Sh. Saket Mehra, Amritsar. V. The Income Tax Officer, Amritsar.

ITA 647/ASR/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7790 (ITAT-AMRITSAR)
• Duration Of Justice: 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 23-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bonafide belief; Additional evidence; Deemed dividend; Reassessment proceedings
• Section: 143(3); 142(1); 234B; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER I.T.A NO. 647/(ASR)/2016 ASSESSMENT YEAR: 2008-09 PAN: AASPM4676L SH. SAKET MEHRA, 16 JOSHI COLONY, AMRITSAR, PUNJAB-143001. VS. INCOME TAX OFFICER, WARD- 5(4) AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SALIL KAPOOR (AD V.) RESPONDENT BY: SH. RAHUL DHAWAN (D. R.) DATE OF HEARING: 18.09.2017 DATE OF PRONOUNCEMENT: 04.10.201 7 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORD ER OF LD. CIT(A), AMRITSAR DATED 26.10.2016 FOR ASST. YEAR: 2008-09. 2. THE ASSESSEE HAS TAKEN 13 GROUNDS OF APPEALS OUT OF WHICH GROUND NO. 1 TO 5 RELATES TO LEGAL ISSUES RAISED BY ASSESS EE IN REOPENING OF THE CASE WHEREAS GROUND NO. 6 TO 11 RELATES TO MERITS O F THE CASE. GROUND NO. 12 IS AGAINST CHARGING OF INTEREST U/S 234A, 234B A ND 234C AND WHEREIN GROUND NO. 13 IS AGAINST INITIATION OF PENALTY U/S 271(1)( C) OF THE ACT. 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT HE WIL L NOT BE PRESSING LEGAL GROUNDS AS TAKEN BY ASSESSEE IN ITS GROUNDS O F APPEAL FROM GROUND NO. 1 TO 5. ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 2 ARGUING UPON GROUND NO. 6 TO 11, THE LD. AR EXPLAI NED THE FACTS OF THE CASE AND SUBMITTED THAT ASSESSEE HAD PURCHASED A PIECE OF LAND MEASURING 56.375 BIGHA FOR A CONSIDERATION OF RS.3, 94,24,240-/- IN JANUARY, 2006. IT WAS SUBMITTED THAT ASSESSEE ENTER ED INTO ONE COLLABORATION AGREEMENT ON 25.10.2007 WITH M/S B. B . OVERSEAS PVT. LTD. FOR THE DEVELOPMENT OF SAID LAND AS HOUSING COLONY AND THE BUILDER HAD UNDERTAKEN TO DEVELOP THE SAID LAND AND OWNER I.E. ASSESSEE HAD AGREED TO PLACE THE SAID LAND AT THE COMPLETE DISPOSAL OF THE BUILDER. THE LD. AR FURTHER SUBMITTED THAT THE BUILDER HAD GIVEN A SUM OF RS.1.20 CRORES AS SECURITY DEPOSIT FOR THE EXECUTION OF SUCH AGREEMEN T. THE LD. AR IN THIS RESPECT INVITED OUR ATTENTION TO COPY OF COLLABORAT ION AGREEMENT WITH M/S B. B. OVERSEAS PVT. LTD. PLACE IN P.B. PAGE 26 TO 3 0. THE LD. AR SUBMITTED THAT M/S B. B. OVERSEAS PVT. LTD. WAS A C OMPANY IN WHICH THE ASSESSEE WAS BENEFICIAL OWNERS OF SHARES TO THE EXT ENT OF MORE THAN 10% AND THEREFORE THE AUTHORITIES BELOW TREATED THE AMO UNT RECEIVED FROM THE COMPANY AS DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. IT WAS SUBMITTED THAT THE AUTHORITIES BELO W DID NOT AGREE TO THE CONTENTIONS OF ASSESSEE THAT AMOUNT WAS RECEIVED IN LIEU OF A BUSINESS TRANSACTION WHEREBY THE ASSESSEE HAD OFFERED HIS LA ND FOR DEVELOPMENT OF A HOUSING COLONY. THE LD. AR SUBMITTED THAT AUTHORI TIES BELOW DISBELIEVED THE CONTENTION OF ASSESSEE ON THE BASIS THAT THIS COLLABORATION AGREEMENT WAS AN AFTERTHOUGHT AND ASSESSEE WAS AWAR E THAT NO CONSTRUCTION ACTIVITY COULD HAVE BEEN CARRIED OUT O N THIS LAND AS THE LAND WAS HIT BY THE LAND CEILING ACT. IN THIS RESPECT, T HE LD. AR INVITED OUR ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 3 ATTENTION TO COPY OF SALE DEED PLACED IN P.B. PAGE 8 TO 10 WHEREIN THE SELLER OF THE LAND HAD ASSURED TO ASSESSEE THAT THE RE WAS NO PENDING CEILING CASE IN RESPECT OF THE SAID LAND AND THAT T HE LAND WAS FREE FROM ALL KINDS OF ENCUMBRANCES. OUR SPECIFIC ATTENTION WAS I NVITED TO P.B. PAGE 18 WHERE THE SAID ASSURANCE AS CONTAINED IN PART OF SALE DEED FOR THE