2015 (5) TMI 972 - AT - Income Tax

Addition under Section 2(22)(e) for deemed dividend - Held that - the payment of money by inflating the purchase cannot be construed as loan or advance. In the case of loan or advance, the recipient has the obligation to repay the amount. In the case of inflating the purchase amount, at the best, we can say that the recipient has to appropriate the amount. Therefore, it cannot be construed as loan or advance within the meaning of Section 2(22)(e) of the Act. Once it cannot be construed as loan or advance, the provisions of Section 2(22)(e) are not applicable. If there is any evidence to show that M/s Aachi Masala Foods Pvt. Ltd. has inflated the purchase, it is for the Assessing Officer to examine and disallow the expenditure claimed by M/s Aachi Masala Foods Pvt. Ltd. towards purchase of spices. At any stretch of imagination, such inflated purchase cannot be treated as loan or advance. Thus addition deleted - Decided in favour of assessee. Addition under Section 69 - Held that - Assessing Officer came to a conclusion that the assessee admitted on 17.09.2009 that he made unaccounted sum of ₹ 46,20,000/- for purchase of a property at Athipattu Village, Ambattur. A copy of the sworn statement recorded from the assessee is available at page 1 of the paper-book. This sworn statement does not show any admission made by the assessee for investment of unaccounted amount of ₹ 46,20,000/-. It is not known whether any other statement was recorded from the assessee. The Revenue could not file any material to show that the assessee has admitted the unaccounted sum of ₹ 46,20,000/- for purchase of Athipattu Village, Ambattur. The CIT(Appeals) found that the investments in immovable property were made out of the borrowed funds. However, the details of borrowed funds were not available on record. In those circumstances, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer to find out the details of the borrowed funds and its nexus for making investments in immovable property.

Summary

Issues:
1. Addition under Section 2(22)(e) of the Income-tax Act, 1961
2. Addition under Section 69 of the Act

Issue 1: Addition under Section 2(22)(e) of the Income-tax Act, 1961
The first issue in this case involves the addition of a specific amount under Section 2(22)(e) of the Income-tax Act, 1961. The Revenue contended that the amount in question should be treated as deemed dividend due to certain transactions involving the assessee, a company, and another entity. The Departmental Representative argued that the assessee inflated purchases, subsequently paid to a related entity, which led to the accumulation of profits being treated as deemed dividend. However, the representative for the assessee countered this by explaining that the transactions were related to business activities and not deemed dividend as per the Act. The Tribunal analyzed the provisions of Section 2(22)(e) and concluded that the inflated purchase amounts could not be considered as a loan or advance, a prerequisite for deeming it as dividend. The Tribunal held that the recipient's obligation in a loan or advance scenario was missing in this case, and thus, the provisions of Section 2(22)(e) did not apply. It was determined that if there was evidence of inflated purchases, the Assessing Officer should address it separately. Therefore, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) regarding this issue.

Issue 2: Addition under Section 69 of the Act
The second issue pertains to an addition made under Section 69 of the Act concerning investments in immovable property. The Assessing Officer had added a specific amount based on the assessee's statement regarding unaccounted investments in properties. The Departmental Representative argued that the CIT(Appeals) allowed the claim without sufficient evidence of the source of funds for the investments. In contrast, the representative for the assessee contended that the investments were made from borrowed funds, which the CIT(Appeals) recognized and hence deleted the addition. The Tribunal reviewed the sworn statement and found no explicit admission of unaccounted investments by the assessee. Moreover, the details of borrowed funds supporting the investments were not adequately documented. Consequently, the Tribunal remitted the issue back to the Assessing Officer for further examination. The Assessing Officer was directed to investigate the source of borrowed funds and their connection to the property investments, providing a fair opportunity to the assessee. As a result, the appeal of the Revenue was partially allowed for statistical purposes.

In conclusion, the Tribunal's detailed analysis of the issues involved in this judgment provides a comprehensive understanding of the legal reasoning and application of relevant provisions under the Income-tax Act, 1961.