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2017 (4) TMI 1523 - AT - Income TaxAssessment completed u/s 143(3) - trading addition - Addition solely on the basis of statements recorded during the course of survey which stood retracted by the assessee through an affidavit filed by its director - whether additions made solely on the basis of such retracted statements deserve to be deleted? - AO not accepting the affidavit given by the director of the assessee company - HELD THAT - If we apply the ratio of the judgment rendered in the case of CIT Vs. S.Khader Khan son 2013 (6) TMI 305 - SC ORDER on the facts of the present case, the authorities below were no justified in making the addition on the basis of the statement recorded during the course of survey. No other material suggesting that the claim of the assessee was false, is brought on record by the revenue. Under these facts and in view of the binding precedent, we are unable to confirm the finding of the ld. CIT(A). Therefore, we direct the Assessing Officer to delete the trading addition - Decided in favour of assessee. Disallowance of stipend expenses - disallowance solely on the basis of the statement of Shri Naresh Kumar Jain recorded during the course of survey proceedings - statements recorded of Shri Naresh Kumar Jain during the survey, a surrender was obtained from him wherein he admitted 50% of the payment made to trainees as bogus. However, in the assessment order, the Assessing Officer made lump sum addition @ 75% of total expenditure claimed - CIT-A restrict the disallowances to 20% instead of 75% of the amount claimed by the appellant. - HELD THAT - CIT(A) has restricted the disallowance on ad hoc basis. After considering the material placed before this Tribunal, we are of the considered view that when the inspection was carried out by the ESI and PF department, no discrepancy was reported in respect of rate of stipend and payment of stipend. The Assessing Officer has not placed any material suggesting that the number of trainees was not correct. Moreover, the Assessing Officer has based his finding on the basis of presumption that the assessee is not charitable institute than why it would provide training with stipend to the persons who would quit after training. This observation of the Assessing Officer is purely based on the conjecture and surmises, which cannot be the basis for making disallowance. If the Assessing Officer s reasoning is accepted, then it would make the assessee liable for prosecution for practicing the bonded labour. Therefore, this disallowance is unjustified and the same is hereby deleted. - Decided in favour of assessee. Addition of deemed dividend u/s 2(22)(e) - HELD THAT - The assessee in the instant case is not shown to be one of the persons, being shareholder. Of course the two individuals being partners of the assessee-firm are the common persons, holding more than requisite amount of shareholding, and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid by the company to the concern. Thus, the significant requirement of section 2(22)(e) is not shown to exist. The liability of tax, as deemed dividend, could be attracted in the hands of the individuals, being the shareholders, and not in the hands of the firm. - Decided in favour of assessee.
Issues Involved:
1. Addition based on retracted statements during survey. 2. Application of Section 145(3) of the Income Tax Act, 1961. 3. Lump sum trading addition. 4. Disallowance of stipend expenses. 5. Addition under Section 14A of the Income Tax Act, 1961. 6. Addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Addition Based on Retracted Statements During Survey: The assessee contended that the addition made by the Assessing Officer (AO) was solely based on statements recorded during a survey under Section 133A, which were later retracted. The assessee argued that such statements have no evidentiary value unless corroborated by additional material evidence. The Tribunal noted that the AO relied solely on the statements without any corroborative material and referred to the judgment of the Hon'ble Supreme Court in CIT Vs. S. Khader Khan Son, which held that statements recorded during a survey have no evidentiary value if retracted. Therefore, the Tribunal directed the AO to delete the trading addition of ?25.00 lacs. 2. Application of Section 145(3) of the Income Tax Act, 1961: The AO invoked Section 145(3) to reject the books of account of the assessee, alleging unverifiable job work charges and stipend payments. The Tribunal observed that the AO failed to point out any material defect in the books of account and based the rejection on assumptions and presumptions. The Tribunal noted that the AO should have conducted further inquiries to substantiate the allegations. Consequently, the Tribunal found the rejection of books of account unjustified. 3. Lump Sum Trading Addition: The AO made a lump sum trading addition of ?25.00 lacs, which was upheld by the CIT(A). The Tribunal held that the AO's reliance on retracted statements without corroborative evidence was contrary to the settled legal principles. The Tribunal directed the deletion of the trading addition, emphasizing that no material evidence was provided to support the AO's findings. 4. Disallowance of Stipend Expenses: The AO disallowed 75% of the stipend expenses claimed by the assessee, which was reduced to 20% by the CIT(A). The Tribunal observed that the AO's disallowance was based on assumptions and lacked proper inquiry into the genuineness of the expenses. The Tribunal noted that inspections by ESI and PF departments did not report any discrepancies. Therefore, the Tribunal deleted the disallowance of stipend expenses, finding it unjustified. 5. Addition Under Section 14A of the Income Tax Act, 1961: The AO disallowed ?45,795/- under Section 14A, attributing it to interest expenses related to exempt income (dividend). The Tribunal upheld the CIT(A)'s decision, noting that the assessee did not provide any submission on this ground before the CIT(A). The Tribunal found no infirmity in the CIT(A)'s order and affirmed the disallowance. 6. Addition on Account of Deemed Dividend Under Section 2(22)(e) of the Income Tax Act, 1961: The AO treated a sum of ?36,85,000/- received from M/s Ratan Papers Pvt. Ltd. as deemed dividend under Section 2(22)(e). The CIT(A) deleted the addition, holding that the assessee company was not the registered shareholder of the payer company. The Tribunal upheld the CIT(A)'s decision, relying on the jurisdictional High Court's ruling in CIT Vs. Hotel Hilltop, which clarified that deemed dividend liability is attracted in the hands of the individual shareholders, not the firm. Conclusion: The Tribunal allowed the appeals of the assessee, directing the deletion of trading additions and disallowances made by the AO based on retracted statements and assumptions without corroborative evidence. The Tribunal dismissed the appeals of the revenue, affirming the CIT(A)'s decisions on deemed dividend and stipend expenses disallowance.
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