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Shri Shiv Shankar La... v. The Acit Central Cir...

Income Tax Appellate Tribunal

Mar 5, 2014

Judgment

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Analytical Summary of the Tribunal's Opinion — Shiv Shankar Lal Gupta

Factual and Procedural Background

These consolidated appeals relate to assessment years 2004-2005 and 2005-2006 filed by the assessee Shiv Shankar Lal Gupta against the order of the learned CIT(A), Ajmer dated 27-12-2013. A search and seizure under section 132(1) of the Income-tax Act was conducted in the assessee's case on 20-05-2009. A notice under section 153A was issued on 23-04-2010 and the assessee filed returns on 28-01-2011 in compliance. The assessments were completed by making multiple additions to income, including additions under sections 69/69C and deemed dividend under section 2(22)(e), and by restricting capital loss claims. The assessee appealed to the CIT(A), who confirmed several additions, and the assessee further appealed to the Tribunal. The Tribunal heard both appeals together because the issues were identical.

Legal Issues Presented

Whether the assessment order passed by the Assessing Officer under sections 143(3) and 153A is void ab initio (ground raised by the assessee).
Whether addition(s) under sections 69/69C based on a seized page (referred to as page 82 of Annexure A-1) can be sustained where the seized paper is not in the assessee's handwriting, bears no name or signature, and appears to be a group memorandum or a "deaf and dumb" document.
Whether an amount representing accumulated profits of another group company (Clarity Gold (P.) Ltd.) can be treated as deemed dividend under section 2(22)(e) in the hands of the assessee where the company did not have commercial (i.e., real) accumulated profits for the relevant year.
Whether the Assessing Officer could disallow claimed expenses connected with computation of long-term capital gain (expenses of transfer) years after the return was processed, when no incriminating material relating to the claimed expenses was found during search.
For AY 2005-2006, the same issues were framed: additions under sections 69/69C and 2(22)(e) on similar facts and grounds.

Arguments of the Parties

Appellant's (Assessee's) Arguments

The seized paper (page 82 / Annexure A-1) is a "deaf and dumb" document: it contains no name or signature of the assessee and is not in his handwriting; therefore it cannot be used to make additions against him.
The document appears to be a group memorandum prepared by the deceased group accountant (late Shri Ram Shankar), not a record of transactions of the assessee personally; many entries refer to other entities (for example, a sale of flat recorded as belonging to S. Gupta & Co.).
The total "unaccounted money" that could be attributed from the seized papers is alleged to be only Rs. 2,95,000/- (per pages 1–4 of Annexure A-1), and the Assessing Officer has not shown how a larger addition was attributable to the assessee.
The assessee argued that amounts already appearing in an earlier year's seized trial balance (Rs. 11,11,674/- relating to AY 2003-2004) ought to be set off against the amount claimed by the department for AY 2004-2005 (principle of revolving investment / trickling down of earlier capital).
As to section 2(22)(e), the assessee contended Clarity Gold (P.) Ltd. did not have accumulated profits in the commercial sense for AY 2004-2005; after accounting for pre-operative and preliminary expenses, the company showed a net loss (illustrated in the order as negative Rs. 1,29,463/-). Therefore the conditions for deeming dividend under section 2(22)(e) were not satisfied.
Regarding the capital gains expenses (Rs. 7,64,394/-), the assessee submitted that these were allowed when the return was processed and no incriminating material regarding these expenses was found during search; disallowing them after seven years without fresh evidence was improper and the assessee had not been given a proper opportunity to explain.
The assessee relied on several judicial decisions in support of the submissions (these are listed in the opinion and considered by the Tribunal).