ABOVE LAND WAS PLACED. THE LD. AR SUBMITTED THAT AT THE TIME OF PURCHASE OF LAND WHICH WAS ON 16 JANUARY, 2006, THE ASSESSEE WAS NOT AWARE OF ANY DISPUTE ABOUT THE LAND AND THE SELLER HAD ALSO ASSURED IN WRITING THAT THERE WAS NO DISPUTE INVOLVED IN THIS LAND AND THEREFORE HE HAD INVESTED THE HUGE OF AMOUNT IN THE PURCHASE OF LAND. THE LD. AR SUBMITTED THAT HAD THE ASSESSEE WAS AWARE OF ANY DI SPUTE ABOUT THIS LAND, HE WOULD NOT HAVE INVESTED SUCH A HUGE AMOUNT . THE LD. AR SUBMITTED THAT THE ASSESSEE CAME TO KNOW ABOUT THE DISPUTE ONLY ON 17.04.2006 WHEN AN ADVOCATE GULAB SINGH OF KOTA WRO TE TO THE ASSESSEE ON BEHALF OF HIS CLIENT SH. SHAFIKUR REHMAN ABOUT T HE DISPUTES WITH REGARD TO CEILING OF THIS LAND AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO P.B. PAGE 21 TO 23 WHERE A COPY OF THE SAID LETT ER WAS PLACED. THE LD. AR SUBMITTED THAT THE AGREEMENT WITH B. B. OVERSEAS PVT. LTD. WAS ENTERED ON 25 TH AUG. 2007 AND SINCE BY THAT TIME, THE ASSESSEE HAD BECOME AWARE OF THE DISPUTE CLAUSE 6 WAS ENTERED IN TO THE COLLABORATION AGREEMENT WHEREBY THE ASSESSEE HAD AGREED FOR CLEAR ING ALL CASES OF CEILING ETC. AND HAD STATED THAT ITS COST WILL BE B ORNE BY THE OWNER. IT WAS SUBMITTED THAT BEFORE 25.08.2007 THAT IS THE DAY OF ITS AGREEMENT WITH B. B. OVERSEAS PVT. LTD., THE CASE FILED BY SHAFIKUR R EHMAN WAS DISMISSED ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 4 AS WITHDRAWN AND A COPY OF WHICH WAS PLACED AT P.B. PAGE 24 TO 25. THE LD. AR SUBMITTED THEREFORE THE CONTENTION OF ASSESS EE BEFORE THE AUTHORITIES BELOW THAT THE SAID TRANSACTION WAS A B USINESS TRANSACTION WAS CORRECT AND IT WAS NOT AN AFTERTHOUGHT. THE LD. AR FURTHER SUBMITTED THAT ASSESSEE HAD SUBMITTED ALL THE RELEVANT DOCUME NTS BEFORE THE AUTHORITIES BELOW AND THE DOCUMENTS NOW BEEN FILED IN THE FORM OF NOTICE RECEIVED BY ASSESSEE INTIMATING PENDENCY OF A CEILI NG CASE AND FURTHER ORDERS BY REVENUE COURT ARE PUBLIC DOCUMENTS WHICH CANNOT BE CONSIDERED AS ADDITIONAL DOCUMENTS AND RELIANCE WAS PLACED ON THE JUDGMENT OF JATIA INVESTMENT CO. VS. C.I.T. DELIVER ED BY CALCUTTA HIGH COURT REPORTED IN 206 ITR 718 WHEREIN IT WAS HELD T HAT PUBLIC DOCUMENTS CANNOT BE TREATED AS ADDITIONAL EVIDENCE AND IT WAS NOT CORRECT FOR THE TRIBUNAL TO HOLD THAT SUCH DOCUMENT S WERE NEW EVIDENCE. WITHOUT PREJUDICE THE LD. AR SUBMITTED THAT IN THE CASE OF COMPANY M/S B. B. OVERSEAS PVT. LTD., THE TRANSACTI ON OF RS.1,20,00,000/- WAS EXAMINED BY ASSESSING OFFICER AND WAS HELD TO BE A BUSINESS TRANSACTION AND IN THIS RESPECT OUR ATTE NTION WAS INVITED TO P.B. PAGE 69 TO 70, WHERE A COPY OF ASSESSMENT ORDE R IN THE CASE OF M/S B. B. OVERSEAS PVT. LTD. WAS PLACED. THE LD. AR SUB MITTED THAT BEFORE THE FINALIZATION OF THIS ASSESSMENT IN RESPONSE TO A QUERY BY ASSESSING OFFICER WITH REGARD TO NATURE OF RS.1,20,00,000/-, M/S B. B. OVERSEAS PVT. LTD. HAD STATED THAT THE SAID AMOUNT WAS GIVEN AS SECURITY DEPOSIT AGAINST COLLABORATION AGREEMENT AND COPY OF COLLABO RATION AGREEMENT WAS ALSO SUBMITTED AND IN THIS RESPECT OUR ATTENTION WA S INVITED TO P.B. PAGE ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 5 71 TO 72 WHERE A COPY OF SUCH REPLY WAS PLACED. THE LD. AR SUBMITTED THAT NO ADDITION REGARDING THIS AMOUNT WAS MADE AND NEITHER ANY DISALLOWANCE OF INTEREST U/S 36(1)(III ) WAS MADE B ECAUSE THE ASSESSING OFFICER HAD ACCEPTED THE CONTENTIONS OF ASSESSEE TH AT THE SAID AMOUNT WAS GIVEN AS A BUSINESS TRANSACTION. THE LD. AR FUR THER SUBMITTED THAT AFTER THE COMPLETION OF ORIGINAL ASSESSMENT, THE CA SE OF THE M/S B. B. OVERSEAS PVT. LTD. WHICH HAD CHANGED ITS NAME TO M/ S ENGAGE ENTERPRISES