Income Tax Appellate Tribunal - Amritsar
Sh. Saket Mehra, Amritsar. vs The Income Tax Officer, Amritsar. on 4 October, 2017
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, Vs. Income Tax Officer,
16 Joshi Colony, Amritsar, Ward- 5(4)
Punjab-143001. Amritsar.
(Appellant) (Respondent)
Appellant by : Sh. Salil Kapoor (Adv.)
Respondent by: Sh. Rahul Dhawan (D. R.)
Date of Hearing: 18.09.2017
Date of Pronouncement: 04.10.2017
ORDER
PER T. S. KAPOOR (AM):
This is an appeal filed by assessee against the order 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 assessee in reopening of the case whereas ground no. 6 to 11 relates to merits of the case. Ground no. 12 is against charging of interest u/s 234A, 234B and 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 will not be pressing legal grounds as taken by assessee in its grounds of appeal from ground no. 1 to 5.
2 ITA No. 647(Asr)/2016
Assessment Year: 2008-09 Arguing upon ground no. 6 to 11, the Ld. AR explained 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 entered 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 agreement. The Ld. AR in this respect invited our attention to copy of collaboration agreement with M/s B. B. Overseas Pvt. Ltd. place in P.B. page 26 to 30. The Ld. AR submitted that M/s B. B. Overseas Pvt. Ltd. was a company in which the assessee was beneficial owners of shares to the extent of more than 10% and therefore the authorities below treated the amount received from the company as deemed dividend under the provisions of section 2(22)(e) of the Act. It was submitted that the authorities below did not agree to the contentions of assessee that amount was received in lieu of a business transaction whereby the assessee had offered his land for development of a housing colony. The Ld. AR submitted that authorities below disbelieved the contention of assessee on the basis that this collaboration agreement was an afterthought and assessee was aware that no construction activity could have been carried out on this land as the land was hit by the Land Ceiling Act. In this respect, the Ld. AR invited our 3 ITA No. 647(Asr)/2016 Assessment Year: 2008-09 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 there was no pending ceiling case in respect of the said land and that the land was free from all kinds of encumbrances. Our specific attention was invited 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 dispute 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 wrote to the assessee on behalf of his client Sh. Shafikur Rehman about the 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 letter was placed. The Ld. AR submitted that the agreement with B. B. Overseas Pvt. Ltd. was entered on 25th Aug. 2007 and since by that time, the assessee had become aware of the dispute clause 6 was entered into the collaboration agreement whereby the assessee had agreed for clearing all cases of ceiling etc. and had stated that its cost will be borne 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 Rehman was dismissed 4 ITA No. 647(Asr)/2016 Assessment Year: 2008-09 as withdrawn and a copy of which was placed at P.B. page 24 to 25. The Ld. AR submitted therefore the contention of assessee before the authorities below that the said transaction was a business transaction was correct and it was not an afterthought. The Ld. AR further submitted that assessee had submitted all the relevant documents before the authorities below and the documents now been filed in the form of notice received by assessee intimating pendency of a ceiling 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. delivered by Calcutta High Court reported in 206 ITR 718 wherein it was held that public documents cannot be treated as additional evidence and it was not correct for the Tribunal to hold that such documents were new evidence.
Without prejudice the Ld. AR submitted that in the case of Company M/s B. B. Overseas Pvt. Ltd., the transaction of Rs.1,20,00,000/- was examined by Assessing Officer and was held to be a business transaction and in this respect our attention was invited to P.B. page 69 to 70, where a copy of assessment order in the case of M/s B. B. Overseas Pvt. Ltd. was placed. The Ld. AR submitted 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 collaboration agreement was also submitted and in this respect our attention was invited to P.B. page 5 ITA No. 647(Asr)/2016 Assessment Year: 2008-09 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 because the Assessing Officer had accepted the contentions of assessee that the said amount was given as a business transaction. The Ld. AR further submitted that after the completion of original assessment, the case 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 examine the said transaction of Rs.1,20,00,000/- and in this respect our attention was invited to P.B. page 76 to 77 where copy of reasons recorded were placed. The Ld. AR further submitted that during reassessment proceedings 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 assessee was placed. The Ld. AR submitted that during reassessment proceedings also no addition was made and therefore the Assessing Officer had again held it to be a business transaction and therefore the same transaction in the case of second party cannot be held to be a transaction other than a business transaction. The Ld. AR submitted that therefore from all facts and circumstances it can be concluded that the transaction was a business transaction and the department itself vide circular no. 19/2017 dated 12.06.2017 has instructed that the business advances are to be kept out of all the purview of section 2(22)(e) of the Act and therefore if the above 6 ITA No. 647(Asr)/2016 Assessment Year: 2008-09 transaction is a business transaction then as per the 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 of security deposit by assessee to the M/s B. B. Overseas Pvt. Ltd., the Ld. AR submitted that vide deed of cancellation dated 10th 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 that the additions sustained by Ld. CIT(A) may be deleted.
