ABIL REALTY PVT. LTD.,PUNE V. ITO, WARD 1(1), PUNE, PUNE

ITA 446/PUN/2024

AI Insights

The case involves ABIL Realty Pvt. Ltd., which appealed against the order of the CIT(A) / NFAC, Delhi, concerning the assessment year 2016-17. The primary issue was the addition of Rs.9,30,66,244 as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961, which was treated as accumulated profits of M/s. Shashbindu Constructions Pvt. Ltd., from which the assessee had received advances. The Assessing Officer had reclassified these advances as loans, invoking section 2(22)(e). The Tribunal's decision hinged on the procedural adherence to CBDT guidelines on limited scrutiny, which were not followed, leading to the allowance of the appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 474219 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Other Referred Cases: PCIT v. Weilburger Coatings (India) (P) Ltd., PCIT v. Sukhdham Infrastructures LLP, Bharatnagar Buildcon LLP v. PCIT, M/s. Organica v. PCIT, PCIT v. Shark Mines and Minerals Pvt. Ltd., Sahyadri Agencies Ltd. v. PCIT, Storewell Construction & Engineers v. PCIT, Shankarsingh C. Thakur v. CIT, Ms. Chengmari Tea Co. Ltd. v. ACIT, Manoj Kumar Poddar v. PCIT, M.M. Engineers and Consultants v. PCIT, Meena Choudhary v. PCIT, Balvinder Kumar v. PCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMOL KHAIRNAR
• Assessee Lawyers: SANKET M JOSHI; MANDAR JOSHI
• Keywords: Unexplained cash credit; Deemed dividend; Income from undisclosed sources; Principle of natural justice; Assessment record; Bogus
• Section: 143(3); 142(1); 143(2); 143(1); 205; 2(22)(e); 2(22)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No.446/PUN/2024 Assessment year : 2016-17 ABIL Realty Pvt. Ltd. Abil House, 2 Ganesh Khind Road, Range Hill Corner, Pune – 411007 Vs. ITO, Ward 1(1), Pune PAN: AAICA8531I (Appellant) (Respondent) Assessee by : Shri Sanket M Joshi & Mandar Joshi Department by : Shri Amol Khairnar CIT-DR Date of hearing : 08-01-2025 Date of pronouncement : 19-03-2025 O R D E R PER R. K. PANDA, VP : This appeal filed by the assessee is directed against the order dated 20.02.2024 of the Ld. CIT(A) / NFAC, Delhi for assessment year 2016-17. 2. Facts of the case, in brief, are that the assessee is a company engaged in business of real estate. It filed its return of income on 16.10.2016 declaring total income at zero with current year losses at (-) Rs.18,08,517/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟). Subsequently, the case was selected for limited scrutiny on account of (1) “Low income in comparison to high loans/advances/investment in shares appearing in balance sheet (Part A-BS, Income in Part B-TI) (2) Low income in comparison 2 ITA No.446/PUN/2024 to very high investment appearing in balance sheet (Part A-BS), Income in Part B- TI and Schedule EI of ITR) (3) Large other expenses claimed in the Profit and Loss a/c (4) Large current liability in comparison to total asset in balance sheet (Part A-BS of ITR)” as per the return of income filed for the assessment year concerned. Accordingly, statutory notices u/s 143(2) and 142(1) were issued and served on the assessee, in response to which the AR of the assessee filed the requisite details from time to time. 3. During the course of assessment proceedings the Assessing Officer noted from the balance sheet ending 31.03.2016 that an amount of Rs.261,16,88,424/- has been shown under the head „Current liabilities‟, out of which, advance received against land is at Rs.164,00,20,100/-. The assessee in its letter dated 03.09.2018 submitted that the funds have been received against the sale of land which the company proposed to purchase and sell. It was further stated that the assessee company has received advances against sale of land of Rs.164 crores (Rs.94 crores from ABIL. Corporation Pvt. Ltd + Rs.70 crores from Shashbindu Constructions Pvt. Ltd) and are reflected under the head „Current liabilities‟. The Assessing Officer noted from the balance sheet of Shashbindu Constructions that it has reserve and surplus at Rs.9,30,66,244/- as on 31.03.2015 and the assessee has 51% shareholding in this entity. Therefore, the Assessing Officer asked the assessee as to why the provisions of section 2(22)(e) of Act are not applicable to the assessee company. 3 ITA No.446/PUN/2024 4. The assessee in response to the above submitted two unsigned MOUs to justify its claim that the advances of Rs.164,00,20,100/- was received towards land. However, in absence of any evidence to his satisfaction, the Assessing Officer issued a detailed show cause notice to the assessee to establish the exact nature of advances received. Rejecting the various explanations given by the assessee and observing that the transactions between M/s. ABIL Realty Pvt. Ltd. and M/s. Shashbindu Constructions Pvt. Ltd. are plain loans and advances and not pertaining to any kind of land transactions, the Assessing Officer invoked the provisions of section 2(22)(e) of the Act and made addition of Rs.9,30,66,244/- which is the accumulated profit as on 31.03.2015 of M/s. Shashbindu Constructions Pvt. Ltd. The relevant observations of the Assessing Officer from para 6.4.1 read as under: ―6.4.1 From the above, it undoubtedly shows that the payment is made by a company namely M/s ABIL Realty Private Limited, which is not being a company in which the public is substantially interested to a company namely M/s Shushhinda Constructions Pvt Ltd having in which it holds 51% share and hence the provisions of section 2(22)(e) of IT Act have directly applied in this case. 6.4.2 Moreover, it clearly shows that M/s ABIL Realty Pvt. Ltd is wholly owned by