Respondent's (Revenue / Department's) Arguments

The Department (Assessing Officer and learned Departmental Representative) supported the additions made by the AO and sustained by the CIT(A) — including additions under sections 69/69C and 2(22)(e) — and justified the restriction/disallowance of the claimed expenses for capital gain computation as inflated or baseless.
The DR reiterated the factual findings recorded by the AO and the reasons cited by the CIT(A) for confirming the additions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
DCIT v. Raiendra Kumar Sancheti (ITAT Jaipur), 42 Tax world 152 (27.03.2009)	Additions cannot be based on seized papers that are not prepared by the assessee and which are "deaf and dumb" documents.	The Tribunal relied on this principle to conclude that the seized page could not form the basis for addition against the assessee and supported deletion of the addition made on that paper.
Mahaan Foods Ltd. v. DCIT (ITAT Delhi) (2009) 27 DTR 185	In absence of corroborative evidence, expenditure noted on seized documents cannot be added to assessee's undisclosed income.	Cited to support the view that uncorroborated notings on seized papers do not justify additions; relied upon when deleting the addition based on the seized page.
Moolchand Kumawat & Sons v. DCIT (ITAT Jaipur) 42 Tax world 241 (order dated 20.02.2009)	Addition cannot be made on the basis of a dumb document or entries on a paper seized during search without enquiries from concerned parties.	Applied to reinforce the requirement of enquiry/corroboration before making additions based on seized papers; used when deleting the impugned addition.
S. Goyal v. DCIT (2002) 77 TTJ 1 (Mum)	Uncorroborated notings on loose sheets cannot sustain additions.	Listed among cases establishing that additions cannot be drawn from uncorroborated loose papers; the Tribunal accepted this ratio for the facts before it.
Chandra Mohan Mehta v. ACIT (1999) 65 TTJ 327 (Pune)	Same principle — caution against drawing adverse inference from uncorroborated notings on seized papers.	Cited as supporting authority; the Tribunal applied the same caution in evaluating the seized document.
Bansal Strips Pvt. Ltd. v. ACIT (2006) 100 TTJ 665 (Del)	Uncorroborated notings on loose papers are insufficient for additions.	Relied upon collectively with other decisions to hold that addition on the seized page was unsustainable.
Kishan Chand Sobhraj Mai (1991) 42 TTJ 423 (JP)	Similar proposition regarding inadmissibility of making additions on the basis of uncorroborated seized notes.	Used as part of the line of authorities supporting deletion of the addition.
P.K. Badiani v. Commissioner of Income Tax, Bombay, 105 ITR 642 (Supreme Court)	Interpretation of "accumulated profits" in section 2(22)(e): means profits in commercial sense (real/professional/commercial profit), not merely assessable or taxable profits.	The Tribunal followed this Supreme Court interpretation to find that Clarity Gold (P.) Ltd. did not have commercial accumulated profits for AY 2004-2005; hence the deemed dividend addition under section 2(22)(e) was not sustainable and was deleted.
NH Security (P.) Ltd. v. DCIT (2007) 11 SOT 302 (Mum)	Cited by the assessee in support of the contention on section 2(22)(e) issues.	Placed before the Tribunal by the assessee; the Tribunal considered these authorities in the context of the 2(22)(e) issue and primarily followed P.K. Badiani for the legal principle.
CIT v. Ambassador Travel (2000) 220 CTR 475 (Del)	Cited by the assessee on issues relating to deemed dividend/accumulated profits.	Considered by Tribunal as supporting authorities relied on by the assessee; the Tribunal applied the legal principle from Badiani in preference.
CIT v. Creating Dyeing & Printing (184 TM 483 : 30 DTR 143)	Cited in support of assessee's case on dividend/profit characterization.	Considered among the authorities relied upon by the assessee; Tribunal's primary legal conclusion followed Supreme Court precedent (Badiani).
Bombay Oil Ind. Ltd. v. DCIT, 28 SOT 383 (Mum)	Cited on issues connected with inter-corporate transactions and deemed dividend.	Cited by the assessee; the Tribunal noted these authorities when examining the 2(22)(e) contention.
Anil Kumar Bhatia v. ACIT (2010) 1 ITR (Tribunal) 484 (Del)	Authority relevant to allowing expenses/claims when no incriminating material is found during search.	Relied upon by the Tribunal in concluding that disallowance of the claimed transfer expenses (after seven years and without incriminating evidence) was not justified; contributed to reversing the CIT(A) on that point.
LMJ International Ltd. v. DCIT (2008) 14 DTR 540 (Kolkata Tribunal)	Similar proposition concerning allowing claims where no incriminating material supports disallowance post-search.	Applied by the Tribunal when reversing the CIT(A)'s restriction of capital loss and allowing the assessee's ground concerning expenses.

