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Facts
The assessee, Sunil Madhyani, a director with over 10% shareholding in M/s. Mahadeva Cars (P) Ltd., received an advance of Rs.1,12,09,000/- from the company in FY 2016-17. The company had accumulated profits of Rs.1,98,90,304/-. The Assessing Officer treated this advance as deemed dividend under Section 2(22)(e) of the Income Tax Act, and reopened the assessment under Section 147. The CIT(A) upheld the addition.
Held
The Tribunal admitted additional evidence presented by the assessee under Rule 29 of the ITAT Rules, 1963, finding them crucial for proper adjudication and their earlier non-submission due to bona fide reasons. Consequently, the Tribunal set aside the CIT(A)'s findings and remanded the matter back to the file of the CIT(A) for fresh adjudication after obtaining a remand report from the Assessing Officer.
Key Issues
Whether the advance received by the assessee from a closely held company constitutes deemed dividend u/s 2(22)(e) and the validity of reopening of assessment u/s 147; and whether additional evidences submitted by the assessee should be admitted for fresh adjudication.
Sections Cited
Section 2(22)(e) of Income Tax Act, 1961, Section 133A of Income Tax Act, 1961, Section 147 of Income Tax Act, 1961, Section 148 of Income Tax Act, 1961, Section 142(1) of Income Tax Act, 1961, Section 144B of Income Tax Act, 1961, Section 250(4) of Income Tax Act, 1961, Section 250(6) of Income Tax Act, 1961, Rule 46A(3) of Income Tax Rules, 1962, Rule 29 of Income Tax (Appellate Tribunal) Rules, 1963
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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY & SHRI ARUN KHODPIA
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM:
The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 11.07.2025 for the assessment year 2017-18 as per the following grounds of appeal:
1. That the learned CIT(A) has erred in law and on facts in confirming the addition of Rs.1,12,09,000/- as deemed dividend u/s.2(22)(e) of the Act, ignoring that: a) the advance was non-gratuitous, having been made in recognition of personal guarantees and collateral security provided by the appellant to enable the company to obtain loans exceeding Rs.25 crores; b) the transaction conferred substantial benefit to the company and therefore falls outside the ambit of section 2(22)(e). c) the advance was in the nature of land advance pursuant to an agreement and duly recorded in the books of the company;
2. That the learned CIT(A) has erred in upholding the validity of reopening u/s.147 of the Income-tax Act, 1961. The reopening is bad in law as it was based on borrowed satisfaction, without independent application of mind, and in the absence of any failure on part of the appellant to disclose fully and truly all material facts necessary for assessment.
3. The appellant reserves the right to addition, after or omit all or any of the grounds of appeal in the interest of justice.”
Brief facts in this case are that the assessee, Shri Sunil Madhyani filed his return of income for Assessment Year (A.Y.)-2017-18 on 23.02.2018 declaring a gross total income of Rs.42,43,160/-. The assessee was one of the directors of M/s. Mahadeva Cars (P) Ltd., Raipur and held
3 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai more than 10% shareholding in the company. A survey under section 133A of the Income Tax Act, 1961 (for short ‘the Act’) was conducted in the case of M/s. Mahadeva Cars (P) Ltd. on 13.12.2016. During the course of the survey, it was found that the company had advanced a sum of Rs.1,12,09,000/- to the assessee during the Financial Year 2016-17. The assessee, in his statement recorded under oath on the same date, admitted to having received the said advance from the company. As per the Tax Audit Report of the company, it had accumulated profits of Rs.1,98,90,304/- as on the date of advance.
