2008 (8) TMI 908 - HC - Income Tax

Deemed dividend addition u/s 2(22)(e) - Whether the Tribunal was right in holding that out of ₹ 15 lakhs undisclosed income admitted by the assessee, to have received from another person, only ₹ 10 lakhs had to be treated as undisclosed income of the assessee when said transaction was not reflected in the books of account of the assessee ? - HELD THAT - On persual of Tribunal's order, it is clear that the Tribunal has given a categorical finding for deleting the addition of ₹ 5 lakhs i.e., only ₹ 10 lakhs has been seized from the business premises of the assessee and also mere statement that ₹ 15 lakhs were received from one Senthil, which had been found true by the AO and further, the said sum was not even recorded in the books of Senthil. It is the question of fact and it is not a perverse order and the reasoning given by the Tribunal is based on valid materials and we do not find any illegality in the order of the Tribunal. Therefore, the order passed by the Tribunal is confirmed. Whether the Tribunal was right in holding that the interest free amounts received and returned by the assessee to the company in which she is a director, cannot be treated as deemed dividend u/s. 2(22)(e) in the hands of the assessee? - Here also the Tribunal has given a categorical finding that the amount was given only in the course of the business and also the said amount was returned subsequently. The sale transaction did not materialise and hence, the amount was returned. It is the question of fact and we find no error or illegality in the order of the Tribunal and the same is confirmed. It is also further brought to our notice the recent circular issued by the Central Board, in Instruction No. 5 of 2008, dt. 15th May, 2008, prescribes the conditions for filing appeal to the Tribunal, High Court and Supreme Court - The tax effect in each tax case is less than ₹ 4 lakhs and also there is no dispute regarding the same. The said appeals are also filed after 15th May, 2008. Therefore, considering the same, the appeals filed by the Department are not maintainable in view of the circular. In these circumstances, we are of the view that the above tax case appeals are dismissed on merits as well as jurisdiction.

Summary

Issues:
1. Whether only a portion of the undisclosed income admitted by the assessee should be treated as undisclosed income in the absence of reflection in the books of account?
2. Whether interest-free amounts received and returned by the assessee to a company can be treated as deemed dividend under the Income Tax Act?

Analysis:

Issue 1:
The case involved an appeal by the Revenue against the Tribunal's order regarding the treatment of undisclosed income admitted by the assessee. The Tribunal held that only Rs. 10 lakhs out of Rs. 15 lakhs should be treated as undisclosed income, as the entire amount was not reflected in the books of the assessee. The Revenue contended that the entire Rs. 15 lakhs should be treated as undisclosed income based on the admission by the assessee and another individual. However, the Tribunal found it improbable that the entire Rs. 15 lakhs was given by the individual to the assessee. The Tribunal's decision was based on valid reasoning and upheld the deletion of Rs. 5 lakhs from the undisclosed income addition.

Issue 2:
Regarding the second issue, the Tribunal considered whether amounts received by the assessee from a company, and subsequently returned, should be treated as deemed dividend under the Income Tax Act. The AO treated a portion of the amount as deemed dividend, but the Tribunal disagreed. It found that the transaction was part of a business deal and not a loan, therefore not falling under the category of deemed dividend. The Tribunal's decision was based on the presence of a sale agreement and the subsequent return of the amount, leading to the deletion of the deemed dividend addition.

In addition, the judgment highlighted a recent circular by the Central Board setting monetary limits for filing appeals in income tax matters. As the tax effect in each case was less than Rs. 4 lakhs, and the appeals were filed after the specified date, the appeals filed by the Department were deemed not maintainable based on the circular.

Ultimately, the High Court dismissed the tax case appeals on both merit and jurisdiction grounds, affirming the Tribunal's decisions on the issues raised.