$~71
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on: 6th March, 2019.
+ ITA 217/2019
VIKRAM KRISHNAN ..... Appellant
Through: Mr. S. Krishnan, Adv.
versus
PRINCIPAL COMMISSIONER OF INCOME TAX ..... Respondents
Through: Mr. Ashok K. Manchanda, Sr. Std.
Counsel.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE PRATEEK JALAN
S. RAVINDRA BHAT, J. (OPEN COURT)
%
1. The assessee is aggrieved by an order of the ITAT, which upheld the
AO's determination with respect to the addition made in this case for A.Y.
2010-11 under Section 2(22)(e) of the Income Tax Act, 1961
2. It is urged that the ITAT fell into error in not noticing the true nature
of the transaction for refund of the advance amounts received by the
assessee from the vendee company of which, he was a director.
3. The assessee, an individual deriving income from salary, house
property, capital gain and interest from certain banks etc. was a director in a
closely held company M/s Charu Home Products (P) Ltd; and was also a
shareholder to the extent he also held 50% of its shares. The assessee
ITA 217/2019 Page 1 of 6
declared 50,32,223/- in the income returned by him which was subjected
to scrutiny assessment under Section 143(3). During the course of
assessment proceedings, the AO issued a Show Cause Notice as to why the
addition ought not to be made with respect to the sum of 1,01,36,328/-
under Section 2(22)(e). Apart from denying the general applicability of that
provision, the assessee did not produce any material in support of its
contentions. On the addition being made and the same brought to tax, the
assesse preferred an appeal; the CIT(A) elicited no less than three remand
reports. In the course of these remand proceedings, the assessee furnished
agreements to sell that he had entered into with the company [vendee i.e.
Charu Home Products (P) Ltd], other materials in the form of cancellation
deed and copies of bank statement etc. were also furnished. The assessee
contended that his property was sought to be sold to the company [of which
he was the director and substantial shareholder] but the deal misfired and
did not materialise.
4. According to the original agreement to sell the property, the parties
had fixed the consideration payable to the assessee by his company at 8
crores. However, the advance made was to the tune of 1.8 crores. The
cancellation deed in this case was executed between the parties on
01.08.2009, however, the amounts paid to the assessee by the company
were refunded by him over a period of merely six months ending in March,
2010. The CIT(A) was satisfied with the explanation and held that the
amounts could not be brought to tax under Section 2(22)(e).
5. The CIT(A) was of the opinion that there was no reason to disbelieve
the assessee's explanation, having regard to the overall circumstances of the
case. The ITAT, to whom the Revenue appealed, agreed with the view of
the AO and set aside the CIT(A) orders.
ITA 217/2019 Page 2 of 6
6. Mr. Krishnan, learned counsel for the assessee contended that the
ITAT's order is erroneous because it disbelieved the assessee's submissions
principally on the ground that no explanation was given during the course
of assessment proceedings. It was urged that once the Rule 46A application
was allowed and additional material was brought on record, which was
subject to no less than three remands, after which the CIT(A) by a detailed
order accepted the assessee's explanation, the ITAT ought not to have
interfered with the exercise of discretion in the course of his justified
jurisdiction by the CIT(A). The ITAT elaborately noted the sequence of
events as well as the nature of the documents presented during the course of
proceedings. It also noticed that according to the prevailing law, the general
approach of the Revenue is to exclude a genuine commercial transaction.
from the purview of Section 2(22)(e). However, having regard to the
overall circumstances of the case the ITAT disbelieved the assessee's
explanation stating as follows:-
"10. We have carefully considered the rival contentions and
perused the order of the Lower Authorities. The assessee has
received sums from M/s Charu Home Products Pvt. Ltd. from
8/6/2009 to 27/7/2009 to the extent of Rs. 18154741/- as the
assessee is holding more than 50% shares and the Company
has reserve and surpluses as on 1/4/2009 of Rs. 10136328/-, the
Ld. Assessing Officer issued show cause notice to the assessee
that why the above amount should not be taxed u/s 2(22)(e) of
the act as deemed dividend. Before the A.O the assessee did not
submit that the above transaction is a business transaction and,
therefore, the Ld. A.O taxed the above sum as deemed dividend.
Before the Ld. CIT(A), the assessee submitted one agreement to
sale dated 8/6/2009 and another cancellation deed of the same
agreement dated 1/8/2009 for a property owned by the assessee
to state that the above transaction is a business transaction and
the sum is business advance, hence provision of section
2(22)(e) does not apply. It was stated that sum has been
ITA 217/2019 Page 3 of 6
received by the assessee in terms of Agreement to sell dated 8 th
June 2009 between the assessee and the Company for purchase
of property at 41, Sector 15, Noida. Such Agreement to sell
dated 8th June 2009 for an agreed sale consideration of Rs. 8
crores. On 8/6/2009, the assessee entered into a deed of
cancellation stating that buyer could not arrange Rs. 6.1
Crores for purchase of the property and hence the Agreement
to sell original entered between the assessee and the Company
stood cancelled. The assessee stated that the above sum of
advance of Rs. 1.81 crores is, therefore, a business advance to
which the provisions of deemed dividend does not apply.
