ITO 2(3)(2), MUMBAI vs. SATURN ADVISORY SERVICES P.LTD, MUMBAI

आयकर अपील"य अ"धकरण, मुंबई "यायपीठ, ‘ ई’,मुंबई। IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “E”, MUMBAI

"ी जो"ग"दर "संह, "या"यक सद"य एवं "ी जी. मंजूनाथ, लेखा सद"य, के सम"

Before Shri JOGINDER SINGH, Judicial Member, and Shri G. MANJUNATHA, Accountant Member Assessment Years: 2006-07 Income Tax Officer-2(3)(2), M/s Saturn Advisory Room No. 518A, Services Pvt. Ltd., बनाम/ Aayakar Bhavan, M.K. Road, 44, Strategic House, Vs. Mumbai-400020 Mint Road, Fort, Mumbai-400001 (राज"व /Revenue) ("नधा"रती/Assessee) PAN No.:-AAJCS2674N

Shri V. Justin-DR राज"व क" ओर से / Revenue by "नधा"रती क" ओर से / Assessee by Shri Vimal Punamiya

12/09/2017 सुनवाई क" तार"ख / Date of Hearing : 12/09/2017 आदेश क" तार"ख /Date of Order:

2 M/s Saturn Advisory Services Pvt. Ltd. आदेश / O R D E R Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated

27/10/2014 of the Ld. First Appellate Authority, Mumbai.

Ground no. 1 & 2, raised by the Revenue pertains to deleting

the addition made on account of on money cash payment for purchase of property at Delhi ignoring the incriminating

documents/evidences received from DRI, Mumbai as the assessee was unable to explain the transaction or rebut the presumption that on money was paid for the purchase of the property.

advanced arguments, which is identical to the ground raised

by submitting that no explanation was adduced by the assessee with respect to cash portion and merely claimed

that money was paid through demand draft. It was contended that while granting relief to the assessee

circumstantial evidence were not considered by the First

Appellate Authority. Reliance was placed upon the decision

of the Tribunal in the case of Income Tax Officer vs M/s

Diamond Investment & Properties (ITA No.

3 M/s Saturn Advisory Services Pvt. Ltd. 5537/Mum/2009) order dated 29/07/2010. On the other

hand, Shri Vimal Punamiya, ld. counsel for the assessee

filed written submissions defending the conclusion drawn in the impugned order by explaining the facts. Reliance was placed upon the decision from Hon'ble Apex Court in the case of K. P. Verghese vs Income Tax Officer (1981) 7

taxman. 13(SC) by submitting that the factum of payment of cash as on money is upon the Revenue and the assessee has never accepted or tendered in the statement that cash

money was transacted for purchase of the property. Our

attention was invited to the factual finding recorded by the Ld. Commissioner of Income Tax (Appeal). Further, reliance

was made upon the decision in the case of CIT vs Gulshan

Kumar (2002) 257 ITR 703 (Del.), CIT vs P. V.

Kalyansundaram (2007) 294 ITR 49 (SC), Dua Auto

components Pvt. Ltd. (ITA No.4802/Del./2009), CIT vs

Indication Instruments Ltd. (ITA NO.603/2011) and Pramod

Pandey vs ACIT (ITA No.4295/Del./2012) and various other

decisions mentioned in the written submissions. The crux

of the argument is in support of the impugned order.

4 M/s Saturn Advisory Services Pvt. Ltd. 2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief,

are that the assessee purchase a property at Delhi, did not start any business activity and was also not having any other source of income. The assessee acquired loan of `40

lakhs from Strategic Group Trust for purchase of this property worth of ` 39,25,000/-. The assessee declared loss

of ` 7276/- in its return, which was processed u/s 143(1) of the Act. There was no scrutiny assessment in the present

assessment year. The Ld. Assessing Officer received

information from DRI, Mumbai, with respect to demand

draft/cash transaction for purchase of the said property vide

letter dated 15/03/2013. Search was carried out at the residential premises of M/s Zaver Cyrus Dadina, Nitco’s Dy.

Manager (Accounts), wherein, a hard disc and a pen drive

were recovered. In the hard disc, there were details of purchase and purchase of property /payments in Maidan

Gadi (Popularly known Sanik Farm) in Delhi. As per the information, certain portion of cash was transacted along

with demand draft for purchase of the property. The Ld.

5 M/s Saturn Advisory Services Pvt. Ltd. Assessing Officer, on the basis of the information, reopened

the assessment and made the addition.

2.2. On appeal, before the Ld. Commissioner of Income Tax (Appeal), the factual matrix was considered and ultimately the addition made by the Assessing Officer was not found sustainable, resultantly deleted, which is under challenge before this Tribunal.

2.3. If the observation made in the assessment order,

leading to addition made to the total income, conclusion

drawn in the impugned order, material available on record,

assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, it seems that the whole addition

was made by the Assessing Officer on the basis of information received from the investigation wing and was purely based upon presumption, because, no documentary

evidence was brought on record substantiating that any cash was transacted in the purchase. The information

received by the Assessing Officer was expected to be corroborated with evidence. It is an established law that the conditions of taxability or the presumption of on money

6 M/s Saturn Advisory Services Pvt. Ltd. transaction has to be proved by the Revenue and the burden

so lies upon the Department was never discharged. In such a situation the ratio laid down by Hon'ble Apex Court in K.

P. Verghese vs Income Tax Officer clearly supports the case

of the assessee. The relevant portion from the aforesaid

order is reproduced hereunder for ready reference:-

“13. Thus, it is not enough to attract the applicability of sub-s. (2), that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeds the full value of the consideration declared in respect of the transfer by not less than 15% of the value so declared, but it is furthermore necessary that the full value of the consideration in respect of the transfer is understated or, in other words, shown at a lesser figure than that actually received by the assessee. Sub-s. (2) has no application in the case of an honest and bona fide transaction where the consideration in respect of the transfer has been correctly declared or disclosed by the assessee, even if the condition of 15% difference between the fair market value of the capital asset as on the date of the transfer and the full value of the consideration declared by the assessee is satisfied. If, therefore the Revenue seeks to bring a case within sub-s. (2), it must show not only that the fair market value of the capital asset as on the date of the transfer exceeds the full value of the consideration declared by the assessee by not less than 15% of the value so declared, but also that the consideration has been understated and the assessee has actually received more than what is declared by him. There are two distinct conditions which have to be satisfied before sub-s. (2) can be invoked by the Revenue and the burden of showing that these two conditions are satisfied rests on the Revenue. It is for the Revenue to show that each of these two conditions is satisfied and the Revenue cannot claim to have discharged this burden which lies upon it, by merely establishing that the fair market value of the capital asset as on the date of the transfer exceeds by 15% or more the full value of the consideration declared in respect of the transfer and the first condition is, therefore, satisfied. The Revenue must go further and prove that the second condition is also satisfied. Merely by showing that the first condition is satisfied, the Revenue cannot ask the Court to presume that the second condition too is fulfilled, because even in a case where the first condition of 15% difference is satisfied, the transaction may be a perfectly honest and bona fide transaction and there may be no understatement of the consideration. The fulfilment of the second condition has, therefore, to be established independently of the first condition and merely because the first condition is satisfied, no inference can necessarily follow that the second

7 M/s Saturn Advisory Services Pvt. Ltd. condition is also fulfilled. Each condition has got to be viewed and established independently before sub-s. (2) can be invoked and the burden of doing so is clearly on the Revenue. It is a well- settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the Revenue and the second condition being as much a condition of taxability as the first, the burden lies on the Revenue to show that there is an understatement of the consideration and the second condition is fulfilled. Moreover, to throw the burden of showing that there is no understatement of the consideration, on the assessee would be to cast an almost impossible burden upon him to establish a negative, namely, that he did not receive any consideration beyond that declared by him.”

The Hon'ble Apex Court finally held as under:-

“The object of imposing the condition of difference of 15% or more between the fair market value of the capital asset and the consideration declared in respect of the transfer clearly is to save the assessee from the rigour of sub-s. (2) in marginal cases where difference in subjective valuation by different individuals may result in an apparent disparity between the fair market value and the declared consideration. It is a well-known fact borne out by practical experience that the determination of fair market value of a capital asset is generally a matter of estimate based to some extent on guess work and despite the utmost bona fides, the estimate of the fair market value is bound to vary from individual to individual. It is obvious that if the restrictive condition of a difference of 15% or more between the fair market value of the capital asset as on the date of the transfer and the consideration declared in respect of the transfer were not provided in sub-s. (2), many marginal cases would, having regard to the possibility of difference of opinion in subjective assessment of the fair market value, fall within the mischief of that sub-section and the statutory measure enacted in that sub-section for determining the consideration actually received by the assessee would be applicable in all its rigour in such cases. This condition of 15% or more difference is merely intended to be a safeguard against the undue hardship which would be occasioned to the assessee if the inflexible rule of thumb enacted in sub-s. (2) were applied in marginal cases and it has nothing to do with the question of burden of proof, for, the burden of establishing that there is an understatement of the consideration in respect of the transfer always rests on the Revenue. The postulate underlying sub-s. (2) is that the difference between one honest valuation and another may range upto 15% and that constitutes the class of marginal cases which are taken out of the purview of sub-s. (2) in order to avoid hardship to the assessee.

2.4. If the observation made by Hon'ble Apex Court are analyzed with the facts of the present appeal, the case of the 8 M/s Saturn Advisory Services Pvt. Ltd. Revenue is that the assessee did not explain that cash was transacted for purchasing the property. It is well settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always upon the Revenue and the onus is upon the Revenue to show that there is under statement of consideration and the assessee cannot be fastened with the liability to establish the negative, namely

that the assessee did not transacted in cash beyond the declaration made by him. In such a situation no addition can

be sustained in the absence of corroborative material. The Assessing Officer neither stated nor provided any evidence that the assessee paid any on money for purchase of land. There is no material on record to show that the sale consideration was understated or the assessee received anything directly or indirectly over and the above the declared value. Thus, the decision from the Hon'ble Delhi High Court and the ratio laid

down therein CIT vs Gulshan Kumar (2002) 257 ITR 703 (Del.)

comes to the rescue of the assessee. Identical ratio was laid

down by Hon'ble Apex Court in CIT vs P. V. Kalyansundaram

(2007) 294 ITR 49 (SC). The relevant portion from the order is reproduced hereunder:-

9 M/s Saturn Advisory Services Pvt. Ltd. “3. The respondent assessee vide a registered sale deed dt. 26th Oct., 1998 purchased certain land at Brindavan Road, Fairlands, Salem for a sum of Rs. 4.10 lakhs. During a search of the office and residential premises of Polimer Net Work, certain notes on loose sheets allegedly in the hands of the respondent were found and seized by the Department. In his statement recorded on 8th Dec., 1998, the assessee submitted that he could not remember as to why the notings had been made. The statement was further confirmed by another statement on 11th Dec., 1998. The Department also recorded the statement of the vendor Rajarathinam on 8th Dec., 1998 which too was confirmed on 11th Dec., 1998 in which he admitted that he had in fact received a total consideration of Rs. 34.35 lakhs and that the sum of Rs. 4.10 lakhs reflected in the sale deed had been received by him by way of a demand draft and the balance in cash. Rajarathinam however retracted from his statement on 8th Jan., 1999 and filed an affidavit deposing that the sale price was Rs. 4.10 lakhs only and that his statements earlier given to the authorities were incorrect. In a subsequent statement recorded on 20th Nov., 2000 Rajarathinam again reverted to his earlier portion and deposed that the sale price was Rs. 34.85 lakhs. The AO concluded that the sale consideration was actually Rs. 34.85 lakhs and not Rs. 4.10 lakhs as had been recited in the sale deed. He accordingly adopted the aforesaid enhanced figure for the purpose of assessment and made an addition of Rs. 3,75,005 as undisclosed income for the broken period 1st April, 1998 to 8th Dec., 1998. The matter was thereafter taken to the CIT(A), who after examining the entire matter, observed that the statements given by Rajarathinam could not be relied upon more particularly as the floor price fixed by the authorities for such property was much lower than the value which would result if the sale deed had been registered at Rs. 34.85 lakhs. The CIT accordingly deleted the addition made. An appeal was thereafter preferred by the Revenue against the order of the CIT before the Tribunal. The Tribunal in its order dt. 6th July, 2005 held that the notings on the loose pieces of paper on the basis of which the initial suspicion with regard to the undervaluation had been raised were vague and could not be relied upon as it appeared that the total area with respect to the sale deeds and that reflected in the loose sheet was discrepant. It was also observed that as per the guidelines for registration the fair value for registration on the relevant date was Rs. 244 to Rs. 400 per sq. ft. and the sale consideration for Rs. 850 per sq.ft. claimed by the Revenue was unrealistic and ignored the ground situation. It was further held that the tax of approximately Rs. 1,84,000 determined on the basis of the addition would not show that the assessee had acquiesced in the addition made by the Department or that it was conclusive evidence of the sale price as the deposit had been made in an obvious effort to save himself from further harassment from the Revenue and to escape a much higher liability to the payment of tax on undisclosed income should proceedings under s. 158BD of the Act be initiated. On these findings, the Tribunal dismissed the appeal. It is in these circumstances that an appeal under s. 260A was filed in the High Court. Before the High Court the following substantial questions of law were raised :

10 M/s Saturn Advisory Services Pvt. Ltd. (a) Whether or not when the returns and the statements of the seller admit higher sale consideration actually received, the Revenue is justified in fixing the sale consideration at the higher amount than what has been declared ?

(b) When the assessee did not give any explanation to the notings found and at the same time the Revenue is able to corroborate the same with the statement of the seller for the purpose of determination of actual sale value, would the lower authority be justified in interfering with the same ?

(c) When consistent sworn (statements) were taken into consideration along with evidences found at the time of search, would (they) all be liable to be rejected on the basis of one statement in between contradicting the earlier ones which was also explained away as a result of intimidation ?

2.5. In the aforesaid case, there were allegation of on money transaction, on the basis of non-convincing loose seats

found during the course of search and conflicting statement of the seller. The addition was deleted by the Tribunal which was affirmed by Hon'ble High Court and Hon'ble Apex Court.

2.6. Identical ration was laid down in the case of Dua

Auto Components Pvt. Ltd. (ITA No.4802/Del/2009), CIT vs

Indication Instruments Ltd. (ITA NO.603 of 2011), CIT vs Prem

Prakash Nagpal (ITA No.570 of 2012), Pramod Pandey vs ACIT

(ITA NO.1295/Del./2012), CIT vs Vishal Rubber Products

(2004) 136 taxman 151 (P & H). The relevant portion from the order from Hon'ble Punajab Haryana High Court is reproduced

hereunder for ready reference:-

“5. We have heard Dr. N.L. Sharda and perused the record. A reading of the order Annerure A2 passed by the CIT(A), Jalandhar, shows that while deleting the additions made by the AO, he made the following observations :

"On merits however I find substantial force in the submissions of the appellant because no material could be found by the learned Asstt. CIT to corroborate the entries made in the impugned balance sheet. Neither it is supported by the entries in the books of account of the three partnership firms nor by any other material. It could not be established that the impugned balance sheet found in the course of the search from the residential premises of Shri O.P. Sehgal is a genuine balance sheet because no other evidence could be found like account books or any other material from where the balance sheet has been withdrawn. No addition therefore, can be made in the hands of the firms on the basis of that document. The same was the view held by my learned predecessor while disposing of the appeal in the individual

12 M/s Saturn Advisory Services Pvt. Ltd. case of Shri O.P. Sehgal. The learned Asstt. CIT attempted to gather some support from the entries in the individual balance sheets of the firms filed with the return of income which are based on the regular books of account as mentioned by him in paras 5 and 6 of the assessment order, but while examining these points in his presence it is found that the amount and the narrations do not agree. Similarly, the copies of the account called for by him from the four different parties duly agree with the account maintained in the regular books of account which form the basis of filing the return of income except minor variations like the entries made in the books of the party is against the name of Vishal Rubber Products but the assessee has made in the books as Vikas Rubber Roll Products. It is because of such discrepancies that the learned Asstt. CIT has rejected the book version and made the additions on the basis of the entries shown in the impugned balance sheet found in the course of the search. Considering therefore, the facts of the case, I am of the opinion that the impugned balance sheet cannot be relied upon without corroborative material to hold that the balance sheet is a genuine document and is based on either in the books of account found in the course of the search or any document wherefrom it could have been drawn. From the record I find that the learned Asstt. CIT has examined under s. 131 of the IT Act the managing partners of the three concerns and also gathered the copies of the account from third parties in order to have some material to hold that the impugned balance sheet is a genuine document but he could not gather any material adverse to the assessee. In the circumstances the additions made on the basis of the impugned balance sheet cannot be sustained and accordingly the addition of Rs. 7,16,322 (1,54,879 + 4,32,702 + 1,28,741) is hereby deleted. Since the entire addition made is deleted, the other grounds in the appeal become infructuous."

