KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD., Mumbai V. ASST CIT 14(2(1), Mumbai

ITA 2177/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4534 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2013-2014
• Appeal Filed On: 08-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SRINIVAS; S MICHAEL JERALD
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Unexplained cash credit; Transfer pricing; International transaction; Earning of tax free income; Additional evidence; Wholly owned subsidiary; Deemed dividend; Commercial expediency; Sham transactions; Rule 8D; Set aside; Liquidation
• Section: 2(22)(e); 14A; 133(6); 13; 22; 147; 131; 68; 148; 12; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.2177/M/2019 ASSESSMENT YEAR: 2013-14 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD., WOCKHARDT TOWERS, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI PAN: AAACK1955D VS. THE ASSISTANT COMMISSIONER OF INCOME TAX-14(2)(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (R ESPONDENT) ITA NO.3348/M/2019 ASSESSMENT YEAR: 2013-14 THE DCIT -14(2)(1), ROOM NO.432, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MARINE LINES, MUMBAI - 400020 VS. M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD., WOCKHARDT TOWERS, BANDRA KURLA COMPLEX, BANDRA (EAST), PAN: AAACK1955D (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : DR. K. SHIVARAM, A.R. & SHRI RAHUL HAKANI, A.R. REVENUE BY : SHRI B. SRINIVAS, D.R & SHRI S. MICHAEL JERALD, D.R. DATE OF HEARING : 19.12.2019 DATE OF PRONOUNCEMENT : 29.01.2020 ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 2 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE ABOVE TILTED CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE HAVE BEEN PREFERRED AGAINST TH E ORDER DATED 14.02.2019 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2013-14. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A): A. ADDITION OF PREFERENCE SHARE APPLICA TION MONEY RECEIVED AMOUNTING TO RS.90,00.00,000/- AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT 1. ERRED IN CONFIRMING THE ADDITION MADE BY AO IN RESPECT OF PREFERENCE SHARE APPLICATION MONEY RECEIVED FROM BANNERET TRADING PRIVATE LIMITE D ( BTPL ) AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. 2. ERRED IN HOLDING THAT THE PREFERENCE SHARE APPLICATION MONEY RECEIVED FROM BTPL IS SIMILAR TO AN UNSECURED LOAN; 3. ERRED IN HOLDING THAT THE PREFERENCE SHARE APPLI CATION MONEY PROVIDED BY BTPL TO THE APPELLANT IS IN THE NATURE OF ANY PAYMENT BY BT PL ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF SHAREHOLDER I.E. CAROL INFO SERVICES LIM ITED ('CISL') AND THEREFORE COVERED BY THIRD LIMB TO SECTION 2(22)(E) OF THE ACT WITHOUT APPRECI ATING THAT APPELLANT IS NOT THE SHAREHOLDER OF BTPL; 4. FAILED TO APPRECIATE THAT THE APPELLANT DOES NOT HOLD ANY SHARES OF MERIND LIMITED OR VICE VERSA NOR MERIND LIMITED HOLDS ANY SHARES O F BTPL OR VICE VERSA AND ACCORDINGLY, SECTION 2(22)(E) DOES NOT TRIGGER IN THE HANDS OF T HE APPELLANT SINCE IT IS NOT THE SHAREHOLDER; 5. FAILED TO APPRECIATE THAT IN THE ABSENCE OF ACCU MULATED PROFITS WITH BTPL, PREFERENCE SHARE APPLICATION MONEY RECEIVED FROM BT PL CAN'T BE TAXED AS DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT; 6. FAILED TO APPRECIATE THAT GRANTING OF LOANS AND ADVANCES IS SUBSTANTIAL PART OF BUSINESS ACTIVITY OF BTPL, CISL AND MERIND LIMITED AND HENCE, PROVISIONS OF SECTION 2(22)(E) OF THE ACT DO NOT APPLY ON RECEIPT OF PREFERENCE SH ARE APPLICATION MONEY BY APPELLANT FROM BTPL; B. ADDITION OF PREFERENCE SHARE APPLICATIO N MONEY RECEIVED AMOUNTING TO RS.90.00,00,OOP/- AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 3 7. ERRED IN NOT ADJUDICATING THE GROUND ON TAX ABILITY OF PREFERENCE SHARE APPLICATION MONEY RECEIVED AS UNEXPLAINED CASH CREDIT UNDER SEC TION 68 OF THE ACT; 8. FAILED TO APPRECIATE THAT THE APPELLANT HAS DISCHARGED ITS OBLIGATION TO PROVE I.E. IDENTITY OF THE PARTY, GENUINENESS OF THE TRANSACTI ON AS WELL AS CREDITWORTHINESS OF THE PARTY AND .ALSO SOURCE OF THE PARTY; DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME- TAX RULES, 1962 9. ERRED IN NOT RESTRICTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO THE AMOUNT OF EXEMPT DIVIDEND INCOME RECEIVED; 10. ERRED IN NOT CONSIDERING ONLY INVESTMENTS EA RNING EXEMPT DIVIDEND FOR THE PURPOSE DISALLOWANCE UNDER SECTION 14A OF THE ACT; 11. ERRED IN HOLDING THAT THE AO HAS CORRECTLY CONS IDERED THE GROSS INTEREST EXPENDITURE WHILE CALCULATING THE DISALLOWANCE UNDER SECTION 14 A OF THE ACT AS AGAINST THE NET INTEREST EXPENDITURE. ANY CONSEQUENTIAL RELIEF, TO WHICH THE APPELLANT MA Y BE ENTITLED UNDER THE LAW IN PURSUANCE OF THE AFORESAID GROUNDS OF APPEAL, OR OTHERWISE, M AY THUS BE GRANTED. THE APPELLANT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF APPEAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVES LEAVE TO ADD, ALTER, DELETE O R MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST THE C ONFIRMATION OF ADDITION BY LD. CIT(A) OF RS.90.00 CRORES AS MAD E BY THE AO IN RESPECT OF PREFERENCE SHARE APPLICATION MONEY RE CEIVED FROM BANNERET TRADING PVT. LTD. (HEREINAFTER REFERRED TO AS BTPL) BY TREATING THE SAME AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A NO N BANKING FINANCE COMPANY AND FILED RETURN OF INCOME DURING T HE YEAR ON 26.09.2013 DECLARING TOTAL INCOME AT NIL. THEREAFT ER, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS A ND STATUTORY NOTICES WERE DULY ISSUED AND SERVED UPON THE ASSESS EE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERV ED THAT ASSESSEE HAS RECEIVED PREFERENCE SHARE APPLICATION OF RS.90.00 CRORES. ACCORDINGLY, THE AO CALLED UPON THE ASSESS EE TO FURNISH ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 4 THE DETAILS OF SHARE APPLICATION MONEY ALONG WITH T HE NECESSARY DOCUMENTS/EVIDENCES. IN RESPONSE TO THE NOTICE, TH E ASSESSEE SUBMITTED THE BOARD RESOLUTION AND FINANCIAL STATEM ENTS OF THE ENTITY FROM WHOM THE ASSESSEE HAS RECEIVED PREFEREN CE SHARE APPLICATION MONEY. THE AO OBSERVED FROM THE FINANC IAL STATEMENTS OF M/S BTPL THAT DURING A.Y. 2013-14 THE SAID COMPANY SUSTAINED LOSS OF RS.29,529/-. THE AO FURT HER OBSERVED FROM THE BALANCE SHEET THAT THE SAID ENTIT Y M/S. BTPL HAS RS.1,00,000/- AS SHARE CAPITAL,RS.77,193/- AS N EGATIVE RESERVE AND SURPLUSES, LONG TERM BORROWINGS RS.736,28,23,727/- AND CURRENT LIABILITIES OF RS.1 9,28,090/-. THE ASSESSEE HAS MADE LONG TERM ADVANCES AND LOANS OF RS.755,28,12,730/- AND IS HAVING CASH BALANCE OF RS .61,904/-. THE AO OBSERVED THAT M/S BTPL HAS NO NET-WORTH AND IT HAS BORROWED HUGE LOANS DURING THE YEAR OUT OF WHICH IT HAS MADE ADVANCES. THE AO, IN ORDER TO VERIFY THE GENUINENE SS OF THE TRANSACTIONS, ISSUED SUMMON UNDER SECTION 131 OF TH E ACT TO THE PR. OFFICER OF M/S. BTPL TO VERIFY THE FACT THA T HOW A COMPANY WHICH WAS NOT HAVING ANY BUSINESS, NO REVEN UE, NEGATIVE NET-WORTH HAS BORROWED HUGE MONEY AND MAD E ADVANCES OUT OF THAT. THE DIRECTOR OF THE SAID ENT ITY MR. A SHIVA SUBRAMANIAN OF M/S. BTPL APPEARED BEFORE THE AO AND HIS STATEMENT WAS RECORDED UNDER SECTION 131 OF THE ACT . DURING THE COURSE OF RECORDING OF THE SAID STATEMENT THE C ERTAIN FACTS WERE NOTICED BY THE AO THAT MR. A. SHIVA SUBRAMANIA N IS AN EMPLOYEE OF M/S. WOCKHARDT LTD. WHICH HAS RELATED C ONCERN PARTY OF THE ASSESSEE COMPANY. THE ADDRESS OF M/S. BTPL IS SAME AS THAT OF THE ASSESSEE AND THE AFFAIRS OF THE COMPANY ARE ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 5 BEING LOOKED AFTER BY THE SAME EMPLOYEES AND IN THE SAME OFFICE. M/S. BTPL IS INVOLVED IN MAKING STRATEGIC BUSINESS INVESTMENTS, BY MAKING HUGE INVESTMENTS AND ADVANCES AMOUNTING TO MORE THAN RS.700 CRORE WITHOUT EARNING ANY REVENUE AND T HUS THE SAID COMPANY RECEIVED FUNDS FROM RELATED PARTIES EI THER AS INTEREST FREE LOANS AND AS SHARE APPLICATION MONEY. THE SAID FUNDS OF MORE THAN RS.700 CRORES WERE INVESTED BY M /S. BTPL TO VARIOUS GROUP COMPANIES OF M/S. WOCKHARDT LTD. WHIC H INTER ALIA INCLUDED RS.90.00 CRORES BEING GIVEN TO THE AS SESSEE AS PREFERENCE SHARE APPLICATION MONEY. THE ASSESSEE M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. IS THE ULTIMATE HOLDING COMPANY OF M/S. BTPL AS THE ASSESSEE OWNS 9 1.31% EQUITY SHARES IN THE CAPITAL OF M/S. CAROL INFO SER VICES PVT. LTD. HEREINAFTER REFERRED TO AS (CISPL) HOLDING 99% OF T HE EQUITY SHARE CAPITAL IN M/S. BTPL. M/S. BTPL HAS BORROWED MONEY FROM M/S. CISPL WHICH IS HOLDING 99% EQUITY CAPITAL IN M/S. BTPL. M/S. BTPL HAS PAID AS PREFERENCE SHARE APPLI CATION MONEY TO THE ASSESSEE COMPANY WITHOUT THERE BEING T HE SUFFICIENT AUTHORISED SHARE CAPITAL IN THE ASSESSEE WHICH WAS ONLY RS.16,60,800/- WHEREAS THE PREFERENCE SHARE AP PLICATION MONEY RECEIVED WAS HUGE OF RS.90.00 CRORES. THE AO ALSO RECORDED A FINDING THAT ASSESSEE HAS REPAID LOAN OF RS.194,57,88,998/- DURING THE YEAR BY USING THE AMO UNT RAISED AS PREFERENCE SHARE APPLICATION MONEY FROM M/S BTPL . FINALLY, THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE DAT ED 16.03.2016 CALLING UPON THE ASSESSEE AS TO WHY RS.9 0.00 CRORES SHOULD NOT BE CONSIDERED AS DEEMED DIVIDEND UNDER S ECTION 2(22)(E) OF THE ACT WHICH WAS REPLIED BY THE ASSESS EE VIDE LETTER ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 6 DATED 28.03.2016. THE AO AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE CAME TO CONCLUSION THAT M/S. BTPL IS J UST A PAPER COMPANY HAVING NO CREDITWORTHINESS AND THE TRANSACT IONS OF INVESTMENT IN PREFERENCE SHARE OF ASSESSEE COMPANY IS NOT GENUINE. THE AO ALSO NOTED THAT THE ALL THESE COMPA NIES INCLUDING ASSESSEE BELONGED TO M/S. WOCKHARDT GROUP . THE AO CONCLUDED THAT SINCE M/S. CISPL HAS GIVEN LOANS O F RS.71.00 CRORES TO M/S. BTPL WHO HAS FURTHER GIVEN THE MONEY AS SHARE APPLICATION MONEY TO THE ASSESSEE AND THUS VIRTUAL LENDING BY M/S. CISPL TO THE ASSESSEE AND THEREFORE PROVISIONS OF SECTION 2(22)(E) OF THE ACT HAS BEEN CLEARLY ATTRACTED. SI MILARLY, THE AO CONCLUDED THAT SINCE M/S. MERIND LTD. HAS GIVEN S HARE APPLICATION MONEY (RS.19 CRORES) TO M/S. BTPL WHO H AS FURTHER GIVEN THE MONEY AS SHARE APPLICATION MONEY TO THE A SSESSEE AND WITHOUT GETTING INTO THE SHARE HOLDING PATTERN OF M /S. MERIND LTD. CONCLUDED THAT THE BACK TO BACK