2010 (11) TMI 662 - AT - Income Tax

Tribunal: Assessee's appeals partly allowed for assessment years 2004-07. Section 153C upheld, Section 2(22)(e) rejected.

The Tribunal partly allowed the assessee's appeals for the assessment years 2004-05, 2005-06, and 2006-07. The initiation of proceedings under Section ... Search and seizure - only the regular books of accounts found were seized during the course of search and, therefore, the AO ought not to have proceeded to invoke the provisions of s.153C of the Act and that the ld. CIT (A) had also grossly erred in out-rightly rejecting the case laws on which the assessee had placed strong reliance as contended by AR - As rightly highlighted by the ld. CIT (A), the requirement of handing over the books of account to the AO having jurisdiction over the other person did not arise in the case on hand for a simple reason that the same AO who was having jurisdiction over the person searched u/s 132 of the Act i.e., Bagmane Developers Pvt. Ltd. and also the other person i.e., the assessee and, as such, there was no need of handing over the books of accounts/documents seized to any other AO - Decided against the assessee Regarding deemed dividend - The reasoning of the AO, in brief, was that the provisions of sec.2 (22)(e) are squarely applicable to any 'loans and advances'. The only exception being advances made in course of business by a company substantially engaged in money lending - The entire events, to put it in a nut-shell, make explicitly clear that the intention of the assessee was to earn profits from the above venture and basically on a commercial exigency - it is clear that sub-clause (e) of section 2(22) of the Act, which is parimateria with clause (e) of section 2(6A) of the 1922 Act, plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans - AO was not justified in invoking the provisions of s.2 (22)(e) of the Act in the case of the assessee for the assessment years under dispute - Decided in favor of the assessee Issues Involved:1. Initiation of proceedings under Section 153C of the Income Tax Act.2. Applicability of Section 2(22)(e) regarding deemed dividends.3. Computation of current year's profit.4. Levy of interest under Section 234B of the Income Tax Act.Detailed Analysis:1. Initiation of Proceedings under Section 153C:The assessee argued that the provisions of Section 153C were not applicable as no incriminating documents were found during the search, only regular books of accounts were seized. The CIT(A) upheld the AO's decision to initiate proceedings under Section 153C. The Tribunal examined the ruling in Manish Maheshwari v. ACIT and Anr. and found that the AO was within his jurisdiction to invoke Section 153C as the same AO had jurisdiction over both the searched entity and the assessee. The Tribunal dismissed the assessee's objection, stating that the AO was justified in issuing the notice under Section 153C.2. Applicability of Section 2(22)(e) Regarding Deemed Dividends:The AO had treated the unsecured loans received by the assessee from Bagmane Developers Pvt. Ltd. (BDPL) as deemed dividends under Section 2(22)(e). The CIT(A) upheld this view. The assessee contended that the transactions were business-related, not loans or advances, and were for the benefit of BDPL to secure tenants like Motorola. The Tribunal analyzed various judicial pronouncements and found that the transactions were indeed in the nature of business advances and not loans or advances simpliciter. It was highlighted that the funds were used for acquiring fit-outs for BDPL's tech park, which ultimately benefited BDPL. The Tribunal concluded that the AO was not justified in invoking Section 2(22)(e) and that the CIT(A)'s upholding of the AO's findings was also not justifiable.3. Computation of Current Year's Profit:The issue of computation of current year's profit was linked to the applicability of Section 2(22)(e). Since the Tribunal found that Section 2(22)(e) was not applicable, the related computation issue was not addressed in detail.4. Levy of Interest under Section 234B:The assessee contended that the CIT(A) erred in upholding the levy of interest under Section 234B. The Tribunal dismissed this ground, stating that charging interest under Section 234B is mandatory and consequential in nature.Conclusion:The Tribunal partly allowed the assessee's appeals for the assessment years 2004-05, 2005-06, and 2006-07. The initiation of proceedings under Section 153C was upheld, but the applicability of Section 2(22)(e) regarding deemed dividends was rejected. The computation of current year's profit issue was not addressed due to the rejection of Section 2(22)(e) applicability, and the levy of interest under Section 234B was upheld as mandatory and consequential.