Son Of Late Upendra v. Kamat, Aged 57 Years,Married, Chartered Accountant, Indiannational, Resident Of Taleigao, Tiswadi, Goa

IN THE HIGH COURT OF BOMBAY AT GOA. TAX APPEAL NO.51/2017 WITH CIVIL APPLICATION NO.136/2017 IN TAX APPEAL NO. 51/2017 WITH TAX APPEAL NO. 53/2017 WITH CIVIL APPLICATION NO.156/2017 IN TAX APPEAL NO.53/2017 WITH TAX APPEAL NO.56/2017 WITH CIVIL APPLICATION NO.161/2017 IN TAX APPEAL NO.56/2017 WITH TAX APPEAL NO.55/2017 WITH CIVIL APPLICATION NO.158/2017 IN TAX APPEAL NO.55/2017 WITH TAX APPEAL NO.54/2017 WITH CIVIL APPLICATION NO.157/2017 IN TAX APPEAL NO.54/2017 DATTAPRASAD KAMATIndividual, Residing at White Bungalow,Opp. Hotel Solmar, Panaji, Goa through hisPower of Attorney Mr SANJIV U. KAMAT, TAMBE son of late Upendra V. Kamat, aged 57 years,married, Chartered Accountant, IndianNational, Resident of Taleigao, Tiswadi, Goa. … Appellant. Versus ASSISTANTCOMMISSIONEROFINCOME TAX- Central Circle, having hisoffice at Central Circle, Pundalik Niwas,Rua-de-Ourem, Panaji, Goa. … Respondent. WITH TAX APPEAL NO.119/2017 WITH CIVIL APPLICATION NO.245/2017 INTAX APPEAL NO.119/2017WITHTAX APPEAL NO.121/2017WITHCIVIL APPLICATION NO.247/2017INTAX APPEAL NO.121/2017WITHTAX APPEAL NO.123/2017WITH CIVIL APPLICATION NO.249/2017INTAX APPEAL NO.123/2017WITHTAX APPEAL NO.122/2017WITHCIVIL APPLICATION NO.248/2017 INTAX APPEAL NO.122/2017WITHTAX APPEAL NO.120/2017WITHCIVIL APPLICATION NO.246/2017IN TAX APPEAL NO.120/2017 Page 2 of 218 TAMBE KAMAT CONSTRUCTION PVT. LTD.,F/1, Indira Apartments, CaetanoAlbuquerque Road, Panaji, Goa through itsManaging Director, Uday A. Kamat, son oflate Anant V. Kamat, aged 72 years,married, Businessman, Indian National,Resident of Miramar-Panaji, Tiswadi, Goa. …. Appellant. Versus ASSISTANT COMMISSIONER OF INCOME TAX - Central Circle, having his office at CentralCircle, Pundalik Niwas, Rua-de-Ourem,Panaji, Goa. ….Respondent. WITH TAX APPEAL NO.79/2017 WITH CIVIL APPLICATION NO.194/2017 IN TAX APPEAL NO.79/2017WITH TAX APPEAL NO.86/2017 WITH CIVIL APPLICATION NO.204/2017 IN TAX APPEAL NO.86/2017 WITH TAX APPEAL NO.80/2017 WITH CIVIL APPLICATION NO.197/2017 IN TAX APPEAL NO.80/2017WITH TAX APPEAL NO.87/2017 WITH Page 3 of 218 CIVIL APPLICATION NO.206/2017 IN TAX APPEAL NO.87/2017 WITH TAX APPEAL NO.78/2017 WITH CIVIL APPLICATION NO.192/2017 IN TAX APPEAL NO.78/2017 UDAY A. KAMATIndividual, son of late Anant V. Kamat, aged72 years, married, businessman, IndianNational, Residing at White Bungalow,Opp. Hotel Solmar, Panaji, Goa. ... Appellant. Versus ASSISTANTCOMMISSIONEROFINCOME TAX, Central Circle, having his office at CentralCircle, Pundalik Niwas, Rua-de-Ourem,Panaji, Goa. ... Respondent. WITH TAX APPEAL NO.67/2017 WITH CIVIL APPLICATION NO.179/2017IN TAX APPEAL NO.67/2017 WITH TAX APPEAL NO.63/2017 WITH CIVIL APPLICATION NO.173/2017 IN TAX APPEAL NO.63/2017 WITH TAX APPEAL NO.66/2017 Page 4 of 218 WITH CIVIL APPLICATION NO.178/2017 IN TAX APPEAL NO.66/2017 WITH TAX APPEAL NO.64/2017 WITH CIVIL APPLICATION NO.174/2017 IN TAX APPEAL NO.64/2017 WITH TAX APPEAL NO.65/2017 WITH CIVIL APPLICATION NO.175/2017 IN TAX APPEAL NO.65/2017 RAMESH ANANT KAMATmarried, Indian National, Residing atH.No.760, Mary's Colony, Near LondonHotel, Miramar, Panaji, Goa. ... Appellant. Versus ASSISTANT COMMISSIONER OFINCOME TAX -Central Circle, having his office at CentralCircle, Pundalik Niwas, Rua-de-Ourem,Panaji, Goa. … Respondent. WITH TAX APPEAL NO.59/2017 WITH CIVIL APPLICATION NO.168/2017 IN TAX APPEAL NO.59/2017 WITH TAX APPEAL NO.89/2017 Page 5 of 218 TAMBE WITH CIVIL APPLICATION NO.208/2017 IN TAX APPEAL NO.89/2017WITH TAX APPEAL NO.60/2017 WITH CIVIL APPLICATION NO.169/2017 IN TAX APPEAL NO.60/2017 WITH TAX APPEAL NO.58/2017 WITH CIVIL APPLICATION NO.167/2017 IN TAX APPEAL NO.58/2017WITH TAX APPEAL NO.88/2017 WITH CIVIL APPLICATION NO.207/2017 IN IN TAX APPEAL NO.65/2017 RAMESH ANANT KAMATmarried, Indian National, Residing atH.No.760, Mary's Colony, Near LondonHotel, Miramar, Panaji, Goa. ... Appellant. Versus ASSISTANT COMMISSIONER OFINCOME TAX -Central Circle, having his office at CentralCircle, Pundalik Niwas, Rua-de-Ourem,Panaji, Goa. … Respondent. WITH TAX APPEAL NO.59/2017 WITH CIVIL APPLICATION NO.168/2017 IN TAX APPEAL NO.59/2017 WITH TAX APPEAL NO.89/2017 Page 5 of 218 TAMBE WITH CIVIL APPLICATION NO.208/2017 IN TAX APPEAL NO.89/2017WITH TAX APPEAL NO.60/2017 WITH CIVIL APPLICATION NO.169/2017 IN TAX APPEAL NO.60/2017 WITH TAX APPEAL NO.58/2017 WITH CIVIL APPLICATION NO.167/2017 IN TAX APPEAL NO.58/2017WITH TAX APPEAL NO.88/2017 WITH CIVIL APPLICATION NO.207/2017 IN TAX APPEAL NO.88/2017 ANJALI KAMAT,Individual, Residing at White Bungalow, Opp.Hotel Solmar, Panaji, Goa, through her Powerof Attorney Holder Mr. SANJIV U. KAMAT,son of late Upendra V. Kamat, aged 57 years,married, Chartered Accountant, IndianNational, Resident of Taleigao, Tiswadi, Goa. …. Appellant. Versus ASSISTANT COMMISSIONER OFINCOME TAX - Central Circle, having his office at CentralCircle, Pundalik Niwas, Rua-de-Ourem,Panaji, Goa. … Respondent. Page 6 of 218 TAMBE WITH TAX APPEAL NO.82/2017 WITHCIVIL APPLICATION NO.199/2017 IN TAX APPEAL NO.82/2017 WITH TAX APPEAL NO.83/2017 WITH CIVIL APPLICATION NO.201/2017 IN TAX APPEAL NO.83/2017 WITH TAX APPEAL NO.81/2017 WITH CIVIL APPLICATION NO.198/2017 IN TAX APPEAL NO.81/2017 WITH TAX APPEAL NO.85/2017 WITH CIVIL APPLICATION NO.203/2017 IN TAX APPEAL NO.85/2017 WITH TAX APPEAL NO.84/2017WITH CIVIL APPLICATION NO.202/2017 IN TAX APPEAL NO.84/2017 Mrs. SMITA