TMI Blog2022 (1) TMI 885X X X X Extracts X X X X X X X X Extracts X X X X ..... ance having notbeen received by the assessee from a closely held company i.e. from Orient Craft Ltd. or Olympus Realters P Ltd. cannot be treated as dividend u/s 2(22)(e), since the first ingredient of section 2(22)(e) itself is not met in this case. There is no question of treating the amount withdrawn by the assessee as partner from the partnership firm namely M/s SKA Enterprises in the nature of loan and advance and treat it as deemed dividend under section 2(22)(e) of the Income Tax Act. None of the ingredients of section 2(22)(e) stand satisfied in the instant case. We have also gone through part of written submissions as reproduced above where rebuttal of each and every adverse observation made by the assessing officer has been made by the assessee and we are in agreement with the assessee on all those rebuttals. CIT (A) despite recording a clear cut finding as to the nature of payments made by one entity to another in para 7.3.2 of the appeal order has committed grave error in concluding without any basis, material or evidence that M/s Super Connections India P. Ltd., M/s Olympus Realtors P. Ltd. andM/s SKA Enterprises were used as conduits. Therefore, we are unable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference in scope of proceedings under section 153A of the Income Tax Act, 1961 for an abated assessment and for a completed assessment. (iv) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in holding that no addition can be made u/s 153A in respect of completed assessment if no incriminating material is found during search. (v) Whether there is any restriction on the powers of the Assessing officer under section 153A of the Income Tax Act, 1961 to confine only to the incriminating material found during the search , even though such words or conditions are not mentioned in the section per se. (vi) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was correct in interpreting section 153A which starts with a non-obstinate clause stating therein that the operation of section 139,147, 148, 149, 151 153 was deposed meaning thereby that in search cases the Assessing officer is duty bound to take up the assessment u/s 153A and that the above-mentioned sections cannot invoked. Therefore, even if incriminating material is not found during search, but if any escaped income or under-assessed income undisclosed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT(A) was right in concluding that there was a difference in scope of proceedings under section 153A of the Income Tax Act, 1961 for an abated assessment and for a completed assessment. (iv) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in holding that no addition can be made u/s 153A in respect of completed assessment if no incriminating material is found during search. (v) Whether there is any restriction on the powers of the Assessing officer under section 153A of the Income Tax Act, 1961 to confine only to the incriminating material found during the search , even though such words or conditions are not mentioned in the section per se. (vi) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was correct in interpreting section 153A which starts with a non-obstinate clause stating therein that the operation of section 139,147, 148, 149, 151 153 was deposed meaning thereby that in search cases the Assessing officer is duty bound to take up the assessment u/s 153A and that the above-mentioned sections cannot invoked. Therefore, even if incriminating material is not found during search, but if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in concluding that there was a difference in scope of proceedings under section 153A of the Income Tax Act, 1961 for an abated assessment and for a completed assessment. (iv) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in holding that no addition can be made u/s 153A in respect of completed assessment if no incriminating material is found during search. (v) Whether there is any restriction on the powers of the Assessing officer under section 153A of the Income Tax Act, 1961 to confine only to the incriminating material found during the search , even though such words or conditions are not mentioned in the section per se. (vi) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was correct in interpreting section 153A which starts with a non-obstinate clause stating therein that the operation of section 139,147, 148, 149, 151 153 was deposed meaning thereby that in search cases the Assessing officer is duty bound to take up the assessment u/s 153A and that the above-mentioned sections cannot invoked. Therefore, even if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estrictive than those of section 153A. (iii) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in concluding that there was a difference in scope of proceedings under section 153A of the Income Tax Act, 1961 for an abated assessment and for a completed assessment. (iv) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in holding that no addition can be made u/s 153A in respect of completed assessment if no incriminating material is found during search. (v) Whether there is any restriction on the powers of the Assessing officer under section 153A of the Income Tax Act, 1961 to confine only to the incriminating material found during the search , even though such words or conditions are not mentioned in the section per se. (vi) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was correct in interpreting section 153A which starts with a non-obstinate clause stating therein that the operation of section 139,147, 148, 149, 151 153 was deposed meaning thereby that in search cases the Assessing officer is duty bound to take up the assessment u/s 153A and that the above-m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CIT v. Mukundray K. Shah, 290 ITR 433 under identical circumstances has upheld the addition of deemed dividend u/s 2(22)(e) made by the AO in a block assessment u/s 158BC, the provisions of which are restrictive than those of section 153A. (iii) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in concluding that there was a difference in scope of proceedings under section 153A of the Income Tax Act, 1961 for an abated assessment and for a completed assessment. (iv) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in holding that no addition can be made u/s 153A in respect of completed assessment if no incriminating material is found during search. (v) Whether there is any restriction on the powers of the Assessing officer under section 153A of the Income Tax Act, 1961 to confine only to the incriminating material