Court's Reasoning and Analysis

The Tribunal undertook a fact-specific analysis and followed established legal principles from the authorities cited in the record. The Tribunal's reasoning is summarized in the following steps:

Section 69/69C addition based on seized page (Annexure A-1 / page 82):
- The Tribunal observed the seized page was not in the assessee's handwriting, bore no signature or name of the assessee, and contained entries referring to multiple group concerns and other entities (for example S. Gupta & Co. and entries in the name of Smt. Ganga Devi Gupta).
- The assessee stated during his search statement that the page was in the handwriting of the deceased group accountant; the Tribunal noted the presumption under section 132(4A) was not attracted as the assessee explained that the paper did not belong to him personally and belonged to group records.
- The Tribunal emphasized that the seized paper was a memorandum-type "trial balance" or rough ledger and did not disclose any receipt or accrual of income specifically in the assessee's name; the liability side on the paper indicated possible sources which undermined the conclusion that the entries represented unexplained investments by the assessee.
- The Tribunal also observed that the Assessing Officer had not produced corroborative material discovered post-search to link the entries specifically to the assessee and had not properly quantified unexplained investment as required for section 69C; consequently, the addition resting solely on uncorroborated and unconnected seized notes was unsustainable.
- Given these facts and consistent judicial authorities, the Tribunal deleted the addition founded on that seized paper and allowed the assessee's ground on this point (ground no. 2 for AY 2004-2005).
Deemed dividend under section 2(22)(e):
- The Tribunal examined the accounts of Clarity Gold (P.) Ltd. and found that although the Assessing Officer treated a reserve/surplus figure of Rs. 12,61,235/- as accumulated profit, after deducting pre-operative and preliminary expenses the company showed a net loss of Rs. 1,29,463/- for the relevant year.
- Relying on the Supreme Court decision in P.K. Badiani v. CIT (105 ITR 642) the Tribunal applied the interpretive rule that "accumulated profits" for the purpose of section 2(22)(e) refers to profits in the commercial sense (real/commercial profits), not merely accounting or taxable profits.
- On that legal basis and in light of the company's financials, the Tribunal held the conditions for deeming the receipt as dividend under section 2(22)(e) were not satisfied and deleted the addition of Rs. 12,61,235/- (ground no. 3 for AY 2004-2005).
Disallowance / restriction of capital loss (claimed expenses on sale of property):
- The assessee had claimed a long-term capital loss in the original return and had been allowed the claimed transfer expenses during return processing. During post-search regular assessment proceedings (completed seven years later) the Assessing Officer disallowed the expenses (reducing allowed loss).
- The Tribunal noted there was no incriminating material found during the search specifically relating to the claimed expenses of Rs. 7,64,394/-, and the Assessing Officer had not brought fresh evidence to justify the disallowance after such a long interval.
- Relying on precedents (for example Anil Kumar Bhatia v. ACIT and LMJ International Ltd. v. DCIT), the Tribunal held that in absence of evidence discovered during search to contradict the claim, retrospective disallowance was not justified and therefore reversed the CIT(A)'s partial confirmation of the disallowance, allowing the assessee's ground on this point.
Application to AY 2005-2006:
- The Tribunal explicitly recorded that the facts, arguments and submissions for AY 2005-2006 were the same and therefore the reasoning applied for AY 2004-2005 was applied mutatis mutandis to AY 2005-2006.

Holding and Implications

Holding: APPEALS PARTLY ALLOWED.

