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TMI Blog2017 (5) TMI 420X X X X Extracts X X X X X X X X Extracts X X X X ..... uitous payment, which falls under the ambit of deemed dividend u/s 2(22)(e) of the Act. Therefore, we direct the A.O. to delete additions made towards deemed dividend. - Decided against revenue X X X X Extracts X X X X X X X X Extracts X X X X ..... ition towards suppression of receipts. 5. The CIT(A) after considering the relevant submissions of the assessee and also relied upon the decision of ITAT, special bench in the case of All Cargo Global Logistics Ltd. Vs. DCIT (2012) 137 ITD 287, observed that the additions made by the A.O. towards disallowance of interest and on account of deemed dividend is based on returns of income filed and not based on any incriminating material found in course of search proceedings The CIT(A) further observed that the Hon'ble ITAT, in the said case observed that in cases where assessment has been abated, the assessing officer retains the original jurisdiction as well as jurisdiction u/s 153A of the Act. In other cases, where the assessment has not been abated, additions can be made in the assessment u/s 153A of the Act, only on the basis of incriminating material i.e. books of accounts and other documents found in the course of search, but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In this case, the A.O. has made additions only on the basis of financial statements filed by the assessee along with original return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any incriminating material found during the course of search. The Ld. A.R. for the assessee, submitted that in the case of completed assessments the A.O. has no jurisdiction to make any additions towards returned income, in the absence of incriminating material found during the course of search. In the case of abated assessments and assessments, which are pending as on the date of initiation of search, the A.O. can assume jurisdiction to assess/re-assess total income, which is found during the course of search. The A.R. further submitted that the assessments for the assessment years 2003-04 to 2008-09 are already concluded and no proceedings are pending as on the date of initiation of search and hence, the A.O. is precluded from making additions without any seized materials. In support of his arguments, relied upon the decision of ITAT, Visakhapatnam bench in the case of Hari Prasad Bhararia in ITA Nos.435 to 441/Vizag/2014 dated 9.9.2016. 8. On the other hand, the Ld. D.R. submitted that once a search is initiated, the assessment for 6 assessment years immediately preceding to the date of search gets re-opened and the A.O. will get jurisdiction to assess/re-assess total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w: "12. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The factual matrix of the case is that there was a search action u/s 132 of the Act. Consequent to the search, the assessee case was centralized and accordingly, notice u/s 153A of the Act was issued requiring assessee to file return for 6 assessment years immediately preceding the assessment year in which search is conducted. The assessee filed returns in response to notice u/s 153A of the Act. The A.O. completed the assessment u/s 143(3) r.w.s. 153A of the Act and made additions towards deemed dividend under the provisions of section 2(22)(e) of the Act. The A.O. was of the opinion that transactions between the assessee and his company is coming within the definition of deemed dividend under the provisions of section 2(22)(e) of the Act. It is the contention of the assessee that the assessment order passed by the A.O. u/s 143(3) r.w.s. 153A of the Act, for the assessment years 2005-06 to 2009-10 is null and void as the A.O. has made additions towards deemed dividend u/s 2(22)(e) of the Act without any incriminating materials. The assessee furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and which is common in this line of business. Consequent to search action u/s 132 of the Act, the assessee case has been centralized and accordingly fresh assessment proceedings have been initiated by issuing notice u/s 153A/153C of the Act for the six assessment years immediately preceding the assessment year in which search was conducted. The assessee has filed revised returns in response to notice u/s 153A of the Act and admitted the additional income disclosed during the course of search. The case has been selected for scrutiny. During the course of assessment proceedings, the assessee was asked to produce books of accounts and relevant bills & vouchers in support of expenditure claimed. In response, the assessee filed written submission and stated that the books of accounts are not available and hence cannot be furnished. Therefore, the A.O. issued a show cause notice and asked to explain why the net profit from the business shall not be estimated. In response to show cause notice, the assessee has filed a written reply and contended that the income for the assessment year 2004-05, 2005-06 and 2007-08 cannot be tinkered with, as there was no incriminating material found durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 153A of the Act does