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TMI Blog2019 (4) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned CIT(A) was not justified in taxing the above amount of Rs. 1,41,34,381/- as deemed dividend in the hands of the appellant as the funds given by Hextech to Zetex were for the purposes of its business and not as a loan and therefore, the question of taxing any deemed dividend on account of these transactions simply did not arise u/s 2(22)(e). 4] Without prejudice, the learned CIT(A) erred in sustaining the addition of Rs. 1,41,31,384/- while it should have been restricted only to the peak amount arising out of the loans given during the F.Y. 2009 - 10 and not out of the transactions in the past years and secondly, it should have been restricted only to the incremental increase in accumulated profits after deducting the deemed dividend for the earlier years as per the provisions of the Act. 5] Without prejudice, the appellant submits that deemed dividend if any, could be taxed in his hands only in proportion of his shareholding to the total shareholding of Hextech of the accumulated profits of the company and not to the extent of the entire accumulated profits of the company. 6] The learned CIT(A) erred in confirming interest charged u/s 234A / 234B / 234C as charged b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin meaning of section 147 of the Act. The Assessing Officer thus, recorded reasons for reopening the assessment and issued notice under section 148 of the Act to the assessee on 04.09.2013. In response thereto, the assessee vide letter dated 20.09.2013 requested that original return of income filed by him on 05.10.2010 be considered as return of income filed in response to notice issued under section 148 of the Act. Thereafter, assessment was taken up by issue of notice under section 143(2) of the Act. The Assessing Officer in final had made addition on account of deemed dividend under section 2(22)(e) of the Act at Rs. 1.41 crores and no other addition was made in the hands of assessee. 6. In appeal, the CIT(A) upheld the addition made by invoking provisions of section 2(22)(e) of the Act. 7. The assessee before us by way of additional ground of appeal has challenged the jurisdiction of Assessing Officer to start the reopening proceedings and issue notice under section 148 of the Act on 04.09.2013. The stand of assessee is that on the date when the said notice under section 148 of the Act was issued, the addition on account of deemed dividend was already made in the case of Z ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the CIT(A) deleted addition in the hands of Zetex vide individual orders dated 22.05.2012. On 21.11.2013, the Tribunal dismissed the appeal of Revenue which was challenged by Revenue before the Hon'ble High Court. The Hon'ble Bombay High Court on 27.01.2017 dismissed the appeal of Revenue for low tax effect. The learned Authorized Representative for the assessee then pointed out that re-assessment proceedings in the hands of assessee starts on 04.09.2013 i.e. the date on which addition was already made in the hands of Zetex. He stressed that as on 04.09.2013, since the amount was already taxed in the hands of Zetex and where the Revenue was pursuing the appeals before the Tribunal, even thereafter, so as on 04.09.2013, it could not be said that there was reason to believe of escapement of assessment in the hands of assessee. When the Revenue further challenges the order of Tribunal in the case of Zetex on 21.11.2013 before the Hon'ble High Court, it could not be said that there was any reason to belief of escapement of income as on that date. In this regard, he placed reliance on the ratio laid down by the Hon'ble Bombay High Court in DHFL Venture Capital Fund Vs. ITO (2013) 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid notice? For adjudicating the same, it is necessary to take into consideration the assessment proceedings which were going on in the hands of Zetex for assessment years 2008-09 to 2010-11 i.e. years in which Zetex had taken loan from Hextech. The copy of assessment order passed under section 143(3) r.w.s. 147 for assessment year 2008-09, dated 22.11.2011 is placed at pages 6 to 12 of Paper Book. The Assessing Officer In-charge of assessment proceedings of Zetex had noted that there were financial transactions between Hextech and Zetex and the said transactions were hit by provisions of section 2(22)(e) of the Act. Hence, after recording reasons, notice under section 148 of the Act was issued to Zetex on 24.02.2011. Consequent to assessment proceedings in assessment year 2008-09, in view of accumulated profits of Hextech as on 31.03.2008 being Rs. 63,05,624/-, addition was made of the same as deemed dividend in the hands of assessee. It may be noted that the Assessing Officer vide para 7 had clearly verified the number and percentage of shareholding of both Hextech and Zetex and had noted that the assessee Shri Ravi Pichaya had shareholding of 97.10% in Hextech and 99.95% i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es on to say that Shri Ravi Pichaya i.e. assessee before us was substantial shareholder in both the companies and the deemed dividend was required to be taxed in his hands as per provisions of the Act. He then holds that since the addition has been deleted in assessment years 2008-09 and 2009-10, then accumulated profits to the extent of Rs. 1.47 crores were available in the books of Hextech as on 31.03.2010 and he was of the view that deemed dividend to the extent of Rs. 1.47 crores was to be taxed in the hands of Shri Ravi Pichaya, substantial shareholder. The said order is dated 05.02.2014. 11. Another point which may be noted that the said appeal of Revenue against the order of CIT(A) has been dismissed because of low tax effect by the Tribunal in ITA No.775/PN/2014, relating to assessment year 2010-11, vide order dated 23.12.2015. The Revenue had also challenged the order of Tribunal dated 21.11.2013 relating to assessment years 2008-09 and 2009-10 before the Hon'ble Bombay High Court, which vide its order dated 27.01.2017 had dismissed the appeal for low tax effect. 12. Now, coming to re-assessment proceedings which started against the assessee on 04.09.2013 i.e. date on wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when reasons were recorded for reopening the assessment, there was no belief that there was escapement of income. The same transaction and income arising therefrom cannot be taxed in two hands simultaneously. Accordingly, we hold that the Assessing Officer has exceeded his jurisdiction while recording reasons for reopening the assessment in the case of assessee on the ground that in view of loan transaction between Hextech and Zetex and since the assessee was major shareholder, the addition transaction was hit by provisions of section 2(22)(e) of the Act. We find no merit in initiation of re-assessment proceedings in the hands of assessee and we hold that the said initiation was both invalid and bad in law on the relevant date. 13. The Hon'ble Bombay High Court in DHFL Venture Capital Fund Vs. ITO (supra) had held that jurisdictional requirement for reopening of assessment under section 148 of the Act was the formation of reason to believe by the Assessing Officer that income had escaped assessment and existence of that reason must be in present. The Hon'ble High Court further goes on to hold that recourse to section 148 of the Act cannot be founded in law on a hypothesis of what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to believe that income has escaped assessment since the reopening is based purely on a contingency that may arise upon a particular outcome before the appellate tribunal." 14. The reopening of assessment in the hands of assessee as on 04.09.2013 could not be upheld on the ground that provisions of section 2(22)(e) of the Act may eventually apply to the major shareholder vis-à-vis transaction between two companies in which the assessee is the major shareholder. Eventuality of application of section 2(22)(e) of the Act whether in the hands of Zetex or the assessee simultaneously cannot be taken up i.e. where the addition has already been made in the hands of Zetex by the Assessing Officer concerned and the said addition was challenged before various Forums simultaneously, re-assessment proceedings cannot be initiated in the hands of assessee being the major shareholder. In view of the facts and issue being decided by the Hon'ble Bombay High Court, we find no merit in initiation of re-assessment proceedings by recording reasons for reopening assessment in the hands of assessee as on 04.09.2013 i.e. the date on which the addition was already made in the hands of recipien ..... X X X X Extracts X X X X X X X X Extracts X X X X
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