ORDER
R. S. Syal, Accountant Member - These five appeals by the assessee relate to the assessment years 2002-03 and 2005-06 to 2008-09. Since some common issues raised in this batch of appeals, we, are, therefore, proceeding to dispose them of by this consolidated order for the sake of convenience.
A.Ys. 2002-03, 2005-06 & 2006-07
2. A legal issue has been raised in these three appeals for the assessment years 2002-03, 2005-06 and 2006-07 to the effect that the additions made in these three years u/s 2(22)(e) of the Income-tax Act, 1961 (hereinafter also called 'the Act') are not sustainable because no incriminating material concerning such additions was found during the course of search and further the assessments for such years were not pending on the date of search.
3. Briefly stated the facts of the case are that the assessee was subjected to search and seizure action on 15.11.2007. Notices u/s 153A were issued requiring the assessee to file returns of total income for the relevant six assessment years. In so far as the assessment year 2002-03 is concerned, the assessee filed his return on 19.1.2009 declaring total income of Rs. 12,42,740/-. The assessment was finally completed on total income of Rs. 68,31,740/-, which inter alia included an addition of Rs. 3.89 lakh on account of deemed dividend u/s 2(22)(e) of the Act. Thereafter, the assessee filed rectification application u/s 154 against such assessment alleging that the accumulated profits of the payer companies were less than the amount of loan or advance given to the recipient companies. The AO got convinced with such application and reduced the addition under this section to Rs.37,162. The facts of the other two assessment years are mutatis mutandis similar qua the additions made u/s 2(22)(e) of the Act. The assessee took similar legal ground before the ld. CIT(A) as well, who chose to dismiss the same by observing that sec. 153A of the Act authorizes the Assessing Officer to assess 'total income' and accordingly, such assessment u/s 153A is not restricted only to the determination of the undisclosed income, which was the position under Chapter XIV-B of the Act.
4. The case of the assessee before us through such legal ground taken for these three assessment years is that the additions u/s 2(22)(e) of the Act are not sustainable because no incriminating material concerning these additions was found during the course of search. The ld. DR countered this contention by reiterating the opinion expressed by the ld. first appellate authority and also putting forth that the scope of sec. 153A of the Act is not limited to the additions on the basis of incriminating material found during the course of search, but to additions of any kind made with or without any incriminating material found during the course of search. She tried to justify her view by accentuating on the requirement of determining the 'total income' of the assessee u/s 153A of the Act.
5. We have heard the rival submissions and perused the relevant material on record in the light of the precedents cited at the Bar. In order to appreciate the rival contentions on this legal issue, it would be apt to consider sec. 153A, the relevant part of which reads as under:—
"153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall —
(a)
issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;
(b)
assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made :
Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:
Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate :
6. A careful perusal of the above provision brings to light that where a search is initiated u/s 132 of the Act etc., the A.O shall issue a notice requiring the person searched etc. to furnish his return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Once such returns are filed, the Assessing Officer has to assess or reassess the total income of such six assessment years. The decisive words used in the provisions are to 'assessee or reassess the total income'. Thus, it is manifest that a duty has been cast on the Assessing Officer to determine the 'total income' of the assessee for such six assessment years. Obviously 'total income' refers to the sum total of income in respect of which a person is assessable. It covers not only the income emanating from declared sources or any material placed before the Assessing Officer but from all sources including the undeclared ones, or unplaced material before the AO. The position which emerges on a reading of clauses (a) or (b) of sec. 153A(1) along with the first proviso is that the Assessing Officer is supposed to determine the 'total income' of the assessee in respect of the relevant six assessment years. Second proviso to sec. 153A(1) eclipses the afore discussed determination of 'total income'. The second proviso provides that any pending assessment or reassessment relating to any assessment year falling within the period of six years referred to in sub-sec. (1) on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. The effect of the second proviso is that any pending assessment or reassessment on the date of search for any assessment year falling within the period of relevant six assessment years shall abate and a fresh determination of 'total income would be required. Now a question arises that what is the effect of second proviso on the assessments for any assessment years falling within the period of six assessment years which are not pending on the date of search.
