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Facts
The revenue appealed against the CIT(A)'s order deleting additions made under Section 2(22)(e) of the Income Tax Act, 1961. The additions pertained to a loan received by the assessee, which the AO treated as deemed dividend, alleging a colourable transaction structure involving intermediaries. The assessment year was 2017-18, and search proceedings under Section 153A were initiated.
Held
The Tribunal held that for additions to be made under Section 153A in unabated assessment cases, there must be incriminating material found during the search. The Tribunal found that no such material was unearthed. Furthermore, the loan transaction did not fall within the ambit of Section 2(22)(e) as the entities involved were listed NBFCs and the transactions were in the ordinary course of business. Therefore, the deletion of additions by the CIT(A) was upheld.
Key Issues
Whether additions under Section 2(22)(e) can be made in unabated assessment cases during search proceedings without any incriminating material, and if the loan transaction falls within the scope of Section 2(22)(e).
Sections Cited
2(22)(e), 153A, 143(2), 143(3), 132, 132A, 263, 80HHC, 147
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
Date of Hearing 09.09.2025 Date of Pronouncement 13.10.2025 ORDER Per: SHRI. SANDEEP GOSAIN, J.M.:
The present appeal has been filed by the revenue challenging the impugned order dt. 03.04.2025 passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2017-18. The revenue has raised the following grounds of appeal:
1. The Ld.CIT(A) ought to have appreciated that the addition under section 2(22)(e) is based on material available on record, including financial transactions and shareholding patterns, which are relevant and sufficient for determining total income under section 153A, irrespective of whether such material was seized during search.
2. The Ld.CIT(A) erred in deleting the addition of Rs.6,29,50,407/- made under section 2(22)(e) of the Act by the Assessing Officer, ignoring the clear findings regarding the pre- arranged, colourable transaction structure involving pass through entities, ultimately leading to indirect receipt of funds by the appellant from M/s Subhkam Venture Pvt.Ltd., in which the appellant holds substantial shareholding.
3. The Ld.CIT(A) erred in accepting the appellant's explanation regarding commercial loans from a listed NBFC(Authum) without appreciating that the NBFC merely acted as a conduit to route funds originating from a shareholder company, thereby frustrating the intent of section 2(22)(e) 4. The Ld.CIT(A) failed to appreciate that the AO had rightly invoked the provisions of section 2(22)(e) based on detailed fund trail analysis, substantial shareholding of the appellant in Subhkam, and the colourable structuring adopted to avoid tax on deemed dividend. 5. The Ld.CIT(A) erred in applying a narrow interpretation to section 2(22)(e), whereas the provision, as per settled judicial interpretation, encompasses indirect loans or advances routed through intermediaries, especially when such routing is pre- arranged with the intent to avoid tax implications.
All the grounds raised by the revenue are interrelated 2. and interconnected and relates to challenging the order of Ld. CIT(A) in deleting the additions made by AO u/s 2(22)(e) of the Act, therefore we have decided to adjudicate the same through present consolidated order.
We have heard the counsels for both the parties, perused the material placed on record, judgements cited before us and also the orders passed by the revenue authorities. From the records we noticed that as per the facts of the present case a search u/s 132 of the Act was conducted on the assessee along with the search Rakesh Kothotia, Mumbai. conducted on M/s. Subhkam Capital Ventures Pvt ltd and its Group concern on 25.03.2021. After serving statutory notices, the assessment u/s 153A of the Act was passed thereby making additions of Rs. 6,29,50,047/- by treating the loan received from M/s. Authum Investment as deemed dividend u/s 2(22)(e) of the Act.
Aggrieved by the said decision, the assessee preferred appeal which was allowed by Ld. CIT(A) by deleting the additions. Consequently the present appeal has been filed by raising aforementioned grounds.
At the time of hearing Ld. DR specifically argued that additions u/s 2(22)(e) were made based on material available on record including financial transactions and shareholding patterns, which are relevant and sufficient for determining the total income u/s 153A, irrespective of the fact whether such material was sized during the search or not. It was further submitted that Ld. CIT(A) ignored the clear findings regarding the prearranged, colourable transactions structure involving pass through entities, ultimately leading to indirect receipt of funds by the assessee from M/s. Subhkam Venture Pvt Ltd., in which the assessee himself holds substantial share holdings. It was further submitted that Ld. CIT(A) ignored the fact that NBFC merely acted as conduit to route funds originating from a shareholder company thereby frustrating the intent of Sec. 2(22)(e) of the Act. Thus the AO had rightly invoked the said provisions based on detailed fund trail analysis, substantial shareholding of the assessee in M/s. Subhkam and the colourable structuring adopted in avoiding tax on deemed dividend.