2.7. (1986) 25 taxman 80K (SC) (1986) 52 CTR 0108 : (1986) 159

ITR 0071, the Hon'ble Apex Court observed/held as under:-

“The onus was on the Revenue to prove that there was understatement in the document not that the goods were sold at undervalue. Understatement of a value is a mis-statement of value. Selling goods at an undervalue to defeat Revenue is different from understating the value in the document of sale. The proviso to s. 12B(2) of 1922 Act provides ‘full value of the consideration for which the sale, exchange, relinquishment or transfer is made' to be taken as the basis for the computation of the capital gains. Therefore, unless

13 M/s Saturn Advisory Services Pvt. Ltd. there is evidence that more than what was stated was received, no higher price can be taken to be the basis for computation of capital gains. The onus is on the Revenue—the inference might be drawn in certain cases but to come to a conclusion that a particular higher amount was in fact received must be based on such material from which such an irresistible conclusion follows. In the instant case, no such attempt was made. The second ingredient that is to say that the word ‘declared' in sub-s. (2) of s. 52 of the 1961 Act corresponding to the first proviso to s. 12B of the 1922 Act is very eloquent and revealing. It clearly indicated that the focus of sub-s.(2) was on the consideration declared or disclosed by the assessee as distinguished from the consideration actually received by him and it contemplated a case where the consideration received by the assessee in respect of the transaction was not truly declared or disclosed by him but was shown at a different figure. Capital gains was intended to tax the gains of an assessee, not what an assessee might have gained. What is not gained cannot be computed as gained. In conclusion the proviso to s. 12B(1) can be invoked only where the consideration for the transfer of capital asset has been understated by the assessee. There is no evidence direct or inferential that the consideration actually received by the assessee was more than what was disclosed or declared by him. The relationship between the parties has been established. The desire to defeat the claims of the Revenue has also been established but that fact that for this the assessee had stated a false fact in the document is not established. What appears from the Tribunal's order was that the real and main object was to safeguard these shares from being taken over by the government in settlement of tax dues, and also that the buyer and seller were indirectly connected with each other. The Revenue has made no attempt to establish that there was any understatement though it might be that shares had been sold at an undervalue. The proviso helps or enables the Department by providing a way to determine the market value. But the proviso is applicable only where the full value for the consideration has not been stated. There is no evidence, direct or inferential, in these cases that the full consideration had not been stated in the document. Capital gains tax was not, therefore, taxable on the present case.—K.P. Vargese vs. ITO & Anr. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) : TC22R.105 followed; Shivakami Co. (P) Ltd. & Ors. vs. CIT (1973) 88 ITR 311 (Mad) : TC22R.151 affirmed on different grounds.”

2.8. Likewise, Hon'ble Delhi High Court in CIT vs Navi

Gera (2010) 328 ITR 516 (Del.) held as under:-

“The present appeal has been filed under s. 260A of IT Act, 1961 (for brevity "Act, 1961") challenging the order dt. 11th Sept., 2009 passed by the Income-tax Appellate Tribunal (in short "Tribunal") in ITA No. 66/Del/2001, for the block period 1st April, 1988 to 20th Aug., 1998. 2. Briefly stated the relevant facts of the case are that the respondent- assessee had made investment in two plots of agricultural land in December, 1996. The investment in the farm houses were made by the assessee in the name of his father, namely, Mr. L.D. Gera for a total

14 M/s Saturn Advisory Services Pvt. Ltd. consideration of Rs. 41,35,700. The abovesaid properties were brought from Sam Aviation (P) Ltd. of which the assessee was one of the directors. It is an admitted fact that the sources and the investment made thereof in these two plots had been declared by the respondent- assessee under Voluntary Disclosure of Income Scheme, 1997 (for short "VDIS"). On 20th Aug., 1998, a search and seizure under s. 132 of Act, 1961 was carried out at both the respondent assessee's residential and business premises. The sale deeds of the abovesaid properties were found during the search.

"63....Being aggrieved, the assessee carried the matter in the appeal before learned CIT(A) who has deleted this addition on the basis that the assessee in fact has purchased the property from M/s Sam Aviation (P) Ltd. where the assessee was also a director. It is also noted by him that the purchase was made by M/s Sam Aviation (P) Ltd. and in the case of company, there is no action taken for extra payment. It is also noted by him that there is no evidence that action has been taken in the hands of the seller for extra receipts. It is also submitted that there was no material found during the search that any extra payment was made by the assessee to the seller company or by the seller company to the original seller. On this basis, this addition and now, the Revenue is in further appeal before us............

(Emphasis, italicized in print, supplied)

15 M/s Saturn Advisory Services Pvt. Ltd. decision in CIT vs. Mukundray K. Shah (2007) 209 CTR (SC) 97 : (2007) 290 ITR 433 (SC) to contend that the block assessment of undisclosed income can be based on the evidence found in the search and/or material or information gathered in post-search inquiries made on the basis of evidence found in the search.

(2009) 224 CTR (Del) 79 : (2009) 316 ITR 46 (Del), CIT vs. Ashok Khetrapal (2007) 211 CTR (Del) 576 : (2007) 294 ITR 143 (Del) and CIT vs. Manoj Jain (2006) 200 CTR (Del) 327 : (2006) 287 ITR 285 (Del)].

"142A. Estimate by Valuation Officer in certain cases.—(1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in s. 69 or s. 69B or the value of any bullion, jewellery or other valuable article referred to in s. 69A or s. 69B or fair market value of any property referred to in sub-s. (2) of s. 56 is required to be made, the AO may require the Valuation Officer to make an estimate of such value and report the same to him.

(2) .......

(3) .......

Provided that nothing contained in this section shall apply in respect of an assessment made on or before the 30th Sept., 2004, and where such assessment has become final and conclusive on or before that date, except in cases where a reassessment is required to be made in accordance with the provisions of s. 153A."

(Emphasis, italicized in print, supplied)

2.9. Totality of facts, if kept in juxtaposition, with the facts and the ratio laid down in the aforesaid cases are analyzed, the Ld. Assessing Officer is asking the assessee to prove the negative which is not permitted and the whole

assessee of the Department is based upon the presumption

that the assessee could not explain that no cash was transacted in the sale consideration. It is also noted that the 17 M/s Saturn Advisory Services Pvt. Ltd. Ld. Commissioner of Income Tax (Appeal) has duly analyzed

the statement of Shri Atul Sud, Ms. Zaver Cyrus Dadina, Dy.

Manager (Accounts) of NITCO, from whose premises the hard

disc was found and seized and Shri Atul Sud admitted to have purchase the land from the concerned two parties on a consideration of `39 to 40 lakhs and payments was made by demand draft he has nowhere admitted/tendered that any cash payments was made. Likewise, Ms. Zaver Cyrus Dadina

has specifically tendered that she had no role to play either to issue cheque or cash. In reply to question no.12, whether any cash payment was made, she specifically denied of any transaction. A commission u/s 131(1)(d) of the Act was issued

and the assessee was not able to provide any details/information/confirmation in this regard. Totality of facts clearly indicates that the Ld. Assessing Officer could not collect any evidence to substantiate that in fact any cash was transacted for purchase of property. The case of the assessee

is further fortified by the facts that the demand drafts issued

for purchase of property were reflected in the documents, no statement was recorded by DRI either of Ms. Zaver Cyrus

Dadina or of any other person during the course of search in respect of the details contained in the hard disc. Even, the 18 M/s Saturn Advisory Services Pvt. Ltd. information received from the investigation wing was never

corroborated with any evidence, statement that any cash

changed hands for the transaction. When the Ld. Assessing

Officer recorded the statement of Shri Atul Sud, Director of the assessee company, though he admitted the transaction to be made through demand draft but he never tendered that any cash was transacted. Ms. Zaver Cyrus Dadina completely

expressed or ignorance with regard to details of land dealings

as has been alleged. The efforts of Assessing Officer to record

the statement of Miss Damini Vadhwa, and Miss Reeta Bhatia

also could not provide any information leading to the addition.

The seized material/print out was not in the handwriting of the assessee and even there is no material to suggest that the seized material was maintained either by the assessee or it’s of or employees. Even the statement of Rajaratanam was discarded by the Ld. Commissioner of Income Tax (Appeal) as the floor price, fixed by the authorities, for such property was found much lower than the value. Considering the factual

matrix and the judicial pronouncements, discussed

hereinabove, we find no infirmity in the conclusion of the Ld.

First Appellate Authority. Our view is further fortified by the fact that the concerned data was even not found from the 19 M/s Saturn Advisory Services Pvt. Ltd. premises of the assessee and further the assessee has not started any substantial business activity and for acquisition of the land to inter corporate loan of ` 40 lakh from Strategic

Capital Corporation. Thus, the presumption of the Ld.

Assessing Officer for making the addition on presumptive basis

was rightly deleted by the Ld. Commissioner of Income Tax

(Appeal). Thus, addition cannot be made on the basis of presumption, which cannot be sustained in law. Even

otherwise, presumption cannot take the shape of the evidence

however strong it may be unless and until such presumption

or statement, if any, is corroborated with material evidence.