TRANSACTION TA NTAMOUNTS TO VIRTUAL LENDING BY M/S. MERIND LTD. TO THE ASSE SSEE AND THEREFORE PROVISIONS OF SECTION 2(22)(E) OF THE ACT HAS BEEN CLEARLY ATTRACTED. THE AO NOTED THAT IN ORDER TO AVOID THE TAX LIABILITY M/S. CISPL FORMED M/S. BTPL THEN TRANSFERRED THE M ONEY AS SHARE APPLICATION MONEY TO THE ASSESSEE. THE AO NO TED THAT THE M/S. CISPL INSTEAD OF DIRECTLY LENDING TO THE ASSES SEE LENT THE MONEY THROUGH M/S. BTPL AND THUS THE MONEY WAS ACTU ALLY RECEIVED BY THE ASSESSEE FROM ITS SUBSIDIARY M/S. C ISPL. THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT M/S. BTPL IS JUST A PAPER COMPANY AND HAS NO CREDIT WORTHINESS AND GENUINENESS AND ESTABLISHED FOR TRANSFERRING TH E MONEY FROM ONE COMPANY TO ANOTHER WITHIN THE GROUP AND M ONEY ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 7 ADVANCED BY THE M/S. CISPL TO THE ASSESSEE INDIREC TLY THROUGH M/S. BTPL IN ORDER TO AVOID TAX LIABILITY AND THERE FORE THE SAME IS COVERED UNDER SECTION 2(22)(E) OF THE ACT. THE AO OBSERVED THAT MONEY IS RECEIVED BY THE ASSESSEE FROM M/S. BT PL BUT THE MONEY WAS ACTUALLY ADVANCED BY M/S. CISPL AND THUS SHAM TRANSACTION THROUGH SHAM COMPANY. THE AO, RELYING ON THE ORDER OF CONSTITUTION BENCH OF THE HONBLE SUPREME COURT, HELD THAT TAX PLANNING MAY BE LEGITIMATE WHICH IS WITHIN THE FRAME WORK OF LAW, HOWEVER NOTICED THAT THE PRESENT ARRAN GEMENT IS A COLOURABLE DEVICE AND CAN NOT BE PART OF TAX PLANNI NG. FINALLY, THE AO ADDED THE AMOUNT OF RS.90.00 CRORE RECEIVED BY THE ASSESSEE AS SHARE APPLICATION MONEY AS DEEMED DIVID END UNDER SECTION 2(22)(E) OF THE ACT ON THE GROUND THAT ASSE SSEE HAS SUBSTANTIAL INTEREST IN M/S. CISPL AND THE SAID COM PANY IS A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTER ESTED. THE AO ALSO NOTED THAT ADVANCES GIVE BY M/S. BTPL IS NO T IN THE NATURE OF ADVANCE FOR BUSINESS PURPOSE AS THE SAID COMPANY IS JUST A PAPER COMPANY NOT HAVING ANY CREDITWORTHINES S AND GENUINENESS AND THEREFORE MADE A WITHOUT PREJUDICE ADDITION UNDER SECTION 68 OF THE ACT. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A), AF TER TAKING INTO CONSIDERATION THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE, DISMISSED THE GROUND RAISED BY THE ASSESS EE BY HOLDING AND OBSERVING AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMISSIO NS MADE BY THE APPELLANT, IT IS SEEN FROM THE RECORDS THAT 'DURING THE YEAR UNDER CONSIDERATION, KHJPL HAS REC EIVED PREFERENCE SHARE APPLICATION MONEY AMOUNTING TO INR 90,00,00,000 FRO M BANNERET TRADING PVT. LTD. ('BTPL'} AND THE SAME WAS OUTSTANDING AS ON 31 MARC H 2013. THE ID.AO TREATED THE ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 8 SAID PREFERENCE SHARE APPLICATION MONEY AS DEEMED D IVIDEND UNDER SECTION 2(22}{E).' 'IT MAY BE NOTED THAT THE PREFERENCE SHARE APPLICAT ION MONEY HAS BEEN RECEIVED FROM BTPL WHICH IS NOT A REGISTERED SHAREHOLDER OF KHIPL. KHIPL IS THE REGISTERED SHAREHOLDER OF CAROL INFO SERVICES LIMITED {'CISL') , WHICH IN TURN HOLDS 100% OF THE SHARE CAPITAL IN BTPL. THE SOURCE OF PREFERENCE SHA RE APPLICATION MONEY IS AS UNDER: III) LOAN RECEIVED FROM CISL - INR 71 CRORES IV) PREFERENCE SHARE APPLICATION MONEY RECEIVED FROM MERIND LTD. - INR 19 CRORES' PRIRNA FACIE IT IS NECESSARY TO TRACE OUT THE FINAN CIAL HISTORY OF CAROL ARID THE FLOW OF FUNDS FROM CAROL TO THE BENNERET AND FROM BENNERET TO THE ASSESSEE AND OTHERS AND FROM MERIND TO BENNERET AND FROM BENNERET TO KHORAK IWALA AND LOOK INTO REASONS FOR SUCH ACTION ON THE PART OF CAROL AND MERIND AND THEN EXAMINE THE APPLICABILITY OF SECTION 2(22)(E} OF THE IT ACT, 1961. FIRST OF ALL THE OWNERSHIP PATTERN OF SHARES IN THE COMPANIES DURING THE YEAR WAS AS FOLLOWS: KHIL HELD 90.31 % OF SHARES OF CAROL INFO SERVICES LIMITED CAROL INFO HELD 100% SHARES OF BENNERET TRADING IT APPEARS FROM THE PERUSAL OF THE ANNUAL ACCOUNTS OF CAROL AS ON 31/03/2013 THAT 'CAROL HAD MADE PROFIT AFTER TAX OF RSJ73.46 CRORES FOR THE EAR ENDED 31/03/2013 ON ACCOUNT OF SALE OF ITS MAIN BUSINESS AND HAD SHARE CAPITAL OF RS.35.43 CRORES AND RESERVES AND SURPLUS OF RS.790.57 CRORES AS ON 31/03/2013. C AROL ALSO ADVANCED INTEREST FREE LOANS TOTALLING RS.736.28 CRORES TO 'RELATED PARTIES' AND WERE MADE PAYABLE FROM THE YEAR 2017 IN TWO INSTALMENTS SUBJECT TO AMENDMENT WITH MUTUAL UN DERSTANDING' AND THESE INTEREST FREE LOANS TOTALLING RS.736.28 CRORES WERE ADVANCED TO B ENNERET WHICH PASSED FURTHER BOARD RESOLUTION DATED 27 JULY, 2012 FOR MAKING INVESTME NTS IN ONE OR MORE TRANCES IN ONE OR MORE TRANCES IN SHARES OF FOLLOWING ENTITIES: PALANPUR HOLDINGS RS.600 CRORES KHORAKIWALA HOLDINGS (ASSESSEE) RS.300 CRORES DARTMOUR HOLDINGS RS.600 CRORES KHORAKIWALA, THE ASSESSEE RECEIVED RS.71 CRORES OUT OF THE ABOVE DURING THE FINANCIAL YEAR AS 'SHARE APPLICATION MONEYS OF THE COMPANY TO BE ISSUED AT A FUTURE DATE, AS MUTUALLY AGREED BETWEEN BOTH THE COMPANIES' AS PER THE BOARD RESOLUTION DATED 27 JULY, 2012 PASSED BY THE BOARD OF DIRECTORS OF KHORAKIWAL A. IT IS WORTH MENTIONING HERE THAT SHARES WERE NOT ISSUED TILL 31 MARCH, 2013 BY THE K HORAKIWALA TO BENNERET WHICH HAD A CAPITAL OF ONLY RS.1 LAKH AND EMPLOYEES OF KHORAKIW ALA AS DIRECTORS OF THE COMPANY. IT ALSO APPEARS FROM THE RECORDS THAT THESE FUNDS OF RS.71 CRORES AND RS.19 CRORES WERE RECEIVED FROM BENNERET AND MERIND ON THE SAME DATE, THAT IS, 28/07/2012. HOWEVER, SHARES WERE NOT ISSUED BY THE ASSESSEE TO ITS SHARE HOLDER CONT RIBUTING RS.71 CRORES AND 19 CRORES TILL 31 MARCH, 2013. IT IS ALSO WORTH NOTING THAT THE EVEN THOUGH THE DIRECTORS OF CAROL AND MERIND WERE THE FAMILY MEMBERS OF KHORAKIWALA FAMILY AND D IRECTORS OF BENNERET WERE TWO EMPLOYEES OF KHORAKIWALA GROUP OF COMPANIES, HOWEVE R THEY WERE ALL ACTING IN TANDEM AS IS EVIDENT FROM DATE OF BOARD RESOLUTIONS. IT HAS B EEN SUBMITTED BY THE ASSESSEE'S CAS IN LETTER DATED 10 JANUARY, 2019 THAT 'CAROL INFO WAS HOLDING 100% SHARES OF BENNERET, MEANING THEREBY THAT THE TWO EMPLOYEES OF THE COMPA NY, THAT IS, MR. SUBRAMANIAN AND ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 9 MS. NAGWEKAR WERE NOT HOLDING ANY SHARES OF BENNERE T AND SIGNED AS DIRECTORS OF BENNERET WITHOUT BEING SHARE HOLDER OF THE COMPANY WHICH IS NOT PERMISSIBLE UNDER THE COMPANIES ACT, 1956 AND OR COMPANIES ACT, 2013. ANYHOW, BENNE RET BEING A GROUP COMPANY IMMEDIATELY APPEARS TO HAVE INVESTED MOST OF THESE 'INTEREST FREE LOANS OF RS. 736. 28 CRORES AS 'SHARE APPLICATION MONEYS IN THE THREE GR OUP COMPANIES, INCLUDING RS.71 CRORES IN KHORAKIWALA WHERE IT REMAINED AS OUTSTANDING AS ON THE LAST DATE OF THE PREVIOUS YEAR, THAT IS, 31 MARCH 2013 SIMILAR TO AN UNSECURED LOAN.' IT IS HIGHLY PROBABLE THAT 'THESE SHARES WERE NEVER ISSUED TILL 31/03/2017 AND THESE FUNDS WERE S HOWN AS OUTSTANDING IN SHARE APPLICATION MONEY ACCOUNT OF THE RESPECTIVE PARTIES , INCLUDING KHORAKIWALA, SINCE 'ISSUANCE OF PREFERENCE SHARES WOULD HAVE MEANT COMPLIANCE WI TH TERMS AND CONDITIONS OF THE COMPANIES ACT 1956/2013 AND SEBI RELATING TO ISSUAN CE OF PREFERENCE SHARES AS IS EVIDENT FROM THE NOTE NUMBER 8 TO ANNUAL ACCOUNTS OF THE AS SESSEE WHICH READS AS FOLLOWS: 8. THE COMPANY HAS GIVEN SHARE APPLICATION MONEY AG GREGATING RS. NIL (RS. 1,073,400,500) TO DARIMOUR HOLDINGS PRIVATE LIMITED AND LOAN, AGGREGATING RS. NIL (RS. 742,058,593} TO TRIDOS LABORATORIES PRIVATE LI MITED WHOSE NET WORTH AS ON MARCH 31, 2013 IS COMPLETELY ERODED- HOWEVER CONSID ERING FUTURE BUSINESS PLANS OF THESE COMPANIES, THE MANAGEMENT IS OF THE OPINION T HAT NO PROVISION IS NECESSARY IN RESPECT OF THESE AMOUNTS' IT IS ALSO WORTH MENTIONING HERE THAT EVEN THOUGH ' CAROL HAD LONG TERM BORROWINGS OF RS.26.77 CRORES AS ON 31/03/2CU3 ON WHICH INTERE ST BY WAY OF FINANCE COSTS WAS PAYABLE, CAROL CHOSE TO NOT REPAY THE OUTSTANDING LONG TERM BORROWINGS TOTALLY, BUT DECIDED TO 'EXTEND INTEREST FREE LOANS OF RS.736.28 CRORES TO BENNERET WHICH WERE SUBSEQUENTLY UTILISED BY BENNERET FOR MAKING INVESTMENT BY WAY O F PREFERENCE SHARE APPLICATION MONEYS IN THREE COMPANIES OF THE GROUP.' IT ALSO APPEARS F ROM THE SCHEDULE -9 DETAILING CURRENT INVESTMENTS IN THE ANNUAL ACCOUNTS FOR THE F.Y 2012 .-13 THAT 'ASSESSES COMPANY - KHORAKIWALA HOLDINGS AND INVESTMENTS PRIVATE LIMITE D HAD INVESTED AN AMOUNT OF RS.180.83 CRORES IN ITS WHOLLY OWNED SUBSIDIARY CAR OL INFO SERVICES LIMITED AS ON 31 MARCH, 2013. FACTS OF THE CASE OF MERIND LIMITED WHICH IS SAID T O HAVE INVESTED RS.19 CRORES AS ON 28/07/2012 ARE ALSO SIMILAR. MERIND LIMITED IS A PR IVATE LIMITED GROUP COMPANY WHICH ALSO HAD EXTENDED INTEREST FREE LOAN OF RS. 19 CRORES TO BENNERET ON 28 JULY, 2012 WHICH IS SAID TO HAVE TRANSFERRED TO THE ASSESSEE AS SHARE APPLIC ATION MONEYS' AND WHICH WAS OUTSTANDING IN THE BOOKS OF THE ASSESSEE. MERIND WA S A GROUP INVESTMENT COMPANY WHICH HAD PAT OF RS.4.44 CRORES AND FREE RESERVES OF RS.2 00.39 CRORES AS ON 31/03/2013 AND TRANSACTIONS SIMILAR TO THE TRANSACTIONS MADE BY CA ROL, BENNERET AND KHORAKIWALA. HERE ALSO THE COMPANY MERIND HAD RESERVES OF NEARLY RS.2 00.39 CRORES WHICH WERE UTILIZED FOR CITHER INVESTING IN ASSOCIATE AND RELATED COMPANIES AS PER THE DEFINITION OF 'RELATED COMPANIES' UNDER THE COMPANIES ACT 1956-2013 AND IN TEREST FREE FUNDS WERE TRANSFERRED DURING THE YEAR. IT ALSO APPEARS FROM THE ANNUAL AC COUNTS FOR THE YEAR ENDED 31 MARCH 2013 THAT 'SIMILAR TRANSACTIONS WERE MADE IN ALL TH E GROUP COMPANIES IN EARLIER ASSESSMENT YEARS AS WELL AND POSSIBILITY OF SIMILAR TRANSACTIO NS HAVING BEEN MADE IN FUTURE ASSESSMENT YEARS ALSO CANNOT BE RULED OUT. IT IS WORTH MENTION ING HERE THAT MERIND LIMITED WAS A COMPANY IN WHICH PUBLIC WERE NOT SUBSTANTIALLY INTE RESTED AS PER THE IT ACT, 1961 AND ITS 96.04 % SHARES WERE HELD BY ANOTHER GROUP COMPANY D ARTMOUR HOLDINGS PRIVATE LIMITED AS PER THE DETAILS MENTIONED IN NOTE NUMBER 19 (3) OF NOTES TO ACCOUNTS OF MERIND LIMITED FOR THE YEAR ENDED 31 MARCH 2013. THESE FEATURES ARE MO RE OR LESS COMMON IN THE ANNUAL ACCOUNTS OF ALL THE GROUP COMPANIES WHOSE COPIES OF ANNUAL ACCOUNTS ARE FILED DURING APPELLATE PROCEEDINGS. ANOTHER FEATURE WHICH IS NOT EWORTHY HERE IS THAT 'LOANS RUNNING INTO CRORES OF RUPEES WERE GIVEN EITHER AS INTEREST FREE LOANS/ADVANCES AND/OR AS 'SHARE ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 10 APPLICATION MONEYS' AND