MOHAN RAMCHAND LALA, MUMBAI V. ITO WD 9(1)-3, MUMBAI

ITA 5778/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0315 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 17-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed dividend; Reassessment proceedings
• Section: 143(3); 142(1); 148

Judgement Text

P A G E | 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI G.S. PANNU , AM AND SHRI RAVISH SOOD, JM ./ I.T. A (S) . NO. 5778 & 5779 /MUM/2012 ( / ASSESSMENT YEAR: 2006 - 07 , 2007 - 08 ) LALA MOHAN RAMCHAND 440, MANGAL MAHESH 14 TH ROAD, KHAR MUMBAI - 400052 / VS. INCOME TAX OFFICER,9(1) - 3 AAYAKAR BHAVAN, ROOM NO. 224, MUMBAI - 400020 ./ ./ PAN/GIR NO. AACPL1205E ( / APPELLANT ) : ( / RESPONDENT ) ./ I.T.A. NO. 8701/MUM/2011 ( / ASSESSMENT YEAR: 2008 - 09 ) LALA MOHAN RAMCHAND 440, MANGAL MAHESH 14 TH ROAD, KHAR MUMBAI - 400052 / VS. A.C.I.T. 9 ( 1), MUMBAI ./ ./ PAN/GIR NO. AACPL1205E ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI HIRO RAI / RESPONDENT BY : SHRI DURGA DUTT ( D.R. ) / DATE OF HEARING : 23/05 /2017 / DATE OF PRONOUNCEMENT : 14 /0 6 /2017 P A G E | 2 / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER THE PRESENT SET OF APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST T HE ORDER S OF THE CIT(A) - 19, MUMBAI, DATED 05 . 10.2011 , 05.10.2011 AND 26.07.2012 , PERTAINING TO A.Y(S) : 2006 - 07, 2007 - 0 8 AND 20 0 8 - 09 , RESPECTIVELY, WHICH IN ITSELF ARISES FROM THE RESPECTIVE ORDERS PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 147 IN A.Y. 2006 - 07 AND 2007 - 08, AND U/S 143(3) IN A.Y. 2008 - 09. THAT AS CERTAIN COMMON ISSUES ARE INVOLVED IN ALL THE THREE APPEALS, THEREFORE, FOR THE SAKE OF CONVENIENCE THEY ARE CLUBBED AND DISPOSED OF BY WAY OF A CONSOLIDATED ORDER. WE HEREIN FIRST TAKE UP THE APPEAL FOR A.Y. 200 7 - 0 8 , MARKED AS ITA NO. 5778 /MUM/201 2 , WHEREIN THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAD RAISED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO. 5778/MUM/2012 THE GROUNDS OF APPEAL RAISED HEREIN ARE BOTH WITHOUT PREJUDICE TO ONE ANOTHER: 1. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN HOLDING THAT THE PROCEEDINGS U/S 147 AND ALSO THE ASSESSMENT ORDER PASSED CONSEQUENT THERETO ARE LEGAL AND VALID. THE REASONS GIVE BY HER IN THIS REGARD ARE INCORRECT, UNJUSTIFIED AND UNWARRANTED. 2. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF AN AMOUNT OF RS. 3,00,000/ - AS DEEMED DIVIDEND U/S 2(22)(E). THE REASONS GIVE BY HER IN THIS REGARD ARE INCORRECT, UNJUSTIFIED AND UNWARRANTED. P A G E | 3 THE APPELLANT CRAVES LEAVE TO ADD TO, TO ALTER OR TO AMEND THE ABOVE GROUNDS OF APPEAL. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED HIS RETURN OF INCOME FOR A.Y. 2006 - 07 ON 30.10.2006 , DECLARING TOTAL INCOME OF RS.7,52,920/ - , WHICH WAS PROCESSED AS SUCH UNDER SEC . 143(1) OF THE INCOME - TAX ACT, 1961 (FOR SHORT ACT) . THE CASE OF THE ASSESSEE WAS THEREAFTER REOPENED UNDER SECTION 147 AND A N OTICE U/S 148, DATED 13.01.2011 , WAS SERVED UPON HIM . THE ASSESSEE IN COMPLIANCE TO THE NOTICE U/S 148, THEREIN VIDE HIS L ETT ER DATED 09.02.2011 SUBMITTED BEFORE THE A.O THAT HIS ORI GINAL RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, VIZ. A.Y. 2006 - 07 , WHICH WAS FILED ON 30.10.2006 , MAY BE TREATED AS A RETURN FILED IN COMPLIANCE TO THE NOTICE ISSUED UNDER SEC. 148 . THE ASSESSEE AFTER COMPLYING WITH THE NOTICE UNDER SECTION 148, THEREIN REQUESTED FOR THE COPY OF THE REASONS TO BELIEVE ON THE BASIS OF WHICH HIS CASE WAS REOPEN ED UNDER SEC. 147 . THE C OPY OF THE REASONS TO BELIEVE WERE MADE AVAILABLE BY THE A.O. VID E HIS L E TTER DATED 11.07.2011. THE ASSESSEE AFTER PERUSING THE REASONS ON THE BASIS OF WHICH HIS CASE HAD BEEN REOPENED, THEREIN VIDE HIS L E TTER DATED 03.08.2011 FILED HIS OBJECTIONS. THE OBJECTIONS OF THE ASSESSEE WERE HOWEVER REJECTED BY THE A.O AND THE SAME WAS COMMUNICATED TO THE ASSESSEE VIDE A L E TTER DATED 24.08.2011. THE A.O. THEREAFTER PROCEEDED WITH THE RE ASSESSMENT PROCEEDINGS AND VIDE HIS ORDER PASSED U/S 143(3) R.W.S 147 ASSESSED THE INCOME OF THE ASSESSEE AT RS. 10,25,917/ - . 3. THE A.O. DURING THE COURSE OF THE ASSESSMENT PROCEEDIN G S OBSERVED THAT THE ASSESSEE SH. MOHAN R AMCHAND LALA WAS A DIRECTOR IN M/S ELITE HOUSING DEVELOPMENT PVT. LTD. (EHDPL) HAVING 25.5% SHAREHOLDING , AND ALSO A PARTNER IN M/S. ELITE CORPORATION WITH 37.5 % P A G E | 4 SHARE IN PROFIT S . IT WAS FURTHER GATHERED BY THE A.O. THAT EHDPL WAS ALSO A PARTNER HAVING 5% SHARE OF PROFIT IN THE ABOVE MENTIONED FIRM, VIZ. M/S ELITE CORPORATION (SUPRA). THE A.O. OBSERVED THAT EHDPL WHICH WAS HAVING AN ACCUMULATED PROFIT OF RS.1,07,11,103/ - HAD MADE A N INVESTMENT OF RS.73,75,221/ - IN THE AFORESAID FIRM, VIZ. M/S ELITE CORPORATION (SUPRA) , WHICH AS PER HIM WAS FOUND TO BE SUBSTANTIALLY EXCESS IVE AS COMPARED TO THE SHARE OF PROFITS OF EHDPL IN THE SAID FIRM. THE A.O. BEING OF THE VIEW THAT AS THE ASSESSEE WAS HAVING SUBSTANTIAL INTEREST (37.5% SHARE) IN THE FIRM M/S ELITE CORPORATION (SUPRA), THEREFORE THE LATTER COULD SAFELY BE CHARACTERIZED AS AN ELIGIBLE CONCERN UNDER SEC. 2(22)(E) OF THE ACT . THE A.O THUS HOLDING A STRONG CONVICTION THAT EH DPL IN THE GARB OF CAPITAL CONTRIBUTION HAD MADE AVAILABLE ITS ACCUMULATED PROFITS TO THE FIRM M/S ELITE CORPORATION (SUPRA), THEREFORE CALLED UPON THE ASSESSEE TO S HOW CAUSE AS TO WHY THE INVESTMENT OF RS.73,75,221/ - (SUPRA) MADE BY EHDPL IN THE FIRM M/S ELITE CORPORATION (SUPRA) MAY NOT BE ASSESSED AS DEEMED DIVIDEND IN HIS HANDS . THE ASSESSEE SUBMITTED BEFORE THE A.O. THAT EHDPL IN ITS STATUS AS THAT OF BEING A PARTNER IN THE ABOVEMENTIONED FIRM, VIZ. M/S. ELITE CORPORATION HAD INVESTED AN AMOUNT OF R S.3 LAC ON 01.04.2005 BY WAY OF ITS C APITAL CONTRIBUTION , AND HAD NEITHER GIVEN ANY LOAN OR ADVANCE TO THE FIRM M/S ELITE CORPORATION, NOR THE SAID AMOUNT WAS PAID ON BEHALF OF THE INDIVIDUAL BENEFIT OF THE ASSESSEE , THEREFORE THE PROVISIONS OF SECTION 2(22)(E) WERE NOT APPLICABLE . THE A.O. HOWEVER NOT FINDING FAVOR WITH THE SUBMISSIONS OF THE ASSESSEE AND OBSERVING THAT EHDPL HAD AS ON 01.04.2005, I.E DURING THE YEAR UNDER CONSIDERATION INVESTED AN AMOUNT OF RS.3 LAC (SUPRA) WITH THE AFORESAID FIRM, VI Z. M/S ELITE CORPORATION (SUPRA), THUS ASSESSED THE SAME AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE . T HE ASSESSEE AGGRIEVED WITH THE ORDER OF THE A.O THEREIN ASSAILED THE SAME BEFORE THE CIT(A), WHO BEING OF THE P A G E | 5 VIEW THAT THE ADDITION MADE BY THE A. O BY HOLDING THAT THE AMOUNTS RECEIVED BY THE FIRM M/S ELITE CORPORATION (SUPRA) BY WAY OF CAPITAL CONTRIBUTION FROM M/S EHDPL WAS LIABLE TO BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE WAS WELL IN ORDER , THUS PARTLY ALLOWED THE APPEAL . 4. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAD THEREIN CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. A.R. ADVERTING TO THE ISSUE ON MERITS SUBMITTED THAT THE A.O. HAD WRONGLY CONCLUDED THAT THE AMOUNT OF RS.3 LAC (SUPRA) WHICH WAS INTRODUC ED BY EHDPL (SUPRA) AS ITS CAPITAL CONTRIBUTION AS A PARTNER WITH M/S ELITE CORPORATION (SUPRA), WAS TO BE CONSTRUED AND ASSESSED AS DEEMED DIVIDEND UNDER SECTION 2 (22)(E) IN THE HANDS OF THE ASSESSEE . THE LD. A.R. SUBMITTED THAT THE A.O. FAILING TO AP PRECIATE THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE, HAD THEREIN MOST WHIMSICAL LY ON THE BASIS OF SELF SUITING INFERENCES CHARACTERIZED THE AMOUNT OF RS. 3 LAC (SUPRA) AS DEEMED DIVIDEND, WHICH BEING FACTUAL LY INCORRECT COULD NOT BE SUSTAIN ED IN THE EYES OF LAW. THE LD. A.R. IN ORDER TO FORTIFY HIS AFORESAID CONTENTION AND TO DISLODGE THE CONVICTION OF THE A.O. THAT THE INVESTMENT MADE BY EHDPL WITH M/S ELITE CORPORATION (SUPRA) WAS A COLORABLE DEVICE TO WRIGGLE OUT OF THE DEEMING PROVISION S C ONTEMPLATED UNDER SEC. 2(22)(E), HAD THEREIN ASSAILED THE OBSERVATIONS OF THE LOWER AUTHORITIES ON MULTIPLE GROUNDS , WHICH ARE DISCUSSED AND DEALT WITH BY US H EREINAFTER. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R.) RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 5. WE FIND THAT THE LOWER AUTHORITIES HOLDING A CONVICTION THAT EHDPL IN THE GUISE OF CAPITAL CONTRIBUTION HAD MADE AVAILABLE ITS ACCUMULATED PROFITS TO THE FIRM M/S ELITE CORPORATION (SUPRA), WHICH THUS WAS LIABLE TO BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE P A G E | 6 ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT NOW WHEN IT IS ALLEGED BY THE REVENUE THAT THE CAPITAL CONTRIBUTION BY EHDPL AS A PARTNER WITH M/S ELITE CORPORATION IS A FARCE, TH EN IT IS FOR THE REVENUE TO ESTABLISH ON THE BASIS OF IRREBUTABLE MATERIAL THAT WHAT IS APPARENT IS NOT REAL, AND THUS DISLODGE AND DISPROVE THE CLAIM OF THE ASSESSEE BY PROVING TO THE CONTRARY. 