2021 (8) TMI 868 - AT - Income Tax

Validity of reopening of assessment u/s 147 - deemed dividend u/s 2(22) (e) - unsecured loans - Group companies - HELD THAT - As notice u/s 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by a Court in any proceeding under any other law. Since the ld.CIT(A) while deciding the validity of the reassessment proceedings has thoroughly discussed all the aspects which the ld. Counsel has raised before the Tribunal, therefore, in absence of any distinguishing features brought before us against the order of the ld.CIT(A), we uphold the same and the reassessment proceedings initiated by the AO and upheld by the CIT(A) being in accordance with the law, the grounds raised by the assessee on this issue are dismissed. Deemed dividend - unsecured loans - Group companies - Assessee, Shri Anil Nanda was holding substantial shareholding in both these companies, i.e., 65.6% share in M/s Joint Investment Pvt. Ltd. and 27.90% share in M/s GI Power Corporation Ltd. as on 31st July, 2007. We find, the amount of ₹ 18.75 crore had been shown under the grouping unsecured loans by both these companies in their balance sheets - while arguing the case of GI Power Corporation Ltd. before the CIT(A), Jammu, the said assessee itself had accepted that it had received loan from M/s Joint Investment Pvt. Ltd. No force in the arguments of the ld. Counsel for the assessee that these are ICDs as per the resolutions and correspondences, etc., since the two concerns are closely related to each other and the transactions are not at arm s length. It is within their exclusive knowledge as to why they have treated the same as ICDs and argued before CIT(A) Jammu in the case of GI Power Corporation Ltd., as loan. Therefore, the argument of the ld. Counsel that provisions of section 2(22)(e) are not applicable does not hold good. CBDT Circular by the ld. Counsel is also not applicable since the said Circular relates to trade advance whereas in the instant case, it is deposit or loan and not a trade advance. Since the ld.CIT(A) while sustaining the addition has thoroughly discussed the issue and has passed a very reasoned order and has followed the decision of the Hon ble Delhi High Court in the case of Ankitech Pvt. Ltd. 2011 (5) TMI 325 - DELHI HIGH COURT therefore, we do not find any infirmity in the same. Accordingly, the order of the CIT(A) is upheld on merit of the case also. - Decided against assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 147/148 of the IT Act.
2. Application of section 2(22)(e) regarding deemed dividend on inter-corporate deposits (ICDs).

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The assessee challenged the reassessment proceedings on multiple grounds, including non-compliance with statutory requirements under section 151, borrowed satisfaction, and mechanical approval by the CIT. The assessee argued that the reasons for reopening were based on directions from CIT(A), Jammu, and not on the AO's independent application of mind. The CIT(A) dismissed these objections, stating that the AO had independently applied his mind based on information received and had followed all legal requirements for reopening the assessment.

The Tribunal upheld the CIT(A)'s decision, noting that the AO had validly reopened the assessment after due application of mind to the information received. The Tribunal also clarified that the CIT(A), Jammu had sent information, not a direction, to the concerned CIT, who then forwarded it to the AO. The Tribunal found that the reassessment proceedings were in accordance with law, dismissing the assessee's arguments about borrowed satisfaction and mechanical approval.

2. Application of Section 2(22)(e) - Deemed Dividend:
The assessee argued that the provisions of section 2(22)(e) regarding deemed dividend do not apply to inter-corporate deposits (ICDs). The CIT(A) rejected this argument, stating that the amount of ?18.75 crore was shown as unsecured loans in the balance sheets of both companies involved and that the transaction was not at arm's length. The CIT(A) relied on the Hon'ble Delhi High Court's decision in CIT vs. Ankitech Pvt. Ltd., which held that loans or advances between group companies where a common shareholder has substantial interest are deemed dividends.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee, Shri Anil Nanda, held substantial shareholding in both companies involved. The Tribunal agreed that the transaction provided an indirect benefit to the common shareholder and that the provisions of section 2(22)(e) were applicable. The Tribunal dismissed the assessee's arguments that ICDs are different from loans or advances and cannot be taxed as deemed dividends.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the validity of the reassessment proceedings and the addition made under section 2(22)(e) of the IT Act. The Tribunal found that the AO had validly reopened the assessment and that the transaction in question was rightly considered as deemed dividend under section 2(22)(e).