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2013 (9) TMI 43 - AT - Income TaxDeemed dividend - it was found by the AO that two payments of Rs. 1.60 crores and Rs. 1.10 crores were made to the assessee (Director) - Before AO, the assessee claimed that Shri S.J. Marshall (SJM), the father of the assessee had instructed the company to gift a sum of Rs. 1.60 crores to his son (the assessee) - The AO also observed that even if it is assumed that adjustment entry is a gift then also the same can be said to have taken place only on 31/3/2007, on which date such adjustment entries were made and debit prior thereto of the sums of Rs.1.60 cores and Rs. 1.10 cores on 20/4/2006 and 30/8/2006 respectively are loans received by the assessee from aforementioned company. Held that - The case of the assessee has been mainly rejected on the ground that the letter written by the father of the assessee to the company was after thought moved of the assessee. It is not the case of the revenue that the father of the assessee was not available for examination. The case of the A.O and CIT(A) is that the said letter is after- thought. The sale of the painting by the father of the assesse has not been denied. It has been the contention of the assessee that it was purchasing paintings in the regular course, as after purchasing the paintings from the father other purchases of painting are also made. No material whatsoever has not been brought on record by the revenue to suggest that the letter written by the father of the assessee to the company was an afterthought move. The AO could have examined the assessee as well as his father and also the company on this issue. This exercise has neither been done by A.O nor by CIT(A) to establish that the letter written by the father of the assessee to the company is after thought. If the genuineness of the purchase of painting by the company from the father of the assessee is not denied then in absence of any material it cannot straightaway be held that the letter written by the father of the assessee to the company was after-thought. The matter was required to be examined - Matter restored back - Decided in favour of assessee.
Issues Involved:
1. Addition of Rs. 2,63,70,760/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. 2. Applicability of Section 2(22)(e) of the Income Tax Act, 1961 to the appellant's case. Detailed Analysis: 1. Addition of Rs. 2,63,70,760/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961 The assessee, a director and shareholder of M/s. S.J. Marshall Trading Company Pvt. Ltd., received payments of Rs. 1.60 crores and Rs. 1.10 crores from the company. The Assessing Officer (AO) found that the company had sufficient reserves and surplus and questioned why Section 2(22)(e) should not be invoked. The assessee claimed that the amount was a gift from his father, supported by letters dated 18/4/2006 and 31/3/2007. However, the AO noted discrepancies, such as the lack of corresponding adjustment entries in the father's account and the timing of these entries, which led to the conclusion that the amount was a loan and not a gift. The AO's grounds for rejecting the assessee's claim included: - The amount was reflected as a debit balance, indicating a loan. - The letter from the father was considered an afterthought with no evidentiary value. - The adjustment entries were made at the end of the year, not when the funds were transferred. The AO concluded that the conditions of Section 2(22)(e) were met, and added Rs. 2,63,70,760/- to the assessee's income, referencing decisions from Smt. Tarulata Shyam & Others and Ms. P. Sarada. 2. Applicability of Section 2(22)(e) of the Income Tax Act, 1961 to the appellant's case The CIT(A) upheld the AO's decision, noting that if the amount was indeed a gift, the ledger accounts should have reflected this on the same day the funds were transferred. The CIT(A) found no confirmation from the company regarding the father's request, and deemed the adjustment entries insufficient to prove the gift. The CIT(A) also observed that the father's failure to declare the sale proceeds of the paintings for taxation supported the AO's conclusion. The assessee appealed to the Tribunal, reiterating the claim that the funds were a gift from the father, who had sold paintings worth Rs. 1.73 crores to the company. The assessee argued that the non-passing of corresponding entries in the father's account was due to the lack of proper accounting facilities and that the substance of the transaction should be considered over the form. The Tribunal noted that the AO and CIT(A) had not brought any material evidence to suggest that the letter from the father was an afterthought. The Tribunal found that the matter required further examination and restored the issue to the AO for re-adjudication, directing that the assessee be given a reasonable opportunity of hearing. Conclusion The Tribunal restored the issue to the AO for re-adjudication, emphasizing the need for a thorough examination of the facts and providing the assessee an opportunity to present evidence. The appeal was allowed for statistical purposes.
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