2019 (3) TMI 746 - HC - Income Tax

Deemed dividend addition u/s 2(22)(e) - nature of the transaction for refund of the advance amounts received by the assessee from the vendee company of which, he was a director - CIT(A) was satisfied with the explanation and held that the amounts could not be brought to tax under Section 2(22)(e) - ITAT agreed with the view of the AO and set aside the CIT(A) orders HELD THAT - ITAT elaborately noted the sequence of events as well as the nature of the documents presented during the course of proceedings. It also noticed that according to the prevailing law, the general approach of the Revenue is to exclude a genuine commercial transaction. from the purview of Section 2(22)(e). Having regard to the overall circumstances of the case the ITAT disbelieved the assessee s explanation concluded it is apparent that Agreement to Sell dated 8/6/2009 and cancellation of such deed by Agreement dated 1/8/2009 for the purchase of property is merely cover up and a camouflage for giving loan to the assessee by the above Company to avoid contravention of the provision of Section 2(22)(e). Assessee also failed to give the adequate evidence and cogent, reliable, and credible evidences about the transaction. CIT(A) has completely brushed aside finding of the A.O. in remand report and the statement of the assessee and further has not applied his mind to find out the true nature of the transaction. This Court is of the opinion that the ITAT s decision is based upon an independent analysis of the facts. No doubt it differed from the CIT(A) s view. At the same time all its findings are based upon appreciation of material facts. Its conclusion are a possible view that can be taken by the Tribunal based upon the circumstances. - Decided against assessee.

Summary

Issues:
1. Addition made under Section 2(22)(e) of the Income Tax Act, 1961 for A.Y. 2010-11.

Analysis:
1. The assessee contested the addition made by the AO under Section 2(22)(e) of the Income Tax Act, 1961 for the assessment year 2010-11. The ITAT upheld the AO's determination, leading to the appeal by the assessee. The primary contention was that the ITAT erred in not understanding the true nature of the transaction involving the refund of advance amounts received by the assessee from a company where he was a director.

2. The assessee, deriving income from various sources, including being a director and shareholder in a closely held company, declared an amount in his income tax return. During the assessment proceedings, the AO issued a Show Cause Notice regarding the addition under Section 2(22)(e). The assessee provided agreements, cancellation deeds, and bank statements to support his claim that the amounts received were related to a failed property sale transaction with the company.

3. The original agreement involved a property sale for ?8 crores, with an advance of ?1.8 crores made. The cancellation deed was executed, and the amounts were refunded by the assessee over six months. The CIT(A) accepted the explanation, ruling that the amounts should not be taxed under Section 2(22)(e). However, the ITAT, on appeal by the Revenue, disagreed and set aside the CIT(A) orders.

4. The ITAT's decision was challenged on the grounds that the tribunal disregarded the additional material submitted during the assessment proceedings, including three remand reports supporting the assessee's explanation. The ITAT, while acknowledging the general approach to exclude genuine commercial transactions from Section 2(22)(e), found the assessee's explanation unconvincing based on the sequence of events and documents presented.

5. The Court noted that the ITAT's decision was based on an independent analysis of facts, differing from the CIT(A)'s view. The Tribunal's conclusions were considered a plausible interpretation of the circumstances. As long as the Tribunal's view was not entirely unreasonable, no substantial question of law arose, leading to the dismissal of the appeal.