Hamilton Housewares Pvt.ltd v. Deputy Commissioner Of Income Tax-Dadra }

RNG 1/8 wp.3447.18formfin IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3447 OF 2018 Hamilton Housewares Pvt.Ltd .. Petitioner vs 1. Deputy Commissioner of Income Tax-Dadra } Nagar Haveli. 2. Principal Commissioner of Income Tax- ] Valsad.3. Union of India, New Delhi }.. Respondents Valsad.3. Union of India, New Delhi }.. Respondents -------- Mr.S.Sriram with Mr.B.V.Jhaveri, Mr.Mayank Thosarfor Petitioner Mr.Sham Walve for Respondent nos.1 and 2. CORAM : AKIL KURESHI & M.S.SANKLECHA, JJDATE : 1st MARCH, 2019 Per Akil Kureshi, J 1.Heard learned counsel for the parties for final disposal of thepetition. 2. The petitioner has challenged the petition of re-opening ofassessment dated 26.3.2018 issued by the respondent no.1-AssessingOfficer. RNG 2/8 wp.3447.18formfin Brief facts are as under: 3. The petitioner is a private limited company. The petitionerhad filed a return of income for Assessment year 2012-13 which was takenin scrutiny, by the Assessing Officer who passed an order of assessmentunder section 143 (3) of the Income Tax Act, 1961 (for short,' the Act') on27.10.2014. In order to re-open such assessment, he issued the impugnednotice which as can be seen, was done beyond the period of four yearsfrom the end of the relevant Assessment year. In order to do so, he hadrecorded the following reasons:Relevant portion of which read thus: “ Your case has been re-opened for Scrutiny 147 of the Act for A.Y.2012-13 videthis office notice u/s 148 of the Act dated 26.03.2018. The reasons on which yourcase has been re-opened for Scrutiny u/s 147 of the I.T.Act 2013 are as under : 1. Brief Details of the assessee:- The assessee Company i.e M/s Hamilton Houseware Pvt.Ltd is engaged in thebusiness of manufacturing 86 trading of steel/plastic household goods andglassware/apalware goods. The return of income for the A.Y.2012-13 was filed on28/09/2012, declaring a total income of Rs.20,50,58,020/-.The said return ofincome was processed under section 143 (1) of the Act. The case was selected forscrutiny and assessment u/s 143 (3) of the I.T.Act was completed on 27.10.2014assessing the total income at Rs.20,92,54,758/-. Thereafter, on 31/03/2017 thePr.CIT Valsad passed an order u/s 263 setting aside the Asst.Order passed on24/10/2014. Accordingly, on 28/12/2017 an order us/ 143 r.w.s.263 of theI.T.Act was passed assessing the total income of the assessee of Rs.21,67,76,922/-making a total addition of Rs.,1,62,00,438/- to assessee's total income. 2. Brief details of information collected/received by the AO:- The assessee received Rs.3,09,40,000/- as loan from Rupani SpinningMills Private Limited in which the share holder (Shri Ajay D.Vaghani) was having 16% voting rights and also was having substantial interest of more than 20% inthe share capital of assessee company (20.02%). Further, Rupani Spinning MillsPvt.Ltd was having accumulated profit of Rs.1,94,09,682/- (including profit).Hence, all the condition mentioned in section 2(22) w.e.f. current year applicablein this case and deemed dividend to the extent of accumulated loan receivedwhichever is less was required to be taxed. 3.Analysis of information collected/received: 2. Brief details of information collected/received by the AO:- The assessee received Rs.3,09,40,000/- as loan from Rupani SpinningMills Private Limited in which the share holder (Shri Ajay D.Vaghani) was having 16% voting rights and also was having substantial interest of more than 20% inthe share capital of assessee company (20.02%). Further, Rupani Spinning MillsPvt.Ltd was having accumulated profit of Rs.1,94,09,682/- (including profit).Hence, all the condition mentioned in section 2(22) w.e.f. current year applicablein this case and deemed dividend to the extent of accumulated loan receivedwhichever is less was required to be taxed. 3.Analysis of information collected/received: The perusal of the details available on records revealed that the assetreceived Rs.3,09,40,000/- as loan from Rupani Spinning Mills Ltd in which theshare holder of assess company Shri Ajay D.Vadhani having 16 % voting rights,Shri Ajay Rupani was also having substantial interest of more than 20% in theshare capital of the assessee compare (20.02%). Further, Spinning Mills Pvt.Ltdwas having accumulated (profit of Rs.1,94,09,682/ (including current year profit).However, the assessee had stated that Rupani Spinning Mills Pvt.Ltd was havinglending of money as a substantial part of business of the company. The same wasnot tenable as on verification of the Profit and loss account of Rupani SpinningMills Pvt.Ltd for the year ended on 31st March 2012 it was noticed that the mainsource of income of Rupani Spinning Mills Pvt Ltd was from Business Centre incomeof Rs.1,50,37,500/-/. As against this, interest income was of Rs.13,64,720/- only.(Interest was paid by the assessee company only, as seen from statement D of CDreport). Hence, the substantial part of business was not lending of loan but businesscentre income. Hence, assessee's case is not covered by the exception clause (ii) toSA.2 (22) of the Act. Hence, the deemed dividend of Rs.1,94,682/- was required tobe taxed. 4.Enquiries made by the AO as sequel to information-collected/received: 5.Findings of the AO:- It is seen from the above that the assessee received Rs.3,09,40,000/- as loan fromRupani Spinning Mills Prtivate limited in which the shareholder (Shri Ajay D.Vaghani) was having 16% voting rights and also was having substantial interest ofmore than 20% in the share capital of assessee company (20.02%). Further RupaniSpinning Mills Pvt.Ltd was having accumulated profit of Rs.1,94,09,682/-(including current year profit). Hence, all the condition mentioned in Section 2(22)(e) were applicable in this case and the assessee was liable to be taxed on thedeemed dividend to the extent of accumulated profits or loan received whichever isless. Also, assessee's case is not covered by the exception clause (ii) to S.2(22) of theAct, as the substantial part of the assessee's business was not lending of loans butbusiness centre income.” RNG 4/8wp.3447.18formfin 4. Upon being supplied such reasons, the petitioner raisedobjections to the notice of re-opening of assessment under acommunication dated 13.11.2018. Such objections were disposed of bythe Assessing Officer by an order dated 19.11.2018 upon which, thisPetition is filed. 5.Learned counsel for the petitioner took us through thereasons, recorded by the Assessing Officer and raised the followingobjections: (i) The impugned notice has been issued beyond the period of four yearsfrom the end of the relevant Assessment year; There was no failure on the partof the assessee, to disclose a true and fair material facts; (iii) The ground on which the Assessing Officer wishes to re-open theassessment was minutely examined by him, during original assessment and anyattempt on his part to re-open the assessment, would be based on mere changeof opinion; 6. On the other hand, learned counsel for the revenue, opposed 5.Learned counsel for the petitioner took us through thereasons, recorded by the Assessing Officer and raised the followingobjections: (i) The impugned notice has been issued beyond the period of four yearsfrom the end of the relevant Assessment year; There was no failure on the partof the assessee, to disclose a true and fair material facts; (iii) The ground on which the Assessing Officer wishes to re-open theassessment was minutely examined by him, during original assessment and anyattempt on his part to re-open the assessment, would be based on mere changeof opinion; 6. On the other hand, learned counsel for the revenue, opposed the petition contending that the Assessing Officer has recorded elaboratereasons for issuing the impugned notice. These reasons make out a prima facie case of income chargeable to tax having escaped assessment. Having thus, heard learned counsel for the parties, we find 5/8wp.3447.18formfin that the Assessing Officer's reasons for re-opening the assessment arebased entirely on one ground, namely that the assessee had received asum of Rs.3.09 crores (rounded off) of a loan from one Rupani SpinningMills Pvt.Ltd and looking to the share structure of the two companies,such transaction would fall within the fold of section 2 (22) (e) of theAct, and had to be treated as deemed dividend in hands of the assessee. 8. First and foremost, the Assessing Officer in the reasonsrecorded, has proceeded entirely on the material already brought onrecord, during original assessment. There was thus, no additional materialavailable with the Assessing Officer, on the basis of which, he could haveformed a belief that income chargeable to tax has escaped assessment. Inclear terms, there was no failure on the part of the assessee to disclosetrue and full material facts. Even the Assessing Officer in the reasonsrecorded, has not demonstrated in any manner, how this importantrequirement of section 147 of the Act, was satisfied. In the reasons, heagrees that the assessee had produced Books of Accounts, Annual Reportsand Audited Profit and Loss Accounts and Balance Sheets and otherdocuments. RNG 6/8 wp.3447.18formfin 9. One more ground on which the impugned notice cannotsustain is that, during scrutiny assessment, the Assessing Officer hadraised various queries which, were duly answered by the assessee. In acommunication dated 8.10.2014, replying to the queries of the AssessingOfficer, the petitioner besides other information, had provided share-holding pattern of the companies from and to whom, loans and advanceswere obtained or given ? The relevant observations in this behalf readsthus: “2. Shareholding pattern of the companies from/to whom Loans & Advanceshave been obtained & given. In this regard, we request your goodself to kindly refer Annexure # 1 for details ofUnsecured Loans taken during the year. Please also find enclosed, details of theShareholders of the Company form whom Unsecured Loans have been taken by theCompany enclosed and marked as Annexure # 1A. Further, with respect to the applicability of the provisions of Section 2 (22) (e) wewould like to humbly submit before your good-self a justification, enclosed andmarked as Annexure # 1B on as to why the provision of deemed dividend u/s 2(22)(e) are not applicable.” 10. Along with his communication, the petitioner had annexed Annexures, one of them contained details of secured and unsecured loans,taken from various lenders, and one of which was Rupani Spinning MillsPvt.Ltd from whom during the period, relevant to the Assessment year, in-question, a loan of Rs.3.09 crores was shown to have been received.Further, the petitioner had given detailed reasons why such loan cannot be treated as deemed dividend under section 2 (22) (e) of the Act ?. The petitioner's contentions in this respect, were as under : 10. Along with his communication, the petitioner had annexed Annexures, one of them contained details of secured and unsecured loans,taken from various lenders, and one of which was Rupani Spinning MillsPvt.Ltd from whom during the period, relevant to the Assessment year, in-question, a loan of Rs.3.09 crores was shown to have been received.Further, the petitioner had given detailed reasons why such loan cannot be treated as deemed dividend under section 2 (22) (e) of the Act ?. The petitioner's contentions in this respect, were as under : f) Justification with regards to Non-applicability of Deemed Dividend toLoans taken from Rupani Spinning Mills Private Limited (RSMPL) In respect of the loans taken from RSMPL, we would like to submit before yourgood-self that there are Common Shareholders in the two Companies and suchshareholders have substantial interest of more than 20% in the share capital of theAssessee Copmpany and also hold more than 10% of the voting power in HCPL. However, the provisions of Deemed Dividend u/s 2 (22) (e) of the Act shall not beapplicable under S. 2(22) (ii) of the Act it has been stated that “Dividend” does notincludes any advance or loan made to a shareholder (or the said concern) by acompany in the ordinary course of its business,where the lending of money is asubstantial part of the business of the company. In this context, please find attacheda copy of the Balance Sheet and Profit & Loss Account of RSMPL enclosed andmarked as Annexure # 1F, where it can be noted that the Company had investedalmost 84% of its Assets,as reflected below, into the business of lending which was asignificant part of its business.” 11. It was after such detailed scrutiny of the issues at hand, that the Assessing Officer in the order of assessment made no addition. Under the above circumstances, it was not open for the Assessing Officer to rely upon this ground to re-open assessment by issuing the impugned notice. RNG 8/8 wp.3447.18formfin 12. In the circumstances, the impugned notice is quashed and setaside. Petition is allowed and disposed of. (M.S.SANKLECHA, J) (AKIL KURESHI, J)