THE ITO, WARD-1(1)(4),, AHMEDABAD vs. SHRI MEHUL PRATAP ASNANI,, AHMEDABAD

The captioned appeals and cross objection have been filed at the instance of the Revenue and assessee against the respective orders of the Commissioner of Income Tax (Appeals)-1 & VI, Ahmedabad (CIT(A)’ in short), dated 26.08.2015 & 28.03.2014 arising in the assessment orders dated 13.02.2015 & 01.03.2014 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AYs. 2012-13 & 2010-11.

The grievances raised being common, both the cases were heard together and disposed of by common order.

The substantive ground of appeal raised by the Revenue in reads as under:-

The substantive ground of appeal raised by the Revenue in reads as under:-

At the time of hearing, it was submitted by the Ld.AR for the assessee that both appeals filed by the Revenue are hit by recently issued CBDT Circular No.17 of 2019 dated 08/08/2019 revising the previous A/w CO No. 205/Ahd/15 & ITA No. 1659/Ahd/14 [Shri Mehul P. Asnani] - 3 - thresholds pertaining to tax effects. It is inter alia noticed that the CBDT vide Instruction No. F. No. 279/Misc/M-93/2018-ITJ dt. 20/08/2019 has observed that Circular No.17/2019 dated 08/08/2019 relating to enhancement of monetary limits is also applicable to all pending appeals. As per aforesaid Circular read with instruction, all pending appeals filed by Revenue are liable to be dismissed as a measure for reducing litigation where the tax effect does not exceed the prescribed monetary limit which is now revised at Rs.50 Lakhs. In the instant both cases, the tax effect on the disputed issues raised by the Revenue is stated to be not exceeding Rs.50 lakhs and therefore both appeals of the Revenue are required to be dismissed in limine.

The Learned DR for the Revenue fairly admitted the applicability of the CBDT Circular No. 17 of 2019. Accordingly, both appeals of the Revenue are dismissed as not maintainable. However, it will be open to the Revenue to seek restoration of its appeals on showing inapplicability of the aforesaid CBDT Circular in any manner.

In the result, both appeals of the Revenue are dismissed.

The substantive ground of appeal raised by the assessee in CO No. 205/Ahd/2015 reads as under:-

When the matter was called for hearing, the learned AR for the assessee referred para 4.6 of the order of the CIT(A) and submitted that while dealing with the issue of applicability of provisions of Section 2(22)(e) of the Act in the given facts of the case, the CIT(A) exceeded its mandate and observed that interest liability under s.201(1A) of the Act is required to be computed in the hands of the third party i.e. Biotech Vision A/w CO No. 205/Ahd/15 & ITA No. 1659/Ahd/14 [Shri Mehul P. Asnani] - 4 - Pvt. Ltd. The learned AR pointed out that while concluding the appeal of the assessee, the CIT(A) could not have given direction for levy of interest in the hands of third party either under s.250(6) or under s. 150(1) r.w.s. 153(6) of the Act.

For this proposition, the learned AR relied upon the decision of the co-ordinate bench in ITO vs. Biotech Ophthalmic Pvt. Ltd. order dated 31.08.2014.

The learned DR for the Revenue, on the other hand, relied upon the order of the CIT(A) and submitted that the assessee is not aggrieved against these directions against the third party and therefore the cross objection should not lie.

We have carefully considered the rival submissions. The solitary issue in the cross objection is on the scope of authority of the CIT(A) to give finding or directions for action against the third party while adjudicating the appeal of the present assessee. We find that identical issue has been examined by the co-ordinate bench in Biotech Ophthalmic Pvt. Ltd. (supra). The relevant portion thereof is reproduced hereunder:

Let us now, in the above light, revert to the facts of the case before us. The authorities below were dealing with a deeming fiction, i.e. deemed dividend, about an income. The case of the assesse was that this deeming fiction of deemed dividend could not be invoked in the present case because the assesse did not hold the shareholdings in the com puny which had extended loan to the assesse. This plea has been accepted by the CIT(A), but, for accepting such a plea, it is not a condition precedent that this deeming fiction must come into play in the hands of some other assesse other than this assesse. Whether the loan received by the assesse is held to be deemed dividend in the case of some other person or not is wholly irrelevant for deciding whether or not this is deemed dividend in the hands of this assesse or not. Learned CIT(A) holds that since Mehul P Asanai is a shareholder in the said company, the receipt can be added as deemed dividend in the hands of Mehul P Asnani, but then what he overlooks is that all the conditions precedent for taxing a receipt as deemed dividend are to be satisfied qua the assesse in whose income is to be taxed, and being a shareholder is only one such precondition. Learned CIT(A) has, as noted earlier in this order, observed that "If the recipient of loan is not a shareholder and the transaction is covered by this provision, the addition is to be made in the hands of the shareholder", but then it is difficult to comprehend as to how one can come to a conclusion that a transaction is covered by this provision, i.e. deeming fiction of the deemed dividend, without examining the transaction between the shareholder of the company and the company in which such shares are held. Without even giving a finding about satisfaction of all these conditions, learned CIT(A) proceeds to hold that it is an income to be taxed in the hands of the shareholder i.e. Mehul P Asnani. 11 is a classic case of putting carl before the horse and is wholly based on fallacious logic. The direction is thus not only unnecessary but patently incorrect. Viewed thus, the direction given by the CIT(A), for taxability of this deemed dividend in the hands of Shri Asnani, does not constitute "an ITA No. 3133/Ahd/15 A/w CO No. 205/Ahd/15 & [Shri Mehul P. Asnani] - 7 - express direction necessary for disposal of a case". Nothing really turns on his direction, as such. Even if this direction was correct, learned CIT(A) had no business to give such a direction without affording an opportunity of hearing to the affected party and that too when it was absolutely necessary to decide the issue in appeal before him. There is a certain degree of restraint that is expected of the appellate authorities in discharge of their judicial functioning.

As we part with our adjudication on this issue, we may also take note of learned Departmental Representative's contention that the assesse has no locus standi to raise any grievance against these directions as he is not the aggrieved party vis-a-vis these directions. We are unable to see any merits in this plea either. The manner in which the appeal has been decided by the CIT(A) gives an impression, which is a wholly inappropriate impression and which has also been reiterated before us by the learned Departmental Representative, that the impugned additions have been deleted in the hands of the assesse as these additions are required to be made in the hands of someone else. The deletion of the impugned addition in the hands of the assesse company has been thus projected to be, though perhaps at a somewhat subliminal level, dependent of the addition being confirmed in the hands of the director. The directions given by the CIT(A) do prejudice interests of the assesse inasmuch as these directions not being implemented may be viewed as detrimental to the interests of the assesse but then the directions suffer from legal infirmities, from glaring procedural flaws, and are incapable of being implemented anyway. In any case, since these directions are given in the case of this assesse and the appellate order by the CIT[A) in the case of this assesse cannot be challenged, in appeal before us, by a third party, the only way to prevent these directions reaching the finality is a challenge by this assesse himself, particularly because, as is the settled legal position, the statutory provisions are to be construed ut res magis valeat quam pereat i.e., in such a manner as to make it workable rather than redundant. The assesse before us, therefore, has, in our considered view, locus standi to challenge legality of these directions.”

In the combined result, Revenue’s both appeals are dismissed and assessee’s cross objection is allowed.