MUKESH SHIVDAS SONAR,MUMBAI vs. ACIT, CENTRAL-3, THANE

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘D‘ BENCH MUMBAI

BEFORE: SHRI M.BALAGANESH, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No.1802/Mum/2020 (Assessment Year :2010-11) Mukesh Shivdas Sonar Vs. ACIT, Central Circle-3 A/003-004, Meru Housing Thane 6th Floor, Ashar IT Park Complex, Near Talwalkars Virar (E), Dist. Palghar Wagle Industrial Estate Maharashtra-401 303 Road No.16Z, Thane(W) Maharashtra-400604 PAN/GIR No.APNPS8863B (Appellant) .. (Respondent) ITA No.1806/Mum/2020 (Assessment Year :2014-15) Mukesh Shivdas Sonar Vs. ACIT, Central Circle-3 A/003-004, Meru Housing Thane 6th Floor, Ashar IT Park Complex, Near Talwalkars Virar (E), Dist. Palghar Wagle Industrial Estate Maharashtra-401 303 Road No.16Z, Thane(W) Maharashtra-400604 PAN/GIR No.APNPS8863B (Appellant) .. (Respondent) Assessee by Shri Subhodh Ratnaparkhi Revenue by Shri Prabhat Kumar Gupta Date of Hearing 18/05/2022 Date of Pronouncement 24/05/2022 आदेश / O R D E R PER M. BALAGANESH (A.M):

These appeals in ITA No.1802/Mum/2020 & 1806/Mum/2020 for A.Y.2010-11 & 2014-15 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-Pune-11 in appeal No.CIT(A)-Pune-

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11/10294/2016-17 & CIT(A)-Pune-11/10300/2016-17 respectively dated 27/02/2020 (ld. CIT(A) in short) against the order of assessment passed u/s.153A r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 20/09/2016 by the ld. Asst. Commissioner of Income Tax, Central Circle-3, Thane (hereinafter referred to as ld. AO).

1.1. At the outset, both the appeals were filed belatedly by 140 days by the assessee before us. We find that appeal was filed before us on 18/09/2020 by the assessee which falls during the Covid-19 pandemic and lockdown was imposed from 24/03/2020 and by placing reliance on the Government of India of notification No.218979 dated 31/03/2020 in Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020 (No.2 of 2020) dated 31/3/2020 as per Clause 3(1)(b) extending the time limit specified in Income Tax Act which falls during the period from 20th day of March 2020 to 29th June 2020 for the purpose of final appeal till 30/06/2020 or such other date as the Central Government by notification specified in this behalf. Subsequently, the Government vide Notification No.35/2020 dated 24/06/2020, has extended the said time limit up to 31/03/2021. In view of the same, we are inclined to condone the delay and the appeals are admitted for adjudication. Both the appeals are taken up together and disposed of by this common order for the sake of convenience.

ITA No.1806/Mum/2020 (A.Y.2014-15) 2. The ground No.1 raised by the assessee is challenging the action of the ld. CIT(A) in not admitting the additional evidences produced under Rule 46A of the Income Tax Rules in connection with applicability of provisions of Section 2(22)(e) of the Act in respect of advance given by M/s. MAAD Realtors and Infra Ltd., to M/s. D.M. Logistic Pvt. Ltd.,

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3.1. The assessee contested this addition before the ld. CIT(A) and during the course of appellate proceedings, the assessee pleaded that the advance given by MAAD Realtors to DM Logistics were done in the ordinary course of business for the purpose of acquiring agricultural lands at Village Kirat, Tal-Palghar, Thane from Dilip K Kansara and two others.

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The assessee filed certain supporting documents before the ld. CIT(A) in the paper book filed before him. Apart from that, the assessee also furnished certain additional evidences before the ld. CIT(A) under Rule 46A of the Income Tax Rules. These additional evidences were not admitted by the ld. CIT(A) and ultimately the ld. CIT(A) upheld the addition made u/s. 2(22)(e) of the Act in the hands of the assessee. The ld. AR pleaded before us that under identical facts and circumstances for the very same A.Y.2014-15, this Tribunal in the hands of another 50% shareholder i.e. Devendra Ladani vs. ACIT in ITA No.1824/Mum/2020 dated 15/03/2022 had directed the ld. CIT(A) to consider the additional evidences and decide the issue on merits. For the sake of convenience, the entire order is reproduced hereunder:-

