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TMI Blog2021 (8) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... , i.e., 65.6% share in M/s Joint Investment Pvt. Ltd. and 27.90% share in M/s GI Power Corporation Ltd. as on 31st July, 2007. We find, the amount of ₹ 18.75 crore had been shown under the grouping unsecured loans by both these companies in their balance sheets - while arguing the case of GI Power Corporation Ltd. before the CIT(A), Jammu, the said assessee itself had accepted that it had received loan from M/s Joint Investment Pvt. Ltd. No force in the arguments of the ld. Counsel for the assessee that these are ICDs as per the resolutions and correspondences, etc., since the two concerns are closely related to each other and the transactions are not at arm s length. It is within their exclusive knowledge as to why they have treated the same as ICDs and argued before CIT(A) Jammu in the case of GI Power Corporation Ltd., as loan. Therefore, the argument of the ld. Counsel that provisions of section 2(22)(e) are not applicable does not hold good. CBDT Circular by the ld. Counsel is also not applicable since the said Circular relates to trade advance whereas in the instant case, it is deposit or loan and not a trade advance. Since the ld.CIT(A) while sustaining the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) is illegal. f) The AO has not applied his mind to the direction of the CIT(A) and has simply gone by the satisfaction of the ACIT, Circle-2, Jammu and CIT(A), Jammu. He has nowhere independently stated in the reasons that ₹ 18.75 crore is a loan/advance and not inter-corporate deposit and, hence, section 2(22)(e) was attracted. g) The satisfaction of the AO is not his satisfaction, but, borrowed satisfaction. h) Further, it is a case of reason to suspect and not reason to believe. 5. However, the AO rejected all the objections raised by the assessee challenging the validity of the reassessment proceedings. Rejecting the various explanations given by the assessee and relying on the decision of the Hon ble Delhi High Court in the case of CIT vs. Ankitech Private Ltd., vide order dated 16th May, 2011, the AO made addition of ₹ 18,75,00,000/- u/s 2(22)(e) of the Act on the ground that Shri Anil Nanda was a substantial shareholder of both the payer and the payee company and, therefore, the sum/deposit of ₹ 18.75 crore taken by M/s GI Power Corporation Ltd. from M/s Joint Investment Pvt. Ltd., is in the nature of advance or loan and this sum/deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind, and not on the basis of directions of CIT(A), Jammu. The Hon'ble ITAT has directed to delete the observation of the CIT(A), Jammu in respect of appellant. Information received from the CIT(A) does not constitute a direction to the AO. The AO has duly applied his mind on the basis of information with him. Administratively the AO is not under the CIT(A). It is because of this reason, approval u/s 151 is required to be taken from the administrative CIT of the AO. 5.6.6. The AR of the appellant has contended that exactly which material facts had not been disclosed by the appellant has not been mentioned by the AO in the reasons and that the onus was on revenue to prove that there was failure on the part of the appellant to fully and truly disclose all material particulars necessary for assessment. It is seen that the AO in the reasons recorded u/s 147 of the Act has clearly mentioned the deemed dividend u/s 2(22) (e) of the Act amounting to ₹ 18.75 crore has escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. 5.6.7 The AR of the appellant has contended that the satisfaction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether the amount was an Inter-corporate Deposit and different from unsecured loan. (2) Whether ICD is beyond the preview of being considered as deemed dividend. (3) Whether the appellant derived any benefit out of the transaction, so as to be taxed by treating the amount as deemed dividend in his hands. 5.7.6 Admittedly, the appellant Sh. Anil Nanda held substantial share in both the companies, i.e. 65.6% share of M/s Joint Investment Pvt. Ltd, and 27.90% shares of M/s G.I. Power Corporation Ltd., as on 31/07/2007. The amount of ₹ 18.75 crore had been shown under the grouping unsecured loans by both the companies in their balance sheets. This issue had been discussed by the CIT(A), Jammu in the appellate order in the case of M/s G.I. Power Corporation Ltd., wherein the CIT(A) had observed that the appellant had itself accepted that it had received loan from M/s joint Investment (P) Ltd. The matter was further examined by the Hon'ble ITAT, Amritsar Bench, which has held that ICD falls under the broader term 'deposit' and therefore cannot be distinguished from loans advances as argued by the appellant. The Hon'ble Bench dismissed the ground of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in detail by the Hon'ble Delhi High Court in the case of M/s Ankitech Pvt. Ltd. 5.8.1 M/s Ankitech Pvt. Ltd. (APL) had common share holders with that of M/s Jakson Generators (P) Ltd (JGPL). M/s Ankitech Pvt. Ltd. (APL) received advance from JGPL by book entry. The AO treated this as deemed dividends However, the Hon'ble High Court affirmed the decision of the ITAT that though the amount received by the assessee (APL) by way of book entry is a deemed dividend within the meaning of Section 2(22) (e) of the Act, the same cannot be assessed in the hands of the assessee company, as it was not a shareholder in the company JGPL. A dividend cannot be paid to a non-share holder. 