6. WE FIND OURSELVES TO BE IN AGREEMENT WITH THE LD. A.R. THAT T HERE IS NO PROVISION IN THE INCOME TAX ACT, 1961 OR IN THE INDIAN PARTNERSHIP ACT, 1932 , WHICH THEREIN CONTEMPLATES THAT THE PARTNERS CAPITAL CONTRIBUTIONS IN THE FIRM IS REQUIRED TO BE IN PROPORTION OF THEIR PROFIT SHARING RATIOS. THUS IN THE ABSENCE OF ANY SUCH EMBARGO ON THE CAPITAL CONTRIBUTIONS BY THE PARTNERS HAVING BEEN PLACED BY THE STATUTE , WE ARE NOT PERSUADED TO SUBSCRIBE TO THE ADVERSE INFERENCES DRAWN BY THE LOWER AUTHORITIES , WHO WE FIND HAD OBSERVED THAT THE SUBSTANTIAL CAPITAL CONTRIBUTION BY EHDPL AS A PARTNER IN M/S ELITE CORPORATION (SUPRA) WHEN PITTED AGAINST THE LATTERS MEAGER 5% SHARE IN PROFIT OF THE SAID FIRM, WAS THUS NOT FOUND TO BE JUSTIFIABLE. WE FURTHER FIND SUBSTANTIAL FORCE IN THE CONT ENTION OF THE LD. A.R. WHO HAD DEMONSTRATED BEFORE US THE REASONS AS TO WHY THE CAPITAL CONTRIBUTIONS BY THE PARTNERS IN THE PARTNERSHIP FIRM , I.E. M/S ELITE CORPORATION (SUPRA) WAS MENTIONED IN CLAUSE 6 OF THE PARTNERSHIP DEED AT RS.25 LAC . IT WAS SUBMITTED BY THE LD A.R THAT EARLIER IRRESPECTIVE OF THE AMOUNT OF CAPITAL INTRODUCED BY THE PARTNERS , THE STAMP DUTY PAYABLE ON THE PARTNERSHIP DEED S WAS FIXED AT RS. 100/ - , BUT THER E AFTER THE S TATE G OVERNMENT OF MAHARASHTRA HAD STARTED CHARGING ST AMP DUTY IN THE RANGE OF RS. 500/ - TO RS. 5,000/ - , DEPENDING ON THE AMOUNT OF CAPITAL TO BE INTRODUCED BY THE PARTNERS. THE LD. A.R THUS SUBMITTED THAT AS AT THE RELEVANT POINT OF TIME WHEN THE PARTNERSHIP DEED WAS EXECUTED IN THE PRESENT CASE, IT WAS P A G E | 7 MAND ATORY TO MAKE A MENTION OF THE INITIAL AMOUNT OF CAPITAL TO BE INTRODUCED BY THE PARTNERS IN ORDER TO FACILITATE CHARGING OF THE STAMP DUTY , THEREFORE THE INITIAL CAPITAL OF THE FIRM WAS MENTIONED AT RS. 25 LAC. THE LD. A.R IN THE BACKDROP OF THE AFORESAID FACTUAL MATRIX SUBMITTED THAT AS PERMITTED BY THE PARTNERSHIP DEED, THE CAPITAL REQUIREMENT OF THE FIRM, VIZ. M/S ELITE CORPORATION (SUPRA), AS PER THE REQUIREMENT OF THE BUSINESS NEED S AND MUTUAL AGREEMENT AMO NGST THE PARTNERS, KEPT CHANGING. THE LD. A.R IN ORDER TO DRIVE HOME HIS AFORESAID CONTENTION, THEREIN DREW OUR ATTENTION TO THE BALANCE SHEET OF M/S ELITE CORPORATION (SUPRA) ( PAGE 20 OF APB), WHICH REVEALED THAT THE AGGREGATE OF THE CAPITAL OF THE P ARTNERS AS ON 31.03.2006 STOOD REFLECTED AT RS. 4,74,22,845.19. IT WAS THUS SUBMITTED BY THE LD. A.R THAT THE CAPITAL OF THE FIRM, VIZ. M/S ELITE CORPORATION (SUPRA) PURSUAN T TO INTRODUCTION OF CAPITAL BY THE PARTNERS, THUS COULD SAFELY BE HELD TO HAVE BEE N ALTERED IN THE BACKDROP OF AN IMPLIED MUTUAL AGREEMENT AMONGST THEM, WHICH THUS WAS NOT ONLY WELL WITHIN THE FOUR CORNERS OF THE PARTNERSHIP DEED , BUT RATHER STOOD RATIFIED AS PER THE IMPLIED CONDUCT OF THE PARTNERS UNDER SEC. 11(1) OF THE INDIAN PARTNER SHIP ACT, 1932. BE THAT AS IT MAY, WE FIND OURSELVES TO BE IN AGREEMENT WITH THE CONTENTION OF THE LD. A.R. THAT IT WOULD BE ABSOLUTELY ILLOGICAL AND RATHER IMPOSSIBLE TO EXPECT THAT EHDPL COULD HAVE MANAGED TO FREEZE ITS CAPITAL IN THE FIRM AT RS.25 LAC OR ANY OTHER FIGURE, EVEN IF IT WOULD HAVE RESOLVED NOT TO INTRODUCE ANY FRESH CAPITAL IN THE FIRM OR WITHDRAW ANY PART OF THE SAME . WE FURTHER ARE OF THE CONSIDERED VIEW THAT A C AP I TAL CONTRIBUTION BY A PARTNER IN A FIRM IS DIFFERENTLY PLACED AS AGAINST A LOAN OR AN ADVANCE TO THE FIRM . THE LD. A.R IN ORDER TO FORTIFY HIS AFORESAID CONTENTION HAD REFERRED TO THE PROVISIONS OF SEC. 48 OF THE INDIAN PARTNERSHIP ACT, 1932. THE LD. A.R IN ORDER TO SUPPORT HIS AFORESAID CONTE NTION HAD RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF : SUNIL P A G E | 8 SIDHARTHBHAI VS. CIT, AHMEDABAD (1985) 156 ITR 509 (SC) . WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE CONTENTIONS RAISED BEFORE US AND FIND SUBSTANTIAL FORCE IN THE SAME. WE FIND THAT LOANS AND ADVANCES GIVEN BY A PARTNER TO THE FIRM ARE SUBSTANTIALLY DIFFERENT FROM THEIR CAPITAL CONTRIBUTIONS. THAT A PERU SAL OF SEC. 48 OF THE INDIAN PARTNERSHIP ACT, 1932, WHICH CONTEMPLATES THE MODE OF SETTLEMENT OF THE ACCOUNTS OF THE PARTNERS IN THE CASE OF DISSOLUTION OF A FIRM, IN ITSELF CATEGORIZES THE SAME UNDER DIFFERENT CLAUSES. THAT THE AFORESAID DIFFERENCE CAN BE WELL APPRECIATED BY LOOKING INTO THE RELEVANT EXTRACT OF SEC. 48 (SUPRA), WHICH READS AS UNDER: - 48. MODE OF SETTLEMENT OF ACCOUNTS BETWEEN PARTNERS IN SETTLING THE ACCOUNTS OF A FIRM AFTER DISSOLUTION , THE FOLLOWING RULES SHALL, SUBJECT TO THE A GREEMENT BY THE PARTNERS, BE OBSERVED: - (A) (B). THE ASSETS OF THE FIRM, INCLUDING ANY SUMS CONTRIBUTED BY THE PARTNERS TO MAKE UP DEFICIENCIES OF CAPITAL, SHALL BE APPLIED IN THE FOLLOWING MANNER AND ORDER: - (I) (II).IN PAYING TO EACH PARTNER RATEABLY WHAT IS DUE TO HIM FROM T H E FIRM FOR ADVANCES AS DISTINGUISHED FROM CAPITAL. (III). IN PAYING TO EACH