DCIT CEN CIR 39, MUMBAI V. PATHIK CONSTRUCTIONS, NAVI MUMBAI

ITA 1499/MUM/2012

• Counselvise Citation: 149919914 RSA 2012
• Duration Of Justice: 2 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-03-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 02-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH
• Assessee Lawyers: D C SEJPAL
• Keywords: Unexplained expenditure; Income from undisclosed sources; Search and seizure; Document seized; Principle of natural justice; Additional evidence; Deemed dividend; Block assessment; Retraction; Revised return; Documents seized
• Section: 69C; 40A(3); 142(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ITA NO. 14 9 8&1499 / MUM/20 1 2 ( ASSESSMENT YEAR : 2008 - 09 & 2009 - 10 ) DCIT, CEN.CIR - 39, MUMBAI - 400 020 VS. M/S PATHIK CONSTRUCTIONS, E - 101, RAILWAY STATION COMPLEX, SANPADA NAVI MUMBAI - 400 705 PAN/GIR NO. : A A H FP 7633 H ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : SHRI SURINDERJIT SINGH /ASSESSEE BY : SHRI D.C.SEJPAL DATE OF HEARING : 7 TH JANUARY, 201 5 DATE OF PRON OUNCEMENT 13/02/ 2015 O R D E R PER R.C.SHARMA (A.M) : BOTH THESE APPEALS FILED BY THE REVENUE ARE AGAINST THE ORDER OF CIT(A) , DATED 14 - 12 - 2011 FOR THE ASSESSMENT YEAR S 2008 - 09 & 2009 - 10 , IN THE MATTER OF ORDER PASSED U/S. 143 ( 3 ) R.W.S. 153C/143(3) OF THE I.T. ACT . 2. THE REVENUE FOR THE ASSESSMENT YEAR 2008 - 09, HAS TAKEN FOLLOWING GROUNDS : - 1 'WHETHER, ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, CIT(A) IS JUSTIFIED ON FACTS IN DIRECTING THE ASSESSING OFFICER TO GIVE CREDI T OF ADMITTED UNDECLARED INCOME OF RS . 3,41,90,000 / - (3,05,00,000 / - + 36,90,000 / - ) SHOWN IN THE RETURN OF INCOME FILED WHEN THE ASSESSING OFFICER HAS GIVEN DUE CREDIT FOR THE SAME WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE IN THE ASSESSMENT ORDER.' 2 'WHETHER, ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, CIT(A) IS JUSTIFIED IN HOLDING THAT NO ADDITION CAN BE MADE ITA NO. 1498&1499 / 1 2 2 ON ACCOUNT OF EXPENDITURE OF RS .5,94,96,000 / - UNDER SECTION 69C SINCE NO EVIDENCE WERE FOUND AT THE TIME OF SEARCH FOR INCUR RING THESE EXPENSES IGNORING THE FACT THAT ASSESSEE ITSELF HAS CLAIMED THESE EXPENSES WHILE COMPUTING PROFITS FROM SALE OF LAND.' 2.1 'WHETHER, ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW CIT(A) IS JUSTIFIED IN HOLDING THAT PROVISIONS OF SEC TION 40A(3) CANNOT BE APPLIED TO EXPENSES OF RS .5,94,96,000 / - AS PROVISIONS OF SECTION 40A(3) ARE NOT APPLICABLE TO BLOCK PROCEEDINGS, WHEN THESE PROVISIONS WERE INVOKED BY THE ASSESSING OFFICER NOT IN BLOCK PROCEEDINGS BUT IN PROCEEDINGS FOR ASSESSMENT UN DER SECTION 153C OF THE INCOME TAX ACT.' 3 'WHETHER, ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, CIT(A) IS JUSTIFIED IN HOLDING THAT PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX ACT ARE NOT APPLICABLE TO IN PRESENT CASE AS ADVANCES RECE IVED BY THE ASSESSEE FROM MIS KALPANA STRUCT CON PRIVATE LIMITED ARE COMMERCIAL TRANSACTIONS WITHOUT APPRECIATING THAT THERE ARE ENOUGH EVIDENCES TO SHOW THAT TRANSACTION ARE IN THE NATURE OF LOANS AND ADVANCES ONLY' . 3 . THE REVENUE FOR THE ASSESSMENT YE AR 2009 - 10, HAS TAKEN FOLLOWING GROUNDS : - WHETHER, ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, CIT(A) IS RED IN HOLDING THAT PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TAX ACT ARE NOT APPLICABLE TO IN PRESENT CASE AS ADVANCES RECEIVED BY THE ASSESSEE FROM M/S KALPANA STRUCT CON PRIVATE LIMITED ARE COMMERCIAL TRANSACTIONS WITHOUT APPRECIATING THAT THERE ARE ENOUGH EVIDENCES TO SHOW THAT TRANSACTION ARE IN THE NATURE OF LOANS AND ADVANCES ONLY'. 4 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RE CORD PERUSED. FACTS IN BRIEF ARE THAT ASSESSEE IS INVOLVED IN THE BUSINESS OF PURCHASE AND SALE OF LAND. THE AO IN HIS ORDER OBSERVED THAT SEARCH AND SEIZURE ACTION U/S.132 WAS CARRIED OUT IN THE CASE OF MR.MADAN KOLAMBEKAR GROUP ON 22.01.2009, WHO WAS DE ALING IN LAND. VARIOUS INCRIMINATING EVIDENCES GATHERED DURING THE COURSE OF SEARCH IN HIS GROUP CASES SHOW ED THAT HUGE CASH PAYMENTS WERE MADE TO VARIOUS PERSONS FOR PURCHASE OF LAND BY HIM. ONE SUCH CASH PAYMENT OF RS.10.65 CRORE WAS MADE TO ASSESSEE M/S PATHIK CONSTRUCTIONS. THEREAFTER SEARCH AND SEIZURE ACTION WAS ITA NO. 1498&1499 / 1 2 3 CARRIED OUT IN THE CASE OF M/S PATHIK CONSTRUCTIONS GROUP ON 18.02.2009. ON THE BASIS OF THE DOCUMENTS FOUND AND SEIZED, THE AO ISSUED NOTICE U/S.153C ON 05.04.2010. IN RESPONSE TO THIS NOTICE , THE ASSESSEE FIRM HAS FILED ITS RETURN DECLARING TOTAL INCOME OF RS.2,97,67,482/ - . FROM THE P & L ACCOUNT FILED ALONG WITH THE RETURN OF INCOME, THE AO HAS NOTICED THAT THE ASSESSEE HAS SHOWN RS.2,31,90,000/ - AS INCOME DECLARED DURING THE COURSE OF SURVE Y/SEARCH ON 18.02.09. THEN, THE AO HAS ISSUED NOTICES U/S.143(2) AND 142(1) ALONG WITH THE QUESTIONNAIRE TO THE ASSESSEE. AFTER CONFRONTING ALL THE SEIZED PAPERS FOUND DURING THE COURSE OF SEARCH AND STATEMENTS RECORDED, THE AO HAS COMPLETED THE ASSESSMENT U/S.143(3) R.W.S.153C OF THE I.T. ACT, 1961 ON 29.12.2010. THE A O HAS MADE THE ADDITION OF R S. 9,94,96,000/ - IN RESPECT OF UNEXPLAINED EXPENDITURE BY INVOKING PROVISIONS OF SECTION 69C. IN THIS REGARD THE AO NOTICED THAT DURING THE SEARCH AND SEIZURE OPERA TION CARRIED OUT IN THE CASE OF SHRI MADAN KOLAMBEKAR ( LAND AGGREGATOR IN THE CASE OF JAI CORP GROUP OF COMPANIES) AND M/ S. PATHIK CONSTRUCTION, A NUMBER OF INCRIMINATING DOCUMENTS WERE FOUND AND SEIZED WHICH HAVE CONFIRMED THAT A CASH PAYMENT OF RS.10.65 CRORE WAS RECEIVED BY THE ASSESSEE FROM M/ S. ICONIC REALTORS LTD. WHEN THIS DOCUMENT WAS CONFRONTED TO THE ASSESSEE, IT WAS ADMITT ED THAT UNACCOUNTED CASH OF RS.1 0.65 CRORE WAS R ECEIVED IN THE LAND DEAL WITH M/ S. ICONIC REALTORS LTD. THE AO HAS NOTICED TH AT PAGE NO. 221 TO 229 OF ANNEXURE A - 1 SEIZED FROM THE OFFICE OF SHRI MADAN KOLAMBEKAR CONTAINED DETAILS OF VARIOUS LAND TRANSACTIONS MADE BY THE JAI CORP GROUP OF CASES THROUGH SHRI MADAN KOLAMBEKAR AND DETAILS OF PAYMENT MADE IN CASH. ON PAGE NO. 221, TH E NAME OF M / S. PATHIK ITA NO. 1498&1499 / 1 2 4 CONSTRUCTIONS IS APPEARING AGAINST WHICH AN AMOUNT OF RS.10,65,00,000 / - DATED 16.01.2008 IS SHOWN. THIS PAGE ALONGWITH OTHER INCRIMINATING EVIDENCES COLLECTED DURING THE COURSE OF SEARCH PROVE , THIS FACT THAT M/ S. PATHIK CONSTRUCTION S HAS RECEIVED RS.10.65 CRORE IN CASH AGAINST THE LAND DEAL WITH M/ S. ICONIC REALTORS LTD. PAGE NO. 229 OF ANNEXURE A - L SHOWS THE LAND DEAL AT RS.1421.5 LAKH. IN THE LEDGER REGISTER; PAGE NO. 111 OF LEDGER FOLIO NO.92, THE TOTAL PAYMENTS RECEIVED FOR THIS PLOT ARE SHOWN AT RS.356 LAKHS. THUS, THERE WAS A DIFFERENCE OF RS.1065 LAKH WHICH WAS APPEARING AT PAGE NO, 221 OF ANNEXURE A - 1. WHEN THE SEIZED DOCUMENTS WERE CONFRONTED TO SHRI AJIT THUMER, ONE OF THE KEY PARTNERS OF THE ASSESSEE FIRM IN Q. NO. 13 HE HA S CONFIRMED THAT THIS TRANSACTION WAS TAKEN PLACE BY THE ASSESSEE FIRM IN FY 2007 - 08 ON WHICH PROFIT OF RS.96.8 LAKH WAS DECLARED IN THE RETURN OF INCOME. IN Q. NO. 14 & 15 OF THIS STATEMENT, HE HAS CONFIRMED THAT AS PER THE SALE AGREEMENT, THE CONSIDERATI ON WAS SHOWN ONLY AT RS.3.25 CRORE BUT THE PLOT WAS ACTUALLY SOLD FOR RS.14.20 CRORE AND THE DIFFERENCE WAS RECEIVED IN CASH. SHRI CHATURBHAI THUMER, ANOTHER KEY PARTNER OF THE ASSESSEE FIRM HAS CONFIRMED THE CASH COMPONENT INVOLVED IN THIS TRANSACTION AS STATED BY SHRI AJIT THURNER. IN Q. NO.4 OF HIS STATEMENT RECORDED ON 01.05.09. THE OTHER SUPPORTING DOCUMENTS AS PER ANNEXURE A - L, PAGE 20 SEIZED FROM THE RESIDENCE OF SHRI SANDEEP TOTADE F URTHER CONFIRMED THAT RS.60 LAKHS AND RS.55 LAKHS WERE PAID TO SHRI CHATURBHAI THUMER, PARTNER OF THE FIRM ON 14.12.07 AND RS.45 LAKHS ON 15.12.07. THE AO HAS FURTHER NOTICED THAT ALTHOUGH THE ASSESSEE HAS ADMITTED THE CASH RECEIPT OF RS.10,65,00,000/ - IN THIS LAND TRANSACTION BUT IT WAS CLAIMED THAT THE ENTIRE MONEY WAS NOT ITA NO. 1498&1499 / 1 2 5 UNDISCLOSED INCOME BECAUSE CERTAIN EXPENSES WERE ALSO INCURRED. THE AO HAS GIVEN THE DESCRIPTION OF THE SEIZED DOCUMENTS AND REFERENCE OF THE STATEMENTS RECORDED DURING THE COURSE OF SEARCH AT PAGE 4 TO 7 OF THE ASSESSMENT ORDER. AFTER CONSIDERING ALL THE INCRIMINATING DOCUMENTS AND THE STATEMENTS RECORDED, THE AO HAS GIVEN A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN THE SAME. IN RESPONSE TO THIS SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED ITS REPLY BEFORE THE AO WHICH IS DISCUSSED AT PAGE 9 TO 13 OF T HE ASSESSMENT ORDER. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO HAS RECOMPUTED THE UNDISCLOSED INCOME AT RS.11,9 8 , 80 ,000/ - . 5 . BEFORE THE CIT(A), ASSESSEE ALLEGED ADDITION OF RS. 36,90,000/ - AND RS.5,94,96,000/ - AND RS.30,05,00,000/ - . B Y THE IMPUGN ED ORDER THE CIT(A) DELETED THE SAME AFTER HAVING FOLLOWING OBSERVATIONS : - 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT, ORDER OF THE AO AND FACTS OF THE CASE IN BRIEF ARE THAT A SEARCH AND SEIZURE OPERATION WAS CARRIED OUT IN THE CASE OF SHRI MADAN KOLAMBEKAR (LAND AGGREGATOR FOR JAI CORP GROUP OF COMPANIES). THE INCRIMINATING DOCUMENTS FOUND DURING THE COURSE OF SEARCH HAS PROVED THAT RS.10.65 CRORE IN CASH WAS PAID TO M/S. PATHIK CONSTRUCTION FOR THE SALE OF PLOT NO.31 IN SECTOR - 47, DRONAGI RI ADMEASURING 5550 SQ.MT. TO M/ S. ICONIC REALTORS LTD. CONSEQUENTLY, A SEARCH OPERATION WAS ALSO CARRIED OUT IN THE CASE OF THE ASSESSEE ON 18.02.09. THE DOCUMENTS FOUND DURING THE COURSE OF SEARCH IN CASE OF SHRI MADAN KOLAMBEKAR AND IN THE CASE OF SHRI SANDEEP TOTADE WERE CONFRONTED WITH THE ASSESSEE AND THE STATEMENT OF SHRI AJIT THUMER AND SHRI CHATURBHAI THUMER WERE RECORDED WHO HAVE ADMITTED THAT AS PER THE SALE AGREEMENT, THE CONSIDERATION OF THIS LAND DEAL WAS SHOWN ONLY AT RS.3.25 CRORE BUT ACTUAL LY THE PLOT WAS SOLD FOR RS.14.20 CRORE AND THE DIFFERENCE WAS RECEIVED IN CASH. BOTH THE PARTNERS OF THE FIRM HAVE ADMITTED THIS FACT AND THE OTHER DOCUMENTS AS PER ANNEXURE 0 - 2 FILED WITH THE ASSESSMENT ORDER ALSO SHOWS THAT THE CHEQUE PAYMENT WAS MADE O F RS.2.22 CRORE AND RS.5,94,96,000/ - WAS CASH TRANSACTION. WHEN CONFRONTED DURING THE COURSE OF SEARCH, THESE WERE CATEGORICALLY ADMITTED BY THE ASSESSEE BY BOTH THE PARTNERS OF THE FIRM. HOWEVER, LATER ON, THE ASSESSEE HAS RETRACTED THE STATEMENT BY ALLEG ING THAT IT WAS UNDER PRESSURE AND HARASSMENT FROM THE AUTHORIZED OFFICER. ITA NO. 1498&1499 / 1 2 6 THE RETRACTION OF STATEMENT AS DISCUSSED ABOVE WAS WITHOUT ANY BASIS AND WAS NOT ACCEPTED BY THE AO AND ALSO REJECTED BY THE UNDERSIGNED. 3.4 BEFORE ME, THE AR OF THE APPELLANT HA S SUBMITTED THAT CERTAIN UNACCOUNTED CASH EXPENSES WERE INCURRED TO EARN UNACCOUNTED INCOME DECLARED BY THE ASSESSEE IN ITS REVISED RETURN FILED ON 09.08.10 AMOUNTING TO RS.2,31,90,000/ - . IT WAS FURTHER ALLEGED THAT ON ACCOUNT OF THE CONSTANT PURSUING OF T HE DCIT, THE APPELLANT HAS FILED ANOTHER RETURN IN WHICH AN ADDITIONAL INCOME OF RS.3.05 CRORE WAS DECLARED AND ADDITIONAL TAX WAS PAID. THE AR OF THE APPELLANT HAS ALSO SUBMITTED THAT THE AO HAS MADE DOUBLE ADDITION OF RS.36,90,000/ - WHICH WAS DECLARED AS ADDITIONAL INCOME INCLUDED IN THE DECLARATION OF RS.2,31,90,000/ - . SIMILARLY, THE AO HAS NOT ALLOWED THE CREDIT OF RS.5,94,96,000/ - IN THE COMPUTATION WHILE ARRIVING AT THE FIGURE OF RS.11,98,80,000/ - (PAGE 13 OF THE ASSESSMENT ORDER). IT WAS ALLEGED THAT WHEN THE AO HAS ARRIVED AT THIS FIGURE OF RS.11,98,80,000/ - , THE AMOUNT OF RS.5,94,96,000/ - WAS NOT DEDUCTED. THEREFORE, IT WAS A DOUBLE ADDITION OF THE SAME AMOUNT. FURTHER, THE AR OF THE APPELLANT HAS ADVOCATED THAT SINCE AN AMOUNT OF RS.3,05,00,000/ - W AS DECLARED IN THE REVISED RETURN FILED ON 21.10.10 AND DUE TAXES WERE PAID ON IT, CREDIT OF THE SAME WAS ALSO NOT ALLOWED BECAUSE THE AO HAS TAKEN THE NET PROFIT OF R S. 6,02,67,482/ - INSTEAD OF RS.2,97,67,482/ - . THUS, THE AR HAS EMPHASIZED THAT THE AO HAS MADE DOUBLE ADDITION OF RS.36,90,000/ - , RS.5,94,96,000/ - AND RS.3,05,000/ - AND TAXED THIS AMOUNT TWICE. 3.5 FROM THE PERUSAL OF THE FACTS OF THE CASE, IT IS NOTICED THAT ON THE BASIS OF THE SEIZED DOCUMENTS CONFRONTED DURING THE COURSE OF SEARCH, THE PAR TNER OF THE ASSE SSEE FIRM HAS ADMITTED THAT RS.1 0.65 CRORE WAS RECEIVED IN THE LAND TRANSACTION IN CASH OVER AND ABOVE THE ACTUAL CONSIDERATION OF RS.3.25 CRORE. ALTHOUGH, THE AR OF THE APPELLANT HAS SUBMITTED THAT THE STATEMENT WAS RETRACTED WHICH WAS GIV EN UNDER PRESSURE BUT THE SAME IS NOT ACCEPTED BECAUSE THERE WAS NO EVIDENCE SUBMITTED TO PROVE THAT THE STATEMENT WAS RECORDED UNDER PRESSURE AND MOREOVER, THE SEIZED DOCUMENTS PROVE THAT IN THIS TRANSACTION RS.10.65 CRORE WAS RECEIVED IN CASH OVER AND AB OVE THE ACTUAL TRANSACTION RECORDED IN THE BOOKS OF ACCOUNT. NOW, THE QUESTION WHICH IS TO BE DECIDED IS THAT THE TOTAL CONSIDERATION OF RS.14,20,80,000/ - OUT OF WHICH RS.2,22,00,000/ - WAS SHOWN IN THE BOOKS OF ACCOUNT AND THE BALANCE AMOUNT OF RS.11,98,80 ,000/ - WAS TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE. FROM THE PERUSAL OF THE RECORD AND COMPUTATION CHART, IT IS NOTICED THAT THE ASSESSEE HAS DECLARED AN AMOUNT OF RS.2,31,90,000/ - CONSISTING OF RS.1,95,00,000/ - ON ACCOUNT OF DISCUSSION MADE IN PARA 5 OF THE ASSESSMENT ORDER AND RS.36,90,000/ - (14,60,000 + 22,30,000) TOTALING TO RS.2,31,90,000/ - WHICH SHOWS THAT UNEXPLAINED EXPENDITURE OF RS.36,90,000/ - HAS BEEN DECLARED BY THE ASSESSEE. SIMILARLY, WHILE COMPUTING THE UNACCOUNTED CASH, THE ITA NO. 1498&1499 / 1 2 7 AO HAS ARRI VED AT THE FIGURE OF RS.11,98,80,000/ - AT PAGE 13 OF THE ASSESSMENT ORDER AND NOT ALLOWING THE CREDIT OF RS.5,94,96,000/ - CASH PAYMENTS AS PER THE PROVISIONS OF SECTION 40A(3).SIMILARLY, IT IS NOTICED THAT THE ASSESSEE HAS REVISED ITS RETURN ON 21.10.10 AN D DECLARED ADDITIONAL INCOME OF RS.3,05,00,000J - BUT CREDIT OF THE SAME WAS ALSO NOT ALLOWED WHILE COMPUTING THE UNDISCLOSED INCOME. THE AO HAS ARGUED THAT SINCE THE ASSESSEE HAS STATED THAT UNEXPLAINED EXPENDITURE WAS INCURRED IT IS COVERED UNDER THE PROV ISO TO SECTION 69C W.E.F. 01.04.99 WHERE IT IS HELD THAT ANY UNEXPLAINED EXPENDITURE WHICH HAS BEEN DEEMED TO BE THE INCOME OF THE ASSESSEE, HAS BEEN MADE NON - DEDUCTIBLE EXPENDITURE UNDER ANY HEAD OF INCOME. THE AO HAS RELIED ON THE STATEMENT OF THE ASSESS EE RECORDED DURING THE COURSE OF SEARCH BUT IT IS NOT SUBSTANTIATED BY ANY DOCUMENTARY EVIDENCE FOUND AND SEIZED DURING THE COURSE OF SEARCH IN THE CASE OF THE ASSESSEE AND IN THE CASE OF SHRI MADAN KOLAMBEKAR FROM WHERE THE DOCUMENTS WERE SEIZED RELATING TO THE TRANSACTION WITH THE ASSESSEE FIRM. REGARDING THE APPLICABILITY OF SECTION 40A(3), THE AR OF THE APPELLANT HAS SUBMITTED THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANAND SWARUP KHANDELWAL IN APPEAL NO. 596 OF 2006 DATED 08.09.08 HAS H ELD THAT SECTION 40A(3) COULD ONLY BE TAKEN IN THE COURSE OF REGULAR ASSESSMENT. THE AR HAS ALSO RELIED IN THE CASE OF CIT VS. RAJA PAL AUTOMOBILES OF ALLAHABAD HIGH COURT IN APPEAL NO. 34 OF 1999 DATED 30.06.09. ALTHOUGH, THE AO HAS NOT MADE THE ADDITION U/S. 40A(3) SEPARATELY BUT AS PER THE DECISIONS RELIED ON BY THE APPELLANT, IT IS NOT APPLICABLE IN THE CASE OF THE BLOCK ASSESSMENT. FROM THE FACTS OF THE CASE, IT IS NOTICED THAT THE AO HAS NOT ALLOWED CREDIT OF RS.36,90,000/ - DECLARED BY THE ASSESSEE ON LY ON THE BASIS OF STATEMENT THAT' IT WAS UNACCOUNTED CASH EXPENDITURE OF RS.3,05,00,000/ - DECLARED IN THE REVISED RETURN UNDER PROVISO TO SECTION 69C.. BUT, ON THE OTHER HAND, THE AR OF THE APPELLANT HAS ARGUED THAT NO DOCUMENTARY EVIDENCE WAS FOUND AND S EIZED DURING THE COURSE OF SEARCH TO PROVE THIS UNACCOUNTED EXPENDITURE, THEREFORE, THE PROVISO TO SECTION 69C IS NOT APPLICABLE TO THE ASSESSEE'S CASE. FROM THE PERUSAL OF THE SEIZED PAPERS FOUND AND RELIED ON BY THE AO, IT IS NOTICED THAT THE CONTENTION OF THE AR OF THE APPELLANT SEEMS TO BE TRUE THAT NO DOCUMENTARY EVIDENCE HAS BEEN FOUND AND SEIZED TO PROVE THAT RS.36, 90, 000/ - AND RS.3, 05,00,000/ - WAS CASH EXPENDITURE INCURRED BY THE ASSESSEE. MERELY ON THE BASIS OF THE STATEMENT IT CANNOT BE HELD THAT THE ASSESSEE HAS INCURRED THIS EXPENDITURE. SINCE THE APPELLANT HAS DECLARED THIS AMOUNT OF RS.36 , 90,000 / - AND RS.3 ,05,00,000/ - IN THE REVISED RETURN OF INCOME AND PAID TAXES ON IT, THEREFORE, THE AO IS DIRECTED TO ALLOW THE CREDIT OF THE SAME. SIMILARLY, IT IS NOTICED THAT WHILE COMPUTING UNDISCLOSED INCOME IN THIS LAND TRANSACTION AT PAGE 13 OF THE ASSESSMENT ORDER, THE AO HAS NOT TAKEN INTO ACCOUNT THE AMOUNT OF RS. 5 ,94,96 ,000/ - AND IT HAS MADE DOUBLE ADDITION OF THIS AMOUNT AS PER THE PROVISIONS OF SECT ION 40A(3) OF THE KEEPING IN VIEW THE DECISIONS RELIED ON BY THE APPELLANT OF