TaxTMI 
TaxTMI 
2016 (12) TMI 1903
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....r the Department : Shri Raviraj Y.V. - DR. ORDER PER BENCH These are bunch of appeals filed by Revenue and cross objections filed by the assessees, for the assessment year 2007-08 to 2012-13, wherein the common question has arisen with respect to the bringing to tax income under the deeming fiction of Section 2(22)(e) of the Income-tax Act, 1961 (Hereinafter called "the Act") as deemed dividend , wherein certain amounts were advanced by the company M/s Models Construction Pvt . Limited (herein after called as 'MCPL'), a company in which public are not substantially interested to the partnership firm M/s Models Real Estate Developers (hereinafter called as 'MRED'), wherein Mr.Peter Vaz and Mr. Edgar Braz Afonso are undisputedly and admittedly common shareholders holding 50% shares each in MCPL ,and also admittedly and undisputedly entitled to 50% share each in the profits of the partnership firm MRED. The said company MCPL is admittedly a private limited company in which public are not substantially interested. As also in the case of Shri Edgar Braz Afonso , there were additionally certain amount allegedly advanced by Sonesta Inns Private Limited(Hereinafter called "the SIPL") ,....
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....A) erred in accepting fresh evidence and not giving opportunity to the Assessing Officer as per sub-rule (3) to Rule 46A of the IT Rules, 1962. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the amount of Rs.81,51,723/- advanced by Models Construction Pvt. Ltd. to the firm M/s Models Real Estate Developers cannot be treated as dividend under section 2(22)(e) of the Income Tax Act in the hands of the assessee in spite of the fact that the assessee was having shareholding exceeding 10% of the voting power in the said company and also have substantial interest in the said Firm? 4. For the above grounds and any additional grounds that may be agitated during the course of the hearing is prayed that the order of the Ld.CIT(A)-2, Panaji may be quashed and that of the AO restored." 5. The brief facts of the case are that the assessee is registered and also beneficial shareholder and also Director of MCPL(a private limited company in which public are not substantially interested) holding 50% shares of MCPL, as well the assessee is partner in partnership firm MRED having 50% share in the profits of the afore-said partnership firm,....
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.... taxed as income as per provisions of section 2(22)(e) of the Act. The relevant provision of Section 2(22)(e) of the Act is reproduced below: "Definitions. 2. In this Act, unless the context otherwise requires,- ** ** (22) dividend includes- (a) *** (b)*** (c)*** (d)*** (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 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 distribut....
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....an association of persons or a body of individuals or a company ; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ;]" The Assessing Officer observed that the loans and advances received by MRED from MCPL , as per ledger extracts in the books of MCPL along with its accumulated profits, are as under:- F.Y. Name of the person / Concern from whom advance is received Total loan / Advances during the year Accumulated profit with M/s. MCPL 2005-06 MCPL 2,77,75,118/- 2,15,70,177/- (Surplus in P & L Account) 2006-07 MCPL 5,20,14,366/- 8,04,62006/- 2007-08 MCPL 4,71,81,347/- 12,86,19,493/- 2008-09 MCPL 9,46,68,620/- 15,00,32,634/- 2009-10 MCPL 12,76,91,164/- 30,08,57,131/- 2010-11 MCPL 7,30,10,750/- 43,83,73,506/- 2011-12 MCPL 8,75,33,761/- 47,85,26,714/- It was also observed by the AO that most of the loans and advances were given by MCPL to MRED for non business purposes , while some of the advances were given for business purposes which mostly consisted of cheques wrongly d....
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....t to which the company in either case possesses accumulated profits; Explanation 1.-The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2.-The expression "accumulated profits" in subclauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, [but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place]. [Explanation 3.-For the purposes of this clause,- (a) "concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ; (b) a person shall be deemed ....
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.... as the "company".they own the entire shareholding thereof are also partners of Model Real Estate Developers hereinafter in these submissions referred to as the "firm". However this is only one part of the test. The question that needs to be answered is whether the monies that have travelled from the coffers of the company to the firm can be treated as loans or advances in the context of the provision to which we are making a reference. A detailed analysis of the facts will show that both these entities operated in the field of construction for a reasonably long period, Since virtually the controlling interest in both was the same whenever business exigencies demanded funds travelled from one entity to other to satisfy the business requirements. Thus the transactions between the two were like a "current account" Though from assessment year 2007-08 to assessment year 2012-13 more funds have flowed from the company to the firm than those that have flowed from the firm to the company in the earlier period there was a reverse position. We will in our subsequent submissions point out as to why there was a flow continuously from the company to the firm as there was a definite purpo....
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....pany to a concern is for the purpose of avoiding tax that one can treat them as deemed dividend under section 2(22)(e) . Even if one takes a view that one has to interpret the provision strictly one cannot consider the transactions between the company and the firm as a loan or advance. Factual matrix will show that monies have flowed from the coffers of the company to the firm during these years but in earlier years the position was exactly the reverse this cannot by any stretch of imagination be the action of a company which is distributing dividend. In fact if there is payment of dividend there would be always single directional flow. It is apparent that despite the fact that the closing balance is a debit balance monies have flowed also from the firm to the company (table set out above). As is being explained by us it is the only on account of a fact that the monies flowed for commercial expediency and were never for the purpose of vesting in the hands of either the shareholders or the concern. Further legal defences Having rebutted the threshold conditions we now proceed to raise further legal defences. Firstly assuming without conceding that these are loans or advances a....
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....lanations. The conduct of the promoters would bear out this intention. If one closely analyses one will find that in the books of the company the stock of land has remained more or less constant and even if one looks at in absolute terms it is standing at 3.63 crores in assessment year 2012-13. The stock of premises is at 4.26 crores while there is absolutely no advance for land and premises which is remaining in the books of the company for assessment year 2012-13. The object was that the land bank should be pie in the hands of the firm while the construction activity would be in the company. This view is fortified if one looks at the balance sheet of the firm. In Model Real Estate developers the stock of land as that 31 March 2012 is 21.66 crores, the stock of premises is 15.51 crores and the advance for land and premises is 5.09 crores so therefore there is a continuous increase in the assets which reflect an increment in terms of value of land in model real estate developers while the same does not emanate from the analysis of the balance sheet of the company. We wish to point out that therefore the object was that gradually over a period of time land bank would be cre....
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....ordinary course of business and the inter unit account is treated as current account transaction. It was in the interest of the business of MCPL to lend continuous support to MRED because of 25 long years of business association in the same field. To make each other's business viable and profitable, to increase the client base by launching projects and to create more better infrastructure it was necessary for MCPL to keep on funding MRED or vice versa. 3. Since inception and till date there have been continuous business transactions between both these entities. (Details of such transactions with documentary evidence enclosed). There are numerous instances wherein MCPL has sold/allotted premises as consideration for settlement of land dues of MRED, similar is the case with MRED allotting premises to MCPL. 4. There was never an intention of monies being advanced as "loans and advances" recoverable from inter unit. It was only transfer of funds in the normal course of business and no loans were given. Reliance is place on the decision of Hon'ble Delhi High Court in the case of CIT v/s Creative Dyeing and Printing Pvt. Ltd. (2009) 318 ITR 476 (DEL), wherein it was held th....