PARTNER WHAT IS RATEABLY DUE TO HIM ON ACCOUNT OF CAPITAL; AND (IV). WE FURTHER FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF SUNIL SIDHARTHBHAI (SUPRA) HAD CLEARLY DISTINGUISHED CAPITAL CONTRIBUTIONS AS AGAINST LOAN OR ADVANCE, BY OBSERVING AS UNDER: - WHEN HIS PERSONAL ASS ETS MERGE INTO THE CAPITAL OF THE PARTNERSHIP FIRM, A CORRESPONDING CREDIT ENTRY IS MADE IN THE PARTNERS CAPITAL ACCOUNT IN THE BOOKS OF THE PARTNERSHIP FIRM, BUT P A G E | 9 THE ENTRY IS MADE MER E LY FOR THE PURPOSE OF ADJUSTING THE RIGHTS OF THE PARTNERS INTER SE WHEN THE PARTNERSHIP IS DISSOLVED OR THE PARTNER RETIRES. IT EVIDENCES NO DEBT DUE BY THE FIRM TO THE PARTNER . INDEED, THE CAPITAL REPRESENTED BY THE NOTIONAL ENTRY TO THE CREDIT OF THE PARTNERS ACCOUNT MAY BE COMPLETELY WIP ED OUT BY LOSSES WHICH MAY BE SUBSEQUENTLY INCURRED BY THE FIRM, EVEN IN THE VERY ACCOUNTING YEAR IN WHICH THE CAPITAL ACCOUNT IS CREDITED. THUS FROM A BARE PERUSAL OF THE AFORESAID STATUTORY PROVISION, VIZ. SEC. 48 (SUPRA) AND THE JUDGMENT OF THE HONB LE APEX COURT IN THE CASE OF SUNIL SIDHARTHBHAI (SUPRA) , IT CAN SAFELY AND RATHER INESCAPABLY BE CONC L UDED BEYOND ANY SCOPE OF DOUBT THAT THE CAPITAL CONTRIBUTION BY A PARTNER IS DIST INGUISHABLE AS AGAINST THE LOANS OR ADVANCES GIVEN BY HIM TO THE FI RM, AND THE SA ID DIFFERENCE IS IN ITSELF DULY RECOGNIZED UNDER LAW. WE THUS IN LIGHT OF OUR AFORESAID OBSERVATIONS ARE UNABLE TO SUBSCRIBE TO THE VIEW OF THE LOWER AUTHORITIES, WHO WE FIND HAD MOST CASUALLY CONSTRU ED THE CAPITAL CONTRIBUTIONS BY EHDPL AS A PARTNER WITH M/S ELITE CORPORATION (SUPRA), AS A LOAN OR ADVANCE. 7. THE LD. A.R FURTHER REBUTTED THE OBSERVATION S OF THE LOWER AUTHORITIES THAT THE FIRM M/S ELITE CORPORATION (SUPRA) WAS AN ENTITY WHICH WAS PURPORTEDLY BROUGHT INTO EXISTENCE TO ACT AS A FACILITATOR FOR MAKING THE ACCUMULATED PROFITS OF EHDPL AVAILABLE TO THE PARTNERS OF THE FIRM , VIZ. M/S ELITE CORPORATION , AND IN THE GUISE OF SUCH TRANSACTIONS WRIGGLE OUT OF THE DEEMI NG PROVISIONS CONTEMPLATED U/S 2(22)(E) OF THE ACT . THE LD. A.R DISLODGING THE AFORESAID OBSERVATIONS OF THE LOWER AUTHORITIES SUBMITTED THAT THE FIRM M/S ELITE CORPORATION (SUPRA) WAS CARRYING ON SUBSTANTIAL BUSINESS, AND TO FORTIFY HIS CONTENTION DREW OUR ATTENTION TO PAGE 21 OF THE APB, WHICH REVEAL S THAT THE FIRM M/S ELITE CORPORATION (SUPRA) HAD A TURNOVER OF RS. P A G E | 10 12.88 CRORES DURING THE YEAR UNDER CONSIDERATION. THE LD. A.R FURTHER DRAWING OUR ATTENTION TO THE COMPUTATION OF INCOME OF M/S ELITE C ORPORATION (SUPRA) ( PAGE 19 OF THE APB ) , THEREIN SUBMITTED THAT THE LATTER HAD DURING THE YEAR UNDER CONSIDERATION REFLECTED A NET PROFIT OF RS. 2.95 CRORE (APROX). THE LD. A.R THUS SUBMITTED THAT IN THE BACKDROP OF THE FINANCIAL CREDENTIALS AND THE INCOME RETURNED BY THE FIRM, VIZ. M/S ELITE CORPORATION, IT WAS WRONG ON THE PART OF THE A.O TO CHARACTERIZE THE LATTER AS A FACILITATOR BROUGHT INTO EXISTENCE TO AVOID THE ATTRACTION OF DEEMING PROVISIONS CONTEMPLATED U/S 2 (22)(E) IN THE HANDS OF THE ASSESSEE. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE CONTENTION S OF THE LD. A.R AND ARE OF THE CONSIDERED VIEW THAT IN THE BACKDROP OF THE SUBSTANTIAL TURNOVER AND INCOME OFFERED FOR TAX BY THE FIRM, VIZ. M/S ELITE CORPORA TION (SUPRA), IT WOULD BE INCORRECT TO HOLD THAT THE SAME WAS A DUMMY CONCERN WHICH HAD BEEN BROUGHT INTO EXISTENCE WITH THE INTENT TO BYPASS THE DEEMING PROVISIONS CONTEMPLATED U/S 2(22)(E) OF THE ACT. WE THUS NOT BEING IN AGREEMENT WITH THE ADVERSE INF ERENCES SO DRAWN BY THE LOWER AUTHORITIES ON THE SAID COUNT IN THE HANDS OF THE ASSESSEE, THUS SET ASIDE THE SAME. 8. THE LD. A.R IN ORDER TO DISPEL THE DOUBTS AS REGARDS UTILIZATION OF THE FUNDS WHICH WERE INJECTED BY EHDPL BY WAY OF ITS CAPITAL CONTRIBUTION IN THE FIRM, VIZ. M/S ELITE CORPORATION (SUPRA), THEREIN STATED AT BAR THAT THE SAME WERE UTILIZED BY THE FIRM IN THE NORMAL COURSE OF ITS BUSINESS , AND WERE NOT UTILIZED FOR THE PERSONAL BENEFIT OF THE ASSESSEE. THE LD. A.R IN ORDER TO SUPPORT HIS AFORESAID CONTENTION THEREIN DREW SUPPORT FROM THE JUDGMENT OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF : CIT VS. SUBRATA ROY (2015) 375 ITR 207 (DELHI), WHEREIN THE HONBLE HIGH COURT AFTER DELIBERATING ON THE ISSUE AS TO WHETHER T HE FUNDS RECEIVED BY A FIRM FROM A COMPANY IN PURSUANCE TO A CONTRACTUAL OBLIGATION INTER SE BETWEEN THEM, IN THE P A G E | 11 ABSENCE OF ANY MATERIAL WHICH COULD GO TO PROVE THAT THE FUNDS OF THE COMPANY WERE CHANNELIZED THROUGH THE FIRM FOR