ACIT, NEW DELHI vs. SH. SHIV PRIYA, NOIDA

2. On the facts and circumstances of the case, the Ld.CIT(A) has erred in law in deleting the addition of Rs.1,26,09,224/- (Rs.18,72,000/-) + Rs. 1,07,37,224/-) made by A.O as benefit/perquisite u/s 2(24) (iv) of the Income Tax Act, 1961.”

(C.O No. 238/Del/2014)

“1. On the facts and circumstances of the case, the Ld.CIT(A) has erred in law the notice u/s 153A issued in this case is illegal & without jurisdiction and accordingly, the assessment order passed on the foundation of such notice is not sustainable and is liable to be quashed. On the facts and circumstances of the case and in law, the CIT(A) should have held that the assessment order passed by the Assessing Officer is bad in law and void.

2. On the facts and circumstances of the case, the Ld.CIT(A) has erred in law, the initiation of assessment proceedings and issue/service of notices by the Assessing Officer is not in accordance with the provisions of law and accordingly the assessment order passed is liable to be quashed.

3. On the facts and circumstances of the case, the Ld.CIT(A) has erred in law, the addition of Rs.18,72,000/- and Rs.1,07,37,224/- made by A.O by applying provisions of Section 2(24) (iv) of Income Tax Act, 1961 are totally erroneous. On the C.O 238/Del/2011, & C.O No. 300/Del/2014 facts and circumstances of the case and in law, the Assessing Officer has misapplied the provisions of Section 2(24) (iv) of Income Tax Act, 19961.

(ITA No. 1101/Del/2014)

“1. The order of the Ld.CIT(A) is not correct in law and facts.

2. On the facts and circumstances of the case, the Ld.CIT(A) CIT(A) has erred in deleting the addition of Rs.18,72,000/- made by A.O on account of benefit/perquisite u/s 2(24) (iv) of IT Act.

3. On the facts and circumstances of the case, the Ld.CIT(A) CIT(A) has erred in deleting the addition of Rs.2,08,44,950/- made by A.O on account of benefit/ perquisite u/s 2(24) (iv) of IT Act..

4. On the facts and circumstances of the case, the Ld.CIT(A) CIT(A) has erred in deleting the addition of Rs.57,78,839/- made by A.O on account of unexplained investment in jewellery u/s 69A of the Act.”

(C.O No. 300/Del/2014)

“1. On the facts and circumstances of the case and in law the addition of Rs.18,72,000/- and Rs.2,08,44,950/- made by A.O by applying provis9ions of Section 2(24)(iv) of Income Tax Act, 1961 are totally erroneous. On the facts and circumstances of the case and in law, the Assessing Office has misapplied the provisions of Section 2(24) (iv) of the Income Tax Act, 1961.

2. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition to the extent of Rs.12,77,654/- on account of alleged unexplained jewellery. On the facts and circumstances of the case and in law, the CIT(A) should have deleted the entire addition of Rs.57,78,839/- made

C.O 238/Del/2011, & C.O No. 300/Del/2014 by the Assessing Officer on account of alleged unexplained jewellery.”

C.O 238/Del/2011, & C.O No. 300/Del/2014 The A.O observed that M/s. AHS Joint Venture (firm) did not charged any interest on the above loan & advances. The A.O. further observed that the assessee did not file any details/transactions for which these advances was made. The A.O made observation that the amount received from M/s. UHCPL under the current account was primarily used for providing interest free loan to the directors/substantive share holders of M/s. UHCPL. Thus, the A.O. observed that the payment received by the said persons are de-facto payment made by M/s. UHCPL but routed through the firm i.e. M/s. AHS Joint Venture. Thus, the A.O. held that this transaction attracted the provision of section 2(24)(iv) of the I.T. Act, as all the persons were directors in M/s. UHCPL and enjoyed the benefits of interest free loan through routing the money in the shape of payments towards current account, in the said firm. Therefore, A.O added the interest @ 6% which comes to Rs. 57,46,230/- to the income of respective director. The interest @ 6% which comes to Rs. 18,72,000/- was added to the income of the assessee, as per the above chart as ‘Benefits/Perquisite de-facto received M/s. UHCPL due to his position as the substantive share holder/director, and taxed as income u/s. 2(24)(iv) of the I.T. Act. The Assessing Officer also made addition in respect of Advance from M/s Amarpali Infrastructure Pvt. Ltd (AIPL). The A.O. Mentioned that the findings in the case of M/s. Amrapali Infrastructure Pvt. Ltd. for the A.Y. 2010-11, in which M/s. Amrapali Infrastructure Pvt. Ltd. found to have received unsecured loan of Rs. 1,13,67,00,000/-from M/s. Amrapali Sapphire Developers Pvt. Ltd. this loan was received

