9911796707
TMI Blog2016 (12) TMI 1903X X X X Extracts X X X X X X X X Extracts X X X X ..... argument 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 ..... 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 accumulated profits wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 having been hit by deeming fiction of Section 2(22)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 09.05.2008 be treated as return of income filed in response to notice u/s. 153A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the business of the company ; (iii) any dividend paid by a company which is set off by the company against the whole or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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 given by the Assessing Officer and no additions were made u/s 2(22)(e) of the Act to that extent by the Assessing Officer . During the assessment proceedings, the assessee was asked by the Assessing Officer to explain why the loans and advances received by MRED from MCPL during the year should not to be treated as deemed dividend u/s.2(22)(e) of the Act to the extent of accumulated profits possessed by MCPL. The assessee vide his reply dated 04.12.2013 submitted before the Assessing Officer asunder:- "Submissions regarding proposed addition in the hands of Model Real Estate Developers in respect of advances made by Models Constructions Pvt Ltd during previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment 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 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 (i) The asseseee is a company in which the public is not substantially interested (ii) such a company possesses accumulated profits (iii) there is either a loan or advances to a shareholder holding not less than 10%of the voting power (iv) there is a loan or advance to a concern in which such shareholder hassubstantial interest (v) there is a payment on behalf of or for the individual benefit of any such specified shareholder Submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness 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 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 peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance 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 for commercial expediency and were never for the purpose of vesting in the hands of either the shareholders or the concern. Further legal defences Having rebutted the threshold conditions we now proceed to raise further legal defences. Firstly assuming without conceding that these are loans or advances at all, we submit that they cannot be taxed in the hands of a concern. This is for the simple reason that section 2(22) (e) merely increases the scope and ambit of dividend but does not bring it to tax. For that one will have perforce refer to the charging mechanism of section 8. The said provision clearly provides that dividend will be chargeable to tax only in the hands of a registered shareholder and none other. Therefore the said provision cannot be taxed in the hands of the firm. This is the decision of the jurisdictional high court in Universal Medicare Pvt Ltd 324 ITR 263 (Bom) Secondly the extent to which such provision can be taxed will also depend on the actual accumulated profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopers 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 crores so therefore there is a continuous increase in the assets which reflect an increment in terms of value of land in model real estate developers while the same does not emanate from the analysis of the balance sheet of the company. We wish to point out that therefore the object was that gradually over a period of time land bank would be created in the firm which would then be entrusted to the company for the purposes of development. At first blush this would look to be an afterthought, but the facts will corroborate this intent. One will appreciate that when the promoters of a company and the partners of the firm bear the same identity the thought process may not necessarily but be documented but would be evidenced by actions which would reflect in the accounts. This is the position in this case. Based on this be submitted that the payments from the company to the firm are not loans or advances but are commercial payments for creating a land development bank which would then be utilized by the construction company. Alternat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld/allotted premises as consideration for settlement of land dues of MRED, similar is the case with MRED allotting premises to MCPL. 4. There was never an intention of monies being advanced as "loans and advances" recoverable from inter unit. It was only transfer of funds in the normal course of business and no loans were given. Reliance is place on the decision of Hon'ble Delhi High Court in the case of CIT v/s Creative Dyeing and Printing Pvt. Ltd. (2009) 318 ITR 476 (DEL), wherein it was held that an amount paid for genuine purpose of business or for protecting business or in view of commercial expediency are outside the purview of section 2(22)(e). Against this order of Delhi High Court the revenue approached the Hon'ble Supreme Court, The Hon'ble Supreme Court has rejected the SLP filed by the revenue. 5. Audited books of accounts and audited financial statements never treated the outstanding balances as loans and advances or unsecured loans. Analysis of books of accounts and balance sheet of MRED indicate that most of the amount received from MCPL was utilized by MRED towards repayment of its Bank OD or in connection with business transactions. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D directly by the bank is to fulfill the commercial obligations casted on MCPL vide terms of loan sanction letter. The Bank's loan sanction letter to MRED clearly stipulates that MCPL shall be the guarantor for monies advanced. The banker in their letters, have mentioned that they themselves directly transfer monies to regulate the OD account of MRED. This practice is being carried out since inception. Transfers are on account of legitimate business considerations. All supporting documents to explain the above facts have already been submitted during the course of hearing. Had the transfers not been done, the cheques issued would have bounced and would have brought bad reputation to the organization which in turn would have disrupted the supplies and affected the ongoing projects. From what is stated and based on the evidence submitted it is apparent that the banks have effected the transfers directly hence it cannot be treated as or brought under the provisions of section 2(22) (e). There has not been even a single instance where monies are transferred from MCPL to MRED and the same has been withdrawn by the shareholders for their personal benefit. Moreover both the shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect credits into the bank account of MRED from MCPL effected by the bankers, there are credits on account of cheques of clients of MCPL deposited in the account of MRED. Such entries are usually on account of cheques wrongly being issued by the clients of MCPL in the name of MRED, Similar are the cases where clients of MRED have issued cheques wrongly in the name of MCPL total amounting to Rs. 1,96,06,151/-. Total amount credited of Rs.2,06,86,388/- due to such wrongly issued cheques into the account of MCPL cannot constitute payments made by MCPL to MRED as Deemed Dividend and qualify as addition under section 2(22) (e). 15. MCPL and MRED has only two shareholders / Partners Mr. Peter Vaz and Mr. Edgar Afonso. both own the entities equally. Since 2001 MRED and MCPL is exclusively managed and operated by Mr.Peter Vaz. Both the entities operate from the same business premises, they have common infrastructure, common accounting staff and same bankers. All these people never differentiated between both the entities. Both these entities is run as one single entity. Even the suppliers of both the entities are common, clients some times are common. Suppliers, clients and bankers loo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow Cause Notice, based on appraisal report is not correct. The investigation wing has included even journal entries in the credit summation. Total amount of credit journal entries included in SCN is Rs. 5,19,92,2607-. The same needs to be rectified as journal entries are only adjustment entries and will never amount to actual payments being made. For journal entries, there is no recipient of monies and they are only book entries. The same needs to be reduced from the total credit summation. B) An amount of Rs. 6,02,15,000/-transferred by the bank directly to the loan account of MRED from MCPL is towards repayment of bank OD facility of MRED. The OD facility granted to MRED is as a group facility on behalf of Models Group. MCPL does not enjoy any OD facility. Whenever MCPL had no funds with them, OD facility of MRED was utilized by them. The same needs to be reduced from the total credit summation as such transfers do not constitute payments made in guise of deemed dividend. Here also the payment is made directly to the loan account of MRED and no personal benefit is bestowed on the share holders of MCPL or their concern. C) An amount of Rs.15,50,47,000/-, transferred from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Mumbai ITAT in the case of Gurendra Singh Baba in ITA No.55. . (b) The investigation wing never proved that the amounts given by MCPL to MRED are in the nature of loans and advances in the guise of deemed dividend and direct benefits have been conferred on the shareholders of the MCPL; (c)The investigation wing has itself accepted the fact that there exists business connection between both the entities, which is evident from the SCN itself. Once the business connection is established, how can then the amounts transferred be treated as loans and advances covered u/s 2(22)(e); not each and every credit should be for the purpose of business. The amount given could also be to secure future business needs. It is evident that MRED is acting as a land banking unit and MCPL carries out the projects later on. (d) The investigation wing never gave the assessee any time to prove all the above facts. In-fact, the statement with regards to deemed dividend was taken on 27/03/2012 and 29/03/2012. The assessee, has stated in his statement that he was never asked to prove the business relations or that the amounts given by MCPL to MRED was not in the nature of loans and advances, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From all what is stated above it is apparent and evidently clear, that none of the amounts received from MCPL constitutes deemed dividend in the hands of the MRED or the share holders of MCPL Hence, I humbly request your goodselves to apply your prudent judgment in light of what is submitted detailed reply and documentary evidences submitted to you and drop the entire proposed addition. The proposed addition, will not only create paper demand but will also de-moralize an honest tax payer and will further dampen the business spirits. Already due to present poor economic situation in the state of Goa, all the business houses are badly affected. It has really been a tough time to survive and pay the genuine taxes due to the department. Such frivolous additions, will not result in any tax recoveries to the department, but will only put the assessee in a hardship to fight the legal battles." The AO after considering the replies of the assessee and on verification