2016 (11) TMI 64 - AT - Income Tax

Addition on account of sale of plot - CIT(A) has recorded a finding of fact that the assessee has not shown this plot as Stock-in-Trade in his balance sheet and no document was found during the course of search to the effect that the assessee has converted this plot into Stock-in-trade - Held that - The intention of the assessee can be determined through the treatment of the asset in the financial statements as well as the conduct and the actions of the assessee in relation to the asset. In the instant case, the asset has been shown as an investment and not as stock-in-trade in the financial statements. Further, there are no physical improvements/ developments which has been carried out right from the year of purchase to the year of sale. The intention of the assessee was therefore to hold this plot of land as an investment and not as stock-in trade. On similar facts, the Coordinate Bench of this Tribunal in the assessee s own case for the A.Y. 2004-05 had decided the issue under consideration in favour of the assessee. Addition on account of investment in construction of house when the addition is supported by the finding of the DVO - Held that - AO as well as DVO both failed to list out the items considered as loose furniture found at the time of inspection of the house of the assessee and no valuation of such loose furniture was made by the DVO, therefore there is no justification to made estimated addition on this account just merely on the presumptive finding of the DVO which is not supported by any evidence more so when the investment shown by the assessee is duly supported by the bills and vouchers. We have given a careful consideration to the matter and of the view that the ld CIT(A) has elaborately gone through the contentions and has rightly arrived at the conclusion that there is no basis for the adhoc estimation of ₹ 20,00,000. Hence, we confirm the following findings of the ld CIT(A). - Decided in favour of the assessee. Addition on account of advance given to Gulam Farooq Ansari - Held that - Assessee had produced the re-casted audited cash book after incorporating all entries before the AO. There were sufficient cash balance available with assessee and his family members/group concern to cover the payment of ₹ 1,50,00,000/- to Ansari. During the course of the arguments, the Revenue has not brought anything further to our notice and the findings of ld CIT(A) remain uncontroverted before us. The assessee has successfully demonstrated through its explanation and documentation in terms of re-casted books of accounts that the statement made during the course of the search cannot be made the sole basis for making the addition of ₹ 1,50,00,000 in his hands as there was sufficient cash balance in the books of accounts to make the said payment and discharged its onus as laid down by the decision of Hon ble Supreme Court in case of Pullangode Rubber Produce Co (1971 (9) TMI 64 - SUPREME Court ) and Rajasthan High Court in case of Ashok Kumar Soni (2006 (7) TMI 162 - RAJASTHAN High Court ). - Decided in favour of the assessee. Deemed dividend income under section 2(22)(e) - Held that - The advance given by the company to the assessee is for business purposes towards purchase of land and the same cannot be treated as deemed dividend in the hands of the assessee. Accordingly, we allow the appeal of the assessee

Issues Involved:
1. Deemed Dividend Addition under Section 2(22)(e).
2. Treatment of Sale of Plot as Business Income or Capital Gain.
3. Addition on Account of Investment in House Construction.
4. Addition on Account of Unrecorded Advance Payment.

Detailed Analysis:

1. Deemed Dividend Addition under Section 2(22)(e):
The assessee and the Revenue filed cross appeals regarding the addition of ?50,26,604/- as deemed dividend under Section 2(22)(e) of the Income Tax Act. The AO treated the entire amount as deemed dividend, while the CIT(A) reduced it by ?20,46,604/-, confirming only ?29,80,000/- as deemed dividend.

The CIT(A) observed that the ledger account of the assessee in the company's books showed mixed transactions of advances and repayments. It was noted that the initial payment of ?29,80,000/- was an advance for land, which could not be converted and was later refunded. The remaining amount was treated as repayment of earlier advances made by the assessee to the company.

The Tribunal upheld the CIT(A)'s decision, confirming that ?20,46,604/- was not deemed dividend as it was repayment of earlier advances. The remaining ?29,80,000/- was also not deemed dividend as it was a business advance for land purchase, supported by an agreement. The Tribunal cited the Delhi High Court's decision in CIT vs. Creative Dyeing and Printing Pvt. Ltd., emphasizing that business advances do not fall under deemed dividend provisions.

2. Treatment of Sale of Plot as Business Income or Capital Gain:
The AO treated the profit from the sale of Plot No. 293, Shree Ram Vihar, as business income, while the assessee declared it as a long-term capital gain. The CIT(A) and the Tribunal found that the plot was held as a capital asset, not as stock-in-trade, based on its treatment in the assessee's financial statements and the lack of development activities.

The Tribunal upheld the CIT(A)'s decision, confirming that the profit from the sale of the plot should be treated as long-term capital gain, not business income.

3. Addition on Account of Investment in House Construction:
The AO made an addition of ?20,00,000/- on account of investment in house construction, based on the DVO's valuation. The CIT(A) deleted the addition, noting that the AO did not find any defects in the assessee's books of account and that the DVO's valuation was based on estimations without considering the assessee's actual expenses and supporting documents.

The Tribunal upheld the CIT(A)'s decision, confirming that the addition was unwarranted as the DVO's valuation was not supported by concrete evidence, and the assessee's books of account were properly maintained and audited.

4. Addition on Account of Unrecorded Advance Payment:
The AO added ?1,50,00,000/- as undisclosed income based on the assessee's statement during the search, admitting payment to Gulam Farooq Ansari. The CIT(A) deleted the addition, noting that the assessee's recasted and audited books of account showed sufficient cash balance to cover the payment, and no discrepancies were found in the books.

The Tribunal upheld the CIT(A)'s decision, confirming that the addition was not justified as the assessee successfully demonstrated that the payment was made from recorded cash balances, and the statement made during the search was incorrect.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, confirming the CIT(A)'s decisions on all issues. The deemed dividend addition was limited to ?29,80,000/-, the profit from the plot sale was treated as long-term capital gain, the addition for house construction was deleted, and the addition for unrecorded advance payment was also deleted.

← Previous Next →