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Facts
The assessee, engaged in facilitation and clearing/forwarding services, filed income tax returns. The Assessing Officer (AO) made additions for deemed dividend, rental income, and cash credit, disallowing business promotion expenses. The assessee appealed to the CIT(A).
Held
The CIT(A) deleted the additions for deemed dividend, rental income, and cash credit, and granted partial relief on business promotion expenses. The Tribunal agreed with the CIT(A)'s decision, finding no infirmity in his order.
Key Issues
Whether the additions made by the AO for deemed dividend, rental income, and cash credit were justified, and whether the CIT(A) rightly deleted them.
Sections Cited
2(22)(e), 68, 143(2), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, NAGPUR BENCH : NAGPUR
Before: SHRI V. DURGA RAO & SHRI KHETTRA MOHAN ROY
ORDER PER V. DURGA RAO, J.M. : This appeal has been filed by the Revenue against the order dated 23.03.2020, of the learned CIT(A)-2, Nagpur, relating to assessment year 2014-2015. 2. Facts of the case, in brief, are that the assessee is engaged in the business of providing services like facilitation
2 ITA.No.85/NAG./2020 business and also has receipts from clearing, forwarding etc. He filed return of income on 29.11.2014 declaring income of Rs.1,35,51,442/- and also filed revised return income by adding a sum of Rs.1,02,98,288/- on 26.09.2016 and thus, the total income determined by the assessee was at Rs.2,38,49,730/- [Rs.1,35,51,442/- + Rs.1,02,98,288]. The case of the assessee has been selected for scrutiny. The Assessing Officer issued statutory notice u/sec.143(2) as well as show cause notice calling for explanation of assessee. The assessee filed his reply to the said notices. The Assessing Officer after examining the explanation offered by the assessee, determined the total income of the assessee at Rs.5,02,70,140/- as against the returned income of Rs.2,38,49,730/- by making addition u/sec.2(22)(e) of Rs.1,47,57,806/-; addition on account of rent at Rs.3,36,000/-; addition u/sec.68 at Rs.1 crore besides disallowing business promotion expenses of Rs.13,26,600/- vide order dated 02.11.2016 passed u/sec.143(3) of the Act.
3 ITA.No.85/NAG./2020
On being aggrieved, the assessee carried the matter in appeal before the learned CIT(A).
The learned CIT(A) after considering the submissions of the assessee and the assessment order, deleted the addition of Rs.1,47,57,806/- made on account of deemed income u/sec.2(22)(e) of the Act by accepting the arguments of the assessee that the accumulated profits having already been subjected to tax as deemed dividend u/sec.2(22)(e) of the Act there remains no accumulated profit which can be considered the assessing deemed income in the hands of assessee for the impugned assessment year 2014-2015 by following the Judgment of Hon’ble Supreme Court in the case of CIT vs. G Narasimhan reported in 236 ITR 327 (SC); the decision of Kolkata High Court in the case of Shri Pradipkumar Malhotra reported in 338 ITR 538 (Cal.) and the decision of ITAT, Nagpur Bench in ITA.No.305/NAG./2016 vide order dated 10.10.2016 in the case of Shri Damodar Sarda.
4.1. Similarly, the learned CIT(A) has deleted the addition of Rs.3,36,000/- on account of rental income by 4 ITA.No.85/NAG./2020 observing that it is the settled position of law that there is no scope for assessing notional income except as provided under the specific provisions of Income Tax Act, 1961.
4.2. With respect of addition of Rs.1 crore made u/sec.68 of the Act, the learned CIT(A) after considering written submissions of the assessee, noted that the assessee explained the cash credit and confirmation of advance along with acknowledgment of income tax return of the claimed lender Shri Nitin Ahuja, furnished bank statement of Shri Nitin Ahuja indicating advance given to assessee and the income tax returns of Shri Nitin Ahuja reflecting his income for the A.Y. 2013-14 at Rs.50,26,460/- and for the A.Y. 2014-2015 is at Rs.63,89,987/-. Since the learned CIT(A) has satisfied with the three ingredients of sec.68 of the Act i.e., identity, genuineness and creditworthiness of transaction, he deleted the addition of Rs.1 crore made in the hands of assessee.