Direct effect on the parties:

For Assessment Year 2004-2005, the Tribunal deleted the addition of Rs. 35,35,840/- made under sections 69/69C on the basis of the seized page (Annexure A-1), deleted the addition of Rs. 12,61,235/- made under section 2(22)(e) (deemed dividend), and allowed the assessee's challenge to the disallowance of claimed transfer expenses (thereby reversing the restriction of capital loss effected by the authorities below).
For Assessment Year 2005-2006, the Tribunal applied the same reasoning mutatis mutandis to the like grounds raised (which included additions under sections 69/69C and 2(22)(e) as set out in the grounds), and accordingly allowed the appeal partly in the same manner.

Broader implication: The Tribunal's decision reinforces settled principles requiring corroboration before making additions from seized loose papers, and follows the Supreme Court's interpretation of "accumulated profits" in section 2(22)(e). The opinion does not purport to lay down any novel legal proposition; it applies existing precedents to the facts of these appeals.

This summary is prepared strictly from the text of the provided Tribunal opinion. No information beyond that text has been added or inferred.

Show all summary ...

Hari Om Maratha, J.M:— These are the appeals filed by the assessee against the common order of the ld. CIT(A), Ajmer dated 27-12-2013 for the A.Y 2004-2005 and 2005-2006. In both the appeals, identical issues are involved. Therefore, for the sake of congruence, brevity and convenience, we are proceeding to decide them by a common order.

ITA No. 263.JP/2013 - A.Y 2004-2005 (Shiv Shankar Lal Gupta)

2.0 Following grounds have been raised in this appeal.

“1 That the order passed by the A.O u/s. 143(3)/153A is void abinito.

2. In the facts and circumstances of the case, the ld. CIT(A) has erred in sustaining the addition u/s. 69C/69 of Rs. 35,35,840/- on the basis of page 82 of Annexure A-1.

3. In the facts and circumstances of the case, the ld. CIT(A) has erred in making addition of Rs. 12,61,235/- u/s. 2(22)(e) of the Income-tax Act, 1961.

4. In the facts and circumstances of the case, the ld. CIT(A) has erred in confirming the action of the A.O in restricting the capital loss of Rs. 14,35,854/- to Rs. 6,89,460/- by disallowing entire expenses of Rs. 7,64,394/-.

5. The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing.”

3.1 Briefly stated, the facts of the case are that the assessee as an individual derives income from salary and remuneration from various companies in which he is a director. A search and seizure operation u/s. 132(1) of the Income-tax Act, 1961 (‘the Act’ for short) was conducted in the case of this assessee on 20-05-2009. Consequent upon this search, notice u/s. 153A of the Act was issued on 23-04-2010. The assessee filed the Return of Income [ROI] in compliance thereof on 28-01-2011. However, the assessment was completed at a total income of Rs. 62,97,075/- by making following additions, inter alia.

1. Addition u/s. 69C/69 of Rs. 35,35,840/- on the basis of page 82 of annexure A-1.

2. Addition of Rs. 15,00,000/- on the basis of page 24 of annexure A-1.

3. Addition of Rs. 12,61,235/- u/s. 2(22)(e) of the Income-tax Act, 1961.

4. Addition of Rs. 7,64,394/- by way of restricting capital gain loss.

3.2 Aggrieved, the assessee went in appeal before the ld. CIT(A) who has confirmed the following additions.

1. Addition u/s. 69C/69 of Rs. 35,35,840/- on the basis of page 82 of annexure A-1.

2. Addition of Rs. 12,61,235/- u/s. 2(22)(e) of the Income-tax Act, 1961.

3. Addition of Rs. 7,64,394/- by way of restricting capital gain loss.

3.3 During the course of hearing, the ld. AR of the assessee has not pressed the Ground No. 1. Hence, the same is dismissed being not pressed.

3.4 The ground no. 5 of the assessee is general in nature which needs no adjudication.

4.1 The ground no. 2 of the assessee pertains to addition of Rs. 35,35,840/- u/s. 59C/69 of the Act made on the basis of page 82 of Annexure A-1 found during search.

4.2 We have heard the rival submissions and have carefully perused the entire material on record. The facts apropos to this ground are that on the basis of contents of this page which is enclosed at 49 page of the paper book, the A.O has added left side of this page as per the assessee which is being deaf and dumb documents and it does not pertain to the assessee. On this paper the name of assessee does not appear anywhere nor his signatures are there. As per ld. AR, no addition can be made on the basis of this paper. The ld. AR has put forth the following reasons.

