1979 (2) TMI 139 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 2,78,399 and Rs. 77,358 as deemed dividend under section 2(22)(e) of the IT Act, 1961.
2. Validity of proceedings initiated under section 147(b) by the ITO.
3. Classification of loans advanced to the appellant HUF as loans to a 'Shareholder.'
4. Admission of additional grounds related to the initiation of assessment proceedings under section 147(b) and taxability of deemed dividend under section 2(22)(e).

Detailed Analysis:

1. Addition of Rs. 2,78,399 and Rs. 77,358 as Deemed Dividend under Section 2(22)(e) of the IT Act, 1961:
The assessee, a Hindu Undivided Family (HUF), had controlling interest as a shareholder in M/s. Udaipur Mineral Development Syndicate Pvt. Ltd. During the financial years 1966-67 and 1967-68, the company advanced loans amounting to Rs. 2,78,399 and Rs. 77,358 to the assessee-HUF. The Income Tax Officer (ITO) treated these loans as deemed dividends under section 2(22)(e) of the IT Act, 1961, and initiated proceedings under section 147(b) to assess these amounts. Initially, the amounts were taxed in the hands of Shri H.C. Golcha as an individual, but later, based on a Tribunal's decision, the amounts were assessed in the hands of the HUF.

2. Validity of Proceedings Initiated under Section 147(b) by the ITO:
The assessee contended that the re-initiation of proceedings under section 147(b) was invalid as it was based on a mere change of opinion. However, the ITO and the Appellate Assistant Commissioner (AAC) upheld the proceedings, stating that the Tribunal's decision for the assessment years 1964-65 to 1966-67 constituted new information justifying the initiation of proceedings under section 147(b). The Tribunal also followed this decision, holding that the amounts were rightly assessed in the hands of the HUF.

3. Classification of Loans Advanced to the Appellant HUF as Loans to a 'Shareholder':
The assessee argued that the loans advanced to the HUF could not be classified as loans to a 'shareholder' and thus should not be added to the HUF's income. The authorities, however, followed the Tribunal's earlier decision, which had considered similar arguments and upheld the addition of the loans as deemed dividends in the hands of the HUF.

4. Admission of Additional Grounds:
The assessee sought permission to raise additional grounds related to the initiation of assessment proceedings under section 147(b) and the taxability of deemed dividend under section 2(22)(e). The Tribunal considered various judicial precedents and concluded that it had the jurisdiction to allow the assessee to raise additional grounds if they were within the subject matter of the appeal and were vital to the case. The Tribunal allowed the additional grounds, stating that the issues were connected and essential for a proper decision. It also noted that the assessee had provided valid reasons for not raising these grounds earlier.

The Tribunal directed the lower authorities to examine whether the loans were made to the assessee-HUF by the company in the ordinary course of its business and whether lending money was a substantial part of the company's business. The issue was restored to the file of the ITO for further examination and necessary findings.

Conclusion:
The appeals succeeded partially, with the Tribunal allowing the additional grounds and restoring the issue to the ITO for further examination. The Tribunal did not consider it necessary to go into the grounds raised in the memorandum of appeal, as the issues were connected and a proper decision could only be taken after considering the additional grounds.