The Income Tax Appellate Tribunal, Visakhapatnam, recently ruled that advances given to the directors of a Company for purchase of land cannot be treated as ‘deemed dividend’ under section 2(22)(e) of the Income Tax Act, 1961 since the land is transferred to the company within time.
The tribunal bench comprising of Shri.V.Durga Rao and accountant member Shri.D.S.Sunder Singh held so while allowing the appeal filed by assesse.
The present appeal filed by the assessee was directed against the order of the Commissioner of Income Tax (Appeals) Vijayawada for the assessment year 2012-13.
During the assessment proceedings, AO found that an amount of `1,28,25,277/- was outstanding as loans and advances to the Directors. The assessee company having an accumulated profit and the Directors are having more than 10% share in the shareholding of the company. Assessee explained that the company has entered into an agreement for purchase of vacant site belonging to Mr. D.L.V. Sridhar, M.D. of the company for a consideration of ` 1.50 crores. Being dissatisfied by the explanation given by the assessee, the Assessing Officer held that the loans and advances given to the Directors should be treated as a deemed dividend u/s 2(22) (e) of the Income Tax Act, 1961.
Before the Tribunal, the assessee explained that there is no case for taxing the genuine advances as deemed dividend u/s 2(22) (e) of the Act.
Though assessee went for an appeal before CIT(A), the original was sustained. Aggrieved assessee contested the appeal before the ITAT. During the appeal hearing, the AR contented that no case for suspicion regarding the genuineness of advances given to the assessee as a business consideration and purely related to the business decision.
On contrary to this, the revenue contended that it is a clear diversion of funds and indirect distribution of the accumulated profits in a colourable device of advance for purchase of the property.
The tribunal bench observed that the facts of the decisions cited by the first appellate authority while dismissing the assessee’s appeal are distinguishable and not applicable in the assessee’s case. The bench held that since the land was transferred, there is no reason to suspect the genuineness of the transaction and to support the argument of the Ld. D.R. as colourable device.
Finally the bench declared that department failed to place any evidence to show that the transaction is not genuine or bogus and do not find any reason to sustain the order of lower authority. The appeal filed by the assessee got allowed.
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