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TMI Blog2025 (3) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition made by him u/s 2(22)(e) - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... g a company in which the public is substantially interested to a company namely M/s Shushhinda Constructions Pvt Ltd having in which it holds 51% share and hence the provisions of section 2(22)(e) of IT Act have directly applied in this case. 6.4.2 Moreover, it clearly shows that M/s ABIL Realty Pvt. Ltd is wholly owned by Shri Amit Bhosale & Shri Avinash N Bhosale through ABII Corporation Pvt. Ltd (50% Shri Avinash N Bhosale & 50% Amit Bhosale) and hence the directors of M/s Shashbindu Constructions Pvt. Ltd. (100% owned by Shri Avinash N Bhosale & Amit Bhosale through ABIL Corporation Pvt. Lad (50% Avinash N Bhosale & 50% Amit Bhosale)] have 100% interest in the assessee company M/s ABIL Realty Private Limited, who has received unsecured loans/advances of Rs. 70 Crores from M/s Shashbindu Constructions Pvt. Ltd. to the extent of accumulated profits at Rs. 9, 30, 66, 244/- as on 31.03.2015. However, considering the amount of Rs. 61, 06, 50, 000/- in the nature of unsecured loans outstanding as on 31.03.2015 with corresponding amount of Rs. 70, 00, 00, 000/- received by assessee company from Shashhindu Constructions Pvt Ltd as unsecured loan/advance, the accumulated Reserve & Sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r accumulated profits upto 31.3.2015 of M/s Shashbindu Constructions Pvt Ltd at Rs. 9, 30, 66, 244/- for the purpose of quantification of deemed dividend and accordingly added the same as per the provisions of section 2(22)(e) of IT Act and taxed accordingly." 5. In appeal, the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer by observing as under: "5. Decision: I have carefully considered the facts of the case, the assessment order, written submission of appellant and materials on records. Also, the judgments and decision of High courts/tribunals and various judicial authorities relied on by the appellant have been carefully gone through. The facts of the case as perused from the order of the AO is that the assessing officer made an addition of Rs. 9, 30, 66, 244/- to the total income of the appellant company as per the provisions of section 2(22)(e), on account of funds that have been received as advances for sale of land which the company proposed to purchase and sell. The AO has given his findings in the assessment order that the advances received against the sale of land which the company proposed to purchase and sell is nothing but a transfer of accumulated R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d proposed to be purchased and sold. Out of Rs. 164 crores advance Rs. 70 crores was received from M/s Shashbindu Constructions Pvt. Ltd. The land proposed to be purchased and sold was not owned by the appellant company but by M/s Beeline Impex Pvt. Ltd & Pearl Cosmetics & Chemicals Pvt. Ltd. the said land was having certain legal issues and encumbrances due to which the development of the property was not possible. It is far-fetched that a real estate business entity would give/take an advance of crores of rupees to deal in such a property. It would not fall in the nature of a pure commercial transactions as claimed by the appellant company. Having no ownership/rights on the subject property the appellant company claimed to have received advances aggregating to Rs. 164 Crores for the proposed sale of the property even before the title to the property has been acquired or even before the property is fit for development. The appellant company in its submission speaks of the general practice in real estate sector, to accept advances against proposed sale of a property even before the proposed seller acquires the title to the property so as to get the proposed buyer committed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustainable on the facts of the case and in law and accordingly ground of appeal no. 1 is dismissed. The appellant company pray for restricting the addition u/s 2(22)(e) to 51 percent of Rs. 9, 30, 66, 244/- i.e. Rs. 4, 74, 64, 090/- being the shareholding of the appellant company in M/s. Shashbindu Constructions Pvt. Ltd. cannot be accepted for the detailed reasoning of the AO in the assessment order, wherein the AO has given the facts that the assessee company M/s ABIL Realty Private Limited is 100% owned by Shri Avinash N Bhosale & Amit Bhosale through ABIL Corporation Pvt Ltd. and M/s Shashbindu Constructions Pvt Ltd is also 100% owned by Shri Avinash N Bhosale & Amit Bhosale through ABIL Corporation Pvt Ltd (50% Avinash N Bhosale & 50% Amit Bhosale) and both being a company in which the public is not substantially interested and to the extent to which the company in either case possesses accumulated profits as per the provisions of section 2(22)(e). Therefore, ground of appeal no. 1 is dismissed." 