2020 (3) TMI 678 - AT - Income Tax

Assessment Order Quashed, Appeals Allowed, Penalty Dismissed, Shareholders Proceeding Upheld

Business India Versus ACIT Circle 12 (1), Mumbai

Business India Versus ACIT Circle 12 (1), Mumbai - TMI Issues Involved:1. Legality of reopening the assessment.2. Taxability of amounts received from Business India Publications Limited as deemed dividend.3. Directions under Section 150(1) of the Income Tax Act.4. Penalty appeals for AY 2007-08 and 2008-09.Detailed Analysis:1. Legality of Reopening the Assessment:The primary issue was whether the reopening of the assessment was lawful. The assessee filed its return on 30.10.2007, and the original assessment under Section 143(3) was completed on 31.12.2009. The assessment was reopened based on information received from JCIT (OSD) regarding deemed dividend under Section 2(22)(e) of the Income Tax Act. The assessee contended that the reasons for reopening were already available to the AO during the original assessment, and no new material had come to light. The CIT(A) dismissed this ground, stating that the reopening was within four years and not a case of 'change of opinion.' However, the Tribunal found that the AO had failed to dispose of the objections raised by the assessee before completing the reassessment, violating the precedent set in GKN Driveshafts (India) Ltd vrs. ITO (259 ITR 19) (SC). Consequently, the assessment order was quashed.2. Taxability of Amounts Received as Deemed Dividend:The AO had applied Section 2(22)(e) to tax amounts received from Business India Publications Limited as deemed dividend in the hands of the assessee. The CIT(A) deleted the additions on merit, observing that deemed dividend provisions apply only to shareholders, not beneficiaries. However, the CIT(A) directed the AO to initiate proceedings against the shareholders under Section 150(1). The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO had not properly investigated whether the amounts were business advances or other advances and whether they were chargeable in the hands of the beneficiary or the shareholder.3. Directions under Section 150(1):The CIT(A) directed the AO to initiate proceedings against the shareholders under Section 150(1) of the Act. The Tribunal noted that the CIT(A) had correctly observed that deemed dividend provisions apply to shareholders and not beneficiaries. This direction was upheld as it was in line with the legal precedents.4. Penalty Appeals for AY 2007-08 and 2008-09:The assessee had also filed penalty appeals for AY 2007-08 and 2008-09. Since the CIT(A) had deleted the additions on merit, the penalty appeals became infructuous. The Tribunal dismissed these penalty appeals, noting that they were filed as a precautionary measure and were no longer relevant.Conclusion:The Tribunal quashed the assessment order for AY 2007-08, holding that the AO had not disposed of the objections raised by the assessee before completing the reassessment. The appeal for AY 2008-09 was similarly allowed. The penalty appeals for both years were dismissed as infructuous. The Tribunal upheld the CIT(A)'s direction to initiate proceedings against the shareholders under Section 150(1). The appeals in ITA No. 3803 & 3805/Mum/2018 were partly allowed, while those in ITA No. 3804 & 3806/Mum/2018 were dismissed.