HIMGIRI REALTORS PVT. LTD.,NEW DELHI vs. ITO, WARD- 11(3), NEW DELHI

Ground No.1 raised by the assessee is general in nature, hence does not require any adjudication.

With regard to Ground No.2, the relevant facts are, during the course of assessment proceedings, Assessing Officer observed that assessee had Rs.21,68,65,877/- as on 31.03.2012. Vide notice under section 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) was issued to the assessee to furnish the details of the abovesaid short term loan along with documentary evidences and confirmations. In response, assessee has submitted details of the short term borrowings as under :- S.No. Company Name Amount (in Rs.) 1 Aeren R Enterprises Pvt. Ltd. 1,01,52,625/- 2 Pivot Buildcon Pvt. Ltd. 6,82,50,000/- 3 Shree Mahesh Realtors Pvt. Ltd. 2,33,47,000/- 4 Smart Estates Pvt. Ltd. 1,14,00,000/- 5 Global Distributors Ltd. 10,37,16,000/- 6 Aeren R Infrastructure Pvt. Ltd. 252/- Total 21,68,65,877/-

Based on the above information, notice u/s 133(6) of the Act was issued to each parties. In response, requisite informations were received from respective parties. Based on the above information, assessee was issued a separate notice asking to submit the supporting documentary evidences as to why provisions of section 2(22)(e) of the Act cannot be invoked in the loan taken from sister concern. In response, assessee has submitted that assessee has taken short term loans from Shree Mahesh Realtors Pvt. Ltd. and Smart Estates Pvt. Ltd. and it was submitted that the assessee is not the shareholder in those abovesaid group companies. Therefore, provisions of section 2(22)(e) of the Act are not applicable. However, Assessing Officer rejected Aeren R Enterprises Pvt. Ltd. is the common shareholder of following concerns having substantial interest as under :- S.No. Name of the concern Percentage of Accumulated shareholding profit for A.Y. 2012-13 1 M/s. Himgiri Realtors Pvt. Ltd. 82.00% - 2 M/s. Shree Mahesh Realtors Pvt. Ltd. 81.50% Rs.67,59,953/- 3 M/s. Pivot Buildcon Pvt. Ltd. 99.99% Loss 4 M/s. Smart Estates Pvt. Ltd. 99.99% Rs.4,13,08,434/- and also observed that the assessee is a subsidiary of abovesaid company and borrowed short term borrowings from M/s. Shree Mahesh Realtors Pvt. Ltd. and M/s. Smart Estates Pvt. Ltd.. He observed that both the abovesaid companies having accumulated profits to the extent of Rs.67,59,953/- and Rs.4,13,08,434/- respectively. The Assessing Officer considered various case laws relied upon by the assessee and by relying on the definition of section 2(22)(e) of the Act, observed that in the present case, Aeren R Enterprises Pvt. Ltd. is a holding company through its sister concern borrowed money from other subsidiary company which has substantial accumulated profits, therefore, in the present case, provisions of section 2(22)(e) of the Act is attracted and accordingly to the extent of accumulated profits in Shree Mahesh Realtors Pvt. Ltd. and to the extent of short term loans taken from M/s. Smart Estate Pvt. Ltd. were added as deemed dividend to the extent of Rs.1,81,59,953/-.

Aggrieved assessee is in appeal before us.

At the time of hearing, ld. AR of the assessee brought to our notice page 9 of the assessment order and submitted that assessee has borrowed short term loan from other sister concerns and he heavily relied on the decision of Hon’ble Delhi High Court in the case of Ankitech Pvt. Ltd. vs. CIT 340 ITR 14, brought to our notice that Assessing Officer has not followed the abovesaid decision. Further he brought to our notice page 8 & 9 of the appellate order and submitted that ld. CIT (A) has sustained the addition based on the observation that M/s. Aeren R Enterprises Pvt. Ltd. holds more than 20% shareholding in both payer and payee companies. He submitted that the case laws relied upon by the ld. CIT (A) are distinguishable to the facts of the present case. He submitted that Hon’ble Delhi High Court in the case of Ankitech Pvt. Ltd. (supra), in which the Special Bench decision in the case of Bhaumik Colour Pvt. Ltd. was relied upon, held that the expression ‘shareholder being a person who is the beneficial owner of shares’ referred to in the first limb of section 2(22)(e) which refers to registered shareholder and beneficial shareholder. Further he brought to our notice pages 68 & 69 of the paper book wherein Hon’ble Supreme Court in the case CIT vs. M/s. Madhur Housing and Development Company (2018) 401 ITR 152 (SC) has upheld the abovesaid decision and prayed that the above addition may be deleted.