During the course of remand proceedings, the assessee was
summoned and asked that the property was a leasehold
property and was to be used for the development. The Company
could not raise the funds from the banks, which resulted into
cancellation of the agreements. The assessee could not explain
being the Director that which bank was approached and what
efforts were made.
Even the assessee himself could not show which bank was
approached. No documentary evidence could be produced
before the A.O. Further, the property was leasehold property
what efforts were made by the assessee Director to sell the
property and transfer lease rights; he submitted that as the
property could not be sold he did not do and efforts for lease.
On many other question, he expressed his ignorance about the
efforts, bank approached, etc. The assessee was also asked that
the money was received by him from the Company and
cancellation deed was entered into on 1/8/2009 why payments
could not be returned by the assessee up to 31/3/2010
completely. To this, the assessee merely stated that 96 lakhs
were paid back in the months of August and October 2009 and
the balance sum was paid on 30th March 2010 and 31st March
2010. The Agreement clause did not also have any forfeiture
clause and further despite having the right of enforcement, the
assessee did not make any effort. On analysis of the loan
transaction between the assessee and the company, from the
copy of the account at Page No. 2 of the Assessment Order it is
apparent that assessee started receiving loans from the
company from 8/6/2009 from the Company. The assessee tried
ITA 217/2019 Page 4 of 6
to justify that there was an agreement to sell the property to the
Company. The moment, the assessee repaid the sum in part
there was a Deed of Cancellation of Agreement to Sale. It is
apparent that the assessee also received on 3/7/2009 a sum of
Rs. 308000 and on 27/7/2009 a sum of Rs. 70,000/- only. It is
also interesting to note that on 22/7/2009 the assessee was
paid Rs. 46.50 lacs by the Company and on 27/7/2009 assessee
was also paid Rs. 70,000/- and within 4 days the Company
came to know that it is not in a position to raise the further sum
of 6.1 Crores. No evidence or explanation is forthcoming on
this point form assessee. The repayment of the sum was also
made on 30/3/2010 of Rs. 78 lacs after 8 months of the
cancellation deed, which should have been otherwise repaid
immediately. There is no claim of interest by the company or
any efforts to recover the above sum from the director. Not all
these facts inspire any confidence that Agreement to sell,
subsequent cancellation entered into within merely one, and
half months by the assessee and the Company is a business
transaction. The LD AO in remand report has specifically
stated that the documents produced shows lack of genuineness.
It is also apparent that there is no whisper before the Assessing
Officer about any such transaction of the Agreement to sell by
the assessee. These entire documents have come as additional
evidence before the CIT(A), which were examined by the dl AO
and raised serious doubt after examining the assessee on oath.
It is also interesting to note that the deed of cancellation was
made on stamp paper dated 27th July 2009 where as on 22nd
July 2009, the assessee was paid 46.50 lacs and even on 27 th
July 2009, the assessee was made paid 70,000/- towards the
purchase of the property. It is surprising that on the one side on
the same date, the Agreement to sell is being cancelled. The
assessee being a Director of the Company was also not aware
that how Rs. 8 crore could be arranged by the Company for the
payment of above land. The assessee could not show what
efforts were made by the Company and which bankers were
approached for the loan. Therefore, in view of the above
peculiar facts it is apparent that Agreement to Sell dated
8/6/2009 and cancellation of such deed by Agreement dated
1/8/2009 for the purchase of property is merely cover up and a
camouflage for giving loan to the assessee by the above
ITA 217/2019 Page 5 of 6
Company to avoid contravention of the provision of Section
2(22)(e) of the Act. Assessee also failed to give the adequate
evidence and cogent, reliable, and credible evidences about the
transaction. The ld. CIT(A) has completely brushed aside
finding of the A.O. in remand report and the statement of the
assessee and further has not applied his mind to find out the
true nature of the transaction. "
7. This Court is of the opinion that the ITAT's decision is based upon
an independent analysis of the facts. No doubt it differed from the CIT(A)'s
view. At the same time all its findings are based upon appreciation of
material facts. Its conclusion are a possible view that can be taken by the
Tribunal based upon the circumstances. The acceptance of one view on
facts as against another, unless it showed to be wholly unreasonable, cannot
be subject matter of an appeal under Section 260A of the Act.
8. Consequently, no substantial question of law arises. The appeal is
therefore, dismissed.
S. RAVINDRA BHAT,J.
PRATEEK JALAN,J.
MARCH 06, 2019
`pv'
ITA 217/2019 Page 6 of 6
|