PVT. LTD. WAS AGAIN REOPENED U/S 148 OF THE ACT. AND THE REASON FOR REOPENING OF THE CASE WAS ONLY TO EXAMIN E THE SAID TRANSACTION OF RS.1,20,00,000/- AND IN THIS RESPECT OUR ATTENTI ON WAS INVITED TO P.B. PAGE 76 TO 77 WHERE COPY OF REASONS RECORDED WERE P LACED. THE LD. AR FURTHER SUBMITTED THAT DURING REASSESSMENT PROCEEDI NGS ALSO THIS QUESTION WAS EXAMINED AND OUR ATTENTION WAS INVITED TO P.B. PAGE 83 WHERE A COPY OF QUESTION AND ITS REPLY BY THE ASSES SEE WAS PLACED. THE LD. AR SUBMITTED THAT DURING REASSESSMENT PROCEEDIN GS ALSO NO ADDITION WAS MADE AND THEREFORE THE ASSESSING OFFICER HAD AG AIN HELD IT TO BE A BUSINESS TRANSACTION AND THEREFORE THE SAME TRANSAC TION IN THE CASE OF SECOND PARTY CANNOT BE HELD TO BE A TRANSACTION OTH ER THAN A BUSINESS TRANSACTION. THE LD. AR SUBMITTED THAT THEREFORE FR OM ALL FACTS AND CIRCUMSTANCES IT CAN BE CONCLUDED THAT THE TRANSACT ION WAS A BUSINESS TRANSACTION AND THE DEPARTMENT ITSELF VIDE CIRCULAR NO. 19/2017 DATED 12.06.2017 HAS INSTRUCTED THAT THE BUSINESS ADVANCE S ARE TO BE KEPT OUT OF ALL THE PURVIEW OF SECTION 2(22)(E) OF THE ACT A ND THEREFORE IF THE ABOVE ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 6 TRANSACTION IS A BUSINESS TRANSACTION THEN AS PER T HE CIRCULAR, THE AMOUNT CANNOT BE TREATED IS DEEMED DIVIDEND SECTION 2(22)(E) OF THE ACT. ON A QUESTION RAISED BY BENCH RELATING TO REFUND O F SECURITY DEPOSIT BY ASSESSEE TO THE M/S B. B. OVERSEAS PVT. LTD., THE LD. AR SUBMITTED THAT VIDE DEED OF CANCELLATION DATED 10 TH DAY OF AUGUST, 2011, THE AMOUNT OF SECURITY DEPOSIT WAS REFUNDED BACK TO M/S B. B. OVERSEAS PVT. LTD. AND IN THIS RESPECT FIELD A COPY OF SUCH DEED OF CANCELLATION, IN VIEW OF THE FACTS AND CIRCUMSTANCE IT WAS ARGUED TH AT THE ADDITIONS SUSTAINED BY LD. CIT(A) MAY BE DELETED. 4 THE LD. DR ON THE OTHER HAND ARGUED THAT THE ASSE SSING OFFICER HAS CLEARLY HELD THAT THE ASSESSEE DID NOT CARRY AN Y CONSTRUCTION AND THE ASSESSEE WAS AWARE OF THE FACT THAT NO CONSTRUCTION WAS PERMITTED AND THEREFORE THE AGREEMENT ENTERED INTO BY ASSESSEE WI TH B. B. OVERSEAS PVT. LTD. WAS AN AFTERTHOUGHT AND IS ONLY TO AVOID THE I MPOSITION OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT. 5. THE LD. DR HEAVILY PLACED HIS RELIANCE ON THE OR DER OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THOUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IT IS AN UNDISPUTED FACT THAT ASSESSEE WAS A BENEFICIAL OWNER IN THE COMPANY M/S B. B. OVERSEA S PVT. LTD. THE ONLY DISPUTE THE DEPARTMENT IS THAT IT HAS DOUBTED THE G ENUINENESS OF THE COLLABORATION AGREEMENT WHICH THE ASSESSEE HAD ENTE RED INTO WITH M/S B. B. OVERSEAS PVT. LTD. THE MAIN REASON FOR DISBELIEV ING THE GENUINENESS OF ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 7 THIS COLLABORATION AGREEMENT IS THAT THE ASSESSEE W AS AWARE OF THE FACT THAT HE WILL NOT BE ABLE TO CARRY ON ANY CONSTRUCTI ON ACTIVITY. IN OUR VIEW THIS FINDING OF THE AUTHORITIES BELOW IS NOT CORREC T, IN VIEW OF THE FACT THAT ASSESSEE WOULD NOT HAVE SPENT A HUGE AMOUNT OF ABOU T RS.4 CRORES FOR PURCHASING A LAND ON EACH HE WOULD NOT BE ENTITLED TO CONSTRUCT ANYTHING. THE SALE DEED EXECUTED BY THE OWNERS OF L AND HAS CLEARLY MENTIONED THAT THE TITLE WAS CLEAR AND IT WAS NOT H AVING ANY DISPUTE WITH ANYBODY AND THEREFORE ASSESSEE IN GOOD FAITH HAD PU RCHASED THE ABOVE LAND FOR THE PURPOSE OF DEVELOPMENT ONLY. THE ASSES SEE BECAME AWARE OF THE DISPUTE ONLY ON 17.04.2006 WHEN AN ADVOCATE SH. GULAB SINGH ON BEHALF OF HIS CLIENT SHAFIKUR REHMAN HAD BROUGHT TO THE NOTICE OF THE ASSESSEE REGARDING PENDING PROCEEDINGS IN RELATION TO CEILING OF THIS