ANMOL HIMANSHU PATEL LEGAL HEIR OF LATE HIMANSHU RAOJIBHAI PATEL,VADODARA vs. THE ITO, WARD-1(1)(4) NOW PRESENT JURISDICTION THE DY.CIT, CIRCLE-1(1)(1), VADODARA

4. In law and in the facts and circumstances of the case of the appellant, the AO has grossly erred in making the addition of Rs. 1,95,00,000/- u/s 2(22)(e) of the Act as 'Deemed Dividend' in the hands of the appellant even when the no benefit has been received by the appellant.

5. The appellant craves leave to add, alter or amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.”

3. The brief facts of the case are that the case of the assessee was selected for limited scrutiny on following two issues: (i) Sales turnover mismatch. (ii) Increase in Capital 3.1. The Assessing Officer (AO), however, during the assessment proceedings, noted that the assessee was one of the Directors of a company, namely, Briyosis Soft Caps Pvt.Ltd. He further noted that the assessee’s shareholding in the said company was substantial, i.e. 32.54%. He further noted that the assessee had received amounts from Briyosis Soft Caps Pvt.Ltd. on 30/09/2014 of Rs.70 lakhs, on 31/12/2014 of Rs.65 lakhs and on 31/03/20215 of Rs.60 lakhs, totalling to Rs.1,95,00,000/-. On being asked as to why the said amount be not treated as deemed dividend in the hands of Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. the assessee u/s.2(22)(e) of the Act, the assessee explained that the assessee did not receive the aforesaid amount from the aforesaid company as alleged. It was explained that, in fact, the company had a cash credit limit account with the Bank. The Bank insisted at each quarter to withdraw the money from cash credit account, to show the debit balance. Hence, on the direction of the bank and for running properly for the cash credit account, on the last date of the quarter, the amounts in question were transferred from the company’s account to the assessee’s account and the entry was reversed on the same day or the very next day without using the amount at all. It was explained that the aforesaid transaction was done by the Bank for its technical requirements and to show its targets and that it was not a case of any deemed dividend.

4. The Assessing Officer (AO), however, did not agree with the aforesaid contention of the assessee and made the impugned addition of Rs.1,95,00,000/- as deemed dividend u/s.2(22)(e) of the Act into the income of the assessee. The Ld. CIT(A) confirmed the addition so made by the AO.

5. Being aggrieved, the assessee is in appeal before us.

6. The Ld. Counsel for the assessee has made two-fold submissions before us. Firstly, the case of the assessee was selected for limited scrutiny on two issues, i.e. (i) sales turnover mismatch and (ii) increase in capital. He has submitted that the issue of deemed dividend was not listed for the purpose of scrutiny assessment. Therefore, the AO was not justified in making the impugned addition u/s.2(22)(e) of the Act by converting the limited assessment into full scrutiny assessment without the permission of the Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. competent authority and making the addition on the issue of deemed dividend u/s.2(22)(e) of the Act. He, in this respect, has relied upon the decision of the Co-ordinate Bench of the Tribunal in the case of Sagalaxmi Agriseeds Pvt.Ltd. vs. ACIT in for AY 2017-18, decided on 05/08/2025. The Ld. Counsel for the assessee has further invited our attention to Page No.15 of the impugned order of the Ld. CIT(A) to submit that a Certificate from the Bank was duly furnished before the Ld. CIT(A), wherein, the Bank has certified that the aforesaid amounts were erroneously debited by the Bank from the account of the company to the assessee’s account and that the same was reversed on the same day. The Ld. CIT(A), however, did not appreciate the aforesaid certificate and observed that the said mistakes cannot be inadvertently repeated time and again and, therefore, confirmed the impugned addition. The Ld. Counsel for the assessee, however, submitted that since the bank has duly certified that the amounts were debited from the company’s account and credited to the assessee’s bank account by inadvertent mistake and that the same entries were made by bank on the same day, hence, it was not a case of deemed dividend u/s.2(22)(e) of the Act.