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....account. Bank transferred these amounts only to regularize the over drawings and to clear the cheques issued for the purpose of business. Bank also has transferred on certain occasions amounts from the account of MCPL to MRED even when there was positive balance in the books of MRED, but the balance was not sufficient to clear the cheques issued by MRED. Similar transfer has been done from the bank account of MRED to MCPL when there was insufficient balance in the bank account of MCPL or the account was overdrawn. All such transfers are absolutely in the normal course of business and to facilitate smooth flow of operations. Transfer of monies from MCPL to MRED directly by the bank is to fulfill the commercial obligations casted on MCPL vide terms of loan sanction letter. The Bank's loan sanction letter to MRED clearly stipulates that MCPL shall be the guarantor for monies advanced. The banker in their letters, have mentioned that they themselves directly transfer monies to regulate the OD account of MRED. This practice is being carried out since inception. Transfers are on account of legitimate business considerations. All supporting documents to explain the above facts have....
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....ated in section 2(22)(e) since there is no payments being made and these are only book entries they do not constitute amounts paid as deemed dividend. In the following cases it has been held that provisions of deemed dividend are not attracted to journal entries: (i) 90 ITR 13 (Mad) - Page 20-24, at page 22, 1st para- it has been held that payment means outgo of money - mere debit entry not sufficient to attract 2(22)(e). (ii) 187 ITR 308 (SC) in context of 80G - at page 310 - "sum paid" - means money and not donation in kind. (iii) 56 ITR 52 (SC) - in context of 36 (i)(3) at page 57 - last Para not every debit is loan. 14. Other than the direct credits into the bank account of MRED from MCPL effected by the bankers, there are credits on account of cheques of clients of MCPL deposited in the account of MRED. Such entries are usually on account of cheques wrongly being issued by the clients of MCPL in the name of MRED, Similar are the cases where clients of MRED have issued cheques wrongly in the name of MCPL total amounting to Rs. 1,96,06,151/-. Total amount credited of Rs.2,06,86,388/- due to such wrongly issued cheques into the account of MCPL cannot constitute paymen....
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....hen the balance was available with either of the entity, the banker used to transfer the monies directly su-motto to cover the over drawings or to clear the cheques of the entity where no funds were available. 16. Besides above, an amount of Rs. 1,59,76,186/- is paid towards income tax dues of MRED directly from the bank account of MCPL. By no stretch of imagination payments made towards Income Tax dues can constitute benefits in the nature of Deemed Dividend, because the recipient in such case is the Central Gov., and not the shareholders of MCPL or their entities. 17, Points to be considered based on above: A) The amounts mentioned in the Show Cause Notice, based on appraisal report is not correct. The investigation wing has included even journal entries in the credit summation. Total amount of credit journal entries included in SCN is Rs. 5,19,92,2607-. The same needs to be rectified as journal entries are only adjustment entries and will never amount to actual payments being made. For journal entries, there is no recipient of monies and they are only book entries. The same needs to be reduced from the total credit summation. B) An amount of Rs. 6,02,15,000/-transfer....
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....en. Usually a loan or an advance, has a particular pattern and so does the repayment. F) In the present case there have been no instances, whereby, monies were transferred from MCPL to MRED and the same was given from MRED to the shareholders of MCPL as loans and advances by MRED. Even the transfers between MCPL and MRED were made due to legitimate business requirements and not with the intention to avoid payment of Dividend distribution Tax. G) Provisions of Section 2(22)(e) are not applicable to the assesse primarily because :- (a) No incriminating material was found or brought on record for the proposed addition. Reliance is placed on decision of Mumbai ITAT in the case of Gurendra Singh Baba in ITA No.55. . (b) The investigation wing never proved that the amounts given by MCPL to MRED are in the nature of loans and advances in the guise of deemed dividend and direct benefits have been conferred on the shareholders of the MCPL; (c)The investigation wing has itself accepted the fact that there exists business connection between both the entities, which is evident from the SCN itself. Once the business connection is established, how can then the amounts transferred ....
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.... reason being that the latter deals with the search and seizure and the former deals with assessment in the case of search etc. Thus, the two areinextricable linked with each other, which implies that existence of books of accounts, incriminating documents or unaccounted assets is or are sine qua non of making assessment under this provision. In the case of assessee, all the facts were disclosed in the return of income, the books and accounts were the regular books of accounts and since the assessments were concluded up to the date of search, the amount proposed to be added as undisclosed income, cannot be said that it was undisclosed or unaccounted. From all what is stated above it is apparent and evidently clear, that none of the amounts received from MCPL constitutes deemed dividend in the hands of the MRED or the share holders of MCPL Hence, I humbly request your goodselves to apply your prudent judgment in light of what is submitted detailed reply and documentary evidences submitted to you and drop the entire proposed addition. The proposed addition, will not only create paper demand but will also de-moralize an honest tax payer and will further dampen the business spirits.....
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....if so please clarify? Ans. There is no agreement as such for inter transfer of funds. Normally such transfers are effected on oral instructions from the managing Partner. Q. 13. Is there any business transaction between the firm and the company. If so, please clarify. Ans. No, there is no business transaction as such between the company and the firm. Q.14. During the course of Search Proceedings u/s 132 of the IT Act 1961 in the case of M/s Models Real Estate Developers at 3rd Floor, Joffre Residency, Behind Goa College of Pharmacy, Panaji, Goa on 31.01.2012, no agreements/MoU between M/s Models Construction Pvt Ltd. and M/s Model real Estate Developers have been found? Please confirm the same. Ans. I confirm that there is no agreements/MoU between M/s Models Construction Pvt Ltd. and M/s Model real Estate Developers." On detailed examination of books of accounts of MCPL and MRED , it was observed by the AO that the loans and advances given by MCPL to MRED from the assessment year 2006-07 to assessment year 2012- 13 amounts to Rs.50,99,11,226/- which were mostly given for non business purposes , and the loans and advances which were given for business purposes were....
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....company. Q.No.7 Please give the details of your shareholding number of shares and percentage of holding in M/s Models Construction Put. Ltd, (MCPL) M/s Models Real Estate Developers, (MRED) M/s Sonesta Inns Put Ltd (SIPL). Ans: At present I am not able to give the details. I will furnish all the details within two days of time. Q. No. 8 Please give the details of all business transactions and evidences to prove the same. During the course of search at your business premises/residence no agreements/evidences were found. Please comment. Ans: Whenever money is required by any of the companies MCPL & M/s SIPL or the firm MRED, the funds are transferred on availability and need basis and the same will be treated as advances. Some documents like two sale deeds between the sister concerns which were lying in my office, have already been submitted to your office. In case there are any agreement /sale deeds between the companies with respect to purchase/selling of land properties/flats, the same will be submitted to your office. Q. No .9 During the Search on 31.01.2012 at the office of MCPL no documentary evidences were found to prove the actual purpose of advances made by MC....