Shri Amit Bhosale & Shri Avinash N Bhosale through ABII Corporation Pvt. Ltd (50% Shri Avinash N Bhosale & 50% Amit Bhosale) and hence the directors of M/s Shashbindu Constructions Pvt. Ltd. (100% owned by Shri Avinash N Bhosale & Amit Bhosale through ABIL Corporation Pvt. Lad (50% Avinash N Bhosale & 50% Amit Bhosale)] have 100% interest in the assessee company M/s ABIL Realty Private Limited, who has received unsecured loans/advances of Rs.70 Crores from M/s Shashbindu Constructions Pvt. Ltd. to the extent of accumulated profits at Rs.9,30,66,244/- as on 31.03.2015. However, considering the amount of Rs.61,06,50,000/- in the nature of unsecured loans outstanding as on 31.03.2015 with corresponding amount of Rs.70,00,00,000/- received by assessee company from Shashhindu Constructions Pvt Ltd as unsecured loan/advance, the accumulated Reserve & Surplus at Rs.9,30,66,244/- has to be taxed as per the provisions of section 2(22)(e) of IT Act. 6.4.3 Hence in this case, it is clear that the transactions between M/s ABIL Realty Private Limited and M/s Shashbindu Constructions Pvt Ltd are plain loans 4 ITA No.446/PUN/2024 and advances and not pertaining to any kind of land transactions. The assessee M/s ABIL Realty Private Limited & M/s Shashhinda Constructions Pvt Ltd were not having any authority or occasion to collect or raise these funds at this juncture as it has been made clear in the discussion above in the assessment order. The basis of quantification of FSI or of the amounts claimed to be advances against such land transactions could not be established at all by the assessee. Hence, it is clear that these figures are therefore imaginary hypothetical figures. In fact, it is amply clear that the unsigned unregistered MOU's have just been submitted by the assessee to give it a Colour of business transactions to the loans and advances transactions amongst group concerns to avoid the purview of section 2(22)(e) of the IT Act. Hence the unsigned and unregistered MOU's have no evidentiary value. 6.4.4 Without prejudice to the above, the section 2(22)(e) only excludes those advances, which are given by a company whose main business is lending of money as a substantial part of business and the assessee is certainly not such a company. Hence, the loans received by the assessee company M/s ABIL Realty Private Limited, who is a substantial shareholder of and M/s Shashbindu Constructions Pvt Ltd are squarely covered by provision of section 2(22)(e) of the IT Act 6.4.5 Here, for the purpose of quantification of deemed dividend, it is seen that the peak of the advances (excluding project advances for which a separate account maintained by the assessee M/s ABIL Realty Private Limited and M/s Shashbindu Constructions Pvt Ltd in their respective balance sheets) received by the assessee from M/s Shashbindu Constructions Pvt Ltd is Rs.13,64,50,000/- (Rs.70,00,00,000 - Rs.56,35,50,000) as on 26.05.2015. Hence, the quantification of deemed dividend is being made based on the accumulated profit of M/s Shashbindu Constructions Pvt Ltd as on that date. However, in absence of day to day working of accumulated profit and on perusal of P&L Account of M/s Shashbindu Constructions Pvt Ltd, I find it appropriate to consider accumulated profits upto 31.3.2015 of M/s Shashbindu Constructions Pvt Ltd at Rs.9,30,66,244/- for the purpose of quantification of deemed dividend and accordingly added the same as per the provisions of section 2(22)(e) of IT Act and taxed accordingly.‖ 5. In appeal, the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer by observing as under: ―5. Decision: I have carefully considered the facts of the case, the assessment order, written submission of appellant and materials on records. Also, the judgments and decision of High courts/tribunals and various judicial authorities relied on by the appellant have been carefully gone through. The facts of the case as perused from the order of the AO is that the assessing officer made an addition of 5 ITA No.446/PUN/2024 Rs.9,30,66,244/- to the total income of the appellant company as per the provisions of section 2(22)(e), on account of funds that have been received as advances for sale of land which the company proposed to purchase and sell. The AO has given his findings in the assessment order that the advances received against the sale of land which the company proposed to purchase and sell is nothing but a transfer of accumulated Reserve & Surplus in the guise of unsecured loan/advance with no business nexus. 5.1 Ground No 1 is against the addition of Rs.9,30,66.244/- u/s 2(22)(e) and in not treating the amount received from subsidiary company as part of normal business transaction. Further, the appellant company pleads for direction to the AO to restrict the addition u/s 2(22)(e) to 51 percent of Rs.9,30,66,244/- i.e. Rs.4,74,64,090/- being the shareholding of the appellant company in M/s. Shashbindu Constructions Pvt. Ltd. In the assessment order the AO has highlighted that the appellant company. engaged in Real Estate Projects had received advances against sale of land of Rs. 164 Crores (Rs.94 Crores from ABIL Corporation Pvt. Ltd Rs.70 Crores from Shashbindu Constructions Pvt. Ltd) and reflected under the head current liabilities. The transactions between M/s ABIL Realty Private Limited and M/s. Shashbindu Constructions Pvt. Ltd are plain loans and advances and not pertaining to any kind of land transactions. The appellant company M/s ABIL Realty Private Limited & M/s Shashbindu Constructions Pvt Ltd were not having any authority or occasion to collect or raise these funds at this juncture on the proposed sale of land