THESE LOANS AND ADVANCES RE MAINED AS SUCH AND INTEREST WAS NOT CHARGED AND SHARES WERE NOT ISSUED FOR LONG TIME AN D ULTIMATELY THESE SHARE APPLICATION MONEYS WERE RETURNED TO SUBSCRIBERS. IT IS ALSO OBS ERVED FROM THE ANNUAL ACCOUNTS THAT THE ASSESSEE WAS NOT EVEN AUTHORIZED DURING THE PREVIOU S YEAR RELEVANT TO AY 2013-14 TO OFFICIALLY INCREASE ITS AUTHORIZED SHARE CAPITAL DU RING THE YEAR OF RS. 16,60,800/- AND FOLLOWING NOTE ATTACHED TO THE NOTE NUMBER 6 OF THE ANNUAL ACCOUNTS OF KHORAKIWALA CLEARLY REVEAL THE FACTS OF THE CASE: 'THE COMPANY HAS RECEIVED SHARE APPLICATION MONEY D URING THE YEAR, HOWEVER, THE COMPANY IS IN THE PROCESS OF INCREASING ITS AUTHORI SED SHARE CAPITAL AND THE QUANTUM AND TERMS AND CONDITIONS OF ALLOTMENT SHALL BE DECIDED AFTER INCREASE OF AUTHORISED SHARE CAPITAL' IT IS ALSO OBSERVED FROM THE ANNUAL ACCOUNTS OF BEN NERET AND MERIND FOR THE YEAR ENDED 31 MARCH 2013 THAT THE AMOUNTS OF RS.71 CRORE S AND RS.19 CRORES WERE CLASSIFIED AS 'LOANS AND ADVANCES' BY BENNERET AND MERIND AS ON 3 1 MARCH 2013 IN THEIR BOOKS OF ACCOUNTS. EVEN THE ASSESSEE, THAT IS, KHORAKIWALA H AD SHOWN THE TOTAL AMOUNT OF RS.90 CRORES AS 'CURRENT LIABILITIES'WITH THE FOREGOING N OTE ATTACHED. IN THIS CONNECTION NOTE NUMBER 8 TO ANNUAL ACCOUNTS (PAPER BOOK PAGE 33) IS REPORT HEREUNDER:- 8. THE COMPANY HAS GIVEN SHARE APPLICATION MONEY AG GREGATING RS. -NIL (RS. 1,073,400,500) TO DARTMOUR HOLDINGS PRIVATE LIMITED AND LOAN GGREGATING RS. NIL (RS. 742,058,593) TO TRIDOS LABORATORIES PRIVATE LI MITED WHOSE NET WORTH AS ON MARCH 31, 2013 IS COMPLETELY ERODED. HOWEVER CONSID ERING FUTURE BUSINESS PLANS OF THESE COMPANIES, THE MANAGEMENT IS OF THE OPINION T HAT NO PROVISION IS NECESSARY IN RESPECT OF THESE AMOUNTS. ASSESSEE HAS ALSO BEEN INDULGING IN SIMILAR PRACTIC ES OF ADVANCING INTEREST FREE FUNDS AS LOANS/ADVANCES TOWARDS 'SHARE APPLICATION MONEYS' TO OTHER GROUP SUBSIDIARY COMPANIES AND HAS BEEN BEARING THE BURDEN OF INTERE ST/FINANCE COSTS AND THE QUANTUM OF 'SHARE APPLICATION MONEYS' OF RS.107.34 CRORES AND RS.74.20 CRORES TO DARTMOUR AND TRIDOSS WERE REDUCED TO RS. NIL AS ON 31/03/2013, AND THESE LOANS/ADVANCES RUNNING INTO CRORES OF RUPEES WERE ALSO CLASSIFIED AS 'SHARE APPLICATION M ONEYS' FOR SEVERAL YEARS IN THE GROUP COMPANIES TO DIVERT THE LEGITIMATE SOURCE OF INCOME FROM SEVERAL PROFIT MAKING GROUP COMPANIES TO LOSS MAKING COMPANIES' AND DEPRIVE REV ENUE OF ITS LEGITIMATE SOURCE OF REVENUE AS IS THE CASE WITH THE ASSESSEE DURING THE AY 2013-14. IT ALSO APPEARS FROM THE P 8S L ACCOUNT AND BALANCE SHEET OF THE ASSESSEE FOR PREVIOUS YEAR RELEVANT TO AY 2013-14 THAT ASSESSEE HAD BORROWED AMOUNTS TOTALLING RS.429 .32 CRORES AS ON FIRST DAY OF PREVIOUS YEAR, THAT IS, 01/04/2012 WHICH CAME DOWN TO RS.23. 61 CRORES AS ON LAST DAY OF PREVIOUS YEAR, THAT IS, 31/03/2013 WHICH WERE UTILIZED FOR M AKING INVESTMENTS OF RS.296.56 CRORES AND GIVING SHORT TERM LOANS AND ADVANCES OF RS.254. 79 ORORES AS ON 01/04/2012 WHICH WERE INCREASED/REDUCED DURING THE YEAR TO RS.320.91 CROR ES AND RS.29,69 CRORES RESPECTIVELY ON WHICH ONLY RS.00.95 CRORES WAS EARNED BY WAY OF INT EREST AND RS.10.19 CRORES WERE EXPENDED AS EXPENSES THUS MAKING A COMMERCIAL LOSS OF RS.9.23 CRORES. THE FINANCIAL ACCOUNTS CLEARLY SHOW THAT COMPANY'S OWN FUNDS CONS ISTING OF RESERVES OF RS.253.25 CRORES WERE USED FOR INVESTING IN ASSOCIATE COMPANIES AS F OLLOWS: WOCKHARDT LIMITED RS. 59.45 CRORES ( EQUITY SH ARES ) CORAL INFO SERVICES LIMITED RS. 180.83 CRORES (EQU ITY SHARES } ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 11 WOCKHARDT LIMITED RS. 80.00 CRORES (PREFERENCE SHARES) TOTAL RS. 320.28 CRORES THIS IS ONLY THE FINAL PICTURE, ASSESSEE HAS BEEN I NDULGING IN CHANGING ITS MODES OF DEPLOYING ITS FUNDS, FROM INVESTMENTS TO LOANS AND ADVANCES AND FROM ADVANCES AND LOANS TO INVESTMENTS, INCLUDING GIVING FUNDS BY WAY OF SH ARE APPLICATION MONEYS. SIMILAR ARE THE FACTS IN THE CASE OF MERIND LIMITED WHICH IS SAID TO. HAVE TRANSFERRED RS.19 CRORES AS SHARE APPLICATION MONEYS TO THE ASS ESSEE THROUGH THE MEDIUM OF BENNERET TO ASSESSEE ON THE SAME DATE, THAT IS, 28 JULY 2012 . AND THESE AMOUNTS WERE SHOWN AND CLASSIFIED AS LOANS AND ADVANCES' BY MERIND IN ITS BOOKS OF ACCOUNTS EVEN TILL THE LAST DAY OF THE FINANCIAL YEAR, THAT IS 31/03/2013 SINCE ASSESS EE DID NOT HAVE THE LEGAL MANDATE TO RAISE 'PREFERENCE SHARE CAPITAL' OF EITHER 'RS.71 CRORES FROM BENNERET AND RS.19 CRORES FROM MERIND.' THUS THE AMOUNT OF RS.19 CRORES RECEIVED F ROM MERIND THROUGH BENNERET WAS ALSO NOTHING BUT AN UNSECURED INTEREST FREE LOAN AND AD VANCE'. M/S. BENNERET WAS MERELY A CONDUIT FOR TRANSFERRING FUNDS RECEIVED FROM MERIND TO PASS IT ON IMMEDIATELY TO THE ASSESSEE AS 'INTEREST FREE LOAN AND ADVANCE' AND SH OW IT AS LOANS AND ADVANCE IN THE BOOKS OF BENNERET AND 'SHARE APPLICATION MONEYS* IN THE B OOKS OF THE ASSESSEE. IT IS PROBABLE THAT THESE SO CALLED PREFERENCE SHARES WERE NEVER ISSUED BY THE ASSESSEE AND FUNDS WERE SUBSEQUENTLY RETURNED TO BENENRET AND BENENRET MAY HAVE RETURNED THESE FUNDS TO RESPECTIVE COMPANIES, THAT IS RS.71 CRORES TO CAROL AND RS.19 CRORES TO MERIND IMMEDIATELY. IT BECOMES QUITE CLEAR FROM THE FOREGOING THAT 'THE AMOUNT OF RS.71 CRORES RECEIVED FROM BENNERET WAS NOTHING BUT AN UNSECURED LOAN CLA SSIFIED AS 'SHARE APPLICATION MONEYS' FOR ACCOUNTING PURPOSES SINCE ASSESSEE DID NOT HAVE THE MANDATE UNDER THE COMPANIES ACT 1956/2013 TO RAISE THE 'PREFERENCE SHARE CAPITAL' D URING THE YEAR SINCE ITS AUTHORIZED SHARE CAPITAL BY WAY OF PREFERENCE SHARE CAPITAL AND SHOW ING THE AMOUNTS AS 'SHARE APPLICATION MONEYS' WAS AN AFTERTHOUGHT TO GET OVER AND AVOID P ROVISIONS OF SECTION 2(22)(E) OF THE IT ACT 1961, AS SUCH, THE RECEIPT OF RS.71 CRORES BY W AY OF SO CALLED SHARE APPLICATION MONEYS WAS NOTHING BUT AN UNSECURED INTEREST FREE LOAN/ADV ANCE BY CAROL INFO, A SUBSIDIARY OF THE ASSESSEE, THAT IS, KHORAKIWALA THROUGH THE MEDIUM O F BENNERET TO THE ASSESSEE, THAT IS, KHORAKIWALA AND IT SQUARELY FALLS WITHIN THE PROVIS IONS OF SECTION 2(22)(E) OF THE IT ACT 1961. PRIMA FACIE A FAGADE OF MAKING INVESTMENTS BY WAY O F 'SHARE APPLICATION MONEY' WAS CREATED DURING JULY 2012 TO TRANSFER FUNDS FROM CAR OL INFO AND OTHER GROUP COMPANIES TO THREE GROUP COMPANIES TO UTILIZE THE FREE RESERVES RUNNING INTO HUNDREDS OF CRORES OF RUPEES OF CAROL INFO AND MERIND TO ASSOCIATE COMPANIES TO DEPRIVE CAROL AND MERIND OF ITS LEGITIMATE SOURCE OF INCOME BY WAY OF INTEREST AND DIVIDENDS TO LOSS MAKING COMPANIES LIKE, THE ASSESSEE AND OTHER TWO GROUP COMPANIES PALANPUR AND DARTMOUR. ASSESSEE'S OBJECTION TO THE TREATMENT OF THE LOAN/A DVANCE/SHARE APPLICATION MONEYS GIVEN BY BENNERET TO KHORAKIWALA-ASSESSEE BE ING TREATED AS 'DEEMED DIVIDEND' IS UNDER THE FIRST PART OF THE SECTION 2(22)(E) OF THE IT ACT 1961 WHICH IS SQUARELY COVERED BY THE PROVISIONS OF THE SECTION 2(22)(E) OF THE IT AC T 1961 FOR THE SIMPLE REASON THAT ' PAYMENT OF RS. 90 CRORES MADE BY BENNERET TO KHORAKIWALA - THE ASSESSEE WHO HOLDS 90.4% OF SHARES OF CAROL INFO WHICH HAD GIVEN AN INTEREST FREE LOAN OF RS. 71 CRORES OF BENNERET, IS NOTHING BUT A CASE OF STRAIGHT TRANSFER OF FUNDS OCCURRING ON THE SAME DAY, THAT IS, 27/28 JULY 2012 FROM CAROL TO BENNERET BY LOAN, FROM BENNERET TO KH ORAKIWALA AS LOAN /ADVANCE /SHARE APPLICATION MONEYS AND FROM KHORAKIWALA TO CAROL BY WAY OF INVESTMENT IN SHARES. THUS, INTEREST FREE FUNDS BY WAY OF LOAN/ADVANCE FROM CAR OL HAVE GONE BACK TO CAROL AS SHARE INVESTMENTS AND THUS THE ENTIRE CIRCLE IS COMPLETED . THUS THIS ENTIRE EXERCISE IS NOTHING BUT A DEVICE AND A FAGADE CREATED BY THE KHORAKIWALA GROU P OF COMPANIES TO CIRCUMVENT THE ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 12 PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT 1961 N OT ONLY IN THE CASE OF THIS COMPANY BUT ALSO IN OTHER GROUP OF COMPANIES, AS IS EVIDENT FRO M THE BOARD RESOLUTION OF BENNERET WHICH WAS NOTHING BUT A CONDUIT COMPANY FOR TRANSFER OF I NTEREST FREE FUNDS BY WAY OF LOANS/ADVANCES RUNNING INTO CRORES OF RUPEES TO OTH ER GROUP COMPANIES WHICH NEEDED FUNDS TO REDUCE LOSSES. ASSESSEE HAS PRIMARILY OBJECTED T O THE INVOCATION OF THIS CLAUSE ON THE GROUND THAT THE 'FUNDS HAVE NOT BEEN GIVEN TO THE S HARE HOLDER AND PRIMARILY THESE PAYMENTS WERE TOWARDS SHARE APPLICATION MONEYS AND HENCE DO NOT FALL WITHIN THE CATEGORY OF LOANS/ADVANCES AS MANDATED BY THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT 1961 AND HAS SUBMITTED WHICH HAS BEEN REPRODUCED IN THE APPE LLANT'S SUBMISSIONS UNDER THIS GROUND. PRIMA FACIE IT WOULD APPEAR THAT ' THE ASSESSEE HAS NOT MADE ANY LOAN/ADVANCE TO THE SHAREHOLDER, HOWEVER, ALL THE TRANSACTIONS MADE BY THE ASSESSEE ON THE SAME DAY WITHIN THE GROUP COMPANIES CLEARLY SHOW A CHAIN OF CIRCULAR TRANSACTIONS WHEREBY FUNDS OF ONE COMPANY, THAT IS, CAROL WHICH HAD ACCUMULATED R ESERVES OF CRORES OF RUPEES FLOWED BY MODE OF 'CIRCULAR TRANSACTIONS' TO ITS HOLDING COMP ANY, KHORAKIWALA HOLDINGS WHICH WAS INCURRING LOSSES, AND THIS IS NOTHING BUT A FACADE AND A DEVICE TO CIRCUMVENT THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT 1961 AND NOTWITHS TANDING VARIOUS DECISIONS QUOTED BY THE ASSESSEE IN ITS LETTERS DATED 10/1/2019 DECISION OF SUPREME COURT IN THE CASE OF MCDONALD & CO LIMITED V/S. CTO 1985/22/TAXRNAN/ 11 WILL SQU ARELY APPLY TO THE FACTS OF THE CASE. THIS IS FURTHER CONFIRMED BY THE FACT THAT ENTIRE S HARE HOLDING IN THE KHORAKIWALA GROUP OF COMPANIES WAS TAKEN UP TO COMPLY WITH THE SEBI GUID ELINES AND DESIRE OF THE GROUP DIRECTORS TO EXERCISE CONTROL OVER THE RESTRUCTURED COMPANIES. AND SIMILAR TYPE OF TRANSACTIONS WERE UNDERTAKEN IN ALL THE CONNECTED/A SSOCIATE GROUP COMPANIES IN A PLANNED MANNER KNOWINGLY. THEREFORE WHAT HAS TO BE SEEN IS NOT THE FORM BUT THE SUBSTANCE AND IF THE CORPORATE VEIL IS PIERCED, IT WILL APPEAR THAT FUNDS WERE TRANSFERRED FROM COMPANIES WITH 'ACCUMULATED PROFITS' WITHIN ITS MEANING UNDER SECT ION 2(22)(E) OF THE IT ACT 1961 TO THE GROUP/ASSOCIATE COMPANIES IN THE KHORAKIWALA GROUP TO WHICH WERE MAKING/INCURRING COMMERCIAL LOSSES. THIS HAD TWO FOLD EFFECT, ONE TO TRANSFER MONEYS BY WAY OF INTEREST FREE LOANS/ADVANCES/SHARE APPLICATION MONEYS FROM CASH R ICH COMPANIES OF THE GROUP TO REDUCE 'GENERATION