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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
PER BENCH The appeal is filed by the Revenue against the order dated 22/7/2013 passed by CIT(A)-1, New Delhi. The cross objection is filed by the assessee.
The ground of appeal are as under:- (ITA No. 5448/Del/13) “1. That the Commissioner of Income Tax (Appeals) erred in law and on facts of the case in deleting the addition of Rs.37,67,550/- made by the Assessing Officer on account of applicability of Section 2(22)(e) of the I.T Act.
2(a). The order of the CIT(A) is erroneous and not tenable in law and on facts.
(b) the appellant craves leave to add, alter or amen any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
3. The ground of cross objection is as under:-
“1. The Ld.CIT(A) has erred in law and on facts in not quashing the addition u/s 2(22)(e) of the IT Act of Rs.37,67,550/- on the ground that the above additions were not based on any incriminating material found in the course of search on the respondent assessee when the original assessment proceedings in the case had not abated as per proviso to Section 153A(1) of the IT Act.”
The assessee is engaged in the business of commission agent and trading of various merchandise. He submitted his return of income on 1/11/2004 declaring an income of Rs.24,890/-. A search and seizure operation was initiated u/s 132 in the Mahesh Mehta Group of cases on 30/6/2009. Notice u/s 153A was issued on 6/4/2011 in response to which the assessee filed a letter stating that the return filed originally u/s 139(1) be treated as return in response to the said notice. Notices u/s 143 (2)/142(1) were subsequently issued along with questionnaire. These notice were complied with necessary details/clarification was filed. The Assessing Officer made an addition of Rs.37,92,440/- u/s 2(22) (e).
Being aggrieved by the said additions, the assessee filed appeal before the CIT(A). The CIT(A) deleted the said additions by holding that Section 2(22)(e) is applicable to payments for the benefit of the recipients and not to payments for consideration. The CIT(A) further held that to avoid genuine transactions from being hit by the provision of Section 2(22)(e) exceptions have been made in the second part of the said clause wherein dividend does not include any advance or loan made to a share holder or the said concern by a company in the ordinary course of its business, where the lending money is a substantial part of the business of the company. Thus, the CIT(A) held that the transactions cannot be treated as deemed dividend u/s 2(22)(e) of the Act and deleted the addition made by the AO
The Ld. DR submits that the Assessing Officer has righty made an addition as the assessee firm was maintaining a running loan account of M/s Mahesh Wood Products Pvt. Ltd in its books of accounts. The assessee firm has taken the loan/advance of Rs.1,00,08,000/- from M/s Mahesh Wood Products Pvt. Ltd. The assessee has not filed any supporting documents that it was a business transactions. Both the firm and the companies are controlled by Shri Mahesh Mehta and hence the contention of the assessee that after inspecting the stock of the supari it canceled is different on the plea that the quality is not of the level agreed upon. The same was not accepted by the Assessing Officer. The Assessing Officer also relied upon the decision of the Hon'ble Supreme Court in case of P. Sarda Vs. CIT 229 ITR 444 wherein it is held that the advances made by company to assessee would have to be treated as deemed dividends paid on dates when withdrawals were allowed to be made and subsequent adjustment of account made on very last day of accounting year would not alter position that assessee received notional dividend on various dates. The Assessing Officer’s observation that the character of the receipt either as capital receipt or as income should not be based on the name given to the amount received by the assessee is correct. Because in law the real nature and character of the transaction must be determined in the light of the terms of the contract and the rights and obligations of the parties following their from unguided by the nomenclatures transaction as held by the Apex Court in the case of National Cement Mines Industries Ltd. vs. CIT 42 ITR 69.
The Ld. DR also relied upon the various judgments which are as follows:-
“1. M. Amareswara Rao Vs. Dy CIT(A) [157 ITD 657/136 DTR 153/178 TTJ 700] 2. CIT Vs. Kesarwani Zarda Bhandar Sahson Alld. [ITA No. 270 of 2014] (Allahabad).
The Ld. AR submitted that in case of ACIT vs. Superb Developers P Ltd. (ITA No. 52/DEL/2014 order dated 21.04.2017) by the Delhi ITAT, similar issue was decided against the Revenue. In the said order this Tribunal relied on the judgment of the Hon’ble Delhi High Court in case of CIT Vs. Kabul Chawla 380 ITR 573.
We have heard both the parties. The assessee was having business deal with M/s Mahesh Wood Products Ltd. after inspecting the stock of supari requested the assessee to cancel the deal saying that the quality is not of the level agreed upon at the time of the deal. The assessee firm agreed for cancellation of the deal but expressed its inability to refund the amount of advance as funds were blocked in the stock specifically purchased for the said company. The same was explained by the assessee firm during the assessment proceedings that it had received advance of Rs.1,02,46,933/- from the said prospective buyer and since it is related to business, Section 2(22)(e) does not apply. There is no incriminating material found by the Assessing Officer against the said business deal. The Hon’ble Delhi High Court in case of CIT Vs. Kabul Chawla 380 ITR 573, held that if there is not incriminating material found then such additions are not proper. The addition was made by the A.O despite the fact that there was no incriminating material (whether by way of statement or document or asset, etc.) unearthed during the course of search relevant for any assessment year. Also, no proceedings were pending for this assessment year on the date of search. In these facts and circumstances, we are of the considered view that the matter is squarely covered in favour of the assessee by precedent of Hon’ble Jurisdictional High Court in the case of Kabul Chawla (Supra). Therefore, we hold that in the absence of any incriminating material unearthed during the course of search, the A.O had no jurisdiction to initiate proceedings u/s 153A of the Act when no assessment proceedings were pending for this.
In the result, the appeal of the Revenue is dismissed and cross objection of the assessee is allowed.
Order pronounced in the Open Court on 19th MAY, 2017.