HON'BLE DELHI HIGH COURT AND ALLAHABAD HIGH COURT/ SEPARATE ITA NO. 1498&1499 / 1 2 8 ADDITION OF RS. 5,94,96,000/ - NOT TO BE MADE U/ S. 40A(3). IN TOTALITY OF THE FACTS AND CIRCUMSTANCES, THE AO IS DIRECTE D TO ALLOW THE CREDIT OF RS.36 , 90,000 / - , RS. 3,05,00,000/ - AND RS.5 ,94,96 , 000 / - AND THE BALANCE ADDITION IS CONFIRMED. THE GROUND OF APPEAL IS PARTLY ALLOWED 6 . THE AO HAS ALSO MADE ADDITION OF RS.1,14,63,383/ - ON ACCOUNT OF DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT. FROM PERU S AL OF THE BALANCE - SHEET OF M/S. KALPANA STRUCT CON PVT. LTD., THE AO HAS NOTICED THAT THE COMPANY HAS GIVEN LOANS/ADVANCE OF RS.1,14,63,383/- TO M/S. PATHIK CONSTRUCTION FOR AY 08 - 09 AND RS.2,06,66,690 / - FOR THE AY 09 - 10. THE AO HAS A LSO OBSERVED THAT MRS. NIRMALA THUMAR HAS 10% SHARE OF THE COMPANY AND SUBSTANTIAL INTEREST IN THE FIRM BECAUSE SHE IS BENEFICIARY AND ENTITLED TO 23% OF THE INCOME OF THE FIRM. IT WAS ALSO NOTED THAT M/ S. KALPANA STRUCT CON PVT. LTD. IS NOT A COMPANY IN W HICH PUBLIC ARE SUBSTANTIALLY INTERESTED. THE AO HAS ALSO OBSERVED THAT THE LOAN GIVEN TO THE ASSESSEE IS NOT IN THE ORDINARY COURSE OF BUSINESS OF THE COMPANY BECAUSE LENDING IS NOT THE BUSINESS ACTIVITY OF THE COMPANY. ACCORDINGLY, A SHOW - CAUSE NOTICE WA S ISSUED TO THE ASSESSEE TO EXPLAIN WHY PROVISIONS OF SECTION 2(22)( E) MAY NOT BE INVOKED IN YOUR CASE. IN RESPONSE TO THIS SHOW CAUSE NOTICE, THE AR OF THE ASSESSEE HAS NOT SUBMITTED ANY PLAUSIBLE REPLY BEFORE THE AO. THEREFORE, HE HAS INVOKED THE PROVIS IONS OF SECTION 2(22)( E) AND MADE ADDITION OF RS.1,14,63,383 / - FOR THE AY 2008 - 09 AND RS.2,06,66,690 / - FOR THE AY 2009 - 10 . 7 . BY THE IMPUGNED ORDER, THE CIT(A) DELETED THE ADDITION AFTER HAVING FOLLOWING OBSERVATIONS : - 4.3 I HAVE CONSIDERED THE SUBMISSIO NS OF THE APPELLANT, ORDER OF THE AO AND FACTS OF THE CASE CAREFULLY. THE AR OF THE APPELLANT HAS SUBMITTED THAT THE LOAN WAS RECEIVED BY THE ASSESSEE ON THE BASIS OF THE FINANCE AGREEMENT WHICH WAS PREPARED BEFORE THE ITA NO. 1498&1499 / 1 2 9 SEARCH AND COPY OF THE LEDGER ACCOUNT IN THE BOOKS OF M/S. KALPANA STRUCT CON PVT. LTD. WAS ALSO SUBMITTED AS ADDITIONAL EVIDENCES. THE AR HAS SUBMITTED THAT THE AO HAS NOT GIVEN REASONABLE OPPORTUNITY TO SUBMIT THESE DOCUMENTS DURING THE ASSESSMENT PROCEEDINGS. I HAVE CONSIDERED THE SUBMISSI ONS OF THE AR AND NOTICED THAT THESE DOCUMENTS ARE VERY CRUCIAL FOR DECIDING THIS ISSUE, THEREFORE, ADMITTED AS ADDITIONAL EVIDENCES BECAUSE THE AO HAS NOT CALLED FOR DURING THE ASSESSMENT PROCEEDINGS AND SENT BACK TO THE AO FOR RE - EXAMINING AND REMAND REP ORT. THE AO HAS SUBMITTED THE REMAND REPORT VIDE LETTER DATED 02.12.11, THE GIST OF WHICH IS REPRODUCED AS UNDER: 'THE AMOUNT ADVANCED BY M/S. KALPANA STRUCT CON PVT. LTD. (KSCPL) TO THE ASSESSEE HAS BEEN SHOWN AS 'LOANS & ADVANCES IN THE BALANCE - SHEET OF KSCPL (SCHEDULE 4 OF FY 2007 - 08 AND SCHEDULE 5 OF FY 2008 - 09). COPY OF RELEVANT PAGES OF THE BALANCE - SHEET AS ON 31.03.2008 & 31.03.2009 AS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS OF KSCPL ARE ENCLOSED HEREWITH AS ANNEXURE - 1. THE ASSESSEE IN ITS B ALANCE - SHEET AS ON 31.03.2008 & 31.03.2009 HAS CLEARLY SHOWN THE AMOUNTS RECEIVED FROM KSCPL UNDER THE HEAD 'UNSECURED LOANS' (AS PER SCHEDULE B). COPY OF RELEVANT PAGES OF THE BALANCE - SHEETS AS ON 31.03.2008 & 31.03.2009 AS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS OF THE ASSESSEE ARE ENCLOSED HEREWITH AS ANENXURE - 2. COPY OF ACCOUNT CONFIRMATION SUBMITTED BY THE ASSESSEE IN RESPECT OF THE AMOUNTS RECEIVED FROM KSCPL FOR AYS. 2008 - 09 AND 2009 - 10 ALSO SHOWS ENTRIES OF INTEREST AS ON 31.03.2008 AND 31.03. 2009. THESE INTEREST ENTRIES HAVE CLEAR NARRATION AS 'INTEREST PAID ON LOAN' WHICH THE ASSESSEE HAS ALSO CLAIMED IN ITS P & I ACCOUNT AS 'INTEREST PAID ON LOAN' IN AYS. 2008 - 09 AND 2009 - 10. SIMILARLY, THESE AMOUNTS OF INTEREST HAVE BEEN SHOWN AS INCOME IN THE P & L ACCOUNT OF KSCPL AS 'INTEREST RECEIVED ON LOAN' FOR AYS. 2008 - 09 AND 2009 - 10. COPIES OF THESE DOCUMENTS ARE ENCLOSED HEREWITH AS ANNEXURE - 3. EVEN THE COPY OF LEDGER ACCOUNTS (ENCLOSED WITH YOUR LETTER DATED 25.11.2011) OF THE ASSESSEE IN THE BOOKS OF KSCPL, SUCH INTEREST ENTRIES HAVE BEEN PASSED ON 31.03.2008 AND 31.03.2009 IN THE BOOKS OF KSCPL WHEREIN THE FOLLOWING HAS BEEN CLEARLY MENTIONED IN THIS REGARD - 'INTEREST RECEIVED LOAN'. SUCH AMOUNTS HAVE BEEN ADVANCED BY KSCPL TO THE ASSESSEE PRIOR TO 21.01.2008 ALSO AS IT CAN BE SEEN FROM THE LEDGER ACCOUNT OF THE ASSESSEE IN THE BOOKS OF KSCPL, BUT ALL OF SUDDEN THIS 'AGREEMENT OF FINANCE' IS APPEARING ON 21.01.2008. THIS RAISES DOUBTS ABOUT AUTHENTICITY AND GENUINENESS OF THIS AGREEMENT ITS ELF. THIS AGREEMENT APPEARS TO BE AN ATTEMPT ON ITA NO. 1498&1499 / 1 2 10 THE ASSESEE'S PART TO DIVERT ATTENTION FROM SUBSTANCE AND ACTUAL NATURE OF THESE TRANSACTIONS AND GIVE THEM A DIFFERENT COLOUR. EVEN, THE CONTENTS OF THE AGREEMENT OF FINANCE SUGGEST AND FURTHER STRENGTHENS THAT THE AMOUNT GIVEN BY KSCPL TO THE ASSESSEE IS LOAN/ADVANCE ONLY, AS RATE OF INTEREST (WHICH IS 9% IN THE PRESENT CASE) INTER ALIA IS ALSO AGREED UPON. MOREOVER, KSCPL HAS NOT ADVANCED ANY MONEY TO THE ASSESSEE FOR KSCPL'S OWN BUSINESS. EVEN AS PER THE AGREEMENT, KSCPL HAS AGREED TO PROVIDE FINANCE TO THE ASSESSEE FOR THE ASSESSEE'S BUSINESS WHICH IS LOAN/ADVANCE ONLY AND THE SAME IS CLEARLY COVERED BY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. FOR SUCH FINANCE PROVIDED TO THE ASSESSEE, INTEREST IS CHARGEABLE BY KSCPL. REGARDING COMMISSION OF 12% AS PROVIDED IN THE AGREEMENT, FIRSTLY IT IS MENTIONED THAT THERE IS NO TRUTH IN IT BECAUSE NEITHER THE ASSESSEE HAS CLAIMED ANY SUCH COMMISSION IN ITS P & L ACCOUNT FOR A YS. 2008 - 09 AND 2009 - 10 NOR KSCPL HA S SHOWN ANY SUCH COMMISSION INCOME IN ITS P & I ACCOUNT FOR AYS. 2008 - 09 AND 2009 - 10 ALTHOUGH THE ASSESSEE HAS DONE TRADING IN 12.5% PLOTS IN THESE YEARS. SECONDLY, BY PROVIDING SUCH A COMMISSION CLAUSE IN THE AGREEMENT THE ASSESSEE HAS JUST MADE AN ATTEMP T TO DIVERT ATTENTION FROM THE SUBSTANCE AND ACTUAL NATURE OF THESE TRANSACTIONS. EVEN AT THE COST OF REPETITION, IT IS AGAIN MENTIONED THAT KSCPL HAS NOT ADVANCES THESE AMOUNTS/MONEY TO THE ASSESSEE FOR KSCPL'S ON BUSINESS, AND EVEN AS PER THE AGREEMENT, KSCPL HAS AGREED TO PROVIDE FINANCE TO THE ASSESSEE FOR THE ASSESSEE'S BUSINESS WHICH IS LOAN/ADVANCE ONLY. THEREFORE, THE IMPUGNED MONEY GIVEN BY KSCPL TO THE ASSESSEE CANNOT BE CALLED A BUSINESS ADVANCE BY EVEN ANY STRETCH OF IMAGINATION. THE FINANCE PRO VIDED/AMOUNTS ADVANCED ARE CLEARLY COVERED BY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. FURTHER, SUCH A COMMISSION ELEMENT CAN AT THE BEST BE CALLED A COMPENSATION TOWARDS THE LOW INTEREST RATE OF 9% WHICH IS LOWER THAN THE PREVAILING MARKET RATE OF I NTEREST. COPY OF RELEVANT P & L ACCOUNTS OF THE ASSESSEE AND KSCPL FOR AYS. 2008 - 09 AND 2009 - 10 ARE ENCLOSED HEREWITH AS ANNEXURE - A. KSCPL IS NOT AT ALL IN THE BUSINESS OF LENDING, AND THEREFORE THE IMPUGNED TRANSACTIONS ARE NOT EXCLUDED AS PER CLAUSE (I I) OF SECTION 2(22)(E) OF THE ACT. IN THIS CONNECTION, IT IS MENTIONED THAT NEITHER THE ASSESSEE HAS FURNISHED ANY CERTIFICATE/PROOF OF BFBC (NON - BANKING FINANCE COMPANY) IN RESPECT OF KSCPL TO SHOW THAT SUBSTANTIAL PART OF KSCPL'S BUSINESS IS THE BUSINESS OF LENDING OF MONEY FOR THE ACCOUNTS OF KSCPL SUGGEST SO'. COPY OF THE REMAND REPORT WAS ALSO GIVEN TO THE ASSESSEE FOR HIS COMMENTS. THE AR OF THE APPELLANT HAS SUBMITTED ITS REPLY IN RESPONSE TO THE REMAND REPORT WHICH IS ALSO REPRODUCED AS UNDER: ITA NO. 1498&1499 / 1 2 11 ' 1. IN POINT 2 OF THE REPORT THE AD MENTIONS TO HAVE ASKED THE ASSESSEE TO SHOW CAUSE WITH RELATION TO DEEMED DIVIDEND. HOWEVER, THE ISSUE REGARDING THE APPLICATION OF SECTION 2(22)(E) WAS NOT RAISED DURING THE ASSESSMENT AND THUS AN OPPORTUNITY TO REPRESEN T THE MATTER SHOULD HAVE BEEN GIVEN ON THE BASIS OF NATURAL JUSTICE. 