Madhya Pradesh H.C : Where Assessing Officer made addition to assessee’s income in respect of certain amount received from ‘P’ by invoking provisions of section 2(22)(e), in view of fact that said amount was received through account payee cheques in accordance with sale agreement entered into between assessee and company ‘P’ for sale of land owned by assessee, impugned addition deserved to be deleted

High Court Of Madhya Pradesh

CIT Vs. Om Prakash Suri (No. 2)

Assessment Year : 2004-05

Section : 2(22)

P.K. Jaiswal And Mrs. S.R. Waghmare, Jj.

It Appeal No. 4 Of 2013

August  29, 2013

JUDGMENT

1. Shri R. L. Jain, learned senior advocate with Ms. Veena Mandlik, advocate, for the appellant.

2. Shri P. M. Choudhary, advocate, for the respondent.

3. Heard on the question of admission.

4. Brief facts of the case are that the assessee is an individual. The assessee filed his return of income for the assessment year 2004-05 on March 31, 2005, declaring a total income at Rs. 13,08,140. The return was processed under section 143(1) of the Income-tax Act, 1961. Subsequently, notice under section 148 was issued. During the assessment proceedings, the Assessing Officer observed that the assessee has paid Rs. 1,94,58,728 from the company M/s. Puzzling Equipref Services (P.) Ltd. (PESPL). On the Assessing Officer’s query to add the said amount under section 2(22)(e) of the Act, the stand of the assessee was that the amount was not received as a loan but as an advance against sale of its land situated in Gadatekri, Indore. Considering the submission of the assessee, the Assessing Officer held that the transaction was in the nature of loans and advances and, hence, invoked the provisions of section 2(22) (e) on account of deemed dividend. On finding that the accumulated profit of the company was Rs. 58,43,165, the Assessing Officer restricted the addition under section 2(22)(e) to the extent of accumulated profit, i.e., Rs. 58,43,164.

5. In an appeal the learned Commissioner of Income-tax (Appeals) upheld the addition of the Assessing Officer, on account of deemed dividend and directed that the addition to the extent of Rs. 57,57,676 is required to be made in the assessment year 2004-05 and the remaining amount of Rs. 85,488 was to be added to the income of the assessment year 2005-06 under section 2(22) (e) of the Act.

6. The assessee preferred further appeal before the Income-tax Appellate Tribunal Bench Indore. As against the appeal filed by the assessee for the assessment year 2005-06, the Income-tax Appellate Tribunal, Indore held that the amount was received by the assessee from PESPL against the sale of the land and thus the receipt is not in the nature of loans or advances. The Income-tax Appellate Tribunal, Indore, deleted the addition made by the Assessing Officer on account of section 2(22)(e).

7. Meanwhile, as per the direction of the learned Commissioner of Income-tax (Appeals) the case of the assessee for the assessment year 2004-05 was reopened and accordingly the assessment order was passed under section 143(3)/147 dated June 7, 2010, wherein the addition of Rs. 57,57,676 was made by the Assessing Officer under section 2(22)(e). The assessee went on appeal in his case for the assessment year 2004-05 against the addition of Rs. 57,57,676 under section.2(22)(e). The learned Commissioner of Income-tax (Appeals) relying on the decision of the Income-tax Appellate Tribunal, Indore, dated January 3, 2012, for the assessment year 2005-06, in the case of the assessee and deleted the addition of Rs. 57,57,676 in the assessment year 2004-05. Thereafter, the Revenue preferred the appeal before the Income-tax Appellate Tribunal Bench Indore for the assessment year 2004-05. The learned Income-tax Appellate Tribunal relying on its earlier decision dated January 3, 2012, dismissed the appeal by the impugned order dated August 28, 2012, by holding that the issue towards of deemed dividend under section 2(22)(e) of the Act was decided in the favour of the assessee and dismissed the appeal of the Revenue. The relevant paragraph of the order dated January 3, 2012, passed by the Income-tax Appellate Tribunal in I.T.A. No. 425/ind/2009 for the assessment year 2005-06 is relevant which reads as under :

“5. The next ground pertains to confirming the addition of Rs. 85,488, considered as deemed dividend under section 2(22)(e) of the Act. The learned counsel for the assessee strongly objected the addition, whereas the learned senior Departmental representative defended the impugned order.

