SRI RAJESH KUMAR,BANGALORE vs. ACIT, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE

BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.195/Bang/2010 Assessment Year : 2005-06

Shri Rajesh Kumar, The Assistant No. 301, Anriya Residency, Commissioner of 6th A Cross, Ashrama vs. Income Tax, Colony, Central Circle – 1 (2), R.M.V. II Stage, Bangalore. Bangalore. APPELLANT RESPONDENT

Appellant by : Shri Narendra Sharma, Advocate Respondent by : Shri K.V. Aravind, Standing Counsel

Date of hearing : 20.12.2018 Date of Pronouncement : 11.01.2019

O R D E R Per Shri A.K. Garodia, Accountant Member This appeal is filed by the assessee and the same is directed against the order of ld. CIT (A)-VI, Bangalore dated 22.12.2009 for Assessment Year 2005-06.

ITA No. 195/Bang/2010 Page 2 of 18 be cancelled. 4. The authorities below are not justified in law in disallowing the business loss of Rs. 14,379/- as claimed by the appellant under the facts and circumstances of the case. 5. The appellant denies himself in law to be liable to be taxed under section 2(22)(e) of the Act under the facts and circumstances of the case. 6. The authorities below are not justified in making the additions of Rs.14,70,383/- as deemed dividend u/s.2(22)(e) of the Act on the facts and circumstances of the case. 7. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 8. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.” 3. The assessee has also raised one additional ground which is as under. “9. The Appellant denies himself liable to be charged to interest u/s. 234A, 234B and 234C of the Income-Tax Act, 1961, under the facts and circumstances of the case.” 4. The ld. AR of assessee submitted synopsis and he submitted that in respect of legal issue raised by the assessee as per ground nos. 2 and 3, Para nos. 2 to 2.12 of the synopsis are relevant and this issue raised by the assessee in these grounds is to be decided after considering these paras of synopsis. He also pointed out that as per these paras of synopsis reliance has been placed on the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. IBC Knowledge Park [P] Ltd. as reported in 385 ITR 346. In addition to this, reliance has been placed on two judgments of Hon’ble Delhi High Court rendered in the case of CIT Vs. Kabul Chawla as reported in 380 ITR 573 and in the case of PCIT Vs. Ms. Lata Jain as reported in 384 ITR 543. As against this, ld. DR of revenue supported the order of CIT (A) and he also submitted that these judgments cited by ld. AR of assessee are not applicable in the present case because these judgments are in the context of proceedings initiated u/s. 153C of IT Act.

ITA No. 195/Bang/2010 Page 3 of 18 5. We have considered the rival submissions. First of all, we reproduce Para nos. 2 to 2.12 of the synopsis filed by the ld. AR of assessee. The same are as under. “I. LEGAL ISSUES: 2. Issue as regard to the validity of notice issued by the learned assessing officer under section 153A of the Act. 2.1. The appellant wishes to submit that the mandatory requirements for assuming jurisdiction under section 153A of the Act have not been complied with and further the reasons for invoking the provisions of section 153A of the Act have not been recorded by the learned assessing officer and consequently the very notice issued by the learned assessing officer under section 153A of the Act is bad in law and as a corollary entire assessment is liable to be cancelled. 2.2. The commissioner in this regard has dealt with the issue at Para 2.2 and 2.3 of his order at page 2 to 4 . The gist of his decision is that once search has been conducted provisions of Section 153 A springs up and there is no requirement to record any satisfaction for issue of notice under section 153 A of the Act. He further held that the appellant has not proved that the search has not been conducted and hence the CIT(A) held that the assumption of jurisdiction is valid in law and both the grounds of the appellant were dismissed. 2.3. In this regard we wish to state that it is not that every time that search has been conducted that the provisions of section 153 A springs up. There are other conditions like it should be a valid search, incriminating materials should exist out of the valid search, and the inference of liability has to be recorded. These are mandatory conditions. Our submission is that these have not been complied with. 2.4. It is stated that as could be seen from the order of assessment passed under section 143[3] r.w.s. 153A of the Act dated 31/12/2007 there are no additions or disallowances made by the learned assessing officer based on any incriminating materials which were found or seized during the course of search conducted on the appellant under section 132 of the Act. 2.5. The contention of the appellant is that any assessments subsequent to search framed under section 143[3] r.w.s. 153A of the Act has to be necessarily based on the evidence found and seized during the course of search only. Thus, the assessment under section 143[3] r.w.s. 153A of the Act has to be necessarily be made only on the basis of seized material. In the instant case the addition by the Learned assessing officer amounting to Rs. 14,70,383/- made on account of dividend under section 2[22][e] of the Act and disallowance of business loss of Rs. 14,379/- is not based on seized materials or incriminating materials found and seized during the

ITA No. 195/Bang/2010 Page 4 of 18 course of search under section 132 of the Act and consequently the learned assessing officer had no jurisdiction for issuance of a notice under section 153A of the Act. Reliance is placed on the parity of reasoning of the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Kabul Chawla, reported in 380 ITR 573. 2.6. Reliance is also placed on the decision of the Hon'ble Delhi High Court in the case of Principal CIT Vs. Ms. Lata Jain, reported in 384 ITR 543. The Hon'ble Court has approved the view taken by the Hon'ble Tribunal that there had to be incriminating material recovered during the course of search qua the assessee in each of the years for the purposes of framing an assessment under section 153A of the Act. 2.7. It is further submitted that for issuance of a notice under section 153A of the Act by the learned assessing officer there should be a satisfaction as regard to an inference of liability be recorded and upon such satisfaction the Learned assessing officer can proceed to issue notice under section 153A of the Act. The appellant places reliance on the decision of the Hon'ble Jurisdictional Karnataka High Court of Karnataka, in the case of CIT Vs. IBC Knowledge Park [P] Ltd., reported in 385 ITR 346. The relevant portions of the decision of the Hon'ble Court are at page 367 & 368 at Para 49 & 50 of the reported judgment: "49. On a conjoint reading of the aforesaid provisions. it becomes clear that a search can takeplace only when a concerned officer has information and reason to believe that any person is in possession of any valuable assets which has not been or would not be disclosed under the Act. In such a case, a search can take place. Following the search, if any the books of account, other documents, any valuable assets is or are found in the possession or control of any person in the course of search, then the books of account or other documents or valuable assets could be seized. Under section 153A, the satisfaction regarding an inference of liability must be recorded. The Assessing Officer has to issue notice to the assessee i.e. the person searched……………………………..In such a case, the Assessing Officer has to issue notice to assessee or reassess income of the other person under section 153A of the Act. Thus, the fact that search has been conducted would not justify issuance of notice under section 153A. It is only during a valid search when certain incriminating materials are detected, notice could be issued. It may be noted that the above decision of the jurisdictional high court is direct on the point and the finding of the CIT(A) that once search has been conducted jurisdiction to issue notice under section 153 A springs up is not correct and contrary to the ruling as stated above of the jurisdictional high court. Admittedly no incriminating materials are seized and thus the provisions of section 153 A is not attracted and the assessments framed consequently is liable to be cancelled.

ITA No. 195/Bang/2010 Page 5 of 18

2.8. It is further stated in the said judgment as follows at ; 50. Chapter XIV-B which deals with special procedure for assessment of search cases deals with undisclosed income as a result of search, the computation thereof and such otherprovisions………………………………………………….thus,whatm erges is that the sine qua non for the purposes of assessment or reassessment pursuant to a search operation is detection' of undisclosed income. In fact, the initiation of search proceedings is also based on possession of information and reason to believe that a person is in possession of certain valuable assets, which has not been or would not be disclosed under the Act. The same is nothing but "undisclosed income" as defined in clause (h) of section 1588(b) of the Act. This becomes even more clear on a comparison of section 132(1)(c) with section 1588(b) of the Act. It is for the above reason that sections 153A and 153C being with a non obstante clause in order to make these provisions exclusive of sections 139, 147, 148, 149, 151 and 153 of the Act. If a search operation does not lead to detection of undisclosed income as defined in Chapter XIV-B of the Act, then no purpose would be served in reopening the assessment already completed. Also, if there is no detection of any undisclosed income, then there would be no need for pending assessment to abate. Thus, when particulars of income declared in the return is already available with the Assessing Officer, such income cannot form part of undisclosed income even if such return is filed beyond the time limit, but before search, as long as they relate to any year covered in the block. Thus, a block assessment is justified only on the basis of evidence found during search and the materials or information relatable thereto. 2.9. From the above observations of the Hon'ble Jurisdictional High Court reproduced above which is binding on the authorities below has held that only upon a valid search and upon certain incriminating materials are detected, then only notice under section 153A of the act could be issued. Further, the Hon'ble Court has also held that when particulars of income is declared in the return is already available, such income cannot form part of undisclosed income and assessment is justified only on the basis of evidences found during search and the materials or information relatable thereto. Hence, as per the ratio of the decision of the Hon'ble Jurisdictional High Court if and only if any incriminating materials are found and seized during the course of a valid search then and then only notice under section 153A of the Act can be issued. 2.10. In the instant case as could be seen from the order of assessment passed under section 143[3] r.w.s. 153A of the Act, the additions made by the learned assessing officer to the income reported by the appellant are not based upon any incriminating materials found or seized during the course of search. Since, the assessments under

