2023 (2) TMI 521 - AT - Income Tax

Deemed dividend u/s 2(22)(e) - opening balance for the A.Y 2011-12 is to be allowed for working deemed dividend u/s 2(22)(e) is incorrect since in A.Y 2010-11, the entire credit balance was set off and resultant working of deemed dividend u/s 2(22)(e) was accepted by the assessee - HELD THAT - As submission of the learned D.R. that in A.Y 2010-11 the entire credit balance was set off and resultant working of deemed dividend u/s 2(22)(e) was accepted by the assessee. CIT (A) has held that the opening credit balance for A.Y 2011-12 is to be allowed for working of the deemed dividend u/s 2(22)(e). We find some force in the above argument of the DR. A perusal of the order of the learned CIT (A) shows that he has not at all referred to the assessment order for the A.Y 2010-11 wherein the entire credit balance was set off and the resultant working of deemed dividend u/s 2(22)(e) was accepted by the assessee. Under these circumstances, we deem it proper to restore the issue to the file of the learned CIT (A) with a direction to adjudicate the issue afresh and in accordance with law by giving due opportunity of hearing to the assessee. He shall give a categorical finding as to whether in A.Y 2010-11 the entire credit balance was set off and the resultant working of deemed dividend u/s 2(22)(e) was accepted by the assessee or not. We hold and direct accordingly. The grounds raised by the Revenue are accordingly allowed for statistical purposes.

Issues Involved:

1. Addition of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.
2. Consideration of opening balance for the computation of deemed dividend.
3. Validity of transactions with third parties and their impact on deemed dividend computation.
4. Treatment of advances for the purchase of land and its inclusion in deemed dividend.

Issue-wise Detailed Analysis:

1. Addition of deemed dividend under Section 2(22)(e):

The Assessing Officer (AO) made an addition of Rs. 5,42,07,155/- as deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961. This was based on the discovery of multiple transactions between the assessee and VPR Mining and Infrastructure (P) Ltd (VPRMIPL) during a search and seizure operation. The AO rejected the assessee's explanations and determined that the peak debit balance in the assessee's account amounted to the deemed dividend.

2. Consideration of opening balance for the computation of deemed dividend:

The AO did not consider the opening balance for the computation of deemed dividend, arguing that the credit balance at the end of FY 2009-10 was offset against a debit balance towards a partnership firm, and this was accepted by the assessee for AY 2010-11. However, the CIT (A) allowed the opening balance of Rs. 3,94,91,836/- for AY 2011-12, stating that it should be considered for computing the peak debit and deemed dividend.

3. Validity of transactions with third parties and their impact on deemed dividend computation:

The AO included transactions with third parties like M/s Hamsa Minerals and M/s B V Reddy Enterprises in the computation of deemed dividend, stating that these transactions appeared in the individual ledger of the assessee in the seized books and were presumed to be for the individual benefit of the assessee. The CIT (A) excluded these transactions, accepting the assessee's explanation that these were independent entities and the transactions were correctly reflected in the final audited accounts.

4. Treatment of advances for the purchase of land and its inclusion in deemed dividend:

The AO included advances for the purchase of land at Kanupatipad in the computation of deemed dividend, arguing that the transactions were for the individual benefit of the assessee, as the land was eventually registered in the assessee's name. The CIT (A) upheld the AO's decision on this point, rejecting the assessee's contention that the advances were initially intended for the company but later registered in the assessee's name.

Tribunal's Decision:

The Tribunal found merit in the Revenue's argument that the CIT (A) did not consider the assessment order for AY 2010-11, where the entire credit balance was set off and accepted by the assessee. The Tribunal restored the issue to the CIT (A) for fresh adjudication, directing the CIT (A) to give a categorical finding on whether the entire credit balance was set off in AY 2010-11 and the resultant working of deemed dividend was accepted by the assessee.

For AY 2014-15, the Tribunal noted that the grounds raised were identical to those in AY 2011-12. Therefore, the Tribunal also restored the issue to the CIT (A) for fresh adjudication, following the same reasoning and directions.

Conclusion:

Both appeals filed by the Revenue were allowed for statistical purposes, with the issues being restored to the CIT (A) for fresh adjudication in accordance with the Tribunal's directions. The Tribunal emphasized the need for the CIT (A) to consider the assessment order for AY 2010-11 and provide a clear finding on the acceptance of the deemed dividend computation by the assessee.

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