TMI Blog2014 (6) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... ange of opinion - Held that:- Following Commissioner of Income Tax, Delhi Versus M/s. Kelvinator of India Limited [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - the AO has exercised opinion – AO made the addition u/s 2(22)(e) - Thus, taking a different view amounts to change of opinion - the reassessment based on change of opinion is bad in law and liable to be set aside – Decided in favour of Assessee. - ITA No. 6020/Del/2012 - - - Dated:- 29-5-2014 - Shri R. P. Tolani And Shri Shamim Yahya,JJ. For the Appellant : Shri R.K. Gupta CA Shri Saurabh Goel CA For the Respondent : Shri H.G. Sema Sr. DR ORDER Per R. P. Tolani, J.M:: This is assessee s appeal against CIT(A)-XXVI, New Delhi s order dated 31-10-2012 in appeal no. 376/11-12 relating to A.Y. 2006-07. In short following effective grounds are raised: 1. That on the facts and circumstances of the case, the CIT(A) was not justified in confirming reassessment u/s 148 even though there was no case of any income escaping assessment or recording of requisite satisfaction by the Assessing officer. 2(i) That even on merits, the absence of any loan or advance or any such transaction between appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from BRAPL and M/s Aricon Developers Pvt. Ltd. (earlier M/s Expert Way Makers Pvt. Ltd.). 3.3. In appeal, order of NPPL ld. CIT(A) relying on ITAT Special Bench judgment in the case of ACIT Vs. Bhaumik Colours Pvt. Ltd. 314 ITR 80 (Mum)(SB) gave a direction that deemed dividend income was to be assessed in the hands of director Shri B.R. Arora during the year under consideration. 3.4. On the basis of this CIT(A) s order assessing officer formed a belief that income to the extent of Rs. 6,05,29,778/- being deemed dividend u/s 2(22)(e) had escaped assessment in terms of sec. 147 and on recording of reasons notice u/s 148 for reopening the assessment was issued. The assessee objected to the action u/s 147 and reasons recorded before AO, on the ground that they were neither valid nor could vest the assessing officer with the jurisdiction to reopen the assessment as well as on merits, as reproduced below: Sir, I am holding substantial shares in all the three companies namely, M/s B.R. Arora Associates Pvt. Ltd., M/s Aricon Developers Pvt. Ltd., M/s Navyug Promoters Pvt. Ltd., as defined under the provisions of sec. 2(22)(e) of the Income Tax Act, 1961 and during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has escaped assessment. On consideration of the facts of the case, I find that before invoking the provisions of section 147 of the IT Act, 1961, the Assessing officer had in his possession information that the income to the extent of Rs. 6,05,29,778/- being deemed dividends u/s 2(22)(e) of the IT Act, 1961 has escaped assessment. The order passed by the CIT(A) in the case of M/s Navyug Promoters Pvt. Ltd. for the A.Y. 2006-07 constitutes information or material from any external source. Therefore, the appellant s contention that the proceedings for re-assessment have been initiated without any material on record in respect of escapement of any income ahs no merit. 3.7. Apropos merits, assessee strongly pleaded that he has not received any advances for any company, in that eventuality there was no case at all to add the deemed dividend u/s 2(22)(e). The transactions being among inter group companies, shareholders cannot be saddled with additions u/s 2(22)(e) only on the ground that he holds the substantial share holding. CIT(A), however, held that it was a fa ade of business transactions and the corporate veil can be lifted from them. The lifting of corporate veil showed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Navyug Promoters Pvt. Ltd. in order to come to such a finding of fact and law and issue a direction. Thus the findings being ex parte qua assessee and in disregard of principle of natural justice is invalid and ab initio void. It cannot be a valid basis to reopen the assessment of a third party i.e. the assessee. To come to such a finding the CIT(A) has to necessarily examine whether or not the impugned transactions were governed by business expediency or during the course of regular business or advances for some property transaction to which section 2(22) is not applicable at all. 4.2. Similarly, ld. Assessing officer has to apply independent mind and cannot be bound by any authority s direction to reopen the assessment by quoting the direction of CIT(A) as binding on him. In the eyes of law, finding of CIT(A) in third party s case cannot be held to be binding on assessing officer who is not a subordinate officer to CIT(A). Thus the assessing officer did not applying his independent mind to the facts of the case, consequently the reassessment is bad in law. Reliance is placed on following case laws: - P.G. Foils Ltd. 215 CTR (Mad) 537 holding: observation of settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm our apprehension about the harm that a less strict interpretation of the words reason to believe vis a vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded of any tangible material which came to the possession of the assessing officer subsequent to the issue of the information. It reflects an arbitrary exercise of the power conferred under section 147. - CIT Vs. Kelvinator of India Ltd. 320 ITR 561 (SC): After 1st April, 1989, AO has power to reopen the Astt. u/s 147 provided AO has reason to believe that income has escaped Asstt. And there is tangible material to come to the conclusion that there is escapement of income, mere change of opinion cannot per se be reason to reopen. 4.4. On merits it is contended that the fact that the amounts in question were received by M/s Navyug Promoters Pvt. Ltd. from B.L. Arora Pvt. Ltd. against agreement to sell of a property by way of a duly executed agreement dated 21-3-2005. Similarly, another advance was received by M/s Navyug Promoters Pvt. Ltd. from M/s Aricon Developers Pvt. Ltd. also against sale of a property vide agreement dated 25-3-2006.Thus, the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vi) The deeming provisions of sec. 2(22)(e) are not applicable to business transactions and only in case funds have been provided in the nature of loans and advances for the purpose of earning interest with stipulated period of refund. In this case the advances are specifically for the purpose of acquiring properties for the business purposes and not as loans and advances. The concept of loans and advances have not been correctly understood and applied by the Assessing officer. (vii) Thus the transactions between these companies are for the purpose of business and not in the nature of loans or advance. Reliance is placed on the decision of Hon ble Delhi High Court in the case of CIT Vs. Shri Raj Kumar to the following effect: Whether trade advances given to the assessee (shareholder) by company can be treated as deemed dividend u/s 2(22)(e) word advance which appears in the company of the word loan could only mean such advance which carries with it an obligation of repayment. Trade advance which are in the nature of money transacted to give effect to a commercial transactions would not, in our view, fall within the ambit of the provisions of sec. 2(22)(e) held that trad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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