TMI Blog2016 (12) TMI 1903X X X X Extracts X X X X X X X X Extracts X X X X ..... ument and is hereby rejected keeping in view facts and circumstances of this case as set out above in preceding para s. It is one of the direct case whereby the partners of the firm MRED has benefited out of the huge interest-free advances being given by MCPL to MRED and hence it is thus, the direct infringement / violation of the provisions of section 2(22)(e) of the Act. In our considered view , the AO has rightly invoked the provisions of Section 2(22)(e) of the Act and has brought to tax the said loans and advances granted by MCPL to MRED, within the deeming fiction of Section 2(22)(e) of the Act by terming the same as deemed dividend in the hands of the partners of the firm MRED i.e. Mr. Peter Vaz and Mr.Edgar Braz Afonso who are registered as well beneficial shareholder of MCPL and being beneficiaries of the amount advanced by MCPL to MRED as set out above , on substantive basis keeping in view the decision of Hon ble Bombay High Court in the case of CIT v. Universal Medicare Private Limited [ 2010 (3) TMI 323 - BOMBAY HIGH COURT] Assessee could not prove the business nexus and business purpose for advancing huge amount of loan and advances by MCPL to MRED to the tune of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were disbursed by SIPL to the assessee-shareholder instead of declaring dividends out of accumulated profits and hence dividend distribution tax is evaded to be paid to the Government had the said amount of advances would have been distributed by SIPL as dividend to its shareholders. We have also observed that the appellate order of the learned CIT(A) does not hold merit and hence cannot be upheld as learned CIT(A) merely accepted the contentions of the assessee without any evidences , which in-fact pained us after reading the appellate orders of the learned CIT(A). We, therefore , order that the appellate order of learned CIT(A) be set aside as the same is not sustainable at law as the learned CIT(A) merely accepted the contentions of the assessee without any evidences and has not brought on record material to disprove the contentions of the AO , while on the other hand the AO has elaborately explained with cogent reasons in his assessment order as to why the provisions of Section 2(22)(e) of the Act are applicable in this instant case of the assessee and how the said loans and the advances which were given without any business purposes by SIPL to the assessee out of its accumu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,and also admittedly and undisputedly entitled to 50% share each in the profits of the partnership firm MRED. The said company MCPL is admittedly a private limited company in which public are not substantially interested. As also in the case of Shri Edgar Braz Afonso , there were additionally certain amount allegedly advanced by Sonesta Inns Private Limited(Hereinafter called the SIPL ) , a private limited company in which public are not substantially interested to Mr. Edgar Braz Afonso , and in which also Mr.Peter Vaz and Mr.Edgar Braz Afonso are undisputedly and admittedly holder of 50% shares of SIPL. 2. It is undisputed and admitted position between the rival parties that Shri Peter Vaz and Shri Edgar Braz Afonso are covered by Section 5A of the Act wherein income is to be apportioned between the spouses as they are governed by Portuguese Civil Code. The Revenue having made additions u/s.2(22)(e) of the Act in the hands of the Mr. Peter Vaz and Mr.Edgar Braz Afonso and their respective spouses( being covered by Section 5A of the Act) on substantive basis by considering the alleged loans and advances given by MCPL to MRED as income under the Act being deemed dividend as havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A)-2, Panaji may be quashed and that of the AO restored. 5. The brief facts of the case are that the assessee is registered and also beneficial shareholder and also Director of MCPL(a private limited company in which public are not substantially interested) holding 50% shares of MCPL, as well the assessee is partner in partnership firm MRED having 50% share in the profits of the afore-said partnership firm, which is an undisputed and admitted facts between the rival parties. 6. There was a search conducted by the Revenue in the case of MCPL and MRED u/s.132 of the Act on 31st January 2012 . During the course of search operations, certain documents belonging to the assessee were found and seized, wherein nexus between the assessee, MCPL and MRED was established. The Revenue centralised the cases vide CIT notification in File.No.477/CIT/PNJ/2012-13 dated 07 May 2012 passed by learned CIT, Panaji, Goa. Notices under section 153C of the Act dated 30.07.2012 was issued and served on the assesse on 07.08.2012 calling assessee to file return of income for the above said assessment year. The assessee in reply thereof submitted that the original return of income filed on 09.05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but dividend does not include (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ; [(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, [and before the 1st day of April, 1965] ;] (ii) any advance or loan made to a shareholder [or the said concern] by a company in the ordinary course of its business, where the lending of money is a substantial part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with M/s. MCPL 2005-06 MCPL 2,77,75,118/- 2,15,70,177/- (Surplus in P L Account) 2006-07 MCPL 5,20,14,366/- 8,04,62006/- 2007-08 MCPL 4,71,81,347/- 12,86,19,493/- 2008-09 MCPL 9,46,68,620/- 15,00,32,634/- 2009-10 MCPL 12,76,91,164/- 30,08,57,131/- 2010-11 MCPL 7,30,10,750/- 43,83,73,506/- 2011-12 MCPL 8,75,33,761/- 47,85,26,714/- It was also observed by the AO that most of the loans and advances were given by MCPL to MRED for non business purposes , while some of the advances were given for business purposes which mostly consisted of cheques wrongly deposited into the bank account of MCPL and vice versa , whereas the project was belonging to other concern for which necessary credit were gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d profits , wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956. Explanation 2. The expression accumulated profits in subclauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, [but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of the company prior to three successive previous years immediately preceding the previous year in which such acquisition took place]. [Explanation 3. For the purposes of this clause, (a) concern means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire shareholding thereof are also partners of Model Real Estate Developers hereinafter in these submissions referred to as the firm . However this is only one part of the test. The question that needs to be answered is whether the monies that have travelled from the coffers of the company to the firm can be treated as loans or advances in the context of the provision to which we are making a reference. A detailed analysis of the facts will show that both these entities operated in the field of construction for a reasonably long period, Since virtually the controlling interest in both was the same whenever business exigencies demanded funds travelled from one entity to other to satisfy the business requirements. Thus the transactions between the two were like a current account Though from assessment year 2007-08 to assessment year 2012-13 more funds have flowed from the company to the firm than those that have flowed from the firm to the company in the earlier period there was a reverse position. We will in our subsequent submissions point out as to why there was a flow continuously from the company to the firm as there was a definite purpose in the minds of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stood in the context of the said provision. It is necessary to point out that one has to deal with real-life situations and consider commercial exigencies and commercial expediency is when is appreciating the term loans or advances in this context. It is only if the payment of funds out of the coffers of a company to a concern is for the purpose of avoiding tax that one can treat them as deemed dividend under section 2(22)(e) . Even if one takes a view that one has to interpret the provision strictly one cannot consider the transactions between the company and the firm as a loan or advance. Factual matrix will show