UMA KRISHNAKUMAR MITTAL,MUMBAI vs. ITO 8(2)(3), MUMBAI

This appeal by the assessee is directed against the order of the CIT(A)- 17, Mumbai dated 10.12.2012 for A.Y. 2005-06.

which are as under: - “1. The Commissioner of Income-tax (Appeals) [C.I.T-(A)] erred in confirming the re-opening of assessment under section 147 of the Income-tax Act, 1961 (hereinafter referred to as the said "Act") and failed to appreciate that the conditions precedent to re-opening under section 147 of the Act are not satisfied in the Appellant's case and hence the order passed by the Assessing officer (A.O.) is had in law and without any jurisdiction.

2. The CIT (A) erred in not appreciating that the original assessment order had been passed under section 143(1) of the Act, wherein all the primary and material facts were before the A.O. and the facts the Appellant had substantial interest both in Euro Flex Indl. P. Ltd. and KKM international P. Ltd. was before the A.O. at. the time of passing the original order under section 143(1) of the Act. The impugned order has been passed on a non-application of mind and is therefore liable to be set aside.

3. The learned CIT(A) erred in upholding the order of the A.O. in the re-opening of assessment under section 147 of the Act without considering the legal provisions, the Appellant further submits that before proceedings under section 148 can be validly initiated certain preconditions which are enumerated hereinafter have to be complied with:- (i) The A.O. must have reason to believe that income chargeable to tax has escaped assessment; (ii) such escapement must be on account of a failure on the part Mrs. Uma Krishnakumar Mittal of the assessee to disclose fully and truly all material facts necessary for its assessment for the said year provided that the proceedings have been initiated after a period of four years from the end of the assessment year to which they relate; (iii) prior to the issuance of the notice under section 148 the A.O. has to record his reasons on the basis of which he forms an opinion that income chargeable to tax has escaped assessment; (iv) the sanction of the appropriate authority is obtained on the basis of the reasons recorded by the A.O.; (v) the notice is validly issued and served on the assessee. The Appellant submits that the aforesaid conditions are jurisdictional facts and are to be fulfilled prior to the initiation of the proceedings and if any of the said conditions are not fulfilled, the very initiation is bad in law and liable to be quashed. The Appellant submits that in the present case all the aforesaid conditions have not been complied with and hence the impugned notices are bad in law and must be set aside.

5. The CIT (A) and A.O. failed to appreciate the facts of the case and merely re-opened the case, relying on the decision of M/s. Bhaumik Colours Pvt. Ltd. reported in 118 ITD 1 (SB) without appreciating that the same is not applicable to the facts of the present case.

6. On the facts and in the circumstances of the case and in the law, the CIT (A) while passing order under section 250 of the Act dated 10th December, 2012 erred in upholding the addition made by the A.O. to tune of Rs. 27,12,747/- 7. On the facts and in the circumstances of the case and in the law, the CIT (A) while passing order dated 10th December, 2012 of the Act erred in being as Deemed Dividend in the hands of the Appellant without any further enquiry even after submitting the details about the nature of transactions.

Mrs. Uma Krishnakumar Mittal 4. Grounds 6 & 7 – Deemed dividend under section 2(22)(e) 4.1 These ground were initially urged at the instance of the learned A.R. of the assessee. In these grounds, the assessee challenges the action of the learned CIT(A) in upholding the addition of `27,12,747/- made by the AO as deemed dividend under section 2(22)(e) of the Act in the hands of the assessee without any further enquiry and even after details in the matter were submitted. At the outset, the learned A.R. of the assessee submitted that the identical issue of addition of `27,14,747/- of a related party, i.e. K.K. Mittal, HUF for A.Y. 2005-06, came up for consideration before a Coordinate Bench of the Tribunal and in that case, the Coordinate Bench in its order in dated 15.07.2016 has set aside the impugned order and restored the same to the file of the AO to examine afresh the applicability of section 2(22)(e) of the Act in the light of the assessee’s claim that the transaction have been undertaken in the ordinary course of business. 4.1.2 According to the learned A.R., as in the cited case (supra) in the case on hand also, the AO has treated the business transaction with the sister concerns in the ordinary course of business, as loans and advances and treated the same as deemed dividend in the hands of the assessee. In this regard, the learned A.R. of the assessee submitted, inter alia, ledger accounts of different assessment years of M/s. Euro Flex Industries Ltd. and K.K.M. International P. Ltd. in the books of Mittatex Exports P. Ltd. where the assessee is having substantial interests. It was submitted that these ledger accounts would show continuous flow of transactions from these companies, i.e. M/s. Euro Flex Industries Ltd. and M/s. K.K.M. International P. Ltd., in the books of M/s. Mittatex Exports P. Ltd. According to the learned A.R. all these three companies are in the business of cotton export and have current account transactions with each other in the ordinary course of business. It was contended that these transactions are certainly not loans and advances which can be brought within the purview of deemed dividend under section 2(22)(e) of the Act.

Mrs. Uma Krishnakumar Mittal 4.2 Per contra, the learned D.R. for Revenue supported the orders of the authorities below. Apart from this, the learned D.R. contended that the above contentions, that these transactions are not loans and advances but are current account transactions of these parties carried out between them in the ordinary course of business, have been advanced by the assessee for the first time and therefore the same cannot be accepted without proper examination and certification by the authorities below. 4.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited (supra) as well as the ledger accounts, etc. submitted by the assessee in support of its assertion that the transactions of M/s. Mittatex Exports P. Ltd. vis-a-vis M/s. Euro Flex Industries Ltd. and M/s. K.K.M. International P. Ltd. are current accounts transactions entered into between them in the normal course of business. We find that in the decision of the Coordinate Bench in the case of a related party, i.e. M/s. K.K. Mittal, HUF in dated 15.07.2016 for A.Y. 2005-06 on identical facts and issues has set aside the impugned order in that case and restored this issue to the file of the AO to examine the issue of the applicability of section 2(22)(e) of the Act afresh in the light of the assessee’s plea that the said transactions have been entered into in the ordinary course of business at para 7 and 8 thereof. The Coordinate Bench has held as under: - “7. We have considered the rival submissions and also perused the accounts submitted by the assessee stating that the transactions of the M/s. Mittatex Exports Pvt. Ltd. with the two other parties are current account transaction during the course of business. Though the said plea is a new plea but, the same cannot be brushed aside and it needs detailed verification and examination by AO to ascertain that whether the transactions are covered under the definition of section 2(22)(e) of the Act or not. Therefore, in our considered opinion in the interest of justice, the assessee should be given one more opportunity to substantiate his arguments on applicability of section 2(22)(e) of the Act on the transaction. Hence while setting aside the impugned order the matter is sent back to the file of the AO with a direction to examine the whole issue of applicability of section 2(22)(e) of the Act afresh in the light of assessee’s plea that the transactions have been undertaken in the ordinary course of business.

Mrs. Uma Krishnakumar Mittal 8. Needless to say that an adequate opportunity of hearing to put forth the case should be given to the assessee.” 4.3.2 Following the aforesaid decision of the Coordinate Bench in the case of M/s. K.K. Mittal, HUF for A.Y. 2005-06, we are of the concerned opinion that even though the plea put forth by the assessee is a new plea, in the interest of equity and justice, the same ought not to be brushed aside as it requires detailed examination and verification by the AO to ascertain whether or not the said transactions are to be brought within the purview of the definition of deemed dividend under section 2(22)(e) of the Act. In that view of the matter, we, in the best interests of justice and equity are of the view that the assessee be given one more opportunity to substantiate her arguments on the applicability or otherwise of section 2(22)(e) of the Act in the case on hand. We therefore set aside the order of the authorities below on this issue of deemed dividend, and restore the matter to the file of the AO with a direction to examine the issue of applicability of section 2(22)(e) of the Act afresh in the light of the assessee’s plea that the transactions between the three concerns, i.e. M/s. Euro Flex Industries Ltd., M/s. K.K.M. International P. Ltd. and M/s. Mittatex Exports P. Ltd. have been undertaken in the ordinary course of business. We hold and direct accordingly. Consequently, grounds 6 & 7 of assessee’s appeal are treated as allowed for statistical purposes.