Meda Constructions, Hyderabad, Hyderabad V. DCIT, Central Circle, , Tirupathi

ITA 902/HYD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1533 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 15-05-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 24-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH PADUCHURI
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Reopening of assessment; Search and seizure; Document seized; Tangible material; Difference of opinion; Deemed dividend; Documents seized; Change of opinion; TDS
• Section: 143(3); 153A; 2(22)(e); 143(1); 147; 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A ', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 902 HYD/201 7 ASSESSMENT YEAR: 20 10 - 11 MEDA CONSTRUCTIONS, HYDERABAD. PAN A AJFM6096R VS. DY. COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE, TIRUPATI. A PPELLANT RESPONDENT ASSESSEE BY: S H RI K.A. SAI PRASAD REVENUE BY: S HRI DINESH PA D UCHURI DATE OF HEARING: 15 / 0 5 / 201 9 DATE OF PRONOUNCEMENT: 14 / 0 6 /201 9 O R D E R PER S. RIFAUR RAHMAN , AM: T H IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) 3 , VISAKHAPATNAM , DATED, 16 /0 3 /201 7 FOR AY 20 10 - 11 . 2. BRIEF FACTS OF THE CASE ARE, ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF EXECUTING CIVIL CONTRACTS. A SEARCH AND SEIZURE OPERATION U/S 132 OF THE INCOME - TAX ACT, 1961 ( IN SHORT THE ACT) WAS CONDUCTED IN THE M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD . ON 25/01/2012. DURING THE COURSE OF SEARCH, CERTAIN DETAILS OF PAYMENTS MADE TO THE ASSESSEE WERE FOUND AND SEIZED. A NOTICE U/S 153C OF THE ACT WAS ISSUED CALLING FOR RETURN OF INCOME AND ASSESSEE FILED RETURN OF INCOME ON 06/06/2013 DECLARING INCOME O F RS. 1,19,13,872/ - . THE ASSESSMENT WAS COMPLETED U/S 143(3W) RWS 153C OF THE ACT, ACCEPTING THE RETURN OF INCOME FILED BY THE ASSESSEE. I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 2 2.1 SUBSEQUENTLY, IT WAS NOTICED THAT M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. SHOWN AS CREDITORS TO THE EXTENT OF RS. 5,77,91,142/ - IN THE BALANCE SHEET OF THE ASSESSEE AS ON 31/03/2010 AS THE ASSESSEE FIRM IS A ASSOCIATE OF M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. AND IT IS ALSO NOTICED THAT THREE PARTNERS OF THE FIRM ARE HOLDING SHARES IN EXCESS OF 10% IN M /S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. AND THESE PARTNERS ARE HAVING SUBSTANTIAL INTEREST IN EXCESS OF 15% IN THE FIRM AND THE COMPANY M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. HAVING ACCUMULATED PROFIT OF RS. 23.64 CRORES AS ON 01/04/2009. ACCORDING TO THE AO, PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE ATTRACTED AND NOTICE U/S 148 DATED 20/01/2015 WAS ISSUED TO THE ASSESSEE. IN RESPONSE TO THE SAID NOTICE, ASSESSEE FILED A LETTER DATED 25/06/2015 MENTIONING THEREIN THAT RETURN FILED EARLIER MAY BE TREATED AS RETURN FILED IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT. FURTHER, NOTICE U/S 143(1) WAS ISSUED AND SERVED ON THE ASSESSEE. 