P SRINIVAS REDDY, HYD,HYDERABAD vs. DCIT,CENTRAL CIRCLE-1(3), HYDERABAD, HYDERABAD

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “B”, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA No.646/Hyd/2015 Assessment Year: 2012-13 Shri P. Srinivas Reddy, vs. Dy. CIT, Central Circle Hyderabad. 1(3), Hyderabad. PAN- AIVPP7820J (Appellant) (Respondent) Assessee by : Shri M.V. Anil Kumar Revenue by : Smt. Mini Chandran

Date of hearing : 02-04-2018 Date of pronouncement : 06-04-2018 ORDER PER SHRI B. RAMAKOTAIAH, AM: This is an appeal by Assessee against the order of Ld. CIT(A)-XI, Hyderabad dated 27-12-2015.

“1. The CIT(A) erred in law and facts of the case that there is no incrimination material to issue notice under section 153A and consequently the assessment under section 143(3) r.w.s 153A is bad in law. 2. Your Appellant submits that in absence of incriminating material the addition on account of unexplained investment in gold jewellery of Rs. 5,22,695/-, deemed dividends under section 2(22)(e) of Rs. 10,69,922/- are not warranted. 3. Your appellant submits that the gold of 1035 gms found at the residence is within the limits of the CBDT circular and no gold being seized as unexplained at the time of search, the CIT(A) erred in confirming addition as unexplained based on an estimate value of 200 gms at Rs. 5,22,695/-.

2 ITA No. 646/Hyd/2015 Shri P. Srinivas Reddy, Hyderabad. 4. Your Appellant submits that the CIT(A) ought to have allowed the telescope of Rs. 39,37,500/- being the difference in value of land with the undisclosed income admitted in the hands of the Firm in which your appellant is the main partner. 5. Your Appellant submits that CIT(A) erred in law and facts of the case in confirming the addition of Rs. 1 Crore as deemed dividend ignoring the fact that provisions of Section 2(22)(e) are not applicable. 6. Your Appellant submits that Rs. 1 Crore paid by Bold Beauty Vinimay Pvt Ltd., was accounted as drawing in the books of the Firm and cannot be considered as deemed dividend.”

3 ITA No. 646/Hyd/2015 Shri P. Srinivas Reddy, Hyderabad. used to personal purpose by the Assessee by way of investment in another company and lands. Hence, as per section 2(22)(e) of the IT Act, he treated the loan obtained by Assessee as deemed dividend in his hands to the extent of accumulated profits of the company. The accumulated profits during the year were Rs. 21,39,844/-. The deemed dividend determined at Rs. 21,39,844/- was assessed @50% each in the hands of the Assessee at Rs. 10,69,922/- and was added to the returned income.

5.1 Ld. CIT(A) considered the submissions and decided as under:

“10.1 During the course of appellate proceedings, the appellant submitted that the amount of Rs. 1 crore was paid by M/s Bold Beauty Viminay Pvt. Ltd. and was accounted as payment to M/s. Raghava Constructions and as drawing of the partners in the hands of the firm. In view of this, there was no deemed dividend. This amount was paid to the appellant and his brother out of the amounts due from the Company to the firm. The question of deemed dividend does not arise. 10.2 The assessment order and the statement of facts fo the appellant were carefully considered. The Section 2(22)(e) of the Act is reproduced here for easy capitulation: Dividend includes ………. “any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten percent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company behalf, or for the individual benefit, of any such shareholder, to the extent to

4 ITA No. 646/Hyd/2015 Shri P. Srinivas Reddy, Hyderabad. which the company in either case possesses accumulated profits;…” It can be thus be seen that sec. 2(22)(e) of the Act is deeming provision, and is applicable when the following conditions are met: 1. The Company making the payment should be a private limited company, 2. The payment of any sum made should be by way of any advance or loan- a. To a shareholder who is the beneficial owner of the shares or b. To any concern in which the shareholder is a member or a partner or c. On behalf of or for the individual benefit of any such shareholder; 3. The company possesses accumulated profit 10.3 It is seen that the Company M/s. Bold and Beauty Vinimay Pvt. Ltd., is a private limited company and it had advanced Rs. 1 Crore as a loan to the appellant. Appellant claimed that the payment was made to M/s Raghava Construction and in turn was taken by him as the partner of the firm. This explanation will not come to the rescue of the appellant as the provision includes in its ambit payments made to any concern (firm M/s Raghava Constructions) in which the shareholder (appellant) has substantial interest. There is also no dispute of the fact that the Company had accumulated profits of Rs. 21,39,844/- at the time of giving loan to the appellant. In view of this the provisions of Sec. 2(22)(e) of the Act are squarely applicable and I see no reason to interfere with the addition made by the A.O. The addition on account of deemed dividend, is hereby confirmed.

5.2 It was the contention that the monies received in the hands of the above said company were in fact assessed in the hands of firm and so the amount taken as loan need not be considered as deemed dividend in the hands of Assessee partner. In the alternate, it was the submission that the income accrued upto date of loan only to be considered, but not the entire year income.

5 ITA No. 646/Hyd/2015 Shri P. Srinivas Reddy, Hyderabad. 5.3 After considering the rival contentions, we are of the opinion that the issue was considered correctly by the Ld. CIT(A) both facts and on law. There is no reason to interfere with the well-reasoned order of the Ld. CIT(A). As seen from the Balance Sheet, Assessee has received loan and the source of fund is immaterial, so long as the money was taken as loan from the company and other conditions are satisfied. As seen there are share capital and premium amounts also, so the argument that the receipts were taxed in the hands of the firm has no basis. Nothing was brought on record to substantiate the source of funds or the incomes earned by the company. Since Assessee did not controvert the facts, the arguments raised by Ld. Counsel has no relevance to the issue. The conditions for treating the amount as deemed dividend was satisfied and the A.O has restricted the amount of Rs. 1 crore to the profit accumulated. The order of the Ld. CIT(A) is therefore confirmed and grounds on this issue are rejected.

6 ITA No. 646/Hyd/2015 Shri P. Srinivas Reddy, Hyderabad. firm, the land was registered in the name of Assessee for a consideration of Rs. 4,37,500/-. (Date of registration was in AY 2012-13). The payment for the land was paid by the firm by debiting the capital account of Assessee by Rs. 5 lakh. According to the A.O though the said land was actually purchased for a consideration of Rs. 43,75,000/- only an amount of Rs. 4,37,500/- was shown. Thus, he treated the difference amount of Rs. 39,37500/- as undisclosed investment in the land u/s 69B of the Act.

6.1 Before the Ld. CIT(A) it was contented that during the course of appellant proceedings, the Assessee stated that the A.O in spite of being aware of the fact that undisclosed income was admitted in the hands of the firm i.e. M/s. Raghava Constructions, he denied telescoping of the same towards the unexplained investment for purchase of land from Sri Yara Mallaiah and others. There was no dispute as to the difference in value of Rs. 39,37,500/-.

6.2 Ld. CIT(A) has considered and directed the A.O as under:

“9.2 The assessment order and the statement of facts of the appellant were carefully considered. The appellant has stated that the amount of Rs. 39,37,500/- being unexplained investment in purchase of land from sri Yara Mallaiah and other was admitted as part of the undisclosed income by the firm i.e M/s Raghava Constructions and therefore this amount should not be added as undisclosed investment but the benefit of telescoping should be given. It is seen that though the appellant has not denied that the amount of Rs. 39,37,500/- was undisclosed no details have been filed regarding the details of disclosure made by the firm. In view of this the A.O is directed to verify from the records whether the firm M/s. Raghava Constructions has made

7 ITA No. 646/Hyd/2015 Shri P. Srinivas Reddy, Hyderabad. disclosure of additional income against the unexplained asset in question, if yes, then there should be no question of treating it as unexplained investment in the hands of the appellant separately. In case however, there is no nexus between the disclosure made by the firm and the asset in question there is no question of allowing the telescoping. This is more so because the firm and partner are two separate entities for income tax purposes.”

6.3 It was the submission that A.O has not examined or given effect to the order and Assessee may be given benefit of Telescoping.

6.4 After considering the rival contentions, we are of the considered opinion that the A.O should verify and give findings on the directions of Ld. CIT(A). Therefore, we reiterate the same directions. The question of telescoping does not arise, if the income on this unaccounted investment was offered in the hands of the firm. There is no merit in the ground raised.

Pronounced in the open court on 06th April, 2018.

Sd/- Sd/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated: 06th April, 2018.

8 ITA No. 646/Hyd/2015 Shri P. Srinivas Reddy, Hyderabad. KRK 1) Shri P. Srinivas Reddy, C/o M. Anandam & Co., CAs 7A, Surya Towers, S.P. Road, Secunderabad. 2) Dy. CIT, Central Circle-1(3), Hyderabad. 3) CIT(A) -XI, Hyderabad. 4) The Addl. CIT, Central Range-I, Hyderabad. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File