Kewal Krishan Chhabra, Ludhiana vs Assessee

PER BHAVNESH SAINI,JM

This appeal by assessee is directed against the order of ld.

CIT(Appeals)-II, Ludhiana dated 11.12.2012 for assessment year

2008-09.

2. We have heard ld. Representatives of both the parties and

perused the material available on record.

3. Ground No. 1 is general in nature and calls for no further

findings and is rejected.

4. On ground Nos. 2 and 3, assessee challenged the addition

of Rs. 18,22,923/- on account of deemed dividend under section

2(22)(e) of the Income Tax Act. The brief facts are that the

Assessing Officer noted that the appellant Shri Kewal Krishan 2

Chhabra had a debit balance of Rs.18,22,923/- in the books of

M/s Chhabra Wines Ltd. The AO further noted that Shri Kewal

Krishan Chhabra was a Director of M/s Chhabra Wines Ltd. and

held 51.98% shares of M/s Chhabra Wines Ltd. The Assessing

Officer accordingly asked the appellant to explain why

provisions of Section 2(22)(e) of the Income Tax Act may not be

invoked. The appellant vide its letter dated 10.12.2010,

submitted that payment of Rs. 15.60 lacs was received as

advance against agreement to sell a property situated at Jail

Road, Ludhiana. The rest of the payments are contractual

payments made by the company on behalf of the appellant

against which payment of Rs.5.00 lacs was made on

23.03.2008. The Assessing Officer considered the appellant's

submissions but found it to be not satisfactory. The Assessing

Officer pointed out that no documents relating to purchase of

property had been furnished. The Assessing Officer was also of

the view that if advance has been given against purchase of

property then the entry should have been made in the property

account and not in the account of Shri Kewal Krishan Chhabra.

The Assessing Officer accordingly rejected the appellant's

contention and held that debit balance of Rs.18,22,923/-

represented loans given to Shri Kewal Krishan Chhabra. The

Assessing Officer accordingly added this amount to the total

income of the appellant u/s 2(22)(e) of the Income Tax Act.

5. The assessee challenged the addition before ld.

CIT(Appeals) and written submission of the assessee is

reproduced in the appellate order in which the assessee briefly

explained that the actual facts regarding the property are that 3

assessee is 1/3 r d owner of the property situated in Jail Road,

Ludhiana which was agreed to be sold by the assessee to the

company M/s Chhabra Wine Ltd. Vide Agreement dated

17.04.2007. The amount received from the company is duly

recorded in the books of account. The company had given

advance to the assessee for purchase of the property but the

property is not yet transferred by the assessee to the company

during the year under consideration. Since amount is given for

transfer of the property, therefore, addition is wholly

unjustified. The assessee also requested for admission of

additional evidence under Rule 46A of the IT Rules for

admission of the copy of the Agreement to Sell. The ld.

CIT(Appeals) admitted his additional evidence under Rule 46A

and also directed to file copy of the ownership of the property in

question as well as current status of the property. The assessee

ultimately pleaded before ld. CIT(Appeals) that the conditions of

under section 2(22)(e) of the Act are not satisfied in this case

being the advance in the nature of commercial transaction.

6. The ld. CI T(Appeals) considering the material on record

decided the issue against the assessee. The findings of ld.

CIT(Appeals) in para 4.3 of the appellate order are reproduced

as under :

4.3 I have carefully considered the appellant's submissions. The following facts are noteworthy :-

i) As per appellant's reply to the Assessing Officer vide his letter dated 10.12.2010, which has been quoted on Page-3 of the assessment order, the appellant was paid, the appellant was paid an amount of Rs. 15.60 lacs as advance against sale agreement.

ii) As per the copy of agreement to sell filed by the appellant dated 17.04.2007, the appellant had received an advance of Rs.8.00 4

lacs pertaining to aforesaid agreement to sell. Copy of this agreement is enclosed as Annexure-'A'.

iii) As per the written submissions of the appellant, the appellant is l/3rd owner of the property situated at Jail Road, Ludhiana, which was agreed to be sold by the appellant to M/s Chhabra Wines Ltd.

iv) As per agreement to sell dated 17.04.2007, the appellant is complete owner of the property No.B-XIII-124, Jail Road, Field Ganj, Ludhiana'.

v) As per the copy of ownership documents submitted by the appellant property No.B-XIII-125, Jail Road, Field Ganj, Ludhiana was purchased by the following persons jointly:

(a) Sh. Kewal Krishan Chhabra.

(b)Sh. Harish Kumar

(c) Sh. Gulshan Kumar. Copy of this sale deed is enclosed as Annexure-'B'.

vi) The agreement to sell is for property No.B-XIII-124 while ownership documents are for property No.B-XIII-125.

vii) As explained by the AR of the appellant no further action towards registration of property by the appellant had been taken even after expiry of more than 5 years from the date of agreement to sell.