that monies have flowed from the coffers of the company to the firm during these years but in earlier years the position was exactly the reverse this cannot by any stretch of imagination be the action of a company which is distributing dividend. In fact if there is payment of dividend there would be always single directional flow. It is apparent that despite the fact that the closing balance is a debit balance monies have flowed also from the firm to the company (table set out above). As is being explained by us it is the only on account of a fact that the monies flowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore decided that the land banks would be created in the firm, and the firm would then entrust the responsibility, of ensuring a world class construction to the company. Though this object was in the minds of the promoters it may not have been explicitly documented and has therefore not been spelt out in earlier depositions / explanations. The conduct of the promoters would bear out this intention. If one closely analyses one will find that in the books of the company the stock of land has remained more or less constant and even if one looks at in absolute terms it is standing at 3.63 crores in assessment year 2012-13. The stock of premises is at 4.26 crores while there is absolutely no advance for land and premises which is remaining in the books of the company for assessment year 2012-13. The object was that the land bank should be pie in the hands of the firm while the construction activity would be in the company. This view is fortified if one looks at the balance sheet of the firm. In Model Real Estate developers the stock of land as that 31 March 2012 is 21.66 crores, the stock of premises is 15.51 crores and the advance for land and premises is 5.09 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow cause notice and further to my letter dated 04/12/2013 in regards to the proposed addition of Rs.38,80,57,981 as deemed dividend in the hands of my assessee M/s MRED, I would like to submit the following for your kind consideration : 1. Prior to 1/4/2005 and up to 30/06/2006 MCPL owed monies to MRED. 2. Transfer between MCPL MRED and vice versa is in the ordinary course of business and the inter unit account is treated as current account transaction. It was in the interest of the business of MCPL to lend continuous support to MRED because of 25 long years of business association in the same field. To make each other's business viable and profitable, to increase the client base by launching projects and to create more better infrastructure it was necessary for MCPL to keep on funding MRED or vice versa. 3. Since inception and till date there have been continuous business transactions between both these entities. (Details of such transactions with documentary evidence enclosed). There are numerous instances wherein MCPL has sold/allotted premises as consideration for settlement of land dues of MRED, similar is the case with MRED allotting premises to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected by the bankers directly. MCPL have not effected these payments or are instrumental in paying the amounts into the bank accounts of MRED so as to constitute Payment of Dividend These amounts have been directly transferred by the bank (letter from bank and copies of bank statement duly highlighting such direct transfers is enclosed) when the current account was overdrawn or when there was minimum balance in the account. Bank transferred these amounts only to regularize the over drawings and to clear the cheques issued for the purpose of business. Bank also has transferred on certain occasions amounts from the account of MCPL to MRED even when there was positive balance in the books of MRED, but the balance was not sufficient to clear the cheques issued by MRED. Similar transfer has been done from the bank account of MRED to MCPL when there was insufficient balance in the bank account of MCPL or the account was overdrawn. All such transfers are absolutely in the normal course of business and to facilitate smooth flow of operations. Transfer of monies from MCPL to MRED directly by the bank is to fulfill the commercial obligations casted on MCPL vide terms of loan sancti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting entries are passed in the books of the respective entities. It so happens that in the books of MCPL supplier is paid in advance and in the books of MRED the supplier has dues to be paid in order to avoid double payment to the suppliers, the accountant passes journal entries to square off the accounts of the suppliers. For such journal entries there is absolute no flow of funds to the entities or to the shareholders. As enumerated in section 2(22)(e) since there is no payments being made and these are only book entries they do not constitute amounts paid as deemed dividend. In the following cases it has been held that provisions of deemed dividend are not attracted to journal entries: (i) 90 ITR 13 (Mad) - Page 20-24, at page 22, 1st para- it has been held that payment means outgo of money - mere debit entry not sufficient to attract 2(22)(e). (ii) 187 ITR 308 (SC) in context of 80G - at page 310 - sum paid means money and not donation in kind. (iii) 56 ITR 52 (SC) - in context of 36 (i)(3) at page 57 - last Para not every debit is loan. 14. Other than the direct credits into the bank account of MRED from MCPL effected by the bankers, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er drawings in current account does not usually have any sanctions and is done at the sole discretion of the bankers in order to maintain goodwill and relation with the client. Most of the time, the banker obliges so as to protect the account with such high net-worth. It is absolutely normal for bankers to follow such practices for its regular and privileged clients. Bank has allowed over drawings in the current account of the group as a whole, however in case when the balance was available with either of the entity, the banker used to transfer the monies directly su-motto to cover the over drawings or to clear the cheques of the entity where no funds were available. 16. Besides above, an amount of Rs. 1,59,76,186/- is paid towards income tax dues of MRED directly from the bank account of MCPL. By no stretch of imagination payments made towards Income Tax dues can constitute benefits in the nature of Deemed Dividend, because the recipient in such case is the Central Gov., and not the shareholders of MCPL or their entities. 17, Points to be considered based on above: A) The amounts mentioned in the Show Cause Notice, based on appraisal report is not correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the guise of loans and advances to avoid payment of tax. The essence for invoking the provisions of Section 2(22) (e) is that the loan or advance given should confer individual benefit to the shareholder or to the concern of the share holder. All these transfers are absolutely in the normal course of business and more so are in the nature of current account transaction. Neither a single receipt by MRED constitutes loan given by MCPL nor does a single repayment reflects repayment of advances taken. Usually a loan or an advance, has a particular pattern and so does the repayment. F) In the present case there have been no instances, whereby, monies were transferred from MCPL to MRED and the same was given from MRED to the shareholders of MCPL as loans and advances by MRED. Even the transfers between MCPL and MRED were made due to legitimate business requirements and not with the intention to avoid payment of Dividend distribution Tax. G) Provisions of Section 2(22)(e) are not applicable to the assesse primarily because :- (a) No incriminating material was found or brought on record for the proposed addition. Reliance is placed on decision of Mumbai ITAT in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment under section 153A. It is evidently inscribed in the law that an assessment under u/s 153A is different from regular assessment. The section can be provoked only when a search is initiated u/s 132 or Books of accounts/other documents or any assets are requisitioned u/s 132A. Also it is to be highlighted that during the course the search itself, such generally incriminating documents or papers etc. or unaccounted assets are found, the provision u/s 153A should be read harmoniously in conjunction with the provisions contained in section 132(1) The reason being that the latter deals with