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Before: SHRI RAJENDRA & SHRI AMIT SHUKLA
PER AMIT SHUKLA, JM :
The aforesaid appeal has been filed by the Assessee against the impugned order dt. 27.9.2012, passed by CIT(A)-5, Mumbai for the quantum of assessment passed u/s 143(3) r.w.s. 147 of the Income Tax Act for the A.Y 2006-07. The grounds of appeal filed alongwith the memo of appeal reads as under :
“a) On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) – 5, Mumbai, hereinafter referred to as “the CIT(A)”has erred in holding that the reopening of
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the assessment proceedings under section 147 r.w.s. 148 of the Act was validly initiated. b) Your appellant respectfully submits all the relevant details/particulars were available with the assessing officer at the time of framing of original assessment order under section 143(3) of the Act. As such, the reopening of assessment under section 147 r.w.s. 148 of the Act was not justified.
c) Your appellant, therefore, prays that the assessment made under section 143(3) r.w.s. 147 of the Act be cancelled.”
Apart from the aforesaid grounds, the Assessee had also filed petition for admission of additional grounds vide separate petition whereby the following grounds have been raised :
“That on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) – 5 [CIT-(A)’]’has erred in confirming the addition made by Income-tax Officer – 3(1)(1) (‘AO’) by considering the loan given by M/s. Pantaloon Retail Technologies Ltd. (‘PRTL’) to the Appellant as deemed dividend under section 2(22)(e) of the Income-tax Act, 1961 (‘the Act’) by considering the accumulated profits as on 31st March 2006.”
The facts in brief are that, the Assessee-company is engaged in the business of providing financial services. For the assessment year under appeal, the return of income was filed declaring total income of Rs. 68,177/- on 27.11.2006. The said return was selected for scrutiny and assessment order was passed u/s 143(3), vide order dt. 24.11.2008 assessing the total income at Rs.3,99,944/- after making certain disallowances. Thereafter, notice u/s 148 dt. 2.11.2010 was issued for re-opening the assessment u/s 147 on following reasons recorded :
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“The assessment for A.Y. 2006-07 of M/s.Pantaloons Retail Technologies Ltd. was completed on 19.12.2008. During the course of assessment proceedings in the case of M/s. Pantaloon Retail Technologies Ltd.(M/s.PRTL) it was noticed that M/s.Pantaloon Technologies P.Ltd. has advanced a loan of Rs. 5,50,00,000/- to you. M/s. Advantage Moti (I) P.Ltd. is one of the shareholders of M/s. PRTL and holding 49,99,970/- shares out of 50,00,000/- shares which comes to 99.99% share holding in M/s PRTL. M/s Pantaloon Technologies P. Ltd. had a reserve and surplus of Rs.65,36,884 as on 31.3.2006. Therefore all the conditions stipulated in sec. 2(22)(e) have been satisfied i.e. loan or advance has been given to a shareholder holding 99.99% shares in the company and the company who has given loan and the company who has taken loan are Private Limited companies in which public are not substantially interested. M/s. PRTL is not engaged in the business of giving loans and advances. Therefore such loan/advance given are not under the normal course of business. M/s. PRTL is having a reserve and surplus of Rs. 65,35,884/- as on 31.3.06 and loan and advance amount given includes a amount of Rs. 1 crore given on 20.3.2006. Therefore the entire advance of Rs. 5,50,00,000/- needs to be taxed in the hands of M/s, Advantage Moti (I) P.Ltd. However, such addition is restricted to the extent of reserve and surplus which in this case is Rs. 65,36,884/-.
In view of the same, the deemed dividend to the tune of Rs 65,36,884/- should be taxable in the hands of the assessee company i.e. M/s. Advantage Moti (I) Pvt. Ltd. On perusal of the records, it is found that you have not offered any such income to tax. Therefore, I have reason to believe that the income aggregating to Rs.65,36,884/- has escaped assessment resulting into short levy of tax.
In view of the above, you are requested to explain why the amount of Rs.65,36,884/- should not be added to your total income and assessed accordingly. Your reply along with supporting documents and details should be submitted to the undersigned within 15 days from the date of receipt of this letter to enable me to complete the reassessment proceedings. If no reply or explanation is given it will be presumed that you have no explanation to offer and the same will be added to the total income of the company and assessed accordingly.”
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Against the said reasons recorded, the Assessee had filed its objections before the AO vide letter dt. 12.10.2011 contending that such a re-opening is invalid on the ground that it amounts to “change of opinion” and also relied upon various case laws. Besides this, it was also submitted that no new information or material has come to the notice of the AO after completion of the original assessment, hence based on some material, reopening u/s 147 cannot be resorted to. However, the AO rejected the Assessee’s objection and noted that the Assessee being one of the shareholders of M/s. PRTL Enterprises holding 99.99% shares of the Assessee-company, therefore, the loan taken for Rs.5,50,00,000/- is clearly covered by the provisions of deemed dividend u/s 2(22)(e) of the Act. This aspect was not examined at all. Thereafter, he noted that on the perusal of the balance-sheet as on 31.3.2006 of M/s. PRTL Enterprises it is seen that it had ‘reserves and surplus’ of Rs.65,36,884/-, therefore, the addition on account of deemed dividend should be restricted to Rs. 65,36,884/-. Accordingly, he made the addition of Rs.65,36,884/- u/s 2(22)(e). The ld. CIT(A) too upheld the validity of the re- opening u/s 147 and also the additions on merits.
