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2018 (9) TMI 61 - AT - Income TaxDeemed dividend u/s 2(22)(e) - sum received by the assessee from M/s Charu Home Products Pvt. Ltd. - Held that - The Board circular and the line of reasoning adopted by the various honourable High Courts undoubtedly indicate that the trading transactions or advances would fall outside the mischief of sums that are to be treated as deemed dividends. To this extent, there can be no dispute. Whether amounts advanced by a company to assessee in which the public does not have any substantial shareholding or in which the public is not interested to a shareholder, to an entity or individual holding shares in excess of 10 per cent amounts to a trading transaction or falls within the aspect and, therefore, deemed commercial, there can be no deemed dividend income in the hands of the receiver of the sum. The revenue has to conduct a fact-based inquiry each time such contention is urged by the assessee. These facts were analyzed meticulously by the AO were completely overlooked by the ld CIT (A) who virtually negated findings recorded with respect to the applicability of section 2(22)(e) of the act. All indications were that the assessee used money for its own purposes as it did by advancing substantial amounts enjoying the profits of the company. - Decided in favour of revenue.
Issues Involved:
1. Deletion of addition under Section 2(22)(e) of the Income Tax Act, 1961. 2. Admission of additional evidence by the Commissioner of Income Tax (Appeals). Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 2(22)(e) of the Income Tax Act, 1961: The primary issue in this case was whether the sum of ?1,01,36,328/- received by the assessee from M/s Charu Home Products Pvt. Ltd., where the assessee held a 50% shareholding, should be treated as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer (AO) had added this amount as deemed dividend, asserting that the payments made to the assessee were in the nature of loans or advances, covered under Section 2(22)(e). The assessee contended that the payments were business advances related to an agreement to sell a property to the company, which was subsequently canceled. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's explanation and deleted the addition, noting that the payments were made pursuant to a business transaction and did not constitute loans or advances under Section 2(22)(e). However, the Tribunal found several inconsistencies and lack of credible evidence in the assessee's explanation. The Tribunal noted that the agreement to sell and its subsequent cancellation appeared to be a cover-up to avoid the deemed dividend provisions. The Tribunal highlighted that the assessee failed to provide sufficient evidence regarding the efforts made to arrange the funds for the property purchase, and the repayment of the advance was delayed without any interest or forfeiture clause, raising doubts about the genuineness of the transaction. The Tribunal concluded that the transaction was not a genuine business transaction but a means to provide a loan to the assessee, thereby falling under the purview of Section 2(22)(e). Consequently, the Tribunal reversed the CIT(A)'s decision and restored the AO's addition of ?1,01,36,328/- as deemed dividend. 2. Admission of Additional Evidence by the Commissioner of Income Tax (Appeals): The second issue was the admission of additional evidence by the CIT(A) during the appellate proceedings. The AO argued that the additional evidence, including the agreement to sell and its cancellation deed, was not submitted during the assessment proceedings and should not have been admitted by the CIT(A). The CIT(A) justified the admission of additional evidence under Rule 46A, stating that the AO had not provided sufficient opportunity to the assessee to present the evidence during the assessment proceedings. The CIT(A) relied on judicial precedents to support the admission of crucial evidence for effective adjudication. The Tribunal, however, found that the CIT(A) did not properly scrutinize the additional evidence and failed to address the AO's concerns regarding the genuineness of the transaction. The Tribunal emphasized that the CIT(A) should have thoroughly examined the evidence and the circumstances surrounding the transaction before admitting it. In conclusion, the Tribunal allowed the Revenue's appeal, reversing the CIT(A)'s order and restoring the AO's addition of ?1,01,36,328/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. The Tribunal also highlighted the need for a meticulous fact-based inquiry to determine the applicability of deemed dividend provisions in such cases.
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