2002 (2) TMI 317 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 3,84,544 on account of foreign gifts.
2. Addition of Rs. 1,41,185 on account of money taken in imprest account by the directors.
3. Addition of Rs. 11,200 on account of travellers cheques.
4. Charging of interest under sections 139(8) and 207.

Issue-wise Detailed Analysis:

1. Addition of Rs. 3,84,544 on Account of Foreign Gifts:
The assessee, a Managing Director of M/s. Kapri International Pvt. Ltd. and Director of M/s. Dior International Pvt. Ltd., was subject to search and seizure proceedings on 6th July 1983, resulting in the discovery of documents indicating foreign gifts. The Assessing Officer (AO) added Rs. 3,84,544 to the assessee's income, suspecting the gifts as undisclosed income and treating the shares purchased by the assessee's minor sons as benami holdings. The AO also considered the amount as deemed dividend under section 2(22)(e) of the IT Act, 1961.

The CIT(A) upheld the addition, deeming the gifts as undisclosed income but rejected the applicability of section 2(22)(e). The assessee contended that the AO exceeded his jurisdiction by examining the genuineness of the gifts, as the CIT under section 263 had directed only to consider taxability under section 2(22). The Tribunal found that the AO was within his rights to examine the genuineness of the gifts as the CIT's order directed a de novo assessment.

The Tribunal further noted that a settlement with the Department had accepted the foreign gifts, and the AO's action violated this settlement. The Tribunal ruled that the addition of Rs. 3,84,544 could not stand, as the settlement precluded further examination of the gifts' genuineness.

2. Addition of Rs. 1,41,185 on Account of Money Taken in Imprest Account by the Directors:
The AO added Rs. 1,41,185, considering loans advanced to the assessee by M/s. Dior International Pvt. Ltd. and M/s. Kapri International Pvt. Ltd. as deemed dividend under section 2(22)(e). The CIT(A) upheld this addition by aggregating the shares held by the assessee and his minor sons, treating the latter as benami holdings.

The Tribunal referred to the case of CIT v. T.P.S.H. Sokkalal, holding that shares acquired by minors through foreign gifts were indeed benami holdings of the assessee. Therefore, the assessee's shareholding met the threshold for section 2(22)(e). However, the Tribunal acknowledged that repayments of deposits do not attract section 2(22)(e) and remitted the matter to the AO to differentiate between loans and repayments.

3. Addition of Rs. 11,200 on Account of Travellers Cheques:
During the search, travellers cheques worth Rs. 11,200 were found. The assessee claimed these were issued by State Bank of India for business purposes of M/s. Kapri International. The AO added this amount to the assessee's income due to the absence of corresponding entries in the company's books, a decision upheld by the CIT(A).

The Tribunal found no evidence supporting the assessee's claim and upheld the addition, rejecting the assessee's contention.

4. Charging of Interest under Sections 139(8) and 207:
The issue of charging interest under sections 139(8) and 207 was deemed consequential and disposed of accordingly.

Conclusion:
The appeal was partly allowed. The Tribunal ruled in favor of the assessee concerning the addition of Rs. 3,84,544 on account of foreign gifts, remitted the issue of Rs. 1,41,185 for fresh consideration, upheld the addition of Rs. 11,200 on account of travellers cheques, and treated the interest charges as consequential.