“(a) The paper does not contain the name of the assessee.

(b) The paper is not in the writing of the assessee.

(d) The paper contains the sales of flat (Kulba Tulip) shown for Rs. 20,05,001/- which is admittedly of firm S. Gupta & Co. and as such the same deserved to be considered in the hands of the firm and excluded from being considered in the hands of the assessee.

(e) The paper establishes the contention of the assessee that it is in the nature of memorandum kept by the deceased accountant for the whole group and not for the assessee alone. Hence Learned CIT(A) erred in considering the total of the paper in the hands of the assessee without application of mind and without causing enquiries in the list. The Learned CIT(A) has mechanically sustained the addition.

(f) The Learned CIT(A) has also not been able to controvert the submission of the assessee that at the most the total unaccounted money mentioned in these papers (Uchant Cash) is only of Rs. 2,95,000/-. This is on the basis of pages 1 to 4 of annexure A-1 which have been referred to by the Learned Assessing Officer. It is the submission of the assessee that firstly these papers been dump papers so far as the assessee is concerned as such did not require to be considered in his hands and secondly if these were at all taken into account then the apparent should have been accepted. In these papers the Uchant amount is apparently of Rs. 2,95,000/- only. No further addition could have been made in any case in any hand.

(g) The Learned CIT(A) has also not considered the submission of the assessee that principle of natural justice required the Learned Assessing Officer to have set off the amount available on these seized papers of Rs. 11,11,674/- pertaining to Assessment Year 2003-2004. The principles of revolving investment of the preceding year trickling down to succeeding Year should have been applied. The capital to the extent of Rs. 11,11,674/- available in Assessment Year 2003-2004 as per the seized papers themselves should have been set off from the capital of Rs. 35,35,840/- in Assessment Year 2004-2005.

(h) It was submitted that the law does not permit ambiguous additions quoting various actions. In this the Learned Assessing Officer made addition u/s. 69 and 69C without specifying the quantum of additions and the details of such additions attracting section 69 and 69C. The Learned CIT(A) has failed to consider this submission of the assessee.”

In the light of the above submissions, it has been prayed that the orders of the authorities below may be reversed.

4.3 Per contra, the ld. DR has reiterated the reasons given for the additions made by the A.O and the reasons given by the ld. CIT(A) for confirming the impugned additions.

4.4 After considering the rival submissions and in the light of the obtaining facts, circumstances and decisions on this issue with reference to legal position on the issue, we are of the considered opinion that addition has been wrongly based on this paper as this is a deaf and dumb papers which is mute about the jottings thereon. Admittedly, this paper is not in the handwriting of the assessee nor it bears his signatures. Nowhere, on this paper name of the assessee appears. This paper contains only the memorandum of transactions but does not mention any receipt or accrual of any income. We are in agreement with the ld. AR that this paper relates to a group of several persons. It was stated by the assessee that during search while making his statement u/s. 132(4) of the Act on 20-05-2009 that this paper has been written in the handwriting of his earlier accountant late Shri Ram Shankar who died about three years ago. The assessee is around of 82 years of age and he stated that he was unable to explain the contents of this paper or relate them with any concern of the group. According to him, it was only the deceased accountant who kept these memorandum papers. He stated that this does not relate to him. It is true that the person from whose possession any evidence/document is found, the burden lies on him to explain the contents thereof but the assessee has simply explained that this paper did not belong to him and it was a memorandum of the group concerns. Therefore, presumption of Section 132(4A) of the Act is not attracted in this case. No supporting material has been brought on record by the A.O to substantiate his findings even after post search investigation. In this regard following decisions help the case of the assessee.

“(i) DCIT v. Raiendra Kumar Sancheti (ITAT Jaipur) 42 Tax world 152 dated 27.03.2009

Addition cannot be made on the basis of seized paper which is not prepared by the assessee and which appears to be a deaf and dumb document.

