TaxTMI 
TaxTMI 
2016 (12) TMI 1903
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....ee : Shri V. Chandrasekhar - Adv. For 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 Priv....
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....ts and in the circumstances of the case and in law, the Ld.CIT(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 f....
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....e was considered by the AO for the purposes of computing deemed dividend to be 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 shar....
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....iately 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 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/- 20....
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....nt 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; 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 th....
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..... 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 a concern which satisfies the tests laid out above. It is undoubtedly true that the two shareholders who control Model Constructions Pvt Ltd hereinafter in these submissions referred to 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 trans....
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..... Therefore we submit that the test of 2(22) (e) is not satisfied at the threshold itself and the payment cannot constitute a loan or advance as is understood in the context of the said provision. It is necessary 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 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 hav....
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....if quality of construction was to be raised, it would require better technology, substantial finance and may be participation by way of equity. The promoters therefore decided that the land banks would be created in the firm, and the firm would then entrust the responsibility, of ensuring a world class construction to the company. Though this object was in the minds of the promoters it may not have been explicitly documented and has therefore not been spelt out in earlier depositions / explanations. 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 Est....
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....tted further reply dated 17.02.2013 before the Assessing Officer, which is reproduced hereunder: "With reference to the above mentioned subject and your show cause notice and further to my letter dated 04/12/2013 in regards to the proposed addition of Rs.38,80,57,981 as deemed dividend in the hands of my assessee M/s MRED, I would like to submit the following for your kind consideration : 1. Prior to 1/4/2005 and up to 30/06/2006 MCPL owed monies to MRED. 2. Transfer between MCPL & MRED and vice versa is in the 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 ar....
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....of dividend and attract provisions of section 2(22) (e). 11. An amount of Rs. 38,32,06,578/-credited into the bank accounts of MRED are nothing but direct transfers effected by the bankers directly. MCPL have not effected these payments or are instrumental in paying the amounts into the bank accounts of MRED so as to constitute "Payment of Dividend" These amounts have been directly transferred by the bank (letter from bank and copies of bank statement duly highlighting such direct transfers is enclosed) when the current account was overdrawn or when there was minimum balance in the 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....
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....ities where balances are available. On certain occasions there are transfers of material between the sites of both the entities. Based on the bills received from the suppliers accounting entries are passed in the books of the respective entities. It so happens that in the books of MCPL supplier is paid in advance and in the books of MRED the supplier has dues to be paid in order to avoid double payment to the suppliers, the accountant passes journal entries to square off the accounts of the suppliers. For such journal entries there is absolute no flow of funds to the entities or to the shareholders. As enumerated 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) - i....
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....rudent bankers to avoid over drawings beyond a certain limit and to protect themselves from further enquiries. A loan account can be allowed to go overdue but not the current account. Over drawings in current account does not usually have any sanctions and is done at the sole discretion of the bankers in order to maintain goodwill and relation with the client. Most of the time, the banker obliges so as to protect the account with such high net-worth. It is absolutely normal for bankers to follow such practices for its regular and privileged clients. Bank has allowed over drawings in the current account of the group as a whole, however in case when 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 shareh....
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....confer any individual benefits on the Assessee, hence not covered under the provisions of deemed Dividend. Section 2(22)(e) intends to tax the monies taken by substantially interested persons in the guise of loans and advances to avoid payment of tax. The essence for invoking the provisions of Section 2(22) (e) is that the loan or advance given should confer individual benefit to the shareholder or to the concern of the share holder. All these transfers are absolutely in the normal course of business and more so are in the nature of current account transaction. Neither a single receipt by MRED constitutes loan given by MCPL nor does a single repayment reflects repayment of advances taken. 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....
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....ough the books of accounts were found during the search they are regular books of accounts and the transactions have been recorded in the books of accounts therefore they are outside the scope of reassessment under section 153A. It is evidently inscribed in the law that an assessment under u/s 153A is different from regular assessment. The section can be provoked only when a search is initiated u/s 132 or Books of accounts/other documents or any assets are requisitioned u/s 132A. Also it is to be highlighted that during the course the search itself, such generally incriminating documents or papers etc. or unaccounted assets are found, the provision u/s 153A should be read harmoniously in conjunction with the provisions contained in section 132(1) The 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 ac....
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.... Act is reproduced as under: - "Q. 11- During the course of search proceedings today in the premises of M/s Models Real Estate Developers, it was observed while examining the accounts maintained by you in tally software that the firm of Models Real Estate is shown as debtors in the books of Models Construction Pvt Ltd to the tune of Rs 19,31,07,982/- as on 31.03.2011. Please explain the transaction. Ans. On going through the accounts it is observed that said financial transaction is nothing by an inter-corporate transfer of funds to meet financial stringency on oral instruction from the managing Partner. Q. 12 Is there any MoU/ agreement entered into between your sister concern M/s Models Real Estate Developers with M/s Models Construction Pvt Ltd ?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 o....
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....under:- "Q. No. 6 Please give the details of business relations and transactions between your concerns M/s Models Construction Put. Ltd (MCPL), M/s Models Real Estate Developers (MRED), M/s Sonesta Inns Pvt Ltd (SIPL) and Directors of these concerns. Ans: I and Mr.Edgar Afonso are the promoters and directors of the companies i.e. , M/s MCPL and M/s SIPL and partners in M/s MRED. M/s MCPL and M/s MRED is into the real estate Business. M/s SIPL is into the business of hospitality, i.e., running of hotels. The transactions between these companies are relating to the business, i.e. real estate, like purchase of land, premises, construction of projects. Apart from this, there is a transaction of money within these companies whenever required. None of the Directors of the company are drawing money from the 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 Plea....