the search and seizure and the former deals with assessment in the case of search etc. Thus, the two areinextricable linked with each other, which implies that existence of books of accounts, incriminating documents or unaccounted assets is or are sine qua non of making assessment under this provision. In the case of assessee, all the facts were disclosed in the return of income, the books and accounts were the regular books of accounts and since the assessments were concluded up to the date of search, the amount proposed to be added as undisclosed income, cannot be said that it was undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by you in tally software that the firm of Models Real Estate is shown as debtors in the books of Models Construction Pvt Ltd to the tune of Rs 19,31,07,982/- as on 31.03.2011. Please explain the transaction. Ans. On going through the accounts it is observed that said financial transaction is nothing by an inter-corporate transfer of funds to meet financial stringency on oral instruction from the managing Partner. Q. 12 Is there any MoU/ agreement entered into between your sister concern M/s Models Real Estate Developers with M/s Models Construction Pvt Ltd ?if so please clarify? Ans. There is no agreement as such for inter transfer of funds. Normally such transfers are effected on oral instructions from the managing Partner. Q. 13. Is there any business transaction between the firm and the company. If so, please clarify. Ans. No, there is no business transaction as such between the company and the firm. Q.14. During the course of Search Proceedings u/s 132 of the IT Act 1961 in the case of M/s Models Real Estate Developers at 3rd Floor, Joffre Residency, Behind Goa College of Pharmacy, Panaji, Goa on 31.01.2012, no agreements/MoU betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt Ltd (SIPL) and Directors of these concerns. Ans: I and Mr.Edgar Afonso are the promoters and directors of the companies i.e. , M/s MCPL and M/s SIPL and partners in M/s MRED. M/s MCPL and M/s MRED is into the real estate Business. M/s SIPL is into the business of hospitality, i.e., running of hotels. The transactions between these companies are relating to the business, i.e. real estate, like purchase of land, premises, construction of projects. Apart from this, there is a transaction of money within these companies whenever required. None of the Directors of the company are drawing money from the company. Q.No.7 Please give the details of your shareholding number of shares and percentage of holding in M/s Models Construction Put. Ltd, (MCPL) M/s Models Real Estate Developers, (MRED) M/s Sonesta Inns Put Ltd (SIPL). Ans: At present I am not able to give the details. I will furnish all the details within two days of time. Q. No. 8 Please give the details of all business transactions and evidences to prove the same. During the course of search at your business premises/residence no agreements/evidences were found. Please comment. Ans: Whene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive years. The AO rejected the contentions of the assessee on the following grounds: (a) During the search proceedings, no documentary evidences in the form of MOUs or agreements were found in support of the nature of advances made by M/s Models Construction Pvt Ltd to M/s Models Real Estate Developers. (b) Mr. Ajit Banaulkar, Accountant, M/s. Models Real Estate Developers in his sworn statement on the date of search on 31.01.2012 confirmed that the financial transactions are nothing but an inter-corporate transfer of funds to meet financial stringency on oral constructions from the Managing Partner and there is no agreement as such for inter-transfer funds. (c) Mr Peter Vaz had stated vide his statement dated 23/02/2012 that apart from business related transaction such as purchase/sale of land/flats, whenever money is required by any of the concerns MCPL and MRED, the funds were transferred on availability and need basis and the same were treated as advances. Thus, other than above worked out business fund transfers which is reduced from the total advance, all the funds have been transferred from MCPL to MRED purely on the basis of availability of funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale pertaining to M/s Models Construction Pvt Ltd has been wrongly cleared in M/s Models Real Estate Developers to the extent of Rs.37,19,991/-. So also cheques pertaining to agreements in M/s Models Real Estate Developers has been wrongly cleared in M/s Models Construction Pvt Ltd to the extent of Rs.14,10,OOO/-. So also there are further business transactions between M/s ModelsConstruction Pvt Ltd and M/s Models Real Estate Developers to the extent of Rs. 10,00,000/- namely being the entry of advance for purchase of land from Velho family wrongly issued in M/s Models Real Estate Developers which has now been reversed. The land purchased from the Velho's was used by M/s Models Construction Pvt Ltd to construct its project Models Legacy. Hence out of the total loans and advances amounting to Rs.3,91,31,771/- received during the period pertaining to this assessment year, credit for an amount of Rs.65,24,879/- (Rs.3,94,888 + Rs.37,19,991 + Rs. 14,10,000 + Rs. 10,00,OOO/-) is being given by considering the same as in the nature of business transaction, thereby not attracting the provisions of section 2(22)(e). However the asessee has neither during the course of the search pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 3,26,06,892/- was considered for taxation on substantive basis as deemed dividend u/s 2(22)(e) of the Act in the hands of the partners Shri Peter Vaz and Shri Edgar Braz Afonso , being partners of MRED with 50% share in profit sharing who were also shareholders of MCPL holding 50% shares each in MCPL as set out above, to be divided equally between the two partners namely Mr Peter Vaz and Mr Edgar Braz Afonso by following the decision of the Hon ble Bombay High Court in the case of CIT v. Universal Medicare Private Limited (2010) 324 ITR 263 (Bom), while the amount of Rs. 3,26,06,892/- for the assessment year 2007-08 was treated as deemed dividend u/s 2(22)(e) of the Act on protective basis in the hands of MRED . Thus an addition of Rs. 1,63,03,446/- being 50% of Rs.3,26,06,892/- was considered for taxation in the hands of the assessee and balance of Rs. 1,63,03,446/- being 50% of Rs.3,26,06,892/- was considered for taxation in the hands of Shri Edgar Bras Afonso for the impugned assessment year. Since the Assessee Shri Peter Vaz and Shri Edgar Braz Afonso were covered by the section 5A of the Act, 50% of Rs.1,63,03,446/- i.e. 81,51,723/- for the assessment year 2007-08 was ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,615/- 81,51,723/- NIL 2008-09 92,70,800/- 92,70,800/- NIL 2009-10 2,07,21,018/- 2,07,21,018/- 27,60,000/- 2010-11 2,70,47,803/- 2,70,47,803/- 35,10,000/- 2011-12 69,21,066/- 69,21,066/- 56,44,143/- 2012-13 98,91,743/- 98,91,743/- 62,68,415/- It was submitted that both MCPL and MRED have current accounts in the bank on which no interest was receivable from the banks. It was submitted that if the surplus amount is lying in the bank accounts of these entities, no interest was paid by the bank on these current accounts . While if there is an over draft amount in the MRED bank account on account of OD / CC facility, the bank will charge interest on the overdrawn amount . The assessee placed on record confirmation from the bankers that these adjustments by the bank were done of its own . It was submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as deemed dividend. It was further submitted that mere entries in the books of accounts do not constitute deemed dividend. It was further submitted that there are no payments involved in these transactions. The assessee submitted that in the following cases it was held that in case of journal entries , it do not constitute deemed dividend. (a) G.R. Govindarajulu Naidu v. Cit [90 ITR 13(Mad)] page 20 -24, at page 22, 1st para It has been held that payment means outgo of money - mere debit entry not sufficient to attract 2(22)(e). (b) H.H. Sri Rama Verma v. CIT [187 ITR 308 (SC)] in the context of 80 G at Page 310 sum paid means money and not donationin kind. (c) Bombay Steam Navigation Co. Pvt. Ltd. V. CIT [56 ITR 52 (SC)] In the context of 36(i)(3) at page 57 last para not every debit is loan. It was further submitted that it was the intention of the promotors of MCPL and MRED to concentrate on the quality of construction in the hands of the company MCPL and to build land bank for development in the hands of the partnership firm MRED . It was submitted that the ultimate intention was to develop the lands through the company MCPL only. It was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Mr. Peter Vaz and Mr. Edgar Afonso have 50% each profit sharing ratio in the partnership firm M/s Models Real Estate Developers (MRED). 