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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
Before: Ms. Suchitra KambleDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the revenue against the order of the ld. CIT(A)-13, New Delhi dated 03.11.2016.
The moot issue pertains to the objection to the addition of Rs.7,50,22,872/- u/s 2(22)(e) of the Income Tax Act, 1961.
The undisputed facts are, • That there is cross holding of shares between the appellant and M/s THIPL. • That the assessee is the beneficial holder of shares in M/s. THIPL, having substantial interest, and M/s. THIPL has accumulated profits as on 31.03.2012.
ITA No. 2814/Del/2017 2 Today Hotels (Andhra) Pvt. Ltd. • That the sum of Rs.7,50,22,872/- received from M/s THIPL to fulfill the transaction of sale of FSI for Rs.95,00,00,000/- to THIPL, as per agreement between them. • The acquired, through auction by Hyderabad Urban Development Authority (HUDA) on 20.07.2006, a plot of 4.608 acres at Kokapet Village, Hyderabad. The sale price to be paid was Rs.62,25,40,800/-. • The possession of the plot was also handed over on 26.03.2008. The assessee intended to use the land for development of a commercial building including a multiplex. The assessee obtained a term loan of Rs.25,00,00,000/- from HUDCO on 18.01.2007, of which Rs.20,75,00,000/- was disbursed to HUDA on 26.03.2008. • Thus it is proved that the assessee has obtained a right over the property but did not have adequate funds to pay the agreed upon price to HUDA, and to complete the construction project, entered into an agreement with M/s THIPL on 30.07.2010 for sale of the FSI of the plot in question for the consideration of Rs.95,00,00,000/-, and by addendum dated 02.08.2010, M/s THIPL was also to repay the loan outstanding of Rs.19,18,00,000/- as on 13.07.2010. • During the F.Y. 2011-12, M/s. THIPL paid the sum of Rs.7,50,22,872/- to the assessee, which was utilized to pay the loan installments to HDFC. • The term loan balance as on 31.03.2012 stands reduced to Rs.11,73,58,193/-. The assessee has filed copies of the ledger accounts of M/s THIPL, HUDCO and HDFC. The assessee has filed copies of the allotment letter of the
ITA No. 2814/Del/2017 3 Today Hotels (Andhra) Pvt. Ltd. plot by HUDA, sanction letter of loan from HUDCO and HDFC, and agreements signed with M/s THIPL. • The assessee has argued before the revenue that the funds were disbursed by M/s THIPL as part of a commercial transaction of sale of FSI, and not as a loan. • The assessee has relied before the ld. CIT (A) on the judgment of the High Court of Delhi in the case of CIT Vs. Raj Kumar (2009) 318 ITR 181, wherein is was held that "Keeping the aforesaid rule in mind, the word 'advance', which appears in the company of the word 'loan', can only mean such advance which carries with it an obligation of repayment Trade advance, which is in the nature of money transacted to give effect to a commercial transaction, would not fall within the ambit of the provision of section 2(22)(e)." • Reliance was also placed on the judgment of the High Court of Delhi in the case of CIT Vs. Ambassador Travels Pvt. Ltd., where the Court has held that "since the transactions were normal business transactions, which were carried out during the course of the relevant previous year, they cannot be described as advances or loans, which form a distinct category of financial transactions." • The LD.DR relied on the order of the Assessing officer and the bare provisions of the act regarding the section 2(22)(e).
ITA No. 2814/Del/2017 4 Today Hotels (Andhra) Pvt. Ltd. 4. We have perused the material available on record. We are aware of the circular of the CBDT below w.r.t the section 2(22)(e) which is as under :
Circular No. 19/2017 F. No. 279/Misc./140/2015/ITJ Government of India Ministry of Finance Central Board of Direct Taxes
New Delhi, Dated 12th June, 2017
Sub: Settled View on section 2(22)(e) of the Income Tax Act, trade advances -reg.
Section 2(22) clause (e) of the Income Tax Act, 1961 (the Act) provides that “dividend” includes any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits.
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 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 for job work done by the sister concern. It was held that amounts advanced for business transactions do
ITA No. 2814/Del/2017 5 Today Hotels (Andhra) Pvt. Ltd. not to fall within the definition of deemed dividend under section 2(22)(e) of the (CIT 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 (CIT 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 The company utilised 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) ofthe Act. (CIT, Agra vs Atul Engineering Udyog, Allahabad High Court)
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.
The above may be brought to the notice of all
Hindi version follows. (Neetika Bansal) Deputy Secretary to Government of India
After perusing the judgment of the jurisdictional High Court relied by the Ld. CIT(A) in the order, following the circular of the CBDT and looking into the facts of the instant case, where it can be held that the advance received for sale of property rights is a commercial transaction is in the nature of
ITA No. 2814/Del/2017 6 Today Hotels (Andhra) Pvt. Ltd. trade advance, we hold that the advance received by the assessee cannot be assessed as deemed dividend.
The order of the Ld. CIT(A) doesn’t invite any interference. 6.
In the result, the appeal of the revenue is dismissed. Order Pronounced in the Open Court on 22/02/2021.
Sd/- Sd/- (Suchitra Kamble) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 22/02/2021 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR