Ita/56/2013 Of Commissioner Of Income Tax v. Mr. Arun Sahlot

1 HIGH COURT OF MADHYA PRADESH PRINCIPALSEAT AT JABALPUR (Division Bench: Hon'ble Shri Justice S.K. Gangele &Hon'ble Shri Justice Anurag Shrivastava) ITA No. 56/2013. Commissioner of Income Tax, Bhopal (M.P.)VersusMr. Arun Sahlot E-3/10 Erera Colony , Bhopal (M.P.) ********** Shri Sanjay Lal, learned counsel for the appellant.Shri Sumit Nema, learned counsel for the respondent.********** JUDGMENT(Pronounced on 02/05/2017) Per S.K. Gangele J Revenue has filed this appeal under Section 260-A ofthe Income Tax Act, 1961 against the order dated30/04/2013 passed by Learned Income Tax AppellateTribunal, Indore in I.T.A. (SS) 267/Ind/2012. 2.A search operation was conducted on 30/05/2008 atthe residential premises of Shri Arun Sahlot at E-3/10,Arera Colony, Bhopal. Notice was issued to the assesseeunder Session 153A dated 07.01.2010 for filing the returnof Income Tax for Assessment Years 2003-04 to 2008-09.In response to that the assessee filed income tax returns. 3.Besides the residential premises of assessee search was also conducted at the business premises of M/s. RajExpress. On the basis of search and seizure and the replyfiled by the assessee, the Assessing Officer computedincome of the assessee for the assessment year 2003-04to Rs. 82,17840/-. The Assessing Officer also leviedinterest. 4.Being aggrieved by the order of Assessing Officer,the assessee filed an appeal before the CIT(A). Theappellate Tribunal partly allowed the aforesaid appeal andother appeals the Assessing Officer also passed separateorders upto the years 2008-09 of assessment. In regardto other appeals, CIT(A) partly allowed these appeals ofthe assessee. 5.Against the aforesaid orders, assessee as well asrevenue filed various appeals before the ITAT as I.T.(SS) A.Nos. 186 to 192/Ind/2012 Assessment Year 2003-04 to2009-10, I.T.(SS) A. Nos. 261 to 267/Ind/2012 AssessmentYear 2003-04 to 2009-10 & I.T.(SS) A. Nos. 193 to199/Ind/2012 Assessment Year 2003-04 to 2009-10. TheAppellate Tribunal vide common order dated 30/04/2013allowed the appeals of the assessee partly. The AppellateTribunal in regard to addition made under Section 2(22)(e)of the Income Tax Act remitted the matter back to theAssessing Officer to decide afresh. The Tribunal dismissed the appeals filed by the revenue. The Tribunal set-asidelevy of interest under Section 234 of Income Tax Act leviedby the Assessing Officer against the assessee. 6.Against the order of ITAT, the revenue filed thisappeal and other connected appeals. The appeal isadmitted vide order dated 17/06/2014 on the following substantial questions of law. “1.Whether on the facts and in the circumstancesof the case, the ITAT was justified in law in settingaside the addition under Section 2(22)(e) made bythe AO on account of payments by Raj Homes Pvt.Ltd to Shri Arun Sahlot and his proprietary concernsArun Associates and Raj Industries, with thedirection to examine such aspects as commercialexigency of the loan and terms of loan even thoughaspects are not relevant u/s 2(22)(e)?. 2.Whether on the facts and in the circumstancesof the case, the ITAT was justified in law in settingaside the additions on account of deemed dividend inA.Ys. 2003-04 to 2006-07 with directions to theAssessing Officer to verify if information regardingdeemed dividends was found during the search eventhough there is no such requirement u/s 153A?.” 7.The main ground of challenge of the revenue in thisappeal is that whether ITAT is justified in law in deletion ofaddition of income under Section 2(22)(e) of the IncomeTax Act ordered by the A.O. 8.The appellate tribunal recorded findings in thisregard in para 85 on wards of the order. The AssessingOfficer observed that RHPL had given loan to the assesseeand the loan be added as addition under Section 2(22)(e) 2.Whether on the facts and in the circumstancesof the case, the ITAT was justified in law in settingaside the additions on account of deemed dividend inA.Ys. 2003-04 to 2006-07 with directions to theAssessing Officer to verify if information regardingdeemed dividends was found during the search eventhough there is no such requirement u/s 153A?.” 7.The main ground of challenge of the revenue in thisappeal is that whether ITAT is justified in law in deletion ofaddition of income under Section 2(22)(e) of the IncomeTax Act ordered by the A.O. 8.The appellate tribunal recorded findings in thisregard in para 85 on wards of the order. The AssessingOfficer observed that RHPL had given loan to the assesseeand the loan be added as addition under Section 2(22)(e) of the Income Tax Act treating it as deemed dividendbecause the shareholding of the assessee in threecompanies i.e. Raj Homes Pvt. Ltd., M/s. Raj Events andEntertainment Pvt. Ltd and M/s Minal Builders Ltd. Bhopalwas more than 10%. The Commissioner Income Tax(Appeal) affirmed the above. The aforesaid contention hasbeen