2013 (11) TMI 808 - AT - Income Tax

Unaccounted and unexplained transfer of funds - Transfer from seized funds - Held that - assessee has produced the books of account and copy of ledger account of Naresh Kumar & Co., wherein it is pointed out that the amount of Rs.1,75,000/- was recorded in the bank account and the entire expenses incurred, which was reimbursed is also recorded in the books of Naresh Kumar & Co. and assessee also. As the assessee has produced sufficient evidence to prove the claim as bona fide, we are inclined to accept the same - Therefore, these are not unexplained, rather these are explained entries - Decided in favour of assessee. Disallowance u/s 40A(3) - Cash payments - Several payments on different dates in contravention of the provisions of section 40A(3) - Held that - there is no basis of making this addition by the AO and he has not brought any instance of cash payment in violation of provisions of section 40A(3) of the Act. Unless and unitl revenue is able to bring any material from the seized material or from the books of account, the addition cannot be sustained - Decided in favour of assessee. Disallowance u/s 2(22)(e) - Advance payment - Business expediency or ultimate benefit of the shareholders - Held that - The provisions of section 2(22)(e) are attracted, when a company makes payment to its shareholders whereas in contrast in present case payments have been made by the shareholder to the company. According to us, therefore, the provisions of section 2(22)(e) of the Act will not apply - Following decision of Assistant Commissioner of Income-tax v. Bhaumik Colour P. Ltd. 2008 (11) TMI 273 - ITAT BOMBAY-E - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of unaccounted and unexplained transfer of funds.
2. Addition under section 40A(3) of the Income-tax Act, 1961.
3. Addition under section 2(22)(e) of the Income-tax Act, 1961 on the ground of deemed dividend.

Issue-wise Detailed Analysis:

1. Addition of Unaccounted and Unexplained Transfer of Funds:
The first issue pertains to the addition of Rs. 1,95,185/- on account of alleged unaccounted and unexplained transfer of funds by M/s. Naresh Kumar & Co. found in the seized materials. The assessee contended that the amount was duly recorded in its books of account and was a legitimate transaction. The CIT(A) confirmed the addition, stating that the entries did not support the assessee's claim. However, upon review, it was found that the assessee had provided sufficient evidence, including the books of account and ledger entries, proving the transactions were bona fide. Consequently, the addition was deleted, and the orders of the lower authorities were reversed.

2. Addition under Section 40A(3) of the Income-tax Act, 1961:
The second issue involves the addition of Rs. 2,23,515/- under section 40A(3) for alleged cash payments in contravention of the provisions. The assessee argued that the AO did not specify any instances of such payments. The CIT(A) confirmed the addition without any basis. Upon review, it was found that the AO had not provided any material evidence from the seized documents or books of account to support the addition. Therefore, the addition was deleted.

3. Addition under Section 2(22)(e) of the Income-tax Act, 1961 on the Ground of Deemed Dividend:
The third issue concerns the addition of Rs. 35,00,000/- under section 2(22)(e) as deemed dividend. The AO made the addition on the grounds that the payment was made without business expediency for the benefit of the shareholders. The CIT(A) deleted the addition, relying on the decision of the Special Bench in ACIT Vs. Bhaumik Colour P. Ltd., which held that deemed dividend can only be assessed in the hands of a shareholder of the lender company. The assessee was not a shareholder of Naresh Kumar & Co. Pvt. Ltd., and hence, the provisions of section 2(22)(e) did not apply. This position was upheld, and the revenue's appeal was dismissed.

Conclusion:
The appeal of the assessee was allowed, and the appeal of the revenue was dismissed. The tribunal found that the assessee had provided sufficient evidence to substantiate its claims and that the additions made by the AO were not supported by material evidence. The legal principles laid down in relevant judicial pronouncements were correctly applied by the CIT(A) in deleting the additions under section 2(22)(e).