PR COMMISSIONER OF I T NEW C R B JAIPUR vs. ASHOK KUMAR AGARWAL

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ITA/168/2016HC RajasthanRJHC02082168201629 September 20164 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the transactions made by the assessee and the company were for business purposes and were not deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The Tribunal reasoned that the assessee had made numerous payments back to the company, ultimately squaring up the account by the financial year-end. It noted that both parties were in the real estate business, where agreements to sell are common practice. The Tribunal considered the agreement to sell dated 22.7.2009 and accepted the assessee's explanation for not fulfilling certain conditions, such as changes in land use regulations by the JDA. The Tribunal found that the case laws relied upon by the assessee were squarely applicable. Therefore, the Tribunal allowed the assessee's appeal and reversed the order of the CIT(A). The High Court agreed with the Tribunal's appreciation that the transactions were cleared by the financial year-end and found the appeal devoid of merit, with no substantial question of law arising.

What were the facts?

The Department appealed a judgment of the Income Tax Appellate Tribunal (ITAT) which reversed an order of the Commissioner of Income Tax (Appeals) [CIT(A)] and allowed the assessee's appeal. The assessee, Ashok Kumar Agarwal, had withdrawn substantial amounts from the company for personal use, including repayment of land to Smt. Renu Agarwal, construction of his house, purchase of land, advance tax payments, LIC premiums, and loan installments. The Assessing Officer (AO) noted these withdrawals were for personal benefit. The CIT(A) upheld the AO's view. The ITAT, however, found that the assessee had made numerous payments back to the company, squaring up the account by the financial year-end. The ITAT noted that both the assessee and the company were in the real estate business, where agreements to sell are common to save stamp duty and increase profits, a practice accepted by the AO in previous years. The ITAT considered an agreement to sell dated 22.7.2009 and explained reasons for non-fulfillment of certain conditions, attributing the transactions to business purposes.

What were the issues?

1. Whether the amounts withdrawn by the assessee from the company for personal expenses, such as house construction, loan repayment, advance tax, LIC premium, and land purchase, constitute deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. Assessee's Contentions: The assessee argued that the transactions were for business purposes, supported by an agreement to sell dated 22.7.2009. They contended that while certain conditions of the agreement were not fulfilled, this did not negate the business nature of the loans and advances. The assessee also relied on the findings of the Delhi High Court in CIT vs. Creative Dyeing and Printing Pvt. Ltd. and orders of the Income Tax Settlement Commission in the cases of M/s. Career Point Infosystems Ltd. and others. Revenue's Contentions: The revenue contended that the amounts withdrawn by the Managing Director (assessee) were for his personal benefit and not for business purposes. They argued that the 'Ikrarnama' (agreement) was created subsequently and that the Tribunal erred in reversing the CIT(A)'s order. The revenue asserted that the transactions were not for business purposes.

Which sections of the Income-tax Act were involved?

Section 2(22)(e)

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. D.B. Income Tax Appeal No.168/2016 Pr. Commissioner of Income Tax-Central, Jaipur Vs. Ashok Kumar Agarwal DATE OF JUDGMENT ::: 29th September, 2016 HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE BANWARI LAL SHARMA Mr. Anil Mehta, for the appellant. ***** BY THE COURT:- (Per Hon'ble Jhaveri, J.)

1.

By way of this appeal, the Department has challenged the judgment & order of the Income Tax Appellate Tribunal dismissing the appeal preferred by the Department and allowing the assessee appeal and reversing the order of CIT(A).

2.

