SMT.VIDYA DEVI LADHANI,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, BANGALORE

Per Shri Vijay Pal Rao, J.M. : These group of appeals by two assessees are directed against the two

composite orders of Commissioner of Income Tax (Appeals) both dt.18.02.2015

2 ITA Nos.118 to 124/Bang/2017 for the Assessment Years 2009-10 to 2011-12 in the case of Smt. Vidya Devi

Ladhani & for the Assessment Years 2009-10 to 2012-13 in the case of Smt.

Deepti Ladhani. Since these appeals are arising from the assessments framed

under Section 153A in pursuant to the same search and seizure action under

Section 132 and also involved common issues of assessment of deemed

dividend under Section 2(22)(e) of the Income Tax Act, 1961 (in short 'the Act')

therefore, all these appeals were clubbed for the purpose of hearing and

adjudication.

The grounds raised in ITA Nos.118/Bang/2017 are reproduced as under :

3 ITA Nos.118 to 124/Bang/2017

4 ITA Nos.118 to 124/Bang/2017

adjudication.

143(3) of the Act on the ground of validity of search. At the time of hearing,

the learned Counsel for the assessee stated at Bar that the assessee does not

press this ground and the same may be dismissed as not pressed. The learned

Departmental Representative has raised no objection if Ground No.2 of the

appeal is dismissed as not pressed. Accordingly, the Ground No.2 of the

appeals is dismissed being not pressed.

Section 2(22)(e) of the Act while completing the assessment under Section

153A of the Act without any incriminating material found during the search.

Beverages Pvt. Ltd. (in short BBPL). The husbands of the assessees are also

Directors of the said company. The assessees are holding 10.19% and 13.45%

5 ITA Nos.118 to 124/Bang/2017 respectively voting power in the aforesaid company and this fact is not in

dispute. There was a search and seizure operation on 18.12.2012 under

Section 132 of the Act in the premises of the assessee. Subsequently, the

Assessing Officer initiated proceedings under Section 153A of the Act by issuing

a Notice for these assessment years. The only addition made in the assessment

framed under Section 153A for all these assessment years is towards deemed

dividend under Section 2(22)(e) of the Act. The assessee challenged the

validity of search as well as the addition made on account of deemed dividend

before the CIT (Appeals) however could not succeed.

has submitted that the assessees filed their regular return of income for all

these assessment years and the assessments for the Assessment Years 2009-10

to 2011-12 were not pending as on 18.12.2012 when search under Section 132

was carried out by the Department in the cases of these assessees. Thus the

learned Counsel for the assessee has submitted that the addition towards

deemed dividend in assessment proceedings under Section 153A of the Act are

opposed to law in as much as these additions are not based on any

incriminating material found and seized during the course of search. The

learned Authorised Representative has referred to the assessment order and

6 ITA Nos.118 to 124/Bang/2017 submitted that the Assessing Officer has not made any reference to any

incriminating material found during the course of search to justify these

additions. There is also no reference to any statement recorded at the time of

search on the aforesaid issue in the assessment orders. Thus the learned

Authorised Representative has asserted that it is clear that the Assessing Officer

has proceeded to make the impugned addition based on the documents sought

in the course of the assessment proceedings from which the payments made by

BBPL towards the tax liability of the assessee were noticed. The learned

Counsel for the assessee has pointed out that the original return of income for

the Assessment Years 2009-10 to 2011-12 were processed under Section 143(1)

and time for issuing notice under Section 143(2) was also expired on the date of

search on 18.12.2012 and therefore the assessments were not pending for

these three assessment years as on date of search. Thus as per the provisions

of Section 132 r.w.s. 153A, the order passed by the Assessing Officer under

Section 153A for these three assessment years are reassessment orders as the

assessments were not abated and therefore in the absence of any incriminating

material found during the course of search, the addition made by the Assessing

Officer on account of deemed dividend is against the law and not sustainable.

In support of his contention, he has relied upon the following decisions :

7 ITA Nos.118 to 124/Bang/2017 i. CIT Vs. IBC Knowledge Park Pvt. Ltd. 136 DTR 65(Kar) ii. CIT Vs. Lancy Constructions 237 Taxmann 728 iii. Order dt.31.8.2016 in ITA No.1215/Mum/ in the case of Anil Mahavir

Gupta Vs. ACIT. iv. CIT Vs. Suraj Dev Dada 367 ITR 78 (P&H) v. Pradeep Kumar Malhotra Vs. CIT 338 ITR 538 (Cal) vi. CIT Vs. Kabul Chawla 380 ITR 573 (Del)

Placing reliance on the above judgments, the learned Counsel for the assessee

has submitted that the assessment under Section 153A can be made on the

basis of seized material and further the addition should be strictly based on the

evidence found during the course of search or information available with the

Assessing Officer which can be related to the evidences found. The assessment

cannot be made retrospectively without any relevance or nexus with the seized

material. In the cases of the assessees on the date of search the assessment

already stood concluded and no incriminating material was found during the

search therefore, no addition could have been made to the income of the

assessee already assessed. Thus the learned Counsel for the assessee

submitted that the addition towards deemed dividend under Section 2(22)(e)

cannot be made in the reassessment as there was no incriminating material

8 ITA Nos.118 to 124/Bang/2017 found during the course of search to indicate any such income in the hands of

the assessees.

submitted that Section 153A permits assessment or reassessment of the total

income and it is open to the Assessing Officer to assess or reassess any income

during the course of assessment under Section 153A of the Act irrespective of

any incriminating material found during the course of search. Thus once the

proceedings under Section 153A are initiated the Assessing Officer is bound to

assess or reassess the total income of the assessee. The Assessing Officer is

empowered to reopen those proceedings and reassess the total income taking

note of undisclosed income if any unearth during the search. After search

reopening of the assessment, the Assessing Officer empowered to assess or

reassess the total income of all those years. The condition for initiating the

proceedings under Section 153A is that there should be a search under Section

132 and not depending on any undisclosed income being unearth during the

search. Therefore as per the proviso to Section 153A, the Assessing Officer

shall assess or reassess the total income in respect of each of the assessment

year falling within six assessment years. Even in the case of the assessments

were completed prior to the date of search, the Assessing Officer is empowered

9 ITA Nos.118 to 124/Bang/2017 to reopen those proceedings and reassess the total income. The Assessing

Officer has been entrusted with the duty of bringing to tax the total income of

assessee whose case is covered by Section 153A. There can be only one

assessment in respect of each six years in which both disclosed and the

undisclosed income would be brought to tax. In support of his contention he

has relied upon the Hon'ble jurisdictional High Court in the case of Canara

Housing Development Co. Vs. DCIT 274 CTR 122 and submitted that Hon'ble

High Court has held that once the assessment is reopened, the assessing

authority can take note of any disclosed income earlier returned, any

undisclosed income found during the search and also any other income which is

not disclosed in the earlier return or which is not unearthed during the search

nor found out what is the total income of each year and then pass the

assessment order. Hence the ld. CIT (DR) contended that there is no fatter in

the power of the Assessing Officer to assess or reassess any income which came

to the notice of the Assessing Officer even if the same is not unearthed during

the search. He has relied upon the impugned orders of the CIT (Appeals).

the decision in the case of Canara Housing Development Co. Vs. DCIT (supra)

has been considered by the Hon'ble jurisdictional High Court in the case of CIT

10 ITA Nos.118 to 124/Bang/2017 Vs. IBC Knowledge Park Pvt. Ltd (supra) as well as in other subsequent

decisions.

record. The search under Section 132 of the Act was conducted on 18.12.2012

in the cases of the assessee. There is no dispute that the assessees were

holding more than 10% of voting power in the company viz. BBPL and are

Directors of the said company along with their husbands. It is also a matter of

fact that no incriminating material was found or seized during the course of

search in respect of any payment, advance, loan or other benefits by the said

company i.e. BBPL to the assessee. Only during the course of assessment

proceedings under Section 153A of the Act the Assessing Officer found from the

ledger accounts that BBPL has paid the income tax liabilities of the assessees

for these assessment years. The assessee explained that since the assessee

was not having any separate facility of online payment therefore the payment

was made by using the BBPL account however while deciding this legal issue

this aspect on the merits of the issue is not relevant. It is also not in dispute

that as on the date of search i.e. 18.12.2012 the assessment for the Assessment

Years 2009-10 to 2011-12 were not pending as the limitation for issuing the

Notice under Section 143(2) was already expired. Therefore for these three

11 ITA Nos.118 to 124/Bang/2017 years in both cases the regular assessments stand concluded as on the date of

search.