found during the search , even though such words or conditions are not mentioned in the section per se. (vi) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was correct in interpreting section 153A which starts with a non-obstinate clause stating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciate that the Hon'ble Supreme Court in the case of CIT v. Mukundray K. Shah, 290 ITR 433 under identical circumstances has upheld the addition of deemed dividend u/s 2(22)(e) made by the AO in a block assessment u/s 158BC, the provisions of which are restrictive than those of section 153A. (iii) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in concluding that there was a difference in scope of proceedings under section 153A of the Income Tax Act, 1961 for an abated assessment and for a completed assessment. (iv) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in holding that no addition can be made u/s 153A in respect of completed assessment if no incriminating material is found during search. (v) Whether there is any restriction on the powers of the Assessing officer under section 153A of the Income Tax Act, 1961 to confine only to the incriminating material found during the search , even though such words or conditions are not mentioned in the section per se. (vi) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was correct in interpreting section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case the Ld. CIT(A) failed to appreciate that the Hon'ble Supreme Court in the case of CIT v. Mukundray K. Shah, 290 ITR 433 under identical circumstances has upheld the addition of deemed dividend u/s 2(22)(e) made by the AO in a block assessment u/s 158BC, the provisions of which are restrictive than those of section 153A. (iii) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in concluding that there was a difference in scope of proceedings under section 153A of the Income Tax Act, 1961 for an abated assessment and for a completed assessment. (iv) Whether on the facts and in the circumstances of the case the Ld. CIT(A) was right in holding that no addition can be made u/s 153A in respect of completed assessment if no incriminating material is found during search. (v) Whether there is any restriction on the powers of the Assessing officer under section 153A of the Income Tax Act, 1961 to confine only to the incriminating material found during the search , even though such words or conditions are not mentioned in the section per se. (vi) Whether on the facts and in the circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng documents/ Books of Accounts related to Orient Craft Limited and various other entities were found and seized from the business premises of M/s Orient Craft Ltd 7D, Maruti Industrial area sector 18 Gurgaon, detailed as under: S.No. Name of the Concern Details of Seized documents, i.e. Page No./ Annexure/ Party 1 Orient Craft Limited 1-40/ A-8/ OS-I 2 Super Connection (P) Ltd. 41-51/ A-7/ OS-I 3 Olympus Realtors 78-92/ A-8/ OS-I (P) Ltd. 4 SKA Enterprises 10-37/ A-7/ OS-I 3.1 According to the A.O., from the above books of accounts of the above concerns found and seized from the office of Orient Craft Ltd., it was noticed that Orient Craft Ltd. has been routing huge amounts of funds through some fictitious entities of the group and finally to the shareholders of M/s Orient Craft Ltd. A.O. drew the following diagram depicting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grounds mentioned in the appeal order passed by learned first appellate authority. 5. The finding recorded by Ld. CIT (A) in the appeal order arementioned therein in para 6-12 of the appeal order, whereby Ld. CIT(A) found in respect of these two assessee and in respect of the years involved in appeals before him that in these cases, search took place on 29.04.2015, whereas returns of income filed by these two assessee in various years were as under:- SH. SUDHIR DHINGRA FOR A.Y. 2010-11 to 2013-14 - Appellant filed his return of income originally on 30.07.2010 which is enclosed in the paper book at PB-1 For A.Y. 2010-11 - Appellantfiled his return of income originally on 31.07.2011 which is enclosed in the paper book at PB 538 for A.Y. 2011-12 - Appellant filed his return of income originally on 30.07.2012 which is enclosed in the paper book at PB-541 for A.Y. 2012-13 - Appellant filed his return of income originally on 30.07.2013 which is enclosed in the paper book at PB-544 for A.Y. 2013-14 SH. ANOOP THATAI FOR A.Y. 2011-12 to 2013-14 - Appellant filed his return of income originally on 30.09.2011 which is enclosed in the paper boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andbalance sheet filed by these entities and thus, these documents cannot be said to be incriminating in nature. He drew our attention to these seized documents filed in the paper book. It was further submitted that these seized documents do not pertain to previous years relevant to AY 2010-11, 2011-12, 2012-13 and these are in any case relating to AY 2013-14. It was further submitted by him all the four entities namely M/s Orient Craft Ltd. and Super Connection India P Ltd., M/s OlympusRealtorsIndia P Ltd. and M/s SKA Enterprises were assessed to tax. The decision of the Delhi High Court in the case of, Meeta Gutgutia Prop. Ferns 'N' Petals Ors.(2017) 395 ITR 526 (Delhi) was specifically referred and relied upon. In sub and substance his submissions were that there was no incriminating material found as a result of search and whatever was found was part of books of accounts, returns of income filed by these entities and hence there was nothing incriminating. It was also submitted by him based upon his written submission and paper book pages filed before the first appellate authority and before us that M/s Super Connection India P Ltd. was not a paper entity. It was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 143(3) dated 10.12.2007 for AY 2005-06 and order under section 143(3) dated 28.12.2010 for AY 2008-09. There is no ground to say that M/s Super Connection India P Ltd was some kind of paper company/concern. Its directors are also not remotely related to the assessees. There is nothing adverse even in the statements of the directors of Super Connection India P Ltd. to which our attention was drawn. We are unable to appreciate, how the said company can be held to be paper company more so when it is being assessed and that too from earlier years and its assessment has been made under section 143(3) with no adverse observations. After all a company is incorporated entity and is borne on the register of companies, who had been complying to statutory compliances. AO could not bring even an iota of evidence on record to hold validly in support of his allegation about this company. Merely because books of accounts of this company were found from the premises of Orient Craft Ltd. does not make Super Connection India P Ltd a paper company more so when adequate explanation was furnished in this regard that for reconciliation purpose these were available there as there were business dealings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard. 13. We have taken ourselves through the seized material also and it is seen that these seized documents are copies of balance sheet, Trial balance, returns of income of the above-said four entities and therefore such seized material is the material which was already in the knowledge of the tax department through their returns of income and balance sheet of respective years. These seized documents have been filed at page 28-121 of the paper book which we have seen ourselves. 