TMI Blog2017 (10) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepting the claim of the assessee, resultantly, there is no merit in the appeal of the Revenue. - D.B. Income Tax Appeal No. 46/2017 - - - Dated:- 31-10-2017 - MR. JUSTICE K.S. JHAVERI AND MR. JUSTICE VIJAY KUMAR VYAS For the Appellant : Mr. Anil Mehta For the Respondent : Mr. N.M. Ranka, Sr. Adv. assisted by Mr. Siddharth Ranka Mr. N.K.Jain Order 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department and allowed the appeal of the assessee modifying the order of the Tribunal and CIT (A) in favour of assessee. 2. This court while admitting the appeal on 21.04.2017 framed following substantial questions of law: i. Whether in the facts and in the circumstances of the case and in law, the ITAT was right in deleting the addition of ₹ 1,50,00,000/- made by the assessing officer on account of advance given to Gulam Farroq Ansari which was accepted by the assessee during the search that the amount was paid out of books. (ii). Whether on the facts and in the circumstances of the case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time of search the assessee has admitted that he has made payment of ₹ 1.5 crores but during the course but during the course of assessment proceedings, has shown payment of ₹ 50,00,000/- from Ashok Agarwal, ₹ 70,00,000/- from Renu Agarwal ₹ 6,00,000/- from Ashok Agarwal (HUF), ₹ 7,00,000/- from Ashish Agarwal and ₹ 17,00,000/- from Ashish Buildcon P Ltd. The assessee was asked to explain the same and in reply he submitted that the entry of payment made to Ansari brothers made in cash books of various group persons/concerns of the assessee was made in the name of the assessee as he was the main and key person of the group and was also maintaining the cash balance of entire group, therefore the cash payment to Ansari Brothers was made by him out of cash balance of entire group available with him and thereafter the entry of payment was made in the books of accounts of respective person/concern according to utilization of cash balance of respective persons/concerns. 8.6 The assessee has shown advance of ₹ 1.50 Crores to Sh. Gulam Farooq Ansari on the strength of availability to cash-in-hand in cash book of various group persons/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings, the assessee has taken shelter of books of A/c. At the same time, the assessee has not able to show as to whether the agreement for purchase for land was made in the name of 5 different person including his company, wife, son and HUF. Only if all five had entered into agreement to purchase a land together than only payment for land from a/c of all five person directly is justified. Otherwise even if we go by books of A/c of Sh. Ashok Agarwal cash payment of only ₹ 50 Lac has been made. If he wanted to take credit balance in the hands of other persons he should have made corresponding entries in the books of A/c as the amount received by him from these persons and then shown payment from his books of A/c which has not been done. This also shows that entire story is made by the assessee subsequently in order to evade payment of taxes on undisclosed advance admitted by him during the course of search action and subsequently. g) Otherwise also the reliability of books of A/c of all persons is also questionable because than entries have been made subsequent to the search and not during the course of regular business. The Assessee is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts considered together clearly shows that assessee s application is an afterthought and not reliable and at the same time there is no reason to disregard the statement of assessee given during the course of search and at the time of revocation of P.O. on 12/10/2010 after a gap of 20 days. In both the statement it has been clearly stated that the statement has been given after properly understanding the fact without any force of Coercion. Panchnama drawn ob both these days are independent pieces of evidence in which even panchas have confirmed the fact that the statement of the Assessee was recorded any force or Coercion. Importantly the involvement of an unaccounted income in above investment has also been confirmed in letter dated 30.09.2010. Another striking feature is the fact that when the statement of the assessee was recorded on 12/10/2010 during revocation of PO at the Group Office, he had already got time of 20 days since the date of search. He had all opportunity to complete books of A/c and show that the amount was paid out of balance available in cash book which he willfully chose not to. 8.9 Thus considering all the facts evidences together and also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Kerala 1973 91 ITR 18 (SC) it was held that an admission is an extremely important piece of evidence though it is not conclusive. Therefore a statement made voluntarily by the assessee could form the bases of assessment. The mere fact that the assessee retracted the statement could not make the statement acceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and in fact there was no additional income. This burden does not even seem to have been discharged. 8.11 While taking above decision, the undersigned has also considered the settled legal position that Income Tax assessment can be validly based on preponderance of probability. It is beyond real of the probability that the assessee would make payment of ₹ 1.5 crores for purchase of land in cash through books of account knowing fully well that this amount will not even be allowed. He will subsequently disclose this amount in his s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The withdrawals made by the appellant from the company amounted to grant of loan or advance by the company to the shareholder. The legal fiction came into play as soon as the monies were paid by the company to the appellant. The assessee must be deemed to have received dividends on the dates on which she withdrew the aforesaid amounts of money from the company. The loan or advance taken from the company may have been ultimately repaid or adjusted, but that will not alter the fact that the assessee, in the eye of law, had received dividend from the company during the relevant accounting period. In view of this, issue is required to be accepted and the view taken by the CIT (A) is required to be rejected. He has also taken us to observations made by the CIT(A), wherein it has been