ACIT, Bangalore V. Shri. C.V. Reddy, Bangalore

ITA 447/BANG/2012

• Counselvise Citation: 44721114 RSA 2012
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 30-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN JT CITSR DR III
• Assessee Lawyers: C RAMESH
• Keywords: Salary income; Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.447/BANG/2012 ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(1), BANGALORE. VS. SHRI C.V. REDDY, NO.795, 12 TH B CROSS, 23 RD MAIN, J.P. NAGAR, 2 ND PHASE, BANGALORE 560 071. PAN : ADGPR 0814E APPELLANT RESPONDENT APPELLANT BY : SHRI A. SUNDARARAJAN, JT. CIT(SR.DR- III) RESPONDENT BY : SHRI C. RAMESH, C.A. DATE OF HEARING : 26.12.2012 DATE OF PRONOUNCEMENT : 26.12.2012 O R D E R PER SMT. P. MADHAVI DEVI, JUDICIAL MEMBER THIS IS REVENUES APPEAL FOR THE ASSESSMENT YEAR 2006-07 DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-III, BANGALOR E DATED 12.01.2012. 2. THE GRIEVANCE OF THE REVENUE IS THAT THE CIT(APP EALS) ERRED IN DELETING THE ADDITION OF Q 25 LAKHS MADE BY THE ASSESSING OFFICER U/S. 2(22)(E) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER R EFERRED TO AS THE ACT IN ITA NO.447/BANG/2012 PAGE 2 OF 7 SHORT] WITHOUT APPRECIATING THAT THE AGREEMENT ENT ERED INTO BY THE COMPANY FOR THE PURCHASE OF LAND AT Q 1.5 CRORES FROM THE ASSESSEE (WHO HAD PURCHASED THE SAME LAND AT Q 40 LAKHS) WAS ONLY TO CIRCUMVENT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL DERIVING INCOME FROM SALARY. HE IS A DIRECTOR OF M /S. MCCREADE SOFTWARE (ASIA) PVT. LTD., BANGALORE FROM WHICH HE DRAWS THE SALARY. FOR THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE FILED HIS RE TURN OF INCOME DECLARING INCOME OF Q 2,58,000. DURING THE COURSE OF ASSESSMENT PROCEED INGS OF M/S. MCCREADE SOFTWARE (ASIA) PVT. LTD., FOR THE A .Y. 2006-07, IT WAS NOTICED THAT THE ASSESSEE RECEIVED AN ADVANCE OF Q 50 LAKHS FROM THE SAID COMPANY DURING THE RELEVANT PREVIOUS YEAR. SINCE T HE ASSESSEE WAS HOLDING SUBSTANTIAL INTEREST IN THE SAID COMPANY AN D THE RESERVES WERE MORE THAN THE ADVANCE, THE ASSESSING OFFICER OBSERV ED THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE ATTRACTED AND T HE SUM OF Q 50 LAKHS HAD TO BE TREATED AS DEEMED DIVIDEND IN THE ASSESSEES CASE FOR THE RELEVANT ASSESSMENT YEAR. IN VIEW OF THE SAME, THE ASSESSEE S CASE WAS REOPENED U/S. 147 OF THE ACT BY ISSUANCE OF NOTICE U/S. 148 OF THE ACT ON 31.03.2010. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE FILED RETURN OF INCOME REQUESTING TO ASSESS THE INCOME AS PER THE INCOME-T AX RETURN FILED BY HIM ON 28.07.2006. DURING THE ASSESSMENT PROCEEDINGS U /S. 143(3) R.W.S. 147 OF THE ACT, THE ASSESSEES EXPLANATION AS TO WHY TH E SUM OF Q 50 LAKHS RECEIVED AS ADVANCE FROM THE COMPANY SHOULD NOT BE TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT WAS CALLED FOR. THE ASSESSEES ITA NO.447/BANG/2012 PAGE 3 OF 7 REPRESENTATIVES APPEARED AND THE ISSUE WAS DISCUSSE D AT LENGTH. FROM THE SAID CONTENTIONS, THE FOLLOWING FACTS EMERGE:- (1) AS PER THE BOOKS OF ACCOUNT OF THE COMPANY, THE ASSESSEES ACCOUNT WAS DEBITED WITH A SUM OF Q 50 LAKHS DURING THE F.Y. 2005-06. (2) THE ASSESSEE WAS HOLDING MORE THAN 10% OF SHAR ES IN THE SAID COMPANY. (3) THE ACCUMULATED RESERVES OF THE COMPANY WAS Q 12,47,07,765. (4) THE ASSESSEE WAS HOLDING 21.61% OF SHARES FROM 01.04.2005 TILL 08.03.2006, HIS SHAREHOLDING WAS RE DUCED TO 1,09% OF THE TOTAL SHARES OF THE