3. Both these concerns have substantial financial transaction between them. On analyzing these transactions, the A.O. reached prima facie conclusion as under : These transactions are not connected to any business between MCPL and MRED, they are in the nature of loans and advances and since as per the provisions of S.2(22)(e) a loan on advance made by a company, in which public is not substantially interested to a shareholder or to a concern in which shareholder has a substantial interest qualifies as Deemed dividend in the hands of the recipient of such loan. The A.O. invoked the provisions as S.2(22)(e) as M/s Models real Estate Developers (MRED) had received loans and advances from M/s Models Construction Pvt. Ltd (MCPL). The amount of loans and advances given by M/s MCPL to M/s MRED is tabulated as under:- S. No. A.Yr. Amount of loan given Accumulated Profits of MCPL 1 2006-07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm M/s Models Real Estate Developers(MREDJ, but in the preceding years, the trend was reverse as more money flowed from the firm to the company. The appellant further explained that this trend happened because of following reasons: A. The promoters/partners of the company/firm intended to make the company a hub for construction and the firm, an owner of land Bank. This intention is clear from the fact, that as per the books of the company, the land value has hardly increased where as there substantial increase in land holding in case of firm. B, The need to from a company arose because it is easier to obtain Bank loans in case of a company. C. The amount of Rs.38,32,06,578/- was directly transferred by MCPL to MRED by the Bankers in order to regularize overdrawn balances of MRED or to clear cheques already issued by MRED. The appellant further contended that the Directors (shareholders) / partners have not benefited by this transfer of funds from MCPL to MRED as there is not a single instance where the money has been transferred from MCPL to MRED and the same has been withdrawn by the share holders for their personal benefit. It is noteworthy tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the my opinion the provisions of S.2(22)(e) is not applicable in the cases of Shri. Peter Vaz and Shri. Edgar Afonso for the following reasons; i) The nature of transactions in the Bank account is such that it cannot be said to be a loan account. Its like a current account between the company M/s Models Construction Pvt. Ltd. and the firm M/s. Models Real Estate Developers. ii) The money has been transferred from the company to the firm for specific business purpose as already discussed earlier for a temporary period of time. iii) The money which has been transferred from the company to firm,has not been withdrawn from the firm by the partners of the firm, who are also shareholders of the company, for their personal use. iv) In the assessment order the A.O has not established as to what personal advantage have been taken by the shareholders of the company to attract provisions of S.2(22)(e). v) Both the company and the firm have common control common office, infrastructure, staff and even common Bankers. Money is transferred from one account to the another depending on the need in the interest of the company and firm. The A.O. has placed r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and deleted the addition made in the hands of the assessee u/s. 2(22)(e) of the Act made by the Assessing Officer under deeming fiction of Section 2(22)(e) of the Act being deemed dividend with respect to the loans and advances paid by MCPL to MRED. 8. Aggrieved Revenue has filed second appeal before the tribunal, while the assessee has filed cross objections to the appeal filed by the Revenue. We will first take up Revenue appeal, and Cross objections are separately dealt with. It is the say of the Ld. DR that the assessee is registered and beneficial shareholder as also director of MCPL holding 50% shares along with Mr.Edgar Braz Afonsa who also hold 50% shares in MCPL as registered and beneficial shareholder apart from being Director of MCPL. The assessee along with Edgar Bras Afonso are entitled to 50% shares in profits of partnership firm namely MRED . It was submitted by learned DR that on 31.01.2012 there was search and seizure operations carried out by Revenue in the case of MCPL and MRED u/s 132 of the Act , wherein incriminating materials were found and seized belonging to the assessee. It was submitted that both MCPL and MRED were engaged in business of bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative relied upon the assessment order of the AO. It is further the say of the Ld.DR that modus operandi adopted by the group was that the funds were transferred by the company MCPL to the firm MRED and huge land bank was created in the hands of the firm MRED out of the huge funds received by MRED from MCPL ,and wherein the firm MRED was benefited by way of appreciation in the market value of land acquired out of interest-free funds received by MRED from MCPL. It is also submitted that some of the land so acquired by MRED was sold by firm MRED to the company MCPL subsequently at the then prevailing market price on the date of sale which was higher than the cost of acquisition by MRED, wherein the firm MRED benefited due to the profits earned on sale of land to the company MCPL at higher than acquisition price while the funds of the company MCPL were utilised by MRED for the purpose of the purchase of the said land. Further, it is the contention of the learned Departmental Representative that even when the land is not sold to MCPL by MRED and was utilised by MRED for projects executed by MRED, the said firm MRED made huge profits out of the land acquired out of interest-free fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said details are placed in paper book by the assessee, of which attention of the Bench was drawn by the learned Departmental Representative as under : Financial year Loans and Advances Recoverable as at year end by MCPL from MRED Profits of the firm MRED 2006-07 3,55,65,753 8,15,54149 2007-08 3,56,88,605 3,86,16,429 2008-09 7,81,14,565 18,51,33,034 2009-10 16,44,63,457 10,18,99,881 2010-11 19,31,07,983 19,23,54,099 2011-12 24,51,53,779 8,01,41,968 Our attention was also drawn to pages 665-677 of paper book , wherein the computation of income of both Mr Peter Vaz and Mr Edgar Braz Afonso is placed wherein both the partners in addition to share in profits from MRED also received interest on capital as well remuneration from the partnership firm MRED. It was further submitted by the ld.DR that S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s transactions and only non-business transactions wherein the assessee was not able to prove business nexus are brought to tax by making additions within deeming fiction u/s 2(22)(e) of the Act being deemed dividend in the hands of the assessee. It is further say of the Ld. DR that satisfaction note was duly recorded by the AO of the assessee ,and the copy was given to the CA of the firm MRED and the assessee vide letter dated 22.08.2016 wherein there is a mention of recording of satisfaction by the Assessing Officer of the assessee before invoking provisions of Section 153C of the Act, which letter dated 22.08.2016 was received on 23.08.2016 by CA of the assessee, Mr Milind R Kulkarni who was also present in the tribunal during the course of the hearing on 25.11.2016. The said letter dated 22.08.2016 wherein there was mention of satisfaction being recorded by the Assessing Officer of the assessee before invoking provisions of Section 153C of the Act and which letter was received by the said CA on 23.08.2016 was placed by learned Departmental Representative before the Bench and the said letter dated 22.08.2016 is now placed in file on record. On being asked by the Bench, Mr.Milind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also submitted that CO was filed late deliberately by the assessee which is 42 months from the date of search so that the limitation period as prescribed in the Act for taking recourses to other alternative