2020 (8) TMI 798 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - HELD THAT - The amount was received by Visual from BPTP Ltd. during the course of business for making payment to Mr. Rishipal Sharma against purchase of land from him. The payment received from BPTP Ltd. by Visual was used to make payment to Mr. Rishpal Sharma from whom land was purchased by Visual. Documents produced before the AO establishes that amount was received by Visual Builders Pvt. Ltd. from BPTP Ltd. in ordinary course of business for purchase of land and against assignment of development rights in land and does not fall within purview of provision of Section 2(22)(e). These facts were not disputed by the Revenue at any point of time. AO observed in the Assessment Order that the assessee is having substantial interest in the above payer company as well as in recipient company. But the same was not elaborated or discussed by the AO in the Assessment Order. Nothing has been established against the assessee for application of Section 2(22)(e) on the ground that the amount advance is for purchase of suitable land and the said amount is shown in its Balance Sheet as current liability. Assessee has given all the details but the same was not at all taken into account in the context of applicability of Section 2(22)(e). Section 2(22)(e) will not be applicable in assessee s case as where loans and advaces are given in normal course of business and transaction in question benefits both payer and payee companies as held in case of CIT vs. Ankitech (P.) Ltd. 2011 (5) TMI 325 - DELHI HIGH COURT . AO as well as the CIT(A) was not correct in applying Section 2(22)(e) in the present assessee s case - Appeal of the assessee is allowed.

Issues:
1. Validity of the order passed by the CIT(Appeal)
2. Addition of deemed dividend income under section 2(22)(e) of the Income Tax Act, 1961
3. Application of Section 2(22)(e) in the case

Issue 1: Validity of the order passed by the CIT(Appeal)
The appellant challenged the order of the Commissioner of Income Tax [Appeals]-XXXIII, New Delhi, alleging it to be bad on facts and in law, void ab-initio, and violating rules of natural justice. The appellant sought to amend or vary the grounds of appeal. The appeal was filed against the order dated 17.07.2014 under section 143(3) of the Income Tax Act, 1961 for Assessment Year 2011-12.

Issue 2: Addition of deemed dividend income under section 2(22)(e) of the Income Tax Act, 1961
The Assessing Officer made an addition of ?7,00,000 as deemed dividend income u/s 2(22)(e) of the Income Tax Act, 1961. This addition was based on the substantial interest of the assessee in the payer and recipient companies, namely BPTP Ltd. and Visual Builders Pvt. Ltd. The appellant objected to this addition, stating that the amount was an advance for the purchase of suitable land, shown as a current liability in the Balance Sheet. The CIT(A) confirmed the addition, leading to the appeal.

Issue 3: Application of Section 2(22)(e) in the case
During the proceedings, it was revealed that the amount received by Visual from BPTP Ltd. was for making a payment to Mr. Rishipal Sharma against the purchase of land. The payment was used in the ordinary course of business for the land purchase and assignment of development rights. The appellant provided documents supporting these transactions. The Tribunal found that Section 2(22)(e) was not applicable as the transactions were in the normal course of business, benefiting both companies. The Assessing Officer and the CIT(A) erred in applying Section 2(22)(e) in this case. The appeal was allowed, and the addition of deemed dividend income was set aside.

In conclusion, the Tribunal allowed the appeal of the assessee, finding that the application of Section 2(22)(e) was incorrect in this case. The judgment emphasized the normal course of business transactions for land purchase and development rights assignment, leading to the dismissal of the addition of deemed dividend income.

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