2023 (11) TMI 127 - HC - Income Tax

Reopening of assessment u/s 147 - deemed dividend addition u/s 2(22)(e) - HELD THAT - As perusal of the reasons recorded indicate that the basis and the reasons to believe for the revenue to reopen the assessment would indicate that the reasons to believe were based on scrutiny of the case records, balance-sheet, Profit Loss Account and computation of income. There was no fresh or new tangible material available with the revenue to reopen the assessment. What is evident from the records too is that it was clearly pointed out that the assessee company is not a shareholder of GSEC Aviation Limited from whom the loan has been received.. From the annual accounts annexed to the petition, it is evident that a notice was given under Sec. 142 of the Act, to which the petitioner had responded showing that the shareholder of the companies were original owners and the shares holding not less than 10% of the voting power. Delhi High Court in the case of Ankitech 2011 (5) TMI 325 - DELHI HIGH COURT had held that where loans and advances are given in the normal course of business and transaction in question benefits both, i.e. the payer and the payee companies, the provisions of Sec. 2(22)(e) cannot be invoked. It is well settled in the case of Kelvinator of India 2010 (1) TMI 11 - SUPREME COURT that reason must have a link with the formation of the belief - Decided in favour of assessee.

Summary

Issues involved:
The issues involved in this case are the validity of the notice dated 27.03.2021 issued under section 148 of the Income Tax Act, 1961, and the order disposing of the objections.

Judgment Summary:

Issue 1: Reopening of Assessment
The petitioner challenged the notice dated 27.03.2021 issued under section 148 of the Income Tax Act, 1961, and the subsequent order disposing of the objections. The petitioner argued that there was no escapement of income as all material facts were fully disclosed during the scrutiny assessment for the Assessment Year 2014-15. The petitioner contended that the notice and order were bad in light of the decision in the case of CIT vs. Kelvinator of India Ltd as it was a case of "change of opinion."

Issue 2: Deemed Dividend
The revenue's basis for reopening the assessment was that the loan accepted by the petitioner from GSEC Aviation Ltd. would be treated as deemed dividend under Sec. 2(22)(e) of the Income Tax Act. The petitioner argued that the loan was not received as a shareholder, and therefore, should not be classified as "Dividend." The petitioner relied on legal precedents to support this argument.

Issue 3: Lack of Fresh Tangible Material
Upon considering the submissions, the court found that the reasons to believe for reopening the assessment were based on scrutiny of existing case records, balance-sheet, profit & loss account, and computation of income. There was no fresh or new tangible material available to the revenue to justify the reopening of the assessment. The court also noted that the petitioner was not a shareholder of GSEC Aviation Limited, and therefore, the loan received should not be considered as dividend under section 2(22)(e) of the Act.

Conclusion:
The court quashed and set aside the notice dated 27.03.2021 issued under section 148 of the Income Tax Act, 1961, and the order disposing of the objections. The petition was allowed, and the rule was made absolute to the aforementioned extent.