Before us, the ld. Counsel of the Assessee submitted that during the course of the original assessment proceedings, the AO had raised the question regarding loan taken by the Assessee and in response, the Assessee had specifically provided the details of the loan borrowed from M/s. PRTL Enterprises. The reply filed before the AO vide letter dt. 3.10.2008 in this regard reads as under :
“3. In respect of loan of Rs. 5,50,00,000/- borrowed from Pantaloon Retail Technologies Ltd. (now known as PRTL Enterprises Ltd.), we are enclosing (a) acknowledgement for filing return of income for A.Y 2006-07; (b) statement of total income and (c) accounts for the year ended on 31st
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March, 2006 of the said company, as Annexure “G”, “H” and “I” respectively.”
Thus, all the details were given before the AO and post-assessment no tangible material has come on record, therefore, re-opening u/s 147 for taxing the said loan as deemed dividend cannot be resorted to, as it amounts to “change of opinion”. On merits, he submitted that deemed dividend can be invoked only when there are accumulated profits and reserves and surplus in the previous year and not in the current year. In the earlier years, the reserves and surplus of the Assessee was NIL as there was no accumulated profits. It was only during the current year that the ‘reserves and surplus’ was to the extent of Rs. 65,36,884/-. Thus, no addition on account of deemed dividend can be made. In support of his contention, he strongly relied upon the decision of the Hon’ble Supreme Court in the case of CIT vs. V. Damodaran reported in [1980] 121 ITR 572 (SC), wherein the Hon’ble Supreme Court held that accumulated profits will not include current profits. Thus, on merits also no addition can be made.
On the other hand, the ld. DR submitted that during the course of original assessment proceedings, the AO did not examine the issue regarding the applicability of deemed dividend u/s 2(22)(e) of the Act. Thus, there was non-application of mind by the AO. Once it has been found that such a provision of deemed dividend is clearly attracted on the loan, then, re-opening u/s 147 is justifiable as income chargeable to tax has escaped assessment. On merits, he submitted that the Assessee had not challenged it in the original grounds of appeal and same has been raised vide additional grounds. Therefore, such additional grounds should not be admitted now.
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We have heard the rival contentions and perused the relevant material placed on record. So far as admissibility of additional ground is concerned, we find that the same is arising out of the material already on record which does not require any investigation of facts but rather goes to the very root of the issue, whether the deemed dividend in terms of section 2(22)(e) is at all applicable in the case of the Assessee or not. Therefore, the additional ground which is arising out of material already on record is being admitted for adjudication. Prima facie going by the ld. Counsel’s contention on merits, we find that the Assessee had no accumulated profits up till 31.3.2005 which is evident from the balance-sheet given at pg. 105 of the paper book. Only the current year’s reserves and surplus is Rs. 65,36,884/- which is on account of net loss carried to the balance-sheet. The Hon’ble Supreme Court in the case of CIT vs. V. Damodaran (supra) after considering the various decisions has interpreted that “accumulated profit” cannot be construed to include current profits and there is a distinction between “accumulated profits” and “current profits”. If the Assessee did not had any accumulated profits brought forward from the earlier years, then, the provision of deemed dividend cannot be invoked on the current year’s profit. This is a settled position of law. Here, in this case, once there is no accumulated profits brought forward from the earlier years, then, the provision of deemed dividend u/s 2(22)(e) of the Act cannot be invoked for taxing the reserves and surplus or the profits of the current year. Accordingly, the addition made by the AO cannot be sustained at the threshold.
Since we have already deleted the addition on merits, the issue regarding the validity of re-opening u/s 147 as raised before us, has become
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purely academic and therefore, we are refraining from adjudicating the same and the same is treated as infructuous.
In the result, the appeal of the Assessee is treated as allowed.
Order pronounced in the open court on 15th January, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांक ____ जनवरी, 2016 को क� गई ।
Sd/- Sd/- (राजे�� / Rajendra) (अिमत शु�ल/ Amit Shukla) �याियक सद�य/Judicial Member लेखा सद�य/Accountant Member मुंबई Mumbai, �दनांक Date: 15.01.2016 व.िन.स.SSL.Sr.PS
आदेश क� �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. Assessee /अपीलाथ� 2. Respondent /��यथ� 3. The concerned CIT(A)/संब� अपीलीय आयकर आयु�, 4. The concerned CIT /संब� आयकर आयु� 5. DR “A” Bench, ITAT, Mumbai /िवभागीय �ितिनिध के खंडपीठ,आ.अ.�याया.मुंबई 6. Guard File/गाड� फाईल स�यािपत �ित //True Copy// आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.