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Judgment
Revenue has filed this appeal under Section 260-A of
the Income Tax Act, 1961 against the order dated
30/04/2013 passed by Learned Income Tax Appellate
Tribunal, Indore in I.T.A. (SS) 267/Ind/2012.
A search operation was conducted on 30/05/2008 at
the residential premises of Shri Arun Sahlot at E-3/10,
Arera Colony, Bhopal. Notice was issued to the assessee
under Session 153A dated 07.01.2010 for filing the return
of Income Tax for Assessment Years 2003-04 to 2008-09.
In response to that the assessee filed income tax returns.
Besides the residential premises of assessee search
was also conducted at the business premises of M/s. Raj
Express. On the basis of search and seizure and the reply
filed by the assessee, the Assessing Officer computed
income of the assessee for the assessment year 2003-04
to Rs. 82,17840/-. The Assessing Officer also levied
interest.
Being aggrieved by the order of Assessing Officer,
the assessee filed an appeal before the CIT(A). The
appellate Tribunal partly allowed the aforesaid appeal and
other appeals the Assessing Officer also passed separate
orders upto the years 2008-09 of assessment. In regard
to other appeals, CIT(A) partly allowed these appeals of
the assessee.
Against the aforesaid orders, assessee as well as
revenue filed various appeals before the ITAT as I.T.(SS) A.
Nos. 186 to 192/Ind/2012 Assessment Year 2003-04 to
2009-10, I.T.(SS) A. Nos. 261 to 267/Ind/2012 Assessment
Year 2003-04 to 2009-10 & I.T.(SS) A. Nos. 193 to
199/Ind/2012 Assessment Year 2003-04 to 2009-10. The
Appellate Tribunal vide common order dated 30/04/2013
allowed the appeals of the assessee partly. The Appellate
Tribunal in regard to addition made under Section 2(22)(e)
of the Income Tax Act remitted the matter back to the
Assessing Officer to decide afresh. The Tribunal dismissed
the appeals filed by the revenue. The Tribunal set-aside
levy of interest under Section 234 of Income Tax Act levied
by the Assessing Officer against the assessee.
Against the order of ITAT, the revenue filed this
appeal and other connected appeals. The appeal is
admitted vide order dated 17/06/2014 on the following
substantial questions of law.
"1. Whether on the facts and in the circumstances of the case, the ITAT was justified in law in setting aside the addition under Section 2(22)(e) made by the AO on account of payments by Raj Homes Pvt. Ltd to Shri Arun Sahlot and his proprietary concerns Arun Associates and Raj Industries, with the direction to examine such aspects as commercial exigency of the loan and terms of loan even though aspects are not relevant u/s 2(22)(e)?.
Whether on the facts and in the circumstances of the case, the ITAT was justified in law in setting aside the additions on account of deemed dividend in A.Ys. 2003-04 to 2006-07 with directions to the Assessing Officer to verify if information regarding deemed dividends was found during the search even though there is no such requirement u/s 153A?."
The main ground of challenge of the revenue in this
appeal is that whether ITAT is justified in law in deletion of
addition of income under Section 2(22)(e) of the Income
Tax Act ordered by the A.O.
The appellate tribunal recorded findings in this
regard in para 85 on wards of the order. The Assessing
Officer observed that RHPL had given loan to the assessee
and the loan be added as addition under Section 2(22)(e)
of the Income Tax Act treating it as deemed dividend
because the shareholding of the assessee in three
companies i.e. Raj Homes Pvt. Ltd., M/s. Raj Events and
Entertainment Pvt. Ltd and M/s Minal Builders Ltd. Bhopal
was more than 10%. The Commissioner Income Tax
(Appeal) affirmed the above. The aforesaid contention has
been considered by the Tribunal in paras 85 to 93 of the
impugned 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 is having substantial share holding in M/s. Raj Homes Private Limited (RHPL), wherein she held 30.76% shares during the previous year relevant to assessment year 2004-05 and 13.75% during the assessment year 2007-08 to 2009-10. By observing that RHPL has given loan to the assessee during the said period, the addition was made u/s 2(22)(e). By the impugned order, the CIT(A) confirmed the action of the Assessing Officer and the assessee is in further appeal before us. 86. We have considered rival contentions and found that the addition was made u/s 2(22)(e) on account of deemed dividend in respect of alleged loan 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 assessment framed u/s 153A, the Assessing Officer observed as under:- "During the course of assessment it was noticed that the assessee was holding equity shareholding in various companies. She was asked the details of various holding in various companies. It was noticed that in three companies i.e. Raj Homes Pvt. Ltd., Raj Events and Entertainment Pvt. Ltd. And Minal Builders Pvt. Ltd., the assessee has significant holdings in various years relevant to A.Y. 2003-04 to 2009-10. While Minal Builders'' Pvt. Ltd. And Raj Homes Pvt. Ltd., were engaged in the business of construction and building, Raj
events and entertainment Pvt. Ltd., is in the business of newspaper, TV, entertainment and media." 87. The Assessing Officer further observed that the assessee''s holdings in these companies were more than 10% and that the assessee has a net debit balance in the books of RHPL to the assessee u/s 2(22)(e). By the impugned order, the Id. CIT (A) confirmed the addition. However, while confirming the addition, the CIT(A) observed as under:- "The information that RHPL has given loan to appellant''s proprietary concern, came to the knowledge of the authorized officers during the course of search. This information is material gathered during the course of search, hence the Assessing Officer had valid jurisdiction to examine the issue in the impugned assessment proceedings and to decide the issue and make warranted addition u/s 2(22)(e). 88. It was contended by the Id. Authorized Representative that no incriminating material was found during the course of search to indicate that there was any violation of provisions of Section 2(22) (e). He further submitted that assessment for assessment year 2004-05 was completed and time period for issue of notice u/s 143(2) has also been expired. Accordingly, in respect of assessments, which are not abated, no addition is warranted while making assessment u/s 143A when no incriminating material was found during course of search. 89. This issue has been examined in the case of Arun Sahlot in para 28 to 31 hereinabove. Relevant observation were as under:- 90. As the facts and circumstances during the assessment year 2004-05 are the same, following the same reasoning, we restore the addition to the file of Assessing Officer for the assessment year 2004-05 with the similar direction as contained in the order of Arun Sahlot (supra). 91. In the assessment year 2007-08, the contention of the assessee was that the advance was given for the business purpose. He further submitted that Rs. 1 crore was given by RHPL directly to REEPL for allotment of shares, but the Assessing Officer has added the same in the hands of assessee. Relying on the decision in the Alpex Export (Del.I.T.A.T.) in I.T.A. No. 2858/Del/2012, order dated 28.08.2012, it was contended that share application money is outside the provisions of Section 2(22)(e), our attention was also invited to the decision of Hon''ble Delhi High Court in the case of Sunil Chopra in I.T.A. No. 106/Del/2011 order dated 27.4.2010, wherein it was held that receipt of share application money for allotment of shares could not be treated as receipt of loan or deposit for the purpose of Section 2(22)(e) . " 92. We have considered the rival submissions and found from record that basic intention of RHPL while advancing money to REEPL was to make investment of RS. 1 crore in its directly by RHPL to REEPL and the cheque was also given directly by RHPL TO REEPL and not to the assessee Mrs. Sandhya Sahlot. The assessee has also not withdrawn or used the said amount of Rs. 1 crore for her individual benefit. However, shares were allotted to Smt. Sandhya Sahlot who has transferred the shares to RHPL. By observing that the shares were allotted by REEPL in the name of assessee, the Assessing Officer added the amount of loan in assessee''s hands u/s 2(22)(e). While deciding the issue, the Assessing Officer has brushed aside the fact that the cheque was given directly by RHPL to REEPL and that these shares were transferred by assessee to RHPL. It is also matter of record that assessee has neither withdrawn the amount for the personal use, not the cheque of advance was issued in favour of assessee. 93. In view of the above discussion, we restore the matter back to the file of Assessing Officer for deciding afresh by considering the judicial pronouncement as discussed above and after applying the proposition laid down therein to the facts of the instant case. We direct accordingly. The balance addition of Rs. 28,66,466/- made u/s 2(22) (e) is hereby confirmed in the assessment year 2007- 08."
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 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) 5 made after the 31st day of May, 1987 , by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern, in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for- the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but" dividend" does not include--
(i) a distribution made in accordance with sub- clause (c) or sub- clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets;
(ia) 1 a distribution made in accordance with sub- clause (c) or sub- clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964 , 2 and before the 1st day of April, 1965 ];]
(ii) any advance or loan made to a shareholder 3 or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company;
(iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub- clause (e), to the extent to which it is so set off. 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 sub- clauses (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 subclause (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;]
Explanantion of (e) i.e. as mentioned in Section
which reads as above that dividend does not include any
advance or loan made to a shareholder or the said concern
by a company in the ordinary course of the business where
the lending of money is a substantial part of the business
of the company.
From the facts of the case, it is clear that M/s. Raj
Homes Pvt. Ltd. advanced a loan to REEPL for allotment of
shares but the Assessing Officer added the same in the
name of assessee under Section 2(22)(e) of the Income
Tax Act. In this view of the matter, the findings of the A.O.
And CIT(A) are not correct.
The first substantial question of law while holding
the ITAT was justified in setting aside the addition under
Section 2(22)(e) made by the AO on account of payments
by Raj Homes Pvt. Ltd to Shri Arun Sahlot and his
proprietary concerns Arun Associates and Raj Industries,
with the direction to examine such aspects as commercial
exigency of the loan and terms of loan even though these
aspects are not relevant u/s 2(22)(e). Apart from this, the
tribunal has only made remand to the Assessing Officer. It
is well settled principle of law that if remand order has
been passed, then there is no substantial question of law
involved for determination because all the questions are
open before the authority after remand.
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 or requisition.- (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall-- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:"
Section 153 A of the Income Tax Act prescribes that
the Assessing officer has authority to re-assess the tax
liability of a person on the basis of material received in
search operation. Clearly, this section stipulates that it is
the duty of the Assessing Officer to verify the information
received from the sources, if the information and the facts
are not correct in accordance with law. We answer the
second substantial question of law accordingly that the
ITAT has not committed any error of law in remanding the
matter to the Assessing Officer. We do not find any merit in
this appeal, it is hereby dismissed. No order as to costs.