2015 (6) TMI 60 - AT - Income Tax

Deemed dividend u/s.2(22)(e) - whether amounts were advanced by the company for its business purposes? - Held that - It is not clear whether these fixed deposits were really made for business purposes of the company. If the lien on fixed deposit held in the name of the assessee was marked in favour of the bankers it may clearly demonstrate that the amounts were advanced for company purpose to the assessee. In the absence of such material on record we are not able to come to a definite conclusion that the company had advanced this money to the assessee only for its own business purposes. Further a mere perusal of the ledger extracts of the accounts of the assessee company it was not clear as to why two ledger accounts were maintained in the name of the assessee for the Financial Year 2007-08. Mere reliance on legal proposition without furnishing the supporting material does not help the cause of the assessee. It only amounts to a bald claim. The minutes of meeting of the board of directors cannot be the sole basis for coming to any conclusion more so in the case of a closely-held company. Therefore we deem it fit and proper to restore ground to the file of the AO to make fresh assessment. Benefit of indexation in respect of computation of capital gains arising out of development of property devolved - Held that - CIT(A) correctly allowed the claim of the assessee placing reliance in the case of DCIT vs. Manjula J. Shah 2009 (10) TMI 646 - ITAT MUMBAI also confirmed in 2011 (10) TMI 406 - BOMBAY HIGH COURT wherein held when the legislature by introducing the deeming fiction seeks to tax the gains arising on transfer of a capital asset acquired under a gift or Will and the capital gains under Section 48 of the Act has to be computed by applying the deemed fiction it is not possible to accept the contention of revenue that the fiction contained in Explanation 1(i)(b) to Section 2(42A) of the Act cannot be applied in determining the indexed cost of acquisition under Section 48 of the Act. - Decided against revenue.

Summary

Issues involved:
1. Addition u/s. 2(22)(e) of the Income Tax Act, 1961
2. Benefit of indexation in computation of capital gains

Detailed analysis:
1. Addition u/s. 2(22)(e) of the Income Tax Act, 1961:
The case involved a dispute regarding the addition of a certain amount under section 2(22)(e) of the Act. The Assessing Officer (AO) raised concerns about a loan received by the assessee from a closely held company and initiated scrutiny assessment. The assessee contended that the amount was received for the benefit of the company and was utilized solely for its business purposes. The ld. CIT(A) deleted the addition citing relevant judicial precedents supporting the assessee's position. However, the Revenue challenged this decision, arguing that the loan was advanced to the assessee and interest earned on it should be taxable. The Tribunal observed that while the legal proposition presented by the assessee was valid, there was a lack of supporting material such as sanction letters or fixed deposit receipts to conclusively prove the business purpose of the transaction. Consequently, the Tribunal remanded the matter to the AO for fresh assessment, emphasizing the need for substantiating evidence to support the claim made by the assessee.

2. Benefit of indexation in computation of capital gains:
The second issue revolved around the benefit of indexation in computing capital gains arising from property devolved upon the assessee through a will. The ld. CIT(A) allowed the benefit of indexation based on a decision of the Special Bench of the Tribunal. The Revenue contested this decision, but the Tribunal upheld the ld. CIT(A)'s ruling, citing a judgment of the Hon'ble Bombay High Court that clarified the application of indexation with respect to the period the asset was held by the assessee. Following the High Court's decision, the Tribunal dismissed the Revenue's grounds of appeal on this issue.