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TMI Blog2019 (8) TMI 987X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the year under consideration along with the interest, the details of which has been reproduced by the AO at pages 8 9 of the impugned order. Second transaction of payment of ₹ 11.70 crores was shown separately being advance given for purchase of land. Therefore, these are two separate transactions, first one is the loan earlier given by the assessee to the company was repaid during the year under consideration along with the interest and second transaction was the advance given for purchase of land as per the agreement dated 28th October, 2009. Thus when the transaction does not fall in the category of loan or advance in terms of section 2(22)(e) but the same is a business transaction, then the addition made by the AO is not sustainable. Availability of accumulated profits with the company as on the date of alleged transaction and, therefore, in any case the addition made by the AO of the full amount is not sustainable when the AO has not computed the accumulated profits as on date of transaction and then reducing the brought forward losses to the tune of ₹ 2,55,34,499/-. After considering all these relevant aspects if something is still found to be acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued under section 148 of the Act and, therefore, the order passed by the AO under section 147 read with section 143(3) without giving the sufficient time to the assessee to challenge the said order of disposing off the objection. The final reassessment order passed by the AO is bad in law and deserves to be quashed. The ld. Counsel for the assessee has relied upon the decision of Hon ble Bombay High Court in case of Asian Paints Ltd. vs. DCIT, 308 ITR 195 (Bom) as well as decision in case of Bharat Jayantilal Patel vs. Union of India, 378 ITR 596 (Bom.) and contended that the AO should have allowed four weeks time to the assessee to seek legal remedy after rejection of objections of the assessee but no such time was granted to the assessee by the AO before passing the reassessment order in question. Therefore, the said order is bad in law. He has also relied upon the decision dated 30th August, 2018 of Delhi Benches of the Tribunal in case of Smt. Kamlesh Goel vs. ITO in ITA no. 5730/Del/2017. Thus the ld. Counsel has submitted that the impugned reassessment order deserves to be quashed as it has violated the directions given by the Hon ble Supreme Court as well as Hon ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces were issued fixing the next date of hearing on 14.12.2017. The objection raised by the assessee on 04.12.2017 has been disposed off by a speaking order dated 07.12.2017 passed by the AO. Therefore, it is manifest from the record that the assessee has raised the objections against the initiation of the proceedings under section 148 at the fag end of the limitation of the reassessment on 04.12.2017 and the AO disposed off the objection within a period of three days from the date of objection raised by the assessee. Since the assessment was time barring on 31st December, 2017, therefore, the AO was having no option but to frame the reassessment before 31st December, 2017. In such a scenario it was not possible for the AO to wait for four weeks after disposing off the objection and then pass the reassessment order because by that time the reassessment order itself would become time barred. Accordingly, in the facts and circumstances of the case, when the delay is entirely attributable to the assessee for raising the objection against the notice under section 148 and there is no delay on the part of the Assessing Officer to dispose off the objection filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the Hon ble High Court is a reason to believe and not reason to suspect. The AO has acted merely on the basis of the said information and without any application of mind while forming the belief that income assessable to tax has escaped assessment. The AO has even not verified the fact whether any accumulated profits as provided under section 2(22)(e) was available at the time of alleged loan/advance given by M/s. Saj Properties Pvt. Ltd. He has contended that since there was a loss of ₹ 2.55 crores in the preceding years and, therefore, there was no accumulated profit at the time of the alleged transaction of loan/advance though the said payment to the assessee was not an advance or loan but it was a commercial transaction between the company and the assessee for purchase of land. The assessee produced the agreement dated 28th October, 2009 to show that the said amount was paid to the assessee under the agreement to sale whereby the assessee agreed to sell the land to the company and, therefore, the said payment does not fall in the ambit of loan or advance. The AO has not verified these facts before initiating the proceedings under section 148 of the Act and, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly covered by the provisions of section 2(22)(e) of the Act. In the case of Dr. Shiv Kant Mishra vs. DCIT (2009) 118 ITD 347 (Lucknow), the action u/s 147 was upheld by the Hon ble Tribunal on account of deemed dividend. He has relied upon the decision of Hon ble Supreme Court in case of Raymond Wollen