Vikas Oberoi, Mumbai vs Assessee

Shri Vikas Oberoi, Commerz, 3 r d Floor, International Business Park, Oberoi Garden City, Off Western Express Highway, Goregaon (East), Mumbai- 400 063 ....... Appellant PAN : AAAPO0468L

Vs.

The Dy. CIT Cent. Cir. 23, Mumbai ....... Respondent

Appellant by : Shri Muralidhar Respondent by : Shri G M Doss

Date of Hearing : 20.07.2015 Date of Pronouncement: 31.07.2015.

ORDER

Per Sushma Chowla (JM) :

The present appeal filed by the assessee is against the order of Commissioner of Income-tax (Appeals), dated 23.03.2011, relating to assessment year 2003-2004 against order passed u/s 153A r w s 143(3) of the Income-tax Act, 1961.

2. The assessee has raised following grounds of appeal:-

"1. The Learned Commissioner of Income-tax (Appeals) on the facts and the circumstances of the case and in law, has erred in treating the protective assessment made by the learned A.O. as substantive assessment in the hands of the appellant.

2. The Learned Commissioner of Income-tax (Appeals) on the facts and the circumstances of the case and in law, has erred in treating an amounts of Rs.6,51,000/- received by M/s. Oberoi Realty 2 ITA No.4411/Mum/2011 Shri Vikas Oberoi

Limited (formerly known as Kingston Properties Private Limited (KPPL) from M/s. R.S.Estates Developers Private Limited (RSEDPL) as deemed dividend in the hands of the appellant on the ground that the appellant is a shareholder/director in the aforesaid companies."

2.1 The assessee has also raised an additional ground, which reads as under:

"The AO had no jurisdiction to assess the amount of Rs.6,51,000 as deemed dividend in the hands of the Appellant in an assessment order passed under section 153A of the Act as the same is based on any incriminating material found during the search."

3. Briefly stated the facts of the present case are a search and seizure action u/s. 132(1) was the Act was undertaken at the premises of the Oberoi Group of assessees on 19.07.2007 and thereafter. During the course of search and seizure action u/s. 132(1) /133A certain books of account and other documents were found and seized. In addition, certain cash, jewellery and other valuable articles were found and seized from different premises and from the assessee before us. In response to notice u/s. 153A of the Act, the assessee furnished return of income declaring total income of Rs.79,73,257/- The original assessment in the case was completed u/s. 143(3) of the Act vide order dated 01.12.2005. The AO noted that during the year under consideration M/s. Kingston Properties P Ltd. (KPPL), one of the companies in which the assessee was a beneficial shareholder had received loans and advances of Rs.15,26,000/- from M/s. Oberoi Construction P. Ltd. (OCPL) and from M/s. R S Estate Developers P Ltd. (RSEDPL). As the assessee was himself the shareholder of OCPL and RSEDPL, the AO was of the view that the condition for applicability of the provisions of section 2(22)(e) of the Act were fulfilled and the advances received from both the concerns by KPPL were treated as deemed dividend in the hands of KPPL. Since the assessee was a majority shareholder in KPPL, the amount of Rs.15,26,000/- was taxed in the hands of the assessee as deemed dividend u/s. 2(22)(e) of the Act on protective basis for the reasons given in the assessment order of M/s. KPPL.

4. The CIT(A) referred to the submissions made by the assessee that the advances received by KPPL could not be treated as deemed dividend u/s. 2(22)(e) 3 ITA No.4411/Mum/2011 Shri Vikas Oberoi

of the Act. The assessee referred to the submissions made in the appellate proceedings in the hands of KPPL, which are reproduced under para 5.3 at pages 2 to 9 of the appellate order. With regard to the concern M/s. OCPL, the submissions of the assessee before the CIT(A) was that as a Director/Shareholder of the said concern, it had lent substantial sum totaling to Rs.4.18 crore as unsecured loan for the period up to 31.03.2003. The claim of the assessee before the CIT(A) was that where the assessee was having a minimum credit balance of 4.17 crore in the books of M/s. OCPL, there was no merit in treating the transaction of Rs.8,75,000/- as loan and treating the same as deemed dividend. In respect of the other concern, the assessee contended that he was the Director/share holder of KPPL and had lent a sum of Rs.10.64 crore to the said concern for the period up to 31.03.2003. Since the assessee was the alleged beneficiary of sum of Rs.6,51,000/- which was advanced by M/s. RSEDPL to M/s. KPPL, and where it was having credit balance with the recipient company, the same could not be treated as deemed dividend u/s. 2(22)(e) of the Act.

5. An alternate submissions was also made before the CIT(A) that such transaction was part of inter-company/and or day to day routine transactions, which do not amount to loans and advances for the purpose of section 2(22)(e) of the Act in the hands of recipient i.e. KPPL and consequently the assessment made on protective basis in the hands of the assessee was not tenable. The CIT(A) vide para 5.10 observed that KPPL was not beneficial share holder of OCPL and RSEDPL and therefore, the issue of taxability of deemed dividend u/s. 2(22)(e) of the Act was clearly covered by the decision of Hon'ble Bombay High Court in the case of Universal Medicare P. Ltd. (2010) 324 ITR 264 (Bom) and following the said ratio, the addition made in the case of KPPL was deleted by the CIT(A) by separate order. As per the CIT(A) the protective addition made in the case of assessee had to be treated as substantive. The CIT(A was of the view that the provisions of section 2(22)(e) of the act were attracted if the recipient was the beneficial share holder. Though the beneficiary was KPPL, the share holder was the assessee himself the benefit is deemed to accrue to the assessee. The CIT(A) considered the alternate plea of the assessee that it had advanced loan of Rs.4.17 crore to M/s. OCPL as against loan given by KPPL to OCPL of Rs.8,75,000/-. With regard to the same the 4 ITA No.4411/Mum/2011 Shri Vikas Oberoi

CIT(A) held that though the amount in question was loan/deposit, but in the absence of any debit balance of the assessee at any point of time, there was no merit in holding that deemed dividend had accrued to the assessee u/s. 2(22)(e) of the Act. However, in respect of loan of Rs.6,51,000/- received by KPPL from RSEDPL, the CIT(A) held the same to be loan or deposit as covered u/s. 2(22)(e) of the Act and since the assessee did not have any credit balance with the peer company i.e. RSEDPL, the provisions of section 2(22)(e) of the Act were applicable. Addition of Rs.6,51,000/- was confirmed. Aggrieved, the assessee is in appeal against said order of the CIT(A).

6. The learned AR for the assessee at the outset pointed out that it had raised additional ground of appeal against the assessment order passed u/s. 153A of the Act. The plea of the learned AR before us was that no addition was warranted as deemed dividend in the hands of the assessee when no incriminating documents were found during the course of search. The learned AR for the assessee pointed out that original assessment u/s. 143(3) of the Act was completed on 01.12.2005. After that search on the premises of the assessee were carried out on 19.07.2007. The learned AR for the assessee drew our attention to the assessment order passed u/s. 153C r.w.s 143(3) of the Act in the case of M/s. KPPL, copy of which is placed at pages 26 to 44 of the paper-book. The learned AR for the assessee referred to para 7 at page 3 of the assessment order of M/s. KPPL and pointed out that the AO noted from the Annexure -III to the Tax Audit Report, which was filed along with the return of income, listing all loans/deposits accepted by the assessee. The AO further observed that the KPPL had received loan of Rs.8,75,000/- from OCPL and Rs.6,51,000 from RSEDPL during the year. The AO in charge of KPPL also noted the share holding pattern of different persons in charge of the said concerns and the assessee before us was found to be holding 55% of shares in KPPL, 37.5% shares in OCPL and 42% in RSEDPL. Both the concerns OCPL and RSEDPL had reserves and surplus and it made loans and advances to KPPL. Hence the conditions specified u/s. 2(22)(e) of the Act were held to be satisfied by KPPL. The substantive addition was made in the case of the assessee. The learned AR for the assessee stressed that during the course of search and seizure proceedings, no incriminating data was found and where the assessment in the case of the assessee 5 ITA No.4411/Mum/2011 Shri Vikas Oberoi

i.e. the share holder Mr. Vikas Oberoi had already been completed, for applying the provisions of section 153A rws 143(3) of the Act, certain incriminating documents should have been found. In the absence of the same, no addition could be made in the hands of the assessee. The learned AR for the assessee in this regard placed reliance on the ratio of the decisions laid down by the Hon'ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation in Income Tax Appeal No. 523 of 2013 and CIT vs. All Cargo Global Logistics Ltd. in Income Tax Appeal No.1969/2013, judgment dated 21.04.2015 and CIT vs. Murli Agro Products Ltd. in Income Tax Appeal No.36 of 2009 judgment dated 29.10.2010. The case of the learned AR for the assessee before us was that where original assessment had been completed, the Hon'ble High Court laid down the ratio that in such cases the provisions of section 153A of the Act would be attracted only if any incriminating documents were found. In the absence of any incriminating documents found from the possession of the assessee, no addition was warranted u/s. 153A r.w.s 143(3) of the Act.

7. Coming to the merits of the case, the learned AR for the assessee pointed out that the transaction was between RSEDPL and KPPL and the account between the parties was a escrow account and by mistake there was a transaction under which there was a loan of temporary advance of Rs.6,51,000/-, which was repaid within few months and during the period itself.

8. The learned DR for the revenue pointed out that the issue of invoking of jurisdiction u/s. 153A of the Act is raised by the assessee for first time and the same could not raised at this stage. Reliance was placed on the ratio laid down by the Hon'ble Madras High Court in the case of Southern Foundation (P.) Ltd. vs. ACIT (2010) 324 ITR 76 (Mad). Further reliance was placed on the ratio laid down by the Mumbai Bench of the Tribunal in the case of Batliboi & Co. Ltd. vs. DCIT (1998) 67 ITD 397. It was further pointed out by the learned DR for the revenue that reliance placed upon the case of Murli Agro Products Ltd (supra) was misplaced as the order in the said case was passed u/s. 263 of the Act, which had no relevance to the provisions of section 153A of the Act. The learned DR further relied on the order of the CIT(A) and pointed out that out of the two transactions, the addition made on 6 ITA No.4411/Mum/2011 Shri Vikas Oberoi

account of transaction between OCPL and KPPL has been deleted by the CIT(A). In respect of the second transaction between RSEDPL to KPPL, the assessee had not given any loan to RSEDPL but had advanced Rs.10.64 crore to the recipient company i.e. KPPL and there was no merit in the reliance placed by the learned AR of the assessee.

9. In this regard, in the rejoinder, the learned AR for the assessee pointed out that the issue of additional ground of appeal is covered by the decision of the Apex Court in National Thermal Power Co. Ltd. reported in (1998) 229 ITR 383 (SC). It was further pointed out that even before the Special Bench of the Mumbai in the case of M/s. All Cargo Global Logistics Ltd. in ITA No. 5018 to 5022 and 5059/Mum/2010 relating to A.Ys 2004-05 to 2009-2010, the issue was raised by way of additional ground of appeal and the Tribunal held that the said legal issue of application of provisions of section 153A could be raised by way of additional ground of appeal. Referring to the provisions of section 2(22)(e) of Act, it was strongly contended by the learned AR for the assessee that the share holding in the case of recipient had to be looked into and consequently the amount advanced by the assessee to the recipient company has to be considered.

10. We have heard the rival contentions and have perused the record. The assessee before us has raised additional grounds of appeal, which is a jurisdictional issue raised by the assessee. The first aspect of the said additional grounds of appeal is its admission. The learned AR for the assessee pointed out that even before the Special Bench of the Tribunal, the issue of assessment completed u/s. 153A r w s 143(3) was raised by way of additional ground of appeal. Our attention was drawn to the to the order of the Special Bench of the Tribunal in the case of All Cargo Global Logistics Ltd. (spura) and it was pointed out that vide para 7.2 the Special Bench considered whether the issue raised by the assessee as an additional ground as no such ground was taken before the CIT(A) or the AO. The said ground was admitted as additional ground of appeal in turn relying on the ratio laid down by Hon'ble Apex Court in National Thermal Power Co. Ltd. (supra). The relevant finding of the Special Bench are in para 7.3 of the order and it was held that where 7 ITA No.4411/Mum/2011 Shri Vikas Oberoi

question of law arises for which facts are on record, such question should be allowed to be raised, if it is necessary to do so to assess the correct tax liability.

11. We find merit in the reliance placed upon by the learned AR for the assessee. The Tribunal has the jurisdiction to allow or not allow a new ground to be raised, but where the Tribunal is only required to consider a question of law arising from the facts which are on record, then such question can be raised by the parties as an additional ground of appeal and the same is to be adjudicated in order to correctly assess the tax liability of the assessee. Reliance in this regard is placed on the ratio laid down by Apex Court in National Thermal Power Co. Ltd. (supra) and also the interim order dated 21.05.2012 of Special Bench in the case of All Cargo Global Logistics Ltd. In view thereof, we admit the legal issue raised by the assessee i.e. in the absence of any incriminating material found during the course of search no addition could be made in the hands of the assessee as deemed dividend in the assessment order passed u/s. 153A of the Act. In the final order of the Special Bench dated 06.07.2012, while addressing the issue of effect of provisions of section 153A of the Act, it was held as under:

"58. Thus, question No.1 before us is answered as under:

a) In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for 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."

12. Interpreting the provisions of section 153A of the Act, it was held that in cases which have already been assessed to tax then, while completing the assessment u/s. 153A, addition would be made only on the basis of incriminating documents found during the course of search. Applying the above said proposition to the facts of the present case, we find that the original assessment in the case of the assessee u/s. 143(3) of the Act was completed on 1.12.2005. Search u/s.

8 ITA No.4411/Mum/2011 Shri Vikas Oberoi

132(1) of the Act was undertaken on the premises of the assessee on 19.07.2007 and hence, where the assessment was already completed, same had not abated and consequently the addition pursuant to the search proceedings could be made in the hands of the assessee u/s. 153A of the Act only on the basis of incriminating material found during the course of search. The perusal of the orders of the authorities below reflected that information with regard to the loans and deposits accepted by the assessee or the companies in which the assessee was the director as a beneficial owner was from Annexure III to the tax audit report. The AO while completing the assessment in the case of KPPL vide para 7 at page 3 noted from the Annexure III to tax audit report, which was filed along with the return of income, the assessee therein had accepted certain loans/deposits. The conclusion thereof of the AO was that the assessee, having more than 55% share in the recipient company, was the beneficial owner and, hence, conditions specified u/s. 2(22)(e) of the Act were satisfied. Where M/s. RSEDPL had advanced loan to KPPL amounting to Rs.6,51,000/- the assessee being the beneficial owner was held to be the recipient of the said loan and advances and the provisions of section 2(22)(e) of the Act were applied in order to make addition of Rs.6,51,000/-. However, there is no merit in the aforesaid addition made in the hands of the assessee, since the basis for the said addition is the information available on record in the form of tax audit report. In the absence of any incriminating documents found during the course of search, in the hands of the assessee, for the relevant year, where the assessment had already been completed u/s. 143(3) of the Act on 1.12.2005 prior to the search on 19.07.2007, the provisions of section 153A r.w.s 143(3) of the Act could not be invoked. We find merit in the plea of the assessee in this regard in view of the ratio laid down by the Special Bench of the Tribunal in the case of All Cargo Global Logistics Ltd. (supra). The said decision of the Special Bench has been approved by the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation in consolidated order with CIT vs. All Cargo Global Logistics Ltd. (supra). Consequently, additional ground of appeal raised by the assessee is thus allowed.

9 ITA No.4411/Mum/2011 Shri Vikas Oberoi

13. In view of our allowing additional ground of appeal raised, which is jurisdictional issue, the issue raised on merits becomes infructuous and the same is dismissed.

14. In the result, the appeal is partly allowed.

Order pronounced on this 31st day of July, 2015.

Sd/- Sd/- (N K Billaiya) (Sushma Chowla) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai; Dated : 31st July, 2015. SA

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT, Mumbai. 4. CIT(A)-concerned, Mumbai 5. DR, ITAT, Mumbai 6. Guard file.

BY ORDER, //True Copy//

Assistant Registrar Income Tax Appellate Tribunal, Mumbai