SRI KASANI GNANESHWAR,,HYDERABAD vs. ACIT, CIRCLE-2(1), HYDERABAD

The assessee has raised several grounds in his appeal however the crux of the issue is that the Ld. CIT (A) has erred in upholding the order of the Ld. AO who had made addition of Rs. 5,71,38,687/- invoking the provisions of section 2(22)(e) of the Act.

The brief facts of the case are that the assessee is an individual engaged as Director in M/s. Kasani Hotels and Resorts Private Limited. The case was reopened U/s. 147 / 148 of the Act because it was noticed that M/s. Kasani Hotels and Resorts Private Limited having book profit of Rs. 5,53,14,773, accumulated profit including reserves and surplus of Rs. 3,73,14,773/- for the relevant AY 2008-09 wherein the assessee is a Director holding more than 20% equity share had advanced an amount of Rs. 5,71,38,687/- to the assessee. During the course of assessment proceedings the assessee had explained that the assessee along with his family members had given their land to Amsri builders (partnership firm) by way of registered development agreement and towards the same some amount was received and subsequently based on the same transaction once again Amsri Group of business entities advanced an amount of Rs. 4 Crs and Rs. 15,45,00,000/- to M/s. Kasani Hotels and Resorts Private Limited & M/s. Kasani Constructions private Limited respectively which is a Group concern of the assessee and his family wherein he is a Director. It was further argued that since M/s. Kasani group of Companies had received the money from Amsri Group of business entities due to the business arrangement between the assessee and his family (who had substantial interest in Kasani group of Companies) with Amsri Group of business entities, it cannot be said that funds belonging to Kasani group of Companies were withdrawn by the assessee because they had only acted as intermediaries. It was therefore pleaded before the Ld. AO that the provisions of section 2(22)(e) will not be attracted in the case of the assessee. However, the Ld. AO arrived at the conclusion that since the assessee is having substantial interest in M/s. Kasani Hotels and Resorts Pvt Ltd., by holding more than 20% shares the provisions of section 2(22)(e) of the Act would be applicable as the assessee had not furnished any information called for on the funds received. Accordingly, he made an addition of Rs. 5,71,38,687/- in the hands of the assessee invoking the provisions of section 2(22)(e) of the Act.

On appeal, the Ld. CIT (A) upheld the order of the Ld. AO because the Ld.CIT(A) was of the view that the assessee had not produced any evidence to establish that the money withdrawn by the assessee from M/s. Kasani Hotels and Resorts Pvt Ltd., was with respect to the amount received by M/s. Kasani group of Companies from Amsri Group of business entities due to the development agreement between the assessee and his family with Amsri Group of business entities. In the opinion of the Ld.CIT(A) since no such evidence was produced, he held that it was only self-serving story and therefore confirmed the addition.

Before us, the Ld. AR reiterated the arguments made before the Ld. Revenue Authorities and further submitted two paper books containing various documents. He also asserted that the Paper Books placed before us was also before the Ld. Revenue Authorities at the time of hearing. The Ld. AR further pleaded that the amount received by the assessee from M/s. Kasani Hotels and Resorts Pvt ltd., was actually due to him and his family from Amsri Group of business entities. It was further submitted that Kasani group of Companies had acted only as conduit because the assessee and Kasani Group of Companies are of the same Group. It was therefore pleaded that the addition made by the Ld. AO invoking the provisions of section 2(22)(e) of the Act which was further confirmed by the Ld. CIT (A) may be deleted. The Ld. DR on the other hand, vehemently argued in support of the orders of the Ld. Revenue Authorities.

We have heard the rival submissions and carefully perused the materials on record. On perusing the paper books[which was also placed before the Ld.AO as well as the Ld.CIT(A) as stated by the Ld.AR and not controverted by the Ld.DR] filed by the assessee, it is evident that the assessee and his family had entered into a development agreement with M/s.Amsri Group of business entities. From the statement of accounts submitted by the assessee which are placed in the paper books mentioned hereinabove, it also clear that the facts elaborated by the Ld. AO in para 4.1 of the order does not seem to be appropriate. It is also evident from the paper books(mentioned hereinabove) that the assessee along with family members had business transaction with M/s. Amsri Group of business entities and certain amount was paid by the Amsri Group of business entities to M/s. Kasani Hotels and Resorts Pvt Ltd., and to M/s. Kasani Constructions Pvt Ltd., [(P.B page No.68 wherein M/s Amsari Builders is shown under the head current liabilities for Rs. 4,00,00,000/- in the books of M/s.Kasani Hotels and Resorts Pvt Ltd., as on 31/03/2008) (P.B. page No.39 wherein M/s. Amsri Builder is shown under the head Sundry Creditors for Rs.15,45,00,000/- in the books of M/s. Kasani Constructions Pvt Ltd., as on 31/03/2008)]. Further it is also evident from P.B.page No.39&64 that M/s. Kasani Constructions Pvt Ltd., had advanced an amount of Rs, 5,07,15,548/- to M/s.Kasani Hotels and Resorts Pvt Ltd., as on 31/03/2008. It is also not in dispute that the assessee is a Director having substantial shares along with his family members in M/s.Kasani group of Companies. Moreover, there is nothing on record to establish that there is any business transaction between M/s Amsri group of concerns and M/s. kasani group of Companies. Apparently, the business transaction is only between the assessee and his family members with M/s.Amsri group of concerns. In this situation, the explanation presented by the assessee cannot be simply brushed aside. If the assessee has withdrawn the amount from M/s. Kasani group of Companies which was received from Amsri Group of business entities due to the business transaction between the assessee and his family members with Amsri Group of business entities then it cannot be said that M/s. Kasani group of Companies has extended loan to the assessee. In such circumstances, it is only an instance where M/s. Amsri Group of business entities had paid the amount to the assessee / assessee’s family through M/s. Kasani Constructions Pvt Ltd., and M/s. Kasani Hotels and Resorts Pvt Ltd. Since the amount withdrawn by the assessee from M/s. Kasani Hotels and Resorts Pvt Ltd., is not the fund belonging to M/s. Kasani Hotels and Resorts Pvt Ltd., the provisions of section 2(22)(e) of the Act shall not be attracted in the hands of the assessee. Further, from the facts of the case and the Paper Books submitted before us which is part of the materials placed before the Ld.A.O and Ld. CIT(A), there is nothing on record to suggest that there is any business relationship between M/s. Amsri Group of entities and M/s. Kasani Group of Companies other than the business transaction between M/s. Amsri group of companies with the assessee and his family members. Hence it is obvious that M/s. Kasani Group of Companies had been only used as a conduit by M/s. Amsri Group of companies to deliver the money to the assessee and his family. In such situation, the financial transaction between the M/s. Kasani Hotels and Resorts Pvt Ltd., and the assessee cannot be treated as loan transaction. Therefore, the provisions of section 2(22)(e) of the Act shall have no application in the case of the assessee. For the above stated reasons, we hereby direct the Ld. AO to delete the addition made by invoking the provisions of section 2(22)(e) of the Act in the case of the assessee.

In the result, appeal of the assessee is allowed. Pronounced in the open Court on 24th February, 2020.