2021 (2) TMI 177 - AT - Income Tax

Deemed dividend u/s. 2(22)(e) - inter corporate deposits - whether it is sine qua non that the assessee being a registered shareholder has to obtain the benefit out of the loan provided to the companies in which he was holding the substantial interest? - HELD THAT - A plain reading of the provisions reveals that the provisions of section 2(22)(e) of the Act will be attracted in a situation where the company in which the assessee was the registered shareholder advances loans and advances to the other companies in which the assessee was holding the substantial interest and the assessee get some benefit out of such loans and advances. CIT (A) has given very clear-cut finding that there was no benefit accrued to the assessee out of the loans and advances given by the company namely JP Infrastructure Pvt. Ltd. to the companies as discussed above. It is also pertinent to note that same contention was also raised by the assessee before the AO during the assessment proceedings as well as before us which was not disputed either by the AO or by the ld. DR Once it is established that there is no benefit accrued to the assessee out of the loan transactions as discussed above the provisions of section 2 (22)(e) of the Act cannot be attracted. We find that the contention of the assessee has not been disputed by the AO. Similarly the learned CIT (A) has also observed that the company has advanced money to the parties as inter corporate deposits which has not been disputed by the learned DR appeared for the revenue. In the absence of any adverse finding from the side of the AO and the favorable finding of the learned CIT (A) it seems that the loans and advances were made as inter corporate deposits in ordinary course of its business which are not subject to the provisions of deemed dividend as provided under section 22(2) - No reason to interfere in the finding of the learned CIT (A) and thus we set aside the same with the direction to the AO to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed Reopening of assessment u/s 147 - HELD THAT - On perusal of the reasons recorded by the AO we find that the AO at the threshold has recorded that it is seen that the assessee is having substantial share in JPIL which has advanced loan to the companies namely M/S Gujarat Mall Management Pvt. Ltd and M/S Aryan Arcade Pvt. Ltd and the assessee also holds 50% and 22% shares in both the companies. Thus the entire transaction of advancing loan fall under the preview of section 2(22)(e) of the Act and represent deemed dividend of the assessee. AO nowhere mentioned that he has new information or fresh material in possession from where he has seen such fact. AO has recorded that assessee is having 22% share in M/S Aryan Arcade Pvt Ltd. which came to be factually wrong as the assessee is not holding any share in such company. There were also incorrect information recorded in reason by the AO with regard to amount of loan and accumulated profit. All this fact suggest that the AO has not applied his/her mind in reaching to the reason to believe or formed believe in mechanical order without adducing supporting material that income of the assessee has escaped to assessment. Thus reopening of assessment in absence of tangible material and without applying mind is not permissible - See CENTRAL WAREHOUSING CORPORATION 2015 (1) TMI 825 - DELHI HIGH COURT . We hold that the reopening was made without bringing any fresh material on record. Thus we quash the assessment framed under section 147 - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of ?2,62,33,800/- made on account of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.
2. Validity of reassessment proceedings under section 147 read with section 143(3) of the Income Tax Act, 1961.

Detailed Analysis:

1. Deletion of Addition of ?2,62,33,800/- Made on Account of Deemed Dividend Under Section 2(22)(e):

The Revenue contested the deletion of the addition of ?2,62,33,800/- by the CIT (A), which was initially made by the AO as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The assessee, an individual with income from salary, rent, interest, and short-term capital gain, held significant shares in JP Infrastructure Pvt. Ltd., Gujarat Mall Management Company Pvt. Ltd., and Dev Infratrade Pvt. Ltd. The AO considered the loans advanced by JP Infrastructure Pvt. Ltd. to Dev Infratrade Pvt. Ltd. and Gujarat Mall Management Company Pvt. Ltd. as deemed dividends. However, the assessee argued that there were no accumulated profits in JP Infrastructure Pvt. Ltd. at the time of advancing the loans, and the loans were inter-corporate deposits (ICD) in the normal course of business. The CIT (A) accepted the assessee's contentions, noting that the loans were ICDs and there were no accumulated profits, thus the provisions of section 2(22)(e) were not applicable. The Tribunal upheld the CIT (A)'s decision, emphasizing that no benefit accrued to the assessee from the loans, and the loans were indeed ICDs.

2. Validity of Reassessment Proceedings Under Section 147 Read with Section 143(3):

The assessee challenged the reassessment proceedings initiated under section 147 read with section 143(3) on the grounds that there was no fresh tangible material available with the AO and the reasons for reopening were based on incorrect facts and assumptions. The AO initiated reassessment proceedings based on the observation that JP Infrastructure Pvt. Ltd. had extended loans to companies in which the assessee had substantial interest, thereby attracting the provisions of deemed dividend under section 2(22)(e). The assessee argued that the reasons recorded for reopening were factually incorrect, as the assessee did not hold shares in Aryan Arcade Pvt. Ltd., and the amounts mentioned were incorrect. The Tribunal found that the AO did not have any new material to justify the reopening and had not applied his mind properly, leading to the conclusion that the reassessment proceedings were invalid. Consequently, the Tribunal quashed the reassessment proceedings.

Conclusion:

The Tribunal dismissed the Revenue's appeal and upheld the deletion of the addition of ?2,62,33,800/- made on account of deemed dividend under section 2(22)(e). Additionally, the Tribunal allowed the assessee's cross-objection, quashing the reassessment proceedings under section 147 read with section 143(3) due to the lack of fresh tangible material and incorrect factual basis for reopening.