BABY MATHEW vs. THE ASSISTANT COMMISSIONER OF INCOME TAX

The assessee being aggrieved by the order dated 08.02.2019 in ITA No.269/Coch/218 of the Income Tax Appellate Tribunal, Cochin Bench, (for short, 'the Tribunal') has filed the appeal under Section 260A of the Income Tax Act, 1961 (for short, 'the Act').

The controversy in the appeal relates to the assessment year 2008-09 and involves a question whether the advances received by the assessee could be treated as ‘deemed dividend’ amounting to Rs.2,22,65,558/- under Section 2(22)(e) of the Act. The dispute touched the doors of the Primary

The assessee filed return for the assessment year 2008-09 declaring total income of Rs.33,65,000/-. The return was selected for scrutiny under Section 143(3) of the Act and the scrutiny related to viz. 1) the deemed dividend income under Section 2(22)(e) of the Act; 2) interest income; 3) income from Keralatourism.com said to have been received by the assessee.

In the present litigation the court is concerned with whether the receipt of loan/advances from sister concerns, where the assessee is one of the directors, could be treated as ‘deemed dividend’. The details of the loan/advances received are as follows:

The Assessing Officer rejected the explanation offered by the assessee that the above loans/advances received from the sister companies are regular business transactions facilitated by the sister concerns in favour of assessee for development of business. Result of such rejection, the Assessing Officer treated the loan/advances as deemed dividend income and added to computation of assessee’s income. The assessee unsuccessfully challenged the assessment order before the Commissioner of Income Tax, (Appeals), Thiruvananthapuram, (for short, CIT(A)) and by order dated 18.02.2013, the appeal filed before the CIT(A) stood dismissed. The assessee filed ITA No.204/Coch/2013 before the ITA NO. 239 OF 2019 -5- Income Tax Appellate Tribunal, Cochin Bench (for short, 'the Tribunal'). The Tribunal vide order dated 25.10.2013, allowed

3 Accordingly, the orders of the lower authorities are set aside and the issue with regard to deemed dividend is remanded back to the file of the Assessing Officer. The Assessing Officer shall reconsider the issue in the light of the material on record and the available accumulated profits and thereafter decide the same by a speaking order in accordance with law after giving a reasonable opportunity of being heard to the assessee. It is also made it clear that the Assessing Officer shall examine the computation of accumulated profit filed by the assessee and if any error or mistake is found, the Assessing Officer shall re-compute the accumulated profit

The Assessing Officer through Annexure-C assessment order dated 31.03.2015 completed the assessment by recording the following conclusions: The assessee in the submission dated 30.03.2015, has reduced the deemed dividend of the earlier years in order to arrive at the actual loan/advances given to the director during the year. The actual expenses incurred has never be taken into account. The assessee has not taken into account, the expenses incurred during the year in order to arrive at the net figure. Hence the following is considered to be deemed dividend u/s.2(22) (e) and brought to tax. The amounts mentioned is the actual amount given by the companies during the year and hence treated as deemed dividend as accumulated profits are there in earlier years. 1) Manaltheeram beach Resorts Pvt.Ltd. Rs.33,29,000/- 2) Somatheeram Research institute and Ayurvedic Hospital Pvt.Ltd. Rs. 5,88,337/-

The assessee now principally is aggrieved by the mode and manner of assessment by the Assessing Officer, stated simply that the Assessing Officer ignored the directive of the Tribunal vide order dated 25.10.2013 in Annexure-B. Much effort is not needed to accept the limited grievance of the assessee in this behalf, for the CIT(A) explicitly found so against the assessment order in Annexure-C dated 31.03.2015. The operative portion of the order of the CIT(A) in Annexure-D dated 03.04.2018 is excerpted hereunder:

I carefully examined the facts of the case and also considered the rival contentions. At the outset, I agree with the assessee that the Assessing Officer in the appeal effect given order has not executed meticulously the direction stipulated in the Tribunal's Order. As ordered by the Hon'ble Tribunal, the Assessing Officer should have first verified and decided whether the advances made in the earlier assessment years are for the purpose of business or not so as to consider the same for the current year as well. Though the assessee claimed that the amounts were given to him in the normal course of business

Thus, the assessee was directed during the course of appeal hearing to furnish all the details so as to work out the deemed dividend as directed by the Hon'ble ITAT, Cochin Bench. The assessee furnished the requisite details. He also worked out the deemed dividend starting from a particular assessment year and while doing so, the accumulated profit and deemed dividend of earlier years have not been taken into account because of the reason that the books of account of earlier years are not available with him. This is to be accepted and considered further since the opening balance of the first year which consists of reserve & surplus and accumulated profit takes care of the net brought forward accumulated profit and even the Assessing Officer who worked out the accumulated profit subsequent to receiving direction from the Hon'ble Tribunal has considered only the opening balance and advance

The Revenue being aggrieved by determination in the manner excerpted above, filed appeal before the Tribunal and the Tribunal considered it from yet another perspective and set aside the order of the CIT(A) in Annexure-D dated 03.04.2018. The Tribunal concluded its order with the following finding: “However, the CIT(A) while deciding the issue, decision if the ITAT, Visakhapatnam, cited supra.”

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Mr.Ramesh Cherian appearing for the assessee, before making his submissions on the merits on the claim of the assessee to treat the loan/advances provided by the sister

Mr.Christopher Abraham, replying to the preliminary objection taken by Mr.Ramesh Cherian argues that the Assessing Officer appreciated what was concluded by the Tribunal in its order in Annexure-B and no doubt, in the -15- findings recorded by the CIT(A) in his order dated 03.04.2018 in Annexure-D are decided. He does not seriously dispute the argument of the assessee to remit the matter to the Assessing Officer for consideration and disposal strictly in accordance with the order in Annexure-B and in accordance with law.

Therefore, though several questions have been raised in the appeal, as we are pursuaded with the first question viz. Whether the the orders made subsequent to remand in Annexure-B order, the Authorities have complied with the directions in Annexure-B or not. The portion excerpted above indicate non-consideration of deemed dividend issue in the manner directed by the Tribunal in Annexure-B order, virtually amounts to not appreciating the principle on which the order of remand is made by the Tribunal. We are pursuaded by the first objection raised by Mr.Ramesh Cherian and accordingly answer the question in ITA NO. 239 OF 2019 -16- favour the assessee and against the Revenue for the limited purpose of setting aside the orders of Assessing Officer, CIT(A) and Tribunal in Annexures C, D and G respectively and remit the case to Assessing Officer for disposal afresh.

For statistical purpose, matter remitted to Assessing Officer for decision afresh in accordance with law and as per the directive issued by the Tribunal in Annexure-B dated 25.10.2013. Appeal is allowed as indicated above. No order as to costs. S.V.BHATTI JUDGE BASANT BALAJI JUDGE JS