UDAY KAMAT,wife of Uday Anant Kamat, aged 61 years,married, Indian National, Residing at WhiteBungalow, Opp. Hotel Solmar, Panaji, Goa ... Appellant. TAMBE Versus ASSISTANT COMMISSIONER OFINCOME TAX - Central Circle, having his office at CentralCircle, Pundalik Niwas, Rua-de-Ourem,Panaji, Goa. … Respondent. WITH TAX APPEAL NO.68/2017 WITH CIVIL APPLICATION NO.182/2017 IN TAX APPEAL NO.68/2017 WITHTAX APPEAL NO.69/2017WITH CIVIL APPLICATION NO.184/2017IN TAX APPEAL NO.69/2017WITHTAX APPEAL NO.77/2017WITHCIVIL APPLICATION NO.190/2017 IN TAX APPEAL NO.77/2017WITH TAX APPEAL NO.70/2017 WITH CIVIL APPLICATION NO.185/2017 IN TAX APPEAL NO.70/2017WITHTAX APPEAL NO.76/2017 WITH CIVIL APPLICATION NO.189/2017 Page 8 of 218 TAMBE IN TAX APPEAL NO.76/2017 SADHANA RAMESH KAMATIndividual, wife of Ramesh Anant Kamat, aged54 years, married, Indian National, Residing atH.No.760, Mary's Colony, Near LondonHotel, Miramar, Panaji, Goa. ... Appellant. Versus ASSISTANTCOMMISSIONEROFINCOME TAX - Central Circle, having his office at CentralCircle, Pundalik Niwas, Rua-de-Ourem,Panaji, Goa. OF ... Respondent. ---------------------------------------------------------------------------------- Mr Jitendra Jain with Mr Jas Sanghavi, Mr H. D. Naik and Mr A.D. Naik, Advocates for the Appellants. Ms Susan Linhares, Standing Counsel for the Respondent. ---------------------------------------------------------------------------------- CORAM:M. S. SONAK & VALMIKI SA MENEZES, JJ.RESERVED ON:26[th] APRIL, 2023.PRONOUNCED ON:18[th] AUGUST, 2023. JUDGMENT (PER : VALMIKI SA MENEZES, J.) 1.These 35 appeals under Section 260A of the Income Tax Act, 1961 were admitted by this Court’s order dated23.8.2017 on the following Substantial Questions of Law:- AWhether the impugned Judgmentand Order of the Tribunal holding that under B C OF ... Respondent. ---------------------------------------------------------------------------------- Mr Jitendra Jain with Mr Jas Sanghavi, Mr H. D. Naik and Mr A.D. Naik, Advocates for the Appellants. Ms Susan Linhares, Standing Counsel for the Respondent. ---------------------------------------------------------------------------------- CORAM:M. S. SONAK & VALMIKI SA MENEZES, JJ.RESERVED ON:26[th] APRIL, 2023.PRONOUNCED ON:18[th] AUGUST, 2023. JUDGMENT (PER : VALMIKI SA MENEZES, J.) 1.These 35 appeals under Section 260A of the Income Tax Act, 1961 were admitted by this Court’s order dated23.8.2017 on the following Substantial Questions of Law:- AWhether the impugned Judgmentand Order of the Tribunal holding that under B C the provisions of the Portuguese Civil Code,spouse of the Appellant does not acquirebeneficial interest in respect of the shares ofsubject Companies held by the Appellant andthat such right of the spouses can only beascertained on termination of the marriage bydivorce, separation or death, is based oncomplete mis-appreciation and misconstructionof the provisions of Portuguese Civil Codewhich contemplates vesting of ownership rightsand beneficial interest “IN PRESANTI” inAppellant’s wife, as a moiety holder with respectto the immovable and movable assets ofAppellant which includes shares of the subjectCompany ? Whether by virtue of marriage of thespouses under the Law of Communion ofAssets (Communion De Bens) applicable in theState of Goa to which the Appellant and hisspouse are subject to, each of the Appellant andhis spouse acquire 50% ownership rights and/orbeneficial interests in respect of all movable andimmovable properties forming a part of theestate of Communion De Bens irrespective ofthe spouse in whose name such assets areacquired and in pursuance thereof theAppellant and his spouse acquired equal rightsand beneficial interests i.e. to the tune of 50%in the shares of KCPL, KCRPL and KIPL heldin the name of either spouses ? Whether in view of the correctinterpretation of the relevant Articles of thePortuguese Civil Code, it can be inferred thatspouse in whose name the movable property(shares in the instant case) of the CommunionDe Bens is registered in the Members’ register Page 10 of 218 D E F of each Company, cannot be said to be exclusivebeneficial owner of the entire such shares and ifat all his beneficial interest is restricted to only50% of number of such shares and need to beaccordingly recognized to decide his beneficialinterest in the impugned companies for thepurpose of Explanation 2(b) of Section 2(22)(e)of the Act ? Whether on the facts and in thecircumstances of the case and in law, theTribunal erred in not appreciating that theproceedings under Section 153C were notvalidly initiated in as much as no new andincriminating facts had been found during thecourse of search warranting the additions madein pursuance thereof ? Whether on the facts and in thecircumstances of the case and in law, theTribunal erred in not appreciating that all thepayments received/paid by the various groupcompanies, in which the Appellant is ashareholder were made in the ordinary courseof business and did not qualify as ‘loans oradvances’ as postulated under the provisions ofSection 2(22)(e) of the Act? Whether on the facts and in thecircumstances of the case and in law, theTribunal erred in not appreciating that theamounts received by KCRPL from KCPL werein ordinary course of business and theconditions for invoking the deeming fictionunder the provisions of Section 2(22) (e) of theAct could not be invoked in the facts of thepresent case?” An additional Substantial Question of Law was alsodirected to be