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2017 (10) TMI 541 - AT - Income TaxDeemed dividend u/s 2(22)(e) - advances made in the course of bonafide trade transactions - According to the Assessing Officer advances made in the course of bonafide trade transactions are covered by section 2(22)(e) - whether lending of money was substantial part of the business of the company? - Held that - CIT-(A) while adjudicating the issue in dispute has relied on the decision of the Hon ble Bombay High Court in the case of Parley Plastic Limited (2010 (9) TMI 726 - BOMBAY HIGH COURT), wherein the Hon ble High Court has held that the expression substantial part does not come out an idea of being the major part or the part that constitute majority of the whole. The Hon ble High Court held that the legislature had deliberately used the word substantial instead of using the word major and/or specifying any percentage of business or profit to be coming under the lending business of the lending the money for the purpose of clause (ii) of section 2(22) of the Act. Ld. Sr. DR did not bring before us any contrary decision of the jurisdictional High Court or the Hon ble Supreme Court. In view of above facts and circumstances, we do not find any infirmity in the finding of the Ld. CIT-(A) on the issue in dispute and accordingly, we uphold the same - Decided against revenue
Issues Involved:
1. Validity of reopening of assessment under section 147 of the Income Tax Act. 2. Deletion of addition of ?1,12,05,965/- as deemed dividend under section 2(22)(e) of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Validity of Reopening of Assessment under Section 147 of the Income Tax Act: The assessee challenged the reassessment proceedings on three grounds: - The assessment was reopened on the direction of a superior authority. - The Assessing Officer (AO) did not apply his own mind while reopening the assessment. - The reopening was based on a change of opinion. The Tribunal examined these claims and found: - The information for reopening was sent by the Addl. CIT in his capacity as the AO of another entity, not as a superior authority. Therefore, the reopening was not directed by a superior authority. - The AO had recorded reasons to believe that income had escaped assessment based on the information received and had applied his mind to the facts. - There was no change of opinion as the original assessment did not consider the issue of deemed dividend under section 2(22)(e). The Tribunal concluded that the reassessment proceedings were validly initiated, rejecting the assessee's cross objections. 2. Deletion of Addition of ?1,12,05,965/- as Deemed Dividend under Section 2(22)(e) of the Income Tax Act: The AO added ?1,12,05,965/- as deemed dividend, asserting that the advances received by the assessee from M/s. G.D. Goenka Tourism Corporation Limited fulfilled the conditions of section 2(22)(e): - The assessee was a registered and beneficiary shareholder. - The assessee held a significant shareholding in the lending company. - The lending company had accumulated profits. The AO argued that the exception under section 2(22)(e) did not apply as money lending was not a substantial part of the lender's business. The CIT(A) deleted the addition, relying on the Bombay High Court's decision in CIT Vs. Parley Plastic Limited, which held that "substantial part" does not mean the majority of the business. The CIT(A) found that the lending company had been receiving interest income regularly, which constituted a substantial part of its business. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not present any contrary decision from a higher court. The Tribunal agreed that the term "substantial part" does not necessarily mean the majority, aligning with the interpretation provided by the Bombay High Court. Conclusion: Both the appeal of the Revenue and the cross objections of the assessee were dismissed. The reassessment proceedings were deemed valid, and the deletion of the deemed dividend addition was upheld based on the interpretation that "substantial part" of business does not require being the majority. The decision was pronounced on 11th Oct., 2017.
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