SHRI VISHNUBHAI A. PATEL,,BARODA vs. THE INCOME TAX OFFICER, WARD-1(1)(2),, BARODA

This appeal by the Assessee is directed against the order of the Ld. CIT(A)-I, Baroda dated 20.05.2016 pertaining to A.Y. 2012-13.

Briefly stated the facts of the case are that for the year under consideration, the assessee filed the return of income on 30.03.2013 declaring total income of Rs. 11,40,390/- and agricultural income of Rs. 81,490/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee.

During the course of the scrutiny assessment proceedings, the A.O. noticed that the assessee has shown income from short term capital gain at Rs. 4,480/-. The assessee was asked to furnish the details of immovable property sold. The assessee filed necessary details on perusal of which the A.O. found that the agricultural land was purchased on 16.06.2011 for a consideration of Rs. 23,45,520/- which was sold on 21.12.2011 for a consideration of Rs. 23.50 lacs.

The assessee was once again asked to furnish the purchase deed and the sale deed. On perusal of the deed of purchase, the A.O. noticed that the said land was purchased for Rs. 17 lacs on which stamp duty and registration charges were paid at Rs. 1,00,300/-. The A.O. further noticed that the assessee has claimed expenditure incurred at Rs. 5,45,220/-. On enquiry, the assessee claimed that he has incurred expenditure of Rs. 5,45,220/- on Soil excavation,

Assessee carried the matter before the ld. CIT(A) but without any success.

Before us the ld. counsel for the assessee reiterated what has been stated before the lower authorities. The ld. counsel once again drew our attention to the invoice of Patel Enterprise which is exhibited at page 8 of the paper book. The ld. counsel also referred to the sale deed exhibited at pages 27 to 44 of the paper book. It is the say of the ld. counsel that the invoice of Patel Enterprise and the sale deed clearly show that the assessee had incurred certain expenditure towards Soil excavation, Compound Wall & Constructed of Shed and other Misc. repairing work and prayed for the deletion of the addition. The ld. D.R. strongly supported the findings of the A.O.

We have given a thoughtful consideration to the orders of the authorities below. It is true that the assessee has furnished invoice from Patel Enterprise for Rs. 7 lacs. It is equally true that the assessee could not establish the genuineness of this invoice inasmuch as the claim of the payment to Patel Enterprise is not found in the bank account of the assessee. Further, a perusal of the sale deed shows that there is no mention of any compound wall, shed. Therefore, the claim of the assessee of the aforesaid construction remains unsubstantiated. In our considered opinion, the assessee has grossly failed in

Facts relating to ground no. 2 show that on verification of the ledger account, the A.O. noticed that the assessee has received interest free loans/advances amounting to Rs. 15.50 lacs from Dhruv Packaging Pvt. Ltd. The A.O. further found that the assessee is holding 50% shares in Dhruv Packaging Pvt. Ltd. and the provisions of Section 2(22)(e) squarely apply on the facts of the case. The assessee was asked to justify why the loan taken from Dhruv Packaging Pvt. Ltd. should not be treated as deemed dividend in the hands of the assessee. The assessee explained that the said amount was taken as directors remuneration and was adjusted by the company at the end of the year and therefore it is outside the ambit of the provisions of Section 2(22)(e) of the Act.

This explanation of the assessee did not find any favour with the A.O. who was of the firm belief that provisions of Section 2(22)(e) of the Act squarely apply and accordingly made addition of Rs. 12.50 lacs after deducting the repayment of Rs. 3 lacs from the loan amount of Rs. 15.50 lacs.

The assessee was unsuccessful before the First Appellate Authority. Before us, the ld. counsel for the assessee drew our attention to the copies of the ledger account in the books of Dhruv Packaging Pvt. Ltd. which are exhibited at page 10 & 12 of the paper book. It is the say of the ld. counsel that the company has debited the account of the assessee 15.50 lacs as temporary loan and then Rs. 6 lacs was adjusted towards directors’ remuneration. The ld. counsel further pointed out that the company was having another account of the assessee and

We have carefully considered the orders of the authorities below. On perusal of exhibit 12 of the paper book, there remains no dispute that the company has given 15.50 lacs as temporary loan to the assessee. Out of this Rs. 6 lacs have been adjusted towards Directors’ remuneration. The balance of Rs. 9.50 lacs is nothing but deemed dividend in the hands of the assessee u/s. 2(22)(e) of the Act. We find that there was an opening credit balance of Rs. 3,60,600/- which was not received by the assessee during the year under consideration. Therefore, the opening balance has to be deducted from the amount of Rs. 9,50,000/- and the balance of Rs. 5,89,400/- remains to be added as deemed dividend. We, accordingly modify the findings of the ld. CIT(A) and direct the A.O. to restrict the addition to Rs. 5,89,400/- u/s. 2(22)(e) of the Act. Ground no. 2 is partly allowed.

Facts relating to ground no. 3 show that the assessee has received as commission of Rs. 5,51,500/- and has claimed expenses of Rs. 2,29,500/- as legal and professional fees. On finding no supporting bills/vouchers, the A.O. disallowed the claim of expenditure of Rs. 2,29,500/-.

The assessee agitated the disallowance before the ld. CIT(A) but without any success.

We have given a thoughtful consideration to the contentions of the ld. counsel. We find some force in the submissions made by the ld. counsel. The assessee must have incurred some expenditure for earning the commission of Rs. 5,51,000/-. In absence of any supporting documentary evidence, we think that 10% of the commission income be allowed as expenditure. In other words, we direct the A.O. to allow the expenditure of Rs. 50,000/- and the balance of Rs. 1,79,500/- remains sustained. The assessee will get a relief of Rs. 50,000/- on this account. Ground no. 3 is partly allowed.

In the result, the appeal filed by the Assessee is partly allowed.