4 The Ld. DR on the other hand argued that the Assessing Officer has clearly held that the assessee did not carry any construction and the assessee was aware of the fact that no construction was permitted and therefore the agreement entered into by assessee with B. B. Overseas Pvt. Ltd. was an afterthought and is only to avoid the imposition of provisions of section 2(22)(e) of the Act.
5. The Ld. DR heavily placed his reliance on the order 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. Overseas Pvt. Ltd. The only dispute the department is that it has doubted the genuineness of the collaboration agreement which the assessee had entered into with M/s B. B. Overseas Pvt. Ltd. The main reason for disbelieving the genuineness of 7 ITA No. 647(Asr)/2016 Assessment Year: 2008-09 this collaboration agreement is that the assessee was aware of the fact that he will not be able to carry on any construction activity. In our view this finding of the authorities below is not correct, in view of the fact that assessee would not have spent a huge amount of about 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 land has clearly mentioned that the title was clear and it was not having any dispute with anybody and therefore assessee in good faith had purchased the above land for the purpose of development only. The assessee 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 entered into a collaboration agreement on 25.08.2007 for development of this land by B. B. Overseas Pvt. Ltd. and vide clause no. 6 of such agreement had undertaken to clear all cases of ceiling nature or other disputes if any.
From the copy of sale deed whereby sellers had assured the assessee that there is no dispute and copy of dismissal of cases filed by Shafikur Rehman, we find that assessee was prima-facie under a bonafide belief that everything was resolved and that is why he entered into an agreement on 25.08.2007, after the dismissal of case filed by Shafikur Rehman. The assessee was reasonably sure to make 8 ITA No. 647(Asr)/2016 Assessment Year: 2008-09 construction on this land. We further find that unfortunately the Rajashthan High Court vide its order dated 09.12.2010 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 therefore in view of stay order in force, the assessee could not handover the possession of land for the change of agriculture land to be used for development of a housing colony. These documents relating to land dispute were though filed before us, for the first time but these cannot be said to be additional documents as these all documents and the facts relating to these documents in the form of collaboration agreement were 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 public documents cannot be treated as additional evidences in the true sense of the term. Therefore these documents being vital to the main dispute and therefore these are being taken into account for the purpose of deciding this appeal.
From all these documents it is apparent that the land 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. 9 ITA No. 647(Asr)/2016
Assessment Year: 2008-09 We further find that in the case of M/s B. B. Overseas Pvt. Ltd. during original assessment proceedings, the Assessing Officer had raised an enquiry regarding the said advance of Rs.1,20,00,000/- and assessee vide reply dated 1st 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 mehra towards security deposit against Collaboration Agreement copy of agreement is enclosed herewith. The amount paid Rs.1,20,00,000/-(Rupees one crore twenty lacs only) for business purposes of the company, thus section 2(22)(e) is not applicable. As our understanding and correspondence with the owner of the said land, a court case has been made by The State Government of Rajasthan at the Tribunal Court at Ajmer/High Court of Rajasthan under Land Ceiling 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 course 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 process 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 the transaction was a business transaction. We further find that the above 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 examine 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 recorded by Assessing Officer are reproduced below:
"During investigation, when Sh. Saket Mehra was asked to explain the same, he stated this receipt of Rs. 1.2 Cr by him 10 ITA No. 647(Asr)/2016 Assessment Year: 2008-09 towards collaboration agreement of the company to develop a residential colony/commercial /group housing project at village Ram Nagar/Badgaon, Distt - Kota, Rajasthan. As per the agreement submitted, the assessee received an interest free security 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 disputed since 1991 and it was purchased, during the litigation, by the Sh Saket Mehra in the year 2006. As per the submission of the assessee till date the status of the said land is agricultural land and no construction has started on the land parcel owing to the -litigation. It is observed that the nature of the transaction is not 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 residential 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 provisions of deemed dividend u/s 2(22)(e) of the ! T Act. Further, if the transaction is suspected, its genuineness comes into question and the source of such fund of Rs. 1.2 Crore in the hand of Engage Enterprises Pvt Ltd is also remains to be verified leading to reason 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 the 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 assessing officer and reply filed by us during the course of original assessment 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 (Shareholder) during the assessment year 2008-09 and asked for applicability of section 2 (22) (e).
Following reply filed by the assesse company alongwith the evidence.
The Assesse company paid Rs. 1,20,00,000/- (Rupees one crore twenty lacs only) during the year to Mr. Saket Mehra towards security deport against Collaboration Agreement, copy of agreement is enclosed herewith The amount paid Rs. 1,20,00,000/- (Rupees one crores twenty lacs only) business purposes of the company, thus section 2(22) (e) is not applicable.
