Sanjay Patidar, INDORE V. DCIT (Centrel)-1, INDORE

ITSSA 157/Ind/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4761 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 30-04-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-03-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 10-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: GIRISH AGRAWAL; MISS NISHA
• Keywords: Salary income; Deemed dividend; Liquidation
• Section: 132; 143(3); 153A; 2(22)(e); 143(2); 139(1); 13; 2(22); 20

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HONBLE MANISH BORAD, ACCOUNTANT MEMBER AND HONBLE MADHUMITA ROY, JUDICIAL MEMBER IT(SS)A NOS.157 & 158/IND/2018 ASSESSMENT YEARS 2015-16 & 2016-17 SANJAY PATIDAR, : APPELLANT 13, BAZAR CHOWK, MAAHOWGOAN, MHOW PAN : AOGPP8679A V/S DCIT(CENTRAL)-1, INDORE : RESPONDENT REVENUE BY SHRI S.B. PRASAD, PCIT ASSESSEE BY SHRI GIRISH AGRAWAL & MISS NISHA LAHOTIA, ARS DATE OF HEARING 08 .04 .2021 DATE OF PRONOUNCEMENT 30 . 0 4 . 202 1 O R D E R PER MANISH BORAD, A.M THE ABOVE CAPTIONED APPEALS FILED AT THE INSTANCE OF THE ASSESSEE FOR ASSESSMENT YEAR 2015-16 AND 2016-17 ARE DIRECTED AGAINST THE ORDERS OF LD. COMMISSIONER OF INCOME TA X(APPEALS)-III SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 2 (IN SHORT LD. CIT], INDORE DATED 28.9.2018 WHICH ARE ARISING OUT OF THE ORDER U/S 153A R.W.S. 143(3) OF THE INCOME TAX ACT 1961(IN SHORT THE ACT) DATED 28.11.2017 FRAMED BY DCIT(CE NTRAL)-1, INDORE. 2. ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - ASSESSMENT YEAR 2015-16 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPLI CABLE LAW, LD. CIT(A)-III, INDORE ERRED IN SUSTAINING THE ORDER PASSED BY LD. A.O U/S 143(3) RWS 153A WHICH IS CONTRARY TO THE MA TERIAL ON RECORDS AND PROVISIONS OF THE ACT, UNJUST AND BAD IN L AW, MORE PARTICULARLY WHEN THE SUBMISSION OF ASSESSEE DATED 20.09.2018 WAS NOT CONSIDERED. SOFT COPY OF WHICH WAS ALSO PROV IDED ON 28.09.2018 THROUGH EMAIL. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPLI CABLE LAW, LD. CIT(A)-III, INDORE ERRED IN SUSTAINING THE ADDIT ION OF RS.7,00,000/- BY APPLYING THE PROVISIONS OF SECTION 2(22)(E) IN RESPECT OF THE INTER COMPANY LOAN TRANSACTION BETWE EN M.L. SECURITIES AND FINANCE PRIVATE LIMITED AND VINAY SECUR ITIES PRIVATE LIMITED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPLI CABLE LAW, LD. CIT(A)-III, INDORE ERRED IN SUSTAINING THE ADDIT ION OF RS.7,00,000/- BY APPLYING THE PROVISIONS OF SECTION 2(22)(E) WITHOUT REFERENCE TO ANY INCRIMINATING MATERIAL FOU ND IN THIS RESPECT DURING THE COURSE OF SEARCH PROCEEDINGS CONDU CTED IN THE CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF M.L. SECURITIES AND FINANCE PRIVATE LIMITED AND VINAY SECURITIES PRIVAT E LIMITED. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPL ICABLE LAW, SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 3 LD. CIT(A)-III, INDORE ERRED IN NOT CONSIDERING FAC TS OF THE CASE IN PROPERPERSPECTIVE. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPLI CABLE LAW, LD. CIT(A)-III, INDORE ERRED IN SUSTAINING ADDITION M ADE BY LD. A.O OF RS.7,00,000/- BY APPLYING PROVISIONS OF SECTION 2(22)(E) BY MERELY QUOTING THE DECISION OF THE HONBLE APEX COU RT IN THE CASE OF NATIONAL TRAVEL SERVICES (2018) 89 TAXMANN.COM 3 32. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPLI CABLE LAW, LD. CIT(A)-III, INDORE ERRED IN SUSTAINING THE DISAL LOWANCE OF RS.77,200/- AS HOUSE RENT ALLOWANCE WITHOUT REFEREN CE ANY INCRIMINATING MATERIAL IN THIS RESPECT DURING THE CO URSE OF SEARCH PROCEEDINGS CONDUCTED IN THE CASE OF THE ASSESSEE AN D BY NOT CONSIDERING THE SUBMISSIONS MADE, IN PROPER PERSPEC TIVE. 1. THAT, THE APPELLANT, CARVES LEAVE TO ADD, AMEND, AL TER OR OTHERWISE RAISE ANY OTHER GROUND OF APPEAL. ASSESSMENT YEAR 2016-17 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPLI CABLE LAW, LD. CIT(A)-III, INDORE ERRED IN SUSTAINING THE ORDER PASSED BY LD. A.O U/S 143(3) RWS 153A WHICH IS CONTRARY TO THE MA TERIAL ON RECORDS AND PROVISIONS OF THE ACT, UNJUST AND BAD IN L AW, MORE PARTICULARLY WHEN THE SUBMISSION OF ASSESSEE DATED 20.09.2018 WAS NOT CONSIDERED. SOFT COPY OF WHICH WAS ALSO PROV IDED ON 28.09.2018 THROUGH EMAIL. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPLI CABLE LAW, LD. CIT(A)-III, INDORE ERRED IN SUSTAINING THE ADDIT ION OF RS.7,00,000/- BY APPLYING THE PROVISIONS OF SECTION 2(22)(E) IN RESPECT OF THE INTER COMPANY LOAN TRANSACTION BETWE EN M.L. SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 4 SECURITIES AND FINANCE PRIVATE LIMITED AND VINAY SECUR ITIES PRIVATE LIMITED. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPLI CABLE LAW, LD. CIT(A)-III, INDORE ERRED IN SUSTAINING THE ADDIT ION OF RS.7,00,000/- BY APPLYING THE PROVISIONS OF SECTION 2(22)(E) WITHOUT REFERENCE TO ANY INCRIMINATING MATERIAL FOU ND IN THIS RESPECT DURING THE COURSE OF SEARCH PROCEEDINGS CONDU CTED IN THE CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF M.L. SECURITIES AND FINANCE PRIVATE LIMITED AND VINAY SECURITIES PRIVAT E LIMITED. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPL ICABLE LAW, LD. CIT(A)-III, INDORE ERRED IN NOT CONSIDERING FAC TS OF THE CASE IN PROPER PERSPECTIVE. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPLI CABLE LAW, LD. CIT(A)-III, INDORE ERRED IN SUSTAINING ADDITION M ADE BY LD. A.O OF RS.7,00,000/- BY APPLYING PROVISIONS OF SECTION 2(22)(E) BY MERELY QUOTING THE DECISION OF THE HONBLE APEX COU RT IN THE CASE OF NATIONAL TRAVEL SERVICES (2018) 89 TAXMANN.COM 3 32. 7. THAT, THE APPELLANT, CARVES LEAVE TO ADD, AMEND, AL TER OR OTHERWISE RAISE ANY OTHER GROUND OF APPEAL. 3. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE R ECORDS ARE THAT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM SALARY IN SHAKTI PUMPS (INDIA) LTD AND OTHER INCOME OF INTEREST ON H IS INVESTMENTS ETC. RETURN OF INCOME U/S 139(1) OF THE ACT FOR ASS ESSMENT YEAR 2015-16 WAS FILED ON 04.04.2016 AT RS.4,47,20/- AN D FOR ASSESSMENT YEAR 2016-17 RETURN OF INCOME WAS FILED ON 27.08.2017 SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 5 DECLARING INCOME OF RS. 4,98,130/-. SEARCH & SEIZU RE OPERATIONS U/S 132 OF THE ACT WAS CARRIED OUT ON THE BUSINESS AS WELL AS RESIDENTIAL PREMISES OF THE SHAKTI PUMPS GROUPS INC LUDING THE ASSESSEE ALONG WITH OTHER CONCERNS/BUSINESS ASSOCIA TES ON 21.01.2016. THE WARRANT OF AUTHORIZATION U/S 132 OF THE ACT WAS ISSUED IN THE NAME OF THE ASSESSEE ALSO. NOTICES U/ S 153A WERE ISSUED TO THE ASSESSEE FOR ASSESSMENT YEAR 2015-16 ON 23.01.2017. ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2015-16 AT RS.4,47,020/- AS WAS DISCLOSED U/S 139(1) OF THE AC T. FOR ASSESSMENT YEAR 2016-17 NOTICES U/S 143(2) AND 142( 1) OF THE ACT WERE SERVED UPON THE ASSESSEE. ASSESSMENTS U/S 143( 3) R.W.S. 153A FOR ASSESSMENT YEAR 2015-16 COMPLETED AT RS.12,24,2 20/- AFTER DISALLOWANCE U/S 10(13A) AT RS.77,200/- AND ADDITIO N RS.7,00,000/- FOR DEEMED DIVIDEND U/S 2(22)(E) OF T HE ACT AND FOR ASSESSMENT YEAR 2016-17 AT RS.11,98,130/- AFTER ADD ING RS.7,00,000/- TOWARDS DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT AND WAS COMPLETED ON 28.11.2017. AGGRIEVED ASSESSEE PR EFERRED APPEAL BEFORE LD. CIT(A) AND PARTLY SUCCEEDED. 4. NOW THE ASSESSEE IN APPEAL BEFORE THE TRIBUNAL. SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 6 5. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED R EFERRING TO THE FOLLOWING WRITTEN SUBMISSIONS:- 1. SUB SECTION (22) OF SECTION 2 ONLY DEFINES THE TERM 'DIVIDEND'. IT DOES NOT DEAL WITH THE TAXABILITY OF SUCH DIVIDEND INCOM E OR IN WHOSE HAND SAME SHALL BE TAXED AS INCOME. 2. THERE ARE THREE LIMBS TO THE DEFINITION OF THE T ERM 'DIVIDEND' - FIRST LIMB OF SECTION 2(22)(E) COVERS LOANS OR ADVANCES TO 'S HAREHOLDERS', SECOND LIMB OF THE SAME SECTION DEALS WITH LOANS OR ADVANCES T O ANY 'CONCERNS' - (I) WHERE THE COMPANY MAKES THE PAYMENT BY WAY OF L OANS OR ADVANCES TO A CONCERN; (II) WHERE A MEMBER OR A PARTNER OF THE CONCERN HOL DS 10 PER CENT OF THE VOTING POWER IN THE COMPANY; AND (III) WHERE THE MEMBER OR PARTNER OF THE CONCERN IS ALSO BENEFICIALLY ENTITLED TO 20 PER CENT OF THE INCOME OF SUCH CONCE RN. [AS DEFINED IN EXPLANATION 3(B) TO SECTION 2(22)(E) ] THIRD LIMB OF THE SAME SECTION DEALS WITH LOANS AND ADVANCES BY A COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT OF SUCH SHAREHOLDER. 3. LD. AO APPLIED THE 'SECOND LIMB' OF THE DEFINITION OF 'DIVIDEND' U/S 2(22(E) FOR THE BUSINESS TRANSACTION OF INTER-COMPA NY LOAN HAVING ASSESSEE AS THEIR COMMON SHAREHOLDER. SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 7 VSPL, THE COMPANY GAVE LOAN TO MLSF, A CONCERN, BOT H HAVING THE ASSESSEE AS COMMON SHAREHOLDER. 4. IN THE SAME DEFINITION OF DIVIDEND GIVEN IN SECTION 2(22)(E), IT IS ALSO STATED THAT 'DIVIDEND' DOES NOT INCLUDE - (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR THE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHE RE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY 5. INSTANT BUSINESS TRANSACTION OF INTER-COMPANY LOAN IS NOT COVERED AS BOTH THE COMPANIES HAVE TRANSACTED IN THEIR ORDINAR Y COURSE OF BUSINESS. MLSF IS A NBFC LICENSE HOLDER FOR WHICH LENDING OF MONEY IS SUBSTANTIAL PART OF ITS BUSINESS. SIMILARLY, VINAY SECURITIES P VT LTD HAS LENT ITS MONEY IN THE ORDINARY COURSE OF ITS BUSINESS FROM W HICH IT HAS EARNED FROM DIVIDEND ON ITS INVESTMENTS. THE MAIN OBJECT C LAUSE OF THE TWO COMPANIES IN THEIR RESPECTIVE MEMORANDUM OF ASSOCIA TION EVIDENTLY DESCRIBES THE NATURE OF BUSINESS OF THESE COMPANIES . [PS 99- 100, 54, 102] MLSF UTILIZED THE BORROWED FUNDS FOR THE PURPOSE OF ITS BUSINESS AND IN NO WAY ASSESSEE ENJOYED ANY BENEFITS OUT OF IT OR R ECEIVED ANY PART OF IT IN HIS HANDS. [PS 120] MORE IMPORTANTLY, IN AY 2015-16, THE AMOUNT OF LOAN WAS REPAID BY MLSF TO VSPL. [PS 43] FURTHER, IN AY 2016-17, FRESH LOAN OF RS. 7,00,000 WAS OBTAINED BY MLSF FROM VSPL. INTEREST WAS CHARGED FOR RS. 28,273 WHICH WAS REPORTED AS INCOME BY VSPL IN ITS REGULAR RETURN OF INCOME. THIS INTEREST WAS CLAIMED AS AN EXPENSE BY MLSF IN ITS AUDITED PR OFIT AND LOSS ACCOUNT. [PS 44] SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 8 FOR BOTH, VSPL AND MLSF, INTEREST AMOUNT HAS BEEN A CCEPTED AS INCOME AND EXPENSE, IN THEIR ASSESSMENTS, RESPECTIVELY, AO BEING COMMON TO ALL THE THREE PERSONS INVOLVED IN THE CASE UNDER CONSID ERATION, VIZ. ASSESSEE, VSPL AND MLSF. 6. CSDT IN ITS CIRCULAR NO. 19/2017 DATED 12.06.2017 T ITLED AS 'CSDTIS CLARIFICATIONS ON SETTLED VIEW OF SECTION 2(22)(E) OF SAID ACT ON TRADE ADVANCES/COMMERCIAL TRANSACTIONS' DEAL S WITH TREATMENT OF LOANS AND ADVANCES IN THE NATURE OF CO MMERCIAL TRANSACTIONS BY STATING IN PARA 2 THAT THESE WILL N OT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. A CCORDING TO THE SAID CIRCULAR, SUCH VIEWS HAVE ATTAINED FINALITY. IN THE INSTANT CASE, AS STATED ABOVE, THE LOANS GIV EN BY VSPL TO MLSF ARE IN THE ORDINARY COURSE OF ITS BUSINESS OF BORROWING AND LENDING OF MONEY, MLSF BEING A NBFC LICENSE HOLDER. THE TRANSACTIONS BETWEEN THE TWO COMPANIES FOR INTERCOMPANY LOANS FALLS WITHIN THE A MBIT OF COMMERCIAL TRANSACTIONS AND HENCE OUT OF THE PROVISIONS OF SEC TION 2(22}(~) OF