2023 (10) TMI 295 - AT - Income Tax

Admission of additional evidences by CIT - Deemed dividend u/s 2(22)(e) - Genuineness of expenditure - CIT(A) deleted the additions - HELD THAT - Assessee carried the matter before ld. CIT(A) and availed opportunity to file additional evidence under rule 46A of the Rules by stating that the assessee was not provided due opportunity to produce documentary evidences by the AO. Although the AO in the remand report objected to the admission of additional evidence but did not comment on the merits of the additional evidences and cause shown by the assessee which prevented the assessee from filing relevant documentary evidences before the AO. Therefore,CIT(A) has not flouted the provision of rule 46A of the Rules, rather he has properly followed the said rule before admitting and considering the additional evidence. Deemed dividend u/s 2(22)(e) - Whether trade deposit being a business/commercial transaction carried out of commercial expediency did not amount to a loan or advance to fall within the rigor of section 2(22)(e)? - HELD THAT - In the present case the assessee was not a registered shareholder or beneficial shareholder in the lender company and despite specific reply by the assessee the AO has wrongly considered the share holding of M/s Amrit Polyplast P. Ltd. in the shares of M/s RBRL Agro Commodities Ltd. as the beneficial share holding of Shri Jai Prakash Singhal on propionate basis and the addition made by the Assessing Officer cannot be held as validly sustainable only on this count. In the case of DCIT vs. Amit Intertrade P. Ltd 2022 (2) TMI 1397 - ITAT AHMEDABAD as relied by the ld. AR, it was held that the deemed dividend under section 2(22)(e) can only be assessed in hands of person who is a shareholder of lender company and not in hands of a person other than shareholder. In the present case undisputedly the assessee LLP is not a registered shareholder in the RBRL Agro Commodities Ltd. therefore provision of section 2(22)(e) cannot be applied to the loan or advance taken by it from other company. In view of foregoing observations we are unable to see any ambiguity perversity or any valid reason to interfere with the findings recorded by the ld. CIT(A) and thus, we uphold the same. Addition on account of brokerage and commission paid to various brokers - AO issued summons u/s 131 of the Act to the parties but none appeared and the figures appearing in the bills were not proportionate to the rates and the party name was not mentioned in the brokerage/ commission bills - HELD THAT - assessee provided complete details of brokers, there addresses, PAN, TDS, Bills, confirmations and copies of ITR s etc. whereas the AO has disbelieved the impugned brokerage expenses on the basis of presumption and the successor AO in the remand report also adversely commented without rejecting or raising any doubt over the additional documentary evidence and explanation of the assessee. CIT(A) went into detail to evaluate the identity of commission recipient and genuineness of expenditure of all recipient entities and thereafter, drawn party wise conclusion and directed the AO to delete the entire addition made by the Assessing Officer on account of brokerage of commission paid to the various brokers. The conclusion drawn by the ld. CIT(A) is based on proper appreciation of facts. Appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Admission of Additional Evidence
2. Application of Section 2(22)(e) of the Income Tax Act
3. Deletion of Addition on Account of Brokerage and Commission

Issue 1: Admission of Additional Evidence

The revenue argued that the CIT(A) erred in law by admitting additional evidence without following the procedure laid down in Rule 46A(1) and 46A(2) of the IT Rules, 1962. The CIT(A) admitted the additional evidence submitted by the assessee, stating that the assessee was prevented from filing these papers during assessment proceedings due to bona fide reasons. The Tribunal noted that the CIT(A) allowed the Assessing Officer to submit a remand report and the assessee to submit a rejoinder. The Tribunal concluded that the CIT(A) properly followed Rule 46A before admitting and considering the additional evidence. Therefore, the Tribunal dismissed grounds 1 to 3 raised by the revenue.

Issue 2: Application of Section 2(22)(e) of the Income Tax Act

The revenue contended that the CIT(A) failed to appreciate the AO's efforts to pierce the corporate veil and correctly apply Section 2(22)(e) concerning deemed dividends. The CIT(A) observed that the AO wrongly considered the shareholding of M/s Amrit Polyplast Pvt. Ltd in RBRL Agro Commodities Ltd as the beneficial shareholding of Sh. Jai Prakash Singhal. The CIT(A) held that M/s Amrit Polyplast Pvt. Ltd was both the registered and beneficial shareholder, and thus, the shareholding could not be attributed to Sh. Jai Prakash Singhal. The CIT(A) also noted that the unsecured loan was a business/commercial transaction carried out of commercial expediency to meet the conditions imposed by Allahabad Bank. The Tribunal upheld the CIT(A)'s findings, noting that the assessee LLP was not a registered or beneficial shareholder in the lender company, and thus, the provisions of Section 2(22)(e) could not be applied. Consequently, grounds 4 to 7 raised by the revenue were dismissed.

Issue 3: Deletion of Addition on Account of Brokerage and Commission

The revenue argued that the CIT(A) erred in deleting the addition made by the AO on account of brokerage and commission paid to various brokers. The AO had disallowed the expenses due to discrepancies in bills and non-compliance with summons under Section 131 of the Act. The CIT(A) noted that the assessee provided complete details of brokers, their addresses, PAN, TDS, bills, confirmations, and copies of ITRs. The CIT(A) found that the AO disbelieved the expenses based on presumptions and that the successor AO in the remand report did not raise any doubts over the additional documentary evidence. The Tribunal upheld the CIT(A)'s findings, concluding that the deletion of the addition was based on a proper appreciation of facts and explanations provided by the assessee. Therefore, ground 8 raised by the revenue was dismissed.

Conclusion:

In the result, the appeal of the revenue was dismissed.

Order pronounced in the open court on 16.06.2023.