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....n 27.03.2012 claimed that the entire amount given by MPCL to MRED are for the purpose of business only are reflected under the head of sundry creditors / debtors in the final accounts of the firm / company in the respective years. The AO rejected the contentions of the assessee on the following grounds: "(a) During the search proceedings, no documentary evidences in the form of MOUs or agreements were found in support of the nature of advances made by M/s Models Construction Pvt Ltd to M/s Models Real Estate Developers. (b) Mr. Ajit Banaulkar, Accountant, M/s. Models Real Estate Developers in his sworn statement on the date of search on 31.01.2012 confirmed that the financial transactions are nothing but an inter-corporate transfer of funds to meet financial stringency on oral constructions from the Managing Partner and there is no agreement as such for inter-transfer 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 ....
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....s of M/s Models Real Estate Developers.it is seen that the assessee has credit journal entriesduring this period amounting to Rs.3,94,888/-. It is also noticed and has also been claimed by the assessee that cheques for agreement of sale pertaining to M/s Models Construction Pvt Ltd has been wrongly cleared in M/s Models Real Estate Developers to the extent of Rs.37,19,991/-. So also cheques pertaining to agreements in M/s Models Real Estate Developers has been wrongly cleared in M/s Models Construction Pvt Ltd to the extent of Rs.14,10,OOO/-. So also there are further business transactions between M/s ModelsConstruction Pvt Ltd and M/s Models Real Estate Developers to the extent of Rs. 10,00,000/- namely being the entry of advance for purchase of land from Velho family wrongly issued in M/s Models Real Estate Developers which has now been reversed. The land purchased from the Velho's was used by M/s Models Construction 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. 14,10,0....
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....elhi High Court in the case of CIT v. Creative Dyeing & printing Pvt Ltd (2009) 184 Taxman 483(Del. HC) . Thus, the Assessing Officer confirmed the additions of deemed dividend u/s 2(22)(e) of the Act , wherein the additions of Rs. 3,26,06,892/- was considered for taxation on substantive basis as deemed dividend u/s 2(22)(e) of the Act in the hands of the partners Shri Peter Vaz and Shri Edgar Braz Afonso , being partners of MRED with 50% share in profit sharing who were also shareholders of MCPL holding 50% shares each in MCPL as set out above, to be divided equally between the two partners namely Mr Peter Vaz and Mr Edgar Braz Afonso by following the decision of the Hon'ble Bombay High Court in the case of CIT v. Universal Medicare Private Limited (2010) 324 ITR 263 (Bom), while the amount of Rs. 3,26,06,892/- for the assessment year 2007-08 was treated as deemed dividend u/s 2(22)(e) of the Act on protective basis in 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 Bra....
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....Dividend in the hands of Edgar Braz Afonso (Rs) Dividend in the hands of Edgar Afonso of Sonesta Inns (Rs) 2007-08 81,70,615/- 81,51,723/- NIL 2008-09 92,70,800/- 92,70,800/- NIL 2009-10 2,07,21,018/- 2,07,21,018/- 27,60,000/- 2010-11 2,70,47,803/- 2,70,47,803/- 35,10,000/- 2011-12 69,21,066/- 69,21,066/- 56,44,143/- 2012-13 98,91,743/- 98,91,743/- 62,68,415/- It was submitted that both MCPL and MRED have current accounts in the bank on which no interest was receivable from the banks. It was submitted that if the surplus amount is lying in the bank accounts of these entities, no interest was paid by the bank on these current accounts . While if there is an over draft amount in the MRED bank account on account of OD / CC facility, the bank will charge interest on the overdrawn amount . The assessee placed on record confirmation from the bankers that these adjustments by the bank were done of its own . 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....
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....are no payments involved in these transactions. The assessee submitted that in the following cases it was held that in case of journal entries , it do not constitute deemed dividend. (a) G.R. Govindarajulu Naidu v. Cit [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). (b) H.H. Sri Rama Verma v. CIT [187 ITR 308 (SC)]-in the context of 80 G - at Page 310 - " sum paid " - means money and not donationin kind. (c) Bombay Steam Navigation Co. Pvt. Ltd. V. CIT [56 ITR 52 (SC)] - In the context of 36(i)(3) at page 57 - last para not every debit is loan. It was further submitted that it was the intention of the promotors of MCPL and MRED to concentrate on the quality of construction in the hands of the company MCPL and to build land bank for development in the hands of the partnership firm MRED . It was submitted that the ultimate intention was to develop the lands through the company MCPL only. It was 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 ....
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....rs (MRED). 3. Both these concerns have substantial financial transaction between them. On analyzing these transactions, the A.O. reached prima facie conclusion as under : These transactions are not connected to any business between MCPL and MRED, they are in the nature of loans and advances and since as per the provisions of S.2(22)(e) a loan on advance made by a company, in which public is not substantially interested to a shareholder or to a concern in which shareholder has a substantial interest qualifies as Deemed dividend in the hands of the recipient of such loan. The A.O. invoked the provisions as S.2(22)(e) as M/s Models real Estate Developers (MRED) had received loans and advances from M/s Models Construction Pvt. Ltd (MCPL). The amount of loans and advances given by M/s MCPL to M/s MRED is tabulated as under:- S. No. A.Yr. Amount of loan given Accumulated Profits of MCPL 1 2006-07 2,77,75,118/- 2,15,70,177/- 2 2007-08 5,20,14,366/- 8,04,62,006/- 3 2008-09 4,71,81,347/- 12,86,19,493/- 4 2009-10 9,46,68,620/- 15,00,32,634/- 5 2010-11 12,76,91,164/- 30,08,57,131/- 6....
