2021 (10) TMI 1149 - AT - Income Tax

Deemed dividend assessed u/s 2(22)(e) - HELD THAT - As noticed that the decision rendered by Ld CIT(A) in deleting the assessment of deemed dividend in the hands of Prakash Ladhani has been upheld by the Tribunal on the reasoning that the transactions of advancing money by CAPL to BBPL are business transactions. Accordingly, we confirm the decision of ld CIT(A) in holding that there is no case for assessment of deemed dividend on merits and hence the protective addition made in the hands of the assessee herein is liable to be deleted. Unexplained investment as assessed protectively - DTVSV Scheme - Since the addition made on substantive basis in the hands of Shri Prakash Ladhani has been upheld by Ld CIT(A), the protective addition made in the hands of the assessee of the very same amount was deleted by Ld CIT(A). As further submitted that Shri Prakash had filed appeal before ITAT challenging the decision rendered by Ld CIT(A) and further he has opted to settle the issue under DTVSV Scheme. The assessee has furnished a copy of Form No.1 filed under the above said scheme. Under the above said scheme, the above said company is required to pay tax shown in Form no.3 and final certificate in Form no.5 is required to be issued in proof of settlement of dispute. Since these matters are pending, we restore this issue to the file of AO with the direction to delete this protective addition upon furnishing of Form no.5 issued to Shri Prakash Ladhani in settlement of this dispute.

Issues Involved:
1. Deemed dividend assessed under Section 2(22)(e) of the Income Tax Act.
2. Unexplained investment assessed protectively.
3. Validity of search proceedings and the deletion of the addition of deemed dividend.

Issue-Wise Detailed Analysis:

1. Deemed Dividend Assessed under Section 2(22)(e) of the Income Tax Act:

The first issue pertains to the addition made under Section 2(22)(e) of the Income Tax Act as deemed dividend. The Assessing Officer (A.O.) noticed that the assessee, being a substantial shareholder in both M/s. Brindavan Beverages Pvt. Ltd. (BBPL) and M/s. Cauveri Aqua Pvt. Ltd. (CAPL), had received a loan of ?1.00 crore from CAPL. The A.O. deemed this loan as "deemed dividend" under Section 2(22)(e) of the Act, as the loan was given to a concern in which the assessee had a substantial interest. The assessee contended that the funds were provided for business purposes, specifically for joint investments in property development projects with Embassy Group. However, the A.O. rejected this explanation, stating that CAPL should have directly given money to Embassy Group rather than BBPL. Consequently, the A.O. assessed the loan amount as deemed dividend, but on a protective basis since it was already assessed in the hands of another shareholder, Shri Prakash Ladhani.

The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the explanations provided by Shri Prakash Ladhani in his appeal, recognizing the transactions as business transactions and deleting the addition of ?1.00 crore made under Section 2(22)(e). The Tribunal upheld this decision, noting that the transactions between CAPL and BBPL were indeed business transactions, supported by an agreement dated 14.11.2005 and assignment agreements dated 28.03.2015. The Tribunal confirmed that these transactions were not loans or advances as contemplated under Section 2(22)(e) and thus upheld the deletion of the protective addition in the hands of the assessee.

2. Unexplained Investment Assessed Protectively:

The second issue involved the addition of ?53,69,040/- as unexplained investment assessed on a protective basis in the hands of the assessee. The substantive addition was made in the hands of Shri Prakash Ladhani and confirmed by the CIT(A). The CIT(A) subsequently deleted the protective addition in the hands of the assessee. The Tribunal noted that Shri Prakash Ladhani had opted to settle the issue under the Direct Taxes Vivad Se Vishwas Act, accepting the additions made on a substantive basis. Consequently, the Tribunal directed the A.O. to delete the protective addition in the hands of the assessee upon furnishing the final certificate (Form No. 5) issued to Shri Prakash Ladhani under the settlement scheme.

3. Validity of Search Proceedings and Deletion of Deemed Dividend:

In the cross-objection, the assessee challenged the validity of the search proceedings and contended that the CIT(A) should have deleted the addition of deemed dividend under Section 2(22)(e) on the grounds that the provisions would fail in the facts and circumstances of the case. However, this specific issue was not pressed by the assessee during the proceedings and hence was dismissed as not pressed.

Conclusion:

The Tribunal dismissed the appeal of the revenue and upheld the deletion of the protective addition of deemed dividend in the hands of the assessee. The Tribunal also directed the A.O. to delete the protective addition of unexplained investment upon the settlement of the dispute by Shri Prakash Ladhani under the Direct Taxes Vivad Se Vishwas Act. The cross-objection filed by the assessee was dismissed as not pressed. The order was pronounced in the open court on 25th October 2021.

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