2015 (2) TMI 990 - AT - Income Tax

Deemed dividend - assessee had received unsecured loan of ₹ 1,25,00,000 from M/s Kohli Housing & Development Pvt. Ltd. and the fact that both the assessee company and M/s Kohli Housing & Development Pvt. Ltd. have Sh. Sudershan Kohli and Smt. Kum Kum Kohli as common shareholders having 50% share each in both these companies - CIT(A) deleted the addition - Held that - Evidently there is no dispute either in regard to the dates on which the loans were advanced and nor on the ownership pattern of the recipient i.e. the assessee company. We have no hesitation in holding that in the facts as they stand which have not been upset by the Revenue the inference drawn by the AO that the affairs of the assessee company were so arranged only to deprive the collection of tax having not been substantiated the finding of the CIT(A) on facts deserving to be upheld. Since the primary condition for attracting the provisions of section 2(22)(e) admittedly stand unfulfilled, the occasion to bring the assessee within the rigorous of the said section cannot be upheld. - Decided in favour of assessee. Unexplained investment - Addition made u/s 69 - CIT(A) deleted the part addition - Held that - Revenue has not been able to refer to any argument or evidence available on record to show that the Smt. Dayawati (the owner of the land) and her husband, Sh. Om Prakash (who handled the sale of his wife land) were reliable witnesses. Infact the manner of recording statement reeks of a position where the couple appear to have given statements to explain the expenses incurred on the marriage of their daughter in February 2008. Nothing is available on record qua the education and financial status of the Smt. Dayawati except the fact that she is a PAN holder and blindly accepted her husband's word and nothing is on record to establish the credibility of Sh. Om Prakash who does not identify himself by a PAN and merely as the husband of Smt. Dayawati, his education, his legitimate source of livelihood, financial background etc. are all left unaddressed as would be evident from answers to Question No-1 put by the AO to Sh. Om Prakash on 26.12.2008 as opposed to Question No.-1 put by the AO to his wife on 14.12.2008. we hold that the AO erred in making the addition of ₹ 10 lakh and the CIT(A) erred in conforming the same based on the statement of a tutored witness who as per her own statement had no personal knowledge of the events and relied blindly in good faith on hearsay information given to her by her husband. Since in the facts of the present case nothing has been placed by the department apart from the statement of a tutored witness the action cannot be upheld. Accordingly the remaining additions sustained by the CIT(A) are also ordered to be deleted. - Decided in favour of assessee. Considering the other sale instances wherein the AO applied a flat rate of ₹ 6,60,000/- per acre and the CIT(A) proceeded to sustain the addition on the basis of value adopted for stamp duty purposes found recorded in the Registered Sale Deeds itself, we find that since the whole action had started on the basis of the fact that Smt. Dayawati has alleged that the figures given in the sale deed were not reliable and the same on facts has not been upheld by us in the circumstances the very edifice on the basis of which the additions have been made having fallen the remaining additions fall. Thus where the very basis justifying interference by the Revenue stands demolished the occasion to interpolate the amounts in the absence of any other cogent evidence does not arise. Since the sale price remains undisturbed the addition on brokerage etc. also does not survive which was made by the AO u/s 69C and partly sustained by the CIT(A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made under Section 2(22)(e) as deemed dividend.
2. Reduction of addition made under Section 69.
3. Reduction of addition made under Section 69C.

Issue-Wise Detailed Analysis:

1. Deletion of Addition under Section 2(22)(e) as Deemed Dividend:
The Revenue challenged the deletion of the addition of Rs. 1,25,00,000 made under Section 2(22)(e) as deemed dividend. The assessee received an unsecured loan from M/s Kohli Housing & Development Pvt. Ltd., and the AO considered it as deemed dividend because the shareholders of both companies were the same. However, the CIT(A) found that at the time of the loan, the shareholders of the assessee company were different, and the common shareholders acquired shares only after the loan was given. The CIT(A) concluded that the primary conditions for invoking Section 2(22)(e) were not met, as there was no common shareholder at the time of the loan transaction. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Revenue failed to prove that the apparent state of affairs was not real and that the transaction was not a device to evade taxes. The Tribunal also noted that the recipient company was not a shareholder in the payer company, thus Section 2(22)(e) could not be applied.

2. Reduction of Addition under Section 69:
The AO made an addition of Rs. 36,69,125 under Section 69, which was reduced to Rs. 12,41,500 by the CIT(A). The AO based the addition on the statement of Smt. Dayawati, who claimed that she received Rs. 10 lakh in cash over and above the registered sale consideration. The CIT(A) found that the statement of Smt. Dayawati was unreliable as she had no personal knowledge of the transaction, and her statement was based on hearsay from her husband, Sh. Om Prakash. The Tribunal agreed with the CIT(A) that the statement of Smt. Dayawati was not credible and could not be the basis for the addition. The Tribunal also noted that the AO did not provide the assessee an opportunity to cross-examine Sh. Om Prakash, whose statement was crucial for the Revenue's case. Consequently, the Tribunal deleted the entire addition under Section 69.

3. Reduction of Addition under Section 69C:
The AO made an addition of Rs. 1,21,081 under Section 69C, which was reduced to Rs. 40,970 by the CIT(A). The CIT(A) found that the AO's approach of uniformly applying a flat rate for valuing the purchase consideration was arbitrary and not supported by evidence. The Tribunal upheld the CIT(A)'s decision, stating that the AO failed to consider relevant factors such as the location, size, and proximity to roads while determining the value of the land. The Tribunal emphasized that the addition under Section 69C could not be sustained as the primary basis for the addition under Section 69 was found to be unreliable.

Conclusion:
The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s decisions, deleting the additions made under Sections 2(22)(e), 69, and 69C. The Tribunal found that the Revenue failed to provide credible evidence to support the additions and that the CIT(A) correctly applied the law and facts in reducing or deleting the additions.