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TMI Blog2014 (7) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... anies - the case falls under the second category and the amount is deemed as dividend in the hands of the assessee shareholder. Whereas `payment by way of advance or loan’ is relevant in the first and second categories, the third category simply provides for `any payment’, which may or may not be by way of advance or loan - Since the third category encompasses any payment by such companies on behalf or for the individual benefit of any such shareholder, there can also be payment falling under this category de hors advance or loan - As the amounts under consideration are advances or loans by one set of companies to another set and the Revenue has not made out a case that these were for the individual benefit of the assessee-shareholder, naturally, the case does not fall in the third category - Once a case falls under the second category, there is no further need to show that it should also falls in the third category - the sums of ₹ 28,17,430/- for the AY 2007-08 and ₹ 2,96,060/- for AY 2008-09 are deemed dividend of the assessee-shareholder under the second category of section 2(22)(e) of the Act and ex consequential the CIT(A) was fully justified in sustaining these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h assessment u/s 153A is not restricted only to the determination of the undisclosed income, which was the position under Chapter XIV-B of the Act. 4. The case of the assessee before us through such legal ground taken for these three assessment years is that the additions u/s 2(22)(e) of the Act are not sustainable because no incriminating material concerning these additions was found during the course of search. The ld. DR countered this contention by reiterating the opinion expressed by the ld. first appellate authority and also putting forth that the scope of sec. 153A of the Act is not limited to the additions on the basis of incriminating material found during the course of search, but to additions of any kind made with or without any incriminating material found during the course of search. She tried to justify her view by accentuating on the requirement of determining the `total income of the assessee u/s 153A of the Act. 5. We have heard the rival submissions and perused the relevant material on record in the light of the precedents cited at the Bar. In order to appreciate the rival contentions on this legal issue, it would be apt to consider sec. 153A, the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sum total of income in respect of which a person is assessable. It covers not only the income emanating from declared sources or any material placed before the Assessing Officer but from all sources including the undeclared ones, or unplaced material before the AO. The position which emerges on a reading of clauses (a) or (b) of sec. 153A(1) along with the first proviso is that the Assessing Officer is supposed to determine the `total income of the assessee in respect of the relevant six assessment years. Second proviso to sec. 153A(1) eclipses the afore discussed determination of total income . The second proviso provides that any pending assessment or reassessment relating to any assessment year falling within the period of six years referred to in sub-sec. (1) on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. The effect of the second proviso is that any pending assessment or reassessment on the date of search for any assessment year falling within the period of relevant six assessment years shall abate and a fresh determination of total income would be required. Now a question arises tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search. 9. The above extracted observations of the Hon ble High Court, which are though obiter dicta, make the point clear that where an assessment order has already been passed for a year(s) within the relevant six assessment years, then also the A.O is duty bound to reopen those proceedings and reassess the total income but by taking note of the undisclosed income if any, unearthed during the search . The expression unearthed during the search is quite significant to denote that in respect of completed or non-pending assessments, the Assessing Officer is albeit duty bound to assess or reassess the total income but there is a cap on the scope of additions in such assessment, being the items of income unearthed during the searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f addition of ₹ 37,162/- on account of deemed dividend u/s 2(22)(e) of the Act for which admittedly no incriminating material was found during the course of search. The factual position is similar for the A.Ys. 2005-06 and 2006-07 for which the additions to the tune of ₹ 50,31,375/- and ₹ 1,03,03,582/- respectively made u/s 2(22)(e) of the Act are in challenge before us. We find that the ld. CIT(A) has not controverted the contention advanced on behalf of the assessee despite the fact that the assessee categorically stated that no incriminating material was found on this score during the search operation. Even the ld. DR has also not invited our attention towards any such material. In view of the foregoing discussion, we are of the considered opinion that these additions made u/s 2(22)(e) of the Act are not sustainable since these were made without reference to any incriminating material found during the course of search and further the assessments for these three years were not pending on the date of search. Ergo, the impugned orders for these three years on this issue are set aside and the additions are directed to be deleted. A.Ys. 2007-08 2008-09 11. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is shareholder having shares more than 10% of voting right and the same shareholder has substantial interest in such concern, then such advances cannot be treated as deemed dividend in the hands of such concern as such concern is not a registered shareholder of the payer company. Considering the mandate contained in para 24 of the judgment in the case of Ankitech Pvt. Ltd. (supra), the ld. CIT(A) held that the amounts were rightly taxed as deemed dividend u/s 2(22)(e) of the Act in the hands of the assessee on substantive basis. The assessee is in appeal against the confirmation of such addition for both the years. 12. We have heard the rival submissions and perused the relevant material on record. It can be seen from the relevant assessment orders of the recipient companies, namely, M/s Genious Promoters Pvt. Ltd., M/s UAG Builders Pvt. Ltd. and M/s Rainbow Promoters Pvt. Ltd., copies of which have been placed by the ld. AR on record, that M/s Genious Promoters Pvt. Ltd. received a sum of ₹ 2 lakh as loan/advance from M/s Rainbow Promoters Pvt. Ltd. during the year. Similarly, M/s UAG Promoters Pvt. Ltd. received loan and advances amounting to ₹ 3,16,1,400/- from ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ; 14. A close scrutiny of the above provision indicates that it is attracted when any payment is made by a company in which the public are not substantially interested, of the amounts paid under any of the following three categories : - (a) 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 righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or loan to any company (concern) in which the shareholder holding not less than 10% of the voting power of the payer company is having substantial interest in the recipient company, shall be included within the second category of the definition of deemed dividend u/s 2(22)(e) of Act . 17. At this stage it is relevant to consider the observations made by the Hon ble Delhi High Court in the case of Ankitech Pvt. Ltd. (supra) as under:- ₹ 24. The intention behind enacting provisions of s. 2(22)(e) is that closely-held companies (i.e. companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loans or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions, such payment by the company is tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries should mean that all the categories are to be separately examined, we fully agree. But there is a fallacy in the other part of the submission that if a case falls in the second category, then unless it is specifically shown that it also falls under the third category also, there can be no presumption of deemed dividend. In fact, both the contentions made run counter to each other. We have noticed above that if a case is covered under either of the three categories, then the matter ends there and then. In such a situation, there is no need to examine the other categories. At the cost of repetition, we are mentioning that when a company gives loan or advance to any concern covered under the second category, the divided is deemed as income in the hands of the shareholder and not such concern. Position is similar for the third category as well. If the amount is given to a third person, which is for the benefit of the shareholder, the dividend is not deemed in the hands of such recipient but the shareholder. In all the three categories, it is the shareholder whose income is affected with the deemed dividend. 21. We have noticed above that the instant case is squarely covered wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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