Tribunal upholds reassessment under Sec 147, deems substantial part of business not majority. Deletion affirmed.

The Tribunal upheld the validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act, dismissing the assessee's objections. Additionally, the deletion of the deemed dividend addition of Rs. 1,12,05,965/- was affirmed based on the interpretation that "substantial part" of business does not necessitate being the majority. The decision was rendered on 11th Oct., 2017.

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Issues Involved:
1. Validity of reopening of assessment under section 147 of the Income Tax Act.
2. Deletion of addition of Rs. 1,12,05,965/- as deemed dividend under section 2(22)(e) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147 of the Income Tax Act:
The assessee challenged the reassessment proceedings on three grounds:
- The assessment was reopened on the direction of a superior authority.
- The Assessing Officer (AO) did not apply his own mind while reopening the assessment.
- The reopening was based on a change of opinion.

The Tribunal examined these claims and found:
- The information for reopening was sent by the Addl. CIT in his capacity as the AO of another entity, not as a superior authority. Therefore, the reopening was not directed by a superior authority.
- The AO had recorded reasons to believe that income had escaped assessment based on the information received and had applied his mind to the facts.
- There was no change of opinion as the original assessment did not consider the issue of deemed dividend under section 2(22)(e).

The Tribunal concluded that the reassessment proceedings were validly initiated, rejecting the assessee's cross objections.

2. Deletion of Addition of Rs. 1,12,05,965/- as Deemed Dividend under Section 2(22)(e) of the Income Tax Act:
The AO added Rs. 1,12,05,965/- as deemed dividend, asserting that the advances received by the assessee from M/s. G.D. Goenka Tourism Corporation Limited fulfilled the conditions of section 2(22)(e):
- The assessee was a registered and beneficiary shareholder.
- The assessee held a significant shareholding in the lending company.
- The lending company had accumulated profits.

The AO argued that the exception under section 2(22)(e) did not apply as money lending was not a substantial part of the lender's business.

The CIT(A) deleted the addition, relying on the Bombay High Court's decision in CIT Vs. Parley Plastic Limited, which held that "substantial part" does not mean the majority of the business. The CIT(A) found that the lending company had been receiving interest income regularly, which constituted a substantial part of its business.

The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not present any contrary decision from a higher court. The Tribunal agreed that the term "substantial part" does not necessarily mean the majority, aligning with the interpretation provided by the Bombay High Court.

Conclusion:
Both the appeal of the Revenue and the cross objections of the assessee were dismissed. The reassessment proceedings were deemed valid, and the deletion of the deemed dividend addition was upheld based on the interpretation that "substantial part" of business does not require being the majority. The decision was pronounced on 11th Oct., 2017.

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