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2016 (11) TMI 1296 - ITAT VISAKHAPATNAM

2016 (11) TMI 1296 - ITAT VISAKHAPATNAM - TMI - Deemed dividend addition u/s 2(22) - additions made u/s 153A - Held that:- A.O. had no jurisdiction to make additions u/s 153A of the Act, for the assessments which are not pending as on the date of search. The assessment for the assessment years 2005-06 to 2009-10 were not pending as on the date of search. The time limit for issue of notice under sec. 143(2) has been expired. Therefore, the A.O. has no jurisdiction to reassess the income for the a .....

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er u/s 153A of the Act, despite the fact that the assessed income will be remaining the same as that was originally assessed income, since there was no incriminating material. Therefore, we direct the A.O. to delete the additions made towards deemed dividend u/s 2(22)(e) of the Act, for the A.Y. 2010-11 and 2011-12. - The transaction between the assessee and his company are not coming within the meaning of loans and advances as defined u/s 2(22)(e) of the Act. The facts remain unchanged. The .....

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icial Member And Shri G. Manjunatha, Accountant Member Appellant by : Shri M.B. Reddy, DR Respondent by : Shri G.V.N. Hari, AR ORDER Per G. Manjunatha, Accountant Member These appeals filed by the revenue and cross objections filed by the assessee are directed against the common order passed by the CIT(A)-1, Hyderabad dated 28.4.2015 for the assessment years 2005-06 to 2011-12. Since, the facts are identical and issues are common, they are heard together and disposed off, by way of this common o .....

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e was notified to Central circle and accordingly, notice u/s 153A of the Act was issued requiring assessee to file return of income for six assessment years, immediately preceding the assessment year in which search was conducted. In the mean time, the assessee has filed return of income for the assessment years 2005-06 to 2011-12 on 21.11.2012. The case has been taken up for scrutiny and accordingly, notices u/s 143(2) & 142(1) of the Act along with questionnaire were issued. In response to .....

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g of section 2(22)(e) of the Act, the A.O. issued show cause notice and asked to explain the transactions between the assessee and the company with necessary evidences. In response to show cause notice, the assessee submitted that he had not taken any loans/advances from M/s. Sampath Vinayaka Steels Pvt. Ltd., Visakhapatnam. The assessee further submitted that the provisions of section 2(22)(e) of the Act is not applicable to the transaction taken place between him and his company, as the said a .....

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of the company with an understanding that the company should accommodate funds to him wherever such need arises. In fact, he had facilitated his company M/s. Sampath Vinayak Steel Pvt. Ltd., to open a current account with the bank for availing credit facilities against the mortgage of personal properties belongs to him and the assessee in turn opened current account with the company for accommodation of funds to him with a mutual understanding. If he had not mortgaged his personal properties wi .....

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cision of Hon ble High Court of Kolkata in the case of M.D. Jindal Vs. CIT and also ITAT Visakhapatnam decision in the case of Dilip Kedia Vs. ACIT. 4. The A.O. after considering the explanations of the assessee and analyzing provisions of section 2(22)(e) of the Act, held that the transaction between the assessee and company is coming within the meaning of deemed dividend under the provisions of section 2(22)(e) of the Act, as all the 3 conditions required for attracting the provisions are comp .....

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preferred appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made before the A.O. The assessee has taken a legal plea before the CIT(A) and argued that the assessment order passed by the A.O. u/s 143(3) r.w.s. 153A of the Act, for the assessment year 2005-06 to 2009-10 were not pending on the date of search, as such despite the provisions of section 153A of the Act are applicable, additions cannot be made when there is no incriminating material in respect of suc .....

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und in the course of search, indicating undisclosed income/assets (3) proceedings are not pending and no incriminating material has been found. In the case of assessments which are not pending as on the date of search, then the A.O. has no jurisdiction to assess the income of completed assessments in the absence of incriminating documents. In the case of assessments which are pending and abated as on the date of search, the A.O. gets jurisdiction to assess/re-assess the income in respect of thos .....

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dend u/s 2(22)(e) of the Act is on account of non-disclosure of said advances in the regular return of income filed for the respective assessment years. In the absence of incriminating documents, the return filed by the assessee, which is not pending as on the date of search cannot be tinkered with. 6. As regards the merits of the issue, the assessee submitted that transactions between the assessee and the company were recorded in the books of accounts of M/s. Sampath Vinayaka Steels Pvt. Ltd. i .....

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payments within the meaning of section 2(22)(e) of the Act. In support of his arguments, relied upon the decision of ITAT, special bench in the case of All Cargo Global Logistics Ltd. Vs. DCIT (2012) 137 ITD 287 and also the Delhi High Court decision in the case of CIT Vs. A.K. Bhatia reported in 211 Taxman 453. 7. The CIT(A) after considering the explanations furnished by the assessee, held that the assessing officer is not justified in making addition u/s 2(22)(e) of the Act, towards deemed di .....

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f M/s. Hyderabad House Pvt. Ltd. upheld the decision of ITAT, Hyderabad bench, wherein it is held that computation of undisclosed income u/s 153A/C of the Act, must be with reference to incriminating material found as a result of search. As observed by the Hon ble ITAT, Mumbai Bench in the case of M/s. Pradip Industries Pvt. Ltd., where there is no abatement of the assessment, total income has to be determined by clubbing together the income already determined in the original assessment order an .....

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oans for the business of the company. The documents filed by the assessee reveals that the assessee has mortgaged his personal property for the purpose of obtaining over draft loan from bank for the business purpose of the company. In turn, the assessee has received certain amount from the company which cannot be considered as gracious payment and does not come under the purview of section 2(22)(e) of the Act. With these observations, deleted additions made by the A.O., towards deemed dividend u .....

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once a search is taken place, the assessment of 6 years gets re-opened and the A.O. will get jurisdiction to assess/re-assess total income of those 6 assessment years, whether or not any incriminating material found during the course of search. The CIT(A) without appreciating the facts held that the A.O. is not justified in making additions u/s 2(22)(e) of the Act, in the assessment made u/s 143(3) r.w.s. 153A of the Act, without any incriminating material. The D.R. further argued that the provi .....

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termine the total income by clubbing the income already assessed and undisclosed income found during the course of search and the basis for ascertaining such undisclosed income is the books of accounts or other documents not produced in the course of original assessment, but found in the course of search and also undisclosed income or undisclosed property discovered in the course of search. 10. The Ld. D.R. further argued that as regards the additions towards deemed dividend u/s 2(22)(e) of the .....

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er the provisions of section 2(22)(e) of the Act. Once there is a loan and advance in the name of a shareholder holding more than 10% beneficial shares in the company and the company is having accumulated profit as on the date of such loan, then the deeming fiction provided u/s 2(22)(e) of the Act would apply. In the present case on hand, there is no dispute with regard to the loans and advances and accumulated profit. Whether transactions between the assessee and his company is a gracious payme .....

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by the A.O. towards deemed dividend is outside the scope of assessments u/s 143(3) r.w.s. 153A of the Act. The A.R. further submitted that the CIT(A) is justified in holding that the amount paid to the assessee by his company is not a gracious payment and as such outside thes scope of section 2(22)(e) of the Act. The A.R. further submitted that the issue is squarely covered by the decision of ITAT, Visakhapatnam bench, in the case of L. Suryakantham Vs. ACIT 300 to 305/Vizag/2012 dated 19.4.201 .....

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O. towards deemed dividend u/s 2(22)(e) of the Act is not based on any incriminating material found during the course of search and accordingly, the additions made by the A.O. is rightly deleted by the CIT(A) and his order should be upheld. 12. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The factual matrix of the case is that there was a search action u/s 132 of the Act. Consequent to the search, the assessee cas .....

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ee and his company is coming within the definition of deemed dividend under the provisions of section 2(22)(e) of the Act. It is the contention of the assessee that the assessment order passed by the A.O. u/s 143(3) r.w.s. 153A of the Act, for the assessment years 2005-06 to 2009-10 is null and void as the A.O. has made additions towards deemed dividend u/s 2(22)(e) of the Act without any incriminating materials. The assessee further contended that as per section 153A of the Act, de-novo assessm .....

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., as per the provisions of section 153A of the Act, there is no limitation or restriction provided in the new procedure of search assessment on the powers of the A.O. for making assessment/re-assessment and the A.O. is not required to confine his assessments on the materials found during the course of search as was the case in the old procedure of block assessments. It is the contention of the assessee that the A.O. cannot disturb the completed assessment unless there was a seized material. The .....

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ase of L. Suryakantham Vs. ACIT, has considered similar issue and held that the A.O. had no jurisdiction to make additions u/s 153A of the Act, for the assessments which are not pending as on the date of search and also the time limit for issue of notice u/s 143(2) of the Act has been expired. The relevant portion of the order is extracted below: 19. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The factual matrix .....