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....ransfer funds. (c) Mr Peter Vaz had stated vide his statement dated 23/02/2012 that apart from business related transaction such as purchase/sale of land/flats, whenever money is required by any of the concerns MCPL and MRED, the funds were transferred on availability and need basis and the same were treated as advances. Thus, other than above worked out business fund transfers which is reduced from the total advance, all the funds have been transferred from MCPL to MRED purely on the basis of availability of funds and business needs. (d) Though it is claimed that above mentioned transactions are booked under the head Sundry Debtors/Sundry Creditors in the books of MCPL/MRED respectively, any financial transactions other than business related transactions between MCPL and MRED assumes the nature of advance. (e) Moreover, other than business related transactions which is considered above, it is noticed in the ledger extracts that it is mentioned in the particulars of each advance made as 'being transfer of amount from a/c... to a/c,..' only and hence all these transactions are in the nature of pure transfer of funds not related to business transaction. (f) Furthe....
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....tion Pvt Ltd to construct its project Models Legacy. Hence out of the total loans and advances amounting to Rs.3,91,31,771/- received during the period pertaining to this assessment year, credit for an amount of Rs.65,24,879/- (Rs.3,94,888 + Rs.37,19,991 + Rs. 14,10,000 + Rs. 10,00,OOO/-) is being given by considering the same as in the nature of business transaction, thereby not attracting the provisions of section 2(22)(e). However the asessee has neither during the course of the search proceedings nor during the course of the assessment proceedings been able to prove any business connection for that balance amount of Rs.3,26,06,892/- (Rs. 3,91,31,771- Rs.65,24,879) received as a loan and advances." The AO had also rejected the contention of assessee wherein the assessee tried to explain that the amount is nothing but transfer effected by the bank directly when the bank accounts were overdrawn. The assessee has also contended that the MCPL was guarantor for the MRED with respect to loans availed by MRED from banks, which necessitated transfer of money from MCPL to MRED when the limit of the Bank OD of MRED had crossed. It was observed by the AO that the Bank OD limit of MRED wa....
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.... the hands of MRED . Thus an addition of Rs. 1,63,03,446/- being 50% of Rs.3,26,06,892/- was considered for taxation in the hands of the assessee and balance of Rs. 1,63,03,446/- being 50% of Rs.3,26,06,892/- was considered for taxation in the hands of Shri Edgar Bras Afonso for the impugned assessment year. Since the Assessee Shri Peter Vaz and Shri Edgar Braz Afonso were covered by the section 5A of the Act, 50% of Rs.1,63,03,446/- i.e. 81,51,723/- for the assessment year 2007-08 was added in the hands of Shri Peter Vaz as deemed dividend u/s. 2(22)(e) of the Act , and balance of Rs. 81,51,723 was added to the income for the assessment year 2007-08 in the hands of his spouse Mrs.Natalina Vaz as deemed dividend . Similarly Rs.81,51,723/- for the assessment year 2007-08 was taxed as deemed dividend u/s 2(22)(e) of the Act in the hands of Mr. Edgar Braz Afonso and the balance of Rs.81,51,723/- was added as deemed dividend u/s 2(22)(e) of the Act in the hands of his spouse namely Mrs Vanda Afonso, also both being covered by section 5A of the Act , vide assessment order dated 31.03.2014 passed by the Assessing Officer in the case of Mr. Peter Vaz u/s 153C r.w.s. 143(3) of the Act , as....
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.... . It was submitted that the firm MRED has saved interest payable to the bank on the OD/CC accounts by these adjustments done by the banker, while on the other hand MCPL had not lost anything as in any case MCPL would not have earned any interest on current accounts maintained with the Bank. Thus , it was submitted that it was advantageous and beneficial for the assessee group as a whole if there is no overdrawn balance in the OD/CC accounts of MRED. It was also submitted that in earlier years 2003-04 to 2005-06 MCPL was receiving funds from MRED which is the reverse of the present situation as MRED funds were utilised by MCPL which was also done by the banker of its own by adjustments to the bank accounts to reduce OD amounts. The assessee placed on record these accounts before the learned CIT(A). The assessee submitted that in those years this arrangement was again beneficial to the group as MCPL saved on interest payable to the bankers on its over drawn accounts. It was submitted that these transactions were made in the course of day to day business and for business purposes and the question of invoking provisions of Section 2(22)(e) of the Act does not arise as such transaction....
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....submitted that there is no documentation, agreement or MOU between the company MCPL and the firm MRED in this regard. But the intention was very clear that the land will be entrusted by the firm MRED for the development purpose to the company MCPL and hence MCPL agreed to stood guarantor for loans availed by MRED from Bank. It was also submitted that perusal of the Balance Sheet of the firm MRED will reveal that funds from the bank were utilised mainly for acquisition of the land. Balance sheet of the firm MRED and company MCPL were submitted before the ld. CIT(A) and it was submitted that the said transactions between MCPL and MRED cannot be brought within the ambit of deeming fiction created by Section 2(22)(e) of the Act as deemed dividend. It was further submitted that these amounts which were taken by the firm MRED from the company MCPL were never utilised for the personal purpose of the partners of the firm MRED. Without prejudice to the above contentions, it was submitted by the assessee before learned CIT(A) that there was no incriminating evidence which was found during the course of search conducted by Revenue and the issue is not related to any incriminating material fou....
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....0,32,634/- 5 2010-11 12,76,91,164/- 30,08,57,131/- 6 2011-12 7,30,10,750/- 43,83,73,506/- 7 2012-13 8,75,33,761/- 47,85,26,714/- During the course of assessment proceedings, the appellant claimed that the A.O has misunderstood the facts of the case and has wrongly invoked the provision of S,2(22)(e) in the case of the appellant. The facts and arguments of the appellant are summarized as under: i) The transaction between MCPL and MRED cannot be termed as "loans and advances" as no interest has been paid by MRED to MCPL and vice versa. Normally a loan transaction shall be interest bearing. ii) In this case, its not that only Models Construction Pvt. Ltd. (MCPL) has paid/transferred money to Models Real Estate Developers(MRED) but, when the need arose even MRED has paid money to MCPL. Details of which are tabulated as under: S.No. A.Yr Amount of Credits from MRED to MCPL (in Lakhs) 1 2007-08 97.19 2 2008-09 470.58 3 2009-10 522.42 4 2010-11 413.42 5 2011-12 443.66 6 2012-13 354.87 (iii)The transactions are in the nature of current account and not loans. iv) It is a fact that in the years under consideration more money has flowed from the....