5.1 We have considered the rival submissions of the learned representatives of both sides and perused the material available on record. With regard to the addition made under section 2(22)(e) of the Act, the Assessing Officer observed that during the year, under consideration, the assessee has taken the following amounts of Rs. 1,94,58,728 from the company :

Date Particulars Debit amount Credit amount
01-04-04 By op. Bal-   8,798,728
01-04-04 By cheque   600,000
08-04-04 By cheque   1,150,000
08-04-04 By cheque   1,550,000
02-06-04 By cheque   800,000
02-06-04 By cheque   1,900,000
02-07-04 By cheque   1,750,000
18-09-04 By cheques   1,00,000
05-10-04 By cheques   700,000
30-03-05 By cheques   410,000
  Total   1,94,58,728

On the Assessing Officer’s query to add the said amount under section 2(22)(e) of the Act, the stand of the assessee was that the amount was not received as a loan but as an advance against the sale of its land situated in Gram Sinhansa Tehsil and District Indore. To support the contention the assessee has filed agreement to sell dated January 19, 2004, before the Assessing Officer. However, the Assessing Officer was not convinced with the same and held that the transaction was in the nature of loans and advances. On finding that accumulated profit of the company was Rs. 58,43,165 he restricted the addition under section 2(22)(e) of the Act to the extent of accumulated profit, i.e., Rs. 58,43,165.

On appeal before the learned Commissioner of Income-tax (Appeals), the assessee contended that the amount was received as loans and advances. However, the learned Commissioner of Income-tax (Appeals) found that the accumulated profit of M/s. Puzzling Equipref Services P. Ltd. was Rs. 57,676 as on March 31, 2004, and Rs. 58,43,164 as on March 31, 2005. Accordingly, he directed that the addition to the extent of Rs. 57,57,676 is required to be made in the assessment year 2004-05 and the remaining amount of Rs. 85,488 was added to the income of the year under consideration. Further aggrieved, the assessee is in appeal before the Tribunal. We have perused the material available on record and also gone through the agreement to sell dated January 19, 2004, placed on record (pages 59 to 63 of the paper book). We find that the land was owned by the assessee which he agreed to sell to M/s. Puzzling Equipref Services P. Ltd. for a consideration of Rs. 2,53,60,000. As per the terms of the agreement, M/s. Puzzling Equipref Services P. Ltd. was required to pay a part of the sale consideration in advance. The agreement to sell also witnessed payment of these amounts through account payee cheques to the assessee on various dates as mentioned at page 3 of the agreement to sell. Thus, we find that the amount so received by the assessee was against the sale of land owned by him title of which is clear from the documents placed on record. Since the amount was received as a sale consideration in the normal course of business, the same cannot be branded as loans and advances. We also find that in its audited balance-sheet also, the assessee has changed the head of its classification from loans and advances to investment in the subsequent year. We, therefore, do not find any merit in the action of the lower authorities for treating the transaction as in the nature of loans and advances. The ground of the assessee is, therefore, allowed in his favour.”

8. The Income-tax Appellate Tribunal while deciding the identical facts for assessment year 2005-06 found that the agreement to sale was also witnessed payment of the impugned amount through account payee cheques on various dates which were mentioned on the said sale agreements per the terms and conditions of the sale agreement. The amounts were received from the assessee against the sale of land and the title of which was clear from the documents placed on record and the impugned amounts were received in the normal course of business in sale transaction, consequently, these cannot be branded as loan advances. The learned Tribunal has held that such transaction would not come under the provisions of section 2(22)(e)pf the Income-tax Act, 1961.

9. Learned senior counsel for the appellant has submitted that the order dated January 3, 2012, passed by the Income-tax Appellate Tribunal in respect of the assessment year 2005-06 the same has attained finality land, therefore, relying on the same the learned Tribunal passed the impugned order.

10. The relevant paragraph of the impugned order reads as under :

“We have perused the agreement to sale (pages 28 to 32 of the paper book). As per clause 2 of the said agreement (page 39 of paper, book), the amount of Rs. 2,53,60,000 was agreed to be given to the assessee by the purchaser and part of the payment was received through cheque. The assessee was also supposed to get conversion of the land within two months. As per clause 10 (page 31 of the paper book), the purchaser was free to do the development work on the land and was also free to sell the same to any third-party for which the assessee had no objection. In view of these facts, it cannot be said that it was a loan or an advance to the assessee. The contents of the sale agreements are very much clear that it was a clear cut agreement of sale. No contrary facts or decision was brought to our notice by either side and more specifically the Revenue. In view of these facts, we are not in agreement with the conclusion drawn in the assessment order and affirm the stand of the learned Commissioner of Income- tax (Appeals) in accepting the claim of the assessee, resultantly, there is no merit in the appeal of the Revenue.

Finally, the appeal of the Revenue, is dismissed.”

11. In view of the aforesaid, and considering the fact that this question has also been considered by the Division Bench of this court in the Income Tax Appeal No. 4 of 2011 decided on November 24, 2011, (since reported in CIT v. Om Prakash (No. 1) [2013] 359 ITR 39 (MP)) we are of the view that there is no infirmity in the impugned order. No substantial question of law is arising in this appeal. Accordingly, the appeal fails and is hereby dismissed.

[Citation : 359 ITR 41]