TaxTMI 
TaxTMI 
2022 (1) TMI 885
X X X X Extracts X X X X
X X X X Extracts X X X X
....rounds of appeal in each of these cases which for various assessment years are reproduced as under:- Assessment Year- 2010-11 (i) Whether on the facts and in the circumstances of the case the Ld. CIT(A) has failed to appreciate that addition of Rs. 5,13,00,000/- on account of deemed dividend u/s 2(22)(e) of the Act in an assessment order framed u/s 153A can be made by the Assessing Officer on the basis in the documents found and seized during search u/s 132, information of fund flow collected during the enquiries conducted by the Investigation Wing/Assessing Officer and statements of Sh. Akshay Dhanda and Sh. Ajay Nagpal recorded on 22.06.2015 and 07.07.2015. (ii) Whether on the facts and in the circumstances of the case the Ld. CIT(A) failed to appreciate that the Hon'ble Supreme Court in the case of CIT v. Mukundray K. Shah, 290 ITR 433 under identical circumstances has upheld the addition of deemed dividend u/s 2(22)(e) made by the AO in a block assessment u/s 158BC, the provisions of which are restrictive than those of section 153A. (iii) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in concluding that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vidend u/s 2(22)(e) of the Income Tax Act, 1961 on merits. (x) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. Assessment Year 2011-12 (i) Whether on the facts and in the circumstances of the case the Ld. CIT(A) has failed to appreciate that addition of Rs. 15,44,11,500/- on account of deemed dividend u/s 2(22)(e) of the Act in an assessment order framed u/s 153A can be made by the Assessing Officer on the basis in the documents found and seized during search u/s 132, information of fund flow collected during the enquiries conducted by the Investigation Wing/Assessing Officer and statements of Sh. AkshayDhanda and Sh. Ajay Nagpal recorded on 22.06.2015 and 07.07.2015. (ii) Whether on the facts and in the circumstances of the case the Ld. CIT(A) failed to appreciate that the Hon'ble Supreme Court in the case of CIT v. Mukundray K. Shah, 290 ITR 433 under identical circumstances has upheld the addition of deemed dividend u/s 2(22)(e) made by the AO in a block assessment u/s 158BC, the provisions of which are restrictive than those of section 153A. (iii) Whether on the facts and in the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding the issue of addition of Rs. 15,44,11,500/- on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 on merits. (x) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. Assessment Year- 2012-13 (i) Whether on the facts and in the circumstances of the case the Ld CIT(A) has failed to appreciate that addition of Rs. 12,30,65,000/- on account of deemed dividend u/s 2(22)(e) of the Act in an assessment order framed u/s 153A can be made by the Assessing Officer on the basis in the documents found and seized during search u/s 132, information of fund flow collected during the enquiries conducted by the Investigation Wing/Assessing Officer and statements of Sh. AkshayDhanda and Sh. Ajay Nagpal recorded on 22.06.2015 and 07.07.2015. (ii) Whether on the facts and in the circumstances of the case the Ld. CIT(A) failed to appreciate that the Hon'ble Supreme Court in the case of CIT v. Mukundray K. Shah, 290 ITR 433 under identical circumstances has upheld the addition of deemed dividend u/s 2(22)(e) made by the AO in a block assessment u/s 158BC, the provisions of which are restrictive than....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the circumstances of the case the Ld.CIT(A) has erred in not deciding the issue of addition of Rs. 12,30,65,000/- on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 on merits. (x) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. Assessment Year-2013-14 (i) Whether on the facts and in the circumstances of the case the Ld. CIT(A) has failed to appreciate that addition of Rs. 6,57,50,000/- on account of deemed dividend u/s 2(22)(e) of the Act in an assessment order framed u/s 153A can be made by the Assessing Officer on the basis in the documents found and seized during search u/s 132, information of fund flow collected during the enquiries conducted by the Investigation Wing/Assessing Officer and statements of Sh. AkshayDhanda and Sh. Ajay Nagpal recorded on 22.06.2015 and 07.07.2015. (ii) Whether on the facts and in the circumstances of the case the Ld. CIT(A) failed to appreciate that the Hon'ble Supreme Court in the case of CIT v. Mukundray K. Shah, 290 ITR 433 under identical circumstances has upheld the addition of deemed dividend u/s 2(22)(e) made by the AO in a bloc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or reassess the "Total Income". (ix) Whether on the facts and in the circumstances of the case the Ld.CIT(A) has erred in not deciding the issue of addition of Rs. 6,57,50,000/- on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 on merits. (x) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. 2. In the appeals of Sh. Anoop Thatai, also similar grounds have been raised which for the sake of ready reference are reproduced herein below:- Assessment Year- 2011-12 (i) Whether on the facts and in the circumstances of the case the Ld. CIT(A) has failed to appreciate that addition of Rs. 4,50,50,000/- on account of deemed dividend u/s 2(22)(e) of the Act in an assessment order framed w/s 153A can be made by the Assessing Officer on the basis in the documents found and seized during search u/s 132, information of fund flow collected during the enquiries conducted by the Investigation Wing/Assessing Officer and statements of Sh. Akshay Dhanda and Sh. Ajay Nagpal recorded on 22.06.2015 and 07.07.2015. (ii) Whether on the facts and in the circumstances of the case the Ld. CIT(A)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts and in the circumstances of the case the Ld.CIT(A) has erred in ignoring the principles of strict interpretation of statute when the words used in the statute i.e. sec 153A(1)(b) of the IT Act, 1961 are assess or reassess the "Total Income". (ix) Whether on the facts and in the circumstances of the case the Ld.CIT(A) has erred in not deciding the issue of addition of Rs. 4,50,50,000/- on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 on merits. (x) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing Assessment Year- 2012-13 (i) Whether on the facts and in the circumstances of the case the Ld. CIT(A) has failed to appreciate that addition of Rs. 3,00,00,000/- on account of deemed dividend u/s 2(22)(e) of the Act in an assessment order framed u/s 153A can be made by the Assessing Officer on the basis in the documents found and seized during search u/s 132, information of fund flow collected during the enquiries conducted by the Investigation Wing/Assessing Officer and statements of Sh. Akshay Dhanda and Sh. Ajay Nagpal recorded on 22.06.2015 and 07.07.2015. (ii) Whethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rded or intended by the legislature. (viii) Whether on the facts and in the circumstances of the case the Ld.CIT(A) has erred in ignoring the principles of strict interpretation of statute when the words used in the statute i.e. sec 153A(1)(b) of the IT Act, 1961 are assess or reassess the "Total Income". (ix) Whether on the facts and in the circumstances of the case the Ld.CIT(A) has erred in not deciding the issue of addition of Rs. 3,00,00,000/- on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 on merits. (x) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. Assessment Year- 2013-14 (i) Whether on the facts and in the circumstances of the case the Ld. CIT(A) has failed to appreciate that addition of Rs. 7,60,10,000/- on account of deemed dividend u/s 2(22)(e) of the Act in an assessment order framed u/s 153A can be made by the Assessing Officer on the basis in the documents found and seized during search u/s 132, information of fund flow collected during the enquiries conducted by the Investigation Wing/Assessing Officer and statements of Sh. AkshayDhanda and Sh. Aja....