LAND. THE CASE FILED BY SHAFIKUR REHMAN WAS DISMISSED AS WITHDRAWN ON 26.07.2006; A COPY OF SUCH ORDER IS PLACED AT P.B. PAGE 24 TO 25. AFTER THE CASE WAS DISMISSED AS WITHDRAWN, THE ASSESSEE E NTERED INTO A COLLABORATION AGREEMENT ON 25.08.2007 FOR DEVELOPME NT OF THIS LAND BY B. B. OVERSEAS PVT. LTD. AND VIDE CLAUSE NO. 6 OF S UCH AGREEMENT HAD UNDERTAKEN TO CLEAR ALL CASES OF CEILING NATURE OR OTHER DISPUTES IF ANY. FROM THE COPY OF SALE DEED WHEREBY SELLERS HAD ASS URED THE ASSESSEE THAT THERE IS NO DISPUTE AND COPY OF DISMI SSAL OF CASES FILED BY SHAFIKUR REHMAN, WE FIND THAT ASSESSEE WAS PRIMA-FA CIE UNDER A BONAFIDE BELIEF THAT EVERYTHING WAS RESOLVED AND TH AT IS WHY HE ENTERED INTO AN AGREEMENT ON 25.08.2007, AFTER THE DISMISSA L OF CASE FILED BY SHAFIKUR REHMAN. THE ASSESSEE WAS REASONABLY SURE T O MAKE ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 8 CONSTRUCTION ON THIS LAND. WE FURTHER FIND THAT UNF ORTUNATELY THE RAJASHTHAN HIGH COURT VIDE ITS ORDER DATED 09.12.20 10 PASSED A STAY ORDER FOR CHANGE OF LAND USE OF LAND FALLING WITHIN THE ECOLOGICAL ZONE AND THE LAND OF THE ASSESSEE WAS PART OF IT AND THEREFO RE IN VIEW OF STAY ORDER IN FORCE, THE ASSESSEE COULD NOT HANDOVER THE POSSE SSION OF LAND FOR THE CHANGE OF AGRICULTURE LAND TO BE USED FOR DEVELOPME NT OF A HOUSING COLONY. THESE DOCUMENTS RELATING TO LAND DISPUTE WE RE THOUGH FILED BEFORE US, FOR THE FIRST TIME BUT THESE CANNOT BE S AID TO BE ADDITIONAL DOCUMENTS AS THESE ALL DOCUMENTS AND THE FACTS RELA TING TO THESE DOCUMENTS IN THE FORM OF COLLABORATION AGREEMENT WE RE ALREADY FILED WITH AUTHORITIES BELOW. THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF JATIA INVESTMENT CO. VS. CIT 206 ITR 718 HAS HELD THAT PU BLIC DOCUMENTS CANNOT BE TREATED AS ADDITIONAL EVIDENCES IN THE TR UE SENSE OF THE TERM. THEREFORE THESE DOCUMENTS BEING VITAL TO THE MAIN D ISPUTE AND THEREFORE THESE ARE BEING TAKEN INTO ACCOUNT FOR THE PURPOSE OF DECIDING THIS APPEAL. FROM ALL THESE DOCUMENTS IT IS APPARENT THAT THE L AND WAS IN DISPUTE BUT ASSESSEE BECAME AWARE ABOUT THE DISPUTE ONLY WHEN IT WAS BROUGHT TO HIS NOTICE THROUGH AN ADVOCATE AND WHICH CASE WAS ALSO DISMISSED AS WITHDRAWN. IN VIEW OF THESE THE VIEW TAKEN BY THE AUTHORITIES BELOW THAT THE COLLABORATION AGREEMENT WAS AN AFTERTHOUGHT IS NOT CORRECT. ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 9 WE FURTHER FIND THAT IN THE CASE OF M/S B. B. OVER SEAS PVT. LTD. DURING ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSI NG OFFICER HAD RAISED AN ENQUIRY REGARDING THE SAID ADVANCE OF RS.1,20,00 ,000/- AND ASSESSEE VIDE REPLY DATED 1 ST NOV. 2010 HAD SUBMITTED AS UNDER: THE ASSESSEE COMPANY PAID RS.1,20,00,000/- (RUPEES ONE CRORE TWENTY LACS ONLY) DURING THE YEAR TO MR. SAKET MEHR A TOWARDS SECURITY DEPOSIT AGAINST COLLABORATION AGREEMENT CO PY OF AGREEMENT IS ENCLOSED HEREWITH. THE AMOUNT PAID RS.1,20,00,00 0/-(RUPEES ONE CRORE TWENTY LACS ONLY) FOR BUSINESS PURPOSES O F THE COMPANY, THUS SECTION 2(22)(E) IS NOT APPLICABLE. AS OUR UND ERSTANDING AND CORRESPONDENCE WITH THE OWNER OF THE SAID LAND, A C OURT CASE HAS BEEN MADE BY THE STATE GOVERNMENT OF RAJASTHAN AT T HE TRIBUNAL COURT AT AJMER/HIGH COURT OF RAJASTHAN UNDER LAND C EILING ACT, AGAINST THE ORIGINAL OWNERS OF THE LAND AND ALSO A SETTLEMENT OF LAND AT THE VILLAGE LEVEL FOR CORRECTION OF REVENUE RECORDS IN FAVOUR OF THE ORIGINAL OWNERS OF LAND HAS BEEN FILED WITH THE COURT OF COLLECTOR, KOTA, RAJASTHAN, THE DECISIONS OF WHICH ACCORDING TO THE ORIGINAL OWNER OF THE LAND WILL BE MADE IN DUE COUR SE OF TIME. THUS THE POSSESSION IS EXPECTED TO BE HANDED OVER/TAKEN OVER BY END OF THIS YEAR OR IN THE FIRST QUARTER OF 2011 AND THE P ROCESS OF OBTAINING LICENSE FROM GOVERNMENT OF RAJASTHAN IS EXPECTED TO COMMENCE THEREAFTER. AFTER RECEIPT OF THIS REPLY, THE ASSESSING OFFICER DID NOT MAKE ANY ADDITION OR DISALLOWANCE ON THIS ACCOUNT AND PASSED ASSESSMENT ORDER ON DATED 13.12.2010 AND THEREBY HE ACCEPTED THAT TH E TRANSACTION WAS A BUSINESS TRANSACTION. WE FURTHER FIND THAT THE ABOV E CASE OF B. B. OVERSEAS PVT. LTD. WHICH HAD CHANGED ITS NAME TO M/ S ENGAGE ENTERPRISES PVT. LTD. WAS REOPENED U/S 148 TO EXAMI NE THIS ISSUE ONLY WHICH IS APPARENT FROM THE REASONS RECORDED PLACED AT P.B. PAGE 76 TO 77. FOR THE SAKE OF COMPLETENESS SUCH REASONS RECOR DED BY ASSESSING OFFICER ARE REPRODUCED BELOW: DURING INVESTIGATION, WHEN SH. SAKET MEHRA WAS ASK ED TO EXPLAIN THE SAME, HE STATED THIS RECEIPT OF RS. 1.2 CR BY HIM ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 10 TOWARDS COLLABORATION AGREEMENT OF THE COMPANY TO D EVELOP A RESIDENTIAL COLONY/COMMERCIAL /GROUP HOUSING PROJEC T AT VILLAGE RAM NAGAR/BADGAON, DISTT - KOTA, RAJASTHAN. AS PER THE AGREEMENT SUBMITTED, THE ASSESSEE RECEIVED AN INTEREST FREE S ECURITY OF RS. 1,20,00,000 /- FROM M/S B OVERSEAS PVT. LTD IN F.Y 2007-08. HOWEVER, IT WAS SEEN THAT THE SAID LAND WAS DISPUTE D SINCE 1991 AND IT WAS PURCHASED, DURING THE LITIGATION, B Y THE SH SAKET MEHRA IN THE YEAR 2006. AS PER THE SUBMISSION OF TH E ASSESSEE TILL DATE THE STATUS OF THE SAID LAND IS AGRICULTURAL LA ND AND NO CONSTRUCTION HAS STARTED ON THE LAND PARCEL OWING T O THE -LITIGATION. IT IS OBSERVED THAT THE NATURE OF THE TRANSACTION IS N OT CLEAR AND DIFFERENT EXPLANATION HAS BEEN GIVEN ABOUT IT. AS PER REPORT THE AGREEMENT BETWEEN SH. SAKET MEHRA AND M/S B B OVERSEAS LTD FOR CONSTRUCTION OF RESIDENTIA L PROJECT ON THE LAND PARCEL IS SUSPECTED TO BE A COLOURABLE DEVICE IN AN ATTEMPT TO JUSTIFY THE UNSECURED LOAN/ADVANCE RECEIVED FROM A COMPANY IN WHICH HE IS A DIRECTOR IN ORDER TO DODGE THE PROVIS IONS OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ! T ACT. FURTHER, IF T HE TRANSACTION IS SUSPECTED, ITS GENUINENESS COMES INTO QUESTION AND THE SOURCE OF SUCH FUND OF RS. 1.2 CRORE IN THE HAND OF ENGAGE EN TERPRISES PVT LTD IS ALSO REMAINS TO BE VERIFIED LEADING TO REASO N TO BELIEVE THAT IT IS FROM UNKNOWN SOURCE. FURTHER IN THE REPORT IT IS MENTIONED THAT THE ASSESSEE HAD A BANK ACCOUNT NO.-303420110000187 WITH BANK OF INDIA IN WHICH CASH DEPOSIT HAS TAKEN PLACE. THE SOURCES OF SUCH CASH DEPOSIT REMAINS TO BE VERIFIED TO ASCERTAIN TH E VERACITY OF THE TRANSACTION. WE FIND THAT DURING REASSESSMENT PROCEEDINGS, THE ASSESSEE HAD REPLIED TO THIS QUESTION WHICH IS REPRODUCED BELOW: 20. THE COPY OF THE QUESTIONNAIRE ISSUED BY THE AS SESSING OFFICER AND REPLY FILED BY US DURING THE COURSE OF ORIGINAL ASS ESSMENT IS ENCLOSED HEREWITH. DURING THE COURSE OF ORIGINAL ASSESSMENT, ASSESSING OFFICER RAISED SPECIFIC QUERY ON: (1) RS.1.20 CRORES WAS PAID TO MR. SAKET MEHRA (SHAREHO LDER) DURING THE ASSESSMENT YEAR 2008-09 AND ASKED FOR APPLICABI LITY OF SECTION 2 (22) (E). FOLLOWING REPLY FILED BY THE ASSESSE COMPANY ALONGW ITH THE EVIDENCE. THE ASSESSE COMPANY PAID RS. 1,20,00,000/- (RUPEES ONE CRORE TWENTY LACS ONLY) DURING THE YEAR TO MR. SAKET MEHR A TOWARDS SECURITY DEPORT AGAINST COLLABORATION AGREEMENT, CO PY OF AGREEMENT IS ENCLOSED HEREWITH THE AMOUNT PAID RS. 1,20,00,00 0/- (RUPEES ONE CRORES TWENTY LACS ONLY) BUSINESS PURPOSES OF T HE COMPANY, THUS SECTION 2(22) (E) IS NOT APPLICABLE. ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 11 (2) SOURCE OF CASH DEPOSITED INTO BANK ACCOUNT BY T HE COMPANY DURING THE YEAR. FOLLOWING REPLY FILED BY THE ASSESSEE COMPANY ALONG WITH THE EVIDENCES. THE ASSESSEE COMPANY DEPOSITED CASH RS.20,00,000/- INTO THEIR BANK ACCOUNT IN DECEMBER 2007 (RS.10,00,000 ON 22.1 2.2007 AND RS.10,00,000/- ON 24.12.2007 RESPECTIVELY). THE SAI D AMOUNT WAS WITHDRAWN BY THE ASSESSEE COMPANY FROM THEIR BANK A CCOUNT FOR BUSINESS PURPOSE, WHICH WAS NOT UTILIZED AND THUS D EPOSITED BACK INTO THEIR BANK ACCOUNT. A CERTIFIED COPY OF CASH B OOK FOR THE MONTH OF DECEMBER 2007 AND A COPY OF BANK STATEMENT IN TH E MONTH OF DECEMBER 2007 ARE ENCLOSED HEREWITH. THE DEPOSIT IN THE BANK IS OUT OF AVAILABLE CASH IN HAND IN THE BOOKS OF ACCOU NTS OF THE ASSESSEE COMPANY. AFTER THE RECEIPT OF SUCH REPLY, THE ASSESSING OFF ICER PASSED ASSESSMENT ORDER ON 26.10.2015 AND AGAIN DID NOT MA KE ANY ADDITION WITH RESPECT TO SAID TRANSACTION OF RS.1,20,00,000/ -. FOR THE SAKE OF COMPLETENESS, THE RELEVANT PARA OF ASSESSING OFFICE R IS REPRODUCED BELOW: 2. THE INFORMATION WAS RECEIVED FROM INVESTIGATION WING THAT SH. SAKET MEHRA HAD AN OUTSTANDING UNSECURED LOAN F R OM M/S B B OVERSEAS P LTD. NOW ENGAGE ENTERPRISES P LTD. OF RS .1.2 CRORE WHICH HAS BEEN TAKEN DURING THE FY 2007-08, AS A IN TEREST FREE LOAN. HOWEVER, IT IS SAID THAT IT IS A INTEREST FRE E SECURITY FOR THE DEVELOPMENT OF RESIDENTIAL COLONY AS PER THE COLLAB ORATION AGREEMENT BETWEEN THE COMPANY. THE TRANSACTION IS S USPECTED, IF GENUINENESS COMES INTO QUESTION AND THE SOURCE REMA INS UNVERIFIED THAN THE ACTION AS PER THE IT ACT IS TO BE TAKEN ON RECEIPT OF THE INFORMATION, THE REASONS WERE RECORDED IN WRITING A ND THE PRIOR APPROVAL FROM THE AUTHORITY WAS TAKEN. THE NOTICE U /S 148 OF THE IT ACT, 1961 WAS ISSUED ON 30.03.2015. THE REPLY LETTE R WAS FILED ON 23. .'4.2015, WHERE IN IT WAS STATED THAT IN RESPON SE TO NOTICE U/S 148 THE RETURN OF INCOME IS FILED ELECTRONICALLY ON 22.04.2015 VIDE ACKNOWLEDGEMENT NO. 566650551220415 AND THE COPY IS ENCLOSED HERE WITH THE LETTER, HOWEVER, THE NOTICE U/S 148 I S ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION WITH A REQUEST TO ISSU E THE REASON RECORDED. THE REASONS RECORDED WERE ISSUED. THE NOT ICE U/S 143(3) AND 142(1) OF THE IT ACT, 1961 WERE ISSUED. THE ASS ESSEE FILED THE OBJECTION, AGAINST THE ISSUE OF NOTICE AND THE REAS ONS RECORDED BEFORE ISSUE OF NOTICE DATED 19.10.2015. THE SPEAKI NG ORDER AGAINST THE OBJECTION RAISED WAS MADE & FORWARDED TO THE AS SESSEE. THE CASE WAS ATTENDED BY SH. SURAJ MANI, ACCOUNT OF THE ASSESSEE COMPANY TIME TO TIME AND THE NECESSARY DETAILS WERE FILED, WHICH ARE PLACED ON RECORD. THE SOURCE OF THE FUNDS AND G ENUINENESS OF TRANSACTIONS WAS ASKED TO BE FILED. THE DETAILS FIL ED AND VERIFIED. ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 12 THE BOOKS OF ACCOUNTS ALONGWITH THE BILLS & VOUCHER S WERE PRODUCED FOR TEST CHECK. THE BILLS & VOUCHERS ALONG WITH THE BOOKS OF ACCOUNTS WERE CHECKED AND FOUND CORRECT. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES ASSES SING OFFICER HAD ACCEPTED THE TRANSACTION OF RS. 1,20,00,000/- IN TH E HANDS OF B. B. OVERSEAS PVT. LTD. AS BUSINESS TRANSACTION AND THER EFORE NOT ACCEPTING THE SAME TRANSACTION IN THE HANDS OF SECOND PARTY W HICH IS ASSESSEE IS NOT CORRECT. THEREFORE WE HOLD THAT THE SAID TRANSA CTION OF RS. 1,20,00,000/- WAS A BUSINESS TRANSACTION AND FOR A BUSINESS TRANSACTION, THE ADDITION U/S 2(22)(E) CANNOT BE MA DE AS SUCH TRANSACTIONS HAS BEEN KEPT OUT OF PURVIEW OF THE SE CTION 2(22)(E) VIDE CIRCULAR NO. 19/2017 DATED 12.06.2017. THE PARA 2 & 3 OF THE SAID CIRCULAR IN THIS RESPECT ARE IMPORTANT WHICH FOR TH E SAKE OF COMPLETENESS ARE REPRODUCED BELOW: 2. THE BOARD HAS OBSERVED THAT SOME COURTS IN THE RECENT PAST HAVE HELD THAT TRADE ADVANCES IN THE NATURE OF COMM ERCIAL TRANSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22) (E) OF THE ACT. SUCH VIEWS HAVE ATTAI NED FINALITY. 2.1 SOME ILLUSTRATIONS/EXAMPLES OF TRADE ADVANCES/C OMMERCIAL TRANSACTIONS HELD TO BE NOT COVERED UNDER SECTION 2 (22) (E) OF THE ACT ARE AS FOLLOWS: (I) ADVANCES WERE MADE BY A COMPANY TO A SISTER CONCERN AND ADJUSTED AGAINST THE DUES BUSINESS TRANSACTIONS DO NOT TO FALL WITHIN THE DEFINITION OF DEEMED DIVIDEND UNDER SECT ION 2(22) (E) OF THE ACT. (CIT VS. CREATIVE DYEING & PRINTING PVT. L TD. 1 DELHI HIGH COURT). (II) ADVANCE WAS MADE BY A COMPANY TO ITS SHAREHOLDER T O INSTALL PLANT AND MACHINERY AT THE SHAREHOLDERS PR EMISES TO ENABLE HIM TO DO JOB WORK FOR THE COMPANY SO THAT THE COMP ANY COULD FULFILL AN EXPORT ORDER. IT WAS HELD THAT AS THE ASSESSEE P ROVED BUSINESS EXPEDIENCY, THE ADVANCE WAS NOT COVERED BY SECTION 2(22)(E) OF THE ACT. (CIT VS. AMRIK SINGH, P&H HIGH COURT) 2 . ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 13 (III) A FLOATING SECURITY DEPOSIT WAS GIVEN BY A COMPANY TO ITS SISTER CONCERN AGAINST THE USE OF ELECTRICITY GENER ATORS BELONGING TO THE SISTER CONCERN. THE COMPANY UTILIZED GAS AVAILA BLE TO IT FROM GAIL TO GENERATE ELECTRICITY AND SUPPLIED IT TO THE SISTER CONCERN AT CONCESSIONAL RATES. IT WAS HELD THAT THE SECURITY D EPOSIT MADE BY THE COMPANY TO ITS SISTER WAS A BUSINESS TRANSACTIO N ARISING IN THE NORMAL COURSE OF BUSINESS BETWEEN TWO CONCERNS AND THE TRANSACTION DID NOT ATTRACT SECTION 2(22)(E) OF THE ACT. (CIT, AGRA VS. ATUL ENGINEERING UDYOG, ALLAHABAD HIGH COURT)3 3. IN VIEW OF THE ABOVE IT IS, A SETTLED POSITION T HAT TRADE ADVANCES, WHICH ARE IN THE NATURE OF COMMERCIAL TRA NSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE WORD ADVANC E IN SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, HENCEFORTH, APPEA LS MAY NOT BE FILED ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND TH OSE ALREADY FILED, IN COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRE SSED UPON. IN VIEW OF THE ABOVE FACTS, WE ARE IN AGREEMENT WI TH THE ARGUMENTS OF ASSESSEE THAT THE SAID TRANSACTION WAS A BUSINES S TRANSACTION AND IS THEREFORE OUT OF THE PURVIEW OF SECTION 2(22)(E) OF THE ACT. MOREOVER WE FIND THAT ASSESSEE HAD REPAID SUCH DEP OSIT VIDE DEED OF CANCELLATION DATED 10.08.2011 AND AMRITSAR BENCH IN A RECENT DECISION IN THE CASE OF SH. RAJAN GUPTA VS. DY. CIT IN ITA NO. 74/ASR/2016 VIDE ITS ORDER DATED 14.09.2017 HAS HEL D THAT IF THE AMOUNT IS RETURNED BACK THE ADDITION CANNOT BE MADE U/S 2( 22)(E) OF THE ACT. THE RELEVANT PART OF THE ORDER IS REPRODUCED BELOW: 8. NOW COMING TO THE GROUND NO. (B) AS IT WAS ARGUED BY THE LD. AR AND ALSO REFLECTS FROM THE BANK STATEMENT TH AT THE ASSESSEE HAD RECEIVED RS.10 LAKHS FROM SAT AGROTECH OVERSEAS PVT. LTD. AND THEREAFTER BOOKED A PLOT IN JAMMU AND KASHMIR HOUSI NG BOARD, HOWEVER, THE SAME WAS DECLINED DUE TO ONE OR OTHER REASON AND FINALLY THE DEAL OF THE PROPERTY UNDER QUESTION COU LD NOT BE MATURED, THEREFORE, THE EARNEST MONEY WAS RETURNED BACK TO T HE COMPANY AND EVEN OTHERWISE ACCORDING TO CIRCULAR NO.19/2017 , THE CBDT ANALYZED THE SETTLED VIEW OF SEC.2(22)(E) OF THE I. T. ACT, THEREFORE, CLARIFIED THE SAME AS UNDER: ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 14 2.1 SOME ILLUSTRATIONS/EXAMPLES OF TRADE ADVANCES/COMMERCIAL TRANSACTIONS HELD TO BE NOT COV ERED UNDER SECTION 2(22) (E) OF THE ACT ARE AS FOLLOWS: I. ADVANCES WERE MADE BY A COMPANY TO A SISTER CONCERN AND ADJUSTED AGAINST THE DUES FOR JOB WORK DONE BY THE SISTER CONCERN. IT WAS HELD THAT AMOUNTS ADVANC ED FOR BUSINESS TRANSACTIONS DO NOT TO FALL WITHIN THE DEF INITION OF DEEMED DIVIDEND UNDER SECTION 2(22) (E) OF THE ACT. (C1T VS. CREATIVE DYEING & PRINTING PVT. LTD. , DELHI HIGH COURT). II. ADVANCE WAS MADE BY A COMPANY TO ITS SHAREHOLD ER TO INSTALL PLANT AND MACHINERY AT THE SHAREHOLDER'S PREMISES TO ENABLE HIM TO DO JOB WORK FOR THE COMPANY SO THA T THE COMPANY COULD FULFIL AN EXPORT ORDER. IT WAS HELD T HAT AS THE ASSESSEE PROVED BUSINESS EXPEDIENCY, THE ADVANCE WA S NOT COVERED BY SECTION 2(22)(E) OF THE ACT, (OT VS AMRI K SINGH, P&H HIGH COURT). III. A FLOATING SECURITY DEPOSIT WAS GIVEN BY A C OMPANY TO ITS SISTER CONCERN AGAINST THE USE OF ELECTRICITY G ENERATORS BELONGING TO THE SISTER CONCERN. THE COMPANY UTILIZ ED GAS AVAILABLE TO IT FROM GAIL TO GENERATE ELECTRICITY A ND SUPPLIED IT TO THE SISTER CONCERN AT CONCESSIONAL RATES. IT WAS HELD THAT THE SECURITY DEPOSIT MADE BY THE COMPANY TO ITS SIS TER CONCERN WAS A BUSINESS TRANSACTION ARISING IN THE N ORMAL COURSE OF BUSINESS BETWEEN TWO CONCERNS AND THE TRANSACTION DID NOT ATTRACT SECTION 2(22) (E) OF TH E ACT. (CIT AGRA VS ATUL ENGINEERING UDYOG. ALLAHABAD HIGH COUR T) 3. IN VIEW OF THE ABOVE IT IS. A SETTLED POSITI ON THAT TRADE ADVANCES, WINCH ARE IN THE NATURE OF COMMERCIAL TRANSACTIONS WOULD NOT FALL WITHIN THE AMBIT OF THE WORD ADVANCE IN SECTION 2(22)(E) OF THE ACT. ACCORDING LY, HENCEFORTH, APPEALS MAY NOT BE FILED ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND THOSE ALREADY FILED, IN COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UPON. 4. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF A LL CONCERNED. IF WE CONSIDER THE CIRCUMSTANCES OF THE INSTANT CAS E, THE BOARD OF THE SAT AGROTECH OVERSEAS PVT. LTD., VIDE RESOLUTION, AUTHORIZED THE ASSESSE TO APPLY, SIGN AND SUBMIT TH E APPLICATION, PAPERS, DRAFT/CHEQUE, ETC. TO BE SUBMITTED FOR THE PURCHASE OF COMMERCIAL PLOTS BEING LEASED OUT BY J&K HOUSING BO ARD IN SECTOR- 2, IN HOUSING COLONY, CHANNI HIMMAT, JAMMU. FURTHER, IT WAS ALSO RESOLVED AND AGREED AMONGST TH E DIRECTOR OF COMPANY THAT THE FUNDS SHALL BE RAISED BY THE COMPANY TO SH. RAJAN GUPTA, DIRECTOR FOR PLACING A BID WITH THE UNDERSTANDING THAT THE COMMERCIAL PLOT WILL BE HAND ED OVER TO ITA NO. 647(ASR)/2016 ASSESSMENT YEAR: 2008-09 15 COMPANY FOR ITS COMMERCIAL USE OR ANY OTHER PURPOSE WHICH THE COMPANY DECIDES IN FUTURE AND IF THE COMMERCIAL PLO T IS NOT ALLOTTED BY THE J&K HOUSING BOARD THEN THE AMOUNT SHALL BE R EFUNDED BY SH. RAJAN GUPTA, DIRECTOR. IT IS UNDISPUTED FACT THAT FOR PURCHASE OF THE LAND /PLOT, THE EARNEST MONEY TO THE TUNE OF RS.10 LAKHS WAS DEPOSI TED WITH THE AUTHORITY OF THE J & K STATE, HOWEVER, DUE TO NON-M ATURITY OF THE SALE, THE EARNEST MONEY WAS REFUNDED TO THE ASSESSE E AND THE SAME MONEY WAS RETURNED BACK TO THE SAT AGROTECH OV ERSEAS PVT. LTD., HENCE, IN OUR CONSIDERED VIEW, THE ASSESSEE HAS NOT EARNED ANY DIVIDEND, THEREFORE, THE SAME CANNOT FALL UNDER THE PROVISIONS OF SEC.2(22(E) OF THE ACT AS DEEMED DIVIDEND. HENCE, WE DO NOT HAVE ANY HESITATION TO DELETE THE SAID ADDITION AS ADDED ON ACCOUNT OF DEEMED DIVIDEND. IN VIEW OF THE ABOVE GROUND NO. 6 TO 11 ARE ALLOWE D, GROUND NO. 1 TO 5 ARE DISMISSED AS NOT PRESSED, GROUND NO. 12 & 13 ARE CONSEQUENTIAL AND DO NOT REQUIRE ANY ADJUDICATION. 7. IN VIEW OF THE ABOVE, THE APPEAL FILED BY ASSESS EE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.10.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 04.10.2017. /GP/SR. PS . COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER