M/s Soul Space Projects Ltd., New Delhi V. DCIT, New Delhi

ITA 3180/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98159 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 22-09-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 21-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNITA KEJRIWAL
• Assessee Lawyers: SHUBHAM RASTOG I S
• Keywords: Search and seizure; Opportunity of being heard; Principle of natural justice; Additional evidence; Wholly owned subsidiary; Reasonable cause; Deemed dividend; Reassessment proceedings
• Section: 143(3); 142(1); 153A; 234B; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.3180/DEL./2013 (ASSESSMENT YEAR : 2006-07) M/S. SOUL SPACE PROJECTS LIMITED, VS. DCIT, CENTRA L CIRCLE 17, E 23/B 1 EXTN. MCIE, NEW DELHI. MATHURA ROAD, NEW DELHI. (PAN : AAJCS7736F) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI SALIL KAPOOR & SHUBHAM RASTOG I, ADVOCATES REVENUE BY : SMT. SUNITA KEJRIWAL, CIT DR DATE OF HEARING : 24.09.2015 DATE OF PRONOUNCEMENT : 16.12.2015 O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE, IS FI LED AGAINST THE ORDER OF THE CIT (APPEALS)-II, NEW DELHI DATED 21.03.2013 FO R THE ASSESSMENT YEAR 2006-07. 2. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE AS UNDER :- 1. THAT THE NOTICE ISSUED UNDER SECTION 153A AND T HE ASSESSMENT ORDER MADE UNDER SECTION 153A R.W.S. 143 (3) IS ILLEGAL, BAD IN LAW, BARRED BY TIME LIMITATION & WITHOUT JUR ISDICTION. ITA NO.3180/DEL./2013 2 2. THAT THE ADDITIONS/DISALLOWANCE MADE BY THE ASSE SSING OFFICER BY PASSING THE ASSESSMENT ORDER UNDER SECTI ON 153A R.W.S. 143(3) ARE ILLEGAL, BAD IN LAW & WITHOUT JURISDICTI ON. 3. THAT THE ADDITIONS MADE BY THE AO ARE NOT BASED ON ANY INCRIMINATING MATERIAL FOUND DURING THE COURSE OF S EARCH. HENCE ASSESSMENT ORDER PASSED U/S 153A/143(3) AND THE ADDITIONS/DISALLOWANCES ARE ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION. 4. THAT THE REFERENCE MADE TO SPECIAL AUDIT U/S 142 (2A) IS ILLEGAL AND BAD IN LAW AND LIABLE TO BE SET ASIDE. 5. THAT, WITHOUT PREJUDICE, THE EXTENSION OF TIME G RANTED BY THE CIT TO THE SPECIAL AUDITOR FOR COMPLETION OF SPECIA L AUDIT OF THE ASSESSEE IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDI CTION. THE ASSESSMENT ORDER IS ALSO BARRED BY TIME LIMITATION AND HENCE ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION. 6. THAT THE ADDITION/DISALLOWANCE MADE IS UNJUST, A RBITRARY AND IS NOT BASED ON ANY MATERIAL ON RECORD. THE TOTAL I NCOME OF THE APPELLANT HAS BEEN WRONGLY AND ILLEGALLY ASSESSED B Y THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) AT RS . 48 LAKHS AS AGAINST INCOME DECLARED AT RS. NIL. 7. THE ASSESSING OFFICER IN VIEW OF THE FACTS AND C IRCUMSTANCES OF THE CASE ERRED ON FACTS AND IN LAW IN MAKING THE ADDITION OF RS.48 LAKHS ON ACCOUNT OF DEEMED DIVIDEND AND THE C IT(A) HAS ALSO ERRED IN UPHOLDING THE SAME. 8. THE ASSESSING OFFICER IN VIEW OF THE FACTS AND C IRCUMSTANCES OF THE CASE ERRED ON FACTS AND IN LAW IN HOLDING TH AT RS 48 LAKHS IS DEEMED DIVIDEND U/S 2(22)(E) IN HANDS OF THE APPELL ANT AND THE CIT(A) HAS ERRED IN UPHOLDING THAT. 9. THAT THE VARIOUS OBSERVATIONS MADE BY THE AO AND CIT (A) AGAINST THE ASSESSEE IN ITS ORDERS ARE ILLEGAL, BAS ED ON GUESS WORK AND SURMISES AND CONJECTURES AND CONTRARY TO FACTS ON RECORD. 