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....of search proceedings no evidence was found indicating the real intention of giving such loans and advances to MRED by MCPL. No MOU(Memorandum of understanding) between MCPL and MRED have been entered into. When statement of an accounts executive Shri. Ajit Banaulkar was taken, he said that these transfers of money was effected through oral instructions of Mr. Peter Vaz. The A.O. further observed that the company M/s Models Construction Pvt. Ltd has never distributed any dividend since incorporation and such loans and advance are a ploy to take out the distributable profits from the company and avoid payment of Dividend Distribution tax with above observation, the A.O. proceeded to calculate chargeable deemed dividend in the hands of the shareholders of the company. The A.O. did not charge any deemed dividend for A. Yr. 2006-07 as, in this year, the company M/s Models Construction Pvt. Ltd owed money to the firm M/s Models Real Estate Developers and not vice-versa. In A.Yr. 2007-08 and subsequent assessment years, the company had give more money to the firm, the A.O. calculated deemed dividend in the hands of the shareholders and taxed the same. On the basis of the facts discuss....
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....he other hand, the appellant has placed reliance on many decisions wherein it has been held that when the funds are advanced for the business purposes such advances do not constitute deemed dividend in the hands of the share holders viz Jhamu U. Sughand Vs DCIT[99ITD 1(Mum.)], Sh. Satchidanand S. Pandit Vs ITO [19 SOT 213 (Mum.], I have no doubts that funds from one concern to another were transferred for the purpose of business as both the concerns have similar business and common control. In view of the above discussion and facts of this case, in my opinion no dividend arose u/s 2(22)(e) in the hands of the appellants Mr. Peter Vaz, Mr. Edgar Afonso and their spouses u/s 5A of the I. T. Act and addition made on this account is hereby deleted. Since, the facts are identical in subsequent years as well this order shall be applicable for all the subsequent years. whereinaddition has been made u/s 2(22)(e) of the l.T. Act. Since the appellant are covered under Section 5A of the I.T.Act this order shallbe applicable in the hands of the spouses of the appellant as well." Thus, in nut-shell theld.CIT(A) accepted the contentions of the assessee and deleted the addition made in....
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.... MRED that the Assessing Officer made the additions in the hand of the partners of the said firm MRED namely Mr. Peter Vaz and Mr. Edgar Braz Afonso (and their spouses as they are covered by Section 5A of the Act ) substantively with respect to the amounts of loans and advances which were received by MRED from MCPL as these partners are beneficiaries of the said loans and advances and are hit by deeming fiction created by Section 2(22)(e) and the said amounts were rightly brought to tax on substantive basis in the hands of assessee and Mr Edgar Braz Afonso and their spouses, while protective additions have been made in the hands of MRED. It is the say of the Ld. DR that the huge amounts were advanced by the said company MCPL to MRED for no business purposes and the said non business advances were rightly brought to tax by Revenue u/s. 2(22)(e) of the Act in the hands of the partners wherein the said firm has utilised the funds received from MCPL for the benefits of the partners of MRED. There is no agreement between the parties namely MCPL and MRED which is an admitted position by these concerns and the assessee. The Ld. Departmental Representative relied upon the assessment order ....
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....by way of huge profits earned by the firm which were mainly due to the interest free fund received from the company MCPL by the firm MRED which were used by MRED for the purpose of purchase of land / properties in its own name . It is the say of the learned Departmental Representative that it is only because of huge loans and advances received interestfree from MCPL by MRED that the firm MRED was able to make huge profits otherwise the said firm MRED would have been in losses . The said huge profits so earned by MRED were shared equally by the partners namely Mr. Peter Vaz and Mr Edgar Braz Afonso as both of them are partners in MRED with 50% shares of each in profits of MRED. It was further submitted that firm would not have made profits and would have been in losses if the funds would not have been transferred to the firm MRED by the company MCPL. The said firm also paid salaries and interest on capital to Mr Peter Vaz and Mr. Edgar Braz Afonso and hence these partners were benefitted by way of huge share of profits earned by MRED, salaries from MRED and interest on capital received by the said partners from MRED. It was submitted that said details are placed in paper book by the....
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.... by MRED to acquire lands and hence there is benefit derived by the said firm MRED from the funds utilised of MCPL by MRED without any interest being paid by MRED to MCPL. It was further submitted that some cheques were deposited wrongly in the account of the firm MRED belonging to the company MCPL and vice versa for which no additions have been made by the Assessing Officer u/s 2(22)(e) of the Act and appropriate credit/set off has been granted for said transactions. In any case the Ld. Departmental Representative submitted that the Revenue has given due credit for all the transactions wherein the assessee was able to prove business nexus with respect to inter-se transactions for business purposes and no prejudice whatsoever is caused to the assessee with respect to business transactions and only non-business transactions wherein the assessee was not able to prove business nexus are brought to tax by making additions within deeming fiction u/s 2(22)(e) of the Act being deemed dividend in the hands of the assessee. It is further say of the Ld. DR that satisfaction note was duly recorded by the AO of the assessee ,and the copy was given to the CA of the firm MRED and the assessee vi....
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....y deeming fiction created by Section 2(22)(e) of the Act as deemed dividend , to the extent MCPL possesses accumulated profits . It is further say of the Ld.DR that assessee has not raised any legal ground challenging the legality and validity of search before the lower authorities and it is only by way of written submission such contentions were raised before the Ld.CIT(A). It is further the say of learned Departmental Representative that the CO challenging the legality and validity has been filed late by 248 days without any justification for filing the CO late on flimsy ground that the assessee was wrongly advised by professionals .It was submitted that no affidavit of the professional who ill-advised the assessee has been filed which is in breach of ITAT Rules, 1963. It was also submitted that CO was filed late deliberately by the assessee which is 42 months from the date of search so that the limitation period as prescribed in the Act for taking recourses to other alternative remedies by the Revenue such as recourse to Section 147/148 of the Act or 263 of the Act, expires and then Revenue will not be able to take any alternative action against the assessee. It was submitted th....
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.... Cashen Diniz Chalta No.11 of P.T. sheet No. 145 Deed of Sale 13.11.2006 Caranzalem 1677 sq. Mts 40,00,000/- D MCPL MRED Chalta No. 11 of P.T. sheet No. 145 Deed of Sale 30.03.2011 Caranzalem 1677 sq. Mts 76,80,000/ Thus, it was submitted by learned Departmental Representative that perusal of the above chart clearly revealed that MRED acquired land at Taleigao for Rs. 22 lacs and sold the same to MCPL for Rs. 38 lacs. Similarly, it was submitted by learned Departmental Representative that the land at Caranzalem was acquired by MRED for Rs. 40 lacs and sold to MCPL for Rs. 76.80 lacs . Thus,it was submitted that even in these two sale transaction of land entered into by MCPL and MRED, MRED made profits by selling the land to MCPL at prevailing market prices on the date of sale which were offered for taxation by MRED in the return of income filed with the Revenue, but the funds out of which these lands were acquired by MRED were of MCPL which were granted as interestfree loans and advances by MCPL to MRED. With respect to the contentions of the assessee that banks have transferred the funds from company MCPL bank accounts to the bank account of the firm MRED of its ow....