remedies by the Revenue such as recourse to Section 147/148 of the Act or 263 of the Act, expires and then Revenue will not be able to take any alternative action against the assessee. It was submitted that the assessee is part of a very big business group of Goa engaged in construction activities as builder and to say that the assessee was not advised wrongly by professionals does not hold water as the assessee is not a illiterate person or small business-men who cannot seek best advise from the professionals . In any case, the law is very clear that the CO is to be filed within 30 days and hence the delay of 248 days is unjustifiable and cannot be condoned. It was submitted by learned Departmental Representative that the legality and validity of the search which is challenged in the CO was never challenged before the AO and the CIT(A) as no grounds were raised before the lower authorities. It was submitted that even in the condonation application for condoning delay in fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deed of Sale 30.03.2011 Caranzalem 1677 sq. Mts 76,80,000/ Thus, it was submitted by learned Departmental Representative that perusal of the above chart clearly revealed that MRED acquired land at Taleigao for Rs. 22 lacs and sold the same to MCPL for Rs. 38 lacs. Similarly, it was submitted by learned Departmental Representative that the land at Caranzalem was acquired by MRED for Rs. 40 lacs and sold to MCPL for Rs. 76.80 lacs . Thus,it was submitted that even in these two sale transaction of land entered into by MCPL and MRED, MRED made profits by selling the land to MCPL at prevailing market prices on the date of sale which were offered for taxation by MRED in the return of income filed with the Revenue, but the funds out of which these lands were acquired by MRED were of MCPL which were granted as interestfree loans and advances by MCPL to MRED. With respect to the contentions of the assessee that banks have transferred the funds from company MCPL bank accounts to the bank account of the firm MRED of its own, it was submitted by the ld. DR that the company MCPL is guarantor for the loans by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive basis as the assessee has benefitted by grant of these loans and advances being partner of MRED. It was submitted by learned Departmental Representative that ld.CIT(A) has admitted additional evidence u/r 46 A of the Income-tax Rules, 1962 wherein paper books consisting of 677 pages was filed before learned CIT(A) and these documents were not placed before the AO. It was submitted that learned CIT(A) erred in admitting these additional evidences without forwarding these evidences to the AO for his comments and without calling remand report from the Assessing Officer and hence Rule 46A of Income-tax Rules, 1962 is clearly violated. Thus it was submitted that the appellate order of the ld.CIT(A) be set aside and the assessment order of the AO be restored. The learned Departmental Representative would rely on the orders of the Assessing Officer to support his contentions. On the other hand ld. Counsel for the assessee submitted that CO has been filed with 248 days delay with application for condonation of delay. it was submitted that no ground were raised before the CIT(A) challenging the legality and validity of search, and only written submissions were filed before the ld.CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was found during the course of search on MRED and MCPL, and hence no notices u/s 153C of the Act could have been issued to the assessee. Thus in nut shell it was submitted that there was no satisfaction note recorded by the AO of the person searched and there is no incriminating material found during the course of search . The learned counsel for the assessee would submit that the transactions between MCPL and MRED were business transactions. The Ld. Counsel for the assessee submitted that the land which was transferred by the firm MRED to the company MCPL were adjusted by the company MCPL against the balances recoverable from the firm MRED and no amount of money was paid by the company MCPL to the firm MRED and hence these are current account transactions which were rightly considered to be business transactions by learned CIT(A) and additions were deleted by learned CIT(A). It was submitted that the firm MRED was earlier dealing with the company MCPL wherein amount was advanced earlier by the firm MRED to the company MCPL wherein MRED did not charged any interest from MCPL , and now the company MCPL has advanced money to the firm MRED , wherein MCPL did not charged an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons between these entities and hence are outside the purview of Section 2(22)(e)of the Act. It was submitted that the payments for the land which were transferred by the firm MRED to company MCPL were settled by way of journal entries adjustments and no payments were made by MCPL to MRED as the payments were adjusted against the receivable of MCPL from MRED. It was further submitted that the Assessing Officer has brought to tax on substantive basis the partners of MRED u/s 2(22)(e) of the amount allegedly advanced by MCPL to MRED while no money has flown from the firm MRED to the partners of MRED ( who are also Director-shareholders of MCPL) and hence no benefit has been availed by the afore-stated directors-shareholder / partners of MCPL and MRED viz. Mr Peter Vaz and Mr Edgar Braz Afonso who are the shareholders / partners of the company/ firm as no outsider were involved in MCPL and MRED. It was submitted that the facts as given by the ld.DR are correct and there is no dispute about the facts of the case. The Ld. counsel for the assessee would rely on the decision of Hon ble High Court of Delhi in the case of CIT v. Raj Kumar reported (2009) 318 ITR 462(Del.) to contend that adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer on substantive basis in the hands of Mr Peter Vaz and Mr Edgar Braz Afonso. The advances made by MCPL to MRED and accumulated profits of MCPL are detailed hereunder in the chart : F.Y. Name of the person / Concern from whom advance is received Total loan / Advances during the year Accumulated profit with M/s. MCPL 2005-06 MCPL 2,77,75,118/- 2,15,70,177/- (Surplus in P L Account) 2006-07 MCPL 5,20,14,366/- 8,04,62006/- 2007-08 MCPL 4,71,81,347/- 12,86,19,493/- 2008-09 MCPL 9,46,68,620/- 15,00,32,634/- 2009-10 MCPL 12,76,91,164/- 30,08,57,131/- 2010-11 MCPL 7,30,10,750/- 43,83,73,506/- 2011-12 MCPL 8,75,33,761/- 47,85,26,714/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend includes- (a) *** (b)*** (c)*** (d)*** (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987 , 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 company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; but dividend does not include (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ;] The assessee Mr Peter Vaz holds more than 10% shares in MCPL as well is entitled for more than 20% shares in partnership firm MRED, wherein in-fact he holds 50% shares in MCPL and also have 50% share in profits of the firm MRED. Similar is the holding of Mr Edgar Braz Afonso. Thus, the conditions as stipulated by Section 2(22)(e) of the Act are fulfilled so far as Mr Peter Vaz and Mr Edgar Braz Afonso are concerned. We have observed that during the course of search operations , statement u/s.132(4) of the Act of the Accountant Mr. Ajit Banaulkar was recorded on 31-01-2012 wherein he confirmed that there was no agreements / MOU between the firm MRED and the company MCPL and funds are transferred through bank account from one bank account to another bank account on the instructions of Mr.Peter Vaz and these transaction were made keeping in view the financial contingencies and deficiencies from one bank account to another. It is pertinent to mention that during search operations no MOU/Agreement between MCPL and MRED were found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any MCPL has transferred huge and substantial amounts of money from its bank account aggregating to Rs. 50,99,11,226/- from time to time into the bank account of the said firm MRED during assessment years 2006-07 to assessment years 2012-13 while MCPL possessed accumulated profits to the tune of Rs.47,85,26,714/- as at 31-03-2012, wherein no doubt some money was advanced by MCPL to MRED towards the bonafide business transactions such as journal entry adjustment for purchase of land in two instances and also payments for material by