2015 (6) TMI 838 - AT - Income Tax

Jurisdiction of the Assessing Officer under Section 153A - addition on deemed dividend u/s 2(22)(e) - Held that - On the facts of the case, as pointed out by the learned CIT(A), the details of loans / advances were not directly reflected in the assessee s individual books of accounts and therefore it can be inferred that this issue came to light only pursuant to search action and therefore it is not incorrect to state that this issue came to light/arose on account of the search action under Section 132 of the Act. In this view of the matter, respectfully following the decision of the Hon ble Karnataka High Court in the case of Canara Housing Development Co. (2014 (8) TMI 642 - KARNATAKA HIGH COURT), we concur with and uphold the finding of the CIT(A) that the Assessing Officer had validly invoked the jurisdiction under Section 153A of the Act. - Decided in favour of revenue. Addition towards Deemed Dividend - Held that - In terms of section 2(22) (e) of the Act, dividend includes any payment by a company of any sum by way of advance or loan to a shareholder; being a person who is the beneficial owner of shareholding of not less than 10% of the voting power or to any concern in which such shareholder is a member / partner and in which he has a substantial interest or any payment by any such company on behalf of any such shareholder. A plain reading of this section would seem to indicate that the payment of loan / advance should be to the shareholder, to come under the purview of deemed dividend. From the shareholding pattern, as recorded in the order of assessment, it appears that CPIPL is not a shareholder of CPPL. It is not clear as to how the Assessing Officer determined the applicability of the provisions of section 2(22) (e) of the Act to the facts of the case on hand. Also if additional evidence submitted to substantiate the assessee s claim, it would be in the interest of equity and justice if the additional evidence is admitted and adjudicated, particularly when the addition is made because the assessee did not submit evidence to substantiate his claim. Thus we deem it fit to remand the matter back to the file of the Assessing Officer for de novo examination of this issue - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer under Section 153A of the Act.
2. Assessee's right to appeal.
3. Addition towards deemed dividend under Section 2(22)(e) of the Act.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer under Section 153A of the Act:
The assessee contended that the addition of Rs. 5,21,65,348 under Section 2(22)(e) was beyond the scope of Section 153A. The original assessment was completed under Section 143(3) and no incriminating documents were found during the search under Section 132. The assessee relied on the Special Bench decision in All Cargo Global Logistics Ltd. v. DCIT. However, the Tribunal noted that the Karnataka High Court in Canara Housing Development Co. held that the assessing authority could consider the income declared in earlier returns, any undisclosed income found during the search, and any other income not disclosed earlier. The Tribunal upheld the CIT(A)'s finding that the Assessing Officer validly invoked jurisdiction under Section 153A, dismissing the assessee's ground.

2. Assessee's Right to Appeal:
The assessee had voluntarily offered Rs. 5,21,69,348 as deemed dividend during assessment proceedings. Despite this, the assessee appealed against the addition. The CIT(A) held that the assessee had no right to appeal after agreeing to the addition due to lack of evidence. However, the Tribunal found that the CIT(A) had adjudicated the substantive addition under Section 2(22)(e), making this ground academic. Consequently, this ground was dismissed for statistical purposes.

3. Addition towards Deemed Dividend under Section 2(22)(e):
The assessee challenged the addition of Rs. 5,21,69,348 as deemed dividend, arguing that inter-corporate deposits were not covered under Section 2(22)(e) and were trade advances. The assessee also contested the rejection of additional evidence by the CIT(A) and the limited time given to respond. The Tribunal noted that the Assessing Officer had concluded that the provisions of Section 2(22)(e) applied due to the shareholding pattern and the advances between group companies. The CIT(A) had rejected the additional evidence, considering it self-serving and unregistered. The Tribunal found that both the Assessing Officer and CIT(A) had not fully examined the issue on merits and emphasized the voluntary offer by the assessee.

The Tribunal highlighted the need for the Assessing Officer to corroborate additions with material evidence, especially for deemed dividend, which is not real income but deemed income. The Tribunal noted that the payment of loan/advance should be to the shareholder to come under Section 2(22)(e), and it was unclear how the Assessing Officer determined its applicability. The Tribunal also opined that additional evidence should be admitted and adjudicated in the interest of equity and justice. The matter was remanded back to the Assessing Officer for de novo examination and decision, allowing the assessee adequate opportunity to present details and evidence. Consequently, this ground was allowed for statistical purposes.

Conclusion:
The appeal was partly allowed for statistical purposes, with the matter remanded for further examination on the issue of deemed dividend. The Tribunal upheld the jurisdiction under Section 153A and dismissed the ground on the right to appeal as academic.