not specify abated and completed assessments, the natural meaning assigned to it should be given to interpret the provisions in such a way that which shall not cause undue hardship to the tax payers. The provisions of section 153A of the Act explained the procedure of assessments, abated assessments and the manner in which the assessment should be framed, which was further supported by circular no.7 of 2003 issued by the CBDT. When the law has explained the position of abated assessments, then the same way the completed assessment should be treated so as to understand that those assessments are reached finality and which cannot be tinkered with unless there was a seized document. Therefore, we are of the considered opinion that where search is initiated, all pending assessments are merge into one and only one assessment for each assessment year shall be made separately on the basis of findings of search and other material existing or brought on record by the A.O. In respect of non abated or completed assessments, the assessment will be made on the basis of books of accounts or other relevant documents found during the course of search, but not produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and after reaching finality thereon, the Assessing Officer tried to reagitate the assessments. According to us, the learned Tribunal has rightly held that the Assessing Officer has no jurisdiction to reagitate the assessments which were already completed and subsisting. We therefore do not find any element of law to be decided in this appeal. Hence, the appeal is dismissed. There will be no order as to costs." 25. The assessee has relied upon the coordinate bench decision of ITAT, Visakhapatnam in the case of A.T. Rayudu in ITA No.373 to 379/Vizag/2014. The coordinate bench, under similar circumstances held the issue in favour of the assessee. The relevant portion is reproduced hereunder: "22. In this regard, it is also pertinent to refer to the following observations made by the Special bench in the case of All Cargo Global logistics Ltd (supra):- "57 (f) In the case of Parashuram Pottery works co. Ltd Vs. ITO (106 JTR 57)(SC), it has been mentioned in the last paragraph of the judgment that the court has to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of unabated assessments, the total income should be determined by the assessing officer by combining the income already assessed/disclosed in the return of income and the undisclosed income, if any, found during the course of search proceeding. Even otherwise, it is settled proposition of law that the assessee is entitled to take support of the decision in his favour, when two contradictory views have been expressed by the High Courts. In the instant case the Hon'ble jurisdictional High Court comes to the support of the assessee in respect of the legal proposition in addition to the decision rendered by the Hon'ble Bombay High Court. Accordingly, we find merit in the contentions of the assessee on the legal issue." 26. Considering the facts and circumstances of the case and also respectfully following the coordinate bench decision in the case of All Cargo Logistics Pvt. Ltd. (supra), we are of the opinion that the A.O. has made reassessment u/s 153A/153C of the Act on the basis of information/material available in the return of income, without referring to any seized material. Therefore, following the special bench decision (supra) we hold that the A.O. had no juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of ITAT, in the case of All Cargo Global Logistics Limited Vs. DCIT (supra) and hence opined that the case laws relied upon by the Ld. D.R. are not applicable to the facts of the present case. 11. In this case, the assessment for the assessment years 2003-04, 2005-06, 2006-07 & 2008-09 are already concluded and there is no proceedings pending for those assessment years. The time limit for issue of notice u/s 143(2) of the Act has been expired. The A.O. has made additions towards disallowance of interest and on account of deemed dividend without any incriminating materials. Therefore, we are of the view that the A.O. has no jurisdiction to make additions for the assessment years 2003-04, 2005-06, 2006-07 & 2008-09, in the absence of any incriminating materials. We further observed that the A.O. has made additions towards disallowance of interest and on account of deemed dividend based on the books of accounts and financial statements, which were already part of regular return filed by the assessee u/s 139(1) of the Act, but not based on any incriminating materials unearthed during the course of search. Therefore, we are of the considered view that the A.O. has no jurisdiction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 (Assessee): 13. The first issue that came up for our consideration is additions towards unexplained deposit in the bank account, in the name of the employees and unexplained investment in purchase of site. The A.O. made additions towards unexplained deposits in the bank account, in the name of the employees based on the incriminating materials found during the course of search, which suggest that assessee has made deposits in the name of the employees which includes ` 10 lakhs found credit in the account of the employees G. Srinivasa Rao. The A.O. further observed that the said cash deposit in the bank account are outside the books of accounts of the assessee. The A.O. further observed that the assessee has admitted cash deposits in the bank account in the name of the employees during the course of search and also agreed to disclose additional income towards cash deposits. The assessee contended that though he had admitted unexplained deposits in the bank account in the name of the employees and also agreed to offer additional income, because of admission of higher income for the relevant assessment year, the A.O. ought to have telescoped the additions made towards unexplained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. 15. The next issue that came up for our consideration is additions towards suppression of receipts. The A.O. made additions of ` 5,72,500/- towards suppression of receipts on the ground that the assessee has short accounted receipts from Bhashyam Public School, Gajuwaka. The A.O. was of the opinion that as per the MIS reports sent from branch office to head office, the total fees collections for the financial year 2007-08 was at ` 2,19,03,500/-, whereas in the books of accounts maintained at the head office in respect of fees collection, the assessee has accounted an amount of ` 2,12,46,750/- including fees receivable of ` 10,62,000/-, thus there was a difference of ` 5,72,500/- for which the assessee has failed to furnish proper explanations. Though the assessee stated that on account of further concession allowed to some students, the receivable from the Bhashyam public school has reduced from ` 15,78,750/- to ` 10,62,000/-, therefore, the assessee made a provision of ` 10,62,000/- in the books of accounts, which results short admission of fees receipts of ` 5,72,500/-, failed to prove the same with necessary supporting evidences. It is the claim of the assessee that the MIS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany falls within the ambit of deemed dividend u/s 2(22)(e) of the Act. The assessee further contended that he had extended his personal properties as security for the loans borrowed by the company, in turn the company has given short term loans, which cannot be considered as loans and advances to attract the provisions of section 2(22)(e) of the Act. It is further submitted that the transaction between the assessee and the company are mutually benefited each other, therefore, the A.O. was totally erred in treating the loans as loans and advances, which comes under the purview of deemed dividend u/s 2(22)(e) of the Act. 18. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. There is no dispute with regard to the loans borrowed from the company and accumulated profit as on the date of loan. The only dispute with regard to the nature of loan borrowed from the company. The assessee claims that the amount borrowed from the company is not a gratuitous payment,but only a short term advance received in the normal course of business, which has been repaid. The assessee further contended that the transaction betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany are not gracious payment which is coming within the meaning of loans and advances as defined u/s 2(22)(e) of the Act. The relevant portion of the CIT(A) order is reproduced hereunder: "7.2 However, even on merits also, alternate contention of the appellant is considered. It is noted that the appellant has mortgaged his personal property to various banks and obtained loans for the business of the company. The documents filed by the appellant of the sanction letters from various banks supports this contention and the details of the mortgage loans taken from various banks along with sanction letters and the properties provided by the appellant as collateral security to obtain loans from the said banks is tabulated below. Date of sanction Name of the bank Name of the borrower Credit facility (Rs.) Property mortgaged 23.3.2004 State Bank of Hyderabad, Siripuram junction, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd. 30 lakhs Agricultural land 10.2.2006 State Bank of Hyderabad, Siripuram junction, Vizag M/s. Sampath Vinayak Steels Pvt. Ltd. 100 lakhs 4 storyed building on 555 sq.yds situated at Rajendranagar, Vizag in the name of (a) Hari Prasad Bhararia (b) Shivlal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) ho/ding not less than ten per cent of the voting power; but if such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to be deemed dividend within the meaning of the Act. Thus, gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. The assessee had substantial shareholding in a private company. The assessee permitted his immovable property to be mortgaged to the bank for enabling the company to take the benefit of loan and in spite of request of the assessee, the company was unable to release the property from mortgage. Consequently, the board of directors of the company passed a resolution authorizing the assessee to obtain from the company interest free deposit up to ₹ 50 lakhs as and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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