THE ACT. [PS 99-100] 7. ASSESSEE PLACED RELIANCE ON THE DECISION OF ANKITEC H (P.) LTD. [2012] 340 ITR 14 (DEL), BY HON'BLE DELHI HIGH COURT. PARA 33 GIVES THE FINDING AS - [PB 141 BACKSIDE] IN THIS APPEAL, WE FIND THAT THE ADDITION IS DELETED ON TWO COUNTS: (I) THE ASSESSEE WHO WAS RECIPIENT OF THE AMOUNT W AS NOT THE SHAREHOLDER IN THE PAYER COMPANY AND THEREFORE, PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE NOT APPLICABLE. SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 9 (H) EVEN THE MONEY WHICH WAS PAID WAS NOT IN THE NATURE OF LOAN OR ADVANCE SIMPLICITOR, BUT THE AMOUNTS WERE ADVANCES FOR BUSINESS TRANSACTION . [EMPHASIS SUPPLIED] WHILE ARRIVING AT THIS FINDING, HON'BLE DELHI HIGH COURT OBSERVED THAT- PARA 27 - PRECISELY, FOR THIS VERY REASON, THE COURTS HAVE HE LD THAT IF THE AMOUNTS ADVANCES ARE FOR BUSINESS TRANSACTIONS BETW EEN THE PARTIES, SUCH PAYMENT WOULD NOT FALL WITHIN THE DEEMING DIVIDEND UNDER SECTION 2922)(E) OF THE ACT . [EMPHASIS SUPPLIED] 8. WITHOUT PREJUDICE TO THE ABOVE, MEANING OF 'CONCERN ' VIDE EXPLANATION 3(A) WAS INTRODUCED IN THE SECTION FOR THE FIRST TI ME BY THE AMENDMENT IN 1987 WHICH WAS BROUGHT PRECISELY FOR COVERING 'CONC ERNS' WITHIN THE AMBIT OF SECTION 2(22)(E). 9. EXPLANATORY NOTES ON THE PROVISIONS RELATING TO FIN ANCE ACT, 1987 BROUGHT OUT VIDE CIRCULAR NO.495 DATED 22ND SEPTEMB ER, 1987 [168 ITR 91 (ST)] ISSUED BY THE CENTRAL BOARD OF DIRECT TAXE S (CBDT) EXPLAINS THE SCOPE AND EFFECT OF THE AMENDMENT IN THE FOLLOWING TERMS: '10.2 WITH THE DELETION OF SECTIONS 104 TO 109 THER E WAS A LIKELIHOOD OF CLOSELY HELD COMPANIES NOT DISTRIBUTING THEIR PROFI TS TO SHAREHOLDERS BY WAY OF DIVIDENDS BUT BY WAY OF LOANS OR ADVANCES SO THAT THESE ARE NOT TAXED IN THE HANDS OF THE SHAREHOLDERS. TO FORESTAL L THIS MANIPULATION, SUB- CLAUSE (E) OF CLAUSE (22) OF SECTION 2 HAS BEEN SUITABLY AMENDED. UNDER THE EXISTING PROVISIONS, PAYMENTS BY WAY OF LOANS OR AD VANCES TO SHAREHOLDERS HAVING SUBSTANTIAL INTEREST IN A COMPANY TO THE EXTENT TO WHICH THE COMPANY POSSESSES ACCUMULATED PROFITS IS TREATED AS DIVIDEND. THE SHAREHOLDERS HAVING SUBSTANTIAL INTEREST ARE TH OSE WHO HAVE A SHAREHOLDING CARRYING NOT LESS THAN 20 PER CENT VOTING POWER AS PER THE PROVISIONS OF CLAUSE (32) OF SECTION 2. THE AMENDMENT OF THE DEFINITION SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 10 EXTENDS ITS APPLICATION TO PAYMENT MADE (I) TO A SHAREHOLDER HOLDING NOT LESS THAN 10 PER CENT OF THE VOTING POWER, OR (II) TO A CONCERN IN WHICH THE SHAREHOLDER HAS SUBSTANTIAL INTEREST. 'CONCERN' AS PER THE NEWLY INSERTED EXPLANATION 3(A) TO SECTION 2(22) MEANS A HUF OR A FIRM OR AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS OR A COMPANY. A SHAREHOLDER HAVING A SUBSTANTIAL INTEREST IN A CONCERN AS PER PART (B) O F EXPLANATION 3 IS DEEMED TO BE ONE WHO IS BENEFICIALLY ENTITLED TO NOT LESS THAN 20 PER CENT OF THE INCOME OF SUCH CONCERN 10.3 THE NEW PROVISION WOULD, THEREFORE, BE APPLICA BLE IN A CASE WHERE A SHAREHOLDER HAS 10 PER CENT OR MORE OF THE EQUITY CAPITAL. FURTHER, DEEMED DIVIDEND WOULD BE TAXED IN THE HANDS OF A CO NCERN WHERE ALL THE FOLLOWING CONDITIONS ARE SATISFIED. (I) WHERE THE COMPANY MAKES THE PAYMENT BY WAY OF L OANS OR ADVANCES TO A CONCERN; (II) WHERE A MEMBER OR A PARTNER OF THE CONCERN HOL DS 10 PER CENT OF THE VOTING POWER IN THE COMPANY; AND (III) WHERE THE MEMBER OR PARTNER OF THE CONCERN IS ALSO BENEFICIALLY ENTITLED TO 20 PER CENT OF THE INCOME OF SUCH CONCERN. WITH A VIEW TO AVOID THE HARDSHIP IN CASES WHERE ADVANCES OR LOANS HAVE ALREADY BEEN GIVEN THE NEW PROVISIONS HAVE BEEN MAD E APPLICABLE ONLY IN CASES WHERE LOANS OR ADVANCES ARE GIVEN AFTER 31ST MAY, 1987. THESE AMENDMENTS WILL APPLY IN