2021 (2) TMI 177 - AT - Income Tax

Tribunal Upholds Deletion of Deemed Dividend & Quashes Reassessment

D.C.I.T, Circle-2 (4), Ahmedabad. Versus Shri Jateen Madanlal Gupta

D.C.I.T, Circle-2 (4), Ahmedabad. Versus Shri Jateen Madanlal Gupta - TMI Issues Involved:1. Deletion of addition of Rs. 2,62,33,800/- made on account of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.2. Validity of reassessment proceedings under section 147 read with section 143(3) of the Income Tax Act, 1961.Detailed Analysis:1. Deletion of Addition of Rs. 2,62,33,800/- Made on Account of Deemed Dividend Under Section 2(22)(e):The Revenue contested the deletion of the addition of Rs. 2,62,33,800/- by the CIT (A), which was initially made by the AO as deemed dividend under section 2(22)(e) of the Income Tax Act, 1961. The assessee, an individual with income from salary, rent, interest, and short-term capital gain, held significant shares in JP Infrastructure Pvt. Ltd., Gujarat Mall Management Company Pvt. Ltd., and Dev Infratrade Pvt. Ltd. The AO considered the loans advanced by JP Infrastructure Pvt. Ltd. to Dev Infratrade Pvt. Ltd. and Gujarat Mall Management Company Pvt. Ltd. as deemed dividends. However, the assessee argued that there were no accumulated profits in JP Infrastructure Pvt. Ltd. at the time of advancing the loans, and the loans were inter-corporate deposits (ICD) in the normal course of business. The CIT (A) accepted the assessee's contentions, noting that the loans were ICDs and there were no accumulated profits, thus the provisions of section 2(22)(e) were not applicable. The Tribunal upheld the CIT (A)'s decision, emphasizing that no benefit accrued to the assessee from the loans, and the loans were indeed ICDs.2. Validity of Reassessment Proceedings Under Section 147 Read with Section 143(3):The assessee challenged the reassessment proceedings initiated under section 147 read with section 143(3) on the grounds that there was no fresh tangible material available with the AO and the reasons for reopening were based on incorrect facts and assumptions. The AO initiated reassessment proceedings based on the observation that JP Infrastructure Pvt. Ltd. had extended loans to companies in which the assessee had substantial interest, thereby attracting the provisions of deemed dividend under section 2(22)(e). The assessee argued that the reasons recorded for reopening were factually incorrect, as the assessee did not hold shares in Aryan Arcade Pvt. Ltd., and the amounts mentioned were incorrect. The Tribunal found that the AO did not have any new material to justify the reopening and had not applied his mind properly, leading to the conclusion that the reassessment proceedings were invalid. Consequently, the Tribunal quashed the reassessment proceedings.Conclusion:The Tribunal dismissed the Revenue's appeal and upheld the deletion of the addition of Rs. 2,62,33,800/- made on account of deemed dividend under section 2(22)(e). Additionally, the Tribunal allowed the assessee's cross-objection, quashing the reassessment proceedings under section 147 read with section 143(3) due to the lack of fresh tangible material and incorrect factual basis for reopening.