of the ledger extracts of the MCPL in the books of accounts of MRED observed that the MRED has during the period pertaining to the assessment year 2006-07 to the assessment year 2012-13 received loans and advances from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Estate Developers have been found? Please confirm the same. Ans. I confirm that there is no agreements/MoU between M/s Models Construction Pvt Ltd. and M/s Model real Estate Developers." On detailed examination of books of accounts of MCPL and MRED , it was observed by the AO that the loans and advances given by MCPL to MRED from the assessment year 2006-07 to assessment year 2012- 13 amounts to Rs.50,99,11,226/- which were mostly given for non business purposes , and the loans and advances which were given for business purposes were mainly wrong cheques deposited into the bank account of MCPL whereas the project belonged to MRED and vice versa. Further, it was observed by the Assessing Officer that there are certain credit journal entries in the ledger account of MCPL and in the books of MRED . There were also some business transactions noticed by the Assessing Officer and also inter-site transfer of materials were noticed by the AO , which were duly taken into account by the AO and appropriate credits/set off were given by the AO and no addition were made under the deeming fiction of Section 2(22)(e) of the Act being deemed dividend for such business transactions/journ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e funds are transferred on availability and need basis and the same will be treated as advances. Some documents like two sale deeds between the sister concerns which were lying in my office, have already been submitted to your office. In case there are any agreement /sale deeds between the companies with respect to purchase/selling of land properties/flats, the same will be submitted to your office. Q. No .9 During the Search on 31.01.2012 at the office of MCPL no documentary evidences were found to prove the actual purpose of advances made by MCPL to MRED. Please go through the sworn statement of Mr. Ajit Banaulkar, Accountant, M/s. Models Real Estate Developers recorded u/s. 132(4) of the Income Tax Act on 31.01.2012 and refer to his replies to query nos. 11 to 14 wherein he has stated that financial transactions between M/s Models Construction Pvt Ltd and M/s Models Real Estate Developers 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. He has also stated that there is no business transaction between the company and the firm and confirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebtors/Sundry Creditors in the books of MCPL/MRED respectively, any financial transactions other than business related transactions between MCPL and MRED assumes the nature of advance. (e) Moreover, other than business related transactions which is considered above, it is noticed in the ledger extracts that it is mentioned in the particulars of each advance made as 'being transfer of amount from a/c... to a/c,..' only and hence all these transactions are in the nature of pure transfer of funds not related to business transaction. (f) Further, other than the above discussed submission of details of purchase/sale of flats/land properties, the assessee company/firm has not furnished any evidence in support of the above claim that all are business related transactions, so far. g) Moreover M/s Models Construction Pvt Ltd never declared/distributed any dividend to its shareholders since its incorporation, and never paid any dividend distribution tax, even though the accumulated profits were Rs. 47,85,26,714/- as on 31.03.2012. Hence it is evident that funds were transferred to M/s Models Real Estate Developers in the form of loans and advances by M/s Models Construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92/- (Rs. 3,91,31,771- Rs.65,24,879) received as a loan and advances." The AO had also rejected the contention of assessee wherein the assessee tried to explain that the amount is nothing but transfer effected by the bank directly when the bank accounts were overdrawn. The assessee has also contended that the MCPL was guarantor for the MRED with respect to loans availed by MRED from banks, which necessitated transfer of money from MCPL to MRED when the limit of the Bank OD of MRED had crossed. It was observed by the AO that the Bank OD limit of MRED was Rs.60 lakhs and that the assessees' contentions are not correct as most of the times loans and advances were given when the limit has not been exceeded. It was also observed by the Assessing Officer that on some occasions no money transfer has been done by the banker even if the Bank OD limit has exceeded. Thus the Assessing Officer observed that the assessee stand was not correct. Further it was observed by the AO that the MCPL is the guarantor of the loan availed by the MRED and not a co-applicant for the loan taken by MRED and hence MCPL is not obligated of the loan to meet the repayments of the MRED. Thus the contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2007-08 in the hands of his spouse Mrs.Natalina Vaz as deemed dividend . Similarly Rs.81,51,723/- for the assessment year 2007-08 was taxed as deemed dividend u/s 2(22)(e) of the Act in the hands of Mr. Edgar Braz Afonso and the balance of Rs.81,51,723/- was added as deemed dividend u/s 2(22)(e) of the Act in the hands of his spouse namely Mrs Vanda Afonso, also both being covered by section 5A of the Act , vide assessment order dated 31.03.2014 passed by the Assessing Officer in the case of Mr. Peter Vaz u/s 153C r.w.s. 143(3) of the Act , as well separate assessment orders were passed by the AO in the case of above stated other tax-payers. 