X X X X Extracts X X X X
X X X X Extracts X X X X
....there by interpreting the statute in the manner which were never worded or intended by the legislature. (viii) Whether on the facts and in the circumstances of the case the Ld.CIT(A) has erred in ignoring the principles of strict interpretation of statute when the words used in the statute i.e. sec 153A(1)(b) of the IT Act, 1961 are assess or reassess the "Total Income". (ix) Whether on the facts and in the circumstances of the case the Ld.CIT(A) has erred in not deciding the issue of addition of Rs. 7,60,10,000/- on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 on merits. (x) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. 3. Cases of the revenue were represented by Ld. CIT (DR) Mr. H.K Chaudhary, whereas those of the assessee were represented by Ld. Counsel, Dr. Rakesh Gupta, Advocate. 3. The facts in brief as mentioned in the assessment orders are that during the course of search proceeding various incriminating documents / books of accounts relating to Orient Craft Ltd. and various other entities were found and seized from the business premises of M/s Orient Craft Ltd., the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... India P. Ltd. advanced money to M/s Olympus Realtors P. Ltd. and M/s Olympus Realtors P. Ltd. made investment in the partnership firm namely M/s SKA Enterprises.According to the A.O. balance sheet of M/s SKA Enterprises found during the course of search revealed that the partnership firm i.e. M/s SKA Enterprises has extended significant amounts of money to the partners namely Sh. Sudhir Dhingra and Sh. Anoop Thatai who were shareholders of M/s Orient Craft Ltd., thus according to the A.O., amount received by Mr. Sudhir Dhingra and Mr. Anoop Thatai from M/s SKA Enterprises was nothing but deemed dividend u/s 2(22)(e) of the Income Tax Act. Accordingly, the additions were made in the hands of Mr. Sudhir Dhingra and Mr. Anoop Thatai in various years as deemed dividend u/s 2(22)(e). 4. Both the Assessees namely, Sh. Sudhir Dhingra and Sh. Anoop Thatai preferred appeals before CIT (A)-3, Gurgaon and challenged the additions made in appeal both in law and on facts on the grounds mentioned in the appeal order passed by learned first appellate authority. 5. The finding recorded by Ld. CIT (A) in the appeal order arementioned therein in para 6-12 of the appeal order, whereby Ld. CIT(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ating material based upon which the issue of deemed dividend was noticed by the assessing officer and therefore, present cases are the cases where incriminating material was found and therefore the Order of Ld. CIT (A) holding that there was no incriminating material is factually and legally incorrect. Ld. CIT DR prayed that the appeal orders passed by Ld. CIT (A) in respect of these two assessee for the years covered under the impugned appeal orders passed by him, be reversed. 9. On the other hand, Ld. Counsel for the assessee submitted and reiterated his submissions which were raised by him in the written submissions made on behalf of these assessees in first appeal proceedings. It was submitted by him that there was no incriminating material found in the course of search and the seized material were nothing but copies of balance sheet, Trial balance, returns of income of various entities, which was already in the knowledge of tax department by way of returns of income andbalance sheet filed by these entities and thus, these documents cannot be said to be incriminating in nature. He drew our attention to these seized documents filed in the paper book. It was further submitted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nificant to note that all the four entities are assessed to tax even for the years prior to the years involved in the present appeals. This fact is all the more important in the context of Super Connection India P Ltd in respect of which AO recorded a finding that this company is a paper company. Documents mentioned in the written submissions reproduced in the order of the first appellate authority clearly establish this fact of the said four concerns being assessee and assessed to tax in respect of the years involved in the present appeal order. Paper book pages 399-404, 937-950 are the copies of computation of income and acknowledgement of returns of this company for AY 2007-08 to 2010-11 & 2011-12 to 2016-17; paper book pages 405-438, 951-1017 are the copies of the audited balance sheets and profit and loss accounts for the years ended on 31.3.2007, 2008, 2009, 2010, 2011 to 2016; and paper book page 439 to 446 are the copies of assessment order passed under section 143(3) dated 10.12.2007 for AY 2005-06 and order under section 143(3) dated 28.12.2010 for AY 2008-09. There is no ground to say that M/s Super Connection India P Ltd was some kind of paper company/concern. Its direc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f computation of income and acknowledgement of returns of S K A Enterprises for AY 2007-08 to 2010-11 & 2011-12 to 2016-17, and paper book pages 487 to 503, 1127-1152 are the copies of the audited balance sheets and profit and loss accounts for the years ended on 31.3.2007, 2008, 2009, 2010, 2011 to 2016.Paper book pages 1153-1156 are the copies of assessment order passed under section 143(3) for AY 2014-15. 12. There are no adverse observations in the assessment orders passed by the tax department, more so in the assessment order of Super Connection India P Ltd. There is nothing adverse in case of Super Connection India P Ltd. on the basis of which it can be said that the said company is paper company. We have referred the statements of the directors of Super Connection India P Ltd. and we do not find anything adverse which proves that Super Connection India P Ltd. was a paper company. Thus, We are not in agreement with the assessing officer's finding in this regard. 13. We have taken ourselves through the seized material also and it is seen that these seized documents are copies of balance sheet, Trial balance, returns of income of the above-said four entities and therefore....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... when these documents by themselves do not relate to the years involved in the present appeals. 