more so when the said land has legal issues and encumbrances and the development of the property was not possible. The amount of Rs. 164 Crores is in the nature of interest free unsecured loans/advances transferred to appellant company by M/s. ABIL Corporation Pvt. Ltd by M/s Shashbindu Constructions Pvt. Ltd. in the guise of business advance. As the advances received are not related to any business of the appellant company, the provisions of section 2(22)(e) are applicable to the appellant company. M/s. Shashbindu Constructions Pvt. Ltd. was having reserve and surplus at Rs.9,30,66,244/- as on 31.03.2015 and the appellant company was having 51% shareholding(more than ten per cent of the voting power) in this entity. Therefore, accumulated Reserve & Surplus as on 31.03.2015 of Rs.9,30,66,244/-was added as per the provisions of section 2(22)(e) in the hands of the appellant company. I have considered the facts of the case and the submissions as advanced by the appellant company carefully along with the case law relied upon. As perused from the assessment order, the appellant company had received funds of Rs.164 crores against the sale of land proposed to be purchased and sold. Out of Rs.164 crores advance, Rs.70 crores was received from M/s Shashbindu Constructions Pvt. Ltd. The land proposed to be purchased and sold was not owned by the appellant company but by M/s Beeline Impex Pvt. Ltd & Pearl Cosmetics & Chemicals Pvt. Ltd. the said land was having certain legal issues and encumbrances due to which the development of the property was not possible. It is far-fetched that a real estate business entity would give/take an advance of crores of rupees to deal in such a property. It would not fall in the nature of a pure commercial transactions as claimed by the appellant company. Having no ownership/rights on the subject 6 ITA No.446/PUN/2024 property the appellant company claimed to have received advances aggregating to Rs. 164 Crores for the proposed sale of the property even before the title to the property has been acquired or even before the property is fit for development. The appellant company in its submission speaks of the general practice in real estate sector, to accept advances against proposed sale of a property even before the proposed seller acquires the title to the property so as to get the proposed buyer committed to the transaction and accepts substantial advance from the proposed buyer as its commitment to the transaction. The same is not tenable as it is seen that the overall management and control of entire group company and the subsidiary companies is with 2 individuals only, the promoters, Mr. Avinash Bhosale, & Mr Amit Bhosale the father and son duo, the sole decision making authorities and the ultimate commitment to any transaction is to be taken by them only. The appellant company claims to have entered into Memorandum of Understanding (MOU) with M/s Shashbindu Constructions Pvt. Ltd. and M/s ABIL Corporation Pvt Ltd. and the business advances of 1.164cr received were business advances against specific MOUs. But the same was found unsigned during the course of assessment proceedings and the same can't be relied upon now. Further, the appellant company claim, to have not retained those loan funds for its own activities and have redistributed the same to its subsidiaries for carrying on their respective business have not been substantiated. The AO has given his findings that majority of the advances has been given as advance to partnership firms where profit has been claimed as exempt u/s 10(2A) The appellant company has submitted that during the year it had received a NET amount of Rs.4,56,50,000/- only from Shashbindu Constructions Pvt. Ltd. and therefore, the addition u/s 2(22)(e) should be restricted to Rs 4,56,50,000/- only. The Ledger account of Shashbindu Constructions Pvt. Ltd. submitted by the appellant company wherein total payable (NET) to Shashbindu Constructions Pvt. Ltd. was Rs.4,56,50,000/- only contradicts with the balance sheet of Shashbindu Constructions Pvt. Ltd. obtained by the AO under the provisions of 133(6). Further, the appellant company has not brought on record loan confirmations from M/s Shashbindu Constructions Pvt. Ltd. Therefore, plea for consideration of net amount of Rs.4,56,50,000/- only as deemed dividend cannot be accepted. The case law relied on, CIT v. Raj Kumar (2009) 23 DTR (Del) 304 is not applicable to this case as the trade advance received was used to manufacture equipment and adjusted against subsequent bills. Further, Circular No. 19/2017 of CBDT is not applicable as above transaction is held not to be a commercial transactions. In light of the above, the impugned addition is found to be fully sustainable on the facts of the case and in law and accordingly ground of appeal no. 1 is dismissed. The appellant company pray for restricting the addition u/s 2(22)(e) to 51 percent of Rs.9,30,66,244/- i.e. Rs.4,74,64,090/- being the shareholding of the 7 ITA No.446/PUN/2024 appellant company in M/s. Shashbindu Constructions Pvt. Ltd. cannot be accepted for the detailed reasoning of the AO in the assessment order, wherein the AO has given the facts that the assessee company M/s ABIL Realty Private Limited is 100% owned by Shri Avinash N Bhosale & Amit Bhosale through ABIL Corporation Pvt Ltd. and M/s Shashbindu Constructions Pvt Ltd is also 100% owned by Shri Avinash N Bhosale & Amit Bhosale through ABIL Corporation Pvt Ltd (50% Avinash N Bhosale & 50% Amit Bhosale) and both being a company in which the public is not substantially interested and to the extent to which the company in either case possesses accumulated profits as per the provisions of section 2(22)(e). Therefore, ground of appeal no. 1 is dismissed.