7. The ld. AR relied on certain tribunal orders including the special bench order in the case of All Cargo Global Logistics Ltd. v. Dy. CIT [2012] 137 ITD 287/23 taxmann.com 103 (Mum)(SB) and Asstt. CIT v. Pratibha Industries Ltd. [2013] 141 ITD 151/[2012] 28 taxmann.com 246 (Mum.) to buttress his contention that no addition can be made in respect of assessments concluded on the date of search unless some incriminating material is found during the course of search. In the oppugnation, the ld. Departmental Representative relied on the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Anil Kumar Bhatia [2013] 352 ITR 493/[2012] 211 Taxman 453/24 taxmann.com 98 (Delhi) and another unreported judgment dated 14.12.2012 of the Hon'ble Delhi High Court in the case of Madugulu Venu v. DIT (a copy placed on record) to assert that the completed assessment on the date of search shall stand on the same footing as the pending assessments within the meaning of second proviso to sec. 153A(1).
8. We are unable to accept the contention advanced on behalf of the Revenue for the reason that if both the pending and completed assessment were to be taken on same pedestal, then there was no need to enshrine second proviso to sec. 153A(1) providing that the pending assessments within the period of six assessment years shall abate. The Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (supra) dealt with a situation in which some incriminating material was found in respect of a non-pending assessment. It was in that background that the Hon'ble High Court held that sec. 153A applies if incriminating material is found even if assessments are completed. The question as to whether any addition can be made in respect of completed assessments when no incriminating material was found, was apparently left open. However, we find that there are sufficient indirect hints given by the Hon'ble Delhi High Court in the case of Anil Kumar Bhatia (supra) about not making of any addition in respect of an assessment year for which the assessment is already completed unless some incriminating material is found during the course of search. This can be seen from the following observations of the Hon'ble High Court :—
"20. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search. …"
9. The above extracted observations of the Hon'ble High Court, which are though obiter dicta, make the point clear that where an assessment order has already been passed for a year(s) within the relevant six assessment years, then also the A.O is duty bound to reopen those proceedings and reassess the total income but by 'taking note of the undisclosed income if any, unearthed during the search'. The expression 'unearthed during the search' is quite significant to denote that in respect of completed or non-pending assessments, the Assessing Officer is albeit duty bound to assess or reassess the total income but there is a cap on the scope of additions in such assessment, being the items of income 'unearthed during the search'. In other words, the determination of 'total income' in respect of the assessment years for which the assessments are already completed on the date of search, shall not be influenced by the items of income other than those based on the material unearthed during the course of search. There is not and cannot be any quarrel over the proposition that the Assessing Officer has no option but to determine the total income of the assessee in respect of the relevant six assessment years. However, the scope of such determination of total income is different in respect of the years for which the assessments are pending vis-vis the years for which assessments are non-pending. In respect to the assessment years for which the original assessments have already been completed on the date of search, the total income shall be determined by restricting additions only to those which flow from incriminating material found during the course of search. If no incriminating material is found in respect of such completed assessment, then the total income in the proceedings u/s 153A shall be computed by considering the originally determined income. If some incriminating material is found in respect of such assessment years for which the assessment is not pending, then the 'total income' would be determined by considering the originally determined income plus income emanating from the incriminating material found during the course of search. In the other scenario of the assessments pending on the date of search which would abate in terms of second proviso to sec. 153A(1), the total income shall be computed afresh uninfluenced by the fact whether or not there is any incriminating material. In fact, this is the position which follows when we read the judgment of the Hon'ble Delhi High Court in Anil Kumar Bhatia (supra) in juxtaposition to the special bench order in the case of All Cargo Global Logistics Ltd. (supra). The other judgment relied by the ld. DR in the case of Madugulu Venu (supra) also talks about the need for making fresh assessment in respect of the assessment years for which the assessments are not pending on the date of search but does not set out the scope of such assessment, which is the issue before use.
