2012 (9) TMI 1130 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of application under Rule 46A of the Income Tax Rules.
2. Confirmation of addition of Rs. 1,39,45,384/- as deemed dividend u/s 2(22)(e).
3. Deletion of penalty u/s 271(1)(c) of the IT Act, 1961.

Summary:

Issue 1: Rejection of Application under Rule 46A
The assessee argued that the additional evidence under Rule 46A was withdrawn due to a misconception. The CIT(A) dismissed the fresh application, stating the document did not impact the applicability of section 2(22)(e). The Tribunal noted that the assessee had pledged properties to the bank for the company's benefit, which was not adequately considered by the CIT(A).

Issue 2: Addition of Rs. 1,39,45,384/- as Deemed Dividend u/s 2(22)(e)
The AO treated the amount as deemed dividend based on the tax audit report and the peak debit balance in the assessee's account with the company. The assessee contended that the transactions were mutual deposits, not loans or advances, and were for the mutual benefit of the company and the assessee. The Tribunal agreed, stating the transactions were business-related and not gratuitous loans, thus not falling under section 2(22)(e). The Tribunal relied on the decision of the Hon'ble Calcutta High Court in Pradip Kumar Malhotra vs. CIT, which held that advances given in return for an advantage to the company are not deemed dividends.

Issue 3: Deletion of Penalty u/s 271(1)(c)
The CIT(A) deleted the penalty imposed by the AO, as the assessee substantiated that the money received was in the nature of deposits. The Tribunal upheld this decision, noting that since the addition was deleted, no penalty could be levied.

Conclusion:
The appeal of the assessee was allowed, and the appeal of the Revenue was dismissed. The Tribunal directed the deletion of the addition made u/s 2(22)(e) and the cancellation of the penalty u/s 271(1)(c).