RELATION TO ASSESSMENT YEAR 1988-89 AND SUBSEQUENT YEARS'. [EMPHASIS SUPPLIED] 10.THE ABOVE REFERRED EXPLANATORY CIRCULAR HAS CATE GORICALLY SPECIFIED HOW 'CONCERNS' WOULD GET COVERED, IF THE SPECIFIED THREE CONDITION S ARE SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 11 FULFILLED. IT STATES - ' DEEMED DIVIDEND WOULD BE TAXED IN THE HANDS OLA CONCERN WHERE ALL THE FOLLOWING CONDITIONS ARE SATISFIED.' L1.SECTION 2(22)(E) DEALS WITH DEEMING PROVISIONS W HEREIN STRICT INTERPRETATION OF THE PROVISIONS SHOULD BE APPLIED AND SINCE A LEGAL FICTION HAS BEEN CREATED IT SHOULD BE TAKEN TO ITS LOGICAL CONCLUSION. THE LEGISLATURE INTENDS TO TAX A 'CONCERN' FOR DEEMED DIVIDEND PURPOSES, SO BE IT, AS EXPLAINED BY CBOT IN PARA 10.3 IN ITS ABO VE REFERRED CIRCULAR. 12.0N THIS ISSUE, THE FOLLOWING JUDGEMENTS THROW LI GHT ON THE RULES OF INTERPRETATION: (A) AS LONG BACK IN 1955 THE HON'BLE SUPREME COURT IN NEW PIECE GOODS BAZAR CO. UD. V. CIT [1950] 18 ITR 516 STATED THAT - 'IT IS ELEMENTARY THAT THE PRIMARY DUTY OF A COURT IS TO GIVE EFFECT TO THE INTENTION OF THE LEGISLATURE AS EXPRESSED IN THE WO RDS USED BY IT AND NO OUTSIDE CONSIDERATION CAN BE CALLED IN AID TO FIND THAT INTENTION '. LEGISLATIVE INTENT IS VERY SPECIFICALLY SPELT OUT B Y CSDT IN ITS CIRCULAR REFERRED ABOVE, ESPECIALLY PARA 10.3 OF THE SAID CI RCULAR. (B) DECISION OF HON'BLE SUPREME COURT IN KESHAVJI R AVJI AND CO. V. CIT [1990] 183 ITR 1 ALSO LENDS CONCURRENCE TO THE VIEWS EXPRESSED ABOVE . THIS COURT OBSERVED: 'AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIVE INTENT BECOMES SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 12 IMPERMISSIBLE. THE SUPPOSED INTENTION OF THE LEGISL ATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTORY LANGUAGE WHICH IS OTHERW ISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS USED, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETATION ARISES WHEN THE W ORDS USED IN THE STATUTE ARE, ON THEIR OWN TERMS, AMBIVALENT AND DO NOT MANI FEST THE INTENTION OF THE LEGISLATURE 13. LD. CIT(A) RELIED ON THE DECISION OF HON'BLE SUPREM E COURT IN THE CASE OF NATIONAL TRAVEL SERVICES (SUPRA) BY STATING THAT A 'SHAREHOTDER' HAS ONLY TO BE A PERSON WHO IS BENEFICIAL OWNER OF SHARES, HE N EED NOT NECESSARILY BE A REGISTERED SHAREHOLDER. [PB 148-149] LD. CIT(A) STATED THAT THE HON'BLE SUPREME COURT TOOK THE VIEW THAT THE CASE OF ANKITECH (P.) LTD. REQUIRES TO BE RECONSIDERED AND REFERRED THE MATTER TO A LARGER BENCH. [AY 2015-16, CIT(A) ORDER PAGE 8 PARA 4.2] IN VIEW OF ABOVE, THE APPEAL OF THE ASSESSEE WAS DI SMISSED. PRESENT CONTROVERSY IS NOT ON THE ABOVE STATED ISSU E OF BENEFICIAL AND REGISTERED SHAREHOLDING. DISMISSAL OF APPEAL OF THE ASSESSEE ON THE REFERENCE OF ANKITECH (P.) LTD. (SUPRA) DECISION TO LARGER BENCH IS GROSSLY ON INCORRECT PREMISE. REFERENCE TO THE LARGER BENCH IS ON THE ISSUE OF BENEFICIAL AND REGISTERED SHAREHOLDING. FINDING GIV EN ON THE FACT OF 'AMOUNTS ADVANCED FOR BUSINESS TRANSACTION' HOLDS GOOD, IN F AVOR OF THE ASSESSEE. 14.LN THE DECISION OF NATIONAL TRAVEL SERVICES (SUP RA), THE HON'BLE SUPREME COURT OBSERVED - 'L8. THIS BEING THE CASE, WE ARE OF THE VIEW THAT THE WH OLE OBJECT OF THE AMENDED PROVISION WOULD BE STULTIFIED IF THE DIVISI ON BENCH JUDGMENT WERE SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 13 TO BE FOLLOWED. ANKITECH'S CASE (SUPRA), IN STATING TH AT NO CHANGE WAS MADE BY INTRODUCING THE DEEMING FICTION INSOFAR AS THE EXPRESSION 'SHAREHOLDER' IS CONCERNED IS, ACCORDING TO US, WRONGLY DECIDED. THE WHOLE OBJECT OF THE PROVISION IS CLEAR FROM THE EXP LANATORY MEMORANDUM..... '19. THIS BEING THE CASE, WE ARE PRIMA FACIE OF THE VIEW THAT THE ANKITECH (P.) LTD. CASE (SUPRA) ITSELF REQUIRES IO BE RECONS