10. Adverting to the facts of the instant case for the assessment year 2002-03, we find that the dispute in the present appeal is only in respect of confirmation of addition of Rs. 37,162/- on account of deemed dividend u/s 2(22)(e) of the Act for which admittedly no incriminating material was found during the course of search. The factual position is similar for the A.Ys. 2005-06 and 2006-07 for which the additions to the tune of Rs. 50,31,375/- and Rs. 1,03,03,582/- respectively made u/s 2(22)(e) of the Act are in challenge before us. We find that the ld. CIT(A) has not controverted the contention advanced on behalf of the assessee despite the fact that the assessee categorically stated that no incriminating material was found on this score during the search operation. Even the ld. DR has also not invited our attention towards any such material. In view of the foregoing discussion, we are of the considered opinion that these additions made u/s 2(22)(e) of the Act are not sustainable since these were made without reference to any incriminating material found during the course of search and further the assessments for these three years were not pending on the date of search. Ergo, the impugned orders for these three years on this issue are set aside and the additions are directed to be deleted.
A.Ys. 2007-08 & 2008-09
11. In these two appeals, the additions made u/s 2(22)(e) of the Act in the assessment orders as confirmed in the first appeals for the A.Ys. 2007-08 and 2008-09 amounting to Rs.28,17,430 and Rs.2,96,060 respectively are challenged on merits because recourse to the above discussed legal ground is not available here. As the facts and circumstances of both the years are almost similar, we are espousing the factual matrix relevant for the A.Y. 2007-08. The Assessing Officer observed during the course of assessment proceedings that the assessee is a Chairman of BPTP Group and a registered shareholder in most of the companies of this group. The assessee is a substantial shareholder in M/s UAG Builders Pvt. Ltd., M/s Rainbow Promoters Pvt. Ltd. and M/s Genious Promoters Pvt. Ltd. which had received loans from certain other group concerns. In the separate assessments made of these three companies, additions amounting to Rs. 21,59,430/-, 4,58,000/- and Rs. 2,00,000/- respectively were made on account of deemed dividend u/s 2(22)(e) of the Act on protective basis. In such assessments, the Assessing Officer held that the substantive additions would be made in the hands of the registered shareholder, who is Mr. Kabul Chawla, the present assessee. The said companies contended in their respective first appeals that the provisions of deemed dividend were not attracted in their cases and the addition should be considered only in the hands of the registered shareholder. The ld. CIT(A) ordered for the deletion of such additions in the hands of the companies. In the present proceedings, the assessee changed the stand by arguing that the additions were not called for even in his hands. Not convinced, the Assessing Officer made additions u/s 2(22)(e) of the Act in the hands of the assessee on substantive basis. The ld. CIT(A) noticed that Shri Kabul Chawla, the present assessee, is beneficial owner having more than 20% of the voting right in both the payer as well as the recipient companies. The ld. AR relied on the judgment of the Hon'ble jurisdictional High Court in the case of Commissioner Of Income Tax v. Ankitech Pvt Ltd…. [2012] 340 ITR 14/[2011] 11 Taxmann.com 100/199 Taxman 341 (Delhi) to contend before the ld. CIT(A) that no addition could be made in the hands of the assessee. The ld. CIT(A) observed that the Hon'ble High Court in this case has held that if money is advanced to a concern by a company where there is shareholder having shares more than 10% of voting right and the same shareholder has substantial interest in such concern, then such advances cannot be treated as deemed dividend in the hands of such concern as such concern is not a registered shareholder of the payer company. Considering the mandate contained in para 24 of the judgment in the case of Ankitech (P.) Ltd. (supra), the ld. CIT(A) held that the amounts were rightly taxed as deemed dividend u/s 2(22)(e) of the Act in the hands of the assessee on substantive basis. The assessee is in appeal against the confirmation of such addition for both the years.
12. We have heard the rival submissions and perused the relevant material on record. It can be seen from the relevant assessment orders of the recipient companies, namely, M/s Genious Promoters Pvt. Ltd., M/s UAG Builders Pvt. Ltd. and M/s Rainbow Promoters Pvt. Ltd., copies of which have been placed by the ld. AR on record, that M/s Genious Promoters Pvt. Ltd. received a sum of Rs. 2 lakh as loan/advance from M/s Rainbow Promoters Pvt. Ltd. during the year. Similarly, M/s UAG Promoters Pvt. Ltd. received loan and advances amounting to Rs. 3,16,1,400/- from other two companies for which the A.O made addition of Rs. 21.59 lakh by considering the availability of accumulated profits. Similar is the position about the third company. It is pertinent to note that the present assessee, namely, Shri Kabul Chawla, a registered shareholder of the both the payer companies of loans or advances and also the recipient companies, is holding more than 50% share capital in both the sets of companies. The argument that the amount should not be taxed in the hands of these companies because they were not the shareholders in the payer companies found favour with the first appellate authorities of such recipient companies and the protective additions made in their hands have been finally deleted. Now the question in the extant appeals is whether the amount received by the recipient companies from the payer companies, in both of which the assessee is having shareholding of more than 50%, can be taxed as deemed dividend u/s 2(22)(e) of the Act ?
13. In order to find an answer to this question, we need to have a glance at the provisions of section 2(22) of the Act dealing with the definition of 'dividend'. This inclusive definition of 'dividend' has five clauses from (a) to (e). Clause (a) encompasses the definition of 'dividend' as is understood in common parlance, being any distribution by a company of accumulated profits , whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company. Next three clauses deal with any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form; any distribution made to the shareholders of a company on its liquidation; and any distribution to its shareholders by a company on the reduction of its capital. These four clauses from (a) to (d) clearly refer to the direct distribution of profits made by the company to its shareholders in different circumstances. Then comes clause (e), which does not deal with the direct distribution of profit to its shareholders but with the amount indirectly reaching the shareholders by way of advance or loan or otherwise through some indirect payment. At this juncture, it will be relevant to note down the prescription of clause (e) of section 2(22) of the Act, as under :—
'(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder , being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ;'
14. A close scrutiny of the above provision indicates that it is attracted when any payment is made by a company in which the public are not substantially interested, of the amounts paid under any of the following three categories : —
(a)
to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or
(b)
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
(c)
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 ;
15. It can be seen that these three categories contemplate, firstly, a loan or advance given to the shareholder himself ; or secondly a loan or advance give to a concern in which he is involved and has a substantial interest ; or thirdly any payment for the benefit of such shareholder. Though in the second and third categories, the amount is not directly reaching the shareholder, still it is deemed as dividend to such shareholder. As it is palpable that the dividend can be taxed only in the hands of a shareholder, there can be no question of treating this amount as dividend given to the actual recipient in the later two categories. The crux is that these three categories are mutually exclusive of each other and in all these situations, the amount is a deemed dividend in the hands of the shareholder. It is further paramount to note that as the above three categories are complement by the word 'or', the falling of a case in one of such categories brings it within the definition of deemed dividend u/s 2(22)(e). We are not concerned with the first category.
16. The second category deals with the giving of advance or loan by a company to any 'concern' in which such shareholder is a member or partner and in which he has substantial interest. The term 'such shareholder' as used in the second category draws reference from the first category, being a person who is the beneficial owner of shares holding not less than ten per cent of the voting power. Explanation 3(a) to sec. 2(22)(e) defines the term 'concern' to mean: 'a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company'. From the above definition of the term 'concern', it is clear that a 'company' is also included within its ambit. Coming back to the second category and by reading it in the light of the definition of the term 'concern', it can be seen that any payment made by the company of any sum by way of advance or loan to any company (concern) in which the shareholder holding not less than 10% of the voting power of the payer company is having substantial interest in the recipient company, shall be included within the second category of the definition of deemed dividend u/s 2(22)(e) of Act .
17. At this stage it is relevant to consider the observations made by the Hon'ble Delhi High Court in the case of Ankitech (P.) Ltd. (supra) as under:—
'24. The intention behind enacting provisions of s. 2(22)(e) is that closely-held companies (i.e. companies in which public are not substantially interested), which are controlled by a group of members, even though the company has accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become taxable in the hands of the shareholders. Instead of distributing accumulated profits as dividend, companies distribute them as loans or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder. In such an event, by the deeming provisions, such payment by the company is treated as dividend. The intention behind the provisions of s. 2(22)(e) of the Act is to tax dividend in the hands of shareholders. The deeming provision as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance.' (Emphasis supplied)
18. Reverting to the facts of the instant case, it can be seen that the present assesse, namely, Shri Kabul Chawla is a beneficial owner of more than 10% shares in the payer companies and further has substantial interest of more than 20% in the recipient companies. Patently, the case is covered in the second category of sec. 2(22)(e) of the Act and as such the amount has been rightly taxed in the hands of the assessee.
19. The ld. AR forcefully contended that in order to cover any amount within the ambit of deemed dividend it is sine qua non that the amount must reach the shareholder. He argued that once the conditions of second category are satisfied, the case should not ipso facto be covered under the third category, being any payment by any such company on behalf of or for the individual benefit of any such shareholder. He emphasized on the word 'or' employed between the first and second; and second and third categories of this provision. A case was made out that even though the amount falls under the second category, it should not be deemed as dividend unless it specifically falls in the third category as well. To put it simply, the contention was that even if a case falls in the second category, it cannot be deemed as dividend in the hands of shareholder unless it is shown that the loan or advance given to the said concern was for the benefit of the registered shareholder. Bolstering his point of view in this light, he stated that there can be no presumption that the amount of such loan or advance received by the concerns was handed over to the assessee-shareholder. As the Revenue had not shown that the amount of loan or advance received by the recipient companies did actually pass over to the assessee, the provisions of section 2(22)(e) were claimed to be not applicable.
20. We are not persuaded with this line of argument. To the extent it was argued that the word 'or' used between these categories should mean that all the categories are to be separately examined, we fully agree. But there is a fallacy in the other part of the submission that if a case falls in the second category, then unless it is specifically shown that it also falls under the third category also, there can be no presumption of deemed dividend. In fact, both the contentions made run counter to each other. We have noticed above that if a case is covered under either of the three categories, then the matter ends there and then. In such a situation, there is no need to examine the other categories. At the cost of repetition, we are mentioning that when a company gives loan or advance to any concern covered under the second category, the divided is deemed as income in the hands of the shareholder and not such concern. Position is similar for the third category as well. If the amount is given to a third person, which is for the benefit of the shareholder, the dividend is not deemed in the hands of such recipient but the shareholder. In all the three categories, it is the shareholder whose income is affected with the deemed dividend.
21. We have noticed above that the instant case is squarely covered within the second category. Certain loans or advances were given by some companies to some other companies (concerns) of the same group and the assessee is having substantial shareholding in both the sets of the payer and the recipient companies. It is because of such reasoning that the case falls under the second category and the amount is deemed as dividend in the hands of the assessee shareholder. We are not holding the amount to be taxable in the hands of the assessee because of the case falling in the third category as manifestly it is not a case of payment by the payer companies for the individual benefit of the assessee-shareholder, which is a situation contemplated in the third category. A careful look at the provision indicates that whereas 'payment by way of advance or loan' is relevant in the first and second categories, the third category simply provides for 'any payment', which may or may not be by way of advance or loan. Since the third category encompasses any payment by such companies on behalf or for the individual benefit of any such shareholder, there can also be payment falling under this category de hors advance or loan. As the amounts under consideration are advances or loans by one set of companies to another set and the Revenue has not made out a case that these were for the individual benefit of the assessee-shareholder, naturally, the case does not fall in the third category. Once a case falls under the second category, there is no further need to show that it should also falls in the third category. If this contention of the ld. AR is accepted and taken to a logical conclusion, then it would require substituting the word 'and' for the word 'or' used in the provision between the second and third categories, which is obviously contrary to the unequivocal language of the provision. This contention is, therefore, repelled as bereft of any force.
22. We, therefore, hold that the sums of Rs. 28,17,430/- for the assessment year 2007-08 and Rs. 2,96,060/- for the assessment year 2008-09 are deemed dividend of the assessee-shareholder under the second category of section 2(22)(e) of the Act and ex consequenti the ld. CIT(A) was fully justified in sustaining these additions.
23. In the result, the appeals for the A.Ys. 2002-03, 2005-06 and 2006-07 are allowed and for the A.Y.s. 2007-08 and 2008-09 are dismissed.
JYOTI