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Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SHRI. B. R. BASKARAN & SMT. BEENA PILLAI
Date of Hearing : 14-10-2020 Date of Pronouncement : 11-01-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 10/07/2017 passed by Ld.CIT(A)-6, Bangalore for assessment year 2007-08 on following grounds of appeal: “1. The order of CIT (A) —6 is opposed to law and facts of the case.
2. The CIT(A) - 6 failed to appreciate even after the categorical finding by assessing officer that the amount was received by Nitesh Infrastructure (P) Ltd. from Nitesh Estates Ltd. and Nitesh Estates Ltd. had shown this amount as advances to Nitesh Infrastructure (P) Ltd. in Balance Sheet in the register maintained U/s 311 of the Companies Act, 1956, the amount cannot be treated as deemed dividends in the appellant's case.
3. The CIT (A) - 6 failed to appreciate the appellant had not received the money either from Nitesh Estates Ltd. nor from Nitesh Infrastructure (P) Ltd to come with in the purview of deeming provisions of section 2(22)(e) of the I.T. Act, 1961.
4. The CIT(A) - 6 failed to appreciate that there can be no further deeming provision to assess U/s 2(22)(e) in the hand of the share holder for the money received by one Company from another Company.
5. The CIT(A) - 6 erred in not following the jurisdictional high court decision without distinguishing on merit but simply held as not applicable to the appellants case.
6. The CIT(A) - 6 failed to appreciate that even in the case of the M/s NIPL the recipient of the money based on which the assessment was reopened the H'ble Tribunal based on the same jurisdictional high court relied on the appellant had held that the addition U/s 2(22)(e) was deleted and confirmed by the H'ble jurisdictional High Court.
7. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal my be allowed and justice rendered, the appellant may be awarded cost in prosecuting the appeal and also order for the refund of the institu n fees as part of the costs for not following the jurisdictional high court decision.” Brief facts of the case are as under: 2. Assessee is a Director of M/s.Nitish Estate Pvt.Ltd and its subsidiaries. He filed its return of income for year under consideration on 14/01/2008 declaring a total income of Rs.14,22,91,120/-. Assessee derives income from salary, house property, business income and income from other sources as has been observed by Ld.AO. It is also been noted by Ld.AO that assessee is a major shareholder of M/s Nitesh Estates private limited having substantial interest in M/s Nitesh Infrastructure Pvt. Ltd. During the year under consideration, Ld.AO noted that assessee advanced sum of Rs.1,18,00,000/-, to Nitesh Infrastructure Pvt.Ltd. Ld.AO also noted that a sum of Rs.73 lakh was repaid during the year under consideration itself. And the balance amount of Rs.45 lakh was shown as current liability by Nitesh Infrastructure Pvt.Ltd. It was observed by Ld.AO that, as assessee has substantial interest in both the companies, provisions of section 2(22)(e) of the Act stands attracted and the said loan amount was liable to be assessed in the hands of assessee. Since assessee did not take into consideration the above transaction while filing his return of income, Ld.AO was of the opinion that there was reason to believe that income has escaped assessment within the provisions of section 148 of the Act.
In view of the above, notice under section 148 dated 12/03/2014 was issued and served on assessee.
In response to notice under section 148, representative of assessee appeared before Ld.AO and filed requisite details as called for. Ld.AO based on submissions made by assessee vide letter dated 08/08/2014, and documents filed in respect of M/s.Nitesh Estates Pvt.Ltd., and M/s.Nitesh Infrastructure Pvt. Ltd., came to the conclusion that, provisions of section 2(22)(e) of the Act, is clearly attracted. Ld.AO was also of the opinion that assessee was holding 54.85% equity shares in Nitish Estates Pvt. Ltd., and 98% equity shares in M/s.Nitish Infrastructure Pvt.Ltd., respectively. The Ld.AO thus, disallowed sum of Rs.1,18,00,000/- in the hands of assessee.
5. Aggrieved by addition, assessee filed appeal before Ld.CIT(A). Ld.CIT(A) on merits observed as under:
“8. The solitary issue to be adjudicated in the instant appeal concerns disallowance of Rs. 11800000/- by AD by invoking section 2(22)(e) of the Act.
Perusal of assessment order reveals that appellant is a major share holder in Nitesh Estates Pvt Ltd NEPL in short which has a substantial interest in Nitesh Infrastructure Pvt Ltd NIPL in short. It was noted by AO that NEPL had advanced a sum of Rs. 11800000/- during FY 2006- 07 to NIPL. It was noted that Rs. 73 Iakh was repaid during FY 2006-07 & balance of Rs. 45 lakh was shown as current liH NIPL. Further appellant did not take these transactions into consideration while filing his return of income. Therefore the case was re-opened u/s 148 since there was reason to believe that income had escaped assessment.