5.8.2 In this judgement, Hon'ble Court has analyzed the provisions of the section 2(22) (e) of the Act, in detail. Paras 23 to 26, of the judgement is reproduced as under:- 23. It is rightly pointed out by the Bombay High Court in Universal Medicare (P) Ltd. (supra) that Section 2(22)(e) of the Act is not artistically worded. Be as it may, we may reiterate that as per this provision, the following conditions are to be satisfied: (1) The payer company must be a closely held company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as dividend. The fiction has to stop here and is not to be extended further for broadening the concept of shareholders by way of legal fiction. It is a common case that any company is supposed to distribute the profits in the form of dividend to its shareholders/members and such dividend cannot be given to non-members. The second category specified under Section 2(22)(e) of the Act, viz., a concern (like the assessee herein), which is given the loan or advance is admittedly not a shareholder/member of the payer company. Therefore, under no circumstance, it could be treated as shareholder/member receiving dividend. If the intention of the Legislature was to tax such loan or advance as deemed dividend at the hands of -deeming shareholder, then the Legislature would have inserted deeming provision in respect of shareholder as well, that has not happened. Most of the arguments of the learned counsels for the Revenue would stand answered, once we took into the matter from this perspective. 26. In a case like this, the recipient would be a shareholder by way of deeming provision. It is not correct on the part of the Revenue to argue that if this position is taken, then t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal by raising the following grounds:- 1. On the facts and in the circumstances of the case, the CIT(A) has erred both on facts and in law, in upholding the illegal action without jurisdiction of the AO to issue notice and reopen the assessment of the appellant under section 147 and the perverse order passed by the AO ought to have been vacated and failure to do so has vitiated the impugned order as the entire action, order and notice for reassessment are illegal, without jurisdiction, unsustainable and hence liable to be vacated as being nonest in law. 2. The CIT(A) has erred in not being guided by correct factual and legal position, records, and binding precedents placed before him and has passed the impugned order erroneously which is therefore liable to set aside and quashed. 3. The CIT(A) has erred in not being guided by correct factual and legal position, and the issue of Notice u/s 148 being illegal and without jurisdiction, the entire re-assessment proceeding were void-ab-initio and hence ought to have been quashed by him and failure to do so has vitiated the impugned order. 4. The CIT (A) has also erred in upholding the re-assessment order without appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rongly confirmed by the CIT(A. 11. The authorities below have also erred in issuing/confirming Notice u/s 147 dated 28.3.2014 which is also the date of order of CIT(A), Jammu in the case of G.I. Power Corporation Ltd. wherein he has granted relief to that assessee and the A O in Delhi could not have got the order dated 27.3.2014 and could not have recorded reasons, without any application of mind and could not have obtained the necessary approvals from the competent authority to issue notice u/s 148 on 28.3.2014 and hence, the entire case is false and fabricated by the Revenue which is totally unsustainable and unauthorized by law. 12. The appellant craves leave to raise additional grounds and file necessary paper book before the Hon'ble Tribunal takes up hearing of the case and records of both the lower authorities be directed to be placed before the Tribunal by the Revenue and the appeal be taken up for early out-of-turn hearing in view of the huge illegal demand and harassment caused to the appellant by the authorities below. It is prayed accordingly. 9. The ld. Counsel for the assessee strongly challenged the order of the CIT(A) in upholding the validit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO while recording reasons and the approval has been given in a mechanical manner. 11. The ld. Counsel for the assessee, relying on various decisions, submitted that the reassessment proceedings are also not in accordance with law since which facts are not disclosed in the return are not stated in the reasons and the reassessment proceedings were initiated on the basis of borrowed satisfaction. The ld. Counsel for the assessee drew the attention of the Bench to reasons recorded and submitted that the same was based on borrowed satisfaction. Further, the onus is on the Revenue to prove the failure of the assessee to disclose fully and truly all material facts necessary for completion of assessment, which, in the instant case, has not been discharged. 