TaxTMI 
TaxTMI 
2024 (10) TMI 1684
X X X X Extracts X X X X
X X X X Extracts X X X X
....n made towards deemed dividend u/s 2(22)(e) of the Act in the facts and circumstances of the instant case. We find that the assessee had raised a ground in petition filed under Rule 27 of the Income Tax Appellate Tribunal (ITAT) Rules before us as under:- "The Assessing Officer erred in issuing notice under section 148 of the Act. Our client contends that the reasons recorded by the Assessing Officer to re-open the assessment suffers from various defects and as such, the re-opening of assessment in the present facts and circumstances of the case and in law is bad." 4. We find that though the validity of re-assessment u/s 147 of the Act was challenged by the assessee before the ld. NFAC, Delhi, no finding was given by the ld. NFAC on the same. But we find that the challenge to assumption of jurisdiction u/s 147 of the Act is a legal issue and go to the root of the matter. Facts relevant for adjudication of the said legal issue are already placed on record before us in the Paper Book filed for each of the years under consideration. The issue as to whether a legal ground could be raised in a Rule 27 petition by the respondent (assessee herein) when the same was not decided by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ampalal Motilal Steel Co. Pvt. Ltd. In support of his explanation, assessee also furnished a letter of confirmation from M/s. Navmi Steel Traders Co. Pvt. Ltd. along with copy of bank statement showing the relevant entries. In this manner, assessee pointed out that the withdrawal of Rs. 1,24,00,000/- made by the assessee from M/s. Champalal Motilal Steel Co. Pvt. Ltd. was in effect not loans or advances, but mere withdrawal of money lying to his credit. The Assessing Officer, however, was not satisfied with the explanation of the assessee as according to him it was an afterthought, and that in such a situation the provisions of Sec. 2(22)(e) of the Act were fully attracted inasmuch as the assessee was a shareholder in M/s. Champalal Motilal Steel Co. Pvt. Ltd. According to the Assessing Officer, the amount of Rs. 1,24,00,000/- advanced by M/s. Champalal Motilal Steel Co. Pvt. Ltd. to the assessee fell within the purview of Sec. 2(22)(e) of the Act and, therefore, considering the accumulated profit of the said concern, he brought to tax a sum of Rs. 81,23,481/- in the hands of the assessee as 'deemed dividend' within the meaning of Sec. 2(22)(e) of the Act. In appeal, assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, i.e., from 27.7.2007 and, therefore, the consequential assessment finalised u/s 143(3) of the Act was invalid. In this regard, he has referred to the discussion in the assessment order itself to justify the existence of relevant facts that are required for the purpose of adjudicating the said plea. The learned representative placed reliance on the judgments of the Hon'ble Bombay High Court in the case of B.R. Bamasi vs. Commissioner of Income- Tax, 83 ITR 223 (Bom.) and Commissioner of Income-tax vs. Gilbert & Barker, 111 ITR 529 (Bom) to contend that in an appeal filed by the Revenue, the respondent is entitled to raise a plea challenging the legal validity of the Assessing Officer's assessment order in order to seek dismissal of the appeal of Revenue. 6. On this aspect of the matter, the Id. DR has not seriously opposed assessee's plea for admission of the aforesaid Ground for adjudication, but has pointed out that there was no merit in the plea raised by the assessee because of the amendment made by the Finance Act, 2008 whereby clause (ii) of Sub-section (2) of Sec. 143 of the Act has been amended to provide that notice u/s 143(2) of the Act shall be served on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not be entitled to agitate a new ground and subject to the same limitation. A Division Bench of the Allahabad High Court has taken a similar view in Kanpur Industrial Works v. Commissioner of Income-tax. That judgment has considered the position of an appeal under section 33 of the Income- tax Act along with the relevant Rules and that of an appeal under the Code of Civil Procedure and the provisions of Order XLI, rule 22. The judgment holds that when the department files an appeal for an increase in the assessed income, the subject matter of the appeal is the increase claimed by the department and the assessee can urge any ground of defence even though it might have been rejected by the Appellate Assistant Commissioner for showing that there should be no increase. It has further held that that the assessee is not liable to be assessed at all is a ground for showing that there should be no further assessment and the department's appeal can therefore be resisted on that ground and that there is no incongruity in maintaining the assessment order passed against the assessee and yet refusing to increase it on the ground that he was not liable to be assessed at all. The judgment poi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the case of Sanjay Sawhney vs PCIT reported in 116 taxmann.com 791 (Del HC) vide order dated 18.5.2020 . 4.2. In view of the above decisions, we are inclined to admit the ground raised by the assessee in Rule 27 petition for all the years under consideration wherein, the validity of reopening is challenged. 