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Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals]-XI. New Delhi dated 11.09.2013 pertaining to A.Y 2010-11.
The sum and substance of the grievance of the assessee is that while deleting the addition u/s 2(22)(e) of the I.T. Act, 1961 the first appellate authority erred in further giving directions which were not the subject matter of the appeal. The assessee contends that the appellate authority should base its decision on proper and judicious appraisal of material available on record and should not view considerations of safeguarding interests of revenue in recording any findings or directions which are otherwise legally unsustainable.
Briefly stated, the facts of the case are that the assessee company had raised loan of Rs. 124,05,816/- from its sister concern M/s Kimo Clothing Design Concept Pvt Ltd. having 99.99% stake in the assessee company. The share-holding pattern of M/s Kimo Clothing Design Concept Pvt Ltd. is as under:
Shri Rajeev Sharma 51% Smt. Ida Mangarta Verrips 49%
While scrutinizing the return of income for the year under consideration, the AO found that the share holders of M/s Kimo Clothing Design Concept Pvt Ltd. have more than 10% stake in the assessee company and the share holders of M/s Kimo Clothing Design Concept Pvt Ltd. are common shares through M/s Kimo Clothing Design Concept Pvt Ltd.. Applying the provisions of section 2(22)(e) of the Act, the AO treated the amount of Rs. 1,24,05,816/- as deemed dividend in the hands of the assessee company.
The assessee agitated the matter before the first appellate authority and after considering the facts and submissions, the CIT(A) has held as under:
“In view of the above, Mr. Rajeev Sharma and Ms. Ida Margaretha Verips are the actual beneficiaries and deemed dividend should be taxed in their hands in the ratio of their share holding. The AO is directed to pass on information to the jurisdictional AOs of the these to Directors/share holders who in turn is directed to take necessary action in the case of Rajeev Sharma &. Ms. Ida Margaretha Verrips so that there remains no escapement of income in their hands. As per record, the assessment details of these two directors are as under: S. Name Address Rank Ate No, PAN No, | Ward/Circle E-601, Greater AOTPS1556G DC/AC No. Rajeev 1 n Kaiiash, Part-II, C.5( 1) Shanna 00921140002 New-Delhi-48 516 (HDFC RANK LTD. Greater Kaiiash New Delhi) Late H-35, Western 00149090000 AFMPV9949Q ITO 2 Mrs. Avenue IOC, V and 0051 {Yes Ward IDA PC) Neb Saras. Rank, Sec 18, 1(3) Margare Sanik farms, New Notda) tha Delhi-02 Verrips
In view of the above, with these directions, the addition in the hands of the appellant company is directed to be deleted. However, such addition of deemed dividend shall be made in the hands of individual shareholders Mr, Rajeev Sharma and Ms. Ida Margaretha Verrips by the jurisdictional AOs. 'The ground of appeal is accordingly decided.
6. The bone of contention is the findings which read “However, such addition of deemed dividend shall be made in the hands of the share holders Shri Rajeev Sharma and Smt. Ida Mangartha by the jurisdictional AO.”
7. Before us, the ld. A.R. vehemently stated that after deleting the impugned addition from the hands of the assessee, the ld.CIT(A) grossly erred in giving such directions which are beyond his appellate powers. It is the say of the ld. AR that the first appellate authority should have restricted his findings to the subject matter of the appeal and by doing so, he has exceeded his powers.
8. Per contra, the ld. DR supported the findings of the ld. CIT(A) stating that no prejudice is caused to the assessee in as much as the additions from his hands have been deleted by the CIT(A). The ld. DR further relied upon the provisions of section 150(1) of the Act.
9. We have given thoughtful consideration to the orders of the authorities below. The subject matter of the appeal before the CIT(A) was as under:
1 The Learned Assessing Officer erred in Saw and facts by making addition of Rs t 24,05,816/- U/s 2(22)(e) of the Income Tax Act, 1961,
2 learned Income Tax Officer erred in law and facts in not considering that the assesses is neither registered nor beneficial owner of the shares of the fender company i.e. M/s Kimo Clothing Design Concepts Pvt Ltd 3 The addition has been made holding that Shri Rajeev Sbarma and Smt Ida Margaretha Verrips. are common Shareholders of both lender and lendee companies 4 The Learned Assessing Officer has erred in treating the shareholding owned by M/s Ktmo Clothing Design Concepts Pvt Ltd in the appellant company as shareholding of Mr Rajeev Sharma and Ms. Ida Margaretha Vernps and clubbed with their personal holding in the appellant company for making provisions of section 2(22)(e) applicable to the Appellant company without any basis
5 learned assessing officer failed to appreciate that to determine the shareholding of a person in a concern - even share held by him/her in two different capacities e g as individual and as HUf cannot be clubbed. 6 u/s 22(2)(e) the deemed dividend can be assessed only in hands of a person who is a shareholder of tender company and not in hands of a person other than a shareholder”.