7. Aggrieved by the assessment order dated 31.01.2014 passed by the Assessing Officer u/s 153C r.w.s. 143(3) of the Act, the assessee filed first appeal before the ld.CIT(A) and submitted that Mr. Peter Vaz and Mr Edgar Braz Afonso are Directors and shareholders of MCPL holding 50% shares each wherein MCPL is a company in which public are not substantially interested. It was submitted that both the aforestated persons are also equal partners in MRED having 50% shares in profits. The assesses submitted that both these entities i.e. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also done by the banker of its own by adjustments to the bank accounts to reduce OD amounts. The assessee placed on record these accounts before the learned CIT(A). The assessee submitted that in those years this arrangement was again beneficial to the group as MCPL saved on interest payable to the bankers on its over drawn accounts. It was submitted that these transactions were made in the course of day to day business and for business purposes and the question of invoking provisions of Section 2(22)(e) of the Act does not arise as such transactions cannot be categorised as deemed dividend within the deeming fiction of provisions of Section 2(22)(e) of the Act in the hands of the assessee. The assessee relied upon the following decisions: - a) Delhi H.C. CITv. Creative Dying and Printing Pvt. Ltd. {318 ITR 476} on which special leave was dismissed by Hon'ble Supreme Court in (2010) 328 ITR (St.) 10. b) CIT v. Rajkumar [318 ITR 462 (Del)] c) CIT v Ambassador Travels P. LTd. [318 ITR 376 (Del)] d) Jhamu U. Sughand v. DCIT [99 ITD 1(Mum)] e) Sri Satchidanand S. Pandit v. ITO [19 SOT 213 (Mum)]. It was submitted by the assessee that the utilisation of MCPL surplus fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D cannot be brought within the ambit of deeming fiction created by Section 2(22)(e) of the Act as deemed dividend. It was further submitted that these amounts which were taken by the firm MRED from the company MCPL were never utilised for the personal purpose of the partners of the firm MRED. Without prejudice to the above contentions, it was submitted by the assessee before learned CIT(A) that there was no incriminating evidence which was found during the course of search conducted by Revenue and the issue is not related to any incriminating material found during the course of search as these transactions are duly recorded in the books of accounts of MCPL and MRED . It was further submitted , without prejudice, that the search took place on 31.01.2012 and the assessments for the assessment years' 2006-2007 to 2009-10 were already barred by time on the date of search as these were concluded assessments relying on the decision of Special Bench of tribunal in the case of All Cargo Logistics Limited , 137 ITD 287(Mum. SB), and only the assessment year 2010-11 to 2012-13 were pending at the time of search which stood abated wherein Revenue can make the assessments' as per provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, its not that only Models Construction Pvt. Ltd. (MCPL) has paid/transferred money to Models Real Estate Developers(MRED) but, when the need arose even MRED has paid money to MCPL. Details of which are tabulated as under: S.No. A.Yr Amount of Credits from MRED to MCPL (in Lakhs) 1 2007-08 97.19 2 2008-09 470.58 3 2009-10 522.42 4 2010-11 413.42 5 2011-12 443.66 6 2012-13 354.87 (iii)The transactions are in the nature of current account and not loans. iv) It is a fact that in the years under consideration more money has flowed from the company M/s Models Construction Pvt. Ltd.(MCPL) to the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istribution tax with above observation, the A.O. proceeded to calculate chargeable deemed dividend in the hands of the shareholders of the company. The A.O. did not charge any deemed dividend for A. Yr. 2006-07 as, in this year, the company M/s Models Construction Pvt. Ltd owed money to the firm M/s Models Real Estate Developers and not vice-versa. In A.Yr. 2007-08 and subsequent assessment years, the company had give more money to the firm, the A.O. calculated deemed dividend in the hands of the shareholders and taxed the same. On the basis of the facts discussed above 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of the appellants Mr. Peter Vaz, Mr. Edgar Afonso and their spouses u/s 5A of the I. T. Act and addition made on this account is hereby deleted. Since, the facts are identical in subsequent years as well this order shall be applicable for all the subsequent years. whereinaddition has been made u/s 2(22)(e) of the l.T. Act. Since the appellant are covered under Section 5A of the I.T.Act this order shallbe applicable in the hands of the spouses of the appellant as well." Thus, in nut-shell theld.CIT(A) accepted the contentions of the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been made in the hands of MRED. It is the say of the Ld. DR that the huge amounts were advanced by the said company MCPL to MRED for no business purposes and the said non business advances were rightly brought to tax by Revenue u/s. 2(22)(e) of the Act in the hands of the partners wherein the said firm has utilised the funds received from MCPL for the benefits of the partners of MRED. There is no agreement between the parties namely MCPL and MRED which is an admitted position by these concerns and the assessee. The Ld. Departmental Representative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth of them are partners in MRED with 50% shares of each in profits of MRED. It was further submitted that firm would not have made profits and would have been in losses if the funds would not have been transferred to the firm MRED by the company MCPL. The said firm also paid salaries and interest on capital to Mr Peter Vaz and Mr. Edgar Braz Afonso and hence these partners were