Case Law Details
Jitendra Kumar Gupta Vs. ACIT (ITAT Delhi)
We find that in this case assessee is a share holder of more than 10% shares in IHDP Globals (P) Ltd. and during the year, the company gave funds totaling Rs. 1,67,00,000/- to the assessee which has been added by the AO u/s. 2(22)(e) of the Act and later the Ld. CIT(A) confirmed the findings of AO. We further note that during the year the company gave Rs. 1,67,00,000/- to the assessee. In my opinion it is not in the nature of advance or loan within the meaning of section 2(22)(e) of the Act. However, it is an advance given by the company to the assessee against purchase of property being industrial land at Khasra NO. 84/1 & 100/1, Village Rethani, Meerut, measuring 4185 sq.mtrs., which is evident from page no. 13-27 of PB a copy of purchase deed showing ownership of proty to assessee, page no 10 of PB copy of Board Resolution dated 10.5.2011 by the Company, Page no. 7 to 9 of PB a copy of agreement to sale dated 10.5.2011. But the said agreement got terminated vide termination agreement dated 11.11.2011 and the nature of said payments are not simplicitor loan or advance but it is a trade advance for business purposes, which is outside the purview of section 2(22)(e) of the Act. We further note that in this case, the position was rather reverse i.e. the assessee being a Director and share holder of the company, was providing frequent advances to the company for its business requirements and the company was having credit balance of the assessee in its books, the op. cr. bal. in this year was Rs. 7,82,149/- & the cl. cr. bal. was Rs. 2,37,47,149/- (Page No. 1 of PB). The assessee never charged any interest from the company. The Co. in its books, opened the consolidate ledger a/c. of assessee for loan taken and for advance given against purchase of property, however during proceedings, bifurcated loan a/c and advance against property alc was furnished (Page no. 2 PB). Thus it is a case of advance given for purchase of property. It is also noted that the purchase agreement not being registered cannot be a reason for not accepting the contents of the agreement when it is witnessed by two persons also (page no. 7-9 of PB). In our opinion, the effect of non registration, at the most, can be only to the extent that it may effect its enforce ability in the court of law but the contents of agreement cannot be denied in the absence of registration. In this case, the registration was not considered necessary since there was no doubt of any dispute at a later stage between the parties. Similarly termination agreement being unregistered cannot be a reason for doubting its contents when it is also witnessed by two persons. (Page no. 11 of PB). The only effect of non registration, can be the doubtfulness of its legal enforce ability but non registration cannot deny the contents. The observation of CIT (A) that the agreement is date 10.05.11 which mentions advance payment of Rs. 14,00,000/- vide cheque date 12.05.11, is not possible. This observation was unfounded since post dated cheque was issued at the time of execution of agreement. Hence, the addition in dispute made by the AO and confirmed by the ld. CIT(A) is untenable and therefore, we delete the same.
Our aforesaid view is fortified by the CBDT Circular No. 19/2017 dated 12.6.2017 relating to settled view on Section 2(22)(e) of the Income Tax Act, trade advances – reg. wherein it is stipulated that trade advances, which 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.
We further find force from the decision in the case of Sunil Sethi (2009) 26 SOT 95 (Del) wherein on similar and identical facts and circumstances, it was held that “Deemed Dividend – AY 2004-05 – Assessee was a Director of a Company holding 50% of its share capital – In course of assessment proceedings, AO found that assessee had received a sum during relevant previous year from said company – Assessee explained that said amount was received to purchase a suitable business premises but as deal could not be finalized, he returned said amount to company – AO rejected said explanation and added amount so received to assessee’s income by in
voking provisions of Section 2(22)(e) – Whether since amount was given for business purposes, and assessee could validity perform such act on behalf of company in accordance with authority held by him through Resolution of Board of Directors of Company, amount in question could not be considered as deemed dividend.
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