2012 (4) TMI 473 - HC - Income Tax

Deemed dividend - Assessing Officer held that Rs. 2,13,84,360/- received by the partnership firm from Bharti Enterprises Pvt. Ltd. should be treated as deemed dividend. It may be noted that the two partners hold more than 10% shares in Bharti Enterprises Pvt. Ltd - learned counsel for the respondent-assessee submits that the payment of Rs.2,13,84,360/- was not out of accumulated profits but this contention was not examined by the CIT (A) and Income Tax Appellate Tribunal as the respondent had succeeded on the other ground mentioned above - Decided in favor of the assessee by way of remand to Tribunal. Regarding capital loss - It was simultaneously claimed that a note was enclosed with the return stating that long term capital gains on the sale of the property was exempt under Section 54, consequent upon her purchase of a residential house in Vasant Vihar for more than Rs.13 crores. The Assessing Officer expressed reservation/doubt about the exemption claim by Deepika Mittal under Section 54 after stating that only Rs.50 lacs was paid to her and balance amount was payable on registration of the sale deed. - held that - The Revenue should have examined and verified the records before raising the said contention in this appeal.

Summary

Issues:
1. Condonation of delay in re-filing the appeal.
2. Interpretation of Section 2(22)(e) of the Income Tax Act, 1961 regarding deemed dividend.
3. Disallowance of long-term capital loss.

Issue 1: Condonation of Delay
The judgment begins with an application for condonation of delay of 192 days in re-filing the appeal, which is accepted after the respondent's counsel raises no objection. The delay is thus condoned, and the application is disposed of.

Issue 2: Interpretation of Section 2(22)(e) - Deemed Dividend
The appeal filed by the Revenue challenges an order passed by the Income Tax Appellate Tribunal regarding the treatment of Rs. 2,13,84,360 received by a partnership firm from another entity as deemed dividend under Section 2(22)(e) of the Income Tax Act. The Tribunal had ruled in favor of the partnership firm, stating that the firm was not a shareholder in the other entity, thus exempting it from the deemed dividend provision. However, the High Court finds this reasoning unsustainable based on a previous decision and frames a substantial question of law for further examination. The Court directs the Tribunal to consider whether the payment was made out of accumulated profits, a point not previously addressed, and schedules a hearing for this purpose.

Issue 3: Disallowance of Long-Term Capital Loss
The second issue concerns the disallowance of a long-term capital loss of Rs. 1,19,22,414. The Revenue argues that the Tribunal's decision was perverse, citing discrepancies in property transactions. The Court notes the lack of relevant documents provided by the Revenue to support their claim of perversity. Consequently, the Court permits the Revenue to submit the necessary evidence within 15 days, subject to a cost, failing which the appeal may be dismissed. During subsequent proceedings, detailed evidence is presented showing that the payment in question was indeed made, refuting the Revenue's claims of non-payment. The Court criticizes the Assessing Officer for incomplete investigations and insufficient verification, ultimately concluding that without proper examination, they cannot interfere in the appeal under Section 260A of the Act.

In conclusion, the judgment addresses issues related to procedural matters, the interpretation of tax law provisions, and factual disputes regarding capital transactions. It highlights the importance of thorough examination of evidence and adherence to legal procedures in tax matters, emphasizing the need for comprehensive assessments before drawing conclusions.