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2014 (5) TMI 429 - AT - Income TaxMaintainability of the Appeal Validity of re-opening of assessment u/s 148 of the Act - Loan received Deemed dividend u/s 2(22)(e) of the Act Held that - Relying upon CIT vs. Bhaumik Colour P. Ltd. 2008 (11) TMI 273 - ITAT BOMBAY-E it cannot be said that the AO could not entertain or hold a honest belief that the assessee was liable to be assessed in respect of deemed dividend u/s 2(22)(e) r/w s. 56 of the Act - income to that extent had escaped assessment - the deemed dividend could only be assessed in the hands of the share-holder, i.e., for whose benefit the loan or advance is given or considered as given - a sum advanced could be deemed as dividend u/s 2(22)(e) only in case of a person who is a shareholder of the payer company, both registered as well as beneficial - the amount cannot be considered as the income of the debtor or the recipient concern or company -there could be no escapement from assessment qua the same - the view entertained by the AO is without any basis in law - there was no valid assumption of jurisdiction in the first place - the reopening of the assessment on that ground per section 148 is bad in law Decided against Revenue.
Issues:
1. Maintainability of the reassessment by the CIT(A) upholding the assessee's challenge to the reopening of assessment u/s.148. 2. Validity of the reassessment and addition of deemed dividend u/s.2(22)(e) in the assessment year 2005-06. 3. Disposal of the assessee's appeal by the first appellate authority on merits. Issue 1: Maintainability of the reassessment by CIT(A) The appeal was against the CIT(A)'s order allowing the assessee's appeal contesting its assessment u/s.144 r/w s. 147 of the Income Tax Act, 1961 for the assessment year 2005-06. The assessee's return of income was processed u/s. 143(1) of the Act, and a notice u/s.148 was issued regarding a deemed dividend. The CIT(A) held the reopening as bad in law, citing a tribunal decision. The ITAT found that the A.O. could have held an honest belief, but a subsequent high court decision clarified that deemed dividend could only be assessed in the hands of the shareholder. The ITAT endorsed the CIT(A)'s order, ruling the reopening as bad in law due to the absence of valid jurisdiction. Issue 2: Validity of the reassessment and addition of deemed dividend The ITAT found that the A.O.'s belief regarding the assessment of deemed dividend was without legal basis after a high court decision clarified the law retrospectively. The decision confirmed that the deemed dividend could only be assessed in the hands of the shareholder, not the recipient company. The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the assessment was bad in law, rendering the consideration of additions infructuous. Issue 3: Disposal of the assessee's appeal on merits The Revenue's grievance regarding the non-disposal of the assessee's appeal on merits was addressed by the ITAT. Since the CIT(A) had held the assessment as bad in law, the ITAT found no infirmity in his decision to not consider the appeal on merits. Consequently, the ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s order. In conclusion, the ITAT upheld the CIT(A)'s decision, ruling the reopening of assessment as bad in law due to a subsequent high court decision clarifying the assessment of deemed dividend. The ITAT dismissed the Revenue's appeal, finding no infirmity in the CIT(A)'s order and endorsing the decision that the assessment was invalid.
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