2016 (5) TMI 722 - AT - Income Tax

Tribunal corrects order, recalls for reconsideration based on Supreme Court judgment.

Smt. Nishi Devi Versus DCIT, Central Circle, Rajahmundry

The Tribunal rectified an oversight in an order under Section 254(2) of the Income-Tax Act, recalling it for reconsideration based on a Supreme Court ... Deemed dividend addition u/s 2(22)(e) - Held that:- Though assessee claims that she had given her personal property to the company to be used as a collateral security for the purpose of borrowings from banks and financial institutions failed to furnish any relevant proofs in support of her arguments. We further noticed that in the present case on hand, the agreement entered by the assessee with the company gives rise to so many unanswered questions. Therefore, we hold that the claim of the assessee that she had entered into a sale agreement with the company towards sale of property is not supported by any valid evidence and hence, the amount received from the company attracts deeming provisions u/s 2(22)(e) of the Act. Therefore, in our opinion, the assessee is trying to circumvent the alleged loan and advances by furnishing an unregistered sale agreement, which was later not acted upon by both the parties even now. Hence, we hold that the A.O. is right in treating the loan received by the assesse as deemed dividend under the provisions of section 2(22)(e) of the Act. The CIT(A) has considered the issue elaborately and upheld the additions made by the A.O. Therefore, we upheld the order of the CIT(A) - Decided against assessee Issues Involved:1. Rectification of order under Section 254(2) of the Income-Tax Act.2. Classification of the amount received as deemed dividend under Section 2(22)(e) of the Income-Tax Act.Issue-wise Detailed Analysis:1. Rectification of order under Section 254(2) of the Income-Tax Act:The assessee filed a miscellaneous petition requesting the rectification of an order passed by the Tribunal in ITA No.180/Vizag/2011 dated 11.12.2015. The assessee's representative argued that the Tribunal overlooked a coordinate bench decision in the case of Dr. Ch. Sri Padmavati Vs. DCIT, which constitutes a mistake apparent from the records requiring rectification under Section 254(2) of the Income-Tax Act. The Tribunal acknowledged the oversight and, relying on the Supreme Court judgment in Honda Siel Power Products Ltd. Vs. CIT, agreed to rectify the mistake and recalled the order for reconsideration.2. Classification of the amount received as deemed dividend under Section 2(22)(e) of the Income-Tax Act:Facts:The assessee, a shareholder and Director of Nishi Egg Poultry Product Pvt. Ltd., received an amount of Rs. 35,68,404 from the company. The Assessing Officer (A.O.) issued a show cause notice to explain why this amount should not be treated as deemed dividend under Section 2(22)(e) of the Act. The assessee contended that the amount was an advance towards the sale of property, supported by a sale agreement, and not a loan or deposit.Assessment Proceedings:The A.O. rejected the assessee's explanation, noting that the amount was drawn periodically for personal expenses and was reflected as a debit balance in the company's books. Consequently, the A.O. treated the amount as deemed dividend under Section 2(22)(e).CIT(A) Appeal:The assessee appealed to the CIT(A), arguing that the A.O. made the additions based on guesswork and that the amount received was an advance for the sale of property. The CIT(A) doubted the genuineness of the sale agreement, noting discrepancies such as the use of a stamp paper purchased two years prior and the incomplete sale transaction. The CIT(A) upheld the A.O.'s decision, concluding that the assessee created a fictitious sale agreement to cover up the loan.Tribunal Proceedings:The Tribunal examined the ledger accounts and sale agreement. It found that the sale agreement was unregistered and entered on a stamp paper purchased two years earlier. The Tribunal noted that the sale transaction was not completed, and the property continued to generate rent for the assessee. The Tribunal also observed that the assessee failed to provide evidence supporting the claim that the property was used as collateral security for the company's borrowings.Judgment:The Tribunal held that the assessee's claim of a sale agreement was not substantiated by valid evidence. The Tribunal distinguished the present case from the coordinate bench decision in Dr. Ch. Sri Padmavati Vs. DCIT, where the property was indeed used as collateral security. The Tribunal concluded that the amount received from the company attracted the deeming provisions of Section 2(22)(e) and upheld the A.O.'s treatment of the amount as deemed dividend.Conclusion:The Tribunal allowed the miscellaneous petition for rectification but dismissed the appeal, affirming the classification of the amount as deemed dividend under Section 2(22)(e) of the Income-Tax Act. The order was pronounced in the open court on 7th April 2016.