ITA No. 195/Bang/2010 Page 6 of 18 section 153A are for bringing to tax the undisclosed income hence, if no incriminating based on which no additions are made then the provisions of section 153A and more so the notice under section 153A of the Act cannot be issued. It is also relevant to submit that in the instant case the appellant had filed his original return of income before the search which is clearly borne on record. 2.11. The revenue contended that the facts of the IBC knowledge park case is that it deals with section 153 C provisions and hence cannot be applied to the present case. We seek your honors indulgence in the plain reading of section 153 C where it is clearly stated that……...... assess and reassess the income of the other person in accordance with the provisions of section 153 A , if the Assessing officer……. It is humbly submitted that for the purposes of assessment under section 153C of the Act the procedure adopted should be as envisaged in the provisions of section 153A of the Act. Thus, the entire assessment under section 153C of the Act has to be in consonance with the provisions of section 153A of the Act which is amply clear from the plain reading of the provisions of section 153C of the Act is concerned and all the necessary requirements has to be followed for framing the assessment under section 153A r.w.s. 153C of the Act. Thus the contention of the revenue that case law is not applicable to the facts is not correct and without prejudice it is submitted that the even if it is obiter dicta it is binding on the Tribunal . In our view it is clear case of ratio decdendi only and hence the assessment made without recording reasons and without there being any incriminating material is not in accordance with the law laid down by the jurisdictional high court. 2.12. In view of the above the appellant humbly pray before your Honor's that to cancel the assessment framed by the learned assessing officer under the provisions of section 143[3] r.w.s. 153A of the Act for the submissions made above for the advancement of substantial cause of justice.” 6. As per these paras of the synopsis, reliance has been placed by the ld. AR of assessee on the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. IBC Knowledge Park [P] Ltd. (supra). Substantial question of law raised before Hon'ble Karnataka High Court in this case is in respect of appeals filed by the assessee are noted by Hon'ble Karnataka High Court in Para 3 of this judgment and therefore, Para 3 of this judgment is reproduced herein below for ready reference. “3. By order dated 3/8/2015, the appeals filed by the assessee were admitted on the following substantial questions of law:

ITA No. 195/Bang/2010 Page 7 of 18 (a) Whether the Tribunal was right in holding that the initiation of proceedings and the consequent order passed under Section 153C of the Act were valid, on a mere coincidence that the appellant was also carrying on its business in the searched premises along with the searched persons? (b) Whether the Tribunal was correct in holding that the assessment under Section 153C was valid despite there being no satisfaction recorded that the documents found during the search on 17.06.2008 were incriminating in nature and prima facie represented undisclosed income? (c) Whether the Tribunal was justified in rejecting the contention of the appellant that proceedings under Section 153C ought to be initiated only for assessment years in respect of which the documents were found during the search? (d) Whether the Tribunal was correct in upholding the validity of the order under Section 153C of the Act for the assessment year 2005-06 despite there being no pending assessment as on the date of search and the documents not revealing any undisclosed income?” 7. From the substantial question of law raised before Hon'ble Karnataka High Court in this appeal filed by the assessee before Hon'ble Karnataka High Court as reproduced above, it is seen that in that case, the issue raised was regarding initiation of proceedings and the consequent order passed u/s. 153C of IT Act as to whether the same is valid or not. In the present case, as per the assessment order, it is seen that search u/s. 132 was conducted in the business premises of the company M/s. Anriya Project Management Services Pvt. Ltd., Bangalore and also in the residential premises of the assessee on 30.09.2005. It is also noted by AO in Para 2 of the assessment order that assessee is the Managing Director of the company which came into existence w.e.f. Assessment Year 2004-05. The AO has also noted in same Para of assessment order that during the course of search, certain incriminating material was found and seized. In Para no. 3, it is noted by AO that after centralization of the case to Central Circle – 1 (2), Bangalore, the AO issued notice u/s. 153A of IT Act on 02.02.2006 requiring the assessee to file the return of income within 30 days from the date of receipt of that notice and it is also noted that notice was served on 13.02.2006. Thereafter it is noted in Para 4 of the assessment order that assessee filed the return of income on 12.04.2007 declaring income of Rs.

