Deputy Commissioner Of Income Tax10(1)(1), Mumbai And Ors v. N. J. Jamadar, Jj. Dated : 11[Th] March, 2022

Digitallysigned byPURTIPURTIPRASAD IN THE HIGH COURT OF JUDICATURE AT BOMBAYPRASADPARABPARABDate:2022.03.17ORDINARY ORIGINAL CIVIL JURISDICTION16:11:51+0530 WRIT PETITION NO. 954 OF 2015 Hanwant Manbir Singh V/s. Deputy Commissioner of Income Tax10(1)(1), Mumbai and Ors. ….Petitioner …Respondents ---- Mr. V. Sridharan, Senior Advocate a/w Mr. B.V. Jhaveri, Mr. S. Sriram and Mr. Ravi Sawana for Petitioner.Mr. Arvind Pinto for Respondents-Revenue. ---- CORAM : K.R. SHRIRAM & N. J. JAMADAR, JJ. DATED : 11[th] MARCH, 2022 P.C. : 1.Though petition was admitted on 27[th] March, 2015 andrespondents had waived service, no reply has been filed opposing the petition. 2.Petitioner is an individual who had filed returns for A.Y. 2008-09 on 1[st] August, 2008 at Jaipur, Rajasthan declaring a total income ofRs.13,76,281/-. In the course of assessment proceedings petitioner hadfiled his balance sheet on 31[st] March, 2008 that reflected the investmentmade by petitioner in shares of M/s. Poona Galvanizers Pvt. Ltd., (PGPL)and shares of M/s. Karamtara Fasteners Pvt. Ltd. (KFPL). 3.Petitioner’s case was taken up for scrutiny and assessmentunder Section 143(3) of the Income Tax Act, 1961 (the Act) was completed on 27[th] October, 2010 accepting income returned by petitioner atRs.13,76,281/-. 4.In PGPL petitioner held 5000 shares and filed return of incomefor A.Y. 2008-09 by declaring total income of Rs. NIL. The return of incomewas taken up for scrutiny by the Deputy CIT-8(2), Mumbai and theassessment order under Section 143(3) of the Act came to be passed on 24[th]December, 2010. The Deputy CIT-8(2), Mumbai after raising a query on theshare holding pattern of PGPL and KFPL from whom PGPL had taken loan ofRs.1,22,80,000/-, pass the assessment order taxing from PGPL a sum ofRs.1,07,33,270/- as deemed dividend under Section 2(22)(e) of the Act.PGPL challenged this order before the Commissioner of Income Tax(Appeals) (CIT (A)). The (CIT (A)) by an order dated 13[th] September, 2011allowed the appeal of PGPL and deleted the addition of Rs.1,07,33,270/- asdeemed dividend. The (CIT (A)) opined that this amount ofRs.1,07,33,270/- should have been brought to tax as deemed dividendunder Section 2(22)(e) of the Act in the hands of petitioner who is havingsubstantial interest and not PGPL and KFPL. The (CIT (A)) directed theAssessing Officer to consider bringing to tax the deemed dividend in thehands of petitioner for A.Y. 2008-09. This order of (CIT (A)) passed on 13[th]September, 2011 was challenged before the Income Tax Appellate Tribunal(ITAT) where the stand of the Revenue was that this deemed dividend underSection 2(22)(e) of the Act should be taxed in the hands of company that received loan, i.e., PGPL and not in the hands of shareholders. This appealof Revenue came to be dismissed by the ITAT on 21[st] November, 2012 whichconfirmed the findings of the the (CIT (A)) that the amount was taxable in thehands of petitioner who had substantial interest in both PGPL and KFPL. 5.Aggrieved by the order of the ITAT, the Revenue filed appeal inthis court being Income Tax Appeal No.1399 of 2013. This appeal came tobe dismissed by a common order and judgment dated 4[th] July, 2014 passedby this court. 6. Therefore, Revenue’s stand is that finding of the (CIT (A)) wasincorrect to the extent that the amount of Rs.1,07,33,270/- being additionunder Section 2(22)(e) of the Act was to be made in the hands of petitionerwho had substantial interest in PGPL and KFPL and not in the hands ofPGPL. But when we consider the reasons for re-opening which is dated 24[th]January, 2014, the stand of the Assistant Commissioner of Income Tax whois the Jurisdictional Assessing Officer (JAO) is that the findings of (CIT (A))that the addition of Rs.1,07,33,270/- under Section 2(22)(e) of the Act forA.Y. 2008-09 should be made in the hands of petitioner who is substantialshareholder in PGPL and KFPL is correct and therefore the amount ofRs.1,07,33,270/- has escaped assessment for A.Y. 2008-09. 6. Therefore, Revenue’s stand is that finding of the (CIT (A)) wasincorrect to the extent that the amount of Rs.1,07,33,270/- being additionunder Section 2(22)(e) of the Act was to be made in the hands of petitionerwho had substantial interest in PGPL and KFPL and not in the hands ofPGPL. But when we consider the reasons for re-opening which is dated 24[th]January, 2014, the stand of the Assistant Commissioner of Income Tax whois the Jurisdictional Assessing Officer (JAO) is that the findings of (CIT (A))that the addition of Rs.1,07,33,270/- under Section 2(22)(e) of the Act forA.Y. 2008-09 should be made in the hands of petitioner who is substantialshareholder in PGPL and KFPL is correct and therefore the amount ofRs.1,07,33,270/- has escaped assessment for A.Y. 2008-09. 7.What is strange is that even before the reasons for re-openingwere recorded and even after the reasons was recorded and notice was issued to petitioner on 24[th] January, 2015, Revenue has argued in this court on 4[th]July, 2014 that the conclusion of (CIT (A)) was erroneous and addition shouldhave been actually in the hands of PGPL. One of the substantial question oflaw proposed in the appeal filed in this court by Revenue was “Whether onthe facts and in the circumstances of the case and in law, the Hon’bleTribunal was justified in holding that deemed dividend is taxable only in thehands of a shareholder and not in the hands of a non-shareholder, byrelying on the decisions of the ……. without appreciating that the ratio ofthe decisions in the above cited case has not been accepted by the Revenue”. 8.Therefore, the reason to believe that income has escapedassessment is not sustainable. Moreover, since the proposed re-opening hasbeen issued after expiry of four years of the end of the relevant assessmentyear, proviso to Section 147 of the Act would apply in as much as theRevenue has to show that there has been fault on the part of petitioner totruly and fully disclose material facts required for assessment. Not only asRevenue not made any such allegations in the reasons for re-opening, wecannot even cull out from the reasons recorded that Revenue has evensuggested that there has been failure on the part of petitioner to disclose trulyand fully material facts. 9.In the circumstances, we find merit in petitioner’s case andallow the petition in terms of prayer clause – (a) which reads as under : (a) that this Hon’ble Court may be pleased to issue a writ ofcertiorari or a writ in the nature of certiorari or any otherappropriate writ, order or direction under Article 226 of theConstitution of India calling for the records of the caseleading to the issue of the notice under section 148 of the Actdated 25[th] January, 2014 (Exh. ‘C’) and the order dated 16[th]March, 2015 rejecting the objections of the Petitioner beingEx. ‘F’ hereto and after going through the same andexamining the question of legality thereof to quash, canceland set aside the impugned notice u/s. 148 of the Act dated25[th] January, 2014 (Ex. ‘C’) and the order dated 16[th] March,2015 rejecting the objections of the Petitioner (Exh. ‘F’). 10.Petition disposed. (N. J. JAMADAR, J.) (K.R. SHRIRAM, J.)