“The present appeal has been filed by the assessee for the Assessment Year (AY) 2014-15 as against the impugned order of the Ld. Commissioner of Income Tax (Appeals) – 11, Pune dated 23.03.2020 u/s 250 of Income Tax Act. The following are the grounds raised by the assessee:- 1. The Hon. CIT(A) erred in not admitting the additional evidences produced u/r 46A of the I.T. Rules, 1962, to support the argument that the provisions of section 2(22)(e) were not attracted in respect of the business advance by M/s. MAAD Realtors & Infra Ltd. to M/s. D.M. Logistic Pvt. Ltd. thereby denying the appellant opportunity to support his arguments, which action being not as per law may kindly be overruled and the Hon. CIT(A) may be directed to admit the additional evidences and consider the same in deciding the merits of the addition. 2. The Hon. CIT(A) erred in upholding the addition of Rs. 19,61,500/- u/s 2(22)(e) of the I. T. Act, 1961 as deemed dividend on account of advance by M/s. MAAD Realtors & Infra Ltd. to M/s. D.M. Logistic Pvt. Ltd. not appreciating that the said advance was towards acquisition of developable FSI and therefore being a trade advance was outside the ambit of section 2(22)(e) of the I. T. Act, 1961 and therefore the addition was not justified. 3. The appellant craves leave to add, alter, amend and/or vary the above grounds of appeal at any time before the decision of the appeal. 2. The brief summary of the facts are that the assessee is one of the director of the MAAD Group of companies which is engaged in the business of construction of residential and commercial buildings and also buying and selling of land, FSI in area surrounding Virar and Nalasopara. Following a search and seizure action

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u/s 132 of the Act in MAAD Group of companies on 31.07.2014, the assessee‟s residential premise was also subjected to search. The assessee filed the return of income subsequent to notice issued u/s 153A for the relevant assessment year and declared Rs. 84,53,689/- as total income excluding declaration made on account of cash found. After the completion of the assessment by the AO u/s 143(3) r.w.s. 153A, the total income was determined to the tune of Rs. 2,54,47,115/- as against the returned income of Rs. 1,65,47,850/- which was on the basis of seized documents from the office of MAAD Realtors and Infra Ltd, indicating loans given to D. M. Logistic Pvt. Ltd., in which the assessee being substantial share holder in both the concerns, the AO treated it as deemed dividend of the assessee u/s 2(22)(e) of the I.T. Act. 3. Aggrieved by the above, the assessee was in appeal before the Ld. CIT(A) on the addition of Rs. 88,99,265/- u/s 2(22)(e) of the Act and the interest charged u/s 234A, 234B & 234C of the Act. The Ld. CIT(A) confirmed the addition of 50% only to the extent of Rs. 39,23,000/- as deemed dividend u/s 2(22)(e) of the Act only for the year under consideration and directed to assess 50% of deemed dividend for FY 2011-12 and 2012-13 for the advance of Rs. 66,48,503 and Rs. 72,27,028/- respectively. The Ld. CIT(A) also confirmed the interest payable u/s 234A, 234B & 234C and also rejected the admission of additional evidence on the ground that the documents to be produced as additional evidence does not explain or certify the claim made by the assessee as they were not relied upon during the assessment proceedings. 4. In this factual background, the Ld. AR submitted that the additional evidence may be adduced before the AO and stated that the assessee was on a misconception that section 2(22)(e) of the Act would not be attracted in the present case. The Ld. AR denied the fact that it was not assessee‟s borrowal money and relied on the decision of Hon‟ble Bombay High Court in the case of „Smt Prabhavati S. Shah Vs. Commissioner of Income Tax (1998) 231 ITR 1 (Bom) with regard to adducing additional evidence before Ld. CIT(A). 5. The Ld. DR on the other hand, contends that the assessee has not filed any affidavit stating that he has misunderstood the provision of Section 2(22)(e) of the Act and insisted the Ld. AR to file an affidavit for the same. The Ld. AR in reply to this, stated that it has been taken up before the AO and is thus reflected in para 7.4 of AO‟s order. The Ld. AR prayed that the matter be remanded back to Ld. CIT(A) for fresh consideration with the direction to permit the assessee to adduce the specified additional documentary evidence. 6. We have considered the rival submission and perused the material placed on record. Before adjudicating the ground of appeal, it is pertinent to decide on the issue of condonation of delay of 50 days in filing the appeal. The assessee reasoned the delay for the Covid protocol for which there was no objection by the Ld. DR in condoning the delay. We are thereby condoning the delay of 50 days as per the request of the Ld. AR. 7. The pre-dominant issue that has to be decided in the present appeal is whether the Ld. CIT(A) has erred in not admitting the additional evidence produced u/s 46A of the I.T. Rules, 1962, to substantiate the fact that Section 2(22)(e) of the Act

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does not apply to the assessee‟s present case and subsequently to decide on the issue that the addition u/s 2(22)(e) has to be deleted or upheld. 8. We are of the considered opinion that the first ground of appeal has to be decided primarily on the basis of the facts of the case and the authorities to be relied on. The balance sheet of MAAD Realtors & Infra Ltd and M/s D. M. Logistics Pvt. Ltd. seized during the search proceedings reflected loan of Rs. 1,77,98,531/- borrowed by M/s D. M. Logistics Pvt. Ltd. from M/s MAAD Realtors & Infra Ltd. on 31.03.2014 when the assessee is a director holding 22.75% share in M/s MAAD Realtors & Infra Ltd. and 50% share in M/s D. M. Logistics Pvt. Ltd. The AO concluded that the assessee being share holder holding 50% share in M/s D. M. Logistics Pvt. Ltd. an amount totaling of Rs. 88,99,265/- (50% of the impugned loan) as deemed dividend in the hands of the assessee and balance 50% in the hands of the other share holder /director Shri Mukesh Sonar. This was further reduced by the Ld. CIT(A) to the extent of Rs. 39,23,000/- as the actual payment by M/s MAAD Realtors & Infra Ltd. to M/s D. M. Logistics Pvt. Ltd. during the previous year relevant to AY 2014-15 and on addition of 50% of the said amount was added by the Ld. CIT(A) to the tune of Rs. 19,61,500/- with the direction to reopen the earlier assessment years to account the balance amount determined by the AO. The assessee before the Ld. CIT(A) contended that he had misinterpreted the provision of section 2(22)(e) and had sought for an opportunity to produce additional evidence to substantiate his claim which was mentioned as a business transaction between both the companies and the impugned loan was only on advance by M/s MAAD Realtors & Infra Ltd. to M/s D. M. Logistics Pvt. Ltd. for the purpose of acquisition of agricultural land at some village from one Shri Dilip Kishor Kansaw and other for the purpose of buying developable FSI to the extent of 30,000 Sq. ft after conversion of land for non-agriculture purpose after obtaining the necessary sanction from the local authorities. The consideration was fixed for Rs. 700 per Sq. Ft. It was contended that the payment made by M/s MAAD Realtors & Infra Ltd. to M/s D. M. Logistics Pvt. Ltd. is towards acquisition of the said FSI as per the MOU between both the companies. It was further contended that M/s MAAD Realtors & Infra Ltd. has also made direct payment to the land owner Shri Dilip Kansaw and M/s D. M. Logistics Pvt. Ltd. could not execute conveyance deed from land owners owing to unexplained reasons. As the additional evidence pertains to the said transaction which according to the Ld. AR is a business transaction was not accepted by the Ld. CIT(A) since it was not taken up before the AO. The Ld. AR relied on a catena of judgments which state that keeping in view the complexity and specialization of tax law, there might be situation the assessee may not be aware of certain provision and such ignorance has been treated as a proper explanation in certain situation. While considering the decision of the jurisdictional Bombay High Court in the case of Smt. Prabhavati S. Shah‟s case (1998) 231 ITR 1 (Bom), a new dimension to the provision relating to admission of additional evidence before Ld. CIT(A) was considered. The Hon‟ble Bombay High Court rejected the contention of Ld. CIT(A) and held that under section 250(4), the Ld. CIT(A) was empowered to make such further inquiry as he thinks fit and such power being quasi judicial power, it was incumbent on him to exercise the same if the facts and circumstances justify.

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ITA No.1802/Mum/2020(A.Y.2010-11)

6.1. We have heard rival submissions and perused the materials available on record. Pursuant to search conducted u/s.132 of the Act in the residential premises of the assessee, notice u/s.153A of the Act for A.Y.2010-11 was issued. The original return of income was filed by the assessee on 28/12/2010 for A.Y.2010-11 declaring total income of Rs.54,61,240/-. In response to notice issued u/s.153A of the Act, the assessee filed the return of income on 31/03/2015 declaring total income of Rs.38,70,520/-. Pursuant to various incriminating documents found during the course of search in the premises of the assessee and MAAD group of companies, the assessee had offered additional income of Rs.4,09,280/- for A.Y.2010-11 in the return of income filed u/s.153A of the Act. It is an admitted fact that during the course of search action at residential premises of the assessee at M-3/4, Meru Housing Complex, Manvelpada Road, Virar (E), loose paper bundle No.1, page No.16 was seized. The copy of the said seized document is enclosed in pages 9 & 10 of the paper book.

6.2. We have perused the said seized documents contained in page 9 & 10 of the paper book. From its perusal, the said document contains date, mode of transaction either by cash or cheque, the amount of transaction and the name of the individuals/concerns belonging to assessee group. It is pertinent to note that the entire seized document contained in pages 9 & 10 of the paper book filed, pertains to transactions belonging to R D

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Karas & Sons. Admittedly R D Karas and Sons is supplying steel and cement to MAAD Group of companies. The said seized document enclosed in pages 9 & 10 of the paper book , for certain dates had merely mentioned the letter „D‟ under the name column. This „D‟ was presumed as demand draft. Effectively, the ld. AO presumed that the entire seized document represents total amounts payable to R D Karas and Sons in the tune of Rs.1,30,30,818/- which has to be settled by cheque, cash or demand drafts, as the case may be. It is pertinent to note that no cross verification with R D Karas and Sons were made by the ld. AO with regard to these transactions. The assessee was issued notice u/s.142(1) of the Act dated 14/09/2015 to explain the source of these transactions totalling to Rs.1,30,30,818/- with R D Karas and Sons and also explain as to how these transactions are reflected with regular books.

6.3. The ld. AO later showcaused vide letter dated 12/05/2016 as to why the sum of Rs.1,30,30,818/- should not be brought to tax in the hands of the assessee. The assessee in response thereto filed reply on 15/09/2016 bifurcating the cheque transactions which are already accounted in the books of group companies of MAAD group and cheque transaction reflected by certain individuals in their books of accounts. In the said letter, the assessee categorically decoded the letter „D‟ to represent „demand draft‟ and further stated that „D‟ mentioned on certain dates in the seized document together with the amounts represent demand drafts to be taken on particular dates. The ld. AO did not agree to this explanation of the assessee and observed that in the same seized documents, the expression “cash” was mentioned with dates together with the amounts thereon. This represents unexplained cash transaction carried out by the assessee for which no satisfactory explanation has been given by the assessee and hence, sought to be added as

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unexplained income of the assessee totalling to Rs.64,70,818/-. Similarly, further sum of Rs.20,60,000/- representing cash transaction which was also reflected in the very same seized document was also sought to be added as unexplained income of the assessee.

6.4. We find that assessee explained each and every transaction mentioned in loose paper bundle No.1, page No.16/- by way of a small note before the ld. CIT(A). In respect of cheque transactions reflected in the seized document, the same cheques were reflected in books of group company of the assessee and hence, no addition was made by the ld. AO himself. In respect of cash transactions totalling to Rs.20,60,000/-, the assessee explained by way of a note No.3 before the ld. CIT(A) that Mr. Anil Seth which signifies partner Anil Ramachandra Gupta who was to organise funds to the tune of Rs.8,00,000/- on different dates for making payment to R D Karas and Sons for purchase of steel. It was also stated that Anil Ramchandra Gupta who arranged funds for purchasing demand draft and those demand drafts are to be issued to R D Karas and Sons. Similarly, in note No.7, the assessee submitted before the ld. CIT(A) that Deven Seth signifies partner Devendra Ladani who has to organise funds of Rs.12,60,000/- on 07/07/2009 and make payment to R D Karas and Sons for purchase of steel. The assessee also gave the PAN of the aforesaid two persons before the ld.CIT(A). Accordingly, this reply was accepted as genuine by the ld. CIT(A) and the ld. CIT(A) directed the ld. AO to delete the sum of Rs.20,60,000/- holding that such transactions pertain to Mr. Anil Ramachandra Gupta and Devendra Ladani, other Directors of MAAD group of companies and not pertaining to the assessee.

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6.5. However, with regard to remaining transactions in cash amounting to Rs.64,70,818/- where the alphabet „D‟ signifying the demand drafts to be purchased or to be purchased for making payment to R D Karas and Sons are concerned, the assessee submitted that though it was proposed to take demand drafts on respective dates, no such demand drafts were taken for making payments to R D Karas and Sons. This reply not proving satisfactory, the ld. CIT(A) upheld the addition to the tune of Rs.64,70,818/- by holding as under:-

Date Amount Mode Remark Explanation of the appellant

21/7/2009 1,90,000/- Cash 'D' The noting 'D’ represents demand drafts which were to be taken out against the 19/8/2009 6,00,000/- Cash 'D' mentioned date for payment to M/s R.D.Karas & Sons. However, no such demand drafts were taken out 27/11/2009 8,50,000/- cash D'

8,54,61 0/- cash D'

8,85,750/- cash D'

9,90,458/- cash 'D'

'D’ 21,00,000/- cash

'D’ Total 64,70,818/- cash

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6.6. From the aforesaid observations of ld. CIT(A), we find that the seized document contains total payments to be made to R D Karas and Sons for supply of steel and cement for MAAD group of companies. From the seized document, the transactions pertaining to cheques were matching with the payments made to R D Karas and Sons with the respective bank statements of the group companies. Hence, no addition was made by the lower authorities. In respect of two transactions pertaining to the Directors of the MAAD group i.e. Anil Ramachandra Gupta and Devendra Ladani, the ld. CIT(A) had directed the ld. AO to delete the addition as the said transactions pertains only to those two Directors and not the assessee. However, with respect to the remaining transactions which are reflected in cash the following points are undisputed.

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a) The alphabet „D‟ mentioned in the seized document denotes „demand drafts‟. b) The transactions reflected in the said seized document represent payments made or to be made to R D Karas and Sons for supply of steel and cement. c) The mode of payment to R D Karas and Sons has been bifurcated into cheque, cash, demand draft and by the respective entities. d) The credence of the seized document i.e. loose sheet bundle No.1 page No.16 is proved. The assessee does not dispute the same by disowning the transaction reflected therein.

6.7. In respect of transactions reflected in cash, the assessee has stated that those represent demand drafts to be taken in future for making payment to R D Karas & Sons but the demand drafts were never taken. This is not supported by any cogent evidences from the side of the assessee. It was vehemently argued by the ld. AR that assessee is not at all involved in any construction business. R D Karas and Sons has been supplying steel and cement only to MAAD group of companies and not to assessee and hence, there was no need for having any transaction for the assessee with R D Karas & Sons. We are unable to comprehend ourselves to accept to these statements of the ld. AR in view of the fact that the seized document page No.16 was admittedly seized from the residential premises of the assessee. The other transactions reflected in the same seized document has been entered in the books of accounts of group companies of MAAD group. Moreover, the ld. CIT(A) had even given credit for transactions to be carried out by other Directors of the MAAD group and accordingly deleted a sum of Rs.20,60,000/- from the hands of the assessee. Against this finding of the ld. CIT(A), both assessee as well as the Revenue are not in appeal before us. Hence, for remaining

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transactions of Rs.64,70,818/- the onus purely lies on the assessee to explain with cogent evidences. Since that loose sheet was seized from the preemies of the assessee, the presumption u/s.292C of the Act would lie on the assessee and it is for the assessee to rebut the contents of the said loose sheet with cogent evidences. Moreover, it is trite law that the seized documents should be looked into in toto and both the Revenue as well as assessee could not ignore that portion of the same seized document which is detrimental to each. Reliance in this regard is placed on the decision of the Co-ordinate Bench of Pune Tribunal in the case of Chander Mohan Mehta vs. ACIT reported in 71 ITD 245. One part of the same seized document shows transactions carried out by cheques which are matching with the books of accounts of other group entities, the transactions carried out / proposed to be carried out in cash for purchasing demand drafts to make payment to R D Karas and Sons should also be treated as correct and that portion of the document alone cannot be ignored by the assessee. Hence, onus that prevail on the assessee had not been discharged here. However, we find that the ld. CIT(A) had concluded that assessee had made payments to R D Karas and Sons in demand drafts by using unaccounted cash. This fact can be easily cross verified from the books of accounts of R D Karas and Sons which exercise has not been carried out by the lower authorities. Hence, we deem it fit and appropriate to remand this issue to the file of the ld. AO for the limited purposes of carrying out the verification with R D Karas and Sons to check whether these demand drafts have been credited in the books of R D Karas and Sons. If the demand drafts are found credited to the tune of Rs.64,70,818/- in the books of accounts of R D Karas and Sons, then addition is to be confirmed in the hands of the assessee. If it is not found credited in the books of R D Karas and Sons, then the statement given by the assessee that demand drafts that were proposed

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to be taken but were never taken becomes true, and in such an event, no addition is made in the hands of the assessee. With these observations, we remand this issue to the file of the ld. AO. Accordingly, the grounds raised by the assessee for A.Y.2010-11 are allowed for statistical purposes.

Order pronounced on 24/05/2022 by way of proper mentioning in the notice board.

Sd/- Sd/- (PAVAN KUMAR GADALE) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 24/05/2022 KARUNA, sr.ps

Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. 6. Guard file. //True Copy//

BY ORDER,

(Asstt. Registrar) ITAT, Mumbai