The ratio laid down in Dr. Anita Sahai vs DIT 266 ITR 597

(All.), Dheerajlal Girdharilal vs DCIT 26 ITR 734 (SC), CIT vs

Calcutta Discount Co. Ltd. 91 ITR 8(SC), CIT vs Raman & Co.

67 ITR 11 (SC), Modi Creations Pvt. Ltd. vs Income Tax Officer

(2011) 13 taxman.com 114(Del.), CIT vs Shree Rama Multitech

Ltd. (2013) 34 taxman.com 32 (Guj.) and CIT vs Devine

Leasing and Finance Ltd. 158 taxman 440 (Del.) supports our

view. Thus, we affirm the stand of the First Appellate

Authority, resulting into dismissal of the impugned grounds,

raised by the Revenue.

20 M/s Saturn Advisory Services Pvt. Ltd. 3. The next ground pertains to holding that the dividend income is taxable only in the registered share holders,

ignoring the deeming fiction that it can be taxed in the hands

of the recipient concern though may not be share holder

ignoring the provision of section 2(22)(e) of the Act, since, the Director of the assessee company was holding more than 10%

of the voting power in the company which advance loan to the assessee.

3.1. The ld. DR advanced arguments, which is identical

to the ground raised. On the other hand, the Ld. Counsel for the assessee defended the impugned order by contending that the assessee is having less that 10% of the voting power/share

and it is merely a trust and not a company and the assessee is having only 9% share. In turn, the Ld. DR, relied upon the decision in the case of Gopal & Sons (HUF) vs CIT (Civil Appeal

No. 12274 of 2016) (arising out of SLP(c) No.22059 of 2015).

3.2. We have considered the rival submissions and perused the material available on record. The facts, brief, are that the assessee was incorporated and was not having any business, borrowed loan of `40 lakh on 17/01/2006. The assessee repaid the borrowed funds. During reassessment

proceedings, applied section 2(22)(e) of the Act on the funds

21 M/s Saturn Advisory Services Pvt. Ltd. acquired by the assessee from SCCPL. The assessee vide letter

dated 11/12/2013 explained that the provision of the deem

dividend is not attracted and further vide letter dated

30/01/2014 asserted that the trust is not a private limited

company therefore the provision is not applicable. However,

the Ld. Assessing Officer assessed ` 40 lakh as deemed

dividend on the plea that the common directors hold more

than 10% share holding even though the assessee is not registered share holder of the company. Before adverting

further, we are expected to analyze section 2(22)(e) of the Act,

which is reproduced hereunder for ready reference:-

“2(22)(e) Any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan9 to a shareholder9, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits: We are also analyzing the shareholding of SCCPL and the assessee which is as under:-

Name of the share Holder % of Holding in % of Holding in Saturn SCCPL Advisory Services Pvt. Ltd. Atul Sud 9% 99.89% Sneha Jain .01% Kamya Sud 2% Rayan Sud 2%

22 M/s Saturn Advisory Services Pvt. Ltd. Strategic Trading 27% Growell Consultants 3% Colva Trade Place 21% Strategic Group Trust .10% Ketan Patel 2% Velerian Inv. & Cons. Pvt. 34% Ltd.

3.3. If the aforesaid table is analyzed, it is clear that the assessee is not a shareholder in SCCPL, therefore, section 2(22)(e) of the Act is not applicable in the present appeal. Our

view find support from the decision of the jurisdictional High

Court in the case of CIT vs Universal Medicare Pvt. Ltd. (2010)

190 taxman. 144 (Bom.). The relevant portion from the order is reproduced hereunder:-

“3. The first and second questions are now taken up. Briefly stated, the admitted facts are that an amount of Rs. 32,00,000 was transferred from the bank account of a company by the name of Capsulation Services (P) Ltd. (CSPL) to the account of the assessee maintained in the Chembur Branch of the SBI. Mr. Vikram Tannan was a director of CSPL. He held over 10 per cent of the equity capital of CSPL and over 20 per cent of the equity capital of the assessee. The AO, in the course of the order of assessment, relied on the provisions of s. 2(22)(e) and treated the amount of Rs. 35,00,000 as deemed dividend in the hands of the assessee and directed that the amount be added back to its total income. The assessee contended that one Mr. Teredesai, Vice President (Finance) had misappropriated large sums of money by opening bank accounts and the transaction by which an amount of Rs. 32,00,000 was transferred from CSPL was part of the misappropriation. According to the assessee, the amount was not reflected in the books of the assessee since it had been misappropriated by the Vice President (Finance). The fact that the amount has been defalcated could not, according to the assessee, be disputed in view of the fact that it has been allowed by the AO as a business loss during the asst. yr. 2006-07. Hence, the contention of the assessee was two- fold. First, according to the assessee, for s. 2(22)(e) to apply the amount ought to have been received as an advance or loan from a company to a concern in which the shareholder had substantial interest. This condition, according to the assessee, was not met since the amount was neither an advance nor a loan to the assessee

23 M/s Saturn Advisory Services Pvt. Ltd. but represented misappropriation of funds by the Vice President (Finance). Consequently, even if the amount is treated as deemed dividend within the meaning of s. 2(22)(e), it is taxable in the hands of the shareholder and not in the hands of the assessee. Secondly, even on the assumption that this was an amount advanced to the assessee by the CSPL, for the purposes of taxation, a deemed dividend would be taxable in the hands of the shareholder and not the assessee to whom the payment was advanced.

"(22) ‘dividend’ includes—

(a) to (d) ...........

(e) any payment by a company, not being a company in which the public are substantially interested, or any sum (whether as 24 M/s Saturn Advisory Services Pvt. Ltd. representing a part of the assets of the company or otherwise) made after the 31st May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;"

(e) will apply to the extent to which the company, in either case, possesses accumulated profits. The remaining part of the provision is not material for the purposes of this appeal.

By providing an inclusive definition of the expression 'dividend', cl. 2(22) brings within its purview items which may not ordinarily constitute the payment of dividend. Parliament has expanded the ambit of the expression 'dividend' by providing an inclusive definition.

(e) of s. 2(22) is to broaden the ambit of the expression 'dividend' by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently, in the present case, the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the circumstances, justified in coming to the conclusion that, in any event, the payment could not be taxed in the hands of the assessee. We may in concluding note that the basis on which the assessee is sought to be taxed in the present case in respect of the amount of Rs. 32,00,000 is that there was a dividend under s. 2(22)(e) and no other basis has been suggested in the order of the AO.

In the aforesaid case, held that the first part of cl. 3.4. (e) of s. 2(22) is attracted, the payment by a company has to be by way of an advance or loan. The advance or loan has to be made, as the case may be, either to a shareholder, being

a beneficial owner holding not less than 10% of the voting

power or to any concern to which such a shareholder is a member or a partner and in which he has a substantial

interest. The Tribunal in the present case has found that as a matter of fact no loan or advance was granted to the 26 M/s Saturn Advisory Services Pvt. Ltd. assessee, since the amount in question had actually been defalcated and was not reflected in the books of account of the assessee. The fact that there was a defalcation seems to have been accepted since this amount was allowed as a business loss during the course of asst. yr. 2006-07. Consequently, according to the Tribunal the first

requirement of there being an advance or loan was not fulfilled. The finding that there was no advance or loan is a pure finding of fact which does not give rise to any substantial question of law. Even on the second aspect

which has weighed with the Tribunal, the construction

which has been placed on the provisions of s. 2(22)(e) is correct. Sec. 2(22)(e) defines the ambit of the expression

'dividend'. All payments by way of dividend have to be taxed

in the hands of the recipient of the dividend namely the shareholder. The effect of s. 2(22) is to provide an inclusive

definition of the expression dividend. Clause (e) expands the nature of payments which can be classified as a dividend.

Clause (e) of s. 2(22) includes a payment made by the company in which the public is not substantially interested

by way of an advance or loan to a shareholder or to any 27 M/s Saturn Advisory Services Pvt. Ltd. concern to which such shareholder is a member or partner,

subject to the fulfilment of the requirements which are spelt

out in the provision. Similarly, a payment made by a company on behalf, or for the individual benefit, of any such shareholder is treated by cl. (e) to be included in the expression 'dividend'. Consequently, the effect of cl. (e) of s.

2(22) is to broaden the ambit of the expression 'dividend' by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition

does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently, in the present case the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal

was, in the circumstances, justified in coming to the conclusion that, in any event, the payment could not be taxed in the hands of the assessee.