14. First of all these documents are not relating to AY 2010-11 to 2012-13, then how can these documents be said to be relating to these years involved in the present appeals. In any case these documents are not incriminating in any manner to the assessees cases involved in the present appeals. Merely because the final accounts which are part of the returns of income are found and seized in search do not make such documents as incriminating. All that is found in search is not incriminating merely for the reason of seizure in search. Page 1-40 of A-8/OS-1 are found enclosed at page 28-67 of the paper book and it is seen that, it is the audited balance sheet profit and loss account along with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said firm for the respective years. There is nothing incriminating relating to the respondent-assessees and that too for the years under appeal. Nothing has been spelt out in the assessment order. 15. Therefore, the entire seized material based on which the impugned addition was made under section 2(22)(e) as deemed dividend in the assessment orders involved in the present appeals, is not incriminating in nature for the cases of the both the respondent-assessees involved in the present appeals. We have taken note of the dates of filing of returns of income by both the respondent assessees for various years and on the date of search i.e. on 29.4.2015, these assessments covered by the present appeals, attained finality and were not abated assessments and there being no incriminating material found as a result of search relating to the years involved relating to the assesses involved in the present appeals, no addition and that too of the deemed dividend u/s 2(22)(e) could be made in view of the decision of Hon ble Delhi High Court in the case of Kabul Chawla 380 ITR 573(Del). 15.1 Hon ble Delhi High Court in the case of Meeta Gutgutia Prop. Ferns 'N' Petals Ors.(20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case and void- ab-initio and basic jurisdictional conditions and pre-requisites under section 153A were not met. 2) That in any case and in any view of the matter, the assessment framed under section 153A of the Act, is bad in law and against the facts and circumstances of the case. 3) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of the Ld. A.O. in restricting the addition to the extent of ₹ 17,33,98,000/- u/s 2(22)(e) and that too by recording incorrect facts and without any basis, material or evidence and more so when no incriminating material was found as a result of search. 4) That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of ₹ 17,33,98,000/- u/s 2(22)(e) is bad in law and against the facts and circumstances of the case. 5) That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. A.O. in passing the impugned assessment order without there being requisite approval in terms of section 153D and in any case approval if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny with reference to deemed dividend has tobe restricted to accumulated profits and according to CIT(A) accumulated profits of M/s Olympus Realtors P. Ltd. as on 31.03.2014 was ₹ 6,83,78,062/- and therefore total payment of ₹ 35,68,68,435/- from these companies to the shareholders having substantial interest in these companies will be covered under the definition of deemed dividend u/s 2(22)(e) but such deemed dividend will be restricted to the accumulated profits. Accordingly, CIT (A) confirmed the additions in the hands of the three shareholders namely Sh. Sudhir Dhingra of ₹ 17,33,98,000/- and Sh. Anoop Thatai ₹ 18,28,26,500/- and Sh. Krishan Kant Kohliof ₹ 6,43,935/-. Ld. CIT (A) relied upon the decision of Hon ble Supreme Court in the case of CIT Vs Mukundray K. Shah, [2007] 290 ITR 433 (SC). 20. In the setting of the above facts the present appeal has been preferred by the assessee, whereas there is no appeal preferred by the revenue. 21. Ld. CIT (DR) has relied upon the assessment order and the order of the first appellate authority, whereas Ld. Counsel for the assessee relied upon the written submissions and paper book filed and conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and that too during the course of business. It goes without saying that M/s SCPL is an independent assessee, which has been assessed to tax even in earlier years which is evident from the copies of assessment orders of SCPL for A.Y 2005-06 2008-09 which are enclosed at PB439-446. Therefore when amount has been given by M/s OCL to M/s SCPL, where is the question of holding that the amount was given by OCL to the appellant instead, and where is the question of assessing that amount as deemed dividend in the hands of the appellant Individual. Thus, action of Ld. AO in disregarding the corporate character of SCPL is misplaced on facts and in law and so is the action of making impugned addition in the hands of the appellant. It is thus requested that the addition under appeal may please be deleted for the above stated submissions too. 4) Without prejudice to above, it is submitted that M/s ORPL was one of the partners in M/s SKAE and infused its capital and no loan or advance was given to M/s SKAE by ORPL. Appellant too is the partner in SKAE. Appellant withdrew the amount as partner of SKAE and thus, how could the amount received by the appellant from M/s SKAE be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eadings and evidences:- PB 150, 151, 152-153 are copies of submissions made to Ld. AO PB 526-527,536 is the copy of account of the appellant in the books of SKAE Therefore viewed from any angle the impugned addition made is liable to be deleted and it is prayed that the same may please be deleted. However, certain adverse observations have been made by Ld. AO which are met