Income Tax Appellate Tribunal: In an appeal filed by Revenue against the order passed by the Commissioner of Income Tax (‘CIT’), wherein he held that the non-reporting of the transaction in the tax audit report could be an error and had no implication on the fact of receipt of unsecured loans by the assessee from the party, the two-member bench of Annapurna Gupta* (Accountant Member) and T.R. Senthil Kumar (Judicial Member) upheld the order of CIT deleting the addition made on account of deemed dividend and said that deemed dividends cannot be taxed in the hands of non-shareholders.
The grounds raised by revenue were, CIT has erred in law and on facts in deleting the addition made under Section 68 of the Income Tax Act at Rs. 1,31,50,000/- and in deleting the addition made under Section 2(22)(e) under Section 68 of the Act. Further, the CIT has erred in law and on facts in deleting the addition made at Rs. 1,52,10,011/- being 25% of labour and transportation charges, and in partly deleting the addition made at Rs. 10,00,000/- on account of short-term capital gains.
The Tribunal noted that the AO made total addition of Rs. 15,96,24,256/- to the returned income of assessee of Rs. 49,01,290/-, resulting in the income being assessed at Rs. 16,45,25,546/-. Out of the above additions made, the additions in respect of unsecured loans, labour charges and transportation charges and short-term capital gains were made by the AO in the absence of proper and sufficient evidences being filed by the assessee to substantiate its claim.
Further, the Tribunal noted that the addition of Rs. 1,31,50,000/- made by the AO under Section 68 of the Act pertained to unsecured loans taken from one Corporation, the addition being made for the reason that the assessee was unable to discharge the onus of proving the genuineness of the transactions in terms of Section 68 of the Act.
The Tribunal said that the CIT deleted the addition, noting the fact that, the assessee had duly discharged onus of proving the genuineness of the unsecured loans taken from the Corporation by filing confirmation of the said party, given all details of the cheques, through the amounts have been received and filing copy of bank statement reflecting the receipt of cheques in the same.
Thus, the Tribunal held that it has no reason to interfere in the order of the CIT deleting the addition of Rs. 1,31,50,000/- under Section 68 of the Act being unsecured loans taken by the assessee from one Corporation.
Concerning the issue relating to the addition made to the income of the assessee as deemed dividend as per the provisions of Section 2(22)(e) of the Act, which was deleted in appeal by the CIT, the Tribunal noted that the AO held that the loans and advances of Rs. 13,02,64,245/- received by the assessee from two entities qualified as deemed dividend in the hands of the assessee in terms of Section 2(22) (e) of the Act, and accordingly, subjected to tax in the hands of the assessee. The Tribunal said that in terms of Section 2(22)(e) of the Act, treating the loans and advances received by concerns, in which shareholders of the company giving loans and advances had substantial interest, qualified as “deemed dividend”.
The Tribunal held that it is settled in favour of the assessee to the effect that it could not be subjected to tax in the hands of the concerns which are not shareholders of the company making the loans and advances, which qualify as “deemed dividend”.
Thus, the Tribunal upheld the order of CIT deleting the addition made on account of deemed dividend after applying the proposition of law to the facts of the present case, that the assessee who had received advances from the said two concerns, was not a shareholder of these concerns, therefore, even though the advances qualified as deemed dividend in terms of Section 2(22)(e) of the Act, they cannot be taxed in the hands of the assessee.
Concerning the issue of addition made by the AO of expenses relating to labour and transportation charges amounting to Rs. 1,52,10,011/-, which was deleted by CIT, the Tribunal was not inclined to interfere in the order of the CIT, deleting the disallowance of labour and transportation expenses.
Further, relating to the deletion of addition of Rs. 10 lakhs made on account of short-term capital gain, the Tribunal said that the AO after noting that the assessee had not submitted sale agreement in respect of the transaction, and that similar issue had arisen in the case of the assessee for Assessment year 2008-09 also, wherein the assessee had shown loss from sale of property, however, later on it was found that actually the assessee had earned substantial gain, Therefore, based on this finding and in the absence of any evidences furnished by the assessee for the sale of land during the impugned year, the AO added an amount of Rs. 10 lakhs over and above the loss returned by the AO on an ad hoc basis.
The Tribunal noted that the CIT held that the disallowance made by the AO was not sustainable since all documentary evidence substantiating the transaction were furnished by the assessee, which were not doubted by the AO and the disallowance made by the AO was a mere ad hoc disallowance. Thus, the Tribunal said that it has no reason to interfere in the order of the CIT deleting the addition of Rs. 10,00,000/- on account of short-term capital gains.
[DCIT v Aaryavart Infrastructure P. Ltd, 2023 SCC OnLine ITAT 449, Order dated 05-06-2023]
Advocates who appeared in this case :
Assessee by: Aseem L. Thakkar;
Revenue by: Sudhendu Das.