benefitted by way of huge share of profits earned by MRED, salaries from MRED and interest on capital received by the said partners from MRED. It was submitted that 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 partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was able to prove business nexus with respect to inter-se transactions for business purposes and no prejudice whatsoever is caused to the assessee with respect to business 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrongly advised by professionals .It was submitted that no affidavit of the professional who ill-advised the assessee has been filed which is in breach of ITAT Rules, 1963. It 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 chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 of OD/CC availed by the firm MRED from banks and under the terms of the guarantee signed by MCPL , the MCPL has in-fact authorised and instructed banks to recover all excess beyond the sanctioned limit of OD/CC in favour of MRED. The banks had in-fact invoked the standing instructions executed by the company MCPL under guarantee deed executed in favour of banks for securing bank loans in favour of MRED and hence the funds were transferred by the bank from the company MCPL to the firm MRED under the authorisation/standing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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(A) where the challenge to the search was made on the ground that no incriminating material was found during the course of the search and also no search assessments can be framed as the assessments have concluded and are un-abated assessments. It was submitted that challenging legality and validity of search is a question of law which can be admitted by the tribunal as assessee is entitled to raise legal grounds at any stage keeping in view the Hon'ble Supreme Court decision in the case of NTPC v. CIT in (1998) 229 ITR 383(S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred 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 any interest . It was submitted by the ld.AR that firm is also dealing with the outsiders wherein projects for construction of buildings and sale of flats etc. were launched by MRED and MRED earned profits from these projects apart from dealing with MCPL. It was admitted by learned counsel for the assessee that MRED sold land to MCPL in two instances on the prevailing market prices on the date of sale and earned profit which were offered for taxation. It was submitted that when-ever additional money was required by MRED, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 advances given by the company to shareholders are out of purview of taxability u/s 2(22)(e) of the Act. It was submitted that the word advances used in section 2(22)(e) of the Act is to be used in conjunction with the word 'loan' and these current account transactions between MCPL and MRED cannot be categorised as loan transactions as there is no indication of loan in the money advanced by the company MCPL to the firm MRED as to the chargeability of interest, repayment schedule etc.. It was submitted that these are current acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/- The additions were made on substantive basis in the hands of Mr Peter Vaz and Mr Edgar Braz Afonso by the AO u/s 2(22)(e) of the Act w.r.t. loans and advances made by MCPL to MRED to the extent MCPL possesses accumulated profits, as detailed in the chart hereunder, while additions were made on protective basis in the hands of MRED. It is pertinent to mention that as since Mr Peter Vaz and Mr Edgar Braz Afonso are covered by Section 5A of the Act , similar addition of equivalent amount as reflected in chart hereunder were made separately by the AO in the hands of their spouses.: A.Y. Dividend u/s.2(22)(e) in the hands of Peter Vaz (Rs) Dividend in the hands of Edgar Braz Afonso (Rs) 2007-08 81,70,615/- 81,51,723/- 2008-09 92,70,800/- 92,70,800/- 2009-10 2,07,21,018/- 2,07,21,018/- 2010-11 2,70,47,803/- 2,70,47,803/- 2011-12 69,21,066/- 69,21,066/- 2012-13 98,91,743/- 98,91,743/- Thus, these books of accounts of MCPL and MRED which were seized by Revenue during search operations u/s 132 of the Act in the case of MCPL and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the business of the company ; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off; [(iv) any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77Aof the Companies Act, 1956 (1 of 1956); (v)any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company).] Explanation 1.--The expression "accumulated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there are business transactions between the firm MRED and the company MCPL. He also submitted that there are sale agreements / agreements on record between MCPL and MRED , wherein land bought by MRED were transferred by firm MRED to the company MCPL. As we will see later in this order that the assessee could bring on record only two sales instances of sale of land by MRED to MCPL for miniscule amount of Rs. 38 lacs and Rs. 76.80 lacs respectively while the loan and advances granted by MCPL to MRED stood at Rs. 50.99 crores during assessment year 2006-07 to assessment 2012-13. In any case no prejudice is caused to the assessee as no additions have been made by the AO w.r.t. these two sales instances u/s 2(22)(e) of the Act as these sale transactions were accepted by the AO as business transactions. In-fact Mr. Peter Vaz in his statement recorded u/s. 131 of the Act stated that funds were transferred keeping in view needs of the concerns namely MCPL and MRED and availability of the funds. The relevant extracts of the statement of Mr Peter Vaz are extracted as hereunder : "Q.No.8 Please give the details of all business transactions and evidences