6. Aggrieved with such order of Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1. Ld CIT(A) erred in confirming the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 2(22)(e) made by the A.O. without obtaining requisite approval for conversion of the case from limited scrutiny to complete scrutiny, was unsustainable in law. 8. However, the Ld. Counsel for the assessee did not press the additional ground No.1 for which Ld. DR has no objection. Accordingly, the additional ground No.1 is dismissed as not pressed. 9. So far as the additional ground No.2 is concerned, the Ld. Counsel for the assessee submitted that the said additional ground raised is purely legal in nature which goes to the root of the matter and all necessary facts are already available on record and no new facts are required to be investigated. Referring to the decision of Hon'ble Supreme Court in the case of the National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) and in the case of Jute Corporation Of India Ltd vs Commissioner Of Income Tax And Anr (1991) 187 ITR 688 he submitted that the additional ground raised by the assessee should be admitted. 10. After hearing both the sides and considering the fact that the additional ground raised by the assessee is purely legal in nature and all the material facts are already available on record and no new facts are r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not as bogus liabilities reflected to introduce assessee's own unaccounted income u/s 68, the scope of limited scrutiny on this issue should have ended there and the Assessing Officer could not have proceeded to carry out further enquiries on other tax aspects. 14. Referring to the CBDT Instructions on limited scrutiny cases dated 29.12.2015, 14.07.2016 and 30.11.2017, copies of which are placed in the paper book from pages 1 to 6, the Ld. Counsel for the assessee drew the attention of the Bench to the same and submitted that as per the said circulars which are mandatory on the department, the Assessing Officer has to confine the scrutiny assessment proceedings to the issues under limited scrutiny and in case he wants to expand the scope of the same for complete scrutiny or issues other than the issues that have been the criteria as per the limited scrutiny, he has to take permission from the PCCIT / PCIT. 15. Referring to the following decisions, he submitted that in all these decisions it has been held that where the addition made by the Assessing Officer is outside the ambit of reason for which the case was selected for limited scrutiny under CASS, then such addition is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of running account with the said party depending on business requirements. He submitted that in the earlier years from 2012 to 31.03.2015 the assessee company had lent interest free advances to the extent of around Rs. 61 Crs. to M/s. Shashbindu Constructions Pvt. Ltd. (SCPL) to satisfy its business requirements which has been admitted by the Assessing Officer in para 6.2 of his order. 19. Referring to para 6.2 of the order of the Assessing Officer, he submitted that the assessee has not charged any interest on the said advances. As against the same, the assessee during the year has received advances of around Rs. 70 Crs. from SCPL and thus, the net additional interest free advance received from SCPL in this year is around Rs. 10 Crs. Thus, when the assessee in the earlier years had bestowed a huge favour upon SCPL by advancing interest free funds of around Rs. 61 Crs. for business needs of SCPL and in consideration of the said favour, M/s. SCPL has advanced interest free funds of around Rs. 10 Crs. to the assessee company in this year, therefore, such interest free advance / loan given by SCPL in this year cannot be considered to be a gratuitous advance as contemplated u/s 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DT"), vide Instruction No. 7/2014 dated 26-9-2014 had clarified the extent of enquiry in certain category of cases specified therein, which are selected for scrutiny through CASS. Further clarifications have been sought regarding the scope and applicability of the aforesaid Instruction to cases being scrutinized. 2. In order to facilitate the conduct of scrutiny assessments and to bring further clarity on some of the issues emerging from the aforesaid Instruction, following clarifications are being made: i. Year of applicability: As stated in the Instruction No. 7/2014, the said Instruction is applicable only in respect of the cases selected for scrutiny through CASS-2014. ii. Whether the said Instruction is applicable to all cases selected under CASS: The said Instruction is applicable where the case is selected for scrutiny under CASS only on the parameter(s) of AIR/CIB/26AS data. If a case has been selected under CASS for any other reason(s)/parameter(s) besides the AIR/CIB/26AS data, then the said Instruction would not apply. iii. Scope of Enquiry: Specific issue based enquiry is to be conducted only in those scrutiny cases which have been selected on the parameter(s) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show-cause notice. 5. The contents of this Instruction should be immediately brought to the notice of all concerned for strict compliance. Sd/- (Ankita Pandey) Under Secretary to Government of India" 23. Further, Instruction No.5/2016 issued by the CBDT reads as under: "Instruction No. 5/2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 14th of July, 2016 Subject: Direction regarding scope of enquiry in cases under "Limited Scrutiny" selected through CASS 2015 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned regarding conducting "Complete Scrutiny" in such cases. 5. It is also clarified that once a case has been converted to "Complete Scrutiny", the AO can deal with any issue emerging from ongoing scrutiny proceedings notwithstanding the fact that the reason for such issue have not been included in the Note. 6. To ensure proper monitoring in cases which have been converted from "Limited Scrutiny" to "Complete Scrutiny", it is suggested, that provisions of section 144A of the Act may be invoked in suitable cases. To prevent possibility of fishing and roving enquiries in such cases, it is desirable that these cases should invariably be picked up while conducting Review or Inspection by the administrative authorities. 7. The above Instruction shall be applicable from the date of its issue and would cover the cases selected under CASS 2015 which are pending scrutiny cases as well as cases selected/being selected under the CASS 2016. 8. The contents of this Instruction may be brought to the notice of all for necessary compliance. 9. Hindi version to follow. Sd/- (Rohit Garg) Deputy Secretary to the Government of India" 24. Similarly, the CBDT on 30.11.2017 has iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uspension. 4. In view of discussion in the preceding paragraphs it is once again reiterated that the Assessing Officers should abide by the instructions of CBDT while completing limited scrutiny assessments and should be scrupulous about maintenance of note sheets in assessment folders. (Rakesh Gupta) ADO (V) HQ-I New Delhi" 25. A perusal of the above three instructions / circulars issued by the CBDT from time to time clearly and categorically shows that if during the course of assessment proceedings in limited scrutiny cases, it comes to the notice of the Assessing Officer that there is potential escapement of income exceeding certain limit requiring substantial verification on any other issue(s), then, the case may be taken up for "Complete Scrutiny" with the approval of the PCCIT / Pr. CIT / CIT concerned. Without taking prior approval of the PCCIT / Pr.CIT / CIT or Pr.DIT/DIT, the Assessing Officer cannot expand the scope of limited scrutiny to complete scrutiny. The CBDT has also cautioned the Assessing Officers who have travelled beyond their jurisdiction while making assessments in limited scrutiny by initiating inquiries on new issues without complying with the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the AO under CASS. As explained to this Court by the learned senior counsel appearing for the parties, the CASS is a system-driven identification of returns for limited scrutiny. The picking up of a return under CASS for scrutiny must be restricted only to the selected reasons. Therefore, it is procedurally legal for the AO to confine the scrutiny to the limited reasons selected under CASS. The AOs are not allowed to expand the limited scrutiny introduced through the faceless interface of scrutiny to other aspects, because the ease desired through CASS is effaced. The CBDT, in its jurisdiction, inputs, received and wisdom, restrained the AOs to the reasons for selecting a return under CASS and computing the assessment." 30. The various other decisions relied on by the Ld. Counsel for the assessee also supports his case to the proposition that once the case is selected for limited scrutiny under CASS for certain issues, the Assessing Officer cannot make any other addition by travelling beyond the issues for which the case was selected for limited scrutiny without taking the mandatory permission from the concerned PCIT / Pr.CIT for conversion of such "limited scrutiny" to "com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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