2017 (10) TMI 997 - AT - Income Tax

Deemed dividend addition u/s 2(22)(e) - Held that - Since the money in question remanded with the assessee only for one day and was returned to GCP without any utilisation it cannot be treated as advance or loan within the meaning of section 2(22)(e) and came to the aforesaid conclusion. CIT(A) placed reliance on the decision of ITAT Mumbai Bench in the case of Praveen Bhimshi Chheda Shiv Sadan vs DCIT (2011 (5) TMI 857 - ITAT MUMBAI) wherein it was held that the provision of section 2(22)(e) of the Act cannot be attracted where the transaction was circuitous transaction and the money which initially belonged to the company was returned to it on the very same day. The Tribunal held that looking at the transactions from the objects of section 2(22)(e) of the Act it cannot be said that there was diversion of dividend in the form of loans or advances. CIT(A) accordingly deleted the addition made by AO. Disallowance of exemption under section 54 - Held that - The assessee claimed deduction during the year. It was contended that since the assessee has not been able to purchase the new property within the specified period, he has declared this capital gain in the next assessment year. In this regard, attention was invited which is computation of income for the subsequent year. As per the assessee has declared the capital gain on this property in a subsequent year 2012-13. We are of the view that the issue needs to be set aside to the file of the AO with the directions that he shall verify the return for the next assessment year. In case the capital declared in the subsequent year, then the said capital gain need to be deleted. Accordingly, the AO is directed to verify the claim of the assessee. In case the AO is of the view that the capital gain is chargeable to tax in the year under consideration, then he shall delete the income in the subsequent assessment year 2012-13, as we are of the view that the same income cannot be taxed twice. Disallowance of an amount being brokerage and legal expenses paid while computing capital gain on the sale of property bearing No. B-7, Sector-72 - Held that - We note that the AO had disallowed this expenditure on the ground that assessee has not filed the details. This is factually incorrect. A sum of ₹ 2,26,750/- was paid to Noida Authority as one time lease charges at the time of purchase of the Plot. The evidence of the same was submitted placed at PB. Pg. 99 along with the bank statement at page 101 whereby a sum of ₹ 113375/- (being 50% share. of the assessee of ₹ 226750) is the debit appearing. Thus, the same being cost of acquisition it was rightly deducted while computing capital gain. Before the AO assessee submitted the ledger Account (PB Pg.99) of the property showing the amount of expenses paid to Noida Authority and the same was co-related with the bank statement at PB Pg. 101 where in PO is made on 30.6.2010 for making payment to Noida Authority. In our view the Ld. CIT(A) has gone wrong ignoring these evidences and confirming the disallowance made by the AO, hence, the addition in dispute is deleted. Disallowance of deduction being the expenditure incurred by the assessee in respect of property bearing No. S-143, Greater Kailash, Part-II, New Delhi - Held that - This amount was incurred by the assessee on this property after the purchase. In our view the same is to be included in the cost while computing the capital gain. The AO has disallowed the same and the Ld. CIT(A) has confirmed the disallowance ignoring the explanation and evidences submitted by the assessee in support thereof. Since the assessee having incurred the expenditure the same ought to have been allowed while computing cost of the assets sold, hence, the addition in dispute is deleted. Disallowance being the expenditure incurred on legal and brokerage at the time of sale of the above property - Held that - As per the provision of the Section 48, the capital gain is to be computed after deducting from the actual consideration received, the expenditure incurred in connection with such sales. The assessee having incurred these expenses the AO and Ld. CIT(A) have gone wrong in disallowing the same, hence, the addition in dispute is deleted.

Summary

Issues Involved:
1. Validity of the CIT(A)'s order.
2. Confirmation of addition under Section 2(22)(e) of the Income Tax Act.
3. Nature of the amount received by the assessee.
4. Computation of 'accumulated profits'.
5. Disallowance of deduction under Section 54 of the Income Tax Act.
6. Disallowance of brokerage and legal expenses in computing capital gain.
7. Disallowance of expenditure on additional alteration in computing capital gain.
8. Disallowance of legal and brokerage expenses in computing capital gain.

Detailed Analysis:

1. Validity of the CIT(A)'s Order:
The assessee challenged the order passed by the CIT(A) as being bad in law and on facts. However, this issue was not specifically adjudicated upon by the Tribunal.

2. Confirmation of Addition under Section 2(22)(e) of the Income Tax Act:
The CIT(A) confirmed the addition of ?3,09,38,391/- made by the AO under Section 2(22)(e) as deemed dividend. The Tribunal found that the addition was based on the allegation that the assessee received ?3,01,00,000/- from Craftpac Containers Pvt. Ltd. and ?99,00,000/- from CPC Polymers Pvt. Ltd. The Tribunal noted that the transactions were a result of fraudulent actions by the Relationship Manager of Citi Bank, who diverted funds using the director's bank account. The Tribunal held that since the transactions were fraudulent and the funds were not actually loans or advances, the provisions of Section 2(22)(e) did not apply. The Tribunal relied on several judgments, including CIT vs. Universal Medical Pvt. Ltd., and deleted the addition.

3. Nature of the Amount Received by the Assessee:
The Tribunal found that the transactions reflected in the bank statement were fraudulent and involved simultaneous credit and debit entries, indicating that the funds were never actually available to the assessee. Thus, the amount did not constitute loans or advances under Section 2(22)(e).

4. Computation of 'Accumulated Profits':
This issue was related to the addition under Section 2(22)(e). Since the Tribunal deleted the addition on account of deemed dividend, the issue of 'accumulated profits' became irrelevant.

5. Disallowance of Deduction under Section 54 of the Income Tax Act:
The assessee claimed a deduction under Section 54 for capital gains, which the CIT(A) disallowed. The Tribunal noted that the assessee had declared the capital gain in the subsequent assessment year 2012-13 and directed the AO to verify this claim. If the capital gain was declared in the subsequent year, the AO was instructed to delete the addition for the current year to avoid double taxation.

6. Disallowance of Brokerage and Legal Expenses in Computing Capital Gain:
The AO disallowed ?1,13,375/- being brokerage and legal expenses, which the assessee claimed as part of the cost of acquisition of a property. The Tribunal found that the assessee had provided evidence of payment to NOIDA Authority and held that the expenses were rightly deductible. The Tribunal deleted the disallowance.

7. Disallowance of Expenditure on Additional Alteration in Computing Capital Gain:
The assessee claimed ?2,00,000/- as expenditure incurred on additional alterations for a property. The AO disallowed this, and the CIT(A) upheld the disallowance. The Tribunal found that the expenditure was incurred and should be included in the cost of the asset. The Tribunal deleted the disallowance.

8. Disallowance of Legal and Brokerage Expenses in Computing Capital Gain:
The AO disallowed ?1,00,000/- incurred on legal and brokerage expenses at the time of selling a property. The Tribunal held that under Section 48, such expenses should be deducted from the actual consideration received. The Tribunal deleted the disallowance.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the additions and disallowances made by the AO and confirmed by the CIT(A). The Tribunal directed the AO to verify the capital gain declared in the subsequent year to avoid double taxation. The case laws cited by the Department were found to be distinguishable and not applicable to the present case. The Tribunal's order was pronounced on 18/10/2017.