14.2 Likewise, seized documents page 78-92 of A-8/OS-1 are found enclosed at page 79-93 of the paper book which is the balance sheet of M/s Olympus Realtors P Ltd for the financial year ending 2013-2014 relevant to AY 2014-15. These are also not relating to the years involved in the present appeals and in any case these are part of the return of income filed by the said company for AY 2014-15. There is nothing incriminating in these seized documents relating to the respondentassessees and that too for the years under appeal. 14.3 Seized documents page no. 10-37 of A-7/OS1 are found enclosed at page 94-121 of the paper book which are balance sheet and profit and loss account of M/s SKA Enterprises for the years ending 31.3.2010, 2011, 2012, 2013, 2014, together with the schedules. These are the documents already part of the returns of income filed by the said firm for the respective years. There is nothing incriminating relating to the respondent-assessees and that too for the years under appeal. Nothing has been spelt out in the assessment order. 15. Therefore, the entire seized....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uire any interference. Since Ld. First appellate authority deleted the additions on the legal issue, we have not taken ourselves to decide the appeals on the merit of the additions on other factual and legal grounds. In the result, appeals of revenue are dismissed. 17. Now we will take up the assessee's appeals in both the cases. As a lead case we are taking up the appeal of SH. SUDHIR DHINGRA in ITANO. 5721/DEL /2018 For A.Y. 2014-15. 18. This appeal has been filed by the assessee against the Order passed by Commissioner of Income Tax (Appeals)-3, Gurgaon, dated 28.07.2018 and assessee has preferred the following grounds of appeal, whereas revenue is not in appeal. 1) That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. A.O. in assuming jurisdiction u/s 153A and the consequent assessment proceedings in the case are bad in law and against the facts and circumstances of the case and void- ab-initio and basic jurisdictional conditions and pre-requisites under section 153A were not met. 2) That in any case and in any view of the matter, the assessment framed under section 153A o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e individual benefit of any such shareholder to the extent to which the company neither case possesses accumulated profits" . According to Ld. CIT (A), case of the appellant is squarely covered by this limb as it is payment by a company for the individual benefits of any such shareholder to the extent which the company possesses accumulated profits. According to CIT (A), payment has been received by the assessee fromM/s SKA Enterprises, which in turn has received the payments from two companies in which public are not substantial interested and assessee isholding not less than 10% voting power. CIT (A) recorded that M/s SKA Enterprises received payments from two companies as under:- M/s Orient Craft Ltd. Rs. 28,84,90,373/- M/s Olympus Realtors P. Ltd. Rs. 35,21,49,537/- However, Ld. CIT(A) recorded that payment by a company with reference to deemed dividend has tobe restricted to accumulated profits and according to CIT(A) accumulated profits of M/s Olympus Realtors P. Ltd. as on 31.03.2014 was Rs. 6,83,78,062/- and therefore total payment of Rs. 35,68,68,435/- from these companies to the shareholders having substantial interest in these companies will be covered ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Without prejudice to above, it is submitted that in fact the impugned addition could not be made u/s 2(22)(e) as there was no 'loan' or 'advance' from M/s OCL to the appellant. According to Ld. A.O. also as mentioned in the impugned order, the loan or advance has been received by the appellant from M/s SKAE. That being so, where is the question of applying and invoking section 2(22)(e), which requires that the loan should be advanced by a closely held company. It goes without saying that M/s SKAE is not a company and impugned loan has not been received by the appellant from M/s OCL. Therefore, impugned addition made does not stand to the test of law as explained above and it is thus requested that the addition made may please be deleted. 3) Without prejudice to above, it is submitted further that the amount was given by OCL to SCPL which is an independent company and that too during the course of business. It goes without saying that M/s SCPL is an independent assessee, which has been assessed to tax even in earlier years which is evident from the copies of assessment orders of SCPL for A.Y 2005-06 & 2008-09 which are enclosed at PB439-446. Therefore when amount has been ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is the copy of account of the assessee in the books of M/s SKAE for A.Y. 2014-15. Reliance is placed on the following:- Commissioner of Income Tax vs. Francis Wacziarg High court of Delhi (2013) 353 ITR 0187: (2011) 203 taxman 0391 asst. Year 2003-04 Dividend-Deemed dividend under s. 2(22)(e)-Credit balance in accounts-Confirmations and copies of accounts showing that the amounts appearing in the accounts were in fact receipts due to assessee, in his normal course of business dealings with the companies-Such receipts from these companies cannot be treated as loans and advances-AO was not justified in treating these receipts as deemed dividend under s. 2(22)(e) 7) The above, factual and legal situations were explained during the course of assessment proceeding also and are explained before your goods also with the help of following pleadings and evidences:- PB 150, 151, 152-153 are copies of submissions made to Ld. AO PB 526-527,536 is the copy of account of the appellant in the books of SKAE Therefore viewed from any angle the impugned addition made is liable to be deleted and it is prayed that the same may please be d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....O. Even statements if carefully gone through do not support what Ld. AO has inferred arbitrarily. c) Ld. AO has mentioned that advance or loan to SCPL was just to by pass the provision of section 2(22)(e) and money trail clearly established that the ultimate beneficiaries are the shareholders of OCL or companies/firms in which they have substantial interest. In reply, it is submitted that advance was given by OCL to SCPL as advance against trade and thus inference that provision of section 2(22)(e) was sought to be bye passed is misconceived. Moreover, when the case of Ld. AO is that beneficiaries are company (ORPL)/firm (SKAE) first, deemed dividend could be taxed in the hands of such company/firm and not in the hands of the appellant. This is being submitted on without prejudice basis without conceding anything. d) Ld. AO has relied upon the decision CIT vs. Mukundray K Shah 209 CTR 97 (SC) but the facts of that case were different and hence the same could not be applied here. Thus, all the objections of Ld. AO may please be rejected and the case of the appellant may please be accepted in view of the above submissions. 