as under:- a) Ld. AO has mentioned that perusal of books of accounts of OCL, SCPL, ORPL SKAE seized during search revealed that OCL is routing huge amount of funds through some fictitious entities of the group and finally to the shareholders of OCL, appellant being one of the three shareholders. In reply, it is submitted that first of all there is no fictitious entities as alleged. All the entities are artificial juridical persons, which have been assessed to tax in all these years as is evident from copies of their income tax assessment orders of earlier years enclosed at PB 341-376, 439-446. Thus, this allegation of there being any fictitious entity is absolutely denied and is contrary to material on record. Second, the fact of the payments made by these entities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Mukundray K Shah 209 CTR 97 (SC) but the facts of that case were different and hence the same could not be applied here. Thus, all the objections of Ld. AO may please be rejected and the case of the appellant may please be accepted in view of the above submissions. 23. According to the revenue, there was loan or advance from M/s Orient Craft Ltd. (OCL) to the appellant, whereas the case of the assessee was that there was no loan or advance received by the assessee, much less from M/s OrientCraft Ltd. and further, for that matter, no loan was received by the assessee from M/s Olympus Realtors P. Ltd. and hence there was no question of any deemed dividend to be assessed in his hands. 24. It is noted that in order to attract the fiction of section 2(22(e), it is essential that the elements of that section must be found applicable. Since section 2(22)(e) treats the loan or advance as dividend, hence it is essential to give a strict interpretation to such fiction.We have gone through section 2(22)(e) and the facts of the present case. There is no loan or advance received by the assessee from M/s Orient Crafts Ltd. It is seen that even as per the case of the A.O. made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue is not in appeal that during the year under consideration capital advance amounting to ₹ 26,24,50,000/- was given by M/s Super Connections India P. Ltd. to M/s Olympus Realtors P. Ltd. Therefore, when there was specific finding of the nature of capital advance given by M/s Super Connection India P. Ltd. to M/s Olympus Realtors P. Ltd. as capital advance, where was the question of saying in the same breath that assessee received the advance and that too from M/s Orient Craft P. Ltd. and where was the question of applying the deeming fiction of section 2(22)(e) in the hands of the assessee. Therefore, for this reason also we are unable to uphold the order of Ld. CIT (A) in the case of the assessee in so far it relates to the confirmation of addition made under section 2(22)(e) of the Income Tax Act. Going further on the next argument on behalf of the assessee, it is noticed that, there was no loan or advance given by M/s Olympus Realtors P. Ltd. to M/s SKA Enterprises. Assessee was also partner in M/s SKA Enterprises and withdrew the amount as partner. In our considered opinion, such amount so withdrawn by the assessee in the capacity of the partner of the said firm cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement with the assessee on all those rebuttals. 27. The reliance of the decision of Hon ble Supreme Court decision in the case of CIT Vs Mukundray K. Shah, Citation No. [2007] 160 Taxman 276 (SC)/[2007J 290 ITR 433 (SC)/[2007] 209 CTR 97 (SC): is misplaced in the background of the facts of this case and the fact of that case more so when in the instant case the nature of payment by one entity to another has been held to be of a particular character by CIT(A) against which revenue is not in appeal. We have dealt this aspect in fair elaborate manner hereinabove and do not consider to repeat. 28. Ld. CIT (A) despite recording a clear cut finding as to the nature of payments made by one entity to another in para 7.3.2 of the appeal order has committed grave error in concluding without any basis, material or evidence that M/s Super Connections India P. Ltd., M/s Olympus Realtors P. Ltd. andM/s SKA Enterprises were used as conduits. Therefore, we are unable to subscribe to this bald conclusion of CIT(A). We thus hold that the additions sustained on account of deemed dividend u/s 2(22)(e) were sustained by CIT(A) contrary to the factual position and contrary to the law conta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration, there has been fund flow of more than ₹ 50crore from M/s Orient Craft Ltd. to M/s Super Connection India Pvt. Ltd. (vi) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that such advances/loans which have been routed through different entities to the assessee with the only intention to subvert the provisions of sections 2(22)(e) would constitute deemed dividend. (vii) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. 30. In this year, Assessing Officer has made additions of ₹ 23,71,65000/- on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 on the ground that there was flow of funds from M/s Orient Craft Ltd. to M/s Super Connections India P. Ltd. and then to M/s Olympus Realtors P. Ltd. and then M/s SKA Enterprises. Therefore, A.O. treated the said amount received by the assessee from M/s SKA Enterprises as deemed dividend u/s 2(22)(e). Assessing Officer s Order in this regard is identical to one passed by him for earlier assessment years i.e. 2010-11, 2011-12, 2012-13 and 2013-14. 31. In first appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the authorities below and also gone through the written submissions filed by the assessee and also the relevant documents referred to from the paper book filed before us. We have summed up the findings of the assessment order and appellate order hereinabove. Before we discuss the merits of the arguments of the assessee those of the revenue, we consider it expedient to reproduce the relevant portion of the written submissions filed by the assessee for A.Y. 2015-16 as under:- GROUND NO. 1 General and specific submissions have been under the respective grounds of appeals. GROUND NO. 2 to 5 Ld. A.O. made addition of ₹ 23,71,65,000/- on account of deemed dividend u/s 2(22)(e) on the ground that the said amount was transferred by M/s Orient Craft Ltd. (OCL) during the year under appeal to the appellant, through M/s Super Connections P. Ltd. (SCPL), which in turn was given to M/s Olympus Realtors P Ltd . (ORPL) which in turn has been paid to M/s SKA Enterprises (SKAE) which in turn has been received by the appellantand thus, according to Ld. A.O. amount received by the appellant was deemed dividend assessable u/s 2(22)(e) of the Income Tax Act, 1961. Since it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ld. AO is disregarding the legal character of the entities also which is not permissible in law particularly when legal character of such entities have all along been accepted in their assessments. Thus, action of Ld. AO in making the impugned addition in the hands of the appellant as deemed dividend is neither here nor there and it is thus prayed that the addition made may please be deleted. 