COMPANY AFTER 08.0 3.2006. (5) ON 13.03.2006, THE ASSESSEE HAD ACQUIRED TWO P IECES OF AGRICULTURAL LAND, EACH MEASURING 4 ACRES IN SY.NO. 113/1 (RENUMBERED AS SY.NO.174) AND SY. NO.113/2 (RENUMBE RED AS SY.NO.175) IN UTTARI VILLAGE, UTTARAHALLI HOBLI, BANGALORE SOUTH TALUK FOR A SUM OF Q 40 LAKHS. (6) WITHIN THREE DAYS THEREFROM I.E., ON 16.03.200 6, THE ASSESSEE HAD ENTERED INTO AN AGREEMENT OF SALE WITH THE COMP ANY, WHO AGREED TO PURCHASE THE SAME PROPERTY FOR Q 1.5 CRORES, TOWARDS WHICH THE ASSESSEE HAD RECEIVED AN ADVANCE OF Q 50 LAKHS. (7) AS PER THE AGREEMENT OF SALE, THE ASSESSEE AGRE ED TO TRANSFER BOTH THE PROPERTIES ON OR BEFORE THE EXPIRY OF SIX MONTHS FROM THE DATE OF SALE AGREEMENT. (8) THE PROPERTIES HAVING NOT BEEN TRANSFERRED TIL L DATE OF THE ASSESSMENT ORDER, WHEREAS ALL OTHER PROPERTIES FOR WHICH THE COMPANY HAD ADVANCED MONEY HAD BEEN TRANSFERRED TO THE COMPANY, EXCEPT IN THE CASE OF THE ASSESSEE AND SMT . T. VAISHNAVI, GRAND-DAUGHTER OF THE ASSESSEE WHO ALSO HAD SUBSTANTIAL INTEREST IN THE COMPANY. (9) THE ASSESSEE HAD ALSO FILED A DETAILED REPLY O N 29.10.2010 EXPLAINING THE REASONS FOR THE DELAY IN TRANSFERRIN G THE PROPERTY. (10) IT WAS SUBMITTED THAT THE COMPANY COULD NOT HA VE PURCHASED THE LAND IN VIEW OF THE RESTRICTIONS TO PURCHASE TH E ITA NO.447/BANG/2012 PAGE 4 OF 7 AGRICULTURAL LAND IN KARNATAKA AND THEREFORE THE AS SESSEE HAD PURCHASED THE LAND AND THEREAFTER ENTERED INTO AN A GREEMENT OF SALE WITH THE COMPANY, SUBJECT TO CONVERSION OF LAND FROM AGRICULTURAL TO NON-AGRICULTURAL USE. THERE WERE D ISPUTES BETWEEN THE LAND OWNERS DUE TO WHICH THE CONVERSION OF LAND FROM AGRICULTURAL TO NON-AGRICULTURAL USE COUL D NOT BE DONE WHICH HAS RESULTED IN DELAY OF TRANSFER OF LAN D TO THE COMPANY. 4. THE ASSESSING OFFICER HOWEVER WAS NOT CONVINCED WITH THE ARGUMENTS OF THE ASSESSEE AND HELD THAT THE ASSESSE E WAS HAVING SUBSTANTIAL INTEREST IN THE COMPANY AND HAVING RECE IVED A SUM OF Q 50 LAKHS, THE PROVISIONS OF SECTION 2(22)(E) OF THE AC T WERE APPLICABLE FROM 01.04.2005 TO 08.03.2006 TILL WHICH DATE THE ASSESS EE WAS HAVING SUBSTANTIAL INTEREST. HE FURTHER OBSERVED THAT A S UM OF Q 25 LAKHS HAS BEEN PAID BY THE COMPANY DIRECTLY TO THE LAND OWNERS AND THE ASSESSEE HAS ONLY RECEIVED A SUM OF Q 25 LAKHS AS ADVANCE. HE THEREFORE HELD THAT THIS AMOUNT OF Q 25 LAKHS RECEIVED BY THE ASSESSEE IS DEEMED DIVIDE ND U/S. 2(22)(E) OF THE ACT AND HE ACCORDING MADE THE ADDIT ION TO THE RETURNED INCOME OF THE ASSESSEE. 5. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE T HE CIT(APPEALS), WHO ALLOWED THE SAME HOLDING THAT THE TRANSACTION B ETWEEN THE ASSESSEE AND THE COMPANY IS A TRANSACTION FOR PURCHASE OF PR OPERTY AND THEREFORE CANNOT BE TREATED AS A LOAN OR ADVANCE. THE CIT(AP PEALS) ALSO ACCEPTED THE EXPLANATION OF THE ASSESSEE THAT THE DELAY IN T RANSFER OF LAND IS DUE TO DISPUTES BETWEEN THE LAND OWNERS. AGAINST THE RELI EF GIVEN BY THE CIT(APPEALS), THE REVENUE IS IN APPEAL BEFORE US. ITA NO.447/BANG/2012 PAGE 5 OF 7 6. WHILE THE LD. DR PLACED RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER AND REITERATED THE FINDINGS OF THE AO FOR M AKING THE ADDITION UNDER SECTION 2(22)(E) OF THE ACT, THE LD. COUNSEL FOR TH E ASSESSEE PLACED RELIANCE UPON THE ORDER OF THE CIT(APPEALS) AND HAS ALSO FIL ED A COPY OF THE ORDER OF C BENCH OF THIS TRIBUNAL IN THE CASE OF SMT. T. V AISHNAVI TEKUMALLA, THE GRAND-DAUGHTER OF THE ASSESSEE HEREIN, WHEREIN SIMI LAR ISSUE WAS CONSIDERED AND IT WAS HELD THAT THE ADVANCE FOR PUR CHASE OF PROPERTY CANNOT BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. 7. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTEDLY THERE HAS BE EN AN AGREEMENT OF SALE BETWEEN THE ASSESSEE AND THE COMPANY IN WHICH THE ASSESSEE WAS HOLDING SUBSTANTIAL INTEREST AT THE TIME OF ENTERIN G INTO SUCH AGREEMENT AND PURSUANT TO THE SAID AGREEMENT, THE ASSESSEE HAS RE CEIVED A SUM OF Q 50 LAKHS AS ADVANCE. IT IS ALSO NOT DISPUTED THAT OUT OF THIS SUM OF Q 50 LAKHS, Q 25 LAKHS HAS BEEN DIRECTLY PAID BY THE COMPANY TO THE LAND OWNERS. THUS, IT IS CLEAR THAT THE ADVANCE OF Q 50 LAKHS IS FOR THE PURPOSE OF PURCHASE OF LAND BY THE COMPANY. IT IS ALSO NOT DI SPUTED THAT A COMPANY IS NOT ALLOWED OR PERMITTED TO PURCHASE AGRICULTURAL L AND IN KARNATAKA. THUS THE CONTENTION OF THE ASSESSEE THAT THE LAND HAS BE EN PURCHASED IN THE ASSESSEES NAME TO CIRCUMVENT THE ABOVE RESTRICTION IS ACCEPTABLE. 8. THE OTHER OBJECTION OF THE REVENUE HAS BEEN THAT THE ASSESSEE HAS PURCHASED THE LAND AT Q 40 LAKHS WHEREAS WITHIN THREE DAYS THEREFROM, THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH THE COM PANY FOR SALE OF THE SAME LAND FOR A SUM OF Q 1.5 CRORES WHICH IS UNREASONABLE AND IS DONE TO ITA NO.447/BANG/2012 PAGE 6 OF 7 CIRCUMVENT THE PROVISIONS OF SECTION 2(22)(E) OF TH E ACT. AS REGARDS THIS OBJECTION, THE ASSESSEES CONTENTION HAS BEEN THAT INCREASE IN THE PRICE OF LAND WAS DUE TO VARIOUS STEPS TO BE TAKEN BY THE AS SESSEE FOR CONVERSION OF THE LAND FROM AGRICULTURE TO NON-AGRICULTURE USE . TAKING INTO ACCOUNT THE PROCEDURE AND THE TIME FACTOR INVOLVED IN THE CONVE RSION OF AGRICULTURAL LAND TO NON-AGRICULTURAL LAND AND ALSO IN VIEW OF THE LI TIGATION BETWEEN THE LAND OWNERS DUE TO WHICH THE TRANSFER COULD NOT TAKE PLA CE WITHIN THE TIME STIPULATED IN THE AGREEMENT, WE FIND THAT THE CIT(A PPEALS) WAS JUSTIFIED IN HOLDING THAT THE ADVANCE IS FOR THE PURCHASE OF AGR ICULTURAL LAND AND IS NOT A LOAN OR ADVANCE TO CIRCUMVENT THE DISTRIBUTION OF D IVIDEND. WE FIND THAT THE TRIBUNAL IN THE CASE OF SMT. T. VAISHNAVI TEKUMALLA , THE GRAND-DAUGHTER OF THE ASSESSEE HEREIN, [IN ITA NO.493/BANG/2011, ORDE R DATED 13.06.2011] HAS HELD THAT WHEN THERE WAS AN AGREEMENT BETWEEN T HE ASSESSEE AND THE COMPANY FOR SALE OF PROPERTY BELONGING TO THE ASSES SEE, IT CANNOT BE SAID THAT THE AGREEMENT WAS NOT GENUINE ONLY FOR THE REA SON THAT IT WAS NOT REGISTERED, PARTICULARLY WHEN THE AO DID NOT BRING ANY MATERIAL ON RECORD TO SUBSTANTIATE THAT THE SAID AGREEMENT WAS NOT A GENU INE AGREEMENT. IT WAS FURTHER HELD THAT WHERE ADVANCE RECEIVED BY THE ASS ESSEE FROM THE COMPANY IN WHICH HE OR SHE IS A SUBSTANTIAL SHAREHO LDER WAS FOR A TRANSACTION RELATING TO SALE OF PROPERTY, THE DEEMI NG PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE. AS THE FAC TS AND CIRCUMSTANCES IN THE PRESENT CASE ARE ALSO SIMILAR, RESPECTFULLY FOL LOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF SMT. T. VAISHNAVI TEKUMALLA ( SUPRA ), WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CI T(APPEALS). ITA NO.447/BANG/2012 PAGE 7 OF 7 9. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF DECEMBER 2012. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( P. MADH AVI DEVI ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE, DATED, THE 26 TH DECEMBER , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.