considered by the Tribunal in paras 85 to 93 of theimpugned order. The tribunal recorded following findings:- “85. With regard to the addition made u/s 2(22)(e),the Assessing Officer observed that the assessee ishaving substantial share holding in M/s. Raj HomesPrivate Limited (RHPL), wherein she held 30.76%shares during the previous year relevant toassessment year 2004-05 and 13.75% during theassessment year 2007-08 to 2009-10. By observingthat RHPL has given loan to the assessee during thesaid period, the addition was made u/s 2(22)(e). Bythe impugned order, the CIT(A) confirmed the actionof the Assessing Officer and the assessee is infurther appeal before us. 86.We have considered rival contentions andfound that the addition was made u/s 2(22)(e) onaccount of deemed dividend in respect of allegedloan given by Raj Homes Private Limited to Mrs.Sandhya Sahlot in the assessment year 2004-05,2007-08, 2008-09 and 2009-10. In the assessmentframed u/s 153A, the Assessing Officer observed asunder:- “During the course of assessment it wasnoticed that the assessee was holding equityshareholding in various companies. She wasasked the details of various holding in variouscompanies. It was noticed that in threecompanies i.e. Raj Homes Pvt. Ltd., Raj Eventsand Entertainment Pvt. Ltd. And Minal BuildersPvt. Ltd., the assessee has significant holdingsin various years relevant to A.Y. 2003-04 to2009-10. While Minal Builders' Pvt. Ltd. AndRaj Homes Pvt. Ltd., were engaged in thebusiness of construction and building, Raj events and entertainment Pvt. Ltd., is in thebusiness of newspaper, TV, entertainment andmedia.” 87.The Assessing Officer further observed that theassessee's holdings in these companies were morethan 10% and that the assessee has a net debitbalance in the books of RHPL to the assessee u/s2(22)(e). By the impugned order, the Id. CIT (A)confirmed the addition. However, while confirmingthe addition, the CIT(A) observed as under:- “The information that RHPL has given loan toappellant's proprietary concern, came to theknowledge of the authorized officers during thecourse of search. This information is materialgathered during the course of search, hencethe Assessing Officer had valid jurisdiction toexamine the issue in the impugned assessmentproceedings and to decide the issue and makewarranted addition u/s 2(22)(e). 87.The Assessing Officer further observed that theassessee's holdings in these companies were morethan 10% and that the assessee has a net debitbalance in the books of RHPL to the assessee u/s2(22)(e). By the impugned order, the Id. CIT (A)confirmed the addition. However, while confirmingthe addition, the CIT(A) observed as under:- “The information that RHPL has given loan toappellant's proprietary concern, came to theknowledge of the authorized officers during thecourse of search. This information is materialgathered during the course of search, hencethe Assessing Officer had valid jurisdiction toexamine the issue in the impugned assessmentproceedings and to decide the issue and makewarranted addition u/s 2(22)(e). 88.It was contended by the Id. AuthorizedRepresentative that no incriminating material wasfound during the course of search to indicate thatthere was any violation of provisions of Section 2(22)(e). He further submitted that assessment forassessment year 2004-05 was completed and timeperiod for issue of notice u/s 143(2) has also beenexpired. Accordingly, in respect of assessments,which are not abated, no addition is warranted whilemaking assessment u/s 143A when no incriminatingmaterial was found during course of search. 89.This issue has been examined in the case ofArun Sahlot in para 28 to 31 hereinabove. Relevantobservation were as under:- 90.As the facts and circumstances during theassessment year 2004-05 are the same, followingthe same reasoning, we restore the addition to thefile of Assessing Officer for the assessment year2004-05 with the similar direction as contained in theorder of Arun Sahlot (supra). 91.In the assessment year 2007-08, thecontention of the assessee was that the advance wasgiven for the business purpose. He further submittedthat Rs. 1 crore was given by RHPL directly to REEPLfor allotment of shares, but the Assessing Officer hasadded the same in the hands of assessee. Relying onthe decision in the Alpex Export (Del.I.T.A.T.) in I.T.A.No. 2858/Del/2012, order dated 28.08.2012, it wascontended that share application money is outside the provisions of Section 2(22)(e), our attention wasalso invited to the decision of Hon'ble Delhi HighCourt in the case of Sunil Chopra in I.T.A. No.106/Del/2011 order dated 27.4.2010, wherein it washeld that receipt of share application money forallotment of shares could not be treated as receipt ofloan or deposit for the purpose of Section 2(22)(e). ”92.We have considered the rival submissions andfound from record that basic intention of RHPL whileadvancing money to REEPL was