Whereas on the contrary Ld. AR relied up the detailed submissions filed by the assessee before Ld. CIT(A) and the same is reproduced herein below:
"The Appellant filed his return of income originally for the aforesaid assessment year 2017-18 on 28.10.2017. The Appellant's case for the assessment year 2017- 18 was selected for scrutiny and notices u/s. 143(2)/142(1) of the Income-tax Act. 1961 (the "Act") were issued, asking various requisitions / queries / questionnaires as contained therein, which were duly complied with by the Appellant. Thereafter, assessment was completed by passing order dated 18.12.2019 u/s. 143(3) of the Act, which attend finality in all respects, and was an unabated assessment for all intent and purposes. Thereafter, pursuant to the search conducted on 25.03.2021 as stated above, proceedings were initiated against the Appellant and notices u/s. 153A of the Act were issued for several years, including for the assessment year 2017-18 on 18.12.2021 as stated above. Pursuant thereto, the Appellant filed return of income for the assessment year 2017-18 on 20.12.2021. After filing of the return, the Appellant vide his letter dated 10.03.2022 objected for the proceedings initiated against the Appellant and also requested the Ld. AO to treat the return filed in pursuance of notice u/s. 153A of the Act "as filed under protest and without prejudice to any rights and/or contention in the matter", as the proceedings u/s. 153A of the Act is without jurisdiction, bad in law, illegal and void ab- initio for the reasons shortly discussed therein. The copy of the said letter dated 10.03.2022 is enclosed herewith as per Annexure - II herein for your honours' ready reference in the matter. While passing the said impugned assessment order dated 27.03.2022, the Ld. AO rejected the objection/claim of the Appellant by observing as under:
"As the issue is under dispute and is pending before the Hon'ble Apex Court for adjudication [being SLP No.18506/2015 of the Revenue being already admitted by SC on 12.10.2015 in the case of - CIT-II, Thane vs. Continental Warehousing Corporation (Nhava Sheva) Ltd) and on similar issue, another Hon'ble High Court [i.e. Karnataka High Court in the case of M/s. Canara Housing Development Co (274 ITR 122) dated 25.07.2014] has decided the issue in the favour of revenue, stand taken by the assessee in submission is not acceptable at all, therefore, hereby rejected. (The aforesaid, in short, is the summarized version of what has been stated/observed by Ld. AO under para 7.1 and 7.2 of the impugned assessment order dated 27.03.2022) However, while rejecting the objection/claim of the Appellant as stated above, there is nothing on the record (including in the said impugned assessment order dated 27.03.2022) which reveals or states that the addition made by Ld. AO is based on any incriminating material; and therefore, it is explicitly clear, without any ambiguity whatsoever, that the addition made while passing the said impugned assessment order dated 27.03.2022 is not based on any incriminating material found during the course of search, i.e. in other words, no incriminating material was found during the course of search. Had the Ld. AO found or considered any material as incriminating, he definitely would have referred the same, but he did not, meaning thereby that he had not found any material which, according to him, can or could be described or categorized as incriminating material. Accordingly, not finding any incriminating material during course of search and seizure action, the Ld. AO merely relied upon the court decisions/cases as referred hereinabove (also, in this respect, reference may be made to what has been stated and/or observed by Ld. AO under para 7.1. and 7.2 of the said impugned assessment order dated 27.03.2022) 1. Submission of the Appellant, in rebuttal, with respect to the courts' decision relied upon by the Ld. AO, as referred under para 1.1(b) hereinabove- 1. For the reasons discussed hereinabove in preceding paragraphs, it has become evidently clear that no IM was found in course of search and seizure action. The Appellant most respectfully states and submits that, in rebuttal of the aforesaid contention of the Ld. AO, as referred under para 1.1(b) hereinabove, it is necessary to understand first the general consensus arising out of various courts decisions on the applicability of Section 153A of the Act, in respect of the completed/unabated assessments, when no IM is found in course of search and seizure action. Such general consensus arising out of various courts decisions (including of Apex Court) can be summarised as under: In proceedings u/s. 153A of the Act it is only the assessment/reassessment proceedings that are pending on the date of search u/s. 132 of the Act stands abated, and not the assessment/reassessments already became final for those assessment years which are covered under section 153A of the Act; 1. once the assessment has attained finality, the assessing officer while passing independent order under section 153A/143(3) of the Act could not have disturbed the assessment/reassessment order, which has earlier attained finality, unless the materials gathered in the course of search establishes that the finality attained in the earlier assessment was contrary to the facts unearthed during the course of search.