framed by the same order in Stamp Number MainNo.2607/2017 (Tax Appeal No.93 of 2017) filed at the behest ofthe Revenue, which reads as:- Whether in law and on facts, the Hon’ble Whether on the facts and in thecircumstances of the case and in law, theTribunal erred in not appreciating that theamounts received by KCRPL from KCPL werein ordinary course of business and theconditions for invoking the deeming fictionunder the provisions of Section 2(22) (e) of theAct could not be invoked in the facts of thepresent case?” An additional Substantial Question of Law was alsodirected to be framed by the same order in Stamp Number MainNo.2607/2017 (Tax Appeal No.93 of 2017) filed at the behest ofthe Revenue, which reads as:- Whether in law and on facts, the Hon’ble Income Tax Appellate Tribunal was right in notappreciating the deeming fiction of Section 2(22) (e) ofthe IT Act as “deemed dividend” ? All these appeals arise from common order dated30.3.2017 passed by the Income Tax Appellate Tribunal, Panaji Bench (for short “ITAT”) in Income Tax Appeal No.34/PAN/2016, which appeal pertains to the Assessment Year2011-2012. The impugned order is a common order challenged bythe parties in all 35 appeals in which common SubstantialQuestions of Law as enumerated above arise. 2.These Tax Appeals comprise three sets of parties atwhose behest they have been filed. The main assessees are threebrothers namely Shri Dattaprasad Kamat, Shri Uday Kamat, andShri Ramesh Kamat. Other appeals are filed respectively by theirPage 12 of 218 TAMBE spouses Anjali Kamat, Smitha Uday Kamat, and Sadhana RameshKamat. These individual appeals at the behest of three brothersand their spouses are for the Assessment Years 2007-08, 2009-10to 2012-13 and comprised 29 appeals bearing Nos.51 of 2017, 121of 2017, 80 of 2017, 81of 2017, 63 of 2017, 69 of 2017, 123 of2017, 89 of 2017, 60 of 2017, 53 of 2017, 79 of 2017, 67 of 2017,59 of 2017, 86 of 2017, 82 of 2017, 84 of 2017, 88 of 2017, 120 of2017, 54 of 2017, 56 of 2017, 87 of 2017, 122 of 2017, 66 of2017, 78 of 2017, 77 of 2017, 64 of 2017, 55 of 2017, 85 of 2017,65 of 2017, 58 of 2017, 70 of 2017, 76 of 2017, 83 of 2017, 68 of2017 and 93 of 2017. Since submissions were common in allappeals, and since issues that arose for a decision on the substantialquestions of law raised by the parties were common, during thefinal hearing of the matter, submissions were made in Tax AppealNo.51 of 2017, which relates to the Assessment Year 2011-2012 inrespect of 29 appeals filed on behalf of individuals and in additionto these 29 appeals, 5 appeals, being Tax Appeal Nos.119 to 123 of2017, respectively, for the Assessment Year 2006-07, 2007-08,Page 13 of 218 TAMBE 2009-10, 2010-11 and 2011-12 respectively, numbered as TaxAppeals Nos.121, 122, 123, 119, and 120 of 2017, all filed at thebehest of a Private Limited Company, namely Kamat ConstructionPrivate Limited (KCPL) in which the same substantial questions oflaw arise are taken up along with individual appeals; the soleappeal filed at the behest of the Revenue is Tax Appeal No.93 of2017 (Pr. Commissioner of Income Tax Vs Dattaprasad Kamat). 3.These matters have arisen in the following factualbackdrop:- AThe Assessees, Shri Dattaprasad Kamat (TaxAppeal No. 51/2017) along with his two brothers ShriUday Kamat and Shri Ramesh Kamat each held 30-33%shares in various private limited companies which areengaged inter alia, in the business of construction andhospitality. The three brothers each hold 30-33% shares inKamat Inns Private Limited (KIPL), Kamat Housing andDevelopment (India) Private Limited (KHDIPL), KamatConstruction & Resorts Private Limited (KCRPL),Prajakta Investments & Trading Company PrivateLimited (PIPTL), AVC Investments & Trading Company Private Limited(AVCPTL). Each of the three brothers were married to theirspouses in terms of the provisions of the Portuguese CivilCode, as applicable to the State of Goa (hereinafterreferred to as "the Code"). Under the Code, in the absenceof any ante nuptial agreement between the spouses, eachof them has 50% right to their common estate. Private Limited(AVCPTL). Each of the three brothers were married to theirspouses in terms of the provisions of the Portuguese CivilCode, as applicable to the State of Goa (hereinafterreferred to as "the Code"). Under the Code, in the absenceof any ante nuptial agreement between the spouses, eachof them has 50% right to their common estate. Under the provisions of Section 5A of theIncome Tax Act, when the husband and wife are governedby the system of Community of Property known as"Communiao Dos Bens" or Community of Assets underthe Portuguese Civil Code of 1860 applicable to the Stateof Goa, the income of the husband and wife under anyhead of the income, except income derived from"salaries", shall not be assessed as that of such communityof property, and such income of the husband, and of thewife under each head of the income, other than under thehead of "salaries" shall be apportioned equally betweenthe husband and the wife. According to the factual narration set out in theappeals, these three brothers were registered shareholdersof KCPL, wherein the appellant was its ManagingDirector. KCPL was the parent company of the Kamatgroup which comprises of PIPTL, AVCPTL, KIPL, Page 15 of 218 D. E KHDIPL and KCRPL. Among these private companies,PIPTL was 100% subsidiary of KCL, merged into KCPLw.e.f. 01.04.2011 while KIPL merged into KCPL alsow.e.f. 01.04.2011. The three brothers are