Tribunal quashes reassessment based on borrowed satisfaction & deletes deemed dividend addition.

The Tribunal quashed the initiation of reassessment proceedings under section 147/148, finding it based on borrowed satisfaction and mere suspicion. Additionally, the Tribunal deleted the addition of Rs. 7,48,07,150/- as deemed dividend under section 2(22)(e), determining that the transaction was a business transaction and not a loan or advance.

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Issues Involved:
1. Validity of initiation of reassessment proceedings under section 147/148 of the IT Act.
2. Addition of Rs. 7,48,07,150/- as deemed dividend under section 2(22)(e) of the IT Act.

Issue-wise Detailed Analysis:

1. Validity of Initiation of Reassessment Proceedings under Section 147/148 of the IT Act:

The assessee challenged the initiation of reassessment proceedings on multiple grounds, primarily citing non-compliance with the Supreme Court's directions in the case of GKN Driveshaft India Ltd. vs. ITO and various High Courts. The assessee argued that the notice under section 148 was issued without proper sanction, without any reason to believe, and without any application of mind. The assessee contended that the AO did not allow sufficient time to challenge the order disposing of the objections, thus rendering the reassessment order invalid.

The Revenue countered that the AO disposed of the objections promptly and within the shortest possible time, given that the reassessment order had to be passed before the time-barred date of 31st December 2017. The AO issued the notice under section 148 on 9th March 2017, and the assessee filed the return of income on 25th April 2017. The AO supplied the recorded reasons for reopening the assessment on 18th May 2017, and the objections raised by the assessee on 4th December 2017 were disposed of on 7th December 2017.

The Tribunal held that the delay in raising objections was attributable to the assessee, and the AO had no option but to frame the reassessment before the time-barred date. Hence, there was no violation of directions, and the objection to the reassessment order was found to lack substance and merit.

The second argument by the assessee was that the AO reopened the assessment without any reason to believe and without any application of mind, based on borrowed satisfaction from the information forwarded by the AO of M/s. Saj Properties Pvt. Ltd. The Tribunal noted that the AO formed the belief based on information received and did not conduct any verification or enquiry regarding the nature of the transaction or the accumulated profits of M/s. Saj Properties Pvt. Ltd. The Tribunal found that the reopening was based on borrowed satisfaction and mere suspicion, which is not permissible. The Tribunal quashed the initiation of proceedings under section 148, deeming it unsustainable in law.

2. Addition of Rs. 7,48,07,150/- as Deemed Dividend under Section 2(22)(e) of the IT Act:

The assessee argued that the amount received was an advance under an agreement to sell immovable property to M/s. Saj Properties Pvt. Ltd., which does not fall within the ambit of a loan or advance under section 2(22)(e). The assessee maintained two separate accounts in the company's books: one for interest-bearing advances and another for the advance received against the sale of property. The assessee contended that the AO incorrectly merged these accounts and treated the peak amount as deemed income.

The Revenue argued that the agreement to sell was a self-serving document and an afterthought, as it was not registered, and the land was not transferred to M/s. Saj Properties Pvt. Ltd. The Revenue also pointed out inconsistencies in the assessee's explanations regarding the nature of the Rs. 11.70 crore received.

The Tribunal found that the assessee had a credit balance of Rs. 6,07,75,000/- as on 1st April 2009, which was repaid along with interest during the year. The Tribunal noted that the transaction was a business transaction for the purchase of land and not a loan or advance. The Tribunal relied on various decisions, including Ashok Kumar Agarwal vs. ACIT and CIT vs. Om Prakash Suri, which held that advances for business purposes do not fall under section 2(22)(e). The Tribunal concluded that the addition made by the AO was not sustainable, as the transaction was a business transaction and not a loan or advance. The Tribunal deleted the addition made by the AO.

Conclusion:

The Tribunal quashed the initiation of reassessment proceedings under section 147/148, finding it based on borrowed satisfaction and mere suspicion. The Tribunal also deleted the addition of Rs. 7,48,07,150/- as deemed dividend under section 2(22)(e), holding that the transaction was a business transaction and not a loan or advance.

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