IDERED, AND THIS BEING SOL WITHOUT GOING INTO OTHER QUESTIONS THAT MAY ARISE, INCLUDING WHETHER THE FACTS OF THE PRESENT CASE WOULD FIT THE SECOND LIMB OF THE AMENDED DEFINITION CLAUSE, WE PFACE THESE APPEALS BEFORE TH E HON'BLE CHIEF JUSTICE OF INDIA IN ORDER TO CONSTITUTE AN APPROPRIATE BENC H OF THREE LEARNED JUDGES IN ORDER TO HAVE A RELOOK AT THE ENTIRE QUESTION.' INSTANT CASE OF THE ASSESSEE RELATES TO 'AMOUNTS AD VANCED FOR BUSINESS TRANSACTION' BETWEEN VSPL AND MLSF , THE ABOVE OBSERVATION IN NATIONAL TRAVEL SERVICES (SUPRA) FOR REFERENCE OF ANKITECH'S CASE (SUPRA) TO LARGER BENCH HAS NO BEARING. 15.LN RESPECT OF DISALLOWANCE OF HRA IN AY 2015-16 FOR RS. 77,200, IT IS SUBMITTED AS UNDER- A. DETAILS RELATING TO SALARY INCOME FROM SHAKTI PUMPS (INDIA) LTD WERE FILED IN THE COURSE OF ASSESSMENT PROCEEDINGS WHICH INCLUDED MONTHLY PAYSLIPS AND FORM 16 FOR ALL THE YEARS UNDER CONSID ERATION. DETAILS OF ALLOWANCES WHICH FORMED PART OF SALARY INCOME WERE GIVEN IN THE WRITTEN SUBMISSION PLACED ON RECORD. [PS 28-42] B. THERE IS NOTHING INCRIMINATING WHICH WAS FOUND DURI NG THE COURSE OF SEARCH IN RESPECT OF RS. 77,200 WHICH LD. AD HAS TR EATED IT AS HOUSE RENT ALLOWANCE (HRA) CLAIMED EXEMPT U/S 10{13A) FOR AY 2 015-16. IT WAS SUBMITTED THAT IN A SEARCH ASSESSMENT, ANY UNDISCLO SED INCOME, WHICH SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 14 CAN ULTIMATELY BE ADDED, IS ONLY TO THE EXTENT OF A NY UNRECORDED ASSETS / MATERIAL FOUND OR ANY INCRIMINATING DOCUMENTS FOUND AS REPRESENTING UNDISCLOSED INCOME EARNED IN ANY YEAR FALLING WITHI N SECTION 153A OF THE ACT. THE CORRECT FIGURE OF HRA IN FORM 16 IS RS. 68 ,360 AND NOT RS. 77,200. THE FIGURE OF HRA FOR AY 2014-15 IS RS. 77, 200. [PS 34] C. LD. AD DID NOT ACCEPT THE SUBMISSION MADE BY THE AS SESSEE AND MADE THE DISALLOWANCE OF RS.77,200 AND ADDED TO THE TOTA L INCOME WITHOUT REFERENCE TO ANY INCRIMINATING MATERIAL FOUND DURIN G THE COURSE OF SEARCH IN THIS RESPECT WHICH IN FACT RELATES TO AY 2014-15 . [PS 34] CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES OF TH E CASE, SUBMISSIONS AND DOCUMENTS ON RECORD, APPLICABLE LAW AND JUDICIA L PRECEDENTS, THE ASSESSEE SUBMITS BEFORE YOUR HONOR TO DELETE THE AD DITIONS MADE LD. AD IN THE TWO YEARS UNDER CONSIDERATION. 6. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE VEHEM ENTLY ARGUED SUPPORTING ORDER OF BOTH THE LOWER AUTHORITI ES. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. FIRST COMMON ISSUE RAISED FOR ASS ESSMENT YEAR 2015-16 AND ASSESSMENT YEAR 2016-17 RELATES TO THE ADDITION FOR DEEMED DIVIDEND MADE U/S 2(22)(E) OF THE ACT AT RS. 7 LAKH EACH FOR BOTH THE ASSESSMENT YEARS IN RESPECT OF CORPORATE L OAN RECEIVED BY M.L. SECURITIES AND FINANCE PVT. LTD (IN SHORT MLS F) FROM VINAY SECURITIES PVT. LTD (IN SHORT VSPL). WE OBSERVE THAT THE ASSESSEE IS SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 15 HAVING 50% AND 20% SHARE HOLDING IN VSPL & MLSF AND THIS FACT IS NOT DISPUTED. AMOUNT IS NOT RECEIVED BY THE ASSESS EE IN HIS INDIVIDUAL NAME. THE ALLEGED TRANSACTION IS BETWEE N THE TWO COMPANIES HAVING COMMON SHARE HOLDER HAVING SUBSTAN TIAL INTEREST. PROVISION OF SECTION 2(22)(E) OF THE ACT READS AS FOLLOWS:- (E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN W HICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS RE PRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) 5 MADE AFTER THE 31ST DAY OF MAY, 1987 , BY WAY OF A DVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE OF DIVIDEND W HETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN P ER CENT OF THE VOTING POWER, OR TO ANY CONCERN, IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFE RRED 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 