×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
07-11-2019, Empee Holdings, Section 147, 2(22)(e), 148, Tribunal Chennai
This appeal filed by the assessee is directed against appellate order dated 07.03.2014 passed by learned Commissioner of Income Tax (Appeals)-II, Chennai (hereinafter called “the CIT(A)”), in ITA No.1419/13-14 for assessment Year(ay) 2005-06, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 16.12.2011 passed by learned Assessing Officer ( hereinafter called “ the AO”) u/s 143(3) read with Section 147 of the Income-tax Act, 1961( hereinafter called “ the Act”) for ay 2005-06.
2. The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Chennai (hereinafter called “the Tribunal”) read as under:-
“1. The order of The Commissioner of Income Tax (Appeals) II, Chennai -600 034 dated 07.03.2014 in I.T.A.No.1419/2013-14 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case.
2. The CIT (Appeals) erred in sustaining the assumption of jurisdiction u/s 147 of the Act and erred consequently in confirming the re-assessment framed u/s 143(3) r/w section 147 of the Act without assigning proper reasons and justification.
3. The CIT (Appeals) failed to appreciate that the order of re-as essment under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law.
4. The CIT (Appeals) erred in sustaining the action of the Assessing Officer in bringing to tax Rs.5,45,76,988/- as deemed dividend u/s 2(22)(e) of the Act in the computation of taxable total income without assigning proper reasons and justification.
5. The CIT (Appeals) failed to appreciate that the provisions of section 2(22)(e) of the Act had no application to the facts of the case and ought to have appreciated that transactions for business purpose based on commercial exigencies would no fall within the purview of section 2(22)(e) of the Act thus vitiating his action in relation thereto.
6. The CIT (Appeals) went wrong in recording t e findings in this regard in para 4.2.3 of the impugned order without assigning proper reasons and j stification.
7. The CIT (Appeals) failed to appre iate that there was no proper opportunity given before the passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.
8. The Appellant craves leave t file additional grounds/arguments at the time of hearing.”
3. The brief facts of the case are that the assessee filed its return of income for impugned ay: 2005-06 on 31.10.2005 returning a loss of `4,98,660/-. The assessment was framed by AO u/s.143(3) of the 1961 Act on 17.12.2007 assessing the income of the assessee at `1,73,640/-. The AO later observed that income of the assessee chargeable to tax has escaped assessment, and a notice u/s.148 was issued by the AO to the assessee on 31.03.2010. The assessee in response to aforesaid notice issued by AO u/s.148 of the 1961 Act, submitted before AO to treat return of income originally filed on 31.10.2005 as return of income filed in pursuance to notice dated 31.03.2010 issued u/s.148 of the 1961 Act. Thus, it is an admitted position between rival parties that assessment was originally framed by AO u/s.143(3) of the Act and secondly it is also an admitted position that notice u/s.148 was issued by AO to the assessee within four years from the end of the assessment year and hence proviso to Section 147 is not applicable. The main reason for re-opening of the concluded assessment was that the assessee held 29,67,606 shares in its subsidiary company M/s Empee Distilleries Ltd in which it held 41.78% shareholding of the aforesaid subsidiary company. The aforesaid subsidiary company had accumulated profits to the tune of `6,69,15,506/- and assessee company had taken a loan of `5,45,76,988/- from its aforesaid subsidiary company which in the opinion of the AO had infringed provisions of Section 2(22)(e) of the 1961 Act. The assessee was asked by AO to explain as to why provisions of Sec.2(22)(e) of the 1961 Act be not invoked and the said loan/advance of `5,45,76,988/- received by assessee from its subsidiary company namely M/s Empee Distilleries Limited be not treated as deemed dividend in the hands of the assessee and accordingly brought to income-tax. The assessee submitted before the AO as under:
"The transaction between the assessee and M/s.Empee Distilleries Ltd., is for the purpose of business and to promote mutual business interest. Such commercial transactions are outside the purview of the said deeming provisions of the Act. Even on the other facet and based on the judicial precedents, it is submitted that the commercial transaction between the group companies would be the outside scope of the deeming provisions under consideration. The various conditions envisaged for applying the deeming provisions u/s.2(22)(e) of the Act are not cumulatively satisfied and complied with on the facts of the present case and hence the assessment of deemed dividend is wrong, incorrect, unjustified, erroneous and not sustainable both on facts and in law. The loan or advance should be understood with reference to the benefit derived there from by the registered share holder and not with reference to the normal commercial transaction between two companies".
In nut shell, the assessee submitted before the AO that these are commercial transactions between assessee and M/s. Empee Distilleries Limited for the purposes of business and to promote mutual business interest and hence deeming fiction of provisions of Sec.2(22)(e) of the 1961 Act are not attracted.
3.2 The AO on the other hand referred to provisions of Section 2(22)(e) of the 1961 Act and held that provision of Section 2(22)(e) of the 1961 Act are clearly applicable and said sum is chargeable to income-tax in the hands of the assessee because the said subsidiary company of the assessee namely M/s Empee Distilleries Limited possessed accumulated profits which are utilized to release this amount to assessee as loan/advance instead of paying the same as dividend and thus not paying taxes on distribution of accumulated profits which were distributed by said M/s Empee Distilleries Limited to assessee as loan/advances , vide assessment order dated 16.12.2011 passed by the AO u/s 143(3) read with Section 147 of the 1961 Act.
4. The assessee being aggrieved by an assessment order dated 16.12.2011 passed by AO u/s 143(3) read with Section 147 of the 1961 Act filed first appeal before Ld.CIT(A) and challenged the additions made by AO both on legal grounds challenging the re-opening of the assessment u/s.147 of the Act and also challenging the additions made on merits by invoking provisions of Section 2(22)(e) of the 1961 Act by brining to tax loans/advances received by assessee from its aforesaid subsidiary