11.1 The ld. Counsel for the assessee in his next plank of arguments, while challenging the validity of the re-assessment proceedings, submitted that the ld.CIT(A), in para 6 of the order raises a suspicion that income u/s 2(22)(e) might have escaped, but, the AO had to examine the facts to ascertain the same only when such income has escaped. He could have reasons to believe escapement, but, in the instant case, the AO d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Counsel for the assessee submitted that details of ICD clearly indicate that out of ₹ 19,90,00,000/-, ₹ 18.75 crore were taken from M/s Joint Investment Pvt. Ltd. The grouping of inter-corporate deposit under the head Unsecured loan otherwise also should not make any difference because the intention at the time of transaction is most important which is reflected from narration given in the balance sheet itself besides the acknowledgement given by the assessee for the ICD to M/s Joint Investment Pvt. Ltd. He accordingly submitted that it is clearly established that the assessee received the inter-corporate deposit from M/s Joint Investment Pvt. Ltd. and not loan or advance and, therefore, section 2(22)(e) is not attracted. Similarly, M/s Joint Investment Pvt. Ltd. has also shown the sum given to M/s GI Power Corporation Ltd. under the head Current assets Loans and Advances in Schedule-F of its balance sheet. He accordingly submitted that since inter-corporate deposit is different from loan or advance and since section 2(22)(e) covers only loan or advance and not deposit, it cannot be invoked in the case of the assessee since the transaction pertains to inter-cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 Seamist Properties Pvt. Ltd. vs Ito (2005) 95 TTJ Mum 201 ITAT, MUMBAI Which material fact were not discussed by assesse 21 62-67 8 CIT vs Gupta Abhushan Pvt. Ltd ita no. 1079/2008,ITA 913/2008 ITA 908/2008 Date of order-22/10/2008 Delhi High Court Mere reason to suspect cannot be equal with reason to believe 5 68-70 9 CIT vs Universal Medicare Private ITA NO. 2264 of 2009 Date of order 22/0.3/2010 . _ _ Bombay High Court Money was not advance for the benefit of the assessee is not Dividend. 71-75 10 Usha international 147 change opinion ITA NO. 2026/2010 Date of order-21/09/2012 Delhi High Court Assesse disclosed full particulars at the time of the assessment-Sec 147 cannot be invoked 76-123 11 Transworl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lent citations: Central 1987 AIR 1897, 1986 SCR (2)1107 Date Of order 08/05/1986 Supreme Court of India 287-292 21 Acit, New Delhi vs Mrs. Seema Devi Bansal, New Delhi ITA No. 6462/Del/2014 Date of Order- 1 8/07/701 8. ITAT DELHI Business Transaction is not deemed Dividend u/s 2(22)(e) 293-301 22 Maveric Electronics v ITO Delhi ITAT ITA No. 1835/Del/2014 Date of Order: 23/01/2014 ITAT DELHI Section 151 non application of mind by CIT for approval 7 302-313 23 SUNIL AGARWAL VS ITO Delhi ITAT ITA No. 988/Del/2018 Date of Order: 16/11/2017. ITAT DELHI Section 151-Commission Acted Mechanically 7 and 8 314-344 24 ACIT V KMS ASSOCIATES PVT LTD- ITAT Delhi ITA 4927/Del/2017 Date of Order: 09/05/2018 ITAT DELHI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has validly reopened the assessment. In the reasons recorded, the AO has mentioned that the assessee has filed the return of income declaring income of ₹ 8,25,64,675/-. While reopening the assessment, the AO has also considered the decision of jurisdictional High Court in the case of CIT vs. Ankitech Pvt. Ltd. Further, the AO has followed all legal requirements necessary for reopening of the assessment such as recording of reasons, obtaining of approval from the PCIT, supply of reasons to the assessee, disposal of the objections, etc., and, therefore, it cannot be said that the reopening is not in accordance with law. 14.1 So far as the merit of the case is concerned, he submitted that the ld.CIT(A) has given valid reasons while sustaining the addition made by the AO. He submitted that it is not a case of trade advance, but, a loan transaction between two group concerns where the assessee is having substantial shareholding in both the concerns. The balance sheet shows loans and advances and not ICD. Since the transactions are between two closely related parties and are not at arm s length, therefore, the arguments advanced by the ld. Counsel do not hold good. He acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had admitted before CIT(A) Jammu that it has received loan from M/s Joint Investment Pvt. Ltd. Therefore, the assessee cannot take two different stands i.e., before the CIT(A), Jammu that it has accepted loan from Joint Investment Pvt. Ltd. and before this Bench that it is ICD. 17.1 The Hon ble Delhi High Court in the case of CIT vs. Ankitech Pvt. Ltd.,held that if the advance is by or to a concern in which the shareholder is substantially interested, then, the shareholder is deriving an indirect advantage or benefit through such concern. Therefore, the AO, in the instant case, in our opinion, has validly reopened the assessment after due application of mind to the information received from the higher authorities. 17.2 So far as the argument of the ld. Counsel that the reopening was made on the direction of the CIT(A), Jammu is concerned, the same, in our opinion, is not correct. The CIT, Jammu had sent the information to the concerned CIT, having jurisdiction over the assessee and the concerned CIT, thereafter has sent the same to the DCIT and, therefore, there is no direction by the CIT(A), Jammu to the AO for initiation of reassessment proceedings. For the sake of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of sub-section (6),- ( a ) any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order; or ( b ) any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, if such other person was given an opportunity of being heard before the said order was passed. 18.2 A plain reading of the above provisions shows that notice u/s 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by a Court in any proceeding under an ..... 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