ADVANCING OF LOAN S OR ADVANCES TO ITS PARTNERS (WHO WERE HAVING SUBSTANTIAL INTEREST IN THE COMPANY), COULD BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE PARTNERS , THEREIN DISMISSED THE APPEAL OF THE REVENUE , BY OBSERVING AS UNDER: - 21. SO FAR AS THE CONTENTION THAT THE TWO TRANSACTIONS - ONE FROM SISICOL TO THE FIRM AND THE SECOND FROM THE FIRM TO THE ASSESSEE SHOULD BE TREATED AS ONE, IS NOT BASED ON ANY VALID JUSTIFICATION. THE FIRM HAS A LEGAL EXISTENCE SEPARATE AND INDEPENDENT OF SISICOL. IT CARRIED ON SIGNIFICANT CO MMERCIAL ACTIVITY AND COLLECTED SUBSTANTIAL AMOUNTS (CRORES OF RUPEES). THEREFORE, THE FINDING THAT THE TWO TRANSACTIONS, I.E., ONE OF ADVANCING LOAN (BY THE FIRM TO THE ASSESSEE) AND THE OTHER OF THE USE OF FUNDS OF SISICOL BY THE FIRM BEING IN REALITY ON E TRANSACTION IS WITHOUT BASIS. THE PRESUMPTION WAS DRAWN WITHOUT ANY MATERIAL TO SUPPORT THE CASE OF THE REVENUE THAT FUNDS OF THE COMPANY WERE UTILIZED TO ADVANCE THE LOAN. THE LD. A.R IN ORDER TO FORTIFY HIS CONTENTION ALSO PLACED RELIANCE ON THE FOL LOWING JUDGMENTS: - (I) CIT VS. PV JOHN ( 1990 ) 181 ITR 1 (KER) (II) CIT VS. VIR VIKRAM VAID ( 2014 ) 367 ITR 365 (BOM) WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE CONTENTIONS OF THE LD. A.R AND ARE OF THE CONSIDERED VIEW THAT THE FUNDS OF EHDPL WHICH WERE INJECTED BY WAY OF CAPITAL CONTRIBUTION IN M/S ELITE CORPORATION (SUPRA), THOUGH IN THE ABSENCE OF ANY MATERIAL COULD NOT BE HELD TO HAVE BEEN MADE AVAILABLE BY THE COMPANY FOR THE INDIVIDUAL BENEFIT OF THE ASSESSEE, BUT THEN WE WOULD NOT HESITATE TO OBSERVE THAT ON SUCH STAND ALONE BASIS , IN ABSENCE OF CLINCHING FACTS TAKING THE CASE OF THE P A G E | 12 PRESENT ASSESSEE BEYOND THE SCOPE AND KEN OF THE SECOND LIMB OF SEC. 2(22)(E), WE WOULD NOT HAVE BEEN I NSPIRED TO CONCLUDE THAT THE SAM E CANNOT BE CHARACTERIZED AS DEEMED DIVIDEND IN THE PRESENT CASE. HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT THE AFORESAID FACT UNDOUBTEDLY SUPPLEMENT S AND SUPPORT S OUR AFORESAID VIEW THAT THE CAPITAL INTRODUCED BY EHDPL AS A PARTNER IN M/S ELITE CORPOR ATION (SUPRA) CANNOT BE CHARACTERIZED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. 9. PER CONTRA, THE LD. D.R RELIED ON THE ORDER OF THE CIT(A) AND SPECIFICALLY TOOK US THROUGH THE OBSERVATIONS OF THE CIT(A) RECORDED AT PAGE 12 PARA 4.9 OF THE O RDER. IT WAS AVERRED BY THE LD. D.R THAT THE APPEAL OF THE ASSESSEE WAS DEVOID OF ANY MERITS, AND THE LOWER AUTHORITIES HAD RIGHTLY CONCLUDED THAT THE AMOUNT INTRODUCED BY EHDPL IN GUISE OF CAPITAL CONTRIBUTION AS A PARTNER IN THE FIRM ,I.E M/S ELITE COR PORATION (SUPRA) WAS TO BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. IT IS WAS THUS SUBMITTED BY THE LD. D.R THAT THE APPEAL OF THE ASSESSEE MAY THEREIN BE DISMISSED. 10. WE HAVE HEREINABOVE DELIBERATED AT LENGTH ON THE RESPECTIVE OBSERVA TIONS OF THE LOWER AUTHORITIES AS REGARDS THE MERITS OF THE ISSUE UNDER CONSIDERATION, AND AFTER HEARING THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES AND PERUSING THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD, HAD THEREIN EXPRESSED OUR VIEWS AS REGARDS THE SAME. W E WOULD HEREIN SUM UP THAT IN LIGHT OF OUR AFORESAID OBSERVATIONS, WE ARE UNABLE TO PERSUADE OURSELVES TO SUBSCRIB E TO THE OBSERVATIONS OF THE LOWER AUTHORITIES THAT THE AMOUNT BROUGHT BY EHDPL BY WAY OF CAPITAL CONTRIBUTION AS A PARTNER WITH THE FIRM, I.E M/S ELITE CORPORATION (SUPRA), WAS LIABLE TO BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. WE TH US IN THE P A G E | 13 BACKDROP OF OUR AFORESAID OBSERVATIONS, THUS SET ASIDE THE ORDER OF THE CIT(A) IN CONTEXT OF THE ISSUE UNDER CONSIDERATION. THE G ROUND OF A PPEAL NO. 2 RAISED BY THE ASSESSEE BEFORE US IS THUS ALLOWED. 11. THE LD. A.R HAD DURING THE COURSE OF HEAR ING OF THE APPEAL ALSO ASSAILED BEFORE US THE VALIDITY OF THE REASSESSMENT FRAMED BY THE A.O VIDE HIS ORDER PASSED U/SS. 143(3) R.W SEC.147, DATED. 20.12.2011. IT WAS AVERRED BY THE LD. A.R THAT AS THE NOTICES ISSUED U/SS. 143(2) AND 142(1) WERE ISSUED TO THE ASSESSEE WITHIN A PERIOD OF 4 WEEKS FROM THE DATE ON WHICH THE ORDER OF THE A.O REJECTING THE OBJECTIONS RAISED BY THE ASSESSEE WAS RECEIVED, THEREFORE THE REASSESSMENT FRAMED BY THE A.O WAS NOT SUSTAINABLE IN THE EYES OF LAW . THAT AS WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE ON MERITS, THEREFORE THE CONTENTIONS RAISED BY THE LD. A.R IN RESPECT OF THE VALIDITY OF THE REASSESSMENT PROCEEDINGS ARE NOT BEING ADVERTED TO AND ARE THUS LEFT OPEN. THE GROUND OF APPEAL NO. 1 IS THUS DISPOSED OF IN TERMS OF OUR AFORESAID OBSERVATIONS. 12 . THE APPEAL OF THE ASSESSEE IS ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. ITA NO. 5779/MUM/2012 A.Y. 2007 - 08 13. WE SHALL NOW ADVERT TO THE APPEAL OF THE ASSESSEE FOR THE A.Y. 2007 - 08. THE ASSESSEE HAD ASSAILED THE ORDER OF THE CIT(A) BY RAISING THE FOLLOWING GROUNDS OF APPEAL: - THE GROUNDS OF APPEAL RAISED HEREIN ARE ALL WITHOUT PREJUDICE TO ONE ANOTHER: - P A G E | 14 1. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN HOLDING THAT THE PROCEEDINGS U/S 147 AND ALSO T HE ASSESSMENT ORDER PASSED CONSEQUENT THERE TO ARE LEGAL AND VALID. THE REASONS GIVE BY HER IN THIS REGARD ARE INCORRECT, UNJUSTIFIED AND UNWARRANTED. 2. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF AN AMOUNT OF RS. 96,00,000/ - AS DEEMED DIVIDEND U/S 2(22)(E). THE REASONS GIVE BY HER IN THIS REGARD ARE INCORRECT, UNJUSTIFIED AND UNWARRANTED. 3. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN QUANTIFYING THE ADDITION U/S 2(22)(E) AT RS. 96,00,000/ - . THE APPELL ANT CRAVES TO ADD TO, TO ALTER OR TO AMEND THE ABOVE GROUNDS OF APPEAL. 1 4 . BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED HIS RETURN OF INCOME FOR A.Y. 200 7 - 0 8 ON 25 .10.200 7, DECLARING TOTAL INCOME OF RS. 14,56,860 / - , WHICH WAS PROC ESSED AS SUCH UNDER SEC.143(1) OF THE INCOME - TAX ACT, 1961 (FOR SHORT ACT). THE CASE OF THE ASSESSEE WAS THEREAFTER REOPENED UNDER SECTION 147 AND A NOTICE U/S 148, DATED 13.01.2011, WAS SERVED UPON HIM. THE ASSESSEE IN COMPLIANCE TO THE NOTICE U/S 148, THEREIN VIDE HIS LETTER DATED 09.02.2011 SUBMITTED BEFORE THE A.O THAT HIS ORIGINAL RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, VIZ. A.Y. 200 7 - 0 8 , WHICH WAS FILED ON 25.10.2007, MAY BE TREATED AS A RETURN FILED IN COMPLIANCE TO THE NOTICE ISSUED UNDER SEC. 148 OF THE ACT. THE ASSESSEE AFTER COMPLYING WITH THE NOTICE UNDER SECTION 148, THEREIN REQUESTED FOR THE COPY OF THE REASONS TO BELIEVE ON THE BASIS OF WHICH HIS CASE WAS REOPENED UNDER SEC. 147. THE COPY OF THE REASONS TO BELIEVE WERE P A G E | 15 MADE AVAILABLE BY THE A.O. VIDE HIS LETTER DATED 11.07.2011. THE ASSESSEE AFTER PERUSING THE REASONS ON THE BASIS OF WHICH HIS CASE HAD BEEN REOPENED, THEREI N VIDE HIS LETTER DATED 03.08.2011 FILED HIS OBJECTIONS. THE OBJECTIONS OF THE ASSESSEE WERE HOWEVER REJECTED BY THE A.O., AND THE SAME WAS COMMUNICATED TO THE ASSESSEE VIDE A LETTER DATED 24.08.2011. THE A.O. THEREAFTER PROCEEDED WITH THE REASSESSMENT PRO CEEDINGS AND VIDE HIS ORDER PASSED U/S 143(3) R.W.S 147 ASSESSED THE INCOME OF THE ASSESSEE AT RS. 69,90,390 / - . 1 5 . THE A.O. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE SH. MOHAN RAMCHAND LALA WAS A DIRECTOR IN M/S ELITE HOUS ING DEVELOPMENT PVT. LTD. (EHDPL) HAVING 25.5% SHAREHOLDING, AND ALSO A PARTNER IN M/S. ELITE CORPORATION HAVING 37.5% SHARE OF PROFIT. IT WAS FURTHER GATHERED BY THE A.O. THAT EHDPL WAS ALSO A PARTNER HAVING 5% SHARE OF PROFIT IN THE ABOVE MENTIONED FIRM, VIZ. M/S ELITE CORPORATION (SUPRA). THE A.O. OBSERVED THAT EHDPL WHICH WAS HAVING AN ACCUMULATED PROFIT OF RS. 1,70, 16,945/ - HAD MADE AN INVESTMENT OF RS. 1,40,49,506/ - IN THE AFORESAID FIRM, VIZ. M/S ELITE CORPORATION (SUPRA), WHICH AS PER THE A.O WAS FOUN D TO BE SUBSTANTIALLY EXCESSIVE AS COMPARED TO THE SHARE OF PROFITS OF EHDPL IN THE SAID FIRM. THE A.O. BEING OF THE VIEW THAT AS THE ASSESSEE WAS HAVING SUBSTANTIAL INTEREST (37.5% SHARE) IN THE FIRM M/S ELITE CORPORATION (SUPRA), THEREFORE THE LATTER COU LD SAFELY BE CHARACTERIZED AS AN ELIGIBLE CONCERN UNDER SEC. 2(22)(E) OF THE ACT. THE A.O THUS HOLDING A STRONG CONVICTION THAT EHDPL IN THE GARB OF CAPITAL CONTRIBUTION HAD MADE AVAILABLE ITS ACCUMULATED PROFITS TO THE FIRM M/S ELITE CORPORATION (SU PRA), THEREFORE CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE INVESTMENT OF RS. 1,40,49,506/ - (SUPRA) MADE BY EHDPL IN THE FIRM M/S ELITE CORPORATION (SUPRA) MAY NOT BE ASSESSED AS DEEMED DIVIDEND IN HIS HANDS. THE ASSESSEE SUBMITTED P A G E | 16 BEFORE THE A.O. THAT EHDPL IN ITS STATUS AS THAT OF BEING A PARTNER IN THE ABOVEMENTIONED FIRM, VIZ. M/S. ELITE CORPORATION HAD INVESTED AN AMOUNT OF RS. 96 LAC DURING THE YEAR BY WAY OF ITS CAPITAL CONTRIBUTION, AND HAD NEITHER GIVEN ANY LOAN OR ADVANCE TO THE FIRM M/S ELITE CORPORATION, NOR THE SAID AMOUNT WAS PAID ON BEHALF OF THE INDIVIDUAL BENEFIT OF THE ASSESSEE, THEREFORE THE PROVISIONS OF SECTION 2(22)(E) WERE NOT APPLICABLE. THE A.O. HOWEVER NOT FINDING FAVOR WITH