2021 (10) TMI 1164 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - assessee herein is a shareholder having substantial interest in concerns imparting loan - HELD THAT - What is required to be seen is whether CAPL has advanced moneys as pure loan amounts or for business purposes. The agreements produced by the assessee before Ld CIT(A), which were also confronted with the AO, would prove that the transactions entered between the parties are business transactions - both the companies are maintaining accounts as running accounts only and real estate investment activity was agreed to be a continuous activity. Hence the question of making one to one reconciliation, as contended by Ld DR. would not arise in these types of transactions - we confirm the order of Ld CIT(A) in deleting the additions made u/s 2(22)(e). Addition of unexplained investment - HELD THAT - Since the addition made on substantive basis in the hands of Brindavan Beverages P Ltd has been upheld by Ld CIT(A), the protective addition made in the hands of the assessee of the very same amount is liable to be deleted - the above said company had filed appeal before ITAT challenging the decision rendered by Ld CIT(A) and further the said company has opted to settle the issue under DTVSV Scheme. The assessee has filed copy of Form No.3 given under the above said scheme. Under the above said scheme, the above said company is required to pay tax shown in Form no.3 and final certificate in Form no.5 is required to issued in proof of settlement of dispute. Since these matters are pending, we restore this issue to the file of AO with the direction to delete this protective addition upon furnishing of Form no.5 by the assessee.

Summary

Issues Involved:
1. Deemed dividend assessed under Section 2(22)(e) of the Income Tax Act.
2. Addition of unexplained investment.

Detailed Analysis:

Issue 1: Deemed Dividend Assessed under Section 2(22)(e) of the Income Tax Act

Background:
The Assessing Officer (AO) found that the assessee, a significant shareholder in both M/s. Brindavan Beverages Pvt. Ltd. (BBPL) and M/s. Cauveri Aqua Pvt. Ltd. (CAPL), had facilitated a loan of ?1 crore from CAPL to BBPL. The AO deemed this loan as a dividend under Section 2(22)(e) of the Income Tax Act, considering the substantial interest held by the assessee in both companies.

Assessee's Argument:
The assessee contended that the funds were transferred for business purposes under an agreement between CAPL and BBPL to invest jointly in property development projects. The assessee argued that these transactions were business transactions and not loans, thereby not attracting the provisions of Section 2(22)(e).

AO's Stand:
The AO rejected the assessee's explanation, stating that CAPL should have directly invested in the Embassy Group rather than routing the funds through BBPL. The AO also noted that the arrangement lacked acknowledgment from the Embassy Group, thus treating the funds as deemed dividends.

CIT(A)'s Decision:
The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's explanation, recognizing the transactions as business transactions and deleting the addition made under Section 2(22)(e). The CIT(A) referred to agreements and assignment agreements that supported the business nature of the transactions.

Revenue's Argument:
The Departmental Representative (D.R.) argued that the assignment agreements did not explicitly mention the adjustment of loans and advances, contending that the loans given by CAPL to BBPL were separate transactions and should be assessed as deemed dividends.

Tribunal's Analysis:
The Tribunal examined the agreement dated 14th November 2005, which outlined the business arrangement between CAPL and BBPL, including the joint investment in real estate projects. It was noted that the amounts given by CAPL were adjusted against properties assigned to CAPL by BBPL, corroborating the business nature of the transactions. The Tribunal upheld the CIT(A)'s decision, confirming that the transactions were business-related and not loans under Section 2(22)(e).

Conclusion:
The Tribunal confirmed the CIT(A)'s order, deleting the addition of ?1 crore as deemed dividend under Section 2(22)(e), recognizing the transactions as business advances.

Issue 2: Addition of Unexplained Investment

Background:
During a search, loose papers indicating cash payments related to property purchases by BBPL were found. The AO assessed ?2.60 crore as unexplained investment in the hands of BBPL on a substantive basis and in the hands of the assessee on a protective basis.

CIT(A)'s Decision:
The CIT(A) noted that the substantive addition in the hands of BBPL had been confirmed. Consequently, the protective addition in the hands of the assessee was deleted.

Revenue's Argument:
The Department argued against the deletion of the protective addition.

Assessee's Argument:
The assessee informed that BBPL had opted to settle the issue under the Direct Taxes Vivad Se Vishwas Act, and the relevant forms had been filed, indicating acceptance of the substantive addition.

Tribunal's Analysis:
The Tribunal acknowledged that the substantive addition in the hands of BBPL had been upheld and that BBPL had opted for settlement under the Vivad Se Vishwas Scheme. The Tribunal directed the AO to delete the protective addition in the hands of the assessee upon submission of the final settlement certificate (Form No.5).

Conclusion:
The Tribunal restored the issue to the AO with instructions to delete the protective addition upon submission of Form No.5 by the assessee, effectively treating the appeal as allowed for statistical purposes.

Final Order:
The Tribunal upheld the CIT(A)'s order regarding the deletion of the addition under Section 2(22)(e) and directed the AO to delete the protective addition of unexplained investment upon submission of the final settlement certificate. The appeal filed by the revenue was treated as allowed for statistical purposes.