shall assess or reassess the total income of six years immediately preceding

assessment year relevant to the previous year in which search is conducted or

requisition is made. Any assessment pertaining to these six assessment years

pending on the date of initiation of search under Section 132 is liable to be

abated and therefore the proceedings under Section 153A in respect of the said

assessment year would be in the nature of assessment. Undisputedly the case

of the assessee the assessments were already concluded and they were not

pending as on 18.12.2012 and therefore, the proceedings under Section 153A

would be in the nature of reassessment in which apart from the undisclosed

income unearthed during the search and seizure proceedings, the Assessing

Officer can reassess only income which was disclosed by the assessee in the

original assessment. Thus it is clear that no addition could be made to the

income already assessed by the Assessing Officer except the addition based on

the seized material.

has held that in the absence of any incriminating documents having been

12 ITA Nos.118 to 124/Bang/2017 found, the same accounts of the assessee were reassessed by making further

investigation which was not permissible as the same would amount to

reopening of a concluded assessment without there being any additional

material found at the time of search. Thus the Hon'ble High Court has observed

that it would give the revenue a second opportunity to reopen the concluded

assessment which is impermissible in law. The Hon'ble High Court has further

observed that merely because a search is conducted in the premises of

assessee would not entitle the revenue to initiate the process of reassessment

for which there is a separate procedure prescribed in the statute. It is only

when the conditions prescribed for reassessment are fulfilled that a concluded

assessment can be reopened. In the subsequent decision in the case of CIT Vs.

IBC Knowledge Park Pvt. Ltd. (supra), the Hon'ble jurisdictional High Court after

considering the decision in the case of Canara Housing Development Co. Vs.

DCIT (surpa) as well as in the case of CIT Vs. Lancy Constructions (supra) and

the decision of Hon'ble Delhi High Court in the case of CIT Vs. Anil Kumar

Bhatia 352 ITR 493 (Delhi) has held in paras 45, 49 and 54 to 56 as under :

“ 45. Sections 153A, 153B and 153C were inserted by the Finance Act, 2003, with effect from 1/6/2003. They have replaced the post-search block assessment scheme in respect of any search or requisition made after 31/5/2003. Sub-section (1) of Section 153A inter alia deals with assessment in case of search or requisition. It begins with a non-obstante clause and states that notwithstanding anything contained in Sections 139, 147, 148, 149, 151 and 153, in the case of a person where a search is initiated under Section 132 or books of account, other documents or any valuable assets are requisitioned under Section 132A, the Assessing Officer shall issue notice to such person requiring him to furnish within such period, as may be specified in the notice, return of income in respect of

13 ITA Nos.118 to 124/Bang/2017 each assessment year falling within six assessment years referred to in clause (b) of Section 153(1) in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of the Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139. The Assessing Officer can 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. However, assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment 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. The explanation states, save as otherwise provided in Sections 153A, 153B and 153C, all other provisions of the Act shall apply to the assessment made under Section 153A. Section 153B speaks about time- limit for completion of assessment under Section 153A. 46….. 47….. 48….. 49. On a conjoint reading of the aforesaid provisions, it becomes clear that a search can take place 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 books of account, other documents, any valuable assets is or are found in the possession or control of any person in the course of a 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 for the purpose of assessment or reassessment of the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. Section 153C as already noted, deals with assessment of income of any other person, when the Assessing Officer is satisfied that the books of account or documents or valuable assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to under sub-section(1) of Section 153A of the Act. In such a case, the Assessing Officer has to issue notice to assess or reassess income of 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. If it is only during a valid search when certain incriminating materials are detected, notice could be issued. 50…. 51…. 52….. 53….. 54. On a consideration of the relevant sections as well as judicial precedent referred to above, what emerges is that, Section 158BD of the Act deals with undisclosed income of a third party. However, insofar as the incriminating material of the searched person or other person detected during the course of search is concerned, the same can be considered during the course of assessment. Further, such incriminating material must relate to undisclosed income which would empower the Assessing Officer to upset or disturb a concluded assessment of the other person. Otherwise, a concluded assessment would be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good as in case of any other person. As observed by us, detection or the existence of incriminating material is a must for disturbing the assessment already made and concluded. But, at the same time, such can be at three stages: one, at the stage when the reassessment is initiated, the second, at the stage during the course of reassessment and third,