registeredshareholders of these companies in the proportion of30-33% each of them. For the Assessment Year 2011-12, individualappellants/assessees filed their return of income on29.09.2011 in terms of Section 139(1) of the Act, theincome, comprising income from "salaries", income fromthe business, income from capital gains and from othersources; the return of income was processed under Section143(1) of the Act on 27.09.2012, and thereafter, there wasno further scrutiny proceedings initiated against any ofthese individual assessees. A search was conducted on 31.01.2012, in theoffice premises of KCPL and at the residential premises ofits Directors, in terms of Section 132 of the Act.Consequent to the search, a notice under Section 153C ofthe Act came to be issued on 30.07.2012 to the individualAssessees, calling upon them to file their return of incomefor the Assessment Years 2006-07, 2007-08, 2009-10 to2011-12. appellants/assessees submitted their return of income on29.08.2012 maintaining that the return of income filed on29.09.2011 declaring total income of Rs.26,18,704/-should be treated as the Return in response to the noticeunder Section 153C. Subsequently, notices were issued bythe Revenue under Sections 142(1) and 143(2) of the Actcalling for further information, which was given by theseAssessees. Detailed explanations and submissions werealso submitted by the Assessees along with documentssupporting various transactions which were questioned inthe said notice. Subsequent thereto, the Assessment Officer(AO) rejected the explanations and submissions made bythe Assessees and held that payments made under varioustransactions by the Assessees through the aforementionedcompanies to be payment contemplated under Section2(22)(e) of the Income Tax Act (hereinafter referred to as"the Act") and held the same to be deemed dividend inthe hands of KCPL/KCRPL. Consequently, the AOassessed 1/6[th] of each sum in the hands of KCPL/KCRPLas deemed dividend under Section 2(22)(e) in the handsof the appellant and finalized assessment order on28.02.2014, in terms of Section 153C read with Section143(3) of the Act. By order dated 28.02.2014, the AOmade the following additions to the income ofPage 17 of 218 Dattaprasad Kamat (Tax Appeal No.51 of 2017); Subsequent thereto, the Assessment Officer(AO) rejected the explanations and submissions made bythe Assessees and held that payments made under varioustransactions by the Assessees through the aforementionedcompanies to be payment contemplated under Section2(22)(e) of the Income Tax Act (hereinafter referred to as"the Act") and held the same to be deemed dividend inthe hands of KCPL/KCRPL. Consequently, the AOassessed 1/6[th] of each sum in the hands of KCPL/KCRPLas deemed dividend under Section 2(22)(e) in the handsof the appellant and finalized assessment order on28.02.2014, in terms of Section 153C read with Section143(3) of the Act. By order dated 28.02.2014, the AOmade the following additions to the income ofPage 17 of 218 Dattaprasad Kamat (Tax Appeal No.51 of 2017); (i) As deemed dividend, in terms of Section 2(22)(e) ona protective basis in the hands of the appellant(Dattaprasad Kamat), a sum corresponding to 1/6[th] ofRs.33,75,991/- received by KCPL from PIPTL, thesubstantive addition in respect thereof having beenmade in the hands of KCPL. The AO held that thisamount corresponds to half of Rs.11,25,330/- shownas additions in the assessment order.a protective basis in the hands of the appellant(Dattaprasad Kamat), a sum corresponding to 1/6[th] ofRs.33,75,991/- received by KCPL from PIPTL, thesubstantive addition in respect thereof having beenmade in the hands of KCPL. The AO held that thisamount corresponds to half of Rs.11,25,330/- shownas additions in the assessment order. (ii) As deemed dividend, in terms of Section 2(22)(e) ona substantive basis in the hands of the appellant(Dattaprasad Kamat), a sum corresponding to 1/6[th] ofRs.4,86,50,000/- received by KCRPL from KCPL,protective addition in respect thereof having beenmade in the hands of KCPL. This amountcorresponds to Rs.1,62,16,666/- shown as theaddition in the assessment order.a substantive basis in the hands of the appellant(Dattaprasad Kamat), a sum corresponding to 1/6[th] ofRs.4,86,50,000/- received by KCRPL from KCPL,protective addition in respect thereof having beenmade in the hands of KCPL. This amountcorresponds to Rs.1,62,16,666/- shown as theaddition in the assessment order. (iii) Interest under Sections 234B and 234C was alsoadded to the income of the appellant.added to the income of the appellant. (iv) Similar additions under assessment order of the samedate were made by the AO in the hands of the wife ofthe appellant (Dattaprasad Kamat), Anjali Kamat andalso in the hands of two other brothers Shri UdayPage 18 of 218date were made by the AO in the hands of the wife ofthe appellant (Dattaprasad Kamat), Anjali Kamat andalso in the hands of two other brothers Shri UdayPage 18 of 218 G. H. Kamat and Shri Ramesh Kamat and in hands of theirspouses Smitha Uday Kamat and Sadhana RameshKamat. Being Aggrieved by the order of the AOdated 28.02.2014, all these individual assesseespreferred an appeal before the Commissioner of IncomeTax (Appeals) ("CIT (Appeals)" for short). In theseappeals, additional ground was raised in respect of thenotice issued under Section 153C of the Act, pursuantto the search. The contentions raised by the Assesseeswere that the assessment order in terms of Section 153Cread with