2017 (11) TMI 1054 - AT - Income Tax

Addition made on account of on money cash payment for purchase of property at Delhi - incriminating documents/evidences received from DRI, Mumbai as the assessee was unable to explain the transaction or rebut the presumption that on money was paid for the purchase of the property - Held that - Totality of facts clearly indicates that the Ld. Assessing Officer could not collect any evidence to substantiate that in fact any cash was transacted for purchase of property. The case of the assessee is further fortified by the facts that the demand drafts issued for purchase of property were reflected in the documents, no statement was recorded by DRI either of Ms. Zaver Cyrus Dadina or of any other person during the course of search in respect of the details contained in the hard disc. Even, the information received from the investigation wing was never corroborated with any evidence, statement that any cash changed hands for the transaction. When the Ld. Assessing Officer recorded the statement of Shri Atul Sud, Director of the assessee company, though he admitted the transaction to be made through demand draft but he never tendered that any cash was transacted. Ms. Zaver Cyrus Dadina completely expressed or ignorance with regard to details of land dealings as has been alleged. The efforts of Assessing Officer to record the statement of Miss Damini Vadhwa, and Miss Reeta Bhatia also could not provide any information leading to the addition. The seized material/print out was not in the handwriting of the assessee and even there is no material to suggest that the seized material was maintained either by the assessee or it s of or employees. Even the statement of Rajaratanam was discarded by the Ld. Commissioner of Income Tax (Appeal) as the floor price, fixed by the authorities, for such property was found much lower than the value. Considering the factual matrix and the judicial pronouncements, discussed hereinabove, we find no infirmity in the conclusion of the Ld. First Appellate Authority. Our view is further fortified by the fact that the concerned data was even not found from the premises of the assessee and further the assessee has not started any substantial business activity and for acquisition of the land to inter corporate loan of ₹ 40 lakh from Strategic Capital Corporation. Thus, the presumption of the Ld. Assessing Officer for making the addition on presumptive basis was rightly deleted by the Ld. Commissioner of Income Tax (Appeal). - Decided against revenue Deemed dividend addition u/s 2(22)(e) - loan by the assessee from sister concern - Director of the assessee company was holding more than 10% of the voting power in the company which advance loan to the assessee - Held that - Addition made by the Assessing Officer is on the assumption that the common director hold more than 10% in SCCPL, which is factually incorrect. Both companies have common directory namely Shri Atul Sud, who is having 9% stakes in SCCPL (sister concern) which has given loan to the assessee to bring this amount within the ambit of deemed dividend u/s 2(22)(e) it has to be established that the same has to be given to shareholders out of the accumulated profit and further it was in the nature of loan or advance. Assessing Officer made the addition u/s 2(22)(e) of the Act of ₹ 40 lakh, taken as a loan by the assessee from sister concern, SCCPL by holding that the shareholding is more than 10%. It is undisputed fact that the assessee is not a shareholder in the sister concern (SCCPL). However, before invoking section 2(22)(e) of the Act, it has to be established that the same was given to the shareholder out of the accumulated profit and further it was in the nature of loan or advance. This issue has been elaborately dealt with by Hon ble jurisdictional High Court in CIT vs Universal Medicare Pvt. Ltd.(2010 (3) TMI 323 - BOMBAY HIGH COURT ). Thus, the deemed dividend cannot be invoked in the hands of the present assessee, resultantly, we affirm the stand of the Ld. Commissioner of Income Tax (Appeal). - Decided against revenue

Summary

Issues Involved:
1. Deleting the addition made on account of on-money cash payment for the purchase of property.
2. Taxability of dividend income under section 2(22)(e) of the Income Tax Act.

Issue 1: Deleting the Addition Made on Account of On-Money Cash Payment for the Purchase of Property

The Revenue contested the deletion of the addition made on account of on-money cash payment for the purchase of property in Delhi, arguing that the assessee could not explain the transaction or rebut the presumption of on-money payment. The Revenue relied on circumstantial evidence and a decision from the Tribunal in a previous case. The assessee countered by citing various judicial precedents, including the Supreme Court's decision in K.P. Verghese vs. Income Tax Officer, which states that the burden of proving on-money transactions lies with the Revenue.

The Tribunal observed that the addition was based purely on presumption and lacked documentary evidence. The information received from the investigation wing was not corroborated with evidence. The Tribunal emphasized that the conditions of taxability or presumption of on-money transactions must be proven by the Revenue, which failed to discharge this burden. The Tribunal cited several judicial precedents supporting the assessee's case, including decisions from the Delhi High Court and the Supreme Court, which held that the burden of proof lies with the Revenue and that mere presumption cannot sustain an addition.

The Tribunal concluded that the Assessing Officer could not collect any evidence to substantiate the claim of on-money transactions for the property purchase. The statements recorded during the investigation did not indicate any cash payments. The Tribunal affirmed the deletion of the addition made by the Assessing Officer, holding that the addition based on presumption could not be sustained in law.

Issue 2: Taxability of Dividend Income Under Section 2(22)(e) of the Income Tax Act

The Revenue argued that the dividend income should be taxed in the hands of the recipient concern, even if it is not a shareholder, under section 2(22)(e) of the Income Tax Act. The assessee contended that the provision is not applicable as the assessee is not a shareholder in the lending company and holds less than 10% of the voting power.

The Tribunal analyzed the shareholding pattern and found that the assessee is not a shareholder in the lending company (SCCPL). The Tribunal referred to the jurisdictional High Court's decision in CIT vs. Universal Medicare Pvt. Ltd., which held that section 2(22)(e) applies only to payments made to shareholders and not to non-shareholders. The Tribunal also cited the Special Bench decision in CIT vs. Bhaumik Colour Lab, which stated that deemed dividend can be assessed only in the hands of a shareholder and not in the hands of a non-shareholder.

The Tribunal concluded that the first requirement of section 2(22)(e) was not fulfilled as the assessee was not a shareholder in the lending company. Even assuming the payment was a dividend, it would have to be taxed in the hands of the shareholder and not the assessee. The Tribunal also referred to several judicial precedents, including decisions from the Supreme Court and other High Courts, which supported the view that deemed dividend cannot be taxed in the hands of a non-shareholder.

The Tribunal affirmed the deletion of the addition made by the Assessing Officer under section 2(22)(e), holding that the provision was not applicable to the assessee.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the deletion of the additions made on account of on-money cash payment for the property purchase and the taxability of dividend income under section 2(22)(e). The Tribunal emphasized the need for corroborative evidence to sustain additions and reiterated that deemed dividend can only be taxed in the hands of shareholders.