14 ITA Nos.118 to 124/Bang/2017 at a stage where the reassessment is altered by a different assessment in respect of searched person or in respect of third party. In this regard, reference may be made to the decision of Apex Court in case of M/s. Calcutta Knitwear (supra) and based on the said decision, the CBDT has also issued circular dated 31.12.2015 vide No.24/2015.The relevant extract of the circular for ready reference can be extracted as under: 'The issue of recording of satisfaction for the purposes of section 158BD/153C has been subject matter of litigation. 2. The Hon'ble Supreme Court in the case of M/s Calcutta Knitwears in its detailed judgment in Civil Appeal No.3958 of 2014 dated 12.3.2014(available in NJRS at 2014- LL-0312-51) has laid down that for the purpose of Section 158BD of the Act, recording of a satisfaction note is a prerequisite and the satisfaction note must be prepared by the AO before he transmits the record to the other AO who has jurisdiction over such other person u/s 158BD. The Hon'ble Court held that "the satisfaction note could be prepared at any of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under section 158BC of the Act; or (b) in the course of the assessment proceedings under section 158BC of the Act; or (c) immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person." 2. Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT. 3. The guidelines of the Hon'ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts. 4. In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgment. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD/153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court.' As per the aforesaid circular, at the time of or along with initiation of the proceedings, against the searched person or third party under Section 153C or in the course of assessment proceedings under Section 153C of the Act or immediately after the assessment proceedings are completed under Section 153C of the Act, recording of satisfaction is required. 55. If the observations made by the Tribunal are considered in this regard, it is noted by the Tribunal that it is not necessary that satisfaction should be recorded that documents or valuable assets found in the course of search showed undisclosed income. In view of the aforesaid discussion, we do not think that such can be the correct position of law.

15 ITA Nos.118 to 124/Bang/2017 56. Further, in the judgments referred to by the learned counsel for the Revenue, where incriminating material leading to undisclosed income of another assessee was detected in a search operation, in those cases, reopening of the concluded assessment have taken place. There has been no single decision cited by the learned counsel for the Revenue where the assumption of jurisdiction of the Assessing Officer is in the absence of any incriminating material or undisclosed income having been detected during the course of search leading to reopening of a concluded assessment. In the instant case, though documents belonging to the assessee were seized at the time of search operation, there was no incriminating material found leading to undisclosed income. Therefore, assessment of income of the assessee was unwarranted. Consequently, no satisfaction was recorded in the case of the assessee. We answer substantial question of law No.2 by holding that the Tribunal was not correct in holding that the assessment under Section 153C was valid despite there being no satisfaction recorded to the effect that the documents found during the search on 17/06/2008 were incriminating in nature and prima facie represented undisclosed income.”

Thus it is clear that the Hon'ble High Court having considered the decision of

Canara Housing Development Co. Vs. DCIT (surpa) and after having been

understood the same has clearly laid down the principle that a concluded

assessment cannot be disturbed without there being any existene of

incriminating material.

after considering all the relevant decisions on this point has held in paras 35 to

38 as under :

“ 35. In CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 374 ITR 645/232 Taxman 270/58 taxmann.com 78 (Bom.) the question addressed by the Bombay High Court was whether the scope of assessment under Section 153A encompasses additions, not based on any incriminating material found during the course of search? It was held that no addition could be made in respect of the assessments that had become final in the event no incriminating material was found during search. The Bombay High Court relied on the earlier decision in Murli Agro Products Ltd. (supra) and discussed the scope and ambit of the proceedings for assessment and reassessment of total income under Section 153A (1) of the Act and the provisos thereto. One of the specific pleas taken by the Assessee was that if no incriminating material was found during the course of search in respect of an issue then no addition in respect of any issue can be made to the assessment under Sections 153A and 153C.

