2019 (4) TMI 359 - AT - Income Tax

Reopening of assessment - deemed dividend addition u/s 2(22)(e) - HELD THAT - The conditions for invoking the provisions of section 2(22)(e) are satisfied and given the fact that no original assessment has happened, the income to that extent has escaped assessment. The Assessing officer thus has the tangible material in his possession to form a prima facie view that the advances are in nature of deemed dividend u/s 2(22)(e) and income to that extent has escaped assessment. It is a trite law that before invoking jurisdiction u/s 147 AO has to record a prima facie belief that income has escaped taxation and there should be a nexus between the material and the formation of belief that income has escaped taxation. In the instant case, the necessary nexus has been established between the material in possession of the Assessing officer and the formation of a prima facie belief that the income has escaped assessment. - Decided against assessee Deemed dividend addition u/s 2(22)(e) - HELD THAT - In case of M/s Raj Auto Wheels Private Limited advances to the tune of ₹ 51 lacs for the purposes of business and therefore, to that extent, the same would not be considered and reduced for the purposes of determining the deemed dividend in hands of the assessee. Further, there is a payment of ₹ 18.50 lacs made on 18.01.2010 which has been returned on the very next day on 19.01.2010 and the same appears to be a current account transaction and not to be considered for determining the deemed dividend. There is nothing on record in terms of remaining advances either for business purposes or any current account transaction. The fact that such advances have been repaid in the subsequent financial year will not provide any relaxation from the rigours of section 2(22)(e). Therefore, remaining advances to the tune of ₹ 32.45 lacs will be considered for determining deemed dividend. The AO has determined the accumulated profits at ₹ 28.35 lacs of M/s Raj Auto Wheels Private Limited which has not been disputed by the assessee. The lower of the two i.e, ₹ 28.35 lacs has thus been rightly brought to tax as deemed dividend u/s 2(22)(e) - Decided against assessee Cash deposit in his bank account maintained with the Bank of Baroda, Ajmer - HELD THAT - When an amount is found deposited in the assessee s bank account, the onus is on the assessee to explain the source of such deposits. In the instant case, the explanation of the assessee is that source of such deposits is the withdrawal of cash from his capital account maintained with his proprietary concern M/s Govind Garg & Co. - AO s finding is that the assessee has not produced the cash book in support of the said explanation to which the assessee has contended that he was never asked to produce the cash book at first place. In view of the contradictory stand taken by both the parties, we believe that it would be just and fair that the assessee is given one more opportunity to produce the cash book of his proprietary concern M/s Govind Garg & Co. before the AO. The matter is accordingly set-aside to the file of the AO to examine the same afresh Rental income from Bank of Baroda - rent has been paid in HUF bank account however, by mistake, the TDS has been deducted by the Bank by quoting assessee s PAN and it has wrongly been reflected in assessee s Form 26AS - HELD THAT - Mere reflection of a transaction in assessee s Form 26AS cannot be made a sole basis for bringing certain transaction to tax especially where the assessee is contending that such transaction doesn t belong to him and but belong to the HUF. However, it is for the assessee to demonstrate that such transaction doesn t belong to him especially where HUF is a related entity and the assessee has access to the records of the HUF and is being controlled by the assessee. We accordingly believe that where the HUF is the right full owner of the subject rental income and it has already included the same in its return of income, the same cannot be brought to tax in the hands of the assessee. Addition on account of interest income - HELD THAT - Interest income has been shown in other income of ₹ 1,63,317/- in the books of account of the proprietary concern M/s Govind Garg & Co as clear from the journal entry and P & L A/c and the same cannot be brought to tax in the hands of the assessee. The matter is accordingly set-aside to the file of the AO to examine the aforesaid contention so raised and where the same is found to be correct and duly offered to tax in hands of M/s Govind Garg & Co, delete the impugned addition. In the result, ground is allowed for statistical purposes.

Summary

Issues Involved:

1. Assumption of jurisdiction by the Assessing Officer under Section 147 by issuance of notice under Section 148 and the consequent order passed under Section 147 read with Section 143(3) of the Act.
2. Addition of ?28,35,265/- on account of deemed dividend under Section 2(22)(e) of the Act.
3. Addition of ?7,57,000/- on account of unexplained cash deposit in the bank account.
4. Addition of ?1,80,592/- on account of rental income.
5. Addition of ?85,969/- on account of interest income.

Detailed Analysis:

1. Assumption of Jurisdiction by the Assessing Officer under Section 147:

The assessee challenged the jurisdiction assumed by the Assessing Officer under Section 147 by issuance of notice under Section 148. The assessee argued that the reasons recorded for reopening the assessment did not justify the formation of even a prima facie view that the income had escaped assessment. The assessee contended that the mere fact that the company had given some amount, assumed to be an advance of the nature of a loan, did not provide sufficient grounds for invoking Section 2(22)(e).

The Revenue countered that the Assessing Officer had sufficient material to form a belief that income had escaped assessment, based on the information that the assessee had received a loan from M/s Raj Auto Wheels Pvt. Ltd., Ajmer.

The Tribunal held that the Assessing Officer had tangible material to form a prima facie view that the conditions for invoking Section 2(22)(e) were satisfied, and the income had escaped assessment. Therefore, the assumption of jurisdiction under Section 147 and the consequent order passed under Section 147 read with Section 143(3) were upheld. The assessee’s appeal on this ground was dismissed.

2. Addition of ?28,35,265/- on Account of Deemed Dividend under Section 2(22)(e):

The assessee contested the addition of ?28,35,265/- as deemed dividend under Section 2(22)(e), arguing that the amount given was a trade advance for the purchase of land for a showroom and service station, and not a loan. The assessee provided an agreement dated 04.07.2009 to support this claim.

The Revenue argued that the assessee had provided contradictory and fabricated records to mislead the department. The Tribunal noted that the assessee held 80% equity in M/s Raj Auto Wheels Pvt. Ltd. and had received advances totaling ?101.95 lakhs. The Tribunal found that advances to the tune of ?51 lakhs were for business purposes, and an amount of ?18.50 lakhs was a current account transaction. However, the remaining advances of ?32.45 lakhs were considered for determining deemed dividend, and the accumulated profits of ?28.35 lakhs were rightly brought to tax as deemed dividend under Section 2(22)(e). The assessee’s appeal on this ground was dismissed.

3. Addition of ?7,57,000/- on Account of Unexplained Cash Deposit:

The assessee argued that the cash deposits in his bank account were from cash withdrawals made from his proprietary concern and capital balance, and that the Assessing Officer never asked for the cash book. The Revenue maintained that the cash book was not produced to support the explanation.

The Tribunal found that the assessee should be given another opportunity to produce the cash book of his proprietary concern. The matter was set aside to the file of the Assessing Officer for fresh examination. The assessee’s appeal on this ground was allowed for statistical purposes.

4. Addition of ?1,80,592/- on Account of Rental Income:

The assessee claimed that the rental income was received in the account of Govind Garg HUF and not in his individual capacity. The Revenue argued that no documentary evidence was provided to support this claim.

The Tribunal noted that the assessee contended that the rental income was consistently shown in the HUF’s return of income and assessed accordingly. The matter was set aside to the file of the Assessing Officer to examine the assessee’s contentions and decide afresh. The assessee’s appeal on this ground was allowed for statistical purposes.

5. Addition of ?85,969/- on Account of Interest Income:

The assessee argued that the interest income was shown in the books of his proprietary concern and not in his individual capacity. The Revenue did not accept this explanation.

The Tribunal set aside the matter to the file of the Assessing Officer to verify the assessee’s claim that the interest income was included in the proprietary concern’s return of income. The assessee’s appeal on this ground was allowed for statistical purposes.

Conclusion:

The appeal of the assessee was partly allowed for statistical purposes, with certain matters remanded back to the Assessing Officer for fresh examination. The Tribunal upheld the jurisdiction assumed under Section 147 and the addition of deemed dividend under Section 2(22)(e), while remanding the issues of unexplained cash deposit, rental income, and interest income for further verification.