From the aforesaid facts, it is apparent that the whole issue of claim by the appellant that the amount of Rs.15.60 lacs was received towards advance for purchase of property is an afterthought and a sham transaction. There are number of factual discrepancies in the documents submitted by the appellant and the submissions of the appellant. From the facts referred to above it is clear that while in the agreement to sell the total advance is claimed to be Rs.8.00 lacs while in the reply dated 10.12.2010 before the AO the same was claimed to be Rs.15.60 lacs. Further, in the written submissions it has been claimed that the appellant is l/3rd owner of the property for which agreement to sell has been signed, while as per the agreement to sell the appellant is sole owner of the property. Moreover, the ownership documents which were submitted by the AR of the appellant are for property No.B-XIII-125 while agreement to sell is for property No.B-XIII-124. The property bearing No.B-XIII-124 is infact in the name of Smt. Abinash Kumari wife of the appellant. The property bearing No. B-XIII-125, is jointly owned by 3 persons. No prudent person would enter into an agreement to purchase such a property' from only one person. This is further proved by the fact that even after expiry of more than 5 years from the date of so called agreement to sell signed on 17.04.2007, the property has not yet been registered in the name of the company. All these facts point out towards collusive arrangement between the appellant and M/s Chhabra Wines Ltd., wherein, a loan transaction has been shown as advance against property to avoid the rigors of the provisions of Section 2(22)(e) of the Income Tax Act. Moreover even by the appellant's submissions and the documents submitted during the course of appellate proceedings only Rs.8.00 lacs were received as advance on account of purchase of property. No explanation regarding the remaining amount of Rs. 10,22,923/- has been submitted.

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Keeping in view the factual situation, the AO was fully justified in making the addition of Rs. 18,22,923/- u/s 2(22)(e) of the Income Tax Act. This ground of appeal is accordingly dismissed

7. We have considered the rival submissions. The ld. counsel

for the assessee reiterated the submissions made before

authorities below and also filed copy of the Agreement to Sell

dated 17.04.2007 and also further receipts of payments to show

that Rs. 15,60,000/- was paid by the company to the assessee

on account of advance against the Agreement. On the other

hand, ld. DR relied upon orders of the authorities below.

8. On consideration of the rival submissions, we do not find

any merit in this ground of appeal of the assessee. It is not in

dispute the factual findings recorded by the authorities below

with regard to applicability of the provisions of section 2(22)(e)

of the Act in the matter. During the course of arguments, it is

not disputed that conditions of Section 2(22)(e) of the Act are

satisfied in the present case. The assessee also pleaded before

the authorities below that since advance against the property is

in the nature of commercial transaction, therefore, provisions of

Section 2(22)(e) of the Act are not satisfied. This is exception

pro vided to provisions of Section 2(22)(e) of the Act because the

provisions of deemed dividend would not cover any advance or

loan made to the shareholder by a company in the ordinary

course of its business where the lending of money is a

substantial part of the business of the company. The assessee

except pleading that advance against property is in the nature of

commercial transaction has not pleaded before authorities below

that lending of money is substantial part of the business of the

company.

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9. The ld. CI T(Appeals), on going through the Agreement to

Sell in question specifically found that part of the amount is

stated as advance and that assessee is 1/3 r d owner of the

property in question. However, in the Agreement to Sell,

assessee claimed to be owner of the property in question. In the

Agreement to Sell, it is stated that assessee shall receive the

balance amount at the time of execution and registration of the

Sale Deed. However, till date, no Sale Deed is executed by

assessee in favour of the assessee. Therefore, there is no

question of making further payment to the assessee as advanced

against the property in question. The other co-owner have never

entered into any Agreement to Sell with the company. There was

a difference in the property number also as noted by the ld.

CIT(Appeals). Therefore, ld. CIT(Appeals) was justified in

holding that assessee's contention is after-thought and the

entire transaction relate to sham transaction. The factual

discrepancies have not been explained during the course of

arguments before us as well. The ld. CI T(Appeals) was,

therefore, justified in deciding the issue against the assessee.

10. In view of the above, we do not find any merit in the appeal

of the assessee on these grounds. Ground Nos. 2 and 3 of the

appeal of the assessee are dismissed.

11. The ld. counsel for the assessee seeks permission to

withdraw ground No. 4. The same is accordingly, dismissed as

not pressed.

12. On ground No. 5 assessee challenged the addition of Rs.

67,785/- out of mobile expenses, car depreciation for personal 7

purposes. The Assessing Officer, without pointing out as to

which of the expenses were used for personal purposes, made

disallowance of 1/5 t h of the expenditure on this issue. The ld.

CIT(Appeals) confirmed the addition and dismissed this ground

of appeal of the assessee. The ld. counsel for the assessee

submitted that it is adhoc addition without pointing out any

defect in the books of account of the assessee and in the

alternate contention, submitted that addition is excessive in

nature.

13. Considering the explanation of the assessee and findings of

the authorities below, we are of the view it is adhoc addition in

nature. However, considering assessee's status to be individual,

personal use of these facilities i.e. mobile charges and car

depreciation could be used for personal purposes, we modify the

orders of authorities below and direct that 1/10 t h disallowance

may be made out of this addition. In the result, this ground is

partly allowed.

14. No other point is argued or pressed.

15. In the result, appeal of the assessee is partly allowed.

Order pronounced in the Open Court on 29 t h April, 2015.

Sd/- Sd/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 29 t h April ,2015. 'Poonam' Copy to:

The Appellant, The Respondent, The CIT(A), The CIT,DR

Assistant Registrar, ITA T Chandig arh