2.2 DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE SUBMITTED THAT IT IS EXECUTING SUB - CONTRACTS ON BEHALF OF M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD.AND IT SUBMITTED LEDGER EXTRACTS IN SUPPORT OF THE ABOVE SUBMISSIONS . I T SUBMITTED THAT THE FIRM HAS TAKEN ADVANCES FROM THE COMPANY IN THE REGULAR COURSE OF BUSINESS THEREBY PROVISIONS OF SECTION 2(22)(E) DO NOT APPLY. AO REJECTED THE CONTENTION OF THE ASSESSEE AND BY RE LYING ON VARIOUS CASE LAW, CONFIRMED THE ADVANCES RECEIVED BY THE ASSESSEE FROM THE COMPANY AS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT TO THE EXTENT OF RS. 3,37,00,000/ - . 3. AGGRIEVED WITH THE ABOVE ORDER OF AO, ASSESSEE PREFERRED AN APPEAL BEFORE THE CI T(A). I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 3 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT(A) CONFIRMED THE ADDITION AND HE HAS ENHANCED THE ADDITION TO THE EXTENT OF RS. 3,88,91,142/ - AND MADE THE FOLLOWING OBSERVATIONS: I HAVE CAREFULLY CONSIDERED THE GROUNDS OF APPEAL, WRITTE N SUBMISSIONS, AND THE AVERMENTS OF ASSESSING OFFICER IN THE ASSESSMENT ORDER. BEFORE ADJUDICATING THE GROUNDS, IT IS WORTHWHILE TO EXAMINE THE PROVISION OF SEC.2( 2 2)(E) THE ACT. SEC.2 (22)(E): 'ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH TH E PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM(WHETHER AS REPRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) J[MADE AFTER THE 31ST DAY OF MAY, 1987, BY WAY OF ADVANCE ' OR LOAN TO A SHARE HOLDER', BEING A PERSON WHO IS THE BENEFICIAL OWNER O F SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF 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 SHARE HOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE 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 IN EITHER CASE POSSESSE S ACCUMULATED PROFITS ';' A CURSORY READING OF THE PROVISION REVEALS THAT SEC.22(2)(E) CONTEMPLATES THREE SITUATIONS: 1: WHERE ANY PAYMENT BY ANY SOME BY WAY OF ADVANCE OR LOAN PAID TO A SHARE HOLDER BY A PRIVATE COMPANY (PUBLIC ARE NOT SUBSTANTIALLY INTERESTED). IN THIS SITUATION THE PAYMENTS ARE INTENDED TO BE PAID TO THE SHAREHOLDER. SITUATION 2: ANY PAYMENT OR ANY S OME BY WAY OF ADVANCE OR LOAN TO A CONCERN INCLUDES HUF FIRM AOP OR BOI WHERE THE SHAREHOLDER IS HAVING SUBSTANTIAL INTEREST. IN THIS SITUATION THE PAYMENTS ARE INTENDED TO BE PAID TO THE CONCERNS. I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 4 SITUATION 3: ANY PAYMENT BY ANY SUCH COMPANY EITHER FOR INDIVIDUAL BENEFIT OR TO ANYONE ON BEHALF OF THE SHARE HOLDER. IN THIS SITUATION THE PAYMENTS ARE INTENDED EITHER TO THE INDIVIDUAL BENEFIT OR TO SOMEONE ON BEHALF OF SHAREHOLDER. IN ALL