10. THAT THE CIT (A), IN VIEW OF THE FACTS AND CIRC UMSTANCES ERRED ON FACTS AND IN LAW IN NOT CONSIDERING/ REJEC TING THE APPLICATION MADE UNDER RULE 46A OF THE INCOME TAX A CT, 1961, FOR ITA NO.3180/DEL./2013 3 ADDITIONAL EVIDENCES, WITHOUT BRINGING ANY MATERIAL ON RECORD AND IN VERY SUMMARY MANNER, WHEN THE APPELLANT HAS SPEC IFICALLY RAISED THAT THERE IS VIOLATION OF PRINCIPLE OF NATU RAL JUSTICE AND HE WAS ALSO PREVENTED BY THE SUFFICIENT AND REASONABLE CAUSE FOR NOT FILING THE DETAILS BEFORE ASSESSING OFFICER. 11. THAT CIT (A) FAILED TO APPRECIATE THAT THE ASSE SSMENT ORDER PASSED BY THE ASSESSING OFFICER IS AGAINST THE PRIN CIPLES OF NATURAL JUSTICE AND THE SAME HAS BEEN PASSED WITHOUT AFFORD ING REASONABLE AND ADEQUATE OPPORTUNITY OF BEING HEARD. 12. THAT THE ADDITIONS / DISALLOWANCES MADE ARE UNJ UST, UNLAWFUL, WITHOUT JURISDICTION AND ARE ALSO HIGHLY EXCESSIVE. THE CIT (A) HAS WRONGLY & ILLEGALLY UPHOLD THE ADDITION S MADE BY THE ASSESSING OFFICER. 13. THAT THE ADDITIONS/ ESTIMATION MADE AND THE OBS ERVATIONS MADE ARE UNJUST, UNLAWFUL AND PURELY BASED ON MERE SURMISES AND CONJUNCTURES. THE ADDITIONS MADE CANNOT BE JUSTIFIE D BY ANY MATERIAL ON RECORD. 14. THAT THE EXPLANATION GIVEN EVIDENCE PRODUCED, M ATERIAL PLACED AND AVAILABLE ON RECORD HAS NOT BEEN PROPERL Y CONSIDERED AND JUDICIALLY INTERPRETED AND THE SAME DO NOT JUST IFY THE ADDITIONS/ ALLOWANCES MADE. 15. THAT THE INTEREST U/S 234A & 234B HAS BEEN WRON GLY AND ILLEGALLY CHARGED AS THE APPELLANT COULD NOT HAVE F ORESEEN THE DISALLOWANCES/ADDITIONS MADE AND COULD NOT HAVE INC LUDED THE SAME IN CURRENT INCOME FOR PAYMENT OF ADVANCE TAX. THE INTEREST CHARGED UNDER VARIOUS SECTIONS IS ALSO WRONGLY WORK ED OUT. 16. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND OR MODIFY THE GROUNDS OF APPEAL OF THE SAID APPEAL. 3. GROUNDS NO.1 TO 3 ARE AGAINST THE ASSESSMENT ORD ER MADE UNDER SECTION 153A R.W.S. 143(3) OF THE INCOME TAX ACT, 1961 (HER EINAFTER THE ACT). WE FIND THAT THE ADDITION HAS BEEN MADE BY THE AO BASE D ON THE MATERIAL SEIZED ITA NO.3180/DEL./2013 4 DURING THE SEARCH, THEREFORE, THE HONBLE JURISDICT IONAL HIGH COURTS ORDER IN CIT VS. KABUL CHAWLA ORDER DATED 28.08.2015 DOES NO T COME TO THE RESCUE OF THE ASSESSEE AND THE CHALLENGE AGAINST VALIDITY OF THE ADDITION U/S 153A HAS BEEN RIGHTLY REPELLED BY THE AUTHORITIES BELOW. WE DO NOT FIND ANY MERIT IN THE SAID GROUND OF THE ASSESSEE. 4. NOW, WE ARE GOING TO DISCUSS GROUNDS NO.6 TO 9 W HICH ARE AGAINST THE ADDITION OF RS.48 LAKHS ON ACCOUNT OF DEEMED DIVID END U/S 2(22)(E) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 5. ASSESSEE IS A BUILDER CONDUCTING BUSINESS OF PRO PERTY DEVELOPMENT AND IT IS ENGAGED IN A NUMBER OF CONSTRUCTION PROJECTS AT BANGALORE, BIKANER, MOHALI, ETC. A SEARCH AND SEIZURE OPERATION U/S 13 2 OF THE ACT WAS CONDUCTED BY THE INVESTIGATION UNIT II, DELHI IN THE CASE O F M/S. B.L. KASHYAP & SONS GROUP OF CASES. IT INCLUDED THE PREMISES OF THE AS SESSEE ALSO. THEREFORE, THE CASE WAS CENTRALIZED U/S 127 (2) OF THE ACT IN THE CENTRAL CIRCLE 17, NEW DELHI. 5.1 AFTER CENTRALIZATION OF THE ASSESSEES CASE, NO TICE U/S 153A WAS ISSUED ON 24.12.2008 AND SERVED UPON THE ASSESSEE ON 24.12 .2008 FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. 2006-07. PURSUANT TO THE SAID NOTICE, THE ASSESSEE FILED ITS RETURN ON 31.03.2009 DECLARING NIL INCOME AFTER CARRYING FORWARD LOSSES OF RS. (-) 2,16,581/-. THE OR IGINAL RETURN IN THIS CASE WAS ITA NO.3180/DEL./2013 5 FILED ON 21.11.2006 DECLARING THE SAME INCOME. THE REFORE, THE AO ISSUED NOTICES U/S 143(2) AND 142(1) ALONG WITH QUESTIONNA IRE DATED 24.09.2009. 5.2 THE FACTS RELATING TO THE AFORESAID ADDITION OF RS.48 LAKHS ON ACCOUNT OF DEEMED DIVIDEND ARE THAT THE AO OBSERVED THAT UNDER THE TERM OF REFERENCE NO.10, SPECIAL AUDITORS WERE MANDATED TO EXAMINE AN D COMMENT UPON THE FOLLOWING :- IT IS FOUND THAT THE ASSESSEE IS HAVING A NUMBER O F GROUP COMPANIES, ASSOCIATES AND AFFILIATED AND THERE ARE A NUMBER OF TRANSACTIONS OF LOANS, ADVANCES, MOVEMENT OF MONEY BETWEEN THE ASSESSEE COMPANY AND ITS GROUP COMPANIES, AFFIL IATES, ASSOCIATES RUNNING IN TO SEVERAL CRORES. THE SPECI AL AUDITOR IS DIRECTED TO EXAMINE AND COMMENT UPON THE NATURE OF THESE TRANSACTIONS DONE THROUGH THEIR ACCOUNT BOOKS. YOU ARE DIRECTED TO GIVE CATEGORICAL FINDINGS WITH REGARD T O APPLICABILITY OF SECTION 2(22)(E) OF THE INCOME TAX ACT IN THE HA NDS OF THE CONCERNS AND THE ASSESSEE COMPANY. THE SPECIAL AUDITOR OBSERVED THAT B.L. KASHYAP & SO NS LTD. BEING THE SAME MANAGEMENT COMPANY HAD PAID RS.48 LAKHS TO ONE SHRI GIRIJA SHANKER ASOPA ON BEHALF OF THE ASSESSEE COMPANY I.E. RS.30 LAKHS ON 10.03.2006 AND RS.18 LAKHS ON 13.03.2006. THE AO OBSERVED THA T THE SPECIAL AUDITOR ASKED FOR SPECIFIC EVIDENCE FROM THE ASSESSEE IN RE LATION TO THE AFORESAID SUMS BUT THERE WAS NO CLEAR RESPONSE. THE SPECIAL AUDIT OR ALSO REPORTED THAT THIS ADVANCE HAD NOT BEEN SETTLED OR REFUNDED BY SHRI GI RIJA SHANKER TILL 31.03.2008 WHICH MADE IT EVIDENT THAT THIS ADVANCE / LOAN TO THE SAID PERSON BY M/S. B.L. KASHYAP & SONS LTD. ON BEHALF OF THE ASSESSEE WAS OF NON- ITA NO.3180/DEL./2013 6 BUSINESS NATURE. THE SPECIAL AUDITOR FURTHER REPOR TED THAT FROM THE COMPARISON OF SHARE HOLDING PATTERN OF M/S. B.L. KA SHYAP & SONS LTD. AND THE ASSESSEE, MORE THAN ONE THIRD OF THE TOTAL VOTI NG POWER WITH RESPECT TO ANY MATTER RELATING TO EACH OF THE TWO BODIES CORPORATE WAS EXERCISED AND CONTROLLED BY SAME INDIVIDUAL OR BODY CORPORATE. A S REGARDS ATTRACTING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, FIRSTLY, THE SPECIAL AUDITOR REPORTED THAT M/S. B.L. KASHYAP & SONS LTD. WAS NOT A COMPAN Y IN WHICH PUBLIC WAS SUBSTANTIALLY INTEREST AND COMPANY BECAME PUBLIC ON LY ON 17.03.2006 WHEREAS THE ADVANCES WERE GIVEN ON 09.03.2006 AND 1 1.03.2006; SECONDLY, THE PERSON RECEIVING LOAN WAS HOLDING MORE THAN 20% SHARES/VOTING RIGHTS IN THE COMPANY GIVING LOANS; AND THIRDLY, DEEMED DIVID END INCOME WAS TO BE TAXED TO THE EXTENT THE COMPANY GIVING THE LOAN/ADV ANCE POSSESSES ACCUMULATED PROFIT. THE AO ALSO OBSERVED THAT M/S. B.L. KASHYAP & SONS LTD. WAS HAVING SUBSTANTIAL ACCUMULATED PROFITS. T HUS, THE SPECIAL AUDITOR OPINED THAT THESE ADVANCES OF RS.48 LAKHS SHOULD BE TREATED AS DEEMED DIVIDEND WITH THE PURVIEW OF SECTION 2(22)(E) OF TH E ACT. ACCORDINGLY, THE AO REQUIRED THE ASSESSEE TO FILE SPECIFIC REPLIES A ND EXPLANATIONS WITH NECESSARY DOCUMENTARY EVIDENCES ON THE POINTS RAISE D BY THE SPECIAL AUDITORS IN THE SPECIAL AUDIT REPORT. THE AO, AFTER GOING T HROUGH THE SUBMISSIONS MADE BY THE ASSESSEE AND THE SPECIAL AUDIT REPORT, MADE THE ADDITION OF RS.48 LAKHS ON THE FOLLOWING REASONS :- ITA NO.3180/DEL./2013 7 (I) THAT THE SHAREHOLDERS I.E. MR. VINOD KASHYAP, MR. V INEET KASHYAP AND MR. VIKRAM KAHYAP HELD THE SUBSTANTIAL VOTING POWER (I.E. 10%) AND MORE THAN 20% SHARES IN PROFIT ON THE DATES ON WHICH SUCH ADVANCES WERE GIVEN AND TRANSFERRED T O THE ASSESSEE AND IN FACT, ON THE DATES OF ADVANCE, THE SHAREHOLDING PATTERN OF M/S. B.L. KASHYAP & SONS LTD. AND THE AS SESSEE WAS MORE THAN ONE THIRD OF THE TOTAL VOTING POWER WITH RESPECT TO ANY MATTER RELATING TO EACH OF THE TWO BODIES CORPORATE WHICH WAS EXERCISED AND CONTROLLED BY SAME INDIVIDUAL OR BODY CORPORATE, WHICH IS EVIDENT FROM THE CHART INCORPORATE BY THE SPECIAL AUDITORS IN THE AUDIT REPORT; (II) THAT THE COMPANY COULD BE HELD TO BE PUBLIC LIMITED COMPANY ONLY IF IT IS RECOGNIZED IN ANY OF STOCK EXCHANGE A ND NOT AT THE TIME OF OPENING OF PUBLIC ISSUE OR FROM THE DATE OF ALLOTMENT. THE COMPANY BECAME PUBLIC ONLY ON 17.03.2006 WHEN I T WAS LISTED ON BOMBAY STOCK EXCHANGE AND THE ADVANCES WE RE GIVEN ON 09.03.2006 AND 11.03.2006; AND (III) THE PLEA OF THE ASSESSEE THAT NO FUNDS HAD BEEN ACT UALLY PASSED ANY POINT OF TIME BETWEEN TWO COMPANIES AS THE PAYM ENT WAS MADE DIRECTLY TO SHRI GIRIJA SHANKER AND NOT TO THE ASSESSEE; WAS NOT ACCEPTED AS THE PROVISIONS OF SECTION 2(22)(E) ALSO COVERED ITA NO.3180/DEL./2013 8 THE PAYMENTS MADE ON BEHALF OF ANY PERSON WHO HAD S UBSTANTIAL INTEREST IN THE COMPANY WHO HAD PAID ADVANCES ON IT S BEHALF. IN VIEW OF THE ABOVE, THE AO HELD THAT THE PROVISIO NS OF SECTION 2(22)(E) WERE APPLICABLE IN THIS CASE AND ACCORDINGLY, RS.48 LAKH S WAS HELD TO BE DEEMED DIVIDEND INCOME IN THE HANDS OF THE ASSESSEE AND TH E SAME WAS ADDED TO THE INCOME OF THE ASSESSEE. 6. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE TH E LD. CIT (A) WHO CONFIRMED THE ADDITION BY OBSERVING AS UNDER :- 8.1. THE SPECIAL AUDIT REVEALED A CREDIT BALANCE O F RS 48 LAKHS IN THE ACCOUNT OF B L KASHYAP & SONS LTD APPEARING IN THE BOOKS OF THE APPELLANT COMPANY. IT WAS NOTED THAT B L KASHYA P & SONS LTD HAD PAID RS.30 LAKHS AND RS.18 LAKHS ON 10-3-2006 A ND 13-3-2006 TO ONE GIRIJA SHANKAR ON BEHALF OF THE APPELLANT CO MPANY. IN THE ABSENCE OF THE APPELLANT COMPANY SUBSTANTIATING ITS CLAIM THAT THE PAYMENTS WERE MADE IN CONNECTION WITH A PURCHASE OR DER, THE PAYMENTS WERE HELD TO BE OF NON BUSINESS NATURE. WH ILE THE APPELLANT CLAIMED THROUGH A JOURNAL ENTRY DATED 31- 3-2006 THAT INTEREST WAS PAYABLE ON RS 48 LAKHS, THE SEIZED PAP ER REVEALED THAT B L KASHYAP & SONS LTD HAD ADVANCED THE SUM AT 0% I NTEREST. 8.2. THE SPECIAL AUDITORS COMPARED THE SHARE HOLDIN G PATTERNS OF B L KASHYAP & SONS LTD AND THE APPELLANT COMPANY AN D NOTED THAT THE SHAREHOLDERS, VINEET KASHYAP, VINOD KASHYA P AND VIKRAM KASHYAP HELD MORE THAN 10% VOTING POWER AND MORE TH AN 20% SHARE IN PROFITS IN BOTH THE COMPANIES ON THE DATES OF THE AFORESAID TRANSACTIONS. IT WAS ALSO NOTED THAT B L KASHYAP & SONS LTD, WHICH WAS NOT A COMPANY IN WHICH THE PUBLIC WERE SU BSTANTIALLY INTERESTED ON THE DATES OF MAKING THE PAYMENT, WAS HOLDING SUFFICIENT FREE RESERVES ON THE TRANSACTION DATES. THIS, SINCE THE THREE MANDATORY CONDITIONS STIPULATED IN SECTION 2( 22)(E) WERE SATISFIED, THE SPECIAL AUDITORS WERE OF THE OPINION THAT THE PAYMENT OF RS.48 LAKHS WAS DEEMED DIVIDEND. THE AO CONSIDER ED THE REPORT OF THE SPECIAL AUDITORS, SOUGHT THE EXPLANAT ION OF THE ITA NO.3180/DEL./2013 9 APPELLANT COMPANY, AND AFTER CONSIDERING ITS REPLY, HELD RS.48 LAKHS AS DEEMED DIVIDEND U/S 2(22)(E). 8.3. DURING THE APPELLATE PROCEEDINGS, AS PER THE W RITTEN SUBMISSION DATED 21/1/2011, THE AR CONTENDED THAT T HE APPELLANT COMPANY WAS A 100% SUBSIDIARY OF B L KASHYAP & SONS LTD; THAT B L KASHYAP & SONS LTD WAS THE ACTUAL BENEFICIAL OW NER OF ALL THE SHARES OF THE APPELLANT COMPANY; THAT VINEET KASHYA P, VINOD KASHYAP AND VIKRAM KASHYAP WERE MERELY HOLDING THE SHARES OF THE APPELLANT COMPANY AS NOMINEES OF B L KASHYAP & SONS LTD; THAT B L KASHYAP & SONS LTD BECAME A PUBLIC LIMITED COMPANY ON 8/312006 IN PURSUANCE TO PUBLIC ISSUE WHICH OPENED ON 20/2/2006 AND CLOSED ON 23/212006; THAT SINCE IT WAS LISTED O N BSE ON 17/312006, IT BECAME A COMPANY IN WHICH THE PUBLIC WERE SUBSTANTIALLY INTERESTED FOR FY 05-06; THAT PAYMENT HAD BEEN MADE BY B L KASHYAP & SONS LTD TO GIRIJA SHANKAR AND NOT TO THE APPELLANT COMPANY, WHICH MERELY PASSED A JOURNAL EN TRY IN ITS BOOKS; AND THAT INTER CORPORATE DEPOSITS DO NOT ATT RACT SECTION 2(22)(E). 8.4. WHILE MAKING THE AFORESAID SUBMISSIONS DATED 2 1/112011, THE AR ENCLOSED SEVERAL ADDITIONAL EVIDENCES INCLUD ING THE DECLARATIONS OF VINEET KASHYAP, VINOD KASHYAP AND V IKRAM KASHYAP AS NOMINEES OF B L KASHYAP & SONS LTD IN TH E APPELLANT COMPANY. HOWEVER, THESE EVIDENCES WERE NOT ACCOMPAN IED BY THE APPLICATION FOR ADMISSION U/R 46A. THE AO, IN HIS R EMAND REPORT DATED 28/3/2011, OBJECTED TO THE ADMISSION OF ADDIT IONAL EVIDENCES ON THE GROUNDS THAT THE PROVISIONS OF RULE 46A HAD NOT BEEN MET BY THE APPELLANT; THAT SUFFICIENT OPPORTUNITY HAD B EEN PROVIDED AT THE ASSESSMENT STAGE BY HIM AND THE SPECIAL AUDITOR ; THAT IF THESE EVIDENCES EXISTED AT THE TIME, IT SHOULD HAVE BEEN PRODUCED; AND THAT IN THE ABSENCE OF SUFFICIENT CAUSE, THESE COUL D NOT BE FILED AT THE APPELLATE STAGE. WITHOUT PREJUDICE, THE AO REFE RRED TO THE THREE MANDATORY CONDITIONS FOR INVOKING SECTION 2(22)(E); AND STATED THAT UNDER THE INCOME TAX ACT THERE WAS NO CONCEPT OF NO MINEE SHAREHOLDER; AND THAT B L KASHYAP & SONS LTD WAS LI STED WITH BSE ON 17/3/2006 WHICH WAS AFTER THE DATE OF THE RE LEVANT TRANSACTIONS. III THE REJOINDER DATED 26/4/2011, TH E AR CONTENDED THAT SINCE THE TWO COMPANIES 'DID NOT HAVE SHARES I N EACH OTHER', SECTION 2(22)(E) WAS NOT ATTRACTED; AND THAT BENEFI CIAL SHAREHOLDING AS PER SECTION 2(32) WAS A NECESSARY CONDITION. THE AR ALSO FILED A FORMAL APPLICATION U/R 46A, CLAIMING THAT THE AO WA S 'APPARENTLY ITA NO.3180/DEL./2013 10 SATISFIED' WITH THE CONTENTIONS MADE DURING THE ASS ESSMENT PROCEEDINGS AND 'NEVER ASKED FOR FILING SOME MORE D OCUMENTS', AND THAT THIS CONSTITUTED 'REASONABLE CAUSE' FOR ADMISS ION OF ADDITIONAL EVIDENCES. 8.5. BEFORE EXAMINING THE SUBMISSIONS OF THE AR, TH E ADMISSIBILITY OF THE ADDITIONAL EVIDENCES U/R 46A I S CONSIDERED. IT IS NOTED THAT WHILE FURNISHING THE 'EVIDENCES' ALON G WITH THE WRITTEN SUBMISSIONS ON 21/1/2011, THE AR FALSELY CLAIMED TH AT THE EVIDENCES' WERE 'FURNISHED TO THE AO / SA'. IT WAS ONLY WHEN THE AO STATED IN HIS REMAND REPORT OF28/312011 THAT 'FR ESH' EVIDENCES HAD BEEN BROUGHT BY THE APPELLANT DURING THE APPELL ATE PROCEEDINGS, WHICH WAS NOT PERMISSIBLE WITHOUT COMP LYING WITH THE REQUIREMENTS OF RULE 46A, THAT THE AR IN THE RE JOINDER DATED 26/4/2011 ADMITTED THAT ADDITIONAL EVIDENCES HAD IN DEED BEEN FILED. IT WAS ON THIS DATE (26/4/2011) THAT A FORMA L APPLICATION WAS MADE U/T 46A ILL RESPECT OF THE 'EVIDENCES' FILED O N 21/1/2011, CONTENDING THAT THERE WAS 'REASONABLE CAUSE' FOR NO T FILING THE EVIDENCES AT THE TIME OF ASSESSMENT, VIZ, THERE WAS NO OCCASION TO FURNISH THE DOCUMENTS SINCE THE AO WAS 'APPARENTLY SATISFIED' WITH THEIR CLAIMS AND 'HE NEVER ASKED FOR FILING SOME MO RE DOCUMENTS IN SUPPORT OF THIS CONTENTION'. CLEARLY THESE ARGUMENT S ARE NOT MAINTAINABLE. THE' ASSESSMENT PROCEEDINGS WERE LONG DRAWN SINCE SECTION U/S 142(2A) WAS ALSO INVOKED BY THE AO, AND THE MATTER OF DEEMED DIVIDEND CAME UP BEFORE THE SPECIAL AUDITORS ALSO. THIS IS DOCUMENTED IN DETAIL IN PARA 13 OF THE SPECIAL AUDI T REPORT. IT IS NOTED THAT THE APPELLANT CHOSE TO KEEP QUIET EVEN U PON CONFRONTATION OF THE SPECIAL AUDIT REPORT BY THE AO , WHEREAS IT WAS FOR THEM TO SUBSTANTIATE THEIR CLAIMS, AND NOT WAIT FOR ANY PROMPTING FROM THE AO. THE NON CO-OPERATION OR VOLI TIONAL SILENCE DURING THE ASSESSMENT AND SPECIAL AUDIT PROCEEDINGS CANNOT BE USED TO ADVANTAGE BY THE RECALCITRANT TAXPAYER IN M AKING A CASE OF, 'REASONABLE CAUSE' FOR ADMISSION OF ADDITIONAL EVIDENCE U/R 46A. SINCE ADEQUATE OPPORTUNITY WAS AFFORDED TO THE APPE LLANT BY THE AO, AND ALSO BY THE SPECIAL AUDITORS, TO FURNISH EV IDENCES, IN SUPPORT OF ITS CLAIM ABOUT THE NON APPLICABILITY OF SECTION 2(22)(E), AND IT WAS NOT PREVENTED BY SUFFICIENT CAUSE FROM P RODUCING EVIDENCES BEFORE THE AO, THE APPELLANT HAS FAILED T O SATISFY THE CONDITIONS ENVISAGED IN RULE 46A THAT PERMIT ADMISS ION OF ADDITIONAL EVIDENCES AT THE APPELLATE STAGE. MOREOV ER, EVEN A CURSORY LOOK AT THE 'EVIDENCES' SUGGESTS THAT, IN T HE ABSENCE OF ANY STAMP/SEAL OF THE RECEIVING OFFICE, THESE ARE YET A GAIN ITA NO.3180/DEL./2013 11 UNAUTHENTICATED CLAIMS PURPORTED TO HAVE BEEN MADE UNDER THE COMPANIES ACT. THEREFORE, AFTER DUE CONSIDERATION A ND ABSENCE OF ANY 'REASONABLE CAUSE', REQUEST FOR ADMISSION OF AD DITIONAL EVIDENCES IS DENIED U/S 46A. 8.6. ON PERUSAL OF THE SPECIAL AUDIT REPORT, THE IM PUGNED ORDER, THE WRITTEN SUBMISSIONS AND THE REJOINDER OF THE AR AND THE REMAND REPORT OF THE AO AND THE PROVISIONS OF THE I NCOME TAX ACT, IT IS HELD THAT THE CASE OF THE APPELLANT FALL S WITHIN 'THE AMBIT OF SECTION 2(22)( E). THE 3 NECESSARY CONDITIONS FO R INVOKING SECTION 2(22) (E) ARE: THE COMPANY MAKING THE PAYMENT SHOULD NOT BE ONE IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED WITHI N THE MEANING OF SECTION 2(18). THE PAYMENT IS MADE TO ITS SHAREHOLDER WHO BENEFI CIALLY OWNS 10% OF VOTING POWER OR TO ANY CONCERN IN WHICH SUCH SHAREHOLDER HOLDS 20% VOTING POWER, THE COMPANY SHOULD POSSESS ACCUMULATED PROFITS AT THE TIME PAYMENT IS MADE. 8.7. IN THE CASE AT HAND, IT IS AN ADMITTED POSITIO N THAT AT THE TIME OF MAKING THE PAYMENT OF RS.48 LAKHS TO THE APPELLA NT COMPANY, B L KASHYAP & SONS LTD WAS NOT A COMPANY IN WHICH THE PUBLIC WERE SUBSTANTIALLY INTERESTED. THE SHAREHOLDING PAT TERNS OF B L KASHYAP & SONS LTD AND THE APPELLANT COMPANY, AS EX TRACTED FROM THE MEMORANDUM AND ARTICLES OF ASSOCIATION BY THE S PECIAL AUDITORS IN THEIR REPORT, SHOW THAT VINEET KASHYAP, VINOD KA SHYAP AND VIKRAM KASHYAP TOGETHER HAD 70.73% VOTING RIGHTS IN THE FORMER B L KASHYAP &SONS LTD) AND 99.21 % VOTING RIGHTS IN THE LATTER I.E. THE APPELLANT. IT IS ALSO EVIDENT FROM THE REP ORT OF THE SPECIAL AUDITORS THAT B L KASHYAP & SONS LTD POSSESSED ACCU MULATED PROFITS AT THE TIME OF MAKING THE PAYMENT. THUS, WI TH THE MEETING OF THE 3 ESSENTIAL CONDITIONS, THE APPLICATION OF S ECTION 2(22)(E) IS INEVITABLE. 8.8. THE SPECIFIC ARGUMENTS OF THE AR ARE CONSIDERE D. THE CLAIMS THAT B L KASHYAP & SONS LTD WAS A PUBLIC LIM ITED COMPANY; THAT THE APPELLANT COMPANY WAS ITS 100% SU BSIDIARY; AND THAT THE SHARES WERE HELD BY VINEET KASHYAP, VINOD KASHYAP AND ITA NO.3180/DEL./2013 12 VIKRAM KASHYAP AS NOMINEES OF THE BENEFICIARY. B L KASHYAP & SONS LTD, ARE ALL INCORRECT ASSERTIONS IN SO FAR AS THE MATTERS STOOD ON THE DATES OF THE PAYMENT WHICH ARE UNDER CONSIDE RATION, ON 10.3.2006 AND 13-3-2006, THE DATES WHEN PAYMENTS WE RE MADE BY B L KASHYAP & SONS LTD ON BEHALF OF THE APPELLANT C OMPANY, B L KASHYAP & SONS. LTD WAS NOT A PUBLIC LIMITED COMPAN Y; AND VINEET KASHYAP, VINOD KASHYAP AND VIKRAM KASHYAP HE LD SUBSTANTIAL VOTING POWER AND SHARE IN PROFITS IN BO TH THE COMPANIES. THE CONTENTION THAT VINEET KASHYAP, VINO D KASHYAP AND VIKRAM KASHYAP WERE NOMINEES OF B L KASHYAP & S ONS LTD CANNOT BE TAKEN COGNISANCE OF AS THE CONCEPT OF NOM INEE SHAREHOLDER IS ALIEN TO THE INCOME-TAX ACT. MOREOVE R, THE ACT OF NOMINATING THESE THREE SHAREHOLDERS OF THE APPELLAN T COMPANY AS NOMINEES OF B L KASHYAP & SONS LTD APPEARS MORE OF AN ARRANGEMENT BETWEEN THE RELATED PATTIES SET UP AS A N AFTERTHOUGHT TO AVOID TAXABILITY U/S 2(22)(E), THAN A GENUINE TRANS ACTION WITH ANY COMMERCIAL PURPOSE. YET ANOTHER ARGUMENT, THAT A ME RE JOURNAL ENTRY IN THE BOOKS OF THE APPELLANT COMPANY DOES NO T TRANSLATE INTO ACTUAL TRANSACTIONS BETWEEN THE TWO COMPANIES, IS A LSO REJECTED SINCE IT IS EVIDENT FROM THE FACTS THAT PAYMENT WAS MADE BY B L KASHYAP & SONS LTD ON BEHALF OF THE APPELLANT COMPA NY, WHICH SITUATION STANDS COVERED BY SECTION 2(22)(E). ALSO, THE JOURNAL ENTRY MADE BY THE APPELLANT IS THE RECORD OF ACKNOWLEDGME NT OF ITS DEBT TO B L KASHYAP & SONS LTD. THE CLAIM THAT THE SUM R EPRESENTED INTER-CORPORATE DEPOSIT IS ALSO NOT BORNE OUT BY TH E FACTS BROUGHT OUT IN THE SPECIAL AUDIT REPORT. THEREFORE, ALL THE ARGUMENTS ADVANCED BY THE AR FAIL. 8.9. IN VIEW OF THE DISCUSSION ABOVE, GROUND 16 OF THE APPEAL IS DISMISSED. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL. THE ASSESSEES ARGUMENT THAT THE ASSESSMENT FOR THE REL EVANT ASSESSMENT YEAR 2006-07 IS ABATED IS VALID SINCE SECTION 143(2) NOT ICE HAS NOT BEEN ISSUED OR SERVED ON THE ASSESSEE BEFORE 30.09.2007. THEREFOR E, WE CAN SAFELY ASSUME THAT THE ASSESSMENT OF THE ASSESSEE FOR THE RELEVAN T ASSESSMENT IS NOT PENDING BEFORE THE AO WHEN THE SEARCH TOOK PLACE ON 19.02.2 008, SO THE ORIGINAL ITA NO.3180/DEL./2013 13 ASSESSMENT HAS ABATED AND THE ADDITION DURING RE-AS SESSMENT CAN BE DONE ONLY WITH THE STRENGTH OF INCRIMINATING MATERIAL UNEARTH ED DURING THE SEARCH. 7.1 THE MAJOR THRUST OF THE ARGUMENT OF THE LD. AR WAS THAT THERE WAS NO INCRIMINATING MATERIAL FOUND FROM THE PREMISES OF T HE ASSESSEE WHICH COULD HAVE TRIGGERED 153A PROCEEDINGS FOR THE RELEVANT AS SESSMENT YEAR. HOWEVER, WE FIND THAT THIS ARGUMENT IS NOT CORRECT, IN FACT, THERE HAS BEEN TWO LETTERS WHICH HAVE BEEN SEIZED AND ARE PLACED ON PAGES 120 & 121 OF THE PAPER BOOK, WHICH WAS THE BASIS ON WHICH RS.48 LAKHS ADDI TION WAS MADE. THE CONTENTS OF THE SEIZED LETTERS ARE AS FOLLOWS :- B L KASHYAP WE BUILD YOUR WORLD DATE 11 TH MARCH 2006 SOUL SPACE PROJECTS LIMITED, B-1/A-21, MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI-44 SUB : SHORT TERM INTER CORPORATE DEPOSITS DEAR SIR, WE HEREBY PLACE A SUM OF RS.18,00,000 VIDE CHEQUE N O.004908 DATED 13/03/2006 AS INTER CORPORATE DEPOSIT REPAYABLE ON DEMAND, BEARING INTEREST RATE @ 0% PER ANNUM. YOU ARE REQUESTED TO ACKNOWLEDGE AND ACCEPT THE SAM E. ACCEPTED FOR B.L. KASHYAP & SONS LTD. FOR SOUL SPACE PROJECTS LIMITED SD/- SD/- (AUTHORISED SIGNATORY) (AUTHORISED SIGNATORY) ITA NO.3180/DEL./2013 14 B L KASHYAP WE BUILD YOUR WORLD DATE : 9 TH MARCH 2006 SOUL SPACE PROJECTS LIMITED, B-1/A-21, MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI-44 SUB : SHORT TERM INTER CORPORATE DEPOSITS DEAR SIR, WE HEREBY PLACE A SUM OF RS.30,00,000 VIDE CHEQUE N O.004907 DATED 10/03/2006 AS INTER CORPORATE DEPOSIT REPAYABLE ON DEMAND, BEARING INTEREST RATE @ 0% PER ANNUM. YOU ARE REQUESTED TO ACKNOWLEDGE AND ACCEPT THE SAM E. ACCEPTED FOR B.L. KASHYAP & SONS LTD. FOR SOUL SPACE PROJECTS LIMITED SD/- SD/- (AUTHORISED SIGNATORY) (AUTHORISED SIGNATORY) THIS RECEIPT OF RS.48 LAKHS HAS BEEN SEEN IN THE BA LANCE SHEET AT PAGE 54 OF THE PAPER BOOK AS UNSECURED LOAN FROM THE HOLDING C OMPANY. HOWEVER, DURING THE REASSESSMENT PROCEEDINGS U/S 153A OF THE ACT, IT CAME TO LIGHT THAT THIS AMOUNT HAS BEEN GIVEN BY CROSS CHEQUE (NOT ACC OUNT PAYEE CHEQUE) TO SHRI GIRIJA SHANKER, AND THE ASSESSEE SAYS THAT IN ITS OWN WORDS IN PAGE 15 OF AO ORDER WHICH IS REPRODUCED BELOW :- THE TRANSACTIONS APPEARED IN THE BOOKS ONLY ON ACC OUNT OF JOURNAL ENTRIES THUS, SINCE THERE IS NO PAYMENT BY BLK TO SSPL, THEREFORE, THERE IS NO QUESTION OF APPLICA TION OF SEC. 2(22)(E). ITA NO.3180/DEL./2013 15 IT MUST BE KEPT IN MIND THAT LOAN TRANSACTION COULD NOT HAVE BEEN SHOWN AS A MERE JOURNAL ENTRY AS PER THE ACT. WHETHER SUCH AN ACT COULD HAVE ATTRACTED SECTION 269SS R.W.S.271D OF THE ACT OR NOT IS NOT T HE QUESTION BEFORE US. 7.2 BE THAT AS IT MAY BE; LET US LOOK HOW THE AO HA S TREATED THIS AMOUNT WHICH HAS GONE TO SHRI GIRIJA SHANKER, WHICH FACT C OULD NOT HAVE COME TO THE NOTICE OF THE DEPARTMENT WITHOUT SEIZURE OF THE TWO LETTERS DURING SEARCH WHICH HAVE BEEN REPRODUCED ABOVE. ACCORDING TO THE ASSESSEE, THE ASSESSEE COMPANY HAS NOT RECEIVED THIS MONEY BUT, AS PER THE LETTER, THE MONEY HAS BEEN GIVEN TO THE ASSESSEE COMPANY @ NIL INTEREST, WHEREAS THE ASSESSEE HAS CLAIMED TO HAVE INCURRED 11% INTEREST ON THE SAID A MOUNT WHICH HAS NOT COME INTO ITS KITTY AND AS AFORESAID, THE AMOUNT HAS GON E BY CROSS CHEQUE (NOT BY ACCOUNT PAYEE CHEQUE) TO SHRI GIRIJA SHANKER. THE SHORT QUESTION BEFORE US IS WHETHER THE SAID AMOUNT WILL ATTRACT SECTION 2(22)( E) AS DONE BY THE AO. WE FIND FORCE IN THE ARGUMENT OF THE LD. AR THAT THE P AYER OF THIS AMOUNT THAT IS THE HOLDING COMPANY, B.L. KASHYAP & SONS LIMITED HA S BEEN LISTED IN THE BOMBAY STOCK EXCHANGE ON 17.03.2006 AND AS PER SECT ION 2(18)(B) OF THE ACT, SINCE ON THE LAST DAY OF THE RELEVANT PREVIOUS YEAR, THE HOLDING COMPANY B.L. KASHYAP & SONS LTD WAS LISTED IN A RECOGNIZED STOCK EXCHANGE IN INDIA, THE HOLDING COMPANY HAS TO BE TREATED AS A PUBLIC L IMITED COMPANY, WHERE PUBLIC ARE SUBSTANTIALLY INTERESTED. SINCE THE PA YMENT IN QUESTION IS EMANATING FROM A COMPANY, WHICH IS THE HOLDING COMP ANY OF THE ASSESSEE, ITA NO.3180/DEL./2013 16 AND THE BASIC REQUIREMENTS OF SECTION 2(22)(E) ARE NOT FULFILLED, THUS SECTION 2(22)(E) IS NOT APPLICABLE IN THE INSTANT CASE. AC CORDINGLY, WE DIRECT DELETION OF THE SAID ADDITION ON THIS GROUND ONLY. WE ORDER ACCORDINGLY. 8. AS WE HAVE ALREADY DELETED THE ADDITION, THE OTH ER GROUNDS TAKEN BY THE ASSESSEE HAVE BECOME ACADEMIC AND ARE NOT BEING ADJ UDICATED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 16 TH DAY OF DECEMBER, 2015. SD/- SD/- (N.K. SAINI) (A.T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 16 TH DAY OF DECEMBER, 2015 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-II, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.