OF INCOME CHARGEABLE TO TAX' AND HENCE REDUCE INCIDENCE OF INCOME TAX ON THE CASH RICH COMPANY AND GENERATE INCOME FOR THE 'LOSS MAKING COMPANY' TO REDUCE ITS LOSSES BY EITHER PAYING BACK ITS DEBTS AND HENCE REDUCE IT S EXPENSES AND/OR INVEST INTEREST FREE FUNDS IN REVENUE GENERATING INVESTMENTS TO GENERATE INCOME AND ABSORB LOSSES COMMERCIALLY AND UNDER THE IT ACT 1961 TO REDUCE AN D AVOID PAYMENT OF INCOME TAX. THEREFORE, THE ENTIRE FACTS OF THE CASE AND OTHER G ROUP COMPANIES CLEARLY SHOW THAT 'THE ENTIRE RESTRUCTURING EXERCISE HAD ONLY TWO MAIN PUR POSES, ONE TO RESTRUCTURE THE SHARE HOLDING IN A WAY TO RETAIN CONTROL OVER THE GROUP C OMPANIES AND SECOND TO REDUCE AND AVOID PAYMENT OF TAXES UNDER THE SPECIFIC PROVISION S OF THE IT ACT 1961'. THEREFORE, SUPREME COURT DECISION IN THE CASE MCDONALD & CO LIMITED V/ S. CTO 1985/22/TAXMAN/11 IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. IN NU TSHELL, CONTENTION RAISED BY THE ASSESSEE IN THE LETTER THAT 'THE DECISIONS QUOTED BY THE AO DO NOT APPLY TO THE FACTS OF THEIR CASE, IS REJECTED IN FACTS AND IN LAW' AND HELD THAT THE PRO VISIONS OF SECTION 2(22)(E) OF THE IT ACT 1961 WERE APPLICABLE TO THE ASSESSEE'S CASE AND HEN CE THE ACTION OF THE AO IN THIS REGARD IS UPHELD. THUS IN NUTSHELL, WHAT HAS HAPPENED IS THAT BENNERE T A WHOLLY OWNED SUBSIDIARY OF CAROL GAVE A LOAN/ADVANCE OF RS.90 CRORES UNDER THE DISGUISE OF SHARE APPLICATION MONEYS TO THE ASSESSEE, KHORAKIWALA, WHO WAS HOLDING 90.41 % SHARES OF CAROL AND IN WHICH KROAKIWALA HAD INVESTED AN AMOUNT OF RS.180.83 CROR ES AS ON 31 MARCH 2013. THERE ARE THREE SUB CLAUSES OF SECTION 2(22)(E) OF THE IT ACT 1961 AND THE LAST AND THIRD SUB CLAUSE READS AS FOLLOWS: ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 13 2(22)(E): ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WH ICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS RE PRESENTING A PARTY OF THE ASSETS OF THE COMPANY OR OTHERWISE) [MADE AFTER THE 31?* D AY OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING,NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER AND REFERRED TO AS THE SAID CONCERN)] OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOLDER , TO THE EXTENT TO WHICH THE COMPANY IS WITHER CASE POSSESSES ACCUMULATED PROFIT S; BUT 'DIVIDEND' DOES NOT INCLUDE- (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLAU SE (C) OR SUB-CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSIDERATION, WH ERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN THE EVENT OF LIQUIDATION TO PARTICIPATE IN THE SURPLUS ASSETS; (II) ANY ADVANCE LOAN MADE TO SHAREHOLDER [OR THE S AID CONCERN] BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE LEND ING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY. (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET O FF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEANING OF SUB-CLAUSE (E), TO THE EXTENT TO WHI CH IT IS SO SET OFF; (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERG ER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERGED COMPANY (WHETHER O R NOT THERE IS A REDUCTION OF CAPITAL IN THE DEMERGED COMPANY). THUS IT BECOMES CRYSTAL CLEAR FROM THE READING OF T HE THIRD PART OF THE CLAUSE OF SECTION 2(22)(E) OF THE IT ACT 1961 THAT 'ANY PAYME NT (RS.90 CRORES) BY ANY SUCH COMPANY (BENNERET) ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT , OF ANY SUCH SHAREHOLDER (CAROL INFO TOTAL INVESTMENT OF KHORAKIWALA AS ON 31/3/2013 IN CAROL BY WAY OF SHARES-RS. 180.83 CRORES) ....' IS NOTHING BUT 'A DEEMED DIVIDEND UND ER SECTION 2(22)(E) OF THE IT ACT, 1961 SINCE FUNDS OF RS.90 CRORES OF BENNERET HAVE FLOWED BACK BY WAY OF LOAN/ADVANCE/SHARE APPLICATION MONEYS TO THE SHAREHOLDER, CAROL INFO T HROUGH THE MEDIUM OF ITS HOLDING COMPANY, KHORAKIWALA BY WAY OF INVESTMENT OF RS.180 .83 CRORES IN CAROL INFO SERVICES LIMITED'. THIS IS PURELY BASED ON FACTS OF THE CASE AND EVEN IF THE PAYMENT OF RS. 90 CRORES TREATED AS LOAN/ADVANCE AND/OR SHARE APPLICATION MO NEYS, THE WORDS ANY PAYMENT MENTIONED IN THIRD PART OF THE CLAUSE OF SECTION 2( 22)(E) OF THE IT ACT 1961 WILL SQUARELY FALL WITHIN THE AMBIT OF SECTION 2(22)(E) OF THE IT ACT 1961 AND HENCE THE 'PAYMENT OF RS.90 CRORES BY BENNERET TO KHORAKIWALA DURING F.Y.2012-1 3 RELEVANT TO A.Y.2013-14 IS NOTHING BUT A DEEMED DIVIDEND AND CHARGEABLE TO'TAX. AO HAS DEALT WITH ONLY FIRST PART OF THE SUB CLAUSE WHEREAS THE THIRD SUB CLAUSE WHICH IS VERY W IDE, SQUARELY APPLIES TO THE FACTS OF THE CASE. THEREFORE IT IS HELD THAT 'THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT, 1961 WERE SQUARELY APPLICABLE UNDER THE THIRD PART OF THE SEC TION 2(22)(E) OF THE IT ACT, 1961 AND HENCE ACTION OF THE AO IN TREATING THE PAYMENT OF RS.90 C RORES BY BENNERET TO THE ASSESSEE AS 'DEEMED DIVIDEND' UNDER THE PROVISIONS OF SECTION 2 (22)(E) OF THE IT ACT, 1961 IS UPHELD IN FACTS OF THE CASE AND IN LAW SINCE 'THESE PROVISION S ARE SQUARELY APPLICABLE. IN NUTSHELL, AO'S ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 14 ACTION TO TREAT THE PAYMENT OF RS.90 CRORES BY BENN ERET TO ITS AS 'DEEMED DIVIDEND' IS UPHELD AND CONFIRMED. 6. THE LD. A.R. WHILE PLACING THE FACTS BEFORE THE BENCH QUA THE ASSESSEE AND THE GROUP COMPANIES SUBMITTED THAT ASSESSEE IS A HOLDING COMPANY OWNING 90.31% OF THE EQUITY SH ARE CAPITAL OF M/S. CISPL AND M/S. CISPL IS HOLDING 99% OF THE EQUITY SHARES OF M/S. BTPL. THE LD. A.R. SUBMITTED THAT T HE ASSESSEE RECEIVED PREFERENCE SHARE APPLICATION MONEY OF RS.9 0.00 CRORES FROM M/S. BTPL. FOR THIS INVESTMENT IN THE ASSESSEE COMPANY, M/S. BTPL BORROWED MONEY TO THE TUNE OF RS.71.00 CR ORES FROM M/S. CISPL AS LOAN AND RS.19.00 CRORES AS SHARE APP LICATION MONEY FROM M/S. MERIND LTD. THUS THE ASSESSEE HAS RECEIVED TOTAL PREFERENCE SHARE APPLICATION MONEY OF RS.90.0 0 CRORES FROM M/S. BTPL WHICH WAS USED BY THE ASSESSEE FOR REPAYM ENT OF LOAN TAKEN FROM M/S. CISPL. THE LD. A.R. VEHEMENTL Y SUBMITTED THAT PROVISIONS OF SECTION 2(22)(E) OF TH E ACT ARE NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE AS THE ASSESSEE IS NOT A REGISTERED SHAREHOLDER OF M/S. BTPL, LEAVE ASIDE THE BENEFICIAL SHAREHOLDER IN THE SAID COMPANY. THE LD. A.R. SUBM ITTED THAT MONEY RECEIVED BY THE ASSESSEE AS PREFERENCE SHARE APPLICATION MONEY FROM M/S. BTPL CAN NOT BE TREATED AS DEEMED D IVIDEND IN THE HANDS OF THE ASSESSEE IN ABSENCE OF ANY SHAR E HOLDING IN M/S. BTPL. THE LD. A.R. SUBMITTED THAT IN ORDER TO INVOKE THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, THE ASSE SSEE HAS TO BE REGISTERED AND BENEFICIAL SHAREHOLDER OF THE LENDER COMPANY. THE LD. A.R. SUBMITTED THAT THE ASSESSEE VIDE LETTE R DATED 22.01.2016, A COPY OF WHICH IS ATTACHED AT PAGE NO. 103 TO 128, FILED COPY OF THE RESOLUTION FOR ACCEPTING THE SHAR E APPLICATION ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 15 MONEY AND ALSO SUBMITTED THE BALANCE SHEET AS ON 31 .03.2015, CONFIRMATION AND COMPUTATION OF INCOME OF M/S. BTPL . THE LD. A.R. SUBMITTED THAT IN THE BALANCE SHEET AND NOTES TO ACCOUNTS OF M/S. BTPL, IT HAD DECLARED THE AMOUNT AS PAID TO ASSESSEE AS PREFERENCE SHARE APPLICATION MONEY. THE LD. A.R. S UBMITTED THAT SIMILAR SHARE APPLICATION MONEY WAS ALSO PAID TO OTHER ENTITIES IN THE GROUP AND SAME WERE DULY DISCLOSED IN THE NOTES TO ACCOUNTS IN THE ANNUAL AUDITED FINANCIAL STATEME NTS OF M/S. BTPL. THE LD. A.R. SUBMITTED THAT ON 07.03.2016 M/ S. BTPL REPLIED TO NOTICE ISSUED BY THE AO UNDER SECTION 13 3(6) OF THE ACT AND FILED THE BOARD RESOLUTION FOR MAKING INVE STMENTS IN THE PREFERENCE SHARES OF ASSESSEE COMPANY BESIDE FURNIS HING MEMORANDUM OF ARTICLE ASSOCIATION. THE LD. A.R. SUB MITTED THAT VIDE LETTER DATED 10.03.2016 THE ASSESSEE FILED COP IES OF ITR, COMPUTATION OF INCOME, ANNUAL ACCOUNTS AND TAX AUDI TED REPORT OF M/S. CISPL. THE LD. A.R. SUBMITTED THAT THE ASS ESSEE HAS USED THE SAID MONEY FOR REPAYING THE ENTIRE LOAN OF RS.194,57,88,998/- TAKEN FROM M/S. CISPL IN F.Y. 20 08-09 AND THEREFORE THE MONEY RECEIVED BY THE ASSESSEE IN TH E FORM OF PREFERENCE SHARE APPLICATION MONEY FROM M/S. BTPL C AN NOT BE TAXED UNDER SECTION 2(22)(E) OF THE ACT. IN DEFENC E OF HIS ARGUMENTS, THE LD. A.R. RELIED ON THE FOLLOWING DEC ISIONS: 1. CIT V. MADHUR HOUSING & DEVELOPMENT CO. CIVIL AP PEAL NO.3961 OF 2013 2. CIT VS. JIGNESH P SHAH (2015) 372 ITR 392 (BOM.) (HC) 3. PR. CIT VS. RAJEEV CHANDRASHEKHAR (2017) 397 ITR 263 (KAR.) (HC) 4. CIT VS. PRAVIN BHIMSHI CHHEDA (2015) 228 TAXMAN 340 (BOM)(HC)(MAG) 7. THE LD COUNSEL OF THE ASSESSEE ALSO RELIED ON TH E DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC BANK LTD VS ACIT ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 16 (2019)410 ITR 247 (BOM) TO PROVE HIS POINT THAT IT IS INCORRECT TO REGARD A PARENT COMPANY/SHAREHOLDER AS BENEFICIAL O WNER OF THE ASSETS HELD BY THE SUBSIDIARY COMPANY SINCE THE WHO LLY OWNED SUBSIDIARY IS A SEPARATE LEGAL ENTITY THOUGH THE DE CISION WAS RENDERED IN THE CONTEXT OF PROVISIONS OF SECTION 40 A(2) OF THE ACT. THE LD. A.R. SUBMITTED THAT EVEN IF THE APPLICATION MONEY RECEIVED FROM M/S. BTPL WAS TREATED AS LOAN OR ADVA NCE, EVEN IN THAT CASE THE SAME CANNOT BE CONSIDERED AS DEEMED D IVIDEND IN THE HANDS OF THE ASSESSEE, IN ABSENCE OF ANY DIRECT SHARE HOLDING OF ASSESSEE IN M/S. BTPL. 8. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS REC EIVED PREFERENCE SHARE APPLICATION MONEY FROM M/S. BTPL, THE EVIDENCES WHEREOF IN THE FORM OF BOARD RESOLUTION, COPIES OF MEMORANDUM AND ARTICLES OF COMPANY AND BALANCE SHEE TS ALONG WITH NOTES WERE FILED BEFORE THE AUTHORITIES BELOW AND IT HAS BEEN UNEQUIVOCALLY STATED IN THE NOTES TO ACCOUNTS OF M/S BTPL THAT IT HAS INVESTED IN THE FORM OF PREFERENCE SHAR E APPLICATION MONEY IN VARIOUS GROUP COMPANIES INCLUDING THE ASSE SSEE. THE LD. A.R. SUBMITTED THAT THE PREFERENCE SHARE APPLIC ATION MONEY IS NOT IN THE NATURE OF LOANS OR ADVANCES. TO SUPPO RT HIS ARGUMENTS THE LD. A.R. RELIED ON THE FOLLOWING DECI SIONS: 1. CIT VS. VIKAS OBEROI (2017) 394 ITR 505 (BOM)(HC ) 2. CIT VS ALPEX EXPORTS (P) LTD (2014)361 ITR297 ( BOM) 9. THE LD AR ARGUED THAT IN ABSENCE OF ANY LAW , TH E EQUITY TRANSACTIONS CANNOT BE RE-CHARACTERISED OR TREATED AS DEBT BY RELYING ON THE DECISION OF JURISDICTIONAL HIGH COUR T IN THE CASE OF DIT (INTERNATIONAL TRANSACTIONS) VS BESIX KIER DABH OL SA (2012) ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 17 210 TAXMAN 151. THE LD. A.R. SUBMITTED THAT IN THE ABOVE DECISION IT HAS BEEN HELD THAT MONEY RECEIVED AS SH ARE APPLICATION MONEY WAS NOT IN THE NATURE OF LOANS AN D ADVANCES FOR THE PURPOSE OF INVOKING PROVISIONS OF SECTION 2 (22)(E) OF THE ACT. 10. THE LD. A.R. FURTHER ARGUED THAT THE DEEMED DIV IDEND UNDER SECTION 2(22)(E) OF THE ACT CAN ONLY BE MADE IF THE LENDING COMPANY HAS ACCUMULATED PROFITS, HOWEVER, IN THE PR ESENT CASE M/S. BTPL HAS ACCUMULATED LOSS OF RS.77,183/- BASED ON THE AUDITED FINANCIAL STATEMENT AS ON 31.03.2013. THE LD. A.R. SUBMITTED THAT IN ABSENCE OF ANY ACCUMULATED PROFIT S IN THE HANDS OF M/S. BTPL THE PREFERENCE SHARE APPLICATION MONEY RECEIVED FROM THE M/S. BTPL CAN NOT BE TREATED AS D IVIDEND IN THE HANDS OF THE ASSESSEE SECTION 2(22)(E) OF THE A CT. 11. THE LD. A.R. STATED THAT BOTH THE GROUP COMPANI ES M/S. CISPL AND M/S. BTPL ARE IN THE BUSINESS OF GIVING LOANS AND ADVANCES TO THE GROUP COMPANIES. THE LD. A.R. WITH OUT PREJUDICE SUBMITTED THAT EVEN IF THE AMOUNT PAID BY M/S. BTPL TO THE ASSESSEE IS REGARDED AS LOAN IN THE ORDINAR Y COURSE OF BUSINESS, THERE SHOULD BE NO IMPLICATION OF PROVISI ONS OF SECTION 2(22)(E) OF THE ACT AS M/S. CISPL AND M/S. BTPL HAV E ADVANCED MONEY IN THE ORDINARY COURSE OF BUSINESS. THE LD. A.R. SUBMITTED THAT M/S. CISPL HAS ADVANCED RS.749.00 CR ORES AS LOANS AND ADVANCES TO THE RELATED PARTIES OUT OF TO TAL ASSETS OF RS.911.00 CRORES AS ON 31.03.2013. THUS THE ADVANC ES GIVEN CONSTITUTE 82% OF THE TOTAL ASSETS OF M/S. CISPL. THE LD. A.R. SUBMITTED THAT THE CORRESPONDING AMOUNTS OF THE ASS ETS AND ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 18 LOANS AND ADVANCES FOR THE YEAR ENDED 31.03.2012 WE RE RS.664 CRORES AND RS.507 CRORES RESPECTIVELY REPRESENTING 77% OF THE TOTAL ASSETS. THE LD. A.R., THEREFORE, SUBMITTED T HAT PROVIDING LOAN AND ADVANCES TO THE GROUP COMPANY IS ONE OF TH E BUSINESS ACTIVITIES OF M/S. CISPL AND THEREFORE LENDING OF M ONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF M/S. CISPL. TH E LD. A.R. WHILE DRAWING OUR ATTENTION TO CLAUSE (II) OF SECTI ON 2(22)(E) OF THE ACT SUBMITTED THAT IT EXCLUDES FROM THE SCOPE OF DE EMED DIVIDEND ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR THE SAID CONCERNS BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS. THE LD. A.R. SUBMITTED THAT SINCE THE LENDING OF MO NEY IS BEING SUBSTANTIAL PART OF BUSINESS OF M/S. CISPL AS STATE D ABOVE, EVEN IF IT IS CONSIDERED THAT LOAN WAS PURPORTEDLY TO BE ADVANCED BY M/S. CISPL TO THE ASSESSEE, THE SAME WOULD FALL UND ER EXCEPTION PROVIDED BY CLAUSE (II) OF SECTION 2(22)(E) OF THE ACT AND THEREFORE THE SAME SHOULD NOT BE SUBJECT TO TAX AS DEEMED DIV IDEND IN THE HANDS OF THE ASSESSEE. THE LD. A.R. FURTHER SUBMIT TED THAT M/S. BTPL HAS ADVANCED TO VARIOUS GROUP COMPANIES THE SH ARE APPLICATION MONEY TO THE EXTENT OF RS.755.00 CRORES WHICH REPRESENTED ALMOST THE ENTIRE BUSINESS ASSETS OF M/ S. BTPL. THUS IF THE AO WERE TO TREAT THE PREFERENCE SHARE A PPLICATION MONEY BY THE ASSESSEE FROM M/S. BTPL AS A LOAN EVEN THEN THE PROVISIONS OF SECTION 2(22)(E) DO NOT HOLD GOOD AS IN THAT CASE ALSO M/S. BTPL OUGHT TO BE TREATED AS A COMPANY INV OLVED IN SUBSTANTIAL LENDING ACTIVITY AND THEREFORE THE PROV ISIONS OF SECTION 2(22)(E) OF THE ACT CAN NOT BE INVOKED TO T HE FUNDS ADVANCED BY M/S. BTPL TO THE ASSESSEE. IN DEFENCE OF HIS ARGUMENTS, THE LD. A.R. RELIED ON FOLLOWING DECISIO NS: ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 19 I) CIT VS. JAYANT H. MODI (2015) 232 TAXMAN 337 (BO M.) (HC) II) ITO V. AJAY DILKHUSH SARUPRIYA (2015) 70 SOT 44 9 (MUM.)(TRIB.)- III) CIT V PARLE PLASTICS LTD. (2011) 332 ITR 63 (B OM.)(HC) IV) RAVI AGARWAL V ACIT (2016) 287 CTR 581 (A11.)(H C) 12. THE LD. A.R. ARGUED THAT SINCE M/S. BTPL HAD DE CLARED THE AMOUNT PAID TO ASSESSEE AS SHARE APPLICATION MONEY IN ITS BALANCE SHEET AND NOTES TO ACCOUNTS AND THESE INVES TMENT WAS DULY MADE UNDER THE AUTHORIZATION OF THE BOARD OF D IRECTORS AS IT WAS SPECIFICALLY RESOLVED AS IS APPARENT FROM THE BOARD RESOLUTION. THE LD. A.R. ALSO STATED THAT THE SIMI LAR SHARE APPLICATION MONEY WAS ALSO PAID TO OTHER GROUP ENTI TIES AND SAME WERE PART OF THE NOTES TO ACCOUNTS. THE LD. A .R. SUBMITTED THAT TOTAL AMOUNT PAID AS SHARE APPLICATION MONEY W AS RS.755.00 CRORES OUT OF WHICH THE AMOUNT PERTAININ G TO THE ASSESSEE WAS ONLY RS.90 CRORES. THE LD. A.R. SUBMI TTED THAT M/S. BTPL HAS RECEIVED TOTAL LOANS TO THE TUNE OF R S.723.00 CRORES DURING THE YEAR OUT OF WHICH RS.71 CRORES WA S RECEIVED FROM M/S. CISPL. THEREFORE, IT CAN NOT BE SAID THA T THE SAID TRANSACTION WAS JUST TO AVOID DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. COUNTERING THE ALLEGATIONS BY THE LOWER AUTHORITIES THAT M/S. BTPL WAS A SHAM COMPANY INCOR PORATED TO AVOID THE TAX , THE LD. A.R. SUBMITTED THAT M/S. BTPL WAS INCORPORATED IN THE YEAR 2008 AND THUS THE ALLEGATI ON OF THE AO THAT M/S. BTPL IS A SHAM COMPANY AND WAS FORMED IN ORDER TO CARRY OUT THIS TRANSACTION WAS WRONG AND AGAINST TH E FACTS ON RECORD. THE LD. A.R. SUBMITTED THAT DURING THE YEA R THE ASSESSEE HAS REPAID LOAN TO THE TUNE OF RS.406.00 C RORES APPROXIMATELY AND THE MONEY RECEIVED FROM M/S. BTPL AS PREFERENCE SHARE APPLICATION MONEY WAS ONLY A SMALL PORTION ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 20 THEREOF I.E. RS.90.00 CRORES. THE LD. A.R. SUBMITT ED THAT THERE IS COMMERCIAL EXIGENCIES AND EXPEDIENCY FOR THE SAID T RANSACTION AND THIS TRANSACTION WAS EXECUTED BY WAY OF BOOK EN TRIES ONLY BUT ACTUAL MONEY FLOWED FROM ONE PARTY TO ANOTHER A ND THE SAID TRANSACTION DOES NOT INVOLVE ANY INFRINGEMENT OF LA W. THE LD. A.R. ARGUED THAT THE TRANSACTIONS WHICH ARE CARRIED OUT WITHIN THE FRAMEWORK OF LAW CAN NOT BE TERMED AS SHAM TRAN SACTIONS JUST BECAUSE THERE IS A LOWER OUTFLOW OF TAXES. TH E LD. A.R. PLACED RELIANCE ON THE DECISION OF UOI VS. AZADI BA CHAO ANDOLAN & ANR. (2003) 263 ITR 706 (SC) AND THE LD. A.R. ALS O REFERRED TO VODAFONE INTERNATIONAL HOLDINGS VS. UOI (2012) 341 I TR 1 SC WHEREIN THE HONBLE SUPREME COURT HAS EXPLAINED THE CORRECT INTERPRETATION OF MC DOWELL & COMPANY LIMITED VS. COMMERCIAL TAX OFFICER (1985) 154 ITR 148 SC THAT LEGITIMATE T AX PLANNING CAN NOT BE CONSIDERED AS SHAM. THE LD. A.R. ALSO R ELIED ON A SERIES OF OTHER DECISIONS NAMELY; I) CIT VS. HEDE CONSULTANCY CO. (P.) LTD. (2015) 23 1 TAXMAN 421 (BOM)(HC) II) COROMANDEL CABLES LTD. VS. ACIT (2016) 71 TAXMANN.COM 346 (CHENNAI) (TRIB.) III) CIT VS. MEHTA (P) LTD. (2008) 174 TAXMAN 104 ( BOM) (HC)/ (2008) 220 CTR 148 (BOM)(C) IV) PORRITS AND SPENCER (ASIA) LTD. VS. CIT (2010) 329 ITR 222 (P&H) V) F.E. DINSHAW LIMITED VS. CIT (1959) 36 ITR 114 (BOM.) (HC) VI) CIT VS. WALFORT SHARES & SHARE BROKERS (P) LTD (2010) 326 ITR 1 (SC) THE LD. A.R. FINALLY PRAYED BEFORE THE BENCH THAT IN VIEW OF THESE FOREGOING ARGUMENTS AND THE RATIO LAID DOWN B Y VARIOUS COURTS THE ADDITION OF RS.90 CRORES AS CONFIRMED BY LD. CIT(A) IS ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 21 BAD IN LAW AND MAY KINDLY BE DELETED AS THE PROVISI ONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE AS ( I) THE PREFERENCE SHARE APPLICATION MONEY IS NOT IN THE NATURE OF LOA N, (II) M/S. BTPL HAS NO ACCUMULATED PROFIT AND M/S. CISPL AND M /S. BTPL ARE IN THE BUSINESS OF BORROWING AND ADVANCING TO G ROUP COMPANIES AND (III) THE TRANSACTIONS ARE NOT SHAM T RANSACTIONS AS HAS BEEN HELD BY THE AO. 13. PER CONTRA, THE LD. D.R. RELIED HEAVILY ON TH E ORDER OF LD. CIT(A) AND AO BY SUBMITTING THAT THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION OF RS.90.00 CRORES AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT AFTER APPRECIATIN G THE FACT THAT THE SOURCE OF MONEY IS FLOWING FROM THE COMPANY IN WHICH THE ASSESSEE HOLDS 90.31% OF THE EQUITY SHARES. THE LD . D.R. SUBMITTED THAT THE MONEY WAS TRANSFERRED FROM M/S. CISPL TO M/S. BTPL IN WHICH THE FORMER WAS HOLDING 99% OF TH E EQUITY HOLDING WHICH MEANS THAT ASSESSEE OWNS 90.3% OF THE EQUITY SHARES IN M/S. CISPL WHICH HOLDS 99% EQUITY SHARES IN M/S. BTPL MEANING THEREBY THAT ULTIMATELY THE ASSESSEE I S BENEFICIAL OWNER OF M/S. BTPL WHO HAS ADVANCED MONEY TO THE AS SESSEE IN THE GUISE OF PREFERENCE SHARE APPLICATION MONEY. T HE LD. D.R. SUBMITTED THAT OUT OF RS.90.00 CRORES WAS INVESTED BY M/S. BTPL IN THE ASSESSEE, RS.71.00 CRORES WAS RECEIVED FROM M/S. CISPL AS LOAN AND RS.19.00 CRORES WAS RECEIVED FROM M/S. MERIND LTD. THUS WHOLE TRANSACTION WAS A PART OF THE PLANNING DONE BY THE ASSESSEE TO CIRCUMVENT THE PROVISIONS O F SECTION 2(22)(E) OF THE ACT. COUNTERING THE ARGUMENTS OF T HE LD. A.R. THAT M/S. BTPL HAS NO ACCUMULATED PROFIT, THE LD. D .R. ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 22 SUBMITTED THAT ADMITTEDLY M/S. BTPL HAS NO ACCUMULA TED PROFIT BUT THE COMPANY FROM WHICH THE FUNDS WERE FLOWING I .E. M/S. CISPL HAS HUGE ACCUMULATED PROFIT AND THEREFORE FOR THE PURPOSE OF INVOKING SECTION 2(22)(E) OF THE ACT, TH E ACCUMULATED PROFIT OF THE M/S. CISPL HAS TO BE SEEN AND NOT OF M/S. BTPL AS THE TRANSACTION OF INVESTMENT INTO THE ASSESSEE IS BEING LOOKED AT FROM THE ANGLE OF FUNDS INVESTED BY M/S. CISPL T HROUGH M/S. BTPL IN THE ASSESSEE COMPANY. THE LD. D.R. ALSO SU BMITTED THAT THOUGH THE M/S. BTPL HAS RAISED HUGE AMOUNT OF LOANS AND ADVANCED THE SAME TO THE OTHER GROUP COMPANIES BUT THE FACT REMAINS THAT THE SAID COMPANY HAS NO CREDIBILITY, N O NET WORTH AND NO PROFITS AND THE WHOLE GAME PLAN WAS TO CIRCU MVENT THE TAX LAWS AND THEREFORE THE ADDITION OF RS.90 CRORES NEEDS TO BE SUSTAINED. THE LD. D.R. ALSO SUBMITTED THAT THE TR ANSACTION ENTERED INTO BY THE ASSESSEE WITH M/S. BTPL BY WAY OF ACCEPTING THE PREFERENCE SHARE APPLICATION MONEY AR E SHAM TRANSACTIONS. THE LD. D.R. WHILE DISTINGUISHING TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MA DHUR HOUSING AND DEVELOPMENT COMPANY (SUPRA) SUBMITTED T HAT IT IS A VERY BRIEF JUDGMENT WHEREBY THE DECISION OF HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS. ANKITTECH PVT. LTD. I N ITA NO.462 OF 2009 WAS AFFIRMED. THE LD. D.R. SUBMITTED THAT THE FACTS ARE CLEARLY DIFFERENT IN THAT CASE AS THE ENTITY IN WHO SE HANDS THE ADDITION OF DEEMED DIVIDEND WAS MADE BY THE AO WAS A COMPANY A WHICH HAS RECEIVED CERTAIN LOANS FROM CO MPANY B. THE SUBSTANTIAL SHAREHOLDERS OF COMPANY B WERE WERE CERTAIN INDIVIDUALS C WHO WERE ALSO SUBSTANTIAL SHAREHOLDER S IN COMPANY A .IN SUCH CIRCUMSTANCES HONBLE COURT HELD THAT ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 23 ADDITION OF DEEMED DIVIDEND IS LIABLE TO BE MADE IN THE HANDS OF THOSE INDIVIDUALS C AND NOT IN THE HANDS OF COMPANY A. HOWEVER, IN THE PRESENT CASE, THE CONTOURS OF TRANS ACTIONS ARE ENTIRELY DIFFERENT. THE AO HAS CLEARLY BROUGHT OUT THAT SUBSTANCE OF THE TRANSACTION IS THAT OF ADVANCING M ONEY BY M/S. CISPL TO THE ASSESSEE VIA INDIRECT ROOT WHEREIN THE ASSESSEE IS A SHAREHOLDER. THE LD. D.R. SUBMITTED THAT THE DIREC T TRANSFER OF MONEY BY M/S. CISPL TO THE ASSESSEE WOULD HAVE COVE RED THE TRANSACTION DIRECTLY UNDER THE PROVISIONS OF SECTIO N 2(22)(E) OF THE ACT AND THEREFORE THE ASSESSEE USED A COLOURABL E DEVICE OF INTRODUCING A PAPER COMPANY IN THE MIDDLE I.E. M/S. BTPL WHEREIN THE ASSESSEE WAS NOT HAVING ANY SHAREHOLDIN G. THE LD. D.R. SUBMITTED THAT MONEY WAS FIRST TRANSFERRED BY M/S. CISPL TO M/S. BTPL AND THEN TO THE ASSESSEE SHOWS THAT TH E WHOLE TRANSACTION WAS LAID OUT IN SUCH A MANNER TO CIRCUM VENT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE LD. D.R. SUBMITTED THAT THE M/S. BTPL WAS A PAPER COMPANY AND AS IS AP PARENT FROM THE FACT THAT THE SAID COMPANY IS NOT HAVING A NY NET WORTH OR BUSINESS ACTIVITY DURING THE YEAR AND IT HAS ONL Y BORROWED MONEY FROM THE GROUP COMPANIES AND ADVANCED THE SAM E INTRA GROUP. THE LD. D.R. REFERRED TO THE STATEMENT RECO RDED UNDER SECTION 131 OF THE ACT OF MR. A SHIVA SUBRAMANIAN, DIRECTOR OF M/S. BTPL WHO SUBMITTED IN REPLY TO QUESTION NO.14- 18 THAT M/S. BTPL WAS NOT INTO ANY ACTIVE BUSINESS AND WAS ONLY USED TO TRANSFER THE FUNDS FROM M/S. CISPL TO OTHER GROU P COMPANIES. THEREFORE, IN THE PRESENT CASE, THE FAC TS ARE CLEARLY DISTINGUISHABLE WHEREIN THE AO HAS MADE ADDITION IN THE HANDS OF THE ASSESSEE WHO IS SHAREHOLDER OF M/S. CISPL W HO HAS ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 24 ACTUALLY ADVANCED THE MONEY THROUGH M/S. BTPL. IN VIEW OF THESE FACTS, THE LD. D.R. SUBMITTED THAT THE ARGUME NTS OF THE ASSESSEE DESERVED TO BE REJECTED. THE LD. D.R. SUB MITTED THAT LD. COUNSEL OF THE ASSESSEE HAS ALSO RELIED ON SOME CASE LAWS OF VARIOUS HIGH COURTS AND TRIBUNALS, HOWEVER, THEY NO T APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE LD. D.R. SUB MITTED THAT THE DECISIONS REFERRED TO BY THE LD. A.R. IN THE CASE O F HDFC BANK LTD VS. ACIT (SUPRA) PERTAINS TO SECTION 40A(2) OF THE ACT. IN THE CASE OF PR. CIT VS. RAJEEV CHANDRASHEKHAR (SUPRA) T HE SHAREHOLDINGS PATTERN WAS DIFFERENT WHEREAS IN THE CASE OF CIT VS. PRAVIN BHIMSHI CHHEDA (SUPRA) THE NATURE OF TR ANSACTION IS DISTINGUISHABLE AND THEREFORE NOT APPLICABLE TO THE PRESENT CASE. THE LD. D.R. FURTHER ARGUED THAT THE OTHER CONTENTI ONS RAISED BY THE ASSESSEE QUA THE SHARE APPLICATION MONEY RECEIV ED FROM M/S. BTPL THAT THE SAID COMPANY NOT HAVING ANY ACC UMULATED PROFIT AND THAT FUNDS ADVANCED IN THE ORDINARY COU RSE OF BUSINESS ARE ACCORDINGLY LIABLE TO BE REJECTED, IN VIEW OF THE AFORESAID FACTS THAT THE WHOLE TRANSACTION WAS PLAN NED TO CIRCUMVENT THE PROVISIONS OF SECTION 2(22)(E) OF TH E ACT. THE LD. D.R. WHILE REBUTTING THE LD. COUNSELS ARGUMENTS SU BMITTED THAT THIS WAS A CASE OF CIRCUIT TRANSACTIONS WHEREB Y THE MONEY BELONGING TO M/S. CISPL WAS GIVEN TO THE ASSESSEE T HROUGH M/S. BTPL AND THUS THE MONEY INDIRECTLY BELONGED TO TH E COMPANY WHEREIN THE ASSESSEE HAS SUBSTANTIAL SHAREHOLDING T O THE TUNE OF 90.31%. THE LD. D.R. ALSO SUBMITTED THAT IN THIS C ASE THOUGH THE INTERMEDIARY COMPANY M/S. BTPL DOES NOT HAVE AN Y ACCUMULATED PROFIT BUT THE COMPANY WHOSE MONEY WAS ROUTED I.E. M/S. CISPL WAS HAVING ENOUGH ACCUMULATED PROFI T AND IN ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 25 SUCH A SCENARIO IT IS THE ONUS OF THE DEPARTMENT TO LIFT THE CORPORATE VEIL. THEREFORE, THE ORDER OF LD. CIT(A) ON THIS ISSUE MAY KINDLY BE AFFIRMED. THE LD. D.R. RELIED ON PEE AAR SECURITIES LTD. VS. DCIT IN ITA NO.4978/DELHI/2014 A.Y. 2005-0 6 ORDER DATED 23.08.2018 HOWEVER AFTER CAREFULLY PERUSING T HE SAID ORDER, WE FIND THAT THE SAID ORDER IS RENDERED ON DIFFERENT FACTS AND THEREFORE NOT APPLICABLE TO THIS CASE. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING THE WR ITTEN SUBMISSIONS FILED BY BOTH THE SIDES. THE UNDISPUTE D FACTS ARE THAT THE ASSESSEE IS A HOLDING COMPANY OWNING 90.31 % OF EQUITY SHARES OF CAPITAL OF M/S. CISPL AND M/S. CISPL FURT HER HOLDS 99% OF THE EQUITY SHARE CAPITAL OF M/S. BTPL. ALL THESE COMPANIES ARE GROUP COMPANY OF M/S. WOCKHARDT LTD. DURING THE YEAR, THE ASSESSEE RECEIVED PREFERENCE SHARE AP PLICATION MONEY OF RS.90.00 CRORES FROM M/S. BTPL OUT OF MONE Y RECEIVED RS.71.00 CRORES FROM M/S. CISPL AS A LOAN AND RS.19 CRORES AS SHARE APPLICATION MONEY FROM M/S. MERIND LTD. ANOTH ER GROUP COMPANY. THUS ASSESSEE HAS RECEIVED ONLY RS.90.00 CRORES AS PREFERENCE SHARE APPLICATION MONEY WHICH WAS USED F OR REPAYMENT OF LOAN TAKEN BY THE ASSESSEE FROM M/S. C ISPL IN EARLIER YEARS. IN THE BALANCE SHEET AND NOTES TO A CCOUNTS OF M/S. BTPL. THE SAID COMPANY HAS DECLARED THE AMOUN T PAID/INVESTED IN GROUP COMPANY TO THE TUNE OF RS. 7 55.00 CRORES INCLUDING THE ASSESSEES COMPANY AS PREFEREN CE SHARE APPLICATION MONEY OF RS. 90.00 CRORES. M/S. BTPL H AS ALSO REPLIED TO THE NOTICE UNDER SECTION 133(6) OF THE A CT ISSUED BY ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 26 THE AO TO VERIFY THE SAID SHARE APPLICATION MONEY B Y SUBMITTING AND FURNISHING THE COPY OF BOARD RESOLUTION AUTHORI ZI1111NG THE MAKING OF INVESTMENTS IN THE SHARES OF ASSESSEE BES IDES FILING COPY OF MEMORANDUM AND ARTICLES OF ASSOCIATION. D URING THE YEAR THE ASSESSEE HAS REPAID THE ENTIRE LOAN OF RS.194,57,88,998/- TAKEN FROM M/S. CISPL IN A.Y. 20 08-09 AND THIS RS.90 CRORE WAS ALSO UTILIZED IN THE REPAYMENT OF LOAN AS STATED ABOVE. THE AO TREATED THE PREFERENCE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE OF RS.90.00 CRORES A S DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT ON THE G ROUND THAT THE SAID MONEY WAS IN FACT RECEIVED FROM M/S. CISPL IN WHICH THE ASSESSEE HOLDS 90.31% EQUITY SHARES THROUGH INTERM EDIARY COMPANY M/S. BTPL IN WHICH M/S. CISPL HOLDS 99% OF THE EQUITY SHARE CAPITAL. ACCORDING TO THE AO THE SAID AMOUNT RECEIVED IN THE FORM OF SHARE APPLICATION MONEY IS DIRECTLY COVERED UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AS THE MONEY CAME FROM M/S. CISPL TO M/S. BTPL AND THEN TO THE ASSESSEE. THE LD. CIT(A) ALSO UPHELD THE ORDER OF AO ON THIS ISSUE BY HOLDING THAT THE MONEY IN FACT BELONGED TO THE ENTITY IN WHICH THE ASSESSEE IS REGISTERED AS WELL AS BENEFIC IAL SHAREHOLDER TO THE TUNE OF 90.31% AND THUS THE ADVANCING/INVEST ING MONEY THROUGH M/S. BTPL IS ONLY AN ARRANGEMENT ENTERED IN TO BY THE ASSESSEE TO CIRCUMVENT THE PROVISIONS OF SECTION 2( 22)(E) OF THE ACT. UNDISPUTEDLY AND FACTUALLY, THE ASSESSEE IS N OT A REGISTERED SHAREHOLDER OF M/S. BTPL AND THEREFORE THE CONDITIO N AS ENVISAGED IN THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT SATISFIED. FURTHER, THE ASSESSEE IS ALSO NOT A BEN EFICIAL SHAREHOLDER IN M/S. BTPL AND THEREFORE THERE IS A M ERIT IN THE ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 27 CONTENTIONS OF THE ASSESSEE THAT THE PREFERENCE SHA RE APPLICATION MONEY RECEIVED BY THE ASSESSEE CAN NOT BE TREATED A S DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE AS THE BASIC CONDITION AS ENVISAGED BY SECTION 2(22)(E) OF THE ACT IS NOT SAT ISFIED. IN OUR OPINION, THE ASSESSEE HAS TO BE REGISTERED AS WELL AS BENEFICIAL SHAREHOLDER OF THE LENDER COMPANY IN ORDER TO ATTRA CT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT AS HELD B Y THE HONBLE APEX COURT IN THE CASE OF CIT VS. MADHUR HOUSING AN D DEVELOPMENT COMPANY CIVIL APPEAL NO.3961 OF 2013. T HE CASE OF THE ASSESSEE IS ALSO COVERED BY A SERIES OF JUDGMEN TS WHICH ARE DISCUSSED IN THE FOLLOWING PARAS. A)IN THE CASE OF CIT VS. JIGNESH P. SHAH (SUPRA) TH E HONBLE BOMBAY HIGH COURT HAS HELD THAT THE INDIVIDUAL ASSE SSEE IS NOT A SHAREHOLDER OF M/S. NS FINCON PVT. LTD. FR OM WHOM THE ASSESSEE HAS RECEIVED THE LOAN. ANOTHER EN TITY M/S. LAW FINANCIAL SERVICES PVT. LTD. HAD ADVANCED MONEY TO M/S. NS FINCON PVT. LTD. THE HONBLE HIGH COURT HAS HELD THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE. B)IN THE CASE OF PR. CIT VS. RAJEEV CHANDRASHEKHAR (SUPRA) THE JURISDICTIONAL HIGH COURT HAS HELD THAT PROVISI ONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE WHER E THE ASSESSEE IS NOT A SHAREHOLDER IN THE LENDER COMPANY . IN THIS CASE THE ASSESSEE RECEIVED ADVANCE FROM M/S JU PITER CAPITAL PVT. LTD. THE ASSESSEE WAS A SHAREHOLDER WI TH 95% SHAREHOLDINGS IN M/S VECTRA HOLDINGS PVT. LTD. WHIC H IN TURNS WAS HOLDING 99.90% IN JUPITER CAPITAL PVT. LT D. THE ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 28 ADDITION WAS MADE BY THE AO U/S 2(22)(E) OF THE ACT IN THE ASSESSEE HAND ON THE GROUND THAT ASSESSEE IS BENEFI CIARY OF DIVIDEND IN VECTRA HOLDINGS PVT. LTD. WHICH IN TURN IS BENEFICIARY OF DIVIDEND FROM JUPITER CAPITAL PVT. L TD. AND HE CAN BE HELD BENEFICIAL OR ACTUAL OWNER OF THE SH ARES OF JUPITER CAPITAL PVT. LTD. THE TRIBUNAL HELD THAT TH E ASSESSEE IS NOT THE SHAREHOLDER IN THE LENDER COMPA NY AND THEREFORE PROVISIONS OF SECTION 2(22)(E) ARE NOT A PPLICABLE WHICH WAS AFFIRMED BY THE HONBLE HIGH COURT. C)IN THE CASE OF CIT VS. PRAVIN BHIMSHI CHHEDA (SUP RA) HONBLE BOMBAY HIGH COURT HAS HELD THAT CIRCUITOUS TRANSFER OF FUNDS TO SHAREHOLDERS WAS NOT DEEMED DI VIDEND IF COMPANY GOT BACK ITS FUNDS ON THE SAME DAY. IT WAS HELD THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT HAS TO BE CONSTRUED STRICTLY. D). SIMILARLY, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC VS. ACIT (SUPRA) HAS HELD THAT THE BENEFICIAL OWNERSHIP DOES NOT INCLUDE INDIRECT SHAREHOLDINGS T HOUGH THE JUDGMENT WAS RENDERED IN THE CONTEXT OF PROVISI ONS OF SECTION 40A(2) OF THE ACT. THE QUESTION BEFORE THE HONBLE BOMBAY HIGH COURT WAS WHETHER EVEN THE INDIRECT SHAREHOLDING IS TO BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE SUBSTANTIAL INTEREST FOR THE PURPOS E OF SECTION 40A(2)(B) OF THE ACT. 15. WE ALSO FIND MERIT IN THE ALTERNATIVE ARGUMENTS OF THE ASSESSEES COUNSEL THAT PREFERENCE SHARE APPLICATIO N MONEY IS ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 29 NOT IN THE NATURE OF LOANS AND ADVANCES. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISIONS OF TH E VARIOUS HIGH COURTS. A) IN THE CASE OF CIT VS. VIKAS OBEROI (SUPRA) THE H ONBLE BOMBAY HIGH COURT HAS HELD THAT SHARE APPLICATION M ONEY RECEIVED WAS NOT LOANS OR ADVANCES FOR THE PURPOSES OF INVOKING SECTION 2(22)(E) OF THE ACT. IN THE SAID DECISION, THE HONBLE BOMBAY HIGH COURT HAS UPHELD THE RATIO LAID DOWN BY THE BOMBAY TRIBUNAL IN THE CASE OF ITO VS. DIRECT INFORMATION PVT. LTD. 33 TAXMAN.COM 386 (MUMBAI) AN D ITO VS. SUBHMANGAL CREDIT CAPITAL PVT. LTD. ITA NO.7238(MUM). B) SIMILARLY THE DELHI TRIBUNAL IN THE CASE OF CIT VS. MAX EXPORTS PVT. LTD. (SUPRA) HAS HELD THAT SHARE APPLI CATION MONEY CAN NOT BE TREATED AS LOAN OR ADVANCE WITHIN THE MEANING OF SECTION 2(22)(E) OF THE ACT. WE ARE, THEREFORE, NOT IN AGREEMENT WITH THE DECISI ON OF THE LOWER AUTHORITIES ON THIS ISSUE AND HOLD THAT THE P REFERENCE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE FR OM M/S. BTPL IS OUTSIDE PURVIEW OF SECTION 2(22)(E) OF THE ACT AND CONSEQUENTLY HAS TO BE DELETED. THE CASE OF THE A SSESSEE IS ALSO SUPPORTED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXAT ION) VS. BESIX KIER DHABOLESE (SUPRA) WHEREIN HONBLE BOMBAY HIGH COURT HAS HELD THAT IN ABSENCE OF ANY LAW THE EQUITY TRANSACT IONS CAN NOT BE RECHARACTERISED AS DEBT BY THE INCOME TAX DEPART MENT AND ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 30 CONSEQUENTLY THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT COULD NOT BE HELD TO BE VALIDLY INVOKED IN THE CASE OF TH E ASSESSEE. 16. ON THE ISSUE OF ADDITION ON ACCOUNT OF DEEMED D IVIDEND UNDER SECTION 2(22)(E) OF THE ACT IN THE HANDS OF T HE ASSESSEE TO THE EXTENT OF ACCUMULATED PROFIT OF THE LENDING FIR M WE HAVE EXAMINED THE AUDITED ANNUAL ACCOUNTS AND FOUND THAT THE SAID COMPANY WAS NOT HAVING ANY ACCUMULATED PROFIT AND T HERE WERE IN FACT ACCUMULATED LOSSES OF RS.77,183/- AS PER TH E AUDITED FINANCIAL STATEMENT AS ON 31.03.2013 AND IN VIEW OF THE SAID ACCUMULATED LOSSES IN THE HANDS OF M/S. BTPL, THE P REFERENCE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE FR OM M/S. BTPL CAN NOT BE TREATED AS DEEMED DIVIDEND IN THE H ANDS OF THE ASSESSEE. THE CONTENTIONS OF THE DEPARTMENT THAT T HE HOLDING COMPANY I.E. M/S. CISPL WAS HAVING SUFFICIENT ACCUM ULATED PROFITS HAS NO MEANING AND IS NOT A VALID ARGUMENT AS THE MONEY IS LENT BY M/S. BTPL AND NOT BY M/S. CISPL. ACCORDINGLY, THE SAID ARGUMENTS OF THE DEPARTMENT A RE ALSO NOT ACCETABLE. WE HAVE ALSO EXAMINED THE BALANCE SHEET OF M/S. CISPL AND M/S. CISPL AND OBSERVED THAT BOTH THESE C OMPANIES ARE IN THE BUSINESS OF MAKING LOANS AND ADVANCES TO THE GROUP COMPANIES. EVEN IF WE PRESUME THAT AMOUNT PAID BY M/S. BTPL TO ASSESSEE IS A LOAN, THE PROVISIONS OF SECTION 2( 22)(E) OF THE ACT HAVE NO IMPLICATION AS M/S. CISPL AND M/S. BTPL HAV E ADVANCED MONEY IN THE ORDINARY COURSE OF BUSINESS A ND IS NOT A SOLITARY TRANSACTION. THIS IS CLEAR FROM THE FACT THAT M/S. CISPL OUT OF TOTAL ASSETS OF RS.911.00 CRORES AS ON 31.03 .2013, RS.749 CRORES WERE REPRESENTED BY LOANS AND ADVANCES TO TH E RELATED ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 31 PARTIES MEANING THEREBY THAT 82% OF THE TOTAL ASSET S OF M/S. CISPL WERE USED FOR ADVANCING LOANS TO THE RELATED PARTIES. THE CORRESPONDING FIGURES OF ASSETS AND LOANS AND ADV ANCES FOR THE YEAR ENDED 31.03.2012 WERE RS.664 CRORES AND RS.507 CRORES RESPECTIVELY REPRESENTING 76% OF THE TOTAL ASSETS. THUS IT IS CLEAR FROM THE ABOVE THAT PROVIDING LOANS AND ADVANCES TO GROUP COMPANIES IS ONE OF THE BUSINESS ACTIVITIES OF M/S. CISPL. WE NOTE THAT LENDING IS A SUBSTANTIAL PART OF BUSINES S ACTIVITY OF M/S. CISPL WHICH IS SPECIFICALLY EXCLUDED FROM THE SCOPE OF DEEMED DIVIDEND UNDER CLAUSE (II) TO SECTION 2(22)( E) OF THE ACT . THEREFORE, EVEN IF THE MONEY/LOAN IS PRESUMED TO BE ADVANCED ADVANCED BY M/S. CISPL TO THE ASSESSEE AND NOT AS S HARE APPLICATION MONEY BY M/S. BTPL EVEN THEN THE SAID A MOUNT CAN NOT BE ADDED IN THE HANDS OF THE ASSESSEE AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT ON THE GROUND THA T LENDING OF MONEY BEING A SUBSTANTIAL PART OF BUSINESS ACTIVITY OF THE M/S. CISPL. WE FURTHER NOTE THAT M/S. BTPL HAS INVESTED SHARE APPLICATION MONEY IN VARIOUS COMPANIES TO THE EXTEN T OF RS.755.00 CRORES WHICH IS ALMOST THE ENTIRE BUSINES S ASSETS OF M/S. BTPL, IN SUCH A SCENARIO IF WE PRESUME THE PRE FERENCE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE FR OM M/S. BTPL AS LOAN, EVEN THEN THE SAID AMOUNT CAN NOT BE ADDED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT A S THE SAID COMPANY IS INVOLVED IN SUBSTANTIAL LENDING ACTIVITY AND THUS THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT A TTRACTED TO THE FUNDS ADVANCED BY THE M/S. BTPL TO ASSESSEE. THE C ASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JAYANT H. MODI ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 32 (SUPRA). IN THIS CASE THE ASSESSEE HAS RECEIVED LO AN FROM ONE M/S. JMC SECURITIES PVT. LTD. WHICH WAS ENGAGED IN THE BUSINESS OF SHARE AND STOCK BROKERS. THE HONBLE B OMBAY HIGH COURT HAS HELD THAT MAXIMUM AMOUNT OF LOAN ADVANCED BY THE COMPANY DURING THE YEAR UNDER CONSIDERATION WAS TO THE TUNE OF RS.95,45,000/- WHICH CONSTITUTE 33% OF THE TOTAL FU NDS AVAILABLE WITH THE SAID COMPANY AND THUS UPHELD THE ORDER OF TRIBUNAL WHEREIN THE TRIBUNAL HAS CONCLUDED THAT LENDING MON EY IS A SUBSTANTIAL PART OF BUSINESS OF M/S. JMC SECURITIES PVT. LTD. AND UPHELD THE ORDER OF THE TRIBUNAL WHEREIN THE TR IBUNAL DELETED THE ADDITION OF DEEMED DIVIDEND. SIMILAR RATIO HAS BEEN LAID DOWN IN OTHER DECISION NAMELY ITO V. AJAY DILK HUSH SARUPRIYA (SUPRA), CIT VS. PARLE PLASTICS LTD. (BOM BAY HC) (SUPRA) AND RAVI AGARWAL V ACIT (ALLHABAD HC) (SUPR A). THEREFORE, EVEN ON THIS SCORE THE ORDER PASSED BY THE LD. CIT(A) CAN NOT BE SUSTAINED. 17. WE ARE ALSO NOT IN AGREEMENT WITH THE CONCLUSIO N DRAWN BY THE LOWER AUTHORITIES THAT THE TRANSACTION OF RECEI VING PREFERENCE SHARE APPLICATION MONEY FROM M/S. BTPL ARE SHAM TRA NSACTIONS. IN THIS CASE, WE OBSERVE THAT MONEY HAS BEEN INVEST ED BY M/S. BTPL IN THE ASSESSEE TO THE TUNE OF RS.90.00 CRORES WHICH IS A PART OF THE TOTAL MONEY INVESTED BY M/S BPTL IN OTH ER GROUP COMPANY TO THE TUNE OF RS.755.00 CRORES. THUS TO SA Y THAT THIS IS A SHAM TRANSACTION IS ALSO WRONG AS THE SAME IS DULY AUTHORISED BY THE DECISION OF THE BOARD OF DIRECTOR S AS EVIDENCED BY THE BOARDS RESOLUTION AND DULY ACCOUNTED IN TH E BOOKS OF ACCOUNTS, STATED IN THE ANNUAL ACCOUNTS AS WELL AS NOTES TO ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 33 ACCOUNTS OF M/S BPTL. THE SOURCE OF MONEY IS CLEAR LY VOUCHED AND VERIFIED AS M/S. BTPL HAS RECEIVED RS.71.00 CRO RE FROM M/S. CISPL AND RS.19.00 CRORE FROM M/S. MERIND LTD. WE ALSO DO NOT FIND ANY MERIT IN THE ARGUMENTS OF THE REVEN UE THAT M/S. BTPL IS A SHAM COMPANY AS THE SAID COMPANY SPECIFIC ALLY FORMED FOR THE PURPOSE OF BORROWING AND ADVANCING MONEY FROM GROUP COMPANIES AND WAS INCORPORATED IN 2008 AND NO T ONLY FOR THE PURPOSE OF THIS PARTICULAR TRANSACTION. WE ALSO NOTE THAT DURING THE YEAR, THE ASSESSEE HAS REPAID THE LOANS TO THE TUNE OF RS.406 CRORES APPROXIMATELY AND THUS RS.90.00 CRORE S RECEIVED FROM M/S. BTPL IS A SMALL PORTION OF FUNDS UTILISED BY THE ASSESSEE TO REPAY THE LOANS AND WE FIND COMMERCIAL EXPEDIENCY AND COMMERCIAL CONSIDERATION IN ENTERING INTO VARIO US TRANSACTIONS. MOREOVER, THE TRANSACTIONS BY THE GR OUP COMPANIES ARE NOT BOOK ENTRIES BUT FOLLOWED BY ACTU AL TRANSFER OF FUNDS INVOLVING NO INFRINGEMENT OF LAW. IN OUR OPINION, THE TRANSACTION OF THE ASSESSEE IS CARRIED OUT WITHIN T HE FRAMEWORK OF LAW AND THEREFORE CAN NOT BE SAID TO BE SHAM TRA NSACTION BECAUSE THERE IS A LOWER OUTFLOW OF TAXES. THE CAS E OF THE ASSESSEE IS SUPPORTED BY THE DECISION OF UOI VS. AJ ADI BACHO ANDOLAN & ORS.(SUPRA) WHEREIN THE DEPARTMENT HAS AR GUED THAT INTERVENING COMPANY INCORPORATED IN MAURITIUS COMPA NY WAS A SHELL/SHAM COMPANY INCORPORATED TO SAVE TAXES. THE HONBLE SUPREME COURT HAS EXPLAINED THE CORRECT INTERPRETAT ION OF MC DOWELL AND CO. LTD. VS. CTO (SUPRA) THAT LEGITIMAT E TAX PLANNING CAN NOT BE CONSIDERED AS SHAM BY HOLDING AND OBSERV ING AS UNDER: IF THE COURT FINDS THAT NOTWITHSTANDING A SERIES O F LEGAL STEPS TAKEN BY AN ASSESSEE, THE INTENDED LEGAL RESULT HAS NOT BEEN ACHIEVED, TH E COURT MIGHT BE JUSTIFIED IN ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 34 OVERLOOKING THE INTERMEDIATE STEPS, BUT IT WOULD NO T BE PERMISSIBLE FOR THE COURT TO TREAT THE INTERVENING LEGAL STEPS AS NON-EST BASED UPON SOME HYPOTHETICAL ASSESSMENT OF THE REAL MOTIVE OF THE ASSESSEE. I N OUR VIEW, THE COURT MUST DEAL WITH WHAT IS TANGIBLE IN AN OBJECTIVE MANNER AND CA NNOT AFFORD TO CHASE A WILL-O- THE-WISP. SIMILARLY, IN THE CASE OF VODAFONE INTERNATIONAL HOL DING BV VS. UOI(SUPRA), THE HONBLE COURT HAS EXPLAINED THE COR RECT INTERPRETATION OF MC DOWELL & CO. LTD. (SUPRA) THAT LEGITIMATE TAX PLANNING CAN NOT BE CONSIDERED AS SHAM. IN THE CAS E OF CIT VS. HEAD DAY CONSULTANCY PVT. LTD. (SUPRA) THE HONBLE BOMBAY HIGH COURT HAS HELD THAT WHERE THE SHARE OF A SISTE R CONCERN WAS SOLD AT A LOSS TO REDUCE THE PROFIT ON SALES OF STOCK EXCHANGE, THE TRANSACTIONS WERE NOT A LEGITIMATE AS THE TRANSACTIONS WERE WITHIN THE FOUR CORNER OF LAW AND WERE NOT TO BE HELD AS SHAM. SIMILARLY, IN THE CASE OF PORRITS AND SPENCER (ASIA) LTD. VS. CIT (SUPRA) THE COURT HAS HELD THAT ONCE THE TRANSACTION IS HELD TO BE GENUINE MERELY BECAUSE IT HAS BEEN ENTERED INTO WITH A MOTIVE TO AVOID TAX, IT WOULD N OT BECOME A COLOURABLE DEVISE AND CONSEQUENTLY EARNED ANY DISQU ALIFICATION. IN THE CASE OF CIT VS. WALLPORT SHARES AND SHARE BR OKERS PVT. LTD. (SUPRA) THE HONBLE SUPREME COURT HAS HELD THA T WHERE THE ASSESSEE WAS PURCHASING DIVIDEND BEARING UNIT AND S ELLING THEM AT A LOSS AFTER RECEIVING A DIVIDEND, THE SAME CAN NOT BE HELD AS A SHAM TRANSACTION BY OBSERVING AND HOLDING AS UNDE R: EVEN ASSUMING THAT THE TRANSACTION WAS PRE-PLANNED THERE IS NOTHING TO IMPEACH THE GENUINENESS OF THE TRANSACTION. WITH REGARD TO THE RULING IN MC DOWELL & CO. LTD. V. CTO (1985) 154 ITR 148 (SC), IT MAY BE STATED THAT IN T HE LATER DECISION OF THIS COURT IN UNION OF INDIA V. AZADI BACHAO ANDOLAN (2003) 263 ITR 706 IT HAS BEEN HELD THAT A CITIZEN IS FREE TO CARRY ON ITS BUSINESS WITHIN THE FOUR CORNERS OF TH E LAW. THAT, MERE TAX PLANNING, WITHOUT ANY MOTIVE TO EVADE TAXES THROUGH COLOURABLE DEVICE S IS NOT FROWNED UPON EVEN BY THE JUDGMENT OF THIS COURT IN MCDOWELL & CO. LTD.S CAS E (SUPRA). ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 35 IN VIEW OF THE ABOVE SAID FACTS AND THE RATIO LAID DOWN BY THE VARIOUS HIGH COURTS AND APEX COURT, WE ARE NOT IN AGREEMENT WITH THE CONCLUSION OF THE LOWER AUTHORIT IES THAT THE TRANSACTION BY M/S. BTPL TO ASSESSEE WAS SHAM. THE REFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES AS DISCUSSE D ABOVE IN THE LIGHT OF RATIO LAID DOWN IN THE VARIOUS DECISIO NS AS DISCUSSED HEREINABOVE, WE ARE INCLINED TO HOLD THAT THE PROVI SIONS OF SECTION 2(22)(E) OF THE ACT ARE NOT APPLICABLE IN T HE PRESENT CASE AND ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT( A) AND DIRECT THE AO TO DELETE THE ADDITION MADE UNDER SECTION 2( 22)(E) OF THE ACT. THE GROUND NO. 1 IS ALLOWED. 18. THE SECOND GROUND RAISED BY THE ASSESSEE IS AGA INST THE ORDER OF LD. CIT(A) NOT ADJUDICATING THE GROUND THA T THE PREFERENCE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE AS IS TREATED BY THE AO UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT WITHOUT PREJUDICE BY FAILING TO APPRECIA TE THAT THE ASSESSEE HAS DULY DISCHARGED ITS OBLIGATION TO PROV E IDENTITY, CREDITWORTHINESS OF THE PARTY AND GENUINENESS OF T HE TRANSACTION AND SOURCE THEREOF. 19. THIS GROUND HAS BEEN TAKEN BY THE ASSESSEE IN V IEW OF THE FACT THAT THE AO HAS ALSO TREATED THE MONEY RAISED BY WAY OF PREFERENCE SHARE APPLICATION MONEY BY THE ASSESSEE FROM M/S. BTPL AS UNEXPLAINED CASH CREDIT AND HELD THAT THE S AME IS LIABLE TO BE ADDED UNDER SECTION 68 OF THE ACT WITHOUT PRE JUDICE TO THE ADDITION MADE UNDER SECTION 2(22)(E) OF THE ACT BY HOLDING THAT IDENTITY AND THE CREDITWORTHINESS OF THE PARTY AND GENUINENESS OF THE TRANSACTION WAS NOT PROVE AND FINALLY HELD T HAT THE BURDEN ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 36 OF PROVING THESE THREE INGREDIENTS AS ENVISAGED BY PROVISIONS OF SECTION 68 OF THE ACT HAS NOT BEEN DISCHARGED. 20. THE LD. CIT(A) DID NOT ADJUDICATE THE SAID GROU ND ON THE PLEA THAT THE ISSUE HAS BEEN DECIDED AGAINST THE AS SESSEE ON THE MAIN GROUND. THE LD. CIT(A) OBSERVED AND HELD AS UN DER: WITH REGARD TO GROUND NO.6 OF THE APPELLANT WHEREI N IT HAS OBJECTED TO THE AOS ALTERNATIVE VIEW THAT THE AMOUNT OF RS.90 CRORES WA S RECEIVED FROM THE ABOVE MENTIONED PARTIES CONSTITUTES UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT, IT IS HELD THAT THE UNDERSIGNED HAS DECIDED THE GROUND OF APPEAL NO. 5 AGAINST THE APPELLANT AND HENCE THIS GROUND OF APPEAL NO. 6 HAS NOT BEEN ADJUDICATED. IT IS TO BE MENTIONED HERE THAT DURING THE APPELLATE PROCEEDINGS THE APPELLANT'S AR ALSO FILED CERTAIN D OCUMENTS WHICH CONSTITUTE ADDITIONAL EVIDENCE IN RELATION TO GROUND NO,6 RAISED HAS BEEN CONSIDERED BUT IN VIEW OF THE DECISION ON ROUND NO. 5 ABOVE, THESE DOCUMENTS HAVE NOW BECO ME NOT RELEVANT. IN VIEW OF THIS, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE THIS GROUND OF APPEAL IS NOT ADJUDICATED . 21. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD AND AS ALREADY NOTED BY US, ALL THE THREE COMPANIES M/S CISPL , M/S BTPL AND THE ASSESSEE ARE GROUP COM PANIES OF M/S. WOCKHARDT LTD. AND THERE IS NO DOUBT AS TO THE IDENTITY OF THESE COMPANIES, GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS OF THE INVESTOR AND ALSO THE SOUR CE OF SOURCE. THE ASSESSEE HAS TAKEN PREFERENCE SHARE APPLICATION MONEY OF RS.90.00 CRORES FROM M/S. BTPL WHO IN TURN BORROWED THIS MONEY FROM M/S. CISPL RS. 71.00 CRORES AS LOAN AND FROM M/S. MERIND LTD RS. 19.00 AS SHARE APPLICATION MONE Y WHICH IS ALSO A GROUP COMPANY. THUS IDENTITY OF THESE COMPA NIES ARE VERY MUCH ESTABLISHED AS THE ASSESSEE HAS FILED ALL THE NECESSARY EVIDENCES BEFORE THE AUTHORITIES BELOW AS REGARDS THE GENUINENESS OF THE TRANSACTIONS. WE ARE OF THE VIE W THAT SINCE THE SOURCE OF MONEY IS NOT IN DOUBT AND EVEN THE SO URCE OF SOURCE HAS BEEN EXPLAINED THUS THE TRANSACTIONS IN THIS CASE ARE GENUINE AND THERE IS NO REASON TO TREAT THE SAME AS NON ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 37 GENUINE. AS REGARDS CREDITWORTHINESS OF THE INVESTO R I.E. M/S. BTPL, WE HAVE NO DOUBT AS THE MONEY IS ADVANCED OUT OF BORROWED FUND FROM M/S. CISPL AND M/S. MERIND LTD. THEREFORE, IN OUR OPINION, ALL THESE THREE INGREDIE NTS OF SECTION 68 ARE FULLY SATISFIED. MOREOVER, THE MONEY HAS TR ANSFERRED THROUGH BANKING CHANNEL AND THUS ALL THE EVIDENCES ARE ON RECORD. THE CASE OF THE ASSESSEE IS ALSO SUPPORTED BY THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS. L OVELY EXPORTS PVT. LTD. 216 CTR 195(SC) WHEREIN THE HONBLE COURT OBSERVED THAT ONCE THE ASSESSEE HAS GIVEN NAMES AND IDENTITY OF THE SHAREHOLDERS, THE ONUS UPON IT GETS DISCHARGED AND NO ADDITION CAN BE MADE IN THE HANDS OF THE ASSESSEE AND THE ON US SHIFTS TO THE DEPARTMENT AND IF THE DEPARTMENT THOUGHT IT TO BE APPROPRIATE, THE ACT PERMITTED THE TAX DEPARTMENT T O PROCEED AGAINST SUCH SHAREHOLDER AND EVEN TO REOPEN THE IND IVIDUAL IF NECESSARY IN ACCORDANCE WITH STATUTORY POWERS UNDER SECTION 147 OF THE ACT. SIMILAR RATIO HAS BEEN LAID DOWN I N PCIT VS. PARTH ENTERPRISES BY THE HONBLE BOMBAY HIGH COURT IN ITA NO.786 OF 2016 DATED 11.12.2018. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT SHARE APPLICATION MONEY AMO UNTING TO RS.90.00 CRORES RECEIVED FROM M/S. BTPL CAN NOT BE TREATED AS INCOME OF THE ASSESSEE UNDER SECTION 68 OF THE ACT. IN THE CASE OF PCIT VS. VEEDHATA TOWER PVT. LTD. (2018) 403 ITR 415 THE HONBLE BOMBAY HIGH COURT HAS HELD THAT SOURCE OF S OURCE IS NOT REQUIRED TO BE PROVED. SIMILARLY IN THE CASE O F CIT VS. ORCHID INDUSTRIES PVT. LTD. (2017) 397 ITR 136 HON BLE BOMBAY HIGH COURT HAS HELD THAT SHARE APPLICATION MONEY CA N NOT BE TREATED AS CASH CREDIT. CONSIDERING THE FACT OF TH E CASE IN THE ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 38 LIGHT OF VARIOUS DECISIONS AS DISCUSSED HEREINABOVE WE ARE INCLINED TO HOLD THAT THE PREFERENCE SHARE APPLICAT ION MONEY OF RS.90.00 CRORES RECEIVED BY THE ASSESSEE CAN NOT BE BROUGHT TO TAX AS UNEXPLAINED CREDIT UNDER SECTION 68 OF THE A CT. ACCORDINGLY THE GROUND NO.2 IS ALLOWED. 22. THE 3 RD ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL IS AGAI NST THE ORDER OF LD. CIT(A) NOT RESTRICTING THE DISALLO WANCE UNDER SECTION 14A OF THE ACT TO THE AMOUNT TO EXEMPT INCO ME EARNED BY WAY OF DIVIDEND DURING THE YEAR. THE REVENUE HA S ALSO CHALLENGED THE ORDER OF LD. CIT(A) ON THIS ISSUE OF DELETING THE ADDITIONAL DISALLOWANCE OF RS.1,70,51,001/- MADE BY THE AO UNDER SECTION 14A READ WITH RULE 8D IN ITA NO.3348/ M/2019 A CROSS APPEAL FILED BY THE REVENUE. 23. BY ADJUDICATING THIS GROUND ,THE APPEAL OF THE REVENUE WILL ALSO BE DISPOSED OF AS THE SAME ISSUE IS INVOL VED IN RESPECT OF DELETION OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. 24. THE FACTS IN BRIEF ARE THAT DURING THE YEAR THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEND OF RS.7,02 ,745/- AND CLAIMED THE SAME AS EXEMPT. THE AO NOTICED THAT AS SESSEE HAS MADE ANY SUO-MOTTO DISALLOWANCE UNDER SECTION 14A R EAD WITH RULE 8D OF RS.7,71,04,511/- AND ACCORDINGLY VIDE NO TICE DATED 11.01.2016 ASKED TO EXPLAIN THE AS TO WHY DISALLOWA NCE SHOULD NOT BE MADE AS PER SECTION 14A READ WITH RULE 8D. IN RESPONSE, THE ASSESSEE FILED LETTER DATED 22.01.2016 SUBMITTI NG THE WORKING OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D WHEREIN THE DISALLOWANCE WAS WORKED OUT AT RS.7,71, 04,511/-. ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 39 HOWEVER, THE AO REJECTED THE WORKING OF THE ASSESSE E AND DEWORKED THE DISALLOWANCE UNDER SECTION 14A AT RS.8,09,27,595/-. THE AO, THEREFORE, MADE A NET AD DITION OF RS.1,70,51,001/- AFTER ALLOWING THE DEDUCTION OF SU O-MOTO DISALLOWANCE. 25. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) PA RTLY ALLOWED THE APPEAL OF THE ASSESSEE AFTER TAKING INTO ACCOUN T THE CONTENTIONS OF THE ASSESSEE BY DELETING THE DISALLO WANCE OF RS.1,70,51,001/- MADE BY THE AO. THE LD. CIT(A) DI D NOT ACCEPT THE PLEA OF THE ASSESSEE THE DISALLOWANCE UNDER SE CTION 14A RULE 8D CANNOT EXCEED THE AMOUNT OF EXEMPT INCOME EARNED . 26. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE THE ASSESSEE H AS EARNED EXEMPT INCOME OF RA. 7,02,745/- WHILE THE SUO MOTTO DISALLOWANCE U/S 14A RULE 8D WAS MADE AT RS. 7,71,0 4,511/- WHICH IS OBVIOUSLY MORE THAN THE EXEMPT INCOME. THE COUNSEL OF THE ASSESSEE TAKES SEVERAL LEGAL PLEAS TO DEFEND TH E CASE OF THE ASSESSEE. FIRST PLEA IS THAT SINCE THE ENTIRE EXPEN SES WERE DISALLOWED IN THE COMPUTATION OF INCOME SO THE ISSU E BECOMES ACADEMIC AND NO FURTHER DISALLOWANCE IS CALLED FOR . SECONDLY THE DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME OF RS. 7,02,745/-. WE FIND MERITS IN THE CONTENTIONS O F THE ASSESSEE THE ISSUE IS SQUARELY COVERED THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF PR CIT VS BALLARPUR INDUSTRIES LTD. ITA NO. 51 OF 2016 VIDE ORDER DATED 13.10.2016 , PR. CIT VS CARAF BUILDERS & CONSTRUCTION (P) LTD. (2019)261TA XMAN ITA NO.2177/M/2019 ITA NO.3348/M/2019 M/S. KHORAKIWALA HOLDINGS AND INVESTMENTS PVT. LTD. 40 47(DELHI) WHICH HAS CONSIDERED THE DECISION OF HON BLE APEX COURT IN THE CASE OF MAXOPP INVESTMENTS LTD VS CIT(2 018)259 TAXMAN314 SC. AFTER CONSIDERING THE RATIO IN THE VA RIOUS DECISIONS AS DISCUSSED ABOVE WE ARE INCLINED TO SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO THE AMOUNT OF EXEMPT INCOME AT RS. 7,02,745/-. THE GROUND NO. 3 IS ALLOWED AND REVENUE APPEAL I S DISMISSED. IN RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.01.2020. SD/- SD/- ( AMARJIT SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 29.01.2020. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.