2022 (7) TMI 1201 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - Whether trade advances in the nature of commercial transactions do not fall within the ambit of Section 2(22)(e)? - HELD THAT - We make it clear that the assessee s detailed paper book contains his JDA with the company as therein suggests that the assessee as well as the company along with other owners/shareholders had to open/operate an escrow account with joint signatures in which the corresponding sale proceedings had to be deposited to be disbursed to the developers. Mr. Shingte sought to clarify at this stage that no such Escrow account had been opened which means that the said stipulation stood rendered frustrated. We are unable to accept the assessee s arguments as it is clear not only from a perusal of case records as well as the CIT(A) s findings but also from the evidence on record that the impugned sum(s) over and above the balance payable by the company represent the latter s accumulated profits only. We make it clear that the learned CIT(A) has also discussed a catena of case law regarding assessee s contention that the impugned addition deserves to be restricted to its 34% stake only AO s action treating the advances received from the company as business income already stands deleted. We hold that the same has no bearing on the instant issue of deemed dividend whose application stands sufficiently proved qua the loan and advances coming from the company side to his account. We accordingly uphold the impugned identical deemed dividend addition in assessee s twin appeals. These two cases fail accordingly. Disallowing set-off which already has been taxed as deemed dividend - Faced with this situation and keeping in mind the fact that we have upheld Section 2(22)(e) addition in preceding paragraphs, we are of the view that larger interest of justice would be met in case if the Assessing Officer readjudicates the assessee s instant solitary substantive grievance in this third assessment year 2014-15 afresh as per law. We order accordingly. We make it clear that the assessee shall be at liberty to file all the relevant details in consequential proceedings. This last appeal is allowed for statistical purposes, therefore.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Correctness of Section 2(22)(e) deemed dividend addition.
3. Setoff of the amount taxed as deemed dividend.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee's appeal ITA No. 609/Pun/2019 was delayed by 800 days. The assessee provided an affidavit attributing the delay to reasons beyond its control. The Revenue did not dispute this claim. The Tribunal found reasonable cause for the delay and, following the precedent set in Collector Land Acquisition Vs. Mst. Katijoi & Ors. (1987) 167 ITR 471 (SC), condoned the delay and proceeded to adjudicate the appeal on its merits.

2. Correctness of Section 2(22)(e) Deemed Dividend Addition:
The assessee's appeals IT(SS)A 06 & 07/Pun/2017 involved the issue of deemed dividend additions of Rs.60,92,388/- and Rs.1,08,07,866/- under Section 2(22)(e) of the Income Tax Act, 1961. The CIT(A) upheld the additions, stating that the amounts received by the assessee from the company were not business receipts but advances. The CIT(A) noted that the appellant was holding 34% of the beneficial shares in the company and had received excess amounts over his entitlement under a Development Agreement. These excess amounts were treated as deemed dividends under Section 2(22)(e) as they were not in the nature of business advances but financial transactions.

The CIT(A) also addressed the issue of accumulated profits, stating that accumulated profits should not include current year's business profits as per the Supreme Court's decision in Ashokbhai Chimanbhai (56 ITR 42). The CIT(A) concluded that the accumulated profit should be Rs.60,92,388/- and not Rs.1,63,91,548/-. The Tribunal upheld the CIT(A)'s findings, rejecting the assessee's arguments that the sums were commercial transactions and that the deemed dividend should be restricted to 34% of the accumulated profits.

3. Setoff of the Amount Taxed as Deemed Dividend:
In the third appeal ITA 609/Pun/2019 for AY 2014-15, the assessee raised the issue of not allowing the setoff of Rs.16,90,024/- which had already been taxed as deemed dividend. The Tribunal, considering the upheld Section 2(22)(e) addition, directed the Assessing Officer to readjudicate the assessee's grievance afresh as per law. The Tribunal allowed this appeal for statistical purposes, giving the assessee the liberty to file all relevant details in the consequential proceedings.

Conclusion:
The Tribunal dismissed the assessee's former two appeals IT(SS)A 06 & 07/Pun/2017 and allowed the third appeal ITA No. 609/Pun/2019 for statistical purposes. The order was pronounced in the open court on 10th May, 2022.