2021 (7) TMI 145 - AT - Income Tax

ITAT allows appeal, deletes deemed dividend, grants partial relief, sustains enhancement, dismisses grounds on reopening assessment.

The ITAT partly allowed the appeals by directing the deletion of the addition of Rs. 27,50,000 as deemed dividend and providing partial relief on the ... Reopening of assessment u/s 147 - deemed dividend u/s. 2(22)(e) - HELD THAT:- As gone through the written submissions of the assessee placed before there is no iota of any discussion with regard to challenging of reopening of assessment. The challenging of reopening is also not tenable because the assessing officer had tangible materials before reopening the case which was found during the course of survey operation U/s 133(A). In the opinion of the assessing officer there was a reason to believe that the assessee had escaped its income and, therefore, the legal ground raised by the assessee is dismissed. Deemed dividend u/s 2(22)(e) - We direct the AO to delete the addition made by him u/s. 2(22)(e) on account of loan received by the assessee from M/s. Kiran Infertility Centre Pvt. Ltd. on which consideration in the form of interest was paid by the assessee to the benefit of the Company is not sustainable. Accordingly, ground is allowed. Issues Involved:1. Reopening of assessment under section 147/148 of the Income Tax Act.2. Addition of Rs. 27,50,000 as deemed dividend under section 2(22)(e) of the Income Tax Act.3. Enhancement of deemed dividend by Rs. 12,67,295.50 by the CIT(A).4. Alleged lack of opportunity provided by CIT(A) for enhancement of income.Issue-Wise Detailed Analysis:1. Reopening of Assessment under Section 147/148:The assessee challenged the reopening of the assessment under section 147/148. The CIT(A) dismissed this ground as not pressed, noting that the assessee did not provide any discussion or submission on this issue in their written submissions or during the hearing. The ITAT upheld the CIT(A)'s decision, stating that the Assessing Officer had tangible materials found during the survey operation under section 133A, which provided a reason to believe that the assessee had escaped income. Thus, the legal ground raised by the assessee was dismissed.2. Addition of Rs. 27,50,000 as Deemed Dividend under Section 2(22)(e):The AO treated an advance of Rs. 27,50,000 received by the assessee from M/s. Kiran Infertility Centre Pvt. Ltd. as deemed dividend under section 2(22)(e). The assessee argued that the advance was for commercial advantage and not for personal benefit, and interest was charged on the advance, reflected in the P&L Account. The ITAT found that the company was compensated by receiving interest from the directors, and thus, the loan did not attract the provisions of section 2(22)(e). This conclusion was supported by the decision of the ITAT Kolkata in the case of Smt. Sangita Jan Vs. ITO, which held that advances given for the benefit of the company and compensated by interest do not qualify as deemed dividends. Consequently, the ITAT directed the AO to delete the addition of Rs. 27,50,000.3. Enhancement of Deemed Dividend by Rs. 12,67,295.50 by the CIT(A):The CIT(A) enhanced the deemed dividend by Rs. 12,67,295.50, noting that additional advances were made to the assessee, which were not towards any dues like hospital rent or remuneration, and thus, were liable to be included as deemed dividend under section 2(22)(e). The ITAT observed that the company did not charge interest on the debit balance in the hands of the director, and the accounts maintained were not current accounts. The ITAT provided partial relief by excluding the opening balance of Rs. 8,063.25 from the deemed dividend, as it related to the previous year and could not be taxed in the impugned assessment year. The remaining amount of Rs. 12,59,231.75 was sustained.4. Alleged Lack of Opportunity Provided by CIT(A) for Enhancement of Income:The assessee contended that the CIT(A) erred in enhancing the income without providing a proper opportunity. However, the ITAT found that the CIT(A) had issued a notice under section 251, to which the assessee did not respond. Therefore, the ITAT dismissed this ground, concluding that the CIT(A) had provided an opportunity, and the enhancement was justified.Conclusion:The ITAT partly allowed the appeals, directing the deletion of the addition of Rs. 27,50,000 as deemed dividend and providing partial relief on the enhancement by excluding the opening balance of Rs. 8,063.25. The remaining enhancement of Rs. 12,59,231.75 was sustained. The grounds related to the reopening of assessment and the alleged lack of opportunity were dismissed.