TaxTMI 
TaxTMI 
2012 (12) TMI 842
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.... Industries Ltd. It was also noted by him that Shri Rajan K. Lal was common share holder having 55% share holding in assessee company and 21.12% in ITL Industries Ltd. Thus, he was having substantial interest in both the concerns and accordingly AO formed the opinion that provisions of section 2(22)(e) were applicable in respect of loans received by the assessee from ITL Industries Ltd. The AO further noted that M/s. ITL Industries Ltd. was having accumulated profit/reserves and surplus of Rs.97,91,884/- till 31.3.2001 and Rs.1,25,65,756/- till 31.3.2002. Therefore sum of Rs.1,25,65,756/- was assessable as deemed dividend under section 2(22)(e) of the Income tax Act in case of the assessee. AO also noted that the assessee had not furnished share holding pattern in respect of ITL Industries Ltd. for assessment year 2002-03. The assessee had therefore, failed to disclose truly and fully all material facts necessary for assessment. He, therefore, formed the belief that income chargeable to tax to that extent had escaped assessment. Therefore, after recording reasons to the above effect, the AO reopened the assessment by issuing notice under section 148 on 17.10.2008. The assessee chal....
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....m amongst thousands of files lying under his jurisdiction, this could not exonerate the assessee from disclosure of all facts. CIT(A) observed that provisions of section 2(22)(e) were triggered on disclosure of share holding pattern of company where one or more common share holder had substantial interest in both. CIT(A) therefore upheld the legal validity of reopening of the assessment by AO aggrieved by which assessee is in appeal before the Tribunal. 2.3 Before us, the ld. AR argued that original assessment in this case had been completed under section 143(3) on 18.3.2005 and same had been re-opened after expiry of four years from the end of relevant assessment year which was possible only if there was failure on part of the assessee to disclose truly and fully all material facts necessary for assessment in terms of proviso to section 147. In this case, complete details had been disclosed by the assessee. The ld. AR referred to the balance sheet of the assessee placed at page-20 of the paper book in which a sum of Rs.2.00 crores had been shown as deposit received from M/s. ITL Industries Ltd. It was also disclosed that the assessee had made investment in 190510 shares of ITL In....
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....uly and fully necessary for assessment. The AO held that the assessee had not filed truly and fully material facts such as share holding pattern of the assessee and ITL Industries Ltd. which was necessary for application of provisions of section 2(22)(e) as assessee had received loans/advances from its sister concern i.e. ITL Industries Ltd. The case of the assessee is that it had filed all necessary details at the time of original assessment and therefore it was a case of change of opinion and assessment could not be reopened after expiry of four years from the end of the relevant assessment year. 2.6 Before we proceed to adjudicate the issue, it would be appropriate to deal with a preliminary objection raised by the ld. AR regarding reasoning given for re-opening of the assessment. Reason given by AO for application of section 2(22)(e) was that Shri Rajan K. Lal was a common share holder in the assessee company and ITL Industries Ltd. having more than 20% share holding in both the companies and therefore, provisions of section 2(22)(e) were applicable. The ld. AR for the assessee argued that this could not be reason for application of provisions of section 2(22)(e). The provisio....
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....Industries had not been filed before the AO. Though the assessee in the paper book has filed copy of balance sheet of M/s. ITL Industries Ltd., the certificate given in the paper book shows that all documents were made available before CIT(A). Moreover, as per Explanation to section 147 mere production before AO of books of account or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the said section. Therefore, even if the balance sheet of ITL Industries Ltd. had been filed before AO and from which necessary details could have been gathered by AO this does not mean disclosure of information by the assessee within the meaning of the proviso. Since assessee had received loan/advance from ITL Industries Ltd. assessee was required to give details before AO at the time of original assessment that assessee was holding more than 10% of the share capital in ITL Industries Ltd. but, it was not declaring the amount received during the year as deemed dividend because the same was a deposit and not loan/advance. This would have been the true and full disclosure of materials necess....
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....essee to disclose truly and fully all material facts at the time of assessment. Accordingly reopening of the assessment was held invalid. The case of the assessee as discussed earlier is different. 2.9 In view of the fore-going discussion and for the reasons given earlier we do not see any infirmity in the order of CIT(A) holding that re-opening of the assessment was legally valid and accordingly order is upheld on this point. 3. The assessee has also raised disputes on merit of addition made by AO as deemed dividend under section 2(22)(e) of the Income tax Act. On query raised by AO to assess the advance received from ITL Industries as deemed dividend under section 2(22)(e), the assessee submitted that it had given its premises on rent to ITL Industries at Bangalore, Delhi and Madras on monthly rent of Rs.1,50,000/- and deposit of Rs.95,68,938/- in the Financial Year 2000-01. The AO in the assessment order for assessment year 2001-02 under section 143(3) had assessed income as income from house property. During the current year, the assessee had requested ITL Industries to increase the said deposit to Rs.2.00 crores and there would be no rent for the current year. It was pointed....
