was in the nature of loans and advances, thus falling under the purview of section 2(22)(e). 2. Confirmation by CIT (A): The CIT (A) upheld the AO's addition, noting that the appellant and his wife held more than 10% shares in M/s. Ashish Buildcon Pvt. Ltd. The CIT (A) questioned the reliability of an unregistered "Agreement to Sale" dated 22.07.2009, which was not found during a search operation. The CIT (A) presumed the agreement was an afterthought to justify the loans as advances for land, thus evading the deeming provisions of section 2(22)(e). The CIT (A) also highlighted discrepancies in the company's financial statements, where the land was not included in the stock, and the amount was shown as advances recoverable in cash or kind. 3. Assessee's Argument: The assessee contended that the transactions were normal business advances against the sale of land, not loans or advances as envisaged under section 2(22)(e). The assessee argued that the agreement was cancelled due to the inability to get 90B approval from JDA, and the amount was refunded to the company. The assessee emphasized that both parties were engaged in real estate business, and such transactions were common practice. The assessee relied on various judicial precedents, including CIT vs. Creative Dyeing and Printing Pvt. Ltd., to argue that such business advances do not constitute deemed dividends. 4. Tribunal's Findings: The Tribunal examined the nature of transactions between the assessee and the company, noting that the assessee had given more money to the company than received. The Tribunal acknowledged that in the real estate business, transactions often occur on an agreement to sale basis to save on stamp duty and increase profitability. The Tribunal found that the assessee had provided sufficient evidence to justify the transactions as business advances, including an Agreement to Sale dated 22.07.2009. The Tribunal accepted the assessee's explanation regarding the inability to get 90B approval due to changes in JDA's Master Plan, which restricted land use approvals. 5. Conclusion: The Tribunal concluded that the transactions between the assessee and the company were for business purposes and not deemed dividends under section 2(22)(e). The Tribunal allowed the assessee's appeal, reversing the CIT (A)'s order, and deleted the addition of Rs. 99,50,794/-. Order: The appeal of the assessee is allowed. The order was pronounced in the open court on 4.03.2016.
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