THE THREE SITUATIONS THE COMPANY WHICH IS MAKING PAYMENT SHOULD HAV E ACCUMULATED PROFITS. THE SECTION DOESN'T MAKE ANY DISTINCTION BETWEEN MODES OF PAYMENT BEING (CASH, CHEQUE, DD, ANY NEGOTIABLE INVESTM EN TS ETC.). IT ALSO DOES NOT M AKE ANY DISTINCTION WHETHER THE SUM PAID IS LESS OR MORE OR IT REPRESENTS ASSETS OF COMPAN Y OR OTHERWISE. THE SHARE HOLDER OF A COMPANY SHOULD HAVE 10% SHAREHOLDING IN THE COMPANY WHICH GIVES ADVANCE AND 20% SUBSTANTIAL INTEREST IN THE CONCERN WHERE HE IS A PARTNER OR MEMBER. THE SECTION ALSO CONTEMPLATES THE BENEFIT EITHER TO THE SHAREHOLDER O R TO ANYONE WHO DERIVES BENEFIT ON BEHALF OF THE SHAREHOLDER. ALL THE SAID CONDITIONS SHOULD BE FULFILLED IN ORDER TO BRING THE ADVANCES/LOANS UNDER THE AMBIT OF SECTION 2(22)(E) OF THE ACT. AFTER CAREFUL EXAMINATION OF THE PROVISION, IT IS RELEVANT TO A PPLY THE FACTS OF THE CASE. I HAVE EXAMINED THE LEDGER COPY OF THE FIRM IN THE BOOKS OF THE COMPANY. IT IS NOTICED THAT THE TOTAL ADVANCES GIVEN TO THE FIRM FOR THE ASSESSMENT YEAR 2010 - 11 IS RS.3,88,91,142 / - AS AGAINST THE ADVANCES MENTIONED BY ASSESSING OFFICER AT RS.3,37,00,000/ - . THE APPELLANT SQUARELY FALLS UNDER SITUATION TWO (2) DISCUSSED ABOVE IN AS MUCH AS THE APPELLANT FIRM HAS RECEIVED ADVANCES OF RS.3,88,91,142/ - IN THE FINANCIAL YEAR 200910 RELEVANT TO THE ASSESSMENT '. YEAR 2010 - 11. MR.M. RA GHUNADHA REDDY WHO IS ONE OF THE SHARE HOLDER OF THE COMPANY OF M/S. MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. IS HAVING MORE THAN 10% SHAREHOLDING. HE IS ALSO HAVING SUBSTANTIAL INTEREST BEING 20% SHARE IN THE FIRM. THE COMPANY IS HAVING ACCUMULATED PROFI TS AT RS. 23,64,17,532 / - .THEREFORE, ALL THE CONDITIONS ONTEMPLATED IN SECTION 2(22)(E) ARE APPLICABLE IN THIS CASE. HENCE, THE ASSESSING OFFICER IS RIGHT IN IN VOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE APPELLANT'S SUBMISSION THAT THE ADV ANCES PAID BY COMPANY TO THE FIRM INCLUD ES MOBILIZATION ADVANCES AND MEANT FOR ACQUISITION OF ASSETS AND THE FUNDS WERE - RELEASED DURING THE REGULAR COURSE OF BUSINESS IS NOT ACCEPTABLE. THERE IS NO MATERIAL ON THE FILE TO SUGGEST THAT THE ADVANCES ARE MEA NT FOR ANY BUSINESS PURPOSE. I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 5 WHAT THE APPELLANT IS TRYING TO ARGUE IS TO GET OUT OF THE RIGORS OF DEEMED DIVIDEND IN ORDER TO K EEP THE TRANSACTION IN THE EXCEPTIONAL CLAUSE OF SEC. 2( 2 2)(E). AFTER EXAMINING THE CASE, IN THE LIGHT OF THE FACTS, I AM NOT INC LINED TO AGREE WITH THE ARGUMENTS OF THE L EARNED AUTHORIZED REPRESENTATIVE. I DO NOT FIND ANY REASON TO INTERFERE IN THE DECISION OF THE ASSESSING OFFICER IN BRINGING THE ADVANCES UNDER DEEMED DIVIDEND. U/S.2( 2 2)(E) OF T HE ACT. BUT THE FIGURES SHOULD BE TAKEN IS RS.3,88,91,142/ AND NOT RS.3,37,00,000/ - AS MENTIONED BY THE ASSESSING OFFICER. THE LEARNED AUTHORIZED REPRESENTATIVE HAS GIVEN OPPORTUNITY TO VERIFY THE FIGURES DURING THE APPEAL PROCEEDINGS AND EXPRESSED THAT T HE FIGURES TAKEN ARE CORRECT AS PER THE BOOKS OF ACCOUNT. ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED. 5. AGGRIEVED WITH THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX, APPEAL IS NOT CORRECT EITHER ON FACTS OR IN LAW AND IN BOTH. 2. THE LEARNED FIRST APPELLATE AUTHORITY IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS.3,37, 00,000 MADE U/S. 2(22)(E) OF THE I.T ACT. BY THE ASSESSING OFFICER. 3. THE LEARNED FIRST APPELLATE AUTHORITY FAILED TO APPRECIATE THE FACT THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE PROVISIONS OF SECTION 2(22)(E) OF THE I.T ACT ARE NOT APPLICABLE TO THE APPELLANT'S CASE. 4. THE APPELLANT CR AVES LEAVE TO ADD AMEND OR ALTER ANY OF THE GROUNDS AT THE TIME OF HEARING OF THE APPEAL. 5.1 FURTHER, THE ASSESSEE FILED THE FOLLOWING ADDITIONAL GROUNDS: 1. IN THE ABSENCE OF ANY MATERIAL BELONGING TO THE APPELLANT SEIZED IN THE COURSE OF PROCEEDINGS U/S 132 ON 25 - 01 - 2012 IN THE CASE OF M.R.K.R.CONSTRUCTIONS AND INDUSTRIES P .LTD . , THE INITIATION OF PROCEEDINGS U/S 153C AND THE CONSEQUENT ASSESSMENT DATED 17 - 12 - 2014 THEREON ARE BAD IN LAW; AND ISSUE OF NOTICE U/S 148 DT. 20 - 01 - 2015, THEREFORE, IS EQUALLY BAD IN LAW. I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 6 2. IN THE ABSENCE OF TANGIBLE MATERIAL ON RECORD, INITIATION OF PROCEEDINGS U/S 147 IS BAD IN LAW. 6. BEFORE US, LD. AR OF THE ASSESSEE SUBM ITTED THAT DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) RWS 153C, AO VERIFIED THE SERIES OF PAYMENTS MADE BY M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. AND IN FACT, THE ASSESSMENT WAS ASSESSED U/S 153C ONLY ON THE BASIS OF PAYMENTS MADE BY M/S MRKR CONS TRUCTIONS & INDUSTRIES PVT. LTD. AND THE SAME WAS FOUND TO BE IN ORDER AND AO HAS COMPLETED THE ASSESSMENT U/S 143(3) RWS 153C WITHOUT MAKING ANY ADDITION. HE BROUGHT TO OUR NOTICE THE QUESTIONNAIRE ISSUED BY THE, THEN, AO IN ORDER TO VERIFY THE SAME, WHIC H IS PLACED AT PAGES 15 TO 18 OF THE PAPER BOOK. HE SUBMITTED THAT THE SAME MATERIAL WAS USED IN ORDER TO REOPEN THE ASSESSMENT NOW ON CHANGE OF OPINION. HE SUBMITTED THAT THE AO IS NOT JUSTIFIED IN INITIATING PROCEEDINGS U/S 147. IN THIS REGARD, HE RELIED ON THE FOLLOWING CASES: 1. CIT VS. KELIVNATOR INDIA LTD., 370 ITR 561 2. MADHUKAR KHOSLA VS. ACIT, 367 ITR 165 (DEL.) 6.1 FURTHER, HE SUBMITTED THAT THE AMOUNTS RECEIVED BY THE ASSESSEE ARE TRADE ADVANCES AND HE BROUGHT TO OUR NOTICE LEDGER EXTRACTS, W HICH ARE PLACED IN PAGES 7 TO 10 OF THE PAPER BOOK. HE SUBMITTED THAT ASSESSEE WAS HAVING TWO ACCOUNTS MAINTAINED IN THE NAME OF M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD., ONE, AS ADVANCE ACCOUNT HAVING AN OPENING BALANCE OF RS. 4 CRORES AND ASSESSEE H AS RECEIVED FURTHER ADVANCES TO THE