23. According to the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved any loans and advance from M/s Orient Craft Ltd. After all the corporate identity and character and an independent status as an independent assessee and that too unrelated to the assessee that M/s Super Connection India P.Ltd. enjoys, such status cannot be permitted to be breached, more so when M/s Super Connection India P. Ltd. is an independent assessee, in which there was no control of any of the shareholders of M/s Orient Craft Ltd. Therefore, there was no question of treating any amount as deemed dividend u/s 2(22(e) in the hands of the assessee in the background of the facts of the present case and in the light of the finding recorded by the first appellate authority as to the nature of the advance given by Orient Craft Ltd. to Super Connection India P Ltd. It is also noticed that CIT(A) has recorded a finding in para 7.3.2 (b) of the appeal order against which revenue is not in appeal that during the year under consideration capital advance amounting to Rs. 26,24,50,000/- was given by M/s Super Connections India P. Ltd. to M/s Olympus Realtors P. Ltd. Therefore, when there was specific finding of the nature of capital advance given by M/s Super Connection India P. Ltd. t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s been contemplated in the section can be inferred nor can it can be extended, more so in the light of factual findings in the present case having regard to the nature of the payments made by one entity to another as recorded by CIT(A) against which revenue has not filed any appeal nor has made any rebuttal during the course of hearing. Therefore, there is no question of treating the amount withdrawn by the assessee as partner from the partnership firm namely M/s SKA Enterprises in the nature of loan and advance and treat it as deemed dividend under section 2(22)(e) of the Income Tax Act. None of the ingredients of section 2(22)(e) stand satisfied in the instant case. We have also gone through part of written submissions as reproduced above where rebuttal of each and every adverse observation made by the assessing officer has been made by the assessee and we are in agreement with the assessee on all those rebuttals. 27. The reliance of the decision of Hon'ble Supreme Court decision in the case of "CIT Vs Mukundray K. Shah, Citation No. [2007] 160 Taxman 276 (SC)/[2007J 290 ITR 433 (SC)/[2007] 209 CTR 97 (SC): is misplaced in the background of the facts of this case and the fact ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... deemed dividend u/s 2(22)(e) providing that the accumulated profits of the company advancing the sum by way of loan or advance to the shareholder shall be taken into consideration. (iv) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in working out and taking into consideration the accumulated profit of the company M/s Olympus Realtors Pvt. Ltd. at nil instead of that of M/s Orient Craft Ltd. for the purpose of application of section 2(22)(e). (v) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in concluding that there has been no fund flow from M/s Orient Craft Limited during the year under consideration which is contrary to the records as on perusal of ledger account of M/s Super Connection India Pvt. Ltd. in the books of M/s Orient Craft Ltd., it is seen that during the year under consideration, there has been fund flow of more than Rs. 50crore from M/s Orient Craft Ltd. to M/s Super Connection India Pvt. Ltd. (vi) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that such advances/loans which have been routed through different ent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) in para 3.3 at page 18 of the appeal order that there has been no fund flow from M/s Orient Craft Ltd during the year under consideration. Accordingly, CIT (A) deleted the additions in the hands of the three shareholders namely Sh. Sudhir Dhingra and Sh. Anoop Thatai and Sh. Krishan Kant Kohli. 33. Before us, Ld. CIT (DR) has relied upon the assessment order and assailed the order of the first appellate authority based on the arguments mentioned in the grounds of appeal, whereas Ld. Counsel for the assessee relied upon the written submissions and paper book filed and contended that the addition made in the assessment order deserved to be deleted and which was rightly deleted by CIT(A). DECISION 34. We have heard both the parties and have gone through the orders passed by the authorities below and also gone through the written submissions filed by the assessee and also the relevant documents referred to from the paper book filed before us. We have summed up the findings of the assessment order and appellate order hereinabove. Before we discuss the merits of the arguments of the assessee& those of the revenue, we consider it expedient to reproduce the relevant portion of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate character of SCPL is misplaced on facts and in law and so is the action of making impugned addition in the hands of the appellant. It is thus requested that the addition under appeal may please be deleted for the above stated submissions too. 4) Without prejudice to above, it is submitted that M/s ORPL was one of the partners in M/s SKAE and infused its capital and no loan or advance was given to M/s SKAE by ORPL. Appellant too is the partner in SKAE. Appellant withdrew the amount as partner of SKAE and thus, how could the amount received by the appellant from M/s SKAE be treated as loan given by M/s OCLso as to constitute deemed dividend in the hands of the appellant. In fact Ld. AO is going entity after entity and that too by disregarding the nature of payment made by each entity/person to other. Ld. AO is disregarding the legal character of the entities also which is not permissible in law particularly when legal character of such entities have all along been accepted in their assessments. Thus, action of Ld. AO in making the impugned addition in the hands of the appellant as deemed dividend