Income Tax Appellate Tribunal - Indore
Arun Sehlot, Bhopal vs Assessee on 25 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M.
PAN NO. : ADOPS9911M
I.T(SS).A.Nos. 186 to 192/Ind/2012
A.Ys. : 2003-04 to 2009-10
Shri Arun Sehlot, ACIT,
Bhopal vs 3(1),
Bhopal
Appellant Respondent
PAN NO. : ADOPS9911M
I.T(SS).A.Nos. 261 to 267/Ind/2012
A.Ys. : 2003-04 to 2009-10
ACIT, Shri Arun Sehlot,
3(1), vs Bhopal
Bhopal
Appellant Respondent
PAN NO. : ADOPS9910L
I.T(SS).A.Nos. 193 to 199/Ind/2012
A.Ys. : 2003-04 to 2009-10
Smt.Sandhya Sehlot, ACIT,
Bhopal vs 3(1),
Bhopal
Appellant Respondent
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Assessees by : Shri Yashwant Sharma, Advocate
Department by : Smt. Mridula Bajpai, CIT DR
Date of Hearing : 25.02.2013
Date of : 30.04.2013
pronouncement
ORDER
PER R. C. SHARMA, A.M.
ARUN SEHLOT :
These are appeals filed by the assessee and Revenue against the order of CIT(A) for the assessment years 2003-04 to 2009-10 in the matter of order passed u/s 153A read with Section 143(3) of the Income-tax Act, 1961.
2. As common grounds are involved in all the years and which relate to search conducted on 30.5.2008, at residential premises of Shri Arun Sehlot, E-3/10, Arera Colony, Bhopal, and other group members. The assessee relates to the same group as family members and/or working in the business of Sehlot Group, wherein search was conducted, all these 2
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appeals were heard together and are most of the appeals were disposed of by a consolidated order dated 22.03.2013.
3. Rival contentions have been heard and records perused. Brief facts of the case are that a Search and Seizure operation was conducted on 30-5-2008 at Residential premises of Shri Arun Sehlot at E-3/10, Arera Colony, Bhopal. During the course of search total cash found' was Rs, 15,350/- and Jewellery found was valued at Rs, 1,71,740/-. Shri Arun Sehlot stated in his statement that his source of income from business/director of company in M/s. Raj Homes Pvt. Ltd., MIs Raj Events and Entertainment Pvt. Ltd. and M/s. Raj Industries. Shri Arun Sehlot stated in his statement that cash found of Rs.6,550/- during search proceedings from possession is withdrawal from salary. Smt. Sandhya Sehlot w/o Shri Arun Sehlot has Stated in her statement that her source of income from director in M/s MinaI Builders. Ltd., Bhopal. M/s Raj Homes Pvt. Ltd., Bhopal and M/s Raj Events and Entertainment Pvt. Ltd., Bhopal. On being asked about cash found of Rs. 15,350/- and Jewellery 369.710 grams, valued of Rs.1,71,740/-, she stated that out of cash of Rs. 15,350/-found 3
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during search Rs. 6550/- found from possession from husband Arun Sehlot and balance Rs. 8.800/- is from old saving. Jewellery were purchased from time to time out of savings. She also stated in statement dated 30.5.2008 that she has no purchase bills of Jewellery. Also Search and Seizure operation was conducted on 30-5-2008 at Residential Premises of Shri Arun Sehlot, HIG- 38, Old Subhash Nagar. Bhopal. During the course of search cash found was Nil and Jewellery found was also Nil. Shri Arun Sehlot has stated in his statement that he was vacated this house in year 2003, now Shri Kamlesh Hathode is caretaker of this house. Also Search operation was conducted on 30-5.Q8 at the business premises of M/s Raj Express which belongs to Shri Arun Sehlot, situated at -A-I 304, 'Blanca-A', off. Yari Road, Panchmarg, Versova, Mumbai-400061. During the course of search proceedings Shri Nilesh Prakash Deogaonkar S/o Prakash Dattatray Deogaonkar, aged 31 years, Deputy General Manager of M/s Raj Express was present during the course of search. Statement of Shri Nilesh Prakash Deogaonkar was recorded on oath on 2-7-2009. He stated that he joined M/s Raj Express in April, 2005 as Commercial Executive, at present he is 4
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designated as Deputy General Manager of M/s Raj Express getting salary Rs. 3,00,000/- yearly, looking after the General Administration and Marketing aspects of the Company. B) The various issues discussed during the course of assessment proceedings are listed as below :-
While framing assessment u/s 153A, the Assessing Officer stated that the return filed by the Mr. Arun Sehlot for the various years showed that the assessee has claimed agriculture income in various years. The comparative chart of the return filed by the assessee for various years and agriculture income claimed by the assessee is as follows:-
S.No. Name of A.Y. Agriculture Return Income assessee Income (Not including agriculture) l. Arun Sehlot 2000-01 0 383580
2. Arun Sehlot 2001-02 255400 489400
3. Arun Sehlot 2002-03 498920 371468
4. Arun Sehlot 2003-04 559383 364628
5. Arun Sehlot 2004-05 702100 373829
6. Arun Sehlot 2005-06 522237 847811
7. Arun Sahlot 2006-07 738522 1057909
8. Arun Sehlot 2007-08 909538 2622710
9. Arun Sehlot 2008-09 34432 2846914
10. Arun Sehlot 2009-10 0 3124216 The Assessing Officer further observed that the assessee is 5
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primarily a business man involved in the business of buildings, newspaper running and salary income from various companies and firms. He is also a proprietor of M/s. Arun Sehlot and Associates and M/s. Raj Industries. A perusal of the returns filed for earlier years shows that he has not claimed any agriculture income up to the A Y 2000-01. A.Y. 2001-02 was the first year in which the assessee has claimed agriculture income. In A.Y. 2001-02 the assessee has claimed agriculture income of Rs. 2,55,400/- The perusal of return income of the assessee from year 2000-01 to 2009-10 shows that his returned income has increased steadily over the period. A detailed analysis of the return shows that increase in return income is primarily through increase his income from salary and income from business. This indicates that during this period the assessee was getting more involved with his businesses from which he was getting profits from contract receipts, as well as in the affairs of Raj Home Pvt. Ltd. and other group industries from which he was getting incremental salary. A person who is getting more involved with affairs of running a business and working as full time director of a Pvt. Ltd. Company is unlikely to have time for involving himself to a agriculture 6
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operations. This is specially true in the case where the agriculture operation seems to be expanding. In view of these observations, the Assessing Officer treated the income shown under the head "Income from agriculture income as income from other sources".
4. Before the CIT(A), the assessee furnished additional evidence under Rule 46A in the form of original lease agreements, original affidavits of farmers, original affidavits of assessee affirming deriving of agricultural income, original Khasra, Khatauni and Form No. P-2 which are placed on page 234-257 of the paper book and original receipt of payment of lease rent which was placed at page 232 to 457 of the paper book. However, the CIT(A) did not admit it on the plea that these were not produced before the Assessing Officer despite opportunity. The ld. CIT(A) confirmed the addition by endorsing the findings given by the Assessing Officer.
5. It was argued by the ld. Authorized Representative that the documents produced before the CIT(A) goes to the root of the issue to explain to agricultural income earned by the assessee. He further submitted that in assessee's own case for the assessment year 2003-04, scrutiny assessment was 7
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framed u/s 143(3) wherein agricultural income returned by the assessee at Rs. 5,59,383/- were accepted by the Assessing Officer to the extent of Rs. 5,48,820/-. He further contended that even in assessment year 2004-05, the assessment was framed u/s 143(3) i.e. under scrutiny scheme, wherein agricultural income of Rs. 7,02,100/- shown by the assessee were fully accepted by the Assessing Officer after detailed inquiry. As per ld. Authorized Representative, even in the block return, the assessee has offered the same agricultural income, which were already offered in the regular return which was accepted by the Assessing Officer u/s 143(3), accordingly, disallowance of entire agricultural income by the Assessing Officer and treating the same as income from other sources were not justified.
6. We have considered the rival submissions and have gone through the orders of the authorities below. The issues under consideration have already been decided by the Tribunal vide its order dated 22nd March, 2013, in the case of other group members, Mr.Hitesh Mehta & Others, wherein observation and finding of the Tribunal was as under :-
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"7.Rival contentions have been heard and records perused. We had also gone through the additional documents filed before the CIT(A) under rule 46A.
8. With regard to agricultural income declared by the assessee, the observation of the Assessing Officer for decline of assessee's contention regarding agricultural income was that the assessee had not shown agricultural income up to assessment year 2000-01. That assessee was mainly in the business and also having salary income, therefore, it is unlikely to have time for agricultural operation. The Assessing Officer declined the claim also by observing that only photocopy of lease agreements were filed and not the original lease agreements. The thrust of Assessing Officer for declining the assessee's claim was also based on the surrender of agricultural income made by three group companies in the assessment year 2005-06, namely, Raj Homes Private Limited, Minal Builders and Raj Event and 9
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Entertainment Private Limited. The Assessing Officer observed that these companies have surrendered agricultural income in the assessment year 2005-06, therefore, claim of other assessees belonging to same group with respect to the same nature of income cannot be accepted. The Assessing Officer also observed that some farmers, were cross examined by counsel of Raj Group of Industries during penalty proceedings u/s 271(1)(c), wherein they have denied having any land given on lease. The Assessing Officer stated that photocopy of khasra, khatauni and form P-II were filed and the assessee did not produce original of these certificates, hence authenticity of these documents were doubtful. The Assessing Officer also stated that bills of expenditure like seeds, fertilizers, pesticides, labour and other related details like transportation warehouse etc. were not filed. We found that the CIT(A) broadly confirmed the observation of the Assessing Officer. To overcome the findings of Assessing Officer, the 10
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assessee has filed documents under rule 46A before the CIT(A), but he declined to accept the same on the plea that despite opportunity, the assessee did not produce these documents before the Assessing Officer. The CIT(A) further observed that during the assessment year 2008-09 very nominal agricultural income was shown, therefore, the assessee's claim of agricultural income in earlier years cannot be accepted. It was also observed by CIT(A) that all the Directors in business reside in Bhopal, while agricultural land was situated at a distant area.
9. After going through the reasoning given by the Assessing Officer and CIT(A) for decline of deduction and after verifying the additional evidence filed before the CIT(A) under rule 46A, we found that the assessee has filed original lease agreements before the CIT(A). One of the reasons given by the Assessing Officer for decline was that original lease agreement was not produced. It was submitted by the assessee that due to change in office address, the original 11
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lease agreements were not traceable during the relevant point of time, therefore, they were filed before the CIT(A). The other reason given by the Assessing Officer was that original khasra, khatauni and form P-II was not filed, therefore, claim of agricultural income cannot be accepted. Before the CIT(A), the assessee has filed original khasra, khatauni and form no. P-II to substantiate its claim of agricultural income but the same were not accepted. Before the CIT(A), the assessee has filed original khasra, khatauni and form P-II to substantiate its claim of agricultural income and same are placed at page 230 to 457 of the paper book. The assessee has also filed original receipts of payment of lease rent, which are placed at page 230 to, 457 of the paper book. We found that assessee was prevented by sufficient cause for not submitting the same before Assessing Officer, since these documents were misplaced due to shifting of office. If assessee could file photocopy before the Assessing Officer, he could 12
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file original also, as filed before the CIT(A). The assessee by not filing these documents before the Assessing Officer cannot spoil his case. Since these documents were necessary to determine the correct nature of income having been offered by the assessee, the CIT(A) was not justified in not accepting these documents which goes to the root of the issue. After accepting the documents filed under rule 46A, the CIT(A) could have called for remand report from the Assessing Officer and after considering the same he should have arrived at correct conclusion with regard to the nature of income offered by the assessee. As per record, the claim of assessee was that the agricultural operation of the assessee was being looked after by Ajab Singh, who was employed by the assessee. Inspite of making request to Assessing Officer and CIT(A), the none of the authorities have called Ajab Singh to verify the work undertaken by him and correctness of agricultural income having been earned by the 13
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assessee. We also found that conclusion of Assessing Officer was more influenced by the surrender of agricultural income by three group companies. Through the documents placed on record, it was clarified by the assessee that farmers, who have declined to give loan to the assessee were of different villager and the land was also situated at different location. As the farmers from whom land was taken by the assessee was different from farmers, who have given land to the three companies, which have surrendered their claim of agricultural income, therefore, no fruitful purpose was serve by relying on the statement of those farmers, who had given land to these three companies and not the assessee before us. We found that in the assessment year 2005-06, three group companies had surrendered their agricultural income, because farmers of those companies had given adverse statement to the effect that they had not given land to the companies and do not know their directors. As per ld. Authorized 14
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Representative , these farmers became hostile and were misled under intimidation. We found that the assessee have already declared agricultural income much prior to the search right from assessment year 2001-02. In the assessment year 2003-04 and 2004- 005, there was scrutiny assessment order, wherein agricultural income of Rs. 4,99,400/- during the assessment year 2003-04 was accepted by the Assessing Officer at Rs. 4,70,790/-. Similarly, in the assessment year 2004-05, the assessee's case was decided u/s 143(3) and agricultural income of Rs. 8,52,569/- was accepted at Rs. 8,20,530/-. Thus, in both the scrutiny assessments keeping in view the land taken on lease, agricultural income at Rs. 9000/- per acre was accepted by the Assessing Officer. When in the scrutiny assessment, the income has been accepted, without giving cogent reasoning, the same cannot be declined. Since original and Xerox copy of lease agreements are same, no reason for assessee not to submit original before the 15
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Assessing Officer, if he could submit it before CIT(A). Similar is the position with regard to khasra, khatauni and form P-II. Even in absence of original lease agreement and khasra khatauni, the Assessing Officer could make inquiry even on photocopy. The assessee had furnished addresses of all the farmers, the farmers in the agreement are residents of village and full address was given. Many summons were served as per the observation of the Assessing Officer himself, but no effective efforts were made to ensure about the farmers presence. Even a request was filed by the assessee before the Assessing Officer to summon farmers u/s 131. The assessee has also requested the Assessing Officer to summon Mr.Ajab Singh Raghuvanshi who was taking care of assessee's agricultural activity and its sales realization etc. However, Mr. Ajab Singh was not called for. Copy of khasra issued by Patwari confirming the production of crop was filed before the Assessing Officer which has not been disproved by 16
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him. It was also contention of ld. Authorized Representative that statement of mandi persons which were recorded behind the back of the assessee, hence cannot be used against him, as the same were not confronted to him. For this purpose reliance was placed on the decision of Hon'ble Supreme Court in the case Kishan Chand Chelaram, 125 ITR 713. Ld. Authorized Representative also clarified that there is no practice of mentioning names of Bataidar/lessee on the khasra, khatauni and form P-II, because this at times has given rise to plethora of civil suits being filed by the bataidar/lessee for ownership of land due to cultivation done by them for longer period. Hence, not mentioning the name of lessee, bataidar in khasra , khatauni and form no.
P-II cannot be viewed against the assessee. Thus, the observation of Assessing Officer in this regard do not carry much force. He further submitted that it was duly stated before the Assessing Officer that entire agricultural operation on the land were done by Mr. 17
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Ajab Singh Raghuvanshi, Bazar Mohalla, Village Deori, Tahsil Udaipur, Distt. Raisen. Mr. Ajab Singh was given imprest and he used to pay sale proceeds to the assessee. As the entire work was being taken care of by Ajab Singh Raghvanshi, the assessee did not know the purchaser of the crop. The intermediary sold the crop and gave money and mandi receipts to assessee, therefore, as per ld. Authorized Representative , there was no reason for assessee to doubt the mandi receipts given by him.
10. In view of the above discussion, we restore the matter of agricultural income in all the years under consideration to the file of Assessing Officer for deciding afresh after considering the documents filed before CIT(A) under rule 46A, which goes to the root of the issue. We direct accordingly. "
7. As the facts and circumstances in the case of present assessee is pari materia to the facts and circumstances discussed by the Tribunal in aforementioned order, respectfully following the decision of the Tribunal in the case 18
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of other group members as discussed hereinabove, issue in all the years under consideration is also restored back to the file of the Assessing Officer with the same directions.
8. In all the years under consideration, the assessee is also aggrieved for addition made on account of deemed dividend u/s 2(22)(e) of the Act. Issue with regard to payments made by Raj Homes Private Limited (RHPL) to Raj Events and Entertainment Private Limited ( REEPL ) have been dealt by the Assessing Officer at page 67 to 89, para 5 onwards. The CIT(A) has dealt with the issue at page 75 to 105 and conclusions have been narrated at page 103 to 105 stated in para 5.6 to 5.11.
9. Addition on account of deemed dividend on payment by RHPL to Arun Sehlot and Associates have been dealt by the Assessing Officer at page 67 to 89 para 5 onwards. The CIT(A) has dealt with the issue at page 63 to 67, para 10 - 10.5.
Deemed dividend on payment by RHPL to Meenal Builders Private Limited) has been dealt by the Assessing Officer at page 67 to 89. The CIT(A) has dealt with the issue from page 71 to 75. Deemed dividend of payment by RHPL to M/s. Raj 19
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Industries have been dealt by the Assessing Officer at page 67 to 89. The ld. CIT(A) has dealt with the issue at page 68 to 71.
10. Before the lower authorities, contention of the assessee was that the amount advanced by RHPL was not assessable u/s 2(22)(e). From the record, we found that M/s. Raj Homes Pvt.Limited has given advances to various concerns of the group controlled by assessee during the years in appeal. The advances are given to following concerns :-
(i) Minal Builders Private Limited
(ii) Arun Sahlot and Associate - a Proprietary
concern of Arun Sahlot.
(iii) Raj Industries - a Proprietary concern of Arun Sahlot.
(iv) Raj Events and Entertainments Pvt. Limited. The assessee is substantive share holder of M/s. Raj Homes Private Limited. He has held 45% shares of RHPL during the years in appeal. The Assessing Officer has held that the advances given to various concerns were assessable as deemed dividend u/s 2(22)(e). He gave common finding for advances to all of the concerns as under :
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"It was found during the course of assessment proceedings that assessee has received loans and advances of various amounts from three Pvt.Ltd. companies either in his individual capacity or as proprietor of his firms Raj Industries and Arun Sahlot & Associates. Further it was noticed that Raj Homes Pvt.Ltd. ( RHPL) has been giving loans to various companies. It was found that the assessee was substantially interested both in the affairs of RHPL and these other companies which were the recipient of such loans.
Further it was noticed that these loans were not for business purposes as the assessee, his firms and the companies in which he was substantially interested were also having business dealings with RHPL and were also outstanding in the column for sundry debtors. Hence, it was clearly seen that these loans were just transfer of funds. "
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11. Thereafter, Assessing Officer discussed provisions of Section 2(22)(e) and held that amount advanced by the assessee by all these concerns, amounts to deemed dividend u/s 2(22)(e). Accordingly, additions were made in all the years under consideration. Before the CIT(A), it was contended by the ld. Authorized Representative that no incriminating material was found or brought on record for the subject addition made by the Assessing Officer and that the facts were duly disclosed in the return/balance sheet/audit report of each year mostly prior to the search. Further contention was that in a most of the cases, assessment stood concluded on the date of search and hence cannot be treated as abated. It was further submitted that the issue cannot be considered in the search assessment as it may at best be a matter of regular assessment because it is not represented undisclosed.
12. However, the CIT(A) did not agree with the assessee's contention and held that loan given by RHPL to M/s. Arun Sahlot and Associates - a Proprietary concern of the assessee are covered in the first limb of Section 2(22)(e) of the Act. The assessee holds 45 % shares in the payer company RHPL and 22
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that assessee was having more than 10 % of the voting powers in RHPL. Accordingly, additions made by the Assessing Officer were confirmed by the ld.CIT(A).
13. In respect of loan given by RHPL to Raj Industries by giving similar findings, the ld. CIT(A) has confirmed the addition.
14. In respect of loan given by RHPL to Minal Builders Private Limited after giving following observations, the CIT(A) confirmed the addition :-
" 12.4 I have examined the issue. The appellant holds 55.2 % shares in the payer company RHPL. He also holds 63.39 % shares in recipient company MBPL, not being a company in which public arte substantially interested. The appellant holds more than 10 % shares in the payer company and more than 20 % shares in the recipient company. This shows that the appellant has substantial interest in MBPL, the recipient company. These facts clearly show that the loans given by RHPL to MBPL are covered under the 23
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second limb of Section 2(22)(e). The appellant has not debit balance in the books of RHPL hence it is clear that loans given to him are not out of his own funds held with RHPL. The appellants argument that the loans were given for business purposes are not plausible for the reason that these loans are not covered by the exceptions narrated in Section 2(22)(e) which stipulates as to which payments are not to be included in deemed dividend for the purpose of the same Section. It is held that the appellant's claim that the loans have been given for the purpose of business is not proved. The information that the appellant has not disclosed the deemed dividend tax able u/s 2(22)(e) on account of loans given by RHPL to MBPL came to the knowledge of the authorized officer during the course of search. This information is a material gathered during the course of search. Hence the Assessing Officer had valid jurisdiction to examine the issue in the 24
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impugned assessment proceedings and to decide the issue."
15. In respect of payments made by RHPL to REEPL in the assessment years 2004-05 to 2009-10, the Assessing Officer has made the addition after having following observations :-
"The appellant held 16.25% shares of REEPL between the previous year relevant to assessment year 2004-05 to 2006-07. He held 10.45 % shares from 2007-08 to 2009-10. His wife Smt. Sandhya Sahlot held 7.71 % shares during the previous year relevant to assessment year 2004-05 to 2006-07 The Assessing Officer held that the appellant is true owner of the share held by Smt. Sandhya Sahlot. He held that the holdings of Smt. Sahlot has to be clubbed with the holdings of the appellant for the reasons that Smt. Sahlot is merely a rubber stamp which is exercised by her husband , the appellant to divert money from the business. That after clubbing the holding of his wife with that of the appellant, the 25
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total holding of the appellant in REEPL comes to 23.96%. He held that since the total holding of the appellant including shares held by his wife is more than 20% the appellant has substantial interest in REEPL. That through 45% holding in RHPL the appellant is indirect beneficial owner of 28.33% shares of REEPL in 2004-05 and similarly in other years. After giving these findings the A.O. held that the loans given to REEPL comes under the preview of the second limb of section 2(22)(e). He assessed the loans given by RHPL to REEPL in hands of the appellant u/s 2(22)(e)."
16. Before the CIT(A), following submissions were made by the assessee :-
5.3 During the hearing before me written arguments were submitted which is as under:
Assessee does not hold required 20% shareholding in REEPL.
Deemed dividend, if any, can be taxed only in the 26
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hands of recipient and since assessee did not receive the amounts which where received by REEPL only, it can not be taxed into his hands.
Payments were due to legitimate business considerations.
No accumulation of figures can be done.
There are calculation mistakes also, as credit amounts have been considered as debit amount.
The ld. Assessing Officer brushed aside the explanations of assessee and made the additions without giving any further opportunity.
ii) Provisions of deemed dividend are not applicable to the facts of the case primarily because:-
a) No incriminating material was found or brought on record for subject addition.
b) The impugned facts were disclosed in the return /Balance Sheet/ audit report of each year mostly prior to search.
c) Most of the assessment, as above, stood concluded on the date 27
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of search and hence cannot be treated as abated.
d) The issue cannot and should not be considered in the search assessment as it may at the best be a matter of regular assessment income.
1. Payment by RHPL to REEPL was for purpose of business, hence not covered u/s 2(22)(e):
1.1 Analysis of Balance Sheet of REEPL for various years filed before AD indicate that the entire amount received from RHP L was utilized by it for the purpose of business ,only because REEPL was left with very little cash and bank balance.
1.2 It was in the business interest of RHPL to lend continuous financial support to its own subsidiary, in which it has got deep interest, because of long gestation period of print media business. To make its business viable and profitable, the readership/subscriber base has to be continuously enlarged by launching new editions and by creating infrastructure. It was thus necessary for RHPL to keep on 28
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funding in order to save or recover the business-funds already infused in its own subsidiary, REEP L, and to make it survive, viable and profitable. No prudent businessman would like to let its own money already put in its business to go down the drain if by continued or further funding" the business of its subsidiary can be made worthy of survival, viable and profitable. This is what RHPL, as a shareholder, did to protect its own business interest.
1.3 The status of loss/profit of REEPL was as under :-
(Rs. In Lacs ) F.Y. A.Y. Amount Rs. Loss/profit 2003-04 2004-05 (-)176.58 Loss 2004-05 2005-06 58.29 Profit 2005-06 2006-07 (-)1095.37 Loss 2006-07 2007-08 (-)1120.18 Loss 2007-08 2008-09 (-)678.38 Loss 2008-09 2009-10 688.44 Profit 2009-10 2010-11 381.82 Profit 2010-11 2011-12 171.30 Profit 1.4 Expansion of the business of REEPL was thus in the mutual interest of both RHPL & REEPL which necessitated continuous funding by RHPL. 1.5 Money funded by RHPL to REEPL has not been withdrawn or used by the assessee shareholder. On the 29
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contrary, assessee, Mr. Arun Sahlot, has provided funds to REEPL without interest as its owners, as also done by RHPL.
1.6 No advance could have been given by RHPL to REEPL without such business expansion of REEPL or that RHPL would not have distributed those sums as dividend to its shareholders.
17. Thus, the impugned advances were not given with the purpose to avoid tax, which is the underlying object of provisions of Section 2(22)(e) of the Act.
18. In the following decisions, it has been propounded that amount paid for the genuine purpose of the business or for protecting business interest or in view of commercial expediencies/exigencies are outside the purview of Section 2(22)(e) of the Act.
CIT vs. Creative Dyeing (2009) 318 ITR 476 (Del.H.C.) Important Note : SLP of the Department rejected by Hon'ble Supreme Court in ITR (Statutes) (2010), 30
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328 ITR (ST.) 10 CIT VS. Nagin Das M. Kapadia, (1989) 177 ITR 393 (Bom) CIT vs. Rajkumar (2009) 318 ITR 462 (Del H. C.)
2. 'Shareholder' means registered shareholder to whom money is given:
It was propounded in the following cases that shareholder referred in Section 2(6A)(e) of' 1922 A ct. which is synonymous to present Section 2(22)(e) meant by registered shareholders and not only to a beneficial! owner because Section 206 of Companies Act talks of registered shareholder only:-
CIT v. C.P. Strathy Mudaliar ()972) 83 ITR 170 (SC) Rameshhwar Sanwarlal V. CIT (1980) 122 ITR I (SC) CIT v. Shukuntula (1961) 43 ITR 352 (SC) ACIT v, Bhaumik Colour (2009) 118 ITD 1 (Mum) (SI3) Relied on C.P. Sarathy (supra) & Rameshwar Sanwarlal (supra), Agni Engineers vs. Assistant CIT (20 II) 17 ITJ 38 (Indore Tribunal), 31
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Makhija Construction co. Vs. ACIT (2011) 18 ITJ 783 (Indore Tribunal) It was decided in Bhaumik Colour case (Supra) as under:
i) Expression shareholder' referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder,
ii) Thus, if a person is a registered shareholder but not beneficial shareholder then provisions of section 2(22)(e) would not apply; and
iii) Similarly, if a person is a beneficial shareholder but not a registered shareholder then also provisions of Section 2(22)(e) would not apply.
3. Assessee (Arun Sahlot) does not hold 20 % of REEPL, hence not covered u/s 2(22)(e).
3.1 As stated earlier, the assessee Mr. Arun Sahlot held 16.25 % ( in first three years) and 10.45 % ( in last three years) in REEPL, i.e. he never held 20% or more, which is the requisite criteria for invoking Section 2(22)(e). Hence, provisions of Section 2(22)(e) are not applicable on this count also.
4. Substantial interest -holding of different entities cannot be 32
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club bed for the purpose of Section 2(22)(e) :
4.1 It is settled law that share holder referred to in sec.
2(22)(e) is registered shareholder as well as beneficial shareholder.
4.2 In the present case, assessee Mr. Arun Sahlot is registered shareholder of REEPL in his individual capacity. Similarly, RHPL is registered shareholder of REEPL in its capacity as a company. Company is treated as a person and different entity u/s 2(31). Both, RHPL and Arun Sahlot, are hence different & separate shareholders & legal entities and, therefore, their own registered shareholding can not be clubbed for the purpose of Section 2(22)(e).
4.3 Moreover, Sec.2 (22)(e) nowhere uses the expression "directly or' indirectly". Hence, it cannot be read or presumed.
4.4 It is the settled legal position that sec. 2(22)(e) is a deeming legal fiction whose provisions have to be strictly construed. Relied on: CIT v, C.P, Sarathy Mudaliar [1972]83 ITR 170 (SC) CIT vs. Ankitech (P) Ltd., [2011] 199 Taxman 341 (Del. H.C.) 33
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4.5 Further, on facts, the rationale and basis adopted by AO for clubbing the shareholding of wife Smt. Sandhya Sahlot with the assessee is also uncalled for. The observations of AO and assessee's explanation are already given in the tabulated form in the CIT(A)s order.
Shareholding of two different registered shareholders/entities (including wife and husband) cannot be clubbed for the purpose of sec. 2(22)(e).
CIT vs, Kunal Organics (2007) 164 Taxman 169 (And.) Smt. Gunvanti R. Mehta v, ITO (1993) 45 ITD 382, 385 (Born) (SMC) CIT vs. Ankitech Pvt.Ltd., [201l] 199 Taxman 341( Delhi HC) In view of the above, the calculation of the Assessing Officer by resorting to indirect calculation of voting power as well as clubbing of shareholding of different registered shareholders/entities are not in accordance with law and deserves to be struck down.
5. Payments do not confer individual benefits on assessee - shareholders, hence not deemed dividend in the hands of assessee.
34
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5.1 Section 2(22)(e) intends to tax the monies taken by substantially interested persons in the guise of loans and advances to avoid payment of tax. Thus the essence for invoking the provisions of section 2(22)(e) is that the loan or advance given should confer individual benefit to the share holder.
5.2 But since in the present case, money funder by RHPL has not been withdrawn by assessee, who rather has provided funds to REEPL, hence no individual benefit has arisen to the assessee and hence payment by PHPL to REEPL cannot be taxed as dividend in the hands of the assessee as per settled law.
6. CBDT Circular No. 4Y5 dated 23. 09. 1987 :
Para 10.3 of the Circular states thus -
"10,3 The new provision would, therefore, be applicable in a case where a shareholder has 10 per cent or more of the equity capital. Further, deemed dividend would be taxed in the hands of a concern where all the following conditions are satisfied:
35
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(i) Where the company makes the payment by way of loans or advances to a concern.
(ii) Where a member or a partner of the concern holds 10 per cent of the voting power in the company: and
(iii) Where the member or partner of the concern is also beneficially entitled to 20 per cent of the income of such concern.
With a view to avoid the hardship in cases where advances or loans have already been given, the new provisions have been made applicable only in cases where loans or advances are given after 31st May, 1987." (emphasis supplied.) From the above circular also, Your honour will kindly agree that no addition is required to be made in the hands of appellant herein.
In the light of the above facts and legal position, we humbly request your honour to kindly delete the addition, on payments by RHPL to REEPL, made by the A, 0. under section 2(22)(e) and oblige.
Without prejudice to our above submissions, it is humbly 36
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submitted that the ratio of the decision of Hon'ble Bombay High Court in Navnitlal C. Jhavari V CIT (1971) 80 ITR 582 (Bom) should also be considered according to which while calculating accumulated profits an allowance for depreciation at the rates provided by the Income-tax Act itself has to be made by way of deduction. The relevant details are available with the Assessing Officer who may kindly be directed accordingly by yourhonour.:
5.4 A copy of the appellant written arguments were given to the A.O. for comment. The A.O.s comment wax received vide letter dtd. 23. 2.2012 which is as under:
.. The section 2(22) talks about the definition of dividends and also clearly defines what is not dividends. The exception clause are quoted under far reference (22) "dividend" includes-
(a) .................... :
(b) .......... :
(c) ................ .
(d) ............. :
(e) any payment by a company, not being a company in which 37
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the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent. of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but "dividend" does not include-
(i) a distribution made in accordance with sub-clause (c) or sub-
clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ;
(i) a distribution made in accordance with sub-clause © or 38
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sub-clause (d) in so far as such distribution is attributable to the capitalized profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964 and before the 1st day of April, 1965:
(ii) any advance or loan made to a shareholder [or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company :
(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-
clause (e), to the extent to which it is so set off :
28(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of Section 77A of the companies Act, 1956 (1 of 1956) :
v) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).
The above except ion clause of what is not dividend clearly 39
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mentions that only if the Company is in the business of money landing can a advance or loan he treated as "in the ordinary course of its business ". The details as submitted by the AR about RHPL giving to REEPL for business expediency holds no relevance as the act provides exception only to money landing Companies.
(2) Assessee's submission "Share holders means registered share holder (0 whom money, is given"
AO's Comment :-
The section 2(22) (e) is reproduced as under :-.
(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent. of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in 40
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this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; The act clearly says that the share holder has to be beneficial owner of shares i.e. the benefits have to be derived by him. In the present case, has disc used on page 72 of the assessment order Mr. Arun Sahlot holds more than 20 % of beneficial shares. This fact has been held by the Hon'ble High Court of Delhi in its recent judgment CIT vs. National Travel services, 202 TAXMAN 327, (Del) July 11, 2011, where the Court clearly says that for the purpose of Section 2(22)(e) it is not necessary to be registered share holder of the Company.
In this regard, it is pertinent to note that the Hon'ble Supreme Court judgment quoted by the AR are before 1987 when the Section 2(2)(e) was amended. Further the AR has quoted I.T.A.T. judgments of the period after 1987, while the Hon'ble High Court of Delhi has in its more recent judgment held that share holder does not have to be registered. In any case as seen on page 72 of the assessment order Mr. Arun Sahlot, RHPL and Mrs. Sandhya Sahlot are all registered 41
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shareholders of REPL.
(3) Assessee's submission "Assessee (Mr. Arun Sahlot) does not hold 20% of REEPL hence not covered u/s 2(22)(e) "
The CIT(A) forwarded above submissions to Assessing Officer for his comments, Assessing Officer's comment reads as under :
As seen in the above paragraph and on page 72 of assessment order Mr. Arun Sahlot is the beneficial owner of more than 20% shares hence liable under provisions of section 2(22)(e) , (4) Assessee's submission "Substantial interest - holding of different entities can not be clubbed for the purpose of section 2(22)(e)"
AO's Comment :-
As seen in the above paragraph, page-72 of assessment order the share holder has to be a beneficial share holder and as such this point raised by the AR is not acceptable. Further relevance is taken on Hon'ble High Court of Delhi CIT V/s Ankitech Pvt. Ltd 191 TAXMAN 341 (Delhi) where in para 15 the Han 'ble High Court has said as under -
15. At this stage, it will be useful to point out that even the Rajasthan High Court in the case of CIT v. Hotel Hilltop [IT Appeal No. 25 of 2005, dated 17-3-2008] had interpreted the provision in identical manner, It would be apt to quote Para 7 42
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of the said judgment which contains the relevant discussion:
"The more important aspect, being the requirement of section 2(22)( e) is, that "the payment may be made to any concern, in which such shareholder is a member, or the partner, and in which he has substantial interest, or any payment by any such company, on behalf, or for the individual benefit of any such shareholder .... " Thus, the substance of the requirement is, that the payment should be made on behalf of, or for the individual benefit of any such shareholder, obviously, the provision is intended to attract the liability of tax on the person, on whose behalf or for whose individual benefit, the amount is paid by the company, whether to the shareholder, or to the concern firm. In which event, it would fall within the expression "deemed dividend". Obviously, income from dividend, is taxable as income from other sources, u/s 56 of the Act, and in the very nature of things, the income has to be, of the person earning the income. The assessee in the present case is not shown to be one of the persons, being shareholder. Of course the two individuals being Roop Kumar and Devendra Kumar, are the common persons, holding more than requisite amount of shareholdings, and are having requisite interest, in the firm, but then, thereby the deemed dividend would not be deemed dividend in the hands of the firm, rather it would obviously be deemed dividend in the hands of the individuals, on whose behalf, or on whose individual benefit, being such shareholder, the amount is paid 43
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by the company to the concern."(Copy enclosed).
This matter has been dealt in the assessment order. Mrs. Sandhya Sahlot was found to be a house wife in her statement recorded during search. She had no idea about the business of the company not even knowing the salary receive d by her. It can be clearly seen that she was acting on the directions of her husband and as such had no independent sources of income.
(5) Assessee's submission "Payments do not confer individual benefits on assessee shareholder, hence not deemed dividend in the hands of assessee."
19. From the record, we find that the CIT(A) has forwarded all the submissions of the assessee to the Assessing Officer for his comments. After receipt of Assessing Officer's comments, he has called for counter comments from the assessee. Assessing Officer's comments have been reproduced by the ld.CIT(A) at pages 90 to 94. Counter comments reproduced by the ld.CIT(A) at pages 95 to 103.
20. After considering the submissions of the assessee, objection of the Assessing Officer thereon and the counter 44
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comments of the assessee on Assessing Officer's objection, the CIT(A) concluded as under :-
5.6 I have carefully examined the facts of the issue and relevant provisions of law and case law. The appellants submissions. A.O.s comment on the submissions and appellants counter comments have also been studied carefully .It is found that appellant held 45% shares of RHPL during the relevant years. He held 16.97% shares of REEPL from A.Y. 2004-05 to A.Y. 2006-07. He held 10.45% shares of REEPL from A.Y. 2007-08 to A.Y.2009-10. As per section 2(32) a person can be treated as having substantial interest in a company if he holds 20 % shares or more. The appellant's wife Smt. Sandhya Sahlot holds 7.71 % shares of REEPL. The AO. has clubbed the share holdings of the appellant's wife Smt. Sandhya Sahlot with the holding of the appellant to arrive at a conclusion that the appellant holds more than 20% shares in REEPL. 5.7 The crucial issue to be decided in the matter is whether the shares held by Smt. Sandhya Sahlot can be clubbed with those held by the appellant for the purpose of holding that he has substantial interest in REEPL, The A.O, has referred to the 45
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statement of Smt. Sahlot recorded during the course of search and on the basis of that statement he has given a finding that the appellant is true owner of the shares held by Smt. Sandhya Sahlot also. The deposition of Smt. Sahlot made in her statement is not adequate and sufficient to support the finding that the shares held by Smt. Sahlot arc truly held by the appellant. Smt. Sandhya Sahlot is also assessed by the same A.O. Her income is not clubbed u/s 68 with the appellant. She has her own independent source of income and has purchased shares of REEPL by investing her own funds. Smt. Sahlot is a regular income tax payer. Salary income earned by her as Director RHPL, REEPL and MBPL has been taxed in her hand. In the assessment order passed u/s 153A row's. 153C in case of Smt. Sahlot on 30.12.2010 the A.O. has assessed the loans received by her from RHPL as deemed dividend u/s 2(22)(e). This shows that on the two orders passed on the same day the A.O. has taken contradictory decisions. In the case of loan received by Smt. Sahlot from RHPL he has assessed the loans as deemed dividend u/s 2(22)(e) which means that he has accepted that Smt. Sahlot is a bona fide holder of shares of 46
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RHPL. While in case of her holding in REEPL the A.O. has held that she is not true owner of her shares. It is important to note that Smt. Sahlot has purchased shares of RHPL. REEPL, MBPL from same source of income. In order to clear the contradiction I have examined the facts of the matter keeping in view the relevant provisions of Corporate Law and judicial precedence. In the Corporate Law, a company is an artificial juridical person. The Hon'ble Privy Council in the case of Solomon Vs Solomon had held that a Company's existence is different from its shareholder even if a single person holds all share of the company. In a company a member can hold shares for his own benefit or benefit of others. When a member holds shares for benefit of any other person than himself then this fact has to be brought on the record of the company. In the case of share held by Smt. Sahlot in RHPL, REEPL, MBPL shares are held for her own benefit as is clear from the facts of the case. Since the shares have been purchased out of her own income, they cannot be clubbed in hands of the appellant for calculating his total share holding in REEPL. The ratio laid in CIT v/s National Travel Services, 202 TAXMAN 327 (Delhi) is not applicable in 47
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the appellant's case since the fact and law. are substantially different. M/s. National Travel Services was a partnership firm. The judicial precedence dealing with case of a firm are not relevant in Company matters. Partnership firm does not have a legal existence separate to its partner while a company has a legal existence separate to its share holders. In view of the ratio laid in CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC) and CIT v. Ankitech (P) Ltd. [2011] 199 Taxman 341 (Delhi HC) it is clear that for the purpose of section 2(22 )(e) the shareholding of Mr. and Mrs. Sahlot cannot be clubbed. The judicial interpretation on the issue ordains that for the purpose of section 2(22)(e) a person has to be both registered share holder as well as beneficial share holder. In the case of shares held by Smt. Sahlot, the appellant is not a registered share holder. In view of the above it is held that shares held by Smt. Sahlot cannot be treated as held by the appellant. Since the share holding of Smt. Sahlot cannot be clubbed with the share holding of the appellant who holds only 16.25 % shares in the previous year relevant to A.Y. 2004-05 to 2006-07 and holds only 10.45% shares in the previous years relevant to A.Y.s 2007-08 48
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to 2009-10, it is held that the appellant does not have substantial interest in REEPL."
5.8 Another issue to be decided in this case is as to whether shareholding of RHPL in REEPL can be considered or clubbed indirectly to determine requisite 20% voting power. The appellant is registered shareholder of RHPL and REEPL as individual. RHPL is registered shareholder of REEPL as a company holding shares in its own name. As per corporal law, a company is a legal Juridical person independent of its shareholder, unlike partnership firm which does not have a status separate from it's partners. Since the appellant and RHPL are altogether different registered shareholders of REEPL and are separate legal entities! shareholding of these two different and independent registered shareholders can not be considered or clubbed indirectly for determining voting power of the appellant in REEPL. Section 2(22)(e) is a legal fiction and has to be construed strictly. Nothing can be presumed or read in to it.
5.9 In his comment on the appellants submissions the A.O.has stated that only beneficial shareholding is required and 49
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registered shareholding is not required at all for the purpose of sec. 2(22)(e). This is not correct interpretation of law. It is well settled that for the purpose of sec. 2(22)(e) a shareholder has to be both, a registered shareholder as well as a beneficial shareholder. Since the appellant is not registered share holder of the shares of REEPL held by RHPL and Smt Sandhya Sahlot the shares held by them can not be clubbed with his share- holdings in order to work his voting power in REEPL. This shows that the appellant does not hold 20% voting power IN REEPL IN ANY of the A.Y. 5.10 The CBOT circular No. 495 dated 23.9.1987 stipulates that deemed dividend would be taxed in hands of a concern where all the following conditions are satisfied:
( 1) Where the company makes the payment by way of loans or advances to a concern.
(ii) Where a member or a partner of the concern holds ]0 per cent. of the voting power in the company: and
(iii) Where the member or partner of the concern is also beneficially entitled to 20 per cent of the income of such concern. 50
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As per section 119 the CBDT circulars are binding on CIT(A) who is an Income Tax Authority u/s 116. Hence in my judgement, 1 have to abide by the above circular which stipulates that in the conditions enumerated above the additions u/s 2(22)(e) is to be made in hands of a concern.
5.11 In view of the facts of the case and on law. it is held that the impugned additions made u/s 2(22)(e) are invalid hence the following additions are deleted.
Assessment year Amount of
addition u/s 2(22)(e)
2004-05 3,21,11,061
2005-06 8,02,33,374
2006-07 21,00,02,277
2007-08 7,87,82,620
2008-09 43,60,70,067
2009-10 59,93,87,933
This ground of appeal is allowed for all years. "
21. Against the above deletion of addition, the Revenue is in appeal before us.
22. We have considered the rival submissions and have gone through the orders of the authorities below as well as submissions filed before the CIT(A) and Assessing Officer's comments thereon. We found that the assessee was having 45 % shares of RHPL in all the years under consideration. He held 51
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16.97 % shares of REEPL from assessment year 2004-05 to 2006-07 and 10.5 % from assessment year 2007-08 to 2009-
10. In terms of provisions of Section 2(32) a person can be treated as having substantial interest of the company if he holds 20 % shares or more. However, while reaching to the holding of 20 %, the Assessing Officer has clubbed the shares as held by the assessee's wife Smt. Sandhya Sahlot, which was 7.71 %. We found that Smt. Sandhya Sahlot was also assessed as an independent assessee with the same Assessing Officer, wherein her income was not clubbed u/s 68 with the income of the assessee. Smt. Sandhya Sahlot had her own independent source of income and she had purchased shares of REEPL by investing her own funds. We also found that salary income earned by Smt. Sandhya Sahlot as a Director of RHPL and REEPL and MBPL has been taxed in her hands. We also found that in the assessment order passed u/s 153A read with Section 153C in the case of Smt. Sandhya Sahlot on 30.10.2010, the Assessing Officer has assessed loan received by her from RHPL being deemed dividend u/s 2(22)(e). Thus, a contradictory view has been taken by the Assessing Officer in 52
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the two orders passed on the very same day. In respect of loan received from RHPL, the Assessing Officer has assessed the loan as deemed dividend in the hands of Smt. Sandhya Sahlot u/s 2(22)(e), which means the Assessing Officer has accepted that Smt. Sahlot is a bona fide holder of shares of RHPL. However, in case of her holdings in REEPL, the Assessing Officer has held that she is not true owner of its shares. It is not in dispute that Smt. Sandhya has purchased shares of RHPL and REEPL and MBPL from same source of income. While reaching to the conclusion that holdings of Smt. Sandhya Sahlot was not to be clubbed with the assessee, the CIT(A) has also examined the relevant provisions of corporate law and judicial precedence and have elaborately discussed at page 104 of the appellate order. As the shares held by Smt. Sehlot are for her own benefit, the same was wrongly clubbed by the Assessing Officer in the share holdings of the assessee. The ld. CIT(A) has also discussed the ratio laid down in the case of National Travels Services, 202 TAXMAN 327, held that same is not applicable to the assessee's case. Since the facts are substantially different, it was observed that the National 53
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Travels Services was a partnership firm does not have a legal existence separate to its partners, while the company has legal existence separate from its shareholder. The CIT(A) has also discussed ratio laid down by Hon'ble Supreme Court in the case of C. P. Sarthe Mudaliar, 83 ITR 170, and also decision of Hon'ble Delhi High Court in the case of Ankitech Private Limited, 199 Taxman 341, that for the purpose of Section 2 (22)(e), accordingly, it was held by the ld.CIT(A) that for the purpose of Section 2(22)(e), the shares held by Mr. and Mrs. Sahlot cannot be clubbed. The ld. CIT(A) has also considered the CBDT Circular No. 495 dated 23.9.1987 and reached to the conclusion that the Assessing Officer was not justified in clubbing the shares held by wife into the shares of the assessee. As the holding by the assessee was below 20 %, the ld. CIT(A) concluded that no addition can be made in the hands of the assessee in respect of loans given by RHPL to REEPL in the assessment year 2004-05 to 2009-10. We found that detailed finding recorded by the ld.CIT(A) with regard to holding of shares and independent status of Smt. Sandhya Sahlot are as per material on record and do not require any 54
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interference on our part. Accordingly, we do not find any infirmity in the order of CIT(A) for deleting the addition made in respect of payments made by RHPL to REEPL during the assessment years 2004-05 to 2009-10.
23. In the result, ground taken by the Revenue in all the years are dismissed.
24. The ld. Authorized Representative has also challenged addition made u/s 2(22)(e) while framing assessment u/s 153A on the plea that no incriminating material was found during course of search and that assessment for the assessment year 2003-04 to 2006-07 were not abating in the sense that either assessments were framed u/s 143(3)/143(1) or the time for issue of notice u/s 143(2) has expired. The ld. Authorized Representative further argued that in view of the fact that no incriminating material was found during the course of search and that assessment for assessment year 2003-04 to 2006-07, was not abating, no addition was warranted while framing assessment u/s 153A. For this purpose, reliance was placed on the decision of Mumbai I.T.A.T. in the case of Gurendra Singh Baba in I.T.A.No. 55
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2075/Mum/2010, order dated 16.11.2012, wherein the issue was exactly same i.e. addition on account of deemed dividend u/s 2(22)(e). It was observed by the Bench that under provisions of Section 153A, in all cases, where search is conducted u/s 132 of the Act, the Assessing Officer is empowered to assess or re-assess total income of six assessment years preceding the assessment year in which search was conducted. As no incriminating documents were found during search with regard to additions made u/s 2(22)(e) and the subject assessments were not pending the additions so, made were held to be not justified.
The precise observation of the Bench was as under :-
"6. We have perused the records and considered the rival contentions carefully. The dispute raised is regarding legal validity of addition made by AO under section 153A of the Act. Under the provisions of section 153A, in all cases, where search is conducted under section 132 of the Act, AO is empowered to assess or reassess total income of six assessment years preceding the assessment year in which search was conducted. The section also provides that assessment or reassessment relating to any assessment year falling within period of six assessment year if pending on the date of initiation of search 56
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shall abate. There have been divergent views regarding scope of application of section 153A in cases where no incriminating material was found indicating any undisclosed income. Some of the Tribunal Benches had taken the view that in case no incriminating material was found AO had no jurisdiction to make assessment or reassessment under section 153A while some other Benches held that jurisdiction under section 153A was automatic to reassess six immediate preceding assessment years irrespective of the fact whether any incriminating material was found or not. Another aspect on which there had been divergent views was whether even if AO had jurisdiction under section 153A, addition can be made in assessment/reassessment only when some incriminating material has been found. All these aspects had been referred to the Special Bench of the Tribunal in case of All Cargo Global Logistics Ltd. and order of Special Bench dated 6.7.2012 has been referred.
6.1 The Special bench in the case of All Cargo Global Logistics Ltd. (supra), has held that provisions of section 153A come into operation if a search or requisition is initiated after 31.5.2003 and on satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income for six years immediately preceding the year of search. The Special Bench further held that in case assessment has abated, the AO retains the original jurisdiction as well as 57
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jurisdiction under section 153A for which assessment shall be made for each assessment year separately. Thus in case where assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. But in other cases the Special Bench held that the assessment under section 153A can be made on the basis of incriminating material which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In the present case, the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) had expired on the date of search. Therefore, there was no assessment pending in this case and in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search. 6.2 In this case, the AO had made assessment on the information/material available in the return of income. The information regarding the gift was available in the return of income as capital account had been credited by the assessee by the amount of gift. Similar was the position in relation to addition under section 2(22)(e). The AO had not referred to any incriminating material found during the search based on which addition had been made. Therefore following the decision of the 58
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Special Bench (supra), we hold that the AO had no jurisdiction to make addition under section 153A. The addition made is therefore deleted on this legal ground."
25. Reliance was also placed on the decision in the case of Atithi & Patel, 43/Mum/2010 order dated 22.10.2012, wherein it was held that where assessment proceedings have already been completed and attained finality then there is no question of any abatement since no proceedings are pending. In the result, the assessment framed u/s 153A for assessment year 2004-05 was held to be beyond scope and purview of assessment u/s 153A.
26. Furthermore, reliance was placed on the decision of the I.T.A.T., Special Bench in the case of All Cargo Global Logistic Limited vs. DCIT order passed in I.T.A.Nos. 5108 to 5022 & 5059/ M/2010, vide order dated 6.7.2012, wherein the Special Bench has concluded the scope of assessment and abatement of assessment u/s 153A in the following manner :-
a) In assessments that are abated, the Assessing Officer retains the original jurisdiction as well 59
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as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately ;
b) In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or properly discovered in the course of search. ""
27. As per ld. Authorized Representative , in view of the above decision of Hon'ble Special Bench and other co- ordinate benches as discussed above, additions made u/s 2(22)(e) while framing assessment u/s 153A, was not justified in so far as no incriminating material was found during the course of search. Our attention was also invited to the copy of 60
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the panchnama placed at page 2(28) -2(29/Volume II of the paper book to indicate that no incriminating material was referred with respect to any contravention of Section 2(22)(e) of the Act.
28. We have considered the rival submissions and found from record that assessment for assessment year 2003-04 and 2004-05 was completed u/s 143(3). In respect of assessment year 2005-06, for which the return was filed on 31.3.2006, the same was processed u/s 143(1), the due date of notice u/s 143(2) was expired on 31.3.2007. Similarly for assessment year 2006-07, the return was filed on 24.1.2007. The same was processed u/s 143(1) and the time limit for issuance of notice u/s 143(2) expired on 31.1.2008. In this case, search was conducted on 30.5.2008. Thus, for the assessment year 2003-04 to 2006-07, it can be said that no assessments were pending, applying the proposition of law discussed hereinabove. However, with respect to no incriminating material found during course of search, the observation of the Assessing Officer was as under :- 61
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"It was found during the course of assessment proceedings the assessee has received loans and advances of various amounts from three Private Limited Companies, either in his individual capacity or as proprietor of his firms Raj Industries and Arun Sahlot & Associates. Further it was noticed that Raj Homes Private Limited ( RHPL) has been giving loans to various companies. It was found that the assessee was substantially interested both in the affairs of RHPL and these other companies which were the recipient of such loans. Further it was noticed that these loans were not for business purposes as the assessee, his firms and the companies in which he was substantially interested were also having business dealings with RHPL and were also outstanding in the column of sundry debtors. Hence, it was clearly seen that these loans were just transfer of funds."
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29. It is clear from the finding recorded by the Assessing Officer in his assessment order framed u/s 153A that the fact regarding assessee having received loans and advances from three companies, was found only during the course of assessment proceedings. Nowhere the Assessing Officer has referred any incriminating material found during the course of search so as to indicate that advance was given to the assessee in contravention of provisions of Section 2(22)(e).
However, we found that CIT(A) while dealing with this issue have noted that "the information that the assessee has not paid tax on deemed dividend taxable u/s 2(22)(e) came to the knowledge of the authorized officer during the course of search."
30. It is clear from the above that contradictory finding has been recorded by the CIT(A) with respect to information that assessee has not paid tax on deemed dividend taxable u/s 2(22)(e) came to the knowledge of authorized office during the course of search. However, the CIT(A) has not referred to any incriminating material indicating contravention of provisions of Section 2(22)(e) as found 63
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during the course of search. Even during the course of hearing before us, the ld. CIT DR did not refer to any incriminating material found during course of search to substantiate the observation of CIT(A). On the other hand, the ld. Authorized Representative has vehemently argued that as per the finding recorded by the Assessing Officer in the assessment order u/s 153A, the fact that advances having not been made for business purposes by the alleged company to the assessee came to the notice of Department only during the assessment and not during course of search.
31. In view of the above contradiction in the findings recorded by the Assessing Officer and CIT(A), the additions made u/s 2(22)(e) in the assessment years 2003-04 to 2006-07 are restored back to the file of Assessing Officer for deciding afresh this legal issue after giving clear finding with regard to incriminating documents, if any, found during the course of search indicting contravention of provisions of Section 2(22)(e) of the Act. The Assessing Officer is directed to decide the legal issue taking into 64
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considering the decision of Special Bench and the decision in the case of Gurinder Singh Baba (supra) as discussed above. We direct accordingly.
32. With regard to deemed dividend, the assessee asked the Assessing Officer to give very short time of one day only for further reply, which he did not provide and close the assessment proceedings. Therefore, the assessee furnished the following documents under Rule 46A before the CIT(A).
1. Copy of MOU between RHPL and MBPL, which are placed at page 1279 to 1280.
2. Copy of Resolution of Minal Builders, as placed at page 1281.
3. Resolution of Raj Homes as placed at page 1282.
4. Copy of ledger account in the books of Raj Homes which are placed at page 771 to 807 of paper book Volume V.
5. Copy of ledger account in the books of Minal Builders at page 902 to 941 - Volume V.
6. In respect of payment made by RHPL to Raj Industries, Copy of ledger account in the books of 65
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Raj Homes are placed at page 942 to 972 of Volume V.
7. In respect of payments made by RHPL to Arun Sahlot & Associates.
8. Copy of ledger accounts in the books of Raj Homes are placed at pages 1068, 1069 of Volume VI.
33. It was explained before the CIT(A) that the assessee was prevented by sufficient cause from producing these evidences before the Assessing Officer, therefore, the same should be entertained under Rule 46A, as additional evidence which goes to the root of the matter.
34. The Board's resolution dated 5th December, 2001, also bring these facts on record that M/s. Raj Homes Private Limited was in need of huge funds for implementing its various projects. This resolution also stipulates for providing personal guarantee of Shri Arun Sahlot subject to the condition that Shri Arun Sahlot, Director of the Company was suitably compensated for providing their personal guarantee for the loan so sanctioned by the financial institutions. This resolution also provided that these Directors should be allowed 66
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to withdraw funds up to Rs. 5 crores from the company as and when required. Thus, the commercial exigencies of the loan given by financial institution to M/s. Raj Homes Private Limited vis-à-vis loans advanced by the Raj Homes to Arun Sahlot is required to be seen in the perspective of these Board resolutions and various sanction letters issued by the Financial Institution. Accordingly, we direct the Assessing Officer to examine the Board Resolution and sanction letters of all these financial institution, who have sanctioned various amount of loans in favour of M/s. Raj Homes Pvt. Limited, who in turn given some loan to assessee Arun Sahlot and his other concerns. We direct accordingly.
35. During the course of hearing before us, the assessee has filed application under rule 29 with respect to addition made under the heading "Dividend" in respect of payment by RHPL to Arun Sahlot & Associates, proprietor Arun Sahlot and payment by RHPL to Raj Industries, Proprietor Arun Sahlot. It was submitted by the ld. Authorized Representative that these documents go to the root of the issue, which comprises of copy of resolution in RHPL and copy of sanction letter of the 67
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Bank/Financial institution. As per ld. Authorized Representative, all the sanction letters of Banks and financial institutions are much prior to the date of search and the same goes to the root of the issue to explain the commercial expediency of giving advances by these companies to assessee Arun Sahlot. It was further submitted that all these evidences go to the root of the matter and are relevant material for adjudication of the issue of deemed dividend. As per ld. Authorized Representative , arguments taken before the Assessing Officer and CIT(A) were based on these evidences available with the assessee, but filed now only, are in support of the same. In respect of Board Resolution, it was submitted that these are permanent records to be maintained and kept by the company without which it cannot function. Since the issue of deemed dividend is a legal issue and the relevant facts are already on record, in the substantial interest of justice, these additional evidences should be accepted. In support of its contention the ld. Authorized Representative relied on the decision of Jurisdictional High Court in the case of Govind Bhai reported in 232 ITR 900, and Ku. Satya Sethia, reported 68
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in 143 ITR 486. Reliance was also placed on the decision of Coordinate Bench in the case of V.K. Brahmankar, 1 ITJ 176, and Bridge Stone, 14 ITJ 663.
36. We have considered the rival submissions. We had also gone through the additional evidences filed by the assessee under rule 29. We have appreciated the additional evidence in the light of the judicial pronouncement cited by the ld. Authorized Representative and found that the copy of sanction letters issued by the Bank and financial institutions stipulated the condition of giving not only personal guaranteed by the assessee for sanction of loan to the respective company from whom the assessee was in receipt of advance and which has been treated by the Assessing Officer as deemed dividend u/s 2(22)(e). These loans sanction letters also stipulate the conditions of equitable mortgage of personal property of Arun Sahlot as a security of advance made to the company from whom the assessee was in receipt of alleged loan. All these sanction letters are dated much prior to the date of search and issued by the financial institutions/bank under direct control of Reserve Bank of India. Similarly, the board's resolution filed 69
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by the assessee indicate that Directors have agreed for personal guarantee to be provided to Bank in respect of loans given by these Banks on the condition that directors of the company will be suitably compensated for providing their personal guarantee for the loan amount which may go up to the Rs. 100 - 120 crores in future. It was condition of these Directors that each and everyone should be allowed to withdraw amount at one time or at part up to Rs. 5 crores from the company as and when required. These terms and conditions were deliberated at length in the Board meeting and in view of the business needs of the company, it was decided that the company should agree for the same. Board's resolution is dated 5.12.2001. These resolutions constitute permanent record to be maintained and kept by the company, without which it cannot function. Thus, this evidence also goes to the root of the issue for justifying the action of these companies for advancement loan to the assessee Shri Arun Sahlot, who is Director in these companies while deciding the addition made in terms of Section 2(22)(e). Since the loans were given by the financial institutions to RHPL not only on 70
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the personal guarantee of Shri Arun Sahlot but also on the condition of providing equitable mortgage of his personal property to be mortgaged to the bank for such loan, while deciding the nature of transaction of loans by the company RHPL to Arun Sahlot, these documents are required to be considered. In the fitness of things, we accept these additional evidences and direct the Assessing Officer to examine these documents while deciding afresh the nature of advance given by these companies to the assessee vis-à-vis conditions subject of which loans and advances have been given by bank/financial institution to these companies with respect to the addition made by Assessing Officer, u/s 2(22)(e) of the Act. We direct accordingly.
37. Alongwith the application under rule 29, the assessee has also filed an affidavit.
38. While verifying the additional documents in the form of sanction letter issued by State Bank of Indore dated 27.9.2005, we found that Bank has sanctioned a loan of Rs. 5 crores to M/s. Raj Homes Private Limited. Loan was sanctioned subject to mortgage of various properties including 71
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House No. E-3/10A, in the name of Arun Sahlot, Director of Raj Homes Private Limited House No. E-3/10-C, in the name of Arun Sahlot. In addition to the above collateral securities, the Bank have also insisted for guarantee of Arun Sahlot. Accordingly, the loan was sanctioned in favour of Raj Homes Private Limited only after collateral securities of Directors' personal property was given alongwith personal guarantee of Shri Arun Sahlot. Similarly, loan sanction letter issued by HDFC dated 12th September 2005, wherein loan of Rs. 13 crores was sanctioned in favour of Raj Homes Private Limited. This loan sanction letter is also subject to providing personal guarantee of Shri Arun Sahlot. Loan sanction letter is issued by HDFC dated 20th October, 2006, for sanction of loan of Rs. 25 crores in favour of Raj Homes Pvt. Limited also stipulated personal of Shri Arun Sahlot. M/s. Raj Homes Private Limited also have also sanctioned a loan of Rs. 8 crores by HDFC vide its sanction dated 7th October, 2004, wherein personal guarantee of Arun Sahlot was made as a condition prior to the disbursement of loan. A further loan of Rs. 40 crores was also sanctioned by HDFC in favour of Raj Homes Private Limited 72
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vide its sanction dated 16th July, 2007, wherein personal guarantee of Arun Sahlot was sought for. Further term loan of Rs. 24 crores and Bank guarantee of Rs. 2 crores were sanctioned by State Bank of Indore, T.T.Nagar, Bhopal, in favour of M/s. Raj Homes Private Limited vide sanction letter dated 15.2.2006, wherein in addition to mortgage of personal property of Arun Sahlot, personal guarantee of Shri Arun Sahlot was also insisted. Bank of Baroda vide its sanction letter dated 1.5.2006 have also sanctioned a loan of Rs. 25 crores in favour of Raj Homes Pvt.Limited on the personal guarantee of Arun Sahlot. A further loan of Rs. 30 crores was also sanctioned by Bank of Baroda in favour of Raj Homes Pvt.Limited, vide sanction letter dated 11.10.2007, wherein personal guarantee of Arun Sahlot was insisted.
39. All the above sanction letters clearly stipulate the terms and conditions of sanction and the purpose for which loan was sanctioned in favour of Raj Homes Private Limited. As per the sanction letter, a loan has been sanctioned for the various projects undertaken by M/s. Raj Homes Pvt.Limited, which is the main business of it. For completing these projects the 73
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company was in need of funds and the funds were provided by various scheduled bank and term lending institution. As the loans were advanced to Raj Homes Private Limited, on the equitable mortgage of personal property of Arun Sahlot alongwith his personal guarantee, the nature of advance given to Raj Homes Pvt.Limited to Arun Sahlot indicate that in consideration of providing personal guarantee and equitable mortgage of personal property of assessee. Arun Sehlot to the Bank, these companies have advanced some loan to assessee, which in terms of decisions of the business purpose.
40. It was argued by the ld. Authorized Representative that business expediency to advance given to assessee by the company is required to be examined before invoking deeming provisions of Section 2(22)(e) of the Income-tax Act, 1961. It was further submitted that since the advances to the assessee's director was given by the company in which he was having substantial interest, in terms of the Board's resolution and which is further supported by the stipulations given in the bank sanction letter, it was clear that loan was not given to assessee director as a gratuitous but only as a business 74
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commitment to honour the terms and conditions of Board's resolution and loan sanction letter in which it was insisted by Bank before granting loan that assessee will furnish personal guarantee and provide his personal property as equitable mortgage with bank. Our attentions were also invited to the condition imposed by the Bank/financial institution in their loan sanction letter, which clearly provided that loans are sanctioned subject to the personal guarantee of Shri Arun Sahlot and also on some occasions, equitable mortgage of personal property of Shri Arun Sahlot. When the Bank/financial institutions were granting loan on such condition, necessary Board resolution was passed to give effect to the same, wherein it was provided that Director, Shri Arun Sahlot should be allowed to withdraw funds up to Rs. 5 crores from the Company as and when required. Reliance was also placed on the decision of Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra vs. CIT, (2011) 338 ITR 538 (Cal), wherein it was held that loans or advances were given to its shareholders as a consequence of further consideration and or in return to advantage received from shareholders, which is 75
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beneficial to the company and where shareholders had permitted his property to be mortgaged to the Bank enabling it to obtain loan, the loans so received by shareholders from the company will not be hit by the deeming provisions of Section 2(22)(e). If we apply the proposition of law to the facts of the case, we found that M/s. Raj Homes Private Limited had been advanced loan by various Banks/financial institution, as discussed above, on the condition of providing personal guarantee of Shri Arun Sahlot and also mortgage of personal property of Shri Arun Sahlot. The Board's resolution also provided that Shri Arun Sahlot, Director of the company should be suitably compensated for providing their personal guarantee for loans so sanctioned by the financial institution. The resolution also provided that in lieu of providing such bank guarantee, the Director will be allowed to withdraw funds up to Rs. 5 crores from the company as and when required. Thus, the advance given by Raj Homes Private Limited to Shri Arun Sahlot and the concerns controlled by Arun Sahlot cannot be termed as a gratuitous payment but was a payment 76
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under commercial consideration, which does not come within the mischief of deemed dividend u/s 2(22)(e) of the Act.
41. Reliance was also placed on the decision of Coordinate Bench in the case of Shri Vaidya, I.T.A.No. 1270/Mad/2011, order dated 28th June, 2012, wherein it was held that shareholders offering personal bank guarantee and collateral securities for loan for the benefit of company was out of business expediency. Hence, any finance or loan given by the company to the shareholder, will not be hit by deeming provisions of Section 2(22)(e). Reliance was also placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. Creative Dyeing and Printing P.Ltd., (2009) 318 ITR 476 (Del), wherein it was held that amount paid for genuine purpose of business or for protecting business or in view of commercial expediency are outside the purview of Section 2(22)(e). It was further submitted that against this order of Delhi High Court, Revenue approached to the Hon'ble Supreme Court through SLP and the Hon'ble Supreme Court has rejected the SLP filed by the Department and the same had been reported at (Statute)(2010)328 ITR (ST) 10.
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42. In our considered view before bringing any loans or advances within the meaning of Section 2(22)(e), the nature of transaction is to be examined in the light of any benefit received by the company in consideration of loans so advanced and which the Assessing Officer wanted to bring within the mischief of Section 2(22)(e). If it is found that an advance by company had been given to fulfill some commercial obligation casted on it as per the Board's resolution and also in terms of the loan sanction letter through which companies are in receipt of loans from bank/financial institution, the loans so advanced to shareholder can not be brought in mischief of Section 2(22)(e) in terms of judicial pronouncements discussed above. When the companies are in receipt of loan from Bank, on the condition of providing personal guarantee by the Director or collateral securities of personal property of Director and a Board's resolution is passed for making the Director agreeing to provide his personal guarantee etc. and in consideration of it the Director who is also shareholder of company is allowed to withdraw fund form the company, to that extent, the advance given by the Company cannot be 78
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treated as deemed dividend within the meaning of Section 2(22)(e), in terms of judicial pronouncements discussed above.
43. To substantiate, the nature of advance given by the company to Shri Arun Sahlot, the ld. Authorized Representative invited our attention to the copy of the purchase deed of land of MBPL, where shopping complex is situated, which are placed at page 760 to 768/ Vol. V of the paper book. Our attention was also invited to copy of MOU between RHPL and MBPL, which are placed at page 769 to 770 of the Vol. V of the paper book, copy of ledger account of RHPL to MBPL placed at page 771 to 807 of the Vol. V of the paper book. Our attention was also invited to copy of ledger account of financial year 2006-07, showing sale of two floors to RHPL which are placed at page 7899, Vol. V of paper book. Attention was also invited to relevant year's schedule of balance sheet of RHPL and MBPL to indicate the advance given by these companies to Arun Sahlot. Attention was also invited to Board's resolution dated 15.5.2004, passed by MBPL, wherein approval of MOU with Raj Homes Private Limited was taken on record and it was resolved that MOU agreement between Raj 79
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Homes Pvt. Limited for construction of shopping complex in Minal Residency at Village Narela Sankaria, J.K. Road, Bhopal, was to be undertake. Board's resolution passed by Raj Homes Pvt. Ltd. dated 15.5.2004 was also placed on page 905 Vol. V of paper book, which evidenced MOU agreement between the Company and Minal Builders Private Limited, for construction of shopping complex in Minal Residency. Board's resolution of the same dated was also placed at page 906/Vol. V of paper book, wherein it was resolved that Minal Builders private Limited is having around 2 acres of land in the middle of the city which is very suitable for the purpose of developing shopping complex. As the Minal Builders does not have financial resources to start such projects, therefore, approached to Raj Homes Private Limited for financial supports. Attention was also invited to the ledger account in the books of MBPL, indicating implementation of the Board resolution for advancing loan. We found that some of these documents were filed under Rule 46A, which requires the Assessing Officer's attention and deliberation. While deciding 80
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issue on deemed dividend, the Assessing Officer is directed to examine all the documents discussed hereinabove. The Hon'ble Calcutta High Court in the case of Pradip Kumar Malhotra vs. CIT, (2011) 338 ITR 538 (Cal), held that loan advanced by the company to a shareholder, where shareholders had permitted company to mortgage his immovable property for enabling the company to secure bank loan. The same did not amount to dividend within the meaning of Section 2(22)(e) and that only gratuitous loan advanced by the company to shareholders can be treated as deemed dividend u/s 2(22)(e). It was observed that gratuitous loan or advance is not given in return of an advantage conferred upon the company by such shareholder. Applying the proposition of law to the stated facts, we found that advances have been given by the company to Arun Sahlot in consideration of agreeing to give personal guarantee to the Bank and to mortgage his personal property to the Bank as a condition for providing loan to the company. Thus, the loan so given to Arun Sahlot was not in the nature of gratuitous loan but was 81
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a business transaction, not coming within the purview of Section 2(22)(e). A.O. is directed to examine this aspect also while deciding afresh the addition made u/s 2(22)(e).
44. From the record, it appears that the Assessing Officer has made cumulative addition u/s 2(22)(e) of the Income-tax Act, 1961, without reducing addition made on account of deemed dividend in earlier years. The Assessing Officer has made addition on account of deemed dividend in excess of accumulated profits in RHPL, which is in violation of provisions of Section 2(22)(e). It appears that the Assessing Officer has not reduced deemed dividend assessed in the hands of assessee shareholder in past assessment year from the surplus while determining the accumulated profit in the hands of company in the next year. However, while deciding the issue afresh as directed above, the Assessing Officer should take this in to account. We direct accordingly.
44. With respect to advance given by RHPL to M/s. Raj Industries, we found that Raj Industries is in the business of manufacturing of holo blocks, paving blocks, solid blocks, grave stone, channels etc. It mainly does manufacturing all these items on job work basis for Raj Homes, which is clear 82
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from the copy of ledger account placed at pages 942 to 972 of the paper book. Raw materials for these items is provided by Raj Homes. Raj Homes is a builder and developer of houses and required these items on large scale for its housing project on regular basis. However, direct purchases of these items from other suppliers would have been of much higher rates as the other supplier would have added his margins on supply which was saved by Raj Homes to have un-interrupted and regular supply of these blocks on large scale basis for its construction activities, which was catered by Raj homes only. Thus, the impugned payment by RHPL to Raj Industries cannot be treated as deemed dividend without considering the business necessities discussed hereinabove. In so far as these amounts were given by RHPL to assessee for business purposes, which were to be adjusted against future supplies of these items, while deciding the issue afresh, the Assessing Officer should consider these observations. We direct accordingly.
45. In view of the above, the matter is restored to the file of Assessing Officer in respect of grounds raised by the assessee 83
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for the additions made u/s 2(22)(e) in all the years under consideration for examination and for deciding afresh, keeping in view the observations made herein above.
46. Thus, the matter with regard to the addition made on account of deemed dividend is to be decided afresh after taking into account additional documents accepted by us under Rule 29 as discussed hereinabove.
47. Without prejudice to the above, in view of the finding given by us at para 22, we confirm the order of CIT(A) for deleting the addition on account of deemed dividend.
48. Grievance of the assessee also relates to addition made on account of investment made in purchase of house no.
HIG 38, Old Subhash Nagar, Bhopal.
49. With regard to addition made in respect of House at HIG-38, old Subhash Nagar, Bhopal, we found that DVO has valued cost of renovation at Rs. 6,55,630/- as against Rs. 6,72,900/-, out of which M/s. Raj Homes have incurred/ made payment of Rs. 5,42,500/- and the assessee has incurred Rs. 1,30,400/- for bath tub. It was contended by the ld. Authorized Representative that DVO has made calculation 84
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as per CPWD rate as against State P.W.D. rates and no credit for self supervision @ 7.5 % was given. As per ld. Authorized Representative, in view of the fact that the assessee was in the business of construction, credit for self purchases and self supervision should have been allowed at least @ 20 % on the entire cost of material and labour payments.
50. Rival contentions have been heard and records perused. An addition of Rs. 13,85,500/- was made by the Assessing Officer in assessment year 2003-04 by observing that the assessee could not explain the source of payment for purchase of the house. Contention of assessee was that payment for purchase of house was made by Shri Arun Sahlot and Associates during the financial year 2001-02 and in support of this assessee has submitted copy of ledger account. In this account. It is shown that payment of Rs. 1,50,000/- was made by Raj Homes on assessee's behalf. This account shows advance payment to Shri Prabhakar Dwivedi. As per the details filed before the lower authorities payment of Rs. 13,58,500/- was made in the financial year 2001-02 relevant to assessment year 2002-03. Further, the expenditure of Rs. 85
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1,30,400/- was incurred for bath tub and Rs. 27,000/- on account of registration charges in the assessment year 2003-
04. Thus, as per the assessee, total investment of Rs.
15,15,900/- was made. The assessee has also filed copy of ledger account in the books of Arun Sahlot & Associates indicating date-wise payment made between 1.4.2001 to 31.3.2002. As per the ledger account as placed at page 1148, various payments were made to Shri Prabhakar Dwivedi vide cheque no. 228238 dated 7.4.2001 of Rs. 1.50 lakhs, cheque no. 228000 dated 1.5.2001 of Rs. 1.50 lakhs and cheque no. 22833 dated 1.6.2001 of Rs. 1.50 lakhs. We found that other payments were also made by account payee cheques to Shri Dwivedi. Total payment of Rs. 13,08,500/- was made during this period and all these were reflected in the books of Arun Sahlot and Associates. Similarly, we found at page 150, payments were shown as having been made for bath tub as well as for registration charges. In the matter of addition made on account of investment in house No. HIG 38, Old Subhash Nagar in the assessment year 2003-04, the assessee has filed additional evidence under rule 29. This additional evidence is 86
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in the form of letter of Housing Board regarding transfer of house from Prabhakar Dwivedi to the assessee and also agreement with Prabhakar Dwivedi for purchase of house. This agreement was done with Mr. Prabhakar Dwivedi for purchase of house, which was part of registration done with the Housing Board but it remained to be attached with the Deed filed with the Department that is why no sale value was given in the registration done by the Housing Board. As the relevant facts are available on record and do not require any investigation, in the substantial interest of justice, we accept these additional evidences and direct the Assessing Officer to examine these evidences while deciding afresh the issue with regard to the addition made in the assessment year 2003-04 in respect of house HIG 38, Old Subhash Nagar.]
51. In view of the above, the matter is restored back to the file of Assessing Officer for deciding afresh after examining the ledger account indicating respective payments having been made through account payee cheque and the additional evidences filed under rule 29 as discussed hereinabove. Thus, conclusions drawn by the Assessing Officer to the effect that 87
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sourced of payment has not been explained is not justified. A.O. is directed to decide the issue afresh in terms of our above observations.
52. In the assessment year 2009-10, Revenue is aggrieved by the decision of CIT(A) for deleting addition Rs. 15,350/- made by Assessing Officer on account of cash found during course of search and jewellery of Rs. 1,71,740/- found during course of search. The facts of the issue in brief are that cash amounting to Rs. 15,350/- and jewellery valued at Rs. 1,71,740/- was found during the course of search at the residence of the assessee. Assessing Officer treated the same as unexplained and made addition of Rs. 1,87,090/-. The Assessing Officer made substantive addition in the hands of Shri Arun Sahlot and protective addition in the hands of his wife, Smt. Sandhya Sahlot.
53. By the impugned order, the ld. CIT(A) deleted the addition after having the following observations :-
" On examination it is found that during the course of search at the residence of the appellant gold ornaments weighing 369.770 gms. Only were found. 88
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Both the appellant and his spouse are Directors of M/s. Raj Homes Pvt. Ltd. and other group companies. Arun Sahlot had total returned income of Rs. 81,13,801/- during assessment year 2003-04 to 2008-09 and Smt. Sandhya Sahlot had total returned income of Rs. 4227626/- during assessment year 2003-04 to 2008-09. The appellant's family comprises of his wife and children. The quantum of gold jewellery and silver items are reasonable in view of the socio-economic stature of the appellant. The quantum of jewellery is within the limit prescribe din CBDT's circular No. 1916. In view of the above, it is held that the source of gold ornament is explained hence addition of Rs. 171740/- on this account is deleted. During the course of search, cash totaling to Rs. 15,350/- only were found. The quantum of the cash found in the search is reasonable in view of socio-economic stature of the appellant and his family hence no addition on this account is justified. In view of the above, addition of Rs. 15,350/- on account of 89
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cash found during search also is deleted. In view of the above, impugned addition of Rs. 1,87,090/- is deleted. This ground of appeal is allowed. "
54. The facts of the issue in brief are that jewellery weighing 125.300 gms. Was found in Locker No.309 of Bank of Baroda, Habibgang and jewellery weighing 369.77 gms. was found at the residence of the assessee. The Assessing Officer held that source of al jewellery found was unexplained and made addition of Rs. 1,71,740/-. During the course of search cash totaling to Rs. 15,350/- was found. The Assessing Officer treated the same as unexplained and made addition of Rs. 15,350/-. The Assessing Officer made substantive additions in hands of Shri Arun Sahlot and protective addition in hands of his wife, Smt. Sandhya Sahlot.
55. We have considered the rival contentions and found that cash of Rs. 15,350/- found that the assessee was duly explained and the same was very reasonable in view of various incomes shown by the assessee in his return of income in the past. Similarly, jewellery of Rs. 1,712,740/- was deleted by the ld.CIT(A) in terms of CBDT circular No.1916. The ld. CIT(A) 90
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also recorded a finding to the effect that gold ornaments found was explained, accordingly, no addition is required. There is no infirmity in the order of CIT(A) on the issue, accordingly, we confirm the action of CIT(A) for the same.
56. The assessee is also aggrieved for addition made in respect of House No. E-3/10, Arera Colony, Bhopal, during the assessment year 2003-04 to 2006-07.
57. Rival contentions have been heard and records perused. In the order framed u/s 153A, the Assessing Officer observed that House No.E-3/10, Arera Colony, Bhopal, is in the name of Arun Sahlot, but is owned by company Raj Homes Private Limited and Minal Builders Private Limited. Contention of assessee was that entire investment in the house was made by M/s. Raj Homes Private Limited and Minal Builders. However, the Assessing Officer did not accept assessee's plea and added the entire amount assessed by the DVO in the hands of the assessee by observing that the purchase deed of this house was in favour of assessee Shri Arun Sahlot. By the impugned order, the CIT(A) deleted the addition in the hands of assessee by observing that subject property belongs to M/s. Raj Homes 91
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Private Limited and Minal Builders Private Limited and hence investment for this property for purchase, construction, improvement etc. is to be investigated in the case of the two companies. As per the finding recorded by the ld.CIT(A) vis-à- vis documents placed on record, it is clear that entire investment in this house came out of the books of M/s. Raj Homes Private Limited and Minal Builders Private Limited. Accordingly, the direction issued by the ld.CIT(A) for examining the source of investment in the hands of these two companies are fully justified and no interference is required therein.
58. Similarly, addition made on account of unexplained investment in House No. A-1304, Vinayaka Hiranandani Complex, Mumbai, amounting to Rs. 49,51,800/- in the assessment year 2005-06 was deleted by the ld.CIT(A) in the hands of the assessee by observing as under :-
" 7.3 I have examined the issue. It is found that the subject property belongs to M/s. Raj Homes Pvt. Ltd hence investment for this property for purchase, construction, improvement etc. is to be investigated in the case of the 92
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company. The assessment of RHPL u/s 153A for assessment year 2004-05 is pending disposal. Presently the company is assessed with the A.O. of the appellant. In case of any change of incumbent the A.O. should inform the A.O. of the limited company to investigate the issue of cost of purchase, construction and improvement etc. in hands of the company and make additions in hands of the company on account of unexplained investment as determined in the case of company. The DVOs report should also be forwarded to the A.O. of the companies. A note regarding this direction should be placed in the records of the company pending disposal. Since the subject property belongs to M/s. Raj Homes Pvt. Ltd, and it does not belong to the appellant addition of Rs. 4951800/- is deleted. This ground of appeal is allowed."
59. It is clear from the above findings of CIT(A) that property belongs to M/s. Raj Homes Private Limited, hence investment for this property is required to be examined in the hands of the said company and no addition is warranted in the hands of 93
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the assessee in his individual capacity. No interference is required in this order of CIT(A).
60. In the assessment year 2004-05, the assessee is aggrieved for addition made on account of contract receipt. Contention of assessee before the lower authorities was that only 8 % of contract receipt should be taxed on presumptive basis. As nothing was filed before the lower authorities to substantiate the nature of contract receipt, the entire amount was added by the Assessing Officer. Nothing could be produced before us to conclude that alleged amount was actually on account of some work undertaken by the assessee, therefore, we do not find any reason to interfere in the order of lower authorities for treating the entire contract receipt as assessee's income from other sources.
61. An addition of Rs. 1,00,02,000/- was made on account of alleged unexplained expenditure on marriage of niece Alka Mehta. The CIT(A) found that expenditure was incurred by father of assessee Shri Surendra Mehta, accordingly, expenditure so incurred and their source was examined in the hands of Surendra Mehta and part of the addition was 94
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retained in the hands of Shri Surendra Mehta on substantive basis. Accordingly, the addition made in the hands of the assessee was deleted by CIT(A). Tribunal in its order dated 22nd March, 2013, has dealt with the issue while disposing the appeal of Shri Surendra Mehta, wherein part of the addition made by the Assessing Officer were sustained in the hands of Surendra Mehta, father of Alka Mehta. As nothing was found during the course of search to indicate expenditure was incurred on marriage by the assessee. Accordingly, we do not find any infirmity in the order of CIT(A) for deleting addition made in the hands of the assessee.
62. In the assessment year 2004-05, an addition of Rs. 6,07,82,700/- was made on account of alleged unexplained expenditure as mentioned in diary BS-3 found and seized from residential premises at HIG 38, Old Subhash Nagar, Bhopal. Relevant observations of lower authorities were as under :
9.1 The facts of the issue in brief arc that during the course of search some seized materials were found in which the appellant has written the details of payments made to various persons on various dates. The A..O. held that the 95
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expenditure described in the seized documents were unexplained expenditure hence he made addition of Rs. 60782700/-.
"9.2 The A.O.s finding on the issue is reproduced below:
(a) Diary found at HIG-38, Inventorised as BS-3 : Search operation was conducted on 30-5-2008 at Residential Premises of Shri Arun Sahlot, HIG-38, Old Subhash Nagar, Bhopal. During the time of search one Mr. Kamlesh Harode S/o Mr. Mohanlal Harode was present.
When asked about his occupation Mr. Kamlesh mentioned that he was employed with "Minal residency " of Raj Homes pvt. Ltd. as a supervisor since May 2005, earning salary income of Rs. 3500/- p.m. He mentioned that he was living in this house since 2006 as a caretaker. He was occupying one of the rooms of the house. He mentioned in his statement recorded during the time of search the t the name board outside the house mentioned the owner of the house as Mr. Arun 96
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Sahlot. He specifically mentioned in his statement that Mr. Surendra Mehta or anyone by the surname Mehta does not live in this house and he has never seen Mr. Surendra Mehta. He also mentioned that Mr. Arun Sahlot presently resides in Arera colony. "
During the course of search, statement of Mr. Kamlesh was recorded on 30//05/2008 and he was asked the Q.8 about the ownership of the diary. In his reply he mentioned that the diary did not belong to him, he does not know who it belongs to and that the diary was kept In one of the peti (box) which have been here since he started living here. He mentioned that he does not know about the diary and when asked about the various entries in the diary in Q.9 he said that he has no knowledge of the diary and hence he cannot give any information about the various entries This clearly establishes that though the diary was found in Mr. Kamlesh's presence it does not belong to him. " 97
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63. During the course of assessment u/s 153A, questionnaire was also issued to the assessee to show the source of such payment as mentioned in the diary. As per Assessing Officer, the assessee could not substantiate the source of expenditure so mentioned in the diary. Accordingly, the entire amount was added in the assessee's income. By the impugned order, the ld. CIT(A) confirmed the action of the Assessing Officer.
64. Before us, the contention of ld. Authorized Representative was that all such entries are either appointments, agenda, payments made, or received that day, reminder of such matters. Our attention was also drawn to the photocopies of the diary, which was incorporated by the Assessing Officer and the CIT(A) in the respective orders to indicate that most of the pages of the diary were already cut and it was a dump documents, out of which nothing can be worked out to show that the assessee has made any unaccounted payment. It was further submitted that the Assessing Officer has not brought any corroborative material on record to indicate that such payments were actually made by the assessee. 98
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65. Before the CIT(A), the contention of the assessee was as under :-
"9.3 Before me the following submissions are made:
(i) The assessee is managing director of Raj Homes Pvt.Ltd. (RHPL), which deals in the business of property development and real estate. He is also Director of Raj Events and Entertainment Pvt.Ltd.(REEPL), which in the business of cable TV distribution and publishing a Hindi daily. REEPL was started only in the F.Y.2003-04.
(ii) The impugned diaries contained various reminders, appointments, rough notings/jottings in respect of proposals, plannings, projections, business targets of advertisement given to persons for new business of cable TV distribution, general property related discussions, what he intends to get done/or to do and what he intends to look into, which any businessman in normal course would make note of. It had nothing to do with actual transactions.
(iii) Assessee filed explanation before Assessing Officer 99
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denying his allegations.
(iv) Assessee further filed an affidavit on oath solemnly affirming the facts and denying the allegations of Assessing Officer.
(v) Without disproving the same, the Assessing Officer made additions on pure surmises and conjectures without bringing any corroborative evidence on record."
66. However, the ld. CIT(A) did not agree with the assessee's submission and confirmed the action of the Assessing Officer.
67. Rival contentions have been heard and records perused. Both the lower authorities have recorded detailed finding with regard to various payments, which were found to be recorded in the diary found and seized from residential premises of the HIG 38, Old Subhash Nagar, Bhopal. The Assessing Officer has dealt with each and every payment made. The diary was written by the assessee and found at his residence. As the assessee could not substantiate the source of payment, the Assessing Officer has made addition under the head "Unexplained expenditure". In principle, we are in agreement with the observation of the lower authorities to the effect that such unexplained expenditure is to be added in the assessee's income. However, during the course of hearing, the ld. Authorized 100
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Representative has drawn our attention to some of the entries, wherein repetitive addition had been made. He also contended that some of the expenditure as found noted by the Assessing Officer in the diary were already recorded in the regular books of account, therefore, no addition is warranted with respect to such expenditure which found placed in the regular books. As per the ld. Authorized Representative , the assessee should be given due benefit of cash available with him for explaining the source of fund in respect of expenditure found noted in the seized diary. Our attention was invited to cash flow statement filed before the Assessing Officer to substantiate the cash deposits in bank account wherein assessee was having surplus cash in hand. Keeping in view all these facts, to a limited extent to verify repetitive nature of entry and the expenditure which was found in the diary also found recorded in the regular books of account and the surplus cash found available with assessee, we restore the matter to the file of Assessing Officer. Accordingly, the Assessing Officer is directed to verify and decide such addition after giving due opportunity to the assessee. We direct accordingly.
68. The assessee is also aggrieved by addition of Rs. 2 lakhs made on account of alleged unexplained expenditure in diary A-3, in 101
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the assessment year 2009-10. The facts of the issue in brief are that during the course of search diary was found at appellant's residence at E-3/10, Arera Colony, Bhopal, which is seized as Annexure A-3 in which the appellant has written the details of payments of Rs. 200000/-. The A.O. held that the expenditure described in the seized diary was unexplained expenditure hence he made addition of Rs. 200000/-.
69. By the impugned order, the ld. CIT(A) confirmed the action of the Assessing Officer after having the following observations :-
"9.4 I have examined the issue. It is found that the entries in the diary are written by the appellant in his own handwriting. The entries in the diary clearly show that the payments are made in lakhs. The decoding done by the A.O. is valid. Entry on serial no. 21 of diary seized at appellant's house at HIG 38, Old Subhash Nagar, Bhopal, shows payment of Rs. 4.5 L for purchase of Opel Car at Rs. 4500000/-. This shows that L means Lakh. The diary seized at E3/10, Arera Colony, Bhopal is also written by the appellant and the amount is written as 1 L. This shows that the amount written in this diary also are written in lakhs. The entries in the diaries are self speaking. They are evidently entries of expenditure. The expenditure entered in the diary are not accounted. In these circumstances the appellant's admission in affidavit is nothing more than a self serving document created by him and is not a reliable evidence. Since the entries in diary are self speaking evidence of unaccounted expenditure, the examination of recipient u/s 131 is not warranted. The appellant's plea that the additions are made for repetitive entries cannot be admitted since the appellant has not given any specific information as to which payment made on earlier date is repeated on a later date or which payment mentioned at one 102
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page is repeated on another page. The appellant has not admitted the facts of payment as appearing in the diary , hence the working of repetitive addition is not possible. There is no infirmity in the working of unaccounted expenditure done by the A.O. In fact no such infirmity is specifically pointed except saying that A.O.s approach is casual. In view of the above it is held that the impugned addition of Rs. 200000/- is valid hence the same is confirmed. "
70. Rival contentions have been heard and records perused. We found that entries were found to the effect that payments were made for purchase of Open Car. The entry was done in the handwriting of the assessee. After giving due opportunity, the Assessing Officer made addition with regard to the payment so made and the same was confirmed by the ld.CIT(A). Nothing was brought to our notice by ld. Authorized Representative to persuade us to deviate from the finding recorded by the lower authorities, accordingly, no interference is required in the orders of lower authorities for making/sustaining addition in respect of expenditure found in the diary A-3 found at E-3/10, Arera Colony, Bhopal, which was seized as Annexure A.3.
The Assessing Officer has also made addition in the year 2003-04 to 2008-09 with respect to cash deposited in the bank account. By the impugned order, the CIT(A), deleted the 103
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additions in the assessment years 2003-04, 2004-05 and 2006-07. However, part of the addition was retained in the assessment year 2005-06, 2007-08 and 2008-09. The precise observation of CIT(A) was as under :-
"7.4 I have examined the matter. The additional evidences submitted before me not considered for deciding the issue due to the reason given above. The facts or the cash deposit made in various bank accounts were deposit during the course or search hence the appellants pled that the impugned addition is not based on any material found during the course of search is not valid. During the hearing I have examined the source of all deposits both above Rs. 50000/- and below Rs. 50000/-. Before the Assessing Officer the appellant has claimed that the cash deposits made in these bank accounts were out of agriculture income and contract receipt. In this appeal order the additions on account or agriculture income and contract receipt have been 104
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confirmed, In the appellants case the ratio laid in ACIT Vs. Kulwant Singh and others IT(SS) 57 to 63/Ind/2008 (Indore ITAT) is directly applicable. The unaccounted income claimed as agriculture income and contract receipt have been brought to tax hence taxing the cash deposited in the bank to the extent or additions confirmed will amount to double addition. In view of the above, It is held that the addition made on account of cash deposits made in bank account is to be reduced by the additions confirmed on account or claim or agriculture income and contract receipt. The amount or addition for various years is reduced as under :
A.Y. Addition on Amount of Amount of
account of Addition confirmed
Cash deposit confirmed on addition on
account of account of
agricultural cash deposit in
income and bank
contract receipt
2003-04 5,50,000 5,59,383 Nil
2004-05 4,00,000 8,02,100 Nil
2005-06 7,00,000 5,22,237 1,77,763
2006-07 1,19,400 7,38,522 Nil
2007-08 11,40,000 9,09,538 2,30,462
2008-09 4,30,510 34,432 3,96,078
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The additions for assessment years 2003-04, 2004-05 and 2006-07 are deleted. The addition for assessment year 2005- 06 is reduced from Rs. 7,00,000/- to Rs. 1,77,763/-, for assessment year 2007-08 from Rs. 11,40,000/- to Rs. 2,30,462/- and for assessment year 2008-09 from Rs. 4,30,510 to Rs. 3,96,078/-. "
71. Against the above order, both assessee and Revenue are in appeal before us. We have considered rival contentions and found that before the lower authorities, the assessee has submitted cash flow statement indicating availability of cash on the respective date of deposit. This cash was available with the assessee out of income shown under the head "Agriculture and Contract Receipt" and also withdrawals out of other bank accounts. We found that at the beginning of each of the assessment year, the cumulative cash available with the assessee was more than the amount deposited in the Bank during that year. Accordingly, no addition is warranted in any of the year. If we modify chart prepared by CIT(A) as reproduced 106
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hereinabove, we found that total addition made on account of agricultural income and contract receipt during the assessment years 2003-04 to 2008-09 was at Rs. 35,66,212/- against which the total amount deposited from assessment year 2003-04 to 2008-09 was only Rs. 33,39,910/-. Since addition made on account of agricultural income and contract receipt was more than the amount of cash deposit, no addition is warranted in any of the year. The modified chart of availability of cash is as under :-
Assessment Amount of Cumulative Addition on Cumulative Year addition balance of account of balance of confirmed on cash cash deposit cash account of available with deposited by agriculture assessee assessee income and contract receipt 2003-04 5,59,383 5,59,383 5,50,000 5,50,000 2004-05 8,02,100 13,61,483 4,00,000 9,50,000 2005-06 5,22,237 18,83,720 7,00,000 16,50,000 2006-07 7,38,522 26,22,272 1,19,400 17,69,400 2007-08 9,09,538 35,31,780 11,40,000 25,09,400 2008-09 34,432 35,66,212 4,30,510 33,39,910
72. In view of the above, the grounds taken by assessee are allowed whereas grounds taken by Revenue are dismissed.
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73. In the result, the appeals filed by the Revenue in all the years under consideration are dismissed.
74. Common issue has been taken in all the years under consideration in regard to levy of interest u/s 234B and framing of assessment in individual capacity in place of AOP, Both these issues have already been decided in the case of other members of the same group in its order dated 22nd March, 2013, which reads as under :-
"Common grounds have taken by the assessee with regard to levy of interest u/s 234B. This issue has been decided by the Tribunal in the case of other group members of the assessee vide its order dated 22.03.2013 in the case of Hitesh Mehta and Others, wherein the Tribunal observed as under :
"74. A common ground has been taken regarding charging of interest u/s 234B in case of all the aforesaid assessees in all the years under consideration.
108
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75. Plea of ld. Authorized Representative was that in view of the decision of I.T.A.T. Mumbai Bench in the case of Datamatics Limited vs. ACIT, (2008) 299 ITR 286 (A.T.) (Mum. I.T.A.T.), where there was no default on the part of the assessee in payment of advance tax, no interest was liable u/s 234B in regular assessment. Following was the precise observation of the Bench :-
"The charging of interest u/s 234B is mandatory. Mandatory does not mean that it is mandatory under all circumstances. It is mandatory when the conditions are fulfilled. The condition is that the assessee should have defaulted. A reading of Section 234B(3) makes it clear that where, as a result of an order of order of reassessment or re-computation u/s 147 or Section 153A, the amount on which interest was payable under sub Section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one percent. The Section further makes it clear that first of all there should be a default on the part of 109
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the assessee in the regular assessment and the assessee should have been held liable to pay interest u/s 234B. In that case, if there was reassessment or re-computation u/s 147 or 153A, the liability of the assessee is increased and not otherwise. In the instant case, there was no default on the part of the assessee, in paying the advance tax. For the first time, the dispute arose consequent to the reassessment done u/s 143(3) read with Section 147, interest could not be charged u/s 234B."
76. It was further argued that in view of the decision of Kerala High Court in the case of B.Lakshmikanthan , (2011) 198 Taxman 485, interest should be charged on incremental income only i.e., additional income assessed u/s 153A as compared to the income determined u/s 143(1)/143(3).
77. We have considered the rival contentions. In view of decision of Kerala High Court in the case of Lakshmikanthan (supra), we direct the Assessing 110
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Officer to recompute the interest u/s 234B which provides that where original assessment completed u/s 143 is revised either u/s 147 or u/s 153A, then interest for non-payment or short payment of advance tax is payable only for the period mentioned in Section 234B(3) which provides for interest from the date of completion of regular assessment u/s 143(1) till the date of completion of reassessment. The Assessing Officer is directed accordingly.
78. A common issue has been taken in the case of all the assessees to allege that assessments framed in individual capacity was not justified. We have considered the rival submissions and found from record that a warrant was issued authorizing search in case of all the individuals. Neither any AOP was existing nor any warrant was issued in the name of AOP, therefore, no search was possible in the case of AOP, which did not exist. Since the warrant have been issued in the individual cases, the assessments have been properly done in the capacity of individuals. Accordingly, we do 111
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not find any infirmity in the order of Assessing Officer for making assessments in individual capacity rather than in capacity of AOP. In the result, ground taken by all the assessees in all the years under consideration are dismissed. "
75. Thus, both the issues are squarely covered by the above decision of the Tribunal. Respectfully following the same matter with regard to computation of interest u/s 234B is restored to the file of Assessing Officer with the same direction as contained in order dated 22.3.2013. However, assessee's ground in all the years under consideration with regard to framing assessment in capacity of AOP is dismissed.
76. In the result, appeals filed by assessee are allowed partly in terms indicated hereinabove in all the years under consideration.
SMT.SANDHYA SAHLOT - I.T(SS).A.Nos. 193 to 199/Ind/2012:
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77. These are appeals filed by the assessee against the order of CIT(A) dated 1.3.12. for the assessment years 2003-04 to 2008-09 in the matter of order passed u/s 153A read with Section 143(3) of the Income-tax Act, 1961.
78. Rival contentions have been heard and records perused. On 30.5.2008, search and seizure u/s 132(1) was conducted at the residential premises of Smt. Sandhya Sahlot at E-3/1-, Arera Colony, Bhopal. During the course of search documents and information relating to assessee were also found and seized. After recording the reasons the Assessing Officer issued notice u/s 153A. In response the assessee filed the return of income of various years as under :-
Assessment Returned
year Income
a. 2003-04 3,04,954/-
b. 2004-05 2,80,912/-
c. 2006-07 3,17,520/-
d. 2007-08 6,09,297/-
e. 2007-08 13,80,359/-
f. 2008-09 13,34,584/-
79. While framing assessment u/s 153A read with Section 143(3), the Assessing Officer declined assessee's claim of agricultural income offered in all the years under 113
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consideration and treated the same as income from other sources. The Assessing Officer also made addition on account of deemed dividend u/s 2(22)(e) in respect of loan taken from the Companies in which she was having substantial interest. Contract receipt was added by the Assessing Officer as income from other sources. Addition was also made in respect of cash deposited in the Bank account.
80. Before the CIT(A), the assessee has alleged framing of assessment u/s 153A as well as merit of the addition made by the Assessing Officer. By the impugned order, the ld. CIT(A) confirmed the action of Assessing Officer for framing the assessment u/s 153A after having the following observations :-
"I have carefully examined the matter. It is found that warrant for search was issued in the name of the appellant. The search has been validly conducted in the appellant's case during the search the evidence of unexplained cash deposits made in bank account were found. Many other materials were found during the search which are mentioned in the assessment order. The notice u/s 153A was validly issued in time. 114
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The assessment also is completed within time allowed in Law. The impugned orders are not de novo assessments without basis of any material found during the search. It is held that there is no infirmity in the impugned orders hence the first two grounds of appeal are dismissed for all years in appeal."
81. We have considered the rival submissions and found from record that during course of search unexplained cash deposit made in the bank account were found, which constituted incriminating documents, for which Assessing Officer has validly framed assessment u/s 153A. Accordingly, we uphold the action of CIT(A) for confirming the validity of assessment framed u/s 153A.
82. The Assessing Officer has also made addition in respect of agricultural income offered during the assessment year 2004-05 to 2008-09. The Assessing Officer conducted inquiry and recorded his observation at page 2 - 29 of his order. The ld. CIT(A) confirmed the action of the Assessing Officer by dealing the issue at page 4 to 42 of his order. The ld. CIT(A) observed that during the course of appellate proceedings, the 115
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assessee has relied upon some of documents not submitted before the Assessing Officer. By observing that the assessee has not shown sufficient cause, he declined to admit the additional evidence filed under rule 46A.
83. We have considered the rival submissions and have gone through the orders of the authorities below and found from record that similar issue with regard to agricultural income has been dealt by the Tribunal in the case of other group members of the assessee i.e. Hitesh Mehta and Others vide its order dated 22nd March, 2013. It was argued by the ld. Authorized Representative that additional documents so filed goes to the root of the issue and controvert the findings recorded by the Assessing Officer, the ld. CIT(A) has not considered the same and did not give any opportunity to explain the additional documents so filed before the CIT(A) under Rule 46A. Our attention was also invited to scrutiny assessment order passed by the Department wherein agricultural income offered during the assessment year 2003- 04 amounting to Rs. 3,89,000/- was accepted by the Department while framing assessment u/s 143(3), wherein 116
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agricultural income at Rs. 8479/- per acre was accepted. Similary, assessment in the year 2004-05 was also framed u/s 143(3), wherein agricultural income offered at Rs. 4,99,425/- was accepted by the Department at Rs. 4,12,920/-. Thus, agricultural income @ 9000/- per acre was accepted by the Department in scrutiny assessment. Both these assessments are covered in the block period. Thus, it is evident that returns wherein agricultural income was offered much prior to the date of search, were accepted by the Department under scrutiny assessment. By considering all these facts in the case of other group assessees, the Tribunal vide its order dated 22nd March, 2013, had set aside the issue for deciding afresh after considering the additional evidence so filed by the assessee before the CIT(A). The precise observation of the Tribunal in its order dated 22nd March, 2013, reads as under :-
"7. Rival contentions have been heard and records perused. We had also gone through the additional documents filed before the CIT(A) under rule 46A.
8. With regard to agricultural income declared by the assessee, the observation of the Assessing 117
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Officer for decline of assessee's contention regarding agricultural income was that the assessee had not shown agricultural income up to assessment year 2000-01. That assessee was mainly in the business and also having salary income, therefore, it is unlikely to have time for agricultural operation. The Assessing Officer declined the claim also by observing that only photocopy of lease agreements were filed and not the original lease agreements. The thrust of Assessing Officer for declining the assessee's claim was also based on the surrender of agricultural income made by three group companies in the assessment year 2005-06, namely, Raj Homes Private Limited, Minal Builders and Raj Event and Entertainment Private Limited. The Assessing Officer observed that these companies have surrendered agricultural income in the assessment year 2005-06, therefore, claim of other assessees belonging to same group with respect to the same nature of income cannot be 118
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accepted. The Assessing Officer also observed that some farmers, were cross examined by counsel of Raj Group of Industries during penalty proceedings u/s 271(1)(c), wherein they have denied having any land given on lease. The Assessing Officer stated that photocopy of khasra, khatauni and form P-II were filed and the assessee did not produce original of these certificates, hence authenticity of these documents were doubtful. The Assessing Officer also stated that bills of expenditure like seeds, fertilizers, pesticides, labour and other related details like transportation warehouse etc. were not filed. We found that the CIT(A) broadly confirmed the observation of the Assessing Officer. To overcome the findings of Assessing Officer, the assessee has filed documents under rule 46A before the CIT(A), but he declined to accept the same on the plea that despite opportunity, the assessee did not produce these documents before the Assessing Officer. The CIT(A) further observed that during the assessment 119
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year 2008-09 very nominal agricultural income was shown, therefore, the assessee's claim of agricultural income in earlier years cannot be accepted. It was also observed by CIT(A) that all the Directors in business reside in Bhopal, while agricultural land was situated at a distant area.
9. After going through the reasoning given by the Assessing Officer and CIT(A) for decline of deduction and after verifying the additional evidence filed before the CIT(A) under rule 46A, we found that the assessee has filed original lease agreements before the CIT(A). One of the reasons given by the Assessing Officer for decline was that original lease agreement was not produced. It was submitted by the assessee that due to change in office address, the original lease agreements were not traceable during the relevant point of time, therefore, they were filed before the CIT(A). The other reason given by the Assessing Officer was that original khasra, khatauni and form P-II was not filed, therefore, 120
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claim of agricultural income cannot be accepted. Before the CIT(A), the assessee has filed original khasra, khatauni and form no. P-II to substantiate its claim of agricultural income but the same were not accepted. Before the CIT(A), the assessee has filed original khasra, khatauni and form P-II to substantiate its claim of agricultural income and same are placed at page 230 to 457 of the paper book. The assessee has also filed original receipts of payment of lease rent, which are placed at page 230 to, 457 of the paper book. We found that assessee was prevented by sufficient cause for not submitting the same before Assessing Officer, since these documents were misplaced due to shifting of office. If assessee could file photocopy before the Assessing Officer, he could file original also, as filed before the CIT(A). The assessee by not filing these documents before the Assessing Officer cannot spoil his case. Since these documents were necessary to determine the correct nature of income having been 121
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offered by the assessee, the CIT(A) was not justified in not accepting these documents which goes to the root of the issue. After accepting the documents filed under rule 46A, the CIT(A) could have called for remand report from the Assessing Officer and after considering the same he should have arrived at correct conclusion with regard to the nature of income offered by the assessee. As per record, the claim of assessee was that the agricultural operation of the assessee was being looked after by Ajab Singh, who was employed by the assessee. Inspite of making request to Assessing Officer and CIT(A), the none of the authorities have called Ajab Singh to verify the work undertaken by him and correctness of agricultural income having been earned by the assessee. We also found that conclusion of Assessing Officer was more influenced by the surrender of agricultural income by three group companies. Through the documents placed on record, it was clarified by the assessee that farmers, 122
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who have declined to give loan to the assessee were of different villager and the land was also situated at different location. As the farmers from whom land was taken by the assessee was different from farmers, who have given land to the three companies, which have surrendered their claim of agricultural income, therefore, no fruitful purpose was serve by relying on the statement of those farmers, who had given land to these three companies and not the assessee before us. We found that in the assessment year 2005-06, three group companies had surrendered their agricultural income, because farmers of those companies had given adverse statement to the effect that they had not given land to the companies and do not know their directors. As per ld.Authorized Representative, these farmers became hostile and were misled under intimidation. We found that the assessee have already declared agricultural income much prior to the search right from assessment year 2001- 123
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02. In the assessment year 2003-04 and 2004-005, there was scrutiny assessment order, wherein agricultural income of Rs. 4,99,400/- during the assessment year 2003-04 was accepted by the Assessing Officer at Rs. 4,70,790/-. Similarly, in the assessment year 2004-05, the assessee's case was decided u/s 143(3) and agricultural income of Rs. 8,52,569/- was accepted at Rs. 8,20,530/-. Thus, in both the scrutiny assessments keeping in view the land taken on lease, agricultural income at Rs. 9000/- per acre was accepted by the Assessing Officer. When in the scrutiny assessment, the income has been accepted, without giving cogent reasoning, the same cannot be declined. Since original and Xerox copy of lease agreements are same, no reason for assessee not to submit original before the Assessing Officer, if he could submit it before CIT(A). Similar is the position with regard to khasra, khatauni and form P-II. Even in absence of original lease agreement and khasra khatauni, the 124
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Assessing Officer could make inquiry even on photocopy. The assessee had furnished addresses of all the farmers, the farmers in the agreement are residents of village and full address was given. Many summons were served as per the observation of the Assessing Officer himself, but no effective efforts were made to ensure about the farmers presence. Even a request was filed by the assessee before the Assessing Officer to summon farmers u/s
131. The assessee has also requested the Assessing Officer to summon Mr.Ajab Singh Raghuvanshi who was taking care of assessee's agricultural activity and its sales realization etc. However, Mr. Ajab Singh was not called for. Copy of khasra issued by Patwari confirming the production of crop was filed before the Assessing Officer which has not been disproved by him. It was also contention of ld. Authorized Representative that statement of mandi persons which were recorded behind the back of the assessee, hence cannot be used against him, as the 125
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same were not confronted to him. For this purpose reliance was placed on the decision of Hon'ble Supreme Court in the case Kishan Chand Chelaram, 125 ITR 713. Ld. Authorized Representative also clarified that there is no practice of mentioning names of Bataidar/lessee on the khasra, khatauni and form P-II, because this at times has given rise to plethora of civil suits being filed by the bataidar/lessee for ownership of land due to cultivation done by them for longer period. Hence, not mentioning the name of lessee, bataidar in khasra , khatauni and form no. P-II cannot be viewed against the assessee. Thus, the observation of Assessing Officer in this regard do not carry much force. He further submitted that it was duly stated before the Assessing Officer that entire agricultural operation on the land were done by Mr. Ajab Singh Raghuvanshi, Bazar Mohalla, Village Deori, Tahsil Udaipur, Distt. Raisen. Mr. Ajab Singh was given imprest and he used to pay sale proceeds to the 126
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assessee. As the entire work was being taken care of by Ajab Singh Raghuvanshi, the assessee did not know the purchaser of the crop. The intermediary sold the crop and gave money and mandi receipts to assessee, therefore, as per ld. Authorized Representative , there was no reason for assessee to doubt the mandi receipts given by him.
10. In view of the above discussion, we restore the matter of agricultural income in all the years under consideration to the file of Assessing Officer for deciding afresh after considering the documents filed before CIT(A) under rule 46A, which goes to the root of the issue. We direct accordingly. "
84. Facts and circumstances during the years are same, respectfully following the order of the Tribunal in the case of other group members, we restore the matter back to the file of the Assessing Officer in respect of all the years under consideration for deciding afresh as per the directions given in the order of the Tribunal dated 22.3.2013. 127
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85. With regard to the addition made u/s 2(22)(e), the Assessing Officer observed that the assessee is having substantial share holding in M/s. Raj Homes Private Limited (RHPL), wherein she held 30.76 % shares during the previous year relevant to assessment year 2004-05 and 13.75 % during the assessment year 2007-08 to 2009-10. By observing that RHPL has given loan to the assessee during the said period, the addition was made u/s 2(22)(e). By the impugned order, the CIT(A) confirmed the action of the Assessing Officer and the assessee is in further appeal before us.
86. We have considered rival contentions and found that the addition was made u/s 2(22)(e) on account of deemed dividend in respect of alleged loan given by Raj Homes Private Limited to Mrs. Sandhya Sahlot in the assessment year 2004-05, 2007-08, 2008-09 and 2009-10. In the assessment framed u/s 153A, the Assessing Officer observed as under :-
"During the course of assessment it was noticed that the assessee was holding equity shareholding in various companies. She was asked the details of various holding in various companies. It was noticed 128
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that in three companies i.e. Raj homes Pvt. Ltd., Raj events and entertainment Pvt. Ltd. and Minal Builders Pvt. Ltd. the assessee has significant holdings in various years relevant to A.Y. 2003-04 to 2009-10. While Minal builders' Pvt. Ltd. and Raj Homes Pvt. Ltd. were engaged in the business of construction and building, Raj events and entertainment Pvt. Ltd. is in the business of newspaper, TV, entertainment and media."
87. The Assessing Officer further observed that the assessee's holdings in these companies were more than 10 % and that the assessee has a net debit balance in the books of RHPL, the Assessing Officer added the entire amount of loan given by RHPL to the assessee u/s 2(22)(e). By the impugned order, the ld. CIT(A) confirmed the addition. However, while confirming the addition, the CIT(A) observed as under :-
"The information that RHPL has given loan to appellant's proprietory concern, came to the knowledge of the authorized officers during the course of search. This information is material 129
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gathered during the course of search, hence the Assessing Officer had valid jurisdiction to examine the issue in the impugned assessment proceedings and to decide the issue and make warranted addition u/s 2(22)(e)."
88. It was contended by the ld. Authorized Representative that no incriminating material was found during the course of search to indicate that there was any violation of provisions of Section 2(22)(e). He further submitted that assessment for assessment year 2004-05 was completed and time period for issue of notice u/s 143(2) has also been expired. Accordingly, in respect of assessments, which are not abated, no addition is warranted while making assessment u/s 143A when no incriminating material was found during course of search.
89. This issue has been examined in the case of Arun Sahlot in para 28 to 31 hereinabove. Relevant observations were as under :-
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90. As the facts and circumstances during the assessment year 2004-05 are the same, following the same reasoning, we restore the addition to the file of Assessing Officer for the assessment year 2004-05 with the similar direction as contained in the order of Arun Sahlot (supra).
91. In the assessment year 2007-08, the contention of the assessee was that the advance was given for the business purposes. He further submitted that Rs. 1 crore was given by RHPL directly to REEPL for allotment of shares, but the Assessing Officer has added the same in the hands of assessee. Relying on the decision in the Alpex Export ( Del. I.T.A.T. ) in I.T.A.No. 2858/Del/2012, order dated 28.8.2012, it was contended that share application money is outside the provisions of Section 2(22)(e), our attention was also invited to the decision of Hon'ble Delhi High Court in the case of Sunil Chopra in I.T.A.No. 106/Del/2011 order dated 27.4.2010, wherein it was held that receipt of share application money for allotment of shares could not be treated as receipt of loan or deposit for the purpose of Section 2(22)(e).
131
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92. We have considered the rival submissions and found from record that basic intention of RHPL while advancing money to REEPL was to make investment of Rs. 1 crore in its subsidiary company REEPL and the cheque was also given directly by RHPL to REEPL and not to the assessee Mrs. Sandhya Sahlot. The assessee has also not withdrawn or used the said amount of Rs. 1 crore for her individual benefit. However, shares were allotted to Smt. Sandhya Sahlot who has transferred the shares to RHPL. By observing that the shares were allotted by REEPL in the name of assessee, the Assessing Officer added the amount of loan in assessee's hands u/s 2(22)(e). While deciding the issue, the Assessing Officer has brushed aside the fact that the cheque was given directly by RHPL to REEPL and that these shares were transferred by assessee to RHPL. It is also matter of record that assessee has neither withdrawn the amount for the personal use, not the cheque of advance was issued in favour of assessee.
93. In view of the above discussion, we restore the matter back to the file of Assessing Officer for deciding afresh 132
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by considering the judicial pronouncement as discussed above and after applying the proposition laid down therein to the facts of the instant case. We direct accordingly. The balance addition of Rs. 28,66,466/- made u/s 2(22)(e) is hereby confirmed in the assessment year 2007-08.
94. In the assessment year 2008-09 and 2009-10, the addition has been made by the Assessing Officer by observing that the loan given to assessee was more than accumulated profit by RHPL and that she was holding more than 10 % beneficial shares in RHPL. The Assessing Officer has also observed that there is no component of business expediency involved in RHPL. The detailed finding recorded by both lower authorities with regard to making addition u/s 2(22)(e) could not be controverted by the ld. Authorized Representative . Accordingly, we confirm the action of the CIT(A) for upholding the addition made u/s 2(22)(e) in assessment year 2008-09 and 2009-10.
95. Before parting with the matter, it is held that total addition u/s 2(22)(e), cannot exceed accumulated reserves and surplus. While considering the amount of reserve and 133
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surplus in each year, the amount of addition also made u/s 2(22)(e) in earlier years are required to be reduced out of total accumulated reserve and surplus and addition should be confined to the net credit balance in the account of reserves and surplus. Furthermore, addition made in the hands of husband u/s 2(22)(e) is also to be taken into account while computing the net amount of reserve and surplus remaining thereafter. Meaning thereby total addition u/s 2(22)(e) in the hands of the shareholders should not exceed the total amount of accumulated profit during the entire period under consideration. We direct accordingly.
96. In the assessment year 2009-10, Revenue is aggrieved by the decision of CIT(A) for deleting addition Rs.
15,350/- made by Assessing Officer on account of cash found during course of search and jewellery of Rs. 1,71,740/- found during course of search. The facts of the issue in brief are that cash amounting to Rs. 15,350/- and jewellery valued at Rs. 1,71,740/- was found during the course of search at the residence of the assessee. Assessing Officer treated the same as unexplained and made addition of Rs. 1,87,090/-. The 134
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Assessing Officer made substantive addition in the hands of Shri Arun Sahlot and protective addition in the hands of his wife, Smt. Sandhya Sahlot.
97. By the impugned order, the ld. CIT(A) deleted the addition after having the following observations :-
" On examination it is found that during the course of search at the residence of the appellant gold ornaments weighing 369.770 gms. Only were found. Both the appellant and his spouse are Directors of M/s. Raj Homes Pvt. Ltd. and other group companies. Arun Sahlot had total returned income of Rs. 81,13,801/- during assessment year 2003-04 to 2008-09 and Smt. Sandhya Sahlot had total returned income of Rs. 4227626/- during assessment year 2003-04 to 2008-09. The appellant's family comprises of his wife and children. The quantum of gold jewellery and silver items are reasonable in view of the socio-economic stature of the appellant. The quantum of jewellery is within the limit prescribe din CBDT's circular No. 1916. In view of the above, it is 135
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held that the source of gold ornament is explained hence addition of Rs. 171740/- on this account is deleted. During the course of search, cash totaling to Rs. 15,350/- only were found. The quantum of the cash found in the search is reasonable in view of socio-economic stature of the appellant and his family hence no addition on this account is justified. In view of the above, addition of Rs. 15,350/- on account of cash found during search also is deleted. In view of the above, impugned addition of Rs. 1,87,090/- is deleted. This ground of appeal is allowed. "
98. In view of our discussion in para no. 55 in the case of Arun Sahlot, we do not find any infirmity in the order of CIT(A) for deleting protective addition in the hands of Sandhya Sahlot
99. The assessee is also aggrieved for taxing the entire contract receipts in the assessment years 2005-06 and 2006- 07 instead of taxing profit at 8 % on presumptive basis. In this regard, the Assessing Officer found that during the assessment year 2005-06 and 2006-07, the assessee has 136
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deposited a sum of Rs. 80,000/- and Rs. 1 lakh in her bank account. It was claimed that these were contract receipts and profit on these contract receipts should be assessed at 8 %. As no evidence to prove that the amount so deposited in the Bank were contract receipt, the Assessing Officer added the entire amount as assessee's income from other sources. By the impugned order, the ld. CIT(A) confirmed the action of the Assessing Officer.
100. We have considered the rival submissions and have gone through the orders of the authorities below. The detailed findings recorded by both the lower authorities with regard to the fact that the assessee could not bring any evidence on record to prove the receipts as contract receipt, we do not find any reason to interfere in the order of lower authorities.
Accordingly, we confirm the action of the CIT(A) for treating the entire contract receipt as income from other sources.
101. In the result, ground taken by the assessee both in assessment years 2005-06 and 2006-07 are dismissed. 137
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102. The assessee is also aggrieved for addition made on account of cash deposited in the Bank account during the assessment years 2003-04 to 2008-09
103. By the impugned order, the CIT(A) deleted addition in all the years except the assessment years 2004-05 and 2008-09. In the assessment year 2004-05, the CIT(A) has retained addition of Rs. 2,81,000/- whereas in the assessment year 2008-09, he has retained addition of Rs. 7,09,296/-. The precise observation of CIT(A) was as under :-
"I have examined the matter. The additional evidences submitted before me are not considered for deciding the issue due to the reason given above. The facts of the cash deposit made in various bank accounts were discovered during the course of search hence the appellant's plea that the impugned addition is not based on any material found during the course of search is not valid. During the hearing, I have examined the source of all deposits both above Rs. 50000/- and below Rs. 50000/-. Before the Assessing Officer, the appellant has claimed that the 138
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cash deposits made in these bank accounts were out of agriculture income and contract receipt. In this appeal order the additions on account of agriculture income and contract receipt have been confirmed. It is not found that the cash available out of undisclosed income was invested elsewhere. In the appellant's case the ratio laid in ACIT vs. Kulwant Singh and others I.T(SS).A.Nos. 57 to 63/Ind/2008 (Indore I.T.A.T. ) is directly applicable. The unaccounted income claimed as agriculture income and contract receipt have been brought to tax hence taxing the cash deposited in the bank to the extent of availability of cash on account of additions confirmed will amount to double addition. In view of the above, it is held that the addition made on account of cash deposits made in bank account is to be reduced by the additions confirmed on account of claim of agriculture income and contract receipt and that the source of balance amount deposited in bank is not 139
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explained. The amount of addition for various years is reduced as under :-
Assessment year Addition on Amount of addition Amount of
account of confirmed on confirmed
Cash deposit account of addition on
agriculture income account of cash
and contract deposit in bank
receipt
2003-04 530000 577636 Nil
2004-05 930000 649000 281000
2005-06 251000 461503 +80000 Nil
2006-07 600000 699099+100000 Nil
2007-08 400000 1174351 Nil
2008-09 750000 40704 709296
The additions for assessment years 2003-04, 2005-06 to 2007-08 are deleted. The additions for 2004-05 and 2008-09 are reduced to Rs. 2,81,000/- and Rs. 7,09,296/-."
104. We have considered the rival submissions and have gone through the orders of the authorities below and found from record that before the lower authorities, the assessee has filed cash flow statement to substantiate availability of cash on the respective date of deposit in the bank account. This cash was available to assessee out of income from agriculture contract receipt and cash withdrawals from other bank account. The CIT(A) has deleted addition in most of the years 140
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by observing that the cash was available with assessee out of agricultural income and contract receipt which have already brought to tax net, therefore, again adding the same by referring to the Bank statement will amount to double addition. Revenue is not in appeal before us in the years where CIT(A) deleted the addition and only the assessee is in appeal for the assessment years 2004-05 and 2008-09. We found that even as per the chart given by the ld.CIT(A) at page 50, which has already been reproduced hereinabove, the assessee was having total availability of cash of Rs. 34,61,000/- against which total amount deposited in the Bank works out to be Rs. 37,82,293/-. Thus, there was a net shortage of Rs. 3,21,293/-. Thus, in no case addition can exceed this amount.
105. This shortage of Rs. 3,21,293/-, was also stated to be available with assessee out of withdrawals from other bank account, detailed cash flow statement for each year were already before the Assessing Officer. Accordingly, we restore the matter back to the file of Assessing Officer for deciding afresh after considering the entire cash flow statement filed by the assessee, which also indicate withdrawals made by 141
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assessee out of other bank account. If Assessing Officer found withdrawals from other bank amounting to Rs. 3,21,293/- or more, no addition is to be made. We direct accordingly.
106. Common issue has been taken in regard to levy of interest u/s 234B and framing of assessment in individual capacity in place of AOP, has already been decided in the case of other members of the same group in its order dated 22nd March, 2013, which reads as under :-
"Common grounds have taken by the assessee with regard to levy of interest u/s 234B. This issue has been decided by the Tribunal in the case of other group members of the assessee vide its order dated 22.03.2013 in the case of Hitesh Mehta and Others, wherein the Tribunal observed as under :
"74. A common ground has been taken regarding charging of interest u/s 234B in case of all the aforesaid assessees in all the years under consideration.
75. Plea of ld. Authorized Representative was that in view of the decision of I.T.A.T. Mumbai Bench in the case of Datamatics Limited vs. ACIT, (2008) 299 ITR 142
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286 (A.T.) (Mum. I.T.A.T.), where there was no default on the part of the assessee in payment of advance tax, no interest was liable u/s 234B in regular assessment. Following was the precise observation of the Bench :-
"The charging of interest u/s 234B is mandatory. Mandatory does not mean that it is mandatory under all circumstances. It is mandatory when the conditions are fulfilled. The condition is that the assessee should have defaulted. A reading of Section 234B(3) makes it clear that where, as a result of an order of order of reassessment or re-computation u/s 147 or Section 153A, the amount on which interest was payable under sub Section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one percent. The Section further makes it clear that first of all there should be a default on the part of the assessee in the regular assessment and the assessee should have been held liable to pay interest u/s 234B. In that case, if there was reassessment or 143
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re-computation u/s 147 or 153A, the liability of the assessee is increased and not otherwise. In the instant case, there was no default on the part of the assessee, in paying the advance tax. For the first time, the dispute arose consequent to the reassessment done u/s 143(3) read with Section 147, interest could not be charged u/s 234B."
76. It was further argued that in view of the decision of Kerala High Court in the case of B.Lakshmikanthan , (2011) 198 Taxman 485, interest should be charged on incremental income only i.e., additional income assessed u/s 153A as compared to the income determined u/s 143(1)/143(3).
77. We have considered the rival contentions. In view of decision of Kerala High Court in the case of Lakshmikanthan (supra), we direct the Assessing Officer to recompute the interest u/s 234B which provides that where original assessment completed u/s 143 is revised either u/s 147 or u/s 153A, then interest 144
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for non-payment or short payment of advance tax is payable only for the period mentioned in Section 234B(3) which provides for interest from the date of completion of regular assessment u/s 143(1) till the date of completion of reassessment. The Assessing Officer is directed accordingly.
78. A common issue has been taken in the case of all the assessees to allege that assessments framed in individual capacity was not justified. We have considered the rival submissions and found from record that a warrant was issued authorizing search in case of all the individuals. Neither any AOP was existing nor any warrant was issued in the name of AOP, therefore, no search was possible in the case of AOP, which did not exist. Since the warrant have been issued in the individual cases, the assessments have been properly done in the capacity of individuals. Accordingly, we do not find any infirmity in the order of Assessing Officer for making assessments in individual capacity rather than in capacity of AOP. In the result, ground taken by 145
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all the assessees in all the years under consideration are dismissed. "
107. Thus, both the issues are squarely covered by the above decision of the Tribunal. Respectfully following the same matter with regard to computation of interest u/s 234B is restored to the file of Assessing Officer with the same direction as contained in order dated 22.3.2013.
However, assessee's ground in all the years under consideration with regard to framing assessment in capacity of AOP is dismissed.
108. In the result, appeals are allowed in part, in terms indicated hereinabove.
This order has been pronounced in the open court on 30th April, 2013.
sd/- sd/-
(JOGINDER SINGH) (R. C. SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 30th April, 2013.
CPU*
162230
146