Trade Advances are not Loan for applicability of provisions of deemed dividend
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ‘B’, NEW DELHI
The Relevant Text of the Order as follows :
17. In nutshell, the assessee has also not received any advance in the nature of loan or advances as contemplated in the section 2(22)(e) of the Income tax Act, 1961 but received advance against sale of commercial space developed by the assessee on his own land in collaboration with M/s Unitech Limited as per Buyer’s agreement. We find that provisions of section 2(22)(e) of the Income tax Act, 1961 are not applicable in case of the assessee as the assessee has received advance of Rs.5,62,00,000/- from the said company against sale of commercial space in Signature Tower – II, Sector – 15, Gurgaon, Haryana. Since, the said receipts of advance of Rs.5,62,00,000/- against sale of commercial space is not a receipt in the nature of loan or advance as contemplated in section 2(22)(e) of the Income tax Act, 1961 which attracts the provisions of in that section as the said advance is in the nature of business advance which did not fall within the ambit of provisions of section 2(22)(e) of the Income tax Act, 1961.
18. We have gone through the rationale given by the ld. CIT (A), the relevant operative portion is as under:
“9. I have considered the specific arguments raised by the appellant during appellate as well as assessment proceedings and the comments of the AO/JCIT in the remand report. It is seen that the AO, in the assessment order has highlighted receipt of amount of Rs 10,08,41,000 from M/s Apra Auto India P. Ltd and the said receipt of payments by the appellant have been highlighted in the assessment order in the form of a account which does not have a opening balance or the closing balance. It is important to appreciate that the appellant on being confronted with the proposed addition had specifically claimed that financial transactions of the appellant with M/s Apra Auto India P. Ltd comprised of 3 distinct types as under:-
(i) Advance against commercial spacing 5,62,00,000
(ii) Anumod Sharma ledger account 6,00,84,793
(iii) Anumod Sharma (Expense account) 73,76,584
10. The AO had rejected the appellant’s claim of their being 3 distinct types of transaction on the ground that it was only intended to cover up the issue of deemed dividend u/s 2(22)(e). The AO in support of his conclusion has highlighted that the agreement between M/s Apra Auto India P. Ltd and the appellant for proposed sale of commercial space was merely to avoid the applicability of provisions of section 2(22)(e) as the said agreement was on non-judicial stamp paper of Rs 100. It was further highlighted by the AO that the assessee has taken such loans and advances from same company running into crores of rupees in the earlier years as well. The appellant in support of the impugned agreement to sell being in the normal course of business had highlighted another proposed sale to N.H. Learning Infrastructure Services Ltd vide agreement dated 18.04.2011 wherein the appellant had received an amount of Rs 2,50,00,000 out of total agreed amount of Rs 5 crores. The said deal also did not fructify into eventual sale and was terminated leading to refund of the said amount by the appellant to the tune of Rs 2,30,00,000 during the year only. It is seen that the AO while highlighting the transaction between the appellant and M/s Apra Auto India P. Ltd did not discuss as to how the said deal was different from a deal for proposed sale between the appellant and N.H. Learning Infrastructure Services Ltd. In view of this omission, the AO during the appellate proceedings was directed to offer his comments vide this office letter dated 30.07.2015. The AO vide his report dated 29.09.2015 submitted his comments.
11. The perusal of the order of the AO at page no 9 shows that a issue has been raised that the assessee at the time of submission before him submitted ledger account of appellant‘s dealing with Apra Auto (India) P Ltd and the name of the bank was written as Bank of Baroda whereas actual transaction had taken place through bank of Nainital. The AO on the basis of this mistake opined that the appellant was in a haste because of which the incorrect submission had been made. The AR, during the course of appellate proceedings, has submitted his explanation to clarify the issue as raised by the AO in the assessment order. The submission of the appellant are contained at para 1.2.32 to 1.2.35 of his reply dated 29.07.2015. It has been stressed that the mistake had crept in on account of a technical flaw in the accounting software used by the appellant namely TALLY in which the name of first entry on a single day crops up on the query being issued to the software and on this account, the later entry gets eclipsed for which manual cross check has to be done so as to correctly present the factual picture. The mistake, however, has been confirmed to the extent that at the time of submission, the printout taken from the computer was having the name of transaction entered into with bank of baroda being the first entry on that day. In the circumstances, I don’t consider it any issue of material consequence as factually, the amount in question has been transacted through the Nainital bank only.