is neither here nor there and it is thus prayed that the addition made may ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... income tax assessment orders of earlier years enclosed at PB 341-376, 439-446. Thus, this allegation of there being any fictitious entity is absolutely denied and is contrary to material on record. Second, the fact of the payments made by these entities to other entities/persons are part of audited accounts and returns of income and thus it is wrong to say that it was noticed from the books of accounts of these entities seized during search that payments were being made by these entities to other entities/persons. Thus, this averment/finding by Ld. AO is only to show that but for the search this could not come to be known to him. But as submitted above, this finding is not correct. b) Ld. AO has mentioned that statements of Mr. Dhanda and Mr. Nagpal directors of SCPL revealed during search that SCPL is paper company as books are maintained at the premises of OCL and so on and so forth. In reply, it is submitted that SCPL is a company registered with ROC and is assessed to tax for number of years as is evident from its income tax assessment orders of earlier years enclosed at PB 439-446. Merely because the shareholders of SCPL were employees of OCL and books were ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AT Mumbai 'F' Bench in the case of Smt. Shreelekha Damani vs. Dy. CIT 125 DTR (Mumbai 'F') 263 - Chhugamal Rajpal vs. S.P. Chaliha&Ors. (1971) 79 ITR 0603 - United Electrical Company (P) Ltd. vs. Commissioner of Income Tax &ors. (2002) 258 ITR 0317 GROUND NO. 7 General and specific submissions have been under the respective grounds of appeals. GROUND NO.8 Not pressed as credit has been allowed in order u/s 154. GROUND NO. 9 Consequential GROUND NO. 10 General 35. According to the case of revenue, there was loan or advance from M/s Orient Craft Ltd. (OCL) & Olympus Realters P Ltd.to the appellant, whereas the case of the assessee was that there was no loan or advance received by the assessee, much less from M/s Orient Craft Ltd., and further, for that matter, no loan was received by the assessee from M/s Olympus Realtors P. Ltd. and hence there was no question of any deemed dividend to be assessed in his hands. 36. In order to attract the fiction of section 2(22(e), it is essential that the elements mentioned in the section must be found applicable. Since section 2(22)(e) treats the loan or advance as dividend, hence it is essential....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent Craft Ltd. Therefore, there was no question of treating any amount as deemed dividend u/s 2(22(e) in the hands of the assessee in the background of the facts of the present case and in the light of the finding recorded by the first appellate authority as to the nature of the advance given by Orient Craft Ltd. to Super Connection India P Ltd. In fact finding recorded by CIT(A) in this year is that no fresh advance has been given by Orient Craft Ltd. to Super Connection India P Ltd. during the year under consideration which we have already taken note of hereinabove. It is also noticed by us that CIT (A) has recorded a finding in para 7.1.2 (b) of the appeal order against which revenue is not in appeal that during the year under consideration that no fresh advance was given even by M/s Super Connections India P. Ltd. to M/s Olympus Realtors P. Ltd during the year under appeal. Therefore, when there was specific finding that no advance was given by M/s Super Connection India P. Ltd. to M/s Olympus Realtors P. Ltd. during the year under appeal, where was the question of saying in the same breath that assessee received the advance and that too from M/s Orient Craft P. Ltd.and/or Olym....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y one entity to another recorded by CIT(A) against which revenue has made any rebuttal during the course of hearing. Therefore, there is no question of treating the amount withdrawn by the assessee as partner from the partnership firm namely M/s SKA Enterprises in the nature of loan and advance and treat it as deemed dividend under section 2(22)(e) of the Income Tax Act. None of the ingredients of section 2(22)(e) stand satisfied in the instant case. We have through the written submissions also reproduced above where rebuttal of each and every adverse observation made by the assessing officer has been made by the assessee and we are in agreement with the assessee on all those rebuttals. 38. The reliance of the decision of Hon'ble Supreme Court decision in the case of "CIT Vs Mukundray K. Shah, Citation No. [2007] 160 Taxman 276 (SC)/[2007J 290 ITR 433 (SC)/[2007] 209 CTR 97 (SC): is misplaced in the background of the facts of this case and the fact of that case more so when in the instant case the nature of payment by one entity to another has been held to be of a particular character by CIT(A) against which revenue is not in appeal. We have dealt this aspect in fair elaborate m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ute deemed dividend. (vii) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. 41. On the other hand, assessee's appeal assailed the partial sustenance of addition u/s 2(22)(e) to the extent of Rs. 7,52,95,592/-. 42. In this case, Assessing Officer has made additions of Rs. 21,80,50,000/- on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 on the ground that there was flow of funds from M/s Orient Craft Ltd. to M/s Super Connections India P. Ltd. and then to M/s Olympus Realtors P. Ltd. and then M/s SKA Enterprises. Therefore, A.O. treated the said amount received by the assessee from M/s SKA Enterprises as deemed dividend u/s 2(22)(e). Assessing Officer's Order in this regard is identical to one passed by him for earlier assessment years i.e. 2010-11, 2011-12, 2012-13 and 2013-14. 43. In the first appeal preferred by the assessee before Commissioner of Income Tax (Appeals)-3 Gurgaon (hereinafter called as 'CIT(A)' also), CIT(A) in para 6.3.5 of the appeal order held that dividend u/s 2(22)(e) consists inter-alia as the last limb ".......any payment by any such company on behalf, or for the individua....