to prove the same. During the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o prejudice is caused to the assessee. The learned counsel for the assessee could not point out a single instance wherein Revenue has brought to tax advances within ambit of Section 2(22)(e) of the Act which were paid by MCPL to MRED and which could be shown that the assessee contended it to be for bonafide business purposes but the Revenue had declined to accept the same as bonafide business transaction. However, with respect to those transactions where the amounts were transferred from MCPL to MRED wherein the assessee could not explain or prove the business nexus , business purpose and business exigencies , the Assessing Officer has made the additions u/s 2(22)(e) of the Act as deemed dividend in the hands of the assessee on substantive basis wherein the amounts were advanced by MCPL to MRED, to the extent MCPL possessed accumulate profits. No error was pointed out by the learned counsel for the assessee that the additions have been made when either specific business nexus or business exigency or business purpose was shown to the Assessing Officer but he still proceeded to make the additions u/s 2(22)(e) of the Act rejecting arguments of the assessee . It could also be not shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of provisions of Section 2(22)(e) of the Act. We have also after perusal of the various ledger accounts extracts of MCPL and MRED, bank accounts and the financial statements of the MCPL and the MRED have come to the conclusion that funds are systematically transferred from bank accounts of MCPL to bank account of MRED wherein huge stock of land bank / properties were built by the said partnership firm MRED in its name out of interest-free funds received from MCPL. It is observed from the financial statements that as on 31.03.2012 firm MRED held stock of land of Rs. 21.66 crores , stock of Premises held were Rs.15.51 crores and advance for purchase of land given were to the tune of Rs.5.09 crores by the said firm MRED, wherein the funds of the company MCPL to the tune of Rs. 24.52 crores were outstanding for payable as on 31- 03-2012 by MRED to MCPL, which were utilised by MRED for acquisition of such land / premises. While in the books of the company MCPL 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 adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6-07 to assessment year 2012-13. It is also observed in respect of two lands sold by MRED to MCPL as per chart in preceding para's that MRED acquired land at Taleigao for Rs. 22 lacs and sold the same to MCPL for Rs. 38 lacs. Similarly, it is observed that the land at Caranzalem was acquired by MRED for Rs. 40 lacs and sold to MCPL for Rs. 76.80 lacs . Thus, it is observed 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 market prices which were offered for taxation by MRED but the funds out of which these lands were acquired were of MCPL which were granted as interest-free loans and advances by MCPL to MRED. It is clear cut case wherein the MRED has benefited out of the funds received from MCPL at the cost of MCPL. In other cases wherein MRED has retained the land / properties acquired out of the funds received from the MCPL ,the said land has been utilised by MRED in launching its own projects wherein it also earned huge profits which are reflected in Profit and Loss account, which was declared to the revenue in the return of the income filed with the revenue. The details of the profits earned by MRED ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an fallacious argument 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) 324 ITR 263(Bom.). Even Hon'ble Supreme Court in the case of Navnit Lal C. Javeri v. AACIT in (1965) 56 ITR 198(SC) has held the said provisions to be within le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent order of the AO which we are inclined to sustain/confirm and we have also observed that the appellate order of the ld.CIT(A) cannot be sustained on merits and as on law 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) , and therefore we are inclined to set aside the appellate order of the learned CIT(A), and hence the assessment order passed by the AO is hereby confirmed on merits in which we do not find any infirmity and Revenue appeal is allowed. 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. 10. In the Result appeal of the Revenue in IT(SS)A No.09/PNJ/2015 in the case of Mr Peter Vaz for assessment year 2007-08 is allowed. 11. As the issue involved in Revenue appeals' in IT(SS)10/PNJ/2015, 11/PNJ/2015 , 12/PNJ/2015,13/PNJ/2015 and in ITA No. 412/PNJ/2015 for assessment year(s) 2008-09 to 2012-13 in the case of Mr. Peter Vaz are identical to issue adjudicated by us in IT(SS) A No. 09/PNJ/2015 for assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sta inns Private Limited to Mr. Edgar Braz Afonso during assessment year 2009-10 to 2012-13 which is adjudicated as under in the succeeding para's. First we shall take up Revenue appeal in the case of Mr. Edgar Braz Afonso in IT(SS) A No. 25/PNJ/2015 for assessment year 2009-10. During the Course of the search proceedings conducted u/s 132 of the in Act the business premises of MCPL on 31.01.2012 and subsequent survey u/s.133A of the Act at the business premises of the M/s Sonesta Inns Pvt Ltd., it was observed by the AO that the Mr. Edgar Braz Afonso and Mr. Peter Vaz were holding 50% shares each in the company namely M/s Sonesta Inns Pvt. Ltd. (Hereinafter called "the SIPL") , which was also confirmed by the assessee vide submissions dated 13.02.2012. Thus, it is an undisputed and admitted position between rival parties that both Mr Peter Vaz and Mr Edgar Braz Afonso each held 50% shareholding in the SIPL , wherein both are registered and beneficial shareholders. The above said company SIPL., in which Mr. Peter Vaz and Mr.Edgar Braz Afonso are holding 50% shares each is a private limited company in which public are not substantially interested. Thus it was observed by the AO th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by a company, not being a company in which the public are substantially interested, of any sum (whether as representing apart 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; Explanation 1.