observed as under: 1) Addition of ₹ 1,50,00,000/- in respect to amount paid to Ansari Your honor raised query whether the audited books of account were examined by the AO with reference to seized books during the course of assessment proceedings. In this regard we submit that the Audited Books of account were examined in detail by the AO with reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and no addition in this regard deserves to be made. 3.3.3 I have duly considered assessee s submission and also taken a note of judicial pronouncements referred by AO and appellant. I have also carefully perused the assessment order passed U/s 153B r.w.s. 143(3) of the Act and also taken a note of factual matrix of the case. During the course of the appellant proceedings, the assessee has contended that no any incriminating document was found during the search operation showing payment of ₹ 1.50 crore to Ghulam Farooq Ansari (herein referred in brief as Ansari). Further, no document was found from assessee s premises. Showing generation of undisclosed income which could be said as utilized in the payment to Ansari. On the basis of sworn statement recorded U/s 132(4) of the Act where he admitted the payment of ₹ 1.50 Crores to Ansari And surrendered the same as his undisclosed income. Entire crux of the case is based on sworn statement of assessee but the said entry of payment was not found recorded in the regular books of account of the assessee group seized by the department. It is a matter of fact that the seized cash books of the group was showing cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02-04-2010 9,99,820.00 Ashish Buildcon Pvt Ltd 06-08-2010 22,89,479.00 06-08-2010 26,47,631.00, Total 1,88,10,450.64 2,11,51,196,64 The above chart shows that as per the seized cash book, the total cash balance available to the group was ₹ 1,88,10,450.64 which became to ₹ 2,11,51,196.64 as the result of incorporating all the entries of cash inflow and outflow. The claim of the assessee is that cash books has to be completed after recording all the unrecorded entries based on bank statement and seized material which was subsequently done by the assessee on the basis of bank statements and other documents found during the course of search operation. Vide letter dt 25/3/2015, AR has also submitted the reasons for non-disclosing ₹ 1.50 Crore (payment made to Ansari) and in support of this, copies of letter dt. 23/01/2013 27/03/2013 (Refer PB Pg 121-122 261-162 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the decision of Hon ble ITAT Jaipur bench in the case of Shri Tara Chand Jain (supra) and Shri Rajendra Kumar Kedia (supra), I hold that the payment of ₹ 1,50,00,000/- was made out of the cash balance reflected in the cash book of the assessee and other group members and I direct the AO to delete the addition of ₹ 1,50,00,000/-. This ground of the assessee stands as allowed. 4. Further, he has also taken us to the observations made by the Tribunal, wherein it has been observed as under: We have heard the rival contentions of both the parties and perused the material available on the record. During the course of the first appellant proceedings, the assessee has contended that no incriminating document was found during the search operation showing payment of ₹ 1.50 crore to Ghulam Farooq Ansari. Further, no documents was found from assessee s premises, showing generation of undisclosed income which could be said as utilized in the payment to Ansari. The crux of the issue is whether based on the payment to Ansari. The crux of the issue is whether based on the statement of the assessee recorded u/s 132(4) of the Act, an addition towards Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporated in the seized cash book, therefore, it can be said that the cash book was not upto date as on the date of search. Assessee had produced the re-casted audited cash book after incorporating all entries before the AO. There were sufficient cash balance available with assessee and his family members/group concern to cover the payment of ₹ 1,50,00,000/- to Ansari. During the course of the arguments, the Revenue has not brought anything further to our notice and the findings of Id CIT(A) remain uncontroverted before us. The assessee has successfully demonstrated through its explanation and documentation in terms of recasted books of accounts that the statement made during the course of the search cannot be made the sole basis for making the addition of ₹ 1,50,00,000 in his hands as there was sufficient cash balance in the books of accounts to make the said payment and discharged its onus as laid down by the decision of Hon ble supreme Court in case of Pullangode Rubber Produce Co (supra) and Rajasthan High Court in case of Ashok Kumar Soni (supra). We therefore do not find any infirmity in the findings of the Id CIT(A). Accordingly, we uphold the order of the Id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. He has also relied upon the decision of Supreme Court in case Gopal and Sons (HUF) vs. Commissioner of Income Tax Kolkata-XI, (2017) 3 SCC 574, wherein Apex Court observed, reads as under: 11. Section 2(22)(e) of the Act creates a fiction, thereby bringing any amount paid otherwise than as a dividend into the net of dividend under certain circumstances. It gives an artificial definition of 'dividend'. It does not take into account that dividend which is actually declared or received. The dividend taken note of by this provision is a deemed dividend and not a real dividend. Loan or payment made by the company to its shareholder is actually not a dividend. In fact, such a loan to a shareholder has to be returned by the shareholder to the company. It does not become income of the shareholder. Notwithstanding the same, for certain purposes, the Legislature has deemed such a loan or payment as 'dividend' and made it taxable at the hands of the said shareholder. It is, therefore, not in dispute that such a provision which is a deemed provision and fictionally creates certain kinds of receipts as dividends, is to be given strict interpretation. It follows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee from out of his credit balance in the company, the withdrawals made by the assessee had to be treated as withdrawals from the account of Mahesh and not from the accumulated profits of the company. 3. At the instance of the Commissioner of Income Tax, the following question of law was referred to the High Court Under Section 256(1) of the Income Tax Act. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the withdrawals made by the assessee from Messers Universal Radiators Private Limited totalling ₹ 93,027 cannot be assessed Under Section 2(22)(e) of the Income- Tax Act, 1961 for the year 1973-74. The High Court answered the question in the negative and in favour of the Revenue. 4. The High Court took note of the fact that the accounting period for the relevant assessment year 1973-74 was 1.4.1.972 to 31.3.1973. The asses-see was a substantial shareholder of the company and was drawing funds from the company till 22.3.1973. As a result of various withdrawals made by the assessee, her credit balance had been entirely wiped out and in fact her acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shyam and Ors. v. Commissioner of Income Tax, West Bengal MANU/SC/0195/1977 : [1977]108ITR345(SC) that the statutory fiction created by Section 2(6A)(e) of the Indian Income Tax Act, 1922 would come into operation at the time of the payment of advance or loan to a shareholder by the company. The legislature had deliberately not made the subsistence of the loan or advance, or its remaining outstanding, on the last date of the previous year relevant to the assessment year a prerequisite for raising the statutory fiction. 10. In the instant case, excess withdrawals were made by the assessee on various dates between 3.7.1972 to 22.3.1973 when the account of Mahesh had not been debited. The assessee's account was consequently overdrawn. On the very last day of accounting year some adjustment was made but that will not alter the position that the assessee had drawn a total amount of ₹ 93,027 between 3.7.1972 to 22.3.1973 from the company when her account with the company did not have any credit balance at all. That means these advances made by the company to the assessee will have to be treated as deemed dividends paid on the dates when the withdrawals were allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l while considering the case in Paragraph 6 more particularly internal page 10 has discussed in detail as under: On 21.8.2009 again he paid ₹ 2 lakhs to compnay, ₹ 9.5 lakhs on 28.7.2009, ₹ 3 lakhs on 13.10.2009, ₹ 1.25 lakhs on 15.10.2009, ₹ 5 lakhs on 26.10.2009, ₹ 5 lakhs on 29.10.2009, ₹ 20 lakhs on 10.2.2010 and ₹ 60 lakhs on 10.3.2010 (₹ 20 lakhs each) and ₹ 13 lakhs on 10.3.2010 and ₹ 1.25 lakhs on 10.3.2010 which show that there are numbers of transactions between the assesse and company. Finally, the assessee's account has been squared up. The assessee and company are in real estate business. It is a general practice in the line of business that most of the land are purchased and sold on agreement to sale basis to save the stamp duty and to increase the profit on the transactions. These facts have been accepted by the AO in scrutiny assessment also in number of years. The condition laid down in the Section 2(22)(e) are squarely applied in case of the assessee but only issue disputed is whether these advances were loan for business purpose or otherwise. The prima facie copy of accounts in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of lending coupled with acceptance by the other side of the money as loan: it generally carries an interest and there is an obligation of repayment. On the other hand, in its widest meaning the term 'advance' may or may not include lending. The word 'advance' if not found in the company of or in conjunction with a word 'loan' may or may not include the obligation of repayment. If it does then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term 'advance'. The rule of construction to our minds which answers this conundrum is noscitur a sociis. The said rule has been explained both by the Privy Council in the of Angus Robertson v. George Day (1879) 5 AC 63 by observing it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them and our Supreme Court in the case of Rohit Pulp Paper Mills Ltd. v. Collector of Central Excise AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha AIR 1960 SC 610. Therefore, we hold that the Tribunal was correct in holding that the amounts advanced for business transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow: 34. A close examination of the judgment of the Bombay High Court in the case of Nagindas M. Kapadia (supra) would show that the Court excluded from the ambit of dividend', monies which the assessee had received towards purchases. In our view both the CIT(A) and the Tribunal have correctly appreciated this aspect of the matter in the said judgment of the Bombay High Court. The relevant portion of the judgment of the Bombay High Court which sets out this aspect of the matter is already extracted by us in the narrative give by us hereinabove. We are also in agreement with the view of the Tribunal that the judgment of the Supreme Court in the case of Ms. P. Sarada (supra) and Smt. Tarulata (supra) has no applicability to the present case. Both the judgments establish the principle that once the payment made to a shareholder is deemed as dividend then the mere fact that it is repaid would not take it out of the ambit of the tax net. In the instant case, however, a discussion with respect to which has been made hereinabove, the issue is whether the payment received by the shareholder would at all fall within the four corners of provisions of Section 2(22)(e) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either side and more specifically the Revenue. In view of these facts, we are not in agreement with the conclusion drawn in the assessment order and affirm the stand of the learned Commissioner of Income Tax (Appeals) in accepting the claim of the assessee, resultantly, there is no merit in the appeal of the Revenue. Finally, the appeal of the Revenue is dismissed. 9. He has further contended that recent CBDT Circulars, Circular No.19 of 2017, dated 12th June, 2017, reads as under:- Section 2(22) clause (e) of the Income Tax Act, 1961 (the Act) provides that dividend includes any payment by a company, not being a company in which the public are substantially interested, of any sum by way of advance 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 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 shareholder 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 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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