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he facts and issues once again. The relevant portion of the written submissions filed by the assessee for A.Y. 2016-17 is reproduced as under:- GROUND NO. 1 General and specific submissions have been under the respective grounds of appeals. GROUND NO. 2 to 5 Ld. A.O. made addition of Rs. 21,80,50,000/- on account of deemed dividend u/s 2(22)(e) on the ground that the said amount was transferred by M/s Orient Craft Ltd. (OCL) during the year under appeal to the appellant, through M/s Super Connections P. Ltd. (SCPL), which in turn was given to M/s Olympus Realtors P Ltd . (ORPL) which in turn has been paid to M/s SKA Enterprises (SKAE) which in turn has been received by the appellantand thus, according to Ld. A.O. amount received by the appellant was deemed dividend assessable u/s 2(22)(e) of the Income Tax Act, 1961. Since it has been treated as taxable income in the hands of the appellant, hence the present appeal. 1) At the very outset, it is respectfully submitted that appellant received a sum of Rs. 21,80,50,000/- as loan and current advances during the year under appeal, but out of the said amount, cheque amounting to Rs. 30,00,000/- vide cheque No. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in M/s SKAE and infused its capital and no loan or advance was given to M/s SKAE by ORPL. Appellant too is the partner in SKAE. Appellant withdrew the amount as partner of SKAE and thus, how could the amount received by the appellant from M/s SKAE be treated as loan given by M/s OCLso as to constitute deemed dividend in the hands of the appellant. In fact Ld. AO is going entity after entity and that too by disregarding the nature of payment made by each entity/person to other. Ld. AO is disregarding the legal character of the entities also which is not permissible in law particularly when legal character of such entities have all along been accepted in their assessments. Thus, action of Ld. AO in making the impugned addition in the hands of the appellant as deemed dividend is neither here nor there and it is thus prayed that the addition made may please be deleted. 6) Without prejudice to above, it is submitted further that going by the logic of Ld. AO though denied vehemently but accepting for the sake of arguments, if at all there was any deemed dividend, it could be in the hands of M/s ORPL which received the amount first, and three Individuals who are the shareholders....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it is wrong to say that it was noticed from the books of accounts of these entities seized during search that payments were being made by these entities to other entities/persons. Thus, this averment/finding by Ld. AO is only to show that but for the search this could not come to be known to him. But as submitted above, this finding is not correct. b) Ld. AO has mentioned that statements of Mr. Dhanda and Mr. Nagpal directors of SCPL revealed during search that SCPL is paper company as books are maintained at the premises of OCL and so on and so forth. In reply, it is submitted that SCPL is a company registered with ROC and is assessed to tax for number of years as is evident from its income tax assessment orders of earlier years enclosed at PB 439-446. Merely because the shareholders of SCPL were employees of OCL and books were being maintained at the premises of OCL do not make SCPL as paper-company. Operational conveniences of these two shareholders of SCPL to maintain books at the premises of OCL may have led this but merely for that reason, SCPL cannot become paper company to the utter disregard to the past assessment orders and scale of business conducted by SCPL. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ient Craft Ltd. or Olympus Realters P Ltd. cannot be treated as dividend u/s 2(22)(e), since the first ingredient of section 2(22)(e) itself is not met in this case. As per the case of made out by Ld. A.O. in the assessment order, amount in question has not been received by the assessee from M/s Orient Craft Ltd. Rather it is seen that CIT(A) has recorded a finding at para 6.3.2(a)of the appeal order that Orient Craft P Ltd. had not given any amount to M/s Super Connection India P. Ltd. during the year under appeal. Moreover, it is also seen on facts that no advance was given by M/s Orient Craft Ltd. to M/s Super Connection India P. Ltd during the year under appeal. In any case, the said M/s Super Connection India P Ltd. has been held by us as an independent and unrelated company in our order for A.Y. 2010-11 to A.Y. 2013-14 passed separately in ITA No. 6356 to 6359/Del/2018. Therefore, when M/s Super Connection India P. Ltd. which was an independent assessee and has been assessed to tax and when no advance has admittedly been given by M/s Orient Craft Ltd. to M/s Super Connection India P. Ltd. during the year under appeal as recorded by CIT(A) in his appeal order, how can it be as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sence of any rebuttal or any appeal preferred by Revenue. Ld. AO has disregarded also the effect of legal character of all the entities more so when there was nothing adverse found in the assessments of these entities. Therefore, there is no question of treating the amount withdrawn by the assessee as partner from the partnership firm namely M/s SKA Enterprises in the nature of loan and advance and treat it as deemed dividend under section 2(22)(e) of the Income Tax Act. None of the ingredients of section 2(22)(e) stand satisfied in the instant case. 49. CIT (A) despite recording a clear cut finding as to the nature of payments made by one entity to another in para 6.3.2 of the appeal order has committed grave error in concluding without any basis, material or evidence that M/s Super Connections India P. Ltd., M/s Olympus Realtors P. Ltd. and M/s SKA Enterprises were used as conduits. Therefore, we are unable to subscribe to this bald conclusion of CIT(A). We thus hold that the addition made in the assessment order &also part of the addition sustained on account of deemed dividend u/s 2(22)(e), were made by AO and partially sustained by CIT(A) are contrary to the factual positio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity and without observing the principle of natural justice. 7) That the appellant craves the leave to add, alter or amend the grounds of appeal at any stage and all the grounds are without prejudice to each other. 