Section 143(3) of the Act was withoutjurisdiction since the material which the AO has termedas "incriminating material" did not actually come tolight during the search and seizure proceedings, but wasall throughout disclosed to the AO in all earlierassessment proceedings and shareholding pattern wasalso a matter of record in all earlier proceedings beforethe AO. By a common order dated 28.01.2015, CIT(Appeals), allowed the appeals of the Assessees andarrived at the following findings:- i. That there was no cause for making additions inthe income of the Assessees on account ofPage 19 of 218the income of the Assessees on account ofPage 19 of 218 TAMBE By a common order dated 28.01.2015, CIT(Appeals), allowed the appeals of the Assessees andarrived at the following findings:- i. That there was no cause for making additions inthe income of the Assessees on account ofPage 19 of 218the income of the Assessees on account ofPage 19 of 218 TAMBE deemed dividend under Section 2(22)(e) sinceno monetary benefits have arisen to theindividual shareholders of the various companies. ii. The proceedings under Section 153C of the Actwere validly initiated by the AO and theassessment carried out by the AO under Section153C read with Section 143(3) of the Act wascorrectly initiated, being based on facts that werecollated on the basis of the statement recordedand the material collated during the search of thepremises of the said companies. Against the order dated 28.01.2015 of theCIT (Appeals), the Revenue preferred an appeal beforethe ITAT challenging the deletion of the additions madeunder Section 2(22)(e) of the Act as deemed dividend.In those appeals, the appellants/assessees also filed crossobjections challenging the validity of the proceedingsunder Section 153C of the Act. By its order dated13.08.2015, the ITAT allowed the appeals of theRevenue and remanded the issue of deemed dividendsunder Section 2(22)(e) of the Act to CIT (Appeals) forre-adjudication after giving assessees and AO anadequate opportunity to substantiate their case.According to the order dated 13.08.2015 of the ITAT, the findings of the CIT (Appeals) were in the form ofnon-speaking order and the conclusion arrived at by theCIT (Appeals) that there were no violations of theprovisions of Section 2(22)(e) of the Act was arrived atwithout considering the substantial evidence placed bythe AO on record to support this claim. On remand, CIT (Appeals) heard the parties,written submissions were filed before the AppellateAuthority by both parties, after which CIT (Appeals),by its order dated 22.01.2016, once again allowed theappeals of the assessees and came to the followingfindings:- i. That, the deeming provisions of Section 2(22)(e) of the Act were not applicable to the case ofthe assessees since the nature of thetransactions between different companies inwhich assessees were shareholders, i.e KCPLand KCRPL were made for businesstransactions and did not amount to deemeddividend.(e) of the Act were not applicable to the case ofthe assessees since the nature of thetransactions between different companies inwhich assessees were shareholders, i.e KCPLand KCRPL were made for businesstransactions and did not amount to deemeddividend. ii. That, the provisions of Section 2(22)(e) of theAct could not be made applicable to theassessees in view of the fact that the spouses ofthe assessees were merely beneficiary owners ofPage 21 of 218Act could not be made applicable to theassessees in view of the fact that the spouses ofthe assessees were merely beneficiary owners ofPage 21 of 218 the shares in these companies, without beingthe registered shareholders. iii. That, on earlier assessment, the predecessor ofthe AO had deleted additions in the hands ofthe payee vide order dated 28.08.2015 and, asthe transaction between PIPTL and KCPLbeing business transaction as money advancedby PIPTL to KCPL for development andpurchase of premises, the same could not benow reassessed.the AO had deleted additions in the hands ofthe payee vide order dated 28.08.2015 and, asthe transaction between PIPTL and KCPLbeing business transaction as money advancedby PIPTL to KCPL for development andpurchase of premises, the same could not benow reassessed. the shares in these companies, without beingthe registered shareholders. iii. That, on earlier assessment, the predecessor ofthe AO had deleted additions in the hands ofthe payee vide order dated 28.08.2015 and, asthe transaction between PIPTL and KCPLbeing business transaction as money advancedby PIPTL to KCPL for development andpurchase of premises, the same could not benow reassessed.the AO had deleted additions in the hands ofthe payee vide order dated 28.08.2015 and, asthe transaction between PIPTL and KCPLbeing business transaction as money advancedby PIPTL to KCPL for development andpurchase of premises, the same could not benow reassessed. iv. That, in the transaction between KCPL andKCRPL, an advance of Rs. 4,86,50,000/- paidby KCPL to KCRPL for the purchase ofpremises were incurred in the course of thebusiness as borne out from agreement anddocuments produced before the officer andwere incurred in the course of business, thuscould not be construed as a loan or advance interms of Section 2(22)(e) of the Act.KCRPL, an advance of Rs. 4,86,50,000/- paidby KCPL to KCRPL for the purchase ofpremises were incurred in the course of thebusiness as borne out from agreement anddocuments produced before the officer andwere incurred in the course