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2021 (10) TMI 1107 - AT - Income TaxAddition u/s 2(22)(e) - deemed dividend - Proof of substantial interest - assessee being a shareholder having substantial interest in the companies loans imparted by assessee - HELD THAT - The agreement dated 14.11.2005 entered between both the companies makes it clear that BBPL has made investments in various projects of The Embassy Group and CAPL is involved in these ventures. It is further mentioned that CAPL shall pay money to BBPL as and when required to support the real estate investment activities. It has also been mentioned that the amount invested by CAPL shall be adjusted against the properties. It is an undisputed fact that the amounts invested by CAPL has been adjusted against the properties assigned to CAPL by BBPL, vide assignment agreements dated 28.03.2015. Thus the original agreement dated 14.11.2005 stands corroborated by the assignment agreements dated 28-03-2015. These uncontroverted documents supports the submissions of the assessee that the amounts given by CAPL to BBPL are not loans or advances contemplated in sec.2(22)(e) . What is required to be seen is whether CAPL has advanced moneys as pure loan amounts or for business purposes. The agreements produced by the assessee before Ld CIT(A), which were also confronted with the AO, would prove that the transactions entered between the parties are business transactions. The Ld A.R also submitted that both the companies are maintaining accounts as running accounts only and real estate investment activity was agreed to be a continuous activity. Hence the question of making one to one reconciliation, as contended by Ld DR. would not arise in these types of transactions. Accordingly, we confirm the order of Ld CIT(A) in deleting the additions made u/s 2(22)(e) of the Act in all the three years under consideration. Protective addition of undisclosed income in the hands of the assessee - When the sources stood explained, the question of making any addition on substantive basis or protective basis does not arise. Accordingly, we do not find any infirmity in the order of Ld CIT(A) in deleting the additions made on protective basis in all the three years. - Assessee appeal allowed.
Issues Involved:
1. Relief granted by CIT(A) in respect of addition made under section 2(22)(e) of the Income-tax Act, 1961 as deemed dividend. 2. Addition of undisclosed income. 3. Validity of search proceedings challenged by the assessee. Detailed Analysis: 1. Relief Granted by CIT(A) in Respect of Addition Made Under Section 2(22)(e) of the Income-tax Act, 1961 as Deemed Dividend: The primary issue was whether the funds transferred from M/s Cauvery Aqua Pvt. Ltd. (CAPL) to M/s Brindavan Beverages Pvt. Ltd. (BBPL) should be treated as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961. The Assessing Officer (AO) argued that the loans received by BBPL from CAPL should be assessed as deemed dividend in the hands of the assessee, as the assessee held a substantial interest in both companies. The AO did not accept the explanation provided by the assessee that the funds were transferred for business purposes, specifically for joint investments in property development projects with the Embassy Group. The AO contended that CAPL should have given money directly to the Embassy Group and not to BBPL. The CIT(A) accepted the assessee's explanation, noting that the transactions were business transactions and not loans or advances as contemplated under section 2(22)(e). The CIT(A) referred to an agreement dated 14.11.2005 between CAPL and BBPL, which stated that CAPL would provide funds to BBPL for real estate investments, and these amounts would be adjusted against properties assigned to CAPL by BBPL. The CIT(A) also considered assignment agreements dated 28.03.2015, which corroborated the original agreement and supported the business nature of the transactions. The Tribunal upheld the CIT(A)'s decision, agreeing that the transactions were business-related and not loans or advances under section 2(22)(e). The Tribunal noted that the agreements and the nature of the transactions supported the assessee's claim, and the CIT(A)'s findings did not call for any interference. 2. Addition of Undisclosed Income: The AO made protective additions of undisclosed income in the hands of the assessee, with substantive additions made in the hands of CAPL. The AO identified a ledger account titled "Prakash Ladhani Imprest Account," which showed money given to Prakash Ladhani but not reflected in the balance sheet. The AO assessed these amounts as undisclosed income of CAPL and made protective additions in the hands of the assessee. The CIT(A) deleted the additions, explaining that the amounts in the ledger were cash withdrawals from United Bank of India and deposited in Bank of India, with the imprest account created for transaction control. The CIT(A) found that these transactions were explained and not undisclosed income. The Tribunal confirmed the CIT(A)'s order, noting that the transactions were routed through the books of account, and the sources were explained. Consequently, the Tribunal found no basis for substantive or protective additions. 3. Validity of Search Proceedings Challenged by the Assessee: The assessee filed cross objections challenging the validity of the search proceedings for assessment years 2011-12 and 2012-13. However, during the hearing, the assessee did not press these objections. Consequently, the Tribunal dismissed the cross objections as not pressed. Conclusion: The Tribunal dismissed the revenue's appeals and the assessee's cross objections, upholding the CIT(A)'s decisions to delete the additions made under section 2(22)(e) as deemed dividend and the protective additions of undisclosed income. The Tribunal concluded that the transactions between CAPL and BBPL were business-related and not loans or advances, and the sources of the amounts in the imprest account were explained.
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