2017 (8) TMI 489 - HC - Income Tax

Reopening of assessment - Deemed dividend u/s 2(22)(e) - Held that - The petitioner has produced the audited accounts in the balancesheet which we have perused. The amount in question is shown as a demand to the said company. Loan is an advance made by the petitioner to the said company. The stand taken by the Assessing Officer in the reasons recorded that such sum was received by the petitioner from the company by way of a loan, is thus even otherwise not correct. We have therefore proceeded on such basis. If that be so, the reason for reopening the assessment completely lacked validity. The sole ground to reopen the assessment was that the loan received by the petitioner from private company should be treated as a deemed dividend in terms of section 2(22)(e) of the Act. When on facts the petitioner is able to show that the amount in question was advanced by the petitioner to the company and was not received by the company by way of a loan, section 2(22)(e) of the Act would have no applicability. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice for reopening assessment for the assessment year 2010-11 based on section 2(22)(e) of the Income Tax Act, 1961.

Analysis:

The petitioner challenged a notice issued by the Assessing Officer to reopen the assessment for the assessment year 2010-11, citing transactions with a private company. The notice alleged that the petitioner received loans from the company, which should be treated as dividends under section 2(22)(e) of the Income Tax Act, 1961. The Assessing Officer claimed that the petitioner understated income by not declaring the loans as dividends. The petitioner raised objections, stating that the sum in question was advanced by them to the company, not received as a loan. The Assessing Officer did not address this assertion in their order or affidavit. The petitioner provided audited accounts showing the amount as a demand to the company, confirming it was an advance made by them. As the funds were not received as a loan, section 2(22)(e) did not apply. The Court found the reason for reopening the assessment lacked validity and set aside the notice, allowing the petition.

In conclusion, the judgment focused on the validity of the notice to reopen the assessment based on section 2(22)(e) of the Income Tax Act, 1961. The Court emphasized that the Assessing Officer's assertion that the petitioner received loans from the company was incorrect, as the amount in question was actually an advance made by the petitioner to the company. Since the funds were not received as a loan, section 2(22)(e) did not apply, rendering the notice for reopening the assessment invalid. The Court allowed the petition and disposed of the case in favor of the petitioner.