2. The word 'assess' in section 153A is relatable to abated proceedings, and the word 'reassesses' to completed assessment proceedings; 3. IM is a pre-requisite for assessment / reassessment u/s. 153A of the Act in respect of completed/unabated assessment. In case no IM is unearthed during the search, the assessing officer cannot assess taking into consideration the other material in respect of completed assessment/unabated assessments. Detection or the existence of IM is a must for disturbing the assessment already made and concluded. And therefore, in case no IM is unearthed during the search, or in absence of any IM, no additions/disallowances can be made in respect of completed/unabated assessments. Any addition/disallowance, if any made in respect of completed/unabated assessments, must have nexus to the IM and should be restricted only qua IM; no addition and/or dis- allowance can be made on the re-appraisal basis; assessing officer could not disturb the assessment order which has attained finality, as the assessee has the right to have the finality of assessment and Department cannot simply keep on doing re-assessment, litigations without sufficient checks and balances, and one should not also be allowed to review its actions; completed/unabated assessment cannot be interfered with by the assessing officer, it can only be reiterated; and only the abated assessment or reassessment can be made; Evidently, in the instant case as stated above, no IM was found in course of search and seizure action.
1. Though, the decision of Hon'ble Karnataka High Court in the case of Canara Housing Development Company, as referred and relied upon by the Ld. AO, is against the Appellant, but the Karnataka High Court is not the jurisdictional court in so far as the Appellant is concerned. However, in subsequent decision by the same High Court on the same issue, in Principal Commissioner of Income-tax v. Delhi International Airport (P) Ltd [2022] 140 taxmann.com (Karnataka), considering and/or referring the various decisions of various High Courts as referred therein on the same subject issue, including the decision in Canara Housing Development Company (supra), relied upon by the Ld. AO, and of Co- ordinate Bench of Karnataka Court in the case of IBC Knowledge Park (P.) Ltd.,], has held that "detection or the existence of incriminating material is a must for disturbing the assessment already made and concluded". The aforesaid decision was made on September 29, 2021, and with that, the decision in the case of Canara Housing Development Company (supra), relied upon by Ld. AO does not hold good.
2. Further, merely because SLP has been admitted in Apex Court, there is no guarantee that decision in admitted SLP shall be in favour of the revenue. In this respect, Delhi High Court decision in Pr. CIT v. Meeta Gutgutia [2017] 82 taxman.com 287/248 taxman 384/395 ITR 626 (Delhi) on the same issue is worth mentioning, which was challenged before the Hon'ble Apex Court by the Revenue and SLP has been dismissed by the Apex Court; and with that, the judgement of the Hon'ble High Court of Delhi in Meeta Gutgutia (supra) has reached finality. In Meeta Gutgutia (supra), Hon'ble High Court of Delhi while considering the substantial question of law relating to invoking of section 153A of the Act has analysed the catena of judgments, more particularly, Smt. Dayawanti Gupta v. CIT [1954] 26 ITR 736 (SC) and Kabul Chawla (supra), and thereby recorded a finding that the Tribunal was justified in holding that invoking of section 153A by the Revenue for the assessment years concerned therein was without any legal basis as there was no incriminating material qua each of those assessment years.
3. Further, in proceeding u/s. 153A of the Act, one should not also be allowed to review its own actions. If in relation to any unabated assessment year, no IM is found, no addition or disallowance can be made in relation to that assessment year in the exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated only. Hon'ble SC in CIT, Delhi of India Ltd., has observed and held as under: "Post 01.04.1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officers to re- open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" as an in- built test to check abuse of power by the Assessing Officer".
In the aforesaid backdrop, without prejudice, it is also relevant to mention here the decision of Hon'ble Supreme Court in the case of CIT vs. Vegetable Products (2016) 27 ITJ 151 (SC): (1973) 38 ITR 192, wherein the Hon'ble SC has held that "if two reasonable constructions of a taxing provisions are possible, then, that construction, which favours the assessee must be adopted."
Finally, the Issue, that the Ld. AO does not have any jurisdiction to assess /reassess under section 153A of the Act in respected of unabated/completed assessment in absence of any incriminating material found and/or unearthed during course of search and seizure, stands concluded by the recent judgement of the Hon'ble Supreme Court in Principal Commissioner of Income Tax Central III v/s. Abhisar Buildwell Pvt. Ltd (supra); wherein the Hob'ble SC has held that "in case no IM is unearthed during the search, the assessing officer cannot assess taking into consideration the other material in respect of completed assessment/unabated assessments". Evidently, in the instant case, for the reasons discussed in detail hereinabove, no IM was found in course of search and seizure action. And with the aforesaid decision of the SC the contention of the Ld. AO, with regard to the existence of the pendency of the "issue", also stand concluded.
