PANKAJ MITHAL, J. - (1.) WE have heard Shri Sambhu Chopra, learned counsel appearing for the revenue. Shri S.K. Garg appears for the assessee.
(2.) IN ITA No.1633/Alld/1995 the High Court called for reference by the Income Tax Appellate Tribunal, Allahabad Bench, Allahabad on the following question of law:- "Whether on the facts and in the circumstances of the case the Hon'ble ITAT was justified in holding that the advance amount of Rs.7,00,000/- received by the assessee from M/s Khan Carpets Pvt. Ltd. cannot be treated to be a deemed dividend u/s.2 (22) sub-clause (e) of the I.T. Act, 1961?" The facts of the case are that in the course of assessment proceedings it was noticed that two Directors of the assessee-company had substantial interest in both the assessee-company and M/s Khan Carpets Pvt. Ltd. within the meaning of Section 2 (32) of the Income-Tax Act, 1961. Further, M/s Khan Carpets Pvt. Ltd. had a sum of Rs.70,40,000/- under the head 'Reserves and Surplus'. The assessee-company received a sum of Rs.7 lakhs from M/s Khan Carpets Export Pvt. Ltd. The A.O. observed that accumulated profits available with the company was atleast Rs.7 lakhs during the year, and the payment was squarely within the meaning of Section 2 (22) (e) of the Income Tax Act, 1961, which is deemed to be dividend, in the hands of the assessee-company. This view was taken despite a claim from the assessee that the sum of Rs.7 lakhs had been received from M/s Khan Carpets Pvt. Ltd. on account of advance for purchase of land. The money was received way back in May, 1991, but the land had not been transferred till January, 1994. The A.O. added the amount of Rs.7 lacks in the assessee's income for the assessment year 1992-93.
(3.) THE CIT (Appeals) observed that although the assessee claimed that the advance was received against the cost of land to be sold by it to the sister company, yet there was nothing on record about such a proposal. The A.O. had correctly invoked the provisions of Section 2 (22) (e) of the Act with regard to interest free advance/loan of Rs.7 lakhs. The appeal was dismissed.;