of business, thuscould not be construed as a loan or advance interms of Section 2(22)(e) of the Act. v. That, since the assessees, were governed by theprovisions of the Portuguese Civil Codeapplicable to their marriage, beneficialownership of the shares held by one spouse(husband) as registered shareholders of theseThat, since the assessees, were governed by theprovisions of the Portuguese Civil Codeapplicable to their marriage, beneficialownership of the shares held by one spouse(husband) as registered shareholders of these Page 22 of 218 companies, the amount in the hands of theseparties was required to be taxed on the basis of50% to each spouse, in terms of Section 5A ofthe Act. vi. That, since under the provisions of Section 5Aof the Act, the appellants are governed by thePortuguese Civil Code, the income of theappellants jointly belongs to the appellant andhis wife, on such division, the percentage ofthe beneficial shareholding falls below thelimits as required under Section 2(22)(e) ofthe Act; thus, such addition is made withoutany basis; CIT (Appeals), while dealing withthis contention also accepted the assesseescontention that since the wealth tax returnsfiled by the appellant for earlier years, haddivided the investment into shares equallybetween the two spouses, on the basis of theconcept of the communion of assets applicableto them under the Portuguese Civil Code, noadditions could be made.of the Act, the appellants are governed by thePortuguese Civil Code, the income of theappellants jointly belongs to the appellant andhis wife, on such division, the percentage ofthe beneficial shareholding falls below thelimits as required under Section 2(22)(e) ofthe Act; thus, such addition is made withoutany basis; CIT (Appeals), while dealing withthis contention also accepted the assesseescontention that since the wealth tax returnsfiled by the appellant for earlier years, haddivided the investment into shares equallybetween the two spouses, on the basis of theconcept of the communion of assets applicableto them under the Portuguese Civil Code, noadditions could be made. vii The proceedings under Section 153C of theAct were held to be valid on the ground thatnew facts had emerged during the course ofthe search, since it was at that point of timePage 23 of 218Act were held to be valid on the ground thatnew facts had emerged during the course ofthe search, since it was at that point of timePage 23 of 218 TAMBE that the AO had an opportunity for the firsttime to collate all previous years statementsand shareholdings, which constitutedsuppression on the part of the assessees. vii The proceedings under Section 153C of theAct were held to be valid on the ground thatnew facts had emerged during the course ofthe search, since it was at that point of timePage 23 of 218Act were held to be valid on the ground thatnew facts had emerged during the course ofthe search, since it was at that point of timePage 23 of 218 TAMBE that the AO had an opportunity for the firsttime to collate all previous years statementsand shareholdings, which constitutedsuppression on the part of the assessees. 4.Aggrieved by the order passed by the CIT (Appeals),the Revenue preferred an appeal before the ITAT in which theappellants/assessees filed cross-objections. In the cross-objectionsraised by the assessees, though in the earlier proceedings, they hadgiven up the ground that the assessment under Section 153C bythe AO was without jurisdiction, they once again contended thatthe assessment under Section 153C was without jurisdiction sincethere was no suppression of the shareholding pattern by theassessees, all disclosure having been made by them since thedeclaration, in earlier assessments which were accepted. The ITAT, as referred herein above, has allowed all these appeals at the behest of the Revenue and has upheld both,the legality of the procedure followed by the AO under Section153C of the Act and the additions made by the AO on the basis of TAMBE the income from transaction amongst companies under whichassessees hold shares were deemed dividend in the hands of theassessees and their spouses in terms of Section 2(22)(e) of the Act. 5. We have heard the learned Counsel for the parties, and perused the record of these appeals. Parties have filed exhaustivenotes of submissions and compilations of case law before us, whichhave also been considered while deciding these appeals. 6.Shri Jitendra Jain, learned Counsel appearing for theappellants in all these appeals, has placed the followingsubmissions before us:- Shri Jitendra Jain, learned Counsel appearing for the (a)That, the five Substantial Questions of Law (A) to (F) on which the assessees’ appeals, have been admittedcan be broadly summarized under three issues, namely :-can be broadly summarized under three issues, namely :- Issue No.1:- The Substantial Questions of Law (A) to (C) would be covered under this issue. In the light of the fact that the assessee (husband), whoholds 33% of the shares, carries such voting rightPage 25 of 218 with the shares, whether his spouse, governed by thePortuguese Civil Code, can be said to be thebeneficial owner of half of the 33% of shares and thebalance 16.5% is held by his wife as beneficial owneror would he be the beneficial holder of the entire33% (this issue would arise in all the AssessmentYears 2007-08, 2009-10 to 2012-13). Issue No.2:-WhichcoversSubstantialQuestion of Law (D), on which these appeals areadmitted would be, if the answer to