to make investmentof RS. 1 crore in its directly by RHPL to REEPL andthe cheque was also given directly by RHPL TOREEPL and not to the assessee Mrs. Sandhya Sahlot.The assessee has also not withdrawn or used thesaid amount of Rs. 1 crore for her individual benefit.However, shares were allotted to Smt. SandhyaSahlot who has transferred the shares to RHPL. Byobserving that the shares were allotted by REEPL inthe name of assessee, the Assessing Officer addedthe amount of loan in assessee's hands u/s 2(22)(e).While deciding the issue, the Assessing Officer hasbrushed aside the fact that the cheque was givendirectly by RHPL to REEPL and that these shareswere transferred by assessee to RHPL. It is alsomatter of record that assessee has neither withdrawnthe amount for the personal use, not the cheque ofadvance was issued in favour of assessee. 93.In view of the above discussion, we restore thematter back to the file of Assessing Officer fordeciding afresh by considering the judicialpronouncement as discussed above and afterapplying the proposition laid down therein to thefacts of the instant case. We direct accordingly. Thebalance addition of Rs. 28,66,466/- made u/s 2(22)(e) is hereby confirmed in the assessment year 2007-08.” 9.In our opinion, the findings recorded by the Tribunal in this regard are in accordance with law. Section 2(22)(e) 93.In view of the above discussion, we restore thematter back to the file of Assessing Officer fordeciding afresh by considering the judicialpronouncement as discussed above and afterapplying the proposition laid down therein to thefacts of the instant case. We direct accordingly. Thebalance addition of Rs. 28,66,466/- made u/s 2(22)(e) is hereby confirmed in the assessment year 2007-08.” 9.In our opinion, the findings recorded by the Tribunal in this regard are in accordance with law. Section 2(22)(e) of the Income Tax Act reads as under:- “e) any payment by a company, not being acompany in which the public are substantiallyinterested, of any sum (whether as representing apart of the assets of the company orotherwise) 5 made after the 31st day of May, 1987 , by way of advance or loan to a shareholder, being aperson who is the beneficial owner of shares (notbeing shares entitled to a fixed rate of dividendwhether with or without a right to participate inprofits) holding not less than ten per cent of thevoting power, or to any concern, in which suchshareholder is a member or a partner and in whichhe has a substantial interest (hereafter in this clausereferred to as the said concern)] or any payment byany such company on behalf, or for- the individualbenefit, of any such shareholder, to the extent towhich the company in either case possessesaccumulated profits; but" dividend" does notinclude-- (i)a distribution made in accordance with sub-clause (c) or sub- clause (d) in respect of any shareissued for full cash consideration, where the holderof the share is not entitled in the event of liquidationto participate in the surplus assets; (ia)1 a distribution made in accordance with sub-clause (c) or sub- clause (d) in so far as suchdistribution is attributable to the capitalised profits ofthe company representing bonus shares allotted toits equity shareholders after the 31st day of March,1964 , 2 and before the 1st day of April, 1965 ];] (ii)any advance or loan made to a shareholder[ 3] orthe said concern] by a company in the ordinarycourse of its business, where the lending of moneyis a substantial part of the business of the company; (iii) any dividend paid by a company which is set offby the company against the whole or any part ofany sum previously paid by it and treated as adividend within the meaning of sub- clause (e), tothe extent to which it is so set off. Explanation 1-The expression" accumulated profits", wherever itoccurs in this clause, shall not include capital gainsarising before the 1st day of April, 1946 , or afterthe 31st day of March, 1948 , and before the 1stday of April, 1956 . Explanation 2.-- The expression"accumulated profits" in sub- clauses (a), (b), (d)and (e), shall include all profits of the company upto the date of distribution or payment referred to inthose sub- clauses, and in subclause (c) shallinclude all profits of the company up to the. date of liquidation,but shall not, where the liquidation isconsequent on the compulsory acquisition of itsundertaking by the Government or a corporationowned or controlled by the Government under anylaw for the time being in force, include any profits ofthe company prior to three successive previousyears immediately preceding the previous year inwhich such acquisition took place]. Explanation 3.