2019 (11) TMI 921 - AT - Income Tax

Reopening of assessment u/s 147 - assigning proper reasons and justification - Deemed dividend addition u/s 2(22)(e) - HELD THAT - AO is in possession of tangible incriminating material that assessee had received loans/advances from its subsidiary company namely M/s Empee Distilleries Limited in which assessee held 41.78% shares and the said subsidiary company possessed accumulated profits to the tune of ₹ 6,69,15,506/- , during year under consideration , thus, the assessee has infringed provisions of Section 2(22)(e) - assessee on its part has not included in its return of income , the aforesaid amount as deemed dividend as its income chargeable to tax being hit by provision of Section 2(22)(e) - AO might have received aforesaid tangible information as to escapement of income chargeable to tax from records itself before it but the same is valid for invocation of provisions of Section 147 as there is no estoppel against law, more-so provisions of Section 147 are invoked within four years from the end of assessment year and proviso to Section 147 is not applicable . Thus, in our considered view, the AO has rightly invoked provisions of Section 147 of the 1961 Act in reopening the concluded assessment and we uphold reopening of the concluded assessment by the AO on legal ground. Deemed dividend addition u/s 2(22)(e) - Profit on sale of profits on sale of Palakkad unit shall be included while computing accumulated profits for making disallowance u/s 2(22)(e) unless it falls into exception as provided under Explanation 1 to Section 2(22)(e). Thus, we direct AO to verify this limited point as to whether capital gains on sale of Palakkad unit falls in the exempted period per Explanation 1 to Section 2(22)(e) of the 1961 Act or not and then to bring to tax said amount in the hands of the assessee u/s 2(22)(e). Thus, on our considered view, the assessee does not have any case on merit too . The assessee fails in this appeal. We order accordingly.

Issues Involved:

1. Assumption of jurisdiction under Section 147 of the Income Tax Act.
2. Validity and timing of the reassessment order.
3. Taxability of deemed dividend under Section 2(22)(e) of the Income Tax Act.
4. Applicability of the provisions of Section 2(22)(e) to the transactions.
5. Principles of natural justice and opportunity for hearing.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 147 of the Income Tax Act:

The assessee challenged the reopening of the assessment under Section 147, arguing that no tangible material came into the possession of the Assessing Officer (AO) to justify the reassessment. The Tribunal, however, upheld the reopening, noting that the AO had valid reasons to believe that income had escaped assessment. The Tribunal referenced the Supreme Court's decision in *Raymond Woollen Mills Ltd. v. ITO*, which established that sufficiency or correctness of the material is not to be considered at the stage of reopening. The Tribunal also cited *ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd.*, emphasizing that the AO only needs a prima facie reason to believe that income has escaped assessment.

2. Validity and Timing of the Reassessment Order:

The reassessment was initiated within four years from the end of the assessment year, making the proviso to Section 147 inapplicable. The Tribunal noted that the original assessment was completed under Section 143(3), and the reopening was within the permissible time frame. The Tribunal referenced *Rabo India Finance Ltd. v. DCIT*, which supports reopening based on tangible material found during subsequent assessment proceedings.

3. Taxability of Deemed Dividend under Section 2(22)(e):

The AO had added ?5,45,76,988/- as deemed dividend under Section 2(22)(e), which the assessee received as a loan from its subsidiary, M/s Empee Distilleries Ltd. The Tribunal upheld this addition, noting that the subsidiary had accumulated profits far exceeding the loan amount. The Tribunal emphasized that Section 2(22)(e) aims to prevent the distribution of accumulated profits in the guise of loans to evade taxes.

4. Applicability of the Provisions of Section 2(22)(e) to the Transactions:

The assessee argued that the transactions were for business purposes and governed by commercial expediency, thus falling outside the purview of Section 2(22)(e). However, the Tribunal found no cogent evidence to support this claim. The Tribunal highlighted that mere statements without substantive evidence are insufficient to prove business expediency. The Tribunal referenced *Chunibhai Ranchhodbhai Dalwadi v. ACIT*, which supports the inclusion of such loans as deemed dividends when no business expediency is demonstrated.

5. Principles of Natural Justice and Opportunity for Hearing:

The assessee contended that there was no proper opportunity given before passing the impugned order, violating the principles of natural justice. However, the Tribunal did not find merit in this argument, as the assessee had the opportunity to present its case during the appellate proceedings.

Conclusion:

The Tribunal dismissed the appeal, upholding the reopening of the assessment under Section 147 and the addition of ?5,45,76,988/- as deemed dividend under Section 2(22)(e). The Tribunal directed the AO to verify whether the capital gains on the sale of the Palakkad unit fall within the exempted period per Explanation 1 to Section 2(22)(e). The appeal was dismissed in its entirety.

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