INCOME TAX ACT, 1961

Section 2(22)(e)

Dividend - Deemed dividend under section 2(22)(e) - Advance received for commercial purpose -

Assessee, was managing director of M/s. BNT Connections Impacts Limited, a public limited company engaged in the business of manufacture and export of readymade garments. The shares of the company were held by the assessee and his brother and assessee owned 85% of the stake in the company. Assessee was also sole proprietor of M/s. BNT Connections. During financial year 2005-06, all the liability and assets, except land and building situated in Perambur of M/s. BNT Connection's was taken over by M/s. BNT Connections Impacts Limited. During 2011-12, company entered into sale agreement with assessee for purchase of land and building for a sale consideration of Rs. 10 crores and in pursuance of agreement, the company made a property advance during financial years viz, (financial year) 2011-12: Rs. 10,00000, financial year 2012-13: Rs .1,35,00,000, fiancial year 2013-14: Rs. 2.31,00,000. On 05-12-2013, the two parties extended the period of agreement for one more year that was still 31-3-2016 and further an advance of Rs. 79 lakhs was paid and thus a total of Rs. 4,55,00,000 paid. While making assessment for the assessment year 2014-15, AO considered these transactions and assessee's explanation, material etc and treated Rs. 2.31 crore as deemed dividend under section 2(22)(e). Assessee submitted that impugned advances made for commercial and business purposes could not be treated as deemed dividend under section 23(22)(e). Held: As apparent, After takeover of possession of premises the company had invested in additional plant and machinery and consequently manufacturing base had expanded substantially, which resulted in overall increase in turnover of company from Rs. 38.00 crores to Rs. 50.00 crores and operating profit of the company also substantially increased from Rs. 2.6 crores to Rs. 4.54 crores. Therefore, it was proved beyond reasonable doubt that property advance of Rs. 2.31 crores paid by company to assessee was purely business and commercial transaction and hence section 2(22)(e) could not invoked for such business and commercial transaction as per CBDT Board Circular No 19/2017. Accordingly, addition made by AO could not be sustained.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 23

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