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.... MRED as deemed dividend u/s 2(22)(e) of the Act in the hands of the assessee on substantive basis as the assessee has benefitted by grant of these loans and advances being partner of MRED. It was submitted by learned Departmental Representative that ld.CIT(A) has admitted additional evidence u/r 46 A of the Income-tax Rules, 1962 wherein paper books consisting of 677 pages was filed before learned CIT(A) and these documents were not placed before the AO. It was submitted that learned CIT(A) erred in admitting these additional evidences without forwarding these evidences to the AO for his comments and without calling remand report from the Assessing Officer and hence Rule 46A of Income-tax Rules, 1962 is clearly violated. Thus it was submitted that the appellate order of the ld.CIT(A) be set aside and the assessment order of the AO be restored. The learned Departmental Representative would rely on the orders of the Assessing Officer to support his contentions. On the other hand ld. Counsel for the assessee submitted that CO has been filed with 248 days delay with application for condonation of delay. it was submitted that no ground were raised before the CIT(A) challenging the leg....
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....ection 153C of the Act . It was submitted that no incriminating material belonging to the assessee was found during the course of search on MRED and MCPL, and hence no notices u/s 153C of the Act could have been issued to the assessee. Thus in nut shell it was submitted that there was no satisfaction note recorded by the AO of the person searched and there is no incriminating material found during the course of search . The learned counsel for the assessee would submit that the transactions between MCPL and MRED were business transactions. The Ld. Counsel for the assessee submitted that the land which was transferred by the firm MRED to the company MCPL were adjusted by the company MCPL against the balances recoverable from the firm MRED and no amount of money was paid by the company MCPL to the firm MRED and hence these are current account transactions which were rightly considered to be business transactions by learned CIT(A) and additions were deleted by learned CIT(A). It was submitted that the firm MRED was earlier dealing with the company MCPL wherein amount was advanced earlier by the firm MRED to the company MCPL wherein MRED did not charged any interest from MCPL , and now....
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....aged in business of builders and construction , and these are current account transactions between these entities and hence are outside the purview of Section 2(22)(e)of the Act. It was submitted that the payments for the land which were transferred by the firm MRED to company MCPL were settled by way of journal entries adjustments and no payments were made by MCPL to MRED as the payments were adjusted against the receivable of MCPL from MRED. It was further submitted that the Assessing Officer has brought to tax on substantive basis the partners of MRED u/s 2(22)(e) of the amount allegedly advanced by MCPL to MRED while no money has flown from the firm MRED to the partners of MRED ( who are also Director-shareholders of MCPL) and hence no benefit has been availed by the afore-stated directors-shareholder / partners of MCPL and MRED viz. Mr Peter Vaz and Mr Edgar Braz Afonso who are the shareholders / partners of the company/ firm as no outsider were involved in MCPL and MRED. It was submitted that the facts as given by the ld.DR are correct and there is no dispute about the facts of the case. The Ld. counsel for the assessee would rely on the decision of Hon'ble High Court of Delh....
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....e and Mr Edgar Braz Afonso for which in-fact additions were made by the Assessing Officer on substantive basis in the hands of Mr Peter Vaz and Mr Edgar Braz Afonso. The advances made by MCPL to MRED and accumulated profits of MCPL are detailed hereunder in the chart : F.Y. Name of the person / Concern from whom advance is received Total loan / Advances during the year Accumulated profit with M/s. MCPL 2005-06 MCPL 2,77,75,118/- 2,15,70,177/- (Surplus in P & L Account) 2006-07 MCPL 5,20,14,366/- 8,04,62006/- 2007-08 MCPL 4,71,81,347/- 12,86,19,493/- 2008-09 MCPL 9,46,68,620/- 15,00,32,634/- 2009-10 MCPL 12,76,91,164/- 30,08,57,131/- 2010-11 MCPL 7,30,10,750/- 43,83,73,506/- 2011-12 MCPL 8,75,33,761/- 47,85,26,714/- The additions were made on substantive basis in the hands of Mr Peter Vaz and Mr Edgar Braz Afonso by the AO u/s 2(22)(e) of the Act w.r.t. loans and advances made by MCPL to MRED to the extent MCPL possesses accumulated profits, as detailed in the chart hereunder, while additions were made on protective basis in the hands of MRED. It is pertinent to mention that as since Mr Peter Vaz and Mr Edgar Braz Afonso are covered by Section 5A of ....
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....tent 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 ; [(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised 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; [(iv) any payment made by a company on purchase of its own shares from a shareho....
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.... on the instructions of Mr.Peter Vaz and these transaction were made keeping in view the financial contingencies and deficiencies from one bank account to another. It is pertinent to mention that during search operations no MOU/Agreement between MCPL and MRED were found which could evidence that these transactions were business transactions between MCPL and MRED, nor the assessee's were able to bring on record MOU/agreements to prove that these loans and advances were business transactions. The said Mr. Peter Vaz in statement recorded u/s.131 of the Act confirmed that there are business transactions between the firm MRED and the company MCPL. He also submitted that there are sale agreements / agreements on record between MCPL and MRED , wherein land bought by MRED were transferred by firm MRED to the company MCPL. As we will see later in this order that the assessee could bring on record only two sales instances of sale of land by MRED to MCPL for miniscule amount of Rs. 38 lacs and Rs. 76.80 lacs respectively while the loan and advances granted by MCPL to MRED stood at Rs. 50.99 crores during assessment year 2006-07 to assessment 2012-13. In any case no prejudice is caused to the ....
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.... these huge amount of money by MCPL to MRED.We have also observed that the Revenue has already given credit and set off for all the bonafide business transactions between MCPL and MRED wherein the assessee could prove business nexus, business purpose and exigency and no additions were made under the deeming fiction as deemed dividend u/s.2(22)(e) of the Act with respect to loans and advances given by MCPL to MRED. Thus, all genuine business transactions between MCPL and MRED were not brought to tax by Revenue under the provisions of Section 2(22)(e) of the Act and no prejudice is caused to the assessee. The learned counsel for the assessee could not point out a single instance wherein Revenue has brought to tax advances within ambit of Section 2(22)(e) of the Act which were paid by MCPL to MRED and which could be shown that the assessee contended it to be for bonafide business purposes but the Revenue had declined to accept the same as bonafide business transaction. However, with respect to those transactions where the amounts were transferred from MCPL to MRED wherein the assessee could not explain or prove the business nexus , business purpose and business exigencies , the Assess....