2. IN POINT 3.1 OF THE REPORT, THE AO HAS MENTIONED THAT ALL OF A SUDDEN. THIS AGREEMENT OF FINANCE ('AGREEMENT') IS APPEARING ON JANUARY 21, 2008. IN THIS REGARD, WE WISH TO INFORM Y OU THAT THERE WERE MANY CORRESPONDENCES BETWEEN THE PARTIES IN THE FORM OF LETTERS APART FROM THE PERSONAL MEETINGS IN ACCORDANCE WITH THE CLAUSES OF THE AGREEMENT. AS PER THE AO'S REQUEST, THE SAID LETTERS WERE SUBMITTED WITH THE AO ON NOVEMBER 30 2011 WH ICH ARE SUBMITTED. THE AGREEMENT WAS PRODUCED IN ORIGINAL BEFORE THE AO AS PER HIS REQUEST. ON PERUSAL OF THE AGREEMENT THE FOLLOWING POINTS SHOULD BE NOTED: A. THE AGREEMENT OF FINANCE IS A NOTARIZED AND A STAMPED AGREEMENT. B. THE AGREEMENT IS DUL Y SIGNED BY THE AUTHORIZED PERSON. E. PRIOR TO ENTERING INTO THE AGREEMENT, BOTH THE PARTIES MADE SEVERAL MEETINGS AND EXCHANGED CORRESPONDENCES. D. THE AGREEMENT AS NOTED BEFORE WAS ENTERED INTO ON JANUARY 8, 2008 WHICH IMPLIES THAT THE AGREEMENT WAS AVAILABLE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. E. THE PARTIES HAVE ACTED IN PURSUANCE OF THE AGREEMENT AND ACCORDINGLY A COMMISSION OF 12% IS PAID ON THE TOTAL SALE VALUE OF THE PLOT ALONG WITH NORMAL INTEREST ON FINANCE AMOUNT AS DECIDED UPO N BY BOTH PARTIES FROM TIME TO TIME. F. IN THE FOUR YEARS FROM AY 2008 - 09 TO AY 20011 - 12, ONLY ONE SALE TRANSACTION HAS BEEN ENTERED INTO WHICH IS IN THE AY 2011 - 12 ON WHICH A COMMISSION OF 12% HAS BEEN PAID BY THE ASSESSEE TO T - T/S. KALPANA STRUCT CON P VT. LTD. TO EVIDENCE SAME, WE HAVE SUBMITTED THE PROFIT AND LOSS ALE. FOR ALL THE FOUR YEARS. G. THE AO ENQUIRES T - HAT ALTHOUGH TRADING HAS BEEN DONE DURING THE YEARS UNDER CONSIDERATION, NO COMMISSION HAS BEEN PAID. HOWEVER, AS PER THE TERMS OF THE AGRE EMENT COMMISSION AT THE RATE OF 12% IS PAYABLE ONLY ON THE SALE OF PLOTS AS SET OUT IN THE RELEVANT CLAUSE. ALSO, AS PER THE PROFIT AND LOSS ACCOUNT FILED WITH ITA NO. 1498&1499 / 1 2 12 THE INCOME - TAX DEPARTMENT, NO SALE HAS BEEN EFFECTED DURING THE AY 2008 - 09 AND AY 2009 - 10. H. THE DEDUCTION OF TAX AT SOURCE ON THE INTEREST AND COMMISSION AND THE PAYMENT THEREOF AS WELL THE QUARTERLY TDS RETURNS FILED WITH THE DEPARTMENT AUTHENTICATE AND VALIDATE THE GENUINENESS OF THE TRANSACTION AND THEREBY THE AGREEMENT. THE TDS RETURNS HAVE B EEN SUBMITTED. I. THE AO'S OBSERVATION THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCES OR PROOFS IS ERRONEOUS AS MENTIONED EARLIER, COPIES OF LETTERS EXCHANGED BETWEEN THE PARTIES TO THE AGREEMENT, PROFIT AND LOSS ACCOUNT FOR THE VARIOUS YEARS ALOGNWITH THE LEDGER COPIES AND AGREEMENT HAVE ALREADY BEEN SUBMITTED BEFORE THE DEPARTMENT'. 4.4 FROM THE PERUSAL OF THE REMAND REPORT AND REPLY OF THE APPELLANT, IT IS NOTICED THAT THE ASSESSEE FIRM HAS RECEIVED LOAN/ADVANCE OF RS.1,14,63,383/ - FOR THE AY 2008 - 09 AND RS.2,06,66,690/ - FOR THE AY 2009 - 10. FROM THE SHAREHOLDING PATTERN IT IS TRUE THAT MRS. NIRMALA THUMAR HAS 10% OF THE COMPANY AND SUBSTANTIAL INTEREST WITH 23% SHARE IN THE INCOME OF THE FIRM. THE PROVISIONS OF SECTION 2(22)( E) ARE APPLICABLE AS PE R THE ORDER OF THE AO BUT THE CRUCIAL DOCUMENT, L.E. THE FINANCE AGREEMENT SUBMITTED BEFORE ME AND THE LEDGER ACCOUNT OF THE FIRM IN THE BOOKS OF THE COMPANY PROVES THIS FACT THAT LOANS/ADVANCES WERE RECEIVED BY THE FIRM ON THE BASIS OF FINANCE AGREEMENT, I.E. FOR BUSINESS PURPOSES. THE INTEREST WAS PAID, TDS WAS DEDUCTED AND COMMISSION WAS TO BE PAID AT THE FINAL SALE/PURCHASE DEAL OF THE LAND. NOW, THE QUESTION ARISES WHETHER THE PROVISIONS OF SECTION 2(22)(E) ARE APPLICABLE IF THE LOAN IS TAKEN FOR BUSIN ESS PURPOSES. IN THE REMAND REPORT, THE AO HAS STRONGLY REJECTED THE ARGUMENTS OF THE' APPELLANT THAT IT IS NOT A BUSINESS TRANSACTION. BUT, ON THE OTHER HAND, THE AR OF THE APPELLANT HAS RELIED ON THE FINANCE AGREEMENT AND LEDGER ACCOUNT IN THE BOOKS OF T HE COMPANY THAT IT WAS A BUSINESS TRANSACTION CLEARLY RECORDED IN THE BOOKS OF ACCOUNT THAT LOAN WAS RECEIVED TO INVEST IN THE LAND AND THE INTEREST WAS PAID AND COMMISSION WAS TO BE PAID AT THE FINAL SALE OF THE LAND. THE AO HAS ARGUED THAT COMMISSION HAS NOT BEEN REFLECTED IN THE AYS. 08 - 09 & 09 - 10 BUT THE AR OF THE APPELLANT HAS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE LAND WAS PURCHASED AND NOT SOLD, THEREFORE, THE QUESTION OF SHOWING ANY COMMISSION DOES NOT ARISE. FROM THESE FACTS IT IS CLEAR THAT THE ASSESSEE FIRM HAS RECEIVED LOAN FROM THE GROUP COMPANY IN BOTH THE YEARS BUT THE FACTOR IS TO DECIDE THE ISSUE WHETHER IT IS COVERED UNDER THE PROVISIONS OF SECTION 2(22)(E) IS TO PROVE THAT WHETHER IT WAS A BUSINESS TRANSACTION. TO ANSWER T HIS QUESTION, IT IS VERY CLEAR FROM THE FINANCE AGREEMENT SUBMITTED BY THE AR OF THE APPELLANT THAT IT WAS A BUSINESS TRANSACTION AND THE LOAN WAS TAKEN FOR PURCHASING THE LAND AND COMMISSION WAS TO BE PAID ON IT. SINCE THE LAND WAS NOT SOLD IN THE YEAR UN DER CONSIDERATION, ITA NO. 1498&1499 / 1 2 13 THEREFORE, NO COMMISSION PAYMENT HAS BEEN SHOWN. THUS, ,IT PROVES THAT IT IS CLEARLY A BUSINESS TRANSACTION. TO STRENGTHEN ITS VIEW, THE AR OF THE APPELLANT HAS ALSO RELIED ON THE DECISION OF THE HON'BLE COURTS IN CASE OF (I) CIT VS. RAJ KUMAR (318 ITR 462), (II) CIT VS. AMBASSADOR TRAVELS P. LTD. (318 ITR 376) AND (III) CIT VS. URMILA RAMESH (230 ITR 422) WHERE IT IS HELD AS UNDER: 1. 318ITR 462 (DELHI HC) - CIT VS RAJKUMAR THE WORD 'ADVANCE' HAS TO BE READ IN CONJUNCTION WITH WORD 'L OAN'. USUALLY ATTRIBUTES OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING COUPLED WITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN: IT GENERALLY CARRIES AN INTEREST AND THERE IS AN OBLIGATION OF REPAYMENT. ON THE OTHER HAND, IN ITS WIDEST MEANI NG, THE TERM 'ADVANCE' MAYOR MAY NOT INCLUDE LENDING. THE WORD 'ADVANCE', IF NOT FOUND IN THE COMPANY OF OR IN CONJUNCTION WITH A WORD 'TEEN', MAYOR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES, THEN IT WOULD BE A LOAN. THUS, THERE ARISES THE CO NUNDRUM AS TO WHAT MEANING ONE WOULD ATTRIBUTE TO THE TERM 'ADVANCE'. THE RULE OF CONSTRUCTION WHICH ANSWERS THIS CONUNDRUM IS NOSCITUR A SOCIIS- CIT V. RAJ KUMAR [2009J 181 TAXMAN 155/318 ITR 462 (DELHI). (PAPER BOOK PAGE 12 TO 22) 2. 318 ITR 376 BENCH: DELHI HC - CIT VS AMBASSADOR TRAVELS P. LTD., ASSESSEE ENTERED INTO BUSINESS TRANSACTIONS WITH TWO COMPANIES AND HAD FINANCIAL TRANSACTIONS WITH THEM. AO ON THE BASIS OF SHAREHOLDING PATTERN CONCLUDED THE FINANCIAL TRANSACTIONS AS DEEMED DIVIDEND. THE A SSESSEE HAD ENTERED INTO NORMAL BUSINESS TRANSACTIONS WITH THE TWO COMPANIES AS PART OF ITS DAY TO DAY BUSINESS ACTIVITIES. THE FINANCIAL TRANSACTIONS IN ANY CIRCUMSTANCES COULD NOT BE TREATED AS LOANS OR ADVANCES AND SECTION 2(22)(E) WAS NOT APPLICABLE. ( PAPER BOOK PAGE 23) 3. CIT V. UTMI!E RAMESH [1998J 96 TAXMAN 533/230 ITR 422 (SC). SECTION 2(22) HAS USED THE EXPRESSION 'ACCUMULATED PROFITS', WHETHER CAPITALISED OR NOT. THIS EXPRESSION TENDS TO SHOW THAT UNDER SECTION 2(22) IT IS ONLY THE DISTRIBUTI ON OF THE ACCUMULATED PROFITS WHICH ARE DEEMED TO BE DIVIDENDS IN THE HANDS OF THE SHAREHOLDERS. BY USING THE EXPRESSION 'WHETHER CAPITALISED OR NOT' THE LEGISLATIVE INTENT CLEARLY IS THAT THE PROFITS WHICH ARE DEEMED TO BE DIVIDEND WOULD BE THOSE WHICH WE RE CAPABLE OF BEING ACCUMULATED AND WHICH WOULD ALSO BE CAPABLE OF BEING CAPITALISED. THE AMOUNTS SHOULD, IN OTHER WORDS, BE IN NATURE OF PROFITS WHICH THE COMPANY COULD HAVE DISTRIBUTED TO ITS SHAREHOLDERS. THIS WOULD CLEARLY EXCLUDE RETURN OF PART OF A C APITAL TO THE COMPANY, AS THE SAME CANNOT BE REGARDED AS PROFIT CAPABLE OF BEING CAPITALISED, THE RETURN BEING OF CAPITAL ITSELF. ITA NO. 1498&1499 / 1 2 14 PROFITS MEAN ONLY COMMERCIAL PROFIT - (PAPER BOOK PAGE 24 TO 35)'. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND DE CISION OF THE HON'BLE COURTS, IT IS HELD THAT THE ADVANCE RECEIVED BY THE ASSESSEE FIRM WAS PURELY A COMMERCIAL TRANSACTION AND THE PROVISIONS OF SECTION 2(22)( E) IS NOT APPLICABLE AS PER THE DECISION OF HON'BLE COURTS. THEREFORE, THE ADDITIONS MADE BY TH E AO ARE NOT SUSTAINABLE, HENCE DELETED. THE GROUND OF APPEAL IS ALLOWED. 8 . IN THE ASSESSMENT YEAR 2009 - 10 SIMILAR ADDITIONS WAS MADE BY THE AO U/S.2(22)(E) IN RESPECT OF ADVANCE RECEIVED BY ASSESSEE FROM M/S KALPANA STRUCT CON PRIVATE LIMITED AMOUNTIN G TO RS.1,14,63,383/ - . SIMILAR OBSERVATION WAS MADE BY AO AS WAS IN THE ASSESSMENT YEAR 2008 - 09. BY THE IMPUGNED ORDER, THE CIT(A) DELETED THE ADDITION AFTER HAVING THE FOLLOWING OBSERVATION : - 4.