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.....3.2002 was Rs.1,25,65,756/-. Assessee had also taken loan from ITL Industries Ltd. for Rs.3,21,038/-. Thus total loan taken was Rs.2,03,21,038/-. The AO, therefore, taxed the entire accumulated profit of ITL Industries Ltd. amounting to Rs.1,25,65,756/- as deemed dividend under section 2(22)(e). 3.2 The assessee disputed the decision of AO and reiterated the submissions made earlier that the assessee had taken only deposit in connection with letting out of the premises as assessee needed funds to set up new project and it was not a case of loan or advance. Money had been taken by the assessee in regular course of business and, therefore, provisions of section 2(22)(e) were not applicable. Alternatively it was also submitted that while computing deemed dividend under section 2(22)(e), only accumulated profit of ITL up to 31.3.2001 could be considered and not entire accumulated profit till 31.3.2002. CIT(A) however did not accept the claim that the assessee had accepted deposit. It was observed by him that irrespective of the nomenclature given by the assessee to the money received, its basic character was that of advance rent which was clearly hit by provisions of section 2(22)(e)....
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....ve of the fact whether same was treated as deemed dividend in the earlier year or not. Reliance for the said proposition was placed on the decision of the Tribunal in the case of ITO vs. Govardhandas Khimji (11 ITD 158) (Coch.). He also referred to the decision of the Mumbai Bench of the Tribunal in the case of Mrs. Mala Sadani in MA 610/M/06 in which mistake committed in relation to opening balance had been rectified by the Tribunal. It was pointed out that reserves and surplus till 31.3.2001 was only Rs.97.00 lacs and if the opening balance of loan of Rs.95.00 lacs taken earlier was excluded addition could be made only to the tune of Rs.2.00 lacs. 3.5 The ld. Departmental Representative on the other hand strongly supported the orders of authorities below on merit also and placed reliance on the findings given in the respective orders. 3.6 We have perused the records and considered the rival contentions carefully. The dispute is regarding merit of addition made by AO as deemed dividend under section 2(22)(e). Under the provisions of section 2(22)(e), any payment made by a company not being a company in which the public are substantially interested by way of advance or loan to a ....
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....re of transaction has to be understood from the substance of transaction. It is clear from records that the assessee was in need of substantial funds for setting up of new project for which assessee was looking for funds from other parties as per its own submission. Money received from ITL Industries Ltd. is obviously of the nature of loans/advances and not deposit and, therefore, amount can not be considered as deposit merely on the ground that the same has been described as deposit in the balance sheet or in correspondence with ITL Industries Ltd. which is a group concern of the assessee. We, therefore, reject the argument that the assessee had received deposit and not loan/advances and hold that the assessee had received loan/advances during the year which are covered by the provisions of section 2(22)(e). 3.8 Another argument advanced is that money had been received by the assessee for the purpose of business i.e. for setting up of new project and, therefore, provisions of section 2(22)(e) are not applicable. As pointed out earlier, the provisions of section 2(22)(e) are not applicable if loan/advance is given in the ordinary course of business of the company as mentioned in c....
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....efore, we hold that provisions of section 2(22)(e) are applicable. 3.10 The ld. AR has also argued that even if provisions of section 2(22)(e) were found applicable, the computation of deemed dividend had not been correctly made. It has been argued that accumulated profit would not include current year profit but only accumulated profit till the end of the immediate preceding year. Reliance has been placed on the judgment of Hon'ble Supreme Court in the case of CIT vs. V. Damodaran, (supra) and on the decision of Ahmedabad Bench of the Tribunal in the case of M.V. Stock Holding P. Ltd. vs. ACIT (84 ITD 542). In view of these decisions, accumulated profit for the purpose of computation of dividend has to be considered only till 31.3.2001. Till 31.3.2001, the accumulated profit were to the tune of Rs.97,91,884/-. The ld. AR has further argued that opening balance of loan/advance could not be considered for addition in the current year even if in relation to opening balance, no addition had been made under section 2(22)(e) in the earlier year. Reliance has been placed on the decision of the Tribunal in the case of ITO vs. Govardhandas Khimji (supra). No contrary decision of any High ....