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....r to the bank account of the borrower to recover overdrawn amount in the borrowers' bank account. Thus this contention of the assessee is rejected that the bank has transferred money of its own without recourse to assessee from the bank account of MCPL to bank account of MRED . In any case even if the argument of the assessee is accepted that the bank transferred the money from the bank account of MCPL to bank account of MRED of its own , it was for the said company MCPL to have ensured that such transactions should not have taken place at the first place in violation of provisions of Section 2(22)(e) of the Act. We have also after perusal of the various ledger accounts extracts of MCPL and MRED, bank accounts and the financial statements of the MCPL and the MRED have come to the conclusion that funds are systematically transferred from bank accounts of MCPL to bank account of MRED wherein huge stock of land bank / properties were built by the said partnership firm MRED in its name out of interest-free funds received from MCPL. It is observed from the financial statements that as on 31.03.2012 firm MRED held stock of land of Rs. 21.66 crores , stock of Premises held were Rs.15.51 c....
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....and bank / properties out of the funds received from the company MCPL while in two cases, the said land / property so acquired by the MRED out of the interest-free funds received from MCPL had been sold back to MCPL by MRED at profits , wherein the said profits on sale of land was also offered for the tax by the MRED in its return of income filed with revenue. The said firm MRED sold the two properties at Rs. 38 lacs and Rs 78.60 lacs which is a miniscule amount as compared to the total advances of Rs. 50.99 crores released by MCPL to MRED during assessment year 2006-07 to assessment year 2012-13. It is also observed in respect of two lands sold by MRED to MCPL as per chart in preceding para's that MRED acquired land at Taleigao for Rs. 22 lacs and sold the same to MCPL for Rs. 38 lacs. Similarly, it is observed that the land at Caranzalem was acquired by MRED for Rs. 40 lacs and sold to MCPL for Rs. 76.80 lacs . Thus, it is observed that even in these two sale transaction of land entered into by MCPL and MRED, MRED made profits by selling the land to MCPL at market prices which were offered for taxation by MRED but the funds out of which these lands were acquired were of MCPL whic....
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.... declared dividend while the money finally reached the beneficiaries i.e. partners of MRED namely Mr Peter Vaz and Mr Edgar Braz Afonso as detailed above. Apart from share in profits of MRED, salaries were paid by the said firm MRED to partners and also interest on capital was paid by said MRED to both the partners namely Mr Peter Vaz and Mr. Edgar Braz Afonso. Thus to say that the afore-said partners of MRED who are also the registered and beneficial shareholders of MCPL holding 50% shares each had not benefited out of the funds transferred by MCPL to MRED will be an fallacious argument and is hereby rejected keeping in view facts and circumstances of this case as set out above in preceding para's. It is one of the direct case whereby the partners of the firm MRED has benefited out of the huge interest-free advances being given by MCPL to MRED and hence it is thus, the direct infringement / violation of the provisions of section 2(22)(e) of the Act. In our considered view , the AO has rightly invoked the provisions of Section 2(22)(e) of the Act and has brought to tax the said loans and advances granted by MCPL to MRED , within the deeming fiction of Section 2(22)(e) of the Act by....
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....re also before the AO . We have no reason to doubt the certification given by the assessee and statement at bar made by the assessee counsel before us that all these 677 pages of evidences as are contained in paper book filed before us were in-fact also filed before the AO and learned CIT(A) and hence contentions of the learned DR that Rule 46A of the Income-tax Rules, 1962 is violated as these evidences before being admitted by learned CIT(A) were not forwarded to AO for his comments and remand report are hereby rejected. We do not find any infirmity in the assessment order of the AO which we are inclined to sustain/confirm and we have also observed that the appellate order of the ld.CIT(A) cannot be sustained on merits and as on law as learned CIT(A) merely accepted the contentions of the assessee without any evidences , which in-fact pained us after reading the appellate orders of the learned CIT(A) , and therefore we are inclined to set aside the appellate order of the learned CIT(A), and hence the assessment order passed by the AO is hereby confirmed on merits in which we do not find any infirmity and Revenue appeal is allowed. We shall deal with CO filed by the assessee w.r.t....
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....T(SS)A No.09-13/PNJ/2015 and ITA no. 412/PNJ/2015 for assessment year(s) 2007-08 to 2012-13 shall apply mutatis mutandis to the issue involved in Revenue's appeal so far as loans and advances granted by MCPL to MRED in the case of Mr. Edgar Braz Afonso in IT(SS)23-17/PNJ/2015 and in ITA No. 413/PNJ/2015 for assessment year(s) 2007-08 to 2012-13. We order accordingly so far as issue of granting of loans and advances by MCPL to MRED. 16. In the case of Mr. Edgar Braz Afonso , there is an additional issue involved with respect to the loans and advances granted by Sonesta inns Private Limited to Mr. Edgar Braz Afonso during assessment year 2009-10 to 2012-13 which is adjudicated as under in the succeeding para's. First we shall take up Revenue appeal in the case of Mr. Edgar Braz Afonso in IT(SS) A No. 25/PNJ/2015 for assessment year 2009-10. During the Course of the search proceedings conducted u/s 132 of the in Act the business premises of MCPL on 31.01.2012 and subsequent survey u/s.133A of the Act at the business premises of the M/s Sonesta Inns Pvt Ltd., it was observed by the AO that the Mr. Edgar Braz Afonso and Mr. Peter Vaz were holding 50% shares each in the company namely ....
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....Inns Pvt. Ltd. ought not to be added as deemed dividend in his hands. In regard to the above we now proceed to submit an explanation which deals with both the legal aspects of the matter as well as the factual matrix thereof. The addition sought to be made is on account of a deeming fiction contained in section 2(22) (e). Since the various limbs of the above provision will be dwelt upon exhaustively during the course of our submission for the sake of clarity the relevant parts of the said provision is reproduced hereunder (22) "Dividend" includes-........ (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing apart 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....
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....of interpretation with that perspective. We are stating this for the specific reason that what are otherwise commercial transactions between two related entities are being sought to be brought into the tax net through this fiction. It is necessary to bear in mind the purpose for which this provision was brought on the statute book Prior to its introduction there was on the statute section 104 which sought to tax income which 'remained in the hands of the company as undistributed profits. The said provision was deleted and in its place this particular provision was brought on the statute book. The avowed object of this section is to tax something which otherwise is understood both by the payer and the receiver as dividend but is camouflaged as a loan or advance. It is clear from the factual matrix the only limb that attracted it is the alleged loan or advances to the shareholder which has substantial interest. Rebuttal on legal principles We now proceed to analyse the provision in detail to establish that the said provision cannot apply. The provision will apply only in a situation where there is a "loan or an advance" to the share holder which satisfies the tests laid ....
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....y to point out that one has to deal with real-life situations and consider commercial exigencies and commercial expediency is when is appreciating the term loans or advances in this context. It is only if the payment of funds out of the coffers of a company to a share holder or his concern is for the purpose of avoiding tax that one can treat them as deemed dividend under section 2(22)(e) . Even if one takes a view that one has to interpret the provision strictly one cannot consider the transactions between the company and the firm as a loan or advance. Factual matrix will show that monies have flowed from the coffers of the company to Mr. Edgar during these years but in certain part of the years the position was exactly the reverse this cannot by any stretch of imagination be the action of a company which is distributing dividend. In fact if there is payment of dividend there would be always single directional flow. It is apparent that despite the fact that the closing balance is a NIL balance monies have flowed also from the assessee to the company. As is being explained by us it is the only on account of a fact that the monies flowed for commercial expediency and were never for ....
