2008 (3) TMI 374 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - Deemed dividend - addition u/s 2(22)(e) - change of opinion - whether information received from the Deputy Commissioner of Income Tax, Company Circle V(1) constituted new information?. Validity of Reopening of assessment u/s 147 - HELD THAT - We find that for the AY 1999-2000, the original assessment was processed under s. 143(1). Hon'ble apex Court in the case of Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. 2007 (5) TMI 197 - SUPREME COURT held that an intimation under s. 143(1)(a) cannot be treated as an assessment order and hence reopening matter cannot be agitated on that account. Hence, the assessee's plea regarding reopening of assessment for the AY 1999-2000 is liable to be dismissed and the same is dismissed as such. addition made under Deemed dividend u/s 2(22), Advance given - After referring to the decision of the Hon'ble Supreme Court in the case of Smt.Tarulata Shyam Vs. CIT 1977 (4) TMI 3 - SUPREME COURT , It is clear that it is the amount that is advanced during the year that is to be considered as deemed dividend and not the balance outstanding at the end of the accounting period. Hence, in the background of aforesaid discussion and precedents, we do not find any infirmity in the order of the learned CIT(A) for the AY 1998-99 as no part of advance given has been treated as deemed dividend before this assessment year. Hence, we affirm the learned CIT(A)'s order for the AY 1998-99. As regards AY 1999-2000, we are not in agreement with the learned CIT(A) that deemed dividend for AY 1998-99 should not be adjusted from the balance of accumulated profits as on the close of AY 1998-99. Hon'ble apex Court's order in G. Narasimhan (Died) Ors. 1998 (12) TMI 5 - SUPREME COURT case is very clear on this point and we do not see any ambiguity in this regard. Hence, for AY 1999-2000, AO is directed to compute deemed dividend equal to the amount advanced during that year to the extent company had accumulated profits after adjustment of deemed dividend for AY 1998-99. In the result, assessee's appeal for AY1998-99 is dismissed and assessee's appeal for AY 1999-2000 is partly allowed.

Issues Involved:
1. Reopening of assessment.
2. Taxability of advances received by the firm from the company as deemed dividend under section 2(22)(e) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Reopening of Assessment:
The first issue raised by the assessee was that the Commissioner of Income-tax (Appeals) erred in confirming the reopening of assessment. The assessee contended there was no concealment on their part, thus reopening beyond four years after the end of the assessment year was without jurisdiction and bad in law, and that the reopening was based on a change of opinion.

The Tribunal noted that for the assessment year 1999-2000, the original assessment was processed under section 143(1). Citing the Supreme Court's decision in Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500, it was held that an intimation under section 143(1)(a) cannot be treated as an assessment order, and thus the reopening matter cannot be agitated on that account. Consequently, the assessee's plea regarding the reopening of assessment for the assessment year 1999-2000 was dismissed.

For the assessment year 1998-99, the Tribunal examined the facts leading to the reopening and addition. The Assessing Officer had found that the assessee-firm received significant advances from a company (PGIIPL) during the relevant accounting periods, and since the company had accumulated profits, these advances were subject to tax as deemed dividends under section 2(22)(e). The assessee had not admitted any amount as income towards deemed dividends in the returns filed, leading to the initiation of reassessment proceedings under section 147.

The Commissioner of Income-tax (Appeals) concluded that the assessee-firm had not furnished necessary details regarding shareholders or accumulated profits at the time of the original assessment. Hence, the reopening did not amount to a change of opinion. The Tribunal agreed with this view, affirming that the Assessing Officer had no occasion to examine the advances received from the taxability angle under section 2(22)(e) due to the lack of information. Thus, the reopening of assessment was upheld for both assessment years.

2. Taxability of Advances as Deemed Dividend:
On merits, the issue was whether the advances received by the firm from the company to the extent of accumulated profits were taxable as deemed dividends under section 2(22)(e) of the Income-tax Act.

The Tribunal referred to the provisions of section 2(22)(e), which defines deemed dividends and includes advances or loans to shareholders holding substantial interest or to any concern in which such shareholders are members or partners. The assessee argued that the transactions were normal business dealings and should not be taxed as deemed dividends.

The Commissioner of Income-tax (Appeals) observed that the agreement between the firm and the company was not executed, and there was no evidence to support the claim that the advances were for business purposes. The advances were utilized by the firm in its own business, indicating they were not normal business transactions. The Tribunal upheld this finding, confirming that the advances were taxable as deemed dividends.

Further, the Commissioner of Income-tax (Appeals) considered various case laws, including CIT v. G. Narasimhan [1999] 236 ITR 327 and Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345, concluding that the advances received during the relevant accounting periods were taxable as deemed dividends. The amounts for the assessment years 1998-99 and 1999-2000 were determined to be Rs. 2,28,92,408 and Rs. 1,75,05,871, respectively.

The Tribunal noted that for the assessment year 1999-2000, the deemed dividend for the previous year should be adjusted from the accumulated profits. The Assessing Officer was directed to compute the deemed dividend accordingly.

Conclusion:
The assessee's appeal for the assessment year 1998-99 was dismissed, while the appeal for the assessment year 1999-2000 was partly allowed, with directions to adjust the deemed dividend for the previous year from the accumulated profits.

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