2008 (5) TMI 456 - AT - Income Tax

Tribunal Upholds Reopening of Tax Assessment; Confirms Deemed Dividend Additions Under Income-tax Act Sections 147 & 2(22)(e.

The appeals were dismissed by the Tribunal, which upheld the validity of the reopening of the assessment under section 147 of the Income-tax Act, as the ... Validity of the reopening of the assessment u/s 147 - notice u/s 148 was issued after the expiry of 4 years - Borrowed in the course of business between two corporate companies - unsecured loan transactions - loans and advances - Addition made in the income as deemed dividend u/s 2(22)(e). Validity of the reopening of the assessment u/s 147 - notice u/s 148 was issued after the expiry of 4 years - Income escaping assessment - Whether reopening of the assessment is hit by proviso to section 148? - HELD THAT:- We find that whatever conditions are imposed for reopening of the assessment u/s 147 it is with regard to assessment framed under section 143(3) or u/s 147 of the Act. Under section 147, if the assessments are framed within 4 years from the end of the relevant assessment year, it is immaterial whether the assessee has disclosed fully and truly all material facts necessary for his assessment. Assessment can be reopened if the AO has reason to believe that any income chargeable to tax, has escaped assessment. But, after the 4 years, the assessment can only be reopened if it is established that income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to make return u/s 139 or in response to notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Since there is no reference of section 143(1) in proviso to section 147 of the Act, the conditions laid down in proviso for reopening the assessment after 4 years, cannot be imposed for reopening the assessment framed u/s 143(1) of the Act. We, therefore, of the view that CIT(A) has rightly adjudicated the issue in the light of given facts and the judgments referred to before him. Accordingly, confirm the order of the CIT(A) on this issue. Addition in AY 1999-2000 and AY 2000-01 u/s 2(22)( e) - Deemed dividend - loan and advances - HELD THAT:- No doubt, the assessee has purchased the assets from M/s. Sinar Engineering Co. Pvt. Ltd. But, nothing was paid to them. Only a general entry was passed as on 1-4-1999. It is also evident from the record that this amount was shown as loan and advances given to the assessee-company in the books of account of M/s. Sinar Engineering Co. Pvt. Ltd. for AY 1999-2000 and this liability remains outstanding in the next year as on 31-3-2000. This amount was also shown in the assessee’s books of account as receipts from M/s. Sinar Engineering Co. Pvt. Ltd. and remain outstanding as on 31-3-1999. Though the assets were purchased by the assessee, but the cost of it was shown to be as loan and advances in the books of account in both the companies. Since the assessee itself has given a colour of this transaction as loan advances, he cannot take a contrary stand before the revenue authorities. We are of the view that it is not necessary that the payer or the payee must have shareholdings in other company. If the loans and advances are given by one company to other company in which the shareholder is common having sufficient holding or has a beneficial interest in both the companies, provisions of section 2(22)( e) can be invoked. Undisputedly, Mr. Ramesh G. Chabria has 59 shares out of total equity shares of the assessee-company besides having a shareholding of 5,400 shares out of 5,500 equity shares of M/s. Sinar Engineering Co. Pvt. Ltd. Meaning thereby Mr. Ramesh G. Chabria has a beneficial interest in both the companies. We have also carefully examined the order of the Tribunal in the case of Seamist Properties (P.) Ltd.[2004 (8) TMI 323 - ITAT BOMBAY-G], but it was rendered on different set of facts, as such ratio laid down in that case, cannot be applicable to the present facts of the case. In the light of this legal proposition, we are of the view that the CIT(A) has rightly adjudicated the issue in both the appeals. We, therefore, confirm his order. In the result, appeals of the assessee are dismissed. Issues Involved:1. Validity of the reopening of the assessment under section 148 of the Income-tax Act.2. Addition of amounts under section 2(22)(e) of the Income-tax Act as deemed dividend.Issue-wise Detailed Analysis:1. Validity of the Reopening of the Assessment:Facts and Arguments:The first ground in the appeals concerned the validity of the reopening of the assessment on the grounds that the notice under section 148 was issued after the expiry of 4 years. The return of income was processed under section 143(1) and later reopened under section 147 read with section 148 by the Assessing Officer, who believed that income had escaped assessment. The assessee argued that the notice was beyond the time limit as per the proviso to section 149 and that no sanction was obtained from higher authorities. The assessee claimed full disclosure of transactions and amounts payable to M/s. Sinar Engineering Co. Pvt. Ltd., thus invoking the proviso to section 148, which bars issuing a notice after 4 years.CIT(A) Findings:The CIT(A) examined the issue and concluded that the conditions for reopening under section 147 do not apply if the original assessment was not completed under section 143(3). He relied on the Gujarat High Court judgment in Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT, which held that assessments reopened within 4 years do not require the failure of the assessee to disclose material facts. The CIT(A) thus upheld the validity of the reopening.Tribunal's Decision:The Tribunal confirmed the CIT(A)'s order, agreeing that the conditions for reopening under section 147 apply only to assessments framed under section 143(3) or 147. The Tribunal noted that section 143(1) assessments could be reopened within the permissible time without the conditions laid down in the proviso to section 147. Therefore, the reopening of the assessment was valid.2. Addition of Amounts Under Section 2(22)(e) as Deemed Dividend:Facts and Arguments:The second issue involved the addition of Rs. 3,91,471 in the assessment year 1999-2000 and Rs. 11,908 in the assessment year 2000-01 under section 2(22)(e) of the Act. The Assessing Officer noticed liabilities to M/s. Sinar Engineering Co. Pvt. Ltd. in the assessee's balance sheet, which were treated as loans and advances. The assessee argued that the transactions were for asset purchases and not loans, and thus section 2(22)(e) did not apply.CIT(A) Findings:The CIT(A) upheld the Assessing Officer's decision, stating that the provisions of section 2(22)(e) were applicable. The CIT(A) noted the shareholding patterns and concluded that the transactions were loans and advances, thus falling under deemed dividend provisions. The CIT(A) relied on judgments and provisions of the Act to confirm the additions.Tribunal's Decision:The Tribunal agreed with the CIT(A), noting that the assessee treated the transactions as loans and advances in their books. The Tribunal emphasized that section 2(22)(e) applies if there is a common shareholder with substantial interest in both companies. The Tribunal cited the legal provisions and concluded that the loans and advances given by M/s. Sinar Engineering Co. Pvt. Ltd. to the assessee-company were deemed dividends. The Tribunal dismissed the assessee's appeal, confirming the CIT(A)'s order.Conclusion:The appeals were dismissed, upholding the reopening of the assessment and the addition of amounts as deemed dividend under section 2(22)(e) of the Income-tax Act.