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Facts
The assessee filed his return of income, which was later revised. During scrutiny, the Assessing Officer initiated reassessment proceedings and observed that the assessee received loans from a company where he had substantial shareholding. The company had positive reserves and accumulated profits.
Held
The Tribunal noted that the submissions made by the assessee before it were not considered by the lower authorities. Since the matter was not properly adjudicated, the Tribunal deemed it appropriate to grant one more opportunity to the assessee.
Key Issues
Whether the addition made on account of deemed dividend under section 2(22)(e) of the Act was justified, and if the lower authorities had properly considered the assessee's submissions regarding the loan transaction.
Sections Cited
2(22)(e), 250, 143(3), 147, 148
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI AMARJIT SINGHSHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 24/01/2024 passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Additional/Joint Commissioner of Income Tax (Appeals) - 5, Delhi [“learned Addl./Joint CIT(A)”], for the assessment year 2011-12.
The only grievance of the assessee is against the addition made on account of the deemed dividend under section 2(22)(e) of the Act.
The brief facts of the case are that the assessee is an individual and for the year under consideration filed his return of income on 13/09/2009 declaring a total income of INR 46,77,194. The return was subsequently revised on 12/09/2012 declaring a total income of INR 48,85,579. The return filed by the assessee was selected for scrutiny and vide order dated 21/03/2014 passed under section 143(3) of the Act the total income of the assessee was assessed at INR 57,40,040. Subsequently, notice under section 148 of the Act was issued on 24/03/2015 and proceedings under section 147 of the Act were initiated. During the reassessment proceedings from the perusal of the balancesheet, it was observed that the assessee has received loans from the company in which it has a substantial shareholding.
In order to verify the applicability of the deemed dividend, the assessee was asked to produce the financial statements of the company in which there were positive reserves and surplus. From the financials submitted by the assessee, it was observed that Faiz Super Alloys Private Limited has positive reserves and surplus of INR 5,24,552 as on 31/03/2010 and INR 8,09,904 as on 31/03/2011 and the assessee has received loan from it during the financial year 2010-11 of INR 78,89,020. Since the aforesaid company was a closely held company in which the public was not substantially interested, the payment was by way of advance or loan to the shareholder and the company had sufficient accumulated profits up to the date of payment, the Assessing Officer (“AO”) vide order dated 28/09/2015 passed under section 143(3) read with section 147 of the Act concluded that the pre-conditions as laid down in section 2(22)(e) of the Act are satisfied in the present case.
Since the assessee while filing the Act declared income under section 2(22)(e) of the Act of INR 5,24,552 voluntarily and paid the taxes of INR 1,75,077, the AO further made an addition of INR 2,47,115 being the proportionate profit of current year up to the last date of payment of the loan. Thus, the AO made an addition of INR 7,71,667 to the total income of the assessee as deemed dividend under section 2(22)(e) of the Act.
The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. In the present case, upon perusal of the balance-sheet, it was noticed that the assessee has received a loan from a company in which it has a substantial shareholding. Since the other conditions as provided in section 2(22)(e) of the Act were satisfied, the AO by considering the accumulated profit at the end of the last year and proportionate profit of the current year up to the last date of receipt of loan made an addition of INR 7,71,667 under section 2(22)(e) of the Act as deemed dividend. On the other hand, as per the assessee, the AO had wrongly taxed the deemed dividend as no loans were received by the assessee but in fact loan was given by the assessee. It is further the submission of the assessee that he is maintaining 2 separate books of accounts one for the individual and 2nd for trading concern M/s Faiz and company. It is the plea of the assessee that firstly the loan was given by the assessee to the company from time to time and the company has repaid the same to the assessee at later dates, therefore provisions of section 2(22)(e) of the Act are not applicable in the present case. In this regard, during the hearing, the learned AR referred to the balancesheet of the assessee on page 3 as well as the balancesheet of Faiz and company on pages 5 and 7 of the paper book. The learned AR also referred to the financials of Faiz Super Alloys Private Limited forming part of the paper book as well as the combined action sheet with daily entries in daily balance in the books of Faiz Super Alloys Private Limited to substantiate the claim mentioned above. The learned AR also submitted that in this regard the submissions were also made before the learned CIT(A), which forms part of the paper book on pages 21-23. It is further the plea of the learned AR that the Department cannot take advantage of the assessee's mistake and only legitimate tax should be collected. On the other hand, the learned DR submitted that no submission was filed before the learned CIT(A) and there is no mention of the afore-noted submission in the impugned order.
Having considered the submissions and perusal of the order passed by the lower authorities, it is evident that the submissions as made before us by the assessee were not considered by any of the lower authorities.
Further, we find that there is no reference to the 2 separate books of accounts one for the individual and 2nd for trading concern, M/s Faiz and company, which has been now placed reliance upon by the learned AR. We further find that the written submission dated 19/11/2021, which is claimed to have been filed before the learned CIT(A) has also not been considered while passing the impugned order. Therefore, in view of the facts and circumstances as noted above, we deem it appropriate to grant one more opportunity to the assessee in the interest of natural justice and fair play.
Accordingly, we set aside the impugned order and restore the issue to the file of the AO for de novo adjudication after consideration of the submissions of the assessee and due verification of the material placed on record before us by the assessee. Since the matter is restored for consideration afresh, the assessee shall be at liberty to raise any other plea and file any other document in support of its claim, which we direct shall be considered before passing any order. Needless to mention, no order shall be passed without affording the reasonable and adequate opportunity of being hearing to the assessee. As a result, the grounds raised by the assessee are allowed for statistical purposes.
In the result, the appeal by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 21/10/2024