×Latest Case Laws on Income Tax by various High Courts of India
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06-03-2019, VIKRAM KRISHNAN, Section 2(22)(e), 260A, HIGH COURT OF DELHI
1. The assessee is aggrieved by an order of the ITAT, which upheld the AO’s determination with respect to the addition made in this case for A.Y. 2010-11 under Section 2(22)(e) of the Income Tax Act, 1961
2. It is urged that the ITAT fell into error in not noticing the true nature of the transaction for refund of the advance amounts received by the assessee from the vendee company of which, he was a director.
3. The assessee, an individual deriving income from salary, house property, capital gain and interest from certain banks etc. was a director in a closely held company M/s Charu Home Products (P) Ltd; and was also a shareholder to the extent he also held 50% of its shares. The assessee declared ₹50,32,223/- in the income returned by him which was subjected to scrutiny assessment under Section 143(3). During the course of assessment proceedings, the AO issued a Show Cause Notice as to why the addition ought not to be made with respect to the sum of ₹ 1,01,36,328/- under Section 2(22)(e). Apart from denying the general applicability of that provision, the assessee did not produce any material in support of its contentions. On the addition being made and the same brought to tax, the assesse preferred an appeal; the CIT(A) elicited no less than three remand reports. In the course of these remand proceedings, the assessee furnished agreements to sell that he had entered into with the company [vendee i.e. Charu Home Products (P) Ltd], other materials in the form of cancellation
deed and copies of bank statement etc. were also furnished. The assessee contended that his property was sought to be sold to the company [of which he was the director and substantial shareholder] but the deal misfired and did not materialise.
4. According to the original agreement to sell the property, the parties had fixed the consideration payable to the assessee by his company at ₹8 crores. However, the advance made was to the tune of ₹ 1.8 crores. The cancellation deed in this case was executed between the parties on 01.08.2009, however, the amounts paid to the assessee by the company were refunded by him over a period of merely six months ending in March, 2010. The CIT(A) was satisfied with the explanation and held that the amounts could not be brought to tax under Section 2(22)(e).
5. The CIT(A) was of the opinion that there was no reason to disbelieve the assessee’s explanation, having regard to the overall circumstances of the case. The ITAT, to whom the Revenue appealed, agreed with the view of the AO and set aside the CIT(A) orders.
6. Mr. Krishnan, learned counsel for the assessee contended that the ITAT’s order is erroneous because it disbelieved the assessee’s submissions principally on the ground that no explanation was given during the course of assessment proceedings. It was urged that once the Rule 46A application was allowed and additional material was brought on record, which was subject to no less than three remands, after which the CIT(A) by a detailed order accepted the assessee’s explanation, the ITAT ought not to have interfered with the exercise of discretion in the course of his justified jurisdiction by the CIT(A). The ITAT elaborately noted the sequence of events as well as the nature of the documents presented during the course of proceedings. It also noticed that according to the prevailing law, the general approach of the Revenue is to exclude a genuine commercial transaction. from the purview of Section 2(22)(e). However, having regard to the overall circumstances of the case the ITAT disbelieved the assessee’s explanation stating as follows:-
“10. We have carefully considered the rival contentions and perused the order of the Lower Authorities. The assessee has received sums from M/s Charu Home Products Pvt. Ltd. from 8/6/2009 to 27/7/2009 to the extent of Rs. 18154741/- as the assessee is holding more than 50% shares and the Company has reserve and surpluses as on 1/4/2009 of Rs. 10136328/-, the Ld. Assessing Officer issued show cause notice to the assessee that why the above amount should not be taxed u/s 2(22)(e) of the act as deemed dividend. Before the A.O the assessee did not submit that the above transaction is a business transaction and, therefore, the Ld. A.O taxed the above sum as deemed dividend. Before the Ld. CIT(A), the assessee submitted one agreement to sale dated 8/6/2009 and another cancellation deed of the same agreement dated 1/8/2009 for a property owned by the assessee to state that the above transaction is a business transaction and the sum is business advance, hence provision of section 2(22)(e) does not apply. It was stated that sum has been