--The expression "accumulated 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 inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articular provision was brought on the statute book. The avowed object of this section is to tax something which otherwise is understood both by the payer and the receiver as dividend but is camouflaged as a loan or advance. It is clear from the factual matrix the only limb that attracted it is the alleged loan or advances to the shareholder which has substantial interest. Rebuttal on legal principles We now proceed to analyse the provision in detail to establish that the said provision cannot apply. The provision will apply only in a situation where there is a "loan or an advance" to the share holder which satisfies the tests laid out above. The question that needs to be answered is whether the monies that have travelled from the coffers of the company to the shareholder 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 the monies transferred were FINANCIAL TRANSACTIONS in the normal course of business. We will in our subsequent submissions point out as to why there was a flow continuously from the company to the account of Mr. Edgar Afonso as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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 Mr. Edgar during these years but in certain part of the 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 NIL balance monies have flowed also from the assessee to the company. As is being explained by us it is the only on account of a fact that the monies flowed for commercial expediency and were never for the purpose of vesting in the hands of either the shareholders or the concern. Reasons as to why the funds flowed from the Company to the share holder: Brief background of Mr. Edgar Afonso: Since the inception i.e. 1999-2000, it was Edgar Afonso, who has been exclusively involved in and is managing the Hotel Sonesta Inns. Edgar is based in Calangute and has his own private construction concern in Calangute. He is a civil engineer and architect by profession. He carries out construction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o report the same in his audit report as bound by the Companies Act, 1956 and Professional obligation. Financial background of Mr. Edgar Afonso: Mr Edgar Afonso comes from a very strong financial background. His family is considered as "Landlords" in the village of Calangute. Besides his personal business that of construction, he also is 50% owner of Models Group. Both personally and businesswise, he has a very strong financial background. This itself explains that there is absolutely no need for him to resort to the practice of taking monies from Sonesta Inns Pvt. Ltd. for his personal gains. Most important fact or reasons for transfer of monies was that prior to 2004-05, Edgar as a Civil Contractor used to carry out repairs and maintenance work of Sonesta Inns. Subsequently, since 2005-06 service tax came into picture. If Edgar had to carry out the repairs work himself and bill the same to the company, than he would have had to charge service tax. To avoid the extra burden of service tax for the company, Edgar used to pay to sums directly to the contractors and suppliers on behalf of Sonesta. He could have also directly made payment from the company itself to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of agreement enclosed as annexure-4). As stated in your notice that in the preliminary statement of Mr. Edgar Afonso, he stated that land is purchased to construct bunglows for specific type of persons/clients, he expressed his intention as a civil contractor considering the fact that Sonesta being a separate legal entity also qualifies for a specific type of person/client. He never said that the land was not for sonesta. Subsequently he has given a statement that the said land is for Sonesta and has supported the same with necessary agreements duly registered / notarized. From what is stated above it is clear that the entire flow of monies was on account of current account transaction and by no stretch of imagination can be considered as advance given by the Company to its share holders. The entire amount received from Sonesta Inns Pvt. Ltd. along with the amount of Rs. 1,50,00,000 given by Sonesta to Mr. Edgar for purchase of property vide agreement dated 28/12/2011 cannot be treated as transaction attracting provisions of Section 2(22) (e) and needs consideration. Also during the F.Y. 2008-09 during the month July 2008 to September 2008 there was a credit balance in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 19,84,221/- was paid to him by SIPL, after deduction of taxes at source. The AO accepted the contentions of the assessee so far as the amount of Rs.19,84,221/- was concerned which was towards 'Director Remuneration' and also towards 'building repairs and renovation' , against which no additions were made by the AO . Further, the AO observed that no explanation has been given by the assessee with respect to the advance of Rs.55,20,000/- received from SIPL by the assessee and the same was treated by the AO as loans and advances and taxed as deemed dividend u/s 2(22)(e)of the Act in the hands of the assessee. With respect to the Financial year 2009-10 it was observed by the AO that the assessee has received Rs.70,20,000/- as loans and advances from SIPL and the ledger extracts clearly reflects that the said amount is given as advance to the Director i.e. the assessee for which no explanation 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 assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of Rs. 86,05,243/- which advances were repaid by the assessee to SIPL during the same year. The assessee submitted details of expenditure of 9,96,930/- for the financial year 2010-2011 as observed by the AO from the ledger extract for which necessary credit/set-off was given by the AO and addition of Rs.1,12,88,285/- was brought to tax as loans and advances received and being hit by deeming fiction created u/s 2(22)(e) of the Act as the loans and advances received by the assessee were treated as deemed dividend and brought to tax. The AO observed that during the course of the recording of the statement on 29.03.2012 , the assessee has admitted that he has received an advance from the SIPL during the financial year 2008-09 to 2011-12 and these amounts were returned back to SIPL in the same year and the amount is not outstanding in the books of SIPL which is also been confirmed by the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by SIPL to assessee for 'Repair and maintenance' for which no additions were made by the AO during the assessment year 2012-13 , Thus Rs. 1,25,36,830/- stood added to the income of the assessee as deemed dividend u/s 2(22)(e) of the Act, out of total advance of Rs. 2,49,96,707/- received by the assessee during the assessment year from SIPL and balance as set out above was accepted by the AO as stood duly explained for business purposes as satisfactory explanation was given by the assessee . Since the assessee held substantial interest in the closely held company SIPL and to the extent of accumulated profits , the income being loans and advances received by the assessee and hit by deeming fiction created u/s 2(22)(e) of the Act was brought to tax under section 2(22)(e) of the Act as deemed dividend , as detailed hereunder :- (In Rs.) 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/- 2011-12 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant stated that the company M/s. Sonesta Inns Pvt. Ltd operates a Resort hotel and is managed by Mr. Edgar Afonso. In this company also, Mr. Peter Vaz and Mr. Edgar Afonso are 50% each shareholders. Mr. Edgar Afonso has his own account in the same Bank in which M/s Sonesta Inn has 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% in Sonesta Inns Pvt Ltd which is a closely held private limited company in which public are not substantially interested. This is an undisputed and admitted position between rival parties. It is also undisputed and admitted position between rival parties that Mr. Edgar 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 Afonso 6,00,64,669/- 1,25,36,830/- 1,25,36,830/- Total 3,63,65,115/- We have observed that the AO has given due credits and set off from loans and advances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 explanation of the assessee without any satisfactory explanation/evidence cannot be accepted as the assessee has drawn huge amounts from the said company SIPL, while 'Repair and maintenance and renovation work' undertaken by the assessee for SIPL was of insignificant amount as are detailed in the preceding paras of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax 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/PNJ/2015 for assessment year 2009-10 shall apply mutatis mutandis to the issue in IT(SS) No. 26-27/PNJ/2015 and ITA No. 413/PNJ/2015 for assessment year 2010-11 to 2012-13.We order accordingly. 21. In the Result , all the Revenue's appeal in IT(SS) A No.23- 27/PNJ/2015 and ITA no. 413/PNJ/2015 in the case of the assessee Mr Ed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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; ii. The Mandatory satisfaction, if any, arrived at by the assessing officer to initiate proceedings u/s 153 C of the Act is inadequate and insufficient to assume jurisdiction u/s 153 C of the Act. iii. The initiation of the proceeding u/s 153C of the Act is not on the basis of 'any money, bullion, jewellery or other valuable article or thing or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 thrust of the assessees submissions are that there was no incriminating material found in the course of search, which could give rise to an order u/s.143(3)/153C of the Act. However, a perusal of the ground raised in the Cross Objection shows that the grounds also go into the jurisdiction of the Assessing Officer and the satisfaction arrived at by the Assessing Officer. It was, then, admitted by the Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et, 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 been caught attempting to avoid payment of tax, cannot now raise a technical ground much after the limitation and also claim injustice being done to him. By allowing these Cross Objections by condoning the delay would in effect by doing injustice to the Revenue insofar as the Revenue is bound by limitation, in respect of initiation of proceedings and invocations of the jurisdiction. It is very much true that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 said decision clearly shows that the words used therein are "the Tribunal had jurisdiction to examine the question of law which arises from the facts as found by the Income Tax Authorities and having a bearing on the tax liability of the assessee". The grounds raised are not on the basis of any fact which is available on record. The Tribunal is only required to consider the question of law arising from the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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