3.5. If the facts and the ratio laid down in the aforesaid case are analyzed with the facts of the present

appeal, the first requirement of section (2(22)(e) of there

28 M/s Saturn Advisory Services Pvt. Ltd. being and advance or loan was not fulfilled and even

assuming that it was a dividend, it has to be taxed in the hands of the shareholders and not in the hands of the assessee. The ratio laid down in CIT vs Impact Containers

Pvt. Ltd. (2014) 48 taxman.com 294 (Bom.); 367 ITR 346

(Bom.), wherein, certain companies advance money to the assessee company in which one director of the assessee was holding more than 10% of equity shares and since the assessee itself was not the shareholder of those lending

companies, the addition made by the Assessing Officer

invoking section 2(22)(e) of the Act was not sustainable. The relevant portion from the order is reproduced hereunder:-

29 M/s Saturn Advisory Services Pvt. Ltd. 15. Later part of this definition states as to what is not included in “dividend” and the legislature has carefully specified that any advance or loan made to a shareholder or concern in which shareholder is a member or partner and in which he has substantial interest, by the company in ordinary course of his business where the lending of money is a substantial part of the business of the company or any dividend paid by a company which is set off by the company against the whole or any part of sum previously paid by it and treated as a dividend within the meaning of subclause (e) to the extent to which it is so set off, is not dividend within the meaning of this definition.

(a) "concern” means a Hindu undivided family or a firm or an association of persons or a body of individuals or a company. The explanation also states and explains that a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than 20% of income of such concern.

30 M/s Saturn Advisory Services Pvt. Ltd. which is the addition made of Rs.96,16,924/ as deemed dividend. The Commissioner referred to the factual position and the arguments and found that the impugned credit balances are not the sums received from the related concern, having common shareholders as a loan or advance so that it could attract the provisions of Section 2(22) (e) of the I. T. Act. The credit balances represent cost of goods or services received by the Appellants and which cannot be treated as an advance or loan. Holding thus, he could have concluded that the credit entries are not covered by this provision and the payment does not fall therein. However, he assumed that the share holding pattern is such that the provisions of Section 2(22)(e) will be attracted, but concluded that the other argument, namely, deemed dividend can be assessed only in the case of a person who is a shareholder of the lender company and not in the hands of the person other than the shareholder, deserves acceptance. That is how paragraph nos.6.3 and 6.4 of the order of the Commissioner would read. In coming to this conclusion, he relied upon the order of the special bench of the Tribunal in the case of Assistant Commissioner of Income Tax v/s

“The second ground is that the CIT(A) erred in deleting the addition of Rs.96,16,924/ made under section 2(22) (e) of the Income Tax Act, 1961. On this point there is an order of the Tribunal in the case of DCIT v/s M/s. Patel Aluminium Pvt Ltd in ITA No.1598/Mum/2010 dated 19.01.2011. The controversy in this case was whether an addition for deemed dividend can be made in the hands of the recipient of the amount even though he is not a shareholder of the lender company. It was held, following the decision of the Special Bench of the Tribunal in the case of ACIT v/s Bhaumik Colour P. Ltd (2009) 313 ITR (AT) 146 (Mum)(SB) that in order to attract the applicability of section 2 (22) (e) the recipient of the amount from the company has to be a registered shareholder of the company. In the present case the following credit balances were shown in the assessee's account in the following companies:

(i)M/s. Bhavin Containers P.Ltd Rs.38,75,412/

(ii)M/s.Patel Aluminium Pvt Ltd Rs.93,978/

(iii)M/s Lans Metal Pvt Ltd Rs.28,94,357/

(iv)M/s.Patcart Packaging Pvt Ltd Rs.44,31,466/

31 M/s Saturn Advisory Services Pvt. Ltd.

The finding of the CIT(A) is that the assessee is not a shareholder in any of the aforesaid companies. According to the Assessing Officer, one M. I. Patel who was a director of the assessee company held more than 10% of the equity shares of the above four companies and he also held more than 20% of the shares of the assessee company. But even the Assessing Officer has not found that the assessee company was a shareholder of any of the four companies. In such circumstances the CIT(A) was right in deleting the addition made under section 2(22)(e) following the order of the Special Bench cited above. It is also to be noted that the reasoning of the Special Bench has been upheld by the Hon'ble Bombay High Court in the case of CIT vs. Universal Medicare Private Limited (2010) 324 ITR 263(BOM). Both the order of the Special Bench and the judgment of the Hon'ble Bombay High Court have been noticed and followed in the order of the Tribunal in the case of M/s. Patel Aluminium Pvt Ltd(supra). Respectfully following the judgment of the Hon'ble Bombay High Court, we confirm the decision of the CIT(A) and dismiss the second ground.”

“The Tribunal in Appeal has reversed the findings of the Commissioner of Income Tax (Appeals) on two counts. Firstly, the Tribunal held that the provisions of Section 2(22)(e) would be attracted if a loan was taken by the shareholder from any closely held company. In the present case, the Tribunal noted that the amount was part of a fraud committed on the assessee and the transaction was not reflected in its books of account. In the circumstances, Section 2(22)(e) was held not to apply. Secondly, the Tribunal held that even otherwise, the amount would have to be taxed in the hands of the shareholder who obtained the benefit and not in the hands of the assessee.

32 M/s Saturn Advisory Services Pvt. Ltd. Section 2(22) provides an inclusive definition of the expression 'dividend' for the purposes of the Act. Section 2(22)(e) is as follows: (22) "dividend" includes - (a) to (d)....

(e) any payment by a company, not being a company in which the public are substantially interested, or any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; 8. Clause (e) of Section 2(22) is not artistically worded. For facility of exposition, the contents can be broken down for analysis: (i) Clause (e) applies to any payment by a company not being a company in which the public is substantially interested of any sum, whether as representing a part of the assets of the company or otherwise made after the 31 May 1987; (ii) Clause (e) covers a payment made by way of a loan or advance to (a) a shareholder, being a beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power; or (b) any concern in which such shareholder is a member or a partner and in which he has a substantial interest; (iii) Clause (e) also includes in its purview any payment made by a company on behalf of or for the individual benefit, of any such shareholder; (iv) Clause (e) will apply to the extent to which the company, in either case, possesses accumulated profits. The remaining part of the provision is not material for the purposes of this Appeal. By providing an inclusive definition of the expression 'dividend', Clause 2(22) brings within its purview items which may not ordinarily constitute the payment of dividend. Parliament has expanded the ambit of the expression 'dividend' by providing an inclusive definition.

33 M/s Saturn Advisory Services Pvt. Ltd. that the construction which has been placed on the provisions of Section 2(22) (e) is correct. Section 2(22)(e) defines the ambit of the expression 'dividend'. All payments by way of dividend have to be taxed in the hands of the recipient of the dividend namely the shareholder. The effect of Section 2(22) is to provide an inclusive definition of the expression dividend. Clause (e) expands the nature of payments which can be classified as a dividend. Clause (e) of Section 2(22) includes a payment made by the company in which the public is not substantially interested by way of an advance or loan to a shareholder or to any concern to which such shareholder is a member or partner, subject to the fulfillment of the requirements which are spelt out in the provision. Similarly, a payment made by a company on behalf, of for the individual benefit, of any such shareholder is treated by Clause (e) to be included in the expression 'dividend'. Consequently, the effect of Clause (e) of Section 2(22) is to broaden the ambit of the expression 'dividend' by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently in the present case the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the circumstances, justified in coming to the conclusion that, in any event, the payment could not be taxed in the hands of the assessee. We may in concluding note that the basis on which the assessee is sought to be taxed in the present case in respect of the amount of Rs. 32,00,000/ is that there was a dividend under Section 2(22)(e) and no other basis has been suggested in the order of the Assessing Officer.”

We are of the opinion that the Revenue cannot urge before us that the conclusion rendered by the Division Bench in the case of Universal Medicare on the second aspect which had weighed with the Tribunal in that case, is merely an observation or in the nature of obiter dictum and that cannot be said to be the ratio of the judgment is the first contention before us. We are unable to accept this contention for more than one reason. The Universal Medicare's case also was a Revenue's appeal. In Universal Medicare, the Court was dealing with three questions termed as substantial questions of law on behalf of the Revenue. The Revenue specifically urged that the Tribunal's findings on the first as well as the second aspect are erroneous and raised substantial questions of law. It was contended that the Tribunal could not have arrived at a factual conclusion that Section 2 (22) (e) could not be attracted. If a loan was taken by a shareholder from any closely held company and findings of fact are that the amount was a part of the fraud committed on the assessee and the transaction was not reflected in its books of accounts would not mean that Section 2(22)(e) is not applicable or attracted. The Tribunal held that it does not apply in the light of such factual position. However, it was also urged that the Tribunal's second conclusion that even if the factual aspect denotes payment within the meaning of Section 22(2) (e) of the I. T. Act, that would have to be taxed in the hands of the shareholder who obtained the benefit and not in the hands of the assessee, raises substantial questions of law.

34 M/s Saturn Advisory Services Pvt. Ltd. 24. It is in that regard that the above reproduced observations of the Hon'ble Division Bench have been made. The Division Bench held that even on the second aspect, the construction which has been placed on the provision (Section 2(22)(e)) by the Tribunal is correct. All payments by way of dividend have to be taxed in the hands of the recipient of the dividend namely the shareholder. The section provides inclusive definition of term dividend and rather explaining the nature of payment which can be classified as such, therefore, the Division Bench concluded that this definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. In the facts of the case noted by the Division Bench assuming the payment was dividend, it would have to be taxed not in the hands of the asseessee namely Universal but in the hands of the shareholder.

(83) ITR 170(SC) held that the beneficial owner of shares whose name does not appear in the register of the shareholders of the company cannot be said to be a shareholder though he may be beneficially entitled to the shares but he is not a shareholder. Mr. Gupta, appearing before us for the Revenue would submit that much water has flown after the decision in the case of Rameshwarlal and C. P. Sarathy(supra) because the provision has been amended since then. The fiction therefore must be carried to its logical end and its purpose should not be defeated by narrow construction as was placed on the provision prior to its amendment. In other words, the amendment was brought in only because of such view having taken earlier, is his submission.

37 M/s Saturn Advisory Services Pvt. Ltd. placed by Ms. Vissanjee on the judgment of the Division Bench of this Court in the case of Commissioner of Income Tax, Patiala v/s Shahzada Nand and Sons and Ors, reported in (1966) 177 ITR 393, is therefore, apposite. Equally, her reliance on the judgment of the Division Bench of Delhi High Court is well placed. We have noted that the Delhi High Court and even after exhaustive amendment to Section 2(22)(e) held that the payment made to any concern would not come within the purview of this subclause so long as it contemplated shareholders. The Division Bench of Delhi High Court has made detailed reference to all the decisions in the field. It has also referred to the order passed by the Special Bench of the Tribunal in arriving at the same conclusion. In the Commissioner of Income Tax v/s Ankitech Pvt Ltd reported in 2012 (340) ITR page 14, the Hon'ble Delhi High Court referred to both Sarathy Mudaliar and Rameshwarlal Sanwarmal (supra), extensively. It also referred to the arguments of the Revenue which are somewhat similar to those raised before us. It is in dealing with these arguments that the Division Bench concluded that all the three limbs of the section analyzed in Universal Medicare denote the intention that closely held companies namely companies in which public are not substantially interested which are controlled by a group of members, even though having accumulated profits would not distribute such profit as dividend because if so distributed the dividend income would become taxable in the hands of the shareholders. 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 provision, such payment by the company is treated as dividend. The purpose is to tax dividend in the hands of the shareholder.

38 M/s Saturn Advisory Services Pvt. Ltd. such grounds, therefore, would follow this order and even they would stand dismissed as they do not raise any substantial question of law.

3.6. In other cases, it was held that the deem dividend

cannot be taxed in the hands of person who are not shareholders of the company. The Hon'ble Supreme Court in CIT vs Mukundray K. Shah (2007) 290 ITR 433 (SC) held as under:-

“3. Aggrieved by the assessment order dt. 29th Nov., 2002, the assessee went in appeal to Commissioner of Income-tax (Appeals) [for short, ‘CIT(A)’] under s. 158BC(c) r/w s. 143(3) of the Act. By the order dt. 21st Feb., 2003, it was held by CIT(A) that the assessee did not possess any substantial interest in MKTPL or in SCPL during financial year 1999-2000; that MKF and MKI had no substantial interest in MKSEPL, SCPL and MKTPL during financial year 1999- 2000; that SCPL did not make any loan to MKI during the financial year 1999-2000; that SCPL had borrowed money from MKI and all payments made by SCPL during financial year 1999-2000 were repayments of loans advanced by MKI; that the assessee had 16 per cent share in MKF; that MKSEPL had a current account in the books of MKF and that in most cases MKF had advanced loans to MKSEPL. According to CIT(A), MKSEPL have repaid those loans to MKF in which the assessee had substantial interest. According to CIT(A), the nature of transactions between MKF and MKSEPL consisted of a running account; it consisted of giving of loans and repayments thereof. According to CIT(A), none of the two firms had any substantial interest in MKSEPL, SCPL and MKTPL. According to CIT(A), all withdrawals made by the assessee from MKF and MKI including the impugned sum were debited to the assessee’s capital account in the books of MKF and MKI. According to CIT(A), MKSEPL and SCPL had a regular account in MKF and MKI even before the purchase of the said Bonds and that the said two firms had advanced loans to MKSEPL and SCPL even in the earlier years as well as in the financial year 1999- 2000 and, therefore, there was no motive in the debtor companies repaying their debts to MKF and MKI. According to CIT(A), merely because repayments were made by MKSEPL and SCPL through MKF and MKI in January/February, 2000 and merely because the said amounts were partly utilized by the said two firms in making payments to the assessee who bought 9% RBI Relief Bonds

39 M/s Saturn Advisory Services Pvt. Ltd. therefrom, did not necessarily mean that the assessee had routed the funds of MKSEPL through MKF and MKI for his individual benefit. According to CIT(A), MKF and MKI were two separate entities; that there was no material to show that MKF and MKI were used as conduits for routing the money from MKSEPL to the assessee. According to CIT(A), while the total investment made by the assessee in purchase of Bonds during financial year 1999-2000 was Rs. 26.35 crores, the Department has sought to assess only Rs. 5.99 crores as deemed dividend and, therefore, according to CIT, the allegation made by the AO was baseless. According to CIT(A) there was no material to show that MKSEPL and SCPL had made payments to the said two firms for the benefit of the assessee enabling him to purchase the said Bonds in financial year 1999-2000. According to CIT(A), MKSEPL and SCPL were the debtors of MKF and MKI in the regular course of business and, therefore, payments made by MKSEPL to MKF and MKI were repayments of loans and that the said payments were not for purchase of Bonds by the assessee. Accordingly, the appeal was allowed by CIT(A).

41 M/s Saturn Advisory Services Pvt. Ltd. "undisclosed income" has been defined in s. 158B(b) of the said Act and since block assessment was relatable to such evidence recovered during search in the present case s. 158BB(1) was not applicable in this case since no such evidence was recovered during the search. Learned counsel submitted that Chapter XIV-B was put on the statute book to enable assessment of undisclosed income detected on evidence found during the search. According to the learned counsel, the block assessment was intended to be an assessment in addition to the regular assessment. Learned counsel submitted that in the present case for want of such evidence, the Department was not entitled to make additions on account of deemed dividend to the tune of Rs. 5.99 crores. During the search, according to the learned counsel, nothing except a cash flow chart giving details of investments made by the assessee in purchase of the said Bonds of the value of Rs. 26.35 crores was furnished. According to the learned counsel, the diary "ML-20" was the ledger copy of the investment account in 9% RBI Relief Bonds which copy was a print-out from the regular accounts of the assessee; that the investment of Rs. 26.35 crores, reflected in ML-20, was made by the assessee out of his disclosed funds and through regular books of accounts, and that the seized diary did not contain any incriminating information. Learned counsel urged that in the course of block assessment proceedings the AO directed the assessee to furnish details as to the source of funds out of which Rs. 26.35 crores was made and when it was explained to the AO that the assessee had made such investments in 9% RBI Relief Bonds out of the moneys withdrawn from MKF and MKI and that books of accounts maintained regularly by the said two firms indicated such withdrawals the AO directed the Authorized Representatives of the assessee to prepare a statement indicating the source from which moneys came in the hands of the two firms and out of which withdrawals were made by the assessee to make investment in the 9% RBI Relief Bonds, therefore, according to the learned counsel, no incriminating material whatsoever was found in the course of the search which could enable the AO to invoke s. 2(22)(e) of the Act. According to the learned counsel, in the above circumstance, Chapter XIV-B dealing with block assessment was wrongly invoked by the AO.

On the nature of the transactions, learned counsel urged that during the financial year 1999-2000, the assessee had invested Rs. 26.35 crores in the purchase of bonds; that the said investment was made out of the disclosed sources through cheques and that the said investment was mentioned in the bank accounts and in the tax records of the assessee long before the search. Learned counsel urged that the immediate source of investment was the withdrawal of Rs. 26.35 cores from the partners’ capital account with MKF and MKI. It was urged that the cash flow statement was not an admission on the part of the assessee and, therefore, it was not open to the Department to invoke Chapter XIV-B. Learned counsel submitted that the Tribunal had erred in holding that the fact that SCPL had a running current account with MKI in the usual course of business, was irrelevant. Learned counsel submitted that SCPL had borrowed substantial amounts from MKI and in January, 2000 SCPL repaid Rs. 2.79 crores to MKI which were not on behalf of or for the benefit of the assessee. It was urged that MKI had never borrowed money from SCPL at any time. Learned counsel urged that the Tribunal was wrong

42 M/s Saturn Advisory Services Pvt. Ltd. in holding that the fact that MKI had never borrowed money from SCPL, was irrelevant. Learned counsel urged that Rs. 2.79 crores were withdrawn by the assessee from his firm styled MKI on 28th Jan., 2000 and such withdrawal was debited by MKI to the capital account of the assessee. It was urged that MKSEPL had borrowed substantial amounts from MKF; and MKSEPL had made repayments to MKF during the financial year 1999-2000 against the earlier debt owed by MKSEPL to MKF. Learned counsel submitted that the assessee had a credit balance of Rs. 6.72 crores in his capital account standing in the books of partnership firm of MKF as on 1st April, 1999. Learned counsel urged that the withdrawals made by the assessee from MKF were only out of his capital account with MKF and that the said withdrawals were debited by MKF to the capital account of the assessee. Learned counsel further urged that there was no evidence on record to show that payments by SCPL to MKI and/or the payment by MKSEPL to MKF was for the benefit of the assessee. Learned counsel submitted that payments were made by each of the two companies, namely, SCPL and MKSEPL to MKI and MKF respectively in liquidation of their respective dues owed by each of the two companies to the said two firms. Learned counsel urged that no payment was ever made by SCPL and MKSEPL to the assessee. Learned counsel urged that the existence of reserves in the balance sheet of MKSEPL in the sum of Rs. 55 crores as on 31st March, 1999 is wholly irrelevant for the purposes of s. 2(22)(e) of the Act. Learned counsel urged that similarly the fact that the assessee owed Rs. 8.18 crores to MKI as on 31st March, 2000, was wholly irrelevant for the purposes of s. 2(22)(e) of the Act. Learned counsel submitted that s. 2(22)(e) had no application in the matter of the above two facts. Learned counsel urged that the Tribunal failed to appreciate that the assessee did not hold any shares in SCPL on or after 1st April, 1999 and, therefore, he did not have any interest in SCPL on the dates when Rs. 2.79 crores were repaid by SCPL to MKI.

"The only question which remains to be considered is that whether the said company made the payments of the said sum of Rs. 75,000 and Rs. 4,80,000 to Indira & Co. for the benefit of the assessee. So far as Rs. 75,000 is concerned it is found by the Tribunal, though not very clearly, that this amount was received by Indira & Co. from the said company and the same amount was given to the assessee by Indira & Co. The Tribunal inferred from the said facts that this was a payment by the said company meant for the benefit of the assessee. This conclusion involves two findings of fact, namely, the factum of payment by the company and the motive or intention of the company making such payment, namely, a benefit accruing to the assessee. These are essentially findings of fact and have not been challenged by the assessee by an appropriate question."

45 M/s Saturn Advisory Services Pvt. Ltd. (emphasis, italicised in print, supplied)

We also quote hereinbelow para 19 and para 21 of the judgment of the Bombay High Court in the case of CIT vs. P.K. Badiani (1970) 76 ITR 369 (Bom) :

"19. Now, the assessee’s account for 1st April, 1957, to 31st March, 1958, shows that there are credits as well as debits. What has to be ascertained is whether the debits are ‘loans’, so that they can be deemed as dividends. The account is a mutual, open, and current account. Every debit, i.e., every payment by the company to the assessee, may not be a loan. To be treated as a loan, every amount paid must make the company a creditor of the assessee for that amount. If, however, at the time when the payment is made by the company is already a debtor of the assessee, the payment would be merely a repayment by the company towards its already existing debt. It would be a loan by the company only if the payment exceeds the amount of its already existing debt and that too only to the extent of the excess. Therefore, the position as regards each debit will have to be individually considered, because it may or may not be a loan. The two basic principles are, that only a loan, which would include the other payments mentioned in s. 2(6A)(e), can be deemed to be dividend and that too only to the extent that the company has at the date of the payment ‘accumulated profits’ after deducting therefrom all items legitimately deductible therefrom.

xxxx

46 M/s Saturn Advisory Services Pvt. Ltd. and the result must be ascertained at the date of each such payment."

(emphasis, italicised in print, supplied)

3.7. If the judicial pronouncements are analyzed with the facts of the present appeal, the addition made by the Assessing Officer is on the assumption that the common

director hold more than 10% in SCCPL, which is factually

incorrect. Both companies have common directory namely Shri

Atul Sud, who is having 9% stakes in SCCPL (sister concern)

which has given loan to the assessee to bring this amount

within the ambit of deemed dividend u/s 2(22)(e) it has to be established that the same has to be given to shareholders out

of the accumulated profit and further it was in the nature of loan or advance. The ratio laid down by the Special Bench in CIT vs Bhaumik Colour Lab, [2009] 118 ITD 1 (MUM.) (SB)

47 M/s Saturn Advisory Services Pvt. Ltd. favours the assessee, the relevant portion of the order is reproduced hereunder:-

“Section 2(32) defines the expression ‘person who has a substantial interest in the company’, in relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent of the voting power. [Para 15] Under the Indian Income-tax Act, 1922, two categories of payment were considered as dividend, viz., (a) any payment by way of advance or loan to a shareholder was considered as dividend paid to shareholder or (b ) any payment by any such company on behalf or for the individual benefit of a shareholder was considered as dividend. [Para 16] In the 1961 Act, the very same two categories of payment were considered as dividend, but an additional condition, that payment should be to a shareholder being a person who is the beneficial owner of shares and who has a substantial interest in the company, viz., shareholding which carries not less than twenty per cent of the voting power, was introduced. [Para 17] By the 1987 amendment with effect from 1-4-1988, the condition that payment should be to a shareholder who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power was substituted. Thus, the percentage of voting power was reduced from twenty per cent to ten per cent. By the very same amendment a new category of payment was also considered as dividend, viz., payment to any concern in which such shareholder is a member or a partner and in which he has a substantial interest. Substantial interest has been defined to mean holding of shares carrying 20 per cent of voting power. [Para 18] The provisions of section 2(22 )(e) create a fiction bringing in amounts paid otherwise than as dividend into the net of dividends. Therefore, clause (e) of section 2(22) must be given a strict interpretation. In the instant case, there was no dispute that the companies which gave the loan or advance were one in which public was not substantially interested. Nor was there any dispute that these companies possessed accumulated profits to the extent of the loan or advance. [Para 19] In view of the judgments of the Supreme Court in the cases of CIT v. C.P. Sarathy Mudalian [1972] 83 ITR 170 and Rameshwarlal Sanwarlal v. CIT [1980] 122 ITR 1/3 Taxman 1 (AP), it is clear that to attract the first limb of the provisions of section 2(22 )(e) the payment must be to a person who is a registered holder of shares. As already mentioned the condition under the 1922 Act and the 1961 Act regarding the payee being a shareholder remains the same and it is the condition that such shareholder should be beneficial owner of the shares and the percentage of voting power that such shareholder should hold has been prescribed as an additional condition under the 48 M/s Saturn Advisory Services Pvt. Ltd. 1961 Act. The word ‘Shareholder’ alone existed in the definition of dividend in the 1922 Act. The expression ‘Shareholder’ has been interpreted under the 1922 Act to mean a registered shareholder. This expression ‘Shareholder’ found in the 1961 Act has to be, therefore, construed as applying only to registered shareholder. [Para 22] In the 1961 Act the word ‘Shareholder’ is followed by the following words ‘being a person who is the beneficial owner of shares’. This expression used in section 2(22)(e ) both in the 1961 Act and in the amended provisions with effect from 1-4-1988 only qualifies the word ‘Shareholder’ and does not in any way alter the position that the shareholder has to be a registered shareholder. These provisions also do not substitute the aforesaid requirement to a requirement of merely holding a beneficial interest in the shares without being a registered holder of shares. The expression ‘being’ is a present participle. A participle is a word which is partly a verb and partly an adjective. In section 2(22)(e ), the present participle ‘being’ is used to describe the noun shareholder like an adjective. The expression ‘being a person who is the beneficial owner of shares’ is, therefore, a further requirement before a shareholder can be said to fall within the parameters of section 2(22)(e ). In the 1961 Act, section 2(22 )(e) imposes a further condition that the shareholder has also to be beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power. Thus, it was not possible to accept the contention of the revenue that under the 1961 Act there was no requirement of a shareholder being a registered holder and that even a beneficial ownership of shares would be sufficient. [Para 23] The expression ‘Shareholder being a person who is the beneficial owner of shares’ referred to in first limb of section 2(22 )(e) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder than the provisions of section 2(22)( e) would not apply. Similarly if a person is a beneficial shareholder but not a registered shareholder then also the first limb of provisions of section 2(22 )(e) would not apply. [Para 24] The new category of payment which was considered as dividend introduced by the Finance Act, 1987 with effect from 1-4-1988 by the second limb of section 2(22)(e ) is payment ‘to any concern in which such shareholder is a member or a partner and in which he has a substantial interest’. [Para 25] The following conditions are required to be satisfied for application of the above category of payment to be regarded as dividend : (a)There must be a payment to a concern by a company. (b)A person must be shareholder of the company being a registered holder and beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power. This is because of the expression ‘Such Shareholder’ found in the relevant provision. This expression only refers to the shareholder referred to in 49 M/s Saturn Advisory Services Pvt. Ltd. the earlier part of section 2(22 )(e), viz., a registered and a beneficial holder of shares holding 10 per cent voting power. (c)The very same person referred to in (b) above must also be a member or a partner in the concern holding substantial interest in the concern viz., when the concern is not a company, he must at any time during the previous year, be beneficially entitled to not less than twenty per cent of the income of such concern; and where the concern is a company he must be the owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than twenty per cent of the voting power. (d)If the above conditions are satisfied then the payment by the company to the concern will be dividend. [Para 26] In the case of the assessee, aforesaid conditions (b ) and (c) were not satisfied inasmuch as NNT held shares in UPPL and BCPL only as a legal and registered owner but not as a beneficial owner. The three trustees of NNT held shares in UPPL and BCPL only as a legal and registered owner. They held shares for and on behalf of 5 beneficiaries of the trust who were different individuals. They were, therefore, not beneficial owners of the shares. Trust ownership is a peculiar instance of duplicate ownership. Trust property is, in fact, owned by two persons simultaneously in the sense that one is under an obligation to use the property for the benefit of the other. The ownership of the trustee called trust ownership is nominal rather than real. The beneficiary interest is called the beneficial interest. The trustee is to administer the property of another person but the ownership right in the trustee is to be used only on behalf of the real owner. As between trustee and third party ownership conferred on the trustee fictitiously by law prevails, that is, the trustee is clothed with the rights of the beneficiary and is so enable to personate or represent him in dealings with the world at large. The main purpose of Trusteeship is to protect the rights and interest of persons who for any reason are unable effectively to protect them for themselves. Such protection is required for four classes of people, (a) unborn persons; (b) infants, lunatics, or other disqualified persons; (c) a large number of persons who are interested in common; and (d) persons having conflicting interest in the same property, i.e., an owner and an encumbrancer or different kinds of encumbrancers. Therefore, the first requirement of holding of shares both as a legal registered owner and beneficial owner of such shares was not satisfied in the case of the assessee. Therefore, provisions of section 2(22)(e ) would not be applicable at all to the case of the assessee. [Para 27] The provisions of section 2(22 )(e) which brought in a new category of payment which was to be considered as dividend as introduced by the Finance Act, 1987 with effect from 1-4-1988, viz., payment by a company ‘to any concern in which such shareholder is a member or a partner and in which he has a substantial interest’ do not say as to in whose hands the dividend has to be brought to tax, whether in the hands of the ‘concern’ or the ‘shareholder’. [Para 30] The intention behind enacting provisions of section 2(22 )(e) are that closely held companies (i.e., companies in which public are not substantially interested), which are controlled by a group of members,