(ii) Mahaan Foods Ltd. v. DCIT (ITAT Delhi) (2009) 27 DTR 185

In the absence of any other evidence found during the course of search or brought on record by the Assessing Officer to show that the expenditure found noted on seized documents was actually incurred by the assessee, the same cannot be added to the undisclosed income of the assessee.

No inference could be drawn against the assessee much less any inference of unexplained expenses on the basis of a dumb document found at the residence of its director as there is no proof to show that the amount mentioned in the said document was paid by the company.

(iii) Moolchand Kumawat & Sons v. DCIT (Aimer) ITAT Jaipur Bench, 42 Tax world 241 in M.A No. 93.JP/2008 arising out of ITSSA No. 24.JP/2005 order dated 20.02.2009

Addition cannot be made on the basis of a dumb document or on the basis of entries found recorded on a paper seized during search without conducting any enquiry from the concerned party.

(iv) It was held in the following cases that addition could not be made on the basis of uncorroborated noting on loose sheets and papers—

(a) S. Goyal v. DCIT, (2002) 77 TTJ 1 (Mum)

(b) Chandra Mohan Mehta v. ACIT, (1999) 65 TTJ 327 (Pune)

(c) Bansal Strips Pvt. Ltd. v. ACIT, (2006) 100 TTJ 665 (Del)

(d) Kishan Chand Sobhraj Mai, (1991) 42 TTJ 423 (JP)

It is submitted that the ratio of the aforesaid cases is fully applicable to the facts of the case. In the case of the assessee additions have been made on the basis of a mute paper without conducting any enquiry and without any corroborating material. The Learned Assessing Officer has not brought any material on record to establish the paper with the affairs with the assessee. In view of this the addition made deserves to be deleted.”

In the alternative, it was argued by the ld. AR otherwise also, no addition is called for on the basis of this page. It is entangled and labyrinth sort of trial balance which do not specifically relate to the assessee. The total of this comes to Rs. 35,348.40 which contains an entry of the asset side of 2185.66 with a narration of Wealth Tax of Smt. Gupta J. The payment of wealth tax of Rs. 2,18,566/- is reflected in the account of Smt. Gupta. The details of this wealth tax is available at page which is a part of the assessment order. This wealth tax has been deposited in the UCO Bank pertaining to F.Y 2001-2002 and copy of this page is available at page 49 of the paper book. A copy of challan along with computation of total wealth for the F.Y 2002-2003 in the case of Smt. Ganga Devi Gupta is available at pages 50-52 of the paper book. Surprisingly, the A.O has not taken any action in the case of the companies mentioned at page 52 of the Annexure A-1 which also contains the names of Clarity Salt (P.) Ltd. with a debit of Rs. 17,131.35, Clarity Gold (P.) Ltd. with a credit of R. 1400/-. When the A.O has not made any addition in the hands of these companies whose names are appearing on this page then absolutely there is no justification of making addition in the hands of the assessee whose name is not at all appearing on this page. On this paper both the assets and liability sides are there. There is not deposit of the assessee nor there is any debit in the name of the assessee. When this paper does not indicate any income of the assessee then how the addition can be made in the hands of the assessee. This paper at best can be treated as a rough pertaining to receipt of money from some persons on assets side and the liability side shows the equal amount in various names. However the A.O has failed to make any enquiry about the contents of this page. We have found that this page specifically refers to Uchanti Amount which at best can be treated as unaccounted money. The A.O has mentioned at page 7 of his order that page 52 of Annexure A-1 contains annual balances of accounts whereas other page 1 to 49 are ledger accounts an monthly cash book. It is also noticed that the existence of trial balance discloses the existence of transactions in earlier period and the total of which comes to Rs. 11,11,674/-. This amount needs to be set off in the assessee 2004-2005. A copy of trial balance for A.Y 2002-2003 is available at pages 58 to 60 of the paper book. It was pointed out by the ld. AR that the dispute between the assessee and the Department arose which led to lodging of FIR and the copy of which is enclosed at pages 19 to 48 of the paper book. This incident may be a factor for giving impetus against the assessee. We have gone through the Provisions of Section 69 and 69C. Under section 69, addition is required to be made only when any investment is found outside the books of account and the assessee fails to furnish any explanation or at best explanation is not found satisfactory. In this case, no invest is noticed to have been made by the assessee much less it being outside the books of account. The impugned page which is the basis of this addition is self explanatory. Any paper or evidence which is being used against the assessee has to be considered in its entirety and not on pick and choose basis. On this paper, the liability side indicates the source and, therefore, no addition is called for. Furthermore, the A.O has not quantified or specified the unexplained investment as far as Section 69C are concerned which is a deeming provision and the same conditions as required u/s. 69 are to be satisfied before invoking the same. The transactions jotted on asset side reflect the expenditure and investment. No credit in the name of the assessee is found noted on this page. This means that unaccounted capital of the assessee involved in these transactions. Therefore, the action of the A.O as well as ld. CIT(A) are not justified. Therefore, the impugned addition is ordered to be deleted. Hence, ground no. 2 of the assessee is allowed.