16 ITA Nos.118 to 124/Bang/2017 It was observed that the assessment or reassessment under Section 153A arises only when a search has been initiated and conducted and, therefore, "such an assessment has a vital link with the initiation and conduct of the search." The Court then reproduced and affirmed the decision of the Special Bench of the ITAT in All Cargo Global Logistics Ltd. v. Dy CIT [2012] 23 taxmann.com 103/137 ITD 287 (Mum.) (SB) and answered the question as regards the scope of the assessment of total income as under: "53. . . . . . . . We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results: (a) Insofar as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO, (b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search" 36. Ultimately in Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra), the Bombay High Court answered the question framed by it as under: "a. In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153Afor which assessments shall be made for each of the six assessment years separately; b. In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search." Summary of the legal position 37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

17 ITA Nos.118 to 124/Bang/2017 ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion 38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.” Thus it is settled proposition of law that the Assessing Officer will exercise

normal assessment powers in respect of six years preceeding to the relevant

assessment year in which the search takes place and therefore, there will be

only one assessment order in respect of each six assessment years in which

18 ITA Nos.118 to 124/Bang/2017 both disclosed and undisclosed income would be brought to tax. In the

absence of any incriminating material completed the assessment can be

reiterated and the abated assessment or reassessment can be made. In case of

completed assessments on the date of search, the assessment under Section

153A can be made only on the basis of some incriminating material unearthed

during the course of search or requisition of document or undisclosed income

or property discovered in the course of search which were not produced or not

already disclosed or made open in the course of original assessment. Therefore

the addition made by the Assessing Officer for the Assessment Years 2009-10 to

2011-12 towards deemed dividend under Section 2(22)(e) of the Act without

any incriminating material found during the search is not sustainable under law.

Hence the same is liable to be deleted.

since the assessment was not concluded as on the date of search and it was

pending therefore the regular assessment proceedings stood abated on the

date of search under Section 132 of the Act. Consequently, the assessment

framed under Section 153A r.w.s. 143(3) of the Act will par take the character

of regular assessment and hence the Assessing Officer while making the

19 ITA Nos.118 to 124/Bang/2017 addition is not depending on the incriminating material found during the course

of search. Therefore the issue has to be decided on merits.

that the assessment of wife of Shri Prakash Ladhani and she is also a Director

of BBPL holding 13.5% of voting power in the said company. The Assessing

Officer has considered the ledger account of the assessee in the books of the

BBPL wherein the payment made by the BBPL on account of tax liability of the

assessee was treated as deemed dividend under Section 2(22)(e) of the Act.

The learned Authorised Representative has pointed out that the assessee

explained that she did not have the facility of online payment in her bank

account and the assessee requested her husband to make the service tax and

income tax liability on her behalf. Accordingly, the husband of the assessee

requested BBPL to make the said payment in respect of the tax liability as he

did not have the enough funds in his bank account but he was having a credit

balance of Rs.18,42,67,898 at the beginning of the F.Y. 2011-12 and therefore

the payment made by the BBPL cannot be regarded as any loan or advance

given to the assessee. The learned Counsel for the assessee has submitted

that the ledger account of the husband of the assessee in the books of BBPL has

been produced before the Assessing Officer which shows the credit balance in

20 ITA Nos.118 to 124/Bang/2017 the beginning of the F.Y. and therefore when it is not disputed that BBPL owns

an amount of more than Rs.18 Crores to the husband of the assessee then the

payment of service tax and income tax by the BBPL cannot be regarded as any

advance or loan to be considered as deemed dividend under Section 2(22)(e) of

the Act. The learned Counsel for the assessee has submitted that the

provisions of Section 2(22)(e) have no application in the case of the assessee

because the payment made by the BBPL on account of tax liability of the

assessee cannot be regarded as loan or advance given by the BBPL to the

assessee. The said payments were done at the request of the assessee’s

husband to whom substantial amount was owed by BBPL. Subsequently, the

assessee had repaid the said amount to BBPL and discharged the amount

outstanding against her name. It is further contended that there was no

indication on the part of the BBPL to distribute its accumulated profit as a loan

