2010 (11) TMI 983 - AT - Income Tax

Summary

Issues Involved:

1. Validity of proceedings initiated under Section 153C of the Income Tax Act.
2. Applicability of the 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. Validity of Proceedings Initiated under Section 153C of the Income Tax Act:

The assessee contended that the provisions of Section 153C were 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 action, stating that the same AO had jurisdiction over both the searched person and the assessee, eliminating the need to hand over documents to another AO. The tribunal, after considering the rival submissions and the ruling in Manish Maheshwari v. ACIT, concluded that the AO was justified in initiating proceedings under Section 153C as the documents seized belonged to the assessee. Therefore, the objection of the assessee was dismissed.

2. Applicability of the Provisions of Section 2(22)(e) of the Income Tax Act:

The AO treated the amounts received by the assessee from BDPL as 'deemed dividends' under Section 2(22)(e), as the beneficial owner of BDPL held substantial interest in the assessee company. The CIT(A) upheld this view, citing that the transactions were not in the nature of business advances but loans. The assessee argued that the amounts were paid in the normal course of business and were not loans or advances. The tribunal, after examining the facts and judicial precedents, including CIT v. Creative Dyeing and Printing Pvt. Ltd., concluded that the transactions were business advances and not loans. Therefore, the provisions of Section 2(22)(e) were not applicable, and the AO's action was not justified.

3. Computation of Current Year's Profit:

The tribunal did not address this issue as the applicability of Section 2(22)(e) was found to be inapplicable. Therefore, the assessee's grievance regarding the computation of current year's profit was not discussed.

4. Levy of Interest under Section 234B of the Income Tax Act:

The assessee's contention against the levy of interest under Section 234B was dismissed. The tribunal held that charging of interest under Section 234B is mandatory and consequential in nature.

Conclusion:

The tribunal partly allowed the assessee's appeal, holding that the proceedings under Section 153C were valid, the provisions of Section 2(22)(e) were not applicable, and the levy of interest under Section 234B was justified. The issue of computation of current year's profit was not addressed due to the inapplicability of Section 2(22)(e).