Considered the rival submissions and material placed on record. We observe that assessee has borrowed short term loans from the other sister concerns, namely, Shree Mahesh Realtors Pvt. Ltd. and M/s. Smart Estates Pvt. Ltd. are subsidiary of M/s. Aeren R Enterprises Pvt. Ltd. who held substantial shareholding in these companies and they held 82% shareholding in the case of the assessee, 81.50% in the case of Shree Mahesh Realtors Pvt. Ltd. and 99.99% in case of M/s. Smart Estates Pvt. Ltd. From the above facts available on record, we observe that assessee does not have any shareholding in Shree Mahesh Realtors Pvt. Ltd. and M/s. Smart Estates Pvt. Ltd.. The definition of deemed dividend in section 2(22)(e) of the Act is as under :-

From the above definition, a company in which public are not substantially interested makes a payment by way of advance or loan to a shareholder, being a person who is beneficial owner of shares holding not less than 10% of the voting power. In such situation, provisions of section 2(22)(e) are attracted. In the given case, M/s. Aeren R Enterprises Pvt. Ltd. is having substantial interest in the companies, Shree Mahesh Realtors Pvt. Ltd., M/s. Smart Estates Pvt. Ltd. and assessee. However, in the given case, Shree Mahesh Realtors Pvt. Ltd. and M/s. Smart Estates Pvt. Ltd. has given short term loans to the assessee and assessee is not a beneficial shareholder nor a registered shareholder. Therefore, the concept of section 2(22)(e) of the Act is not attracted in the given case. Further in the second limb of the definition, a payment is made to any concern in which such shareholder is a principal of a partner or in which the shareholder has a substantial interest or any payment by any such company on behalf or for the individual benefit of such shareholder to the extent to which such company possess accumulated profit.

With regard to Ground Nos.3 & 4, the relevant facts are, during assessment proceedings, the Assessing Officer observed that assessee has taken unsecured loan of Rs.10,37,16,000/- from Global Distributors Limited. When the details were asked assessee has furnished the relevant details vide letter dated 15.04.2014. In order to verify the same, notices u/s 133(6) of the Act were issued to Global Distributors Limited. In response, they submitted the details including bank statement of OBC Bank, Safdarjung Enclave, New Delhi. After analysing the bank statement which is reproduced at pages 12 to 17 of the assessment order, Assessing Officer observed that there are frequent deposits and frequent withdrawals and they kept minimum balance of Rs.20,000/- after each withdrawal and all the withdrawals are mostly goes to M/s. Aeren Group of companies including the assessee company. The M/s. Lalji Handicraft. After observing the same, summons were issued to the Principal Officer of Global Distributors Limited for personal deposition and the Inspector was deputed. Assessing Officer has reproduced the Inspector report at pages 18 to 21 of the assessment order. He recorded the statements of one of the Directors of the company, Shri Brij Bhushan Sharma and the Assessing Officer has reproduced the same in the assessment order. He has recorded various discrepancies from the statement and finally observed that both the Directors of Global Distributors Limited are also Directors of Aeren Group/companies. He invoked the provisions of section 68 of the Act and relied on several decisions, observed that the transactions with these companies are unusual in nature in character. He held that the transaction with Global Distributors Limited are sham transactions. Accordingly, he held that the assessee has not proved creditworthiness and genuineness of the transactions. Accordingly, he disallowed whole unsecured loan received from them u/s 68 of the Act.

Aggrieved with the above order, assessee is in appeal before the ld. CIT (A). Ld. CIT (A) after considering the detailed submissions held as under :- “4.3.3.3. A search and seizure operation was conducted of M/s Aeren Group of companies on 17.0B.2011 and during the course of search operation, some of the connected entities were also covered including MIs Global Distributors Ltd., 4B, Bhagwaan Nagar, Hari Nagar, Ashram, New Delhi. During the course of survey on M/s Global Distributors Ltd., it has been noticed by the Investigation Wing that Sh. Ravinder Saini is not having any information about the business activities of M/s, Global Distributors Ltd. As noted by the AO, Brij Bhushan Sharma, the other director of MIs Global Distributors Ltd. during the' course of his statement recorded on 25.03.2015 has stated that board of directors take decisions with the help of shareholders regarding investments, advancing loans and other loan transactions. Brij Bhushan Sharma in his statement has stated, in regard to the transaction between assessee company and MIs Global Distributor Ltd, at one place as investment and at another place as advance for purchase of commercial space. The observation of the AO that merely filing some papers in supports of its transactions cannot be termed as genuine transactions is correct. The above facts have now left no doubts that M/s Global Distributors Ltd. is working/ acting/ transacting on the directions of Aeren Group of companies and appellant company is one of the concerns of the. group. The appellant company has failed to prove the genuineness of the transactions between appellant company and M/s Global Distributors Ltd. Section 68 of the Income-Tax Act, 1961 provides that, where any sum is found credited in the books of assessee maintained for any previous year, and the assessee offers no explanation about the nature and source therefore the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory; the sum so credited may be charged to income-tax as the income of the assessee for that previous year. The burden of proof is heavily cast on the assessee. First of all, he must furnish an explanation as otherwise the cash credit will be treated as his income. Secondly, the explanation offered must be to the satisfaction of the Assessing Officer. It is by now well-settled that what all is required from the assessee by way of explanation is, (i) that he must establish the identity of the payer; (ii) that he must prove the creditworthiness of the payer, and (iii) that he must prove the genuineness of the transaction. 4.3.3.4. The submissions filed by the appellant company have been considered and not found to be tenable. The case laws cited by the appellant are distinguishable in facts. Therefore, the AO has correctly treated the unsecured loans of Rs.10,37,16,000/- received by the appellant as non- genuine and actually being income of the appellant from undisclosed sources and brought to tax u/s 68 of the LT. Act, 1961. I find no reason to interfere with the AO's order on this issue. Appeal on Ground No.2 is dismissed.”

Aggrieved assessee is in appeal before us.

At the time of hearing, ld. AR of the assessee brought to our notice page 12 of the assessment order and submitted that at page 12 of the assessment 15.04.2014 the assessee submitted details of borrowings aggregating to Rs.21,68,65,877/- stating the name, address, PAN and amount of all of the six creditors and the AO made independent inquiry by sending notice dated 19.12.2014 u/s 133(6) to M/s Global Distributers Pvt Ltd.. In response to such notice, required details were filed along copy of sole bank account in OBC by M/s Global Distributors Pvt Ltd. which is reproduced in para 4.2 at Pgs. 12 to 17 of the assessment order. He further submitted that at page 18 of the assessment order, the AO pointed out suspicions from the pattern of deposits and withdrawals in the bank account of M/s Global Distributors Pvt. Ltd and at page 50, as per letter dated 05.03.2015 which was submitted on 09.03.2015 and this letter is reproduced in the assessment order. Global Distributers Pvt Ltd. has also submitted that the credit has duly been accounted for in the books of account and return of income and copy of return of income, audit report, balance sheet and profit and loss account were submitted with the said letter. It was stated that no interest was received or paid to the M/s Himgiri Realtors Pvt. Ltd. (M/s Himgiri) by M/s Global Distributers Pvt Ltd. also submitted confirmation of loan transaction along with bank statement and also details of shareholders alongwith their shareholding pattern. He further submitted that at page 19 of the assessment order, to further verify, the AO issued summons u/s 131 of the Act to M/s Global Distributers Pvt. Ltd. which were sent through Inspector Inspector served the summons. He submitted that the AO examined Shri Brij Bhushan Sharma, director of M/s Global Distributers Pvt Ltd. on 25-03- 2015 and statement so recorded that is reproduced in para 4.5 at Pgs. 21 to 28 of the assessment order 14. Further he brought to our notice copy of the Collaboration Agreement dated 06.07.2006 and also Arbitration Award dated 11.03.2019. He submitted that assessee is a claimant and other recipients are M/s. Delhi Chemical & Pharmaceutical Works Pvt. Ltd. and Shri Ameet Sharma, Shri Samir Dev Sharma, Mrs. Savita Sharma and Shri Nitindev Sharma and he also brought to our notice relevant points of award. It is submitted that at page 70 and 71 of the paper book, repeated demand notices issued by UPS1D between 28.12.2010 to 21.11.2011 for a sum of Rs.15,83,01,487.81 and Sole Arbitrator Tribunal was appointed by Hon'ble Delhi High Court as per order dated 03.08.2012. He further submitted that at pages 71 to 75, the terms of agreement are summarized by the Tribunal and in lieu of development rights and subsequent sale of the developed projects the claimant was to pay a sum of Rs.72,00,00,000/-(clause-8, P .72). He submitted that at pages 80 & 81, issues to be adjudicated are framed. He further submitted that at pages 84 & 85, Issue No.2 relate to fraudulent act on behalf of claimant and it is found in para 58 that there was no fraud happen to be proved, thus, agreement was not fraudulent. At page 101, it is submitted that a finding is recorded that claimant was ready and willing, has substantial interest in performance of the agreement and the delay was on the part of the Respondent. He submitted that at page 103, the claimant is entitled to get adequate compensation for the breach committed by the Respondents and not for specific performance. Further at pages 105 & 107, it is submitted that after examining the evidences, the claimant is held entitled for a sum of Rs.11,07,26,765/- on account of entire investment and expenditure, the claimant is entitled to a sum of Rs.1,00,00,000/- for several acts and deed carried out in furtherance of agreement. He submitted that at pages 107 & 108, additional compensation of Rs.1,00,00,000/- on account of FAR etc. and the aforementioned amounts were to be paid within a period of four months from the date of a ward and if not paid shall bear the interest at the rate of 11% per annum.

Further he submitted that from the above award, it is ascertainable that the collaboration agreement between the assessee company and Delhi Pharmaceuticals Works Pvt Ltd. along-with its key persons, assessee company made substantial investments of money and time and since value of land under development become more valuable with the passage of time, the owners of' the land started creating hurdles and difficulties in 2011, however, assessee company was very confident about carrying on this project in their favour, therefore, arbitration proceedings were initiated which were also Delhi High Court. As per order dated 03.08.2012 retired justice Dr. Mukandakarn Sharma was appointed as an arbitrator and award was rendered on 11.03.2019, the main points of award are highlighted above. In the aforementioned facts and circumstances, it is the case of the assessee company that addition of Rs.10,37,16,000/- has wrongly been made by the AO and has wrongly been upheld by Ld. CIT (A). Therefore, it is requested that the present charts may be considered with the paperbook of 125 pages being submitted today.

On the other hand, ld. DR of the Revenue brought to our notice page 28 of the assessment order and submitted that the Director, Shri Brij Bhushan Sharma is a signatory and full time Director but without receiving any salary or remuneration, he only reports whenever required and further submitted that Global Distributors Limited does not have any staff, employees or professionals. Further he submitted that Global Distributors Limited had invested Rs.10,37,00,000/- in projects situated at Ludhiana of M/s. Aeren Entertainment Zone Ltd. and project in Sahibabad of assessee whereas no supporting documents or evidences were produced/furnished in support of abovesaid claim and Global Distributors Limited has paid interest of Rs.10,07,165/- on receipt of advances from other parties whereas they do not charge any interest on the unsecured loan of the assessee company. Further he brought tour notice that Global Distributors Limited is neither having any profit making apparatus nor any profit generating activity. It does not charge any interest on its so called loans given to the assessee whereas it pays interest to other parties. He also brought to our notice various observations of the Assessing Officer relating to audited accounts of Global Distributors Limited. Further he brought to our notice statement of Brij Bhushan Sharma to Question Nos.13, 15 & 16 wherein he has accepted that funds were invested in the projects in Sahibabad (Uttar Pradesh) and he has managed affairs of Global Distributors Limited. However, he expressed that he does not remember possible shareholders or Directors. Further he brought to our notice page 44 of the assessment order and brought to our notice observations of the Assessing Officer wherein Assessing Officer has expressed that the transaction between the assessee company and its alleged lenders are unusual in nature, he read out para 4.12 and 4.15 of the assessment order and submitted that whole transaction is sham. Further he submitted that assessee has not clarified whether investments made by Global Distributors Limited are in the nature of investment or loan. With regard to arbitration order, he submitted that it was not submitted before the lower authorities.

In the rejoinder, ld. AR brought to our notice Balance Sheet of Global Distributors Limited which is placed in page 42 of the paper book and wherein they have declared the transactions in the project as long term borrowings and with regard to payment made to the assessee, it is declared as long term loans and advances. He submitted that these transactions recorded by Global Distributors Limited and the arbitration award prove that the transactions are genuine.

Considered the rival submissions and material placed on record. We observe that the Assessing Officer called for various loans and advances received by the assessee and observed that the assessee has received huge unsecured loan from Global Distributors Limited and during assessment proceedings, the Directors of Global Distributors Limited were called for and submissions were recorded. The Assessing Officer observed that most of the transactions of Global Distributors Limited are with Aeren Group of companies and Assessing Officer observed various discrepancies entered with them. From the records brought on our notice, we observe that Global Distributors Limited has invested in projects in Sahibabad (Uttar Pradesh) and assessee has received an advance from Global Distributors Ltd.. The Assessing Officer himself accepted that Global Distributors Ltd. is involved in various transactions within the group. The Directors of Global Distributors Ltd. are also the Directors in the other group entities. It proves the identity and the group has substantial resources, again it proves the creditworthiness.

Coming to the genuineness of the transaction, Global Distributors Ltd. has already recorded the above transactions in their books of account and also filed the confirmation. The Award in favour of the assessee awarded in the arbitration proceedings proves that the transaction is genuine. The various evidences brought on record cannot be set aside and has to be considered with the facts brought on record. The Assessing Officer merely observed that the transactions are carried continuously and maintained minimum balance in the bank account does not prove anything. The fact that the arbitration has awarded favourably to the assessee shows that the financial transaction has in fact carried on with the Global Distributors Ltd.. Therefore, the assessee has already proved the genuineness by filing the arbitration award before us. Therefore, we are inclined to accept that the assessee has proved the genuineness of the transaction and in our view, there is no requirement to remit this issue back to lower authorities for verification and it will not serve any purpose. Therefore, we are inclined to allow the ground nos.3 & 4 raised by the assessee.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 9th day of July, 2025.