or advance to the assessee so as to come in the ambit of Section 2(22)(e) of the

Act. To attract the provisions of Section 2(22)(e), there has to be loan or

advance given with a view to avoid payment of tax on distribution of surplus or

profits of the company. In support of his contention, he has relied upon the

decision of Hon'ble jurisdictional High Court in the case of Bagmane

Construction Vs. CIT 119 DTR 49 (Kar). Thus the learned Authorised

21 ITA Nos.118 to 124/Bang/2017 Representative has submitted that the Hon'ble High Court has observed that

the provisions of Section 2(22)(e) are attracted only when the amount is paid

with the intention to avoid payment of Dividend Distribution Tax under Section

115 O of the Act. In the case of the assessee, it was rather beneficial for the

BBPL as they used the amount of the husband of the assessee which was due

from the BBPL. He has also relied upon the decision of Hon'ble Calcutta High

Court in the case of Pradeep Kumar Malhotra Vs. CIT 338 ITR 538 and

submitted that the Hon'ble High Court has taken a similar view that in the

context of payment made to a shareholder who had pledge the property for

the benefit of the company. Only gratituous loan or advance given by a

company to those shareholders would come within the purview of Section

2(22)(e) but not to the cases where the loan or advance is given in the return to

an advantage conferred upon the company by such shareholder. The learned

Authorised Representative has also relied upon by the decision of Punjba &

Haryana High Court in the case of CIT Vs. Suraj Dev Dada (supra). Thus the

learned Authorised Representative has submitted that this amount of

Rs.5,30,000 was received being payment of tax by BBPL but on behalf of Mr.

Prakash Ladhani who had a substantial amount outstanding in the books of

BBPL. Therefore the amount paid by BBPL was not as a loan or advance but to

22 ITA Nos.118 to 124/Bang/2017 Mr. Prakash Ladhani at his instruction to the account of the assessee. He has

pleaded that the addition may be deleted.

submitted that the assessee and her husband are having separate accounts in

the books of BBPL and therefore the credit balance in the account of her

husband cannot be taken into consideration in respect of the payment made by

the BBPL on behalf of the assessee which clearly falls under the ambit of

Section 2(22)(e) of the Act. He has relied upon the decision of Hon'ble Madras

High Court in the case of CIT Vs. Srinivasan 50 ITR 788 and submitted that the

Hon'ble High Court has held that an advance, loan, any payment on behalf of

shareholder or any benefit for individual shareholder are falling in the category

of loan and advance as per Section 2(22)(e) of the Act. He has further

contended that the Hon'ble High Court has specifically observed that the

income tax payable by the assessee as well as insurance premium payable by

the assessee was paid by the company and debited to the assessee's account

will fall in the category of the payment as per provisions of Section 2(22)(e) of

the Act. He has relied upon the orders of the authorities below.

There is no dispute that a sum of Rs.5,30,000 has been added by the Assessing

23 ITA Nos.118 to 124/Bang/2017 Officer as deemed dividend as the said payment was made by the BBPL to meet

the liability of the assessee towards service tax and income tax. The assessee

has explained before the Assessing Officer that since the service tax and income

tax was to be paid online and the assessee was not having online facility in her

bank account therefore she has requested her husband to pay the said amount.

Since the husband of the assessee is having huge outstanding against the BBPL

in his account therefore he in turn asked BBPL to make these payments of the

assessee towards service tax and income tax. There is no dispute about the

fact that the husband of the assessee is having a huge credit balance during all

these years and particularly for the A.Y. 2011-12. The opening balance as on

1.4.2011 was Rs.18.42 Crores and closing balance as on 31.3.2012 was Rs.26.87

Crores. Thus it is clear that the credit balance of the husband of the assessee in

the books of BBPL was increased substantially during the year and it was never

reduced from the opening balance of Rs.18.42 Crores. The details of the ledger

account of the husband of the assessee are as under :

24 ITA Nos.118 to 124/Bang/2017

in the account of the husband of the assessee. Further the Assessing Officer

has not conducted any enquiry whether the assessee is having online payment

facility in her bank and further the payment was made by BBPL as per the

instruction of her husband. Therefore in view of the fact that the husband of

the assessee was having more than Rs.18 Crores in the beginning of the F.Y. and

more than Rs.26 Crores at the end of F.Y. with the BBPL. Hence, there is no

actual outflow from the reserves and surplus of the BBPL due to the said

payment of Rs.5,30,000 towards service tax and income tax liability of the

assessee. Thus it is clear from the facts that the payment in question has not

effected the reserves and surplus of the BBPL but it is a very miniscule in

comparison to the credit balances in the account of assessee's husband.