MCPL on behalf of MRED as well cheques wrongly credited in the bank accounts of MCPL instead of being credited in the bank account of MRED and vice versa, while for the rest of the money so transferred from the bank accounts of MCPL to MRED, no satisfactory replies/ details were submitted by the assessee to prove the bonafide business nexus , business exigencies and business purposes for advancing of these huge amount of money by MCPL to MRED.We have also observed that the Revenue has already given credit and set off for all the bonafide business transactions between MCPL and MRED wherein the assessee could prove business nexus, business purpose and exig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2(22)(e) of the Act. The assessee being a registered and also beneficial holder of shares in MCPL holding 50% shares in MCPL(a company in which public are not substantially interests) is also partner in the firm MRED entitled for 50% shares of profit of MRED. Similar is the holding pattern of Mr. Edgar Braz Afonso. We are also not agreeable to accept the contentions of the assessee that the funds were transferred from bank accounts of MCPL to bank accounts of MRED by the bank of its own without any instructions from the assessee . We have observed that MCPL has stood as guarantor for the bank loan by way of OD/CC limit availed by MRED from the banks, wherein deed of guarantee /guarantee agreement is executed by guarantor in favour of banks to secure debts/loans of the borrower and in such cases bank take standing instructions from the guarantor wherein bank got authority to transfer fund from the bank account of guarantor to the bank account of the borrower to recover overdrawn amount in the borrowers bank account. Thus this contention of the assessee is rejected that the bank has transferred money of its own without recourse to assessee from the bank account of MCPL to ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusted to MCPL is again a bald assertion and not even a single evidence is brought on record to prove that land bank owned by MRED was used by MCPL for doing project construction wherein MCPL also benefitted, except bringing on record two sales instances of miniscule amount of Rs. 38 lacs and Rs. 76.80 lacs vis-a-vis the loans and advances granted by MCPL to MRED to the tune of Rs. 50.99 crores. The said company MCPL had never declared dividend out of the accumulated profits of around Rs. 47.85 crores held by MCPL as at 31- 03-2012, while the same was distributed by MCPL to the said firm MRED in the form of loans and advances, in which firm MRED both the assessee and Mr. Edgar Braz Afonso are the two equal partners holding 50% each share in profits both of whom benefitted from MRED by way of share in huge profits earned by the said firm MRED, salary from MRED and interest on capital from MRED. The said firm MRED acquired huge land bank / properties out of the funds received from the company MCPL while in two cases, the said land / property so acquired by the MRED out of the interest-free funds received from MCPL had been sold back to MCPL by MRED at profits , wherein the said profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not have been able to achieve the level of business which it achieved and the profits which it earned as it expanded its business based on grant of huge interest-free loans and advances from MCPL to the tune of Rs. 50.99 crores from assessment year 2006-07 to assessment year 2012-13 . The said company MCPL never declared dividend to its shareholder and no dividend distribution tax was ever paid by MCPL to Government , rather the funds were released in the form of loans and advances in favour of MRED. The said MRED in-turn has distributed the profits to the partners Mr Peter Vaz and Mr Edgar Braz Afonso as they are entitled each to 50% shares in profits of the firm MRED, which profits were earned by MRED mainly with the help of interest-free funds received from MCPL, by way of distribution of share of profits to Mr. Peter Vaz and Mr Edgar Braz Afonso. Thus, the money finally reached the beneficiaries namely Mr. Peter Vaz and Mr Edgar Braz Afonso from the firm MRED wherein they were partners in the form of share in profits of MRED , salary from MRED and interest on capital from MRED, while dividend distribution tax which ought to have been paid by MCPL to the Government on declarati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of loan and advances by MCPL to MRED to the tune of Rs. 50.99 crores from assessment year 2006-07 to assessment year 2012-13 and in any case the Assessing Officer has given set off / credit for all the inter-se transactions between MCPL and MRED wherein business nexus was established / proved by the assessee and also the AO has duly taken note of restricting the additions u/s 2(22)(e) of the Act keeping in view accumulated profits held by MCPL as per mandate of Section 2(22)(e) of the Act . We are of the considered view that under S.2(22)(e) of the Act liability to tax attaches to any amount taken as loan and advance by the share holder from a controlled company to the extent it possesses accumulated profits at the moment the loan is borrowed and it is immaterial whether the loan is repaid before the end of the accounting year , as was held by Hon ble Apex Court in the case of Smt Tanulata Shyam v. CIT(1997) 108 ITR 345(SC). We are not inclined to accept the contention of learned DR that Rule 46A of Income-tax Rules, 1962 is violated as the assessee has filed evidences before learned CIT(A) for the first time . The assessee has duly given a certificate in the index to paper b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008-09 to 2012-13 are allowed. 13. The assessee Mr. Peter Vaz is covered u/s 5A of the Act wherein income is to be apportioned between the spouses as they are governed by Portuguese Civil Code. Thus, the Assessing Officer has made additions to the tune of 50% each in the hands of Mr Peter Vaz and 50% in the hands of Mrs. Natalina Vaz. Hence, the issue involved in Revenue s appeals in the case of Mrs Natalina Vaz is identical to the issue involved in the case of Mr. Peter Vaz. Thus, our decision in the case of Mr. Peter Vaz in IT(SS) A Nos. 09-13/PNJ/2015 and ITA no. 412/PNJ/2015 for assessment years 2007-08 to 2012-13 shall apply mutatis mutandis to IT(SS) A No. 17-22/PNJ/2015 for the assessment year(s) 2007-08 to 2012-13 in the case of Mrs Natalina Vaz.We order accordingly. 14. In the Result appeal(s) of the Revenue in IT(SS)A No.17- 22/PNJ/2015 in the case of Mrs. Natalina Vaz for assessment year 2007-08 to 2012-13 are allowed. 15. As the issue involved in Revenue appeals in IT(SS)23- 27/PNJ/2015, and in ITA No. 413/PNJ/2015 for assessment year(s) 2007-08 to 2012-13 in the case of Mr. Edgar Braz Afonso are identical to issue adjudicated by us in IT(SS) A No. 09-13/PNJ/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09 2009-10 75,04,221/- 17,84,221/- 57,20,000/- 2009-10 2010-11 70,20,000/- --- 70,20,000/- 2010-11 2011-12 1,22,85,215/- 9,96,930/- 1,12,88,825/- 2011-102 2012-13 2,49,96,707/- 3,23,946/- 2,46,72,761/- TOTAL 4,86,81,046/- In the statement recorded on 31.01.2012 , the assessee Mr Edgar Bras Afonso has confirmed that the documents seized were of SIPL where he is one of the Director and Shareholder. Further during the course of statement recorded on 29.03.2012 , Sh. Edgar Bras Afonso stated that the amounts were taken by him from SIPL for repairs works, renovation of the building etc. which was not substantiated . The assessee accepted of receiving the advances from SIPL and also submitted that these advances are repaid by assessee to SIPL during the same year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company up to the date of liquidation, [but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law for the time being in force, include any profits of thecompany prior to three successive previous years immediately preceding the previous year in which such acquisition took place]. [Explanation 3. for the purposes of this clause, (a) Concern means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern;] Threshold conditions of section This provision can be attracted only if the following tests are satisfied (a) The asseseee is a company in which the public is not substantially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the company to the account of Mr. Edgar Afonso as there was a definite purpose in the minds of the stakeholders though the same may not have been exhaustively and