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2019 (10) TMI 253 - AT - Income TaxDeemed dividend u/s 2(22)(e) - monies were advanced by M/s DEPL wherein assessee holds 20% of shareholding in DEPL to the assessee on a periodical basis for the purpose of procurement of lands by assessee for and on behalf of M/s DEPL in the capacity of an aggregator - HELD THAT - What is to be seen is the substance of the transaction in the light of business acumen of the parties involved thereon, capacity to act as aggregator to procure lands for and on behalf of M/s DEPL. It is not in dispute that the said MOU dated 2.5.2006 had been duly notarized on 2.5.2006 itself by a competent person. In case if the revenue had any doubt regarding the veracity of the said document, then nothing prevented the revenue from examining the said Advocate Notary by either issuing notice u/s 133(6) of the Act or by issuing summons u/s 131 of the Act. Hence without carrying out necessary examination in the manner known to law, the document placed on record by the assessee cannot be summarily brushed aside. 5.2. We also find that the ld AO had categorically given a finding that from the books of accounts of M/s DEPL and the assessee , it is clear that the transactions between the assessee and M/s DEPL were frequent by way of frequent advancing of monies to assessee and frequent repayments made by the assessee to M/s DEPL. This finding clearly goes in favour of the assessee as the subject mentioned transaction is only in the nature of current account transaction carried out by the assessee. From the perusal of the ledger account of assessee as appearing in the books of M/s DEPL for the period 1.4.2007 to 31.3.2008, we find that there was a opening credit balance of ₹ 20,25,000/- lying to the credit of the assessee in the books of M/s DEPL. Against such credit, the monies were paid to the assessee by M/s DEPL on a periodical basis. This itself goes to prove the existence of account being operated on a current account basis and not loan or advance so as to fall within the ambit of provisions of section 2(22)(e) We direct the ld AO to delete the addition made towards deemed dividend u/s 2(22)(e) of the Act in the facts and circumstances of the instant case.- Decided in favour of assessee
Issues Involved:
1. Validity of reopening of assessment under Section 151 of the Income Tax Act. 2. Justification of addition made under Section 2(22)(e) of the Income Tax Act concerning deemed dividend. Detailed Analysis: 1. Validity of Reopening of Assessment: The assessee challenged the reopening of the assessment on the grounds that the approval under Section 151 of the Income Tax Act was not given by the competent authority. Upon review, it was found that the original assessment was completed under Section 143(1) of the Act, thus falling within the ambit of Section 151(2). The approval for reopening was granted by the Joint Commissioner of Income Tax after satisfying himself about the reasons recorded for reopening, as evident from the assessment records. Consequently, the additional grounds raised by the assessee challenging the validity of reopening the assessment were dismissed. 2. Justification of Addition under Section 2(22)(e) of the Income Tax Act: The primary issue was whether the Commissioner of Income Tax (Appeals) was justified in confirming the addition made under Section 2(22)(e) of the Act, treating the advances received by the assessee from M/s DEPL as deemed dividend. The assessee, engaged in transport hiring services and a partner in several firms, received advances amounting to ?48,75,000 from M/s DEPL, where he held a 20% shareholding. The assessee contended that these advances were current account transactions in the ordinary course of business and not loans. The Assessing Officer (AO) added back the amount as deemed dividend under Section 2(22)(e), noting that the accumulated profits of M/s DEPL were ?34,75,096, yet the AO considered the sum of ?48,75,000 as deemed dividend, including profits up to the date of the loan. Upon appeal, it was found that the advances were made under a Memorandum of Understanding (MOU) between M/s DEPL and the assessee, where the assessee acted as an 'Aggregator of lands' for M/s DEPL. Despite the MOU being unregistered, it was notarized and indicated a business nexus. The assessee had received and repaid advances regularly, and the funds were used for investments in his partnership firms engaged in real estate activities. The Tribunal concluded that the transactions were trade advances in the nature of commercial transactions, excluded from the definition of deemed dividend under Section 2(22)(e) as per CBDT Circular No. 19/2017. The AO's finding of frequent transactions supported the current account nature of the dealings, and the unregistered MOU did not undermine the genuineness of the transactions. Hence, the addition of ?48,75,000 as deemed dividend was deleted. For the subsequent assessment year 2009-10, similar facts were observed with variance in figures. The assessee had overdrawn ?48,75,000 and repaid ?38,95,000 while further drawing ?1,21,00,000, leaving a closing balance of ?1,30,80,000, indicating current account transactions. The Tribunal applied the same rationale and allowed the appeal. Conclusion: - The appeals for the assessment year 2008-09 (ITA No. 5805/Mum/2016 and ITA No. 5806/Mum/2016) were partly allowed, and for the assessment year 2009-10 (ITA No. 6928/Mum/2016 and ITA No. 6929/Mum/2016), the appeals were allowed. - The Tribunal directed the deletion of the addition made towards deemed dividend under Section 2(22)(e) of the Act, affirming that the advances were trade advances and not loans or advances as per the statute.
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