2022 (2) TMI 26 - AT - Income Tax

Assessment u/s 153A - Undisclosed sales from Silicon City Project - Proof of incriminating material found in search - Search and Seizure operations u/s 132 were carried out on the business as well as residential premises of the Jhaveri Group, Indore including the assessee along with other concerns/business associates - HELD THAT - We find that out of four persons whose statements were relied upon by the Assessing Officer, two have discredited the statement and retracted from the same via affidavits as submitted by the assessee during first appellate proceedings. It is worthy to mention that the said affidavits cannot be said to be additional evidences but the same are supporting documents in respect of the assessee s contention as the affidavits submitted were not like any old document which existed during the assessment/search proceedings but was produced later before the appellate authorities because those were actually acquired by the assessee later from those people looking to the requirement of the matter. An additional evidence will be something that was already in existence previously but was submitted later, and this was not so in the present mater. Therefore, it cannot be termed as an additional evidence but as a supporting document. Further, we find that during the course of assessment proceedings, the assessee was not provided with the opportunity of cross-examination with the concerned persons on whose statements reliance was placed by the Assessing Officer. We also find that during the search proceedings no incriminating material was found from the assessee s premises relevant to the project Silicon City, therefore, the Assessing Officer wrongly presumed on the basis of some letters received from four persons that the assessee accepted large portion of Sale Consideration on sale of land in cash and the same was not accounted for by them. Thus, the additions were made by the Assessing Officer without appreciating the fact that neither any cash was found or seized nor any document relating to cash receipts was found or seized during the search proceedings. CIT(A) had made detailed discussion on facts and recorded the finding that no incriminating evidence material was found during the course of search operation and also the contention of the learned Counsel for the assessee that letters relied upon by Assessing Officer were not made available to assessee during the course of assessment proceedings and to the CIT(A) during the course of appeal hearings as such on that basis, ld. CIT(A) should have also deleted the addition of undisclosed sales - Decided in favour of assessee. Deemed dividend u/s 2(22)(e) - unsecured loan to another company in which directors have substantial interest - in the nature of business receipt or not - HELD THAT - We find that the additions on account of deemed dividend u/s 2(22)(e) were not valid as the provisions of Section 2(22)(e) did not apply in the assessee s case as specifically recorded by the ld. CIT(A) in the appellate order in the light of the decision of the ITAT, Indore in case of Makhija Construction Co. 2011 (10) TMI 177 - ITAT, INDORE wherein relying upon several decisions of Hon ble Supreme Court and Special Bench, it was held that if the assessee co. is not a registered holder of shares, the provisions of Section 2(22)(w) would not be applicable. In the instant case, since the assessee co. is not a registered holder of shares of M/s Ajitnath Reality Pvt. Ltd., we are of the view that ld. CIT(A) has rightly deleted the additions following the relevant judicial pronouncement - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of additions made by the Assessing Officer on account of undisclosed sales from the Silicon City Project.
2. Acceptance of additional evidences of affidavits for retraction of statements of purchasers of plots.
3. Addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act.

Detailed Analysis:

Issue 1: Deletion of Additions on Account of Undisclosed Sales

The primary issue in the appeals was the deletion of substantial additions made by the Assessing Officer (AO) on account of alleged undisclosed sales from the Silicon City Project. The AO based these additions on statements from four individuals who claimed they paid amounts over and above the registered sale prices. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted these additions, reasoning that no incriminating evidence was found during the search and seizure operations under Section 132. The CIT(A) concluded that the AO's reliance on these statements, without any corroborative evidence or opportunity for cross-examination, violated principles of natural justice. The Tribunal upheld the CIT(A)'s decision, noting the lack of incriminating material and the failure to provide cross-examination opportunities, referencing the Supreme Court's decision in Andaman Timber Industries vs. CCE.

Issue 2: Acceptance of Additional Evidences of Affidavits

The second issue was the acceptance of additional evidences in the form of affidavits retracting the statements made by the purchasers. The CIT(A) accepted these affidavits, which were submitted during the appellate proceedings. The Tribunal agreed with this acceptance, clarifying that these affidavits were not additional evidence but supporting documents acquired later to address the matter. The Tribunal emphasized that the affidavits were necessary to support the assessee's contention and were not pre-existing documents withheld during the original assessment.

Issue 3: Addition on Account of Deemed Dividend under Section 2(22)(e)

For Padamprabhu Infrastructure & Reality P. Ltd., the AO made additions under Section 2(22)(e) for deemed dividends, arguing that the assessee received unsecured loans from Ajitnath Reality Pvt. Ltd., where common shareholders held significant shares. The CIT(A) deleted these additions, referencing the ITAT Indore's decision in Makhija Construction Co. vs. ACIT, which held that Section 2(22)(e) applies only if the recipient is both a registered and beneficial shareholder. Since the assessee was not a registered shareholder, the provisions did not apply. The Tribunal upheld this view, confirming the CIT(A)'s decision.

Conclusion:

The Tribunal dismissed all departmental appeals and allowed the cross-objection filed by the assessee, confirming the CIT(A)'s findings on the lack of incriminating evidence, the improper reliance on uncorroborated statements, and the non-applicability of Section 2(22)(e) for deemed dividends. The Tribunal's decision emphasized adherence to principles of natural justice and the necessity of corroborative evidence for making substantial additions.