ACIT 18(1), MUMBAI vs. ASHWIN NARENDRA LODHA, MUMBAI

The captioned appeal by the Revenue is directed against the order of CIT(A)-29, Mumbai dated 28.06.2010, pertaining to the Assessment Year 2007-08, which in turn has arisen from the order passed by the Assessing Officer, Mumbai dated 29.12.2009 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

2. In this appeal, Revenue has raised the following Grounds in its Memo of appeal :-

i) On the facts and circumstances of the case and in law, the Id.CIT(A) erred in deleting an addition of Rs. 81,23,481/- under section 2(22)(e) of the Act without appreciating the fact that the assessee has incorrectly claimed that the assessee has paid the sums out of his credit balance as on 31.03.2006. ii) On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in not appreciating the fact that the balance sheet of M/s Champalal Motilal Steel Co. Pvt. Ltd. For 2005-06 does not reflect the name of the assessee as creditor. iii) On the facts and circumstances of the case and in law, the Id CIT (A) has erred in not appreciating the fact that the bank statement of M/s Navmi Steel Traders Pvt. Ltd. Indicates that the cheques in respect of amounts were given to M/s Champalal Motilal Steel Co. Pvt. Ltd. and not to the assessee.

Subsequently, Revenue has also raised Additional Grounds of appeal, which read as under :-

“I](i) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in admitting additional evidence in the form of audited balance- sheet of Navami Steel Traders Pvt. Ltd., a letter from assessee requesting loan from Navami Steel Traders Pvt. Ltd., in contravention of conditions mentioned in Rule 46A of I.T. Rules, 1962.

(ii) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in passing the order without remanding the matter to the AO.

(iii) For this and other reasons it is submitted that the order of the CIT(A) may be set aside and that of the AO restored.”

3. In brief, the relevant facts are that the respondent-assessee is an individual and he filed his return of income for Assessment Year 2007- 08 on 27.7.2007 declaring total income of Rs.11,76,955/-, which was duly processed u/s 143(1) of the Act. Subsequently, the return of income filed by the assessee was picked up for scrutiny assessment by issuance of notice u/s 143(2) of the Act on 5.8.2008, which was served on the assessee on 12.8.2008. In the subsequent assessment, the Assessing Officer noted that assessee had acquired an immoveable property for a sum of Rs.1,75,00,000/- and on being show caused to explain the source, assessee, inter-alia, submitted that a sum of Rs.1,24,00,000/- was paid by a concern, M/s. Champalal Motilal Steel Co. Pvt. Ltd. on his behalf. According to the assessee, the said sum was withdrawn by him from M/s. Champalal Motilal Steel Co. Pvt. Ltd. out of the credit balance lying with the said concern. The Assessing Officer has referred to the copy of account of the assessee appearing in the books of account of M/s. Champalal Motilal Steel Co. Pvt. Ltd. which was submitted by the assessee before him. The Assessing Officer noted that as per the said Statement of Account there was an opening credit balance of Rs.2,33,00,000/- in the account of the assessee as on 1.4.2006, but after perusing the Balance-sheet of the said concern for the year ending 31.3.2006, name of assessee was not appearing in the list of creditors. On being confronted, assessee pointed out that there was a mistake committed by the accountant of M/s. Champalal Motilal Steel Co. Pvt. Ltd. inasmuch as a sum of Rs.2,33,00,000/- was received from M/s. Navmi Steel Traders Co. Pvt. Ltd. with instructions to credit the account of the assessee in the account books of M/s. Champalal Motilal Steel Co. Pvt. Ltd. Instead, the accountant had credited the account of M/s. Navmi Steel Traders Co. Pvt. Ltd. in the account books of M/s. Champalal Motilal Steel Co. Pvt. Ltd. In support of his explanation, assessee also furnished a letter of confirmation from M/s. Navmi Steel Traders Co. Pvt. Ltd. along with copy of bank statement showing the relevant entries. In this manner, assessee pointed out that the withdrawal of Rs.1,24,00,000/- made by the assessee from M/s. Champalal Motilal Steel Co. Pvt. Ltd. was in effect not loans or advances, but mere withdrawal of money lying to his credit. The Assessing Officer, however, was not satisfied with the explanation of the assessee as according to him it was an afterthought, and that in such a situation the provisions of Sec. 2(22)(e) of the Act were fully attracted inasmuch as the assessee was a shareholder in M/s. Champalal Motilal Steel Co. Pvt. Ltd. According to the Assessing Officer, the amount of Rs.1,24,00,000/- advanced by M/s. Champalal Motilal Steel Co. Pvt. Ltd. to the assessee fell within the purview of Sec. 2(22)(e) of the Act and, therefore, considering the accumulated profit of the said concern, he brought to tax a sum of Rs.81,23,481/- in the hands of the assessee as ‘deemed dividend’ within the meaning of Sec. 2(22)(e) of the Act. In appeal, assessee reiterated the explanation furnished in the course of assessment proceedings and also referred to the audited Balance-sheet of M/s. Navmi Steel Traders Co. Pvt. Ltd. and a request letter of the assessee requesting for loan from M/s. Navmi Steel Traders Co. Pvt. Ltd. to justify that it was a case where assessee was making withdrawal of the credit balance already lying in the account books of M/s. Champalal Motilal Steel Co. Pvt. Ltd. The CIT(A) has since accepted the plea of the assessee and deleted the addition of Rs.81,23,481/- made by the Assessing Officer by invoking Sec. 2(22)(e) of the Act. Against such a decision of CIT(A), Revenue is in appeal before us on the basis of the aforesaid Grounds of appeal.