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....as been withdrawn by the share holders for their personal benefit. It is noteworthy that an amount of Rs.5,19,92,260/-was credited to the account of MCPL and on amount of Rs.9,52,43,497/-was debited to the account of MCPL as journal entries passed in the books of MRED, without any actual transfer of money taking place. Since both the concerns have similar business, they have many common suppliers as well. They are paid from the concern, wherever the money is available and therefore such journal entries were passed. Both the business entities M/s MCPL and M/s MRED are managed and run by Mr. Peter Vaz. Both the entities have common control, common premises, infrastructure, accounting staff and common Bankers as well. The appellant also furnished reasons as to why the money was transferred from MCPL to MRED. (i) Rs.6,02,15,000/-: repayment of Bank O.D facility of MRED. (ii) Rs. 15,50,47,000/- : Towards clearing of over drawn balances of MRED. (iii) Rs.16,79,44,578/-: Transferred directly by the Bankers to the current account of MRED for clearing cheques issued by MRED. None of these monies have travelled to the share holders of MCPL through MRED or otherwise....
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....her depending on the need in the interest of the company and firm. The A.O. has placed reliance on the decision in the case of CIT v. Raj Kumar(2009] 181 Taxman 155/318 ITR 462(Delhi) in which Hon. Delhi High Court held that the word "advance" has to be read in conjunction with word "loan". However this reliance of the A.O. is clearly misplaced in the sense that in the instant case no interest was payable by the firm M/s ModelsReal Estate Developers to the company M/s Models Construction Pvt. Ltd and vice- versa. The A.O. also placed reliance on the decision of Hon. Apex Court in the case of Smt Tanulata Shyam v. CIT(1997) 108 ITR 345(SC) wherein Hon'ble Supreme Court held that under S.2(22)(e) the liability to tax attaches to any amount taken as loan by the share holder from a controlled company to the extent it possesses accumulated profits at the moment the loan is borrowed and it is immaterial whether the loan is repaid before the end of the accounting year. In my considered opinion even this decisionof the of the Hon'ble Apex Court does not apply in the instant case as the facts are entirely different. In the instant case the shareholders Mr. Peter Vaz and Mr.....
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....elonging to the assessee. It was submitted that both MCPL and MRED were engaged in business of builders and constructions. It was submitted that huge amounts of loans and advances have been transferred from MCPL to MRED free of interest aggregating to Rs. 50.99 crores from assessment year 2006-07 to assessment year 2012-13. It was also observed that the said company MCPL has not declared dividend since its incorporation and the said company has huge accumulated profits to the tune of Rs. 47.85 crores as at 31-03-2012. It was submitted by Ld. Departmental Representative that the assessee is partner in the partnership firm MRED entitled to 50% share in the profits of the said partnership firm wherein huge amounts were received by the said firm MRED from MCPL aggregating to Rs. 50.99 crores , in which company MCPL , assessee Mr Peter Vaz is director cum registered/beneficial shareholder holding 50% shares. There were some business transactions between the said company MCPL and the firm MRED and to the extent business nexus were proved by the assessee , no additions have been made by the Assessing Officer u/s 2(22)(e) of the Act and the Revenue has given credit and set off for the same....
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....ted by MRED, the said firm MRED made huge profits out of the land acquired out of interest-free funds received from MCPL. It was submitted that as on 31.03.2012 , firm MRED held stock of land of Rs. 21.66 crores and stock of Premises held were Rs.15.51 crores and advance for purchase of land given were to the tune of Rs.5.09 crores as held by the said firm MRED, wherein the funds of the company MCPL to the tune of Rs. 24.52 crores were outstanding for payable as on 31- 03-2012 by MRED to MCPL, which were utilised by MRED mainly for acquisition of such land / premises. Thus it is a clear cut case where the firm MRED and consequentially partners of MRED namely Mr. Peter Vaz and Mr. Edgar Braz Afonso are benefited by way of the fund received from the company MCPL by firm MRED, by way of appreciation of the market price of the land so acquired and also by selling the land to the company MCPL by MRED at a higher price or even otherwise developing the land for projects, and making profits thereon said development of land directly. It is further submitted that when the land was sold by the firm MRED to the company MCPL at profits no money was transferred by the company MCPL to the firm MR....
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....m MCPL to MRED at the oral instruction of the assessee and there is no business purposes for the transfer of funds from MCPL to MRED. Further it was submitted by the Ld. DR that the statement of the partner Mr.Peter Vaz was also recorded on 23.02.2012 u/s. 131 of the Act, wherein he has submitted that transactions between the firm MRED and the company MCPL were business transactions. However , the said Mr Peter Vaz submitted that there were only two sale agreements for transfer of land from MRED to MCPL which were of the nominal amounts of Rs.38 lacs and Rs. 76.80 lacs , while huge amounts of the loans and advances to the tune of Rs. 50.99 crores were transferred from MCPL to MRED during assessment year 2006-07 to 2012-13. It was submitted by learned Departmental Representative that in any case with respect to these two sales transactions of land by MRED to MCPL for value of Rs. 38 lacs and Rs. 76.80 lacs, no additions have been made by the Revenue and proper credit/set off was given for the amount of afore-stated sale transactions while making additions u/s 2(22)(e) of the Act . Further, it was pointed out by learned Departmental Representative to the chart produced by the assesse....