ITA No. 195/Bang/2010 Page 8 of 18 13,24,490/- consisting of salary from M/s. Anriya Project Management Services Pvt. Ltd., Bangalore as Chairman and Managing Director, Property income, loss from business and other sources. Hence it is seen that in the present case, the issue in dispute in regarding the validity of the assessment proceedings initiated u/s. 153A of IT Act and not proceedings initiated u/s. 153C of IT Act. As per the relevant Para of this judgment of Hon'ble Karnataka High Court reproduced by the ld. AR of assessee in the synopsis as reproduced above, it is noted by Hon'ble Karnataka High Court that u/s. 153A, the satisfaction regarding an inference of liability must be recorded. For ready reference, we reproduce the provisions of section 153C which are as under. “153C. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person 17[for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and] for the relevant assessment year or years referred to in sub-section (1) of section 153A : Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person : Provided further that the Central Government may by rules18 made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is

ITA No. 195/Bang/2010 Page 9 of 18 conducted or requisition is made 19[and for the relevant assessment year or years as referred to in sub-section (1) of section 153A] except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year— (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) ofsection 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.” 8. From the above provisions of section 153C(1), it is seen that if the AO of the searched is satisfied that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than the searched person then the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A. Hence it is seen that even in the case of proceedings initiated on a person other than the searched person also, notice has to be issued by the AO to the other person u/s. 153A of IT Act although such AO gets the jurisdiction u/s. 153C of IT Act. Now we also reproduce the provisions of section 153A of IT Act which are as under. “153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132or books of account, other documents or any assets are requisitioned

ITA No. 195/Bang/2010 Page 10 of 18 under section 132A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years 9[and for the relevant assessment year or years] referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made 9[and for the relevant assessment year or years] : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years 9[and for the relevant assessment year or years] : Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years 9[and for the relevant assessment year or years] referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate : Provided also that the Central Government may by rules10 made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made 11[and for the relevant assessment year or years]: 11[Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless— (a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years; (b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years; and (c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017. Explanation 1.—For the purposes of this sub-section, the expression "relevant assessment year" shall mean an assessment year preceding the assessment year relevant to the previous year in which search is

ITA No. 195/Bang/2010 Page 11 of 18 conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. Explanation 2.—For the purposes of the fourth proviso, "asset" shall include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank account.] (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Principal Commissioner or Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside. Explanation.—For the removal of doubts, it is hereby declared that,— (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.” 9. From the above provisions of section 153A, it is seen that in this section, it is provided that in the case of a person where a search is initiated under section 132or books of account, other documents or any assets are requisitioned under section 132A of IT Act then the AO shall issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years immediately preceding the Assessment Year relevant to the previous Assessment Year in which such search is conducted and addition is made. Hence it is seen that in section 153A, there is no such requirement that anything else is required to be satisfied other than conducting of search in the case of the concerned assessee for issuing notice u/s. 153A of IT Act whereas u/s. 153C of IT Act, the requirements are different. In that section i.e. section 153C of IT Act, it is seen that it is primary requirement that the AO of the search person should satisfy that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or any books of account or documents,

ITA No. 195/Bang/2010 Page 12 of 18 seized or requisitioned, pertains or pertain to, or any information contained therein, relates to a person other than the searched person and then only he has to hand over the assets or documents to the AO having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A of IT Act if that AO is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person. Hence it is seen that in the cases covered by section 153C of IT Act notice has to be issued to other person u/s. 153A of IT Act but before issuing such notice, he has to satisfy that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six Assessment Years immediately preceding the Assessment Year relevant to previous year in which search is conducted and requirement is made. Hence it is seen that for issuing notice u/s. 153A in the case of a person other than the searched person, the AO issuing such notice has to record satisfaction that books of accounts or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person. But in the case of searched person, there is no such requirement prescribed u/s. 153A of IT Act. Since even in the case of a person other than the searched person, notice has to be issued by AO to such other person u/s. 153A of IT Act and hence, the reference to the provisions of section 153A by Hon'ble Karnataka High Court in this judgment cannot be construed as relevant to determine the validity of assessment proceedings initiated in the case of a searched person because in that case, issue in dispute was in respect of person other than the searched person. Hence in our considered opinion, this judgment of Hon'ble Karnataka High Court is not applicable in the facts of present case. 10. Now we examine the applicability of two judgments of Hon’ble Delhi High Court cited by ld. AR of assessee rendered in the case of CIT vs. Kabul Chawla (supra) and in the case of PCIT vs. Ms. Lata Jain (supra). First we consider the applicability of the judgment in the case of CIT vs. Kabul

ITA No. 195/Bang/2010 Page 13 of 18 Chawla (supra). As per Para 2 of this judgment, the issue in dispute before Hon’ble Delhi High Court was this as to whether the addition made in the income of the assessee u/s. 2(22) (e) of IT Act was not sustainable because no incriminating material concerning such addition was found in the course of search and further, no such assessment was pending on the date of search. As per the facts noted in that case, the search was conducted u/s. 132 on 15.11.2007 in the premises of the assessee and on the date of search, no assessment proceeding was pending for Assessment Years 2002-03, 2005-06 and 2006-07 because for these years, the assessment had already been made u/s. 143(1) of IT Act. In the present case, we find that the Assessment Year before us is Assessment Year 2005-06 and as per the list of dates & synopsis submitted by assessee, the assessee filed return of income for this year declaring an income of Rs. 12,99,074/- on 30.07.2005 and search was conducted in the business premises and residential premises of the assessee on 30.09.2005. Hence it is seen that the assessment proceedings for Assessment Year 2005-06 was pending on the date of search i.e. 30.09.2005 whereas in the case of CIT Vs. Kabul Chawla (supra), it is noted by Hon’ble Delhi High Court in Para no. 3 of this judgment that as on the date of search, no assessment proceedings were pending for Assessment Years 2002-03, 2005-06 and 2006-07 because all these assessments have already been made u/s. 143(1) of IT Act. Because of this vital difference in facts, this judgment of Hon’ble Delhi High Court is not applicable in the present case.

ITA No. 195/Bang/2010 Page 14 of 18 Hon’ble Delhi High Court, it comes out that the assessment was already completed u/s. 143(3) and also u/s. 147 r.w.s. 143(3) of IT Act. Hence it can be safely presumed that on the date of search, assessment proceedings were not pending. Whereas we have seen that in the present case, the assessment proceedings were pending because the return of income was filed by the assessee on 30.07.2005 and the search was conducted on 30.09.2005 and hence, because of these differences in facts, in our considered opinion this judgment of Hon’ble Delhi High Court is also not applicable in the present case.

ITA No. 195/Bang/2010 Page 15 of 18 14. We have considered the rival submissions. We find that this issue was decided by the AO as per Para 9 of the assessment order which is reproduced herein below for ready reference. “9. Business: The assessee has claimed loss from business at Rs.29,219/-. The assessee has shown expenses of Rs.34,379/- as against miscellaneous income of Rs.5,160/-. It is stated that the assessee has not carried on any business activity in his individual capacity as proprietor of M/s.Raksha Builders and Developers. Also the assessee followed mercantile system of accounting in the earlier assessment year. The assessee has filed copy of bank account for having paid works contract tax of Rs.20,000/-. The other expenses claimed is not in connection with any business activities, since the assessee has not carried on any business activity during the previous year relevant to this assessment year Hence the other expenses claimed amounting to Rs.14,379/- is disallowed.” 15. From the above Para reproduced from assessment order, it is seen that the disallowance made by the AO is not on adhoc basis. The AO has noted that the assessee has claimed expenses of Rs. 34,379/- as against miscellaneous income of Rs. 5,160/-. The AO has also noted that out of Rs. 34,379/-, the assessee has filed copy of bank account for having paid works contract tax of Rs. 20,000/-. In our considered opinion, this payment of Rs. 20,000/- is covered u/s. 43B of IT Act and therefore, the AO disallowed the remaining amount of expenses of Rs. 14,379/- being Rs. 34,379/- less Rs. 20,000/-. This disallowance made by the AO is on this basis that the assessee has not carried on any business activity in his individual capacity as proprietor of M/s. Rakha Builders and Developers. Hence, on this issue, we find no infirmity in the orders of authorities below. Accordingly Ground no. 4 is also rejected.

ITA No. 195/Bang/2010 Page 16 of 18 17. We have considered the rival submissions. We find that this is the claim of the assessee that impugned payment was made by that company to the assessee in the exigencies of the business. We find that the same argument was raised by the assessee before CIT (A) also and after considering these arguments, this issue was decided by CIT (A) as per Para no. 2.5.3 of his order. This Para is reproduced herein below for ready reference. “2.5.3 The above argument of the appellant are not found acceptable in view of the reasons given below:- (i) It is evident from the finding given by the Assessing Officer in para.7 of the assessment order that the appellant in his balance sheet has shown the amount of Rs.14,70,383/- as advance from the company M/s.Anriya Project Management Services Pvt. Ltd, in which the appellant is a share holder holding not less than 10% of the voting power. Therefore any payment by way of advance or loan shall come under the purview of deemed dividend under section.2 (22) (e) of the Income Tax Act. The appellant failed to prove that the payment is not in the nature of advance, further such advance shall not be included in the deemed dividend only in the case where any advance or loan made to shareholder by a company in the ordinary course of business, where the lending of money is a substantial part of the business of the company as per sub-clause (ii) of clause (e) of subsection ( 22 )of section 2 of the Income Tax Act. It is undisputed fact that the company which advanced the money to the appellant is not engaged in the business of lending of money. Therefore, the payment made by way of advance to the appellant is to be assessed as deemed dividend undersection.2(22)(e) of the Income Tax Act. The legal arguments taken by the appellant that in view of the section.115 O, dividend cannot be taxed in the hand of the individual is not found acceptable in view of the reason that given below:- (i) Chapter XII-D is in regard to Special Provisions relating to tax on distributed profits on domestic companies.Section.115O is no doubt start with non obstacle clause i.e., "not withstanding anything content in any other provisions of this Act"However, it also provide that "subject to provisions of this section, in addition to the income tax chargeable in respect to total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividend, whether out of the current or accumulated profit shall be chargeable to additional income tax". It is clear that the additional income tax has to be charged on the dividends. As per sub section (22) of section 2 of the Income Tax Act dividend includes, deemed dividend also but the applicability of the section 115 O has been restricted to the dividend except the dividend as per section.2(22)(e) of the Income Tax Act by the explanation to the

ITA No. 195/Bang/2010 Page 17 of 18 chapter, which reads as under:- " For the purposes of this Chapter, the expression "dividends" shall have the same meaning as is given to "dividend" in clause (22) of section 2 but shall not include sub-section (e) thereof". (ii) The question of main provision prevails over the explanation does not arise because the entire chapter XII-D was introduced by the Finance Act 1997. The intention of the Legislature by putting the explanation to the chapter was clear that the provision of the chapter XII-D shall not be applicable to the deemed dividends under section 2(22)(e) of the Income Tax Act. (iii) The Circular No.7 of 2003 issued by the CBDT on which the reliance has been placed by the appellant is not applicable to the case of the deemed dividend under section.2(22)(e) of the Income Tax Act, para.no.58 of the Circular clarify the additional income tax in respect of the amount of dividend declared, distributed or paid under sub- section (1) of section.115O of the Income Tax Act. Here the question is not of the taxability of the dividend as envisaged in section.115O but in regard to the deemed dividend which have been excluded from the purview of section 115O by inserting an explanation to the chapter itself. In view of the above, the addition made by the Assessing Officer under section.2(22)(e) of the Income Tax Act of Rs.14,70,383/- is upheld, appeal on this ground is accordingly dismissed.” 18. From the above Para reproduced from the order of CIT(A), it is seen that ld. CIT(A) has given a categorical finding that assessee has failed to prove that the payment is not in the nature of advance. Before us also, it could not be established by the learned AR of the assessee that the amount given by the company to the assessee was given under business exigencies. Therefore, we find no merit in this claim. We also find that ld. CIT (A) has also given this finding that this is undisputed fact that the company which advanced the money to the present assessee is not engaged in the business of lending of money and therefore, the payment made by the company by way of advance to assessee should be assessed as deemed dividend u/s. 2(22)(e) and this categorical finding of CIT(A) could not be controverted by ld. AR of assessee. This is also a clear finding of CIT(A) that the assessee is a shareholder of that company holding not less than 10% of the voting power of that company in question i.e. M/s. Anriya Project Management Services Pvt. Ltd. Therefore, in respect of advance given by company to the present

ITA No. 195/Bang/2010 Page 18 of 18 assessee, the provisions of section 2(22) (e) of IT Act are applicable. After considering the entire facts of the present case and the legal position, we find no infirmity in the order of CIT(A) on this issue. Ground no. 5 and 6 are also rejected.

Sd/- Sd/- (PAVAN KUMAR GADALE) (ARUN KUMAR GARODIA) Judicial Member Accountant Member Bangalore, Dated, the 11th January, 2019. /MS/ Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order

Assistant Registrar, Income Tax Appellate Tribunal, Bangalore.