2022 (3) TMI 902 - HC - Income Tax

Reopening of assessment u/s 147 - deemed dividend addition - eligibility of reasons to believe - HELD THAT - When we consider the reasons for re-opening the stand of the ACIT who is the Jurisdictional AO(JAO) is that the findings of CIT (A)) that the addition under Section 2(22)(e) of the Act for A.Y. 2008-09 should be made in the hands of petitioner who is substantial shareholder in PGPL and KFPL is correct and therefore the amount has escaped assessment for A.Y. 2008-09. What is strange is that even before the reasons for re-opening were recorded and even after the reasons was recorded and notice was issued to petitioner on 24th January, 2015, Revenue has argued in this court on 4th July, 2014 that the conclusion of CIT (A)) was erroneous and addition should have been actually in the hands of PGPL. One of the substantial question of law proposed in the appeal filed in this court by Revenue in IMPACT CONTAINERS PVT. LTD AND OTHERS 2014 (9) TMI 88 - BOMBAY HIGH COURT was Whether on the facts and in the circumstances of the case and in law, the Hon ble Tribunal was justified in holding that deemed dividend is taxable only in the hands of a shareholder and not in the hands of a non-shareholder, by relying on the decisions without appreciating that the ratio of the decisions in the above cited case has not been accepted by the Revenue . The reason to believe that income has escaped assessment is not sustainable - since the proposed re-opening has been issued after expiry of four years of the end of the relevant assessment year, proviso to Section 147 of the Act would apply in as much as the Revenue has to show that there has been fault on the part of petitioner to truly and fully disclose material facts required for assessment. Not only as Revenue not made any such allegations in the reasons for re-opening, we cannot even cull out from the reasons recorded that Revenue has even suggested that there has been failure on the part of petitioner to disclose truly and fully material facts. - Decided in favour of assessee.

Summary

Issues:
1. Assessment under Section 143(3) of the Income Tax Act, 1961 for A.Y. 2008-09.
2. Addition of deemed dividend under Section 2(22)(e) of the Act in the hands of the petitioner.
3. Dispute regarding the taxability of deemed dividend in the hands of the petitioner or the company receiving the loan.
4. Validity of the re-opening of assessment after four years.

Analysis:

1. The petitioner, an individual, filed returns for A.Y. 2008-09 declaring a total income of ?13,76,281. The assessment under Section 143(3) was completed accepting the returned income.

2. The dispute arose regarding the addition of deemed dividend under Section 2(22)(e) of the Act in the hands of the petitioner, who held substantial interest in two companies. The CIT (A) directed the Assessing Officer to tax the deemed dividend in the petitioner's hands. The ITAT confirmed this decision.

3. The Revenue challenged the ITAT's decision in the High Court, arguing that the deemed dividend should be taxed in the hands of the company receiving the loan, not the shareholder. However, the High Court dismissed the Revenue's appeal, upholding the decision to tax the amount in the petitioner's hands.

4. The Revenue attempted to re-open the assessment after four years, alleging that the deemed dividend had escaped assessment. The High Court found the re-opening unsustainable as there was no failure on the petitioner's part to disclose material facts. The court allowed the petition, quashing the notice for re-opening and rejecting the objections raised by the Revenue.

Overall, the High Court ruled in favor of the petitioner, holding that the deemed dividend should be taxed in the petitioner's hands due to substantial interest in the companies. The court found the Revenue's attempt to re-open the assessment invalid, as there was no fault on the petitioner's part in disclosing material facts.