‖ 6. Aggrieved with such order of Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1. Ld CIT(A) erred in confirming the addition of Rs.9,30,66,244/- as deemed dividend u/s. 2(22)(e) of the I.T. Act, 1961 without appreciating the fact that the advance received by the appellant from M/s Shashbindu Constructions Pvt Ltd is the business advance towards the proposed transaction of the immovable property between the appellant and M/s Shashbindu Constructions Pvt Ltd. Accordingly, the appellant prays before Your Honour that kindly direct the Ld AO to delete the addition of Rs.9,30,66,244/- made u/s 2(22)(e) of the 1.T. Act, 1961. 2. Ld CIT(A) erred in confirming the addition of Rs.9,30,66,244/- as deemed dividend u/s. 2(22)(e) of the I.T. Act, 1961 without appreciating the fact that the advance received by the appellant from M/s Shashbindu Constructions Pvt Ltd is in the normal course of business and the appellant has not availed any benefit from the funds received from M/s Shashbindu Constructions Pvt Ltd. Accordingly, the appellant prays before Your Honour that kindly direct the Ld AO to delete the addition of Rs.9,30,66,244/- made u/s 2(22)(e) of the I.T. Act, 1961. 3. Without prejudice to any of the above Grounds of Appeal, it is submitted that Ld CIT(A) erred in confirming the addition of Rs.9,30,66,244/- as deemed dividend u/s. 2(22)(e) of the 1.T. Act, 1961 without appreciating the fact that against the advance of Rs.70,00,00,000/- received by the appellant from M/s Shashbindu Constructions Pvt Ltd, the appellant has already given the advance of Rs.65,43,50,000/- to M/s Shashbindu Constructions Pvt Ltd. Accordingly, the appellant prays before Your Honour that kindly restrict the addition u/s 2(22) (e) of I.T. Act, 1961 to Rs.4,56,50,000/-. 8 ITA No.446/PUN/2024 4. The appellant craves leave to add, amend or withdraw any of the grounds of appeal during the course of appeal proceedings. 7. The Ld. Counsel for the assessee at the time of hearing filed the following two additional grounds: 1] The assessee submits that in the present case, no notice u/s 143(2) was issued within the stipulated time limit of 30.09.2017 and hence, the asst. order u/s 143(3) passed without issuing a valid notice u/s 143(2) within the prescribed time limit may be declared as null and void in law. 2] The assessee submits that the addition u/s 2(22)(e) towards deemed dividend was outside the scope of reasons stated for selection of the case for limited scrutiny and hence, the said addition u/s 2(22)(e) made by the A.O. without obtaining requisite approval for conversion of the case from limited scrutiny to complete scrutiny, was unsustainable in law. 8. However, the Ld. Counsel for the assessee did not press the additional ground No.1 for which Ld. DR has no objection. Accordingly, the additional ground No.1 is dismissed as not pressed. 9. So far as the additional ground No.2 is concerned, the Ld. Counsel for the assessee submitted that the said additional ground raised is purely legal in nature which goes to the root of the matter and all necessary facts are already available on record and no new facts are required to be investigated. Referring to the decision of Hon‟ble Supreme Court in the case of the National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) and in the case of Jute Corporation Of India Ltd vs Commissioner Of Income Tax And Anr (1991) 187 ITR 688 he submitted that the additional ground raised by the assessee should be admitted. 9 ITA No.446/PUN/2024 10. After hearing both the sides and considering the fact that the additional ground raised by the assessee is purely legal in nature and all the material facts are already available on record and no new facts are required to be investigated, therefore, in view of the decision of Hon‟ble Supreme Court in the case of the National Thermal Power Co. Ltd. v. CIT (supra) and in the case of Jute Corporation Of India Ltd vs Commissioner Of Income Tax And Anr (supra), the additional ground raised by the assessee is admitted for adjudication. 11. The Ld. Counsel for the assessee referring to the additional ground submitted that the case was selected for limited scrutiny under CASS for examination of the following issues as stated in the notice u/s 143(2) of the Act: i. Whether tax aspects related to investments /advances/loans have been considered in the return of income. ii. Whether the current liabilities shown are genuine. iii. Whether deduction claimed on account of other expenses is admissible. 12. He submitted that in the balance sheet filed for assessment year 2016-17 the assessee company had shown current liabilities in respect of total advance of Rs.164 crores received from two sister concerns. Out of the same, Rs.94 Crs. was received from M/s. ABIL Corporation Pvt. Ltd. whereas Rs.70 Crs. was received from M/s. Shashbindu Constructions Pvt. Ltd. In the assessment order, the Assessing Officer has held that the advances received from these two companies are in the nature of plain loans and advances. He submitted that the Assessing 10 ITA No.446/PUN/2024 Officer has held that these advances are not received in connection with business transactions and hence, the Assessing Officer has proceeded to tax the advances received from M/s. Shashbindu Constructions Pvt. Ltd. [SCPL] as deemed dividend u/s 2(22)(e) to the extent of accumulated reserves of SCPL of Rs.9,30,66,244. 