POSSESSES ACCUMULATED PROFITS; BUT' DIVIDEND' DOES NOT INCLUDE-- (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB- CLAUSE (C) OR SUB- CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSIDERA TION, WHERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN THE EVENT OF LIQUIDATION TO PART ICIPATE IN THE SURPLUS ASSETS; (IA) 1 A DISTRIBUTION MADE IN ACCORDANCE WITH SUB- CLAUSE (C) OR SUB- CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIBUTABLE TO THE CAP ITALISED PROFITS OF THE COMPANY REPRESENTING BONUS SHARES ALLOTTED TO ITS EQUITY SH AREHOLDERS AFTER THE 31ST DAY OF MARCH, 1964 , 2 AND BEFORE THE 1ST DAY OF APRIL, 1965 ];] (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER 3 OR THE SAID CONCERN] BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE THE L ENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY; (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET OFF 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 WH ICH IT IS SO SET OFF. 8. BOTH THE LOWER AUTHORITIES HAVE CONFIRMED THE ADDI TION IN VIEW OF THE SECOND LIMB OF PROVISION OF SECTION 2(22)(E) WHICH READS AS FOLLOWS:- SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 16 (SECOND LIMB OF THE SAME SECTION DEALS WITH LOANS OR ADVANCES T O ANY 'CONCERNS' - (I) WHERE THE COMPANY MAKES THE PAYMENT BY WAY OF L OANS OR ADVANCES TO A CONCERN; (II) WHERE A MEMBER OR A PARTNER OF THE CONCERN HOL DS 10 PER CENT OF THE VOTING POWER IN THE COMPANY; AND (III) WHERE THE MEMBER OR PARTNER OF THE CONCERN IS ALSO BENEFICIALLY ENTITLED TO 20 PER CENT OF THE INCOME OF SUCH CONCERN. [AS DEFINED IN EXPLANATION 3(B) TO SECTION 2(22)(E) ] 9. ON THE OTHER HAND THE CONTENTION OF LD. COUNSEL FOR THE ASSESSEE IS THAT THE ALLEGED TRANSACTION OF RS.7 LA KHS RECEIVED BY MLSF FROM VSPL IS IN THE NATURE OF AN ADVANCE OR LO AN RECEIVED IN THE ORDINARY COURSE OF BUSINESS WHEREIN THE LENDING OF MONEY IS THE SUBSTANTIAL PART OF THE COMPANY. TO EXAMINE THE FA CTS OF THE CASE WE OBSERVE THAT MLFS IS A REGISTERED NON BANKING FI NANCE COMPANY AND IS ENGAGED IN THE FINANCE BUSINESS. ANOTHER CO NCERN NAMELY VSPL IS ALSO HAVING THE OBJECT OF INVESTING FINANCE AS MENTIONED IN THE MAIN OBJECT OF THIS COMPANY IN THE MEMORANDUM O F ASSOCIATION PLACED AT PAGE 54 OF THE PAPER BOOK. ON PERUSAL OF THE LEDGER ACCOUNT OF MLFS IN THE BOOKS OF VSPL PLACED AT 45 & 46 OF THE PAPER BOOK SHOWS THAT THERE ARE CONTINUOUS TRANSACT ION BETWEEN SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 17 THESE TWO CONCERNS SINCE FINANCIAL YEAR 2009-10. O N 25.3.2015 THE ACCOUNT GOT SETTLED AS MLFS PAID THE TOTAL OUTS TANDING AMOUNT OF RS.20,25,000/- TO VSPL. WORKING OF UTILISATION OF FUNDS RECEIVED FROM MLFS FROM VSPL ARE ALSO DEPICTED AT PAGE 120 O F THE PAPER BOOK. SPECIFICALLY WITH REGARD TO ALLEGED TRANSACT ION OF RS.7 LAKHS RECEIVED DURING ASSESSMENT YEARS 2015-16 AND 2016-1 7, WE FIND THAT RS.7 LAKH RECEIVED ON 7.8.2014 WAS UTILISED BY MLFS FOR MAKING FIXED DEPOSIT ON 8.8.2014. SIMILARLY RS.7 L AKH RECEIVED ON 1.10.2015 WAS UTILISED TO REPAY THE LOAN TO ROULEX INVESTMENT & FINANCE PRIVATE LIMITED. ALL THESE SOURCE AND APPL ICATION OF FUNDS CLEARLY SPELLS OUT THAT THE ALLEGED SUM OF RS.7 LAK H EACH RECEIVED DURING INSTANT YEAR(S) UNDER APPEAL WERE NOT FOR TH E BENEFIT OF THE ASSESSEE SHARE HOLDER MR. SANJAY PATIDAR. THE ALLE GED TRANSACTIONS ARE PURELY ENTERED BETWEEN THE TWO CONCERNS IN THE ORDINARY COURSE OF BUSINESS AS ADVANCE OR LOAN FOR WHICH INTEREST W AS ALSO PAID BY MLFS TO VSPL FOR ASSESSMENT YEAR 2016-17. THUS THE ALLEGED TRANSACTION CLEARLY FALLS IN THE EXCLUSION (II) TO SECTION 2(22)(E) OF THE ACT AND THUS BOTH THE LOWER AUTHORITIES HAVE ERRED IN TREATING THE ALLEGED SUM OF RS.7 LAKHS AS DEEMED DIVIDEND IN THE HANDS OF THE SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 18 ASSESSEE FOR ASSESSMENT YEARS 2015-16 AND 2016-17 R ESPECTIVELY AND THEREFORE ADDITION MADE AT RS.7,00,000/- EACH D URING ASSESSMENT YEAR 2015-16 AND ASSESSMENT YEAR 2016-17 IS UNCALLED FOR. THUS THE RESPECTIVE GROUND NO. 2, 3, 4 & 5 RAISED BY THE ASSESSEE RELATING TO ADDITION OF DEEMED DIVIDEN D U/S 2(22)(E) OF THE ACT ARE ALLOWED. 