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....s of Section 153C of the Act . It is further the say of the learned Departmental Representative that the Assessing Officer of MCPL, MRED and the assessee is same and common. Thus, it was submitted that to contend that there is no satisfaction recorded by the Revenue before invoking provisions of Section 153C of the Act will not be correct.It was further submitted that the files of the searched persons are with central circles and satisfaction note is there in the files of searched person which will be produced but it will take some time to produce the said files before the Bench and in case matter is restored back, it will be produced by the Assessing Officer to show that satisfaction was also recorded by the Assessing Officer of the searched person and in any case it was submitted that Assessing Officer of the assessee , MCPL and MRED is same. It is further say of the ld.DR that the contention of the assessee that there is no incriminating material is not correct, as there was an incriminating material of the assessee which was found and seized during the course of the search operations u/s 132 of the Act in the case of MCPL , which are by way of books of accounts of MCPL and MRED....
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....ce on the date of sale which were acquired by MRED out of the funds received from MCPL which land was acquired by MRED out of interest free funds received by MRED from MCPL. This fact was confronted to the CA Mr. Milind R Kulkarni who was present in the tribunal during the course of the hearing on 25.11.2016 and he confirmed that the lands which are sold by the firm MRED to the company MCPL were acquired out of the funds of the company MCPL and were sold to the company MCPL by the firm MRED later at profit based on the prevailing market value on the date of sale and he produced a chart to that effect wherein relevant portion are extracted , as hereunder:- S.No. Land purchased by Sold by Premises Agreement or Sale deed Dated Place Area Consideration A. MRED Mr. LuisXavier Pires and his wife MRs. Ubaldina Pires and MR. Emidio Pires Survey No. 70/10 Deed of sale 31.10.2006 Taleigao 1822 Sq. Mts 22,00,000 B. MCPL MRED Survey No. 70/10 Deed of Sale 30.03.2011 Taleigao 1822 Sq. Mt s 38,00,000/ C. MRED Dr. Gieve Patel, (2) Miss Avaan Patel, (3) Mrs. Germana Diniz Driscoll alias G Driscoll (4) ....
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....he banks have either to return the cheques or to recover from the guarantors account if the same is to be cleared as the guarantor company MCPL has taken responsibility for the bank accounts of MRED. It was for these concerns to have arranged their affairs in the manner that they are not hit by the deeming fiction created by Section 2(22)(e) of the Act and to avoid of being such loans and advances to be classified as deemed dividend as the law is very clear and even Hon'ble Supreme Court in the case 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. It is totally absurd and incorrect on the part of the assessee to have blamed bankers for these transfer of funds from company MCPL to the firm MRED was the contention of learned DR. He draw our attention to the statement of the accounts being ledger extracts of these concerns as well as statements recorded 132(4) of the Act of the accountant as well as the statement recorded u/s 131 of the Act of the assessee , wherein learned Departmental Representative ....
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....ted in the case of the assessee Mr. Peter Vaz, no Panchanama was prepared and no search warrant was executed in the case of the assessee. Since search was directed against MRED and MCPL, it was submitted that no satisfaction note was recorded by the authorities below in the file of AO of the searched person. The learned counsel for the assessee would accept that the satisfaction note was duly recorded in the file of the assessee. The learned counsel for the assessee drew our attention to the CBDT circular No. 24/2015 dated 31.12.2015 and submitted that provisions u/s.153C of the Act are para materia to provisions of Section 158BD of the Act. It was submitted that even if the AO is same for the company MCPL , the Firm MRED and also the assessee, but satisfaction note has to be recorded in the files of both i.e. the person searched u/s 132 of the Act and person against whom provisions of Section 153C of the Act are invoked . The learned counsel for the assessee relied upon the decision of the Hon'ble Karnataka High court in the case of Arihant Aluminium Corporation v. ACIT reported in (2016) 69 taxmann.com 286(Kar.) and also CBDT circular 24/2015 dated 31.12.2015. The learned counsel....
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....the company MCPL , but the purpose of the said loans and advances was business as ultimately construction on the land owned by MRED has to be done by MCPL. The Ld.AR drew our attention to the paper book where by the ledger extracts of accounts of the said company MCPL and the firm MRED are placed, bank statements of these concerns are placed and the running accounts inter-se of these concerns were placed. It was submitted that books of accounts were placed before the AO . It was submitted that certification has been given by the assessee to the index of the paper book filed with the tribunal wherein it is certified by the assessee that pages 1-677 of paper book were also filed before the Assessing Officer as well the same were produced before the ld.CIT(A) and hence to contend that the same were produced for the first time before learned CIT(A) will not be correct and Rule 46A of the Income- tax Rules, 1962 is not violated . The ld.AR relied upon the decision of Hon'ble High Court of Delhi in CIT v. Arvind Kumar Jain reported in (2012) 18 taxmann.com 132(Delhi) and submitted that the amount received by tax-payer shareholder from the company as a result of trading transactions could....
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.... 2(22)(e)of the Act . The ld. Counsel for the assessee relied upon the orders of learned CIT(A). 9. We have considered the rival contentions and considered the material on record including case laws relied upon by rival parties. We have observed that assessee Mr. Peter Vaz and one Mr.Edgar Braz Afonso are 50% shareholder each in the company MCPL(a company in which public are not substantially interested) wherein they are registered as well beneficial shareholders . The said two individuals namely Mr Peter Vaz and Mr Edgar Braz Afonso are also partners in the partnership firm MRED wherein both the partners hold 50% share in profits of the partnership firm MRED . There was a search and seizure operations carried out by the Revenue u/s.132 of the Act on 31.01.2012 in the case of MCPL and MRED . These two individuals i.e. Mr. Peter Vaz and Mr. Edgar Braz Afonso are covered by Section 5A of the Act. During the course of the search operations u/s 132 of the Act on MCPL and MRED, books of accounts of the said company/firm were found and seized by the Revenue which carry the details of entries for alleged huge amount of loans and advances running into several crores of Rupees i.e. Rs. 5....
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....y deeming fiction of Section 2(22)(e) of the Act of such loan and advances being considered as deemed dividend. This incriminating material qua the assessee was further corroborated by statement recorded during the course of search on 31.01.2012 of accountant Mr Ajit Banaukar wherein he confirmed that there is no MOU/Agreement between MCPL and MRED and funds were transferred from the bank accounts of MCPL to bank accounts of MRED at oral instructions of Mr Peter Vaz and the amounts were transferred to meet deficiencies in the bank account of MRED.It is profitable to refer to Section 2(22)(e) of the Act at this stage which 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 bei....
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....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 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 assessee Mr Peter Vaz holds more than 10% shares in MCPL as well is entitled for more than 20% shares in partnership firm MRED, wherein in-fact he holds 50% shares in MCPL and also have 50% share in profits of the firm MRED. Similar is the holding....
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.... 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." We have carefully gone through the entire material placed before us, including paper book filed by the assessee before the tribunal , case laws relied upon by both the parties , other material on record including the orders of the authorities below. We have observed that the said company MCPL has transferred huge and substantial amounts of money from its bank account aggregating to Rs. 50,99,11,226/- from time to time into the bank account of the said firm MRED during assessment years 2006-07 to assessment years 2012-13 while MCPL possessed accumulated profits to the tune of Rs.47,85,26,714/- as at 31-03-2012, wherein no doubt some money was advanced by MCPL to MRED towards the bonafi....
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....led by MRED from the bank out of business consideration but only a bald argument is raised that both MRED and MCPL are in the business of builders and construction without pinpointing that what exactly is the business exigency or business nexus or business purpose in granting loans and advances by MCPL to MRED . It could also not be shown by the learned counsel for the assessee that any guarantee commission was charged by MCPL from MRED for standing guarantee to the banks loans availed by MRED from its bankers. It could also not be shown before us by the learned counsel for the assessee that the additions have been made by the Assessing Officer in the hands of the assessee u/s 2(22)(e) of the Act, while the MCPL did not possessed the necessary accumulated profits as stipulated by Section 2(22)(e) of the Act. The assessee being a registered and also beneficial holder of shares in MCPL holding 50% shares in MCPL(a company in which public are not substantially interests) is also partner in the firm MRED entitled for 50% shares of profit of MRED. Similar is the holding pattern of Mr. Edgar Braz Afonso. We are also not agreeable to accept the contentions of the assessee that the funds w....
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....ar 2012-13.The said firm MRED clearly benefitted at the cost of the said company MCPL wherein interest free funds to the tune of Rs. 50.99 crores flowed from MRED to MCPL from assessment year 2006-07 to 2012-13. The assessee has raised an interesting argument before the lower authorities as well before us that it was strategically decided to build land bank in MRED while construction work shall be exclusively handled by MCPL to do qualitative construction work and it was contended that hence funds were transferred by MCPL to MRED to enable it to build land bank and the lands will be thereafter entrusted to MCPL for doing qualitative construction work . This assertion that MCPL will be a company specialising in qualitative construction work wherein all land owned by MRED will be entrusted to MCPL is again a bald assertion and not even a single evidence is brought on record to prove that land bank owned by MRED was used by MCPL for doing project construction wherein MCPL also benefitted, except bringing on record two sales instances of miniscule amount of Rs. 38 lacs and Rs. 76.80 lacs vis-a-vis the loans and advances granted by MCPL to MRED to the tune of Rs. 50.99 crores. The said ....
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....ial year Loans and Advances Recoverable as at year end by MCPL from MRED Profits of the firm MRED 2006-07 3,55,65,753 8,15,54149 2007-08 3,56,88,605 3,86,16,429 2008-09 7,81,14,565 18,51,33,034 2009-10 16,44,63,457 10,18,99,881 2010-11 19,31,07,983 19,23,54,099 2011-12 24,51,53,779 8,01,41,968 In case if such huge funds had not flown from the bank accounts of MCPL to MRED , the said firm MRED would not have been able to achieve the level of business which it achieved and the profits which it earned as it expanded its business based on grant of huge interest-free loans and advances from MCPL to the tune of Rs. 50.99 crores from assessment year 2006-07 to assessment year 2012-13 . The said company MCPL never declared dividend to its shareholder and no dividend distribution tax was ever paid by MCPL to Government , rather the funds were released in the form of loans and advances in favour of MRED. The said MRED in-turn has distributed the profits to the partners Mr Peter Vaz and Mr Edgar Braz Afonso as they are entitled each to 50% shares in profits of the firm MRED, which profits were earned by MRED mainly with the help o....
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....eld to be not contravening Article 14 nor Article 19 of Constitution of India. The case laws relied upon by the learned counsel for 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 MCPL to MRED to the tune of Rs. 50.99 crores from assessment year 2006-07 to assessment year 2012-13 and in any case the Assessing Officer has given set off / credit for all the inter-se transactions between MCPL and MRED 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 MCPL as per mandate of Section 2(22)(e) of the Act . We are of the considered view that under S.2(22)(e) of the Act liability to tax attaches to any amount taken as loan and advance by the share holder from a controlled company to the extent it possesses accumulated profits at the momen....
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....ion in in IT(SS)A No.09/PNJ/2015 for assessment year 2007-08 shall apply mutatis mutandis to the issue involved in Revenue's appeal in the case of Mr. Peter Vaz in IT(SS)10/PNJ/2015, 11/PNJ/2015 , 12/PNJ/2015, 13/PNJ/2015 and in ITA No. 412/PNJ/2015 for assessment year(s) 2008-09 to 2012-13. We order accordingly. 12. In the Result appeal(s) of the Revenue in IT(SS)A No.10-13/PNJ/2015 and ITA no. 412/PNJ/2015 in the case of Mr Peter Vaz for assessment year 2008-09 to 2012-13 are allowed. 13. The assessee Mr. Peter Vaz is covered u/s 5A of the Act wherein income is to be apportioned between the spouses as they are governed by Portuguese Civil Code. Thus, the Assessing Officer has made additions to the tune of 50% each in the hands of Mr Peter Vaz and 50% in the hands of Mrs. Natalina Vaz. Hence, the issue involved in Revenue's appeals in the case of Mrs Natalina Vaz is identical to the issue involved in the case of Mr. Peter Vaz. Thus, our decision in the case of Mr. Peter Vaz in IT(SS) A Nos. 09-13/PNJ/2015 and ITA no. 412/PNJ/2015 for assessment years 2007-08 to 2012-13 shall apply mutatis mutandis to IT(SS) A No. 17-22/PNJ/2015 for the assessment year(s) 2007-08 to 2012-13 i....
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....onso are having substantial interest in the company SIPL. It was observed by the AO from the documents seized that SIPL had advanced certain amounts to Mr Edgar Braz Afonso during the financial years 2008-09 to 2011-12 which as per the ledger extract submitted by Mr Edgar Bras Afonso are as under:- F.Y A.Y AMOUNT RECEIVED EXPENSES INCURRED BALANCE 2008-09 2009-10 75,04,221/- 17,84,221/- 57,20,000/- 2009-10 2010-11 70,20,000/- --- 70,20,000/- 2010-11 2011-12 1,22,85,215/- 9,96,930/- 1,12,88,825/- 2011-102 2012-13 2,49,96,707/- 3,23,946/- 2,46,72,761/- TOTAL 4,86,81,046/- In the statement recorded on 31.01.2012 , the assessee Mr Edgar Bras Afonso has confirmed that the documents seized were of SIPL where he is one of the Director and Shareholder. Further during the course of statement recorded on 29.03.2012 , Sh. Edgar Bras Afonso stated that the amounts were taken by him from SIPL for repairs works, renovation of the building etc. which was not substantiated . The assessee accepted of receiving the advances from SIPL and also submitted that these advances are repaid b....
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....d 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 thecompany 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 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;] Threshold conditions of section This provision can be attracted only if the following tests are satisfied (a) The assese....
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....nt submissions point out as to why there was a flow continuously from the company to the account of Mr. Edgar Afonso as there was a definite purpose in the minds of the stakeholders though the same may not have been exhaustively and explicitly documented and that purpose was certainly not avoiding tax. However for the time being we are addressing the issue as to whether the flow of funds can at all be treated as a "loan or advance ". In commercially parlance a "loan" is a transfer of funds which is either for a specific period or with a specific term .As will be apparent from the copies of accounts which have been seized at the time of search and which are a matter of record, no such term was ever settled by the parties between them at all. There has also not been a single payment of interest from one party to another during this entire period. Therefore in commercial parlance the said payments cannot constitute a loan for at no point of time was there any obligation on the receiver to repay them either within a specified period or repay them at all. Further it is unheard of that a person to whom loan has been advanced also advances monies or credits to the lender. This is....
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....rivate construction concern in Calangute. He is a civil engineer and architect by profession. He carries out construction of individual houses for and on behalf of his clients. He also carries out repairs and renovation works for his various clients. Edgar on various occasions has also carried out repairs and renovation works for Sonesta Inns Private Limited (Copies of Bills Enclosed- Annexure1) Edgar solely operates bank accounts of Sonesta Inns and his personal business bank accounts. In fact Edgar operates more like a cashier when Sonesta Inns is concerned. Till date Edgar sits in the office of Sonesta and operates both the businesses exclusively. For all purposes, Edgar always treated both the units as one unit and the funds were need based transferred to-and-fro and not with the intention to evade tax as enumerated in the Legalisation intent while enacting provisions of deemed dividend. Monies were transferred from the bank account of Sonesta Inns to the account of Edgar Afonso, whenever there was deficiency in the bank account of Edgar to meet the business obligations. Similarly the same was transferred back when Sonesta had met the business obligations. Bot....
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....y to sums directly to the contractors and suppliers on behalf of Sonesta. He could have also directly made payment from the company itself to the contractors or suppliers for the repairs and renovation, however, since there were common suppliers and contractors both for his personal businesses and those used for the company works, he used to pay the amounts from his business account and the same was reimbursed by the Company. This whole exercise was carried out only to regulate the contractor bills and payments. As a civil contractor, he had special prices negotiated with the suppliers and contractors for his construction projects as he was buying in bulk, if the orders had to go from Sonesta directly they would have not got the same rate benefit and hence the same was routed from the account of Mr. Edgar Afonso. Amount received for acquisition of Property: During the year 2011-12, Mr. Edgar Afonso negotiated for a property at assagao. His intentions were to create housing units for his hotel staff . Earlier he used to use the B'lows Just next to his hotel building for housing his staff. However due to ever increasing demand for hotel rooms, during peak season....
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....g provisions of Section 2(22) (e) and needs consideration. Also during the F.Y. 2008-09 during the month July 2008 to September 2008 there was a credit balance in the books of sonesta. i.e. Sonesta had to pay Edgar Afonso Rs. 7,93,353/- and during the F.Y. 2009-10 during the month October 2009 to November 2009 there was a credit balance in the books of sonesta. i. e. Sonesta had to pay Edgar Afonso Rs.7 40, 000/-. Both the amounts repaid back by sonesta has been considered as deemed dividend in your notice, which needs consideration. Our above submissions may kindly be considered before finalising the assessment." The AO considered the submission of the assessee and observed that following advances have been made by SIPL to its shareholder Mr.Edgar Braz Afonso , as under:- Financial year Total Loan / advances as per ledger (in Rs) 2008-09 75,04,221/- 2009-10 70,20,000/- 2010-11 1,22,85,215/- 2011-12 2,49,96,707/- It was duly recorded in the books of accounts of SIPL as advances to director. The AO observed that the assessee had failed to submit the proof of evidence of the claim that all these advances received by him from SIPL were towa....