A perusal of the aforesaid grievance before the CIT(A) shows that the assessee was aggrieved by the treatment of deemed dividend in the hands of the assessee company in respect of loan raised from Kimo Clothing Design Concepts. u/s 246A of the Act, an assessee can prefer an appeal before the CIT(A) if he is aggrieved by any order mentioned in clause (a), (aa), (ab), (b), (ba), (bb), (c), (d), (e), (f), (g), (h), (ha), (hb), (i), (j), (ja) (k), (l), (m), (n), (o), (p), (q), (r). The powers of the CIT(A) while disposing the appal are given in section 251 of the Act and the same read as under :
“In disposing of the appeal, the Commissioner (Appeals) as the case may he, has following powers :
7 (i) to confirm, reduce, enhance or annual the assessment (ii) to confirm, cancel, enhance or reduce the penalty imposed ; and (iii) in other cases to pass such orders in the appeal as he thinks fit.
The Commissioner (Appeals), as the case may be, will not pass any order enhancing the tax liability or a penalty or reducing the amount of refund without giving a reasonable opportunity to the appellant of being heard. He may pass orders on matters which may not have been referred to him.
Explanation. In disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, even if such matter was not raised before by the appellant [Section 251].”
Thus, while disposing of the appeal, the CIT(A) can confirm, reduce, enhance or annul the assessment. Before 1.6.2001, there was one more power and the same reads as under:
“Or he may set aside the assessment and refer the case back to the AO for making fresh assessment in accordance with the directions.”
It can be safely concluded that the jurisdiction of the ld. CIT(A) u/s 251 of the Act was strictly confined to the assessment order for a particular year under appeal. This is analogous to the jurisdiction of the AO which is also confined to the year of assessment.
As mentioned elsewhere, the subject matter of appeal before the CIT(A) was in respect of the appellant and was confined to the additions made u/s 2(22)(e) of the Act in the hands of the appellant. Once the CIT(A) was convinced that the additions made by the AO are not justified in the hands of the assessee and once he has deleted the additions from the hands of the assessee, the matter should have ended there. But, ironically, the CIT(A) proceeded further in directing the AO to make the additions in the hands of some other persons and such directions are beyond the powers vested upon the CIT(A) u/s 251 of the Act. Such directions are uncalled for and deserve to be expunged from the findings of the CIT(A).
Our view is fortified by the judgment of the Hon’ble Supreme Court in the case of ITO Vs. Murlidhar Bhagwan Das 52 ITR335 where the facts of the case were as under:
“Certain interest income of Rs. 88,737 was brought to tax for the assessment year 1949-50. The assessee appealed and the Appellate Assistant Commissioner held that the income was received in the previous accounting year and directed that the amount should be deleted from the assessment for the year 1749-50 and included in the assessment for the year 1948-49. Pursuant to this direction, the Income-tax Officer initiated reassessment proceedings under section 34(1) of the I.T. Act, 1922, in respect of the year 1948-49 and served a notice on the assessee on December 5, 1357. The question was whether the second proviso to section 34(3) applied and saved the notice which was served beyond the time prescribed by section 34(1)”:
The Hon’ble Supreme Court held as under: “dissenting (i) that under the Income tax Act, the year was the unit of assessment. The decision of an Income-tax officer given in a particular year did not operate as res judicata in the matter of the subsequent years. The jurisdiction of the Tribunals in the hierarchy created by the Act was no higher than that of the Income-tax Officer it was also: confined to the year of assessment.
(ii) That the jurisdiction "of the Appellate Assistant Commissioner under section 31 was strictly confined to the assessment order of the particular year under appeal. (iii) That the assessment or reassessment made in consequence of or to give effect to any. finding or direction contained in an order under section 31, section 33A, section 33B, section 66 or section 66A must necessarily relate to the assessment of the year under appeal, revision or reference, as the case might be. That the second proviso to section 34(3) only lifted the (iv) ban of limitation and did not: enlarge the jurisdiction of the Tribunals under the relevant sections.
That the expressions “finding ” ' and “ direction in the (v) second proviso to section 34(3), meant respectively, a finding necessary for giving relief in respect of the assessment for the year in question, and a direction which the appellate or revisional authority, as the case may be, was empowered to give under the sections mentioned in that proviso. A "finding therefore could only be that which was necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner might hold, on the evidence, that the income shown by the assessee was not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context was that the income did not belong to the relevant year. He might incidentally find that the income belonged to another year, but that was not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. That the expression “ any person ” in the second (vi) proviso to section 34(3) referred to one who would be liable to be assessed for the whole or a part of the income that went into the assessment of the year under appeal or revision That, therefore, the second proviso to section 34(3) (vii) did not save the time-limit prescribed under section 34(1) in respect of an escaped assessment of a year other than that which was the subject-matter of the appeal or revision as the case might be, and accordingly the notice issued under section 34(1)(a) in this case was barred by limitation and was not saved by the second proviso to section 34(3).”
Drawing support from the ratio laid down by the Hon’ble Supreme Court [supra] we direct the AO to read the order of the first appellate authority without direction to take action u/s 147/148 of the Act.
Before parting, the ld. DR has heavily relied upon the provisions of section 150(1) of the Act. We find that the reliance is misplaced in as much as section 150(1) of the Act contains the provisions for cases where assessment is in pursuance of an order of appeal etc. This section does not permit the first appellate authority to pass orders on issues which were never the subject matter of appeal before him.
In the result, the appeal of the assessee in is allowed.