ITO 19(3)(4), MUMBAI vs. VIKRAMDITYA KUKREJA, MUMBAI

The revenue has filed this appeal challenging the order dated 07-11- 2012 passed by Ld CIT(A)-30, Mumbai and it relates to the assessment year 2007-08. The revenue is assailing the decision of Ld CIT(A) in cancelling the assessment of Rs.13.36 lakhs made u/s 2(22)(e) of the Act.

The assessee is a shareholder having substantial interest in a Company named M/s Kukreja Builders Pvt Ltd (hereinafter “Company”). The AO noticed that the assessee has availed a loan of Rs.18.00 lakhs from that company and hence the AO examined the same in terms of the provisions of sec. 2(22)(e) of the Act. The assessee submitted that the above said company originally entered into an agreement with two persons for purchasing an agricultural land and the above said sum of Rs.18.00 lakhs was paid in that connection. The assessee submitted that the company had intended to convert the land into Non Agricultural land and then develop a construction project. Later it came to the notice of the company that only agriculturists can purchase the agricultural land and a limited company cannot purchase agricultural land. Accordingly a supplementary agreement was entered into, by virtue of which the name of the assessee and his brother Shri Manish Kukreja was substituted in the place of the Company. It was further submitted that the entry relating to purchase of land and loan receipt from the company have been passed in the books of account of the assessee by way of journal entry. Accordingly, it was contended that the amount of Rs.18.00 lakhs shown as loan received from the company has been used for purchase of land on behalf of the company and hence the same cannot be taken as personal loan attracting the provisions of sec. 2(22)(e) of the Act.

The assessing officer was not convinced with the explanations of the assessee. Since M/s Kukreja Builders Pvt Ltd was not carrying on money lending business, the AO held that the payment of Rs.18.00 lakhs to the assessee cannot be considered to be the payment made in the ordinary course of business. He further submitted that the assessee did not furnish any record to show that the steps were taken either by the assessee or by the company to convert the land into Non-Agricultural and to develop the project. Accordingly, the AO held that the provisions of sec. 2(22)(e) are attracted in this case. Since the accumulated profits of the company stood at Rs.13,36,884/- and since the same was less than the loan amount, the AO assessed the amount of Rs.13,36,884/- as deemed dividend in the hands of the assessee.

The ld. CIT(A), however, was convinced with the explanation of the assessee and accordingly held that the advances of Rs.18 lakhs was given by the company to the assessee on commercial considerations and hence the same does not fall under the purview of section 2(22)(e) of the Act. Accordingly he deleted the addition made by the AO. Aggrieved by the decision of the ld.CIT(A), the revenue has filed this appeal before us.

The ld. DR submitted that the explanation of the assessee that the land was intended to be purchased for execution of project of company cited above has not been proved by any documentary evidence. He further submitted that the assessee has not taken any step so far to convert the land into to Non-Agricultural land and further till date the assessee continuously owns the land. Accordingly, the ld. DR submitted that the ld.CIT(A) was not justified in accepting the explanations of the assessee on the face of it without any documentary evidence. Accordingly, the ld. DR submitted that the loan /advance received by the assessee cannot be considered to be for business consideration and hence the provisions of section 2(22)(e) of the Act shall squarely apply to this transaction.

On the contrary, the ld.AR submitted that the company M/s Kukeraja Builders Pvt.Ltd is in the business of construction and hence it originally entered into an agreement for purchase of land for the purpose of its business. Since the said land had been classified as agricultural land and since the agricultural land can be purchased only by agriculturists in the State of Maharashtra, the company was constrained to purchase the land in the name of one of its directors. Accordingly, the ld. AR submitted that the loan amount of Rs.18 lakhs shown in the books of the assessee actually represent cost of land which is going to be used by the company cited above. Accordingly, he submitted that the assessee has been given loan as well as land in connection with the business of the company and hence the provisions of section 2(22)(e) shall not apply. The ld. AR in support of his contention placed reliance on the following case laws: a) CIT V/s Nagindas M Kapadia-(1989) 177 ITR 0393;

We have heard the parties and carefully perused the record. We have noticed that the Ld CIT(A) has given relief to the assessee on the ground that the loan of Rs.18 lakhs as well as the corresponding land was transferred to the name of the assessee on commercial consideration, i.e. company was constrained to purchase land in the name of assessee on account of Special Laws existing in the State of Maharashtra. However, it is pertinent to note that the above said explanation of the assessee has not been substantiated with any type of documentary evidence either before the AO or before Ld CIT(A). Even before us, no material was placed by the assessee to substantiate the above said explanation. We notice that the land was purchased way back in the year 2006. When it was specifically asked about the present status of the land, the ld. AR fairly admitted that the land still remains as agricultural land only. Though it is stated that the assessee and the company are taking steps to convert the same into Non-Agricultural land, yet no document whatsoever was furnished to substantiate the explanation. Hence, we find merit in the contention of ld. DR that the explanations furnished by the assessee were not substantiated and hence it is not possible to accept the same on the face of it. Further, we notice that the amount of Rs.18.00 lakhs was claimed to have been paid by the company, when the original MOU was entered into. Later a supplementary deed was prepared, whereby the assessee and his brother’s name were substituted. Even though such kind of explanations was given, yet no details as to the cost of land, stamp duty expenses, registration expenses were furnished. It is also not stated as to what was the final cost of the land and how it was accounted in the books of the company, assessee and assessee’s brother. Further, even though it is claimed that the assessee has held the land on behalf of the company, yet it was not shown as to how the company retained its lien over the land. Hence, in our view, the explanations furnished by the assessee are obscure and self serving one. 9. We have gone through the case laws relied upon by the assessee. In the case of Nagindas M Kapadia (supra), there was a specific finding that the assessee therein received advances from the company in respect of the purchases made by the company from the assessee. In the instant case, we have noticed that the assessee could not substantiate the explanation and hence this decision cannot be relied upon by the assessee.

In the case of Harshad V Doshi (supra), the assessee therein purchased land which was to be developed by the company and the purpose of purchase of land in the name of director was to bifurcate ownership of land and development or construction of flats thereon so as to reduce the incidence of stamp duty and ultimate customers. Hence, the object was clear at the time of purchase itself and further the Tribunal has noticed that construction of projects was immediately undertaken and hence there was business consideration in arranging the affairs of the company. Under these set of facts, the Tribunal took the view that the transaction was motivated by business consideration. In the instant case, the assessee has not shown that either he or the company has taken steps to convert the land into Non-Agricultural land and to start project, even after expiry of about 8 years. Hence, in our view, the assessee cannot place reliance on this decision also.