51. In this case, Assessing Officer has made additions of Rs. 18,75,00,373/- on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 on the ground that there was flow of funds from M/s Orient Craft Ltd. to M/s Super Connections India P. Ltd. and then to M/s Olympus Realtors P. Ltd. and then M/s SKA Enterprises. Therefore, A.O. treated the amount of Rs. 18,75,00,373/- received by the assessee from M/s SKA Enterprises as deemed dividend u/s 2(22)(e). Assessing Officer's Order in this regard is identical to one passed by him for earlier assessment years i.e. 2011-12, 2012-13 and 2013-14. 52. In first appeal preferred by the assessee before Commissioner of Income Tax (Appeals)-3 Gurgaon (hereinafter called as 'CIT(A)' also), CIT(A) in para 7.3.5 of the appeal order held that dividend u/s 2(22)(e) consists inter-alia as the last limb ".......any payment by any such company on behalf, or for the individual benefit of any such shareholder to the ext....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 2 to 5 Ld. A.O. made addition of Rs. 18,75,00,373/- on account of deemed dividend u/s 2(22)(e) on the ground that the said amount was transferred by M/s Orient Craft Ltd. (OCL) during the year under appeal to the appellant, through M/s Super Connections P. Ltd. (SCPL), which in turn was given to M/s Olympus Realtors P Ltd . (ORPL) which in turn has been paid to M/s SKA Enterprises (SKAE) which in turn has been received by the appellantand thus, according to Ld. A.O. amount received by the appellant was deemed dividend assessable u/s 2(22)(e) of the Income Tax Act, 1961. Since it has been treated as taxable income in the hands of the appellant, hence the present appeal. 1)....................... 2) Without prejudice to above, it is submitted that in fact the impugned addition could not be made u/s 2(22)(e) as there was no 'loan' or 'advance'from M/s OCL to the appellant. According to Ld. A.O. also as mentioned in the impugned order, the loan or advance has been received by the appellant from M/s SKAE. That being so, where is the question of applying and invoking section 2(22)(e), which requires that the loan should be advanced by a closely held company. It goes w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l there was any deemed dividend, it could be in the hands of M/s ORPL which received the amount first, and three Individuals who are the shareholders in M/s OCL for more than 10% were also having substantial interest in M/s ORPL. Thus, from this standpoint also, there was no question of making impugned addition as deemed dividend in the hands of the appellant. It is therefore prayed that the same may please be deleted in view of the above submissions also. 6)Without prejudice to above, it is respectfully submitted that PB 529which is the ledger account of the appellant in the books of M/s SKAE shows that M/s SKAE received an amount Rs. 2,50,00,000 on 25.03.2013and therefore, to this extent in A.Y. 2014-15 deemed dividend amount should be reduced. PB 531 is the copy of account of the assessee in the books of M/s SKAE for A.Y 2014-15. Reliance is placed on the following: Commissioner of Income Tax vs. Francis Wacziarg High court of Delhi (2013) 353 ITR 0187: (2011) 203 taxman 0391 asst. Year 2003-04 Dividend-Deemed dividend under s. 2(22)(e)-Credit balance in accounts-Confirmations and copies of accounts showing that the amounts appearing in the ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tax for number of years as is evident from its income tax assessment orders of earlier years enclosed at PB 452-459. . Merely because the shareholders of SCPL were employees of OCL and books were being maintained at the premises of OCL do not make SCPL as paper-company. Operational conveniences of these two shareholders of SCPL to maintain books at the premises of OCL may have led this but merely for that reason, SCPL cannot become paper company to the utter disregard to the past assessment orders and scale of business conducted by SCPL. Attempt of Ld. AO to show closeness of the shareholders of SCPL with OCL group does not make substantive SCPL to turn to a paper company. Other allegations of Ld. AO qua SCPL too stems from the colored vision of Ld. AO. Even statements if carefully gone through do not support what Ld. AO has inferred arbitrarily. c) Ld. AO has mentioned that advance or loan to SCPL was just to by pass the provision of section 2(22)(e) and money trail clearly established that the ultimate beneficiaries are the shareholders of OCL or companies/firms in which they have substantial interest. In reply, it is submitted that advance was given by OCL to S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a P. Ltd. The said M/s Super Connection India P Ltd. has been held by us as an independent and unrelated company in our order for A.Y. 2010-11 to A.Y. 2013-14 passed separately in ITA No. 6356 to 6359/Del/2018 in the case of Mr. Sudhir Dhingra. Therefore, when M/s Super Connection India P. Ltd. which was an independent assessee and has been assessed to tax and when advance has admittedly been given by M/s Orient Craft Ltd. to M/s Super Connection India P. Ltd., how can it be assumed or held that the assessee received any loans and advance from M/s Orient Craft Ltd. After all the corporate identity and character & an independent status as an independent assessee and that too unrelated to the assessee that M/s Super Connection India P. Ltd. enjoys, such status cannot be permitted to be breached, more so when M/s Super Connection India P. Ltd. is an independent assessee, in which there was no control of any of the shareholders of M/s Orient Craft Ltd. Therefore, there was no question of treating any amount as deemed dividend u/s 2(22(e) in the hands of the assessee in the background of the facts of the present case and in the light of the finding recorded by the first appellate author....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the other entity regarding which the factual findings recorded by CIT(A) in his order have attained finality in the absence of any rebuttal or any appeal preferred by Revenue. Ld. AO has disregarded also the effect of legal character of all the entities more so when there was nothing adverse found in the assessments of these entities. We have already mentioned earlier that section 2(22)(e) creates fiction which operates very harshly and settled principle of law that provisions of law of such a nature are required to be construed strictly, more so in the light of factual findings as to the nature of these payments made by one entity to another recorded by CIT(A) against which revenue has not filed any appeal nor has made any rebuttal during the course of hearing. Therefore, there is no question of treating the amount withdrawn by the assessee as partner from the partnership firm namely M/s SKA Enterprises in the nature of loan and advance and treat it as deemed dividend under section 2(22)(e) of the Income Tax Act. None of the ingredients of section 2(22)(e) stand satisfied in the instant case. We have also taken ourselves to that part of written submissions also reproduced abov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ircumstances of the case, the Ld. CIT(A) has erred in working out and taking into consideration the accumulated profit of the company M/s Olympus Realtors Pvt. Ltd. at nil instead of that of M/s Orient Craft Ltd. for the purpose of application of section 2(22)(e). (v) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in concluding that there has been no fund flow from M/s Orient Craft Limited during the year under consideration which is contrary to the records as on perusal of ledger account of M/s Super Connection India Pvt. Ltd. in the books of M/s Orient Craft Ltd., it is seen that during the year under consideration, there has been fund flow of more than Rs. 50crore from M/s Orient Craft Ltd. to M/s Super Connection India Pvt. Ltd. (vi) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that such advances/loans which have been routed through different entities to the assessee with the only intention to subvert the provisions of sections 2(22)(e) would constitute deemed dividend. (vii) The appellant craves to add, amend, alter or modify any grounds of appeal at the time o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....order and assailed the order of the first appellate authority based on the arguments mentioned in the grounds of appeal, whereas Ld. Counsel for the assessee relied upon the written submissions and paper book filed and contended that the addition deserved to be deleted and was rightly deleted by CIT(A). DECISION 65. We find that the findings as well as the facts are exactly same as discussed above in the appeal of the revenue in the case of Mr. Sudhir Dhingra for the same assessment year and therefore our finding will apply mutatis mutandis in this appeal also. However, for sake of completeness, the written submissions for this year filed by the assessee are reproduced as under:- GROUND NO. 2 to 5 Ld. A.O. made addition of Rs. 13,45,00,000/- on account of deemed dividend u/s 2(22)(e) on the ground that the said amount was transferred by M/s Orient Craft Ltd. (OCL) during the year under appeal to the appellant, through M/s Super Connections P. Ltd. (SCPL), which in turn was given to M/s Olympus Realtors P Ltd . (ORPL) which in turn has been paid to M/s SKA Enterprises (SKAE) which in turn has been received by the appellantand thus, according to Ld. A.O. amount receive....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the appellant. In fact Ld. AO is going entity after entity and that too by disregarding the nature of payment made by each entity/person to other. Ld. AO is disregarding the legal character of the entities also which is not permissible in law particularly when legal character of such entities have all along been accepted in their assessments. Thus, action of Ld. AO in making the impugned addition in the hands of the appellant as deemed dividend is neither here nor there and it is thus prayed that the addition made may please be deleted. 5) Without prejudice to above, it is submitted further that going by the logic of Ld. AO though denied vehemently but accepting for the sake of arguments, if at all there was any deemed dividend, it could be in the hands of M/s ORPL which received the amount first, and three Individuals who are the shareholders in M/s OCL for more than 10% were also having substantial interest in M/s ORPL. Thus, from this standpoint also, there was no question of making impugned addition as deemed dividend in the hands of the appellant. It is therefore prayed that the same may please be deleted in view of the above submissions also. 6) Without pre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....these entities seized during search that payments were being made by these entities to other entities/persons. Thus, this averment/finding by Ld. AO is only to show that but for the search this could not come to be known to him. But as submitted above, this finding is not correct. b) Ld. AO has mentioned that statements of Mr. Dhanda and Mr. Nagpal directors of SCPL revealed during search that SCPL is paper company as books are maintained at the premises of OCL and so on and so forth. In reply, it is submitted that SCPL is a company registered with ROC and is assessed to tax for number of years as is evident from its income tax assessment orders of earlier years enclosed at PB 452-459. Merely because the shareholders of SCPL were employees of OCL and books were being maintained at the premises of OCL do not make SCPL as paper-company. Operational conveniences of these two shareholders of SCPL to maintain books at the premises of OCL may have led this but merely for that reason, SCPL cannot become paper company to the utter disregard to the past assessment orders and scale of business conducted by SCPL. Attempt of Ld. AO to show closeness of the shareholders of SCP....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ingredient of section 2(22)(e) itself is not met in this case. As per the case of made out by Ld. A.O. in the assessment order, amount in question has not been received by the assessee from M/s Orient Craft Ltd. Rather it is seen that CIT (A) has recorded a finding at para 7.1.2 (a) of the appeal order that Orient Craft P Ltd. had not given advance to M/s Super Connection India P. Ltd during the year under appeal. It is important to submit that there is no appeal filed by the revenue against such finding of fact recorded by CIT (A). As noted above several times that advance was not given by M/s Orient Craft Ltd. to M/s Super Connection India P. Ltd during the year under appeal. In any case, the said M/s Super Connection India P Ltd. has been held by us as an independent and unrelated company in our order for A.Y. 2010-11 to A.Y. 2013-14 passed separately in ITA No. 6356 to 6359/Del/2018 in the case of Mr. Sudhir Dhingra. Therefore, when M/s Super Connection India P. Ltd. which was an independent assessee and has been assessed to tax and when no advance has admittedly been given by M/s Orient Craft Ltd. to M/s Super Connection India P. Ltd. during the year under appeal, how can it ....