THE SUBMISSIONS OF THE ASSESSEE, AND THEREIN OB SERVING THAT EHDPL HAD DURING THE YEAR UNDER CONSIDERATION INVESTED AN AMOUNT OF RS. 96 LAC (SUPRA) WITH THE AFORESAID FIRM, VIZ. M/S ELITE CORPORATION (SUPRA), THUS ASSESSED THE SAME AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. T HE ASSESSEE AGGRIEVED WITH THE ORDER OF THE A.O THEREIN ASSAILED THE SAME BEFORE THE CIT(A), WHO BEING OF THE VIEW THAT THE ADDITION MADE BY THE A.O BY HOLDING THAT THE AMOUNTS RECEIVED BY THE FIRM M/S ELITE CORPORATION (SUPRA) BY WAY OF CAPITAL CONTRIBUTION FROM M/S EHDPL D URING THE YEAR WAS LIABLE TO BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE, WAS WELL IN ORDER , THUS PARTLY ALLOWED THE APPEAL . 1 6 . THAT AT THE VERY OUTSET OF THE HEARING OF THE APPEAL, IT WAS SUBMITTED BY THE LD. A.R THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL WAS IDENTICAL TO THAT INVOLVED IN THE AFOREMENTIONED APPEAL OF THE ASSESSEE IN MOHAN RAMCHAND LALA VS. ITO, WARD 9(1)(3), MUMBAI , FOR A.Y. 200 6 - 0 7 , MARKED AS ITA NO. 5778 /MUM/ 201 2 . THE LD. D.R HAD NOT DISPUTED THE SAID FACTUAL POSITION. WE HAVE PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL PRODUCED BEFORE US. WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE INVOLVED IN THE APPEAL BE FORE US IN THE CASE OF MOHAN RAMCHAND LALA VS. ITO, WARD 9(1)(3), MUMBAI , FOR A.Y. 200 6 - 0 7 . THUS IN THE BACKDROP OF OUR AFORESAID OBSERVATIONS, WE HEREIN ADJUDICATE THE PRESENT ISSUE P A G E | 17 IN TERMS OF OUR ORDER PASSED WHILE DISPOSING OF THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE AFORESAID APPEAL, I.E MOHAN RAMCHAND LALA VS. ITO, WARD 9(1)(3), MUMBAI , MARKED AS ITA NO. 5778 /MUM/201 2 , AND OUR DECISION PASSED IN CONTEXT OF THE ISSUE UNDER CONSIDERATION IN THE SAID APPEAL, SHALL IN LIGHT OF OUR AFORESAID OBSERVATIONS APPLY MUTATIS MUTANDIS IN THE PRESENT APPEAL ALSO. WE THUS GOING BY OUR OBSERVATIONS AND REASONING ADOPTED WHILE DISPOSING OF THE GROUND OF APPEAL NO. 1 RAISED BEFORE US IN THE APPEAL OF MOHAN RAMCHAND LALA VS. ITO, WARD 9(1)(3), MUMBAI , MARKED AS ITA NO. 5778 /MUM/201 2 , FOR A.Y. 200 6 - 0 7 , THEREIN DISPOSE OF THE G ROUND OF APPEAL NO. 1 RAISED BY THE ASSESSEE BEFORE US IN THE PRESENT APPEAL . 1 7 . TH AT IN THE BACKDROP OF OUR OBSERVATIONS AND REASONING ADOPTED WHILE ADJUDICATING THE GROUND OF APPEAL NO. 2 RAISED BY THE ASSESSEE BEFORE US IN THE AFORESAID APPEAL, I.E MOHAN RAMCHAND LALA VS. ITO, WARD 9(1)(3), MUMBAI , MARKED AS ITA NO. 5778 /MUM/201 2 , OUR DECISION PASSED IN CONTEXT OF THE ISSUE UNDER CONSIDERATION IN THE SAID APPEAL, SHALL IN LIGHT OF OUR AFORESAID OBSERVATIONS APPLY MUTATIS MUTANDIS IN THE PRESENT APPEAL ALSO . WE THUS GOING BY OUR OBSERVATIONS AND REAS ONING ADOPTED WHILE DISPOSING OF THE GROUND OF APPEAL NO. 2 RAISED BEFORE US IN THE APPEAL OF MOHAN RAMCHAND LALA VS. ITO, WARD 9(1)(3), MUMBAI , MARKED AS ITA NO. 5778 /MUM/201 2 , FOR A.Y. 200 6 - 0 7 , THEREIN ALLOW THE G ROUND OF APPEAL NO. 2 AND GROUND OF APPEAL NO. 3 RAISED BY THE ASSESSEE BEFORE US IN THE PRESENT APPEAL. 1 8 . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. P A G E | 18 ITA NO. 8701/MUM/2011 19. WE SHALL NOW ADVERT TO THE APPEAL OF THE ASSESSEE FOR THE A.Y. 2008 - 09. THE ASSESSEE HAD ASSAILED THE ORDER OF THE CIT(A) BY RAISING THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED C.I.T. (A) ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE IT ACT ARE APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C.I.T.(A) ERRED CONFIRMI NG THE ACTION OF THE A.O. AND HOLDING THAT THE PAYMENTS MADE BY ELITE HOUSING DEVELOPMENT P. LTD. TO M/S. ELITE CORPORATION ATTRACT THE PROVISIONS OF SECTION 2(22)(E) AND THE ADDITION MADE AS DEEMED DIVIDEND IS IN ORDER ON PRINCIPLE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C.I.T. (A) ERRED IN UPHOLDING THE ADDITION MADE TO THE EXTENT OF RS.850,000/ - U/S 2(22)(E) OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER AMEND OR DELETE ANY OR ALL OF THE GR OUNDS OF APPEAL AT ANY TIME. 2 0 . BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED HIS RETURN OF INCOME FOR A.Y. 200 8 - 0 9 ON 29 . 09 .200 8, DECLARING TOTAL INCOME OF RS. 57,60,420 / - , WHICH WAS PROCESSED AS SUCH UNDER SEC.143(1) OF THE INCOME - TAX ACT, 1961 (FOR SHORT ACT). THE CASE OF THE ASSESSEE WAS THEREAFTER TAKEN UP FOR SCRUTINY PROCEEDINGS U/S 143(2). P A G E | 19 2 1 . THE A.O. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE SH. MOHAN RAMCHAND LALA WAS A DIRECTOR IN M/S ELITE HOUSING DEVELOPMENT PVT. LTD. (EHDPL) HAVING 25.5% SHAREHOLDING, AND ALSO A PARTNER IN M/S. ELITE CORPORATION, HAVING 37.5% SHARE OF PROFIT. IT WAS FURTHER GATHERED BY THE A.O. THAT EHDPL WAS ALSO A PARTNER HAVING 5% SHARE OF PROFIT IN THE ABOVE MENTIONED FIRM, VIZ. M/S ELITE CORPORATION (SUPRA). THE A.O. OBSERVED THAT EHDPL WHICH WAS HAVING AN ACCUMULATED PROFIT OF RS. 1,83,16,449/ - HAD MADE AN INVESTMENT OF RS. 1,48,84,470/ - IN THE AFORESAID FIRM, VIZ. M/S ELITE CORPORATION (SUPRA), WHICH AS PER T HE A.O WAS FOUND TO BE SUBSTANTIALLY EXCESSIVE AS COMPARED TO THE SHARE OF PROFITS OF EHDPL IN THE SAID FIRM. THE A.O. BEING OF THE VIEW THAT AS THE ASSESSEE WAS HAVING SUBSTANTIAL INTEREST (37.5% SHARE) IN THE FIRM M/S ELITE CORPORATION (SUPRA), THEREFORE THE LATTER COULD SAFELY BE CHARACTERIZED AS AN ELIGIBLE CONCERN UNDER SEC. 2(22)(E) OF THE ACT. THE A.O THUS HOLDING A STRONG CONVICTION THAT EHDPL IN THE GARB OF CAPITAL CONTRIBUTION HAD MADE AVAILABLE ITS ACCUMULATED PROFITS TO THE FIRM M/S ELITE CORPORATION (SUPRA), THEREFORE CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE INVESTMENT OF RS. 1,48,84,470/ - (SUPRA) MADE BY EHDPL IN THE FIRM M/S ELITE CORPORATION (SUPRA) MAY NOT BE ASSESSED AS DEEMED DIVIDEND IN HIS HANDS. THE ASSESSEE SUBMITTED BEFORE THE A.O. THAT EHDPL IN ITS STATUS AS THAT OF BEING A PARTNER IN THE ABOVEMENTIONED FIRM, VIZ. M/S. ELITE CORPORATION HAD INVESTED AN AMOUNT OF RS. 12,29,964/ - DURING THE YEAR BY WAY OF ITS CAPITAL CONTRIBUTION, AND HAD NEITHER GIVEN ANY LOAN OR ADVANCE TO THE FIRM M/S ELITE CORPORATION, NOR THE SAID AMOUNT WAS PAID ON BEHALF OF THE INDIVIDUAL BENEFIT OF THE ASSESSEE, THEREFORE THE PROVISIONS OF SECTION 2(22)(E) WERE NOT APPLI CABLE. THE A.O. HOWEVER NOT FINDING FAVOR WITH THE SUBMISSIONS OF THE ASSESSEE AND THEREIN OBSERVING THAT EHDPL HAD DURING THE YEAR UNDER CONSIDERATION INVESTED AN AMOUNT OF P A G E | 20 RS. 12,29,964/ - (SUPRA) WITH THE AFORESAID FIRM, VIZ. M/S ELITE CORPORATION (SUPRA), THUS ASSESSED THE SAME AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE. T HE ASSESSEE AGGRIEVED WITH THE ORDER OF THE A.O THEREIN ASSAILED THE SAME BEFORE THE CIT(A), WHO BEING OF THE VIEW THAT THE ADDITION MADE BY THE A.O BY HOLDING THAT THE AMOUNTS REC EIVED BY THE FIRM M/S ELITE CORPORATION (SUPRA) BY WAY OF CAPITAL CONTRIBUTION FROM M/S EHDPL DURING THE YEAR WAS LIABLE TO BE ASSESSED AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE, WAS WELL IN ORDER , THUS PARTLY ALLOWED THE APPEAL . 2 2 . THAT AT THE VERY OUTSET OF THE HEARING OF THE APPEAL, IT WAS SUBMITTED BY THE LD. A.R THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL ON MERITS WAS IDENTICAL TO THAT INVOLVED IN THE AFOREMENTIONED APPEAL OF THE ASSESSEE IN MOHAN RAMCHAND LALA VS. ITO, WARD 9(1)(3), MU MBAI , FOR A.Y. 200 6 - 0 7 , MARKED AS ITA NO. 5778 /MUM/201 2 . THE LD. D.R HAD NOT DISPUTED THE AFORESAID FACTUAL POSITION. WE HAVE PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL PRODUCED BEFORE US. WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL ON MERITS IS IDENTICAL TO THE ISSUE INVOLVED IN THE APPEAL BEFORE US IN THE CASE OF MOHAN RAMCHAND LALA VS. ITO, WARD 9(1)(3), MUMBAI , FOR A.Y. 200 6 - 0 7 . TH AT IN THE BACKDROP OF OUR OBSERVATIONS AND REASONING ADOPTED WHILE ADJUDICATING THE GROUND OF APPEAL NO. 2 RAISED BY THE ASSESSEE BEFORE US IN THE AFORESAID APPEAL, I.E MOHAN RAMCHAND LALA VS. ITO, WARD 9(1)(3), MUMBAI , MARKED AS ITA NO. 5778 /MUM/201 2 , OUR DECISION PASSED IN CONTEXT OF THE ISSUE UNDER CONSIDERATION IN THE SAID APPEAL, SHALL IN LIGHT OF OUR AFORESAID OBSERVATIONS APPLY MUTATIS MUTANDIS IN THE PRESENT APPEAL ALSO . WE THUS GOING BY OUR OBSERVATIONS AND REASONING ADOPTED WHILE DISPOSING OF THE GROUND OF APPEAL NO. 2 RAISED BEFORE US IN THE APPEAL OF MOHAN RAMCHAND LALA VS. ITO, WARD 9(1)(3), MUMBAI , MARKED AS ITA NO. 5778 /MUM/201 2 , P A G E | 21 FOR A.Y. 200 6 - 0 7 , THEREIN ALLOW THE G ROUND OF APPEAL NO. 1 TO 3 RAISED BY THE ASSESSEE BEFORE US IN THE PRESENT APPEAL. 2 3 . THE APPEAL OF THE ASSESSEE IS ALLOWED. 2 4 . THAT THE APPEALS OF THE ASSESSEE FOR A.YS. 2006 - 07 AND 2007 - 08, MARKED AS ITA(S). NOS. 5778 & 5779/MUM/2012 AND THE APPEAL OF THE ASSESSEE FOR A.Y. 2008 - 09, MARKED AS ITA NO. 8701/MUM/2009 , ARE ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. ORDER PRONOU NCED IN THE OPEN COURT ON 14 .06.2017 SD/ - SD/ - ( G.S. PANNU ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 14 .0 6 .2017 PS. ROHIT KUMAR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI P A G E | 22