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT, ORDER OF THE AO AND FACTS OF THE CASE CAREFULLY. THE AR OF THE APPELLANT HAS SUBMITTED THAT THE LOAN WAS RECEIVED BY THE ASSESSEE ON THE BASIS OF THE FINANCE AGREEMENT WHICH WAS PREPARED BEFORE THE SEARCH AND COPY OF THE LEDGER ACCOUNT IN THE BOOKS OF M/S. KALPA NA STRUCT CON PVT. LTD. WAS ALSO SUBMITTED AS ADDITIONAL EVIDENCES. THE AR HAS SUBMITTED THAT THE AO HAS NOT GIVEN REASONABLE OPPORTUNITY TO SUBMIT THESE DOCUMENTS DURING THE ASSESSMENT PROCEEDINGS. I HAVE CONSIDERED THE SUBMISSIONS OF THE AR AND NOTICED T HAT THESE DOCUMENTS ARE VERY CRUCIAL FOR DECIDING THIS ISSUE, THEREFORE, ADMITTED AS ADDITIONAL EVIDENCES BECAUSE THE AO HAS NOT CALLED FOR DURING THE ASSESSMENT PROCEEDINGS AND SENT BACK TO THE AO FOR RE - EXAMINING AND REMAND REPORT. THE AO HAS SUBMITTED T HE REMAND REPORT VIDE LETTER DATED 02.12.11, THE GIST OF WHICH IS REPRODUCED AS UNDER: 'THE AMOUNT ADVANCED BY M/S. KALPANA STRUCT CON PVT. LTD. (KSCPL) TO THE ASSESSEE HAS BEEN SHOWN AS 'LOANS & ADVANCES IN THE BALANCE - SHEET OF KSCPL (SCHEDULE 4 OF FY 2007 - 08 AND SCHEDULE 5 OF FY 2008 - 09). COPY OF RELEVANT PAGES OF THE BALANCE - SHEET AS ON 31.03.2008 & 31.03.2009 AS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS OF KSCPL ARE ENCLOSED HEREWITH AS ANNEXURE - 1. THE ASSESSEE IN ITS BALANCE - SHEET AS ON 31.03.20 08 & 31.03.2009 HAS CLEARLY SHOWN THE AMOUNTS RECEIVED FROM KSCPL UNDER THE HEAD 'UNSECURED LOANS' (AS PER SCHEDULE B). ITA NO. 1498&1499 / 1 2 15 COPY OF RELEVANT PAGES OF THE BALANCE - SHEETS AS ON 31.03.2008 & 31.03.2009 AS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS OF THE ASSESSE E ARE ENCLOSED HEREWITH AS ANENXURE - 2. COPY OF ACCOUNT CONFIRMATION SUBMITTED BY THE ASSESSEE IN RESPECT OF THE AMOUNTS RECEIVED FROM KSCPL FOR AYS. 2008 - 09 AND 2009 - 10 ALSO SHOWS ENTRIES OF INTEREST AS ON 31.03.2008 AND 31.03.2009. THESE INTEREST ENTRIE S HAVE CLEAR NARRATION AS 'INTEREST PAID ON LOAN' WHICH THE ASSESSEE HAS ALSO CLAIMED IN ITS P & I ACCOUNT AS 'INTEREST PAID ON LOAN' IN AYS. 2008 - 09 AND 2009 - 10. SIMILARLY, THESE AMOUNTS OF INTEREST HAVE BEEN SHOWN AS INCOME IN THE P & L ACCOUNT OF KSCPL AS 'INTEREST RECEIVED ON LOAN' FOR AYS. 2008 - 09 AND 2009 - 10. COPIES OF THESE DOCUMENTS ARE ENCLOSED HEREWITH AS ANNEXURE - 3. EVEN THE COPY OF LEDGER ACCOUNTS (ENCLOSED WITH YOUR LETTER DATED 25.11.2011) OF THE ASSESSEE IN THE BOOKS OF KSCPL, SUCH INTERE ST ENTRIES HAVE BEEN PASSED ON 31.03.2008 AND 31.03.2009 IN THE BOOKS OF KSCPL WHEREIN THE FOLLOWING HAS BEEN CLEARLY MENTIONED IN THIS REGARD - 'INTEREST RECEIVED LOAN'. SUCH AMOUNTS HAVE BEEN ADVANCED BY KSCPL TO THE ASSESSEE PRIOR TO 21.01.2008 ALSO A S IT CAN BE SEEN FROM THE LEDGER ACCOUNT OF THE ASSESSEE IN THE BOOKS OF KSCPL, BUT ALL OF SUDDEN THIS 'AGREEMENT OF FINANCE' IS APPEARING ON 21.01.2008. THIS RAISES DOUBTS ABOUT AUTHENTICITY AND GENUINENESS OF THIS AGREEMENT ITSELF. THIS AGREEMENT APPEARS TO BE AN ATTEMPT ON THE ASSESEE'S PART TO DIVERT ATTENTION FROM SUBSTANCE AND ACTUAL NATURE OF THESE TRANSACTIONS AND GIVE THEM A DIFFERENT COLOUR. EVEN, THE CONTENTS OF THE AGREEMENT OF FINANCE SUGGEST AND FURTHER STRENGTHENS THAT THE AMOUNT GIVEN BY K SCPL TO THE ASSESSEE IS LOAN/ADVANCE ONLY, AS RATE OF INTEREST (WHICH IS 9% IN THE PRESENT CASE) INTER ALIA IS ALSO AGREED UPON. MOREOVER, KSCPL HAS NOT ADVANCED ANY MONEY TO THE ASSESSEE FOR KSCPL'S OWN BUSINESS. EVEN AS PER THE AGREEMENT, KSCPL HAS AGREE D TO PROVIDE FINANCE TO THE ASSESSEE FOR THE ASSESSEE'S BUSINESS WHICH IS LOAN/ADVANCE ONLY AND THE SAME IS CLEARLY COVERED BY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. FOR SUCH FINANCE PROVIDED TO THE ASSESSEE, INTEREST IS CHARGEABLE BY KSCPL. REGARD ING COMMISSION OF 12% AS PROVIDED IN THE AGREEMENT, FIRSTLY IT IS MENTIONED THAT THERE IS NO TRUTH IN IT BECAUSE NEITHER THE ASSESSEE HAS CLAIMED ANY SUCH COMMISSION IN ITS P & L ACCOUNT FOR A YS. 2008 - 09 AND 2009 - 10 NOR KSCPL HAS SHOWN ANY SUCH COMMISSION INCOME IN ITS P & I ACCOUNT FOR AYS. 2008 - 09 AND 2009 - 10 ALTHOUGH THE ASSESSEE HAS DONE TRADING IN 12.5% PLOTS IN THESE YEARS. SECONDLY, BY PROVIDING SUCH A COMMISSION CLAUSE IN THE AGREEMENT THE ASSESSEE HAS JUST MADE AN ATTEMPT TO DIVERT ATTENTION FROM THE SUBSTANCE AND ACTUAL NATURE OF THESE TRANSACTIONS. EVEN AT THE COST OF REPETITION, IT IS AGAIN MENTIONED THAT KSCPL HAS NOT ADVANCES THESE AMOUNTS/MONEY TO THE ASSESSEE FOR KSCPL'S ON BUSINESS, AND ITA NO. 1498&1499 / 1 2 16 EVEN AS PER THE AGREEMENT, KSCPL HAS AGREED TO PROVIDE FINANCE TO THE ASSESSEE FOR THE ASSESSEE'S BUSINESS WHICH IS LOAN/ADVANCE ONLY. THEREFORE, THE IMPUGNED MONEY GIVEN BY KSCPL TO THE ASSESSEE CANNOT BE CALLED A BUSINESS ADVANCE BY EVEN ANY STRETCH OF IMAGINATION. THE FINANCE PROVIDED/AMOUNTS ADVANCED ARE CLEARLY COVERED BY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. FURTHER, SUCH A COMMISSION ELEMENT CAN AT THE BEST BE CALLED A COMPENSATION TOWARDS THE LOW INTEREST RATE OF 9% WHICH IS LOWER THAN THE PREVAILING MARKET RATE OF INTEREST. COPY OF RELEVANT P & L ACCOUNTS OF THE ASSESSEE AND KSCPL FOR AYS. 2008 - 09 AND 2009 - 10 ARE ENCLOSED HEREWITH AS ANNEXURE - A. KSCPL IS NOT AT ALL IN THE BUSINESS OF LENDING, AND THEREFORE THE IMPUGNED TRANSACTIONS ARE NOT EXCLUDED AS PER CLAUSE (II) OF SECTION 2(22)(E) OF T HE ACT. IN THIS CONNECTION, IT IS MENTIONED THAT NEITHER THE ASSESSEE HAS FURNISHED ANY CERTIFICATE/PROOF OF BFBC (NON - BANKING FINANCE COMPANY) IN RESPECT OF KSCPL TO SHOW THAT SUBSTANTIAL PART OF KSCPL'S BUSINESS IS THE BUSINESS OF LENDING OF MONEY FOR TH E ACCOUNTS OF KSCPL SUGGEST SO'. COPY OF THE REMAND REPORT WAS ALSO GIVEN TO THE ASSESSEE FOR HIS COMMENTS. THE AR OF THE APPELLANT HAS SUBMITTED ITS REPLY IN RESPONSE TO THE REMAND REPORT WHICH IS ALSO REPRODUCED AS UNDER: '1. IN POINT 2 OF THE REPORT THE AD MENTIONS TO HAVE ASKED THE ASSESSEE TO SHOW CAUSE WITH RELATION TO DEEMED DIVIDEND. HOWEVER, THE ISSUE REGARDING THE APPLICATION OF SECTION 2(22)(E) WAS NOT RAISED DURING THE ASSESSMENT AND THUS AN OPPORTUNITY TO REPRESENT THE MATTER SHOULD HAVE BE EN GIVEN ON THE BASIS OF NATURAL JUSTICE. 2. IN POINT 3.1 OF THE REPORT, THE AO HAS MENTIONED THAT ALL OF A SUDDEN. THIS AGREEMENT OF FINANCE ('AGREEMENT') IS APPEARING ON JANUARY 21, 2008. IN THIS REGARD, WE WISH TO INFORM YOU THAT THERE WERE MANY COR RESPONDENCES BETWEEN THE PARTIES IN THE FORM OF LETTERS APART FROM THE PERSONAL MEETINGS IN ACCORDANCE WITH THE CLAUSES OF THE AGREEMENT. AS PER THE AO'S REQUEST, THE SAID LETTERS WERE SUBMITTED WITH THE AO ON NOVEMBER 30 2011 WHICH ARE SUBMITTED. THE A GREEMENT WAS PRODUCED IN ORIGINAL BEFORE THE AO AS PER HIS REQUEST. ON PERUSAL OF THE AGREEMENT THE FOLLOWING POINTS SHOULD BE NOTED: A. THE AGREEMENT OF FINANCE IS A NOTARIZED AND A STAMPED AGREEMENT. B. THE AGREEMENT IS DULY SIGNED BY THE AUTHORIZED PERSON. ITA NO. 1498&1499 / 1 2 17 E. PRIOR TO ENTERING INTO THE AGREEMENT, BOTH THE PARTIES MADE SEVERAL MEETINGS AND EXCHANGED CORRESPONDENCES. D. THE AGREEMENT AS NOTED BEFORE WAS ENTERED INTO ON JANUARY 8, 2008 WHICH IMPLIES THAT THE AGREEMENT WAS AVAILABLE DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. E. THE PARTIES HAVE ACTED IN PURSUANCE OF THE AGREEMENT AND ACCORDINGLY A COMMISSION OF 12% IS PAID ON THE TOTAL SALE VALUE OF THE PLOT ALONG WITH NORMAL INTEREST ON FINANCE AMOUNT AS DECIDED UPON BY BOTH PARTIES FROM TIME TO TIME. F. IN THE FOUR YEARS FROM AY 2008 - 09 TO AY 20011 - 12, ONLY ONE SALE TRANSACTION HAS BEEN ENTERED INTO WHICH IS IN THE AY 2011 - 12 ON WHICH A COMMISSION OF 12% HAS BEEN PAID BY THE ASSESSEE TO T - T/S. KALPANA STRUCT CON PVT. LTD. TO EVIDENCE SAME, WE HAVE SUBMITTED THE PROFIT AND LOSS ALE. FOR ALL THE FOUR YEARS. G. THE AO ENQUIRES T - HAT ALTHOUGH TRADING HAS BEEN DONE DURING THE YEARS UNDER CONSIDERATION, NO COMMISSION HAS BEEN PAID. HOWEVER, AS PER THE TERMS OF THE AGREEMENT COMMISSION AT THE RAT E OF 12% IS PAYABLE ONLY ON THE SALE OF PLOTS AS SET OUT IN THE RELEVANT CLAUSE. ALSO, AS PER THE PROFIT AND LOSS ACCOUNT FILED WITH THE INCOME - TAX DEPARTMENT, NO SALE HAS BEEN EFFECTED DURING THE AY 2008 - 09 AND AY 2009 - 10. H. THE DEDUCTION OF TAX AT SOU RCE ON THE INTEREST AND COMMISSION AND THE PAYMENT THEREOF AS WELL THE QUARTERLY TDS RETURNS FILED WITH THE DEPARTMENT AUTHENTICATE AND VALIDATE THE GENUINENESS OF THE TRANSACTION AND THEREBY THE AGREEMENT. THE TDS RETURNS HAVE BEEN SUBMITTED. I. THE AO' S OBSERVATION THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCES OR PROOFS IS ERRONEOUS AS MENTIONED EARLIER, COPIES OF LETTERS EXCHANGED BETWEEN THE PARTIES TO THE AGREEMENT, PROFIT AND LOSS ACCOUNT FOR THE VARIOUS YEARS ALOGNWITH THE LEDGER COPIES AND AGRE EMENT HAVE ALREADY BEEN SUBMITTED BEFORE THE DEPARTMENT'. 