2016 (12) TMI 1750 - AT - Income Tax

Validity of reopening of assessment - addition u/s 2(22)(e) of deemed dividend - Held that - The impugned addition as advanced by M/s.Varindavan to M/s.AIA never found reason of re-opening since the reopening notice sought to add loans received from M/s.Keyur Financial Services Pvt. Ltd. Learned departmental representative fails to rebut this factual position. We notice in this background that in case of CIT Vs. Mohamed Juned Dadani 2013 (2) TMI 292 - GUJARAT HIGH COURT upholds tribunal s order quashing a similar reopening on the ground that when the Assessing Officer had not made any addition qua the reason recorded in reopening of the assessment he could not make additions on some other grounds not forming part of the re-opening reasons recorded. - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening of assessment.
2. Addition of deemed dividend under section 2(22)(e).

Validity of Reopening of Assessment:
The assessee's appeal for the assessment year 2003-04 contested the validity of the reopening of the assessment under section 147 of the Income Tax Act. The Assessing Officer issued a notice after forming reasons to believe that the taxable income had escaped assessment. The reasons for reopening mentioned loans received by AIA Engineering Ltd. from Keyur Financial Services Pvt. Ltd. The assessee argued that the addition of Rs. 60 lakhs advanced by one company to another was not part of the reasons for reopening. The tribunal noted that the loan in question was not mentioned in the reopening reasons, and as per legal precedent, additions cannot be made on grounds not forming part of the reasons recorded for reopening. Citing a relevant high court judgment, the tribunal quashed the reopening, rendering the subsequent ground on merits irrelevant.

Addition of Deemed Dividend under Section 2(22)(e):
The Assessing Officer made a deemed dividend addition of Rs. 60 lakhs, considering the transaction between two companies as a loan falling under section 2(22)(e) of the IT Act. The assessee contended that the amount was in the nature of inter-corporate deposits and not dividends. However, both the Assessing Officer and the CIT(A) upheld the addition. The tribunal, after quashing the reopening, found the subsequent ground on merits to be academic. Consequently, the appeal was allowed in favor of the assessee.

In summary, the appellate tribunal in Ahmedabad addressed the issues of the validity of reopening the assessment and the addition of deemed dividend under section 2(22)(e) for the assessment year 2003-04. The tribunal quashed the reopening as the loan amount in question was not part of the reasons recorded for reopening, following legal precedents. Consequently, the ground challenging the validity of reopening was accepted, rendering the merit-based ground moot. The appeal was allowed in favor of the assessee.