13. Referring to the order passed u/s 143(3) of the Act, he submitted that the Assessing Officer has categorically accepted that the said advances shown under „Current liabilities‟ were genuine and they did not constitute any non genuine advances taxable as unexplained cash credits u/s 68. Referring to para 6.4.3 of the assessment order, he drew the attention of the Bench to the same and submitted that the Assessing Officer in the assessment order has stated that the transactions between M/s. ABIL Realty Private Limited and M/s. Shashbindu Constructions Pvt. Ltd. are plain loans and advances. He submitted that once the Assessing Officer had accepted that the 'Current liabilities‟ shown as genuine liabilities and not as bogus liabilities reflected to introduce assessee's own unaccounted income u/s 68, the scope of limited scrutiny on this issue should have ended there and the Assessing Officer could not have proceeded to carry out further enquiries on other tax aspects. 14. Referring to the CBDT Instructions on limited scrutiny cases dated 29.12.2015, 14.07.2016 and 30.11.2017, copies of which are placed in the paper book from pages 1 to 6, the Ld. Counsel for the assessee drew the attention of the 11 ITA No.446/PUN/2024 Bench to the same and submitted that as per the said circulars which are mandatory on the department, the Assessing Officer has to confine the scrutiny assessment proceedings to the issues under limited scrutiny and in case he wants to expand the scope of the same for complete scrutiny or issues other than the issues that have been the criteria as per the limited scrutiny, he has to take permission from the PCCIT / PCIT. 15. Referring to the following decisions, he submitted that in all these decisions it has been held that where the addition made by the Assessing Officer is outside the ambit of reason for which the case was selected for limited scrutiny under CASS, then such addition is not sustainable in law: 1. PCIT v. Weilburger Coatings (India) (P) Ltd. [(2024) 296 Taxman 205 (Cal)) 2. PCIT v. Sukhdham Infrastructures LLP [(2023) 335 CTR 476 (Cal)] 3. Bharatnagar Buildcon LLP v. PCIT [(2023) 226 TTJ 488 (PUNE)] 4. M/s. Organica v. PCIT (ITA No.465/ PUNE/2021] dated 14.12.2022 5. PCIT v. Shark Mines and Minerals Pvt. Ltd. [ITA No. 1/2023 (Orissa High Court)] 6. Sahyadri Agencies Ltd. v. PCIT ((2023) 332 CTR 748 (Ker)] 7. Storewell Construction & Engineers v. PCIT (ITA No.708/PUNE/2019] dated 05.12.2019 8. Shankarsingh C. Thakur v. CIT [ITA No.833/ PUNE/ 2014] dated 12.08.2016 9. Ms. Chengmari Tea Co. Ltd. v. ACIT [ITA No.812/Kolkata/ 2019] dated 31.01.2020 12 ITA No.446/PUN/2024 10. Manoj Kumar Poddar v. PCIT [ITA No.132/Ranchi/2018] dated 09.12.2020 11. M.M. Engineers and Consultants v. PCIT [36 NYPTTJ 602 (Cuttack)] dated 09.05.2022 12. Meena Choudhary v. PCIT [35 NYPTTJ 896 (Raipur)] dated 12.10.2021 13. Balvinder Kumar v. PCIT [187 ITD 454 (Delhi)] dated 10.12.2020 14. Suraj Diamond Dealers (P) Ltd. v. PCIT (203 TTJ 137 (Mumbai)] dated 27.11.2019 16. He accordingly submitted that since the addition made by the Assessing Officer towards deemed dividend u/s 2(22)(e) of the Act is outside the scope of limited scrutiny, therefore, the same should be deleted. 17. So far as the ground challenging the addition on merit is concerned, he submitted that the assessee company has entered into MOUs with M/s. Shashbindu Constructions Pvt. Ltd. and ABIL Corporation Pvt. Ltd. and the advance of Rs.164 crores so received was business advance against the specific MOUs. He submitted that the assessee has not retained those loan funds for its own activities but has re- distributed the same to its subsidiaries for carrying on their respective businesses. He submitted that the assessee during the year has received a net amount of Rs.4,56,50,000/- only from M/s. Shashbindu Construction Pvt. Ltd. and therefore, the addition at best could have been restricted to Rs.4,56,50,000/- and not to Rs.9,30,66,244/- as made by the Assessing Officer. 13 ITA No.446/PUN/2024 18. In his alternate contention, the Ld. Counsel for the assessee submitted that assuming without admitting that the advance received from M/s. Shashbindu Constructions Pvt. Ltd. is not received towards proposed sale of land, still the said advance has been received in the normal course of business as part of running account with the said party depending on business requirements. He submitted that in the earlier years from 2012 to 31.03.2015 the assessee company had lent interest free advances to the extent of around Rs.61 Crs. to M/s. Shashbindu Constructions Pvt. Ltd. (SCPL) to satisfy its business requirements which has been admitted by the Assessing Officer in para 6.2 of his order. 19. Referring to para 6.2 of the order of the Assessing Officer, he submitted that the assessee has not charged any interest on the said advances. As against the same, the assessee during the year has received advances of around Rs.70 Crs. from SCPL and thus, the net additional interest free advance received from SCPL in this year is around Rs.10 Crs. Thus, when the assessee in the earlier years had bestowed a huge favour upon SCPL by advancing interest free funds of around Rs.61 Crs. for business needs of SCPL and in consideration of the said favour, M/s. SCPL has advanced interest free funds of around Rs.10 Crs. to the assessee company in this year, therefore, such interest free advance / loan given by SCPL in this year cannot be considered to be a gratuitous advance as contemplated u/s 2(22)(e) of the Act, therefore, such addition u/s 2(22)(e) is not justified. For the above proposition, the Ld. Counsel for the assessee relied on the following decisions: 14 ITA No.446/PUN/2024 1. CIT v. Gayatri Chakraborty [(2018) 407 ITR 730 (Cal)] 2. CIT v. Suraj Dev Dada [367 ITR 78 (P&H)) 3. Gadgil Holdings Pvt. Ltd. v. ITO [ITA No. 1455/PUNE/2017] 4. Saamag Developers Pvt. Ltd. v. ACIT [168 ITD 649 (Del)] 5. Ravindra R. Fotedar v. ACIT [167 ITD 100 (Mum)] 6. Pradip Kumar Malhotra v. CIT [338 ITR 538 (Cal)/[ratio applicablel 20. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. 21. We have heard the rival arguments made by both the sides, perused the order of the Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. Before deciding the issue on merit, we would first like to decide the additional ground raised by the assessee i.e. as to whether the addition made by the Assessing Officer towards deemed dividend u/s 2(22)(e) of the Act can be sustained if the same is outside the scope of limited scrutiny proceedings. We find the reasons recorded by the Assessing Officer at para 2 of his order for selection of the case for limited scrutiny are as under: ―2. The issues to verify under LIMITED scrutiny are 1) \"Low income in comparison to high loans/advances/Investment in shares appearing in balance sheet (Part A-BS, Income in Part B-TI) 2) Low income in comparison to very high investment appearing in balance sheet (Part A-BS, Income in Part B-TI and Schedule EI of ITR) 3) Large other expenses claimed in the Profit & Loss a/c 4) Large current liability in comparison to total asset in balance sheet (Part A-BS of ITR)\" as per the return of income filed for the assessment year concerned.‖ 15 ITA No.446/PUN/2024 22. As per the above reasons, there is no issue relating to verification of deemed dividend u/s 2(22)(e) of the Act. We find the CBDT Instruction No.20/2015, dated 29.12.2015 reads as under: ―INSTRUCTION NO.20/2015 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 29th of December, 2015 Subject: Scrutiny Assessments-some important issues and scope of scrutiny in cases selected through Computer Aided Scrutiny Selection (‗CASS‘)-reg .- The Central Board of Direct Taxes (‗CBDT‘), vide Instruction No. 7/2014 dated 26-9-2014 had clarified the extent of enquiry in certain category of cases specified therein, which are selected for scrutiny through CASS. Further clarifications have been sought regarding the scope and applicability of the aforesaid Instruction to cases being scrutinized. 2. In order to facilitate the conduct of scrutiny assessments and to bring further clarity on some of the issues emerging from the aforesaid Instruction, following clarifications are being made: i. Year of applicability: As stated in the Instruction No. 7/2014, the said Instruction is applicable only in respect of the cases selected for scrutiny through CASS-2014. ii. Whether the said Instruction is applicable to all cases selected under CASS: The said Instruction is applicable where the case is selected for scrutiny under CASS only on the parameter(s) of AIR/CIB/26AS data. If a case has been selected under CASS for any other reason(s)/parameter(s) besides the AIR/CIB/26AS data, then the said Instruction would not apply. iii. Scope of Enquiry: Specific issue based enquiry is to be conducted only in those scrutiny cases which have been selected on the parameter(s) of AIR/CIB/26AS data. In such cases, the Assessing Officer, shall also confine the Questionnaire only to the specific issues pertaining to AIR/CIB/26AS data. Wider scrutiny in these cases can only be conducted as per the guidelines and procedures stated in Instruction No. 7/2014. 16 ITA No.446/PUN/2024 iv. Reason for selection: In cases under scrutiny for verification of AIR/CIB/26AS data, the Assessing Officer has to intimate the reason for selection of case for scrutiny to the assessee concerned. 3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year- one is ‗Limited Scrutiny‘ and other is ‗Complete Scrutiny‘. The assessees concerned have duly been intimated about their cases falling either in ‗Limited Scrutiny‘ or ‗Complete Scrutiny‘ through notices issued under section 143(2) of the Income-tax Act, 1961 (‗Act‘). The procedure for handling ‗Limited Scrutiny‘ cases shall be as under: a. In ‗Limited Scrutiny‘ cases, the reasons/issues shall be forthwith communicated to the assessee concerned. b. The Questionnaire under section 142(1) of the Act in ‗Limited Scrutiny‘ cases shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. Further, the scope of enquiry shall be restricted to the ‗Limited Scrutiny‘ issues. c. These cases shall be completed expeditiously in a limited number of hearings. d. During the course of assessment proceedings in ‗limited Scrutiny‘ cases, if it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding Rs. five lakhs (for metro charges, the monetary limit shall be Rs. ten lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for ‗Complete Scrutiny‘ with the approval of the Pr. CIT/CIT concerned. However, such an approval shall be accorded by the Pr. CIT/CIT in writing after being satisfied about merits of the issue(s) necessitating ‗Complete Scrutiny‘ in that particular case. Such cases shall be monitored by the Range Head concerned. The procedure indicated at points (a), (b) and (c) above shall no longer remain binding in such cases. (For the present purpose, ‗Metro charges‘ would mean Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad and Ahmadabad). 4. The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show-cause notice. 17 ITA No.446/PUN/2024 5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance. Sd/- (Ankita Pandey) Under Secretary to Government of India‖ 23. Further, Instruction No.5/2016 issued by the CBDT reads as under: ―Instruction No. 5/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 14th of July, 2016 Subject: Direction regarding scope of enquiry in cases under ‗Limited Scrutiny‘ selected through CASS 2015 & 2016-regd.- Vide Instruction No. 20/2015 dated 29.12.2015 in File of even number, Board has laid down Standard Operating Procedure for handling of cases under ‗Limited Scrutiny‘ which were selected through Computer Aided Scrutiny Selection in ‗CASS Cycle 2015‘. In these cases, it was stated that the general scope of enquiry in scrutiny proceedings should be restricted to the relevant parameters which formed the basis for selecting the case for scrutiny. However, in revenue potential cases, it was further provided that ‗Complete Scrutiny‘ could be conducted, if there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr. DIT/DIT. 2. In order to ensure that maximum objectivity is maintained in converting a case falling under ‗Limited Scrutiny‘ into a ‗Complete Scrutiny‘ case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up ‗Complete Scrutiny‘ in a case which was originally earmarked for ‗Limited Scrutiny‘, the Assessing Officer (‗AO‘) shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under ‗Complete Scrutiny‘. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable. 18 ITA No.446/PUN/2024 3. Further, while forming the reasonable view, the Assessing Officer would ensure that: a. there exists credible material or information available on record for forming such view; b. this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and c. there must be a direct nexus between the available material and formation of such view. 4. It is further clarified that in cases under ‗Limited Scrutiny‘, the scrutiny assessment proceedings would initially be confined only to issues under ‗Limited Scrutiny‘ and questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon conversion of case to ‗Complete Scrutiny‘ after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in ‗Limited Scrutiny‘. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting ‗Complete Scrutiny‘ in such cases. 5. It is also clarified that once a case has been converted to ‗Complete Scrutiny‘, the AO can deal with any issue emerging from ongoing scrutiny proceedings notwithstanding the fact that the reason for such issue have not been included in the Note. 6. To ensure proper monitoring in cases which have been converted from ‗Limited Scrutiny‘ to ‗Complete Scrutiny‘, it is suggested, that provisions of section 144A of the Act may be invoked in suitable cases. To prevent possibility of fishing and roving enquiries in such cases, it is desirable that these cases should invariably be picked up while conducting Review or Inspection by the administrative authorities. 7. The above Instruction shall be applicable from the date of its issue and would cover the cases selected under CASS 2015 which are pending scrutiny cases as well as cases selected/being selected under the CASS 2016. 8. The contents of this Instruction may be brought to the notice of all for necessary compliance. 9. Hindi version to follow. Sd/- (Rohit Garg) Deputy Secretary to the Government of India‖ 24. Similarly, the CBDT on 30.11.2017 has issued the guidelines regarding unauthorized expansion of scope of limited scrutiny which read as under: 19 ITA No.446/PUN/2024 ―F.No. DGIT(Vig.)/HQ/SI/2017-18 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi-110001 Dated: 30th November, 2017 Subject: Unauthorized expansion of the scope of limited scrutiny — instructions — reg., CBDT has issued detailed guidelines/ directions for completion of cases of limited scrutiny selected through CASS module. These guidelines postulate that an Assessing Officer, in limited scrutiny cases cannot travel beyond the issues for which the case was selected. The idea behind such stipulations was to enforce checks and balances upon powers of an AO to do fishing and roving inquiries in cases selected for limited scrutiny. 2. Further, the guidelines for proper maintenance of order sheets have been given in the Manual of Office Procedure issued by the Directorate of Organisation and Management Services. The Manual clearly lays down: – A. The minutes of the hearing must be entered with date, in the order-sheet. B. Make proper order-sheet entries for each posting, hearing and seeking and granting of adjournments. C. If nobody attends a hearing or the request for adjournment comes after the hearing date, enter the facts in the order-sheet. Maintenance of a cursory and cryptic order sheet shows irresponsible, ad hoc and undisciplined working of any officer. 3. Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited Scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26.09.2014, 29.12.2015 and 14.07.2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with examination of assessment records on receipt of allegations of several irregularities. Amongst other irregularities, it was found that no reasons had been recorded for expanding the scope of limited scrutiny, no approval was taken from the PCIT for conversion of the limited scrutiny case to a complete scrutiny case and the order sheet was maintained very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions. The Officer concerned has been placed under suspension. 