4.4 FROM THE PERUSAL OF THE REMAND REPORT AND REPLY OF THE APPELLANT, IT IS NOTICED THAT THE ASSESSEE FIRM HAS RECEIVED LOAN/ADVANCE OF RS.1,14,63,383/ - FOR THE AY 2008 - 09 AND RS.2,06,66,690/ - FOR THE AY 2009 - 10. FROM THE SHAREHOLDING PATTERN IT IS TRUE THAT MRS. NIRMALA THUMAR HAS 10% OF THE COMPANY AND SUBSTANTIAL INTEREST WITH 23% SHARE IN THE INCOME OF THE FIRM. THE PROVISIONS OF SECTION 2(22)( E) ARE APPLICABLE AS PER THE ORDER OF THE AO BUT T HE CRUCIAL DOCUMENT, L.E. THE FINANCE AGREEMENT SUBMITTED BEFORE ME AND THE LEDGER ACCOUNT OF THE FIRM IN THE BOOKS OF THE COMPANY PROVES THIS FACT THAT LOANS/ADVANCES WERE RECEIVED BY THE FIRM ON THE BASIS OF ITA NO. 1498&1499 / 1 2 18 FINANCE AGREEMENT, I.E. FOR BUSINESS PURPOSES. THE INTEREST WAS PAID, TDS WAS DEDUCTED AND COMMISSION WAS TO BE PAID AT THE FINAL SALE/PURCHASE DEAL OF THE LAND. NOW, THE QUESTION ARISES WHETHER THE PROVISIONS OF SECTION 2(22)(E) ARE APPLICABLE IF THE LOAN IS TAKEN FOR BUSINESS PURPOSES. IN THE REMAND REPORT, THE AO HAS STRONGLY REJECTED THE ARGUMENTS OF THE' APPELLANT THAT IT IS NOT A BUSINESS TRANSACTION. BUT, ON THE OTHER HAND, THE AR OF THE APPELLANT HAS RELIED ON THE FINANCE AGREEMENT AND LEDGER ACCOUNT IN THE BOOKS OF THE COMPANY THAT IT WAS A BU SINESS TRANSACTION CLEARLY RECORDED IN THE BOOKS OF ACCOUNT THAT LOAN WAS RECEIVED TO INVEST IN THE LAND AND THE INTEREST WAS PAID AND COMMISSION WAS TO BE PAID AT THE FINAL SALE OF THE LAND. THE AO HAS ARGUED THAT COMMISSION HAS NOT BEEN REFLECTED IN THE AYS. 08 - 09 & 09 - 10 BUT THE AR OF THE APPELLANT HAS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE LAND WAS PURCHASED AND NOT SOLD, THEREFORE, THE QUESTION OF SHOWING ANY COMMISSION DOES NOT ARISE. FROM THESE FACTS IT IS CLEAR THAT THE ASSESSEE FIR M HAS RECEIVED LOAN FROM THE GROUP COMPANY IN BOTH THE YEARS BUT THE FACTOR IS TO DECIDE THE ISSUE WHETHER IT IS COVERED UNDER THE PROVISIONS OF SECTION 2(22)(E) IS TO PROVE THAT WHETHER IT WAS A BUSINESS TRANSACTION. TO ANSWER THIS QUESTION, IT IS VERY CL EAR FROM THE FINANCE AGREEMENT SUBMITTED BY THE AR OF THE APPELLANT THAT IT WAS A BUSINESS TRANSACTION AND THE LOAN WAS TAKEN FOR PURCHASING THE LAND AND COMMISSION WAS TO BE PAID ON IT. SINCE THE LAND WAS NOT SOLD IN THE YEAR UNDER CONSIDERATION, THEREFOR E, NO COMMISSION PAYMENT HAS BEEN SHOWN. THUS, ,IT PROVES THAT IT IS CLEARLY A BUSINESS TRANSACTION. TO STRENGTHEN ITS VIEW, THE AR OF THE APPELLANT HAS ALSO RELIED ON THE DECISION OF THE HON'BLE COURTS IN CASE OF (I) CIT VS. RAJKUMAR (318 ITR 462), (II) C IT VS. AMBASSADOR TRAVELS P. LTD. (318 ITR 376) AND (III) CIT VS. URMILA RAMESH (230 ITR 422) WHERE IT IS HELD AS UNDER: 1. 318ITR 462 (DELHI HC) - CIT VS RAJKUMAR THE WORD 'ADVANCE' HAS TO BE READ IN CONJUNCTION WITH WORD 'LOAN'. USUALLY ATTRIBUTES OF A LOAN ARE THAT IT INVOLVES POSITIVE ACT OF LENDING COUPLED WITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN: IT GENERALLY CARRIES AN INTEREST AND THERE IS AN OBLIGATION OF REPAYMENT. ON THE OTHER HAND, IN ITS WIDEST MEANING, THE TERM 'ADVANCE' MAYO R MAY NOT INCLUDE LENDING. THE WORD 'ADVANCE', IF NOT FOUND IN THE COMPANY OF OR IN CONJUNCTION WITH A WORD ' LOA N', MAYOR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES, THEN IT WOULD BE A LOAN. THUS, THERE ARISES THE CONUNDRUM AS TO WHAT MEANING ONE WOULD ATTRIBUTE TO THE TERM 'ADVANCE'. THE RULE OF CONSTRUCTION WHICH ANSWERS THIS CONUNDRUM IS NOSCITUR A SOCIIS- CIT V. RAJ KUMAR [2009J 181 TAXMAN 155/318 ITR 462 (DELHI). (PAPER BOOK PAGE 12 TO 22) 2. 318 ITR 376 BENCH: DELHI HC - CIT VS AMBASSAD OR TRAVELS P. LTD., ITA NO. 1498&1499 / 1 2 19 ASSESSEE ENTERED INTO BUSINESS TRANSACTIONS WITH TWO COMPANIES AND HAD FINANCIAL TRANSACTIONS WITH THEM. AO ON THE BASIS OF SHAREHOLDING PATTERN CONCLUDED THE FINANCIAL TRANSACTIONS AS DEEMED DIVIDEND. THE ASSESSEE HAD ENTERED INTO NO RMAL BUSINESS TRANSACTIONS WITH THE TWO COMPANIES AS PART OF ITS DAY TO DAY BUSINESS ACTIVITIES. THE FINANCIAL TRANSACTIONS IN ANY CIRCUMSTANCES COULD NOT BE TREATED AS LOANS OR ADVANCES AND SECTION 2(22)(E) WAS NOT APPLICABLE. (PAPER BOOK PAGE 23) 3. CI T V. U RMILA RAMESH [1998J 96 TAXMAN 533/230 ITR 422 (SC). SECTION 2(22) HAS USED THE EXPRESSION 'ACCUMULATED PROFITS', WHETHER CAPITALISED OR NOT. THIS EXPRESSION TENDS TO SHOW THAT UNDER SECTION 2(22) IT IS ONLY THE DISTRIBUTION OF THE ACCUMULATED PROFI TS WHICH ARE DEEMED TO BE DIVIDENDS IN THE HANDS OF THE SHAREHOLDERS. BY USING THE EXPRESSION 'WHETHER CAPITALISED OR NOT' THE LEGISLATIVE INTENT CLEARLY IS THAT THE PROFITS WHICH ARE DEEMED TO BE DIVIDEND WOULD BE THOSE WHICH WERE CAPABLE OF BEING ACCUMUL ATED AND WHICH WOULD ALSO BE CAPABLE OF BEING CAPITALISED. THE AMOUNTS SHOULD, IN OTHER WORDS, BE IN NATURE OF PROFITS WHICH THE COMPANY COULD HAVE DISTRIBUTED TO ITS SHAREHOLDERS. THIS WOULD CLEARLY EXCLUDE RETURN OF PART OF A CAPITAL TO THE COMPANY, AS T HE SAME CANNOT BE REGARDED AS PROFIT CAPABLE OF BEING CAPITALISED, THE RETURN BEING OF CAPITAL ITSELF. PROFITS MEAN ONLY COMMERCIAL PROFIT - (PAPER BOOK PAGE 24 TO 35)'. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND DECISION OF THE HON'BLE COURT S, IT IS HELD THAT THE ADVANCE RECEIVED BY THE ASSESSEE FIRM WAS PURELY A COMMERCIAL TRANSACTION AND THE PROVISIONS OF SECTION 2(22)( E) IS NOT APPLICABLE AS PER THE DECISION OF HON'BLE COURTS. THEREFORE, THE ADDITIONS MADE BY THE AO ARE NOT SUSTAINABLE, H ENCE DELETED. THE GROUND OF APPEAL IS ALLOWED. AGAINST THE ABOVE ORDER OF CIT(A), REVENUE IS IN APPEAL BEFORE US. 9 . IT WAS ARGUED BY LD. DR THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS. 3,41,90,000/ - MERELY ON THE PLEA THAT IT WAS A DOUBLE ADDITION. HE FURTHER SUBMITTED THAT THE ASSESSEE FILED RETURN FOR THIS YEAR ON 9 - 7 - 2008 DECLARING INCOME OF RS.65,77,480/ - . THIS RETURN WAS FILED PRIOR TO THE DATE OF SEARCH. A SEARCH AND SEIZURE ACTION WAS CARRIED OUT AT THE BUSINESS PREMISES OF TH E ASSESSEE ON 18/2/2009. AFTER THE ISSUE OF NOTICE UNDER SECTION 153C OF THE INCOME TAX ACT, ASSESSEE FILED RETURN 9/8/2010 DECLARING INCOME OF RS 2,97,67,480/ - . IN THIS RETURN ASSESSEE ITA NO. 1498&1499 / 1 2 20 HAS DECLARED ADDITIONAL INCOME OF RS. 2,31,90,000/ - . THIS ADDITIONAL IN COME DECLARED WAS COMPOSED OF FOLLOWING (1) UNDISCLOSED INCOME DECLARED ON THE SALE OF PLOT NO 31 SECTOR 47, DRONAGIRI 1,95,00,000/ - . (2) ON ACCOUNT OF UNDISCLOSED CASH PA Y MENTS IN RESPECT OF PURCHASE OF PLOT NO 115 SECTOR 48 36, 90,000/ - . AND IN RESPECT OF PLOT NO 14 SECTOR 52 . 10 . AS PER LD. DR, THE A SSESSEE FILED ANOTHER REVISED RETURN OF INCOME ON 21/10/2010 IN WHICH HE DISCLOSED ADDITIONAL INCOME OF RS . 3,05,00,000/ - ON THE SALE OF PLOT NO 31 SECTOR 47 DRONAGIRI. INCO ME DECLARED AS PER THIS RETURN OF INCOME FILED IS RS. 6,02,67,48 0 / - . THE ASSESSING OFFICER HAS COMPUTED THE TAXABLE INCOME OF RS . 19,14,26,645/ - . WHILE COMPUTING TAXABLE INCOME, ASSESSING OFFICER TAKEN THE INCOME, DECLARED BY THE ASSESSEE IN THE RETURN OF I NCOME FILED ON 9/8/2010, AS BASE. HOWEVER, THE ASSESSING OFFICER SHOULD HAVE TAKEN INTO CONSIDERATION INCOME SHOWN IN THE RETURN OF INCOME FILED ON 21/10/10 AS BA S E. HAD INCOME DECLARED IN THE RETURN OF INCOME FILED ON 21/10/10 AS BASE, THE DETERMINATION OF TOTAL INCOME SHOULD HAVE BEEN AS UNDER: - INCOME IS DECLARED BY THE ASSESSEE IN THE SECOND REVISED RETURN RS.6,02,67,480/ - ADDITION ON ACCOUNT OF PROFIT ON SALE OF DRONAGIRI PLOT PROFIT AS COMPUTED BY THE ASSESSING OFFICER IN PARAGRAPH 7.2.9 L ESS PROFIT .LECLARED BY ASSESSEE IN RS. 11,98,80,000 VARIOUS IN RETURNS (1) SHOW IN ORIGINAL RETURN RS. 96,80,220/ - (2) DECLA RED IN RETURN FILED ON INCOME SHOW IN RETURN FILED ON 21/8/2010 RS. 1,95,00,000 (3) SHOWN I N THE RETURN FILED ON 21/1 0/ 10 RS.3,05,00,000 TOTAL RS.5,96,80,220/ - ITA NO. 1498&1499 / 1 2 21 ADDITION (11,98,80,000 -- 5,96,80,220/ - ) RS.6,01,99,780/ - ON ADDITION MADE U/ S 69C RS.5,94,96,000/ - ADDITION MADE U/ S 22(E) RS.1,14,63,383/ - TOTAL INCOME RS.19,14,26,643/ - IN VIEW OF THE ABOVE, LD. DR CONTENDED THAT AS SESSING OFFICER HAS NOT MADE ANY SEPARATE ADDITION OF RS 36,90,000/ - AND RS 3,05,00,000/ - THOUGH HE HAS DISCUSSED THE ISSUE IN THE ASSESSMENT ORDER THESE AMOUNT S WERE DECLARED AS INCOME BY THE ASSESSEE HIMSELF . HOWEVER IN PARA 3.3 OF THE ORDER CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOW CREDIT OF RS 36,90,000/ - AND RS 3,05,00,000/ - . AS EXPLAINED ABOVE, THE ASSESSING OFFICER HAS NOT MADE ANY ADDITION OF THESE TWO AMOUNTS WHILE COM PUTING THE TAXABLE INCOME. HENCE THERE IS NO DOUBLE ADDITION OF RS 36,90,000/ - AND NO NON ALLOWANCE OF DECLARED INCOME OF RS 3,05,00,000/ - . HENCE, SUBMISSIONS OF THE ASSESSEE TAKEN BEFORE CLT(A) AND REPRODUCED IN PARA 3.2 OF THE ORDER OF THE CIT(A) IS WIT HOUT BASIS. HENCE THESE DIRECTIONS OF THE CIT(A) ARE WITHOUT ANY BASIS AND ARE REQUIRED TO BE REVERSED. 11 . WITH REGARD TO THE DELETION OF ADDITION MADE U/S.69C, THE CONTENTION OF LD. DR WAS THAT THE ASSESSEE SOLD PLOT NO 31 SECTOR 47 ORONAGIRI DURING THE YEAR UNDER CONSIDERATION ON 16/1/2008. THIS PLOT WAS PURCHASED ON 24/4/2007. PROFIT ON THE SALE OF THIS PLOT WAS DULY SHOWN IN THE RETURN INCOME FILED BY THE ASSESSEE ON 9/7/2008. HOWEVER, DURING SEARCH OPERATION IT WAS FOUND THAT ASSESS HAS RECEIVED CASH AMOUNT OF RS 10,65,00,000/ - AT THE TIME OF SALE IN ADDITION TO RECEIPT OF RS 3,25,00,000/ - BY CHEQUE (ANNEXURE 0 - 1 OF THE ASSESSMENT ORDER). WHILE ITA NO. 1498&1499 / 1 2 22 CHEQUE AMOUNT OF RS 3.25 CRORE WAS DULY TAKEN INTO CONSIDERATION WHILE COMPUTING INCOME IN THE RETURN OF IN COME FILED ON 9/7/2008 BUT AMOUNT RECEIVED IN CASH WAS NOT DISCLOSED. DURING ASSESSMENT PROCEEDINGS TAKEN AFTER THE DATE OT SEARCH, ASSESSEE DECLARED ADDITIONAL INCOME OF RS 5,00,00,000/ - ON THIS ACCOUNT IN THE RETURNS OF INCOME FILED ON 9/8/2010 AND FILE D 21/10/2010 ON AMOUNT RECEIVED IN CASH ON SALE OF PLOT. ASSESSEE CLAIMED THAT ITS UNDISCLOSED INCOME SHOULD BE COMPUTED AS UNDER. - UNEXPLAINED CASH RECEIPT RS.10,95,00,000/ - LESS EXPENSES ON ACCOUNT PAYMENT MADE TO PERSONS WHO SOLD THE PLOT TO ASSES SEE RS.5,94,96,000/ - CASH PAID TO MITRA MANDAL,AGENTS ETC. RS.3,05,00,000/ - UNDISCLOSED INCOME (IGNORING RS 4000/ - ) RS.1,95,00,000 IN VIEW OF THE ABOVE, AS PER LD. DR THE ASSESSEE HAD DECLARED UNDISC LOSED INCOME OF RS 1,95,00,000/ - IN THE RETURN OF INC OME FILED ON 9/8/2010. LATER ON ASSESSEE WITHDREW ITS CLAIM OF EXPENSES OF RS 3,05,00,000/ - , BEING EXPENSES ON ACCOUNT OF PAYMENT MADE TO MITRA MANDAL S AND AGENTS ETC AND OFFERED THIS AMOUNT TO TAX IN THE RETURN OF INCOME FILED ON 21/10/2010. THUS, IT WAS THE CLAIM OF THE ASSESSEE BEFORE ASSESSING OFFICER THAT ITS UNDISCLOSED INCOME ON THE SALE OF PLOT NO 31 SECTION 47 ORONAGIRI SHOULD BE COMPUTED AT RS 5,00,00,000/ - AFTER TAKING INTO ACCOUNT EXPENSES INCURRED IN CASH AMOUNT TO 5,94,96 , 000/ - , BEING PAYMEN T MADE TO PERSONS WHO SOLD PLOT TO THE ASSESSEE. 1 2 . HOWEVER, THE CONTENTION OF LD. DR WAS THAT ASSESSING OFFICER ACCEPTED THE FACT THAT ASSESSEE HAS INCURRED EXPENSES OF RS . 5,94,96,000/ - . ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT IT MADE THE PAYMENT OF RS 5,94,96,000/ - . AS PER LD. DR THE ITA NO. 1498&1499 / 1 2 23 AO WAS JUSTIFIED IN MAKING SEPARATE ADDITION OF RS. 5,94,96,000/ - U/S.69C OF THE I.T. ACT. 1 3 . WITH REGARD TO THE APPLICABILITY OF SECTION 2(22)(E) THE CONTENTION OF LD. DR WAS THAT CIT (A) IS N OT JUSTIFIED IN HOLDING THAT AMOUNTS WERE ADVANCED BY THE ASSESSEE FOR BUSINESS PURPOSE. IT MAY BE NOTED THAT REAL NATURE OF AMOUNTS ADVANCED IS LOAN AND NOT BUSINESS AS CLAIMED BY THE ASSES SEE. AS PER LD. DR, THE ASSESSEE HAS NOT SHARED ANY THE RISK OF, B USINESS WITH THE ASSESSEE. THE ASSESSEE HAS AGREED TO PAY INTEREST PER ANUM AND COMMISSION AT THE TIME OF SALE. M/ S KSCPL IS GETTING INTEREST. FURTHER AS PER THIS FINANCE AGREEMENT, ON TERMINATION OF AGREEMENT, KSCPL WILL BE GETTING THE AMOUNT BACK. (PB - 42 'TERM AND VALIDITY'). THUS M/ S KSCPL HAS NOT SHARED THE RISK OF LOSS. IT IS ALSO NOT SHARING PROFITS. IT IS ONLY ENTITLED TO COMMISSION IF PLOT PURCHASED WITH FINANCE ARE SOLD FOR PROFIT. 1 4 . ON THE OTHER HAND, LD. AR RELIED ON THE FINDINGS RECORDED BY CIT(A) AND CONTENDED THAT THE DEPARTMENT WAS NOT JUSTIFIED IN IGNORING THE ENTRY IN THE SAME SEIZED DOCUMENT WHICH INDICATED PAYMENT OF RS.5,94,96,000/ - AND AT THE VERY SAME TIME ACCEPTING CHEQUE PAYMENT OF RS.2,22,00,000/ - . 15 . WE HAVE CONSIDERED RIVAL C ONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO GONE THROUGH THE STATEMENT ON OATH OF SHRI AJIT G. THUMAR RECORDED U/S.131 OF THE ACT, DATED 19 - 2 - 2009 DURING THE COURSE OF SURVEY U/S.133A OF THE ACT IN THE CASE OF M/S PAT HIK CONSTRUCTIONS/M/S KALPANA CONSTRUCTION LTD. WE HAD ALSO GONE THROUGH THE STATEMENT OF SHRI CHATURBHAI KARSANBHAI THUMAR RECORDED ITA NO. 1498&1499 / 1 2 24 U/S.132(4) OF THE ACT ON 1 - 5 - 2009 AT THE OFFICE OF DDIT(INVESTIGATION). WE HAD ALSO GONE THROUGH THE TERMS AND CONDITIONS O F MEMORANDUM OF UNDERSTANDING EXECUTED BETWEEN JAI GANESH CO - OPERATIVE HOUSING SOCIETY ON THE ONE PART AND JAYENDRA CHANDRAKANT NAIK , 2) SUDHA CHANDRAKANT NAIK, 3) VIJAY CHANDRAKANT NAIK, 4) RATAN SUDHAKAR MHATRE 5) NIVAS CHANDRAKANT NAIK, 6) ASHOK CHANDRA KANT NAIK 7) SANGEETA UDAY CHEMBURKAR 8) DEEPA DEEPAK THAKUR 9) DATTATRAY VINAYAK DARNE 10) DILIP DATTATRAY DARNE 11) RANJAN A SUNIL SAKOLKAR 12) SANJA Y DATTATRA Y DARNE 13) SULBHA RAJ RAO 14) BHARTI KRUSHNAKANT ACHARKAR 15) SADANAND GAJANAN MHAT RE 16) SATY AV AN GAJANAN MHA TRE 17) SUNANDA SUDHAKAR MHATRE 18) MANGESH SUDHAKAR MHATRE 19) MAHESH SUDHAKAR MHATRE , 20) PARAKASH SUDHAKAR MHA TRE 21) MANISHA SUDHAKAR MHA TRE 22) DADAJI GANPAT THALL, 23) KASHIATH SHANKAR MHATRE 24) KAMLAKAR SHANKAR MHATRE 25) PRA TIBH A PRABHAKAR MHATRE 26) NILESH PRABHAKAR MHA TRE 27) SHISHIR PRABHAKAR MHA TRE 28) PARAG JAYWANT NAIK 29) RAJA RAM HART PATIL 30) VASANT RAMKURSHNA PATIL 31) RAMESH RAMKURSHNA PATIL 32) BALCHANDRA RAMKRUSHNA PATIL 33) MALTI RAMAKANT MHATRE 34) KUSUM SURESH NAIK 35) TARABAI NARAYAN THAKUR 36) ARUN DATTATRAY NAIK 37) RAMCHANDRA BALKRUSHNA KUTH E. FROM THE RECORD, WE FOUND THAT IN THE ORIGINAL RETURN THE ASSESSEE HAS DECLARED INCOME OF RS. 96,80,220/ - . ANOTHER REVISED RETURN WAS FILED ON 21 - 10 - 2010 IN WHICH ASSES SEE HAS ITA NO. 1498&1499 / 1 2 25 DISCLOSED ADDITIONAL INCOME OF RS. 3,05,00,000/ - . THUS, THE ADDITIONAL INCOME OF RS. 3,05,00,000/ - WAS ACCEPTED BY THE DEPARTMENT AND WHILE COMPUTING THE TOTAL INCOME THE AO HAS TAKEN THE SAME INTO ACCOUNT. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATI ON ON THE PART OF THE CIT(A) FOR DELETING THE ADDITION OF RS. 3,05,00,000/ - ON THE PLEA THAT SAME WAS DOUBLE ADDITION. SIMILARLY, A SUM OF RS. 36,90,000/ - WAS DIRECTED BY THE CIT(A) TO BE DELETED ON THE PLEA THAT IT WAS DOUBLE ADDITION. HOWEVER, THERE IS NO SUCH DOUBLE ADDITION. ACCORDINGLY, WE SET ASIDE THE ORDER OF CIT(A) INSOFAR AS HE HAS DELETED THE ADDITION OF RS. 3,05,00,000/ - AND RS. 36,90,000/ - . WE DIRECT ACCORDINGLY. 16. WITH REGARD TO THE ADDITION MADE U/S. 69C AND 40A(3) ON THE BASIS OF ANNEXURE0 - 2, THE AO ON PAGE 11 OF THE ASSESSMENT ORDER HAS HELD THAT THE MOU DTD. 20.04.2007 IS NOT RELIABLE AS HE DOUBTS THE AUTHENTICITY AND CREDIBILITY OF THE SO - CALLED MOU. THE AO ALSO FOUND THAT THE MOU WAS UNSIGNED. ABOUT THE UNSIGNED MOU, IT IS NOT IN DISPUTE T HAT THE SAID DOCUMENT HAS BEEN FOUND AND SEIZED BY THE SEARCH PARTY AND IT IS NOT A DOCUMENT SUBMITTED BY THE ASSESSEE FIRM BEFORE THE AO. FURTHERMORE, WHEN THE OTHER UNSIGNED DOCUMENTS/PAPERS PARTICULARLY ANNEXUREO - 2 FOUND AND/OR SEIZED CAN BE ADMITTED AND TAKEN AS EVIDENCE, THE SAID UNSIGNED MOU SHOULD ALSO BE ADMITTED AS A WHOLE AND NO DIFFERENT TREATMENT CAN BE METED OUT TO THE MOU ALONE. HOWEVER, THE FACTS AND FIGURES SHOWN IN THE ANNEXURE O - 2 IS FURTHER SUPPORTED BY: - I) THE DETAILED STATEMENTS REC ORDED U/S.132 ON 19.02.2009 FROM SHRI AJIT THUMAR AND FROM SHRI CHATURBHAI THUMAR ON 01.05.2009(Q.NO.13 TO 20 AND II) ALSO MOU STATED ABOVE. ITA NO. 1498&1499 / 1 2 26 17. IT IS PERTINENT TO MENTION THAT ON 22.01.2009 (SEARCH DATE) THE SEARCH PARTY COULD COME ACROSS ONLY THE UNSI GNED MOU DTD. 20.04.2007 BUT THE SAID DRAFT MOU WAS SIGNED BY ALL THE PARTIES TO THE AGREEMENT ON STAMP PAPER OF RS. 100 ISSUED TO J AI GANESH CHS ON 19.04.2007. T HE AO HIMSELF IN PARA 7.2.5 (PAGE 11) OF THE ASSESSMENT ORDER, HAD STATED THAT THE ASSESSEE HAD SUBMITTED A XEROX COPY OF THE MOU SI GNED BY THE RELATED PARTIES. THE AO HAS NOT MADE ANY FINDING