C.O 238/Del/2011, & C.O No. 300/Del/2014 without any interest, as the loan creditors were an associated company. This amount is further been used by M/s. AIPL in advancement of loan to their other associated companies and the Directors. The loan/advancement given by M/s. AIPL were also interest free. However, the A.O noted that M/s. AEPL advanced sum of Rs.32,36,90,344/- to Sh. Anil Kumar Sharma and Rs. 17,89,53,740/- to Sh. Shiv Priya, who are substantive share holder and Directors of the assessee company. Therefore, the A.O held that the amount received by these Directors without any interest directly attracted the provision of section 2(24)(iv) of the I.T. Act, as the interest free advance received by the Directors was treated as Benefit/perquisite received by the Directors as they were the person who controlled the affairs of the assessee company and also the group companies and advancing loan to themselves that to interest free was self serving arrangement to avoid the tax. Therefore, the A.O held that the interest free advance shown from the books of M/s. AIPL apparently did not fetch interest cost but the fund definitely had opportunity cost of interest which the Director of Ms. AIPL viz. Sh. Anil Sharma & Sh. Shiv Sharma availed being their position as the substantive share holder & Directors of Ms. AIPL. Thus, the A.O took conservative estimate of the benefit & determined it by taking the rate of interest @ 6% p.a. and the total interest computed at Rs. 3,01,58,645/- (6% on Rs. 50,26,44,084/-) out of which Rs. 1,94,21,420/- pertained to Sh. Anil Kumar Sharma and Rs. l,07,37,224 pertained to Sh. Shiv Priya. This amount was taxed in the hand of respective directors as the benefit/perquisite received by the Directors as income u/s 2(24)(iv) of the I.T Act. Accordingly, Rs. 1,07,37,224/- was added

C.O 238/Del/2011, & C.O No. 300/Del/2014 to the income of the assessee as benefit u/s 2(24)(iv) of the I.T. Act.

C.O 238/Del/2011, & C.O No. 300/Del/2014

C.O 238/Del/2011, & C.O No. 300/Del/2014 6204/Del/2003) for Assessment Year 2010-11 where in the same group of USCPL has been searched & Mr. Anil Kumar Sharma is a Director whose name appears in Para 5 of the present Assessment order of the assessee herein. The Tribunal in Para 18 held as under:-

In view of foregoing discussion, we are inclined to agree with the conclusion of the CIT(A) that no amount of loan/advance was actually received by the assessee from AIPL but it was only a journal entry passed on 31/03/2010 debiting the assessee’s account and correspondingly crediting the UHCPL account to enhance the promoters contribution in the Joint Venture object between AIPL and UHCPL. Hence, estimated notional addition made by the AO u/s 2(24)(iv) of the Act on both the count could not be held as sustainable and the same was rightly deleted by the CIT(A). The said conclusion also gets support and strength from the ratio of the order of Hon’ble Jurisdictional High Court of Delhi in the case of Sohan Singh vs. CIT (supra). We also hold that the interest free advance/loan to assessee from AHS also does not attract provisions of section 2(24)(iv) of the Act because this provision is only applicable to the cases wherein a company provides benefits/perquisites and this provision is not applicable in the case of partnership firm such as AHS. We are unable to see any infirmity or perversity or any other valid reason to interfere with the order of the first appellate authority and we uphold the same. Accordingly sole ground of the Revenue being devoid of merits on both the limbs of the issue is dismissed.

C.O 238/Del/2011, & C.O No. 300/Del/2014 project between AIPL and UHCPL. Hence, estimated notional addition made by the AO u/s 2(24)(iv) of the Act on both the count could not be held as sustainable and the same was rightly deleted by the CIT(A). Provision of Section 2(24) (iv) is not applicable in the present case as the ratio held in CIT Vs. Madhu Gupta (2012) 303 Taxman 303 that interest on interest free loans availed by the assessee from a company in which she was a director, could not be treated as deemed income u/s 2(24)(iv) of the Act. The relevant operative part of this order at paras 9 to 11 reads as under:

“9. Ld. Counsel for the assessee pointed out that the judgments of Calcutta High Court as also of Madras High Court referred to by the counsel for the Revenue have been considered by the Hon’ble Supreme Court in V.M. Salgaocar & Bros. (P) Ltd. vs. CIT [2000] 243 ITR 383/110 Taxman 67 (SC). The Hon’ble Supreme Court has approved the view of Calcutta High Court and also noticed that the judgments of Madras High Court are prior to amendment carried out by the Taxation Laws (Amendment) Act, 1984 and consequent repeal by the Financial Act, 1985. Such intervention makes the intention of the Legislature clear that had the existing provisions been sufficient to treat the benefit of interest free loan, as deemed income, the same would not have been incorporated by way of amendment and subsequent repealed. In the aforesaid case, the assessee was in appeal aggrieved against the judgment of Karnataka High Court, wherein reliance was placed upon judgments of Madras High Court, as mentioned above. The Hon’ble Supreme Court has also quoted with approval, the passage from the judgment of P.R.S. Oberoi’s case (supra). It observed: “The amendment made by the 1984 Amending Act was both to Section 17(2) and Section 40A(5). In the impugned judgment

