2017 (6) TMI 245 - AT - Income Tax

Deemed dividend - Held that - When the assessee s premises and premises of PMPL are located in the same street, there is no requirement to hire lorry for carrying the goods. AR has invited my attention towards stock register of PMPL, a copy at page 42 of the paper book, which shows the corresponding receipt of goods from the assessee. It can be seen from the account of M/s PMPL in the assessee s books for preceding and succeeding years, that similar type of trade transactions were carried out between the two entities in these years as well. Since the receipt of ₹ 18,10,000/- was on account of advance from the company, for which supply was made during the year itself, such receipts of advance cannot be construed as a dividend u/s 2(22)(e) of the Act. Therefore, order for the deletion of this addition. Enhancement u/s 2(22)(e) - Held that - It is observed that the combined account was filed by the assessee with the ld. CIT(A) on 21.11.2016, which happens to be the last date of hearing as recorded on the titles of the impugned order. This shows that the ld. CIT(A) got the details and closed the hearing without making any further enquiries from the assessee about the nature of transactions. It was obligatory on his part to confront the assessee about his point of view and seek explanation before making any addition, which course of action has not been followed in the instant case. In my considered opinion, the ends of justice would meet adequately if the impugned order on this score is set aside and the matter is restored to the file of ld. CIT(A) for deciding this aspect of the matter afresh, after allowing an opportunity of hearing to the assessee.

Summary

Issues:
1. Enhancement of addition made by the Assessing Officer under section 2(22)(e) of the Income-tax Act, 1961.
2. Addition made by the CIT (A) by way of enhancement under section 2(22)(e) of the Act.
3. Imposition of penalty under section 271(1)(c) of the Act.

Analysis:

1. Enhancement of Addition under section 2(22)(e) of the Income-tax Act, 1961:
The first issue pertains to the enhancement of addition made by the Assessing Officer under section 2(22)(e) of the Income-tax Act. The assessee, engaged in trading of steel and a shareholder of another company, received an amount from the company which was treated as deemed dividend by the Assessing Officer. The CIT (A) further enhanced the addition based on certain receipts, despite the assessee's claim that the amount was received as an advance against sales made during the year. The Tribunal, after examining the details provided, concluded that the receipts were on account of advance from the company for supplies made during the year itself, and hence, could not be considered as a dividend under section 2(22)(e) of the Act. Consequently, the Tribunal ordered for the deletion of this addition.

2. Addition made by the CIT (A) under section 2(22)(e) of the Act:
The second issue concerns an addition made by the CIT (A) under section 2(22)(e) of the Act based on certain transactions between the assessee and the company. The Tribunal noted that the CIT (A) did not seek clarification from the assessee regarding the nature of these transactions before making the addition. Considering this procedural lapse, the Tribunal set aside the impugned order and remitted the matter back to the CIT (A) for fresh adjudication after allowing an opportunity of hearing to the assessee. The Tribunal emphasized the importance of due process and the need for proper enquiry before making additions under the Act.

3. Imposition of Penalty under section 271(1)(c) of the Act:
Regarding the imposition of penalty under section 271(1)(c) of the Act, the Tribunal observed that one of the additions forming the basis for the penalty had been deleted in the quantum proceedings. As a result, the Tribunal set aside the impugned order and directed the CIT (A) to decide on the penalty only after adjudication on the remaining addition. The Tribunal justified this decision by citing a judgment of the Hon'ble Supreme Court. The appeal was allowed for statistical purposes, emphasizing the need for a thorough and accurate assessment before imposing penalties under the Act.

In conclusion, the Tribunal's judgment addressed the issues of enhancement of additions, procedural lapses in making additions, and imposition of penalties under the Income-tax Act, ensuring fair consideration and due process in the assessment and penalty proceedings.