On the basis of this information, the A.O. formed a belief that income chargeable to tax had escaped assessment within the meaning of Section 147 of the Act. After obtaining prior approval from the Addl./Joint Commissioner of Income Tax, Range-1, Bhilai, notice under Section 148 of the Act was issued to the assessee on 28.03.2021. However, the assessee failed to file a return of income in response to the said notice. Subsequently, statutory notices under section 142(1) of the Act were issued and served upon the assessee along with questionnaires. In response, the assessee filed written submissions. However, as per the A.O., the assessee failed to provide substantive or satisfactory explanation or documentary evidence regarding the advance of Rs.1,12,09,000/- received from the company or to demonstrate why the provisions of Section 2(22)(e) of the Act were not attracted. Accordingly, the A.O. held that the amount of 4 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai Rs.1,12,09,000/- was liable to be taxed as deemed dividend under Section 2(22)(e) of the Act, being an advance received by a shareholder holding substantial interest in a closely held company with sufficient accumulated profits. The same was added to the total income of the assessee and the assessment was completed u/s.147 read with Section 144B of the Act on a total income of Rs.1,54,52,160/-, comprising the originally declared income of Rs.42,43,160/- and the deemed dividend addition of Rs.1,12,09,000/-.
Being aggrieved, the assessee carried the matter in appeal before the Ld.CIT(Appeals)/NFAC and the said authority after considering the assessment order and the submission of the assessee upheld the findings of the A.O.
At the very outset, at the time of the hearing, the Ld. Counsel for the assessee submitted that the appeal had been dismissed since the assessee was not able to furnish relevant evidences before the Ld. CIT(Appeals)/NFAC which is evident from Para 7.4 of its order and the same is extracted as follows:
“7.4 In the present case, the assessee's claim that the advance was in return for the personal guarantee and mortgage of property lacks documentary substantiation in the form of a formal agreement, board resolutions of the company, terms of such guarantee, or quantifiable business consideration. There is no evidence on record showing a direct nexus between the advance and the alleged benefit to the company, such as a board resolution authorizing the 5 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai advance as consideration for collateral or guarantee, or a contemporaneous agreement for reimbursement or compensation. Even the claim of land advance is not supported by any registered agreement for sale or relevant documentation evidencing the transaction. Mere mention in the statement recorded during the survey or in a loose paper ledger entry is insufficient to establish the legal character of the transaction as land advance or business reimbursement. Furthermore, the argument that another director was granted similar relief cannot ipso facto justify the assessee's case in absence of parity in facts and in absence of binding factual findings in that case applicable here.”
In this regard, it was submitted by the Ld. Counsel for the assessee that they are now ready with the additional evidences and sought permission to file an application under Rule 29 of the ITAT Rules, 1963 for admission of such additional evidences.
The Ld. Sr. DR did not raise any objection as regards the admission of such additional evidences filed by the assessee before this bench in interest of justice and fairness.
The assessee has filed the said application under Rule 29 of the ITAT Rules, 1963 and for the sake of completeness, contents therein are extracted as follows:
6 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai 7 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai 8 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai ITA No. 586/RPR/2025 9 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai ITA No. 586/RPR/2025
The assessee has also annexed an affidavit in support of his application under Rule 29 of the ITAT Rules, 1963 which is extracted as follows:
10 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai 11 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai 12 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai ITA No. 586/RPR/2025 13 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai ITA No. 586/RPR/2025
That on careful consideration of the application filed by the assessee under Rule 29 of the ITAT Rules, 1963 a/w. affidavit, it is crystal clear that earlier the assessee had contested the issue of deemed dividend as per Section 2(22)(e) of the Act on legal ground. Since the appeal of the assessee was dismissed for want of substantive evidence on merits, hence, once the assessee is now ready with these evidences, we are of the considered view that in the interest of justice and fairness, all these additional evidences should have to be considered in terms with Section 250(4) & (6) of the Act by the Ld. CIT(Appeals)/NFAC. We further direct that ground verification by calling for a remand report from the A.O shall be relevant for adjudication on merits as per law in terms with Rule 46A(3) of the I.T Rules, 1962. We herein admit the additional evidences a/w. application under Rule 29 of the ITAT Rules, 1963 and order accordingly.
That even without going into the merits of the matter, on this issue itself in the interest of justice and fairness, we set-aside the findings of the Ld. CIT(Appeals)/NFAC and remand the matter back to its file as per our aforesaid direction. The rule of natural justice shall also have to be complied with by the Ld. CIT(Appeals)/NFAC while passing order.
As per the above terms grounds of appeal raised by the assesse stands allowed for statistical purposes.
14 Sunil Madhyani Vs. DCIT, Cirle-1(1), Bhilai ITA No. 586/RPR/2025
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 20th November, 2025.