2018 (9) TMI 1552 - AT - Income Tax

Addition u/s 68 - Held that - Respondent had acted only as broker and as such the amount in question could not be termed as income of the respondent. AO should have verified the facts from all the concern persons and should have examined Smt. Saroj Sharma and others and witness to the MOU before arriving at the finding of fact in the matter. The assessee further explained that report of the Inspector was not confronted to him therefore such evidence cannot be read in evidence against the assessee. No efforts have been made by the AO to verify the facts from the AO of M/s Meghatech Realtors P. Ltd. AO also ignored balance sheet of this company filed with ROC to verify the amount of advance shown of Rs. 10 crores. It appears to us that AO has not conducted proper investigation on this issue and merely made addition for non production of Director of Company. Matter requires reconsideration and the level of the AO. We accordingly set aside the orders of the authorities below and restore this issue to the file of AO with direction to re-decide this issue in accordance with law and as per observations in the order by giving reasonable opportunity of being heard to the assessee. The AO shall made all efforts to enquire from all concern parties about the facts of execution of MOU for M/s Meghatech Realtors P. Ltd. and shall pass the reasoned order. Deemed dividend addition u/s 2(22)(e) - Held that - CIT(A) following his order dated 31.03.2017 for AY 2013-14 and 2014-15 accepted the plea of the assessee and directed the AO to make addition u/s 2(22)(e) i.e. addition made are restricted to the extent of accumulated profits. Ld. Counsel for the assessee referred to the remand report filed by the AO before Ld. CIT(A) PB 250 i.e. on 31.03.2012 the accumulated profit in case of M/s Dream Green Land Realtors P. Ltd. and M/s Rosemary Properties P. Ltd. were Rs. 4, 26, 330/- and Rs. 2, 41, 280/-. As further submitted that the order of Ld. CIT(A) need to be modified as accumulated profit taxed as deemed dividend in earlier year need to be excluded i.e. in the case of Dream Green Land Realtors P. Ltd. for AY 2008-09 was Rs. 2, 871/- and in case of M/s Rosemary Properties Ltd. in AY 2009- 10 it was Rs. 86, 111/-. We accordingly direct the AO to take into consideration the above facts and submission of the assessee while passing the appeal effect order in the matter. With these modifications this ground of appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues Involved:

1. Addition of Rs. 30 crores under Section 68 of the Income Tax Act.
2. Addition of Rs. 2,22,93,369/- under Section 2(22)(e) of the Income Tax Act as deemed dividend.

Issue-wise Detailed Analysis:

1. Addition of Rs. 30 Crores under Section 68 of the Income Tax Act:

The case involved a search and seizure operation on the assessee, during which documents and data storage devices were found and seized. The Assessing Officer (AO) noted that the assessee had entered into a Memorandum of Understanding (MOU) with M/s Meghatech Realtors Pvt. Ltd. and received Rs. 10 crores in cash for purchasing land in Harchandpur. Additionally, another document indicated that Sh. Devender Kumar received Rs. 20 crores in cash from M/s Newage Infrabuilders Pvt. Ltd. for a similar purpose. The AO issued summons to both companies, but they were returned un-served. Despite efforts, the companies could not be located, and the Directors were not produced for examination. Consequently, the AO added Rs. 30 crores to the income of the assessee as unexplained cash under Section 68.

The CIT(A) confirmed this addition, noting that the assessee failed to establish the identity and creditworthiness of the creditors and the genuineness of the transactions. The tribunal, however, found that the assessee was not a party to the MOU or agreements to sell and that the documents were related to Sh. Devender Kumar. The tribunal also noted that Sh. Devender Kumar had filed complaints and a civil suit against Smt. Saroj Sharma for breach of contract, supporting the claim that the transactions were independent of the assessee. The tribunal concluded that the addition of Rs. 20 crores was unjustified and deleted it. However, the tribunal found that the matter regarding the Rs. 10 crores received from M/s Meghatech Realtors Pvt. Ltd. required further investigation and remanded it back to the AO for reconsideration.

2. Addition of Rs. 2,22,93,369/- under Section 2(22)(e) of the Income Tax Act as Deemed Dividend:

The AO noted that the assessee received advances of Rs. 1,97,93,369/- from M/s Dream Green Land Realtors Pvt. Ltd. and Rs. 25 lakhs from M/s Rosemary Properties Pvt. Ltd., in which the assessee held a 50% shareholding. The AO treated these advances as deemed dividends under Section 2(22)(e) of the Act, as the assessee failed to provide audited books of accounts to verify the accumulated profits of these companies.

The CIT(A) directed the AO to restrict the addition to the extent of accumulated profits of the lender companies. The tribunal upheld this decision, noting that the assessee failed to provide evidence that the advances were received in the ordinary course of business for purchasing land. However, the tribunal directed the AO to consider the accumulated profits taxed as deemed dividends in earlier years while passing the appeal effect order, thereby partly allowing the assessee's appeal.

Conclusion:

The tribunal deleted the addition of Rs. 20 crores made under Section 68 but remanded the issue of Rs. 10 crores back to the AO for further investigation. The tribunal also upheld the addition under Section 2(22)(e) but directed the AO to consider the accumulated profits taxed in earlier years while calculating the deemed dividend. The appeal was partly allowed for statistical purposes.