5.1 The ground no. 3 of this appeal is in respect of addition of Rs. 12,61,235/- made u/s. 2(22)(e) of the Act.

5.2 The facts propos to this ground are that Clarity Salt (P.) Ltd. received a sum of Rs. 54.35 lacs from Clarity Gold (P.) Ltd. Clarity Gold (P.) Ltd. was having accumulated profits of Rs. 12,61,235/- as on 31-03-2004. Admittedly, the assessee is director in Clarity Salt (P.) Ltd. who also holds substantial share in that company. According to the A.O, any amount received by Clarity Salt (P.) Ltd. has to be treated as deemed dividend u/s. 2(22)(e) of the Act in the hands of the assessee. Therefore, he has made an addition of Rs. 12,61,235/- to the extent of accumulated profit in the case of Clarity Gold (P.) Ltd. The case of the assessee is that there was no profits in the hands of Clarity Gold (P.) Ltd. in commercial parlance and that these transactions were entered into between two legal entities belonging to the same group where the assessee is a director in both the companies. Both these companies are involved in the business of gems and jewellery and in the inter-corporate transactions have been executed between them. As per the assessee qua these transactions under the Provisions of Section 2(22)(e) of the Act are not attracted. The transactions are found in running and current accounts. Further, the assessee has submitted that in A.Y 2004-2005, there was no profit and the company suffered loss. Moreover, to the extent of Rs. 12,61,235/-, there was reserve and surplus which has been treated by the A.O as accumulated profit. As per the assessee, during A.Y 2004-2005, the company Clarity Gold (P.) Ltd. was not having any accumulated profit, rather suffered loss to the extent of Rs. 1,29,463/-. Therefore, it was pleaded that no addition as proposed by the A.O is called for. However, the A.O declined the assessee's above submission as well as ignored the decisions relied on by the assessee in his support.

5.3 The ld. CIT(A) has also followed the suit.

5.4 Before us, both the parties have reiterated their earlier arguments. The ld. AR has also placed following decisions in support of his issue in question.

1. NH Security (P.) Ltd. v. DCIT, (2007) 11 SOT 302 (Mum).

2. CIT v. Ambassador Travel (P.) Ltd., (2000) 220 CTR 475 (Del.)

3. CIT v. Creating Dyeing & Printing (P.) Ltd., 184 TM 483 : 30 DTR 143.

4. Bombay Oil Ind. Ltd. v. DCIT, 28 SOT 383 (Mum.)

5.5 On the other hand, the ld. DR has reiterated the same reasons which have been given by the A.O to make this addition and by the ld. CIT(A) to confirm the same.

