2015 (8) TMI 650 - AT - Income Tax

Reopening of assessment - addition made on account of deemed dividend under S.2(22)(e) - Held that - Reasons recorded by the AO that it had come to the notice during the course of survey operations carried out under S.133A of the Act in the case of M/s.Aster Infrastructure Private Limited on 25.1.2011 that the claim of the assessee of having incurred loss in the proprietary concern of M/s. Aster Indsutry was bogus in as much as the staff services claimed to be rendered by the said proprietary concern to M/s. M/s.Aster Private Limited were not actually rendered. In his statement recorded during the course of survey, Shri A.Srinivasa Prasad, CEO of M/s. Aster P. Ltd. only admitted that the proprietary concern, M/s. Aster Industries was not only a name lender, but also surrendered additional income in the hands of M/s. Aster P. Ltd. on account of payment claimed to be made to the proprietary concern, thereby accepting it to be bogus. This entire information had come to the possession of the Assessing Officer as a result of survey carried out on 25.1.2011 in the case of M/s.Aster Private Limited, only after completing the scrutiny assessment in the case of the assessee on 12.11.2009, and since the said assessment was reopened by him on the basis of such information coming to his possession subsequently, we are unable to agree with the contention of the learned counsel for the assessee that the reopening of assessment made by the Assessing Officer was based merely on change of opinion. - Decided against assessee. Deemed dividend under S.2(22)(e) - Held that - A perusal of the relevant portion of the assessee s written submissions filed before the learned CIT(A) clearly shows that the business connection between the M/s. Aster P. Ltd. and M/s. Aster Infrastructure P. Ltd. was clearly established by the assessee on the basis of analysis made of the relevant transactions between the said two companies and the nature of business transactions and dealings between the said two companies was also explained by the assessee by pointing out that M/s. Aster P. Ltd. was supplying towers and antennas, which were regularly purchased by M/s. Aster Infrastructure P. Ltd. for the purpose of its business of providing infrastructure services to telecom operators. M/s. Aster P. Ltd. was also providing related services to M/s. Aster Infrastructure P. Ltd. such as installation of towers and antennas, and their operations and maintenance, etc. It was also pointed out by the assessee in the written submissions filed before the learned CIT(A) that the regular fund transfers between the two companies were made with respect to supply of material, towers, shelters, labour, services at various sites etc. All these transactions were duly reflected in the running accounts maintained in the books of account. It appears that the learned CIT(A) however, has not appreciated this explanation in proper perspective and simply brushed aside the same by saying that there was no documentary evidence to support and substantiate it. CIT(A) observation that even if the relevant transactions are in the nature of business transactions, the provisions of S.2(22)(e) are still attracted as rightly contended by assessee, this conclusion drawn by the learned CIT(A) is contrary to the various judicial pronouncements including the judgment of the Hon ble Delhi High Court cited by him and this position is not disputed by the Learned Departmental Representative. For instance, the Hon ble Delhi High Court in the case of CIT V/s. Creative Dyeing & Printing Ltd. (2009 (9) TMI 43 - DELHI HIGH COURT) held that the amount advanced to assessee company by another company having common directors not being a loan, but an advance for business transaction which is to be adjusted against the moneys payable by the latter to the assessee in subsequent years, does not fall within the definition of deemed dividend under S.2(22)(e). It was held that the amount advanced for business transaction between parties, are not such to fall within the definition of deemed dividend under S.2(22)(e). This proposition is reiterated in the case of CIT V/s. Alpex Exports Pvt. Ltd. (2014 (4) TMI 237 - DELHI HIGH COURT) wherein it was held that trade advances which are in the nature of money transacted to give effect to commercial transactions would not fall within the ambit of S.2(22)(e). We are of the view that the relevant transactions between M/s. Aster Infrastructure P. Ltd. and M/s. Aster P. Ltd. being in the nature of business/commercial transactions, are outside the purview of S.2(22)(e) and the addition made by the Assessing Officer and confirmed by the learned CIT(A) on account of deemed dividend by treating the said transactions as in the nature of loans and advances is not sustainable. Thus we delete the addition made under S.2(22)(e) - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 148.
2. Addition made under Section 2(22)(e) on account of deemed dividend.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148:

The assessee contested the reopening of the assessment, arguing it was based on a change of opinion since the original assessment under Section 143(3) had already accepted the income declared. The assessee claimed that the business of M/s. Aster Industries existed and provided staff services to M/s. Aster Pvt. Ltd., and that the reopening was based solely on statements without corroborative evidence.

However, the tribunal noted that the reopening was based on new information obtained during a survey under Section 133A, which revealed that M/s. Aster Industries did not provide any staff services to M/s. Aster Pvt. Ltd. The CEO of M/s. Aster Pvt. Ltd. admitted that M/s. Aster Industries was merely a name lender. This information was not available during the original assessment, thus the reopening was not considered a change of opinion but based on fresh material. The tribunal upheld the validity of the reopening, dismissing the preliminary issue raised by the assessee.

2. Addition under Section 2(22)(e) on Account of Deemed Dividend:

The assessee argued that the transactions between M/s. Aster Pvt. Ltd. and M/s. Aster Infrastructure Pvt. Ltd. were regular business transactions and not loans or advances, thus not attracting the provisions of Section 2(22)(e). The assessee provided detailed explanations and ledger accounts showing these transactions were for business purposes like supply of towers, antennas, and related services.

The tribunal found merit in the assessee's argument, noting that the transactions were recorded in the books of accounts and involved regular business dealings. It was observed that similar transactions in earlier years did not attract additions under Section 2(22)(e). The tribunal concluded that the transactions were indeed business transactions and not loans or advances. The tribunal also noted that the CIT(A)'s conclusion that business transactions could still attract Section 2(22)(e) was contrary to judicial pronouncements, including those from the Delhi High Court, which held that trade advances for business transactions do not fall within the definition of deemed dividend.

Thus, the tribunal deleted the addition made under Section 2(22)(e) by the Assessing Officer and confirmed by the CIT(A), allowing the grounds raised by the assessee.

Conclusion:

The appeal was partly allowed, with the tribunal upholding the validity of the reopening of the assessment but deleting the addition made under Section 2(22)(e) on account of deemed dividend, recognizing the transactions as regular business dealings.