EXTENT OF RS. 1,00,48,000/ - AND REPAID RS. 67,50,000/ - AN ADJUSTED RS. 91,58,858/ - AS SURPLUS OVER CURRENT ACCOUNT MAINTAINED FOR THE PURPOSE OF SUB - CONTRACT MADE ON BEHALF OF M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD . THEREFORE, HE SUBMITTED THAT ADVANCES RECEIVED FROM M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. ARE IN REGULAR TRADE BUSINESS . FURTHER, HE BROUGHT TO OUR NOTICE THAT ASSESSEE HAS I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 7 DONE CONTRACT WORKS TO M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. AS BELOW: AY EXECUTED CONTRACT AMOUNTS TDS 2010 - 11 RS. 3,98,20,572 6,98,001 2011 - 12 RS.17,91,55,132 35,83,103 2012 - 13 RS. 1,78,47,830 3,56,957 HE SUBMITTED THAT, FROM THE ABOVE TABLE, IT CLEARLY SHOWS THAT THE ASSESSEE HAS TAKEN ADVANCES IN REGULAR COURSE OF BUSINESS TRANSACTIONS . IN THIS CONNECTION, HE RELIED ON THE CASE OF NEHA HOME BUILDERS PVT. LTD. VS. DCIT, 98 TAXMANN.COM 465, AS PER WHICH, IT WAS HELD THAT WHERE BOTH THE RECEIPTS AND PAYME NTS ARE TAKING PLACE IN THE BANK ACCOUNTS, THE SAME COULD NOT BE BROUGHT IN THE PURVIEW OF SECTION 2(22)(E). 6.2 FURTHER, LD. AR SUBMITTED THAT LEDGER EXTRACT SUBMITTED, WHICH IS PLACED AT PAGE 7 OF THE PAPER BOOK, ASSESSEE HAS RECEIVED SUM OF RS. 4 CROR ES IN THE EARLIER AYS, WHICH WAS BROUGHT FORWARD AS OPENING BALANCE, THEREFORE, THE AMOUNT RECEIVED BY THE ASSESSEE IS NOT DURING THE CURRENT AY, HENCE, NO ADDITION CAN BE MADE IN THIS AY. 6.3 LD. AR, FURTHER, SUBMITTED THAT CIT(A) IN HIS ORDER AT PAGE 5 , OBSERVED THAT ONE OF THE PARTNER IS HAVING SUBSTANTIAL INTEREST IS ALSO SHAREHOLDER IN M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. HAVING MORE THAN 10% SHAREHOLDINGS. HE SUBMITTED THAT THE FIRM I.E. ASSESSEE IS NEITHER A REGISTERED SHAREHOLDER NOR A BE NEFICIAL SHAREHOLDER. THE SHARES IN M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. ARE HELD BY THE PARTNERS IN THEIR INDIVIDUAL CAPACITY. THEREFORE, THE FIRM IS NOT A SHAREHOLDER IN THE PAYER COMPANY, ADDITION CANNOT BE MADE IN THE HANDS OF THE FIRM. HE REL IED ON THE FOLLOWING CASE LAW: I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 8 1. ACIT VS. BHAUMIK COLOUR PVT. LTD., 313 ITR 146 (AT MUMBAI) SB. 2. ACIT VS. RAJASTHAN HILL TOP, 313 ITR 116 3. CIT VS. ANKITECH (P) LTD., 340 ITR 14 4. CIT VS. MADHUR HOUSING AND DEVELOPMENT COMPANY, 401 ITR 152 (SC). 7. THE LD. DR, ON THE OTHER HAND SUBMITTED THAT IT IS S UBMITTED THAT SECTION 153C OF THE INCOME - TAX ACT, 1961 MERELY ENABLES THE REVENUE AUTHORITIES TO INVESTIGATE INTO THE CONTENTS OF THE DOCUMENTS SEIZED IN RESPECT OF A PERSON OTHER THAN THE PERSON SEARCHED SO THAT IT CAN BE ASCERTAINED WHETHER THE TRANSACTIONS OR THE INCOME EMBEDDED IN THE DOCUMENT HAS BEEN ACCOUNTED FOR IN THE CASE OF THE APPROPRIATE PERSONS. IT IS AIMED AT ENSURING THAT INCOME DOES NOT