20 ITA No.446/PUN/2024 4. In view of discussion in the preceding paragraphs it is once again reiterated that the Assessing Officers should abide by the instructions of CBDT while completing limited scrutiny assessments and should be scrupulous about maintenance of note sheets in assessment folders. (Rakesh Gupta) ADO (V) HQ-I New Delhi‖ 25. A perusal of the above three instructions / circulars issued by the CBDT from time to time clearly and categorically shows that if during the course of assessment proceedings in limited scrutiny cases, it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding certain limit requiring substantial verification on any other issue(s), then, the case may be taken up for „Complete Scrutiny‟ with the approval of the PCCIT / Pr. CIT / CIT concerned. Without taking prior approval of the PCCIT / Pr.CIT / CIT or Pr.DIT/DIT, the Assessing Officer cannot expand the scope of limited scrutiny to complete scrutiny. The CBDT has also cautioned the Assessing Officers who have travelled beyond their jurisdiction while making assessments in limited scrutiny by initiating inquiries on new issues without complying with the mandatory requirements of the relevant CBDT Instructions dated 26.09.2014, 29.12.2015 and 14.07.2016. The CBDT has viewed very seriously such instances and in certain cases explanations have been called for from the officers. It is also to be noted that the CBDT circulars are binding on the Revenue authorities and once the Assessing Officer has not followed the CBDT circular / guidelines in case of limited scrutiny and expands the scope by initiating enquiries on new issues i.e. here the provisions 21 ITA No.446/PUN/2024 of section 2(22)(e) of the Act, such addition on a new issue which is not the issue as per the limited scrutiny, cannot be upheld. 26. We find the Hon‟ble Calcutta High Court in the case of PCIT v. Weilburger Coatings (India) (P) Ltd. (supra) has held that the Assessing Officer making additions in respect of issues not mentioned in limited scrutiny were beyond jurisdiction of the AO as the scrutiny assessment was selected for limited scrutiny u/s 143(2) and not complete scrutiny. 27. We find the Hon‟ble Calcutta High Court in the case of PCIT v. Sukhdham Infrastructures LLP (supra) has held that the Assessing Officer having issued notice under section 142(1) during the limited scrutiny assessment proceedings seeking information regarding secured and unsecured loans which was not an issue covered by limited scrutiny prior to the conversion of limited scrutiny into complete scrutiny, the Tribunal was justified in holding that the procedure adopted by the Assessing Officer was in complete derogation to Instruction No.5 of 2016, dt. 14th July, 2016 and, therefore, the assessment order passed by the Assessing Officer is not sustainable. 28. We find the Hon‟ble Orissa High Court in the case of PCIT v. Shark Mines and Minerals Pvt. Ltd. (supra) at para 10 has held that What persuades this Court to reach this conclusion is the requirement in law that if the Assessing Officer has to go beyond the scope of the issues for which limited scrutiny has to be 22 ITA No.446/PUN/2024 undertaken by him, he has to seek prior permission of the superior officer in terms of the CBDT Instruction No.7/14 dated 26 September, 2014 and Instruction No.20/15 dated 19 December, 2015. 29. We find the Hon‟ble Kerala High Court in the case of Sahyadri Agencies Ltd. v. PCIT (supra) has held as under: ―8.1 On a reading of the circular, it is discernible that the circular is applicable during the scrutiny assessment taken by the AO under CASS. As explained to this Court by the learned senior counsel appearing for the parties, the CASS is a system-driven identification of returns for limited scrutiny. The picking up of a return under CASS for scrutiny must be restricted only to the selected reasons. Therefore, it is procedurally legal for the AO to confine the scrutiny to the limited reasons selected under CASS. The AOs are not allowed to expand the limited scrutiny introduced through the faceless interface of scrutiny to other aspects, because the ease desired through CASS is effaced. The CBDT, in its jurisdiction, inputs, received and wisdom, restrained the AOs to the reasons for selecting a return under CASS and computing the assessment.‖ 30. The various other decisions relied on by the Ld. Counsel for the assessee also supports his case to the proposition that once the case is selected for limited scrutiny under CASS for certain issues, the Assessing Officer cannot make any other addition by travelling beyond the issues for which the case was selected for limited scrutiny without taking the mandatory permission from the concerned PCIT / Pr.CIT for conversion of such „limited scrutiny‟ to „complete scrutiny‟. It is the settled proposition of law that the CBDT circulars are binding on the department and it has to be strictly followed by the officers of the department. Since the Assessing Officer in the instant case has travelled beyond the issues for which the case was selected for limited scrutiny without taking mandatory 23 ITA No.446/PUN/2024 permission from the concerned PCIT or Pr.CCIT, therefore, the addition u/s 2(22)(e) of the Act made by the Assessing Officer which was not the issue as per limited scrutiny, cannot be sustained. We, therefore, allow the additional ground raised by the assessee and direct the Assessing Officer to delete the addition made by him u/s 2(22)(e) of the I.T. Act, 1961. Since the assessee succeeds on this additional legal ground, the grounds challenging the addition on merit are not being adjudicated being academic in nature. 31. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 19th March, 2025. Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 19th March, 2025 GCVSR आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. The concerned Pr.CIT, Pune DR, ITAT, „A‟ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune 24 ITA No.446/PUN/2024 S.No. Details Date Initials Designation 1 Draft dictated on 11.03.2025 Sr. PS/PS 2 Draft placed before author 12.03.2025 Sr. PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order "