11 ITA No. 647(Asr)/2016
Assessment Year: 2008-09 (2) Source of cash deposited into bank account by the company during the year.
Following reply filed by the assessee company alongwith the evidences. The assessee company deposited cash Rs.20,00,000/- into their Bank Account in December 2007 (Rs.10,00,000 on 22.12.2007 and Rs.10,00,000/- on 24.12.2007 respectively). The said amount was withdrawn by the assessee company from their bank account for business purpose, which was not utilized and thus deposited back into their Bank Account. A certified copy of Cash Book for the month of December 2007 and a copy of Bank statement in the month of December 2007 are enclosed herewith. The deposit in the Bank is out of available cash in hand in the books of accounts of the assessee company."
After the receipt of such reply, the Assessing Officer passed assessment order on 26.10.2015 and again did not make any addition with respect to said transaction of Rs.1,20,00,000/-. For the sake of completeness, the relevant para of Assessing Officer is reproduced below:
"2. The information was received from investigation wing that Sh. Saket Mehra had an outstanding unsecured loan f rom 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 interest free loan. However, it is said that it is a interest free security for the development of residential colony as per the collaboration agreement between the company. The transaction is suspected, if genuineness comes into question and the source remains unverified than the action as per the IT Act is to be taken on receipt of the information, the reasons were recorded in writing and 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 letter was filed on
23. .'4.2015, where in it was stated that in response 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 is illegal, bad in law and without jurisdiction with a request to issue the reason recorded. The reasons recorded were issued. The notice u/s 143(3) and 142(1) of the IT Act, 1961 were issued. The assessee filed the objection, against the issue of notice and the reasons recorded before issue of notice dated 19.10.2015. The speaking order against the objection raised was made & forwarded to the assessee. 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 genuineness of transactions was asked to be filed. The details filed and verified.12 ITA No. 647(Asr)/2016
Assessment Year: 2008-09 The books of accounts alongwith the bills & vouchers 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 Assessing Officer had accepted the transaction of Rs. 1,20,00,000/- in the hands of B. B. Overseas Pvt. Ltd. as business transaction and therefore not accepting the same transaction in the hands of second party which is assessee is not correct. Therefore we hold that the said transaction of Rs. 1,20,00,000/- was a business transaction and for a business transaction, the addition u/s 2(22)(e) cannot be made as such transactions has been kept out of purview of the section 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 the 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 commercial transactions would not fall within the ambit of the provisions of section 2(22) (e) of the Act. Such views have attained finality.
2.1 Some illustrations/examples of trade advances/commercial 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 section 2(22) (e) of the Act. (CIT vs. Creative Dyeing & Printing Pvt. Ltd.1 Delhi High Court).
(ii) Advance was made by a company to its shareholder to install plant and machinery at the shareholder's premises to enable him to do job work for the company so that the company could fulfill an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. (CIT vs. Amrik Singh, P&H High Court)2.13 ITA No. 647(Asr)/2016
Assessment Year: 2008-09
(iii) A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilized gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister was a business transaction 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 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. Accordingly, 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." In view of the above facts, we are in agreement with the arguments of assessee that the said transaction was a business transaction and is therefore out of the purview of section 2(22)(e) of the Act.
Moreover we find that assessee had repaid such deposit 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 held 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 that the assessee had received Rs.10 Lakhs from Sat Agrotech Overseas Pvt. Ltd. and thereafter booked a plot in Jammu and Kashmir Housing Board, however, the same was declined due to one or other reason and finally the deal of the property under question could not be matured, therefore, the earnest money was returned back to the 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:14 ITA No. 647(Asr)/2016
Assessment Year: 2008-09 "2.1 Some illustrations/examples of trade advances/commercial 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 for job work done by the sister concern. It was held that amounts advanced for business transactions do not to fall within the definition 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 shareholder to install plant and machinery at the shareholder's premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act, (OT vs Amrik Singh, P&H High Court)'.
iii. A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilized gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction 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. In view of the above it is. a settled position 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. Accordingly, 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 all concerned."
If we consider the circumstances of the instant case, the Board of the Sat Agrotech Overseas Pvt. Ltd., vide resolution, authorized the Assesse to apply, sign and submit the application, papers, draft/cheque, etc. to be submitted for the purchase of commercial plots being leased out by J&K Housing Board in Sector- 2, in Housing Colony, Channi Himmat, Jammu.
Further, it was also resolved and agreed amongst the 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 handed over to 15 ITA No. 647(Asr)/2016 Assessment Year: 2008-09 company for its commercial use or any other purpose which the company decides in future and if the commercial plot is not allotted by the J&K Housing Board then the amount shall be refunded 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 deposited with the authority of the J & K State, however, due to non-maturity of the sale, the earnest money was refunded to the assessee and the same money was returned back to the Sat Agrotech Overseas 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 allowed, 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 assessee 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