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nt proceedings have been initiated by issuing notice u/s 153A/153C of the Act for the six assessment years immediately preceding the assessment year in which search was conducted. The assessee has filed revised returns in response to notice u/s 153A of the Act and admitted the additional income disclosed during the course of search. The case has been selected for scrutiny. During the course of assessment proceedings, the assessee was asked to produce books of accounts and relevant bills & vo .....

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as no incriminating material found during the course of search for the above assessment years and as such no additions can be made to the returned income. It is further submitted that as per sec. 153A of the Act, de-novo assessment can be made only in respect of the assessment year for which the assessment proceedings had been abated and that in respect of assessment years for which the assessment had already been reached a finality, such assessment could not be made u/s 153A of the Act unless t .....

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course of search as was the case in the old procedure of block assessments. The new procedure of block assessment was explained by way of provisions of section 153A of the Act. As per section 153A of the Act, the A.O. shall assess or reassess the total income of the specified six assessment years irrespective of the fact that the assessment of the said years were completed or pending as on the date of search. Therefore, the A.O. has reassessed the income of six assessment years and recomputed th .....

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er to reassess the income of those completed assessment years. 21. We find force in the arguments of the assessee for the reason that the issue no longer res integra, as the issue has been already decided by the ITAT, special bench and held that where the assessments are not pending as on the date of search, the A.O. losses jurisdiction u/s 153A of the Act to reassess the income of those completed assessments. Though the provisions of section 153A of the Act does not specify abated and completed .....

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ment should be treated so as to understand that those assessments are reached finality and which cannot be tinkered with unless there was a seized document. Therefore, we are of the considered opinion that where search is initiated, all pending assessments are merge into one and only one assessment for each assessment year shall be made separately on the basis of findings of search and other material existing or brought on record by the A.O. In respect of non abated or completed assessments, the .....

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notice u/s 143(2) of the Act has been expired. On further verification of the documents available on record, we find that there was no incriminating documents found during the course of search in respect of assessment year 2004-05 to 2007-08. Therefore, we are of the opinion that the A.O. was not correct in reassessing the total income of the assessment year 2004-05 to 2007-08 in the absence of any seized materials. Accordingly, we direct the A.O. to delete the additions made for the assessment .....

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ssments shall be made for each of the six assessment years separately. In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search. 24. The assessee relied up .....

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on of assessment proceedings and after reaching finality thereon, the Assessing Officer tried to reagitate the assessments. According to us, the learned Tribunal has rightly held that the Assessing Officer has no jurisdiction to reagitate the assessments which were already completed and subsisting. We therefore do not find any element of law to be decided in this appeal. Hence, the appeal is dismissed. There will be no order as to costs. 25. The assessee has relied upon the coordinate bench deci .....

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st paragraph of the judgment that the court has to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity. Our decision is in consonance with this observation . The decision rendered by the Special bench that the assessing officer c .....

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ree Lalitha Constructions (J1TA No 368 of 2014) (b) M/s. Hyderabad House Pvt Ltd (ITTA No.266 of 2013) (c)M/s. AMR India ltd (FITA No.357 /v/2014) Further we agree with the contentions of the assessee that the decision rendered by the jurisdictional High Court in the case of Gopal Das Bhadruka (supra) have been rendered on the facts prevailing in those cases, since the issue relating to concluded assessments and pending assessments was not before the I1on'ble Andhra Pradesh High Court On the .....

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ring the course of search. If no incriminating material showing any undisclosed income was found in the case of concluded proceedings, then the question of making any addition does not arise. in that case, the assessing officer should complete the assessment of those years by determining the very same total income that was assessed in the earlier proceeding. 24. In view of the above, We are unable to agree with the contentions of Ld Standing Counsel that the assessing officer would get unfettere .....

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adictory views have been expressed by the High Courts. In the instant case the Hon ble jurisdictional High Court comes to the support of the assessee in respect of the legal proposition in addition to the decision rendered by the Hon'ble Bombay High Court. Accordingly, we find merit in the contentions of the assessee on the legal issue. 26. Considering the facts and circumstances of the case and also respectfully following the coordinate bench decision in the case of All Cargo Logistics Pvt. .....

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nt years 2004-05 to 2007-08, were not pending as on the date of search. The time limit for issue of notice under sec. 143(2) has been expired. Therefore, the A.O. has no jurisdiction to reassess the income for the assessment year 2004-05 to 2007-08 in the absence of any incriminating materials. Hence, we delete the additions made by the A.O. for the assessment year 2004-05, 2005-06 & 2007-08. Accordingly, the ground raised by the assessee is allowed. 14. In this view of the matter and consid .....

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ke additions u/s 153A of the Act, for the assessments which are not pending as on the date of search. The assessment for the assessment years 2005-06 to 2009-10 were not pending as on the date of search. The time limit for issue of notice under sec. 143(2) has been expired. Therefore, the A.O. has no jurisdiction to reassess the income for the assessment year 2005-06 to 2009-10 in the absence of any incriminating materials. The CIT(A) has rightly deleted the additions. We do not see any reason t .....

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earch. Therefore, we are of the view that even in the case of pending assessments, in the absence of any incriminating material found during the course of search which suggest undisclosed income, the A.O. has no jurisdiction to make additions in the order passed u/s 143(3) r.w.s. 153A of the Act, towards deemed dividend under the provisions of section 2(22)(e) of the Act. We further observed that the additions made by the A.O., towards deemed dividend is not based on any incriminating material f .....

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erved that even where there is no pending proceedings and no incriminating material has been found, the assessing officer is still required to pass an order u/s 153A of the Act, despite the fact that the assessed income will be remaining the same as that was originally assessed income, since there was no incriminating material. Therefore, we direct the A.O. to delete the additions made towards deemed dividend u/s 2(22)(e) of the Act, for the A.Y. 2010-11 and 2011-12. 16. Coming to the merits of .....

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, as the debit balance appearing in the company s books of accounts is a normal current account, wherein the company has credited amounts payable to him and debited amounts withdrawn by him and net result of which is shown debit balance which cannot be considered as gracious payment. The assessee further contended that he had given his personal properties as collateral security to the bank for the purpose of availing credit facilities to the company, in turn the company has given certain advance .....

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sessee claims that transaction between himself and his company is not a gracious payment which is coming within the meaning of loans and advances as defined u/s 2(22)(e) of the Act. The CIT(A) after considering the explanation furnished by the assessee and also following the decision of Kolkata High Court, in the case of Pradip Kumar Malhotra Vs. CIT, held that the transaction between the assessee and his company are not gracious payment which is coming within the meaning of loans and advances a .....

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th sanction letters and the properties provided by the appellant as collateral security to obtain loans from the said banks is tabulated below. Date of sanction Name of the bank Name of the borrower Credit facility (Rs.) Property mortgaged 23.3.2004 State Bank of Hyderabad, Siripuram junction, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd. 30 lakhs Agricultural land 10.2.2006 State Bank of Hyderabad, Siripuram junction, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd. 100 lakhs 4 storyed building on 555 .....

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d at Rajendranagar, Vizag in the name of (a) Hari Prasad Bhararia (b) Shivlal Bhararia (brothers) (2) VUDA Apartment admeasuring 1485 sq.ft. situated at MMTC colony, Seethammadhara, Vizag in the name of Hari Prasad Bhararia. Renewal The Dhanalakshmi Bank, VIP Road, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd. 150 lakhs (1) 4 storeyed building on 555 sq.yds. situated at Rajendranagar, Vizag in the name of (a) Hari Prasad Bhararia (b) Shivlal Bhararia (brothers) (2) VUDA Apartment admeasuring 1485 .....

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mpath Vinayak Steels Pvt. Ltd. 400 lakhs (1) 4 storyed building on 555 sq.yds. situated at Rajendranagar, Vizag in the name of (a) Hari Prasad Bhararia (b) Shivlal Bhararia (brothers) (2) VUDA Apartment admeasuring 1485 sq.ft. situated at MMTC colony, Seethammadhara, Vizag in the name of Hari Prasad Bhararia. Even till date, the Axis Bank has granted cash credit facility to the said company on the basis of the collateral security provided by the properties and also the personal guarantee of the .....

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ng 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; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. Thus, gratuitous loan or advance given by a company to those cl .....

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the board of directors of the company passed a resolution authorizing the assessee to obtain from the company interest free deposit up to ₹ 50 lakhs as and when required. During the previous year relevant to the assessment year 1999-2000, the assessee obtained from the company a sum of ₹ 20,75,000 by way of security deposit. Out of the amount, a sum of ₹ 20 lakhs was subsequently returned by the assessee to the company. In the assessment made for 1999¬2000 the Assessing Off .....

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, the appellant has mortgaged his property to various banks and obtained loans for the business of the company. Even though there is a personal element of individual benefit to the appellant, the Company from which the advances were taken also benefited by using the property as collateral security to the bank. Thus, as observed by the Hon'ble Calcutta High Court that the loan or advance given in return to an advantage conferred upon the Company by a shareholder is not a gratuitous loan or ad .....

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