2015 (4) TMI 1272 - AT - Income Tax

Deemed dividend u/s 2(22) (e) - HELD THAT - CIT(Appeals), on going through the Agreement to Sell in question specifically found that part of the amount is stated as advance and that assessee is 1/3rd owner of the property in question. However, in the Agreement to Sell, assessee claimed to be owner of the property in question. In the Agreement to Sell, it is stated that assessee shall receive the balance amount at the time of execution and registration of the Sale Deed. However, till date, no Sale Deed is executed by assessee in favour of the assessee. Therefore, there is no question of making further payment to the assessee as advanced against the property in question. The other co-owner have never entered into any Agreement to Sell with the company. There was a difference in the property number also as noted by the CIT(Appeals). CIT(Appeals) was justified in holding that assessee's contention is after-thought and the entire transaction relate to sham transaction. The factual discrepancies have not been explained during the course of arguments before us as well. CIT(Appeals) was, therefore, justified in deciding the issue against the assessee. No merit in the appeal of the assessee on these grounds. Ground Nos. 2 and 3 of the appeal of the assessee are dismissed. Addition of mobile expenses, car depreciation for personal purposes - AO without pointing out as to which of the expenses were used for personal purposes, made disallowance of 1/5th of the expenditure on this issue - HELD THAT - CIT(Appeals) confirmed the addition and dismissed this ground of appeal of the assessee. Assessee submitted that it is adhoc addition without pointing out any defect in the books of account of the assessee and in the alternate contention, submitted that addition is excessive in nature. Considering the explanation of the assessee and findings of the authorities below, we are of the view it is adhoc addition in nature. However, considering assessee's status to be individual, personal use of these facilities i.e. mobile charges and car depreciation could be used for personal purposes, we modify the orders of authorities below and direct that 1/10th disallowance may be made out of this addition. In the result, this ground is partly allowed.

Summary

Issues:
1. Addition of deemed dividend under section 2(22) (e) of the Income Tax Act.
2. Disallowance of mobile expenses and car depreciation for personal purposes.

Analysis:

Issue 1: Addition of deemed dividend under section 2(22) (e) of the Income Tax Act:
The appellant challenged the addition of &8377; 18,22,923/- as deemed dividend under section 2(22) (e) of the Income Tax Act. The Assessing Officer noted a debit balance in the books of the company where the appellant was a Director and held shares. The appellant claimed the amount was received as advance against a property sale agreement. However, the Assessing Officer rejected the explanation and added the amount to the appellant's income. The ld. CIT(Appeals) admitted additional evidence and considered the appellant's submissions, ultimately deciding against the appellant. The ld. CIT(Appeals) found discrepancies in the documents submitted, indicating a collusive arrangement to avoid tax implications. The Tribunal upheld the ld. CIT(Appeals)'s decision, stating that the conditions of section 2(22) (e) were satisfied, and dismissed the appeal.

Issue 2: Disallowance of mobile expenses and car depreciation for personal purposes:
The Assessing Officer made an adhoc disallowance of 1/5th of mobile expenses and car depreciation for personal purposes. The ld. CIT(Appeals) confirmed the addition, leading to the appellant challenging it. The Tribunal acknowledged the adhoc nature of the addition but modified it to 1/10th disallowance considering the individual status of the assessee. The ground was partly allowed based on this modification.

In conclusion, the Tribunal upheld the addition of deemed dividend under section 2(22) (e) of the Income Tax Act, dismissing the appeal on the first issue. However, the Tribunal partially allowed the appeal regarding the disallowance of mobile expenses and car depreciation for personal purposes by modifying the disallowance percentage.