ESCAPE ASSESSMENT IN THE HANDS OF ANY OTHER PERSON MERELY BECAUSE HE HAS NOT BEEN SEARCHED UNDER SECTION 132 OF THE INCOME - TAX ACT, 1961. IT IS ONLY A FIRST STEP TO THE ENQUIRY, WHICH IS TO BE FOLLOWED BY THE PROCEDURE OF ASSESSMENT P RESCRIBED BY SECTION 153A OF THE INCOME - TAX ACT, 1961. IT IS NOT NECESSARY FOR THE ASSESSING OFFICER TO REACH A FIRM CONCLUSION/OPINION THAT THE DOCUMENT SEIZED SHOWS UNDISCLOSED INCOME BELONGING TO SUCH OTHER PERSON. THIS IS A MATTER OF ENQUIRY, WHICH IS TO BE CONDUCTED IN THE MANNER PRESCRIBED BY SECTION 153C OF THE INCOME - TAX ACT, 1961. THUS THE ASSESSING OFFICER HAS FOLLOWED THE DUE PROCEDURE AS ENVISAGED BY THE LEGISLATURE AND AS PRESCRIBED BY THE PROVISIONS OF SEC. 153C AND 153A OF THE INCOME - TAX ACT, 1961. 7.1 THEREFORE, HE SUBMITTED THAT THE ADDITIONAL GROUND FILED BY THE ASSESSEE BEFORE THE HON'BLE INCOME - TAX APPELLATE TRIBUNAL THAT THE INITIATION OF PROCEEDINGS UNDER SECTION 153C AND THE CONSEQUENT ASSESSMENT DATED 17 - 12 - 2014 THEREON ARE BAD IN LAW, IS NOT CORRECT. I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 9 7.2 LD. DR SUBMITTE D THAT S UBSEQUENT TO COMPLETION OF ASSESSMENT ON 17 - 12 - 2014 UNDER SECTION 143(3) R.W.S 153C OF THE INCOME - TAX ACT, 1961 IN THE SUBJECT CASE PERTAINING TO THE ASSESSMENT YEAR 2010 - 2011 UNDER CONSIDERATION IT WAS NOTICED THAT M / S. MRKR CONSTRUCTIONS AND INDU STRIES PRIVATE LIMITED HAS BEEN SHOWN AS CREDITOR TO THE EXTENT OF RS. 4,73,49,421/ - IN THE BALANCE SHEET OF THE ASSESSEE FIRM AS ON 31 - 03 - 2010. THE ASSESSEE FIRM IS AN ASSOCIATE OF M / S. MRKR CONSTRUCTIONS AND INDUSTRIES PRIVATE LIMITED AND 3 PARTNERS OF T HE ASSESSEE FIRM OWN BENEFICIAL SHARE IN EXCESS OF 15% OR MORE. IT IS FURTHER SEEN THAT THESE PARTNERS ARE BENEFICIAL OWNERS OF SHARES OF M / S. MRKR CONSTRUCTIONS AND INDUSTRIES PRIVATE LIMITED IN EXCESS OF 10% OR MORE. FURTHER IT IS SEEN THAT M / S. MRKR CON STRUCTIONS AND INDUSTRIES PRIVATE LIMITED IS HAVING AN ACCUMULATED PROFIT OF RS. 23,64,17,532/ - . 7.3 HE SUBMITTED THAT S INCE THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME - TAX ACT, 1961 IS ATTRACTED, THE SUBJECT CASE PERTAINING TO THE ASSESSMENT YEAR 2010 - 2011 WAS REOPENED BY THE ASSESSING OFFICER AFTER FORMING A REASONABLE BELIEF BASED ON THE MATERIALS COMES TO HIS COGNIZANCE. THUS PROCEEDINGS UNDER SECTION 147 OF THE INCOME - TAX ACT, 1961 WERE INITIATED BASED ON THE MATERIAL AVAILABLE BEFORE HIM AND AFTER OBTAINING PRIOR APPROVAL FROM THE COMMISSIONER OF INCOME - TAX AND ACCORDINGLY NOTICE WAS ISSUED ON 20 - 01 - 2015 UNDER SECTION 148 OF THE I.T ACT, 1961. 7.4 HE SUBMITTED THAT C ONSIDERING THE DETAILS AND INFORMATION FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSMENT WAS COMPLETED ON 29 - 03 - 2016 UNDER SECTION 143(3) R.W.S 153C R.W.S 147 OF THE INCOME - TAX ACT, 1961 BY MAKING AN ADDITION OF RS. 3,37,73,2901 - INCLUSIVE I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 10 OF DEEMED DIVIDEND OF 3,37,00,000/ - MADE UNDER SECTION 2(22) (E) OF THE INC OME - TAX ACT, 19 61. 8. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, ASSESSEE HAS MADE FOUR OBJECTION IN THE GROUNDS OF APPEAL, I.E., A) REOPENING OF ASSESSMENT, B) ADVANCES RECEIVED ARE IN REGULAR TRADE ADVANCES, C) ASSES SEE HAS NOT RECEIVED ANY ADVANCES DURING THIS AY AND D) ASSESSEE IS NOT A REGISTERED SHAREHOLDER IN ORDER TO INITIATE PROCEEDINGS U/S 2(22)(E). 8.1 WITH REGARD TO REOPENING OF ASSESSMENT, WE NOTICE THAT SUBSEQUENT TO SEARCH OPERATION IN THE CASE OF M/S M RKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. AND SURVEY OPERATIONS CARRIED OUT IN THE BUSINESS PREMISES OF THE ASSESSEE, SOME DOCUMENTS AND INCRIMINATING EVIDENCES BELONGING TO THE ASSESSEE WERE FOUND. ACCORDINGLY, PROCEEDINGS U/S 153C OF THE ACT WERE INITIATE D RELEVANT TO AY 2010 - 11 UNDER CONSIDERATION AND THE ASSESSMENT WAS COMPLETED AFTER VERIFICATION OF THE PAYMENTS RECEIVED FROM M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. THIS IS THE BASIS FOR INITIATING PROCEEDINGS U/S 153C. AFTER COMPLETION OF THE ASSE SSMENT U/S 143(3) RWS 153C, THE ASSESSMENT WAS REOPENED WITH THE SAME INFORMATION/MATERIAL ON RECORD. THERE WAS NO NEW INCRIMINATING MATERIAL OR ANY NEW FACTS BROUGHT ON RECORD IN ORDER TO INITIATE REOPENING PROCEEDINGS U/S 147 OF THE ACT. IT CLEARLY INDIC ATES THAT THE ASSESSMENT WAS REOPENED ONLY BASING ON CHANGE OF OPINION, WHICH IS SIMILAR TO THE FACTS IN THE CASE OF KELVINATOR INDIA LTD. (SUPRA). 8.2 FURTHER, ON MERITS, WE OBSERVE THAT ASSESSEE IS A CONTRACTOR FOR M/S MRKR CONSTRUCTIONS & INDUSTRIES P VT. LTD. I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 11 AND ASSESSEE HAS CARRIED ON CONTRACT WORKS DURING THIS AY AS WELL AS SUBSEQUENT YEARS AS BELOW: AY EXECUTED CONTRACT AMOUNTS TDS 2010 - 11 RS. 3,98,20,572 6,98,001 2011 - 12 RS.17,91,55,132 35,83,103 2012 - 13 RS. 1,78,47,830 3,56,957 FROM THE ABOVE, IT IS CLEAR THAT ASSESSEE WAS IN CONTRACT WITH M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. HAVING REGULAR BUSINESS CONNECTION IRRESPECTIVE OF THE FACT THAT IT IS A ASSOCIATE CONCERN OF M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD.. IT IS NORMAL IN THE BUSINESS TRANSACTIONS THAT CONTRACTORS TAKE ADVAN CES FROM CONTRACTEE AND THEN EXECUTE THE WORKS AND ADJUST ADVANCES DURING THE PERIOD OF CONTRACT. FROM THE LEDGER ACCOUNT SUBMITTED BEFORE US, IT CLEARLY INDICATES THAT ASSESSEE HAS TAKEN ADVANCES OF RS. 4 CRORES IN THE EARLIER YEAR, WHICH IS BROUGHT FORWA RD AS OPENING BALANCE AND DURING THIS AY, ASSESSEE HAS TAKEN FURTHER ADVANCES OF RS. 4.51 CRORES AND REPAID RS. 1,67,50,000/ - AND ADJUSTED RS. 2.84 CROR ES AGAINST SUB - CONTRACT BILLS. FURTHER, IT IS NOTICED THAT ASSESSEE HAS BROUGHT