AI Drafter 
TaxTMI 
TaxTMI 
2025 (7) TMI 825
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as much as he has failed to appreciate that disallowance of Rs. 1,81,59,953/- (pertains to Rs. 67,59,953/- to M/s Shree Mahesh Realtors Pvt. Ltd. and Rs. 1,14,00,000/- to M/s Smart Estate Pvt. Ltd.) despite the facts that the appellant company is neither registered shareholder of these companies nor assessee company is holding any beneficial interest in these companies. Addition of Rs. 10,37,16,000/- u/s 68 of the Act on account of unexplained cash credit. 3. That Under the facts and circumstances of the case, Ld. CIT(A) has erred in law and in fact in as much as while upholding the addition of Rs. 10,37,16,000/- has failed to appreciate that when the assessee has discharged its initial burden by producing the evidence and the creditor not only filed all the details in response to notice issued by the AO u/s 133(6) of the Act and also the director of the creditor company was examined by the AO at length in a statement recorded on 25.03.2015, then it becomes essential for the revenue to discharge additional burden on it by showing that even if the creditor does not have the means to make the investments, the investment made by the applicant actually emanated from the coffe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d profit for A.Y. 2012-13 1 M/s. Himgiri Realtors Pvt. Ltd. 82.00% - 2 M/s. Shree Mahesh Realtors Pvt. Ltd. 81.50% Rs.67,59,953/- 3 M/s. Pivot Buildcon Pvt. Ltd. 99.99% Loss 4 M/s. Smart Estates Pvt. Ltd. 99.99% Rs.4,13,08,434/- and also observed that the assessee is a subsidiary of abovesaid company and borrowed short term borrowings from M/s. Shree Mahesh Realtors Pvt. Ltd. and M/s. Smart Estates Pvt. Ltd.. He observed that both the abovesaid companies having accumulated profits to the extent of Rs. 67,59,953/- and Rs. 4,13,08,434/- respectively. The Assessing Officer considered various case laws relied upon by the assessee and by relying on the definition of section 2(22)(e) of the Act, observed that in the present case, Aeren R Enterprises Pvt. Ltd. is a holding company through its sister concern borrowed money from other subsidiary company which has substantial accumulated profits, therefore, in the present case, provisions of section 2(22)(e) of the Act is attracted and accordingly to the extent of accumulated profits in Shree Mahesh Realtors Pvt. Ltd. and to the extent of short term loans taken from M/s. Smart Estate Pvt. Lt....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which holds more than 20% Shareholding in both payer and payee companies. In view of above discussion and the facts as narrated, the case of the appellant company clearly attracts the provisions of section 2(22)(e) of the I.T. Act, 1961. Therefore, the amount of Rs. 1,81,59,953/- (Rs.1,14,00,000/- + Rs. 67,59,953/-) to the extent of accumulated profit of the lender company/loan amount has been rightly treated as deemed dividend in the hands of the appellant company and the amount of Rs. 1,81,59,953/- is correctly added under the head 'income from other sources' by the AO. 4.2.3.3. The appellant has submitted that dividend under section 2(22)(e) of the Income Tax Act, 1961 Is taxable only in hand of shareholder and under no circumstances, the provisions of section 2(22)(e) could be invoked in the case of the appellant. The submissions filed by the appellant company have been considered and not found to be tenable. The case laws cited by the appellant are distinguishable in facts. I find no reason to interfere with the AO's order on this issue. Appeal on Ground No.1 is dismissed." 6. Aggrieved assessee is in appeal before us. 7. At the time of hea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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." 9. From the above definition, a company in which public are not substantially interested makes a payment by way of advance or loan to a shareholder, being a person who is beneficial owner of shares holding not less than 10% of the voting power. In such situation, provisions of section 2(22)(e) are attracted. In the given case, M/s. Aeren R Enterprises Pvt. Ltd. is having substantial interest in the companies, Shree Mahesh Realtors Pvt. Ltd., M/s. Smart Estates Pvt. Ltd. and assessee. However, in the given case, Shree Mahesh Realtors P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8 to 21 of the assessment order. He recorded the statements of one of the Directors of the company, Shri Brij Bhushan Sharma and the Assessing Officer has reproduced the same in the assessment order. He has recorded various discrepancies from the statement and finally observed that both the Directors of Global Distributors Limited are also Directors of Aeren Group/companies. He invoked the provisions of section 68 of the Act and relied on several decisions, observed that the transactions with these companies are unusual in nature in character. He held that the transaction with Global Distributors Limited are sham transactions. Accordingly, he held that the assessee has not proved creditworthiness and genuineness of the transactions. Accordingly, he disallowed whole unsecured loan received from them u/s 68 of the Act. 11. Aggrieved with the above order, assessee is in appeal before the ld. CIT (A). Ld. CIT (A) after considering the detailed submissions held as under :- "4.3.3.3. A search and seizure operation was conducted of M/s Aeren Group of companies on 17.0B.2011 and during the course of search operation, some of the connected entities were also covered including MI....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case laws cited by the appellant are distinguishable in facts. Therefore, the AO has correctly treated the unsecured loans of Rs. 10,37,16,000/- received by the appellant as nongenuine and actually being income of the appellant from undisclosed sources and brought to tax u/s 68 of the LT. Act, 1961. I find no reason to interfere with the AO's order on this issue. Appeal on Ground No.2 is dismissed." 12. Aggrieved assessee is in appeal before us. 13. At the time of hearing, ld. AR of the assessee brought to our notice page 12 of the assessment order and submitted that at page 12 of the assessment order, vide reply dated 15.04.2014 the assessee submitted details of borrowings aggregating to Rs. 21,68,65,877/- stating the name, address, PAN and amount of all of the six creditors and the AO made independent inquiry by sending notice dated 19.12.2014 u/s 133(6) to M/s Global Distributers Pvt Ltd.. In response to such notice, required details were filed along copy of sole bank account in OBC by M/s Global Distributors Pvt Ltd. which is reproduced in para 4.2 at Pgs. 12 to 17 of the assessment order. He further submitted that at page 18 of the assessment order, the AO pointed o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o be proved, thus, agreement was not fraudulent. At page 101, it is submitted that a finding is recorded that claimant was ready and willing, has substantial interest in performance of the agreement and the delay was on the part of the Respondent. He submitted that at page 103, the claimant is entitled to get adequate compensation for the breach committed by the Respondents and not for specific performance. Further at pages 105 & 107, it is submitted that after examining the evidences, the claimant is held entitled for a sum of Rs. 11,07,26,765/- on account of entire investment and expenditure, the claimant is entitled to a sum of Rs. 1,00,00,000/- for several acts and deed carried out in furtherance of agreement. He submitted that at pages 107 & 108, additional compensation of Rs. 1,00,00,000/- on account of FAR etc. and the aforementioned amounts were to be paid within a period of four months from the date of a ward and if not paid shall bear the interest at the rate of 11% per annum. 15. Further he submitted that from the above award, it is ascertainable that the collaboration agreement between the assessee company and Delhi Pharmaceuticals Works Pvt Ltd. along-with its key p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Pradesh) and he has managed affairs of Global Distributors Limited. However, he expressed that he does not remember possible shareholders or Directors. Further he brought to our notice page 44 of the assessment order and brought to our notice observations of the Assessing Officer wherein Assessing Officer has expressed that the transaction between the assessee company and its alleged lenders are unusual in nature, he read out para 4.12 and 4.15 of the assessment order and submitted that whole transaction is sham. Further he submitted that assessee has not clarified whether investments made by Global Distributors Limited are in the nature of investment or loan. With regard to arbitration order, he submitted that it was not submitted before the lower authorities. 17. In the rejoinder, ld. AR brought to our notice Balance Sheet of Global Distributors Limited which is placed in page 42 of the paper book and wherein they have declared the transactions in the project as long term borrowings and with regard to payment made to the assessee, it is declared as long term loans and advances. He submitted that these transactions recorded by Global Distributors Limited and the arbitration a....