C.O 238/Del/2011, & C.O No. 300/Del/2014 reference in fact had been made to inclusion of Sub Clause (vi) in Clause (2) of section 17. Moreover, the High Court in the impugned judgment did not consider the amendments made by the Amending Act, 1984 on the ground “it is difficult to see how this amendment can have any bearing upon the interpretation of the then existing provisions of the Act.” We do not think this approach was also correct. An amending provision can certainly give guidance to interpretation of the existing provisions. The judgments of the Madras High Court which were relied upon by the High Court in the impugned judgment were for the period prior to the 1984 amendment and the Madras High Court had no occasion to consider the impact of the amendments to section 17(2) and section 40A(5) of the Act. ****** The High Court in the impugned judgment could not have brushed aside the consideration of the Amending Act, 1984 and its subsequent repeal by the Finance Act 1985, by terming them of no consequence Act.”

C.O 238/Del/2011, & C.O No. 300/Del/2014 the interpretation in V.M. Salgaocar and Bros. P. Ltd.’s case (supra) interpreting section 17(2) and effect of amendment in section 40A(5) would be applicable to the expression ‘benefit and perquisite’ appearing in section 2(24)(iv) as well as is observed by Calcutta High Court. The judgment of Calcutta High Court in P.R.S. Oberoi’s case (supra) considering the benefit of perquisite appearing in section 2(24)(iv) of the Act, has been approved by the Hon’ble Supreme Court.

11. In view of the aforesaid judgments, we are of the opinion that interest on interest free loans advanced to the assessee by the company cannot be treated as deemed income in terms of section 2(24)(iv) of the Act.”

On similar issue the Hon’ble Jurisdictional High Court of Delhi, following the law laid down by the Hon’ble Apex Court in the case of V.M. Salgaoncan and Bros. Pvt. Ltd. vs. CIT (2000) 243 ITR 383 (SC), in the judgment in the case of Sohan Singh vs. CIT (2002) 253 ITR 331 (Delhi) held that in view of insertion of section 17(2)(vi) of the Act and the amendment of section 40A(5) of the Act by the Taxation Laws (Amendment) Act, 1984 and their subsequent deletion w.e.f. 1.4.1985 by the Finance Act, 1985, as a measure of relief to the salaried taxpayers, and the circular dated 12.6.1985 of CBDT relating thereto, the interest not charged could not be treated as assessees’ income u/s 2(24)(iv) of the Act. The relevant operative part of the order of the Hon’ble High Court at page 332-333 is being respectfully reproduced as follows:

C.O 238/Del/2011, & C.O No. 300/Del/2014 “The apex court had an occasion to consider a similar questin in V.M. Salgaocar and Bros. Pvt. Ltd. vs. CIT [2000] 243 ITR 383. It was, inter alia, held as follows (headnote): “Sections 17(2) and 40A of the Income Tax Act, 1961, were amended by the Taxation Laws (Amendment) Act, 1984. Sub-clause (vi) of clause (2) of section 17 of the Act, as inserted by the Amendment Act of 1984, provided that where the employer has advanced any loan to the employee and either no interest is charged by the employer on the amount of such loan or interest is charged at a rate lower than the rate of interest which the Central Government may specify, then, (a) where the loan is advanced without charging any interest, the interest calculated in the prescribed manner on such loan at the rate so specified, and (b) where the loan is advanced by charging interest at a rate lower than the rate so specified, the difference between the rate of interest calculated in the prescribed manner on such loan at the rate so specified and the interest charged by the employer, shall be deemed to be a perquisite. An amendment on similar lines was made in section 40A of the Act to provide that the amount of interest referred to an item (a) or item (b), as the case may be of sub-clause (vi) of section 17(2) of the Act, shall be regarded as perquisite provided by the assessee to his employee for the purposes of section 40A(5) of the Act. These amendments were intended to take effect from April 1, 1985. However, subsequently, the Finance Act, 1985, sought to omit both the aforesaid provisions with effect from the date of their insertion, namely, April 1, 1985. Clause 20 of the memorandum explaining the provisions of the Finance Bill, 1985 [152 ITR (St.) 91], stated that as a measure of relief to salaried taxpayers, the Bill sought to omit the aforesaid provision with effect from the date of its proposed insertion, namely, April 1, 1985. The Central Board of Direct Taxes issued a circular dated June 12, 1985, incorporating the objectives sought to be achieved by omission of clause (vi). Earlier, the Central Board of Direct Taxes had issued a circular explaining the objectives in inserting clause (vi). By the 1984 Amendment Act, Parliament wanted to carve out a particular exception from the otherwise exclusionary clauses for the purposes of computation of income-tax. This provides a clear direction to interpret the provisions

C.O 238/Del/2011, & C.O No. 300/Del/2014 of sections 17(2) and 40A(5) before insertion of clause (vi). The circulars of the Central Board of Direct Taxes also provide as to how the Revenue itself understood the effect of the amendment and what was the law before the Amending Act, 1984.” The above being the law laid down by the apex court, the Tribunal’s view cannot maintain. The questions referred, therefore, have to be answered in the negative, in favour of the assessee and against the Revenue.”

The present case is squarely covered as the interest free advance/loan to assessee from AHS does not attract provisions of section 2(24)(iv) of the Act because this provision is only applicable to the cases wherein a company provides benefits/perquisites and this provision is not applicable in the case of partnership firm such as AHS. Thus, the CIT(A) has rightly deleted the additions made by the Assessing Officer. There is no need to interfere with the orders of the CIT(A).

“5.3. In this regard, it is also important to mention that another search was carried out at the residence of the assessee by the Investigation Wing on 25/3/2011, in which total gold jewellery of 58.800 grams of gold and diamond set total value at C.O 238/Del/2011, & C.O No. 300/Del/2014 Rs.15,34,340/- were found. These items are inclusive in the total jewelley found at the time of search on 9/9/2010. Therefore, they Assessment Year not enquired separately. The asessee’s case and his explanation for jewellery found & seized is not inspiring confidence as to the source of acquisition in the Income Tax & Wealth Tax Returns. Though, the AR of the assessee is also stated that part of the jewellery is belongs to the assessee’s wife who is also assessed separately and filing her I.T/W.T Return. However, the assessee did not file any evidence as to the acquisition of jewellery either in his own name of in the name of spouse. Therefore, the assessee failed to add any information as to the source of jewellery what virtually he had explained to the search team at the time of search, which lead to the seizure of jewellery worth Rs.57,78,839/-. Therefore, following the same tenant of principle the jewellery released at the time of search amounting to Rs.564040/- is considered explained and jewellery seized at the time of search amounting to Rs.57,78,839/- is treated at ‘Unexplained Jewellery’ which has been acquired by the assessee out of his undisclosed sources and therefore need to be taxed u/s 69A of the I.T Act. Accordingly, addition of Rs.57,78,839/- is treated at ‘Unexplained Jewellery’ u/ s 69A of the I.T. Act.”

10. The CIT(A) in para 6.2 held as under:- 6.2 I have considered the assessment order and the submissions made. The total value of jewelry found during the course of search was Rs. 1,14,19,079/- out of which jewelry of the value of Rs.57,78,839/- was seized. The case of the appellant

C.O 238/Del/2011, & C.O No. 300/Del/2014 is that the entire jewelry found during the course of search is explained and purchased during FY 2004-05 to 2010-11 out of disclosed and tax paid sources by the appellant and his wife. The case of revenue is that the appellant does not have complete documentation such as purchase bills to establish his claim. I find that appellant’s claim of payments for purchase of jewelry from the disclosed bank accounts of himself and his wife is not controverted. I also find that the net wealth of the appellant as on 31.03.2010 included jewelry valued at Rs.99,60,500/- and was assessed as such u/s 16(3) of the WT Act. On 31.03.2011, the net wealth disclosed in wealth tax return included jewelry valued at Rs. 1,03,22,350/-. The appellant was searched on 09.09.2010 and the value of jewelry found was Rs. 1,14,19,079/-. Since the search period was mid-way between March 2010 and March 2011, the value of jewelry undisputedly with the appellant as on the date of search in September 2010 would have been between the two values at Rs. 1,01,41,425/- (i.e. Rs.99,60,500/- minus Rs. 1,03,22,350/- divided by two, added to / reduced from the earlier / latter value). Therefore, the overall difference in the value of jewelry as per WT record and that found / seized in the search was Rs. 12,77,654/- (i.e. Rs. 1,14,19,079/- minus Rs. 1,01,41,425/-). I hold accordingly. Out of the addition of Rs.57,78,839/- made, the amount of Rs.12,77,654/- is treated as the value of unexplained jewellery and sustained. Appellant gets relief of Rs.45,01,185/-. This ground of appeal is decided in these terms.”

C.O 238/Del/2011, & C.O No. 300/Del/2014 was not having all the relevant material before him about the Wealth Tax was paid or not by the assessee.

C.O 238/Del/2011, & C.O No. 300/Del/2014

Order pronounced in the Open Court on 26th MAY, 2017.