5) Without prejudice to above, it is submitted further that going by the logic of Ld. AO though denied vehemently but accepting for the sake of arguments, if at all there was any deemed dividend, it could be in the hands of M/s ORPL which received the amount first, and three Individuals who are the shareholders in M/s OCL for more than 10% were also having substantial interest in M/s ORPL. Thus, from this standpoint also, there was no question of making impugned addition as deemed dividend in the hands of the appellant. It is therefore prayed that the same may please be deleted in view of the above submissions also. Reliance is placed on the following:- Commissioner of Income Tax vs. Francis Wacziarg High court of Delhi (2013) 353 ITR 0187: (2011) 203 taxman 0391 asst. Year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined at the premises of OCL and so on and so forth. In reply, it is submitted that SCPL is a company registered with ROC and is assessed to tax for number of years as is evident from its income tax assessment orders of earlier years enclosed at PB 439-446. Merely because the shareholders of SCPL were employees of OCL and books were being maintained at the premises of OCL do not make SCPL as paper-company. Operational conveniences of these two shareholders of SCPL to maintain books at the premises of OCL may have led this but merely for that reason, SCPL cannot become paper company to the utter disregard to the past assessment orders and scale of business conducted by SCPL. Attempt of Ld. AO to show closeness of the shareholders of SCPL with OCL group does not make substantive SCPL to turn to a paper company. Other allegations of Ld. AO qua SCPL too stems from the colored vision of Ld. AO. Even statements if carefully gone through do not support what Ld. AO has inferred arbitrarily. c) Ld. AO has mentioned that advance or loan to SCPL was just to by pass the provision of section 2(22)(e) and money trail clearly established that the ultimate beneficiaries are the shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no question of any deemed dividend to be assessed in his hands. 36. In order to attract the fiction of section 2(22(e), it is essential that the elements mentioned in the section must be found applicable. Since section 2(22)(e) treats the loan or advance as dividend, hence it is essential to give a strict interpretation to such fiction. Looking to the facts of the present case, we find that, there is no loan or advance received by the assessee from M/s Orient Crafts Ltd. or the matter of fact from the other company namely, Olympus Realters P Ltd. It is seen that even as per the case of the A.O. made in the assessment order, the loan or advance has been received by the assessee from M/s SKA Enterprises which was a partnership firm. Therefore, as per the admitted case of the A.O., such loan or advance having not been received by the assessee from a closely held company, i.e., from Orient Craft Ltd. or Olympus Realters P Ltd. hence cannot be treated as dividend u/s 2(22)(e), since the first ingredient or any of the other conditions, of section 2(22)(e) itself is not met in this case. As per the case of made out by Ld. A.O. in the assessment order, amount in question has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen there was specific finding that no advance was given by M/s Super Connection India P. Ltd. to M/s Olympus Realtors P. Ltd. during the year under appeal, where was the question of saying in the same breath that assessee received the advance and that too from M/s Orient Craft P. Ltd.and/or Olympus Realters P Ltd. and where was the question of applying the deeming fiction of section 2(22)(e) in the hands of the assessee on such wrong presumption of facts. Therefore, for this reason also we uphold the order of Ld. CIT(A) in the case of the assessee in respect of the deletion of addition made under section 2(22)(e). Ergo, there was no loan or advance given by M/s Olympus Realtors P. Ltd. to M/s SKA Enterprises. Assessing Officer case is that Assessee was also partner in M/s SKA Enterprises and withdrew the amount as partner and therefore it should be inferred as loan from M/s Orient Craft P. Ltd. In our considered opinion, such amount so withdrawn by the assessee in the capacity of the partner of the said firm cannot be covered within the meaning of deemed dividend under section 2(22)(e) Act as it tantamount to going beyond the deeming fiction envisaged in the section. Even CIT(A) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s misplaced in the background of the facts of this case and the fact of that case more so when in the instant case the nature of payment by one entity to another has been held to be of a particular character by CIT(A) against which revenue is not in appeal. We have dealt this aspect in fair elaborate manner hereinabove and do not consider to repeat. 39. Accordingly, we hold that the addition of ₹ 23,71,65,000/- deleted on account of deemed dividend u/s 2(22)(e) by CIT(A) was rightly deleted. Hence, we uphold the Order of CIT(A) who deleted the addition made u/s 2(22)(e). No other arguments were made. In the result the appeal of the revenue is dismissed. Mr. Sudhir Dhingra A.Y. 2016-17 40. This is Revenue s appeal bearing ITA No. 6361/Del/2018 in the case of Mr. Sudhir Dhingra for A.Y. 2016-17.Assessee is also in appeal and his appeal bears ITA 5722/Del/2018. Revenue has raised following grounds of appeal which are reproduced as under:- (i) Whether on the facts and in the circumstances of the case, the Ld. CITA) has erred in concluding that the accumulated profits of M/s Olympus Realtors Pvt. Ltd. shall be taken into consideration for the purpose of work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43. In the first appeal preferred by the assessee before Commissioner of Income Tax (Appeals)-3 Gurgaon (hereinafter called as CIT(A) also), CIT(A) in para 6.3.5 of the appeal order held that dividend u/s 2(22)(e) consists inter-alia as the last limb .any payment by any such company on behalf, or for the individual benefit of any such shareholder to the extent to which the company neither case possesses accumulated profits . According to CIT (A), case of the appellant is squarely covered by this limb as it is payment by a company for the individual benefits of any such shareholder to the extent which the company possesses accumulated profits. According to CIT(A), payment has been received by the assessee from M/s SKA Enterprises, which in turn has received the payments from two companies in which public are not substantial interested and assessee is holding not less than 10% voting power. CIT (A) recorded that M/s SKA Enterprises received payments from under:- M/s Olympus Realtors P. Ltd. ₹ 21,50,49,264/- 44. However, CIT(A) recorded that payment by a company with reference to deemed dividend has to be rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble u/s 2(22)(e) of the Income Tax Act, 1961. Since it has been treated as taxable income in the hands of the appellant, hence the present appeal. 1) At the very outset, it is respectfully submitted that appellant received a sum of ₹ 21,80,50,000/- as loan and current advances during the year under appeal, but out of the said amount, cheque amounting to ₹ 30,00,000/- vide cheque No. 302742, dated 23.04.2015 was cancelled and reversed in the ledger account of the appellant in the books of accounts of M/s SKAE, which is evident from the ledger account filed to Ld. A.O during the course of assessment proceedings vide letter dated 10.11.2017 enclosed in the paper book at PB 151, 533.Therefore, this fact was not considered by the Ld. A.O while making the impugned addition..Therefore, first submission of the appellant is that the amount of advances of ₹ 21,80,50,000 should be reduced to ₹ 21,50,50,000/. 2) .. 3) Without prejudice to above, it is submitted that in fact the impugned addition could not be made u/s 2(22)(e) as there was no loan or advance from M/s OCL to the appellant. According to Ld. A.O. also as mentioned in the impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus prayed that the addition made may please be deleted. 6) Without prejudice to above, it is submitted further that going by the logic of Ld. AO though denied vehemently but accepting for the sake of arguments, if at all there was any deemed dividend, it could be in the hands of M/s ORPL which received the amount first, and three Individuals who are the shareholders in M/s OCL for more than 10% were also having substantial interest in M/s ORPL. Thus, from this standpoint also, there was no question of making impugned addition as deemed dividend in the hands of the appellant. It is therefore prayed that the same may please be deleted in view of the above submissions also. Reliance is placed on the following:- Commissioner of Income Tax vs. Francis Wacziarg High court of Delhi (2013) 353 ITR 0187: (2011) 203 taxman 0391 asst. Year 2003-04 Dividend-Deemed dividend under s. 2(22)(e)-Credit balance in accounts-Confirmations and copies of accounts showing that the amounts appearing in the accounts were in fact receipts due to assessee, in his normal course of business dealings with the companies-Such receipts from these companies cannot be treated as loans and ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intained at the premises of OCL do not make SCPL as paper-company. Operational conveniences of these two shareholders of SCPL to maintain books at the premises of OCL may have led this but merely for that reason, SCPL cannot become paper company to the utter disregard to the past assessment orders and scale of business conducted by SCPL. Attempt of Ld. AO to show closeness of the shareholders of SCPL with OCL group does not make substantive SCPL to turn to a paper company. Other allegations of Ld. AO qua SCPL too stems from the colored vision of Ld. AO. Even statements if carefully gone through do not support what Ld. AO has inferred arbitrarily. c) Ld. AO has mentioned that advance or loan to SCPL was just to by pass the provision of section 2(22)(e) and money trail clearly established that the ultimate beneficiaries are the shareholders of OCL or companies/firms in which they have substantial interest. In reply, it is submitted that advance was given by OCL to SCPL as advance against trade and thus inference that provision of section 2(22)(e) was sought to be bye passed is misconceived. Moreover, when the case of Ld. AO is that beneficiaries are company (ORPL)/firm (SKA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, when M/s Super Connection India P. Ltd. which was an independent assessee and has been assessed to tax and when no advance has admittedly been given by M/s Orient Craft Ltd. to M/s Super Connection India P. Ltd. during the year under appeal as recorded by CIT(A) in his appeal order, how can it be assumed or held that the assessee received any loans and advance from M/s Orient Craft Ltd. After all the corporate identity and character an independent status as an independent assessee and that too unrelated to the assessee that M/s Super Connection India P. Ltd. enjoys, such status cannot be permitted to be breached, more so when M/s Super Connection India P. Ltd. is an independent assessee, in which there was no control of any of the shareholders of M/s Orient Craft Ltd. Therefore, there was no question of treating any amount as deemed dividend u/s 2(22(e) in the hands of the assessee in the background of the facts of the present case and more so in the light of the finding recorded by the first appellate authority that no advance or sum has been given during the year under appeal by Orient Craft Ltd. to Super Connection India P Ltd. Therefore, for this reason also we are u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as conduits. Therefore, we are unable to subscribe to this bald conclusion of CIT(A). We thus hold that the addition made in the assessment order also part of the addition sustained on account of deemed dividend u/s 2(22)(e), were made by AO and partially sustained by CIT(A) are contrary to the factual position and contrary to the law contained in this regard. No other arguments were made. Hence, we delete the entire addition amounting to ₹ 21,80,50,000/- involved in Revenue s appeal and in the appeal of the assessee. In the result, appeal of the revenue is dismissed and appeal of the assessee is partly allowed. SH. ANOOP THATIA FOR 2014-15 ITA No. 5719/DEL/2018 50. This appeal has been filed by the assessee against the Order passed by Commissioner of Income Tax (Appeals)-3, Gurgaon, dated 28.07.2018 and assessee has preferred the following grounds of appeal, whereas revenue is not in appeal. 1) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. A.O. in assuming jurisdiction u/s 153A and the consequent assessment proceedings in the case are bad in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferred by the assessee before Commissioner of Income Tax (Appeals)-3 Gurgaon (hereinafter called as CIT(A) also), CIT(A) in para 7.3.5 of the appeal order held that dividend u/s 2(22)(e) consists inter-alia as the last limb .any payment by any such company on behalf, or for the individual benefit of any such shareholder to the extent to which the company neither case possesses accumulated profits . According to CIT (A), case of the appellant is squarely covered by this limb as it is payment by a company for the individual benefits of any such shareholder to the extent which the company possesses accumulated profits. According to CIT(A), payment has been received by the assessee from M/s SKA Enterprises, which in turn has received the payments from two companies in which public are not substantial interested and assessee is holding not less than 10% voting power. CIT(A) recorded that M/s SKA Enterprises received payments from two companies as under:- M/s Orient Craft Ltd. ₹ 28,84,90,373/- M/s Olympus Realtors P. Ltd. ₹ 35,21,49,537/- 53. However, CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, it is submitted that in fact the impugned addition could not be made u/s 2(22)(e) as there was no loan or advance from M/s OCL to the appellant. According to Ld. A.O. also as mentioned in the impugned order, the loan or advance has been received by the appellant from M/s SKAE. That being so, where is the question of applying and invoking section 2(22)(e), which requires that the loan should be advanced by a closely held company. It goes without saying that M/s SKAE is not a company and impugned loan has not been received by the appellant from M/s OCL. Therefore, impugned addition made does not stand to the test of law as explained above and it is thus requested that the addition made may please be deleted. 3) Without prejudice to above, it is submitted further that the amount was given by OCL to SCPL which is an independent company and that too during the course of business. It goes without saying that M/s SCPL is an independent assessee, which has been assessed to tax even in earlier years which is evident from the copies of assessment orders of SCPL for A.Y 2005-06 2008-09 which are enclosed at PB 452-459. Therefore when amount has been given by M/s OCL to M/s SCPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. PB 531 is the copy of account of the assessee in the books of M/s SKAE for A.Y 2014-15. Reliance is placed on the following: Commissioner of Income Tax vs. Francis Wacziarg High court of Delhi (2013) 353 ITR 0187: (2011) 203 taxman 0391 asst. Year 2003-04 Dividend-Deemed dividend under s. 2(22)(e)-Credit balance in accounts-Confirmations and copies of accounts showing that the amounts appearing in the accounts were in fact receipts due to assessee, in his normal course of business dealings with the companies-Such receipts from these companies cannot be treated as loans and advances-AO was not justified in treating these receipts as deemed dividend under s. 2(22)(e) 7) The above, factual and legal situations were explained during the course of assessment proceeding also and are explained before your goods also with the help of following pleadings and evidences:- PB 158-161 are copies of submissions made to Ld. AO PB 529,531,535A 535B is the copy of account of the appellant in the books of SKAE Therefore viewed from any angle the impugned addition made is liable to be deleted and it is prayed that the same may please be deleted. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e through do not support what Ld. AO has inferred arbitrarily. c) Ld. AO has mentioned that advance or loan to SCPL was just to by pass the provision of section 2(22)(e) and money trail clearly established that the ultimate beneficiaries are the shareholders of OCL or companies/firms in which they have substantial interest. In reply, it is submitted that advance was given by OCL to SCPL as advance against trade and thus inference that provision of section 2(22)(e) was sought to be bye passed is misconceived. Moreover, when the case of Ld. AO is that beneficiaries are company (ORPL)/firm (SKAE) first, deemed dividend could be taxed in the hands of such company/firm and not in the hands of the appellant. This is being submitted on without prejudice basis without conceding anything. d) Ld. AO has relied upon the decision CIT vs. Mukundray K Shah 209 CTR 97 (SC) but the facts of that case were different and hence the same could not be applied here. Thus, all the objections of Ld. AO may please be rejected and the case of the appellant may please be accepted in view of the above submissions 56. According to the case of revenue, there was loan or advance from M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, more so when M/s Super Connection India P. Ltd. is an independent assessee, in which there was no control of any of the shareholders of M/s Orient Craft Ltd. Therefore, there was no question of treating any amount as deemed dividend u/s 2(22(e) in the hands of the assessee in the background of the facts of the present case and in the light of the finding recorded by the first appellate authority as to the nature of the advance given by Orient Craft Ltd. to Super Connection India P Ltd. It is also noticed that CIT(A) has recorded a finding in para 7.3.2 (b) of the appeal order against which revenue is not in appeal that during the year under consideration capital advance amounting to ₹ 26,24,50,000/- was given by M/s Super Connections India P. Ltd. to M/s Olympus Realtors P. Ltd. Therefore, when there was specific finding of the nature by way of capital advance given by M/s Super Connection India P. Ltd. to M/s Olympus Realtors P. Ltd. as capital advance, where was the question of saying in the same breath that assessee received the advance and that too from M/s Orient Craft P. Ltd. where was the question of applying the deeming fiction of section 2(22)(e) in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no question of treating the amount withdrawn by the assessee as partner from the partnership firm namely M/s SKA Enterprises in the nature of loan and advance and treat it as deemed dividend under section 2(22)(e) of the Income Tax Act. None of the ingredients of section 2(22)(e) stand satisfied in the instant case. We have also taken ourselves to that part of written submissions also reproduced above where rebuttal of each and every adverse observation made by the assessing officer has been made by the assessee and we are in agreement with the assessee on all those rebuttals. 59. Ld. CIT (A) despite recording a clear cut finding as to the nature of payments made by one entity to another in para 7.3.2 of the appeal order has committed grave error in concluding without any basis, material or evidence that M/s Super Connections India P. Ltd., M/s Olympus Realtors P. Ltd. and M/s SKA Enterprises were used as conduits. Therefore, we are unable to subscribe to this bald conclusion of CIT(A). We have on identical facts allowed the appeal of other assessee namely Mr. Sudhir Dhingra in ITA no. 5721/Del/2018. We thus hold that the additions sustained on account of deemed dividend u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (vi) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that such advances/loans which have been routed through different entities to the assessee with the only intention to subvert the provisions of sections 2(22)(e) would constitute deemed dividend. (vii) The appellant craves to add, amend, alter or modify any grounds of appeal at the time of hearing. 61. In this case, Assessing Officer has made addition of ₹ 13,45,00,000/- on account of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 on the ground that there was flow of funds from M/s Orient Craft Ltd. to M/s Super Connections India P. Ltd. and then to M/s Olympus Realtors P. Ltd. and then M/s SKA Enterprises. Therefore, A.O. treated the said amount received by the assessee from M/s SKA Enterprises as deemed dividend u/s 2(22)(e). Assessing Officer s Order in this regard is identical to one passed by him for earlier assessment years i.e. 2011-12, 2012-13 and 2013-14. 62. In first appeal preferred by the assessee before Commissioner of Income Tax (Appeals)-3 Gurgaon (hereinafter called as CIT(A) also), CIT(A) in para 3.5 of the appeal or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NO. 2 to 5 Ld. A.O. made addition of ₹ 13,45,00,000/- on account of deemed dividend u/s 2(22)(e) on the ground that the said amount was transferred by M/s Orient Craft Ltd. (OCL) during the year under appeal to the appellant, through M/s Super Connections P. Ltd. (SCPL), which in turn was given to M/s Olympus Realtors P Ltd . (ORPL) which in turn has been paid to M/s SKA Enterprises (SKAE) which in turn has been received by the appellantand thus, according to Ld. A.O. amount received by the appellant was deemed dividend assessable u/s 2(22)(e) of the Income Tax Act, 1961. Since it has been treated as taxable income in the hands of the appellant, hence the present appeal. 1) .. 2) Without prejudice to above, it is submitted that in fact the impugned addition could not be made u/s 2(22)(e) as there was no loan or advance from M/s OCL to the appellant. According to Ld. A.O. also as mentioned in the impugned order, the loan or advance has been received by the appellant from M/s SKAE. That being so, where is the question of applying and invoking section 2(22)(e), which requires that the loan should be advanced by a closely held company. It goes without saying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend, it could be in the hands of M/s ORPL which received the amount first, and three Individuals who are the shareholders in M/s OCL for more than 10% were also having substantial interest in M/s ORPL. Thus, from this standpoint also, there was no question of making impugned addition as deemed dividend in the hands of the appellant. It is therefore prayed that the same may please be deleted in view of the above submissions also. 6) Without prejudice to above, it is respectfully submitted that PB 533 which is the ledger account of the appellant in the books of M/s SKAE shows that M/s SKAE received an amount ₹ 2,50,00,000 and therefore, to this extent the amount of deemed dividend should be reduced. Reliance is placed on the following: Commissioner of Income Tax vs. Francis Wacziarg High court of Delhi (2013) 353 ITR 0187: (2011) 203 taxman 0391 asst. Year 2003-04 Dividend-Deemed dividend under s. 2(22)(e)-Credit balance in accounts-Confirmations and copies of accounts showing that the amounts appearing in the accounts were in fact receipts due to assessee, in his normal course of business dealings with the companies-Such receipts from these companies can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks were being maintained at the premises of OCL do not make SCPL as paper-company. Operational conveniences of these two shareholders of SCPL to maintain books at the premises of OCL may have led this but merely for that reason, SCPL cannot become paper company to the utter disregard to the past assessment orders and scale of business conducted by SCPL. Attempt of Ld. AO to show closeness of the shareholders of SCPL with OCL group does not make substantive SCPL to turn to a paper company. Other allegations of Ld. AO qua SCPL too stems from the colored vision of Ld. AO. Even statements if carefully gone through do not support what Ld. AO has inferred arbitrarily. c) Ld. AO has mentioned that advance or loan to SCPL was just to by pass the provision of section 2(22)(e) and money trail clearly established that the ultimate beneficiaries are the shareholders of OCL or companies/firms in which they have substantial interest. In reply, it is submitted that advance was given by OCL to SCPL as advance against trade and thus inference that provision of section 2(22)(e) was sought to be bye passed is misconceived. Moreover, when the case of Ld. AO is that beneficiaries are compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted company in our order for A.Y. 2010-11 to A.Y. 2013-14 passed separately in ITA No. 6356 to 6359/Del/2018 in the case of Mr. Sudhir Dhingra. Therefore, when M/s Super Connection India P. Ltd. which was an independent assessee and has been assessed to tax and when no advance has admittedly been given by M/s Orient Craft Ltd. to M/s Super Connection India P. Ltd. during the year under appeal, how can it be assumed or held that the assessee received any loans and advance from M/s Orient Craft Ltd. After all the corporate identity and character an independent status as an independent assessee and that too unrelated to the assessee that M/s Super Connection India P. Ltd. enjoys, such status cannot be permitted to be breached, more so when M/s Super Connection India P. Ltd. is an independent assessee, in which there was no control of any of the shareholders of M/s Orient Craft Ltd. Therefore, there was no question of treating any amount as deemed dividend u/s 2(22(e) in the hands of the assessee in the background of the facts of the present case and in the light of the finding recorded by the first appellate authority as to the nature of the advance given by Orient Craft Ltd. to Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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