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Facts
The assessee's proprietary concern obtained a loan of Rs. 88,26,000 from a private limited company (M/s Purvi Gems & Jewellery India Pvt. Ltd) in which the assessee had substantial shareholding. The Assessing Officer treated this loan as deemed dividend under Section 2(22)(e). The assessee filed the appeal with a 130-day delay, attributing it to professional differences with the previous authorized representative and being unaware of the CIT(A) order.
Held
The tribunal condoned the 130-day delay in filing the appeal, finding it was due to 'sufficient cause' demonstrating bona fide conduct. On merits, the tribunal directed the Assessing Officer to restrict the deemed dividend addition under Section 2(22)(e) to the accumulated profit of the company on the date of the peak loan advanced, in line with the CIT(A)'s earlier direction and the assessee's request.
Key Issues
Whether the 130-day delay in filing the appeal should be condoned; and whether the addition of deemed dividend under Section 2(22)(e) should be restricted to the accumulated profits of the company.
Sections Cited
2(22)(e), 143(3), 5 of Limitation Act
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
ORDER PER OM PRAKASH KANT, AM
This appeal by the assessee is directed against order dated 14.06.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2013-14, raising following grounds:
In the facts and circumstances of the case and in present law, the Ld. CIT (A) has erred in deleting the addition of Rs.88,26,000/-being deemed dividend u/s.2(22)(e) of the Income Tax Act, 1961.
At the outset, the Ld. counsel for the assessee submitted that t the outset, the Ld. counsel for the assessee submitted that t the outset, the Ld. counsel for the assessee submitted that there was a delay of 130 days in filing the appeal. The Ld. counsel there was a delay of 130 days in filing the appeal. The Ld. counsel there was a delay of 130 days in filing the appeal. The Ld. counsel for the assessee referred to affidavit filed by the assessee and for the assessee referred to affidavit filed by the assess for the assessee referred to affidavit filed by the assess submitted that delay was mainly due to professional differences submitted that delay was mainly due to professional differences submitted that delay was mainly due to professional differences that arose between the authorized representative of the assessee that arose between the authorized representative of the assessee that arose between the authorized representative of the assessee and the assessee due to which the assessee was not informed and the assessee due to which the assessee was not and the assessee due to which the assessee was not regarding passing the order of the Ld. CIT(A). The relevant part of regarding passing the order of the Ld. CIT(A). The relevant regarding passing the order of the Ld. CIT(A). The relevant the affidavit is reproduced as under: the affidavit is reproduced as under:
Hence, the appellant is making this application for condonation of Hence, the appellant is making this application for condonation of Hence, the appellant is making this application for condonation of delay in filing of appeal. delay in filing of appeal. I respectfully submits that said delay has risen due to reasons I respectfully submits that said delay has risen due to reasons I respectfully submits that said delay has risen due to reasons beyond its control, inadvertently and due to beyond its control, inadvertently and due to reasonable cause. reasonable cause. I submit that the said matter was being monitored and being I submit that the said matter was being monitored and being I submit that the said matter was being monitored and being attended to and monitored by its Authorized Representative, CA attended to and monitored by its Authorized Representative, CA attended to and monitored by its Authorized Representative, CA Rahul Khanderia. He was assigned the responsibility to make the Rahul Khanderia. He was assigned the responsibility to make the Rahul Khanderia. He was assigned the responsibility to make the relevant compliances and advise the Company on this relevant compliances and advise the Company on this relevant compliances and advise the Company on this matter. He also duly represented the assessee before the Ld. AO as well as the also duly represented the assessee before the Ld. AO as well as the also duly represented the assessee before the Ld. AO as well as the Ld. CIT(A). Unfortunately, certain differences arose between me and the said Unfortunately, certain differences arose between me and the said Unfortunately, certain differences arose between me and the said Authorized Representative, CA Rahul Khanderia, because of which Authorized Representative, CA Rahul Khanderia, because of which Authorized Representative, CA Rahul Khanderia, because of which he was relieved of his professional he was relieved of his professional duties. It is humbly submitted that I was unaware of the orders passed by It is humbly submitted that I was unaware of the orders passed by It is humbly submitted that I was unaware of the orders passed by the CIT(A) since the same was being monitored by the CIT(A) since the same was being monitored by the the CIT(A) since the same was being monitored by the the abovementioned counsel. I only came to know of the same, at the abovementioned counsel. I only came to know of the same, at the abovementioned counsel. I only came to know of the same, at the time of perusing through the Income Tax Portal in the month of time of perusing through the Income Tax Portal in the month of time of perusing through the Income Tax Portal in the month of December. Due to such professional differences that arose between me and the Due to such professional differences that arose between me and the Due to such professional differences that arose between me and the authorized representative and I being unaware of the order being authorized representative and I being unaware of the order being authorized representative and I being unaware of the order being passed by the Ld. CIT(A), I was unable to file necessary appeal passed by the Ld. CIT(A), I was unable to file necessary appeal passed by the Ld. CIT(A), I was unable to file necessary appeal before the ITAT, the appellant has subsequently app before the ITAT, the appellant has subsequently appointed a fresh ointed a fresh counsel for taking necessary action for the same. counsel for taking necessary action for the same. However, in the meantime, the time limit for filing further appeal However, in the meantime, the time limit for filing further appeal However, in the meantime, the time limit for filing further appeal before the Hon'ble ITAT has elapsed and hence this petition and before the Hon'ble ITAT has elapsed and hence this petition and before the Hon'ble ITAT has elapsed and hence this petition and prayer for condonation of delay, which has occurred for rea prayer for condonation of delay, which has occurred for rea prayer for condonation of delay, which has occurred for reasons beyond the control of the Appellant Company. beyond the control of the Appellant Company. I would like to submit that I am not well versed with tax laws and I would like to submit that I am not well versed with tax laws and I would like to submit that I am not well versed with tax laws and was totally relying on external consultant for the same. was totally relying on external consultant for the same. was totally relying on external consultant for the same. Therefore, this application submitted for condonation of delay be Therefore, this application submitted for condonation of delay be Therefore, this application submitted for condonation of delay be allowed in the i allowed in the interest of justice and equity, and if the same is not nterest of justice and equity, and if the same is not allowed cause of justice will suffer, as balance convenience lies in allowed cause of justice will suffer, as balance convenience lies in allowed cause of justice will suffer, as balance convenience lies in favour of the appellant. favour of the appellant. I humbly pray before Your Honour to condone the delay in filing I humbly pray before Your Honour to condone the delay in filing I humbly pray before Your Honour to condone the delay in filing Form 36 and grant me Form 36 and grant me an opportunity of being heard according to heard according to the the the principles principles principles of natural of natural of natural justice justice justice and and and as as as the delay the the delay delay was was was beyond my control. control.
The Ld. Departmental Representative (DR) objected for The Ld. Departmental Representative (DR) objected for The Ld. Departmental Representative (DR) objected for condoning the delay in filing the appeal. condoning the delay in filing the appeal.
We have heard the rival submissions and carefully perused t We have heard the rival submissions and carefully perused t We have heard the rival submissions and carefully perused the material available on record in relation to the assessee’s application material available on record in relation to the assessee’s application material available on record in relation to the assessee’s application for condonation of delay. The short issue that arises for for condonation of delay. The short issue that arises for for condonation of delay. The short issue that arises for consideration is whether the delay in filing the present appeal, consideration is whether the delay in filing the present appeal, consideration is whether the delay in filing the present appeal, occasioned on account of the assessee’s reliance upon belated occasioned on account of the assessee’s reliance upon belat occasioned on account of the assessee’s reliance upon belat professional advice and subsequent circumstances, constitutes professional advice and subsequent circumstances, constitutes professional advice and subsequent circumstances, constitutes “sufficient cause” within the meaning of section 5 of the Limitation “sufficient cause” within the meaning of section 5 of the Limitation “sufficient cause” within the meaning of section 5 of the Limitation Act, 1963, read with the provisions of the Income Act, 1963, read with the provisions of the Income-tax Act. tax Act.
