2010 (11) TMI 982 - AT - Income Tax

Summary

Issues Involved:
1. Initiation of proceedings under section 153C of the Income Tax Act.
2. Applicability of provisions of section 2(22)(e) of the Income Tax Act.
3. Computation of 'current year's profit'.
4. Levy of interest under section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Initiation of proceedings under section 153C:
The assessee contended that section 153C was not applicable as no incriminating documents were found during the search, only regular books of accounts were seized. The CIT(A) upheld the AO's decision to initiate proceedings under section 153C, stating that the same AO had jurisdiction over both the searched entity (BDPL) and the assessee, thus no need for handing over documents. The tribunal concluded that the AO was justified in invoking section 153C as the documents seized belonged to a person other than the one referred to in section 153A.

2. Applicability of section 2(22)(e):
The AO treated amounts received by the assessee from BDPL as deemed dividends under section 2(22)(e), arguing that the funds were unsecured loans and not for business purposes. The CIT(A) upheld this view, stating that the assessee failed to provide sufficient evidence to prove the advances were for business purposes. The tribunal, however, found that the funds were transferred during the course of business and for business exigency, supported by an agreement dated 11.12.2002. The tribunal referenced the Supreme Court ruling in S.A. Builders v. CIT, emphasizing that commercial expediency justifies such transactions. The tribunal concluded that the amounts received were not loans or advances but business transactions, thus not falling under section 2(22)(e).

3. Computation of 'current year's profit':
The tribunal did not address this issue separately as it was rendered moot by their decision on the applicability of section 2(22)(e).

4. Levy of interest under section 234B:
The tribunal upheld the CIT(A)'s decision that the levy of interest under section 234B is mandatory and consequential, thus dismissing the assessee's ground on this issue.

Conclusion:
The tribunal partly allowed the assessee's appeals, ruling that the AO was justified in initiating proceedings under section 153C but not in invoking section 2(22)(e). The levy of interest under section 234B was upheld as mandatory.