2017 (4) TMI 473 - AT - Income Tax

Addition being foreign currency found at time of search action - Held that - This issue has to be examined and verified by the Assessing Officer with reference to the submissions made by the assessee that the foreign currency is belongs to the company and it has been accounted for in company s books as on 31.03.2011. The learned counsel for the assessee further submits that as per the RBI Rules and Regulations assessee can retained the foreign exchange for 180 days. Thus we restore this issue to the file of the Assessing Officer who shall examine the issue afresh in accordance with law. The assessee shall provide necessary details to the Assessing Officer to substantiate his claim. Deemed dividend addition u/s.2(22)(e) - Held that - As the assessee submits that the assessee s only plea is that the deemed dividend is to be restricted to the accumulated profits of the company. The DR has no serious objection in restricting the deemed dividend to the accumulated profits of the company. On hearing both sides in principle we hold that the CIT(A) is justified in sustaining the addition made u/s.2(22)(e) of the Act. However, such addition should be restricted only to the accumulated profits of the company as specified in the provisions of section 2(22)(e) of the Act. Therefore, for the limited purpose on verification and quantification of deemed dividend we restore this issue to the file of the Assessing Officer who shall quantify the disallowance u/s.2(22)(e) of the Act restricting to the accumulated profits of the company. Addition of Jewellery - Held that - CIT(Appeals) considering the submission of the assessee and applying CBDT Instruction No.1916 dated 11.05.1994 and looking into the social status of the family, agreed with the assessee s submission and partly allowed the ground of appeal. The CIT(A) restricted the addition to ₹ 15,44,780/- accepting the alternate contention that if at all it is to be treated as unexplained income it is only ₹ 15,44,780/- as per the working submitted in the course of appellate proceedings before the CIT(A). The assessee could not substantiate its claim that the jewellery was purchased in earlier years and its source. Therefore we do not see any good reason to hold that the assessee explained the sources for the jewellery found worth ₹ 15,44,780/-. Hence the CIT(A) order is sustained and ground raised by the assessee is rejected.

Summary

Issues:
1. Addition of foreign currency during search action
2. Deemed dividend addition under section 2(22)(e) of the Act
3. Addition of jewellery found during search action

Analysis:

Issue 1: Addition of Foreign Currency
The case involved the discovery of foreign currency valued at ?7,63,340 during a search and seizure action at the assessee's premises. The Assessing Officer added this amount as undisclosed income, assuming the surplus foreign currency was kept by the assessee instead of returning it to the company. The CIT(A) upheld this addition. However, the assessee contended that the currency belonged to the company, was duly accounted for, and was returned to the company. The tribunal directed the Assessing Officer to re-examine the issue, considering the submissions made by the assessee and verifying if the foreign currency belonged to the company and was accounted for by the company as of 31.03.2011. The tribunal also noted that as per RBI rules, the assessee could retain foreign exchange for 180 days.

Issue 2: Deemed Dividend Addition
The second ground raised by the assessee related to the addition of ?60,00,000 under section 2(22)(e) of the Act as deemed dividend. The tribunal agreed with the CIT(A) that the addition was justified but directed the Assessing Officer to restrict the deemed dividend to the accumulated profits of the company as specified in the Act. The issue was restored to the Assessing Officer for quantification and verification of the deemed dividend, limiting it to the company's accumulated profits.

Issue 3: Addition of Jewellery
The last issue concerned the addition of jewellery worth ?15,44,780 found during the search. The assessee explained that some jewellery belonged to forefathers and was acquired over time, while the rest was acquired in the relevant financial year. The Assessing Officer added a higher amount, but the CIT(A) restricted the addition to ?15,44,780 considering various factors and precedents. The tribunal upheld the CIT(A)'s decision, as the assessee failed to substantiate the claim that the jewellery was purchased in earlier years and its source.

In the end, the tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the revenue's appeal, upholding the CIT(A)'s decision on the issues discussed.