Issue No.1 isheld in the negative, whether transactions recordedin the books of the group companies and theshareholding pattern being available in the publicdomain, be considered as incriminating material forthe purpose of Section 153C of the Act (this issuearises in all appeals except for the Assessment Year2012-13). Issue No.3:-Which would cover SubstantialQuestions (E) and (F) being if Issue No.2 isanswered in the negative, whether the inter-company transactions in the nature ofcommercial/business transaction can fall within thephrase "loans or advances" for the purpose ofSection 2(22)(e) of the Act. (This issue would arisein all Assessment Years 2007-08, 2009-10 to 2012-13). (b)That, admittedly, the parties aregoverned by the provisions of the Portuguese CivilCode, by virtue of which, each of their spouses is amoiety holder in the common estate which isindivisible, by virtue of operation of law in theseprovisions, the wife would be entitled to holdownership of 50% of the shares held in the nameand registered with the companies, in favour of the Issue No.3:-Which would cover SubstantialQuestions (E) and (F) being if Issue No.2 isanswered in the negative, whether the inter-company transactions in the nature ofcommercial/business transaction can fall within thephrase "loans or advances" for the purpose ofSection 2(22)(e) of the Act. (This issue would arisein all Assessment Years 2007-08, 2009-10 to 2012-13). (b)That, admittedly, the parties aregoverned by the provisions of the Portuguese CivilCode, by virtue of which, each of their spouses is amoiety holder in the common estate which isindivisible, by virtue of operation of law in theseprovisions, the wife would be entitled to holdownership of 50% of the shares held in the nameand registered with the companies, in favour of the husband; that since the husband owns 33% of theshares in each of the companies concerned in thepresent appeals, his actual entitlement would beonly to half of that value, while ownership of theremaining half i.e. 16.5% of the said shares wouldvest in the wife; and further, that the wife would bebeneficial owner of these shares, since each halfcomprising of 16.5% carrying voting powers/rightscorresponding only to 16.5.% of the shares in thecompany, they being less than the qualifying the20% referred to in Section 2(22)(e) of the Act,provisions of Section 2(22)(e) of the Act would notbe applicable to the case at hand; the voting powerof such shares in the company advancing theamount carries less than 10%. (c)Section 2(32) of the Act defines aperson, who has a substantial interest in the Page 28 of 218 company, in relation to that company, means theperson who is the beneficial owner of the sharescarrying not less than 20% of the voting power. Toascertain whether such person has a substantialinterest in a company or not, three steps may befollowed, they being : Step No.1 - ascertain who is the beneficial owner.StepNo.2 - ascertaining how many shares thebeneficial owner actually holds in that company. Step No.3 – ascertain the voting power attributableto the number of shareholders arrived at in StepNo.2. (d)That, according to the Portuguese CivilCode, in a contract of marriage, the ownership andpossession of the common assets vests in bothspouses during the subsistence of the marriage, andon this basis, applying the provisions of the variousPage 29 of 218 Articles of the Portuguese Civil Code to the case of husband and wife, wherein the husband is 33%registered holder of the shares in a company, is notthe sole assessee, but his wife is the beneficial ownerof half of the 33% shares (16.5% shares) in the saidcompany. The learned Counsel for the appellantstakes support, for substantiating these argumentsfrom the following judgments :- i.Zelia M. Xavier Fernandes E. Gonsalves v.Joana Rodrigues & Ors. (2012) 3 SupremeCourt Cases 188; ii.Jose Paulo Coutinho v. Maria Luiza ValentinaPereira & Anr. (2019) 20 Supreme Court Cases 85; iii. CIT v. Purushotam Gangadhar Bhende,(1977) 106 ITR 932; iv. Commissioner of Wealth Tax v. Vasudeva V.Dempo [1981] 131 ITR 291 (Bom);-v. Commissioner of Wealthtax v. Vasudeo V.Dempo [1992] 196 ITR 216 (SC); vi. CIT v. Ms. Maria Sylvia D'souza (2013) 261CTR (Bom) 282. (e)That, Circular No.684 dated10.06.1994, issued by the Central Board of DirectTaxes has accepted this position, explaining thereason for insertion of Section 5A in the Act; thesame Circular also recognizes the law laid down bythis High Court in various decisions, whereinincome of communion of the property was assessedin the individual assessment of the spouses equally.All six assessees have in their individual wealth taxreturns filed for Assessment Year 1993-94 shownequal ownership of shares in the referred PrivateLimited Companies, and this position has beenaccepted by the Revenue. (f)That, the dictionary meaning of "beneficial owner", according to Mitra's Legal and vi. CIT v. Ms. Maria Sylvia D'souza (2013) 261CTR (Bom) 282. (e)That, Circular No.684 dated10.06.1994, issued by the Central Board of DirectTaxes has accepted this position, explaining thereason for insertion of Section 5A in the Act; thesame Circular also recognizes the law laid down bythis High Court in various decisions, whereinincome of communion of the property was assessedin the individual assessment of the spouses equally.All six assessees have in their individual wealth taxreturns filed for Assessment Year 1993-94 shownequal ownership of shares in the referred PrivateLimited