TO THE EFFECT THAT THE SAID SIGNED MOU (WHICH IS THE FAIR COPY OF THE DRAFT UNSIGNED MOU) IS BOGUS OR MADE WITH A MALAFIDE INTENTION. IT IS ALSO CLARIFIED THA T THE (I) UNSIGNED COPY OF THE MOU AND (II) SIGNED COPY OF THE SAME MOU ARE ONE AND THE SAME AND THE A O HAS NOT FOUND ANY DIFFERENCE OF EVEN A COMA OR FULL STOP IN THE SAID TWO COPIES OF THE SAME DOCUMENT. WE FOUND THAT CASH RECEIPT OF RS 10.65 CR. APPEAR E D IN THE ASSESSMENT ORDER ON PARAS 6.1 & 6.2 ON PAGE 3; PARAS 6.2.1,6.2.2 & 6.2.3 ON PAGE 4 AND IN OTHER PARAS. MORE SPECIFICALLY, IN PARA 6.2.1 (PAGE 4), THE A O HIMSELF STATES THAT THE INFORMATION OF CASH PAYMENT OF RS 10.65 CR. WAS GATHERED FROM THE DOCU MENTS SEIZED (ANN. 0 - 1 - PAGE 229) FROM THE OFFICE OF MADAN KOLAMBEKAR. IN PARA 6.2.2 (PAGE 4 OF ASST. O RDER) THE AO ALSO STATES A BOUT INDEPENDENT CONFIRMATION THAT RS 10.65 CR. HAS BEEN RECEIVED BY THE ASSESSEE FIRM. THE ANN. 0 - 1 (PAGE 221) WAS NOT A DOCU MENT GENERATED BY THE ASSESSEE BUT WAS S E IZED BY THE SEARCH PARTY FROM THE OFFICE OF MADAN KOLAMBEKAR. THIS PAGE 221 IS A STATEMENT SHOWING 'DEVELOPMENT CHARGES' INCURRED BY MADAN KOLAMBEKAR. THE VERY FIRST ENTRY IN THIS STATEMENT OF 'DEVELOPMENT CHARGES' IS FOR PAYMENT MADE IN THE NAME OF PATHIK CONSTRUCTIONS FOR RS . 10.65 CR. HENCE ALL THE ITA NO. 1498&1499 / 1 2 27 TRANSACTIONS IN RESPECT OF THE LAND ARE EITHER TO BE ACCEPTED IN FULL OR REJECTED IN FULL AS THERE CANNOT BE SELECTIVE TREATMENT FOR SOME AMOUNTS. ANOTHER SEIZED PAPER A NN. 0 - 2 (WHICH IS PAGE NO. 92 OF THE IMPOUNDED 'LOOSE PAPER FILE') STATES ABOUT THE 'PAYMENT DETAILS' TO J AI GANESH CHS., AS UNDER: - A. CHEQUE RS 2,22,00,000 B. CASH RS 5,94,96,000 18. SINCE THE DEPT. HAS NOT DISPUTED THE AMOUNTS OF TRANSACTIONS AN D THEY HAVE ALSO NOT DISPUTED ABOUT THE CHEQUE COMPONENT OF RS 2,22,00,000 IN THE SAID TRANSACTION. BUT WHEN THE QUESTION OF CAS H PAYMENT OF RS 5,94,96,000 TO J AI GANESH CHS COMES, THE DEPT. IS NOT WILLING TO ACCEPT THE SAME. AS PER OUR CONSIDERED VIEW, IF AT ALL THE SAID LOOSE PAPER 0 - 2 CAN BE RELIED UPON, IT SHOULD BE RELIED UPON AS A WHOLE, I.E., BOTH THE AMOUNTS OF CHEQUE AND CASH SHOULD BE RECOGNISED. THUS, THE DEPT. CANNOT ADMIT THE EVIDENCE SELECTIVELY (AND ONLY A PART) WHICH IS IN THEIR FAVOUR. FOR THIS PURPOSE, RELIANCE CAN BE PLACED ON THE FOLLOWING DECISIONS: - I) CIT VS ANANT SWARUP KHANDELWAL (2009) (177 TAXMANN 450)(DEL) II) CIT VS P 0 ABRAHAM (349 ITR 442 - KER.) III) DHANVARSHA BUILDERS & DEVELOPERS VS DCLT (105 ITJ 376(PUNE ITAT)] 19 . DURING THE COURSE OF HEARING, OUR ATTENTION WAS DRAWN TO THE LAND TRANSACTION IN RESPECT OF DRONAGIRI PLOT WAS AS PER A REGD. TRIPARTITE AGREEMENT DT. 16.01.2008 BETWEEN CIDCO, M/ S PATHIK CONSTRUCTIONS AND ICONIC REALTORS. IN PARA 7.2 OF THE ASST. ORDER (PAGE 9 - LAST TWO LINES) THE AO HAS HIMSELF NOTED THAT 'AS PER THE MOU, THE AMOUNT OF ITA NO. 1498&1499 / 1 2 28 RS . 5,94,96,000 WAS TO BE PAID TO THE RESPECTIVE MEMBERS OF THE SOCIETY (I.E., JAI GANESH SOCIETY) AT THE TIME FINAL SELLING OF THE PLOT TO ANOTHER PARTY OR ON OR BEFORE 31.01.2008 WHICHEVER IS EARLIER. ACCORDINGLY THE CASH PAYMENT MADE TO THE CHS WAS MADE DIRECTLY BY ICONIC REALTORS BUT ON BEHALF OF M/S PATHIK CONSTRUCTIONS SO THAT THE TRANSACTION CAN BE COMPLETED EXPEDITIOUSLY. HENCE, TAXING M/S PATHIK CONSTRUCTION ON T HIS ACCOUNT DOES NOT ARISE AS NO PAYMENT HAS BEEN MADE BY THE ASSESSEE FIRM IN CASH. THEREFORE, PROVISIONS OF SECTION 69C OR 40A(3) ARE NOT APPLICABLE IN THE ASSESSEE FIRMS CASE. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) DELETING TH E ADDITION OF RS.5,94, 96,000/ - . ACCORDINGLY, GROUND NO.2 OF REVENUES APPEAL IS DISMISSED. 20 . WITH REGARD TO THE ADDITION MADE BY THE AO UNDER THE HEAD DEEMED DIVIDEND U/S.2(22)(E) OF THE ACT, WE FOUND THAT ASSESSEE IS NOT A SHAREHOLDER OF M/S KALPANA ST RUCT CON (P) LTD. AS PER FINDINGS RECORDED BY CIT(A) IN PARA 4.4 (PAGE 15 - 17) OF THE A PPELLATE ORDER. AT THE TIME OF HEARING, THE LD. A.R. HAS DRAWN OUR ATTENTION TO THE ORDER OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. IMPACT CONTAINERS PVT. LTD. IN INCOME TAX APPEAL NO. 114 OF 2012 DATED JULY, 4, 2014 WHEREIN EXACTLY SIMILAR ISSUE OF ADDITION U/S 2(22(E) WAS BEFORE THE HONBLE BOMBAY HIGH COURT AND IT WAS HELD AS UNDER: - IN THESE APPEALS WHICH HAVE BEEN FILED BY THE REVENUE THE CHALLENGE IS TO THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL HOLDING THAT THE PROVISIONS OF SECTION 2(22) (E) OF INCOME TAX ACT 1961 (FOR SHORT '1. T. ACT) CANNOT BE INVOKED AS THE ASSESSEE COMPANY WAS NOT A SHAREHOLDER IN THE LENDING COMPANY. THE ARGUMENT IN ALL TH ESE APPEALS ON BEHALF OF THE REVENUE IS THAT, THOUGH THE ASSESSEE IS A COMMON SHAREHOLDER WITH CONTROLLING ITA NO. 1498&1499 / 1 2 29 STAKE IN THE LENDING COMPANY, THE TRIBUNAL FOUND THAT SECTION 2(22) (E) OF THE I.T. ACT IS NOT ATTRACTED AND THIS FINDING RAISES A SUBSTANTIAL QUEST ION OF LAW. 2. IT WAS THEN CONTENDED THAT THE INCOME TAX APPELLATE TRIBUNAL HAS - APPLIED THE RATIO OF ITS OWN SPECIAL BENCH DECISION IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX V/S BHAUMIK COLOUR PVT. LTD REPORTED IN 2009 (313) ITR (AT) 146(MUMBAI) (SB), EQUALLY THE INCOME TAX APPELLATE TRIBUNAL HAS PROCEEDED ON THE FOOTING THAT THE VIEW TAKEN IN THE CASE OF BHAUMIK COLOUR PVT LTD(SUPRA) HAS BEEN APPROVED BY THE DIVISION BENCH OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S UNIVERSAL MED ICARE PVT. LTD. REPORTED IN 2010 (324) ITR 263 (BOM.). 21. IT WAS HELD BY THE HONBLE BOMBAY HIGH COURT THAT INSOFAR AS THE ASSESSEE COMPANY WHICH IS NOT A SHAREHOLDER IN ANY OF THE ENTITIES WHICH HAVE ADVANCED AND LENT SUMS, NO ADDITION IS REQUIRED TO B E MADE U/S 2(22)(E) OF THE ACT. IN THE INSTANT CASE, THE LD. CIT(A) RECORDED A CATEGORICAL FINDING TO THE EFFECT THAT THE ASSESSEE IS NOT A SHAREHOLDER OF M/S KALPANA STRUCT CON ., THEREFORE, THE AMOUNT RECEIVED BY THE ASSESSEE IS NOT LIABLE TO BE TAXED U/ S 2(22)(E) OF THE ACT. THIS FINDING OF THE LD. CIT(A) HAS NOT BEEN CONTROVERTED BY THE LD. D.R. BY BRINGING ANY POSITIVE MATERIAL ON RECORD. THE ITAT SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOURS PVT. LTD. 118 ITD 1 HELD THAT PROVISIONS OF SECTIO N 2(22)(E) CAN BE APPLIED ONLY IN THE HANDS OF THE BENEFICIAL AND REGISTERED SHAREHOLDER OF THE COMPANY WHICH HAS GIVEN LOAN. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT AND ITAT SPECIAL BENCH, AS DISCUSSED ABOVE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) FOR DELETING THE ADDITION MADE U/S 2(22)(E) OF THE ACT. 22 . THE CIT(A) HAS RELIED ON THE COPY OF THE FINANCE AGREEMENT A N D HELD THAT THE LOAN IN QUESTION WAS FOR BUSINESS PURPOSE. THE CLT(A) FURT HER WENT THROUG H THE MATTER AND NOTED THAT THE AO DID NOT AGREE WITH THIS STAND MAINLY BECAUSE THE 'ELEMENT OF COMMISSION' MENTIONED IN THE ITA NO. 1498&1499 / 1 2 30 AGREEMENT HAS NOT BEEN REFLECTED IN THE AYS 2008 - 09 AND 2009 - 10. THE CIT(A) HIMSELF LOOKED INTO THE FACTS IN THIS CONNECTION (PAGE 16 OF CIT(A)S ORDER ) AND AFTER DUE CONSIDERATION HAS C OME TO THE CONCLUSION THAT IT IS CLEARLY A BUSINESS TRANSACTION. IN THE FOLLOWING DECISIONS IT WAS HELD THAT TRADE ADVANCES DO NOT FALL WITHIN THE AMBIT OF PROVISION OF SECTION 2(22) (E) . - TRADE ADVAN CES' DO NOT FALL WITHIN THE AMBIT OF PROVISION OF SECTION 2(22) - CLT V CREATIVE DYEING & PRINTING (P.) LTD. (319 ITR 476)(DEL HC) - ACIT V PRAVIN C PANDYA (2013)(16 SOT 133)(LNDORE ITAT) - SHALIMAR INFONET (P.) LTD. V INCOME TAX OFFICER (2013)(14 4 ITD 513)(CHAND ITAT) - KRISHNAN MURARI LAL AGARWAL V DCLT (2013)(59 SOT 136)(AGRA ITAT) 2 3 . AFTER RELYING ON VARIOUS CASE - LAWS AS CITED IN HI S ORDER, THE ID. CIT(A) HAS HELD THAT THERE IS NO QUESTION OF ATTRACTING THE P ROVISIONS OF SECTION 2(22)(E). THE FINDINGS OF CIT(A) HAD NOT BEEN CONTROVERTED BY LD. DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. WE, THEREFORE, SEE NO REASON TO INTERFERE IN THE DECISION OF CIT(A) FOR THE A.Y.2008 - 09 AND 2009 - 2010 FOR DELETING ADDITION MADE U/S.2(22 )(E) OF THE ACT. 2 4 . IN THE RESULT, APPEAL OF THE REVENUE FOR A.Y.2008 - 09 IS ALLOWED IN PART , WHEREAS APPEAL FOR A.Y.2009 - 10 IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13/02/ 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 13/02/2015 /PKM , PS ITA NO. 1498&1499 / 1 2 31 COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI