2020 (6) TMI 149 - AT - Income Tax

Disallowance on account of provisions of section 17(2) of the Act r.w.r. 3(7)(i) - Interest free advance given to Director employee - According to AO said advances are not given or taken during the course of normal business and considering the assessee having employee and employer relationship treated the aforesaid amounts as advances and computed the interest @ 1.02% - HELD THAT - We hold that the assessee being a proprietary of M/s. S N Enterprises having business transactions with EPIL and treating the closing balance as on 31-03-2009 is interest free advances is not maintainable. Thus, the order of CIT(A) in upholding the view of AO in invoking the section 17(2) r.w.r. 3(7)(i) is not warranted. Thus, the order of CIT(A) is set aside and ground No. 1 raised by the assessee is allowed. Addition on account of capital gains - ingenuine transaction - HELD THAT - Transaction between Ashok Raghunath Mane and Shri Narendra Bhimsen Agarwal as ingenuine, it was an attempt by the Ashok Raghunath Mane to divert profit to Agarwal and upheld the addition made and confirmed by the AO and CIT(A) therein in the hands of Ashok Raghunath Mane. In order to come to such conclusion this Tribunal examined the Income Tax Return filed by the Agarwal brothers for the year under consideration therein, wherein it was found the business income shown by the Narendra Bhimsen Agarwal at ₹ 3.34 lakhs and opined there is no match to the income of ₹ 1.05 crores. These facts are not disputed by both the parties. Therefore, we find force in the arguments of ld. AR that the addition made in the hands of assessee is not maintainable. - Decided in favour of assessee.

Summary

Issues involved:
1. Challenge to the action of CIT(A) in restricting disallowance under section 17(2) of the Act.
2. Challenge to the addition of capital gains confirmed by CIT(A).

Analysis of the Judgment:

Issue 1:
The appeal was against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2009-10. The main ground challenged the restriction of disallowance under section 17(2) of the Act. The Assessing Officer (AO) treated certain amounts as interest-free advances from a company where the assessee was a director employee. The AO added an amount to the total income of the assessee, which was later restricted by the CIT(A). The assessee contended that the transactions were business-related and not advances. The Tribunal found that the transactions between the company and the assessee's firm were indeed business transactions, and the invocation of section 17(2) was incorrect. The order of the CIT(A) was set aside, and the ground raised by the assessee was allowed.

Issue 2:
The additional ground raised by the assessee challenged the addition of capital gains confirmed by the CIT(A). The Tribunal referred to a similar case involving a different individual where the capital gains were confirmed. However, upon examining the facts and transactions, the Tribunal found that the addition of capital gains in the hands of the present assessee was not maintainable. The Tribunal allowed the additional ground raised by the assessee. As a result, the main ground related to capital gains became academic.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the orders of the CIT(A) on both issues. The judgment was pronounced on 20th December 2019 by the Appellate Tribunal ITAT Pune, comprising Shri R.S. Syal, Vice President, and Shri S.S. Viswanethra Ravi, Judicial Member.