Companies, and this position has beenaccepted by the Revenue. (f)That, the dictionary meaning of "beneficial owner", according to Mitra's Legal and Commercial Dictionary, (6[th]Edition) is"beneficiary's interest in trust property; a corporateshareholder's power to buy or sell the shares, thoughthe shareholder is not registered on the corporation'sbooks as the owner; the expression means such rightto the enjoyment of property as exists where thelegal title is in one person and the right of suchbeneficial use or interest is in another and wheresuch right is recognized by law and can be enforcedby the Courts at the suit of such owner or someoneon his behalf"; that, according to Advanced LawLexicon, 6[th] Edition, by P. Ramanatha Aiyar."Beneficial owner" means "one who though nothaving an apparent title, is in equity entitled toenjoy the advantage of ownership". Applying the dictionary meaning of"beneficial owner" to the instant case, the wife would have 50% right in the dividend from theshares, and sale of shares and, therefore, enjoys allrights arising out of the ownership of the shares,being consequently beneficial owner of these sharesto the extent of 50% or half right, as held in the caseof Dr. Jose Julio D’Costa ..Vs.. Income Tax Officer,53 ITD 300, he submits that even depreciation canbe claimed by other spouses/assessees to the extentof 50% shares, in terms of provisions of PortugueseCivil Code applicable to the assessees; Since the wife is the beneficial owner ofhalf of the shares held by her husband in thesecompanies, if one ascertains the voting powerattributable to his share i.e. 16.5% as held by thewife, the wife is the beneficial owner of 16.5% ofshares, the voting right attributable to these sharesbeing less than the threshold 20% provided by Section 2(32) of the Act, provisions of Section 2(22)(e) of the Act could not be made applicable to thepresent case. Consequently, the additions made bythe AO in the hands of the husband assessee as fullowner of 33% of the shares were contrary to theprovisions of the law. (g)Section 187C of the Companies Act,1956, requires a declaration of beneficial interest inthe shares of the company to be made, if the interestis created contractually. In the present case, thebeneficial ownership is created by operation of law,by applying the provisions of the Portuguese CivilCode giving the spouse the benefit of 50% of theownership in the shares. Consequently, provisions ofSection 187C of the Companies Act, 1956 are notapplicable to the person who is governed by thePortuguese Civil Code, and even if for the sake of (g)Section 187C of the Companies Act,1956, requires a declaration of beneficial interest inthe shares of the company to be made, if the interestis created contractually. In the present case, thebeneficial ownership is created by operation of law,by applying the provisions of the Portuguese CivilCode giving the spouse the benefit of 50% of theownership in the shares. Consequently, provisions ofSection 187C of the Companies Act, 1956 are notapplicable to the person who is governed by thePortuguese Civil Code, and even if for the sake of argument, they were applicable, at the most, underthese provisions, it would only result in impositionof a fine, to be paid by the spouse, but would notresult in the spouse ceasing to be beneficial owner ofthe shares. He submitted that Section 89 of theCompanies Act, 2013, which corresponds to Section187C of the erstwhile Companies Act, 1956,provides that no right in relation to any share inrespect of which a declaration is not made by thebeneficial owner, shall be enforceable by him. That,even by applying the provisions of new Section 89of the Companies Act, 2013, to the present case, atthe most, the wife would not be able to exercisevoting power to the extent of 16.5.% of her sharethrough her husband for non-compliance of thisprovision. Reliance was placed on the judgment ofDelhi High Court in the case of C.I.T. ..V/s..Ankitech (P) Ltd. [(2012) 340 ITR 14 (Delhi). ItPage 35 of 218 was submitted that the decision of the Delhi HighCourt has been approved by the Hon'ble SupremeCourt in C.I.T. .V/s.. Madhur Housing &Development Co.(2018) 401 ITR 152. (h)The next submission of Mr Jitendra Jainlearned Counsel was to contend, that in the eventthis Court concludes that the spouses of theappellants are not beneficial owner of the sharesheld by the appellants in the company, the questionraised under Issue No.2 would arise for theAssessment Year 2007-08 to 2011-12; this IssueNo.2 would, however, not arise for the AssessmentYear 2012-13, since the date of search conducted bythe Revenue on 31.01.2012 was during thatassessment year. Learned Counsel for the appellantssubmits that the Issue No.2 as to whether thetransactions recorded in the books of the group companies, and the shareholding pattern beingavailable, both in the public domain and in thematerial submitted along with the previous yearsreturn, could be treated as incriminating material forthe purpose of Section 153C of the Act. He submits that the assessment havingbeen made in the case of all the individual assessees,pursuant to action under Section 132 of the Act, anaddition could be made in respect of an assessmentyear, which has become final, only if incriminatingmaterial is found in the course of such search underSection 153A read with Section 153C of the Act.Further, that such incriminating material should beof the nature, which has come to the knowledge ofthe Revenue