2013 (10) TMI 1530 - AT - Income Tax

Summary

Issues Involved:
1. Non-compliance with directions u/s 144A.
2. Addition u/s 68 on account of unexplained credits.
3. Disallowance u/s 40A(3) for cash payments.
4. Addition of deemed dividend u/s 2(22)(e).

Summary:

1. Non-compliance with Directions u/s 144A:
The CIT(A) observed that the directions given by the Addl. CIT were examined and adjudicated by the Assessing Officer (AO). The CIT(A) held that procedural irregularities could not annul the assessment order, thus rejecting the assessee's contention to annul the assessment.

2. Addition u/s 68 on Account of Unexplained Credits:
The AO made an addition of Rs. 18,68,90,938/- due to discrepancies in sundry creditors. The CIT(A) observed that the purchases were made through commission agents and the appellant could not furnish complete addresses of the creditors. The CIT(A) found that the AO's estimation was arbitrary and reduced the addition to Rs. 8,87,03,901/- based on a reasonable credit period of 3 months. The ITAT upheld the CIT(A)'s decision but further reduced the addition by disallowing 20% of the sustained amount, thus partly allowing the assessee's appeal.

3. Disallowance u/s 40A(3) for Cash Payments:
The AO made a disallowance of Rs. 71,28,196/- for cash payments exceeding the limit prescribed u/s 40A(3). The CIT(A) confirmed this disallowance as the appellant could not prove that payments were made to agriculturists. The ITAT remanded this issue back to the AO for reconsideration. Additionally, the CIT(A) deleted a disallowance of Rs. 4,10,21,320/- made u/s 40A(3) on the ground that once an addition is made u/s 68/69, further disallowance u/s 40A(3) would result in double addition. The ITAT upheld this deletion.

4. Addition of Deemed Dividend u/s 2(22)(e):
The AO made an addition of Rs. 12,47,20,000/- as deemed dividend. The CIT(A) deleted this addition following the decision in the case of Star Flexi Pack Industries and the Special Bench decision in Bhaumik Colour P. Ltd., which held that deemed dividend can only be assessed in the hands of a registered shareholder. The ITAT upheld the CIT(A)'s decision, noting that the appellant was not a registered shareholder of Ghodawat Industries Pvt. Ltd.

Conclusion:
The ITAT dismissed the revenue's appeal and partly allowed the assessee's appeal, directing specific reconsiderations and upholding the CIT(A)'s decisions on various issues.