12. The AO had further highlighted in the assessment order at page no 9 that the appellant had taken loans and advances from Apra Auto (India) P Ltd in earlier years as well. In this regard, the appellant was directed to file his ledger account with Apra Auto (India) P Ltd and vice- versa so as to see if the facts were as highlighted by the AO in the assessment order. It is seen that for the FY 11-12 i.e. preceding FY, the appellant had a outstanding from Apra Auto (India) P Ltd as on 01.04.2010 to the tune of Rs 1,11,43,224 and during the entire year, various payments have been made either by the company or by the appellant but at no point of time, there is any net outstanding by the appellant towards Apra Auto (India) P Ltd. In view of this, the observations of the AO as mentioned above does not seem to have any factual legs.
13. The perusal of AO/JCIT’s comments in the remand report clearly shows that no distinction between the two deals has been pointed out either during assessment proceedings or the appellate proceedings. It has been the claim of the appellant that both the deals were entered into during the year under consideration in the normal course of business and the AO could not accept one with the outside party and reject one with the associate corporate entity. It is seen that the appellant had received an amount of Rs.2,50,00,000 from N.H. Learning Infrastructure Services Ltd in pursuance of the agreement to sell and the said receipt of amount has been accepted as such by the AO which means that the AO was satisfied with regard to the identity, creditworthiness and genuineness of the transaction so as not to invite any deeming provisions u/s 68 with reference to the said amount. This being so it was not open to the AO to treat another exactly similar transaction entered into by the appellant with the company in which he is substantially interested as not being in the ordinary course of business. Nothing has been highlighted to draw any distinction between the two transactions as the language as well as the judicial stamp paper used for both the transactions is exactly the same. Therefore, I don’t find logic in the conclusion of the AO in treating the impugned transaction with M/s Apra Auto India P. Ltd as being one for the purposes of avoiding the provisions of section 2(22)(e). Here, it would be important to note that the appellant had an amount receivable to the tune of Rs 78,84,793 and Rs 1,95,390 as on 31.03.2011 and 31.03.2011 from M/s Apra Auto India P. Ltd. The perusal of the copy of account shows that during the entire period of the FY under consideration, there have been amounts outstanding towards M/s Apra Auto India P. Ltd rather than the other way round. Therefore, apart from receipt of amounts on account of the proposed commercial sale by the appellant, no amounts had been received by the appellant from M/s Apra Auto India P. Ltd. The amounts that had been received were on account of repayments by M/s Apra Auto India P. Ltd to the appellant rather than other way round. The transaction of proposed sale of commercial space, being on commercial considerations and in the normal course of business of the appellant clearly comes in the exception clause of section 2(22)(e). In view of the above facts and circumstances of the case, the addition made by the AO to the tune of Rs 10,57,01,194 is directed to be deleted.”
19. Having gone through the entire factum of the issue, the case laws cited by both the parties, rationale of the ld. CIT (A), keeping in view the fact that it is the company which owes the assessee the money rather vice-versa, it is unequivocally proved that the advance received from the company by the assessee is in the nature of trade advance against the booking of commercial place being built by the assessee, we hereby decline to interfere with the order of the ld. CIT (A) in deleting the addition made by the AO u/s 2(22)(e).
20. In the result, the appeal of the revenue is dismissed. Order Pronounced in the Open Court on 26 /12/2019.
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