Mills Ltd. vs. ITO, 236 ITR 34 (SC) and submitted that the sufficiency of reasons recorded by the AO for reopening of the assessment under section 148 of the Act is not required to be looked into. As regards the accumulated profits for the purpose of section 2(22)(e), the ld. D/R has submitted that the current year s profit has to be taken into account. He has relied upon the decision of Mumbai Benches of the Tribunal in case of NCK Sons Exports Pvt. Ltd. vs. ITO, 102 ITD 311 and submitted that the Tribunal after analyzing the history of the provisions right from the Income Tax Act, 1922 and subsequent amendments has held that the accumulated profits has to be worked out on the date of transaction of disbursement which included the current year s profit. The ld. D/R has also relied upon the decision of Hon ble Supreme Court in case of First ITO vs. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect name M/s. Saj Properties Pvt. Ltd.) have given a loan of ₹ 11.70 crores to the assessee who is holding 68% shares of the said company and the said company has accumulated profits to the tune of ₹ 7,48,07,150/-. Thus the AO formed the belief that the transaction is squarely covered under section 2(22)(e) of the Act as deemed dividend. The formation of belief as stated by the AO himself is based on the information, no further steps were taken by the AO to verify the correctness of the fact regarding the availability of the accumulated profits with M/s. Saj Properties Pvt. Ltd. or the nature of alleged transaction whether it is loan or advance or it is business transaction between the parties. It is pertinent to note that the AO of M/s. Saj Properties Pvt. Ltd. forwarded this information vide letter dated 8th May, 2013 as under :- No. Addl.CIT Range-7/Ref/2013-14/59. Office of the Addl. CIT Range-7 Room No. 316, C.P. Building I.P. Estate, New Delhi 11 00 02 Dated : 08.05.2013 To The Income-tax Officer Ward 4(1), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited till the fag end of the limitation period for issuing the notice under section 148. The AO has just recorded the reasons based on the said information and without even conducting the bare minimum verification by calling the necessary information either from the assessee or from M/s. Saj Properties Pvt. Ltd., at least regarding the nature of transaction as well as the availability of accumulated profits. The ld. A/R has relied upon the various decisions on the point that the current year s profit cannot be included while working out the accumulated profits for the purpose of section 2(22)(e) of the Act. On the contrary, the ld. D/R has also relied upon the decisions wherein it has been held that the current year s profit upto the date of distribution/disbursement has to be taken into account for working out the accumulated profits for the purpose of section 2(22)(e) of the Act. Therefore, there are contrary decisions on this point. However, even without going into these decisions, the plain reading of the provisions of section 2(22)(e) and Explanation-2 to section 2(22) makes it clear that the accumulated profit as on the date of disbursement/distribution has to be taken into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 of the IT Act. If on working out the accumulated profits as on the date of transaction and after reducing the brought forward losses comes to Nil, then there would be no deemed dividend under section 2(22)(e) of the IT Act in the absence of accumulated profits. The assessee has also raised the issue that the transaction is a business transaction and the advance was given by the company to the assessee for purchase of land as per the agreement dated 28th October, 2009, copy of which has been produced before us. We find that the copy of the said agreement has been reproduced by the ld. CIT (Appeals) in the impugned order and the AO as well as the ld. CIT (A) has rejected the contention and explanation of the assessee without conducting any enquiry about the genuineness and correctness of the said agreement. Even no enquiry was conducted from M/s. Saj Properties Pvt. Ltd. regarding the said transaction of purchase of land under the Agreement dated 28th October, 2009 but the AO as well as the ld. CIT (A) has held that the agreement to sale is nothing but a colourable device to avoid the payment of tax by resorting to dubious method. Even without considering the nature of transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledge of the Assessing Officer whereby it can be inferred that the Assessing Officer could have formed a reasonable belief that the said amount had escaped assessment. The purported belief that income has escaped assessment is not based on any direct or circumstantial evidence and is in the realm of mere suspicion. The requirement of law is reason to believe and not reason to suspect . In the present case, since the purported reasons to believe recorded indicate that the Assessing Officer has acted on mere surmise, without any rational basis, the action of re-opening of the Assessment is thus clearly contrary to law and is unsustainable. 