3. And accordingly, for the reasons discussed in detail hereinabove, the reasoning given by Ld. AO in rejecting the contention of the Appellant, "that no incriminating material was found and/or unearthed in course of search and seizure" is arbitrary, unfounded, devoid of any merit whatsoever and cannot be justified under facts and circumstances of the instant case of the Appellant. Thus, assessment order made and/or passed u/s. 153A of the Act, by making additions therein to the total income, is bad in law and without jurisdiction, and therefore, liable to be set aside or quashed. In support of Appellant's contentions as discussed in detail hereinabove, the Appellant has relied upon the decision of various Hon'ble Courts; inter alia, the followings decisions: 1. CIT-II, Thane vs. Continental Warehousing Corporation (Nhava Sheva) Ltd - Income-tax Appeal No. 523 of 2013 1. CIT v. Kabul Chawla (2016) 380 ITR 573 (Del.); 2. Smt. Smrutisudha vs. Union of India and others (Orissa); 3. PCIT vs. Meeta Gutgutia 395 ITR 296; DE 4. PCIT vs. Soumya Constructions 387 ITR 629 (Guj); 5. CIT vs. Deepak Agarwal 251 Taxmann pg. 22 (Bom); 6. PCIT vs. Lata Jain 384 ITR 543 (Delhi); 7. Omprakash Gupta vs. ACIT (Central) Nos. 277 to 281 / Ind/2017 II Bhopal - ITAT Indore, Branch IT(SS)A 8. Principal Commissioner of Income Tax Central III v/s. Abhisar Buildwell Pvt. Ltd.(supra)
9. Judgment passed by the Hon'ble Delhi High Court Judgment (Division Bench) in ITA 37/2021 titled as 'Comm. Of Income Tax, Central-2, New Delhi Vs. Param Dairy Ltd.
10. Judgment passed by Hon'ble ITAT, New Delhi in the matter of Lord Krishna Dwellers (P) Ltd Vs. DCIT reported in MANU/ID/1333/2018.
SC in CIT, Delhi v. Kelvinator of India Ltd During the appeal proceedings, the appellant has furnished written submissions, which are reproduced as under: "Details of the subject transaction for which Ld. AO applied the provisions of section 2(22)(e) of the Act has already been set out at the beginning, under "Facts of the Case" hereinabove, and not stated here again, to avoid prolixity. According to Section 2(22)(e), of the Act when a company, in which the public are not substantially interested, extends a loan or advance to: 1. any of its shareholders who has more than 10% voting power in the company, or 2. to any concern in which such shareholder is substantially interested, or 3. for the individual benefit of such shareholder, or 4. on behalf of such shareholder to the extent the company has accumulated profits, such payment would be deemed as a dividend under section 2(22). Exceptions - 1. (ia) --------, 1. 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, 2.--, 3. 4.
Explanation 3 - For the purposes of this clause - 1. Concern means a Hindu undivided family, or a firm or an association of person or a body of individuals or a company; 1. 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 percent of the income of such concern; Upon going through the provisions of section 2(22)(e) of the Act, provisions appear to be creature of legal fiction, inasmuch as, section 2(22)(e) of the Act gives an artificial definition of dividend. It does not take in dividend actually declared or received. The dividend taken note of by that provision is a deemed dividend and not a real dividend. The loan granted to a shareholder has to be returned to the company. It does not become an income of the shareholder. For certain purposes, the Legislature has deemed such a loan as dividend; and accordingly, deemed dividend under the provisions of section 2(22)(e) of the Act create artificial or vicarious liability to tax. Since, dividend under the provisions of Section 2(22)(e) of the Act creates an artificial and vicarious liability to tax, and hence, section 2(22)(e) of the Act must necessarily receive a strict construction and it should be strictly construed. Bombay High Court in CIT vs. Khimji Nenshi (1992) 194 ITR 92 (Bom) has held that deeming provisions requires to be construed strictly. The rule of strict construction applies a fortiori to provisions that creates artificial or vicarious liability to tax- There are plethora of judgements to support the above view. The appellant craves leave to refer and produce as and when required by your honour. Here, in this respect, it is worthwhile to note the observations of Hon'ble SC in the case of Bengal Immunity Co. Ltd. v. State of Bihar wherein Chief Justice S R Das held that "legal fictions are created only for some definite purpose and a legal fiction is to be limited to the purpose for which it was created and should not be extended beyond that legitimate field". In this respect, also, the observation of Hon'ble MP High Court in the case of CIT v. Chhoteal Kanahyalal - 80 ITR 656 is worth mentioning here, wherein it has held that the rule of construction of legal fiction is to 'hunt in pairs'. So in constructing a provision creating a statutory fiction, two rules operate: the statutory fiction should be carried to its logical conclusion but the fiction cannot be extended beyond the language of the section by which it is created by importing another fiction (Copy is herein). INCOME TAX DEPARTMEN enclosed) as Annexure VII Therefore, in nutshell, there cannot be a fiction upon fiction; whereas action of the Ld. AO in the instant case is akin to creating fiction upon fiction when he tried to go beyond what has been provided under section 2(22)(e) of the Act. Legal fiction created by provisions of section 2(22)(e) of the Act is very much clear and far from any ambiguity whatsoever. One has to look at what is clearly stated under the provisions of section 2(22)(e) of the Act, and there is no room for going beyond the language of the section, which the Ld. AO has tried to do so in the present case. Here it is important to mention here the observations of Mr. Justice Rowlatt, which have now become classical: "In taxing statute, one has to look at what is clearly said. There is no room for any intendment. There is no equity about tax. There is no presumption as to a tax. Nothing is to be read, nothing is to be implied. One can only look at the language used." Accordingly, the Appellant states that deemed provision is better understood by the statement that - What is IS is "IS"; What is no is "NEVER", but? What is 'Not' is 'IS', if the law says so. In the backdrop as aforesaid, the provisions of section 2(22)(e) of the Act seek to treat loan or advance as deemed dividend in the following circumstances only, i.e., when a company (in which the public are not substantially interested) (a) extends a loan or advance to any of its shareholders who has more than 10% voting power in the company, or to any concern in which such shareholder is substantially interested, or (b) make any payment on behalf, or for the individual benefit of any such shareholder, to the extent the company has accumulated profits; then, such payment would be deemed as a dividend under section 2(22) (e) of the Act, one of the exception being when such loan or advance is made to a shareholder or the said concern by a company in the ordinary course of its business, where lending of money is substantial part of the business of the company. In the present case of the appellant subject loan has been given or advanced to the appellant by the company Authum, when the loan was given and as on date it is a listed company in which public were/are substantially interested; and therefore, primary condition for consideration of subject payment (i.e., loan by Authum to the appellant) as dividend within the meaning of section 2(22)(e) of the Act is not satisfied at all, inasmuch as, the Authum was/is not a closely held company, and funds advanced as loan by Authum to the appellant were from out of its own funds. Further, the loan amount of Rs.6,80,00,000/-, advanced by Subhkam to the Khazana on 01.12.2016, cannot and could not also be considered as loan or advance to the Appellant (to the extent of Rs. 6,29,50,047/-) within the meaning of section 2(22)(e) of the Act, inasmuch as, 1. it (i.e., the subject loan of Rs.6,80,00,000/-) was not loan or advance to the Appellant by Subhkam (in which, the appellant held more than 10% voting power at the relevant time), but to Khazana; 1. Khazana (to whom the subject loan had been advanced by Subhkam) was not a company, in which appellant was having substantial interest or substantially interested within the meaning of section 2(22) (e) of the Act. Also, the subject loan availed by Khazana (and provided by subhkam), under and in terms of loan agreement dated 23.09.2016, was in the normal course of their business activities as NBFCs. Moreover, this was also not one-off transaction between them. Loan transactions between them were under duly executed agreements and all along being interest bearing at market determined rates; . the subject loan (to the extent of Rs. 6,29,50,047/-) by Subhkam to Khazana cannot and/or could not also be termed as for the individual benefit of the Appellant; because, in the instant case, Khazana (after availing the subject loan from Subhkam) has utilised the same (to the extent of Rs. 6,29,50,047/-) in making full repayment of loan inclusive of interest, (earlier availed by it from Authum under duly executed agreements between them) and remaining outstanding as on 30.11.2016; and 1. for the reasons discussed under (iii) hereinabove, it is suffice to submit that receipt back of loan receivable from Khazana is nothing but receipt of own funds by Authum (earlier advanced to Khazana as a loan). Simply because, such repayment of its loan payable by Khazana to Authum was out of the funds received Subhkam, as and by way of loan in the normal course of its business activities as NBFC, cannot and/or could not change the nature and character of the funds in the hands of the Authum. By all means and for all intent and purposes, receipt back of its own funds (loan receivable) by Authum from Khazana cannot and/or could not be termed or described other than the absolute property of the Authum in its hands; and for that matter, cannot and/or could not be termed or described as for the individual benefit of the Appellant, within the meaning of section 2(22)(e) of the Act, as alleged or other-wise or at all in the order by the Ld AO And therefore, for the facts discussed hereinabove, it cannot and/or could not be said that Khazana and Authum have acted as pass through entities in respect to the amount paid by Subhkam on 01.12.2016 to Khazanas (to the extent of Rs.6,29,50,047/-), as alleged or otherwise or at all. Copy of loan agreement dated 15.04.2016 is enclosed as Annexure - IV herein for your honours ready reference in the matter. Further, in this respect in thesaid, it is worth mentioning here the decision of Hon'ble Bombay High Court in the case of CIT vs. P.K.Bhadani (1970) 76 ITR 369 (Bom). In the aforesaid case, it was observed by the Hon'ble Bombay High Court to the effect that "what has to be ascertained is whether the debits are loans, so that they can be deemed as dividends". The Hon'ble court has held "to be treated as a loan, every amount paid must make the company a creditor of the assessee for that amount. If, however, at the time when the payment is made by the company is already a debtor of the assessee, the payment would merely a repayment by the company towards is already existing debt. It would be a loan by the company only if the payment exceeds the amount of its already existing debt and that too only to the extent of the excess. Therefore, the position as regards each debt will have to be individually considered, because it may or may not be a loan". On the same analogy, in the instant case, when Khazana made the payment of Rs. 6,29,50,047/- to the Authum on 01.12.2016 the Khazana was debtor in the books of the Authum by the even amount of Rs. 6,29,50,047/-(as stated above), and therefore, for all intent and purposes, payment by Khazana of Rs. 6,29,50,047/- on 01.12.2016 to Authum was nothing but repayment of already existing debt/loan and with that repayment matter ends there and then, and money received by Authum in repayment has become Authum's money by any means. Any advancement of commercial loan by Authum to Subhkam thereafter, even out of the said repaid money by Khazana to Authum, cannot be treated as loan or advance by Subhkam to the Appellant within the meaning of section 2(22)(e) of the Act in any manner whatsoever or howsoever. Therefore, for the reasons discussed hereinabove, the conditions for applicability of section 2(22) (e) of the Act are not at all satisfied in the instant case of the appellant. Moreover, without prejudice, even other-wise also, Subhkam has granted and/or given/advanced loan to Khazana in ordinary course of its business activities as NBFC, which also falls within the exception clause (ii) provided under the provisions of section 2(22)(e) of the Act, and further, the appellant does not have substantial interest in the holding of Khazana; and therefore, on this count also, the subject loan made and/or granted by Subhkam to Khazana does not come within the ambit or purview of section 2(22) (e) of the Act. Also, without prejudice, to attract the provisions of section 2(22)(e) of the Act, there should be a loan or advance by the Company to a shareholder (holding more than 10% of the voting power in the company); and the moment it is loan or advance by the Company, it shall become repayable by the shareholder to the Company. In the instant case question arises, "can the Company (Subhkam) demand repayment of loan from the appellant (given by Authum to the appellant), which the Ld. AO brought within the ambit of section 2(22)(e) of the Act? The answer would be definitely no, as no loan or advance has been given by Subhkam to the appellant for which such action of repayment can or could have been taken by Subhkam against the appellant; and therefore, the subject transaction, i.e. loan by Authum to the appellant to the extent of Rs. 6,29,50,047/- [for which section 2(22)(e) has been invoked in the instant case] cannot and/or could be termed as loan or advance by Subhkam to the Appellant within the meaning of section 2(22)(e) of the Act. In this respect, reliance is placed on the Hon'ble SC decision in "National Travel Services V. Commissioner of Income tax, Delhi, VIII (civil Appeal nos. 2068-2071 of 2012). Since, the subject transaction cannot be termed as loan or advance by Subhkam to the Appellant, then, how the primary condition of section 2(22)(e) of the Act stands satisfied? And accordingly, for the reasons discussed hereinabove, the subject transaction (being commercial loan by Authum to the Appellant, to the extent of Rs. 6,29,50,047/- as stated above) does not come within the ambit of section 2(22) (e) of the Act, clearly and without any ambiguity whatsoever. However, in the instant case, the Ld. AO wrongly and without jurisdiction tried to go beyond the scope of deeming provisions contained u/s.2(22)(e) of the Act, by creating fiction upon fiction, ignoring the fact that the provisions as contained under section 2(22)(e) are deeming provisions, which has to be construed strictly i.e., one cannot look beyond the language of the relevant section. Without prejudice, deemed fiction embodied in section 2(22)(e) of the Act does not permit the Ld. AO (in the present case) to look beyond the 1st transaction of loan by Subhkam to Khazana; as the loan made and/or granted by Subhkam to Khazana does not come within the ambit or purview of section 2(22)(e) of the Act at all, for the reasons discussed hereinabove, and the matter ends there and then, in so far as applying the deeming provisions of Section 2(22)(e) are concerned. In other words, what Khazana did with the loan money after receiving it from Subhkam, and so on, is beyond the scope of section 2(22)(e) of the Act, as the provisions of section 2(22) (e) of Act nowhere uses the words "directly or indirectly". And therefore, without prejudice, the second and subsequent transactions (after the transaction of granting of loan by Subhkam to Khazana), in the present case, do not come within the purview of section 2(22)(e) of the Act at all and should be looked upon independently, and should not be interlinked with the first transaction, while applying the deeming provisions of section 2(22)(e) of the Act; because, each and every transaction is separate and distinct from each other. The Ld. AO, in the instant case, erred when tried to go beyond the scope of section 2(22)(e) of the Act, which is not permissible. In view of the facts and reasons stated and discussed in detail hereinabove, deeming provisions contained in section 2(22)(e) of the Act do not allow Ld. AO to go beyond the scope of what has been provided in that section, and for that matter, the action of Ld. AO in applying the deeming provisions of section 2(22) (e) in the hands of the appellant with respect to the subject transactions, by going beyond the scope of the provisions of section 2(22(e) of the Act, is without jurisdiction, unjustified, bad in law, illegal and perverse; and hence, in any event, the subject amount of Rs. 6,29,50,047/- cannot and/or could not be added to the total income of the appellant by invoking provisions of section u/s. 2(22)(e) of the Act, and therefore, liable to be deleted and should therefore be deleted.
After having gone through the submissions of both the parties and material placed on record, we noticed that admittedly the year under consideration was an unabated year as on the date of search conducted on the assessee. In our view, the additions could only be made only on the basis of ‘incriminating material’ found during the search but as per the facts the additions in the present case were made by the AO on account of deemed dividend u/s 2(22)(e) of the Act, therefore considering the decision of Hon’ble Supreme Court in the case of Abhisar Buildwell Pvt Ltd, [2023] 454 ITR 212, additions were rightly deleted by Ld. CIT(A) holding as under:
I have considered the facts of the case, the impugned assessment order and the submissions and contentions of the appellant as also the relevant provisions of the Act. It is the contention of the appellant that time to issue notice u/s 143(2) for A.Y. 2017-18 was already expired as on date of search conducted on the appellant and hence, assessment for the year was unabated. In this regard, vide letter dated 20.03.2025, the A.O was asked to furnish whether any assessment proceeding was pending for the year under consideration as on date of search conducted on the appellant. In response to this, the A.O vide letter dated 25.03.2025 has informed that as per the records available on ITBA portal, assessment u/s 143(3) was completed on 18.12.2019 and no other assessment proceedings was pending as on date of search conducted on the appellant. Thus, it is an undisputed fact that the A.Y 2017-18 was unabated A.Y.
Now, the core issue is whether additions can be made in case of unabated assessment in absence of any "incriminating material" unearthed during the course of search. The issue whether additions can be made in the assessments u/s.153A of the Act, in unabated cases, in the absence of incriminating material found/seized during the course of search, has been decided in various judicial pronouncements, which are discussed as under: 1. The Hon'ble Delhi High Court in the case of CIT v. Kabul Chawla [2015] 281 CTR 45 has summarised the legal position of section 153A as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." V. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. Insofar as pending assessee vi. assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." II. The Hon'ble Jurisdictional Bombay High Court in CIT v. Murli Agr Products Ltd. [2014] 49 taxmann.com 172 has held as under: "10. Thus on a plain reading of Section 153A of the Income-tax Act, it becomes clear that on initiation of proceedings under Section 153A, it is only the assessment/reassessment proceedings that are pending on the date of conducting search under Section 132 or making requisition under Section 132A of the Act stand abated and not the assessments/reassessments already finalised for those assessment years covered under Section 153A of the Act. By a circular No. 8 of 2003 dated 18- 9-2003 (See 263 ITR (St) 61 at 107) the CBDT has clarified that on initiation of proceedings under Section 153A, the proceedings pending in appeal, revision or rectification proceedings against finalised assessment/reassessment shall not abate. It is only because, the finalised assessments/reassessments do not abate, the appeal, revision or rectification pending against finalised assessments/ reassessments would not abate. Therefore, the argument of the revenue, that on initiation of proceedings under Section 153A, the assessments/reassessments finalised for the assessment years covered under Section 153A of the Income-tax Act stand abated cannot be accepted. Similarly on annulment of assessment made under Section 153A (1) what stands revived is the pending assessment/reassessment proceedings which stood abated as per section 153A(1).
11. In the present case, as contended by Shri Mani, learned counsel for the assessee, the assessment for the assessment year 1998-99 was finalised on 29.12.2000 and search was conducted thereafter on 3.12.2003. Therefore, in the facts of the present case, initiation of proceedings under Section 153A would not affect the assessment finalised on 29.12.2000.
12. Once it is held that the assessment finalized on 29.12.2000 has attained finality, then the deduction allowed under section 80 HHC of the Income-tax Act as well as the loss computed under the assessment dated 29-12-2000 would attain finality. In such a case, the A.O. while passing the independent assessment order under Section 153A read with Section 143(3) of the IT. Act could not have disturbed the assessment/ reassessment order which has attained finality, unless the materials gathered in the course of the proceedings under Section 153A of the Income-tax Act establish that the reliefs granted under the finalised assessment/reassessment were contrary to the facts unearthed during the course of 153A proceedings.
13. In the present case, there is nothing on record to suggest that any material was unearthed during the search or during the 153A proceedings which would show that the relief under Section 80HHC was erroneous. In such a case, the A.O. while passing the assessment order under Section 153A read with Section 143(3) could not have disturbed the assessment order finalised on 29.12.2000 relating to Section 80HHC deduction and consequently the C.I.T. could not have invoked jurisdiction under Section 263 of the Act." The Hon'ble Delhi High Court in Pr. CIT v. Meeta Gutgutia [2017] 395 ITR 526 after referring to decision in the case of CIT v. Kabul Chawla [2015] 281 CTR 45 held that no addition can be made in absence of incriminating material having been unearthed during the course of Search proceedings. The Hon'ble Supreme Court in [2018] 257 Taxman 441 (SC) dismissed the Special Leave Petition filed by the Revenue against the aforesaid decision of the Hon'ble Delhi High Court in Meeta Gutgutia. IV. The Hon'ble Supreme Court in its latest decision in the case of Pr. CIT v. Abhisar Buildwell (P.) Ltd. [2023] 454 ITR 212, by way of a detailed order and after nawla (supra) and Meeta Gutgutia (supra) has held as under: referring to the decisions in the cases of Kabul Chawla "12. If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under section 153A of the Act is linked with the search and requisition under sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block per assessment period even in case of completed/unabated assessment. A the second proviso to Section 153A, only pending assessment / reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub-section (2) of Section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law.
For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material."
In view of the various decisions of the Hon'ble High Courts and the Hon'ble Supreme Court in Meeta Gutgutia (supra.) and Abhisar Buildwell (supra.) discussed in the preceding paragraph, it is now the settled position of law that no addition can be made in cases of unabated assessment, in absence of any "incriminating material" unearthed during the course of search proceedings, while making an assessment in accordance with the provisions of section 153A of the Act.
8. On perusal of the bank statement of the assessee during the assessment proceedings, the AO found that the appellant had purchased immovable property at Walkeshwar, Mumbai, for Rs. 57,52,08,911/-. And out of the total source of purchase of the property, an amount of Rs. 17 crore was received from M/s Authum Investment and Infrastructure Ltd. (Hereinafter referred as M/s Autham) which was shown as a loan. Upon further verification of the bank statement of M/s Authum, it was found that an amount of Rs.6,29,50,047/- was received from M/s Khazana Tradelink Pvt. Ltd (Herein after referred as Khazana) on 01.12.2016. The AO further noted that from the perusal of the bank statement of Khazana, it was found that it had received an amount of Rs. 6,80,00,000/- Rakesh Kothotia, Mumbai. from M/s Subhkam Venture Pvt. Ltd. (herein after referred as Subhkam) on 01.12.2016. Thus, the AO found that the source of funds of Rs.6,29,50,047/- advanced by Authum to the appellant was from Subhkam on the same day, i.e., 01.12.2016. Therefore, the AO held that the loan of Rs.6,29,50,047/- has actually been given by M/s Subhkam to the appellant, and other two other entities, namely Authum and Khazana have been merely used as pass- through entities, The A.O further noted that the appellant, Shri Rakesh Kathotia holds 49% shares in M/s Subhkam, therefore, this transaction of receiving loan from M/s Subhkam Venture Pvt. Ltd. comes under the purview of the provisions of section 2(22)(e) of the I.T. Act.
9. However it is an admitted fact that the appellant has received total loan of Rs. 17 crore from M/s Authum Investment and Infrastructure Ltd., which is a NBFC and also a listed entity. Therefore, on this fact itself, provisions of section 2(22)(e) are not applicable. Further, it is also an admitted fact that M/s Subhkam Ventures India Pvt. Ltd. is also a NBFC and advancing loan is the regular business activity of this company. Therefore, even if it is assumed that the loan is advanced by Subhkam then also it is covered by the exception of clause (ii) of section 2(22)(e).
Rakesh Kothotia, Mumbai.
10. Moreover assessee has also furnished the rationale behind the transfer of funds from Subhkam to Khazana to Authum. The fact that Khazana was a debtor of Authum and has repaid the loan amount to Authum by obtaining funds/loans from Subhkam Ventures, has not disputed by the AO. Therefore, merely due to the fact that certain amount of loan advanced to the appellant by Authum is linked to the funds transferred from Subhkam, the transaction cannot be held as a make-believe transaction and the deeming provision cannot be invoked by making certain assumptions. In our view, Since M/s Authum Investment and Infrastructure Ltd. is a public-listed company, which is also an NBFC and the loan given by Authum to the appellant is in its ordinary course of business, the conditions stipulated in the provisions of section 2(22)(e) are not applicable. Therefore, no addition can be made under section 2(22)(e) by holding the loan received from Authum as deemed dividend. Thus CIT(A) had rightly directed the AO to delete the same.
11. Therefore after having considered the facts as discussed by us above and keeping in view that no new facts, circumstances or documents have been placed before us during the course of proceedings in orders to controvert or rebut the lawful findings so recorded by Ld. CIT(A). Therefore we find no reasons to interfere into or to deviate from the well reasoned finding recorded by Ld.CIT(A).
In the result appeal filed by the revenue stands dismissed.