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....ort) and in the specific register maintained by the Company. In the instant case, neither of the conditions are satisfied to treat the amount given as "Loan and Advance ". I am enclosing copies of Audit Report for the relevant assessment year as Annexure-2 to support the fact that the amount given has not been treated as "Loans and Advances" even by the Statutory Auditor of the Company. Had it been a loan and advance, the auditor would have been the first person to report the same in his audit report as bound by the Companies Act, 1956 and Professional obligation. Financial background of Mr. Edgar Afonso: Mr Edgar Afonso comes from a very strong financial background. His family is considered as "Landlords" in the village of Calangute. Besides his personal business that of construction, he also is 50% owner of Models Group. Both personally and businesswise, he has a very strong financial background. This itself explains that there is absolutely no need for him to resort to the practice of taking monies from Sonesta Inns Pvt. Ltd. for his personal gains. Most important fact or reasons for transfer of monies was that prior to 2004-05, Edgar as a Civil Contractor used to ca....
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....l name on behalf of Sonesta. Immediately after completing all the necessary formalities, on 19/03/2012 Edgar vide an agreement for sale transferred the property in the name of Sonesta Inns Private Limited as stipulated in the agreement dated 28/12/2011. The same is appearing as asset in the books of Sonesta Inns Private Limited and in the audited accounts for the year ended 31/3/2012. (Copies of audited account for 31/3/2012 enclosed as annexure-3 and copies of agreement enclosed as annexure-4). As stated in your notice that in the preliminary statement of Mr. Edgar Afonso, he stated that land is purchased to construct bunglows for specific type of persons/clients, he expressed his intention as a civil contractor considering the fact that Sonesta being a separate legal entity also qualifies for a specific type of person/client. He never said that the land was not for sonesta. Subsequently he has given a statement that the said land is for Sonesta and has supported the same with necessary agreements duly registered / notarized. From what is stated above it is clear that the entire flow of monies was on account of current account transaction and by no stretch of imagination can be....
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....ol maintenance' and 'Furniture and Fixtures Repairs'. The assessee submitted that he had repaid an amount of Rs.55,00,000/-during the year itself while the balance amount of Rs.19,84,221/- was adjusted against the building repairs and salary payable to him by SIPL, which has been offered by him to tax in his individual capacity in the return of income filed with the Revenue for the assessment year 2009-10. It was further submitted that the said amount of Rs. 19,84,221/- was paid to him by SIPL, after deduction of taxes at source. The AO accepted the contentions of the assessee so far as the amount of Rs.19,84,221/- was concerned which was towards 'Director Remuneration' and also towards 'building repairs and renovation' , against which no additions were made by the AO . Further, the AO observed that no explanation has been given by the assessee with respect to the advance of Rs.55,20,000/- received from SIPL by the assessee and the same was treated by the AO as loans and advances and taxed as deemed dividend u/s 2(22)(e)of the Act in the hands of the assessee. With respect to the Financial year 2009-10 it was observed by the AO that the assessee has received Rs.70,20,000/- as loan....
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....so observed by the AO that nothing prevented SIPL from making direct payment to the employees towards bonuses and also no evidences were brought on record to support the claim. Hence, the genuineness of the transaction of Rs.25,94,757/- was disputed by the AO and the same was added to the income of the asseessee as loans and advances being hit by the deeming fiction created u/s 2(22)(e) as deemed dividend for the assessment year 2011-12 , apart from the addition of Rs. 86,05,243/- which advances were repaid by the assessee to SIPL during the same year. The assessee submitted details of expenditure of 9,96,930/- for the financial year 2010-2011 as observed by the AO from the ledger extract for which necessary credit/set-off was given by the AO and addition of Rs.1,12,88,285/- was brought to tax as loans and advances received and being hit by deeming fiction created u/s 2(22)(e) of the Act as the loans and advances received by the assessee were treated as deemed dividend and brought to tax. The AO observed that during the course of the recording of the statement on 29.03.2012 , the assessee has admitted that he has received an advance from the SIPL during the financial year 2008-09 t....
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.... for the assessment year 2012-13 within ambit of provisions and mandate of Section 2(22)(e) of the Act. Thus, the total advances being given by SIPL to the assessee for purchasing aforesaid land of Rs.1,20,00,000/- was treated as given for business purposes and no additions thereof was made to that extent by the AO. The assessee also could show that Rs. 2,00,000 was given by SIPL to the assessee towards 'Director Remuneration' , and Rs. 2,59,877/- was given by SIPL to assessee for 'Repair and maintenance' for which no additions were made by the AO during the assessment year 2012-13 , Thus Rs. 1,25,36,830/- stood added to the income of the assessee as deemed dividend u/s 2(22)(e) of the Act, out of total advance of Rs. 2,49,96,707/- received by the assessee during the assessment year from SIPL and balance as set out above was accepted by the AO as stood duly explained for business purposes as satisfactory explanation was given by the assessee . Since the assessee held substantial interest in the closely held company SIPL and to the extent of accumulated profits , the income being loans and advances received by the assessee and hit by deeming fiction created u/s 2(22)(e) of the Act w....
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....ssessee, Mr. Edgar Braz Afonso filed first appeal before the learned CIT(A) and reiterated the submission as were made before the AO. The ld.CIT(A) accepted the contentions of the assessee and deleted the additions as made by the Assessing Officer, by holding as under:- "However, in the case of the Mr. Edgar Afonso, he has received sums of money from the company M/s. Sonesta Inns Pvt. Ltd, and the A.O has treated part of the money as Deemed Dividend in the hands of Mr. Edgar Afonso, The appellant stated that the company M/s. Sonesta Inns Pvt. Ltd operates a Resort hotel and is managed by Mr. Edgar Afonso. In this company also, Mr. Peter Vaz and Mr. Edgar Afonso are 50% each shareholders. Mr. Edgar Afonso has his own account in the same Bank in which M/s Sonesta Inn has its account. Both these accounts were operated by Mr. Edgar Afonso in the best interest of the business and whenever there was any deficiency in any of the account, the money was transferred from one account to another to meet the business expenses. These transfers were necessitated by business considerations and no personal advantage was obtained by Mr. Edgar Afonso. The transfer of funds has been two ways necessi....
