2017 (4) TMI 1488 - AT - Income Tax

Tribunal allows appeals, rejects additions under Section 2(22)(e) for multiple Assessment Years.

The Tribunal allowed the appeals of the assessees by concluding that the additions made under Section 2(22)(e) for the Assessment Years 2009-10 to 2011-12 ... Addition u/s 2(22)(e) - assessment u/s 153A - credit balance in the account of husband of the director - she was holding more than 10% voting rights - no incriminating material found during the search - assessee and husband both are director in the company - ledger account of the assessee in the books of the BBPL wherein the payment made by the BBPL on account of tax liability of the assessee was treated as deemed dividend under Section 2(22)(e) - HELD THAT:- Undisputedly the case of the assessee the assessments were already concluded and they were not pending as on 18.12.2012 and therefore, the proceedings under Section 153A would be in the nature of reassessment in which apart from the undisclosed income unearthed during the search and seizure proceedings, the Assessing Officer can reassess only income which was disclosed by the assessee in the original assessment. Thus it is clear that no addition could be made to the income already assessed by the Assessing Officer except the addition based on the seized material. As regards the assessment for A.Y. 2012-13, since the assessment was not concluded as on the date of search and it was pending therefore the regular assessment proceedings stood abated on the date of search under Section 132 of the Act. Consequently, the assessment framed under Section 153A r.w.s. 143(3) of the Act will par take the character of regular assessment and hence the Assessing Officer while making the addition is not depending on the incriminating material found during the course of search. Therefore the issue has to be decided on merits. The Assessing Officer has not disputed this fact of the huge credit balance in the account of the husband of the assessee. Further the Assessing Officer has not conducted any enquiry whether the assessee is having online payment facility in her bank and further the payment was made by BBPL as per the instruction of her husband. Therefore in view of the fact that the husband of the assessee was having more than ₹ 18 Crores in the beginning of the F.Y. and more than ₹ 26 Crores at the end of F.Y. with the BBPL. Hence, there is no actual outflow from the reserves and surplus of the BBPL due to the said payment of ₹ 5,30,000 towards service tax and income tax liability of the assessee. - Thus it is clear from the facts that the payment in question has not effected the reserves and surplus of the BBPL but it is a very miniscule in comparison to the credit balances in the account of assessee's husband. Therefore the said payment cannot be regarded as advance or loan to the assessee to avoid the DDT under Section 115 ‘O’ of the Act. As regards the decision of Hon'ble Madras High Court in the case of CIT Vs. K. Srinivasan and Other [1962 (9) TMI 64 - MADRAS HIGH COURT] , there is no quarrel that payment in respect of personal expenses, Income Tax demand, LIC Premium, etc payable by the assessee were paid by the company will fall under the category of any payment on behalf of shareholder or any payment for individual benefit of the shareholder as per the provisions of Section 2(22)(e) of the Act but the fact of such payment is an outgo from the reserves and surplus of the company. In the case on hand as it is undisputed fact that the assessee and her husband, both are Directors and the husband of the assessee is having huge credit balance of 500 times of the payment in question. Therefore in view of the circumstances as explained by the assessee and the payment was made as per the instruction of the husband which has not been controverted by the Assessing Officer then the addition made under Section 2(22)(e) is not sustainable and the same is deleted. - Decided in favour of assessee. Issues Involved:1. Validity of assessment under Section 153A r.w.s. 143(3) of the Income Tax Act.2. Sustainability of addition made under Section 2(22)(e) of the Income Tax Act without any incriminating material found during the search.3. Assessment of deemed dividend under Section 2(22)(e) for Assessment Year 2012-13.Issue-wise Detailed Analysis:1. Validity of Assessment under Section 153A r.w.s. 143(3) of the Income Tax Act:Ground No.2, regarding the validity of the assessment under Section 153A r.w.s. 143(3) on the grounds of the validity of the search, was dismissed as not pressed by the assessee. Both parties agreed to this dismissal, and thus, no further adjudication on this matter was required.2. Sustainability of Addition Made Under Section 2(22)(e) Without Any Incriminating Material Found During the Search:The assessees, Directors of M/s. Brindavan Beverages Pvt. Ltd. (BBPL), challenged the addition of deemed dividend under Section 2(22)(e) made during the assessment under Section 153A. The Tribunal noted that the assessments for the years 2009-10 to 2011-12 were not pending as on the date of the search (18.12.2012). The learned Authorised Representative argued that the additions were not based on any incriminating material found during the search, as the Assessing Officer did not reference any such material or statements recorded during the search. The Tribunal referred to several judicial decisions, including CIT Vs. IBC Knowledge Park Pvt. Ltd., CIT Vs. Lancy Constructions, and CIT Vs. Kabul Chawla, which emphasized that in the absence of incriminating material, no additions could be made to the already assessed income. The Tribunal concluded that the addition towards deemed dividend under Section 2(22)(e) for the Assessment Years 2009-10 to 2011-12 was not sustainable in law and thus liable to be deleted.3. Assessment of Deemed Dividend Under Section 2(22)(e) for Assessment Year 2012-13:For the Assessment Year 2012-13, the assessment was pending as on the date of the search, and thus, the regular assessment proceedings stood abated. The Tribunal noted that the payment made by BBPL towards the tax liability of the assessee was treated as deemed dividend under Section 2(22)(e). The assessee argued that the payment was made at the request of her husband, who had a substantial credit balance with BBPL, and thus, it should not be considered a loan or advance under Section 2(22)(e). The Tribunal referred to the decision of the Hon'ble jurisdictional High Court in Bagmane Construction Vs. CIT, which stated that the provisions of Section 2(22)(e) are attracted only when the intention is to avoid payment of Dividend Distribution Tax. The Tribunal found that the payment in question did not affect the reserves and surplus of BBPL and was not made with the intention to avoid DDT. Therefore, the addition made under Section 2(22)(e) for the Assessment Year 2012-13 was not sustainable and was deleted.Conclusion:The Tribunal concluded that the additions made under Section 2(22)(e) for the Assessment Years 2009-10 to 2011-12 were not sustainable due to the absence of any incriminating material found during the search. For the Assessment Year 2012-13, the addition was also deleted as the payment was not made with the intention to avoid DDT. Thus, the appeals of the assessees were allowed.