50 M/s Saturn Advisory Services Pvt. Ltd. even though the company has accumulated profits would not distribute such profit as dividend because if so distri-buted the dividend income would become taxable in the hands of the shareholders. 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. The intention behind the provisions of section 2(22 )(e) is to tax dividend in the hands of shareholder. The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The intention of the Legislature is, therefore, to tax dividend only in the hands of the shareholder and not in the hands of the concern. [Para 35] The basis of bringing in the amendment to section 2(22 )(e) by the Finance Act, 1987 with effect from 1-4-1988 is to ensure that persons who control the affairs of a company as well as that of a firm can have the payment made to a concern from the company and the person who can control the affairs of the concern can draw the same from the concern instead of the company directly making payment to the shareholder as dividend. The source of power to control the affairs of the company and the concern is the basis on which these provisions have been made. It is, therefore, proper to construe those provisions as contemplating a charge to tax in the hands of the shareholder and not in the hands of a non-shareholder, viz., concern. A loan or advance received by a concern is not in the nature of income. In other words, there is a deemed accrual of income even under section 5(1)( b) in the hands of the shareholder only and not in the hands of the payee, viz., non-shareholder (Concern). Section 5(1)(a ) contemplates that the receipt or deemed receipt should be in the nature of income. Therefore, the deeming fiction can be applied only in the hands of the shareholder and not the non-shareholder, viz., the concern. [Para 36] The definition of dividend under section 2(22 )(e) is an inclusive definition. Such inclusive definition enlarges the meaning of the term ‘dividend’ according to its ordinary and natural meaning to include even a loan or advance. Any loan or advance cannot be dividend according to its ordinary and natural meaning. The ordinary and natural meaning of the term ‘dividend’ would be a share in profits to an investor in the share capital of a limited company. To the extent the meaning of the word ‘Dividend’ is extended to loans and advances to a shareholder or to a concern in which a shareholder is substantially interested deeming them as dividend in the hands of a shareholder the ordinary and natural meaning of the word ‘Dividend’ is altered. To this extent the definition of the term ‘Dividend’ can be said to operate. If the definition of ‘Dividend’ is extended to a loan or advance to a non-shareholder, the ordinary and natural meaning of the word ‘dividend’ is taken away. In the light of the intention behind the provisions of section 2(22)(e ) and in the absence of indication in 51 M/s Saturn Advisory Services Pvt. Ltd. section 2(22)(e ) to extend the legal fiction to a case of loan or advance to a non-shareholder also, the loan or advance to a non- shareholder cannot be taxed as deemed dividend in the hands of a non-shareholder. [Para 37] The basic characteristic of dividend is a share of profits of the company given to its shareholders. Further, section 206 of the Companies Act, 1956 prohibits payment of dividend to any person other than the registered shareholder. If one was to break up the natural meaning the following components emerge (a) dividend is a share of profits of the company (b) paid to its shareholders. Section 2(22) artificially extends the scope of dividend from being more than only a distribution of profits to cover certain other types of disbursements such as loans paid etc. (the first ingredient mentioned above). It does not, however, alter the second component of its natural meaning, viz., paid to its shareholder. In other words all that section 2(22) seeks to do is to expand the various types of payments that may be regarded as dividend. The contention of the revenue that provisions of section 8(a ) created a fiction by which even payments to non-shareholders could be construed as dividend could not be accepted. Those provisions merely fix the year in which dividend has to be taxed. It is, therefore, clear that the shareholder alone can, if at all, be subjected to tax for having earned dividend. [Para 38] Further, in the event of the payment of loan or advance by a company to a concern being treated as dividend and taxed in the hands of the concern then, the benefit of set off cannot be allowed to the concern, because the concern can never receive dividend from the company which is only paid to the shareholder, who has substantial interest in the concern. The above provisions also, therefore, contemplate deemed dividend being taxed in the hands of a shareholder only. [Para 40] In view of aforesaid, it was opined that deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than a shareholder. Further, the expression ‘shareholder’ referred to in section 2(22)(e ) refers to both a registered shareholder and beneficial shareholder. If a person is a registered shareholder but not the beneficial shareholder then the provisions of section 2(22)(e ) would not apply. Similarly, if a person is a beneficial shareholder but not a registered shareholder then also the provisions of section 2(22)(e ) would not apply. [Para 41] In view of aforesaid, there was no merit in appeal filed by the revenue and, therefore, same was to be dismissed. [Para 42]”

The Ld. Assessing Officer made the addition u/s 2(22)(e)

of the Act of ` 40 lakh, taken as a loan by the assessee from sister concern, SCCPL by holding that the shareholding is 52 M/s Saturn Advisory Services Pvt. Ltd. more than 10%. It is undisputed fact that the assessee is not a shareholder in the sister concern (SCCPL). However, before

invoking section 2(22)(e) of the Act, it has to be established

that the same was given to the shareholder out of the accumulated profit and further it was in the nature of loan or advance. This issue has been elaborately dealt with by Hon'ble

Ltd.(supra). Thus, the deemed dividend cannot be invoked in the hands of the present assessee, resultantly, we affirm the stand of the Ld. Commissioner of Income Tax (Appeal).

Finally, the appeal of the Revenue is dismissed.

This Order was pronounced in the open court in the presence of ld. representatives of both sides at the conclusion of the hearing on 12/09/2017. (G. Manjunatha) (Joginder Singh) लेखा सद"य / ACCOUNTANT MEMBER "या"यक सद"य / JUDICIAL MEMBER मुंबई Mumbai; "दनांक Dated :-12/09/2017 f{x~{tÜ? P.S /"नजी स"चव आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant 2. ""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT, Mumbai.

53 M/s Saturn Advisory Services Pvt. Ltd. 4. आयकर आयु"त / CIT(A)- , Mumbai 5. "वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file.

आदेशानुसार/ BY ORDER, स"या"पत ""त ////

उप/सहायक पंजीकार (Dy./Asstt.