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.... case also be read in this instant appeal before the tribunal. We have considered rival contentions and perused the material on record including case laws relied upon by rival parties. We have observed that Sh. Edgar Braz Afonso i.e. the assessee is registered cum beneficial shareholder as well Director of M/s Sonesta Inns Pvt ltd i.e. SIPL holding 50% share in the said company and is directly covered by the provisions of Section 2(22)(e) of the Act being the holder of the shares of more than 10% in Sonesta Inns Pvt Ltd which is a closely held private limited company in which public are not substantially interested. This is an undisputed and admitted position between rival parties. It is also undisputed and admitted position between rival parties that Mr. Edgar Braz Afonso is covered u/s 5A of the Act. We have observed that the said company SIPL holds accumulated profits and the loans and advances given by SIPL to the assessee are added wherein business purpose or nexus could not be explained by the assessee to the extent of accumulated profits possessed by Sonesta Inns Pvt Ltd as deemed dividend in the hands of the assessee , as detailed hereunder:- F.Y A.Y Name of the Person ....
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....ase of Navnit Lal C. Javeri v. AACIT in (1965) 56 ITR 198(SC) has held the said provisions to be within legislative competence of legislature and the same was held to be not contravening Article 14 nor Article 19 of Constitution of India. The case laws relied upon by the assessee namely CIT v. Arvind Kumar Jain(supra) , CIT v. Raj Kumar (supra) and other cases does not support the case of the assessee as the said case laws relates to the advances made in the course of business, while in the instant case , the assessee could not prove the business nexus and business purpose for advancing huge amount of loan and advances by SIPL to the assessee from assessment year 2009- 10 to assessment year 2012-13 and in any case the Assessing Officer has given proper set off / credit for all the inter-se transactions between SIPL and the assessee wherein business nexus was established / proved by the assessee and also the AO has duly taken note of restricting the additions u/s 2(22)(e) of the Act keeping in view accumulated profits held by SIPL as per mandate of Section 2(22)(e) of the Act . The learned counsel for the assessee could not point out wherein the business nexus was established or pro....
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....tantial interest in the said company SIPL holding 50% of shares of SIPL (a company in which public are not substantially interested) , the ratio of the decision of the Hon'ble Bombay High court in the case of CIT v. Universal Medicare Private Limited(Supra) is directly applicable to the instant case and hence the AO has rightly brought to tax the said amount of loans and advances granted by SIPL in favour of the assessee without any business purposes and nexus, within the ambit of section 2(22)(e) of the Act by bringing to tax the same as deemed dividend , to the extent SIPL possessed accumulated profits, which assessment order of the Assessing Officer we confirm and sustain. We shall deal with CO filed by the assessee w.r.t. Revenue appeal separately in the succeeding paras' which will address issues' raised therein by the assessee in the CO. We order accordingly. 19. In the result the appeal of the Revenue in IT(SS) A No. 25/PNJ/2015 for assessment year 2009-10 in the case of Mr Edgar Braz Afonso is allowed. 20. As the issues involved in Revenue appeal in IT(SS) A No. 25/PNJ/2015 for assessment year 2009-10 are identical to the issue so far as grant of loan and advances by SIPL....
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....D for the assessment years 2007-08 to 2012-13 in IT(SS) A No. 41- 45/PAN/2016 and ITA no. 90/PAN/2106 for assessment year's 2007-08 to 2012-13. We order accordingly. 25. In the Result , all the Revenue appeal in IT(SS) A No. 41- 45/PAN/2016 and in ITA No. 90/PAN/2016 for assessment years 2007- 08 to 2012-13 are dismissed. 26 Cross Objections filed by the Assessee's : - These are the Cross Objections filed by the assessees in the Revenue's appeals. The Cross Objections have been filed on 17/08/2016. Each of the Cross Objection is delayed by 248 days. The assessees have filed affidavits giving reasons for delay in filing of the Cross Objections. The reasons given are that it was due to wrong professional advice from the earlier counsel. In the Cross Objections, the assessees have raised the following grounds:- "1. The order of the Learned Commissioner of Income-tax [Appeals] in so far as it is against the Respondent / Cross Objector are opposed to law, weight of evidence, natural justice, facts and circumstances of the case. 2. The Respondent / Cross Objector denies himself liable to be assessed under section 143[3] r.w.s. 153C of the Act under the impugned order on the ground....
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....ithout prejudice to the right to seek waiver as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of Karanvir Singh 349 ITR 692, the Respondent / Cross Objector denies itself liable to be charged to interest under section 234 A, 234 B & 234 C of the Income Tax Act under the facts and circumstances of the case. Further the levy of interest under section 234 A, 234 B & 234 C of the Act is also bad in law as the period, rate, quantum and method of calculation adopted on which interest is levied are all not discernible and are wrong on the facts of the case. 8. The Respondent / Cross Objector craves leave of this Hon'ble Tribunal, to add, alter, delete or substitute any of the grounds urged above. 9. In view of the above and other grounds that may be urged at the time of hearing of the Cross Objection, your Respondent / Cross Objector humbly pray that the Cross Objection may be allowed in the interest of equity and justice." 27. On a specific query from the Bench as to whether these grounds had been raised before the lower authorities, it was the submission that the issues were brought out in the written submissions before the Ld.CIT(A), ....
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.... Representative of the assessee that in view of the provisions of section 124(3), it has been specifically provided that no person shall be entitled to call in question the jurisdiction of an Assessing Officer after the completion of assessment. It was submitted by the Authorized Representative of the assessee that as mentioned in the petition for condonation of delay, the assessee had not been advised properly and this has resulted in non-raising of various grounds. 29. We have considered the rival submissions. At the outset, what is to be considered is as to whether the delay of 248 days is reasonable or not? The facts in the present case clearly show that the said legal grounds have been raised in the Cross Objection for the first time. These specific grounds have not been raised before the lower authorities at any point of time. A perusal of the provisions of section 124(3) shows that a question of jurisdiction of an Assessing Officer is to be raised well before the completion of the assessment. This is so that the Assessing Officer can rectify any defects or take recourse any other provisions of the Income Tax Act. Admittedly, the duty of the Assessing Officer is to assess th....
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.... be brought up. This does not mean that with every change of counsel fresh grounds which may be legal in nature should continue to be admitted. This view of ours find support from the decision of the Hon'ble Delhi High Court in the case of N.G. Technologies Ltd. reported in (2015) 57 taxmann.com 389 (Del.), the SLP from which has been dismissed and reported in (2016) 70 taxmann.com 37 (SC), as also the decision of the Hon'ble Supreme Court in the case of S.Rudramuniyappa reported in (2016) 75 taxmann.com 241 (SC). On this ground also, we are not inclined to condone the delay in filing the Cross Objections. 31. Another aspect to this issue is when an assessee is challenging or raising or urges to be heard in support of any ground in respect of which the fact cannot be borne out by, or is contrary to, the record is alleged, it is to be clearly stated and concisely explain and supported by a duly sworn affidavit as per Rule 10 of the I.T.A.T. Rules, 1963. Such affidavit till date has not been filed in these cases before the Tribunal. Therefore even the admission of these grounds cannot be entertained. 32. The Authorized Representative of the assessee has also relied upon the....