-For the purposes of this clause,- (a)" concern" means a Hindu undivided family, or afirm or an association of persons or a body ofindividuals or a company; (b)a person shall be deemed to have a substantialinterest in a concern, other than a company, if he is,at any time during the previous year, beneficiallyentitled to not less than twenty per cent of theincome of such concern;] liquidation,but shall not, where the liquidation isconsequent on the compulsory acquisition of itsundertaking by the Government or a corporationowned or controlled by the Government under anylaw for the time being in force, include any profits ofthe company prior to three successive previousyears immediately preceding the previous year inwhich such acquisition took place]. Explanation 3.-For the purposes of this clause,- (a)" concern" means a Hindu undivided family, or afirm or an association of persons or a body ofindividuals or a company; (b)a person shall be deemed to have a substantialinterest in a concern, other than a company, if he is,at any time during the previous year, beneficiallyentitled to not less than twenty per cent of theincome of such concern;] 10.Explanantion of (e) i.e. as mentioned in Sectionwhich reads as above that dividend does not include anyadvance or loan made to a shareholder or the said concernby a company in the ordinary course of the business wherethe lending of money is a substantial part of the businessof the company. 11.From the facts of the case, it is clear that M/s. RajHomes Pvt. Ltd. advanced a loan to REEPL for allotment ofshares but the Assessing Officer added the same in thename of assessee under Section 2(22)(e) of the IncomeTax Act. In this view of the matter, the findings of the A.O.And CIT(A) are not correct. 12.The first substantial question of law while holdingthe ITAT was justified in setting aside the addition under Section 2(22)(e) made by the AO on account of paymentsby Raj Homes Pvt. Ltd to Shri Arun Sahlot and hisproprietary concerns Arun Associates and Raj Industries,with the direction to examine such aspects as commercialexigency of the loan and terms of loan even though theseaspects are not relevant u/s 2(22)(e). Apart from this, thetribunal has only made remand to the Assessing Officer. Itis well settled principle of law that if remand order hasbeen passed, then there is no substantial question of lawinvolved for determination because all the questions areopen before the authority after remand. 13.In regard to second substantial question of law.Section 153-A of the Income Tax Act reads as under:- “153A. Assessment in case of search orrequisition.- (1) Notwithstanding anything containedin section 139, section 147, section 148, section 149,section 151 and section 153, in the case of a personwhere a search is initiated under section 132 orbooks of account, other documents or any assets arerequisitioned under section 132A after the 31st dayof May, 2003, the Assessing Officer shall—requisition.- (1) Notwithstanding anything containedin section 139, section 147, section 148, section 149,section 151 and section 153, in the case of a personwhere a search is initiated under section 132 orbooks of account, other documents or any assets arerequisitioned under section 132A after the 31st dayof May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him tofurnish within such period, as may be specified inthe notice, the return of income in respect of eachassessment year falling within six assessment yearsreferred to in clause (b), in the prescribed form andverified in the prescribed manner and setting forthsuch other particulars as may be prescribed and theprovisions of this Act shall, so far as may be, applyaccordingly as if such return were a return requiredto be furnished under section 139; (b) assess or reassess the total income of sixassessment years immediately preceding theassessment year relevant to the previous year in which such search is conducted or requisition ismade : Provided that the Assessing Officer shall assess orreassess the total income in respect of eachassessment year falling within such six assessmentyears:” 14.Section 153 A of the Income Tax Act prescribes that (b) assess or reassess the total income of sixassessment years immediately preceding theassessment year relevant to the previous year in which such search is conducted or requisition ismade : Provided that the Assessing Officer shall assess orreassess the total income in respect of eachassessment year falling within such six assessmentyears:” 14.Section 153 A of the Income Tax Act prescribes that the Assessing officer has authority to re-assess the taxliability of a person on the basis of material received insearch operation. Clearly, this section stipulates that it isthe duty of the Assessing Officer to verify the informationreceived from the sources, if the information and the factsare not correct in accordance with law. We answer thesecond substantial question of law accordingly that theITAT has not committed any error of law in remanding thematter to the Assessing Officer. We do not find any merit inthis appeal, it is hereby dismissed. No order as to costs. (S.K. GANGELE) JUDGE (ANURAG SHRIVASTAVA)JUDGE