4.1 It is a well-settled principle of law that the expression settled principle of law that the expression settled principle of law that the expression “sufficient cause” should receive a liberal construction, so as to sufficient cause” should receive a liberal construction, so as to sufficient cause” should receive a liberal construction, so as to advance the cause of substantial justice. The Hon’ble Supreme advance the cause of substantial justice. The Hon’ble Supreme advance the cause of substantial justice. The Hon’ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji Collector, Land Acquisition v. Mst. Katiji (1987) 167 ITR 471 (1987) 167 ITR 471 (SC) has enunciated that when substantial justice and technical (SC) has enunciated that when substantial justice and tec (SC) has enunciated that when substantial justice and tec considerations are in conflict, the cause of substantial justice must considerations are in conflict, the cause of substantial justice must considerations are in conflict, the cause of substantial justice must prevail, for no party can be permitted to claim a vested right in the prevail, for no party can be permitted to claim a vested right in the prevail, for no party can be permitted to claim a vested right in the perpetuation of injustice merely by reason of a non perpetuation of injustice merely by reason of a non-deliberate delay. deliberate delay.
4.2 In the case before us, the assessee In the case before us, the assessee has explained that owing to has explained that owing to differences with his authorised representative, he could not secure differences with his authorised representative, he could not secure differences with his authorised representative, he could not secure a copy of the order of the learned CIT(A). At a later stage, upon a copy of the order of the learned CIT(A). At a later stage, upon a copy of the order of the learned CIT(A). At a later stage, upon accessing the portal of the Income accessing the portal of the Income-tax Department, the assessee tax Department, the assessee came to know of the said orde came to know of the said order and thereafter acted with r and thereafter acted with promptitude in filing the present appeal. The explanation so promptitude in filing the present appeal. The explanation so promptitude in filing the present appeal. The explanation so furnished is consistent, duly supported by an affidavit, and does furnished is consistent, duly supported by an affidavit, and does furnished is consistent, duly supported by an affidavit, and does not disclose any element of mala fides or culpable negligence. On not disclose any element of mala fides or culpable negligence. On not disclose any element of mala fides or culpable negligence. On the contrary, it manifests bona fid the contrary, it manifests bona fide conduct on the part of the e conduct on the part of the assessee.
4.3 In view of the foregoing, we are satisfied that the assessee was In view of the foregoing, we are satisfied that the assessee was In view of the foregoing, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prevented by sufficient cause from filing the appeal within the prevented by sufficient cause from filing the appeal within the prescribed time. Accordingly, the delay of 130 days in filing the prescribed time. Accordingly, the delay of 130 days in filing the prescribed time. Accordingly, the delay of 130 days in filing the appeal stands cond appeal stands condoned, and the appeal is admitted for oned, and the appeal is admitted for adjudication on merits. adjudication on merits.