10. NOW WE TAKE UP GROUND NO.6 OF ASSESSEES APPEAL FOR ASSESSMENT YEAR 2015-16 CHALLENGING THE FINDING OF LD. CIT(A) SUSTAINING THE DISALLOWANCE OF RS.77,200/- CLAIMED BY THE ASSESSEE AS HOUSE RENT ALLOWANCE TO BE EXEMPTED U/S 10(13A) OF THE ACT. WE FIND THAT THE ASSESSEE MADE A CLAIM OF EXEMPTION FOR RS.77,200/- AS EXEMPT FOR HOUSE RENT ALLOWANCE U/S 10(13A) OF THE ACT. LD. A.O CALLED FOR THE DETAILS OF THE HOUSE R ENT PAID DURING THE YEAR. NO SUCH EVIDENCE WAS FILED. DURING THE HEAR ING BEFORE LD. CIT(A) ALSO NO SUCH EVIDENCE WAS FILED. EVEN BEFOR E US THE SUBMISSIONS MADE BY THE ASSESSEE ARE GENERAL IN NAT URE CONTENDING THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH WHICH ITSELF HAD NO MERITS SINCE THE SEARCH WAS CONDUCTED ON 21.1.2016 AND THE DUE DATE OF FILING OF INCOME F OR ASSESSMENT SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 19 YEAR 2016-17 HAD STILL NOT EXPIRED AND THEREFORE IT WAS OPEN FOR THE LD. A.O TO EXAMINE ALL THE ISSUES UNDER APPEAL. 11. PROVISIONS OF SECTION 10(13A) OF THE ACT READS AS FOLLOWS:- (L3A) ANY SPECIAL ALLOWANCE SPECIFICALLY GRANTED TO AN AS SESSEE BY HIS EMPLOYER TO MEET EXPENDITURE ACTUALLY INCURRED ON P AYMENT OF RENT (BY WHATEVER NAME CALLED) IN RESPECT OF RESIDENTIAL ACC OMMODATION OCCUPIED BY THE ASSESSEE, TO SUCH EXTENT AS MAY BE PRESCRIBE D HAVING REGARD TO THE AREA OR PLACE IN WHICH SUCH ACCOMMODATION IS SITUAT E AND OTHER RELEVANT CONSIDERATIONS. EXPLANATION.-FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y DECLARED THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY IN A CASE WHER E- (A) THE RESIDENTIAL ACCOMMODATION OCCUPIED BY THE A SSESSEE IS OWNED BY HIM; OR (B) THE ASSESSEE HAS NOT ACTUALLY INCURRED EXPENDIT URE ONPAYMENT OF RENT (BY WHATEVER NAME CALLED) IN RESPECT OF THE RESIDEN TIAL ACCOMMODATION OCCUPIED BY HIM; 12. THE ABOVE PROVISION CLEARLY SAYS THAT ASSESSEE IS NOT ENTITLED TO EXEMPTION U/S 10(13A) OF THE ACT IF THE RESIDEN TIAL ACCOMMODATION OCCUPIED BY THE ASSESSEE IS OWNED BY HIM OR THE ASSESSEE HAS NOT ACTUALLY INCURRED THE EXPENDITURE FOR PAYMENT OF RENT. IN THE INSTANT CASE NO EVIDENCE HAS BEEN BRO UGHT ON RECORD TO SHOW THAT THE ASSESSEE HAD PAID HOUSE RENT DURING T HE YEAR. UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, WE F IND NO REASON TO INTERFERE IN THE FINDING OF LD. CIT(A) AND CONFIRM THE FINDING OF LD. SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 20 A.O. THUS GROUND NO.6 OF APPEAL OF THE ASSESSEE I S DISMISSED. 13. AS REGARDS COMMON GROUND NO.1 RAISED FOR BOTH T HE ASSESSMENT YEARS CHALLENGING THE VALIDITY OF THE AS SESSMENT FRAMED U/S 143(3) R.W.S. 153A OF THE ACT BEING UNJUST AND BAD IN LAW, NO SUBMISSIONS HAVE BEEN MADE BY THE LD. COUNSEL FOR T HE ASSESSEE WHICH SHOWS THAT ASSESSEE IS NOT INTERESTED IN PRES SING THIS GROUND. THEREFORE THIS GROUND COMMONLY RAISED FOR BOTH THE ASSESSMENT YEARS THROUGH GROUND NO.1 IS DISMISSED AS NOT PRESS ED. 14. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. THE ORDER PRONOUNCED AS PER RULE 34 OF ITAT RULES, 1963 ON 30.04.2021. SD/- SD/- (MADHUMITA ROY) (MA NISH BORAD) JUDICIAL MEMBER ACCOUNTAN T MEMBER / DATED : 30 TH APRIL, 2021 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER, ASSTT.REGISTRAR, I.T.A.T., INDORE SANJAY PATIDAR IT(SS)A NO.157 & 158/IND/2018 21