5.6 We have carefully examined the oral submissions in the light of the available evidence on record. We have found that the said company was not having any accumulated profits, rather, there was a loss as discussed above. The Hon'ble Supreme Court in the case of P.K Badiani v. Commissioner Of Income Tax, Bombay ., 105 ITR 642 has held that expression accumulated profits in Section 2(22)(e) means profits in the commercial sense and not assessable or taxable profits. The position of profit related to A.Y 2004-2005 is worked out as under:—

Reserve and Surplus (treated as Accumulate profit by the A.O) Rs. 12,61,235/- Less:— (a) Pre-operative expenses Rs. 12,85,398/- (b) Preliminary expenses Rs. 1,05,300/- Total Rs. 1390,698/- Net profit Rs. (−) 1,29,463/-

Accordingly, by following the above decision of Hon'ble Apex Court in the case of Badiani v. CIT (supra), we are of the considered opinion that the impugned addition is not tenable in the eyes of law and deserves to be deleted. Accordingly, we order to delete the addition and allow ground no. 3 of the assessee.

6.1 The next ground no. 4 of this appeal is regarding addition of Rs. 14,53,854/- which has been restricted to Rs. 6,89,460/- by the ld. CIT(A).

6.2 The facts of this issue are that the assessee sold a property for a consideration of Rs. 50.00 lacs and claimed expenses of Rs. 7,64,394/-. The A.O allowed this expenses while processing the return but during the regular assessment proceedings, the A.O has disallowed the same.

6.3 Before us, it was argued that no proper opportunity was given by the A.O to explain this issue as scrutiny of the assessment was made after 07 years. The assessment has been competed on 18-08-2011 whereas the matter related to period ending 31-03-2004.

6.4 We have heard the rival submissions and have carefully perused the entire material on record. Both parties have reiterated their earlier stand on this issue before us. It is found that in the original return filed by the assessee long term capital gain of Rs. 14,53,854/- was claimed on sale of a residential house. The loss was attributed partly on account of expenses claimed for transfer of a sum of Rs. 7,64,493/-. During the course of regular assessment proceedings as a consequence of search, the A.O has disallowed this claim and accordingly has restricted the loss to Rs. 6,89,407/-. It is a fact during the course of search, no incriminating material or document was found regarding the claim of expenditure of Rs. 7,64,394/-. The case of the assessee is that since the A.O had allowed long back this claim by processing which cannot be settled after a period of 07 years that too without any further material being found and being in the possession of Revenue. In this regard, reliance has been placed on various decisions.

6.5 Per contra, the ld. DR has relied on the orders of the authorities below. It was stated that the expenses have been inflated and rather baseless. Therefore, he justified the action of the authorities below.

6.6 After considering the rival submissions and in the light of the facts and precedents thereon, we are of the considered opinion that when admittedly no evidence/incriminating evidence was found during the course of search in regard to the expenditure of Rs. 7,64,394/-, which could justify the action of the A.O in holding that this expenditure cannot be allowed in the light of that evidence. In this regard, the decisions of ITAT Delhi Bench in the case of Anil Kumar Bhatia v. ACIT, (2010) 1 ITR (Tribunal) 484 (Del.) and ITAT Kolkatta Bench in the case of LMJ International Ltd. v. DCIT, (2008) 14 DTR 540 (Kol Tribunal) apart from others are relevant. Hence, in view of the above discussions, we reverse the findings of the ld. CIT(A) and allow ground no. 4 of the assessee.

In the result, the appeal of the assessee is partly allowed.

ITA No. 264.JP/2013 - A.Y 2005-2006 (Shiv Shankar Lal Gupta)

7.1 In this appeal, the assessee has raised following grounds:—

“1 That the order passed by the A.O u/s. 143(3)/153A is void abinito.

2. In the facts and circumstances of the case, the ld. CIT(A) has erred in sustaining the addition u/s. 69C/69 of Rs. 3,14,77,574/- on the basis of page 82 of Annexure A-1.

3. In the facts and circumstances of the case, the ld. CIT(A) has erred in making addition of Rs. 12,46,770/- u/s. 2(22)(e) of the Income-tax Act, 1961.

4. The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing.”

8.1 The facts, arguments and the submissions of the parties in respect of above grounds are same and similar as were in the A.Y 2004-2005. Therefore, with similar reasonings, we are of the considered view that the decision taken in that year would apply mutatis mutandis. Accordingly, the appeal of the assessee is partly allowed.

9.0 In the result, appeals of the assessee are partly allowed.