It may be noted that appellant holds 54.5% & 98 % as equity shares in NEPL & NIPL respectively. It may further be noted that wef AY 1998 - 99, if any payment by way of advance or a loan is made by a closely held company to a shareholder who is a beneficial owner of shares holding not less than 1 % voting power or to any concern in which such a shareholder is a member or a partner in which he has a substantial interest then such advance, payment or loan will be treated as 'deemed dividend" u/s 2( 22) (e) of the Act in the hands of such share holder.
During appellate proceedings, AR of appellant relied on Hon'ble ITAT Bangalore's decision in the case of Sr. Rajeev Chandrashekar in AY 2008-09 wherein the Hon'ble Bench by relying on Hon'ble High Court of Rajasthan in the case of Hotel Hilltop 2117 CTR 527 (Raj) held that loan or advance to a non shareholder cannot be taxed as deemed dividend. The AR also relied on Honble High Court of Karnataka 's decision in the case of Sarva Equity Pvt Ltd in ITA No 322/212/01W ITA NOS 323/2012 & 324/2012 wherein it was held that "only where loan is advanced by the company to the registered shareholder and the other conditions set out in, section 2(22)(e) are satisfied, that amount of loan would be liable to be regarded as deemed dividend within the meaning of this section"
It is evident that that appellant holds 54.5% & 98 % as equity shares in NEPL & NIPL respectively. These show that appellant is a major share holder in Nitesh Estates Pvt Ltd which has, a substantial interest in Nitesh Infrastructure Pvt Ltd. It is further noted that NEPL had advanced a sum of Rs.11,800000/- during FY 2006-07 to NIPL. Therefore it is established that appellant is a major shareholder in a company which had advanced sums to another company wherein the said company has major stakes. Therefore the decision of Hon'ble ITAT Bangalore in the cited case of Sr. Rajeev Chandrashekar in ITA No 144/Bang/2013, AY 2008-09 and Hon'ble High Court of Karnataka 's.decision in the case of Sarva Equity Pvt Ltd in ITA No 322/212/01W ITA NOS 323/2012 & 324/2012 are not applicable. Reliance placed by AR of appellant in the cited judicial decisions is found to be untenable. In the light of these facts, AO's action of invoking provisions of section 2 (22(e) is found to be as per law. And hence the same is upheld, sustained and confirmed.”
Aggrieved by order of Ld.CIT(A), assessee is in appeal before us now.
At the outset, Ld.AR submitted that, assessee has raised following additional grounds vide application dated 31/10/2018 on merits as under: “1. Without prejudice, the addition of the deemed dividend can be made on the accumulated profits, which should be restricted to the profits as appearing in the financials in the year prior to the year, in which the payment is made, on the facts and circumstances of the case.
Without prejudice and not conceding that there was any instance of deemed dividend in the case of the appellant, the deemed dividend if any was to be restricted to the extent of the accumulated profits of Rs. 69,04,318/-, on the facts and circumstances of the case.
3. The appellant craves leave to add, alter, modify, delete or substitute any or all of the grounds at the time of hearing the appeal.
4. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed and appropriate relief may be granted in the interest of justice and equity.”
Vide application dated 08/10/2019 assessee challenges proceedings under section 148 to be bad in law for the reason that notice issued under section 143(2) is beyond the period of limitation by raising following grounds: “
1. The notice issued under section 148 of the Act is bad in law on the facts and circumstances of the case.
2. The order of re-assessment passed under section 147 of the Act is bad in law and void-ab-initio as the mandatory conditions to invoke the provision of section 148 did not exist on the facts and circumstances of the case.
3. The assumption of jurisdiction under section 148 r.w.s. 147 of the Act is absent or having not been complied with by the learned assessing officer, consequently the order passed on an invalid assumption of jurisdiction do not survive on the facts and circumstances of the case.
4. The reason recorded by the learned assessing officer, may utmost be considered as reason to suspect and under no stretch of imagination the same cannot be construed as reason to believe which is a basic ingredient for a valid assumption of re-assessment under the facts and circumstances of the case.
The notice issued under section 143(2) is barred by limitation on the facts and circumstances of the case.
6. The learned Assessing Officer is not justified in law in charging the interest under section 234A, 234B and 234C of the Act and further the calculation of interest under section 234A, 234B and 234C of the Act is not in accordance with law since the rate, method of calculation, quantum is not discernable from the order of assessment on the facts and circumstance of the case. 7. The Appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal
8. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice.”