15. In view of the above, the impugned order dated 23.06.2014 is set aside and the proceedings initiated pursuant to the notice dated 18.03.2014 are hereby quashed. Thus the reopening based on borrowed satisfaction and mere suspicion was held to be invalid and liable to be quashed. Further, in case of PCIT vs. Meenakshi Overseas Pvt. Ltd. (supra) the Hon ble Delhi High Court again held in para 26, 36 37 as under :- 26. The first part of Section 147 (1) of the Act requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the initiation of proceedings under section 148 is not sustainable in law and the same is quashed. 8. The ld. Counsel for the assessee has also raised the objection regarding the jurisdiction of the AO Circle-5 Jaipur who has reopened the assessment and passed the reassessment order on the ground that the assessee has filed the return of income under the jurisdiction of the AO Circle-2, Jaipur. The ld. Counsel for the assessee has referred to the returns of income filed for the assessment year under consideration 2010-11 to 2018-19 and submitted that for all these years the assessee has been filing the return electronically with Circle-2, Jaipur. Thus the AO Circle-5 Jaipur has no jurisdiction to issue the notice under section 148 and pass the reassessment order. 9. On the other hand, the ld. D/R has submitted that though the return might have been filed with Circle-2, Jaipur, however the processing under section 143(1) has been done by Circle-5, Jaipur and, therefore, the jurisdiction of AO Circle-5, Jaipur is based on the address shown in the PAN of the assessee. 10. Both the parties have relied upon a series of decisions in sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal No. 137/2016 dated 19.10.2016 (Rajasthan HC) CIT vs. Om Prakash Suri (No.2) 359 ITR 41 (MP) Thus the ld. Counsel has submitted that when the amount in question was received by the assessee in accordance with the sale agreement dated 28th October, 2009 entered into between the assessee and M/s. Saj Properties Pvt. Ltd. for sale of land owned by the assessee, then the said advance received by the assessee does not fall in the ambit of loan or advance as per provisions of section 2(22)(e) of the Act. 12. On the other hand, the ld. D/R has submitted that it could be seen from page 11 of the assessment order that initially it was stated by the assessee that the amount of ₹ 11.70 crore was paid by M/s. Saj Properties to the assessee on account of its credit balance (₹ 6.08 crore opening balance and ₹ 5.95 crore due to him on account of interest and other expenses) as appearing in its books of accounts. However, later on, it was stated that the amount of ₹ 11.70 crore was paid to the assessee by M/s. Saj Properties Pvt. Ltd. on account of sale of immovable property by the assessee to M/s. Saj Properties Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s own admission therefore assessee cannot take shelter of this agreement for treating the same as business advance. Moreover since the assessee is a director in Saj Properties (P) Ltd., he was in a position to manage the affairs of the company also. Therefore to make this transaction look like a business advance, an agreement was made which was actually never intended to be executed. It is clear that in this way assessee tried to escape from the liability of section 2(22)(e) provisions. Thus this entire edifice was basically a colorable device to give the color of genuineness to these transactions through which he was successful in avoiding application of provisions of section 2(22)(e). The Hon ble Supreme Court in the case of McDowell vs. CTO has given strong verdict against any such arrangements by stating that Colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. In view of the Apex Court verdict, this entire arrangement is held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the land to be sold by the assessee under the Agreement. Thus without conducting any enquiry or verification of correctness of the transaction between the assessee and the company as narrated in the Agreement to sale dated 28.10.2009 the rejection of the claim is based on suspicion. There is no material either with the AO or any fact available on record to suggest that the impugned agreement is not genuine. Thus without bringing any contrary material on record by the AO as well as by the ld. CIT (A) the mere suspicion about the genuineness of the transaction cannot be the basis of arriving at the conclusion that the agreement filed by the assessee is a colorable device. In the case of Ashok Kumar Agarwal vs. ACIT (supra) the Coordinate Bench of this Tribunal while considering an identical issue has held in para 21 as under :- 21. We have heard the rival contentions and pursued the material available on record. An amount of ₹ 50,26,604 has been reflected as an advance given to the assessee in the books of accounts of M/s Ashish Builcon Private limited. The said advance is reflected in the current account of the assessee maintained with M/s Ashish Builc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he was expecting the new township policy to be announced as was the case with other colonizer/builders and was under a bonafide belief that the JDA would allow the conversion of land. Unfortunately, the land under the sale agreement could not got 90B approval from the JDA and thereafter the agreement was cancelled and amount was refunded to the company. It is noted that both assessee and M/s Ashish Buildcon are engaged in the business of real estate and similar transactions have been undertaken by the assessee with M/s Ashish Buildcon Private limited in the earlier years and subsequent years as well. We are therefore of the view that these are normal business transactions where the money has been advanced by the company for purchase of land and the same cannot be deemed as dividend in the hands of the assessee. In some cases, the sale transaction has fructifed by complying with the necessary conditions/formalities in terms of registered sale deed and in some cases, due to non-fulfillment of specified conditions, the agreement may be cancelled. We do not agree with the contention of the ld CIT(A) that where the agreement to sell is not registered and not found during the search, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accepted by the AO in scrutiny assessment also in number of years. The condition laid down in the section 2(22)(e) are squarely applied in case of the assessee but only issue disputed is whether these advances were loan for business purposes or otherwise. The prima facie copy of accounts in the books of the company shows that assessee had paid much more than amount received from the company. The transactions were regular. The assessee produced the evidence before the lower authorities to justify the transaction as a business transaction on the basis of agreement to sale dated 22.7.2009. There were certain conditions as per this Ikrarnama, which could not be fulfilled by the assessee but it does not mean that assessee s loans and advances are not for business purposes. The ld. A/R of the assessee has explained the reasons for not getting 90B done of agricultural land at village Ajayrajpura, Tehsil Sanganer as Draft Master Plan got changed by the JDA by draft Notification dated 10.11.2009 wherein it has been decided by the JDA that land use under 90B was to be approved not less than 25 acres but in final Master Plan this area has been reduced to 10 hectares. The assessee filed appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted the addition made by the Assessing Officer on account of section 2(22)(e). 7. Meanwhile, as per the direction of the learned Commissioner of Income-tax (Appeals) the case of the assessee for the assessment year 2004-05 was reopened and accordingly the assessment order was passed under section 143(3)/147 dated June 7, 2010, wherein the addition of ₹ 57,57,676 was made by the Assessing Officer under section 2(22)(e). The assessee went on appeal in his case for the assessment year 2004-05 against the addition of ₹ 57,57,676 under section.2(22)(e). The learned Commissioner of Income-tax (Appeals) relying on the decision of the Income-tax Appellate Tribunal, Indore, dated January 3, 2012, for the assessment year 2005-06, in the case of the assessee and deleted the addition of ₹ 57,57,676 in the assessment year 2004-05. Thereafter, the Revenue preferred the appeal before the Income-tax Appellate Tribunal Bench Indore for the assessment year 2004-05. The learned Income-tax Appellate Tribunal relying on its earlier decision dated January 3, 2012, dismissed the appeal by the impugned order dated August 28, 2012, by holding that the issue to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By cheques 700,000 30-03-05 By cheques 410,000 Total 1,94,58,728 On the Assessing Officer's query to add the said amount under section 2(22)(e) of the Act, the stand of the assessee was that the amount was not received as a loan but as an advance against the sale of its land situated in Gram Sinhansa Tehsil and District Indore. To support the contention the assessee has filed agreement to sell dated January 19, 2004, before the Assessing Officer. However, the Assessing Officer was not convinced with the same and held that the transaction was in the nature of loans and advances. On finding that accumulated profit of the company was ₹ 58,43,165 he restricted the addition under section 2(22)(e) of the Act to the extent of accumulated profit, i.e., ₹ 58,43,165. On appeal before the learned Commissioner of Income-tax (Appeals), the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the documents placed on record and the impugned amounts were received in the normal course of business in sale transaction, consequently, these cannot be branded as loan advances. The learned Tribunal has held that such transaction would not come under the provisions of section 2(22)(e)pf the Income-tax Act, 1961. 9. Learned senior counsel for the appellant has submitted that the order dated January 3, 2012, passed by the Income-tax Appellate Tribunal in respect of the assessment year 2005-06 the same has attained finality land, therefore, relying on the same the learned Tribunal passed the impugned order. 10. The relevant paragraph of the impugned order reads as under : We have perused the agreement to sale (pages 28 to 32 of the paper book). As per clause 2 of the said agreement (page 39 of paper, book), the amount of ₹ 2,53,60,000 was agreed to be given to the assessee by the purchaser and part of the payment was received through cheque. The assessee was also supposed to get conversion of the land within two months. As per clause 10 (page 31 of the paper book), the purchaser was free ..... X X X X Extracts X X X X X X X X Extracts X X X X
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