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....AO as loans and advances received by the assessee being hit by the deeming fiction as contained u/s. 2(22)(e) of the Act and was taxed as deemed dividend in the hands of the assessee for the assessment year 2010-11. For the financial year 2010-11 it was observed by the AO that SIPL has advanced Rs. 1,22,85,215/- during the year to the assessee . It was observed by the AO from the ledger extract that the assessee has paid back an amount of Rs.2,00,000/- during February 2011 and another Rs. 84,05,243/- was paid back by assessee to SIPL during the month of March 2011. It was observed by the AO that Rs.25,94,757/- was adjusted towards the 'bonus / Ex-gratia payable' . But it was observed by the AO that the same was not reflected as income by the assessee in the return of income filed with the Revenue for the assessment year 2011-12. In reply, the assessee submitted that the amount of Rs. 14,00,000/- was adjusted towards remuneration payable to the director and the balance amount of Rs.11,94,757/- was paid to him by SIPL towards staff bonuses for the earlier years. Since no satisfactory explanation was given by the assessee with respect to the amount of Rs. 14,00,000/- received by hi....
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....nces made by the SIPL were for the individual benefit of the substantial shareholder of SIPL i.e. the assessee who is holding 50% share of SIPL and these advances are clearly hit by the deeming fiction created by Section 2(22)(e) of the Act and is to be brought to tax as deemed dividend u/s. 2(22) of the Act. Thus, the AO gave due credit /set-off for all the expense incurred by the assessee towards the 'Repair and maintenance / renovation' and 'salary' which has been duly explained by the assesse for which no additions were made by the Assessing Officer u/s.2(22)(e) of the Act. Thus the contention of the assessee for the balance amount that he has received the advances towards 'building repair and maintenance and renovation' and returned the amount after conducting the repair and maintenance was rejected by the AO as it was observed by the AO that amounts have been advanced in the initial month of April to June and the same were returned by the assessee after using them for three to six months and the funds of SIPL were utilised by the assessee for own individual benefits of the assessee. It was observed by the AO that during the assessment year 2012-13 the assessee has been advanc....
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.... Edgar B Afonso 3,86,23,809/- 55,20,000/- 55,20,000/- 2009-10 2010-11 Edgar B Afonso 4,81,78,690/- 70,20,000/- 70,20,000/- 2010-11 2011-12 Edgar B Afonso 5,43,44,645/- 1,12,88,285/- 1,12,88,285/- 2011-12 2012-13 Edgar B Afonso 6,00,64,669/- 1,25,36,830/- 1,25,36,830/- Total 3,63,65,115/- The AO relied upon the decision of the Hon'ble High Court of Madras in CIT v. Srinivasan (K)(1963) 50 ITR 788 (Mad), decision of Hon'ble Madras High Court in the case of G.R. Govinda Rajolu Nidu v. CIT (1973) 90 ITR 13 (Mad) , Hon'ble Supreme Court decision in the case of Smt Tarulata Shyam v. CIT (1977) 108 ITR 345 (SC) , Hon'ble Bombay High Court decision in the case of Wal Chand & CO ., Ltd. v. CIT (1975) 100 ITR 598 (Bom), and decision in the case of CIT v. Creative Dyeing and Printing Pvt. Ltd. 184 Taxman 483 . Thus in nutshell the AO brought to tax income being loans and advances given by SIPL which could not be explained to be for business purposes were held to be hit by Section 2(22)(e) of the Act as deemed dividend by holding as under :- "In view of the above, the loa....
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....ect of some moneys transferred to Mr, Edgar Afonso, when he withdrew money for purchase of a property. However, the A.O. did not appreciate that all the sums transferred to Mr. Edgar's account was for the purpose of business only and this is why there is no outstanding balance in the name of Edgar, in the books of M/s. Sonesta inn at the year end. As soon as the requirement was over, money was again transferred to the company. The appellant has explained in details regarding this to and fro traffic of transfer of funds between the appellant. Mr. Edgar Afonso and the company M/s. Sonesta Inns which has been reproduced on page no, 45 and 46 of this order. But the A.O, has not accepted the explanation of the appellant and treated the transfer of funds as advances and concluded that provisions of s.2(22)(e) are applicable. The A.O. has treated part of the money transferred as being business transaction in nature and balance as deemed divided. This is not in dispute that Mr. Edgar Afonso has not withdrawn any money for his personal advantage. He has mostly withdrawn money for the purpose of business of the company and excess amount was not utilized by Mr. Edgar as the same were retu....
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....,23,809/- 55,20,000/- 55,20,000/- 2009-10 2010-11 Edgar B Afonso 4,81,78,690/- 70,20,000/- 70,20,000/- 2010-11 2011-12 Edgar B Afonso 5,43,44,645/- 1,12,88,285/- 1,12,88,285/- 2011-12 2012-13 Edgar B Afonso 6,00,64,669/- 1,25,36,830/- 1,25,36,830/- Total 3,63,65,115/- We have observed that the AO has given due credits and set off from loans and advances given by SIPL to the assessee, where-ever the assessee was able to satisfactorily explain that the transfer of funds to the assessee by SIPL was for business transaction on account of 'Repair and maintenance / renovation' or was paid towards 'Director Remuneration' by said SIPL to the assessee. However, for the rest of the advances as detailed above , the assessee could not give satisfactory explanation / evidences to support its contentions that the said advances were given to the assessee by SIPL for business purposes, the said advances received by the assessee were in-fact repaid by the assessee to SIPL during the year, which clearly reflects that with huge amounts have been advanced by the said company SIPL to the assesse....