FORWARD RS. 4 CRORES AS ADVANCE RECEIVED DURING EARLIER AYS. AFTER ADJUSTING TRANSACTIONS OF THE CURRENT AY, THE CLOSING BALANCE OF RS. 3,88,91,142/ - IS ARRIVED . WE NOTICE THAT AO AND LD. CIT(A) HAS ONLY CONFIRMED THE CLOSING BALANCE AS DEEMED DIVIDEND AND HAS NOT VERIFIED NOR MA DE ANY ADJUSTMENT WITH REGARD TO PAYMENT RECEIVED FR O M M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. THEREFORE, IN OUR VIEW, ADVANCES RECEIVED BY THE ASSESSEE FROM M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. ARE IN THE NATURE OF TRADE ADVANCES. I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 12 8.3 FUR THER, WE NOTICE THAT, NO DOUBT, THERE EXISTS ALL THE INGREDIENTS OF SECTION 2(22)(E) WITH REGARD TO SHAREHOLDING AS WELL AS SUBSTANTIAL INTEREST HELD BY THE PARTNERS OF THE FIRM. AS PER THE PROVISIONS OF SECTION 2(22)(E), WHEN A PAYMENT IS MADE TO THE FIRM , IN WHICH, SHAREHOLDER IS HAVING SUBSTANTIAL INTEREST, DEEMED DIVIDEND ADDITION CAN BE MADE ONLY IN THE HANDS OF THE SHAREHOLDER AND NOT IN THE HANDS OF THE FIRM, IN WHICH, THE PAYMENT WAS MADE. THEREFORE, IN THIS CASE, PARTNERS OF THE FIRM HOLDING SHARES MORE THAN 10% IN M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. AND M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. HAVING SUBSTANTIAL RESERVES. M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. MADE PAYMENT TO THE ASSESSEE, BUT, ASSESSEE IS NOT SHAREHOLDER IN M /S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD., BUT, MR. RAGHUNA D HA REDDY AND OTHERS ARE THE SHAREHOLDERS IN M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD.. WHEN PAYMENTS ARE MADE TO THE FIRM, IN WHICH, THE ABOVE SHAREHOLDERS ARE HAVING SUBSTANTIAL INTEREST, THEN, IT AMOUNTS DEEMED DIVIDEND AND TH E ADDITION OF DEEMED DIVIDEND CAN BE MADE ONLY IN THE HANDS OF THE SHAREHOLDERS, I.E., RAGHUNA D HA REDDY AND OTHERS AND NOT IN THE HANDS OF THE ASSESSEE FIRM. THIS IS AS PER THE INTENT OF LEGISLATURE THAT THE DIVIDEND IS DEEMED T O HAVE RECEIVED BY THE SHAREHOLDER, WHO ARE HOLDING SHARES IN M/S MRKR CONSTRUCTIONS & INDUSTRIES PVT. LTD. 8.4 THEREFORE, THE ADDITION MADE IN THE HANDS OF THE ASSESSEE IS NOT PROPER AND ACCORDINGLY, THE SAME IS HEREBY DELETED AND THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. I.T.A. NO. 902 /HYD/1 7 MEDA CONSTRUCTIONS, HYD. 13 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 14 TH JUNE , 201 9. SD/ - ( P. MADHAVI DEVI ) JUDICIAL MEMBER SD/ - ( S. RIFAUR RAHMAN ) ACCOUNTANT MEMBER HYDERABAD, DATED 1 4 TH JUNE , 201 9. KV COPY FORWARDED TO: 1. MEDA CONSTRUCTIONS, 1 - 1 - 298/2/B/3, 1 ST FLOOR, SOWBHAGYA AVENUE, ST. NO. 1, ASHOKNAGAR, HYDERABAD 500 02 0. 2 . DC IT , CENTRAL CIRCULE, 3 RD FLOOR, AAYAKAR BHAVAN, K.T. ROAD, TIRUPATI 517 501. 3 . CIT (A) - 3 , VISAKHAPATNAM 4. PR. CIT , VISAKHAPATNAM 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE