2017 (12) TMI 51 - AT - Income Tax

Deemed dividend u/s. 2(22)(e) - Held that - It is not in the nature of advance or loan within the meaning of section 2(22)(e) of the Act. However, it is an advance given by the company to the assessee against purchase of property being industrial land at Khasra NO. 84/1 100/1, Village Rethani, Meerut, measuring 4185 sq.mtrs., which is evident from page no. 13-27 of PB a copy of purchase deed showing ownership of proty to assessee, page no 10 of PB copy of Board Resolution dated 10.5.2011 by the Company, Page no. 7 to 9 of PB a copy of agreement to sale dated 10.5.2011. But the said agreement got terminated vide termination agreement dated 11.11.2011 and the nature of said payments are not simplicitor loan or advance but it is a trade advance for business purposes, which is outside the purview of section 2(22)(e). We further note that in this case, the position was rather reverse i.e. the assessee being a Director and share holder of the company, was providing frequent advances to the company for its business requirements and the company was having credit balance of the assessee in its books, the op. cr. bal. in this year was ₹ 7,82,149/- the cl. cr. bal. was ₹ 2,37,47,149/- (Page No. 1 of PB). The assessee never charged any interest from the company. The Co. in its books, opened the consolidate ledger a/c. of assessee for loan taken and for advance given against purchase of property, however during proceedings, bifurcated loan a/c and advance against property alc was furnished (Page no. 2 PB). Thus it is a case of advance given for purchase of property. Hence, the addition in dispute made by the AO and confirmed by the ld. CIT(A) is untenable and therefore, we delete the same. Our aforesaid view is fortified by the CBDT Circular No. 19/2017 dated 12.6.2017 relating to settled view on Section 2(22)(e) of the Income Tax Act, trade advances reg. wherein it is stipulated that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word advance in section 2(22)(e) of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?1,67,00,000 as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.
2. Treatment of advance payment against the sale of industrial land as deemed dividend.
3. Consideration of various details, pleadings, and written submissions during assessment proceedings.
4. Stay of disputed demand of ?70,81,930.
5. Observations and inferences made by authorities.
6. Legality of interest charged under Sections 234B and 234C of the Income Tax Act, 1961.

Detailed Analysis:

1. Addition of ?1,67,00,000 as Deemed Dividend under Section 2(22)(e):
The core issue revolves around whether the amount of ?1,67,00,000 received by the assessee from IHDP Globals Private Limited qualifies as a deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The assessee argued that the amount was an advance against the sale of industrial land and not a loan or advance in the conventional sense. The Tribunal noted that the payment was indeed a trade advance for business purposes, which falls outside the purview of Section 2(22)(e). The Tribunal also referenced the CBDT Circular No. 19/2017, which clarifies that trade advances in the nature of commercial transactions do not qualify as deemed dividends.

2. Treatment of Advance Payment Against Sale of Industrial Land:
The authorities initially treated the advance payment of ?1,67,00,000 as deemed dividend. However, the assessee provided evidence, including an unregistered agreement to sell dated 10.05.2011 and a termination agreement dated 11.11.2011, to substantiate that the amount was a trade advance for the purchase of industrial land. The Tribunal found these documents credible and concluded that the nature of the payment was indeed a trade advance, thus not falling under the definition of deemed dividend.

3. Consideration of Various Details, Pleadings, and Written Submissions:
The assessee contended that the authorities did not adequately consider the various details, pleadings, and submissions made during the assessment proceedings. The Tribunal reviewed the documents submitted, including ledger accounts, agreements, and board resolutions, and found that the authorities' decision to treat the advance as deemed dividend was not justified based on the evidence provided.

4. Stay of Disputed Demand of ?70,81,930:
The assessee requested a stay on the disputed demand pending the appeal's outcome. The Tribunal's decision to delete the addition of ?1,67,00,000 as deemed dividend effectively resolved the issue, rendering the stay request moot.

5. Observations and Inferences Made by Authorities:
The Tribunal found several observations and inferences made by the authorities to be untenable, incorrect, and uncalled for. Specifically, the Tribunal disagreed with the authorities' interpretation of the agreements and the nature of the payment, ultimately ruling in favor of the assessee.

6. Legality of Interest Charged Under Sections 234B and 234C:
The assessee challenged the interest charged under Sections 234B and 234C on various legal grounds. However, the Tribunal's decision to delete the addition of ?1,67,00,000 as deemed dividend implicitly addressed this issue, as the interest charges were contingent upon the disputed addition.

Conclusion:
The Tribunal ruled in favor of the assessee, deleting the addition of ?1,67,00,000 as deemed dividend and allowing the appeal. The decision was based on the evidence that the payment was a trade advance for business purposes, supported by relevant agreements and board resolutions. The Tribunal's ruling aligns with the CBDT Circular No. 19/2017 and relevant case law, concluding that the payment does not fall under the ambit of Section 2(22)(e) of the Income Tax Act, 1961.