Therefore the said payment cannot be regarded as advance or loan to the

assessee to avoid the DDT under Section 115 ‘O’ of the Act. The Hon'ble

25 ITA Nos.118 to 124/Bang/2017 jurisdictional High Court in the case of Bagmane Constructions Pvt. Ltd. Vs.

CIT 277 CTR 338 (Kar) has observed in paras 24 to 27 as under :

“ 24. Therefore, from the aforesaid judgments, it is clear that the purpose of the insertion of sub-clause (e) of Section 2(22) of the Act was to bring within the tax net accumulated profits which are distributed by closely held companies to his shareholders in the form of loans to avoid payment of dividend distribution tax under Section 115-O of the Act. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that they assist the shareholders in avoiding payment of tax by having these companies pay or distribute money in the form of advance or loan. Loan or advance given to the shareholders or to a concern, under normal circumstances would not qualify as dividend. If such loan or advance is given to such shareholder as a consequence of any further consideration which is beneficial to the company received from such a shareholder, in such case, such advance or loan cannot be said to a deemed dividend within the meaning of the Act. Instead of distributing accumulated profits as dividend, companies distribute them as loan or advances to shareholders or to concern in which such shareholders have substantial interest or make any payment on behalf of or for the individual benefit of such shareholder, in such an event, by the deeming provisions, such payment by the company is treated as dividend. It is so made by legal fiction created under Section 2(22)(e) of the Act. Thus, the definition of dividend has been enlarged, and that loan or advances given under the conditions specified under this provision would also be treated as dividend. Thus, for gratuitous loan or advance given by a company to those classes of shareholders would come within the purview of section 2(22) but not to the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder. The intention behind the provisions of section 2(22)(e) of the Act is to tax dividend in the hands of shareholders. 25. It is in this background, the word "any payment", by a company, by way of advances or loans, has to be interpreted. The attribute of a loan is that it is a positive act of lending money coupled with acceptance by the other side of the money as loan and generally carries interest and there is an obligation of repayment. The term "advance" may or may not include lending. The word "advance" if not found in the company or in conjunction with the word loan may or may not include the obligation of repayment. If it does then it would be a loan. However, the Legislature has used the expression by way of advance or loan. Therefore, both these words are used to mean different things. The principle of statutory interpretation by which a generic word receives a limited interpretation by reason of its company is well established. In such circumstance, one can legitimately draw on the noscuntur a sociis principle. In fact this latter maxim is only an illustration or specific application and broader than the maxim ejusdem generies. 26. The Apex Court in the case of State of Bombay v. Hospital Mazdoor Sabha AIR 1960 SC 610 has observed as under:— '9. It is, however, contended that, in construing the definition, we must adopt the rule of construction noscuntur a sociis. This rule, according to Maxwell, means that, when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense. They take as it were their colour from each

26 ITA Nos.118 to 124/Bang/2017 other, that is, the more general is restricted to a sense analogous to a less general. The same rule is thus interpreted in Words and Phrases (Vol. XIV, p. 207): "Associated words take their meaning from one another under the doctrine of noscuntur a sociis, the philosophy of which is that the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it; such doctrine is broader than the maxim Ejusdem Generis." In fact the latter maxim "is only an illustration or specific application of the broader maxim noscuntur a sociis". The argument is that certain essential features or attributes are invariably associated with the words "business and trade" as understood in the popular and conventional sense, and it is the colour of these attributes which is taken by the other words used in the definition though their normal import may be much wider. We are not impressed by this argument. It must be borne in mind that noscutur a sociisis merely a rule of construction and it cannot prevail in cases where it is clear that the wider words have been deliberately used in order to make the scope of the defined word correspondingly wider. It is only where the intention of the legislature in associating wider words with words of narrower significance is doubtful, or otherwise not clear that the present rule of construction can be usefully applied. It can also be applied where the meaning of the words of wider import is doubtful; but, where the object of the legislature in using wider words is clear and free of ambiguity, the rule of construction in question cannot be pressed into service. As has been observed by Earl of Halsbury, L.C., in Corporation of Glasgow v. Glasgow Tramway and Omnibus Co. Ltd. [(1898) AC 631 at p. 634] in dealing with the wider words used in Section 6 of Valuation of Lands (Scotland) Act, 1854, "the words 'free from all expenses whatever in connection with the said tramways' appear to me to be so wide in their application that I should have thought it impossible to qualify or cut them down by their being associated with other words on the principle of their being ejusdern generis with the previous words enumerated". If the object and scope of the statute are considered there would be no difficulty in holding that the relevant words of wide import have been deliberately used by the legislature in defining "industry" in Section 20(j). The object of the Act was to make provision for the investigation and settlement of industrial disputes, and the extent and scope of its provisions would be realised if we bear in mind the definition of "industrial dispute" given by Section 2(k), of "wages" by Section 2(rr), "workman" by Section 2(s), and of "employer" by Section 2(g). Besides, the definition of public utility service prescribed by Section 2(m) is very significant. One has merely to glance at the six categories of public utility service mentioned by Section 2(m) to realise that the rule of construction on which the appellant relies is inapplicable in interpreting the definition prescribed by Section 2(j).' 27. In this background when we look at the aforesaid provision, it is clear that any payment made by a company by way of advance or loan has to be understood in the context of the object with which the said provision is introduced. Though the legislature has introduced 'advance' as well as 'loan' which are two different words, the meaning of each of those words have to be understood in the context in which they are used. Each word takes its colour from the other. The meaning of the word 'advance' is to be understood by the meaning of the word loan which is used immediately thereafter Associated words take their meaning from one another under the doctrine of noscuntur a sociis the philosophy of which is that the meaning of

27 ITA Nos.118 to 124/Bang/2017 a doubtful word may be ascertained by reference to the meaning of words associated with it. This rule, according to Maxwell, means that, when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a. less general. In the case of a loan, money is advanced generally on payment of interest. In other words the loan advanced has to be repaid with interest. In the case of an advance also, the element of repayment is there but such a repayment may be with interest or without interest. Therefore, when the said two words are used in the aforesaid provision with the purpose of levying tax, if the intention of such advance or loan is to avoid payment of dividend distribution of tax under Section 115-O of the Act., such a payment by a company certainly constitutes a deemed dividend. But if such a payment is made firstly not out of accumulated profits and secondly even if it is out of accumulated profits, but as trade advance as a consideration for the goods received or for purchase of a capital asset which indirectly would benefit the company advancing the loan, such advance cannot be brought within the word 'advance' used in the aforesaid provision. The trade advance which is in the nature of money transacted to give effect to commercial transactions would not fall within the ambit of the provisions of Section 2(22)(e) of the Act.”

The Hon'ble High Court has given emphasis to the aspect that the provisions of

Section 2(22)(e) are attracted only when the intention of such advance or loan

is to avoid payment of DDT under Section 115’O’ of the Act. Similar view has

been taken by the Hon'ble Calcutta High Court in the case of Pradeep Kumar

Malhotra Vs. CIT (supra). The Hon'ble Punjba & Haryana High Court in the case

of CIT Vs. Suraj Dev Dada (supra) has held in para 10 as under :

“ 10. From the above, it emerges that CIT(A) and the Tribunal had concurrently recorded that the assessee had running account with the company - M/s Dada Motors Pvt. Limited and had been advancing money to it. It was further observed that the provisions of Section 2(22)(e) of the Act were not attracted in the present case as this provision was inserted to stop the misuse by the assessee by taking the funds out of the company by way of loan advances instead of dividends and thereby avoid tax. In the present case, the assessee had infact advanced money to the Company and there was credit for only 55 days for which provisions of Section 2(22)(e) of the Act could not be invoked. These findings were not shown to be erroneous or perverse in any manner.”

28 ITA Nos.118 to 124/Bang/2017 19. As regards the decision of Hon'ble Madras High Court in the case of CIT

Vs. K. Srinivasan and Other (supra), there is no quarrel that payment in respect

of personal expenses, Income Tax demand, LIC Premium, etc payable by the

assessee were paid by the company will fall under the category of any payment

on behalf of shareholder or any payment for individual benefit of the

shareholder as per the provisions of Section 2(22)(e) of the Act but the fact of

such payment is an outgo from the reserves and surplus of the company. In the

case on hand as it is undisputed fact that the assessee and her husband, both

are Directors and the husband of the assessee is having huge credit balance of

500 times of the payment in question. Therefore in view of the circumstances

as explained by the assessee and the payment was made as per the instruction

of the husband which has not been controverted by the Assessing Officer then

the addition made under Section 2(22)(e) is not sustainable and the same is

deleted.