4. In this background, the respondent-assessee has invoked the provisions of Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 (in short ‘the Rules’) and has raised the following Grounds in order to support the ultimate decision of CIT(A), and has contended that the appeal of the Revenue be dismissed :-

“1. Notice u/s 143(2) is legally invalid On the facts and circumstances and in law, notice u/s 143(2) served by the assessing officer on August 12, 2008 was legally invalid since the same had been served after the expiry of statutory limit of twelve months from the end of the month in which the return of income was furnished by the assessee on 27.7.2007; and though as per Proviso to section 143(2)(ii), the assessing officer could have served the notice u/s 143(2) on or before 31.7.2008.

“1. Whether, on the facts and in the circumstances of the case, the refusal of the Tribunal to allow the assessee to challenge for the first time before it the validity of notice and assessment under section 34 while considering the appeal filed by the department against the order of the Appellate Assistant Commissioner for the assessment year 1947-48 was in accordance with law ?

Further, the Hon'ble High Court answered the aforesaid controversy in the following words :-

“The only question is whether the Tribunal was entitled in law to refuse to allow the assessee to urge that ground in the appeal before it. Now a Division Bench of this High Court in Commissioner of Income-tax v. Hazarimal Nagji & Co., after considering the relevant sections of the Income-tax Act and the relevant Rules made thereunder, held that the powers of the Appellate Tribunal are similar to the powers of an appellate court under the Civil Procedure Code. It has further held that the respondent in an appeal is undoubtedly entitled to support the decree which is in his favour on any grounds which are available to him, even though the decision of the lower court in his favour may not have been based on those grounds. It has further held that if the appellant in his challenge to the decree of the lower court is entitled to take a new ground not agitated in the court below by leave of the court, there appears to be no reason why a respondent in support of the decree in his favour passed by the lower court should not be entitled to agitate a new ground and subject to the same limitation. A Division Bench of the Allahabad High Court has taken a similar view in Kanpur Industrial Works v. Commissioner of Income-tax. That judgment has considered the position of an appeal under section 33 of the Income-tax Act along with the relevant Rules and that of an appeal under the Code of Civil Procedure and the provisions of Order XLI, rule 22. The judgment holds that when the department files an appeal for an increase in the assessed income, the subject-matter of the appeal is the increase claimed by the department and the assessee can urge any ground of defence even though it might have been rejected by the Appellate Assistant Commissioner for showing that there should be no increase. It has further held that that the assessee is not liable to be assessed at all is a ground for showing that there should be no further assessment and the department's appeal can therefore be resisted on that ground and that there is no incongruity in maintaining the assessment order passed against the assessee and yet refusing to increase it on the ground that he was not liable to be assessed at all. The judgment points out however that if the Tribunal accepts the ground of defence that the assessee was not liable to be assessed, it can only refuse to increase the assessed income as only such an order would be within the scope of the appeal filed by the department and any other order such as annulling the assessment would be outside the scope of the appeal. That judgment holds that the position of an appeal under section 33 of the Income-tax Act and an appeal under the Code of Civil Procedure is identical...................................................

If the ground succeeds, the only result would be that the appeal would fail. The acceptance of the ground would show that the entire assessment proceedings were invalid, but yet the Tribunal which hears that appeal would have no power to disturb or to set aside the order in favour of the appellant against which the appeal has been filed. The ground would serve only as a weapon of defence against the appeal. If the respondent has not himself taken any proceedings to challenge the order in appeal, the Tribunal cannot set aside the order appealed against. That order would stand and would have full effect in so far as it is against the respondent. The Tribunal refused to allow the assessee to take up this ground under an incorrect impression of law that if the point was allowed to be urged and succeeded, the Tribunal would have not only to dismiss the appeal, but also to set aside the entire assessment. The point would have served as a weapon of defence against the appeal, but it could not be made into a weapon of attack against the order in so far as it was against the assessee.”

As per the aforesaid decision of the Hon'ble High Court, assessee is entitled to raise the aforesaid Grounds only as a weapon of defence against the appeal of the Revenue. Moreover, it is also evident that the facts relevant to decide the controversy in the aforesaid Grounds of appeal raised by the assessee are emerging from the discussion in the assessment order itself on which there is no dispute. Therefore, since the Grounds raise a point of law and the relevant facts being available on record, we deem it fit and proper to admit the aforesaid Grounds of appeal raised by the respondent-assessee so far as it is to act as a weapon of defence with the respondent-assessee against the appeal of the Revenue.

“Provided that no notice under clause (ii) shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.”

Later, the said proviso to Sec.143(2)(ii) of the Act was amended by the Finance Act, 2008 w.e.f. 1.4.2008, which read as under :-

“Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.”

Order pronounced in the open court on 23rd December, 2016.