explicitly documented and that purpose was certainly not avoiding tax. However for the time being we are addressing the issue as to whether the flow of funds can at all be treated as a loan or advance . In commercially parlance a loan is a transfer of funds which is either for a specific period or with a specific term .As will be apparent from the copies of accounts which have been seized at the time of search and which are a matter of record, no such term was ever settled by the parties between them at all. There has also not been a single payment of interest from one party to another during this entire period. Therefore in commercial parlance the said payments cannot constitute a loan for at no point of time was there any obligation on the receiver to repay them either within a specified period or repay them at all. Further it is unheard of that a person to whom loan has been advanced also advances monies or credits to the lender. This is exactly the situation in this case and the transactions constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hitect by profession. He carries out construction of individual houses for and on behalf of his clients. He also carries out repairs and renovation works for his various clients. Edgar on various occasions has also carried out repairs and renovation works for Sonesta Inns Private Limited (Copies of Bills Enclosed- Annexure1) Edgar solely operates bank accounts of Sonesta Inns and his personal business bank accounts. In fact Edgar operates more like a cashier when Sonesta Inns is concerned. Till date Edgar sits in the office of Sonesta and operates both the businesses exclusively. For all purposes, Edgar always treated both the units as one unit and the funds were need based transferred to-and-fro and not with the intention to evade tax as enumerated in the Legalisation intent while enacting provisions of deemed dividend. Monies were transferred from the bank account of Sonesta Inns to the account of Edgar Afonso, whenever there was deficiency in the bank account of Edgar to meet the business obligations. Similarly the same was transferred back when Sonesta had met the business obligations. Both the accounts were treated by Edgar as one current account and hence the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have also directly made payment from the company itself to the contractors or suppliers for the repairs and renovation, however, since there were common suppliers and contractors both for his personal businesses and those used for the company works, he used to pay the amounts from his business account and the same was reimbursed by the Company. This whole exercise was carried out only to regulate the contractor bills and payments. As a civil contractor, he had special prices negotiated with the suppliers and contractors for his construction projects as he was buying in bulk, if the orders had to go from Sonesta directly they would have not got the same rate benefit and hence the same was routed from the account of Mr. Edgar Afonso. Amount received for acquisition of Property: During the year 2011-12, Mr. Edgar Afonso negotiated for a property at assagao. His intentions were to create housing units for his hotel staff . Earlier he used to use the B'lows Just next to his hotel building for housing his staff. However due to ever increasing demand for hotel rooms, during peak season he had to use the B'low for letting out to hotel guest. However the owners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08-09 during the month July 2008 to September 2008 there was a credit balance in the books of sonesta. i.e. Sonesta had to pay Edgar Afonso Rs. 7,93,353/- and during the F.Y. 2009-10 during the month October 2009 to November 2009 there was a credit balance in the books of sonesta. i. e. Sonesta had to pay Edgar Afonso Rs.7 40, 000/-. Both the amounts repaid back by sonesta has been considered as deemed dividend in your notice, which needs consideration. Our above submissions may kindly be considered before finalising the assessment. The AO considered the submission of the assessee and observed that following advances have been made by SIPL to its shareholder Mr.Edgar Braz Afonso , as under:- Financial year Total Loan / advances as per ledger (in Rs) 2008-09 75,04,221/- 2009-10 70,20,000/- 2010-11 1,22,85,215/- 2011-12 2,49,96,707/- It was duly recorded in the books of accounts of SIPL as advances to director. The AO observed that the assessee had failed to submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been offered by the assessee , hence the total amount of Rs.70,20,000/- was treated by the AO as loans and advances received by the assessee being hit by the deeming fiction as contained u/s. 2(22)(e) of the Act and was taxed as deemed dividend in the hands of the assessee for the assessment year 2010-11. For the financial year 2010-11 it was observed by the AO that SIPL has advanced Rs. 1,22,85,215/- during the year to the assessee . It was observed by the AO from the ledger extract that the assessee has paid back an amount of Rs.2,00,000/- during February 2011 and another Rs. 84,05,243/- was paid back by assessee to SIPL during the month of March 2011. It was observed by the AO that Rs.25,94,757/- was adjusted towards the bonus / Ex-gratia payable . But it was observed by the AO that the same was not reflected as income by the assessee in the return of income filed with the Revenue for the assessment year 2011-12. In reply, the assessee submitted that the amount of Rs. 14,00,000/- was adjusted towards remuneration payable to the director and the balance amount of Rs.11,94,757/- was paid to him by SIPL towards staff bonuses for the earlier years. Since no satisfactory exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee during the course of the assessment proceedings. Thus , the AO observed that these advances made by the SIPL were for the individual benefit of the substantial shareholder of SIPL i.e. the assessee who is holding 50% share of SIPL and these advances are clearly hit by the deeming fiction created by Section 2(22)(e) of the Act and is to be brought to tax as deemed dividend u/s. 2(22) of the Act. Thus, the AO gave due credit /set-off for all the expense incurred by the assessee towards the Repair and maintenance / renovation and salary which has been duly explained by the assesse for which no additions were made by the Assessing Officer u/s.2(22)(e) of the Act. Thus the contention of the assessee for the balance amount that he has received the advances towards building repair and maintenance and renovation and returned the amount after conducting the repair and maintenance was rejected by the AO as it was observed by the AO that amounts have been advanced in the initial month of April to June and the same were returned by the assessee after using them for three to six months and the funds of SIPL were utilised by the assessee for own individual benefits of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the Person Accumulated Profit with M/s SIPL Net Loan / advance received Deemed Dividend 2008-09 2009-10 Edgar B Afonso 3,86,23,809/- 55,20,000/- 55,20,000/- 2009-10 2010-11 Edgar B Afonso 4,81,78,690/- 70,20,000/- 70,20,000/- 2010-11 2011-12 Edgar B Afonso 5,43,44,645/- 1,12,88,285/- 1,12,88,285/- 2011-12 2012-13 Edgar B Afonso 6,00,64,669/- 1,25,36,830/- 1,25,36,830/- Total 3,63,65,115/- The AO relied upon the decision of the Hon ble High Court of Madras in CIT v. Srinivasan (K)(1963) 50 ITR 788 (Mad), decision of Hon ble Madras High Court in the case of G.R. Govinda Rajolu Nidu v. CIT (1973) 90 ITR 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as its account. Both these accounts were operated by Mr. Edgar Afonso in the best interest of the business and whenever there was any deficiency in any of the account, the money was transferred from one account to another to meet the business expenses. These transfers were necessitated by business considerations and no personal advantage was obtained by Mr. Edgar Afonso. The transfer of funds has been two ways necessitated by the requirement of business. The appellant further contended that even the A.O. has appreciated the fact and has not made additions in respect of some moneys transferred to Mr, Edgar Afonso, when he withdrew money for purchase of a property. However, the A.O. did not appreciate that all the sums transferred to Mr. Edgar's account was for the purpose of business only and this is why there is no outstanding balance in the name of Edgar, in the books of