2014 (2) TMI 1213 - AT - Income Tax

Unexplained investment taxable u/s. 69 - CIT(A) deleted the addition - Held that - We find that the FAA has given a categorical finding of fact that the property was not owned by the assessee in the year under consideration whereas order of the AO is silent on this issue. DR could not controvert the fact narrated by the FAA. From the accounts of the assessee it is clear that amount in question was opening balance for the year under appeal. Therefore no addition could have been made for the year. We are of the opinion that the order of the FAA does not suffer from any infirmity - Decided in favour of assessee Addition made u/s. 23 - CIT(A) deleted the addition - Held that - As assessee did not own three properties as alleged by the AO. As the order of the AO is not based on facts and the FAA has decided the issue considering the factual position so confirming his order we decide ground no. 2 against the AO. Deemed dividend u/s. 2(22)(e) - Held that - Advance received by the assessee for purchase of flat could not be treated deemed dividend. We find that in the matter before us amount received by the assessee was meant for purchasing a flat. Therefore respectfully following the order of the coordinating bench in the case of wife of the assessee Mrs. Amisha B Koradia we reverse the order of the FAA and decided ground no. 1 in favour of the assessee. Disallowance of interest - Held that - There is no dispute about the fact that the assessee has overdrawn from the partnership firm M/s Sagar Construction; therefore the interest paid to the Sagar Construction for the debit balance in the capital account is an allowable expenditure against the business income of the assessee and particularly against the interest/remuneration received from the partnership firm. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs. 48,95,739 as unexplained investment under Section 69 of the Income Tax Act, 1961.
2. Deletion of addition of Rs. 4,24,000 under Section 23 of the Income Tax Act, 1961.
3. Confirmation of partial addition of Rs. 70,40,850 as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.
4. Disallowance of Rs. 3,10,215 under Section 57(iii) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 48,95,739 as Unexplained Investment (Section 69):
The AO added Rs. 48,95,739 to the assessee's income, treating it as unexplained investment in residential property. The FAA found that the amount represented the opening balance from the previous year and no new investment was made during the current year. The Tribunal upheld the FAA's decision, confirming that the property was not owned by the assessee in the year under consideration and the amount was an opening balance. Therefore, the addition by the AO was unwarranted, and the Tribunal decided this ground against the AO.

2. Deletion of Addition of Rs. 4,24,000 under Section 23:
The AO added Rs. 4,24,000 to the assessee's income, alleging non-disclosure of rental income from three properties. The FAA found that the AO's addition was presumptive and baseless, as the assessee did not own three properties as alleged. The Tribunal agreed with the FAA, confirming that the AO's order was not based on facts and dismissed the AO's appeal on this ground.

3. Confirmation of Partial Addition of Rs. 70,40,850 as Deemed Dividend (Section 2(22)(e)):
The AO treated Rs. 99,32,251 as deemed dividend, which included a loan from M/s Karodia Construction P. Ltd. The FAA corrected the AO's calculation errors and reduced the addition to Rs. 70,40,850, representing the actual credit balance. The Tribunal found that the amount was an advance for purchasing a flat and not a loan or advance covered by Section 2(22)(e). Referring to a similar case involving the assessee's wife, the Tribunal ruled that such advances could not be treated as deemed dividend and decided this ground in favor of the assessee.

4. Disallowance of Rs. 3,10,215 under Section 57(iii):
The AO disallowed the deduction of Rs. 3,10,215, stating that the interest payment had no nexus with the interest earned. The FAA upheld this decision, noting a time gap between the withdrawal and deposit of funds. The Tribunal, however, found that the interest payment was related to the business income and should be allowed as a deduction. Citing a similar case involving the assessee's wife, the Tribunal reversed the FAA's order and decided this ground in favor of the assessee.

Conclusion:
The Tribunal dismissed the AO's appeal and allowed the assessee's appeal, providing relief on all contested grounds. The order was pronounced in the open court on 14th February 2014.