5. With the consent of both the sides, the appeal for the Asst Year 2014- 15 was taken as the lead case and the decision rendered on those facts shall apply mutatis mutandis for other assessment years also except with change in dates and figures. 6. The reasons recorded for reopening the assessment for the Asst Year 2014-15 by the ld. AO are as under: "Information was received from Addl.CIT, Special Range, Ghaziabad vide letter dated 16.12.2019 that during the assessment proceedings, it was noticed that M/s Proview Realtors Pvt. Ltd. Mr. Rajeev Arora, ia having 41.15% share holding in the assessee company (Proview Construction Ltd.) and is having 50% share holding in M/s Proview Realtors Pvt Lid On enquiry from Roc website, it is gathered that the assessee company has given loan/ advances to Ms Proview Realtors Pvt. Ltd. in the year 2013-14 relevant to AY 2014-15 whose deta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 2(22)(e) of the Act. In order to assess the above income or any other income which comes to notice subsequently in the course of proceedings u/s 147(b), issue of notice u/s 148 of the Income Tax Act, 1961 is necessary in this case. Hence, the case of Rajeev Kumar Arora is being proposed for approval under the provision of section 151(1) of the IT Act, 1961." 7. The facts of the issue concerning deemed dividend u/s 2(22)(e) of the Act are that M/s Proview Construction Pvt Ltd (PCPL in short) had advanced loans to M/s Proview Realtors Pvt Ltd (PRPL in short). Assessee holds 50% stake in PCPL and 41.15% stake in PRPL. Accordingly, the ld. AO sought to invoke the provisions of section 2(22)(e) of the Act in the hands of the assessee by seeking to bring the amounts advanced by PCPL to PRPL as deemed dividend considering the same to have been paid as loans in lieu of dividend. 8. But from perusal of the reasons recorded for reopening the assessment reproduced supra, which is common to all the years under consideration except change in figures, we find that the ld. AO in para 1 and in initial part of para 2 states that PCPL had advanced loans to PRPL. But in later part of para 2, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in terms of section 151 of the Act was not provided to the assessee along with the reasons recorded despite assessee asking for the same in writing before the ld AO. This, in our considered opinion, is against the settled principles of natural justice as reopening of an assessment is an extraordinary power available to the ld AO and it should not be done in a cavalier manner. That is why the legislature in its wisdom had put lot of restrictions by imposing conditions for seeking approval and sanction from a superior officer in terms of section 151 of the Act. Hence the said approval obtained from competent authority ought to have been furnished by the ld AO along with the reasons recorded for reopening the assessment to the assessee. ............. 4.9.3. Moreover, in the instant case, on perusal of the sanction obtained in terms of section 151 of the Act, we find that the ld PCIT had merely recorded - "Yes, I am satisfied". The same, in our considered opinion, could not be regarded as a valid satisfaction as it does not reflect due application of mind of the sanctioning authority before granting satisfaction. This cryptic noting only leads to the inescapable conclusion that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (indicate the items which are believed to have escaped assessment.) - Kindly see overleaf (Sd.) S.P. Chaliha, I.T.O., 30- 4-66 A-Ward, Muzaffarpur. 8. Whether the Commissioner is satisfied that it is a fit case for Yes (Sd.) K. Narain, 13- 5-66. Commissioner of the issue of notice under section 148. Income-tax, Bihar and Orissa, Patna. 9. Whether the Board is satisfied that it is a fit case for the issue of notice under s. 148. Secretary, Board of Revenue. During the year the assessee has shown to have taken loans from various parties of Calcutta. From D.I.'s Inv. No. A/P/Misc. (5) D.I./63-64/5623 dated August 13, 1965, forwarded to this office under C.I.T., Bihar and Orissa, Patna's letter No. Inv. (Inv.) 15/65-66/1953-2017 dated Patna September 24, 1965, it appears that these persons are name-lenders and the transactions are bogus. Hence, proper investigation regarding these loans is necessary. The names of some of the persons from whom money is alleged to have been taken on loan on hundis are: 1. Seth Bhagwan Singh Sricharan. 2. Lakha Singh Lai Singh. 3. Radhakissen Shyam Sunder. The amount of escapement involved amoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee's omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year; nor could it be said that he, as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that year. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147. Therefore, he could not have issued a notice under section 148. Further, the report submitted by him under section 151(2) does not mention any reason for coming to the conclusion that it is a fit case for the issue of a notice under section 148. We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under section 148. To question No. 8 in the report which reads "Whether the Commissioner is satisfied that it is a fit ca....