M/s. Sonesta inn at the year end. As soon as the requirement was over, money was again transferred to the company. The appellant has explained in details regarding this to and fro traffic of transfer of funds between the appellant. Mr. Edgar Afonso and the company M/s. Sonesta Inns which has been reproduced on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgar Braz Afonso is covered u/s 5A of the Act. We have observed that the said company SIPL holds accumulated profits and the loans and advances given by SIPL to the assessee are added wherein business purpose or nexus could not be explained by the assessee to the extent of accumulated profits possessed by Sonesta Inns Pvt Ltd as deemed dividend in the hands of the assessee , as detailed hereunder:- F.Y A.Y Name of the Person Accumulated Profit with M/s SIPL Net Loan / advance received Deemed Dividend 2008-09 2009-10 Edgar B Afonso 3,86,23,809/- 55,20,000/- 55,20,000/- 2009-10 2010-11 Edgar B Afonso 4,81,78,690/- 70,20,000/- 70,20,000/- 2010-11 2011-12 Edgar B Afonso 5,43,44,645/- 1,12,88,285/- 1,12,88,285/- 2011-12 2012-13 Edgar B Afons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 19 of Constitution of India. The case laws relied upon by the assessee namely CIT v. Arvind Kumar Jain(supra) , CIT v. Raj Kumar (supra) and other cases does not support the case of the assessee as the said case laws relates to the advances made in the course of business, while in the instant case , the assessee could not prove the business nexus and business purpose for advancing huge amount of loan and advances by SIPL to the assessee from assessment year 2009- 10 to assessment year 2012-13 and in any case the Assessing Officer has given proper set off / credit for all the inter-se transactions between SIPL and the assessee wherein business nexus was established / proved by the assessee and also the AO has duly taken note of restricting the additions u/s 2(22)(e) of the Act keeping in view accumulated profits held by SIPL as per mandate of Section 2(22)(e) of the Act . The learned counsel for the assessee could not point out wherein the business nexus was established or proved by the assessee and still additions have been made by the AO nor learned counsel for the assessee could prove that the AO has made the additions beyond the accumulated profits possessed by the SIPL. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT v. Universal Medicare Private Limited(Supra) is directly applicable to the instant case and hence the AO has rightly brought to tax the said amount of loans and advances granted by SIPL in favour of the assessee without any business purposes and nexus, within the ambit of section 2(22)(e) of the Act by bringing to tax the same as deemed dividend , to the extent SIPL possessed accumulated profits, which assessment order of the Assessing Officer we confirm and sustain. We shall deal with CO filed by the assessee w.r.t. Revenue appeal separately in the succeeding paras which will address issues raised therein by the assessee in the CO. We order accordingly. 19. In the result the appeal of the Revenue in IT(SS) A No. 25/PNJ/2015 for assessment year 2009-10 in the case of Mr Edgar Braz Afonso is allowed. 20. As the issues involved in Revenue appeal in IT(SS) A No. 25/PNJ/2015 for assessment year 2009-10 are identical to the issue so far as grant of loan and advances by SIPL to the assessee , Mr. Edgar Braz Afonso involved in Revenue Appeal(s) in IT(SS) No. 26- 27/PNJ/2015 and ITA No. 413/PNJ/2015 for assessment year 2010-11 to 2012-13 and our decision in IT(SS) A no. 25/PN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue appeal in IT(SS) A No. 41- 45/PAN/2016 and in ITA No. 90/PAN/2016 for assessment years 2007- 08 to 2012-13 are dismissed. 26 Cross Objections filed by the Assessee s : - These are the Cross Objections filed by the assessees in the Revenue s appeals. The Cross Objections have been filed on 17/08/2016. Each of the Cross Objection is delayed by 248 days. The assessees have filed affidavits giving reasons for delay in filing of the Cross Objections. The reasons given are that it was due to wrong professional advice from the earlier counsel. In the Cross Objections, the assessees have raised the following grounds:- 1. The order of the Learned Commissioner of Income-tax [Appeals] in so far as it is against the Respondent / Cross Objector are opposed to law, weight of evidence, natural justice, facts and circumstances of the case. 2. The Respondent / Cross Objector denies himself liable to be assessed under section 143[3] r.w.s. 153C of the Act under the impugned order on the grounds that: - i. The proceeding initiated u/s 153 C is void ab initio in as much as they are illegal and ultra vires the provisions of section 153 C r.w.s 153 A of the Act; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranvir Singh 349 ITR 692, the Respondent / Cross Objector denies itself liable to be charged to interest under section 234 A, 234 B 234 C of the Income Tax Act under the facts and circumstances of the case. Further the levy of interest under section 234 A, 234 B 234 C of the Act is also bad in law as the period, rate, quantum and method of calculation adopted on which interest is levied are all not discernible and are wrong on the facts of the case. 8. The Respondent / Cross Objector craves leave of this Hon'ble Tribunal, to add, alter, delete or substitute any of the grounds urged above. 9. In view of the above and other grounds that may be urged at the time of hearing of the Cross Objection, your Respondent / Cross Objector humbly pray that the Cross Objection may be allowed in the interest of equity and justice. 27. On a specific query from the Bench as to whether these grounds had been raised before the lower authorities, it was the submission that the issues were brought out in the written submissions before the Ld.CIT(A), though no specific ground was raised. A perusal of the written submissions filed before the Ld. CIT(A) shows that the main th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person shall be entitled to call in question the jurisdiction of an Assessing Officer after the completion of assessment. It was submitted by the Authorized Representative of the assessee that as mentioned in the petition for condonation of delay, the assessee had not been advised properly and this has resulted in non-raising of various grounds. 29. We have considered the rival submissions. At the outset, what is to be considered is as to whether the delay of 248 days is reasonable or not? The facts in the present case clearly show that the said legal grounds have been raised in the Cross Objection for the first time. These specific grounds have not been raised before the lower authorities at any point of time. A perusal of the provisions of section 124(3) shows that a question of jurisdiction of an Assessing Officer is to be raised well before the completion of the assessment. This is so that the Assessing Officer can rectify any defects or take recourse any other provisions of the Income Tax Act. Admittedly, the duty of the Assessing Officer is to assess the correct income. Similarly, it is also the duty of an assessee to pay tax on its correct income. The assessee having bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continue to be admitted. This view of ours find support from the decision of the Hon'ble Delhi High Court in the case of N.G. Technologies Ltd. reported in (2015) 57 taxmann.com 389 (Del.), the SLP from which has been dismissed and reported in (2016) 70 taxmann.com 37 (SC), as also the decision of the Hon'ble Supreme Court in the case of S.Rudramuniyappa reported in (2016) 75 taxmann.com 241 (SC). On this ground also, we are not inclined to condone the delay in filing the Cross Objections. 31. Another aspect to this issue is when an assessee is challenging or raising or urges to be heard in support of any ground in respect of which the fact cannot be borne out by, or is contrary to, the record is alleged, it is to be clearly stated and concisely explain and supported by a duly sworn affidavit as per Rule 10 of the I.T.A.T. Rules, 1963. Such affidavit till date has not been filed in these cases before the Tribunal. Therefore even the admission of these grounds cannot be entertained. 32. The Authorized Representative of the assessee has also relied upon the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra). A perusal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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