7. The Ld. DR, however, has relied upon the findings of the lower authorities.

“8. We have heard the rival contentions of the Ld. Representatives of the parties and gone through the record. In this case, the return of the assessee was, admittedly, selected for limited scrutiny on the issue of increase in share capital. The credit in form of share capital can be examined in terms of provision of S. 68 of the Act. The issue price of such shares can also be examined u/s 56 of the Act, whereby the addition can be made into the income of an assessee if such an assessee has received higher consideration for sale of shares than the market price. The issue was, accordingly examined by the AO and it was found that increase in share capital was not on account of any introduction of cash on sale of shares, rather, it was on account of acquisition of assets including Goodwill in lieu of transfer of shares of the assessee company. Thus, it was not a case of addition of income on account of introduction of unjustified share capital, hence no addition on this issue was warranted. Rather, it was the case of the AO that the values of the assets in particular "the Goodwill" purchased from erstwhile proprietorship concern, in actual, was not of such high amount as was valued by the valuer and claimed by the assessee in its books of accounts. Thus, at the most, it was a case of capital loss not of any introduction of cash which could have been added as introduction of the own income of the assessee, the source of which was not explained. The AO, having noted that it was not a case of increase in share capital by way of sale of shares by assessee company at exorbitant price or at a premium which was not justified and that it was not a fit case for making addition on account of increase in share capital, the Jurisdiction of the AO had ceased at that point. The issue of depreciation on goodwill was altogether different which was to be considered in terms of s. 32 of the Act. If the AO wanted to further examine the issue of claim of depreciation of Goodwill, in our view, he should have taken the permission to enlarge the scope of limited scrutiny from the Jurisdictional Commissioner as per the law. Merely because the issue of claim of depreciation was germane to the issue of purchase of assets/Goodwill, that itself, in our view, will not confer jurisdiction upon the AO to suo moto to enlarge his jurisdiction from limited scrutiny to full scrutiny and entitle him to make the addition by disallowing depreciation on goodwill, which issue was neither the subject nor within the scope of the limited scrutiny issue of increase in share capital. The scope of limited scrutiny on any issue cannot be enlarged in the absence of previous approval of the administrative Commissioner as directed by the CBDT's (Central Board of Direct Taxes) instructions dated 26.09.2014, 29.12.2014 and 14.07.2016 in respect of "CASS" assessment. The Ld. CIT(A) himself, has referred to CBDT's Instruction No. 5/2016 dated 14.07.2016, the contents of which are reproduced as under: Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. "Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 14th of July, 2016 Subject: Direction regarding scope of enquiry in cases under Limited Scrutiny' selected through CASS 2015 & 2016-regd.- Vide Instruction No.20/2015 dated 29.12.2015 in File of even number, Board has laid down Standard Operating Procedure for handling of cases under 'Limited Scrutiny' which were selected through Computer Aided Scrutiny Selection in CASS Cycle 2015. In these cases, it was stated that the general scope of enquiry in scrutiny proceedings should be restricted to the relevant parameters which formed the basis for selecting the case for scrutiny However, in revenue potential cases, it was further provided that Complete Scrutiny could be conducted, if there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr. DIT/DIT.

2.In order to ensure that maximum objectivity is maintained in converting a case falling under Limited Scrutiny' into a Complete Scrutiny case, the matter has been further examined and in partial modification to Para 3(d) of the earlier order dated 29.12.2015, Board hereby lays down that while proposing to take up Complete Scrutiny' in a case which was originally earmarked for 'Limited Scrutiny', the Assessing Officer (AO) shall be required to form a reasonable view that there is possibility of under assessment of income if the case is not examined under Complete Scrutiny. In this regard, the monetary limits and requirement of administrative approval from Pr. CIT/CIT/Pr. DIT/DIT, as prescribed in Para 3(d) of earlier Instruction dated 29.12.2015, shall continue to remain applicable

3. Further, while forming the reasonable view, the Assessing Officer would ensure that: (a)there exists credible material or information available on record for forming such view, (b)this reasonable view should not be based on mere suspicion, conjecture or unreliable source; and (c)there must be a direct nexus between the available material and formation of such view.

8. The contents of this Instruction may be brought to the notice of all for necessary compliance.

9. Hindi version to follow (Rohit Garg) Deputy Secretary to the Government of India

9. Further, the CBDT vide its instructions dated 30. 11. 2017 has taken serious note of the instances of Assessing Officers travelling beyond their jurisdiction while making assessment in Limited Scrutiny cases by initiating enquires on new issues without complying with mandatory CBDT instructions dated 26.09.2014,29.12.2015 and 14.07.2016 and even one Assessing Officer who had not followed the above said instructions was placed under suspension. The relevant part of the said instruction is reproduced as under.

"F. No. DGIT(Vig.)/HQ/S/2017-18 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi-110 001 Dated: 30th November, 2017 Subject: Unauthorized expansion of the scope of limited scrutiny- instructions-reg.

8.1. The above observations of the Tribunal are squarely applicable in this case. Therefore, the addition made by the AO on the issue of deemed dividend u/s.2(22)(e) of the Act is bad in law as the said issue was not covered under the limited scrutiny assessment.

8.2. Even on merits, it is not a case of deemed dividend at all. Though the assessee had explained before the Ld. CIT(A) that the Bank insisted at each quarter to withdraw money from cash credit account to show their targets and thereby made credit entries into the account of the assessee from Anmol Himanshu Patel (Legal Heir of Late Himanshu Raojibhai Patel) vs. DCIT Asst.Year 2015-16. company’s account, so that the company’s cash credit account is kept running smoothly, however, the entry was reversed by bank on the same day. Even the bank has given a certificate stating that they had erroneously made the aforesaid entries and immediately, the same were reversed. Though it may not have been erroneous entries or unintentional entries made by the bank into the account of the assessee, but some intentional act to pass same formal entry of credit & debit to show its targets, however, the fact is clear that it is not a case of any deemed dividend. Neither the said amounts were credited to the account of the assessee at the instance of the assessee nor the same were ever used by the assessee, nor it is a case of any loan by the company to the assessee. Therefore, it is not at all a case of any addition to the income of the assessee as deemed dividend. The impugned additions are not sustainable at all, the same are, accordingly ordered to be deleted on both the counts, i.e. on legal issue as well as on merits.