Counsel for the appellant has contended that CIT(A) in paragraph no.4 observed as under: “On perusal of the bank statement of the appellant it is seen that substantial amounts were freely being withdrawn by him from the books of company as per his personal requirement. For example, an amount of Rs.10 lakh was withdrawn on 10.7.2009 which was used for repayment of land to Smt. Renu Agarwal and for payment for construction of the appellant's house at 10B plot. Similarly another Rs.10 lakh was withdrawn on 13.7.2009 which was used primarily for construction of his house. Another amount of Rs.8.65 lakh was withdrawn from the company which was used for payment of Rs.5 lakh for purchase of plot from Kavindra

2 Jain. Thus the amounts were being withdrawn by the Managing Director i.e. the assessee from the company and were being used by him for his personal benefit that is for construction of his house, repayment of loans, payment of his advance tax, LIC premium, loan installment payment to ICICI Bank etc. and for purchase of land in his own name. Thus money was regularly withdrawn by him from the company and used for his personal expenses.” “The AR of the appellant has relied on the Ltd. ITA No. 250/2009 dated 22.9.2010 and the order of the Income Tax Settlement Commission in the cases of the M/s. Career Point Infosystems Ltd. Sh. Pramod Kumar Maheshwari, Sh. Om Prakash Maheshwari and Sh. Naval Kishore Maheshwari(S.A. No. RJ/JP51/2011-12/28 to 31-IT).”

3.

He contended that the amount which has been withdrawn from the company account for his personal benefit that is for construction of his house, repayment of loans, payment of his advance tax, LIC premium, loan installment payment to ICICI Bank etc. and for purchase of land in his own name. Thus money was regularly withdrawn by him from the company and used for his personal expenses. He further contended that the transactions were not for the business purpose and the documents namely the Ikrarnama was created subsequently. In that view of the matter, the Tribunal has seriously committed an error in reversing the order of CIT (Appeals).

4.

We have heard counsel for the appellant.

3

5.

Tribunal while considering the case in Paragraph 6 more particularly internal page 10 has discussed in detail as under: “On 21.8.2009 again he paid Rs.2 lakhs to compnay, Rs.9.5 lakhs on 28.7.2009, Rs.3 lakhs on 13.10.2009, Rs.1.25 lakhs on 15.10.2009, Rs.5 lakhs on 26.10.2009, Rs.5 lakhs on 29.10.2009, Rs.20 lakhs on 10.2.2010 and Rs.60 lakhs on 10.3.2010 (Rs.20 lakhs each) and Rs.13 lakhs on 10.3.2010 and Rs.1.25 lakhs on 10.3.2010 which show that there are numbers of transactions between the assesse and company. Finally, the assessee's account has been squared up. The assessee and company are in real estate business. It is a general practice in the line of business that most of the land are purchased and sold on agreement to sale basis to save the stamp duty and to increase the profit on the transactions. These facts have been accepted by the AO in scrutiny assessment also in number of years. The condition laid down in the Section 2(22)(e) are squarely applied in case of the assessee but only issue disputed is whether these advances were loan for business purpose or otherwise. The prima facie copy of accounts in the books of the company shows that assessee had paid much more than amount received from the company. The transactions were regular. The assessee produced the evidence before the lower authorities to justify the transaction as a business transaction on the basis of agreement to sale dated 22.7.2009. There were certain conditions as per this Ikrarnama, which could not be fulfilled by the assessee but it does not mean that assessee's loans and advances are not for business purposes. The ld. A/R of the assesse had explained the reasons for not getting 90B done of agricultural land at Village Ajayrajpura, Tehsil Sanganer as Draft Master Plan got changed by the JDA by draft Notification dated 10.11.2009 wherein it has been decided by the JDA that land use under 90B was to be approved not less than 25 acres but in final Master Plan this areas has been reduced to 10 hectares. The assessee fild

4 application on 23.8.2012 under Section 90B of the Land Revenue Act before the JDA which was rejected by the JDA. The case laws relied on by the ld. A/R are squarely applicable on the facts of the case. Therefore, we hold that transactions made by the assessee and the company are for business purpose and are not deemed dividend under Section 2(22)(e) of the Act. Accordingly, we allow the assessee's appeal and reverse the order of ld. CIT(A).”

6.

In our view, the Tribunal has rightly appreciated that on the last date of ending of the financial year he has cleared all the transactions.

7.

The appeal is devoid of merit and no substantial question of law arises in this appeal.

8.

The appeal stands dismissed. (Banwari Lal Sharma), J. (K.S. Jhaveri), J. Brijesh 29

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