We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. In the case, the proprietary . In the case, the proprietary concern of the assessee has concern of the assessee has obtained loan from a private limited a private limited company namely M/s Purvi Gems & Jewellery India Pvt. Ltd namely M/s Purvi Gems & Jewellery India Pvt. Ltd namely M/s Purvi Gems & Jewellery India Pvt. Ltd in which the assessee was having substantial shareholding. The which the assessee was having substantial shareholding. The which the assessee was having substantial shareholding. The Assessing Officer has accordingly treated the said loan of Assessing Officer has accordingly treated the said loan of Assessing Officer has accordingly treated the said loan of Rs.88,26,000/- as deemed dividend u/s 2(22)(e) of the Income as deemed dividend u/s 2(22)(e) of the Income as deemed dividend u/s 2(22)(e) of the Income-tax Act, 1961 (in short ‘the Act’) in the assessment order passed u/s rt ‘the Act’) in the assessment order passed u/s rt ‘the Act’) in the assessment order passed u/s 143(3) of the Act dated 22.03.2016. Before us, the Ld. counsel for 143(3) of the Act dated 22.03.2016. Before us, the Ld. counsel for 143(3) of the Act dated 22.03.2016. Before us, the Ld. counsel for the assessee filed a copy of ledger account of the assessee in the the assessee filed a copy of ledger account of the assessee in the the assessee filed a copy of ledger account of the assessee in the books of account of the company and also filed annual report of the books of account of the company and also filed annual report of the books of account of the company and also filed annual report of the company and submitted that deemed dividend may be ny and submitted that deemed dividend may be ny and submitted that deemed dividend may be restricted to the accumulated profit of the company M/s Purvi Gems & Jewellery the accumulated profit of the company M/s Purvi Gems & Jewellery the accumulated profit of the company M/s Purvi Gems & Jewellery India Pvt. Ltd. We find that the Ld. CIT(A) also issued identical India Pvt. Ltd. We find that the Ld. CIT(A) also issued identical India Pvt. Ltd. We find that the Ld. CIT(A) also issued identical direction to the assessing Officer to the assessing Officer. For ready reference said direc . For ready reference said direction is reproduced as under: is reproduced as under:
“4.5. Thus from the above, it is clear that the intent of the 4.5. Thus from the above, it is clear that the intent of the 4.5. Thus from the above, it is clear that the intent of the legislature was the same when enacting the provisions of the legislature was the same when enacting the provisions of the legislature was the same when enacting the provisions of the Companies Act as well as the Income Tax Act, being that Companies Act as well as the Income Tax Act, being that Companies Act as well as the Income Tax Act, being that interest of the minority shareholders must be sa interest of the minority shareholders must be safeguarded feguarded against muscle, might and cartelization of the majority against muscle, might and cartelization of the majority against muscle, might and cartelization of the majority shareholders. However the calculation of deemed dividend shareholders. However the calculation of deemed dividend shareholders. However the calculation of deemed dividend depends on the quantum of accumulated profit as discussed depends on the quantum of accumulated profit as discussed depends on the quantum of accumulated profit as discussed supra in the Honourable Bombay high court order. Hence the Hence the supra in the Honourable Bombay high court order. AO is directed to re AO is directed to re-quantify the deemed dividend as per quantify the deemed dividend as per the accumulated profit of the pvt limited company. the accumulated profit of the pvt limited company. the accumulated profit of the pvt limited company. In view of the above the grounds of the appellant view of the above the grounds of the appellant is dismissed. dismissed.” 5.1 Since assessee is not aggrieved with the above direction of the Since assessee is not aggrieved with the above direction of the Since assessee is not aggrieved with the above direction of the Ld. CIT(A) and requested for restricting the addition for deemed IT(A) and requested for restricting the addition for deemed IT(A) and requested for restricting the addition for deemed dividend to the extent of accumulated profit of the company, we dividend to the extent of accumulated profit of the company, we dividend to the extent of accumulated profit of the company, we direct the Assessing Officer to take into consideration the direct the Assessing Officer to take into consideration the direct the Assessing Officer to take into consideration the accumulated profit of the company on the date of the peak of loan accumulated profit of the company on the date of the peak of loan accumulated profit of the company on the date of the peak of loan advanced to the assessee and accordingly restrict the addition to to the assessee and accordingly restrict the addition to to the assessee and accordingly restrict the addition to that extent. For ready reference, ledger account of the assessee in that extent. For ready reference, ledger account of the assessee in that extent. For ready reference, ledger account of the assessee in books of the company is reproduced as under: books of the company is reproduced as under:
5.2 In view of the above, the In view of the above, the ground is partly allowed for statistical is partly allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed for In the result, the appeal of the assessee is partly allowed for In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on ounced in the open Court on 22/09/2025. /09/2025.