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....nor learned counsel for the assessee could prove that the AO has made the additions beyond the accumulated profits possessed by the SIPL. This explanation of the assessee without any satisfactory explanation/evidence cannot be accepted as the assessee has drawn huge amounts from the said company SIPL, while 'Repair and maintenance and renovation work' undertaken by the assessee for SIPL was of insignificant amount as are detailed in the preceding paras of this order, We do not find any infirmity in the order of the AO as the AO has rightly brought to the tax said advances which are in the nature of loan and advances being given out of the accumulated profits by the company SIPL for the individual benefit of its registered cum beneficial share holder Mr. Edgar Braz Afsono' i.e. the assessee, which loans and advances were disbursed by SIPL to the assessee-shareholder instead of declaring dividends out of accumulated profits and hence dividend distribution tax is evaded to be paid to the Government had the said amount of advances would have been distributed by SIPL as dividend to its shareholders. We have also observed that the appellate order of the learned CIT(A) does not hold merit....
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....Appeal(s) in IT(SS) No. 26- 27/PNJ/2015 and ITA No. 413/PNJ/2015 for assessment year 2010-11 to 2012-13 and our decision in IT(SS) A no. 25/PNJ/2015 for assessment year 2009-10 shall apply mutatis mutandis to the issue in IT(SS) No. 26-27/PNJ/2015 and ITA No. 413/PNJ/2015 for assessment year 2010-11 to 2012-13.We order accordingly. 21. In the Result , all the Revenue's appeal in IT(SS) A No.23- 27/PNJ/2015 and ITA no. 413/PNJ/2015 in the case of the assessee Mr Edgar Braz Afonso are allowed. 22. The assessee Mr. Edgar Braz Afonso is covered u/s 5A of the Act wherein income is to be apportioned between the spouses as they are governed by Portuguese Civil Code. Thus, the Assessing Officer has made additions to the tune of 50% each in the hands of Mr Edgar Braz Afonso and 50% in the hands of Mrs. Vanda Afonso. Hence, the issues' involved in Revenue's appeals in the case of Mrs Vanda Afonso are identical to the issues' involved in the case of Mr. Edgar Braz Afonso. Thus, our decision in the case of Mr. Edgar Braz Afonso in IT(SS) A Nos. 23-27/PNJ/2015 and ITA no. 413/PNJ/2015 for assessment years 2007- 08 to 2012-13 shall apply mutatis mutandis to IT(SS) A No. 28- 33/PNJ/2015 for....
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.... initiated u/s 153 C is void ab initio in as much as they are illegal and ultra vires the provisions of section 153 C r.w.s 153 A of the Act; ii. The Mandatory satisfaction, if any, arrived at by the assessing officer to initiate proceedings u/s 153 C of the Act is inadequate and insufficient to assume jurisdiction u/s 153 C of the Act. iii. The initiation of the proceeding u/s 153C of the Act is not on the basis of 'any money, bullion, jewellery or other valuable article or thing or books of accounts or documents seized or requisitioned belongs to the Respondent /Cross Objector', which is sine qua non for proceedings to be initiated u/s 153 C and therefore the consequent assessment under section 143(3) r.w.s. 153C is null and void-ab-initio. 3. The learned Commissioner of Income-tax [Appeals] failed to appreciate that a finding that 'any money, bullion, jewellery or other valuable article or thing or books of accounts or documents seized or requisitioned belongs to a person other than a person searched u/s 153A' is a sine qua non for making a valid assessment under section 153C of the Act and there being no such finding in the case of thi....
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....ns before the Ld.CIT(A), though no specific ground was raised. A perusal of the written submissions filed before the Ld. CIT(A) shows that the main thrust of the assessees submissions are that there was no incriminating material found in the course of search, which could give rise to an order u/s.143(3)/153C of the Act. However, a perusal of the ground raised in the Cross Objection shows that the grounds also go into the jurisdiction of the Assessing Officer and the satisfaction arrived at by the Assessing Officer. It was, then, admitted by the Authorized Representative of the assessee that this specific ground of jurisdiction and the arriving of mandatory satisfaction was not raised before the Assessing Officer or the Ld. CIT(A). It was, however, submitted that the grounds were purely legal issues and in view of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT reported in 229 ITR 383, the Tribunal was bound to admit the same as the assessee was entitled to raise legal grounds at any time and the Tribunal should not be prevented from considering the question of law arising in the appellate proceedings, although not raised earlier.....
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....ssing Officer is to assess the correct income. Similarly, it is also the duty of an assessee to pay tax on its correct income. The assessee having been caught attempting to avoid payment of tax, cannot now raise a technical ground much after the limitation and also claim injustice being done to him. By allowing these Cross Objections by condoning the delay would in effect by doing injustice to the Revenue insofar as the Revenue is bound by limitation, in respect of initiation of proceedings and invocations of the jurisdiction. It is very much true that on first blush a presumption can be drawn that the Cross Objection can be admitted and the issues restored to the file of the Assessing Officer for re-adjudication and denovo assessment, thereby giving Revenue also the opportunity to make any corrections as required in respect of the challenges to its jurisdiction under section 124(3). However, the Tribunal is an appellate authority and as an appellate authority would not be appropriate to lift limitations which are prescribed under the statute though the words used in section 254 are "pass such orders thereon". 30. Further, it is noticed from the Cross Objections filed that these....