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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: SHRI G. D. AGRAWAL & MS SUCHITRA KAMBLE
This appeal is filed by the assessee against the order dated 27/1/2017 passed by CIT(A), Meerut.
The grounds of appeal are as under:- “1. That on the facts and circumstances of the case and in law, the order passed by CIT (A), Meerut {hereinafter referred to as CIT (A)} is bad in law.
2. That on facts and circumstances of the case and in law the Over passed by Ld. CIT(A) is illegal and bad in law as the same has been passed/without providing reasonable opportunity of being heard to the Appellant.
3. That on facts and circumstances of the case and in law the Ld. CIT (A) was not justified in holding the contention of the AO for making addition of Rs. 1,25,00,000/- to the returned ome of the assessee company under the provisions of section 2(22)(e) by erroneously trdating the amount received by the assessee company, towards share application money in the alternative received as business advance, as received towards Loans and advances m the company having common shareholders.
4. Without prejudice to the above, on facts and circumstances of the case and in law the Ld. IT(A) while confirming the addition made by the AO of Rs. 1,25,0000/- to the assessed income of the appellant has also not considered the decision of the Hon'ble High court in the case of CIT vs. Ankitech (P) Ltd. 11 taxman.com 100 (Del) where it has been held that addition under section 2(22)(e), if any, can be made in the hands of the shareholder having common shareholding but not in the hands of the recipient company.
That on the facts and circumstances of the case and in law the Ld. CIT (A) was not justified in not deciding the ground of appeal challenging the action of the AO in making addition to the returned income of Rs.63,09,750/- on the reasoning that the rental income as per Form-26AS exceeded the rental income shown in the books of appellant, although this ground of appeal is reproduced in the appellate order. This addition is totally unwarranted since the actual rent received by the applicant company can only be brought to tax and not any notional figure.
3. The assessee M/s Swati Hospital Pvt. Ltd. has given its Nursing Home at Boundary Road Lai Kurti Meerut on lease to M/s Metro Hospital & Heart Institute, a unit of Metro Institutes of Medical Science Pvt. Ltd. The assessee filed its return showing income of Rs. 11,67,000/- on 27.09.2013 which was processed under section 143(1) of the Income Tax Act. 1961. Later on the case was selected for scrutiny and statutory notice u/s 143(2) of the Income Tax Act, 1961 dated 03.09.2014 was issued and duly served upon the assessee. Thereafter, notice u/s 142(1) of the Income Tax Act, 1961 dated 07.05.2015 was issued and duly served upon the assessee. In compliance to these notices, authorized representative of the assessee filed audit report, Trading and Profit & Loss Account and other required details called for. During the assessment proceedings, the Assessing Officer observed that the assessee received advance amounting to Rs. 1,25,00,000/- from Metro Institutes of Medical Sciences Pvt. Ltd. The assessee was asked to submit the details of the transaction and the share holding pattern of both the companies. The Assessing Officer observed that a perusal of the details submitted by the assessee shows that the assessee received an advance of Rs.1,25,00,000/- from M/s Metro Institutes of Medical Sciences Pvt. Ltd. as on 31.3.2013. The details of the shareholding pattern of both the companies was perused and it was found that Shri Purshotam Lal is having 98.34% shares in the assessee company and he is having 59.07% share holding in M/s Metro Institutes of Medical Sciences Pvt. Ltd., as submitted by the assessee. The Assessing Officer observed that this advance received by the assessee company from Metro Institutes of Medical Sciences Pvt. Ltd. comes under the definition of deemed dividend as per section 2(22)(e) of the Income Tax Act, 1961. Thus, the Assessing Officer held that the assessee manipulated the transaction and changed the head at the end of the year to safeguard from section 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer further held that the assessee failed to justify the transaction and credit balance was treated as advance to the assessee from the company where both were having share holding of more than 10%, which attracted the provision of section 2(22)(e) of the Income Tax Act, 1961. Thus, the Assessing Officer observed that there should be accumulated profit in the book of the company who advance the fund to the assessee and as per balance sheet of M/s Metro Institute of Medical Science (P) Ltd, accumulated profit is Rs. 1,11,44,18,800/-, which is more than the advance given to the assessee. Accordingly, the amount of Rs. 1,25,00,000/- was treated as deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 in the hands of the assessee and added to the total income of the assessee. During the assessment proceedings, it was further noticed by the Assessing Officer that the assessee earned rental income of Rs.86,90,250/- as per Form 26AS. But the assessee showed the rental income of Rs.3.80,500/- only. Thus, the assessee did not disclose complete particulars of its income mounting to Rs.63,09,750/- whereas payment was received after deduction of IDS and the Assessing Officer made addition of Rs. 63.09,750/- as undisclosed income and added back to the total income of the assessee.
Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
5. The Ld. AR submitted that while passing the order, the CIT(A) has not provided reasonable opportunity to the assessee and has not adjudicated the issue relating to the disallowance on account of Form 26AS. Further, the Ld. AR submitted that the CIT(A) erroneously treated the amount of Rs. 1,25,00,000/- as share application money while confirming the addition made by the Assessing Officer to the return income of the assessee under the provisions of Section 2(22) (e) of the Income Tax Act, 1961 without taking into cognizance the documents to that extent. Therefore, the Ld. AR requested to remand back both the issues for proper verifications before the Assessing Officer.
The Ld. DR relied upon the order of the Assessing Officer and CIT(A).
We have heard both the parties and perused the material available on record. It is pertinent to note that the CIT(A) has not at all dealt with the issue of disallowance on account of Form 26AS. Regarding addition confirming by the CIT(A) relating to deemed dividend u/s 2(22)(e) , the CIT(A) has not taken the cognizance of the records/documents submitted by the assessee during the assessment proceedings. Thus both the issues need to be verified by the CIT(A). Therefore, the order the CIT(A) is set aside and the issues are remanded back to the file of the CIT(A) for fresh adjudication after taking into account all the records produced before the Assessing Officer during the Assessment Proceedings. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice.
In result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the Open Court on 11th June, 2018.