2015 (4) TMI 544 - AT - Income Tax

Deemed dividend - whether source and nature of credit found adequate in the context of section 2(22)(e) cannot be treated as inadequate for purposes of section 68? - Held that - After rejecting the technical objections raised by the assessee questioning CIT(A)'s power to invoke the provisions of the impugned order by discovery of a new source of income under Section 68 of the Act in place of deemed dividend u/s.2(22)(e) of the Act, the learned CIT (Appeals) on the merits of the issue, held that the addition of ₹ 1.25 Crores is to be made as unexplained cash credit u/s.68 of the Act instead of the addition as deemed dividend under Section 2(22)(e). On a careful and considered perusal of the findings of the learned CIT(A) extracted above (supra)and specifically sub-paras (iii), (iv) and (v) thereof, we find that these issues have never been before the Assessing Officer either in the course of assessment proceedings or were raised or considered or addressed by him in remand proceedings. We also find that not all the issues raised by the assessee in the grounds raised in this appeal (supra) appear to have been raised before the learned CIT(A) or considered or addressed by the learned CIT(A) in the impugned order. In this factual and legal matrix of the matter, we are of the view that in the interest of equity and justice, the issue of the unsecured loan of ₹ 1.25 Crores taken by the assessee from M/s. Deccan Alloys Pvt. Ltd. requires to be examined and adjudicated afresh in respect of the application and invocation of the provisions of section 68 of the Act after affording the assessee adequate opportunity of being heard and to file details / submissions required. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Discovery of new source of income by CIT (Appeals).
2. Invocation of Section 68 of the Income Tax Act.
3. Treatment of unpresented cheque in the books of account.
4. Comparison between Section 68 and Section 2(22)(e).

Detailed Analysis:

1. Discovery of New Source of Income by CIT (Appeals):
The assessee argued that the CIT (Appeals) invoked Section 68 after deleting the addition under Section 2(22)(e), which amounted to the discovery of a new source of income not permissible under Section 251(1)(a). The CIT (Appeals) issued a notice under Section 251(1)(a) calling upon the assessee to show cause why the addition of Rs. 1.25 Crores should not be made as unexplained credit under Section 68 instead of deemed dividend under Section 2(22)(e). The Tribunal noted that the CIT (Appeals) has the power to enhance the assessment but must follow the principles of natural justice.

2. Invocation of Section 68:
The CIT (Appeals) invoked Section 68, treating the Rs. 1.25 Crores as unexplained cash credit. The assessee contended that the identity and existence of the creditor, M/s. Deccan Alloys Pvt. Ltd., were established through name, address, PAN details, and other documents. The cheque dated 27.12.2008 was not encashed and became stale on 27.6.2009, which was after the finalization of accounts on 4.5.2009. The Tribunal found that the CIT (Appeals) did not properly address all the issues raised by the assessee and required a fresh examination of the application and invocation of Section 68.

3. Treatment of Unpresented Cheque in Books:
The assessee argued that the unpresented cheque was correctly recorded in the books and reflected in the bank reconciliation statements. The CIT (Appeals) disagreed, stating that the cheque was not encashed and should not appear as a loan in the balance sheet. The Tribunal noted that the reconciliation of the bank statement is immaterial and that the assessee failed to prove the loan credit in the books, thus justifying the addition under Section 68.

4. Section 68 vs. Section 2(22)(e):
The assessee contended that the application of Section 2(22)(e) implies that the explanation on the source and nature of the credit was satisfactory, and the same explanation should not be treated as inadequate for the purposes of Section 68. The CIT (Appeals) held that the addition of Rs. 1.25 Crores should be made as unexplained cash credit under Section 68 instead of deemed dividend under Section 2(22)(e). The Tribunal found that the issues raised were not adequately addressed and required a fresh examination.

Conclusion:
The Tribunal concluded that the issue of the unsecured loan of Rs. 1.25 Crores taken by the assessee from M/s. Deccan Alloys Pvt. Ltd. requires a fresh examination and adjudication concerning the application and invocation of Section 68. The appeal was treated as allowed for statistical purposes, and the matter was remanded for de novo adjudication, ensuring that the assessee is given adequate opportunity to present details and submissions.

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