2017 (8) TMI 452 - HC - Income Tax

Reopening of assessment - loan received by the petitioner from private company to be treated as a deemed dividend in terms of section 2(22)(e) - Held that - In neither of the two documents, he has dealt with the factual assertion made by the petitioner viz. that the sum in question was advanced by the petitioner to the company and was not received by the petitioner from the company by way of a loan. The petitioner has produced the audited accounts in the balance-sheet which we have perused. The amount in question is shown as a demand to the said company. Loan is an advance made by the petitioner to the said company. The stand taken by the Assessing Officer in the reasons recorded that such sum was received by the petitioner from the company by way of a loan, is thus even otherwise not correct. We have therefore proceeded on such basis. If that be so, the reason for reopening the assessment completely lacked validity. The sole ground to reopen the assessment was that the loan received by the petitioner from private company should be treated as a deemed dividend in terms of section 2(22)(e). When on facts the petitioner is able to show that the amount in question was advanced by the petitioner to the company and was not received by the company by way of a loan, section 2(22)(e) would have no applicability. The impugned notice is set aside. Petition is allowed in favour of assessee.

Summary

Issues:
1. Validity of notice issued by Assessing Officer to reopen assessment for the assessment year 2010-11 based on section 2(22)(e) of the Income Tax Act, 1961.

Analysis:
The petitioner challenged a notice issued by the Assessing Officer to reopen the assessment for the assessment year 2010-11, citing section 2(22)(e) of the Income Tax Act, 1961. The notice was based on the petitioner allegedly receiving loans from a private company, which should have been treated as dividend income. The petitioner contended that the sum in question was actually advanced by them to the company, not received as a loan. The Assessing Officer rejected the petitioner's objections, leading to the filing of the petition.

The Assessing Officer's reasons for reopening the assessment were found to lack validity as the petitioner demonstrated that the sum was not received as a loan but was advanced to the company. The audited accounts presented by the petitioner confirmed this position, showing the amount as a demand from the company, not a loan received. As the petitioner was able to establish that the amount was not received as a loan, section 2(22)(e) of the Act, which deals with deemed dividends, was deemed inapplicable. Consequently, the High Court set aside the notice dated 27.03.2017, allowing and disposing of the petition in favor of the petitioner.

In conclusion, the judgment highlighted the importance of factual accuracy in assessing tax liabilities, emphasizing that the mere receipt of funds does not always imply income. The court's decision underscored the need for a thorough examination of transactions and a clear understanding of the legal provisions to prevent erroneous tax assessments.