TMI Blog2018 (4) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to interfere with the order of the Ld. CIT(A) absolving the assessee from the clutches of s.2(22)(e) of the Act. Thus, we decline to interfere with the relief granted by the CIT(A). Trade advances stand excluded from the ambit of section 2(22)(e) of the Act. Reopening of assessment - Held that:- Protective assessment under s.147 to merely safe-guard the interest of the Revenue is not sustainable in re-assessment proceedings under s.147 of the Act. A protective assessment impliedly means that the AO is not sure about the escapement in the hands of this assessee but merely seeks to cover the possible revenue loss. This, in our view, is contrary to the mandate of section 147 which provides that it is incumbent upon the AO to have positive belief towards escapement (in contrast to probable escapement) based on the material available on record. Clearly, the action of the AO runs counter to the mandate of section 147 of the Act. Notably, the case of escapement of income qua assessee herein is not finally ascertained even at the assessment stage pursuant to notice for re-opening under s.147/148 of the Act. - 573/Ahd/2016, 574/Ahd/2016, 575/Ahd/2016, 576/Ahd/2016, 577/Ahd/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital, had advances loan of ₹ 24 lacs to the assessee company in which Shri Mitin A. Patel and Shri Vinod V Patel were substantial shareholders and held more than 20% of the paid up capital and further, the lending company named Prima Automation India Pvt. Ltd. also had accumulated profit and therefore the provisions of section2(22)(e) r.w. Explanation 3(a) r.w. Circular No.495 of 22/09/1987 will be applicable in the hands of the assessee company. The Ld. CIT(A) has erred in law and on facts by not considering the aforesaid Circular No.495 of 22/09/1987 relating to deemed dividend. The case falls under the exception No. 8(b) of the Circular No. 21 of 2015 dated 10/12/2015 which states that where Board's order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or... appeal may be filed irrespective of the quantum of tax effect. On the facts and circumstances of the case, the Ld. Commissioner of Income Tax(A) ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. Commissioner of Income Tax(A) may be set-aside and that of the Assessing Officer be restored. 4. The R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. Authorised Representative submitted that in view of the judgment of Hon ble Gujarat High Court in its order dated 24.03.2014 in Tax Appeal No. 238 of 2014 relevant to A.Y. 2009-10 in the case of Corrtech Energy Limited and host of other similar judgements of other Courts, the issue is no longer res integra and therefore no interference with the order of the Ld. CIT(A) is called for. 7. The Ld. Departmental Representative, on the other hand relied upon the order of the Ld. CIT(A). It was contended that conditions of substantial interest stipulated under s.2(22)(e) have been satisfied by the common shareholder and therefore additions made in the hands of Assessee being receipt of loan/advances is fully justified. 8. We have considered the rival submissions. The substantive issue that arises for consideration in the instant case is applicability or otherwise of mischief of section 2(22)(e) of the Act in the facts of the case. Section 2(22)(e) seeks to trigger taxability of loans/advances paid by a closely held company in certain circumstances. The assessee company in the instant case has received an amount of RS. 25 lakh from lender (Prima Transformers Pvt. Ltd.). It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of reasons Revenue appeal in ITA No. 573/Ahd/2016 574/Ahd/2016 are also dismissed. 12. We shall now turn to other appeals in ITA No.576/Ahd/2016, 577/Ahd/2016, 578,579,580/Ahd/2016 concerning applicability of s.2(22)(e) and consequent additions in the hands of share holders holding substantial interest in both lender as well as borrower company. 13. We shall first advert to ITA No. 576/Ahd/2016 relevant concerning A.Y. 2007-08 where provisions of section 2(22)(e) was invoked in the hands of share holders; namely Shri Vinod V Patel holding substantial interest in both companies. 13.1. Briefly stated, the assessee (Shri Vinod Vitthalbhai Patel) is stated to be shareholder holding substantial interest in the lendercompany - Prima Automation (India) Pvt.Ltd. as well as borrower company namely Prima Transformer Pvt.Ltd. The lender-company has lent an amount of ₹ 25 lakhs to the borrower-company. The AO in the course of the scrutiny assessment has accordingly assessed the aforesaid amount of loans/advances given by the lender-company to the borrower company as deemed dividend on protective basis as per section 2(22)(e) of the Act while fixing the tax liability on borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act on protective basis made by the A.O. is not justified. Accordingly the A.O. is directed to delete the same. Thus, this ground of appeal is allowed. 13.3. The CIT(A) accordingly reversed the action of the AO and deleted the additions so made on protective basis by holding that the assessee not being the recipient of the loan is not hit by section 2(22)(e) of the Act. 13.4. Aggrieved, the Revenue is in appeal against the action of the CIT(A). 13.5. The Ld.AR for the assessee in the revenue s appeal, firstly submitted at the outset that the conclusion drawn by the CIT(A) is in consonance with the decision of Hon ble Gujarat High Court in the case of Daisy Packers (supra) and the decision of the Hon ble Supreme Court in the case of CIT vs. Madhur Housing and Development Company in Civil Appeal No.3961 of 2013 Ors. judgement dated 05/10/2017 where the Hon ble Apex Court has confirmed the Delhi High Court Ruling in CIT vs. Ankitech Pvt.Ltd. (2012) 340 ITR 14. Secondly, the Ld. AR submitted that apart from the fact that the assessee herein is not the recipient of the loan and thus covered by Ankitech Pvt.Ltd.(supra), the nature of transactions between the borrower-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried out under s.147 of the Act. In elaboration, the Ld.AR submitted that a protective assessment inevitably implies a case of probable escapement. Thus, a firm belief which is indispensible for invoking s.147 of the Act is found absent in the action of the AO. The Ld.AR accordingly submitted that the appeal of the revenue is required to be dismissed on any or all of the four grounds pointed out above. 13.6. The Ld.DR, on the other hand, relied upon the order of the AO and contended that either the borrower-company or the assessee (being a common shareholder) is required to be taxed for receipt of advance from the lender-company in terms of section 2(22)(e) of the Act. 14. We have carefully considered the rival submissions. The short question in controversy is whether the assessee-company, a common shareholder in the lender-company as well as the borrower-company can be said to be hit by the provisions of section 2(22)(e) of the Act for the loans/advances granted by the lender-company to the borrower-company. 14.1. The assessee has raised four defense to support the conclusion of the CIT(A), namely (i) the assessee (common shareholder in lendercompany and borrower compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rth plea on behalf of the assessee that a protective assessment under s.147 of the Act to merely safe-guard the interest of the Revenue is not sustainable in re-assessment proceedings under s.147 of the Act. A protective assessment impliedly means that the AO is not sure about the escapement in the hands of this assessee but merely seeks to cover the possible revenue loss. This, in our view, is contrary to the mandate of section 147 of the Act which provides that it is incumbent upon the AO to have positive belief towards escapement (in contrast to probable escapement) based on the material available on record. Clearly, the action of the AO runs counter to the mandate of section 147 of the Act. Notably, the case of escapement of income qua assessee herein is not finally ascertained even at the assessment stage pursuant to notice for re-opening under s.147/148 of the Act. 15. Hence, in view of the discussion noted hereinabove, we find merit in the plea of the assessee on all counts. Therefore, we find no justifiable reason to interfere with the conclusion drawn by the CIT(A). 16. In the result, appeal of the Assessee in ITA No.576/Ahd/2016 for AY 2007-08 is dismissed. 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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