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2013 (9) TMI 491 - AT - Income TaxDeemed Dividend u/s 2(22)(e) - Weather the CIT(A) erred in deleting the addition made by the A. O. on account of deemed dividend uls. 2(22)(e) - Held that - The amount involved was a pure and simple business transaction-it was neither loan nor advance - The assessee had informed the AO from time to time about the transaction entered by him with KSEPL - In the books of accounts of KSPEL there entry was about flat - We have also considered the agreement - From these papers it can safely be said that transactions in question were business advances - We find that the FAA had dealt the issue about the provisions of Company-Act in detail and there was no legal infirmity in his order - He had taken note of minutes of meeting of KESPL Following Smt. Tarulata Shyam And Others Versus Commissioner of Income-Tax, West Bengal 1977 (4) TMI 3 - SUPREME Court - there were four conditions that must be satisfied before section2(22)(e) could be invoked - trade advance which were in the nature of money transacted to give effect to a commercial transaction could not be treated as deemed dividend Decided against Revenue. Disallowance of Labour Charges - Whether the CIT(A) erred in deleting the addition of made by the A. O. on account of disallowance of part of the labour charges claimed by the assessee and directing to estimate the net profit at the rate of 8% of turnover and make suitable addition - Held that - The assessee had maintained regular books of accounts and same were audited, that audit report u/s. 44ABwas filed, that the AO had not pointed out any specific defects, that he only stated that the bills were prepared on the last day without pointing out as to how he reached to that conclusion, that the reason for high percentage of labour charges was, that the the assessee had undertaken de-sludging and cleaning of drainage lines which was mainly labour oriented, that the AO could have only rejected the books of accou -nts and estimated 8% of the contract value as income from this business as per the provisions of section 44AD of the Act. As the AR of the assessee did not object to said estimation of 8% profit on the contract value in respect of M/s. Appollo so he directed the to rework the addition. If FAA had tried to restrict the disallowance on percentage method no fault can be found with his decision - No addition can be made by the AO on ad-hoc basis without relying on some documentary or oral evidences-for fastening tax liability to an assessee some kind of material was required proving that he had higher income than shown in the books of accounts - Suspicion, however strong, cannot take place of evidence Decided against Revenue. Deemed Rent - Whether the CIT(A) erred in deleting the addition made by the A. O. on account of deemed rent in respect of Vishwa Ganga Flat out of the total addition made - Held that - Vishwa Ganga flat was used for the purpose of providing temporary accommodation to the tenant, that the assessee was in the business of redevelopment of the building, that the AO had summarily rejected the claim of the assessee on the ground that no documentary evidence was filed, that the AO had mentioned that as when and what type of documentary evidence he required from the assessee, that the AO did not prove that that the property was not used for giving accommodation to the tenant by conducting appropriate enquiry - the addition made by the AO was deleted under the head deemed rent in respect of Vishwa Ganga flat. Disallowance on Interest Expenses - Whether the CIT(A) erred in deleting the addition made by the A. O. on account of disallowance of part of interest expenses claimed by the assessee - Held that - The assessee had claimed interest amount of only Rs. 1. 31lacs whereas the AO mistook the same as Rs. 1, 35, 950/- and made addition in the assessment order, that the assessee had contended before the AO that the borrowals were made in the earlier years and same were used for business of redevelopment, that the AO did not conduct further verification and disallowed the interest on the ground that the assessee had made Investment in fixed assets as seen from the balance-sheet, the AO did not examine the issue in right perspective, that the addition was made on the basis of assumption and suspicion without examining the facts thoroughly, that there were minimum borrowing during the year under consideration, that the funds were used for the business of redevelopment in the earlier year, that same were entitled to deduction while computing the business income - AO was directed to delete the addition made Decided against Revenue.
Issues Involved:
1. Deletion of addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. 2. Deletion of addition on account of disallowance of part of the labor charges claimed by the assessee. 3. Deletion of addition on account of deemed rent in respect of Vishwa Ganga Flat. 4. Deletion of addition on account of disallowance of part of interest expenses claimed by the assessee. Issue-wise Detailed Analysis: 1. Deemed Dividend under Section 2(22)(e): The AO added Rs. 43,14,000 as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961, arguing that the unsecured loan received from M/s Konark Structural Engineering Pvt. Ltd. (KSEPL) was taxable. The AO's decision was based on the assessee holding more than 10% shares in KSEPL and having substantial interest in it. The assessee contended that the amount was a business advance, supported by a Memorandum of Understanding (MOU). The First Appellate Authority (FAA) found that the transactions were business advances, not loans or advances, and thus not taxable as deemed dividends. The FAA relied on the Supreme Court judgment in Smt. Tarulatha Shaym and the Delhi High Court decision in Vijaya Kumar, concluding that the provisions of Section 2(22)(e) were not applicable. The Tribunal upheld the FAA's decision, noting that the transactions were genuine business transactions and not loans or advances. 2. Disallowance of Labor Charges: The AO disallowed Rs. 24,30,650 out of the total labor charges claimed by the assessee, arguing that the expenses were excessive and not fully substantiated. The FAA found that the assessee maintained regular books of accounts, which were audited, and the AO did not point out specific defects. The FAA directed the AO to estimate the net profit at 8% of the turnover, which the assessee's representative did not object to. The Tribunal upheld the FAA's decision, stating that the AO's addition was based on suspicion without concrete evidence, and the FAA's approach of estimating profit was reasonable. 3. Deemed Rent for Vishwa Ganga Flat: The AO added Rs. 83,225 as deemed rent for the Vishwa Ganga flat, arguing that the assessee did not show any deemed house property income. The FAA found that the flat was used for providing temporary accommodation to tenants, as part of the assessee's business of redevelopment. The Tribunal upheld the FAA's decision, noting that the assessee provided sufficient evidence to support the claim that the flat was used for business purposes and not for generating rental income. 4. Disallowance of Interest Expenses: The AO disallowed Rs. 1,35,950 of interest expenses, arguing that the borrowed funds were not utilized for business purposes. The FAA found that the assessee had borrowed funds in earlier years for redevelopment business and the AO did not thoroughly examine the facts. The Tribunal upheld the FAA's decision, stating that the AO did not provide concrete evidence to prove that the borrowed funds were not used for business purposes. Conclusion: The Tribunal confirmed the FAA's decisions on all grounds, rejecting the AO's appeal. The Tribunal emphasized the importance of concrete evidence over suspicion and upheld the assessee's claims based on the detailed examination of facts and applicable legal principles.
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