2017 (12) TMI 1869 - AT - Income Tax

Reopening of assessment u/s 147 - assessee has shown dividend income from Rajkot Nagrik Sahkari Bank as exempt income - exemption u/s 10(34) of the act on dividend income received from the bank was not available - HELD THAT - As submissions made by the appellant are insufficient to conclude that there was 'change of opinion' on the issue of dividend income while reopening of the assessment u/s. 147 of the Act. After considering the entire facts of the case reopening of assessment is valid and justified as per the provisions of the Income Tax Act, 1961 We observed that according to the provision of section 10(34) of the act the income received by way of dividend is exempted if dividend distribution tax has been paid as per the provision of section 115-0 of the acts. We have further observed that Rajkot Nagrik Sahkari Bank being not a company is not subject to payment of dividend distribution tax. We noticed that the assessee has shown dividend income from Rajkot Nagrik Sahkari Bank claimed as exempt income but the assessee has not provided information about the nature of the impugned dividend income. The assessing officer observed that exemption u/s 10(34) of the act on dividend income received from the AOP which is not subject to payment of dividend distribution tax according to provision of section 115-O are not available. The assessee has not provided sufficient details which could have demonstrated the actual nature of the dividend income received by the assessee. Therefore, to examine the issue of availability of exemption on dividend income the case of the assessee was reopened u/s 147 of the act. Consequently during the reassessment proceedings the claim of the assessee that dividend income was exempt as per section 10(34) of the act was found to be invalid. Therefore, after considering the above facts and material on record, we are inclined with the decision of the Ld. CIT(A). Therefore, this ground of appeal of the assessee is dismissed. Disallowance u/s. 40A(2)(b) - Assessee failed to substantiate the payment of interest at an exorbitant rate to related parties as against prevailing market rate of interest of 12% - HELD THAT - AO has disallowed out of the excess payment of interest to the friends and relatives on the unsecured loans in the proportionate and equivalent to an amount excess to the prevalent market rates. The assessee has failed to substantiate the payment of interest @ 24% on the loans to the relatives in comparison to the rate of 12% prevalent market rate of interest. The assessee had also paid the interest @ 12% on unsecured loans to many other parties. After considering the facts in this regard, we observed that out of the interest paid to the relatives disallowance made u/s. 40A(2)(b) by the assessing Officer is reasonable and justified. Therefore, we do not find any error in the decision of the Ld. CIT(A). This ground of appeal is dismissed.

Summary

Issues:
1. Reopening of assessment u/s 147 of the Income Tax Act for assessing dividend income.
2. Addition of dividend income from a cooperative bank as taxable.
3. Disallowance of excess interest paid to relatives on unsecured loans.

Analysis:

Issue 1: Reopening of assessment u/s 147
The assessee challenged the reopening of assessment for assessment years 2008-09 to 2013-14. The assessing officer reopened the case based on the observation that the assessee was not eligible for exemption on dividend income from a cooperative bank as per section 10(34) r.w.s. 115(O) of the act. The CIT(A) upheld the reopening, stating that the assessee did not provide sufficient details about the nature of the dividend income. The tribunal agreed with the CIT(A) that the reopening was valid and justified under the Income Tax Act, 1961, as there was no 'change of opinion' regarding the issue of dividend income.

Issue 2: Addition of dividend income as taxable
The assessing officer disallowed the exemption claimed by the assessee on dividend income from the cooperative bank, stating that the bank was not subject to dividend distribution tax. The CIT(A) upheld this decision, emphasizing that the dividend income was not exempt under section 10(34) of the act. The tribunal concurred with the CIT(A)'s decision, noting that the dividend received from the bank was not subject to dividend distribution tax, making it taxable as per the law. The tribunal dismissed the assessee's appeal on this issue for all the assessment years.

Issue 3: Disallowance of excess interest on unsecured loans
The assessing officer disallowed the excess interest paid to relatives on unsecured loans under section 40A(2) of the act. The CIT(A) upheld this disallowance, stating that the assessee failed to substantiate the payment of interest at a higher rate to relatives compared to the prevailing market rate. The tribunal agreed with the CIT(A)'s decision, finding the disallowance reasonable and justified. Consequently, the tribunal dismissed all six appeals of the assessee.

In conclusion, the tribunal upheld the decisions of the CIT(A) and the assessing officer on all the issues raised by the assessee, resulting in the dismissal of all six appeals.