4.3. The learned CIT(A) granted part relief with respect business promotion expenses to the assessee. Accordingly, the learned CIT(A) partly allowed the appeal of the assessee.
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Aggrieved by the order of the learned CIT(A), the Revenue is in appeal before the Tribunal and has raised three grounds i.e., (i) the learned CIT(A) has erred in law in deleting addition made u/sec.2(22)(e) of the Act (ii) the learned CIT(A) has erred in deleting the addition on account of rent and (iii) the learned CIT(A) has erred in law in deleting the addition made u/sec.68 of the Act.
During the course of hearing, Learned DR vehemently relied on the order of the Assessing Officer. He submitted that the learned CIT(A) has not properly appreciated facts culled-out in the order of the Assessing Officer. He drew the attention of the Bench that the assessee has declared the additional sum of Rs.1,02,98,288/- in the revised return only after issuance of show cause notice dated 19.08.2016. The interest bearing amount of Rs.44,59,498/- paid by the assessee to M/s. Airan Consultants Pvt. Ltd., on advance received is in fact converted as loan in the books of the assessee and credited to M/s. Airan Consultants Pvt. Ltd., Therefore, the Assessing Officer has rightly made the addition of 6 ITA.No.85/NAG./2020 Rs.1,47,57,806/- as deemed dividend u/sec.2(22)(e) of the Act. He further submitted that the Assessing Officer assessed the rental income of Rs.3,36,000/- after giving standard deduction @ 30%. Similarly, neither the assessee nor the lender has furnished their confirmation, bank statement, balance-sheet of Rs.1 crore appear in assessee’s books of account, the Assessing Officer rightly made the addition u/sec.68 of the Act. Accordingly, the Learned DR submitted that the order of the Assessing Officer be confirmed.
We have heard the arguments advanced by both the parties and perused the orders of the authorities below. We find force in the arguments advanced by the assessee on all the three grounds raised by the Revenue. We find that the impugned deemed dividend addition made by the Assessing Officer u/sec.2(22)(e) of the Act cannot be sustained in the eye of law since the assessee has already paid tax on the accumulated profit and there remains no accumulated profit which can be considered for assessing deemed dividend in the hands of the assessee for the 7 ITA.No.85/NAG./2020 impugned assessment year and again taxing the sum falls under double taxation in the hands of the assessee and this proposition has been settled by the Hon’ble Supreme Court in the case of CIT vs. G. Narasimhan (supra). We, therefore, the order of the learned CIT(A) in deleting the addition made on account of deemed dividend u/sec.2(22)(e) of the Act. With respect to estimation of rent of Rs.3,36,000/- by the Assessing Officer in the hands of assessee, we find that the assessee is using his own premises for business as well as profession and as such, he is not deriving any rental income. Therefore, there is no scope for assessing notional income except as provided under the specific provisions of the Act. We find that the learned CIT(A) has rightly deleted the addition made on account of rent estimated by the Assessing Officer in the hands of assessee. Coming to the addition of Rs.1 crore made in the hands of assessee, We find that the assessee has furnished identity, genuineness and creditworthiness of the lender which are the three ingredients u/sec.68 of the Act which have fulfilled by the assessee. Therefore, the learned CIT(A) deleted the addition
8 ITA.No.85/NAG./2020 of Rs.1 crore in the hands of assessee. In view of the above, We find no infirmity in the order of the learned CIT(A) and we accordingly confirm his order. The grounds of appeal of the Revenue are dismissed.
In the result, appeal of the Revenue dismissed.
Order pronounced in the open Court on 06.02.2025.
Sd/- Sd/- (KHETTRA MOHAN ROY) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Nagpur, Dated 06th February, 2025 VBP/- Copy to 1. The appellant 2. The respondent 3. The CIT(A)-2, Nagpur concerned. 4. The CIT, Nagpur concerned 5. The D.R. ITAT, Nagpur Bench, Nagpur 6. Guard File. //By Order// //True Copy//
Sr. Private Secretary : ITAT : Nagpur Bench NAGPUR.