2010 (2) TMI 1215 - AT - Income Tax

Summary

Issues Involved:
1. Part confirmation of addition for alleged undisclosed income on account of wrong showing of agricultural income.
2. Addition for low household withdrawals.
3. Addition for alleged foreign gifts received.
4. Addition on account of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Part Confirmation of Addition for Alleged Undisclosed Income on Account of Wrong Showing of Agricultural Income:
The assessee declared agricultural income of Rs. 5,80,053, asserting gross receipts of Rs. 8,05,543 and net income of Rs. 3,80,053 after deducting expenses. The Assessing Officer (AO) estimated the agricultural income at Rs. 2,00,000, treating the balance as income from other sources due to unverifiable receipts and expenditures. The Commissioner of Income Tax (Appeals) [CIT(A)] applied a precedent from ITAT Ahmedabad, estimating 40% of the income as expenditure, thus partly confirming the addition. The Tribunal upheld CIT(A)'s order, finding no infirmity in the application of the ITAT Ahmedabad's decision.

2. Addition for Low Household Withdrawals:
The AO added Rs. 2,00,000 for low household withdrawals, noting the assessee's shown cash withdrawal of Rs. 1,45,445 was insufficient considering the family size and status. CIT(A) confirmed this addition. However, the Tribunal deleted the addition, noting that the household expenditure added in the assessee's son's hands was also Rs. 2,00,000 and considering the total family withdrawals and agricultural income, no further addition was warranted.

3. Addition for Alleged Foreign Gifts Received:
The assessee received gifts totaling Rs. 4,57,754 from two individuals in the USA, which the AO added as unexplained cash credits under section 68. The CIT(A) confirmed the addition, doubting the genuineness of the gifts due to the donors being unrelated and their financial means. The Tribunal, however, deleted the addition, noting that the gifts were confirmed by the donors, who provided their passports and income tax returns, proving their identity and creditworthiness. The Tribunal emphasized that the initial onus on the assessee was discharged, and without contrary evidence, the addition could not be sustained merely on presumptions.

4. Addition on Account of Deemed Dividend Under Section 2(22)(e) of the Income Tax Act, 1961:
The assessee, holding 50% shares in M/s. Enviro Control Associates (I) Pvt. Ltd. (ECPL), received Rs. 1,26,00,000 as a deposit against personal guarantee for a bank loan to ECPL. The AO treated Rs. 2,12,00,000 as deemed dividend, considering it a loan. CIT(A) restricted the addition to Rs. 1,00,24,329, aligning with the accumulated profits at the financial year's start, excluding current year's profits. The Tribunal ruled that the deposit was in the ordinary course of business for mutual benefit, not a loan or advance simpliciter, citing the Delhi High Court's decision in CIT vs. Creative Dyeing & Printing (P) Ltd. Consequently, the Tribunal deleted the entire addition of Rs. 2,12,00,000, rendering the question of quantum of addition moot.

Conclusion:
The Tribunal partly allowed the assessee's appeal, deleting additions for low household withdrawals, foreign gifts, and deemed dividends, while upholding the part confirmation of the addition for agricultural income. The Revenue's appeal was dismissed in its entirety.