9. Ld.AR submitted that, for adjudicating additional grounds no new facts needs to be looked into, as it emerges from orders passed by authorities below. He thus relying on the decision of Hon’ble Supreme Court in case of National Thermal Power Co Ltd vs CIT reported in 229 ITR 383 and decision of Hon’ble Karnataka High Court in case of Gundathur Thimmappa & Sons vs CIT reported in 70 ITR 70, prayed for admission of the Additional Grounds raised before this Tribunal.
10. On the contrary, Ld.Sr.DR objected for grounds to be admitted for the reason that, these were not raised before authorities below. She submitted that legal issue raised by assessee before this Tribunal is an afterthought.
11. We have perused submissions advanced by both sides in light of records placed before us.
12. We note that legal issue raised vide application dated 18/10/2019 goes to the root of the case.
13. It has been submitted by Ld.AR that, assessee was not issued notice u/s.143(2) within the period of limitation, and therefore consequential reassessment order passed is bad in law. He submitted that notice u/s143(2) was issued to assessee on 11/03/2015. He placed reliance on page 19 of paper book, where notice under section 143(2) is placed. Ld.AR submitted that on 25/03/2014, assessee filed return in lieu of notice issued under section 147 of the Act, and time period to issue notice u/s.143(2) expires on 30/09/2014, being 6 months from the end of the financial year in which the return is filed.
14. He thus prayed for quashing of the reassessment order as the same is passed without jurisdiction. Ld.AR placed reliance on decision of coordinate bench in case of this Tribunal in case of ACIT vs.Ashed Properties & Investments (P.) Ltd. reported in (2015) 62 taxmann.com 340 15. On the contrary, Ldr.Sr.DR submitted that this issue has been raised for the 1st time before this Tribunal, and therefore needs to be verified by authorities below. He submitted for the matter to be remanded to authorities below for verification. Ld. senior DR also submitted that the said error could be rectified under section 292 BB of the Act.
We have perused submissions advanced by both sides in light of records placed before us.
The issue before us is regarding belated issuance of notice under section 143(2).
Assessee was issued notice under section 148 on 06/03/2014, which was received by assessee on 12/03/2014. From the records, it is apparent that, vide letter dated 21/03/2014 filed with revenue on 25/03/2014, assessee submitted that original return filed is to be treated as return in response to notice under section 148. The said letter is placed at page 10 of paper book filed before us.
In the present facts, assessee was issued notice under section 143(2) on 11/03/2015, a copy of which is placed at page 19 of paper book. For sake of convenience copy of said letter is scanned reproduced herein below as under: “Later on at p. 362, the Court held as under: There is no reason or logic why all the incidents attaching under the earlier legislations in so far as they are not clearly inconsistent with the later one, should not be extended to the later legislation as well." And concluded by saying as under: In the circumstances, I agree that we should give full and literal effect to the language of s. 3(3) and hold that it has the effect not only of attracting the procedural provisions of the 1944 Act but also all its other provisions including those containing the definition.”
Admittedly, notice under 143(2) of the Act, issued on 11/03/2015 is in connection with the return filed pursuant to issuance of notice under section 148. On bare reading of provisions of section 143(2), it is clear that, time period for issuance of notice is, 6 months from end of the financial year in which the return was filed.
In the present facts of the case the time period reckons from 01/04/2014, since assessee intimated revenue vide letter dated 21/03/2014 filed with revenue on 25/3/2014 to consider the original return filed, in lieu of notice issued under section 148. No doubt that, notice under section 143(2) dated 11/03/2015 is issued to assessee beyond period of limitation. Notice under section 143(2) gives jurisdiction to assessing officer to proceed with the reassessment proceedings under the Act. In the present facts, notice issued beyond period of limitation is invalid and therefore the jurisdiction assumed by Ld.AO in view of such notice is bad in law.
Revenue argued on applicability of provisions of section 292 BB of the act. It is clear from the provisions that section 292 BB of the act could only in select Ld.AO from the proof of service of notice. It does not in anyway insulate Ld.AO in a situation where the issuance itself is bad in law and beyond the period of limitation. Our view is supported by the decision rendered by Hon’ble Supreme Court in the case of CIT Vs. Laxman Das Khandelwal (2019) (108 Taxmann.com 183)(SC). We therefore do not find any merit in the argument of the Ld.Sr.DR.
We therefore hold that the reassessment proceedings are invalid for the reason that notice under section 143(2) was not issued to assessee in the time period prescribed by the provisions. Accordingly, reassessment order dated 19/03/2015 passed by Ld.AO deserves to be quashed and set-aside. Assessee thus succeeds on legal issue raised in additional ground before this Tribunal. 23. As we have already quashed the assessment order passed, issues raised by assessee on merits becomes academic at the same is not adjudicated. In the result appeal filed by assessee stands allowed. Order pronounced in the open court on 11th Jan, 2021. Sd/- Sd/- (B. R. BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 11th Jan, 2021.