2022 (1) TMI 35 - AT - Income Tax

Reopening of assessment u/s 147 - deemed dividend addition u/s.2(22)(e) - HELD THAT - When we peruse the reasons recorded for reopening of assessment in the present case of the assessee as recorded by the Assessing Officer, we find that there is no scope for any hypothetical or any contingency in the given reasoning. The entire reasons have been specifically spelled out by the Assessing Officer and reasons have been recorded without any room for any guess work or surmises. This is not at all the case of any hypothetical situation or the case of any future contingency. In that respect, the decision of the Hon‟ble Jurisdictional High Court is factually not applicable in the present facts and circumstances of the case of the assessee. Therefore, the additional ground raised in appeal by the assessee is dismissed. Even in grounds relating to merits also, as evident from the findings of the Ld. CIT(Appeals), the assessee has not at any stage neither before the Assessing Officer nor before the CIT(Appeals) has explained the commercial expediency of the transaction that as specifically brought out by the findings of the Ld. CIT(Appeals) of her order that assessee has not been able to demonstrate through any cogent or credible evidence that this transaction that he had with the M/s. Hextech Engineering Pvt. Ltd. was commercial in nature. Therefore, the Assessing Officer rightly taxed the same as deemed dividend to the extent of accumulated profit in the hands of the assessee. Even before us also, the assessee was unable to demonstrate through any materials/evidences on record to substantiate the commercial nature of the transaction or expediency involved in the same. In view thereof, we do not find any infirmity with the findings of the Ld. CIT(Appeals) and the same is therefore, upheld. Thus, grounds on merits raised in appeal memo by the assessee are dismissed.

Summary

Issues:

1. Validity of reopening u/s.147
2. Addition of deemed dividend in the hands of the appellant
3. Taxation of deemed dividend under section 2(22)(e)
4. Interest charged u/s.234A/234B/234C
5. Commercial expediency of the transaction

Issue 1: Validity of reopening u/s.147

The appellant challenged the validity of the reopening u/s.147, arguing that the addition on account of deemed dividend was already made in another case. The appellant relied on a High Court case DHFL Venture Capital Fund Vs. Income Tax Officer, where it was held that making a protective assessment based on a future contingency is impermissible. However, the Tribunal found that the reasons recorded for reopening were specific and not based on hypothetical situations. The additional ground raised by the appellant was dismissed.

Issue 2: Addition of deemed dividend in the hands of the appellant

The appellant contested the addition of deemed dividend, arguing that the transaction was for business purposes and not as a loan. However, the Tribunal upheld the addition as deemed dividend under section 2(22)(e) due to the lack of evidence showing the commercial nature of the transaction. The Tribunal found that the appellant failed to demonstrate the commercial expediency of the transaction, leading to the dismissal of the appeal on this issue.

Issue 3: Taxation of deemed dividend under section 2(22)(e)

The Tribunal referred to judicial decisions and the provisions of section 2(22)(e) to support the taxation of deemed dividend in the hands of the shareholder. The Tribunal emphasized the lack of monetary consideration in the transaction and upheld the taxation of deemed dividend to the extent of accumulated profits, as per the Income Tax Act, 1961.

Issue 4: Interest charged u/s.234A/234B/234C

The Tribunal confirmed the interest charged u/s.234A/234B/234C as per the Assessing Officer's decision, without any further discussion or challenge raised by the appellant on this issue.

Issue 5: Commercial expediency of the transaction

The Tribunal highlighted the importance of demonstrating the commercial nature of transactions to avoid taxation as deemed dividend. The appellant's failure to provide credible evidence supporting the commercial aspect of the transaction led to the dismissal of the appeal on the grounds of commercial expediency.

In conclusion, the Tribunal dismissed both appeals of the assessee for the assessment years 2008-09 and 2009-10, emphasizing the lack of evidence regarding the commercial nature of the transactions and upholding the taxation of deemed dividend as per the provisions of the Income Tax Act, 1961.